ML20009F286

Annual Financial Rept 1980.Supporting Documentation Encl

ML20009F286
Person / Time
Site:	Seabrook
Issue date:	03/10/1981
From:	EASTERN UTILITIES ASSOCIATES
To:
Shared Package
ML20009F275	List: ML20009F274 ML20009F277 ML20009F279 ML20009F280 ML20009F281 ML20009F282 ML20009F283 ML20009F285 ML20009F286 ML20009F287 ML20009F289 ML20009F291 ML20009F293
References
NUDOCS 8107300247
Download: ML20009F286 (60)

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!O Eastem Utilities Associates A.mualReport1980 -

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l The Company l Eastern Uti:ities Associates  !

is the parent company for l two retail electric companies, a wholesale generation and transmission company and a I service company. The EUA System furn"hes electric )

service to po, m. s of south-  !

castern Massachusetts and '

northern Rhodo Island. i The name Eastern Uti:ities l' Associates is the designation of the Trustees for the time

( being under a Declaration of Trust dated April 2,1928, as amended, and al1 persons

! dealing with Eastern Utilities l Associates must look solely to the trust property for the enforcem'nt of any claims I against Eastern Utilities Associates as neither the Trustees, Officers nor Share-i holders assume any personal l liability for obligations entered into on behalf of Eastern Utilities Associates.

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Highlights

% increase 1980 1979 (Decrease) ne, Earnings, Dividends: (Restated) v Consolidated Net income $ 8,990,000 $ 8,488,000 5.9 %

Average Common Shares Outstanding 5,525,320 4,871,667 13.4 %

Consolidated Earnings per Average Common Share $1.63 $1.74 (6.3%)

Dividends Paid Per Share $1.60 $1.60 Sales and Customers:

Total Operating Revenues $244,642,000 $185,801,000 31.7 %

Total E!ectric Sales (thousands of kwh) 4,333,000 4,115,000 5.3 %

Customers, Year End 225,667 222,896 1.3%

Property and Plant:

Net Utility Plant $314,263,000 $289,559,000 8.5%

Construction Expenditures S 34,939,000 $ 30,498,000 14.6 %

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Tchle of Contents Highlights 1 Executive Officers 2 President's Letter 3 Review of Operations 4 Selected Consolidated Financial Data 15 Management's Discussion and Analysis of Financial Condition and Results of Operations 15 Consolidated Financial Statements 18

[ s to Consolidated Fina%.31 Statements 22 L._,imon Share and Dividene Reinvestment Information 27 Supplementvy Financial Statement information 28 Consolidated Operating Statistics 30 Trustess 32 IWap 32 1

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To Our Shareholders:

EUA eamings for the year embargo and the resulting holders. In Massachusetts Residual OH Prices at Year End 1980 were $1.63 per average higher cost of oil, our peak we have been granted an (Der 's Per Barrel)

Common Share, compared and sales have remained adjustment for expense r 174 for last year on a relatively constant for the last erosion due to infladon while z number of average few years. We believe that Rhode Isla id regulators in

i. .es outsMnding. Tnis the rate of growth can be addition permitted an adjust-decline in earnings was contained through a com- ment for capital attrition. 32 caused by the inflationary bination of load manage- These new adjustments, off: cts of the econoni; an all ment techniques and energy received in 1980, should aspects of our business. Iri conservation because of permit our retail companics particular, wa encountered higher costs. We are devel- to improve their retum in extraordinarily high, short- oping a program designed 1981. The Federal Energy term interest rates on bank to keep our peak load growth Regulatory Commission ,,

borrowings coupled with no at 1.5% per year and to (FERC), which controls growth in kilowatthour sales ncrease our growth in about seventy-five percent to ultimate consumers. kilowatthour satcs by 2% a of EUA Syctem revenues, Electric utilities that use oil year to improve our load permitted new rates to go to generate electricity con- factor. At these growth rates, into effect in October 1980, 12 '3 22 tinue to operate under diffi- it becomes clear that until based upon a negotiated cult conditions, and the EUA the late 1980's we do not settlement agreement System is no exception. Dur- need any additional gen- arrived at with intervenors ing 1980, we used fuel oil eration above what we and FERC staff. Another to generate 84% of our already are committed to request for an increase in , 4 electricity. The cost per support. wholesale rates was filed in barrel increased from S19 Last year your Trustees December and was to a new high of $32 adopted as a major objective permitted by FERC to go into by year-end. Hipher fuel the strengthening of the " #

• effect, subject to refund, in costs together with extremely financial position of the February 1981.

cold weather have caused Association. An important We must and will continue a great number of high-bill element in this strengthen.ing persistently to seek more complaints from customers. process consists of the equitable rate relief in order P ^^wer the cost of fuel and reduction of bank borrowings to raise the return on equity

,e our dependency on with interest rates that to help offset inflation's in srted oil, we are seeking fluctuate with the prime rate.

the nec ssary permits confiscation of shareholders' In Octot er 1980. Eastern investment.

nieded to allow converting Edison Company, our certain units to coal. The Massachusetts retail sub-fu:1 savings in burning coal sidiary, sold $15 million of Very truly yours, should permit the conversion Bonds and $15 million of costs to be recovered within Preferred Stock. In January ()

three years, assuming that 1981, Blackstone Valley 71 Environmental Protection Electric Company, our Rhode John F. G. Eichorn, Jr.

Agency regulations can be Island subsidiary, completed President revised so that we are not the sale of $30 million of required to install scrubbers. Bonds. The proceeds from March 10,1981 In the early 1970's the EUA these long-term financings System peak load and kilo- were utilized to reduce watthour sales had an annual short-term debt to 9.7% cf growth of 7%. After the oil total capitalization - the lowest level s ince May 1973.

The ravapng effects of our inflationary economy, com-Executive Officers il elt bined with past inadequate to right)- Richard M. rate rel:ef have prevented us Burns, Comptroller; from earning a satisfactory Donald G. Pardus, rate of return for our share-Vice-President and Treasurer; William F O'Connor, Secretary; John F. G. Eichorn Jr.,

dent and Chief utive Officer; oert E. Maguire, Executive Vice-President and William R. Bisson, Vice-Presid:nt. 3

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Rovi3w of Operations y M g Earnings And Dividands revenues with increases in Expenses ,3 Consohdated Net income for the costs of fuel. The chart on page 3 depicts M 1980 was slightly less than Primarily kilowatthour the dramatic increase in the 59.0 million, ur 5.9% over (kwh) sales in 1980, shown cost of residual oil used by 1979. Earnings per average on the chart on page 5 EUA to generate electricity.

common share outstanding remained virtually un- The 1980 range of $19 per were $1.63, down 11e from changed from 1979. How- barrel to S32 per barrel was the restated earnings of ever, there was a substantial largely responsible for the 51.74 earned in 1979 on increase in " unit contract increase of $51 millicn in fewer average shares. sales." These are short-term Fuel expense. In addition, The quarterly dividend sales of surplus generating Purchased Power expense paid in 1980 was maintained capacity and enab% EUA to increased by almost 14 ,

at 401 per share, the rate make more effective use of million as a result of higher its generating re:erve.

established during the first quarter of 1977. A substan. Energy conservation.

purchased electricity costs incurred by Montaup Electric

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tial portion of the dividend increased fuel costs, and Company, cur generation

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payments during 1980 are rampant inflation inh;bited ard transmission subsidiary.

• 1 considered a return of capital and will. therefore, kwh sales to residential, commercial and industrial These increased costs were not permitted to be ,, 44-k*

not be treated as dividend customers in 1980. Retail recovered on a current -

-r income for Federal income sales were down slightly from basis under the wholesale -

last year. Were it not for the 7 rates which were in effect tax purposes. Only 57.28%

of the first quarterly dividend, colder-than-normal weather in 1980. F).N and none of the remaining experienced during the latter Maintenance and Other three quarterly dividends, part of 1980, the level of Operating Expenses were should be reported as kwh sales would have been S37.6 million. The 1980 dividend income for 1980 down about 1% from the increase of $3.8 million over tax purecaes. A natice to prior year. Based on current 1979 was 11.3%.

that e'act was sent to share- estimates for 1981, sales to The chart on page 7 holders on January 30,1981. residential, commercial and graph;cally illustrates the ,y industrial customers are sharp escalation in the pn,me -

u Revenues And Sales expected to remain at 1980 bctrowing rate charged by F^

Operating Revenues of tending institutions during 5244.6 million in 1980 were levels. Peak demand in K' C up substantially from the the EUA System is expected 1980. The extraordinarily high interest rate was largely b

to increase about 1 % in prior year's S185.8 million. 1981 -with a similar responsibfe for long-term Wholesale and retail rate increase in the total number and short-term debt charges increases during the year of customers. increasing by S3.5 million added approximately SS.1 over the prior year - to million to 1980's base a total of 323.7 million in revenues. The balance of the 1980. Permanent financing increase in Operating undertaken in 1980 has

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Revenues can be almost .mproved EUA's capital entirely attributed to the structure by substantially recovery of higher fuel costs reducing the amount of debt through the operation of the with an interest rate which adjustment clauses which varies with the prime rate.

provide a timely matching of This will minimize future effects of further wide fluctuations in the prime rate.

A more detailed discussion follows in Financing.

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Electric Construction Construction we expect about the same Nuclear Mo'.".D"dE., Utility plant construction ex- level of kilowatthour energy On October 30,1980, the penditures in 1980 were sales in 1981 compared Massachusetts Department  !

S34.9 million, up $4.4 million with 1980. The "zero differ- of Public Utilities (DPU) from the previous year. ence" reflects the net effect issued its long-awaited Transmission, distribution of more normal weather and decision on the acquisition and non-generation expen- continued energy conserva- by Montaup Electric l 35 3 ditures amounted to $14.4 tion. Providing electricity Company and others of 32 million, an increase of S3.4 for new customers, or serving additional ownership inter-30 million over 1979. Expendi- additional energy require- ests in the two Seabrook tures for other generation ments for existing customers, nuclear generating units un-

, ,, projects decreased by $2.5 usually necessitates the con- der construction by the 3 million in 1980. Expenditures struction of additional trans- Public Service Company of for our shares of large gen- mission and/or distribution New Hampshire. The DPU erating units were S20.4 mil- facilities. The scheduled re- decision permits Montaup to

,, lion, up $3.5 million from placement of outmoded increase its ownership par-

,e 1979. The construction of equipment also adds to our ticipation from the original these units has been ap- construction dollar commitment level of 1.9% to I proved by the New England requirements. a new level of 2.9%, rather Power Pool, which provides While present commit- than thc 5% ownership pro-for the coordinated planning ments for additional major posed by Montaup. The DPU of future facilities. generation involve only nu- concluded that Montaup had Projected construction clear units, we are also ex- not met its burden of proof expenditures for 1981 are amining, in concert with with respect to its financing expected to be substantially other members of the New capabilities for a 5%

higher, with an estimated England Power Pool, the ownership participation in ro 7: 72 73 74 75 m 77 ra 79 s the Seabrook project.

total requirement of S52 economic feasibility of im.

million. Approximately porting hydro-based electric Northeast Utilities (NU)

$17 million will be spent energy from Canada. If the has announced the cancel-on non-generating proj- project proves feasible, it lation of two nuclear generat-ects. The bulk of the will require the construction ing units to have been bu t funds will be needed for the of a major transmission line in Montague, located in jointly-owned generating before power can be western Massachusetts. ~

imported, probably no earlier EUA System has a 2%

units which are now either .

inerest in each of the under construction or still in than 1988.

the design or licensing Another significant project cancelled units. While final phase. The table on page 7 which is presently being pro- costs associated with the cancelled NU project have lists our ownership interest posed by a major industrial eatrepreneur involves the not yet Men My estab in the major generating units h in New England which are construction of a New Eng- e P land Energy Park-a coal hshd UA g e share ill not scheduled to come on-line be significant. We have prior to 1991. ,

gasification plant which applied for appropriate Construct,on i requirements would convert coal to meth- Federal regulatory approva, for the five-year penod 1981- anol and a medium-Btu gas to recover our pcrtion of the 1985 are presently estimated which could be used to gen- total nosts of the cancelled at $241 million. Apprcxs erate 600,000 kilowatts of project, over a five-year mately $84 million will be electricity. Additional by- period, commencing with needed for transmission, d,s- i products of the coal the effective date of the tribution and other non- gasification process will Montaup wholesale rate be low-Blu gas, sulfur, and generation requirements, increase application filed in with an additional S4 million slag-all of which have December 1980.

for other generation projects commercial value. A 4,300- Millstone No. 3, another and $153 million for the acre site has been acquired nuclear unit sponsored by jointly-owned generating and is located in our service NU, has been under con-Units now under con- area in southeastern Massa' struction for some time now struction. chusetts. The proposed coal and is scheduled for com-gasification plant will pletion in 1986. The EUA probably not be a reality System has a 4.01 %

until the latter part of this decade.

6

EUA Generating Units Scheduled Through 1990 Aversee Prime note EUA System interest

- N Thousands 3Name Location Type  % of Kilowatts 2.9 33

[ rook No.1 Seabrook, NH Nuclear

, Seabrook No. 2 Seabrook, NH Nuclear 2.9 33 , #0 Millstone No. 3 Waterford, CT Nuclear 4.01 46 Pilgrim No. 2 Plymouth, MA Nuclear 2.15 _25 g TOTAL 137 18 1

ownership interest in this - dent of March 1979 prompt- an Eastern Edison Term I 1,150,000-kilowatt unit. We ed a rigorous re-examination Loan due in 1985 by $5 mil- ,,

have made a review of our of safety-related equipment lion. At the end of October,

. generating capability com- and operating procedures in Eastern Edison had no is

, mitments and balanced them all nuciear facilities. While outstanding short-term bank against a 2.5% average an- several modifications have borrowings. 14 -

! nualincrease in kilowatthour been reqwed of the nuclear On January 16,1981, 18 i energy requirements over the units operWg in New Eng- Blackstone Valley Electric i next 10 years. We are at- land, these anodifications Company, our Rhode Island tempting to reduce our own- were designed to enhance retail subsidiary, completed ership interest in this unit by the high standards of safety the private placement of $30 ,,

offering to sell half of our already inherent in the con- million 15-year First Mort-4.01% interest to any struction and operation of gage Bonds with an interest interested utility or combi- the units. rata of 14% %. The pro- J FM AMJ J ASOND JFM AMJ J ASOND ceeds were utilized to repay "" "**

nation of utilities. The result- py,,,, gag ant 2% level of ownership, The revised Dividend Rein, all of Blackstone's short-combined with existing term bank borrowings.

vestment and Common generating units and other The Eastern Edison Share Purchase Plan which and Blackstone long-term Ferat;ng units under con- was made available in financings enabled the EUA

, tion, will provide suff,- i February 1980 has been (wJ capacity to enable theenthusiastically received by System to reduce outstand-EUA System to meet est,- i ing consolidated short-term our shareholders. At year- debt to $31.5 million by mated load and reserve re- end, more than 16% of the quirements through 1985. December 31, the lowest

" s of level of short-term debt since The slight deficits in capacity fheir part cipat on n e during the latter part of this ay 19E Plan, had invested almost The interest charges on decade can be met with new peaking units, reactiva- $1.7 million in cash pay . all short-term debt, as well ents and reinvested d,vi- i as some of our long-term tion of Montaup's " moth- dends during 1980. These balled" units, short-term debt, are directly affected additional equity funds were by fluctuations in the prime

' purchase of capacity from utilized in our on-go,ing con-another utility, or a com- rate, The high level of our struction program. short-term debt, coupled bination of these sources. n ctober 16, Eastern

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The modification of our with a prime rate which rose Edison Company, our Mas- to unprecedented levels

' participation in nuclear- sachusetts retail subsidiary, based generation does have during 1980, had a signi-a beneficial effect since sold, via cornpetitive bidding- ficant, adverse impact on

$15 mill,on i in 10-year First our earnings.

' . extsmal financing require-Mortgage and Collateral msnts will be lower with less Trust Bonds with an interest Common Share dilution, and rate of 14% %, and $15 a b:tter capital structure ,

.will result. million of 15.48% Preferred We continue to support Stock. The proceeds were the c!sctric utility industry's utilized to reduce short-funding of the Nuclear Safety term bank borrowings by Analysis Center, the Institute S25 million and to reduce

, /*$uclear Power Opera-( and other allied efforts.

%)Three Mile Island inci-7

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.. . .  ; y.;y The reduction in short- with a fair return to the from oil-burning to coal-It . , term debt has obviously re- investor. It may appear to burning is an active and j' '  : , .

'G; - ;.. duced our exposure to the some special-interest pres- mucn-discussed topic in

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.- -l r ~ earnings erosion which sure groups that " lowest New England because of this would otherwise result from price to the customer" is in region's dependence on R[ future increases in the prime d; rect conflict with " fair imported oil for the genera-

.! ] rate. The effect of replacing return to the investor." tion of electricity. The high

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- i short-term debt with long-

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.? l term debt, preferred stock require a Careful balancing, translated ;.;to intense

! and common stock has been they are not incompatible customer dissatisfaction the resultant strengthening and may,in fact, coexist when they are asked to pay I of EUA's capital structure. peacefully. for a 50% increase in oil s  ! Total long- and short-term The purchased power costs over a brief three- or

. - 9 y .. - debt for the EUA System at adjustment clauses in our four-month period.

.. .. the end of 1974 was 73% retail rates, which enable us The table on page 10 lists 3 e of total capitalizat;on. At the to recover increases in a EUA's interest in existing more timely mr aner, are generating sources. Montaup

.c 1 end of 1980, total debt had o- - -

1 declined to just under 60% viewed by most customers Electric Company's units, with suspicion, resentment Somerset Nos. 5 and 6, have y)q%

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h) 4 , . q  ; of total goal is tocapitalization.

achieve a capital Our and lack of full understand- the ability to burn either coal

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structure in which long-term ing. We continue to meet or oil. When the units first bA - ,

became operational, they debt constitutes no more with large groups of than approximately 50% of customers in an effort to burned coal; but this was

'l g total permanent capitali- promote better under- before the advent of present-l , .

J zation and short-term debt standing on the subject of day environmental restric-g ( will be no more than 5% of fuel charges. tions on stack emissions and e  ? The Governor of Massa- particulate contaminants.

' k. totalEUA capitalization.

presently plans to chusetts appointed a task These units could burn ccal 5 -

k . l,; force last July and charged within two weeks if there j

• Q sell additional Common it with developing specific were no environmental

>f ji "Shares, probably in the

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I , second quarter of 1981. In fuel clause legislation which restrictions. The cost of

, ,; p .-"  ; addition, Eastem Edison could be introduced in the converting just Somerset

-- .- Company may issue S25 Massachusetts legislature. No. 6, the larger and newer unit, to burn coal is y b 4 . . million in long-term debt The task force consisted E

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. *L and $10 million in preferred Y stock,in the second half of representatives from customers of the electric estimated at $40 million (in 1984 dollars) including the cost of pollution control

of 1981. The successful utilities, management of

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A implementation of the the electric utilities, the equipment to remove par-F proposed 1981 financing Department of Public ticulate contaminants.

T *' . Y is, of course, dependent Utilities, the Office of Energy Montaup would still require

" Resources, and other inter- a variance from the present f . .B l7 upon a number of factors " clean air" standards how-

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!P affecting general economic ested groups. The task force ever, in order to remove 6s T conditions, the market for presented a report to the

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securities, and investor perceptions of EUA's fiscal Governor in December, with specific proposed legislation objectionable stack emissions.

f %j stability and prospects for which had the concurrence Last summer, we met l g- - 2i with members of several

.p g7 d""%* .> continuing financial viability. of all members of the task c' .Nt force. It is expected that the Federal agencies in s: ,

The Year in Review legislation will be introduced Washington, D.C., to discuss

.  % y c - 1980 was particularly chal- early in 1981. While the the feasibility of converting lenging as EUA addressed K - gg the problem of maintaining a basic thrust of the proposed Somerset No. 6 to coal. Our

- g[ '. %g y. ~; legislation does not position was then, and is 3 :> ;a p , .; 2 proper balance between the adversely affect the ability now, that this is not a viable

.. . f., 4 g .y needs of our customers and of electric utilities to alternative. It would becorne c .g y- g;p., y <. ,g

. . ' _.y gf.v. v% holders.

the needs of our share-We have an properly and promptly recover fuel and purchased feasible under either of the following alternatives:

obligation to provide to our power expenses, it does 1) defer, revise or rescind k p ;,~ ~ G '. V / g; 9 customers a dependable' impose a burdensome the environmental regula-

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reliable supply of electricity scrutiny of generating at the lowest price consistent efficiencies and fuel tions which, in effect, require I -

A- scrubbers to remove various I 6 f g.4 ;.' 4{>}.t.h ~". .'  ;, yl; purchasing policies.

h '  % :Y*~ The conversion of boilers

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Interest

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• Net System M Capability Share in (thousands (thousands Unit Type Owner Service of kilowatts) % of kilowatts)

Somerset Oil MontauP Rctric 1951-1959 198 100.0 198 Nos.5,6 Comparrf Some rset Gas Turbine Montaup Electric 1970-1971 48 100.0 48 Nos. J1, J2 Company Yankee Rowe Nuclear Yankee Atomic 1961 145 4.5 7 Electric Co.

Connecticut Nuclear Conn. Yankee Atomic 1968 575 4.5 26 Yankee Power Ce CanalNo.1 Oil Canal Electric Co. 1968 568 25.0 142 CanalNo.2 Oil Canal Electric Co. 1976 584 50.0 292

& Montaup Vermont Yankee Nuclear Vt. Yankee Nuclear 1972 528 2.5 9 Power Corp.

Maine Yankee Nuclear Maine Yankee Atomic 1972 C30 4.0 26 Power Co.

PIgrim No. I Nuclear Boston Edison Co. 1972 670 11.0 70 Cleary No. 9 Oil City of Taunton. 1975 110 72.7 80 Mass. 4 _,g o, W ;;Uhn.

New Brunswick Oil New Brunswick 1976 400 6.41 26 -

Nos.1,2,3 '""

Electric Power ,. ..-.

Commission * * * " ~ ~ '*

Wyman No. 4 O:1 Central Maine 1979 615 1.96 12 Power Co.

• Interest can be in any of the following forms: ownership, joint ownership, stock ownership, variable purchase contract, or " life of unit" purchase contract.

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sulfur compounds, or, produced in excess of their cogen9rator customers, will  ;

2) Federal assistance in needs. These customers are be smal; compared with the L.

the form of a grant, or a considered "cogenerators" output of a modern electric -

low-interest loan, to soften under the terms of the Public generating unit. Neverthe- - ..

the economic impact of the UtiPy Regulatory Policy Act less, there will be a desir- .as N '""

conversion cost on the rate- enaCed by Congress in able, though largely sym- ,  ;

payers. 1978. The Act requires utili- bolic, reduction in our -

Without the variance to ties to purchase such energy dependence on costly for- *l. PEN ~~ ~xlEJ -

eliminate the need of a scrubber, or the grant, tne from cogenerators at a price eign oil as a result of the usually referred to as the operation of these hydro-p'**a.C conversion is not in the best interest of either our cus-

" avoided cost" to the utility, electric units. p (' ~

Our customer contact tomers or shareholders be' Our Rhode Island retail subsidiary will spend about programs continue to *r*>pT ;e*~'~

cause the amortization of the conversion costs w,ll be

$3.7 million to reactivate its emphasize the importance 6' i

84-year old hydro station of energy conservation as a o, e .

greater than the estimated savings resulting from the which has been idle since means of reducing our de- s tN j 1971. The design rating of pondence on imported oil price differential between the plant will be just under and as a means of controll-

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coal and oil. ~~-

1,500 kilowatts. It is esti-oe>*~

ing the size of electric bills -

Several industrial cus tomers are installing the:ir mated that the average received by our customers. ~~ a ' IM annual generation will be A computerized solar own hydicelectric generating 6.2 millien kilowatthours - water-heating information equipment in the expectation enough electricity to supply program was offered to that it will produce a large about 1,300 or 1,400 homes customers last summer. The portion of their electric when the plant comes on line program is designed to energy requirements, and in 1982. provide specific informa-they may, on occasion, sell The output of our hydro tion to help customers to us whatever electricity is plant, combined with the decide whether or not solar estirr.ated output of the hydro facilities proposed by our 10

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water heating is a viable The Energy Conservation mental agencies to provide gram quite similar to N.E.W.

option. Report, also known as "Re- comprehensive services to programs which have been A Speakers' Bureau made port Card" billing, is an on- residential customers in the available to residential up of volunteer employees gming program which helps form of conservation infor- customers in recent yearr continued activities during our customers to determine mation and energy audits. N.E.W. is a nationwide, th] y:ar. The members of how successful they are in Massachusetts and Rhode investor-owned electric the Speakers' Bureau are conserving energy. The Island have each sponsored utilities' effort designed to available to communicate electric bill shows each cus- the establishment of a non- promote conservation ar'd to with clubs, organizations tomer his average daily use profit corporation which will preserve our valuable fossil and other groups of cus- of elec*ricity in the current carry out the Federal and resources.

tomers on a variety of month compared to the aver- state mandates under the Four years ago, we phased energy-related topics. The age daily use for the same Residential Conservation out appliance merchandising efforts of this group of dedi- month a year earlier. Services Program. A nominal activity because we felt it cat:d employees, through All customers are now fee will be charged to the was no longer necessary or th3 formal establishment of able to participate in our customer by each non-profit appropriate. Similarly we the "EUA Speakers Club", Equalized Payment Plan - corporation for a residential have now discontinued our will b] further intensified and a new budget plan which energy audit. The bulk of the appliance repair service.

expanded during 1981. spreads the annual cost of actual costs will De recov. We continue to promote the A variety of safety and electricity over 12 equal ered in the form of a nomi- concept of off-peak water educational services pro- monthly payments. nal surcharge added to cus- heating, however, and will grams are offered on a broad The normal hours of oper- tomers' monthly bills by gas sell or rent electric water ranga of subjects to alllevels ation of ou. Customer Ser- and electric utilities. The heaters to the fullest extent of school children, from pri- vice Center - 8 a.m. to 5 money is then forwarded to possible.

mary grades through high p.m. from Monday through the appropriate non-profit Extensive remodelling of school We are also partici- Friday -have been ex- corporatio,1 The regulatory an existing office facility, pating in the Energy Founda- panded to 7 a.m. to 7 p.rn. agencies in each state will combined with a new struc-tion, a pilot program spon- on Monday through Thurs- review the accounting for the ture to house certain operat-sored by our regionai trade day for greater hours of cus- surcharge income and ing department personnei, association, the Electric tomar availability. Of course disbursements, will permit our Massachu-Council of New England. we will continue to process Installation of a SCADA setts retail comp ny to cen-This program is aimed at emergency calls around the system continued dunng 1:alize most of its drockto stimulating energy aware- clock - 7 days a week. The 1980. SCADA-the acro- operations in a more con ness among the students at use of vidao terminals has nym for "Suoervisory Control venient, cost-effective stveral New England col- been extended to other de- and Data Accuisition"-is facility. The newly-renovated leges. It is designed to offer partments which deal di- now schedule ' to become complex will be completed a balanced approach to rectly with customers thereby operational in , 'd-1981 at a in early 1981 and will enable energy education. making available, as a cus- total cost of $5.t. nillicn. The us to dispose of an out-tomer contact tool, complete centralized, comp 'ter- dated, inefficient structure.

up-to-date information on assisted monitorin of our the status of customers' generation, transmusion and accounts. T following table sum-distribution facilities will en-As we mentioned in last marizes the major rate acti-able us to replace a s'ower year's Annual Report, the vities of our subsidiary com-m'inual system, and reduce Residential Conservation panies during 198c,.

manpower too. .

Services Program - a part During 1980, we offered of the National Energy Con- energy management servation Policy Act of 1978 seminars to our commercial

- directs state govern- snd industrial customers, as well as the opportunity to take part in a National Energy Watch (N.E.W.) pro-O' 12 1 -

Applied For Allowed Annual Revenue Application Annual Revenue Effective (Millions of 8) Date (Millions of 8) Date stone Valley Electric Co. 4.0 8-15-79 3.6 5-13-80

(

Eist3rn Edison Co. . 9.6 5-15-80 5.4 11-26 80 Montaup Electric Co.

M-5 Rate 10.7 7-11-80 9.1 12-1-30 M-6 Rate 9.0 12-19-80 7.9 2-19-81 (Subject to refund)

The state regulatory com- Montaup Electric Com- Montaup's M-6 Rate was cost basis and on a marginal missions have traditionally pany, our generation and filed with FERC on December cost basis. State regulatory used historica: test year transmission subsidiary, is 19,1980 in an effort to commissions and utilities data in determining a com- under the jurisdiction of the achieve a higher return on must consider PURPA's pany's revenue deficiency. Federal Energy Regulatory commr>n equity and to " standards" and then de-Continuing inflationary pres- Commission (FERC) for rate- recovtar substantial increases cide if adoption would fur-sures, comoined with the setting purposes. Since in costs associated with the ther PURPA's goals - to on-langth of time involved in FERC permits the use of 2 operation and maintenance courage conservation of h aring and deciding a rate forward-looking test period, of various generating units electric energy, to ensure cas3, have placed us in an ,ve do not face the same from which Montaup re- fair electric rates and to en-untenable position in recen' problem encountered by our ceives some power. FERC courage efficient use of years. Our actual return retail companies, namely, permitted M-6 to become resources.

on common equity has the negative impact of effective, on February 19, A " time-of-day" rate ex-be:n several full percentage inflationary factors on ,198 6, at a level which should periment sponsored by the points below the authnrized revenues which are based increase annual revenues by Rhode Island Public Utilities r turn. A more aggressive on out-of-date expenses. $7.9 million. These addi- Commission and partially mroach was taken by our As a part of the Decem- tional revenues are subject financed by the Department

( I subsidiaries in :onnec- ber 1,1980 settlement with to refund, pending final of Energy involved 300 cus-bn)with the above-men- the intervenore in Montaup's action by FERC.

The passage by Congress tomers of our Rhodo Island tion d rate cases. In addition M-5 Rate case the Company retail subsidiary. The two-to se: king a higher retum on agreed to withdraw a petition of tM Public Utility Regu- year project was intended to common equity, we included filed with FERC in December latory Policy Act (PURPA) determine whether or not a r quest for an allowance 1979 which soaght permis- in 1978 has resulted in a changes in efectric rate for capital attrition and ex- sion to include in rate base flurry of activity as the state structure could promote con-pens 3 crosion. In their deci- a portion of Montaup's in- regulatory commissions have servation of electricity and sions, both the Massachu- vestment in Construction attempted to address the encourage customers to s:tts and Rhode Island Work in Progress (CWIP) many issues raised by this shift their consumption of r:gulatory agencies au. FERC will currently permit Act. Extensive generic hear- electricity to off-peak thoriztd a higher retum on the inclusion of CWIP in ings have been conducted periods. The consultant re-cquity than had previously rate b 3se only if a company by, the regulatory commis' tained by DOE and the Com-be:n allowed, and permitted can prove extreme financial sions in Massachusetts and mission to monitor the an adjustment for expense hardship. Although we with- Rhode Island on such drew our CW!? petition, our PURPA " standards" as ad-crosion. Rhode island also permitted an allowance for oDjective is still to convince vertising, master metering.

caoital attrition, which Mas. FERC that CWIP in rate base cogeneration, automatic ad-is in the long-term best in- lustment clauses, terneina-s2 setts did not. Some tion of service, conservation, aspects of the Rhode Island terests of both the customer d: cision have been appealed and the shareholder, time-of-use rated and cus-and m:y result in a further . tomer information programs.

in addition, we must file ex-r: venue increase. We are hopeful that the acceptance tensive cost-of-cervice data of tha crosion/ attrition with the regulatory commis-sions, both on an embedded conc pt may actually enable us to achieve the returns

/ '*;h have been authorized.

\ l u,.

a 13

proj:ct has concluded that Organization We continue to hold brief-the special rates did not Montaup Electric Company's ing sessions for employees have a great effect on usage union local represents ap. in an effort to provide them levels, and that many cus- proximately 9% of the total with current information on tom:rs failed to effectively number of employees in a variety of issues which control their usage. The con- the Sys'em. During the year affect them. This is par-sultant felt that people negotiations were completed ticularly important in this needed more time to Le- with the Union for a 38- time of constantly escalating come familiar with and ad- month labor contract which energy costs. We owe a just to the new rates. As a will expire in mid-September tremendous debt of gratitude result of the consultant's re- 1983. The Fall River division to our employees for the zeal port, we do not expect of Eastern Edison Company and cedication they continue

" time-of-day" rates to be has a labor contract, expir- to display, not only as they mandated for all residential ing in June 1981, with a carry out their daily assigned customers. union which represents 11% tasks, but also in their capa-In order to more effectively of the EUA System em- city as unofficial represen-respond to greater activity in ployees. The remainins 80% tatives of their local electric the ama of rates and regula- of our employees are not company. Empicyees have tory procedures, we esta- represented by any bargain- a high degree of credibility blished our own Rate De- ing unit, altnough several and believability when they partment early in the year. attempts to organize have respond to off-the-job, utility-We had previously relied pri- been made through the related queries from friends, manly on outside firms for years by various unions. relatives and neighbors. We rate-structure advice. A A preliminary analysis was are deeply appreciative of properly staffed Rate Depart- made in connection with their efforts to bring about ment requires personnel who the feasibility of EUA seek better understanding of have expertise in areas of ing contiol of Newport Elec- electnc industry problems.

accounting, engineering, tric Corporation, an investor-ec'nometrics, and utility owned retail electric dis-rate analysis. They are con- tribution company which cerned not only with rate provides electricity to ap-cases, but also with the proximately 25,000 custo-proper and timely response mers in four Rhode Island to the requesis of regulatory communities. While it ap-and o'her governmental pears that such an acquisi-agencies for a multitude of tion could be beneficial to cost data and studies both EUA and Newport, this required in conformance does not appear to be an with either Federal or state appropnate time to funher mandates. pursue the feasibility study.

Accordingly, EUA has made no proposal to Newport.

An ever-increasing num-ber af employees are utiliz-ing our Educational Assistance Program. The Program reimburses em-ployces for all or a major portion of expenses incurred in connection with the suc-cessful completion of certain courses at approved educa-tional institutions.

O 14

l East:rn Utilities Associat:s and Subs!di;ry Companies

, Selected Consolidated Financial D ia l Yrars Ended December 31, OMhousands Except Per Share Amounts) 1980 1979 1978 1977 1976

_ (Restated)* (Restated)*

Op: rating Revenues $244,642 $185,801 $158,313 $157,700 $152,180 N t income from Continuing Operations 8,990 8,488 8,199 3,409 7,012 Elmings Per Common Share From Continuing Op: rations 1.63 1.74 1.92 .86 2.07 Total Assets 390,956 348,642 317,819 304,897 286,004 Lon0-Term Debt 162,682 123.485 97,870 118,433 122,617 R:de:mable Preferred Stock 20,199 5.607 5,921 5.921 5,921 C:sh Dividends per Common Share 1.60 1.60 1.60 1.60 1.50

• Se> Note A (Operating Revenues) of Notes to Consolidated Financial Staternents for further infortnation.

M:nagement's Discussion and Analysis of Financial Condition and Results of Operations Summary Fuel Expenses Consolidated Net income in 1980 increased 5.9% Approximately 84% of the System's generating from 1379 and 1979 increased 3.5% from 1978. capacity is fueled by oil. As indicated under "Oper-Earnings per average common share decreased ating Revenues", the cost of fmsil fuel burned during the same period from 01.92 in 1978 to $1.74 in in generating stations significer'tly increased during 1979 to $1.63 in 1980 as a result of additional 1980 and 1979. In 1980, the price per byrel o' oil common shares which were issued and outstanding. increased from $19 in January to $32 in December.

The 1980 results were increased by $1.2 million or These increases raised system fuel expense by $51.0

/'2 p;r share because of an adjustment (of which million or 62.1 % over 1979, despite a slight decrease

( ,3 is a one-time adjustment) which resulted in kilowatthour sales.1979 fuel expense increased by from an amended rate order of the Massachusetts $25.8 million or 45.9% over 1978 and the cost per Department of Public Utilities. See also Note A of barrel of oil increased from $11.42 in January to Notes to Consolidated Financial Statements. Cash $19.00 at year end,1979.

requirements for the System's construction program Purchased Power totaled 025.0 million, $24.2 million and $22.0 million, Purchased power expense increased by $4.0 mittion respectively, for the years 1980,1979 and 1978. or 17.8% in 1980. Most of the increase reflects Intemally generated funds provided $1.1 million, $6.5 additional safety analysis and maintenance work million and $9.5 million, respectively, of the cash required at nuclear generating plants in which the necessary to meet the construction program, with the System has ownership interests or unit contracts. The rcmaining requirements being provided from external safety analysis work has been required by the Nuclear sources which are more fully described under Regulatory Commission as a result of findings in its

" Liquidity and Sources of Capital". See also Note J of ongoing investigation of the Three Mile Island Notes io Consolidated Financial Statements. nuclear plant incident.

Operating Revenues Allowance for Funds Used During Construction Operating revenues in 1980 increased $58.8 million Allowanc? for Funds Used During Construction ov:r 1979 and in 1979 increased $27.5 million over (AFUDC) represents the net cost, during the period of 1978. Approximately 87% of the 1980 increase and construction, of borrowed funds used for construction 94% of the 1979 increase were due to significant purposes and a reasonsole rate upon equity funds incr:ases in forcil fuel costs which are passed on to when so used. AFUCC represents a r'on-cash customers. The remaining increases in 1980 revenues element of income. The System experienced increases cam 3 from the billing of higher base rates, although in the level of AFUDC (both equity and debt) totaling th:se higher rates were slightly offset by lower kilo. $3.6 million in 1980 and $2.3 in 1979. The System's watthour consumption by customers. This reduction continuing expenditures for the construction of future i ilowatthour sales is attributed to the implementa- generating facilities has resulted in significant of energy conservation measures by customers increases in the level of construction work-in-progress to the generally weak economic conditions that balances to which the AFUDC rate is applied. In prevall:d in 1980. Additional increases in 1979 addition, because of substantially higher borrowing op; rating revenues came from higher base rates and from c 4.8% increase in kilowatthour sales.

15

costs to the System, the AFUDC rate has been in- Consolidated Net income -

creased from 8.5% in early 1978 to 11.5% in 1979 to Consolidated Net income was approximately $9.0 14.5% in 1980. AFUDC has also become a larger million in 1980 compared to $8.5 million in 1979 component of consolidated net income increasing and $8.2 million in 1978. The growth in consolidated from 48% in 1978 to 74% in 1979 and to 110% net income has been severely restricted by sub-in 1980. tantial increases in purchased power and interest interest Charges expense not being offset by increases in kilowatthour increases in interest on long-term debt and other sales and by the lack of adequate and timely rate interest expense are reflectivt of the System's con- relief.

tinuing need to borrow funds to meet those cash Liquidity and Sources of Capital requirements of its construction program which The System is required to make substantial capital cannot be met with funds generated internally from ex9enditures in order to meet the needs of its existing operations. Interest on long-term debt increased by. customers and to meet the future requirements of

$.6 million or 5% in 1980 primarily as a result of these customers as well as new customerc. As is increases in the prime borrowing rate and the customary in the utility industry, construction issuance of $15 million of 14% % bonds in October requirements in excess of interrially generated funds 1980. The increase of approximately $1 million in are obtained through short-term borrowinos which 1979 was a result of an additional $5 million in Term are ultimatel) unded with permanent capital. In 1978 Notes Payable being outstanding for most of 1979. and 1979, the System's cash construction require-Other interest expense increased $3 million in 1980 to ments were $22.0 million and $24.2 million, respec-

$11.8 million. This increase was primarily the result of tively, and it was able to 7nerate 43% and 27%,

the continuation of an extremely high level of short. respectively, of such requirements with internally term borrowings for most of the year and record high generated funds with the balance coming from short-term borrowings. In 1980, internally generated funds prime borrowing rates. The issuance of $15 million of bonds and $15 million of preferred stock in October produced only 5% of the $25.0 million in cash con-struction requirements primarily because of the 1980 and an additional sale of $30 million in bonds in extremely high cost of short-term borrowings which January 1981 has enabled the System to substantially were not recovered in rates and by the inability to reduce its level of short-term borrowings. Other obtain adequate rate relief on a timely basis. The interest expense increased $3.0 million :: 1979 as a ,

result of a 1 increased level of short-term borrowings remaining 95% of construction requirements were I funded with short-term bank borrowings, some of and higher borrowing rates.

which were subsequently permanently funded with

, Preferred Dividends of Subsidiaries the issuance of bonds at d preferred stock referred to '

l Preferred Dividends of Subsidiariesincreased above and, to a lesser degree, with .$1.7 million in by S.4 million in 1980 as a result of the dividend l funds received from the Dividend Reinvestment and requirements of a $15.0 millic n issue of 15.48%

Common Stock Purchase Plan.

preferred stock in October 1980. Current regulatory practices do not permit the System to earn a cash return on new generating ,

facilities until they are in service. Since the System l expects its cash construction requirements to remain at or above current levels, it will be required to raise l large amounts of permanent capital. Such capital is expected to be raised through the iscuance of l

' additional first mortgage bonds, preferred stock and common shares. l l

l l

O I

i 16

e completion of approximately $61.7 million in further reduce short-term borrowings will be permanent financing during 1980 and early 1981, dependent on the System's ability to sell additional has enabled the System to reduce its dependence on amounts of permanent securities.

short-t:rm bank borrowings and consequently reduce The System's capitalization, including short-term its bank credit lines. At year end 1980, the System debt, at year end 1980,1979 and 1978, was as had $55.1 million in bank credit lines. The ability to follows:

1980 1979 1978 (Iri Thousands)

Long-Ter a Debt $162,682 50.1 % $123,485 41.0 % $ 97,870 38.4 %

Non-Redeemable Preferred Stock 15,079 4.6 15,079 5.0 15,079 5.9 R:o::mable Preferred Stoch 20,199 6.2 5,607 1.9 5,921 2.3 Common Equity 95.424 29.4 93,765 31.1 85,842 33.6 Short-Term Debt 31,540 9.7 63,300 21.0 50,450 19.8

$324,924 100.0 % $301,236 100.0_% $255,162 100.0 %

See table under " Rates" on page 13 for a summary impact of Inflation of rec:nt rate increase requests. The v holesale rate inflation has become a significant eiernent in the incrzase settlement of Montaun Electric Company operation of a regulated electric utility system.The r ceived in late 1980 alto ved the use of tax traditional use of a historical test period for rate

< normalization of the debt component of AFUDC and making purposes no longer provides a reasonable a cash recovery over a five-year perica of Montaup's opportunity for System companies to actually earn 1 million investment in a auclear project that was their allowed return on invested capital. This is celled in 1979. The wholesale rate case applied evidenced by the comparatively low level of return on n December 19,1980 has requested the cash equity eamed by the System over the last few years.

r:covery of an investment in a nuclear project that Accordingly, System retail companies have included was cancelled in 1980. These items will provide requests for " attrition" or " inflation" allowances in cdditional cash to meet future construction program their last rate filings and will continue to pursue cxp:nditures. these and other innovative concepts in an effort to Th] tbility to raise the required amounts of reduce the effects of inflation on the results of permanent capital will be contingent upon the ability operations. See " Supplementary Information to of System companies to obtain increased rate relief Disclose the Effects of Changing Prices" on page 28 in amounts that will enable them to meet coverage for further financial information regarding the effects t;sts r: quired for the issuance of bonds and preferred of inflation using measurement bases developed stock. In addition, higher earned returns on common by the Financial Accounting Standards Board.

cquity will be required te make System securities Explanatory enmments are included in those disclos-mor] attractive to investors. ures on the effect of changing prices on the System's operations.

7 A y?

17

East:rn Utilities Associat:s and Subsidiary Companies Consolidated Income Statement Years Ended December 31, (in Thousands Except Numbers of Shares and Per Share Amounts) 1980 1979 1978 _

(Restated) (Rest Operating Revenues (A) $ 244,642 $ 185,801 $ 158,3iT Operating Expenses:

Fuel 133,120 82,133 56,295 Purchased Power (I) 20,363 22.403 21,577 Other Operation 31,204 28,662 27,330 Maintenance 6,416 5,153 5,210 Depreciation and Amortization (A) 9,154 9,729 9,377 Taxes-Other Tnan income 13,560 12,363 12,572 income and Deferred Taxes (A) (B) 690 2,348 4,557 Total Operating Expenses 220,527 162,789 136,918 Operating income 24,115 23,012 21,395 Equity in Earnings of Nuclear Generating Companies (A) 636 807 679 Allowance for Other Funds Used During Construction (A) 2,298 1,608 982 Other income - Net 117 238 73 Income Before Interest Charges 27,168 25,665 23,129 Interest Charges:

Interest on Long-Term Debt 11,955 11,401 10,385 OtherInterest Expense 11,779 8,803 5,849 A!!owance for Borrowed Funds Used During Constructicn (Credit) (A) (7,617) (4,660) (2, Net Interest Charges 16,117 15,544 13,c income AfterInterest Charges 11,049 10,121 9,832 Prefer ?d Dividends of Subsidiaries 2,059 1,633 1,633 Consolidated Net income $ 8,990 $ 8,488 $ 8,199 Average Common Shares Outstanding 5,525,320 T871,697 4,266,921 Consolidated Eamings Per Average Common Share $1.63 $1.74 $1.92 Dividends Per Common Share $1.60 $1.60 $1.60 Consolidated Retained Earnings Statement Years Ended December 31, (In Thousands) 1980 1979 1978 (Restated) (Restated)

Consolidated Retained Eamings - Beginning of Year As Previously Reported $23,786 $22,998 $21,116 Adjustment to Reflect Revaluation of Unbi;ted Revenues (A) (495) #457)

As Restated 23,291 22,541 21,116 Consolidated Net inec.Tio 8,990 8,488 8,199 Total 32,281 31,029 29,315 Dividends Paid- EUA Common Shares 6,793 7,738 6,7 Miscellaneous Adjustments 26 Consolidated Retained Eamings - End of Year (E) $23,462 $23,291 $22,541 18 The accompanying notes are an integral part of the financial statements.

E:st:rn Utilities Associat:s and Subsidiary Companies Consolidated Statement cf Changes in Financi:1 Position Years Ended December 31,

@LThousands) 1980 1979 1978 (Restated) (Restated)

SOURCE OF FUNDS:

Int:rnally Generated:

Income After Interest Charges $11,049 $10,121 $ 9,832 Principal Non-Cash Charges (Credits) to income:

Depreciation (A) 9,416 9,992 9,592 Amortization 309 123 210 Deferred Taxes (A) (B) 4,346 2,478 (547)

Investment Tax Credits, Net (A) (3,209) (445) 2,751 Equity in Ur. distributed Earnings of Nuclear Generating Companies (16) (169)

Allowance for Funds Used During Construction (A) (9,915) (6,268) (3,920)

Funds from Operations 11,980 15,832 17,918 Less: Dividends Declared:

EUA Common Dividends (8,793) (7,738) (6,774)

Subsidiary Preferred Dividends (2,059) (1,633) (1,633)

Internally Generated Funds 1,1_28 6,461 9,511 External Sources:

Proceeds from Sale of Common Shares 1,668 7,331 9,001 Proceeds from Sale of Term Notes 20,000 Proceeds from Sale of Senicr Notes 22,500 Proceeds from Safe of Bonds 44,200 fm Proceeds from Sale of Preferred Stock 15,000 Other - Net 289 959 925

( ~) Funds from External Sources 61,157 50,790 9,926 Total Source of Funds $62,285 $57,251 $19,437 APPLICATION OF FUNDS:

ConstnJction Expenditures $34,939 $30,498 $25,948 Less: Allowance for Funds Used During Construction (9,915) (6,268) (3,920)

Net Construction Expenditures 25,024 24,230 22,028 Decrease (Increase) in Short-Terni Notes Payable to Banks 31,760 (12,850) 1.400 R:tirement of Long-Term Debt 5,000 37,637 3,880 Retirement of Preferred Stock 300 Purchase of Promissory Notes 225 (Decrease) Increase in Working Capital (1,695) 7,223 (8,214)

Other Application - Net 1,671 1.011 343 Total Application of Funds $62,285 $57,251 $19,437 CHANGES IN COMPONENTS OF WORKING CAPITAL (Excluding Short-Term Debt, Current Deferred Taxes and Red;6mable Preferred Stock Sinking Fund Requirement)

Cash and Temporary Investments $(1,102) $ (3,580) $ 1,938 Accounts Receivable 14,528 5,258 (1,703)

Materials and Supplics 2,414 7,802 (2,496)

Other Current Assets (165) 227 (219)

Accounts Payable (14,867) (4,557) (817)

(S Accrued Taxes (605) 1,604 (2,645)

,/ Other Current Liabilities (1,898) 469 (2,272)

(D; crease) Increase in Working Capital $(1,695) $ 7,223 $ (8,214)

Tha accompanying notes are an integral part of the financial statements. 19

Eastern Utiliti:s Associat:s and Subsidiary Compani s Consolidated B: lance Sheet December 31, I

(In Thousands) 1980 1979 Assets (Re:,ta_ j Utility Plant and Other Investments:  !

Utility Plant (at cost) (H):

In Service $333,812 $322,684 Less Accumulated Provision for Depreciation (A) 101,857 94,618 Net Utility Plant in Service 231,955 228,066 ,

Construction Work in Progress 82,308 61,493 Net Utility Plant 314,263 289,559 Nonutility Property- Net 1,442 1,630 investments in Nuclear Generating Companies (at equity) 7,641 7,401 Other Investments (at cost) 69 67 Total Utility Plant and Other Investments 323,415 298,657 Current Assets:

Cash and Temporary Investments (G) 1,085 2,187 Accounts Receivable (A):

Customers, Less Allowance for Doubtful Accounts of $355,400 and $290,000, Respectively 29,011 22,324 Refundable income Taxes 623 Accrued Unbilled Reve, sues (A) 9,501 2,009 Other 606 879 Materials and Supplies (at average cost):

Fuel 12,486 10,702 Plant Materials, Operating Supplies and Other 5,276 4,646 Other Ct.rrent Assets 391 559 Total Current Assets 58,979 43,306 Deferred Debits:

Unamortized Debt Expense 795 Ex raordinary Property Losses (H) 2,943 2, s Ott,ar Deferred Debits 4,826 3,875 Total Deferred Debits _ 8,564 6,679 Total Assets $390,958 $348,642 Liabilities and Capitalization Capitalization:

Common Equity $ 95,424 $ 93,765 Non-Redeemable Prefermd Stock of Subeldiaries 15,073 15,079 Redeemab!e Preferred Stock of Subsidiaries 20,199 5,607 Long-Term Debt-Net 162,682 123,485 Total Capitalization 293,384 237,936 Current Liabilities:

Notes Payable - Banks (G) 31,540 63,300 Accounts Payable 28,200 13,336 Redeemable Preferred Stock Sinking Fund Requirement 305 314 Customer Deposits 1,547 1,270 Taxes Accrued (B) 3,154 2,550 Deferred Taxes (A) (B) 3,843 1,739 Interest Accrued 4,712 2,752 Other Current Liabilities 197 533 Tota' Current Liabilities 73,498 _ 85,794 Deferred Credits:

Unamortized Investment Credit (A) 7,037 10.186 Other Deferred Credits 37 69 Total Deferred Credits 7,074 10, Accumulated Deferred Taxes (A) (B) 17,002 14, Tota! Liabilities and Capitalization $390,958 $348,642 20 The accompanying notes are an integral part of the financial statements.

East:rn Utilities Associat:s and Subsidiary Compars::s Consolidated Statement of Capit;liz: tion Dec;mber 31, (Mir_r Amounts in Thousands) 1980 1979 mrn Utilities Associates: (Restated)

Common Shares

$5 par value, authorized 7,000.000 shares, outstanding 5.583,634 shares in 1980 and 5,438,969 shares in 1979 (C) $ 27,918 $ 27,195 Other Paid-In Capital (C) 45,327 44,382 Common Shares Expense (1,283) (1,103)

Retained Earnings (E) 23,462 23,291 Total Common Equity 95,424 32.5 % 93,765' 39.4 %

Pr:f:rred Stock of Subsidiaries:

Non-Redeemable Preferred (C):

Blackstone Valley Electric Company:

4.25%, $100 par value 35,000 sharest 3,500 3,500 5.60%, $100 par value 25,000 share'it 2,500 2,500 Premium 129 129 Eastern Edison Company:

4.64%, $100 par value 60,000 sharest 6,000 6,000 8.32%, $100 par value 30,000 sharest 3,000 3,000 Expense, Net of Premium (50) (50) 15,079 5.1 15,079 6.3 Redeemable Preferred (D):

Eastern Edison Company:

13.60%, $100 par valt.ett 5,700 6,000 15.48%, $100 par value 150,000 sharest 15,000 Expense, Net of Premium (187) (79)

Sinking Fund and Reacquired Shares (314) (314)

"] 20,139 6.9 5,607 2.4

) 9rm Debt (F):

' _ astern UtiHties Associates:

Senior Notes 10% % due 1999 22,500 22,500 Blackstone Valley Electric Company:

Notes Payable 29,200 Eastern Edison Company:

First Mortgage and Collateral Trust Bcnds:

3%% due 1983 6,800 6,800 7%% due 1983 (second series) 5,000 5,000 4% % due 1983 (third series) 2,196 2,196 3%% due 1985 6,000 6,000 12% due 1985 (second series) 19,800 19,800 4s/s% due 1987 3,000 3,000 4%% due 1988 3,000 3,000 14% % due 1990 15,000 4%% due 1993 5,000 5,000 6%% due 1997 7,000 7,000 8%% due 1999 5,000 5,000 7%% due 2002 8,000 8,000 8%% due 2003 10,000 10,000 Note Payable due 1984 (Prime X 106%) 5,000 5,000 Note Payable due 1985 (Prime X 111%) 10,000 15,000 Unamortized Premium 186 189 Total 162,682 E5.5 123,485 51.9 l Tot 1 Capitalization $293,384 100.0 % $237,936 100.0 % )

' thorized and outstanding

~hr.ized 60 000 shares. Outstanding 57,000 shares in 1980 and 60,000 shares in 1979 l w l Th; accompanying notes are an integral part of the financial statements. 21

I East:m Utiliti:s Associat:s and SubsidiIry Companies Notes To Consolidated Financial Statements December 31,1980,1979 and 1978 (A) Summary of Significant Accounting Policies: of increas;ng consolidated net income and earning-Geaeral: Eastern Utilities Associates (EUA) and per common share in 1980 by S1,238,000 and $0.22 EUA Service Corporation (Service) are subject respectively. Of those amounts $974,000 and $0.18, to the jurisdiction of the Securities and Exchange respectively, relate to periods prior to 1980.

Commission under the Public Utility Holding Operating Revenues: rievenues are based on Company Act of 1935 and Service's accounts are billing rates authorized by applicable Federal and maintained under the system of accounts prescribed state regulatory commissions. The retail subsidiaries by that Act. The accounting policies and practices follow the policy of accruing the estimated amount of the retail subsidiaries, Blackstone Valley Electric of unbilled base rate revenues for electricity provided Company (Blackstone) and Eastem Edison Company at the end of the month to more closely match costs (Eastern Edison), and of Montaup Electric Company and revenues. In addition they also accrue unre-(Montaup) are subject to regulation by the Federal covered purchased power costs.

Energy Regulatory Commission (FERC) and two in June 1980 the audit staff of FERC concluded an state regulatory commissions with respect to their examination of the accounting records of Blackstone rates and accounting. The retail subsidiaries and for the period January 1,1975 through December 31, Montaup conform with generally accepted 1979. The staff concluded, in its report of that accounting principles, as applied in the case of examination, that Blackstone's monthly valuation of regulated public utilities, and conform with the unbilled revenues included fuel and purchased accounting requirements and rate-making practices power costs which were being recognized as fully of the regulatory authority having jurisdiction. recovered, for accounting purposes, under the Prirr:iples of Consolidation: The consolidated provisions of its current purchased power adjustment financial statements include the accounts of EUA clause. That clause has been in effect since and its subsidiaries (Blackstone, Eastem Edison, September 1,1978. After a comprehensive review Montaup and Service). All materialinteicompany of the provisions of the purchased power adjustment ba!ances and transactions have been eliminated clause, Blackstone agreed with the staff's findings, in consolidation. Due to the magnitude of the proposed unbilled Nuclear Generating Companies: Montaup follows revenue adjustment, which at December 31,1979 the equity method of accounting for its investments amounted to approximately $495,000 net of related in four regional nuclear generating companies. deferred taxes, a request was made to the Rhode Montaup's investments in these compariss range Island Division of Public Utilities and Carriers from 2.50 to 4.50 percent. Montaup is entitled to (RIPUC) for amortization treatment of the revenue electricity produced from these facilities based on reduction over a period of ten years.The reques' its ownership interests and is billed pursuant to was approved by the RIPUC in Novemoor 1980. On contractual agreemants which ae approved by FERC. the basis of the RIPUC approval Blackstone requested Utility Plant: Utility plant is stated at original approvai far similar treatment from FERC. In late cost. The cost of additions to utility plant includcs January 1981 Blackstone was notified that I-ERC contracted work, direct labor and material, alloc. denied its request for amortization treatment of the able overhead, allowance for funds used during adjustment and directed Blackstone to record the construction and indirect charges for engineering reduction of unbilled revenues and related deferred and supervision. taxes in the amount of $495,000 as a prior period Depreciation of Utility Plant: For financial adjustment ta Retained EarrMs as of January 1, statement purposes, depreciation is computed on 1980. As a result, the consolid ted results of the straight-line method based on estimated useful opvations for the years 197S and 1978 have been lives of the various classes of property. restated as tollows:

Provisions for depreciation, on a consolidated On Thousands) 1979 1978 basis, were equivalent to a composite rate of approxi- 3, 3, g, g, mately 3.2% in 1980,1979 and 1978 based on the Reported Restated Reported Restated average depreciable property balance 9 at the o erating beginning and end of each year. Revenues $185.875 $185.801 $15c,195 $158.313 In February 1981, os a result of an order of the Consolidated Net Massachusetts Department of Public Utilities incorne Ls26 8.488 8.656 e (MDPU) Eastern Edison retroactively reduced the Consolid ted Earnings Per composite depreciation rate on certain of its property from 3.5% to 2.5%. Eastern Edison had recorded c rnon Share 1.75 1.74 2.03 1.92 depreciation on that property at rates of 3% in 1975 22 and 3.5% since 1975. The change had the effect

l l

l ackstone will, in its next application for a rate statutory rates to book income subject to tax for the increase to the RIPUC, include rccovery of the unbilled following reasons:

revwie reduction, net of deferred taxes over a ten-(In Tnousands) 1960 1979 1978 year period in accordarce with the RIPUC's previously issued approval. Federal Income Tax Computed at Statu y Ra '

FederalIncome Taxes: The general policy of (D,e ej9,) in Tax From:

EUA and its subsidiariet. with respect to accounting Allowance for Funds Used Dunng Constn;ction (3,753) (2.883) (1,881) for Federal income taxes is to reflect in income the Overheads (377) (377) (372) estimat:d amount of taxes currently payable and to other j 556) (114) (102) provids for deferred taxes on certain items subject Fedent income Tax Expense $ 699 S 2.337 $ 4.553 to timing differences to the extent permitted by tho various regulatory commiss'ons. See Note O for The provision for deferred taxes resulting from d: tails of major deferred tax items. timing differences is comorised of the following:

As permitted by the regulatory commissions it (in Thousands) 1980 1979 1978 is th3 policy of the subsidiaries to defer the annual Excess Tax Depreciation $ 1,151 $ 1,264 $ 1,394 investment tax credits and to amortize these credits Computer Conversion Costs (135) (135) (48) over the productive lives of the related assets. Estimated untailed Revenue 65 44 (1,711)

Allowance for Funds 'Jsed During Construction: Unbilled Purchased Power Costs 1,864 626 33 fAFUDC Allowance for funds used during construction [',$[a,*PNoss en (AFUDC) (a non-cash item) is defined in the applica- Effect of State and Local Taxes 275 100 (225) ble regulatory system of accounts as "the net cost other - Net 8 (23) 10 Totai $ 4,346 $ 2,478 $ (547) during the period of consiruction of borrowed funds used for construction purposes and a reasonable At December 31,1980 unused investment tax rate upon other funds when so used...

credits of approximately $9,900,000 are available to (7e combined rate used in calculating AFUDC

,14.50% in 1980; 11.50% in 1979 and ranged reduce future Federal income tax liability.

(C) Capital Stock:

fr6m 8.50% to 10.53% in 1978. In accordance with The changes ,n i the number of common shares rate orders recc:ved during the last quarter of 1980, utstanding and the increases in other paid-in Eastern Edison and Montaup began providing capital during the years ended December 31,1980 d3f rred income taxes on the borrowed funds and 1979 were as follows:

component of AFUDC.

AFUDC amounted to 110%,74% and 48% Number of Common Shares issued of consolidated net income for t' a years 1980,1979 n, Dad *"d.n, ,,c,,,,,

co, *,"f, sn ,,

t and 1978, respectively. poeiic 7,?a.T Year Purchase Plan Sales Total Capital (T) Income and Deferred Taxes.

Components of income and deferred tax expense 1980 144,665 144,665 $ 945,056 1979 3,371 600.000 603,371 $4,313,750 for the years 1983.1979 and 1978 are as folicws:

1980 1979 1978 in the event of involuntary liquidation the non-(In Thousands) redeemable preferred stock of Blackstone and U$*$,"i[ Eastern Edison is entitled to $100 per share. In the Current $ (643) $ (48) $ 1,639 event of voluntary liquidation, or if redeemed at the option of those companies, the non-redeemable in eYt ent Tax Credit. Lt (3', 9) (4) 2. 5 1,885 preferred stock is entitled to: Blackstone's 4.25%

219 4.068 issue, $104.40; Blackstone's 5.00% !ssue, $103.82; state:

Currant 196 361 714 Eastern Edison's 4.64% issue, $102.98; Eastern Def;rred 275 100 (225) Edison's 8.32% issue, $107.70 prior to 10-1-83;

$105.62 nrior to 10-1-88; $103.54 prior to 10-1-93 c,.arged to Operations 2,34 4,557 Charged to Other traome 7 119 and $102.30 per share thereafter.

Total 8 690 $ 2,353 $ 4,676 Under the terms and provisions of the issues of preferred stock of Blackstone and Eastem

( foeral income tax expense was less than the Edison, certain restrictions are placed upon the amounts computed by applying Federal income tax payment of dividends on common stock by each company, but at December 31,1980 and 1973 the respect;ve capitalization ratios were iri excesc of the minimum which would make these restrictions effective. 23

Eastem Utilities Associates and Subsidiary Companies Not:s To Ccnsolidcted Financini Stat:msnts December 31,1980,1979 and 1978 (D) Redeemable Preferred Stock: The Firet Mortgage and Collateral Trust Bonds in October 1980, Eastem Edison issued 150,000 of Eastern Edison and Eastern's Note Payable shares of 15.48% Preferred Stock. due 1985 are collateralized by securities of Eastern Edison's 13.60% and 15.48% Preferred Montaup in the prine l cal amount of $159,975,000.

Stock inues are entitled to mandatory sinking funds in addition the First Mor' gage and Collateral 1 rust sufficient to redeem 3,000 and 6,000 shares, respec- Bonds of Eastern Edison are secured by substantially tively, during each twelve month period, commencing all of its utility plant.

October 1,1980 in the case of the 13.60% issue anct The Note Agreements relating to EUA's 10% %

October 1,1985 in the case of the 15.48% issue. The Senior Notes dus March 1,1999 require, for the redemption price, for each issue, is equal to the issuance of additional long-term debt by EUA, that initial public offering price plus ancrued dividends. at the time of such issuance and immediately there-Eastem Edison also has the non-cumulative option of after (i) long-term debt of EUA shal! not 1xceed 30%

redeeming an additional 3,00C and # 900 shares, of EUA's total capitalization, (ii) consolidated respectively, during each period at such price. long-term debt of EUA and its subsidiaries shall in the event of involuntary liquidation the redeem- not exceed 65% of consolidated total capitalization, able preferred stock of Eastern Edison is entitled to (iii) the sum of consolidated long-term debt,

$100 per share. In the event of voluntary liquidation, preferred stock of subsidiaries and any minority or if redeemed at the option of Eastem Edison, the interests in subsidiaries shall not exceed 70%

redeemab!e preferred stock is entitled to: $114.82 of consolidated total capitalization, and (iv) consoll-prior to 10-1-85; $111.42 prior to 10-1 -90; $108.02 dated net income available for fixed charges for prior to 10-1-95; and $105.58 per share thereafter. 12 consecutive calendar months within the The aggregate amount of sinking fund require- preceding 15 calendar months shall have been at ments for each of the five years following 1980 are: least twice the sum of consolidated interest charges

$314,000 in 1981,1982,1983 and 1984; and $923,000 on long-term debt and dividend requirements on in 1985. preferred stock of subsidiaries. .

(E) Retained Earnings: In January 1981, Blackstone sold $30,000,000 Under the provisions of the Note Agreements principal amount of 14% % First Mortgage Bonds dated May 23,1979 relating to EUA's Senior Notes, Series A, duo 1995, the proceeds of which were usod Retained Eamings in the amount of $15,984,309 as to repay all of its short-term bank loans which are of December 31,1980 and $15,787,430 as of classified as long-term debt at December 31,1980.

December 31,1979 were untentricted as to the Such bonds are secured by substantially all of payment of cash dividends on EUA Common Shares. Blackstone's utility plant.

Under the provisions of Eastem Edison's Indenture The aggregate amount of EUA System cash securing its First Mortgage and Collateral Trust sinking fund requirements and maturities for each Bonds, Retained Earnings in the amount of of the five years following 1980 are: none in 1561

$12,667,239 and $11,846,241 as of December 31, and 1982, $13,996,003 in 1983, $11,125,000 in 1984 1980 and 1979 respectively, were unrestricted as to and $31,925,000 in 1985.

the paymen' af cash dividends on its Common Stock. (G) LHes of Credit and Compensating Balances:

(F) LohgTerm Debt: EUA System Companies had unused short-term lines Under terms of the Indenture securing its First of credit with various banks uf approximately Mortgage and Collateral Trust Bonds, Eastem $19,360,000 and $33,500,000 at December 31,1980 Edison is required to deposit annually with the anJ 1979, respcctivay. In accordance with informal Incenture Trustee, cash in an amount equal to 1% agreements with the various banks, the EUA System of the greatest aggregate princ! pal amount of bonds Companies have agreed to maintain operating previously authenticated and delivered. accounts or minimum average balances or, in certain Where permitted, Eastem Edison has satisfied instances, corrmitinent fees are required to maintain sinkir.g fund requi ements for 198') and 1979 the lines of credit. Thera are no legal restrictions under attemate provisions of the Indenture either placed on the withdrawal of these funds. Except for by depositing cash or by certifying to the indenture daily working funds, substantially all of the funds Tmstee "available property additions" and Eastem included in cash represent compensating ba'ances Edison expects to continue such practice during (H) Jointly-Ownteel Facilities:

1981. At December 31,1980 Montaup owned the following interests in jointly-owned electric generating facilities (dollars in thousands):

24

-smuumminulum __- ;

W "***"**'" 31,537,300 in 1981, $1,301,000 in 1982, S1,073,000 in Percent Plant in Accurnulated Plant in ok unit owneo sendce Depredabon 26rvica Progress $3,148,000 for years after 1985.

CanalNo.2 S0.0 % $63,724 $11.042 $52,682 $ The EUA System Companies participate in a wyman pension plan covering subste.ntially all of the,r i No 4 1.96 3,947 232 3,715 employees. The total pension expense charged to No,'s 1 operations, which includes amottization of past d2 2 90 42 2 4 27 19 Pak"nm service costs over 20 years, amounted to approx!-

No. 2 2.15 9,241 mately $2,067,000, $1,949,000 and $2,005,000, re-NSN 4.01 39,428 spectively, for the years ended 1980,1979 and 1978 respectively. The EUA Sptem Companies make Th2 foregoing amounts represent Montaup's annual contributions to the plan equal to the amcunts int:r:st in each facil:ty. Finencing for all such accrued for pension expense. The accumulated plan intnst is provided by Montaup. Montaup's share benefits and plan net assets for the Employees' of r:lat:d operating and maintenance expenses is Retirement Plan of Eastem Utilities Associates and included in its corresponding operating expenses, its Subsidiary Companies is presented below.

Montaup has a 2.00% ownership interest in two nuclear generating units designated as (In Thousands) 19k Montague 1 and 2 (lead participant, Northeast Utilities) which were proposed to be built at a site in ACl,gBen.

ia Presf,nt value of Accumulated Montague, Massachusetts. In December 1980 the lead vested $26,188 participant announced cancellation of these units and Nonvested 1,100 l

l concluded that all capital costs relative to them $27,288 should be written off as being valueless. Market Value of Ne. Assets Available for Bei,efits $27,917 r~s of December 31,1980 Montaup had incurred

)oximately $1,081,000 of costs (including The assumed rate of retum used in determin.ing

. anowance for funds used during construction) the actuan,al present value of the accumulated plan benefits was 6.0% for 1980, in connection with the project. Additional costs (which are not expected to be material) The EUA System is committed under purchased

, relating to cancellation charges, or salvage, power contracts to pay demand charges whether or if any, are undeterminable at this time. Montaup n t energy is received. The following table sum-f has reported the costs of the abandoned project as marizes information concerning such contracts at December 31,1980.

l an extraordinary property loss and has requested i

p;rmission from FERC to araortize these costs, net of gag,o; y,sn,.;e,o,e Es,tg g

the related tax savings to be realized in the EUA unit Expir; tion Purchased Cost Consolidated 1580 Federal income tax return, over coco . o.nittee>

a p:riod of live years and requested approval from Tagp,nyM,ugicipal 1984 Various $ 2.949 FERC for recovery of such costs commencing with New Brunswick 1986 6.41 278 the effective date of its December 19,1980 rate filing. Po r Co. 1991 4.50 2,076

{ank[*

on Ya^ A e (1) Commitments: Power Co. 1998 4.50 3,132 Th3 System companies have leases covering certain Cage ect ic Co. 1998 25.00 4,874 facilities and equipment Total rental expense for Pilgrim Unit No.1 2000 11.00 10.405 th3se leases for the years 1980,1979 and 1978 Magne o , Yagkee Atomic amounted to approximately $1,233,000, $993,000 vermont Yankee Atomic and $876,000, respectively. Power Co. 2002 2.50 1,609 All of the System companies' leases are treated $27,686

( as operating leases for rate making purposes and ]he EUA System's construction program is hav) been accounted for as such; however, certa.in l Irase agreements meet the criteria requiring cap- estimated at $51,800,000 for the year 1981 and i

ation as set forth in the Statement of Financial $241,200,000 for the years 1981 through 1985 unting Standards No.13. If such leases were (includir g allowance for funds used during I til::ed, the amounts thereof would not have a construction).

maMrial effect on assets, liabilities, or related n O tob 1980, ontaup received approval from Fu ure rniriimum rental payments at December the MDPU to increase its ownership interest in each of 31,1980 for such leases are estimated to aggregate 25

- ~ _ - - _ _ _ _ _ _ _ _ .

the two 1150 megawatt nuclear generating units being Auditors' Report to the Trustees of constructed in Seabrook, New Hampshire, from Eastern Utilidos Associates 1.90% to 2.90%. Montaup will acquire the additional We have examined the consolidated balance 1% gradual'y over an Adjustment Period, commenc- sheets and stater.'ents of capitalization of Eastern ing on January 31,1981 by paying its pro rata share Utilities Associates and subsidiary companies as of of the costs otherwise att ibutable to the lead partici- December 31,1980 and 1979 and the related ccn-pant, Public Service Company of New clampshire solidated statements of income, retained earnings (PSNH). All of the necessary state and Federal and changes in financial position for each of the three regulatory approvals for the construction of the units years in the period ended December 31,1900. Our have been obtained. One court aanti from Federal examinations were made in accordance with gen-regulatory approvals is still pendnig and further erally accepted auditir g standards, and accordingly appeals are possible. PSNH has stated that it is included such tests of the accounting records and experiencing serious difficulties in financing its st.ch other auditing procedures as we considered constructinn work in progress. In an effort to reduce necessary in the circumstances.

its construction expenditures PSNH has received in our opinion, the finar.cial statements referred commitments from other utilities to acquire an to above present fairly the consolidated financial additional 15% of the project. In March 1980 PSNH position of Eastern Utilities Associates and subsidiary decided to reduce the level of construction until companies at December 31,1930 and 1979 and the capital markets stabilized and the remaining regula- consolidated results of their operations and changes tory cpprovals for the reduction of its ownership in their financial position for each of the three years interest were obtained. In June 1980 PSNH was in the period ended December 31,1980 in conformity ordered by the New Hampshire Public Utoities with generally accepted accounting principles applied Commission to delay for three years work on Unit No. on a consistent basis.

2 of the Scabrook plant, except for those areas that ALEXANDER GRANT & COMPANY are common to both Units. Upon rehearing, the order was amended to provide that such dela shall Boston, Massachusetts continue only until receipt of the regulatory approvals March 12,1981 necessary for reduction of PSNH's ownership interest and commencement of such reduction. As of Decem. Supplemental Information to Disclose ber 31,1980, Montaup's investment in the project Quarterly Financial Data (Unaudited) amounted to approximately $27,019,000. Montaup is g,,,,,,,,,,,,,,,,,,;c,,,

unable to predict what effect further financing eara'nos p*' anar*)

problems or administrative and court actions may ja{ End.d_ ,

have on the Seabrook project or its cost. 1960(A) ' 380( A) 1980( A) 1983( A)

Montoup also has a 2.15fo ownership interest in Operating Revenuss 65,358 54,10! 57,246 67.937 a planned nuclear unit, Pilgrim Unit No. 2 (lead opercing incorne 7,4e5 5.768 5.565 5.337 participant Boston Edison Comp.1y) In a recent consc.' dgted Net prospectus, the iead participant tas stated that when Earnings Applicable a more definitive schedule is set for the granting of a to UA Common 3.303 2,191 1,942 1,554 construction permit it will be able to develop Earnings Per Average revised cost estimates and financing plans. At that Common share $ 0.61 $ 0.39 $ 0.a5 $ 0.28 time it will also rev,ew the feasibility of the project c..rter Ena.o and dec:de whether or not to cancel the Unit. As of w. 3,. un.E set.*30. o.c si.

December 31,1980, Montaup had spent approximately $9,240,000 in connection with its operating Revenues 42,940 43.138 49.006 50.717 interest in the Pilgrim Unit No. 2 project. Final costs operating income e.018 5,513 5.735 5.746 associated with cancellation of the project, if con nco* Ne

• 2.934 2.379 2,574 2.234 ultimately necessary, cannot now be ascertained. In Earnings Applicable the event of such cancellation, Montaup would apply

' ^ "'"

sh re 2.525 1.971 2.166 1,626 for appropriate regulatory approval to recover its Earnings Per Average total costs over an appropriate future perioo. The comnion Sham $ 0 52 $ OM $ OA5 $

extent to which rate relief, if any, would permit (A) As restated to reflect adjustment of Eastern Edison recovery of the project costs cannot be determined d (g} As restat d to lec re luation of unbilled revenues. See at this time. Note A 26

Common Share Information efhe common shares of Eastern Utilities Associates are listed on the New York Stock Exchange ticker symbol is "EUA". The approximate number of Common Shareholders on March 1,1981 was 20,500.

The annual market price range of common shares is shown in the Consolidated Operating Statistics on page 31. The high and low sales prices and dividends paid for the past two years by quarters are shown below:

Cuarte.-iy Dividerd Year High Low Per Share 1980 First Quarter 12 % 10 % $0.40 Second Quarter 13 % 10 % $0.40 Third Quarter 13 % 12 $3.40 Fourth Quarter 12 % 10% $0.40 1979 First Quarter 15W 14 % S0.40 Second Quarter 14 % 13 % S0.40 Third Quarter 15 13 % S0.40 Fourth Quarter 14W 11 % 10.40 Dividend Reinvestment and Stock Purchase Plan A Divirtend Reinvestment and Common Share Purchase Plan is available to all registered shareholders anri System company empioye:.s.

( f)articipants in the Flan are given a 5% discount on shares purchased with reinvested dividends.

'. dcipants may also send :n additiona! cash payments as frequentl'f as once a month to purchase additional shares with no discount. Optional cash payments are limited to a maximum of $5,000 per calendar quarter and must be receiv3d not later than the 5th day preceding the investment Date.

The lavestment Datn for all shares purchased under the Plan is the dividend paymont date for the months in which dividends are payable. For each month in which a dividend is not payable thc Investment Date is the 15th of such month. The price of snares purchased is based on the a"erage closing prices of EUA shares for the five trading days preceding each investment date.

Complete details regarding the Plan may be obtained by writing:

The First National Bank of Beston EUA Automatic Dividend Reinvestment Plan P.O. Box 1681 Boston, Mass 02105 Transfer Agent Trustee and Registrar The First National Bank of Boston State Street Bank and Trust Company P.O. Box 644 225 Franklin Street Boston, Mass. 02102 Bostun, Mass. 02110 ,

(Coramon and Preferred Shares) (Bonds of all series) 27

East:rn Utilitiis Associates and Subsidiary Companirs Supplementary Information To Disclose The Effects of Changing Prices The following supplementary information is supplied in accordance witn the requirements of the -

Statement of Financial Accounting Standards No. 33 for the purpose of providing certain information about the effects of changing prices. it should be viewed as an estimate of the approximate effect of inflation, rather than a precise measure, since a number cf subjective judgements and estimating techniques were used in developing this information.

Constant dollar amounts represent historW costs stated in terms of dollars of equal purchasing power, as measured by the Consumers Price Index fur si Urban Consumers. Current cost amounts reflect the ciianges ir. specific prices from the date the plant was acquired to the present, and differ from constant do'!ar amounts to t'1e extent that spec:fic prices have increased more or less rapidly than prices in general.

• Tf,e current cost of utility plant, comprising all plant in service, construction work in progress and plant held for future use, represents the estimated cost of replacing existing plant assets and was determined by indexing the surviving plant using v&rious indices which represent the EUA System's experienced construction costs.

The current year's provision for depreciation on a constant dollar and current cost basis was computed by applying toe averags composite depreciation rate to the average depreciable balance of property, plant and equipment after adjusting such accounts for inflation.

Fuel inventories, the cost of fuel used in generation, and purchased power for resale have not been restated from their historical cost. Regulation lirrits the recovery of fuel and purchased power costs through the operation of adjustment clauses, Fcr this reason fuel inventories are effectively monetary assets.

Consolidated Statement of income From Continuing Operations Adjusted For Changing Prices For the year ended December 31, 1980 m Constant Currei-Dollar Co,,t Historbal Average Average Cost 1980 Doilars 1980 Gollars (Thousands of Dollars)

Operating Hevcnues $2,44,642 S?44,642 5244,642 Fuel and Purchased Power Expense 159,503 159,503 159,505 Other Operating and Maintenance Expenses 37,620 37,620 37,620 Depreciation and Amortization C,154 20,464 23,844 Taxes Other than income 13,560 13,560 13,560 Income Taxes 690 690 690 Interest Charges - net 16,117 16,117 16,117 Other (income) and Deductions - net (3,051) (3,051) (3,051)

_233,593 244,903 248,28?

Income (Loss) From Continuing Operations (excluding reduction to net recoverable coc!) S 11,049 S_ (261)

• S (3,641) lacrease la Soecific Prices of Utility Plant Held During the Year" $ 62,245 Reduction to net recoverable cost S (23,252) (3,511)

Effect of increases in General Price Level (78,603)

Excess of increase in General Price Level Over increase in Specific Prices After Reduction to Net Recoverable Cost (19,869)

Gain From Decline in Purchasing Power of Net Amounts Owed 21,091 21,091 NET S (2,161) $ 1

• Including the reduction to net recoverable cost *.he loss frorn continuing operations on a constant do!!ar basis would have been $;23 313).

" At Decernber 31,1980, the current cost cf net utmty p ant was $707,559 while historical cost or net cost recoverable thrwgh depreciation was $314.2S3.

28

i l

^

j

_ As prescribed in Financial Accounting Standard No. 33, income taxes were not adjusted.

Under the rate-making prescribed by the regulatory c;mmissions to which the System companies are subject, only the historical cost of plant is recoverable in revenues as depreciation. Therefore, the excess of the cost of plant stated in terms of constant dollars that exceeds the historical cost of plant is not presently r:coverable in rates as depreciation, and is reflected as a reduction to net recoverable cost. To properly r:flect the economics of rate regulation in the Statement of Income from Continuing Operations, the r: duction to net recoverable cost of net property, plant, and equipment should be offset by the gain from tha d: cline in purchasing power of net amounts owed. During a period of inflation, holders of monetary ass:;ts suffer a loss of general purchasing power while holders of monetary liabilities experience a cain. The gain from the decline in purchasing power of net amounts owed is primarily attributable to the substantial amount of debt which has been used to finance property, plant, and equipment. Since the depreciation on this plant is limited to the recovery of historical costs, the System companies do not have the opportunity to realize a holding gain on debt and are limited to recovery orily of the embedded cost of debt capital.

Five Year Summary of Selected Financial Data Adjusted for the Effects of Changing Prices Years Ended December 31, 1980 1979 1978 1977 1976 (in Thousands of Average 1980 Dollars)

Operating Revenues $244,622 $210,928 $199,957 $214,437 $220,282 H rical Cost Information Adjusted For neral inflation ncome (Loss) From Continuing Operations Excluding Reduction To Net Recoverable Cost (261) 1,494 income (Loss) Per Common Share After Preferred Dividend Requirements and fixcluding Reduction To Net Recoverable Cost (0.42) (0.03)

Net Assets At Year-End At Net Recoverable Cost 124,832 123,394 Current Cost Information income (Loss) From Continuing Operations Excluding Reduction To Net Recoverable Cost (3,641) (2,70'))

Income (Loss) Per Common Share After Preferred Dividend Requirements and Excluding Heduction To Net Recoverable Cost (1.03) (.56)

Excess Of increase in General Price Level Over increase in Specific Prices After Reduction To Net Recoverable Cost 19,869 21,529 N:t Assets At Year-End At Net Recoverable Cost 124,832 123,394 General Information Gain From Decline in Purchasing Power Of

-Net Amounts Owed 21,091 22,516 C:sh Dividends Paid Per Common Share 1.60 1.82 2.02 2.17 2.17

'lMarket Prica Per Common Share At Year End 11.12 12.61 17.33 22.05 25.84

/Av: rage Consumer Price Index 246.8 217.4 195.4 181.5 170.5 29

Eastem Utilities Associates and Subsidiary Companies Consolidated Operating St:ti: tics 1980 1979 1978 1977 1976 1975 1970 Energy Generated and Purchased (millions kwh).

Generated - by EUA System 1,041 792 660 f67 774 1,164 1,904

-by Equity-Owned Nuclear Units 398 479 530 490 523 480 213

-by Joint!y-Owned Units 1,746 1,795 1,865 1,599 1,512 153 Interchange with NEPOOL (263) (600) (620) (284) (187) 200 (256)

Purchased Power - Unit Power 1,411 1,649 1,490 1,381 1,419 1,482 980 Total Generated and Purchased 4,333 4,115 3.925 3,653 4.041 3,479 2,841 Operating Revenues (thousands):

Residential $ 79,357 $ 63,394 $ 55.731 $ 56,302 $ 53,036 $ 50,535 $ 22,475 Commercia! 67,377 53,012 46,976 45,159 41.104 36,478 12,139 Industrial 48,9* ) 38,192 32,440 30,203 28,246 26.021 12.063 Other Electric Utilities 1 Lit;J 12.435 10.220 11,418 11,315 10,151 3.844 Other 7,886 7,502 7,505 7,657 7,154 5,912 1,787 Total Primary Sa!es Revenues 221,734 174,535 152.872 150,739 140,855 129,097 52,308 Unit Contracts 22,908 11,266 5.441 6,961 11,325 2,118 87 Total Operating Pevenues $244,642 $185.801 $158,313 $157,700 $152,180 $131,215 $ 52,395 Energy Sales (miusons kwh):

Residential 1,149 1,1f 0 1,123 1,119 1,098 1,073 865 Commercial 1,058 1,052 1,011 998 950 848 523 Industrial 848 859 815 788 776 726 786 Other Electric Utilities 420 398 403 399 434 396 304 Other 42 44 49 48 47 45 Total Primary Sales 3,517 3.503 3,401 3,352 3.305 3,088 2.t Losses and Ccmpany Use 230 226 _ 290 246 276 248 227 Total System Requiremer.ts 3,747 3,729 3.691 3,598 3,581 3,336 2.83I Unit Contracts 586 386 /34 255 460 143 1's Total Energy Sales 4,333 4,115 '; c?5 3,803 4.041 3,479 2,841 Number of Customers at December 31:

Residential 204,221 ?J1.435 198,910 199,063 196,760 195,207 183,401 Commercial 20,380 20,073 19,781 21,501 21,066 b,,813 18,680 Industrial 1,219 1.222 1,213 1,513 1,542 1,C94 1,790 Other Electric Utilities 17 16 15 16 16 14 11 Other 30 150 171 222 229 234 215 Total Customers 225,867 222.896 220.090 222.315 219,613 217,862 204,097 Average Revenue per Residenhal Customer ($) 389 315 280 283 270 259 123 Average Us per Residential Customer (kwh) 5,626 5,708 5,646 5,621 5,582 5,497 4,716 Average Revenue per kwh:

Residentral 6.91c 5.52c 4.96c 5.03c 4.83c 4.71c 2.60c Commercial 6.37C 5.04c 4.65c 4.53c 4.33c 4.30c 2,32C Industrial 5.77c 4.44c 3.98c 3.83c 3.64c 3.5E,C 1.531 0

30

Eastern Utilities Associates and Gubsidiary Companies Consolid ted Operzting St:ti; tics- Gener!.I 1980 1979 1978 1977 1976 1975 1970 (Restated) (Restated)

(thuusands)

Mortgage Bor ds (Net) $125,182 $ 80.985 $ 81.203 $ 83.658 $ 87.860 $ 88.321 $ 61,417 Other Long Terrn Debt 37,500 42.500 16.667 35.000 35.000 Total Long-Term Debt 162,682 123.485 97,870 118,658 122,860 88,321 61,417 Preferred Stock 35,278 20.686 21,000 21.000 21,000 21.000 12,175 Common Equity 95,424 93.765 85,842 75,417 G4,917 55.783 44 673 Total Capitalization $293,384 $237,933 $204,712 $215.075 $208,777 $165,104 $118.265 Common Shares Data:

Earnings Per Share ($) 1.63 1.74 1.92 1.50 2.07 1.96 1.60 D.vidends Per Share ($) 1.60 1.60 1.60 1.60 1.50 1.50 1.40 Payout (%) 98.2 92.0 G3.3 106.7 72.5 76.5 87.5 Average Common Shares Outstanding 5,525,320 4,871,667 4,266,921 3,970,459 3,389,560 2,939.945 2,570,718 Book Value der Share ($) 17.09 17.24 17.75 17.82 18.03 18.02 17.38 Percent Earned On Average Common Equity 9.5% 9.4% 10.2 % 8.5% 11.6 % 10.8 % 9.3%

Market Price ($)

High 13% 15 % 17 19 % 18 % 16 21 %

Low 10 % 11 % 14 % 16 % 14 % 8% 16 %

Miscellaneous:

Installed Capability - MW 940 996 1,005 988 984 806 676 Less: Unit Contract Sales - MW 88 88 36 49 44 25 2 System Capability - MW 852 908 969 939 940 781 674

[ stem Peak Demand - MW 695 677 666 668 687 614 534 (deserve Margi'. (%) 22.7 34.1 44.2 40.6 36.9 27.1 26.2 System Load Factor (%) 61.5 62.8 62.7 61.5 59.5 62.0 60.1 Sources of Energy (%):

Nuclear 17.0 2 * .9 22.0 18.7 19.5 22.0 6.6 Fossil 83.0 78.1 78 0 81.3 80.5 78.0 93.4 Cost cf Fuel (Mills Per kwh):

Fossil (Oil and Coal) 35.3 25.1 18.1 21.5 17.8 19.5 3.9 Nuclear 4.9 3.5 30 2.4 2.6 3.0 3.3 Al' Fuels Combined 30.8 19.6 14.3 17.5 15.0 16.0 3.5

.f%

(' N

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31

r Trustees System Companies Oliver F. Ames (C) Eastern Utilitics Associat:s Dir:ctor, Fiduciary T rust Company, and 99 High Street private trustee, Boston. Boston, Mass. 02110 Samuel C. Brown (F) (617) 357-9590 .

Executive Director, Massachusetts Health and Educational Facilities Authority, Boston. Blackstone Valley Electric Company Washington Highway Robert 1. Dexter (A,P)

Lincoln, R.I. 02865 Pr:sident, Abington Mutual Fire Insurance Company, Abington, Massachusetts (401) 333-1400 John F.G. Eichorn, Jr. Eastern Edison Company President and Chief Executwe Officer of the 36 Main Street Association. Brockton, Mass. 02403 Peter 3. Freeman (A,F) (617) 580-1213 Business and Financial Consultant Providence, Rhode Island. Montaup Electric Company Nathan H. Garrick, Jr. (F) 1606 Riverside Ave.

Independent Consultant to Somerset, Mass. 02726 The Boston Company, Inc., Boston. (617) 678-5283 Robert E. Maguire EUA Service Corporation Executive Vice President of the Association.

99 High Street Wesley W. Marple, Jr. (A,C)

P ofessor of Finance, Northaastern Universit-617 3S 9590 Thomas A. Rodgers, Jr. (P)

President, Globe Manufacturing Co., Fall River, Massachusetts. .

, ,y ,7 M:rgaret M. Stapleton (C,F)  % ffi Second Vice President, John Hancock Mutual Life Insursnce Company, Boston.

3'_~

D. Reid Weedon, Jr. (P)

Senior Vice President, Arthur D. Little, Inc., _ _ ,

s Cambridge, Massachusetts

(-~

- i~

A-Indicates member of Audit Committee  ; .

- C-Indicates member of Compensation and Wyl i Nominating Committee F-Indicates member of Finance Committee P -Indicates member of Pension Trust Committee

[ ,,,,,,,,,,,,%

N rn n.v Am

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o h 1; 1 Annual Meeting .

n TI. , - :

9 The 1981 Annual Share-EUA System Territory holders Meeting will be held y

on Tuesday, April 21,1981 e

at 10 a.m. in the Board Room on the 33rd Floor at State Street Bank and Trust Company,225 Franklin Street. Boston, Mass.

32

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( SECURITIES AND EX CII AN G E WASHINGTON, D.C. 20549 COMMISSION Form 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF TIIE SECURITIES EXCIIANGE ACT OF 1934 For the fiscal year ended December 31,1950 Commission file number 0-84S0 Eastern Edison Company (Exact swune of registrant as specifed in its charter)

AfASSACIIUSF.TTS 04-1123095 (State or o:hcr jurisdiction of (1.R.S. Employer Identifcation No.)

incorporation or organi:ation) 36 Afain Street, Brockton, Afassachusetts 02403 (Address of principal executive oRices) (Zip code)

Registrant's telephone number, including area code: (617) 5S0 1213 Securities registered pursuant to Section 12(b) of the Act:

Title of each Class Nametchia of each exchanje on reaistere

\

) None Sec irities registered pursuant to Section 12(g) of the Act:

4.6Fo Non-Redeemable Preferred Stock, $100 Par Value (Title oi Class) 8.32To Non-Redeemable Preferred Stock, $100 Par Value (Title of Class) 13.607o Redeemable Preferred Stock, $100 Par Value (Title of Class) 15.4S% Redeemable Preferred Stock, $100 Par Value (Title of Class)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for uch shorter period that the registrant was required to file such reports), and (2) has been subject to such Eling requirements for the past 90 days. Yes V No State the aggregate market value of the voting stock held by non-affiliates of the registrant.

As of Af arch 1,1981.

None Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practical date.

Common Stock Outstanding at Afarch 1,1981 2,891,357 Shares Documents Ir.corporated by Reference h

\.

None

i

, PART I l

Q i

Item 1. BUSINESS V General Eastern Edison Company (the Company, or Eastern Edison) a retail electric utility company, is a corporation organized under the laws of the Commonwealth of Massachusetts. The Company is a wholly-owned subsidiary of Eastern Utilities Associates (EUA), a Massachusetts voluntary association, organized and existing ander a Declaration of Trust dated April 2,1928, as amended, and EUA is a registered holding company under the Public Utility Holding Company Act of 1935. EUA owns directly all of the shares of common stock of two operating electric utility companies (the. Retail Subsidiaries), namely, Eastern Edison and Blackstone Valley Electric Company (Blackstone). Eastern Edison owns all of the permanent securities of Montaup Electric Company (Montaup), a generation and transmission company, which supplies electricity to it, to Blackstone, and to several municipal and other unaffiliated util-ities for resale. EUA also owns directly all of the shares of common stock of a service company, EUA Service Corporation (Service). The holding company system of EUA, the Retail Subsidiaries, Montaup and Service is referred to as the EUA System. For the three years 1978 to 1980, electric operations accounted for 100% of total operating revenues.

Eastern Edison is the result of a merger on July 31, 1979 of two EUA System Companies. On that date Fall River Electric Light Company was merged into Brockton Edison Company and on August 1, 1979 Brockton's name was changed to Eastern Edison Company.

l Eastern Edison supplies retail electric service in 22 cities and towns in southeastern Massachusetts. The largest communities served,are the cities of Brockton and Fall River, Massachusetts. The retail electric service terri-tory covers approximately 390 square miles and has an estimated population of approximately 438,000. On December 31, 1980, Eastern Edison served approximately 150,600 retail customers. In addition, Montaup provides wholesale electric service to the Retail Subsidiaries and to 4 other utility companies.

Abrut 43% of the generating capacity of the EUA System (aggregating 936 MW) cou. 3 from units jointly owned with others in which Montaup's share is 4.5% or less, or from units in which Montaup has long-term power contracts for shares ranging from 2.5% to 72.7% of the unit's capacity. However, Montaup owns all of the 246 MW Somerset plant and 50% of the 584 MW-' Canal No. 2 l plant, both of which are oil fired. See Item 2, PROPERTIES.

Eastern Edison and Montaup hald valia franchises, permits and other rights adequate for conducting the business in the territories which they

{~ serve, and such franchises, permits and other rights contain no unduly burdensome restrictions.

Eastern Eidson's electric sales are seasonal'to some extent. There has been a winter peak due primarily to increased usage for heating and lighting and a summer peak due to air conditioning usage.

(S The Company is not dependent on a single customer or a few customers for its electric sales.

1

All of the t ransmission facilit ies within the EUA System are intercon-nected with the New England t ransmission grid. There is no competition from other elect ric utilities within the retail territories served by Eastern Edison. Other electric utilities compete from time to time with Montaup in connection with its sales of electricity to its unaffilicted customers.

Eastern Edison and Montaup are members of the New England Power Pool (NEP00L) which is open to all investor-owned, municipal and cooperative elect ric utilities in New England, under an agreement which provides for coordinated planning of future facilities and operation of approximately 98?e of existing generating capacity in New England and of related t ransmis-sion facilities essent ially as if they were one system. The NEPOOL Agreement imposes obligations concerning generating capacity reserve and the right to use major transmission lines, and provides for central dispatch of the generating capacity of the pool's members with the objective of achieving economical use of the region's facilitles. Pursuant to the NEP00L agreement ,

int erchange sales to NEr00L are made at a price approximately equal to the fuel cost for generation without cont ribution to the support of fixed charges. 8ecause of its participation in NEP00L, the Company's and Montaup's operat ing revenues and costs are af fect ed to some ext ent by the operations of other members.

As of December 31, 1980, the Company and Montaup had 493 permanent employees. Relations with employees are considered to be satisfactory.

Labor unit cont racts covering employees of Montaup and certain employees of the Company in the Fall River area expire on September 14, 1983, and June 2,1981, respect ively.

Const ruction Program Construction expenditures of the Company and Montaup for 1981, 1982 and 1983, as set fort h below, a re estimated to t ot al $140,196,000 (including allowance for funds used during construction of approximately $44,453,000 and i estimat ed environmental expenditures and nuclear fuel costs where applicable).

These estimates include approximately $101,592,000 of expenditures in connection with Montaup's participation in jointly-owned nuclear generating units including approximately $56,337,000 for it s 2.90?4 int erest in two units at Seabrook, New Harrpshire and $42,908,000 for its 4.01?; interest in a unit at Millstone Point , Waterford, Connect icut .

l Construct ion expenditures for the year ended December 31, 1980 were yproximat ely $31.600,000.

CONSTRUCTION PROGRAM (Thousands of Dollars)  ;

1981 1982 1983 3 4r. Total tompany Montaup company Montaup Company Montaup Company Montaup Combined Generation $ $35,530 $ $41,920 $ $29,995 $ $107,445 $107,445 Transmission &

Distribution 7,690 660 8,527 196 6,323 205 24,540 1,061 25,601 General 3,560 49 2,050 2 '. 1.441 26 7,051 99 7,150 Total $11,250 $36,239 $10,577 F42,146 F1,7(A T?O,226 $31,591 $108,605 $140,196 2

~

Source of Power The Company relies totally on power purchased from Montaup to meet its n

y electric energy requirements. Power purchases for Eastern Edison, as well as Blackstone are arranged on a system basis, by Montaup, under which power is made available to the EUA System and allocated to the Retail Subsidiaries in accordance with their peak requirements. The rates charged by Montaup for power sold to Eastern Edison are those on file from time to time with the Federal Energy Regulatory Commission (FERC) and are the same as those charged by Montaup for power sold to its other customers, affiliated and ~ unaffiliated. <

See also Item 2, PROPERTIES.

Fuel for Generation The availability and cost of fuel oil to Montaup and to other owners of oil-buraing units in which Montaup has an interest could be adversely affected by policies of oil producing nations, other factors affecting world supplies, and domestic governmental action. Approximately 50% of the residual fuel used is imported. It is impossible to predict the impact on Montaup's operations of possible action of Congress or the President with respect to import fees, duties or quotas on oil or restriction on the use of oil for the generation of electricity.

Montaup has agreements with two suppliers for the purchase of 100% of

~

its oil regt.irements for its Somerset station. The agreements are renewed automatically unless terminated by the respective supplier or Montaup.

During 1980, Montaup had an average inventory of 332,500 barrels of fuel oil for its steam generating units at the Somerset Station, the equivalent of 67 days' supply under present load conditions. Montaup's weighted O.

V average price per barrel of oil for the years 1978 through 1980 was $11.48,

$15.96 and $22.68, respectively. The price of oil in February 1981 averaged approximately $33.00 per barrel.

Canal Electric Company, on behalf of itselt and Montaup, has,~since January 1,1981, been negotiating a contract with a single supplier for the fuel-oil requirements of Canal Unit Nos.1 and 2 for the period ending June 30, 1985. The contract, when signed, will permit limited purchases from other suppliers.

Montaup's costs of fossil and nuclear fuels for the years 1978 through 1980, together with the weighted average cost of all fuels, are set forth below:

Mills per kwh 1978 1979 1980 Fossil (oil)- 18.1 25.1 35.3 Nuclear 3.0 3.5 4.9 All Fuels 14.3 19.6 30.8-The rate schedules of Eastern Edison are designed to pass on to custo-

mers the increases and decreases in fuel costs and the cost of purchased power, subject to review and approval by-appropriate regulatory authorities.

'p The owners (or lead participants) of the nuclear units in which the

. () System has an interest,'as set forth in the table on page 4, have made, or expect to make, various arrangements for the acquisition of uranium concentrate, 3

the conversion, enrichment, fabrication and utilization of nuclear fuel and the disposit1,n by reprocessing or storage of that fuel after use. EUA is aware that various electric utilities have been unable to obtain contracts for adequat e nuclear fuel supplies and that additional difficulties have been encountered because of a lack of domestic reprocessing facilities and because of objections on envircomental and other grounds to proposals for storage and disposal of spent fuel. EUA cannot predict the extent to which such problems will affect fuel or other costs for nuclear units in which the EUA System is part icipating.

Uncertaint ies Regarding Nuclear Plants Nuclear generating facilities, including those in which Montaup has an ownership interest, are subject to extensive regulation by the Nuclear Regulatory Commission (NRC) which has assumed the licensing and related regulatory functions formerly performed by the Atomic Energy Commission. The NRC is empowered to authorize the siting, construction and operation of nuclear reactors after consideration of public health, safety, environmental and antitrust matters.

Administrative or judicial proceedings are pending with respect to certain of the existing and projected nuclear unit s in which Montaup has an ownership int erest. In addition, various groups have filed law suit s, introduced legislation and participated in adminietrative proceedings seeking to prohibit the construction and operation of nuclear unit s and the disposal of nuclear waste. Although the Company is unable to predict the outcome of any such actions, the owners' ability to construct or operate such units could be adversely affected or tenninated thereby. I f con-st ruction of any unit were cancelled, t he cost, depending on the circum- g stances, could substantially exceed the cwners' investment at the time of 17 ca ncella t ion. In addition, in jointly owned projects, Montaup is subject to the risk that another participant may be unable to finance it s share of the const ruction or operating costs of the project .

Jointly Owned Generating Units Under Construction Or Projected System Share Estimated Estimated Total Estimated Net Net Estimated Lead In Service Capat' t i i t y Crpability Const ruction Unit Type Participant Dat e(1) MW  % MW Cast (1)(2)

(Ihousands)

Seabrook Nuclear Public Service 1983 1,150 2.90 33.4 $ 51,500 No . 1 Company of New Hampshire Seabrook Nuclear Public Service 1985 1,150 2.90 33.4 39,300 No. 2 Company of New Hampshire Millstone Nuclear Subsidiary of 1986 1,150 4.01(3) 46 122,400 No. 3 Northeast Utilities Pilgrim Nuclear Boston Edison 1987 1,150 2.15 25 -

No. 2 Company 4

(1) The completion dates of these units have been deferred from time to time, and additional deferrals are likely to occur due to licensing delays, economic and political conditions and other factors. De fe r-rals have the effect of significantly increasing the cost of a unit.

(,,)h x..

(2) Estimated construction expenditures relating to the jointly owned units shown above are based upon information furnished by the utility responsible for the construction of each unit. Montaup has been ad-vised by each of the sponsoring utilities that construction budgets are continuously under review in light of increased costs due to deferrals, delays and other factors. The utility responsible for constructint. of Pilgrim No. 2 has announced that, due to uncertainties resulting from the Three Mile Island incident and the timing of construction of the plant, it has not recently prepared revised estimates of construction expenditures. No estimate is reflected for Pilgrim No. 2 for that reason. The estimated expenditures, completion dates and completion of all the above units may also be affected by the various factors referred to below and other events and conditions which cannot now be predicted.

(3) As described on page 6, Montaup has offered to sell a '.00% share.

Due to the t 'me required for the construction of nuclear generating facilities and the completion of licensing and regulatory proceedings relating thereto, substantial investments in the above units will be required prior to the completion of licensing and regulatory proceedings. There is no assurance that all necessary approvals, permits or licenses wi]] be obtained or, if p obtained, will not be modified or revoked or that the units will be completed.

V The necessary approvals and permits for the construction of the Seabrook units have been obtained and have been upheld by the courts on appeal by a number of opposition groups. Construction is currently in progress, although at a reduced leve] from that originally scheduled 'see below). Significant delays (including the suspension of construction for seven months in 1977 and three weeks in 1978) resulting from such opposi-tion have greatly increased costs. There is stil] one court appeal from an early NRC order pending and certain proceedings before the NRC a:e in progress (see page 15). Further proceedings before the NRC relating to the licensing of the units will be required for operation, and other proceedings and appeals are possible. Monteup is unable to predict the outcome or timing of such proceedings or what effect current or further administrat Ive or court proceedinos may have on the cost or completion of the project or on Montaup.

Public Service Company of New Hampshire (PSNH), the utility respon-sible for construction of the Seabrook units, has been and is experiencing difficulties in financing its construction program, including its share (originally 500 of the Seabrook units. In view of these difficulties, PSNH initiated efforts to sell a 22% owiership share in the units to other utilities. PSNH has obtained commitments for the sale of about a 6% share to six New England utilities, including 1% to be sold to Montaup over an adjustment period commer.cing January 31, 1981. Each utility acquiring an

,m ownership interest does so gradually over an adjustment per lod, paying pro rata the costs otherwise attributable to PSNH's ownership interst until such

(' s) acquiring utility's investment in the Seabrook project equals the percentage for which it has committed. Montaup's additional 1% will increase its ownership interest in each of the two units to 2.9%.

5

PSNH has also obtained a commitment for the sale, over an adjustment period, of about a 9% share to the Massachusetts Municipal Wholesale Electric Company (MMWEC). The adjustment. period for the MMWEC purchase commenced on February 28, 1981, but until MMWEC completes its initial finaneirm of its purchase, PSNH will assume MMWEC's share of costs attribut-able to ll.e 9% owner ship interest. If MMWEC has been unable to complete itc financing by June 30, 1981, MMWEC's reimbursement obligation to PSNH will be cancelled and MMWEC's ad,iustment period will not commence until the first business day after consummation of MMWEC's initial financing.

If MMWEC is unable to complete its initial financing in a timely manner or if PSNH does not continue to receive adequate rate relief, the in-service dates for one or both of the Seabrook generating units may have to be further deferred, or construction of the units may have to be further reduced (see the following paragraph) or suspended unt il PSNH's financing problems are resolved. A request by PSNH for emergency rate relief was denied by the Public Utilities Commission of the State of New Hampshire (NHPUC) in February 1981. The NHPUC has ordered that const ruction of Unit No. 2 be deferred until all necessary regulatory approvals have been obtained, the adjustment periods have begun, and the MMWEC initial financing complet ed.

In March 1980, PSNH announced that, due to t5e unsettled state of the capital markets and the high cost of external funds, it would substan-t ially reduce the overall level of const ruction of the Seabrook project in order to lessen PSNH's external financing requirement s for 1980. Later in 1980 PSNH stated that this decision, together with a ten week ironworkers' strike at the plant , have deferred the scheduled completion dates of the units, although the extent of such deferrals will not be known until comple-tion of PSNH's next review of the project schedule late in March 1981.

Reduction in the level of construction will result in an increase in the estimated costs of the units. PSNH has r.lso stated that if reduced construc-tion should continue until March 1981, the scheduled completion dates of the units would be deferred until 1984 and 1986, respectively. Based on PSNH's estimates, such deferral would increase Montaup's tot al expenditures (before Allowance for Funds Used During Construction ( AFUDC)) by approximately

$2,625,000, based on its current 2.9% ownership interest.

Montaup has been advised that at December 31, 1980, 3ngineering on Millstone Unit No. 3 was approximately 73% complete and construction was approximately 33% complete. The Environmental Protection Agency (2PA) has approved the use of a once-through cooling water system for tnis unit, but the approval is subject to revision. A conettuction permit was issued by the NRC in August 1974 and expires in December 1985. It is expected that a provisional operating license will be obtained, or that the construc-tion permit will be extended, before the current expiration date. Each of the three utilities which own in the aggregate 65% of the unit has stated that it wishes to reduce its ownership in Millstone Unit No. 3 and that in the aggregate they have offered for sale up to 8.7% of their ownership.

The reduced consumption of electricity which t he EUA System hc, experienced from customer conservation efforts has result ed in a lowering of the estimated amount of new generating facilities needed by the System. As a result Montaup has made an offering to sell approximately half of its 4.01% interest in the proposed Millstone Unit No. 3. There is no assurance t hat there will be e,y other utility interested in buying such interest or that a sale, if agreed to, will receive the necessary regulatory approvals.

6

. _ __ _ ._. . . . .. . .m

/

Montaup also has a 2.15% ownership interest in a planned nuclear unit, Pilgrim Unit No. ? (lead participant, Boston Edison Company). In a recent g prospectus, the I sad participant has stated that when a more definitive schedule is set far the granting of the construction permit it will be able to develop r evised cost estimates and financing plans and that at that time it will also review the feasibility of the project and decide whether

, to cancel or continue construction of the Unit.

! See Note H of Notes to Consolidated Financial Statements regarding the

, abandonment loss, in 1980, in connection with Montaup's 2.00% ownership inter-est in the Montague nuclear units. In 1979 Montaup incurred an abandonment

]-

loss in connection with its 4.35% ownership interest in two' nuclear generating units designated as NEP 1 ano 2 (lead participant, New England Power Company) l which had been proposed for construction at a site in Charlestown, Rhode 4

Island.

Events at the Three Mile Island Nucleat Unit No. 2 in Pennsylvania (TMI), which have resulted in numerous legal actions seeking dcmages, have prompted a rigorous reexamination of safety related equipment and operating

., procedures in all nuclear fa ilities. The NRC has promulgated numerous requirements in response to TMI, including both near-term modifications to upgrade certain safety systems and instrumentation and long-term design changes which offect items ranging from equipment changes to operational support. All nuclear facilities, including those in which Montaup has an~

j interest, will have to comply with these modifications. However, until the scope of these improvements, as they apply to particuler reactocs, and the time schedules for compliance have been defined by the NRC, neither the cost

(',

, \s.]/ of any modification, which is expected to be substantial, nor their effect, if any, on the operations of particular units nor the method by which their owners will raise the needed capital can be determined. Montaup will be responsible for als proportionate share of the costs of such modifications to units in which it has interests. See also Item 2, PROPERTIES.

The Federal Price-Anderson Act provides, among other things, that the maximum liability for damages resulting from a nuclest incident would be

$560,000,000, to be provided by private insurance and governmental sources.

As required by the NRC regulations, prior to operation of a nuclear reactor, the licensee of the reactor is required to insure against this exposure by purchasing the maximum availe51e private insurance (presently $160,000,000),

the remainder to be covered by retrospective premium insurance and by an indemnity agreement with the NRC. Owners of operating nuclear facilities may.

be assessed a retrospective premium of up to $5,000,000 for each reactor owned in the event. of any one nuclear incident occurring at any reactor in the United States, with a maximum assessment of $10,000,000 per year per reactor owned. As a part owner of operating nuclear facilites, Montaup would be obligated to pay its proportionate share of any such assessment.

Rates

The rates for services rendered by the Company for the most part are j subject to approval by and are on file with the Massachusetts Department of j Public Utilities (MDPU). ' Rates charged by Montaup (which sells power only

'f-' for resale) are subject to the jurisdiction of the Federal Energy Regulatory j

L Commission (FERC). See also Item 3, LEGAL PROCEEDINGS.

^

7 i

General rate increases granted the Company and Montaup, since 1976, are as follows:

Applied For Made Effective Annual Application Annual E f fective Revenue Date Revenue Date Massachusetts:

Eastern Edison $4,006,430 07/15/77 $1,260,112 02/08/78 626,961 04/13/78 2,099,481 12/15/78 375,756 05/14/80 9,550,577 05/15/80 5,380,107(a) 11/26/80

' Federal:

Montaup $1,672,400 06/27/77 $1,341,011 01/01/78 3,720,697 06/28/78 1,636,464 11/29/78 10,722.862 07/11/80 9,100,000(b) 12/01/80 8,982,604 12/19/90 7,879,604(c) 02/19/81 (a) Based on an allowed rate of re' urn on common equity of 14.0%.

(b) An interim settlement of $9,500,000 which was effective as of October 1, 1980 was subseouently reduced to $9,100,000 in a final settlement made effective December 1,1981.

(c) Increase made ef fective subject to refund. Based on a requested rate of return on common equity of 18.0%. There is no assurance that Mon-taup's request will ultimately be granted either fully or partially.

Massachusetts Proceedings:

Effective Arc 11 1,1978 Eastern Edison was authorized by the MDPU to institute a forward-looking ourchased power adjustment clause thereby removing the two-month lag in recovery of costs under previous clauses.

Changes in the adjustment clause or the amounts charged under it are the subject of quat t erly hearings. Beginning in the second quarter of 1978 East 3rn Edison was allowed by the MDPU to recover purchatad power costs previously unbilled as the result of its transition to the forward-looking purchased powar clause.

On December 29, 1777, the MDPU promulgated regulations which wi]]

require electric utilities to adopt mandatory rate structures based on peak load and time differential pricing and related cost methodology. The new regulations took effect cn January 6,1978 and were intended to be implemented over a nine-month ,.riod. Eastern Edison, along with the majorit y of the Massachusetts electric utilities, was unable to meet the nine-month deadline and received an extension. Eastern Edison has filed with the MDPU a plan for implementing such rates. It is expected that the implementation period will be of considerable duration.

O 8

Federal Proceedings:

Montaup's December 19, 1980 request to FERC sought additional wholesale revenues aggregating $9,000,000 on an annual basis. Such request included a return on common equity of 18%. Montaup requested that the new rates become effective, subject to refund, on February 19, 1981, after a one-day suspension.

Requests for intervention have been filed by Montaup's four non-affiliated wholesale customers and by the Attorneys General of Rhode Island and Massachu-setts and by the RIPUC and its Division of Public utilities and Carriers. At its public meeting on Febluary 13, 1981, FERC granted Montaup's requested one-day suspension and permitted approximately $7,900,000 to be put into effect subject to refund on Febraary 19, 1981.

Public Utility Regulation Eastern Edison end Montaup are subject to regulation by the MDPU with respect to the issuance of securities, the form of accounts, rates to be charged (in the case of Eastern Edison), service to be provided and other matters. In addition, by reason of its ownership of fractional interests in certain facilities located in cther states, Montaup is or may be subject to regulation of activities in those states-All companies in the EUA Syctem 'e subject to the jurisdictinn of the Securities and Exchange Commission under the Public Utility Holding Company 3 Act of 1935 by virtue of which such Commission has certain powers of J

regulation, including jurisdiction over the issuance of securities, change V in the terms of outstanding st.curities, acquisition or sale of securities or utility assets or other interest in any business, intercompany loans and other interecmpany transactions, payments of dividends under certain circumstances, and related matters. Eastern Edison, insofar as it may be deemed to be a holding company under such Act by reason of its ownership of securities of Montcup, has been exempted from registering under sucn Act as a holding company by complying with the applicable rules thereunder.

See " Business-Uncertainties Regarding Nuclear Plants" with respect to reguletion to nuclear facilities by the NRC. See also " Business-National Energy Policy."

Eastern Edison and Montaup are also subject to the jurisdiction of FERC under Parts II and III of the Federal Power Act. That jurisdiction includes, among other things, rates for sales for resale, interconnection of certain facilities, accounts, service, and property records.

Environmental Regulation Eastern Edison and Montaup and the other companies owning gencrating units from which Montaup obtains power are subject, like other electric utilities, to developing standards administered by Federal, state and local authorities with respect to the siting of facilities and environmental factors. The Environmental Protection Agency (EPA) har jurisdiction over discharges into both water and air end has broad authority in cennection therewith including the ability to require installation of paljution control and mitigation devices.

9

The Federal Water Pollution Control Act establishes a nat ional objective of complete elimination of discharges of pollutants (including heat) into the nation's waters and creates a rigorous permit program designed to achieve these effluent l imit at ions. All water discharge permits for plants in Massachusetts, including those for the Somerset and Canal plants, are issued by the St ate Department of Environmental Quality Engineering subject to review by the EPA. The Federal Clean Air Act empowers the EPA to establish cleaa air standards, including standards limiting t he sul fur content of fuel burned for electric generation, which are implemented and enforced by state agencies.

Both Federal and Massachusetts legislation require consideration of report s evaluating environmental impact as a prerequisite to the granting of various permits and licenses, with a view to minimizing environmental damage. Massachusetts air quality regulations also require that plans (including procedures for operation and maintenance) for construction or modificat ion of fosull fuel generating facilities be approved by the De-partment of Fnvironmental Quality Engineering. In addition, in Massachu-setts, certain electric generation and transmission facilit ies on which construction commences after April 1976 w1]] be permitted to be built only if they are consistent with a long-range forecast filed by the utility concerned and approved by the Energy Facilities Siting Louncil.

Montaup and the companies and municipalities with which it has power supply arrangements are also subject, like other electric utilltles, to regulation with regard to zoning, land use and similar cont rols by various state and local authorities. Under FeJeral energy legislation adopted in 1978 -

Secretary of Energy has authority with respect to exist ir) electric power plants to prohibit the burning of oil, but only after finding that a plant has the capability to use coal without substant ial physical modification and that the use of coal is financially feasible. Exemptions relating t o environmental requirements and other factors are provided. The Department of Energy (DOE) has issued complex int erim rulec under this legislation.

Montaup has been informed thet the DOE has included Canal Unit No. 1 in a list of oil-fired elect ric generat ing facilit ies which may be required to e converted to an alternative fuel. The Company is unable to predict the effect of this legislallon on its sources of power.

Under the)r continuing jurisdiction, one or more of the EPA and the st ate and local authorit ies may, after appropriate proceedings, require modificat ion of generating facilities for which const ruct ion per .ts or operating licenses have already been issued, or impose new condit ions on such permits or licenses, and may require that the operat ion of a unit cease or that its level of operat ico be temporarily or permanently reduced.

Other activities of the Company and Montaup from time to time are subject to the jurisdict ion of various other state and Federal regulatory agencies.

Some of the generating facilities in which the EUA System has an interest, and is required to pay a share of the costs, have encountered and may in the future ennounter problems under governmental regulat ions, parti-cularly those relating to nuclear facilities or to protection of the environment. Such problems may result in increases in capttal costs and operating costs which may be substantial, in delays or cance]]ation of const ruction of planned facilities, or in modification or termination of operat ions of exist ing facilities.

10

Environmental Permits s Through December 31, 1980, 9pliance with applicable environmental regulations required additional c. ' ital expendituree by Montaup of approxi-mately $16,340,000 including appro imately $13,841,000 for Montaup's ownership in the following units: mal No. 2 $11,564,000; Wyman No. 4

$516,000, Millstone No. 3 $329,000; .lgrim No. 2 $80,000 and Seabrook Nos.

1 & 2 $1,352,000. Montaup expects rapidly increasing expenditures to meet environmental requirements for the existing and proposed units in which it a participating.

Most of the generating units from which Montaup obtains power operate under permits which limit their effluent discharges iato water and which require monitoring and, in some instances, biological studies of the impact of the discharges. Such permits are issued for a period of not more than five years, at the expiration of which renewal must be sought.

! All domestic fossil fuel plants from which Montaup obtains power operate under permits which limit their discharges into the air and require

monitoring of the discharges. Air quality requirements adopted by state authorities in Massachsuetts pursuant.to the Clean Air Act impose limita-tions with respect to pollutants such as sulfur oxides, oxides of nitrogen and particulate matter. These limitations could not be complied with if Montaup were to burn coal with the present equipment in its Somerset plant and therefore the use of coal would require suspension of these air quality requirements or the installation of control devices. The Somerset plant and the Canal plant are permitted to burn fuel oil with a sulfur content g' not in excess of 1.21 pounds per million B.T.U.' heat release potential (approximately 2.2*.' sul fur content fuel oil). Burning of such fuel is subject to conditions including provisions that fuel oil having not in excess of 1% sulfur content be used during air pollution emergencies.

National Energy Policy National energy legislation, dealinq with coal conversion, gas deregu-lation, energy conservation, energy taxes and utility rate regulation, became effective in late 1978. One portion of this J.egislation, the Puolic Utility Regulatory Policies Act of 1978, is designed to affect state regulatury policies and bring about extensive changes in rate structures, pricing and cost methodology. It is not possible at this time to predict what effects this legislation, and regulations adopted and proposed for adoption to implement it, will have on the Company, including its rates and its fuel supoly.

Item 2. PROPERTIES Except for the two gas turbine units referred to in the table below, which are peaking units, Montaup's solely-owned generating capacity has not been increased since 1959 because the EUA System has found it more economi-cal to join with other utilities in the joint ownership of large units, and believes that spreading the System's sources of electricity among a number l of plants improves the reliability of its power supply. Montaup's interest

' y/ in five operating nuclear generating units represent 15.0% of its present capacity.

11

- , _ ~ ___ , - . . . _ . _ - - _ _ - . - _ ._- _, , - - _ _ - ~

Generating Units in Service Net System System In Capability Share Unit Type Owner Interest, Service MW MW Somerset, Oil Montaup 100% 1951-1959 198(6) 198(6)

Nos. 5 &6 Somerset, Gas Montaup 100% 1970-1971 48 48

' dos. 31 & J2 Turbine Yankee Rowe Nuclear Yankee Atomic 4.5%(1) 1961 145 7 Electric Company Connecticut Nuclear Connecticut 4.5%(1) 1968 575 26 Yankee Yankee Atomic Power Company Canal No. 1 Oil Canal Elect ric 25%(2) 1968 568 142 Company Vermont Yankee Nuclear Vermont Yankee 2.5'4(1) 1972 528 9(7)/8)

Nuclear Power Corporation Maine Yankee Nuclear Maine Yankee 4%(1) 1972 830 26(7)(8)

Atomic Power Company Pilgrim No. 1 Nuclear Boston Edison 11%(2) 1972 670 70(7)

Company Cleary No. 9 011 City of' 72.7% 1975 110 80(3)

Taunton Canal No. 2 Oil Canal Electric 50%(4) 1976 584 292 Company and Montaup l

New Brunswick, Oil New Brunswick 6.41%(5) 1976 400 26(5) l Nos. 1, 2 & 3 Electric Power l

Commission Wyman No. 4 Oil Central Maine 1.96%(4) 1979 615 12 j Power Company Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 936 l

l O 12

l (1) Stock ownership.

(2) " Life of unit" purchase contracts (earliest normal expiration year 2000).

(3) Variable purchase contract. Amount under " System Share" represents I estimated entitlement through October 31, 1981. Montaup's share is expected to declinc each year thereafter until it ceases, now estimated to occur in 1990.

(4) Joint ownership.

I (5) Share of contract of several New England utilities for balance of '

10-year purchase, starting January 1, 1981 and ending October 31, 1985, of 133 MW (reduced from 400 MW).

(6) Active capability on January 1, 1981. l 1

(7) After giving effect to life-of-unit resales to Newport Electric Corporation aggregating 10MW for Vermont Yankee, Maine Yankee and Pilgrim No. 1.

(8) After giving effect to reduction in capacity available to EUA System as a result of agreement with certain municipal and cooperative utilities.

Montaup's participation in present and future generating units of

, b) which it is not the sole owner takes various forms including stock ownership, V joint ownership and nurchase contract. In most cases, regardless of the form of participation, Montaup is or will be required to pay its share (i.e. , the same percentage as the percentage of its entitlement to the output) of all of the costs of the unit including fixed costs (whether or not the unit is operating) operating costs, costs of additional construction or modification, costs associated with condemnation, shutdown, retirement, or decommissioning of the unit, and certain transmission charges.

Montaup and the other stockholders of Vermont Yankee Nuclear Power Corporation have agreed in principle to guarantee their respective pro rata shares of a $40,000,000 nuclear fuel financing; completion of the

, financing is subject 'to the receipt of regulatory approvals and the execution of definitive agreements. Montaup and the other stockholders of Connecticut Yankee Atomic Power Company have agreed to an interim financing arrangement under which each must purchase its pro rata share of up to

$40,000,000 of Connecticut Yankee's subordinated notes to. meet nuclear fuel financing obligations, construction expenditures and other needs. Through February 28, 1981, $21,000,000 principal amount of such notes had been issued, of which Montaup had purchased $945,000. Connecticut Yankee has also proposed that its stockholders guarantee their respective pro rata shares of a proposed bank line of credit of up to approximately $25,000,000 and a debenture issue of up to $75,000,000; the proceeds of the debentures would be used in part to repay the subordinated notes. EUA believes that the Yankee companies will require additional external fincncing in the next several years and that Montaup may be asked to provide its pro rata share of

(, additional equity capital or other kinds of financial support.

13

The Company and Montaup own approximately 2,500 miles of transmission and distribution lines and approximately 70 substations located adjacent to the cities and towns served.

In addition to the above, the Company and Montaup also own six buildings which house distribution, maintenance or general office persornel.

See Notes F and I of Notes to Consolidated Financial Statements regarding encumbrances and rental and lease commitments.

Item 3. LEGAL PROCEEDINGS Rate Proceedings

1. On May 15, 1980, Eastern Edison filed an application with the MDPU seeking additional retail revenues aggregating approximately $9,550,000 en an annual basis. The MDPU issued a decision on November 26, 1980 authoriz-ing additional annual revenues of $5,380,000 or 56% of the amount requested.

In response to motions for reconsideration and recalculation filed both by Eastern Edison and by the Attorney General of Massachusetts, who had inter-vened in the proceeding, the MDPU issued an amended order on f ebruary 11, 1981 directing that the $5,380,000 increase remain unchanged unless reduced after consideration by the MDPU of further information to be submitted by Eastern Edison on one of the issues.

2. An industry-wide proceeding before the MDPU (D.P.U. 307/408) involves two sets of proposed revisions to present regulations concerning billing and service termination, one proposal having been advanced by the NDPU's staff and the other by a group of organizations which state that they represent consumers. While some of the proposals, if adopted, would affect Eastern Edison's abilP.y lo collect its bills on a timely basis, Eastern Edison believes that any such impact would ultimately be recognized by the MDPU in the general rat e levels that it authorizes. See also "Massachu-setts Proceedings" on page 8.

3. Various proceedinqs which could affect Eastern Edison, some of which are pending, haa been held before the MDPU as required by the federal Public Utility Regulatory Pelicies Act of 1978 involving such matters as the appropriate costs for rd e.,aking, a variety of rate structure questions, conservat on programs, master metering and advertising expenses. None of these praceedings appears to affect Eastern Edison's ability to recover its legit 2ma*.e expenses from its ratepayers.

'4 . Ar application by Montaup to the FERC has been settled by an agree-mant of Montaup and all intervenors to make an increase of revenues in the annual amount of $9,100,000 (Montaup's "M-5" rate) effective as of December 1, 1980 and to terminate a proceeding in which Montaup had sought to include in rate base a portion of its investment in certain construction work in orogress. Montaup awaits an order of the FERC approving the settlement.

5. With respect to Montaup's "M-6" rate filed with the FERC on December 19, 1980, see " Federal Proceedings" on page 9.

14

l Environmental Proceedings

6. Montaup, together with numerous other electric utilities, is participating in ongoing proceedings concerning implementation by the p EPA of the Federal Clean Water Act. Involved in this matter are proceedings V before EPA and other governmental entities and courts regarding various Federal and state regulations, including those remanded tn EPA by the United States Court of Appeals for the Fourth Circuit. In addition, members of the same group of utilities are seeking judicial review of certain EPA regulations governing the National Pollutant Discharge Elimination System (NPDES) permit program. Members of the group are also seeking review of an EPA variance regulation applicable to steam-electric power plants, and are participating as intervenors in a case which raises the question whether NPDES permits are needed for discharges from dams.

Proceedings Regarding Nuclear Plants

7. In consolidated proceedings before the MDPU in which Montaup and other utilities owning interests in the Seahrook units sought approval for their acquisition of additional interests, the MDPU on October 30, 1980 ~mroved Montaup's acquisition of an additional 1.00% interest from PSNf but disallowed Montaup's requests for approval of its equisition of an additional 2.10% aggregate interest irom two other utilities. As a result, Montaup, during an adjustment period, will increase its ownership share in the units to 2.90%. The following description of certain other proceedings affecting the Seabrook units is based on information received from the lead participant, PSNH.

(a) Construction permits were issued by the NRC in 1976. The initial decision approving the permits was affirmed by an NRC Atomic (ml Safety and Licensing Appeal Board (the Appeal Board) with one member dissenting (with respect to the seismic design of the f acility) and by the NRC. One intervenor has petitioned for review of the seismic issue, and a hearing before the Appeal board is tentatively scheduled to commence April 6,1981.

(b) There is presently pending before the Uni' ed States Court of Appeals for the First Circuit an appeal by intervenors from a decision of the NRC challenging the NRC's refusal in 1976 to suspend the Seabrook construction permits despite a court decision in litigation not involving Seabrook which set aside the NRC's rule with respect to the environmental effects of reprocessing spent fuel and disposing of nuclear waste.

Effective September 4,1979, the NRC (one member dissenting) promulgated its final rule on that subject. A petition for review of the final rule is pending before the United States Court of Appeals for the District of Columbia Circuit (State of New York v. NRC, D.C. Cir. Nos. 79-2110 and 79-2131). The lead participant believes that the 3nvironmental effects of the fuel cycle, determined in accordance with the new rule, are too small to affect the environmental cost-benefit evaluation of the project.

(c) Further appeals from various regulatory approvals granted for the project are possible. The NRC staff is reviewing a letter from an intervenor which is treated as a request for a show cause order as to why the construction permits should not be suspended or revoked because of the NRC's failure to develop certain evacuation plans and to evaluate p)

(

the consequences of certain types of accidents. In connection with obtaining operating licenses for the Seabrook units it will be necessary for Federal and state agencies to develop satisfactory emergency response and evacuation plans.

15

(d) A dispute as to the intent or enforceability of an agreement relating tc the enrichment , conversion and fabrication of n; clear fuel for the Seabrook units has resulted in the supplier instituting litigation (Getty Oil Company v. Wisconsin Electric Power Company, in the United States District Court for the Cent ral District of California) against the owners of the units, including Montaup. for alleged breach of contract (alleging damages of about $5,000,000 o. which Montaup's share, based on its present ownership, would be about $100,000) and unlawful restraint of trade (seeking treble damages); a counterclaim and a separate action have been filed against the supplier based upon its wrongful influencing of the market price. The outcome of this litigation cannot be predicted.

8. The following description of proceedings affecting the Pilgrim Unit Nos. 1 and 2 is based on informat3 on received from Boston Edison Company, the lead participant.

(a) Based on Boston Edison Company's demonstration concerning the combined discharges of Pilgrim Unit Nos. 1 and No. 2, the EPA and the Massachusetts Division of Water Pollution Control (the MDWPC)

(which may jointly issue a single permit) issued permits in 1977 authorizing once-through cooling for the two units and granting exemptions from the EPA's thermal effluent guidelines. Following appeals and hearings, final decisions upholding the permit issuance have been received from the EPA Administrator and the MDWPC. Further review of the EPA decision was not sought; however, judicial review of the MDWPC decision has been sought in the Massachusetts Superior Court, which review is presently pending. The Pilgrim Unit No. 2 permit does not expire until 1982. The Pilgrim Unit No. 1 permit expir-d by its terms during 1979; however, timely renewal of the pe- was sought prior to expiration, and under applicable Federal E

• 7te law the validity of the pre-existing permit centinues.

(b) The MDPU is conducting a proceeding to inquire into the capacity needs of Boston Edison Company and the construction program required to meet such needs. Pilgrim Unit No. 2 may be affected by this inquiry. Hearings have been completed and briefs have been filed.

(c) The application of, the joint owners for authorization to construct and operate Unit No. 2 at Pilgrim Station was filed with the NRC in 1973. Hearings were held and in February 1981- the Board issued a partial initial decision in which it concluded that a construction permit to build Unit No. 2 should be issued subject to various conditions required to be observed by the applicants and subject to the favorable completion of hearings on emergency planning and on issues related to the March 1979 accident at the Three Mile Island nuclear plant in Pennsylvania. Appeals may be taken from this decision.

(d) In April 1979, an action was commenced in the Massachusetts state courts on behalf of the Plymouth County Nuclear Information Committee, Inc. and several individuals seeking injunctive relief ag; inst the continued operation of Pilgrim Unit No. 1, as well as 16

_ ~ _ _ .- -- -

unspecified monetary relief for alleged Jamages resulting from its operation. The plaintiffs' iaitial application for a preliminary injunction was denied. The action was subsequently removed to the United States District Court for the District of Massachusetts, g where the defendant's motion to strike the injunctive aspects of the complaint was granted in December 1980. The plaintiffs have appealed to the United States Court of Appeals for the First Circuit.

, (e) In April 1980 an action was commenced in the United States District Court for the District of Massachusetts on behalf of the Massachusetts Coaltion of Citizens with Disabilities and another organization and several named individuals against Boston Edison Company and several state agencies and public officials seeking injunctive relief against the continued operation of Pilgrim Unit No.

1. The plaintiffs' application for preliminary injunctive relief was denied.

Item 4. SECURIiY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT (a) Security ownership of certain beneficial owners.

Amount (number of Name and Address of shares) and Nature of Title of Class Beneficial Owner Beneficial Ownership Percent of Class Common Stock Eastern Utilities 2,891,357 * -100%

Associates

• 99 High Street s Boston, Massachusetts (V)

• All shares, which are the only voting securities of the Company, are registered in the name of the beneficial owner.

l (b) Security ownership of mauagement as of February 1,1981.

. Amount (number of Name of shares) and Nature of Title of Class " Beneficial Owner Beneficial Ownership Percent of Class (1)

Common Shares, William R. Bisson. 2,125 (2) Less than

$5 par value, 122 (3) one percent of Eastern Robert I. Dexter 100 (2) for each Utilities John F.G. Eichorn, Jr. 1,852 (2) individual Associates 256 (3)

Allan K. Hamer 53 (2) 115 (3)

Robert E. Maguire 588 (2) 148 (3)

Margaret M. Stapleton 100 James T. Waldron 548 13.60% Preferred William R. Bisson 100 (2) Less than Stock of the one percent O,, Company .

17

O' (1) Unless otherwise indicated, beneficial ownership is based on sole investment and voting power.

(2) Jointly owned with spouse.

(3) Shares held under the EUA Employees' Share Ownership Plan (ESOP) as to which t he individual indicated has vot ing power.

All directors and officers as a group beneficially owned 6,520 comran shares, being less than two-tenths of one percent of the outstanding common shares of EUA at February 1,1981. Included are 942 shares held for officers under EUA's ESOP and 4,930 shares jointly owned with the officers' spouses.

Except as indicated above, directors and execut ive officers of the Company at February 1, 1981, did not own any of the Company's 4.64%, 8.32%,

13.60% or 15.48% Preferred Stocks.

(c) The Company knows of no contractual arrangement s which may at a subsequent date result in a change in control of the Company.

PART II Item 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER MATTERS All of Eastern Eidson's common stock is owned beneficially and of record by EUA.

The dividends paid on the common stock during the past two years are as follows:

Dividends Paid Dividends Paid Year Per Share Year Per Share 1980 1979 First Quarter $0.87 First Quarter $1.02 Second Quarter 0.61 Second Quarter 0.96 Third Quarter 0.93 Third Quarter 0.88 Fourth Quarter 0.35 Fourth Quarter 0.68 No dividends may be paid on the common stock unless full 'dividends on the outstanding Preferred Stock for all past and the current quarterly dividend periods have been paid or declared and set apart for payment , nor may any dividerids be paid on the common stock if the Company is in default in any sinking fund obligation provided for any Preferred Stock. See also Notes C, D and E of Notes to Consolidated Financial Statements.

18

Item 6. SELECTED CONSOLIDATED FINANCIAL DATA for the Years ended December 31,

() (In thousands except per share amounts)

Operating Revenues $224,221 $168,127 $141,712 $144,791 $138,946 Net Income from Continuing Operations -11,138 10,895 10,085 6,483 8,122 Income Per Common Share from Continuing Operations $3.85 $4.14 $4.45 $3.09 $5.17 Total Assets 328,956 290,858 260,700 249,042 232,543 Long-Term Debt 110,982 100,985 96,202 96,219 100,116 Redeemable Preferred Stock 20,199 5,607 5,921 5,921 5,921 Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIDMS.

Summary Consolidated Net Income in 1980 increased 2:2% from 1979 and 1979 increased 8.0% from 1978. Earnings per average common share decreased during the same period from $4.45 in 1978 to $4.14 in 1979 to $3.85 in 1980 as a result of additional common stock which was issued and outstanding.

The 1980 results were increased by $1.2 million or $0.43 per share because of an adjustment (of which $0.34 is a one-time adjustment) which resulted from an amended rate order of the MDPU. See also Note A of Notes to Consol-idated Financial Statements. Cash requirements for the Company's construction program totaled $21.8 million, $20.9 million and $18.8 million, respectively,

(}

\s_- for the years 1980, 1979 and 1978. Internally generated funds provided none,

$4.5 million and $7.6 million of the cash necessary to meet the above mentioned construction program with the remaining requirements being provided from external sources which are more fully explained under " Liquidity and Sources of Capital". See also Note J of Notes to Consolidated Financial Statements.

Operating Revenues Operating Revenues in 1980 increased $56.1 million over 1979 and in 1979 increased $26.4 million over 1978. Approximately 90.9% of the 1980 increase in operating revenues and 97.7% of the 1979 increase were due to significant increases in fossil fuel costs which s-a, after regulatory review, automatically passed on to customers. Tne remaining increases in 1980 revenues came from the billing of higher base rates, although these higher rates were slightly offset by lower kilowatthour consumption by customers. This reduction in kilowatthour sales is attributed to the im-plementation of energy conservation measures by customers and to the generally weak economic conditions that prevailed in 1980.

Fuel Expenses Approximately 84% of Montaup's generating capacity is fueled by oil. As indicated in the preceding paragraph, the cost of fossil fuel burned in generating stations significantly increased during 1980 and 1979. During 1980, the price per barrel of oil increased from $19 in January to $32 in O December. These increases raised fuel expense by $51.0 million or 62.1% over 1979, despite a slight decrease in kilowatthour sales. 1979 fuel expense increased by $25.8 or 45.9% over 1978 and the cost per barrel of oil increased from $11.42 in January to $19.00 at year end,1979.

19

Purchased Power Purchased power expense increased by $4.4 million or 19.8% in 1980.

Most of the increase reflects additional maintenance and safet y analysis i work required at nuclear generating plants in which Montaup has ownership interests or unit contracts. The safety analysis work has been required by the NRC as a result of f1: dings in its ongoing investigation of the Three Mlle Island nuclear plant incident.

Allowance for Funds Used During Construction Allowance for Funds Used During Construction ( AFUDC) represents the net cost, during the period of construction, of borrowed funds used for const ruc-tion purposes and a reasonable rate upon equity funds when so used. AFUDC represents a non-cash element of income. The Company and Montaup experienced increases in the level of AFUDC (both equity and debt) tot aling $3.6 million in 1980 and $2.4 in 1979. Continuing expenditures for the construction of future generating facilities has resulted in significant increases in the level of construction work-in-progress balances to which the AFUDC rate is applied. In addition, b(cause of substantially higher borrowing costs to the Company and Montaup, the AFUDC rate has been increased from 8.5% in early 1978 to 11.5% in 1979 to 14.5% in 1980. AFUDC has also become a larger component of consolidated net income increasing from 38.0% in 1978 to 56.9% in 1979 and to 88.4% in 1980.

Interest Charges Increases in interest on long-term debt and other interest expense are reflective of the Company's and Montaup's continuing need to borrow funds to meet those cash requirements of its construction program which cannot be met with internally generated funds. Interest on long-term debt increased by $.8 million or 9.2% in 1980 primarily as a result of increases in the prime borrowing rate and the issuance of $15 million of 14-1/4% bands in October 1980. The increase of approximatley $1 million in 1979 was as a result of an additional $5 million in Term Notes Payable being outstanding for most of 1979. In 1980, other interest expense increased $2.0 million to $6.8 million. This increase was primarily the result of the continuation of an extremely high level of short-term borrowings f or most of the year and record high prime borrowing rates. The issuance of $15 million of bonds and $15 million of preferred stock in October has enabled the Company to substantially reduce its level of short-te n borrowings. Other interest expense increased $1.8 million in 1979 as a result of an increased level of short-term borrowings and higher borrowing rates.

Preferred Dividends of the Company Preferred Dividends of the Company increased by $.4 million in 1980 as a result of the dividend requirements on a $15.0 million issue sr 15 .b%

preferred stock in October 1980.

Consolidated Net Income Consolidated Net Income was $11.1 million in 1980 as compared to $10.9 million in 1979 and $10.1 million in 1978. The growth in consolidated net income has been severely restricted by substantial increases in purchased power and 1.iterest expense not being offset by increases in kilowatthour sales and by the lack of adequate and timely rate relief.

20

i Liquidity and Sources of Capital The Company and Montaup are required to make substantial capital expend-4 O itures in order to meet the needs of its existing customers and to meet the future requirements of these customers as well ca new customers. As is customary in the utility industry, construction requirements in excess of internally generated funds are obtained through short-term borrowings which are ultimately funded witt. permanent capital. In 1978 and 1979, the Company's and Montaup's cash construction requirements were $18.7 million and $20.9 million, respectively, and they were able to generate 40.6% and 21.5%,

respectively, of such requirements with internally generated funds with the 4 balance coming from short-term borrowings. In 1980, internally generated

! funds produced none of the $21.8 million in cash construction requirements primarily because of the extremely high cost of short-term borrowings which were i not recovered in rates and by the inability to obtain adequate rate relief on a timely basis. All of the cash construction requirements were funded with short-term bank borrowings, some of which were subsequently permanently funded with the issuance of bonds and preferred stock referred to above.

Current regulatory practices do not permit the Company or Montaup to

, earn a cash return on new generating facilities until they are in service.

Since they expect their cash construction requirements to remain at or above current levels, they will be required to raise large amounts of

permanent capital. Such capital is expected to be raised through the issuance of additional first mortgage bonds and preferred stock.

The completion of approximately $30.0 million in permanent financing during late 1980 has enabled the Company and Montaup to reduce their depen-dence on short-term bank borrowings and consequently reduce their bank credit O, lines. At year end 1980 they had $55.1 million in bank credit lines of which

$31.4 million was being utilized. The ability to further reduce short-term borrowings will be dependent on the Company's ability to sell additional amounts of permanent securities.

The consolidated capitalization, including short-term debt, at year end 1980,1979 and 1978, was as follows:

l 1980 1o79 1978 (In Thousands)

Long-Term Debt $110,982 40.5% $100,985 40.0% $ 96,202 42.4%

i Non-Redeemable Preferred Stock 8,950 3.3 8,950 3.6 8,950 4.0 Redeemable Preferred Stock 20,199 7.4 5,607 2.2 5,921 2.6 Common Equity 102,210 37.3 99,077 39.3 90,278 39.8 Short-Term Debt 31,450 11.5 37,500 14.9 25,450 11.2 i

$273,791 100.0% $252,119 100.0% $226,801 100.0%

See Table under " Business-nates" for a summary of recent rate increase requests. The wholesale rate increase settlement of Montaup, received in late 1980, allowed the use of tax normalization of the debt component of AFUDC and a cash recovery over a five-year period of Montaup's $2.1 million j investment in a nuclear project that waa cancelled in 1979. The wholesale l

rate case applied for on December 19, 1980 has requested the cash recovery i of an investment in a nuclear project that was cancelled in 1980. These items will provide additional cash to meet construction program expenditures.

]

4

! 21 4

, - ~ _ , , . - , - - . . - . - _ - . - - - . . - . - . . - _ . - - - . - - - - -

The ability to raise the required amount s of permanent capital will oe contingent upon the ability of the Company and Mont aup t o obt ain increased rate relief in amounts that will enable them to meet coverage tests required for the issuance of bonds and preferred stock. In addit ion, higher earned returns on equit y will be required to make Eastern Eidson's securities more att ract ive to investors.

Impact of Inflation Inflation has become a significant element in the operation of a regulated electric utility system. The t raditional use of a historical test period for rate making purposes no longer provides a reasonable opportunity for the Company to actually earn a fair ret urn on invested capit al . This is evidenced by the comparatively low level of return on equity earned by Eastern Edison over the last few years. Accordingly, Eastern Edison has included requests for "att rit ion" or " inflation" allowances in its last rate increase filing and wi]]

continue to pursue these and other innovat ive concept s in an effort to reduce the effects of inflation on the result s of operations. Alt hough Montaup is permitted by FERC to utilize a forward-looking test period for rate making purposes it has experienced difficulty in earni:g its allowed returns because inflation has been increasing at a faster rate than ant icipat ed in the fut ure test year. The Financial Accounting Standards Board has developed certain measurement bases for reflecting the effects of inflation. See page 49-51 for a disclosure of these measurement bases. Explanatory comment s are included in those disclosures on th > effects of changing prices on the Company's and Montaup's operations.

Iten 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The response to this item is submitted as a separate section of this report under Item 11(a)(1).

Item 9. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT (a), (b), (c), (d) and (e) The names, ages and positions of all of the directors and executive officers of the Company as of March 15, 1981, are listed below with their besiress experience during the past five years.

The directors, Treasurer and Clerk of the Company are each elected to serve until the next annual stockholders' meeting which is scheduled to be held March 2, 1982. All other officers, except the General Manager of the Fall River Division, who is appointed to serve at the pleasure of the Board of Directors, are elected to serve until the next meeting of directors following the annual stockholders' meeting. There is no family relationship between any of the directors or officers of the Company. Messrs. Dexter, Eichorn and Maguire and Miss Stapleton are Trustees of El%.

Name, Age Business Experience and Position During Past 5 Years William R. Bisson, 56 Vice President since 1974; Vice President of Director and Vice parent since 1974; responsible primarily President (1) for the power engineering operations, includ-ing generation, transmission and distribution facilities of the EUA System.

22

Name, Age Business Experience and Position During Past 5 Years Richard M. Burns, 43 Treasurer since 1974; Comptroller of parent since Treasurer (2) 1976; responsible primarily for the accounting affairs of the Company.

Robert I. Dexter, 62 President of Abington Mutual Fire Insurance Director Company and has held that position for more than five years.

John F.G. Eichorn, Jr., 57 Chairman of the Board since 1973; President and Director and Chairman of Chief Executive Of ficer of parent since 1972; the Board (3) responsible primarily for the operations of the EUA System.

Allan K. Hamer, 55 President since 1975; responsible primarily Director and President for the management and operation of the Company.

Robert E. Ma " - ~i Vice Chairman of the Board since 1976; Execut ive Directo :e lairman Vice President of parent since 19759, assists 4

of the i the President of the parent in the overall operation of the EUA System.

William F. O'Connor, 41 Clerk since 1974; Secretary of parent since Clerk (i) 1971; responsible primarily for the corporate O affairs of the Company.

Donald G. Pardus, 40 Vice President since August 1979; Vice President, Director and Vice President Treasurer and Chief Financial Officer of (6) parent' since June 1979; responsible for overall financial and accounting affairs of the EUA System. Prior to that time he was Assistant Treasurer of Northeast Utilities from 1971 to 1979.

Paul R. Pinkham, 46 General Manager of the Fall River Division General Manager since February 1980. Prior to that time he was Manager from 1975, then Director, from 1977, of Public Informction of EUA Service Corporation.

Margaret M. Stapleton, 44 Second Vice President, John Hancock Mutual Life Director Insurance Company (" John Hancock") since February 1979. Prior to that time, she was Investment Officer from 1974 to 1977 and Senior Investment Officer from 1977 to 1979 of John Hancock.

James T. Waldron, 67 Partner in law firm of Clarkin, Waldron & Tucker Ditector and has held that position for more than five u- years.

23

(1) Vice President of EUA, Service, Blackstone and Montaup. f (2) Comptroller and Assistant Secretary of EUA, Comptroller of Service and Assistant Treasurer of Blackstone and Montaup.

(3) President and Chief Executive Officer of EUA, President of Service and Montaup and Chairman of Blackstone.

(4) Executive Vice President of EUA, Service and Montaup and Vice Chairman or Blackstone.

(5) Secretary of EUA, Vlee President, Secretary and Clerk of Service, Assistant Secretary of Blackstone and Assistant Clerk of Montaup.

(6) Vice President, Treasurer and Chief Financial Officer of EUA, Vice President, Treasurer and Assistant Secretary / Assistant Clerk of Ser-vice and Vice President, Assistant Treasurer and Assistant Secretary /

Assistant Clerk of Blackstone and Montaup.

( f) There have been no events under any bankruptcy act, no criminal proceedings and no judgements or injunctions material to the evaluation of the ability and integrity of any director or executive officer during the past five years.

Item 10. MANAGEMENT REMUNERATION AND TRANSACTIONS Information is set out below (a) as to remuneration paid by the Company during the ycar 1980 to each director and each of the five highest paid executive of ficers of the Company whose aggregate remuneration for the year exceeded $50,6CO and (b) as to the aggregate remuneration paid by the Company during the year to all directors and officers of the Company as a group.

Life and Disability Insurance Name of Individual Capacities in Salaries and and Other or Persons in Group which trved Directors' Fees Benefits Allan K. Hamer President and r Director . .. $ 54,069 $1,751 All Direct ors and Officers as a group (7 persons) . . . . . . . . . . . .. $120,910 $1,886 Each non-management director of Eastern Edison receives, as a standard arrangement, compensation in the amount of $250 for each director's meeting attended.

24

l l

Common shares of EUA are acquired by EUA's ESOP and allocated to the cecounts of eligible employees of EUA and its subsidiaries (including the officer named in the table above), to the extent that an additional investment tax credit is available to EUA under the Tax Reduction Act of 1975, as amended. No common shares wer,e so acquired by the ESOP in 1980. -

The Employees' Retirement Plan of Eastern Ut-ilities Associates and its Subsidiary Companies (The Plan) is a tax-qualified defined benefit plan available to employees who have completed one year of service and attained age twenty-five. The officer named in the remuneration table above participates in the Plan. Directors of Eastern Edison who are not also employees of EUA and its Subsidiaries (EUA System) are not covered by the Plan. The benefits of participants become fully vested after ten years of service. Benefits are determined under formulas applicable to all employees tegardless of position and the amounts depend on length of credited service and salaries prior to retirement. Benefits are equal to one and one-half percent of salaries (averaged over the five years preceding retirement) for each year of credited service up to forty, reduced for each such year by one and one-quarter percent of the participant's estimated age sixty-five Social Security benefit.

The normal retirement age under the plan is sixty-five, but actuarially reduced benefits are available as early as age fifty-five.

All expenses of the Plan are paid by the EUA System and annual con-tributions to the Plan are made in amounts determined by the Plan's actuaries to meet the funding standards established by the Employee Retirement Income Security Act of 1974. These centributions are actuarially determined and cannot appropriately be allocated to individual participants. The annual benefits shovn in the table below are straight life annuity amounts, without reduction for primary Social Security benefits as described above. The number of years of service under the Plan credited at present to Mr. Hamer is twenty-four.

Average Annual Years of Service Remuneration 15 20 25 30 35 40

$ 50,000 $11,250 $15,000 $18,750 $22,500 $26,500 $30,000 100,000 22,500 30,000 37,500 45,000 52,500 60,000 Item 11. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.

(a)(1) Financial Statements:

The following financial statements and supplementary data are filed herewith as required by Item 8.

Consolidated Income Statement for the three years ended December 31, 1980 (page 36).

Consolidated Retained Earnings Statement for the three years ended December 31, 1980 (page 36).

Consolidated Statement of Changes in Financial Position for the O three years ended December 31, 1980 (page 37).

Consolidated Balance Sheet at December 31, 1980 and 1979 (page 38). <

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Consolidated Statement of Capitalization at December 31, 1980 and 1979 (page 39).

Notes to Consolidated Financial Statements at December 31, 1980, 1979, and 1978 (pages 40-47).

The Auditors' Report of Alexander Grant & Company dated March 12, 1981 (page 48).

Supplemen acy Information to Disclose the Effects of Changing Prices at December 31, 1980 (pages 49 51).  !

(a)(2) Financial Statement Schedules The following adduional consolidated financial statement schedules are filed herewith:

1. Financial Schedules:

Schedule III - Investments in, Equity in Earnings of, and Dividends Received from Related Parties for the three years ended December 31, 1980: (page 52)

Schedule V - Property, Plant and Equipment for the three years ended December 31, 1980 (page 56).

Schedule VI - Accumulated Depreciation, Depletion and Amortization of Property, Plant and Equipment for the three years ended December 31, 1980 (page 57).

Schedule VIII - Valuation and Qualifying Accounts for the three years ended December 31, 1980 (page 58).

Schedule IX - Short-Term Borrowings for t he three years ended December 31, 1980 (page 59).

Schedule X - Supplementary Income Statem nt Information for the three years ended December ;1, 1980 (page 60).

All other schedules have been omitted since the required infarmatic, is not present or not sufficiently material to require submission c. ne schedule, or because the information required is included in the finan-cial statements or the notes thereto.

2. Parent Company Financial Statements Individual financial statements of the registrant have been omitted as the registrant is primarily an operating company and the subsidiary included in the consolidated financial statements filed does not have minority equity interests and/or indebtedness to any person other than the registrant in amounts which together (excepting indebtedness incurred in the ordinary course of business which is not overdue and matures within one year from the date of its creation, wtiether or not evidenced by securities, and indebtedness of subsidiaries which is collateralized by the registrant by guarantee, pledge, assignment, or otherwise) exceed 5 percent of the total assets as shown by the most recent year-end con-solidated balance sheet.

26

(a)(3) Exhibits (* Denotes filed herewith)

A 3-1 - Charter of Eastern Edison, as amended (Exhibit 1, Registra-() tion No. f.-7649; Exhibit A, Amendment No. 1 to form 8-K for April,1957, File No. 0-8480; Exhibit A, form 8-K for Decem-ber, 1957, File No. 0-8480; Exhibit A, Amendment No. 1 to Form 8-K for June,1958, File No. 0-8480; Exhibit A, Amendment No.1 to Form 8-K for April, ' 959, File No. 0-8480; Exhibits A and B, Form 8-K for July,1961, File No. 0-8480; Exhibit A, Form 8-K for October,1963, File No. 0-8480; Exhibit E to Certificate of Notification, File No. 70-5379; Exhibit A, Form 8-K for April, 1975. File No. 0-8480; Exhibit A-3(a), Form U-1, File No.

70 '>719; Exhibit ( A) Form 8-K for September,1976, File No.

U-8480; Exhibit 1, Form 10-K for 1977, File No. 0-8480; Exhibit A-2(a), Form U-1, File No. 70-6217; Exhibit 4, Form USS of EUA for the year 1978, File No.1-5366; Exhibits A-2(a) and A-2(b),

Form U-1, File No. 70-6365; Exhibit 4, Form 10-K for 1979, File No. 0-8480 and; Exhibit C to Certificate of Notification, File No. 70-6493).

• 3-2 - By-Laws of Eastern Edison, as amended.

4-1 - Form of 3-3/8% Debenture Bonds due 1982 of Montaup, as amended June 29, 1959 (Exhibit A-4, File No. 70-4865).

4-2 - Form of 5% Debenture Bonds due 1987 of Montaup (Exhibit

'd A-5, File No. 70-4865).

4-3 - Form of 4-1/8% Debenture Bonds due 1988 of Montaup (Exhibit A-6, File No. 70-4865).

4-4 - Amendment dated as of May 1,1970 to Exhibits 4-1 through 4-4 (Exhibit 4-9, Registration No. 2-41488).

4-5 - Form of 5% Debenture 8onds due 1989 of Montaup (Exhibit A-7, File No. 70-4865).

4-6 - Form of 8% Debenture Bonds due 2000 of Montaup (Exhibit 4-10, Registration No. 2-41488).

4-7 - Form of 8-1/4% Debenture Bonds due 2003 of Montaup (Exhibit B-3, Form USS of EUA for year 1973).

4-8 - Form of 14% Debenture Bonds due 2005 of Montaup (Exhibit e , Registration No. 2-55990).

4-9 - Form of 10% Debenture Bonds due 2008 of Montaup (Exhibit 5-3, Registration No. 2-65785).

O b

4 Form of 16-1/2% Debenture Bonds due 2010-F Montaup (Exhibit 4-11, Form 10K of ELA for 1980, file No. 1-5366).

27

4-11 - Indenture of First Mortgage and Deed of Trust dated as of September 1,1948 of Eastern Edison (Exhibit A, File No.

70-1942).

4 First Supplemental Indenture dated as of February 1, 1953 of Eastern Edison (Exhibit A, File No. 70-3015).

4 Second Supplemental Indenture dated as of May 1, 1954 of 4 Third Supplemental Indenture dated as of June , 15 5 o f Eastern Edison (Exhibit C to Certificate of Not ification, File No. 70-3371).

4 Fourth Supplemental Indenture dated as of September 1, 1957 of Eastern Edison (Exhibit D to Certificate of Notifi-catio", File No. 70-3619).

4 Fifth Supplemental Indenture dated as of April 1,1959 of Eastern Edison (Exhibit D to Certificate of Notification, File No. 70-3798).

4 Sixth Supplemental Indentur- dated as of October 1, 1963 of Eastern Edison (ExhJuit F to tertificate of Notification, File No. 70-4164).

4 Seventh Supplemental Indenture dated as of June 1,1969 of Eastern Edison (Exhibit D to Certificate of Notification, File No. 70-4748).

4 Eighth Supplemental Intenture dated as of July 1, 1972 of Eastern Eastern (Exhibit C to Certificate of Notificat ion, lh File No. 70-5195).

4 Ninth Supplemental Indenture dated as of September 1, 1973 of Eastern Edison (Exhibit F to Cert ificate of Notifi-cation, File No. 70-5379).

4 Tenth Supplemental Indenture dated as of October 1,1975 of Eastern Edison (Exhibit C to Certificate of Notification, File No. 70-5719).

4 Eleventh Supplemental Indenture dated as of January 1, 1979 of Eastern Edison (Exhibit 5-24, Registration No.

2-65785).

4 Twel fth Supplem ental Indenture dat ed as of October 1, 1980 of Eastern Edison (Exhibit F to Certificate of Notifi-cation File No. 70-6463).

10 ' - Employees' Retirement Plan of Eastern Utilities Associates and its Subsidiary Companies, Trust and Plan as amended and restated, effective January 1,1979 and as amended June 23, 1980 and August 1,1980 (Exhibit 5-1, Registrat ion No. 2 69052; Exhibit 10-2, Form 10-K of EUA for 1980, File No. 1-5366).

28

i I

10 Form of Servica Contract between EUA Service Corporation and each of the other companies (including Eastern Edison) in the EUA System (Exhibit 13-1, Registration No. 2-55990).

10-3 .Montaup Contract, as amended (Exhibit 4-B, Registration l p! No. 2-14119; Exhibit 13-A1, Registration No. 2-14718; i.V Exhibit 4-B-2, Registration No. 2-26509; Exhibit 4-B-3, Registration No. 2-33061; Exhibits 13-3 and 13-4, Regis-tration No. 2-48966; Exhibit B-2, Form USS of EUA for )

year 1974 and Exhibit 5-40, Registration No. 2-62862).

10 Stockholder Agreement (composite copy) between Yankee Atomic Electric Company and Montaup dated December 10, 1958 (Exhibit 13-6-A, Registration No. 2-15798).

10 Reseatch Agreement (composite copy) between Yankee Atomic Electric Company and Montaup dated June 30, 1959 (Exhibit 13-62B, Registration No. 2-15798).

10 Power Contract (composite copy) between Yankee Atomic Electric Company and Montaup dated June 30, 1959 as i Revised April 1, 1975 (Exhibit 13-8, Registration )

No. 2-53819).

i 10 Transmission Contract (composite copy) among Yankee i Atomic Electric Company's Sponsors, including Montaup, dated June 30, 1959 (Exhibit 13-6-D, Registration l No. 2-15798).

10 Power Contract (composite copy) between Connecticut b Yankee Atomic Power Company and Montaup dated July 1, 1964 (Exhibit B-1, File No. 70-4245).

10 Capital Funds Agreement (composite copy) between Con-necticut Yankee atomic Power Company and Montaup dated September 1, 1964 (Exhibit B-2, File No. 70-4245).

10 Transmission Agreement (composite copy) among Connecticut Yankee Atomic Power Company's Sponsors, including Montaup, dated October l', 1964 (Exhibit B-3, File No. 70-4245).

10 Stockholder Agreement (composite copy among Ccnnecticut 3

Yankee Atomic Power Company's Sponsors, includir.g Montaup, dated July 1, 1964 (Exhibit B-4, File No. 70-4245). '

10 Transmission Agreement between Boston Edison Company, Montaup, New England Power Company, Cambridge Electric Light Corraany, Cape & Vineyard Electric Company and New Bedford Gas and Edison Light Company dated December 1, i 1965 (Exhibit 4, File No. 0-686).

l 10 Contract for sale of power to Montaup by Canal Electric l Company dated December 1, 1965 (Exhibit 20, File No. 0-688). I D 10 Capital Funds Agreement (composite ccpy) between Vermont

( Yankee Nuclear Power Corporation and Montaup dated as of February 1,1968, and Amendment thereto dated as at March 12, 1968 (Exhibit B-2, File No. 70-4611; Exhibit

B-3, File No. 70-4611). l l

29

l'J Form of Power Contract between Vermont Yankee Nuclear Power Corporation and Montaup dated as of February 1, 1968, as amended June 1, 1972 (Exhibit B-4, File No. I 70-4591; Exhibit 13-21, Registration No. 2-46612).

10 Sponsor Agreement (composite copy) among Vermont Yankee Nuclear Power Corporation's Sponsors, including Montaup, dated as of August 1,1968 (Exhibit 4-0, Registration No. 2-33061).

10 Capital Funds Agreement (composite copy) between Maine Yankee Power Company and Montaup dated May 20, 1968 (Exhibit B-2, File No. 70-4658).

10 Power Contract (composite copy) between Maine Yankee Atomic Power Company and Montaup dated May 20, 1968 (Exhibit B-3, File No. 70-4658).

10 Stockholder Agreement (coaposite copy) among Maine Yankee Atomic Power Company's Sponsors, including Montaup, dated May 20, 1968 (Exhibit B-4, File 70-4658).

10 Agreement (composite copy) anong Vermont Yankee Nuclear Power Corporatior's Sponsors, including Montaup, dated as of April 30, ' 969 (Exhibit B-7, File No. 70-4435).

10 Form of Vermont Yankee Transmission Agreement dated as of April 1, 1971 (Exhibit 13-42, Registration No. 2-41488).

10 Form of Agreement among Maine Yankee Atomic Power Company's Sponsors dated as of May 20, 1969 (Exhibit B-5, File No.

70-4658).

10 Form of Maine Yankee Transmission Agreement dated as of April 1,1971 as amended as of March 1,1978 (Exhibit 13-43, Registration No. 2-41488; Exhibit 19, Form 10-K of EUA for 1977, File No. 1-5366).

10 Participation Agreement between Maine Electric Po..er Company, Inc. and participants in purchase and trans-mission of New Brunswick power, including Montaup, dated June 20, 1969, supplemented by Amendment dated as of June 24, 1970 (Exhibit 4.23.1, Registration No. 2-35073; Exhibit 13-37, Registration No. 2-37944).

10 Form of New England Power Pool Agreement dated as of September 1,1971, as amended as of July 1,1972, March 1, 1073, April 2, 1973, March 15, 1974, June 1, 1975, Sepp ' er 1,1975, December 31, 1976, January 18, 1977, July 1977 and August 1, 1977 (Exhibit 13-45, Registra-tion No. 2-41488; Exhibit 13-38, Registration No. 2-46612; Exhibits 13-39 and 13-40, Registration No. 2-48966; Ex-hibit B-3, Form USS of EUA for year 1974; Exhibit 13-35(a), {

Registration No. 2-54449; Exhibit 13-35, Registration No.

2-55990, Exhibits 5-69 and 5-70, Registration No. 2-58625; Exhibit 6, Form 10-K of EUA for 1977, File No. 1-5366; Exhibit 1, Form 10-K of EUA for 1979, File No.1-5366).

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10 Agreement between Mont aup and Boston Edison Company dated August 1,1972 for purchase of power from Pilgrim No.1 nuclear unit at Plymouth, Massachusetts (Exhibit 13-41, Registratica No. 2-46612).

(

(') 10 Joint Ownership Agreement--NEPCO Nuclear Units dated as of January 2,1976 as amended August 6,1976 among New England Power Company and other utilities, including Montaup (Exhibit 13-41, Registration No. 2-55990; Ex-hibit 5-77, Registration No. 2-58625).

10 Power Purchase and Transmission Agreement between Montaup and Maine E2ectric Power Company, Inc. dated December 1, 1971 (Exhibit 13-43, Registration No.

2-44377).

10 Unit Participation Agreement between Maine Electric Power Company, Inc. and New Brunswick Electric Power Commission dated November 15, 1971 (Exhibit 13-43.1, Registration No. 2-44377).

10 Assignment Agreement dated March 20, 1972 between Maine Electric Power Company, Inc. and New Brunswick Electric Power Commission referred to in Exhibit 5-65 (Exhibit 13-43.3, Registration No. 2-44377).

10 Agreement dated October 13, 1972 for Joint Ownership, Construction and Operation of Pilgrim Unit No. 2 among Boston Edison Company and other utilities including 7 Montaup, as amended July 25, 1973, September 15, 1974,

( ) December 1, 1974, February 15, 1975, April 30, 1975,

June 30, 1975, November 30, 1975 and December 15, 1975 (Exhibit 13-51, Registration No. 2-46612; Exhibit 13-56, Registration No. 2-48966; Exhibit B-5, Form USS of EUA for year 1974; Exhibit 13-52-A and 13-52-B, Registration No. 2-53819; Exhibit 13-45(a), Registration No. 2-54449; Exhibits 13-48 and 13-47(a), Registration No. 2-55990).

10 Agreement for Sharing Costs Associated with Pilgrim Unit No. 2 Transmission dated October 13, 1972 among Boston Edison Company and other utilities including Montaup (Exhibit 13-52, Registration No. 2-46612).

10 Agreement dated as of May 1,1973 for Joint Ownership, Construction and Operation of New Hampshire Nuclear Units among Public Service Company of New Hampshire and other utilities including Montaup, as amended as af May 24, 1974, June 21, 1974, September 25, 1974, October 25, 1974, January 31, 1975, as supplemented by Letter Agree-ment dated April 27, 1978 and amended as of April 18, 1979 (two amendments), April 25, 1979, June 8, 1979, October 11, 1979, December 15, 1979, June 16, 1980 and December 31, 1980 between Public Service Company of New Hampshire and Montaup (Exhibit 13-57, Registration No.

2-48966; Exhibit B-6, Form USS of EUA for year 1974; A Exhibit 5-130, Registration No. 2-62862; Exhibit 5-70, q) Registration No. 2-65785; Exhibit 2, Form 10-K of EUA for 1979, File No. 1-5366; Exhibit 5-34, Registration No. 2-69052; Exhibit 10-36, Form 10-K of EUA for 1980, File No. 1-5366).

31

(

10 Transmission Support agreement dated as of May le 1973 among Public Service Company of New Hampshire and uther utilities including Mcntaup with respect to New hampshire nuclear units (Exhibit 13-58, Registration 2-48966).

10 Purchase Contract between Montaup and Newport Electric Corporation dated April 1, 1973 (Exhibit 13-59, Regis-tration 2-48966).

10 Agreement dated September 21, 1972, Amendment thereto dated April 26, 1973, and cupplementing letter dated March 28, 1975 relative to Lanal Unit No. 2 Transmission among Montaup, New Bedford Gas and Edison Light Company and Boston Edison Company (Exhibit 13-60, Registration 2-48966; Exhibit 13-58, Registration No. 2-53819).

10 Sharing Agreement dated as of September 1,1973 among The Connecticut Light and Power Company and other utili-ties, including Montaup, concerning participation in a nuclear generating unit located in Connecticut (Mi]] stone Unit No. 3), as amended (Exhibit B-17, Form USS of EUA for year 1973; Exhibit B-8, Forn USS of EUA for year 1974; Exhibit B-30, Form USS of EUA for year 1976).

10 Agreement for Joint Ownership, Construction and Operation of William F. Wyman Unit No. 4 dated November 1,197'4 as amended June 30, 1975, August 16, 1976 and December 31, 1978 among Central Maine Power Company and other utili-ties including Montaup (Exhibit B-9, Form USS of EUA for year 1974; Exhibit 13-58, Registration No. 2-55990; Exhibit 5-95, Registration No. 2-58625; Exhibit S-40, Registration No. 2-69052).

I 10 Transmission Agreement dated November 1, 1974 among Central Maine Power Company and other utilities includ-ing Montaup with respe t to W11111am F. Wyman Unit No. 4 (Exhibit B-10, Form t J of EUA for year 1974).

j 10 Preliminary Agreement dated as of July 5,1974, as amended l June 30, 1975 and August 30, 1976, among The Connecticut Light and Power Company and other etilities including Montaup with respect to two nuclear generating units to be constructed in Montague, Massachusetts (Exhibit 13-65, Registration No. 2-53819; Exhibit 13-58(a), Registration No. 2-54449; Exhibit 5-101, Registration No. 2-58625).

10 Transmission Support Agreement dated September 1, 1976 among The Connecticut Light and Power Company and other utilities, including Montaup, with respect to two nuclear generating units to be constructed in Montague, Massa-chusetts (Exhibit 5-102, Registration No. 2-58625).

10 Loan Agreement between Eastern and First Natlonal Cily Bank dated as of October 21, 1974 as amended October 16, 1975 and January 25,1979 (Exhibit A to Form 8-K of EUA for October,1974, File No. 1-5366; Exhibit A-3(a) to Post-Ef fective Amendment No. 12 to form U-1, File No.

70-5388; Exhibit S-86, Registration No. 2-65785).

32 i l

10 Tet , Loan Agreement between Citibank, N.A. and Eastern dated as of January 25, 1979 (Exhibit 5-87, Registration No. 2-65785).

10 Letter dated April 2, 1974 from Northeast Utilities Ser-v vice Company, Agent, to New England Utilities, together with Exhibits A, B and 3 thereto (Exhibit 13-65-A, Registration Nc . 2-53819).

10 Agreement for Joint Ownership dated as of October 27, 1970 between Canal Electric Company and Montaup (Exhibit 13-71, Registration No. 2-55990).

10 - Agreement for use of Common Facilities by Canal Units I and II and for Allocation of Related Costs dated as of October 27, 1970~between Canal Electric Company and Montaup (Exhibit 13-72, Registration No. 2-55990).

10 Agreement of lease dated as of June 1,1972 between Canal Electric Company and Montaup (Exhibit 13-73, Regist ration No. 2-55990).

10 New Brunswick Transmission Contract dated May 24, 1976 between New England Power Company and Montaup (Exhibit 5-128, Registration No. 2-58625).

10 ConfirmMion of Assignment dated as of September 1,1976, relating to the Joint Ownership NEPCO Nuclear Units Jated as of January 2,1976, as amended (Exhibit 16, Form.10-K O of EUA for 1977, File No.1-5366).

10 Supplementary Power Contract dated as of March 1,1978, by and between Connecticut Yankee Atomic Power Company and Montaup (Exhibit 20, Form 10-K of EUA for 1977, File No. 1-5366).

10 Eastern Utilities Associates Employees' Share Ownership Plan and Trust Agreement (Exhibit 6 to Form 10-K of EUA for 1977, File No. 1-5366) Amended May 4, 1978 (Exhibit 5-129, Registration No. 2-62862).

j 10 Agreement to Transfer Ownership Share made as of April 30, i 1979 between The United Illuminating Company and Montaup-(Exhibit 5-119, Registration No. 2-65785).

10 Fuel Oil Sales Agreement dated March 21, 1980 between Metropolitan Petroleum Company, Inc. and Montaup (Exhibit 5-54, Registration No. 2-69G52).

10 Fuel Oil Contract dated September 12, 1980 betweer. She]]

Oil Company and Montaup (Exhibit 5-55. hegistration No.

2-69052).

10 Five-Year Capital Contribution Agreement dated as of p

\j November 1, 1980 between Connecticut Yankee Atomic Power Company and Montaup (Exhibit 10-5, Form 10-K of EUA for 1980, File No. 1-5366).

33

22 Montaup Electric Company, which is organized in Massachu-setts, is the only subsidiary of Eastern Edison Company and does business under its indicated corporate name.

(b) Reports on Form 8-K.

There were no reports on Form 8-K filed by the registrant during 1980.

l l

O O

34

SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities O Exchange Act of 1934, the registrant has duly caused this report to be signed on its behal f by the undersigned, thereunto duly authorized.

Signature Title Date EASTERN EDISON COMPANY Treasurer March 23, 1981 ByRichard M. Burns (Principal Accounting Officer)

Richard M. Burns Pursuant to the requirements of the Sect it tes Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

s Chairman of the Board (Principal John F.G. Eichorn Executive Officer) and Director John F.G. Elchorn Vice President and Director Donald G. Pardus (Principal Financial Officer)

Donald G. Pardus AIEL Treasurer IEEE Richard M. Burns (Principal Accounting Officer)

Richerd M. Burns Robert E. Maguire Vice Chairman and Director Robert E. Maguire

) March 23, 1981 Allan K. Hamer President and Director Allan K. Hamer William R. Bisson Vice President and Director William R. Bisson Director Robert I. Dexter Margaret M. Stapleton Director Margaret M. Stapleton Director O James I. Waldron

/

35

It em 8 and 11(a)(1). Consolidated t'inancial Statements and Supplementary Data and It em 11(a)(2). Financial Statement Senedules.

EASTERN EDISON COMPANY AND SUBSIDIARY CONSOLIDATED INCOME STATEMENT Years Ended December 31, (In Thousands) i 1980 1979 1978 Operating Revenues (Note A) $ 224,221 $ 168,127 $ 141,712 Operating Expenses:

Fuel 133,120 82,133 56,295 Purchased Power 26,383 21,994 21,168 Ot her Uperation 25,297 23,328 22,448 l Maintenance 5,168 3,887 3,911 Depreciation (Not e A) 7,170 7,855 7,565 Taxes - Other Than Income 8,454 8,143 8,570 Income and Deferred Taxes , Notes A & B) 30 2,210 4,133 Total Operating Expenses 205,622 149,550 124,090 Operating Income 18,599 18,577 17,622 Equity in Earnings of Nuclear Generating Companies (Schedule III and Note A) 636 807 680 Allowance for Other Funds Used During Construction (Not e A) 2,298 1,589 969 Other Income and (Deductions) - Net 291 263 99 Income Before Interest Charges 21,824 21,236 19,370 Interest Charges:

Interest on Long-Term Debt 9,649 8,840 7,887 Other Interest Expense 6,811 4,763 2,916 Allowance for Borrowed Funds Used During Construction (Credit) (Note A) (7,544) (4,606) (2,862)

Net Interest Charges 8,916 8,997 7,941 Income After Interest Charges 12,908 12,239 11,429 Preferred Dividends Requirement 1,770 1,344 1,344 Consolidated Net Income $ 11,138 $ 10,895 $ 10,085 Average Common Shares Outstanding 2,891,357 2,629,799 2,265,938 Consolidated Earnings Per Average Common Share Outstanding $3.85 $4.14 $4.45 CONSOLIDATED RETAINED EARNINGS ST ATEMENT Years Ended December 31, (In Thousands)

Retained Earnings - Beginning of Year $ 20,187 $ 18,517 $ 16,849 Income After Interest Charges 12,908 12,239 11,429 Total 33,095 30,756 28,278 Dividends Paid:

Preferred 1,770 1,344 1,344 Common 7,980 9,225 8,417 Miscellaneous Adjustments 25 Retained Earnings - End of Year (Note E) $ 23,320 $ 20,187 $ 18 517 The accompanying notes are an integral part of these statements.

36

l EASTERN EDISON COMPANY AND SUBSIDIARY CONSOLIDATED STATEMENT OF CHANGES IN FINANCI AL POSITION Years Ended December 31, (In Thousands)

('wj' SOURCE OF FUNDS:

1980 1979 1978 Internally Generated:

Income After Interest Charges $12,908 $12,239 $11,429 Principal Non-Cash Charges (Credits) to Income: '

Depreciation (Not e A) 7,158 7,942 7,650 Amort izat ion 262 41 111 Deferred Taxes (Note A) 2,047 1,577 (254)

Investment Tax Credits - Net (Note A) (3,131) (364) 2,267 Equity in Undistributed Earnings of Nuclear Generating Companies (Not e A) (16) (169)

Allowance for Funds Used During Construction (Note A) (9,t 42) (6,195) (3,830)

Funds From Operations 9,386 15,071 17,373 Less: Dividends Declared:

Common Dividends (7,980) (9,225) (8,417)

Preferred Stock Dividends (1,770) (1,344) (1,344)

Internally Generat ed Funds (364) 4,502 7,612 External Sources:

Proceeds From Sale of Term Notes 20,000 Proceeds From Sale of Common Stock 7,133 9,275 Proceeds From Sale of Bonds 15,000 Proceeds from Sale of Preferred 15,000 Other - Net 186 1,245 234 Total Funds from Ext ernal Sources 30,186 28,378 9,509

~s Total Source of Funds $29,822 $32,880 $17,121 APPLICATION OF FUNDS:

Construction Expenditures $31,624 $27,131 $22,592 Less: Allowance for Funds Used During Construction (9,842) (6,195) (3,830)

Net Construction Expenditures 21,782 20,936 18,762 Decrease (Increase) in Short-Term Notes Payable to Banks 6,050 (12,050) 1,400 Retirement of Long-Term Debt 5,000 15,200 3,880 Retirement of Preferred Stock 300 Purchase of Promissory Note 225 (Decrease) Increase in Working Capital (5,423) 8,008 (7,186)

Other Application - Net 1,888 786 265 Total Application of Funds $29,822 $32,880 $17,121 CHANGES IN COMPONENTS OF WORKING CAPITAL (Excluding Short-Term Debt, Current Deferred ,

Taxes and Redeemable Preferred Stock Sinking Fund Requirement s):

Cash $(1,009) $(2,117) $ 947 Accounts Receivable 10,881 4,320 (1,685)

Materials and Supplies 2,276 7,766 (2,474)

Prepaid Expenses and Other Current Assets (116) 111 13 Accounts Payable (15,033) (4,763) (294) 3 Accrued Taxes (880) 1,361 (1,821)

I Accrued Liabilities (1,542) 1,330 (1,872)

(Decrease) Increase in Working Capital $(5,423) $ 8,008 $(7,186)

The accompanying notes are an integral part of this statement .

37

EASTERN EDISON COMPANY AND SUBSIDIARY CONSOLIDATED BALANCE SHEET I

December 31, (In Thousands)

ASSETS 1980 1979 Utility Plant and Other Investments: h Utility Plant (at cost) (Schedule V and Note A) $347,000 $317,543 Less Accumulated Provision for Depreciat ion (Schedule VI and Not e A) 83,946 77,874 Net Utility Plant 263,054 239,669 Nonutility Property - Net (Schedules V and VI) 843 843 Inve'stment s in Nuclear Generating Companies (at equity) (Schedule III and Note A) 7,641 7,401 Other lavestments (at cost) 50 50 Total Utility Plant and Other Investments 271,588 247,963 Current Asset s:

Cash (Not e G) 559 1,569 Accounts Receivable (Schedule VIII and Note A):

Customers, Less Allowance for Doubt ful Accounts of $240 and $213, respectively 22,426 16,801 Others 422 761 Accrued Unbilled Revenue 3,250 233 Associated Companies (Not e A) 6,131 3,553 Fuel (at average cost) 12,486 10,702 Plant Materials, Operat: g Supplies and Other 4,298 3,805 Prepayments and Other Assets 286 401 Total Current Asset s 49,858 37,825 Deferred Debits:

Unamort ized Debt Expense 542 485 l Extraordinary Property Losses (Note H) 2,943 2,065 i

Other Deferred Debits 4,025 2,520 Total Deferred Debits 7,510 5,070 Total $328,956 $290,858 LIABILITIES Capitalization:

Common Equity (Note C) $102,210 $ 99,077 Non-Redeemable Preferred Stcck (Note C) 8,950 8,950 Redeemable Preferred Stock (Not e D) 20,199 5,607 Long-Term Debt (Note r) 110,982 100,985 Total Capitalization 242,341 214,619 Current Liabilitiea.:

Notes Payable - Banks (Schedule IX and Note G) 31,450 37,500 Accounts Payable:

Public 27,982 13,071 Associated Companies 847 724 Redeemable Preferred Stock Sinking Fund Requirement (Note D) 305 31 '.

Customer Deposits 931 820 Taxes Accrued (Note B) 1,120 740 Deferred Taxes (Notes A and B) 794 815 Interest Accrued 2,750 861 Other Current Liabilities 1 463 Total Current Liabilities 66,180 154,808 Deferred Credits:

Unamortized Investment Credit (Note A) 5,689 8,760 Other Deferred Credits 33 33 Total Deferced Credits 5,722 8,793 Accumulated Deferred Taxes (Notes A and B) 14,713 12,638 Total $328,956 $290,858 The accompanying notes are an inte 3 ral part of this statement 38

EASTERN EDISON COMPANY AND SUBSIDIARY

/D

! ) CONSOLIDATED cTATEMENT OF CAPITALIZATION December 31, (In Thousands) 1980 1979 Common Stock

$25 par value, authorized and outstanding 2,891,357 shares $ 72,284 $ 72,284 Other Paid-In Capital 5,824 5,824 Common Stock Expense (39) (39)

Appropriated Retained Earnings 821 821 Retained Earnings 23,320 20,187 Total Common Ey'ity 102,210 99,077 Non-Redeemable Preferred St ock:

4.64%, $100 p :r value 00,000 shares

• 6,000 6,000 8.32%, $100 par value 30,000 shares

• 3,000 3,000 Expense, Net of Premium (50) (M)

Total 8,950 8,950 Redeemable Preferred Stock:

13.60%, $100 par value ** 5,700 6,000 15.48%, $100 par value 150,000 sha res* 15,000 Expense, Net of Premium (187) (79)

Sinking Fund and Reacquired Shares (314) (314) g ) Total 20,199 _ 5,607 v

Long-t enn Debt:

First Mortgage and Collateral Trust Bonds:

3-3/4% due 1983 6,800 6,800 7-3/8% due 1983 (second series) 5,000 5,000 4-1/8% due 1983 (third series) 2,196 2,196 3-3/8% due 1985 ',000

, 6,000 12% due 1985 (second series) i9,800 19,800 4-5/8% due 1987 3,000 . 3,000 4-3/8% due 1988 3,000 3,000 14-1/4% due 1990 15,000 4-1/2% due 1993 5,000 5,000 6-1/2% due 1997 7,000 7,000 8-3/8% due 1999 5,000 '

,,000 7-7/8% due 2002 8,000 8,000 8-3/8% due 2003 10,000 10,000 Note Payable due 1984 (Prime X 106%) 5,000 5,000 Note Payable due 1985 (Prime x 111%) 10,000 15,000 Unamortized Premium 186 189 Total __110,982 100,985 Total Capitalization $242.341 gl4 619

• Authorized and outstanding

• • Aut horir.:J 60,000 shares. Outstanding 57,000 shares in A 1980 and 60,000 shares in 1979 The accompanying notes are an integral part of this statement .

39

EASTERN EDISON COMPANY AND SUBSIDIARY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS December 31, 1980, 1979 and 1978 (A) Summary of Significant Accounting Policies:

General: The accounting policies and pract ices of Eastern Edison Company (Eastern Edison) and of Mont aup Elect ric Company (Montaup) are sthject to regulation by the Federal Energy Regulatory Commission (FERC) ano Massachuse'ts Department of Public Utilities (MDPU) with respect to their rates and accu anting. Eastern Edison and Montaup conform with generally accepted accounting principles, as applied in the case of regulated public ut ilities, and conform with the accounting requirement s and rate-making practices of the regulatory authority having jurisdiction.

Principles of Consolidat ion: The consolidated financial stat ement s include the accounts of Eastern Edison and its subsidiary, Montaup. All material int ercompany balances and t ransact ions have been eliminated in consolidation, linconsolidated Subsidiaries: At December 31,1980 and 1979, invest-ment s in nuclear generat ing companies represent four investments ranging in percent age of ownership from 2.50 t o 4.50 percent . Montaup 3a entitled to the elect ricity produced from t hese facilities based on its ownership int erest s and is billed pursuant to cont ractual agreements which are ap-proved by FERC.

Transact ions with Affiliat es: The Coupany is a wholly-owned subsidiary of Eastern Utilities Associates (EUA). In addition to it s investment in the Company, EUA has interests in another utility company and a service co rpo ra t ion.

Transact ions between the Company, Montaup and other affiliated companies include the following: sales of elect ricity of approximately "56,323,000 in 1980, $42,185,000 in 1979 and $34,585,000 in 1978; accounting, engineering and other services rendered by the service corporat ion of approximately

$5,624,000, $4,889,000 and $4,209,000 in 1980,1979 and 1978, respect ively; operating revenue from the rental of t ransmission facilities to Montaup of approximately $2,135,000 in 1980, $2,134,000 in 1979, and $2,178,000 in

?978. Transact ions W th ot her af filiat ed companies are subject to review by applicable regulatory temissions.

l Ut-ility Plant: Ut ility plant is stated at original cost. The cost of additions to ut ility plant includes cont ract ed work, di rect labor and material, allocable overhead, allowance for funds used during const ruct ion and indirect charges for engineering and supervision.

Depreciation of Ut ilit y Plant : For financial st at ement purposes, depreci-ation is computed on the straight-line method based on estimated useful lives of the various classes of property.

O 40

EASTERN EDISON COMPANY AND SUBSIDIARY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31,1980,1979 and 1978 (A) Summary of Significant Accounting Policies: -- (Continued)

Provisions for depreciation, on a consolidated basis, were equivalent to a composite rate of approximately 3.2% in 1980,1979, and 1978 based on the average depreciable property balances at the beginning and end of each year.

In February 1981, as a result of an order of the MDPU, Eastern Edison retroactively reduced the composite depreciation rate on certain of its property from 3.5% to 2.5%. Eastern Edison had recorded depreciation on that property at rates of 3% in 1975 and 3.5% since 1975. The change had the effect of increasing consolidated net income and earnings per common share in 1980 by $1,238,000 and $0.43, respectively. Of thase amounts -

$974,000 and $0.34, respectively, relate to periods prior to 1980.

Operating Revenues: Revenues are based on billing rates authorized by applicable Federal and state regulatory commissions. The Company follows the policy of accruing the estimated amount of unbilled re/enues for elec-tricity provided at the end of the month to more closely match costs and revenues. In addition it also accrues unrecovered purchased power costs.

Federal Income Taxes: The general policy of the Company and its subsidiary with respect to accounting for Federal income taxes is to reflect in income the estimated amount of taxes currently payable and to O' provide for deferred taxes on certaio items subject to timing differences to the extent permitted by the various regulatory commissions. See Note B for details of major deferred tax items.

As permitted by the regulatory commissions, it is the policy of the subsidiaries to defer the annual inveatment tax credits and to amortize these credits over the. productive lives of the related assets.

Allowance for Funds Used During Construction: Allowance for funds used during construction ( AFUDC) (a non-cash itor) is defined in the applicable regulatory system of accounts as "the net cost during the period of construc-tion of borrowed funds used for construction purposes and a reasonable rate upon other funds when so used."

The combired rate used in calculating AFUDC was 14.5% in 1980,11.5% in 1979 and 8.5% to 9.5% in 1978. In accordance with rate orders received during the last quarter of 1980, Eastern Edison and Montaup began providing deferred income taxes on the borrowed fundo component of AFUDC. AFUDC amounted to 88.4%, 56.9% and 38.0% of consolidated net income for tne years 1980,1979 and 1978, respectively.

(8) Income and Deferred Taxes:

Components of income and deferred tax expense for the years 1980, 1979, and 1978 are as follows:

41

EASTERN FDISON COMPANY AND SUBSID ARY NOTES TO THE CONSOLIDATED FINANCI AL STATEMENTS (Continued)

December 31, 1980, 1979 and 1978 (8) Income and Deferred Taxes: -- (Cont inued) i (In Thousands) 1980 1979 1978 Operations Federal:

Current $ 918 $ 637 $ 1,406 Deferred 1,936 1,542 (74)

Investment Tax Credit, Net (3,131) (365) 2,267 (277) 1,814 3,599 State:

1 Current 196 361 714

! Deferred 111 35 (180) 307 396 534 Charged to Operations 30 2,210 4,133 Chstged to Other Income' 7 119 Total $ 30 1_2y21j [ $ 4.252 Federal income tax expense was less than the amounts computed by applying Federal income tax

• statutory rates to book income subject to tax for the following reasons:

(In Thousands) 1980 1979 1978 Federal Inccma Tax Computed at Statutory Rates $ 5,977 $ 6,617 $ 7,400 (Decreases) in Tax from:

Allowance for Funds Used During Construction (3,719) (2,849) (1,838)

Overheads (318) (302) (315)

Consolidated Tax Savings (1,588) '1,131) (1,018)

Other ( 227) (148) (215)

Federal Income Tax Expense $ 125 $ 2.187 $ 4.014 The provision for deferred taxes resulting from timing differences is comprised of the following:

(In Thousands) 1980 1979 1978 Excess Tax Depreciation $ 902 $ 990 $ 1,163 Computer Conversion Costs (68) (68) (68)

Estimated Unbilled Revenue (22) 35 (1,176)

AFUDC 808 Abandonment Losses 310 602 Ef f ect of State and Local Taxes 112 35 (180)

Other -- Net 5 (17) 7 Total $ 2,047 $ 1,577 $ ( 25_4 )

42 l

EASTERN EDISON COMPANY AND SUBSIf RY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 1980, 1979 and 1978 O (B) Income and Deferred Taxes: -- (Continued)

At December 31, 1980, unused inves. -ent tax credits of approxirmately

$8,784,000 are available to reduce future Federal income tax liability.

(C) Capital Stock:

The changes in the number of common shares outstanding, resuf ting from sales to EUA, during the years ended December 31, 1980 and 1979 were as follows:

Year Shereo Issued Total 1980 None 1979 285,336 $7,133,400 In the event of involuntary liquidation, the non-redeemable preferred stock of Eastern Edison is cntitled to $100 per share. In the event of voluntary liquidation, or if receemed at the option of the Company, the non-redeemable preferred stock is entitled to: 4.64% issue, $102.98; 8.32% issue, $107.70 prior to October 1, 1983; $105.62 prior to October 1, 1988; $103.54 prior to October 1, 1983; and $102.30 per share thereafter.

O Under the terms and provisions of the issues of preferred stock of Eastern Edison, certain restrictions are placed upon the payment of dividends on common st ock by the Company, but at December 31, 1980 and 1979, the respective capitalization ratios were in excess of the minimum which would make these rest rictions effective.

(D) Redeemable Preferred Stock:

In October 1980, Eastern Edison issued 150,000 shares of 15.48% Preferred Stock, Eastern Edison's 13.60% and 15.48% Proferred Stock issues are entitled to mandatory sinking funds sufficient to redeem 3,000 and 6,000 shares, respec-tively, during each twelve-month period commencing October 1, 1980 in the case of the 13.60% issue and October 1,1985 in the case of the 15.48% issue. The redemption price, for each issue, is equal to the initial public ofrering price plus accrued dividends. Eastern Edison also has the non-cumulative option of redeeming an additional 3,000 and 6,000 shares, respectively, during each period at such price.

In the event of involuntary liquidation the redeemable preferred stock of Eastern Edison is entit]cd to $100 per share. In the event of voluntary liquida-

~

tion or if redeemed at the option of Eastern Edison, the redeemable preferred stock is entitled to: $114.82 prior to 10-1-85; $111.42 prior to 10-1-90;

~

$108.02 prior to 10-1-95; and $105.98 per share thereafter.

The aggregate amount of sinking fund requirements for each of the five years following 1980 are: $314,000 in 1981, 1982, 1983 and 1984; and $923,000 in 1985.

43

EASTERN EDISON COMPANY AND SUBSIDIARY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 1980, 1979 and 1978 (E) Ret ained Earnings:

i Under the provisions of t he Company's indenture securing t he First Mortgage l and Collat eral Trust Bonds, Retained Earnings in the Amount of $12,667,239 and

$11,846,241 as of December 31, 1980 an December 31, 1979, respectively, was unrestricted as to the payment of cash dividends on Common Stock.

l (F) Long-Term Debt:

i l Under terms of the Indenture securing the first Mortgage and Collat eral Trust Bonds, Eastern Edison is required t o deposit annually with t he Indenture Trustee, cash in an amount equal to 1% of the greatest aggregate pt incipal amount of bonds previously authenticated and delivered Where permitted, Eastern Edison has satisfied sinking fund requirements f or 1980 and 1979 under alternate provisions of the indenture eit her by depositing cash or by certifying to the Indenture Trust ee "available property additions" and Eastern Edison expects to continue such pract tee during the year 1981.

It.e First Mortgage and Collateral Trust bonds of East ern Edison and 8

Eastern's Note Payable due 1985 are collateralized by securities of Montaup in the principal amount of $159,975,000. In addit ion, the First Mortgage and Collateral Trust bonds of Eastern, Edison are collat eralized by subst antially all of its utility plant.

The aggregate amount of cash sinking fund requirement s and maturit ies for each of the five years following 1980 are: none in 1980, 1981, and 1982,

$13,996,000 in 1983 and $10,000,000 in 1984 and $30,800,000 in 1985.

(G) Lines of Credit and Compensat ing Balances:

Eastern Edison and Mont aup had unused short-term lines of credit with various banks of approximately $19,360,000 and $35,500,000 at December 31, 1980 and 1979, respectively. However, a portion of these credit lines were also available to other affiliated companies under joint credit line arrange-ments. In accordance with informal agreements with the various banks, Eastern Edison and its Subsidiary have agreed to maintain operating accounts or minimum average balances or, in certain inst ances, commitment fees are required to maint ain the lines of credit. There are no legal restrict ions placed on the withdrawal of these funds. Except for daily working funds, substant ially all of the funds included in cash represent compensating '

balances.

O 44

EASTERN EDISON COMPANY AND SUBSIDIARY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 1980, 1979 and 1978 (H) Joint 1y-Owned Facilities:

At December 31, 1980, Montaup owned the following interests in jointly-owned electric facilities (dollars in thousands):

December 31, 1980 Net Construction Percent Plant in Accumulated Plant In Work In Owned Service Depreciation Service Progress Canal No. 2 . . .,. . 50. 00'.' 63,724 $11,042 $52,682 $

Wyman No. 4 . . . ' . . 1.96 3,947 232 3,715 Seabrook Nes. 1 & 2 . 2.90 42 2 40 27,019 Pilgrim No. 2 . . . . 2.15 9,241 Millstone No. 3 . .. 4.01 39,428 The foregoing amounts represent Mortaup's interest in each facility.

Financing for all such interest is provided by Montaup. Montaup's share of related operating and maintenance expenses is included in its corresponding operating expenses.

Montaup has a 2.00*.' ownership interest in two nuclear generating units n designated as Montague 1 and 2 (lead participant, of Northeast Utilities)

I proposed to be built at a site in Montague, Massachusetts. In December 1980, the lead participant announced cancellation of these units and concluded that all capital costs relative to them should be written off as being valueless. As of December 31, 1980, Montaup had incurred approxi-mately $1,081,000 of costs (including allowance for funds used during construction) in connection with the project. Additional costs (which are not expected to be material) relating to cancellation charges, or salvage, if any, are undeterminable at this time. Montaup has reported the costs of the abandoned project as an extraordinary property loss and has requested permission from FERC to amortize these costs, net of the related tax savings to be realized in the EUA Consolidated 1980 Federal income tax return, over a period of five years and requested approval from FERC for recovery of such costs commencing with the effective date of its December 19, 1980 rate filing.

(I) Commitments:

Eastern Edison and Montaup have leases covering certain facilities and equipment. Total rental expense for these leases for the years 1980, 1979 and 1978 amounted to approximately $350,000, $177,000 and $275,000, respectively.

These leases are treated as operating leases for rate making purposes and have been accounted for as such; however, certain lease agreements meet the G criteria requiring capitalization as set forth in the Statement of Financial Accounting Standards No. 13. If such leases were capitalized, the amounts thereof would not have a material effect on assets, liabilities, or related expenses.

45 l

EASTERN EDISON COMPANY AND SUBSIDIARY NOTES TO THE CONSOLIDATED TINANCI AL ST ATEMENTS (Cont inued)

December 31,1980,1979 and 1978 (I) Commitments: -- (Continued)

Futoce minimum rental payments at December 31, 1980, for such leases are estimat ed to aggregate $532,000 in 1981, $500,000 in 1982, $479,000 in 1983,

$406,000 in 1984, $130,000 in 1985, and none for the years af ter 1985.

Eastern Edison and Montaup participate with other System Companies in a pension plan covering substantially all of their employees. The total pension expense charged to operat ions, which includes amort izat it q of past service costs over 20 years, during 1980, 1979 and 1978 amounted to approxi-mat ely $1,344,000, $1,327,000 and $1,391,000, respectively. Eastern Edison and Montoup make annual contributions to the plan equal to the amounts accrued for pension expense. ihe accumulat ed plan benefit s and plan net assets for the Employees' Reti re.:ent Plan of East ern Ut ilit ies Associat es and its Subsidiary Companies is presen'ed below:

1 (In Thousands) January 1,1980 1

Actuarial Present Value of Accumulated Plan Benefits:

Vested $26,188 Nonvested 1,100

$27,288 Market Value of Net Assets Available for Benefits $27,917 The assumed rate of return used in determining the actuarial present value of the accumulated plan benefits was 6.0% for 1980.

Montaup is committed under purchased power cont ract s to pay demand charges whether or not energy is received. The following table summarizes informat ion concerning such contract s at December 31, 1980.

Date of  % Share of Est imat ed Cont ract Output Being Annual Unit Expiration Purchased Cost (000s omitt ed)

Taunton Municipal Cleary #9 1984 Various $ 2,949 New Brunswick 1986 6.41 278 Yankee Atomic Power Co. 1991 4.50 2,076 Conn. Yankee Atomic Power Co. 1998 4.50 3,132 Canal Elect ric Co. Unit No.1 1998 25.00 4,874 Pilgrim Unit No. 1 2000 11.00 10,405 Maine Yankee Atomic Power Co. 2002 4.00 2,263 Vermont Yankee Atumic Power Co. 2002 2.50 1,609

$27,586 9

46

EASTERN EDISON COMPANY AND SUBSIDIARY s NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 1980, 1979 and 1970 (I) Commitments: -- (Continued)

> Eastern Edison and Montaup's construction program is estimated at approxi-mately $47,500,000 for the year 1981 and $212,100,000 for the years 1981 through 1985 (including allowance for funds used during construction).

(J) Contingencies:

In October 1980, Montaup received approval from the MDPU to increase its owner #ip interest in each of the two 1150 megawatt nuclear generating units beirg constructed in Seabrook, New Hampshire, from 1.90% to 2.90%.

Montaup will acquire the additional 1% gradually over an Adjustment Period, commencing on January 31, 1981 by paying its pro rata share of the costs otherwise attributable to the lead participant, Public Service Company of New Hampshire (PSNH). All of the necessary state and Federal regulatory approvals for the construction of the units have been obtained. One court appeal from Federal regulatory approvals is still pending and further appeals are possible.

PSNH has stated that it is experiencing serious difficultles in financing its construction work in progress. In an effort to reduce its construc-tion expenditures PSNH has received commitments from other utilities to acquite an additional 15% of the project. In March 1980 PSNH decided to O reduce the level of construction until capital markets stabilized and the U remaining regulatory approvals for the reduction of its ownership interest were obtained. In June 1980 PSNH was ordered by the New Hampshire Public Utilities Commission to delay for three years work on Unit No. 2 of the Seabrook plant, except for those areas that are common to both Units. Upon rehearing, the order was amended to provide that such delay shall continue only until recript of the regulatory approvals necessary for reduction of PSNH's ownership interest and commencement of such reduction. As of December 31, 1980, Montaup's investment in the project amounted to approximately

$27,019,000. Montaup is unable to predict what effect further financing problems or administrative and court actions may have on the Seabrook project or its cost.

Montaup also has a 2.15% ownership interest in a planned nuclear unit, Pilgrim Unit No.2 (lead participant, Boston Edison Company). In a recent prospectus, the lead pcrticipant has stated that when a more definitive schedule is set for the granting of a construction permit they will be able to develop revised cost estimates and financing plans. At that time they will also review the feasibility of the project and decide whether to cancel or continue construction of the Unit. As of December 31, 1980, Montaup had spent approximately $9,240,000 in corinection with its interest in the Pilgrim project. Final costs associated with cancellation of the project, if ultimately necessary, cannot now be ascertained. In the event of such cancellation, Montaup would apply for appropriate regulatory approval to recover its total costs over an appropriate future period. The extent to which rate relief, if any, would permit recovery of the project CI costs cannot be determined at this time.

47 '

I M

AUDITORS' REPORT To the Shareholder EASTERN EDISON COMPANY AND SUBSIDIARY l

We have examined the consolidated balance sheets and statements of capitalization of Eastern Edison Company (a Massachusetts corporation and I

wholly-owned subsidiary of Eastern Ut ilities Associates) and subsidiary as of December 31,1980 and 1979 and the related consolidated statement s of l

income, retained earnings and changes in financial position for each of the three years in the period ended December 31, 1980. Our examinations were made in accordance with generally accepted auditing standards, and accordingly included such tests of tF.e accounting records and such other auditing proced-ures as we considered net 9ssary in the circumstances.

In our opinion, t he financial stat ements referred to above present fairly the consolidated financial position of Eastern Edison Company and sub-sidiary at December 31,1980 and 1979 and the consolidated results of their operat ions and changes in their financial position for each of the *~ree years in the period ended December 31, 1980 in conformity with generally accepted accounting principles applied on a consistent basis.

In connection with our examinations of the financial statement s referred to above, we also examined the schedules as listed in the accom-panying index (see It em 11(a)(2)). In our opinion, such schedules, when considered in relation to the basic financial statement s, present fairly in all material respects the information required to be set forth therein.

ALEXANDER GRANT & COMPANY Boston, Massachusetts March 12,1981 1

n f

9 48 ,

EASTERN EDISON COMPANY AND SUBSIDIARY SUPPLEMENTARY INFORMATION TO DISCLOSE THE EFFECTS OF CHANGING PRICES (Unaudited)

}

V The following supplementary information is supplied accordance with the requirements of the Statement of Financial Accounting Standards No. 33 for the purpose of providing certain information about the effects of changing prices.

It should be viewed as an estimate of the approximate effect of inflation,

) rather than a precise measure, since a number of subjective judgments and estimating t echniques were used in developing this information.

Constant dollar amounts represent historical costs stat ed in terms of dollars of equal purchasing power, as measured by the Consumers Price Index for all Urban Consumers. Current cost amounts reflect the changes in specific prices from the date the plant was acquired to the present, and differ from constant dollar amounts to the extent that specific prices have increased more or less rapidly than prices in general.

CONSOLIDATED STATEMENT OF INCOME rROM CONTINUING OPERATIONS Adjust ea for Changing P: Ices for the year ended December 31, 1980 Constant Current Dollar Cost Historical Ave rage Average Cost 1980 Dollars 1980 Dollars (Thousands of Dollars)

Operating Revenues $224,221 $224,221 $224,221 t 159,503 159,503 159,563-( ) Fuel

& Pu Other chased&Power Operatir.g Expense Maintenance Expenses 30,465 30,465 30,465 Depreclation Expense 7,170 15,524 18,564 Taxes Other than Income 8,454 8,454 8,454 Income and Deferred Taxes 30 30 30 Interest Charges -- net 8,916 8,916 8,916 Other (Income) & Deductions -- net (3,225) ( 3,'225 ) (3,225) 211,313 219,667 222,707 Income from Continuing Operations (excluding reduction to net recoverable cost) $ 12,908 $ 4,554* $ 1,514 Increase in Specific Prices of Utility Plant Held During the Year ** $ 49,995 Reduction to Net Recoverable Cost $(19,866) (2,717)

Effect of Increases in General Price Level (64,111)

Excess of Increase in General Price Level over Increase in Specific Prices after Reduction to Net Recoverable Cost (16,833)

Gain from Decline in Purchasing Power of Net Amounts Owed 15,284 15.284 NET $ (4,582) $ (1,549)

• Including the reduction to net recoverable cost, the loss from continuing operations on a constant dollar basis would have been $(15,312).

• • At December 31, 1980, the current cost of net utility plant was $578,556

(/~~)s while historical cost or net cost recoverable through depreciation was $263,054.

~ s 49

A The current cost of ut ilit y plant , comprising all plant in service, con t ruct ion wor'c in progress and plant held for future use, represents the estimated e sst of replacing exist ing plant assets and was determined by indexing the surviving plant using various indices which represent the Company's and Montaup's experienced construction costs.

The current year's provision for depreciation on a constant dollar irxi '

current cost basis was computed by applying the average composite deprec.ation rate to the average depreciable balance of property, plant and equipment after adjusting such accounts for inflation.

Fuel inventories, the cost of fuel used in oeneration, and purchased power for resale have not been restated from their historical cost . Regula-tion limits the recovery of fuel and purchased power costs through the operation of adjustment clauses. For this reason fuel inventories are effect ively monetary assets.

As prescribed in 'inancial Account ing St andard No. 33, income t axes were not adjusted.

Under the rate-making prescribed by the regulatory commission to which the Company is subject, only the historical cost of plant is recoverable in revenue as depreciation. Therefore, the excess of the cost of plant st ated in terms of constant dollars that exceeds the historical cost of plant is not presently recoverable in rates as depreciation, and is reflected as a reduction to net recoverable cost. To properly reflect the economics of t ale regulat ino in the Statement of Income from Continuing Operat ions, the reduction te nel recoverable cost of net property, plant and equipment should be offset by the gain from the decline in purchasing power of net amounts owed. During a period of inflation, holders of monetary assets suffer a loss of general purchasing power while holders of monet ary lia-bilities experience a gain. The gain from the decline in purchasing power of net amounts owed is primarily attributable to the substantial amount of debt which has been used to finance property, plant and equipment. Since the depreciation on this plant is limited to the recovery of historical costs, the System companies do not have the opport unity t o realize a holding gain on debt and are limited to recovery only of the embedded cost of debt capital .

(

O 50

i i

FIVE YEAR

SUMMARY

OF SELECTED FINANCIAL DATA l ADJUSTED FOR THE EFFECTS OF CHANGING PRICES O

Years ended December 31, (In Thousands of Average 1980 Dollars) 1980 1979 1978 1977 1976 i Operating Revenues $224,221 $190,864 $178,989 $196,884 $201,125 Historical Cost Information Adjusted for General Inflation Income from Continuing Operations Excluding Reduction to Net Recoverable Cost 4,554 5,61.'

Income Per Common Share After

Preferred Dividend Requirements and Excluding Reduction to Net Recoverable Cost 0.96 1.62 Net Assets at Year-end at Net Recoverable Cost 125,446 122,361 Current Cost Information Income from Continuing Operations Excluding Reduction to Net J Recoverable Cost 1,514 3,773 2

Income (Loss) Per Common Share After a Preferred Dividend Requirements and

, _s Excluding Reduction to Net Recoverable Cost (0.09) 0.92 Excess of Increase in General Price Level Over Increases in Specific Prices after Reduction to Net Recoverable Cost (16,833) (17,8'.7)

!- Net Assets at Year-end at Net Recoverable Cost 125,446 122,361 General Information Gain from Decline in Purchasing Power of Net Amounts Owed 15,284 15,814 Cash Dividends Declared per Common Share 2.76 3.62 4.08 4.65 4.62 Average Consumer Price Index 246.8 217.4 195.4 181.5 170.5 i

l O

51

= --.

EASTERN EDISON COMPANY INVESTFENTS IN, EQUITY IN EARNINGS OF, AND DIVIDEND (In Thousands, exce COL A COL. B Balance at beginning of period t (1) (2)

Number of shares or unit s.

Principal amount of Desc ript ion bonds and Amount

__ Name of Ise uer of Investment notes in dollars For the year ended December 31,1980:

Eastern Edison Company:

• Mont aup Elect ric . .... Common Stock 636,000 $72,484

• Montaup Elect ric . .... Preferred Stock 15,000 1,500

• Montaup Electric . .... Debenture Bonds $74,875 74.875 148,859 Montaup Elect ric Co.:

Yankee Atomir Elect ric Co. Capital Stock 6,903 924 Maine Yankee Atanic Power Co. Capital Stock 20,000 2,740 Conn. Yankee Atomic Power Co. Capital Stock 15,750 2,283 Conn. Yankee Atomic Power Co. Promissory Note Vermont Yankee Nuclear Power Co. ........ Capital Stock 10,P31 1,454 '

Subtotal 7,401 Grand Total . . . . . . 156,260 Eliminated in Consolidation 148,859 Total . . . . . . . . $ 7.401 For the year ended December 31, 1979:

Eastern Edison Company:

Montaup Electric . .... Common Stock 564,000 $63,209 Montaup Electric . .3 . Preferred Stock 15,000 1,500 Montaup Electric . . . . . Debenture Bonds $74,875 74,875 139,584 Montaup Electric Co.:

Yankee Atomic Electric Co. Capital Stock 6,903 932 Maine Yankee Atomic Power Co. Capital Stock 20,000 2,740 Conn. Yankee Atomic Power Co. Capital Stock 15,750 2,102 Vermont Yankee Nuclear Power Co. ........ Capital Stock 10,001 1,458 '

Subtotal 7,232 Grand Total . . . . . . 146,916 Eliminat ed in Consolidation 139,584 Total . . . . . . . . $ 7.232

" Eliminated in consolidation (a) Purchases at cost.

52

SCHEDULE III -- CONSOLIDATED AND SUBSIDIARY

( ~.CEIVED FROM RELATED PARTIES x,.bmber of shares)

COL. C COL. D COL. E COL. F Balance at end Additions Deductions of period (1) (2) (1) (2) (1) (2) Dividends Equity taken received up in earn- Distribution during the ings (losses) of earnings Number of period from of related by persons shares or investment s pa rt ies in which units, not and other earnings Principal accounted persons (losses) amount of fo r by t he for the were bonds and Amount equity period Other taken up ~ her notes in dollars method

$ 8,492 $ $ 6,152 $ 9(b) 636,000 $ 74,815 15,000 1,500 20,000(a) 94,875 94,875 8,492 20,000 6,152 9, 171,190

-s 83 85 6,903 922

) 263 260 20,000 2,743

) ~' 145 126 15,750 2,302 225(a) 225 22; 145 150 10,001 1,449

> 636 225 621 9 7,641 9,128 20,225 6,773 9 178,831 8,492 20,000 6,152 9 171,190

$ 636 $ 225 $ 621 $ $ 7,641

$ 8,589 $7,200(a)$ 6,514 $ 636,000 $ 72,484 15,000 1,500

$ 74,875 74,875 8,589 7,200 6,514 148,859 89 97 6,903 924 266 266 20,000 2,740 307 126 15,750 2,283 145 149 10,001 1,454 807 638 7,401 9,396 7,200 7,152 156,260 8,589 7,200 6,514 148,859 ~

1 807 $ $ 638 $ $ 7..'*I A 53 I

1

EASTERN EDISON COMPAN)

INVESTMENTS IN, EQUITY IN EARNINGS OF, AND DIVIDENDS (In Thousands, except COL. A COL. B Balance at beginning of period (1) (2)

Number of shares or unit s.

Principal amount of Descript ion bonds and Amount Name of Issuer of Investment notes in dollars For the year ended December 31, 1978:

Eastern Edison Company:

Montaup Elect ric . .... Common Stock 564,000 $ 63,035 "Mont aup Elect ric . . . . . Preferred Stock 15,000 1,500

• Mont aup Elect ric . .... Debenture Bonds $65,600 65,600 130,135  ;

Montaup Elect ric Co.:

Yankee Atomic Elect ric Co. Capital Stock 6,903 916 Maine Yankee Atomic Power Co. Capital Stock 20,000 2,740 Conn. Yankee Atomic Power Co. Capital Stock 15,750 2,090 Vermont Yankee Nuclear Power Co. ....... Capital Stock 10,001 1,486 Subtotal 7,232 Grand Total. . . . . . 137,367 Eliminated in Consolidation 130,135 Total . ...... $ 7,232 "Eliminat ed in Consolidat ion (a) Purchase at cost.

8 O,

54

SCHEDULE III -- (Continued)

,3 SUBSIDIARY RECEIVED FRUM RELATED PARTIES number of shares)

COL. C COL. D COL. E COL. F Balance at end Additions Deductions of period (1) (2) (1) (2) (1) (2) Dividends Equity taken received up in ea rn- Distribution during the ings (losses) of earnings Number of period from of related by persons shares or investment s pa rt ies in which units. not and other earnings Ptincipal account ed persons (losses) amount of for by the for the were bonds and Amount equity period Other taken up Other notes in dollars method

$ 7,122 $ $6,948 $ 564,000 $ 63,209 15,000 1,500 9,275(a) $74,875 74,875 4 7,122 9,275 $6,948 139,584 126 110 6,903 932 268 268 20,000 2,740 138 126 15,750 2,102 147 175 10,001 1,458 679 679 7,232 7,801 ~9,275 7,627 146,816 7,122 9,275 6,948 139,584

$ 679 $ $ 679 $ $ 7,232 7_

s .-

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V V EASTERN EDISON COMPANY AND SUBSIDIARY ACCUMULATED DEPRECIATION, DEPLETION AND AMORTIZATION OF PROPERTY, PLANT AND EQUIPKNT (In Thousands)

Column A Column B Column C Column D Column E Column F Other Additions Charges Balance at Charged to Add Balcnce at Beginning Costs and (Deduct)- End of Description of Period Expenses Retirements Describe Period u For the Year Ended December 31, 1980:

Accumulated Depreciation, Depletion and Amortization $77.874 $7.158 $1.ad6 $ $83.946 4 l

$ 11 $ $ $ $_ 11 Nonutility Property For the Year' Ended December 31, 1979:

Accumulated Depreciation, Depletion and Amortization $71.890 $7.954 $1.970 $ $772 8A

$ 11 $ $ $ $ 11 Nonutility Property For the Year Ended December 31, 1978:

Accumulated Depteciation, Depletion and Amortizat3on $65.840 $7.651 $1.601 $ $71.890 Nonutility Property $ 11 ,L $ $ $ 11 gg 55 l2 8

EASTERN EDISON COMPANY AND SUBSIDIARY VALUATION AND QUALIFYING ACCOUNTS (In Thousands)

Column A Column B Column C Column D Column E Additions (1) (2)

Balance at Charged to Cheryed Balance at Beginning Costs and to Other Deduct ions- End of Description of period Expenses Accounts Describe Period for the year ended December 31, 1980:

Allowance for Doubt ful Accounts $213 $647 $ 45(a) $ 665(b) $240 For the year ended December 31, 1979:

Allowance for Doubt ful Account s $173 $419 $ 89(a) $ 468(b) $213 For the year ended December 31, 1978:

Allowance for Doubt ful Accounts $158 $470 $ 31(a) $ 486(b) $173 (a) Recoveries of accounts previously writt en off.

(b) Accounts Receivable written off.

BR 5s P8 BR 2: <

UE

SCHEDULE IX--CONSOLIDATED l \

'\_ /

EASTERN EDISON COMPANY AND SUBSIDIARY Short-Term Borrowings (In Thousands)

COL. A COL. B COL. C COL. D COL. E COL. F Maximum Average Weighted Category of Weighted amount amount average l aggregate Balance average out st anding outst anding interest rate

short-t erm at end interest during the during the during the l borrowings of period rate period period (a) period (b) 1 l

l Notes Payable I to Banks:

l rs December 31, lk j 1980 $31,4j]l 22.40% $51,120 $38,576 17.54%

1979 $37,500 15.51% $43.080 $31,353 14.41%

1978 $25,450 13.36% $33,550 $27,183 10.15%

l (a) The average amount outstanding during the period was computed by dividing j the total of month-end outstanding principal balances by 12.

(b) The weighted average interest rate during the period was computed by dividing the actual interest expense by the average short-term debt out-st andi ng.

o

/ I

'_/1 59

SCHEDULE X -- CONSOLIDATED O

EASTERN EDISON COMPANY AND SUBSIDIARY Supplementary Income Statement Infonnat ion COLUMN A COLUMN B For the Years Ended December 31, 1980 1979 1978 Charged to Costs and Expense (In Thousands)

Amounts of maintenance and repairs and depreciation expense were as shown in the income statement and notes thereto.

Taxes -- Other than Income: (a)

Eastern Edison Company . ..... $5,759 $5,803 $6,110 Montaup Elect ric Company. .. ... 2,683 _2,392 2,589 Total . .. . . . ..... 8,442 8,195 8,699 Less: Charged to Other Accounts . . (12) 52 129 Charged to Operating Expenses . .. $8,454 $8,143 $8,570 #

Amounts of rents, advertising costs and research and development costs did not exceed 1% of gross revenues. f Local State State NOTES: (a) Payroll Property Corporation Sales and Taxes Taxes Tax Use Tax For the Year Ended December 31, 1980:

Eastern Edison. . . . $ 413 $5,346 $ $

Montaup . . . . . . . 216 2,462 2 3 Total . . . . . . $ 629 $7,808 $ 2 $ 3 For the Year Ended December 31, 1979:

Eastern Edison. . . . $ 398 $5,406 $ $

Montaup . . . . . . . 208 2,179 2 2 Total $ 606 $7,585 $ 2 $ 2 For the Year Ended 3 December 31, 1978:

Eastern Edison. . . . $ Ar3 $5,693 $ $ 8 Montaup . . . . . . . 191 2,393 2 3 Total . . . . . . $ 600 $8,086 $ 2 $ 11 4 60

y,' '

EYHlBIT A-3 SECUR111ES AND EXCHANGE EOMMISSION Washingion, D.C. 20549

\

FORM 10-Q QUARTERLY REPORT UNDER SECTION 13 OR lii(d) -

0F THE SECURITIES EXCHANGE ACT OF 1934 for Quarter Ended March 31, 1981 Commission file number 0-8480 Eastern Edison Company (Exact name of registrant as specified in its charter)

Massachusetts 04-1123095 _

(State or other jurisdiction of (I.R.S. Employer -

incorporation or organization) Identification No.)

36 Main Street, Brockton, Massachusetts 02A33

( Address of principal executive of fices) (Zip Code)

Registrant's telephone number including area code 617-580-1213 Same -

Former name, former address and former fiscal year, if changed since last report.

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes X No Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. -

Common Shares Outstanding at April 30, 1981 2,891,357

y, PART I - FINANCIAL INFORMATION Item 1. Financial Statements I

[T EASTERN EDISON COMPANY

\m / CONSOLIDATED CONDENSED R*1' JE SHEET March 31, December 31, ASSETS 1981 1980 Utility Plant $356,075,228 $346,999,675 Less Accumulated Provision for Depreciation 85,741,684 83,945,641

. Net Utility Plant 270,333,544 263,054,034 Current Assets:

Cash 881,168 559,294 Accounts Receivable: (Less allowance for doubtful accounta of $218,677 at March 31, 1981 and $240,000 at December 31, 1980) 30,688,856 28,978,767 Materials and Supplies 12,952,170 20,033,801 Other Current Assets $38,314 285,841 Total 45,060,508 49,857,703 Deferred Debits and Other Non-Current Assets 16,622,171 16,044,047

$332,016,223 $328,955,784 '

~

LIABILITIES AND CAPITALIZATION Capitalization:

Common Shares, $25 Par Value $ 72,283,925 $ 72,283,925 5,824,633 5,824,633

() Premium on common Stock s

Common Stock Expense (39,612) (39,612)

Unappropriated Retained Earnings 24,498,368 23,319,544 Appropriated Retained Earnings 821,259 821,259 Redeemable Preferred Stock, $100 Par Value 20,198,289 20,198,501 Non-Redeemable Preferred Stock, $100 Par Value 8,948,630 8,948,630 Long-Term Debt (Less Current Maturities) 110,977,330 110,981,815 Total Capitalization 243,512,822 242,338,695 Current Liabilities: .

Notes Payable (Including curre~nt maturities of long-term debt) 37,800,000 31,450,000 Redeemable Preferred Stock Sinking Fund Requirement 239,762 304,984 Accounts Payable 19,407,767 28,828,884 Taxes Accrued ,

4,156,226 1,120,063 Deferred Taxes 667,994 794,408 Interest Accrued 3,427,325 2,749,964 Other Current Liabilities 933,811 933,974 Total 66,632,885 66,182,277 Accumulated Deferred Taxes, Deferred Credits and Other Non-Current Liabilities 21,870,516 20,434,812

$332,016,223 $328,955,784

["~} See accompanying notes to consolidated condensed financial statements.

V 9

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EASTERN EDISDN COMPANY CONSOLIDATED CONDENSED STATEMENT OF INCDME Three Months Ended March 31, 1981 1980 (Restated)

Operating Revenues $72,084,152 $60,774,875

. .r Operating Expenses:

Operation 57,904,068 '50,298,945 Maintenance 1,062,756 861,900 Depreciation and Amortization 2,035,039 1,065,712 Taxes - Other Than Income 2,228,674 2,089,461

- Income 1,459,606 (148,038)

T - Deferred 900,773 205,864 Total 65,590,916 54,373,844 Operating Income 6,493,236 6,401,031  !

Allowance for Other Funds Used During Construction 1,081,136 513,615 Other Income and (Deductions) - Net 286,469 82,561 Net Interest Charges (3,117,962) (2,396,374)

Income After Interest Charges 4,742,879 4,600,833 Preferred Dividends Requirement 904,005 336,000 Consolidated Net Income .' _$ 3,838,874 $ 4,264,833 Weighted Average Number of Common Shares Outstanding 2,991,357 2,891,357 Consolidated Earnings Per Average Common Share $1.33 $1.48 Dividends Declared ..

$0.92 $0.87 See accompanying notes to consolidated condensed financial statements.

t O

EASTERN EDISON COMPANY CONSOLIDATED CONDENSED STATEMENT OF CHANGES IN FINANCIAL POSITION Three Months Ended March 31, 1981 1980 Income After Interest Charges $ 4,742,879 .$ 4,600,833 (513,490) l Non-Cash Charges (Credits) to Income - Net 613,366 Funds Provided by Operations 5,356,245 4,087,343 Increase in Notes Payable to Banks 6,350,000 250,000 Other Sources 9,106 335,062 n Total Funds Provided 5 11,715,351 5 4,672,405 Application of Funds Construction Expenditures $ 9,191,874 $ 7,145,588 Allowance for Funds Used During Construction (2,782,933) (2,267,188)

Cash Dividends 3,564,053 2,851,481 Puriase of Promissory Notes 720,000 In. resse (Decrease) in Working Capital 910,558 (3,336,353)

~

Ot.er Applications 111,799 278,3_7]

! Total Funds Applied - $ 11,715,351 $ 4,672,405 See accompanying notes to consolidated condensed financial statements.

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I' v n tw aum m m u NOTES 10 C61 slDATED CONDENSLD STATEMENTS The accompanying Not es should be read in conjunction with the Notes to Con-solidat ed Financial Stat ements appearing in the Company's 1980 Arnual Report on form p 10-K.

/.m1 Note A - In the opinion of the Company, the accompanying unaudited consolidated V condesed financial statements contain all adjustmects (consisting of only normal recurring accruals) necessary to present fairly the financial position as of March 31,1981 and 1980, and the results of operations and changes in financial position for the three months then ended.

Note B - Results shown above for the respective interim periods are not necessarily indicative of results to be expected for the fiscal years due to seasonal facto rs. These seasonal factors which are innate to elect ric utilities in New England are as follows: A greater proportionate amount of revenues is earned in the first and fourth quarters (winter season) of each year because more electricity is sold due to weather conditions, fewer day-light hours, etc.

Note C - Contingencies:

In October 1980 Montaup received approval from the Massachusetts Department of Public Utilities to increase its ownership interest in each of the two 1150 megawatt nuclear generating units being constructed in Seabrook, New Ham; shi re, from 1.90% to 2.9D*4. Montaup is acquiring the additional 1% - , , ,

gradually over an Adjustment Period, commencing on January 31, 1981 by .

paying its pro rata share of the costs otherwise attributable to the lead participant, Public Service Company of New Hampshire (PSNH). All of the necessary state and Federal regulatory approvals for the construction of the units have been obtained. One court appeal from Federal regulatory approvals is st:11 pe; Jing and further appeals are possible. PSNH has stated that it

, is experiencing serious difficulties in financing its construction work in s ) progress. In an effort to reduce its construction expenditures PSNH has V received commitments from other utilities to acquire an additional 15% of the project. In March 1980 PSNH decided to reduce the level of construction until capital markets stabilized and the remaining regulatory approvals for the reduction of its ownership interest were obtained. In June 1980 PSNH was ordered by the New Hampshire Public Utilities Commission to delay for three years work on Unit No. 2 of the Seabrook plant, except for those areas that are common to both Units. Upon rehearing, the order was amended to provide that such delay shall continue only until receipt of the regulatory approvals necessary for reduction of PSNH's cwnership interest and commence-ment of such reduction. As of March 31, 1981, Montaup's investment in the project amounted to approximately $30,696,000. Montaup is unable to predict what effect further financing problems or administrative and court actions may have on the Seabrook project or its cost.

~

Montaup also has a 2.15% ownership interest in a planned nuclear unit, Pilgrim Unit No. 2 (lead participant, Boston Edison Company). In a recent l prospectus, the lead participant has stated that when a more definitive sched-ule is set for the granting of a construction permit it will be able to develop revised cost estimates and financing plans. At that time it will also review

! the feasibility r,f the project and decide whether or not to cancel the Unit. As of March 3~ ,1981 Montaup had spent approximately $9,669,000 in ce inection with its interest in the Pilgrim Unit No. 2 project. Final costs associated with the cancellation of the project, if ultimately necessary, cannot now be ascer-tained.

l l

(q b)

In the event of such cancellation, Montaup would apply for appropriate regulatorf approval to recover its total costs cver an appropriate future period. The exten

( to which rate relief, if any, would permit recovery of the project costs cannot b determined at this time.

i

(

Item 2. Management 's Discussion and Analysis of Financial Condition and Results of Operations I

O

( ,) The following is Management's discussion and analysis of certain significant factors affecting the Company's earnings and financial condition for the interim periods presented in this form 10-Q. _

Operating Revenues Operating Revenues increased $11.3 million or 18.6% for the first quarter of 1981 '

as compared to the same period in 1980. Over approximately 57% of the 1981 increase was due to significant increases in fossil fuel costs which are passed on to customers.

The remaining increases in first quarter 1981 revenues came from the billing of higher base rates, as a result of rate increases granted in late 1980 and also in February 1981. Approximately $879,000 of the February rate increase is subject to refund. These higher base rates were slightly offset by lower kilowatthour consump-tion by customers.

Operations Expense fuel eipense for the first quarter of 1981 as compared to the same period in 1980 -

increased $6.5 million or 16.8% primarily due to significent increases in the price per barrel of oil. For the first quarter of 1981 the average price per barrel'of oil was approximately $33 or $11 higher than the price for the same period in 1980.

Operating expenses for the first quarter of 1981, other than fuel and purchased power, increased approximately $0.8 million or 13.3% over the first quarter of 1980.

(O} This increase is primarily due to the impact of inflation on operating expenses.

Depreciation Expense Depreciation expense for the quarter ended March 1981 was $1.0 million less than the same period in 1980 primarily due to the recording, in 1980, of a credit to depreciation expense as a result of an amended rate order. See Note A of Notes to Consolidated Financial Statements included in the Company's 1980 Annual Report on Form 10-K for further information.

Allowance for Funds Used During Construction (AFUDC)

The total level of AFUDC increased $0.5 million or ?2.8% for the first quarter of 1981 over the. same period in 1980 primcrily as a result of increased construction expenditures and increases in the AFUDC rate which reflects higher borrowing costs.

Interest Charges li.terest on long-term debt increased in the first quarter of 1981 over the same period in 1980 by $.4 million. This increase is primarily the result of higher prime borrowing rates in the first quarter of 1981 and the issue in October 1980 of $15.0 million of 14-1/4% bonds., This issue enabled the Company to reduce its level of short-term borrowings. Short-term interest expense for the periods presented increased approximately $.2 million which also reflects higher borrowing -

costs.

A

_5_

1

---

_______:___--. _a

Preferred Dividends 4

Preferred dividends increased $.6 million as a result of the issuance in 4 Oct ober 1980 of $15.0 million of 15.48'o preferred stock.

{

Liquidity and Sources of Capital

(

During the first three months of 1981 internally generated funds produced approximately 44% of the $6.4 million in cash construction requirements. The remaining 56% of construction requirements were funded with short-term bank -

borrowings. There were no other material changes in Sources of Capital or Liquidi ty.since . December 31, 1980. ,

PART II. OTHER INFORMATION Item 1. Legal Proceedings.

The following statements relate to the indicated paragraphs under Item 3 of Part I of the registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1980.

With respect to the paragraph numbered 4 (on page 14), the expected order of FERC approving the settlement there described was issued on April 17, 1981.

Wi h respect to subparagraph (c) under the paragraph numbered 8 (beginning on .

page 16),'the registrant is informed that certain parties, including the Attorney General of Massachusetts, who had intervened in the proceeding before the Atomic Safety and Licensing Board referred to in that subparagraph have appealed the February 1981 decision of the Board to an Atomic Safety and Licensing Appeal Board of the NRC.

Item 4. Submission of Matters to a Vote of Security Holders (a) The Annual Meeting of Stockholders was held March 3,1981.

(')

o Voted to fix at eight the number of Directors to serve until the next Annual Meeting of Stockholders and until each one's successor is elected and qualifies:

William R. Bisson Robert E. Maguire Robert I. Dexter Donald G. Pardus John F. G. Eichorn, Jr. Margaret M. Stapleton Allan K. Hamer James T. Waldron (c) Voted to elect Richard M. Burns, Treasurer, and William F.

O'Connor, Clerk, of this corporation. ,

Votes cast with respect to each matter:

Af firmative - 2,891,357 Negative - None Item 6. Exhibits and Reports'on Form 8-K (a) Exhibits - None -

(b) Reports' on form 8-K (1) No reports on Form 8-K were filed during the period January 1,1981 through March 31, 1981.

i 4

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4 i

i 1

i 4 SIGNATURES 1

j Pursuant to the requirements of the Securities Exchange Act.of 1934, the l registrant has duly caused this report to be signed on its behalf by the under-

! signed therunto duly authorized.

Eastern Edison Company *

(Registrant)

I Date: May 15,1981 Richard M. Burns i

Richard M. Burns, Treasurer (on behalf of the Registrant and as Chief Accounting Officer)

I I

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O 4

e

f PRELIAIINARY PROSPECTUS DATED JUNE 5.19S1 ssui Dif s_. M Eastern Edison Comnanv t J

$S pI $30,000,000 tgao

._ e

• j ,5 First Mortgage and Collateral Trust Bonds

-tg a c --

jMj Due July 1, a E5 :

y y{g; Entitled to Interest from July 1,1981 ElEh 32 2; e x=

35%.O eO *C 4t

'E ~ E 'i The First hfortgage and Collateral Trest isods offered hereby (the " Bonds") will be redeemable

$ j] [ at the option of Eastern Edison Company ("the Company") at the Regular and Special Redemption agg prices set forth herein under " Redemption Provisions of the Bands". Reference is also made therein to j E gi the terms of a limitation on the redemption of such Bonds at a Regular Redemption Price prior to

, 3 8 j ), July 1,1986,if such redemption is for the purpose of or in anticipation of the refunding of such Bonds yy, E at a lower interest cost. Such limitation does not, however, apply to redemptions at a Special Redemp-g; tion Price which applies to redemptions through the use of sinking fund or replacement fund moneys i s =3 g'

,. $1NgEiorthe other trust moneys. 'Ihe Bonds will be issuable only as fully registered bonds. See " De Bonds".

=gs7 Eet3 This Prospectus i to be used in connection with the Invitation for Bids for the purchase of the jy}aqf; $ Highj above Street (28thBonds. Bids floor) Boston, will beupreceived hf arsachusetts to 11:00 a.m. by the Boston Company Time, at 23, on Thursday, July the of

.~~ 53 1981. Officers of the Company, its auditors and counsel, and counsel for the prospective purchasers g y 7. .e will be available at Irving Trust Company, One Wall Street (47th Floor), New York, New York, on E 3 :., ;' Thursday, July 16,1981 at 11:00 a.m. New York Tir.ie to meet with prospective bidders to review the 3

0'g ] { Registration Statement and Invitation for Bids. Copies of the bidding papers may be obtained at the 8

~g%% 5~ ofBee of Eastern Utilities Associates at 99 High Street (28th Floor), Boston, Afassachusetts.

Sa e5 7  : B $ ".

3 Fi E D d

5SEE

-Ema"En o

.? S i5 " TIIESE SECURITIES IIAVE NOT BEEN APPROVFD OR DISAPPROVED BY TIIE j2jj SECURITIES AND EXCIIANGE COSIAIISSION NOR IIAS TIIE COAihilSSION f.j~g s PASSED UPON T11E ACCURACY OR ADEQUACY OF TIIIS PROSPECTUS.

ga5g Encw ANY REPRESENTATION TO TIIE CONTRARY IS A CRIAIINAL OFFENSE.

525?=u .

$E2s E?E n255 Dated July ,1981 cw..$

8 3 ~~

AY OVER-ALLOT OR IN CONNECTION WITII TIIIS OFFERING, TIIE PURCIIASERS RICE OF TIIE hf WIIICII MIGIIT OTIIER.

HFFECT TRANSACTIONS WlIICII STABILIZE COMMENCED, MAY BT OR SIAINTAIN SECURITIES WISE PREVAIL IN OFFERED TIIE OPEN IIEREBY hfARKET. SUCII AT LEVELS STABILIZING, ABOVE IF TIIOSE W

. DISCONTINUED AT ANY TIME. .

/,

i AVAILABLE INFORMATION h Act of 1934 The Company is subject 4 the informational requirements f the Company, of the Securities Exc ang cnd in accordance therewith fles reports and other information their remuneration, options granted to them (of which there are nonh Company's Annual Report on F such persons in transactions with tle Company is disclosed h Public in t e Reference 10-K. Such reports and other information can be inspected and copied at t eComm Room of the Commission,1100 L StrJet, N.W., Washington, be obtained from D.C., rad at theChicag OEces at 26 Federal Plaza, New York, N.Y.10007; 219 Sou the Public Reference Section of the Commission,500 North Cap to 20549,r.t prescribed rates.

THE COMPANY i i al executive The Company, e Massachusetts corporation 3 (telephone incorporated in 1883 617-580-1213) is a public with its pr nc p offices at 110 Mulberry Street, Brockton, Massachusetts b f the holding company system (the 0240 l t ry association and - )

utility distributing electricity at retail. The Company is a mem er o

"), Blackstone Valley registered holding company under the Public Utility Ifolding d EUA Service ("Montaup is composed of EUA, the Company, Montaup Electric Company Electric Company ("Blackstone"), a Rhode Island retailf delectric ii Montaup, a to several utility company, an Corporation, a service company. The Company owns a municipal and other unaffiliated utilities for resale. i On that d on August data Fall River Electric Light Company was merged in 1,1979 Brockton's name was changed to Eastern Edison Company.

W 2

A b

f TIIE ISSUE IN BRIEF

_ The follotting is a summary of certain pertinent facts, and is qualifed in its entirety by detailed f formation and fnancial statements appearing elsetchere in this Prospectus.

TIIE OFFERING Securities Offered $30,000,000 Principal Amount, First hfortgage and Collateral Trust Bonds Offering Date . July 23,1981

. Use of Proceeds _ To reduce short. term borrowings incurred primarily ft ' construction a d repay a $5,000,000 unsecured note due 19S4 t}

THE COhfPANY The Company is a subsidiary of Eastern Utilities Associates and supplies retail electric service to approximately 150,600 customers in southeastern hiassachusetts. Its service area has an estimated i

'y population of 438,000 and the largest communities served are the cities of Brockton and Fall River.

The financial information below is for the Company and its subsidiary, Afontaup.

FINANCIAL INFORhfATION

, (dollars in thousands) 12 Months Ended Dec. 31, March 31, 1980 1981

,; Consolidated Income Statement Data:

I Operating Revenues . . $224,221 $235,530(a)

~

Consolidated Net Income . 11,138 10,712 Ratio of Earnings to Fixed Charges - Actual' . 1.78 1.88 N -Pro Forma * .. .... .. ...

2.27 (a) Includes $879,500 of revenue subject to possible refund.

• For method of computation and information on ratios, see " Selected Coasolidated Financial Data".

I Consolidated Capitalization as of hiarch 31,1: 31 (unaudited), and as adjusted for the sale of the I Bonds and a proposed capital contribution of approximately $8,500,000 from EUA is as follows:

Actual As Adjusted (b)

Long-term Debt . .. .. $110,977 45.0% $135,977 49.1 %

Redeemable Preferred Stock (excluding current sinking fund requirements) 20,199 8.3 20,199 7.3 Non. redeemable Preferred Stock 8,950 3.7 8,950 3.2 Common Equity . . . .. 103,387 42.4 111,887 40.4 Total Capitalization . . . $243,513 100.0 % $277,01.3, 100.0 %

(b) See" Capitalization".

3

USE OF PROCEEDS AND CONSTRUCTION AND FINANCING PROGRAh!

l The estimated $30,000,000 proceeds from the sale of the Bonds will be applied, first, to the pur-I chase of $20,000,000 of Common Stock and $5,000,000 principal amount of Debenture Bonds of bio

} taup, and, second, to the repayment of a $5,000,000 unsecured note due 1984. hiontaup wi utilize the $25,000,000 proceeds from the sale of its securities to reduce its short. term bank bor-rowings incurred directly or indirectly to pay for construction. 'Ihe Company expects to receive a capital contribution of approximately $8,500,000 from EUA prior to the offering of the Bonds. The r

proceeds from the capital contribution will be utilized by the Company to repay all of its short-term I bank borrowings. Afontaup's short-term bank borrowings are anticipated to be approximately 7 I $38,000,000 at the time of the offering.

Construction expenditures of the Company and hiontaup for the years 1981-1983, as set forth m

" , below, are estimated to total $151,300,000 (including allowance for funds used du-ing construction of approximately $1.061,000 for the Company and $49,461,000 for hfontaup and estimated environ-

_ ental expenditures and nuclear fuel costs where applicable). Through hiarch 31,1981 the Company and hiontaup had expended approximately $1,900,000 and $7,200,000, respectively, on their 1981 construction programs. ,

,, CONSTRUCTION PROCRAM (Millions of Dollars) 1981 1982 and 1983 3 Year Total Company Montaup Company Montaup Company Montaup Combined Generation (s)

Seabrook Nos. I and 2 (Nuctor) $- $23.8 A- $45.3 _$ - $ 69.1 4 69.1 MI!! stone No. 3 (Nuclear) -

11.8 -

31.1 - 42.9 42.9 Other - 4.1 - 2.4 - 6.5 6.5 Transmission 0.1 0.7 - 0.4 0.1 1.1 1.2 Distribution ... . 7.6 - 16.8 - 24.4 - 24.

General . . 3.6 - 3.5 0.1 7.1 0.1 7.2 Total - $11.3 $40.4 $20.3 $79.3 $31.6 $119.7 $151.3 (a) See " Business - Uncertainties Regarding Nuclear Plants."

In addition to the above construction program, the Company's total capital requirements include an annual sinking func' requirement on its 13.60% preferred stock of approximately $314,000. There is also long-term debt aggregating $13,996,000 maturing in 1983.

t Financing of the Company's and hiontaup's construction program and a desired reduction in short-term bank loans represent a major undertaking. The amount of the construction costs to be financed is subject to considerable uncertainty because of various factors including questions as to the timing of the construction of the nuclear gene-ating units ident _ed above. The Company estimates that internally generated funds will finance approximately 58% of its 1981-83 construction program with short-term borrowings providing the remaining requirements. The Company estimates that internally generated funds of Afontaup will hnance approximately 13% of its 1981 constructio'n-pro-4 h

x i

?l

___ _ _ - - - - - _ - - _ _ - - - - _ - - - - - - - - - - - - - - - - - - - *4 al

m gram with short-term borrowings of hiontaup providing the remaining requirements. The Company expects that during 1982 and 1983 hiontaup's construction program will be financed temporarily with

, short-term borrowings of hiontaup which are expected eventually to be financed permanently through

( 'ie sale of additional securities to the Company. The Company expects to finance permanently its short-cerm borrowings and its purchases of hiontaup securities through the sale of additional bonds aW preferred stock to the public and the sale of its common stock to or capital contributions from EUA.

The feasibility of such financings will be dependent upon a number of factors, including the ability to obtain adequate and timely rate increases, conditions in the securities markets, a favorable market r,ppraisal of the securities of the Company and EUA, economic conditions and the level of kilowatt-hour g sales. See " Rates" regarding recent rate increase requests of the Company and hiontaup. See also

" Business - Uncertainties Regarding Nuclear Plants".

The indenture of mortgage of the Company requires for the issuance of additional bonds, except for certain refunding purposes, a minimum earnings (before income taxes) coverage of twice the pro d, forma annual interest charges on bonds outstanding, on any prior lien indebtedness, and on the bonds to be issued. Provisions relating to the Company's preferred stock require for the issuance of additional preferred stock, except for certain refunding purposes, a minimum earnings (after income taxes) coverage of one and one-half times pro forma annual interest charges and preferred stock dividends.

The computation is made for a period of twelve consecutive calendar months within the fifteen calendar months immediately preceding the proposed new issue. On the basis of these requirements, coverages for the five years ended December 31,19S0 and for the twelve month periods ended hfarch 31,1981 and April 30,1981, based on the respective amounts then outstanding, were as follows:

, Preferred Band Stode J

g Coverage Coverage g 1976 2.79 1.84

~~ 1977 2.29 1.74

( 1978 .. 3.00 2.01 1979 2.75 1.87 1980 . 2.28 1.39

.[ Twelve months ended hiarch 31,1981 2.56 1.52 Twelve months ended April 30,1981 2.61(a) 1.53 l

(a) After giving effect to the sale of $30,000,000 of Bonds at an assumed interest rate of 16.00%,

the bond coverage ratio would be 2.05. The Company's $10,000,000 note due 1985 has been secured by a lien prior to the lien of the indenture on certain hiontaup securities. As a result, the annual interest requirement on this note has been included in the indenture test. 'Ihe holder of the note has agreed to release the Afontaup securities prior to the issuance of the Bonds thereby danging the status of the note from secured to unsecured. The pro-forma coverage indicated reflects this change.

Based on the Bond Coverage at April 30,1981, the Company would be able to issue approximately

$32,000,000 of additional bonds at an assumed interest rate of 16.o(ho.

5

CAPITALIZATION The consolidated capitalization and short-term bank loans as of hfarch 31,1981 were, and after giving effect to the sale of $30,000,000 of Bonds and the proposed capital contribution of approxi-mately $8,500,000 from EUA, the application of the proceeds thereof and the related reductions o a $5,000,000 unsecured note due 1984 and in short-term bank loans will be, substantially as follows: F 0

'- To be Outstanding Outstanding Amount _%

Long-Term Debt (a):

First hfortgage and Collateral Trust Bonds (b) $ 95,790 $125,796 Notes Payable due 1981 and 1985(c) 15,000 10,000 Unamortized Premium 181 181(d)

Total Long-Term Debt 110,977 135,977 49.1 Redeemable Preferred Stock (net of relate'. premium and ,

expense)(e) 20,199 20,199 7.3 Non-Redeemable Preferred Stock (net of related premium and expense)(e) 8,950 8,950 3.2 g Common Equity:

s Common Stock ($25 par value) 2,891,357 shares auth-orized and outstanding 72,284 72,284

, Other Paid In Capital 5,785 14,2S5 Appropriated Retained Earnings 821 821 Consolidated Retained Earnings (f) 24,497 24,497 g* __

+ Total Common Equity 103,3S7 111,887 40.4 Total Capitalizatian $243,513 $277,013 100.0 Short-Term Bank Loans of the Company $ 8,200 $ -

e, Short-Term Bank Loans of hfontaup 29,600 4,600 Consolidated Bank Loans $ 37,800 $ 4,600

,. (a) See Consolidated Statement of Capitalization and Note F of Notes to Consolide.ied Financial

?- Statements for details of Long-Term Debt.

(b) While there is no limit, as such, on the amount of additional first mortgage and collateral trust bonds which may be issued upon compliance with the conditions provided in the indenture, see g "Use of Proceeds and Construction and Financing Program" with respect to earnings coverage requirements on the issue of such bonds. Also see " Description of the Bonds -Issuance of Addi-

.~~

tional Bonds and Withdrawal of Cash Deposited Against Such Issuance".

(c) Certain securities of hiontaup owned by the Company are pledged to secure $10,000,000.of such notes; however, see "Use of Proceeds and Construction and Financing Program" regardiig the release of these securities.

. (d) Plus premium,if any,less expenses ofissue.

4 (e) See Consolidated Statement of Capitalization and Notes C and D of Notes to Consolidated Finan-cial Statements for details of preferred stock.

(f) See " Description of the Bonds-Dividend Restriction" and Note E of Notes to Consolidat .1 Financial Statements for restriction on retained earnings available for payment of dividends on

_ common stock.

6 t

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RATES The rates for services rendered by the Company are subject to approval by and are on file with

. the Afassachusetts Department of Public Utilities (the ."DPU"). Rates charged by Afontaup (which

( lls power only for resale) are subject to the jurisdiction of the Federal Energy Regulatory Commission

("FERC"). For the twelve months ended Afarch 31,1981 hiontaup's operations provided 86Fe of the Company's Consolidated Operating Revenues and S3fc of its Consolidated Net Income.

General rate increases granted the Company and hiontaup, since the beginning of 1977, are as follows:

Applied For Made Effective D Annual Application Annual Effective Revenue Date _ Revenue Date hiassachusetts The Company $4,006,430 07/15/77 $1,260,112 02/08/78 y

626,961 04/13/78 2,099,4S1 12/15/78 375,756 05/14/80 9,550,677 05/15/S0 5,3SO,107(a) 11/26/80 Federal hiontaup 1,672,400 06/27/77 1,341,011 01/01/78 3,720,697 06/28/78 1,636,464 11/29/78 10,722,662 07/11/80 9,100,000(b) 12/01/80

,n 7,679,604(c) 12/19/80 7,879,604 02/19/81 (a) Based on an allowed rate of return on common equity of 14.0Fo.

, (b) An interim settlement of $9,500,000 which was effective as of October 1,19S0 was sub-sequently reduced to 59,100,000 in a final settlement made effective December 1,19S0.

(c) $S,9S2,604 originally applied for was subsequently reduced by 5fontaup to $7,879,604. The

( increase, which was based on a requested return on common equity of ISrc feet to refund after a one-day suspension. There is no assurance as to what amount will ultimately be granted.

~

It is anticipated that both the Company and hiontaup will be filing for further rate increases by August 15,19SI.

l Massachusetts Effective April 1,1978 the Company was authorized by the DPU to institute a forward-looking purchased power adjustment clause theraby removing the two-month lag in recovery of costs under previous claases; changes in the adjustment clause or the amounts charged under it are the subjects of quarterly hearings. Beginning in the second quarter of 1978 the Company was allowed by the DPU i to recover purchased power costs previously unbilled as the result of its transition to the forward-looking purchased power clause. -

On December 29,1977, the DPU promulgated regulations which will require electric utilities to adopt mandatory rate structures based on peak load and time diEerential pricing and related cost 7

t

methodology. The new regul:tions took effect on J1nuiry 6,1978 t.nd were intended to be impl:mented over a nine-month period. The Ccmpany, along with the majority of the hiassachusetts electric utilities, was unable to meet the nine-month deadline and received an extension. The Company has filed ith the DPU a plan for implementing such rates. It is expected that the implementation period will be r considerable duration. r i Federal hiontaup's December 19, 1980 request to FERC originally sought additional wholesale rev-enues aggregating $8,982,604 on an annual basis, hiontaup subsequently reiluced the request to

$7,879,604. Such request included a return on common equity of 18.0% Afontaup requested that the new rates become effective, subject to refund, on February 19, 1981, after a one-day suspension.

Requests for intervention have been filed by hiontaup's four non-affiliated wholesale customers and by the Attorneys General of Rhod- Tsland and hiassachusetts and by the Rhode Island Public Utilities Commission and its Division of Public Utilities and Carriers. At its public meeting on February 13, i

1981, FERC granted Afontaup's requested one-day suspension and permitted an increase of $7,879,604 to be put into effect, subject to refund, on February 19,1981.

y SELECTED CONSOLIDATED FINANCIAL DATA Twelve Months i

For the Years ended December 31, y 3, l 1976 1977 1978 1979 1980 1981 (In thousands)

Operating levenues $138,946 $144,791 $141,712 4168,127 $224,221 $235,530 Consolidatei Net Income from Con-t tinuing 05 rations 8,122 6,483 10,085 10,895 11,138 10,712 Total Assets 232,543 249,042 260,700 290,858 328,956 332,016 Long-Term Debt 100,116 96,219 96,202 100,985 110,982 110,977 l

'r Redeemable Preferred Stock Non-Redeemable Preferred Stock ..

5,921 8,950 5,921 8,950 5,921 8,950 5,607 8,950 20,199 8,950 20,199 8,95 Ratio of earnings to fixed charges (as 7 deBned)(a)

,. Actual 2.66 1.88 2.43 2.04 1.78 1.88 q Pro Forma - - - - - 2.27 (a) For the purposes of determining these ratios, earnings have been computed by adding income after interest charges, excluding the Company's portion of undistributed income of nuclear generating p companies attributable to hiontaup, taxes based on income and fixed charges. Fixed charges include interest expense, amortization of debt expense less premium and one third of total rentals paid. The I

pro-forma ratio of earnings to fixed charges for the twelve months ended Afarch 31,1981 after giving effect to the issuance of $30,000,000 of Bonds at an assumed interest rate of 16.00% (annual interest requirement of $4,800,000), the proposed capital contribution of approximately $8,500,000 from EUA i

and prepayment of a $5,000,000 unsecured note due 1984 and the reduction of short-term bank loans

! /- . would be 2.27. A difference of %% in the assumed interest rate on Bonds would change this pro-forma f

ratio by approximately 0.0059.

, Annual interest on first mortgage bonds outstanding on Afarch 31, 1981 was approximately

$8,267,000. Annualinterest on first mortgage bonds outstanding after giving effect to the sale of the Bonds willbe $

8

am MANAGEhfENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Summary

( In reviewing the following analysis, reference should be made to the Consolidated Financial Statements appearing elsewhere in the Prospectus. Consolidated Net Income in 19S0 increased 2.2%

from 1979 and 1979 increased 8.0% from 1978. The 19S0 results were increased by $1.2 million be-cause of an adjustment which resulted from an amended rate order of the DPU. See also Note A of Notes to Consolidated Financial Statements. Cash construction requirements totaled $21.8 million,

$20.9 million and $18.8 million, respectively, for the years 19S0,1979 and 1978. Internally generated U funds provided none, $4.5 million and $7.6 million of the cash necessary to meet the above-mentioned construction program with the remaining requirements being provided from external sources which are more fully explained under " Liquidity and Sources of Capital".

g Results of Operations Operating Revenues in 19S0 increased $56.1 million over 1979 and in 1979 increased $26.4 million over 1978. Approximately 90.9% of the 19SO increase in operating revenues and 97.7% of the 1979 increase were due to significant increases in fossil fuel costs which are, after regulatory review, automatically passed on to customers. The remaining increases in 19SO revenues came from the billing of higher base rates, although these higher rates were slightly offset by lower kilowatthour consumption by customers. This reduction in kilowatthour sales is attributed to the implementation of energy conservation measures by customers and to the generally weak economic conditions that prevailed p in 1950.

Approximately 83% of hiontaup's generating capacity is fueled by oil. As indicated in the pre-ceding paragraph, the cost of fossil fuel burned in generating stations significantly increased during 1980 and 1979. During 1950, the price p r barrel of oil increased from $19 in January to $32 in December. These increases raised fuel expense by $51.0 million or 62.1% over 1979, despite a slight f % crease in kilowatthour sales.1979 fuel expense increased by $25.8 million or 45.9% over 1978 and

\ ae cost per barrel of oil increased from $11.42 in January to $19.00 at year end,1979.

Purchased power expense increased by $4.4 million or 19.8% in 1980. Most of the increase reflects additional maintenance and safety analysis work required at nuclea a aerating plants in which

hiontaup has ownership interests or unit contracts. The safety analysis work has been required by the Nuclear Regulatory Commission ("NRC") as a result of findings in its ongoing investigation of the Three hiile Island nuclear plant incident.

Allowance for Funds Used During Construction ("AFUDC") represents the net cost, during the period of construction, of borrowed funds used for construction purposes and a reasonable rate upon equity funds when so used. AFUDC represents a non-cash element of income. The Company and hiontaup experienced increases in the level of AFUDC (both equity and debt) totaling $3.6 million in 1980 and $2.4 million in 1979. Continuing expenditures for the construction of future generating fa-cilities have resulted in signiScant increases in the level of construction work-in-progress balances to which the AFUDC rate is applied. In addition, because of substantially higher borrowing costs to the Company and hiontaup, the AFUDC rate has been increased from 8.5% in early 1978 to 11.5% in 1919 to 14.5% in 1980. AFUDC has also become a larger component of consolidated net income increasing from 38.0% in 1978 to 56.9% in 1979 and to 88.4% in 19S0.

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Incre'_ses in interest on long-term debt and other interest expense tre reflectiva of the Company's and hiontaup's continuing need to borrow funds to meet those cash requirements of its construction program which cannot be met with internally generated funds. Interest on long-term debt increased by $.8 million or 9.2% in 1950 primarily as a result of increases in the prime borrowing rate and tl issuance of $15 million of 14%% bonds in October 19S0. The increase of approximately $1 million in O

.. 1979 was as a result of an additional $5 million in term notes payable being outstanding for most .

of 1979. In 1980, other interest expense increased $2.0 million to $6.8 million. This increase was pri-marily the result of the continuation of an extremely high level of short-term borrowings for most of the year and record high prime borrowing rates. The issuance of $15 million of bonds and $15 million of ,

preferred stock in October 19S0 has enabled the Company and hiontaup to reduce substantially their level of short-term borrowings. Other interest expense increased $1.8 million in 1979 as a result of an increased level of short-term borrowings and higher borrowing rates.

Preferred dividends of the Company increased by $.4 million in 1980 as a result of the disidend requirements on a $15 million issue of 15.48% preferred stock in October 19S0.

Consolidated net income was $11.1 million in 19S0 as compared to $10.9 million in 1979 and

$10.1 million in 1978. The growth in consolidated net income has been severely restricted by sub-g" stantial increases in purchased power and interest expense not being offset by increases in kilowatthour sales and by the lack of adequate and timely rate relief.

Liquidity and Sources of Capital y

The Company and Afontaup are required to make substantial capital expenditures in order to meet the needs of existing customers and to meet the future requirements of these customers as well as new customers. As is customary in the utility industry, construction requirements in excess of internally generated funds are obtained through short-term borrowings which are ultimately funded with permanent capital. In 1978 and 1979, the Company's and hiontaup's cash construction require-

', ments were $18.7 million and $20.9 million, respectively, and they were able to generate 40.0% and 21.5%, respectively, of such requirements with internally generated funds with the balance comir' from short-term borrowings. In 1950, internally generated funds produced none of the $21.8 milliou J in cash construction requirements primarily because of the extremely high cost of short-term borrow-P ings which were not recovered in ratn and by the inability to obtain adequate rate relief on a timely basis. All of the cash constructio1 requireme its were funded with short-term bank borrowings, some of which were subsequently permanently funded with the issuance of bonds and preferred stock g referred to above.

~~ Current regulatory practices do not permit the Company or hiontaup to earn a cash return on new facilities until they are in service. Since the Company and Afontaup expect their cash construc-tion requirements to remain at or above current levels, they will be required to raise large amounts of permanent capital. Such capital is expected to be raised brough the issuance of additional first mortgage bonds and preferred stock, f The completion of approximately $30 million in permt.nent financing during late 1980 has enabled the Company and hiontaup to reduce their dependence on short-term bank borrowings and consequently reduce their bank credit lines. At year end 1980 they had $55.1 million in bank credit lines of which $31.4 million was being utilized. 92e ability to reduce short-term bor owdgs further will be dependent on the Company's ability to seli additional amounts of permanent securities.

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m The consolidated capitalization, including short-term debt, at year end 1978,1979 and 19S0, was as follows:

1978 1979 1980 (In Thousands)

. Long-Term Debt $ 96,202 42.4% $100,985 40.0% $110,982 40.5%

Redeemable Preferred Stock 5,921 2.6 5,607 2.2 20,199 7.4 Non-Redeemable Preferred Stock 8,950 4.0 8,950 3.6 8,950 3.3 Common Equity 90,278 39.8 99,077 39.3 102,210 37.3 h Short-Term Debt 25,450 11.2 37,500 14.9 31,450 11.5

$226.801 100.0 % $252,119 100.0% $273,791, 100.0 %

See Table under " Business- Rates" for a summary of recent rate increase requests. The whole-sale rate increase settlement of hiontaup, received in late 19S0, allowed the use of tar normalization f9 of the debt component of AFUDC and a cash recovery over a five-year period of hiontaup's $2.1 million investment in a nuclear project that was cancelled in 1979. These items will provide additional cash flow to meet construction program expenditures.

The ability to raise the required amounts of permanent capital will be contingent upon the ability of the Company and Afontaup to obtain increased rate relief in amounts that will enable the Company to meet coverage tests required for the issuance of bonds and preferred stock. In addi-tion, higher earned returns on equity will be required to make the Company's securities more attrac-

,. tive to investors.

Impact of Inflation

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c4L Inflation has become a significant elemer t in the operation of a regulated electric utility system.

- The traditional use of a historical test period for rate making purposes no longer provides a reason.

ile opportunity for the Co npany to actually earn a fair return on invested capital. This is evidenced

( oy the comparatively low level of return on equity earned by the Company and Afontaup over the last few years. Accordingly, the Company has included requests for " attrition" or " inflation" allowances in its last rate increase filing and will continue to pursue these and other innovative concepts in an 1

- effort to reduce the effects of inflation on the results of operations. Although hiontaup is permitted I by FERC to utilize a forward-looking test period for rate making purposes it has experienced l

difficulty in earning its allowed returns because inflation has been increasing at a faster rate than i anticipated in the future test year. The Financial Accounting Standards Board has developed certain measurement bases for reflecting the effects of inflation. See " Supplementary Information to Disclose the Effects of Changing Prices" for a disclosure of these measurement bases. Exphnatory comments

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are included in those disclosures on the effects of changing prices on the Company's and hiontaup's operations.

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Twelve hionths Ended hiarch 31,1981 Compared to Year Ended December 31,19SO Operating Revenues increased $11.3 million or 18.6% due to continued increases in fossil fu'el costs and the billing of higher base rates resulting from rate increases granted in late 1980 and in February 1981. Fuel expense increased by $6.5 million or 16.8% as a result of continued increases

! 11 4

in the price of oil burned in genereting pisnts. Income end Deferred Taxes increased by $2.3 million as a result of higher taxable income and higher deferred taxes resulting from the use of tax normaliza-tion on the debt component of AFUDC. Total AFUDC ine'reased $.6 million as a result of increased amounts of construction work in progress. Interest on Long-term Debt and Other Interest Er., ens' increased by approximately $.7 million primarily as a result of a larger amount of long-term deb. r e outstanding and higher prime borrowing rates. Preferred dividends increased $.6 million as a result of the issuance in October 1980 of $15.0 million of new preferred stock. The rate increases granted in late 1980 and early 1981 have permitted the Company and hiontaup to improve their Sources of Capital and Liquidity.

1 CENERAL PROBLEhtS OF TIIE UTILITY INDUSTRY In addition to the problems described under " Business - Uncertainties Regarding Nuclear Plants",

the Company and hiontaup face, in varying degrees, problems common to the ;1ectric utility industry in general, including the effects of inflation upon the cost of operations and upon construction expendi-

! tures; difficulties in financing a large construction program (see "Use of Proceeds and Construction and Financing Program"); uncertainties as to the availability and cost of fuel, and governmental restric-p tions on its use (see " Business - Fuel for Generation" and " Regulatory and Environmental Require-ments"), difficulties in obtaining prompt and adequate rate relief (see " Rates"); increased costs attributable to regulatory requirements and environmental cousiderations (see " Regulatory and En-

. vironmental Requirements"); changes in consumer demand, as influenced by energy conservation, and the consequent difficulty in planning the amount of generating capacity needed; and legislation, l

3, litigation, technical and operational problems and concern by some segments of the public with respect to nuclear generating units (see " Business - Uncertainties Regarding Nuclear Plants" and "Regu-latory and Environmental Requirements").

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M BUSINESS General The Company supplies retail electric service in 22 cities and towns in southeastern hiassachusetts.

The largest communities served are the cities of Brockton and Fall River. The retail electric service territory covers approximately 390 square miles and has an estimated population of 438,000. In addi-tion, Afontaup provides wholesale electric service to the Retail Subsidiaries and to 4 other utility companies. During the twelve months ended Afarch 31, 1981 consolidated operating revenues were 25.1% from residential customers,21.3% from commercial customers,7.7% from industrial customers, D

33.2% from sales to other electric utilities and 12.7% from other sources.

hiontaup owns all of the EUA System's generating facilities and also has arrangements for pur-chasing power from sources outside the System. hiontaup is responsible for all of the tran; mission facilities of the EUA System. The rights of the Company under the contract which governs the pur-p' chases of power from hiontaup by the Company and Blackstone (the "hfontaup Contract"), together with the securities of hicntaup (all owned by the Company), are pledged to secure outstanding bonds or other indebtedness.

All of the transmission facilities of the Company are interconnected with the New England trau-

' mission grid. There is no competition from other electric utilities within the retail territories served by the Company. Other electric utilities compete from time to time with hiontaup in connection with its sales of electricity to its unaffiliated customers.

,, Through hfarch 31,1981 the maximum demand on the EUA System was 695 AfW which occurred on July 21,19S0. Afontaup's generating capacity of 936 hiW consists of the following: oil-fired steam 750 hiW, long-term arrangements in regional nuclear generating units 138 hiW and gas turbines 48 h!W. Sfontaup has several contracts for sales of unit power (78 hiW) from certain of its generating g sources. See " Business - Sources of.Ceneration".

( ew England Power Pool hiontaup and the Company are members of the New England Power Pool ("NEPOOL"), which is open to allinvestor-owned, municipal and cooperative electric utilities in New England, under an

agreement which provides for coordinated planning of future facilities and operation of approximately 98% of existing generating capacity in New England and of related transm usion facilities essentially i

as if they were one system. The NEPOOL Agreement imposes obligations concerning generating capacity reserve and the right to use major transmission lines, and provides for central dispatch of the generating capacity of the pool's members with the objective of achieving economical use of the region's facilities. Pursuant to the NEPOOL Agreement, interchange sales to NEPOOL are made at a price approximately equal to the fuel cost for generation without contribution to the support of fixed charges.

Because of its participation in NEPOOL, the EUA System's operating revenues and costs are affected to some extent by the operations of other members.

Sources of Generation Except for the two gas turbine units referred to in the table below, which are peaking units, hiontaup's solely-owned generating capacity has not been increased since 1959 because the EUA 13

System has found it more economical to join with other utilities in th joint ownership of Erge units, and believes that spreading the System's sources of electricity among a number of plants improves the reliability of its power supply. Montaup's interests in five operating nuclear generating units repre-sent 15.0% of its present capacity.

(

. Generating Units in Service at December 31,1980 Net System System In Canability Share Unit Type Owner Interest Service hfW MW Somerset, Nos. 5 & 6 . . Oil Montaup 100% 1951-1959 198(6) 198(S) 0 l Somerset, Nos. J1 and J2 , Cas hiontaup 100% 1970-1971 48 48 Turbine i

Yankee Rowe . Nuclear Yankee Atomic 4.5%(1) 1961 145 7 i Electric Company l

Connectierst Yankee Nuclear Connecticut Yankee 4.5%(1) 1968 575 28 l Atomic Power l

Company l Canal No. I Oil Canal Electric 25%(2) 1%8 568 142 i .

Company lD Vermont Yankee Nuclear Vermont Yankee Nuclear Power 2.5%(1) 1972 528 9(7)(8)

Corporation l

• hiaine Yankee . Nuclear hfr.ine Yankee 4%(1) 1972 830 26(7)(8)

Atomic Power

Company l

i* Pilgrim No.1. Nuclear Boston Edison Cornpany 11%(2) 1972 670 70(7)

Cleary No. 9 Oil City of Taunt 2n - (3) 1975 110 80(3) l Canal No. 2 . . Oil Canal Electric 50%(4) 1978 584 292 l Compuy and e, Afontaup New Brunswick, Nos.1,28c3 Oil New Brunswicic 6.41%(5) 1976 400(5) 26(5)

Electric Power Onmm4 fon l '. ? - Wyman No. 4 .. Oil Central hiaine 1.96%(4) 1979 615 12

. Power Company _

l ,_ : Total . ... . . . 936 M

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,p ' (1) Stc .k ownership.

!~ (2) " Life of unit' purchase contracts (earliest normal expiratbn year 2000).

i (3) Variable purchase contract. Amount under " System Share" represents estimated entitlement

! through October 31,1981. Montaup's share is expected to decline each year thereafter until it ceases, now estimated to occur in 1990.

_f (4) Joint ownership.

(5) Share of contract of several New England utilities for balance of 10-year purchase, startmg January 1,1981 and endmg October 31,1985, of 133 MW (reduced from 400 MW).

(6) Active capability on January 1,1981.

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i (7) After giving effect to life-of-unit resales to Newport Electric Corporation aggregating 10 MW for Vermont Yankee, hiaine Yankee and Pilgrim No. l.

(8) After giving effect to reduction in capacity available to EUA System as a result of agreement

(,. vith certain municipal and cooperative utilities.

The aggregate estimated annual cost, for the EUA System, of commitments under all purchased power contracts at December 31,1980 was approximately $27,5S6,000. See Note I of Notes to Con-solidated Finanma: Statements.

hiontaup's participation in present and future generating units of which it is not the sole owner g takes various forms including stock ownership, joint ownership and purchase contract. In most cases,

~ regardless of the form of participation, hiontaup is or will be required to pay its share (i.e., the same percentage as the percentage of its entitlement to the output) of all of the costs of the unit including

. fixed costs (whether or not the unit is operating), operating costs, costs of additional construction or modification, costs associated with condemnation, shutdown, retirement, or decommissioning of the unit, and certain transmission charges.

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hiontaup and the other stockholders of Vermont Yankee Nuclear Power Corporation have agreed in principle to guarantee their respective pro rata shares of a $40,000,000 nuclear fuel financing; com-pletion of the financing is subject to the receipt of regulatory approvals and the execution of definitive

, agreements. Afontaup and the other stockholders of Connecticut Yankee Atomic Power Company have agreed to an interim financing arrangement under which each must purchase its pro rata share of up to $40,000,000 of Connecticut Yankee's subordinated notes to meet nuclear fuel financing obligations,

. construction expenditures and other needs. Through Afarch 31,1981, $21,000,000 principal amount Ip of such notes had been issued, of which hiontaup had purchased $945,000. Connecticut Yankee has

+

also proposed that its stockholders guarantee their respective pro rata shares of a proposed bank

_: line of credit of up to approximately $25,000,000 and a debenture issue of up to $75,000,000; the pro-ceeds of the debentures would be used in part to repay the subordinated notes. The Company belii.ves M that the Yankee companies will require additional external financing in the next several years and that

( \fontaup may be asked to provide its pro rata share of additional equity cap cancial support.

Because of the rapidly escalating cost of oil Afontaup is studying the possibility of converting to alternate fuels, such as coal or natural gas, at its Somerset plant. Such a conversion, particularly to 1 coal, could require significant capital expenditures and could require certain variances from environ-l 7 mental requirements.

! The EUA System's share of units presently in service provides sufficient capacity to meet the l System's estimated load and reserve requirements through at least the mid-1980's. Based on present l estimates of load growth, should any of the nuclear units currently under construction not come into service on schedule, the EUA System might not be able to meet its reserve requirements under the NEPOOL agreement from its existing entitlements. Should such a deficiency materialize, the EUA System would consider purchasing power from other NEPOOL members or reactivating one or both of units Nos.1 and 2 (82 hiW) at its Somerset station.

Uncertainties Regarding Nuclear Plants .

Nuclear generating facilities, including those in service in which hiontaup participates as shown in the table above and those under construction or projected in which hiontaup has an ownership 15

interest as described in the table below, ere subject to extensive regulation by the NRC, which has assumed the licensing and related regulatory functions formerly performed by the Atomic Energy Commission. The NRC is empowered to authorize the siting, construction and operation of nuclear reactors after consideration of public health, safety, emironmental and antitrust matters.

Administrative or judicial proceedings are pending with respect to certain of the existing and

'- projected nuclear units in which hiontaup has an interest. In addition, various groups have filed law suits, introduced legislation and participated in administrative proceedings seeking to prohibit the construction and operation of nuclear units and the disposal of nuclear waste. Although the Com-pany is unable to predict the outcome of any such actions, the owners' ability to construct or operate such units could be adversely affected or terminated thereby. If construction of any unit were cancelled, the cost, depending on the circumstances, could substantially exceed the owners' investment at the time of cancellation. In addition, in jointly owned projects, hiontaup is subject to the risk that another participant may be unable to finance its share of the construction or operating costs of the project.

Jointly Otened Generating Units under Construction or Projected SYSTEM SHARE Estimated Estimated Estin,ated Estimated Net Net Construction b Lead In Service Capability Capability Cost Unit Type Participant Date(1) MW ,% MW (1)(2)

(Thousands)

Seabrook No. I Nuclear Public Service 1984 1,150 2.90 33 $ 72,100 Company of f, New Hampshire Seabrook No. 2 Nuclear Public Service 1980 1,150 2.90 33 50,100 Company of New Hampshire Millstone No. 3 Nuclear Subsidiary of 1986 1,150 4.01(3) 48 128,400 Norther.st Utilities Pilgrim No. 2 . Nuclear Bostor. Edison 1987 1,150 2.15 25 -

Company

-P (1) The completion dates of these units have been deferred from time to time and additional

? deferrals are likely to occur due to licensing delays, economic and political conditions and other 2 factors. Deferrals have the efect of significantly increasing the cost of a unit.

76 (2) Er . mated construction expenditures relating to the jointly owned units shown above are based s upon information furnished by the utility responsible for the construction of each unit hiontaup has been advised by each of the sponsoring utilities that construction budgets are continuously under review in light of increased costs due to deferrals, delays and other factors. The utility responsible for construction of Pilgrim No. 2 has announced that due to uncertainties resulting from the TLree hiile Island is .ident and the timing of construction of the plant, it has not recently prepared revised esti-

, mates of construction expenditures. No estimate is reflected for Pilgrim No. 2 for that reason. The I estimated expenditures, completion dates and completion of all the above units may also be affected by the various factors referred to below and other events and conditions which cannot now be predicted.

(3) See below regarding hiontaup's offer to sell a 2.00% share of this unit.

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same Due to the time required for the construction of generating facilities and the completion of licens-Ing and regulatory proceedings relating thereto, substantial investments in the above units will be required prior to the completion of licensing and regulatory proceedings. There is no assurance that

' di necessary approvals, permits or licenses will be obtained, or if obtained, will not be modified or evoked or that the units will be completed.

The necessary approvals and permits for the ccnstruction of the Seabrook units have been obtained and have been upheld by the courts on appeal by a number of opposition groups. Construction is

! currently in progress, although at a reduced level from that originally scheduled for 1981 (see below).

Significant delays (including the suspension of construction for seven months in 1977 and three weeks b in 1978) resulting from such opposition have greatly increased costs. There is still one court appeal

- from an early NRC order pending. In addition, on September 22, 1980 the NRC remanded to the Appeal Board for further limited evidentiary hearing questions relating to the seismic design of the 4 facility. That hearing record was closed on April 9,1981 and the matter is pending a decision by the

. Appeal Board. Further proceedings before the NRC relating to the licensing of the units will be re-6

• l quired for operation, and other proceedings and appeals are possible. The Company is unable to predict the outcome or timing of such proceedings or what effect current or further administrative or court proceedings may have on the cost or completion of the project or on hiontaup.

Public Service Company of New Hampshire ("PSNH"), the utility responsible for construction of the Seabrook units, has been and is experiencing difficulties in financing its construction program,

. including its share (originally 50%) of the Seabrook units. In view of these difficulties, PSNH initiated efforts to sell a 22% ownership share in the units to other utilities. PSNH has obtained e commitments (subject in some cases to the obtaining of regulatory approvals or financing) for sales P iggregating about a 15% share to various New England utilities, including 1% to be sold to hiontaup

/ over an adjustment period which commenced Ja-uary 31,1981. Each utility acquiring an ownership 2 interest does so gradually over an adjustment period, paying pro rata the costs otherwise attributable to PSNH's ownership interest until such acquiring utility's investment in the Seabrook project equals h '

the percentage for which it has committed. Afontaup's additional 1% will increase its ownership inter-tt in each of the two units to 2.9%.

On April 10,1981 PSNH announced that the in-service dates for the units were being deferred until 1984 and 1986. In addition, PSNH announced cost increases for Unit Nos. I and 2 which for hiontaup amount to approximately $11,000,000 before AFUDC.

f Afontaup has been advised that at December 31, 1980, engineering on hiillstone Unit No. 3 was approximately 73% compiete and construction was approximately 33% complete. The Environ-l '

mental Protection Agency (" EPA") has approved the use of a once-through cooling water system for this unit, but the approval is subject to revision. A construction permit was issued by the JRC in August 1974 and expires in December 196,5. It is expected that a provisional operating license will be obtained, or that the construction permit wiP be extended, before the current expiration date.

Each of the three utilities which own in the aggregate 65% of the unit has stated that it wishes to reduce its ownership in hiillstone Unit No. 3 and that la the aggregate they have offered for sale up to S.7% of their ownership.

l The reduced consumption of electricity which the EUA System'has experienced from customer conservation efforts has resulted in a lowering of the estimated amount of new generating facilities needed by the System. As a result hiontaup has made an offer to sell approximately half of its 17 l

4.01% interest ir the proposed hiillstone Unit No. 3. 'Ihere is no assurtnce thit there will be cny other utility intere;ted in buying such interest or that a sale, if agreed to, will receive the necessary regulatory approvals.

hiontaup also has a 2.15% ownership interest in a planned nuclear unit, Pilgrim Unit No. f  ;

Boston Edison Company, the lead participant, has stated that when a more definitive schedule is se6 for the granting of the construction permit it will be able to develop revised cost estimates and financ-ing plans and that at that time it will also review the feasibility of the project and decide whether to cancel or continue construction of the Unit.

See Note II of Notes to Consolidated Financial Statements regarding the abandonment loss, in 1980, in connection with hiontaup's 2.00% ownership interest in the hiontague nuclear units. In 1979 hiontaup incurred an abandonment loss in connection with its 4.35% ownership interest in two nuclear generating units designated as NEP 1 and 2 (lead participant, New England Power Company) which had been proposed for construction at a site in Charlestown, Rhode Island.

Events at the Three Afile Island Nuclear Unit No. 2 in Pennsylvania ("ThfI"), which have resulted in numerous legal actions seeking damages, have prompted a rigorous reexamination of safety-related equipment and operating procedures in all nuclear facilities. T1.e NRC has promulgated numerous b requirements in response to ThfI, including both near-term modifications to upgrade certain safety

- systems and instrumentation and long-term design changes which effect items ranging from equip-ment changes to operational support. All nuclear facilities, including those in which hiontaup has

- an interest, will have to comply with these modifications. IIowever, until the scope of these im-pwvements, as they apply to particular reactors, and the time schedules for compliance have been f, ddmed by the NRC, neither the cost of any modifications, which is expected to be substantial, nor

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their effect, if any, on the operations of pa ticular units nor the method by which their owners will raise the needed capital can be determined. Afontaup will be responsible for its proportionate share of the costs of such modifications to units in which it has interests.

, The Federal Price-Anderson Act provides, among other things, that the maximum liability for damages resulting from a nuclear incident would be $560,000,000, to be provided by private insurance and governmental sources. As required by the NRC regulations, prior to operation of .

nuclear reactor, the licensee of the reactor is required to insure against this exposure by purchasing

~.

t- the maximum available private insurance (presently $160,000,000), the remainder to be covered

- by retrospective premium insurance and by an indemnity agreement with the NRC. Owners of operating nuclear facilities may be assessed a retrospective premium of up to $5,000,000 for each reactor owned in the event of any one nuclear incident occurring at any reactor in the United States, O with a maximum assessment of $10,000,000 within any one calendar year per reactor owned. As a part

> owner of operating nuclear facilities, hiontaup would be obligated to pay its proportionate share of any such assessment.

Fuelfor Generation 1 The availability and cost of fuel to hiontaup and to other owners of units burning reefdual oil in which hiontaup has an interest could be adversely affected by policies of oil-producing nations, other f

factors affecting world supplies and domestic governmental action. Approximately 50% of the residual fuel is imported. It is impossible to predict the impact on hiontaup's operations of possible action of Congress or the President with respect to import fees, duties or quotas on oil or restriction on the use of oil for the generation of electricity.

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l immr hiontaup has agreements with two suppliers for the purchase of 100% of its oil requirements for its Somerset station. The agreements are renewed automatically unless terminated by the respective supplier or hiontaup. During 1980, hiontaup had an average inventory of 332,500 barrels of fuel oil for its steam generating units at the Somerset Station, the equivalent of 67 days' supply under present

( 'oad conditions. Afontaup's weighted average price per barrel of oil for the years 1978 through 1980 was $11.48, $15.96 and $22.68, respectively. ne price of oil in April 1981 averaged approximately

$32.75 per barrel.

Canal Electric Company, on behalf of itself and hiontaup, has, since January 1,1981, been nego-tiating a contract with a single supplier for the fuel-oil requirements of Canal Unit Nos. I and 2 for the period ending June 30,1985. The contract, when signed, will permit limited purchases from other y suppliers.

hiontaup's costs of fossil and nuclcar fuels for the years 1978 through 1980 and for the twelve

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months ended hfarch 31, 1981, together with the weighted average cost of all fuels, are set forth below:

.'. MEs per kwh y I

Q 1978 1979 1980 March 31,1981 Fossil (oil) . 18.1 25.1 35.3 40.6 Nuclear 3.0 3.5 4.9 5.0

. All Fuels 14.3 19.6 30.8 32.6

.: The rate schedules of the Company are designed to pass on to customers the increases and de-

, '. 5 creases in fuel costs and the cost of purchased power, subject to review and approval by appropriate regulatory authorities.

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He owners (o lead participants) of the nuclear units in which hiontaup has an interest have g made, or expect to niake, various arrangements for the acquisition of uranium concentrate, the con-i' version, enrichment, fabrication and utilization of nuclear fuel and the disposition by reprocessing ir storage of that fuel after use. hiontaup is aware that various electric utilities have been unable to ob-

{ cain contracts for adequate nuclear fuel supplies and that additional difEculties have been encountered because of a lack of domestic reprocessing facilities and because of objections on environmental and other grounds to proposals for storage and disposal of spent fuel. The Company cannot predict the s- extent to which such problems will affect fuel or other costs for nuclear units in which hiontaup is 7 participating.

Employees and Service Arrangements

. As of Afarch 31, 1981, the Company and hiontaup had 493 permanent employees. Relat.2ons with employees are considered to be satisfactory. Labor union contracts covering employees of

- Montaup and certain employees of the Company in the Fall River area expire on September 14,1983 and June 2,1983, respectively.

EUA Service Corporation performs, at cost, administrative, engineering, planning, financial, ac-counting and other services for the EUA System including the Company and hiontaup. .

19

EASTEhN EDISON COMPANY AND SUBSIDIARY CONSOLIDATED OPERATING STATISTICS Twelve hfooths Year Ended December 31, End' 3g,,ch jl, (

1978 1979 1980 1981 Number of Customers at End of Period:

Residential 132,657 134,356 136,551 136,654 Commercial 13,003 13,215 13,477 13,518 Industrial 596 586 581 573 Other electric utilities 14 15 16 16 Other 159 137 23 23 Total customers 146,429 148,309 150,648 150,790 Operating Retenues (Thousands):

Residential $ 41,050 $ 45,328 3 56,209 $ 53,072 Commercial 33,693 37,638 47,749 50,101 Industrial II,7N 14,008 17,416 18,094 Other electric utilities 44,792 54,605 74,489 78,283 Other 4,942 5,282 5.447 5,645 b Total primary sales revenues 136,271 156,861 201,310 211,195 Unit contract . 5,441 11,266 22,911 24,335 Total operating revenues $141,712 $168,127 $224,221 $235,530 Average Revenue Per Residential Customer (Dollars) 310 337 412 432 Average Use Per Residential Customer (kwh) 6,226 6,274 6,152 6,220 4, Average Revenue Per kwh (Cents):

+' Residential 4.98 5.38 6.69 6.95 Commercial . 4.58 4.96 6.27 6.52 Industrial . 4.14 4.48 5.71 5.91 Energy Sales (hfillions kwh):

l Residential 824 843 840 850 l

Commercial 7M 759 762 768 Industrial . 285 313 305 306:

Other electric utilities 1,617 1,623 1,639 1,634 l - Other . . . 23 25 24 24 l 'I' Total primary sales 3,483 3,563 3,570 3,5S2 Losses and company use 208 166 177 145 Total system requirements 3,691 3,729 3,747 3,727 Unit contract . 234 386 586 577 N Total generated and purchased 3,925 4,115 4.333 4,3M

!- Source of Electric Energy (%)

Fossi! . 78.0 78.1 83.0 77.5 Nuclear 22.0 21.9 17.0 22.5 l Source of Electric Energy (htiillons kwh):

l Cenerated-by EUA System . 660 792 1,041 1,007 l 5 -by equity-owned nuclear units 1,865 479 398 459 7 -by jointly-owned units . 530 1,795 1,746 1,745 Interchar.ge with NEPOOL . . (620) (600) (263) (373)

Power Purchased-unit power . 1,490 1,649 1,411 1,466 Total generated and purchased , 3,925 4,115 4,333 4,304 Peak Load (Kilowatts) .. 671,700 677,000 694,500 694,500

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REGULATORY AND ENVIRONhfENTAL REQUIREhfENTS PublicUtilityRegulation f The Company and hiontaup are subject to regulation by the DPU with respect to the issuance of securities, the form of accounts, rates to be charged (in the case of the Company), service to be provided and other matters. In addition, by reason of its ownership of fractional interests in certain facilities located in states other than hiassachusetts, hiontaup is or may be subject to regulation of activities in those states.

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All companies in the EUA System are subject to the jurisdiction of the Securities and Exchange Commission under the Public Utility IIolding Company Act of 1935 by virtue of which such Commission

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has certain pwers of regulation, including jurisdiction over the issuance of securities, change in the terms of oKstanding securities, acquisition or sale of securities or utility assets or other interests in any

. business, intercompany loans and other intercompany transactions, payments of dividends under certain it circumstances, and related matters. The Company, insofar as it may be deemed to be a holding company under such Act by reason of its ownership of securities of hiontaup, has been exempted from registering under such Act as a holding company by complying with the applicable rules thereunder.

The Company and hiontaup are also subject to the jurisdiction of FERC under Parts II and III of the Federal Power Act. That jurisdiction includes, among other things, rates for sales for resale, inter-connection of certain facilities, accounts, service, and property records.

,. Significant regulatory problems are involved in the construction and operation of generating units,

[' particularly nuclear units. Licenses, permits and approvals for construction and operatica are required from various governmental regulatory agencies, including the EPA in the case of all units (see "En-vironmental Regulation" below) and the NRC in the case of nuclear units (see " Business- Uncertain-e6 ties Regarding Nuclear Plants").

Environmental Regulation hiontaup and the other companics owning generating units from which it obtains power are subject, like other electric utilities, to developing standards administered by federal, state and local

[ authorities with respect to the siting of facilities and environmental factors. The EPA has jurisdiction over discharges into both water and air and has broad authority in connection therewith including the ubility to require installation of pollution control and mitigation desices.

The Federal Water Pollution Control Act establishes a national objective of complete elimination of discharges of pollutants (including heat) into the nation's waters and creates a rigorous permit program designed to achieve these cffluent limitations. All water discharge permits for plants in hiassa-chusetts, including those for the Somerset and Canal plants, are issued by the state Department of Environmental Quality Engineering, subject to review by the EPA. The Federal Clean Air Act empowers the EPA to establish clean air standards, including standards limiting the sulfur content of fuel burned for electric generation, which are implemented and enforced by state agencies. -

Both federal and hiassachusetts legislation require consideration of reports evaluating environ-mental impact as a prerequisite to the granting of various permits and licenses, with a view to mini-21 l

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mizing environmental damage. Af ass:chusetts r_ir quality regul;tions also require thit pirns (including procedures for operation and maintenance) for construction or modification of fossil fuel generating facilities be approved by the Department of Environmental Quality Engineering. In addition, in hf assachusetts, certain electric generation and transmission facilities on which construction commenced after April 1976 will be permitted to be built only if they are consistent with a long-range forecast filed i

by the utility concerned and approved by the Energy Facilities Siting Council.

Montaup and the companies and municipalities with which it has power supply arrangements are also subject, like other electric utilities, to regulation with regard to zoning, land use and similar controls by various state and local authorities. Under federal energy legislation adopted in 1978 the Secretary of Energy has authority with respect to existing electric power plants to prohibit the burning of oil, but only after finding that a plant has the capability to use coal without substantial physical l

modification and that the use of coal is financially feasible. Exemptions relating to em>ironmental requirements and other factors are provided. The Department of Energy (" DOE") has issued com- l l

plex rules under this legislation. hiontaup has been informed that the DOE has included Canal Unit No.1 in a list of oil-fired electric generating facilities which may be required to be converted to j an alternate fuel. The Company is unable to predict the effect of this legislation on its sources of power.

t Under their continuing jurisdiction, one or more of the EPA and the state and local authorities may, after appropriate proceedings, require modification of generating facilities for which construction l

permits or operating licenses have already been issued, or impose new conditions on such permits or licenses, and may require that the operation of a unit cease or that its level of operation be temporarily or permanently reduced.

l Other activities of hiontaup from time to time are subject to the jurisdiction of various other state and federal regulatory agencies.

Some of the generating facilities in which hiontaup has an interest, and is required to pay a share of the costs, have encountered and may in the future encounter problems under governmental regu-I -

lations, particularly those relating to nuclear facilities or to protection of the environment. Such prob-lems may result in increases in capital costs and operating costs which may be substantial, in delay, i J or cancellation of construction of planned facilities, or in modificatien or termination of operations of existing facilities.

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N Environmental Permits l w Through December 31, 1950, compliance with applicable environmental regulations required additional capital expenditures by hiontaup of approximately $16,340,000 including approximately

$13,841,000 for hiontaup's ownership in the following units: Canal No. 2, $11,564,000; Wyman No. 4,

$516,000; hiillstone No. 3, $329,000; Pilgrim No. 2, $S0,000; and Seabrook No. I and No. 2, $1,352,000 hiontaup expects rapidly increasing expenditures to meet environmental requirements for the existing i f and proposed units in which it is participating.

hiost of the generating units from which hiontaup obtains power operate under permits which limit their effluent discharges into water and which require monitoring and in some instances biological studies of the impact of the discharge. Such permits are issued for a period of not more than five years, at the expiration of which renewal must be sought.

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o All domestic fossil fuel plants from which Montaup obtains power operate under permits which limit their discharges into the air and require monitoring of the discharges. Air quality requirements adopted by state authorities in Massachusetts pursuant to the Clean Air Act impose limitations with espect to pollutants such as sulfur oxides, oxides of nitrogen and particulate matter. These limitations

.ould not be complied with if Montaup were to burn coal with the present equipment in its Somerset l

plant and therefore the use of coal would require suspension of these air quality requirements or the installation of control devices. The Somerset plant and the Canal plant are permitted to burn fuel oil with a sulfur content not in excess of 1.21 pounds per million B.T.U. heat release potential (approxi-mately 2.2% sulfur content fuel oil). Burning of such fuel is subject to conditions including provisions that fuel oil having not in excess of 1% sulfur content be used during air pollution emergendes.

NationalEnergy Legislation 4

z. National energy legislation, dealing with coal conversion, gas deregulation, energy conserva-O tion, energy taxes and utility rate regulation, became effective in late 1978. One portion of this legisla-t tion, the Public Utility Regulatory Policies Act of 1978, is designed to affect state regulatory policies and bring about extensive changes in rate structures, pricing, and cost methodology. It is not possible at this time to predict what effects this legislation, and regulations adopted and proposed for adoption to implement it, will have on the Company and Montaup, including their rates and their fuel supply.

S LEGAL OPINIONS -

/ The legality of the Bonds is being passed upon for the Company by Messrs. Caston Snow & Ely Bartlett, One Federal Street, Boston, Massachusetts, except that titles to property (excepting the securities of Montaup and the Montaup Contract) and franchises are being passed upon by Richard C.

'~ Teed, Esquire,231 Main Street, Brockton, Massachusetts.

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Certain legal matters in connection with the issuance of the Bonds are being passed on for the Purchasers by Messrs. Ropes & Gray,225 Franklin Street, Boston, Massachusetts.

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EXPERTS Messrs. Caston Snow & Ely Bartlett have reviewed the statements made herein as to matters of law and legal conclusions under " Business-New England Power Pool", " Business-Sources of Generation" " Regulatory and Environmental Requirements" (except the statements under " Environ-mental Permits") and " Description of the Bonds", except those reviewed by other counsel as next men-tioned. Richard C. Reed, Esquire, has reviewed the statements made herein as to matters of law and s legal conclusions under " Description of the Bonds - Kind and Priority of Lien" (except with respect to the securities of Montaup and the Montaup Contract). Such statements are included on the authority of such counsel as experts.

23

l Alexander Crant & Company, independent certified public tecountants, have, to the extent in-dicated in their report, examined the financial statements herein and such financial statements are included in reliance upon the opinion of that firm and upon their authority as experts in accounting and auditing. 1 DESCRIPTION OF TIIE BONDS Ceneral As used in the following description, the ".;m "New Bonds" means the new series of First hiort-gage and Collateral Trust Bonds offered hereby; and the term " bonds" means the New Bonds, the outstanding series of First hiortgage and Collateral Trust Bonds, and any additional series thereof which may be created in the future.

The New Bonds will be issued as a series of the Company's bonds, under the Indenture of First hfortgage and Deed of Trust, dated as of September 1, IMS, between the Company and State Street Bank and Trust Company, Boston, hiassachusetts, Trustee, as supplemented and modified (the "hfort-gage"), including a Thirteenth Supplemental Indenture to be dated as of July 1,1981 (the " Supple-D mentalIndenture") creating the New Bonds.

The statements herein concerning the New Bonds, the bonds, the hfortgage and the Supple-mental Indenture are merely an outline and do not purport to be complete. Copies of the instruments constituting the hfortgage are filed as exhibits to the Registration Statement and reference is made thereto for further information including definitions of cer'ain terms used herein.

y.

hiaturity, Interest, Payment and Redemption The New Bonds will be issuable only as fully registered bonds without coupons in denominations

- of $1,000 or any multiple thereof, will mature July 1, and will bear int: rest at the rate shown

. in their title, payable semiannually on January 1 and July 1. The first interest period for the New I Bonds will commence July 1,19S1. Principal and premium, if any, are payable at the office of the Trustee in Boston, hiassachusetts, and in certain circumstances at other locations designated by the Company. Interest will, subject to certain exceptions, be paid by check to holders of record at the close of business on the June 15 or December 15, as the case may be, next preceding the

• interest payment date and will be payable in Boston, hiassachusetts or New York, New York. New p Bonds will be exchangeable for a like aggregate principal amount of New Bonds of other authorized denominations, and will be transferable, all at the office of the Trustee in the City of Boston, Af assa-chusetts, without payment of any cl.i ..e other than for any stamp tax or other governmental charge incident thereto.The terms of redemption are set forth under " Redemption Provisions of the Bonds".

Sinking and Improvement Fund The Company is required to deposit with the Trustee by August 31 of each year, beginning in 1982, cash equal to 1% of the greatest aggregate principal amount of New Bonds authenticated and delivered prior to the July 10 next preceding such August 31. In li u of depositing cash, the Company may (1) deliver New Bonds, (2) take credit for New Bonds redeemed within 12 months preceding such August 31 at the Special Redemption Price, (3) take credit for New Bonds redeemed at any time prior 24

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to such August 31 at the Regular Redemption Price, or (4) relinquish the right to issue bonds (see

" Issuance of Additicz.al Bonds" below). All sinking fund cash is to be applied to the redemption of New Bonds at the Special Redemption Price.

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Kind and Priority of Lien The New Bonds, together with all other outstanding bonds, will be equally and ratably secured by a direct first mortgage lien on the Company's properties (except as stated below) and by pledge of all hfontaup securities owned by the Company and the rights of the Company under the hiontaup Contract, subject only to permitted encumbrances and +o the prior lien of the Trustee for compensation V

and expenses. The following, unless specifically mortgaged or pledged, are excepted from the lien of the hfortgage: cash, choses in action, contracts and securities (other than Afontaup securities and the

" Company's rights under the Afontaup Contract); goods, merchandise and materials and supplies held for sale, lease or consumption; automobiles and trucks; ofBee furniture and equipment; property not

" bondable"; and certain property acquired by merger or consolidation.

4 The hfortgage by its terms covers the interest of the Company in all after-acquired hiontaup securities and bondable property, subject, however, to any prior liens (within limits and subject to certain restrictions contained in the hfortgage) created or existing thereon at the time of acquisition.

In the opinion of counsel, under hfassachusetts law the provisions subjecting after-acquired property to the lien of the hfortgage may not be effective in some cases prior to the recording of a supplemental indenture specifically mortgaging or pledging the particular property. The Company covenants in the 4

Mortgage to execute such supplemental indentures as may be required to perfect the lien of the Mortgage on the trust estate.

'. 1 Dividend Restriction 70 So long as any of the New Bonds remain outstanding, the Company will not (a) declare or pay any

> dividend or make any distribution on any shares of its Common Stock (except a dividend payable in Common Stock) or (b) directly or indirectly through a subsidiary make any expenditures for the pur-chase, redemption or other retirement of any shares of its Common Stock (other than in exchange for, or from the proceeds of, new shares of its Common Stock) if the aggregate amount of all such disidends, distributions and expenditures made after January 31,1953 would exceed the Company's net income i-available for dividends on its Common Stock accumulated after Jenuary 31,1953. After giving effect to this restriction, $13,453,953 of the Company's retained earnings at hiarch 31,1981 was available for such dividends, distributions and expenditures as aforesaid. See also Note E of Notes to Consolidated Financial Statements for further information about dividend restrictions.

Replacement Fund

'Ibe Company is required to deposit with the Trustee prior to hiay 1 of each year cash or bonds equal to the excess of the " minimum provision for depreciation" for the preceding calendar year, over optional credits consisting of (1) available property additions not previously funded or used for the replacement fund, (2) available bond credits and/or (3) available Afontaup securities. For this pur-pose the term " minimum provision for depreciation" means, so long as any of the New Bonds shall be outstanding, an amount equal to 2%% per annum of the average book value of depreciable bondable 25

property (not subject to prior liens) determined as of the beginning and end of each year.

credits" means unfunded bonds of any series evidenced to the Trustee which have been retired or fo the retirement of which provision has been made. The Company may (a) withdraw cash or bonds held by the Trustee in such fund against the credits described in (1), (2) and (3) above, (b) reinstag bonds retired by, or bond credits taken against, the replacement fund, by depositing cash or using credits pursuant to (1) and (3) above, or (c) apply cash held by the Trustee h: the fund to the r tion or purchase of bonds of any series at not exceeding the applicable Special Redemption Price 1

Maintenance of Properties Every five years an independent engineer is to examine the bondable property of the report to the Company and the Trustee as to the due maintenance of such bondable pr making of retirements thereof. Any reported maintenance deficiency is to be made goo retirements are to be recorded.

! Issuance of Additional Bonds and Withdrawal of Cash b Deposited Against Such Issuance Subject to conditions and restrictions, certain of which are referred to under this sub

' additional bonds of any series may be issued in principal amounts equal to (1) 60% of the a available net additions; (2) the amount of cash deposited with the Trustee; (3) the principal amou of available bond credits; and (4) 60% of the amount of available hiontaup securities.

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Bonds may be issued pursuant to (1), (2) and (4) above (and in certain cases pursu above) only if net earnings for a twelve-month period within Ge last fifteen months (c provision for depreciation but before income taxes) shall have been at least twice the charges upon the outstanding bonds, the bonds then applied for, and outstanding ness. Cash deposited with the Trustee pursuant to (2) above may be withdrawn to the e J

of the amount of available net additions and/or eva:lable hiontaup securities and 100%

r 4 bond credits.

j V The New Bonds will be issued against available hiontaup securities.

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N Defaults and Notice

> A default is defined &s (a) failure to pay the principal and premium when due or intere days after becoming due, (b) failure to satisfy any sinking, improvement, mai replacement fund obligation for 90 days after becoming due, (c) failure for 90 days observe other covenancs or conditions, (d) entry of an order for reorganization or ap trustee or recaiver and continuance of such order or appointment unstayed for 90 days

adjudications, petitions or consents in bankruptcy, insolvency or reorganizatio rendering of a judgment or judgments in excess of $50,000 for any obligation of continuance unsatisfied or unstayed for 90 days.

l The hfortgage requires the filing with the Trustee of an annual officers' certificate a l' of default and as to compliance with the terms of the Afortgage.

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hfodification of Afortgage and Waiver of Default The rights of the bondholders may be modified with the consent of the holders of not less than f

,66%% in principal amount of the bonds outstanding (including not less than 66%% of each series af-( l fected), except (a) to reduce, or extend the due dates of, principal, premium, or interest on bonds, (b) to impair or change the rank of the lien created by the Afortgage, or alter the equal and propor-tionate security of the Afortgage, or (c) to reduce the percentage of bondholdea required to approve any supplementalindenture modifying or altering the hfortgage or the rights of the Company or the bondholders. The holders of 66%% or more in principal araount of the bonds outstanding (including not less than 66%% in principal amount of each series) may waive any past default and its conse-quences, except a default in the payrnent of principal, premium or interest on any bonds when the same becomes due by the terms thereof. Other modifications not adversely affecting interests of the holders of the bonds may be made with the consent of the Trustee without the consent of the bondholders.

The Trustee S%te Street Bank and Trust Company, the Trustee, lends funds to the Company from time to time on a short-term basis.

4, Action by the holders of a majority in amount of the bonds outstanding is necessary to require the Trustee to enforce the hf ortgage, but the Trustee is entitled to receive sufHelent indemnity for any expenditures in such action or proceeding and under certain circumstances is not required to act.

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AUDITORS' REPORT To the Shareholder EASTERN EersoN CohTANY MD SUBsmIARY We have examined the consolidated balance sheets and statements of capitalization of Eastern Edison Company (a hiassachusetts corporation and wholly-owned subsidiary of Eastern Utilities Associates) and subsidiary as of December 31,1980 and 1979 and the related consolidated statements of income, retained earnings and changes in financial position for each of the three years in the period ended December 31,19S0. Our examinations were made in accordance with generally ac cepted auditing standards, and accordingly included such tests of the accounting records and s other auditing procedures as we considered necessary in the circumstances.

In our opinion, the financial statements referred to above present fairly the consolidated Snanc position of Eastern Edison Company and subsidiary at December 31,19S0 and 1979 and the c solidated results of their operations and changes in their financial position for each of the three years in the period ended December 31,1950 in conformity with generally accepted accounting pririd applied on a consistent basis.

13 ALEXANDER GRm & Cosem l

Boston, biassachusetts y, hiarch 12,19S1 e6 1

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I EASTERN EDISON COMPANY AND SUBSIDIARY CONSOLIDATED INCOME STATEMENT (In Thousands)

{

Twelve Months Years Ended December 31, En Mar 1, 1978 1979 1980 1991 (unaudited)

Operating Revenues (Note A) $141,712 $168,127 $224,221 $235,530 Operating Expenses:

Fuel 56,295 82,133 1*.3,120 139,592 p Purchased Power 21,168 21,994 20,383 26,725 Other Operation 22,448 23,328 25,297 26,088 Maintenance 3,911 3,887 5,168 5,369 Depreciation ; Note A) 7,565 7,855 7,170 8,139 Taxes-Other Than Income 8,570 8,143 8,454 8,593 Income and Deferred Taxes ' Notes A & B) 4,133 2,210 30 2,333 4, Total Operating Expenses 124,090 149,550 205,622 216,833 Operating Income 17,622 18,577 18,599 18,691 Eq(uity Note in A)Earnings of Nuclear Generating Companies 680 807 633 697 Allowance for Other Funds Used During Construction (Note A) 969 1,589 2,298 2,865

', Other Income and (Deductions)-Net 99 263 291 434 Income Before Interest Charges 19,370 21,236 21,824 22,687 Interest Charges:

Interest on Long-Term Debt 7,887 8,840 9,649 10,086 Other Interest Expense . . 2,916 4,763 6,811 7,043 Allowance for Borrowed Funds Used During Ccnstruc-tion (Credit) (Note A) (2,862) (4,606) (7,544) (7,492)

Net Interest Charges 7,941 8,997 8,916 9,637 p6 { Income After Interest Charges 11,429 12,239 12,908 13,050

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Preferred Dividends Requirement 1,344 1,344 1,770 2,338 Consolidated Net Income $ 10,085 4 10,895 $ 11,138 $ 10,712 CONSOLIDATED RETAINED EARNINGS STATEMENT

~ Retained Earnings - Beginning of Period $ 16,849 $ 18,517 $ 20,187 $ 21,935

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Income After Interest Charges 11,429 J 2,239 12,908 13,050 Total 28,278 30,756 33,095 34,985 Dividends Paid:

Preferred 1,344 1,344 1,770 2,338 Common 8,417 9,225 7,980 8,125 Miscellaneous Adjustments 25 25 Retained Earnings - End of Period (Note E) $ 18,517 $ 20,187 $ 23,320 $ 24,497 The accompanying notes are an integral part of these statements. ,

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l EASTERN EDISON COMPANY ANu .iUBSIDIARY CONSOLIDATED STATEh!ENT OF CIIANGES IN FINANCIAL POSITION l (In 'nousands)

Twelve Afooths Years Ended December 31, E 3g g, 1978 1979 1980 1981 (unaudited)

Sorree of Funds:

l Internally Generated:

Income After Interest Charges . . . . . . . . $11,429 $12,239 $12,908 $13,050 Principal Non-Cash Charges (Credits) to Income:

Depreciation (Note A) 7,650 7,942 7,158 7,914 Amortization ..... .... . 111 41 262 483 Deferred Taxes (Note A) . . . . . . . .... (254) 1,577 2,417 2,742 i l

Investment Tax Credits-Net (Note A) . . . . . 2,267 (364) (3,131) (3,012) l I

l Equity in Undistributed Earnings of Nuclear Gen.

I erating Companies (Note A) . . . . . . . . (169) (16) (104)

Allowatce for Funds Used During Construction (3,830) (6,195) (9,842) (10,353)

(Note J)

Funds From Operations 17,373 15,071 9,386 10,715 Less: Dividends Declared:

b Common DMder.ds . . . . . . (8,417)

(1,344)

(9,225)

(1,344)

(7,980)

_( 1,770)

(8,125)

(2,338)

Preferred Stock DMdends l Internally Generated Funds 7,612 4,502 (384) 252 l - External Sources:

! Proceeds From Sale of Tenn Notes . . . . 20,000 -

Proceeds From Sale of Common Stock 9,275 7,133 l 15,000 15,000 1 i

6 Proceeds From Sale of Bonds . . . . . . . . .

15,000 15,000 Proceeds From Sale of Preferred Stock 234 1,245 186 141 Other - Net ,

9,509 28,378 30,186 30,141 Total Funds from External Sources

$17,121 $32,880 $29,822 $30,393 l Total Source of Funds .

Application of Fud: $31,624 $33,580

' Construction Expenditures . . . . . . . . . ..... $22,592 $27,131 I

Less: Allowance for Funds Used During Construction (3,830) (8,195) (9,842) (10,358)

Net Constructic 2 Expenditures . ... .. ..... ...... 18,762 20,936 21,782 23,222 Decrease (Incr ase) in Short-Term Notes Payable to Banks 1,400 (12,050) 6,050 (50)

Retirement of Long-Term Debt 3,880 15,200 5,000 5,000

.e-* 300 300 Retirement of Preferred Stock 945 225

! '- Purchase of Promissory Notes . . . . .

(Decrease) Increase in Working Capital... (7,186) 8,008 (5,423) (1,097)

Other Application-Net . 265 786 1,888 2,073 Total Application of Funds . $17,121 $32,880 $29,322 $30_,393 f+ . .

' ~- Changes in Components of Working Capital (Excluding Short-l Term Debt, Current Deferred Taxes and Redeemable Pre-ferred Stock Sinking Fund Requirements):

$ 947 $(2,117) $(1,009) $(1,390)

Cash .. ....

l (1,685) 4,320 10,881 7,509 Accounts Receivable 2,276 2,303 hf aterials and Supplies . . . _ .

(2,474) 7,766 Prepaid Erpenses and Other Current Assets 13 111 (116) (31)

Accounts Payable (294) (4,763) (15,033) (6,358)

A (1,821) 1,361 (880) (2,286)

Accrued Taxes . (1,542)

Accrued Liabilities (1,872) 1,330 (844)

$(7,18C) $ 8,008 $(5,423) $(1,097)

(Decrease) Increase in Working Capital _

t The accompanying notes are an integral part of these statements.

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EASTERN EDISON COhC%NY AND SUBSIDIARY ,

CONSOI.' DATED BAIANCE SHEI:T (In Thousands)

ASSETS

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December 31, March 31, 1979 1990 1981 (Unaudited)

Utility Plant and Other Investments:

Utility Plant at cost) (Note .A ......... .......... $317,543 $347,000 $356,076 Less Accumul(ated Provision fu) Depreciation (Note.. A) . 77,874 83,946 85,742 Net Utility Plant . . ...... . .. . .. ... .... . 239,669 263,054 270,334 Nonutility Property-Net ................................. 843 843 843 Investments in Nuclear Generating Companies (at equity) (Note A) 7,401 7,641 8All Other Investments (at cost) . . ..... .. . . 50 50 50 Total Utility Plant and Other Investments . 247,963 271,586 279,638 Current Assets:

Cash ( Note C ) . . . . . . . . . . . . . . . . . . 1,569 559 881 V Accounts Receivable (Note A):

Less Allowance for Doubtrul Accounts of $213, Customers,d

$240 an $219, respectively ... . . . . 16,801 22,426 24,120 Others ........... 761 422 996 Accrued Unbilled Revenue . . . . . . . . .... .. 233 3,250 (855)

Associated Companies (Note A) . 3,553 6,131 6,427 Fuel (at average cost) . . . . . . . . . . . . . . . . . . . . 10,702 12,486 8,652

,* Plant hfaterials, ating Supplies and Other . 3,805 4,298 4,301

. Prepayments andger Assets .... . . . ... 401 286 538 Total Current Assets . . . . . . . . . . . . ..... 37,825 49,858 45,060 Defened Debits:

Unamortized Debt Expense . . . . . . . . . . . . . .. 485 542 531 Extraordinary Property Losses (Note H) . . 2,065 2,943 2,821 Other Deferred Debits .. . . ... . ... . .. . . .. .. 2,520 4,025 3,966 Total Deferred Debits . . ..... . . ... .. ... , _ 5,070 7,510 7,318 Total . .. . .. . ....... . .... 8290,858 S328,956 8332,016 LIABILITIES Capitaliza' ion:

. Ccmrnon Equity (Note C) . . . . . . . . . . . . . . . . 4 99,077 $102,210 $103,387 Non. Redeemable Preferred Stock (Note C) . . . . 8,950 8,950 8,950

{ Redeemable Preferred Stock (Note D) . .. .. 5,607 20.199 20,199 Long-Term Debt (Note F) . . . 100,985 110,982 110,977 Total Capitalization . . . . . . ... . . . 214.619 242,341 243,513 N-;.

Current Liabilities:

Notes Payable - Banks (Note C) 37,500 31,450 37,800 Accounts Payable:

Public . . . . . . . . . . . . .. .. .... . . 13,071 27,982 18,588 Associated Companies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 724 847 820 l Redeemable Preferred Stock Sinking Fund Requirement (Note D) 314 305 240 Customer Deposits . . . . . . . . . .. .. . .. . . ... . 820 931 955 Taxes Accrued (Note B) . . . . . . . . ... .. .. . .. . ... 240 1,120 4,156 l Deferred Taxes . . . ... .. 815 794 668

, Interest Accrued (Notes. A and. B)

....... . ..... .. 861 2,750 3,427

) 4her Current Liabilities....... . . .. .... .. ....... . .. 463 1 (21)

Total Current Liabilities . .. . . .. . . 51,308 66,18C 6G,633 Deferred Credits:

Unamortized Investment Credit (Note A) . . .. 8,760 'J,689 0,090 Other Deferred Credits .. . ........... .......... ... ... 33 33 42 Totti Deferred Credits . . . . .... P,733 5,722 6,132

~

Accumulated Deferred Tsxes (Notes A and B) . . .. .. 12,$'18 14,713 15,738 Total , .. . . .. .. .. ........ .. . .. $290,858 4328,956 $232,016 The accompanying notes are an integral part of these statements.

31 ,

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EASTEFN EDISON COMPANY AND SUBSIDIARY CONSO1JDATED STATE 5ti;NT OF CAFITAll2ATION (InThousands) 0 December 31, htarch 31, 1979 1950 1991 (unaudited)

Common Stock $ 72,284 8 7* U

$25 par value, authorized and outstanding 2,891,357 shares $ 72.284 .

5,824 5,824 5,624 Other Pald-In Capital Common Stock Erpense (39) (39) (39) 821 821 821 Appropriated Retained Earnings 24,497 Retained Earnings 20,187 _23,320 99,M7 102,210 103,387 Total Non. Redeemable Prefened Stock: 6,000 4.64%, $100 par value 60,000 shares

• 6,000 6,000 3,000 3,000 3,000 8.32%, $100 par value 30,000 shares

• Erpense Net of Premium (50) (50) (50) 8,950 8,950 8,950 U Total R hemable Preferred Stock: 5,700 13.60%, $100 par value** . . ........ 6,000 5,700 15,000 15,000 15.48%, $100 par value 150,000 shares

• Expense, Net of Premium ........ (7P) (187) (187)

Sinking Fund and Reacquired Shares (3I4) (314) (314) 5,607 20,199 20,199 4, Total long-term Debt:

First Mortgage and Collateral Trust Bonds:

6,600 6,800 6,800 3%% due 1983 . .... 5,000 5,000 7%% due 1983 (second series)... 5,000 2,196 2,196 2,196 4%% due 1983 (third series) 6,000 6,000 e,000 3%% due 19S3 . .... 19,800 19,600

' 19,800 12 % due 1985 (second series)... 3,000 3,000 4%% due 1987 3,000 3,000 3,000 3,000 4%% due 1988 15,000 15,000 14%% due 1990 5,000 5,000 5,000 4%% due 1993 7,000 7,000 7,000 6%% due 1997 5,000 5,000 5,000 8%% due 1999 8,000 8,000 8,000 7%% due 2002 10,000 10,000 10,000 8%% due 2003 .... 5,000 5,000 Note due 1984 (Prirne x 107%)....... 5,000 f4 15,000 10,000 10,000 Note due 1985 (Prime X 111%) ISI 189 166 Unamortized Premium 100,985 110,982 110,977 Total

$214.619 _$242,3_41 $243,513 Total Capitalization

• Authorized and outstanding.

• • Authorized 00,000 shares. Outstanding 57,000 shares at December 31,19S0 and at March 31, 1981 and 60,000 shares et December 31,1979.

The accompanying notes are an integral part of these statements.

32

EASTERN EDISON COhfPANY AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEAfENTS (Information as of and for the twelve months ended hfarch 31,1981 is unaudited)

(A) Summary of Significant Accounting Policies:

General: The accour ag policies and practices of Eastern Edison Company (" Eastern Edison" or the " Company") and of hirataup Electric Company ("Afontaup") are subject to regulation by the Fed-eral Energy Regulatory .:ommission ("FERC") and hfassachusetts Department of Public Utilities

("DPU") with respect t sneir rates and accounting. Eastern Edison and hiontaup conform with gen-erally accepted accourt ng principles, as applied in the case of regulated public utilities, and conform with the accounting rquirements and rate-making practices of the regulatory authority having juris-diction.

In the opinion of the Company, the accompanying unaudited consolidated financial statements catain all adjustments (consisting of only normal recurring accruals) necessary to present fairly the Company's financial position as of hfarch 31,1981 and the results of operations and changes in finan.

V cial position for the twelve months then ended.

Principles of Consolidation: The consolidated financial statements include the accounts of Eastern Edison and its subsidiary, hiontaup. All material intercompany balances and transactions have been eliminated in consolidation.

Unconsolidofed Subsidiaries: At December 3',1980 and 1979, investments in nuclear generating companies represent four investments ranging in percentage of ownership from 2.50 to 4.50 percent.

hiontaup is enti' led to the electricity produced from these facilities based on its ownership interests and is billed pursuant to contractual agreements which are approved by FERC.

Transactions scith Agiliates: 'Ihe Company is a wholly-owned subsidiary of Eastern Utilities p Associates ("EUA"). In addition to its investment in the Company, EUA has interests in another utility company and a service corpordon.

Transactions between the Company, hiontaup and other afBliated companies include the follow-70 ing: sales of electricity of approximately $58,9S7,000 for the twelve months ended Afarch 31, 1981,

~

$56,323,000 in 19S0, $42,185,000 in 1979 and $34,585,000 in 1978; accounting, engineering and other services rendered by EUA Service Corporation of approximately $5,939,000 for the twelve months ended hiarch 31,1981; $5,624,000 in 1980; $4,889,000 in 1979; and $4,209,000 in 1978; operating rev-enue from the rental of transmission facilities to Afontaup of approximately $2,190,000 for the twelve months ended hiarch 31,1981; $2,135,000 in 1980; $2,134,000 in 1979; and $2,178,000 in 1978. Trans-actions with other afBliated companies are subject to review by applicable regulatory commissions.

Utility Plant: Utility plant is stated at original cost. The cost of additions to utility plant in-cludes contracted work, direct labor and material, allocable overhead, allowance for funds used during construction and indirect charges for engineering and supervision.

33 9

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EASTERN EDISON COh!PANY AND SUBSIDIARY 9'

NOTES TO CONSOLIDATED FINANCIAL STATEh!ENTS-(Continued)

(Information as of and for the twelve months ended Afarch 31,1981 is unaudited)

I

( A) Summary of Significant Accounting Poli les:- (Continued)

Depreciation of Utility Plant: For fina cial statement purposes, depreciation is computed on the straight line method based on estimated usefullives of the various classes of property.

Provisions for depreciation, on a consolidated basis, were equivalent to a composite rate of approximately 3.2% for the twelve months ended 51 arch 31,1981 and in 1980,1979, and 1978 based on the average depreciable property balances at the beginning and end of each year.

As a result of an order of the DPU, Eastern Edison has retroactively reduced the composite depreciation rate on certain of its property from 3.5% to 2.'i%. Eastern Edison had recorded deprecia-tion on that property at rates of 3% in 1975 and 3.5% since 1975. The change had the effect of increasing consolidated net income in 19S0 by $1 ?38,000 of which $974,000 relates to periods prior to V 1980.

Operating Reccnues: Revenues are based on billing rates authorized by applicable Federal and state regulatory commissions. The Company follows the policy of accruing the estimated amount of unbilled revenues for electricity provided at the end of the month to more closely match costs and revenues. In addition it also accrues unrecovered purchased power costs.

ft Fedcral Income Taxes: 'Ihe general policy of the Company and its subsidiary with respect to accounting for Federalincome taxes is to reflect in income the estimated amount of taxes currently payable and to provide for deferred taxes on centain items subject to timing differences to the extent permitted by the various regulatory commissions. See Note B for details of major deferred tax items.

As permitted by the regulatory commissions, it is the policy of the subsidiar:e* to defer the

'I annual investment tax credits and to amortize these credits over the productive lives of the related assets.

The Company and its subsidiary participate with EUA in Bling a consolidated tax return.

4"6

> Allotcance for Funds Used During Construction: Allowance for funds used during construction

("AFUDC") (a non.casn item) is de6ned in the applicable regulatory system of accounts as "the net cost during the period of construction of borrowed funds used for construction purposes and a reasonable rate upon other funds when so used."

The combined rate used in calculating AFUDC was 14.3% in the twelve months ended hfarch 31,

~ 1981,14.5% in 19SO,11.5% in 1979 end 8.5% to 9.5% in 1978. In accordance with rate orders received during the last quarter of 19S0, Eastern Edison and hiontaup began providing deferred income taxes on the borrowed funds component of AFUDC. AFUDC amounted to 96.7%,88.4%,56.9% and 38.0%

of consolidated net income for the twelve months ended Af arch 31,1981 and for the years 1980,1979 and 1978, respectively.

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EASTERN EDISON COhtPANY AND SUCSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

(Information as of and for the twelve months ended March 31,1991 is unaudited)

{ f (B) Income and Deferred Taxes:

Components of income and deferred tax expense for the twelve months ended 51 arch 31,1981 and for the years 19SO,1979, and 1978 are as follows:

Twelve Months Ended March 31, 1978 1979 1980 1981 (In thousands)

Operations Federal:

Current $ 1,406 $ 637 8 918 $ 2,560 V Deferred (74) 1,542 1,936 2,528 Investment Tax Credit, Net 2,267 (365) (3,131) (3,300) i 3,599 1,814 (277) 1,788 State:

Current 714 301 190 331 y, Deferred (180) 35 111 214

• 307 545 534 396 Charged to Operations 4,133 2,210 30 2.333 Charged to Other Income 119 7 53 Total $ 4,252 8 2,217 8 30 $ 2.386 a

\

Federal income tax expense was less than the amounts computed by applying Federal income

-P tax statutory rates to book income subject to tax for the following reasons:

Twelve 1 Months Ended l g March 31, t

!~ 1978 1979 L980 1981 j

1 (In thousands)

Federal Income Tax Computed at Statutory Rates $ 7,400 $ 6,617 8 5,977 $ 7,012 i (Decreases) in Tax from:

Allowance for Funds Used During Con-struction (1,838) (2,849) (3,719) (3,173)

A

~

Overheads (315) (302) (318) (360)

Consolidated Tax Savings (1,018) (1,131) (1,588) (1,429)

Other (215) (148) (227) 185 Federal Income Tax Expense $ 4,014 8 2,187 8 125 $ 2,235 35

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EASTERN EDISON COhfPANY AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

(Informatica as of and for the twelve months ended March 31,1981 is unaudited)

I (B) Income and Deferred Taxes: - (Continued)

The provision for deferred taxes resulting from timing differences is comprised of the following:

Twelve Months Ended March 31, 1978 1979 1980 1981 (In thousands)

Excess Tax Depredation $ 1,163 $ 990 8 902 8 910 Computer Conversion Costs (68) (63) (68) (68)

Estimated Unbilled Revenue . (1,170) 35 (22) (64)

AFUDC 808 1,559 U Abandonment Losses 609 310 184 Efect of State and Local Taxes (180) 35 112 214 Other - Net . 7 (17) 5 7 Total 4 (254) $ 1,577 8 2,047 8 2,742 4* At December 31,19SO, unused investment tax credits of approximately $8,784,000 are available to reduce future Federal income tax liability.

(C) Capital Stock:

The changes in the number of common shares outstanding, resulting from sales to EUA, du-ing the twelve months ended Afarch 31,1981 and the years ended December 31,19S0 and 1979 were as follows:

'- Year Shares Issued Total Twdve months ended March 31, 1981 None 8 1980 None 1979 285,336 7,133,400

'~

In the event of involuntary liquidation, the non. redeemable preferred stock of Eastern Edison is entitled to $100 per share. In the event of voluntary liquidation, or if redeemed at the option of the Company, the non-redeemable preferred stock is entitled to: 4.M% issue, $102.98; 8.32% issue, $107.70 prior to October 1,1983; $105.62 prior to October 1,1988; $103.M prior to October 1,19S3; and

_ $102.30 per share thereafter.

Under the terms and provisions of the issues of preferred stock bf Eastern Edison, certain restric-tions are placed upon the payment of dividends on common stock by the Company, but at hfarch 31, 1981, December 31,1980 and 1979, the respective capitalization ratios were in excess of the minimum which would make these restrictions effective.

36

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EASTERN EDISON COh!PANY AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEHENTS-(Continued)

(Information as of and for the twelve months ended Mar;h 31,1981 is unaudited)

{

(D) Redeemable Preferred Stock:

In October 1980, Eastern Edison issued 150,000 shares of 15.48% Preferred Stock.

Eastern Edison's 13.6W7o and 15.4S% Preferred Stock Gsues are entitled to mandatory sinking funds sufBeient to redeem 3,000 and 6,000 shares, respecuvely, during each twelve-month period com-mencing October 1,19S0 in the case of the 13.60% issue and October 1,1985 in the case of the 15.48%

issue. The redemption price, for each issue, is equal to the initial public offering price plua accrued dividends. Eastern Edison also has the non-cumulative option of redeeming an additional 3,000 and 6,000 shares, respectively, during each period at such price.

In the event of involuntary liquidation the redeemable preferred stock of Eastern Edison is en-titled to $100 per share. In the event of voluntary liquidation or if redeemed at the option of Eastern Edison, the redeemable preferred stock is entitled to: $114.82 prior to October 1,1985; $111.42 prior to October 1,1990; $108.02 prior to October 1,1995; and $105.98 per share thereafter.

'Ihe aggregate amount of sinking fund requirements for each of the five yer; following 1980 is:

$314,000 in 1981,1082,1983 and 1984; and $923,000 in 1985.

j. (E) Retained Earnir,gs:

Under the provisions of the Company's Indenture securing the First hfortgage and Collateral Trust Bonch, Retained Earnings in the amount of $13,435,953, $12,667,239 and $11,846,241 as of hiarch 31,1981, December 31,1950 and December 31,1979, respectively, was unrestricted as to the payment of cash dividends on Common Stock.

(F) Long Term Debt:

Under terms of the Indenture securing the First hfortr, age and Collateral Trust Bonds, Eastern

, ' Edison is required to deposit annually with the Indenture Trustee, cash in an amount equal to 1%

l of the greatest aggregate principal amount of bonds previously authenticated and delivered.

Where permitted, Eastern Edison has satisfied sinking fund requirements for 19S0 and 1979 Ad under alternate provisions of the Indenture either by depositing cash or by certifying to the Indenture

!~ Trustee "available property additions" and Eastern Edison expects to continue such practice during

! the year 1981.

The First hfortgage and Collateral Trust bonds of Eastern Edison and Eastern's note due 1985 are l collateralized by securities of hiontaup in the principal amount of $159,975,000. In addition, the First hfortgage and Collateral Trust bonds of Eastern Edison are collateralized by substantially all of its 1- utility plant. See "Use of Proceeds and Construction and Financing Program" regarding the release of i

l securities collateralizing the note due 1985.

The aggrerste amount of cash rinking fund requirements and maturities for each of the five years l following 1980 are: none in 1980,1981, and 1952, $13,996,000 in 1983, $10,000,000 in 1984 and l $30,800,000 in 19S5.

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EASTERN EDISON COh!PANY AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL, STATEh1ENTS-(Continued)

(Information as of and for the twelve months ended Afarch 31,1981 is unaudited) f (G) Lines of Credit and Compensating Balances:

Eastern Edison and hiontaup had unused short term lines of credit with various banks of ap-proximately $16,100,000, $19,360,000 and $35,500,000 at hiarch 31,1981, December 31,19S0 and 1979, respectively. Ilowever, portions of these credit lines were aho available to other afBliated companies under joint credit line arrangements. In accordance with informal agreements with the various banks, Eastern Edison and Afontaup have agreed to inaintain operating accounts of minimum average balances or, in certain instances, commitment fees are required to maintain the lines of credit. There are no legal restrictions placed on the withdrawal of these funds. Except for daily working funds, substantially all of the funds included in cash represent compensating balances.

U (II) Jointly Owned Facilities:

At hfarch 31, 1981 and December 31, 1980, hfontaup owned the following interests in jointly-owned electric facilities (dollars in thousands):

December 31,1960 f, Net Construction

• ' Percent Plant in Accumulated Plant In Work In Owned Service Depreciation Ser we Progress 50.00 % $63,724 $11,042 $52,382 8 Canal No. 2 Wyman No. 4 1.96 3,N7 232 3,715 2.90 42 2 40 27,019

, Seabrook Nos.1 & 2 2.15 9,241 Pilgrim No. 2 .

4.01 39,428 '

hfillstone No. 3 I' Afarch 31,1981 Net Construction Percent Plant in Accumulated Plant In Work In Service Depreciation Service Progress Owned _

50.00 % $63,724 $11.010 $52,114 $

Canal No. 2

'~

Wyman No. 4 1.96 3,947 262 3,685 2.90 42 3 39 30,696 Seabrook Nos.1 & 2 Pilgrim No. 2 2.15 9,669 4.01 42,267 hfillstone No. 3

.- 'Ihe foregoing amounts represent hiontaup's interest in each facility. Financing for all such interests is provided by hiontaup. hiontaup's share of related operating and maintenance expenses is included in its corresponding operating expenses.

hiontaup has a 2.00% ownership interest in two nuclear generting units designated as hion-tague 1 and 2 (lead parti,, pant, of Northeast Utilitier) which had been proposed to be built at a site in 38 A

l EASTERN EDISON COh!PANY AND SUBSIDIARY l l

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

(, (Information as of and for the twelve months ended March 31,1991 is unaudited)

V (II) Jointly. Owned Facilities: - (Continued)

Afontague, Afassachusetts. In December 19S0, the lead participant announced cancellation of these I units and concluded that all capital costs relative to them should be written off as being valueless. A: of December 31,19S0, hiontaup had incurred approximately $1,081,000 of costs (including allowance for funds used during construction) in connection with the project. Additional costs (which are not ex- -

pected to be material) relating to cancellation charges, or salvage, if any, are undeterminable at this time. Afontaup has reported the costs of the abandoned project as an extraordinary property loss and has received permission from FERC to amortize these costs, net of the related tax savings to be realized in the EUA consolidated 1980 Federal income tax return, over a period of five years and requested approval from FERC for recovery of such costs commencing with the effective date of its December 19,1980 rate filing.

td (I) Commitments:

Eastern Edison and hfontaup have leases covering certain facilities and equipment. Total rental expense for these leases for the twelve months ended hiarch 31,1981 and for the years 19S0,1979 and

~

1978 amounted to approximately $414,000, $350,000, $177,000 and $275,000, respectively.

These leases are treated as operatinFl eases for rate making purposes and have been accounted for as such; however, certain lease agreements meet the criteria requiring capitalization as set forth in the Statement of Financial Accounting Standards No.13. If such leases were capitalized, the amounts thereof would not have a material effect on assets, liabihties, or related expenses.

Future minimum rental payments at December 31,19S0, for such leases are estimated to ag-( ;regate $532,000 in 1981, $500,000 in 1982, $479,000 in 1983, $406,000 in 1984, $130,000 in 1985, and none for the years after 1985.

P 2 astern Edison and Afontaup participate with other EUA system companies in a pension plan cov-ering substantially all of their employees. The total pension expense charged to operations, which includes amortization of past service costs over 20 years, during the twelve months ended h! arch 31, 1981 and for the years 1980,1979 and 1978 amounted to approximately $1,387,000, $1,344,000,

,~

$1,327,000 and $1,391,000, respectively. Eastern Edison and hiontaup make annual contributions to the plan equal to the amounts accrued for pension expense. The accumulated plan benefits anu plan net assets for the Employees' Retirement Plan of Eastern Utilities Associates and its Subsidiary C ampanies is presented below:

January 1,1950 (In Thousands)

Actuarial Present Value of Accumulated Plan Benefits:

.f $26,188 Vested Nonvested 1,100

$27,288 l Market Value of Net Assets Available for Benefits $27,917 l

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EASTERN EDISON COhfPANY AND SUZSIDIABY NOTES TO CONSOLIDATED FINANCIAL STATEhfENTS-(Continued)

(Infor(nation as of and for the twelve months ended hfarch 31,1981 is i naudited)

C (I) Commitmen'ts: - (Continued)

The assumed rate of return used in determining the actuarial present value of the accumulated plan benefits was 6.07o for 19S0.

Afontaup is committed under purchased power contracts to pay demand charges whether or not energy is received. The following table summarizes information concerning such contracts at Decem- '

ber 31,1980.

Date of  % Share of Estimated Contract Output Being Annual M Erpiration Purchased Cost (In Thousands)

Taunton hfunicipal Cleary No. 9 1984 Various $ 2,489 New Brunswick 1986 6.41 278 y

Yankee Atomic Power Co. 1991 4.50 2,076 Conn. Yankee Atomic Power Co. 1998 4.50 3,132 Canal Electric Co. Unit No.1 1998 25.00 4,874 Pilgrh Unit No. I 2000 11.00 10,405 hiaine Yankee Atomic Power Co. 2002 4.00 2,263 4,

Vermont Yankee Atomic Power Co. 2002 2.50 1,609

$27,586 Reference is made to "Use of Proceeds and Construction and Financing Program" for information

, concerning the Company and hiontaup's construction program and restrictions with respect to the issuance of First Afortgage Bonds and Preferred Stock.

, (J) Contingencies:

Reference is made to " Business - Uncertainties Regarding Nuclear Plants" and to " Regulatory and Environmental Requirements" for additional information regarding hiontaup's ownership in g certain jointly owned generating units.

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EASTERN EDISON COMPANY AND SUBSIDIARY SUPPLEAfENTARY INFORAfATION TO DISCLOSE TIIE EFFECTS OF CIIANCING PRICES

( (Unaudited)

The following supplementary information is :tipplied in accordance with the requirements of the Statement of Financial Accounting Standards No. 33 for the purpose of providing certain informa-tion about the effects of changing prices. It should be viewed as an estimate of the approximate effect of inflation, rather than a precise measure, since a number of subjective judgments and estimating techniques were used in developing this information. ,

Constant dollar amounts represent historical costs stated in terms of dollars of equal purchasing power, as measured by the Consumers Price Index for all Urban Consumers. Current cost amounts reflect the changes in specific prices from the date the plant was acquired to the present, and differ from constant dollar amounts to the extent that specific prices have increased more or less rapidly than prices in general p CONSOLIDATED STATEAIENT OF INCOAIE FROA1 CONTINUING OPERATIONS Adjusted for Changing Prices for the year ended December 31,19SO Constant Current

, Dollar Cost f, IIIstorical Average Average e- Cost 1980 Dollars 1980 Dollars (Thousands of Dollars)

Operating Revenues $224,221 $224,221 $224.221 Fuel & Purchased Power Expense 159,503 159,503 159,503

- Other Operating & Alaintenance Expenses 30,465 30,465 30,465 i 7.170 15,524 18,564

( Depreciation

' axes Other thanExpense income 8,454 8,454 8,454 Income and Deferred Taxes 30 30 30

- Interest Charges-net 8,916 8,916 8,916

-$' Other (Income) & Deductions-net (3,225) (3,225) (3,225)

" 211,313 219,667 222,707 Income from Continuing Operations (excluding reduction to net ~

recoverable cost) $ 12,908 $_ 4,554' $ 1,514

1. 6 Increase in Specific Prices of Utility Plant IIeld During the Year" $ 49,995

- Reduction to Net Recoverable Cost $(19,866) (2,717)

Effect of Increases in General Price Level (64,111)

Excess of Increase in General Price Level over Increase in Specific Prices after Reduction to Net Recoverable Cost .. (16,833)

Cain from Decline in Purchasing Power of Net Amounts Owed . 15,284 15,284 Net 3 (4,582) $ (1,549)

• Including the reduction to net recoverable cost, the loss fram continuing operations on a con-stant dollar basis would have been $15,312.

" At December 31, 1980, the current cost of net utility plant was $578,556 while historical cost or net cost recoverable through depreciation was $263,054.

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The current cost of utility plant, comprising e.Il plant in service, construction work in progress and plant held for future use, represents the estimated cost of replacing existing plant assets and was determined by indexing the surviving plant using various indices which represent the Co npany's and Montaup's experienced construction costs.

The current year's provision for depreciation on a constant dollar and current cost basis was I computed by applying the average composite depreciation rate to the average depreciable balance of property, plant and equipment after adjusting such accounts for inflation.

l Fuel inventories, the cost of fuel used in generation, and purchased power for resale have rot been restated from their historical cost. Regulation limits the recovery of fuel and purchased power costs through the operation of adjustment clauses. For this reason fuel inventories are effectively monetary assets.

As prescribed in Financial Accounting Standard No. 33, income taxes were not adjusted.

Under the rate. making prescribed by the regulatory commission to which the Company is subject, only the historical cost of plant is recoverable in revenue as depreciation. Therefore, the excess of the cost of plant stated in terms of constaat dollars that exceeds the historical cost of plant is not presently recoverable in rates as depreciation, and is reflected as a reduction to net re-coverable cost. To properly reflect the economics of rate regulation in the Statement of Income from Continuing Operations, the reduction to net recoverable cost of net property, plant and equipment l .

should be offset by the gain from the decline in purchasing power of net amounts owed. During l

a period of inflation, holders of monetary assets suffer a loss of general purchasing power while holders of monetary liabilities experience a gain. The gain from the decline in purchasing power i '. of net amounts owed is primarily attributable to the substantial amount of debt which has been l used to finance property, plant and equipment. Since the depreciation on this plant is limited to the recovery of historical costs, the System companies do not have the opportunity to realize a holding l gain on debt and are limited to recovery only of the embedded cost of debt capital.

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FIVE YEAR

SUMMARY

OF SELECTED FINANCIAL DATA ADJUSTED FOR TIIE EFFECTS OF CIIANCING PRICES

( 1980 Years ended December 31, 1979 1978 1977 1978 (In Thousands of Average 1980 Dollars)

Operating Revenues $224,221 $190,864 $178,989 $196,884 $201,125 llistorical Cost Information Adjusted for General In-flation:

Income from Continuing Operations Excluding Reduction to Net Recoverable Cost 4,554 5,613 .

Income Per Common Share After Preferred Divi-dead Requirements and Excluding Reduction to Net Recoverable Cost . 0.96 1.62 Net Assets at Year-end at Net Recoverable Cost . 125,446 122,361 Current Cost Information:

Income from Continuing Operations Excluding Re.

duction to Net Recoverable Cost 1,514 3,773 ki Iacome (Loss) Per Common Share After Preferred

- Diudend Requirements and Excluding Reduc-tion to Net Recoverable Cost (0.09) 0.92

' Excess of Inocase in General Price Level Over Increases in SpeciSc Prices after Reduction to Net Recoverable Cost (16,833) (17,837)

Net Assets at Year-end at Net Recoverable Cost 125,446 122,381 g

Ceneral Information:

Cain from Decline in Purchasing Power of Net Amounts Owed 15,284 15,814 Cash Dividends Declared per Common Share 2.76 3.62 4.08 4.65 4.62

< Average Consumer Price Index 246.8 217.4 195.4 181.5 170.5

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REDEMPTION PROVISIONS OF THE BONDS The Bonds will be redeemable at the option of the Company as a whole or in part at any time upon at least 30 days' prior written notice at the Regular Redemption Prices expressed in percentage-of principal amount as indicated below, together in each case with accrued and unpaid interest to (

the redemption date; provided, however, that the Bonds shall not be redeemed at the applicable Regular Redemption Price prior to July I,1986 (except in connection with certain consolidatians or mergers or sales of assets) if such redemption is for the purpe;e of or in anticipation of refunding the Bonds through the use, directly or indirectly, of funds borrowed by the Company at an effective interest cost to the Company (computed in accordance with generally accepted financial practice) of lees than the effective interest cost to the Company of the Bonds. This refunding limitation is not applicable to redemptions of the Bonds at a Special Redemption Price.

If Redeemed During the 12 Months Regular Special Beginning Redemption Redemption July 1 Price Price U

+0 e6 h

The Special Redemption Price will be applicable to redemptions through the use of sinking l and improvement fund or replacement fund moneys, or to obtain a credit on the next annual sinking l and improvement fund payment, or with trust moneys received from the sale, taking or release of property pursuant to governmental orders or in anticipation thereof.

44

PURCHASERS The Purchasers named below have severally agreed to purchase from the Company the respective

( principal uill be obligated amounts to purchase allof Bonds of the setareforth Bonds if any below. 'Ihe Purchase Agreem purchased. ,

After the initial public oHering, the public oHering price and the concessions may be changed.

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No deller, salesm:n or other person has been authorized to give any information or to make any representation not contained in this Prospectus in PROSPECTUS connection with the offer made by this Prospectus and, if given or made, such information or repre- (

- sentation must not be relied upon as having been authorized by the Company or by the Purchasers.

His Prospectus does not constitute an offer by the Eastern Edison Company or any Purchaser to sell, or a solicitation of an offer to buy, any of these securities in any Ompany jurisdiction to any person to whom it is unlawful for the Company or such Purchasers to make such offer or solicitation in such jurisdiction. The deliv-ery of this Prospectus does not imply that the in-formation herein is correct as of any time subse- p.,

I quent to its date.

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SYSTEM COMPANY TABLE OF CONTENTS Page Available Information 2 The Company 2 i' The Issue in Brief 3 Use of Proceeds and Construction and W>#>M Financing Program ... 4

( Capitalization 6 First Afortgage and Collateral Trust Bonds

• * " '

• I' i Sele ed Consolidated Financial Data 8 l hianagement's Discussion and Analysis of I

Financial Condition and Results of Oper-l1-i ations General Problems of the Utility Industry.

9 12 Entitled to Interest from July 1,1981 Business .. ... 13 4 Consolidated Operating Statistics 20 Regulatory and Emironmental Require-ments 21 Legal Opinions .... 23 Experts . . .... . 23 Description of the Bonds 24 Auditors

• Report 28

'; Dated July ,1981 Consolidated Financial Statements ... 29 Redemption Provisions of the Bonds 44 Purchasers ... ... ...... 45 y ;;. 3 l .,

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/ UNITED STATES OF AMERICA 5

s FEDERAL ENERGY REGULATORY COMMISSION ELECTRIC RATES: Suspension; Intervention Before Commissioners: Georgiana Sheldon, Acting Chairman; -

Matthew IIolden, Jr., George R. Ital l and J. David llughes.

Montaup Electric ) Docket No. ER81-180-000 Company )

ORDER ACCEPTING FOR FILING AND SUSPENDING PROPOSED RATES, DIRECTING AMENDED FILING, GRANTING INTERVENTIONS, l AND ESTABLISHING PROCEDURES (Issued February 17, 1981)

On December 19, 1980, Montaup Electric Company (Mon-taup) submitted for filing a proposed increase in rates to two affiliated 1/ and four non-affiliated 2/ wholesale s customers. This, proposed increase would result in additional revenues of approximately $8,982,574 (4.3%)

for the twelve month period ending December 31, 1981. 3/

1/ Blackstone Valley Electric Company and Eastern Edison Company (Eastern Edison was formed through a merger of Brockton Edison Co. and Fall River Electric Light

. Company on August 1, 1979).

2/ Newport Electric Corporation, Pascoag Fire District, Town of Middleborough, and Narragansett Electric Company.

3/ Montaup's present rates were submi.tted as interim rates to reflect a settlement of (1) a proposed rate increase to these same customers which was tendered for filing on July 11, 1980 (Docket No. ER80 .520),

and (2)'an application for the inclusion of certain

. CWIP in rate base under the severe financial difficulty exception of section 2.16 of our regulations (Docket No.

EL80-8). By order ~ issued January 2, 1981, these in-terim rates were made effective from December 1, 1980, pending final Commission action on the anticipated settisment. An offer of settlement was filed on O .

February 3, 1981.

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Docket No. ER81-180-000 c)

( Montaup concurrently submitted for filing revisions to agreements unde r w hich (1) Blackstone Valley Electric Company and Eastern Edison Company rent 115 kv transmission facilities to Montaup, and (2) Montaup rents certain trans-formers and substation facilities to Eastern Edison Com-pany. 4/ According to Montaup, these revisions which would ~

provide for increased charges for the transmission facilities wn. h are rented to the other parties have been made in order to reflect the current cost of capital, including return on common equity, for each company.

i Montaup requests an effective date of February 18, 1981, for the proposed rate increase to its wholesale cus-tomers and for the increased transmission rental charges.

If the rates are suspended, Montaup further requests thut they be suspended for only one day.

Notice of the filing was issued on December 31, 1980, with responses due onfor before January 15, 1981.

On January 15, 1981, Newport Electric Corporation and the Attorney General of Rhode Island together with the Rhode Island Division of Public Utilities and Carriers filed petitions to intervene. On January 16, 1981., the Town of Middleborough, Massachussetts and the Pascoag

' Fire District of the Town of Pascoag, Rhode Island jointly The

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(_ filed an unt imely protest and petition to intervene.

Narragansett Electric Company filed an untimely petition to intervene on January 26, 1981. Of the foregoing plead-ings, only the January 16th protest raised s p e c i f i'c sub-stantive issues. One issue 5/ raised in this protest was that Montaup's cost of service should'be reduced by $1.2 million to reflect a revised contract, finalized after Montaup's filing was prepared, which provides for a reduction in pur-c h'a s e s from the New Brunswick Power Commission's Coleson Cove units. 6/

i 4/ For rate schedule designations, see Attachment A.

5/ Other issues raised in this protest pertain to (1) .

rate of return: (2) cash working capital; and (3) various tax items. -

6/ That contract was filed with this Commission on l

December 24, 1980, and assigned Docket No. ER81-205.

l By letter order dated February 10,. 1981, the Director I

of the Office of Electric Power Regulation' accepted I the contract for filing pursuant to his delegated

/" authority. ,

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Docket No. ER81-180-000 *

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On February 2, 1981, Montaup filed a response to the

{Ng,) joint protest of the Town of Middleborough and the Pascoag Fire District. In this response, Montaup disputed the asser-tions set out in the protest, but did agree to immediately reduce its cost of service by $1,103,000 because of the revised New Brunswick arrangement. 1/ Montaup f ur ther stated that if the revised New Bruswick agreement is not accepted, -

"Montaup will either revert to' billing under the demand charge as filed or file wh'atever revision to the M-6 filing which may be appropriate."

Discussion Our analysis indicates that'M'ontaup's proposed rates and charges have not been shown to be just and reasonable and may be unjust, unreasonable, unduly discriminatory, preferential, or otherwise unlawful. Accordingly, we shall accept the proposed rates and revised transmission agreements for filing and suspend them as ordered below.

In a number of suspension orders, 8/ we have ad-dressed the considerations underlying the Commmission's policy regarding rate suspensions. For the reasons given there, we have concluded that r a t,e filings should' generally be suspended for the maximum period permitted'by statute where preliminary study leads the Commission to believe that 0% the filing may be unjust and unreasonable or that it may run afoul of other statutory standards. We have acknowledged, however, that s ho rt e r su spe ns ions 'ma y be warranted in cir-cumstances where suspension for the maximum period may lead to harsh and inequitable results. Such circumstances are p're s e n t e d here. Although a number of matters raised in this proceeding warrant investigation at hearing, our preliminary analysis reveals that the rates proposed by Montaup may not be substantially excessive. A nominal suspension should-minimize any adverse effects on the company while ensuring refund protection for its customers. Accordingly, we shall exercise our discretion to suspend the rates for only one day permitting the rates to take effect subject to refund thereafter on February 19, 1981.

1/ Montaup also stated that it had agreed in its transmittal letter accompanying this filing to file an immediate reduction reflecting the revised New Burnswick contract as soon as that c*ontract is accepted.by this Commission.

8/ E.g., Boston Edison Co., Do'cket No. ER80-508 (August 29, 1980) (five month suspension); Alabama.PowerDCo.,

[~N Docket Nos. ER80-506, et al. (August 29, 1980) (one

( day suspension); Cleveland Electric.111uminating.Co.,

Docket No. ER80-488 (August 22, 1980) (one day sus-pension).

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Docket No. ER81-180-000 '

O As noted ubove, Montaup has stated that it would revise its proposed rates downward to reflect the revised New Brunswick arrangement following Commission acceptance of that agreement. According to Montaup, this adjustment has the-effect of reducing the M-6 demand charge from

$8.35316/kw/ month to $8.22031/kw/ month. Because the New Brunswick contract has now been accepted for filing (see footnote 6, supra), we shall direct Montaup to comply with its representation and to file the lower rates within thirty day _ of this order.

Additionally, we find that participation in this proceeding by each of the petitioners may be in the public interest and that good cause exists to permit the i Town of Middleborough, the Pascoag Fire District, and Narragansett Electric Company to intervene out of time.

Furthermore, the Town of Middleborough and the Pascoag Fire District will have full opportunity to pursue the matters set forth in their protest at the hearing con-vened pursuant to this order.

The_ Commission. Orders .

S (A) Montaup's December 19, 1980 submittals are hereby accepted for filing and suspended for one day to become effective, subject to refund, o'n February 19, 1981.

(B) Within thirty (30) days after issuance of this order, Montaup is hereby directed to su'bmit revised rate schedules incorporating its agreement to reduce the proposed M-6 demand charge from $8.35316/sw/ month to $8.22031/kw/

month.

(C) The Newport Electric Company, the Atto'rney General of the State of Rhode Island and the Rhode Island Division of Public Utilities and Carr'iers, the Town of Middleborough, Massachussetts, the Pascoag Fire District of the Town of Pascoag, Rhode Island, and Narragansett Electric Company are hereby permitted to in t e r v e,ne in this proceeding subject to the rules and regulations of the Commission; Provided, howev ar ,

that pa rticipation by the in t e,r v en o r s shall be limited to matters set forth in their p e t.i t io n s to intervene; and pro-vided, further,.that the admission of any intervenor shall ,

not be construed as recognition by the Commission that it might be aggrieved because of any order or orders by the Commission entered in t h i's proceeding.

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Docket No. ER81-180-000 0 (D) Pursuant to the authority contained in, and subject to the jurisdiction conferred upon the Federal Energy Regulatory Commission by section 402(a)'of the DOE Act, and by the Federal Power Act, particularly sections 205 and 206 thereof, and pursuant to the Commission's Rules of P ractice and P rocedure and the regulations under the Federal Power Act [18 CFR, Chap- -

ter 1 (1979)], a public hearing shall be held concerning the justness and reasonableness of the Proposed rates.

(E) The Commission staff shall serve top sheets in this proceeding on or before May 4, 1981.

(F) A presid'ing administrative law judge, to be designated by the Chief Administrative Law Judge, shall convene a prehearing conference in.this proceeding to be held within approximately 1

f'ifteen (15) days of the service of top, sheets in a hea ring room of the Federal Energy Regulatory Commission, 825 North Capitol Street, N.E., W as hing t 9n , D.C. 20426. The presiding judge is authorized to establish procedural dates and to rule ,on'all motions (except motions to consolidate or, sever and motions to dismiss), as provided for in the Commission's Rules of Practice and Procedure.

~3 (G) The Se ct,e ta ry s hall p romp tly publish this order in the Federal Register.

)

By the Commission.

( S E A'L )

enneth F. Plumb,. '

Secretary.

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I Attachment A Montaup Electric Comp v Docket' No. ER81-180-s00 Rate Schedule _ Designations t

Description Designation Montaup Electric Company

1. M-6 Rates Tenth Revised Sheet No. 4 under FPC Electric Tariff, Original Volume No. 1 (Supersedes Ninth Revised Sheet No. 4)

Eleventh Revised Sheet No. 6 ur. der Revision of Fuel Clause 2.

'FPC Electric Ta. riff, Origi'nal Base ficures Volume.No. 1 (Supersedes Tenth Revised Sheet No. 6)

Supplement No. 15 to Rate Schedule Newport Electric. Corporation

3. M-6 Rates FPC No. 33 (Supersedes Supplement .

No. 14) .

Town of Middleboro

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(,) 4. Supplement No. 19 to Rate Schedule FPC No. 36 (Supersedes Supplement M-6 Rates i No. 18) .

5. Supplement No. 4 to Rate Schedule Revision to Exhibit D (Cost of- Capital)

FPC No. 58 (Supersedes Supplement .

No. 3)

Pascoag Fire District

6. Supplement No. 9 to Rate Schedule M-6 Rates FERC No. 63 (Supersedes ' Supplement No. 8)

Blackstone Valley Electric Company .

Revised Cost of Capital

7. Supplement No. 10 to Rate Schedule FPC No. 21 (Supersedes' Supplement _

No. 9) .

i Brockton Edis5n Company Revised Cost of Capital

8. Supplement No. 10 to Rate. Schedule-FPC No. 15 (Supersedes Supplement No. 9) -

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.Q HIRIT A-f_*

, UNITED STATES OF AMERICA FEDERAL ENERGY REG U L ATO R'l COMMISSION l

I ELECTRIC RATES: Suspension; 1 Intervention l Before Commissioners: Georgiana Sheldon, Acting Chairman; -

1 Matthew lloiden, Jr., George R. Ita l l and J. David llughes.

Montaup Elec.ric ) Docket No. ER81-180-000 1 Company )

ORDER ACCEPTING FOR FILING AND SUSPENDING PROPOSED RATES, DIRECTING AMENDED FILING, GRANTING INTERVENTIONS, AND ESTABLISHING PROCEDURES (Issued February 17, 1981)

On December 19, 1980, Montaup Electric Company (Mon-taup) submitted for filing a proposed increase in rates to two affiliated 1/ and four non-affiliated 2/ wholesale g- customers. This, proposed increase would result in (j additional revenues of approximately $8,982,574 (4.3%)

for the twelve month period ending December 31, 1981. 3/

~ '

1/ Blackstone Valley Electric Company and Eastern Edison Company (Eastern Edison was formed through a merget of Brockt.n Edison Co. and Fall River Electric Light

. Company on' August 1, 1979).

2/ Newport Electric Corporation, Pascoag Fire District, Town of Middleborough, and Narragansett Electric Company.

3/ Montaup's present rates were submi.tted as interim rates to reflect a settlement of (1) a proposed rate increase to these same customers which was tendered for filing on July 11, 1980 (Docket No. ER80 .520), -

and (2) an application for the inclusion of certain CWIP in rate base under the severe financial difficulty exception of section 2.16 of our regulations (Docket No.

EL80-8). By order ~ issued January 2, 1981, these in-terim rates were made effective from De cembe r 1, 198., ,

pending final Commission action on the anticipated settlement. An offer of settlement was filed on February 3, 1981.

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, Docket No. ER81-180-000 Montaup concurrently submitted for filing revisions to agreements unde r which (1) Blackstone Valley Electric Company and Eastern Edison Company rent 115 kv transmission facilities to Montaup, and (2) Montaup rents certain trans-formers and substation facilities to Eastern Edison Com-pany. 4/ According to Montaup, these revisions which would ~

provide for increased charges for the transmission facilities which are rented to the other parties have been made in order to reflect the cu r re nt cost of c ap it a l, including return on common equity, for each company.

Montaup requests an effective date of February 18, 1981, for the proposed rate increase to its wholesale cus-tomers and for the increased transmission rental charges.

If the rates are suspended, Montaup further requests that they be suspended for only one day.

Notice of the filing was issued on December 31, 1980, with responses due on:or before January 15, 1981.

On January 15, 1981, Newport Electric Corporation and the Attorney General of Rhode Island together with the Rhode Island Division of Public Utilities and Carriers filed petitions to intervene. On January 16, 1981., the Town of Middleborough, Massachussetts and the Pascoag Fire District of the Town of Pascoag, Rhode Island jointly The Os filed an untimely protest and petition to intervene.

Narragansett Electric Company filed an untimely petition to intervene on January 26, 1981. Of the foregoing plead-ings, only the January 16th protest raised specifi'c sub-stantive issues. One issue 5/ raised in this protest was that Montaup's cost of service should'be reduced by $1.2 million to reflect a revised contract, finalized after Montaup's filing was prepared, which provides for a reduction in pur-c h'a s e s from the New Brunswick Power Commission's Coleson Cove units. 6/

4/ For rate schedule designations, see Attachment A.

Other issues raised in this protest pertain to (1) .

~5/

rate of return; (2). cash working capital; and (3) various tax items.

6/ That contract was filed with this Commission on December 24, 1980, and assigned Docket No. ER81-205.

By letter order dated February 10,. 1981, the Director of the Office of Electric Power Regulation' accepted the contract for filing pursuant to his delegated authority.

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Docket No. ER81-180-000 -3 9

O On February 2, 1981, Montaup filed a response to the joint protest of the Town of Middleborough and the Pascoag Fire District. In this response, Montaup disputed the asser-tions set out in the protest, but did agree to immediately reduce its cost of service by $1,103,000 because of the revised New Brunswick arrangement. 1/ Montaup further stated that if the revised New Bruswick agreement is not accepted, -

"Montaup will either revert to' billing unde r the demand charge as filed or file w h'a t e v e r revision to the M-6 filing which may be appropriate."

Discussion Our analysis indicates ttit'Montaup's proposed. rates and charges have not been shown to be just and reasonable and may be unjust, unreasonable, unduly discriminatory, preferential, or otherwise unlawful. Accordingly, we shall accept the proposed rates and revised transmission agreements for filing and suspend them as ordered below.

In a number of suspension orders, 8/ we have ad-dressed the considerations underlying the Commmission's policy regarding rate suspensions. For the reasons given there, we have concluded that r a t,e filings should' generally be suspended for the maximum period permitted"by statute where preliminary study leads the Commission to believe that

{~Sx_) the filing may be unjust and unreasoaable or that it may run afoul of other statutory standards. We have acknowledged, however, that s ho rt er suspe nsions ~may be warranted in cir-cumstances where suspension for the maximum period may lead to ha rs h and inequitable results.

~

Such circumstances are presented here. Althcugh a number of matters raised in this proceeding warrant investigation at hearing, our preliminary analysis reveals that the rates proposed by Montaup may not be substantially excessive. A nominal suspension should-minimize any adverse effects on the company while ensuring refund' protection for its customers. Accordingly, we shall exercise our discretion to suspend the rates for only one day permitting the rates to take effect subject to refund thereafter on February 19, 1981.

1/ Montaup also stated that it had agreed in its transmittal letter accompanying this filing to file an immediate reduction reflecting the revised New Burnswick contract as soon as that c*ontract is accepted by this Commission.

8/

E.g., Boston Edison Co., Docket No. ER80-508 (August 29, 198 0 ) -( f i ve month suspension); Alabama. Power Co.,

n, s_

Docket Nos. ER80-506, et al. (August 29, 19p0) (one day suspension); Cleveland Electric.IlluminatingJCo.,

Docket No. ER80-488 (August 22, 1980) (one day sus-pension).

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• Docket No. ER81-180-000 O G As noted above, Montaup has stated that it would revise its. proposed rates downward to reflect the revised New Brunswick arrangement following Commission acceptance of that agr2ement. According to,Montaup, this adjustment has the efiect of reducing the M'6 demand charge from -

$8.35316/Nw/ month to $8.22031/kw/ month. Because the New Brunswich contract has now been accepted for filing (see footnote 6, supra), we shall direct Montaup to comply with its representation and to file the lower rates within thirty days of this order.

Additionally, we find that participation in this proceeding by each of the petitioners may be in the public interest and that good cause exists to permit the Town of Middleborough, the Pascoag Fire District, and Narragansett Electric Company to intervene out of time.

Furthermore, the Town of Middleborough and the Pascoag Fire District will have full opportunity to pursue the

• matters set forth in their protest at the hearing con-vened pursuant to this order.

The Commission Orders ,

1 (A) Montaup's De cembe r 19, 1980 submittals are hereby

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\_/ accepted for filing and suspended for one day to become effective, subject to refund, on February 19, 1981.

~

(B) Within thirty (30) days after issuance of this order, Montaup is hereby directed to su'bmit revised rate schedules incorporating its agreement to reduce the proposed M-6 demand charge from $8.35316/kw/ month to $8.22031/kw/

month.

The Newport Electric Company, the Attorney General

~

(C) of the State of Rhode Island and the Rhode Island Division of Public Utilities and Carriers, the Town of Middleborough, Massachussetts, the Pascoag Fire District of the Town of Pascoag, Rhode Island, and Narragansett Electric Company are hereby permitted to intervene in this proceeding subject to the rules and regulations of the Commission; Provided, however, l that participation by.the i n t e ,r v e n o r s shall be Jimited to matters set forth in their petitions to i n t e r v e. n e ; and pro-vided, further,.that the admission of any intervenor shall not be construed as recognition by the Commission that it might be aggrieved because of any order or orders by the I

Commission entered in this proceeding.

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S Docket No. ER81-180-000 .

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\~ (D) Pursuant to the authority contained in, and subject to the jurisdiction conferred upon the Federal E'sergy Regulatory Commission by section 402(a)'of the DOE Act, and by the Federal rower Act, particularly sections 205 and 206 thereof, and pursuant to the Commission's Rules of Practice and Procedure and the regulations under the Federal Power Act [18 CFR, Chap- -

ter I (1979)], a public hearing shall be held concerning the justness and reasonableness of tne proposed rates.

(E) The Commission staff shall serve top sheets in this proceeding on or before May 4, 1981.

(F) A presid'ing administrative law judge, to be designated by the Chief Administrative Law Judge, shall convene a prehearing conference in,this proceeding to be held within approximately f'if t ee n (15) days of the service of top, sheets in a hearing room of the Federal Energy Regulatory Commission, 825 North Capitol Street, N.E., W a s hing t on , D.C. 20426. The presiding judge is authorized to' establish procedural dates and to rule ,on ~ all motions (except motions to consolidate or' sever and motions to dismiss), as provided for in the Commission's Rules of Practice and Procedure.

(G) The Secr,etary shall promptly publish this order '

5 in the Federal Register.

'u By the Commission.

(SEAL)

/ -

enneth F. Plumb,. "

Secretary.

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\ Attachment A Montaup Electric Company Docket No. ER81-180-000 Rate Schedule Designations

?

Description Designation Montaup Electric Company M-6 Rates

1. Tenth Revised Sheet No. 4 under FPC Electric Tariff, Original Volume No. 1 (Supersedes Ninth Revised Sheet No. 4)

Eleventh Revised Sheet No. 6 under Revision of Fuel Clause

2. Base figures

'FPC Electric Ta. riff, Origi~nal Volume.No. 1 (Srpersedes Tenth Revised Sheet No. 6) ,

Supplement No. 15 to. Rate Schedule Newport Electric Corporation

3. M-6 Rates FPC No. 33 (Supersedes Supplement .

No. 14) ,

Supplement No. 19 to Rate Schedule Town of Middleboro

( ) 4. FPC No. 36 (Supersedes. Supplement M-6 Rates i No. 18)

Revision to Exhibit D

5. Supplement No. 4 to Rate Schedule (Cost of Capital)

FPC No. 58 (Supersedes Supplement .'

No.'3)

Pascoag Fire District

6. Supplement No. 9 to Rate Schedule M-6 Rates t

FERC No. 63 (Supersedes ' Supplement No. 8)

Blackstone Valley Electric Company .

Revised Cost of Capital

7. Supplement No. 10 to Rate Schedule FPC No. 21 (Supersedes Supplement -

l.

No. 9) ,

Brockton Edis5n company _ _ _ ,

Revised Cost of Capit'l

8. Supplement No. 10 to Rate Schedule- -

FPC No. 15 (Supersedes Supplement No. 9) v L

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0 SEABROOK STATION 1

l GENERAL and FINANCIAL INFORMATION .

o PUBLIC SERVICE COMPANY OF NEW HAMPSHIRE SEABROOK, NEW HAMPSHIRE O

l Volume 4

GENERAL AND FINANCIAL INFORMATION TABLE OF CONTENTS d

INTRCDUCTION General Information As to Applicants.

Agreement for .Toint Ownership, Construction and Operation of New Hampshire Nucleo. Units.

TAB 1 Tublic Service of New Hampshire

[ 2 Bangor Hydro-Electric Company 3 Canal Electric Company 4 The Connecticut Light and Power Company 5 Fitchburg Gas and Electric Light Company

( 6 Town of Hudson, Massachusetts Light and Power Department 7 Central Maine Power Company 8 Maine Public Service Company 9 Massachusetts Municipal Wholesale Electric Company

, 10 Montaup Electric Company 11 New England Power Company 12 Taunton Municipal Lighting Plant Commission 13 Vermont Electric Cooperative, Inc.

14 Central Vermont Public Service Corporation 15 The United Illuminating Company 16 New Hampshire Electric Cooperative, Inc.

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O NEW ENGLAND POWER COMPANY Units No. 1 and No. 2 Seabrook Nuclear Power Station Seabrook, New Hampshire Information furnished pursuant to S 50.33 of Commission's Rules and Regulations with respect to the particular Applicant named above .zus part of Final Safety Analysis Report and Operating License Application for the above Units.

Ju ly 1981 b

O

O I. ORGANIZATION AND CONTROL (a) Name of Applicant New England Power Company (b) Address of Applicant 25 Research Drive Westborough, MA. 01581 (c) Description of Business of Applicant.

For a brief description of New England Power Company (NEP),

see page 4 of NEP's Form 10-K for 1980 filed herewith.

(d). Corporate Organization NEP is a corporation organized under the laws of Massachusetts. As of June 24, 1981,.NEP had.one domestic shareholder owning 6,449,896 common shares and no foreign shareholders owning any common shares.

(e) Corporate Officers and Directors

)

The names and residence addresses of.NEP's directors and principal officers are as follows:

Name Residence Robert O. Bigelow 15 Granuaile Road Southboro, MA. 01772 Joan T. Bok 53 Pinckney Street Boston, MA. 02114' Fr'ederic E. Greenman 42 Fuller Brook Road Wellesley, MA.'02181 Russell A. Holden 479 North State Street Concord, N.H. 03301'

-Alfred D. Houston Paula 5ane Franklin, MA.-02038

' Samuel Huntington 20 Berkshire Road Newtonville, MA. 02160 John F. Faslow

() 15 Duston Drive Methuen, MA. 01844

4

() Edward M. Keith Horseshoe Drive Grafton, MA. 01519 Guy W. Nichols 69 Wildwood Drive Needham, MA. 02192 James C. Nesbitt 84 Moffat Road Waban, MA. 02168 Edward A. Plumley 6 Amy Road i Framingham, MA. 01701 Donald E. Rose 36 Newbury Park 4

Needham, MA. 02192 Paul J. Sullivan 10 Isaac Miller Road Westborough, MA. 01581 i

Robert King Wulff 27 Gray' Street-Boston, MA. 02116 All of the directors and principal officers of NEP are citizens of the United States of America. NEP is not owned, controlled or dominated by an alien, foreign corporation or foreign government.

O)

(,, II. FINANCIAL QUALIFICATIONS Under the Joint Ownership Agreement, NEP is responsible for 4

its Ownership Share of the operation and maintenance cost of the i Units which, when the pending transactions described herein have t been consummated prior to commercial operation, will be 9.'95766%

of those costs, and a similar percentage of the ultimate cost of

~

decommissioning the Units.

Based upon the estimates set forth above under Part IV of the General Information, NEP's share of these costs should amount approximately to $14,936,000 and $14,936,000 for the first five years of. operations of Units 1 and 2, respectively; and approximately $4,182,000 to $8,5 64,000 for the decommissioning of the two Units. In addition, NEP's share of fuel expenses during the period would be $51,083,000.

As evidence of its financial qualifications to meet those costs, NEP submits herewith:

(i) 1980 Annual Report on Form 10-K incorporating.1980

Annual Report to Stockholders attached thereto (Exhibit F-1).

(ii) 1981 Quarterly Report on Form 10-Q (Exhibit F-2).

u

. _ . ._ . _ -~. - _ _ ___ _ . . _ . . - _ . . . . __ . _ - - _ .

0

(,) (iii) Official Statement, dated March 14, 1980, relating to 9 1/2% Pollution Control Revenue Bonds (Exhibit F-3).

(iv) Federal _ Energy Regulatory Commission rate order, dated November 26, 1980 (Exhibit F-4).

! III. REGULATORY AGENCIES AND PUBLICATIONS (a) Regulatory Agencies The following regulatory agencies have jurisdiction over the rates and services of NEP:

Federal ~ Energy Regulatory Commission Washington, D.C. 20426 Securities and Exchange Commission 500 North Capitol Street, N.W.

Washington, D.C. 20549 The following regulatory agencies have jurisdiction over certain limited activites of NEP:

Massachusetts Department'of Public Utilities 100 Cambridge Street

() Boston, MA. 02202 New Hampshire Public Utilities Commission 26 Pleasant Street Concord, N. H. 03301 Vermont Public Service Board 7 School Street Montpelier, VT 05602 Connecticut Public Utilities Commission State Office Building 165 Capitol Avenue Hartford, CT 06115 (b) Publications The following trade ar.d news publications are used by NEP for official notifications, and/or are otherwise appropriate for notices regardin'g this unit:

The Boston Globe 135 Morrissey Boulevard Boston, MA. 02125

,r-wg Boston Herald American

( ,/ 300 Harrison Avenue Boston, MA. 02106 9

SECURITIES AND EXCHANGE Cop 44ISSION Washington, D.C.

FORM 10-K 20549 EXHIBIT F-1 (m

b' i

' ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) 0F THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1980 Commission File Number 0-1229 PEW ENGLAto POWER COWANY

%f (Exact name of registrant as specified in its charter)

Massachusetts 04-1663070 e

0 (State or other Jurisdiction (I.R.S. Employer Identification No.)

of incorporation or organization)

A eo 25 Research Drive, Westborough, Massachusetts 01581 Telephone number, including area code, 617-366-9011 Securities registered pursuant to Section 12(b) of the Act:

Name of Each Exchange Title of Each Class on Which Registered Cumulative Preferred Stock New York Stock Exchange

$25 Par Value,11.04% Series Securities registered pursuant to Section 12(g) of the Act:

n

() 6% Cumulative Preferred Stock Dividend Series Preferred Stock Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days, i

Yes X No l State the aggregate market value of the voting stock held by non-affiliates of l the registrant.

Title Market Value k.4 6% Cumulative Preferred Stock $2,684,690 y Indicate the number of shares outstanding of each of the registrants classe.S of common stock, as of the latest practicable date.

Class Outstanding at February 28, 1981 l Common Stock 6,449,896 shares Documents Incorporated by Reference

/\

l ('-'l Annual Report to Stockholders for Part II Items 5, 6, 7, 8 fiscal year ended December 31, 1980 Part III Item 9 i

Information Statement dated March 26, Part III Item 10 1981 for Special Meeting in Lieu of j the Annual Meeting of Stockholders

TAR.E OF CONTENTS Men....... .......................................................... 3 Part I.

Item 1. Business................................................... 4 Properties................................................. 5 Load G row th and NEESPLAN. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 Additions to Generation.................................... 9 Conv ers ion to Coa l . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

, Fossil Fuel Supply......................................... 12 Hydroelectric Energy....................................... 14 Nuclear Fuel Supply........................................ 14 6

Regulation................................................. 15 Rates...................................................... 15 Environmental Requirements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16

, Research and Development................................... 18 Executive 0fficers......................................... 18 Item 2. Properties................................................. 19 Item 3. L ega l Proc e ed ing s . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 Item 4. Security Ownership of Certain Beneficial Owners and Management................................................. 19 L Part II.

Item 5. Market for the Registrant's Common Stock and Related Security Holder Matters............................................ 19 Item 6. Selected Financial Data.................................... 20 Item 7. Management's Discussion and Analysis of Financial Condition and Result s o f Ope ra tions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 Item 8. Financial Statements and Supplementary Data................ 20 Part III.

A, Item 9. Directors and Executive Officers of the Registrant. ..... . .. ' 20 1

, Item 10. Management Remuneration and Transactions................... 20 Part IV.

Item 11. Exhibits, Financial Statement Schedules and Reports on Form 8-K................................................... 20 N)

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Part I Item 1. Business New England Power Company, consolidated in 1916, is a wholly-owned subsidiary of New England Electric System, a registered holding company under the Public Utility Holding Company Act of 1935. The following table shows the relationship among NEP and its affiliates in the NEES System.

UVoting UVoting - 1 Securities Securities State of Type of Owned by Owned by , ,

Name of Company Organization Business EES EP -

Parent New England Electric System Mass. Utility (NEES) Holding Compan' Subsidiaries Granite State Electric Company N.H. Retail 100 (Gianite) Electric Massachusetts Electric Company Mass. Retail 100 (Mass Electric) Electric The Narragansett Electric R.I. Retail 100 Company (Narragansett) Electric New England Energy Mass. Fuel 100 Incorporated (NEEI) Procurement Activities New England Power Service Mass. Service 100 Company (NEPSCO) Company New England Power Company Mass. Wholesale, 98.77(a)

(NEP) Generation &

Transmission ,

s Connecticut Yankee Atomic Conn, Generation 15 y i Power Company (Conn. Yankee) ,

Maine Yankee Atomic Me. Generation 20 Power Company (Maine Yankee)

Vermont Yankee Nuclear Power Vt. Generation 20 Corporation (VeITnont Yankee)

Yankee Atomic Electric Mass. Generation & 30 Company (Mass. Yankee) Nuclear Services

Notes:

(a) Holders of. common stock and 6% Cmulative Preferred Stock of NEP have general voting rights. The 6% Cumulative Preferred Stock represents 1.23% of the total voting power.

O EP's business is principally that of generating, purchasing, transmitting, and selling electric energy in wholesale quantitles. Of these 7 sales of energy, 91% are to affiliated companies for resale and 9% are to municipal and other utilities for resale. EP is the wholesale supplier of substantially all of the electric energy requirements of its retail affiliates: Mass. Electric, Narragansett, and Granite State. Narragansett, however, receives credits against its purchases of power from NEP for the cost of generation from its Providence units which are integrated witti EP's facilities to achieve maximm economy and reliability. Discussions of generating properties, load growth, and fuel supplies include the.related properties of Narragansett. Purchases, sales, and revenues are on the basis of EP's net sales to Narragansett.

' The business of EP is not highly seasonal; electrical usage is, however, higher than average during periods of cold or hot weather. For details of Sales of Energy and Operating Revenue for the last five years, see " Operating l Statistics" on page 15 of NEP's Annual Report to Shareholders.

l On December 31, 1980, E P had 726 employees.

Properties The properties of EP include fossil-fuel base load and intermediate load steam-generating units: conventional and pumped storage hydroelectric stations; internal combustion peaking units; ownership interests in the

' nuclear generating mits of the Yankee Companies; and aa integrated system of transmission lines and substations (see Map). This integrated system is Interconnected with other major electric utilities in the Northeast region, -

including utilities in New York State, and is also indirectly interconnected l with utilities in Canada. For details of mortgage liens on NEP's properties, l

see Note G of Notes to Financial Statements.

!O

NEP's net capability at December 31, ~R "

.ts the net er ' .fi for the twelve nonths endirig December 31, 1980, frce, all sources, incluc'ing entitlements in nuclear generating conpanies, were as follows:

Energy Net Net Source Location Source Capability Generation (MW) (000 of MWH)

Fossil Fuel Units Brayton Point Station Somerset, Mass.

Unit 1, 2, and 3 Gil-Coal (a) 1, M 6,369 Unit 4 O!l 4:25 2,006 -

Salem Harbor Station Salem, Mass.

Unit 1, 2, and 3 Oil-Coal (a) 318 1,792 Unit 4 011 455 1,524 ~ 5'.

Other System Stations (b) Mass.,Me.,and Oil (c) 329 623 R.I. Oil-Coal (a) 103 468 Hydroelectric Stations Conventional Mass., N.H., Water 592 1,182 and Vt.

Ptrnped Storage Bear Swamp Rowe, Mass. 602 (160)

Nuclear Entitlements (d) Conn., Me., Nuclear 384 1,947 Mass., and Vt.

Other (e) T5 1,614 Total 4,427 17,365 (a) See Conversion to Coal for information relating to these units.

(b) Includes (1) Narragansett units which are operated as an integral part of EP's power supply; (ii) an Interest in a jointly owned unit in Yarmouth, Maine; and (iii) diesel and gas turbine units.

(c) Three generating tnits at Manchester Street, Providence, R.I. with a net capability of 144 MW burn oil or, when available, gas. Two of these mits burned gas for four months in 1980. Another generating unit with a -

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net capability of 103 MW located at South Street, Providence can be .

converted to burn coal, if current environmental restrictions are eased.

(d) EP's entitlements are equal to its ownership interests. (See Table on relationship among NEP and its affiliates in the NEES System page 4.)

(e) Includes megawatts and megawatthours from contracted purchases (some of which are life of the unit contracts and others for terms of years), unit sales contracts, economy interchanges through the New England Power Exchange, and other minor purchases and sales.

O

l I NEP has approximately 2,214 circuit miles of transmission lines and 110 substations. Additionally, NEP has contractual arrangements with other utilities providing for the transmission of power.

Each of the Yankee Companies owns a nuclear generating plant. The utility stockholders, including NEP, purchase the entire output of these plants in the same percentages as their respective stock ownerships except for trinor entitlements taken by municipal utilities. The purchasing companies pay ror such output on the basis of their respective shares of total fixed and operating costs of the plants plus a return on equity. NEP uses the equity method of accounting for its investments in these companies which are e unconsolidated subsidiaries. The cost to NEP of decommissioning generating units owned by the Yankee Companies has not yet been finally determined. It is expected, however, that all such costs will ultimately be included in the

.Q cost of electric energy generated by such units and recovered through the rate making process.

EP has agreed to lend an aggregate of $6 millicn to Connecticut Yankee to assist it in meeting its fuel requirements and construction program.

Subject to obtaining necessary regulatory approvals, NEP has also agreed to provide financial support to Vermont Yankee in the form of an $8 million guarantee of Vermont Yankee obligations under a fuel financing arrangement.

NEP is a member of the New England Power Pool (EPOOL) which, under the EPOOL Agreement, provides for coordination of the planning and operation of the generation and transmission facilities of its members and incorporates s'

generating capacity reserve obligations, provisions regarding the use of major transmission lines, and provisions for payment for facilities usage.

Approximately 99% of the generating capacity in New England is represented in EP00L. The NEP00L Agreement further provides for New England-wide central dispatch of generation through the New England Power Exchange. Under EPOOL, operating and capital economies are made possible and reserves am established on a region-wide rather than an individual compsny basis. Therefore, the electric energy available to the NEES System and other participants is determined by the aggregate available to NEP00L. At the time of maximum demand, which cecurred on 2,anuary 12, 1981, NEP00L participants had 21,372 W of capacity to meet the po31's peak load of 15,502 W.

Load Growth and NEESPLAN The 1980-1981 winter peak load of NEP was 3,144 megawatts and occurred on January 12, 1981. The summer peak was 3,140 megawatts and occurred September 2, 1980. NEP has been moving in recent years from a winter peak toward a summer peak system. The growth of System load is the subject of a comprehensive load forecasting program, with continuing review based on current information and developments. Plans for providing additional generating capability are developed from these load forecasts.

During the past five years System peak load growth (adjusted to normal weather conditions) has increased at an average rate of 2.5% per year. Prior to the 1973 oil embargo, average peak load growth was significantly higher.

Projections of long-term peak demand indicate continued growth at the current d rate in the absence of a concerted load management and conservation program -

such as that proposed in E ESPLAN discussed below.

Because of the sudden reduction in rate of growth in recent years EP currently has capacity, built on the basis of earlier lead forecasts, ..aich is in excess of what would otherwise be necessary to meet present load. As a result of uncertainties in future load growth, it is not clear how long this capacity, substantially built at pre-oil-crisis costs, will continue to be adequate. If the growth rate were to continue at 2.5%, present capacity would be sufficient to meet projected load and reserve requirements through the year 1989. Completion on time of the new units described below in which EP is a joint owner and achievement of the conservation objectives of NEESPLAN would allow EP to defer construction of any new generating capacity above that to which NEP is currently committed, to some time after 1996.

The EES System companies instituted a 15-year plan (NEESPLAN) late in

• 1979 and updated the plan objectives in 1980. The plan is based on two principal objectives: to minimize increases in the cost of electricity to ,

customers, and to reduce System reliance on foreign oil. The Sysi.e.m has -

undertaken, through a major conservation and load management program, to reduce its annual peak load growth to 1.8% thereby reducing substantially the need for additional new generating capacity. It is estimated that such reductions would decrease NEP's capital requirements through 1996 by approximately two-thirds.

The conservation and load management nrogram includes new rate incentives to encourage shifts of electricity use from peak periods of demand to off-peak periods, and special rates for customers who install heat storage devices. In addition, NEESPLAN contemplates the use of an automatic load control system.

EPSCO owns patented technology for such a system which has been licensed to Emerson Electric Co. of St. Louis, Missouri. Equipment incorporating this technology manufactured by Emerson is being tested on distribution lines of Mass Electric. Additional elements of the conservation and load management program involve solar applications and cogeneration.

With achievement of the conservation and load management goals of tEESPLAN, EP will still require the full amount of additional capacity represented by its interests in the units described below under Additions to Generation in order to meet the reduced System Icad during the period through 1996. By 1996 EP plans to purchase or generate approximately one million megawatthours of energy per year from alternate energy sources such as wood, wind, solid waste, and low-head hydro. This energy will be used to displace energy from oil-fired capacity.

A second major objective of NEESPLAN is to reduce NEP's reliance on foreign oil for power production from 73% of total energy requirements to no more than 10% by 1996. This would be accomplished (i) by conversion to coal

• of seven oil-fired units totaling 1,585 megawatts (see Conversion to Coal below) and (11) by reducing NEP's reliance on foreign sources of oil through expansion of the exploration and development activities of NEEI (see Fossil Fuel Supply-Oil Procurement Program below). The conversion of the seven oil-fired units would reduce NEP's annual oil requiremenF by 15.7 million barrels.

O

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Additions to Generation EP's construction program calls for estimated expenditures of about $205 million in 1981, $194 million in 1982, and $236 million in 1983, including Allowance for Funds Used During Construction (AFDC). TP, along with the electric utility industry in general, continues to require new capital to meet its construction program. The ability to secure this needed capital is dependent upon obtaining a fair rate of return on capital which, among other things, is a fmetion of pricing its product. (See Rates below.)

To provide for new generating capacity, options believed by NEP to be

• . available include additional nuclear or coal capacity, expansion into alternate energy sources, and the possible purchase of Canadian hydroelectric energy. The other possibilities, oil-fired and gas-fired generation, are effectively precluded by Federal law, except for peaking use. NEP has elected to meet its requirements for major new generating capacity through participation with other New England utilities in the construction, under joint ownership agreements, of the nuclear generating units shown in Note J of Notes to Financial Statements. These units are designed to meet New England's future power supply needs under plans developed by EPOOL.

Environmental and safety standards must be satisfied before and after construction of new generating units. Many of these standards and the technology available to meet them are changing rapidly. To meet these o) standards on a continuing basis, changes may be required in planned units, as

~

well as modifications in units already mder construction or in operation.

Furthermore, it has been necessary for EP to make substantial investments in new facilities prior to the issuance of required construction permits and operating licenses, with no assurance that such licenses will be issued.

Moreover, the lead owners of the proposed nuclear units, in which NEP is joint owner, may defer completion of these units beyond the scheduled dates. The failure of a joint owner to meet its payment obligations under the joint ownership agreement may also cause delay in completion of the units. If completion of a proposed unit is delayed for any reason, the estimated total cost will increase or in the extreme case might require NEP to turn to other sources.

• W P estimates that la 1981, 1982 and 1983, it will invest

$% million, $117 million, and $141 million, respectively, including AFDC and initial fuel' loads, in the proposed nuclear units.

Although NEP believes nuclear power is a viable and economic means of generating additional electricity at this time, the incident at Three Mile Island Unit No. 2 in Pennsylvania has caused widespread concern about the safety of nuclear generating plants and extensive public controversy concerning the further development of nuclear energy in the United States.

The Nuclear Regulatory Commission (NRC) has' instituted new safety requirements and is considering significant further revisions. As a result of increased opposition to nuclear power, legislation has been filed in Congress and O various state legislatures to severely restrict or eliminate nuclear power as

\J

an energy source. Legislation has also been proposed in Congress to mandate a utility insurance pool to indemnify utilities for clean up and plant rehabilitation costs arising from a nuclear accident. While the ultimate effect of this controversy cannot be predicted, it is likely to cause costly delays and modifications to the planned units in which NEP has an interest.

The Price Anderson Act, a Federal statute, limits liability for damages from a nuclear accident to $560 million, to be provided by commercial insurers, the Federal government, and retrospective premium assessments against the owners of nuclear reactors. The maximum assessment per year per operating reactor is $10 million. NEP's interests in the Yankee Companies, which would pay assessments, if any, are such that a maximum of $8.5 million per year could be charged against its interests. -

Seabrook Units The lead owner of the Seabrook Units, Public Service Company of New Hampshire (PSNH), has acquired the necessary permits for construction of the units. On December 31,1980, Unit 1 and the portion of the project common to both units were about 43% complete and Unit 2 was about 7.5% complete.

PSNH has experienced difficulty in obtaining external financir.g and in maintaining cash flow adequate to fund continued construction of the units.

PSm has attempted to reduce its ownership by selling an aggregate of 22% of the units. PSNH received comitments to purchase 15% and is currently in the process of reducing its ownership from 50% to 35% of the units. This reduction should assist PSNH in alleviating the financial burden of constructing the units. It is probable that PSm will require rate relief in future years i order to construct the units.

Another joint owner, The United Illuminating Company (UI), offered to sell 10% of the units. As a result of this offer, UI sold 2.5% of the units reducing its current ownership to 17.5% of the units.

Cunstruction of the Seabrook Units may be suspended if court appeals or other challenges in licensing or other proceedings are decided adversely. An NRC decision in 1976 not to suspend the construction permit for the units has been appealed to the U. S. Court of Appeals for the First Circuit. The NRC has decided that certain seismic related issues should be reconsidered in a limited evidentiary hearing. PSm has stated that it cannot predict the timing or outcome of these proceedings. ,

~

Millstone Unit No. 3 This unit is being constructed on a site in Waterford, Connecticut, where -

two other nuclear units are currently located. The NRC issued a construction permit for this unit in 1974 and on December 31, 1980, the unit was about 33%

complete. Due to unfavorable rate treatment in Connecticut, subsidiaries of Northeast Utilities, the lead owners of the unit, were forced to defer completion of the unit until 1986. In light of this deferral, construction activity on this unit has been Ieduced.

Subsidiaries of Northeast Utilities have offered to sell 8.7% of the Millstone No. 3 Unit. These subsidiaries currently have a 65% interest in the un it.

Pilgrim Unit No. 2

! This unit is proposed to be constructed on a site in Plymouth, Massachusetts, where one nuclear unit is currently located. The NRC has not issued a construction permit for this unit and construction has not started.

Boston Edison Conpany, as lead owner of the unit, has developed a revised construction schedule. If a construction permit is received in 1981, the unit would be scheduled to commence commercial operation in 1987. The MPU has been investigating the capacity needs of Boston Edison and the construction program required to meet those needs. Boston Edison has stated that it cannot predict when the M(PU will issue a decision on this matter.

. Cancellation of Montague Units On December 31, 1980 Northeast Utilities, the lead owner of these units,

. announced cancellatica of the project. EP had invested about $6 million in the project prior to cancellation. NEP will request regulatory approval to amortize and recover any loss through rates. See Note F of Notes to Financial Statements.

Conversion to Coal A program to convert Units 1, 2, and 3 at Brayton Point to long-term coal .

burning in confomance with applicable state and Federal environmental requirements is underway. In connection with the long-term conversion of the Brayton Point units, NEP requested, and the Environmental Protection Agency (EPA) granted, permission for the interim burning of coal in two of these O, units, using existing facilities, until August, 1980. After the interim coal burn, the coal handling system at Brayton Point was removed from service for rebuilding on a cermanent basis. This interim coal burning, which began December 1, 1979 id ended on July 25, 1980, reduced oil requiremencs by approximately 3 million barrels and saved approximately $27 million for customers of the EES system.

Coal burning on a permanent basis in the three units is scheduled to begin in the Spring, Summer and Fall of 1981. The estimated cost of this conversion is approximately $180 million. The work includes major modifications to the units, as well as installation of substantial additional pollution control equipment.

E P also hopes that three of its units at Salem, Massachusetts and a Narragansett unit at Providence, Rhode Island totaling 421 MW will be able to convert from oil to coal burning. Due to questions concerning the economic feasibility and environmental requirements, however, a definitive conversion plan has not yet been established. In March,1980 the Department of Energy (00E) issued a proposed order wnf.:h, if finalized, would prohibit the burning of both gas and oil at the Salem Harbor Units which total 318 MW of capacity.

O G l

e Fossil Fuel Supply Except for the interim coal burn at Brayton Point and a four month use of natural gas at Providence, EP bur.wd oil in all its fossil fuel generating units during 1980. Of the 17.1 mil.lon barrels of residual fuel oil used, approxinately 74% was imported.

The price of residual fuel oil purchased by EP generally follows the trend of the world crude oil prices, which are determined primarily by the Organization of Petroleum Exporting Countries (OPEC). OPEC announced substantial price increases in 1980 resulting in a year-end cost to NEP of '

$31.50 per barrel, as compared to $22.11 per barrel in 1979. The conflict between Iran and Iraq has contributed to the increases in oil prices and ,

uncertainties about availability of supply. '

The availability and price of oil to NEP may be affected by many factors, including actions of the Federal government, and actions of foreign governments in oil producing and refining countries, actions of suppliers in allocating supplies or honoring their contracts, as well as the success of NEEI's oil and gas exploration and development program described below. The recen*, Presidential order which removed domestic oil price controls is expected to increase EP's cost per barrel by about $1.50.

The price and availability of oil may also be affected by state and Federtl air pollution control requirements. These requirements are reviewed and approved by EPA.

Oil Procurement Program EP pursues an cggressive and hexible buying policy to obtain a reliable supply of oil at the lowest available prices. Oil storage facilities are current ly naintained by NEP and Narragansett with total capacity of approximately 2./ Taillion barrels.

1 I

tFP obtains its oil requirements through short-term arrangements with oil i

suppliers and purchases on the spot market. Its current arrangements , ovide for maximum annual purchases of approximately 23.2 million barrels and minimum

annual purchases of approximately 15.2 million barrels through July 31, 1981.

There are renewal options available to EP which would extend most contracts -

through July 31, 1982. These arrangements enable NEP to reduce purchases in the event of favorable spot market prices, or when coal or gas burning is permitted. These conmitments are in addition to any exchanges which may be .

! arranged for the production of New England Energy Incorporated (EEI).

NEEI EEI was created as the fuel subsidiary of the EES system following the oil embargo of 1974. Its purpose was to find and develop domestic sources of oil and gas which could be converted to a reliable and economical fuel supply to the NEES system. In partnership with Samedan Oil Corporation, a subsidiary of Noble Affiliates, Inc., EEI has engaged in oil and gas exploration and development in the United Stues, including the acquisition of offshore leases. From the inception of this program, EEI has invested a total of $145 million in the partnership, of which $% million was invested in 1980. NEEI

has financed this investment by bank loans, NEES investments and internal sources. As of December 31, 1980, EEI's share of proved and probable Q(~Nreserves discovered by the partnership was approximately 2.1 million barrels of oil and 11.4 million equivalent barrels of natural gas. As of the same date, NEEI's share of the total oil and gas production from these reserves was 1.5 million equivalent barrels. Substantially all of this production has been sold to non-affiliates, and the proceeds used to purchase fuel oil for delivery to TP pursuant 6" a fuel purchase agreement approved by the Securities and Exchange Cunmission. These deliveries have resulted in total savings to EP customers of about $4.3 million. EEI production in 1980 was approximately 900,000 equivalent barrels, and the estimate for 1981 is approximately 1.8 million equivalent barrels.

In October 1980, NEEI entered into a similar partnership agreement with Dorchester Exploration, Inc., a subsidiary of Dorchester Gas Corporation, for

' joint explorations and development of domestic oil and gas. NEEI invested $15 million in the partnership in 1980. EEI expects to invest $110 million in these exploration and development partnerships in ly81.

EEI from time to time may purchase fuel oil for sale to EP, and has authority to engage in various other procurement and inventory activities for the System.

Coal Procurement Program When the Brayton Point tsiits are fully converted, EP's estimated coal requirements will be approximately 3 million tons per year. Conversion of h j three units at Salem Harbor and one unit at Providence will add approximately V one million tons per year to NEP's coal requirements.

During the calendar year 1981 the phase-in of the coal fired generation at Brayton Point will be completed. NEP has arrangements with coal ;uppliers in Pennsylvania, Virginia and West Virginia to obtain its coal requdrements.

Under these arrangements NEP will purchase a maximum of approximately 1,100,000 tons, and a minimum of approximately 900,000 tens in calendar year 1981. These arrangements allow NEP to increase its coal purchases to a minimum of 2,700,000 tons, and a maximum of 3,200,000 tons by 1983. Coal will also be purchased on a spot basis for test burning.

Transportation of Coal NEP will take delivery of its purchased coal at loading ports on the East l Coast, after transportation by railroad from the mine. The coal will be transportated from the loading ports to Brayton Point, Salem Harbor, and Providence by ocean-going collier and barge.

In October 1980, EEI entered into a joint venture with Keystone Shipping Co., a subsidiary of Chas. Kurz & Co., Inc., to build, own or lease, and

, operate a coal-fired, self-unloading collier, to be chartered to EP for j twenty-four and one-half years. It is estimated that this vessel, when completed in 1983, will be capable of carrying 80% of the coal requirements of Brayton Point, or 60% of the combined requirements of Brayton Point, Salem

! / Hartior, and Providence. Under the terms of the charter, EP will pay charges t

C]/ at an annual rate equal to 90% of the current market rate for similar

coal-carrying vessels. Termination of the charter under certain conditions, could require E P to assume the joint venture's obligations under a contemplated financing arrangement. The charter is subject to approval of the Securities and Exchange Commission under the Public Utility Holding Company Act of 1935 The total cost of the vessel will be approximately $66 million.

NEES has guaranteed the performance of the joint venture under the construction contract.

WP has chartered two additional vessels to transport coal from the loading ports to Brayton Point during the period prior to the in-stew!ce date '

of the EEI-Keystone collier. Additional charters will be maintainec thereafter to transport NEP's coal requirements in excess of the transportation capability of the EEI-Keystone collier.

• Hydroelectric Energy EP owns and operates hydroelectric facilities located on the B 1ecticut and Deerfield Rivers. Each of NEP's hydroelectric facilities is licensed by FERC, with expiration dates ranging from 1993 to 2020. These plants, consisting of 592 MW of conventional hydro and 602 MW of more flexible pumped storage, make EP the largest hydroelectric operator in New England.

NEP will also purchase electricity produced by a 15 MW hydro development in Lawrence, Massachusetts. The project, under construction during 1980, is scheduled to be completed in 1981.

In New Hampshire a statute prohibits a company engaged in the generation of electrical energy by water power within that state from transmitting such energy outside of New Hampshire unless the company first obtains the consent l of the New Hampshire Public Utilities Commission. On December 23, 1980, the l

New Hampshire Supreme Court issued a decision upholding the constitutionality of the New Hampshire Public Utilty Commission (NHPUC) order requiring NEP to sell all its hydroelectric power that is generated in New Hampshire to New Hampshire utilities, municipals, or persons. In the December 23, 1980 New Hampshire Supreme Court decision, the case was remanded to the NFPUC to i determine a procedure for implementing the order. The implementation l

' proceeding is mderway at the NFPUC, and EP has appealed the New Hampshire Supreme Court's ruling to the U.S. Supreme Court. The ultimate resolution of .

this matter is not expected to have any impact on EP's earnings.

Nuclear Fuel Supply As noted above, E P participates with other New England utilities in the ownership of several nuclear units. The respective utilities primarily i responsible for these units must arrange advance commitments for certain

{ stages of the nuclear fuel cycle. NEP has been advised by those responsible for the units now in operation that adequate near-term commitments have been l made for uranium concentrate, conversion to hexafluoride, enrichment of that

! gas, and fabrication of fuel assemblies. They anticipate that these contracts l c111 be renegotiated or replaced as their expiration dates approach. The prices and terms of these new commitments cannot be predicted at this time.

The lead owners of the nuclear units that are planned or under construction till also be negotiating and contracting for future commitments related to Gach of these elements of the fuel cycle.

Federal authorities have deferred indefinitely the commercial reprocessing of spent fuel and are currently developing policies for its D) disposal. Resolution of these issues could eventually affect the fuel supply and operation of the nuclear units in which EP participates. These nuclear units all have on-site storage capacity for spent fuel through at least the late 1980's.

Regulation EP is subject to the jurisdiction of various federal and state regulatory bodies, including the Securities Exchange Commission under the Public Utility Holding Company Act of 1935, the Federal Energy Regulatory Commission, the Nuclear Regulatory Commission, state public utility commissions, and state and federal environmental bodies. Specific aspects of regulation are addressed in Additions to Generation, Conversion to Coal,

. Hydroelectric Energy, Rates, and Environmental Requirements.

Rates EP's resale rate to its affiliates and others is subject to the jurisdiction of the FERC. EP's rates contain a fuel adjustment clause which automatically allows the rates for sales of power to be adjusted on a current basis to reflect changes in EP's cost of fuel.

Recent rate cases are listed in the tabulation below. All other pending rate cases wre settled during 1980.

A Q Company Rate Rate Increase Effective Amount of Increase (Decrease) Allowed Designation Requested Date Annual Basis W-1 $ 1,200,000 7/1/79 ($3,700,000)

W-2 $50,900,000 (a) $36,200,000 W-3 $88,900,000 (b) $79,106,000 (a) Approximately $10 million of the increase relating to coal burning expense was allowed to go into effect, subject to refund, on January 2, 1980. The FERC also denied approximately $10 million of the requested increase but allowed the balance to go into effect, subject to refund, on June 1,1980, pending a final determination or approval of a

, settlement agreement. On November 26, 1980, FERC approved a settlement agreement reached by EP and certain intervenors regarding the W-2 rates.

(b) On October 31, 1980, W P filed with FERC its W-3 rate increase proposed to be effective January 1,1981, which would increase revenues by $88.9 million annually based on a test year of 1981. On December 30, 1980 FERC issued an order allowing about $20 million of the increase reflecting costs associated with coal enversion to go into effect, subject to refund, on January 2,1981. The order also rejected about

$9.9 million of the increase and allowed the balance of about $59 million, to become effective on June 1,1981, subject to refund.

Environmental Requirements NEP is subject to Federal, state, and local regulation of, among other things, air and water quality; storage, transportation, and disposal of hazardous substances and wastes and environmental land use restrictions.

All agencies of the Federal government must prepare, for all major Federal actions significantly affecting the quality of human environment, a detailed statement of the environmental impact of each action. The New England states have environmental laws which require various agencies to prepare reports of the environmental impact of certain proposed actions; the Massachusetts' statute mandates minimization of environmental impact in connection ah various state actions. '

In Massachusetts, before electric generation and transmission facilities are constructed, the Massachusetts Energy Facilities Siting Council -

must approve the proposed construction location. In cases where an approval for a facility by a state or local agency has been unduly delayed, the Council may issue a certificate of environmental impact and public need, which would eliminate the necessity for such agency's approval.

Other New England states require, in certain circumstances, regulatory approval for site selection or construction of electric generating facilities. Connecticut, Maine, Massachusetts, and Rhode Island also have programs of coastal zone management which might restrict construction of power plants and other electrical facilities in coastal areas.

As discussed aoove, EP is converting three units at Brayton Point to coal. Environmental expenditures relating thereto were about $34 million in 1980 and are estimated at $41 million for 1981 and $17 million in 1982.

Additional expenditures will be required if the three units at Salem Harbor Station are converted to coal burning.

Pursuant to an agreement with certain Federal and state agencies and private environmental groups, TP is constructing fish passage facilities on a staggered time schedule at three of its Connecticut River dams. The fish passage facility at Vernon Dam is essentially conplete and is scheduled to begin operation in May 1981. The fish passage facility at Bellows Falls Dam is in the final design process and construction is scheduled to begin in May 1981. A third fish passage facility will be constructed at Wilder Dam in 1983 If salmon return in sufficient numbers to the Connecticut River. Expenditures .

for these fish passage facilities were approximately $6 million in 1980 and are estimated at $2 million in 1981, and $4 million in 1982.

EP tray be required by the EPA to make structural modivications to the ~

water intake system at its Brayton Point Station. No cost estimate is currently available.

Additional capital expenditures for other environmental facilities were

$3.9 million in 1980 and are estimated at $6.5 million in 1981, and $6.7 million in 1982.

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Air Pursuant to Federal regulations, each New England state has issued an implementation plan that limits air pollutants emitted from facilities such as generating stations. The EPA has issued regulations concerning the prevention of significant deterioration of air quality in areas where the existing air quality meets ambient air quality standards. The EPA also requires states to prepare plans to improve air quality in those areas not meeting ambient air quality standards. The New England states are revising their pollution control regulations to conform to these requirements. It is possible that revised regulations could restrict possible future fossil-fired plant siting or adversely affect fuel selection.

7 In November 1980, WP applied to the Governor of Massachuset" for a temporary emergency suspension of certain portions of the Massachwetts Implementation Plan. The suspension would have allowed two units at Salem Harbor to burn coal on a temporary basis in order to alleviate a regional energy emergency. Similarly, Narragansett applied to the Governor of Rhode Island for a temporary emergency suspension of certain portions of the Rhode Island Implementation Plan which would allow temporary coal burning at South Street Station. Although it was fomd that the stringent statutory requirements for an emergency suspension could not be met, both the Governor of Massachusetts and the Governor of Rhode Island petitioned the President of the United States. for relief under the President's general authority.

The EPA recently approved the burning of 2.2% sulfur content oil at South Street Station, Providence when the nearby Manchester Street Station is burning natural gas or is not operating. Prior to this time both plants burned 1.0% sulfur content oil. The new arrangement, which improves the overall air quality in and around Providence, is the first such plan to be approved by the EPA. The burning of natural gas, when available, at bnchester Street also saves approximately 50,000 barrels of foreign oil per month.

Massachusetts has regulations to prevent air pollution EP has been notified, on occasion, of minor violations of these regulatio<.s.

Water A Federal statute prohibits the discharge of any pollutant (including heat), except in compliance with a discharge permit issued by the EPA for an i

initial term of no more than five years. W P and Narragansett have received required permits for all their steam-generating plants. Occasional mincr

, violations of the terms of these permits have occurred.

In 1979 a citizens group brought suit against EPA alleging failure of

! the EPA to regulate and require discharge permits on existing and proposed i dams. NEP, along with other electric utilities, filed a motion to intervene in the suit because an adverse determination could increase costs and adversely affect EP's ability to operate its hydroelectric facilities. To l date no decision has been reached in this matter.

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Nuclear The NRC, along with other Federal and state agencies, has extensive regulations pertaining to environmental aspects of nuclear reactors. The NRC has extensive regulations pertaining to safety aspects of nuclear reactors, includir.;; design controls and inspection programs to mitigate any possibility of nuclear accidents and to reduce any damages therefrom. See Additions to Generation for further information.

Other NEP participates from time to time along with the other EES

• subsidiaries in administrative rulemaking proceedings and law suits initiated by their representative trade associations.

Research and Development The PEES System, acting principally through tEPSCO, is engaged in various research and development projects. Areas in which work is being carried out irclude coal-oil mixture combustion, methods of reducing stack emissions, mtthods of avoiding biological entrainment and entrapment in plant cooling Jer, and an automatic load control system. Total research and development costs expensed were approximately $3 million in each of the years 1978 and 1979 and $2.9 million in 1980.

Executive Officers The Treasurer and the Clerk are elected by the stockholders to hold office until the next Annual Meeting of Stockholders and until their successors are duly chosen and qualified. The other officers are elected by the Board of Directors to hold office subject to the pleasure of the Directors and until the first meeting of Directors after the next Annual Meeting of Stockholders and until their successors are duly chosen and qualified.

Certain officers of EP are, or at various times in the past have been, officers and directors of affiliated conpanies within the NEES System with which PEP has entered into contracts and had other business relations.

Guy W. Nichols - Age 55 - Chaiman of EP since 1978, Chairman, President and l

Chief Executive of EES. Served as President of NEES since 1970 and Chief Executive of NEES since 1972 and was elected Chairman of NEES .

and tEP in 1978.

Joan T. Bok - Age 51 - Vice Chairman of NEP and NEES - Served as Assistant to ,

the President of NEES until 1977 and as Vice President of NEES from 1977 to 1979 when elected Vice Chairman.

1 John F. Kaslow - Age 48 - President of NEP and Senior Vice President of NEES -

Served as V!ce President of PEP until 1979 when elected President and as Vice Pres! dent of NEES from 1973 to 1979.

1 Robert O. Bigelow - Age 54 - Vice President of NEP since 1979 - Director of Planning and Power Supply for New England Power Service Company since 1973.

Frederic E. Greenman - Age 44 - Vice President of NEP since 1979 and Associate General Counsel - ServM as Assistant General Counsel from 1973 to 1978 when appointed Associate General Counsel.

Russell A. Holden - Age 56 - Vice President of WP since 1969.

Samuel Huntington - Age 41 - General Counsel and Vice President ur W P and EES - Served as Assistant General Counsel from 1976 to 1978 and Associate General Counsel in 1978 when appointed General Counsel.

Edward M. Keith - Age 56 - Vice President of NEP since 1978 - Director of Thermal Production since 1975.

James C. Nesbitt - Age 57 - Vice President-Finance of NEP and EES - Served as Treasurer from 1970 to 1980 when elected Vice President-Finance.

- Edward A. Plumley - Age 61 - Vice President of NEP since 1969 in charge of environmental affairs.

Donald E. Rose - Age 53 'reasurer of NEP and NEES - Served as Assistant Treasurer of EES from 1971 to 1980 when elected Treasurer.

Paul J. Sullivan - Age 56 - Vice President of NEP and Senior Vice President of NEES - Served as Vice President of NEES from 1974 to 1979 when elected Senior Vice President.

Robert King Wulff - Age 42 - Clerk of NEP and Assistant General Counsel -

Served as Clerk and Assistant General Counsel since 1975.

Item 2. Properties (See Map, and Item 1. Business)

Item 3. Legal Proceedings (See Item 1. Business-Rates, Environmental Requirements, and Note K of Notes to Financial Statements)

Item 4. Security Ownership of Certain Beneficial Owners and Management l

NEES owns all of the common stock of EP constituting 98.77% of the voting securities of NEP.

i All directors and officer's of NEP own an aggregate of 9,655 common shares of NEES which is less than 1/10 of 1% of total shares issued and outstanding. The common shareholdings listed here are shares beneficially owned, directly or indirectly, at March 1, 1981. Fractional shares are not included.

Part II Item 5. Market for the Registrant's Common Stock and Related Security Holder

! Matters There is no market since all of the registrant's common stock is owned by NEES.

Item 6. Selected Financial Data O

Incorporated herein by reference to the 1980 PEP Amual Report.

Item 7 Management's Discussion and Analysis of Financial Condition and Results of Operations Incorporated herein by reference to the 1980 PEP Annual Report.

(See: Financial Review)

Item 8. Financial Statements and Supplemntary Information Incorporated herein by reference to the 1980 FEP Annual Report. -

Part III Item 9. Directors and Executive Officers of the Registrant Directors - Incorporated herein by reference to the Information Statement dated March 26, 1981 for the Special Meeting in Lieu of the Annual Meeting of Stockholders.

Executive Officers - See Item 1 Business - Ofticers Item 10. Management Remuneration and Transactions Incorporated herein by reference to the Information Statement dated March 26, 1981 for the Special Meeting in Lieu of the Amual Meeting of Stockholders.

Part IV l

Item 11. Exhibits, Financial Statement Schedules, and Reports on Form 8-K Exhibits See Index to Exhibits on page 22 .

1 Financial Statement Schedules:

See Index to Financial Statement. on page 23.

Reports on Form 8-K:

There were no reports on Form 8-K filed during the fourth quarter of 1980.

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O Pursuant to the requirements of Section 13 or 15(d) of the Securities V Exchange Act of 1934, the regishant has duly caused this report to be signed on its behalf, by the undersigned thereunto duly auther!?M.

EW ENGLA*O POWEP COWANY By J. F. Kaslow March 26, 1981 J. Y. KasioW Pursuant to the requirements of the Securities Exchange Act of 1934,

~ this report has been signed below by the following persons on behalf of the i registrant and in the capacities and on the dates indicated.

(Signature and Title) Directors (a mejority)

Principal Executive Officer samuel iluntington

( Samuel Huntington J. F. Kaslw Joan T. Bok J. F. Kaslw Joan T. Bok Principal Financial Officer Guy W. Nichols Guy W. Nichols J. C. Nesbitt J. C. Nesbitt

! J. C. Nesbitt J. C. Nesbitt Principal Accounting Officer J. F. Kaslow J. F. Kaslow D. E. Rose D. E. Rose l

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O List of Exhibits (M By-Laws of the Company. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Filed herewith (4) (a) Indenture of Trust and First Mortgage dated as of November 15, 1936 (First Mortgage Indenture) and twenty-three Supplements thereto, incorporated herein by reference and filed as follows:

First Mortgege Indenture dated '

November 15, 1936................................... File No. 2-4126 Exhibit B-1 First Supplemental Indenture to First -

Mortgage In&nture, July 1, 1948. . . . . . . . . . . . . . . . . . . . File No. 2-7573 Exhibit 7-8 Second Supplemental Indenture to First Mortgage In&nture, July 1, 1949. . . . . . . . . . . . . . . . . . . . File No. 2-8008 Exhibit 7-C Third Supplemental Indenture to First Mortgage Indenture, February 1, 1951 . . . . . . . . . . . . . . . File No. 2-8762 Exhibit 7-0 Fourth Supplemental Indenture to First Mortgage Indenture, June 1, 1952.................... File No. 2-9683 Exhibit 4-E Fifth Supplemental Indenture to First Mortgage Indenture, January 1, 1955................. Filed herewith Sixth Supp emental Indenture to First Mortgage ladenture, February 1, 1957................ Filed herewith Seventh Supplemental Indenture to First Mortgage Indenture, June 1, 1958. . . . . . . . . . . . . . . . . . . . Filed la v'th Eighth Supplemental Indenture to First .

Mortgage Indenture, November 1, 1961................ Filed herewith Ninth Supplemental Indenture to First ,

Mortgage Indenture, December 1, 1962................ Filed herewith Tenth Supplemental Indenture to First Mortgage Indenture, November 1, 1963. . . . . . . . . . . . . . . . Filed herewith Eleventh Supplemental Indenture to First Mortgage Indenture, December 1, 1966................ Filed herewith Twelfth Supplemental Indenture to First Mortgage Indenture, October 1, 1967. . . . . . . . . . . . . . . . . Filed herewith Thirteenth Supplemental Indenture to First Mortgage Indenture, July 1, 1968.................... Filed herewith

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Fourteenth Supplemental L denture to First V Mortgage Indenture, December 1, 1968................. Filed herewith Fifteenth Supplemental Indenture to First Mortgage Indenture, September 1, 1969. . . . . . . . . . . . . . . . Filed herewith Sixteenth Supplemental Indenture to First Mortgage Indenture, December 1, 1970................. Filed herewith Seventeenth Supplemental Indenture to First Mortgage Indenture, July 1, 1972..................... Filed herewith Eighteenth Supplemental Indenture to First Mortgage Indenture, August 1, 1973. . . . . . . . . . . . . . . . . . . Filed herewith Nineteenth Supplemental Indenture to First Mortgage Indenture, December 1, 1973.................. Filed herewith Twentieth Supplemental Indenture to First Mortgage Indenture, March 1, 1975. . . . . . . . . . . . . . . . . . . . Filed herewith Twenty-first Supplemental Indenture to First Mortgage Indenture, January 1, 1977. . . . . . . . . . . . . . . . . . Filed herewith Twenty-second Supplemental Indenture to First Mortgage Indenture, July 1, 1978..................... Filed herewith Twenty-third Supplemental Indenture to First Mortgage Indenture, March 15, 1980................... Filed herewith

. (b) General and Refunding Mortgage Indenture and Deed of Trus dated as of January 1,1977 (G & R Indenture) and two Supplements thereto, incorporated herein by reference and filed as follows:

G & R Indenture dated January 1, 1977.................. Filed herewith First Supplemental Indenture to G & R Indenture, July 1, 1978.............................. Filed herewith

, Second Supplemental Indenture to G & R Indentare, March 15, 1980............................ Filed herewith v

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(10) Material Contracts Unless otherwise indicated the copies of contracts listed below are incorporated by reference to the appropriate exhibit ntebers and the Commission file numbers indicated in parenthesis.

(a) Boston Edison Cmpany et al and New England Power Company: Agreement for Joint Ownership, Construction, and Operation of Pilgrim Unit No. 2 dated October 13, 1972 (Exhibit 5-3(d), File No. 2-45990):

Amen @ents dated August 15, 1973, September 15, 1974, and December 1, 1974 (Exhibit 5-2(c), File No. 2-52820): Amendnents dated ,

February 15, 1975, April 30, 1975, June 30, 1975, and November 30, 1975: Agreement for Sharing Costs Associated with Pilgrim Unit No. 2 Transmission dated October 13, 1972 (Exhibit 5-3(e), Fila No. '

2-45990): Instrtnent of Transfer to the Company with respect to Pilgrim Unit No. 2 and Assumption of Obligations dated December 17, 1975 (Exhibit 5-3(c), File No. 2-57831).

(b) The Connecticut Light and Power Company et al and New England Power Company: Sharing Agreement for Joint Ownership, Construction and Operation of Millstone Unit No. 3 dated as of September 1,1973, and Amendment dated as of August 1,1974 (Exhibit 5-5, File No.

2-52820). Transmission Support Agreement dated August 9, 1974; Instrument of Transfer to the Company with respect to the 1979 Connecticut Nuclear Unit, and Assumption of Obligations, dated December 17, 1975 (Exhibit 5-6(b), File No. 2-57831).

(c) Connecticut Yankee Atomic Power Company and New England Power Company: Stockholders Agreement dated July 1,1964: Power Purchase Contract dated July 1, 1964: Capital Funds Agreement dated September 1,1964; Transmission Agreement dated October 1,1964 (Exhibit 13-9-A through 0, File No. 2-23006): Agreement revising transmission Agreement dated July 1,1979; filed as an Exhibit to the Company's form 10-K for the year ended December 31, 1979.

(d) Comecticut Yankee Atome Power Company and New England Power Company:

Supplementary Power Contract dated March 1,1978. (Exhibit 5-8(b),

File No. 2-61881). Agreement amending Supplementary Power Contract dated August 22, 1980. Filed as an Exhibit to PEES's Form 10-K for .

the year ended December 31, 1980.

(e) Connecticut Yankee Atomic Power Company and New England Power .

Company: Five Year Capital Contribution Agreement dated November 1, 1980. Filed as an Exhibit to PEES's Form 10-K for the year ended December 31, 1980.

( f) Maine Yankee Atomic Power Company and New England Power Company:

Capital Ftnds Agreement dated May 20, 1968 and Power Purchase Contract dated May 20, 1968 (Exhibit 4-5, File No. 2-29145):

Stockholders Agreement dated May 20, 1968 (Fxhibit 5-20, File No. 2-34267).

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k (g) Massachusetts Electric Company and New England Power Company: Primary Service for Resale dated February 15, 1974 (Exhibit 5-17(a), File No.

2-52969). Amen &ent of Service Agreement dated Novcmber 27, 1978; riled as an Exhibit to Massachusetts Electric Company's Form 10-K for the year ended December 31, 1978.

(h) The Narragansett Electric Company and New England Power Com'pany:

Primary Service for Resale dated February 15, 1974 (Exnibit 4-1(bi, File No. 2-51292); and revised pages dated January 28, 1976 (Exhibit

, 5-12, File No. 2-57831): Amen &ent of Service Agreement dated November 27, 1978; Filed as an Exhibit to The Narragansett Eleqtric Company's Form 10-K for the year ended December 31, 1978.

(i) Partnership Agreement with Samedan Oil Corporation date'd September 20, 1974: Amen &ent dated effective January .1,1977,. .

(Exhibit 5-12(c), File No. 2-59182): Addendum to Partnership Agreement dated July 17, 1978; filed as an Exhibit to the Company's Form 10-K for the year ended December 31, 1978.

(j) Partnership Agreement with Dorchester Exploration, Incorporated dated as of October 21, 1980 (Exhibit B-1A to Form U-1, File No. 70-6513).

(k) Construction Contract between New England Collier Company, a joint venture organized by Keystone Shipping Company arid New England Energy Incorporated and General Dynamics Corporation dated as of O- February 17, 1981. Filed as an Exhibit to NEES's Form 10-K for the year ended December 31, 1980.

(1) New England Power Pool Agreement (Exhibit 4(e), File No. 2-43025);

Amen &ents dated July 1,1972, and March 1,1973 (Exhibit 5-15, File No. 2-48543): Amendment dated March 15, 1974 (Exhioit 5-5, File No.

2-52775) Amen &ent dated June 1: 1975 (Exhibit 5-14, File No.

2-57831): Amendment dated Septenber 1,1975 (Exhibit 5-13, File No.

2-59182); Amen &ents dated December 31, 1976, January 31, 1977, July 1, 1977, and August 1, 1977 (Exhibit 5-16, File No. 2-61881).

Amen &ents dated August 15, 1978, January 3,1980, and February 1980 (Exhibit 5-3, File No. 2-68283).

(m) Public Service Company of New Hampshire and New England Power Company et al: Agreement for Joint Ownership, Construction and Operation of New Hampshire Nuclear Units dated as of May 1,1973: Amendments dated May 24,1974, June 21,1974, September 25, 1974 and October 25, 1974 (Exhibit 5-18(b), File No. 2-52820): Amen &ent dated January 31, 1975 (Exhibit 5-16(b), File No. 2-57831): Amen &ents dated April 18, 1979, April 25, 1979, June 8, 1979, October 31, 1979, December 15, 1979, June 16, 1980, December 31, 19 0 Filed as an Exhibit to NEES's Form 10-K for the year ended Dece r A 31, 1980.

Transmission Support Agreement dated as of May 1,1973 (Exhibit 5-23, (3 File No. 2-49184): Instrurnent of Transfer to the Company with respect

() to the New Hampshire Nuclear Units and Assumption of Obligations dated December 17, 1975: Agreement Among Participants in New Hampshire Nuclear Units, certain Massachusetts Mmicipal Systems and Massachusetts Mmicipal Wholesale Electric Company dated May 28, 1976 (Exhibit 5-16(b), File No. 2-57831).

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(n) Vermont Yankee Nuclear Power Corporation and New England Power Company: Capital Funds Agreement dated February 1,1968: Amendment dated March 12, 1968; Power Purchase Contract dated February 1, 1968 (Exhibit 4-6, File No. 2-29145).

(o) fankee Atomic Electric Company and New England Power Company:

Research Agreement dated June 30, 1959; Power Purchase Contract dated June 30,1959; Indenture dated October 27, 1958; Transmission Agreement dated June 30, 1959 (Exhibits 13-6-8 through 13-6-E, File No. 2-15798).

(p) EES Companies' Retirement Supplement Plan, dated November 1, 1979.

Filed as an Exhibit to the Company's Form 10-K for the year ended December 31, 1979. -

(q) EES Companies' Executive Supplemental Retirement Plan, dated December 4, 1978. Filed as an Exhibit to NEES's Form 10-K for the year ended December 31, 1980.

(r) NEES Companies' Incentive Compensatinn Plan, revised as of December 5, 1978. Filed as an Exhibit to EES's Form 10-K for the year ended December 31, 1980.

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O NEW ENGLAND POWER COMPANY INDEX TO FINANCIAL STATEMENTS AND SCHEDULES References 1980 Annual Form Report to 10-K Shareholders Report of Independent Certified Public Accountants......... 24

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Balance Sheets, December 31, 1980 and 1979................. 4 Statements of Income and Retained Earnings, Year Ended December 31, 1980, 1979 and 1978.......................... 5 Statements of Changes in Financial Position, Year Ended December 31, 1980, 1979 and 1978......................... 6 Notes to Financial Statemerits and Supplementary Information.............................................. 7 - 14 s

Selected Financial Data.................................... 16 Management's Discussion and Analysis of the Sumary of Operations (see Financial Review)........................ 16 - 17 Selected Quarterly Financial Information................... 18 For the Year Ended December 31, 1980, 1979 and 1978:

Schedule III Investments in equity in earnings of, and dividends received from related parties.... 25-27 Schedule V Property, plant and equipment.............. 28-30 l

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Schedule VI Accumulated depreciation, depletion and amortization of property, plant and

, equipment.................................. 31 Schedule IX Short-term borrowings...................... 32 Other Regulation S-X schedules have been omitted since the required information is not applicable or is not material, or because the information required is included in the financial statements or the notes thereto.

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O CONSENT AND REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS We consent to the incorporation by reference of our r. port dated January 21, 1981 which is included on page 3 of the annual report to shareholders of New England Power Company for the year 1980. Our examination of the financial statements included an examination of the supporting schedules listed in the index on page 23 of this Form 10-K.

In our opinion, the supporting schadoles referred to above (pages 25 through 32 inclusive), when considered in relation to the basic financial statements taken as a whole, present fairly the infer. nation required to be set forth therein in conformity with generally accepted account 1.'g principles applied on a consistent bases.

1 Boston, Massachusetts Coopers & Lybrand January 21, 1981 W

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O O O NEW ENGLAND POWER COMPANY SCHEDULE III - INVESTMENTS IN EOUlTY IN EARNINGS OF, AND DIVIDENDS RECEIVED FROM RELATED PARTIES Year Ended December 31, 1980 (Thousands of Dollars)

Column A Column B Column C Column D Column E

' Balance at Beginning of Period Additions Deductions Balance at End of Period (1) (2) (1) (2) (1) (2) 'l) (2)

Name of Issuer and Description of Investment Number of Equity in Distributed Number of and Percent Ownership Shares Amount Income (Loss) Other Earnings Other Shares Amount 46,020 $ 6,167 $ 514 $ 564 46,020 5 6,117 Yankee Atomic Electric Company (30%)

• Connecticut Yankee Atomic 420 55,200 8,570 Power Company (15%) 55,200 7,313 927 750(A) i Varmont Yankee Nuclear Power 1,200 80,002 11,599 Corporation (20%) 80,002 11,639 1,160 Maine Yankee Atomic Power 1,315 1,300 100,000 13,715 Com,nany (20%) 100,000 13,700

$3,916 $750 $3,484 $40,001 Nuclear Power Companies, at equity $38,819_

(A) Subordinated Note. - -

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NEWl ENGLAND POWER COMPANY SCHEDULE III - INVESTMENTS IN EQUITY IN EARNINGS OF, AND DIVIDENDS RECEIVED FROM RELATED PARTIES Year Ended December 31, 1979 (Thousands of Dollars)

Column A Column B Column C Column D Column E Balance at Beginning of Period Additions Deductions Balance at End of Period Name of Issuer and (1) (2) (1) (2) (1) (2) (1) (2)

Description of Investment Number of Equity in Distributed Number of and Percent Ownership Shares Amount Income (Loss) Gther Earnings Other Shares Amount Yankee atomic Electric Company (30%) 46,020 $ 6,202 $ 610 $ 645 46,020 $ 6,167 g Connecticut Yankee Atomic ,

Power Company (15%) 55,200 6,919 819 425 55,200 7,313 Vermont Yankee Nuclear Power Corporation (20%) 80,002 11,678 1,161 1,200 80,002 11,639 Haine Yankee Atomic Power Company (20%) 100,000 13,360 1,330 990 100,000 13.700 Nuclear Power Companies, at equity $38,159 $3.920 $3,260 $38,319 O . .

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O O O NEW ENGLAND POWER COMPANY SCHEDULE III - INVESTMENTS IN EQUITY IN EARNINGS OF, AND DIVIDENDS RECEIVED FROM RELATED PARTIES Year Ended December 31, 1978 (Thousands of Dollars)

Column A Column B Column C Column D Column E Balance at Beginning of Period Additions Deductions Balance at End of Period Name of Issuer and (1) (2) (1) (2) (1) (2)

Description of Investment (1) (2)

Number of -Equity In Distributed Number of and Percent Ownership Shares Amount Income (Loss) Other Earnings Other Shares Amount Yankee Atomic Electric Company (30%) 46,020 $ 6,118 $ 821 $ 737 46,020 $ 6,202 .

Connecticut Yankee Atomic m Power Company (15%) 55,200 7,086 300 467 55,200 6,919 Vermont Yankee Nuclear Power 7 Corporation (20%) 80,002 11.902 1,174 1,398 80,002 11,678 Maine Yankee Atomic Power Company (20%) 100,000 13,360 1,340 1,340 100,000 13,360 Nuclear Power Companies, at equity $38,466 $3,635 $3,942 $38,159 i

NEW ENGLAND POWER COMPANY SCHEDULE V - PROPERTY, PLANT AND EQUIPMENT Year Ended December 31, 1980 (Thousands of Dollars)

Column A Column B Column C Column D Column E Column F Balance at Other changes- Balance at beginning Additions Retirements debit and/or end of Classification of period at cost or sales credit-describe period (8) (C)

Steam production plant $440,497 5 2,646 $ 7,484 $435,659 Other production plant 227,114 366 94 227,386 Trtnsmission plant 217,559 4,015 347 221,227 .

Distribution plant 2,262 67 7 2,322 m G:neral plant (E) 52,016 5,188 191 57,013 o' Total utility plant (D) 5939,448 5 12,282 5 8,123 5943,607 '

Construction work in progress $237,406 $138,184 (A) $(5,914) $369,676 (A) Net increase during period. Cost of additions to property, plant and equipment are first charged to construction work in progress and when additions are completed they are transferred to plant accounts.

(B) Comprises $8,097,000 of retirements and sales charged against accumulated provisions for depreciation and $26,000 of nondepreciable property sold or written off.

(C) $5,914,000 transferred from construction work in progress to unamortized property losses. (See note F of Notes to Financial Statements).

(D) For depreciation method and rate see note A-3 of Notes to Financial Statements.

(E) Includes general plant, property held for future use and completed construction not classified.

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O O O NEW ENGLAND POWER COMPANY SCHEDULE V - PROPERTY, PLANT AND EQUIPMENT Year Ended December 31, 1979 (Thousands of Dollars)

Column A Column B Column C Column D Column E Column F Balance at Other changes- Balance at beginning Additions Retirements debit and/or end of Classification of period at cost or sales credit-describe period (B) (C)

Steam production plant $437,701 $ 3,319 $ 523 $440,497 Other production plant 226,918 280 74 $ (10) 227,114 Transmission plant 208,586 9,446 709 236 217,559 m Distribution plant 2,251 23 13 1 2,262

• General plant (E) 49,738 2,629 124 (227) 52,016 '

Total ~ utility plant (D) 5925,194 g 51,443 5939,448

Construction work in progress $199.916 $71.168 (A) $(33.698) $237,406 (A) Net increase during period. Cost of additions to property, plant and equipment are first charged to construction 1 work in progress and when additions are completed they are transferred to plant accounts.

(B) Comprises $1,434,000 of retirements and sales charged against accumulated provisions for depreciation and $9,000 of nondepreciable property sold or written off.

(C) Comprises reclassification between plant accounts and $33,698,000 transferred from construction work in progress to unamortized property losses ($30,562,000) and deferred charges and other assets ($3,136,000). (See note F of Notes to Financial Statements.)

(D) For depreciation method and rate see note A-3 of Notes to Financial Statements (E) Includes general plant, property held for future use and completed constructior6 not classified.

NEll ENGLAND POWER COMPANY SCHEDULE V - PROPERTY, PLANT AND EQUIPMENT Year Ended December 31, 1978 (Thousands of Dollars)

Column A Column B Column D Cc L.'n_C_ Column E Column F Balance at Other changes- Balance at beginning Additions Retirements debit and/or end of Classification of period at cost cr sales ~ ~ ~ credit-describe period (B) (C)

St:am production plant $434,816 $ 3,231 $ 478 Oth:r production plant $132 $437,701 i 226,788 198 67 (1) 226,918 w Transmission plant 204,050 5,175 646 Distribution plant 7 208,586 '

1,981 306 32 (4) 2,251 Gen:ral plant (E) 20,183 29,675 9r Total utility plant (D) (25) 49,738 5887,818 538,585 $1,3k $109_ $925,194 Construction work in progress $160,570 $39,346 (A) $199,916 (A) Net increase during period. Cost of additions to property, plant and equipment are first charged to construction work in progress and when additions are completed they are transferred to plant accounts.

(B) Comprises $1,316,000 of retirements and sales charged against accumulated provisions for depreciation and $2,000 of nondepreciable property sold or written off.

(C) Comprises reclassification between plant accounts and $109,000 transferred from nonutility property.

(D) For depreciation method and rate see note A-3 of Notes to Financial Statements.

(E) Includes general plant, property held for future use and completed construction not classified.

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O O O NEW ENGLAND POWER COMPANY SCHEDULE VI - ACCUMULATED DEPRECIATION, DEPLETION AND N'ORTIZATION OF PROPERTY, PLANT AND EQUIPMENT Year Ended December 31, 1980, 1979 and 1978 (Thousands of Dollars)

Column A Column B Column C Column D Column E Additions Deductions from reserves (1) (2) (1) , (2)

Balance at Charged Retirements ,

beginning to profit and Charged to other renewals and Balance at Description of period loss or income accounts-describe replacements Other-describe end of period (A) (B) (C) 1930. tt Accumulated provisions ,

for depreciation of electric property $243,789 $26,600 $290 $8,097 g $262,106 1979 Accumulated provisions for depreciation of electric property $218,849 $26,100 $581 $1,434 $307 $243,789 19]%

Accumuleted provisions for depreciation of electric property $194,774 $24,900 $803 $1,317 $311 $218,849 (A) Does not include amortization on property losses of $6,100,00 in 1980 and $2,600,000 in each of the years 1979 and 1978. (See~ note F of Notes to Financial Statements.)

(B) Salvage value of property retired ($290,000) in 1980, ($581,000) in 1979 and ($654,000) in 1978 and transfer from accuniulated provisions for depreciation on nonutility property ($149,000) in 1978.

(C) Cost of removing property retired.

NEW ENGLAND POWER COMPANY SCHEDULE IX - SHORT-TERM BORROWINGS (A)

Year Ended December 31, 1980, 1979 and 1978 (Thousands of Dollars)

Column A Column B Q1gnrLL Column 0 Column E Column F Weighted Category of Balance average Maximum amount Average daily Weighted daily aggregate at end of interest outstanding amount outstand- average interest short-term year rate at end at any month ing during the rate during the borrowings of year end year y_ ear 1980

- Commercial Paper $90,855 19.3% $90,855 $38,874 13.2%

1979 Comercial Paper $10,500 13.3% $17,000 b

$ 3.204 11.1%

7 1978 Comercial Paper $ 3,500 10.1% $60,200 $24,353 7.4%

(A) See note D of Notes to Financial Statements.

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