ML19318D163
| ML19318D163 | |
| Person / Time | |
|---|---|
| Site: | Seabrook  |
| Issue date: | 01/25/1980 |
| From: | NEW ENGLAND POWER CO. |
| To: | |
| Shared Package | |
| ML19318D157 | List: |
| References | |
| NUDOCS 8007080014 | |
| Download: ML19318D163 (20) | |
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P New England Power Company
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A Subsidiary of NEW ENGLAND ELECTRIC SYSTEM Annual Report 1979
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L NEW ENGLAND POWER COMPANY.
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- 25 RESEARCII DRIVE WFSI'llOROUGil, AIASSACllUSE'ITS ol581 3
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( As ofJanuary 1,1980) i
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. . . . I joAN T. Ilon, l'ite Guirman of tie Gmpany and guy W.-Nncnsats, Guinnan of tir Gmpany and
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. Nw England Eintric System Guirman and Proidant of Nar England Ekc-l : SAssett I(unrs Naros, l'ia Pmihnt and Anistant tric Synem Gerk of the Gmpany and l'ia Prakhnt, Surr- PAutJ. SuttxvAN, l' ice Pnsihnt ofthe Gmpany and tary and General Gunset of Nar England Ehc- Senior l'ia Praihnt of Nar England Elatric j tric System System l Jonts F. KAstow, Pmiknt of tit Gmpany and JAssrs C NesntTr, l'ia Pmihnt - Finana and
. Senior l' ice Presilent of Nne England Elatric ~ Trrasurer ofthe Gmpany and l' ice Pnsihnt -
System Finance of Nete England Ekaric Systcm l
i OFFICERS
( As of January 1,1980)
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l guy W. NianoLs, Guirman of tit Gmpany and Srster t i ivNn NaroN, l 'ia rraihnt and Aniaant Guirman and Pmid< nt ofNne England Elatric Chri of the Gmpany and l'ia Pmid<nt, Sare-Svten tary and Gneral Gurnd of Nav England Ekc-tric System JoAN T. Ilon, l' ice Guirmari of tit Gmpany arrJ EDwAnD 51. Nurss, l' ice Pmilent of the Gmpany Nne England Ekaric System , ,
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, .jotiN F. KAstow, Persident of the Gmpany and and ofan afliste l
Scnior l' ice Praihnt of Nne England Elatric YAUL] SULV^N, l'ia Pnsiknt oft /w Gmpany and
.'^ Synen . Senior l'ia l'rrsihnt of Nne England Elatric rm e
RournT O. llsattow, l'ia Pmihnt of the Gmpany jassr} c Nysanrr, gria Prokknt - Finance and andofan afliate Turasunr of the Gmpany and l'ia Prrsihnt - l Finana of Nar England Elatric System FREDERic E. GRI ENstAN, l' ice Firsk/<nt of tiv -
DONAto E. ROSE, AUistant Tnasunr of th: L.om.
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"I'"I pany and Tre.nunr of Nar England Elatric Russrtt A. IlotDEN, l'icr Firsiknt oftle Gmpany SPI'm
'j and Pasiknt and Treasurer ofan afliate Rontnr KsNa Wutt r, Gerk of the Gmpany <
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- Transfer Agnit and Dirkknl Paying Agent of PnferredStxk l
Tile Finst NarloNAL llANK OF lloSioN . . Iloston, hlassachusetts
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Registrar of PreferrrJStak STATE Srnrer IlANK AND Taust CostPANY . . Iloston, hlassachusetts
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JThis report is not to be consiilered an otter to sell or buy' ,
] Lor solicitation of an otter to sell or buy any security..,
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NEW ENGLAND POWER COMPANY
, New England Power Company, a subsidiary of New England Electric System, is a Mu .husetts
- corporation and is qualified to do business in Massachusetts, New Hampshire, Rhode Island, Connecticut,
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Maine and Vermont. The Company is subject, for certain purposes, to the jurisdiction of the regulatory commissions of these six states, the Securities and Exchange Commission, the Federal Energy Regulatory Commission and the Nuclear Regulatory Commission. The Company's business is principally that of generating, purchasing, transmitting and selling electric energy in wholesale quantities to other electric utilities, principally its athliates, Granite State Electric Company, A!2ssachusetts Electric Company and The
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Narragansett Electric Company. In 1979,919 of the Company's revenue from the sale of electricity was derived from sales for resale to alliliated companies and 99 from sales for resale to municipal and other utilities.
The Company, through its own generating units, entitlements and purchased power contracts has a total capability of 4,468,000 kilowatts. Of this total capability, approximately 9 percent is nuclear,27 percent hydro and pumped hydro,26 percent oil.6ted and 38 percent convertible between coal and oil depending
- upon the cost and availability of the fuels as well as receipt of necessary permits to bum coal. The Company has agrecd to participate, as a joint owner with ownership interests of between 10 percent and 13 percent, in nuclear generating units scheduled to be completed starting in 1983.
i New England Power Company owns 30% of the stock of Yankee Atomic Electric Company, which owns a 175,800 kilowatt (net capability) nuclear generating plant,15% of the stock of Connecticut Yankee Atomic Power Company, which owns a 580,000 kilowatt (ner capability) nuclear plant,20% of the stock of Vermont Yankee Nuc! car Power Corporation, which owns a 528,000 kilowatt (net capability) nuclear plant, and 20% of the stock of Maine Yankee Atomic Power Company, which owns a 830,000 kilowatt (net capability) nuclear plant.
The Company is a me nber of the New England Power Pool which provides for the coordination of the plannin ; and operation of the generation and transmission facilities ofits members, who currently represent
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99% of New England's generating capacity and also provides for a region-wide central dispatch ofgeneration.
REPORT OF INDEPENDENT CERTIFIED P, WLIC ACCOUNTANTS COOPERS & LYBRAND NEw ENGl.AND POWER COMPANY
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WESTDOROUGil, MASSACliUSETTS
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.We have examined the balance sheets of New England Power Company as at December 31,1979 and j 1978 and the related statements ofincomeand retained earnings and changes in 6nancial position for the years then ended. Our examinations were made in accordance with generally accepted auditing standards and,
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accordingly, included such tests of the accounting records and such other auditing procedures as we i considered ne,essary in the circumstances.
!' In our report datedjanuary 22,197',, our opinion on the 1978 financial statements was quali6cd as being subject to the effects,if any, of such refunds as might have been required had the outcome of tbree pending
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rate proceedings been known. As more fully explained in Note K, based upon a review of regulatory decisions issued during 1979, management has concluded that any ditTerences between refunds finally required in all three pending rate proceedings and its overall provision for refunds will not be material.
Accordingly, our present opinion on the 1978 financial statements as presented herein is no longer qualified.
In our opinion, the financial statements referred to above present fairly the 6nancial poition of New England Power Company at December 31,1979 and 1978 and the results ofits operations and the changes in its financial position for the years then ended,in conformity with generally accepted accounting principles applied on a consistent basis.
Boston, Massachusetts January 25,1980 COOPERS & l.YBR AND
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!- NEW ENGLAND POWER COMPANY Balance Sheets . December 31, 1979 1978 ASSETS (In Thous.mds) i Utility plant,'at original cost (Note A) . . . . S 939,448 5 925,194
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less-accumulated provisions for depreciation . . . 243,789 218.849 695,659 706,345 ,
j Construction work in progress (NoteJ) . . . . 237,406 199,916
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Net utility plant . . . 933,065 906,261
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Nuclear power companies, at equi.ty (Note C) . .38,819 38,159
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Nonutility property and other investments, at cost 1,200 1,278
- Total investments . . . , 40,019 39,437
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- Current assets:
Cash- . .. . . .. . 6,874 7,550 Accounts receivable, principally from sales of electric energy:
l Alliliated companies . 88,261 82,503 Others . . . 13,074 11,133 l Fuel, materials and supplies, at average cost (NoteJ) 53,428 48,970 Prepaid expenses and temporary deposit: . . 245 197 l- Total current assets . . . 161,882 150,353 Deferred charges and other assets . 4,797 1,703
. Unamortized property losses (Note F) 33,068 5,106
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$1,172,831 $1.102,860 CAPITALIZATION AND LIABILITIES l Capitalization:
l Common stock, par value $20 per share, authorized and outstanding 6,449,896 i shares . . $ 128,998 $ 128,998
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Premium on capital stocks . . . . . 87,207 87,207 .
Other paid in capital (Note H) . . . , . 128,000 88,000 Retained camings (Note I) . . . . 27,747 26,909 Total common equity . . 371,952 331,114 Cumulative preferred stock (Note E) . . . . 111,028 111,028 long-term debt (Note G) . . . . . 462,922 465,413 Total capitalization . . 945,902 907,555
' Current liabilities:
long term debt due within one year (Note G) . 5,000 Short term debt (Note D) . . . . 10,500 3,500 Accounts payable (including $9,782,000 and $1,077,000 to affiliates) (Note J) 64,880 50,360 Accrued liabilities:-
Taxes - . . .. . . . . 1,465 17,2M -
Interest. . . . . 5,854 5,943 Payroll and other expenses . . . . . . . 954 936
. Total current liabilities . . . . . . 83,653 82,943
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Other reserves (Note K) . . . . . . . . 46,700 37,530 l . Deferred federal income taxes (Note B) . . . . 62,472 47,227 Unamortized investment tax credits (Note B) . . . . . . 34,1N 27,635 ,
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Commitments and contingencies (Notes), K and L) . . . .
$1,172,831 $1,102,860 !
p The accompanying notes are an integral part of these financial statements.
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NEW ENGLAND POWER COMPANY Statements ofIncome and Retained Earning Year Ended December 31, 1979 1978 (in Mus.mds)
Operating resenue (Note K) 5608,214 $501,749 Operating expenses:
Fuel for gtneration 289,656 232,955 l'urchased electric energy:
Fossil and interchange 59,387 22,179 Nudcar entitlements 42,335 36,497 Other operation 44,053 40,297 hiaintenance 24,921 17,537 Depreciation and ar ortization (Notes A and F) 28,700 27,500 Taxes, other than federal inwme (Note A1) 29,651 31,422 Current feder.tl income taxes (Note II) 3,411 22,530 Ikferred fede al income taxes (Note 11) 15,245 2,118 in vestment tat tredits-net (Note II) 7,500 6,227 Toral operating expenses 544,859 439,262 O rating inconic . 63,355 65,487 Allowante for equ ty funds used during construction (Note A) 12,501 8,885 Equiry in income of nudear power companies (Note C) 3,920 3,635 Other income-net, including related taxes 773 105 Operating and other income 80,519 78,112 Interest:
Interest on long-term debt 35,746 33,440 Other (Notes D and K) .
4,123 4,680 Allowance for borrowed funds used during construction - credit (Note A) (8,821) (7,622)
Total interest . 31,048 30,498 Net income 49,501 47,614 Retained earnings at beginning of year 26,909 22,435 Redassification of amoriation reserve 1,976 76,410 72,025 Detioct:
Cash dividends dedared:
Cumulative preferred stock (Note E) 8,351 8,351 Common stock, $6.25 and $5.70 per share, respectively 40,312 36,765 Retained eatnings at end of year (Note I) , $ 27,747 $_26,909 The accompanying notes are an integral part of these financial statements.
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NiiW liNGl.AND l'OWi!R COMl'ANY St.tuments of Clunga in Fin. uni.d Position Year En.ied 1)ctember 31, 1979 19's (in Tinun,L .
Souras of Funtis Fr >m operations:
Net income $ 49,501 $ .87,614
!)cpretiation anil antottiration 28,700 27,500 Frovision for refuntis (Note K) 9,200 13,100 Deferrett feiler.nl int ome ines 15,245 2,11 H Investment en (retlits - net 7,500 6,227 l Allowante for funds uwd iluring construction _ (21.522) (16,507) 88,M21 80,352 Dividends on common stotk (40,312) (36,765) l Dividenth on picierred stock j M,451) _(g51_)
Total tunik from operations 10,161 From financing transatrions:
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Capital (ontribution from parent (ompany 40,000 30,000 tong term debt - Issues 50,000
- Retitements (7,400) (13,400)
Changes in short term tiebt 7,000 Jio,H25)
Total funds fiom finanting transactions 39/gu) 25,775 Total suurtes of funds 79,761 61pt 1 Applitation of Funds
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l Construction expenditutes, extluding allowante for funds used during (onstrustion
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65,564 61,821
$14,198
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Intreae (Decreaw) in Wo: Ling Capital and Ciner f rems Cash .
$ (676) $ 191 l Anounts receivable 7,699 565 Fuel, materials anti supplies 4,458 H,594 l Other current assets 48 (336)
Auounts payable . (Il.520) (9,477)
Aurued and other liabilities , 15,810 (881)
Other items 1,379 894
_$ 14,198 $_(413)
The anompanying notes are an integral part of these finan(ial statements.
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NEW'ENGl.AND POWER COMPANY Notes to FinancialStatements NOTE A - Significant Accounting Policies
- 1. - System of Accounts:
The accounts of the Company are maintained in accordance with the Uniform System of Accounts prescribed by regulatory bodies having jurisdictio i.
- 2. - Plant:
- The Company capitalizes, as part of construction costs, an item called allowance for funds used during construction ( AFDC), which represents the composite interest and equity costs of capital funds
- used to fmance construction. AFDC is recognized as a cost of" Utility Plant" and, accordingly, is
- capitalized in the same manner as construction labor and materials costs, with offsetting credits to -
"Other income" and " Interest" This is in accordance with an established regulatory ratemaking practice under which a utility is permitted a rerum on and the recovery of these capital costs through their ultimate inclusion in the rate base and in the provision for depreciation. The composite rates approximate the pre tax cost of funds (9.849 in 1979 and 9.249 in 1978).
Tax benefits on the allowance for borrowed funds used during construction have been normalized and charged to expense (see Note 11).
Costs of current repairs and minor replacements of plants and properties are charged to maintenance expense accounts as incurred. Plant retired or otherwise di3psed of, together with costs of removal l less salvage, is charged to accumulated provisions for depreciation.
3 Ikpreciation:
Depreciation is provided annually on a straight line basis in amounts at least sufficient to amortize the '
undepreciated cost of depreciable properties over their estimated remaining service lives. In the opinion of management, the accumulated provisions for depreciation and the provision for ,
depreciation shown in the accompanying financial statements are adequate for the purpose of
- depreciating the plants and properties over their estimated remaining service lives and the plants and properties are kept in good operating condition to render adequate and dependable service to customers.
l The provisions for depreciation as a percentage of weighted average depreciable property including
- hydro and thermal electric generating facilities and transmission facilities were 2.979 for 1979 and 2.949 for 1978.
- 4. Retirement Plans:
The funded plans in effect are noncontributory and provide retirement benefits for substantially all employees. Current service costs are funded annually; prior service costs are being funded over
- periods of up to 20 years. Total pension expenses, including amortization of prior service costs, were $1,701,000 in 1979 and 1978.The market value ofpension fund assets exceeded the actuarially computed value of vested benefits as of April 1,1979, the latest actuarial valuation date. Un funded prior service costs are estimated to be $5,000,000 at December 31,1979.
NOTE B - Federal Income Taxes
-The Company and other subsidiaries participate with New England Electric System in filing con-solidated federal income tax returns. Federal income tax retums have been examined and reported
- upon by the Intemal Revenue Service through 1976.
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NEW ENGLAND POWER COMPANY Nctes to Financial Statements - Continued
. Nors B - Federal Income Taxes (Continued)
Total federal income taxes ditTer from the amounts computed by applying the statutory tax rate to income before taxes. The reason for the differences are as follows:
1979 1,978 (in Thusank) l Computed tax at statutory rates $35,083 $37,906 l
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Reductions in tax resulting from: .
Allowance for equity funds used during construction . (5,751) (4,265)
All other differences (2,565) (2.284)
Federal income taxes (including $611,000 and $482,000 charged to other j income in 1979 and 1978, respectively) $26,767 $31,357 Effective federalincome tax rate 35. lef 39.7'1 The Company has adopted ccmprehensive interperiod tax allocation (normalization) consistent with regulatory approval. The following table details the components of deferred federal income taxes.
1979 1978 (In Tkusanh)
Allowance for borrowed funds used during construction $ 2,198* $ 3,659 Excess tax depreciation 6,350 6,454 Refund provision . . (4,232) (6,432)
Property loss (Note F) . 11,972 j
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Reversal of prior years' tax deferrals . (2,314) (2,381)
Construction costs and other . 1,271 818 l
$15,245 $ 2,118 )
- Excludes $1,859,000 transferred to Property los2.
Investment tax credits are deferred and amortized over the estimated service lives of the plant and )
equipment giving rise to the credits. Investment tax credits - net principally reflects reductions in !
current federal income taxes attributable to such investment tax credits which have been deferred.
NOTE C - Investments in Nuclear Power Companies A summary of combined results of operations, assets and liabilities of the nuclear power companies in which the Company has investment < is as follows:
1979 1978 (in Thusands)
Operating revenue . . . . $228,532 $194,074 Net income . . . $ 21,201 $ 18,263 Company's equity in net income . $ 3,920 $ 3,635 a.
Plant . . . . . $656,783 $620,639 Other assets . ... . . 63,595 44,232 Liabilities and debt ,,. . (523,661) (471,920)
Net assets . ..... . . . . . . $196,717 $192,951 Company's equity in net assets .. . . $ 38,819 3 38,159 At December 31,1979,' $ 4,636,000 of undistributed camings of the nuclear power companies were included in the Company's retained earnings.
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r= 4 NEW ENGLAND POWER COMPANY Notes to Financial Statements - Continued NOTE D - Short-Term Borrowing Arrangements The Company has av.tilable lines of credit with a number of banks totaling $88,500,000, the terms of which provide for borrowings at the prime rate at the time of borrowing. The terms of compensating balance arrangements vary among banks and generally provide that average balances be maintained which vary from 7.5% of the line of credit to 20% of the amount borrowed.
Information as to short. term borrowings is summarized as follows:
1979 1978 (In Thousands)
Commercial paper outstanding at end of year . $10,500 $ 3,500 Weighted average interest rate on borrowings outstanding at end of year 13.3% 10.1%
Maximum amount of bonowings at any month end $17,000 $60,200 Weighted daily average borrowings during year $ 3,201 $24,353 Weighted average interest rate during year . 11.1% 7.4%
NOTE E - Cumulative Preferred Stock A summary of cumulative preferred stock for 1979 and 1978 is as follows:
Current Par Shares Authorized Dividends Call Wlue and Outstanding Amount Declared Price (in Thousands) 6% $100 80,140 $ 8,014 $ 481 (a) 4.60% Series 100 80,140 8,014 368 $101.00 4.56% _ Series 100 100,000 10,000 456 101.08 4.64% Series 100 100,000 10,000 464 102.56 6.08% Series 100 100,000 10,000 608 102.84 8.68% Series 100 100,000 10,000 868 r 105.62 8.40W Series 100 150,000 15,000 1,260 108.12 7.24% Series 100 150,000 15,000 1,086 106.68 11.01% Series 25 1,000,000 25,000 2,760 29.05(b)
Total (annual dividend requirement
$8,351,000) $111,028 $8,351 (a) Noncallable.
- (b) No shares may be redeemed through certain refunding operations prior to September 1,1980.
Beginning in 1980 the Company will redeem 50,000 shares per year at $26.285 per share to satisfy a sinking fund obligation.
NOTE F- Property Losses -
In 1975 the Company cancelled plans to build a new oil. fired generating unit. CommencingJanuary 1, 1976, with regulatory accounting approval, the Company began amortization of the resulting loss of approximately $13,000,000 ($7,000,000 after tax) over a five-year period. Depreciation and amortization expense includes $2,600,000 relating to such amortization in each of the years 1976 through 1979. The Company has received approval from the Federal Energy Regulatory Commis-sion (FERC) for the recovery of these costs through rates.
On December 17,1979,' the Company announced cancellation of plans to build two nuclear units at an
_ abandoned Naval Auxiliary Landing Field in Charlestown, Rhode Island. The U.S. General Services Administration, which was responsible for disposition of the site and had tentatively agreed in 1974 to transfer the site to the Company, issued a decision in 1979 banning the use of the 9
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Notes to Financial Statements - Continued NOTE F - Property Losses (Continued)
sisc for a nuclear plant.The Company has requested approval from the FERC for the recovery of the cost of the nudear units in a request for increased rates filed in late 1979. In an order issued December 31,1979, the FERC stated that the prudence of the investment in the nudear units, together with the appropriate amortization period, would be decided during hearings with respect to such rate increase.
On Januaq 25,1980, the Company received accounting approval from the FERC to amortize the estimated loss of $31,000,000 ($19,000,000 after-tax) related to the project over a five-year period commencing with the effective date of the new rate schedules, June 1,1980. While the recovery of
-costs related to the nuclear units through rates is subject to approval by the FERC, management
- believes that these cxpenditures were prudent. hianagement further believes that the FERC will continue to permit ti,e recovery of prudently incurred costs through rates.
NOTE G - tong terrn Debt -
A summary of long term debt is as follows: !
Amount December 31, j 1979 1978 '
(in lkuunds)
First alortgage llonds !
Series C, 2 % 9, dueJuly 1,1979 5 5,000 Series D,2hW, due February 1,1981 S 12,000 12,000 l
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Series E,3 %W, ducJune 1,1932 5,000 5,000 Series F,3 % W, ducJanuary 1,1985 25,000 25,000 Series G,4 %W, due February _1,1987 10,000 10,000 Series iI,44, ducJune 1,1988 10,000 10,000 Series I,4%W, due November 1,1991 , . 20,000 20,000 j SeriesJ,4 h7, due December 1,1992 12,000 12,000 Series K,4 MW, due November 1,1993 10,000 10,000 Series I.,6hW, due December 1,1996 , 10,000 10,000 Series 51,6hW, due October 1,1997 ' 15,000 15,000 Series N,7 %W, dueJuly 1,1998 20,000 20,0tx)
Series O,7 %%, due December 1,1998 20,000 20,000 Series P,8 %W, due September 1,1999 15,000 15,000 j
' Series R,7%W, dueJuly 1,2002 ,
. . 25,000 25,000 '
Series S,8%4, due August 1,2003 40,000 40,000 Series T,8%W, due December 1,2003 . 40,000 40,000 Series U,10_hW, dur hlarch 1,2005 . 72,800 75,200 General and Refunding Alortgage llonds Series A,8%W, dueJanuary 1,2007 . 50,000 50,000 Series il,9MW, duejuly 1,2008 , . , 50,000 50,000 461,800 469,200 Unamortized premiums and discount , . 1,122 1,213 Total long" term debt (annual interest requiremmt $35,568,000 and $35,967,000) - , . . . . 462,922 470,413 less amount due within one year . . 5,000 s- ~ long term debt .. . . $462,922 $465,413 -
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NEW ENGLAND POWER COMPANY Notes to Financial Statements -- Continued
.NUTE G - long term Debt (Continued)'
Substantially all of the properties and franchises of the Company are sabject to the lien of the Indentures under which First hfortgage Bonds and General and Refunding 51ortgage Bonds have been issued.
. Pursuant to the provisions of the Indentures, relating to the First Afortgage Bonds and General and
' Refunding Af ortgage Bonds, the Company may elect to satisfy its annual sinking fund obligations ofS4,690,000 accruing onJuly 1,1980, $4,570,000 in 1981 and S4,520,000 in each of the years 1982, 11983 and 1984 in cash or by evidencing to the Trustee net additional property in amounts not less
' than $7,817,000 in 1980, $7,617,000 in 1981 and $7,533,000 in each of the years 1982,1983 and 1984.
Nots 11 - Other Paid In Capital In 1979 and 1978 New England Electric System, the parent company, made capital contributions of
$40,000,000.and $30,000,000, respectively, to the Company which were credited to other paid-in
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NOTE I - Restrictions on Retained Earnings Available for Dividends on Common Stock L Pursuant to the provisions of the Articles of Organization relating to the Dividend Series P eferred Stock and the Cemulative Preferred Stock, certain restrictions on payment of dividends on the
. common stock would come into.effect if the" junior stock equity" were, or by reason of pay ment of such dividends became,less than 25W of" total capitalization."liowever, the junior stock equity at
- December 31,1979 was 399 of total capitalization and, accordingly, none of the Company's retained earnings at December 31,1979 was restricted as to dividends on common stock under the foregoing provisions of the Articles of Organization restrictions.
Pursuant to restrictions conta:ned in the Supplemental Indentures relating to First Af ortgage Bonds and the Indentures relating to General and Refunding h!ortgage Bonds, none of the Company's retained camings at December 31,1979 was restricted as to dividends on common stock.
NOTE J - Commitments and Contingencies The Company's construction expenElitures are estimated to be $176,000,000 in 1980, excluding AFDC.
At December 31, 1979 substantial commitments had been made related to this construction program.
Under the Company's current arrangements far fuel supply, certain ofits fuel contrasts are assigned to a
.nonaffiliate which purchases fuel under these contracts and in the open market, holds the fuel in inventory, as owner, up to a maximu m amount of 350,000,000 and sells the fuel to the Company at the time of bum at prices reflecting its cost of the fuel. In addition, the Company pays .nonthly darges to cover the nonatliliate's services. The agreement is terminable on three months notice.
Included in fuel, materials and supplies and in accounts p2ytble is $21,184,000 representing fuel inventory held for the Company under the agreement.
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' NEW' ENGLAND POWER COMPANY Notes to Financial Statements - Continued
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NorE J..-- Commitments and Contingencies (Continued)
Agreements have been entered into with other New England utilities, as joint owners, for the con.
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' struction ofseveral nudcargenerating units. Commitments in these units as of December 31,1979 are as follows:
Lead Owners' Capacity Estimated Estimated Megawatts Total Company - Additional Date of Company Company Ex pendi. Amounts Unit L.mation . Operation Total Portion Cost tures(a( Committed (h)
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Seabrook No.1 - N.II. 1983 1,150 115 1 M88 $% US Seabrook No. 2 N.H. 1985 1,150 115>
Pilgrim No. 2 Mass. 1985 1,150 128 217 34 21 hlillstone No. 3 Conn. 1986 1,150 140 311 87 25
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- h!ontague No. I Mass. (c) 1,150 149 6
Montague No. 2 . Mass. (c) 1,150 149. _ ;
$223 $81 (a) Induded in construction work in progress (b) Commitments to manufacturers, contractors and others (c) Date of operation and cost indefmite
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The Company,in common with other utilities,is subject to current and future regulations relating to l safety and environmer.tal protection. This regulatory process may result in the modification of
[_ operating or plam.m iacilities, and/or relocation of [lanned facilities to ditTerent sites, and/or delay in construction of facilitics, and/or require cancellation of certain facilities, any of which -
could result in increased costs to the utility and its customers. Nevertheless, in order to provide an adequate supply of energy for the future, and because of the extended time required for planning i and construction of nc.y facilities, utilities must make substantial investments in new facilities prior to the issuance of all the required licenses and permits.
l NOTE K - Pending, Rate Proceedings The Company, whose rates are regulated by the FERC, was permitted in 1976,1977 and 1978 to revise
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and bill rates whicb at: subject to refund. Revenue recorded sinceJuly 1,1979 is no longer subject
- i. to refund as a result of a settlement reached on a 1979 rate fding which has been approved by the l: - FERC. Ilowever, interest on accumulated refund provisionsis continuing to be accrued. Revenue -
in the amounts shown below, collected between March 1,1976 and June 30,1979 is subject to refund pending fmal determination. lleginning in December 1978, provisions' for possible refunds have been estimated and ircorded, reducing net income. The amount of such provisions was based
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NEW ENGLAND POWER COMPANY Notes to Financial Statements - Continued NOTE K -- Pending Rate Proceedings (Continued)
Judges issued in 1977 and 1978. Financial statements for 1977 and 1976 were' restated to reflect the effect of such provisions.
1979 1978 1977 1976 (in Thousank)
Rnauesubjat to nfund liilled and collected ' . . $26,500 $47,200 $39,600 $32,600 Effect on net income- . $13,300 $23,600 $ 19,800 $16,300 Pmtisionfor estimated nfunds Provision (including interest) . $ 9,200 $13,400 $13,000 $11,100 Reduction in federalincome taxes 4,232 6,432 6,240 5,328 Reduction in net income . . . $ 4,968 $ 6,968 $ 6,76_0 $ 5,772
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inJuly 1979, the FERC issued an Order with respect to rhe 1976 rate proceeding and in Denmber 1979 a FERC Administrative LawJudgeissued an initial decision in the 1978 rate proceeding. Af anage-ment has reviewed these 1979 decisions and has concluded that no revisions need be made to the existing reserve for refunds.
While the ultimate outcome of any one of these rate oroceedings may result in 6nal refunds higher or lower than the estimated provisions for that c tse, management believes that any differences between refunds 6nally required in all three case. and the overall provision for refunds will not be material.
NOTE L - litigation The Company is one of two defendantsin a federal anti-trust suit 61ed in 1974 by theTown of Norwood, hiassachusetts, seeking treble damages in the amount of $45,000,000 and attomeys fees. The defendants have 61ed answers to the comp,laint denying any violations of the anti-trust laws and raising affirmative defenses. The Company has also 61cd a motion for partial summary judgment.
The parties are currently engaged in pre-trial discovery and it is not presently anticipated that the case will be scheduled for trial until 1982 or later.
The Company is also the defendant in a t,uit brought in October 1975 by the Ghanahupply Commission alleging conversion of fuel oil originally belonging to the plaintiff; notwithstanding that the Company paid the contract price of said oil to its immediate supplier in thc. chain of supply. The Company has 61ed an answer denying liability. The parties are still engaged ~.n pre-trial discovery, and a trial date has been set for spring,1980.
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NEW ENGLAND POWER COMPANY Notes to Financial Statements - Continued NurE M - Supplementary Information The amounts of maintenance, repairs, depreciation and taxes charged to accounts other than operating i
. expenses were not material. Advertising expenses and rents were not material and there were no royalties paid. Rescat c h and development msts c ha rged to ex pense were $2,883,000 and $2,7%,000 in 1979 and 1978, respectively. Taxes, other than federal income taxes charged to operating '
l expenses are set forth by classes as follows:
1979 1978 (in Thwan.h)
Municipal property taxes . $26,038 $26,082 State franchise taxes (based on income) . 1,901 4,050 t i ederal and state payroll and other taxes 1,712 1,290
$29,651 $31,422
! New England Power Service Company, an atTiliated service company operating pursuant to the provisions of Section 13 of the Public Utility llolding Company Act of 1935, furnished services to the Company at the cost of such services. The cost of such services billed to the Company for the
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3 ears 1979 and 1978 amounted to $22,878,000 and $22,346,000, respectively, including
- $13,02),000 and $11,960,000 for direct construction costs.
, NOTE N - Selected Quarterly Finantial Information (Unaudited)
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j First Second Third Fourth
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Quarter Quarter Quarter Quarter (In Tkmands) 1979 4
Operating revenue , , $139,807 $132,311 $165,895 $170,201 Operating income . . 17,029 12,085 16,317 17,924
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Net income . . 13,765 8,821 13,562 13,350 1978 Operating revenue . . , $129,295 $110,880 $132,756 $131,818 Operating income .. 18,m4 13,984 16,371- 17,128 Net income . .., 13,035 9,592 12,72) 12,262
- Per share data is not relevant because the Company's common stock is wholly owned by New England Electric System.
I NorE O Replacement Cost Data (Unaudited)
~ This data is presented ir mmpliance with a Securities and Exchange Commission requirement that the Company provide information about the cost of replacing productive assets and related accumu-lated depreciation and depreciation expense based upon such cost. Marigement cautions against using this data for cither restating eamings or estiraating t he current valuc of productive capacity at
- amounts significantly different from original cost.The methods and subjective judgments required in estimating replacement costs make the nature of the information imprecise. In addition, the Company is subject to " original cost" regulation in the determination of a fair and reasonable rate of return on investment and the recovery of such investment in the price of electric energy. g Management therefore believes that any higher rep!rement costs that may be incurred in the
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future will be recovered through the normal rate-making process by means of higher prices..
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NEW ENGIAND POWER COMP \NY Notes to Financid Statemtnts - Continud Non 0 - Repixement Cost Data (Unaudited) (Continued)
His rep!xement cost &>cs not purport to reproent either current value, or amounts which could be realized if the assets were sold. Rather, replxement cost generally represents the otimated amount at tmlay's prices whkh would be required to replace the Company's productive capability, assuming repixement with the most economical new assets substantially similar in type and function to the present assets.
Data presented on an origmal cost basis elsewhere in these financial statements is shown below as computed on a replxement cost basis; 1979 1978 (In oldhurs)
, At year end:
Utility plant 52,800 52,500 Accumulated depreciation 900 800 Net utility plant . . $1,900 $1,7a)
Depreciation expense for the year
- 62 5 56 Repluement cost of electric generating plant was calculued by pricing existing capability at today's estimated construction cost per kilownt fer facilities using the same fuel, assuming consoliduion 1 of uniis where appropriate to a hieve greater economies. For certain small hydroelectric generating units, whkh represent less than 29 ofgenerating capability and whkh wouhl be uneconomical to replxe today, costs per kilowatt of altemative forms of generation wen used.
Repluement costs of transmission, distribution and general plant are current engineering estimates of costs to replace existing facilities.
land and land rights, intangible assets, property held for future usc and (onstruc tion w ork in progress,in the amount of $292,ooo,om)in 1979 and $253,000,000 in 1978, are included at original cost.
The straight l{ne age life method was used to compute accumulated repixement cost depreciation, except for transmission and general plant where the ratio of book reserve to original cost was applied to the year <nd replxement (ost of such utility plant.
Repluement cost depreciation expense for electric generating plant was calculated by dividing average
- replacement cost of each generating unit by its estimated useful life.
For all other plant, original cost depreciation rates were applied to the corresponding average replxe-ment cost of each class of utility plant.
Non P - Supplementary Information to Disclose the Effects of Changing Prices (Unaudited)
The Company,in accordance with the Statement of Financial Accounting Standards No. 33 (Statement No. 33), is providing the following information about the effects of changing prices. The presentation of the supplementary financial data is experimenta_I in nature, and does not intend or purport to adjust eamings or other financial information reported on an historical cost basis. The
' information is presented in both conventional historical dollars and constant dollars. The constant dollar a' mounts represent historical dollars whkh have been stated in terms of dollars of equal purchasing power as measured by the Consumer Price Index (CPI) for all urban consumers. Such constant dollar amounts are intended to reflect the estimated effects that general inflation had on the Company.
The current year's provision for depreciation and amortization in the income statement shown below has been adjusted from $29 million in historical dollars to $54 million in constant dollars. This amount
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NEW ' ENGLAND POWER COMPANY
~ Notes to Financial Statements - Continued Nort P - Supplementary Information to Disclose the EfTects of Changing Prices (Unaudited) (Continued) was determined by applying the Company's depreciation rates to the constant dollar value of depreciable utility plant. Such value was arrived at by adjusting the historical dollar amounts of plant to constant dollars using the cpl. In accordance with Statement No. 33 adjustments to income taxes or other items were not considered, and income was accordingly reduced by the full
$25 million increase in depreciation and amortization.
In addition, during 1979 there was an estimated increase of $91 million in the cost of plant stated in terms of co istant dollars over the cost of plant stated in historical dollars. However, the $91 {
million is reportal as a reduction of constant dollar value to historical cost because only historical l
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dollars are presently recoverable under the ratemaking process.
The Company's holdings of monetary assets such as cash and receivables lose purchasing power during periods of inflation because these assets will purchase less at a future date. Alternatively, the Company's holdings of mor etary liabilities suth as debt and accounts payable gain purchasing power during periods of inflation because they are paid in the future with dollars having less l
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purchasing power. Since the Company has an excess of monetary liabilities over moneraty assets there was a net gain, estimated at $63 million, from the declinein purchasing powerin 1979 of net
.- amounts owed. Under the raremaking process, this $63 million gain will not be realized.
To reflect the estimated etrect of rate regulation, the estimated reduction of constant dollar value of utility plant to historical cost of $91 million is reported as an offset to the estimated gain of $63 million from the decline in purchasing power of net amounts owed.
Statement ofincome Adjustedfor Changing Prices For the Year Ended December 31,1979 l
- (in ofillions) 1 . Historical Constant Dollar Cost Average 1979 As Reported Dollars Operating revenue . . . . $608 $608
- . Fuel for generation . . . . . . 289 289 Purchased electric energy . . . . 101 101 Other operation and maintenance . . . 69 69 Depreciation . . . . 29 54 Taxes . . . . . . . . 56 56 ;
Interest expense ..... . . 31 31
- Other income . . . . . (17) (17) 558 583 Income (exduding reduction to historical cost) . $ 50 $ 25 Reduction of 1979 increase in const
- nt dollar value of utility plant to historical cost . . . . . $(91)
Gain' from decline in purchasing power. in 1979 of net amounts owed . . . . . . . 63 Net . . . . . . . . . . . . . . . . .
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NEW ENGLAND POWER COMI'ANY Notes to Finandal Statanents - Continued Ntnt P - Supplementary Information to Disdow the I!tfc(ts of Changing Prices (Unaudited) (Continued)
As also rc<iuired by Statement No. 33, the following table shows selected financial data adjusted for the effects of changing prices. Certain of this data was derived from the above Statement of Inwme Adjusted for Changing Prices. .
Five Year Comparison ofSelected Supplementary Financial Data Adjustedfor Effects of Changing Prifes fin Aldlions of Atcrage 1979 Dollars)
Year Ended De(ember 31, 1979 1978 1977 1976 1975
' Operating revenue $608 $560 $620 $593 $585 Ilistorical Cost information AdjusteJfur Generalinflation income (excluding reduction to historical cost) $ 25 Net assets at year-end at net recoverable u tt $156 GeneralInformation G2in from dedine in purt h2 sing power in 1979 of net amounts owed $ 63 Average consumer price index 217.0 195A 181.5 170.5 161.2
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NEW ENGIAND POWER COi,IPANY Operating Statistics Year Ended Detember 31, 1979 1978 1977 1976 1975 SOURCl3 OF ENIRGY (TitOUSANDS OF KWil):
- Net Generation - Thermal , , 11,631,788 12,765,597 11,152,702 11,065,277 11,182,411 Net Generation - G nventional II)dro 1,422,315 1,316,073 1,596,709 1,789,011 1,501,676 Generation - Pumptd Storage 331,575 351,718 227,003 259,107 361,312 Nuclear Entitlements 2,109,483 2,603,776 2,458,568 2,631,962 2,422,128 Purchased Energy from Nonamliates 2,011,926 903,81c 1,c29,260 1,652,791 1,219,177 Energy for Pumping , , (476,053) (506,933) (322,311) (367,195) (509,592)
Total Generated and Purchased , 17,361,034 17,467,041 16,941,931 17,030,953 16,210,112 Insses, Company Use, etc. 707,996 797,9 % 709,328 6M,639 691,812 Total Energy Sohl . .16,653,038 16/49,015 16,232,603 16.366,314 15 518,270 SAus or ENIRGY (TitorsANos Or Kwii):
Resale:
AGliated Companies .15,801,903 '5,479,356 15,076,143 14,914,016 11,157,675 Irss - Generation by A$liated Company ( A) (582,993) (552,800) (558,002) (500,327) (782,288)
Net Sales to Alliliated Companies . 15,218,910 14,926,556 14,518,141 14,143,689 13,375,387 Other Utilities 142,918 279,016 279,834 356,701 719,310 Municipals 1,254,583 1,426,513 1,375,867 1,479,582 1,351,355 Total Sales for Resale ,16,616,441 16,632,085 16,173,842 16,279,972 15,446,052 Ultimate Customers 36,597 36,960 58,761 86,312 72,218 Total Energy Sold .16,653,038 16,669,045 16,232,603 16,366,314 15,518,270 OrlRATING REVLNUE (IN TliousANos):
Revenue from electric sales Resale:
AMliated Companies $599,325 $ 198,859 $502,584 $ 11 :,730 $399,999 less - G and T credits ( A) (45.43_1) (40,601) (40,416) (37,028) (41,802)
Net sales to Attiliated Companies $53,894 458,258 462,168 407,702 358,197 Other Utilities 5,107 7,256 13,226 18,895 30,709 l Municipals , 44,918 41,471 41,081 40,579 37,794 Total Revenue from Sales for Resale 603,919 505,985 519,475 467,176 426,700 l
Ultimate Customets . , 1,466 1,267 2,215 2,741 1,985 l Refund provision , , , (5,500) (10,900) (11,50- ) (10,700) l Total Revenue from Electric Sales 599,915 497,352 510,190 /59,220 428,685
- Other Operating Revenue, principally rentals 8,299 7,397 8,411 6,411 6,073 Total Operating Rcrenue $608,214 $501,749 $518,631 $ 165,631 $4 34,758 MAXIMUM DEM ANO - Kw - ONE HOUR PEAK , 3,159,000 3,078,700 3,171,8(X5 3,154,900 2,979,800 (A) Thegeneration and transmission facilities of an a$liate are operated as an integrated part of the Company's power supply and the 26]iate receives credits (G and T credits) against its power bills for all cests of facilities so integrated.
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NEW ENGIAND POWER COMPANY Summary ofOperations Year Ended December 31,_
1979 197H 1977 1976 1975 (in Thwunds)
Operating revenue ( A) $608,214 $501,749 $$ 18,631 $ 165,631 $434,758 Operating expenses, exduding federal income taxes 518,703 40s,387 427,900 369,516 356,456 lederal income taxes 26,156 30,875 27,698 31,417 21,564 Operating income , 63,355 65,187 63,033 64,668 56,738 Other income , 17,191 12,625 9,4h9 6,926 6,142 Operating and other inmme 80,519 78,112 72,522 71,591 62,880 Interest (harges 31,018 30,498 29,737 27,379 29,743 Net inwme , $ 49,501 _$ 47,614 $ 12,785_ $ 44,215 _$. 33,137 Preferred dividends $ 8,351 $ 8,351 $ 8,351 $ 8,351 $ 6,412 Common dividends S 40,312 $ 36,765 $ 36,120 $ 37,087 $ 25,568 (A) See Note K of Notes to Finantial Statements.
Per share data is not relevant because the Company's common stock is wholly owned by New England Electric System.
Afanagement's Discussion and Analysis of the Summary of Operations Operating revenue of$608 million, derived principally from the sale of electric energy, increased by $103 million in 1979 after a det rease of $14 million in 19'8. The changes in operating revenue were principally due to fluctuations in fuel (osts, w hich are rewvered through the Company's fuel adjustment dause and rate increases.
The impact of these factors is summariicd in the following table:
Inarase (lharan)in Oju rating Ratnue 1979 1978 (In blillions)
Rate increases , $ 10 $ 8 Fuel recovery , 96 (18)
. Other .
(3) (4)
$103 $(14)
Total operating expenses increased by $105 million in 1979 following a decrease of $16 million in 1978 as shown in the following table:
Inarase(Darrase)in Ojeraling lbyenies 1979 1978 (in 31illium)
Fuel for generation and purchased electric energy $100 $(22)
Other o[ieration and maintenance . 11 2 Depreciation and amortization 1 1 Taxes, other than federalincome .
(2) 0 Federal income taxes .
(5) 3
$105 $(16)
Fuel for generation and purchased electric energy increased by 344 in 1979 after a 7% decrease in such costs in 1978 primarily due to changing fuel prices. Higher fuel costs in 1979 were largely the sult of substantial increases in the price of fuel used for generation and fuel included in purchased power.The lower fuel ssrs in 1978 were largely the result of being allowed to burn less expensive higher sulphur oil and the availability of a greater share of"old oil entitlements" for imported residual fuel oil purchased during that year.
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Other operation and maintenance expenses increakd $11 million or 19W in 1979, reflecting a $6 million increase in the cos: of maintenance of generating facilities including costs associated with preparing for and burning coal. Other factors contributing to the 1979 increase were higher transmission rents and continued inflationary pressures on all costs.
Similar expenses lud increased only 3W in 1978, reflecting improvements in cost control and productivity.
The fluctuations in income taxes, down 159 in 1979 and up IIW in 1978, are primarily due to changes in taxable income and a reduction in the federal income tax rate in 1979. Atore detailed information concerning income taxes can be found in Note li of Notes to Financial Statements.
The allowance for funds used during construction ( AFDC) increased by $5 million in 1979 and $6 million in 1978.
Thew increases were due to increased construction work in progress and higher AFDC rates. See Note A of Notes to
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Financial Statements.
l The dividends paid per share on the 6W Cumulative Preferred Stock of the Company amounted to $1.50 per quarter or $6.00 per year for the years 1979 and 1978. The bid price of the 64 Cumulative Preferred Stock at year end 1979 was
$17.00 and at year end 1978 was $57.00. The Common Stock of the Company is wholly owned by its parent, New England Electric System, and therefore is not publicly traded. The 64 Cumulative Preferred Stock, which other than the Common Stock is the only class of stock with general voting rights, has a relatively small number of shareholders and is infrequently traded in the over-the-counter market.
A copy of New England Power Company's Annual Report on SEC Form to-K, for the year ended December 31,1979 will be availabic on or about April 1,1980, witho 4r charge, upon written request toJames C. Nesbitt, Vice President-Finance, New England Power Compar-y, 25 Research Drive, Westborough, -
51assachusetts 01581.
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