ML20076E685

Annual Financial Rept 1982

ML20076E685
Person / Time
Site:	Seabrook
Issue date:	02/18/1983
From:	Bok J, Nichols G NEW ENGLAND ELECTRIC SYSTEM
To:
Shared Package
ML20076E650	List: ML20076E646 ML20076E664 ML20076E671 ML20076E675 ML20076E685 ML20076E690 ML20076E693 ML20076E703 ML20076E714 ML20076E722 ML20076E727 ML20076E730
References
NUDOCS 8308240626
Download: ML20076E685 (37)

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Neu England Electric in hiassachusetts, The .

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quartered in Westbor- customers in Rinie .R . l_ ._ 4. . f,.i('+g).1(q I

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has Ihree major retail Electric Com;uny serves  ; { .;,.. gj ?' .

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"z subsidiaries that supply 28,000 customers in New  :. ;4. 2 : 9, . o .

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electricityfor 1.1 million Hampshire. }if.  ; ._  :

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.etts Electric Com;uny  :. .: .: . R .

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, subsuliary, Nav England facilities includefour Power Com;uny (NEP), fossil-fuelplants, shares praluces electricityfor infour nuclearplants,43 %v the retailcom;uniesfrom hydroelectric units and a , 3 afuelmix composed of55 pumped storagefacility.  :.

percent coal,20 percent y  ?

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A fuels subsidiary, New United States, the Gulfof . i_ .

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in exploration and devel- is currently engaged in a __'

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Electric Transmission Service Company, Corgeration (NEET), uns provides construction, formed tc builda major engineering and other

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international transmis-sion ticline beturen the Hydro-Quebec electric system and New England. l l

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DearShareholder:

1982 was another year of significant achievement for New England Electric System. Earnings per average share totaled $4.65 in 1982, up 15 percent over 1981. This new high represents a 16 percent return on average common equity. Dividends were increased to an annual rate of $3.00 per share i in mid-1982, the seventh increase in five years. This dividend rate represents a payout ratio of 65 percent.

At the same time that earnings were up, the price of our product was down. Our customers paid six percent less per kilowatthour in 1982 than in 1981 due to coal burning, a general softening of oil prices and our long-term commitment to improved productivity. We are pleased that our companies now rank in the lower third in average cost of electricity among electric utilities in New England.

Our mix of primary energy sources used to generate electricity has improved dramatically in the past few years due largely to the conversion of six of our generating units from oil to coal burning. Three years ago, about three-fourths of our energy came from oil and none from coal. Today, coal supplies more than half of our energy needs. The use of this less expensive fuel saved our customers more than $45 million in 1982. Oil now represents only one-fifth of our energy requirements.

Productivity improvements continued in 1982. A decade ago, the System companies employed 6,827 people. Today, the number has been reduced to 5,126 employees. Since 1972, we have added four major generating units, which increased our capacity by 48 percent, and have added 120,887 new customers. Our customer-to-employee ratio has improved from 141 customers per employee in 1972 to 211 customers per employee in 1982, a 50 percent increase. Our Systera ranked seventh in the United States in a 1982 national survey on generating efficiency. We are proud of these accomplish- a ments and will continue to make every effort to realize further improvements.

The New England region continues to outperform the nation in terns of jobs and economic well-being. Unemployment rates in New England now average nearly one-fourth below the 10.8 percent national average.

However, unlike the other states we serve, Rhode Island's rate of 11.4 percent now exceeds both the New England and national averages. Concern about Rhode Island led us to the developmen: of The Narragansett Plan, aimed at helping industry create new jobs and helping those customers most severely affected by unemployment. Additionalinformation on this plan appears on pages 4 and 5.

2

Our oil and gas exploration subsidiary, New England Energy Incor-porated (NEEI), produced more than two million barrels of oil and gas equiva-lent in 1982, a record year, and contributed approximately 30 cents per share to net earnings. NEEI's principal producing properties are in the Gulf of Mexico.

We have also acquired ownership interests in parts of 17 federal oil and gas leases off the coast of California. Drilling has begun on four of these tracts, and exploration activities to date show good promise.

Under a pricing policy approved by the Securities and Exchange Commission (SEC), any return from NEEI's activities above a utility return are passed through to our customers in the fann of lower fuel costs. This limita-tion on our oil and gas earnings results from the SEC's interpretation and application of the Public Utility Holding Company Act of 1933. We are work-ing to achieve changes in the act that would permit our oil and gas operations to earn at a more appropriate level.

In 1982, New England utilities working together reached agreement l to build a high voltage transmission link to tie New England to the Hydro-Quebec electric system. A new System subsidiary, New England Electric Transmission Corporation, will build and finance approximately two-thirds of the U.S. portion of the facility, including the southern terminal and the New Hampshire section of this direct current transmission tie line.

In summary,1982 was the fifth year in a row that the System has achieved earnings and dividend increases. At the same time, our System has moved from being one of the higher cost suppliers of electricity in New Eng-land to one of the lowest. This record was achieved through the dedicated efforts of the men and women who work for the System ccmpanies. We are proud of these accomplishments and are committed to continuing this trend both for our customers and for you, our investors.

k b) Ta.w7 3ck Chairman Vice Chairman February 18,1983 4'

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s Reliable service cost continues to be the to our primary customers at minimum objective of our electric subsidiaries.

Accomplishments in this area during 1982 were noteworthy. The average price per kilowatthour sold , , _

to our more than one million customers was down six per- o cent from the average for 1981. The roasons: our greater use of coal, a relative softening of oil prices and increased efficiency of our operations.

In line with improving tne efficiency of our operations, our Massachusette retail subsidiary completed a major consolidation. Eight district offices have been reor-ganized into six, which will result in savings to customers of approximately $1.9 million per year. This consolidation also will provide better service to customers, with service vehicles in more communities, individual service crews covering fewer square miles, and more strategically located supply facilities. ['['"jll,"$'5'l,", {,,,,,,,

We achieved lower prices for our customers onc ofinore than MA>o Rhode Island residential in 1982 despite a soft industrial market that resulted in custorners icho n sninded an overall decrease of 2.3 percent in kilowatthour sales 'o'"'rolk'"/f'"fi"-

umifront cornpiny-to our largest customers. oicnedforce land.

Of the three states we serve, Rhode Island has experienced the most severe decline in industrial activity.

A large number of plants have closed in Rhode Island, and the state's unemployment rate reached 11.4 percent at year end, well above both the New England and national aver-ages. Kilowatthour sales to our Rhode Island industrial customers dropped 11.7 percent in 1982, to the lowest level since 1972. We recognize that continued negative load

. . . Ken Thornpson and growth will result m. mcreased electn.c costs as fixed over- oguy wffsoy c,fynt;gf heads will need to be spread over a smaller number c,f National HicAford Tore-niost re: ;ete expanston kiloWalthours. plans for the printing Our concern about the situation in Rhode $",'lfl,yh,#',',S

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"[l""l, Island led our subsidiary in that state, Narragansett Elec- I> heir i"rvrow the state's econorny and tecp our tric, to develop The Narragansett Plan. This plan has two custo,ncrs cgsts dgien, i

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The Narragansett Plan offers a 20 percent dis-count on basic electric rates to industries that provide nuv jobs either through expansion or through the start of new operations in Rhode Island. If approved by the Rhode Island Public Utilities Commission, this discount program will remain in effect through the end of the decade.

p m.4 The plan also calls for a 23 percent discount on

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,  ; l; basic electric rates for unemployed customers who have

' I' run out of unemployment benefits, and provides the g , , opportunity for Rhode Island customers to come onto N '

company-owned land and cut firewood free of charge.

We hope that The Narragansett Plan will

. trigger and hasten efforts that in combination can bring Rhode Island out of its recession and bring our industrial kilowatthour sales to the level consistent with a viable economy and lowest overall cost of electricity.

1 '

For the long term, however, we continue to rec-hs't),$s'; b;$ lay gnize the need to limit the System's overall load growth which teaches energy to achieve the lowest possible costs for our customers, as conirnition to children, c

misrcr/ori" edin no new, higher-pn,ced generating plants would increase the schools during 1932. average cost of the electricity we sell. Programs to control long-term growth rates involve all classes of customers.

In 1982, to foster residential energy conserva-tion, we renovated two houses, one in Cranston, Rhode Island, and the other in Malden, Massachusetts, into '

model, energy-efficient homes. In the first four months of operation, more than 20,000 visitors viewed the wide variety of conservation measures and new energy technologies on display.

Other efforts during the year to encourage conservation included participation in more than 24,000 residential energy audits, and a series of energy conser-The Systern renonited

, tavhousesintoinatel, vation theater performances for more than 73,000 school

> / ra is - :-

children in our service area.

tio" ideas to residential For our commercial and industrial customers, l custorners. Torn Hughes

, neft> cxp ams an energy. we conducted energy conservation workshops, a pilot

$,N[lEf$r ANN,. energy audit program and a test program to control the throp, hfassachusetts. use of air conditioners. l 7 ,

he energy mix for our generating facilities improved significantly in 1982. As recently as 1979, oil accounted for nearly 80 percent of our total mix. Coal now represents 55 percent of our mix, oil only 20 percent, nuclear 15 percent, and hydro and alternates Our Brayton Point Station in Somerset, Massa- ~

j chusetts, now has three units totaling 1150 megawatts of  ;

coal-fired generation, replacing approximately 11 million barrels at oil per year with 2.7 million tons of coal. This co version project, one of the largest ofits type in the country,is an economic and environmcatal success. .

Three units totaling 310 megawatts at our Salem l Harbor Station in Salem, Massachusetts, began burnmg . ,

coal during 1982 under the provisions of a delayed compli-ance order from the U.S. Environmental Protection l

Agency. This order allows coal to be burned on an interim basis while additional environmental equipment is being (f"$"Sg'";"j, installed. Work on this $100 million conversion project afisir ladderat vernon Station in Verrnont began in 1982 and completion is expected in 1985. Coal fu,,c,jg,,3 ,g i,cip 7cstg7c S"l"'o"""d 5had ' 'I

burning at Salem Harbor replaces approximately three connaticut Riirr.

million barrels of oil per year with 750,000 tons of coal.

l Our 387 megawatts of nuclear capacity continue to be a valuable component of our energy mix. Four nuclear plants in which we have shares ranging from 15 to 30 percent had outstanding output m 1982, producing more than 14 billion kilowatthours.

Our 43 hydro units and pumped storage facility continue to perform extremely well and, because of their flexibility, play an important role in our mix.

As one of the first utilities in the nation to embrace alternate energy sources as a viable power sup- ,, ,,,, ,

ply option, we continued to add these sources to our mix saicin narbor staiion in in 1982. We are now purchasing e!ectricity from wind, S"'""$.',"*s'"'.'"l,['l.*l,""

cogeneration and small hydro facilities which have a total anurrsion project. cmz is aircadylving bur:ted at capacityof 65 megawatts. An additional 98 megawatts of ti,is play, u,i,ife addi.

power from four trash-burning generating facilities and ',i',",'"lpl#",'ll'lll,,""'ly' other small power producers also are under contract. incnt is beinx instaned.

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"ew England Energy Ir.corporated (NEEI),

a geologist, arrives Inj helicorrerat an otNrore

. the System's fuels subsidiary, produced California drillship to approximately 2.3 million barrels of domestic oil and gas check rock cuttings frorn exploratory drilling. equivalent in 1982. Discoveries of approximately 3.9 mil-lion barrels of oil and gas equivalent increased our proven reserves by about 1.6 million barrels. We now have 12. 6

.ga million barrels of proven oil and gas equivalent reserves.

g We spent approximately $115 million in oil and gas explo-I ration and development activities in 1982, bringing our

% totalinvestment to approximately $400 million.

. NEEI now has ownership interests in produc-O w tive wells in 11 southern and western states and in the Santa Ibrtura Chantwt E Gulf of Mexico.

cxploration actiritics off In addition, our biggest and most recent oil and Ihe coast of California are arnong tr.c ,nost exciting gas activity involved our increased holdings in the Santa

$r)$"afi [j$r>["$n. Barbara Channel and the Santa Maria Basin off the coast of California. With our partner, Samedan Oil Corporation, the exploration subsidiary of Noble Affiliates, Inc. of Ardmore, Oklahoma, we acquired a 50 percent interest in those parts of 14 leases held by Ogle Petroleum, Inc. We are now participating in a total of 17 leases in this area, with our working interests averaging 6.4 percent. Drilling has begun on four of these tracts.

Earnings from our oil and gas exploration activities are limited by the Securitics and Exchange Com-mission under the Public Utility Holding Company Act of 1935. Earnings above a utility return are passed through to our customers in the form of lower fuel costs.

"ew England ElectricTransmission

.. Corporation (NEET), a new System subsidiary, obtained initial approvals in 1982 to provide a major portion of an international transmission link

, a new systern subsidiary, between Quebec and New England.

NEETwill build the southern terminal of a

$ar$sf((!b"rfc rhtion

'Ntr7), willbuild the direct current transmission tie line as well as the New NewIfampshire section of .

an international transinis. Hamps. .nire portion of the line at an estimated cost of $100 Sio" h"' a"9'# aS a million. Construction is scheduled to begin in early 1984 converter stalwn in Monroc, Newllarnpshire. and should be completed in 1986.

I1

r This new transminion line will enable New in 19s2. construction uus tvell under uny on Ihe l

England utilities to m. terchange power with the Hydro- 3yste,,,3 auf.jf7eg nui arip trigno,u*ich u,in Quebec electric system. The ability to obtain surplus transport nearly tuv-i power from Quebec's extensive hydroelectric facilities thinis ofourcoat surplies. i l

will be of great value to New England consumers in terms oflower energy costs.

An agreement has been reached with all N . ,

major electric utilities in New England providing for full .

'N support of this new international transmission link.The

_y

~'

agreement, which allows the System an indexed return -

on equity, has been accepted by the Federal Energy Reg- ( ,

ulatory Commission. ,

ransportation of coal to our generating j

plants is both a major cost and a major busi-j ness opportunity. Our coal is now moved by rail from '~

mines in Pennsylvania, Virginia and West Virginia to ports  ;

on the Chesapeake and Delaware bays. It is then trans-ported more than 400 miles by chartered ships and barges to our coal-burning plants in New England.

Water transportation from the port terminals to New England is less expensive than overland transpor-tation by rail. It is, nevertheless, a large volume business with our costs exceeding $25 million in 1982. 7 To help control these costs, we are constructing a coal-fired coal ship as a joint venture with Keystone Shipping Company of Philadelphia. The ship, named the

. Gulis carried by rail Energy Independence by our customers, will be the first fn,,,,,,,f,,csfupcynsyiya.

ocean-going, coal-fired vessel built in the United States "id Virxi"id""d N'd Virginia to East Gust in more than 25 years. ivrts and thenis shirred t s,1ttin This ship will have the latest in automatic self- $,'h# ,, syln ,-, q, ,,

unloading equipment and will be able to discharge its Poi"'se"crati"x datio"s in Afassachusetts.

cargo in about 10 hours1.157407e-4 days <br />0.00278 hours <br />1.653439e-5 weeks <br />3.805e-6 months <br />,less than one-fourth of the time required using conventional equipment.

Construction of the 36,000-ton vessel was well under way in 1982 at the General Dynamics shipyard in Quincy, Massachusetts. When the $73 million ship begins operation in the summer of 1983, it will transport 2.2 million tons of coal per year.

12

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EESPLAN, ourlong-range planning m effort announced in 1979, continues to be a successful guide for the System companies.

We have made substantial progress toward I

achieving the plan's two key goals: keeping customers' energy costs to a minimum and reducing reliance on for-eign oil. Our customers' costs have dropped from the top third to the bottom third arnong electric utilities in New England, and our reliance on oil has dropped from 78 percent to 20 percent.

The five NEESPLAN programs continue to contribute to the success of the System.

Our conservation and load management pro-gram is helping to postpone the need for new generating facilities and will help keep our customers' energy costs to a minimum.

Our coal conversion program has been an eco-nomic and environmental success. Since 1979, we have reduced our oil use by more than 17 million barrels and have saved our customers more than $70 million. Where we have completed conversion from oil to coal burning, we have reduced our sulfur emissions by about 20 percent and our particulate emissions by more than one-half.

Our oil and gas exploration program has found proven domestic reserves of about 18 million barrels of oil and gas equivalent.

Our program for acquiring energy from alter-nate energy sources such as trash, wind and small hydro is also helping reduce our use of cil. Projects already on line or under contract total 163 megawatts of capacity, and have the potential to replace 1.4 million barrels of oil per year.

Our new business ventures include oil and gas exploration, coal shipping and transmission services. We are continuing to assess other business opportunities.

We are pleased with our NEESPLAN progress

, and will continue our efforts to improve results for our customers and shareholders.

14

l Financirl Ccnt:,nts -

Selected Financial Data 15 Financial Review 16 Statements of Consolidated Income 20 Consolidated Balance Sheets 21 Consolidated Statements of Capitalization 22 Statements of Changes in Consolidated Financial Position 24 Statements of Consolidated Retained Earnings 24 Notes to Financial Statements 25 Report ofIndependent Certified Public Accountants 31 Supplementary Information on the Estimated Impact of Intiation 32 System Directors 34 Shareholder Information 36 System Officers and Subsidiaries 37 New England Electric System and Subsidiaries Sel:ct d Financial Data Year ended December 31 (millions of dollars, except per share data) 1982 1981 1980 1979 1978 Oputing rewnue:

Electric ca!es (excluding fuel cost recovery) $ 711 $ 622 $ 550 $ 513 $ 491 Fuel cost recovery 482 641 525 361 265 Other 20 19 15 15 14 Total operating revenue $1,213 $1,282 $1,090 $ 889 $ 770

- Total fuel cost

• S 497 $ 651 $ 531 $ 370 $ 270 Net income $ 108 $ 91 $ 76 $ 73 $ 67 Average common shares 23,792,847 22,483,582 21,812,166 21,293,235 20,924,719 Per chare data:

Net income $ 4.65 $ 4.05 $ 3.50 $ 3.45 $ 3.21 Dividends declared $ 2.95 $2.655 $2.395 $2.235 $ 2.02 Total assets $2,451 $2,292 $2,120 $1,912 $1,835 Capitalization:

Common share equity $ 707 $ 643 $ 597 $ 561 $ 526 Cumulative preferred stock subject to mandatory redemption 5 46 $ 22 $ 23 $ 23 $ 25 Other cumulative preferred stock $ 163 $ 163 $ 163 $ 163 $ 163 Long-term debt $ 826 $ 824 $ 784 $ 766 $ 800 Total capitalization $1,742 $1,652 $1,567 $1,515 $1,514 Total electric sales (millions of kilowatthours) 16,388 16,582 16,668 16,372 16,379 Cost per KWH to ultimate customers (cents) 7.46 7.90 6.66 5.54 4.90 System maximum demand (megawatts) 3,171 3,144 3,140 3,183 3,094 Number of employees 5,126 5,177 5,220 5,295 5,432 Number of customers 1,086,094 1,071,722 1,055,472 1,038,794 1,026,141

'Inclades fuel cornponent of purchased electric energy, fuel handling and other related costs.

15

f Financial Review Earnings and Earnings for 1982 rose 15 percent to a record Dividends were increased again in 1982, dividends level of $4.65 per average share compared bringing the annual dividend rate to $3.00 with S4.05 in 1981. The closing market price per share. Dividends declared in 1982 of of our common shares at year end was $2.95 per share represent a 64 percent payout

$33.25 per share. This was 111 percent of of earnings, compared with 66 percent in book value. 1981 and 68 percent in 1980.

Operating revenue Operating revenue in 1982 totaled $1.21 bil- Kilowatthour sales to ultimate customers lion, a decrease of $70 million from the 1981 have remained relatively constant over the level of $1.28 billion. The decrease reflects last se ceral years. In 1982, kilowatthour sales fuel cost savings from the conversion from oil to ultimate customers decreased three-tenths to coal burning at our Brayton Point and of one percent, compared with a decrease Salem Harbor stations and from lower oil of six-tenths of one percent in 1981 and an prices. The lower fuel clause revenues more increase of nine-tenths of one percent in 1980.

than offset rate increases.

Operating expenses Overall, total operating expenses decreased 33.) Maintenance expense increased largely and taxes in 1982 due primarily to lower fuel costs. due to maintenance on generating units, However, other expenses did increase. including costs associated with burning coal.

"Other operation" expenses incrosed by Depreciation and amortization expense about five percent, principally due to contin- increased reflecting depreciation on the com-ued inflationary pressures. (For a discussion pleted coal conversion facilities at Brayton of the effects ofinflation see pages 32 and Point and the amortization of expenditures Earnings Dividends Declared Per Share IVr awrage share Annual rate

^MA 53.00

[H.50 ;

$2.30 t

. H.05 ,

52.66 j . 4.00,,

- $2.50

[ 3.50 -$3.45

. 52.24

$3.21 -

1g.

'  ; 52.10 l

3.00

' l

$1.94 2.50 ' 1.80 1978 .19N .1980 1981; 19 6 1978 19 N - 1080 1981 1982 16

for coal conversion facilities under construc- of the Pilgrim 2 and Montague nuclear units.

tion at Salem Harbor pursuant to our Oil (See Notes A-6 and C of " Notes to Financial Conservation Adjustment (OCA). (See Note Statements.")

A-6 of " Notes to Financial Statements" for a Municipal, state and federal taxes totaled discussion of the OCA.)In addition, dur- $187 million in 1982, up from $168 million ing 1982 we began the amortization of the in 1981.

property losses relating to the cancellation Capital expenditures Cash expenditures for construction totaled next five years, we estimate that internal and financing $207 million in 1982, including $26 million for funds will provide approximately 85 percent conversion to coal burning at Brayton Point, of our capital needs. The balance will be

$16 million for conversion to coal burning at provided from external financing.

Salem Ilarbor and $99 million invested in In addition, New England Energy Incor-building three jointly-owned nuclear units. porated (NEEI), our unconsolidated fuel Cash construction expenditures for 1983 subsidiary, spent $115 million for oil and gas are projected to be $246 million.This total exploration and development in 1982 and includes $39 million for conversion to coal expects to invest an additional $123 million in burning at Salem Harborand $125 million for 1983. NEEl finances these expenditures with the jointly-owned nuclear units. funds from bank loans and New England Internally generated cash provided Electric System and internally generated 64 percent of construction needs in 1982. cash from deferred taxes and amortization.

This compares with 54 percent in 1981 and Costs of capital declined as the year pro-42 percent in 1980. Internally generated cash gressed. In February 1982, our Rhode Island is expected to provide about one-half of our retail company, Narragansett Electric, sold construction expenditures in 1983. Over the $20 million of 30-year,17% percent, first Operating Revenue Operating Expenses MJhons of dollars Milhonsof dollars

" ~

$1.282

' Other mum $3,213 Other $U50 ranue51$j 2p M4 revenue $20 y- pm. ~,

QM - Si,059

@ .W Q'- p}i Gf. . (*{?}

Fucinwt b p- @ Fuelcost b

'-s

_ h 5} -

O recowry 5641 y; recery $182 .

71=1 am (i y t

lp

.1,tairua y y;j w,uesh o 3 pi97

• cost $651 W { ;4 rh

' ibl

J= ~

. Qd ~

3 G

y.p n.

4 Base rates $711 Operating n

" ^

C 4u""

e7,ua ihM e.

1981 1982 1981 1982 17

mortgage bonds to refund $21.9 million of Bond ratings for Narragansett Electric, maturing bonds with interest rates ranging Massachusetts Electric and New England from 3% percent to 9% percent. Power are single A or double A.

In June 1982, New England Power, During 1983, New England Electric Trans-our wholesale generating company, sold mission Corporation expects to arrange

$50 million of 30-year,16% percent, general about $100 million of project financing to pro-and refunding mortgage bonds and $25 vide funds during the construction peri (xi million of $100 par value,13.48 percent Series for the international transmission tie line preferred stock. between Quebec and New England.

In October 1982, Massachusetts Electric The financing of NEEl's jointly-owned $73 sold $25 million of 30-year,12% percent, first million coal-fired coal ship is expected to be mortgage b(mds to refund $33.4 million of arranged through a leveraged lease with the maturing bonds with interest rates ranging debt portion coming from the issuance of from 3% percent to 9% percent. U.S. Government guaranteed bonds.

In March 1983, New England Power will No public offering of New England Electric issue $90 million of 9% percent tax-exempt System common shares is contemplated in pollution control bonds through the Massa- 1983 or the foreseeable future. How ever, in chusetts Industrial Finance Agency to refund 1983, New England Electric System expects

$90 million of maturing tax-exempt bonds. to raise about $27 million of equity through Later in 1983, New England Power expects to the issuance of new common shares under issue $15 million of tax-exempt bonds to the Syctem's Dividend Reinvestment and refund a $15 million abort-tern tax-exempt Common Share Purchase Plan and Employ-issue. New England Power also may issue $25 ee Share Ownership Plans. This compares million of preferred stock. with $24 million added in 1982 and $15 million in 1981.

NEES Energy Mix NEES Kilowatthour Sales Mix Nrcent Nrcent of .jtzmate customers

,,,.-.m ~ - -

m. ,

II)dro8% }{ga ,

, . Nud >ar H% .

ijj Industrial 27% f [j f*; * <y - Nudear 15% m. e

• m D

Commerd:131%

t 4, ' Coal 95% . ReNdential MfXe -

Y -

13

Rateincreases System subsidiaries were granted a total of from hiay 1981 through February 1982 and

$68 million per year in rate increases during the actual rates finally approved for this 1982. A $45 million rate increase was allowed period.

our wholesale subsidiary by the Federal Ener- Rate activities for 1983 are already gy Regulatory Commission, about 70 percent un6r way. At the wholesale level, we have of the amount originally allowed to go into been allowed to put into effect, subject to effect subject to refund. The allowed increase re view and refund. a two-part increase which has been fully flowed through to the cus- includes $28 million effective January 1,1983.

tomers of our retail companies. and an additional $21 million effective Alarch At the retail level, rate increases were 1,1983. Of this total of $49 million, all but granted to three of our companies. In Atassa- approximately $2 million has already been chusetts, we were granted $12.6 million, with approved to flow through to the customers of an allowed return on equity of 15.5 percent. our retail companies.

In Rhode Island, we were granted $9.4 mil- In early January 1983, our Atassachusetts lion, with the same allowed return. retail company was allowed to begin collect-In New Hampshire, our small retail ing a $1.2 million increase, with an allowed company was granted an increase of $1.3 return on equity of 15.3 percent.

l million, with an allowed return on equity of Our retail subsidiary in Rhode Island 16 percent. This company also was allowed expects a decision by h1 arch 31,1983, on a a temporary surcharge of $787,000 to cover $15.4 million general rate increase request.

the difference between interim rates in effect Regulation Return On Common Equity IVnrnt of 19M2 nwnue n went

-. ~ , r :. . , . . -~; -

.16.0%

Mw ilampshire 1% ,

RhodeIshnd 6% , ,

, h hsachusetts 16% f - -

14.6 %

14.0 13,5% -

< 13.2 % 13.2 %

Federal Encart Regubimy e .

~ O *" -

12.0 .

w 10.0

'1982 1978 1979 19HO 1981 19M2 19

r New England Electric Syst:m and Subsidiaries Statements cf Consolidated Incomm Year cnded December 31 (thousands of dollars) i 1982 1981 1980 Operating revenue (Note A) $1,212,649 $1,282,101 $1,090,101 Operating expenses:

Fuel for generation 429,932 537,509 426,698 Purchased electric energy:

Fossiland interchange 66,969 110,284 106,632 Nuclear entitlements 70,829 62,985 51,762 Other operation 161,404 153,955 138,991 Maintenance 62,888 55,568 47,710 Depreciation and amortization (Notes A and C) 86,610 67,240 63.000 Taxes,other than federalincome 90,195 91,155 19,513 Federalincome taxes (Note B) 90,534 70,842 59,119 Total operating expenses 1,059,361 1,149,538 973,455 Operatingincome 153,288 132,563 116,646 Otherincome(Note A): J Allowance for equity funds used during construction 20,953 13,061 12,986 Equity in income of nuclear power companies 5,488 4,414 3,916 Otherincome-net (Note G) 15,143 17,943 16,627 Federal taxes on other income credit (Note B) 4,393 6,336 2,663 Operating and otherincome 199,265 174,317 152,838 Interest:

Interest on long-term debt 78,728 62,566 58,071 Otherinterest 10,100 22,027 12,237 Allowance for borrowed funds used during construction, net of deferred federal income taxes of $10,618, $12,134 and

$6,003(Note A) (12,515) (l4,293) (7,084)

Totalinterest 76,313 70,300 63,224 Income afterinterest 122,952 104,017 89,614 Preferred dividends of subsidiaries 14,627 13,034 13,254 Net income $ 108,325 $ 90,983 $ 76,360 Average common shares 23,292,847 22,483,582 21,812,166 Per sharedata:

Net income $ 4.65 $ 4.05 $ 3.50 Dividends declared $ 2.95 $ 2.655 $ 2.395 The accompanying notes are an integral part of these financial statements.

(

20

7 New Engl:nd Electric Sy; tem and Subsidiaries Consolidated Balanc2 Sheets At December 31 (thousands of dollars) 1982 1981 Assets Utility plant, at original cost (Note A) $2,211,369 $2,118,766 Construction work in progress (Notes A and F) 505,734 358,392 2,717,103 2,477,158 Less accumulated provisions for depreciation (Note A) 655,870 594,387 Net utility plant 2,061,233 1,882,771 Im'estments (Note A):

Nuclear power companies,at equity 42,346 40,274 Fuel and other subsidiaries, at equity 40,389 41,300 Other investments, at cost 8,413 8,835 Totalinvestments 91,148 90,409 Current assets:

Cash, including temporary cash investments of

$10,400 in 1982 12,605 6,943 Accounts receivable,less reserves 123,872 136,142 Fuel, materials and supplies, at average cost (Note F) 93,867 95,486 Other current assets 746 528 Tota 1 current assets 231,090 239,099 Deferred charges and other assets 5,977 6,535 Unamortized property losses (Note C) 62,040 73,271

$2,451,488 $2,292,085 Capitalization Capitalization (see accompanying statements):

and liabilities Common share equity $ 706,883 $ 642,705 Cumulative preferred stock subject to mandatory redemption (Note H) 46,011 21,496 Other cumulative preferred stock 163,282 163,282 Long-term debt 825,557 824,331 Total capitalization 1,741,733 1,651,814 Current liabilities:

Long-term debt due within one year 102,643 63,062 Short-term debt (Note D) 36,290 85,225 Accounts payable (Note F) 126,449 133,075 Accrued taxes 46,372 19,574 Other accrued expenses 24,681 18,327 Customer deposits 8,475 7,484 Dividends declared 19,005 17,175 Total current liabilities 363,915 343,922 Deferred income taxes (Note B) 237,237 207,210 Unamortized investment tax credits (Note B) 104,266 86,404 Deferred credits 4,337 2,735 Commitments and contingencies (Notes C, F and I)

$2,451,488 $2,292,085 The accompanying notes are an integral part of these financial statements.

21

r New Engl:nd Electric Sy: tem cnd Subsidi: ries Consolidated Stat:ments cf Capitalizati:n At December 31 (thousands of dollars) i Common share equity (Note E) 1982 1981 Common shares, par value $1 per share Authorized-30,000,000 shares Outstanding-23,680,068 and 22,757,228 shares S 23,680 $ 22,757 Paid-in capital 370,444 346,716 Commissions and expense on common shares (2,045) (2,045)

Retained earnings 314,804 275,277 Totalcommon share equity $706,883 $642,705 Cumulative preferred stock (of subsidiaries) 1982 1981 Shares outstanding Company Par value 1982 1981 Cumulative preferred stock subject to mandatory redemption (Note H)

New England Power Company 11.04% Series (less shares held at S 25 850,000 900,000 $ 21,250 $ 22,500 cost for sinking fund) (23,200) (56,500) (525) (1,288) 13.48% Series 100 250,000 25,000 Premiums 286 284 1,076,800 843,500 46,011 21,496 Other cumulative preferred stock Massachusetts Electric Company 4.44% Series 100 75,000 75,000 7,500 7,500 4.76% Series 100 75,000 75,000 7,500 7,500 7.80% Series 100 150,000 150,000 15,000 15,000 7.84% Series 100 200,000 200,000 20,000 20,000 The Narragansett Electric Company 4 W% Series 50 180,000 180,000 9,000 9,000 4.M% Series 50 150,000 150,000 7,500 7,500 8.00% Series 50 200,000 200,000 10,000 10,000 New England Power Company 6.00 % 100 80,140 80,140 8,014 8,014 4.56% Series 100 100,000 100,000 10,000 10,000 4.60% Series 100 80,140 80,140 8,014 8,014 4.M% Series 100 100,000 100,000 10,000 10,000 6.08% Series 100 100,000 100,000 10,000 10,000 7.24% Series 100 150,000 150,000 15,000 15,000 8.40% Series 100 150,000 150,000 15,000 15,000  ;

8.68% Series 100 100,000 100,000 10,000 10,000 Premiums 754 _

754 1,890,280 1,890,280 163,282 163,282 Total cumulative preferred stock (annual dividend requirement

$16,224 and $12,900) 2,967,080 2,733,780 $209,293 $184,778 22

~

Long-term debt (Note G) 1982 1981 Company Rate Maturity Notes New England Electric System 8%% 1987 $ 19,500 $ 21,500 Granite State Electric Company 9%% 1986 4,800 5,600 Manchester Electric Company (Note A) 8%% 1992 200 First mortgage bonds Massachusetts Series C 3%% 1982 4,000 Electric Series N 9%% 1982 29,362 Company Series D 3%% 1985 8,500 8,500 Series F 5 % 1991 17,490 17,490 Series G 4%% 1992 60,000 60,000 Series H 4%% 1993 10,000 10,000 Series I 5%% 1996 10,000 10,000 Series J 7%% 1998 15,000 15,000 Series K 7%7c 1999 15,000 15,000 Series M 7%7c 2002 20,000 20,000 Series 0 12%7c 2012 25,000 The Series C 3%7c 1982 7,350 i

Narragansett Series L 9%% 1982 14,550 Electric Series D 3%% 1983 9,838 9,838 Company Series E 3%% 1986 9,750 9,750 Series F 4%% 1994 4,600 4,600 Series G 6%% 1998 7,500 7,500 Series I 7%7c 2002 7,500 7,500 Series J 9 Vo 2004 9,700 9,700 Series M 13 % 2010 20,000 20,000 Series N 17%% 2012 20,000 New England Series E 3%% 1982 5,000 Power Series F 3%% 1985 25,000 25,000 Company Series G 4%7c 1987 10,000 10,000 Series H 4 % 1988 10,000 10,000 Series 1 4%% 1991 20,000 20,000 Series J 4%7c 1992 12,000 12,000 Series K 4%% 1993 10,000 10,000 Series L 6%% 1996 10,000 10,000 Series M 6%% 1997 15,000 15,000 Series N 7%% 1998 20,000 20,000 Series O 7%% 1998 20,000 20,000 Series P 8%7c 1999 15,000 15,000 Series R 7%7c 2002 25,000 25,000 Series S 8%% 2003 40,000 40,000 Series T 8%7c 2003 40,000 40,000 Series U 107/87c 2005 72,800 72,800 Generaland New England Series C 91/2 % 1983 90,000 90,000 refunding Power Less funds held by trustee (Note G) (10,160) mortgage bonds Company Series A 8%% 2007 50,000 50,000 i Series B 9%7c 2008 50,000 50,000 Series E 16 % 2011 50,000 50,000 Series F 16%% 2012 50,000 Unamortized premiums and discounts (978) 513 Total long-term debt (annual interest requirement $82,799 and $71,899) 928,200 887,393 Long-term debt due within one year 0 02,643) (63,062)

$82.5,557 $824,331 Long-term debt 23 The accompanying notes are an integral part of these financial statements.

New England Electric System and Subsidiaries Statements cf Chrnges in Consolid:ted Financial Positi:n Year ended December 31 (thousands of dollars) e 1982 1981 1980 Sources of funds From operations:

Net income $108,325 $ 90,983 $ 76,360 Depreciation and amortization 86,610 67,240 63,000 Refunds (41,300)

Investment tax credits-net 20,783 20,684 12,868 Deferred income taxes 19,265 29,435 32,085 Allowance for funds used during construction, net of deferred federalincome taxes of $10,618,

$12,134 and $6,003 (33,468) (27,354) (20,070) 201,515 180,988 122,943 Dividends on NEES common shares (68,798) (59,799) (52,295)

Net funds from operations 132,717 121,189 70,M8 From financing transactions:

NEES common shares 24,651 14,676 11,895 Long-term debt-issues 105,160 103,666 46,174 Long-term debt-retirements (63,062) (26,910) (25,550)

Preferred stock-issues 25,000 Preferred stock-retirements (1,250) (1,250) (1,250)

Changes in short-term debt (49,085) (10,680) 85,405 Net funds from financing transactions 41,414 79,502 116,674 Sources of funds 174,131 200,691 187,322 Application of funds Construction expenditures, excluding allowance for funds used during construction 206,726 223,519 169,942 Investments 739 5,112 23,826 Application of funds 207,465 228,631 193,768

$ (33,334) $ (27,940) $ (6,446)

Increase /(Decrease) Cash $ 5,662 $ (20,446) $(15,145) in working capital Accounts receivable (12,270) (20,962) 57,249 and otheritems Fuel, materials and supplies (1,619) 12,093 10,495 Other current assets 218 (814) 682 Accounts payable 6,626 3,494 (61,M3)

Other current liabilities (35,973) (5,546) (375)

Otheritems 4,022 4,241 2,291

$ (33,334) $ (27,940) $ (6,446)

N;w England Electric System and Subsidiaries Stit;ments of Consolidated Retained Earnings Year ended December 31 (thousands of dollars) d 1982 1981 1980 Retained earnings at beginning of year $275,277 $244,093 $220,028 Net income 108,325 90,983 76,360 Cash dividends on common shares (68,798) (59,799) (52,295)

Retained earnings at end of year $314,804 $275,277 $244,093 24 The accompanying notes are an integral part of these hnancial statements.

l

)

New England Electric System and Subsidirries Notes to Financial Statim:nts Note A Significant accounting policies

1. Basis of The consolidated financial statements include In addition, four minority-owned nuclear consolidation the accounts of New England Electric System power companies are also valued at equity.

(NEES) and all subsidiaries except a fuel All significant intercompany transactions exploration and procurement subsidiary, have been eliminated.

New England Energy Incorporated (NEEI), In December 1982, NEES acquired 94.6 per-organized in 1974, and an energy manage- cent of the outstanding shares of Manchester ment company, NEES Energy, Inc., organ- Electric Company in exchange for 19,480 ized in 1981. These subsidiaries, whose NEES common shares which were recorded operations are different from those of the at the underlying book value of Manchester consolidated group, are recorded at equity. Electric Company (see Note E).

2. System of The accounts of NEES and its subsidiaries are System of Accounts prescribed by regulatory accounts maintained in accordance with the Uniform bodies having jurisdiction.

3. Investment in In accordance with an intercompany pricing NEEI at a price per barrel equal to NEEl's full NEEI policy approved by the Securities and cost per barrel. Included in the " Statements Exchange Commission (SEC), NEEI,an of Consolidated Income" under the caption unconsolidated subsidiary, follows the full "Other income" is $6,879,000 in 1982, cost accounting method which capitalizes all $6,491,000 in 1981 and $4,100,000 in 1980, costs incurred in connection with its fuel after tax, of the cost of capital which repre-exploration activities, including costs of capi- sents the SEC allowed return on NEES tal. These costs are recovered as fuel is sold to investments in NEEI. A summary of results New England Power Company (NEP) under of operations, assets and liabilities of NEEI is a contract which requires NEP to purchase all as follows:

fuel meeting its specifications offered to it by At December 31 (thousands of dollars) 1982 1981 Oil and gas property,at cost:

Leases $167,058 $109,497 Exploration 183,561 113,494 Development 112,456 83,834 Other 13,314 10,498 476,389 317,323 Less accumulated amortization 83,216 35,546 Total oil and gas property,at cost 393,173 281,777 Investment in vessel under construction 18,419 4,512 Cash and receivables, principally from affiliates 12,318 11,349 Totalassets 423,910 297,638 Notes payable to banks under term loan agreement (239,500) (167,000)

Deferred federalincome taxes (117,708) (80,365)

Other ,

(26,352) (8,973) l Investment in NEEI,at equity $ 40,350 $ 41,300 Operating revenues were $50,963,000, $13,540,000 for the years 1982,1981 and 1980,

$23,130,000 and $13,540,000 while operating respectively.

expenses were $50,963,000, $23,130,000 and 25

F~

4. Revenue The subsidiaries record revenue as billed on a for electricity that has been delivered but cycle billing basis. No revenue is recorded not billed.

5. Plant The subsidiaries capitalize, as part of con- funds (11.1 percent in 1982,12.5 percent in struction costs, an item called allowance for 1981 and 10.2 percent in 1980). Consistent funds used during construction (AFDC), with past regulatory approvals, tax benefits which represents the composite interest and on the borrowed funds component of AFDC equity costs of capital funds used to finance have been normalized.

construction. AFDC is recognized as a cost of In the " Statements of Consolidated

" Utility plant." Accordingly, AFDCis capi- Income" for 1982, the borrowed funds compo-talized in the same manner as construction nent of AFDC has been presented net of labor and material costs, with offsetting cred- related deferred federalincome taxes as its to "Other income" and " Interest." This is detailed below. An additional effect of this in accordance with an established regulatory presentation is the allocation to "Other approved rate-making practice under which a income" of an equal amount of current fed-utility is permitted a return on, and the recov- eralincome tax credits resulting from the cry of, these capital costs through their ulti- deductibility of capitalized interest expense.

mate inclusion in the rate base and in the Prior year financial statements have been provision for depreciation. The composite reclassified to conform with this presentation.

rates approximate the pre-tax costs of Year ended December 31 (thousands of dollars) 1982 1981 1980 Allowance for borrowed funds used during construction $23,133 526,427 513,087 Related deferred federal income taxes (Note B) (10,618) (12,134) (6,003)

Allowance for borrowed funds used during construction-net 12,515 14,293 7,084 Allowance for equity funds used during construction 20,953 13,061 12,986 Total allowance for funds used during construction-net $33,468 $27,354 $20,070 Costs of current repairs and minor replace- together with costs of removal less salvage, ments of plants and properties are charged to is charged to " Accumulated provisions for maintenance expense accounts as incurred. depreciation."

Plant, retired or otherwise disposed of,

6. Depreciation Depreciation is provided annually on a depreciation, excluding amortization, as a and amortization straight-line basis in amounts at least suffi- percentage of weighted average depreciable cient to amortize the undepreciated cost of property by plant category are set forth depreciable properties over their estimated below:

remaining service lives. The provisions for 1982 1981 1980 Hydro production 1.5% 1.5% 1.5%

Thermal production 4.2% 3.9% 3.8% )

Other 3.2% 3.2% 3.2%

Combined 3.4% 3.2% 3.2%

26 /

/

Amortization includes amortization of through NEP's Oil Conservation Adjustment property losses of $11,650,000 in 1982 and (OCA).The OCA was designed to allow the

$6,100,000 in each of the years 1981 and 1980, accelerated recovery of the expenditures for which has been recovered through rates (see coal conversion facilities, both during and Note C). Amortization expense also includes after the con zersion period, out of savings amortization of the expenditures for cod con- from burning coal. In the event that changes version facilities at the Salem Harbor Station in circumstances prevent such accelerated of $5,375,000in 1982, which has been recovery, the OCA provisions provide that included in " Accumulated provisions for NEP could revert to traditional means of cost depreciation." This amount represents the recovery.

net amount recovered from customers

7. Retirement plans The funded plans are noncontributory and was due to wage and salary increases and a provide retiiement benefits for substantially revision of plan provisions which increased all employees. Current service costs are benefits for service in excess of 30 years.

funded annually; prior service costs are being The comparison shown below of the funded over a 20-year period; actuarial gains market value of pension fund assets with and losses are being amortized over a 10-year the actuarial present value of accumulated period. Total pension expense, including the plan benefits is provided as a measure of the amortization of prior service costs and of financial condition of the plans if they had actuarial gains and losses, was $7,816,000 in been terminated as of April 1,1982 and 1981.

1982, $6,459,000 in 1981 and $8,372,000 in 1980. The comparison shows that the plans' net The reduction in pension costs in 1981 was assets exceed the actuarial present value of due to actuarial gains, principally on invest- accumulated plan benefits.

ments. The increase in pension costs in 1982 At April 1(thousands of dollars) 1982 1981 Actuarial present value of accumulated plan benefits:

Vested $145,007 $156,221 Non-vested 1,601 1,796 Total $146,608 $158,017 Net assets available for plan benefits $240,948 $225,386 The above calculation of the actuarial present by the Pension Benefit Guaranty Corporation value of accumulated plan benefits used an (a federalinsurer of pension benefits); the investment return of 10.0 percent in 1982 and above calculation does not reflect any future 9.1 percent in 1981, which represents a salaryincreases.

weighted average of the interest rates used Note B Federalincome taxes consist of the following Federalincome components:

tam 1982 1981 1980 Year ended December 31 (thousands of dollars)

Current income taxes $12,414 $(14,360) $(6,067)

Oil and gas exploration tax benefits of an unconsolidated subsidiary 38,016 33,682 17,793 50,430 19,. 2 11,726 Deferred income taxes 25,546 36,634 37,865 Investment tax credits-net 20,783 20,684 12,868 Total federalincome taxes $96,759 $ 76,640 $62,459 27

Total federal income taxes, as detailed " Statements of Consolidated Income" in the previous table, are shown in the as follows:

~

Year ended December 31 (thousands of dollars) 1982 1981 1980 Income taxes charged to operations $90,534 $70,842 $59,119 Income taxes credited to "Other income" (4,393) (6,336) (2,663)

Income taxes netted against AFDC-borrowed funds (Note A) 10,618 12,134 6,003 Total federalincome taxes $%,759 $76,640 $62,459 Investment tax credits of subsidiaries are net principally reflects reductions in current deferred and amortized over the estimated federal income taxes attributable to invest-service lives of the plant and equipment giv- ment tax credits which have been deferred.

ing rise to the credits. Investment tax credits-Certain subsidiaries, with regulatory The following table details the components approval, have adopted comprehensive of the deferred federalincome taxes of these interperiod tax allocation (normalization). subsidiaries:

Year ended December 31 (thousands of dollars) 1982 1981 1980 Allowance for borrowed funds used during construction * (Note A) $10,618 $ 8,669 $ 5,587 Other construction costs capitalized for book purposes and deducted for tax purposes 2,105 1,950 5,802 Excess tax depreciation and amortization 21,836 15,398 10,562 Propertylosses (Note C) 19,214 2,250 Other (1,489) (2,325) 482 Reversal of prior year tax deferrals (7,524) (6,272) (6,458)

Refunds 19,640 Deferred federalincome taxes $25,546 $36,634 $37,865

• Excludes $3,465,000 in 1981 and $416,000 in 1980 transferred to propes ty losses.

Total federal income taxes differ from the tax rate to income before taxes. The reasons amounts computed by applying the statutory for the differences are as follows:

Year ended December 31 (thousands of dollars) 1982 1981 1980 Computed tax at statutory rate $101,067 $83,102 $69,954 Increases (reductions) in tax resulting from:

Allowance for equity funds used during construction (9,638) (6,008) (5,974)

Costs associated with utility plant retirements deducted for tax purposes (593) (802) (1,686)

Nontaxable portion of income from investments in nuclear power companies (2,289) (1,796) (1,561) ,

Ik>ok versus tax depreciation not normalized 7,112 4,829 3,748 ,

Amortization of investment tax credits (2,744) (2,455) (1,827)

All other differences 3,844 (230) (195)

Total federalincome taxes $ %,759 $76,640 $62,459 Effective federalincome tax rate 44.0 % 42.4 % 41.1 %

Federal income tax returns for NEES and its reported on by the Internal Revenue Service 28 subsidiaries have been examined and through 1978.

Note C On September 23,1981, a nonaffiliated com- the Montague property loss. The amount of Property losses pany announced cancellation of plans to the Pilgrim 2 property loss included in rates build the Pilgrim 2 nuclear generating unit in is still subject to further regulatory action.

Plymouth, Massachusetts. In addition, on The System's retail subsidiaries were permit-December 31,1980, another nonaffiliated ted to pass through virtually all of the current company announced cancellation of plans to year's amortization of these cancellation build two nuclear generating units in Monta- costs to their customers during 1982. In Mas-gue, Massachusetts. As part owner of both sachusetts, however, commencing in January projects, the System's generating subsidiary, 1983, the continued pass-through of a por-NEP, had expended approximately $50 mil- tion ($1.7 million annually) of the Pilgrim 2 lion ($29 million after tax) in the Pilgrim 2 cancellation costs was held up by the Massa-unit and $5 million ($3 million after tax)in chusetts Department of Public Utilities. This the Montague units.These costs have action has been appealed to the Massachu-been included in the " Consolidated Balance setts Supreme Judicial Court.

Sheets" under " Unamortized property In December 1979, NEP cancelled plans to losses." build two nuclear generating units in On August 2,1982, the Federal Energy Reg- Charlestown, Rhode Island. Commencing ulatory Commission (FERC) accepted a settle- June 1,1980, NEP began to amortize and to ment agreement in a pending NEP rate case. recover through rates this loss of approxi-As a result of this settlement agreement, NEP mately $28 million ($17 million after tax) over agreed that the amortization period for the a five-year period.The state regulatory com-Pilgrim 2 property :oss would be extended missions have approved 'he pass-through of from five to eight years. There was no change these costs to the System's retail customers.

made in the five-year amortization period for Note D NEES and its subsidiaries have lines of credit maintained by the subsidiaries provide com-Short-term totaling $138,000,000 with a number of banks. pensation for certain lines of credit and fees borrowing There are no formal compensating balance are paid in lieu of compensating balances on arrangements arrangements, although operating balances otherlines of credit.

Note E NEES issued and sold additional common December 1982, in exchange for common Share capital of shares in 1982,1981 and 1980, pursuant to a stock of Manchester Electric Company New England Dividend Reinvestment and Common Share (see Note A).

Electric System Purchase Plan, an Employee Share Owner- Paid-in capital was credited with the ship Plan and an Employee Incentive Thrift excess of the proceeds over the aggregate Plan. NEES also issued common shares in par value($1) for all shares issued.

1982 1981 1980 (in thousands) Shares Proceeds Shares Proceeds Shares Proceeds Dividend Reinvestment and Common Share Purchase Plan 617 $16,262 459 $ 9,673 418 $ 8,421 Employee Share Ownership Plan 206 5,581 158 3,380 114 2,507 Employee incentive Thrift Plan 81 2,1  % 75 1,623 46 967 Acquisition of Manchester Electric 19 612 923 $24,651 692 $14,676 578 $11,895 29

m Note F (1) The electric subsidiaries' construction 1982, substantial commitments had been Commitments expenditures, excluding AFDC, are estimated made relative to this construction program.

and contingencies to be $246,000,000 in 1983. At December 31, (2) NEEI has entered into a joint venture Construction on the ship began in 1981.

agreement with a nonaffiliated shipping com- NEES has guaranteed certain obligations, pany to construct a coal-fired ship to deliver during the construction period, currently coal to the System's generating stations. amounting to about $43 million.

(3) Under NEP's current arrangements for nonaffiliate's services. The agreement can be fuel supply, certain of its fuel contracts are terminated on three months notice. Fuel assigned to a nonaffiliate which purchases inventory held by the nonaffiliate for NEP fuel under these contracts and in the open amounted to $34,978 000 at December 31, market, holds the fuel in inventory, as owner, 1982. This amount is included in the " Con-and sells the fuel to NEPat the time of burn solidated Balance Sheets" in " Fuel, materials at prices reflecting its cost of the fuel. In addi- and supplies" and in " Accounts payable."

tion, NEP pays monthly charges to cover the (4) NEPis a joint owner with other New the joint owners from meeting commitments England utilities of three nuclear units to pay their share of construction costs, now under construction. The lead owners' which could also delay or prevent comple-estimates of the cost of these units were tion. The actual construction costs associated increased substantially during 1982 as a with these units and the amount of allow-result of revised construction estimates and ance for funds used during construction to changes in scheduled completion dates. be capitalized as part of their cost could be Regulatory proceedings in connection with affected significantly by changes in comple-financing, licensing, or other matters could tion dates of the units and other factors.

result in further delays or possibly prevent NEP's expenditures to date, and the cost of completion of the units. In addition, financial these units for financial planning purposes, or other factors could prevent one or more of are as follows:

NEP completed Lead cost used by NEP owners' Megawatt NEP for financial scheduled capacity expenditures planning date of NEP to date purposes Unit Location operation Total portion (millions of dollars) (millions of dollars)

Seabrook1 N.H. 12/84 1150 115]-

N.H. 7/87 1150 $244 $ 690(a)(b)

Seabrook 2 115J Millstone 3 Conn. 5/86 1150 140 206 485(b)

$450 $1,175 (a) Includes $140 million as an allowance for currently unknown factors, such as the possibility of further delays.

This allowance approximates the additional costs associated with a mid-1985 commercial operation date for Unit I and early 1989 for Unit 2, which are assumed for financial planning purposes.

(b) Excludes cost of initial nuclear fuel cores, estimated at $35 million for Seabrook Units I and 2 and $20 million 1 for Millstone Unit 3.

(5) In addition to the regulatory requirements the modification or delay in, or cancellation discussed above with respect to nuclear facil- of construction or operation of their existing ities, the electric subsidiaries, in common orplanned facilities. Anyof theseevents with other utilities, are subject generally to could result in increased costs to these sub-those and other safety and environmental reg- sidiaries and their customers.

ulatory requirements, which may result in 30

3

)

Note G The indentures relating to mortgage bonds NEP issued $90,000,000 of Series C general Long-term debt of subsidiaries provide that the issuers may and refunding mortgage bonds in March elect to satisfy sinking fund installments 1980 to secure pollution control revenue totaling $7,880,000 in 1983, $8,130,000 in bonds issued by the Massachusetts lndus-1984, $7,880,000 in 1985, $7,695,000 in 1986 trial Finance Agency.The p oceeds from this and $7,595,000 in 1987, in cash,in bonds or issue were held by a trustee in a construction by evidencing to the trustees additional fund to be disbursed as qualified construc-property in amounts as provided therein. tion costs were incurred by NEP. At Decem-The aggregate cash payments required on ber 31,1982, all of the proceeds from the issue other long-term debt and to retire maturing had been spent on qualified construction mortgage bonds for the years ended Decem- costs incurred by NEP. Interest income ber 31,1983 through 1987, are as follows: earned on the proceeds held by the trustee,

$102,M3,000 in 1983, $2,805,000 in 1984, net of related Series C bond interest expense,

$36,305,000 in 1985, $14,155,000 in 1986 and is included in the " Statements of Consoli-

$21,505,000 in 1987. dated Income" under the caption "Other income- net."

Note H On September 1 of each year, NEP's 11.04% were held in treasury in anticipation of the Redeemable Series of cumulative preferred stock is sub- annual sinking fund requirement.

preferred stock ject to a mandatory annual sinking fund In June 1982, NEP sold $25,000,000 of requirement for the retirement of 50,000 13.48% cumulative preferred stock, which is shares per year at $26.285 per share. At subject to a mandatory annual sinking fund December 31,1982,1981 and 1980,23,200, requirement for the retirement of 12,500 56,500 and 39,300 shares, respectively, at a shares per year at $100.75 per share com-cost of $525,000, $1,288,000 and $1,010,000, mencing on September 1,1987.

Note 1 NEP is a defendant in a federal antitrust suit Norwood's antitrust claims against the other Litigation filed in 1974 by the town of Norwood, Massa- defendant included issues net present in chusetts. Norwood's complaint seeks treble Norwood's claims against NEP. NEP has damages in the amount of $45,000,000 and filed an answer to the complaint denying any attorneys' fees. Norwood had originally sued violations of the antitrust laws and raising NEP and another defendant, but the other affirmative defenses. A trialis scheduled for defendant settled the antitrust action and March 1983.

other rate matters with Norwood in 1980.

R; port of Independent Certified Public Accountants To the Board of Directors and Shareholders In our opinion, the consolidated financial of New England ElectricSystem: statements referred to above present fairly the consolidated financial position of New We have examined the consolidated bal-England Electric System and subsidiaries as ance sheets and the consolidated statements f Decemba 31,1982 and 1981, and the con-of capitalization of New England Electric Sys- solidated results of their operations and tem and subsidiaries as of December 31,1982 i

Changes m their consolidated fmancial posi-

! and 1981 and the related consolidated state- .

' ti n f reach of the three years m the penod ments of income, reLiined earnings and ended December 31,1982, m confornuty with changes in financial position for each of the generally ccepted accounting principles three years in the period ended December 31,

! 1982. Our examinations were made in PPlied on a consistent basis.

accordance with generally accepted auditing standards and, accordingly, included such [p;I  %

tests of the accounting records and such other auditing procedures as we considered Boston, Massachusetts necessaryin the circumstances. January 20,1983 31

r New England Electric System znd Subsidiaries Supplementary Information c n the Estimated Impact of Inflati:n (unaudited)

The following information depicts the impact industry. For this purpose, the System's his-of inflation on the System's income and torical figures have been adjusted by using assets.This material should be treated with the Handy-Whitman Index of Public Utility caution as no method yet devised does this Construction Costs.

job clearly and simply. Rather, inflation infor- Put another way, both approaches attempt mation is stillin the development stage. to show the System's figures as if all of its The numbers in the following tables have generating stations, transmission lines, etc.

been prepared under the guidelines estab- had been built at 1982 costs, but the two lished by Financial Accounting Standards approaches get there by slightly different Board Statement No. 33. This standard routes.

requires two separate approaches to measur- There are obviously weaknesses in both of ing the impact of inflation: the " constant these approaches, particularly as regards dollar" approach and the " current cost" regulated companies like those in NEES.

approach. However, these weaknesses should not The " constant dollar" approach uses the detract from the conclusion pointed out by Consumer Price Index (CPI) to adjust the his- both approaches: inflation has reduced the torical figures actually recorded on a compa- value of shareholder earnings and the Sys-ny's books to reflect the effects of general tem's dividends.

inflation. In Table 1, four adjustments are shown.

The " current cost" approach attempts to These adjustments are explained below.

address the impact of specific inflation on an Adjustment 1. An adjustment is made to historical deprecia- to the 1982 " constant dollar" and the " current Depreciation tion expense to show the larger amount the cost" values calculated for our depreciable expense System would need to expense in 1982,if the plant and equipment.

cost of plant and equipment was adjusted to income tax expense has not been adjusted show 1982 inflated values. These adjusted because only historical depreciation is cur-depreciation expense numbers were deter- rently deductible for tax purposes.

mined by applying System depreciation rates Adjustment 2. Monetary assets (cash and accounts receiv- these obligations will be paid off in cheaper Monetary assets able, for example) and monetary liabilities dollars (dollars of less value). The System has and liabilities (such as obligations to repay money bor- more monetary liabilities than monetary rowed) are adjusted for inflation. The former assets, which resulted in a net gain in lose value due to the erosion of their pur- purchasing powerin 1982.

chasing power. The latter gain in value as Adjustment 3. The general inflation rate for 1982, as mea- was $31 million less than it would have been General vs. sured by the CPI, was higher than the specific had the value increased at the generalinfla-specificinflation inflation rate that impacted our plant and tion rate. This amount is shown as an adjust-equipment. Therefore, the increase in value ment under the " current cost" approach.

of plant and equipment during the year Adjustment 4. The final adjustment results from the fact that asset. And, because monetary assets lose Regulatory impact the regulated electric utility industry is only value during periods of inflation, a loss allowed, under current regulatory practice, to must be recorded to reflect the current year's '

recover an amount that is a function of the impact of holding plant and equipment.This historical cost of investments in plant and adjustment is, however, reduced by the equipment.This recovery over time, which amounts reflected in adjustments I and 3.

may be viewed as a stream of revenues,is In 1982, adjustments 1 and 3 exceeded the therefore considered to be a monetary amount of the loss to be recognized.

32

Table 1. Statement of Constant dollar Current cost consolidated income Year ended December 31,1982 (millions of dollars) approach approach adjusted forinflation Net income-as shown on the books $108 $108 Adjustment 1. Depreciation expense (92) (113)

Adjusted net income (loss) for 1982 $ 16' $ (5)

Other adjustments Adjustment 2. Monetary assets and liabilities $ 52 $ 52 Adjustment 3., General vs. specific inflation" $(31)

Adjustment 4. Regulatoryimpact $ 18 $ 70

'If adjusted net income were further adjusted for the regulatory impact shown in Adjustment 4, the result would be net income of $34 million under 'he " constant dollar" approach.

"At December 31,1982, the current cost of utility plant and equipment was about $3,803 million while the net historical cost recoverable through depreciation was about $2,%1 million.

Table 2. Five year The following table shows selected fm' ancial dollars except for the per share amounts.

comparison data adjusted for the effects ofinflation. This Some of this data is from the table presented of selected data is shown in millions of average 1982 above.

8"P Year ended December 31 1982 1981 1980 1979 1978

na }" Y adjusted for Operating revenue excluding fuel effects ofinflation cost recovery $ 731 5 681 $ 662 $ 702 $ 746 Fuel cost recovery revenue 482 680 615 480 393 Total operating revenue $1,213 $1,361 $1,277 $1,182 $1,139 Historical cost infonnation adjusted for general infation (constant dollar)

Income (excluding Adjustment 4.

Regulatoryimpact) $ 16 $ 11 $ 12 $ 29 Income per average common share $ .69 $ .48 $ .54 $ 1.35 Historical cost infonnation adjusted for specific price increases (cu rrent cost):

Income (Loss)(excluding Adjustment 4.

Regulatory impact) $ (5) $ (9) $ (12) $ (3)

Income (Loss) per average common share $ (.22) $ (.40) $ (.54) $ (.14)

Increasein general price level overincrease in specific prices after adjustment forimpact of regula-tion (Adjustment 3 plus Adjustment 4) $ 39 $ (58) $ (127) $(163)

Generalinfonnation:

Net assets at historical cost at year end $ 699 $ 660 $ 668 $ 705 Net gain from inflation-adjusted monetary assets and liabilities $ 52 $ 115 $ 158 $ 184 l

Inflation-adjusted cash dividends declared per average common share $2.950 $2.818 $2.806 $2.968 $2.988 Intlation-adjusted market price per average common share at year end $32.87 $25.42 $23.08 $27.82 $30.28 Average Consumer Price Index 289.1 272.4 246.8 217.4 195.4 33

System Directors As of December 31,1982 W. Douglas Bell (1)

" ~' ~

Felix A. AfirandoJr. (8)

Chairman and Chief President Executive Officer . Imperial Knife Associated State Mutual Life Assurance Companies,Ine- 5 1 33 Co.of America Cutlery manufacturer Worcester, Massachusetts New York, New York . 3 g 6

7 2-Executive Committee Compensation Committee 4. /(

)

Joan T. Bok(2) Guy W.Nichols (9) 32 Vice Chairman v. Chairman, President New England Electric System and Chief Executive Officer f10

/;

Westborough, Massachusetts New England Electric System Executive Committee Westborough, Massachusetts #

Executive and Compensation Committees Francis H. Burr (3)

Partner Ropes & Gray John D. Ritchic (10)

Attorneys President . .. _ _;

Boston, Massachusetts J.D.R. Consultancy, Inc.

Executive Committee Management consultants New York, New York Executive Committee James H. Hunter (4)

President James Hunter Machine Co.,Inc. George Af. Sage (11)

Textile machinery manufacturer President North Adams, Massachusetts Bonanza Bus Lines,Inc Audit Committee Providence, Rhode Island Compensation Committee Eduurd H. ladd(5)

President Anne Wexlcr(12)

Standish, Ayer & Wood,Inc. Chairman investment counselors Wexler, Reynolds, Harrison Boston, Massachusetts & Schule,Inc.

Audit Committee Management consultants Washington, D.C.

Compensation Committee Joshua A. AicClure(6)

President American Custom Kitchens,Inc. James Q. Wilson (13)

Providence, Rhode Island Professor Audit Committee 11arvard University Cambridge, Massachusetts Audit Committee Afalcolm Afclene(7)

President Orr & Reno, P. A Attorneys Concord, New Hampshire Compensation Committee 34

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Sharch:ldirInf;rm:.ti:n New England 1982 1981 rice range Dividend Price range Dividend c m n har s High Low paid High Low paid First quarter $27% $23% $.70 $22% $187/a $.625 Second quarter $28% $26% $.70 $24% $20% $.625 Third quarter $31% $26% $.75 $24% $21% $.665 Fourth quarter $33% $28% $.75 $26% $22% $.665 Selected quarterly First Second Third Fourth financialinformation 1982 (thousands of dollars) quarter quarter quarter quarter (unaudited) Operating revenue $335,034 $265,220 $297,490 $314,905 Operating income $ 44,317 $ 31,610 $ 38,394 $ 38,967 Net income $ 33,027 $ 18,855 $ 28,214 $ 28,229 Net income per average share $1.44 $ .81 $1.21 $1.19 1981 Operating revenue $369,848 $302,355 $297,858 $312,040 Operating income $ 39,068 $ 26,463 $ 32,231 $ 34,801 Net income $ 27,561 $ 15,494 $ 22,274 $ 25,654 Net income per average share $1.24 $ .69 $ .99 $1.13 Transfer agent and The First National Bank of Boston registrar 100 Federal Street -

Boston, Massachusetts 02110 Stock exchange New York Stock Exchange listings Boston Stock Exchange Trading symbol NES Annual meeting The annual meeting of New England Electric 225 Clarendon Street, Boston, Massachusetts, notice System will be held at New England Life Hall, on Tuesday, April 26,1983, at 10:30 a.m.

Form 10K and Copies of the annual report on Form 10K to James C. Nesbitt, Vice President-Finance Statistical Report the Securities and Exchange Commission New England Electric System and a Statistical Report for 1982 are avail- 25 Research Drive able, free of charge, by writing to: Westborough, Massachusetts 01581 4

36

k .-

System Officers System Subsidirries-I:

-Massachusetts Electric Company Guy W. Nichols Chairman, President and - '25 Research Drive Chief Executive Officer Westborough, Massachusetts 01581

. Edward E. Mulligan, President fmn T. Bok Vice Chairman The Narragansett Electric Company 280 Melrose Street Providence, Rhode Island 02901 John E Kaslow Robert C. Smith, President Senior Vice President Granite State Electric Company Ptud f. Sullimn . 9 Court Street

. Senior Vice President Lebanon, New Hampsh,re i 03766 Russell A. Holden, President SanniclHwitington

. Vice President, General Counsel -

New England PowerCompany and Secretary . 25 Research Dnve Westborough, Massachusetts 01581 fames C. Nesbitt ' _ . John F. Kaslow, President '

Vice President-Finance New England EnergyIncorporated Donald E. Rose 25 Research Drive Treasurer Westborough, Massachusetts 01581 Glenn R. Schleede, President New England Electric Transmission Corporation 4 Park Street Concord, New Hampslyire 03301 Robert O. Bigelow, President New England Power Service Company 25 Research Drive .

Westborough, Massachusetts 01581 Edward A. Brown, Chairman William J.Cadigan, President The name "New England Electric System" meJns the trustee or trustees for the time

being (a) trustee or trustees but not person-ally) under en Agreement and Declaration of J Tru:t dated January 2,1926, as amended, which is hereby referred to, and a copy of

' which, as e mended, has been filed with the

Secretaryof1heCommorwealth of Massa-thusetts. Anyagreement, obligation or liabil-ity made, entered into or incurred by or on behalf of New England Electric System binds

. only its tru:t estate, and noshareholder, l dirtstor, tructee, officer or agent thereof i assumes or sh all tw held to any habil.ty

therefor.

This report la not to be considered as n l offer to sell or buy or wlmtation of an offer to 37 i sell or buy sny security.

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