ML20108F416
| ML20108F416 | |
| Person / Time | |
|---|---|
| Site: | Millstone, Seabrook, 05000000, 05000471 |
| Issue date: | 12/31/1983 |
| From: | Bok J, Nichols G NEW ENGLAND ELECTRIC SYSTEM |
| To: | |
| Shared Package | |
| ML17054D536 | List: |
| References | |
| NUDOCS 8412200455 | |
| Download: ML20108F416 (44) | |
Text
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a 2 a On thecowr: .: NewEngland Electric's , , '! SamuelC. Moore Station, . thelargestcontentional , 1
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Financial Highlights 1983 1982 1981 Earnings peraverage share $5.48 $4.65 $4.05 Dividends declared pershare $3.25 $2.95 $2.655 Annual dividend rate-year end $3.40 $3.00 $2.80 Book equity per share-year end $32.27 $29.90 $28.29 Market price per share-yearend $39.00 $33.25 $24.75 Return on average common equity 17.6% 16.0 % 14.6 % w England Electric System is a public util-ity holding coinpany headquartered in Westborough, Massachusetts. Subsidiaries include three retail oper-ating companies-Massachusetts Electric Company, which serves 795,000 custainers in N6 Massachusetts connnunities; Narragansett Electric Company, which serves 279,000 customers in 27 Rhode Island conununi-ties; and Granite State Electric Company, which serves 29,000 custonters in 21 New Ilampshire connnunities. Other subsidiaries include a wholesale generating com-pany, New England Power Company, which operates 22 generating stations; an oil andgas exploration andfuels company, New England Encigy Incorporated; an international transmission service company, New England Electric Transmission Corporation; a conservation service company, NEES Energy; and a service company, New England Power Service Company. 2
DarShareholder: L/1983 was a good year for New England Electric with earnings per average' share at a record $5.48. The System's average annual earnings growth rate is 11 percent for the past five years. In February, the Directors of your System increased the quarterly dividend from 75 to 80 cents per share. In November, they increased the dividend again to 85 cents per share, the eighth increase in the past five years. Dividends declared in 1983 represent a payout of 59 percent q i
- of earnings.
Nearly five years have elapsed since our long-range planning effort, NEESPIAN, was initiated. It continues today as our principal planning guide. We have made real progress toward achieving the key NEESPLAN objectives of keeping customers' costs to a minimum and reducing reliance on foreign oil. In 1978 and for chcades prior to that year, our customers paid a cost per kilowatthour that was among the highest in New England. By 1982, we were among the lowest cost producers of electricity in New England (in the bottom third), and we continued this record in 1983. Much of this reduction has been accomplished by the conversion of six generating units from oil to coal firing. In 1983, we burned 2.8 mil-lion tons of coal, displacing 11.5 million barrels of oil and saving our cus-tomers $45 million. Coal represents 50 percent of the System's estimated energy needs in 1984 and oil only 25 percent. This compares with a 78 percent reliance on oil in 1979 prior to starting the conversion to coal. We anticipate burning about 11 percent more coal in 1984 than we did in 1983, primarily because the largest coal burning unit at our Brayton i Point Station is back in service after a six-month outage. This outage was triggered by a major turbine failure late in August 1983. l In 1984, we expect to finish installation of new electrostatic ! precipitators and other environmental control equipment at our Salem l Harbor Station, completing this $100 million coal conversion project. Coalis moved to our generating stations by a combination of rail and water transport. On July 9,1983, together with our shipping partner, Keystone Shipping Co., we christened the Energy Independence, the first coal-fired, coal-carrying ship built in the United States in many decades. ' This self-discharging vessel is now in its first year of operation. We believe this ship has the potential both to save our customers shipping costs and to contribute to our earnings. We have invested $11 million for a 51 percent equity ownership of this $73 million vessel. This year we have elected to consolidate the financial results of our oil and gas exploration and fuels subsidiary, New England Energy Incorporated (NEEI), with the financial results of the System as a whole. 2 L ~
. The scope of this subsidiary has gradually increased over the years, and we now believe consolidation more clearly depicts our principal activities. Because of the current level of NEEI's oil and gas expenditures and the fact that oil and gas prices continue to be relatively soft, we have proposed a change in the pricing policy used by this subsidiary. The pro-posed policy is detailed on page 17. Based on this proposal, we did not record any oil and gas earnings in 1983 and expect to record none over the next few years. NEEI's proved and probable reserves now exceed 21.7 mil- ! lion barrels of oil and gas equivalent, up from 14.8 million barrels a year l ago, and our 1983 production exceeded 1.9 million barrels. In March 1983, Donald E. Rose, former System treasurer, was i elected to the position of executive vice president of NEEI with responsi-bility for the purchase of coal. Alfred D. Houston was elected System I treasurer, succeeding Mr. Rose. In November 1983, James C. Nesbitt, System vice president-finance, retired after 36 years of dedicated service. Mr. Nesbitt guided our financial activities for many years and is highly respected for his knowledge 7 of accounting matters, particularly regarding regulated holding companies. Samuel Huntington, System vice president, has assumed execu-l tive responsibility for financial matters in addition to his previous responsi-bility for legal and rate activities. Mr. Huntington joined the System in 1976 after teaching at Boston University School of Law and serving as an attorney with the U.S. Solicitor General's office. One of our major accomplishments in 1983 was the introduction of our "All Employees Goals Program." This program offers incentives to employees to meet certain financial and operational goals. We are very proud of the men and women who work for the System companies, and l believe this new program has the potential of helping us all achieve more for our customers and for you, our investors, in the years ahead. kNh Chairman Aa.w T 3ok Vice Chairman March 2,1984 s 3
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n - - ______ ew Englanil's econoiny prospereit in 1983 anil sales of electric energy increaseil as unein;>loyinent rates fell. .. . During the recent recession, the economy of this region held up surprisingly well. Massachusetts routinely reported the lowest unemployment rate of the ten most industrialized states, and New Hampshire continues to have one of the lowest unem-ployment rates in the nation. With the resurgence of the economy in 1983, New England continued to outpace the national aver-age, both in terms of growth of personal income and in 3 terms of job opportunities. The System's largest retail company, Massa-chusetts Electric, serves much of the central and north-7 J eastern parts of the Commonwealth including those - areas along Interstate 495 that are in the midst of a major building boom. This highway circles westward around Boston from the northeast to the southwest and serves Digital Equipment Corporation, Wang Laboratories, Data General and a host of other major firms that are at the forefront of technology. Many of __ mz these companies had their start in the classrooms and laboratories of Massachusetts Institute of Technology, Harvard University, Worcester Polytechnic Institute and the other great educational institutions located - in this area. Rhode Island has yet to fully share in the eco-f nomic strength of Massachusetts and New Hampshire, but Rhode Island is undergoing a series of changes that should improve its economic climate in the years ahead. One such change was the introduction of The Narragansett Plan in November 1982. The key feature of this plan, developed and offered by the System's Rhode y Island retail company, Narragansett Electric,is a signifi-cant discount for new or expanded large industrial and commercial custot . . This discount has been accepted by the Rhode E m 'u' !ic Utilities Commission. i
, A -
mising sign for the Rhode Island economy is . .e tu . Island Strategic Development Commission's Greenhouse Compact, announced in October 1983. This compact is aimed at strengthening i 5
the existing industrial base and increasing employment - by encouraging new business start ups. In 1983, the System's kilowatthour sales to ultimate customers were up 5.4 percent, the first signif- . icant increase in five years. Our average kilowatthour 9 growth rate over the past five years has been 1.5 per- A4 cent. We are fortunate that over the same period our z growth in peak demand has been only 0.6 percent per year. This indicates our System load factor is improving and the growth we are experiencing permits more effi- _ cient use of our generating facilities. Until1980, the System's peak demand for electricity routinely occurred during the winter months. This is changing, and we are now in a sea-sonal step-peak situation where the peak demand for ._ electricity in the summer of 1983 was greater than the , , , previous year's winter peak and the peak demand in the winter of 1983-84 was greater as well. To further .-, p*~1 improve our load factor, we need to fill our spring - and fall " load valleys." Another challenge for the future is to provide all the electricity essential for a healthy New England y economy and at the same time keep our growth in f *W - peak demand to 1.8 percent per year or less. We have done this easily over the past several years and believe [d(( [ 6 we can do this in the years ahead. This will permit us to defer the need for expensive new generating facili-ties that would increase the price of our product. To accomplish this objective may well require - our best efforts in load management and conservation. j The System's load management programs include test- r ing of storage heating systems, evaluating the energy efficiency of heat pumps for heating and cooling, and testing customer willingness to reduce the amount of electricity used at peak times in return for lower rates. To show consumers the latest energy conser-varion techniques for new homes, we have sponsored an Energy Efficient Home Design Conyetition. We are building three of the winning homes and are offering arcintcct lacques ranicia blueprints of these designs. Other conservation pro- with a rnosci ot ins m,n-grams include weatherization grants to communities ,nnx deuxn in the sysic,ns and hospitals, energy audits, and testing the practical rnerxy ancient no,nc aspects of solar water heating. ocs,xn corni,ct,tmn. _ 6 _
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l energy Crisis tieCiltle litls passell since il e of tile earlll 1970s, witen oil was in sliort supply anti fuelprices skyrocketeel. ~linlay our energy niix is signifi-cantly iniproveci, gntr electric costs are ntore cornpeti-tive colnpareil witit tire rest of lite nation, anti we llave a nuore secure supply of tiontestic fuel sources. New England Electric's prices to customers are now relatively low compared with the average cost for electricity in New England. However, our prices are still about 25 percent higher than the average price for electricity in the United States. As we look to the future, we believe this differential will decrease, in part because prices in the rest of the country are rising faster than prices charged by our System. This is due to our reduced use of high cost oil and our increased use of less expen-sive coal. It is also due to the faster growth rate that most utilities in other regions are experiencing. Their faster growth necessitates the construction of a pro-portionately greater number of new and costly generating facilities. Furthermore, natural gas, used in great quantity in utility boilers in some parts of the country, has in the om been available at artificially low prices. The price of this fuel is increasing rapidly for these utilities as old, long-term contracts expire and have to be renegotiated at today's price levels. New England Electric's relatively low price per kilowatthour within the Northeast region is due largely to the fact that coal now represents half of our total energy mix. Since 1979, we have burned more than seven million tons of coal, displacing more than 28 million barrels of oil and saving our customers more than $115 million. Conversion from oil to coal burning of Iohn Willen. Afark three generating units totaling 1150 megawatts at our otson. sruce Martin and Brayton Point Station in Somerset, Massachusetts, Mark lARoche perforn: has been suCCessfully Completed. inainteJnc6 din the We are also burning coal in three units total-ing 310 megawatts at our Salem Harbor Station in Twier oise oftarce cail-ourning units at the Salem, Massachusetts, under a delayed compliance syston s arayton order from the U.S. Environmental Protection Agency. Eint station. This order allows coal to be burned while we install 9
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- additional environmental equipment. Work is ahead VM>
[f4]?.g"h:[ %f.7..@hg% of schedule and we expect all three units will be fully [] y y&. f. .< yQ O ,. A.pf..hl k. :n.T- J. i 4 converted by the end of 1984.
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4e .i gwpc- - ].$ 4 Coal burning has not only contributed to our #1i W "; j gp. . c J g {g.;} J .: h..
. .. . . q /.s. f 4 d;.. p. improved energy mix, but has also been an environ-mentl a success.I n J lu1983, y the System was awarded a f . .s
.GkNhsa).%U:hkh.3 Mh. certificate of recognition by Massachusetts Governor f((.
'N#; hNhh.h4 Michael S. Dukakis for emission control achievements }if rig q p.M O. :@ .vJ! at Brayton Point Station that have resulted in a 50 per- e-j k ;:,
;, t 4.7p?. pA. Oh...s J hv dp.s . -
3 . cent reduction in particulate emissions and a 20 percent [ reduction in sulfur dioxide emissions. !!
.ffl N We have significantly reduced the amount of h- ; MM Q,((Nhypf.h(1[t[:.x - - , . ;. : 2 #;
f.Q.. ..
; .3 .
b; i oilin our energy mix. In 1983, we used 7.7 million bar-rels of oil, roughly one third of the 21 million barrels g* s used in 1978. >,^
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6:,;.. p .. Our energy mix also includes nuclear _( .y A{.y.@;::. g.
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energy obtained from small ownership positions in 7 7 ( j y ; ; e . % .:':s e r !. N z four nuclear facilities. Lo, king to nuclear units now hi
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.. under construction, we have a 12 percent interest in <_
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TM f.,u.,; ,d.w! :# -x . .: n.; Vf . in the two Seabrook units in New Hampshire. In early ?D h 4 % S -
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;; . 1983, wc concluded that it would be in the best interest c .. p [z ' .;.; + .N p.-((.[Ad of our customers if we could dispose of our share of k
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, .v Seabrook 2. There is no market for tMse shares, and, 7 e... to i b.
thus, we favor cancellation of this unit, as do live f . J. ; t c .w .. . . G.. . ., y ...y, t .
=. 7 ! .
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.. .z ( : = f c :M7 other joint owners. Although many regulators concur ..
g $ 4 y ; g D '. y: { $.1] [ f . {7 : C > : p?; with this opinion, the lead and controlling owner $;;. M. . <.g . fp~. - - 4 " u. .c ^ 6 has not agreed to cancellation. However, we have been M. ,. {.~p;.1 (..gg U /. ~Q : i j %, ,*,.V. . ci .
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successful in getting the level of construction activity
;; p .'.pp.p g . .> . M . ?f . 9 k. .
on Seabrook 2 reduced to the minimum consistent LF h.b, [;[ 9. If, with keeping the option of accelerating activity at a 4.c.c 09 s. . O e 9-(. v s o ., # later date. h@ h Hydroelectric energy is also a valuable part 3 of our energy mix and 1983 was a fine year for the Sys- p.- y tem's 43 hydroelectric units. Above normal precipita- .i, n tion and timel,v runoff from the watersheds of northern . .s,f
. .s and western New Enuland contributed to a 14 nercent (i I is -
3 increase in production of hydroelectric energy. // y We continue to pursue electricity from alter- pi nate energy sources such as trash, cogeneration and
- f. w
,a small hydro and have made substantial progress &
u.) toward meeting our recently increased goal of 300 d
- - meMawatts from these sources by 1998. E ny a.
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w Digland Electric is involveil in a h f~ ~ " nunifier ofImsiness ventures related to our liasic electric utility operations. In July 1983, we christened the Energy Inde-pendence, our coal-fired, coal-carrying ship. We built . and are operating this ship as a joint ver ture with Keystone Shipping Co. of Philadelphia. _ The ship transports coal from ports in . a Norfolk, Baltimore and Philadelphia to our generating stations in Somerset and Salem, Massachusetts. This self-discharging vessel will make approximately 65 round trips per year and will deliver about three-fourths of the System's annual coal needs. Our experience has already shown that the Energy Independence is currently both carrying more coal per trip to our power plants and delivering at c faster rate than was originally expected. We anticipate that - this ship will provide significant savings for customers as well as a favorable return on investment. In 1983, the System's fuels subsidiary, New England Energy Incorporated (NEEI), continued to explore for and develop domestic fuels and produced more than 1.9 millic,n barrels of oil and gas equivalent. With our partner, Samedan Oil Corporation, the exploration and production subsidiary of Noble Affiliates, Inc. of Ardmore, Oklahoma, we signifi-cantly increased our oil and gas reserves in 1983, due in large part to exploration end development activities on leases in the Gulf of Mexico. Total discoveries of 8.7 million barrels of oil and gas equivalent increased NEEI's proven reserves to 15 million barrels of oil and gas equivalent and in-creased our probable reserves from 2.2 to 6.7 million barrels of oil and gas equivalent. Exploration and development costs for 1983 were $149 million, which brought our total expenditures, over the past decade, l to more than $600 million. ! With Samedan, we began production on sev- l h eral properties and increased our leasehold inventory in the Gulf of Mexico in 1983. At a cost of approximately , $23 million, we participated in two federal offshore j lease sales and purchased interests in 32 tracts in the j 12 l
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,lcit;rr~ o ul .t! lir tuts 'rt l 'ttl*lt M.l!!n 't!
IT s
l l 1 Gulf. Drilling has begun on five of these tracts and will continue during 1984. To date, NEEI has participated in drilling 12 wells on 17 tracts located in the Santa Barbara Channel and the Santa Maria Basin, off the coast of California. NEEI has now purchased additional interests in 16 of these tracts. Results to date have been encouraging and additional drilling is planned in 1984. l NEEI's oil and gas activities are regulated l by the Securities and Exchange Commission (SEC). l We have filed a proposal with the SEC that would l phase out the existing rate regulated pricing policy l (a policy that limits NEEI's earnings to a utility return) ( in favor of non-rate regulated status for this business. If approved, the changes would improve NEEI's prospects for increased returns from our oil and gas activities and could iacrease the possibility of loss. A more de-tailed explanation of this proposal appears on page 17. One of our newest subsidiaries, New England Electric Transmission Corporation (NEET), was formed an internatwnal trans-to provide a major portion of an international transmis- missmn wrviu nunmny sion link between Hydro-Quebec and electric utilities is one w thesystem's in New England. In 1983, NEETentered into a credit severaz new imsine<s agreement with a group of nine banks to provide up to ventures
$120 million of construction financing.
Agreements have been signed by all major electric utilities in New England providing financial (p.?j-%;bO G J } Eff?.S .J.: LJJ support for this project. Site preparation has begun y) f p%%]);:f.(.f(f."yy - and completion of the project is scheduled for 1986. jyg4p' }{..p:77 ij. -(;4.+q .y Negotiations are currently underway for a second 4Jg ..]y.ggggy } phase to bring additional electric energy from Quebec g j $ j p;,f i.g g ; g g v , f . y to New England. g M $J<.V0.M n Nt4/ s Our newest subsidiary is NEES Energy. This [ k%-]H. (W;.OM[.9; . .cri company invests in equipment that will result in sig- ~.# u y.m n .- .,..;:m p.mp .. .s.v..y.4 y 1 ... s ' ? :s x 3v~ - v g.ye-y 7'.119 - 97,. nificant energy cost savings for commercial and indus- . trial energy consumers, and then shares in these sav-ings for a negotiated time period. We Lave had a pilot f El
;i
' Y[.3 pe 9..;
3 . program in operation for about 18 months and expect .
! $F.4 to invest about $10 million in this activity within three %0 ggf/
[g years' time. The return on equity possibilities for Wap % y NEES Energy look very good. This new company also has great appeal for those who favor utilities doing more y O k .. .M./.f. @y-y y j.l
'J to encourage conservation. .;
New England Electric System and Subsidiaries Selected Financial Data Year ended December 31 (millions of dollars, except per share data) 1983 1982* 1981* 1980* 1979*
. Operating revenue:
Electric sales (excluding fuel cost recovery) $ 802 $ 711 $ 622 $ 550 $ 513 Fuelcost recovery 507 482 641 525 361 Other utility revenue 23 20 19 15 15 Oiland gas sales 42 49 22 11 4 Totaloperating revenue $1,374 $1,262 $1,304 $1,101 $ 893 Total fuelcost" $ 522 $ 497 $ 651 $ 531 $ 370 Netincome $ 133 $ 108 $ 91 $ 76 $ 73 Average common shares 24,183,447 23,292,847 22,483,582 21,812,166 21,293,235 Persharedata: Netincome $ 5.48 $ 4.65 $ 4.05 $ 3.50 $ 3.45 Dividends declared $ 3.25 $ 2.95 $2.655 $2.395 $2.235 Totalassets $3,131 $2,804 $2,533 0 243 $1,982 Capitalization: Common share equity 5 792 $ 708 $ 644 $ 598 $ 562 Cumulative preferred stock subject to mandatory redemption 45 46 22 23 25 Other cumulative preferred stock 162 162 162 162 162 Long-term debt 1,220 1,065 991 864 806 Totalcapitalization $2,219 $1,981 $1,819 $1,647 $1,555 Total electric sales (millions of kilowatthours) 17,025 16,388 16,582 16,668 16,372 Cost per KWH to ultimate customers (cents) 7.87 7.46 7.90 6.66 5.54 System maximum demand (megawatts) 3,234 3,171 3,144 3,140 3,183 Numbcrofemployees 5,058 5,126 5,177 5,220 5,295 Number of customers 1,102,470 1,086,094 1,071,722 1,055,472 1,038,794 CRestated (See Note A-1 of Notes to Financial Statements)
" Includes fuel component of purchased electric energy, fuel handling and other related cost i 15
Financial Review Earnings and Earnings in 1983 rose 18 percent to $5.48 per has been increased eight times in the last five dividends average share, compared with $4.65 per aver- years. Dividends declared in 1983 of $3.25 age share in 1982. Over the last five years, represent a 59 percent payout of earnings. earnings have increased at a compound The market price of our common shares growth rate of over 11 percent.The annual was $39 per share at year end, which repre-dividend rate was raised twice in 1983, and sents 121 percent of year-end book value. now is at $3.40 per share.The dividend rate Operating revenue Operating revenue in 1983 totaled $1.4 bil- percent increase in kilowatthour sales to lion, compared with $1.3 billion in 1982. This ultimate customers.The growth in sales was increase reflects rate increases and a 5.4 due to weather and the economic recovery. Operating expenses Total operating expense in 1983 increased late August.The outage was caused by a by $86 million. This was due to higher fuel major turbine failure. Maintenance work and purchased power costs, and increases in done while the unit was out of service con-other operation and maintenance expenses. tributed to the increase in other operation The higher fueland purchased power and maintenance expense as did continued costs resulted principally from the increased inflationary pressures. (See pages 36 and 37 sales of electric energy and the need to for a discussion of the effects of inflation.) replace the power that was not produced by in 1983, the System charged to operations the System's largest coal-fired unit due to an $201 million of federal, state and municipal extended outage of this unit beginning in taxes, an 11 percent increase over 1982. Otherincome "Other income /(expense)- net" decreased of " Notes to Financial Statements.") by $24 million in 1983 primarily due to the Inaddition,$7million of thecostof the establishment of a $17 million reserve (59.2 cancelled Pilgrim 2 nuclear unit was written million after tax). This reserve is part of our off di ring 1983.The recovery of this amount proposal to change New England Energy through rates is being challenged in a current Incorporated's (NEEI) oil and gas activities rate case before the Federal Energy Regula-to a non-rate regulated status. (See " Oil tory Commission (FERC). (See Note C of and gas operations" section and Note A-3 " Notes to Financial Statements.") Earnings Dividends DeclanxiihrShare IVr average share Annual rate
$5.48 $3.40 ' $3 0
$5.50 ; ,
3.20 $3.20 5.00 3.00 $100'
$4.65 s
4.50 2.80, $2.80
$2.66 H.05 2.60
; 4.00 2.40
$2.36 3.50 $3.45 $2.24 2.20 16 3.00 I,
1m two 1981 1982. 1983
$2.1 2.00 1m 1980 ;1981 1982 1763
Allowance for AFDC increased by 41 percent in 1983 and 22 return on common equity and an increase in funds used during percent in 1982. The increase in 1983 was due the percentage of equity funds used to construction to the increased level of construction work in finance construction. The increase in 1982 (AFDC) progress (CWIP), an increase in the allowed was largely due to increased CWIP. Oiland gas NEEI is currently limited to a utility return Under the proposed policy and after a operations on its oil and gas activity. It was permitted to transition period estimated to be a few years enter and continues in this activity under in duration, profits and losses would flow regulations prescribed by the Securities and entirely to NEEl. Although we would not Exchange Commission (SEC) underits expect to record any earnings on our oil and authority to regulate the non-utility activities gas investments during this transition of registered utility holding companies. period, we believe the proposed policy is in In view of the current level of NEEl's oil the best long-term interests of our customers and gas expenditures and the current soft- and our shareholders. (See Note A-3 0f ness and future uncertainty of oil and gas " Notes to Financial Statements.") markets, we have filed a proposal with the In 1983, NEEI, which had previously been SEC that would change the way NEEI accounted for on the equity method, was accounts for its oil and gas interests. This consolidated for accounting purposes. We proposal would phase out the existing rate made this change because of the continued regulated approach and phase in a non-rate growth of our oil and gas operations. This regulated approach.This proposed change change reduced our equity ratio to 36 per-would both increase the potential return and cent which islower than optimum,but the risk associated with this return. we expect to be back above 40 percent in a few years. 1983 capital In 1983, cash construction expenditures 54 percent in 1981. expenditures for New England Power and the retail In March 1983, New England Power and financing companies totaled $231 million.These issued $90 million of 30-year,97/s% tax-expenditures included $115 million spent exempt pollution control bonds to refund on the Seabrook 1 and 2 and Millstone 3 $90 million of maturing tax-exempt bonds, jointly-owned nuclear units under con- During November and December of 1983, struction and $42 million for coal conver- New England Powerissued $4.1 million of sion at the Salem Harbor Station. 5-year,8% pollution control bonds plus Internally generated cash provided three additional series of 30-year pollution 54 percent of these capital expenditures in control bonds totaling $112 million at rates 1983, compared with 64 percent in 1982 and ranging from 97/s% to 10%%. In March 1983, Book Value PerShare Market Price PerShare Year end Year end
$38.00 - $38.00 t
f
$32.27 M
30.00 : . $29.90 h 1 ' 30m tw ,
$28.29 h - W ,'
$27.10 tr "N @
26.00 $26.15 - 26.00
- EmW{'W g-"1 f Wit' Nfn -~
$3w
(& 1 y; am i %y.. ww wo
- . -1 1 i
22.00 {;F fiOS 2. 4 19 22.00 $22% ' O M @o h ,Y [ i
$20%
- ,,a .
.. $ 3 'e .
A.. c 18m u m s u w m ~a . 18.00 1979 1980 ' 1961 1962 1983 .1979 ,19M0 1961 .1982 1983 17
Narragansett Electric retired $9.8 million joint venture. of maturing 3%% first mortgage bonds. In August 1983, New England Electric in 1983, oil and gas exploration and devel- Transmission Corporation arranged opment expenditures totaled $149 million $120 million in construction financing with a including capitalized interest costs. Sixty group of nine banks for the direct current / million dollars of this program was financed alternating current converter station and a through bank loans and the remainder came portion of a tie line between the Hydro-principally from inte,nally generated funds. Quebec electric system and New England. Our shipping joint venture placed its New England Electric System raised about coal-fired, coal-carrying ship in service $30 million of equity in 1983 through the in August 1983. This ship was financed by issuance of new common shares under the
$51 million of U.S. Government guaran- System's Dividend Reinvestment and teed loans, and equity contributions of $22 Common Share Purchase Plan, Employee million by the joint venture participants. Share Ownership Plan, and Employee incen-We have a 51 percent interest in the tive Thrift Plan. This amount compares with
$24 million added from these plans in 1982.
1984 capital Cash construction expenditures for New to provide 60 percent of tht.se needs in 1984 expenditures England Power and the retail companies are and 75 percent over the next three years. and financing estimated to be $265 million in 1984. This New England Power plans to issue includes $126 million for jointly-owned an additional $10 million of tax-exempt nuclear units under construction and $40 pollution control bonds and $50 million of million for the Salem Harbor coal conversion. preferred stock in 1984. In January 1984, Internally generated cash is expected to Narragansett Electric issued $20 million of provide approximately 55 percent of these 12%% first mortgage bonds.The proceeds needs in 1984, and we estimate that over the were used in part to purchase $14.2 million of next three years internal funds should pro- its outstanding 17%% first mortgage bonds. vide 70 percent of construction requirements. Bond ratings for Narragansett Electric, These estimates are based on the inclusion Massachusetts Electric and New England of a portion of CWIP in rate base as allowed Power are single A or double A. by a recent FERC ruling described in the No public offering of New England Elec-next section. tric System common shares is contemplated In 1984, expenditures for oiland gas in 1984 or the foreseeable future. However, exploration and development are estimated in 1984, New England Electric System expects to be $144 million including capitalized to raise about $32 million of equity through interest costs. Internal funds are estimated the issuance of new common shares under Customers Senal Per Emploge NEES Energy hh IVrrmt
,7 . ,y~ % ,; _ _ _ , .
.y ,
.-. 220 - -218
% - ' ilydro 8% - Ilydro 10%~
pi . J
' 202 ~ Nuclear 14%
200 ' NuclEr15%1 . -n [7 181 ' W 25% 180 F
'1% 158 g 733 ,
Gul50%
.140 ' .
137 18
-E1971) 1974 .1977 . 1980; 1983 1979 1984
the System's Dividend Reinvestment and Share Ownership Plan,and Employ'ee Common Share Purchase Plan, Employee Incentive Thrift Plan. Rate increases During 1983, New England Power rate base, its inclusion has no impact on net i partially settled a pending wholesale rate income but does result in a substantial case for $30.2 million.The only remaining increase in cash flow. Legislation is pending issue relates to the recovery of costs asso- in Congress which,if passed, woulc. signifi-ciated with the cancelled Pilgrim 2 nuclear cantly limit this FERC ruling. unit. (See Note C of " Notes to Financial Our Massachusetts and New Hampshire Statements.") retail companies have been allowed, effec-In January 1983, our Massachusetts retail tive January 1,1984, to flow through to their company was allowed to begin collecting a customers this latest wholesale rate increase.
$1.2 million rate increase and,in April 1983, Our Rhode Island retail company has been our RhodeIsland retailcompany was allowed to flow through this increase to its granted a $5.3 million rate increase. customers effective February 7,1984.
At the wholesale level, we have reached Our Rhode Island retail company filed a agreement on a $41 million partial settle- $10 million rate increase with the Rhode ment of a rate increase which took effect on Island Public Utilities Commission. A final January 1,1984. The partial settlement must order is expected by April 30,1984. !!ow-be approved by the FERC.The settled rate ever, the Commission issued an interim level reflects $43 million due to the inclusion order on February 1,1984, which requires of a portion of CWIP in rate base, which is refunds of amounts earned in excess of the still at issue and subject to refund. Inter- allowed return since April 1983.The total venors are challenging the application of a amount of these refunds through December FERC rule permitting the inclusion of a por- 1983 has yet to be determined but is not tion of CWIPin rate base. expected to exceed $5 million. The order fur-In 1983, the FERC issued a ruling which ther requires a three month interim rate allows t e to 50 percent of CWIP to be reduction of approximately $450,000 per includeu in rate base in addition to any month until the final order is issued. This CWIP already allowed for fuel conversion amount is subject to further adjustment projects or pollution control facilities. This based upon actual carnings for the months rule enables us to recover currently through of February through April 1984.We have rates the costs of financing our construction appealed this decision to the Rhode Island program rather than recording AFDC. Since Supreme Court. AFDC is not recorded on CWIP included in NEES Assets By Function Return On Common Equity I\ w nt !\ m nt
~
i m - e Shipping 1% M 17.69
;V u G!& Gas 16% e'
{ l New Hampshire 1% ' l 16.0 % RhodeIsland 9% ~ 16 l Retail
- Electric 29%
i Mawdhusetts 19% g i I4 . f 13.5% '
, 13.2 %
1 i Wholesale aW54% ~ 12
~ 10 u . 19t[ ; 1m _
1979 1WO 1981 :. 1982 ', 196 g9 l
New England Electric System and Subsidiaries Statements of Consolidated Income Year ended December 31 (thousands of dollars) 1983 1982* 1981' Operating revenue (Note A) $1,373,878 $1,261,860 $1,303,538 Operating expenses: Fuel for generation 408,569 429,932 537,509 Purchased electric energy: Fossil and interchange 113,918 66,969 110,284 Nuclear entitlements 80,228 70,829 62,985 Other operation 175,433 163,523 155,239 Maintenance 81,743 62,888 55,568 Depreciation and amortization (Notes A and C) 133,8 % 134,280 87,582 Taxes,other than federalincome 93,127 90,195 91,155 Federalincome taxes (Note B) 107,468 89,956 70,653 Totaloperating expenses 1,194,382 1,108,572 1,170,975 Operatingincome 179,4 % 153,288 132,563 Otherincome(Note A): Allowance for equity funds used during construction 32,897 20,953 13,061 Equity in income of nuclear power companies 6,147 5,488 4,414 Other income /(expense)- net (Note C) (8,811) 15,143 17,943 Federal taxes on other income-credit (Note B) 13,809 4,393 6,336 Operating and otherincome 223,538 199,265 174,317 Interest: Interest on long-term debt 83,015 78,728 62,566 Otherinterest 5,974 10,100 22,027 Allowance for borrowed funds used during l construction, net of deferred federal i income taxes of $12,066,$10,618 and .
$12,134 (Note A) (14,228) (12,515) (14,293) '
Totalinterest 74,761 76,313 70,300 Income after interest 148,777 122,952 104,017 Preferred dividends of subsidiaries 16,158 14,627 13,034 Net income $ 132,619 $ 108,325 $ 90,983 Average common shares 24,183,447 23,292,847 22,483,582 Per share data: Net income $ 5.48 $ 4.65 $ 4.05 Dividends declared $ 3.25 $ 2.95 5 2.655
' Restated (Note A-1) 20 The accompanying notes are an integral part of these financial statements.
New England Electric System and Subsidiaries Consolidated Balance Sheets At December 31 (thousands of dollars) 1983 1982" Utility plant, at ori3i.ral cost (Note A) $2,264,872 $2,211,369 Assets Construction work in progress (Note F) 721,676 505,734 2,986,548 2,717,103 Less accumulated provisions for depreciation and amortization 712,312 655,870 Net utility plant 2,274,236 2,061,233 Prowloilandgas properties,atfullcost (Note A) 538,370 361,9M 86,552 114,435 Unproved properties 624,922 476,389 Less accumulated provision for amortization 126,169 83,216 Net oiland gas properties 498,753 393,173 investments (Note A): Nuclear power companies,at equity 4180 42,M6 Other subsidiaries,at equity 11,i34 39 Otherinvestments,at cost 4,443 8,413 Totalinvestments 60,857 50,798 Current assets: Cash, including temporary cash investments of $10,400 in 1982 2,909 12,652 Accounts receivable,less reserves 160,815 123,867 Fuel, materials and supplies, at average cost (Note F) 84,205 93,867 Other current assets 1,749 746 Totalcurrent assets 249,678 231,132 Deferred charges and other assets 4,719 5,977 Unamortized property losses (Note C) 42,988 62,040
$3,131,231 $2,804,353 Capitalization Capitalization (see accompanying statements):
andliabilities Common share equity $ 792,191 $ 707,923 Cumulative 3 referred stock subject to mandatory redemption 44,342 45,725 Other cumu ative preferred stock 162,528 162,528 Long-term debt 1,219,946 1,065,057 Totalcapitalization 2,219,007 1,981,233 Current liabilities: Long-term debt due within one year 2,805 102,643 77,950 36,290 Short-term debt (Note D) Accounts payable (Note F) 149,859 128,255 Accrued taxes 53,103 37,001 Accrued interest 24,746 20,674 Dividends declared 22,112 19,005 Other current liabilities 26,445 15,704 Total current liabilities 357,020 359,572 407,728 352,573 Deferred income taxes (Note B) Unamortized investment tax credits (Note B) 125,507 106,638 Other reserves and deferred credits (Note A) 21,969 4,337 Commitments and contingencies (Notes A, C and F)
$3,131,231 $2,804,333 l
' Restated (Note A-1)
The accompanying notes are an integral part of these financial statements. 21
New England Electric System and Subsidiaries Consolidated Statements of Capitalization At December 31 (thousands of dollars) Common share equity (Note E) 1983 1982 Common shares, par value $1 per share Authorized-30,000,000 shares Outstanding-24,549,338 and 23,680,068 shares $ 24,549 $ 23,680 Paid-in capital 398,886 369,439 Retained earnings 368,756 314,8(M Total common share equity $792,191 $707,923 Cumulative preferred stock of subsidiaries 1983 1982 Shares outstanding Company Par value 1983 1982 Cumulative preferred stock subject to mandatory redemption (Note H) New England PowerCompany 11.04% Series $ 25 800,000 850,000 $ 20,000 $ 21,250 (less shares held at cost for sinking fund) (24,900) (23,200) (658) (525) 13.48% Series 100 250,000 250,000 25,000 25,000 1,025,100 1,076,800 44,342 45,725 Other cumulative preferred stock Matsachusetts Electric Company 4.44% Series 160 75,000 75,000 7,500 7,500 4.76% Series 100 75,000 75,000 7,500 7,500 7.80% Series 100 150,000 150,000 15,000 15,000 7.84% Series 100 200,000 200,000 20,000 20,000 The Narragansett Electric Company 4 %% Series 50 180,000 180,000 9,000 9,000 4.64% Series 50 150,000 150,000 7,500 7,500 _8.00% Series 50 200,000 200,000 10,000 10,000 New England PowerCompany 6.00 % 100 80,140 80,140 8,014 8,614 4.56% Series 100 100,000 100,000 10,000 10,000 4.60% Series 100 80,140 80,140 8,014 8,014 4.64% Series 100 100,000 100,000 10,000 10,000 6.08% Series 100 100,000 100,000 10,000 10,000 7.24% Series 100 150,000 150,000 15,000 15,000 8.40% Series 100 150,000 150,000 15,000 15,000 8.68% Series 100 100,000 100,000 10,000 10,000 1,890,280 1,890,280 162,528 162,528 l Total cumulative preferred stock of subsidiaries (annual dividend requirement $16,082 and $16,224) 2,915,380 2,967,080 $206,870 $208,253 22
Long term debt (Note G) 1983 1982' Company Rate Maturity Notes New England Electric System 8%7c 1987 $ 17,500 $ 19,500 Granite State Electric Company 9W% 1986 4,000 4,800 Massachusetts Electric Company (Note A) 8%% 1992 195 Manchester Electric Company (Note A) 8%% 1992 200 New England Energy Incorporated (Note G) variable 1990 299,500 239,500 First mortgage bonds Massachusetts Series D 3%% 1985 8,500 8,500 Electric Series F 5% 1991 17,490 17,490 Company Series G 4%% 1992 60,000 60,000 Series H 4%% 1993 10,000 10,000 Series 1 5%7c 1996 10,000 10,000 Series J 7%% 1998 15,000 15,000 Series K 7%% 1999 15,000 15,000 Series M 7%% 2002 20,000 20,000 Series 0 12W% 2012 25,000 25,000 The Series D 3W% 1983 9,838 Narragansett Series E 3W7c 1986 9,750 9,750 Electric Series F 4%7c 1994 4,600 4,600 Company Series G 6%% 1998 7,500 7,500 Series I 7%% 2002 7,500 7,500 Series J 9 7c 2004 9,700 9,700 Series M 13 7e 2010 20,000 20,000 Series N 17% 7o 2012 17,650 20,000 New England Series F 3%% 1985 25,000 25,000 Power Series G 4%7o 1987 10,000 10,000 Company Series H 4 % 1988 10,000 10,000 Series 1 4%% 1991 20,000 20,000 SeriesJ 4%% 1992 12,000 12,000 Series K 4W% 1993 10,000 10,000 Series L 6%% 1996 10,000 10,000 Serics M 6%% 1997 15,000 15,000 Series N 7%7e 1998 20,000 20,000 Series O 7%7o 1998 20,000 20,000 Series P 8%% 1999 15,000 15,000 Series R 7%% 2002 25,000 25,000 Series S 8%7c 2003 40,000 40,000 Series T 8%7c 2003 40,000 40,000 Series U 10%% 2005 72,800 72,800 Gener:1and New England Series C 91/2 % 1983 90,000 refunding Power Series H 8 7o 1988 4,150 mortgage bonds Company Series A 8%% 2007 50,000 50,000 Series B 9W% 2008 50,000 50,000 Series E 16 7o 2011 48,500 50,000 Series F 16%% 2012 48,500 50,000 Series D 9%% 2013 90,000 Series G 9%7o 2013 16,150 Series i 10W7e 2013 16,600 Series J 10%7e 2013 79,250 Less funds held by trustee, Series G, H,I and J (Note G) (97,473) Unamortized discounts and premiums (6,611) (978) Totallong-term debt 1,222,751 1,167,700 Long term debt due within one year (2,805) (102,643) Long-term debt $1,219,946 $1,065,057
' Restated (Note A 1)
The accompanying notes are an integral part of these financial statements. 23
New England Electric System and Subsidiaries Statements of Changes in Consolidated Financial Position Year ended December 31 (thousands of dollars) 1983 1982* 1981* Sources ofinterr' ally From operations: gener:ted funds Net income $ 132,619 $108,325 $ 90,983 Depreciation and amortization 133,8 % 134,280 87,582 Investment tax credits-net 19,370 21,534 21,413 Deferred income taxes 43,089 55,951 62,200 Allowance for funds used during construction, net of deferred federalincome taxes of
$12,066, $10,618 and $12,134 (47,125) (33,468) (27,354) 281,849 286,622 234,824 Dividends on NEES common shares (78,667) (68,798) (59,799)
Net funds from operations 203,182 217,824 175,025 Sources of externally From financing transactions: gener:ted funds NEES common shares 30,332 24,651 14,676 Long-term debt-issues 168,677 177,660 190,666 Long-term debt-retirements (107,993) (63,062) (26,910) Preferred stock-issues 25,000 Preferred stock-retirements (1,250) (1,250) (1,250) Changes in short-term debt 41,660 (49,085) (10,680) Net funds from financing transactions 131,426 113,914 166,502 Sources of funds 334,608 331,738 341,527 Applications of funds Construction expenditures, excluding allowance for funds used during construction 231,068 2 % ,726 223,519 Oil and gas exploration and development 148,533 159,066 143,331 Investments 10,059 1,689 237 Applications of funds 389,660 367,481 367,087 I
$ (55,052) $(35,743) $(25,560) i Incre:se/(Decrease) Cash $ (9,743) $ 5,516 $(20,777) .
in working capital Accounts receivable 36,948 (12,215) (21,006) I l cnd otheritems Fuel, materials and supplies (9,662) (1,619) 12,093 Other current assets 1,003 218 (814) Accounts payable (21,604) 7,691 1,344 Current liabilities-other (34,022) (39,450) (752) Othe-items (17,972) 4,116 4,352
$ (55,052) $(35,743) $(25,560) '
l
' Restated (Note A 1)
New England Electric System and Subsidiaries Statements of Consolidated Retained Earnings i Ye:r ended December 31 (thousands of dollars) 1983 1982 1981 Retained earnings at beginning of year S 314,804 $275,277 $244,093 l Net income 132,619 108,325 90,983 ' Cash dividends on common shares (78,667) (68,798) (59,799) Retained carnings at end of year $ 368,756 $314,804 $275,277 24 The accompanying notes are an integral part of these financial statements, i
- New England Electric System and Subsidiaries Notes to Financial Statements Note A Significant accounting j policies
- 1. Basis of The consolidated financial statements New England Energy Incorporated consolidation include the accounts of New England Elec- (NEEI), an oil and gas exploration and fuels tric System (NEES) and all subsidiaries subsidiary, which had previously been except NEES Energy,Inc. and New England accounted for on the equity method,is now Electric Transmission Corporation (NEET), being consolidated for accounting purposes.
which are recorded at equity. NEES Energy Due to the increased level of NEEI's opera-is a company involved in energy conserva- tions, the System adopted this consolidation tion services whose operations are different policy to more clearly disclose its operating from the consolidated group. NEET is a results and financial position. Accordingly, transmission service company which is the prior years' financial statements and building facilities to transmit hydroelectric selected quarterly financial information have power between the Hydro-Quebec electric been restated to reflect this change, which system and New England. NEET has had no impact on net income. entered into agreements with participating On July 1,1983, NEES completed an New England utilities, including New Eng- exchange offer for the outstanding shares of land Power Company (NEP), providing for hianchester Electric Company and merged it thejoint financia support of t ie facilities. into hiassachusetts Electric Company. The Four minority-owned nuclear power compa- NEES common shares issued in 1982 and I nies and a shipping joint venture are also 1983 as part of the exchange offer were l valued at equity. All significant intercom- recorded at the underlying book value of pany transactions between consolidated Afanchester Electric (see Note E). subsidiaries have been eliminated.
- 2. System of The accounts of NEES and its utility sub- the Uniform System of Accounts prescribed accounts sidiaries are maintained in accordance with by regulatory bodies having jurisdiction.
- 3. Oilcnd gas NEEIis engaged in various activities company, and is not subject to certain limits, oper:tions relating to fuel supply for the NEES com- applicable to non regulated companies,on sanies as authorized by the Securities and the amount of capitalized costs of oil and gas Exchange Commission (SEC). These activi- property. NEEl capitalizes all costs incurred ties presently include (a) participation in connection with its fuel exploration activi-(principally through a partnership with a ties, including certain costs not capitalized by non-affiliated oil company)in domestic non-regulated companies. The costs capital-oil and gas exploration, development and ized by NEEI include interest paid to banks production,(b) sale of fuel oil purchased in and a return paid to NEES representing a the open market to NEPand (c) operation, utility return on its approximate $40 million through a joint venture, of a coal-fired, investment in NEEl. In 1983,1982 and 1981, coal-carrying ship. NEES recorded income of $6.4 million,56.9 in accordance with an intercompany million and $6.5 million after tax in "Other pricing policy (Pricing Policy) approved by income" associated with its investment in the SEC, NEEl follows the full cost account- NEEl. Ilowever, the amount recorded in 1983 ing method. Based upon this Pricing Policy, was offset by the reserve described on the NEElis considered to be a rate regulated following page.
25
Under the terms of the Pricing Policy, over the next few years to allow the buildup ca pitalized costs relating to wells and leases of the reserve described below. In addition, which have been determined to be either consistent with this proposal, a $17 million commercial or non-commercial are included reserve ($9.2 million after tax including the in " Proved oil and gas properties, at full cost!' $6.4 million described on the previous page) and are being amortized using the unit of pro- was established in 1983, and will be increased duction method.To date, all NEEI production (or decreased) by regulated oil and gas oper-
- has been sold to non-affiliated third parties. ating profits (or losses) of NEEl. Upon termi-Any excess (or deficiency) in the proceeds ' nation of the Pricing Policy, this reserve would ,
from the sale of NEEl production, after recov- be used to offset the accounting effect of NEEI ery of amortization and production costs, is being converted from a rate regulated to a i passed on to(or recovered from) NEP non-rate regulated company. Based upon cur-through the sale to NEP of oil purchased by rent proved reserves and oil and gas prices, ! NEEIin the open market. From NEEl's incep- the termination of the Pricing Policy as of i: tion, proceeds have exceeded costs by over December 31,1983 would have resulted in an l
$8.7 million. These savings have been passed ap proximate $70 million after-tax write down on to NEP and ultimately to the customers of of NEEl's assets. However, under the Sys-the System's retail companies. To date, there tem's proposal, termination of the Pricm, g Pol-L have been nolosses passed on to NEP. icy wi; I not occur until the reserve is sufficient ,
! The System has made a aroposal to the to offset any required write down, at which . SEC providing for the moc ification and the time NEEI will become entirely non-rate regu- - ahasmg out and eventual termination of the lated. (See Oil and gas operations section of L. ' ricing Policy and the conversion of NEEI to a " Financial Review.") non rate regulated company. lf the proposal - NEEI's costs incurred and capitalized in were accepted, NEES would not expect to connection with its oil and gas exploration
- earn any return on its investment in NEEI and development activities are as follows
Year ended December 31 (thousands of dollars) 1983 1982 1%1 Leases $ 50,237 $ 57,561 $ 53,448 Exploration 48,935 70,067 48,694 Development 41,583 28,622 37,359 Other 7,778 2,816 3,830 Total $148,533 $159,066 $143,331 l l Included in the above totals are $40,749,000, category and the years in which they were ' l
$41,916,000 and $32,236,000, respectively, incurred. These costs are included in the of costs of capital for the years 1983,1982 " Consolidated Balance Sheets" under the and 1981. caption " Unproved properties."
The following table presents costs by Prior (thousands of dollars) 1983 1%2 1981 years Total Acquisition costs $29,107 $24,248 $7,205 $5,057 $65,617 i Exploration costs 13,382 48 116 13,546 Development costs 7,192 197 7,389 Total $49,681 $24,493 $7,321 $5,057 $86,552 NEEl estimates that the majority of these The remainder of the acc uisition costs and costs will be included in proved oil and gas allof theexplorationanc developmentcosts properties by December 31,1985. Approxi- relate to we is which may be either currently mately 60 percent of the total acquisition drilling, or completed, but which have not costs relate to leases on which drilling had been determined to be either commercial or not yet begun as of December 31,1983. non-commercial. 26 -
- ._ - - ..-. - - - - _ - - . - - - - . - ~ -
- 4. Revenue The utility subsidiaries record revenue as fromits partners.
billed on a cycle billing basis. No revenue is The" Operating revenue" included in recorded for electricity that has been deliv- the " Statements of Consolidated Income" cred but not billed. NEEI recognizes revenue iscomposedof thefollowing: from sales to third parties when received Year ended December 31 (thousands of dollars) 1983 1982* 1981* Electric sales (excluding fuel cost recovery) $ 802,166 $ 710,771 $ 622,N6 Fuel cost recovery 507,380 481,3 % 640,863 Other utility revenue 22,436 20,482 19,192 Oilsales 13,312 12,891 6,963 Gas sales 28,584 36,320 14,474 Totaloperating revenue $1,373,878 $1,261,860 $1,303,538
' Restated (Note A-1)
- 5. Utility plant The utility subsidiaries capitalize, as part of rates approximate the pre-tax costs of funds construction costs, an item called allowance (11.7 percent in 1983,11.1 percent in 1982 for funds used during construction (AFDC), and 12.5 percent in 1981). Consistent with which represents the composite interest and past regulatory approvals, tax benefits on f equity costs of capital funds used to finance theborrowed funds component of AFDC that portion of construction costs not eligible are deferred and amortized over the esti-forinclusion in rate base. AFDC is recog- mated lives of the property giving rise to nized as a cost of " Utility plant." Accord- the tax benefits.
l ingly, AFDC is capitalized in the same in the " Statements of Consolidated manner as construction labor and material Income," the borrowed funds com xnent of costs, with offsetting credits to "Other AFDC is presented net of related c eferred income" and " Interest." This method is in federalincome taxes as detailed below. An accordance with an established regulatory additional effect of this presentation is the approved rate-making practice under which allocation of a credit of equal amount, result-a utility is permitted a return on, and the ing from the deductibility of capitalized recovery of, these capital costs through their interest expense, to "Other income: Federal ultimate inclusion in the rate base and in the taxes on other income-credit." provision for depreciation.The composite Year ended December 31 (thousands of dollars) 1983 1982 1981 Allowance for borrowed funds used during construction $ 26,294 $ 23,133 $ 26,427 Related deferred federalincome taxes (Note B) (12,066) (10,618) (12,134) Allowance for borrowed funds used during construction-net 14,228 12,515 14,293 Allowance for equity funds used during construction 32,897 20,953 13,061 Total allowance for funds used during construction-net $ 47,125 $ 33,468 $ 27,354 Costs of current repairs and minor disposed of, together with costs of removal replacements of plants and properties are less salvage, is charged to " Accumulated charged to maintenance expense accounts provisions for depreciation and amortization." as incurred. Plant, retired or otherwise l 27 L
4.
- 6. Depreciation The depreciation and amortization expense Income"!3 composed of the following:
' and amortization included in the " Statements of Consolidated l Year ended December 31 (thousands of dollars) 1983 1982* 1981*
Depreciation $ 71,958 $ 69,585 $61,140 Amortization: Oiland gas properties 42,953 47,670 20,342 Propertylosses 12,453 11,650 6,100 OilConservation Adjustment (OCA) 6,532 5,375 Total depreciation and amortization expense $133,896 $134,280 $87,582
' Restated (Note A-1) l l
l Depreciation is provided annually on a recovered from customers for the amortiza- l straight-line basis in amounts at least suffi- tion of certain coal conversion facilities. This i cient to amortize the undepreciated cost current charge to customers (OCA) was ; of depreciable utility properties over their designed to allow the accelerated recovery of I estimated remaining service lives. expenditures for coal conversion facilities at
' Oil and gas property amortization is based the Salem Harbor Station, both during and 1 on a percentage calculated by dividing each after the conversion period, out of savings j year's production by total estimated proved from burning coal. In the event that changes and probable reserves (unit of production in circumstances prevent such accelerated
. method)(see Note A-3). recovery, the OCA provisions allow NEP to The amortization of propertylosses revert to traditional means of cost recovery. ,
relates to cancelled nuclear power plants The provisions for depreciation as a per-(see Note C). centage of weighted average depreciable The Oil Conservation Adjustment (OCA) property by plant category are as follows: amortization represents the net amount l 1983 1982 1981 Hydro production 1.5% 1.5% 1.5% Thermal production 4.2% 4.2% 3.9% Other 3.2% 3.2% 3.2% Combined 3.4% 3.4% 3.2%
- 7. Retirement plans The funded plans are noncontributory supplemental payment to retirees. The and provide retirement benefits for substan- increase in pension costs in 1982 was due tially all employees. Current service costs to wage and salary increases and a revision i are funded annually; prior service costs are of plan provisions which increased benefits i being funded over a 20 year period; actuarial for servicein excess of 30 years.
gains and losses are being amortized over a The comparison, as shown on the follow-i 10 year period. Total pension expense, ing page,of the market value of pension including the amortization of prior service fund assets with the actuarial present value costs and of actuarial gains and losses, was of accumulated plan benefits is provided as
$6,761,000 in 1983, $7,816,000 in 1982 and a measure of the financialcondition of the l
$6,459,000 in 1981. plans if they had been terminated as of April 1, !
The decrease in pension expense in 1983 1983 and 1982.The comparison shows that is principally due to actuarial gains on plan the plans' net assets exceed the actuarial pres-i investments, partially offset by a one time ent value of all plan benefits earned to date. l l 28
At April 1 (thousands of dollars) 1983 1982 Actuarial present value of accumulated plan benefits: Vested $174,433 $142,688 Non-vested 5,071 3,920 Total $179,504 $146,608 Net assets availabic for plan benefits $278,638 $240,948 The above calculation of the actuarial used by the Pension Benefit Guaranty present value of accumulated plan benefits Corporation (a federal insurer of pension used an investment return of 8.7 percent in benefits); the above calculation does not 1983 and 10.0 percent in 1982 which repre- reflect any future salary increases. sents a weighted average of the interest rates Note B Total federal income taxes in the " Statements of Consolidated Income" are as follows: ta es Year ended December 31 (thousands of dollars) 1983 1982' 1981' Income taxes charged to operations $107,468 $89,956 $70,653 income taxes credited to "Other income" (13,809) (4,393) (6,336) income taxes netted against AFDC-borrowed funds (Note A) 12,066 10,618 12,134 Total federalincome taxes $105,725 $%,181 $76,451 Total federal income taxes, as shown above, consist of the following components: Year ended December 31 (thousands of dollars) 1983 1982* 1981* Current income taxes S 35,246 $12,414 $(14,360) Deferred income taxes 51,109 62,233 69,398 investment tax credits-net 19,370 21,534 21,413 Total federalincome taxes $105,725 $96,181 $ 76,451 investment tax credits of subsidiaries are reflects reductions in current federal income deferred and amortized over the estimated taxes attributable to investment tax credits lives of the property giving rise to the cred- which have been deferred. its. Investment tax credits-net principally Certain subsidiaries, with regulatory The following table details the components approval, have adopted comprehensive of the deferred federalincome taxes of interperiod tax alkication (normalization). these subsidiaries: Year ended December 31 (thousands of dollars) 1983 1982' 1981* Allowance for borrowed funds used during construction"(Note A) $ 12,066 $ 10,618 $ 8,669 Excess tax depreciation and amortization 24,006 21,836 15,398 Propertylosses(Note C) 19,214 Oil and gas costs capitalized for book purposes and deducted for tax purposes 53,761 58,615 42,121 NEEl reserve (Note A 3) (7,732) Other (1,571) 616 (375) Reversalof prior year tax deferrals (29,421) (29,452) (15,629) Deferred federat income taxes S 51,109 $ 62,233 $ 69,398
- Restated (Note A 1)
"Endudes $3,465,000 in 1981 transferred to property losses. 29
Total federalincome taxes differ from the tory tax rate to income before taxes.The rea-amounts computed by applying the statu- sons for the differences are as follows: Year ended December 31 (thousands of dollars) 1983 1982* 1981* Computed tax at statutory rate of 46 percent $117,071 $100,801 $83,015 Increases /(reductions)in tax resulting from: Allowance for equity funds used during construction (15,133) (9,638) (6,008) Book versus tax depreciation not normalized 6,751 7,112 4,829 Amortization of investment tax credits (3,499) (3,322) (2,644) All other differences 535 1,228 (2,741) Total federalincome taxes $105,725 $ 96,181 $76,451 Effective federalincome tax rate 41.57c 43.97e 42.47e
' Restated (Note A 1)
Federal income tax returns for NEES and reported on by the Internal Revenue Service its subsidiaries have been examined and through 1978. Note C Included in the " Consolidated Balance to build the Pilgrim 2 nuclear generating Propertylosses Sheets" under " Unamortized property unit in Plymouth, hiassachusetts. As a part-losses" are the unamortized portions of the owner, NEP had expended about $50 million costs of three nuclear generating projects ($29 million after tax) in the unit. Commenc-cancelled during the planning stage, ing Alarch 1,1982, NEP began to amortize the in December 1979, NEP cancelled plans loss over eight years.The amount of the loss to build two nuclear generating units in that ultimately will be recovered in rates is Charlestown, Rhode Island. Commencing subject to the outcome of contested proceed-June 1,1980, NEP began to amortize and to ings before the Federal Energy Regulatory recover through rates this loss of approxi- Commission (FERC). However, the FERC mately $28 million ($17 million after tax) over has allowed NEP to recover through rates, a five-year period.The state regulatory com- subject to refund, the full amount of the missions have approved the pass-through of undisputed portion of the loss and part of these costs to the System's retail customers. the disputed portion.The state commissions On December 31,1980, a non-affiliated have also allowed the pass-through of these company announced cancellation of plans to amounts to the System's retail customers, build two nuclear generating units in hionta- subject to refund pending resolution of the gue, hiassachusetts. As a part-owner, NEP matter at the FERC. Hearings on this issue I had expended approximately $5 million ($3 before the FERC concluded in November million after tax)in the Montague units. 1983. Because the final outcome of this issue ! Commencing March 1,1982, NEP began to is substantially in doubt, NEP wrote off the I amortize and recover through rates these disputed portion of the unamortized project ; costs over a five-year period. The state regu- cost in November 1983 and,in addition, latory commissions have approved the pass- established a reserve for possible refund of through of these costs to the System's retail the small amount of the disputed portion customers. which has already been recovered from cus-On September 23,1981, a non-affiliated tomers. This reduced income by $7.3 million company announced cancellation of plans ($4.6 million after tax). 30
Note D NEES and its subsidiaries have lines of balances maintained by the subsidiaries Short-term credit totaling $138 million with a number provide compensation for certain lines of borrowing of banks. There are no formal compensating credit and fees are paid in lieu of compen-balance arrangements, although operating sating balances on other lines of credit. Note E NEES issued and sold additional common Employee Incentive Thrift Plan. NEES also Share capitalof shares, $1 par value, in 1983,1982 and issued common shares in December 1982 New England 1981, pursuant to a Dividend Reinvestment and during the first six months of 1983 in Electric System and Common Share Purchase Plan,an exchange for common stock of Manchester Employee Share Ownership Plan and an Electric (see Note A). 1983 1982 1981 Paid-in Paid-in Paid-in (thousands of dollars) Par capital Par capital Par capital Dividend Reinvestment and Common Share Purchase Plan $614 $20,436 $617 $15,645 $459 $ 9,214 Employee Share Ownership Plan 168 5,972 2% 5,375 158 3,222 Employee Incentive Thrift Plan 86 3,023 81 2,115 75 1,548 Acquisition of Manchester Electric 1 32 19 593 Premiums on preferred stocks-issues 18 Premiums on preferred stocks-retirements (16) (16) (16)
$869 $29,447 $923 $23,730 $692 $13,968 Note F (1) The consolidated utility subsidiaries' ration and developmes.. programs in 1984 Commitmn.ts construction expenditures, excluding are estimated to be $144 million. At Decem-cnd contingencies AFDC, are estimated to be $265 million in ber 31,1983, substantial commitments had 1984.The oil and gas subsidiary's expendi- been made relative to these construction and tures, including costs of capital, for its explo- exploration and development programs.
(2) Under NEP's current arrangements charges to cover the non-affiliate's services. for fuel supply, certain of its fuel contracts The agreement can be terminated on three are assi ned to a non-affiliate which pur- months' notice. Fuelinventory held by chases fuel under these contracts andtheinnon-affiliate the for NEPamounted to open market, holds the fuel in inventory, $31,316,000 at December 31,1983. This as owner, and sells the fuel to NEP at the amount is included in the " Consolidated time of burn at prices reflecting its cost of Balance Sheets" in " Fuel, matenals and the fuel. In addition, NEP pays monthly supplies"and in " Accounts payable. (3)NEPis a joint owner with other New other factors could result in one or more of England utilities of three nuclear units the units being cancelled or prevent one or now under construction. The lead owners' more of the joint owners from meeting com-estimated completion dates have been mitments to pay their share of construction extended substantially and their estimates of costs, which could also delay or prevent the costs of these units have increased sub- completion. The actual construction costs stantially during construction. Regulatory associated with these units and the amount aroceedings in connection with financing, of AFDC to be capitalized as part of their icensing, or other matters could result in costs could be aff'ected significantly by fur-further delays or possibly prevent comple- ther changes in completion dates of the tion of the units. In addition, financial or units and other factors. 31
NEP has concluded that its ownership of a passed a resolution to reduce expenditures share of Seabrook 2 is no longer in the best on Seabrook 2 to the lowest feasible level interest of its customers. Accordingly, at a until fuel loading of Seabrook 1, unless joint owners' meeting on May 6,1983, NEP Seabrook 2 is cancelled before then. As introduced a resolution to cancel Seabrook 2. a result, in September 1983, NEP stopped The motion did not carry. NEP voted in recognizing in its income statement the favor of other resolutions to cancel Seabrook2 AFDC on Seabrook 2.This reduced 1983 on September 8,1983,and March 1,1984, income by $3 million ($2.4 million after tax).
. but these too were defeated. However, on NEP expend!tures through December 31, September 8,1983, the owners unanimously 1983, and estimated cost of these units follow:
Megawatt Expenditures Estimated capacity through Estimated date of NEP December 31,1983 completed cost (d) Unit Location operation Total portion (millions of dollars) (millions of dollars) Seabrook 1 N.H. 2/87(a) 1150 115 $258(b)(c) $ 475(a)(b)(c) Seabrook 2 N.H. 12/90(a) 1150 115 76(b) 390(a)(b) Millstone 3 Conn. 5/86 1150 140 288 435
$622 $1,300 (a) On March 1,1984, the lead owner released new cost and date of operation projections reflecting a substantialincrease in the costs of Seabrook 1 and 2. Independent consultants to the joint owners indicated that upward adjustments to the Seabrook 1 projections released by the lead owner are necessary to arrive at a revised cost and a revised date of operation that have a 50 percent chance of being met.The cost and date of operation esti-mates for Seabrook l in t be above table are based on the projections as adjusted by the consultants.The estimates for Seabrook 2 in the above table are based on the projections released by the lead owner. However, NEP believes there is a substantial possibility that Seabrook 2 will not be completed.
(b) Based on approximate allocations between units. (c) Includes facilities common to Seabrook 1 and Seabrook 2. (d) Excludes cost of initial nuclear fuel cores, estimated at $35 million for Seabrook 1 and 2 and $20 million for Millstone 3. (4)In addition to the regulatory require- which may result in the modification or ments discussed above with respect to delay in, or cancellation of construction or nuclear facilities, the utility subsidiaries, operation of their existing or planned facili-in common with other utilities, are subject ties. Anyof theseeventscould resultin generally to those and other safety and increased costs to these subsidiaries and environmentai regulatory requirements, their customers. Note G The indentures relating to mortgage bonds 1984 through 1988, are as follows: $2,805,000
- Long-term debt of utility subsidiaries require sinking fund in 1984, $36,305,000 in 1985, $14,155,000 in installments totaling $6,930,000 in 1984, 1986, $21,505,000 in 1987 and $14,155,000
$6,680,000 in 1985, $7,695,000 in 1986, in 1988.
$7,595,000 in 1987 and $7,495,000 in 1988. The annualinterest requirement on the l The issuers of the mortgage bonds may outstandinglong-term debt of NEES and its l elect to satisfy these installments in cash, in utility subsidiaries at December 31,1983 is bonds or by evidencing to the trustees $93,727,000.
additional propertyin amounts as NEP issued an aggregate of $116,150,000 provided therein. of Series G,11,I and J general and refunding The aggregate cash payments required mortgage bonds in November and Decem-on long term debt and to retire maturing ber of 1983 to secure pollution control reve-mortgage bonds by NEES and its utility sub- nue bonds issued by the Massachusetts 32 sidiaries for the years ended December 31, Industrial Finance Agency,The industrial
Development Authorityof the State of New Ul and gas properties,is a revolving credit Hampshire and the City of Salem, Massa- through June 30,1985, subject to extension chusetts, through its Industrial Develop- to December 31,1986. At the end of the ment Financing Authority. At Decer..ber revolving credit period, it converts to a SW-31,1983, $97,473,000 of the proceeds from year term loan to be repaid with net revenue the issues were held by a trustee in construc- from the mortgaged properties.The total tion funds to be disbursed as qualified amount of borrowings that may be out-construction costs are incurred by NEP. star. ding under both portions of the agree-In 1981, NEEI entered into a revolving ment at any one time is a function of the credit and term loan agreement with two value assigned to the currently mortgaged banks providing for borrowings of up to a oil and gas properties. NEEl is also required total of $400 million in two different por- to maintain a minimum net worth of $40 mil-tions.The first portion, secured by a pledge lion, including subordinated notes payable of NEEI's rights with respect to NEP under to NEES. At December 31,1983, interest rates the Pricing Policy (see Note A-3), operates on borrowings of $299.5 million ($253 mil-as a revolving credit through December 31, lion under the first portion and $46.5 million 1985, subject to extension to December 31, under the second portion) ranged from 10.25 1986. At the end of the revolving credit percent to 11.56 percent. Based on the oil and period, it converts to a 5-year term loan with gas properties mortgaged at December 31, equal quarterly amortization. The second 1983, NEEI had additional borrowing capac-portion, secured by a mortgage on selected ity of $14 million under this agreement. Note H On September 1 of each year, NEP's 11.04% were held in treasury in anticipation of the Redeemable Series of cumulative preferred stock is sub- annual sinking fund requirement. NEP also preferred stock ject to a mandatory annual sinking fund has $25 million of 13.48% cumulative pre-requirement for the retirement of 50,000 ferred stock outstanding, which is subject to shares per year at $26.285 per share. At a mandatory annual sinking fund require-December 31,1983,1982 and 1981,24,900, ment for the retirement of 12,500 shares per 23,200 and 56,500 shares, respectively, had year at $100.75 per share commencing on been purchased in the open market at a cost September 1,1987. of $658,000, $525,000 and $1,288,000 and Report of E. dependent Certified Public Accountants To ths Board of Directors and Shareholders the consolidated financial position of New of New England Electric System: England Electric System and subsidiaries s of December 31,1983 and 1982, and the We have examined the consolidated balance , c nsolidated resultsof theiroperationsand sheets and the consolidated statements of Changes m their coasolidated fmancial posi-capitalization of New England Electric Sys- . tion for each of the three years m the penod tem and subsidiaries as of December 31,1983 ended December 31,1983, m conform,ty i with and 1982 and the related consolidated state-generally accepted accountmg pnnciples ments ofincome, retained earnings and APPlied on a consistent bas,s i after restate-changes in financial position for each of the a three years in the period ended December ment for We Qange in the method of cc untmg, with wru,ch we concur, to con-31,1983. Our examinations were made in solidate New England Energy Incorporated, accordance with generally accepted auditing s descn, bed in Note A to the financial standards and, accordingly, included such statements. tests of the accounting records and such other auditing procedures as we considered necessaryin the circumstances. In our opinion, the consolidated financial statements referred to above present fairly Boston, Massachusetts January 19,1984 33
New England Electric System and Subsidiaries Supplementary Information on Oil and Gas Activities (unaudited) The estimates of NEEI's proved reserves and changes to the estimated proved reserves for proved developed reserves of oil and gas, all 1981,1982 and 1983 were as follows: located within the United States,and l Crude oiland condensate Natural gas j (thousands of Bbl) (thousands of MCF) Proved reserves as of December 31,1980 1,583 47,103 Revisions of previous estimates 222 (117) Extensions, discoveries and other additions 697 11,356 Production (268) (5,727) Proved reserves as of December 31,1981 2,234 52,615 Revisions of previous estimates 34 3,846 Extensions, discoveries and other additions 549 16,171 Production (481) (11,101) Proved reserves as of December 31,1982 2,336 61,531 Revisions of previous estimates 472 (243) Extensions, discoveries and other additions 985 17,290 Production (493) (8,559) Proved reserves as of December 31,1983 3,300 70,019 Proved developed reserves: December 31,1980 1,103 26,840 December 31,1981 1,641 39,789 December 31,1982 1,842 38,378 1 December 31,1983 2,090 38,288 l l Proved reserves are estimated quantities of operating methods. crude oil, condensate and natural gas which The estimates of NEEI's proved and geological and engineering data demon- aroved developed reserves were prepared ; strate with reasonable certainty to be recov- ay independent petroleum engineering j erable in future years from known oil and consultants,Keplingerand Associates,Inc. ! gas reservoirs under existing economic and of Dallas, Texas.The reserves are estimates I operating conditions. Proved developed only and should not be construed as exact ' reserves are those proved reserves reason- quantities. Future conditions may affect the , ably expected to be recovered through exist- recovery of estimated reserves. ) ing wells with existing equipment and : 1 l l i iI M l
New England Electric System and Subsidiaries Supplementary Information on Business Segments (unaudited) The consolidated group operates in two principal domestic industry segments. (thousands of dollars) Electric Oiland gas Consolidated Year ended Operating revenue $1,331,982 $ 41,896 $1,373,878 December 31,1983 Depreciation and amortization 90,943 42,953 133,8 % Other operating expenses 949,758 3,260 953,018 Federalincome taxes 111,785 (4,317) 107,468 Operatingincome 179,496 179,4 % Interest expense 62,695 62,695 Income from equityinvestments 6,2N 6,2N Otherincome/(expense)-net 12,314 (2,700) 9,614 Net income /(loss) $ 135,319 $ (2,700) $ 132,619 Totalassets $2,632,030 $499,201 $3,131,231 Investments at equity $ 56,414 5 56,414 Capital expenditures S 231,068 $148,533 $ 379,601 Y;ar ended Operating revenue $1,212,M9 $ 49,211 $1,261,860 December 31,1982 Depreciation and amortization 86,610 47,670 134,280 Other operating expenses 882,217 2,119 884,336 Federalincome taxes 90,534 (578) 89,956 Operatingincome 153,288 153,288 Interest expense 65,695 65,695 Income from equityinvestments 5,427 5,427 Otherincome-net 15,305 15,305 Net income $ 108,325 $ $ 108,325 Totalassets $2,411,N7 $393,306 $2,804,353 Investments at equity $ 42,385 $ 42,385 Capital expenditures $ 206,726 $159,066 $ 365,792 Year ended Operating revenue $1,282,101 $ 21,437 $1,303,538 December 31,1981 Depreciation and amortization 67,240 20,342 87,582 Other operating expenses 1,011,455 1,285 1,012,740 Federalincome taxes 70,N3 (190) 70,653 Operating income 132,563 132,563 Interest expense 58,166 58,166 Income from equityinvestments 4,414 4,414 Otherincome-net 12,172 12,172 Net income $ 90,983 $ $ 90,983 Total assets $2,250,723 $281,972 $2,532,695 Investments at equity $ 40,274 $ 40,274 Capital expenditures $ 223,519 $143,331 $ 366,850 NEES entered into its oil and gas opera tions result, the oil and gas segment has no oper-in order to develop and maintain reliable ating income. and accessible fuel sources. Any excess (or In 1983, a reserve was establi.shed as deficiency)in the proceeds from the sale of described in Note A-3 of " Notes to Financial NEEI production, after recovery of amortiza- Statements." Of this $17 million reserve, tion and production costs,is passed on to $5 million ($2.7 million after tax) is shown (or recovered from) NEP. (See Note A-3 of above as a deduction from "Other income /
" Notes to Financial Sta tements" for an (expense)-net" in the oil and gas segment.
explanation of the Pricing Policy.) As a 35
New England Electric System and Subsidiaries Supplementary Information on the Estimated Impact of Inflation (unaudited) The following information depicts the cost of our oil and gas properties has been impact of inflation on the System's income estimated by applying relevant oil and gas and assets. This material should be treated industry indices to historical costs. with caution as no method yet devised does Both approaches attempt to show the this job clearly and simply. Rather, inflation System's figures as if all of its utility plant information is stillin the development stage. (generating stations, transmission lines, etc.) The numbers in the following' tables had been built at 1983 costs and its oil and have been prepared under the guidelines gas properties had been developed at 1983 established by Financial Accounting costs, but the two approaches get there by Standards Board Statement No. 33. This slightly different routes. standard requires two separate approaches There are obvious weaknesses in both of to measuring the impact of inflation: the these approaches, particularly with regard
" constant dollar" approach and the " cur- to regulated companies like those in NEES.
rent cost" approach. In addition, due to the uncertain nature of The" constant dollar" approach uses oil and gas exploration, the " current cost" the Consumer Price Index (CPI) to adjust of our oil and gas properties is presented the historical figures actually recorded on a as a reasonable estimate and not a precise company's books to reflect the effects of amount. However, these weaknesses should generalinflation. not detract from the conclusion pointed out The " current cost" approach attempts to by both approaches: inflation has reduced address the impact of specific inflation on an the value of shareholder earnings and the industry. For this purpose, the System's his- System's dividends. torical cost of utility plant has been adjusted In Table 1, four adjustments are shown. by using the Handy-Whitman Index of Pub- These adjustments are explained below. lic Utility Construction Costs. The current Adjustment 1. An adjustment is made to historical depre- tem depreciation and amortization rates to Depreciation and , ciation and amortization expense to show the 1983 estimated " constant dollar" and the amortization the larger amount the System would need " current cost" values. ! expense to expense in 1983 if the cost of utility plant income tax expense has not been adjusted I and oil and gas properties were adjusted to because only historical depreciation and show 1983 inflated values.These adjusted amortization are currently deductible for tax depreciation and amortization expense purposes. amounts were determined by applying Sys-Adjustment 2. Monetary assets (cash and accounts receiv- these obligations will be paid off in cheaper Monetary assets able, for example) and monetary liabilities dollars (dollars of less value). The System and liabilities (such as obligations to repay money bor- has more monetary liabilities than monetary rowed) are adjusted for inflation.The former assets, which resulted in a net gain in lose value due to the erosion of their pur- purchasing powerin 1983. chasing power. The latter gain in value as Adjustment 3. The generalinflation rate for 1983, as mea- and gas properties during the year was $31 General vs. sured by the CPI, was higher than the spe- million less than it would have been had the specificinflation cific inflation rate that impacted our utility value increased at the generalinflation rate. plant and oil and gas properties.Therefore, This amountis shown as an adjustment the increase in value of utility plant and oil under the " current cost" approach. Adjustment 4. The final adjustment results from the fact to be a monetary asset. And, because mone-Regulatory impact that the regulated electric utility industry is tary assets lose value during periods cf only allowed, under current regulatory prac- inflation, a loss must be recorded to reflect tice, to recover an amount that is a function the current year's impact of holding utility of the historical cost ofinvestments in utility plant and oil and gas properties. This adjust-plant and oil and gas properties. This recov- ment is, however, reduced by the amounts ery over time,which may be viewed as a reflected in adjustment 31and ?. 36 stream of revenues,is therefore considered
Ma. Table 1. Statement of Constant dollar Current cost consolidated income Year ended December 31,1983 (millions of dollars) approach approach adjusted forinflation Net income-as reported in the income statement $133 $133 Adjustment 1. Depreciation and amortization expense (%) (111) Adjusted net income for 1983 $ 37* $ 22 Otheradjustments Adjustment 2. Monetary assets and liabilities $ 75 $ 75 Adjustment 3. General vs. specific inflation" $(31) Adjustment 4. Regulato yimpact $ (6) $ 40
'If adjusted net income were further adjusted for the regulatory impact shown in Adjustment 4, the result would become a net income of $31 million under the " constant dollar" approach.
"At December 31,1983, the current cost of utility plant and oil and gas properties was approximately $4,548 million while the net historical cost recoverable through depreciation and amortization was approximately
$2,773 million.
Table 2.Fiveyear The following table shows selected financial dollars except for the per share amounts. comparison data adjusted for the effects ofinflation.This Some of this data is from the table presented of selected data is shown in millions of average 1983 above. P e" Year ended December 31 1983 1982* 1981* 1980* 1979* . ["n d a adjusted for Operating revenue excluding fuel effects ofinflation cost recovery $ 867 $ 806 $ 726 $ 6% $ 731 Fuel cost recovery revenue 507 497 702 635 4% Totaloperating revenue $1,374 $1,303 $1,428 $1,331 $1,227 Historical cost information adjusted for general inflation (constant dollar): Income (excluding Adjustment 4. Regulatory impact) $ 37 $ 7 $ 6 $ 8 $ 29 Income peraverage common share $ 1.53 $ .28 $ .25 $ .39 $ 1.36 Historical cost information adjustedfor specific price increases (current cost): Income /(loss)(excluding Adjustment 4. Regulatog impact) $ 22 $ (6) $ (10) $ (14) $ (3) Income /(loss) per average common share $ .89 $ (.25) $ (.44) $ (.63) $ (.14) Increasein general pricelevel overincreasein specific prices after adjustment for impact of regula-tion (Adjustment 3 plus Adjustment 4) $ 9 $ 29 $ (79) $(146) $(180) Generalinformation: Net assets at historical cost at year end $ 777 $ 722 $ 682 $ 689 $ 728 Net gain from inflation-adjusted monetary assets and liabilities $ 75 $ 65 $ 135 $ 176 $ 196 Inflation-adjusted cash dividends declared per average common share $3.250 $3.045 $2.909 $2.898 $3.065 Inflation-adjusted market price per average common share at year end $38.28 $33.94 $26.24 $23.83 $28.73 Average Consumer Price Index 298.5 289.1 272.4 246.8 217.4
- Restated (See Note A-1 of Notes to F;nancial Statements) 37
i l Directors I
' AsofDecember31,1983
;~~ ~',
' '~~
W. Douglas Bell (1) Felix A.MirandoJr. (8) Chairman and PrivateInvestor ; < Chief Executive Officer New York, New York 11 - J l State Mutual Life Assurance Compensation Committee 3 13 Co.of America 12 -- }; j l Worcester, Massachusetts Guy W.Nichols (9) 6- ! Executive Committee - i Chairman, Pres.i dent and r 7
,3 i
b Chief Executive Officer ! Joan T. Bok(2) New England Electric System ? .. I Vice Chairman Westborough, Massachusetts '
'9 2 8 mM y.. 1 New England Electric System Executive and Compensation .
Westborough, Massachusetts g j Committees Executive Committee - g< John D. Ritchie(10) l}A. Francis H. Burr (3) President , Partner J.D.R. Consultancy,Inc. g Ropes & Gray Management consultants c. --i u .; d- -! Attorneys Stone Ridge,New York j Boston, Massachusetts Executive Committee ' Executive Committee GeorgeM. Sage (11) James H. Hunter (4) President President Bonanza Bus Lines,Inc. James Hunter Machine Co.,Inc. Providence, RhodeIsland Textile machinery manufacturer Compensation Committee
' North Adams, Massachusetts Audit Committee Anne Wexler(12)
Chairman - Ednurd H. I2rdd (5) Wexler,Reynolds, Harrison President & Schule,Inc. Standish, Ayer & Wood,Inc. Management consultants hwestment counselors Washington, D.C. Boston, Massachusetts Compensation Committee Audit Committee James Q. Wilson (13) Joshua A.McClure(6) Professor President Harvard University American Custom Kitchens,Inc. Cambridge, Massachusetts Providence, RhodeIsland Audit Committee Audit Committee Malcolm Mclime(7) President Orr & Reno, P. A.
. Attorneys Concord, New Hampshire Compensation Committee 38
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1 i I I 39
Management Team I Guy W.Nichols Joan T. Bok Chairman, President Vice Chairman and Chief Executive New England Officer Electric System New England (pictured on page 3) ElectricSystem (pictured on page 3) l l l
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l John E Kaslow PaulJ. Sulliwn SarnuelHuntington Senior Vice President Senior Vice President Vice President, New England New England s s,. , General Counsel Electric System Electric System s , ,, e and Secretary
-,D, e '
New England I Electric System i y yf~ g . ;r 4 Eduurd A. Brown Alfred D. Houston Chairman Treasurer Nev England Power New England Service Company .
. Electric System o
i Glenn R. Schleede President , New England Energy 40 Incorporated
Shareholder Information 1983 1982 New England Electric System Price range Dividend Price range Dividend common shares Low declared High Low declared High First quarter $36 $33 $.80 $27% $23% $.70 Second quarter $38% $34% $.80 $28% $26% $.75 Third quarter $38% $34% $.80 $31% $26% $.75 Fourth quarter $43% $37% $.85 $33% $28% $.75 The total number of shareholders at December 31,1983 was 85,967. First Second Third Fourth Selected quarterly financialinformation (thousands of dollars) quarter
- quarter
- quarter
- quarter * **
(unaudited) 1983
$362,181 $297,195 $358,325 $356,177 Operating revenue
$ 49,616 $ 38,673 $ 43,637 $ 47,570 Operating income Net income $ 40,317 $ 26,908 $ 35,321 $ 30,073 Net income per average share $ 1.69 $ 1.12 $ 1.45 $ 1.22 1982
$344,278 $279,773 $312,082 $325,727 Operating revenue
$ 44,317 $ 31,610 $ 38,394 $ 38,967 Operating income Net income $ 33,027 $ 18,855 $ 28,214 $ 28,229 Net income per average share $ 1.44 $ .81 $ 1.21 $ 1.19
' Restated (See Note A-1 of Notes to Financial Stat, nees)
**(See Notes A-3 and C of Notes to Financial Statements)
Shareholder Questions about shareholder records, quar- New England Electric System services terly dividend payments, reinvestment of Shareholder Services Department dividends and optional cash payments Post Office Box 770 should be directed to: Westborough, Massachusetts 01581 Transfer agent and The First National Bank of Boston registrar 100 Federal Street Boston, Massachusetts 02110 Stock exchange New York Stock Exchange listings Boston Stock Exchange
- Trading symbol NES Annual meeting The annual meeting of New England Electric 225 Clarendon Street, Boston, Massachusetts, notice System will be held at New England Life Hall, on 3uesday, April 24,1984, at 10:30 a.m.
Form 10K and Copies of the annual report on Form 10K to New England Electric System Statistical Repo:t the Securities and Exchange Commission Shareholder Services Department and a Statistical Report for 1983 are avail- Post Office Box 710 able, free of charge, by writing to: Westborough, Massacnusetts 0i581 The name "New England Elstncsvstem" means the trustee or trustees for the hme being (as trustee or trustees but not personalh1 under an Agrt ement - and Declaration of Trust dated Janm..y 2.1926, as amended, which is hereby referred to and a topy of whwh, as amended has been tiled with the Netretary of The Commonwealtn of Massachusetts. Any agreement, obligatmn or habthty made. entered into or inc urred by or on behalt of New I ngland I let tni %vstem binds only its trust estate, and no shareholder, director, trustee, officer or agent thereof awumes or shall be held to any habihtv there+ ir 1 his report is not to be considered as an otter to sell or buy or sohcitation of an otter to sell or but any secunty
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