ML20009F280

Annual Financial Rept 1980.Supporting Documentation Encl

ML20009F280
Person / Time
Site:	Seabrook
Issue date:	07/21/1981
From:	NEW ENGLAND GAS & ELECTRIC ASSOC.
To:
Shared Package
ML20009F275	List: ML20009F274 ML20009F277 ML20009F279 ML20009F280 ML20009F281 ML20009F282 ML20009F283 ML20009F285 ML20009F286 ML20009F287 ML20009F289 ML20009F291 ML20009F293
References
NUDOCS 8107300238
Download: ML20009F280 (100)

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jNew England:AO Gas:and Electric Associatiort ud*%g: @ $f tem:6@;ed,iiles l1980 Annual Report lNb: *bidO69$ss r

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$324.3 $359.7 $339 2 $386.8 $512.5 $18.3 $21.5 $21.9 $22.7 $26.9 V16.7 s

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! 1976 1977 1978 1979 1980 1976 1977 1978 1979 1980 1976 1977 1978 1979 1980 Eamings and Dividends Revenues Netincome E Earnings E E!ectnc Retail n Electnc O Dmdends E Gas U Gas E Electnc Who esale E Other a Steam and Other System Profile Bedford, Cambndge and Worcester. capac:ty and energy from the<r respective New Eng:and Gas and Electoc Associa- In addmon to the utihty companies, the ownershrp interests in one oil-fired and four tion es an exempt pubhc utihty hold:ng com- system includes a steam distnbution com- nuclear efectnc generating facihties pany w,th investments in four operating pany, two reat estate trusts. an oil and gas The Associat,on is a business trust pubLc ut;hty compan es located in central exp! oration company, and a subsidrary in- organized in 1926 under the laws of and eastern Massachusetts. System volved in the manufacture and sa'e of gas- Massachusetts Subsidianes of the etectnc operat;cns are involved in the f: red heat:ng equipment The Association Association have common executive and production and sate of efectnc:ty in 41 also has a 34 5% cwnersh:p interest in a gas financial management and receive communit es inc!uding New Bedford. transmission and supply company and a technical assistance as well as data Plymouth. Cambndge and the geograpbc 50 6 interest in a company engaged in the processing, accounting and other services area compr! sing Cape Cod Gas operations operation of an LNG facility serving our gas from a service company subsidiary-s.rve 47 commun t<es includ.ng Nea divrs:on The electnc st'bsidianes receive i l

_ _ _ _ - _ _ _ _ . _ _ . _ _ _ . _ . _ . ..._____________._______a

Financial ,

Highlights On Mat:ons) 1980 1979 1978 -

$455 9 $473 2 $489.0 $ 507.5 $ 5to.8 FinancialStatistics Total Operating Revenues $512,535,000 $386,843.000 $339,195.000

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'15.8 I1 h Total Operating Expenses 477,435,000 356,591.000 309.165.000 106.6? Net income . 26,925,000 22.715.000 21,868.000 14.3:

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- 4 Earnings Applicable to Common Shares 22,892,000 18.622.000 17 714,000 Property Plant and Equipment (including Wbrk in Progress) 561,768,000 531.745.000 506,455, MO w Construction Expenditures . 35,320,000 30.759.000 23,589.000 C ommon Stock Data

$2.50 S2.40

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Earnings Per Common Share . S3.01

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Common Share Dividend Rate at End of Year . $1.72 $1.60 $1.52 Weighted Average Common Shares Outstanding 7,604,290 7.456.489 7 384.283 Common Shareholders . 26,127 26,877 27,422 Operating Statistics Customers Served 260,900 256,100 f

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Electric (including seasonal)

Gas 267,900 194,600 189.700 185,800 Unit Sales (in thousands) 1976 1977 1978 1979 1980 KWH Retail . 3,121,583 3,048.612 2.974.570 Plant Wholesale . 2,418,540 2,586,954 2 687.955 MCF 36,745 34.139 35.469 s

C Steam and Omer i CONTENTS President's Letter . 2 Corporate Identity Program 4 Year in Review 5 Electnc Dnnsion 7 Gas Division . 9 Diversified Operations 11 Financial Statements .13 Management ~s Discussion and Analysis of Results of Operations and Financial Condition .28 Comparative Statistical Data .30 Trustees and S/ stem Officers. .32 Annual Meeting l All shareholders are invi'ed to attend the next Annual ' 'eet:ng v.h:ch wn! be held on May 7,1981 A forma; ricDce of the meeting toge her wth a proxy statement and a form of proxy v4 be maded on Apnl 3.1981 to shareholders enntie a to vote at the meebng 1

i President's l

Letter l

l m -~% mm We strive to keep pace with the loss m-~ w. "" ~~"~7

- - y of real earnings and the erosion of the i .j return on invested capital to maintain

• c M investor confidence. These efforts have L

7 j included, among others, greater em-

' 1 phasis on cost control, requests for in-E _

creased rates when necessary, and in-U -

creases in our common dividend when  !

1. justified by improved operating results.

l g='i We were pleased to announce another dividend increase dunng 1980, to the y

M current annual rate of $1.72 par com-9 '

mon share. Providing an attractive re-

> - turn to our shareholders has been, and f 3

/ will continue to be, a prime objective of

, s ij the Association's management.

As you know, the system's recent F -

lj? 9 reorganization was, among other v a thir'gs, designed to streamhne the p [ management function and provide for 7M increased and more responsive cus-

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l~ - .wd tomer service. In conjunction with this

[, .. W 'd consolidation and restructunng proc- .

E < ess, and as a result of changes in cor-

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porate activities, we have developed a one-system concept. In the past, our system has lacked a clear identity be-cause we were a systern of individua' corporate entities and separate managements.

To Our Shareholders: the economy of certain Massachusetts The Worcester. Cambridge Gas and I am pleased to report that system cities and towns in our service areas. New Bedford Cape and Vineyard mer-operatons improved significantly dur- the economic picture at the national gers of 1971 began the process of con-ing 1980. Our earnings reached a rec- level remains bleak Prospects of con- sohdation and simpkftcation of our sys-I ord level of $3 01 per common share, tinued penods of nsing energy costs, tem activities With the sale of New Bed-compared to the $2.50 per share re- high interest rates, unemployment and ford's gas assets to Commonwealth l ported to you last year. This represents runaway inflation are of concern to us Gas accomplished, our new corporate a 20% increase over 1979 results. a real a!!. The unprecedented level of interest identity program is entenng its final l

accomphshment for a company in our rates has been particularly disturbing. stages. Further details on this program industry The improvement in earnings As you know, our industry is very are provided in a separate section of l can be attnbuted. in part, to the rate capital-intensive, requiring significant this report. As communicated to you relief granted to certa'n system sub- amounts of capital to meet construct:on earlier we will be seeking your approval sidiaries, effective in January 1980 and needs. The cost of completing new at the ..nnual meeting to change the from increased gas sa!es,in the wake facihties needed for ou: electnc and parent name to " Commonwealth of an extremely cold fourth quarter. gas operations has grown dramatically Energy System". When in place, we feel Other major factors affecting 1980 re- in recent years The threat which infla- the new forre nrganization will help us su!:s were a much higher level of other tion poses to the financial stabihty of to meet the chal!ene ci the 80's.

income from our equity earn:ngs in utihttes and other businesses is of grow- The cos t of fuel oil for our electnc l A!gonquin Energy, Inc. and interest ing concern to us and to the financial generating f acihties has been increas-income reahzed on short-term community. This increased nsk has ing at an rJarming rate. We began the investments caused utihty financings to become year 9') paying an av, rage of $22 per Although we are pleased by these more difficult and extremely expensive barrel for fuel oil and at this woting are l operating results and the upswing in Since these costs are ultimately re- payr ' nearly $33 per barrel. With every I flected in our customers' bills, we con. indication that the escalation in OPEC tinue to strugg!e with and seek solutions 2 to this problem.

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pricing will c "tinue. We have reached mixture as soon as this process is per- as a result of the Natural Gas Policy Act.

the point wNre the power cost adjust- fected. Also, before these expenditures The congressionalveto of the second ment portion of our customers' electric are incurred, some solutions should be phase of the incremental pricing pro-energy bills now exceeds the base cost presented to the logistical problems of visions was a mapr victory for the gas of prov; ding service. Although no one coal supply and the disposal of ash and industry.

Could envision the dramatic trend in fue' other residues from buming coal. We Algonquin Energy, Inc. (34.5%

oil prices which has taken place dunng will continue to work toward an econom- owned bythe Association)has become the past two years, we re reminded of ically sound solution which makes involved in expanded exploration activ-the intolerable regulatory and inter- sense for our customers and share- ity, including the currently active venor delays which have prevented holders. We will also vigorously oppose " Western Overthrust Belt". In addition, completion of new generating facihties any requirement which does not make they have recently finalized an agiee-which could have lessened our prob- sense. ment, subject to governmental approv-lem, including the first unit at Seabrook, We can anticipate that, as energy als, to import natural gas from Canada.

New Hampshire, which, based on the costs continue to rise, alternative After these approvals have been re-onginal schedule, should have been sources will become more attractive ceived,it is contemplated that a new generating electricity today. The New and technological advances will even- pipeline will be constructed. The England region, and our system in par- tually emerge. For the present, we view pipeline will extend from northem ticu!ar, has a greater reliance upon conservation etforts and load man- Maine to Rhode Island, where it will foreign oil sources than most of the agement as essential to the mainte- connect with A'gonquin's existing country and consequently, has bome a nance of an adequate reserve margin. system.

disproportionate share of the excersive These efforts will provide us with some These activities should not only pro-costs. The planned nuclear electric of the energy required to mect increas- vide our customers with new gas "Menerating fac:hties which were ex- ing consumption, until such time as supphes, but also our shareholders with

_ected to provide a sigmficant portion new facilities become operational. a higher return on investment.

'of the region's future generation have T,1e health and survival rf our region We continue the search for sensible encountered numerous prob! ems. We and 7ur nation is depende . on a work- regulation of our businesses. The have seen the postponement or cancel- able lational energy pohcy. ?r.e recent financial stabihty of our industry and lation of several nuclear projects in our deregulation of domestic oil and gas the abih y to serve customers in an region for vanous reasons, pnncipally prices has stimulated exploration and adeque te, cost-effective manner, must regulatory delays, reduced load growth production activity and we are encour- be addressed by regulators through and f;nancial diff;culties. Although de- aged by indications that additional the granting of fair and reasonable mand has not yet approached tne domestic energy supplies will become rates of return on a timely basis.

levels of earher industry estimates, we available in the future. Expansion of our Management w P continue its efforts continue to face the problem of provid- domestic gas supply has been an early to hold its costs down, however, one ing reliable service to meet a growing benefit of this action. although these obvious point must be made - the demand and to replace older oil-fired new supplies will be dehvered at a days of cheap energy are past.

faciht es. much higher cost. As stated in my mes- We continue to receive the strong The government mandated use of sage last year, the gas industry is be- support of you, our shareholders and coal or high-technology fuels for new ginning to receive recognition as hav- our dedicated employees, and I am facihties and the conversion of existing ing a major role in the nation's energy confident that, with your continued oil-fired units to these sources is a future. help, solutions to our problems can be laudab!e concept, but it has mapr Recent actions at the Federallevel found problems will further expedite industry efforts to The Department of Energy has a assume that role. This past year saw congressional mandate to produce a record dnihng and exploration activities For the Trustees, reduction in oil consumption of utihties by banning the use of oilin boilers determined to be capable of converting [ G E Anderson, to a: ternate fuels We agree that this Presdent desired goal is in the national interest

^^ However, before these massive ex-L penditures are ordered, every possible

" alternative should be pursued includ-ing: build:ng new units, replacina boil-ers, which wou!d extend the hfe of con-verted units or using a coal-oil slurry 3

Corporate Idsntity Program O

We have recently completed the last 1 We have a!so adopted new logos for to change the name New England Gas ma;or step in the implementation of our use throughout our e!ectnc and gas and Electric Association to Common-pian of organization which was service areas. In the next few months wealth Energy System. Approvalof this adopted in 1978 All of our gas opera- we wdl be making a major systematic change is extremely important in furth-tions are now within one corporate en- effort to introduce our new image to the erance of the one-system Concept we tity - Commonwemth Gas Company pubhc. are striving to achieve. We hope that This was accompl:shed by the sa'e of Before we take the final steps in this you, our shareholders, share our en-our New Bedford company's gas as- process, at our Annual Sharei n 1ers' thusiasm for allaspects of this program sets to Commonwea'th Gas in a trans- Meeting in May, w e will ask for a;-pr o c , and will give us your support.

action approved by the Massachusetts Department of Public Utihties (DPU) ef-fective January 1,1981. In the section which fo!lows, we have division and have presented their new Th:s is a sign:f: Cant accomphshment grouped our suosidiary companies names in comparison to those in effect s:nce it aligns our corporate structure under their new banners by operating as we began this process.

with the line of business organizatron we have used operat;cnally for two years This form of organization has many advantages. It gives each of car g operating units the flexibikty needed to E '

ceal effectuety witn the problems and concer m their respective business environr ents. At the same time. we New Eng!and Gas and achieve a h,gh degree of efficiency by Electric Association Commonwealth Energy System centrakzing those functions which are NEGEA Service Corporation Com Energy Services Company neeced in support of ati of our business NEGEA Rea!ty Trust Com Energy Reaity Trust activit:es NEGEA Energy Products, Inc. Com Energy Products Company As an adjunct to the organizarona! NEGEA Energy Services, Inc. Com Energy Exploration Company rea' gnment, we are adopt;ng a new Cambridge Steam Corporation Corn Energy Steam Company system-wide ccrporate identity We Darvel Rea!ty Trust Darvel Realty Trust have selected the name Common-wea:th Energy System for use by tne en parent crganizat on and will knk a!I of our subsia: anes through use of the Commonaea:tn name Our p;anning in this area is complete and we have recently begun to make some cf the changes Contemplated New Bedford Gas and The name of our New Bedford com- Etson Light Company Commonwea'.n E ectnc Company pany was officiaMy changed to Com- Cambodge Electnc Light Company Cambndge E!ectnc Light Company monwea:In E!ectnc Company on Maich Canal Electr c Company Canal Electnc Company COMiBas 4

Yearin Revisw Construction and Financing There were no public offerings of se- Activities to encourage and assist Construction expend:tures by the curities by system companies during consumers with their ConservatiCn ef-system during 1980 totaled the year. The Association did, however, forts have also been expanded. Dunng

$35,300,000, of which approximately receive more than $2.6 million in pro- 1980, a group of Massachusetts utikty

$5,200,000 related to nuclear electric ceeds from common shares issued companies formed a non-profit corpo-l generating facihties in which the system through the Dividend Reinvestment ration known as Mass-Save, Inc. Three is a joint-owner. Expend,Nres for 1981 and Common Share Purchase Plan. of our companies, Commonwealth will be approximately $79,000.000 and Permanent financing plans for 1981 Electric. Cambridge Electric and l for the five-year period 1981-1985 more are limited M Commonwealth Gas Commonwealth Gas are members of than $300 million. In addition to sub- Company', proposed issue of First this corporation.

stantial expenditures relating to joint- Mortgage Bonds, probably during the Mass-Save. inc. was estabhshed to ,

owned generating f acilities, these latter part of the year. Based on our furnish home energy audits to residen-amounts also include costs related to five-year plan,60% of our construction tial customers of member utilities The electric transmission and distribution requirements will come from internally audits will be provided at minimal cost facilities and the expansion of our gas generated funds, the remaining 40% and are designed to provide customers distnbution system. Nearly 85% of the from outside sources. During this with information regarding energy use five-year total relates to electric opera- period, our operating subsidiaries will in tf eir homes Results of the audits will tions, of which $114 million is for the issue long-term debt totaling include recommended conservation l system's interests in the construction of $116,000,000 with the parent Associa- measures together with estimates of j three nuclear generating facihties. An tion scheduled to sell common shares installation costs and potential energy dditional $8.8 million will be spent on and long-term debt totating savings. The extra costs of the program

. ese projects through 1987. A more $47,000.000. Our dividend reinvest- will be recovered from all customers by l detaileo dscussion of these projects is ment plan is expected to provide an a DPU approved residential conserva.

included . e Electric Division section additional $17.5 million in new equity tion surcharge.

of this report. funds donng the same penod.

l Although the system has financed a Rate Matters large portion of its construction through Load Management / Conservation Cambridge Electric Light Company l interna!Iy generated funds in recent Recent sharp increases in energy fded a petition for increased rates with years, dunng 1980 we had to utikze a costs require that we expand and im- the DPU in November 1980. The pur-greater amount of bank borrowings for prove the management and use of pose of this fihng was to recover a $1.1 this purpose. energy production facihties. Some milhon increase in property taxes w hich efforts have beer he result of require- had not been allowed in our last general l ments mandated by legislative actions. rate case in early 1980. A decision by l In addition to the fuel cost problem, a the DPU is expected in the very near second major factor - tremendous in- future.

creases in the cost of constructing and The DPU has histoncally been con-maintaining energy producing facihties servative in nature. choosing in most l

i -has made improved management of instances to adhere to the time-these facilities a necessity We are ex-l panding our efforts and are research-ing various techniques and procedures which will result in a comprehensive e and effective load management pro-gram. Time-of-use rates and new rate structures will be one product of this effort.

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Electric Division The management and trustees of the 1980 Results During the cold weather this winter Association wish to thank the two retir- Unit sales to retait electric customers we again experienced significantly ing members, Mr. Burdette A. Johnson for 1980 were 2.4% higher than the higher demar ds though not up to the and Mr. Ora C. Rcehl for their significant preceding year. This increase reflects level of last August. However, the New and valued contributions to our opera- customer growth somewhat offset by England Power Pool. which coordi-tions over these many years. continued conservation efforts.1980 nates power distnbution in the region, Burdette has been a member of our was significantly colder than last sjear. did experience a record demand dur-organization for more than 43 years in yet average customer use remained ing this winter.

his capacity as employee and officer of relatively unchanged. Providing reliable capacity to meet the system and most recently having Operating revenues, on the other our customers' demands has been a served nine years as a Trustee of the hand, increased by more than 30%. major commitment of our system and Association. His warm, spirited dedica- Increases in fuel-oil prices, which are our planning efforts in this area have tion to the community and his recovered through power cost proved realistic and accurate Because associates has endeared him to his charges, have been primanly respon- this planning effort has become very legion of fnends, sible for this rise in revenues. We ex- complex and somewhat uncertain be-Ora has been a dedicated and active perienced a 44% increase in fuel and cause of changes in traditional cus-member of the Board of Trustees since purchased power costs, again, sub- tomer patterns, we recognize the 1962 and has served as Cha!rman of stantially the result of fuel-oil prices necessity of intensifying our research the Audit Committee from its inception which rose from approximately $22 per etforts in this critical area and will in 1973. His intelligent, capable efforts barrel at the end of 1979 to almost $33 endeavor to improve on existing on behalf of the Board have made a at the end of the year. methodologies and load forecasting 2ignificant contnbution. The rate increases granted to our techniques. We will also continue our We have been fortunate to have Commonwealth Electric and Cam- efforts to encourage energy these two dedicated gentlemen as- bridge Electric subsidiaries were also conservation by our customers which sociated with our organization. Their major factors in both increased reve- should assist us in the optimum and efforts have long been recognized and nues and improved earnings. These most economic use of our production appreciated and we extend our best increases totaled $7.7 million on an an- equipment.

wishes to them for continued good nual basis and were in effect for sub-hea!th and success in the future stantially all of 1980. Nuclear Construction Activity In last year's Annual Report, we re-Peak Demand ported that New Eng!and Power Com-Despite the impact of high oil pnces pany had announced the cancellation and inflation on our electnc rates, we of plans to construct two nuclear elec-are continually faced w:th sic Scant inc generating units in Rhode Island.

increases in demand dunng periods of Canal Electnc was a pr t-owner in this extreme weather conditions. A very hot project. Dunng 1980, Canal filed an and humid penod existed this past application with the Federal Energy August, and as a result our system Regulatory Commission (FERC) seek-recorded an a:1-time record peak de ing to amortize and recover these ex-mand. The new peak of 648.000 penditures. Anorderwas received. Jr-kilowatts exceeded the previous peak ing December, granting authonty to of 633,000 kilowatts recorded less than amortize the investment :n this project one month earlier and represented a over a three-year period. 'n conjunction 4.3% increase over our 1979 peak. with our next retail rate apnlication, we which compares to our current pla. .- will request authonzation to include ning for peak load grod of only 2.5% these costs, net of income taxes. as an annually. element in the cost of service.

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Gas Division O

System Efficiency Noted Canal Coal Conversion 1980 Results Our system g .nerating units have We indicated in our last annual report Results of gas operations for 1980 now been rated, ollectively, nur nber that the Department of Energy (DOE) reflect a significant increase in unit one in overall"hea rate" among 'O had surveyed many of the country's sales, due in large measure to the ex-electric utilities by Electric Light and larger oil-burning electric generating treme winter weather conditions of the Power magazine for the third year in a facilities as required by the National fourth quarter. Added residential heat-row. According to the survey, published Energy Act. The DOE was trying to ing units were also a contributing f actor.

in the August 1980 issue, the system determine which facilities could convert Unit sales increased 7.6% to nearly 37 topped the list with a rating of 9,709 to an alternative fuel, thereby reducing million MCF. This increase compares to BTI '(British Thermal Units) oer the nation's dependence on oil. a 3.8% decrease in unit sales reported --

ki wait hour. Subsequer.1 to this survey, the DOE last year. Degree days for the period Our system's largest generating f acil- met with system officials to discuss that rose 9.1% compared to a 9.8% de-ity, the super-efficient Canal Electric un- agency'c possible designation of our crease in 1979.

its, operated by highly-skilled person- Canal Uru No.1 as one which should Firm sa!es to residential customers nei, produced these exceIIent results. be prohibited from burning oil A notice increred 11.2% while other firm sales Careful attention to operating e!ements of the DOE s intent was later p sted in increased a total of 13.3% These in-and adherence to a strict maintenance the Federal Register, creases were substantially offset by schedu!e are the combination of ingre- The possible requirement to convert declines in interruptible sales of 21.5%

dients that have kept Canal Unit No.1 at Cana! Unit No.1, the most efficient oil- This shift is the result of the increased or near the top of the efficiency list since burning facility in the country, to r ,oal demand for natural gas as a domestic the early 1970's. f acility has been the subject of ' .ensive energy source. Faced with seemingly T stud /by system personnel. We have endless fuel-oil price hikes and related Wareham Headquarters Near cetermined that such a conversion supply problems, customers began Completion would cost in the range of $200 million turning to gas several years ago. Dur-Our new e!ectric operations head- to 3300 milkon in today's dollars and ing 1979, app oximately 7,200 new res-quarters in southeastern Massachu- would take up to seven years to com- idential heating units were added to the setts is nearing completion and reloca- p!ete. The financial, technical, opera- system. This year an additional 8,000 tion of electnc employees to this facikty tional and environmental difficulties new units were added, including 850 will begin during May. This group of were the subject of an extensive study new homes. We expect that with further some 300 employees is made up cf which was presented to the DOE in reallocation of interruptible loads to firm system Electric Divis:on personnel who October 1980, in opposition to the pro- customers and " conservation gas", an are presently situated ia several offices posed order additiona! 3.900 new residential units' throughout our servlCe territury. The We have countered the DOE's plan will be added in 1981.

new headquarters will contain of$ces th cur own proposal to construct a for executive, administrative, customer new coal-fired facihty. A new unit, built Gas Supply Emergency service, energy supply, facit;es de- with current " state of the art" coal- Following the cold fourth quarter, the veicpment and human resources per- burning equipment, would be,in our New England area began 1981 facing sonnel. We bel; eve that the consolida- opinion. a wiser choice and would pro- record cold temperatures and unprec-t:cn of these operations in one location vide additional capacity for our cus- edented demands for fuel to heat wdl enable us to provide the most effi- tomers' future needs. homes. Gas pipelines were dekvering cient service to our customer at the At this time we have yet to recetve a at capacity and supplemental sources lowest cost poss:ble response from the DOE regarding were used to make up the difference.

The bui!dng contains 76.000 square either the study or the proposed new On January 9, a Massachusetts gas feet of office space and is s;tuated on a facihty company declared a supp'y emer-48-acre s;te in Wareham Ccnstruction gency. Two days later a special task of the th'ee-stcry serpentine-shaped force was formed, at the d.rection of the Governor, to oversee the critical supply O build:ng. designed by architects Symrres, Ma:ni & McKee. began in late situation and serve as a control center March,1980. for the transferring of gas to the most 9

O needy areas within the state. Com-monwealth Gas Company's headquar-

! w ^ ~

. ters in Southboro was selected as the In \.' <

control center due to the strategic loca-

,. '[ . . ., tion of ns facilities and our ability to

^ " - ng;C~~'.(

rj

. assist others in need of gas supplies.

On January 13, a second gas utility

. D M announced its critical supply situation

# T and the Governor repeated an earlier Q plea for statewide conservation. When this action failed to produce significant savings, gas-heated schools through-y, q.

t

" (# out the state were closed for several Ai .[ #}

~ '

days and mandatory conservation

~

% ,s measures were announced. Dunng this

, j [ @r@4j

+' ' ,

penod, Commonwealth was able to provide other companies with up to 95

.y" n -

Jos e *tt mill;on cubic feet of gas per day by

' ~

utilizing its substantial LNG reserves in Y $ Hopkinton, Massachusetts.

wasAA. eve During the crisis, which lasted until January 25, sendout records were established several times with a new g

~

peak of 284.8 million cubic feet being set on January 4. Throughout this

~

penod our gas supplies remained pgmer - gg adequate and at no time were our gas

" A: gg;

, P d%F;.;;@@y c., _ operations personnel unable to meet

' ~

.M' g } NQj our customers' needs.

" '* a

.g g

~

f

}/(41 * .fJ This situation should serve as a warn-ing to the residents of Massachusetts

1. y and New England. With the exception

]*- .

of nucleargenerating plants,our regic 1

'j has virtually no natural energy re-sources, moreover, most of the re-sources we require are distantly

~

_L _

located. And yet, efforts to site new wdd energy producing facilities in the area invanably meet stiff opposition from H:

• m u,G s vp a s p o-H" regulators and env enmentalists. Many

_ w n s y, 6 :,, uc , a r'

• prc;ects either never get started or are "rcir .

terminated at an early stage Lack of adequate pipeline capacity, storage f acilities, and liquefaction and vapon-zation capaoility in our region force us ,

to rely on distant supply facilities often 0

10 w m

Diversified Operations O

acated a thousand m!!es or more from Natura; gas supplies in the United Realty Operations New England. This causes greater re- States are plentiful, with every indica- In our 1979 Annual Report, we dis-hance on distant and f reonently uncon- tion that they will increase due to the cussed a proposed office complex, trollable transportation and distribution surge in exploration activity prompted which was to be constructed in Cam-facikties, impacting every energy con- by deregulation. M mentioned earker, bridge on land owned by Darvel Realty sumer. Several of the reasons given for Commonwealth Gas is planning to add Trust.

the problems encountered this winter approximately 3,900 new residential The first phase of the project, to be were the very shortcomings just noted. heating customers this year. Our re- known as Riverfront Office Park, will in this kght, it is interesting to note that search, marketing and supply person- consist of an eighteen-story building when the first large-scale LNG tanker nel work very closely to determine how which will overlook the Charles River sailed into Boston Haiaor,it was met much gas is available to serve the firm and the Beacon Hill section of Boston.

with waves of protest. However,it was market whi'e maintaining an a %quate The building will have fourteen floors quite a different setting this past winter " reserve ' volume, which c devoted to office space, three floors for when, faced with further school and supplied to interruptible custo.ners parking and one floor for retail shop-business shut-downs, the LNG tankers when available Close working re- ping activity. Darvel has formed a were welcomed with open arms. lationships with contractors and city partnership with two other companies and town officials also help to assure who together will share in the overall Consolidation of Gas Operations the most accurate load predictions. An project costs and the operation of the Dunng 1980, a joint petition was filed example of how well those procedures facility with Darvel retaining title to the with the DPU by New Bedford Gas and work was the very favorable position land.

Cdison Light Company and Common- enjoyed by Commonwealth Gas dunng While progress on this project to date sealth Gas Company for approval of this winter. The company has the ad- has not reached our earlier expecta-the sa!e of New Bedford's gas assets to vantage of two pipehne suppliers and tions, we did see cositive mosement in Commonwealth Gas. The DPU granted LNG storage capacity equivalent to 3.5 1980 A lead tenant has agreed to oc-approval of this transaction effective bilhon cubic feet of natural gas. The cupy several floors of the building and January 1,1981. System gas operations combining of our gas operations into documents related to leasing and con-are now combined in one company. one corporate entity will enable us to struction of the building have been enabhng us to more effectively utihze more fu!!y utilize these resources for the drafted.

system personnel, equipment and benefit of our customers. Also, the con- The present shortage of suitable energy supplies. In add, tion to the en- struction of the planned 11 mile,12-inch office space in the greater Boston and hanced flexib.hty in allocat,oq of natural gas main from Hopkinton to Worcester Cambodge areas has driven rental gas, LNG and SNG supphes. there are reinforced our supply Capabikties to the prices higher and has significantly potential advantages in dispatching Worceste area by making available an influencer a demand for space. The and customer services. additionEl 2' milhon cubic feet of gas plans for progress and development of per day. T his project was undertaken this area of Cambridge are encourag-The Marketing Future instdad of attempting to secure ing for both us and the City of in hght of our marketing emphasis additional rented storage space Cambndge.

last year and given this win'er s somewhere along our supphers' The NEGEA Realty office building scenario. it may seem unusual for gas pipehnes. an approach, all variables which is also in Carnbridge, has bene-companies to contique to promcte con- considered. with many more nsks We fited from the high demand for space.

versions from oil to natural gas for heat- Continue 'o promote the U"e of gas for This building, which is partially oc-home heatirg based on the present cupied by system personnel,is pres-

~

ing However, when this winter s prob.

lem is ana!yzed, it turns out that the pnce advantage over co T10etitive fuels . ently f#/ occupied.

shortage was more of a dehvery prob- and with our optimistic domestic supply lemthanoneof supply Sucheventsare picture. Any reduction in our depen- Manufacturing Operations not unusual nor ell this be the last in dence on expensive foreign fuel-oil Dunng 1980 NEGEA Energy Prod-the past we have expenenced shortfalls scurces can only benefit our region and ucts continued to attempt to gain a of both fuel-oil and coal for domestic our country. share of a market dominated by firmly use because of transportation. stnkes asiabbshed domestic boiler manufac-  !

and other logistical problems 11

O

~ - '. - . * < , ,

g utilized to transport addional gas

'~ ,1 ,

j. - .... supplies from Canada. The construc-p -

u..- - .

tion cost, estimated at $500 million, f'p l ,

3

)

.-h

, e _. 1:

would be equally shared by the two companies.

i ,2- '

+, ,,

.- 2

~

(. The con toa'ies have signed a gas

,._ .)e-

, p. . .

supply contract with Pan-Albena Gas

' " >1p.;

. I td. for the purchase of up to 306 million

'vj i9,P -+,...s.~ -. f .J.

Y; cubic feet of gas per day, one-half of

1. .e which would be for use by Algonquin

[j , 7.j[ ?' . .~ ,,'

.' 'UJ customers. The contract is for fifteen

. -y

' 3y ;.*- 4-4.; .

y .5 g

~. years and can be extended for an

1.

?. '; . . additional five-year period. 3ince the f %[ J"r --e* contract provides for possible gas stor-

~,, . r .. . .';

1. ],y s

~

age in Canada, efforts are underway to f[E M; . i ; / f y -

'A Y# !;- develop a system whicn would provide

,; ., / - 7 .. pj r addit:onal daily quantities during the

? Y ~

==. J.(. heating season

, 4

.) , [ ...

.-  % Completion of the pipeline project K.  ? . '. : ,. r I. Of . ;( , , [

~

1,

'~

i . and delivering of gas under the supp!y contract is contingent upon receipt of Ccwon,wa:m Gas ina1 cspech como; various governmental perm:ts and ap-cea provals. The Canadian government has sought the necessary budget approval Oil and Gas Exploration to authonze the completion of the re-We have determined that our sys- quired Canadian section of the tem's future involvement in oil and gas pipeline. 'f the regulatory detads are exploration activity would be more ap- resolved both here ard in Canada, and propriately conducted througt -in- construction beginNn a timely basis, turers. Though unit sales increased in vestment in Algonquin Energy. inc. the pipehne could be in operation dur-1980, they were well below projected Algonquin has committed itself to a sig- ing 1984.

levels due in part to the excessive nificant role in gas exploration and we The New England States P:pehne, as stocks of conventional boders held by are conhdent that their large-scale in- the project is known. when completed wholesalers during 1980 and the poor volvement can be ver y productive. We would allow the rortheastern states to national economic chmate, pancularly have therefore decided not to devote reduce their imported oil consumption as it related to both the new home as additional resources to this activity by about 52.000 barrels per day, w .ich 4

well as the retrof:t market We look for through NEGEA Energy Services, Inc. is ecwvalent to 19 million barrels per some improvement in 1981 as a result and will attempt to dispose of our year.

of our expanded marketing program present partnership interest in the A hearing by the National Energy and the introduction of a new e'ectronic Minuteman Exploration Company. Board in Canada began in March 1981 ignit:on model, which was recently cer- Algonquin Energy. Inc. is involved in on the first phase of their pipeline ex-tified by the American Gas Association a joint venture with Transcontinental tension with further action taking place Gas Pipe Line Corporation for the pur- at the successful conclusion of those pose of constructing a natural gas proceedincs pipeline. The proposed pipehne would extend from Calais, Maine to A!gon-quin's present pipeline system in Rhode Island This pipeline would be 12

I j Nea Eng:and Gas and E'ectnc Assocea50n and Subsdary Compan,es Financial and Statistical Information Management's Report Report ofIndependent in our opinion based upon our i l Public Accountants examination and the report of other au-ditors, the finan . il statements referred i The financial statements presented To the Board of Trustees of to above present fa rly the financial herein are representations of the man- New England Gas and position of the Association and its sub-agementof New rngland Gas and Electnc Association. sid;ary companies as of December 31 Electnc Associa, in Management rec- 1980 and 1979. and the results of their ogntzes its responsibihty for the prepa- We have een:ned the consohdated operations and the>r sources of funds j ration and presenta* ion of f nancial balance sheets and statements of used for construction for each of the i

statements in conformity with generally capita!ization of NEW ENGLAND GAS three years in the period ended accepted accounting pnnciples. To ful- AND ELECTRIC ASSOCI ATION (a Decer-ber 31.1980. in conformity mth fdl this responsibikty, management Massachusetts trust) and its substd.ary generaHy accepted accounting pnnci-ma:ntains a system of internal account- companies as of December 31,1980 pies aophed on a cc nsistent basis ing controls including estabhshed and 1979, and the consohdated state-pohcies and procedures and a com- ments of income, changes in common prehensive interaal aud ting program to shareholders' investment, redeemable evaluate the adequacy and effecime- preferred shares and sources of funds ARTHUR ANDERSEN & CO.

ness of accounting and operating cun- used for construction for each of the trols, comphance with system pohcies three years in the period ended De- Boston. Massachusetts.

and procedures and the safeguarding Cember 31,1980. Our examinations February 17,1981 of systerr assets. were made in accordance with gener-The responsibihty of our independent a!Iy accepted auditing standards and.

aud; tors' examina!!on is 1.m: led to the accordingly, included such tests of the expression of an opinion as to the fair- accounting records and such other au-ness of the f:nancial c'atements pre- dmng procedures as we considered sented The independent aJditors are neCessary in the Circumstances. We i sefected by :he Board of Trustees and d:d not examne the consoldated f'-

report the:r findings thereto through the nancial statements of A!gonquin Audit Committee, which is compnsed Energy. Inc the investment in which is of three outside Trustees. The Board of ref ected in tne acccmpanying f:nancial Trustees is responsible for insuring that statements using the equity method of both the ir dependent aud: tors and accounting The financial statements o management fulfii! their respective re- Algonqu;n were examined by other au-spons:biht:es as they perta:n to these d:fors whose report thereon has been

, financial statements furnished to us, and our opinion ex-pressed herein, insof ar as it relates to M n amounts reponed by Algonqu;n. is based so!ely upon the report of the other auditcrs The opin:on of the other auditors was quahf.ed. however. :n our E G Chece/ opinion. the Association has provided Financ:a! V<ce Pres :!ent for the effect of the matter in lis Consoh-Februarj 17.1981 dated financial statements (see Note 4).

13

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

New Engtand Gas and Electnc Association and Subsdary Companies Consolidated Statsmants of income O

Years Ended December 31, 1980 1979 1978 (Dollars in Thousands)

Operating Revenues:

Electric . $326,050 $250,410 $214.551 Cas. 169,807 124,563 115.704 Steam and other 16,678 11,870 8.940

_ 512,535 386.843 339.195 Operating Expenses:

Fuel used in electnc production, pnncipally oil . 187,743 130,709 90,752 Electricity purchased for resale 19,565 13,439 19,067 Cost of gas sold 113,793 76,026 67,550 Other operation . 73,582 65,504 58.895 Maintenance 21,702 16,422 15.505 Depreciation 17,172 16,721 16.119 Taxes-Local property . 20,280 20,006 20,798 income (Note 2; 20,150 14,706 17,822 Payroll and other . 3,448 3.058 2.657

_ 4 77,435_ _ 356.591 309,16_5 Operating income . 35,100 30,252 30.03C Other Income:

Equity in earnings of Algonquin Energy, Inc. (Note 4) 5,074 3,486 3.732 Allowance for equity funds used dunng construction 100 629 684 Other. net 3,923 3.055 2.074 9.097 7,170 _6,490 Income Before Interest Charges . _ 44,197_ 37.422 _ 36.520 Interest Charges:

Long-term debt . 14,004 14,203 14.294 Other interest charges 6,778 2.043 1.098 Allowance for borrowed funds used dunng construction (3,510) (1,539) (740) 17,272 14,707 14.652 Net income 26,925 22,715 21.868 Dividends on preferred shares 4,033 4.093 4,154 Earnings Applicable io Common Shares _$ 22,89_2 __ _ _ $ 18._622_ _$__17,714 Weighted Average Number of Common Shares Outstanding 7,604,290 7.456.489 7,384,283 darnings Per Common Share $3.01 $h.50 $2.40 The acconipanyng notes are an interal pa ' of these fina icial statenents O

14

U$Ns'555$iE5"5t3Eib531ts of Sourcas of Funds Used for Construction O

Years Ended December 31, 1980 1979 1978 (Dollars in Thousands)

Sourcesof Funds-InternalSources From Operations- -

Net income $26,925 $22,715 $21,868 Items not requinng or (providing) funds:

Depreciation 17,172 16,721 16.119 Deferred income taxes -long-term 6,898 s 304 5,152 Investment tax credits, net . 1,729 1,795 1,175 Equity in earnings of joint ventures, reduced by cash dividends of $2.281,000 in 1980, $2.231,000 in 1979 and $2;047,000 in 1978 . (4,861) (2,187) (2,512)

Allowance for equity funds used during construc: ion (100) (629) (684) 47,763 43,719 41,118 Less-Payment of dividends . 16,912 16.036 15.238 Retirement of long-term debt and preferred shares through sinking funds 5.527 4,249 4,410 Otner (280) 911 50 22,159 21,196 19,698 Change in net current assets (exclusive of intenm financing)-

Cash and temporary cash investments (21,690) 17.580 (2,290)

Accounts receivable and unb;lled revenues . (42,869) 13.577 (7.338)

Income taxes, net 9,185 (19,978) (10.530)

Accounts payable and other . 45,053 (13.535) 2,136 (10,321) (23.271) 2.893 Net available from internal sources 15,283 (748) 24,313 Extemal Sources Sale of common shares 2,645 1,428 952 Notes payable to banks, net 20,000 28.950 (2,360)

Sale of long-term debt - 3,500 -

Long-term debt issues refunded (2,709) (3.000) -

Net available from external sources 19,936 30.878 (1.408)

$35,219 $30,130 $22.905 Funds Used for Construction--

Electric . $25,424 $19.216 $18.254 Gas. 9,377 10,936 4,569 Other 518 67 766 35,319 30,759 23,589 Less- Allowance for equity funds used dunng constrterion 100 629 684

$35,219 $30,130 $22.905 The accornpanying notes are an integrai part of these finanaal sta'ernents 15

New Eng!and Gas and Electnc Assoc!ahon and St.bsdary Companies l

Consolidated Balance Sheets O

December 31. 1980 1979 (Dollars in Ihousa' ids)

Assets Property, Plant and Equipment, at original cost-Electnc - $387,210 $375,790 Gas 123,529 115.891 Other . 16,131 15.867 526,870 507,548 Less- Accumulated cepreciation 160,654 147.068 366.216 360.480 Construction worn in progress (Note 5) 34,898 24.197 401,114 384.677 '

Equityin Corporate Joint Ventures:

Algonquin Energy. Inc. (34 5 s) 34,535 31,021 Nuclear electnc power companies (2 5% to 4 5 b) . 7,621 7.260 Hopkinton LNG Corp (50%) 1,639 1,532 Other investments 788 854 44,583 40.667 Current Assets:

Cash 6,861 4.621 Temporary cash investments . 26,900 7.450 Accounts receivab!e less reserves of $1.975.000 in 1980 and $1.432,000 in '779 57,223 37.437 Untmed revenues 39,068 15.985 inventones. at average cost-Electnc production fuel oil 5,614 15.185 Liquet ed natural gas 9,147 8.568 Materia:s and supptes 7,380 6.396 Prepaid income tax 4,486 1.519 Prepaid property taxes and other _

11,71_7_ _ 10.994 168.396_ _ _108.155 Deferred Charges 9.669_ _ 7.115

$623,762 $540 614 O

16

December 31, _ _

1980 1979 (Dollars in Thousands)

Capitalization and Liabilities -

Capitalization (See separate statement):

Common share investment $158,898 $146.240 Redeemable preferred shares, less current sinking fund requirements . 45,840 47,660 Long-term debt, less current sinking fund requirements and maturities _

173,764 177,471 378,502 371,371 Current Liabilities:

• Intenm Financing--_

Notes payable to banks 46,JO 28,950 Matunng long-term debt - 2,709 48,950 31.659 Other Current Liabilities-Current sinking fund requirements 5,511 3,920 Accounts payabie . 67,732 34,697 Accrued taxes-Local property and other 11,954 10,716 Deferred income 19,292 7,140 Accrued interest 3,680 3.659 Dividends declared 4,307 4,017 Other 6,788 5,195 119.264 69,344

_ _ _168,214 101.003 Deferred Credits and Other:

Accumulated deferred income taxes 58,065 51,191 Unamortized investment tax credits 16,899 15,170 Other. 2,082 1,879 77,046 68,240 Commitments and Contingencies (Note 5) .

S623,762 5540,614 The aCCCmpar ging notes are an intery3! part Cf these finaqCl31 Statements

-a.-

17

New Engfand Gas and Electnc Associaton and Subsdary Companies Csnsolidated Statzm:nts

@f Cap.tah.zation i O

December 31, 1980 1979 l -

l (Dollars in Thousands)

! Common Share Investment:

Common shares, $4 par value- ,

Authonzed - 10,000,000 shares j Outstanding - 7,694,501 in 1980 and 7,508,392 in 1979 $ 30,778 $ 30,034  !

Amounts paid in excess of par value 36,818 34,917 )

Retained earnings (Note 3) 91,302 81,289 ,

Totalcommon shareinvestment 158,898 _ 146,240 )

Redeemable Preferred Shares, Cumulative, $100 par value (Note 7): j Senes A,4.80% . 4,560 4,680 Seces B,8.10% , 6,720 6,880 Series C, 7%% 16,380 16,920 Series D. 9 80% . .. .. 20,000 20,000 Less current sinking fund requirements . (1,820) (820) i Total redeemable preferred shares 45,840 47,660 Long-Term Debt, including premiums (Note 6):

Association Bonds, collaterakzed by common stock of utitty operating subsidiar:es, due-1980,3 % % - 2,624 1987,6 % % . 13,696 13,853 1988,6 % % 3,218 3,302 1996,8 % % 4,057 4,15 ,

1999,4.80% ... ...... 3,600 3,78 i Less cun ent rinking fund requirements and maturities (521) (3,14 Total Assiation long-term debt 24,050 24,571 '

l Subsidiary companies' icng-term debt: 1 Mortgage Bonds due-l

' 1982,4 % % - 3,199 3,301 1992.8 % % 6,500 6.750 1993,9 % 11,242 11,462 1994,6 % % 2,078 2,233 1996,7 % .. 15,004 15,562 2006,8.85 % 35,016 35,017 Notes due-1980,6 % . . -

85 1982,10 % % 3,000 3,000 1984,3%,6%% . 419 489 1986,4W% 4,100 4,150 1987,4.90 % 2,695 2,730 l 3,469 3.513 1988,3h %

i 1992,5 % % 8,740 8,745 1994,6 % % 640 686 1995,8W % 7,198 7,384 1997,6W% 5225 5,225 1997,6'4 % 5!243 5,251 17 207 17,515 1998.8 % % 13,826 2000,10% % 13',519 2001,9% % 4,200 4,400 2002,7% % .. ..

4,190 4,240 Less current sinking fund requirements and matunties . (3,170) (2,664)

Total subsidiary companies' long-terrn debt . 149,714 152,900 Totallong-term debt 173,764 177,47' Total capitahzation $378,502 $371,37 i The accompanying notes are an integral part of these financial staternents 18

, \

New Eng'and Gas and E!ectnc Associat:en and Subsidiary Companies .,

Consolidated Statements of Changss in Common Shareholders' Investment O

Years Ended December 31,1980.1979 and 1978 Amounts Par Value Paid in

$4 Per Excess of Retained Shares Share Par Value Earnings Total (Doilar:in Thousands)

Balance December 31,1977 7.354,174 $29,417 $33.154 $67,980 $130.551 Add (Deduct)-

Net income . - - -

21,868 21,868 Sa!e of shares . ..

58.551 234 718 -

952 Cash dividends declared -

Common shares -

$1.50 per share - - -

(11.084) (11.084)

Preferred shares - - -

(4.154) (4.154)

Balance December 31,1978 7.412,725 29,651 33,872 74,610 138.133 Add (Deduct)-

Net income . - - - 22,715 22.715 Safe of shares . 95,667 383 1,045 -

1.428 Cash dividends declared -

Common shares -

$1.60 per share - - -

(11.943) (11.943)

Preferred shares - - -

(4,093) (4.093; B 7.508.392 30.034 34.917 81.289 146,240 O alance December 31,1979 Add (Deduct)-

Net income - - -

26,925 26.925 Sale of snares . 186.109 744 1,901 -

2.645 Cash dividends declared -

Common shares -

$1.69 per share - -

(12.879) (12.879)

Preferred shares - - -

(4.033) (4.033)

Balance December 31.1980 7.694.501 $30.778 $36,818 $91,302 $158.898 Consolidated Statements of. Changes in Redeemable Preferred Shares Years Ended December 31,1980,1979 and 1978

, Authorized and Outstanding I Cumulative Preferred Shares-5100 Par Value li Senes A 4.80%

SenesB 8.10 %

Series C 7%%

Series D 9.80 %

Total Shares Balance December 31,1977 49.200 72,000 180,000 200.000 501.200

• Less-Sinking fund redemptions 1,600 1.200 5.400 -

8.200 Balance December 31.1978 48,000 70.400 174,600 200.000 493.000 Less-Sinking fund ,edemptions 1.200 1.600 5.400 -

8.200 Ba!ance December 31,1979 46.800 68.800 169.200 200.000 484.800 Less-Sinking fund redemptions 1.203 1,600 5.400 -

8.200 Balance December 31,1980 _ _45.600 67.200 163.800 200.000 476.600 The aCCompding no'es a'e an integral part of these financial Sta'ements 19

New Eng!and Gas and Electnc Associaton and Subsidiary Corrpanies Notss to Financial Statements O

1. Accounting Policies Operating Revenues < depreciable property an allowance for Customers are billed for their use of funds enployed during periods when Principles of Consolidation electricity and gas on a cycle basis property is under construction. An The consolidated financial state- throughout the month. To reflect reve- amount equal to the allowance ments include the accounts of the nues M the proper period, the esti- capitalized in the current period is re-Association and all of its subsidiary mat ed amount of unbilled sales is flected in the statements of income.

companies. All significant inter- recorded at the end of each month. Under applicable rate-making prac-company accounts and transactions System utility companies are permit- tices, property under construction is not l

have been ehminated in consohdation ted to bill customers for the total costs of included in rate base on which the utikty The Association and its operating purchased power, fuel used in electric companies are permitted to earn a re-companies are sometimes collectively production, and gas. The amount turn. Amounts so capitalized, while not referred to in this report as the " system". of such costs incurred but not yet currently providing funds, are included EquityMethodof Accounting reflected in customers' bills also is in rate base when property is placed in System companies use the equity recorded in unbilled revenues at the service, and these amounts are recov-method of accounting for investments end of each month. etable in revenues over the service kfe in corporate joint ventures. Under this Deprecia: ion of the constructed property. The method the system records asincome Depreciation is provided using the amount of the allowance recorded was its proportionate share of the net earn- straight-kne method at rates intended at a weighted average rate of 17% in ings o' the joint ventures with a corre- to amortize the original cost of proper- 1980,12%% in 1979 and 10% in 1978 sponding increase in the carrying value ties over their es'imated economic of the investment. The investment lives. System composite depreciation 2. Income Taxes ,

amount is reduced as cash dividends rates, based on average depreciable are received property in service, were as follows: The system files a consolidatca Fed-The system does business with the _ __ eralincome tax return For f r.ancial re-corporate joint ventures in which it has 1980 1979 1978 porting purposes, the sub udianes pro-investments including Algonquin Electnc 3.61 % 3 69 % 366% vide taxes on a separ"fe re Jrn basis Energy, Inc, whose subsidianes are Gas 3.05 2 94 2 96 and 'he Association records the tax pnncipal supphers of natural gas and Stearn 3.53 3 53 3 52 etfects which result from including its substitute natural gas for the system, taxable loss in the consolidated Hopkinton LNG Corp., a hquehed Allowance for Funds return.

natural gas service company, and Used During Construction The follow'ng is a summary of the four generating facihties located in System utihty companies include as consohdated provision forincome New England an element of the cost of construction of taxes for the years ended December 31,1980,1979 and 1978:

1980 1979 1978 T Federal _ State __ _Fe_de.r.a_l._S.t.a n_.

_T_otal _ _Fe_deral _ State _ota._l_ _ _ Total .

(Dollars in Thousands)

Currently payable . $(1,007) $(1,658) $ 651 $ 8.295 $ 6.704 5 1.591 $16.959 S14.317 $ 2,642 Currently deferred 12,530 10,861 1,669 (688) (562) (126) (5.464) (4,619) (845) 6,898 5,990 908 5.304 4.603 701 5.152 4.520 632 Long-term deferred Investment tax credits, net . _ 1,729 1,729 --

1.795 1,795__ _ _ - 1,175 1,175_ _ _ --

$20.150 $16,922 $ 3,228 $ 14,706 $ 12.540 $ 2,166 $ 17,822 $15.393 $ 2.429 20

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

4 Income taxes are provided for the deprr *ation for income tax purposes 4.' Algonquin Energy,Inc.

tax effects of t" ming differences other F . tently exceeds the amounts than certain construction related costs. provided in the accounts. The greater The Association uses the equity Timing differences result from reporting tax depreciation arises from the use of method of accounting for its 34.5% ti -

income and expense for tax purposes accelerated depreciation methods and vestment in Algonquin Energy, Inc.

in periods different f rcm those used for shorter lives perroitted by the Federal The Federal Energy Regulatory financial reporting purposes. The de- and state income tax laws. Commission has not yet issued a final ferred provision represents pnncipally The system's long-term deferred order regarding a rate increase which the tax effects arising from deducting provision for income taxes results from was billed to customers during 1980, the use of the following: subject to refund. Algonquin has made no provision for the effect of the refund, 1980 1979 1978 if any, which might be required upon (Dollars in Thousands) final disposition of this rate proceeding.

Acceterated depreciation for tax purposes . 54,860 54.505 $4.995 The opinion of Algonquin's auditors Capitakzed interest donng construction 1,611 38 74 on its financial statements is qualified Other 427 761 83 as being subject to the outcome of Long-term deferred income tax provis:on $6,898 $5.304 $5.152 these proceedings.

The Association has provided a re-The tax effects of unbilled revenue not been provided on the undistnbuted serve against its share of Algonquin's and other current timing differences are earnings of Algonquin Energy, Inc. be- earnings which it estimates may ulti-included in the current deferred provi- cause such earnings are expected to mately be required to be adjusted due sien and deferred income taxes In- be reinvested indefinitely. to refunds. Accordingly, the Associa-vestment tax credits are deferred and The totalincome tax provision set tionbelieve :hatfinaldispositionof this amortized over the life of the property forth above represents 43% in 1980, matter will have no material impact on l giving nse to the credits. 39% in 1979 and 45% in 1978 ofincome its consolidated financial statements.

Income taxes totaling approximately before such taxes. The following table Condenser' censolidated financial in-

$2,037,000at December 31,1980 have reconciles the statutory Federat income formation t ' A!gonquin is as follows.

tax rate to these percentages: ,

1980 1979 1978

( Statutory Federalincome tax rate 46 % 46% 48%

Decrease from sta'utcry rate Effect of dMdend received deduct;on . (5) (6) (5)

State tax net of Federaltax benef.t 4 3 3 Anowance for funds used dunng const uction -

(3) (2)

Other, net (2) (1) 1 43 % 39% 45%

3. Dividend Restriction the payment of cash dividends by terms of the indentures secunng long-At December 31,1980 approxi- term debt. As of the same date, re-mately $24,977,000 of consolidated re- tained earnings included approxi-ta!ne6 earnings was restncted against mately $32,157,000 representing the l system's equity in undistributed earn-ings of corporate joint ventures.

21

O 1980 1979 1978 financing. These units have experi-(DOHars in Thousands) enCed delays to both the planning and building phases of construction which Operations As reported by Algonqu.n - has resulted in significantly increased Operating revenues . $506,763 5352.723 $307.22 costs. The Seabrook nuclear units have locome before income taxes 33,590 18.471 18.156 experienced particularly burdensome Provisions for income taxes 16.35F 7,539 7.597 delays as a result of various legal, regu-Net income $ 17,23S $ 10.932 5 10,559 latory and other problems. As indicated in a recent prospectusissued by the As reported by the Association -

$ 5,950 $ 3,774 $ 3 645 lead participant Public Service Com-Equity in Algonquin s net income .

pany of New Hampshire (PSNH), that Add (deduct) -

Prowsion for rate refunds (880) company has been experiencing diffi-Adjustment for restatement of previously Culty in obtaining external financing for reported earnings and other . 4 (288) 87 i;s share of the project and in maintain-Reported equity in earnings . $ 5,074 $ 3.486 5 3.732 ing cash flow adequate to fund its con-struction program and the costs of Financial Position current business operations. These dif-As reported by Algonquin - ficulties resulted in a delay in construc-Total assets ~$255,974 $228.659 $213.937 tion of the project and PSNH was ob-Less - ligea to reduce its share of the project.

Long. term debt 48,156 56.337 67,697 105,371 82.506 62.835 Regulatory aporoval was recently Other liabiht es and deferred credits granted to other participants to ptU-153,527 138.843 130.532 chase a cortion of PSNH's interest and Net assets $1u2,447 $ 89.816

$ 83 40! paymeriw for these purchases nave As reported by the Association - begun. Refer to the discussic.1 of Equity in Algonquin's net assets $ 35,365 $ 31,004 $ 28.791 nuclear construction activit' .

Add (deduct) - page7 for additionalinfor tation Reserve for rate refunds (880) - -

pertaining to the system's Adjustment for restatement of previously joint-ownership interests.

reported earnings and other 50 17 305 The system was a joint owner in two Reported equity in net assets $ 34,535 $ 31.021 additional nuclear projects which were 529{G cancelled by the lead participants The Financial statements of Algonquin cost for one project, cancelled in 1979 are included in the Association's An- by New England Power Company, Englar,d utilities. Construction expendi- totaled $1.764,000 as of nual Report on Form 10-K filed with the Secunt es and Exchange Commission. tures for the five years ending De- December 31,1980 The Federal cember 31,1985 are estimated at Energy Regulatory Commission has

5. Commitments and Contingencies $302,000,000. granted approval for the system to Joint-Ownership Interest in Electric amortize this cost over a three-year Generating Units penod, beeinning December 1,1980 Construction The system has made substantial The system has made commitments commitments in connection with its vi participate as a joint owner in two construction program, including com- nuclear projects which are being con-mitments to participate as a joint owner structed by other New England electric in nuc! ear generating projects planned utikties These projects will provide ap-or under construction by other New proximately 98.000 kilowatts of capac-ity for our system. Each participant in-cludes its interest in the project in its plant accounts and provides its own 22

~.. _

N in December 1980, Northeast 6. Interim Financing and ing, it must maintain normal operating Utilities (NU) announced the cancella- Long-Term Debt balances for casS demand and bank tion of its plans to construct two nuclear service charges.The remaining lines of units, which were to be located in Notes Payable to Banks credit do not require compensating Montague, Massachusetts. The System companies have banking balances.

capacity from these units was not relationships under which borrowings The interest rate for a majority of the expected to be needed by NU during are arranged as required forinterim borrowings is based upon either a float-the time period for which thcy were financingof theirconstruction ing prime rate or a fixed prime rate.

planned. Expenditures by our system in programs. These unsecured Long-term Debt Maturities this project totaled $1,698,000 borrowings are evidenced by 90-day Under terms of their various inden-as of December 31,1980. notes which are renewable at maturity. tures, the Association and certain sub-The system companies involved will The lines of credit with banks, against sidiary companies are required to seek regulatory approval for amortiza- which these notes payable are applied, make periodic sinking fund payments tion of the Montague project and further totaled $64000,000 at December 31, for retirement of outstanding long-term will seek regulatory approval to recover 1980. debt. The required sinking fund pay-all costs of both cancelled projects. The terms of one bank credit line ments and balances of maturing debt CoalConversion require a compensating balance of issues for the five years subsequent to The Department of Energy (DOE) 5800,000 or a fee if such balance is not December 31,1980 are as follows:

has developed a list of oil-fired electric maintained. Anotherline of credit re-generating facilities which may be re- quires that when the system is borrow-guired to cease buming oil. The sys- _

oem's Canal Unit No.1 is included in that Sinking Fund Payments aung list. The system has presented its op- Debt position to such a prohibition citing Year Association Subsidianes Issues Total operating, engineering, environmental (Donars in Thousands) and financial consequences. No de_ 1961. $521 $3,170 $ -

$ 3.691 termination has been made as of De_ 1982. 523 3.424 6,100 10.047 1983. 521 3.427 3S48 cember 31,1980 by the DOE. -

3,377 W 3397 Power Contracts 1985. 522 3.350 - 3,872

[ The system has long-term contracts for the purchase of electricity from vari- Underone mortgage bondindenture redemptions, not exceeding the ous utilities. Generally, these contracts of a subsidiary, the annual sinking fund required redemption, at par, on a are for fixed periods and require that requirement of $350,000 may be met non-cumulative basis, on each sinking the system pay a demand charge forits by payment, repurchase of bonds, or fund date. Preferred shares may also entitlement in the generating capacity certification of an amount of property be called for redemption, in whole or in of each unit and an ene gy charge to additions equal to 60% of bondable part,in excess of the required and cover the cost of fuel used for electric property (as that term is defined in the voluntary sinking fund redemptions. l generation. Total costs under these indenture). The subsidiary expects to The obligation to make tne mandatory l contracts are included in electricity certify additional bondable property in redemptions is cumulative and the purchased for resale in the statements lieu of making sinking fund payments Association is not allowed to pay of income and are fully recoverable in on these bonds. divider cis to common shareholders or revenues under the system's power make any optional sinking fund cost charges. 7. Redeemable Preferred Shares payments if mandatory redemptions are in arrears. Details of redemptions The Association's four series of for the four series of Cumulative

_ preferred shares have been issued at Preferred Shares are contained in the par value, $100 per share, and are following tables:

subject to periodic, mandatory sink-ing fund payments. The Association can make additional voluntary 27

The plan uses a "5 year average of Si iking Funds Optional actual over expected retum method" to Dividend 1981-1985 Redemption determine the value of the plan assets.

• Rate Mandaary Optional CanPnces Under this method, an expected in-(Doliars a Thousands) vestment return is determined eaCh Senes A 4 80 % 5 120 S 120 $102 year, based on market value of the fund Series B 8 10 % 5 160 S 160 $112 to $101 at the beginning of the year; Contribu-Senes C 7.75 % $ 540 $ 540 5112 to $101 tions, benefit payments and expenses S1,000 $1,000 5110 to $101 SenesO 9 80 % aN me amial Preferred shareholders have no 8. Pensions and Employees Benefits assumption as to the retum on invest-voting r:ghts except in the event that six ment, which is 65 This expected re-full quarterly %vidends have not been The system has a noncontnbutor. turn is compared to actual ineestment paid. In this circumstance, the pension ptan covering substantial,y all return and any excess is recognized preferred shareholders are entitled, regular employees wh) have attained over a five-year period.

voting as a class, to elect two of the nine theageof 25 Pensionc ostsarefunded The System also has an Employees Trustees of the Association. as accrued and inc,iuda amounts Savings Plan which provides for system The preference of these shares in applicab!e to prior serdce costs which contnbutions equal to contnbutions by involuntary liquidation is equal to par are being amortized over a penod of 30 eligible employees but not in excess of value. The shares are of equal rank and years. Total pension expense was four percent of each employee's com-are entitled to cumulative dividends at approximately $5.946,000 in 1980, pensation rate. The total system con-the annual rate established for each $5,474,000 in 1979 and $3,735,000 in tnbution was approximately $1,584,000 series. No dividend can be declared on 1978. The increase in expense is in 1980, $1,416,000 in 1979 and any senes unless proportionate pnmanly due to changes in the plan $1,301.000 in 1978.

dividends are concurrently declared on which provide improved benefits to the other outstanding senes and in the employees and retired personnel. 9. Segment Information event that dividend payments are in A comparison of accumulated plan arrears,the Association may not benefits and pian net assets for the System companies provide electric, redeem any shares unless all shares of systern's benefit plan is presented be- gas, and steam services to retail cus-all preferred senes are redeemed low: tomers in service temtones located in central and eastern Massachusetts January 1. and in addition, seil electncity at 1980 1979 wholesa!e to customets located in Massachusetts and ad,iacent New Eng.

(Donars in Thousanas)

Actuanat present va!ue of accurnufated ptan benetts-land states. Other operations of the sys-Vestea $56,546 346.437 tem include the operation of rental Nonvested . 1,479 1.212 properties, manutacturing and distribu-

$58,025 547.649 tion of gas-fired heating equipment and o 1 and gas exploration; a" of which do Net assets avalable for beneSts . 537,925 530.812 not presently contnbute sonificantly to revenues or operating income.

Operating income of the various in-dustry segments includes income f rom transactions with affiliates and is exclu-sive of iriterest expense, income taxes, and equity in earnings of unconsoli-9 24

l J

dated corporate joint ventures which Inc., whose principal subsidiary is a 10. Supplementary information to provide energy and services to system regulated natural gas transmission Disclose the Effects of Changing gas companies. company operating in the Northeastem Prices (Unaudited)

The amount of identifiable assets United States, Hopkinton LNG Corp.

represented by the system's invest- which operates in the system's fran- The following supplementary infor-ment in corporate joint ventures con- chise areas; and four electric generat- mation is supplied in accordance with sists principally of a percentage owner- ing plant projects located in New the requirements of Financial Account-ship in the assets of Algonquin Energy. England. ing Standards Board Statenent No. 33 i for the purpose of providing certain in-1980 1979 1978 formation about the effects of changing (Doi ars in Thousands) prices. It should be viewed as an esti-Revenues from Unafflated Customers mate of the approximate effect of infla.

Electnc S326.050 $250.410 $214.551 tion, rather than as a precise measure.

Gas 169.807 124.563 115,704 i

Constant dollar amounts represent Steam and other 16,678 11.870 8.940 historical costs stated in terms of dol-Total 5512,535 $386.843 5339.195 lars of equal purchasing power, as Operabng income Before Income Taxes measured by the Consumer Price Electnc . S 36.673 5 30.695 5 33.758 index for All Urban Consumers.

Gas . 18,426 13M2 13.240 Current cost amounts reflect the Steam and other 151 701 854 changes in specific prices of plant from f 3 Totai Consokdated Operanng income S 55.250 5 44.958 $ 47.852 the date the plant was acquired to the

- Ident.f ab!e Assets Electnc $424,125 5362,171 amounts to the extent that specific

$346.353 Gas . 158.775 137.169 118,456 pnces have increased more orless Steam and otner 16.022 15.318 20.722 rapidly than prices in general.

598,922 514,658 The current cost of plant is deter-485.531 .

Intercompany ehminanons . (20,623) (14.682) (7,051) mined primanly by indexing surviving investment in corporate joint ventures 45,463 40.638 38.158 plant by the Handy-Whitman Index of

$623,762 Public Utility Construction Costs. Since Tota!Consokdated Assets 5540.614 $516.638 the utility plant is not expected to be Deprectanco Expense replaced in kind, current cost does not Elecinc S 13.389 $ 13.308 5 12.838 necessanly represent the replacement Gas . 3,500 3.141 3.009 cost of the system's productive capac-Steam and other 283 272 272 ity. Depreciat;on is determined by ap-Tota! Consci, dated Oepresanon . $_17,172 5 16.721 5 16.119 plying the system's depreciation rates to the revised asset amounts.

Add;tional segment information relat- Fuelinventories, the cost of fuel used ing to property additions is shown in the in generation and cost of gas sold have Conso!idated Statements of Sources of not been restated from their historical

~unds Used for Construction. cost in nominal dollars. Regulation pro-vides for the recovery of fuel and pur-chased gas costs through the opera-25

O tion of adjustment clauses. For this rea- Statement of Income from Continuing Operetions Adjusted for Changing Pnces son fuel inventories are effectively For the Year Ended December 31,1980 monetary assets. Since only historical Conventional Constant Dollar Current Cost costs are deductible forincome tax Historical Average Average purposes, the income tax expense in Cost 1980 Dollars 1980 Dollars (Doltars in Thousands) the historical cost financial statements 5 512,535 Operating revenues $512.535 5512.535 i is not adjusted.

Under present ratemaking proce- Fuel, purchased power and gas 321.101 321,101 321.101 Depreciation expense . 17.172 35.630 44,305 dures prescnbed by the regulatory Other operation and maintF *anCe expense . 95.284 95.284 95.284 commission, only the historical cost of Income and other taxes 43.878 43,878 43.678 3 plant is recoverable in revenues as de- 17,272 17,272 Inbrest expense 17.272 preciation. Because the excess cost of (9.097)

Other income and deductions - net (9.097) (9.097) plant stated in terms of constant dolfars 485.610 504.068 512.743 and current cost is not recoverable in rates, an adjustment to net recoverable income (loss) f rom continuing operations cost is required. While the rate-making (excluding reduction to net recoverable cost) $ 26.925 $ 8.467' S (208) process does not recognize the current cost of replacing plant, regulated com- Increase in specific pnces (current cost) of panies have, historically, been allowed property, plant and equipment held dunng the year" $ 71,718 to earn a return on the increased cost of its investment when replacement actu- Adjustment to net recoverable cost . $(27,812) 9.27c

~

Etfect of increase in general pnce level (100.1.

ally occurs.

Excess of increase in general pnce level During periods of inflation, holders of ver increase in specific prices after monetary assets suffer a toss of general 0 9,137) reduchon to neMecowade cost purchasing power while holders of Gain from decline in purchasing power of monetary liabilities experience a gain. net amounts owed . 33,147 33.147 The gain from the decline in purchasing $ 5.335 5 14.010 Net .

power of net amounts owed is pnmanly attributable to the substantial amount of debt which has been used to finance .includ:ng the adjustment to net recoverabie property, plant and equipment. These cost, the income (loss ) from continu ng opera- $

gains are unrea!ized and, therefore, do tions on a constant dollar basis would have not contribute to cash flow or distnbut- been ($19.345.000).

able income. System companies do not ..At December 31,1980 current cost of property, have the opportunity to realize a gain on plant and equ pment net of accumutated de-dabt because they are limited to recov. preciation was $886.008.000, while histoncal cost on'et cost recoverable through deprecia-ery only of the embedded cost of debt ton was $401.114.000.

at 9

l

Five Year Comparison of Selected Supplementary Financial Data Adjusted for Effects of Changing Prices (In Thousands of Average 1980 Dollars)

Year Ended December 31.

1980 1979 1978 1977 1976 (Douars in Thousands Except Per Share Amounts)

, Operating revenues.

Actual 5512,535 5386.843 S339.195 5359.746 5324.277 Adjusted to average 1980 do: tars . S512.535 5439.158 $428.420 5489.175 5469.393

, Histoncal Cost Information Adjusted for General inflation -

Income from continuing operations

'mfua,ng adjustment to ret recoverab'e cost) . S 8,467 5 7,716

'ncome per common share (after l

dividend requirements on preferred stock) . $ .58 $ 48 Net assets at year-end at net recoverable cost $151,765 5156.886 Current Cost Information -

locome (loss) from continuing operations (excluding adjustment to net recoverable cost) . S (208) 5 (945) l Income (Ioss) per common share (after dividend requtrements on preferred stock) . S (.56) S ( 68)

Excess of inc ease in general pnce level over increase in specific paces after adjustment to not recoverab!e cost . $ 19,137 5 29.717 Net assets at year-end at net recoverab!e cost $151,765 S156.886 General lnformation -

Gain from dechne in purchasing power of

( net amounts owed . S 33,147 5 37.901 Cash dividends declared per common share . S 1.69 S 1.82 S 1.89 S 1 93 5 1.93 l

Market pnce per common share at year-end S 14.38 5 15 30 $ 19 46 5 23 54 S 22 83 Average consumer pnce index 246.8 217.4 195.4 181.5 170 5 Selected Financial Data 1980 1979 1978 1977 1976 (In Thousands Except Common Share Data)

Operanng Revenues:

Electnc S326,050 $250.410 $214.551 5234.486 S214.467

( Gas 169.807 124.563 115.704 116.427 101.481 Steam and other . 16.678 11.870 8.940 8.833 8.329 l

Total S512,535 5386.843 S339.195 5359.746 5324.277 Net income $ 26.925 $ 22.715 5 21.868 5 21,459 5 18.288 Common Share Data -

r mngs per share . S 3.01 5 2.50 5 2 40 S 2 36 5 2.15 vividends declared per share S 1.69 5 1 60 S I 50 S 1.42 5 1.33 Weighted average shares outstanding 7.604.290 7,456.489 7,384.283 7.329.319 7.077,766 Total Assets $623,762 S540.614 5516,638 5515.593 5501.055 Long-Term Deot Outstand:ng . $177,455 $183.280 5185.213 S188.902 $193.320 edeemab'e Preferred Share Investment . S 47,660 5 48.480 5 49.300 $ 50.120 S 50.400 Common Share Investment $158,898 5146,240 $138.133 $ 130.551 5122.843 27

New England Gas and Electnc Assoc abon and Subsidiary Compames Managsment's Discussion and Analysis of Financial Condition and Results of Operations O

Regulation Fuel and purchased power costs av- Capital Resources The system's operating subsidianes eraged $ 037 per kilowatt-hour as At December 31,1980, system com-are subject to the gunsdiction of state compared with $ 025 per kilowatt-hour panies had short-term notes payable and Federal regulatory agencies with in the preceding year. Since some 70% outstanding totahng $49 milhon which respect to estabhshment of rates affect- of our system's electnc energy comes were used to temporarily finance con-ing retail electnc and gas sales and from oil-fired generating units, the rise struction of new or replacement in oil prices is directly responsible for facihties. Intenm and permanent financ-wholesale electoc sales The Massa-Chusetts commission has generally re- most of the increase in fuel and pur- ing is done on an individual company qutred historical test-year information to chased power costs. Oil prices have basis, with the parent Association pro-support a rate increase fihng. As a re- nsen from approximately $22 per barrel vid:ng, when available, a portion of the sult, revised rates are unkkely to cover at the beginning of the year to nearly subsidiary companies'short-term future costs or permit the system's utikty $33 per barrel at the end of 1980. financing needs through advances and subsidianes to earn the allowed return Higher pnces for natural gas due to by purchasing 100% of any new com-on invested capdal Current penods of increases by pipehne supphers and mon equity issues. To the extent possi-high inflation will continue to create a greater costs for other supplemental ble, the Association's retained earnings i need for more frequent rate fihngs un- gas supplies were a major factor in the and equity capital raised through its less there is a recognition of future increased cost of gas. Our average dividend reinvestment plan provide a costs in determining revenue require- cost per MCF this year was $310, substantial portion of the funds neces-ments. A discussion of the impact of compared with $2.27 per MCF last sary to purchase new subsidiary com-inflation upon the system's operations is year. mon equity. When required, the As-included elsewhere in this report. Other expenses of operations and sociation issues new equity and/or deb' maintenance increased by 16 3% issues to supplement those funds.

Results of Operations These higher costs reflect inflationary The budgeted construction expendi-Operating revenues for 1980 in- increases in material and labor costs tures for the five-year penod ended creased by $125.7 milhon or 32.5% and significantly higher maintenance 1985 are projected at $302 million.

over 1979 while earnings for the year costs for the system's generating units Financing this program will require were $3 01 per common share com- at Canal Electnc. This added mainte- long-term debt issues by subsidiaries pared w!!h $2.50. Revenues were sig- nance was due in part to the use of of $116 million and additional equity nificantly higher for several reasons: in- higher sulphur content f uel which, al- investments by the Association totahng creased costs of fuel used in electnc though it is lower priced and reauces $74 million, of which $64.5 milhon will production, purchased power and fuel cost, causes added maintenance. be provided by new common equity natural gas supphes, increased retail in addition, a major dredging operation and long-term debt issues and the bal-sales to customers and the impact of in the Cape Cod Canal contnbuted to ance from retained earnings and p - r rate increases received early in 1980 by this increase. years' funds from the dividend rein-two subsidiaries Other income was up in large part vestment plan due to equity earnings, reflecting a substant alincreasein Algonquin Liquidity Energy, Inc Js income. Interest income The system's abihty to generate from temporary cash investments was adequate cash to meet its needs re-greater because of higher interest rates sults primanly from the saie of electric in etfect during 1980. and gas energy to retatt customers and Interest on short-term notes payable the collection of accounts receivable was significantly higher due to greater from these customers. Additional amounts borrowed to finance construc-tion activities and as a result of higher interest rates.

O 28

~x

! i v'

sources include periodic bank borrow- bank borrowings making up the remain- The system's cash flow was nega-ings, dividends from equity invest- ing 40% in keeping with a conservative tively affected during 1980 bylarge ments, and the sale of common shares capital structure, short-ten . borrow- incraases in fueloiland purchased through a dividend reinvestment plan- ings are, f rom time to time, permanently power costs and cost of gas. The rise in Although the system is projecting sig- financed through debt and equity is- these costs and an extremely cold nificant capital requirements dunng the sues. A substantial part of the system's winter caused significantly higher utility next five years for its construction pro- internally generated funds are provided bills. There are indications that custom-grara, internally generated funds are through depreciation and tax deferrals, ers may respond to these unexpected expected to provide approximately increases through slower payment of 60 6 of these funds with temporary amounts due.

Unaudited quarterly information pertaining to the results of operations for the years ended Dec:mber 31,1980 and 1979 is presented in the following tables:

1980 by Quarter 1979 by Quarter I 1st 2nd 3rd 4th 1st 2nd 3rd 4th (Doliars in Thousa,nds Except Per Share Amounts)

Operating Ravenues . 5151,703 $93.983 5111,606 5155,243 S105.650 572,759 $96,709 S111,725 Operating income . 10,728 7,603 8,385 8,384 9,233 6.381 7,334 7,304 income Before interest Charges 15,024 9,061 9,906 10,206 12,513 7,968 8,097 8,844 f ' yet income 10.389 4,779 5,682 6,075 8.929 4,604 4.330 4.852

( jamtngs per Ccn nmon Share

• 1.24 .50 .61 .66 1 06 .48 .45 .51 Price of Common Shares -

H.gh 15% 16 % 164 154 16 16W 16?'e 15?s Low 11 4 125a 13?e 12 % 1 51s 14 % 15% 13W "The quar'erty amounts for earnings per com-mon share are derived from amounts previously l

recor'ed on a year-to-cate bases and have been

/ Cortpu'ed using the ae!ghted average number of common shares outstand:ng during the penods v

29

New Eng'and Gas and Electnc Association and Subsdary Companies

, Comparativa Statistical Data 1980-1971 0

1980 1979 ations(Dollars in Thousands) SS12,535 5386.843 Operating expenses -

Operat,ons . 394,683 285,678 Maintenance 21,702 16,422 Depreciation 17,172 16,721 Taxes 43,878 37.770 Total 477,435 356.591 Operating income . 35,100 30.252 Other ir: ame 9,097 7.170 ,

44,197 37,422 Tota! ~.rzor le Interes: expense 17,272 i4,707 Net income .

26,925 22,715 Preferred dividends 4,033 4.093 i

Earnings applicable te common shares S 22,892 5 18.622 Sources of Consolidated Net income-E!ectnc . S 15,550 $ 13,939 Gas. 6,135 5,257 Steam and other 5,240 3.519 Total S 26,925 S 22.71 Financial (Dollars in Thousands) 5531,74 Property, plant and equipment (includ;ng construction work in progress) S561,768 Accumulated depreciation 160,654 147.068 Capitahzation -

Long-term debt . $173,764 S177,471 Preferred shares . 45,840 47,660 Common equity 158,898 146.240 Tota! $378,502 $371,371 Statistics and Ratios 5,540,123 5,635.566 Unit sales -(in Thousands) KWH 36,745 34,139 MCF Capita!iza! on ratios -

Long-term debt . 45.996 47.8 6 Preferred shares . 12.1 12.8 Common equ:ty 42.0 39.4 Total 100.0 % 100 0%

Return on common equity 15.0 6 13.1 % ,

Common share dividend pay-out . 56.3 % 64.1 %

Average price earnings ratto . 4.7 6.1 Data Per Common Share Earnings per share- S 3.01 S 2.50 Dividends paid .

1.66 1.58 Annual dividend rate at end of year 1.72 1.60 Book va!ue . 20.65 19 48 Common share pnce range -

High 16% 16?s Low . 11 % 13 eased cmre wered a,e age number c'sta es utandrg 30

j s u

1978 1977 1976 1975 1974 1973 1972 1971

$339,195 $359,746 S324,277 5288.330 $269,049 S184,795 5157,642 $141,613 236,264 255,942 230.879 216,433 199,004 122,92G 97,904 85,649 15,505 14,174 10,819 9,305 9,277 6,930 5.880 6,146 16.119 15,590 14.439 10,910 10,166 9,700 9,192 8,604 41,277 42.368 37,427 27,205 26,383 25,606 26,857 24.998 309.165 328,074 293,564 263.853 244,830 165,162 139,833 125,397 30,030 31,672 30,713 24,477 24,219 19,633 17,809 16,216 i

6,490 4.463 4,360 3.179 3,613 3.327 3,057 3,722 36.520 36.135 35,073 27,656 27,832 22,960 20,866 19,938 14.652 14.676 16,785 14.266 14,938 11,601 10,239 9.359 21,868 21,459 18,288 13.390 12,894 11,359 10,627 10.579 4,154 4.183 3.042 2,260 2.279 1,182 611 273 5 17,714 5 17.276 S 15.246 5 11,130 S 10,615 S 10,177 5 10,016 $ 10,306 i

l $ 14,165 $ 14,578 5 12.376 S 10,150 $ 6.520 $ 5,811 5 6,283 $ 6,898 4.817 4,837 2,375 931 3,708 3,076 3,148 2,350 2.886 2,044 3.537 2,309 2,666 2.472 1,196 1.331 5 21.868 5 21,459 5 18,288 $ 13.390 $ 12,894 5 11,359 S 10,627 5 10.579 F

l 'dh506.455 $486,476 $467,729 5451,428 5419,952 $383,415 $347,411 $32:i,326 l 133.470 121.019 109,473 99.363 92,752 86.595 81,644 78,359 S180,056 S186.699 5190,532 5159,553 $151,438 5151,974 S128,457 $126,244 48,480 49,300 50,120 30,400 30,680 30,960 13,240 5,520 138,133 130.551 122,843 111,102 98,979 95.867 93.134 90,471

$366,669 $366.550 $363.495 $301,055 S281,097 5278.801 5234,831 $222,235 5,662,525 5,912,434 6,144,891 5,621,499 5.238,963 5 682,061 5,358.814 5.022,376 35.469 32.711 32.314 30.091 34,790 33,174 33.964 30,795 49.1% 50 9 % 52.4 % 53.0% 539% 54.5 % 54.7 % 56.8 %

13 2 13.5 13 8 10.1 10.9 11.1 56 2.5 37.7 35 6 33.8 36.9 35.2 34.4 39.7 40.7 100 0 % 100.0 % 100.0 % 100.0% 100.0 % 100.0% 100.0 % 100.0 %

13.2 % 13 6 % 13 0% 10.6% 10 9% 10.8 % 10 9 % 11.6 %

62.6% 60 3 % 62.7% 76.4 % 70.7 % 73.1 % 73.4 % 69.6 %

69 7.2 6.8 6.5 6.7 90 10.4 8.9 5 2.40 $ 2.36 5 2.15 5 1.71 $ 1.77 $ 1.70 $ 1.67 5 1.72 1.48 1.40 1.31 1.28 1.24 1.24 1.22 1.18 1.52 1.44 1.36 1.28 1.28 1.24 1.24 1.22 18 63 17.75 16.82 16 21 16.49 15.97 15.52 15.07 18 % 18 % 16 % 13W 15 % 18 % 19% 20%

15 _ 15W 12% 8% 8% 12W 15 10 31 l

l

Trustees and Officers O

Trustees of New England System Management Transfer Agents and Registrars Gas and Electric Association Corporate Division Common Shares Transfer Agent Gerald E. Anderson, Gerald E. Anderson

• and Registrar. The First National Bank President and Chief Executive Officer President and Chief Executive Officer of Boston of the Association and its subsidiaries William F. Burt Preferred Shares-Series A. B. C 52: Thomas H. Bilodeau, Assistant to the President Transfer Agent. The Assooation Partner, May. Bdodeau, Dondis & Earl G. Cheney* Registrar: State Street Bank and Landergan Boston. Massachusetts Financial Vice President Trust Company (Attorneys) Forest W. Grumney- Preferred Shares-Series D

"' Willia a R. Dnver, Jr.. Vice President - Human Resources Transfer Agent: The First National Bank Partner. Brown Bros, Hamman & Co . of Boston ,

John D. Heaton.

Boston. Massachusetts (Bankers) Vice President - Corporate Planning Co-Transfer Burdette A.Johnsor, Agen ssooamn

'iohn J' Molloy, Reg su tam Sues Bank at Retired. formerly Treasurer of the Vice Presdent Pubkc Relations Assooaton and Finanoa! Vice Trust Company a a' Dividend Payments President of its subsidianes i e mes i3' John F. Rich' (Paid by the Associabon subject to Charmanof th; Boarcof Trustees Walter J. Cotting declaration by Trustees)

Assistant Vice President - Preferred on the 1st day of January.

of the Assovation Informabon Services Apnl. July. October

""3 Finaaaal Ora C. andRoehl' Management Consu!Robert tant.S. Parker Common on the 1st day of February.

Boston. Massachusetts M surer May. August. November Michael P. Sullivan Trustees Under Indentures of Trust

"' Calvin Siegal, President. Catvin Clothing Corporabon.

Secretary The First Nahonal Bank of Boston The John A. Whalen Assooation s Bonds New Bedford Massachusetts Comptroner Cit ank. N A Canal Electnc Company 52"2 Robert E. Siegfried, Cha;rman of the Board and State Street Bank and Trust Company -

Electnc Division Ch4ef Executive Off+cer. Other Subsidiary Companies' Long-term The Badger Company, loc- Jeremiah V. Donovan * .- Debt and the Associabon's Bond Sinking Cambndge. Massachusetts Executve Vice President Fur.ds

'2' George P. Wadsworth. Andrew S. Gnffiths Listing Affiliations Professor of MathemaScs. Ementus. Vice President Administrabon Common Massachusetts lost;tute of Technology, Robert E. Paley New York Stock Exchange. Inc Cambndge. Massachuset's Vice Presioc . Human Resources Boston Stock Exchange "Tember of Aud:t Committee Ronald F. MacDonald Paotic Stock Exchange. Incorporated Vice President - Customer Services Preferred - Lnes D

'2Nember of Executive Compensabon New York Stock Exchange, Inc William R. Smith Committee Vice President - Energ y Supply 52 Vember of Nominahng Committee Richard G. Velte Form 10-K Vice President Fac.Ites Development The Assocaton foes annually a report on The name "New Engtand Gas and Elec. Form 10-K w;th the Secont.es and Exchange Gas Division Commission Many of the informaton tnc Associabon" means the trustees for the time being (as trustees but not individua!!y) Wilham G. Poist- requirements of Form 10-K are sabsf.ed under a Declaration of Trust dated De- Execubve Vice President by this 1980 Annual Report However, a cember 31.1926. as amended, whiCh is copy of Form 10-K is avadable upon wntten Donald Johnson iequest adaressed to Michael P Suthvan, hereby re' erred to, and a copy of which has Vice President - Customer Services been ided with the Secretary of The Com- Secretary. New England Gas and Elecinc monwea"h of Massachusetts Any agree- James M. Meikle Associaton. P. O Box 190. Cambridge.

ment. cbbgat.on or habity made. entered ce Resident - Admin'suaton Massachusers 02139 into or incurred by or on beha!f of said Harold A. Melden Assoc:ahon binds only the trust estate. and Vice President - Gas Supply The sote purpose of this report is to give no shareholder, director, trustee. c'ficer or Franklin J. Momson

• presant secunty holders information abou agent assumes, or sha'l be held to. any Vice President - Facht:es Deve1coment o ss@s q m habety by reason thereof John R. Williams panies and it is not a representaton. pros-Vice President - Human Resources pectus or orcular in respect to any security

• Merrber of Pohcy Commeee of this AssocaSon or of its subsiciary 32 companies

1 System Fact; System Companies r7~~vemv.~ Tr&m-w-w'r~~p m

[G ' (, b ,  ;; 4 1

Electric 1 m q .i(A Cambndge Electnc Light Company h1 g- i7 i)uneo, up - F.'

c ' : %; ;t . .

Canal Efectnc Company y-q4 * ,

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Commonaeatth Electnc Company P i l

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Commonwealth Gas Company g _ , . .

"7 'j Steam l ' .

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Cambndge Steam Corporadon

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Other Companies NEGEA Service Corporanon

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(service company) j--- . [%.'yx, .

j NEGEA Rea'ty Trust R . .7 - ,

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4 (owns and operates office building in Cambndge with ~I,

(  ; p'aouthi 6 system compan,es a major tenants)

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Darvel Rea!ty Trust p,t, .

1~g f- 9 U (organized to own property within Massachusetts for f: ~

C. y 1 '. t " D ^

F 4 . {\ fg]{,h:I- %.~.y <!* d ii]

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partial occupancy by system companies) ib d ; y.,

NEGEA Energy Products. Inc. y p g-(manufacture and sa'e of gas-f. red heaSog L

.- jm ]F s#

equipment; In s.

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ff - 7 D 'd , .'f% ~d NEGEA Energy Services. Inc 'rNDIN '

y )y)@} \ ')!' .- r <

.) /'.g < ^d- dd (oil and gas explcrabon) [ .

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• ' f) h

- In add t;on. the Associabcn owns 34 Soo of Algonquin

ergy, Inc whose subsidianes are pnncipal supphers

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{ / g ()o ga f. .c e :j  % g6 3, - .t

_( 4 mjnatural gas and SNG to tne system, and 50% of  !

'%7f . ,/1 ' .j Hopkinton LNG Corp , an LNG service corr pany The system has a 14% (8.000 KW) interest in a L[abm .wQli , i@,__p', . . . ~V. u ~f fa.. s;;l Ad Gas Service Area jointly-owned oil-fired generatng unit and also owns from 2S to 4%% interests iifour joint venture nuclear g Egtnc Sepce Arga, , , , _ , , n, n .,, , -

power ptant prclects in Nes ..g!and (projects located in  : -( 4 Massachusetts, ConnE mut. Vermont and Ma:ne) w,th I : cuenase ,' .

j power entdements the ime as ownership interest in y

.m> 9, 4

each project Aggrege ; power entitlement from these l J ./ k j y"e A

j piants is 76.000 KW

(( i(

Territory of Ut.!ity Operating Companies E! ectr:c Opera 5cns - 1.112 square mces covenng 41

}; .' a -

}

communces weh populaton of 559 000 I s  ;

%(

)] 3 Gas Operatons - 1.012 square mdes covenng 47 cit.es l~ ^ ,/ j and towns (includ:ng 12 served *:th e!ectncity) w.th E' .,  ;$

ocpulaton of 1.031.000 ,

f 7 .j Customers y

%, f.

Electnc - 267.900 '

- 4 .

4 1  ;

(includ;ng 43.800 seasonal)

Gas - 194 600

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casi. con ser k I Employees and Shareholders at Year-End y _

1 9  ;$ #

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Errp!oyees - 2.413 6 fj y' #gfy j * * ' ' ",," " ,

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orwn's e a Shareholaers - 26.127 i~ ,

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g 4' Electric Plant .nQ D' #

sy.nn,. , ,  :

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Capabity - 1,078.000 KW. including 864.000 KW for f .i ~ ,

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1.!

Cana! E!ectnc Company of whch 426 000 KW is ,' ' { N'* Bad'o'Q e <"c-->< 1 current;y sold to other u!)id.es r' Peak demand - 648.000 KW on August 6.1980. p; 2j .) /

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-4 as Plant k' ' N ~ ' /j#

Nantucket Sowd itnbuSon bnes - 2.320 mdes P

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ak day send-out - 284.800 MCF on January 4.1981 k.* 'I,6.

wa,1ha s Veieyad

1

! New England Gas and Electric Association An Investor-Owned Taxpaying Utility System l Post Office Box 190 Cambridge, Massachusetts 02139

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SECURITIES AND EXCHANGE COMMISSION Washington D. C. 20549 FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 '

For the fiscal year ended December 31, 1980 Commission file number 2-30057 CANAL ELECTRIC COMPANY (Exact name of registrant as specified in its charter)

Massachusetts 04-1733577 (State or other jurisdiction"M (l.R.S. Employer incorporation or organization) Identification No.)

675 Massachusetts Avenue, Cambridge, Massachusetts 02139

( Address of principal executive offices) (Zip Code)

Registrant's telephone number, including area code 617 - 864 - 3100 Securities registered pursuant to Section 12(b) of the Act:

Name of each exchange on Title of each class Svhich registered None None Securities registered pursuant to Section 12(g) of the Act:

None (Title of C. lass)

Indicate by check mark whethei the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 meaths, and (2) has been subject to such filing requirements for the past 90 days.

Yes X No Shares of common stock outstanding at March 16, 1981 1,523,200 The Company meets the conditions set forth in General Instruction f(1)(a) and (b) of Form 10-K as a wholly-owned subsidiary and is filing this Form with the 3 reduced disclosure format.

I L/ Documents incorporeted herein by reference - None Exhibit index begins on page 27 of this report.  !

1

.I CANAL ELECTRIC COMFANY FORM 10-K DECEMBER 31, 1980 PART l.

Item 1. Business Canal Electric Company (" Company"), a wholly-owned subsidiary of New England Gas and Electric Association (" Association"), is a wholesale electric generating ccmpany organized in 1902 under the laws of the Commonwealth of Massachusetts. The Company assumed its present corporate name in 1966 after the sale to an affiliated company of its electric distribution and transmission properties 16gether with the right to do business in the territories served.

The Company's generating station is located in Sandwich, Massachusetts at the eastern end of the Cape Cod Canal. The station consists of two oil-fired steam electric generating units: Canal Unit No.1, with a rated capacity of 572 MW, is wholly-owned by Canal; and Canal Unit No. 2, with a rated capacity of 584 MW, is jointly-owned by Canal and Montaup Electric Company (a non-affiliated company). Canal Unit No. 2 is operated under an agreement with Montaup which provides for the equal sharing of output, costs and operating expenses.

Construction of Unit No.1 was completed in 1968 and Unit No. 2 commenced commercial operation February 1,1976. The Company expects to participate as a joint-owner of other generating units to be constructed by itself and other New England utilities.

By virtue of its charter which is unlimited in time, the Company generates and sells electricity at wholesale to other utilities without direct competition in kind from any privately or municipally-owned utility.

Power Contracts The Company has entered into substantially identical life-of-the-unit power contracts with Boston Edison Company, Montaup Electric Company and New England Power Company (neighboring utilities), under each of which the customer is severally obligated to purchase one quarter of the capacity and energy of Unit No. 1, and with Commonwealth Electric Company (" Commonwealth Electric") and Cambridge Electric Light Company (" Cambridge Electric"), both distribution subsidiaries of the Association, under which the two are jointly obligated to purchase the remaining one quarter of the unit's capacity and anergy.

A similar contract is in effect between the Company and Commonwealth Electric and Cambridge Electric, under which those companies are jointly obligated to purchase the Company's entire one-half share of the net capability of Unit No. 2.

The price of power under the power contracts is based on a two-part rate consisting of a demand rate and an energy rate. The demand rate covers all expenses except fuel costs and provides for a return on investment as well as recovery of investment over the economic lives of the units. The 2

4 CANAL ELECTRIC COMPANY 7

(

FClM 10-K DECEMBER 31, 1980 item 1. Business (Continued) ,

Power Contracts (Continued) energy rate is based on the cost of fuel and is billed to each purchaser in proportion to its consumption of power. Purchasers are billed monthly. The power contracts are on file with the Federal Energy Regulatory Comn .sion (FERC).

New England Power Pool i

The Company is a member of the New England Power Pool (NEPOOL),

whose central dispatching facility (NEPEX) coordinates the operation r essentially all of the generation and transmission facilities in New England. Under its long-range program, NEPOOL will enable member utilities to install fewer but larger, more efficient generating units and higher voltage transmission lines for the purpose of obtaining lower cost power and increased reliability.

N Under NEPEX the most economically available generating units of member companies are operated to fill the demand for power in the entire region. In the past, this has required that Unit No.1 operate whenever possible since it is one of the moat efficient oil-fired units in the country. Unit No. 2 is N designed for cycling operation which provides for economic changes in unit load. This design permits reduced generation during nights and weekends when demand in the region is lowest and it has performed as one of New England's most efficient units in this type of service.

The Company and the Association's other electric subsidiaries are also

members of the Northeast Power Coordinating Council (NPCC), an advisory organization which establishes criteria and standards for reliability and serves as a vehicle for coordination in the planning and operations of these systems to enhance reliability.

Regulation The Company is subject to regulation by the Massachusetts Department of Public Utilities (DPU) as to issue of securities, accounting, and other matters. The Company is a "public utility" within the meaning of Part ll of the Federal Power Act and is subject to regulation thereunder by the FERC as to rates, accounting and other ma+. tars and has filed its power contracts ,

with the FERC as rate schedules.

During 1979 the Department of Energy (DOE) began to survey existing electric generating stations which use oil as fuel in their boilers, as required under the Fuel Use section of the 1978 National Energy Act. The objective of this portion of the Act is to reduce the nation's overall dependence on oil by requiring conversion of existing units to alternative types of fuel. The DOE plan would prohibit the use of oil by those facilities which are deemed capable of converting to coal or an alternate fuel. In 1979, the Company's Unit No.1

. is initially surveyed by the DOE and during 1980 the DOE issued a proposed

{&

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d

, CANAL ELECTRIC COMPANY FORM 10-K DECEMBER 31, 1980 item 1. Business (Continued)

Regulation (Continued) prohibition order barring the burning of oil in Unit No. 1. The possible requirement to convert Canal Unit No.1 to a coal facility has been the subject of intensive study by Company personnel, who have determined that sucn a conversiori would cost in the range of $200 million to $300 million in today's dollars and would take up to ' : .en years to complete. The financial, technical, operational and environmental oifficulties were the subject of an extensive study which was presented to the DOE in October 1980, in opposition to the proposed order.

The Company has countered the DOE's plan with a proposal to construct a new coal-fired facility.

At this time the Company has yet to receive a response from the DOE regarding either the study or the proposed new facility.

Fuel Supply The Company is in the final stages of negotiation of a new long-term contract with Charter Oil (Massachusetts), Inc., for the purchase of the total estimated requirements of residual fuel oil for Unit No. 1 and Unit No. 2.

During 1980 the Company has maintained an average daily inventory of approximately 485,000 barrels of fuel oil which represents 16 days of norn:al

= operation of the two unitr This supply is maintained by tanker deliveries approximately every five to ten days.

Future Generating P'lant Commitments the Company or Commonwealth Electric has made commitments to participate as a joint-owner in three nuclear units which are planned or under construction by members of NEPOOL. The Company plans to purchase Commonwealth Electric's interest in such units after both companies have obtained required regulatory approvals.

The total planned capacity for these units is approximate y 3,450 MW.

The Company's ultimate entitlement is 98 MW and is no greater than Ss with respect to any single unit, as shown in the table below Esti- E xpends- Esti-system mated tures mated P' ant Entitle- scheduled Cost of through Cost Capacity ment Comple- Entitle- Decernber Per Unit (b) (Mw) (Mw) Location tion oats ment 31, 1980 (In Thousands seabrook Nos. 1 and 2 2 300 80(a) seabrook, NH 1983-1985 $109 604 $18 478 $1 370 Pilgrim No. 2 1 150 18(a) Plymouth, MA Not Determined $ 6 661 $ -

14

a

- CANAL ELECTRIC COMPANY FORM 10-K DECEMBER 31, 1980 item 1. Business (Continued)

Future Generating Plant Commitments (Continued)

(a) Tommitment of Commonwealth Electric to be acquired by the Comparty.

(b) The lead participants for the nuclear units described above are ,

Public Service Co. of New Hampshire and Boston Edison Company, respectively.

The Company expects to construct or acquire additional generating capacity in the future in order to meet the load requirements of the distribution subsidiaries of the Association.

Construction and Financing Tr.9 Company has made substantial commitments in connection with its construction program. Estimated construction expenditures for the five-year period ending in 1985 are $157,300,000. Included in this amount is $25,100,000 representing Commonwealth Electric's cost 2.s of December 31,1980 of its investment in jointly-owned generating facilities which the Company proposes to purchase and approximately $114,000,000 reprerenting amounts presently committed by Commonwealth Electri: applicable to such facilities for the five-year (j~~N

\ period. The Company will also assume additional commitments for construction costs, related to participation in the jointly-owned plants, for years' beyond 1985. These amounts are estimated at $8,800,000.

The estimated construction costs and completion dates for these projects have changed as a result of regulatory, financing, legal and other problems associated with construction of nuclear and other generating facilities. The Company is unable to predict what effect present or future construction difficulties related to these projects will have on its present construction estimates and the estimated completion dates.

The Company's construction program is subject to periodic review, and actual expenditures may vary from the above estimates because of factors such as changes in business condi. ions, rates of growth, effects of inflation, equipment delivery schedules, licensing delays, availability and cost of capital, and environmental factors.

i During the construction period for the jointly-owned generating units each of the par &ipating utility companies finances its own share of the individual units. When these units become ,perational, the lead participant acts as the operator and bills the participants for their proportionate share of the operating expenses and utner costs associated with the unit. Estimated construction expenditures relating to the jointly-owned generating units are based upon the most recent information furnished by the utility responsible for the construction of each unit.

I

%/

5

CANAL ELECTRIC COMPANY FORM 10-K DECEMBER 31, 1980 item 1. Bus,iness (Continued)

Construction and Financing (Continued)

During the five-year period ending December 31, 1985, it is estimated that internally-generated funds s'ill provide approximately $94,000,000 to be used for construction. The balance of the funds required will be provided on an interim basis by short-term borrowings which are expected to be replaced by long-term debt and equity securities.

Financings presently planned for the period ending December 31, 1985 consist of iong-term debt issues totaling $40,000,000 and $25,000,000 irom the sale of equity securities to the Association. The exact type, timing and amount of future long-term debt and equity financings are subject to change

, because of market conditions and other factors.

Environmental Matters The Company's generating facilities are subject to Federal, state and local environmental quality control regulations. With respect to Unit No.1 and Unit No. 2, these regulations have required capital expenditures by the Company of approximately $16,256,000. Environmental regulations also require the burning of 1.0% sulphur content oil. However, the Company received an exemption from these regulations during 1979 and is burning 2.2% sulphur content oil. The exemption is subject to periodic review the first >f which is scheduled for no later than July 1,1982.

r uture compliance with existing regulations will require capital expenditures by the Company through 1985 of an estimated $20,600,000 including approximately

$19,600,000 for the Company's propoi tionate share of such costs to be incurred in connection with construction of jointly-owned generating plants. These amounts have been included in the construction estimates discussed under

" Construction and Financing".

Environmental regulations governing site selection for new electric generating facilities and imposing air and water pollution standards requiring the installation of costly pollution control facilities have iad and may continue to have an effect upon the capital costs and construction schedules of NEPOOL generating facilities. The increases in cost cannot be predicted, since the standards and the technology required to meet them are in a state of rapid change. There has been particular public controversy concerning development of nuclear energy. Despite the safety record of the nation's nuclear power plants, these plants have become the target of certain groups claiming, through litigation or intervention in regulatory proceedings, that the present state of nuclear technology presents unacceptable risks to public health and safety and the environment. These claims may cause delays in, or interfere with, scheduled construction of new nuclear plants.

Although tne Company is not aware of any existing or proposed environmental regulations having a significant effect upon its electric business, 6

CANAL ELECTRIC COMPANY

. O FORM 10-K DECEMBER 31, 1980 i

j ltem 1. Business (Continued)

Environmental Matters (Continued) it is unable to predict the possible effect on capital expenditures or earnings resu! ting from regulations which may be adopted in the future.

Employees The Company has approximately 100 regular employees, of whom 68 were represented by the Utility Workers' Union of America, A.F.L.-C.I.O. The existing collective bargaining agreement expires May 31, 1983. Employee

, relations have generally been satisfactory.

Item 2. Properties The Company operates a generating station located at the eastern end of the Cape Cod Canal in Sandwich, Massachusetts. The station consists of two oil-fired steam electric generating units: Canal Unit No.1 with a rated capacity of 572 MW, which is wholly-owned by Canal; and Canal Unit No. 2, with a rated capacity of 584 MW, which is jointiv-owned by Canal and Montaup Electric Company.

ltem 3.

Legal Proceedings None i

I 7

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CANAL ELECTRIC COMPANY FORM 10-K DECEMBER 31, 1980 PART 11.

Item S. Market for the Registrant's Common Stock and Related Security Holder Matters (a) Principal Market Not applicable. The Company is a wholly-owned subsidiary of New England Gas and Electric Association.

(b) Approximate Number of Shareholders at December 31, 1980 One (c) Frequency and Amount of Dividends Paid in 1980 and 1979 (Dollars in Thousands) 1980 1979 Payment Date Amount Payment Date Amount April 29,1980 $1 904 May 1, 1979 $1 447 July 29,1980 1 447 July 31,1979 1 523 October 27, 1980 1 523 October 19, 1979 1 523 December 26, 1980 1 523 December 27, 1979 1 143 16 397 $h_635 (d) Future dividends may vary depending upon the Company's earnings and capital requirements as well as financial and other conditions existing at that time.

O 8

l

CANAL ELECTRIC COMPANY FORM 10-K DECEMBER 31, 1980 item 7. Management's Discussion and Analysis of the Results of Operations Results of Operations For the Years Ended December 31, 1980 1979 (Dollars in Thousands)

Electric operating revenues $197 256 $141 976 a

Costs and Expenses:

Fuel oil used in production 161 722 110 832 Property taxes 1 791 1 623 Interest 4 299 4 178 Depreciation 4 617 4 596 income taxes 6 459 5 653 All other, net 12 007 9 175 Total 190 895 136 057 Net income $ 6 311 1 5 919 Cash dividends declared on common stock paid to New England Gas and Electric Association (Parent Company) $ 6 397 $ 5 636 Number of common shares outstanding 1 523 200 1980 Compared With 1979

! Operating revenues increased by $55.3 million or approximately 38.9%

over 1979. The power contracts for the sale of the capacity of the Canal c

units provide for the recovery of all operating expenses and fixed charges ,

(including a return on equity) whether or not the unit is operating.

Variations in revenue result from changes in operating expenses, primarily the cost of fuel oil and to a lesser degree from changes in the length of outages for scheduled maintenance. Such variations have no effect on net I income. Fuel expense is the Company's single most significant operating cost, f representing over 82% of the total revenue dollar. The average annual cost of fuel oil per barrel increased during 1980 to approximately $23.00, up from

$16.00 in the prior year. Local property taxes increased by 10.4% due to a higher rate in effect and increased amounts of property. Income taxes increased as a result of higher pre-tax income. Other expenses of operations and maintenance increased by 27.8%. These higher costs reflect inflationary increases in material and labor costs and significantly higher maintenance costs for the Company's generating units. This added maintenance was due in part to the use of higher sulphur content fuel which, although it is lower priced and reduces fuel cost, causes added maintenance. In addition, a major dredging operation in the Cape Cod Canal contributed to this increase, i

l

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CANAL ELECTRIC COMPANY FORM 10-K DECEMBER 31, 1980 t

item 8. Financial Statements and Supplementary Data f

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To Canal Electric Company:

We have examined the balance sheets of CANAL ELECTRIC COMPANY (a Massachusetts corporation and wholly-owned subsidiary of New England Gas ,

i and Electric Association) as of December 31,1980 and 1979, and the related statements of income, retained earnings and sources of funds used for construction for each of the three years in the period ended December 31, 1980, and the supporting schedule listed in the accompanying index. Our examinations were made in accordance with generally accepted auditing standards and, accordingly, included such tests of the accounting records

and such other auditing procedures as we considered necessary in the

circumstances.

In our opinion, the financial statements referred to above present fairly the financial position of Canal Electric Company as of December 31,1980 and i 1979, and the results of its operations and its sources of funds used for construction for each of the three years in the period ended December 31, 1980, and the supporting schedule present fairly the information required to be set forth therein, all in conformity with generally accepted accounting principles applied on a consistent bcsis.

ARTHUR ANDERSEN & CO.

m Boston, Massachusetts,-

) February 17, 1981.

1 10

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INDEX CANAL ELECTRIC COMPANY INDEX TO FINANCI AL STATEMENTS AND SCHEDULES PART 11.

FINANCI AL STATEMENTS Balance Sheets at December 31,1980 and 1979 Statements of income for the Years Ended December 31,1980,1979 and 1978-Statements of Retained Earnings for the years ended December 31, 1980, 1979 and 1978 Statements of Sources of Funds Used for Construction for the years ended December 31,1980,1979 and 1978 Notes to Financial Statements PART IV.

SCHEDULE IX Short-term borrowings for the years ended December 31, 1980, 1979 and 1978 SCHEDULES OMITTED All other schedules are not submitted because they are not applicable or required or because the required information is included in the financial statements or notes thereto.

d 11

i BALANCE SHEETS CANAL ELECTRIC COMPANN BALANCE SHEETS DECEMBER 31,1980 AND 1979 ASSETS 1980 1979 (Dollaris in Thousands)

PROPERTY, PLANT AND EQUIPMENT, at original cost: $129 642 $128 854 Less - Accumulated depreciation 37 673 33 136 91 969 95 718 Add - Construction work in progress 595 93 92 564 95 811 CURRENT ASSETS:

Cash 965 332 Temporary cash investments 25 900 5 400 Accounts receivable -

Affiliated companies 13 437 9 217 Other 18 322 9 626 Prepaid taxes -

Property 983 816 income -

139 Electric production fuel oil, at average cost 2 895 12 391 Other 357 237 62 859 38 158 DEFERRED CHARGES (Note 7) 2 512 2 348

$15LS35 $136JJ2 The accompanying notes are an integral part of these 'inancial statements.

12

p BALANCE SHEETS (Continued)

V CANAL ELECTRIC COMPANY BALANCE SHEETS DECEMBER 31,1980 AND 1979 CAPITALIZATION AND LI ABILITIES 1980 1979 (Dollars in Thousands)

CAPITAllZATION:

Common Equity -

Common Stock, $25 par value -

Authorized and outstanding -

1,523,200 shares, wholly-owned by New England Gas and Electric Association (Parent) $ 38 080 $ 38 080 Amounts paid in excess of par value 8 321 8 321 Retained earnings 7 214 7 250 53 615 53 651 Long-term debt, including premiums, less current ,

sinking fund requirements 49 13') 49 893 7 102 746 103 544

(

CURRENT LI ABILITIES:

Notes Payable to Banks (Schedule IX) -

1 300 Other Current Liabilities -

Current sinking fund requirements 890 686 Accounts payable -

Affiliated companies 220 183 Other 29 657 9 450 Accrued taxes -

Local property and other 983 817 income 3 482 418 Deferred income 500 807 Accrued interest and other 1 352 1 346 37 084 13 707 37 084 15 007 DEFERRED CREDITS:

Accumulated deferred income taxes 14 251 13 801 Unamortized investment tax credits 3 855 3 965 18 106 17 766 COMMITMENTS (Note 7)

$151_935 5136 317 The accompanying notes are an integral part of these financial statements.

v 13

G STATEMENTS OF INCOME CANAL ELECTRIC COMPANY STATEMENTS OF INCOME FOR THE YEARS ENDED DECEMBER 31,1980,1979 AND 1978 1980 1979 1978 (Dollars in Thousands) r ELECTRIC OPERATING REVENUES $197 256 $141 976 $110 769 OPERATING EXPENSES:

Fuel oil used in production 161 722 110 832 78 652 Other operation 6 882 6 301 6 269 Maintenance 7 705 4 107 4 225

. Depreciation 4 617 4 596 4 568 Taxes -

Income (Note 2) 6 459 5 653 6 455 Local property 1 791 1 623 1 552 Payroll and other 222 197 152 189 398 133 309 101 873 OPERATING INCOME 7 858 8 667 8 896 OTHER INCOME:

Allowance for equity fu..J. uad during construction -

79 88 Other, net 2 802 1 351 1 217 2 802 1 430 1 305 INCOME BEFORE INTEREST CHARGES 10 660 10 097 10 201 INTEREST CHARGES:

Long-term debt 4 174 4 211 4 228 Other interest charges 161 43 -

Allowance for borrowed funds used during construction (36) (76) (54) 4 299 4 178 _4 174 NET INCOME $ 6 361 $ 5 919 $_6_022 The accompanying notes are an integral part of these financial statements.

14

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

4 I

t STATEMENTS OF I'! O RETAINED EARNINGS CANAL ELECTRIC COMPANY STATEMENTS OF RETAINED EARNINGS FOR THE YEARS ENDED DECEMBER 31,1980,1979 AND 1978 i

t 1980 1979 1978 (Dollars in Thousands)

Balance at beginning of year $ 7 250 $ 6 967 $ 6 805

! t Add (Deduct):

Net income 6 361 5 919 6 027 j Cash dividends on common stock (6 397) (5 636) (5 865)

Balance at end of year $ 7 214 $ 7 250 ,$ 6 962 i

i O

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i i

1 l The accompanying notes are an integral part of these financial statements.

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STATEMENTS OF SOURCES OF FUNDS USED FOR CONSTRUCTION CAN %L ELECTRIC COMPANY STATEMENTS OF SOURCES OF t-UNDS USED FOR CONSTRUCTION FOR THE YEARS ENDED DECEMBER 31,1980,1979 AND 1978 1980 1979 1978 (Dollars in Thousands)

SOURCES OF FUNDS -

Internal Sources From Operations -

Net income $ 6 361 $ 5 910 $ 6 027 Items not requiring or (providing) funds:

Depreciation 4 617 4 596 4 568 Deferred income taxes - long-term 451 1 997 1 352 investment tax credits, net (110) (154) (124 )

Allowance for equity funds used during construction -

(79) (88) 11 319 12 279 11 735 Less -

Payment of dividends 6 397 5 636 5 865 Retirement of long-term debt through sinking funds 763 669 779 Other 114 36 (56) 7 274 6 341 6 588 Changes in net current assets:

Cash and temporary cash investments (21 133) 8 334 3 484 Accounts receivable and unbilled revenue (13 171) (7 304) 2 595 income taxes, net 2 896 693 (3 205)

Electric production fuel oil 9 496 (10 705) (1 127)

Accounts payable and other 20 588 2 354 (5 802)

(1 324) (6 628) (4 055)

Net available from internal sources 2 721 (690) 1 092 increase (Decrease) ir interim Financing (1 300) 1 300 -

$ 1 421 $= _610 $ 1 032 FUNDS USED FOR CONSTRUCTION -

Canal Unit No.1 $ 1 241 $ 121 $ 521 Canal Unit No. 2 180 183 323 Jointly-Owned Project -

385 336 1 421 689 1 180 Less - Allowance for equity funds used during construction -

79 88

$ 1 421 $ 610 $ 1 092 The accompanying notes are an integral part of these financial statements.

16

NOTES TO FINANCI AL STATEMENTS CANAL ELECTRIC COMPANY NOTES TO FINANCI AL STATEMENTS i

(1) Accounting Policies Transactions with Affiliates The Corapany is a wholly-owned subsidiary of New England Gas and Electric Association. The Association is an exempt holding company under the provisions of the Public Utility Holding Company Act of 1935

. and, in addition to its investment in the Company, has interests in other

. utility companies and several non-regulated companies.

Transactions between the Company and other system companies include purchase and sale of electricity and payment for management, accounting, data processing and other services. Transactions with other system companies are subject to review by the Federal Energy Regulatory Commission and the Massachusetts Department of Public Utilities.

Operating revenues include sales of electricity to affiliated companies of $105,279,000 in 1980, $75,870,000 in 1979 and $55,595,000 in 1978.

Other Major Customers The Company is a wholesale electric generating company which sells power under life-of-the-unit power contracts to several utility companies in the New England area. Information regarding the customers and their participation in these contracts may be found in the " Business" section of this re sort.

Depreciation Depreciation is provided using the straight-line method at rates intended to amortize the original cost of properties over their estimattd economic lives. The Company's conposite depreciation rate, based on j average depreciable property in service, was 3.6% in 1980,1979 and 1978.

Maintenance Expenditures for repairs of property and replacement and renewal of items determined to be less than units of property are charged to maintenance expense. Additions, replacements and renewals of property considered to be units of property, are charged to the appropriate plant accounts. Upon retirement, accumulated depreciation is charged with the

, original cost of property units and the cost of removal net of salva0e-O U

[ 17

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CANAL ELECTRIC COMPANY NOTES TO FINANCI AL STATEMENTS (CONTINUED)

(1) Accounting Policies (Continued)

Allowance for Funds Used During Construction The Company includes as an element of the cost of construction of depreciable propert. an allowance for funds employed during periods when property is under construction. An amount equal to the allowance capitalized in the current period is reflected in the statements of income.

Under applicable rate-making practices, property under construction is not includeo in rate base on which the Company is permitted to earn a return. Amounts so capitalized, while not currently providing funds, are included in rate base when property is placed in service, and these amounts property.

are recoverable in revenues over the service life of the constructed The Company develops rates based upon its current cost of capital and used a rate of 19% in 1980,11 1/2% in 1979 and 11% in 1978.

(2) Income Taxes For financial reporting purposes, the Company provides taxes on a separate return basis. However, for Federal income tax purposes, the Company's taxable income and deductions are included in the consolidated income tax return of its Parent and it makes tax payments or receives refunds on the basis of its tax attributes in the consolidated income tax return in accordance with applicable Federal income tax regulations.

The following is a summary of me provision for income taxes for the years ended December 31, 1980, 1979 and 1978:

1980 1979 1978 Total Federal State Total Federal State Total Federal State (Dollars in Thousands)

Currently oayable $6 436 $5 585 $851 $4 078 $3 537 Curren tly

$541 $5 183 $4 511 $672 deferred (318) (275) (43) (268) (270) 2 44.

Long-term 48 (4) deferred 451 392 59 1 997 1 735 262 1 352 1 181 171 Investment tax credits 33 33 -

33 33 -

61 61 -

6 602 5 735 867 5 840 5 035 805 6 640 5 801 839 Less-Amortization of investment tax credits 143 143 -

187 187 -

185 185 -

$6_459 $Llt92 $861 $5_653 $L848 $805 $6_455 $L 616 $639 O

18 m

l-.

CAN AL ELECTRIC COMPANY O

NOTES T O FINANCI AL STATEMENTS (CONTINUED)

(2) Income Taxes (Continued)

Income taxes are provided for the tax effects of all timing differences other than certain construction-related costs. Timing differences result from reporting income and expense for tax purposes in periods different from those used for financial reporting purposes. The long-term deferred provision represents principally the tax effects arising from deducting depreciation for income tax purposes that currently exceeds the amounts provided in the accounts. The greater tax depreciation arises from the use of accelerated depreciation methods and shorter lives permitted by the Federal and state income tax laws. The tax effects of current timing l differences are included in the current deferred provision and deferred income taxes. Investment tax credits are deferred and amortized over the life of the property giving rise to the credits.

The total income tax provision set forth above represents 50% in 1980, 49% in 1979 and 52% in 1978 of income before such income taxes.

The table below reconciles the statutory Federal income tax rate to these percentages:

1980 1979 'i978 Statutory Federal income tax rate 46% 46% 48%

Increase (decrease) from statutory rate:

State income tax net of Federal tax reduction 4 4 4 Other. -

{_1 )

Mt 49% 52%

i The ,ompany's long-term deferred provision for income taxes results i from the use of the following:

1980 1979 1978 (Dollars in Thousands)

Accelwated depreciation for tax purposes $327 $1 242 $1 244 l Allowance for borrowed funds used during construction 18 38 74 Other 106 717 33 Long-term deferred income tax provision $_451 $1 997 $3_311 (3) Interim Financing and Long-Term Debt Notes Payable to Banks i

The Company and other system companies have banking relationships

, in which borrowings are arranged as required for interim financing of construction in progress. These arrangements are not formal lines of credit but provide for unsecured borrowings evidenced by notes payable which are due within one year. The Company had no short-term borrowings

( outstanding and no existing ' lines of credit at December 31, 1980.

19

CANAL ELECTRIC COMPANY NOTES TO FINANCIAL STATEMENTS (CONTINUED)

(3) Interim Financing and Long-Term Debt (Continued)

Long-Term Debt Long-term debt outstanding, exclusive of current sinking fund requirements and related premiums, is as follows:

Original Balance December 31, issue 1980 1979 (Dollars in Thousands)

First Mortgage Bonds, Series A, 7%, due 1996 $19 000 $14 440 $15 200 Series B, 8.85%, due 2006 35 000 34 650 34 650

$49_Q20 $43_650 The Series A First Mortgage Bonds require an annual sinking fund payment of $760,000 from 1980 to 1996. At December 31,1980 and 1979 the Company had purchased $220,000 and $424,000 of its bonds, respectively, in anticipation of future sinking fund requirements.

The Series B First Mortgage Bonds require an annual sinking fund payment of $350,000. The requirement may be met by payment, repurchase of bonds or certification of an amount of property additions equal to 60%

of bondable property (as that term is defined in the indenture). The Company expects to certify additional bondable property in lieu of making sinking fund payments on these bonds.

(4) Dividend Restriction At December 31, 1980, approximately $3,579,000 of retained earnings was restricted against payment of cash dividends by the terms of the indenture of Trust securing long-term debt.

(5) Pension and Employee Savings Plans The Company has a noncontributory pension plan covering substantially all regular employees who have attained the age of 25. Pension costs are funded as accruea and include amounts applicable to prior service costs which are being amortized over a period of 30 years. Total pension expense was approximately $325,000 in 1980, $298,000 in 1979 and $195,000 in 1978. The increases in expense are primarily due to changes in the plan which provide improved benefits to employees and retired personnel.

A comparison of accumulated plan benefits and plan net assets for the Company's benefit plan is presented on the following page:

O 20

,s CANAL ELECTRIC COMPANY I

(O NOTES TO FINANCIAL STATEMENTS (CONTINUED)

(5) Pension and Employee Savings Plans (Continued)

January 1, 1980 1979 (Dollars in Thousands)

Actuarial present value of accumulated plan benefits:

Vested $1 217 $ 990 Nonvested 156 124 Total actuarial present value of accumulated plan benefits $1 373 $1 114 Net assets available for benefits $1 282 $ 931 ine plan uses a "5 year average of actual over expected return" method to determine the value of the accumulated plan benefits. Under this method an expected investment return is determined each year based on fund market value at the beginning of the year; contributions, benefit payments and expenses paid during the year; and the actuarial assumption as to rate of investment return, which is 6%. This expected return is compared to actual investment return and any excess is recognized over

(~N y

) a five-year period.

The Company has an Employee Savings Plan which provides for Company contributions equal to contributions by eligible employees but not in excess of four percent of each employee's compensation rate. The total Company contribution was approximately $96,000 in 1980, $98,000 in 1979 and $78,000 in 1978.

(6) Property and Reserves The major sub-classifications of property, plant and equipment at December 31,1980,1979 and 1978 were as follows:

1980 1979 1978 (Dollars in Thousands)

Land and rights-of-way $ 229 $ 229 $ 229 Structures and lease improvements 15 558 15 314 15 285 Production equipment 107 611 107 543 107 261 Transmission equipment 5 018 5 016 5 019 General equipment and vehicles 250 244 350 Total plant in service 128 666 128 346 128 144 Construction in progress 595 93 1 761 Nonutility property 840 372 234 Property held for future use 136 136 135 Total property, plant and equipment $130 237 $128 947 $130_275

(];

21

CANAL ELECTRIC COMPANY NOTES TO FINANCI AL STATEMENTS (CONTINUED)

(6) Property and Reserves (Continued)

Neither the total additions to, nor reductions in property, plant and equipment during either of the years 1980,1979 or 1978 amounted to more than 10% of the balance at the end of the respective years. The changes during the years are summarized as follows:

1980 1979 1978 (Dollars in Thousands)

Balance at beginning of year $128 947 $130 275 $129 174 Additions, at original cost 1 421 689 1 180 130 368 130 964 130 354 Retirements, at original cost -

Charged to accumulated depreciation 131 34 79 Reclassification of joint-owned project -

1 983 -

Balance at end of year $130_231 $123 94Z $130_2Z5 Changes in accumulated depreciation of property, plant and equipment during the years 1980,1979 and 1978 are summarized as follows:

1980 1979 1978 (Dollars in Thousands)

Balance at beginning of year $33 136 $28 559 $24 058 Provisions, charged to -

Operating expense 4 617 4 596 4 568 Other 49 15 10 37 802 33 170 28 636 Deductions -

Retirements 131 34 79 Cost of removal, less salvage (2) -

(2) 129 34 77 Balance at end of year $37 673 $33 136 $2B_559 (7) Commitments Construction Program Construction expenditures for the five-year period ending in 1985 are estimated at $157,300,000. Included in this amount is $25,M0,000 representing Commonwealth Electric's cost as of December 31,1E80 for the investment in jointly-owned generating facilities which the Company proposes to purchase, and approximately $114,000,000 representing amounts presently committed by Commonwealth Electric applicable to such fe,ilities for th : five-year period. The Company will also assume additional commitments for construction costs, related to participation in the jointly-owned plants, for years beyond 1985. These amounts are estimated at

$8,800,000 and are based upon construction estimates of the lead participant -

22

CANAL ELECTRIC COMPANY NOTES TO FINANCIAL STATEMENTS (CONTINUED) i (7) Commitments (Continued)

Construction Program (Continued) i The estimated construction costs aad completion dates for these projects have changed as a result of regulatory, financing, legal and other problems associated with construction of nuclear and other generating facilities. The company is unable to predict what effect present or future construction difficulties related to these projects will have on its present construction estimates and the estimated completion dates.

Each of the participating utility companies finances its own share of the units. When these units become operational, the lead participant acts as the operator and bills the participants for their proportionate share of the expenses of the unit. Additional information relating to these units is contained in a table in Part I of this report under " Future Generating Plant Commitments."

Cancellation of Joint-Owned Project The Company had a commitment to participate as a Joint-owner in two nuclear generating units to be built by New England Power Company.

O in December,1979 New England Power announced cancellation of its O plans to build the power plants (NEP Units 1 and 2).

During 1980 the Company filed an application with the Federal Energy Regulatory Commission (FERC) seeking approval to write-off and recover its investment in the project which totaled approximately

$1,764,000 and is included in deferred charges. In mid-December,1980 FERC authorized the write-off of this in /estment over a three-year period beginning December 1,1980. This investment is being recovered through capacity acquisition agreements with affiliated companies.

(8) Supplementary information to Disclose the Effects of Changing Prices

( Unaudited )

The following supplementary information is supplied in accordance with the requirements of Financial Acccanting Standards Board Statement No. 33 for the purpose of providing certain information about the effects of changing prices. It should be viewed 'as an estimate of the approximate effect of inflation, rather than as a precise measure.

Constant dollar amounts represent historical costs stated in terms of dollars of equal purchasing power, as measured by the Consumer Price Index for All Urban Consumers. Current cost amounts reflect the changes in specific prices of plant from the date the plant was acquired to the present, and differ from constant dollar amounts to the extent that specific prices have increased more or less rapidly than prices in general.

O 23

CANAL ELECTRIC COMPANY NOTES TO FIN ANCI AL STATEMENTS (CONTINUED)

(8) Supplementary information to Disclose the Effects of Changing Prices (Unaudited) (Continued)

The current cost of plant is determined primarily by indexing surviving plant using the Handy-Whitman Index of Public Utility Construction Costs. Since the utility plant is not expected to be replaced in kind, current cost does not necessarily represent the replacement cost of the productive capacity. Depreciation is determined by applying the Company's depreciation rates to the revised asset amounts.

Fuel inventories and the cost of fuel used in generation have not been restated from their historical cost in nominal dollars. Regulation provides for the recovery of fuel costs through the operation of adjustment clauses. For this reason fuel inventories are effectively monetary assets.

Since only Sistorical costs are deductible for income tax purposes, the income tax expense in the historical cost financial statements is not adjusted.

Under present ratemaking procedures prescribed by the regulatory commissions, only the historical cost of plant is recoverable in revenues as depreciation. Because the excess cost of plant stated in terms of constant dollars and current cost is not recoverable in rates, a write-down to net recoverable cost is required. While the rate-making process does not recognize the current cost of replacing plant, regulated companies have, historically, been allowed to earn a return on the increased cost of its investment when replacement actually occurs.

During periods of inflation, holders of monetary assets suffer a loss of general purchasing power while holders of monetary liabilities experience a gain. The gain from the decline in purchasing power of net amounts owed is primarily attributable to the substantial amount of debt which has been used to finance property, plant and equipment. These gains are unrealized and, therefore, do not contribute to cash flow or distributable income. The Company does not have the opportunity to realize a gain on debt because it is limited to recovery only of the embedded cost of debt capital.

O 24

! O O O CANAL ELECTRIC COMPANY NOTES TO FINANCI AL STATEMENTS (CONTINUED)

(8) Supplementary Information to Disclose the Effects of Changing Prices (Unaudited) (Continued)

J FIVE YEAR COMPARISON OF SELECTED SUPPLEMENTARY FINANCI AL DATA ADJUSTED FOR EFFECTS OF CHANGING PRICES

! (in thousands of average 1980 dollars) i i

1 Year Ended December 31, 1980 1979 1978 1977 1976-

) Operating revenues:

$123 638 $108 285

!' Actual $197 256 $141 976 $110 769 Adjusted to average 1980 dollars $197 256 $161 176 $139 907 $174 919 $156 743 j Historical Cost information adjusted for general inflation O Income from continuing operations (excluding  ;

reduction to net recoverable cost) $ 2 870 $ 2 438 Net essets at year-end at net recoverable cost $ 51 208 $ 57 556 i Current Cost Information ,

! Income from continuing operations (excluding l reduction to net recoverable cost) $ 1 875 $ 2 313 Excess of increase in general price level over increase in specific prices after reduction to net recoverable cost $ 6 712 $ 9 760 4

Net assets at year-end at net recoverable cost $ 51 208 $ 57 556 General Information i Gain from decline in purchasing power of l net amounts owed $ 4 640 $ 6 041

^

Average consumer price index 246.8 217.4 195.4 181.5 170.5 I Note: The Company's stock is entirely owned by the Parent, therefore, per share information is not relevant.

CANAL ELECTRIC COMPANY NOTES TO FINANCI AL STATEMENTS (CONTINUED)

(8) Supplementary information to Disclose the Effects of Changing Prices (Unaudited) (Continued)

STATEMENT OF INCOME FROM CONTINUING OPERATIONS ADJUSTED FOR CHANGING PRICES For the Year Ended December 31, 1980 Conventional Constant Dollar Current Cost Historical Average Average Cost 1980 Dollars 1980 Dollars (Dollars in Thousands)

Operating revenues $197 256 $197 256 $197 256 Fuel used in production 161 722 161 722 161 722 Depreciation expense 4 617 8 108 9 103 Other operating and maintenance expense 14 587 14 587 14 587 income and other taxes 8 472 8 472 8 472 Interest expense 4 299 4 299 4 299 g Other income and deductions - net (2 802) (2 802) (2 802) 190 895 194 386 195 381 income (loss) from continuing operations (excluding reduction to net recoverable cost) $ 6 361 $ 2 8ZQ* $ 1 825 Increase in specific prices (current cost) of property, plant and equipment held during the year ** $ 20 555 Reduction to net recoverable cost $ (7 707) (6 615)

Effect of increase in general price level (20 652)

Excess of increase in general price level over increase in specific prices after reduction to net recoverable cost (6 712)

Gain from decline in purchasing power of net amounts owed 4 640 4 640 Net $ (3 067) $ (2 072)

• Including the reduction to net recoverable cost, the income (loss) from continuing operations on a constant dollar basis would have been ($4,837,000).

• • At December 31, 1980, current cost of property, plant and equipment, net of accumulated depreciation -

was $182,387,000, while historical cost or net cost recoverable through depreciation was $92,564,000.

O O O

CANAL ELECTRIC COMPANY FORM 10-K DECEMBER 31, 1980 PART IV.

Item 11. _

Exhibits, Financial Statement Scht_2ules and Repnrts on Form 8-K Incorporated Documents Filed SEC Herewith Exhibit File No. at Page (a) The following documents are filed as part of this report:

1. Financial statements of the Company together with the Report of Independent Public Accountants, are filed under item 8 of this report and listed on the index to Financial Statements and Schedules in item 8. 10

, 2. The following financial statement schedule is attached hereto:

Schedule IX - Short-term borrowings for the year-ended December 31, 1980, 1979 and 1978. 33 g

(b) No reports on Form 8-K have been filed by the Company during the last quarter of the period covered by this report.

l (c) List of Exhibits:

Exhibit 3. Articles of incos ,, oration and by-laws.

Filed herewith:

3(a) Articles of incorporation of the Canal Electric Company. (Exhibit 1) 36 3(b) By-laws of the Company as amended l to November 20,1978. (Exhibit 2) 63 I

l Exhibit 4. Instruments defining the rights of security holders, including indentures.

Incorporated herein by reference thereto:

4(b)1 Copy of Indenture of Trust and First Mortgage dated as of s October 1,1968 between the

- ') registrant and State Street Bank and Trust Company, Trustee, has been filed with the Commission as an exhibit to Form S-1. 4(b) 2-30057 27

CANAL ELECTRIC COMPANY FORM 10-K DECEMBER 31, 1986 Item 11. Exhibits. Financial Statement dchedules and Reports on Form 8-K (Continued)

Incorporated Documents Filed SEC Herewith Exhibit File No. at Page 4(b)2 Copy of First and General Mortgage indenture dated as of September 1,1976, between the registrant and Citibank, N. A.,

Trustee, together with Cross Reference Sheet between indenture and provisions of Trust Indenture Act of 1939, has been filed with the Commission as an exhibit to Form S-1. 4(b)2 2-56915 4(b)3 Copy of First Supplemental Indenture dated as of September 1, 1976, to indenture of Trust and First Mortgage dated as of October 1,1968 between the registrant and State Street Bank and Trust Company, Trustee, closing such indenture, has been filed with the Commission as an exhibit to Form S-1. 4(b)3 2-56915 Exhibit 10. Material contracts.

Incorporated herein by reference thereto:

10(a) Power contracts.

10(a)(1) Copies of power contracts dated December 1,1965 between Canal Electric Company and other utility companies have been filed by Canal Electric Company with the Commission as an exhibit to Form S-1. 13(c)(1-4) 2-30057 10(a)(2) Copy of contract between Canal Electric Company and Montaup Electric Company and Stone &

Webster Engineering Corporation, dated August 24, 1972, effective as of October 27, 1970, for the design and construction of Canal Plant Unit No. 2 at Sandwich, Massachusetts has been filed with the Commission as an exhibit to the 1972 Form 10-K. 1 2-30057 28

t .

O CANAL ELECTRIC COMPANY V FORM 10-K DECEMBER 31 u 1980_

ltem 11. Exhibits, Financial Statement Schedules and Reports on Form 8-K (Continued)

Incorporated Documents Filed SEC Herewith Exhibit File No. at Page 10(a)(3) The following have been filed with the Commission as exhibits to the 1975 Form 10-K of Canal Electric Company:

Copy of agreement between the registrant and Montaup Electric Company for use of common facilities by Cana! Units I and 11 and for allocation of related costs, executed October 14, 1975. 1 2-30057 Copy of agreement between the registrant and Montaup Ele <;tric Company for joint ownership of O

• Canal Unit II, executed October 14, 1975. 2 2-30057 Copy of agreement between the registrant and Montaup Electric Company for lease relating to Canal Unit 11, executed October 14, 1975. 3 2-30057 10(a)(4) Copy of Contract dated January 12, 1976 between Canal Electric Company and New Bedford Gas and Edison Light Company and Cambridge Electric Light Company, affiliated companies, for the sale of specified amounts of electricity from Canal Unit No. 2 has been filed with the Commission as an exhibit to the 1975 New England Gas and Electric Association Form 10-K. 4 1-7316 10(a)(5) Copy of amendment dated August 6,1976 to joint-ownership agreement between Canal Electric Company, New England Power Company, and other utilities

( dated January 11, 1976 has been filed with the Commission as an exhibit on Forn,10-K of Canal Electric Company for the year ended December 31, 1976. 1 2-30057 79

CANAL ELECTRIC COMPANY FORM 10-K DECEMBER 31, 1980 item 11. Exhibits, Financial Statement Schedules and Reports on Form 8-K (Continued)

, incorporated Documents Filed SEC Herewith Exhibit File No. at Page 10(b) Other agreements.

10(b)(1) The fcilowing contracts have been filed with the Commission as exhibits to Form S-7 of New England Gas and Electric Association:

Copy of Indenture of Lease between Canal Electric Company, Montaup Electric Company and Nepco Terminal, Inc. dated October 17, 1975 for the leasing of fuel oil tanks. 5(c)7 2 cr476 Copy of Amendatory Agreement dated October 17, 1975 between Canal Electric Company and Nepco Terminal, Inc. amending fuel oil supply agreement dated June 2, 1967. 5(cla 2-56476 10(b)(2) Copy of Emplovees Stock Ownership Pli , and Trust of New England Gar and Electric Association and Subsidiaries has been filed with the Commission as an exhibit to Form S-7 of New England Gas and Electric Association. 5(c)8 2-557'39 10(b)(3) Copy of letter agreement dated September 18, 1978 amending and extending the agreement dated June 6,1967 between Canal Electric Company and Nepco Terminal, Inc. for the supply of fuel oil to Canal Electric Company has been filed with the Commission as an exhibit to the Association's 1978 Form 10-K. 4 1-7316 O

30

CANAL ELECTRIC COMPANY

\

FORM 10-K DECEMBER 31, 1980 Item 11. Exhibits, Financial Statement Schedules and Reports on Form 8-K

~

(Continued)

Incorporated Documents Filed SEC Herewith Exhibit File No. at Page 10(b)(4) Copy of First Amendment to Tax Reduction Act of 1975 Employees Stock Ownership Plan and Trust of New England Gas and Electric Association and Subsidiary Companies dated May 11, 1978 has been i 'ed with the Commission as an exhiba to the Association's 1978 Form 10-K. 3 1-7316 10(b)(5) Copy of. Employees Savings Plan of New England Gas and Electric Association anc Subsidiary Companies as Amended January 1, '

1979 has been filed as an exhibit h,

V to Form 8, Amendment to 197P Form 10-K of New England Gas and Electric Association. 1 1-7316 10(b)(6) Copy of Pension Plan for Employees of New England Gas and Electric Association and Subsidiary Companies 'as Amended as of 4

August 1,1979 has been filed

, with the Commission as an I

exhibit to the Association's 1979 Form 10-K. 4 1-7316 10(b)(7) The following contracts have been filed with the Commission as exhibits to Form S-16 of New England Gas and Electric Association:

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CANAL ELECTRIC COMPANY FORM 10-K DECEMBER 31, 1980 item 11. Exhibits, Financial Statement Schedules and Reports on Form 8-K (Continued) incorporated Documents Filed SEC Herewith Exhibit File No. at Page 10(b)(8) Copies of New England Power Pool Agreement (NEPOOL) dated September 1,1971 as amended through August 1,1977, between NEGEA Service Corporation, as agent for Cambridge Electric Light Company, Canal Electric Company, New Bedford Gas and Edison Light Company, and various othar electric utilities operating in New Eng!and, together with amendments dated August 15, 1978 and January 31, 1979. 5(c)13  :-64731 Copy of notice dated November 13, 1978 of non-extension of lease dated October 17, 1975 between Cana! Electric Company and Montaup Electric Company for leasing of fuel oil tanks. 5(c)14 2-64731 Copy of amendment dated November 15, 1978 confirming and implementing letter agreement dated September 18, 1978 between Canal Electric Company and Nepco Terminal, Inc. for the supply of fuel oil. 5(c)15 2-64731 Copy of Facilities Lease and Operating Agreement datec November 15, 1978 between Canal Electric Company and Nepco Terminal, Inc. for the lease and operation of fuel oil terminal. 5(c)16 2-64731 0

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<U[] SCHEDULE IX CANAL ELECTRIC COMPANY Short-Term Borrowings For t_he Years Ended December 31,1980,1979 and 1978 (Dollars in Thousands) l Maximum Average Weighted i Notes Weighted Amount Amount Average Outstanding Average Outstanding Outstanding interest at interest During During Rate at Category (A) Year-End Rate the Year the Year (B) Year-End(C) 4 Year Ended December 31, 1980 Banks $ - -% $ - 1- -J 1

Year Ended December 31, 1979 Banks $1 300 14.6% $1 750 1254 16.5%

! Year Ended December 31, 1978 Benks $ - -% $ - $- -%

4 I

I (A) Refer to Note 3 of Notes to Financial Statements for the general terms of notes payable.

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(B) The average amount of short-term debt outstanding is determined by averaging

' the level of short-term debt outstanding at month-end for the thirteen-month period ending December 31, 1980.

(C) The weighted average interest rate at year-end is determined by annualizing the interest cost based on rates in effect during December and dividing this by the notes outstanding at year-end.

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

CANAL ELECTRIC COMPANY FORM 10-K DECEMBER 31, 1980 SIGNATURES Pursuant to the requirements of Secthn 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duty authorized.

CANAL ELECTRIC COMPANY (Registrant)

By: GERALD E. ANDERSON Gerald E. Anderson, Chairman of the Board and fresident Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Principal Executive Officer:

GER ALD E. ANDERSON March 30,1981 Gerald E. Anderson,

- Chairman of the Board and President Principal Financial Officer:

1 EARL G. CHENEY Marc.h 27,1981 l Earl G. Cheney, Financial Vice President P' incipal Accounting Officer:

1 JOHN A. WHALEN March 25,1981 John A. Whalen, Cc. ptroller A majority of the Board of Directors:

l l March , 1981 Charles T. Abbott, Director GERALD E. ANDERSON March 30,1981 l Gerald E. Anderson, Director 3 14

i CANAL ELECTRIC COMPANY

)

FORM 10-K DECEMBER 31, 1980 SIGNATURES (Continued)

EARL G. CHENEY __

March 27,1981 Earl G. Cheney, Director LELAND R. CROWELL March 23,1981 Leland R. Crowell, Director

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JEREMIAH V. DONOVAN March 30,1981 Jeremiah V. Donovan, Director I

WILLI AM R. SMITH March 27,1981 William R. Smith, Director RICHARD G. VELTE March 27,1981 Richard G. Velte, Director L

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

e SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For Quarter Ended March 31,1981 Commission File Number 2-30057 CANAL ELECTRIC COMPANY (Exact name of registrant as specified in its charter)

O Massachusetts (State or other jurisdiction of incorporation or organization) 04-1733577 (i.R.S. Employer Identification No. )

675 Massachusetts Avenue, Cambridge, Massachusetts 02139

( Address of principal executive offices) (Zip Code)

Registrant's telephone number, including area code 617 - 864 - 3100 Indicate by check mark whether the registrant (1) has filed all reports required t

to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and (2) has been subject to such filing requirements for the past 90 days. YES X NO Shares of common stock outstanding at May 1,1981 1,523,200 The Company meets the conditions set forth in General Instruction G(1)(a)

O' and (b) of Form 10-Q as a wholly-owned subsidiary and is filing this Form with a reduced disclosure format.

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l PART I - FINANCI AL INFORMATION ltem 1. - Financial Statements l

CANAL ELEL'RjC COMPANY  !

CONDENSED BALANCE SHEETS l

MARCH 31,1981 AND DECEMBER 31, 1980 ASSETS (Unaudited)

March 31, December 31, 1981 1980 (Dollars in Thousands)

PROPERTY, PLANT AND EQUIPMENT, at original cost: $129 502 $129 642 Less - Accumulated depreciation 38 852 37 673 l 90 650 91 969 Construction work in progress 922 595 91 572 92 564 CURRENT ASSETS:

Cash 598 965 Temporary cash investments 27 100 25 900 l Accounts receivable - '

Affiliated companies 12 007 13 437 l Other 12 922 18 322 Fuel inventory, at average cost 2 988 2 895  ;

Prepaid property taxes and other 562 1 340 l 56 177 62 859 DEFERRED CHARGES 2 691 2 512 ,

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$150_440 $ML935 l

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See accompanying notes.

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CANAL ELECTRIC COMPANY -

CONDENSED BALANCE SHEETS MARCH 31,1981 AND DECEMBER 31, 1980 CAPITALIZATION AND LIABILITIES i

(Unaudited) i 4

j March 31, December 31, 1981 1980 (Dollars ip Thousands)  ;

CAPITALIZATION:

Common Equity -

Common stock, $25 par value -

Authorized and outstanding -

I,523,200 shares, wholly-owned by Commonwealth Energy System (Parent) $ 38 080 $ 38 080 Amounts paid in excess of par value 8 321 8 321 Retained earnings 8 883 7 214 55 284 53 615 i Long-term debt, including premiums, less current sinking fund requirements 48 940 49 130 104 224 102 745 CURRENT LIABILITIES:

Accounts payable 23 059 29 877 Accrued taxes 3 060 4 965

{ Other 1 769 2 242 j

27 888 37 084 4

i DEFERRED 'REDITS:

Accumulateu deferred income taxes 14 480 14 251 i

Unar.ortized investment tax credits 3 848 3 855 l

1 18 328 18 106 4

$150 440 $157 935 1

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See acccornpanying notes.

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CANAL ELECTRIC COMPANY CONDENSED STATEMENTS OF INCOME AND UNAPPROPRI ATED RETAINED EARNINGS FOR THE THREE MONTHS ENDED MARCH 31, 1981 AND 1980 (Unaudited) 1981 1980 (Dollars in Thousands)

ELECTRIC OPERATING REVENUES:

Sales to affiLated companies $38 411 $29 307 Sales to non-affiliated companies 28 356 24 637 66 767 53 944 OPERATING EXPENSES:

Fuel oil used in production 58 154 46 454 Other operation and maintenance 3 125 2 121 Depreciation 1 213 1 156 Taxes -

Income 1 728 1 934 Local property 508 416 Payroll and other 83 71 64 811 52 152 OPERATING INCOME 1 956 1 792 OTHER INCOME:

Other, net 733 1 340 INCOME BEFORE INTEREST CHARGES 2 689 3 132 INTEREST CHARGES:

Long-term debt 1 037 1 048 Other interest charges 6 141 Allowance for borrowed funds used during construction (23) -

1 020 1 189 NET INCOME 1 669 1 943 UNAPPROPRI ATED RETAINED EARNINGS -

Beginning of Period 7 214 7 250 UNAPPROPRI ATED RETAINED EARNINGS -

End of Period $_B_6M $_Q_19 See accompanying notes.

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

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i CANAL ELECTRIC COMPANY STATEMENTS OF SOURCES OF FUNDS USED FOR CONSTRUCTION 1

i FOR THE THREE MONTHS ENDED MARCH 31.1981 AND 1980

, (Unaudited) l 1981 19F3 (Dollars in Thousands)

SOURCES OF FUNDS -

internal Sources From operations -

Net income $ 1 669 $ 1 943 items not requiring or (providing) funds:

Depreciatior; 1 212 1 156 Deferred incon e taxes and investment tax credits, net 222 250 3 104 3 349 Other internal Sources (Uses) of Funds -

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' Change in net current assets, exclusive of interim financing -(2 514) (1 681)

Sinking fund payments O Other, net (190)

(182)

(2 886)

(190)

(101)

(1 972)

Net available from internal sources 218 1 377 l Decrease in Interim Financing -

(1 300)

FUNDS USED FOR CONSTRUCTION $ 218 $ 77 l

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See accompanying notes.

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CANAL ELECTRIC COMPANY NOTES TO CONDENSED FINANCI AL STATEMENTS (1) Accounting Policies The Company's significant accounting policies are described in Note 1 of Notes to Financial Statements included in its 1980 Annual Report on Form 10-K filed with the Securities and Exchange Commission. For interim reporting purposes, the Company follows these same basic accounting policies.

The financial statements reflect, in the opinion of the Company, all adjustments (which include only normal recurring adjustments) necessary to present fairly the results of operations for the periods ended March 31, 1981 and 1980.

The Company is a wholesale power company and operates its ger.erating units under life-of-the-unit power contracts on file with the Federal Energy Regulatory Commission. These contracts provide for payment of demand charges which reimburse the Company on a monthly basi = for a proportionate share of depreciation and capital costs as well as costs of operation and maintenance as these costs are incurred. Income tax expense is recorded using the statutory rates in effect applied to accounting income subject to tax recorded in the interim period. Accordingly, although revenues and operating expenses may fluctuate during interim periods, operating income before income taxes is relatively stable as to each unit.

(2) Commitments The Company continues to assume commitments to participate as a joint-owner in generating units planned or under construction by other New England utilities. Reference is made to the Company's 1980 Annual Report on Form 10-K for information concerning these commitments.

On January 2,1981 the Company entered into an agreement to acquire ownership in the Seabrook Nuclear Units 1 and 2 from Commonwealth Electric Company, an associated company. The Massachusetts Department of Public Utilities approved this transfer on April 15, 1981. Additional approvals are required from the Nuclear Regulatory Commission and the New Hampshire Public Service Commissiv.i cefore the actual transfer can be made.

(3) Name Change of the Parent Company The name of the Parent organization has been changed from New England Gas and Electric Association to Commonwealth Energy System, effective May 11,1981.

9 CANAL ELECTRIC COMPANY a item 2. Management's Discussion and Analysis of the Results of Operations The following is a discussion of certain significant factors which have affected operating revenues, expenses and net income during the periods included in the accompanying condensed r,tatements of income. This discussion should be read in conjunction with the Notes to Condensed Financial Statements appearing elsewhere in this report.

The Company is a wholesale electric generating company operating two oil-fired turbine generators on a site in Sandwich, Massachusetts. Canal Unit No.1 is wholly-owned by the Company, while Canal Unit No. 2 is jointly-owned by the Company and Montaup Electric Company.

The Company operates its generating units under power contracts which provide for the recove.ry of all operating expenses and fixed charges (including a return on equity) whether or not the units are operating. Variations in revenue result from changes in operating expense, primarily the cost of fuel oil and, in some periods, reflect the effects of outages for scheduled maintenance.

Such variations have no signif::N effect on net income.

A summary of the period to period changes in the principal items included in the condensed statements of income for the three months ended March 31, 1981 and 1980 is shown below:

(' Three Months Ended March 31, 1981 and March 31, 1980 Increases (Decreases) i (Dollars in Thousands)

Electric Operating Revenues $ 12 823 23.8 %

Operating Expenses -

t Fuel used in production 11 700 25.2 Other operation and maintenance 1 004 '/.3 Depreciation 57 4.9 Taxes -

Federal and state income (206) (10.7)

Local property and other 104 21.4 12 659 24.3 Operating income 164 9.2 Other income (607) (45.3) income Before Interest Charges (443) (14.1) l Interest Charges (169) (14.2)

Net income $ (2Z4) ( R _1)%

Energy Sales in Thousands KWH Increase (decrease) (177 554) (1L1)%

O CANAL ELECTRIC COMPANY ltem 2. Management's Discussion and Analysis of the Results of Operations (Continued)

The following is a summary of Energy Sales for the three month period indicated:

Unit 1 Unit 2 Total KWH Sales in Thousands -

Period Ended -

March 31, 1981 678 122 504 444 1 182 566 March 31,1980 851 117 509 003 1 360 120 Electric Revenues and Fuel Expense Operating revenues for the first quarter of 1981 have increased by approximately $12.8 million or 23.8% over the corresponding period of the prior vaar, despite a 13.1% decrease in unit sales. Unit sales have decreased during the current three-month period as the result of the timing of scheduled maintenance for Unit No.1. The increase in revenues reflects an increase in the cost of fuel oil, which averaged 4.924 per KWH in the current period as compared to 3.424 per KWH in the comparable period of the prior year. The price of fuel oil at Canal Electric is currently approaching $33 per barrel as compared with $24 per barrel one year ago.

Operating Expenses Operating expenses, other than fuel costs and income taxes, for the current three months have incrrased by approximately 32.4% primarily due to the impact of inflation on wage rates and material costs and a 22.1% increase in local property taxes in the Town of Sandwich.

The 10.7% decrease in Federal and state income taxes is attributable to a 12.4% decrease in taxable income.

Other income and Interest Charges The 45.3% decrease in other income during the current three month period is due to a significant reduction in income from non-utility operations.

This was offset, somewhat, by an increase in interest income. Short-term interest charges decreased because of the elimination of short-term borrowings.

O CANAL ELECTRIC COMPANY PART ll - OTHER INFORMATION ltem 1. Legal Proceedings None item 5. Other information None item 6. Exhibits and Reports on Form 8-K (a) List of Exhibits:

Incorporated Document Filed SEC Herewith Exhibit File No. at Page Exhibit 10. Material Contracts.

Incorporated herein by reference to i

the following:

i 10(a)(6) Copy of agreement dated January 2,1981 to transfer s ownership, construction and operational interest in the Seabrook Units 1 and 2 l

from Commonwealth Electric i Company (formerly New j Bedford Gas and Edison l

Light Company) to Canal Electric Company has been filed with the Commission on Commonwealth Electric Company's Form 10-Q (March 1981). 1 2-7749 Exhibit 20. Previously unfiled documents.

Filed herewith as Exhibit No.1:

20(a) Copy of the Capacity Acquisition Agreement dated September 25, 1980 between Canal Electric Company, Cambridge Electric Light Company and l Commonwealth Electric Company. 11 l (b) Reports on Form 8-K. There were no reports filed on Form 8-K for l

the three months ended March 31, 1981.

CANAL ELECTRIC COMPANY PART 11 - OTHER INFORMATION (CONTINt1ED)

SIGN ATtJ R ES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

CANAL ELECTRIC COMPANY (Registrant)

Principal Financial Officer:

EARL G. CHENEY Earl G. Cheney Financial Vice President Principal Accounting Officer:

JOHN A. WHALEN John A. Whalen Comptroller Date: May 12,1981 l

O' PROSPECTUS O $3 5,000,000 Cana Electric Company

('d subsidiary of New England Gas and Electric Association) 1'irst and General Mortgage Bonds, Series B 8.85% Due 2006 Interest payable March I and September i Due September 1,2006 T!re Series B Bonds will be redeemable at the redemption prices set forth herein, trovided that prior to September 1,1986 no redemption may be made at a general redemption trice through refunding at a net interest cost to the Company less than the interest rate of the Series B Bonds.

TIIESE SECURITIES IIAVE NOT REEN APPROVED OR DISAPPROVED BY Tile SECURITIES AND EXCIIANGE COA 1511SSION NOR IIAS TIIE COAIA11SSION PASSED UPON TIIE ACCURACY OR ADEQUACY OF Tills PROSPECTUS. ANY REPRE-SENTATION TO TIIE CONTRARY IS A CRIAflNAL OFFENSE.

Price to Unleruriting Procerls so Public(1) Commissions (2) Company (3)

Per Unit 101.055 % 1.000 % 100.055 %

Total $35,369,250 $350,000 $35,019,250 (1) Plus accrue.: interest from date of originalissue.

(2) The Company has agreed to indemnify the several Underwriters against certain civilliabilities, including liabihties under the Securities Act of 1933.

(3) Befare deduction of expenses payable by the Company estimated at $195,000.

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The Series B Bonds are ofered by the setrral Underwriters when, as and if issued by the Company

, and accepted by the Underwriters and u bject to their right to reject orders in whole or in part. It is expected l

that the Series B Bonds, in definitive fully registered form, will be ready for delivery on or about September 16,1976.

T ae First Boston Corporation

, The date of this Prospectus is September 9,1976.

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IN CONNECTION WITII TIIIS OFFERING, TIIE UNDERWRITERS AfAY OVER-ALLOT OH EiVECT TRANSACTIONS WIIICII STABILIZE OR NIAINTAIN TIIE AIAllKFT PRICE OF TIIE SECURITIES IIEREllY OFFERED AT A LEVEL ABOVE TIIAT WIIICII N!!GIIT OTIIER.

WISE PREVAIL IN TIIE OPEN NfARKFT. SUCII STABILIZING, IF CONIN1ENCED, .NIAY BE DISCONTINUED AT ANY TIN 1E.

TIIE CONIPANY Canal Electric Company (the " Company"), a wholly-owned subsidiary of New England Gas and Electric Association (the " Association"), is a wholesale electric generating company organized under the laws of the Commonwealth of hlassachusetts. The Company's executive offices are located at 675 N1assachusetts Avenue, Cambridge, N1assachusetts 02139 and its telephone number is (017) S64-3100.

The Company's generating facilities are located in Sandwich, hiassachusetts at the eastern end of the Cape Cod Canal. Construction of the first generating unit at the Canal site (" Unit No.1") was com-pleted in 1968. A second unit (" Unit No. 2"), in which the Company has a one-half ownership interest, conunenced commercial operation February 1,1976. During 1975 the Company made a commitment to participate as a joint owner of a nucb.r generating plant to be constructed by another New England utility. The Company expects to participate as a joint owner of other generating units to be located in New England.

APPLICATION OF PROCEEDS The Company will use the proceeds of approximately $35,000,000 from the sale of the Series 11 Bonds to repay outstanding short-term loans. In June and August IS76, the Company received

$27,000,000 from the sale of additional common stock to the Association, which proceeds were also used to repay short-term loans. The $62,000,000 of short-term loans were incurred to finance additions to property, plant and equipment, pnneipally the Company's one-half share of construction costs relating to Unit No. 2.

CERTAIN FACTORS AFFECTING TIIE INDUSTRY The electric utility industry, in general, is currently experiencing problems including high fuel prices, obtaining sn4icient capital on reasonable terms, compliance with nuclear and environmental regulations and construction delays.

These problems are being experienced in varying degrees by different companies and areas. For a further discussion of these problems as they have affected the Company, see " Construction and Financing", "Alanagement's Discussion and Analysis of the Statements of Income" and " Business -

Future Generating Plant Commitments,- Fuel Supply, and - Environmental Af atters". The Company is unable to predict their future impact on its operations.

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TIIE ISSUE IN BRIEF N The following material is qualified in its entirety by the detailed information and financial statements (including the notes thereto) appearing elsewhere in this Prospectus.

THE OFFERING Issuer Canal Electric Company Security Offered 435,000,000 First and General Afortgage Bonds, Series B 8.85% Due 2006 Expected Offering Date September 9,1976 Interest Payment Dates .\farch 1 and September 1 Alaturity Date September 1,2006 Use of Proceeds To repay short-term loans incurred to finance additions to property, plant and equipment, principally the Com-pany's one-half ownership interest in Unit No. 2 THE COhiPANY Principal Hrsiness The generation and sale of electricity at wholesale under long-term contracts Sales for the twelve months ended June 30,1976 4,363,000 AIWH Generating Capacity 862 AlW FINANCIAL INFORAIATION Twelve Months Year Ended Ended December 31, June 30, 1975 1976 Operating revenues $82,322,000 $93,236,000 Net income $ 3,829,000 $ 3,971,000 Ratio of earnings to fixed charges - Actual 1.87 2.04 Pro Forma -

3.01 (Dollars in Thousands)

Outstanding Ratios As Adjusted

• Ratios Capitalization, June 30, 1976:

Long-term debt $18,168 36.0% $ 53,188 50.0%

Common equity 32.2 % 64.0 53,244 _50.0 Total $50,484 100.0% $106,432 100.0 %

Interian Fmancing:

Notes payable to banks $62,300 $ -

Notes payable to the Association 2,350 700 Total $64,650 $ 700

'See " Capitalization" herein.

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CONSTRUCTION AND FINANCING The Company's 1976 construction expenditures are estimated at $12,600,000, of which $2,800,000, principally relating to construction of Unit No. 2, has been expended through June 30,1976. Ihpendi-tures for the balance of 1976 relate primarily to acquisition of ownership interests in certain jointly-owned generating facilities now under construction by other electric utility companies in New England.

The Cmnpany proposes to purchase such interests from New Bedford Gas and Edison Light Company, another subsidiary of the Association, at New Bedford's cost of 59,700,000. See " Business - Future Generating Plant Commitments".

Constrnetion expenditures for the period from January 1,1977 through December 31,19S0 are estimated at $80,100,(MX). These expenditures are principally for the Company's proportionate share of construction costs of jointly owned electric generating plants and include amounts presently com-mitted by New Bedford for its joint ownership interests. The Company has or will assume commit-ments amounting to an additional $176,000,000 relating to its participation in these jointly-owned plants during the period 1981 through 1988, when construction of the last of these units is scheduled for completion.

The Company's construction program is subject to periodic review, and actual expenditures may vary from the above estimates because of factors such as changes in business conditions, rates of grcwth, effects of inflation, equipment delivery schedules, liceming delays, availability and cost of capital, and environmental factors. Estimated construction expenditures relating to the jointly-owned generating units are based upon the most recent information furnished by the utility responsible for the con-struction of each unit.

During the five year period ending December 31,1980, it is estimated that internal resources will provide approximately $20,000,000 to be used for construction. The balance ct the funds required will be provided by short-term borrowings, which are expected to be replaced by long-term debt and equity securities.

Financings presently planned for the period ending December 31,19SO consist of long-term debt issues aggregating $76,0(X),tWH) and $49,(XX),0(X) from the sale of equity securities to the Association.

These amounts include the proceeds of the Series B Bonds offered hereby and $27,000,000 from the sale of common stock to the Association in June and August 1976. The exact type, timing and amount of future long-term debt and equity financings are subject to change because of market conditions and other factors.

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

CAPITALI7ATION The capitalization of the Company as of hme 30,1976, and as adjusted to reflect the issuance and sale of the Series B Bonds, the sale of conunon stock to the Association and the application of the proceeds therefrom,is set forth below:

June 30,1976

Outstanding (a ) Adjusted Amount Ratios (Dollars in Thousands)

, I,ong-tenn Debt (including premiums and current sinking fund nyuirements)(b):  !

First Mortgage Bonds, Series A,7%, Due 1996 $18,188 $ 18,188

First and General Mortgage Bonds, Series B 8.85%

Due 2006 - 35,000 Total Long-term Debt 18,188 53,188 50.0 % ,

l Comme, F.guity: ,

1 Comn ,n stock, $25 par value 23,048 38,080 [

Amounts paid in excess of par value 2,404 8,320 i l lletained earnings (c) 6,844 6,844 Total Common Equity 32,296 53,244 50.0 l Total Capitalization $50,484 $106,432 100.0 %

, Interim Financing, due within one year (d)(c):

Notes payable to banks $62,300 $ - i Notes payable to the Association 2,350 700

! Total Interim Financing $64,650 $ 700 j- Number of Shares of Common Stock Outstanding 921,900 1,523,200 i (a) Amounts outstanding reilect the issuance on June 30,1976 of 173,700 shares of common j stock to the Association and application of $6,050,000 of the proceeds therefrom to reduction of notes 4

payable to banks.

(b) The aggregate authorized amount of lxmds which may be issued under the Company's First and General Mortgage Indenture is unlimited, and additional bonds may be issued thereunder subject to the restrictions set forth therein. No additional bonds will be issued under the indenture securing l the Series A Bonds (see" Description of Series B Bonds-General").

(c) Beference is made to " Description of Series B Bonds- Dividend liestriction" and to Note 3 i of Notes to Financial Statements for information concerning limitation on payment of cash dividends.

1 (d) The weighted average interest rate at June 30,1976 was 7.6% on notes payable to banks and

. %% for the notes payable to the Association.

(c) After the application of the remaining $55,950,000 proceeds from 1976 financings ($35,000,000

. from the sale of the Series B Bonds and $20,950,000 from the sale in August 1976 of 601,300 additional shares of common stock to the Association), the Company will have available to further reduce short-term loans an additional $8,000,000 maintained as compensating bank balances.

l (f) lieference is made to Note 5 of Notes to Financial Statements for information concerning obligations under long-term leases.

5 l

l l

CANAL ELECTillC CO.\1PANY STATE %lENTS OF INCONIE The following Statements of Income of Canal Electric Company for the five years ended December 31,1975 have been examined by Arthur Andersen & Co., independent public accountants, as set forth in their report included elsewhere in this Prospectus, The Statement of Incmne for the twelve months ended June 30,1976, not examined by independent public accountants, reflects, in the opinion of the Company, all adjustments (which include only normal recurring adjustments) necessary to present faidy the results of operations for such period. These Statements shouhl he read in conjunction with the financial statements and related notes included elsewhere in this Prospectus.

Twelve Afonths Year Ended Decernher 31,___ [",dc5 1971 1972 1973 1974 1975 1976 (Dollars in Thousands) ( Unaudited)

IU ncinic OranA nw Itursen:

S,iles to non-affiliated cornpanies $20,956 $22,572 $30,070 $60,818 $61,729 $64,964 Sales to affiliated companies 7,008 7,521 10.019 20,244 20,593 28,272 27,964 30,093 40,095 81,062 82,322 03,236 OrtuAltw Escrxws:

Fuel oil used in prmloction 16,002 17,815 27,414 65,782 67,575 72,725 Other operation 2,236 2,453 2.539 2,813 3,178 4,602 Ntaintenanw ( Note 1) 1,002 697 910 2,543 1,750 1:690 Depicciation (Note 1) 2,064 2,161 2,282 2,325 2.367 3.234 Tases -

Incone (Note 11) 2,096 2,008 1,428 212 58 1,817 laxal property 732 1,025 927 1,010 1,181 1,264 Payroll and other 40 41 54 69 81 100 .

21,172 26,200 35,551 74,781 76,190 85,432 OrniA nw Istmn: 3,792 3,893 4,541 6,278 6,132 7,604 Ornut INtoME:

Allowanw for funds used during con-struction (Notes A and 1) 151 299 921 2,702 4,125 2,570 Other, net -

13 144 5I 125 192 151 312 1,065 2,753 4,250 2.762 Tor As. INCOME 3,943 4,205 5/;06 9,031 10,382 10,566 is t uirst EzrrxsE:

long-tenn debt 1,628 1,518 1,563 1,531 1,399 1,338 Short-term debt 211 506 1,704 4,644 5,154 5,257 1,839 2,054 3,267 6,175 6,553 6.595 Ntr Iscout _$ _2,104 $ 2,151 $ 2,339 $ 2,856 $ 3.829 $ 3.971 Itatio of Earnings to Fixed Charges (Note C) 3.06 2.89 2.20 1.72 1.87 2 01 Numbered notes refer to Notes to Financial Statements. All such notes and the notes on the following pages are an integral part of these Statements of Income, f,

e

CANAL ELECTRIC COMPANY NOTES TO STATEMENTS OF INCOME (Including Information Applicable to Unaudited Period)

( A) Allowance for Funds Used During Constmetion ("AFUDC")

The Company reflects as an element of the cost of construction of depreciable property an allow-ance for tads (including common equity funds) employed during periods when property is under construction. An amount equal to AFUDC capitalized in the current period, while not currently providing funds, is reflected as Other Income. Under applicable rate making principles, property under construction is not included in rate base on which the Company is permitted to caru a return. Amounts so capitalized are included in rate base when property is placed in service, and are thereafter recover-able in revenues over the senice life of the constructed property.

The amount of AFUDC recorded is determined by multiplying the average monthly dollar balance of construction work in progress by a rate related to the current after-tax cost of capital. The Company used a rate of 7% through June 30.1973,9% through June 30, 1974, 9 % % through March 31, 1975 and 8%% thereafter.

Assuming that funds usal to finance construction were supplied in the same proportion as the Company's average capitalization ratios for each period (ranging from 53% to 76% for debt and 47%

to 24% for common equity) and that the cost of borrowings used to finance construction was equivalent A to the after-tax cost of short-term debt, the portion of net income represented by the equity component of AFUDC was 5% in 1971,10% in 1972,26% in.1973,46% in 1974,61% in 1975 and 36% for the twelve months ended June 30,1976.

(B) Income Taxes For financial reporting purposes, the Company calculates income tax expense as if it filed a sep-arate income tax r3 turn. Ilowever, for Federal income tax purposes, the Company's taxable income and deductions are included in the consolidated income tax return of the Association, and it makes tax payments or receives refunds on the basis of its tax attributes in the consolidated income tax return in accordance with applicable Federal income tax regulations. The following is a summary of the pro-vision for income taxes for the five years ended December 31, 1975 and the twelve months ended June 30,1976:

7

\

d

CANAL ELECTillC COMPANY NOTES TO STATENIENTS OF INCONIE-(Continued)

(Induding Information Applicable to Unaudited l'eri<nt)

(II) Income Tases - (Continued)

Twehe Afonths Year Ended December 31, _ _ _ "f$'fg 1971 1972 1973 1978 1975 1976 (Dollars in Thouunds) ( Unaudited)

Provision Charged to Operating Expenw:

Current -

Federal $ 1.321 $ 990 $ ( 217) $ (637 ) $ (572) $ (521)

State 192 11(i W -

15 132 1,516 1,136 (lIS) (637) (557) (389)

Deferred -

Federal 551 798 1,368 835 416 683 State 81 115 96 36 19E 232 635 913 I,4 G4 871 608 1,I l?

Imestment tas credits deferred, net (55) (41) 82 (22) 7 I As9 Total 2.0mi 2.008 1.42s 212 58 1.817 Defened inmme taxes dassified as a reduc-tion of AFUDC:

Federal 32 66 290 1,291 1.763 1.091 State 5 9 12 167 172 107 37 75 332 1.481 1.935 1.198 Total Inmme Tas Provision $2.133 $2.083 11.760 $ 1,693 $1,993 $3.015 Income taxes are provided for the tax effects of timing differences other than certain construction aclated cosa. Timing differences residt from reporting income and expense for tax purposes in periods different from those used for financial reporting purposes. The current provision for income taxes inchtdes amounts which are not currently payable but which are recorded as a current liability because they relate to assets which are classified as current. The deferred provision represents principally the tas cIIcets arising from deducting depreciation for income tax purposes that currently exceeds the arnonut provided in the accounts. The greater tax depreciation atises from the use of accelerated depreciation methods and shorter lives permitted by the Federal income tax laws. Investment tax credits are deferred and amortized over the life of the property giving rise to the credits. The amount of AFUDC capitalized is based upon the Company's after-tas cost of capital and accordingly is net of related income tases.

For Federal inemne tax purposes, consolidated net operating losses resulting from timing differ-l ences and investment tax credits which have not been used for tax purposes may be carried forward

! and applied to reduce future rases payable. The Companis allocable portion of these future tax hene-fits approsimated $963Jo) at December 31,1975. For accounting purposes, these amounts have been recorded as a reduction of the Federal inemne tax pmvision related to current timing differences.

8 O

4 i .

CANAL ELECTRIC COMPANY NOTES TO STATEMENTS OF INCOME-(Continued)

(including Information Applicable to Unaudited Period) i J

(B) Income Taxes - (Continued)

There is no provision permitting carryforward of net operating losses for state tax purposes and the Company has provided additional state income taxes to the extent that net operating losses resAt from timing differences.

The total Federal income tax provision set forth above represents from 30% to 48% of income before such taxes during the periods presented. The table below reconciles these percentages to the statutory Federalincome tax rate.

Twelve Months Year Ended December 31, hnde 1971 1972 -1973 1974 1975 1976 (Unaudited)

Total Federal income tax provision 48% 47 % 41% 35% 30% 40%

Reduction in Federal income tax expense due to exclusion of the equity portion of AFUDC 1 3 7 15 20 10 Amortization of investment tax credits 1 1 1 1 1 2 Other- related to timing differences for which taxes are not provided (2) (3) (1) (3) (3) (4) 4 Statutory Federal income tax rate 4S% 48% 48% 48% 48% 18 %

7 (C) Ratio of Earnings to Fixed Charges j For purposes of computing the ratio, earnings have been calculated by adding to net income,

' taxes based on income and fixed charges. Fixed charges consist of interest expense (including amorti-l zation of debt expense and premium on debt) and the portion of rentals estimated to be representative of interest.

1 The unaudited pro forma ratio of earnings to fixed charges for the twelve months ended June 30, 1976 is 3.01. The calculation of this ratio gives effect to the annual interest charges on the Series B i

l Bonds ($3,097,500); and adjustments to interest expense to reflect (i) the repayment of short-term -

indebtedness totalling $62,000,000 from the proceeds of the Series B Bonds and the sale of common l

! stock to the Association; (ii) the repayment of additional short-term indebtedness totalling $8,000,000 by application of compensating bank balances; and (iii) increased short-term borrowings totalling

$13,800,000 presently proposed for the period ending June 30,1977.

1 9

L O .

SIANAGE.\fENT'S DISCUSSION AND ANALYSIS OF THE STATE.\lENTS OF INCO.\fE Throughout the periods covered, the statements of income reflect the results of commercial opera-tion of Unit No.1. Through January 31,1976, the statements of income also reflect the effects of con-struction of Unit No. 2. The statement of income for the twelve months ended June 30,1976 reflects the results of operation of Unit No. 2 cmomencing February 1,1976. Significant changes in items of income and expense are explained in further detail below.

Operating Elecermes in each of the five years ended December 31,1975 and the twelve months ended June 30, 1976, operating revenues have increased over the prior period by the following percentages: 45.3%,7.6%,

33.29,102.2G,1.6% and 10.4%. Unit No. I has operated near its design capability during the periods covered by the statements of income except for periods of scheduled maintenance. The power con-tracts for the sale of the capacity of Unit No. I provide fo. ac recovery of all operating expenses and fhed charges (including a return on equity) whether or not the unit is operating (see " Business-Power Contracts"). Variations in revenue result from changes in operating expenses, primarily the cost of fuel oil (see " Operating and Interest Expenses" below), and to a lesser degree tom changes in the length of outages for scheduled maintenance. Such variations have no effect on net income.

Except for the twelve months ended June 30,1976, there are no operating revenues applicable to Unit No. 2 included in the statements of income.

Operating and interest Expenses The magnitude of changes in major elements of expense is shown below:

Percentage Increase (Decrease) Oser Prior Period 1971 1972 1973 1974 1975 1976 Fuel oil used in production 110.7 11.3 52.4 140.0 2.7 6.0 Property taxes 11.8 40.0 (9.6) 12.2 13.6 9.5 Other operation 8.8 9.7 3.5 10.8 ' 3.0 46.5

.\iaintenance 31.8 (30.4) 30.6 179.5 (31.2) (47.0)

Interest (2.2) 11.7 59.1 89.0 6.1 ( 2.8 )

Depreciation 1.1 4.7 5.6 1.9 1.8 36.6 Increases in operating expenses result from the higher cost of imported fuel oil and the higher cost of low sulphur fuel oil required to meet pollution control requirements and from general inflation affecting wage rates and material costs.

Fuel expense is the Company's single most significant operating cost and in recent periods repre-i sented more than M)G of each revenue dollar. The Company's average annual cost per barrel of fuel oil increased from $3.13 in 1971 to $13.20 in 1974. This cost declined slightly during 1975 and in the twelve-rnonth period ended June 30, 1976, averaged approximately $11.15 per barrel. Fuel cost per l

KWil was .5e in 1971 and 1972, .7e in 1973.1.9e in 1974,1.8e in 1975 and 1.7c for the twelve months ended June 30,1976.

Property taxes and depreciatioa have increased mainly as a result of additions to operating j property and equi l unent over the period. The decrease in property taxes in 1973 is attributable to a decrease in the property tax rate in the town of Sandwich. The increase in maintenance expense in 1974 10 0

s n_ ,_, , s _ - r - - -an - ---AAJw+-----4---Js,-- - +a A he -s. -M& +- A -m-- J b

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reflects major scheduled maintenance performed during that year. Variations in maintenance expense in other periods reflect the timing of scheduled maintenance of Unit No.1.

Interest expense increased sharply during the period 1972 through 1974 as a result of increased short term borrowings necessary to finance construction of Unit No. 2 and the general increase in

, Gi interest rates in 1973 and 1974.

Other income

The increase in AFUDC for the period 1973 through 1975 is due to the increase in construction work in progress applicable to Unit No. 2. The amount of AFUDC capitalized by the Company with ,

j respect to Unit No. 2 is based upon the current after-tax cost of capital. Income taxes charged to operat- '

ing expenses exclude deferred income taxes classified as a reduction of AFUDC. See Note B of Notes to Statements of Income.

Tevelee Months Ended June 30,1976 1

Unit No. 2 connnenced commercial operation February 1,1976. Operation of the new unit con-

, tributed to increased revenues and operating expenses during the twelve months ended June 30,1976 l as explained above and also caused the decrease in AFUDC. The net effect of these changes con- i tributed to an increase in net income.

, Quarterly information 4

The following quarterly information pertains to the results of operations for the six month periods ended June 30,1976 and June 30,1975. Increases in operating revenues, operating income, total income and net income in the first six months of 1976 as compared to the corresponding period in 1975 are j due to commercial operation of Unit No. 2.

1976 by Quarter 1975 by Quarter 1st 2nd Ist 2nd

, (Dollars in Thousands)

Operating I evenues $26,955 523,350 $23,382 $16,009  ;

l O Operating Income Tota! Income Net Income 2,230 2,630 1,016 2,525 2,591 922 1,668 2,601 865 1,416 2,436 931 l

l BUSINESS General The Company was organized in 1902 as an electric distribution company and assumed its paesent corporate name in 1966 after the sale to an affiliated company of its electric distribution and trans-

, mission properties together with the right to do business in the territories served. The only assets

! retained after this sale consisted of cash, land and Unit No.1, then in its initial stage of construction,

, together with the right to generate, transmit and sell electricity at wholesale.

Unit No. I and Unit No. 2 are h>cated on a site containing approximately 90 acres of land owned by the Company in Sandwich Alassachusetts. The principal components of Unit No. I and Unit No. 2 are 572 51W and 580 AlW (net output) turbine generators, respectively. Each unit consists of multiple

! turbines driving a single generator, and ar oil-fired steam supply unit. Water used for condensing l purposes for both units is withdrawn from the Cape Cod Canal via separate intake structures and i

l 11 I

I i

I L

w - - --e - m rvr-.--r-, cy--wy-e--- -e---mes-*, --,-,me-+e gy e 4 , --, --*----e---g---=--w w - + , i ve -w- .cy-=v- - - -*-e- er w ++ - -g -w r -gr -e ew w .p e,,, - wg + m g y- w o-*-ertog ,ee m -r--tr-e y--- -m , m e + <am

returned to the canal via a conunon discharge fiume. Iloth imits shan a 500 foot stack. Unit No.1 is desigm d as a base load unit, and Unit No. 2 is designed for cyclic operation pennitting efficient reduced generation during nights and weekends.

Unit No.1 is wholly owned by the Company. Unit No. 2 is jointly owned by the Company and Nfontaup Electric Cornpany (a.non-affiliated company) and is operated by the Company under an agreement providing for equal sharing of output, costs and operating expenses.

P:ncer Contracts The Cor..pany has entered into substantially identical life of the unit power contracts with lloston Edimn Company, N!ontaup Electric Company and New England Power Company, under each of which the customer is se-erally obligated to purchase one quaiter of the power output of Unit No.1, and with New liedford Gas and Edison Light Company ("New liedford") and Cambridge Electric Light Com-pany (" Cambridge Electric"), both distribution subsidiaries of the Association, under which the two are jointly obligated to purchase the remaining one <piarter of the unit's output.

A similar contract is in effect between the Company and New lledford and Cambridge Electric.

under which those companies are jointly obligated to purchase the Company's entire one-half share of the net capability of Unit No. 2. As permitted by mch contract, however, the Company has con-tracted to sell a portion of such capability to two other non-affiliated companies until October 31,1978.

The price of power imder the power contracts is based on a two-part rate comisting of a demand rate and an energy rate. The demand rate covers all expenses except fuel costs and provides for a return on investment as well as recovery of investment over the depreciable lives of the units. The energy rate is based on the cost of fuel and is billed to each purchaser in prolmrtion to its consump-tion of power. Purchasers are billed on a monthly basis. The power contracts are on file with the Fedt ral Power Commission ("FPC") (see "llusiness - llegulation").

The obligation of the purchasers to make paynients under the power contracts 's unconditional, subject only to each purchaser's right to cancel its p<mer contract if deliveries cannot b( made because either (i) the unit is damaged to the extent of being completely or substantially completely destroyed, (ii) the unit is taken by exercise of the right of eminent domain or a similar right or power, or (iii)(a) the unit cannot he used because a necessary license or other necessary public authorization cannot be obtained or is ievoked, or because the use of such license or such authorization is made subject to specified conditions which are not met, and (b) the situation cannot be rectified to an extent which will permit the Company to make deliveries to the purchaser from the unit.

The power contracts require that the Company maintain insurance on both units against all property risks on which imurance is available. No assignment of a imwer contract (except to a cor-porate successor) wi!! relieve a purel.. of its obligations without the consent of the Company and the remaining purchasers.

The Company has no liability under the power contracts to any purchaser because of non-delivery of power for reasons beyond the Company's reasonable control and the purchasers do not have the right to set off against payments required to be made under the power contracts other amounts owed to them by the Company.

The Company expects to enter into similar life of the unit contracts with distribution subsidiaries of the Association for the purchase from the Company of its entitlement in the power output of future generating plants n. which the Company participates as a joint cwner (see "lhisiness - Future Gen-erating Plant Commitments").

12 0

Principal Customers The following is a description of the purchasers with which the Company has long-term power contracts:

Boston Edison Company is the third largest electric utility in New England, based on electric sales for 1975. It supplies electricity at retail to approximately 592,000 customers in the city of Boston and a surrounding area within 30 miles of Boston. This service area is approximately 590 square miles with a population of over 1,600,000.

Montaup Electric Company is the electric generating company of the Eastern Utilities Asso-ciates system. Substantially all of its generation is sold to Blackstone Valley Electric Company, Brockton Edison Company and Fall River Electric Light Company, distribution subsidiaries of Eastein Utilities Associates. This system supplies ehctricity to approximately 218,000 customers in the Woonsocket-Pawtucket area of Rhode Island and the Fall River and Brockton areas of Alassachusetts, which have a combined population of 642,000.

Nene England Potrer Company is engaged in generating, purchasing and transmitting elec-tricity at wholesale principally to other electric utilities. The company is a subsidiary of New England Eketric System, the second largest electric utility system in New England. The distribu-tion subsidiaries of New England Electric System supply electricity at retail to approximately 990,000 customers in an area exceeding 4,500 square miles having a population of 2,700,000. The principal areas served by the system are in the states of Afassachusetts and Rhode Island with some sales in New Hampshire and Vermont.

Cambridge Electric Light Company is engaged in the generation, distribution and sale of electricity to approximately 40,000 customers in the city of Cambridge, Atassachusetts, an area of approximately seven square miles with a population of approximately 100,000. In addition, it sells wholesale power to the town of Belmont.

Nero Bedford Gas and Edison Light Company distributes and sells electricity to approximately 200,000 customers (including approximately 31,000 seasonal customers) in 40 communities in southeastern Niassachusetts including Cape Cod and the island of Afartha's Vineyard, having an approximate year-round population of 356,000. New Bedford also distributes and sells natural gas to approximately 46,000 customers in eleven of the same commtmities.

Nene England Poster Pool The Company is a membr of the New England Power Pool ("NEPOOL"), which was formed to provide for the joint planning and operation of electric systems throughout New England. Under its long-range program, NEPOOL will enable each member utility to install fewer but larger, more efficient generating units and higher voltage transmission lines for the purposes of obtaining lower cost power and increased reliability.

A centralized dispatching facility ("NEPEN") is in operaGon as part of NEPOOL to insure reliability of service and to operate the most efficient available generating units of the member com-panies to fill the demands for power in the region. This concept is accomplished by use of computers to monitor and forecast load r ajuirements and provide for economic dispatching.

NEPOOL is subject to proceedings pending before the FPC. In the course of these proceedings an administrative law judge has issued an initial decision dismissing a complaint filed by certain municipal 13

light departments and finding NEPOOL to be just and reasonable and in accord with the antitrust law and policy of the United States. The municipal light departments and the FPC staff have filed excep-tions to this decision, which has been stayed pending final decision by the FPC.

The Company is aho a member of the Northeast Power Coordinating Council ("NPCC"), an advisory organization which includes the major power systems in New England and New York plus the provinces of Ontario and New lirumwick in Canada. NPCC establishes criteria and standards for reliability and serves as a vehicle for coordination in the planning and operations of these systems to enhance reliability.

Future Generating Plant Commitments The construction programs of NEPOOL members as presently planned for the period 1976 through 1988 include completion of two large oil-fired generating plants (including Unit Nc,. 2) and nine nuclear plants. The Company or New Iledford has made commitments to participate as joint owner in certain of these units shown in the table below. The Company plans to purchase New lledford's interest in such units in 1976 (see " Construction and Financing").

Esti- Espendi. Esti-mated tures mated Plant r:ntitle- kheduled Cost of through Cost Ca pacity ment Comple- Entitle- June 30, Per Unit Type ( SIW) ( SIW ) I ocation tion Date ment 1976 KW (In Thousands)

Wyman No. 4 0 600 8 Yarmouth, Nic. 1978 $ 2,678 $ 743 $ 335 Pilgrim No. 2 N 1,160 IS Plymouth, Niass. 1982 19,731 1,401 1,093 Seabrook Nos. I and 2 N 2,300 71 Seabrook, N.li. 1981-1983 49,900 1,316 703 N EI1_

Nos. I and 2 N 2,300 100 Not Determined 19S4-1986 81,781 908 818 Nfontague Nos. I and 2 N 2,300 103 N1ontague, Alass. 1986-1958 109,217 1,538 1,060 Type: N - Nuclear; O - Oil The cost estimates and completion dates shown above reflect the latest infonnation made availabic to the Company by the lead participant in each pmject. The estimated completion dates for all of the above-mentioned nuclear units reflect delays reported to date by the lead participants. Such delays have resulted in part from government licensing requirements and environmental controversies (see "flusiness - Environmental .\latters"). Additional delays may require upward revision of construction cost estimates to give effect to inflationary cost increases during periods of deferral.

The Company expects to construct or acquire additional generating capacity in the future as may be necessary to meet the load growth requirements of the distribution subsidiaries of the Association.

Fuel Supply l Oil. The Company has entered into a contract with Nepco Terminal, Inc., a subsidiary of New England Petroleum Corporation, for the purchase of the total estimated requirements of residual fuel oil for Unit No. I and Unit No. 2. This c<mtract expires on November 15,1978 but may be extended by 14 1

0

mutual agreement of the parties to the contract. Oil is delivered by tanker at dock facilities constructed by the supplier on a site leased from the Company adjacent to the units. Fuel oil storage facilities at the site available to the Company have a capacity of 1,200,000 barrels, representing 36 days of normal Q operation of the two units. Some of these storage facilities are owned by the supplier and the remainder are jointly owned by the Company and 51ontaup and are made available ,  % supplier ' ..ler a lease agreement. Since February 1,1976, the date of commercial operation of Lnit No. 2, the Company has maintained an average daily inventory of 537,0m) barrels of fuel oil which represents 16 days of normal operation of 'he two imits. This supply is maintained by tanker deliveries every seven to ten days.

Under the Emergency Petroleum Alh> cation Act of 1973, the Federal Energy Administration

("FEA") has the authority to regulate prices and allocate supply of fuel oil and certain other petroleum products. Effective June 1,1976 the FEA removed all price and allocation controls with respect to residual (No. 6) fuel oil, which is the fuel used by the Company for substantially all of its generation.

The Company cannot predict whether further Federal and state regulations may be imposed affecting the price or availability of fuel used by it. It is anticipated, however, that any allocation programs would recogni7e the essential service of public utilities.

Ileference is made to "Stanagement's Discussion and Analysis of the Statements of Income" fer a discussion of the cost of fuel.

Nuclear Fuel. The supply of fuel for nuclear generating plants generally involves the acquisi-tion of uranium concentrate, its conversion to uranium hexafluoride, enrichment of that gas, fabri-cation of the nuclear fuel assemblies, and reprocessing of the spent fuel. The Company has been informed by the lead participants for the units in which it will participate that there are outstanding contracts covering a portion of the .t'mve elements of the fuel cycle for such units extending through the years indicated below:

Uranium Conversion Concentrate to Reprocessing Purchases Ilexafluoride Enrichment Fabrication Service (a) m Pilgrim No. 2 (b) 1986 2010 1984 None

- } hiontague No. I 1955(c) None 2014 1991 None Alontague No. 2 19S7(c) None None 1993 None Seabrook No. I 19S2(d) 1986 3)(c) 4(f) None Seabrook No. 2 1982(d) 1986 J0(c) 4(f) None NEPCO No.1 None None 30(e) 2(g) None NEPCO No. 2 None None 30(e) 2(g) None (a) Currently there are no reprocessing facilit;es operating in the United States. lleprocessing can be delayed without adverse operatmnal effects by the acquisition of additional sterage capacity for spent fuel.

(b) Contractual entitlements exist fcr supplies of uranium ore sufficient to provide about 85%

of the initial core to be placed in Pilgrim Unit No. 2 in late 1982. Options exist to purchase addi-tional ure for delivery through 1984.

(c) The periods shown are those covered by the original uranium delivery schedules in the contracts. The uranium supplier has taken the position that it may no longer be obligated to deliver the uranium in view of the deferral of the units from their original schedule.

15 U

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(d) 51cb of the combined requirements for Seabrook Units No. I and 2 have been purchased for 19s3.

(e) Number of years from first delivery for enrichment.

(f) Number of years from date of startup; fabrication service contracts esist for the first wre and for three subsequent reload regions.

(g) Num', er of years from date of startup; faNication service contracts exist for the first core and for one sul ,equent reload region.

To the est nt necessary, the owners of nuclear generating plants in which the Campany will participate will have to enter into supply contracts for additional uranium concentrate and contracts for other elements of the fuel cycle such as conversion and reprocessing. The price of nuclear fuel, its availability and the terms of future etmtracts cannot now be predicted. -

Regulation The Company is subject t, regulation by the Nfassachusetts Department of Public Utilities as to issue of securities, accounting, and other mat ters. The Company is a "public utility" within the meaning of Part II of the Federal Power Act and is subject to regulation thereunder by the FPC as to rates and other matters and has filed its power contracts with the FPC as rate schedules.

In January 1976 the Company tendered for filing with the FPC initial rate schedules for the sale of power from Unit No. 2. On June 21, 1976, the FPC accepted the initial rate schedules for filing. Such rate schedules as set forth in the power contracts are subject to adjustment to give effect to the cost of capital resulting from the Company's financings in 1976. The FPC considers these adjustments as a change in rates requiring additional filing and acceptance. On August 13,1976 t6 Company made an additional filing with the FPC with respect to such adjustments, which may be tae subject of further proceedings. The town of flelmon:, N!assachusetts, the sole wholesale customer of Cambridge Electne, was permitted by the FPC to intervene in the initial proceedings.

Recent \tassachusetts legislation has established an Energy Facilities Siting Council for the state.

This legislation requires each electric company to file periodically with the Council long-range fore-easts of the eb etne needs md requirements of its market area. To approse a long-range foncast, the Council must find, among other things, that the companis plans for construction of certain e'ectric power generation facilities are consistent with current health, environmental protection, and resource use and Jeselopment policies as adopted by the Commonwealth of N1assachusetts. Construction of new electric facilities of the types enumerated above is prohibited af*er Nfay 1,1976, unless such facilities are consistent with a long-range forecast approved by the Cou c?

Public Forcer A proposal for the establishment of a N1assachusetts Power Authority will be on the ballot for the 1976 \tassachusetts general election. If approved by the voters at such election, the proposal would become law. If established, the Authority would have as its primary purpose the provision of bulk power supply to the elettric utilities of N1assachusetts. The Authority would be authorized to build and operate all new cenerating and transmission facilities in Niassachusetts and would have the option to acquire esisting generating and transmission facilities by purchase or eminent domain. The com-mencement of construction by utilities in N1assachusetts of any new facility would be prohibited after two years unless the Authority certifies that it is not capable of financing such facility and that such comtruction would be consistent with the purpose of the act.

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. - _ . .. . - - . . _ . . -.- = = _ . _ . - . _n,~~

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The Company cannot now predict whether the proposal will become law, and if so what effect it will have upon its properties and operations.

Environmental Mauers

, The Company's generating facilities are the subject of federal, state and local environmental quality control regulations. With respect to Unit No. I and Unit No. 2, these regule.tions require the use of more expc.aive low sulphur fuels and have, in addition, required capital expenditures by the l Company of approximately $14,tXX),000. The provisions of the Company's power contracts eperate to recover such costs.

Environmental regulations governing site selection for new electric generating facilities and inn-posing air and water polhttion standards requiring the installation of costly pollution control facilities

have had and may be expected to continue to have an effect upon the capital costs and construction

]' schedules of NEPOOL generating facilities (see " Business - Future Generating Plant Commitments'*).

The Company estimates that approximately 15% of the aggregate construction costs of jointly-owned i units will be incurn .1 to satisfy environmental regulations. These costs have been included in the

. constniction estimates discussed under " Construction and Financing" Such expenditures ire not ex.

peeted to he material in 1976 and 1977. Increases in these costs cannot be predicted. since the standards and the technology required to meet ther- are in a state of rapid change. There has been particular public etmtroversy ctmeerning development of nuclear energy. Despite the safety record of the nation's nuclear power plants, these plants have become the target of certain groups claiming, th ough litiga-

] tion or intervention in regulatory proceedings, that the present state of nuclear technology presents unacceptable risks to public health and safety and to the environment. These claims may cme delays in, or interfere with, scheduled construction of new nuclear plants or operation of existing plants, b Employees At pme 30,1976, the Company h<d 103 regular employees, of whom 68 were represented by the Utility Workers' Union of America, A.F.L.-C.I.O. The existing collective bargaining agreement expires A1ay 31,1977.

AlANAGEAIENT Oficers

The officers of the Company are appointed to serve until the next annual meeting of directors with

the exception of the Treasurer and Clerk who are elected to serve until the next stockholder *s meeting.

The names of the executive officers of the Company and the office held by each are as follows:

i i

Age at Year of Positions and June 30, Election OHices Held with Naine 1976 to Board the Cornpany Gerald E. Anderson

• 45 1973 Chairman of the Board and Director George II. Gowdy* 65 1966 President and Director

! Earl G. Cheney* 39 1975 Financial Vice President and Director William R. Smith 54 1973 Vice President, General Afanager and l Director j John D. IIeaton 34 -

Comptroller l Robert S. Parker 50 - Treasurer i Niichael P, Sullivan 27 -

Clerk r

l- *5tember of Executive Committee.

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

Directors The directors of the Company are elected annually at the annual stockholder's meeting. The direc-tors of the Company who are not also officers are as follows:

Age at Year of June 30, Election Principal Occupation Navne 1976 to lloard or Ernployinent Charles T. Abbott 70 1966 Retired Executive Vice President -

NEGEA Service Corporation Leland H. Crowell 67 1971 Retired Vice President and General Nian-ager of the Company Jeremiah V. Donovan 4! 1976 Vice President and General Nfanager -

Cambridge Electric Honald F. MacDorald 46 1973 Executive Vice President and General Slanager - New Badford Richard G. Velte 56 1975 Vice President, Engineering -

NEGEA Ser ice Corporation Alt officers have been employed by the Company either in the capacities indicated or in other executive capacities for more than the last five years, except as follows. Prior to joining the Company in 1975 and for the previous five years, Nir. lie :ou was employed by Arthur Andersen & Co. Afr.

Sullivan was employed by NEGEA Service Co , > ration after gradnating from law school in 1975 and was appointed Clerk of the Company effective b ptember 1,1976.

Each director who i., not an officer of the Company has been employed by the companies listed abwe in the capacity indicated or in other capacities for more than five year;.

tu muneration of Directors and Oficers No direct remuneration in excess of $40,000 was paid by the Company to any director or officer itnring the year 1975. All directors and officers of the Company as a group were paid an aggregate of

$35.050 by the Compar.y during Se year 1975. No director, as such, is eligiMc for either the Com-pany's pension plan or t.ie Employees' Savings Plan.

No remuneration is paid by the Company to N _n, Cheney, Gowdy, Heaton, Sullivan or t'.rker. Their compensation is paid by NECEA deru t Corporation, an affiliated service com-pany, of which they are officers and employees. For the year 1975, approximately 7% of the officers' salaries was charged by the service corporation to the Cornpany.

Onenership of Equity Securities All of the conunon stock of the Company is owned by the Association. The directors and officers of the Company, as a greup, owned beneficially 9,101.7 common shares of the Association at Alarch 1, 1976. which represt ated less than one percent of the total common shares ontstanding.

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Certain Transactions The Company has received short-term advances from the Association to temporarily finance a portion of the construction of Unit No. 2.

'v As described under "Ikisiness - Pmver Contracts" the Company has entered into long-term power contracts with two of its affiliates for the sale of power from Unit No. I and Unit No. 2. Sales of power to affiliates for the five years ended December 31,1975 and the twelve months ended June 30, 1975 are shown in the Statements of Income.

Payments to NECEA Service Corporation, an afilliated company which performs management, acetmnting. engineering and other services at cost plus a return on equity of 10% per annum, for the three years ended December 31,1975 amounted to $303,000, S399,000 and $603,000, respectively. The Company believes that such amounts are at least as favorable to it as those which would be charged by an independent third party.

Reference is made to "Constn:ction and Financing" and " Business-Future Generating Plant Commitments' for a discussion of the Company's plan to purchase certain properties of New Bedford at New Bedford's cost.

DESCRIPTION OF SERIES B BONDS Cencral The Series B Bonds will be issued under a First and General Mortgage Indenture (the "In-denture"), to he dated as of September 1,1976 between the Company and Citibank, N.A., Trustee.

The Company has $10,000,000 of outstanding short-term loans from Citibank, which are to be repaid from the proceeds of its 1976 financings. The Series B Bonds wiH be the first series of bonds issued under the Indenture.

{x The Company has outstanding a series of First Mortgage Bonds, Series A, 7%, Due 1996 (the s") " Series A Bonds") issued under and secured by an Indenture of Trust and First Mortgage dated as of October 1,196S bet,veen the Company and State Street Bank and Trust Company, Tnistee (the "196S indenture"), which were issued in 1968 to finance the comtruction of Unit No.1. The lien of the 1968 Indenture is prior to the lien of the Indenture with respect to certain property of the Company, principally Unit No.1 (see " Security" herein). The 1968 Indenture permits the issuance of additional bonds for the limited purpose of financing additions to Unit No.1, but the Company will covenant in the Indenture that so long as the Series B Bonds or any otbr bonds issued under the Indenture are outstanding, it will not issue further bonds under the 1968 Indenture. The Company will covenant in the Indenture to obtain the release and discharge of the lien of the 1968 Indenture as soon as prac-ticable after it satisfies all of its obligations thereunder inchiding the payment of all outstanding Series A Bonds. The Indenture will contain a covenant that the Company will pay or cause to be paid the Series A Bonds in accordance with their terms and will faithfully perform all the terms, covenants andc tions to be performed by the Company under the 1968 Indenture.

A copy of the Indenture is filed with the Securities and Exchange Commission as an Exhibit to the Registration Statement of which this Prospectus is a part, and is incorporated herein. by reference.

The following statements relating to the Series B Bonds and the Indenture are subject to and are l qualified by the detailed pmvisions of the Indenture, particularly the parts thereof specifically re-

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ferred to. Tenus under this heading which are printed in initial capital letters are defined in the Indenture and are given such defined meanings when used under this heading. A copy of the 1968 Indenture is also an exhibit to the Registration Statement and is also incorporated herein by reference.

The following statements with respect to the 1968 Indenture are subject to and are qualified by the detailed provisions of the 196S Indenture. particularly the parts thereof specifically referred to.

Series 11 llonds The Series il Bonds will mature September 1,2006. Interest on the Series B Bonds, at the rate per annum shown on the cover page of this Prospectus, will accrue from the date of original issue and will be payable senii-annually on each .\tarch 1 and September I to the persons in whose names the Series B Bonds are registered at the close of business on each February 15 or August 15 prior to the payment

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date. Principal and interest are payable at the corporate trust office of the Trustee in New York City.

Checks for interest payments will be mailed to the registered holders entitled thereto. The Series B Bonds will be issued in fully registered form without coupons in denominations of $1,000 or multiples thereof. No service charge wiH be made for any transfer or exchange of Series B Bonds.

The Series B Bonds may be redeemed in whole or in part (in multiples of S1,000) prior to maturity, upon at least 30 days' notice, at the applicable redemption price specified below, plus accrued interest to the date fixed for redemption. The applicable redemption prices are:

(i) the "Special Redemption Price" (expressed as a percentage of the principal amount cf the bonds being redeemed) in effect during the twelvemonth period beginning on the applicable September 1. as specified below, if the bonds are redeemed through the operation of the sinking and improvement fund described below, or by the use of certain insurance, condemnation, release or other moneys held by the Trustee as described below, or (ii) otherwise the " General Redemption Price" (expressed as a percentage of the principal amount of the bonds being redeemed) in effect during the twelve-month period beginning on the applicable September 1, as specified below:

General Special General Special Redemption Redemption Redemption Hedemption

_ Price Price Price Price 1976 109.91 % 101.055 % 1991 Int.79% 100.83 %

1977 109.57 101.05 1992 104.45 100.80 1978 109.23 101.04 1993 104.10 100.77 1979 108.59 101.03 1994 103.76 100.74 1980 108.54 101.02 1995 103.42 100.70 1981 10S.20 101.01 1996 103.08 100.66 1982 107.66 101.00 1997 102.74 100.62 19S3 16.52 100.99 1998 102.40 100.57 1984 107.18 100.97 1999 102.05 100.52 19S5 106.84 100.96 2000 101.71 100.46 1986 106.49 100.94 2001 101.37 100.40 1987 106.15 100.92 2002 101.03 100.31 1988 105.81 100.90 2003 100.69 100.26 1959 105.47 100.88 2004 100.35 100.18 1990 105.13 100.S6 2005 100.00 100.00 20 O

No Series H Bonds may be redeemed at the General Redemption Price prior to September 1,1986, directly or indirectly, from the proceeds of or in anticipation of any refunding operation involving the incurring of debt which has an interest cost to the Company, computed in accordance with generally

accepted financial practices, of less than the stated interest rate per annum of the Series B Bonds.

j The Company is required to redeem all ontstanding bonds in the event that all or substan-tially all of the mortgaged and pledged property is destmyed or taken by eminent domain, and, under certain circumstances, to apply to the redemption. of bonds insurance or other proceeds from the complete or substantially complete destruction or taking of a Substantial Unit (see " Covenants Relating to Substantial Units" herein). The Company is also pennitted to apply to the redemption of bonds insurance and release proceeds and other moneys deposited with the Trustee and not withdrawn

by the Company. All such redemptions of Series B Honds will be at the applicable Special Redemption l Price.

Security

! The Series H Honds will be secured by the Indenture equally and ratably with other bonds hereafter issued under the Indenture. The principal security for the bonds will be a lien on all the property now owned by the Company adjacent to the Cape Cod Canal in Sandwich, Alassachusetts

("the Canal Site"), subject to certain Permitted Liens; a lien on all pmperty, electric generating plants or interests therein hereafter acquired by the Company; and the assignment of certain Pledged Contracts, all of which are summarized as follows

i Lien on the Canal Site. The lien of the Indenture will include all the property of the Company now owned at the Canal Site, including Unit No. I and the Company's undivided one-half ownership interest in Unit No. 2, together with all properties and rights, permits, franchises and casements appurtenant thereto. The lien on Unit No.1 is subject to the prior lien of the 1968 Indenture, and the lien on Unit No. 2 is subject to the interests of Afontaup Electric Company under the Unit II joint Venture Documents between the Company and Afontaup, which provide, among other things, for the lease of a portion of the Canal Site for the use of Unit No. 2,

, the operation of Unit No. 2 and the common use of facilities and the sharing of related costs

) between Unit No. I and Unit No. 2. Upon the discharge of the 1968 Indenture, the lien of the i

Indenture will constitute a first lien upon all of the Company's property at the Canal Site. ,

Lien on After-Acquired Property. The lien of the Indenture will include all land, interests

. . in land, real estate, physical assets, other pmperty and interests in property and franchises hereafter acquired by the Company, whether tangible or intangible and wherever located, and all rights acd interests of the Company appurtenant thereto, whether rights exclusive to the Company or shared in common with others.

i' Pledged Contracts. The Company will assign to the Trustee under the Indenture all of its right, title and interest (subject to its obligations) in, (a) the Unit II Joint Venture Documents, (b) the cimtracts for the sale of the power of Unit No.1 (subject to th e lien of the 1968 Indenture) and of the Company's one-half share of the power of Unit No. 2, and (c) the contract for the supply of oil to Unit No.1 (subject to the lien of the 196S Indenture) and to Unit No. 2. The Company is further obligated to assign to the Trustee from time to time all its right, title and interest in any contract to which it may become a party in the future having an initial term of 21 r

s N

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

more than one year and relating to (i) the comtruction, ownership and operation of electric generating units in which the Company has an ownership interest, (ii) the supplying of fuel for any such unit, and (iii) the sale of the Company's share of the capacity and energy of any such unit.

Cmenants Helating to Substantial Units The Indenture will contain n stain special provisions relating to Substantial Units. A Substantial Unit is defined in the Indenture as the Company's ownership interest in any electric generating unit the net hook value (cost less depreciation) of which constitutes at least 25% of the net book value of the Company's ownership interests in all electric generating units (or 10% of such net book value in the case of a unit whose rated capacity constitutes at least 25% of the total rated capacity of the Company's interest in all electric generating units). So long as the Series A Bonds are outstanding, Unit No.1 is not considered in determining whether another unit is a Substantial Unit. Unit No.1 and Unit No. 2 are presently Substantial Units, but either or both may cease to be so in the future as the Company acquires ownership interests in additional electric generating units. ,

The provisions relating to Substantial Units are as follows:

(a) The Company is required to keep each Substantial Unit insured at all times against all property risks for which insurance is available from reputeble insurance companies, and to obtain war risk insurance for each Substantial Unit if and whenever available. In the case of Unit No.1 and Unit No. 2, such insurance must be in an amount at least equal to reproduction cost new less depreciation. In the case of other Substantial Units, if any, such insurance must be in an amount at Mast equal to net book value. If any Substantial Unit is completely or substantially completely destroyed or taken by eminent domain, the insurance proceeds or the proceeds from such taking must he applied to the redemption of outstanding bonds (pro rata among different series) if the amount of such proceeds exceeds 10To of the aggregate principal amount of bonds then outstanding. In the case of Series B Bonds, any such redemption will be at the applicable sinking fund redemption prices set forth in this Prospectus under "Special Redemption Price".

(b) So long as Unit No. 2 is a Substantial Unit, the Company may not voluntarily cancel or terminate the Unit II Joint Venture Documents or its contract with New Bedford and Cambridge Electric for the sale of the Company's one-half share of the net capability of Unit No. 2 (see

" Business- Power Contracts"), nor may the Company voluntarily modify or amend the terms of the Unit II joint Venture Documents or such power contract in any material respect without the written consent of the Trustee, which consent shall be granted if and only if (i) the holders of 66?sQ in principal amount of the bonds then outstanding consent thereto, or (ii) the Com-pany delivers to the Trustee an opinion from an independent organization of national reputation acceptable to the Trustee engaged in providing financial and engineering consulting services to electric utility companies to the effect that such proposed modification or amendment does not material;y adversely affect the rights of the holders of the bonds. Similar limitations on the Com-pany's right to terminate or modify the power contracts for the sale of the capability of Unit No. I will be applicable under the Indenture after the Series A Bonds cease to be outstanding so long as Unit No.1 is a Substantial Unit.

(c) The Company is required to have in c'fect at all times power contracts in good standing terminating not less than one year in the future providing for the sale of at least 75% of the aggregate net capability of Substantial Units. If the Company should in the future engage in the sale of electric power at retail, the requirement will apply instead to the total capability, including 22 O

purchased power, available to the Company for sales at wholesale if such total is less than the aggregate net capability of Substantial Units. The requirement will cease to apply entirely if the total capability available to the Company for sales at wholesale becomes less than one-third of the aggregate net capability of Substantial Units.

Henewal and Heplacement Fund The Indenture will provide that on or before June 1 in each cabdar year commencing in 1977, the Cinnpany will, as and for a renewal and replacement fund, (a) deposit with the Trustee a sum of money and/or (b', alh>cate Available Bonds theretofore paid at maturity, redeemed or acquired by the Company and/et (c) aFocate a Net Amount of Bondable Property, in an amount equal to 2%% of the average grass plant investment in depreciable utility property on the books of the Company on January 1 aur' December 31 of each calendar year. For the calendar year 1976 the renewal and replace-ment fund will be equal to one-third of 2%% of the average gross plant investment in depreciable utility property on the books of the Company on September 1 and December 31,1976.

Unit NoJ l as constituted at the date of the 1968 Indenture is not included in depreciable utility property for pmposes of computing the amount of the renewal and replacement fund so long as any Series A lionds are outstanding. The Series A Bonds are entitled to the benefit of a cash sinking fund designed to retire the Series A Honds over the remaining depreciable life of Unit No.1.

Sinking and Improvement Fund The Indenture ,,;11 provide that prior to September 1 in each year the Company will deposit or set aside, as and for a smking and improvement fund, an amount equal to 1% of the aggregate principal amount of bonds issued under the Indenture (with certain adjustments). The Company may satisfy this requirement by (i) depositing cash with the Trustee, (ii) crediting an amount equal to 60% of a Nc Amount of Bondable Property, or (iii) crediting an amount of Available Bonds theretofore paid at maturity, redeemed or acquired by the Company. If cash is deposited with the Trustee, the Trustee will use such cash to redeem outstanding bonds (pro rata among different series), in the case of Series B lionds at the applicable sinking fund redemption prices set forth in this Prospectus under "Special Hedemption Price" plus accrued interest to the date of redemption.

Dividend Hestriction The Company will covenant in the Indenture that so long as any Series B Bonds are outstanding it will not pay or declare any dividends on its common stock (other than dividends payable in common stock) or make any distribution on, or purchase or otherwise acquire for value, any shares of its com-mon stock (such actions being hereinafter referred to as " dividends on its common stock") in an amount which, together with all other dividends on its common stock declared within the period from January 1,1976 to and including the date of such dividend declaration exceeds the sum of $6,000,000, plus, or minus if a deficit, the Net Income Available for Dividends on Common Stock for the period from January 1,1976 to a date not more than 45 days prior to the date of such dividend declaration.

Issuance of Additional Bonds Additional bonds may be issued under the Indenture in an unlimited amount upon compliance with the conditions set forth therein, (i) to the extent of 60% of a Net Amount of Bondable Property, (ii) to refund Available Series A Honds under the 1968 Indenture, Available Bonds under the Indenture, 23 s

.. __ __________________._______._______J

or Available Underlying Bonds and (iii)'against the deposit of cash with the Trustee equal to the aggregate principal amount of bonds to be issued. XIoney deposited pursuant to (iii) above may be withdrawn to the extent of Available Bonds, Available Series A Bonds, Available Underlying Bonds or fiO% of a Net Amount of Bondable Property.

No additional bonds may be issued under the Indenture (except bonds issued to refund bonds issued under the Indenture, Series A Ilonds or Underlying Bonds which, in any such case mature within two years before or after the date of issuc of the bonds to be so issued or which beu interest at a rate higher than the rate of interest to be borne by tle bends to be so issued) unless, fcr a period of 12 consecutive calendar months during the period of 15 erJendar months ncyt preceding the appli.

cation for authentication 'of the bonds to be so issued, the Net Earnings of the Company (not more than 15% of which may be derived from securities, sources not part of the property mortgaged under the Indenture and mortgaged property leased to others which is not used for utility purposes) shall have been at least equal to twice the interest for one year upon all heads outstanding under the Indenture at the date of such authentication (excluding any bonds for the retirement of which provision has been made), the bonds to be so issued, and all other indebtedness for money borrowed then secured by a lien equal or superior to the lien of the Indenture (excluding any such indebted-ness for the payment or the redemption of which the necessary moneys shall have been deposited with the trustee or mortgagre under the mortgage securing the same). Net Earnings of the Company means the net income of the Company, with certain adjustments, plus income taxes and interest expense.

Additional Funded Debt The Indenture will provide that, so long as the Company is a subsidiary of the Association or another hohling company as defined in the Public Utility llolding Company Act of 1935, the Company wiH not incur, assume or guarantee any indebtedness maturing more aan one year after the date thereof if immediately thereafter the total of such indebtedness of the Company would exceed the total of the Company's capital stock, capital surphis and retained earnings accounts.

llelease and Substitution of Property O

The Indenture will provide that subject to various limitations property may be reicased from the lien thereof on a sale or other disposition upon the deposit with the Trustce of cash, obligations or Bondable Property equal to the Current Fair Value of the property released. Release moneys held by the Trustee may be withdrawn by the Company for or on account of a Net Amount of Bondable Property or in connection with the payment, redemption or other discharge of Available Bonds, Available Series A Bonds or Available Underlying Bonds.

The Indenture will also provide that the Ci mpany may grant to o.hers, free from the lien of the Indenture rights of way, rights of common use mal casements in respect of the mortgaged and pledged property for the benefit of any one or more electric generatiag units if, in the opinion of the Compan/s Board of directors, (i) the transaction is in accordance with good utility practice, (ii) the consideration receised or to be received in respect thereof is of a value to the Company at least equal to the interest being granted, and (iii) the transaction will not materially adversely affect the continued operation of the trust estate or the security under the Indenture viewed as a whole. The Company is required to assign to the Trustee any contract providing for the payment of consideration for interests so granted.

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Indenture Amendm:nts Any provision of the Indenture may be amended. eliminated or modified, with the consent of the p h,lders of not less than 6S%% of bonds then outstanding thereunder (or if hss than all the series are

(' alfected, with the consent of the holden of not less than 66%% in principal amount of each series so affected). No such modification or amendment may (a) affect the amount, time or terms of payment of the principal of or premium or interest on any bond without the written consen' of the holder of each bond so affected; (b) change the percentage of bondholders required to effect such modification or permit the creation of any lien, not otherwise permitted, prior to or on a parity with the lien of the Indenture, without the consent of the holders of all the bonds then outstanding; or (c) modify, without the written consent of the Trustee, the rights, duties or immunities of the Trustee.

Defaults The indenture will provide that any of the following will constitute an event of default there-under: failure to pay interest for 60 days or principal when due; failure to satisfy any required sinking. purchase, ammtization, improvement or other fund payment for 90 days; the occurrence of an event of default under the 1968 Indenture; faihire to maintain the required insurance on any Substantial Unit; failure to perform any other covenants of the Company for a period of 90 days after written notica; and certain events of bankruptcy, insolvency, dissolution or liquidat on. The Company is required to furnish to the Trustee an annual OfIicers' Certificate as to whether or not any defaults exist under the Indenture.

The holders of a majority in principal amount of outstanding bonds may waive any past default except a default in the payment of the principal of or premium or interest on any bond or a default with respect to any covenant in the Indenture which cannot be modified without the consent of the holder of each outstanding bond affected. The holders of a majority in principal amount of outstanding bonds may direct the time, method and place of conducting any proceeding for any remedy available (p) to the Trustee. The Trustee is not required to advance or risk its own funds or otherwise incur financial liability in the performance of any of its duties if there are reasonable grour.ds for believing that repay-ment is not reasonably assured to it under the terms of the Indenture.

Certain Defined Terms Bondable Property means any property acquired or constructed by the Company after October 31,1968. used or planned to be used in the production or furnishing or both of electricity, gas, water or steam and pmperly chargeable to the Company's plant or plant addition accounts. Bondable Property may include construction work in progress and interests of the Company in pmp .ty owned jointly or in common with other parties, improvements to public ways paid for by the Company although title thereto may not be in the Company, and movable nhysical property of the Company situated on land leased by the Company; but does not include (except in certain specified circum-stances) real estate unless owned in fee simple or interests in real estate unless owned in perpetuity, property excluded from the lien of the Indenture or property subject to a lien (other than a Permitted Lien) prior to or on a parity with the lien of the Indenture. Property additions to Unit No. I since the date of the 1968 Indenture are Bondable Property even though subject to the Prior Lien of the 1968 Indenture.

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Amount of liondable Property means the Cost or Current Fair Value, whichever is less, of Bond-able Property evidenced to the Trustee, less in the case of Bondable Property which was subject to an Underlying htortgage 166%% of the principal amount of the Underlying Bonds outstanding at the time of acquisition of such Bondable Property.

Li Amount of Bondable Property means the Amount of Property remaining after deducting the Amount of Bondable Property (i) constructed or acquired with certain proceeds of insurance paid to the Company, (ii) constmeted or acquired with the net proceeds received from certain dispositions of property, (iii) allocated to satisfy the renewal and replacement fund and the sinking and improve-ment fmnl, or (iv) allocated or used as a basis of credit under the 1968 Indt .ture or any Underlying

$1ortgage; and also after deducting any thcess of Betirements (the excess o' r tirements over the requirements of the renewal and replacement fund) and the Net Amount of Bondable Property theretofore used or allocated under the Indenture.

Und, rlying Bonds means obligations secured by an Underlying 51ortgage which term includes any mortgage other than the 1968 Indenture and a pur base money mortgage existing on Bondable Property at the time of its acquisition by the Company which is a Prior Lien, but only if the Cost or Fair Value, whichever is less, of such property is at least equal to 166%% of the principal amount of the obligations secured by such Underlying Afortgage, all other Prior Liens on such property except for Permitted Liens have been discharged and the lien of such Underlying $1ortgage does not constitute a lien on any other property of the Company. The Company will covenant not to become liable for any Underlying Bonds if the principal amount of all Underlying Bonds outstanding would thereupon exceed 25%

of the sum of the principal amount of all outstanding Series A Bonds, bonds issued under the Indenture, and Underlying Bonds.

Annual lleports to Security IIolders Upon request, the Company will furnish an annual report, including certified financial statements, to any holder of the Series B Bonds.

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HEPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To CANAL Eurrmc COh!PANY:

We have examined the balance sheet of CANAL Etrcrmc COhtPANY (a hlassachusetts corporation j and wholly-owned subsidiary of New England Gas and Electric Association) as of December 31,1975, and the related statements of income (included elsewhere in this Prospectus), retained earnings, i

and sources of funds used for etmstruction for the five years then ended. Our examination was made l in accordance with generally accepted auditing standards, and accordingly included such tests of the i accounting records and such other auditing procedures as we considered necessary in the circum-stances.

i In our opinion, the financial statements referred to above present fairly the financial position of Canal Electric Company as of December 31,1975, and the results of its operations and its sources of funds used for construction for the five years then ended, in conformity with generally accepted accounting principles consistently applied during the periods.

AnYuva ANDERSEN & CO.

i lloston, h!assachusetts, February 17,1976.

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CANAL ELECTRIC COMPANY BALANCE SIIEETS ASSITS December 31, June 30, 1975 1976 (Unaudited)

(Dollars in Thousands)

PHOPERTY, PLANT AND EQUIPMENT, at original cost S 67,247 $126,38F less- Accumulated depreciation 15,1.% 17,500 51,791 108,865 Construction work in progress 57,398 1,041 109,189 109.926 CURHENT ASSETS:

Cash (Note 2) 7,938 8,219 Accounts receivable -

Affiliated companies 2,843 3,925 Other 6,977 7,818 Electric production fuel oil 543 663 Prepaid property taxes and other R12 698 19,145 21,323 DEFEllilED CilARGES 183 239

$128,517 $131,488 The acconigunying notes are an integral part of these financial statements.

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f CANAL ELECTRIC COMPANY j BALANCE SHEETS

STOCKIIOLDEH'S EQUITY AND LIABILITIES December 31, June 30, 1975 1976

( Unaudited)

j. (Dollars in Thousands) 1 CAPITALIZATION:

l Common Equity (Note 3) -

Common stock,525 par value -

{ Authorized - 1,523,200 shares l Outstanding - 748,200 shares at December 31,1975 and j 921,900 shares at June 30,1976, wholly owned by the Asso-

! ciation $ 18,705 $ 23,048

! Amounts paid in excess of par value 695 2,404 Hetained earnings 6,552 6,844 25,952 32,296 '

long-term debt (Note 2) 18,279 17,897 1 44,231 50,193 CURRENT LIABILITIES:

, Interim Financing (Note 2)-

Notes payable to banks 64,600 62,300 Notes payable to the Association 3,600 2,350 68,200 64,650 Other Current Liabilities-Current sinking fund requirements 898 291 g- .

Accounts payable 5,996 5,805

{

Accrued taxes 811 144 l Accrued interest and other . 363 339 8,068 6,579

,. 76.268 71,229 i i

DEFEHHED CHEDITS:

j Anumulated deferred income taxes 6,610 7,610 Unamortized investment tax credits 1,408 2,456 I 8,018 10,066

! COilNIIThlENTS (Note 5)

$128,517 $131,488

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r The accompanying note. are an integral part of these fmancial statements.

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CANAL ELECTRIC CONIPANY STATEMENTS OF SOURCES OF FUNDS USED FOR CONSTRUCTION Twelve O

Year Ended December 31, ded M"y"f,81 1971 1972 1973 1974 1975 1976 (Dollars in Thousands) (Unaudited)

Sources of Fun.h -

Oper ations:

Net income $ 2,104 $ 2,151 $ 2,339 $ 2,856 $ 3,829 $ 3,971 Items not requiring or (providing) fumis:

Depreciation 2,064 2,161 2,282 2,325 2,367 3,234 Deferred income taxes 635 913 1,464 895 608 1,117 investment tax credits, net s ') (41) 82 (22) 7 1,089 Allowance for funds used during construction (151) (299) (921) (2,702) (4,125) (2,570)

Funds from Operations 4.597 4,885 5,246 3,352 _ 2,686 3,841 Financing:

Notes payable to banks, net 5,150 8,150 18,550 13,400 17,650 4,950 Notes payable to the Association, net - - - 5,000 (1,400) (2,050)

Sale of common stock - - - - -

6.052 Funds from F.nancing 5,150 8,150 18,550 18,400 16,250 8,952 Other Sources (Uses) of Funds:

Changes in working capital (exclusive of interim financing):

Cash and accounts receivable (211) (2,852) (3,050) (4,849) (3,948) (4,768)

Accounts payable 3S5 69 1,019 3,390 452 672 Other (340) 254 (467) (385) 380 (147)

Redemptions of stock (1,997) (892) (954) (954) (954) (477)

Payment of dividends . (2,011) (1,809) (1,501) (824) (832) (2,078)

Retireinent of long,-term debt through sinking funds . (967) (967) (961) (960) (1,357) (1,361)

Other, net 32 18 (146) (175) 47 (26)

Other Sources (Uses) of Funds (5,109) (6,179) (6,063) (4,757) (6,212) (8,185)

$ 4.638 3 6,856 $17,733 $16,995 $12,724 $ 7,608 Funds Used for Construction-Unit No. I S 3,905 $ 2,096 $ 1,089 $ 1,5S8 $ 1,090 $ 147 Unit No. 2 . 884 5,059 17,565 18,109 15,759 9,123 Joint Ownership Projects - - - - -

908 4,789 7,155 18,654 19,697 16,849 10,178 less- Allowance for funds used dur-ing construction 151 299 921 2,702 4,125 2,570

$ 4,638 $ 6,856 $17,733 $16,995 $12,724 $ 7,608 The accompanying notes are an integral part of these financial statements.

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l CANAL ELECTRIC COMPANY l

STATEMENTS OF RETAINED EARNINCs i  !

f Twelve Year Ended December 11, Af nths Ended

! June 30, *

' 1971 1972 1973 1974 1975 1976 (Dollars in Thousands) (Unaudited)

I Balanw at beginning of period . $ 253 $ 346 $ 688 $ 1,523 $ 3,555 $ 4,951 j Add - Net income 2,104 2,151 2,339 2,856 3,829 3,971 2,357 2,497 3,027 4,379 7,384 8,922 Deduct-Cash dividends on common stock 2,011 1,809 1,541 824 832 2,M8 Balanm at end of period (Note 3) $ 346 s 688 $ 1,523 $ 3,555 $ 6,552 $ 6A44 l

l The accompanying notes are an integral part of these financial statements.

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CANAL ELECTRIC COAIPANY NOTES TO FINANCIAL STATEMENTS (Including Notes Applicable to Unaudited Periodi

1. Accounting Policies Transactions with A@liates The Company is a whcIly-owned subsidiary of New England Gas and Electric Association. The Asweiation is an exempt holding company imder the provisions of the Public Utility Holding Company Act of 1935 and, in addition to its investment in the Company, has interests in other utility companies and a service company.

Transactions between the Company and other system companies include purchase and sale of electricity and payment for management, accounting, engineering and other services rendered by the service company. Transactions with other system companies are subject to review by the Federal Power Commission and the 51assachusetts Department of Public Utilities.

Depreciation Depreciation is provided using the straight-line method at rates intended to amortize the original cost of properties over their estimated lives. The Company's composite depreciation rate, based on average depreciable property in service, was 3.6To for the years 1971 through 1975 and for the twelve months ended June 30,1976.

Maintenance Expenditures for repairs of property and replacement and renewal of items detennined to be less than units of pmperty are charged to maintenance expense, Additions, replacements and renewals of property, considered to be units of pmperty, are charged to the appropriate plant accounts. Upon retirement accumulated depreciation is charged with the original cost of property units and the cost of removal less salvage.

Allotcance for Fmnds Used Durina Construction ("AFUDC')

The Compa . > n flects as au clement of the cost of construction of depreciable property an allow-ance for funds r.cluding common e<piity funds) employed during periods when p operty is under construction. . wount equal to the AFUDC capitalized in the current period, while not currently providing funds, is reflected as Other Income. Under applicable rate making principles, pmperty under construction is not included in rate base on which the Company is permitted to earn a return.

Amounts so capitalized are included in rate base when property is placed in service, and these amounts are recoverable in revenues over the service life of the constructed property.

2. Long-term Debt and Interim Financing Long-term debt outstanding, including premiums, is as follows:

December 31, June 30, 1975 1976 (Dollars in Thousands)

First Mortgage lionds, Series A. 79, Due 1990 $18,820 $18,188 13ank Term loan 35" less (urrent sinking fund requirements (808) (291)

Total Long-term Debt $18,279 $17,897 32 O

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CANAL ELECTRIC COMPANY NOTES TO FINANCIAL STATEMENTS-(Continued)

.,Q (Including Notes Applicable to Unaudited Period)

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2. Iamg-term Debt and Interim Financing - (Continued) 2 The Series A Bonds require sinking fund payments of $760,000 annually thmugh 1996. The balances of long-tenn debt outstanding at December 31, 1975 andJune 30, 1976 are exclusive of

$219,000 and SiG9.000 principal amounts of Series A Honds purchased by the Company and deposited with the indenture trustee in anticipation of future sinking fund requirements. The Company may in

! the future continue to purchase its outstanding long-term debt under favorable conditions.

t Notes Payable to Banks i

The Company's short-term borrowings from banks are unsecured and are evidenced by notes l payable which are due within one year. Interest rates are based upon the banks' prime rates on the

[ date notes are originated or renewed. The weighted average interest rate for loans outstanding was 7.9% at December 31,1975 and 7.6% at June 30, 1976. The monthly average of notes payable out-standing during 1975 was $57,796,000 at a weighted average interest rate of 8A%, with a maximum amount outstanding of $67,050,000 at November 30, 1975. For the twelve month period ended June 30, 1976, the monthly average of notes outstanding was $M,204,000 at a weighted average interest rate of S.2%, with a maximum amount outstanding of 568,850,000 at April 30, 1976. The Company intends to repay outstanding notes with the proceeds from sales of long-term debt and equity se-curities (see " Construction and Financing").

Compensating Balances In connection with its short-term financing arrangements, the Company has understandings with the banks from which it has borrowings that it will maintain average cash balances determined from the banks' records equal to a percentage of borrowings outstanding. Generally, the banks required a 20% compensating balance during 1975 and through June 30, 1976. At some banks, the Company pays interest at the effective borrowing rate in lieu of maintaining the full bank balances required.

Cash on deposit by the Company at banks where it had outstanding borrowings totaled $7,900,000 at December 31,1975 and SS,000,000 at June 30, 1976, substantially all of which was intended to meet compensating balance requirements. There are no legal restrictions on withdrawal of these funds.

Notes Payahic to Ihe Association The Company had short-term notes payable to the Association totaling S3,600,000 at December 31,1975 and $2,330,000 at June 30, 1976. These notes are written for a term of eleven months and twenty-nine days. Interest is at the prime rate (7%% at June 30,1976) and is adjusted for changes in the rate during the term of the notes.

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CANAL ELECTRIC COAIPANY NOTES TO l'INANCIAL STATEMENTS -(Continued)

(Induding Notes Applicable to Unaudited Period)

3. Common Equity Conunon Stock 1)nring the period 1971 through June 30,1976, the Company repurchased or issued shares of its common stock as follows:

Nu ber of Amount Charged (Credited) to (Ilepurchased) Common Stock Amounts Paid in Year Issued $25 Par Value Excess of Par Value (Dollars in Thousands) 1971 (77,000) $1,925 $ 72 1972 (34,400) 860 32 1973 (36,800) 920 34 1974 (36,800) 920 34 1975 (36,800) 920 34 1976 173,700 (4,343) (1,709)

Retained Earnings The terms of the indenture securing the Series A Bonds and an order of the Klassachusetts 1)cpart.nent of Public Utilities contain a restriction which provides that dividends may not be paid on con mon stock of the Company if such dividend would reduce the equity capital of the Company below the total aiaount of long-term debt outstanding. At June 30, 1976, none of the retained earn-ings was restricted against payment of cash dividends on common stock.

4. Pensions end Employee Benefits The Company has a noncontributory pension plan covering substantially all regular employees who have attained the age of 25. Total pension costs include amounts sufficient to amortize prior service costs over 15 years. Pension costs are funded as accrued.

Effectne 1>ccember 1,1975, the Company amended its pension plan and certain of its other em-ployee benefit plans. The amendments to the pension plan, which include changes in eligibility require-ments and various other pension plan improvements, required adoption of a different actuarial cost method and changes in certain actuarial assumptions. These changes are expected to have the effect of inercasing amnial pension expense for 1976 and subsequent years, but the aggregate of employee bene-fit expense is not expected to increase significantly as a result of these changes.

The Company also has an Employees Savings Plan which provides for company contributions equal to contributions by eligible employees but not in excess of 4% of each employee's compensation rate.

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CANAL ELECTRIC COMPANY NOTES TO FINANCIAL STATEMENTS -(Continued)

(Induding Notes Applicable to Unaudited Period)

4. Pensions and Employee Benefits - (Continued)

The cost of these plans was as follows:

Twelve Year Ended December 31, 1971 1972 Mo%hs Ended 1973 1974 1975 1976 (Dollars in Thousands) (Unaudited)

Pension Plan . $ 39 $ 41 $ 75 $ 84 $ 79 $ 81 Savings Plan 23 25 32 35 40 41

$ 62 -8 66 $107 $119 $119

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5. Commitments Rents and Leases The Company leases certain facilities and equipment used in its operations. Rent expense under these leases was $S36,000, $1,056,000, $1,084,000, $843,000 and $960,000 for the years 1971 through 1975 and $931,000 for the twelve months ended June 30,1976.

Future minimum commitments under non-cancellable leases total $1,497,000 payable approxi.

mately $500,000 per year through 1978.

Construction The Company has made substantial commitments in connection with its construction program.

Construction expenditures for the four years ending December 31, 1980 are estimated at $80,100,000 (see" Construction and Financing").

6. Quarterly information Unaudited quarterly information pertaining to the results of operations for the six months ended June 30,1976 may be fotmd under " Management's Discussion and Analysis of the Statements of In-come" elsewhere in this Prospectus.

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UNDERWRITING 'l The Underwriters named below have severally agreed to purchase from the Company the follow-  !

ing respective principal amounts of the Series B Bonds:

Principal Principal i U__r .erwriter Arnount Underwriter Arnount The First Boston Corporation S 7,100,000 .\f errill Lynch, Pierce, Fenner & Smith Advest Co. 550,000 Incorporated $ 1.050,000 Bache IIalsey Stuart Inc. 1,050,000 Al seley, II llgarten & Estabrook l

Inc. 550,000 '

Hear. Stearns & Co. 925,000 Paine, Webber, Jackson & Curtis Blyth Eastman Dillon & Co.

Incorporated 1,050,000 Incorporated 1,050,000 Wm. E. Pollock & Co., Inc. 550,6 Hurgess & Leith 350,000 R. W. Pressprich & Co. Incorporated 550,000

'illon. Head & Co. Inc. 1,050,000 Reynolds Securities Inc. 1,050,000 Dominiek & Dominick, Incorporated 550,000 L. F. Hothschild & Co. 925,000 Drexel Burnham & Co. Incorporated 1,050,000 Fahnestock & Co. Salomon Brothers 1,050,000 350,000 First Albany Corporation 350,000 Shearson Ilayden Stone Inc. 925,000 Goldman, Sachs & Co. 1,050,000 Spencer Trask & Co. Incorporated . 550,000 IIornblower & Weeks-Hemphill, Noyes Stuart Hrothers 550,000 Incorporated 1,050,000 Tucker, Anthony & R. L. Day, Inc. 550,000 E. F. lintton & Company Inc. 1,050,000 Burton J. Vincent, Chesley & Co. 350,000 Kidder, Peabody & Co. Incorporated 1,050,000 Warburg Paribas Becker Inc. 1,050,000 Knho, Loeb & Co. 1,050,000 Weeden & Co. Incorporated 925,000 Lehman Brothers Incorporated 1,050,000 Dean Witter & Co. Incorporated 1,050,000 Loch, Rhoades & Co. 1,050,000 Wood, Struthers & Winthrop Inc. 550,000 Total $35,000,000 The Underwriting Agreement provides that the obligations of the Underwriters are subject to certain conditions precedent, and that the Underwriters will be obligated to purchase all of the Series B Bonds if any are purchased.

The Company has been advised by The First Boston Corporation, as Representative of the Un-derwriters, that the Underwriters propose to offer the Series B Bonds to the public initially at tFe offering price set forth on the cover page of this Prospectus and, through the Representative, to certain dealers at such price less a concession of % of 1% of the principal amount of the Series B Bonds:

that the Underwriters and such dealers may allow a discount of % of 1% of such principal amount on sales to other dealers; and that the public offering price and concessions and discounts to dealers may be changed by the Representative.

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EXPERTS j The financial statements and schedules included in this Prospectus and elsewhere in the Registra-l tion Statement, to the extent and for the periods indicated in their reports, have been examined by j .

Arthur Andersen & Co., independent public accountants, and are included herein in reliance upon the j authority of said firm as experts in accounting and auditing in giving said reports.

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l LEGAL OPINIONS i Legal matters in connection with this offering will be passed upon for the Company by hlay, Bilo-1 deau, Dondis & Landergan, Old South Building,2S1 Washington Street, Boston, Alassachusetts 02108,

, general counsel for the Company, and for the Underwriters by Palmer & Dodge, One Beacon Street, i Boston, hiassachusetts 02108. Niembers of the firm of Afay, Bilodeau, Dondis & Landergan participating i in the matter own beneficially, directly or indirectly,1,037 common shares of the Association. Thomas j II. Bilodeau, a partner in the firm of hiay, Bilodeau, Dondis & Landergan, is a trustee of the Association i

and a director of NEGEA Service Corporation.

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No dealer, salesman or any other person has been authorized to give any information or to make any representations other than those con-tained in this Prospectus, in connection with the offer conta.med m. th.isProspectus, and, if g.iven Canal Electric Company or made, such information or representations must not be relied upon as having been author-ized by the Company or the Underwriters. This Prospectus does not constitute an offer to sell or a solicitation of an offer to buy any of these securities in any junsdiction to any person to $35 000 000 9 7 whom it is unlawful to make such offer or solicitation in such jurisdiction. The delivery of this Prospectus at any time does not imply that the information herein is correct as of any time subsequent to its date. FjrSt and General Mortgage Bonds Series B 8.85 % Due 2006 CONTENTS Pag The Company c Application of Proceeds 2 PROSPECTUS Certain Factors Affecting the Industry 2 The Issue in Brief 3 Construction and Financing . 4 Capitalization . 5 Statements of Income 6 l

Management's Discussion and Analysis of the Statements of Income 10 Business 11

• p r ,,%

Management . 17 f~ ";3, f

Description of Series B Bonds 19 e ,

Report of Independent Public Accountants 27 Financial Statements 28 Underwriting 36 Experts 37 legal opinions 37 I

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SEABROOK STATION GENERAL and FINANCIAL INFORMATION O

PUBLIC SERVICE COMPANY OF NEW HAMPSHIRE SEABROOK, NEW HAMPSHIRE O

Volume 2

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P CENERAL-AND FINANCIAL INFORMATION

s TABLE OF CONTENTS 4

i INTRODUCTION General Information As to Applicants.

Agreement for Joint Ownership, Construction and Operation of New Hampshire Nuclear Units.

TAB 1 Public Service of New Hampshire 2 Bangor Hydro-Electric Company i

3 Canal Electric Company 4 The Connecticut Light and Power Company

, 5 Fitchburg Gas and Electric Light Company

() 6 Town of Hudson, Massachusetts Light and Power Department 7 Central Maine Power Ccmpany 8 Maine Public Service Company i

9 Massachusetts Municipal Wholesale Electric Company f

10 Montaup Electric Company 11 New England Power Company l

12 Taunton Municipal Lighting Plant Commission 13 Vermont Electric Cooperative, Inc.

14 Central Vermont Public Service Corporation r

1 15 The United Illuminating Company 16 New Hampshire Electric Cooperative, Inc.

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,y-+- w, w- c-w-,-,,:.. w w rc r ~e=-m----,e-,-..,,.m,--~,,r--r,, vee,m.-er-v-.n,-e-wm-,~~-=..,e,-,-.cwr,w--w,, - - - - >,- -,.-, . +

O THE CONNECTICUT LIGHT AND P013ER COMPANY Units No. I and No. 2 Seabrook Nuclear Power Station Seabrook, New Hampshire Information furnished pursuant to Sec. 50.33 of Commission's Rules and Regulations with respect to the particular Applicant named above as part of Final Safety Analysis Report and Operating License Application O for the above Units.

July 1981 O

I. ORGANIZATION AND CONTROL G

k,) (a) Name of Applicant The Connecticut Light and Power Company (the Company or CL&P).

(b) Address of Applicant Selden Street, Berlin, Connucticut 06037 P.O. Box 2010, Hartford, Connecticut 06101 (c) Description of Business of Applicant CL&P is part of the Northeast Utilities system (the System) and is a wnolly-owned subsidiary of Northeast Utilitite l.

The Company is a Connecticut corporation, organized in 1907, and

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is qualified as a foreign corporation in Massachusetts and New Hampshire. CL&P ie the largest electric and gas utility in Connecticut. It is engaged principally in the production, purchase, transmission, distribution and sale of electicity and gas at retail for residential, commercial, industrial and municipal purposes within the State of Connecticut.

About 84% of CL&P's consolidated operating revenues for 1980 came from electric operations and 16% from gas operations.

CL&P together with The Hartford Electric Light Company, Western

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Massachusetts Electric Company, Holyoke Water Power Company and Holyoke Power and Electric Company comprise the System's operating utility companies and are treated as a single partici-pant in the New England Power Pool (NEP00L) Agreement. CL&P's generating facilities together with those for the other System companies are operated as a single system through the Nev England Power Exchange, (NEPEX) the central dispatch agency of NEPOOL. The Agreement also provides for a determination of the generating capacity responsiblities of participants and their transmission rights and responsibilities.

During 1980, Northeast Utilities' energy requirements were met approximately 50% by nuclear units, 47% by fossil-fired units, and 3% by hydroelectric units.

CL&P has a 53% ownership interest in Millstone Unit Nos. 1 and 2 and the Northfield Mountain pumped storage facility, as tenant in common with HELC0 and WMECO.

CL&P is a part owner, with other New England electric utilities, of the common stock of four regional nuclear generating companies.

These companies are Connecticut Yankee Atomic Power Company, Maine Yankee Atomic Power Company, Vermont Yanke Nuclear Power Corporation and Yankee Atomic Electric Company, in which CL&P has 25%, 8%, 6% and 15% common stock interests, repectively.

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U 1 Unless otherwise indicated.: responses herein are for CL&P, rather than for the System as a whole.

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\_,e The only major new generating facilities under construction in which CL&P has an interest are the Millstone Unit No. 3 nuclear generating unit in Waterford, Connecticut and Seabrook Unit Nos. I and 2 in Seabrook, New Hampshire.

For a more complete description of the business of CL&P, see pages 1-32 of 1980 Annual Report on Form 10-K (Exhibit A hereto).

(d) Corporate Organization CL&P is a business corporation organized under the laws of Connecticut. As of December 31, 1980, CL&P had one domestic shareholder (Northeast Utilities) owning 8,931,014 common shares.

(e) Corporate Officers and Directors The names and residence addresses of each of the members of CL&P's Board of Directors and of each of CL&P's Officers are listed below.

Directors Name Address

'- ' William B. Ellis (President and C00) 17 Colony Road, West Hartford, CT 06117 Walter F. Fee (Exec. VP) 43 Tee Lane, Wethersfield, CT 06109 E. James Ferland (Exec. VP and CFO) Laurel Grove Drive, Higganum, CT 06441 Leon E. Maglathlin, Jr.

(Senior VP) 173 Ardsley Road, Longmeadow, MA 01106 Herbert W. Sears (Senior VP) 192 Old Main Street, Rocky Hill, CT 06067 Lelan F. Sillin, Jr.

(Chairman and CEO) Route 156, RFD #2, Lyme, CT 06317 Peter M. Stern (VP) Ash Swamp Road, Glastonbury, CT 06033 Donald C. Switzer (1)

(Vice Chrm.) 7 Glen Road, Granby, CT 06035 Walter F. Torrance, Jr.

(Sr. VP, Gen. Counsel &

Asst. Secy.) 148 Tuttle Road, Woodbury, CT 06798 Anthony E. Wallace (2)

(Exec. VP) 201 Andrews Street, Southington, CT 06489 (1) Retired effective 5/1/81.

(2) Retired effective 1/1/81.

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0FFICERS

%J Title Name Address Chairman & Chief Executive Officer Lelan F. Sillin, Jr. Route 156, RFD #2, Lyme, CT 06317 Vice Chairman Donald C. Switzer (1) 7 Glen Road, Granby, CT 06035

. President & Chief Operating Officer William B. Ellis 17 Col r y Road, West llartford, CT 06117 Executive Vice President Walter F. Fee 43 Tee Lane, Wethersfield, CT 06109 Executive Vice President &

Chief Financial Officer E. James Ferland Laurel Grove Drive, Higganum, CT 06441 Executive Vice President Anthony E. Wallace (2) 201 Andrews Street, Southington, CT 06489 Senior Vice President William G. Counsil 212 Natchaug Drive, Glastonbury, CT 06033 Senior Vice President Leon E. Maglathlin, Jr. 173 Ardsley Road, Longmeadow, MA 01106 Senior Vice President Herbert W. Sears 192 Old Main St., Rocky Hill, CT 06067 Senior Vice President, General Counsel &

Assistant Secretary Walter F. Torrance, Jr. 148 Tuttle Road, Woodbury, CT 06798 Vice President Philip T. Ashton 39 Daffodil Lane, Meriden, CT 06450 Vice President Warren F. Brecht 29 Stevens Place, Rocky Hill, CT 06067 Vice President C. Thayer Browne (5) 85 Tracy Drive, Manchester, CT 06040 Vice President Carroll A. Caffrey Creamery Road, Durham, CT 06422 Vice President John P. Cagnetta (5) 97 Butternut Circle, Wethersfield, CT 06109 Vice President Raymond E. Donovan 10 Baldwin Street,' Meriden, CT 06450 Vice President and General Manager - Gas Bernard M. Fox (3) 246 High Tower Road, Southington, CT 06489 Vice President Albert J. Hajek (5) 22 Hemlock Lane, East Hartford, CT 06118 Vice President Warren A. Hunt (5) 16 Barn Hill Road, Bloomfield, CT 06002 (S Vice President Francis L. Kinney 76 Pheasant Run, Newington, CT 06111 5

} Vice President and General Manager - Gas Jack R. McClendon (4) 4 Hickory Hill, Southington, CT 06489 Vice President and Tre.=.m er Leonard A. O'Connor 8 Centerwood Drive, Cromwell, CT 06416 Vice President John F. Opeka (5) 10 Nottingham Drive, Old Lyme, CT 06371 Vice President Walter T. Schultheis 91 Robert Road, Manchester, CT 06040 Vice President Ralph 0. Smith (5) 141 Braemar Drive, Cheshire, CT 06410 Vice President Peter M. Stern Ash Swamp Road, Glastonbury, CT 06033 Vice President Richard P. Werner (5) 143 Robin Avenue, Glastonbury, CT 06033 Regional Vice President Charles S. Beach 164 Hickory Hill La., Newington, CT 06111 Regional Vice President W. Lindsey Booth 27 Randeckers Lane, Kensington, CT 06037 Regional Vice President Thomas F. Brennan 201 Tunxis Road, West Hartford, CT 06107 Regional Vice President Emil B. Cross Old Pawson Road, Branford, CT '06405 Regional Vice President Albert E. Magee 237 Dale Road, Wethersfield, CT 06109 Secretary Robert W. Bishop 475 Simsbury Road, Bloomfield, CT 06002 Controller George D. Uhl (5) 235 Minnechaug Dr., Glastonbury, CT 06033 Assistant Secretary Cheryl W. Grise'(5) 66 Roberts Road, Marlborough, CT 06447 Assistant Secretary Roy M. Seger 139 Andrews St., Southington, CT 06489 Assistant Secretary Douglas R. Teece (6) 61 Paucatuck Rd., W. Springfield, MA 01089 Assistant Treasurer Robert C. Aronson 62 Spring Lane, West Hartford, CT 06107 Assistant Treasurer Michael K. Upper 70 Sunset Ridge Dr., Southington, CT 06489 (1) Retired effective 5/1/81. (2) Retired effective 1/1/81.

(3) Elected effective 5/15/81. (4) Retired effective 7/1/81.

(5) Elected effective 6/1/81. (6) Elected effective 6/8/81.

All of the directors and principal officers of CL&P are citizens of the United States of America. CL&P is not owned, controlled or dominated by an alien, foreign corporation or A foreign government.

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. II. FINANCIAL QUALIFICATIONS Under the Seahrook Joint Ownership Agreement, CL&P is responsible for its ownership Share of the operation and maintenance cost of the Units which will be 4.05985% of those costs, and a similar percentage of the utlimate cost of decommissioning the Units.

Based upon the estimates set forth above under Part IV of the General Information, CL&P's share of these costs should amount approximately to $6,090,000 and $6,090,000 for the first five years of operations of Unit 1 and 2, respectively; and approximately

$1,705,000 to $3,491,000 for the decome.issioning of both Units. In addition, CL&P's share of fuel expenses for both Units during the period 1983 through 1989 would be approximately $20,827,000.

As evidence of its financial qualifications to meet those costs, CL&P submits herewith:

(i) 1980 Annual Report to Stockholders included by reference in Form 10-K (Included in Exhibit A)

(ii) 1980 Annual Report on Form 10-K (Exhibit A)

(iii) 1981 First Quarter Report on Form 10-Q (Exhibit B)

(iv) Prospectus, dated September 16, 1980, relating to $65,000,000 of First Morgage Bonds, Series FF (Exhibit C)

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(v) Rate order, dated October 9, 1980, (Exhibit D) Supplemental Decision dated October 17, 1980, (Exhibit D-1) and Errata datedi 'ober 22,1980, (Exhibit D-2) and Errata dated Octo',er 24, 1980, (Exhibit D-3) of the State of Cor.necticut Department of Public Utility Control.

III. REGULATORY AGENCIES AND PUBLICATIONS (a) Regulatory Agencies The names and addresses of regulatory agencies which may have jurisdiction over the rates and services incident to the generation or distribution of energy by CL&P are as follows:

Department of Public Utility Control State Office Building 165 Capitol Avenue Hartford, Connecticut J6115 s

Federal Energy Regulatory Commission Washington, D.C. 20426 r^N s

9 (b) Publications The following publications are used by CL&P for of ficial notifications, and/or are otherwiss appropriate for notices regarding these units:

The Ansonia Sentinal 241 Main Street l

Ansonia, CT .06401 Bridgeport Post - Telegram 410 State Street Bridgeport, CT 06602 i

Iristol Press 99-Main Street Bristol, CT 06010 The Danbury News - Times l

33 Main Street Danbury, CT 06810 Grecnwich Time 20 East Elm Street Greenwich, CT 06830 The Hartford Courant j O 285 Broad Street Hartford, CT 06115 i

The Meriden Record 214 Center Street Meriden, CT 06450 Naugatuck Daily News 195 Water Street Naugatuck, CT 06770 The New Britain Herald j One Herald Square New Britain, CT 06050 l

The New Haven Register 367 Orange Street

' New Haven, CT 06503

' The New London Day 47 Eugene O'Neill Drive New London, CT 06320 The Norwalk Hour 346 Main Avenue Norwalk, CT 06851 l

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Norwich Bu'.letin 66 Franklin Street Norwich, CT 06360 f

't Waterbury Republica.n - American j l

389 Meadow Street P. O. Box 2090 Waterbury, CT 06720 ,

The Willimantic Chronicle  ;

P. O. Box 167 Chronicle Road Willimantic, CT 06226 I

Winsted Evening Citizen l

' t 448 Main Street Winsted, CT 06098 ,

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Exhibit A SECURITIES AND EXCHANGE COMMISSION l , ,

WASHINGTON, D. C. 20549

j FORM 10-K Lj l ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) 0F l THE SECURITIES EXCHANGE ACT OF 1934 h

'* For the fiscal year ended December 31, 1980. Commission file number 0-404

'!A i THE CONNECTICUT LIGHT AND POWER COMPANY (Exact r,ame of registrant as specified in its charter)

CONNECTICUT 06-0303850 (State or other jurisdiction of incorporation (IRS Employer Identification Number) or organization)

Selden Street, Berlin, Connecticut 06037 _

(Address of principal executive offices) (Zip Code)

Registrant's telephone nunber, including area code (203) 666-6911 Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act:

Cumulative Preferred Stock, par value $50.00 per share, issuable in series, of which the following series are now outstanding:

$2.00 Series of 1947 $3.24 Series G of 1968

$1.90 Series of 1947 $4 48 Series H of 1970

$2.20 Series of 1949 $4.48 Series I of 1970

$2.04 Series of 1949 $3.80 Series J of 1971

$2.06 Series E of 1954 $4.56 Series K of 1974

$2.09 Series F of 1955 $5.52 Series L of 1975 (Title of class)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports),

and (2) has been subject to such filing requirements for the past 90 days.

Yes X No State the aggregate market value of the voting stock held by nonaffiliates of the registrant.

Not Applicable Indicate the number of shares outstanding of each of the registrant's classes of common

,? stock, as of the latest practicable date.

Class Outstanding at March 3, 1981 i Common Stock, $10.00 par value 8,931,014 shares Documents incorporated by reference:

J i Portions of the Annual Report to Stockholders for the year ended December 31, 1980

'j are incorporated by reference into Parts I and II.

1 O THE CONNECTICUT LIGHT AND POWER COMPANY 0 PART I kk Item L. Business THE COMPANY The Connecticut Light and Power Company (the Company or CL&P) is part of the Northeast Utilities system (the System) and is a wholly-owned subsidiary of Northeast Utilities. The Company is a Connecticut corporation, organized in 1907, and is qualified as a foreign corporation in Massachusetts and New Hampshire. The Company is the largest electric and gas utility in Connecticut. It is engaged principally in the produc-tion, purchase, transmission, distribution and sale of electricity and the purchase, distribution and sale of gas at retail for residential, commercial, industrial and municipal purposes within the State of Connect-icut.

The Company, The Hartford Electric Light Company (HELCO),

Western Massachusetts Electric Company (WMECO), and Holyoke Water Power Company (HWP) are the principal operating subsidiaries of the System.

,-~s' Other subsidiaries of Northeast Utilities provide substantial support to the System companies. Northeast Utilities Service Company (the Service

(%- Company) supplies centralized accounting, administrative, data processing, engineering, financial, legal, operations, planning, purchasing and other services to the System companies. Northeast Nuclear Energy Company (NNECO) acts as agent for System companies in constructing and operating nuclear generating facilities and in financing nuclear fuel for such facilities. The Connecticut Gas Company (Conn Cas), a wholly-owned subsidiary of the Company, performs gas supply functions for CL&P and HELCO. The Rocky River Realty Company and The Quinnehtuk Company are both real estate companies.

The System is operated on an integrated basis, under which the Directors and the principal officers of each operating subsidiary are (with some exceptions) the same.

THE UTILITY ENVIR0h?!ENT Utilities encounter many financial, operational and regulatory challenges. They are subject to federal and state energy policies whose direction can be changeable and unpredictable. The cost of fossil fuels used in generation of electricity and of gas for retail distribution continues to increase, while oil and gas supplies are subject to national and international political considerations beyond utilities' control.

rs Conversion of oil-fired units to coal is considered desirable by many, 2

but requires substantial capital expenditures and relaxation of environ-mental requirements in certain instances. New base load generating units of all kinds involve large financial commitments and require long planning and construction periods. Regulatory delays and stringent licensing and operating requirements for nuclear generating plants are .

encountered, as is public controversy over nuclear power and waste disposal. National economic troubles, heightened conservation awareness, ,

and higher electricity prices all affect the use of electricity. Pipeline ,

and storage capacity strain gas utilities in periods of high cold weather demand. The regulatory process often inhibits timely rate increases necessary to keep up with inflation. Rate increases are typically inadequate to meet actual costs and fail to provide the needed return on equity. Lower earnings jeopardize compliance with charter and indenture coverage tests which must be met if a utility is to issue senior securities.

Interest rates continue to fluctuate but they have remained unusually high in recent years.

CL&P and the other System companies share these problems in varying degrees. Difficulties in obtaining sufficient rate levels, coupled with a reduction in the growth rate for electric energy, have caused CL&P, HELCO and WMECO to reduce and defer portions of previously planned construction programs. Financial restraints have recently caused them to take steps to reduce their ownership shares of the Millstone Unit No. 3 nuclear generating station, which is under construction in Waterford, Connecticut. (See " Operations--Joint Proj ects". )

Yet in some respects the System companies have been able to reduce the ef fects of sc.ne problems common to utilities, although the benefit has been primarily for customers rather than investors. The System's reliance on oil-fired electric generation is among the lowest in New England and the metropolitan New York region, primarily because of nuclear generating capacity that has been placed in service since 1961, when the Yankee Atomic plant began operations in Rowe, Massachusetts.

l In 1980, approximately 50% of the electricity provided to the System's customers was generated by nuclear units. Although this percentage is below the 53% contribution of nuclear units in 1979, nuclear generation in 1980 conserved some 20,300,000 barrels of oil at a net savings to customers of $310,800,000. Nuclear energy costs System companies less than half the cost of oil to generate a kilowatt-hour of electricity, helping to make the electric bills for System customers lower than for customers of many neighboring utilities. As described elsewhere in this report, the System companies and their investors, however, incur substantial expenditures and bear substantial economic and regulatory burdens in connection with the construction and operation of nuclear units. These burdens are not all fully compensated through rates.

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Q CONSTRUCTION AND FINANCING PROGRAM o Construction ,

The Company has heavy financial commitments for its construction N,*' program through at least 1985. The largest part involves completing the construction of additional nuclear electric generating units in order to reduce further its reliance on oil-fired generation. Construction program expenditures (including Allowance for Funds Used During Construc-tion (AFUDC) but excluding nuclear fuel) in the period 1981 through 1985 are estimated to be as follows:

1981 1982 1983 1984 1985 (Thousands of Dollars)

Electric Plant Production .......... $150,871 $144,997 $137,432 $141,526 $115,753 Substations and Transmission Lines .. 9,522 8,778 7,177 10,700 19,118 Distribution Operations ......... 22,314 22,748 23,734 26,185 27,937 General ............. 4,747 2,810 2,790 3,111 2,976 Gas Plant ............. 20,283 24,939 17,706 18,010 16,656 O TOTAL $207,737 $204,272 $188,839 $199,532 $182,440 The expenditures shown above do not include the amounts that would be required if certain of the Company's generating units were to be converted from oil-burning to coal-burning, or amounts which may be required to assist the various Yankee nuclear generating companies to finance their capital requirements. See " Conservation and Coal Conversion" and " Operations--Joint Projects". The construction programs for 1981 and 1982 include approximately $3,050,000 and $1,334,000, r4spectively, for environmental control facilities.

The only major new generating facilities under construction in which the Company has an interest are the Millstone Unit No. 3 nuclear generating unit in Waterford, Connecticut and Seabrook Unit Nos. 1 and 2 in Seabrook, New Hampshire. Millstone Unit No. 3 is scheduled for completion in 1986. Seabrook Unit Nos. 1 and 2 are scheduled for comple-tion in 1983 and 1985, respectively, but 1980 construction delays are expected to delay the units' in-service dates. See " Operations--Joint Projects". The following table sets forth anticipated construction

• expenditures (including AFUDC but excluding nuclear fuel) for the Company's share of the Millstone and Seabrook units. This table and the foregoing table reflect an increase in the Company's 34.5% share of the 8 estimated construction cost of Millstone Unit No. 3 from $713,118,000 to

$895,700,000 based on a review completed in December, 1980. They also

reflect CL&P's sale of a 10 MW (0..+% +) interest. in the Seabrook units to a Massachusetts ut.ility on January 30, 1981. Neither table reflects increases in the cost of the Seabroak units that are expected to result from a review of Seabrook constructior. costs currently being undertaken by Public Service Company of New Hampshire (PSNH), the lead participant .

in the Seabrook project. Neither table reflects possible reduction of CL&P's ornership interest in Millstone Unit No. 3 or further reductions of CL&P's ownership interest in Seabrook. See " Operations--Joint Projects".

Millstone #3 Seabrook #1 and #2 Total Net MW Capability 1,150 MW 2,300 MW CL&P's Ownership . ..... ..... 34.5% 4.05985%

CL&P's Share of Net. MW Capability 396.2 MW 93.4 MW Estimated Construction Cost pe r KW . ................... $ 2,260 $ 1,176 Estimated Expenditures by CL&P (Thousands of Dollars)

Before 1981 (Actual) ....... $286,405 $47,675 1981 ................ 85,046 18,670 198', ................ 112,148 17,369

"'i3 .. ............. 121,973 10,543 1984 ................ 122,338 13,370 1985 ......... ... . 108,810 2,080 After 1985 ........... .... 56,980 -

The Company and other utilities have found that the cost of constructing major facilities frequently increases substantially over earlier projections because of inflation, increased licensing requirements, new environmental regulations, schedule deferrals and other causes. See

" Operations--Joint Proj ects" and " Regulatory and Environmental Requirements and Proceedings--NRC Nuclear Plant Licensing" for information about problems relating to the Seabrook units that have resulted in material cost increases.

l On December 31, 1980, Northeast Utilities announced its decisica to cancel two 1,150 MW nuclear units planned for Montague, Massachusetts.

Completion of the units could have made a significant contributton to the System's oil displacement goals for the 1980s and 1990s. Nevertheless, the System's development of a new conservation and load growth management program for that period (see " Conservation and Coal Conversion"), and the opportunity it affords the System to reduce its capital program, led to the decision. Reduction of the capital progra'a is expected to lessen i the exposure of Northeast Utilities shareholders to repeated common stock sales at less than book value, and to require fewer preferred stock and bond sales by CL&P and other Syst.em companies. CL&P had a -

39.8% interest in the Montague project, representing an investment of approximately $15,289,000 (including AFUDC). It intends to apply to state and federal regulatory authorities to recover $13,735,000 of its .

O investment through rates. Management believes that recovery of these costs is consistent with established rate-making principles, but the action of regulators with respect to specific project cancellations ,

cannot be predicted. The Company considers the Montague site viable for future coal or nuclear units.

o k The Company expects that it will be able to meet projected customer loads reliably until at least the mid-1990s, despite previous and proposed sales of interests in nuclear generating units, previous deferrals of in-service dates for Millstone Unit No. 3, previous and anticipated deferrals of the in-service dates of the Seabrook units, and the cancellation of the Montague units. However, continued use of fsssil fuel-fired units that would otherwise have been replaced by nuclear power is likely to increase generation costs over the level that would have been incurred if the Company's nuclear generating capacity were not reduced.

Nuclear Fuel The Company estimates that its expenditures for nuclear fuel (including AFUDC and nuclear fuel for the Seabrook units) will be $7,716,000 in 1981, $8,156,000 in 1982, $4,894,000 in 1983, $9,021,000 in 1984 and

$24,842,000 in 1985.

,_ Fuel for Millstone Unit Nos. 1 and 2 is financed by NNECO.

. The investment in nuclear fuel located in the Millstone Unit Nos. I and k/ -

2 reactors is financed by NNECO through capital contributions or advances from Northeast Utilities and the issuance of secured notes and bank borrowings. Up to $50,000,000 of investment in nuclear fuel in process for the Units may be financed by NNECO pursuant to a fuel supply trust agreement, under which the trust owns and finances the nuclear fuel before it is placed in the reactor. The trust obtains funds by the sale of commercial paper and/or bank loans. NNECO is obligated to purchase the nuclear fuel from the trust when specific events occur. CL&P, HELCO and WMECO presently contemplate entering into a fuel supply trust agreement to finance their share of the nuclear fuel costs for Millstone Unit No. 3. Nuclear fuel costs are expected to recovered through rates as the fuel is consumed in reactors.

Conservation and Coal Conversion On January 21, 1981 Northeast Utilities released its long-term conservation program, the major goals of which are to reduce oil dependence in the System's service territory and to assist customers to take cost-effective conservation actions. Implementation of the program will require a number of regulatory approvals and actions, and is subject to the System's ability to finance the capital expenditures associated with the program. The customer conservation elements of the program are intended to make it possible for the System to maintain energy load growth at no more than 1.5% per year, by making customers aware of x conservation's potential, informing them about preferred technical and x_

economic means of conservation, and providing them with services and finarcial incentives to implement their conservation decisions. The System's own oil reduction goal is to cut the use of oil in generation to 10% or less by 1987 and to maintain that percentage thereafter.

Placing Millstone Unit No. 3 in service by 1986, as scheduled, while retaining a substantial part of the System's present ownership, converting the most suitable System oil-burning units to coal, and adding hydro- gf>

electric capacity and refuse-derived energy are the major actions proposed

• to meet the System's 1987 goal.

As part of the System's program to reduce oil dependence, the Company proposes to convert up to four of its oil-fired electric generating units to coal. The units, which provide an aggregate of 556 MW of capacity, are Norwalk Unit Nos. 1 and 2 and Devon Unit Nos. 7 and 8.

Before the Company will be able to begin the conversion ef fort, it will need to obtain financing for the conversions, and receive governmental approvals and actions (including authorization for CL&P to burn coal with a higher sulfur content than is presently permitted). The cost to the System of converting these four units, which does not ir clude the cost of flue gas desulfurization equipment, is estimated at $126,000,000.

The Company will not voluntarily convert any units, and it will continue to oppose federal actions described below, unless the investment can be justified in light of the Company's financial condition or unless other satisfactory financial arrangements are made. The Company also opposes the use of desulfurization equipment, for both cost and envircnmental reasons. Conversion of any of the Company's units without desulfurization equipment would require changes in current state emission standards. Because of the need to improve the Company's financial condition and to resolve present regulatory and environmental uncertainties before the Company can convert any of the four units, the construction program expenditures given in the table under " Construction" above do not include any funds for coal conversion.

The System is currently planning voluntarily to convert HWP's Mt. Tom Station if CL&P, HELCO, WMECO and HWP receive necessary approvals to finance the estimated $35 million cost of conversion (of which approxi-mately $22 million would be borne by the System and the balance will be borne by another utility system which shares the output of Mt. Tom Station) through the use of the oil conservation adjustment mechanism described in " Rates". Coal burning is expected to begin about one year af ter necessary rate and environmental approvals are received. The schedule for voluntary conversion of the Company's units would permit them to begin burning coal in 1985 and 1986, subject to the conclusion of satisfactory financing arrangements and receipt of necessary regulatory approvals. ,

The Company believes that its efforts to convert its units to coal on a voluntary basis will enable it to place coal-fired units in

• service on a sound environmental basis, : 3rlier and at lower cost O

than if it were required to convert certain of its units (including some but not all of the units covered by the System's voluntary plan) under federal mandate. Prohibition orders for two of the Company s units

- were issued under the Energy Supply and Environmental Coordination Act of 1974, but have been rescinded. The provisions of the Power Plant and e

g Industrial Fuel Use Act of 1978 could require the conversion of up to five of the Company's units, with an aggregate capacity of approximately 638 MW. If all five units were required to convert to coal and were required to utilize flue gas desulfurization equipment, the estimated conversion cost would be approximately $343,000,000. C.nnecticut does not have an approved site for disposal of limestone sludge and ash, by-products of the flue gas desulfurization process.

Financing In addition to financing the construction program, nuclear fuel expenditures, and any coal conversion of oil-fired units, as described above, the Company is obligated to expend $167,655,000 in 1981 through 1985 to meet long-term debt maturities and long term debt and preferred stock sinking fund requirements. In 1982 alone, sinking fund and debt maturity requirements are $123,531,000. In 1981 these requirements are

$3,531,000.

In 1981 construction program expenditur ea, nuclear fuel expendi-tures and sinking fund and debt maturity requirements are expected to amount to $218,984,000 in the aggregate. Expenditures in 1981 for coal V conversion under the Company's voluntary program are nominal. In 1982, the sum of construction program expenditures, nuclear fuel expenditures and sinking fund and debt maturity requirements is expected to be $335,951,000.

Coal conversion costs would be an additional $23,500,000 if the voluntary program is implemented. The Company proposes to finance these expendt.tures through a combination of internally generated and external funds. The amount of internally generated funds that will be available cannot be known at this time because of such uncertainties as the results of rate cases and the offer to sell a part of the System's interest in Millstone Unit No. 3. The amount, nature and sources of external funds to be sought have not yet been definitively determined. External funds are expected to be required to provide at least half of the 1981 financing requirements of the Company.

The Company's ability to meet the proposed level of construction, nuclear fuel expenditures, coal conversion expenditures and refinancings of senior securities is primarily dependent on its ability to obtain timely and adequate rate relief and on conditions in the capital markets.

Inadequate rate relief and instability in the capital markets have adversely affected the construction program in 1980 and earlier years.

If adequate future rate relief and satisfactory financing terms cannot be obtained, the Company will be forced to make further deferrals or

• abandoninents of proposed projects and further reductions of its ownership interests in generating units.

f The Company typically finances current construction expenditures and other requirerrents in excess of internally generated funds through short-term borrowings, selling additional first mortgage bonds and preferred stock, leasing equipment, and the receipt of capital contribu- ,

tione and advances from Northeast Utilities. The Company received a capital contribution of $40,000,000 from Northeast Utilities during 1980, and it anticipates receiving capital contributions aggregating ./

$30,000,000 during 1981.

• The amounts of short-term borrowings which may be incurred by CL&P are subject to periodic approval by the Securities and Exchange Commission (SEC) under che Public Utility Holding Company Act of 1935.

Short-term or other unsecured borrowings are also restricted by the preferred stock provisions of its charter. The SEC limits, the preferred stock limitations, and the amounts of outstanding short-term borrowings, are set forth below as of December 31, 1980:

Limit under Short- Total Short-SEC Preferred Stock Commercial Term Bank Term Debt Authorization Provisions Paper Loans ** Outstanding

$185,000,000* $300,898,000 $85,785,000 $62,500,000*** $148,285,000***

• CL&P's SEC limit was increased to $210,000,000 on February 3, 1981.

• • See note 6 to the financial statements for information about credit lines available to the Company.

• • • Includes borrowings of $27,500,000 under the Revolving Credit / Term Loan Agreement described below.

The System companies experienced an unexpected, rapid increase in their short-term bo. rowings in early 1981, primarily to finance increased oil purchases and expenditures for repairs at Millstone Unit No. 1. These were :equired by the need to extend a refueling outage at that unit so that plant repairs could be effected. The increase in short-term borrowings led CL&P and HELCO to obtain approval for additiona..

temporary short-term borrowings in excess of their current SEC authoriza-tions. Short-term borrowings were brought below the authorized level at the completion of ten year term loan borrowings in early March 1981.

CL&P's term loan is $100,000,000 and HELCO's term loan is $50,000,000.

The loans are secured by second mortgages on the borrowers' interests in Millstone Unit No. 1, and mature in four equal annual installments of principal beginning April 5, 1987. .

In addition to their customary short-term borrowings from banks and from the sale of commercial paper, CL&P, HELCO and WMECO ,

O On

( ,/ entered into a Revolving Credit / Term iaan Agreement with a group of banks on August 25, 1980. The aggregate credit limit for all three o companies under the Agreement is $140,000,000, with a maximum borrowing

• limit for CL&P of $80,000,000. The revolving period expires June 30, i

1983. The Company has the option on or before June 30, 1983 of converting ,

any borrowings permitted under the Agreement to a term loan maturing

. June 30, 1987 and amortizing in eight equal semi-annual installments commencing December 31, 1983.

The indenture securing the outstanding mortgage bonds of CL&P provides that additional bonds may not be issued, except for certain refunding purposes, unless earnings (as defined in the indenture) are at least twice the pro forma annual interest charges on outstanding bonds

and the bonds to be issued. The Company's preferred stock provisions prohibit the issuance of additional preferred stock unless earnings (as defined) are at least one and one-half times the pro forma annual interest charges on indebtedness and the annual dividend requirements on prefer.ed stock that will be outstanding after the additional stock is issued.

On the basis of the indenture and preferred stock formulas, the coverages for the years ended December 31, 1978, 1979 and 1980 were, based on the amounts outstanding as of the end of such periods, as follows:

Preferred

[~ Bond Stock

\ Year Ended Coverage Coverage _

December 31, 1978 2.25 1.60 December 31, 1979 2.19 1.45 December 31, 1980 2.05 1.27 In September, 1980 CL&P issued and sold publicly $65,000,000 aggregate principal amount of its 14-3/8% First Mortgage Bonds.

The sale of any additional securities by the Company will continue to depend on the adequacy of future earnings, on generally -

prevailing interest rates and other conditions in securities markets, and on the market appraisal of the Company's securities.

OPERATIONS Electric System operating companies own and operate a fully-integrated electric utility business. Generation and transmission

• facilities are planned and operated as part of a regional New England bulk power system. See " Joint Projects". System transmission lines O

_9

form rart of New England transmission system linking System generating plants with one another and with the facilities of other utilities in the northeastern United States and Canada.

Since 1970 the System companies have pooled their electric production costs and the costs of their principal transmission facilities.

This arrangement makes unit bulk power costs of the System companies substantially uniform.

About 84% of the Company's consolidated operating revenues for 1980 came from electric operations. Electric revenues for both 1980 and 1979 were derived 43% from residential customers, 25% from commercial customers, 21% from industrial customers, 8% from wholesale customers and the balance from others. The Company furnishes firm wholesale l electric service to three municipal electric systems and one investor-owned electric system.

As of October 1, 1980 the Connecticut Municipal Electric l

Energy Cooperative (CMEEC) assumed responsibility for serving three Connecticut municipal electric systems which had previously been firm wholesale customers of CL&P. CL&P and other System companies have agreed to sell CMEEC transmission service and unit-contract entitlements in a number of the System's electric generating units, including all nuclear units in which System companies have entitlements.

Through March 3, 1981 the all-time maximum demand on the System was 4,126,000 kilowatts, which occurred on January 12, 1981 at which time the generating capacity of the System's generating plants (including the System companies' entitlements in regional nuclear generating companies) was 6,373,400 kilowatts. At the time of the peak, the System was selling 338,900 kilowetts of capacity from its p! ants to other utilities, and it was purchasing 8,000 kilowatts from other utilities in order to take advantage of lower fuel costs of the selling utility. The System's capacity which is in excess of its needs, including reserve l

requirements, is offered for sale to other utilities. The System expects l to have capacity available from its existing units for sales to other utilities until at least 1989.

l l The System's and CL&P's kilowatthour sales for 1980 were both 0.4% above the level for 1979. During 1980, the System's energy require-ments were met 50% by nuclear units, 47% by fossil fired units, and 3%

by hydroelectric units. During 1979, the System's energy requirements were met 53% by nuclear units, 43% by fossil fired units, and 4% by hydroelectric units. The System'c goal is to promote conservation measures that will help contain the growth in the demand for electricity to 1.5% annually over the long term. See " Construction and Financing ,

Program--Conservation and Coal Conversion" for information about the System's conservation and load growth plans.

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I i

Gas CL&P and HELCO furnish retail gas service in eleven separate

- service areas, not interconnected, that cover approximately 1,535 square

miles in 3.' cities and towns in Connecticut with an estimated population i of 1,2ca,5.0. Eight of the eleven service territories are CL&P's.

. Abou 16% of.the Company's consolidated operating revenues for 1980 came

froa gas operations. Gas revenues in 1980 were derived 42% from residential

, et,tomers, 20% from commercial customers, 35% from industrial customers

and the balance from others. In 1979 gas revenues were derived 45% from

! tesidential customers, 18% from commercial customers, 35% from industrial customers, and the balance from others.

i' Since January 1, 1979 CL&P and HELCO have obtained their gas

supply at uniform costs through CL&P's subsidiary, Conn Gas. Pipeline gas provided 95.3% of the companies' 1980 requirements. Liquified natural gas (LNG) provided 4.2% and propane provided the remainder.

j System gas requirements for 1981 are expected to be met approximately 97.1% by pipeline gas, 2.4% by LNG and the balance by propane. Pipeline gas is purchased under long-term contracts with Algonquin Gas Trans-l mission Company (approximately 58%) and Tennessee Gas Pipeline. Company l (approximately 42%) at rates subject to the jurisdiction of the Federal 4

Energy Regulatory Commission (FERC). During a number of winters since 1970, pipeline gas suppliers,.with the approval of the FERC, have reduced below contract quantities the amount of pipeline gas made available to i s [\ distribution companies, including CL&P and HELCO. The amounts. supplied by Algonquin Gas Transmission Company and Tennessee Gas Pipeline Company

have not been significantly curtailed during the 1980-1981 heating 2 season and are not expected to be significantly curtailed during the l 1981-1982 heating season. Unusually cold weather in late December, l 1980, and in January, 1981, strained the Company's gas supplies but did not result in any service interruptions.

Suppliers of pipeline gas have prsiodicall, obtained rate j increases for their pipeline gas deliveries and have additional requests

' for rate increases pending before the FERC. Increases in purchased gas costs are by far the most significant factors in increased operating i costs for gas service. Since 1973 CL&P has had an adjustment clause in

! its retail gas rate schedules under which billings to customers reflect

, changed gas costs.

Conn Gas, on behalf of CL&P and HELCO, has made arrangements to obtain quantities of LNG and propane to supplement pipeline gas supplies, and to provide additional storage for LNG. However, since the

supply of LNG is dependent on foreign sources, future availability is l* uncertain. Conn Gas has also contracted for underground storage service i for pipeline gas to be available in 1982, which will enhance the System's ability to utilize available natural gas. The Company anticipates that

'e gas supplies will be adequate through at. least the 1984-85 heating season.

l

I Conn Gas, along with thirteen other gas companies in New England, New York, and New Jersey, has made arrangements to receive a ten-year supply of natural gas from TransCanada Pipelines Limited, a Caaadian corporation. To facilitate their dealings with TransCanada,

• the participants have organized Boundary Gas, Inc., to purchase gas from TransCanada and to resell gas to the participants. In October, 1980 Conn Gas purchased a 5.11% stock ownership interest in Boundary Gas, a

which entitles and obligates it to purchase 5.11% of the natural gas that Boundary Gas is expected to purchase from TransCanada. Boundary Gas' total purchases for all participants are expected to be 185,000,000 cubic feet per day. It is estimated that gas purchased through Boundary

• Gas will represent approximately 8% of CL&P's and RELCO's gas supplies during the first full year of purchases. This Canadian gas is expected to be available in 1982.

Algonquin Gas Transmission Company and Transcontinental Gas Pipe Line Corporation, which supply Conn Gas and other utilities in the northeastern states, signed agreements in 1980 with Pan-Alberta Gas Ltd.

for the purchase of up to 300,000,000 cubic feet of Canadian natural gas per day. The gas would be transported by two proposed pipelines, the Trans-Quebec Maritime Pipeline and the New England States Pipeline. The lines are scheduled for completion in 1983 and 19d4, respectively, and are subject to various Federal, Canadian and state regulatory approvals.

Conn Gas expects that approximately 11% of the gas would be made available to it pursuant to existing agreements with Algonquin Gas Transmission Company.

Each of these Canadian gas purchase arrangements requires approval of Canada's National Energy Board, which has questioned the extent to which Canada should export natural gas to the United States.

Approval is therefore not assured.

A 1974 agreement among CL&P, HELCO and Connecticut Natural Gas Corporation (CNG) for the sale of CL&P's and HELCO's gas properties to ChG terminated in 1979. Since then CL&P and HELCO have undertaken, and are continuing, studies to determine an appropriate course of action with respect to their gas properties. The position of the SEC continues to be that companies subject to the Public Utility Holding Company Act i of 1935 may not retain both gas and electric properties.

Segments of Business Information about the Company's business segments is given in note 12 to financial statements, which are included in Exhibit 13 to this report.

Employees As of December 31, 1980, the Company had a total of 3,822

• regular employees on its payroll. It has union agreements covering a total of 2,017 employees.

O

(~'N CL&P and HELCO have consolidated their operations by trans-

,, ) ferring all HELCO personnel (other than production personnel) to CL&P.

CL&P now provides local service to customers of both companies and bills HELCO for its share on a recovery-of-cost basis. CL&P and HELCO are

- continuing to investigate the feasibility of a corporate merger, in which CL&P would be the surviving corporation.

. Joint Projects NEPOOL System operating companies and most other New England utilities with electric generating facilities are parties to the New England Power Pool (NEP00L) Agreement. Under the Agreement the generating facilities of all participants are operated as a single system through the New England Power Exchange, a central dispatch facility. The Agreement also provides for a determination of the generating capacity responsibilities of participants and their transmission rights and responsibilities.

Pool dispatch results in substantial purchases and sales of electric energy by pool participants, including the Company, at prices determined in accordance with the NEP00L Agreement.

Jointly Owned Nuclear Units CL&P, HELCO and WMELO own Millstone Unit Nos. 1 and 2 and the Northfield Mountain pumped storage facility as tenants in common. Their

(  :

ownership interests are 53%, 28% and 19%, respectively.

x~ s' CL&P has agreements with other New England utilities (including HELCO and WMECO) covering their joint ownership of the future nuclear units referred to under " Construction and Financing Prograa." The arrangements provide for pro rata sharing of construction and operating costs and the electrical output of each unit by the owners, as well as pro rata sharing of associated transmission costs.

CL&P is a part owner with other New England electric utilities (including HELCO and WMECO) of the common stock of four regional nuclear generating companies. These companies are Connecticut Yankee Atomic Power Company, Maine Yankee Atomic Power Company, Vermont Yankee Nuclear Power Corporation, and Yankee Atomic Electric Company (the Yankee companies),

in which the Company has 25%, 8%, 6% and 15% common stock interests, respectively.

The Rowe, Massachusetts, nuclear generating unit of Yankee Atomic Electric Company returned to service in November, 1980 at 86% of its former rating after a long outage resulting from severe steam turbine damage. The damage was not nuclear-related.

CL&P is obligated, within specified limits, to provide its percentage of such additional equity capital as may be necessary for the Yankee companies. The owners of Vermont Yankee Nuclear Power Corporation

(~~x have agreed in principle to guarantee their pro rata shares of a $40,000,000 nuclear fuel financing; completion of the transaction is subject to the

)

(

receipt of regulatory approvals and the execution of definitive agreements.

The owners of Connecticut Yankee Atomic Power Company agreed in 1980 to

an interim financing arrangement under which each would purchase its pro rata share of up to $40,000,000 of Connecticut Yankee's subordinated notes to meet nuclear fuel financing obligations, construction program expenditures and other needs. The Company's share would be $10,000,000.

Through March 3, 1981, $21,000,000 of such notes were issued, .. which the Company's share was $5,250,000. The Company believes that the Yankee companies will require additional external financing in the next several years to finance construction expenditures and nuclear fuel or -

for other purposes. Although the ways in which each Yankee company will attempt to finance these expenditures have not been finally determined, the Company expects that it may be asked to provide additional equity capital and/or other types of direct or indirect financial support for one or more Yankee companies.

Proposed Millstone Unit No. 3 Sales In January 1981, CL&P, ifELC0 and WMECO made offers to sell to other utilities a minimum of an 8.7% interest (approximately 100 MW) in Millstone Unit No. 3 and invited expressions of interest in amounts in excess of 100 MW. The companies decided to make this offer in light of their financial condition and to lessen the need for Northeast Utilities to sell additional common stock below book value and for CL&P, HELCO and WMECO to sell additional preferred stock and bonds to finance the remaining construction costs for the unit.

Determinations of whether more than 100 MW will be sold, and how the total amount to be sold will be allocated among the companies, are to be made following receipt of responses to the offer and will be based on the then-financial outlook of each of the companies and the amount of interest expressed by the other utilities. Responses to the offer are due on or before July 6, 1981. Subject to the receipt of necessary regulatory approvals, sales could begin as early as September, 1981, but are unlikely to occur before the end of 1981. The purchase price is a pro rata share of the selling companies' book value for their investment in the unit, including AFUDC and nuclear fuel. Utilities responding to the offer have been asked to indicate whether they wish to pay for their ownership interests in a single payment or to pay in quarterly, interest-bearing installments over several years until 1986, when the unit is scheduled to be placed in service. The companies have reserved the right to determine how much capacity to sell on each basis.

Assuming a cash sale at December 31, 1981, the purchase price for a 100 MW ownership interest would be approximately $98,200,000. The extent of acceptance of the of fer cannot be known until the expiration date for the offer. Another co-owner of the unit has an offer pending to sell part of its interest in the unit. Experience with offers by System companies and other utilities indicates that needed regulatory -

approvals may be time-consuming or, in some instances, not forthcoming.

If the Company is unsuccessful in its effort to reduce its interest in Millstone Unit No. 3, and if the Company's financial condition O

("' .

( does not improve substantielly through rate increases or otherwise, the Company would be forced to take alternative action, including selling other assets oc substantially reducing construction and operating expendi-tures. As of December 31, 1980 the Company had invested approximately

$303,700,000 in the unit (including AFUDC and nuclear fuel expenditures).

At that date the cagineering on the project was approximately 74% complete

- and construction approximately 33% complete. The reactor containment structure and the turbine building structure are essentially complete.

The reactor vessel and major portions of the turbine generator are in place and a substantial number of other components are on site.

Seabrook PSNH has responsibility for constructing and scheduling the two Seabrook units. PSNH has been experiencing serious difficulties in financing its construction program. To alleviate its financial difficulties, PSNH has attempted to reduce its ownership share in the units. Other utilities have agreed to acquire ownership shares from PSNH representing approximately 14.77% interests in the units. PSNH will have a 35.23% +

interest in the units if all such reductions are completed. PSNH has advised the Company that as of March 3, 1981 each acquiring utility had obtained all regulatory approvals necessary to acquire its interest, and that reduction of PSNH's interest had begun with respect to each such utility, except in the case of one Massachusetts utility (0.33445%) for which local municipal approvals had not been received, and a New Hampshire electric cooperative (2.17391%) for which NHPUC approval had not been

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received. Other owners of Seabrook have indicated a desire to reduce their ownership shares. Offers to sell by PSNH and other owners are expected to affect adversely CL&P's ability to reduce its ownership (approximately 4%) further.

On January 30, 1981, CL&P sold to a Massachusetts utility a la MW interest (0.4% +) in the Seabrook plant. The sales price was approximately $5,636,000. On October 30, 1980, the Massachusetts Depart-ment of Public Utilities (DPU) denied another Massachusetts utility's petition to purchase an additional 23.8 MW interest (1.07 +) from CL&P, on the ground that the prospective purchaser had failed to prove its financial capacity to fund the purchase. CL&P is not actively seeking offers to Ourchase its remaining interest, although it is still willing to reduce or dispose of its interest on terms satisfactory to it. No

other utilities have recently expressed an interest in purchasing CL&P's l interest.

In 1980, construction of one or both Seabrook units was delayed for extended periods on several occasions because of PSNH's l

• decision in March, 1980 to reduce substantially the overall level of l construction, because of an order (later amended) of the New Hampshire Public Utility Commission (NHPUC) that required PSNH to postpone for three years construction of Seabrook Unit No. 2 other than work common to both units, and because of a ten-week ironworkers' strike. These l f3 l \s_/

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1

reduct ions and delays have adversely affected the scheduled in-service dates and construction cost estimates. PSNH is currently under an order of the NHPUC preventing it from expending further funds on the construc-tion of Seabrook Unit No. 2 until receipt of necessary regulatory approvals for the acquisition by certain Massachusetts utilities of a portion of ,

PSNH's interest in the Seabrook units and until reduction of PSNH's

, interest begins. As of March 3, 1981, these conditions had not been entirely satisfied, so full construction activity at both units had not ,

resumed.

If the remaining regulatory approvals required to permit PSNH to reduce its ownership interest are not received (and some approvals have been denied on previous occasions), or if PSNH's financing program cannot be carried out, the in-service dates for one or both of the Seabrook units might be deferred further, or construction of the units might be further delayed or suspended until PSNH's financial problems are resolved.

Fuel for Generating Stations Oil In 1980 apprcximately 18,600,000 barrels of oil were consumed in the generation of electricity provided to the System's customers.

This amount includes more than 2,000,000 barrels of oil estimated to have been used to generate power purchased in 1980 from other utilities.

Oil-fired generation produced approximately 47% of the electricity provided to the System's customers in 1980. The System's storage capacity is approximately 3,000,000 barrels of oil and the inventory is generally sufficient for approximately 45-days of operations.

While the System is currently able to obtain its full oil requirements, instability in world oil supplies makes the adequacy of future supplies less certain. More than 60% of the oil for the System's generating units is purchased ander a contract with Amerada Hess Corpora-tion which expires in August 1982 but may be renewed from year to year by mutual agreement. The contract is for a specific quantity of oil but the price may increase or decrease since it is based on a specified discount from the posted price. The balance of System oil requirements is purchased under contracts for one year or less. The cost per barrel has increased substantially from approximately $14.50 per barrel in December, 1978 to approximately $30 per barrel at the end of 1980 and approximately $39 at March 3, 1981. The cost is expected to rise even higher in the current year.

Coal The Company does not presently operate any coal-burning electric generating units. It has studied the cost, availabil.ity and sources of O'

coal supplies and transportation services, and has conducted preliminary negotiations with potential suppliers, in preparation for the possible conversion of one or more units from oil to coal. See " Construction and Financing Program--Conservation and Coal Conversion". The Company believes that, if any or all of the units are converted, the capacity of available surface transportation, marine transportation and coal production

. will be adequate for its requirements.

Nuclear Fuel To the extent indicated below, there are outstanding contracts for uranium concentrates and conversion, enrichment and fabrication for the System's existing and planned units, and the other units in which the Company is participating, which cover the units' requirements through the following years:

Uranium Conversion to Concentrates Hexafluoride Enrichment Fabrication Connecticut Yankee 1986 1985 1995 1986 Maine Yankee (1) 1986 1982 2000 1984 Vermont Yankee (1) 1982 1982 2001 1983 Yankee Atomic (1) 1986 1982 1999 1983 Seabrook Unit No. 1 (1) 1985 1987 2009 1987 Seabrook Unit No. 2 (1) 1985 1987 2011 1987 Millstone Unit No. 1 1987 1989 2001 1992

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~ Millstone Unit No. 2 1986 1989 2001 1986 Millstone Unit No. 3 1990 1989 2014 1993 (1) The information in the table for these units has been furnished to the Company by the utility company having responsibility for otera-tion of the unit.

The Company expects that uranium concentrates and related services for periods not covered by existing contracts will be avail-able, although their availability will require that suppliers develop additional capacity.

Nuclear Waste Disposal and Decommissioning Costs Costs astociated 5 5 nuclear plants include amounts for the disposition of nuclear wastes, including spent fuel, and for the ulti-mate decommissioning of the plants. The Company reflects in its nuclear fuel expense the DOE's estimated cost of spent fuel disposal. This provision for spent fuel disposal has been accepted by the Connecticut Department of Public Utility Control (DPUC) in rate case decisions and is reflected in the wholesale fuel adjustment charges approved by the

• FERC. Such provisions, which reflect increases over previous levels, also include amortization, over a ten-year period, of the estimated 7- disposal cost of accumulated spent nuclear fuel.

r Although in planning their nuclear generating plants the System companies had expected that spent fuel would be reprocessed in commercial facilities, federal policy under the Carter alministration had f avored an indefinite postponement of commercial reprocessing.

• Operating nuclear generating plants would therefore need to retain spent fuel on-site longer than had been anticipated. Each of the operating nuclear plants listed under " Operations - Fuel for Generating Stations" is expected to have adequate storage capacity on site until at least the mid-1980's. The storage facilities for Connecticut Yankee and the Millstone Units, including facilities currently under construction at Millstone Unit No. 3, are expected to be adequate until at least the mid-1990's, by which time government storage and waste repository facilities are expected to be available to accept spent fuel. I f government storage or waste repository facilities are not available, the Company may incur substantial additional costs in developing alternate storage arrangements.

Although the Carter administration had announced specific proposals for the disposal of nuclear wastes, no definite action was taken and the Reagan administration has not yet taken any formal actions.

The Nuclear Regulatory Commission (NRC), along with other federal agencies, has been in the process of developing regulations and guide-lines in this area. There may be additional costs (above those presently accepted by regulatory authorities) associated with the disposal of nuclear wastes, including spent fuel, from each of the nuclear plants in which the Company has an ownership interest.

The Company estimates decommissioning costs for its interest in nuclear units on the basis of complete dismantlement at retirement.

The estimated decommissioning costs on this basis for Millstone Unit Nos. 1 and 2 and Connecticut Yankee are in the range of $65-80 million per unit, in 1980 dollars. If alternative or additional decommissioning arrangements are required, these cost estimates may increase. Only the portion of the presently estimated total decommissioning costs which has been accepted by regulatory agencies is reflected in CL&P's depreciation expense. See note 1 to financial statements.

RATES General CL&P's retail electric and gas rate schedules are subject to the jurisdiction of the DPUC. Its wholesale electric rates are subject to the jurisdiction of the FERC.

Retail Rates Connecticut law affords the DPUC 150 days to act upon a proposed rate increase. If the DPUC does not act within that period, O

1

(,~) the proposed rates may be put into effect subject to refund. Interim rate increases, subject to refund, may be approved by the DPUC after a public hearing if they are found to be necessary to prevent substantial

- and material deterioration of the financial condition, or the adequacy and reliability of service, of a utility. Under Connecticut law, the DPUC is required to conduct a complete review and investigation of, and

, to hold a public hearing on, the financial and operating results of each electric and gas utility at least once every two years to determine whether an increase or decrease in the level of the utility's rates is required.

In October 1980, the DPUC granted CL&P an annual retail rate increase of approximately $81,600,000. CL&P's electric rates increased by an average of 13.1% and its gas rates by an average of 8.2%. CL&P had requested an increase of $111,400,000.

In its decision, the DPUC authorized a 14.5% return on common equity and approved accounting changes permitting the Company to accrue AFUDC on a net-of-income tax basis and to normalize certain tax timing differences previously treated on a flow-through basis. See note 1 to financial statements. The approved accounting changes represented approximately $26,200,000 of the total increase. The decision also recognized certain adjustments to historical test year data to reflect some of the conditions anticipated by the Company during the first year the amended rate schedules will be in effect, including an allowance for

[~~} inflation of operation and maintenance expenses, increased rate bases

\m / and changed capitalizations. The DPUC also ordered no increase in the existing residential customer charge, flat residential rates and time-of-day rates with a 30 per kWh on peak /off peak differential.

The DPUC further ordered the Company to file timetables and plans for implementing a conservation program in accordance with guidelines set forth in the order. The System's conservation and load growth management plan--outlined under " Construction and Financing Program--

Conservation and Coal Conversion"--was developed in part to respond to this requirement.

The Connecticut Division of Consumer Counsel has appealed from the DPUC decision in the 1980 rate case, alleging error on the part of the DPUC solely with respect to the approval of tax normalization and net-of-income tax AFUDC. The Company has appealed the decision solely with respect to the allowed return on common equity.

Following the completion of the 1980 rate case, the DPUC ordered hearings on electric heating customers' complaints about the

• DPUC-ordered flattening of residential rates. Ilearings in this proceeding began in February, 1981. It is not expected that this proceeding will result in significant changes in CL&P's total revenues, although it may

. result in reallocation of revenues among classes of residential customers.

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Since August 1, 1979, CL&P's retail rate scheduies have included a generation utilization adjustment clause. Monthly, this clause levels the effect on fuel costs caused by variations from a 70% generation capacity factor for the nuclear units in which CL&P has entitlements. .

At the end of the twelve-month period ending July 31 of each year, any deferred balance resulting from the actual nuclear generation capacity factor for that period being below or above 70% will be either collected ,

from or refunded to customers over the subsequent twelve-month period.

However, the clause does not permit collection from customers to the extent that the nuclear generation capacity factor is less than 55% in the twelve-month period. For the period August 1, 1979 to July 31, 1980, the nuclear generation capacity factor was 71.2% resulting in a refund to customers of $2,354,000 over the succeeding' twelve months.

For the five months ended Decemb 31, 1980, the factor was 53.67 Nuclear performance in the period has been below previous opera-ing experience because certain nuclear units in which the Company has interests have been out of operation longer than had been anticipated for refueling, modifications and repairs.

The Compary expectes to file an application with the DPUC for additional rate relief by mid-1981.

Fuel Adjustment Clauses The Company has fuel adjustment clauses applicable to its retail and wholesale electric rates, and a purchased gas adjustment clause applicable to its retail gas rates.

Public proceedings are required by the DPUC cach month on the charges proposed for the following month under retail fuel adjustment , , ,

clauses and purchased gas adjustment clauses. Monthly fuel and gas adjustment charges are also subject to retroactive review and appropriate adjustment by the DPUC each quarter at f ull public hearings. The clauses only allow recovery of changes in prices of fossil fuel. Any other changes affecting energy costs are not covered by the clauses.

Oil Conservation Adjustment In 1979, discussions among Massachusetts officials and Northeast Utilities on the subject of converting oil-burning plants in that state to coal led to the development of the concept of an oil conservation adjustment (OCA) to assist in the financing of conversion costs. The OCA is a mechanism by which two-thirds of the fuel cost savings per kWh resulting from the conversion would be collected through rates and retained by the utility company until the full cost of conversion is .

paid. CL&P and other System companies are in the process of obtaining the regulatory approvals necessary to incorporate the OCA in retail and wholesale rates in order for HWP's Mt. Tom station to be converted to ,

coal. See " Construction and Financing Program--Conservation and Coal Conversion" for information about the conversion costs for this unit.

9

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

Wholesale Rates On August 29, 1980, Connecticut Yankee Atomic Power Company, of which the Company has a 25% stock ownership, submitted for filing with the FERC contracts amending the contracts under which the sponsoring utilities, including CL&P, HELCO and WMECO, purchase the output of the

! . Connecticut Yankee generating unit. The amendments provide for a variable, j rather than a fixed, rate of return on net unit investment which will fluctuate with changes in long-term interest costs and preferred stock l dividends paid by Connecticut Yankee. The amended rates would yield an annual increase of approximately $12,839,000 above currently allowed rates, and approximately $6,960,000 above currently collected revenues.

On October 28, 1980 the FERC accepted for filing and suspended for five months the rate changes reflected in the proposed amendment. The rate changes will become effective April 1,1981, subject to refund. Connecticut Yankee expects to file a settlement proposal with the FERC under which the proposed increase of $12,839,000 per year would be reduced by $6,492,000 annually.

See " Legal Proceedings" for a description of litigation and administrative proceedings involving retail and wholesale rate cases for years before 1980 I

REGULATORY AND ENVIRONMENTAL REQUIREMENTS AND PROCEEDINGS Public Utility Regulation Northeast Utilities is registered with the SEC as a holding

! company under the Public Utility Holding Company Act of 1935. Under that Act, the SEC has jurisdiction over Northeast Utilities, the Company and other System companies with respect to, among other things, securities

! issues, sales and acquisitions of securities and utility assets, inter-company loans, services performed by and for associated companies, accounts and records, and dividends.

CL&P is subject to regulation by the DPUC, which has jurisdiction, among other things, over rates, accounting procedures, certain dispositions of property and plant, mergers and consolidations, securities issues, standards of service, management efficiency, and construction and operation t

of generation, transmission and distribution facilities.

4 The Company is subject to the general supervision of the DPU with respect to all dealings with WMECO and HWP, and to the jurisdiction of the NHPUC for limited purposes in connection with its ownership interest in the Seabrook units.

• The Company is a public utility under Part II of the Federal Power Act and is subject to regulation by the FERC with respect to, among other things, interconnection and coordination of facilities, wholesale rates and accounting procedures.

N

l The Company incurs substantial capital expenditures and operating expenses to comply with environmen'.al, energy, licensing and other regu-latory requirements, including those described in the following sub-sections, and it expects to incur additional costs to meet further developments in these and other areas of regulation. Because of the continually changing nature of regulation affecting the Company, the total amount of these costs is not now determinable. Compliance with existing and proposed regulation also affects the time needed to complete -

new facilities or to modify present facilities, and it affects the Company's rates, sales, revenues and net inccme, all in ways that may be substantial but are not readily calculable.

Environmental Impact Requirements The National Environmental Policy Act of 1969 (NEPA) requires that detailed statements of the environmental effect of generation and transmission facilities be prepared in connection with various appli-cations to the FERC, the NRC and other federal agencies for licenses or permits to construct or operate the facilities. NEPA requires that federal licensing agencies make an independent environmental evaluation of the proposed action.

NRC Nuclear Plant Licensing As a holder of licenses to construct or operate nuclear reactors, CL&P is subject to the jurisdiction of the NRC. The NRC has broad regulatory and supervisory jurisdiction over the design, construction and operation of nuclear generating stations, including matters of public health and safety, financial qualifications, antitrust considerations and environmental impact.

After the 1979 accident at the Three Mile Island, Pennsylvania nuclear generating station (TMI), rigorous reexaminations of nuclear plant construction and operations have been undertaken by governmental commissions, industry groups and individual utilities. The NRC has promulgated numerous requirements in response to TMI, and other initiatives have resulted from the System's and the industry's own examinations.

Based on engineering reviews and plant modifications completed to j date, it is anticipated that modifications to the Connecticut Yankee l Unit and Millstone Unit Nos. 1 and 2 costing approximately $8,000,000, l $5,000,000 and $5,000,000, respectively, will be made and that the I

capital costs of Millstone Unit No. 3 and the Seabrook units will be increased by approximately $1,500,000 and $2,000,000, respectively. An additional $3,600,000 and $2,600,000 will also be expended by Connecticut Yankee and the System companies, respectively, for changes required in the emergency response planning and notification systems for each plant '

site. It is anticipated that additional changes in nuclear plant construc-tion, including further backfitting of existing plants, and in nuclear plant operations will be ordered by the NRC. The System companies' actions and changes in NRC requirements will also result in increases in O

F D.

(m,) the capital expenditures and operating costs associated with the nuclear plants in which they have entitlements. Some equipment modifications have required and may in the future require shutdowns or deratings of the plants which would not otherwise be necessary and which will result in additional costs for replacement power. The amounts of increased capital expenditures and operating costs, including costs of replacement

. power, may be substantial but cannot be determined at this time.

Following the TMI accident, numerous class actions and several individual actions were filed in the U.S. District Court for the Middle District of Pennsylvania and elsewhere, seeking damages as a result of that accident. If the provisions of the Price-Anderson Act are held to apply to the accident, and if total third party damage claims resulting from the accident exceed the private insurance pool coverage of $160,000,000, then the System companies would be required to pay their share of the excess.

The System companies' share would be a maximum of $5,000,000 for each of the two operating Millstone units, plus their pro rata share of a maximum of $5,000,000 for each of the other operating nuclear units in which they have an ownere ip interest. See note 11 to financial statements for information about the Company's insurance arrangements for the costs of replacement pcyer resulting from nuclear incidents.

An application for a full term (40 years from initial licensing) full power operating license for Millstone Unit No. 1, which is presently operating under a provisional license, is pending before the NRC.

e,~, J Millstone Unit No. 2 and the Yankee Atomic, Connecticut Yankee, Maine

\d Yankee and Vermont Yankee units have full term full power operating

l. licenses. A construction permit for Millstone Unit No. 3 was issued by the NRC in August 1974 and expires December 30, 1985. It is expected that an operating license will be obtained, or that the construction permit will be extended, before the current expiration date.

NRC construction permits for Seabrook Unit Nos. 1 and 2 were l issued in 1976. On September 25, 1980 the NRC ordered the Atomic Safety l and Licensing Appeal Board to reopen its record on the seismic design of i the Seabrook plant, to take additional, limited evidence and to reconsider l

its approval of the design. A tentative hearing date of April 16, 1981 has been set. PSNH has advised the Company that it is not able to predict the outcome. The construction and licensing of these units has been subjected to lengthy delays associated with administrative proceedings, numerous lawsuits, financial constraints, work stoppages and demonstrations at the construction site. See " Operations--Joint Projects" for further I information about Seabrook.

i In November,- 1980 the Court of Appeals for the District of l* Columbia Circuit ruled that, if requested, a hearing must be held before

! any amendmer.t to a nuclear plant construction permit or operating license is issued. It is anticipated that this case will be appealed to the U.S.

• Supreme Court. If the decision is not overturned, the issuance of license amendments may result in increased costs associated with licensing l

! G i

r actions. Extended public hearings for some licensing actions may result in delays affecting the continued operation or start-up after refueling of nuclear plants, which would result in substantial additional costs ,

for replacement power.

• The time required to construct major generating facilities, and to obtain required licenses and regulatory approvals, compels .

electric utilities (including the Company) to make substantial investments in facilities before final licenses and approvals are received. Completion  ;

of each of the three nuclear generating units now under construction in which the Company is participating depends, among other things, on obtaining necessary regulatory approvals, permits and sufficient financing.

Regulatory delay contributed to the cancellation of the Montague project, described under " Construction and Financing Progr a". While future developments could lead to cancellation of one or more of the other units, the Company considers this possibility unlikely. If any of the units were cancelled, the Ccmpany would apply to appropriate regulatory authorities for approval to amortize its share of total costs over a future period and to recover the costs through its rates. The Company cannot predict whether and to what extent such recovery would be permitted.

The effect of these matters on the scheuuled in-service dates or construction costs of the three nuclear generating units in which the Company is participating, or on the operation of other nuclear units in which the Company has ownership interests, cannot accurately be predicted.

They may delay or prevent construction, or require modifications or shutdowns, of the units, any of which could have a substantial adverse impact on the Company.

Water Quality Requirements The federal Clean Water Act (CWA) requires that every " point source" discharger of pollutants into navigable waters must obtain a National Pollutant Discharge Elimination System (NPDES) permit speci-fying the allowable amount of its effluent, based on the constituents of its effluent. To obtain an NPDES permit, a discharger must meet technology-based effluent standards and must also demonstrate that its effluent will not cause a violation of established standards for the physical and chemical quality of the receiving waters.

The initial NPDES permits for System generating units expired in 1979. New permits have been obtained for the Company's plants. The permits will expire in January 1985, except for the permit for the Millstone units, which expires in July 1985. The permits may be reopened to reflect more stringent requirements proposed by the EPA. Compliance -

with NPDES requirements has necessitated substantial expenditures and may require further expenditures in the future.

The CWA requires the DEP to approve the intake structure .

design and thermal discharge of generating plants. All Company plants have these approvals.

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In October 1980 the EPA proposed technology-based effluent standards for certain potentially toxic chemical pollutants discharged from electric generating facilities, as required by the CWA. The

• standards are expected to become effective in 1981. The major impact on the Company's generating units is expected to be from more stringent controls on the discharge of chlorine. Further chemical waste treatment

. facilities for the Company's generating plants may be required to comply with such standards.

The TMA's ultimate cost impact on the Company cannot be estimated because of uncessainties such as the impact of the proposed toxic pollutant standards. Additional modifications, in some cases extensive and involving i

substantial cost, may ultimately be required for one or more of the Company's generating facilities.

Air Quality Requirements Under the federal Clean Air Act (CAA), the EPA has promulgated national ambient air quality standards for certain air pollutants, including sulfur oxides, particulate matter and nitrogen oxide. With some exceptions, the EPA has approved a Connecticut implementation plan proposed by the DEP for the achievement, maintenance and enforcement of these standards. The Connecticut plan does not allow CL&P to burn oil having m,re than 0.5% sulfur content. The Company is seeking a variance from this requirement. On January 20, 1981, the DEP hearing examiner issued a report recommending that CL&P be permitted to burn oil with up

-('~'}

s_- to 2.2% sulfur content at its plants. If the Commissioner of Environmental Protection adopts the recommendation, the actions required to obtain EPA approval are not expected to be completed before mid m)81.

EPA and Connecticut regulations also include other air quality 1 standards, emission standards and monitoring, and testing and reporting requirements which apply to the Company's generating stations. They require that new or modified fossil fuel-fired electric generating units operate within stringent emission limits, and meet all state and federal air quality standards and regulations for the prevention of significant deterioration of air quality. These regulations could hinder or possibly preclude the construction of new or modification of existing fossil units in the Company's service area.

Toxic Substances and Hazardous Waste Regulations Pater the federal Toxic Substances Control Act (TSCA) of 1976, the EPA has issued regulations which control the use and disposal of polychloriaated biphenyls (PCBs), which are used as insulating fluids in many electric utility transformers and capacitors manufactured before TSCA prohibited any further manufacture of oore.FCB equipment. The Company has taken numerous steps to comply 4/ n these regulations and

• has incurred increased costs for dispoani of se: Eluids and equipment

- that are subject to the regulations. i ~t, -

af these steps, CL&P and f'

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other System companies are burning some waste oil with a low level of PCB contamination (between 50 and 500 parts per million) as supplemental fuel at HELCO's Middly.own Station Unit No. 3. The EPA and DEP have approved this disposal method, but the City of Middletown, Connecticut, has sought an injunction against the method and a reversal of the DEP approval. The City's application for an injunction was denied on January 23, 1981, but the City has filed a notice of appeal with the Connecticut .

Supreme Court.

Disposal of fluids with a concentration of PCBs hQner than 500 parts per million, or of materials (such as capacitors) that contain such fluids, must be burned in high temperature incinerators approved by the CPA. Two such incinerators have recently been approved. In 1980 the System's cost for disposing of PCB materials in a chemical waste landfill was approximately $45,000. Since most PCB materials will be sent to incinerators in the future, the Company anticipates that its PCB disposal costs will increase.

Under the federal Resource Conservation and Recovery Act (RCRA) of 1976, the generation, transportation, storage, treatment and disposal of hazardour wastes and the disposal of some nonhazardous wastes have become subject to new EPA regulations issued in 1980. The procedures by which the Company handles, stores and disposes of hazardous waste products are being revised, where necessary, to comply with these regulations.

FERC Hydro Project Licensing System operating companies hold licenses granted under Part I of the Federal Power Act for the operation and maintenance of four existing hydroelectric projects, including the Northfield project ir.

which CL&P has a 53% interest. They also have applications pending on five other existing projects, four of which the Company owns and operates.

The FERC has held that no license is required for one other existing project, CL&P's Tunnel project. CL&P currently holds a preliminary permit ..om the FERC to study the feasibility of constructing a hydro-electric facility at Derby, Connecticut. The Company is also considering a number of other sites with hydroelectric potential.

Federal Power Act licenses may be issued for terms of fifty years or less as determined by the FERC. Any plant so licensed is subject to recapture by the United States or licensing to others, af ter expiration of the license, upon payment to the licensee of the lesser of fair value or the net investment in the project plus severance damages les:: certain amounts earned by the licensee in excess of a reasonable rate of return. Licenses are customarily conditioned on the licensee's

• development of recreational and other non power uses at each licensed plant. Conditions may be imposed with respect to low flow augmentation of streams and fish passage facilities.

O l

State Generation and Transmission Siting Laws Construction or modification of electric generation and trans-mission facilities and certain other utility facilities in Connecticut may not be started without a certificate of environmental compatibility and public need from the Connecticut Power Facility Evaluation Council

. (PFEC).

The Company is faced with a DEP order to place underground the existing transmission lines at a river crossings in Connecticut. The order has been appealed to the courts, and the outcome of the proceeding cannot be predicted.

PFEC has conducted hearings on the feasibility and cost of requiring overhead transmission and distribution lines to be undergrounded as a general practice in Connecticut. If a significant part of the Company's transmission and distribution lines were required to be installed underground, substantial additional costs would be incurred. No action has been taken in this proceeding in the last several years, so its outcome is not known.

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Item 2. Properties Except for its interests in the Northfield Mountain pumped storage plant and the Seabrook plant, the Company's present utility system is located wholly within the state of Connecticut. The principal

• plants and other properties comprising its system, of which certain substation equipment, data processing equipment, vehicles and office space are leased, are located either on land which is owned in fee or on .

land, as to which the Company owns perpetual occupancy rights adequate to exclude all parties except possibly state and federal governments, which has been rec 1; ed and filled pursuant to permits issued by the U.S. Army Corps of ,incers. Substantially all of the property is subject to the lien at the Company's indenture securing its outstanding mortgage bonds, and to certain other liens, encumbrances and minor restrictions, none of which impairs the usefulness of such properties in the Company's business. With few exceptions, lines and mains are located on or under streets or highways, or on properties either owned or leased by the Company or occupied under rights obtained from the owners.

As of December 31, 1980, the electric generating plants of the Company and the Company's ownership interests and entitlements from the generating plants of the four Yankee regional nuclear generating companies in which the Company is one of the common stockholders were as follows:

Name Plate Net Year Rating Capability Name, Town, Location Type Installed (Kilowatts) (Kilowatts)

Millstone Plant Nuclear 1970 350,595(a) 349,800(a)

(Waterford-Long Island 1975 482,247(a) 461,100(a)

Sound) 832,842 810,900 Montville Plant Steam 1954-1971 489,900 492,000 2 Diesels 1967 5,500 5,500 (Montville-Thames River) 495,400 497,500 1972-1973 448,380(a) 530,000(a)

Northfield Plant Pumped (Northfield and Erving, Storage "

Massachusetts-Connecticut River)

Steam 1942-1958 429,000 463,000 Devon Plant '18,700 1966 16,320 (Milford-Housatonic River) Gas Turbine 445,320 481,700 Steam 1960-1963 326,400 338,000 Norwalk Harbor Plant "

(Norwalk-Long Island Sound) Gas Turbine 1966 16,320 17,000 342,720 355,000 Hydro 1955 37,200 47,000 -

Shepaug Plant (Southbury-Housatonic River) 9

Name Plate Net Year Rating Capability

/~')N ks- Name, Town, Location Tyge Installed (Kilowatts) (Kilowatts)

Rocky River Plant Pumped 1928-1952 31,000 29,000 (New Milford-Housatonic Storage River)

. Stevenson Plant Hydro 1919-1936 30,500 28,700 (Monroe-Housatonic River) 5 Small Hydro Plants 1903-1937 14,660 14,100 7 Gas Turbine Plants 1953-1969 153,532 172,800 Total Company Generating Plants 2,831,554 2,966,700 Regional Nuclear Generating Plants (Ownership Interests and Entitlements of the Company)

Connecticut Yankee Atomic Power Company (Connecticut)

(25% ownersuip interest and entitlement) Nuclear 1968 150,075 145,000

) Maine Yankee Atomic Power

/ Company (Maine)

(8% ownership interest and 7.2% entitlement)(b) Nuclear 1972 58,193 59,600 Vermont Yankee Nuclear Power Corporation (Vermont)

(6% ownership interest and 5.4% entitlement)(b) Nuclear 1972 30,398 28,500 Yankee Atomic Electric Company (Massachusetts)

(15% ownership interest and entitlement) Nuclear 1961 27,750 26,400 Total Regional Nuclear Generating Flants 266,416 259,500 Total Generating Plants 3,097,970 3,226,200' (a) Represents Company's 53% share as tenant in common with other System companies.,

(b) Ownership interests and entitlements differ due to agreements with several municipalities to purchase a portion of the generation from O these plants.

As of December 31, 1980, the Company had 22 transmission substations with an aggregate capacity of 9,795,489 kVA and 192 distri-bution substations with an aggregate capacity of 4,502,307 kVA. Its transmission system included 226 circuit miles of overhead 345 kV lines, 876 circuit miles of overhead 115 kV lines, 63 circuit miles of overhead ,

69 kV lines, 40 cable miles of 138 kV submarine cable and 35 cable miles of underground 115 kV cable. The Company's distribution system included 13,093 pole miles of overhead lines and 267 conduit bank milea of under-ground lines. It has in service 150,195 line transformers with an aggregate capacity of 5,619,253 kVA.

As of that date the Company had 6 propane plants, 3 LNG holders, 7 gas storage holders with a total capacity of approximately 6,500 Mcf and approximately 1,747 miles of gas distribution mains. See " Operation-Gas" under " Item 1. Business".

From January 1, 1976, through December 31, 1980 the Company made gross property additions and betterments to utility plant aggregating

$665,857,000 and retired or sold property Laving an aggregate cost of

$154,785,000, resulting in net additions during that period of $511,072,000.

The Company occupies owned or leased office buildings and service buildings which house offices, storerooms and garages.

The Company's properties are well maintained and in good operating condition.

Subject to the power of alteration, amendment or repeal by the General Assembly of Connecticut and subject to certain approvals, permits lh and consents of public authority and others prescribed by statute, the Company, in the opinion of its counsel, has, subject to certcin exceptions not deemed material, valid franchises free from burdensome restrictions to sell electricity and gas in th'e areas in which it is now supplying such service.

In addition to the right to sell electricity and gas as set forth above, the franchises of the Company include, among others, rights and powers to manufacture, generate, purchase, transmit and distribute electricity and gas, to sell electricity and gas at wholesale to other utility companies and municipalities and to erect and maintain certain facilities on public highways and grounds, all subject to such consents and approvals of public authority and others as may be required by law.

The franchises of the Company include the power of eminent domain.

Item 3 Legal Proceedings Six manicipal electric systems in Connecticut which have been ,

furnished firm wholesale electric service by CL&P have engaged in litigation and administrative proceedings with CL&P over rates and other matters.

See " Operations - Electric" under " Item 1. Business" for information

• about new arrangements with three of the municipal customers (Groton, Norwich and Jewett City; the " Eastern Customers"), effective October 1, 1980.

4 On August 27, 1980, the United States District Court for Connecticut issued a decision denying the claims of three of the municipal customers g (Wallingford, East Norwalk and South Norwalk; the " Western Customers"),

in a 1973 antitrust action against Northeast Utilities, CL&P, HELCO and the Service Company. The Western Customers have appealed the decision w to the United States Court of Appeals for the Second Circuit. .The Eastern Customers had also been plaintiffs in that action, but their claims were settled and the action was dismissed as to them in 1979.

CL&P's R-3 wholesale rate was collected from March 2, 1976 to February 1, 1979. On November 21, 1980, the FERC issued a decision that will result in the refund of approximately $565,000, plus interest, of the revenues that were collected by CL&P under the R-3 rates. The Western Customers have applied for reconsideration.

CL&P's R-4 wholesale rates have been collected since February 1, 1979, subject to refund. The rates are estimated to increase CL&P's charges to customers by $2.3 million per year. CL&P has. reached a settlement agreement with the Eastern Customers on all issues under the R-4 rate, and it has settled all issues other than rate design and price squeeze with the Western Customers. The settlements were approved by the FERC on May 5, 1980, and resulted in a refund of approximately

$543,000, plus interest. The Western Customers have challenged CL&P's computation of refunds _under the settlement. On February 19, 1981 the FERC affirmed an administrative Irw judge's decision on the challenged rate design, which the Western Customers had appealed to the full Commission.

A separate hearing on pr ce squeeze issues may follow, b)

(, PSNH and the other owners of the Seabrook project, including CL&P, have been sued by Getty Oil Company over a contract for Getty Oil Company-to supply uranium for the Seabrook project. The complaint was filed on January 21, 1981 in the United States District Court for the Central District of California, alleging breach of contract and several violations of antitrust laws, including price-fixing and refusals to deal. The plaintiff seeks an order declaring that the contract is valid and en-forceable, and an injunction against antitrust violations. The plaintiff also seeks damages of more than $5,000,000 plus interest and attorneys fees, to be trebled in accordance with the antitrust laws.

PSNH, CL&P and the other Seabrook owners have filed an answer and counterclaim in the California action alleging, among other things, that Getty violated the' antitrust laws. In addition, on January 30, 1981, the Seabrook group brought an antitrust action'against Getty and other uranium producers in the United States District Court for the Northern District of Illinois. The Seabrook group has moved to have the California and Illinois actions consolidated with pending uranium antitrust litigation in Chicago involving Westinghouse Electric Corporation, the Tennessee

. Valley Authority and various uranium producers.

In December 1980 the Connecticut Division of Consumer Counsel withdrew its challenge of the 1979 CL&P and RELCO rate decisions. The

~

Division had alleged that certain discussions between members of the DPUC panel that rendered the decisions violated the Connecticut Freedom of 'Information Act.

The following sections of " Item 1. Business" discuss additional legal proceedings: " Operations--Joint Projects--Seabrnak" for information about proceedings relating to the Seabrook nuclear electric generating units in which CL&P has an ownership interest; " Construction and Financing Program--Conservation and Coal Conversion" for information about pro- '

hibition orders that may affect the companies' oil-burning electric generating units; " Rates" for information about other rate and fuel adjustment clause proceedings; and " Regulatory and Favironmental Requirements and Proceedings" for information about possible contingent -

liabilities of CL&P, HELCO and WMECO for danages resulting from the TMI accident, litigation over the System's plans for PCB disposal and proceedings involving river crossings of transmission lines.

Item 4. Security Ownership of Certain Beneficial Owners and Management As of December 31, 1980, the Directors of the Company beneficially owned the following number of Common Shares of Northeast Utilities, a registered public utility holding company which holds all of the issued and outstanding Common Stock of the Company. There were 68,212,316 shares of Northeast Utilities outstanding at December 31, 1980. Each of the following represents an amount which is less than one percent of the total Common Shares outstanding.

Amount of Northeast Utilities shares Beneficially Name Owned

• by Directors William B. Ellis 1,500 Walter F. Fee 1,313 E. James Ferland 1,682 Leon E. Maglathlin, Jr. 200 Herbert W. Sears 753 Lelan F. Sillin, Jr. 5,000 Peter M. Stern 1,424 Donald C. Switzer 2,635 Walter F. Torrance, Jr. 4,339 Anthonv E. Wallace 8,333 Amount Benefically Owned

• by Directors and Executive Officers as a Group (consisting of 13 individuals) 26,244

• As that term is interpreted by the Securities and Exchange Commission.

e 9

l PART II f^s

, Item 5. Market for the Registrant's Common Stock and Related Security Holder Matters All of the common stock of CL&P is- owned by Northeast Utilities.

There is no active market in the common stock.

The dividends paid by the Company for the past two years by quarters are shown below:

Year Quarterly Dividend Per Share 1979 First Quarter $0.8775

, Second Quarter 0.8775 Third Quarter 1.0000 Fourth Quarter 0.9600-1980 First Quarter 0.9100 Second Quarter 0.9800 Third Quarter 1.3000 Fourth Quarter 1.3200 Information with respect to dividend restrictions, which is incorporated herein by reference, is contained on page 14 of the Company's Annual Report to Stockholders as a note to the " Statements of Common Stockholder's Equity" and made a part of this report as N

Exhibit 13.

Item 6. Selected Financial Data This information, which is incorporated herein by reference, is contained on page 27 of the Company's Annual Report to Stockholders which is attached and made a part of this report as Exhibit 13.

Item 7. Management Discussion and Analysis of Results of Operations and Financial Condition This information, is contained on pages 2 through 9 of the Company's Annual Report to Stockholders, which is attached and made a part of this report as Exhibit 13.

Item 8. Financial Statements and Supplementary Data The following financial statements of the Company, which are

. incorporated herein by reference are included on pages 10 through 27 of the Annual Report to Stockholders and made a part of this report

as Exhibit 13.

Report of Independent Public Accountants.

1

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

Statements of Income for the years ended December 31, 1980, 1979 and 1978.

Statements of Sources of Funds for Gross Property Additions for the years ended December 31, 1980, 1979 and 1978. .

Balance Sheets at December 31, 1980 ar.d 1979.

Statements of Common Stockholder's Equity for the years ended December 31, 1980, 1979 and 1978.

Notes to Financial Statements.

Statements of Quarterly Financial Data.

Item 9. Directors and Executive Of ficers of the Registrant The following information is provided with respect to each director and executive officer of the Company as of December 31, 1980. The terms of each position expire as of the Annual Meeting in 1981, except as otherwise noted.

First First Became Elected an as a Name Ag e_ Position Officer Director Lelan F. Sillin, Jr. 62 Chairman, Chief 4/14/69 3/20/68 Executive Officer; Director Donald C. Switzer 64 Vice Chairman and Dir. 10/01/75 1/25/71 William B. Ellis 40 President, Chief 6/15/76 6/15/76 Operating Officer; Director Walter F. Fee 59 Executive Vice Pres.- 10/01/75 4/23/73 Engineering & Operations; Director E. James Ferland 38 Executive Vice Pres.- 5/01/80 5/01/80 and Chief Financial Officer; Director Anthony E. Wallace (1) 65 Executive Vice Pres.- 4/15/64 7/01/66 Regional Administration; Director William G. Counsil 43 Senior Vice President - 5/01/78 -

Engineering & Operations Leon E. Maglathlin, Jr. 54 Senior Vice President; 12/29/80 12/01/74 Director '

Herbect W. Sears 62 Senior Vice President - 3/01/77 11/01/78 Administrative Services; T' ector -

Walter F. Torrance, Jr. 53 Senior Vice President, 3/01/78 4/17/78 General Counsel and Assistant Secretary; Director rx First First

) Became Elected

( an as a Name Aggi Position Officer Director Philip T. Ashton 46 Vice President-Trans. 5/01/78 -

Engineering & Construction Warren F. Brecht 48 Vice President-Manage- 6/06/77 -

ment Information Systems and Controller Carroll A. Caffrey 54, Vice President - Human 7/18/79 -

Resources Raymond E. Donovan 50 Vice President-Customer 3/01/78 -

Services Francis L. Kinney 48 Vice President - Public 4/04/69 -

Affairs Jack R. McClendon 64 Vice President & General 4/01/78 -

Manager - Gas Leonard A. O'Connor 54 Vice President & Treas. 2/16/70 -

Walter T. Schultheis 54 Vice President-Power 7/18/79 -

Supply Planning and Research Peter M. Stern 55 Vice President - Cor- 5/01/78 12/20/71 porate & Environmental Planning; Director Robert W. Bishop 37 Secretary 5/01/78 -

(_ ,/ (1) Mr. Wallace resigned as an Executive Vice President and a Director effective upon his retirement on January 1, 1981.

Name Business Experience During Past 5 Yea,rs Lelan F. Sillin, Jr. Chairman since 197 ofoverallpolicy.g;responsiblefortheformulation Donald C. Switzer Elected Vice Chairman in 1978, previously Exectiive Vice President (1976) of an affiliate since 3 371; responsible for engineering and operations.

William B. Ellis Elected President in 1978, previously Vice President (1976); responsible for finance and administration.

Prior to joining the Compaay he was a partner in the Washington, D.C. office of the management consulting firmofMcKinney&Co.asprjncipal-in-chargeof the firm's utility practice.

• Walter F. Fee Elected Executive Vice President in 1978, previously Vice President (1975) of an affiliate since 1971.

E. James Ferland Elected Executive Vice President in 1980; beginning in 1964, held a variety of engineering positions including appointment as Station Superintendent at Millstone Nuclear Power Station in 1976; in 1978

[}

\ _- became Director-Rate Regulatory Project.

Name Business Experience During Past 5 Years Anthony E. Wallace First Elected Executive Vice President in 1966.3 William G. Counsil Elected Vice President in 1978; previously Plant

• Superintendent for the nuclear units (1974) and Project Manager for a third unit (1976).

Leon E. Maglathlin, Jr. Elected Vice President of an affiliate in 1969 and -

Chie Administrative Officer of that affiliate in 1974 Herbert W. Sears Elected Senior Vice President in 1980, having been elected Vice President in 1964.

Walt r F. Torrance, Jr. Elected Vice President in 1978; previously had been partner in the law firm of Carmody and Torrance in Waterbury, Connecticut and had representedtheCompanyanditsaffiliatesin regulatory and legal proceedings Fhilip T. Ashton Elected Vice President in 1978, previously Director of transmission engineering and construction of an affiliate.

Warren F. Brecht Elected Vice President in 1977 and Controller in 1979; previously had been Assistant Sacretary for Administration, U.S. Department of the Treasury.

Carroll A. Caffrey Elected Vice President in 1979; previously Director-Industrial Relations (1973) and Director-Human Resources Group (1978).

Raymond E. Donovan Elected Vice President in 1978; previously Director of Corporate Development of an affiliate since 1973.6 Francis L. Kinney First elected a Vice President in 1974 with respc,nsi-bilities including Corporate Secretary and Senior Counsel.

Jack R. McClendon Elected Vice President in 1978; previously Division Manager since 1973.

in Leonard A 0'Connor Electyd Treasurer in 1970 and Vice President 1975.

Walter T. Schultheis Elected Vice President in 1979; previously

• Director-Capacity Planning (1974) and Director-Research and System Planning (1577).

Peter M. Stern Elected Vice President of an affiliate in 1968 with responsibilities for corporate and environmental planning.

- Name Business Experience During Past 5 Years

%' Robert W. Bishop Elected Secretary in 1978, having been Assistant Secretary since 1977; previously had been associated with the Connecticut Energy Agency and the Connecticut Department of Planning and Energy Policy.

. Director of Irving Bank Corporation and its principal affiliate, Irving Trust Company, Hartford Steam Boiler Inspection and Insurance Company and Arthur D. Little, Inc.

2 Director of CBT Corporation and its principal subsidiary, The Connecticut Bank and Trust Company.

/

3 Director of Connecticut Water Service, Inc. Lohasco Corp. , Society for Savings and the Connecticut Mutual Life Insu::ance Co.

4 Director cf Thir( r.lonal Bank of Hampden County.

5 Director of MacDermid, Inc. , The Woodbury Telephone Company and The Connecticut National Bank.

6 Director of Central Bank for Savings.

/) 7 (s_/ Director of Bayback Valley Trust Company.

There are no f.imily relationships between any director or executive officer and any ot.'ter director or executive officer of the Company.

Item 10. Management Remuneration and Transactions

) The Company is a wholly owned subsidiary of Northeast Utilities, a regist.ered public utility holding company. All remuneration of officers of the Company, like other subsidieries of Northeast Utilities, is received in the form of salaries paid by Northeast Utilities Service Company.

All remuneration paid by the System and its subsidiaries during the year 19 3 .a _:r' of the five highest paid Trustees or officers of the System or executive officers or Directors of its subsidiaries, and to all Trustees and officers of the System or executive' officers or i Directors.of its subsidiaries as'a group, appears Delow.

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1

Cash and Cash-Equivalent Forms of Name of Individual Capacities in which Served (1) Remuneration (2)(3)

Lelan F. Sillin, Jr Chairman of the Board and Chief $ 209,333 Executive Officer of Northeast Utilities Donald C. Switzer Vice Chairman of Northeast Utilities $ 139,267 -

William B. Ellis President and Chief Oper ting Officer $ 135,767 of Northeast Utitilities Anthony E. Wallace Exccutive Vice President of Northeast $ 109,667 Utilities Service Company Walter F. Fee Executive Vice President of Northeast $ 97,000 Utilities Service Company All Trustees and executive officers of Northeast Utilities and its sub-sidiaries, as a group, consisting Ot 26 individuals os of 12/31/80. $1,291,833 (1) Each of the named individuals also served as an , (ficer and a Director of various subsidiaries of the System.

(2) No individuals receive benefits under life, he. c', hospitalization or medical reimbursement plans which are not available generally to all salaried employees.

(3) Not included are contributions by the System and its subsidiaries under the retirement plan si'nce such contributions cannot readily be calculated for individual participants in the plan. The aggregate contributions accrued in 1980 by the System and its subsidiaries on behalf of plan participants amounted to 14.64% of the total amount paid on wages to such participants. Additional information is set forth below.

(4) Employees of Northeast Utilities and its subsidiaries, including the officers listed in the table above, are entitled to receive retirement benefits under a plan which provides for defined benefits in the event of retirement at a specified age and after a specified number of years of service, except as mentioned below in the case of Mr. Sillin. Aggregate contributions are made annually to the retirement plan for the benefit of all employees covered by the plan. ,

The following table shows the estimoted annual retirement benefits payable under the retirement plan assur.ing that retirement -

occurs at age 65, which for the officers listed above will occur with 32, 32, 29, 32 and 28 years of credited service, respectively.

The benefits as presented do not take into account any reduction

'or joint and survivorship annuity payments.

Annual Pension for Years of Participation Indicated

-/ Average Annual Earnings

! For the Highest Consecu-tive 60 Months of Last 120 Months Prior to Years of Service Normal Retirement 25 30 35

• $ 75,000 $27,525 $ 33,030 $ 38,535 100,000 36,900 44,280 51,600 125,000 46,275 55,530 64,785 150,000 55,653 66,780 77,910 175,000 65,0 5 78,030 u ,035 200,000 74,430 89,280 1c4,160 225,000 83,775 100,530 110,625*

250,000 93,150 110,625* 110,625*

• The 1980 maximum benefit allowed under the Employee Retirement Income 4 Secirity Act of 1974 (2RISA).

(5) Mr. Sillin was President of Central Hudson Gas & Electric Corporation prior to joining Northeast Utilities as President in April,1968.

A contract entered into between Mr. Sillin and Nnrtheast Utilities Service Company at the time of his employment provides that Mr. Sillin's benefits upon retirement will be computed as if his period of service with and compensation payable from Central Hudson Gas &

Electric Corporation were counted as employment with and compensation from Northeast Utilities Service Company,.but that such benefits O will be reduced by the value of retirement benefits payable to Mr. Sillin vader Central Hudson's retirement plan. An additional accrual of 157,924 was made in 1980 to a separate reserve account t.o satisfy hortheast Utilities' supplementary obligation under this contract.

Directors of the Company do not receive any compensation for their service as a Director.

PART IV Item 11. Exhibits, Financial Statement Schedules and Reports on Form 8-K (a) 1. Financial Statements:

The Report of Independent Public Accountants and the financial state-ments of the Company included in the Annual Report to Stockholders are

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incorporated by reference in Item 8.

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2. Schedules:

V. Utility Plant (includin;: intangibles and excluding O Nuclear Fuel) years ended December 31, 1980, 1979 and 1978 ,

V. Nuclear Fuel - years ended December 31, 1980, 1979 and 1978 VI. Accumulated Provision for Depreciation of Utility Plant years ended December 31, 1980, 1979 and 1978 VIII. Reserves - years ended December 31, 1980, 1979 and 1978 X. Supple . cnta ry Income Statement Information - years ended uacember 31, 1980, 1979 and 1978 All other schedules of the Company for which provision is made in the applicable regulations of the Securities and Exchange Commission are not required under the related instructions or are inapplicable, and therefore have been omitted.

3. Listing of Exhibits:

Each document described below is incorporated by reference to the files of the Securities and Exchange Commission, unless the reference to the document is indicated by an asterisk.

Documents marked with a double asterisk refer to exhibits filed in the 1980 Form 10-K of Northeast Utilities (File No. 1-5324).

Exhibit Number Description 3 Articles of incorporation and by-laws 3.1 Charter and franchises of the Company and predecessor companies dated July 1, 1936. (Exhibit A.1, File No. 2-2477)

• 3.1.1 Supplement No. 1 to Charter of the Company dated January 1, 1955.

• 3.1.2 Supplement No. 2 to Charter or the Company dated October 22, 1975.

• 3.2 By-laws of the Company. ,

4 Instruments defining the rights of security holders, including indentures .

4.1 Indenture of Mortgage and Deed of Trust between CL&P and Bankers Trust Company, Trustee, dated as of May 1, 1921.

(Exhibit B-2, File No. 2-2477) 4 4.2 Collateral Indenture and Supplemental Indenture thereto, O dated as of May 1, 1921.

No. 2-2477)

(Exhibits B-3 and B-4, File

, Supplemental Indentures dated as of:

4.3 September 1, 1936. (Exhibit B-12, File No. 2-2477) 4

.- 4.4 October 20, 1936. (Exhibit B-13, File No. 2-2477) 4.5 August 31, 1944. (Exhibit B-18, File No. 2-5460) 4.6 September 1, 1944. (Exhibit B-19, File No. 2-5460) 4.7 May 1, 1945. (Exhibit B-20, File No. 2-5907) 4.8 October 1, 1945. (Exhibit B-21, File No. 2-5907) 4.9 November 1, 1949. (Exhibit B-22, File No. 2-8171) 4.10 December 1, 1952. (Exhibit B-23, File No. 2-10949) 4.11 December 1, 1955. (Exhibit B-24, File No. 2-13032)

]

4.12 January 1, 1958. (Exhibit B-25, File No. 2-14688) 4.13 Februery 1, 1960. (Exhibit B-26, File No. 2-16004) 4.14 April 1, 1961. (Exhibit 4.14, File No. 2-60806) 4.15 September 1, 1963. (Exhibit 4.15, File No. 2-60806) 4.16 April 1, 1967. (Exhibit 4.16, File No. 2-60806) l 4.,17 May 1, 1967. (Exhibit 4.17, File No. 2-60806) i 4.18 January 1, 1968. (Exhibit 4.18, File No. 2-60806) 4.19 October 1, 1968. (Exhibit 4.19, File No. 2-60806)

'I 4.20 December 1, 1969. (Exhibit 4.20, File No. 2-60806) 4.21 January 1, 1970. (Exhibit 4.21, File No. 2-60806) 4.22 October 1, 1970. (Exhibit 4.22, File No. 2-60806) 4.23 December 1, 1971. (Exhibit 4.23, File No. 2-60806) 4.24 August 1, 1972. (Exhibit 4.24, File No. 2-60806)

. 4.25 April 1, 1973. (Exhibit 4.25, File No. 2-60806) 4.26 March 1, 1974. (Exhibit 4.26, File No. 2-60806)

D k-- 4.27 February 1, 1975. (Exhibit 4.27, File No. 2-60806) 4.28 September 1, 1975. (Exhibit 4.28, File No. 2-60806) 4.29 May 1, 1977. (Exhibit 4.29, File No. 2-60806) 4.30 March 1, 1978. (Exhibit 2.30, File No. 2-68807) ,

• • 4.31 September 1, 1980. (Exhibit 4.2.31) 10 Material Contracts 10.1 Stockholder Agreement dated as of July 1, 1964 among the stockholders of Connecticut Yankee Atomic Power Company.

(Exhibit 13.1, File No. 2-22958) 10.2 Power Contract dated as of July 1, 1964 between Connecti-cut Yankee Atomic Power Company and CL&P, IELCO and WMECO. (Exhibit 13.2, File No. 2-22958)

• • 10.2.1 Form of Supplementary Power Contract dated as of March 1, 1978 between Connecticut Yankee Atomic Pcwer Company and each of CL&P, HELCO and WMECO. (Exhibit 10.2.1)

• • 10.2.2 Form of amendment to Supplementary Power Contract dated as of August 1, 1980 between Connecticut Yankee Atomic Power Company and each of CL&P, IELCO and htfECO.

(Exhibit 10.2.2) 10.3 Capital Funds Agreement dated as of September 1, 1964 between Connecticut Yankee Atomic Power Company and CL&P, IELCO and ht1ECO. (Exhibit 13.3, File No. 2-22958)

• • 10.3.1 Five Year Capital Contribution Agreement dated as of November 1, 1980 among the stockholders of Connecticut Yankee Atomic Power Company. (Exhibit 10.3.1)

• • 10.4 Stockholder Agreement dated December 10, 1958 between Yankee Atomic Electric Company and CL&P, HELCO and WMEC0.

(Exhibit 10.4) 10.5 Power Contract as amended through April 30, 1975 between Yankee Atomic Electric Company and CL&P, IELCO and kTECO.

(Exhibit 5.8, File No. 2-57327) 10.6 Research Agreement between Yankee Atomic Electric Company and CL&P, IELCO and WMECO. (Exhibit D-2, File No. 2-21154) 10.7 Millstone Plant Agreement dated as of June 30, 1966 among ,

CL&P, IELCO, htECO and The Millstone Point Company.

(Exhibit 13.6, File No. 2-26021) 10.7.1 Supplement to Millstone Plant Agreement dated as of December 1,1967 by and among CL&P, IELCO, WMECO and The Millstone Point Company. (Exhibit 7.10, File No. 2-60806) 10.7.2 Supplement to Millstone Plant Agreement dated as of

/ T December 1,1972 by and among CL&P, IELCO, WECO and The C Millstone Point Company. (Exhibit 7.11, File No. 2-60806) 10.8 Northfield Mountain Project Operating Agreement dated as of l'ebruary 14, 1968 among CL&P, IELCO and WECO.

(Exhibit 4.11, File No. 2-30018)

= 10.9 Capital Funds Agreement dated as of May 20, 1968 between Maine Yankee Atomic Power Company and CL&P, IELCO and WECO. (Exhibit 4.13, File No. 2-30018) 10.10 Power Contract dated as of May 20, 1968 between Maine Yankee Atomic Power Company and CL&P, IELCO and WECO.

(Exhibit 4.14, File No. 2--30018) 10.11 Stockholder Agreement dated as of May 20, 1968 among stockholders of Maine Yankee Atomic Power Company.

(Exhibit 4.15, File No. 2-30018) 10.12 Capital Funds Agreement dated as of February 1. 1968 between Vermont Yankee Nuclear Power Corporation and CL&P, HELCO and WECO. (Exhibit 4.16, File No. 2-30018) 10.12.1 Amendment to Capital Funds Agreement dated as of March 12, 1968 between Vermont Yankee Nuclear Power Corporation and CL&P, IELCO and WECO. (Exbibit 4.L7, File No. 2-30018)

( )

L' 10.13 Power Contract dated as of February 1, 1968 between Vermont Yankee Nuclear Power Corporation and CL&P, IELCO and WECO. (Exhibit 4.18, File No. 2-30018) 10.13.1 Amendment to Power Contract dated as of June 1, 1972 between Vermont Yankee Nuclear Power Corporation and CL&P, IELCO and WECO. (Exhibit 5.22, File No. 2-47038) 10.14 Sponsor Agreement dated as of July 1,1968 among the sponsors of Vermont Yankee Nuclear Power Corporation.

(Exhibit 4 '6, File No. 2-30285)

• • 10.15 Form of Service Contract dated as of July 1, 1966 between each affiliated company of the System and the Service Company. (Exhibit 10.15)

• • 10.15.1 Form of Renewal of Service Contract dated as of January 1 in each year. (Exhibit 10.15.1) 10.16 Nuclear Fuel Supply Contract among CL&P, IELCO, WECO and NNECO dated as of December 1,1972, and first amendment.

(Exhibit 7.34, File No. 2-60806) 10.16.1 Second Amendment to Fuel Supply Contract (Exhibit 7.35, g File No. 2-60806)

]

r 10.17 Trust Indenture between NNECO and The Connecticut Bank and Trus?, Company dated as of December 1, 1972 relating to the issue of Secured Notes to finance nuclear fuel.

(Exhibit 7.36, File No. 2-60806) 10.17.1 First Supplement to Trust Indenture between UNECO and The Connecticut Bank and Trust Company dated as of September 1, 1975. (Exhibit 7.37, File No. 2-60806) 10.17.2 Second Supplement to Trust Indenture between NNECO and The Connecticut Bank and Trust Company dated as of October 1, 1975. (Exhibit 7.38, File No. 2-60806) 10.17.3 Third Supplement to Trust Indenture between NNECO and The Connecticut Bank and Trast Company dated as of December 1, 1977. (Exhibit 7.39, File No. 2-60806) 10.18 Nuclear Fuel Sale Agreement between Manufacturers Hanover Trust Company, not in its individual capacity but solely as trustee of the Waterford Fuel Supply Trust, and NNECO dated as of November 15, 1977. (Exhibit 7.57, File No. 2-60806)

• • 10.18.1 First Amendment to Nuclear Fuel Sale Agreement between Manufacturers Hanover Trust Company, not in its individual capacity but solely as Trustee of the Waterford Fuel Supply Trust, and NNECO dated as of April 16, 1979.

(Exhibit 10.18.1) 10.19 Agreement for joint ownership, construction and operation of New Hampshire nuclear generating units dated as of May 1, 1973. (Exhibit 13-57, File No. 2-48966) 10.19.1 Amendments to Exhibit 10.19 dated May 24, 1974, June 21, 1974 and September 25, 1974. (Exhibit 5.15, File No.

2-51999) 10.19.2 Amendments to Exhibit 10.19 dated October 25, 1974 and Janua ry 31, 1975. (Exhibit 5.23, File No. 2-54646) 10.19.3 Sixth Amendment to Exhibit 10.19 dated as of April 18, 1979. (Exhibit 5.4.3, File No. 2-64294) 10.19.4 Seventh Ameadaent to Exhibit 10.19 dated as of April 18, 1979. (Exhibit 5.4.4, File No. 2-64294) 10.19.5 Eighth Amendment to Exhibit 10.19 dated as of April 25, '

1979. (Exhibit 5.4.5, File No. 2-64815) 10.19.6 Ninth Amendment to Exhibit 10.19 dated as of June 8, 1979. (Exhibit 5.4.6, File No. 2-64815) 10.19.7 Tenth Amendment to Exhibit 10.19 dated as of October 10, 1979. (Exhibit 5.4.2, File No. 2-66334) 10.19.8 Eleventh Amendment to Exhibit 10.19 dated as of December 15,

( ') 1979. (Exhibit 5.4.8, File No. 2-66492)

V 10.19.9 Twelfth Amendment to Exhibit 10.19 dated as of June 16, 1980. (Exhibit 5.4.9, File No. 2-68168) 10.19.10 Thirteenth Amendment to Exhibit 10.19 dated as of December 31, 1980. (Exhibit 10.6, File No. "_-70579)

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10.20 Memorandum of Understanding between CL&P, HELCO, Holyoke Power and Electric Campany, HWP and WMEC0 dated as of June 1, 1970 witt espect to pooling of generation and transmission. (.b.hibit 13.32, File No. 2-38177) 10.21 New England Power Pool Agreement effective as of November 1, 1971 as amended. (Exhibit 7.44, File No. 2-60806)

• • 10.22 Participation Agreement dated June 20, 1969 between Maine Electric Power Company, Inc., CL&P, WMEC0, HELC0 and HWP.

(Exhibit 10.22)

• • 10.22.1 Suppi.~ ant amending Participation Agreement dated as of June 24, 1970. (Exhibit 10.22.1)

• • 10.22.2 Second Supplement to Participation Agreement dated as of December 1, 1971. (Exhibit 10.22.2) in.

10.23 Sharing Agreement dated as of September 1, 1973 with

( >)

respect to 1979 Connecticut nuclear generating unit.

(Exhibit 6.43, File No. 2-50142) 10.23.1 Amendment dated August 1, 1974 to Sharing Agreement--1979 Connecticut Nuclear Unit. (Exhibit 5.45, File No. 2-52392) 10.23.2 Amendment dated December, 1975 to Sharing Agreement--1979 Connecticut Nuclear Unit. (Exhibit 7.47, File No. 2-60806) 10.24 Sharing Agreement Montague nuclear generating units dated as of September 1, 1976. (Exhibit 7.48, File No. 2-60806) 10.24.1 Agreement Among Participants in Nuclear Units for Temporary Reallocation of Capacity in Event of Delay in Units.

(Exhibit 6.45, File No. 2-50142) 10.24.2 Agreement Among Participants in Nuclear Units for Sharing of Additional Capacity Mahe Necessary by Delay in Units.

(Exhibit 6.46, File No. 2-50142) 10.25 Agreement to Transfer Ownership Shares in Seabrook Unit Nos. 1 and 2. (Exhibit 5.48, File No. 2-57327) 10.25.1 Extension Agreement to Transfer Shares in Seabrook Unit f-y Nos. 1 and 2. (Exhibit 4.7-9, File No. 2-58271)

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10.25.2 Second Extension Agreement to Transfer Shares in Seabrook Unit Nos. I and 2. (Exhibit 7.52-1, File No. 2-60806) 10.25.3 Agreement to Transfer Shares in Seabrook Unit Nos. 1 and 2 dated June 1, 1977. (Exhibit 7.53-1, File No. 2-60806) ,

10.25.4 Agreement to Transfer Shares in Seabrook Unit Nos. 1 and 2 dated November 1, 1977. (Exhibit 7.53-2, File No.

2-60806)

• 10.26 Lease dated as of July 1, 1970 between CL&P and The Roct; River Realty Company. (Exhibit 13.34, File No. 2-38177)

• • 10.27 Gas Sales Contract applicable to CD-6 rates between Conn.

Gas and Tennessee Gas Pipeline Company, dated December 13, 1978. (Exhibit 10.32)

• • 10.28 GS-1 Service Agreement made as of the 28th day of December, 1979 by and between Distrigas of Massachusetts Corporation and Conn. Gas. (Exhibit 10.33)

• • 10.29 TS-1 Service Agreement made as of the 28th day of December, 1979 by and between Distrigas of Massachusetts Corporation and Conn. Gas. (Exhibit 10.34) 10.30 Agreement dated March 1, 1977 between CL&P and The Southern Connecticut Gas Company for LNG storage and Vaporization Se rvice . (Exhibit 7.32, File No. 2-60806)

• • 10.31 Service Agreement dated January 9, 1979 applicable to rate echedule F-1 between Algonquin Gas Transmission Company and Conn. Gas. (Exhibit 10.36)

• • 10.32 Service Agreement dated January 9, 1979 applicable to rate schedule W-S-1 between Algonquin Gas Transmission Company and Conn. Gas. (Exhibit 10.37)

• • 10.33 Service Agreement dated January 9, 1979 applicable to rate schedule SNG-1 between Conn. Gas and Algonquin Transmission Company. (Exhibit 10.38)

• • 10.34 Precedent agreement for interruptible sale of base gas, dated February 17, 1981, between Conn. Gas and National Fuel Gas (Penn York Corp.). (Exhibit 10.39)

• • 10.34.1 Precedent agreement for interruptible sale of top system supply gas. (Exhibit 10.39.1) .

• • 10.35 Precedent storage agreement dated August 25, 1979, between Conn. Gas and National Fuel Gas (Penn York Corp.).

(Exhibit 10.40) *

• • 10.36 Storag 'ervice agreement applicable to rate schedule S-T-B between Conn. Gas and The Algonquin Transmission Company. (Exhibit 10.41)

I

• • 10.37 Memorandum of Agreement among Boundary Gas, Inc., Conn.

1 Gas and other utilities, dated October 6, 1980. (Exhibit 10.42)

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• • 10.38 Precedent Agreement between TransCanada Pipelines Limited and Boundary Gas, Inc., dated October 14, 1980. (Exhibit 10.43)

• • 10.39 Procurement and Storage Agreement among Conn. Gas, CL&P and HELCO dated as of March 7, 1979. (Exhibit 10.44)

• • 10.40 Service Contract dated as of March 1,1977 between CL&P and HELCO. (Exhibit 10.45)

• • 10.40.1 Form of Annual Renewal of Service Contract. (Exhibit 10.45.1)

• • 10.41 Extra Expense Insurance Policy issued by Nuclear Electric Insurance Limited with respect to the Millstone nuclear generating units. (Exhibit 10.46) 4 **10.42 Extra Expense Insurance Policy issued by Nuclear Electric Insurance Limited with respect to the Connecticut Yankee nuclear electric generating plant. (Exhibit 10.47)

• • 10.43 Fuel oil purchase agreement between Amerada Hess Corporation and the Service Company dated December 24, 1970. (Exhibit 10.48)

• • 10.44 Supplement to fuel oil purchase agreement between Amerada

-- Hess Corporation and the Service Company dated February 22, (s) 1977. (Exhibit 10.49)

• • 10.45 Memorandum of Understanding between CL&P and Connecticut Municipal Electric Energy Cooperative dated September 25, 1980. (Exhibit 10.50) i **10.46 Transmission Service Agreement between the Service Company and Connecticut Municipal Electric Energy Cooperative dated October 1, 1980. (Exhibit 10.51)

• 13 Annual Report to Stockholders (b) Reports on Form 8-K - The Company filed a report on Form 8-K as of December 31, 1980, regarding a decision by the Company to cancel the Montague Nuclear Project.

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SIGNATURE' Pursuant to the requirements of Section 13 or 15(d) of the Sc:urtties I

Exchange Act of 1934, the Registrant has duly caused this report to be signed

• on its behalf by the undersigned thereunto duly authorized.

i THE CONNECTICUT LIGHT AND POWER COMPANY (Registrant) l l

, Date March 26, 1981 By /s/ William B. Ellis

! William B. Ellis President and Chief Operating Officer i

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Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.

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Date March 26, 1981 By /s/ Lelan F. Sillin , Jr.

Lelan F. Sillin, Jr.

• Chairman, Chief Executive Officer and Director i b Date March 26, 1981 By/s/ E. James Ferland E. James Ferland Executive Vice President, Chief s Financial Officer and Director Date March 26, 1981 By /s/ Warren F. Brecht Warren F. Brecht Vice President and Controller (principal accounting officer)

Date March 26, 1981 By /s/ Donald C. Switzer Donald C. Switzer Director Date March 26, 1981 By /s/ William B. Ellis l William B. Ellis

\s / Director Date March 26, 1981 By /s/ Walter F. Fee Walter F. Fee Director Date March 26, 1981 By /s/ Leon E. Maglathlin, Jr.

Leon E. Maglathlin, Jr.

Director Date March 26, 1981 By /s/ Herbert W. Sears Herbert W. Sears Director Date March 26, 1981 By /s/ Lawrence H. Shay Lawrence H. Shay Director e

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-- .,,.__m.._ _ - , _ . _ , .._.x -

-z_.,_ _ -. --__ .-.. _ , . m- , .. - . , . . . - .

Date March 26, 1981 py /s/ Peter M. Stern Peter M. Stern Director Date March 26, 1981 By /s/ Walter F. Torrance, Jr. ,

Walter F. Torrance, Jr.

Director l

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THE CONNECTICUT LIGHT AND POWER COMPANY ]

i Z INDEX TO FINANCIAL STATEMENTS sp i

i Report of Independent Public Accountants - Incorporated herein by i- reference to page 26 of Company's Annual Report to Stockholders, a l copy of which is submitted with this Form 10-K as Exhibit 13.

Financial Statements - All of which are incorporated herein by reference to pages 10 to 26 of Company's Annual Report to Stockholders, a copy of which is submitted with this Form 10-K as Exhibit 13. "!,

1 Statements of Income for the years ended December 31, 1980, 1979 and 1978 g l

Statements of Sources of Funds for Gross Property Additions for .the years ended December 31, 1980, 1979 and 1978 i ~

Balanc e Sheets at December 31, 1980 and 1979

. Statements of Common Stockholder's Equity for the years ended

December 31, 1980, 1979 and 1978 1

! Notes to Financial Statements s

-Page 4 Report of Independent Public Accountants on Schedules S-1 f Schedules:

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]' V- Utility Plant (including Intangibles and excluding Nuclear Fuel) - Years Ended December 31, 1980, d 1979 and 1978 S-2--S-4 V- Nuclear Fuel - Years Ended December 31, 1980, 1979 and 1978 S-5 VI - Accumulated Provision for Depreciation of Utility Plant - Years Ended December 31, 1980, 1979 and 1978 S-6 VIII - Reserves - Years Ended December 31, 1980, 1979 and 1978 S-7--S-9 X- Supplementary Income Statement Information -

Years Ended December 31, 1980, 1979, and 1978 S-10 Schedules other than those listed above have been omitted because they ,

e are either not required or are not applicable, or because the required

- information is included in the financial statements or notes thereto. ,

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REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ,

ON SCHEDULES In connection with our examination of the financial statements included in The Connecticut Light and Power Company's Annual Report to , . ,

Stockholders and incorporated by reference in this Form 10-K, we have also examined the supporting schedules listed in the accompanying index.

In our opinion, these schedules present fairly, when read in conjunction with the related financial statements, the financial data required to be set forth therein, in conformity with generally accepted accounting ,

principles, which, except for the change (with which we concur) in accounting for the allowance for funds used during construction as indicated in Note 1 of Notes to Financial Statements, have been applied on a consistent basis.

ARTHUR ANDERSEN & CO.

Hartford, Connecticut, February 20, 1981.

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l N_I  %! J THE CONNECTICUT

• T.E AND POWER COMPANY UTILITY PIANT (INCLUDING INTANGIBLES AND EXCLUDING NUCLEAR Fl?EL)

YEAR ENDED DECEMBER 31, 1980 I

(Thousands of Dollars)

COL. B COL. C COL. D COL. E COL. F COL. A Other Changes- Balance Balance at beginning Additions Add (Deduct)- at close Retirements Describe of period Classification of period at cost

(

l l Utility Plant in Service $1,449,843 Electric $1.411,106 $ 47,547 A 8,833 $ 23 (3) 125,549 14,355 1,855 (7)(4) 138,042 Cas Construction Work in Progress 399,099 f 318,730 94,126 (1) - (13,735)(6)

! Electric l m (22)(5) 2,208 2,318 (1) - - 4,526 l Gas Utility Plant Held for Future Use Electric 967 556 -

(2)(2) 1,521

$1,858,560 $158,902 $10,688 $(13,743) S1,993,031 l TOTAL OWNED (1) Net increase (decrease) during the year.

(2) Transfer between Nonutility Property and Utility Plant Held for Future Use.

(3) Adjustu:ent of prior year retirement.

(4) Transfer between Utility Plant in Service and Nonutility ?roperty.

(5) Sale of substation.

(6) Canceled Fuclear Project.

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THE CONNECTICUT LIGHT ED POVER COMPANY CTILITY PLANT (lhCLUDING INTA.NGIPILS MD EXCLUDING NTCLEAR ITEL) 1 YEAR ENDED DECE%EN 31, 1979 5.

(Thousands of Dollars)

• a COL. A COL. B COL. C COL. D COL. E COL. F Balance at Other Changes- Balance beginning Additions Add (Deduct)- at close Classification of reriod at cost Retirements Describe of period OWNED PROPERTY Utility Plant in Service Esectric $1,385,778 $ 36,737 $10,257 3 (' 05)(2) $1,411,106 53 (3) i Cas 120,646 5,598 1,889 1,205 (2) 25,549 (11)(6)

Construction Work in Progress Electric 288,796 71,548 (1) -

(41,416)(5) 318,730 f (198)(4)

W Cas 1,325 883 (1) - -

2,208 Utility Plant Beld for Future Use Electric 712 755 - -

967 TOTAL OWNED $1,797,257 $115 n021 $12,146 S(41 572) 51,858,560 (1) Net increase (decre*:e) during the year.

(2) Transfer between electric and gas property.

(3) Adjustment of prior year retirement.

(4) Sale of substation.

(5) Sale of 71 interest of 11.5% ownership in Seabrook.

(6) Transfer between Utility Plant in Service and Nonutility Property.

. __ ~ . ~ . . . - . - ~ , _ ~ ~ .. .~ . -. . . ~. . . . - . . . - = . - - . - - _ - - - - = . - w- . , ..

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• e TFE CONNECTICUT LICHT AND POWER (DMFANY TILITY PLANT (INCLUDING 11tfANG1BLES AND EXCLUDING NUCLEAR FUEL)

YEAR ENDED DECEMBER 31. S 78 (thousands of Dollars)

COL. A COI . B COL. C COL. D COL. E COL. P Balar.ce at other Chan6es- Balance l Additions beginning Add (Deduct)- at close Classificatimi _ of period at cost Retirements Describe of perio ,d OLAfED PROPERTY Utility Plant in Service Electric $1.177.832 $69 &48 $12.979 $ 76 (2) $1.385.778 151.008 (4) t (9) (3) i 2 (5) i j Cas 107,776 4.191 562 9.231 (4) 120.646

> 1C (3)

Construction Work in Progress El-ctric 259.642 38,755 (1) -

2.008 (4) 288.796 >

(2.625) (61 *

(2.762) (7) [

(6,222) (8)  ;

Cas 2.090 (824) (1) - 59 (4) 1.325 l

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Utility Plant Meld for Future Use t y E'actric 559 229 -

(76) (2) _

712 j

O TOTAL OWNED j.547.899 112.199 13.541 150.700 _1.797.257 t I

LEASED PROPERTY Utility Plent in Service Electric 145.894 6.922 '1.808 (151.008) (4) -

[

Cas 8.600 68t. 52 (9.232) (4) -

Construction Work in Progress  !

Electric 2.965 (958) (t) -

(2.007) (4) -

Cas 320 (261) (1) -

(59) (4) -

TOTAL LEASED 157.779 6.387 t 860 (162.306) -

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TOTAL $1.705.678 $118.586 $15.401 $ (II.606) 51.797.257 (1) Net increase (decrease) during the year. .

(2) Transfer between L 111ty Plant in Service and Utility Plant Held for Future Use.

(3) Transfer between electric and gas property. cra  ;

(4) Transfer of leasehold improvemente between owned and leased property. This resulted from the purchase of property fy- l formerly leased fron Connecticut Railway and Lighting Company.

(5) Adjustment of prior year retirement. {

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F (6) Sale of substation. *

• I (7) Sale of .5% interest of 12% ownership in Seabrook. r (8) Sale and lease back of substation equips,ent and butidings. <

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THE CONNECTICUT LIGHT AND POWER COMPANY p 7

NUCLEAR FUEL YEARS ENDED DECEMBER 31, 1980, 1979 AND 1978 E.

(Thousands of Dollars) 7 COL. B COL C COL. D Cet. E COL. F COL. A Balance at Other Changes- Balance beginning Additions Add (Deduct)- at close of period at cost Retirements Describe of period Classification Year Ended December 31, 1980 Nuclear fuel in process of refinement, conversion, enrichment and fabrication $11,095 $10,790 $- $ - $21,885 Accumulated provision f or amortization 5,057 (3) of nuclear fuel assemblies (1,900) - - ( 3,157) (2) -

S10,790 S- S 1,900 $21,885

,$_991_9 5_

7 Year Ended December 31, 1979 w

Nuclear fuel in process of refinement, conversion, enrichment and fabrication S 7,288 $ 6,420 $2,613 (1) $ -

$11.095 Accumulated provision for amortization of nuclear fuel assemblies - - - (1,900)(2) _ .,900)

S 7,288 $ 6,420 _$2 2 613 S(1,900) _$_9A9 5 Year Ended December 31, 1978 Nuclear fuel in process of refinement, S 5,202 S 2,209 $ 12_3(1) S_.__-____ S 7,288 conversion, enrichment sad fabrication (1) During 1970 and 1978, CL&P sold a portion of its ownership in the Seabrook Plant being built in New Hampshire and the related nutlear fuel in process.

(2) Reclassification of nuclear fuel disposal costs.

(3) Reversal of the reclassification of nuclear fuel disposal costs.

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THE CONNECTICUT LICHT AND POWER COMPANY ACCLTULATED PROVISION FOR DEPRECIATION OF UTILITY Pt. ANT YEARS ENDED DECDGER 31, 1980, 1979 AD 1978 (Thousands of Dollars)

COL. A COL. B COL, C COL. D COL. E COL. F Additions Balance at Charged to Other Changes- Balance beginning Costs and Add (Deduct)- at close of period Expenses Retirements Describe of period Description Year Ended December 31, 1980 ,

$381,879 S48,312 S 9,771 S 442 (1) S420,862 Electric 22,075 3,972 1,877 120 (1) 24,290 Gas

$445,152

[ TOTAL _$403,954 $52,284 $112 648 S 562 Year Ended December 31, 1979 S341,569 $47,709 5 8,491 $1,092 (1) $381,879 Electric Cas 20,646 3,216 1,967 180 (1) 22,075

$ 3_62,215 $50t925 $10,458 $1,272 $403,954 TOTAL Year Ended December 31, 1978

$304,636 $46,999 $11,796 S1,703 (1) S341,569 Electric 27 (2) 18,178 2,907 780 274 (1) 20,646 Gas 67 (2)

TOTAL S322,814 S49,906 $ 12 , ', 76 S2,071 $362,215 .

E.

(1) Depreciation charged to Transportation and Fuel Stock Clearing Accounts. E (2) Termination of lease with Connecticut Railway & Lighting Corporation. -

THE CONNECTICUT LIGHT AND POWER COMPANY p RESERVES {

YEAR ENDED DECEMBER 31, 1980 g (Thousands of Dollars) {

COL A COL. B COL. C COL, D COL. E Additions (1) (2)

Balance at Charged to Charged to Balance Beginning Costs and Other Deductions- at End Description of Period Expenses Accounts Describe of Period RESERVES DEDUCTED FROM ASSETS TO WHICH THEY APPLY:

Reserves for uncollectible accounts $2,060 S3,578 S- S3,455 (a) $2,183 RESERVES NOT APPLIED AGAINST ASSETS:

Injuries and damages (b) $ 995 $1,566 $- $1,502 (c) $1,059 Medical insurance (e) 936 5,738 - 5,594 (d) 1,080 TOTAL $1,931 $7,304 S- S7,096 $2,139 (a) Amounts charged off as uncollectible after deducting customers' deposits and recoveries of accounts previously charged off.

(b) Provided to cover claims for injuries to employees, for workmen's compensation and for bodily injury to others and property damage.

(c) Principally payments for various injuries and damages and expenses in coraection therewith.

(d) Principally payments for various employee medical expenses and expenses in connection therewith.

(e) Provided to cover claims for employee m, dical insurance.

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4 THE CONNECTICUT LIGHT AND POWER COMPANY RESERVES YEAR ENDED DECEMBER 31, 1979 (Thousands of Dollars)

COL. A COL. B COL. C COL. D COL. E Additions (1) (2)

Balance at Charged to Charged to Balance Begianing Costs and Other Deductions- at End Description of Period Expenses Accounts Describe of Period RESERVES DEDUCTED FROM ASSETS TO WHICH THEY APPLY:

Reserves for uncollectible accounts $1,899 $1,_663 $- $1,502 (a) }2,060

[ RESERVES NOT APPLIED AGAINST ASSETS:

Injuries and damages (b) $ 991 $ 972 $- $ 968 (c) $ 995 Medical insurance (e) - _3,159 _ _ _ _

2,223 (d) 936 TOTAL $ 991 $4,131 $- $3,191 $1,931 (a) Amounts charged off as uncollectible af ter deducting customers' deposits and recoveries of accounts previously

. charged off.

(b) Provided to cover claims for injuries to employees, for workmen's compensation and for bodily injury to others and property damage.

(c) Principally payments for various injuries and damages and expenses in connection therewith.

N (d) Principally payments for various employee medical expenses and expenses in connection therewith, g' S'

(e) Provided to cover claims for employee medical insurance. ga

THE CONNECTICUT LIGHT AND POWER COMPANY $

RESERVES $

YEAR ENDED DECEMBER 31, 1978 S' (Thousands of Dollars) E

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COL. A COL. B COL. C COL D COL. E Additions (1) (2)

Balance at Charged to Charged to Balance Beginning Costs and Other Deductions- at End Description of Period Expenses Accounts Describe of Period RESERVES DEDUCTED FROM ASSETS TO WHICH THEY AFPLY:

Reserves for uncollectible accounts $1,716 $2,808 $- $2,625 (a) $1,899 RESERVES NOT APPLIED AGAINST ASSETS:

Y

• Injuries and damages (b) $ 993 $ 747 $- $ 749 (c) $ 991 (a) Amounts cha ged off as uncollectible after deducting customers' deposits and recoveries of accounts previously charged off.

(b) Provided to cover claims for injuries to employees, for workmen's compensation and for bodily injury to others and property damage.

(c) Principally payments for various injuries and damages and expenses in connection therewith, i

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o*- o THE CONNECTICUT LIGHT AND POWER COMPAhT ,

SUPPLDIEATARY INCOME STATDIENT INFORMATION ,

YEARS ENDED DECDiBER 31, 1980, 1979 AND 1978 5 (Thousands of Dollars) 4 l Column A Column B l Charged To Costs .,

Item And Expenses  !

l 1980 1979 1978 l Taxes, other than income taxes l charged to expense:

State gross receipts $34,170 $27,361 $22,338 -

l Real and personal property 23,075 19,231 19,573 Payroll and Other 4,809 4,152 3,279 un Total $62,054 $50,744 $45,190 l

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Items other than those disclosed above have been omitted because either they are not applicable, the required information has been presented in the financial statements j or notes, thereto, or such amounts are less than 1 percent of total revenues.

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l 1.

W

__ _ . - . _ m. _ . . . , _ _ _ _ _ _ _ . - , _ _ _ _ _ . - _ . . _ _ - _ . . , _ _._._m_.. -

.. __._ . _ _ _ _ _ _ _ _ . . _ _ . _ _ . . , . _ .