ML20196B834

Eastern Util Assoc 1987 Annual Rept

ML20196B834
Person / Time
Site:	Seabrook
Issue date:	12/31/1987
From:	Eichorn J EASTERN UTILITIES ASSOCIATES
To:
Shared Package
ML20196B791	List: ML20196B785 ML20196B814 ML20196B821 ML20196B834 ML20196B841 ML20196B851 ML20196B874 ML20196B902
References
NUDOCS 8806300385
Download: ML20196B834 (54)

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EUA System Profile Cover: A burst oflight Eastern Utilities Associues is an to Eastern Edison,Illackstone and from an electric arc investor-owned holding company three unaffiliated utitities for resale welder . . . symbol of productivity and the and the parent company of the EUA and EUA Power Corporation, which promise of change for System. The EUA System is princi- expects to sell wholesale power to a brighter fut ure. pally engaged in the generation, other utilities within New England.

l Electricit y, usually transmission, distribution and sale in addition to the above utility an unseen compo.

( nent of every product of electricity to approximately companies, the EUA System ,

l or service,is momen. 248,000 customers, covering a n includes EUA Cogenex Corporation,

tarily capt ured in this area of about 510 square miles. The an energy management and cogen-image of a cobotic EUA System includes two retail cration company, EUA Energy welding arm at Amer. -

Ican Dryer Corpora- electric companies - Eastern Edi- Investment Corporation, a new sub-tion in Fall River, son Company serving 167,000 sidiary established to invest in Stassachuset ts. customers in southeastern Slassa- cogeneration and small power pro-chusetts and Illackstone Valley duction facilities and EUA Service Electric Company serving 81,000 Corporation, which provides var-customers in northern Rhode Island ious management services to all and two wholesale generation com- EUA System companies.

panics- Stontaup Electric Com-pany, which supplies electricity gggggg{jfjjjgj6S

y V Highlights 1987 1986  % Change Financial Data (dottars in tixmsanas)

Operating Revenues $367,129 5343,324 + 6.9 Operating income 61,218 61,725 - 0.8 Consolidated Net income 43,546 32A90 + 34.0 Net Utility Plant 911,854 815,225 + 11.8 Cash Construction Expenditures 68,929 47,137 + 46.2 Internally Generated Funds 14,554 44,832 - 67.5 Return on Average Common Equity 17.1 % 15.0% + 14.0 Common Share Data Earnings per Average Common Share $3,46 52.82 + 22.7 Divideads Paid per Share $2.27 52.15 + 5.6 Average Common Shares outstanding 12,596,381 11,537,677 + 9.2 Book Value per Share (Year End) $22.01 519.28 + 14.2 Market Price (Year End) $28.00 538.50 - 27.3 Operating Data Total Electric Sales (mwh) 4,746,000 4,664,000 + 1.8 System Requirements (mwh) 4,140,000 3,971,000 +4.3 System Peak Demand (mw) 782 691 + 13.2 System Reserve Margin (At Peak) 25.8% 24.9% +3.6 System Load Factor 60.4 % 65.6% - 7.9 Customers (Year End) 248,233 243,550 + 1.9 Employees (Year End) 1,1 M 1,118 + 4.1 Table of Contents I liighlights 2 Letter to Shareholders 4 Eastern Utilities . . Energy for Change 19 Review of Operations 26 Selected Consolidated Financial Data 27 Management's Discussion and Analysis 30 Consolidated FinancialStatements 34 Notes to Consolidated Financial Statements l 47 Quarterly Financial and Common Share

! Information 47 Dividend Reinvestment and Common Share Purchase Plan 48 Consolidated Operating Statistics l

1

TJ Our Sitareholders: During the year, two new subsid- Progress was made during the '

laries were added to the EUA Sys- year toward the licensing of the The year 1987 was one of significant tem: EUA Cogenex Corporation 235 megawatt natural gas fired gen-change both within EUA and in our and EUA Energy Investment Corpo- erating station to be constructed at industry as a whole. In response t ration. We will add a third new a site in our service territory, at Hur-and in anticipation of continuing subsidiary, EUA Ocean State tillville, Rhode Island. The Ocean evolution in the energy industry, Corporation, during the first half State Power Corporation, which we are addressing the challenge of of 1988.These new subsidiaries will develop the facilit y, comprises making your Association an even embody some of the major tenets of a major Canadian gas pipeline com-more viable and dynamic provider our long term strategic plan. EUA pany, three New England utilities of basic energy services. Cogenex and EUA Energy hwest- and a private developer. Your Asso-Earnings per common share rose ment offer us new vehicles for tak- clation will own 25% of the new to $3.46, a 22.7% increase over ing advantage of opportunities in facility through its new subsidiary 1986. This increase primarily the fields of cogeneration, energy to be known as EUA Ocean State reflects additional carnings from management, independent power Corporation.

non-cash allowance for equity funds production, and other non tradi- The Ocean State project is repre-used during construction applicable tional utility ventures. sentative of a new trend in the pro-to the 12.1% interest in the Sea- We are very pleased with the vision of electricity. It will combine brook nuclear power plant owned progress being made by EUA the talents and resources of the util-by our subsidiary, EUA Power Cor- Cogenex Corporation. Formed in ities and the fuel supplier with the poration. Consolidated net income January 1987, EUA Cogenex has entrepreneurial thrust of the devel-reached a new high of $43.5 mil- established itself as a leader in the oper. EUA is pleased to be a part of lion,34% over the preceding year. field of cogeneration and energy this enterprise, which we expect Based on strong sales and earnings, management in the Northeast. Alore to be a valuable addition to New we were able to increase your than 25 new contracts were signed England's energy sut ply, as well annual dividend rate from 32.18 to during the year, including such as a sound financial opportunity 52.30 per share. clients as 51.1.T., Coca-Cola, Globe for our imrstors.

l The use of electricity in our ser- Stanufacturing,T.J. Alaxx and An area w here we did not see vice area continues to grow at Ramada Inns. enough progress during the year about twice the rate for the nation To complement our efforts in the was in the licensing process for the as a whole. Our close proximity to f c!d of cogeneration and indepen- Seabrook nuclear generating sta-the vibrant economic communities dent power production, we formed tion. The facility is ready to operate in and around lloston, Alassachu. EUA Energy Investment Corpora- but remains idle due to the Alassa-setts and Providence, Rhode Island tion. This new corporation was chusetts governor's refusal to par-provides impetus for the vitality of approved by the Securities and ticipate in emergency planning for our retail service areas. Exchange Commission in Decem- the six communities in the Com-Residential electric sales were up ber 1987. In essence, EUA Energy monwealth within ten miles of the 5.2% over the preceding year, and Investment will provide a financial plant. A major roadblock was lifted industrial sales rose 0.9% . Commer- vehicle through which we can cial kilowatt hour sales were 6.6% invest in projects somewhat larger above those of 1986. The particu- than those generally undertaken by larly strong growth in the residen. EUA Cogenex. This new subsidiary l tial and commercial segments is will enable us to expand our efforts l expected to continue as the econ- to help assure an adequate supply of omy of the area expands outward electricity for all New Englanders, from the major urban centers. while offering our investors higher returns than those traditonally asso-ciated with the utility business. l 2

• in October, however, as the Nuc' ear g 0 '  %.

Itegulatory Commission voted to

(

i amend its policy on emergencv '

f planning to allow the plant,s owners ,

~__

, to file their own plan, independent .

') '

of the cooperation of a state admin- ' '

istration. We remain optimistic about the plant's prospects and 4 expect to receive a low power .. $U

~

license for the plant this spring. .~

llowever, the element of uncer- w tainty associated with the Seabrook .

nuclear project has caused our g

accountants to quality their audit report, which accompanies the 190 fin incial statements. ,

On December 11, we successfully k Y8 3h Completed negotiations with the Donald G. Pardus John F G Iichorn Jr majority shareholder of NECO Enterprises, Inc., to purchase 52%

of their outstanding common geographic center of our service strength in our basic business. Our shares. NECO's sole subsidia r y is area, the new System Operating leadership as one of 5cabrook's the Newport Electric Corporation Center consolidates many functions major owners, our participation in in Rhode Island. such as customer service, engineer- the Ocean 5 tate Power project, and The prospective acquisition of ing, and data processing, common recent efforts to acquire Newport l

Newport lilectric by El'A has many to all El'A subsidiaries. We expect Elect ric offer significant opportuni-operational and financial advan- the new facilit y, built to high ties to expand and strengthen our tages. Their retail service territory standards of operational and energy primary business. Abose all, we is sery near our Fall River division efliciency, to improve intercom- have kept in mind that evolution is of Eastern Edison, and we already pany communications and enable us the soundest form of change, and prmide approximately 60% of their to provide even better customer that today's innovations will pro-electricit y, on a wholesale basis, service. vide the basis for imestment stabil-from our .\1ontaup Electric Com- With all of the changes in our ity and growth in the future.

pany. Operational consolidation. as industry, and within El'A itself, we well as economics of scale, should are very pleased with the enthusi-offer benefits to the customers of asm displayed by our employ ees. 5incerely, Newport Electric and to the share. Their responsiveness and willing-holders of El'A. We consider this to ness to accept change provides a , ,

he a sound and timely effort to firm foundation upon which to i expand our core business, comple- build a more sophisticated System. John E G. Eichorn.Jr.

menting our activities in the non. \\ hile w e shall continue to st ris e Chairman traditional utility areas. for meaningful and innovatis e In November, El'A Service Corpo- development, we shall not lose sight Wh24 M h ration personnel were moved into a of the importance of maintaining Donald G. Pardus new facility in West litidgewater, President

.\lassachusetts. I ocated near the

.\tarch 1,1988 i

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Eastern Utilities . . .

Energy for Change l .

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,5 Mission Statement Eastern Utilities

• corporate mission is to conduct its business in an ethi-cal manner and in a way that balances the short term and long-term needs of the customers, shareholders, employees and communities it serves.

Customers- to provide reliable energy and related services at competi-tive prices consistent with an efficient and environmentally compatible operation.

Shareholders- to achieve a return consistent with financial risk .;nd long term growth.To sustain earnings growth through expanslan of the core business and investment in energy related diversification.

Employees-to provide a work environment that is safe, challenging, offers advancement, and one that rewards teamwork, innovation and excellent performance.

The Commtm/ty- to be a responsible corporate citizen through active and cooperative community involvement.

We.of Eastern Utilities, dedicate ourselves to fulfilling these primary obligations in the daily performance of our corporate responsibilities.

- - - - ~ ~

The year 1987 saw the formula-energy - fr. Gk. energe/a activit y, tion of a new five year strategic operation 1. oflanguage or style-plan. A plan designed to build imaginative or affective force; vital- ..

on the best of the past, a vision ity 2. the capacity of acting, operat-for the future. A plan designed to ing, or producing an effect. .

strengthen our basic business and Webster's Third New provide a vehicle for moving into International- Unabridged new, energy related ventures.

Another, more visible, aspect of From its earliest roots,"energy" was 1987 is our new corporate identifi-conceived as the power to produce cation. Our new Eastern Utilities an effect, the power to change.

logo was designed to convey a indeed,it would be hard to under-friendlier, more professional image, stand either concept without the and to unite our entire family of other. Thus, we chose "Eastern .

compames into a more cohesive Utilities - Energy for Change" as corporate unit.

the theme of our 1987 Annual The pages of our theme, then, Repor t.

treat the four main concerns in the At Eastern Utilities, we are deter- . .

mission statement of our strategic mined to use our energy* for change.

plan - customers, shareholders, change for the better. The energy of employees and the communities our product, of our people, of our financial strength. To build a be;ter I.or each group, we.11 attempt to company - to improve perfor- demonstrate how we employ our mance - to attract and challenge .

energies to meet their expectations.

personnel - to provide all the elec-tricity our customers require at an affordable price - and to reward our shareholders with an adequate return on their investment.

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"7b pnn'h/e rel/vh/e energy anc/ Computerized inventory systems relatect serr/ces at coinpet/t/re track supplies, monitor the store, pr/ces cons / stent tr/th an eff/clent and handle personnel paperwork.

anct ent/roninentally cornpatible At check-out. electronic scanners operation." accurately add and itemize our bills.

The importance of electricity And those doors swing open again cannot be quantified -it goes on the way out.

beyond being a necessity, it is an Once home, the food is stored in integral part of our lives. electric refrigerators and freezers.

Consider the energy a person it is prepared with electric can uses each day - the electric energy openers, microwaves, toaster ovens,

- and consider how the ways we electric ranges, blenders and food use electricit y continually expand. processors- not to mention elec-A simple trip to the supermarket tric woks, juicers, coffee grinders, begins with electric doors swinging coffee makers, toasters, pasta open. Specialized lighting displays machines and hot air popcorn every household item a person makers.

could need. lilectricity keeps fro-zen food frozen, keeps diary prod-ucts cold, keeps vegetahles crisp, keeps meats and poultry fresh.

Customers Shopping for energy in the form of food can be a very pleasant experience in today's modern store.

To preserve and at tract!vely display that food requires pret ty healthy doses of another form of energy: elect ricity.

Shaw's super-markets.one of New England's fastest-growing supermarket chains, makes effi-cient use of our energy in anuring their customers of quality high nutri- ,

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• We use electrk garbage disposals. h> help do lust that -I astern r trash compat tors and dishw ashcrs l tihtics lamn hed a comprehensne to clean up. and then relax with conscrsation and load management E-stercos. T Vs. V( Rs. personal com- program in IW lt is designed Io i puters and compat t disc play crs help tommercul. indust rial and We do all that and more - and residential customers sasc energ) the energy is alw as s there - and and mone) - h3 pros ahng rchates

[ the way we use it alway s t hanges - and ocher mcentncs for them it and the tost for all of this is really they participate m programs that

quite reasonable an ha r's uorth of encourage t onscrs ation f rom U teles ision. for exampic. o ists lust replacing mcf f a icnt hght bulbs. to i about a penn) liut penmes as we all w rappmg w ater heaters u ith insul.i knos . do add up ( ustomer satistat - tion to paying chgibic (ustomers 5 tion has alw.n s been important tii to run their emergent s ycocrators during t he hi >urs iil hc.n icst us We plan on keepmg that satistat hr tion and trust Wc ll keep t >sts as demand h low as possible w hile ensurmg cnough cln tra it s for es cry one

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R h e id t Island

"To achlere a return cons / stent But, as with a winning sports tc/thf/nancialrisk and long.terin team, you can't rest on your laurels.

groteth. To sustain earningsgrou th We ne\ er lose sight of our basic through expansion of the core business-providing electricity. At busines t and investinent in the same time, however, we know energy relatedd/t ers/f/ cation." it is wise and prudent to explore People and institutions don't additional avenues for generating irwest in utilities for a big windfall. income.

They value utilities because of the We've established new companies security they offer and the opportu- in the energy field. And,in late nity for sustained growth. 1987, we put into motion a plan to Since an important measure of purchase another retail company-effort in any business is the bottom Newport Electric, line,we are pleased that Eastern Util; ties Associates has paid divi-dends for 59 consecutive years.

That's a winning streak that any team would envy. And that string of success includes increased dividend payments to our shareholders in each of the last six years.

Shareholcers Eastern Utilities' par ticipation in Sea-brook is an important invest ment in New England's energy future. To provide clean, safe and rell-able energy a nd to offer an opport unit y for investment appre-clation are among our highest goals.

This cont rol room t raining simulator at Seabrook will allow full time training even under full com-mercial operation.

! With five shifts of i operators, one can be in training at all imes. They will aim

. be ready to step into action ifIhey a re needed in t he act ual 10 cont rol room.

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"7bpmelde a u ork ent /roninent participatlon, contributto aad that ts safe, challeng/ng and enthusiasin indicates the kind of rytmrding, ofjers adtuncernent, broad support that breeds success.

and one t/xtt encourages team. We never stop looking for ways to u ork, innotwt/on and excellent improve. Our safety and training perforinance." programs are continually evaluated Communication is ahvays the key and upgraded.Our compensation to good employee morale. And,in package is competitive. And it is t urn, high morale reflects itselfin Eastern Utilities' policy to develop hetter performance for sharehold- and promote talent frora within ers and customers alike. In 1987, our System.

Eastern Utilities began its "1.et's For our employees who provide Talk" program - a series of candid, services common to all the subsid-no-holds-barred, small group dis- iary companies, the new System cussions hetween employees and Operating Center in West Ilridge-senior management, water, Massachusetts, occupied in In addition, a new hi weekly 1987, provides a new and exciting employee news!ctter was launched place to work - and, by centraliz-in 1987, to supplement existing ing many departments under one publications. roof,it increases cfficiency and Our employees have enthusiasti- will enable us to improve customer cally accepted these publications service.

and programs. Their high level of When as a meter -

reader more than a meter reader? when he or she works for Easter n l'tilities-and is trained as a "Gatekeeper."

llegun in 1987, t he Gatekeeper program is as simple as it is effective. As"gate-keepers,"our meter readers look for signs of dlificulty such as piled up mall or newspapers.

If there seems to be a problem, we contact the local office of ciderly affairs, and that agency looks into the matter.

This is just one w iy FAtern Utilities' employees go the extra mile to do a lit.

tie bit more than the job regntres.

Lete, meter reader Tarnya Young demon-strites the newest elect ruic meter reading device to a cuttomer. 15 1 _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _

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s until it's not t here.

lastern l tilities' per-llli.

sonnel work hard to j S o., tuake sure it isn't

noticed in that way by ,

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s continually trying to a improse on their

/-i. N ,( gg <t re(ord of 99.98%

reliabilit y .

()ur line (rews are espert at quickly lo(ating and (orret t-ing a problem when it 4 does ouur - and in

+ t hat w a> t he) ser s e as  ;

1. ~' '

Our front line of tus-toiner relations. ()ur line personnel keep

. Sour energy flowing.

Q lor linemen like

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' cr n i dison. ( onsta nt s/ d s igilant e is t he krs to reliable performante.

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a NI operator Carol S Niaheus prepares to . h,.p M.

install a tape into t he '> M l---;e .s -

n .,5 system's computer at p _, . b 4' JL 1 the System Opcrat.  :( .

ing ( enter in West ,. Tg tiridgew a te r. 9$.1-f. I.1 M.w.a( h uset t s. ' ?> e ; ,. , .

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"To he a wsponsible corponite c///- grams provide homeowners with a ren thmugh act/t c ons/ coopent- number of easy ways to sas e money t/tv connnunity int o/venient.' without diminishing comfort.

When we talk about the commu. And these are some of the nities we serve, that word "serve" official contacts we bas e. Our

-is the most important one. Not employees are also out there, on only does liastern l'tilities provide their own, coaching 1.it tle I.cague, .

electric service, but we also serte serving with charitable organi/a-the communities by being a good tions. and working on communit y-and active neighbor, enhancement projects.

We're in the schools -we teach What it all comes down to is energy, electric safet y, we send speakers to the power to effect change - as a talk to students about electric top.

ies, we provide schools and teachers company or as individuals, every-with a wealth of printed material one and everything connected with and audio-visuals. liastein 1:tilitic3 is dedicated to We're in businesses - our con. improvement. That's what energy sumer services representatis es allows.The key is o direct that work with customers to help them C.rgy toward making things hetter.

expand their operations, to save money by using energy more I! astern l'tilities - energy for '

cfficiently. I change. i We're in homes - our conserva-tion and load management pro.

Community Easte r n l'tilities - l through its retail sub.  !

sidiaries - took par t

. = - - " in the Good Neighbor

{ I:f: p Energy Fund for the

[. t hird consecutive

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,;. year, zl .

7 ; l.; '7 a.'. . 6

- In 1987, over $26,000

. ,, W.

3 rg ,, f <./b- c. was donated by our 4..,;.:, ;3 f..

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(a customers to the fund; this was matched by

- ? ; .. _ . . . .L,%q&' -l;; g $ ..{..,.(: ,; ' y y y ,,'J our companles, on a r 1, F y ; 4.c.4 q. g'*4, . c cy.~cS 3. ,,.. {,gy%, ( Q.,. -'- ij, y .; z y.gone-dollar 2,p - for-every-u n ; , 5. . .. .

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f _g,__  % 4' help them pay any g 9- V Q ,Q ,k*. type of energy hill.

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a ners, pictured at the E'V,g h[

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Hart of the illack-

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,= c f und Run, in 1in-y ,,' ' *-

- j coln, Rhode Isla nd.

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Review of Operations million over the year, through the dividend reinvestment and com-Earnings and Dividends A combination of factors produced Sales Trend Upward 543.5 million in consolidated ne'. For the second year in a row, kilo-income for the EUA System. This watt hour sales in our retail service was 34% higher than last year's areas grew at almost twice the 532.5 million. national average. The increase for Earnings per common share rose all classes of customers across the from $2.82 to 53.46. This increase EUA System was 4.3% overall. Resi-principally reflects additional earn- dential and commercial growth ings from non-cash allowance for rates were particularly strong at equity funds used during construe- 5.2% and 6.6%, respectively. The tion ( AI'UDC) applicable to EUA effect of weather on sales, during Power Corporation. In addition, 1987, was negligible.

strong sales growth within our As the New England economy retail service areas continues to continues to expand, bringing in generate significant cash earnings. new business and added population, our retail service areas are well situ.

Dividend Increase ated to benefit from the growth.

For the sixtii consecutive year, we Oneindication of the rconomic were able to raise the quarterly divi-it ty in our territory was an dend to shareholders. The increase, astonishing 51 % increase in new effective in Slay 1987, was froni residential service connections over 52.18 to $2.30 per share, annually.

1986 at Blackstone Valley Electric Consistent and regular increases in Company, our Rhode Island retail shareholder dividends continue t subsidiarv. '

be a major goal of EUA's manage-ment. EUA has been paying consec- Power Plant Status utive quarterly dividends on its The Seabrook nuclear power plant, common shares since 1728. more than a year after completion, Instit utional investors have con- still remains idle due to the Slassa, tinued to show strong support for chusetts governor's refusal to coop-EUA. Over the past five years, insti- erate with an emergency response tutional holdings of our shares plan and a number of other related have risen from 3.5% to 45.5%. issues. (See Note K of Notes to Con-Individual holders also gave evi- solidated Financial Statements for dence of their support; more than further details.)

5,600 shareholders invested 58.1 flowever, a major legislative vic-tory in August and subsequent, favorable rulings by the Nuclear Regulatory Commission (NRC) have 19

_~ _______-_____

begun to remove the remaining collected on a subject to-refund Earnings have con.

obstacles to the plant's licensing. On basis by Slontaup Electric Company. tinuously improved October 29, the NRC ruled favor. Currently, the System has no reve-f36 s .rei ably on allowing Ihe filing of an nues subject to refund. 1987. Dividends were emergency plan by the utliities implementation of reduced rates, increased for the reflecting the effects of the Tax sixth consecutive which own a facility where a state I**

has refused to file a plan. A new plan Reform Act of 1986, was carried out has been filed and will be tested during the year. Illackstone Wiley this spring. The evaluation process Electric, Eastern Edison, and Alon-for the plan, however, could last up taup Electric Company, filed with j to one year. their respective regulatory agencies in early December, the NRC made to reduce rates to reflect the tax public its Systematic Assessmert of changes. Regulatory approvals have Licensee Performance of Seabrook. been receis ed, and the rates reflect.

This is a comprehensive assessment ing these reductions are in effect. ~

of all facets of a plant's construction and operation, including engineer.

Financings in Alarch 1987, we successfully com-ing, design, construction quality, pleted an offering of one milhon mm j procedures, operational integrity ' '

c mmon shares of El'A. The pris:e of and training of perssnnel. In seven ' '

of ten functional areas reviewed, the new offering was 36% per share. ,-

Proceeds from the sale were used to ,

Sucrook received the NRC's high-eliminate EI'A's short term debt.

est rating, a one (1), and in the At their April meeting, EUA share-remaining three, a two (2). This is holders approved an increase in the one of the highest evaluations ever number of authorized shares from ,

given any nuclear plant by the NRC.

16 million to 36 million. The newly it confirms the excellence toward authorized shares will be available which the joint owners of Seabrook to fund attractive new business m' ,,

have always striven, and should prove to be a valuable asset in the opportunities that may arise. , '*

During the year, EUA successfully **

licensing process.

completed Iwo bond offerings for o The Pilgrim generating station Eastern Edison Company. InJune an remains out of service since April offeringof 535 million of 30 year Farnings and Dis idends 1986. Alontaup Electric Company, first mortgage bonds was sold at gg EllW generation subsidiary, is con-10%. A similar issue, also for $35 E Dn a-nds tractually committed to support million, was placed in October at i1% of the plant's capacity. Iloston Edison, Pilgrim's owner, is endeav-10WL. This latter issue will mature on Nosember 1,1997 oring to satisfy the NRC as to the The proceeds to the Company operationalintegrity of the plant.

were used to retire 5 68 million of Rate Activities high-cost debt and to repay short-In the spring of 1987, the Federal term bank borrowings.

Energy Regulatory Commission in mid January 1988, a private (FERC) issued an order resolving placement of 520 million of 10.2%

issues pertaining to certain revenue secured notes was made by EUA Scr-vice Corporation. Proceeds from the sale were used primarily to finance the System's new facility in West inndgewater, Alawachusetts.

20

Increased kilowatt- EUA's sharea continue We reinain commit ted hour sales in 1987 te be priced in excess to providing our are reflective of ahe of book value, shareholders wIth a vibra nt economic reasonable return on growt h wit hin our their invest ment, service territories.

We especa this growth to continue.

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M% MS M%

M A4 M s.i as as 0 0 0 Primary Sales Market to Book Ratios Return on Average tvah<wu yeues Common Equity su Total Primary Mies

( E Resklential E Commercial E trklustrial E Other 21

Strategic Planning The dranu. tic increase in cash con-Steps were taken during the year to I

formalize a five year strategic plan ',"fg,,"*]'hl e

for the EUA System. Iluilding on pre- to EUA Power's invest-viously established plans, the strat- ment in Seabrook Unit 1. EUA expects egy involves strengthening our cash construction core briness and entering into expenditures will be new, more competitive enterprises, reduced in 1988 and particubtly in the area of cogen. future years.

eration and independent power production.

In accord with the latter goal, two l

l new subsidiaries were established:

EUA Cogenex Corporation and Et'A Energy Investment Corporation. '

EUA Cogenex completed its first full year of operations since being acquired in December 1986. During the year, Cogenex met its profit goals and made a positive contribe tion to the EUA System. It also was able to expand its services to m, clients throughout the Northeast -

in both energy management and cogeneration.

New contracts in 1987 were signed with facilities operated by Coca Cola Bottling Company, Alas-sachuset ts Institute of Technology, w ' ,,

"a TJ,51axx Stores, Globe Stanufac. -

n4 turing, and Ramada Inns, among others, Cogenex also enhanced its 3 u

position as a leader in designing ,,o energy-efficiency programs for ,,'

health-care facilities, including five hospitals, and 25 nursing homes and long-term care facilities in Cash Construction 15penditures New York, New lla mpshire, and oraim otrwwo Alassachusetts.

Cogenex was chosen as an l

energy services contractor by neighboring utilities,lloston Edison and Massachusetts Electric Com-pany, to assist them in meeting their .

energy conservation and demand-reduction goals.

22

As the demand for Through the development of The facility will be owned by a elect ricity has con. packaged cogeneration systems consortium composed of four New tinued to grow,we England utilities, including EUA (between 30 and 5,000 kilowatts),

have added new sources of power to we believe EUA Cogenex is poised Ocean State, a major Canadian pipe-our capability while to play a leading role in the rapidly line company, and a private devel-maintaining a rela. growing, independent power- oper. The plant, to be built in EUA tively stable reserve pr duction market. During the year, service territory on a 40 acre site in margin.

ten projects were outfitted with Burrillville, Rhode Island, is sched-reciprocating engines and small gas uled for operation in 1991. We will turbines to provide electricity and receive 21% of the output of the heat recovery for the client. With new facility.

New England's electric demands Customer and Community growing so rapidly, and the lack of Relations major, new generating plants, this While providing dependable elec.

- market is expected to flourish over tric service is ur primary objec-

' - - the next few years.

tive, Eastern Utilities' personnel In December, the Securities and dedicate themselves to fulfilling an

/ Exchange Commission approved the formation of EUA Energy Invest-equally great challenge - that of being responsible neighbors and ment Corporation. T1.e new corpo, citizens.

ration was formed to offer EUA a Their efforts span a wide range of

• " ' vehicle with which to participate activities and programs, bringing in cogeneration and independent Eastern Utilities' employees and power projects of a larger scale their neighbors together to work on uo 7-than those normally undertaken by prolcets of common interest.

' I - EUA Cogenex.

The EUA Speakers Club provides I'1 By participating financially in an excellent opportunit y for the

', such projects, EUA can serve the effective interchange ofideas 8' public intercsr by bringing utility between Eastern Utilities and the 8'

expertise to independent power communities we serve. Our speak-8' production and offering reliable service and much needed capacity.

ers go ut, not only to address a wide variety of energy related sub-

, It will also offer EUA investors an jects, but also to listen, to erchange n$apablutyteak opportunity to earn higher returns ideas, and to find out how we might than those traditionally associated

== Total sprem capability better serve the needs of our cus-with the utility industry. We expect E ReserseMargin tomers. Seventy seven active mem-E Interim t' nit sale, the new subsidiary to help keep bers of the Club reached 8,000 E nMptem Peak EUA at the forefront of the more pe ple in 1987, a 26% increase over competitive climate of the energy the previous year.

business.

Our c!cctric safet y programs for EUA Ocean State Corporation school children continued to be will be established to provide a well received and highly successful Rhode Island based subsidiary to in 1987. More than 72% of the Sys-own 25% of a 235 megawatt gas-tem's third-grade classes partici-fired generating plant to be built in pated in the "Electrical Safet y -

that state.

From A to Zap" program; and 96%

of the fifth graders in the Eastern Utilities territory took part in the Stay Clear, Stay Alive" program.

23

And 1987 was the second ) car for people understand what running a The decrease in inter-the "Fires and Wires" program, in business is all about. To spark stu. nally generated funds is attributable to the which specially tram.ed employees dent interest in energy matters' AFUDC generated by conducted training sessions for per- Eastern Utilitles companies also EUA Power's invest.

sonnel from local police and fire ran National Energy Education Day ment in seabrook Unit 1. ExclusDng departments on electric safety con- contests.

EUA Power's results, cerning fires, downed wires and Eastern Utilities teamed up with internally generated other emergencies. the Slassachusetts Federation of funds would be We were also in the classroom Women to implement a safety and. 57% of remaining cash const ruction in many other ways. The Eastern conservation education program for requirements.

Utilities Teachers' Advisory Panel, special need students in grades K-6.

involving teachers from area We will continue this effort, and try schools, continued working to to expand into other special-needs determinc and develop the educa- programs in 1988.

tional too s which will be most In one of the most significant -

helpful to classroom teachers. Store programs, Eastern Utilities whole-than 30,000 publications. audiovis- heartedly supports the Good Neigh-uals and curriculum sets were pre- bor Energy Funds in both Rhode sented, free of-cha rge, to System- Island and Alassachusetts. The m area schools. Fuads are sponsored by utilities We also ran the second annual and administered by The Salvation Educators' Energy Workshop, Army in both states. Through it, ,

wherein teachers were invited to funds are collected from our cus-learn about electricity, how to pre- tomers, matched on a 50% basis by sent it in the classroom and how to Eastern Utilities companies, and use the various t ypes of educational distributed to households in need. -

material we offer. Iloth Good Neighbor Energy Funds 1b give students an idea of what a were very successful and sbauld career with a utility would be like, continue in the years ahead. * ,,

Eastern Utilities companies partici- The year 1987 saw both lilack- , ""

pated in various career-oriented stone Vallev Electric and Eastern m A%

activities, such as the "Adopt A- Edison launch Gatekeeper pro- o School" program - where st udents grams. "Gatekeepers" is as simple as were assigned to our employees and it is effective. Our meter readers - Internalfy Generated Funds as a % of Cash Construction followed them through their work in the course of their normal rounds Expenditures routines, and "Career Day"- when - are trained to keep an eye out for employees from Eastern Utilities any unusual signs around the resi-and area businesses discussed job dences of our elderly or infirm cus-opportunities and skills with tomers. For example, piled-up students. newspapers or unkempt lawns may I We were involved in Junior indicate a sickness. The meter l l

Achievement - sponsoring "JA llusinesses" and providing employee volunteers to help young l

l 1

24 .

l

2 Fuel and Purchased reader then contacts the appropri-Power costs com. ate k> cal agency - and a n investiga-tor is dispatched to look into the o otal c. p t ses.

By far, our largest situation.

expense component.

Employment The total number of employees in the EUA System went up to 1,164 from 1,118 during 1987. This -i%

increase has been occasioned by the rising demand for more technical skills and by the addition of El'A Cogenex.

Approximately 20% of EUA Sys-tem employees are represented by

'"#** union hargaining units. Slontaup 29 .4 Reelential Electric Company is operating under a 36 month contract, sched-27.1< nininscrcial uled to expire in Starch 1990.

17.ot induv-ial Another union local representing 16.7< Other employees in the Fa'l River division 9 9c Other Ekctric l'tilitics of Eastern Edison agreed to a 2 i month contract inJune 1987, Expense which will expire inJune 1989.

26.9 pel Slanagement Appointments

-13 6e Purduse twtr

---

~-

President 1)onald G. Pardus was IR78 Other Operation and Maintenance

~ ~

named to the additional position lai< Int 7. rE a_nd P_refe.r_ red o_n__ide. nd, 4 9c Depreciation and Anxertintion 1988.

INL3in"T ___

d Pardus joined El'A inJune 1979, as vice president, treasurer and chief financial officer, and was I elected to the board of trustees in

! IneomeTapense Dollar 51 arch 1982.

l lie was elected Eastern Utilitie-president in I)cccmber 1985.

John R. Stevens joined EUA as executive vice-president in June 198~, after more than 23 years of electric-utility experience with lloston Edison Co. and New England Electric System. Prior to joining El'A. Stevens was senior vice-

. president with lloston Edison.

l t

25

9 Selected Consolidated l'inancbl Data

%rs Endedikcember31, (In Yhousands Ltcept Common % res and IVr %tre A mounts) 1987 1986 F)M1 f)8 I f)83 Income Statement Data:

Operating Revenues $367,129 $313,32 6 5333,510 5361,325 5302,450 Operating income 61,218 61,725 48,072 46,767 36,537 Consolidated Net income 43,546 32,490 29,770 30,053 25,364 Italance Sheet Data:

Plant in Service 656,782 614,330 107,497 394,107 374,132 Construction Work in Progress 429,245 35E,708 335,130 283,216 249,700 Gross l'tility Plant 1,086,027 973,038 742,627 677,323 623,832 Accumulated Depreciation 174,173 157,813 143,497 131,077 125,568 Net Utility Plant 911,854 815,225 599,130 543,246 498,264 lotal Assets 1.071,216 954,514 714,436 661,471 585,135 Capitalization:

Long Term Debt 479,217 123,789 285,491 288,876 256,398 Redeemable Preferred Stock 29,852 29,852 31,457 33,240 34,155 Non Redeemabic Preferred Stock 15,079 15,079 15,079 15,079 15,079 Common Equity 285,383 225,156 208,2I1 191,619 172,327 lbtal Capitalization 809,531 693,876 540,238 528,814 477,959 Shart Term Debt 38,035 63,444 25,373 0 0 Common Stock Data:

Earnings per Average Common Share $ 3.46 5 2.82 5 2.67 5 2.85 5 2.80 Average Number of Shares Outstanding 12,596,381 11,537,677 11,156,941 10,562,324 9,062,810 Return on Average Common Equity 17.1% 15.0% 14.9 % 16.5% 16.2%

Market Price-liigh 40 % 39 % 26 % 18 18 %

- Low 24 25 % 16 % 12 % 13 %

- Year End 28 38 % 25 % 18 1l%

Cash Dividends Paid per Share $ 2.27 5 2.15 5 2.03 5 1.91 5 1.79 l

l l

l 26

M!nigement's Discussion and Analysis Kilowatt. hour sales for 1987 continued to improve of Finincial Condition and Results of Operations over 1986. The increase is primarily the re3 ult of eco-nomic growth within our service territories. This growth Overview is dramatically demonstrated by the 6.6% increase in Consolidated Net Income for 1987 increased 511.1 mil.

bvh sales to our commercial customers and the 5.2%

lion or 34.0% over 1986 while 1986 increased 9.1% over increase to residential customers. Kilowatt-hour sales 1985. Earnings per average common share of $3.46 in also were up in 1986 compared to 1985. Again the 1987 increased 22.7% over 1986. while 1986 increased commercial and residential sectors led the way with 5.6% owr 1985.The 1987 increase principally reflects increases in kwh sales of 6.3% and 4.1%, respectively.

additional carnings from non cash allowance for equity funds used during construction applicable to EJA Power The table below sets forth the percent changes in kwh Corporation's ownership in the Seahrook nuclear power sales h class of customers fbr the last two years:

plant. These changes in ea rnings per share are influ-enced by the increases in the number of average com. incmue(occmue) mon shares outstanding of 9.2% and 3.4%, respectively. ",j"3f"' s6 Operating Revenues Residential 5.2% 4.1 %

The table below sets forth estimates of the factors which Commercial 6.6 6.3 Industrial 0.9 2.6 caused Operating Revenues to change during the last Other 2.2 0.5 two years:

TotalSystem Requirements 4.3 3.9 incmue(onmuej l' nit Contracts (12.5) 0.9 l' rom Prior liwrs Total Energy Sales 1.8 3.4 (lin millions) 1987 1986 Operating Revenue change Expenses attributable to: The EUA System's most significant expense items con-Recovery of Fuel Costs $10.9 tinue to be Fuel and Purchased Power costs, which

$( 28.7)

FJfect of Rate Increases (5.5) 15.7 comprised about 55.6% and 53.7% of total operating Kwh Sales 14.9 32.7 expenses for 1987 and 1986, respectively. Fuel expense Unit Contrscts 0.8 (9.9 ) for 1987 increased $12.8 million or 12.9% from 1986, as Non Electric 2.7 a result of higher coal generation replacing inexpensive Total $23.8 5 9.8 nuclear generation resuhing from extended outages at

~

certain nuclear units in which the EUA System has an interest and higher oil prices experienced during 1987.

The revenues attributable to fuel costs are the result of Fuel expense for 1986 decreased 526.3 million or 20.9%

the recovery of such costs through the operation of from 1985, reflecting principally lower fuel costs as a adjustment clauses. result of a dramatic decline in the price of oil and the The estimated effect of rate increases for 1987 reflects Alillstone t' nit a nucIcar generating unit being placed in a rate refund by Alontaup resulting from the settlement of service in April 1986. Purchased Power. Demand costs all unresolved issues from prior rate proceedings. As of increased $6.1 million in 1987 and 53.6 million in 1986, December 31,1987 the EUA System no longer has any respectively, over prior periods because of additional revenues subject to possible refund. For 1986 this purchases required as a result of higher system net gener-amount reflects the billing of higher wholesale rates. ation due to increased kwh sales mentioned above and additional demand charges from Pilgrim Unit I which has been out of service since 1986. Other operation expense increased each year primarily as a result of the effects of inflation on labor, materials and ot her costs.

27

Allowance For Funds Used During Construction Although inflation has subsided somewhat it contin-( AFUDC) represents a non-cash element of income. ues to have an impact on the operation of our System. Ai AIUDC increased $40.7 million in 1087 over 1986 pri- the Federal level, wholesale rate making practices permit marily as a result of the inclusion of EUA Power AIUDC a forward looking test period which enables us to antici-for a full year (versus one moath in 1986), and an pate inflationary increases. The use of an historical test increase in the composite AIUDC rate from 13.61% to period for retail rate making purposes at the state level 16.59% due to the 20.25% AIUDC rate for EUA Power. does not provide us this opportunity.

The 1987 increase also includes the effects of a 51ontaup The tax effect of the cumulative amount of taxbook rate settlement which removed a small portion of Con- timing differences which have previously been flowed struction Work in Progress (CWIP) from rate base and through, has not been recorded inasmuch as the tax consequently increased the base to which the AFUDC liabilit y on those flow through timing differences is rateis applied.Of the $40.7 million increase $38.4 mil- recovered through rates as the timing differences lion represents an increase in EUA Power's allowance for reverse.The Tax Reform Act of 1986 reduces the Federal funds used during construction, as follows: 527.1 million statutory corporate income tax rate from 46% to 40% in represents allowance for borrowed funds which had 1987 and to 34% in 1988 and thereafter. EUA has deter-been prefinanced by EUA Power while $11.3 million rep- mined that the reduced tax rates will cause the regulated resents allowance for equity funds of EUA Power. AFUDC subsidiaries accumulated deferred income taxes to be decreased 56.6 million in 1986 compared to 1985 pri- adequate to provide for all timing differences, including marily due to a decrease in the base to which the AIUDC those that were previously flowed through.

rate is applied as a result of 51111 stone Unit 3 being placed in service in April 1986 and a decicase in the composite Financial Condition AIUIX: rate from 1L50% to 13.61%. The EUA System's need for permanent capital is primar-Eong term debt interest increased $26.1 million in ily related to the construction of facilities required to 1987 over 1986 as a result of the full year effect of high meet the needs ofits existing customers and to meet the interest rate notes issued by EUA Power Corporation in future requirements of these customers as well as new November 1986 and Starch 1987, partially offset by lower cuMomers. For 1987,1986 and 1985, the EUA System's interest rates on new securities issued to refinance cash construction expenditures (excluding AIUDC) were 568.9 million,547.1 million and $54.4 million, certain issues having higher interest rates. The 1986 increase of 51.7 million over 1985 was primarily the respecthely. Of these amounts $27.8 million, 514.6 mil-effects of the EUA Power Corporation interest for lion and 516.9 million, respectively, relate to cash con-approximately one month in 1986. (See Consolidated struction expenditures on Seabrook Unit 1.

Statement of Capitalliation for details.) Amortization of The System expects cash construction expenditut es to Debt Expense and Premium increased $1.5 million in decrease to about 553.7 million in 1988 principally due 1987 over 1986 as a result of EUA Power debt expense t reduced expenditures on Seabrook Unit I and the late amortization. Similarly, the 1986 amortization increase 1987 completion of the new office facilit y of EUA Service of 50.2 million over 1985 was primarily the one month Corporation.

impact of EUA Power. Other Interest Expense increased 53.2 million in 1987 over 1986 and increased $2.0 mil-tion in 1986 over 1985. The 1987 increase was primarily the result ofinterest paid on 51ontaup's rate refund while the 1986 increase was due in part to increases in the leu els of short term borrowings.

1 28

In the utility industry, cash construction requirements Report of 31inrgement not met with internally generated funds are customarily The management of Eastern l'tilities Associates is obtained through short term borrowings which are ulti- s esponsible for the consolidated financial statements and mately funded with permanent capital. In 1987 internally related information included in this annual report. The generated funds amounted to 31 f.6 million, or 21.1% of financial statements are prepared in accordance with the cash construction requirements. The 1987 amount generally accepted accounting principles applicable to incloded EUA Power Corporation which prefinanced its rate-regulated utilities and include amounts based on the 1987 interest charges and cash construction require- best estimates and judgements of management giving ments. Excluding EUA Power from the 1987 amount appropriate consideration to materiality. Financialinfor-results in internally generated funds of $26<1 million or mation included elsewhere in the annual report is con-57% of the remaining cash construction requirements of sistent with the financial statements.

the EUA System. The amounts excluding EUA Power are The EUA System maintains an accounting system and comparable with 1986 and 1985 during which the EUA related system ofinternal controls which are designed System was able to generate 95.1% and 50.5% respec- to provide reax>nable assurance as to the reliability of tively, ofits cash construction requirements with inter- financial records and the protection of assets. The Sys-nally generated funds, with the balance coming from tem's staff ofinternal auditors conducts reviews to main-short term borrowings. The System expects that in 1988 tain the effectiveness ofinternal control procedures.

it willInternally generate a somewhat lesser amount of Coopers & Lybrand, the System's independent cer-its cash construction requirements than it did in 1987, tified public accountants, is engaged to examine and again because EUA Power will not internally generate express their opinion on our financial statements. Their any meaningful amount of cash. See also Note K of Notes examination includes a review of internal controls to to Consolidated Financial State ments for further informa- the extent required by generally accepted auditing tion concerning EUA Power s need to carry out addi- standards.

tional financing in 1988. The Audit Committee of the lloard of Trustees which Permanent financing during 1987 included $70.0 mil- consists solely of outside Trustees, meets with manage-lion First Mortgage and Collateral Trust lionds issued in ment, internal auditors and Coopers & Ly brand to dis-June and October 1987 by Eastern Edison Company ( 535 cuss auditing, internal controls and financial reporting million each), 530.5 million of additional EUA Power ma ers. The internal auditors and Coopers & I ybrand Notes in March 1987, the issuance in March 1987 of one have free access to the Audit Committee without man-million common shares by EUA ( $36.5 mdlion) and the agement present.

issuance of an additional 289,833 common shares ( $8.7 million) through the EUA System's Dividend Reimest-ment and Employee Share Ownership Plans. The pro-creds from the Mortgage llonds were used to retire at maturit y or redeem various high cost Mortgage Ilonds.

(See Consolidated Stateme nt of Capitalization for details.)

New Accounting Standards See Notes A and K of Notes to Consolidated Financial Statements for information pertaining to Financial Accounting Standard (I AS) 90 "Regulated Enterprises -

Accounting for Abandonments and Disallowances of Plant Costs" and FAS 96 "Accounting for Income Taxes",

two new accounting standards u hich have been issued but are not required to be implemented.

(

29

Consolidated Incorne Stateinent

)hars I:ndedihirmher 31, (in Thotaands l'uept.vwnt>ers of %rrs and f rr %re A mou nts) 1%47 rw6 PM5 Operating Revenues $367,129 53i3,324 5333,510

] Operating Expenses:

Fuel 112,264 99,136 125,716 Purchased Power Demand 57,892 51,818 48,237 Other Operation 65,787 51,722 48,710 Maintenance 13,961 11,131 10,771 Depreciation and Amortization 21,132 20,423 16,752 Taxes- Other Than income 14,184 14,691 13,719 income and Deferred Taxes 20,711 29,372 21,533 Total Operating Expenses 305,911 281,599 285,438 Operating Income 61,218 61,725 48,072 Equity in Earnings of Nuclear Generating Companies 1,480 1,692 1,657 Allowance for Other Funds l' sed During Construction 19,534 6,852 11,694 Other income ( Deductions)- Net 124 (715) 303 Income liefore Interest Charges 82,356 69,524 61,726 Interest Charges:

Interest on Long-Term Debt 63,555 37,160 35,757 Amortization of Debt Expense and Premium 2,101 611 136 Other interest Expense 7,392 4,238 2,199 Allowance for llorrowed Funds t' sed During Construction (Credit ) (38,393) (10,381) (12,092)

Net Interest Charges 34,655 31,928 26,300 Income After Interest Charges 47,701 37,596 35,426 Preferred Dividends of Subsidiaries 4,155 5,106 5,656 Consolidated Net income $ 43,546 5 32,490 5 29,770 Merage Common Shares outstanding 12,596,381 11,537,677 11,156,911 Consolidated Earnings Per Average Common Share $3,46 52.82 52.67 Dividends Per Common Share . _ .

$2.27 52.15 52.03 Consolidated Retained Earnings Staternent

)htrs I nJedihm ember 31, (in ibonaands) 1%%7 rp6 rm$

Consolidated Retained Earnings-lleginning of Year $ 64,698 556,963 569,727 Consolidated Net income 43,546 32,490 29,770 Total 108,244 89,433 79,497 thvidends Paid - El'A Common Shares 28,482 24,735 22,554 Consolidated Retained Earnings - 1:nd of Year $ 79,762 56i.698 556,963 The act'omfuny sn.g nutes are an inlegrallMrl of tbefa nanual statements 30

, \

Consolidated Statement of Changes in FinEncial Positlon Hurs Endertl>ecernber.II, (In Thousands) 1987 r)36  ?)R$

Source of Funds Internally Generated:

Income After Interest Charges $ 47,701 $ 37,596 $35,426 Principal Non Cash Charges (Credits) to income:

Depreciation 20,322 17,335 13,650 Amortization 5,8 65 5,915 3,970 Deferred Taxes 15,409 16,577 6,263 Investment Tax Credits, Net 6,578 10,607 3,558 Equity in l'ndistributed Earnings of Nuclear Generating Companies 24 318 (30()

Allowance for Funds Used During Construction (57,927) (17,231) (23,786)

Funds from Operations 37,952 71,114 38,777 Proceeds from Oil Conservation Adjustment 9,239 3,559 16,934 Less: Dividends Declared:

EUA Common Dividends (28,482) (24,735) (22,554)

Subsidiary Preferred Dividends (4,155) ( 5,106) ' (5,656)

Internally Generated Funds 14.554 44,832 27,501 External Sources:

Proceeds from Sale of Common Shares 45,260 9,224 9,377 Proceeds from Sale of Preferred Stock 15,000 Proceeds from Sale of Long/Ferm Debt 106,562 211,438 750 (Decrease) Increase in Short Term Debt (25,409) 38,071 25,373 Other - Net 2,034 4,?.69 421 Funds from External Sources 128,447 278,002 35,921 Total Source of Funds $143,001 5322,831 563,422 Application of Funds Construction Expenditures $126,856 5 64,371 578,192 Less: Allowance for Funds Used During Construction (57,927) (17,234) (23,786)

Cash Construction Expenditures 68,929 47,137 54,406 Acquisition of Additional Seabrook Ownership 176,484 Decommissioning Fund 10,011 Retirement of Long Term Debt 53,125 49,125 1,125 Retirement of Preferred Stock 17,690 1,800 Imtstment in Subsidiary Company 1,067 increase (Decrease) in Working Capital 10,969 1,719 (8,764)

Other Applications-Net 9,978 19 601 14,855 Total Application of Funds $143,001 $322,834 563A22 Changes in Components of Working Capital' Cash and Temporary Cash investments $ 8,929 $ (185) $ 824 Accounts Receivable 7,381 (2,017) (3,520)

Materials and Supplies (1,310) 1,303 (2,945)

Other Current Awets 1,620 1,639 621 Accounts Payable (3,481) 3,676 1,352 Accrued Taxes (914) 873 ( t,223 )

Other Current I.iabilities (1,256) (3,570) (3,873) incter.se (Decrease)in Working Capital $ 10,969 $ 1,719 $(8,764 )

• (ik ludung sburt Terin Ikht, Cursvnt skjerrnt Taxes arul Rain onable l'uvfermt Sim k Sinksng furui Ratutrvrnent)

Ibe acoanfuning nules are art integralfurt of thefsnartcial staternents f1 1

Consolidated Balanca Sheet Deermber31, (l.3 Tbonnamts) 1987 FM6 Anects

' Utility Plant and Other Ictestments:

Utility Plant In Service $ 656,782 5614,330 Less Accumulated Provision for Depreciation and Amortization 174,173 157,813

)-

Net Utility Plant in Service 482,609 456,517 Construction Work in Progress (Notes I and K) 429,245 358,708 Net Utilit y Plant 911,854 815,225 Nonutility Property-Net 152 153 3

Imrstments in Nuclea r Generating Company 9.115 9,139 Decommissioning Fund 10,000 10,011 Other 1,228 1,222 Total Utilit y Plant and Other imestments 932,349 835,750 Current Assets:

Cash and Temporary Cash Imtstments 14,873 5,944 Accounts Receivable:

Customers, Net 32,445 29,803 Accrued Unbilled Revenues 7,069 9,839 Other 9,335 1,827 Staterials and Supplies (at average cost):

Fuel 7,218 8,969 Plant Staterials and Operating Supplies 7,323 6,882 OtherCurrent Awets 4,704 3,083 Total Current Assets 82,967 66,347 Deferred Debits:

Unamortized Debt Expense 18,811 16,201 Extraordinary Propert y Iones 9,760 11,448 Other ikferred Debits 27,329 24,768 Total Deferred Debits 55,900 52,417 Total Assets $1,071,216 5954,514 Liabilities and Capitalization Capitalization:

Common Equity $ 285,383 8225,156 Non-Redeemable Preferred Stock of Subsidiaries 15,079 15.079 Redeemable Preferred Stock of Subsidiaries - Net 29,852 29,852 tong Term Debt -Net 479,217 423,789 Total Capitalization 809,531 693,876 Current IJabilities:

Notes Payable- Banks 38,035 63,444  ;

Inng Term Debt Due Wi@in One Year 26,125 28,125 Accounts Payable 24,4M 20,983 Customer Deposits 2,055 2,052 Taxes Accrued 5,922 5,009 Deferred Taxes 2,714 4,083 Interest Accrued 13,282 12,348 Other Current IJabilities 10,009 9,690 Total Current Liabilities 122,606 145,734 Ikferred Credits:

Unamortized imestment Credit 47,832 41,253 Other Deferred Credits 1,191 225 Totallkferred Credits 49,023 41,478 Accumulated ikferred hes 90,056 73,426 Commitments and Contingencies (Notes H and K)

Total tJabiH4ies and Capitalization __ $1,071,216 8954,514 W ncamepmpng noses are an integmtpart of tbrfsnan< tal statements 32

e e

Connolidated Statement of Capitalization Dnember31, (Ikitar Amounts in Tlxmsanets) 1987 19M6 Fmectn l'Illities Aswclates:

Common Shares:

55 par value, authorised 36,0(x),txx) shares, outstanding, 12,tXi6,062 shares in 1987 and 11,676,229 shares in 1986. $ 64,830 5 58,38I Other Paid.In Capital 142,&41 101,030 Gimmon Sharc Expense (2,050) (I,953)

Retained Earnings 79,762 61,698 Total Common Equity 285,383 35.2% 225,156 32.4%

Preferred Stock ofSubsidiaries:

Non-redeemable Preferred; lilackstone Valley Electric Company:

4.25%, 5100 par value 35,000 shares (I ) 3,500 3,500 5 60%, 5100 par value 25,000 shares (I ) 2,500 2,500 Premium 129 129 Eastern Edison Company:

4 6l% 5100 par value 60,000 shares ( I ) 6,000 6,000 8 32%, 5100 par value 30,tXX) slures(1 ) 3,000 3,000 Expense, Net of Premium (50) (50) 15,079 1.9 I5,079 2.2 Redeemable Preferred:

Eastern Edison Q>mpany:

9.00% , 5100 par value 150,000 shares ( 1 ) 15,000 15,(xx) 13.25% 5100 par value 150,000 shares ( I )(Note E ) 15,000 15,000 Expense, Net of Premium (148) (148) 29,852 3.7 29,852 4.3 Long Term Debt:

Eastern l't(litles Aswciates:

Senior Notes 10%% duc 1999 18,000 19,125 El!A 5ervice Corporatlon:

Notes Payable (Various Maturities at Money Market rates)(Note G) 15,750 9,738 EUA INnver Corporation:

17%% Series A Secured Notes due 1991 (Note K) 180,000 149,450 tilackstone Valley Electric Company:

First Mortgage Ikmds:

14%% duc 1995(Series A) 24,000 27JXX)

Variable Rate 1)emand lionds due 2011 ( 2 ) 6,500 6,500 Eastern Edimn Company:

l'irst Mortgage and Collateral Tiust lionds:

4%% due 1987 3,000 l 13.9% due 1987(second series) 10,000 13.9% due 1987(third series) 1 IJXX) 14.2% duc 1988(second series) 19,000 19,0t4) 4%% duc 1988 3,000 3fxN) 16%% duc 1992 241xx) 4%% due 1993 5,000 5,txx) 6%% due 1997 7,000 7,000 10%% duc 1997 35,000 8%% duc 1999 5,000 9,txx) l s < % duc 2002 8,000 8,(xx) 8%% due 2003 10,000 10,000 12%% duc 2013 39,000 40,0(x) 9%% due 2016 55,000 55,txx) 10% due 2017 35,000 Pollution Control Res enue lionds:

10%% duc 2008 40,000 40,txx) l'namorttied Wemium 92 101 505,342 451,914 less Portion Due Within One Year 26,125 28,125 Total 479,217 59 2 423,789 61.1 Total Capitalization $809,531 100.0% 5693,876 100 0 %

ti) Authorttedandoutstandsng T he as n umpany eng notes are nn snorgralpart of thefsnam t.si statements (2) Y visbord cessage inwrest rnte uus 1 h for tyN' and 4 <rs for 19N6 bb

Notea to Consolidated Firunchl Statements 1987, and 3A% in 1986 and 1985 based on the average twemhcrji, rat', nm amt twts j depreciable property balances at the beginning and end of each year.

Note A-Summary of Significant Accounting N/o >

Is UserIDuring Construction PoHelem (MUDC): AITDC represents the estimated cost of bor-this/s of Consolklat/on: The consolidated financial state- mwed and equity funds used to finance the EUA System's ments include the accounts of Eastern Utilities Associ- construction program. In accordance with regulatory ates(EUA)and all subsidiaries. All materialintercompany ac mi n't)C is capitalized, as a cost ofl'tility transactions hetween the consolidated subsidiaries have Plant,in the same manner as certain general and admin-been climinated- istrative costs. AIUDC is not an item of current cash System ofAccounts: The accounts of EUA and its con- income, but is recovered over the service life of utility solidated subsidiaries are maintained in accordance w it h plant in the form of increased revenues collected as a the uniform system of accounts prescribcd by the regula- result of higher depreciation expense. The comNned tory bodies having jurisdiction. rate used in calculating AITDC was 16.59% in 1987, Nuc/ car Generating Companies: Slontaup Elect ric 13.61% in 1986 and i1.50% in 1985. In accordance Compa ny (Stontaup) follows the equit y method of w th regulatory authority, Eastern Edison Company accounting for its investments in four regional nuclear (Eastern Edison), Stontaup and EUA Power Corporation generating companies. Alontaup's investments in these P -

ovide deferred income taxes on the bor-companies range from 2.50 to 4.50 percent. Stontaup is rowed funds component of AIUDC.

entitled to electricity produced from these facilitie3 gg,yg,l DispoM aW NM ar Plant & comnn's bascd on its ownership interests and is billed pursuant to sioning Cost: The Nuclear Waste Policy Act of 1982 contractual agreements which are approved by the i ed. establishes that the federal government is responsible for cral Energy Regulatory Commission (i ERC). the disposal of spent nuclear fuel. Under the provisions of Util/ty Plant antiDepreclation: Utilit y plant is stated this act, the Federal government requires Alontaup to pay at original cost. The cost of additions to utilit y plant a fee based on its share of the generation from the Still-includes contracted work, direct labor and material, allo-stone 3 nuclear generating unit. Alontaup is recovering catable overhead, allowance for funds used during con-this fee through its fuel adjustment clause.

struction and indirect charges for engineering and Also, Alontaup is recovering through rates its share of supervision. For financial statement purposes, deprecia- estimated decommissioning costs for Stillstone Unit 3 tion is computed on the straight-line method based on Stontaup's share of the currently allowed cotimated total estimated useful lives of the various classes of propert y.

cost to decommission the unit is 57A million in 1986 dol-Provisions for depreciation, on a consolidated basis were I which is based on studies performtd by Northeast equivalent to a composite rate of approximately 3 2% in l'tilities, the lead owner of the unit.

Operating Rer ennes: Revenues are based on billing rates authorized by applicable Federal and state regula-tory commissions. Eastern Edison and Illackstont Valley Elect ric Company (Illackstene ), the retail subsidiaries, 36

_______ _ _ _ _ _ _ _ _ _ _ _ _ _ __ \

follow the policy of accruing the estimated amount of Note B- Acquisitions unbilled base rate revenues for electricity provided at inJanuary 1988 EUA purchased all of the common stock the end of he month to more closely match costs and of a new, wholly owned subsidiary corporation, EUA rewnues in addition they also record the difference Energy Imtstment Corporation (EUA Energy). EUA bet ween fuel costs incurred and fuel costs billei Mon- Energy willinvest in qualifyirg and nonqualifying taup and Illackstone also record the difference hetwren cogeneration and small power produc tion facilities, as purchased power costs incurred and billed. defined in the Public Utility Regulatory Policies Act of thlemllncome 7itres The general policy of EUA and 1978. Electricity produced by these facilities will be sold its subsidiaries with respect to accounting for Federal to purchasers, including affiliated and nonaffiliated util-income taxes is to reflect in income the estimated ity companies and nonaffiliated non utility companies.

amount of taxes currently payable and to provide for EUA Energy also proposes to conduct certain energy or -

deferred taxes on certain items subject to timing differ- energy conservation research and to imrst, directly or ences to the extent permitted by the various regulatory indirectly, in suc14 activities.

commissions. See Note C for details of major defer red tax In February 1988 EUA entered into a Stock Purchase items. As permitted by the regulatory commissions it is Agreement to purchase 513,562 shares of common stock the policy of the subsidLiries to defer the annual invest- of NECO Enterprises,Inc. (NECO) for $21 cash per share.

ment tax credits and to amortire these credits over the This represents approximately 52% of NECO's outstand-productive lives of the related assets, ing Common Stock. NECO's only substantial asset is its in 1987, the Financial Accounting Standards Loard ownership of all of the nutstanding common stock of issued Statement No. 96,"Accounting for income Taxes" Newport Electric Corporation. The transaction is subject (FAS No. 96). which retains the current requirement to to various regulatory approvals including the Securities record deferred income taxes for temporary differences and Exchange Commission under the Public Utility that are reported in different years for financial report- llolding Company Act of 1935. EUA also intends to seek ing and tax purposes; however, the methodology for regulatory approval to acquire the remainder of NECO's calculating and recording deferred income taxes has outstanding common stock for a cash consideration of changed. Under the liability method adopted by FAS No. 521.00 per share.

96, deferred tax liabilities or assets are computed using the tax rates that will be in effect when the temporary differences reverse, llowever, for regulated companies, the changes in tax rates applied to accumulated deferred income taxes may not be immediately recognized in operating results because of ratemaking treatment and provisions in the Tax Reform Act of 1986. TUA must adopt FAS No. 96 no later than 1989. EUA has not quanti-fied the effect adoption of FAS No. 96 will have on the results of operations or financial position.

l 35

Note C-Incorne and Deferred Taxes:

Components ofincome and deferred tax expense for the years 1987,1986 and 1985 are as follows:

(in Th>usands) 1987 Th46 Th45 Federal:

Current $ (3,523) $ 667 $ 10,079 Deferred 14,613 15,077 5,675 Investment ikx Credit, Net 6,578 10,607 3,558 17,668 26,331 19,312 State:

Current 2,247 1,541 1,633 Deferred 796 1,500 588 3,043 3,041 2,221 Charged to Operations 20,711 29,372 21,533 Charged to Other Income 331 170 228 Total $21,042 $29,542 $21,761 Federal tax expense was less than the amounts computed by applying Federal income tax statutory rates to tx>ok income subject to tax for the following reasons:

(in Thrusands) 1987 FA46 Ph45 Federal income Tax Computed at Statutory Rates $26,569 $30,175 $25,522 (Decreases) Increases in Tax From:

Equity Component of All?DC (7,814) (3,152) (5,379)

Excess Tax Depreciation 2,194 1,671 1,054 Other (3,025) (2,193) (1,729)

Federalincome Tax Expense $17,924 $ 26,501 $ 19,468 The provision for deferred taxes resulting from timing differences is comprised of the following:

(in Thousands) 1987 Th46 Th45 Excess Tax Depreciation $ 6,881 $ 5,379 $2,033 Estimated Unbilled Revenue (1,255) 228 691 Unbilled fuel Costs 160 528 (1,037)

Debt Component of A11lDC 14,090 4,305 5,280 Abandonment Imsses (590) (961) (1,993)

Capitalized Overheads 2,350 902 32i FJfect of State and Incal Taxes 796 1,500 588 Deferred Charges 5,30i Alternative Minimum lix (6,807)

Other - Net (216) (605) 380 Total $15,409 $ 16,577 $6,263 1

The tax effect of the cumulative amount of timing dilfer- becauw the regulatory process is expected to allow such ences at December 31,1987 for which deferred I ederal amounts to be recovered from customers when the taes income tnes hase not been provided, is approximately are ultimately payable. (See also Note A)

$10.8 million. This amount has not been recorded 36

Not] D - Capital Stock: The redemption price for the 9.00% iscue is equal to The changes in the number of common shares oustand- the initial public offering price ( 5100) plus accrued divi-ing and the increases in other paid la capital during the dends. Eastern Edisori also has the noncumulative option years ended December 31,1987,1986 and 1985 wrre as of redeeming an additional 6,000 shares, during each follows (dollars in thousands); period at such price.

In the esent ofinvoluntary liquidation the redeem-Nurnberof$baresissuest able preferred stock of Eastern Edison is entitled to 5100 Incrmse in m'a,,

Refinestment Common In other per share. In the event of voluntary liquidation, or if anHmplo)we Public Shares nald in Plans .ksles Ar nar captial redeemed at the option of Eastern Edison,the 9.00%

19M7 2M9.833 1,0m).0m) 56,449 83M,811

" E ' #

299,758 1,499 ",725 redemption premium reduces in subsequent years.

1986 1985 4 M3,585 2,418 6.959 The aggregate amount of redeemable preferred stock sinking fund requirements, after giving effect to the in the event ofinvoluntary liquidation the non- redemption of 13.25% Preferred Stock, for each of the redeemable preferred stock of lilackstone Valley Electric five years following 1987 are: none in 1988,1989 and Company (Illackstone) and Eastern Edison Company 1990 and $600,000 in 1991 and 1992.

(Eastern Edison)is entitled to $100 per share. In the event of voluntary liquidation, or if redeemed at the Note F- Retained Earnings:

option of those companies, the non-redeemable pre. t?nder the provisions of El'A's Senior Note Agreements, ferred stock is entitled to: Blackstone's 4.25% issue, Retained Earnings in the amount of $72,283,407 as of 5104.40;lilackstone's 5 60% issue, 5103.82; Eastern Edi. December 31,1987 were unrestricted as to the payment son's 4.64% issut, $102.98; Eastern Edison's 8.32% issue, of cash dividends on EUA Common Shares.

5105.62, prior to October 1,1988 and at reti uced premi-ums in subsequent years.

I" " N# ' "' #

L'nder terms of the Indentures securing their various t?nder the terms and provistors of the issues of pre-

" "" #' ' " " " " " ^*"#'" " "'# '#4 #

ferred stock of Blackstone and Eastern Edison,certain to deposit annually with their respective Trustee cash restrictions are placed upon the payment of dividends on in an amount equalim e awegate pdncipal common stock by each company. At December 31,1987 amoum n pre ou% authentkated anMehered, and 1986 the respective capitalization ratios were in in the case of Eastern Edison and 2.25% v the average excess of the minimum w hich would make these restric-pow inseMment in depreciaNe propertp in the case of tions effective, Illackstone.

Note E- Redeentable Preferred Stock: noth companies hase satisfied sinking fund require-On Februa2 y 19,1988 Eastern Edison redeemed all of ments for 1987 under alternate provisions of their f

the outstanding shares ofits 13.25% Preferred Stock. In respective Indentures by certifying to the Trustee connection with this early redemption Eastern Edism "available propert y additions."

incurred a redemption premium of approximately The various first mortgage bond issues ofIllackstone 51,500.000. Such premium will be included in Other and Eastern Edison are secured by substani.'lly all of Deferred Debits in addition to 52,~00,000 of rMemption their utility plant. In addit an, Eastern Edison i bonds are premiums incurred in 1986 in connection we: u collateraliicd by securities of Slontaup in the principal early redemptions of Preferred Stock. Slanagement will amount of $294.850,845.

seek recovery of these amounts in Eastern Edison's next Illackstone's Variable Rate Demand lionds are collater-rate case. alized by an irrevocable letter of credit which expires on Eastern Edison's 9.00% Preferred Stock issue is enti. December 1,1989. The letter of credit permits exten-tied to a mandatory sinking fund sufficient to redeem sions on an annual basis upon mutual agreement of the i 6,000 shares during each twelve month period com. bank and Illackstone.

mencingjuly 1,1991.

37

EUA Pourr's Series A Notes were issued in Nowmber inJanuary 1988, EUA Service issued $20,(X)0,(XX) 1986 and httrch 1987 in the aggregate amount of principal amount of 10.20% Secured Notes, duc 2008,

$180,000,000 at an interest rate of 17%% (See also Note the proceeds of w hich were used to repay all ofits K for further information concerning EUA Power's need Notes Payable which were classified as long term debt at to carry out additional financing). In connection with December 31,1987. Such Notes are occured primarily by the private placement of the Series A Notes, EUA Power a mortgage on EUA Service's new operations building.

incurred a placement fee of $7,200,000. These costs have The aggregate amount of current EUA System cash been deferred and are being amortired to expense over sinking fund requirements and maturities for long-term thelife of the Series A Notes. debt, including the 10.20% Notes discussed above, for The Series A Notes which mature November 15,1991 each of the five years following 1987 are: $26,125,000 in are non redeemable imtil three years following the com- 1988, 54,125,000 in 1989 and 1990, $185,225,000 in 1991 mercial operation date of Scabrook l' nit 1. Following the and $5,225,000 in 1992, date three years after the commercial operation date of Unit 1, EUA Power has the option to redeem some or all Note 11- Lines of Credit:

. of the Series A Notes at 100% of the principal amount EUA System companies had unused short term lines of thereof plus accrued interest,if any to the date of credit with various banks of approximately $50,700,000 at December 31,1987. In accordance with informal redemption.

The Series A notes are solely the obligation of EUA agreements with the various banks, commitment fees nower and are not guaranteed by EUA or any other per- are recluired to maintain the lines of credit.

son and are secured pursuant to an indenture by a first mortgage lien on substantially all of EUA Power's utlhty properties.

Note I-Jointly Owned Facilities: the following interests in jointly owned electric generat.

At December 31,1987, EUA Power and Alontaup owned ing facilities (dollars in thousands):

. Vet Construction IVrren.' Plant in Accurnulatent Plantin utark in onnest sert Depreciation .%ert ice Prrogress

_ - - _ _ _ __' ice _

EUA Power:

Seabrook Unit i 12.13% $ 213 $ $ 213 $197,505 51ontaup:

Canal Unit 2 50.00% 64,813 26,982 37,831

, Wyman Unit 4 1.96% 3,994 1,085 2,909 Seabrook Unit i 2.90% 63 15 -18 149,926 Stillstone t' nit 3 4.01% 177,756 7.-488 170,268 276 The foregoing amounts represent EUA Power and the table above are included in the corresponding oper-

$1ontaup's interest in each facility excluding nuclear ating expenses. Alontaup and EUA P(mrr did not incur fuel in the case of Stontaup, nuclear fuel for Scabrook operating and maintenance expenses for Seabrook Unit i Unit I and Stillstone Unit 3 amounts to $ 11.7 million and in 1987 since the unit is not yet in service. See Note K for

$6.4 million, respectively. EUA Power's nuc! car fuel for information with respect to recent developments affect-Seabrook Unit I amounts to $51 million. Financing for ing the Seabrook project, including the cancellation of any such interest is provided by the respective company, Seabrook Unit 2.

Alontaup and EUA i\mtr's share of related operating and maintenance expenses with respect to units reflected in 38 i _

r Not:J.- Decommissioning Fund: L'ntil the start up of commercial operation of l? nit 1, l'nJer the agreements of purchase and sale with each of Stontaup and Et1A Power must make monthly cash expen-s tile five sellers, Et!A Power was required to establish a ditures in order to fund their respective shares of the fund of $10,(MX)OOO to secure payment of part ofits cost of maintaining t' nit 1 in a ready state for tes;ing and share of decommissioning costs of Seabrook t! nit I and operation ard of continuing the process for obtaining any costs of cancellation ofl' nit I or l' nit 2. L'nder an from the Nuclear Regulatory Commiwion (NRC) an agreement entered into among Et!A Power,a bank and amended license permittir.f, commercial operation of the other joint owners of Seabrook. the bank is empow- L' nit 1.Seabrook l' nit I has experienced substanttal cost cred to use securities of the fund should a default of EtJA increases, due to, among other things, outside interven-Power occur with respect to its obligations to pay such tion in various proceedings, design changes, revisions of decommissioning and cancellation costs. The agreement NRC regulations, extraordinarily high interest rates, also provides that upon payment in full of the decommis- inflation and construction delays.

sioning and cancellation obligations, or upon the written The NRC licensing process is being actively opposed agreement of El!A Power and the then joint owners who by intervenors. The Company cannot predict the extent certify to the bank that they own at least 80% of the own- to w hich such opposition may further delay or entirely ership shares in the Seabrook Project to terminate the prevent commercial operation of l' nit 1. Et'A believe.

agreement,or at such time as the fund requirement is that Seabrook l' nit I will not commence commercial reduced to zero a3 a result of a written guarantee by ElfA operation until 1989 at the earliest.

or a purchase or purchases of all of Et!A Power's entitic. El?A believes that Seabrook l' nit I has been designed ment from l' nit 1, the agreement shall terminate and and constructed in accordance with the most up to-date the bank shall immediately release and return to El!A standards of safet y and reliability;its generating capacity Power all collateral then in the possession or control is essential to New England; and the unit will ultimately of the bank. be licensed for commercial operatlon.

Delay In I./ censing: In October 1986 the NRC iwued a Note K - Commit ments and Contingencies: 40$ car operating license for Seabrook l' nit 1, subject to certain conditions whi ; timit the presently licensed Seabrook activities to fuel loading ,ind pre criticality testing.

llackymuml: 51ontaep and El'A Power have 2.9% and Federal regulations normally require the governor of 12.1% ownership interests, respectively,in the i150 each state th: t is within a ten mile radius of a nuclear megawatt Seabrook I nuclear generating unit in Sea- facility to submit to the Federal Emergency Slanagement brook, New llampshire, or, w hich const ruction is Agency ( FE51 A ) the state's emergency response plans, complete. including evacuation plans for radiological emergencies.

The affected states with respect to l' nit I are New Itamp-shire and Alassachusetts. The Governor of New flamp-shire submitted the current New ilampshire evacuation plans to I E51 A. OnJune 5,1987 I ESI A reported ihat :t was unable to conclude that the $ tate of New llampshire emergency resr." e plans were adequate to protect the public health ai , safety in accordance with current NRC requirements in the event of a major radiologicr.1 rtlease 39

from Seabrook Unit I, which would require either shel- rtisfy NRC requirements for utility submitted off site tering and'or evacuation from neighboring beach areas. plans (a contrasted with state submitted off site plans).

The stated position of FE51 A differs from cor -lusions The NRC concluded that since theJoint O wners' plan issued by the NRC staffin a Starch 1987 report and from was origine!!y developed by Slassachusetts for execution su ind: pendent consultant's report prepared for the Sea- by it, the plan could not be considered a bona fide utility

& Project.w hich found that the New flampshire plan since it contained no provisions to compensate for

p. 3 -tely addressed the issues of sheltering anu absence of Slassachusetts participation in execution of beau .tu in. OnJanuary 25,1988 FE51 A submitred :he plan.

supplem .stimony on shchering issues to the NRC. On September 18,1987, the Seabrook joint Owners 1 ESI A'r it position is (a) that it is appropriate to (the Applicants) filed with the NRC an emergency consider turther the adequacy of the emergency response plan for the six communities in 51assachusetts, respanse plan for the beach areas within the Seabrook which is intended to meet the NRC's current require-en.crgency planning zone;(b) that the requirement for a ments. The Applicants also renewed their request to the "range of protective actions" may or may not be sath fied NRC to issue a low power ( 5% ) license for Seabrook. On by evacuation alone; and (c) that FE31 A cannot conclude October 20,1987, the NRC's staff (the Staff) issued its that the New Ilampshire evacuation plan is adequate response to the Applicants'"Slotion for Vacation of Stay",

with respect to the beach population until it is clear that in which the Applicants requested that the NRC lift its the State of New Ilampshire has con 3idered use of shel- earlier stay of the issuance of the 5% low power license f ering for the be.;ch areas and explains what use,if any, it for Seabrook t' nit 1. The Statf supported the motion and mtends to make of sheltering. FE51 A stated that this latter recommended that the NRC "should vacate the existing point should not be inscrpreted to mean that FE\1 A has stay of low power operation." In arriving at its recom-imposed a requirement that sheltering he availabic. mendations, the Staff concluded that, among other On September 20,1986 the Governor of 51assachusetts things, the emergency response plan submitted for the announced that he would not submit to the appropriate Slassachusetts communities by the Applicants "is a bona federal aut horities Seabrook emergency response plans fide utility plan" and that it demonstrates on surimar y for the six 51assachusetts communities within the 10-mile review that emergency planning for the six communities zone required by current regulations. in Slassachusetts "is at least in the realm of the possible."

Although 51assachusetts offici.:Is and others have On November 25,1987, the NRC lifted its stay on issu-stated that they will oppose any alternate proposals, ance of the amendments permitting 5% low power test-other means of addressing the emergency evacuation ing. L'nder terms of the order lif ting the stay, various plan issue have been pursued by theJoint Owners, other issues pending before the NRC must be resolved including efforts to obtain NRC approval to reduce the before low power testing is actually permitted.

10-mile evacuation planning zone to one mile, thereby On November 27,1987, the NRC submitted the Siassa-excluding 51assachusetts from the emergency planning chusetts emergency response plan to FE51 A for its process, or, alterratively, development of a utility spon- review. On December 2,1987 the NRC and FE51 A issued sored emergency response plan for the six Slassachusetts interim use criteria which will be used to evaluate the communities. plan submitted for the six 51assachusetts communities.

On April 8,1987, Public Service Company of New FE51 A commenced its review onJanuary 1,1988. The llampshire (PSNII) on behalf ofIhe SeabrookJoint Own- Company cannet pcedict (i)what furthcr action may be ers, filed w ith the NRC an emergency off-site respon';c taken by the NRC or its licensing boards; or (ii) when or plan which had previously been proposed (but not sub-mitted)by the public safety authorities of 51assachusetts.

TheJoint Owners also requested ' hat the NRC amend the licensing to permit 5% low power teeing of Unit 1.

OnJune 11,1987, the NRC issued a 5temorandum and Order w hich denied the request. The NRC state that the Jaint Owners' off site emerger.cy response plan did not 10

whether the determinations necessary to permit low and safety of the public; there is no certainty as to the power testing and ultimately full power operations of effect which this "reality" rule will have in the consid-Unit I will be receive d. Ilowever,in a hiemorandum eration of particular plans and exercises. One attempt and Order dated February 3,1988, as revised, setting and in Congress so prevent adoption of the amended rule proposing schedule milestones an Atomic Safety and had been defeated in the flouse of Representatives on IJcensirig floard of the NRC se' or proposed dates from August 5,1987. Alassachusetts governmental officials and February 8,1988 through Slay 2,1988 for the several others continue to oppose the new rule and have stated hearings to be held to titigate(i) the balance of the that they will take legal action to challenge it. EUA can-Issues with respect to the New Ilampshire Radiological not predict what effect such legal action might have on Emergency Response Plan (without the sheltering the timing or outcome of the proceeding for issuance issues),(ii) the sheltering issues, and (iii) the Seabrook of a full power operating license for Seabrook Unit 1.

emergency response plan for the 51assachusetts cornmu- The operation, including low power testing, of Unit I nities. In addition,in correspondence to PSNil dated continues to be actively opposed by a number ofinter.

February 3,1988, the NRC set forth the pre exercise venors, including, among others, the Attorney General of achedule fer a full scale emergency exercise for Seabrook 51assachusetts. This opposi t ion c^ntinues to center on schedukd for the week of 5tay 23,1988. emergency response plans. The 5f aisachusetts Attorney On February 1,1988, an Atomic.ufety and Licensing General has consistently opposed Seabrook on various Board of the NRC issued an initial decision on an emer. grounds including his opinion that it is impossible to gency plan exer cise finding "fondamental flaws" in por. develop adequate emergency response plans. In adoition, tions of a utility prepared plan for the Shoreham nuclear several $1assachuset ts and several New if ampshire pmver station in New York, and said that significant municipalities are disputing the adequacy of the pro-improvements would have to be made before there could posed procedures and plans. In the case of some of these be the necessary "reasonable assurance that adequate municipalit.es, such opposition includes refusal to coop-protective measures can and will be taken" in the event crate in carrying out required tests of evacuation plans.

< f an emergency. The Board expressed the view that it is Furthermore, certain local tests of evacuation proce-questionable whether utility personnel can ever achieve dures have found alleged deficiencies in the emergency the level of performance that professional emergency procedures.

workers, such as the police, display. Shoreham's owner is Certain New llampshire towns have also instituted liti-appealing the decision. In making its decision the Board gation to revoke licenses for poles with sirens which are did not consider an amendment to the NRC rules made part of the emergency response plans, and a New Ilamp-on October 29,1987. On that date, the NRC by a unani- shire Superior Court decision, which is on appeal, has mous vote adopted an amendment .naking it clear that stated that the siren poles were not authorized by New absence of participation by state and'or local govern- Ilampshire law and has ordered their removal. The Slas-ments in emergency planning will not precnide the sachusetts towns within the ten mile emergency plan-licensing of a nuclear power plant where there is a util- ning zone have successfully undertaken action to have ity-prepared plan that provides reasonable assurance of siren poles located in their communities removed.

adequate protection to the public and the utility has The NRC's Atomic Safety and Licensing Appeal Board made a good faith effort to secure the participation of ( ASLAB) ruled on February 3,1988 that low power oper-the governmental authorities. The amended ruta pro- ation of Unit 1 is precluded unless and until theJoint vides that in making its determination on the adequacy Owners have received approval in the NRC license pro-of a utility plan, the NRC will recognize "the reality" th : cceding of substitute early public notification plans for in an actual emergency, state and local government offi- the 51assachusetts communities. On February 18,1988 cials will exercise their best efforts to protect the health theJoint Owners petitioned the NRC to review and reverse the ASLAll February 3rd ruling.

41

The Company cannot predict when the NRC will per- F/nanc/a/ D/ff/cn/t/es of OtherSeahrook /> art /ct-mit commerc!al operation. Once commercial operation pants: Ileginn.ng in March 1986, the Vermont Electric

.of Unit I is permitted by the NRC, opponents of Seabrook Generation and Transmissior. ~orporation,Inc.(Ver-are expected to challenge such actions in the federal mont G&T) has been unable to make payments to the courts, if the federal court were to issue a stay on the full Seabrook project for its OA 1% ownership share (such

. power license such action could bar operation of Unit I payments amount to approximately $41,000 per month).

pending the outcome of such a challenge. This could SixJoint Owners (or affiliates, including EUA)are ..ak-delay commercial operation of Unit I beyond 1989 or ing advances against future payments due from them to

- even prevent it from ever becomir:g opers.tlonal. assure that funds are available to meet Vermont G&T's Furthermore,onJanuary 28,1988, PSNil(which has share. Vermont G&T is unable to determine when it a 35.6% interest in the Seabrook Project) filed for pro- will be able to resume meeting its obligations to the tection under Chapter 11 of the Federal Hankruptcy Seabrook project.

Code (see below). The filing has been made a basis for inJanuary 1988, the New 11ampshire Electric Co-renewed contentions that the financial qualifications of operative stopped paying its 2.2% share ofits ongoing theJoint Owners must be examined in the licensing pro- Seabrook costs.

ceeding. It is impossible to predict what effect,if any, With the exception of the above, all of theJoint Own-PSNil's filing will have in connection with the licensing ers are currently fulfilling their contractual commit-of Unit I for commercial operation. ments to pay on a timely basis their share of Unit I costs.

I%Y// /lankruptcy OnJanuary 28,1988, PSNil filed flowever,if due to regulatory action, financial difficul-for protection from its creditors under Chapter 11 of the ties oc any other reason, one or more of the other Sea.

Federal Bankruptcy Code. Prior to filing its Chapter 11 brookJoint Owners should be unable or unwilling to petition PSNil had stated that cash generated by its oper. fulfill such contractual commitments, commercial opera-ations was insufficient to satisfy its capital requirements tion of Unit I could be jeopardized.

and to pay interest and principal on its outstanding .lfontanp: Montaup currently has slightly less than indebtedness. PSNil indicated that absent a change in 50% ofits Seabrook Unit 1 investment in rate base earn-its circumstances it believes financings in amounts pro- ing a cash return. The ultimate recovery of Montaup's lected to meet its cash needs during the next several totalimrstment in Seabrook Unit I through rates will be years would not be available, and that even if financings subject to final approval by FERC as part of rate proceed-were available in the short term it would not be in the ings and the prudence of a portion of such investment best interests of PSNII, its customers or its investors to coulc be at issue.Montaup continues to believe that its proceed with such financings unless financial plans were capenditures on this unit were prudent, and that FERC in place which would substantially improve PSNI Fs long- will continue to permit the recovery of prudently term cash position. Prior to the bankruptcy filing, court incurred costs through rates for plants in commercial actions had been commenced by three indenture trust- operation. InJanuar y 1988 FERC revised its policy ces representing holders of unsecured debt issm.s of regarding recovery of cancelled piant costs. The revised PSNil to enforce immediate payment of the principal of policy permits recovery of 50% of the prudently incurred issues because of defaults in the payment ofinterest. It costs (including related AFUDC) te be amwtized appears likely that the Chapter Ii proceedings will con- over the life of the plant, had it gone into service. The tinue for an extended period of time. unamortized portion of the recoverable costs can be included in rate base thereby earning a return. The rr naining 50% would

• e required to be written off as a loss. FERC's prior policy allow ed 100% recovery of pru-dently incurred costs with the unamortized balance i

i 42-i

~l 4

excluded from rate base. Under the prior policy, depend. EUA R>mer Corporation: Since inception on Novem-ing on the rate impact, the amortization period could her 25,1986, EUA Power has principally been engaged in have been considerably shorter than the estimated useful the acquisition and financing ofits 12.1% Seabrook own-life of the plant had it gone into service. Stontaup cannot ership interest. Under the Seabrookjoint Ownership predi :t the outcome of any future rate proceeding Agreement, EUA Power is required to accept its share of involving its Seabrook Unit 1 investment; however, EUA power and pay for its share of all operating costs of believes that the amount of any potential disallowance of power generated from the project once it commences recovery of the expenditures, assuming Unit I achieves operation. EUA's recovery ofits investment in EUA Power commercial operation, would not have a substantial is contingent upon the commercial operation of Unit I adverse effect on the EUA System's common equity. If and EUA Power's ability to enter into contracts to sell its Seabrook Unit I ure to be cancelled and FERC's revised share of the power generated by Unit 1.

policy regarding recovery of cancelled plant costs were Should the commercial operation ofScabrook Unit I stillin effect the impact on EUA's common equity would be significantly delayed or ultimately cancelled, EUA be substantial. Power would be unable to make interest and principal in December 1986, the Financial Accountmg Stan- payments due on its Series A Notes. Such Notes are solely dards Board issued Financial Accounting Standard (FAS) the obligation of EUA Power and are not guaranteed by y0

• Regulated Enterprises- Accounting for Abandon. EUA or any other person. These circumstances would ments and Disallowances of Plant Costs." FAS 90 is cf rec- also result in the inability of EUA Power to repay EUA' tive for fiscal years beginningJanuary 1,1988 and among for its equity investment ( $59 million at December 31, other thiny, revises the accounting requirements for 1987). EUA would thus be required to charge off such plant abandonments and regulatory disallowances of equity investment (net of related taxes ) to retained completed plant costs. When implemented, FAS 90 will earnings. Slanagement believes that should such a charge require that,in the event of a plant abandonment where to retained earnings occur,it would not adversely affect no return is authorized on the unamortized property EUA's ability to pay common share dividends.

loss balance, those unamortized amounts would be On the basis of a recent review ofits cash require-recorded at a discounted value and the effect of such dis- ments and cash resources, EUA Power has determined counting would be charged to income and disallowances that it will be necessary for it to carry out additional of recovery ofinvestments in completed plants would financing or make other arrangements in order to meet require an immediate charge to income equal to the its Slay 15,1988 interest obligations under its outstand-amount of such disallowance. Such potential charges to ing 17%% Series A Secured Notes and its share of Sea-income could be material to the results of operations or brook Unit I costs. EUA Power believes that Seabrook retained eacnings of the EUA System in the year of the Unit I will not commence commercial operation before write-off. Also, FAS 90 will require that AFUDC should be 1989 at the earliest, but for financial planning purposes capitalized only Ifits subsequent inclusion in allowable considers commercial operation to be the fourth quarter costs for rs.te making purposes is probable. If manage- of 1989. On that basis EUA Power has determined to seek ment determines that commercial operation of Unit I regulatory approval for additional financing in an is not probable,51ontaup's inability to continue to amount up to $125,000,000 consisting of up to capitalize a portion ofits AFUDC would significantly $100,000,000 of additional Secured Notes and up to reduce its results of operations, as well as the results of 525,000,000 of additional preferred stock to be pur-operations of EUA. chased by EUA. Ilcing advised that there is considerable L doubt as ti the feasibility under present market condi-tions of finding purchasers for a $100.000,000 issue ofits 43

e Secured Notes to be sold for cash, EUA Power is explor- Scabrook Un/t 2: Slontaup and EU A Power also have log the possibility ofissuing up te $100,000,000 of 2.9% and 12.1% ownership interests, respectively,in Secured Notes from time to time . : Note'.,lders in lieu Unit 2. On November 6,1986 the joint ewners, recogniz.

of paying interest in cash on the existir 3No es and on ing that Unit 2 had been cancelled. voted to dispose of the new Notes as they become outstanding. " o definitive the Unit. Plans regarding disposition ofl' nit 2 are now plan for such financing or arrangements ha >cen deter- under consideration, but have not been finalized and mined, but proceedings for obnining reguinory approv- approved. Alontaup and EUA Power are unable, therefore, als have been commenced. There is no assurance that to estimate the costs for which they would be responsi.

such regulatory approvals can be obtained or, if they ble in connection with the disposition of Unit 2. 51onthly are obtained, that the holders of the Ser. > A Notes will charges are required to be paid by alontaup and EUA accept any such plan. Power with respect to Unit 2 in order to prescrse and As of the balance sheet date, EUA Power has not protect its components and various warranties. In 1986 entered into any power contracts for its share of the elec- Alontaup entered into a rate case settlement relative to tricity to be generated by Seabrook Unit 1. Demand for the cancelk icabrook Unit 2. The settkment permitted, electricity in New England has been exceeding projec- among othet .aings, that Slontaup recover 82% ofits tions in recent years. New England Power Pool planners investment in Seabrook Unit 2 over a 7% year period.

hau projected that with a conservative annual growth The settlement has been approved by FERC. Accordingly, rate of 2%,significant amounts of additional generating in Decembei 1986 alontaup wrote off approximately capacity bc yond that already planned (including Sea- 51,784,000 of Unit 2 costs, net of related taxes, which it brook l'mt 1 ) will be required by the mid.1990's. will not recover fcom its customers. The charge had the Although there is no assurance that EUA Power will be effect of reducing EUA's 1986 carnings per share by able to generate sufficient revenues to meet its contrac. 50.15. Approximately 51,390,000 of the net writeoffis tual obligations, management is confident that because included i1 the Consolidated income Statement in the of the actual growth in demand, it will be able to obtain line captioned Other (Deductions ) Income - Net and the power contracts for the sale ofits share of Seabrook balar.cc was recorded as an adjustment to operating rev-Unit I power. enues. At December 31,1987 Alontaup's unrecovered As discussed above, FAS 90 requires that AFUDC be costs amounted to 59,760,000.

capitalized only ifits inclusion in allowable costs for rate Other3fatters: The continuing public controversy making purposes is probable. If management determines concerning nuclear power could also affect the six oper-that commercial operation ofSeabrook Unit 1 is not ating nuclear un;ts in which Slontaup has an interest.

probable, EUA Power's inability to continue to capitalize The Vermont legislature has passed a law calling for a AITDC would significantly reduce its results of opera- study of the economic and legalimplications of a prema-tions, as well as the results of operations of EUA. In the ture shutdowa of the Vermont Yankee plant. A binding event of an abandonment of Unit 1, EUA Power would statewide referendum in Alassachusetts calling for the immediately write offits entire investment in that Unit. shutdown of nuclear power plants, including the Yankee Thus, the plant abandonment provisions of FAS 90 would Atomic plant and the Pilgrim plant,is expected to be on be inapplicable. As a result of the substantial discount at ;he ballot in November 1988. A referendum in Slaine which EUA Power purchased its Seabrook ownership calling for the shutdown of the Alaine Yankee plant was interest, and consistent with the treatment afforded by defeated in November 1987. While the ultimate effect of FERC, EUA Power o ~.s not expect that the partial disal- this controversy cannot be predicted, it is possible that it lowance provisions of FAS 90 will have any effect on its could result in the premature shutdown of one or more financial statements. of the units.

1 44

e d

Other: The weighted average discount rate and rate of IVns/ons:The EUA System companies participate in a increase in future compensation levels used in determin-defined benefit pension plan covering substantially all of ing the actual present value of accumulated benefit obli-their employees. Plan benefits are based on years of ser- gations in 1987 were 8.8% and 8.3%, respectively.The vice and average compensation over the five years prior expected long term rate of return on plan assets were to retirement. It is the EUA System's policy to fund the 9.5% for 1987 and 9.0% for 1986.

plan on a current basis in amounts determined to meet Pension expense for 1985, which was prior to the the funding standards established by the Employee adoption of FAS 87, amounted to approximately Retirement income Securit y Act of 1974. $383,000.

Certain health care benefits are provided to substan-Net pension expense for 1987 and 1986 included the tially all retired employees. The cost of these benefits, following components (in thousands): which amounted to approximately $562,000 in 1987,

, , 5498,000 in 1986 and $524 )oo in 1985 was charged to expense when paid, L nNerinPurchasemu ntracts: The EUA d rin t r $ 1,588 $ 1,650 Interest cost on projected System is c mmitted under long term purchased power benefit obligations 4,511 4,271 contracts, expiring on various dates through the year Actual return on assets (3,170) (7,771) 2007, to pay demand charges whether or not energy is Net amortization and deferrals (3,629) 1,501 received. Under terms in effect at December 31,1987, Net periodic pension the aggregate annual minimum commitments for such (income) expense $ (700) 5 (349) contracts is approximately $59,000,000 for 1988, 858,000,000 in 1989,1990 and 1991, and will aggregate The following table sets forth the actuarial present $738,000,000 for years -fler 1992. In addition, the EUA value of benetit obligations and funded status at Decem- System is require <' additional amounts depending ber 31,1987 and 1986(in thousands): on the actual ano sf energy received under such con-tracts. The demand costs associated with these contracts Accumulated benefit obliga- are reflected as Purchased Power Demand on the Con-ben its f 4 4 6a d C nstruct/ n: The EUA System's construction pro-537,756, respectively $ 45,485 5 41,546 l

gram is estimated at s117,000,000 for the year 1988 and 5360,000,000 for the years 1988 through 1992 (includ-Projected benefit obligations $(58,972) $(52,927)

Add: Plan assets at fair value, ing allowance for funds used during construction of l

l pr.earily stocks and $156,000,000). These estimates assume Seabrook Unit 1 l

bonds 71,125 69,722 will commence commercial operation in the fourth I.ess: Unrecognized net gain quarter of 1989 on assets (10,692) (l1,410) Storre,Ruration:In 1985 Blackstone and Eastern Unamortized net assets at Edison incurred egnificant expenditures relating to the January 1 (412) (5,036) restoration of service following Ilurricane Gloria. Black.

Net pension assets $ 1,049 5 349 stone has received a rate order allowing recovery of these costs through rates over a 7 year period. Eastern Edison has deferrec; $4,300,000 of such costs, which manzgement anticipates it will ultimately recover through rates. Any recovery will be subject to determi-nation made by the Massachusetts Department of Pub-lic Utilitles.

Ent ironmental Controls: The Comprehensive Envi.

ronmental Response, Compensation and I. lability Act of 1980 and certain similar State statutes authorize various 45

. governmental authorities to seek court orders compel- receiving increasing attention from the governmental ling responsible parties to take clean up action at dis- agencies involved. While EUA cannot estimate the costs posal sites determined to present an imminent and which may result from these matters,it does not believe substantial danger to the public and to the environment such costs will be material.

because of an actual or threatened release of hazardous ' Cuarantees: Slontaup, as one of the stockholders of substances. Because of the nature of the EUA System's each of three regional nuclear generating companies, has business, various by products and substances are pro- guaranteed its pro rata share ofobligations of those com-duced or handled which are classified as hazardous panies as follows: 2.5% of a $40,000,000 nuclear fuel under these laws. EUA System companies generally pro- financing of Vermont Yankee Nuclear Power Corpora-vide for the disposal of such substances through licensed tion; 4.5% of a $25,000,000 bank line of credit and of a individual contractors but these statutory provisions $50,000,000 debenture issue of Connecticut Yankee generally impose potential joint and several responsibil- Atomic Power Company;and 4.0% of a $50,000,000 ity.on the generators of the wastes for clean up costs. nuclear fuel financing of 51aine Yankee Atomic Blackstone has been notified with respect to a number of Power Company.

such sites, and the clean up of such wastes,in general, is Report ofIndependent Certified Public Accountants 1

To the Trustees and Shareholders of Eastern Utilities Associates We have examined the consolidated balance sheets and the outcome of future Federal Energy Regulatory Com-consolidated statements of capitalization of Eastern Utili- mission rate proceedings, whether or not Unit I oper-ties Associates and subsidiaries (the Company) as of ates. Ghen these uncertainties, it is impossible to predict December 31,1987 and 1986 and the related consoll- what portion,if any,of the Company's investment in the dated statements ofincome, retained earnings and Seabrook Nuclear Power Project may not be recovered.

changes in financial position for each of the three years In our opinion, subject to the effects on the 1987 con-in the period ended December 31,1987. Our examina- solidated financial statements of such adjustments,if any, tions were made in accordance with generally accepted as might haw been required had the outcome of the auditing standards and, accordingly, included such tests uncertainty referred to in the preceding paragraph been of the accounting records and such other auditing procc- known, the consolidated financial statements referred to dures as we considered necessary in the circumstances. above present fairly the consolidated financial position 1 As more fully described in Notes I and K of"Notes to of Eastern Utilities Associates and subsidiaries as of l

l Consolidated Financial Statements," through two ofits December 31,1987 and 1986 and the consolidated subsidiaries, EUA Power Corporation ( EUA Power) and results of their operations and changes in their consoli-Alontaup Electric Company (51ontaup) the Company dated financial position for each of the three years in the has a substantialinvestment in Unit I of the Scabrook period ended December 31,1987,in conformity with Nuclear Power Project (Unit I) and there is uncertaint y generally accepted accounting principles applied on a with respect to when or whether Unit I will be granted a consistent basis.

commercial operating license. Recovery of EUA Power's hwestment in Unit I is entirely dependent on commer-cial operation of Unit I, whereas ultimate recovery of ,

Stontaup's investment in Unit i is also dependent upon gg ,

February 29,1988 46

i e

a l

Quart 7;rly FinIncialcnd )

Common Share Information l (Unaudital)

Thousands ofDollars Earnings incorne Consul. per Cominon Share After idated Attrage Alarket Price Operating Operating Interest Set Common Ult idends Retenues income Charges income Share thid liigh Low tor the quarters ended 1987:

f December 31 $97,297 $ 15,313 $12,021 $ 10,984 50.85 50.575 30 % 24 September 30 87,719 13,233 12,139 11,101 0.86 0.575 33 % 28 %

June 30 89,993 15.218 10,397 9,359 0.73 0.575 35 % 30 hlarch 31 92,120 17,454 13,141 12,102 1.03 0.545 40 % 34 %

For the quarters ended 1986:

December 31 585,531 516,137 8 8,761 5 7,723' Of>6' O.545 39 % 317 September 30 80,548 17,303 9,907 8,571 0.74 0.545 37 % 31 %

June 30 84,483 13,590 7,995 6,630 0.58 0.545 37 25 %

5tarch 31 92,762 14,695 10,933 9,567 0.84 0.515 33 % 25 %

The common sixares ofEastern Utilities Associates are listed on the New tbrk Stock Ers bange and the 1%cific Stock Erchange under the ticker ymbol *EUA". The appratimate number of Cornmon Sharrholders of traord on December 31.1987 uus 17,(XXL

• includes a clxtrge of 11.78).88) or 5015 per sbart ubich resultaffmm a rate case settlement relatts e to the cancellalSeabrook Untt 2.

See Note K ofNotes to Consolida talFinancialStatementsforfurther details Dividend Reinvestment and Common Share Purchase Plan A Dividend Reimrstment and Common Share Purchase Complete details regarding the Plan may be obtained Plan is available to all registered shareholders and System by writing:

company employees. William E O'Connor, Secretary Participants in the Plan are given a 5% discount on Eastern Utilities Associates sh?r s purchased with reimested dividends. Participants Post Office flox 2333 may also make additional cash payments as frequently as lloston,51 A 02107 once a month to purchase additional shares with no dis.

count. Optional cash payments are limited to a maximum Transfer Agent of $5,000 per calendar quarter and must be recchrd no The First Nationalllank of Lloston later than the 5th day preceding the Imtstment Date to P st Office llox 644 Il ston, AIA 02102 e be invested in that month.

The Imtstment Date for all sh:.res purchased under (Common and Preferred Shares) the Plan is the dividend payment date for the months in liond Trustee which dividends are payable. For each month in which a State Sticet Ilank and Trust Company dividend is not payable the Investment Date is the 15th of 225 Franklin Street such month. The price of shares nurchased is based on lloston, SI A 02110 the average closing price of EUA shares for the five trad- gg,,

ing days preceding each investment date.

47

5 Consolidated Opertting Statistles 1 lewrs En.ted December 31, 1987 IRt6 1985  ?>81 1983 1982  ?)77 Energy Generated and Purchased (millions of kwh):

Generated

- by Somerset Station 1,294 887 1,316 1,180 1,123 738 667

- by Nuclear Units 390 543 1,065 458 1,019 861 782

- byjointly Owned Units 2,050 2,101 1,595 1,507 1,724 1,632 1,599

-by l#e of the Unit Contracts 569 667 697 814 4 5., 706 '830 Interchang with NEPOOL 236 157 (387) (136) (285) (49) (281)

Purchased Power- Unit Power 207 309 223 480 168 161 259 lbtal Generated and Pu chased 4,746 4,661 4,509 4,303 4,201 4,0 69 3,853 Operating Revenues 't housands):

Residential $124,047 si 15,741 5110,682 5121,623 5104,101 5 97,161 5 56,012 Commercial 114,857 105,777 98,826 105,310 89,225 83,519 44,931 Industrial 72,218 67,973 66,707 75,850 58,90i 56,468 30,054 Other Electric Utilities 18,740 16 189 15,779 23,909 16,212 18,289 11,418 Other 11,192 15,019 8,990 9,396 13,463 10,761 8,324 lbtal Primary Sales Revenues 341,054 320,702 300,981 336,088 281,902 266,i98 150,739 Unit Contracts 23,372 22,622 32,526 25,237 20,548 22,219 6,961 Non Electric 2,703 Total Operating Revenues $367,129 5343,324 5333,510 5361,325 5302,450 5288,417 5157,700 Energy Sales (inillions of kwh):

Residential 1,328 1,262 1,212 1,205 1,197 1,137 1,121 Commercial 1.325 1,2 13 1,169 1,113 1,103 1,0 14 1,000 Industrial 863 855 833 856 810 772 788 Other Electric Utilities 365 372 382 396 386 365 399 Other 28 28 29 30 34 36 48 lbtal Primary Sales 3,909 3,760 3,625 3,600 3,530 3,354 3,356 Imses and Company Use 231 211 197 215 201 206 242 Total System Requirements 4,140 3,971 3,822 3,815 3,731 3,560 3,598 Unit Contracts 606 693 687 488 470 489 255 lbtal Energ) Sales 4,746 4 />61 1,509 4,303 4,201 4,049 3,853 Number of Custornere Residential 221,480 217,899 214,151 211,622 209,678 207,702 199,063 Commercial 25,480 24,356 23,161 22,177 21 t>05 21,133 21,501 Industrial 1,237 1,250 1,238 1,209 1,189 1,210 1,513 Other Electric Utilities 7 15 15 16 12 18 16

' Other 29 30 30 29 31 31 222 Total Customers 248,233 213,550 238,898 235,053 232,515 230J)94 222,315 Awrage Revenue per Resident tal Customer ( s) 560 531 516 575 496 468 281 Average Use per Residentlal Customer (kwh) 5,996 5,792 5,582 5,694 5,708 5,474 5,621 Average Revenue per kwtu Residential 9,34t 9.17e 9.13c 10.09c 8.70c 8.55c 5.03c Commercial 8,67( H.51c 8.45c 9.46c 8 09c 7.99c 4.53c Industrial 8.37f 7.95c H.O le 8 86c 7.27c 7,3 t c 3.83c l

48

c a

Consolidated Operz ting Statistics - General thtrs Entlestilecemberyl, 1987 PM6 FMS FMI FM) 72 2 1977 Capitalization (thousands):

Bonds (Net) $267,500 s246,500 $ 263,500 $266,500 $226,219 - $165,950 $ 83,658 Other Long Term Debt 211,717 177,289 21,991 22,376 30,179 33,900 35,000 Total long Term ')ebt - Net 479,217 423,789 285,491 288,876 256,398 199,850 118,658 Preferred 5tock 44,931 44,931 46,536 48,319 49,234 49,536 21,000 Common Equity 285,383 225,156 208,211 191 A19 172,327 140,973 75,417 Total Capitalization $809,531 5693,876 5540,238 5528,814 5477,959 5390,359 8215,075 Common Share Data:

Earnings per Average Common $ hare ( s) 3.46 2.82 2.67 2.85 2.80 2.25 1.50 Dividends per Share ( 5) 2.27 2. I 5 2.03 1.9 I 1,79 1.70 1.60 Payout (% ) 65.6 76.2 76.0 67.0 63 9 75.6 106.7 Average Common Shares Outstanding 12,596,38I i1,537,677 11,156,941 10,562,324 9,062,810 7,519,381 3,970,459 Total Common Shares Outstanding 12,966,062 11,676,229 11,376,471 10,892,886 10,192,304 8,788,991 4,232,862 Book Value per Share ( s) 22.01 19.28 18.30 17.59 16.91 16.04 17.82 Percent Earned On Average Common Equity (% ) 17,1 15.0 14.9 16.5 16.2 13.5 8.5 Alarket Prices ( s).

Iligh 40 % 39 % 26 % 18 18 % 14 % 19 %

low 24 25 % 16 % 12 % 13 % Ii 16 %

Year End 28 38 % 25 % 18 14 % 14 % 16 %

Miscellaneous ($ in thousand.9):

Total Construction Expenditures ( s) 126,856 64,371 78,192 95,211 103,309 77,096 24,008 Cash Construction Expenditures ( s) 68,929 47,137 54,406 73,159 78,912 61,236 22,025 Internally Generated Funds as a %

of Cash Construction (% ) 21.1 95.1 50.5 55.8 34.5 20.7 77.0 installed Capability- AlW 1,091 971 987 931 931 927 988 t.ess: Unit Contract Sales - SlW 108 108 110 75 75 70 49 System Capability- AlW 983 863 877 856 856 857 939 System Peak Demand - 51W 782 691 738 716 700 680 668 Reserve 5targin (% ) 25.8 24.9 18.9 19.5 22.3 26.0 40.6 System load Factor (% ) 60.4 65.6 59.1 60.6 60.8 59.8 61.5 Sources of Energy (% ):

Nuclear 15.1 19.0 26.2 10.9 23.8 22.2 18.7 Coal 31.1 22.0 31.1 29.3 16.3 Oil 53.8 59.0 39.7 59.8 59.9 77.8 81.3 Cost of Fuel (Stills Per kwh):

Nuclear 9.2 86 7.0 8.9 6.5 6.3 2.4 Coal 20,5 23.7 23.7 27.8 21.6 Oil 28.3 23.6 41.2 43.6 41.5 41.5 21.5 All Fuels Combined 23.0 20.8 26.3 36.1 30.7 34.1 17.5 49

8 4

Trustees Officers 1

Oliver F. Ames (A, P) John F. G. Eichorn,Jr.

Director; Fhhochtry hust Cornpany, anct Chairman anci prtrate trustee, IIostan, .1lassachusetis Chieffirecuthv Officer John E. Conway (A, P) Donald G. Pardus Chairrnan, Jack Contray & Ca. Inc Pn shient anc/

llanotvr, .11assachusetts ChiefOperating Officer Robert I. Dexter (A, P) Robert E. Staguire Chair rnan, Abington.1InittalFire firecuth e VicePreshlent InsuranceCcnnpany, Abington, John R.Stevens

.11assachusetts .,. , y,. , p , ,,,,

John F. G. Eichorn,Jr.

Robert P.Tassinarl Chaironan anct ChieffLrecuth e Officer VicePresicient oftheAssociation Richard 51. Ilurns Peter 11. Freeina n (C, F)

Coniptroller CorporateDfrectoranct Trustee, Pmehlence, RhocleIslanct CliffordJ. lleber t,Jr.

Tarasurer NrAhan II. Ga rrick,Jr. (C, F)

Retirect William F. O'Connor Robert E. 5taguire fLrecutive Vice Prvsklent of the Association Wesley W. Sta rple,Jr. (C. F)

Professor offlusiness Achnhtistration, Northeastern linh vrsity, lloston. .\lassachusetts Donald G. Pardus Prvshient anct Chief Operating Officer oftheAssociallon Stargaret 31.Stapleton (A, P)

VicePresklent, John llancock 1tutualLifelusurance Carnpany, lloston, .11assachusetts D. Held Weedon,Jr. (C, F)

Senior Vice Preshtent, ArthurD. Litth', Inc Carnbrhige, .11assachusetis A -irialcates tnember ofAndit Committee C-Indicates rnember ofComper* ation and Nominating Comrnillee F-Indicates member offinance Committee P-Indicates member oflVnsion Trust Committee 50

6 o

Syst&m Comp:nics The name Eastern Utilities Associates is the designa.

tion of the Trusteesfor the time being tinder a Declara-tion of Trtist dated April 2,1928, as amended and all Eastern Utiiitles Assoclates persons dealing trith Eastern Utilities Associates must EUA Service Corporation look solely to the trustpropertyfor the enforcement EUA Power Corporation ofany clahns against Eastern Utilities Associates as Montaup Electric Company neither the Trustees, Officers norSharehohlers assume EUA Enctgy investment Corporation anypersonal liabilityfor obligations entered into on One Libetty Square behalfofEastern Utilities Associates.

Post Office llox 2333 g3 ,

Boston, M A 02107 The 1988 Annual Shareholders Alecting will be held on (617)3579590 .Ibesday, April 26,1988 at 10 a.m. in the lloard Room on John E G, Eichorn,Jr., Chairman the 33rd Floor at State Street Bank and Trust Company, Donald G. Pardus, President 225 Franklin Street, Boston, Massachusetts.

Eastern Edison Company FinancialSupplement 110 Mulberty Street l'pon request EUA will furnish a copy ofits Financial Brockton, MA 02403 Supplement which includes financial statements of its (617) 580 1213 major operating companies.

Arthur A. Ilatch, President Blackstone Valley Electric Company Washington flighway uncoln, RI 02865 (401)3331400 William R. Bisson, PresidenI EUA Cogenex Corporation One Uberty Square Boston, M A 02107 Joseph S. Fitzpatrick,Firsh/ent

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