ML19327B008

New England Electric Sys 1988 Annual Rept.

ML19327B008
Person / Time
Site:	Seabrook
Issue date:	12/31/1988
From:	Bok J NEW ENGLAND ELECTRIC SYSTEM
To:
Shared Package
ML19327A998	List: ML19327A997 ML19327A999 ML19327B001 ML19327B002 ML19327B004 ML19327B006 ML19327B008 ML19327B009 ML19327B010 ML19327B019
References
NUDOCS 8910240185
Download: ML19327B008 (52)

Text

8 Y

g 9

.~

g *1 ., t

' =v

• w a ,

, . . , . k *

.E/'

,' A L ..

f ^

,y

j. , . , .

, sL, . , . m. . .

.' ** "i '

h *- ,

,' 4

. g . e.

C 's '% fitQ. . p $,, ' a [

r * ,1 *

e. c. , . .

t; -(i . .- , ,,,, .,

._, O _.

• ' eti ) -

n'. ' , . , * #. {j f

• , .- ., . +

4

g. 1* ,

.(

• D.

. e i d ,

4

., g, g.* [

• [

, , . .+ ,

. . , ~ ~, , ~Q ,< .

I * "

y y- .,e en [ A

' { s; 6

4 , 7. ,,w

,5 1, '.' , ,

. , a.' .,N

., ,i t' ' , .-3,

'e

. .'e. * ,.

e ,,+ 4 ,.-

p s. . A

<.4

( "

,pM.

1. . i

, , , 4 ,  % .4 .N # **

~ ~ ~

i d' l <

., r l.

.. r,, .l.).,

. [,

j b'%, ,

+. ss n

' a m .

.- , .3

,,a

. y. .. -

4 e A, I

.g .,4* i '..e = -

j4. e> - "' ,

(

i ,

. .,, ,g.

( ' r. N, ,.,

4 ,e ',, *

• j * *:

J g , -'

(,*

's h p, -- .

.A '% w ,.,.,, 7

/' '- .,

..,'..,~c.

-' k h , . , +. . :, ~. . , . *

... <s w ..

,a

, **

• j. 4 **,,e<

f. # 8

', 4 * : ' ,,

i, ,

is, ,

" 4 ,.. . . . .

,

• f' g % ,  %

g r s, g i . - p ,' p * =,

. Sl' *% , ,e ., ;- g t

f;*" # '

,. , s.,

. e ,

< y4 4, ,,. q- -

m*' p . r f-e '- ,, s*' . .

• .a 4 4'

y ,. g .

g 4 4- g

.. /,,e,o* sg ,p . :s. ..--

~

.c .

j.

, e' p 34 Y t ,

n r 4, A,nn. ' sw.

e k

- r,

.. f "g g# -.;

1-'

y

$ ~f ei.

, 4

.E . $E "' >:# '

v c[ . ,

ys..

t p,A .

e

- a - j[ + - '.,(*. d:A< . % * ~- -

' ' pg ,s *p . .,

- . *'n on , , , ? ) "

.(.,?s . ' [ ,,- -

} y *f + '3 u ,r -

- ~

, ,; ,, ,/ ,

1. # g., *3

}N? x

~ '

a tggm p, .. .-  :

4 s -

f

.. s

.,f , ~ g.] , s 3' t s .

e, -

- ,  :* e. b ,

c. e

's.

r ., g#

. (M "

.. [ ,,4 b, ..

j

~

t lh .

y y .< .. . .

. a .. ,.

e n .  : a

, ~p" -.. '_- . ,g

'g ] + ,

. . ,p -

u Q l +

.w 'j i

+

u,,

• +

y *' A.., P.e'. g. dt l

,, 1, so .. ..

D - 5 b s' '

• 't .

~ .

w a ..g.,7

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

,: SW .g.,

{  :

i . ..h . , ,

..g< .,,.

• w k '. .[ j l

? # .

i l

3 .- .

t ,

1

. 4 -Minge: , y  :

l g

, -e '

( , ,. l

g.

1 .

.-- s,. -s

(  :-

). J * .

x .' 'WT .

rx, -

)

e  ;

,. . p. - ,

..y , .

.g r, .

p

, f y .

s ,

l l T .

l l-

+ )

}<

].. ( l w

l ,- . ., w ,

Q

_ 4 j

, ]j. ,.

]

nay 't : ; . . ,

r a , .

e

$ff s

.- .i - n y _

N ., , ., ' .1 ,

.s ,

-- j.....

, g.- ; tt o x . .

Fmmarek . ,

i. . .

f ,

-,, 7.7. ,

8 i'

.a 4 r,-

g .. - . ,.

l

{, ,

i ,,

I 3 Sennesisen Asass:

1 'g-E sandus M On the Cover: E PengedSissessPlant System line crews play an essential rele in maintein D @ Plant ing high quality service to E WMMM our customers in nearly 0NedserPlant,RurtieltaWisuseet l 200 hew England communities includmg

.. mp j picturesque E premont. G DisedPlast l Massachusetts. g gg

• Carpersesbeendquarters

MW -I t .

19M 1987' 1986' I

,

• Emminp00se)peramershare 8 (.94) $ 3.09 $ 3.25  ;

l Earnings per eserage share excluding s roer settlement write-down(Note C) $ 2.20 <

h l

, Dividends declaredper share 8 2.04 5 2.01 5 1.94 Annualdividend rete-year end 5 2.04 $ 2.04 s 2.(c

! Book value per sharc-Sear end 818.33 $21.25 $20.02

, 1 L Market price per share-year end $24 $22% $28 )

[itestated(N ite E) ]

l New England Electric System (NEES) is a generating stations: an oil and gas exploration and j r

public utility holding company headquartered in

%iratborough, Massachusetts. Subsidiaries include fuels company. Nnt England Energy incorporated:

three transmission service companies: New England eW {

1

' three retail operating eompanies-Massachusetts Electric'Iransmission Corporation, New England g

• M k .

Elcarie Company, which senes 893,000 customers Hydtdllansmission Corporation, and New England g,  ;

6146 Massachusetts communities:The Narragansett Electric Company, which serves 308,000 customers liydrdilansmission Electric Company, Inc.: a u holesale electric generation company, Narragansett m ,.  !'

bm in 27 Rhade Island communities; and Granite State Energy Resources Company; a conservation and w w ,

Electric Companv. which serves 33,000 customers in energy management services company, NEES

4  ;

21 New Hampshire communi ties. Other subsidiaries Energv, Ine.: and a service company, New England g  ;

include a wholesale generating company, Nov Ibuct Service Company. gg gg England ibuer Company, which operates 21 w i j

Statements M NesseesFImmesial  ;

Stutmasses N i nipetsi lassessuem 45 i i lispatat -

M4 i

! WM [

L 4ssessannes 45 l

[ t h

laisnnsties 48 i Systan tireetas, Offisers,and Subslearles 40 i Shersleider l won.miss insids -

1 l

l sover I

i

SBtr M in the second quarter of 1988, our System' the 1988 cost per kilowetthour ucll below the j

+ wholesale subsidiary settled ihr rate proceed- 1981 lesel. For the thirddrar in a row, we were the !

s ings that had been pending before the Federal second imest cost prmider among makr utihties Energy Regulatory Commission. This settlement in New England and continue to have the kmeet l resohrd all issues associated with our imest- rates for customers among the major utilities in l ments through the end of 1987 in the Seabrook 1 each of the states we sent, in constant dollar I nuclear unit. It also alkm s us to reemer from terms, our customers are paying 33 percent less l customers costs resulting from oil and gas in 1988 thanin 1981.

gg exploration and deselopment activities under- q Chairman, Pmident, taken from 1974 thiough 1983, and settled all Annual growth in kiloutthour sales to ultimate l and Chief Esecutive other pending issues under prior rates and rates customers increased ly 5.9 percent in 1988. With l

"" in effect at the time of the settlement, growth outstripping new supplies throughout the I I

region, New England utilities had to ask custom- ]

As a result of this rate settlement, ;he System ers to reduce their usage during periods of peak  ;

recorded an after-tax write down of $179 million demand in July and August 1988. \% anticipate a j in the second quarter of 1988. %is reduced 1988 tight supply situation in the region for the next few l earnings by $3.14 per share. Our 1988 earnings, > cars and possibly longer, depending upon the j before the write-down, utre $2.20 per average continued strength of the New England economy :

share, compared with $3,09 per aserage share for and the timely availability of needed new supply-1987. After the write-down, the System recorded side and demand-side resources.  :

a loss of 94 cents per average share for 1988.

For further discussion of carnings, please see To meet the growing demands of our customers, l we are vigorously pursuing our NEESplAN il i Operating Results on page 19.

programs in the areas of conserva4s and load We believe this settlement is in the best interest of management, alternate energy, existmg generat- i both our imestors and our customers. It elimina- ing facilities, and new sources of generation. l ted the major uncertainties the System has faced  ;

Seabrook 1, the 1,150-megantt nuclear unit  ;

during the last several years, without affecting our financial integrity or dividend payments. We now located in New Hampshire, is now in the final [

^

cac. ancentrate on supplying New England's licensing stages. We have a 10 percent mvnership rapidly growing electricity needs and capitalizing interest in the unit. Pending issues include the j on the opportunities presented in an increasingly effectheness of emergency response plans, the j comnetitive industry, safety of Seabrook 1, and the financial qualifica-tions of certain other mvners. We believe that lew costs and good service to our customers are prompt operatica of Seabrook 1 is in the best i essential if we are to earn good returns for our interest of our shareholders. customers, and the region. However, the eventual operation of the i shareholders. In 1988, the average cost per kilowatthour to ultimate customers continued to unit remains uncertain. ,

decline, in current dollar terms, our customers have enjoyed stable rates for several y ears, w ith 2

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

t Construction of a.iother major supply project, fine chief executhe and our industry lost a highly Phase 2 of the intemational transmission inter- respectedleader.

L

, connection between New England and the Hydro-Quebec system in Canada, is well under. The System ik>ard of Directors elected me to usy and on schedule. When complete, the region serve in the additional positions of president and will be purchasing 7 to 11 billion kikmatthours of chief executive officer until a successor was electricity per year mer the interconnection, rep- named. Ir. December, the di.ectors elected John resenting up to 10 percent of all New England's W. Rowe to be our new president and chief execu-electricity needs.12rogressin 1988 included com- the officer. Mr. Rcme is one of the brightest pletion of the project's major licensing phase with minds in our industry, an excellent administrator, the rewipt of the Presidential IVrmit to import and one of our region's finest energy spokesmen.

energy fromliydroQuebec. lie most recently served as president and chief ev ceutive officer of Central Maine l\mer Company in Nmember 1988, Massachusetts voters and willjoin the System on February 13,1989.

rejected an imustne petituin that, had it been I willcontinue to sene as chairman, apprmed, could have resulted in a shutdown of the two nuclear facilities in the state. We are The report that !olknts discusses the partnerships pleased with the voters' decision given the critical we share with our customers, with the communi-need of all existing supply sources, including ties we serw, and with environmental organiza-nuclear pcmer, in meeting New England's growing tions, Mutually beneficial relationships with our demand for energy, partners are the key to our future success, in February 1988, we began preliminary discus- I am proud of the loyal service our 5,500 empky sions with Public Service Company of New ecs haw provided throughout the yeai. With their llampshire (PSNil) about acquiring that compa- continued strong contributions andJohn Roue ny's non-Seabrook assets. Since then, others have as our new president, I am confident that we will announced their interest in acquiring those assets carn a good return for you in the years ahead and and x utility has submitted a bid. In addition, continue to supply good electric service to our PS JH management announced a plan to rcor- customers.

ganize the bankrupt company. At the appropriate time, we propose to submit a bid to acquire the k 7, 1 (

operating assets of PSNil, exclusive of the d Seabrook plant. Joan T.Bok Chairman, President, and The past year was not only one of progress, but Chief Executive Officer

- one of personal loss as well. We were all deeply February 10,1989 saddened by the death in July of Samuel liuntington, our president, chief executive officer, and System director. Our System lost a verv 3

1

. . .... _. -_ . = _ _ - .

I t9*I

.i Sam Huntington, System president, chief execu- 'I had the pleasure of know ing Sam as a Imqer, l l-

• I , tive officer, and director, died onJuly 26,1988, as a comorker, and as a friendT saidJoan Bok, f

1 l' System chairman. *lt was a privilege to work I

,' Considered a leader in the utility industry by peo- with him. j ple in government and industry, he had sened as i the System's chief executive officer from 1984

• Sam uns a calm and thoughtful voice in an  ;

to 1988. energy debate too often characterized by heated

[

disagreementsT said Douglas Foy, executive j l'

w Sam had been described by friends and col- director of the Conservation Law Foundation of New England. -In his gentle uny, he sought paths l

leagues as an astute businessman with a strong 1939-1988 social conscience and a keen interest in responsi- for the future that urre best for this region-not l l.

l ble political action. He was able to strike a balance ansurrs dictated by the stereotypes of the pastT j among business, consumer, and environmen* l l g

g,,,,,, ,,g ,,,gg concerns relating to the energy industry. Before joining the System in 1976 as assistant l

L elder.IAssyWas had general counsel, Sam had sened as an essociate l togoodIsrtenstowork Guy Nichols, former System chairman, said that, professor of law at Boston University Law School m Sa m k sa aret I

" Sam uns a superb listener and careful thinker. for three years.

W had es > Many of us had the good fortune to work with cf hoswingSee ase i Sam for several >rars. I had the pleasure of know- He uns elected general counselin 1978 and in >

huipe,dier,e emner,and

,,,,,geigng,g,,,g ing Sam as a hiker, skier, a sailor, and a man 1983 he assumed responsibility for the System's esshshapesand that truly loved the challenges and beauty of financial and rate activities. In 1984, he was electei hoewy W the oudeers" the outdoorsT to the System's Board of Directors and to the position of president and chief executive officer.

Sur Wisbels hlartha Hesse, chairman of the Federal Energy  ;

Former Chairman New Endand Regulatory Commission, said," Sam was a titan of Sam uns active in business and community affairs. ;

Dectric System the electric utility industry, one who achieved holding directorships at the Bank of Iksston f great success in all that he undertook-in busi- Corporation, Harvard Community Health I ness, govemment, academic, and personal life." Plan, Worcester Polytechnic institute, and the j hlassachusetts Business Roundtable. He was also t

-By Sam's deeds, without the need for unids, he the cid of the Board oGustees at Cambridge shourd us all that ur could go a little further, Friends Schel. j accomplish a little more, climb a little higher. He was the embodiment of poet Robert Browning's The System will be a better place in the decade famous exhortation that 'A man's reach shou;d ahead due to Sam's contributions. Our goal is to exceed his grasp',' described Frederic Greenman, continue the progressive attitude and achiest-System senior vice president and general counsel. ments he brought to the System, this industry, L

and to New England.

We dedicate this annual report to the memory of Samuel Huntington, l

4 l

~--. - .-.

y I '?',

. M

, %%s:ct defines a pr.rtnership as a relationship certain oil and gas exploration and dewlopment C "

" involving close cooperation between parties hav- costs, and produced a final settlement of five rate ,' #

Yingspecified andjoint rights and responsibilities proceedings. Equally important, the settlement 7 (as in a common enterprise).* his relationship hn alkmed us and other parties to focus on the A

[ applies in full to the System, its customers, and future needs of our customers without the contro- g the communities it senes. We do have " joint versy that has been associated with the Seabrook I <  ;

rights and responsibilities" and we are embarked rate reco erv for so many years. %e settlement

. .n L on a* common enterprise." has triggered a new crs of cooperation within the . . . .. 1 . ..

states wv sene. His report summarizes our Deer Sherahablar.

During the past year, the partnership has been experience. As we will explain, we have devel- Iam deiightedwhb oped new partnerships with our customers theopportenky aslead both tested and strengthened. After extensive seeelthefissetsealty

- . negotiations, we agreed to a rate settlement that through conservation and load management pro-L managementteamsla produced the first annual loss ewr posted by the grams, with our communities through new public Ilow Eaglead. Asthe New England Electric System. He settlement service programs, and with environmental groups newpreendastand through our continued concern for sound opera-

1. 88A

put the rate treatm: nt of our pre-1988 imestment etilow Eaglead I in Seabrook 1 behind us, aikmed reconry of tions and siting. Electric System.1 intendto preserve

l. . . .. .. . . . . . . . . . . . . . . .

lease andinacession

, ,

• 7 thatfor more than e

d s it .

1. dosado has eherester.

h

%, n .' ,

.- had System aativities.

w

' /

1* ' . . ..

whileinsisting that

)

'+- ',

we reach fortherud l

e f, L  :

.f. f. schieve more. Along ,

f -) w j r '. a~

I with Joen Bek.1

[,

M .

.A '

1 pieder,en unswerving

1. '.,W; '

• l ate: sommhmentto re.

i 4 ,

i ,

< belldog our eersings ,

t  ; .,

- J - and to ocasistently

improving our perform-e

- ~ "

. along allfreets.

' ~

i.

,e n W.Rowe n.. .. y r -

President and L . . , g Chief Executive Officer

• r February 13,1989

'- +4r 3 I ,

• E a

" # f IRWireINReNieleMMUNV is requiredinthe desige,op

( - /

[# - -

a- -

+

ershen.endinsintonemos gg g, =mbraham b auch

. I. 38 OliS ore M Yle Se6ury M la $esihborough, anesseehmesas.

5 1

. , , . . , . -r-- * ' - - - -

t u.  ? _.,.

. +

,3 t ,

lt . .4 . T , ,

, :4

p * * ' sam ,

' ,[

. g , 0 ,#

r

+, 'm_

f

~g 3 -]

e p

,+ -

.. t 4

?) ..

• =

'n *

. , o

• 9  %

g

, e ..

I ;l ~ .q . . 1 3 4 +

m,

n. <. .

.--.w g.. .

j t

q i 4 47 ' '

.4 .

s .l

~

? . h.

p . .I ,

y .

4  : s geesgyemmenalen P  : , * . -

.[ -

perseqmaggy es  ;

• ~

M bsammen te -

spann eede-m==e . -'

j ,

each a W Een h >

d g: p

$ mitt,og Me6MB _M '. -.

4* '

,,s - a .

. u Posedunca,madehdead, -

' . . '4-s d

islanladheerenergy- y.

.-l askismWpseyes. ,

a * -

9

• huanmentaltelAr.

e. =g

', 9 -

, essashenspanisipsalm

[' 1

. ..~ ~>

meseM Codene < -.'

? -

Suftelhedert aSynom i J,'.,.

, , -y ] ,, ' '

madmed $... .-.

-7 =. . .y - -

assagemente . ,

~

the,andighelmedester i -

1- .,

Leonardibash.stRedes . - g a. . - i -

1 - . , ,

Spaans ha.

3 i , . *], y .,

+ i 2,

-L .c .

' g. ..

~ . , .

6 .

]' . - *,. , k

m. s i. m .

14 je;  %

• f'

- . Customers are fundamental to our partnership.

• .- We supply an essential product to them, and we hme a respoasibility to provide that aervice cifb ciently, reliably, and responshely. The business i $$

has alwinis been a " common enterprise

• because l

, g our success is dependent on the suurss of our customers, and the success of our customers is N .

q ,

,, dependent upon our ability to prcwide reliable and efficient service.

, ,. g.  ;

4

• S a

se ,

~'

'

• Service n

.q 8

4. , n ,.!

.- [ y l

. , ,r '

During 1908, we continued to build upon the fun-

• damental elements of our partnership. We main-

.c tsined our trend of producing reliable service at i

1JA, lower real costs to our customers. Our rates s,,

.,3* remained well below the average of other New

'a *- .

England utilities, our System companies contin-f i+

.,t k ._h

ued to have the lowest prices of any major utility in each of the states in which we sene, and we did j , ..--.. -

N a r

"'*,k '

not winer from our commitment to strict cost

( contiol.

. .. .g At the same timt. we took severai neps to

,h -

tmprove basic service to customers. We hae o , <

g. , , .

' upgraJed large sections of our distribution system

. . $ ,f : '[6i **

g to meet rapic"' upanding!oad growth and to

-. improse service reliability dunng storms. We hase

~

also improved our restoration efforts w nen major

- storms occur, with a computerized Automated

1 . ,. ..

Service Restoration System (ASRS) that identi-

. c.A g ' -

fies outage locations, provides cunent reports on

, f.. restoration efforts, and allows the efficient and

1. - (

• ~

responsive dispatch of personnel and equipment in emergencies. The ASRS will improve our

. ,, a

'

• response time, shonen outages. and alk)w us to 4 .A .

,I g ,

. giie quick accurate reports te cor.rerned

. customers. t b.., e .

9,. .g -.. .

N - .R y u

Y* } .

. 4  ? s

k i p , ^5 x ,

Communiostian Watch Program, our empknees use their tutsf communications equipment to alert police, fire Good communication is essential to any partner- departments, or ambulances of emergencies. Wr ship. To imprcne communications with our cus- not only hsten, ar care.

toms.4, we have simplified our bills to make them casier to read and understand. M also hase con- In short, we recognize that, as in any business, tinued and improved our customer suntys to our success depends upon satisfied enstomers, gauge customer satisfacticn and solicit sugges- As partners, our customers L ve the right :o h tions for service improvements. I or exampic, we quality, responsist service at reasonable prices. I now send questionnaires to customers with thei- Our primarv efforts as a business are intended to ,'

bills. As a result, we base an ongmng process in assure that we meet this fundamental obhgat on.

place for each of our 1.2 million customers to  !

communicate with us. We willlisten.

tammarvation and ArwesteEnergy

,. -, % Because of low electricity prices and the contin-

~

! ued strength of the New England ecorany, our

} 3 , .

'~'

l customers used 5.9 percent more electricity in

?

, 9

. ., 1988 than in the previous year. This sales growth

' ' ~

1 . .

continues a steady trend that began in the mid-  ;

\ , ~ 4 ~

s 1980s. Over the past fne years, annual ales

1. . ,

i

],

1

! growth has astraged 5 percent. Our peak loads t s / ] have grc.wr. from 3,234 megawatts to 4,124

, {", , megawatts.

• 4 This strong load growth is causing Jerr ands to reach the limit > of available capacity in New Eng-

~i- i m

( _. -M- i land ard in our senice territory. New resources

, are required to meet our obligation to provide reli-Bamseeerheeserset,. In some cases, we can be a vital link in our cus- able electric senice. Two of the key remurces

1. "'""' * *""** tomers'communicaions with the outside world, in our NEESpLAN 11 pc.rtfoho - demand-side era, ester seedes omsh am g,,, ,,, We meet with thousands of customers each day as measures and alternatise energv supplies - are byenestpder npasent we read mc tets, install sen ices, and fix lines. provioed by our customers.

seues of est eengeny.

g Some of those customers may, at times, be in dis-le9erasesDeVries - tress. We are there to help. As a result of the Gate- 'Ib develop these resources, we expanded our 188"d88 888888""8"*' keeper Program, our meter readers and customer partnersh.p w ith our customers. On the demand-inquiry clerks are alert to problems. particularly side, our fis e-s ear consen ation and load man-among our older or shut-in customers, if assi - agement program. -Partners in Energy Planning.'

i tance is needed. we help co itact the appropriate was fully implemented. The program include a l

agenq. In our Eraergenev Assistance Radio broad range af incentis es and payments designed l

8 l

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

CommnicatiM Watch Frogram, our emplosres use their two SN cornmrnications equipment to alert police. fire Good commur.ication is essential to any partner- departments, or embulances of emerger cies. We ship. To improse communications with our cus- net only listen, we care.

tomers, we have simplified our bills to make them easier to read and understand. \W also hast con- In short, we remgnize that, as in any business, tinued and improved our customer suntys to our success depends upon satisfied customens.

gat ge customer satisfaction and solicit sugres- As panners, our customen hase the right to high-tions for service improvements. For example, we quality, responshe service at reasonable prices.

now send questionnaires to customers with their Our primary efforts as a business are intended to ,

bills. At s result, we have an ongoing process in assure that we meet this fundamental obligation, place for each of our 1.2 rnillion customers to communicate with us. We willlisten.

Conservation and Alternate Energy Because of law electricity prices and the contin-

~

= ~ q ued strength of the New England economy, our q

. customers used 5.9 percent more electricity in

, m

/ , 1988 than 'n the previous year. This sales growth

~

9 2

.g continues a steady trend that began in the mid-m 1980s. Over the past five years, annual sales 1 I q grcmth has astraged 5 percent. Our peak loads

• ~

.a -

1 -

have grown from 3,234 megawatts to 4,124 "1 g y ,

_- q megawatts.

9 This strong load growth is causing demanc:s to

..- reach the limits of available capacity in New Eng-

~__ f land and in our senice territory. New resources

, are required to meet our obligation to provide reli-esesseseer have doest. In some cases, we can be a vitallink in our cus- able electric sen ice. Two of the key resources 88' '"*" # "" tomers'comn~ nications with the outside world. in our NEF, SPI AN ll portfolio - demand-side era, meter moders essh as Kadeses thusy m We meet with thousands of customers each day as measurcs and alternative energs supplies - are inqportsatpalme repusent- we read meters, install services, and fix lines. provided by our custouers.

• Some of those customers may, at times, be in dis-is earnsis devries el tress. We are there to help. As a result of the Gate- 'Ib develop these resources, ur expanded our Beenden. N . keeper Program, our meter readers and customer partnership w ith our customers. On the deraand-inquin clerks are alert to problems, pan;cularly side, our fn e-sear consen ation and load man-among our older or shut-i, customers. If assis- agement program. -Partners in Energv PlanningT tance is needed, we help contact the appropriate u as fulk implemented. The program includes a agenev. In our Emergenes Awistance Radio broad rance of mcentis es and payments designed 8

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

n f y

V Ni * .

.- L., " -

to encourage efficiency improsements in all cus- -

' tomer poups. M have programs for storage cool- , ,

]

mg. lighting. water heating, and an array of other .

0y . .

.4

. o.<.~g .,

j p./ J'*gey 3 J end uses found in our customeri homes. facto-g' 4

" ries, and offices. M hase developed nterruptible fg 3 ,

' ~#

fk# 4,? ,

- rates and programs for the use of our customeri .

i f M* # ^

,- 5

)

I g , standby generators to curtail demands on hot ,

i -

I a ,

summer and cold winter days when electricity -

• j usage reaches its peak. .

l These programs have already produced results. i >  :

e '

m .

p ,

,More than 100,000 customers base participated

- - ~'J > l in our conservation partnership. However, the ,  !

strong sales growth continues, and ur base Our customers are not >nly a source of conserva- Seasthesdub I

tion, they are also a key source of neu electricity h0magimir recently serieurd our programs once again to -

h aps M r==sle sw i identify improvements, update incentives, add supplies. 'Eday, ne have 254 megauntts of alter- ,,,,,, 4 ,

, new programs, and hase increased our five->rar nate energv in operation and 515 megawatts of h == % 8eesspamb

. bessetsweshed goal to 300 megantts of load reduction. In so future projects under contract. Most of th. .is is sup- ,

doing we instituted a cooperative revicu uith plied directly by our customers w ho produce elec- esthetusent dengt interested parties, state officials, and concerned tricity from uuste, reneuuble resources, or as a semiseawdastwas j Weesser4essisse- >

customer = to expand our pertnership in demand bv-product of their production processes. For paiv.end Edmond m example, in 1988, we signed contracts totalling 34 e Sysemasensenstlen programs and make conservation a truly common megawatts from tuo waste-wood plants. a trash-

'"""""F"*"'

enterprise. espmessie No.

to-electicity facility, and a hydroelectric project.

These contracts formalize our partnership and

~' ~

prm ide valuable neu generating capacity for all of

(. .

f .

g . otir customers.

( ,  :

, m. s f, <

.* >$ ..- 'lh build on thi+. success. in Arn) 19F8. we mued One war ew-s u.t.oest for proposals n.: 200 megauatis et ddi-4eser@m b

+ #.

• Ossuftescustomse6

• i #' t of.a: q.pp;ies. lr respense. ue rcte' sed U bid' shyy rsammen hlbgle

e.  ! #

f , or,gn,p g g , , .; 29 meg.iuain of new y.p. hised and asem==ran=mm 1 --

' '. r es and ierre eting the Inghest icsponse iate te

&bh j , <

, ,-Q .

j  ;; ..

am ictp est for bo,ih.it has been mucd in b eAthandelgede hisad

' i X l .ngund b a ren 'i. uc l'.ne a u oc sc.ct non o' **"k8b"5 '"*'8" suo Ashut BkCshe$sfll, p

[YM

. ~ . . . .

t pm u o f a n u ! t h o .c!c( r ncu panocn o. eur ,,,,g,, g ,, g,g,

, e j

• P tm.cq o pns A C .J c ,.u w i 4 n 4e n + u bhadwasa m ==v.

• ' ' andIhdordIlmen== out P + 4- 6 a

(uu n en. W$W t #  :.

• ~

', l }g 4 . . -

M t c . . .. . . . . . .

9

.. , .; 4 /

p 4 ~-

p -

l

> g .

l %i e.

+

l 3',<' .t

'.t.

, . 5

[ 10 g ,

q ,

,t

\ ,

R:

g. #

9' . <!

U - 8 '

, gA

.,. E a

g

. s-e # -

k '

g,e, N

• s m ,

k -

. ,=-

4 .

.:s - , e, '

y 6-4 .

8,. ..

g - . , ..

e

.W.

3

< 1

/ ,

g' a

o -

f i

., w.

s .

s . . i l' . d-4 s.' ..

pn

> e

, e s, ..

9, --_ g g  %

4 -

i.

• V w S ,

• + ,

g

/ ,

t

, w- 4 h

m.

.? . *4 . . ,

-$% g v:-

~

r  ;

g . ..

p. . . .

m M ., M .

I p@M ' 4 .

i

} y ', #

s 4aask,suska ssend .

x , .

- + ' ' ' *

$2thil.848th$f b -

4 ascessalessuchasees - . .

MLagase gsche - * .

,. 4 Larv 8isk.shana here ... g -

,' t ,

absaglagasmestaght < * . .

, , .4 ,

im enst eentmenen. ,,

wg x f .

a - .g ?4 r, bWdhMUN . ,

serven.6s provided.

,- 4 e

g, ,

l 's

.e g . -

-* d .' ,. 15

__M i _ _ _ - _ _ - _ - _ _ _

T(

j , ,,

c.- e y . .w j .

,o

.n y ,

he community is anc .her key component of our j.i

( w ** [i . Partnership to prmide reliable senice at a reason-

.N. .- able cost. As we mtne irao the futec, new q, *

, . ,f generating plants, substations, and distribution

* * ~

.g . , .xi lirn will be required to sene the electrieny noods of our customers. Community support is essential

(

.- for these facilities. \% emaiot do our job efficiently

- , >, ~, ,g Hs i - ' g 1 e< ,, ,

"p andwellwithoutit.

+;

j, +g- , ,

"' y

y . * .,

--g , + nelsamaWp c

e , ..

e f .

, %c best way to achiese this suppor' is to be a

[, L W ,J sond corporate citizen. We take that responsibil-

- f'~

4- ity seriously. Ir 1988, our educational services

. e -

~

program assisted more then 29,000 teachers i ) and more than 550,000 students to leam abw

} . , , ,,.. .

y *'

.. a energy, business, and safety. \% also became a

., s 4 x ~. * *' corporate sponsor of the John S. Laws institute.

which encarages students to stay in school. %c j ,, . . . .

+ f .

Institute provides a wide range of academic sup-port, training, and counseling to selected public high school students in Worcester, hiassachu-

. i, ., .

setts. In Rhode Island, we participate in the

. :l

• I I ' Adopt a-Schoor partnership between Prcni-

'. / ,, .

' ' +

u

1. 'l dence schools and Rhode Island businesses. \%

4 i -

also make stars of our best students; we put them j -

ontelesisionin sponsoring

• Kids' Quiz'in

' ~~

a . < Rhode Island.

s 9 . s

, i:.

+

x

• % v '

i -

, ,, j  ; \% recognize that our emplovees are our best

s- ,' < J .

L ambassadors for goodwill in our communities.

~

hey are conscientious and creative. By mixing

, e

%4 '

. . - p .-

A modest resources with a lot of ingenuity, they cre-ste manelous benefits for the towns and public

' ' ~

,

• service organizations :6 >ughout our scnice

• a .* '

~

+

,, territorv. We suppon them. Since 1981, we h. r

.6 -

gnen more than a quarter of a million dollars to

, n. .; . ..

~

, organizations supported by our emploires in

• ,4 -

our Citizenship Grants Program. Additional

( . t

1. 8 funds flow from our Matching Gdts Program.

,.' 4 11

f. . _ . ..

+

_q

]* . ,

i

< X ,

Finally, we has e established a partnership that burning units was the best it has been in 10 years. l F' alknts our custrimers to help the tredy, too. In Brayton Ibint StationWnit 3, our largest unit,  !

the Good Nei;hbor Eaergv Fund, our custom,rs un one of the most efficient rnits in the nation .

can contribute funds to help meet the u mter for tH secondtrar in a nm. The Thermallnitia-  ;

energy bills of people in financial emergencies, tivr s program reco ;niecs that our existing facilities :

We prcwide some matching funds. The program, are key resourm for meeting our sen ice obliga- I administered bv'Ihe Sahation Army, is a particu- tions and hoF.ng up our end of the partnen. hip in i

larly meaningful element of our expandingpari- the future, neiship with om customers.  ;

Meeting our future obligations also will require FesRhies and Shing cooperation w ith our communities to deselop j new resources. Specifically, we need to work Community partnership s imoh e more than char- closely u ith local and state officials on permit's, itable work. We must cooperate to provide the zoning, siting. and operational concerns.

infrastructure and essential sen ices to support During the coming 3 rats, this cooperation will bc

n- .-

cri*ical. In 1988. w e announced plans to repcmcr  !

r '.

1~-

Manchester Street Station in Prtwidence, Rhode i

i'

( '*

lsland, and to convert it to use natural gas as a pri-marv fuel. The project will produce more power

's ,

- ,- p with less pollution. Its capacity as a new, com-bined es cle fa . lits u i!l be -150 megaw atts, up 300 ;

. '

• y 7j <] $i.

4 11.. . . #J l 1

megawatis from its current rating. Because the p -*

. ,$ , k

• q #Eq repou cred plant u ill be run as a baseload facility,

[d ,f ' " I vg Manchester Stree. :tation w ill generate about six m

. q, .upf .- 4 q *. '

e

. times as many kikmatthours as it products today.

w j t

' F 4a . . ..

r ct

.. < .t _.

,, kt, bv burning natural gas rather than residual oil, it w ill h.r.e kmer salphur dioxide emissions than it i

, currently produces. 'lhe repowering also will pro-Raspadeasemasat economic dwelopment in the areas that ue senc. vide ather environme atal benefits, increase our 8"N W For example, ue made significant improv:ments fuel dnersit' and, most importar.t. pnwide addi-at our own facii .ies during 1988 through our com- tional capacin to meet our expmding energ-Wenhofabse.

etsalesistyWpuppet prehensive Thermai Initiath es program. The needs. Cooperation w ith local, state, and SusenGeest*esel .

,lher mal Initiatives effon focuses on impnwing regional authon. .oes will be essential to realize Mhh l terearadredeselser. the periormance and extending the hves of our these benefits.

"N existing generation. The progrsm is already work-ing to improst sen ice. We met our os c rall a cail- This co.;peration has already been established for ability target for the second consecutive year, and the Ocean State Power project in Burrillville, the efficiency or heat rate of our 12 fossil fuel Rhode Island. .nd the 11ydr> Quebec Phase 2 12

?g a:

e .

t s  ! transmission I.toject. Significant propess was =; ~

, f3 4 made c3 botn projects last 3 ear. Ocean Statt '

' ' ~ 5- ' -

.. j

' l%ct,in w kh we have a 20 percent ownership -

A * '

7 interest s.nd a 48.5 perent purchase entitlement, ..'. g l

^

~'

has obtained its permits and completed its finane- - - l ing of $246 million for Unit 1. De first unit of the I

j

. natural gas fired f.cility is on schedule for comple-

• l e 5 tion in early 1991 and the second unit is sched- ge

.g

%< p uled for operation in early 1992, Hydro-Quebec .

lhe 2 also receiwd its licenses and a l'residen-

• p e s.c ~

tiel Permit in 1988 and construction is on sched- ,..

s. ,

t ,

)

une and on budget. _

w , b[ . )'

W. ..

. . A

%ese projects illustrate a:iother set of k part- unique partnership among utilities, the states of A l

nerships u ithin Nov England - the partnership hiassachusetts, Rhode Island, and Cc necticut,

, among its utilities IL: reliable eTectiw service. and the Electric lher Research Institute (EPRI). saamassialandisameW

%e Hydro-Quebec project was undertaken in all Specifically, utility commissions, economic devel- 88'*88 "P""esoin.

l aasurtesastensseme j i New England utilities as a poup, and the Ocean opment agencies, and member utilities in each ef krWinsurm  !

State 1%er project is being smnsor-d tre sewral the three states uorke J with EPRI to bring techni- samless,Iksetmauer )

cal experti .e on conserution and load manage-

""'" 8"j I utilities in hiassachusetts and Rhode Island.

Both continue and build the cooperation that has ment to our customers. l'articipating customeis ammamepd ,

i characterized New England for the last 20 wars. were selected from a varicrv of kev industries n 89 B'atner D esms m Mehu,sessh8isa southern New England,includingjewelrv manu-

%Meds Governensuit facturing and electroplating, plastics, ship build- shsherhreshmmmemma ,

ing fish processing. and steel fabrication. 'lhe he need for cooperation goes bevond siting fac;l- initiatiw identified technological imptowments ities to produce power; it also extends to measures in end uses that will prm ide better seruce more which assure that electric service 6 used effL efficiently. These range from using a laser-directed ciently. A classic example of cooperation in this water sprav for fish cutting, to more efficient area owurred when we, together with consumcr preheating techniques in welding actis ities to l

,and environment poups, state agencies, and a a progam to dewlop better rectifiers to convert i

legislatin committee, helped to enact appliance alternating current to direct c urrent for electro-l . efficienev standards in hiassachusetts. The new plating. These improwments not only helped the standards assure that our customers will use elec- direct participants in the propam, thes w ill allow tricity more efficientiv to provide the same 5en ice us to encu nage simiiar instahations throughout with feer kilowatthours and at a lowu total, our sen ice territon. N1 ore important. the partner-ship between the states and the utilities prm ided Efficient electricity usage does not mean lower a concrete methoo fu us to demonstrate the economic powth. This principle w as estabhshed central bene 6ts of ecopera: ion in our common with the Southern New England Initiative - a enterprise.

13 eWc ---

w b, f > TheEndmarest -

T

?3 6' #

8 W. 4 s +N .

Q- V p g Q' q. ,

$ n

+

4 4 1

,,,,. 9 e,

4  : ,#

' 4 A

, h. > .-

p

^

j 9 * ,.

w

• {

4 *

..#. .. a ,# j e

1. Q ..

• W um g. a

' ~

g'.9 o y .-

t + -

. v.

qp

. ,*. ,' - t g e. .

' i., _ .

[r, y n. 4 - 8 #.

p .

.p S

z

, t, t a

,. g rg I '

e v *-' g d z .

.s ,

? "

k  ?

$ p 4 ..

g.- .

p e:k

• I $ h y; A

( 4

,r g s -

k

• '- g' ~

. N 1

.)

W .

• a 1

. , e

• w ... o a

. . ja . .

> A . .

AspenWenspesassi *

• uthfts unumtesse- = '

~ 4 waey,es syssamme ,,

psesset11ammingirang ..

.1 ,,-

• I - **

stpdesamiehen,essi

. J. , 44 k , , i * , ' +- ".- .. 'g~ _ _ .

ggghismedempte '

~

-. 3 , *y a ,

% g. a ,m, .

heemedteissedens

• t ,'T

• 8. - -

) inBamsthemostas # *$ . . ,.

penishtosightJohn -

haganamatysnenter. "** ,

• amor,panhistask, " * -

Wthebearlisapshbe - r -

, s> .

• ~-

• Besselhunspelssen. -

tary:takenIGuinWbe ..

3 Nasus Ceasenmasy; * -

t.

g,s,,4, ,

, , ~

gy,,,,, ,,,i, g

.. . .: s. ..

M gadyg;W ,, <

, , 1 genaisWatsifdthe .

f-

. .g., .h'

• .~

g .s

' A

o.

. WF

> l

\

d. ,... .$ .

s' l

.M' ' -

k- .g

" ~

7mw kg ..

~-

g -

9 7' -- %e eny sonment is everyone's common cuer-

]6 3 prite, it is of concern to us, our customers, and

[fj /I,

• our communities. For rray oi,:ur customers, the c -

s em ironment is tl'c number one issue related to pj the electric utilityindustry.

=

e

, insges i, .,

%st concem will continue to grow. Acid rain and

.;.? --

h1 l global wwming have joined more g ographically confined issues on the environmental as.o f a.

m he continued record of steady sales growtn require

• the siting of new facilities alorg with the L demand-side progams that have been d===ad

%e deselopment of r.ound emironmental stan-E

' --ds and the constrwtion of new facilities to t .- r 3 meet the growing needs of customers are going to i require full peration within our expanding prutnership, and a recognition of our mutual rights and responsibilities within our common

- enterprise.

1. %b must work together to dewlop and to operate facilities in an environmentally sound and respon-sive manner. Cusmmers, communities, and gov-crnn sent officials mus; recognize the need for additionel supplies when that need is demonstra-a ted, and approve projects with tirn4/and respon-f she actions that allow us to meet our piiblic service obligations effecthcly and efficientl y \W

---

m turn must deraonstrate that new projects can

~

be built and operated in an environmentally

~

sound manner.

a ._.

L

< Operations We recognize that any demoastration of environ-mental responsiveness begins with our record at existing facilities. During 1988. we added some c- m -. U

-- l

" ^

y . .

F' t l

,' i I

major accomplishmer.ts. In December, we signed be required. At the present time, we beline that l i

a landmark ap eement with The Nature Conser-3 ,

we can achieve these reducuons by sw itching to vancy to protect 11 of our ecologically significant natural gas and kmer sulphur fuels. We have also I sites, most of v hich are along the Connecticut requested authorities to reflect the impact of our Riwr. Under it, we will protect the propenies that consenstion and load management programs l 9 support endangered p; ant and insect species. We and low pollmion supply sources such as the l also have completed fish ladders at three of our Hydro-Quebec projects in the analys.s.

t hydro stations and built a new visitor center in )

Wilder, Wrmont, which will sene as a clearing- Our goal is to continue our cooperative effons to ]

I 4 house for information on the Atlantic Salmon that achine e nvironmentally sound standards as effi- ,

may again spawn in the nonhern reaches of the ciently as possible.

Connecticut River.

Reseersh l

l *  % achieve this goal in part by dewloping new technolog:es through nur participation in the Electr;c Amer Research Institute (EPRI), a national partnership of utilities engaged in ,

research and dorlopment activities. During the past year, this partnership produced environmen-tal improvements and increased efficiency by completing projects at several of our facilities.  !

At Bravton Ibint Station's Unit 2, we finished These recent accomplishments at our oldest enluation of an EPRI-doeloped technique called a

Thelbsestempyof generating plants cc itinue our sensitivity to the "ta geted chlorination'for cleaningcondenser environment that began some 80 vears ago. nis tubes. The approach increased the condenseJs

"_"" sensitivity extends to our fossil plants as well. l'or thermal efficienev tw up to 15 percent and re-samtsr aser est m. ,

ihnnent,ldeedesels example, our coal conte,sion effort has not only duced chlorine use by approximately 80 percent.

seselsa Thecameer saved our customers more than $300 million and As s result of th.is r:nv technique, we can run our pggg,g ensamessethsonash reduced our use of roreign oil tw 90 million bar- power plants more efficiently with lower chlorine

1. 88 rels, it also has reduced sulphur d side emissions concentrations in discharge water.

Riser,energysensene.

hv 20 percent and particulate emissions bv esa.edM 75 percent. The pniject saves monev and reduces Similar benefits have been realized ti rough a new pollution. It has been a . lear w inner for our cus- emulsion process that has been tested at our tomers and the environment. Swem Harbr Station in Salem, hlassachus-tts.

i The emulsion process mixes water with oil that is Nes ertheless. cooperat;on has been required to burned at the plant to improve the combustion 1

maintain these advantages. Under the .\tassachu- process. This reduces particulate emissions, setts acid rain law. furthe, emission reductions w ill ash. and disposal costs.

16

-e - . - - - - .-.. ---.---.- - - -~~ - -... - - --..-

p p. ,q.. ..

.3 Our significant commitments to demand-side ,. ,

L

• 1 programs have contributed to an explosion of l s ,,

" i , *

• technological and marketing innovations. \% ,. .

~ '

have deseloped programs-including our -

lodestar Program-to facilitate the statistica! !oad i

' ' N analysis that is neressary to design ar.d monitor -

conservation and lond management programs.

~

.- ' a l

We haw licensed the program and it is now used "

• 9> [ % .

.) ~

J by major utilities across the country. \% are wort .

• _4 ,

l

• n ing with EPRI to test prototype equipment for the .. ,

i rionintrusive monitoring of our customers' end-

" +

j

.use load patterns, and to learn more about our res- .

f idential customers' response to end-use rates. ..

e . 1 . j And, we are deseloping new technologies. Our 4 l tivity of vendors, customers, and utilities together Ondgammendas research on photovoltaics has made a major con-  :

phaessmapagedelte tribution to our understanding of that new tech- to allow us to provide reliable service in an envi- sashaeadme h nology. We are activelyimuhrd in the ronmentally sound manner at the lowest reason- assidust.

dewlopment of technology for customer notifica- able cost.

tion systems, and for imprcwing the efficiencies of the end uses of our product. As with our other Conclusion ,

efforts, our goal is to bring the resources and crea-t j

[ gp The past year was a watershed for our System.

4 .... j t \W put our old problems behind us and focused on the future. \% are building new partnerships to

l addres' New England's pressing electricity needs. 4

.

• 4

=

7 - .L We are listening, responding. and developing  % hbtediskhas,

" " N l

i l .n 4 h# flg[ ..

a workable solutions that allow us to funher our d arsynnFbhW96 L . 1' {  !. j ... common enterpnse efficiently and chectively. helpassure sur gamers

( \, * '

The creative tension between utilities and policy ingteabekeoperasinan l $. <'

. . c

{; makers, the technical expenise of utility employ-ees and the unique commitment between utili-

')

- .ies and their customers pnwide the potentian for a

, t. ,

c d powerful concensus to address our future energy

' s ,

need .. We belicsr that we can realix this poten-

{s '  % tial, create and expand our cooperation, and

. 4 '-

achiese the goals of our common enterpriw N Success is essential for our customers. our com-a a, *  : munities, our emplovees, and vou. our imestors.

17 l

l

- . ~ . . - -- .

g ,

, ' C" g q

9terview During this pan year te saw two mQor financial beginning to affeet our oper: ions. he additional i g >

issues eenolved: the reemery of both our imestment cost of meeting the strong demand of our cu.tomers t L in Seabrook 1 through the end of 1987 and out imest- was the maio: reason NEP filed a rate increase request !

l' '

nent in oil and gas properties. Our wholesale subsidi- in September. his rate increase of $%.$ million ary, New England Ibner Company (NEP), reached a '

, will be collected starting htay 1.1989, subject to rate settlement during the second quarter of 1988 refund. (See Rae mivity section.) Until the earh  :

l which resolved these tuo issues. he settiement . 1990's, the Synem will male short term purchenes of j resulted in a write-down of $3.14 per share and a loss power. to the extent m silable, to meet our capacity  ;

L . for 1988 of $.94 per merage share, requirements. Our expanded efforts in conservation  ;

Earnings per average share excluding the rate set- and load management are already making a positive  ;

' tiementwrite-downwere$2.20comparedto$3.09 cont ibution. After the early 1990's, the increased -

[

r in 1987. %e carned return on common equity, based demand is expected to be met by our conservation

• b on the $2.20 earnings per merage share and the actual and load management programs and the s-- ' A .

L thineen month merage book value, ns 11.2 percent, of a number of pcmcr supply projects presently under ' !

p' down from 14.9 percern in 1987 and its8 percent in construction or now being planned. %ese projects  ;

1986. De dividend rate remained at ihe 1987 level of include the construction of the second phase of the  ;

, $2.04 per share on an annual basis. He market price interconnection berucen the HydroQuebec system  :

of New England Eketric System (NEES) common and the New England region. (See 1989 capital  ;

shares increased slightly from $22% at irar end 1987 expenditures and financing section.) i L . to $24 at 3rar end 1988. Earnings for 1987 and 1986 We also continue to be interested in acquiring the  ;

urre restated to reflect new accounting rules issued non-Seabrook assets of Public Senic+ Company of i by the Financial Accounting Standards Board (FASB) New liarr pshire (PSNil). (See Ibtential acquisition l concerning propeny losses. (See Note E.) section.)  !

he current tight power supply situation is  ;

Rete settlement Uncertainty regarding the reemrry of our imestment effect at the time of the settlement without further in Seabrook 1 and our imestment in oil and gas prop- refunds or changes in existing rates. he prudence j erties had existed for some time. his uncertainty of certain NEEl costs incurred subsequent to t resulted in our independent auditors qualifying their klarch 1,1988 muld be subje5 to FERC review. ,

opinion on the System's financial statements in pnor (See Note A-3.) Reemery of Seabrook I msts l

3rars, llourver, the NEP rate settlement in the see- incurred after January 1.1988 is subject to FERC i ond quarter of 1988 resulted in this quahfication being apprcwal. (See Note D-2.)

removed and our auditors issuing an unqualified opin- he settiement :esohrd the issues by limiting  ;

ion this year. Notes A-3 and D-2 to the financial state- NEP's rectnery of its pre 1988 investment in  ;

ments describe these imestment s in more detail. Seabrook I to $61 million per year for seen years l he settlement, w hich was apprmed by the and fne months.%e settlement also requires NEP l Federal Energv Regulatory Commission (FERC) in to reduce rates tw $12 million per year for fhe years  ;

September 1988: (1) resohrd all issues associated if Seabrook I is cancelled. However,if the un;t enters  !

with NEP's pre 1988 imestment in the Seabrook I commercial operation. NEP is alleurd to increase -

nucleat unit:(2) allow s NFP to rcemer through its fuel rates by $16.8 million per year for fhe irars, subject clause, its payments to its affiliate. New England to any limitations relating to any pourt output lesel y Energy incorporated (NEEl), for costs resulting from restrictions that may be contained in the Nucisar i NEEl's oil and gas exploration and des clopment Regulatory Commission's (NRC) operming license, i activities undertaken from 1974 through 1983: and If. after entering commercial operation, the unic is (3) settled all issues associated u ith NEP's cor d sub equently canectled or abandoned within defined prcwiding service under its prior rates and rates in time periods. NEP must cease collecting and/or 18

r refund the additional revenues, depending upon ultima:c)) cancelled, NEP u ill not be re: quired to  ;

circumstances of the cancellation or abandonment. recort any further wTite-down ofits pre-1988 imest- 1

- As a result of these limitations on reemery of its ment in the unit. If Seabrook 1 receives a final NRC i Seabrook imeetment, NEP recorded an after-tax operating license and enters commercial operation, f utite down of $179 million ($260 million before tax) subject :o the conditions mentioned atxwe, NEP 1 O the second quarter of 1988, he write-dern was wil make appropriate accounting adjustments to l recorded in other income and reflects the wTite-down reficet the settlement prcwisions, including the addi-l of NEPs Seabrook I imestment, offset by certain tiona9evenues that will be realized under the settle- l other related adjustments; primarily the reversal of ment, and to reserse the impacts of having assumed  :

c' ,

$13 million eher tax ($23 million before tax) of previ- canceliation in the initial write-dorn discussed atxnr.

ously established refund reserves. The impact of these adjustments, assuming no pcmer j

%e $179 million u rite-down assumed that output level restrictions in the opera:ingliceme, l Gesbrook I would be cancelled and includes the would be to increase net income by about $85 to l effect cf the reduction in rates of $12 million per year $ 215 million after tax, depending on the in-service  !

.at mentioned abme, %crefore, if Seabrook 1 is date of the unit.

{

As a result of the $179 million after-tax write-down impacts of the settlement,includingthe effect of NEp Operating rosesits  :

($3.14 per share) mentioned above, we incurred a loss no longer recording allonnee for funds used during i l . of $.94 per aserage share for the irar 1988. Earnings construction (/sFDC) on its December 31,1987 l l before the write-down amounted to $2.20 per astrage Seabrook 1 irreestment and the amertization of  ;

share for the irar 1988 as compared to $3,09 for the this investment in Seabrook 1. net of the write-down, *

year 1987 and $3.25 for 1986.%is reduction in per (wer seven years and five months; (3) as repc ried last  !

j share earnings from $3,09 in 1987 to $2.20 in 1988 year, net income was increased by approximately l is attributable to four major factors: (1) in the first S.12 per average share in June 1987.This one-time l l quarter, the adoption of new accounting rules, as impact resulted from the recognition of AFDC,  ;

described in Note D-1, reduced the amount of costs retroactive to April 1984, on certain costs reallocated capitalized on our imestments in Seabrook I and oil from the cancelled Seabrook 2 to Seabrook 1; and l L and gas properties, which resulted in a reduction in (4) increased maintenance, purchased pourr and con- l carnings of appioximately $.14 per average share: senstion and load manayment costs reduced earn-  ;

(2) carnings were reduced by approximately S.16 per ings by approximately S.17 per average share for the  !

astrage share in each of the second, third and fourth fourth quarter of 1988. (See Ra:e activity sectian.) l quarters (totaling S.48 per share) due to the on;;oing i

t Earaloge Per Average Share Dividends Decisied Per Share-Annual Rete  ;

t' terningslleest . E.P.S. Isaluding Per Average hoes Settlement Shore Write Desva

'3.!!'3 25 s3 p9 , ' spy 1 IA2 82.77 '2.77 f .

,, , y '2.20 ,

'I.60 sg,73 si.75 #

s3 l

'ii2

si.

'to 44 -

)

79 14 0 til 82 83 M 85 86 87 88 79 80 81 82 83 M B5 86 87 p l 19 l

-r - e- , ._m_- , . . _ _ , . , , _ , . . . , . , , , , . . , _ . . , , , _ , .,___,,,,__ _ _. __.,,__ ____,__,,,_, _, ,.________ ._ _, , , _

E i Opereling feuenue Operating rnenue increased by $71 million in 1988 these losses from customers is pan of NEP's rate  !

i compared to 1987 %e principal reason was a settlement. (See the Oil and ps operations asethm 5.9 percent increase in kikwatthour sales to ulti- and Note A-3.) l mate custona rs. Fuel mit reemery revenues in 1987, operating rnenue increased by included approximately $23 million in 198P. and $ 16 million mer 1986. Kilowatthour sales to ultimate i

$28 million in 1987 seisted to losses from the custorners inercased by 5.8 percent. Homoer, rate  !

System's oil and sas operations. %ese revenues are decreases and a decrease in tulouetthour males to non i accrued in the year the loss occurs and are billed to affiliated wholesale cunomers partially offset the in- l customers in the folkwing year. %e collection of crease in kikmatthour sales to ukimate customers. '

I hereling suponeet 16tal operating expenses increased by $78 million in Act of 1986, in addition, depreciation and amortire-1988 compared to 1987. The non-fuel component of tion expense dnaed as a resuk of the toucaetiw .

purchased electric energy increased by $ 19 million in adjustment, mentioned abme, related to the 1988 due to additional capacity purchases required to Seabrook 2 property loss amortaastion. %ese ,

meet the high demand for electricity. Other operation decreases in operating expenses were paruelly offset '

and maintenance cost increases include increased by an increase in other operation and maintenance 4 mnsenstion and load management program expense, incluting increased maintenance coats on exp nses and costs associated with overhauls at thermal generating units; costs associated with the l System thermal snerating units. Depreciation and Millstone 3 nuclear unit ping into service; tronamis-amortization expense increased as a result of the start sion suppon payments associated with Phaec I of the :

of the amortization of Seabrook i due to the rate New England-Quebec transminion interconnection !

settlement previously discussed. His increase going into sen ice; and increased expenditures on also reflects a retroactive ad@ -ent reco dedin conservation and load management programs.

December 1987 to reflect al- 9 decision which As d4 cussed in Note D-9, NEES and its utility

, changed the re,overy period of tne Seabrook 2 subsidiaries have bem contacted by federal and state ,

i property loss from 5 to 10 years. (See Note A-6.) environmental agencies regarding the cleanup of nites i Amortization of oil and gas properties was also designated as containing hazardous waste While the i increased due to greater production. cost to clean up these sites cannot be estimated,it is In 1987, total operating expenses decreased by not believed at this time that such costs would be l

l $11 million compared io 1986, reflecting a decrease in rnaterial to the System's financial position, federal income tax expense due to the ' lax Reform lanes Delix Reform Act reduced the 46 percent maxi- New accounting rules issued by the FASB, which mum corporate federalincome tax rate to an astrage will bemme effecthe in 1990, will require all deferred rate of 40 percent in 1987 and 34 percent thereafter. tax balances to be restated at the 34 percent rate his reduction in the tax rate contributed to the and will require any excess to be reclassified from a ,

decrease in federalincome tax expense between 1986 deferred tax liability account to a customer-related and 1988.%e benefits of the new tax law are being liability account. It is expected that through the regu-passed on to custorners through rate reductions and latory process, excess reserves for deferred taxes therefore have no significant impact on net income, will be passed back io rstepayers with no significant ,

in addition to the reductions in the tax rates men- impact on net income. %e pass back of such excess ;

l tioned above, thclks Reform Act repealed the deferred tax reserves commenced in 1987 which also investment tax credit, w ith certain exceptions, begin- contributed to the decrease in federal income tax ning in 1986. (See Note B.) expense in 1988.

Alleuvence for funds The significant decrease in AFDC in 1988 is the reduction in the amount of AFDC recognized in the used during result of tk previously mentioned settlement, first quarter of 1988 related to Seabrook 1.hese nev construction M under which NEP ceased recording AFDC on the accounting rules established stricter standards for the December 31,1987 investment in Seabrook 1 in the continued capitalization of AFDC. In addition, in the second quarter of 1988. New accounting rules, u hich second quarter of 1987, NEP recorded additional went into effect in 1988, also contributed to the Al ; .. ret oactive to April 1984, on certain costs 20

r s 1 g, j reallocated from the caixelled Seabrook 2 to increased amounts of construction work in propess )

l Scabrook 1, which amounted to $7 millian after tax. (CWIP) in rate bue pursuant to a FERC policy w hich l i

i ' AFDC dm. ad from 1986 to 1987 due princi- allows utilities under itsjurisdiction to include )

I 50 percent of CWIP in rate base %e inclusion of i palfyfo the inclusion of Millstone 3 in rate bue, wide out any delay or disalbrance, coincident with its CWIP in rate base increased NEPs cash flow, but did o

' commercia! operation in April 1986. Also contribut- not increne income as AFDC was not recorded ing to the cle:rease was the inclusion ty NEP of on amountsincludedin rate bue.

In September 19S8, NEP filed with the FERC a new also adopted a revised policy on reemery of costs hate estivity rate case, WW repienenting a $%.5 million rate on future cancelled plants. (See Notes D-1 and E.)

in December 1988,%e Narrapnseti Electric  !

increase.The FERC suspended the r;ffective date i

until MayME At such time, the new rates will be Company (Narragansett), the Rhode Island Attorney

. collected sutpe:t :o refund pending a finst decision ty General, the Rhode Island Consumers' Council, and the FERCMis Eira reflects inerened expenditures the Division of Public Utilities and Carriers reached

, on conseNs: on end load management progams speement on seseralissues concerning Narrapniett's i of appronitad.y $31 million and $52 million of rates and earnings (the *Apeement").The Apeement. l which has been apprmed by the Rhode Island I increasec!pm:hnses of additionalpower supplies caused tw cceem pouth in electricity demands on Public Utilities Commission, fully resched all issues j the System. regarding Narragansett's earnings for the period prior In Oedw 1988,NEPfiled with the FERC a toJanuary 1,1989. As a result of the Apeement: '

modifi:n:m ors Oit Conservation Adjustment (1) Narragansett will reducc its rates by S3.3 million

' (OCAh :ha ge, a rate through which NEP is reccner- effective February 1989; (2) Narragansett will ,

ircits f.a>em Harbor Station coal comersion costs, not file for a rate increase to become effectise prior Due m t recuetion in the coal oil price differentials to January 1,1990; and (3) in December 1988, 7

. used in caicut ting the OCA charge. NEP proposed Narragansett wrote off the accumulated deficit of  ;

the establishment of a floor on the level of this rste, approximately $2.5 million in its Storm Contingency l This pmposed rate will go into effect May 1,1989, Fund for storm costs previously incurred but not i

subject to refund pending a final decision by the FERC. Set reem ered from customers. This reduced the in Ncnember 1987, NEP filed with the FERC i ts System's carnings per share by 3 cents in 1988.

W9 rate case representing a $21.5 million rate decrease. The System's retail electric subsidiaries reduced This decrease was put into effect January 1,1988 their rates in 1987, primarily to reflect the impact of and was appro ed as part of the settlement previously the new tax law and savings in other costs.

mentioned. This reduction included the effect of Massachusetts Electric received permission to lower ,

the lower federalincome tax rate. its rates by $16.75 million effectheJuly 1,1987.

in another rate matter, in December 1987 NEP Narragansett Electrie was alkmed to lower its rates  ;

. provided for and since has made refunds to customers by $3.6 million effective July 30,1987, and Granite to reflect the FERC's decision that NEP's full imest- State Electric agreed to a rate reduction of $500.000 l men: in the cancelled Seabrook 2 unit should be effee.iveJuly 1,1987, in addition Granite Stste ,

reemered cner ten years, without a return on the Elestric agreed to a further rate reduction of $500,000 cunamortized balance, rather than the shorter period effectheJanuary 1.1988.

requested by NEP. As part of this rate case, the FERC L ..

NEP is a participant, with a joint ownership share of tionof theunit. Acontestedoperatinglicenseproceed- Seabrook1 ing for Seabrook 1 remains pending before an NRC nuclear unit approximately 10 percent, in the Seabrook 1 nuclear l

. unit. As part of NEP's rate settlement apptcned by licensing board, issues in the NRC licensing process I include emergency response planning. the safety of the FERC (see Rate settlement sectien) all issues associated with NEP's imestment in Seabrook 1 Seabrook I, and the financial quahfications of certain

(- joint owners. Numerous parties, including many through December 31,1987 were resolved.

Although construction of Seabrook 1 ns com- elected federal and state officials, are opposed to oper.

f ation of the plant. Problems relating to obtaining an I pleted in 1986, receipt from the NRC of an operating l' license is necessary to commence commercial opera- operating license are likely to cause further delays 21

[ l i

i b the operation of Seabrook 1, resulting in runher planning. In December 1988, the Federal Eme 1

mits. These problems, as wr!1 as financia! di8iieulties Management Agency issued famrable findings on the l l of censinjoint cwners,includingtheJanua y1988 off-site plans, including the Massachusetts utility-l bankruptcy filing by PSNH and uncenainty as :o the prepared plan, and on the results cd a twtrdsy exercise I continued payment by others of the Massachusetts of the emergency response plans mnducted in L Municipal Wholesale Electric Company's share of June 1988.The New Hampshire emergency j l project ctets, or other problems pennining :o regw response plans hase been approved by an NRC l l lation of nuclear power plants, could cause altimate Atomic Safety Licensing Board, subject to consin l cancellation of the unit. conditions. Hearings on the Massachuneus plan and l There have been some recent posi:ive :celop- the exercise are scheduled to begin in March 1989, j

ments regarding Seabrook 1. In Septem beM988, the The NRC commissioners how set Sg.. As 30.

U.S. Court of Appeals for the First Cirex upheid an 1989 as the tuget date for a final initial decision by the l NRC rule stating that the NRC masonsber utdity- licensing board. (See Note D-2 for rnore discwsion j sponsored emergency response p!arr wnen s:a:e or on the Seabrook I nuclear unit.) l l local gowrnments refuse to partici; u:e mmergency I

t 08andgas As more fully described in Note tu NECha;. decisions or commitments made after such date ont  !

epErellen8 incurred operatinglosses since 29h du onneipally which NEEl has discretion or control or to w to precipitous declines in oil anc' pwria Such was not contractually obligated as of Much 1,1988. i losses, totaling approximately $N MJiwoWough Profits or losses on prospects entered into since I December 1988 on NEErs old p opan (p.espects December 31,1983 (rn program) are borne by j enteed into through Decembef.41%& ve being shareholders.1 esses totaled $0.8 million and l passed on to NEP under the primw4 spproved $6.2 million after tax in 1987 and 1986, respectivv4y.  !

by the Securities and Exchange Cmmie (SEC). Hourver, during the Sear 1988, the System rocorded j j NEP's ability to pass such losses en m iw.stomers an after tax net profit from NEErs new program of I was famrably resched in the pr:hh mexioned $0.1 million.  ;

rate settlement, approved by tht TT.RC o Although NEEl will continue to incur costs in con- ,

September 1988. Under the se:dn r em. NEEl old nection with activities related io existing prospects, l program costs incurred subseqwni m %/ch 1,1988 it stopped acquiring new oil or gas prospects after l l could be subject to a prudence mm ih:b:y relate to December 31,1986. j I

PWIBntiel in January 1988, Public Service bwuv of New various alternathe methods of reorganization, includ- :

acquishion Hampshire (PSNH) filed a vo;u m ped: ion for ing the solicitation of proposals by third panies. On  !

protection from its creditors unter Cha pter 11 of the January 12,1989, another utility made public an offer <

federalBankruptcyCode.In Fer.c P988,we to purchase PSNH's non-Seabrook assets.%e utility i announced initial discussions wt PSNH about valued its bid at $1.2 billion for those assets, and j acquiring their non-Seabrook asses Sesequently, offered a power contract for the output of Seabrook .

other utilities expressed interes: ir a cquiring portions i that it valued at about $800 million.

of PSNH's non-Seabrook asse:s. We haw announced our intention to make our On December 27,1988. PSNH iied a plan of own offer to acquire PSNH's non-Seabrook assets at l reorganization with the banarup:cy coun designed to the approfriate time. PSNH has requested that bids

!' allow it to emerge from bankruptey as an independent be submitted on or about March 31,1989.

entity PSNH indicated that it wil: ne evaluating j 1988 emphal Cash construction expenditures for NEP and the exper.ditures.

expenditures med retail electric subsidiaries totaled $ : 92 million. These in 1988, oil and gas exploration and development l M expenditures included approxima:e.y $ 18 million for expenditures totaled $60 million, including capital- )

Seabrook 1. Internally gene ated cash provided ind interest costs o. $31 n illion. Internally generated

! approximately 70 percent of the funds necessary for cash and $14 mi,lica of advances by NEES provided

( capital expenditures in 1988. Intemally generated all of the funds nc cessary for these expenditures l cash provided approximate!y 80 percent in 1987 and and also enabled NEEl to reduce its longderm notes 100 percent in 1986 of the funds necessary for capital by $34 million.

22

During 1988, NEP issued $33 million of pollution NEES raised $36 million of equity during 1988 control restnue tends to retire at maturity an equal through the issuance of new common shares under amount of shor:4ctm and long<erm oollution control the Systern's dividend reimestment and common resenue bonds. In addition, Massachusetts Electric share purchase plan and empkgre share plans.

issued $50 million of long-term debt.

bsh construnion expenditures for NEP and the project costs incuc ed prior to 1989. 'lhis amount is 1989 espital included atxwe as parv>f NEP's estimated 1989 con- espesis9tieres W retail electric subsidiaries are estimacd to be

$350 million in 1989. Internally generated funds struction expenditures. M are estimated to meet 50 percent of construction in 1989, expenditures for our oil and gas activities expenditures in 1989. are estimated to be $60 millkm, including capit&cd in 1986, two new subsidiaries were formed to interest costs of $30 million. Internal funds are esti-build, own and operate direct current transmist. ion mated to provide 100 percent of these needs in 1989, facihties in mnnection with a second phase of the as well as enable NEEl to further reduce bank debt.

intermnnection betwren the HydroQuebec system in 1989, NEEl plans to rerinance its outstanding

.and the New England region. 'this interconnection borrowings through a new credit agreement which l

is expected to go into service in late 1990. Cash will provide for txirrowings of up to $400 million. Part construction expenditures in 1989 by the two new of the terrowing will be secured by a pledge of NEEI's i subsidiaries for these facilities are estimated to be rights with respect to NEP under the pricing polics l

$275 million including $175 million for reimburse- covering the old program. 'Ihe other part, which ment to other utilities of preliminary project costs applies to the new program, will be supported tn a incurred prior to 1989. Such preliminary project costs Capital Maintenance Agreement betwren NEES l l

were funded by the various joint participants, including and NEEl. 'the new remiving credit agreement NEP, prior to the mmpletion of construction financ- decreases by varying amounts annually, beginning ing arrangements in February 1989. Long-term December 31.1991 and expiring December 31,1998.

borrowings are expected to finance 60 percent of During the first half of 1989, NEP plans to issue these expenditures. 'lhe remainder will be prm ided $17 milhon of pollution control revenue bonds. In by equity contributions from NEES (50.4 percent) addition. Massachusetts Electric plans to issue up to cnd non-affiliated utihties (49.6 percent). In addinon. $50 milhon of first mortgage bonds dunng 1989 NEP will build and operate certain alternating current NEES expects to raise about $35 milhon of equity transmission facilities which are associated u ith the dunng 1989 through the issuance of new common interconnection. NEP plans to spend approximatch shares under the System's dwidend reimestment

$75 million for these facilities in 1989, including and common shaic purchase plan and empkr.re

$27 mi!! ion for reimbursement of prelimman share plans.

l Regulation-hreent of 1988 Doctric Revenue Cost Per KWH to Ultimate Customers l

0 FederelEnergy B Rhode 6elend 5 ActualDeRors l

Regeletery Commiss6e.

B 1988 Dellers O essene beestie see nempshire n he 1

I' s

k

.M4 4 6m M  % B7  %

b) M K3 F5 23 l

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

l 4

b New England Bactric System and Subsidiaries .

SeissisdFinanoisinets ~

%ar ended December 31 (millions of dollars, except per share deta)  !

1988 1987' 1986' 1985* 1984*[

e , ore n se -  ;

Electric sales (excluding fuel cost reemery) $ 996 $ 942 $ 940 $ 908 $ 882 }

Fuelcost recmery 428 432 407 462 530 [

Other utility resenue 37 28 29 25 26 >

Oilsales 7 7 10 16 13 !

Gas sales 52 39 46 33 35 i Totaloperating restnue $1,520 $1,448 $1,432 $1,444 $1,486 Total fuelcost" $ 427 $ 424 8 421 8 475 $ 543, Net income (loss)t 3 (54) $ 171 $ 175- $ 167 $ 139  ;

Astrase common shares 57,026,739 55,377,% 7 53,794,323 52,083,490 50,176,454 [

heehere deta:  !

Net income (loss)t $ (,94) $ 3.09 $ 3.25 $ 3.21 $ 2,77 i Dividends declared 8 2.04 $ 2.01 $ 1.94 8 1.83 $1.725 l Totalassets $3,718 $3,970 $3,788 $3,659 $3,407 l Cephelhelion.  ;

Common share cquity $1,056 $1,191 $1,090 $ 979 $ 871 a Cumulathe preferred stock subject to mandatory tedemption 25 43 43 l

Other cumulatise preferred stock 162 162 162 162 162 l long-term debt 1,434 1,387 1,401 1,364 1,361

• Ibta1 capitalization $2,652 $2,740 $2,678 $2,548

$2,437.' {

Total electrie sales (millions of kiloutthour5) 20,771 19,741 19.574 18,338 18,256 i Cost per KWH to ultimate customers (cents) 6.92 7,04 7,10 7.58 T,94 !

System maximum demand (megantes) 4,107 3,798 3,520 3,555 3,379 ;

Number of empimees 5,478 5,256 5,131 5,004 4,989 .

Number of customers 1,233,519 1,204,189 1,175,307 1,147,399 1,122,930' !

' Restated (Note E)

' Includes fuel component of purchased electric energy, fuel handling, and other related costs t t1988 includes the effect of a rate settlement writedown recorded in the second quarter of 198H. {

The write-down amountec to $179 million after tax or $3.14 per share. (See Note C.)

BEES Energy Min tuleweetheer Sales Greerth  !

to Ulthmete Customers 5 ms 595 i i e leydreand l

Alterostos n E Besteet ,

8 Oil [

, m  !

\ ..

I s

79 Nl $N b. NI b) M i

24 ,

-.+y, m.- - -_w , -

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

.e- . -

h, .

[.

p <;r,

,$t .

p ^

' new sessend answie sysise nd subsidimies t F m a mm e stconesudstediasemeneed 5, %er ended December 31 (thousands of dollars) ~  ;

Qt;

1. f- s

- 4 g9gg 39g7, 39g.

51,519,677 $1,448,193 $1,431,943 Mseasses(NoteA)

.. Megesses: ,

: Fuelforpneration - 286,649 316.775 304,344 'i

. Purchased electric energy:  ;

j Fossil andinterchange - 157,132 104,711 l l 17,793 -

Nucicarcuit ements ~ 100,305 100,258' 88,855 Other operation 279,890 246,660 214,540 1 M,uneenece 120,497 101,250 88,564 ,

Depreciatior,and amortiution (Notes A, C and E) 229,060 178,918 203,502 ~

l s

, - Tases,other than federalincome 93,615 91.316 95,975 ,

Federalincome taxes (Note B) 31,274 80,227 117,62e  :

Totaloperatingexpenses 1,298,422 1,220,115 1,231,?02 speresegleesme 221,255 228,078 200,741

., . sentlessen(Notes A andC):

Y Allomsrice for equity funds used during construction 1,9 9 25,318 30,985 Equity in incorre of nuclear power companies 5,769 6,616 7,799 Other W,come (expense)-net (Note E) . (1,668) 6,321 33,519 Fedual taxes on other income-credit (Note B) 3,166 4.616 7,187

. Rase settlement write down(NoteC) (260,213) *

- Federal and sue taxes on rate settlement write-down (Notes B and C) 81,217 51,495 270,949 280,231 g .' Operating and other income 3 letrost:

Interest onlong term debt CN,988 ' 87,273 93,028 7.583- 9,763 9,131

~ Otherinterest .

- Allousnce for borrowed funds used during comen.r, tion, nei of deferred federalincome taxes o' $318. $5,968 and $9,717 (Note A) (1,828) (9 #" 1,587)

Totalinterest 94,743 P7. 0,572 I (43,248) 183,$4u 189,659 i hcome(loss)afterinterest 10.572 12,314 14,989  ;

, Preferred duidendsof sul sidiaries '

' estisessegesel(Note C) , 5 (53,820) 5 171,206 5 174,670 i

Aidage common shares 57,026,739 55,377,% 7 5.2,794,323

' Per ehem dels:

Net income (loss) $ (,94) $ 3.09 5 3.25 Dividends declared 5 2.04 5 2.01 5 1.94

'Pestated (Note E)

(The accompanying notes are an integral pas t of these raancial statements.

4

• i a e ,

25 j

• ti, J.. _i y

'.4- 2 ea- . --4 . . . , , . _ _ , _ ,,_ , ,.

Q

~

f.. p p^ , ,

. . New Eaglead Sectric System and Subsidiaries L Ceaselidend Bolence Sheets I At Desember 31(thousands ddollm) 1988 1987.

p, Assues thulty pleet, et origlesi seat (Note A) 53,4fa,675 $3,277,430

! css accumulated prcwiskms for depreciation and amortization 1,072,045 _l,008,215 2,355,630 2,269,215 Constructkm work in progress (Note D) 77,549 50,555 Net imestment in Seabrook i undet rate settlement (Notes C and D ) 228,133 543,000 Net utilny plant ~ 2,661,312 2,862,770 1 Wound su and gas properties, et feu eset (Note A) 1,086,111 1,024,914 Unprowd properties 17,645 18,993 1,103,756' l.043,907, less accumulated provision for amortiution 497,610 403,797 Net oiland ps properties 606,146 640,110' lesenements (Note A):

Nuclear power companies, at equity 45.377 44,736 Other subsidiaries,at equity 25,356 27,342 ^

Other imestments, at cost 18,754 18,064 Totalinwstments 89,487 90,142 Caneet essets. 1 Cash, including temporary cash investments of $7,500 and $32,100 (Note A) 10,724 34,65(.

Accounts receivable,less resents 192,203 174,530 ,

Fuel, materials and supplies, at awrage cost (Note D) 66,755 62,043.;

Other current assets 6,888 9,565' Totalcurrent assets 276,570 280,794 Unamortized prwerry losses (Notes D and E) 42,150 51,12F 4 Deferred charges and other assets 4?,307 45,11F i 53,717,972 - 53,970 og Capitalitstion e=rie=E=8== (see secompanying statements):

sadliabilities Common share equiry $1,055,879 $1,190,34(

Cumulative preferred siock 162,528 162,52t i long-term debt 1,433,680 1,387,041

'1 Totalcapitalintion 2,652,087 2,739,90t l Caneet E=Wasi== l long-term debt due uithin one year 14,15(

Short term debt (Note F) 28,75( i I

Accounts papble(Notes A and D) 156.083 138,05(

Accrued taxes 900 31,87F i

Accruedinterest 22,471 21,027 Dividends declared 30,618 20,81( l l :'

Other current liabnities 17,997 54,521l

'Etal current liabilities 258,069 318,192 ,

)

! Deferred federal and state income taxes (Note B) 574,523 664,%Il Unamortized inwstment ta~ credits (Note B) 143,079 149,49.1 l L-C 0.her reserws and .leferred credits (Note l') 90,214 97,507 Commknients and contingene;es (Notes A and D) 53,717,972 $3,970.062 l

'Itutated (Note El The accompanying notes are on integral part of thew financial statements.

H a I

(: l

-+3

4 y

b W M SyWENIf,Ad SdlOldtdSS j Consolidstad Statements si Cash Flows

%er ended December 31(kd of dollars) .!;

1988 1987* 1986'  !

' Net income Ooss) $ (53,820) $ 171,206 $ 174,670 Operatingassivities t

,, A4ue ments to reconcile twt income Ooss) to net cash

. providedbyoperatingactivities:

Depreciation and amortization 230,357 I80,198 201,053

. Investment tax crediu-net (6,414) (2,619) 6,553 ,

L -

Deferred federal and state income taxes (90,756) 15,733 -

62,819 Rate aestlement wise down (Note C) 260,213 Alkmurre for funds used during construction, net of ,

. deferred federalincome taxes of $318, $5,968

. and $9,717 (3,797) (34,925) (42,572)

Decreene Grcrease) in accounts receivable, less rescrws (17,673) (34,%8) 39,029' Decreene (increase) in fuel, materials and supplies (4,712) 15,763 .(12,760)

Increase (decrease) in accounts payable IH,033 22,457 (30,4H2) increnac (decrease) in other current liabilities (36,058) 39,673 7,628

' Oiler,

iet i1,192 13,668 (37,443)

- Net cash provided by (used in) opersting activitica 5 306,565 $ 386,186 $ 370,495

' Constructionexpenditures,excludingalkmance inveglingactivities t for funds used duringconstruction $(192,359) $(165,217) $(I88,014) '

. Oil'and ps exploration and dewk>pment . (59,849) (54,734) (77,332) ,

' leercase in exher inwermcats - (2,200) (13,150) (8,974)

Net cash provided by (used in) inv:sC,g activities $(254,408) $(233,101) $(274,320)

Proceeds from NEFS common shares issued 5 35,H07 5 43,891 $ 42,086 Firengleg agliviligs Dividends paid on NITS common shares (I15,646) (I10,016) (102,5M0)

Preferred stock-retirements (27,445) (19,14H) l; long-term debt-issues 82,900 25,000 249,520 longerm debt-retirements (50,40(H 0 5.250) (234,849)

L l Changesin short term debt (28,750) (16,31Mn 05,857)

Net cash provided by (used in) financing activities $ (76,089) $(120,:20) f(100,H28) l Net increase (decreaseW cash and cash equivalents 5 (23,932) $ 32,%5 5 (4,6531 l

Cash and cash equivalents at beginning of year 34,656 1,59 l

_ 6.344 l,

Cash and cash equivalents at end of3 rar $ 10,724 $ 34,656 5 1,69I l

i- '

l

$ 7M,108 E ,,' _y

^

l Interest paid less amounts capitalized 5 88,715 $ 77.169 Federaland stateincome taxes paid 5 86,667 $ 67,640 t 57,423 M '

i

' Rs -d (Notes A-9 and E) ihe accompanying notes are an integral part of these financial statements.

1~

l lJ l

, 27 ,

1 l

I

.l l.

'f- , _ __ . . . _ ,_ , _ - , _ _ .. _ . . . . _, . _ . .

m i

J ,

j NSWv W Electric Symnin and M L statements of Censolidated Retained Earnings  !

,. War ended Desember 31 (thousands of dollars) ' ,  ;

1988 1987' 1986 ,

Retained earnings at beginning of3 rar:

, As previously reported 8 623,233 $ 768.294 $ 502,388

.. Restseement(Note E) (9,165) (11.599) (14,'473-

' As restated 614,066 556,695 488.115 i

' Net income 00ss) (S3,820) 171.206 174,670 t Cash dividends on common shares (116,448) (111,390) (104,442 Premium on reacquisition of prefened stock (Note I) (2,445) (1,648 Retained earnings at end of year i 443,798 $ 614,066 $ 556,695 I e ,

Consolidstad Statements of Capitalization At December 31 (thousands of dollars)

I Canunen share equity f. Note G) 1988 1987 Common shares, par nlue $1 per share .

Authorieed-150,000,000 shares  !

Outstanding-57,5%,132 and 56,022,422 shares 8 ' 57,596 8 56,022 '

I%id-in capital 554,485 520,252 Retained earnings 443,798 614,066 Totalcommon share equity $l.055,879 $1,190,340 Canislative preferred stock of suissidiaries 1988 1987 L. Shares outstanding .

Company Par ulue 1988 i987 L Massachusetts Electric Company

$ 7,500 l

4.44% Series 100 75,000 75,000 $ 7,500 4.76% Series 100 75,000 75JXX) 7,500 ' 7,500 7.80% Series 100 150,000 150,000 15,000 15,000 7.84% Series 100 200,000 200,000 20,000 20,000 ,

I 'The Narragansett IUectricCompany 4 M% Series 50 180,000 18S,000 9,000 9,000 4.64% Series 50 150,000 150,000 7,500 7,500 8.00% Schs 50 200,000 200,000 10,000 10,000 New England Iber Company

l. 6.00 % 100 80,140 80,140 (1,014 8,014 l 4.56% Series 100 100,000 100,000 10,')00 10,000 l

4.60% Series 100 80.140 80,143 8,014 8,014 4.64% Series 100 100,000 100,000 10,000 10,000 l 6.08% Series 100 100,000 100,000 10,000 10,000

i. 7.24% Series 100 150,000 150JK)0 15,000 15/XX) 8.40% Series 100 1 ~0,000 150,000 15,000 15,000 '

8.68% Series 100 100,000 100.000 10,000 10,000 Totalcumulatise preferred stock of subsidiaries (annualdividend requirement of $10.572 for 1988 and 1987) 1,890,280 1.890.280 $162,528 $162,528

• Restated (Note E) 28

3 ,

p .

t ,,' /,

Lamperin ddt(Note 10 1988 1987

. Cw - Rate Maturity U Granise Sisse Electric Company 8.55 % 1996 8 5,000 5 5,000 Notes -

Granite Sca e ElectricCompany 12.55 % 2000 4,000 4,000

' New England Energy incorporsted (Note 11) variable 1994 345,000 379,000 -

Massachusetts' Series F 5% 1991 17,490 17,490 Firstmortgage Electric Series G 4K% 1991 60,000 60,000 bonds

' ' Company 10,000 10,000 i Seriesil 4K% 1993 i

Series i 55% 1996 10,000 10,000 Seriesj 7%% 1998 15,000 15.000

+

Series V. 7K% 1999 15,000 15,000 Series M 7K% 2002 20,000 20,000 Series O 12p% 2012 1,379 2,129 Series l' 95%- 2016 25,000 25,000 -

Series Q 9K% 2018 50,000 1992 20,000 20,000 ,

The Series R 85%

Narrapneett Series F 4K% 1994 4,600 4;'X)

Series G 6p% 1998 7,500 7,50J Flectrie .

Company Series I 7%% 2002 7,500 7.500 9 % 2004 9,700 9,700 SeriesJ 2014 25,000 25,000 l Series Q 9b%

Series P ' 10p% 2016 40,000 40,000

[*w England Series 11 4 % 1988- .10,000 I

Series 1 4K%' 1991 20,000 20,(xx) hmer Seriesj 12,000 12,(xx)

Company 4>% 1992 10,000 10,000 Series K 4M% 1993 Series L 6KS 1996 10,000 10,00() '

15,000 15,(xx)

Series M 6KN 1997 1998 20,000 20,0(x) l Series N 7%%

1998 20,000 20,(xx) -

l Series O 7%%

1999 15,000 15,(xx)

Serie: I' 85% ,

Series R 7>% 2(N#2 25,000 25.(WNi

l. 40,000 40,(xN) l Series S HK% 2003 SeriesT H%% '003 40,000 40,(xx)

New England Series 11 8 % 1988 4,150 Genereland Series N 8K% 1993 40,000 40,(xx) f9 funding Ibuer 2007 50,000 50,(xx) mortgage bonds Company Series A 8b%

Serie= !i 9p% 2008 50,000 50,000 2012 491 1,991 Series F 165%

2013 90,000 W,(xKi Series D 9K%

• 16,150 16,150 Series G 9%% 2013 2011 16,600 16,600 Series i 10W%

- Serie< j 10%% 2013 N,250 79.250 variable 2015 38,500 38,500 Series K 7.80 % 2016 29,850 29,N50 Series L 2016 80,000 80,(xx)

Series M 4W%

Series O sariable 2018 28,750 Series l' variable 2018 4,150 t.

Unamorti/ed discoi.nts and premiums (9,230) (9.219) l' 1,433,680 1.401,191

Tot.d long-term debt .

(14.150)

Long term debt due within one tear

$1,433,680 $1.387.041 Loarcerm debe 0 *ilestated (Note E). The accompanying notes are an inte ai part of these financial statements. 2g

~

r, New England Eles ric System and Subsidivies N?tes to FinancialStatements L  :

' IIsteA Significent esseuntine P'8'i'' ,

l 1.Seeis of The consolidated financial statements include the financial support of the facilnies by participating New l eenselidation accounts of New England Electric System (NEES) England utilities, including New England 1%er  ;

and all subsidiaries except NEES Energy, Inc. and Company (NEP). Presentation of these subsidiaries l' New England Electrie'Iransmission Corporation on the equity basis is not materhl to the consolidated ,

(NEET), which are recorded at equity. NEES Energy financial statements. In addition, fouuesional nuclear is a company imched in conservation and energy generating companies (Yankees), in which IN EP has mana,,ement services and NEET is a transmission a minority ownership interest and a shippingjoint service company that mens ar.d operates a ric line wnture imulvin3 New England Energy incorporated used to transmit hydroelectric power between the (NEEl) are also ,alued at equity. All significant inter-Hydro-Quebec electric system and New England. company transactions between consolidated subsid-NEET has entered into agreements providing for the iaries have been eliminated.

l l ' 2. System of The accot.nts of NEES and its utility subsidiaries are of Accounts prescribed by regulatory bodies having  ;

L eseeunts maintained in accordance u ith the Uniform Sy stem jurisdiction.

' 3,Oiland ges NEEl is engaged in various activities relating to fuel (new program)is composed of prospects erwered into -

l eperations supply for the System companies as authorized by since December 31,1983. On account of the Pri-ing l

!. the Securities and Exchange Commission iSEC). Iblicy, NEEl's old program is considered to be rate .

l. . These activities presently include (a) participation in regulated. As such,it ht's not been subject to certain

! domestic oil and gas exploration, development and SEC accounting rules, applicable to non-rate regulated ,

, pn duction (principally through a partnership with a companies, which limit the costs of oil and gas ptop- .

I I non-affiliated oil compny. Samedan Oil Corporation erty that can be capitalized.

(Samedar.), a subsidiary of Neble Affiliates), (b) sale in the past, under the Pricing lblicy, NEEl had L of fuel oil purchased in the open market to NEP passed opprcximately $10 million <d eld program sav-and (c) owning and operating through ajoint ven- ings on to NEP and ultimately to retail customers.

l ture, a coal-lired, coal-carryirg ship, chartered to Hou ever, due to precipitous declines in oil and gas >

l l NEP (See Note D-4.) As discussed below, NEEl market prices, the old program generated operating stopped acquiring new oil and gas prospects after losses in 1986,1987 and 1988 totaling approximately ll December 31,1986. 551 million. Based on the current lewl of oil and gas ll NEEl follou s the full cost method of accounting prices, the old program is expected to generate sub-i for its oil and gas operations, under w hich capitahzed stantial further losses in the future, which w ill be costs (meludinginterest p tobanks) relating passed on to NEP. The NEP rate settlement, wel!s and leases determined to be either commercial de scribed in Note C, fas orably resohrd uncertainty or non-commercial are amortized using the unit of over the abaity of NEP to recover past and future old

(. production method. program losses from its customers by allowing NEP NEEl operates under an intercompany pricing m pass them through its fuel clause. Under the settle-l policy (Pricing Iblicy) approved by the SEC under ment, NEEl old program costs incurred subsequent l

l the Public Utility HoldingComp any Act of 1935. to hiamh 1.1988 could be subject to a prudence l Pursuant tc ti.e Pricing Policy NEEl s oil and gas review if they relate to decisions or commitments l progrem consists of tuu parts. The first part (old made ?:er such date over which NEEl has discretion program) is composed of prospects entered into or control ar to w hich NEEl uns not contractually through December 31,1983. The second part obligated as of Starch 1,1988.

L i

30 i.

.s The Pricing Policy ellows the old propam to of $0.8 millic ri and $6.2 million, respectiwly. S n( c '

become non-rate regu!sted under certain conditions, January 1, bd4, NEErs total expenditures on the

(

in which case all operating profits and losses after the new prog,vm how amoimted m $58 million, payment of a rayalty and previously incurred losses Although NEEl w;11 contim.c to irieur costs in con-would be for the account of NEES. Honver, it is nection with activities related to existing prospects, it

unlikely that the conditions can be achiewd given the stopped acqu.! ring new oil and gas prospects after current market and the outlook for the future. December 31,1986. His decision was prompted by ,

Under the Pricing Pblicy, the System does not oil and gas market conditions and the outlook for the expect to earn a return on its inwstment of approxi- future. De decision will net affect NEErs interests mate'y $40 million in NEErs old program. %c and commitn.ents in oil and gas prospects presently System has not recognized any return on its invest- owned by its partnership with Samedan. Samedan is inentinNEEl since 1982. continuing to explore, develop and manage these Under NEErs new propam, profits and losses are prospects on behalf of the partnership.

' retained by the System. %crefore, the new program NEErs costs incurred and capitalized in connee- r b considered to be non-rate regulated. In 1988, the tion with its oil and gas exploration and dewlooment Sy. tem recorded an after tax net profit from the new activities are as follows:

program of $0,I million and in 1987 and 1986 losses War ended Detember 31 (thousands of dollars) 1988 1987 1986 Leases $ 4,675 $ 1.395 $ 9,395 Exploration 14,636 9,152 33,535

Dewlopment 7,493 11,920 1,298 Capitalizedinterest costs 30,817 28.660 33,083 Other 2,228 3,607 21

$54.734 $77,332

. Total $j9,849 included in the above amounts for 1988,1987 and developrnent costs of $664,000, $2,858,000 and 1986, respectively, are lease costs of $1,076,000, $1,700,000 and other costs of $10,000, $(399,000)

$1,521,0')0 and $2,414,000. exploration costs of and $949,000, which relate to the new propam.

54,281,000, $2,752,000 and $5,852,000.

The utility subsidiaries record rewnue as billed on a and $28 million of accrued rewnues in 1988 and 4. Revenue cycle billing basis. No revenue i; recorded for electric- 1987, respectively, representing NEEl losses icy that has been deliwred but not billed. NEEl incurred in each year. Rese losses are passed on to reccgnizes rewnue from sales to third parties w hen customers in the year after they are incurred. (See received from its partners. NEP recorded $23 million Note A-3.)

31

• + l

N d '

f , ' iI ,

l; ' 5.18tility phet he utility subsidiares capaalize, as part of construc- provision for depreciation. (See Note D 1 for discus-

^

l ' >

tion costs, an item called alkmance for funds used aion of new accounting rules.)he composite rates 1

' during construction (AFDC), which represents the approximate the. pre <ax costs of funds (10.9 percent .

l composite interest and equity costs of capital funds in 1%8,11.3 percent in 1987 and 11.4 percent in  ;

i -. . used to finance that portion of construction costs not 1986). Consistent with past regulatory approvals, tax ,

l" eligible for inclusion in rate base. In 1988, an mrage benefits on the borrowd funds cvinice.; of AFDC ;

L of $69 million of construction work in progress are deferred and amortized over the estimated lives of (CWIP) was included in rate base. AFDC is recog- the propert'es giving rise to the tax benefits, d L nized as a cost of" Utility plant." Accordingly, AFDC in the " Statements of Consolidated Income l L is capitalized in the same manner as construction (Loss)," he 1,em,J funds component of AFDC is j l: labor and material cous, with offsetting credits to presented net of reinted deferred federal income taxes l L "Orher income" and " Interest."%is method is in as etsiicd below. An additional cWect of this presen-

)

accordance with an established rate-making practice . tation is the allocation of a cralit of equal amouat, ,

under which a utility is permitted a return on, and the resuking from the deductibilig of a portion of capital- i reemery of, prudently incurred capital costs through ized interest expense, to *0ther income: Federal j their ukimate inchision in rate base and in the taxes on other income-credit." ,

l i

L. hr ended December 31 (thousends of dollars) 1988 1987 1986

l. Allowance for borrowed funda used during construcuon $2,146 $15,575 $21,304 l L-Reiered deferred kdcral income taxes (Note B) (318) (5.968) -(9,717) !

Allowance for borrowd funds used during construction-net 1,828 9,607 11,587 Allowance for equity funds used during construction 1,%9 25.318 30,9g5 1 Total eBowaw for funds used during construction-net $3,797 $34.925 g.

l InJune 1087, AFDC ns increased by approximately - S,;.1,ivok 1, This cost reallocation was adopted by the

$8 million before tax (approximately $7 million after Federal Energy Regulatory Commission (FERC) ic :

tax).This increase resulted from the recognitbn of rate case inmiving NEP. AFDC had not been recog-AFDC, retroactim to April 1084, on certain costs nized on Seabrook 2 since April 1984. (See Note E.)

i reallocated from the cancelled Seabrook 2 to L  :

u b

l l

4 l

l r

32

~

h# l 'Ihe depreciation and amo tincion expense includcd is composed of the following: $2 Depreciation

'I! in the " Statements of Coasolidated income (Loss)" and emertitetien a; %st ended December 31 (thousands of dollars) 1988 1987 1936 Deprecission 5102,070 $ 98,6:6 $ 90,549 Amonization:

Oit and er properties 93,8'3 76,890 87,263 Imretment in Seabrook I under rate serttement 23,007 ,

Propertylosses 12.371 (1,184) 22,944 08 comeration adjustment (2,201) 4,586 2,746 Total depreeistion and amortiution expense $229,060 $178,918 ' $203.502

. Depreciation is provided annually on a strnight-line of weighted average depreciable property by plant basis. The provisions for depreciation as a percentage category are as fcilows:

t

%st erded December 31 1988 1987 -1986 Thermalproduction 4.4 % 4.6% 4.6%

Nuclear production 2.5% 25% 2.5%

Hydroproduction 1,4% 1.4% 1.5%

Od.er 3.2% 3.2% 3.2%

overallucighted average 3.3% 3.3 *'. 3.3% ,

Oil and gas property amortistion is based on a per- amortintion represents the net amount recosered from centage calculated by dividing each year's production customers for the amortin.con of certain coal comer-by total estimated proved and probable reserves (unit sion tosts. This current charge to customers (OCA) c f production method). In addition, the 1986 amorti- uns designed to allow the accelerated recovery of ution includes a write-off of NEEl's new program of expenditures for coal comersion facilities at the Sakm approximately $10.1 milSon to comply with SEC Harbor Station, both during and after the comersion rules applicable to non-rate regulated oil and gas period, out of savings from burning coal. Total expendi-companies. (See Nete A-3.) tures through Decernber 31,1988 urre $104,165,000 The Seabrook I amortintion reflects the At December 31,1988, accumulated provisions for

. portion of NEFs December 31,1987 imestment the OCA amortincion amounted to $38,346,000, in Seabrook 1 being recovered ir connection with its The difference, amounting to $65,8!9,0(X), remains rate settlement. (See Note C.) to be recostred. The OCA amortintion has decreased The amortintion of property lesses relates to significantly since 1985 due to the decline in oil prices.

cancelled nuclear power plants. In December 1987. As a result,in 1988 s'EP filed with the FERC a pro-NEP reversed a portion of its Seabrook 2 amortin- posed modification to the OCA u hich would estab-tion and established refund provisions, primarily to lish a minimum rate designed to achieve full recovery Ieflect an extension of the recovery period to 10 years of these coal con,ersion costs by the mid 1990's.This as ordered by the FERC. (See Note E.) proposed rate will go into effect May 1,1989 subject

• TheOilConservation Adjustment (OCA) to refund pending a final decision tw the FERC.

l 33

7 , .[

OL t

, 7.Euniser fuel - - The Nuclear Waste Iblicy Act of 1982 establishes rate filing which includes thS resised estimate. NEP's 1- ,

egeseland that the federal gmernment is responsible for the decommissioningcost accruals are recorded on its . .

I

, susteerplant disposal of spent nuclear fuel. Under the provisions . books consistent with its rate reemery. .

of this act, the federal gmernment requires NEP to - In addition, NEP is paying through purchased ,

pay a fee based on its share of the generation from the power expense its portion of decommissioning cost,

' Millstone 3 nuclear unit. NEP is recowring this fee for the four Yankees. Such costs reflect estimates of  :

through its fuel adjustment clause. Similar costs are total decommissioning costs apprmed by the FERC.

l incurred by the Yankee nuclear companies which are 'There is no assurance that decommissioning

[

billed to NEP and reemved from customers through costs actually incurred by the Yankee companies or ,

NEP's fu:1 adjustment clause. Millstone 3 will not substantially exceed these Also, NEP is recowring through depreciation amounts. Houcer, a recent Nuclear Regulatory expense its share of estimated decommissioning costs Commiss:on (NttC) rule establishes mi,imum fund-for Millstone 3 amounting to $16 million in 1985 ing lewis that licensees must satisfy on or before . ,

dollars. In a 1988 state commission decision, the July 26,1990, it is expected that by this date each of lead owner received rste-making approval of a higher the nuclear units in which NEP has orenership will  ;

decommissioning cost estimate of w hich NEP's share meet or exceed the minimum funding requitanents is $24 million in 1987 dollars. NEP has pending,- of the NRC.

8.fletirementp;ans 'Ihe System's plans are noncontributory defined ben- increase in pension con in 1988 and 1987 w3s due, in efit plans cowring substantially all employees. The pan, to increased costs recognized on certain formal plans prov:de pen. ion benefits based on the employ- supplemental plans. The 1988 increase also reflects ec's compensatica during the five Stars before retire- increases resulting from additional service credits ment. The System's funding policy is to contribute earned by employees. During 1987, the System each year the net periodic pension cost for t hat year. revised its method of accounting for pensions, which '

However, ihe contriMtion for any year will not be less also contributed to the 1987 increase. 'These revi-than the minimum required contribution under fed- sions were made to comply with the new Finarcial erallaw or greater than the maximum tax deductible Accounting Standard No. 87 (FAS 87) issued by the amount. Financial Accounting Standards Board (FASB). .

Total pension cost was $6.9 million in 1988. Total pension cost for 1988 and 1987 included the

$4.8 million in 1987 and $3.6 million in 1986. The followingcomponents:

Year ended Decen.ber 31 (thousands of dollars) 1988 1987 Service cost-benefits earned during the period $ 8,381 5 7,808 plus dess):

Interest cost on projected benefit obligation 34,769 32.476 Expected return on plan assets (35,999) (34,576)

Amortization (202) (878) ,

Totalpension cost $ 6,949 5 4.530 4 Assumptions used to determine pension cost were: l Discount rate 8.5% 8.5% .

Average rate of increase in fu:ure compensation leveh 6.7% 6.7%

Expected long-term rate of return on assets 9.0% 9.0% ,

Actualreturn on plan assets $39,328 $28,513 l l;

1.

! I o

1 34  !

y ,y r} '

~

,( ( j

[.Q v' u'.

he folkwing table sets forth the plard funded status:

p

,. December 31,1988 ,

December 31,1987

' ik r. ment Plans

{.

[ (la S ousands) .

Regular Supplemental Regular Supplemental

!. Plans Plans Plans ihns U Reestissurund - p Actuarialpresent talue of:

Am-;r' -ibenefitliability:

%sted $354,864 $14,082 $334,636 $12,410

Noen=aied 14,609 108 13,667 575 e< . 'R, sal $369,473 $14,190 $348,303 $12,985 ResensEsileosHundedsistus

. 'Ar;uarialpecaent value of:

(

i

- Prosectedbenef.iliability . $442,960 $16,850 $411,753 $16,986 Unrecognaedprior service costs (556) (222) - -

1%S 87 uansition hebday not yet recognized (amortind) - (8,456) - (9,106)

Net siin (km) not yet recognized (amortized) (13,260) 2,160 (1,638) - (255) 429,I44 10,332 404,115 7,625 i

j f -.

Ihneion fund assets at fai"value 447,318 - 424,922 -

I%S 87 transition asset not yet recognind (amortized) (20.360) - (21,801) -

426,958 - 403,121 --

Accrued pension payments recorded on books $ 2,186 $10,332 - $ 994 $ 7,625 Plan assets are composed primarily of guaranteed benefits are not funded by the System, The cost of imestment contracts and corporate equity and debt these benefits is charged to expense when paid and securities. ms estimated to be $7.7 million in 1988, $7.1 million Certain health care and life insurance benefits are in 1987 and $6.1 million in 1986.

provided to substantially all wtired employees. Such NEES and its subsidiaries classify short term invest- In November 1987, the FASB issued Statement 9. Cash ments with a maturity of 90 days or less as cash. Cur- No. 95," Statement of Cash Flows,"The System rent banking arrangements do not require outstanding adopted the piovisions of the statement in its 1988 checks to be funded until actually presented for pay- financial statements and accordingly, prior years haw cent. Outstanding checks are, therefore, recorded in been prepared consistently to conform with the for-accounts payable until ;uch time as the banks present mat of the 1988 presentstion.

them for payment, 1

I 35

~. __

' I; Note B Total federal income taxes in the " Statements oiConsolidated Income (less)' are as follows:

Fedgrolincome h War ended December 31 (thousands of dollars) 1968 1987* 1986' income taxes charged to operations $ 31,274 $80,227 $117,629 income taes credited to-Other it.com- (3,1%) (4,616) (7.137) income in on r.te settlement u nte dow n (Note C) (68,428) income taes netted against AFIX'-borrowed funds (Note A-5) 318 5,968 9,717 Total federalincome taes $(40,002) $81,579 $120,159

• Restated (Note h)

To al federal income taxes, as show n abm e, consist of the follow ing components:

Mr endeo December 31 (thousands of dollars) 1988 1987* 1986' Current income taes $ 48,804 $64,928 8 48,429

'kferred income taxes (82,392) 19,27u 65,177 Imestment tu cieets-net (6,414) (2,619) 6,553 Total ft deral meome ines $(40,002) $81,579 $120.159

• Restated (Note E)

Imestmut tax credits of subsidiaries are deferred and the amounts shown above principally reflect the amortized over the estimated lives of the property amortization of imestment tax credits generated in giving rise to the credits. Since the Tax Reform Act of prior years.

1986 generally eliminated imestment tax credits, Certain subsidiaries, with regidatorv approval, have componerts c' the deferred federal income taxes of adopted comprehensive interperiod tax alk> cation these subsidiaries:

(normal.zation). The blion ing table details the War ended I)ecember 31 (thousands of dollars) 1988 1987* 1 6 Allow ance for bortow ed funds use J during construction (N<v : &S) $ 318 $ 5,968 8 9,717 Other construction cests capitalved for book purposes and seducted ,

for ta pu: poses 3,533 7,8 i H 6,211 I Excess tax depreciation 13,361 17,814 22,795 Rate settlement w rite-dow n (Note C) (68,428) l Seabrook I recosers (Ncte C) (6,349)

Property loss amortiution (4,877) 487 (9,080 Refunds 11.269 (19,980) 1,421 loss on reacquired debt (464) (460) 10,407 Oil and gas program (16,042) (1,454) 23,329 Accrued re,enue for NEEllo ses (Nore 431 (3,478) 11,158 128 Other (11,235)" (2,081) 249 I)eferred federalincome taes $(82,392) $ 19,270 $65,177 {

• Restated (Note E) l

'

• lncludes deierred taxes relating to costs associated w ith utihty retirements deducted for tax piirposes, unbilled )

revenue and contribtitions in aid of tonstruuion of $4,985,000,5(3,338,000) and $(3,421,000), respectively.

I I

l l

l 36 l l

- ~ - -

,. y;-

t, ,

, cy .

The ' lax Reform Act of 1986 reduced the corporate reclassificJ from a deferred tax liability account 4^ to a customer related liability account. Such paw tax rate from 46 percent to an average rate of 40 per-f cent in l987 a.nd 34 percent thereafter. New acevunt- back commencedin 1987.

. ing rules issued by the FASB, w hich will become in addition, the rev FASB rules will require utili-cWeetive in 1990, will require all deferred tax balances ties to establish new deferred tax resents, ieluding to be restated at the 34 percent rate. As a result, tsing deferred taxes on the equity component of AFIX: '

. the 34 percent tax rate, it is estimat, .d that the System and NEl 's OCA smortiution, which have not previ-would have excess resents for deferulincome taxes ously been considered subject to deferred tax of approximate:y $7') million at Decenber 31,1988. accounting. This additional tax resent will be offset ,

Approximately $50 millie.n of this excess relates to by the establishment of a re;;ulatory asset represent-

. NEEl. It is expected that through the regulatory pro- ing amounts ultimrtely recostrable from ratepayers.

c cess excess res.nes for deferred income taxes will ne Therefore, the application of this new rule is not passed back to ratepayers with no significant impact expected to have a significant imp st on net income.

on net income. Accordingly, any excess will be Total federal income taxes differ from the ameimts income before taxes.The reasons for the differences computed by applying the statutory tax rate to are as folkms:

%sr ended December 31 (thousands of dollare 1988 1987* 1986*

Computed tax at statutory rate of 34 percent in 1988. 40 percent in 1987 and 46 percent in 1986 St28 305) $105.907 5142.516 Increases (reductions) in tax resulting from:

Allounce for equity T.mds used during construction (670) (10.115) t 14.253)

Rate setti: ment w rite-dow n (Note C) 15,696 Rewrsal of deferred tases rewrded at a higher rate (14,481) (5.177)

(5,618) (4.028) (5,705)

OCA tax benefits Hook versus tax depreciation not normali/.ed 2.638 3.140 4.1 ' 6 Aniortization of imestment tas crnhts (7.090) m.978) M.ril 7)

Allother differences (~.,172) (1.170) ' 102 i

'Etal federalincome cases S(40.002) S 81.579 5120.159 Fifectiw federalincorne tas rate (48.11'u 24.8"a 38.M"* ,

• Restated (Note F) '

Fed:ral income tax returns for NEES and its tw the Internal Revenue Service through 1983.

subsidiaries have been camined and reported on ,

l- ,

3 I'

37

W,'>q l-

?-

50teC In the second quarter of 1988, NEP reached a com- inthesecondquarterof1988.The crite-downas ReteseillMnent prehensive settlement of three wholesale rate cases recorded in other income md reflects the write <iown '

and two petitions filed ty an intenenor. 'lhe settle- of NEP's Seabrook 1 imestment offset tv certain ment us apprmed ty the FERC in September 1988. other related adjurments primarily the reversal of .

The settiement: (1) resohed alt issues associated $ 5.3 million after tax ($23 miinon before tax) of previ-D with NEP's pre 1988 Sestmera in the Seabrook I ously established refund reserws.This wnte< lown nuclear unit: (2) allows NEP to reemer through its redeced earnings per average share by $3.14 for 1988.

fuct clause, its payments to its affiliate, NEEl, for The write-down essumed Seabrook I will be can-costs resulting from NEErs oil and gas expiaration celled and includes the effect of a reduct:on in rates of and development activities undertaken from 19N $12 million per year as mentioned abme. Therefore, throt.gh 1983;i nd (3) settled all issues a-ociated if Seabrook 1 is ultimately cancelled NEP will not g'

with NEP's cost of prov; ding service under its prior he required to record any further write-down of its rates and rates in effect at the time of the settlem:nt pre-1988 inwstment in the unit. If Seabrook 1. ,

without further refunds, receises an NRC operating license i- *he future and -

The prudence of certain NEEl costs incurred sub- enters commercial operation, subject to the condi-sequent to March 1,1988 could be subject to FERC tions mentioned abme, NEP will make appropriate resiew. (See Note A-3.) Remvery of Seabrook I costs accounting adjustments to reflect the settlement incurred afterJanucq 1,1988 is subject to FERC provir. ions, including the additiona' revenues that will soproval. (See Note D-2.) be realized under the settlement, and to rewrse the

~!he settlement resohrd the issues by limit- impacts of hasing assumed cancellation in the initial ,

ing NEP's recovery for its pre-1988 im estment in write-down discussed abme.The impact of these Seabrook 1 to $61 mil':on per year for seven years and adjustments, assuming no power output leve: resenc-five months.'ll.e settlement also requires NEr .o tions in the operating license, would be to increase

educe rates by $12 million per year for five years if net income by about $85 to $115 million after tax, Seabrook 1 is cancelled. However, if the unit caters depending on the in-sen ice date of the unit.

commercial operation, NEP is allowed to increase As a result of the settlement, in the second quarier i rates by $16.8 million per year for five years, subject of 1988 NEP also stopped recording AFDC on its to any limitations relating to any pow er output level pre-1988 Seabrook I imestment and began amortiz- )

i restrictions that may be contained in the NRC's oper- ing tt.e pertion of such imestment being recovered l sting license. If, after entering commercial operation, under the set'.lement over seven years and five the unit is subsequently cancelled or abaHoned months.The pre-1988 Seabrook 1 imestment, within defined time periods, NEP must cease collect- after the settlement write 4own, is shown on a sepa-ing and/or refund the additional revenue, depending rate line on the balance sheet net of amortiution.

upon the circumstances on the cancellation or imestm nts in Scabrook i sinceJanuary 1,1988 abandonment. are included in the CWIP line o.: the balance heet As a iesuh of these limitations on reemery ofits and amount to $29 million, including AFDC, as of Seabrook investment, NEP recorded an after tax December 31,1988.

write-down of $179 million ($260 million before tax)

, 38 i

A' I

7 l'

(1) In December 1986, the FASB issued new rules for began charging to experse 50 percent of all other Sco- Note D regulated enterprises goserning the accounting for brook I costs being incurred, including AFDC. NEp Cesineit.aents ad property losses.11ese rules applied to:he System also charged o expense interest and other costs being contingencies beginning in 1988. As described below, in certain cir- incurred on a portion of NEEl's old oil and gas pro-cumstau.es such rules require write-dow ns of utility gram. Homeser, in the second quaner, the NEP rate assets."Ihe rules also establish stricter standards far sutkment eliminated the uncertainty surrounding

' tt e continued capitalization of AFDC. NEP's Seabrock 1 imestment through 1987 and the in addition, in a January 1988 order, the FERC NEEl imestment through Ma ch 1,1988. As a result, changed its policy regardingihe recovery of property the need to continue applying these nm accounting losses incarred in the futt.re. The new FERC policy rules to NEEl ended in the second quaner. Regarding allows i 9s to recover in rates only 50 percent of Seabrook 1. NEP continuca to charge 50 percent of prude.

• iov:rred costs if a generating unit is can- all AFDC on post Decernba 31,1987 cependitures

, celled. hourver, it alkm s uti9 tics to include the to expense. Since the second quaner, this charge has eemerable amount in rate base and earn a return not been significant. As part of the settlement write-on the unamortiaed Niance, down. NEP wrote off 50 percent of all Seabrook 1

' cesh cors estimated to be incurred during the During the first quarter of 1988 FASB's new accounting rules and the FERC's new policy were remainder of 1988 and 1989. Under the settlement.

applied to NEP's Seahrook I and NEEl imestments. the prudence of NEP's expenditures made subsc-As a result, NEP discontinued recognizing AFDC on quent to December 31,1987 will be subject to the about $165 million of Seabrook I imestments on its FERC's review.

books at December 31,1987. In additian, NEP

[2) NEP owns approximately 10 percent of the 1i 50 These expenditures are estimated to be approxi-MW Seabrook Nuclear Gene;ating Etation Unit I mately $20 million per Scar. Under current  ;

, (Seabrook 1), located in Seabrook, New Hampshire. . ERC policies, if Seabrook I enters commercial Through December 31,1987, NEP's expenditures, operation, NEP will be permitted to recover all post-including AFDC and nuclear fuel, for Seabrook 1 December 31,1987 expenditures found by the and common f.diities were 5543 million. NEP had FERC to have been prudently incurred. If the unit imested an additional $29 million uncluding AFDC) is cancelled, under the FERC% policy NEP will be as of December 31,1988. allow ed to collect cnly 50 percent of prudently Uncertanties regarding the recovery through incurred post-December 31,1987 costs, but will be rates of NEP'r investment in Seabrook 1 through allowed to earn a return on the amount being recov-  ;

Decernber 31,1987, were resohed by a comprehen- ered from customers. NEP has already written off, as sive settlement among NEP and intervenors in its a part of the $179 million settlement w rite-dow n. 50 rete proceedings.The settlement u-as filed u :th the percent of all Seabrook I cash costs incurred during FERC inJune 1988, and approved by the FERC in 1988 and estimated to be incurred during 19h9.

September 1988. As a result of the settlement, uhich also resolved important rate recovery issues other Background andlicensing than those relating to Seabrook 1. NEP recorded an Construction of Seabrook 1 uas completed in 1986, sifter tax u rite down ot 3179 million in the second hut the unit tannot enter cornmeicial operation until quaner of 1988. See Note C for additional infornu- an unconditional operating license is issued by the

. tion regarding the settlement. NRC. A prerequisite to the issuance of such a license P mwery through rates of NEP's investment in is a finding hv the NRC that adequare protective mea-Seabrook I after Janua,y 1,1988 is subject io FERC se;es can and w ill be taken in the event of a r2Jiologi-apptr.al, and the prudence of such irwestment could (al emergenev The NRC w ill hase its conclusion l l

l be challenged in fu,ure FERC rate proceedings.

t )

I l l

39 l

p j ,

n 1

!~ , j

.. f i' in part on the findir.gs of the Federal Ernergeaq operable. Massachusetts officials did not participate

, Management Agency WEM A) as to u hether there in the drill. and indicated that they would not delegate ;

are adequate off-site emergency response plans to the state's authority mer Massachusetts communi- i I

protect Oc public w ithin the emergeng planning ties to Seabrook management's evacuation officials. *

, zone required by ihe WRC. This zone is current lp - Hearings on the M2ssachusetts plan and the com- 4

' 10-mile radius arot.nd the plant, encompassing 23 bined drill are scheduled to begin in March 1989. -

- %e NRC has asked the !icensing boa d to act 3 menicipalities in New Hamp hire and Massachusetts. i

, ~;

Due to the v idespicad public concern owr the September 30,1989, as a tary.t schedule for a final )

safetyof nucleargeneratingoperathr" theeffectiw in tial decisien. Intenenors haw a ked the NRC j ness of Scabrook emergency respons, plans and the to uithdrawits ret iuest.

]

safety of Seabrook ha.c become the subjects of inten-  ;

siw public controversy in Massachusetts and New Jaint Owner FinancialConserna  !

Hampshire. Nu.nerous panies, including many in January 1988, PSNH, owner of a 35.6 percent I

elected federal, state and k. ' officials, are opposed share of the unit, f led a voluntary petition for protec-to operation of he plant and approval of emergeng tion from its creditors under Chapter 11 of the federal ' )

response plans. Bankruptcy Code. De bankruptcy pu lia:is l Controversy over emergency response planning, expected to be lengthy, and any effect on achieving l financi21 difficulties of joint owners, including ihe co:nmercial operation of Seabrook remains uncertain j bankruptcy of Public Service Compar.y o' New OnJane 3,1988, MMWEC, owner of an i Hampshire (PSNH) and uncensinty as to the contin- 11.6 percent share of LJoivok I, notified the other -

ued payment of Massachusetts Municipal Wholesale Seabrookjoint cuners of its decision to stop fundhg Electric Company's (MMWEC) share of project its share of Seabrook pre-commercial opersuon and costs, or othcr problems pertaining to regulation of maiatenance expenses, in conjunction with the nuclear power plants make uncenain whether or announcement MMWEC ofits intenuon to sell -

when the unit will be allowed to operate, its ir terest in the Seabrook projec .

Under current rules, the Governors of New A subsidiary of Northeast Utilitics advanced funds Hampshire and Massachusetts are normally responsi- to pay MMWEC's share of S, Avuk expenses until ble for the preparation of emergeng response plans the beginningof December 1988. InJanuary 1989,-  ;

j' for Scabrook. The New Hampshire plans u ere all former and most current owners, including NEP, ,

approved by an NRC licensing board in January 1989, signed agree:nents under which PSNH will make l

subject to certain conditions. MMWEC's Seabrook payments until the commercial 1 The Gowrnor of Massachuse ts refused io submit operation date, or cancellation, up to a maximum of emergency plans for Manachusetts and stated $30 million. The signateries '.o the agreem ents relin-l that no plans could provide adequate prote: tion. In quish their rights to suc USNH for Seabrook-related ,

September 1987. Seabrook project management claims.The ag cemens are subject to numercus con-ditions, includ;ng approval by the bankruptcy coun

[3 submitted an emergency response plan it had pre-pared fer Massachusetts, designed to meet the overseeing PSNH's reorganization proceedings. t l.

NRCi requirements for a ir.ihtyprepared plan sub- Other owners have advanced funds to pay MMWECi '

l: '

D mitted m heu of a state-sponsaied plan. sha.e of Seabrook expenses sinc: De t;mber 1988, ,

L in late junc 1988, a combined Mawachusetts and but how no obligation to continue doing so. It is ,

l New Hampshire drill of the emergeng response uncertain u hether arrangements to meet MMWEC's -

I plan , was held. In December 1988. l'EM A issued its share of future project costs will be successfully integrsted fir. dings on the ofi site plans and emer- completed.

geng preparedness for Seabrook. i'EM A concluded in connection u ith the owners' application for that the utihty plan for Massachusettw': be ade- authority to conduct low power testing. ir.tervenors '

l quate to pmtect the pubhc health and s-fety after in N RC heensing proceedings had requested a

!- the alert and r'otification systen e is installed and L

L H

u

! 40

+

+

y 3r 4; <

[ ,

s

, waiwr of the NRC's rules that preclude review of a InJanuary and February 1989,interwnors haw  !

rate regulated utility's financial qualificatior,s in opera- petit oned the NRC to review financial qualifications  !

,  ! ting;icense proceedings. In September 1988, the prior to issuance of a full power lixnse.  ;

NRC ruled that the owners of the unit should submit ]

' a plan to provide reasonable assurance that adequate ~ Other Matters

' funds would be avaik ble to meet plant de,;ommission. There is a po ential for litigdan inmtvi42 manage-ing costs if they were permitted to operate it at low ment of the construction of the project. One possible j power for *.esting purposes but never recciwd a full ~ defendet is Yankee Atomic Flectric Company 'I power license, in December 1988, the NRC issued an (Yankcc komic), which has provided services to the  ;

order requiring vasonable assurance that $72.1 million project. Yankee Atomic is the owner of a 175 MW ')

will be sva labb before s low power license is issued nuclear unit. NEP owns 30 percent of the common j

. for such potentia' tocommissic'ing and denying the stock of Ysnkee Atomic and is entitled to pur Se i requert for a waiwr ones financial qualifications rules. 30 percent of its power. The agreements reau.ed  ;

,The joint oi,*ners are attempting to secure a surety among the former and most current owners in bond in that amount to satisfy the NRC order. Inter- January 1989 mentioned above, include mwnants

' venors have esked the NRC to reconsider its order. not to st e Yankee Atomic.

i

~ (3) For a discussion relating to the recowry by properries, see Note A-3.

the System of its inwstments in oil and gas (4) NEEl is a 51 percent owner of New England during 1983 through 1987. Keystone seeks damages Collier Company (NECCO), an unincorporated joint in the amount of approximately $25 million plus puni-wnture with Keystorie Shipping Co. (Keystone), a tiw damages, costs and attorneys' fees. Arbitration  ;

subsid:ary of Chas. Kurz & Co., Inc. NECCO owns hearings on Keystone's claims began in October 1988.

the Energy.'ndependence, a 575 r.iillion coal-carrying - NEEl rejects Keystone's claims and is asserting t ship, and contracts with Keystone for the ship's : substantial legal and equitable defenses at the hear-

' operation. The Energy Independence is chartered to ings, which are continuing during 1989.

NEP through 2008. Under the termei the time Due to disagreement among the parties, no charter charter, NEP pays a charter hire rate based hire rate has been set for 1988 or 1989. NEP has com-upon 90 percent of the market rate fer similar menced arbitration agams: NECCO for determination coal-carryingvessels. of the charter hire rares f r 1988 and 1989. Pendmg >

b 1987, NEEl received a demand for arbitration a decision, NEP has been paying NECCO at an from Keystene alleging that ; T"' had breachei its estimated rate. NEEl and NEP are seeking to consol-duty, as joint venturer, concerning the charter hire idate the two arbitrations.

' rate., paid by NEP for the Energy independence (5) The System's largest generating unit , Brayton in Massachusetts Superior Court on the grounds, i

. Point Unit 3, experienced a major equipment failure amongothers, that they are responsible for the equip-in 1985. 'l he incremental cost of replacement power. ment failure. In November 1986, NEP executed an

,w hic!, amounted to $16 million, was included in agreement with the Rhode Island Attornev Generai NEP's fuel adjustment clause billings. whereby the Attorney General agreed not to initiate

, NEP is seeking to recover damages from Stone & any regulatory proceeding concerning the outage until

Webster Engineering Corporation (S&W) and others NEP's dispute with S&Wis resohed.

~

41

~

.d _ _

~

' *' (6)The utility subsidiaries' construction expenditures, to 1989.The oil and ps subsidiary"s expenditures, -

-W excluding AFDC, are estimated to be $625 miten in - including costs of capital, for its exploration and 1989. Included in this catimmte is $350 mdhon related d a .loprnent programs in 1989 are enumated to be

to the Hydro-Quebec Phase 2 project, approximately . $60 million. (See Note A 3.) At December 31,1988, . -

$200 million of which is for reimbiirsement tojoint substantial commienv:nts had been made rela ive participants of prelin inary project ests incurred prior to these planned expenditures.

(7) In connection with NEP's efforts to rednce sulfur the conditions ac approved daccept xl by NEP dioxide emissions and repowering of generating units, and the other parties, will require minimum fined pay-NEP has signed agreements subject to a number of ments, beginning as early as 1991. Such minimum 4

condHons which could lead to firm contracts for natu . payments have not been firmly established at this ral ps pipeline capacity. %csc agreements, when all . time but will be significant.

(8) Under Nha current arranaements for fuel sup-affiihds services. The agreement can be terminated ply, certain of its fuel contraus are assigned to a non- on three raonths' notice. Fuel inventory held by the -

affiliate which purchases foci under these contracts non-affjiste for NEP emounted to $1 ! m:llion at and in the open market, holds the fuel in imentory, as December 31,1988. This amount is included in the owner, and sei s the fuel to NEP at the time of bum at ' Consolidated Balance Sheets"in" Fuel, matenals and i pnces r :flecting its' cost of the fuel. In addition, NEP supplies" and in

• Accounts payable.'

pays monthly char,qes to cmcr the cost of the non-

~

(9) In addition to the matters discussed above, the (GMP). Prior to, dui!ng, and after that time, GMP utility subsidiaries, in common with other companics, owned a coal psification facility at wha; is now the '

a.t subject generally to other safety, environmental Pine Street Canal Superfund Site in Burbngton,

, and regulatory requirements, which may result in the Vermont. Appoximatelysixteenparties, including

- modification or delay in, or cancellation of construc- NEES, had been notifed by tne Environmental tion or operation of their existing or planned facilities. Protcetion Agency (EPA) that they were poten-Any of these requirements could result in iner::ased tially responsible for cleanup of the site, which is l' costs to these subsidiaries and their customers. contaminated by coal tar and other materials. On '

NEES and its utility subsidiaries have been con- December 5,1988, the U.S. Department ofjustice l~ tacted by federal and state environmental agencies filed suit in federal district court in Vermont spinst reprding potential statutoryjoint and severalliabilit y NEES, GM P and another party to recowr a'i past for cleanup oisites which they either have, or are and future response costs incurred by the EPA for re-alleged to have, disposed of material designsted as moval of coal tar wastes at the Pine Street Canal site.

haardous waste. While NEES and its utility subsidiaries cannot esti-L Between 1931 and 1951, NEES and its predcoessor, mate the costs which may result from these matters, 1' they do not believe at this time that such costs uvuld New Engand l\mer Association, ow ned all of the ,

!, common stock of Green Mountain l\mer Corporation be material to its fmancial position.

l' 4

L h

L 42 n

e \

4

\i V '

\

included in the 'Consolidatb5 hance Sheer s'made undersuch refunds w hich are being passed to retail Note E )

ftJnamortised propeny bsses' are the unamonied customers in 1988 and 1989. Prtperty19808B j ponions of the costs of two cancelled nuclear pxtat. As discussed above, NEP has been allowed to )

ingprojects at a discounted value. reccwer through rates owr time, costs incurred in con- l In 1981, a non-offiliated company announced nection with a number of property losses, including .I cancellation of plaris to build the Pilpim 2 nuclear Scabrook 2 and Pilgrim 2. Howeser,it has not been pneratingunit in Plymouth, Massachusetts. As a allowed to include any of these amounts in rate base and has, therefore, not earned a return on the l panerner, NEP had expended approximately

' $50 million ($29 million after tax) on the unit. In unamortized balance during the recmery period.

1982, NEP bepn to amortize and rewver these costs Although the FERC has recently changed this policy i

t. through rates mer an eightqur period, subject to (see Note D 1), NEP's reccwcry of its Seabrook 2 l refund pending a final FERC decision. In 1985, the and Pilgrim 2 property losses is not aficcted by this i fERC ruled that NEP could recover its ent,re imrst- change.'Derefore, under the new FASB accounting l ment m Pilpim 2. rules, in the first quarter of 1988, NEP was required . j NEP is ajoint ownrr of the cancelled Seabrook 2 to record the unamortiecd b lance of these property i 3  ;

nuclear generating unit. At December 31,1987, NEP losses at a discounted vak c.This requirement had expended approximately $69 million ($39 million resulted in a chstge to income equal to the effect of  ;

after tax) on the unit. In NEP's W7 rate case, the such discounting, As permitted by the new rules.

l FERC permitted the amonization end recovery of NEP has charged prior years' income by restating Seabrook 2 costs through rates over s. five year period its financial statements.The after tax effect of the l commencing March 1,1986, subject to refund pend- discounting write-down on retained earnings ior i' ing a final FERC decision. In January 1988, the the Seabrook 2 and Pilgrim 2 propeny losses as of FERC issued an or der stating NEP's entire imest- December 31,1987 was $9.2 million.'lhis restate-ment in the unit was prudent and could be recovered ment cf prior years'carnings has the related effect over a 10$ rar period, after reallocation of cenain of increasing after tax carnings for the > var 1988 by costs to Scabrook 1.'lhe amounts shown above for $2.1 million.

total costs at December 31,1987 reflect this realloca- 'ihis restatement also increased previously re-tion. (See Notes A-5 and A-6.)In December 1987, poned ner income by $2.4 million and $2.7 million NEP reversed a gonion of its Seabrook 2 amortiea- for the years ended December 31,1987 and 1986,

an and established refund pnwisions, w hich reduced respectively. These anmunts haw been recorded in revenues, in order to reflect the 10 year recovery the ' Statements of Consolidated income (loss)"in period orderedo' i the FERC.This adjustment had the *0ther income" section, no impact on net income. in August 1988, NEP NEES and its consolidated subsidiaries have lines of lieu of compensating balances on nmst lines of credit. Note F

redit with banks totaling $220 million, none of uhich During1988 $28,750,000of shon-termpollution Short term control bonds were refinanced with long-term debt. borrowing was being used at December 31,1988.'ihere are no compensating balance arrangements. Fees are paid in i e

l

' l i

1 l

l l

l i

43

ga . .

Note G ' NEES issued and sold additional common shares, : and common share purchase plan and employee l

, , ' %- Shereespital $1 par value, pui uant to its dividend reimestment share plans, as follows: -

[ MIY80EI 1988 198] 1986

. Paid-in Paid-in Paid-in (thousands of dollars) Par espital Par capital Par capital Dividend reimestment

! and common share  ;

l purchase plan S 943 $20,395 $1,165 $29,H16 $1,198 $29,%1 l Empic>ee share plans 631 13,838 464 12,446 415 10,912- i i premium on reacquired )

[ ' preferred stock ,

(17) (222)

$1.574 $34,233 ,$1,629 $42,245 $1,613 $40,251 -

i

\

Este H The indentures relating to mortgage bonds of to remarket such bonds at prevailing interest rates.

l Lenttermdebt utility subsidiaries require sinking fund installments The annual interest requirement on the outstand- - i totaling $7,345,000 in 1989, $7,845,000 in 1990, ing long-term debt of NEES' utility subsidiaries at 'i

$7,670,000 in !991, $7,470,000 in 1992 and December 31,1988is S91,369,000.

$6,150,000 in 1993.The issuers of the mortgage At December 31,1988, NEEl had rewiving credit -

l bonds may elect to satisfy these installments in cash, and term loan agreements with three banks providing l in bonds, or by o idencing to the trustees additional for borrowings of up to $500 million in two portions.

property in amounts as provided therein. Substan- The first portion was secured by a pledge of NEEl's l tially all the properties of the utility subsidiaries are rights with respect to NEP under the Pncing Iblicy subject to the lien of mortgage indentures under covering the old program while the other portion, l ,

w hich first mortgage bonds and general and refunding which applies to the new program, was supported by a mortgage bonds or orher secured indebtedness have Capi:al Maintenance Agreement between NEES and been issued. NEEl. (See Note A 3.) The $345 million outstanding The agregate cash payments to retire maturing at December 31,1988, was all secured under the first ,

j. mortgage bono and for cash sinking fund re- portion with interest rates ranging from 8.2 percent to i quirements on long-term notes of NEES' utility 10.1 percent. N eel is also required to maintain a subsidiaries for the years ended December 31,1989 minimum net uorth of $40 million, including sub-through 1993 are as follow s: $37,890,000 in 1991, ordinated notes payable to NEES. These borrowing

$93,400.000 in 1992 and $61,400,000 in 1993. facilities operate as rem!ving credit loans through l There are no requirements for 1989 and 1990. Hold- December 31,1989, at u hich time they convert to

!' ers of pollution control rneme bonds secured by five$ car term loans u ith equal quarterly amortiza-NEPs Series K, O ud P g aal and refunding mort- tion. These agreements are expected to be refinanced gage bonds can periodically require NEP to repur- in 1989. (See 1989 financing section of Financial l_

chase those bonds. In such esent. NEP would expect Rniew.)

l

Notei During 1987, all of NEP's 13.48% Series of cumula- u as r

deemed. These redemptions resulted in l: Redeemable tive preferred stock was redeemed. During 1986, all charges to retained earnings in 1987 and 1986 of Ptsletted stod of NEP's 11.04% Series of cumulative preferred stock $2.445.000 and 51.648.000, respectiwly.

s 44 4

-3 .-.- - -- ,- . ,o- - . - - - , _ _ , _

e. - ..

$ l ) ,

%e management of New England Electric System . . internal controls and recommends impro ements Report of j when approprhte. Management l lis responsible for the integrity af the consolidated

' financialatstements ncludedinthisannualreport, Coopers & 1;yorand, the System's independent j

, ' hefinancialstatem ntswerepreparedinexord- . certified public accountants,is enpged to audit and j ance with generally accepted accounting principles express their opinion on our financial statements. l

' using management's informed best estimates and Their audit includes a review of internal controls to j judgments where appropriate to fairly present the the extent required by generally accepted auditing

. financial condition of the System and its results of . standards. .

J operations. The information included elsewhere in - The Board of Directors carnes out its responsi-1 this report is consistent with the financial statements, bility for the financial statements and the related

- The System maintains an accounting system and financial data through its Audit Committee, which 1

. system of internal controls which is designed to pro- is composed solely of outside directors.The Audit Committee meets periodicahy with management, the

% vide reasonable assurance as to the reliability of the financial records, the protection of assets, and the internal auditor and the independent public secoun-tants to ensure that each is carrying out its responsi-3 prevention of any material misstatement of the finan-ciel statements. Th e System's accounting controls bilities and to discuss auditing, internal accounting

haw been designed to provide reasonable assurance . control and financial reporting matters. Both the j

' that errors or irregularities which could be material to internal auditor and the independet public accoun-

~t he financial statements are prevented or detected by tants ham free access to the Audit Committee,

. emplopes within a timely period as they perform without management present, to discuss the results their assigned functions. The System's internal audit- of their audit uurk.

, L ing staff independently assesses the effectiveness of T. % duW _

joanT. Bok Alfred D. Houston Chairman, President,and Chief Senior Vice President-Finance

-i Executiw Officer and Chief FinancialOfficer Ta the Board of Directors and Shareholders of supporting the amounts and disclosures in the finan- Report of .

Independent s New England Electric System: cial statement. An audit also includes assessing the acc unting Principles used and significant estimates if a lic We have audited the accompany ing consoudated made by management, as all .ts evaluating the over-balance sheets and consolidated statements of capital-

' ization of New England Electric System and subsid- aHna$ ali statyment presentathn We believe that ur a ts pede a reasonable basis for our opinion. 1

~ istics (the Company) as of December 31,1988 in ut pini n, the financial statements referred e . ' and 1987 and the related consolidated statements t abov present fairly,in all r. aterial respects,

• ~ ofincome (loss), retained earnings and cash flows the e ns lidated financialpontionof theCompany 1 ' far each of the three years in the period ended as f December 31.1988 and 1987, and the December 31,1988. These financial statements

' "5 N8' '** '5 b'5 PN "5 "" , 5 '**

<ste the responsibility of the Company's management.

fl ws for each of the three years in the period ended Our responsibility is to express an opinion on these December 31,1988, in conformity with generally i financial statements based on our audits.

accepted accounting principles.

l We conducted our audits in accordance with gener-

' ally accepted auditing standards.Those st'andards require that we plan and p-rform the audi. to obtain 4[

reasonable assurance about whether the financial statements are free of material misstatement. An Boston, hlassachu+ tts D audit includes examining. on a test basis, evidence February 21,1989 45 ,

a ,

s  ! .

._ ~.,

_c ,

New EReland Electric System and Subsidiariu .

M lRIOfM StiOR GR b Se p nentS I I (uneudited) '

f I

'Ihe consolidated group operates in two principal domestic industry segments.

(thousands of dollars) Electric Oil and ps Comolidated h ended Operatingrewnue $1,461,124 $ 58,553 $1,519,677 ' !

Dessuber 31,1980 Depreciation and amortization 135,247 93,813 1 r29,060 Other operstmgexpenses 1,031,950 6,138 1,038,088 :

Federalincome taxes 58,07I (26,7s7) 31.274 :

Operatingincome(loss) 235,856 (14,601) 221,255 Interest expense 93,914 511 94,425 ,

income from equityimestments 7.841 7,8416 '

Other income (expense)-net (188,505) 14 - (188,491)

Net income (loss) $ 08,722) $ (15,098) $ (53,820)

Totalassets $3,111,363 $606,609 $3,717,972 ,

inwstments at equity $ 70,733 $ 70,733 Capitalexpenditures $ 192,359 $ 59,849 $ 252,208 h anded Opciatingrevenue $1,401,726 $ 46,467 $1,448,193 h 31,1987

• Depreciation and amortization 102,028 76,890 178,918 Other eperatingexpenses 953,869 7,101 960,970 Federalincome taxes 101,113 (20,886) 80,227 Operatingincome (loss) 244,716 0 6,638) 228,078 Interestexpense ' 80,321 1,140 81,461 income from equity imestments 8,723 8,723 ,

Otherincome-net 15,860 6 '15,866-Net income (loss) $ 188,978

$ (17 22) $ 171,2% ,

Totalassets $3,329,577 $640,485 $3,970,062.

Inwstments at equity 5 72,078 $ ' 72,078

Capitalexpenditures 5 165.217 $ 54,734 $ 219,951 "

h ended Operatingrevenue !1,375,821 5 56,122 $1,431,943 .

December 31,1986* Depreciatior and amortization 116.239 87.263 203,502 Other operatingexpenses 903,286 6,785 910,')71 Federalincome taxes 126.370 (8,741) I17,629 Operatingincome (loss) 229,926 (29,I85) 200,74I Interest expense 79,720 1.135 80,855 ,

income from equity investments 12,808 12,808 Other income-net 17,826 24.150 41,976 Net income (loss) $ 180,840 $ (6,l70) $ 174,670

,7 __

Tota! assets $3,124,744 $662,758 $3,787,502 Imestments at equity 5 72,219 $ 72,219 ,

Capitalexpenditures $ 188,014 5 77,332 $ 265,346

' Restated (Note E) in 1985, the SEC panted approval to divide NEEl's oil $0.8 million loss from operations on the non-rate regulated and gas exploration and development activities into tuo progam and (b) a $17.0 miHion loss from the rate regulated prgams: a rate regulated progam and a non-rate regulated program, w hich was passed on to customers in 1988. The progam, The net loss for 1988 of $15.1 million includes (a) net loss for 1986 of $6.2 million reflects the loss from oper-a $0.1 million profit fron. operations on the non-rate regu- ations on the non-rate regulated propam. See Note A-3 lated progam and (b) a $15.2 million loss l rom the rate reg- of-Notes to Financial Statements" for a more complete

< ulated progam u hich will be passed on to customers in discussio- of oil and gas operations.

1989. The net loss for 1987 of $17,8 million inclunes (a) a 46

r~+n.- ,  :.

.)

k.y' v ,.

g.

L New Endend Elsserts System and Subsidiaries

' M lNigrmetiOA Sn C and Gas Activities ,

. uneudasd)

( ,

'The estirnates of NEEl's proved resents and proved dev:: lop' ed resenes of oil and gas, all locat'ed within the United States, and channes to the estimated proved reserves for 1986,1987 and 1988 are as follmvs:

v Crude oil and condensate Naturalses (thousands of Bbi) (thousands of MCF) 3,952 164,966 Proved reserves as of December 31,1985 (449) ' (4,352)

Revsions of previous estimates .

17,847

~

• Extensanns, decoveries and other additions 223 (589) (19,893,)

s Production Proved reserws as of December 31,1986 . 3.137 158,568 2,087 17,380

' Revis'ons of previousestar ates Extensions, doomeries and other additions 119 13,808 (461) (21,839)

Production 4,882 167,917 Pimed reserws as ot December 31,1987 -

130 (3,177)

Revisions ofprevious esumstes ,

372 17,271 Extensions, decoveries and other additions (420) (27.775)

' Production 4,964 154,236 Proved resenes as'of December 31,1988 Vear end awrage Praed selling price dewloped resents Crude oiland 1 Crude oil and 1 condensate Naturalps condensate Naturalps (per Bbl) (per MCF) (thousands of Bb1) (thousands of MCF) p 157,443

1. . December 31,1985 $26.19 ~ $2.97 ,

2,980 2,121 141,257 l

' December 31,1986, $12.95 $1.68

$17,% 1,752 149,385 l l December 31,1987 $1.77 1,787 143,335 .i l December 31,1988 I $15.44 $1.89 L I i' : Proved resents are estimated quantities of crude oil, cort- December 31,1988,1987 and 1986 are approximately 153,000 Bbis,137,000 Bbts and 200,400 Bbis, respectively,  !

H f densate and natun.1 ps which geological and engineering j

~ data huiwate with reasonable certainty to be reemer- of crude oil and condensate and 13,068,000 MCF, 13,228,000 MCF and 4,070,000 MCF, respectimly, of l

' able la future years from lowwn oil and ps resenuits under existing economic and operating conditions. Prowd dewl- natural ps v hich relate to the new program.

The estimates of NEErs prmed and proved develc,,ed

' oped rescrws are those prcr,rd resents reasonably i

. . , expected to be recowred through existing wells with exist- resents were prepared by independent petroleum engi-  :

ing equipment and operating methods. Included in the neering consultants. Bennett & Westerman, Inc. of Dallas, l

l' 7 proved resents at December 31,1988,1987 and 1986 are Texas prepared these estimates for 1988 and 1987 and t approximately 153,000 Bbis,137,000 Bbis and 210,000 K & A Energy Consultants, Inc. (formerly Keplinger and

Bbis, respectiwly, o; crude oil and condensate and Associates, Inc.) of Dallas, Texas performed the estimates

j. for 1986 and 1985.The resents are estimates only and J

13,068,000 MCF,13,226,000 MCF and 5,028,000 MCF, should not be constn.ed as exact quantities. Future condi-respecthely, of natural ps which relate to the new program. Included in the proved dewtoped resents at tions may affect the recovery of estimated resenes.

I

{,

?

u, s

47  ;

B l*-

System Direstors' System 0ffisers' System 8at1Mieries 1 As of December 31,1988 As of December 31,1988 W.Despantes Joshes A.MsChue Jean T.tek -Elastrie Compesy  !

Former Charmen and Former Pres &nt Chairman, Present, and 25 Reneerch Drhe

• Chief Execuow Officer American Custom Kitchens,Inc. Chief Execuene Offar Westborough,Mannschusetts 01582 State MutualIJe Providence, Rhode Island Edward E. Mull pn, President Aneurance Co.of America Audit Committee John F.Nogleur Executiw % President TheWBustrisCampesy

, %cester, Massachusetts Customer Scrvice Committee

• "' 280 h h Emmenitiw Cannunee MaisohnMcLene Prov&nce RhooeIsland02901 Orr & Reno, P.A., Attorneys Robert L McCabe, President JeanT.Bok F,gderie E, h Oierman, President, and Concord,New Hampshire Senior % President, GranheStateBeatrisCompany Chief Executiw Ofrar Audit Committee GeneralCounsel, 33 West l2banon Road New England Electric System and Secretary lebanon,New Hampshire 03766 ,

_Z r 1,Masaschusetts Feh A. Allrands,Jr. ~

Russell A. Holden, President Compenestion Committee Priwteinwstm Aihed D.Neesten m_ New %rk,New %rk 3,,;,, g % _ Neur EndeedPeuustCompeur

% c_- -

CompensationCommittee Finance and Chief 25 Research hiw Janus N.Naster Customer Service Committee financialOfficer wgh,Massachuse 01582

t. - Former Piemident James Hunter Machine Co.,Inc. George M. Sage EswEsWoodEnugyM' '

George P. Seed 25 h e ain North Aderns, Massachusetts b t Senior W President and Wanborough,Mesendiussasetist p

"" Engmeer Prov&nce, Rhode Island NeurEndeedBeatrisDenomissise ' "

Paull.Jealmur Executne Committee Carperstlen Robert O.Siguisur Professor of Economics 4 Pwk Street AnasWatler N Pr*5ident Meneschusetts Institute of Concord,New11..v a.i.e03301

, Massachusetts Reynolds Harrison Glenn R.M geur England Hydrotenomission

& Schule,Inc. Vice Presidem Corporation Audit Committee Cur:omer Service Committee M mem 1 '

D Reiert C. Smith or Hainpshee 03301 John F.Heeleur Compensation Committee Neuw England MydroTressaission and ief r ing cer James G. Wilson b Professa easwer New England Electric System Westborough, Massachusetts 01582

%: borough, Massachusetts The Uniwrsity of Californ,a i Customer Service Committee at Angeles hwEmugy hW Audit Committee 280 Melrose Street Edmuerd H.Ladd Providence, RhodeIsland 02901 Ap & Wood,Inc, l

Marborough, Massachusetts 01752 George P.Sakelleris, President l Execuuw Committec l

Ilow England Ptuusr ServiesCoupesy 25 Research Driw

%tborougt., Massachusetts 01582 l

1

' Effective February 13,1989. John W. Roue became President. Chief Executiw Officer, a director,and a member of the Executive Committee.

l 1

48

- -_------ _ _ __ _ _ __ _ -.-_ __ --,..-. --_w-.,-,._,vn,.. -,c,,,..m-.y.,,,,.,- , - - . . - , - . - . _ . . -, ..w - ,.,wn- ,,m,--,%w-- - - - .,_y-w..- ,

. ,$73

1. @ 9 o IMAGE EVALUATION M4

4) 8 M)#'

J> Test inosr (arm /////

jppp j /p

+ .

l.O WM M y y BE ll E5: llllE

, 1.8 l.25 1.4 1.6 4 150mm O 4 6" >

I# //A fg+p'.4>f7777$777/q z  ;;; M s<g,.4i4 e c;

& . .. .a

_ . _ __J

-_g, f 4/ l 0 9 #h M/ IMAGE EVALUArlON /,,// M/4 4# J rest TAnoEr wrm jp f p

+ .

l.0 j En D14 8

l s

'[9L2g II E u

= EE l.8 1.25_

l.4 1.6 4 150mm >

< 6" >

1. *% f4

• $lf by,,,p,, . ..

8 Q*$}*,'h l k -

5% -_----.-- i A

4

'**@ IMAGE EVALUATION b4 I

4) g dh(>@ rest r=Ger (arm ////

7ppp g

+ +

1.0 lf 2 2 5!I E ll E = llLE ra l.25 IA 1.6 4- 150mm O 4 6" >

• ' / !b p[g 5,%// g .

, f Afffff ,lu y <g

. . _ _ _ _____________I

---

a ---.__---J

3 0

'%@ f+/ IMAGE . VALUATION 5 b

g/ : >, ,..,-.,

,///// ,9k;,.

+ <:

1.0 d2 2 i

$!NE  !

ii t i= ILE t:

1 1.25 1.4 1.6 i

< 150mm >

'* '4

( 4 bipSzzzz1.

84p;,g-s/, e .

a m s

e . -- .

. N h d e m sellen 1988 1987 New England ,

"- Price ruwe DhMend Price mny Dneend Electric System low High im declared High declared Firacquaner $24% $21% $ 51 $32% $28% $.50 smedquener $24 ,

$20 8.51 $29% sts> $.50 ,

' Third quener $24 $22% $.51 $28% $24% $.50 Fourth quaner $25% $23% $.51 $26% $20 $.51

'The total number of shareholders at December 31,1988 wat 72,385.

First Second 'Ihird Fourth Selected quarterly

' (thousands ofdollars) quaner quener

• quener quener financialinformation id 1988 (unaudited)

Operatingrevenue $397,884 $ 354,465 $3%,562 $370,766

,Operanngincome $ 71,922 $ 41,928 $ 59,438 $ 47,%7 Notincome Cons) $ 47,387 $(158.498) $ 37,229 $ 20,%2 Nat'urime Goss)per eversy share $ .84 $ (2.80) $ .66 $ .36 1987" Opemeingrevenue $392,444 8 354,218 $361,195 $340,336 Operaungincome $ 67,460 $ 46,625 $ 53,524 8 60,469 ,

Notincome $ 53,779 $ 37,138 $ 38,807 $ 41,482 Notincomeper eversee share $ .98 $ .67 $ .70 $ .74

% NoacC l **Restaaed(Note E)

Qw.stions about shareholder records, quanerly dividend New England ElectricSystem Sharsheider payments, reinvestment of dividends, and opuonal cash Shareholder Services Department services payments should t< iirected to: Nt Offce Box 770 l Westborough. Massachusetts 015810770  ;

'The First NationalBank of Boston Trentfor agent and registrar 100 FederalStreet

! Boston, Massachusetts 02110

' NewbrkStock Exchange Stock exchange Boston Stock Exchange listings Trading symbol NES

'The annual moeungof New England Electric System will be held at New England IJe Hall, Annual meeting 225 Clarendon Saeet, Boston, Massachusetts, on April 25,1989, at 10:30 a.m. notice Copes of the annual report on Form 10K to the Securities New England Electne System Form 10Kand and Exchange Commission and a Statistical Report for Shareholder Services Drpartment Statisticalflaport 4988 can be obtained, free of charge, by wTiting to: Nt Office Box 770 Westborough, Massachusetts 01581 0770

% name h England Electric System means the trustee or trustees for the time being (as trustee or me tees but not personally) under an Agreement and Declaration of Trust datedJanuary 2,1926, as amended, v.L.h is hereby referred to, and a copy of which, as amended, has been filed with the Secretary of The Commonwealth of Massachusetts. Any agreement, ot, ligation, or liability made, entered into, or incurred by or on behalf of New England Electric System binds only its trust estate, and no shareholder, director, trustee, offser, or agent thereof assumes or shall be held to any liability therefor.

< This report is not to be considered as an offer to sell or buy or solicitation of an offer to sell or buy any security.

d

, - - - , , - - . . ,--,,,.,..,---,,.,,--.,-w,~-n-,, -- -

,a. -

,-,,. ,n,,.,,- -. _ , , - , - , , --,ca

. 1

.- cAn. , c;ns L -'A ,  ?".! r

. aed . .'. . .s,k > ne,u.e{<,

r,

, ;,,, W c  ;

g- 8 .>

o , i 4 ,, 4 n

,. xs*

io - y. 3 A_.a-_~.

,a .

Bi e

s (

.Q

,. m I';. % geom %e s

l, $- d'* >\ \v

[ i I

f:

1.gy. .

m ,.

i ')  ? *4

!' > s. . .

i

. 4

\ .,

?

+

$I h

1. -

he y*,

I A 4 O

i. -

g

'i 9 E

9.- p, .

h-e

( I-4..

0 y.

• O

• f'. *

. .: A h

' ~

' . ?f 4 ,

.. N

+

$ ( -

w.  % +-

3 s

h a f A J

M J l L e * . . .+ .

e < ,,

9

.: y-

..a . .

F g a+

4 -

f- a g.

9 s . 4

=. [* 4 ' 9 ,. .g -

. 4

't -

j.

t

, , \ ~, . , , M. .g , ,. g I *.c

'a g

• r

[ ., ,

h3,

• w , -i

.. p .. , ,. r Q*

f%. , hl.t- - M' 9*4 .*W ' '

'8 ** e p ' (k $ .

_, **' y

- , a. - ,

. 4 94 ,A -

.,' r ,y a v r

- ;f

?., . ,,

..%u .* .e . y or

- F' v * * . f . t

t. ' #  :. .

W  %

., .46-

.e d- f e e. g'.

O 9 .w 4 ,eN E ,,

9 '

9

,>  ; 1 '* * $

• 4 p~ _

< s , ,e= 4 g '

• 3

.I

_d8"

• s

1. *,-4 ,, .

,3* a 4 ,**

p .- g .

7 ,

4

• z .

, e s ,.

~

<g

, f.O .:. (.

,e

-s. - 4 ~. ,

s. &

. g: ,. w ,. .

's , ) e,y Westereugh, i . ,

+

c g .-

.s s4 A- ,.,. ,

4 01582  : 4

, ,, t

. *;* g '-

• a .

m. .. e e sesseasett - '.l ., -

.g 8

s

.g  ? E p -

... A # *:... + __ .. -- _. =_