ML20248L765
| ML20248L765 | |
| Person / Time | |
|---|---|
| Site: | Millstone, Seabrook  |
| Issue date: | 12/31/1997 |
| From: | PUBLIC SERVICE CO. OF NEW HAMPSHIRE |
| To: | |
| Shared Package | |
| ML20248L749 | List: |
| References | |
| NUDOCS 9806110344 | |
| Download: ML20248L765 (54) | |
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. John C, Collins' Michael G. Mortis Lisa J.Thibdaue Chairman angl Chief Vics Presideat-Rates. Regulatory
- Chief Executive Omccr Exectrive Ofheer AITairs and Compliance J Lahey liitchcock Clinic ~
. John H. Forsgren - William T. Frain, Jr. Dennis E. Welch Executive Vice President and Pars? dent and V.ee President-Environmental, i Chief Financial Oflicer - Chief Operating Omcer Safety and Ethics ,
I L.Nonhenst Utilities -
Bruce D. Kenyon Lori A.Mahler William T. Frain, Jr. President-Nuclear Group Assistant Controller-President and - Accounting Services (Chief Operating Officer . John H. Forsgren '
Executive Vice President and Michael J. Mahoney
- Bruce D. Kenyon Chief Financial Officer Assistant Controller- ,
President-Nuclear Group Rate Regulation -
V Nonheast Utilities . ~ Robert P. Wax
. Senior Vice President, Secretary ^Theresa H. Allsop >
Gerald Letendre. and General Counsel Assistant Secretary-President Diamond Casting & . David H. Boguslawski - Robert A. Bersak -
Machine Co.,Inc- Vice President-Energy Delivery Assistant Secretary
', Hugh C. MacKenzie Ronald G, Chevah.er
. President-Retail Business Group ,
O. Kay Comendul:
Vice President-Fossil /1-lydro Assistant Secretary Northeast Utilities .
,< Engineering and Operations
, Michael G. Morris . . Robert C. Aronson Chairman of the Board, President - John B. Keane. . Assistant Treasurer
.'and Chief Executive Officer . Vice President and Treasurer E-Northeast Utilitiis : David R. McHale Gary A. Long. Assistant Treasurer
' Jatic E. Newman Vice President-Customer Service
"" "" E"#"I
- Un versity of New llampshire p ' Whittemore School of Business ' Paul E. Ramsey b and Economics Vice President-Customer Operations John J, Roman Executive Committee. ' Vice President and Controller
- ofthe Board ofDirectors Frank P. Sabatino
~
- Michael G. Morris Vice President- =
Wholesale Marketing P . Chairman '
John H. Forsgren
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~Biuce D. Kenyon ~
q }b
, Hugh C. MacKenzie
. William T. Frain, Jr.
Alternate .
- y 1
February 28,1993 s
1997 Annual Report Public Service Company of New Hampshire Index Contents Pace Balance Sneets.............................................. 2 Statements of Income........................................ 4 Statements of Cash Flows.................................... 5 Statements of Common Stockholder's Equity................... 6 Notes to Financial Statements............................... 7 P.eport of Independent Public Accountants.................... 40 Management's Discussion and Analysis of Financial Condition and Results of' Operations....................... 42 Selected Financial Data..................................... 50 Statistics.................................................. 52 Statements of Quarterly Financial Data...................... 52 Preferred Stockholder and Bondholder Information............ Back Cover e
e l
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PART I. FINANCIAL INFORMATION PUBLIC SERVICE COMPANY OF NEW HAMPSHIRE BALANCE SHEETS At December 31, 1997 1996 (Thousands of Dollars)
ASSETS U'tility Plant, at cost:
Electric (Note 1H, Note 2)............. ..... ..... . . $ 1,898,319 $ 1,877,955 Less: Accumulated provision for depreciation......... 590,056 552,780 1,308,263 1,325,175 Unamortized acquisition costs (Note IJ) . . ..... ........ 402,285 491,709 Construction work in progress................... ..... . 10,716 11,032 Nuclear fuel, net................... ................... 1,308 1,313 Total net utility plant.... . ........... .......... 1,722,572 1,829,229 Other Property and Investments:
Nuclear decommissioning trusts, at market........... ... 4,332 3,229 Investments in regional nuclear generating companies and subsidiary company, at equity....... .... 19,169 19,578 Other, at cost.......................................... 3,773 1,835 27,274 24,642 Current Assets:
Cash and cash equivalents............ .................. 94,459 1,015 Notes receivable from affiliated companies. ...........
- 18,250 Receivables, less accumulated provision for uncollectible accounts of $1,702,000 in 1997 and of $1,700,000 in 1996............ ................ 89,338 105,381 Accounts receivable from affiliated companies.......... 38,520 32,452 Accrued utility revenues.............. ..... .......... 36,885 36,317 Fuel, materials, and supplies, at average cost........ . 40,161 44,852 Recoverable energy costs, net--current portion.......... 31,886 -
Prepayments and other................................... 11,271 24,629 342,520 262,896 .
Deferred Charges:
Regulatory assets (Note 1H)......................... ... 695,418 684,504 Deferred receivable from affiliated company (Note 10G).. 32,472 33,284 -
Unamortized debt expense...................... ....... 11,749 12,731 Other............... ................................... 5,154 3,926 744,793 734,445 Total Assets........................................ $ 2,837,159 $ 2,851,212 Th9 accompanying notes are an integral part of these financial statements.
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PUBLIC SERVICE COMPANY OF NEW HAMPSHIRE BALANCE SHEETS l . . . . . . _ . . . . . . . . . . . . . . . . . . . . . . . _ _ _ _ _ . _ - _ . . . . . _ - _ _ _ _ _ _ . . . . . . . . . _ _ . _ _ _ _ . . . . . . . . _ _ _ _ _ _ _ _ _ . . .
At December 31, 1997 1996 (Thousands of Dollars)
CAPITALIZATION AND LIABILITIES Capitalization:
Common stock -$1 par value.
Authorized and outstanding 1,000 shares................ $ 1 $ 1 Capital surplus, paid 1n................................ 423,713 423,058 Retained earnings....................................... 170,188 174,691 Total common stockholder's equity...... ....... 593,902 597,750 Preferred stock subject to mandatory redemption......... 75,000 100,000 Long-term debt.......................................... 516,485 686,485 Total capitalization.......... ................ 1,185,387 1,384,235 Obligations Under Seabrook Power Contracts and Other Capital Leases (Note 2 and Note 3)............. 799,450 871,707 Current Liabilities:
Long-term debt and preferred stock.-current portion..... 195,000 25,000
~
Obligations under Seabrook Power Contracts and other capital leases--current portion.................... ... 122,363 42,910 Accounts payable............................... ........ 21,231 37,675 Accounts payable to affiliated companies................ 32,677 31,130 Accrued taxes... ....................................... 69,445 81 Accrued interest........................................ 7,197 7,992 Accrued pension benefits........................... ... 46,061 44,790 Other. ... ....... ...... .............................. 9,917 37,516 503,891 227,094 Deferred Credits:
Accumulated deferred income taxes.. ............ ..... . 204,219 258,317 Accumulated deferred investment tax credits............. 3,972 4,511 Deferred contractual obligations (Note 4)............... 83,042 50,271 Deferred revenue from affiliated company........ ...... 32,472 33,284 Other.............. .......... ..... .......... ........ 24,726 21,793 348,431 368,176 Commitments and Contingencies (Note 10)
Total Capitalization and Liabilities........... $ 2,837,159 $ 2,851,212 The accompanying notes are an integral part of these financial statements.
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'PUBLIC SERVICE COMPANY OF NEW HAMPSHIRE
- STATEMENTS OF INCOME
~ For the Years Ended December 31, 1997 1996 1995 (Thousands of Dollars)
Operating Revenues................................. $1,108,459 $1,110,169 $ 979,971 Operating Expenses:
Operation --
Fuel, purchased and net interchange power..... 326,745 356,679 257,008 Other......................................... 367,963 327,237 313,604 Maintenance...................................... 38,320 45,728 42,244 Depreciation..................................... 44,377 42,983 44,337 Amortization of regulatory assets, net........... 56,557 56,884 55,547 Federal and state income taxes (Note 9) . . . . . . . . . . 86,600 80,340 69,917 Taxes other than income taxes.................... 43,623 45,123 41,786 Total operating expenses.......... ........ 964,185 954,974 824,343
' Operating Income................................... 144,274 155,195 155,628 Other Income:
-Equity in earnings of regional nuclear
. generating companies and subsidary company..... 1,373 2,075 1,645 Other, net....................................... 698 8,075 3,162
' Income taxes..................................... (2,391) (7,723) (770)
Other (loss) / income , net . . . . . . . . . . . . . . . . . . . (320) 2,427 4,037 Income before interest charges............. 143,954 157,622 159,665 Interest Charges:
Interest on long-term debt....................... 51,259 57,557 76,320
'Other interest................................... 273 3,163 90 Interest charges, net...................... 51,532 60,720 76,410 Nat' Income......................................... $ 92,422 $ 96,902 $ 83,255
.The accompanying notes are an integral part of these financial statements.
.4
, PUBLIC SERVICE COMPANY OF NEW HAMPSHIRE STATEMEtUS OF CASH FLOWS For the Years Ended December 31, 1997 1996 1995 t ........................__... .............................__._........... .....____...............
(Thousands of Dollars)
! Operating Activities:
l Not Income... ............... ...................... ...... $ 92,422 $ 96,902 $ 83,255 l Adjustments to reconcile to net cash j from operating activities:
l Depreciation............................................. 44,377 42,983 44,337
' =' Deferred income taxes and investment tax credits, net.....
R:coverable energy costs, net of amortization.............
21,795 (12,336) 94,646 31,663 69,986 (15,266)
, Amortization of acquisition costs... .............. ...... 56,557 56,884 55,547 l Deferred Seabrook capital costs (Note 1K) . . . . .... . .... (8,376) - -
Other sources of cash........... .... .................. . 51,054 65,922 15,973
- . Other uses of cash. ......... .......................... (67,590) (51,188) -
l . Changes in working capital:
l Receivables and accrued utility revenues......... .. ... 9,407 (36,907) (10,506)
Fuel, materials and supplies........ ....... ............. 4,691 (3,135) (4,264)
, Accounts payable.. ..... .. . . .. . . ....... ........... (14,897) (7,714) 2,375
! Accrued taxes. ................. ..................... .. 69,364 (717) (3,506) l Other working capital (excludes cash) . . . . . .. .......... (13,765) (12,659) 16 l
Net cash flows from operating activities. .................... 232,703 276,680 237,947 Financing Activities:
Reacquisitions and retirements of long-term debt.. . .... -
(172,500) (141,000)
! Reacquisitions and retirements of preferred stock. . .. . .. (25,0C0) - -
(11,925) (13,250)
Ccsh dividends on preferred stock............ ...... ..... (13,250)
Cash dividends on comon stock. . . . . ..... .................. (85,000) (52,000) (52,000)
Net cash flows used for financing activities...... .,,. ...... (121,925) (237.750) (206,250)
Investment Activities:
Investment in plant:
Electric utility plant... .. ............................ (33,570) (37,480) (46,672)
! Nuclear fuel. ............................. .............. 5 129 (184)
Eet cash flows used for investments in plant. ... .......... (33,565) (37,351) (46,856)
NU System Money Pool........................ ...... . ..... 18,250 850 15,900 l Investment in nuclear decommissioning trusts. ......... ... (490) (521) (489)
Other investment activities, net.... . . . ......... ....... (1,529) (1,010) (431) i Net cash flows used for investments. ......... . . ...... ... (17,334) (38,032) (31,876) j Net Increase /(Decrease) in Cash For The Period. .. .. ...... 93,444 898 (179)
Cash - begi* ming of period. . . . . ....... ....... . ...... ... 1,015 117 296 l.
i-* Cash - end of period.... . .. . . .. ... ... ....... .... $ 94,459 $ 1,015 $ 117 j =========== =========== ===========
l Supplemental Cash Flow Information:
I Cash paid /(refunded) during the year for:
Interest, net of amounts capitalized........ .. ...... .... $ 51,775 $ 58,835 $ 74,543
=========== =========== ===========
Income taxes........ ................. .... ...... ......... $ 10,612 $ (457) $ 1,369
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Increase in obligations:
Stabrook Power Contracts ani other capital leases.. ........ $ 6,197 $ 93 $ 28,028
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l The accompanying notes are an integral part of these financial statements.
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. PUBLIC SERVICE COMPANY OF NEW HAMPSHIRE STATEMENTS OF COMMON STOCKHOLDER'S EQUITY Capital Common Surplus, Retained Stock Paid In Earnings Total (Thousands of Dollars) ,
Balance at January 1, 1995............... $ 1 $421,784 $125,034 $546,819 a Net income for 1995.................. 83,255 83,255 Cash dividends on preferred stock.. . (13,250) (13,250)
(52,000) (52,000)
Cash dividends on common stock.......
Capital stock expenses, net.......... 601 601 Balance at December 31, 1995............. 1 422,385 143,039 565,425 Net income for 1996.................. 96,902 96,902 Cash dividends on preferred stock.... (13,250) (13,250)
Cash dividends on common stock........ (52,000) (52,000)
-Capital stock expenses, net.......... 673 673 l Balance at December 31, 1996...... ...... 1 423,058 174,691 597,750 Net income!for 1997....
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............. 92,422 92,422 Cash dividends on preferred stock.... (11,925) (11,925)
Cash dividends on common stock....... (85,000) (85,000)
Capital stock expenses, net.......... 655 655 Balance at December 31, 1997............. $' 1 $423,713 $170,188 $593,902
........ ===...... ......... ....,v....
l r
Tha accompanying notes are an integral part of these financial statements.
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Public Sorvico Company of New Hampshire NOTES TO FINANCIAL STATEMENTS ,
- 1.
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES A.- About Public Service Company of New Hampshire Public Service Company of New Hampshire (PSNH or the company), The Connecticut Light and Power Company (CL&P), Western Massachusetts Electric Company (WMECO), North Atlantic Energy Corporation (NAEC) , and Holyoke Water Power Company (HWP) are
. the operating subsidiaries comprising the Northeast Utilities system (the NU system) and are wholly owned by . Northeast Utilities (NU).
The NU system furnishes franchised retail electric service in Connecticut, New Hampshire, and western Massachusetts through CL&P, PSNH, WMECO, and HWP. A fifth subsidiary, NAEC, sells all of.its entitlement to the capacity and output of the Seabrook nuclear generating unit (Seabrook, a 1,148-megawatt (MW) nuclear generating unit) to PSNH under two long-term contracts (the Seabrook Power Contracts). In addition to its franchised retail service, the NU system ' furnishes firm and 'other wholesale
- electric services to various municipalities and other utilities, and participates in limited retail access programs, providing off-system retail electric service. The NU system serves about 30 percent of New England's electric needs and is.one of the 25 largest electric utility systems in the country as measured by revenues.
Other wholly owned subsidiaries of NU provide support services for the NU system companies and, in some cases, for other New England utilities. Northeast Utilities Service Company (NUSCO) provides centralized accounting, administrative, information resources, engineering, financial, legal, operational, planning, purchasing and other services to the NU system companies. North l Atlantic Energy Service Corporation (NAESCO) acts as agent for CL&P and NAEC, and has operational responsibilities for j Seabrook. Northeast Nuclear Energy Company (NNECO) acts as agent for the NU system companies and other New England utilities in operating the Millstone nuclear generating facilities. l , B. Presentation The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities at the date of the financial statementa and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates, j Certain reclassifications of prior years' data have been made to j conform with the current year's presentation. j i All transactions among affiliated companies are on a recovery of I cost basis which may include amounts representing a return on 7
Public Servico Company.of Ncw Hampchiro f NOTES TO FINANCIAL STATEMENTS equity and are subject to approval by various federal and state regulatory agencies. C.. Public Utility Regulation NU is registered with the Securities and Exchange Commission (SEC) as a holding company under the Public Utility Holding Company Act of 1935 (1935 Act). NU and its subsidiaries,
- including - PSNH, are subject to the provisions of the 1935 Act.
- Arrangements among the NU system companies, outside agencies and other- utilities covering interconnections, interchange of electric power and sales . of utility property are subject to l
l; regulation by the Federal Energy Regulatory Commission (FERC)
- l and/or the SEC. PSNH is subject to further regulation for l
rates, accounting and other matters by the FERC and/or the l applicable state regulatory commissions. For information regarding proposed changes in the nature of industry regulation, see Note 10A, " Commitments and Contingencies - Restructuring and Rate Matters." l l- D. New Accounting Standards l The Financial Accounting Standards Board (FASB) issued a new accounting standard in February 1997: Statement of Financial l Accounting Standards (SFAS) 129, " Disclosure of Information about l i Capital Structure." SFAS 129 establishes standards for disclosing information about an entity's capital structure. PSNH's current disclosures are consistent with the requirements of SFAS 129. ! During June 1997, the FASB issued SFAS 130, " Reporting l Comprehensive Income" and SFAS 131, " Disclosures about Segments l of an Enterprise and Related Information." SFAS 130 establishes ! standards for the reporting and disclosure of comprehensive i income. To date, the NU system companies have not had material L transactions that would be required to be reported as !. comprehensive income. SFAS 131 determines the standards for reporting and disclosing qualitative and quantitative information I about a company's operating segments. This information includes
- segment profit or loss, certain segment revenue and expense items and segment assets and a reconciliation' of these segment disclosures to corresponding amounts in the company's general
- L purpose financial statements. Management performance is currently j evaluated using a cost-based budget and the information required
- i. by SFAS 131 is not available. Therefore, these disclosure k requirements are ' not applicable. Management believes that the implementation of SFAS.130 and SFAS 131 will not have a material
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impact on PSNH's current disclosures. See Note IOC, " Commitments and Contingencies-Environmental Matters," for information on other newly issued accounting and reporting standards related to this area. 6
Public Servico Company of Ncw Hampchire
' NOTES TO FINANCIAL STATEMENTS l E. Investments and Jointly Owned Electric Utility Plant Regional Nuclear Generating Companies: PSNH. Owns common stock of four regional nuclear generating companies (Yankee companies). PSNH's investments in the Yankee companies are accounted for on the equity basis due to PSNH's ability to exercise significant influence .over their operating and financial policies. The Yankee companies, with PSNH's ownership
. interests, are:
Connecticut Yankee Atomic Power Company (CYAPC) . . . . . . 5.0% i Yankee Atomic Electric Company (YAEC) . . . . . . . . . . . . . . . . 7.0 Maine Yankee Atomic Power Company (MYAFC) . . . . . . . . . . . . 5.0 Vermont Yankee Nuclear Power Corporation (VYNPC)..... 4.0
.PSNH's equity investments in the Yankee companies at December'31, 1997 are:
(Thousands of Dollars) CYAPC............................,........ $ 5,761 YAEC....................................... 1,427 MYAPC.....................................- 3,880 VYNPC..................................... 2.085
$13,353 Each Yankee company owns a single nuclear generating unit. Under the terms of the contracts with the Yankee companies, the shareholders-sponsors, including PSNH, are responsible for their proportionate share of the costs of each unit, including
,. decommissioning. The energy and capacity costs from VYNPC and nuclear decommissioning costs of the Yankee companies that have been shut down are billed as purchased power to PSNH.
The electricity produced by the Vermont Yankee nuclear generating facility .(VY) is committed substantially on the basis of I ownership interests -and is billed pursuant to- contractual agreements. YAEC's, CYAPC's and MYAPC's nuclear power plants were shut down permanently on February 26 1992, December 4, 1996, and August 6, 1997, respectively. Under ownership agreements with the Yankee companies, .PSNH may be asked to provide direct or indirect financial support for one or more of the. companies. For more information on the-Yankee companies, see Note 4, " Nuclear Decommission'.ng," and Note 10F, " Commitments.and Contingencies - Long-Term Contractual Arrangements." 9 l
Public SGrvico Compnny of N1w Hampchire NOTES TO FINANCIAL STATEMENTS Millstone 3: PSNH has a 2.85 percent joint ownership interest in Millstone 3, a 1,154-MW nuclear generating unit. As of December 31, 1997 and 1996, plant-in-service included approxi-mately $118.7 million and the accumulated provision for depreciation included approximately $32.3 million and $29.4 million, respectively, for PSNH's share of Millstone 3. PSNH's share of Millstone 3 expenses is included in the corresponding operating expenses on the accompanying Statements of Income, , The Millstone 3 unit is out of service. NU hopes to return Millstone 3 to service in early spring of 1998. For more information on the Millstone 3 unit, see Note 10B, " Commitments
- and Contingencies - Nuclear Performance."
Nyman Uni t 4: PSNH has a 3.14 percent ownership interest in Wyman Unit 4 (Wyman), a 632-MW oil-fired generating unit. At December 31, 1997 and 1996, plant-in-service included approximately $6.0 million, respectively and the accumulated provision for depreciation included approximately $3.9 million and $3.7 million, respectively, for PSNH's share of Wyman. PSNH's share of Wyman expenses is included in the corresponding operating expenses on the accompanying Statements of Income. F. Depreciation The provision for depreciation is calculated using the straight-line method based on estimated remaining lives of depreciable utility plant-in-service, adjusted for salvage value and removal costs, as approved by the appropriate regulatory agencies. Except for major facilities, depreciation rates are applied to the average plant-in-service during the period. Major facilities are depreciated from the time they are placed in service. When plant is retired from service, the original cost of plant, including costs of removal, less salvage, is charged to the accumulated provision for depreciation. The depreciation rates for the several classes of electric plant-in-service are equivalent to a composite rate of 3.7 percent in 1997 and 1996, . and 3.8 percent in 1995. See Note 4, " Nuclear Decommissioning," for information on nuclear plant decommissioning. PSNH's non-nuclear generating facilities have limited service lives. Plant may be retired in place or dismantled based upon expected future needs, the economics of the closure and environmental concerns. The costs of closure and removal are incremental costs and, for financial reporting purposes, are accrued over the life of the asset as part of depreciation. At December 31, 1997 and 1996, the accumulated provision for depreciation included approximately $34.2 million and $31.1 l million, respectively, accrued for the cost of removal, net of i sa3vage for nonnuclear generation property. 10
[ '. j Public Sorvica Comp ny of N w Hampchire L NOTES'TO FINANCIAL STATEMENTS G. Revenues Other than revenues under fixed-rate agreements negotiated with certain wholesale, industrial and commercial customers and ! limited retail access programs, utility revenues are based on authorized rates applied to each customer's use of electricity. In general, rates can be changed only through a formal proceeding before the appropriate regulatory commission.
., Regulatory commissions also have authority over the terms and conditions of nontraditional rate making arrangements. At the end of each accounting period, PSNH accrues an estimate for the amount of energy delivered but unbilled.
For information on the PSNH rate proceeding and its impact on PSNH, see Management's ' Discussion and Analysis of Financial Condition and Results of Operations (MD&A). H. Regulatory Accounting and Assets The accounting policies of PSNH and the accompanying financial statements conform to generally accepted accounting principles applicable to rate-regulated enterprises and reflect the effects of the ratemaking process in accordance with SFAS 71, " Accounting for the Effects of Certain Types of Regulation." Assuming a cost-of-service based regulatory structure, regulators may permit incurred costs, normally treated as expenses, to be deferred and recovered through future revenues. Through their actions, regulators also may reduce or eliminate the value of'an asset, or create a liability. If any portion of PSNH's operations were no longer subject to the provisions of SFAS 71, as a result of a change ~ in the cost-of-service based regulatory structure or the effects of competition, PSNH would be required to write off all of
-its related regulatory assets and liabilities unless there is a formal transition plan which provides for the recovery, through established rates, for the collection of approved stranded costs and to maintain the cost-of-service basis for the remaining regulated operations. At the time of transition, PSNH would be
, required to determine any impairment to the carrying costs of deregulated plant and inventory assets.
Management anticipates that a restructuring program will be implemented within New Hampshire during the next few years. In a restructured environment, PSNH's generation business no longer will be rate regulated on a cost-of-service basis. The majority of PSNH's- regulatory assets are related to its generation business. The staff of the SEC has had concerns regarding the appropriateness of the utilities' ability to continue application of SFAS 71 for the generation portion of their business in a restructured environment. The SEC referred the issue to the l Emerging Issues Task Force (EITF) of the FASB which reached a consensus and issued " Deregulation of the Pricing of Electricity - Issues Related to the Application of FASB 11 l
Public Servico Comp ny of Nsw Hampchiro l NOTES TO FINANCIAL STATEMENTS Statements No. 71 and 101," (EITF 97-4). The EITF concluded: (1) the future recognition of regulatory assets for the portion of the business.that'no longer qualifies for application of SFAS 71 depends on the regulators' treatment of the recovery of those costs and other stranded assets from cash flows of other portions of the business still considered to be regulated, and (2) a utility should discontinue the application - of SFAS 71 when a legislative and regulatory plan has been enacted, which would
- include transition plans into a competitive environment, and when the stranded costs which are subject to future rate recovery are determined. EITF 97-4 became effective in August 1997.
The issue of restructuring the electric utility industry in New Hampshire is currently the focus of negotiations and proceedings within the federal and state court systems . Management believes that PSNH's use of regulatory accounting remains appropriate while this issue remains in litigation. l PSNH expects that its transmission and distribution business will continue to be rate-regulated on a cost-of-service basis, and accord.'.ngly, will continue to apply SFAS 71 to this portion of its business. For more information on PSNH's regulatory environment and the potential impacts of restructuring, see Note 10A, " Commitments l and Contingencies - Restructuring and Rate Matters," and the MD&A. SFAS 121, " Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of," requires the evaluation
'of long-lived assets, including regulatory assets, for impairment when . certain event's occur or when conditions exist that indicate l the carrying amounts of assets may not be recoverable. SFAS 121
! requires that any long-lived assets which are no longer probable of recovery through future revenues be revalued based on estimated future cash flows. If this revaluation is less than the book value of the asset, an impairment loss would be charged to earnings. Management continues to believe that it is probable that PSNH will recover its investments in long-lived assets through future . revenues. This conclusion may change in the future as the implementation of restructuring plans within the state of New
. Hampshire will generally require the formation of a separate l generation entity which will be subject to competitive market conditions. As a result, PSNH will be required to assess the carrying amounts of its long-lived assets in accordance with SFAS 121.
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Public Scrvico Compnny of Ncw Htmp;:Ehire NOTES TO FINANCIAL STATEMENTS _ The components of PSNH's regulatory assets are as follows: At December 31, 1997 1996 (Thousands of Dollars) Recoverable energy' costs, net (Note 1K) ........... .............. S191,686 $211,236 Income taxes, net (Note II) .......... 128,244 151,431 Unrecovered contractual obligations (Note 4) ................ 83,042 50,271
- Deferred costs, nuclear plants (Note 2) .................... 281,856 269,233 3eabrook deferral (Note 1K) .......... 8,376 -
Other................................ 2,214 2,333
$695,438 $684,504
-I. Income Taxes The tax effect of temporary differences (differences between the '
periods in which transactions affect income in the financial statements and the periods in which they affect the determination of taxable income) is accounted for in accordance l with the ratemaking treatment of the applicable regulatory j commissions. See Note 9, " Income Tax Expense" for the components of income tax expense. The tax effect of temporary differences, including timing L . differences accrued under previously approved accounting standards, that give rise to the accumulated deferred tox I obligation is as follows: l At December 31, 1997 1996
- l. (Thousands of Dollars)
Accelerated depreciation and other plant-related differences..... $103,985 $225,263 i~* Net operating loss (NOL) i l carryforwards....................... (94,822) (94,149) l Regulatory assets - income tax 4 L* gross up............................ 49,101 68,652 l Other................................. 145.955 58,551
$204,219 $258,337 At December 31, 1997, PSNH had a NOL carryforward of approximately $293 million, that can be used against PSNH's federal taxable income and which, if unused,. expires between the years 2000 and 2006. PSNH also had Investment Tax Credit (ITC) carryforwards of $40 million which if unused, expires between the years 1998 and 2004. For a portion of the carryforward amounts indicated above, the reorganization of PSNH under Chapter 11 of the United States Bankruptcy Code limits the annual amount of.NOL and ITC carryforwards that may be used.
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Public Sorvice Company of Nsw Hampchire
~
l NOTES TO FINANCIAL STATEMENTS l l Approximately $31 million of the NOL and $9 million of the ITC carryforwards are subject to this limitation. See Note 10A, " Commitments and Contingencies - Restructuring and Rate Matters," for the possible impacts on PSNH from the NHPUC's decision related to industry restructuring. J. Unamortized Acquisition Costs The unamortized PSNH acquisition costs represent the aggregate , value placed by the 1989 rate agreement with the state of New Hampshire (Rate Agreement) on PSNH's assets in excess of the net book value of PSNH's non-Seabrook assets, plus the $700 million value assigned to Seabrook by the Rate Agreement, as part of the ~ bankruptcy resolution on June 5, 1992 (Acquisition Date). The Rate Agreement provides for the recovery through rates, with a return, of the - unamortized PSNH acquisition costs. -The Rate Agreement provides that $425 million of the unamortized PSNH acquisition costs be-amortized over the first seven years after L PSNH's May 16, 1991 reorganization. from bankruptcy
'(Reorganization Date) with the remaining amount to be amortized over the 20-year period after the Reorganization Date. The unrecovered balance of PSNH acquisition costs at December 31, 1997,.was approximately $402.3 million. In accordance with the
~ Rate Agreement, approximately $32.9 million of this amount will be recovered through rates by June 1, 1998, and the remaining amount of approximately $369.4 million will be recovered through rates by 2011. As of December 31, 1997, PSNH has collected.
approximately $591 million of acquisition costs through rates. K. Recoverable Energy Costs Under the Energy Policy Act of 1992 (Energy Act), PSNH is assessed for . it s proportionate share of the costs of decontaminating and decommissioning uranium enrichment plants owned by the United States Department of Energy (D&D assessment). The Energy Act requires that regulators treat D&D assessments as a reasonable and necessary current cost of fuel, tolbe fully recovered in rates like any other fuel cost. PSNH ,
'is currently recovering these costs through rates. As of December 31, 1997, PSNH's total D&D deferrals were approximately
$300 thousand. ,
The Rate Agreement includes a comprehensive fuel and purchased power adjustment clause (FPPAC) permitting PSNH to pass-through to retail customers, for a ten-year period that began in May 1991,. the retail portion of differences between the fuel and purchased power costs assumed in the Rate Agreement and PSNH's actual costs, which include the costs related to the Seabrook Power Contracts and the Clean Air Act Amendment. The cost components of the FPPAC are subject to a prudence review by the New Hampshire Public Utilities Commission (NHPUC). Under the Rate Agreement, charges made by NAEC through the
.Seabrook Power Contracts, including tiu deferred Seabrook capital 14
l: l j' 'Public'Sorvico Comp ny of New Hampchiro !- NOTES TO FINANCIAL STATEMENTS expenses, are being deferred by PSNH and subsequently will be subsequently billed and collected by PSNH through the FPPAC. l PSNH. began to defer the amount of these costs on December 1, 1997 l and will . continue to do so for the period December 1, 1997 through May 31, 1998. Beginning on June 1, 1998, these costs will be recovered over a 36-month period. At December 31, 1997, PSNH has deferred approximately $8.4 million of these costs, which balance is recorded in PSNH's deferred costs, nuclear l'* plants. On February 10, 1998, the NHPUC established a FPPAC rate for the l-- period December 1, 1997 through May 31, 1998. The new FPPAC rate increased customer billings by approximately six percent. This rate continues to defer a substantial portion of these costs. At December 31, 1997, PSNH's net recoverable energy costs, t excluding current net recoverable energy costs, were , approximately $191.7 million. This amount includes approximately l $172.9 million of' deferred small power producer costs. See Note 10A, " Commitments and Contingencies - Restructuring and Rate Matters" for the possible impacts on PSNH of the NHPUC's l decision related to industry restructuring. L. Spent Nuclear Fuel Disposal Costs Under the Nuclear Waste Policy Act of 1982, PSNH must pay the United States Department of Energy (DOE) for the disposal of spent nuclear fuel and high-level radioactive waste. The DOE is responsible for the selection and development of repositories for, and the disposal of, spent nuclear fuel and high-level radioactive waste. Fees are billed currently to customers and paid to the DOE on a quarterly basis. l The DOE was originally scheduled to begin accepting delivery of I spent fuel in 1998. However, delays in identifying a permanent ,* storage site have continually postponed plans for the DOE's long- , term storage and disposal site. Extended delays or a default by )
.the DOE could lead to consideration of costly alternatives. The company has primary responsibility for the interim storage of its '* ' spent nuclear fuel. Current capability to store spent fuel at Seabrook are estimated to be adequate until the year 2010.
Meeting spent fuel storage requirements beyond this period could j require new and separate storage facilities, the costs for which have not been determined. Storage facilities for Millstone 3 are l- expected to be adequate for the projected life of the unit. In November-1997, the U.S. District Court of Appeals for the D.C. j Circuit ruled that the lack of an interim storage facility does not excuse the DOE from meeting its contractual obligation to begin accepting spent nuclear fuel no later than January 31, ;
.1998. Currently, the DOE has not taken the spent nuclear fuel as i scheduled and, as a result, may have to pay contract damages. The ]
l 15 l l
Public Service Company of Ncw Hampshira ' NOTES TO FINANCIAL STATEMENTS ultimate ' outcome of this legal proceeding is uncertain at this time. M. Cash and Cash Equivalents cash and cash equivalents includes cash on hand and short-term cash investments which are highly liquid in nature and have original maturities of three months or less.
- 2. SEABROOK POWER CONTRACTS PSNH and NAEC have entered into two power contracts that obligate .
PSNH to purchase NAEC's 35.98 peret nt ownership of the capacity and output of Seabrook for the term of Seabrook's Nuclear Regulatory Commission (NRC) operating licenst : . Under these power contracts, PSNH is obligated to pay NAEC's cost of service during this period, regardless of whether Seabrook 1 is operating. costs, NAEC's cost of service includes all of its Seabrook-related including operation and maintenance (O&M) expenses, fuel expense, income and property tax expense, depreciation expense, certain overhead ' and other costs and a return on its allowed investment. PSNH has included its right to buy power from NAEC on its Balance Sheets as part of utility plant and regulatory assets with - a corresponding obligation. At December 31, 1997, this right was valued at approximately $917.1 million. The contracts established the value of the initial investment in seabrook (initial investment) at $700 million. As prescribed by the Rate Agreement, as of May 1, 1996, NAEC phased into rates 100 percent of its investment in Seabrook 1. This plan is in compliance with SFAS . 92, " Regulated Enterprises-Accounting for Phase-in Plans." From the Acquisition Date through November 1997, NAEC recorded 1.
$203.9 million of deferred return on its investment in At November 30, 1997, NAEC's utility plant included $84.1 million of Seabrook deferred return that was transferred as part of the Seabrook plant assets to NAEC on the Acquisition Date. Beginning on December 1, ,
1997, the deferred return, including the portion transferred to NAEC, is currently being billed through the Seabrook Power Contracts to PSNH and will be fully recovered from customers by May 2001. NAEC
- depreciated its initial investment over the term of Seabrook l's operating license (39 years) , and any subsequent plant additions are depreciated on a straight-line basis over the remaining term of the power contracts at the time the subsequent additions are placed in service.
If Seabrook 1 is shut down prior to the expiration of the NRC operating license, PSNH will be unconditionally required to pay NAEC which termination costs- for 39 years, less the period during Seabrook 1 has operated. These termination costs will reimburse
. NAEC - f or its share of Seabrook - 1 shut-down and decommissioning costs, and will pay NAEC a return of and on any undepreciated balance' of its initial investment over the remaining term of the 16
Public Servics Comp:ny of N&w Hampshire NOTES TO FINANCIAL STATEMENTS power contracts, and the return of and on any capital additions to the . plant made after the Acquisition Date over a period of five years.after shut down (net of any tax benefits to NAEC attributable the cancellation). contract payments charged to operating' expenses are approximately: Year Co_n_t;ract Payments (Thoustads of Dollars) 1997....................... $188,000
- 1996....................... 159,000 1995....................... 154,000 Interest included in the centract payment was $57 million in 1997,
$55 million in 1996, and $51 million in 1995.
Future minimum payments, excluding executory costs, such as property taxes, state use taxes, insurance and maintenance, under the terms of'the contracts, as of December 31, 1997, are approximately: Year Seabrook Power Contracts (Thousands of Dollars) 1998........................ $199,000 1999........................ 184,000 2000......................... 183,000 2001........................ 108,000 2002........................ 69,100 After 2002.................. 1,077,000 Future minimum payments..... 1,820,100 Less-amount representing interest.................. 903.000
- Present value of Seabrook Power Contracts payments ....... $ 917,100 o See Note 10A, " Commitments and Contingencies - Restructuring and Rate Matters" for the possible impacts the NHPUC's restructuring decision may have on the Seabrook Power Contracts.
l l 1 17 i
Public Service Comptny of Ncw Hampshire i NOTES TO FINANCIAL STATEMENTS I
- 3. LEASES-PSNH has. entered into lease agreements, some of which are capital leases, for the use of data processing and office equipment, vehicles and office space. The provisions of these lease agreements generally provide for renewal options. The -following rental payments have been charged to expense:
Year Capital Leases Oceratino Leases 1597............... $1,579,000 $5,657,000 ~ 1996............... 1,105,000 4,884,000 1995............... 3,103,000 5,291,000 l Interest included in capital lease rental payments was $272,000 in 1997, $292,000 in 1996, and $351,000 in 1995. Future minimum rental payments, excluding executory costs, such as property taxes, state use taxes, insurance and maintenance, under long-term noncancellable leases, as of December 31, 1997, are:
-Year Capital Leases Ooeratino Leases (Thousands of Dollars) 1998 .................. $1,500 $ 6,100 1999 ........... ...... 1,200 5,300 2000 .................. 1,000 4,700 2001 .................. 1,000 4,200 2002 .................. 100 2,200 After 2002.............. 500 5,100 Future minimum lease payments.............. 5,300 $27,600 Less amount representing interest............... 600 Present value of future
' minimum lease payments $4,700
- 4. NUCLEAR DECOMMISSIONING Millstone and Seabrook: Millstone 3 and ' Seabrook 1 have service lives that- are expected to end during the years 2025 and 2026, respectively. Upon retirement, these units must be decommissioned.
I Current decommissioning studies concluded that complete and ' immediate dismantlement at~ retirement' continues to be the most viable and economic- method of decommissioning Millstone 3 and Seabrook 1. Decommissioning studies are reviewed and updated i periodically to reflect changes in decommissioning requirements- , costs,-technology and inflation. 18 l -_ _ - _ - _ _ _ _ _ _ _ _ _ - _ _ _ _ _ _ _ _ _ _
Public Servico Compzny of N1w Hampchira l NOTES TO FINANCIAL STATEMENTS The estimated cost of decommissioning PSNH's 2.85 percent ownership I share of Millstone 3 and NAEC's 35.98 percent share of Seabrook 1, in year-end 1997 dollars, is $15.6 million and $170.2 million, respectively. Millstone 3 and Seabrook 1 decommissioning costs will be increased annually by their respective escalation rates. PSNH's Millstone 3 decommissioning costs are accrued over the expected service life of the unit and are included in depreciation expense on its Statements of Income. Nuclear decommissioning costs related to PSNH's share of Millstone 3 amounted to $0.4 million in 1997 and 1996, and $0.3 million in 1995. Nuclear decommissi.oning, as a cost of removal, is included in the accumulated provision for depreciation on PSNH'a Balance Sheets. At December 31, 1997 and 1996, the balance in the accumulated reserve for depreciation amounted to $4.3 million and S3.2 million, respectively. PSNH makes payments to an independent decommissioning trust for its portion of the costs of decommissioning Millstone 3. NAEC's portion of the cost of decommissioning Seabrook 1 is paid to an independent decommissioning financing fund managed by the state of New Hampshire. Funding of the estimated decommissioning costs assumes levelized collections for Millstone 3 and escalated collections for Seabrook 1, and after-tax earnings on the Millstone and Seabrook decommissioning funds of approximately 5.5 percent and 6.5 percent, respectively. Under the terms of the Rate Agreement, PSNH is obligated to pay NAEC's share of Seabrook's decommissioning costs, even if the unit is shut down prior to the expiration of its operating license. Accordingly, NAEC bills PSNH directly for its share of the costs of decommissioning Seabrook 1. PSNH records its Seabrook decommissioning costs as a component of purchased power expense on its Statements of Income. Under the Rate Agreement, PSNH's Seabrook decommissioning costs are recovered through base rates. As of December 31, 1997, PSNH collected through rates approximately
$2.6 million toward the future decommissioning costs of its share of Millstone 3, which has been transferred to the external a decommissioning trust. As of December 31, 1997, NAFC has paid approximately $21.1 million (including payments made prior to the Acquisition Date by PSNH), into Seabrook l's decommissioning . financing fund. Earnings on the decommissioning trust and financing fund increase the decommissioning trust balance and the accumulated reserve for depreciation. Unrealized gains and losses associated with the decommissioning trust and financing fund also impact the balance of the trust, and the accumulated reserve for depreciation.
Changes in requirements or technology, the timing of funding or dismantling, or adoption of a decommissioning method other than immediate dismantlement would change decommissioning cost estimates and the amounts required to be recovered. PSNH attempts to recover sufficient amounts through its allowed rates to cover its expected decommissioning costs. Only the portion of currently estimated total decommissioning costs that has been accepted by regulatory agencies is reflected in rates of PSNH. Based on present estimates 19 2 I
Public Sarvica Comptny of N;w Hamp:hiro NOTES TO FINANCIAL STATEMENTS and assuming its nuclear units operate to the end of their respective licensing periods, PSNH expects that the decommissioning trust and financing fund will be substantially funded when the units are retired from service. Yankee Companies: VYNPC owns and operates a nuclear generating unit with a service life that is expected to end in 2012. PSNH's ownership share of estimated cvsts, in year-end 1997 dollars, of , decommissioning the unit owned and operated by VYNPC is $20.2 million. On August 6, 1997, the board of directors of MYAPC voted unanimously
- to cease permanently the production of power at its nuclear generating facility (MY) The NU system companies had relied on MY for approximately one percent of their capacity. During November
- ,. 9 9 7 , MYAPC filed an amendment to its power contracts clarifying the obligations of its purchasing utilities following the decision to cease power production. During January 1998, the FERC accepted the amendments and proposed rates, subject to refund. At December 31, 1997, the remeining estimated obligation, including decommissioning, amounted to approximately $867.2 million, of which PSNH's share was approximately $43.4 million.
On December 4, 1996, the board of directors of CYAPC voted unanimously to cease permanently the production of power at its nuclear generating plant lCY). During 1996, the NU system companies had relied on CY for approximately three percent of their capacity. During late December 1996, CYAPC filed an amendment to its power l contracts clarifying the obligations of its purchasing utilities following the decision to cease power production. On February 27, 1997, the FERC approved an r der for hearing which, among other i things, accepted CYAPC's contract amendment. The new rates became ! effective March 1, 1997, subject to refund. At December 31, 1997, the remain ng estimated obligation, including decommissioning, l amounted to $619.9 million, of which PSNH's share was approximately
$31.0 million. .
YAEC is in the process of decommissioning its nuclear facility. At l December 31, 1997, the estimated remaining costs, including decommissioning, amounted to $124.4 million, of which PSNH's share a was approximately $8.7 million. Under the terms of the contracts with MYAPC, CYAPC and YAEC, the shareholder-sponsor companies, including PSNH, are responsible for their proportionate share of the costs of the units, including decommissioning. Management expects that PSNH will continue to be allowed to recover these costs from its customers. Accordingly, PSNH has recognized these costs as regulatory assets, with corresponding obligations. Proposed Accounting: The staff of the SEC has questioned certain current accounting practices of the electric utility industry, 20
l Public Service Company of New Hampshire l NOTES TO FINANCIAL STATEMENTS l including PSNH, regarding the recognition, measurement and classification of decommissioning costs for nuclear generating units in the financial statements. In response to these questions, the FASB has agreed to review the accounting for closure and removal l costs, including decommissioning. If current electric utility industry accounting practices for nuclear power plant decommissioning are changed, the annual provision for decommissioning could increase relative to 1997, and the estimated cost for decommissioning could be recorded as a liability (rather than as accumulated depreciation), with recognition of an increase in the cost of the related nuclear power plant. Management believes s - that PSNH will continue to be allowed to recover decommissioning costs through rates.
- 5. SHORT-TERM DEBT The amount of short-term borrowings that may be incurred by PSNH is subject to periodic approval by the SEC under the 1935 Act or by the NHPUC. Effective May 1997, PSNH was authorized under a waiver from the NHPUC, to incur short-term borrowings up to a maximum of $125 million.
PSNH has a $125 million revolving credit agreement that will expire in April 1999. The revolving credit agreement is with a group of 16 banks. PSNH is obligated to pay a facility fee of .50 percent per annum on the commitment of $125 million. At December 31, 1997 and 1996, there were no borrowings under the facility. Under the credit facility discussed above, PSNH may borrow funds on a short-term revolving basis under its agreement, using either fixed-rate loans or standby loans. Fixed rates are set using competitive bidding. Standby loans are based upon several alternative variable rates. Money Pool: Certain subsidiaries of NU, including PSNH, are members of the Northeast Utilities System Money Pool (Pool). The Pool provides a more efficient use of the cash resources of the system, and reduces outside short-term borrowings. NUSCO administers the Pool as agent for the member companies. Short-term borrowing needs e of the member companies are first met with available funds of other member companies, including funds borrowed by NU parent. NU parent may lend to the Pool but may not borrow. Funds may be withdrawn from or repaid to the Pool at any time without prior notice. Investing and borrowing subsidiaries receive or pay interest based on the average daily Federal Funds rate. However, borrowings based on loans from NU parent bear interest at NU parent's cost and must be repaid Lased upon the terms of NU parent's original borrowing. At December 31, 1997 and 1996, PSNH had no outstanding borrowings from the Pool. 21
Public Ssrvice Company of Nsw Hampshire NOTES TO FINANCIAL STATEMENTS Maturities of PSNH's short-term debt obligations are for periods of ! three months or less. For further information on short-term debt, i see the MD&A. ( 6. EMPLOYEE BENEFITS A. Pension Benefits
- l. The. NU system subsidiaries participate in a uniform .
noncontributory defined benefit retirement plan covering all l regular NU system employees. Benefits are based on years of j service - and employees ' highest eligible compensation during 60 . l consecutive months of employment. PSNH's direct portion of the j NU system's pension cost, part of which was charged to utility l plant, approximated $1.3 million in 1997, $6.2 million in 1996, and $2.3 million in 1995. Pension (credits)/ costs for 1997 and. million and $1.9 million,
-1996 include 3 approximately $(1.0) respectively, related to workforce reduction programs.
Currently, PSNH funds annually an amount at least equal to that l which will satisfy the requirements of the Employee Retirement ! Income Security Act and the Internal Revenue Code. Pension costs are determined using market-related values of pension assets. !_ Pension assets are invested primarily in domestic and international equity securities and bonds. The components of net pension cost for PSNH are: I' For the Years Ended December 31, 1997 1996 1995 (Thousands of Dollars) Service cost...................... $ 2,987 $ 6,161 $ 3,462 Interest' cost.................. ... 13,398 12,808 11,923 Return on plan assets............. (34,622) (24,393) (33,156) E Net amortization.................. 19,508 11,608 20,108 L Net pension cost.................. $ 1,271 $ 6.184 $ 2,337 For calculating pension cost, the following assumptions were used: . For the Years Ended December 31, 1997 '1996 1995 Discount rate......... ............ 7.75% 7.50% 8.25% Expected long-term rate of return.. 9.25 8.75 8.50 Compensation / progression rate...... 4.75 4.75 5.00 22
Public Sorvica Company of Nsw Hampchiro l NOTES TO FINANCIAL STATEMENTS l l-The following table represents the plan's funded status reconciled to the Balance Sheets: At December 31. 1997 1996 (Thousands of Dollars) Accumulated benefit obligation,
, including vested benefit" at December 31, 1997 and 1996 of
$ (14 0, 0 8 9, 0 0 0 ) and $ (131,624,000) ,
respectively........................ S(152,709) $ (14 3, 3 77 ) Projected benefit obligation.......... (187,968) (179,192) Market value of plan assets........... 195,612 173,035 Market value in excess (less than) of projected benefit obligation........ 7,644 (6,157) Unrecognized transition amount........ 4,003 4,337 Unrecc3nized prior service costs...... 7,597 8,135 ! Unrecognized. net gain................. (65,305) (51,105) i Accrued pension liability............. S(46,061) $ (44,790) The following actuarial assumptions were used in calculating the plan's year-end funded status: For the Years Ended December 31, 1997 1996 l-Discount rate......................... 7,25% 7.75% Corapensation/ progression rate . . . . . . . . . 4.25 4.75 j B. Postratirement Benefits Other Than Pensions l The NU system subsidiaries provide certain health ca: e benefits, primarily medical and dental, and life insurance l benefits through a benefit plan to retired employees (referred
- . to as SFAS 106 benefits). These benefits are available for employees retiring from the NU system who have met specified service requirements. For current employees and certain retirees, the total SFAS 106 benefit is limited to two times the 1993 per-retiree health care cost. The SFAS 106 obligation has been calculated based on this assumption. PSNH s direct portion of SFAS 106 benefits, part of which was deferred or
- charged to utility plant, approximated $4.9 million in 1997,
$6.2 million in 1996, and $7.2 million in 1995.
PSNH is funding SFAS 106 postretirement costs through external trusts. PSNH is funding, on an annual basis, amounts that have been rate-recovered and which also are tax-deductible under the Internal Revenue Code. The trust assets are invested primarily in equity securities and bonds. l 23 L____________-_.____ ______ ___
Public Servico Comp:ny of Nsw Hampchiro NOTES TO FINANCIAL STA. N S The components of health care and life insurance cost are: ! For the Years Ended December 31, 1997 1996 1995 (Thousands of Dollars) f Service cost.................. $ 802 $ 914 $ 933 Interest cost................. 3,352 3,559 4,063 . Return on plan assets......... (3,753) (1,720) (1,694) Amortization of unrecognized transition obligation....... 2,941 2,941 2,941 ~ Other amortization, net....... 1,541 547 998 Net health care and life insurance cost.............. $4,881 _$6,241 $7,241 For calculating PSNH's SFAS 106 benefit costs, the following assumptions were used: For the Years Ended December 31, 1997 1996 1995 Discount rate ....... ........ 7.75% 7.50% 8.00% Long-term rate of' return - Health assets, net of tax.. 6.00 5.25 5.00 Life assets................ 9.25 8.75 8.50 4 24 i l
Public Sorvico Company of Nr.w Hampchire NOTES TO FINANCIAL STATEMENTS The following table represents the. plan's funded status reconciled to the. Balance Sheets: At December 31, 1997 1996 (Thousands of Dollars)
. Accumulated postretirement benefit obligation of:
Retirees................... $ (36,790) $ (3 8,24 5) Fully eligible active employees.......... ..... (31) (22) Active employees not eligible to retire....... (9,788) '(9,696) Total accumulated post-retirement benefit obligation.................. (46,609) (47,963) Market value of plan assets... 22,908 17,882 Accumulated postretirement benefit obligation in excess of plan assets....... (23,701) (30,081) Unrecognized transition amount...................... 44,108 47,049 Unrecognized net gain......... (20,407) (17,139) Accrued postretirement benefit liability................ .. $ -
$ (171)
The following actuarial assumptions were used in calculating the plan's year-end funded status: At December 31, 1997 1996 Discount rate......................... 7.25% 7.75% Health care cost trend rate (a) ..... . 5.76 7.23 (a) The annual growth in per capita cost of covered health
. care benefits was assumed to decrease to 4.40 percent by 2001.
1' l The effect of increasing the assumed health care cost trend l rate by one percentage point in each year would increase the accumulated postretirement eenefit obligation as of December.31, 1997, by $3.1 million and the aggregate of the service and interest cost components of net periodic postretirement benefit cost for the year then ended by $245 thousand. The trust holding the health plan assets is subject to federal income taxes at'a 39.6 percent tax rate. PSNH currently is recovering SFAS 106 costs through rates. 25
Public Ssrvico Compcny of'N&w Hampshiro NOTES TO FINANCIAL STATEMENTS
- 7. PREFERRED STOCK SUBJECT TO MANDATORY REDEMPTION Details of preferred stock subject to mandatory redemption are:
Shares Outstanding December 31, Description December 31, 1997 1997 1996 1995 (Thousands of Dollars) . 10.60% Series A of 1991..... 4,000,000 $100,000 $125,000 $125,000 , Less preferred stock to be redeemed within one year.... 1,000,000 25,000 25,000 - Total preferred stock subject to mandatory redemption $ 75,000 $100,000 $125,000 In case of default on dividends or sinking-fund payments, no payments may be made on any junior stock by way of dividends or otherwise (other than in shares of junior stock) so long as the default' continues. If PSNH is in arrears in the payment of dividends on any outstanding shares of preferred stock, PSNH would be prohibited from redemption or purchase of less than all of the preferred stock outstanding. The Series A Preferred - Stock is not subject to optional redemption by PSNH. It is subject to an annual sinking fund requirement of $25 million, which began on June 30, 1997, . sufficient to retire annually 1,000,000 shares at $25 per share. 4 26
Public'Ssrvice Compcny of Nsw Hampshire I NOTES TO FINANCIAL STATEMENTS !- 8. LONG-TERM DEBT l l
. Details of long-term debt outstanding are:
At December 31, 1997 '1996 (Thousands of Dollars) First Mortgage Bonds:
, 9.17% Series B, due 1998 ............. $170,000 $170,000 Total First Mortgage Bonds ..... 170,000 170,000 Pollution Control Revenue Bonds:
7.65% Tax-Exempt Series A,-due 2021 .... 66,000 66,000 7.50% Tax-Exempt Series B, due 2021 .... 108,985 108,985 7.65% . Tax-Exempt Series C, due 2021 .... 112,500 112,500 Adjustable Rate, Taxable, Series D, due 2021.............................. 39,500 39,500 Adjustable Rate, Taxable, Series E, due 2021.............................. 69,700 69,700 Adjustable Rate, Tax-Exempt, Series D, due 2021...... ....................... 75,000 75,000 Adjustable Rate, Tax-Exempt, Series E
-due 2021.............................. 44,800 44,800 Less: Amounts due within one year...... 170,000 -
Long-term debt, net.............. S516,485 $686,485 Long-term debt maturities and cash sinking-fund requirements on debt outstanding at December 31, 1997 aggregate approximately $170 million for. 1998. There are neither ' sinking-fund requirements nor debt maturities existing for the years 1999 through 2002. Also, there are annual renewal and replacement fund requirements equal to 2.25 percent of the average of net depreciable utility property owned - by PSNH at the reorganization date, plus cumulative gross property l additions thereafter. PSNH expects to meet these future fund-requirements by certifying property additions. Any deficiency _would need to be satisfied by the deposit of cash or bonds. Essentially, all utility plant of PSNH is subject to the lien of its first mortgage bond indenture. PSNH's Revolving Credit Facility has t a second lien, junior to the lien of its first mortgage bond indenture, on all PSNH property located in New Hampshire which will l expire in April 1999. At December 31, 1997, there were no l borrowings under the Revolving Credit Facility. Concurrent with the issuance of PSNH's Series A and B First Mortgage Bonds, PSNH entered into . financing arrangements with the Business Finance Authority of the state of New Hampshire (BFA). Pursuant to ( these arrangements, the BFA issued seven series of Pollution Control Revenue Bonds (PCRBs) and loaned the proceeds to PSNH. At December 31, 1997, approximately $516.5 million of PCRBs were outstanding. The average effective interest rates on the variable-rate pollution control notes ranged from 3.8 percent to 5.6 percent for ' 1997, . and from 3.5 percent to 5.5 percent for 1996. PSNH's 27
Public Sarvico Company of Ns;w Hampshiro NOTES TO FINANCIAL STATEMENTS l obligation to repay each series of PCRBs is secured by a series of l First Mortgage Bonds that were issued under its indenture. Each such series of First Mortgage Bonds contains terms and provisions with respect to maturity, principal payment, interest rate, and I redemption that correspond. to those of the applicable series of PCRBs For financial reporting purposes, these bonds would not be l considered outstanding unless PSNH fails to meet its obligations ! under the PCRBs. , _The PCRBs, except- for Series D and E, are redeemable on or after j May 1, 2001, at the option of the company with accrued interest and
- i at specified premiums. ,Under current interest rate elections by l PSNH, the Series D and E PCRBs are redeemable, at par plus accrued !
interest at the end of each interest-rate period. Future interest-rate elections by PSNH could significantly defer or eliminate the availability of optional redemptions by PSNH, and could affect costs as well.
-9. INCOME TAX EXPENSE The components of the federal and state income tax provisions charged to operations are:
For the Years Ended December 31, 1997 1996 1995 (Thousands of Dollars) Current income taxes: Federal............................. $67,148 $ (4,978) $ (1,166) State............................... 48 (1,605) 1,767 Total current....... ............. 67,196 (6,583) 601 Deferred income taxes, net: Federal............................. 21,118 94,922 72,147 State............................... 1,217 272 (1,606) Total deferred ................... 22,335 95,194 70,541 , l Investment tax credits, net........... (540) (548) (555) l Total income tax expense.............. $88,991 $88,063 $70,587 I i The components of total income tax expense are classified as l follows: l Income taxes charged to operating l expenses.............................. $86,600 $80,340 $69,817 Other' income taxes.................... 2,391 7,723 770 Total income tax expense.............. $88,991 $88,063 $70,587 28
Public Servico Compnny of NIw Hampshira
?
l WOTES TO FINANCIAL STATEMENTS l [ Deferred income taxes are comprised of the tax effects of temporary differences as follows: l For the Years Ended December 31, 1997 1996 1995 (Thousands of Dollars) l . Depreciation.......................... $(1,937) $ (1,055 ) $ 1,294 Deferred tax asset associated with NOL........................... - 96,75G 57,543
. Energy adjustment clauses.............. 16,839 (10,716) 5,098 Amortization of regulatory settlement.......................... 11,501 11,501 11,501 Other................................. (4,068) (1,292) (4,895)
Deferred income taxes, net............ $22,335 $95,194 $70,541 A reconciliation between income tax expense and the expected tax expense at the applicable statutory rate is as follows: For the Years Ended December 31, 1997 1996 1995 (Thousands of Dollars) E:- acted federal income tax at 35 percent of pretax income......... $63,495 $64,616 $53,845 Tax effect of differences: Depreciation........................ 1,890 1,896 1,868 Amortization of acquisition costs... 31,298 31,410 31,522 Seabrook intercompany loss.......... (4,616) (7,504) (13,048) Investment tax credit amortization.. (540) (548) (555) State income taxes, net of federal benefit................... 1,095 (867) 105 Other, net.......................... (3,631) (940) (3,150) Total income tax expense.............. $88,991 $88,063 $70,587
, 10. COMMITMENTS AND CONTINGENCIES A. Restructuring and Rate Matters . The 1996 restructuring legislation that the NHPUC is charged with implementing provides that the NHPUC may not adopt a restructuring plan that imposes a severe financial hardship on a utility. Management believes that PSNH is entitled to full recovery of its prudently incurred costs, including regulatory assets and other strandable costs. It bases this belief both on the general nature of public utility industry cost-of-service based regulation and the specific circumstances of the resolution of PSNH's. previous bankruptcy proceedings and its acquisition by NU, including the recoveries provided by the Rate Agreement and related agreements.
l On February 28, 1997, the NHPUC issued its decision related to restructuring the state's electric utility industry and setting 29
Public Service Company of New Hampshire NOTES TO FINANCIAL STATEMENTS interim stranded cost charges for PSNH pursuant to legislation enacted in New Hampshire in 1996. In the decision, the NHPUC announced a departure from cost-based ratemaking and instead adopted a market-priced approach to ratemaking and stranded cost recovery. Accordingly, unless the NHPUC modifies its position or the litigation described below results in necessary modifications to the final plan which leads management to conclude that the ratemaking approach utilized in the NHPUC's restructuring . decision will not go into effect, PSNH no longer will be subject to the provisions of SFAS 71. That would result in PSNH writing off from its balance sheet substantially all of its regulatory , assets. The amount of the potential write-off triggered by the order is currently estimated at over $400 million, after taxes. PSNH does not believe that under the decision, it would be required to recognize any additional loss resulting from the impairment of the value of its other long-lived assets under the ; provisions of SFAS 121. l. On March 3, 1997, PSNH, NU, NAEC and NUSCO filed for a temporary l restraining order, preliminary and permanent injunctive relief l and for declaratory judgment in the United States District Court j for New Hampshire (District Court). The case was subsequently i transferred to Rhode Island. On March 10, 1997, the Chief Judge of the Rhode Island federal court issued a temporary restraining order which stayed the NHPUC's February 28, 1997 decision to the extent it established a rate-setting methodology that is not designed to recover PSNH's costs of providing service and would i require PSNH to write off any regulatory assets. l During 1997, a mediation process ended without a resolution. The District Court had suspended the procedural schedule associated with this court proceeding pending the resolution of appeals of certain preliminary rulings by the U.S. Circuit Court of Appeals for the First Circuit (First Circuit). On February 3, 1998, the First Circuit denied the appeals taken by would-be interveners in PSNH's federal court proceeding concerning the NHPUC's final plan , ! on restructuring. The First Circuit affirmed a previous court decision stating that the opposing interests in this case were adequately represented by the NHPUC or by PSNH. As a result of
- this decision, the proceedings in the District Court may resume.
On February 17, 1998, the NHPUC filed a petition for rehearing with the First Circuit. The temporary restraining order issued ! by the District Court in March 1997 will remain in effect until further orders by either court. During 1997, the NHPUC reopened its proceeding to reconsider certain limited matters in its restructuring orders. The scope of the PSNH-specific rehearing proceedings included alternative rate-setting methodologies proposed by the interveners; to decide the appropriate methodology to be used to determine PSNH's interim stranded costs; and to set PSNH's interim stranded cost charges utilizing the determined methodology. In testimony filed with the NHPUC in November 1997, PSNH proposed a new methodology 30
Public SOrvico Comp ny of Nsw Hamp2 hire NOTES TO FINANCIAL STATEMENTS l to quantify its strandable costs. Under this proposal, PSNH l would divest all owned generation and purchased-power obligations via auction. To the extent that the auction fails to produce sufficient revenues to cover the net book value of owned generation and contractual payment obligations of purchased-power, the difference would be recovered from customers through a non-bypassable distribution charge. The new prci , sal also relies upon securitization of certain assets to further reduce rates. On December 15, 1997, the NHPUC officially announced that industry restructuring would not take place on January 1, 1998. Management believes that industry restructuring will not take place in New Hampshire until the courts resolve the issues ; brought before them, or the parties involved reach a settlement. I PSNH and NAEC are parties to a variety of financing agreements providing that the credit thereunder can be terminated or accelerated if they do not maintain specified minimum ratios of common equity to capitalization (as defined in each agreement). In addition, PSNH and NAEC are parties to a variety of financing agreements providing in effect that the credit thereunder can be terminated or accelerated if there are actions taken, either by PSNH or NAEC or by the state of New Hampshire, that deprive PSNH and/or NAEC of the benefits of the Rate Agreement and/or the Seabrook Power Contracts. If the NHPUC's February 28, 1997 decision were to become effective, it would, unless PSNH and NAEC receive waivers from their respective lenders, result in (i) write-offs that would cause PSNH's common equity to fall below the contractual minimums (ii) reductions in income that would cause PSNH's income to fall below the contractual minimums, (iii) potential violation of the contractual provisions with respect to actions depriving PSNH and NAEC of the benefits of the Rate Agreement and (iv) the potential for cross defaults to other PSNH and NAEC financing documents. Substantially all of PSNH's and NAEC's debt obligations would be affected. If these events transpired and if the creditors holding PSNH and ' . NAEC debt obligations decide to exercise their rights to demand payment then either creditors or PSNH and NAEC could initiate proceedings under Chapter 11 of the bankruptcy laws. As a result of the NHPUC decision and the potential consequences dincussed above, the reports of our auditors on the individual tinancial statements of PSNH and NAEC contain explanatory paragraphs. Those explanatory paragraphs indicate that a substantial doubt exists currently about the ability of PSNH and NAEC to continue as going concerns. The accounts of PSNH and NAEC are included in the consolidated financial statements of NU on the basis of a going concern. While the effect of the l implementation of that decision would have a material adverse impact on NU's financial position, results of operations, and 31
Public Service Compnny of Nsw Hampshire
-NOTES TO FINANCIAL STATEMENTS ;
cash flows, it would not in and of itself result in defaults , under borrowing or other financial agreements of NU or its other { subsidiaries. On May 2, 1997, PSNH made a rate filing with the NHPUC. For ! information regarding thi.e rate proceeding, see the MD&A. ~! Fortinformation regarding the FERC rate proceedings for CYAPC and
- l MYAPC, see Note 4, " Nuclear Decommissioning." l B. Nuclear Performance
Millstone: The three Millstone units are managed by NNECO. Millstone 1, 2 and 3 have been out of service since November 4, 1995, February 21, 1996 and March 30, 1996, respectively, and are on the NRC's watch list. PSNH's ownership interest in the Millstone units is limited to a 2.85 percent joint ownership
-interest in Millstone 3. NU has restructured -its nuclear organization and is currently implementing comprehensive plans to restart the units.
Subsequent to its January 31, 1996 announcement that Millstone had been placed on its watch list, the NRC stated that the units cannot return to service until independent, third-party verification teams have reviewed the actions taken to improve the design, configuration and employee concerns issues that prompted the NRC to place.the units on its watch list. The actual date of , the return to service for each of the units is dependent upon the l completion of independent inspections and reviews by the NRC and I a vote by the NRC commissioners. NU hopes to return Millstone 3 -l to service in early spring of 1998 and' Millstone 2 three to four { months after Millstone 3. Millstone 1 'is currently in extended j maintenance' stat; L j i l In 1997, NU's share-of nonfuel O&M costs expensed for Millstone totaled $566 million, including $73 million reserved for future restart costs. PSNH's share cf nonfuel O&M costs was ~ approximately $5 million. j Budgeted nuclear spending levels at Millstone for 1998 will be ' reduced from- 1997 levels, although they will be considerably higher ; than : before the station wqs- placed on the NRC's watch list. The actual 1cvel of 1998 spending will depend on when the units return - to operation and the cost of restoring them to service. The total-cost to restart the units cannot be precisely
. estimated at this time. Management will continue to evaluate the costs to be incurred in 1998 to determine whether adjustments to j the existing reserves are required. l l
Management. cannot ~ predict when the NRC will allow any of the Millstone units to return to service and thus cannot precisely , estimate the total replacement power costs - the NU system j companies will ultimately incur. Replacement power costs j 32 !
Public Service Company of New Hampshire NOTES TO FINANCIAL STATEMENTS incurred by NU attributable to the Millstone outages averaged approximately $28 million per month during 1997, and for 1998 are projected to average approximately $9 million per month for Millstone 3, $9 million per month for Millstone 2, and $6 million per month for Millstone 1 while the plants remain out of service. To date, PSNH's share of replacement power costs has not been material. PSNH's share of replacement power costs is not expected to be material for 1998, while Millstone 3 is out of service. CL&P, WMECO and PSNH will continue to expense their replacement power costs in 1998. Based on the current estimates of expenditures and restart dates, management believes the NU system has sufficient resources to fund the restoration of the Millstone units and related replacement power costs. If the return to service of Millstone 3 or 2 is delayed substantially beyond the present restart estimates, if some financing facilities become unavailable because of difficulties in meeting borrowing conditions or renegotiating extensions, if CL&P and WMECO encounter additional significant costs or if any other significant deviations from management's assumptions occur, CL&P and WMECO could be unable to meet their cash requirements. In those circumstances, management would take even more stringent actions to reduce costs and cash outflows and attempt to obtain additional sources of funds. The availability of these funds would be dependent upon general market conditions and CL&P's and WMECO's respective credit and financial conditions at that time. Litigation: On August 7, 1997, the non-NU owners of Millstone 3 filed demands for arbitration with CL&P and WMECO as well as lawsuits in Massachusetts Superior Court against NU and its current and former trustees. The non-NU owners raise a number of contract, tort and statutory claims arising out of the operation of Millstone 3. The arbitrations and lawsuits seek to recover compensatory damages, punitive damages, treble damages and attorneys' fees. Owners representing approximately two-thirds of the non-NU interests in Millstone 3 claimed compensatory damages in excess of $200 million. In addition, one of the lawsuits seeks to restrain NU from disposing of its shares of the stock of WMECO and HWP, pending the outcome of the lawsuit. Management cannot estimate the potential outcome of these suits but believes there is no legal basis for the claims and intends to defend against them vigorously. To date, no reserves have been established for this litigation. At December 31, 1997, the costs related to this litigation for the NU system were estimated to be
$100 million for incremental O&M costs and approximately $100 million for replacement power costs. These costs are likely to increase as long as Millstone 3 remains out of service.
C. Environmental Matters The NU system is subject to regulation by federal, state and local authorities with respect to air and water quality, the 33
Public Ssrvico Comp ny of Nsw Hampshiro NOTES TO FINANCIAL STATEMENTS handling and disposal of toxic substances and hazardous and solid wastes, and the handling and use of chemical products. The NU system has an active environmental auditing and training program and believes that it is in substantial compliance with current environmental laws and regulations. However, the NU system is subject to certain pending enforcement actions and governmental investigations in the environmental area. Management cannot predict the outcome of these enforcement
- actions and investigations.
Environmental requirements could hinder the construction of new generating units, transmission and distribution lines,
- substations and other facilities. Changing environmental requirements could also require extensive and costly modifications to PSNH's existing generating units, and transmission and distribution systems, and could raise operating costs significantly. As a result, PSNH may incur signifi cant additional environmental costs, greater than amounts included in cost of removal and other reserves, in connection with the generation and transmission of electricity and the storage, transportation and disposal of by-products and wastes. PSNH may also encounter significantly increased costs to remedy the environmental effects of prior waste handling activities. The cumulative long-term cost impact of increasingly stringent environmental requirements cannot be estimated accurately.
PSNH has recorded a liability based upon currently available information for what it believes are its estimated environmental remediation costs that it expects to incur for waste disposal sites. In most cases, additional future environmental cleanup costs are not reasonably estimable due to a number of factors, including the unknown magnitude of possible contamination, the appropriate remediation methods, the possible effects of future legislation or regulation and the possible effects of technological changes. At December 31, 1997, the net liability recorded by PSNH for its estimated - environmental remediation costs, excluding any possible insurance recoveries or recoveries from third parties, amounted to approximately $5,6 million, which management has determined . to be the most probable amount. During 1997, PSNH adopted Statement of Position 96-1,
" Environmental Remediation Liabilities" (SOP). The principal objective of the SOP is to improve the manner in which existing authoritative accounting literature is applied by entities to specific situations of recognizing, measuring and disclosing environmental remediation liabilities. The adoption of the SOP resulted in an increase of approximately $400 thousand to PSNH's environmental reserve in 1997.
PSNH cannot estimate the potential liability for future claims, including environmental remediation costs, that may be brought 34 1
Public Service Company of New Hampshire NOTES TO FINANCIAL STATEMENTS against it. However, considering known facts, existing laws, and regulatory practices, management does not believe the matters disclosed above will have a material effect on PSNH's financial position or future results of operations. D. Nuclear Insurance Contingencies Under certain circumstances, in the event of a nuclear incident
, at one of the nuclear facilities in the country covered by the federal government's third-party liability indemnification program, an owner of a nuclear unit could be assessed in proportion to its ownership interest in each of its nuclear units up to $75.5 million. Payments of this assessment would be limited to $10.0 million in any one year per nuclear incident based upon the owner's pro rata ownership interest in each of its nuclear units. In addition, the owner would be subject to an additional five percent or $3.8 million, in proportion to its ownership interests in each of its nuclear units, if the sum of all claims and costs from any one nuclear incident exceeds the maximum amount of financial protection.
Under the terms of the Seabrook Power Contracts with NAEC, PSNH could be obligated to pay for any assessment charged to NAEC as a " cost of service." Based on its ownership interest in Millstone 3 and NAEC's ownership interest in Seabrook 1, PSNH's maximum liability, including any additional assessments, would be $30.8 million per incident of which payments would be limited to $3.9 million per year. In addition, through power purchase contracts with MYAPC, VYNPC and CYAPC, PSNH would be responsible for up to an additional $11.1 million per incident, of which payments would be limited to a maximum of $1.4 million per year. Insurance has been purchased to cover the primary cost of repair, replacement or decontamination of utility property resulting from insured occurrences at Millstone 3 and CY. PSNH is subject to retroactive assessments if losses exceed the accumulated funds available to the insurer. The maximum potential assessment against PSNH with respect to losses arising during the current policy year is approximately $0.4 O million under the primary property insurance program. Insurance has been purchased to cover certain extra costs incurred in obtaining replacement power during prolonged accidental outages and the excess cost of repair, replacement, or decontamination or premature decommissioning of utility property resulting from insured occurrences. PSNH is subject to retroactive assessments if losses exceed the accumulated funds available to the insurer. The maximum potential assessments against PSNH (including costs resulting from PSNH's contracts with NAEC), with respect to losses arising during current policy years are approximately $2.2 million under the replacement power policies and $5.2 million under the excess property damage, decontamination and decommissioning policies. Although PSNH has purchased the limits of coverage currently 35
Public Sarvice Company of Nsw Hampshire NOTES TO FINANCIAL STATEMENTS available from the conventional nuclear insurance pools, the cost of a nuclear incident could exceed available insurance proceeds. Insurance has been purchased aggregating $200 million on an industry basis for coverage of worker claims. All participating reactor operators insurei under this coverage are subject to retrospective assessments of $3 million per reactor.
- The maximum potential assessment against PSNH (including costs resulting from the Seabrook Power Contracts with NAEC) , with respect to losses arising during the current policy period is approximately $1.8 million. Effective January 1, 1998,- a new
- worker policy was purchased which is not subject to retrospective assessments.
E. Construction Program The construction program is subject to periodic review and revision by management. PSNH currently forecasts construction expenditures of approximately $302.6 million for the years
-1998-2002, including approximately $41.9 million for 1998. In addition, PSNH estimates that nuclear fuel requirements, for its share of Millstone 3, will be $5.1 million for the years
.1998-2002, including $1.7 million for 1998.
F. Long-Term Contractual Arrangements Yankee Companies: PSNH, CL&P and WMECO rely on .VY for approximately 1.' 7 percent of their capacity under long-term contracts. Under the terms of their agreements, the-NU system companies pay their ownership (or entitlement) shares of costs, which include depreciation, O&M expenses, taxes, the estimated cost of-decommissioning and a return on invested capital. These costs are recorded as purchased power expense and are recovered through the companies' rates. PSNH's total cost of purchases under contracts with VYNPC, amounted to $6.2 million-in 1997,
$6.5 million in 1996-and 1995.
The other.-Yankee generating facilities, MY, CY and Yankee Rowe, were permanently shutdown as of August 6 ., 1997, December 4, 1996, and February 26, 1992, respectively. See Note 1E, *
" Summary of Significant Accounting' Policies-Investments and
-Jointly Owned Electric. Utility Plant," for more information on the Yankee companies. See - Note 4, " Nuclear Decommissioning,"
regarding information on the related decommissioning studies. Nonutility ' Generators (NUGs): PSNH has requirements under various arrangements for the purchase of capacity and energy-from NUGs. .These arrangements have terms from 20 to 30 years, I currently expiring in the years 1998 through 2023, and require l PSNH-to purchase energy at specified prices or formula rates.
.For the 12 months ending December 31, 1997, .approximately 14
= percent of the NU system electricity requirements were met by NUGs. PSNH's total cost of purchases under these arrangements 36
Public Servico Company of Nsw Hampchire NOTES TO FINANCIAL STATEMENTS
~
amounted to $133.1 million in 1997, $132.6 million in 1996, and
$124.0 million in 1995. These costs may be deferred for-eventual recovery through rates. For additional information, see Note 1K, " Summary of Significant Accounting Policies-Recoverable Energy Costs."
'New Hampshire Electric Coopera tive: PSNH entered into a buy-back agreement to purchase the capacity and energy of the New Hampshire Electric Cooperative, Inc.'s (NHEC) share of Seabrook 1 and to pay all of NHEC's Seabrook 1 costs for a ten-year period, which began on July 1, 1990. The total cost of purchases under this agreement was $23.4 million in 1997, $14.5 a
million in 1996, and $15.8 million in 1995. The total cost of these purchases has been collected through the FPPAC in accordance with the Rate Agreement. In connection with the agreement, NHEC agreed to continue as a firm-requirements customer of PSNH for 15 years. Hydro-Quebec: Along with other New England utilities, PSNH, CL&P, WMECO, and HWP have entered into agreements to support transmission and terminal facilities to import electricity from the Hydro-Quebec system in Canada. PSNH is obligated to pay, over a 30-year period ending in 2020, its proportionate share of the annual O&M and capital costs of these facilities. Estimated Annual Costs: The estimated annual costs of PSNH's significant long-term contractual arrangements are as follows: 1998 1999 2000 2001 2002 (Millions of Dollars)
~VYNPC.................. $ 7.1 $ 7.1 $ 6.7 $ 7.4 $ 7.7 LNUGs................... 139.4 142.9 147.1 151.3 155.5 NHEC................... 30.0 30.0 14.6 - -
. Hydro-Quebec.. 4 . . ... . . . 10.2 9.8 9.7 9.4 9.2 For additional information regarding the recovery of purchased power costs, see Note 1K, " Summary of Significant Accounting Policies - Recoverable Energy Costs."
G. Deferred Receivable from Affiliated Company At the time PSNH emerged from bankruptcy on May 16, 1991, in accordance with the phase-in under the Rate Agreement, it began accruing a deferred return on a portion of its- Seabrook
. investment. From May 16, 1991 to the Acquisition Date, PSNH accrued a deferred return of $50.9 million. On the Acquisition Date, PSNH sold the $50.9 million deferred return to NAEC as part of the Seabrook-related assets.
37 m_____ _ _ _ . . . - _ _ . _ _ _ _ _ _______-_m._-____ -___m_ _ _ _ _ _ _ _ _ _ _ . _ _ _ _ _ _ _ - _ _ - . _ _
Public Sarvica Comp ny of N;w Hampshiro NOTES TO FINANCIAL STATEMENTS At the time PSNH transferred the deferred return to NAEC, it realized, for income tax purposes, a gain that is deferred under the consolidated income tax rules. Beginning December 1, 1997, this gain is being restored for income tax purposes, as the deferred return of $50.9 million, and the associated income taxes of $32.9 million, are being collected by NAEC through the Seabrook Power Contracts. As NAEC recovers the $32.9 million in years eight through ten of the Rate Agreement, it will be
- obligated to make these corresponding payments to PSNH.
On the Acquisition Date, PSNH recorded the $32.9 million of
- income taxes associated with the deferred return as a deferred receivable from NAEC, with a corresponding entry to deferred revenue, on its Balance Sheet. In 1993, due to changes in tax rates, this amount was adjusted to $33.2 million.
For further information related to the phase-in of the Seabrook power plant, see Note 2, "Seabrook Power Contracts." See Note 10A, " Commitments and Contingencies - Restructuring and Rate Matters" for the possible impacts of the NHPUC's decision related to industry restructuring on this intercompany transaction between PSNH and NAEC.
- 11. FAIR VALUE OF FINANCIAL INSTRUMENTS The following methods and assumptions were used to estimate the fair value of each of the following financial instruments:
Cash and nuclear decommissioning trusts: The carrying amounts approximate fair value. SFAS 115, " Accounting for Certain Investments in Debt and Equity Securities," requires investments in debt and equity securities to be presented at fair value. Unrealized gains and losses resulting from the use of SFAS 115 accounting have not been material. . 38
r Public Sorvice Comprny of Ncw Hampchiro NOTES TO FINANCIAL STATEMENTS l I t Preferred stock and long-term debt: The fair value of PSNH's fixed-rate securities is based upon the quoted market price for
.those issues or similar issues. Adjustable rate securities are l' . assumed to have a - f air value equal to their carrying value. The
! carrying amounts of PSNH's financial instruments and the estimated fair values are as follows:
- Carrying Fair At December 31. 1997 Amount Value L
e (Thousands of Dollars) Preferred ntock subject to mandatory redemption................... $100,000 $ 99,000
- l. Long-term debt - First Mortgage Bonds.... $170,000 $170,425 Other long-term debt..................... $516,485 $537,599 l
Carrying Fair At_pecember 31, 1996 Amount Value (Thousands of Dollars)
)
. Preferred stock subject to mandatory redemption................... $125,000 $125,000 Long-terra debt - First Mortgage Bonds.... 170,000 175,729
.Other long-term debt...................... 516,485 523,536 l .
- l. Th'e fair values shown above have been reported to meet the l disclosure requirements and do not purport to represent the
! .* amounts at which.those obligations would be settled. i l j 1 39 , ________-____-_____________-______L
Public Servico Comprny of N;w Hamp2hiro REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Board of Directors of Public Service Company of New Hampshire: We have audited the accompanying balance sheets of Public Service Company of New Hampshire (a New Hampshire corporation and a wholly ' owned subsidiary of Northeast Utilities) as of December 31, 1997 and 1996, and the related statements of income, common stockholder's equity, and cash flows for each of the three years in the period ended
- December 31, 1997. These financial statements are the responsibility of the company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit i to obtain reaeonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Public Service Company of New Hampshire as of December 31, 1997 and 1996 and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1997, in conformity with generally accepted accounting principles. The accompanying financial statements have been prepared assuming that the company will continue as a going concern. As discussed in Note 10A, on February 28, 1997, the State of New Hampshire Public Utilities Commission (the NHPUC) issued an order outlining its final plan to restructure the electric utility industry. The final plan announced a
- i departure from cost-based rate making, which, if implemented, would require the company to discontinue the application of Financial Accounting Standard No. 71, " Accoun ting for the Effects of Certain
- Types of Regulation," (FAS 71) The implementation of the final plan, including the effect of the discontinuation of FAS 71, would result in !
after tax write-off of over $400 million. Such a write-off would cause the company to be in technical default under financial covenants imposed by lenders, which, would, if not waived or renegotiated, give rise to the rights of lenders to accelerate the repayment of approximately $686 million of the company's indebtedness and approximately $495 million of an affiliated company's indebtedness. 40
! Public Sorvico Comptny of NGw Hampchiro i REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS l~ . l These conditions raise substantial doubt about the company's ability to continue as a going concein. The financial statements referred to
-above do not include. any adjustments that might result from the outcome of this uncertainty.
L
/s/ ARTHUR ANDERSEN LLP ARTHUR ANDERSEN LLP
! e ( Hartford, Connecticut February 20, 1998 l l l t I e J l { 41 L L i
PUBLIC SERVICE COMPANY OF NEW HAMPSHIRE Management's Discussion and Analysis of Financial Condition and Results of Operations This section contains management's assessment of Public Service Company of New Hampshire's (PSNH or the company) financial condition and the principal factors having an impact on the results of operations. The company is a wholly-owned subsidiary of Northeast Utilities (NU). This discussion should be read in conjunction with , the company's financial statements and footnotes. 4 FINANCIAL CONDITION Overview Net income was approximately $92 million for 1997 compared to approximately $9, million for 1996. The decrease in net income was primarily due to higher operation expenses. Retail kilowatt-hour sales were essentially unchanged in 1997. A significant issue facing PSNH in 1998 is the industry restructuring efforts in New Hampshire. A temporary restraining order issued by a U.S. District Court is currently blocking the New Hampshire Public Utilities Commission (NHPUC) from implementing a February 1997 restructuring order that would have resulted in a write-off by PSNH of more than $400 million. Management hopes to negotiate an alternative restructuring proposal in 1998 that will produce significant PSNH rate reductions and allow retail customers to choose their electric suppliers, but still give PSNH and North Atlantic Energy Corporation (NAEC) an opportunity to maintain an adequate financial condition and earn fair returns on their investments. Restructuring In February, 1997, the NHPUC issued orders to restructure the state's electric utility industry and set interim stranded cost charges for PSNH. In the orders, the NHPUC announced a departure from cost-based ratemaking and adopted a market-priced approach to stranded cost recovery. PSNH, NU, NAEC and Northeast Utilities Service Company (NUSCO) filed for a temporary restraining order, preliminary and
- permanent injunctive relief and a declaratory judgment in the United States District Court of New Hampshire. The case subsequently was transferred to the United States District Court of Rhcda icland (District Court) where a temporary restraining order was granted, staying, indefinitely, the enforcement of the NHPUC's restructuring orders as they affected PSNH. Certain appeals to the preliminary ruling have been denied and proceedings in the District Court are expected to resume.
The NHPUC conducted rehearing proceedings in 1997 to decide the appropriate methodology to be used to determine PSNH's interim stranded costs and to set PSNH's interim stranded cost charges l l 42
utilizing the determined methodology. The NHPUC has not indicated when it will issue a decision in these proceedings. On December 15, 1997, the NHPUC officially announced that industry restructuring would not take place on January 1, 1998. On l December 24, 1997, the Governor's office filed a motion with the NHPUC l formally requesting that certain issues concerning the rate agreement ! (Rate Agreement) between NU, PSNH and the state of New Hampshire, entered into in 1989 in connection with NU's reorganization plan to resolve PSNH's bankruptcy, be transferred to the New Hampshire Supreme Court for decision. The motion recommends that the NHPUC not issue any new rulings concerning the Rate Agreement pending such Supreme Court decision. On February 20, 1998, the NHPUC petitioned the New Hampshire Supreme Court to review two issues regarding the Rate Agreement; (i) whether the Rate Agreement creates private rights which would allow PSNH to seek damages under a contract theory if PSNH receives less than the full amount it claims as strandable costs under the Rate Agreement, and (ii) if yes, against whom and under what conditions such rights be enforceable. The Supreme ~ Court first must determine whether it will accept the NHPUC's petition. As part of the rehearing proceedings, PSNH proposed a new methodology to quantify its stranded costs. Under this proposal, PSNH would divest its owned generation and purchased power obligations via auction. To the extent that the auction fails to produce sufficient revenues to cover the net book value of owned generation and contractual payment obligations of purchased power, the difference would be recovered from customers through a non-bypassable distribution charge. The new proposal also relies upon securitization of certain assets to further reduce rates. On February 20, 1998, PSNH forwarded a settlement offer to representatives from the state of New Hampshire that was consistent with PSNH's proposal in the rehearing proceedings, including among other things, a 20 percent rate reduction at the beginning of 1999, an auction of PSNH's non-nuclear generating units and securitization of approximately $1.15 billion of PSNH's stranded costs. See the " Notes to Financial Statements," Note 10A, for the potential accounting impacts of restructuring. Rate Matters PSNH's Rate Agreement provided for seven base rate increases and a comprehensive fuel and purchased power adjustment clause (FPPAC). In June 1996, the final base rate increase of 5.5 percent went into effect. Although the FPPAC continues for an additional four years beyond the end of the fixed rate period, there is uncertainty regarding how it will continue to function. The costs associated with purchases by PSNH from certain non-utility generators (NUGs) at prices above the level assumed in rates are deferred and recovered through the FPPAC. At December 31, 1997, NUG deferrals totaled approximately
$173 million.
On May 2, 1997, PSNH made a rate filing with the NHPUC requesting base rates to remain at their current level after May 31, 1997. By order 43
( dated November 6, 1997, the NHPUC ordered a temporary rate reduction l for PSNH at a revenue level 6.87 percent lower than current rates. The NHPUC also set an interim return on equity of 11 percent. The temporary rates became effective December 1, 1997. A final decision, which will be reconciled to July 1, 1997, is not expected to be issued until September, 1998. A portion of this reduction was offset by an increase to rates through the FPPAC. On February 10, 1998, the NHPUC ordered an FPPAC rate for the period December 1, 1997 through May 31, 1998, which increased customer bills by approximately 6 percent. Prior to this increase, the FPPAC rate , had been a credit to reflect a customer refund ordered by the NHPUC beginning in June 1996. This rate continues to defer recovery of a substantial portion of costs for the future. In addition, recovery of , the Seabrook deferred return (approximately $127 million annually) is scheduled to begin in June 1998. On March 19, 1998, PSNH filed a proposed change to its rates, effective June 1, 1998. Public hearings are scheduled to take place in May 1998. The NHPUC also confirmed in its February 10, 1998 decision that it would disallow approximately $3 million in replacement power costs related to outages at Connecticut Yankee, Maine Yankee and Vermont Yankee and require PSNH to set aside $10 million as a reserve for potential overpayment due to the fact that PSNH has not required small power producers to reduce deliveries during so-called " light-loading" periods, pending the NHPUC's review of this matter. The decision also alleges various breaches of the Rate Agreement and ordered PSNH to meet with the State to discuss these matters. Finally, the decision indicated that the NHPUC would open a proceeding to review whether the proceeds from the sale of steam generators (approximately $20.9 million for NAEC's share) related to the canceled Unit II at Seabrook station should flow through rates to reduce customer bills. See the " Notes to Financial Statements," Note 1K, for further
'7 formation on the FPPAC.
s ,uidity And Capital Resources Cash provided from operations decreased approximately $44 million in . 1997, compared to 1996, primarily due to lower recoveries through the FPPAC as a result of a customer refund ordered by the NHPUC and higher costs due to the Seabrook outage that are not being recovered , currently, partially offset by higher working capital. Cash used for financing activities decreased approximately $116 million in 1997, compared to 1996, due primarily to the repayment of long-term debt in 1996, partially offset by the higher payment of cash dividends on common stock and the repayment of preferred stock in 1997. Cash used for investments decreased approximately $21 million in 1997, compared to 1996, primarily due to a decrease in investments in the NU system Money Pool. PSNH has a $125 million revolving credit agreement that will expire in April 1999. At December 31, 1997 there were no borrowings under the facility. 44
PSNH has a first mortgage bond maturity of $170 million, plus accrued interest, on May 14, 1998. PSNH expects to meet that maturity with cash on hand and borrowing under the revolving credit agreement. Each major subsidiary of NU finances its own needs. Neither CL&P nor WMECO has any financing agreements containing cross defaults based on financial defaults by NU, PSNH or NAEC. Similarly, neither PSNH nor NAEC has any financing agreements containing cross defaults based on financial defaults by NU, CL&P or WMECO. Nevertheless, it is possible that investors will take negative operating results or regulatory developments at one company in the NU system into account when evaluating other companies in the NU system. That could, as a practical matter and despite the contractual and legal separations among the NU companies, negatively affect each company's access to
- financial markets.
NUCLEAR PERFORMANCE Millstone 3 PSNH has a 2.85 percent joint ownership interest in Millstone 3. Millstone 3 has been out of service since March 30, 1996. Subsequent to its January 31, 1996, announcement that Millstone had been placed on its watch list, the NRC has stated that the unit cannot return to service until independent, third party verification teams have reviewed the actions taken to improve the design, configuration and employee concerns issues that prompted the NRC to place the unit on its watch list. The actual date of the return to service for the unit is dependent upon the completion of independent inspections, reviews by the NRC and a vote by the NRC commissioners. In January 1998, NU declared Millstone 3 physically ready for restart, which meant that almost all of the restart-required physical work had been completed in the plant. The NRC currently is conducting a series of inspections to determine, among other things, whether the plant has effective leadership and corrective action and employee concerns programs. The Independent Corrective Action Verification Program, an NRC-ordered independent review of the plant's design and licensing bases, is expected to be completed in March 1998. 3 To date, PSNH's costs related to the Millstone 3 outage have not had a material impact on the company's financial position or results of operations. Management expects that, under its current planning assumptions, Millstone 3's outage-related costs will continue to be immaterial to the company's results of operations. I Scabrook PSNH is obligated to purchase North Atlantic Energy Corporation's l (NAEC) 35.98-percent share of the capacity and output generated by Seabrook 1(Seabrook) under the Seabrook Power Contract for a period equal to the length of the NRC full-power operating license for Seabrook (through 2026) whether or not Seabrook is operating and without regard to the cost of alternative sources of power. North Atlantic Energy Service Corporation is the managing agent and operates Seabrook. I I l 45 1 \ j L.
operated at a capacity factor of 78.3 percent through Seabrook December 1997, compared to 96.8 percent for the same period in 1996. 1997 capacity factor is due primarily to the 50-day The lower scheduled refueling and maintenance outage which began on May 10, 1997, and an unplanned outage that began on December 5, 1997. The unplanned outage occurred when the unit was shut down to repair leaks in a three inch stainless steel pipe in the residual heat removal system. The pipe was replaced, but problems were subsequently discovered in the control building air conditioning system. Design changes were implemented and the plant returned to service on January 16, 1998. DECOMMISSIONING Connecticut Yankee e PSNH has a 5 percent ownership interest in the Connecticut Yankee nuclear generating facility (CY or the plant) On December 4, 1996, the Board of Directors of Connecticut Yankee Atomic Power Company voted unanimously to cease permanently the production of power at the plant. The decision to retire CY from commercial operation was based on an economic analysis of the costs of operating it compared to the costs of closing it and incurring replacement power costs over the remaining period of the plant's operating license, which would have expired in 2007. The economic analysis showed that closing the plant and incurring replacement power costs produced substantial savings. CY has undertaken a number of regulatory filings intended to implement the decommissioning. In late December 1996, CY filed an amendment to its power contracts with the FERC to clarify the obligations of its purchasing utilities following the decision to cease power production. At December 31, 1997, PSNH's share of these obligations was approximately $31 million, including the cost of decommissioning and the recovery of existing assets. Management expects that PSNH will continue to be allowed to recover such FERC approved costs from their customers. Accordingly, PSNH has recognized its share of the estimated costs as a regulatory asset, with a corresponding obligation, on its balance sheets. Maine Yankee ' PSNH has a 5 percent ownership interest in the Maine Yankee (MY) nuclear generating facility. On August 6, 1997, the Board of Directors of Maire Yankee Atomic Power Company (MYAPC) voted unanimously to ret m MY. On January 14, 1998, FERC released a draft order on the MYAPC application to amend its power contracts with the owner / purchasers and revise its decommissioning and other charges. FERC has accepted the proposed application for filing and made the amendments and the proposed charges under the contracts effective on January 15, 1998, subiect to refund after hearings. At December 31, 1997, PSNH's share sf the estimated remaining obligation, including decommissioning amounted to approximately $43 million. Under the terms of the contracts with MYAPC, the shareholders' sponsor companies, including PSNH, are responsible for their proportionate share of the costs of the unit, including decommissioning. Management expects that PSNH will be allowed to recover these costs from its l customers. Accordingly, PSNH has recognized these costs as a 46
regulatory asset, with a corresponding obligation on its balance sheet. Millstone and Seabrook PSNH's estimated cost to decommission its 2.85 percent share of Millstone 3 and NAEC's 35.98 share of Seabrook is approximately $16 million and $170 million, respectively, in year end 1997 dollars. These costs are being recognized over the lives of the respective units with a portion currently being recovered through rates. Under the terms of the Rate Agreement, the company is obligated to pay 4 NAEC's share of Seabrook's decommissioning costs, even if the unit is shut down prior to the expiration of its operating license. As of December 31, 1997, the market value of the contributions already made 3 to the Millstone 3 and Seabrook decommissioning trusts, including their investment returns, was approximately $4 million and $26 l million, respectively. See the " Notes to Financial Statements," Note 4, for further information on nuclear decommissioning, including PSNH's share of costs to decommission the other regional nuclear generating units. Environmental Matters PSNH is potentially liable for environmental cleanup costs at a number of sites inside and outside its service territory. To date, the future estimated environmental remediation liability has not been material with respect to the earnings or financial position of PSNH. At December 31, 1997, PSNH had recorded an environmental reserve of approximately $5.6 million. See the " Notes to Financial Statements" ! Note IOC, for further information on environmental matters. { Year 2000 Issue 3 The Year 2000 issue exists because many computer systems and applications currently use two-digit date fields to designate a year. As the change of the century occurs, date-sensitive systems may recognize the year 2000 as 1900, or not recognize it at all. This inability to recognize or properly treat the year 2000 may cause NU systems to process critical financial and operational information incorrectly. The company has assessed and continues to assess the e impact of the Year 2000 issue on its operating and reporting systems. l The assessment of the nuclear operating systems is continuing and is I expected to be completed in the summer of 1998. i
> l The NU system will utilize both internal and external resources to reprogram or replace, and test the software for Year 2000 modifications. The tota] estimated remaining cost of the Year 2000
! project is $37 million and is being funded through operating cash ! flows. This estimate does not include any costs for the replacement ( or repair of equipment or devices that may be identified during the assessment process. The majority of these costs will be expensed as incurred over the next two years. To date, the NU system has incurred and expensed approximately S4 million related to the assessment of, and preliminary efforts in connection with, its Year 2000 project. The costs of the project and the date on which the company plans to complete the Year 2000 modifications are based on management's best i 47
estimates, which were derived utilizing numerous assumptions of future events including the continued availability of certain resources, third party modification plans and other factors. However, an. t> 2re can be no guarantee that these estimates will be achieved, If the NU system's actual results could differ materially from those plans. remediation plan is not successful, there could be a significant disruption of the NU system's operations. RESULTS OF OPERATIONS Income Statement Variances . Increase /(Decrease) Millions of Dollars 1997 over/(under) 1996 1996 over/ (under) 1995 Amount Percent Amount Percent Operating revenues $(?) - % $13C 13% Fuel, purchased and net interchange power (30) (8) 100 39 Other operation 41 12 14 4 Maintenance (7) (16) 3 8 Other, net (7) (92) 5 (a) Interest on long-term debt (6) (11) (19) ( 2 5') Other interest expense (3) (91) 3 (a) Net income (4) (5) 14 16 (a) Percent greater than 100 Operating Revenues Total operating revenues decreased in 1997 primarily due to lower fuel recoveries, partially offset by higher retail revenues. Fuel recoveries decreased approximately $12 million, primarily due to the customer refund ordered by the NHPUC. Retail revenues increased approximately $9 million, primarily due to the June 1996 rate increase, partially offset by the December 1997 rate decrease and < higher price discounts to retain customers. Retail sales were essentially unchanged. f Total operating revenues increased in 1996, primarily due to higher fuel recoveries, regulatory decisions, and other retail revenues. Fuel recoveries increased $112 million, primarily due to revenues resulting from the intercompany allocation of energy costs to NU affiliated companies ($125 million) and higher base fuel revenues primarily as a result of the June 1996 and 1995 retail-rate increases, partially offset by lower FPPAC revenues as a result of a customer refund ordered by the NHPUC. Revenues related to regulatory decisions increased $8 million, primarily due to the retail-rate increases. Other retail revenues increased $10 million primarily due to sales growth and other revenue sources. Retail sales increased 0.4 percent ($2 million), primarily due to economic growth in 1996, partially offset by milder weather in 1996. 48
Fuel Expense Fuel, purchased and net interchange power expense decreased in 1997, primarily due to the timing in the recognition of fuel expenses under the FPPAC, partially offset by higher purchased power costs. Fuel, purchased and net interchange power expense increased in 1996, primarily due to higher purchased power costs and the timing in the recognition of fuel expenses under the FPPAC. Other Operation and Maintenance Expense Other operation and maintenance expense increased in 1997 primarily due to higher capacity charges under the Seabrook Power Contract as a result of the scheduled May 1997 refueling and maintenance outage and the unplanned December 1997 outage ($23 million), higher capacity purchases from NHEC ($11 million), higher capacity charges from MY ($4 million) and higher costs for PSNH's share of Millstone 3 ($2 million), partially offset by lower fossil costs ($4 million) and lower administration and sales costs ($3 million). Other operation and maintenance expenses increased in 1996, primarily due to higher storm costs, higher employee benefit costs, higher capacity charges under the Seabrook Power Contracts and higher marketing costs. Other, net Other, net decreased in 1997 and increased in 1996, primarily due to the deferral in 1996 of interest expense ($5 million) associated with the FPPAC refund. Interest on Long-Term Debt Interest on long-term debt decreased in 1997 and 1996, primarily due to the repayment of the $172.5 million Series A first-mortgage bond in May 1996. Other Interest Expense Other interest expense decreased in 1997 and increased in 1996, , primarily due to 1996 interest expense ($5 million) as ociated with the FPPAC refund. 49
P Public Service Company of New Hampshire SELECTED FINANCIAL DATA (a) Jan. 1, 1997 Jan. 1, 1996 Jan. 1, 1995 to to to For the Periods Dec. 31 1997 Dec. 31, 1996 Dec. 31, 1995 (Thousands of Dollars) Operating Revenues .. $1,108,459 $1,110,169 $ 979,971 Operating Income .... 144,274 155,195 155,628 , Net Income . ....... 92,422 96,902 83,255 Cash Dividends on Common Stock ...... 85,000 52,000 52,000 At Dec. 31, 1997 Dec. 31, 1996 Dec. 31, 1995 l Total Assets ........ $2,837,159 $2,851,212 $2,920,487 Long-Term Debt * .... 686,485 686,485 858,985 l Preferred Stock Subject to Mandatory Redemption *.. .. . 100,000 125,000 125,000 Obligations Under Seabrook Power Contracts and Other Capita 1 Leases *... 921,813 914,617 915,288 e (a) Reclassifications of prior data have been made to conform with the current presentation. (b) Includes portions due within one year. 50
Public Service Company of New Hampshire l SELECTED FINANCIAL DATA Jan. 1, 1994 Jan. 1, 1993 to to Dec. 31, 1994 Dec. 31, 1993 (Thousands of Dollars)
$922,039 $864,415 l
152,086 124,710 77,444 52,237
)
Dec. 31,1994 Dec. 31, 1993
$2,845,967 $2,774,511 999,985 1,093,895 125,000 125,000 l 887,967 856,559 l )
9 1 l l 51 I
l Public Service Company of New Hampshire STATISTICS Average Gross Electric Annual ~ ! Utility Plant Use Per December 31, kWh Residential Electric (Thousands of Sales Customer Customers Employees Dollars)DO '(Millions) (kWh) (Averace) (December 31) i 1997 $2,312,628 '13,340 6,528 407,642 1,254: 1996 2',382,009 13,601 6,567 407,082 1,279 1995 2,469,474 11,001 6,524 W 406,077 1,325 g
- 1994 2,521,960 11,008 6,768 400,775 1,374 1993 2,590,644 11,146 6,817 397,277 1,426 STATEMENTS OF OUARTERLY FINANCIAL DATA (Unaudited)
Ouarter Ended (b)
-1997 March 31 June 30 Sept.30 Dec. 31 Operating Revenues ..... $278,321 $257,098 $285,390 $287,650' Operating Income ...'... $ 45,010 $ 34,062 $ 32,322 $ 32,880 Net Income ............. $ 32,529 $ 21,161 $ 19,056 $ 19,676 1996 March 31 June 30 Sept.30 Dec. 31 Operating Revenues .. .. $269,540' $261,897 $296,719 $282,013 Operating Income ....... $ 44,668 $ 42,156 $ 46,934 $ 21,437 Net Income ............. $ 28,545 $ 23,986 $ 30,646 $ 13,725 e
'*' Includes reclassification of the unamortized acquisition costs to grosp
_ utility plant.
*) Reclassifications of prior data have been made to conform with the current presentation.
'd Effective January.1, 1996,.the amounts shown reflect billed and unbilled sales. 1995 has.been restated to reflect this change.
l 1 52
Public Service Company of New Hampshire . First Mortgage Bonds Trustee and Interest Paying Agent First Union Bank - 765 Broad Street-Newark, New Jersey 07102 Preferred Stock Transfer Agent Dividend Disbursing Agent and Registrar Northeast Utilities Service Company Shareholder Services
- 9) P.O. Box 5006
, - Hartford, Connecticut 06102-5006 1998 Dividend Payment Dates
- 10.60% Series A
~ March 31, June 30, September 30, and December 31 -
Address General Correspondence in Care of: Northeast Utilities Service Company Investor Relations Department P.O. Box 270 - Hartford,' Connecticut 06141-0270 Telephone: (860) 665-5000
).
General Offices 1000 Elm Street Data wntainedin this AnnualReport are submined for the sole purpose ofproviding information to P.O. Box 330 present security holders about she company. Mcnchester, New Hampshire 03105-0330}}