ML20216E368
| ML20216E368 | |
| Person / Time | |
|---|---|
| Site: | Seabrook  |
| Issue date: | 12/31/1986 |
| From: | Ellis W NORTHEAST UTILITIES |
| To: | |
| Shared Package | |
| ML20216D932 | List: |
| References | |
| NUDOCS 8706300686 | |
| Download: ML20216E368 (56) | |
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THE ANNUAL REPORT THE COMPANY-
. On the threshold of a new era, Northeast Utilities (NU)is the :
Northeast Utilities (NU)is firmly parent company of the NU system, focused on managing its more than (collectively referred to as NU) one
$6 billion in assets for outstanding of the largest utilities in the i performance, following the country and the largest in New completion of the Millstone 3 England, with over 9,200 nuclear unit in 1986. In the employees serving more than 1.3 future-as NU strengthens million customers in Connecticut programs to upgrade reliability, and western Massachusetts.
. add capacity in smaller increments, . The NU system includes three .
and further develop demand- electric companies-The limiting initiatives-effective Connecticut Light and Power alliances with customers, Company (CL&P), Western communities, cogenerators, small . Massachusetts Electric Company ..
power producers and other (WMECO) and llolyoke Water utilities, as well as regulators and Power Company (HWP). CL&P elected officials, will be even more also supplies gas in portions of critical than they have been in the Connecticut. Other major .
. past. The period will be marked by ' subsidiary companies are L the need forjointly developed and Northeast Nuclear Energy .
Implemented solutions to the - Company (NNECO), which .
energy challenges ahead. operates the Millstone Nuclear -
The photographs throughout Power Station, and Northeast this annual report illustrate some Utilities Service Company of NU's important alliances. . (NUSCO), which provides centralized support services to the ON THE COVER: Simulator operating companies.
Instructor, Larry Allen, puts With a service area that .
operators-in training through stretches from the Connecticut their paces at the Millstone 3 shore to the Berkshires, from .
control room simulator, which small rural communities to replicates-down to the smallest - bustling cities, NU serves colleges detail-the control room of the and major office complexes, dairy i nuclear unit. Developed in farms and computer equipraent -
accordance with industrywide makers, and museums and airports standards and guidelines, many of in two of the most prosperous, NU's operator training programs changing states in the nation. To have been accredited by the meet the region's energy needs Institute of Nuclear Power . Into the next decade, NU has'
. m pmyggt "
Operations (INPO), following developed, on the supply side,' a extensive analysis and evaluation mix of generating capacity that
, - : J.CTSCM N . 7, . by a ten-person accreditation team. includes coal, oil, natural gas, g;*, %** ,._
~
INPO was organized by the hydropower, nuclear energy, an d 'and, c
increasingly, coger2eration nuclear industry in 1979 to set and small powet pw6Wlon; and, on
~ ~
- enforce standards of excellence for the demand side, customer -
I' I the operation of nuclear power plants, conservation programs and a a
community service that have
' ; ON THE LEFT:Inside the brought the company national ,
1 T Mill: tone 3 simulator, operators recognition for its leadership.
Bruce B. Parrish (foreground) and ,
- c #
- i ::: William Small (rear) run through a ;
series of exercises designed to CONTENTS
=^ teach them to handle normal and Highlights
. L ' +[' :r - emergency operations. Letter to Shareholders I
2
~
- bN 3 : ON THE LEFT: William J.
The Year in Review Financial and Statistical 7
1 Landon, senior simulator Section 21 instructor, conducts a class as part Management's Discussion of NU's operator training program and Analysis of Financial-in which simulator and on-the-Job Condition and Results of training also play important parts. Operations 22 Officers and Trustees 52 Shareholder Information IBC - ;
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NORTHEAST UTILITIES 1986 Annurl Raport l
HIGHLIGHTS 1986 1983 i-m.. m <om - !
- l Operating Revenues $2,032,117,000 $2,081,021,000 (2.4) l Net income $300,894,000 $288,541,000 4.3 Earnings Per Common Share $2.78 $2.72 2.2 Common Shares Outstanding,(Average) 108,352,517 106,221,131 2.0 Dividends Paid Per Share - $1.68 $1.58 6.3 Sales of Electricity (kWh-Thousands) 22,482,000 21,619,000 4.0 Sales of Gas (Mcf) 28,249,000 27,915,000 1.2 j Electric Customers (Year-end) 1,177,510 1,149,257 2.5 Gas Customers (Year-end) 165,443 161,642 2.4 I Construction Expenditures * $413,354,000 $672,356,000 (38.5)
- Exdudes nudear fuel ]
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2 TO OUR Bond and preferred stock ratings for our major SHAREHOLDERS subsidianes were also upgraded.
In April 1986, the Millstone 3 Dividends totaled $1.68 per nuclear unit-the largest single share, up from $1.58 in 1985, construction program in our and, lut month, were increased history-was com by 4.8 > ercent, to a new
' i,beb>an service ahr.pleted m t ( ochedule.
w weeks Oreaf ter, indicateand I annual : ate of $1.76.
Exten al financing during -
lanclinarx settlement 1986 tot ded $488.8 million. At agreements reached with th .ane time, $139 million of principal participants in our referred
'.iigh-coupon stock was retired, debt andand p$260 Connecticut rate case were approved by regulators, million of floating-rate debt was confirming a plan to place about eliminated.
Underpinning our finencial 90 percent of our Connecticut subsidiary's share of the cost of performance is a strong, wes this unit into rate base over five diversified regional economy.
and one-half years and holding We expect that during 1987 the promise of greater stability New England will continue to in the ratemaking process in the outperform the nation as a years ahead. whole in terms of employment With such major and other key indices of accomplishments and trials business and industrial activity.
behind us in 1986, and with financial results and outlook The Millstone Achievement good, we are now focuring on After 12 years of Northeast Utilities'(NU) c nstruction-and ahead of the energy-service capability and definitive schedule set eight thoroughly, but cautiously, years ago-the 1150-megawatt exploring additional means of ensuring future rofitability. As (MW) Millstone 3 nuclear unit began fuH commercial operat,on i i ex lain below, oth operating at 12:01 a.m. on April 23,1986.
per ormance and financial It will offset the burm,ng of 12 strength will benefit from nulli n barrels of oil annually m improvements in customer New England-a statistic that service programs and flexible w 11 increase in significance long-term energy planning. And along with the price of oil.
everyone will benefit from the Through December 1986, the emerging stronger alliances ,
unit operated with a capacity among parties involved in factor of 84.2 percent, well energy supply and consumption bove average for comparable in New England.
new facilities. We are enormously proud of the NU A Solid Financial Performance employees who worked Operating revenues and earnings were relatively William B. Ellis, NU chairman, unchanged in 1986, with earnings per share of $2.78, up pre,sident, and chief executive fficer (right), led the NU team from $2.72 per share in 1985. that addressed the New York Important factors . impacting Society of Security Analysts earnings included higher energy (NYSSA)in October. Ellis told the sales, the disallowance of certain NYSSA group:"NU is emerging fossil-fuel costs, higher from a difficult period with some operating expenses, and the bruises, but no maior wounds. In diversion of a portion of The fact, the outlook for the company Connecticut Light and Power is very good, so long as we Company's (CL&P) revenues concentrate on what we believe, are key f actors for our success.
into a new Rate Moderation Ellis described those factors as Fund established in the extremely good management of settlement agreements. NU's core utility business in order in 1986, NU common stock to earn a fair return, mu ting new saw a significant improvement capacity needs responsibly, and in its market-to-book ratio-a grasping opportunities to enhance high-priority corporate goal. long-term financial results.
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4 tirelessly over so many years to time on specific issues, we make Millstone 3 a reality. recognize they are fully NU remains a recognized committed-as are we-to leader in nuclear power. The ensuring a reliable supply of three-year average capacity fairly priced energy for our factor of the nuclear units we region. Continued adherence, by operate, excluding Millstone 3, all concerned, to the important is 72.7 percent-more than 10 decisions and agreements percentage points above the reached in 1986 is essentialin industry average. About two- achieving this goal. thirds of NU customer electric- Focusing On Our energy requirements are now Core Business being met with nuclear power. The telecommunications Regulatory Issues-An industry and the gas , important Compromise transmission pipeline industries both have seen significant Regulatory matters during , deregulation and competit,on i in 1986 made heavy demands on recent years, and the prospects our time and resources. We were involved in a total of seven f r sim lar regulatory relaxation in the electnc utility mdustr retail and wholesale rate-related have been much discussed. y proceedings in three different jurisdictions. Pursuant to the Dyregulation is said to bring w th it new and allunng settlement agreements, the Pportun,i ties for diversificat,on i Connecticut Department of , and expansion, but we at NU Public Utility Control allowed are approach,ing such CL&P to phase in most of the pp rtunities cautiously and ; costs of Millstone 3 over five and one-half years, while with a strong respec,t for our l current energy-service roles, as freezing rates until the well s f r the intnnsic beginning of 1988. As part of difficulties of managing the settlement agreements, we ' unf mili r large businesses. agreed to set aside,in a Rate Moderation Fund, revenues in NU's assets are currently in excess of those producing a 16 m ess f $6 billion and almost exclusively utility-related. As we percent return on the common reported to the New York rate base, 6 C *tY f SCC""tY A"^I YSIS '" e$uity T is fund component is available of to offset October 1986, we feel an future CL&P retail rate verriding responsibility to increases. The agreements also manage those assets settled all issues with respect to. exceptionally well to meet the the amount of CL&P's " excess energy-service requirements of generating capacity until its next cust mers. Further, emerging general rate case, and they c mpetiti n requires great established criteria for the man gement emphasis on cost determination of excess capacity c nt inment. Thus, while in the future and the treatment of that capacity. PPortunities to expand and , , diversify are receiving attention j On the negative side, the t NU, we believe potential new agreements called for the rate- ventures should contribute to a base disallowance of m r effective energy supply, a proximately 10 percent of reduce c sts, or add to the range L&P's investment in r quaht/ f energy services Millstone 3 and the disallowance ffered to our customers. We of certain fossil-fuel costs. beheve that concentrating on In Massachusetts, the such new ventures can improve decisions of the Department of ur bility to satisfy customers, Public Utilities on Western strengthen our market position, j Massachusetts Electric nd, thereby, lead to improved < Com specibany's e content,rates differed in r but were turns. l similar to the Connecticut Improving Customer Service i settlements in their economic And Reliability effect. Throughout 1986, our electric l While we may differ with system operated at an overall ; utility regulators from time to service-reliability level of 99.959 l 1 i
5 percent. As impressive as that hundreds of NU employees in a may sound,it is of little comfort broad spectrum of community to those customers who may programs deserves special suffer inconvenience, or even recognition. A total of 13 hardship, resulting from the Community Service Awards 0.041 percent level of was presented in 1986 to NU unreliabiiity the statistic implies. employees and retirees for their l When an excessive number of exemplary contributions of their failures occurs, the resulting time and effort in public service, criticism demonstrates, albeit in and 635 grants were made for a negative way, the importance community service projects in of electric service in our lives which employees or retirees and the degree to which were personally involved. customers are coming to expect nearly flawless performance in Moving Toward A Secure its delivery. Energy Future Consequently, one of our NU's Integrated Demand and most important corporate goals Supply Planning process is to upgrade, expand, or replace (IDSP)-described for you in those elements of our our last Annual Report-has transmission and distribution been a powerful tool for j system needing improvement in assessing alternate plans and order to meet the greater need programs for meeting the for reliable service. We have future energy needs of our expanded NU's tree trimming customers. program as an additional The process allows NU to contribution to system respond to changing external reliability. circumstances as the deadline The lessons taught us by for a decision nears and to make l Hurricane Gloria in 1985 were midcourse corrections, if applied and rigorously tested in necessary. An attractive Storm Carlin November 1986. outcome of our IDSP Carl was one of the worst evaluations to date is that winter storms on record and conservation, load management, interrupted service to cogeneration, repowering, and approximately 210,000 NU life-extension options seem customers in dealing with this sufficient to satisfy NU's electric emergency, we found that steps energy resource needs for the taken to improve next 20 years. In addition, , communications between NU, because of the IDSP process, we l customers, and local have been able to enhance government officials were considerably our customer indeed effective. conservation assistance effort, Despite isolated problems, the which we now call" Energy overall volume of customer Alliance." complaints declined by 18 A new natural gas pipeline percent in 1986-suggesting project of the Iroquois Gas that our customer service and Transmission System has been communications efforts have proposed to serve existing and been successful, new gas markets in In other areas of customer Connecticut, New York, and service, we expanded our New Jersey. NU, as one of seven community outreach efforts in sponsors of this pro ect, intends 1986. In particular, we to contract for gas t Tat would continued to identify hardship be supplied by the project and customers and help forestall the supports its development. termination of service. We also Existing supplies of natural gas augmented our conservation to Connecticut are greatly services by instituting a special restricted, and most house revolving loan fund to help heating and industrial boiler lower income customers in energy is provided by fuel oil, urban areas cut their energy much of which is imported from costs with weatherstripping, politically unstable parts of the caulking, and other basic world. The Iroquois project is conservation measures, the only meaningful potential The personalinvolvement of new source of gas available to
6 the state. The project has met to our customers. NU is heated environmental committed to reinforcing those opposition from Connecticut alliances-with customers, residents living in the areas investors, cogenerators, through which the pipeline regulators, elected officials, and would be constructed. However, many others. We all have a like existing natural gas stake in the future of our pipelines that have served the region. We all recof;nize that an state for more than 30 years, adequate, dependable, and the pipeline itself will have equitably priced energy supply is minimalimpact on the essential to that future. We all environment. have a role and responsibility in makingit happen. Seabrook Nuclear Unit NU has a 4.06 percent , ownership interest in the 1150- - 6o MW Seabrook nuclear unit in . New Ham shire. Although the William B. Ellis Chairman, President, and j unit is fue ed and ready to go through its final testing phase, Chief Executive Officer ! actual commercial operation February 27,1987 depends upon the Nuclear Regulatory Commission's final approval of evacuation plans in
, , PS: A Personal Note the proximity of the plant and its subsequent issuance of On February 25,1986, NU operating permits. Trustees accepted the There is no doubt that New resignation of President and England overall badly needs the Chief Operating Officer capacity of the Seabrook unit, E. James Ferland. He especially since demand in the relinquished his NU region has been growing so responsibilities effective June 1, rapidly. NU, although a and became Chairman of the minority owner, strongly Board, President, and Chief supports the efforts to start the Executive Officer of Public unit as soon as possible and Service Electric and Gas hopes the obstacles placed in the Company in Newark, New way, primarily by Jersey. Jim's NU career began in Massachusetts public officials, 1964, and I want to can be dealt with satisfactorily acknowledge his many and promptly. accomplishments and contributions to the company Forging New Alliances over those 22 years. I am in December, the New saddened that his NU career has England Governors' ended, but pleased that the Conference, Inc., published a utility industry will continue to special report: A Plan for Meeting benefit from his good counsel New England's Electricity Needs. The and fine management capability. j report was prepared by New England public officials, in cooperation with representatives of the New England Power Pool, an W.B.E.
association of utilities serving the region. The plan was a significant product. Not only did it produce an important first step toward a consensus among public officials and utilities on what needs to be done, but it also recognized more clearly than ever before the need for effective alliances with all concerned parties if we are to fulfill our respective responsibilities to the public and
7- THE YEAR IN REVIEW FINANCIAL of Millstone 3. While we shall PERFORMANCE continue to invest in During 1986, NU achieved a upgrading our systems, capital modest improvement in earnings. expenditures are expected to Realistic results were attained in be far lower in the coming regulatory proceedings necessitated by years than they have been in the completion of Millstone 3. We the recent past. made good progress in refinancing
- Financing-NU and its high-cost and variable-rate debt, and subsidiaries raised $488.8 our common share dividend was million through external increased again. The financial financing in 1986. Much of the markets rewarded our performance by external financing was devoted lifting the price of NU shares to its to refinancing outstanding highest level since the system was securities on more favorable created in 1966, terms; $139 million of high-
- Earnings-Higher kilowatt- coupon debt and preferred hour sales offset increased stock was retired, and $260 operating expenses (primarily million of floating-rate debt associated with the commercial was ehmmated.
operation of Millstone 3) to Approximately $28 million produce slightly higher of equity capita! was generated earnings compared to last through the issuance of year 1,388,268 common shares Earnings were $300.9 under the Dividend i million or $2.78 per share, Reinvestment and Common compared with $288.5 million Share Purchase Plan. or $2.72 per share a year ago. Begmnmg with the September 30 dividend, the program was
- Dividends and converted, as planned, to an Shareholders' Equity open-market purchase Dividends in 1986 were $1.68 program, so it no longer per common share, up from provides a source of additional ECrnings/ Dividends
$ .58 in 1985. The dividend equity capital.
1 rate was increased on Because of reduced external
"$$ne 8 Tn'sys E January 27,1987, to an mdicated annual dividend of f nancing requirements, the system companies continue Douars $1.76, the ninth consecutive their program to reduce credit 3.00, year of increased dividends
- commitments. The Millstone 3 Total shareholders' equity construction trust was was $1.88 billion at year-end, terminated in June. In up from $1.74 billion a year December, The Connecticut 2.501 il" . ago. The average number of Light and Power Company common shares outstanding (CL&P) terminated the during 1986 was 108,352,517, Euronote issuance facility that compared with 106,221,131 in had been created in 1985.
5. 2'00
- Ratings-in 1986, Moody's
- Stock Price-NU common upgraded both CL&P's and shares have never sold higher Western Massachusetts
. than in 1986 and traded Electric Company's (WMECO)
Ra, ; between $17% and $28%, first-mortgage bond and 1.50[ g 3l '! reaching well above the preferred stock ratings from December 31 book value of Baa2 to Baal, and baa2 to 3 / $17.34 per share. The closin8 baal, respectively. This 3 price on that date was $24%- upgrading was the result of
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- Capital Expenditures- the completion and operation p Construction expenditures in of Millstone 3, the resolution p 1986 were $413.4 million, of many regulatory issues down sh.arply from $672.4 concerning the unit, and g
2 -
'4 - million in 1985 as a projected lower financing 1982 1983 1984 1985 1986 consequence of the completion requirements.
l 8 SYSTEM PERFORMANCE- by November 1987. Millstone SUPPLY units I and 2 and Connecticut i I
? At year-end, NU's capacity totaled . Yankee are qualified as 5973 rnegawatts (MWlof which branches of the National Y 2681 MW cr 45 percent was Academy for Nuclear -
\ ntalear. Peak winter demand, Training. !
occurring on January 14,1986, was
- Fossil Fuels-Our five oil-
; 4?,42 MW. Peak surntner dernand, fired central generating i ' occurring on July 7,1986, was stations provided 24 percent of 4229 MW Although energy total energy requirements for
, , consurnplion grew by about 4.5 1986. Although oil prices i percent during 1986, both the winter remained relatively low \
and surnmer peaks were belowW throughout the year, they l levels experienced previously baanse have increased recentiy. We j 8 of the relatively rnild weather in New continue to be conscious of the i England during the past year. volatility of oil supplies and j
- Nuclear-On April 23,1986, Prices and continue to seek j Millstone 3 began commercial . ways to reduce our ,
dependency on oil. We plan to operation. For the remainder of 1986, it operated at an 84.2 ryduce NU's exposure to the risk of oil supply and price percent capacity factor-well disruptions by adding gas-above the 60 percent figure - firing cap bility at generating anticipated for that period. The seven nuclear units st ti ns when that can be aupplying electricit toNU justified techm,cally and customers operate [at an economigaHy. Coal-fired generation overall capacity factor of 75.7 SUPP li ed 4 percent of our total percent, which was well above the national average of energy requirements for 1986 and natural gas, I percent.
)
- approximately 59 percent. In Despite the age of some of fact,67 percent of our total i electrical energy requirements ur fossil-fuel plants, their came froin nuclear generation. vail bility remains well above the New England average for i Since beginning operations in 1968, Connecticut Yankee has c mparable umts, and they uce a Nuclear Capacity Factors era d mor than 76.8 Qnj , g g EEIE NORTHEAST rdu u.S
- electricity-more than has
- Hydropower-In 1986, M ES been produced by any other hydropower contributed 4 nuclear generating unit in the percent of our total energy
*"' requirements. On October 1, d United States.
f , / ' 80 NU's success in developing 1986, Canadian hydroelectric [e and implementing Power began flowing into New I comprehensive training ! Canadian h droelectric energy f ,,T Programs for operators at its has be un ffowing into New l g>
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s nuclear plants was recognized in 1986 by the National Engla. d from northern Quebec through a new 107-mile line. On
@70'I"?. 'i(
9 y Nuclear Accrediting Board of the Institute of Nuclear Power Operations, which awarded accreditation to the Millstone 0:tober 10, regulatory, gaernment, and utility officials joined from throughout New England and Quebec for the line n . I dedication ceremony at the f Station for its unit I and
$ Comerford Station Converter 1 m 3 ..
unit 2 Opcrator Traimng 3 Terminal in Monroe, New ; 50 [q . > P Programs. The Connecticut Hampshire. NU's 23.6 ercent ! k
- Yankee Operator Training interest in Phase I of tkis two-E.. ,
- - # Program ahh received phase project is expected to save
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accreditation in 1986. The NU customers at least $30 million
$. " over the next 11 years, as it f : I' ' programs for Millstone 3-on d'8
- b P $ f 1982 1983 1Ap4 1985 1986 ) a different schedule than those e ng an Pow Po >l Ith Basedon oesign EiectricaiRating of aliu[ . of the other plants because of approximately three billion nuciear piants in cornmerciai operation i the plant s recent start-up- kilowatt-hours of power annually Source: Nuclear Regulatory Commission i Will be ready for accreditation between 1986 and 1997.
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L10 England from northern Connecticut Department of Quebec via Phase I of the New Public Utility Control has j approved contracts totaling - England / Hydro-Quebec interconnection. The Phase I about 351 MW and is expected interconnection will bring to approve contracts for an approximately three billion additional 193 MW of 1 kilowatt-hours (kWh) of cogenerated capacity. Between power annually from Quebec these projects and an to New Er. gland between 1986 estimated 42 MW in and 1997, meeting about 4 Massachusetts, the anticipated percent of New England's level of cogeneration by 1992 projected electrical needs over is about 586 MW. In j the next decade. NU's system Massachusetts, the companies have a composite Department of Public Utilities 23.6 percent interest in the (DPU) has established a Phase I project. competitive bidding process to l Phase II of the New select private power projects,- 1 England / Hydro-Quebec and WMECO expects to solicit l interconnection, scheduled to its first bids during 1987, 1 be ready for operation in 1990, The small power production will expand the capacity of the project at the Goodwin Dam in interconnection and extend Hartland, Connecticut, gives the transmission line 133 miles evidence of the new era in from northern New Hampshire which we may expect to see into Massachusetts, more such projects developed. NU welcomes this important
- Regional Supply Issues-new source of supply for our Eleven of our steam and Entrgy Contribution By Source region, but it should not be internal-combustion units ss d that em greater (totaling 444.2 MW) were MIB oll BRIEHYDRo imports from Hydro-Quebec scheduled for retirement at cr4 NUCLEAR / GAS are an easy solution to future the beginning of 1987. The needs. There are critical capacity needs of the New EEECoAL techmcal, economic, and England region, however, reliability issues that must be suggested that these units, 1973 e resolved before the although not needed to serve p Northeastern region can NU customers, should be g] commit to additional p,urchases retained to respond to regional from Hydro-Quebec. needs. Negotiations on a hf@(p Furthermore, such imports compensation mechanism for
<o , would require very substantial possible continued use of most
$g$yggs investments in transmission or all of this capacity are under facilities both m Canada and in way.
this country. We will proceed to add three new generating units to our Cogeneration and/or small power hydroelectric facilities at Falls Production is a welcome new Village, Bulls Bridge, energy source. It helps NU Postpone the need for new (Connecticut) and Cabot generating facilities, and, because (Massachusetts) Stat. ions, if we the energy is " homegrown," it 1986 receive the licenses we have g%P requested from the Federal Energy Regulatory reduces the region's reliance on imported oil. The customer producing power benefits by J- % Commission (FERC) and if selling excess energy to NU. ("9 q%i .4 g,1 W" economic evaluations continue to be favorable. Brian E. Curry, NU director, Cogeneration Development (lef t), eam and Miles Messenger,
- Cogeneration and Small Metropolitan District
$WA@y rf,C s
"id Power Production-By year- Commission (MDC) assistant
/ 4M8 hy~d
- end 1986, some 63 superintendent of supply (right),
are shown mside the new
-4:,ygg;ju s cogeneration and small power Egg nu m ower plant at i 3 L pq g" m g 3 Sy/ Production projects were 3. megawatt MDC's Char fes A. Goodwin Dam contributing about 92 MW to hiQWl Mu&p <
'f y/ the NU system. As of hydroelectric project on the Farmington River in Hartland, M February 1987, the Connecticut.
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e la New England as a whole trimming program. As a !- may lack sufficient electric ' common cause of power ! generating capacity, especially interruptions and outages 1 over the next few years. (responsible for approximately l Seabrook 1, if it were to be 4,700 outages in 1986-not
- available, would eliminate . including Storm Carl), trees much of the potential capacity close to power lines pose a deficiency. Although the particular challenge to NU.
construction of Seabrook 1 is To clear the lines, we work , complete, opposition by the with private contractors, j Commonwealth of communities, and property 4 Massachusetts is holding up owners to protect the trees { the licensing process. We while reducing outages. j continue to believe that Through a specially developed j Seabrook 1 is essential to the communication program, we ' adequacy of our regional advise communities and energy supply, but we cannot homeowners of upcoming - accurately predict when ' tree-trimming efforts and seek commercial operation will permission to trim from all occur, affected property owners.
- Emergency Planning and SYSTEM PERFORMANCE- Response-Responding quickly RELIABILITY and efficiently to emergency NU delivers electricity through situations is one of our key 2,132 circuit miles of transmission goals, and we continually lines ranging from 69 kV to 345 strive to improve our kV, more than 21,000 pole miles of performance. We have been distribution lines,409 transmission using a unsque weather and distribution substations, and ; forecasting system to help us'.
more than 253,000 distribution pinpoint areas where we can transformers. The average reliability expect very heavy of NU's service to its customers is thunderstorms. above 99.9 percent. Our Emergency Restoration Plan-tested by a November
- Upgrading Reliability-NU st rm with unusually heavy continues its intensive efforts sn w which interrupted to assure reliable service service t 210,000 customers-through programs designed to received c nsiderable reduce interruptions. c mmendation. We have also Comprehensive construction putint effect an improved and reconstruction projects to c mmunications program to upgrade distribution facilities keep communities affected by are under way, including storm outages better and more expansion and improvement of protection against lightning, fyequently updated on the 8 ' t ""'I "'
installation of devices to reduce animal-caused outages SYSTEM PERFORMANCE-and sectionalizing devices to DEMAND reduce the number of NU's " Energy Alliance" program customers affected by a fault, is the latest extension of a nationally and replacement of overhead and buried cable that has Trees aboend in New England and proved to be unreliable. Provide the region with some of Projects to increase the the most ectacular scenery in America. s beautiful as th are, reliability and capacity of NU's though, trees touchin or fa ing transmission system, onto power lines are t e largest particularly to meet predicted single cause of power failures in future growth in the Fairfield NU's service area. NU's 21,000 County area, are also under miles of distribution lines are way, exposed to 3,630,000 trees. NU is workin with communities and t.
- Tree Trimming-A crucial individ als to expand its tree- l element in our campaign to trimming program to link scenery improve reliability is our tree- and line safety harmoniously.
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acclaimed conservation and load began in 1982 (1,914 during [14/ 1986). Wrap-Up/ Seal-Up . management effort launched in . 1980. More than 450,000 NU continues as CL&P's most customers in all categories have taken popular conservation program, advantage of these programs to reduce having been put to use by
- ' their use of energy. The combined more than 173,000 impact of the new and existing Connecticut residential programs is expected to save NU customers in the past six consumers more than $475 million - years. Our Conservan mobile over the lifetime of the measures taken conservation office allowed and, by 1996, will reduce NU's over 20,000 students to anticipated increase in winter and receive hands-on summer peak demand by 360 MW. demonstrations of Specific financial incentives and conservation techniques rewards, including new innovative during 1986, and ENERGY rate designs, are expected to be critical CARE, NU's award-winning to the success of the new programs for outreach program for low- and commercial, industrial, and fixed-income consumers, .
'insfilutional users. provided help in various ways.
- New Initiatives-Of five INTEGRATED DEMAND AND
"*w dem nd management SUPPLY PLANNING (IDSP) mitiatives implemented m This sophisticated planning 1986, four received energy methodology will help us meet awards from the United States growing customer needs into the next Department of Energy (DOE).
antury without the need for major As the only organization new baseload capacity. Millstone 3, nationally to win so many Hydro-Quebec Phase 11, and ' awards, NU is justifiably proud cogeneration are principal new supply of its creative conservation resources which, along with demand efforts. In every year since the management programs and life DOE award program began in 1984, we have received at least 'II'".swn and/or repowering of
'*I'ng generating untis, will play a one award. significant role in deferring the need The initiatives recognized for major new generating units.
this year were:" Shared Energy Savings," which helps
- Growth in Demand-Our commercial customers make IDSP process is proving conservation improvements to invaluable :n helping NU plan their buildings;" School for future capacity needs.
Assistance," which has helped Based on a 1.8 percent more than 900 schools identify predicted average annual the best opportunities for growth rate of customer conservation improvements; demand between 1986 and
" Energy-Conscious Construction," which provides Available and reliable supplies of an energy-efficiency analysis natural gas are a stimulant to of new or extensively. commercial and industrial development in Connecticut.
renovated commercial IBM s new million-square-foot buildings exceeding 10,000 campus-style office complex, now square feet; and the WMECO under construction in Southbury, pilot program called Connecticut, will include a 2000-
" Performance Contracting." ton, gas-fired, air-conditionin h
- Ongoing Conservation 'd,'y*n~gfan"d I Ife'se Qs kingi Initiatives-Through the NU-professionals are paving the way supported energy audit to accommodate IBM's gas and programs of CONN SAVE and electric needs. Left to right:
Mass-Save, more than 176,000 Kenneth R. Berglund, senior energy consultant, Energy NU customers have received Management Services (EMS); low-cost energy audits. Energ~u- '"*"""*M*I"' CHECK has Provided 8,900 superintendent-Gas Operations; commercial and industrial and, John J. Walsh, manager, audits since the program E M S. l j
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7 [ 16 2006, we foresee the need for - term program to improve gas 2860 MW of new capacity by distribution facilities. In 1986, i 2006. approximately 62,000 linear Demand-side management is feet of gas mains were expected to reduce this need replaced in various locations in by about 430 MW. Connecticut as part of this g Cogeneration is expected to extensive distribution 1 contribute at least an rehabilitation program. additional ~586 MW of new . Marketing and i capacity, and extending the Competition-Low oil prices i lives of existing fossil-fuel have resulted in severe generatmg um,ts w,ll i competition between gas and 'I contribute still another 1390 oil for both firm and I MW. We plan to meet the interruptible customers. We i additional need of 456 MW by continue to work with our 1 repowering NU's older fossil customers to meet their units and with the further energy needs in the most
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effect of conservation, load effic ent and cost-effective - I management, and ways possible. For instance, as cogeneration. a result of NU's marketing
]
a GAS BUSINESS efforts, the new IBM facility j NU is the largest supplier of gas "E I" " Y' l Connecticut, will .mclude a ; in Connecticut and the fourth largest c000^ "'. 8 system-the in New England. In 1986, we nditionmg delivered more than 28 billion cubic , largest such m, stallation m feet of gas to more than 165,000 residential, commercial, and New England. 1 industrial customers. While
- Iroquois Pipeline Project- 1 In May 1986, NU entered into k operating in an increasingly competitive environment, our gas agreements to participate (as a operations continued to make a 17 percent partner)in the helpful contribution to earnings and Iroquois Gas Transmission l NU Load And Resource Plans cash flow. System-a plan to construct m DEMAND EEm COGENERATION
- Gas Sup ly-New nd operate a major new [
incrementa gas supply pipeline from Iroquois, ! Ontario, to Long Island, sus REPOWEmNG M HYDR 0-0UEBEC projects brought on line in the past two years have enabled us passing through upper New ausun sum EXISTWG AND to reduce our use of some of York and western i EXTENSION CONTRACTED the more expensive Connecticut. NU has reserved Megawatts supplemental gas. A contract 14 percent of the pipeline's 353 9000 for synthesized natural gas Mcf (million cubic foot) per
""***"' 1 was terminated, and we have day capacity.
taken actions under FERC The project could be c mpleted by November 1988, 8000-U- r--* Order 380 to reduce our use of liquefied natural gas. Despite if c nstruction begm, s by the ! last qu rter of 1987. However,
- E 7 the new projects, the limited Canadian and United States
}
pipeline capacity serving New l 7ggg NE Q ' England is filled during the g vernment approvals are not i heating season, and it is only expected until early 1988. We in the off-peak seasons that are hopeful that state and local 6000 :
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we are able to take advantage concerns can be resolved at an !
. of the existing natural gas e rly date so that the !
surplus by purchasing on the construction may beg,m. , spot market. In 1986, almost Additional gas supphes will be 0 - 20 percent of our supply came badly needed by 1988, and a from spot market sources, new competitive source will be , Both actions-reduction of of great advantage. J 4000 -
- : higher cost supplemental gas
- Reorganization Study-NU
( and spot market purchases- has undertaken a have substantially reduced our reorganization of CL&P's gas gas costs. business with the objective of g o 1996 2006 NU is continuing a long- placing the business on a more j 4
K 17. " stand alone" basis. The well result in a one-time write-objective of this change is to off by 1988, as more fully
- respond to increased ' discussed in Note 6 of Notes to competitive pressures, to. Consolidated Financial Statements.)
consolidate the functions Also, current electric rates will necessary to the satisfactory remain in effect until at least performance of the business, January 1,1988, and a " Rate and to provide clearer lines of Moderation Fund"(described responsibility and' . in Note 4 of Notes to Consolidated accountability. This effort will Financial Statements) was created continue throughout 1987. to help offset future rate Also under study is the increases. In addition, the possible divestiture of CL&P's Millstone prudence hearings - gas business, reflecting the . were terminated without any unresolved questions from the determination of imprudence.
. approval in 1966 by the The issue of excess capacity Securities and Exchange was deemed resolved until the Commission (SEC) of the next general rate proceeding, formation of NU. At that time, . and guidelines for an excess the SEC reserved for later capacity test were adopted.
decision the question of We believe that the whether NU's combination ' settlement agreements, on electric-gas business was in balance, repreant a realistic violation of the Public Utility resolution of many complex Holding Company Act of 1935. issues that had been under The study is expected to be review in the various CL&P completed in the first half of proceedings and are in the best 1987. Depending on the interests of both customers study's conclusions, , and shareholders. implementation of any _.
- Massachusetts Rate Case-substantial changes m the gas On June 30, the Massachusetts business could take one or DPU issued a decision in the more years because of WMECO retail rate case that regulatory, fmanc,al, i and - resulted in a 2.3 administrative complexities. reduction in totafercent revenues. net REGULATORY AND PUBLIC b f POLICY ISSUES Dealing with regulatory issues and
$hh 0's 62 ilfi n investment in Millstone 3 proceedings continued to be a major construction costs met its task at NU, During 1986, NU was "used and useful" standard and -
engaged in proceedings associated would be reflected in rate base with the completion of Millstone 3 over a five-year phase-in before Connecticut, Massachusetts, period. In addition, the DPU and federal regulatory agencies, further found that WMECO
+ Connecticut Proceedings- had prudently managed the !
In Connecticut, the ratemaking project and, therefore, allowed process resulted in settlement recovery of most of the agreements with very real excluded one-quarter of benefits to all concerned. WMECO's investment, A five and one-half year without a return, over ten phase-in plan with full years. The DPU recognized , recovery of all deferred costs the possibility that an ! was adopted for CL&P's share additional amount of of the allowed Millstone 3 WMECO's investment might i cost. The agreements provided subsequently be deemed "used that $3.4 billion of the actual and useful." The DPU also total plant cost of $3.77 billion, lowered WMECO's allowed at commercial operation date, return on equity from 16 would be recognized for percent to 13 percent. ratemaking purposes. (The in December 1986, WMECO portion not so recognized may filed a formal application with
181 the DPU to increase its electric customers qualify for federal ~ , rates by $23.5 million or or state energy assistance, are I approximately 8.7 percent. ongoing. l 1This rate increase primarily In addition, in 1986, NU j reflects the second phase of customers and shareholders 1 the DPU-approved five-year contributed $308,568 to the i phase-in plan for the costs Add-A-Dollar fund to assist associated with Millstone 3. customers with serious
- FERC Wholesale Rate .
difficulty paying their energy j Cases-CL&P, WMECO, and bills' who have no other Holyoke Water Power sources of aid.This program !
' Company have reached - urges customers to add one settlements resolving most of dollar to their monthly ,
the issues in their Millstone 3- Payments to which NU adds 'd related wholesale rate cases an additional fifty cents-up to ? filed with FERC in August an $85,000 maximum. 1985. In the partial e Community Involvement-settlements, which are subject During 1986, the company to FERC approval, the devoted both human and companies have agreed to financial resources to help the annual rate increases (net of communities we serve. We fuel cost savings) totaling contributed $1.96 million to a
$17.4 million or about 80 broad range of community percent of the originally filed ' organizations that serve the requests. This amount has common good in areas such as . been reduced, howe'ver, _
education, social services, because of decreased sales to health, economic development, wholesale customers and may etc. Some 15,000 children and be reduced further as part of adults participated in our final FERC actions on the annual Run for Education. companies' filings. A decision Our employees contribute by FERC is expected in late freely of their time and energy 1987, at the earliest. to improve the quality-of-life CUSTOMER AND throughout the region. In 1986, more than 1,900 COMMUNITY SERVICE NU's programs to assist low- '" Pl
- Y"' "'0
- income customers anj its invo7vement volunteers with diverse community service agencies.
with the communittes it serves were strengthened and extended during Senior citizens at federation 1986. 11omes in Bloomfield learn to play
- Customer Assistance " Energy Bingo," a new and Programs--NU provides a innovative game designed to wide range of special programs encourage NU's low- and fixed-income customers to use energy to hel families who have m re efficiently. Winners f each troub e paying energy bills and game receive prizes such as hats, to assist those with low or mittens, scarves, smoke alarms, fixed incomes to use energy and security alarms, but every and energy dollars wisely. player is a winner with the These include a moratorium conservation tips and health and on winter shutoffs; ENERGY safety information printed on CARE, an outreach program each bingo card. Conducting this for People on low or fixed game are Cheryl,Duey, NU community relations incomes; HELP-Teams of representative (standing, lef t):
employees who work directly Calvin Morgan, NU community with these customers; and outreach representative (standing, conservation workshops. rear); and Ruthan Winkler, Collaborations with social program coordinator for , agencies and customer group .ederat , ion Homes (standmg, right). Energy Bingo, a advocates, and a lomt effort component of NU's multifaceted I with the Connecticut State ENERGY CARE program, is a Department of Income creative exampic of education and Maintenance to help entertainment rolled into one. ! I
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20 :WMECO-loo YEARS Romberg, Millstone Station In 1986, WMECO celebrated superintendent, succeeded an important anniversary-its Mroczka as vice president for looth birthdayl With roots Nuclear Operations. Walter F. 4
. extending to the 1792 Torrance, Jr., assumed the
- incorporation of the . position of corporate secretary
" Proprietors of The Locks and in addition to his Canals on the Connecticut responsibilities'as senior.vice River," WMECO was President and general counsel.
established in 1886 as the Robert W. Bishop, previously . Greenfield Electric Light & corporate secretary, became- : Power Company. In 1934, sPecial counsel to the-
. WMECO adopted its current executive vice president'of : .:
name and, in 1966, joined with Engineering and Operations; ! CL&P and its predecessors to . and, Elizabeth W. Broome was / form the NU system. . elected assistant secretary. ;j With its' extended and George D. Uhl, controller, was '{ distinguished history of elected vice president and service to the communities it controller; and Alfred R. serves, WMECO and its many Rogers was elected regional employees deserve special - Vice President of the Central recognition. We are proud of Region. the accomplishments of a
- Retirements-Retiring after company that has progressed 32 years of service was Walter F.
from waterwheels and arc Fee, executive vice president of lights to nuclear power- Engineering and Operations, always with a ' view to giving Also retiring were W.' Lindsey the customer the best possible . Booth, regional vice president i service using the most current of the Eastern Region-with i technologies and efficiencies 40 years of service; and, j 1 available. Thomas F. Brennan, regional ORGANIZATION AND Vice President of the Central . Region-af ter 16 years of MANAGEMENT service.
- Executive Changes- We note with sadness the William B. Ellis was elected to passing, during the year, of the additional post of Alfred M. Wade, retired CL&P President-along with his ' vice president of Sales.
responsibilities at chairman and chief executive officer-upon the departure of E. James l Ferland, president and chief ; i operating officer. (See postscript 10 the feller to shareholdersJ Bernard M. Fox, senior vice president and chief financial , officer, was elected executive 1 vice president and chief financial and administrative officer; and, John F. Opeka, senior vice president of Nuclear Engineering and Operations, was elected executive vice president of Engineering and Operations. John P. Cagnetta was elected senior vice president of Corporate Planning and Regulatory Relations, and Edward J. Mroczka was elected senior vice president of Nuclear Engineering and Operations. Wayne D. l
FINANCIAL AND STATISTICAL CECTISN
~ CONTENTS PAGE Management's Discussion and Analysis of Financial Condition and Results of Operations. .. . ... ... . . . . . 22-27 Company Report .... .. ... .. .. .. .... . . .. .. . . . 28
' Auditors' Report .. ... . . . . . . . . . ... ..... . ... .. .... 28 Consolidated Statements of Income. . ... . . .... . ... . 29 Consolidated Statements of Sources of Funds for Gross Property Additions .. . .......... . . . ,. .. .. . . . .. .. '30 Consolidated Statements of Income Taxes.. . . . . . .. 31 Consolidated Balance Sheets . . .. .. .. .. . ... . .. . '32-33 Consolidated Statements of Capitalization .. . ... . . . 34-35 Consolidated Statements of Common Shareholders' Equity .. . . 36 Notes to Consolidated Financial Statements . .. . .. . . .. . 37-46 l Selected Consolidated Financial Data.. ... . .... .. . . .. 47 l Consolidated Statements of Quarterly Financial Data . . . -48 Common Share Information .. . . . .. . ... .. . 48 j Consolidated Operating Statistics: l General. . ... . . . . . . . .. .. .48 1 Electric . . . . ...... .. . . . .. .. . . . 49 1 Gas . . . . . . . . . .. . .. . ... ... . . 50 l 4
NORTHEAST UTILITIES ANNUAL REPORT 1986 l ' ' 21
MANAG'ZINT'S D102U0SISN AND ANALYS13 - OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This section contains earnings. Common share - management's assessment of dividends paid in 1986 were i Northeast Utilities'(the $1.68 per share. In January company) financial condition 1987, common share dividends , and the principal factors which were increased to an indicated ; have an impact on the results annual rate of $1.76'per share. of operations. This discussion in December.1986, the should be read in conjunction Financial Accounting with the company's Standards Board (FASB) issued consolidated financial Statement of Financial . statements and footnotes. Accounting Standards No. 90, Regulated Enierprises-Accounting FINANCIAL CONDITION for Abandonments and The company's financial Disallowances of Plant Costs condition continued to (SFAS 90). Under SFAS 90, a , improve during 1986 with utility must record a loss when i progress being made toward it becomes probable that a cost its objective of achieving long. disallowance of a newly term financial strength, completed plant will occur and Several significant events the amount can be reasonably occurred during the year. The estimated. It further requires financing and construction of that a utility record abandoned Millstone 3 were completed, plant at the present value of and the unit has been the probable future revenues performing at a level which expected to be provided to exceeds the average for new recover the cost of the asset nuclear units. In addition, as when it appears probable that' l further discussed below, rate a regulatory commission will settlements in Connecticut permit recovery of an and a rate decision in abandoned plant without Massachusetts substantially granting a return. If the resolved the uncertainty of carrying amount of the major issues relating to the abandoned asset exceeds the rate treatment for Millstone 3. present value, a loss would be In 1986, the market price of recognized. SFAS 90 will be the company's common shares effective for fiscal years was consistently above book beginning af ter December 15, value for the first time in 1987. The FASB expects to recent years. At December 31, release a separate exposure 1986, the closing price of the draft on the accounting for company's common shares was phase-in plans sometime in
$24.25 per share compared to 1987, a book value of $17.34. The Connecticut Light and The company continued to Power Company's (CL&P) improve its capital structure investment in Millstone 3 has by increasing its equity ratio to been addressed in its recently 38.8 percent at December 31, completed retail rate case. The 1986. The company's earnings Connecticut Department of er common share increased to Public Utility Control (DPUC) p$2.78 in 1986 compared to approved settlement
$2.72 in 1985, primarily agreements that denied attributable to a 4 percent recovery of approximately increase in electric sales. $184.4 million, representing Noncash items, which include CL&P's pro rata share of the allowance for funds used Millstone 3 construction costs during construction (AFUDC) in excess of $3.4 billion. Under l and the deferred return on the generally accepted accounting Millstone 3 investment not principles currently in effect, currently included in rate base, this regulatory action would 'j continued to provide almost 70 not require immediate loss percent of the company's recognition. As a result of the
Crnstructlen Exp:ndituras DPUC decisions with respect Note 7 of Notes to Consolidated to the partial disallowance of Financial Statements, many NoSU$ BON NS SSloN Mi!!st ne 3,Ibe C mpany's net uncertainties surround the income will be reduced when Seabrook proj,ect. The D8f ELECimC D3il GAS the provisions of SFAS 90 are company believes that the
'8 " " "
adopted. The impact of the commercial operation of Millstone 3 disallowance at the Seabrook I is probable but not Actual time SFAS 90 is adopted is assured due to these
$ Millions expected to reduce net income uncertainties. Although CL&P 800 by approximately $125 million. has only a 4.06 percent The Tax Reform Act of 1986 ownership interest, a modified many provisions of substantial disallowance of 700 - the federal tax laws. The Seabrook 1 costs could have an wm modifications include the impact on the company's 600 -
u,y b ;j[ij reduction in the corporate tax rate, the repeal of the ability to maintain progresa toward its objective of
%j --
g fh mvestment tax credit, the achievmg long-term fmancial ud adoption of a new corporate strength. SM um m alternative minimum tax, and Seabrook 2,in which CL&P changes in the capitalization also has a 4.06 percent 400 - M rules and depreciation system. ownership interest, has been It is expected that these officially canceled. As of p modifications will have an December 31,1986, CL&P's j g adverse impact on cash flow. net investment in Seabrook 2 3M - The impact of the lower tax was $23.9 million. rates on deferred tax reserves will depend greatly on the Financing l 200 - treatment authorized in future It is essential that the I'$' decisions of regulatory system companies maintain C mm SSi, "S-100 - their progress toward financial health so as to assure Construction Program continuing access to debt and 0 The system's 1986 equity capital markets 1982 1983 1984 1985 1986 construction expenditures of whenever needed to
$413.4 million were the lowest implement their ongoing since 1981, as Millstone 3 was construction programs, to PROJECTED Completed and began refund debt maturities, and to commercial operation in April. meet other cash requirements.
8M " Future construction projects Cash requirements in excess 800 are expected to require smaller of internally generated funds outlays of funds and involve are generally financed through 700 - shorter construction periods, short , intermediate , and Construction expenditures, long-term borrowings, nuclear including AFUDC but fuel trust financing, leasing 600 - excluding nuclear fuel, for the agreements, and sales of period 1982 through 1986 and common shares and preferred projected construction stock. In addition to 500 - expenditures through 1991 are construction and nuclear fuel illustrated on this page. requirements, the system The construction program companies are obligated to 400 - includes CL&P's 4.06 percent meet maturities and cash m ownership interest in sinking-fund requirements Seabrook 1. For financial totaling $471.8 million for the 300 - @ _ - m. . - planning purposes, the company is projecting that years 1987 through 1991. External financing will Seabrook I will be placed in continue to be necessary to 200 - d* gr *[] 4 l y WE service at the end of the meet total cash requirements, e2
,u k3 - Md fj 4
second quarter of 1988, and CL&P's share of the total cost although not at the levels in recent years because projected 100 - )o 3d of the unit will be construction expenditures approximately $230 million. have been substantially o EE 1987 1988 1989 1990 1991 As of December 31,1986, CL&P's investment in reduced. The chart on the following page illustrates the Seabrook I was $193.3 million. relative percentages of all 23 As discussed more fully in major sources of funds for the 4
t Sources cf Funds five-year period from 1982 to reduction included the l- ' (percentage of 1986. termination of the Millstone 3 total requirements) - During 1986, the company construction trust agreement. received proceeds of $28.0 At December 31,1986, $82.5 ! B51 INTERNAL R'U! LoNG TERM million from the issuance and million Was outstanding under ) DEBT gaje of Common shares under these credit lines. Additional j IN COMMON EME oTHER. Its Dividend Reinvestment and reductions of between $50 mas $"e'n*nco c"4E" Common Share Purchase Plan million and $100 million are j anticipated to occur during STOCK LEASES (DRP). Beginning with the third quarter 1986 dividends, 1987. the DRP program was if market conditions permit Percent converted to an open-market in 1987, the system companies 100 _ purchase program, so it no intend to refinance additional 1 go - longer provides additional outstanding debt and i equity for the company. The Preferred stock if that can be 80 - 'M @ system companies issued accomplished at a lower effective cost. MQ q approximately $445.4 million i 70 - f ' py [. j! of first mortgage bonds, pollution control notes, and Rate Matters ] 60 - : intermediate-term notes in In November 1985, CL&P
, 1986. A larg portion of the filed an application with the 50 - Proceeds of these issues was DPUC requesting aggregate g N@ used to redeem, prior to annual electric and gas 40 - p maturity, high-interest rate revenue increases of $155.5 iM first mortgage bonds, and million. The increased revenue 30 - eliminate variable-rate debt. In level was based primarily on a addition, Western proposed three-year phase-in 20 - Massachusetts Electric of Millstone 3 costs into rates Company (WMECO) when it began commercial to - redeemed $15 million of operation. As discussed more preferred stock prior to fully in Note 4 of Notes to o maturity. Consolidated Financial Statements, 1982 1983 1984 1985 1386 In 1985, CL&P entered into the DPUC issued a decision on 4 a loan agreement with the this case on June 11,1986 and Connecticut Resources subsequently approved Recovery Authority under settlement agreements on which CL&P may borrow up July 1,1986, which superceded to $60 million to finance the a number of the provisions refurbishment of two turbine ordered in the June 11 generators and associated decision. The rate decision and facilities at CL&P's South the settlement agreements Meadow Station. As of addressed many of the major December 31,1986, uncertainties that CL&P was borrowings of $21.7 million facing regarding the inclusion were outstanding under this of Millstone 3 costs in rates.
agreement. The rate decision established a CL&P and WMECO five and one-half year phase-in continue to utilize a nuclear of Millstone 3 costs into rates. fuel trust to finance nuclear The settlement agreements fuel requirements for allowed CL&P to recover its Millstone 1 and 2 and their pro rata share of $3.4 billion of ownership share of Millstone 3 construction costs, Millstone 3. As of froze current electric rates December 31,1986, the trust's until at least January 1,1988, , investment in nuclear fuel was restored deferred fuel j
$359.7 million. Nuclear fuel accounting, with limitations, requirements of $344.1 million for the period from for the years 1987 to 1991 are November 1,1986 through expected to be financed by the December 31,1987,and trust. established a Rate Moderation in 1986, the system Fund to offset future rate companies reduced available increases. In addition, the credit facilities and lines by parties agreed to withdraw
$400 million, leaving $398 certain appeals stemming from million available. This earlier DPUC and Superior 24
Court decisions. Management $23.5 million. The increased believes that the settlement revenues are required agreements, on balance, primarily to provide for the represent a realistic resolution second year of the five-year 1 of many complex issues that phase-in of Millstone 3 costs i had been under review in the into rates. ; various CL&P rate To help meet future capacity l proceedings and are in the best needs and to avoid building i interests of both customers large, capital-intensive and shareholders. generating units, CL&P and Based on current budget WMECO have solicited information, CL&P's Rate purchases of the output from Moderation Fund, which cogeneration and small power amounted to $52.4 million as production facilities. Such , of December 31,1986, could purchases could supply a ' grow substantially in 1987. significant portion of future In December 1985, WMECO generation needs. In July 1986, filed an application with the the DPUC issued a decision Massachusetts Department of with respect to generic policies Public Utilities (DPU) on cogeneration and small requesting an annual electric power production. This revenue increase of $29.4 decision sets up a system million. The increased under which future blocks of revenues were required qualifying facility capacity primarily for the proposed would be approved by the three-year phase-in of DPUC on the basis of the . Millstone 3 costs into rates. projects' competitive rankings. On June 30,1986, the DPU The DPUC will approve only issued a decision that resulted the "best" projects for which in a net reduction in annual applications are currently electric revenues of $5.9 pending before it. In a prior million or 2.3 percent. The generic decision and in DPU determined that 76 decisions approving various percent of WMECO's cogeneration and small power Millstone 3 construction costs production facility contracts, met the "used and useful" the DPUC has stated that standard established by the CL&P would be allowed to DPU -:! would be phased into recover from its ratepayers all raws over a five-year period. payments made to such
- h. addition, the DPU found facilities, that WMECO had' prudently In August 1986, the DPU managed the project and, issued regulations governing therefore, allowed recovery of the sale of electricity between most of the remaining 24 cogenerators and small power percent over ten years without producers and Massachusetts a return. The DPU will permit utilities. The regulations the "unuseful" portion of established a " bidding" process Millstone 3 to be reevaluated in which potential in future proceedings. cogenerators compete to On July 25,1986, WMECO supply utilities with capacity filed a motion for recalculation and energy. In addition, the regulations assure utilities that and reconsideration of certain adjustments contained in the payments to cogenerators and DPU's June 30,1986 order. On small power producers can be February 13,1987, the DPU recovered through rates,if the issued an order on WMECO's DPU has approved the motion for recalculation and contracts.
reconsideration which further reduced WMECO's annual Gas Business electric revenues by $1.5 The company has begun a million. study of its strategic options In December 1986, WMECO with respect to the gas filed an application with the business which is owned and DPU requesting an increase in operated by CL&P, including 3 annual electric revenues of the possibility of divestiture.
1986 R:v:nu) D:ll r The divestiture issue has Fuel cost recoveries (c:nts per dollar of revenue) existed since the formation of decreased in 1986 primarily the company in 1966. At that because of lower fossil-fuel WHERE IT CAME FROM time, the Securities and prices and the effect of ELECTRIC (87.84) - Exchange Commission increased nuclear generation
-GAS 00 04) authorized the affiliation, but which replaced higher cost p-OTHER (2 24) reserved for later decision the fossil-fuel genera tion.
question of whether the Revenues related to 1986 company's combination regulatory rate decisions l electric-gas business was in increased primarily as a result l violation of the Public Utility of the recovery of nonfuel i Holding Company Act of 1935. costs associated with the ! The study now under way operation of Millstone 3. The l will consider the implications sales increase in 1986 was l that divestiture or retention of primarily the result of a 4.0 the gas business would have percent increase in electric for the company and the ways sales because of improved either option could be effected. economic conditions and a 1.2 At present, there are no percent increase in gas sales as agreements with any other a result of greater heating WHERE IT WENT entity to acquire the gas requirements. business in whole or in part, Fuel cost recoveries
\.. nor are any in negotiation. decreased in 1985 primari y s
N The study is expected to be because of lower fossil-fuel
>? completed in the first half of prices. Regulator rate
'd 1987. Depending on the decisions reducec[ revenues in study's conclusions, 1985 primarily as a result of a
~ '
implementation of any DPUC interim order that tpwn, s substantial change in the gas diverted revenues related to j g business could take one or construction work in progress (bW
,y'O more years because of regulatory, financial, and (CWIP) to reduce CL&P's deferred fossil-fuel balance, 5 administrative complexities. offset partially by an increase in WMECO's rates. The sales >
increase in 1985 was primarily gE,R, 3,, RESULTS OF OPERATIONS the result of a o.9 percent OTHER OPERATION The respective sizes of the increase in electric sales, offset AND MAINTENANCE system's electric and gas partially by a 6.o percent EXPENSES (tS 94) operations and the relative decrease in gas sales because
- WEM734) magnitude of the various of lower heating requirements
^ ^" and some industrial customers
- ENEF TS ( 5.74) expenses the system incurred COMMON AND PREFERRED are illustrated in the charts on switching from gas to oil.
OlVIDENDS (11.04) this page. DEPRECI ATION, INTEREST Electric and Gas Energy I
"^ *^ Operating Revenues Expenses
_ fNCo"ME NE 67 EARNINGS RET AINED Operating revenues Electric energy expenses, FOR REINVESTMENT (5 94) decreased $48.9 million from which include fuel and net 1985 to 1986 and decreased purchased and interchange
$14.2 million from 1984 to power, decreased $168.9 1985. The components of the million in 1986 as compared to change in operating revenues 1985. This decrease was for the past two years are primarily the result of lower provided in the table below. fossil-fuel prices and lower Change in Operating Revenues increasel(Decrease) 1986 vs.1985 1985 vs.1984 ;
wswes s oonaa Fuel cost recoveries 5(162.8) 5(24.8) Regulatory rate decisions 50.2 (5.4) Sales and other 63.7 16.0 Total revenue change $ (48.9) $(14.2) 26 , l l I
co:t energy provided by Depr:cliti::n Expensa Millstone 3, partially offset b Depreciation expense higher kilowatt-hour (kWh) y ' increased $44.6 million in 1986 requirements. as compared to 1985 primarily Electric energy expenses because of the commercial increased $1.2 million in 1985 operation of Millstone 3. compared to 1984 because of L .the.DPUC's interim order, Taxes which disallowed the deferral Federal and state income of unrecovered current fossil- taxes increased $2.4 million in fuel costs, and higher kWh 1986 compared to 1985 requirements in 1985. These because of an increase in items were offset partially by taxable income. Federal and - lower fossil-fuel prices in 1985 state income taxes decreased and by the matchmg of $33.8 million in 1985
' revenues and expenses under compared to 1984 because of a the provi,sions of the - decrease in taxable income. 1 company s energy adjustment Taxes other than income taxes clauses.
increased $15.4 million in 1986 Gas energy expenses compared to 1985 primarily decreased $13.4 milhon in 1986 because of property taxes compared to,1985 as a result of associated with the commercial lower prices in 1986, offset operation of Millstone 3 and ~ partially by the matching of higher sales taxes. revenues and expenses under the provi,sions of the Allowance for Funds Used compan s energy adjustment clause. as energy expenses During Construction and decreased $4.0 milh,on in 1985 Deferred Millstone 3 Return compared to 1984 as a result of Total debt and equity lower requirements in 1985 AFUDC decreased $102.4 and the matching of revenues million in 1986 compared to and expenses under the 1985. This decrease was provisions of the company's caused by a lower average energy adjustment clause. CWIP balance, reflecting the commercial operation of Other Operation and Millstone 3. This decrease was Maintenance Expenses more than offset by the Other operation and deferred return of $107.0 maintenance expenses million on the Millstone 3 increased $55.6 million in 1986 investment not currently compared to 1985 primarily included in rate base. because of expenses associate'd The increase in AFUDC of with operating Millstone 3, $48.3 million in 1985 higher capacity charges from- compared to 1984 was Connecticut Yankee Atomic primarily caused by a higher Power Company resulting average CWIP balance from its refueling and attributable to the Millstone 3 maintenance outage in 1986, construction' project, and the generalimpact of inflation on most expenses in 1986. Although inflation has subsided in recent years, operating expenses still have been impacted. Other operation and maintenance expenses increased $74.2 million in 1985 l-compared to 1984 primarily because of the cost of repairing damage caused by Hurricane Gloria, an extended Millstone 2 refueling and { maintenance outage, and the !- general impact of inflation on
'27-
. most expenses.
L
4 Northust Utilities L(20ZPANY R2 PORT
- and Subsidiaries The consolidated financial statements of Northeast Utilities and subsidiaries and other sections of this Annual Report were prepared by the company. These financial statements, which were examined by Arthur
' Andersen & Co., were prepared in accordance with generally accepted
. accounting principles using estimates and judgment, where required, and giving consideration to materiality.
The company has endeavored to establish a control environment that encourages the maintenance of high standards of conduct in all of its business activities. The company maintains a system of internal accounting controls that is supported by an organization of trained- i management personnel, policies and procedures, and a comprehensive
. program of internal audits. Through established programs, the com 3any regularly communicates to its management em'ployees their interna .
control responsibilities and policies prohibiting conflicts of interest. The Audit Committee of the Board of Trustees is composed entirely of outside trustees. This committee meets periodically with management,
)
j the internal auditors, and the independent auditors to review the activities of each and to discuss audit matters, financial reporting, and the adequacy of internal accounting controls. I
.Because of inherent limitations in any system of internal accounting contrcils, errors or irregularities may occur and not be detected. The company believes, however, that its system of internal accounting 'i contfuls and control environment provide reasonable assurance that its ;
assets are safeguarded from loss or unauthorized use and that its financial
-records, which are the basis for the preparation of a' ll financial statements, are reliable.
AUDITORS' REPORT To the Board of Trustees and Shareholders of Northeast Utilities: : We have examined the consolidated balance sheets and consolidated statements of capitalization of Northeast Utilities (a Massachusetts trust) and subsidiaries as of December 31,1986 and 1985, and the related sources > consolidated of funds for grossstatements of income, property additions andcommon shareholders' income taxes for each o equity,f the { three years in the period ended December 31,1986. 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. 3 In our opinion, the financial statements referred to above present fairly the financial position of Northeast Utilities and subsidiaries as of ' December 31,1986 and 1985, and the results of their operations and the sources of funds for gross property additions for each of the three years in the period ended December 31,1986,in conformity with generally accepted accounting principles applied on a consistent basis. ARTHUR ANDERSEN & CO. Hartford, Connecticut February 20,1987 28
)
~
lj Northeast Utilities CONS 2LIDATED CTATEMENTO CF INC'lME j 'and Subsidiaries q i l For the Years Ended December 31, 1986 1985 1984 (Thousands of Dollars. eucpt share information) Operating Revenues.... ... . ... ' $ 2,032,117 $ 2,081,021 5 2,095,252 Operating Expenses: Operation - F u el . . . . . . . . . . . . . . . . . . . .. . .. .. 428,895 - 421,712 567,114 Purchased and interchange power, net (36,192) 139,929 (6,707) Gas purchased for resale . . .. .. . . . . . . 105,434 118,877 122,859
- Other .. .... .. .. .. . . . . 538,717 467,140 443,888 .:
Maintenance . . . . . . . . .. .. . 164,993 180,971 129,995 Depreciation .. . . . . ... .. . .. . . . 171,475 126,870 121,262 Federal and state income taxes (See Consolidated Statements of Income Taxes) .. ... . . . . . . . . 185,731 181,696 215,539 Taxes other than income taxes ... . . 170,461 155,073 156,952 Total operating expenses ... . .. 1,729,514 1,792,268 1,750,902 Operating Income.. . . . . .. . 302,603 288,753 344,350 Other Income: Allowance for other funds used during construction. .... ... ... . .. 67,507 145,738 107,351 Deferred Millstone 3 return - other fu nds . . . . . . . . . . . ..... . 78,736 - - 1 Equity in earnings of regional nuclear generating companies .. . .. .. 12,928 12,201 11,063 Other, net . .. .. ....... . . (6,541) (2,468) (3,133) - Income taxes - credit . .. . . . 65,631 60,992 48.999 Other income, net .. .. . . 218,261 216,463 164,280 Income before interest charges . .. 520,864 505,216 508,630 Interest Charges: Interest on long-term debt . ... 218,177 220,246 212,521 Other interest . ........... . . ... 19,828 7,752 7,416 Allowance for borrowed funds used during construction, net of income taxes. . .... . .. . .. . (31,448) (55,582) (45,706) Deferred Millstone 3 return - borrowed funds, net of income taxes, . .. . . . . (28,278) - - - - Interest charges, net . .. ... . . 178,279- 172,416 174,231 income after interest charges . .. 342,585 332,800 334,399 Preferred Dividends of Subsidiaries 41,691 44,259 45,461 Net Income .. . . .. . . ..... . $ 300,894 5 288,541 5 288,938 Earnings Per Common Share.. . $ 2.78 5 2.72 $ 2.85 Common Shares Outstanding i (average) .. .. . . .. . . 108,352,517 106,221,131 101,398,235 l 29 The accompanying notes are an integral part of these financial statements. i
p , Northeast Utilities . @@NDSLIDATED OTATEMENTO GF COURCES CF FUND 3
, ; and subsidiaries Fil;R CRSOO PR2PERTY ADSITISNS -
f
- For the Years Ended December 31, 1986 1985 1984-(Thousands of Dollars)
Funds Generated From Operations: _ . Net income . ....... .. .. ....... . , . .. .. $300,894 $288,541 $288,938 Principal noncash items:
- Deprecia tion . . . . . . . . . . . .... . ... ... .. ... 179,675 126,870 121,262 Deferred income taxes, net .. ... .. .. . .. 76,087 102,184 114,507 Rate moderation fund - 'l deferred revenue (Note 4) .. . ..... .... . . 34,723 - -
Amortization of deferred charges and other . l noncash items. . ~
...... ... . . .....,..... .. . 4,350 = 12,409 25,288
. Deferred return - Millstone 3 (Note 4) .. .. (107,014) - --
r Allowance for other funds used
' during construction .... .. . .. ... . (67,507): (145,738) (107,351) ,
. Total funds from operations.. . ..... . . . . 421,208 384,266 442,644 Less: Cash dividends paid on common shares. .. '182,034 167,829 150,205 Net funds generated from operations .. . .. 239,174 216,437 292,439 Funds Obtained From Financing:
Common shares .. . .. . . . . ., . . 27,977 42,415 75,327 Long-term debt ... ... .. ... .... . ... 461,006 276,897 311,015-Increase (decrease)in construction trust ... .. . (96,989) 41,950 :(102,142) Increase (decrease) in short term debt. .... .... .. 10,750 85,750 (20,500) 112,190 109,931 1 Increase in obligations under capitalleases. 95,343 To t a l . . . . . . . . . . . . . . . . . . . . . . . . ., .. . 498,087-' 559,202 374,131
. Less: Reacquisitions and retirements of long-term debt and preferred stock ... . ... 335,605 141,721 '57,174 Net funds from financing. . ... .. , .. 162,482 417,481- 316,957 Other Sources (Uses) of Funds:
Changes in components of working capital: Cash and special deposits........ . . .. 530 (7,301) (10,398) Receivables and accrued utility revenues . . 17,986 1,970 (20,062) Fuel, materials and supplies . . .. . . . .. (4,754) '5,753' (6,162) Accounts payable.. . ... . . . . ....... . . (29,188) 53,352 (12,516) Accrued taxes . .. .. . .. . 17,754 (22,137) 45,895 Other, net . . .- ... . .. . ..... ....... . (1,419) 15,576 6,940 Net change . . . . . . . .. . ... ... .. .. .. . 909 47,213- 3,697-Rate moderation fund - GUAC credit (Note 4) . ....... .. . 17,667 - - Energy adjustment clauses, net . .. . . 3,871 (18,792) 14,372 Other, net .. .. . .... .. ...... . . . .. . (2,139) (43,032) (2,211) Net other sources (uses) of funds .. .. . 20,308- (14,611) 15,858 Total Funds For Construction From Above Sou rces . . . . . . . . . . . . . . . . . . . . . .. . . 421,964 619,307 625,254 Allowance For Other Funds Used During Construction ... . .. .. .. 67,507 145,738 107,351 GROSS PROPERTY ADDITIONS .. .. .. . $489,471 $765,045 $732,605
- Composition of Gross Property Additions:
Electric and other utility plant.... ... ..... $392,162 $652,570 $607,954 Gas utility plant . . .. . ... .. .. 21,192- 19,786 20,773 Nuclear fuel . .. . . . . . . . .. . 76,117 92,689 103,878 Total . . . .... . .. . . . .. $489,471 $765,045 5732,605 30 The accompanying notes are an integral part of these financial statements.
; Northrast Utilities GONDSLIDATED STATEMENTS CF INMME TAXES
- and Subsidiaries For the Years Ended December 31, 1986 1985 1984 (Thouunds of Duuare)
The components of the federal and state income tax provisions are: Current income taxes: Federal. ...... . .. .. . ... . .. .. $ 20,540 $ 5,195 $ 15,942 State..... . ... ...... .. ... .. . . .. . .. .. 20,597 13,325- 36,091 Total cu rren t . . . . . . . . . . . . . . . . . . .. ... 41,137 18,520 52,033 Deferred income taxes, net: Investment tax credits... . .. .... . . ........ 42,852 31,302 111,075 Federal . . . . . . . . . . . . . . . .. ... . . .... .... ... 32,559 57,102 2,192 State. ...... ... . .. . .. ........... ........ 3,552 13,780 1,240 Total deferred . .. ... .. . ......... .. .. 78,963 102,184 114,507 Taxes on borrowed funds portion of allowance for funds used during construction (AFUDC) and deferred Millstone 3 return . ..... . . .. 61,272 58,269 46,188
- Total income tax expense .. .. . .. ...... 181,372 178,973 212,728 Less: Income taxes (credits) included in other income, net of the tax effects of the borrowed funds portion of AFUDC and deferred Millstone 3 return ...... .. . .. (4,359) (2,723) (2,811)
Income taxes charged to operating expenses .. .. $185,731 $181,696 $215,539 _ Deferred income taxes are comprised of the tax l effects of timing differences as follows: I Investment tax credits .. ...... . . .. . .. $ 42,852 $ 31,302 $111,075 ' Liberalized depreciation, excluding 4
~ leased nuclear fuel.... . . .. . . 71,400 22,276 18,914 Construction overheads . . . . . . . , . . . . . . . . .. .. 3,532 22,054 19,019
. Liberalized depreciation and capitalized interest on leased nuclear fuel. . .. (8,719) 19,630 324 -
Decommissioning costs . . ..... . .. . . (4,972) (3,977) (5,268) Settiement credits-nuclear fuel .... . 1,035 (4,132) (1,051) Energy adjustment clauses . . . .. . .. (11,330) 8,506 (15,597) Spent nuclear fuel disposal costs ... . (904) 7,607 (5,221) Rate moderation fund . ... . . .. . (18,097) - - Canceled nuclear project . .. . . ... 6,250 - .- Other...... . .. ..... . ... .. . (4,084) (1,082) (7,688) Deferred income taxes, net . .. ... . . ... $ 78,963 $102,184 $114,507 The effective income tax rate is computed by dividing totalincorne tax expense by the sum of such taxes and income af ter interest charges. The differences between the effective rate and the federal statutory income tax rate are: Federal statutory income tax rate .... .. 46.0% 46.0 % 46.0% Tax effect of differences: Depreciation differences . .. . ... . . . . . 2.5 1.2 0.4 Other funds portion of AFUDC not recognized as income for tax purposes. . . (5.9) (13.1) (9.0) Deferred Millstone 3 return-other funds . ..... (7.0) - - Construction overheads-portion not deferred (1.4) - - Investment tax credit amortization ..._ . (1.8) (1.7) (1.6) State income taxes, net of federal benefit . . 3.7 4.2 4.6 Ot her, net . . . . . . . ... .. . . . .. . (1.5) (1.6) (1.5) l Effective income tax rate .. .. 34.6 % 35.0 % 38.9 % l . . l l 31 The accompanying notes are an integral part of these financial statements. l
- Northust Utiliti:s GCNCILIDATE3 OALANCE CHEETO
.Ind Subsiditries At December 31, 1986 1985 (Thousande of Dollars)
Assets Utility Plant, at original cost: E l e c t ric . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $5,725,573 $3,428,053 Gas.................,...................................... 295,110 275,616 O t her . . . . . . . . . . . . . . . ....... .. .. . . ... .. ......... 58,343 47,456 6,079,026 3,751,125 Less: Accumulated provision for depreciation ... .... ... 1,420,090 1,289,225 4,6$5,936 2,461,900 Construction work in progress (Note 7) .. ... ..... ...... 343,482 2,581,261 Nuclear fuel, net (Note 2) . . . . . . . . . . . . . . . . . .. .. .. . 350,288 375,641 Total net utility plant. ...... .... . . . . . . . . . . . . . . . . . 5,352,706- 5,418,802 Other Property and Investments: Other property (Note 4)......... ..... ... .. ... .... . .. 203,812 22,731 Investments in regional nuclear generating companies, a t eq uit y . , . . . . . . . . . . . . . . . . ....... .......... .... ..... 63,019 63,019 Other, at cost ...... ....... . .. . .. . .. .. ... .......... 950 518 267,781 86,268 Current Assets: Cash and special deposits (Note 3) . .. . . .. .. . 27,738 28,268-Receivables,less accumulated provision for uncollectible accounts of $10,397,000 in 1986 and
$10,245,000 in 1985. . . . . . . . . . . .. . . .. . . 196,611 219,312 Accrued utility revenues .. . ....... ... ..... .. . .. .... .101,284 96,569 Fuel, ma:erials and supplies, at average cost . .. .. . '125,296 120,542 Prepayments and other. . . . .. .. .. . . . . . . 22,655 11,402 473,584 476,093 Deferred Charges:
Unamortized debt expense. . . . . .. ... ..... 9,815 10,564 Energy adjustment clauses, net . . . . . . . . . . . . . . ... .. . 73,383 60,747 Unrecovered spent nuclear fuel disposal costs . ... ... 26,404 28,957 Canceled nuclear projects (Note 5) . . . . . ... 24,096 25,170 Deferred costs - Millstone 3 (Note 4).... ..... ... . 110,847 - Amortizable property investment - Millstone 3 (Note 4) . 103,095 - Other .. . ... .. .. . . .. . .. . .. . 38,740 41,119 386,380 166,557 Total Assets . . .. .. .. . . ... $6,480,451 $6,147,720
)
]
32 The accompanying notes are an integral part of these financial statements.
g Northust Utilities GCNSELIDATED DALANCE CHEETO rnd Subsidianes
' At December 31, 1986 1985 (Thousands of Dollars)
Capitalization and Liabilities Capitalization: (see Consolidated statements of Capitalization) Common shareholders' equity:
' Common shares, $5 par value - authorized 130,000,000 shares; outstanding 108,669,106 shares in 1986 and 107,280,838 shares:in 1985.. .... .. .... . .. . . $ 543,346 $ 536,404 Capital surplus, paid in... . . ... . . . .. ..... . .. . 465,258 445,886 Retained earnings . . .. . . . .. ... .. . .. .. ... 875,441 756,581 Total common shareholders' equity .. ...... .. . ... . 1,884,045 1,738,871 Preferred stock not subject to mandatory redemption . 291,195 291,195 Preferred stock subject to mandatory redemption. . . . . . 164,392 182,642 Long-term debt .. ... . . . . . . . . . .. . . . .. ... . 2,489,331 2,451,905 Total capitalization ... . ..... ...... .. . ... 4,828,963 4,664,613 Obligations Under Capital Leases (Note 2) ...... .. .. 323,604 366,327 Current Liabilities:
Notes payable to banks (Note 3).... .. .. .... . .. . 119,500 92,750 Commercial paper (Note 3) .. ...... . .. .... .... ... .. ... . 16 000 Long-term debt and preferred stock - current portion. . . 33,906 17,382 Obligations under capital leases - current portion (Note 2) 117,579 74,260 Accounts payable .. . . . ... . . . ....... . .... ..... 152,975 182,163 Accrued taxes . . . . .. .. . .... ... 111,831 94,077 Accrued interest .... .. . , , ... 69,157 66,965 Other . .... . ... . .. . . .. . . ... 57,054 33,256 662,002 576,853
- Deferred Credits:
Accumulated deferred income taxes .. .... . , 314.149 282,506 Accumulated deferred investment tax credits. .. .. . 283,137 243,566 Rate moderation fund (Note 4) .. .. . ... .. ... . .. . 52,390 - Other . . . . . . . . . ... ... . .. . . .... ... . .. 16,206 13,855 h 665,882 539,927 L Commitments and Contingencies (Note 7) Total Capitalization and Liabilities. .. . . $6,480,451 $6,147,720
-33 The accompanying notes are an integral part of these financial statements.
Northeast Utilities CffNOCLIDATED STATEMENTO CF GAPITALIZATIIN and Subsidianes , m: j. At December 31, - 1986 1985 'I h r
. . . . .. (Thovunaof Dollars)
!- Common Shareholders' Equity (See Balance Sheets) .. $1,884,045 ; $1,738,871 Cumulative Preferred Stock of Subsidiaries: l
$25 par value-authorized 8,000,000 shares; no shares outstanding in 1986 and 1985
$50 par value-authorized 9,000,000 shares; outstanding 7,760,504 shares in 1986 and 7,840,514 shares in 1985
$100 par value-authorized 1,000,000 shares; outstanding !
700,000 shares in 1986 and 850,000 shares in 1985 Current Current Redemption Shares , Dividend Rates Prices (a) Outstanding l Not Subject to Mandatory Redemption:
$50 par value -
j
$1.90 to $4.80 $ 50.50 to $ 54.00 5,123,895.... 256,195- '256,195.
$100 par value -
; $7.72 to $9.60 $103.51 to $103.99 350,000.. 35,000 35,000-Total Preferred Stock Not Subject to Mandatory Redemption 291,195- 291,195:
Subject to Mandatory Redemption:(b)
$50 par value - -
$5.24 to $7.52 $ 52.76 to $ 57.52 1,636,609.... 81,832 85,833 1 Adjustable Rate . $ 56.15 1,000,000.... .50,000. 50,000.
$100 par value -
$16.00 - - - - 15,000 (
Adjustable Rate $112.00 350,000.... 35,000 35,000 : j Total Preferred Stock Subject to Mandatory Redemption ... 166,832 185,833 l Less preferred stock to be redeemed within one year .. 2,440' 3,191 ; Preferred Stock Subject to Mandatory Redemption, Net .. 164,392 182,642 Long-Term Debt: First Mortgag,e Bonds-Maturity Interest Rates 1986 4-1/2% . . . . . . . . .. .. .. . .. . ... ... . - 9,600 1987 4-3/8% to 5% . . . . .. ... . 27,000 27,000 1988 3-7/8% to 4-3/8% . .. . . .... ... 48,000 48,000 - 1989 17-6/10% . ... . . .. .. . - 19,608 1990 4-7/8% to 13.35% . . ... . .... ... 35,140 39,400 1991 16-3/8% to 17-314% . . .. .. ..... '- 81,805 1992-1996 4-1/4% to 15-518% . , , . . .. 422,627 327,215 1997-2001 5-5/8% to 11%.. . .. .. . .. ... .. 405,395 410,652 2002-2006. 7-1/2% to 9-1/4% . .. . .... . . '355,000 355,000 2007-2011 8-7/8% to 14-5/8% . .. ..... , . .... .. 132,100 140,390 2012-2016 9-314% to 15%. . . . . .. 197,750 174,000 Total First Mortgage Bonds .. .. ...... 1,623,012 1,632,670 f Other Long-Term Debt- 1 Millstone 3 Construction Trust-variable rate (c) . . .. - 96,989 Pollution Control Notes {, 36,525 1986-2007 5.90% to 10% . . . . .. 37,650. 2003-2016 Variable rate . . . . .. ... . ... .... .. 357,500 312,100 Notes-1988-1992 7.96% to 9.23% . , . ... .. 275,000 - 1987-1991 Variable rate . ......... ...... .. .. - 180,000 Fees and interest due for spent fuel disposal costs . .... 111,341 103,906-Miscellaneous .. . .. .. ... .. . 121,557 106,773 j Total Other Long-Term Debt . . .. . . . 001,923 837,418 l Unamortized premium and discount, net . (4,138) (3,992)
]
Total Long-Term Debt (d)-
. 2,520,797 2,166,096 Less amounts due within one year. . , 31,466 14,191 Long-Term Debt, Net . .. ... .. .. . . 2,489,331 2,451,905 i Total Capitalization . . . .. .. 14,828,963 _
$4,664,613 34 The accompanying notes are an integral part of these hnancial statements.
V W l' Inrthe.nt Utilities CCNSOLIDATED. OTATC~lNTE CF GAPITALIZAT12N (NOTES) and SubsMiari:s
, (a)~ During their respective initial five- construction trust agreement to assist ! year redemption periods, each of - in the financing of the Millstone 3 E. . these series is subject to certain construction. On June 4,1986, the A l refunding limitations. Redemption construction trust agreement was prices reduce in future years. terminated.
Interest costs of $4.3 million during (b) The minimum sinking-fund 1986, $8.1 million during 1985, and provisions of the series subject to $9.8 million during 1984 were mandatory redemption aggregate incurred and capitalized, net of i $2,500,000 in 1987 and $8,750,000 . income taxes, by CL&P and WMECO. 1 for the years 1988 through 1991. In The weighted average interest rate case of default on sinking-fund charged by the trust was 10.1 percent payments, no payments may be made in 1986,10.4 percent in 1985, and on any junior stock by way of 11.5 percent in 1984. dividends or otherwise (other than in shares of junior stock) so long as the -(d) Long-term debt maturities and cash default continues, if a subsidiary is in sinking-fund requirements on debt arrears in the payment of dividends outstanding at December 31,1986 for on any outstanding shares of the years 1987 through 1991 are: preferred stock, the subsidiary would $34,130,000, $g7,941,000,
- be prohibited from redemption or $102,039,000, $108,768,000, and purchase of less than all of the $101,389,000, respectively. In
. preferred stock outstanding- addition, there are annual i percent Changes in Preferred Stock Subject to sinking- and improvement-fund Mandatory Redemption: requirements, currently amounting to 4
. mm na.or naro $14,702,000, $14,658,000, Balance, January 1,1984 ' $188,547 $14,614,000, $14,570,000, and Reacquisitions and $14,460,000, for the years 1987 retirement) . . . . . . . . . . . . . (1,569) through 1991, respectively. Such sinking- and improvement-fund BalaNe, December 31,1984 186,978 requirements may be satisfied by the oj- Reacqul'stuens and deposit of cash or bonds or by O re tirement s ~ . . . . . . . . . . . . (1,145) certification of property additions.
Balance, December 31,1985 ' 185,833 Essentially all of CL&.P's and Reacquisitions and WMECO's utility plant is subject to retiremen ts . . . . . . . . . . . . (19,001) the liens of their respective first Balance, December 31,1986 $166,832 m rtgage bond indentures. During 1986, CL&P and WMECO secured
$306.1 million of pollution control (c) The Connecticut Light and Power notes with second mortgage liens on Company (CL&P) and the Western Millstone 1, junior to the liens of their Massachusetts Electric Company respective first mortgage bond
- (WMECO) participated in a indentures.
> L A'
f y j u
-9 k
\'h ,
'35 ' >*
q.
. = . z.
h.1 Northeast Utilities EN2CLIDATCO OTATEMENTS'G Fz
. end Subsiditries - gg;,gg CHAREHZLCRS'_ EEUITY- ;
Capital
- Common Surplus, Retained -
Shares Paid In Earningsw Total (Thousads of Dolbre) Balance at January l,1984............ $491,970 $372,618 $497,136 $1,361,724 - Net income for 1984 .... ...... .... ... 288,938 288,938 Cash dividends on common shares -
- $1.4 8 per s ha re . . . . . . . . . . . . . . . . . . . . . . (150,205) (150,205) >
- Issuance of 6,133,642 common shares, .
' $5 par valu e . . . . . . . . . . . . . .. . . . . . . . . . . . . 30,668 45,159 75,827 Common share and preferred stock issuance and retirement expenses ... . (579) (579)
Balance at December 31,1984 . . . . . . 522,638 417,198 635,869 1,575,705 ) Net income' for 1985 . . . . . . . . . . . . . . . . .. . 288,541 288,541 -l Cash dividends on common shares -
$1.5 8 per s ha re . . . . . . . . . . . . . . . . . . . . , . . (167,829) . (167,829)
Issuance of 2,753,300 common shares,
$5 par value . . . . . . . . . . . ........... .... 13,766 28,649 42,415 i Gain on reacquired preferred stock net l of common share and preferred stock j issuance and retirement expenses . .. 39 39 Balance at December 31,1985. .... 536,404 445,886 756,581 1,738,871 Net income for 1986 . . . . . . . . . . . . . . . . . . 300,894 300,894 Cash dividends on common shares -
$1.68 per sha re . . . . . . . . . . . . . . . . . .... (182,034) (182,034) i Issuance of 1,388,268 common shares, '
$ 5 pa r. value . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,942 21,035 27,977 Loss on reacquired preferred stock and common share and preferred stock issuance and retirement expenses .. (1,663)' (1,663) l Balance at December 31,1986.... . $543.346 $465,258 $875,441 '. $1,884,045 1
(a) Certain consolidated subsidiaries hw.e dividend restrictions imposed
. by their long-term debt agreements. At December 31,1986, under the -
respective agreements, there was approximately $314 million of consolidated retained earnings available for dividends. 36 The accompanying notes are an integral part of these financial statements.
i. I Northeast Utilities NOTCS TO GZNDELIDATED FINANCIAL STATEMENTO and Subsidiaries
- 1. Summary of Significant and WMECO's proportionate share of Accounting Policies Millstone 3. CL&P's and WMECO's aggregate share of Millstone 3 expenses is Principles of Consolidation: Northeast included in the corresponding operating l-
[ Utilities (NU or the company)is the expenses on the accompanying parent company of the Northeast Utilities Consolidated Statements of Income. system (the system). The consolidated [ financial statements of the company Revenues: Utility revenues are based c<n l indude the accounts of all wholly owned authorized rates applied to each . subsidiaries. Sigr.ificant intercompany customer's use of electricity or gas. Rates I. transactions have been eliminated in can be increased only through a formal f consolidation, proceeding before the appropriate regulatory commission. At the end of Public Utility Regulation: NU is each accounting period, CL&P and registered with the Securities and WMECO accrue an estimate for the ! Exchange Commission (SEC) as a holding amount of energy delivered but unbilled. j company under the Public Utility Holding . Company Act of 1935 (the 1935 Act), and Spent Nuclear Fuel Disposal Costs: it and its subsidiaries are subject to the Under the Nuclear Waste Policy Act of provisions of the 1935 Act. Arrangements 1982, CL&P and WMECO are paying the ! among the system companies, outside United States Department of Energy agencies, and other utilities covering (DOE), on a quarterly basis, a fee of 1.0 ; interconnections, interchange of electric m Il per kilowatt-hour (kWh) based on l power, and sales of utility property are nuclear genuation beginning on April 7, j subject to regulation by the Federal 1983, f r the disposal of spent nuclear i Energy Regulatory Commission (FERC) fuel and high-level radioactive waste. ! and/or the SEC. The operating For nuclear fuel used to generate subsidiaries are subject to further electricity prior to April 7,1983 (prior regulation for rates and other matters by period fuel), the fees are based on the the FERC and/or their applicable state am unt f energy extracted from such regulatory commissions and follow the fuel. As established by the Nuclear Waste accounting policies prescribed by the Pohey Act of 1982, payment for prior j respective commissions, period fuel may be made anytime prior to i the first delivery of spent fuel to the , Investments and jointly Owned Electric DOE. At December 31,1986, fees due to 1 Utility Plant: CL&P and WMECO own the DOE for the disposal of prior period common stock of four regional nuclear fuel are approximately $111.3 million, i generating companies. These companies, including interest costs of $29.1 million. with the system's ownership interests, The Connecticut Department of Public are: Utility Control (DPUC) and the Massachusetts Department of Public Connecticut Yankee Atomic Utilities (DPU) have allowed for the Power Company (CY) 44.0% recovery of spent nuclear iael disposal Yankee Atomic Electric Company 31.5 % costs, meluding interest, in rate case or Maine Yankee Atomic fuel adjustment decisions based on the Power Company (MY) 15.0% ' provisions of the Nuclear Waste Policy Vermont Yankee Nuclear Act of 1982. As of December 31,1986, Power Corporation (VY) 12.0% approximately $84.9 million had been collected through rates. . The system's investments in these d companies are accounted for on the Depreciation: The provision for equity basis. The electricity produced depreciation is calculated using the ! from these facilities is committed to the straight-line method based on estimated participants based on their ownership remaining usefullives of depreciable j interests and is billed pursuant to utility plant in service, adjusted for net ; I contractual agreements. salvage value and removal costs as l CL&P and WMECO have a 65.17 approved by the appropriate regulatory j percent joint interest in Millstone 3, a agency. Except for major facilities, ' 1,150-megawat t (MW) nuclear generating depreciation factors are applied to the unit. As of December 31,1986, plant in average plant in service during the period. I. service and accumulated depreciation Major facilities are depreciated from the included approximately $2.2 billion and time they are placed in service. When
-37 $43.7 million, respectively, for CL&P's plant is retired from service, the original l
g
- Northsast Utilities NOTES T&03NSCLIDATED FINANOIAL STATEMENTS and Subsidiaries cost of plant, including costs of removal, . income in the financial statements and 2 less salvage,is charged to the the periods in which they affect the accumulated provision for depreciation. determination of income subject to tax)is
. The depreciation rates for electric and accounted for in accordance with the gas plant in service are equivalent to the ratemaking treatment of the applicable following composite rates: regulatory commissions. In the 1986 Year ' Electric ~ Gas retail rate order, the DPUC ordered CL&P to return to flow-through 1986- 3.4% 4.0% accounting for income tax items not 1985 ' 3.5 4.0 required to be normalized by Treasury 1984 3.5 4.1 regulations. See Consolidated Statements Nuclear Decommissioning: A 1985 of Income Taxes on page 31 for the decommissioning study indicates that components of income tax expense.
immediate dismantlement at retirement is The company has not provided deferred the most viable and economic method of income taxes for certain timing decommissioning the three Millstone differences during periods when units. The estimated cost of applicable regulatery authorities did not decommissioning CL&P's and WMECO's permit the recovery of such income taxes -4 aggregate ownership share of these units through rates charged to customers. The 1 is $470.5 million in year-end 1986 dollars, cumulative net amount of income tax Decommissioning studies are reviewed timing differences for which deferred and updated periodically to reflect taxes have not been provided was changes in decommissioning approximately $1 billion at December 31, .j requirements, technology, and inflation. 1986. As allowed under current.' { in 1985, CL&P and WMECO filed plans regulatory practices, deferred taxes not J with their respective commissions to previously provided are being collected in d i establish independent decommissioning customers' rates as such taxes become trusts for their portion c: the costs of . payable. . l decommissioning Millst me 1,2, and 3. In Investment tax credits (ITC), which l 1986, the DPUC appro ed CL&P's plan to redure federalincome taxes currently establish the indeper ent trusts but payable, are deferred and amortized over required CL&P to centinue to use the the usefullife of the related utility plant. y depreciation reserve method for - The Tax Reform Act of 1986 repeals the . decommissioning funds collected through ITC for property placed in service after -] rates prior to July 1,1986, and for those December 31,1985. However, ITC may i be claimed on certain transition property. I funds which do not qualify under rules established by the Internal Revenue ITC carryovers that had not expired as of Service. In 1986, the DPU ordered December 31,1985 are preserved and WMECO to establish external may be used in 1986 and thereafter. At decommissioning trusts for all three December 31,1986, the system had - Millstone units and to transfer previously unused and unrecorded ITC of collected amounts for decommissioning approximately $10.5 million, which are i Millstone 1 and 2 into these external available to offset federalincome tax decommissioning trusts. provisions through the year 2001. As of December 31,1986, CL&P and WMECO have collected through rates All wance for Funds Used During i
$47.8 million for future decommissioning Construction (AFUDC): AFUDC, a costs, of which $7.4 million has been n ncash item, represents the estimated
(- c st of capital funds used to finance the funded externally. Although a portion of the estimated total decommissioning costs system's construch,on program. These has been approved by regulatory agencies e sts, which are one component of the and is reflected in the depreciation t tal capitalized cost of construction, are expense of CL&P and WMECO, the not rec gnized as part of the rate base for companies believe revenues in amounts r temaking purposes until facilities are greater than those currently being placed in service. AFUDC is recovered collected will be required to pay the full ver the service life of plant in the form projected costs of decommissioning, of increased revenue collected as a result of higher depreciation expense. Income Taxes: The tax effect of timing The effective AFUDC rates for 1986, differences (differences between the 1985, and 1984 were 8.2 percent,9.2 periods in which transactions affect percent, and 9.3 percent, respectively. 38-
y
' Northeast Utilities - NSTES TG %NCCLIDATED FINANCIAL OTATEMENTG ' ,
and Subsidiaries ! These rates are calculated using the net- benefits through premiums paid to an of-income tax method and in accordance insurance company, with FERC guidelines. Retirement Plan: The company's Energy Adjustment Clauses: CL&P's subsidiaries participate in a uniform retail electric rates include an adjustment noncontributory retirement plan covering clause under which fossil-fuel prices all regular system employees. It is the above or below base rate levels are policy of the subsidiaries to fund annually' charged or credited to customers. the actuarially determined contribution, . Through February 28,1985, most which includes that year's normal cost, differences between fossil-fuel costs and
, the amortization of prior years' actuarial fossil-fuel recoveries were deferred and gains or losses over 15 years, and the recovered or refunded over a future amortization of prior service cost over a period. In April 1985, the DPUC issued an period of 40 years. Total pension cost, order which suspended deferred fossil-part of which was charged to utility plant, fuel accounting. In July 1986, the DPUC approximated $31,731,000 in 1986, reinstated deferred fossil-fuel accounting
$30,803,000 in 1985, and $28,723,000 in for the period November 1,1986 through 1984. December 31,1987, with a maximum of The actuarial present value of $30 million that may be deferred during accumulated plan benefits and plan net this period. For additional information assets available for benefits for the regarding the DPUC rate orders relating system's plan is: to deferred electric fossil-fuel, see Note 4, !
" Regulatory Matters." :
CL&P's retail base electric rates include January 1, 1986 1985 nuclear generation at a 67 percent composite capacity factor. The DPUC has
**"**") approved the use of a Generation Benefits: !
Vest ed . . . . . . . . . $377,090 $339,515 Utilization Adjustment Clause (GUAC) . 1 Nonvested n., .. 47,546 42,482 which levels the effect on fuel costs ;
$424,636 $381,997 caused by variations from the 67 percent l composite nuclear generation capacity Net assets available factor. At the end of a 12-month period for benefits ... . . $606,430 $479,525 ending July 31 of each year, these net variations from the amounts included in base rate cost levels'are refunded to, or The assumed rate of return used to collected from, customers over the determine the actuarial present value of subsequent 11-month period. Should the accumulated plan benefits was 7.5 percent annual nuclear capacity factor fall below )
for both years. 55 percent, CL&P would have to apply to j
'In December 1985, the Financial the DPUC for permission to recover the Accounting Standards Board (FASB) additional fuel expense. For additional issued Statement of Financial Accounting information regarding GUAC, see Note 4, Standards No. 87 (SFAS 87) entitled " Regulatory Matters."
Employers' Accounting for Pensions. SFAS 87 CL&P's gas rates include an adjustment supercedes previous pension accounting clause under which purchased gas costs standards and will be effective in 1987. above or below base rate levels are ! This statement prescribes a standardized charged or credited to customers. As 3 method for measuring pension costs and prescribed by the DPUC, most differences ; expanded footnote disclosures. The between CL&P's actual purchased gas company does not expect that the cost and the current cost recovery are adoption of this standard will have a deferred until future recovery is material effect on net income for 1987. permitted. i [ In addition to pension benefits, the As permitted by the DPU, WMECO ! company's subsidiaries provide certain defers the difference between forecasted l , health care and life insurance benefits to and actual fuel costs untilit is recovered I k' retired employees. The cost of providing quarterly under a retail fuel adjustment those benefits was approximately clause. Massachusetts law requires the
$5,082,000 in 1986, $4,543,000 in 1985, establishment of an annual performance j and $4,293,000 in 1984. The company program related to fuel procurement and l
recognizes health care benefits primarily use. The program establishes as incurred and provides for life insurance performance standards for plants owned _39 o t- j
.Northrst Utilities N3TC3 TO GIND' lLIDATE3 FINANCIAL CTATEMENTS -
rnd Subsidirries - and operated by WMECO or plants in Capital Operating which WMECO has a life-of-unit . Year Leases -- Leases contract. Therefore, revenues collected %a, m,o under the WMECO retail fuel adjustment 19 8 7 . . . . . . . . . . . . . . . . . $ 8,100 $24,200 clause are subject to refund pending 19 8 8 . . . . . . . . . . . . . . . . . 7,600 19,000 review by the DPU. To date, there have 1989.... .... .. . 6,400 12,700 been no significant adjustments as a 19 9 0 . . . . . . . . . . . . . . . . 5,700 7,700
- result of tius program. 1991... . ........ 5,600 . 5,700 Af ter 1991. . . . . . . . . 59,600- 18,500 Future minimum .
- 2. i. eases lease payments .. 93,000' $87,800 CL&P and WMECO have entered into Less amount repre-a capital lease agreement to finance up to senting interest .. 43,900
$330 mihlon of nuclear fuel for Present value of Millstone 1 and 2 and their share for future minimum M.llstone 3. CL&P and WMECO make lease payments
- quarterly lease payments for the cost of for other than nudear fuel consumed in the reactors nuclear fuel .. .. 49,100
'(based on a units-of-production method .
at rates which reflect estimated kWh of Present value of energy provided) plus financing costs future nuclear fuellease associated with the fuelin the reactors. 392,100 payment s . . . . . . . . . Upon permanent discharge from the reactors, ownership of the nuclear fuel To tal . . . .. $441,200 transfers to CL&P and WMECO. The system companies have als
. entered into lease agreements, some of 3. Short-Term Debt .
which are capitalleases, for the use of The system companies have various substation equipment, data processing. credit lines totaling $398 million. Of this and office equipment, vehicles, nuclear amount, $350 million is available through control room simulators, and office space' revolving credit / term loan agreements The provisions of these lease agreements with two groups of banks. The maximum generally provide for renewal options. Individual borrowing limits of CL&P and The following rental payments have been WMECO under the agreements are $350 charged to operating expense: million and $105 million, respectively. The companies are obligated to pay Capital Operating commitment fees of three-eighths of 1 Year Leases Leases percent per annum under a $200 million 1986 $134,608,000 $23,557,000 revolving credit agreement and one-
'1985 73,505,000 20,208,000 quarter of 1 percent per annum under a 1984 96,769,000 18,571,000 $150 million revolving credit agreement on their proportionate shares of the daily Interest included in capitallease rental average of the unborrowed portion of the payments was $33,298,000 in 1986, aggregate commitment. At December 31,
$20,910,000 in 1985, and $23,431,000 in 1986, CL&P and WMECO had 1984. outstanding borrowings of $50 million Substantially all of the capital lease and $20 million, respectively, under these rental payments were made pursuant to agreements.
the nuclear fuellease agreement. Future The remaining $48 million is available minimum lease payments under the to the system companies through bank nuclear fuel capitallease cannot be credit lines. Terms call for interest rates reasonably estimated on an annual basis not to exceed the prime rate during the ; ' due to variations in the usage of nuclear borrowing term. Although these lines fuel. j generally are renewable, the continuing g Future minimum rental payments, availability of the unused lines of credit is excluding annual nuclear fuel lease 1 subject to review by the banks involved. _ payments, and executory costs such as Compensating balances are maintained in property taxes, state use taxes, insurance, connection with these bank credit lines and maintenance, under long-term which, at December 31,1986, amounted noncancelable leases as of to $2.4 million. At December 31,1986, 40 - December 31,1986 are approximately: the amount of unused borrowing capacity I
Northent Utilities NDTES TO C5NDTLIDATED FINANCIAL STATEMENTS cnd Subsidiaries under the credit lines available to the July 31,1986 GUAC credit). Commencing system companies was $35.5 million. in January 1987, CL&P will accrue Cash and special deposits at interest on funds in the Rate Moderation December 31,1986 included $3.7 million Fund at 8 percent, compounded of restricted funds,which must be used semiannually. for future expenditures relating to the - The settlement agreements confirmed installation of pollution control the April 1,1986 DPUC order that equipment at Seabrook I and Millstone 3, granted accounting treatment to permit and $10.0 million of funds placed in an the deferral of Millstone 3-related return insurance escrow account, and operating costs of $13.1 million incurred from the unit's April 23,1986
- 4. Regulatory Matters commercial operation date to May 23, 1986, the effective date of the retail rate Connecticut:In November 1985, CL&P orders. CL&P will recover these costs, filed an application to amend its retail including a return thereon, through rates rates with the DPUC that would have over a period beginning January 1,1988 increased annual electric and gas and ending no later than December 31, l revenues by $155.5 million. On June 11, 1995. ;
1986, the DPUC issued a decision in the Under the terms of the settlement i case that, among other things, would agreements, CL&P will be allowed to ! have reduced CL&P's electric revenues by recover its pro rata share of $3.4 billion
$7.3 million and gas revenues by $1.8 of Millstone 3 construction costs million. On July 1,1986, the DPUC (including AFUDC) incurred as of approved settlement agreements (the April 23,1986. Amounts which represent ,
settlement agreements) which superceded CL&P's pro rata share of Millstone 3 l a number of the provisions ordered in the construction costs in excess of $3.4 billion June 11 DPUC decision. The settlement are not recoverable. Capital additions agreements were reached by CL&P with subsequent to April 23,1986 are not the Connecticut Attorney General, the subject to this limitation. As of ; Connecticut Consumer Counsel, and the December 31,1986, CL&P has ! Prosecutorial Division of the DPUC to approximately $180.7 million of l resolve the rate case, the Millstone 3 Millstone 3 costs in excess of $3.4 billion prudence proceedings, excess capacity classified as Other Property on the l proceedings, and associated legal accompanying Consolidated Balance proceedings. Sheets. The settlement agreements do ; As a result of the June II,1986 DPUC not constitute a finding or admission of : decision and the settlement agreements, any imprudence or inefficiency in the l current electric rates will remain in effect construction of Millstone 3, and the j until at least January 1,1988. The DPUC concurrent prudence proceeding was j has authorized a 14 percent return on terminated without findings. CL&P's pro i equity (ROE) for CL&P. Should CL&P's rata share of the $3.4 billion permitted ROE fall to or below o percent for any cost of Millstone 3 will be phased into a 12-month period prior to January 1,1988, rates over approximately five and one- 1 CL&P may petition the DPUC for relief. half years. Although the settlement In addition, the settlement agreements agreements provide for the phasing of require CL&P to establish a rate CL&P's Millstone 3 investment into rates moderation fund (the Rate Moderation on a specific schedule,it will be necessary g Fund) to offset future electric rate for CL&P to apply to the DPUC for j increases. Funding for the Rate revenue increases sufficient to recover ; Moderation Fund includes: (i) CL&P's the installments as they are phased in. l revenues in excess of those producing a The DPUC has the authority to extend 3 16 percent ROE for any 12-month period the phase-in period to January 1,1993. ending before January 1,1988, reduced, The settlement agreements provide for i for any 12-month period in which the full deferred earnings and carrying ROE does not equal or exceed 8 percent, charges on the recoverable portion of by the amount of revenues that would be CL&P's investment in Millstone 3 being ; I needed to attain an ROE of 8 percent, and phased into rates. The amortization and j (ii) the GUAC credit as of July 31,1986. recovery of deferrals through rates will As of December 31,1986, the Rate be completed by December 31,1995. In . Moderation Fund's balance was $52.4 addition, all issues in the concurrent million ($34.7 million of deferred DPUC proceeding concerning CL&P's l revenues and $17.7 million for the current generating capacity are deemed 1
Northeast Utilities NSTED'TO OCNSSLIDATED FINANCIAL OTATEMENTS and Subsidiaries resolved until CL&P's next general rate useful" standard for evaluating proceeding. See Note 6," Accounting for Millstone 3. . . Rate Base Disallowances, Phase-Ins, and "Used" as defined in the "used and Abandoned Plant," for a discussion of the useful" standard requires that a utility effect on net income of the disallowance investment be in service and operating to-of a portion of CL&P's investment in provide a benefit to customers. The DPU Millstone 3. _. . found that Millstone 3 met this test.
. In an order dated April 4,1985, the "Useful"in the "used and useful" DPUC suspended CL&P's deferred standard requires utility plant to be electric fossil-fuel accounting and also needed and economically desirable. The required CL&P to divert construction DPU evaluated the need for capacity as work in progress (CWIP) revenues to part of an overall economic analysis of
, reduce the deferred electric fossil-fuel Millstone 3, and determined that 76
-balance on an ongoing basis. Additionally, percent of Millstone 3's costs would meet
.in an order dated August 6,1985, the the "useful" test. As a result, DPUC required CL&P to reduce the approximately $353 million of WMECO's deferred electric fossil-fuel balance by the estimated $462 million Millstone 3 retail July 31,1985 GUAC credit balance. As a investment was deemed "used and useful" result of the June 11 decision and the in providing electricity to ratepayers. This settlement agreements, CL&P removed "used and useful" portion of Millstone 3 the CWIP revenues of $24.9 million and will be phased into rates over a five-year
. GUAC credit of $17.0 million, from the period. Although the rate order provides
' deferred electric fossil-fuel balance, and for a five-year phase-in, it will be began amortizing these amounts over a necessary for WMECO to apply to the 19-month period from June 1986 to DPU for revenue increases sufficient to i~ December 1987. The deferred electric recover the installments as they are fossil-fuel balance, as of February 28, phased in. WMECO will be allowed to 1985, of $83.8 million will be recovered earn a return on the "used and useful" over ten years with no rate base portion of its investment in Millstone 3 treatment. The GUAC mechanism began being phased into rates, operating again in the traditional manner The DPU further found that WMECO beginning August 1,1986, after the had prudently managed the construction July 31,1986 credit of $17.7 million was of Millstone 3 and was, therefore, entitled applied to the Rate Moderation Fund, to recover most of the remaining $109 j On September 4,1985, the DPUC million cost of Millstone 3 from
. issued an order to CL&P providing that in ratepayers. Of this $109 million, any month, beginning with August 1985, WMECO will be permitted to recover in which CL&P's monthly annualized $95.5 million over a ten-year period ROE, computed on a cost of-capital basis, without earning a return. The remaining exceeded 15.9 percent, CL&P would place $13.5 million, which represents the l: the amount of revenues in excess of that equity portion of AFUDC for the
. required to earn a 15.9 percent return in "unuseful" segment, was disallowed at a reserve account for use as an offset to this time. The DPU's decision regarding
'its next general rate request. Under this Millstone a provides that an additional order, CL&P had deferred $33.1 million amount of WMECO's investment might of revenues. CL&P appealed this order to subsequently be deemed "used and 4 the Connecticut Superior Court. On useful." The DPU also approved l May 30,1986, the Superior Court ruled accounting treatment to permit the 1 in favor of CL&P and,in June 1986, the deferral of Millstone 3-related return and
$33.1 million deferral was reversed, operating costs from the commencement of that unit's commercial operation Massachusetts: On December 17,1985, through June 29,1986, the effective date WMECO filed an application with the of the retail rate orders. These deferred DPU for an overall $29.4 million net costs of $7.5 million, which will earn a increase in retail electric revenues. On return, are to be amortized over eight June 30,1986, the DPU issued a decision years beginning in July 1987.
!' in the retail rate case that the DPU On July 25,1986, WMECO filed a calculated would result in a net reduction motion for recalculation and in annual electric revenues of $5.9 million reconsideration of certain adjustments or 2.3 percent. The DPU has authorized a contained in the DPU's June 30,1986 13 percent ROE for WMECO. In its rate order. On February 13,1987, the DPU decision, the DPU applied a "used and issued an order on WMECO's motion for
l I
~ Northeast Utilities . NSTES TO C3NSOLIDATED FINANCIAL STATEMENTO E and Subsidiaries
- recalculation and reconsideration which CL&P cannot predict whether and to further reduced WMECO's annual what extent it will recover its present revenues by $1.5 million. Seabrook 2 investment.
' On December 17,1986, WMECO filed an application with the DPU to increase its retail electric revenues by 6. Accounting for Rate Base !
approximately $23.5 million annually or Disallowances, Phase-Ins, and 8.7 percent. If approved, the new rates Abandoned Plant are expected to go into effect in July 1987.- As discussed above, CL&P's Most of the proposed increase is bemg investments in Millstone 3 and the sought as the second part of the abandoned Seabrook 2 project have been previously approved .five-year phase-m. of addressed in its recently completed rate costs associated with Millstone 3. The case. Under generally accepted accounting rate application incorporates a requested principles currently in effect, those - ROE of 14 percent, which is an increase regulatory actions would not require from the 13 percent ROE currently immediate loss recognition. authonzed. Hearings began m As reported in the NU 1985 Annual February 1987. Report, the FASB had been reconsidering Wholesale Rate Cases: On April 23,1986, its accounting standards for a number of CL&P, WMECO, and Holyoke Water regulatory-related issues including a Power Company (HWP) began collecting regulat r's partial disallowance of the cost rates subject to refund associated with f neWIy C mpleted plant, plant wholesale rate filings that were submitted abandonments, and Phase-m plans. in August 1985 to the FERC. The parties in December 1986, FASB released to the proceedings have reached Statement of Fm, ancial Accounting settlements in principle on all but three Standards No. 90, Regulated Enterprises-issure in the cases. Hearings on the Aucunung fu Abandonments and Disallowances unresolved issues were completed on of Plant Costs (SFAS 90). SFAS 90 requires June 6,1986. Th9FERC administrative utilities to recognize as a current charge law judge has not set a date for the t expense any costs of a recently 1 C mPl eted plant which are disallowed decision. Management believes that the (either directly or mdirectly) m a rate final resolution of these matters will not have a material effect on net income. proceeding. SFAS 90 further requires that-when it becomes probable that a plant under' construction will be abandoned,
- 5. Canceled Nuclear Project and the utility determines that its -
Seabrook 2 has been canceled by the regulatory commission will permit i joint owners. The June 11 DPUC decision recovery of that abandoned plant, but 1 and the settlement agreements granted without granting a return, the utility i $3.3 million of annual revenues to should discount the abandoned plant l recover a portion of CL&P's retail investment to the present value of the !' investment in Seabrook 2. The DPUC did probable future revenues expected to be , not allow CL&P to earn a return on this provided to recover the cost of the ! investment, which at December 31,1986 abandoned plant. If the carrying amount 'j was $23.9 million. of the abandoned plant exceeds the ; The total amount of investment to be present value, the loss would be 1 recovered, whether there should be a recognized currently, q return thereon in the future, and the SFAS 90 is effective for fiscal years recovery period will be determined in beginning after December 15,1987 and is future proceedings. When making future to be applied retroactively. As a result of rate determinations concerning the the DPUC decisions with respect to the recovery of CL&P's Seabrook 2 partial disallowance of Millstone 3, investment, the DPUC will consider the described in Note 4," Regulatory findings of the Seabrook prudence audit Matters," NU's net income will be being conducted by Theodore Barry & reduced when the provisions of SFAS 90 Associates (TB&A). For additional are applied. SFAS 90 must be applied no information regarding the Seabrook later than January 1988. The impact of project prudence audit, see Note 7, the Millstone 3 disallowance at the time
" Commitments and Contingencies." SFAS 90 is adopted is expected to reduce Although CL&P has been allowed to net income by approximately $125 recover part of the cost of a previously million. CL&P's discounting of its 43 canceled nuclear unit (without a return), Seabrook 2 investment to its present i
l 1
- Northeast Utilities --N3TES TO CONS'5LIDATED FINANDIAL STATEMENTS and Subsidiaries
- value would not have a material effect on the construction costs of Seabrook.1 that net income. may be made part of rate base or ,
During the course of its 1986 - otherwise included in the rates of CL&P. ! deliberations, FASB concluded that- In 1985, a Connecticut law was enacted ; additional consideration is necessary_ to that placed the same $4.7 billion limit on
- resolve accounting issues related to Seabrook I construction costs. CL&P's
. phase-in plans. As a result, accounting for total expenditures for Seabrook 1 l phase-in plans was not included in exceeded its pro rata share of the $4.7 SFAS 90. The issue which FASB must billion " cap"in December 1986i Recovery address is to identify the criteria which of all subsequent investment in j I would be used to defer and recover costs Seabrook I depends on CL&P's ability to under a phase-in plan, including the invalidate the $4.7 billion " cap"in the (
appropriateness of accruing a deferred courts or to demonstrate to the DPUC
. equity return. Any decision reached by that the additional costs fall within the FASB, which would differ from the exceptions to the " cap" laws.
criteria'used in CL&P's and WMECO's In March 1986, the DPUC reopened - approved plans, could adversely affect the hearings regarding the viability of companies. The FASB expects to release Seabrook 1. The June 11 DPUC decision an exposure draft on the accounting for concluded that "although the actual date phase-in plans sometime in 1987. of operation is contingent upon final approval of an evacuation plan, Seabrook 1 will become used and useful
- 7. Commitments and f r public service., In order to assist the Contingencies DPUC m reachmg decisions about the Construction Program: The construction treatment of Seabrook project costs in program is subject to periodic review and electric rates, the DPUC has initiated a revision. Actual construction review, conducted by TB&A, of the expenditures may vary from such prudence of CL&P's and The United estimates due to factors such as revised Illuminating Company's (an unaffiliated load estimates, inflation, revised nuclear Connecticut utility) investments in the -
safety regulations, delays, difficulties in Seabrook project, the licensing process, the availability and On September 20,1986, the Governor ; cost of capital, and the granting of timely of Massachusetts announced that and adequate rate relief by regulatory Massachusetts will not submit evacuation commissions, as well as actions by other plans for Seabrook I to federal regulatory bodies. authorities and that Massachusetts will The system companies currently challenge the Nuclear Regulatory forecast construction expenditures Commission's (NRC) actions if the NRC (including AFUDC) of $1.52 billion for grants an operating license for the years 1987-1991, including $379.4 Seabrook I without Massachusetts' ; million for 1987. In addition, the system approval of evacuation plans. In companies estimate that nuclear fuel December 1986, the Seabrook joint ; requirements will be $344.1 million for owners asked the NRC for a reduction in i the years 1987-1991, including $92.3 the emergency evacuation zone radius. In million for 1987. January 1987, the NRC stated that it Scabroob CL&P has a 4.06 percent joint would not grant a low-power license to ownership interest in the Seabrook Seabrook 1 until it determines whether it project. At December 31,198.6, CL&P's will grant a reduction in the emergency CWIP balance included an investment of evacuation zone. While the company
$193.3 million in Seabrook 1. In January believes that Massachusetts' opposition 1987, CL&P estimated that its total share increases the risk that the unit may not of the costs, including AFUDC, for be permitted to operate,it continues to Seabrook I would be approximately $230 believe that the unit will be placed into l million. CL&P's~cstimates were based on commercial operation.
Its assumptions, for financial planning Due to the uncertainties surrounding purposes, that Seabrook 1 would not Seabrook 1, including resolution of ; enter service until June 30,1988 and that prudence and " cap" issues, management ! I the totalcost of constructing Seabrook I cannot predict the amount of CL&P's and placing it in service would be $5.7 investment that ultimately will be billion, including AFUDC. recoverable. Management does not In 1984, the DPUC established a $4.7 believe that a material write-off of billion limit, with certain exceptions, on Seabrook l investment would be L
Northeast Utilities NLTa0 TO C3NO2LIDATED FINANCIAL STATEMENTO
/and Subsidiaries -
necessary under generally accepted ' WMECO's ownership interests in the accounting principles currently in effect. nuclear units currently in service, the
. However, under SFAS 90 (which was maximum liability per incident would be discussed in Note 6) a loss may have to be $18.4 million, limited to a maximum of recognized for Seabrook 1. Although the $36.8 million in any year.
amount of any such loss cannot be Insurance has been purchased from determined until the above uncertainties Nuclear Electric Insurance Limited (NEIL) are resolved,it could have a material to cover: (a) certain extra costs incurred' effect on net income. In obtaining replacement power during a Hydro-Queber: Along with other New ' prolonged accidental outage with respect ! England utilities, CL&P, WMECO, and to CL&P's and WMECO's ownership i
- HWP have entered into agreements interests in Millstone 1,2, and 3, and CY; related to the financing and construction and, (b) the cost of repair, replacement, or of direct current transmission and decontamination of utility property p terminal facilities (Phase 1) to import - resulting from insured occurrences at
~
electricity from the Hydro-Quebec Millstone 1,2, and 3, CY, MY, and VY. system in Canada. On October 1,1986, All companies insured with NEIL are Phase i entered commercial service. The subject to retroactive assessments if final construction cost for Phase Iis losses exceed the accumulated funds expected to be approximately $145-$150 available to NEIL. The maximum million. The Phase I facilities are capable potential assessments against CL&P and of transferring 690 MW. CL&P, WMECO with respect to losses arising , WMECO, and HWP are entitled to during current policy years are receive 23.6 percent of New England's approximately $11.1 million under the fuel savings related to the electricity replacement power policies and $15.5 transmitted by the facilities and are million under the property damage and responsible for their share of the total decontamination policies. Although CL&P d annual costs of the facilities, and WMECO have purchased the limits l NU, along with various New England of coverage currently available from l utilities, also entered into agreements to conventional nuclear insurance pools, the ! finance and construct additional cost of a nuclear incident could exceed ! transmission and terminal facilities available insurance proceeds. (Phase II), currently estimated to cost approximately $547 million of which Financing Arrangements for the Regional approximately $14.7 million had been Nuclear Generating Companies: The i expended as of December 31,1986. These owners of CY, including CL&P and ; facilities, which will be completed in the WMECO, have guaranteed their prc, rata - ; early 1990s, will increase the capability of shares of $36.7 million 17 percent Series A i the Phase i Hydro-Quebec Debentures and a $25 million revolving interconnection to 2,000 MW. Upon credit agreement. The guarantees of completion of Phase 11, NU is expected to CL&P and WMECO aggregate $27.9 have a 22.36 percent equity ownership in million. the Phase 11 facilities. Under the terms of The owners of VY, including CL&P and the Phase 11 equity agreement, NU will be WMECO, have guaranteed their pro rata required to guarantee the obligations of shares of a $40 million nuclear fuel other participants that have lower credit financing through the Vernon Energy ratings and NU will receive compensation Trust. The guarantees of CL&P and for such guarantees WMECO aggregate $4.8 million. The owners of MY, including CL&P Nuclear Insurance Contingencies: The and WMECO, have guaranteed their pro Price-Anderson Act currentlylimits rata shares of MY's obligations under a , public liability from a single incident at a $50 million nuclear fuel loan agreement. l nuclear power plant to $695 million. The The guarantees of CL&P and WMECO first $160 million of liability would be aggregate $7.5 million. covered by the maximum provided by CL&P and WMECO may be asked to commercialinsurance. Additionalliability provide additional capital and/or other of up to $535 million would be provided types of direct or indirect financial by an assessment of $5 million per support for one or more of the regional incident levied on each of the 107 nuclear nuclear generating companies. units currently licensed to operate m, the United States, subject to a maximum assessment of $10 million per nuclear 45.- unit in any year. Based on CL&P's and l
}
Northeast Utilities ' NSTJO TO CCNSELIDATED FINANZIAL OTATEMENTO ' L cnd Subsidiaries i
- 8. Segments of Business 1 The follo' wing summarizes information relating to NU's electric and gas operations:
For the Years Ended December 31, 1986 1985 1984 (Thousands of Dollare) Operating Information: ) Operating revenues-Electric. ..., .. . .... .. .. . .... . $1,828,303 $1,861,011 $1,870,822 Gas . . . .. ... ... .. 203,814 220,010 224,430 Total .. . .. .. ... . .... $2,032,117 $2,081,021 $2,095,252 Pretax operating income-Electric .. . . . . . ... .. . . ... ' $ 453,308 $ 432,536 $ 519,901
~ Gas . . .. . . . ... . , , 35,026 37,913 39,988 Total . . . .... . ,, .. . . . . $ 488,334 $ 470,449 $ 559,889 1
Depreciation expense-Electric . . . . . . . . ... . ..... . $ 160,217 $ 116,260 ' $ 111,206 Gas . .. ... . . . .. . . ... 11,258 10,610 10,056 Total . . . . . . . . . .. . .. . . $ 171,475 $ 126,870 - $ 121,262 Gross Property Additions: Elect ric .. ... . . .. $ ' 468,279 $ 745,259 $ 711,832 Gas . . . . .. .. ... .. 21,192' 19,786 20,773 i Total. . . . .. . . ...,,, . $ 489,471 $ 765,045 $ 732,605 Investment Information at December 31: Identifiable assets (a)- .] Elect ric . . . . ...... . . . .. .. .... $5,623,647 $5,256,767 $4,695,549 ) G as.. ..... .. .... ...... ... . . . 229,816 217,724 207,944 j Nonallocable assets. . . . .. . . 626,988 673,229 603,547 4 1 Total Assets . , .. .. . .. .. ... $6,480,451 $6,147,720 $5,507,040 i l (a) Includes construction work in progress, materials and supplies, and allocated common utility plant.'
'46 1
Northeast Utilities SELEltTE3 C3NO@LIDATED FINANCIAL DATA and Subsidiaries 1986 1985 1984 1983 1982'
***"'"*'"'"'~"'"'"'"'"d'
Balance Sheet Data:
. Total Net Utility Plant $5,352,706 $5,418,802 $4,854,615 $4,315,553 $3,754,032
' Total Assets . . . . . . . , , . 6,480,451 6,147,720 5,507,040 4,957,927 4,309,368 ,
Total Capitalization .. f ,862,869 4,681,995 4,319,404 3,954,569 3,465,395. 'l Obligations Under
. Capital Leases . .. 441,183 440,587 392,593 337,636 286,603 Income and Share Dab:
' Operating Revenues. .. - $2,032,117 $2,081,021 $2,095,252 $1,889,081 $1,763,220 Operating Expenses .. 1,729,514 1,792,268 1,750,902 1,602,794 1,506,552 Operating income .. . 302,603 288,753 344,350 286,287 256,668 Net Income . . . . . . . . . . . .. -300,894 288,541 288,938 221,548 151,242 I
. Earnings per Share . . $ 2.78 $ 2.72 $ 2.85 $ 2.37 $ 1.76 Dividends per Share . . $ 1.68 $ 1.58 $ 1.48 $ 1.38 $ 1.28 ,
Payout Ra tio (%) . . . . . . . . 60.4 58.1 51.9 58.2 72.7 Number of Shares Outstanding-Average 108,352,517 106,221,131 101,398,235 93,497,945 85,777,230 Rate of Return Earned on Average Common Eq uity (%) . . . . . . . . ... 16.6 17.4 19.8 17.8 13.8 Book Value per Share . $17.34 $16.21 $15.07 $13.84 $12.96 Market Price - High . . $28% $18% $14% $13% $12%
- Low . . . $17% $13% $10% $11% $ 8%.
i l Capitalization: (Includes portions due within one year) I Common Shareholders' i Equity . . .. . .. . $1,884,045 $1,738,871 $1,575,705 . $1,361,724 $1,159,698 Preferred Stock Not ;
-Subject to Mandatory 3 291,195 Redemption ... . . . 291,195 291,195 291,195 291,195 Preferred Stock Subject to Mandatory ;
Redemption . . . . , 166,832 185,833 186,978 188,547 104,461 3 Long-Term Debt . . . . . . 2,520,797 2,466,096 2,265,526 2,113,103 1,910,041 Total Capitalization . . $4,862,869 $ 4,681,995 $4,319,404 $3,954,569 $3,465,395 Common Shareholders' Equity . . ... . . 38.8% 37.1 % 36.5 % 34.4 % 33.5 % Preferred Stock Not Subject to Mandatory Redemption . ... . . 6.0 6.2 6.7 7.4 8.4 Preferred Stock Subject to Mandatory Redemption . . 3.4 4.0 4.3 4.8 3.0 Long-Term Debt . 51.8 52.7 52.5 5 3. 4 _ . 55.1 Total Capitalization 100.0 % 100.0 % 100.0 % 100.0 % 100.0% 47'
._ . ._ .. ._ . _ _ . _ _ _ _ _ _ . ......_J
Northeast Utilities OZNDSL12ATED STATEMENTO CF CUARTERLY c : and Subsidiarie' FINANCIAL DATA (Unaudited) Quarter Ended 1986' March 31 June 30 September 30 - December 31 (Thousands of Dollare. eiwert Per share data) Operating Revenues. . $549,930 $497,210 $475,158_ $509,819 Operating Income .. $ 77,303 $ 87,187 5 72,703 $ 65,410 Net Income . . . . . . . .. .. $ 80,865 $ 98,128 $ 65,075 $ 56,826 Earnings Per Common S ha re . . . . . . . . .. .. . 50.75- $0.91 $0.59 $0.53 1985 Operating Revenues. . . $590,852 $479,012 $477,178 $533,979 Operating income . ... $ 98,289 $ 68,736 $ 64,591 5 57,137 Net income . . .. . $ 96,376 $ 67,572 $ 66,386 $ 58,207-Earnings Per Common Share .. .............. 50.92 $0.63 $0.63 $0.54 l COMMON SHARE INFORMATION i The common shares of Northeast Utilities are listed on the New York Stock Exchange. The ticker symbol is "NU," although it is frequently p resented as "Noest Ut" l i in various financial publications. The high and low sales prices and dividends paid for the ! past two years by quarters are shown below: Quarterly Dividend Year Quarter High Low Per Share 1986 First $22% $17% $0.42 Second 22% 17% 0.42 Third 28 % 21 % 0.42 Fourth 26% 24 0.42 1 1985 First I5H 13% 0.395 i Second 17% 15% 0.395 Third 18 14 % 0.395 Fourth 18 % - 14 % 0.395 CONSOLIDATED GENERAL OPERATING STATISTICS 1986 1985 1984 1983 1982 System Capability - MW (a) . ... . . . . . 5,972.8 5,462.9 5,869.0 5,966.9 5,946.1 System Peak Demand - MW., . ... . .. ..... 4,241.5 4,340.2 4,234.4 4,068.8 4,063.9 Nuclear Capacity - M W (a) . . . . . . . . . . . . . 2,681.4 1,932.2 1,937.8 1,937.8 2,008.8 Nuclear Capacity Factor (%) (a) . .. . . ...... 75.7 66.0 78.5 62.7 70.8 Nuclear Contribution To Total Energy Requirements (%) (a) 67.1 47.6 57.2 47.9 56.7 (a) Includes company entitlements in regional nuclear generating companies. 48 L_.
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- 'andNorthrast Utilities BCNO3L12ATED ELECTRIC CPERATIN3 STATIST 13S Subsidiaries '
i I j 1986 1985 1984 1983 1982 ; Source of Electric Energy:(kWh-millions)(a) Nuclear-Steam . .. -16,624 11,453 '13,711 10,898 12,343 > Fossil-Steam . . ...... 9,048 8,325 9,065 7,963- 7,503 Hydro-Conventional. 895 726 840 833 791 i Hydro-Pumped
' Storage ......... .... 950 925 875 897 795 Internal Combustion . . . 33 16 34 13 15 Energy Used For _ . ,
Pu mping . . . . . . . . . . . (1,293) (1,287) (1,199) (1,244) (1,108) ! Net Generation ... 26,257 20,158 23,326 19,360 20,339 ! Purchased And Net Interchange .. .... . .. (1,725) 3,320 (115) 2,798 883 Company Use And , Unaccounted For . . . (2,050) (1,859) (1,793) (1,801) (1,631) ! Net Energy Sold .. 22,482 21,619 21,418 20,357 _ 19.591 Revenues: (thousands) R esidential . . . . . . . . . . . . . . , $ 741,838 $ 750,076 5 754,075 $ 668,794 5 633,124 Com mercial . . . . . . . . . . . . . 602,924 606,414 589,898 515,750 479,976 Ind us t rial . . . . . . . . . . . 350,310 371,079 381,289 332,460 314,420 Other Utilities ... . .. 55,683 56,857 56,492 55,457 '47,822 Streetlighting and Railroads .... .... 34,741 34,899 32,252 26,456 23,767 Miscellaneous ... .... . (2,464) 9,698 29,340 28,413 23,114 Total Electric . 1,783,032 1,829,023 1,843,346 1,627,330 1,522,223 Other . . . . . . . . . . .. 45,271 31,988 27,476 22,752 16,550 Total . . . . . . . $1,828,303 $1,861,011 $1,870,822 $1,650,082 $1,538,773 1 Sales: (kWh - millions) Residential.. . ...... . 8,274 7,837 7,804 7,554 7,342 i Commercial . .. .. 7,676' 7,185 6,904 6,493 6,166 Industrial . . . . . .. ... . 5,394 5,286 5,374 5,046 4,871 Other Utilities ......... 830 1,016 1,082 1,060 .1,035 i Streetlighting l and Railroads . . . . . . . . . 308 295 254 -204 177 Total . . . ... 22,482 21,619 21,418 20,357 19,591 l Customers: (average) Residential.. . .. 1,063,998 1,041,254 1,021,871 1,005,005 991,069 Commercial .. . . 90,924 88,031 85,658 83,955 88,315 ' Industrial .. .. . 5,102 5,087 5,022 4,979 5,004 Other . . . . 3,061 3,035 2,992 2,976 2,398 Total . . 1,163,085 1,137,407 1,115,543 1,096,915 '1,086,786 l Average Annual Use Per Residential Customer (kWh) 7,746 7,492 7,596 7,472 7,361 Average Annual Bill Per Residential j Customer .. $694.51 $717.06 $734.00 $661.57 $634.71 l Average Revenue Per kWh: Residential.i. . . 8.97c 9.57e 9.66e 8.85c 8.62e Commercial 7.85 8.44 8.54 7.94 7.78 Industrial .. .. . 6.49 7.02 7,10 6.59 6.45 f' (a) Generated in system and regional nudear generating plants. l. 49-
)
Northeast Utilities CCNSELIDATED OAS CPERATIN3 STATISTITJO and Subsidiaries 1986 1985 1984 1983 1982 Source of Gas: 1 (Mcf-thousands) - I Pu rch ased . . . . . . . . . . . . ' . 29,237- 30,534 32,099 28,438 29,263 Prod uced . . . . .......... . 223 236 318 352 464 Company Use And Unaccounted For .. . (1,211) (2,855) (2,735) (1,129) (810) Net Sold . . . . . . . 28,249 27,915 29,682- 27,661 28,917 l t Maximum Day Sendout (M-Therms) . .. 1,847 1,970 1,722 1,855 2,068 Revenues: (thousands) Residential . . . . . . . . . . . $ 99,654 $ 98,812 $ 98,799 $103,164 $ 94,115 ! Commercial .. .. . 58,006 58,934 59,576 61,186 58,189 !' Industrial . . ... .. . 43,952 57,367 67,645 68,783 69,850 Miscellaneous ... .. . 2,202 4,897 (1,590) 5,866 2,293 Total . . . .. . $203,814 $220,010 $224,430 $238,999 $224,447 Sales: (Mcf-thousands) Residential ... .. . . 10,730 10,125 10,159 9,515 10,294 Commercial .. . . 8,134 7,704 7,822 7,207 7,722 l Industrial . ... .. 9,381 10,082 11,697 10,934 10,886 Other . . . . . . . ,. .. 4 4 4 5 15 Tot al . . . . . . 28,249 27,915 29,682- 27,661 28,917 Customers: (average) Residen tial. , .. . 145,234 142,280 140,508 139,325 137,204 ; Commercial . .. . . . . . . 16,185 15,506 14,637 14,190 13,829 i Industrial ... .. ...... 1,346 1,333 1,307 1,293 1,296 Total . . ... 162,765 150,119 156,452 154,808 152,329 Average Annual Use Per Residential Customer (Mcf) . 73.9 71.2 72.3 68.3 75.0 Average Annual Bill Per Residential Customer . .. . $686.13 $694.49 $703.15 $740.46 $685.95 Average Revenue Per Mcf: Residential... , . $9.29 $9.76 $9.73 $10.84 $9.14 Commercial . . .. 7.13 7.65 7.62 8.49 7.54 j industrial . .. . . . 4.69 5.69 5.78 6.29 6.42 - I
- 50. j t
NIRTHEAST UTILITIED CERVl3E CCMPANY OFFICERS l l Chairman, President, and Leonard A. O'Connor l Chief Executive Officer Treasurer ] Richard A. Reckert Fossil and Hydro Production Wayne D. Romberg Executive Vice President and Nuclear Operations Chief Financial and Administrative Officer Bernard M. Fox Walter T. Schultheis Potoer Supply Planning and Researclu C. Frederick Sears Nuclear and Environmental Engineering Executive Vice President John F. Opeka J hn J. Smith Gas Supply Manning and Businen &m,us Engineering and Operations George D. Uhl Controller Senior Vice Presidents h' '[,hP.E r ri g and Construction Philip T Ashton General Manager-Gas Group
' I " P' gnet C porate Pla ,ing and Regulalonj Relations Regional Vice Presidents Leon E. Maglathlin, Jr. Lesley C. Gerould Customer Service S*"' ^ ""
Frank R. Locke Edward J. Mroczka Nuclear Engineering and Operations Lawrence H. Shay Administrative Serrius hrhr'er ' " Walter F. Torrance, Jr. Alfred R. Rogers Secretary and General Counsel C'""I Robert W. Zonghetti Western . Vice Presidents C. Thaver Browne Budget 51anagement and Financial Plar:ning A istant c etar s
,g ,9 Carioll A. Caffrey Cheryl W. Grise Human Resources Douglas R. Teece Tod O. Dixon Assistant Treasurers information Resources Robert C. Aronson David H. Boguslawski Raymond E. Donovan Marketing and Consumer Services i Albert J. Hajek Corporate Perforonance Services and Organizational Control Warren A, Hunt i Regulatory Relations !
Francis L. Kinney Public Affairs , 1 Harrie R. Nims Transmissioir and Distribution Engirieering and Operations As of February 1,1987 51-l
}
r 7 l l CO_~;THJA'37 UTILITIES OFFICERS TRUSTEES William B. Ellis *+#* William O. Bailey Chairman ofIhe Board, President, and Vice Chairman Chief Executive 01ficer Aetna Life and Casualty Company Bernard M. Fox *to Edward B. Bates Executive Via President and Chairman of the Executive Committee Connecticut Mutuallife Insurance Company Chief Financialand Administrative officer Walter F. Torrance, Jr. +# John McP. Collins Senior Vice President. Secretary, and Retired Chairman and Chief Executive Officer General Counsel Springfield institution for Savings
# Richard L Creviston Leonard A. O'Connor Chairman, President, and Chief Executive Officer Vice President and Treasurer New England Savings Bank George D. Uhl to Donald W. Dav.ns Vice President and Controller Chief Executive Officer and Chairman Elizabeth W. Broome The Stanley Works j Assistant Secretary (tools, hardware, and industrial products)
Cheryl W. Crise +#* Donald J. Donahue Assistant Secretary Chairman Magma Copper Company Robert C. Aronson *+* William B. Ellis Assi, tant Treasurer Chairman ofIhe Board. President. and David H. Boguslawski Chief Executive Officer Assistant Treasurer
- Bernard M. Fox Executive Vice President and Chief Financial and Administrative Offiar
*ta George B. Harvey Chairman of the Board and President Pitney Bowes Int. ,
(mailing and office products, i business supplies, and financial serviasl t Eugene D. Jones Senior Vice President Greiner Engineering Sciences. Inc. (consulting engineers) 41 Elizabeth T. Kennan President Mount Holyoke College
*+ Denham C. Lunt, Jr.
Chairman. President, and Chief Executive Officer Lunt Silversmiths } i
+# Burke Marshall Nicholas deb. Katzenbach Professo, of Law 1 Yale law School
*t William J. Pape Il Publisher Waterbury Republican and American (newspapers) t Norman C. Rasmussen Professor of Nuclear Engineering Massachusetts Institute of Tuhnology
# William K. Reilly President, World Wuldlife Fund and The Conservation Foundation (interna!ional conservation organization
- Enecutive Comunittee and environmental researchl
+ Finance Committee *+ # Albert E. Steiger, Jr.
# Audit Committec Pasident and Chief Executive Offiar t Committee on Organization, Alh"' SIK "' I"
Compensation and Board Affairs idepanment ston chain)
- Ad Hoc Committee on New Business Ventures As of February 1,1987 52 I
r ,
- NU: SERVICE AREA As of December 31,1986 The Northeast Utilities service area covers approximately 5,970 square ' miles (4,480 in '; t K Connecticut and 1,490 in Massachusetts)in 212 communities (153 in Connecticut and 59 in Massachusetts).
LNortheast Utilities serves 1,177,510 electric and 165,443 gas customers. (CL&P serves J 995,819 electric and 165,443 gas customers in Connecticut. In Massachusetts, WMECO serves 181,695 electric customers, and HWP serves wholesale 43 large industries, an , investor-owned utility, and'a municipal electric department.)- i ( VT [ NH l t ' MASSACHUSETTS l NY ! so ion;
,7 ,
I m 1
- _ ~
j 1 e Hartforde ; . RI
~ CO %+ TICUT pe ' ygh g_.
g a 4 ' l Electrk Retail Service' Area . g
! Electric Wholeule Servke Area '
El Gas Service Area 8 pty SHAREHOLDER INFORMATION Shareholders As of January 31.1987, there were 171,128 common shareholders of record of Northeast Utilities. Dividend Reinvestment and Common Share Purchase Plan The company has a Dividend Reinvestment and Common Share Purchase Plan under which all common shareholders may use their dividends to purchase additional common shares. The company absorbs all brokerage fees for purchases under the plan The Connecticut Bank and Trus: Company, N.A., One Constitution Plaza, Hartford, Connecticut 06115,is the company's dividend paying agent and administers the company's Dividend Reinvestment and Common Share Purchase Plan.
< Annual Meeting.
The annual meeting of shareholders of Northeast Utilities will be held at The Conference Center at Howard Johnson's, Windsor Locks, Connecticut, (on Interstate 91
.. .take Center Street Exit 41) on Tuesday, May 19,1987, beginning at 10 a.m.
Transfer Agents and Registrars l The Connecticut Bank and Trust Company, N.A. State Street Bank and Trust Company L Stock Transfer Department Corporate Stock Transfer Department i' One Constitution Plaza 225 Franklin Street Hartford, Connecticut 06115 Boston, Massachusetts 02107 Form 10-K Available Northeast Utilities will provide shareholders a copy of its 1986 Annual Report to the ! Securities and Exchange Commission on Form 10-K, including the financial statements L and schedules thereto, without charge, upon receipt of a written request sent to: ! Cheryl W. Gris6 l Assistant Secretary j Northeast Utilities 1 P.O. Box 270 i Hartford, Connecticut 06141-0270 1 J
l i NORTHEAST UTILITIES l i
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THE CONNECTICUT LIGHT AND POWER COMPANY WESTERN MASSACHUSETTS ELECTRIC COMPANY . HOLYOKE WATER POWER COMPANY NORTHLAST LTTILITIES SERVICE COMPANY j { NORTHEAST NUCLEAR ENERGY COMPANY - P.O. Box 270 - Hartford, Connecticut 06141-0270 . (2d3) 665-5000
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