ML20206J280
| ML20206J280 | |
| Person / Time | |
|---|---|
| Site: | Millstone, Seabrook, Vermont Yankee, Haddam Neck, Maine Yankee, 05000246 File:Connecticut Yankee Atomic Power Co icon.png |
| Issue date: | 04/30/1999 |
| From: | Brenner B NORTHEAST UTILITIES SERVICE CO. |
| To: | NRC (Affiliation Not Assigned) |
| References | |
| NUDOCS 9905120175 | |
| Download: ML20206J280 (278) | |
Text
{{#Wiki_filter:_,
/
Northeast 107 sa&n s==% a 06037 Utilities System m a.tcas s.rm com m P.o. Box 270 Hardord, CTr 06141-0270 , (860) 665-5000 April 30,1999 Director Nuclear Reactor Regulation
' U. S. Regulatory Commission Washington, DC 20555
Dear Sir / Madam:
In Accordance with paragraph 50.71(b) of 10CFR, Fart 50, enclosed is one copy of the 1998 Annual Financial Reports for The Connecticut Light and Power Company, Western Massachusetts Electric Company, Public Service Company of New Hampshire, North Atlantic Energy Corporation, Northeast Nuclear Energy Company, and North Atlantic Energy Service Corporation, license holders. Please acknowledge receipt by returning the duplicate of this letter in the stamped, self-addressed envelope enclosed for your convenience. Respectfully yours,
- 8. 1 Beth A. Brenner Staff Accountant l Corporate Accounting Northeast Utilities Service Company BAB/k:\secting\fr\st\nrr. doc Enclosures c: S. J. Sinnott M. J. Woishnis
@lf ( f 5
,olG O 1 l
9905120175 970430 M 0 PDR ADOCK 05000213 l I PDR ; i 1 l _____________________U
l L l l l
N Northeast 2 * *"8 "
- C " 37 Utilities System na.a cense. servic. comp.oy 1 P.o. Box 270 11.rtford, CT 06141-0270 (860) 665-5000 1
l April 30,1999 i Director Nuclear Reactor Regulation U. S. Regulatory Commission l Washington, DC 20555
Dear Sir / Madam:
In Accordance with paragraph 50.71(b) of 10CFR, Part 50, enclosed is one copy of the 1998 Annual Financial Reports for The Connecticut Light and Power Company, Western Massachusetts Electric Company, Public Service Company of New Hampshire, North Atlantic Energy Corporation, Northeast Nuclear Energy Company, and North Atlantic Energy Service Corporation, license holders. Please acknowledge receipt by returning the duplicate of this letter in the stamped, self-addressed envelope enclosed for your convenience. Respectfully yours,
- 0. .
Beth A. Brenner i Staff Accountant Corporate Accounting Northeast Utilities Service Company BAB!lc\accting\fdehnrr. doc Enclosures l c: S. J. Sinnott M. J. Woishnis Receipt of the above-mentioned letter is hereby acknowledged. Dated: By: J
~ f.:$,. es.'; i G. ~-Q > %; a],
T.
%* .e .i l:
d m. i
' ' ' , .--. ;.l;Q -
4 3' 5, ; m:: - - -
\
< -? - t -
y
... ,j
- a. e k t '1
' s
'i b -l, 3 T, .". '
~..p. s s '
. _ .f,. C2 7
,-.e -
i- r ~ ~ ' ' ' . , (f 3 t' 1 , , w~
- m. ', . .
s, :;n , ::e 4s ' '* 3 i ' ..,h .Mf '5 . if; .o ., n - g:... *'
- c. 1 se ~
g .. . n 2 <
' i
, , 9 ;\ '
- 1 . -. & , .I a 4s
< ;.3 c
. s. y :.
+ >
i 3
..- .o
+
d .:, 1 65 -
't > %
* ,' [Q -
n' ,' 4
'. "b h ') }
';~ -
7 3(: . w r;;]y
.:h . f_ . .6t, ,
e '
, , 9:3 s '
. ~' '# Y g E ,5#(
1* y 93e
- .- ;, f . . -
.s WI 4
s
'+ E."'$ 2 ,
3 4
~
r
- * '1't ( '"
prls , T:.; .t .> b , s , v p: ~ :.. x, p.4 g: n: . ,Pn !;. i
+ .;
,. i .,.n,y.. ,
,) ,' , N.O ? j f. .:)
4
~ "
gy:2 ;
...t,-
- p,'l<u[ p,gd 7:
- n
~
~ w 1- .
, ' :.a !?' :;g. , , , .s +3
, e >
Q ,y',
.,s ,
y di'f g
- Y^ 3 s
l' ' -
..e V,
s. 4
.p-4,19 A ['
~t.. , '3' .
[ ,' .k. .;, - 'l ( .' [ )jj U< .L
+ +
mm
, , g ]. i 4 r: f
's
' .i .
r J
^
- t : .y, .. , g i ,, y 7l
. , 1
.t.,
/ .p.
4 e < t, 7 .
- + ,'A s 1 'l J j t
I "' , ' , s j '
.. , , T.i . . ,
y by
=
m. U ,). J 4 c
..hy l h
A i
, . y 'Y , '
\
N ,$:
' W. .
5 i a g i; I k q s
-\- .....--
'4 , . onneche ' cut '., '
ph L3 Light & Power l] .
~
iThe NArtheast Ntilitibs Sptem? 1 py, , t t 4;[,
. > u t
- g. - ,
m , t s 4
+
-6 1
', 3'
)
3
'...) ll 1
d g-
.A' 1 6 .
, 3 Nb,
[ I k >- g.S. s [<ff ,. i..p 1 e , , , , 'y]
v John 11. Forsgren Michael G. Morris . Robert J. Kost > Executive Vice President and ' Chairman Vice President-Western Region Chicf Financial Officer . - Ilugh C. MacKenzie Rodney O. Powell Bruce D. Kenyon President Vice President-Central Region President-Generation Group Bruce D. Kenyon RichJrd L Tower llugh C MacKenzie. . President-Generation Group Vice President-Fastern Region . President
' p ,
John H. Forsgren John P." Stack Michael G. Morris Executive Vice President and : Executive Director-Corporate '. Chairman ' Chief Financial Officer Accounting and Taxes , Cheryl W. Gris6 Deborah IJCanyock : Senior Vice President, Secretary e Assistant, Controller-~ ~ and General Counsel Management information and dgeting Services David N. Boguslawski Vice President-Energy Delivery Lori A. Mahler Assistant Controller-John B. Keane . Accounting Services v' ice President-Administration . David R. Mcliale Assistant Controller-Taxes Vice President and Treasurer Theresa II.' Allsop l William J. Nadeau Assistant Secretary Vice President-Fossil /ilydro . Engineering and Operations O. Kay Comendul Assistant Secretary John J. Roman Vice President and Controller Robert C. Aronson Assistant Treasurer-Lisa J. Thibdaue Treasury operations Vice President-Rates, Regulatory Affairs and Compliance Randy A. Shoop Assistant Treasurer-Finance Dennis E. Welch Vice President-Environmental, Safety and Ethics Roger C. Zaklukiewicz Vice President-Transmission and Distribution 9
' March 1,1999 ^,
1998 Annual Report The Connecticut Light and Power Company and Subsidiaries' Index Contents Pace
' Consolidated Balance Sheets................... ............ 2-3.
- Consolidated Statements of Income.......................... 4 Consolidated Statements of Comprehensive Income............ 4 Consolidated Statements of Cash Flows ..................... 5 Consolidated Statements of Common Stockholder's Equity ... . 6 Notes to Consolidated Financial Statements................. 7 Report of Independent Public Accountants................ .. 40 Management's Discussion and Analysis of Financial Condition and Results of Operations...................... 41 Selected Financial Data........... ....................... 53 Statements of Quarterly Financial Data (Unaudited) ......... 53 Statistics (Unaudited) . ........ ........ . . .... ........ 54 Preferred Stockholder and Bondholder Information........... Back Cover s
4 e i.... . . . . . . . . . . . . . . _ . _ _ _ _ . _ , , , _ - i
PART I. FINANCIAL INFORMATION THE CONNECTICUT LIGHT AND POWER COMPANY AND SUBSIDIARIES CONSOLIDATED BAIANCE SHEETS At December 31, 1998 1997 1 (Thousands of Dollars) ( ASSETS Utility Plant, at original cost: 6,411,018 i Electric................................................ $ 6,173,871 $ h Less: Accumulated provision for depreciation..... ... 2,758,012 2,902,673 3,415,859 3,508,345 83,477 93,692 Construction work in progress........................... 87,867 135,076 Nuclear fuel, net..... ....... . ....................... ............. Total net utility p1 ant............................. 3,587,203 3,737,113 Other Property and Investments: 369,162 Nuclear decommissioning trusts, at market............... 452,755 Investments in regional nuclear generating 56,999 58,061 companies, at equity... ............................... 66,615 Other, at cost.. ..... ... ..... ....................... 93,864 603,618 493,838 Current Assets: 434 459 Cash. ........ ........ ..... . ............. ......... 160,253 205,625 Investment in securitizable assets............. ........ 6,600 - Notes receivable from affiliated companies....... ...... Receivables, less accumulated provision for 50,671 uncollectible accounts of $300,000 in 1998 and 1997.... 22,186 3,150 Accounts receivable from affiliated companies........... 1,721 26,478 70,311 Taxes receivable............ .... ...... ..... ......... 71,982 81,878 Fuel, materials and supplies, at average cost........... Recoverable energy costs, net--current portion.......... - 28,073
................... ........ 121,514 79,642 Prepayments and other ..... __ .......... ........._...
411,168 519,809 D3ferred Charges: 1,292,818 Regulatory assets (Note 1G)............................. 1,415,838 19,603 19,286 Unamortized debt expense. . ........ .............. .... 12,768 18,359 Other.......... .. .. .. .......... ................... ............. ............. 1,448,209 1,330,463.
........ ..... ................ $ 6,050,198 $ 6,081,223 Total Assets.......
Sc2 accompanying notes to consolidated financial statements. 2
THE CONNECTICUT LIGHT AND POWER COMPANY AND SUBSIDIARIES 4 i CONSOLIDATED BALANCE SHEETS At December 31, 1998 1997 1
.; (Thousands of Dollars) ]
CAPITALIZATION AND LIABILITIES , Dapitalization: Common stock--$10 par value. Authorized 24,500,000 shares; outstanding 12,222,930 shares... ..... ....... .. . ...................... .....
. $ 122,229 $ 122,229 Capital surplus, paid in...... ... ... ............. ..... 664,156 641,333 Retained earnings.. ...... ...... ................. .... 210,108 419,972 Accumulated other comprehensive income....... ... ... ... 378 -
Total common stockholder's equity............. .. 996,871 1,183,534 Preferred stock not subject to mandatory redemption........... .......... . ............g......... 116,200 116,200 Preferred stock subject to mandatory redemption...... .... 99,539 151,250 Long-term debt............... ............................ 1,793,952 2,023,316 Total capitalization............... ............. 3,006,562 3,474,300 Minority Interest in Consolidated Subsidiary................ 100,000 100,000 Obligations Under Capital Leases......... ..... . . ... .. 68,444 18,042 Current Liabilities: Notes payable to banks....... ................ ..... .. .. 10,000 35,000 Notes payable to affiliated companies............. ....... 61,300 Long-term debt and preferred stock--current portion..... ............... ....... . ..... ..... ...... 233,755 23,761 Obligations under capital leases-= current portion . ..... .. ............ ..................... 94,440 140,076 Accounts ;>ayable. ......... .... ................ ....... 121,040 124,427 Accounts payable to affiliated companies.. .. ............ 32,758 92,963 Accrued taxes. . ... ...... ...... . . ............. 19,396 33,017 Accrued interest. ... ....... .... .............. .... . 31,409 14,650 Other. ... . . .. .... ........... ........ .. .. ... .. 34,872 23,495 577,670 548,689 Deferred Credits: Accumulated deferred income taxes.............. ........ . 1,194,722 1,348,617 Accumulated deferred investment tax credits............... 114,457 127,713 Decommissioning obligation--Millstone 1 (Note 3)..... .... 560,500 .
. Deferred contractual obligations.......... ....... ....... 277,826 348,406 Other...... ......................... .. ............... 150,017 115,456 2,297,522 1,940,192 Commitments and Contingencies (Note 11)
Total Capitalization and Liabilities............. $ 6,050,198 $ 6,081,223 See accompanying notes to consolidated financial statements. 3
THE CONNECTICUT LIGHT AND POWER COMPANY AND SUBSIDIARIPS - CONSOLIDATED STATEMENTS OF INCOME-For the Years Ended December 31, 1998 1997 1996 (Thousands of Dollars) ( t-Operating Revenues................................. $2,386,864. $2,465,587 .$2,397,460' Operating Expenses: - Operation -- 831,079 Frel, purchased and net interchange power..... 887,224 977,543
......................... 703,971 726,420 727,674 Other.. ............ 300,005 Maintenance........ ............................. 271,317 355,772 216,509 238,667 247,109 Depreciation.....................................
Amortization of regulatory assets, net........... 120,884 61,648 57,432 Federal and state income taxes................... (11,642) (59,436) 957 170,347 172,592 174,062 Taxes other than income taxes.................... ........... ........... ........... 2,358,610 2,473,206 2,338,318 Total operating expenses................... 28,254 (7,619) 59,142 Operating Income /(Loss).. ......................... Other Income: Equity in earnings of regional nuclear 6,241 5,672 5,619 generating companies........................... Millstone 1.-unrecoverable costs (Note 1K) . . . . . . . (143,239) - - Other, net... ................................... (6,075) (1,856) 20,710 Minority interest in income of subsidiary........ (9,300) (9,300) (9,300) 67,127 7,573 160 Income taxes..................................... Other (loss) / income , net . . . . . . . . . . . . . . . . . . . (85,246) 2,089 18,189 (Loss) / income before interest charges. . . . . . (56,992) (5,530) 77,331 Interest Charges: Interest on long-term debt....................... 133,192 132,127 127,198 5,541 1,940 1,001 Other interest.......... ........................ Interest charges, net...................... 138,733 134,067 128,199 ,
........... ........... .......____ l (50,868)
Nat Loss........................................... $ (195,725) $ (139,397) $ CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
$ (195,725) $ (139,597)- $ (50,868) . j Net Loss........................................... ........... ........... ...........
Other comprehensive income, net of tax (Note 15) : Unrealized gains on securities..................... 638 - - Minimum pension liability adjustments.............. (260) - - Other comprehensive income, net of tax........... 378 - - Comprehensive Loss $ (195,347) $ (139,597) $ (50,868) Sse accompanying notes to consolidated financial statements. 4 l 4
THE CONNECTICtTT LIGHT AND FOWER COMPANY AMD SUBSIDIARIES CONSOLIDATED STATEMEtTTS OF CASH FI4WS . For the Years Ended December 31, 1998 1997 1996 (Thousands of Dollars) Operating Activities: Net losa.. . , ....... .... .......... ... .. ... . .. $ (195,725) $ (139,597) $ (50,868) Adjustments to reconcile to net cash from operating activities:
' 216,509 238,667 247,109 Depreciation...... ............. .............. .. ......
Deferred income taxes and investment tax credits, net.. .. (65,689) (10,401) (39,642) Amortization of deferred demand-side-management costs, net 42,085 38,029 26,941
. Amortization /(deferral) of recoverable energy costs. .. 30,745 (9,533) (35,567)
, Amortization of cogeneration deferral. . . .. ... ...... 29,559 37,338 19,221 Amortization of regulatory asset - income taxes. . . . . . .. 66,027 13,927 19,349 Amortization of other regulatory asset ................... 25,298 10,383 18,862 Deferred nuclear refueling outage, net of amortization ..
- (45,333) 45,643 Millstone 1--unrecoverable costs.... ..... . .. . . 143,239 - -
Other sources of cash. ... . ... . ... . . 82,109 35,065 51,823 Other uses of cash........... . . .. ........ .. (23,561) (50,417) (23,862) Changes in working capital: Receivables and accrued utility revenues.. . . . ... (5,086) 184,223 (22,378) Fuel, materials and supplies.... . . .. .... ....... 9,896 (1,941) (11,455) Accounts payable. ... .... .. ...... . . ... .. .. (63,592) (22,036) 83,951 Accrued taxes..... . .... . .... .... . . . . . . . . . (13,621) 4,310 (23,561) Sale of receivables and accrued utility revenues. . .. . 35,000 70,000 - Investment in securitizable assets...... .. ....... ... . 45,372 (205,625) - Other working capital (excludes cash).. ... ... . .. . 30,097 (74,266) (5,385) Net cash flows from operating activities., . ..... .. . .... 388,662 72,793 300,181 Financing Activities: Issuance of lors-term debt. . . . . . . . ..... . ..... . .. 200,000 222,000 Net (decrease) / Increase in short-tenn debt. . . . . . . ... . (86,300) 96,300 (51,750) Reacquisiticus and retirements of long-term debt.. ... . . (45,006) (204,116) (14,329) Reacquisitions and retirements of preferred stock. .. .. (35,711) - - Cash dividends on preferred stock. .... .. . . . (14,139) (15,221) (15,221) Cash dividends on cannan stock. . . ... . ... .. . . . . .. - (5,989) (138,608) Net cash flows (used for) /from financing activities. .... . . (181,156) 70,974 2,092 Investnent Activities: Investnent in plant: Electric utility plant. . . .. . . .... ... ....... (132,194) (155,550) (140,086) Nuclear fuel. . ... . . . . . . .. .. . .. (8,444) (702) 553 Net cash flows used for investments in plant... .. . (140,638) (156,252) (139,533) Investment in NU system Money Pool... . . .... . .. . ..... (6,600) 109,150 (109,050) Investment in nuclear decommissioning trusts. . . . .. . . (54,106) (45, h14) (50,998) Other investnent activities, net. . ......... . . .... .. . (26,187) (51,25%) (2,625) Capital contributions from Northeast Utilities.... . .. ... 20,000 - - Net cash flows used for investments . . .... ............ ... (207,531) (143,712). (302,206)
- Net (Decrease) / Increase In Cash For The Period. .. .......... (25) 55 67 Cash - beginning of period. .... . . . ... .................. 459 404 337 Cash - end of period. . . ........... ... .. . . ...... . .$ 434 $ 459 $ 404 Su[ lemental Cash Flow Infornation: l' Cas1 paid / (ref unded) during the year for:
Interest, net of amounts capitalized..... ..... . .. ..... $ 110,119 $ 145,962 $ 114,458 Income taxes... . .. .. . .. ............. .. ..... ....... $ (46,747) $ (22,338) $ 77,790 Increase in obligations: Niantic Bay Fuel Trust and other capital leases.. ....... .. $ 4,102 $ 2,815 $ 2,855 See acconpanying notes to consolidated financial statements. I
'1HE CIN(BCTICUT LIGfr AND POWER CCMPANY Am StBSIDIARIES CCNSOLIIEED S'IA11HRCS OF CIMON .91tXXHOWER'S 10UITY Acctamalated Capital Retained Other Coman Surplua, Earnings Ocuprehensive Stock Paid In (a) Income Total ,, ( M w==4m of Dollars) Balance at January 1, 1996.......... $122,229 $637,981 $ 785,476 $ - $1,545,686 Net loss........................ (50,868) (50,868) Cash dividends on preferred stock......................... (15,221) (15,221) Cash dividends......... ........ (138,608) (138,608) Capital stock expenses, net..... 1,676 1,676 Balance at December 31, 1996........ 122,229 639,657 580,779 - 1,342,665 Net 1oss........................ (139,597) (139,597) Cash dividends m preferred stock......................... (15,221) (15,221) Cash dividends.................. (5,989) (5,989) Capital stock expenses, net..... 1,676 1,676 Balance at December 31, 1997........ 122,229 641,333 419,972 - 1,183,534 Net loss........................ (195,725) (195,725) Cash dividends.................. (14,139) (14,139) Capital stock expenses, net..... 2,764 2,764 Capital contribution from Northeast Utilities. ......... 20,000 20,000 Gain on repurchase of preferred stock......................... 59 59 Other conprehensive income. . . . . . 378 378 Balance at December 31, 1998........ $122,229 $664,156 $ 220,108 $ 378 $ 996,871 (c) 'Ihe ccmpany has dividend restrictions iW_ by its long-term debt agreements. At Decenber 31, 1998, these restrictims totaled approximately $540 millim. See acconpanying notes to consolidated financial statements. 6
The Connecticut Light and-Power Company and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- 1.
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES A. About The Connecticut Light and Power Company The Connecticut L Light' and Power Company (the company .or CL&P) and subsidiaries, Western Massachusetts Electric Company (WMECO), Holyoke Water -Power Company (HWP),. Public Service
. Company of New Hampshire (PSNH) and North Atlantic Energy . Corporation -(NAEC) are the operating' subsidiaries comprising the Northeast Utilities system (the NU . system) and are' wholly owned - by Northeast Utilities (NU).
The NU system furnishes franchised retail electric service in Connecticut, New Hampshire and western Massachusetts through CL&P, PSNH and WMECO. NAEC sells all of its entitlement to the capacity and output of the Seabrook nuclear- power plant (Seabrook 1 or Seabrook) to PSNH under two life-of-unit, full cost recovery contracts. HWP also is engaged in the - production and distribution of electric power. The NU system also furnishes firm and other wholesa.le electric services to various municipalities and other utilities, and participates in limited retail access programs, providing off-system retail electric service. The NU system serves in excess of 30 percent of.New England's electric needs and is one of the 24 largest electric utility systems in the country as measured by revenues. NU is registered with the Securities and Exchange Commission (SEC) as a holding company under the Public Utility Holding Company Act of 1935 (1935 Act). NU and its subsidiaries, including CL&P, are subject to the provisions of the 1935 Act. Arrangements among the NU system companies, outside agencies and other utilities covering interconnections, interchange of electric power and sales of utility property are subject to regulation by the Federal Energy Regulatory Commission (FERC) and/or the SEC. CL&P is subject to further regulation for rates, accounting and other matters by the FERC and/or applicable state regulatory commissions. Other wholly owned subsidiaries of NU provide support services for the NU system companies and, in some cases, for other New-England utilities. Northeast Utilities Service Company (NUSCO) provides centralized accounting, administrative, information resources, engineering, financial, legal, operational, planning, purchasing and other services to the NU system companies. Northeast Nuclear Energy Company (NNECO) acts as agent for the NU system companies and other New England utilities in operating Millstone nuclear generating facilities. North Atlantic the Energy Service Corporation (NAESCO) has operational responsibilities for Seabrook. In addition, CL&P and WMECO each have established a special purpose subsidiary whose business consists of the purchase and resale of receivables. During the first quarter of 1999, NU established three new subsidiaries: NU Enterprises, Inc., Northeast Generation Company and Northeast Generation Services Company. Directly or through 7.
j The connecticut Light and Power Company and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS multiple subsidiaries, these entities will engage in a variety of energy-related activities, including the acquisition and management of non-nuclear generating plants. B. Presentation 1 The consolidated financial statements of CL&P include the l accounts of all wholly owned subsidiaries. Significant. ( intercompany transactions have been eliminated in consolidation. . The preparation of financial statemente in conformity with. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts { of assets and liabilities and disclosure of contingent liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Certain reclassifications of prior years' data have been made to conform with the current year's presentation. All transactions among affiliated companies are on a recovery of cost basis which may include amounts representing a return on equity and are subject to approval by various federal and state regulatory agencies. C. New Accounting Standards The Financial Accounting Standards Board (FASB) issued two new l accounting standards during 1998: Statement of Financial Accounting Standards (SFAS) 132, " Employers' Disclosures About Pensions and Other Postretirement Benefits," and SFAS 133,
" Accounting for Derivative Instruments and Hedging Activities."
SFAS 132 revises employers' disclosures about pension and other postretirement benefit plans, but it does not change the measurement or recognition of those plans. See Note 9, " Pension Benefits and Postretirement Benefits Other Than Pensions," for further information on CL&P's pension and postretirement , benefits disclosures. SFAS 133 establishes accounting and reporting standards for l derivative instruments and hedging activities. This statement becomes effective for CL&P on January 1, 2000, and will require derivative instruments used by CL&P to be recognized on the' balance sheets as assets or liabilities at fair value. CL&P uses derivative instruments for hedging purposes. The accounting, for these hedging instruments will depend on which hedging ' classification each derivative instrument falls under, as defined by SFAS 133, offset by any changes in the market value of the hedged item. Based on the derivative instruments which currently are being utilized by CL&P to hedge some of its fuel price risks, there will be an impact on earnings upon adoption ! of SFAS 133 which management cannot estimate at this time. For further information see Note 12, " Fuel-Price Risk-Management." 8
The Connecticut Light and Power Company and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS During June 1997, the FASB issued SFAS 131, " Disclosures about Segments of an Enterprise and Related Information." SFAS 131 determines the standards for reporting and disclosing qualitative and quantitative information about a company's operating segments. More specifically, it requires financial information to be disclosed for segments whose operating resulte are received by the chief operating officer for decisions on , resource allocation. It also requires related disclosures about products and services, geographic areas and major customers.
. CL&P currently evaluates management performance using a cost-based budget and the information required by SFAS 131 is not available.
As a result of the changes the NU system and the industry are undergoing, the company will implement business segment reporting in 1999. This reporting will provide management with revenue and expense information at the business segment level. Management has identified significant segments to include transmission, distribution, generation-related and energy marketing. D. Investments and Jointly Owned Electric Utility Plant Regional Nuclear Genera ting Companies: CL&P owns common stock of four regional nuclear generating companies (Yankee companies) which are accounted for on the equity basis due to CL&P's ability to exercise significant influence over their operating and financial policies. CL&P's equity investments and ownership interests in the Yankee companies at December 31, 1998 are: (Thousands of Dollars, Except for Percentages) Connecticut Yankee Atomic Power Company (CYAPC) . .. ............ $36,254 34.5% Yankee Atomic Electric Company (YAEC). ... .. ..... ... ....... 4,882 24.5 Maine Yankee Atomic Power Company (MYAPC). .... .... ... ... ..... 10,400 12.0 Vermont Yan).ee Nuclear Power Corporation (VYNPC)......... .... 5,463 9.5 Total Equity Investment .................. $56,999 Each Yankee company owns a single nuclear generating unit. YAEC's, CYAPC's and MYAPC's nuclear power plants were shut down permanently on February 26, 1992, December 4, 1996, and August 6, 1997, respectively. For additional information on the Yankee companies, see Note 3, " Nuclear Decommissioning and Plant Closure Costs." Millstone: CL&P has an 81 percent joint ownership in both Millstone 1, a 660-megawatt (MW) nuclear gensrating unit and Millstone 2, a 870-MW nuclear generating unit. CL&P has a 52.93 percent joint-ownership interest in Millstone 3, a 1,154-MW nuclear generating unit. During the third quarter of 1998, 9
The Connecticut Light and Power Company and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS management decided to retire Millstone 1 and prepare for final decommissioning. For- further information on the Millstone 1 closure, see Note 3, " Nuclear Decommissioning and Plant Closure Costs," and Management's Discussion and Analysis of Financial I Condition and Results of Operations (MD&A). For further information on Millstone 2 arid 3, see Note 3, " Nuclear Decommissioning and Plant Closure Costs, " Note 11C, " Commitments, and Contingencies - Nuclear Performance," and the MD&A. , Seabrook 1: CL&P has a 4.06 percent joint ownership interest in . Seabrook 1, a 1,148-MW nuclear generating unit. Plant-in-service and the accumulated provision for depreciation for CL&P's share of the three Millstone units and Seabrook are as follows: At December 31, (Millions of Dollars) 1998 1997 Plant-in-service Millstone 1. ............ . .. $ -
$ 387.7 Millstone 2................ . 759.3 694.7 Millstone 3. .. .... .. ... .. 1,909.4 1,906.9 Seabrook 1.... . ............ 174.3 174.3 Accumulated provision for depreciation Millstone 1... ..... .... .. $ -
$ 172.0 Millstone 2.. ...... .. 309.2 249.1 Millstone 3 . ........ .... ... 609.3 552.7 Seabrook 1 ... .. . .. ... 39.3 33.9 CL&P's share of Millstone and Seabrook 1 expenses are included in operating expenses on the accompanying Consolidated Statements of Income.
l E. Depreciation The provision for depreciation is calculated using the straight-I line method based en estimated remaining lives of depreciable utility plant-in-service, adjusted for salvage value and removal costs, as approved by the appropriate regulatory agency. Except for major facilities, depreciation rates are applied to the average plant-in-service during the period. Major facilities' are depreciated from the time they are placed in service. When plant is retired from service, the original cost of plant,, including costs of removal, less salvage, is charged to the accumulated provision for depreciation. The costs of closure and removal of non-nuclear facilities are accrued over the life of the plant as a component of depreciation. The depreciation rates for the several classes of electric plant-in-service are equivalent to a composite rate of 3.2 percent in 1990 and 3.8 percent in 1997 and 4.0 percent in 1996. See Note 3, " Nuclear Decommissioning and Plant Closure Costs," for information on nuclear decommissioning. 10
The Connecticut Light and Power Company and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS _ At December 31, 1998 and 1997, the accumulated provision for depreciation included approximately $47.9 million and $45.8 million, respectively, accrued for the cost of removal, net of salvage value for non-nuclear generation property. F. Revenues Other than revenues under fixed-rate agreements negotiated with certain wholesale, commercial and industrial customers and limited retail access programs, utility revenues are based on
, authorized rates applied to each customer's use of electricity.
In general, rates can be changed only through a formal proceeding before the appropriate regulatory commission. Regulatory commissions also have authority over the terms and conditions of nontraditional rate making arrangements. At the end of each accounting period, CL&P accrues an estimate for the amount of energy delivered but unbilled. G. Regulatory Accounting and Assets The accounting policies of . CL&P and the accompanying consolidated financial statements conform to generally accepted accounting principles applicable to rate-regulated enterprises and reflect the effects of the ratemaking process in accordance with SFAS 71, " Accounting for the Effects of Certain Types of Regulation." Assuming a cost-of-service based regulatory structure, regulators may permit incurred costs, normally treated as expenses, to be deferred and recovered through future revenues. Through their actions, regulators may also reduce or eliminate the value of an asset, or create a liability. If CL&P was no longer subject to the provisions of SFAS 71, CL&P would be required to write off all of its related regulatory assets and liabilities unless there is a formal transition plan which provides for the recovery, through established rates, for the collection of these costs through a portion of the business which would remain regulated on a cost-of-service basis. At the time of transition, CL&P also would be required to determine any impairment of the carrying costs of deregulated plant and inventory assets. A restructuring program is being implemented within CL&P's jurisdiction, however, management continues to believe the application of SFAS 71 remains appropriate at this time. Once CL&P's restructuring plan has been formally approved by the appropriate regulatory agency and management can determine the impacts of restructuring, CL&P's generation business will no longer be rate regulated on a cost-of-service basis. The majority of CL&P's regulatory assets are related to its respective generation business. Management expects that CL&P's transmission and distribution business will continue to be rate-regulated on a cost-of-service basis and restructuring plans will allow for the recovery of regulatory assets through this portion of the business. 11 j 1
The Connecticut Light and Power Co- .ay and Subsidiaries i NOTES TO CONSOLIDATED FINANCIAL STATEMENTS For further information on CL&P's regulatory environment and the potential impacts of . restructuring, see Note 11A, " Commitments and contingencies - Restructuring," and the MD&A. Based on a current evaluation of the various factors and conditions that are expected to impact future cost recovery, management continues to believe it is probable that CL&P will recover its investments in long-lived assets, including'
- i regulatory assets.
The components of CL&P's regulatory assets are as follows: ', At December 31, 1998 1997 (Thousands of Dollars) Income taxes, net (Note 1H) .......... $ 538,521 $ 709,896 Recoverable energy costs, net (Note II) ...................... 102,124 104,796 Deferred demand-side management costs.............................. 10,014 52,100 Cogeneration costs .................. 5,779 33,505 Unrecovered contractual obligations (Note 1J) .............. 266,992 338,406 Millstone 1 (Note 1K) ................ 442,669 - Other................................ 49,739 54,115
$1,415,838 $1,292,818 H. Income Taxes The tax effect of temporary differences (differences between the periods in which transactions affect income in the financial statements and the periods in which they affect the determination of taxable income) is accounted for in accordance with the ratemaking treatment of the applicable regulatory commissions. See Note 8, " Income Tax Expense" for the components !
of income tax expense. I I O i l 1 12
The Connecticut Light and Power Company and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS differences,- including timing The tax effect of temporary accounting differences accrued under previously . approved standards, which give rise to the accumulated deferred tax-obligation is as follows: At December 31, 1998 1997
* (Thousands of Dollars)
Accelerated depreciation and other plant-related differences............ $1,002,725 _$1,056,690 Regulatory assets - income tax 279,823 304,276 gross up............................. (7,670) Net operating loss carryforwards....... (7,777) (80,049) (4,679) : Other ................................. $1,348,617
$1,194,722 At December 31, 1998, CL&P had a stat- of Connecticut net operating loss carryforward of approximately $149 million which combined can be used against CL&P and its affiliates' Connecticut taxable income and which if unused, expires in the year 2002.
I. Recoverable Energy Costs Under the Energy Policy Act of 1992 (Energy Act), CL&P is for its proportionate share of the costs of assessed decontaminating and decommissioning uranium enrichment plants owned by the United States Department of Energy (D&D assessment). The Energy Act requires that regulators treat D&D assessments as a reasonable and necessary current cost of fuel, to be fully recovered in rates like any other fuel cost. CL&P As of is currently recoveri ng these costs through r a t e's . December 31, 1998, CL&P's total D&D deferrals were approximately
$44.9 million.
CL&P has in place an energy adjustment clause under which fuel prices above or below base-rate levels are charged or credited to customers. At December 31, 1998, recoverable energy costs included $78.1 million of costs previously deferred. J. Unrecovered Contractual Obligations Under the terms of contracts with MYAPC, CYAPC and YAEC, the shareholder-sponsor companies, including CL&P, PSNH and NMECO, are responsible for their proportionate share of the remaining costs of the units, including decommissioning. As management expects that the NU system companies will be allowed to recover these costs from their customers, the NU system companies have recorded regulatory assets, with corresponding obligations, on their respective balance sheets. For further information, see Note 3, " Nuclear Decommissioning and Plant Closure Costs." 13
The Connecticut Light and Power Company and subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS K. Millstone 1 The Millstone 1 regulatory asset includes the recoverable portion of the undepreciated plant and related balances of approximately $129.5 million, and the regulatory asset associated with the decommissioning and closure obligation of
$313.5 million. See Note 3, " Nuclear Decommissioning and Plant Closure Costs," for further information. . j e
L. Market Risk-Management Policies CL&P utilizes swap instruments to hedge well-defined risks associated with changes in fuel prices. To qualify for hedge , treatment, the underlying hedged item must expose CL&P to risks ' associated with market fluctuations and the market-risk management instrument used must be designated as a hedge and must reduce the company's exposure to market fluctuations throughout the period. Amounts receivable or payable under fuel-price management instruments are recognized in operating expenses when realized. For further information, see Note 12, " Fuel-Price Risk-Management." L
- 2. LEASES CL&P finances its nuclear fuel for Millstone 2 and its respective share of the nuclear fuel for Millstone 3 under the Niantic Bay I Fuel Trust (NBFT) capital lease agreement. This lease agreement !
has an expiration date of June 1, 2040. On June 5, 1998, the NBFT issued $180 million Series G intermediate term notes (ITNs) j through a private placement offering. The five-year notes mature l June 5, 2003 and will bear interest at a rate of 8.59 percent per 1 annum, payable semiannually. At December 31, 1998, CL&P's capital lease obligation to the NBFT was approximately $144.8 million. The permanent shutdown of Millstone 1 in July 1998 afforded the NBFT ITN holders the right to seek repurchase of a pro rata share of their notes based upon the stipulated loss value of Millstone 1 fuel compared to the stipulated loss value of all fuel then under the NBFT, approximately $80 million. The shutdown also obligates CL&P to pay such amount to the NBFT under the NBFT lease whether i or not any ITN holders request repurchase. CL&P is seeking ! consents from the ITN holders to amend this lease provision so , that they will not be obligated to make this payment, but instead will issue an additional $80 million of collateral first mortgage bonds in mid-1999. CL&P makes quarterly lease payments for the cost of nuclear fuel consumed in the reactors based on a units-of-production method at rates which reflect estimated kilowatt-hours of energy provided plus financing costs associated with the fael in the reactors. Upon permanent discharge from the reactors, ownership of the nuclear fuel transfers to CL&P. CL&P also has entered into lease agreements, some af which are capita: leases, for the use of data 14
The Connecticut Light and Power Company and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS processing and office equipment, vehicles, gas turbines, nuclear control room simulators and office space. The provisions of these lease agreements generally provide for renewal options. l The following rental payments have been charged to expense: Year Capital Leases Operatina Leases 1 I 1998.... ........ $20,494,000 $17,914,000 l 1997............. 10,457,000 19,749,000 ,' 1996... ........ 17,993,000 22,032,000 Interest included in capital lease rental payments was $14,083,000 in 1998, $9,948,000 in 1997 and $10,144,000 in 1996. Future minimum rental payments, excluding executory costs such as property taxes, state use taxes, insurance and maintenance, under long-term noncancelable leases as of December 31, 1998, are: Year Caoital Le'ases Operatina Leases (Thousands of Dollars) 1999. . .. ..... $ 2,900 $22,700 2000. ... ..... .. 2,900 21,200 2001....... ........ 2,900 15,600 2002. ..... . .... 3,000 6,700 2003... ........... 3,000 4,200 After 2003. ...... 46,200 11,500 Future minimum lease payments..... .... 60,900 $80,900 Less amount representing interest........ . 42,859 Present value of future minimum lease payments.... 18,041 Present value of
, future nuclear fuel lease payments.......... 144,843 Present value of future minimum lease payments.... $162,884 15
1 The Connecticut Light and Power Company-and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- 3. NUCLEAR DECOMMISSIONING AND PLANT CLOSURE COSTS Millstone 2 and 3 and Seabrook 1: CL&P's operating-nuclear power plants have service lives that are expected to end during the l years 2015 through 2026. Upon retirement, %2ese units must be- I decommissioned. Current decommissioning studies concluded that complete and immediate dismantlement at retirement continues to be, the most viable and economic method of decommissioning the units. '
Decommissioning studies are reviewed and updated periodically to 4 reflect changes in decommissioning requirements, costs, technology. and inflation. The estimated cost of decommissioning CL&P's ownership share of Millstone 2, in year-end 1998 dollars, is $322.0 million. CL&P's ownership share of the estimated cost of decommissioning Millstone 3 and Seabrook 1 in year-end 1998 dollars, is $296.2 million and $19.9 million, respectively. Millstone 2 and 3 and Seabrook i decommissioning costs will be increased annually by their respective escalation rates. Nuclear decommissioning costs are accrued over the expected service lives of the units and are included in depreciation expense on the Consolidated Statements of Income. Nuclear decommissioning costs for these units amounted to
$19.1 million in 1998 and $20.0 million each year in 1997 and 1996. Nuclear decommissioning, as a cost of removal, is included in the accumulated provision for depreciation on the Consolidated Balance Sheets. At December 31, 1998 and 1997, the decommissioning balance in the accumulated reserve for depreciation amounted to $165.6 million and $146.5 million, respectively.
CL&P has established external decommissioning trusts for its portion of the costs of decommissioning Millstone 2 and 3. Payments for CL&P's portion of the cost of decommissioning Seabrook 1 are paid to an independent decommissioning financing fund managed by the state of New Hampshire. Funding of the estimated decommissioning costs assumes levelized collections for the Millstone units and escalated collections for Seabrook 1 and after-tax earnings on the Millstone and Seabrook decommissioning funds of approximately 5.5 percent and 6.5 percent, respectively. As of December 31, 1998, CL&P collected a total of $162.2 million through rates toward the future decommissioning costs of its share of Millstone 2 and 3, of which $142.8 million has been transferred, to external decommissioning trusts. As of December 31, 1998, CL&P paid approximately $3.0 million into Seabrook l's external decommissioning financing fund. Earnings on the decommissioning - trusts and financing fund increase the decommissioning trust balance and the accumulated reserve for depreciation. Unrealized gains and losses associated with the decommissioning trusts and financing fund also impact the balance of the trusts and the accumulated reserve for depreciation. The fair value of the units in the external decommissioning trusts was $242'.2 million at December 31, 1998. 16
)
.. __ A
The Connecticut Light and Power Company and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Changes in requirements or technology, the timing of funding or dismantling or adoption of a decommissioning method other than immediate dismantlement would change decommissioning cost estimates and the amounts required to be recovered. CL&P attempts to recover sufficient amounts through its allowed rates to cover its expected decommissioning costs. Only the portion of currently estimated total decommissioning costs that have- been accepted by regulatory agencies is reflected in CL&P's rates. Based on present estimates and assuming its nuclear units operate to the end of their respective license periods, CL&P expects that the decommissioning trusts and financing fund will be substantially funded when the units are retired from service. Millstone 1: CL&Pis share of the total estimated decommissioning costs for Millstone 1, which have been updated to reflect the early shutdown of the unit, are approximately $560.5 million as of December 31, 1998. The company has recorded the decommissioning and closure obligation as a liability. Nuclear decommissioning costs for Millstone 1 were $17.3 mi,llion in 1998, $17.7 million in 1997 and $17.8 million in 1996. In February 1999, the DPUC issued a decision on CL&P's rate case filing. The decision allowed for recovery over a three-year period, without a return, of $126.0 million of CL&P's remaining investment in Millstone 1. As a result, CL&P recorded an after-tax loss of approximately $80 million, related to the write down of its investment in Millstone 1. The decision allowed for the recovery of CL&P's decommissioning and closure obligations. Accordingly, CL&P recorded a regulatory asset for its portion of the decommissioning and closure obligation. For further information on the DPUC decision, see Note 11B, " Commitments and Contingencies - Rate Matters" and the MD&A. During 1998, CL&P recorded a loss of approximately $27.9 million related to the termination of approximately a 4.3 percent entitlement contract of CL&P's share of Millstone 1, formerly held by the Connecticut Municipal Electric Energy Cooperative. CL&P uses external trusts to fund the estimated decommissioning costs of Millstone 1. As of December 31, 1998, CL&P had collected a total of $151.7 million through rates toward the future decommissioning costs of its share of Millstone 1, of which $129.8
. million has been transferred to external decommissioning trusts.
At December 31, 1998, the fair market value of the balance in the external trusts was approximately $210.5 million. Yankee Companies: VYNPC owns and operates a nuclear generating unit with a service life that is expected to end in 2012. CL&P's ownership share of estimated costs, in year-end 1998 dollars, of decommissioning this unit is $50.4 million. 17
The Connecticut Light and Power Company and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS At December 31, 1998, the remaining estimated obligation, including decommissioning, for the Yankee companies' nuclear generating facilities which have been shut down were: Total CL&P's (Thousands of Dollars) Obligation Share Maine Yankee.................. $715,065 $ 85,808 . Connecticut Yankee............ $498,557 $172,002 Yankee Atomic................. $ 81,699 $ 20,016 For further information on the Yankee companies, see Note llB,
" Commitments and Contingencies - Rate Matters."
For information on proposed changes to the accounting for decommissioning, see the MD&A.
- 4. SHORT-TERM DEBT Limits: The amount of short-term borrowings that may be incurred by CL&P is subject to periodic approval by either the SEC under the 1935 Act or by the DPUC. SEC authorization allowed CL&P, as of January 1, 1999, to incur total short-term borrowings up to a maximum of $375 million. In addition, the charter of CL&P contains preferred stock provisions restricting the amount of unsecured debt the company may incur. As of December 31, 1998, CL&P's charter permits CL&P to incur an additional $466 million of unsecured debt.
Credit Agreements: NU, CL&P and WMECO are parties to a $313.75 million revolving credit agreement (Credit Agreement). Under the Credit Agreement amended on September 11, 1998, CL&P and WMECO are able to borrow, subject to the availability of first mortgage bond collateral, up to $313.75 million and $150 million, respectively. At December 31, 1998, CL&P and WMECO have issued first mortgage bonds to enable borrowings under this facility up to a maximt.n of
$225 million and $80 million, respectively. NU, which cannot issue first mortgage bonds, would be able to borrow up to $50 million if NU consolidated, CL&P and WMECO each meet certain interest coverage tests for two consecutive quarters. This requirement for NU has not been met. In addition, CL&P and WMECO each must meet certain minimum quarterly financial ratios to access the Credit Agreement. CL&P is currently in the process of -
obtaining a waiver of the equity financial ra':io requirement for the quarter ended December 31, 1998. WMECO satisfied these ratios
- for the quarter ending December 31, 1998. In connection with obtaining the waiver for the equity test, NU's participation in the Credit Agreement will be terminated. The overall limit for all of the borrowing system companies under the entire Credit Agreement is $313.75 million. The companies are obligated to pay a facility fee of .50 percent per annum of each bank's total commitment under the Credit Agreement, which will expire in November 1999. At December 31, 1998 and 1997, there were $30 million and $50 million, respectively, in borrowings under this 18
The Connecticut Light and Power Company and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Credit Agreement. Of these amounts, CL&P had $10 million borrowed in 1998 and $35 million borrowed in.1997. Under the credit facility discussed above, CL&P may borrow funds on a short-term revolving basis under its agreement, using either fixed-rate loans or standby loans. Fixed rates are set using competitive bidding. Standby loans are based upon several alternative variable rates. The weighted average annual interest rate on CL&P's notes payable to banks outstanding on December 31, 1998 and 1997, was 6.53 percent and 6.95 percent, respectively. Money Pool: Certain subsidiaries of NU, including CL&P, are members of the Northeast Utilities System Money Pool (Pool). The Pool provides a more efficient use of the cash resources of the NU system, and reduces outside short-term borrowings. NUSCO administers the Pool as agent for the member companies. Short-term borrowing needs of the member companies are first met with available funds of other member companies, including funds borrowed by NU parent. NU parent may lend to the Pool but may not borrow. Funds may be withdrawn from or repaid to the Pool at any time without prior notice. Investing and borrowing subsidiaries receive or pay interest based on the average daily Federal Funds rate. Borrowings based on loans from NU parent, however, bear interest at NU parent's cost and must be repaid based upon the terms of NU parent's original borrowing. At December 31, 1998 and 1997, CL&P had no borrowings and $61.3 million, respectively, of borrowings outstanding from the Pool. The interest rate on borrowings from the Pool on December 31, 1998 and 1997 was 5.8 percent, respectively. Maturities of short-term debt obligations were for periods of three months or less. For further information on short-term debt, including the ability to access these agreements, see the MD&A. e 19
l The Connecticut Light and Power Company and. Subsidiaries H_OTES TO CONSOLIDATED FINANCIAL STATEMENTS
- 5. PREFERRED STOCK NOT SUBJECT TO MANDATORY REDEMPTION Details of preferred stock not subject to mandatory redemption are:
December 31, Shares 1998 Outstanding ' Redemption December 31, December 31, Description Price 1998 1998 1997 1996 (Thousands of Dollars)
$1.90 Series of 1947 $52.50 163,912 $ 8,196 $ 8,196 $ 8,196 $2.00 Series of 1947 54.00 336,088 16,804 16,804 16,804 $2.04 Series of 1949 52.00 100,000 5,000 5,000 5,000 $2.06 Series E of 1954 51.00 200,000 10,000 10,000 10,000 $2.09 Series F of 1955 51.00 100,000 5,000 5,000 5,000 $2.20 Series of 1949 52.50 200,000 10,000 10,000 10,000 $3.24 Series G of 1968 51.84 300,000 15,000 15,000 15,000 3.90% Series of 1949 50.50 160,000 8,000 8,000 8,000 4.50% Series of 1956 50.75 104,000 5,200 5,200 5,200 4.50% Series of 1963 50.50 160,000 8,000 8,000 8,000 4.96% Series of 1958 50,50 100,000 5,000 5,000 5,000 5.28% Series of 1967 51.43 200,000 10,000 10,000 10,000 6.56% Series of 1968 51.44 200,000 10,000 10,000 10.000 Total $116,200 $116,200 $116,200 All or any part of each outstanding series of such preferred stock may be redeemed by CL&P at any time at established redemption prices plus accrued dividends to the date of redemption.
- 6. PREFERRED STOCK SUBJECT TO MANDATORY REDEMPTION Details of preferred stock subject to mandatory redemption are:
December 31, Shares 1998 Outstanding Redemption December 31, December 31, Description Price
- 1998 1998 1997 1996 (Thousands of Dollars) 7.23% Series of 1992 $52.17 1,056,434 $ 52,822 $ 75,000 $ 75,000 5.30% Series of 1993 51.00 1,329,340 66,467 80,000 80,000 119,289 155,000 155,000 -
Less preferred stock
- to be redeemed within one year.... 395,000 19,750 3,750 -
Total ............... $ 99,539 $151,250 $155.000 oEach of these series is subject to certain refunding limitations for the first five years after they were issued. Redemption prices reduce in future years. 20 l
The Connecticut Light and Power Company and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The following table details redemption and sinking fund activity for preferred stock subject to mandatory redemption: Minimum Annual Sinking-Fund Shares Reacauired Series Reauirement 1998 1997 1996 (Thousand of Dollars) a 7.23% Series of 1992 (1) $ 3,750 443,566 - - 5.30% Series of 1993 (2) 16,000 270,660 - - (1) Sinking fund requirements commence September 1, 1998. (2) Sinking fund requirements commence October 1, 1999. The minimum sinking-fund provisions of the series subject to mandatory redemption, for the years 1999 through 2003, aggregate approximately $19.8 million each year for 1999 through 2002 and
$6.2 million for 2003. In case of default on sinking-fund payments, no payments may be made'on any junior stock by way of dividends or otherwise (other than in shares of junior stock) so long as the default continues. If CL&P is in arrears in the payment of dividends on any outstanding shares of preferred stock, CL&P would be prohibited from redeeming or purchasing less than All or part of each of
~
all of the preferred stock outstanding. the series named above may be redeemed by CL&P at any time at. established redemption prices plus accrued dividends to the date of redemption, subject to certain refunding limitations. j l 21
l 4 The Connecticut Light and Power Company and Subsidiaries NOTag_TO CONSOLIDATED FINANCIAL STATEMENTS
- 7. LONG-TERM DEBT-Details of long-term debt outstanding are:
December'31. 1998 1997 (Thousands of Dollars) First mortgage bonds: , 6 1/2% Series T due 1998............. $ _- $ 20,000' ' 7 1/4% Series VV due 1999............. 74,000 99,000 5 1/2% Series A due 1999............. 140,000 140,000 , 5 3/4% Series XX due 2000........ .... 200,000 200,000 7 7/8% Series A due 2001............. 160,000 '160,000 7 3/4% Series C due 2002............. 200,000 200,000 6 1/8% Series B due 2004............. 140,000 140,000 7 3/8% Series TT due 2019............. 20,000 20,000 7 1/2% Series YY due 2023............. 100,000 100,000 i 8 1/2% Series C due 2024............. 115,000 115,000 H 7 7/8% Series D due 2024............. 140,000 140,000 7 3/8% Series ZZ due 2025............. 125,000 125,000 -) Total .......................... 1,414,000 1,459,000 i Pollution Control Notes: Variable rate, due 2016-2022.......... 46,400 46,400 Variable tax exempt, due 2028-2031.... 377,500 377,500 Fees and interest due for spent fuel disposal costs (Note 11E)........ 175,022 166,458 Other................................... 81 86 Less amounts due within one year........ 214,005 20,011 l' Unamortized premium and discount, net... (5,045) (6,117) Long-term debt, net................... $1,793,953 $2,023,316 Long-term debt and cash sinking-fund requirements on debt outstanding at December 31, 1998, for the years 1999 through 2002 are approximately $214.0 million, $200.0 million, $160.0 million,
$200.0 million, respectively, and no requirements for 2003.
All or any part of each outstanding series of first mortgage bonds may be redeemed by CL&P at any time at established redemption prices plus accrued interest to the date of redemption, except certain series which are subject to certain refunding limitations during their respective initial five-year redemption periods. Essentially all of CL&P's utility plant is subject to the lien of its first mortgage bond indenture. . As of December 31, 1998 and 1997, CL&P has secured $369.3 million and $315.5 million,- respectively, of pollution control notes with second mortgage li'ns on Millstone 1, junior to the lien of its first mortgage bond indenture. The average effective interest rate on the variable-rate pollution control notes ranged from 3.6 percent to I 3 7 percent for 1998 and from 3.6 percent to 3.7 percent for 1997. I 22
The Connecticut Light'and Power Company and subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CL&P has $62 million of tax-exempt Pollution Control Revenue Bonds with a bond insurance secured by first mortgage bonds and a liquid u facility.
- 8. INCOME TAX EXPENSE The components of the federal and state income tax provisions were(credited)/ charged as follows:
. For the Years Ended December 31, 1998 1997 1996 (Thousands of Dollars) Current income taxes: Federal..................... $ ( 9, 217 ) $(53,339) $ 30,650 State....................... (3,863) (3,270) 9,789 Total current............. $ (13. 080) $(56,609) $ 40,439 Deferred income taxes, net: . Federal..................... (34,880) 8,436 -(22,866) State....................... (17,553) (11,470) (9.409) Total deferred............ (52,433) (3,034) (32,275) Investment tax credits, net... (13,256) (7,366) (7,367) Total income tax (credit)/ expense.......... $(78,769) $ (67,009) $ 797 The components of total income tax expense are classified as follows: Income taxes charged to operating expenses.......... $ (11, 64 2 ) $ (59,4 36) $ 957 Other income taxes............ (67,127) (7,573) (160) Total income tax (credit) / expense . . . . . . . . . . $(78,769) $ (67,009) $ 797 23
The Connecticut Light and Power Company and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Deferred income taxes are comprised of the tax effects of temporary differences as follows: For the Years Ended December 31, 1998 1997 1996 (Thousands of Dollars) Depreciation, leased nuclear fuel, settlement credits and
- disposal costs................ $ (5,572) $ 11,991 $ 3,981 Energy adjustment clauses.... .. (24,932) (14,039) (1,654)
Demand-side management.......... (12,474) (12,408) (17,099) Nuclear plant deferrals....... . 674 14,007 (18,861) Bond redemptions................ 152 (1,339) (1,789) Contractual settlements.... .... 1,252 1,754 2,513 Pension accruals................ 8,872 6,524 2,944 State net operating loss carryforwards. .. ... .. . . 1,150 (7,670) - Millstone revenue out of rate base.. ..... . . .. ... (18,080) - - Other. ..... ...... ......... (3,475) (1,854) (2,310) Deferred income taxes, net. .... $(52,433) $ (3,034) $ (32,275) A reconciliation between income tax expense and the expected tax expense at the applicable statutory rate is as follows: For t he Years Ended December 31, 1998 1997 1996 (Thousands of Dollars) Expected federal income tax at 35 percent of pretax income... $(96,073) $ (72,312) $ (18,257) Tax effect of differences: State income taxes, net of federal benefit........... . (7,358) (8,966) 248 Depreciation...... .... . .. 25,368 18,944 20,470 Amortization of regulatory assets . . ... 22,725 3,901 8,601 Investment tax credit amortization and write off.. (13,256) (7,366) (7,367) Adjustment for prior years' taxes... ...... ........... (10,991) (10) - Nondeductible penalties.... . 2,551 (82) 717 Other, net.. .., . ........... (1,735) (1,118) (3,615) Total income tax . (credits)/ expense......... $(78,769) $ (67,009) $ 797 I 1 l
\
l I l 24 l
The Connecticut Light and Power Company and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- 9. PENSION BENEFITS AND POSTRETIREMENT BENEFITS OTHER THAN PENSIONS The NU system subsidiaries participate in a uniform noncontributory defined benefit retirement plan covering all regular NU system employees. Benefits are based on years of service and the employees' highest eligible compensation during 60 consecutive months of employment. CL&P's direct portion of the NU system's pension cost /(credit), part of which was credited to utility plant, approximated $32.6 millicn in 1998, ($22.5) million
. in 1997 and ($8.8) million in 1996.
Currently, CL&P annually funds an amount at least equal to that which will satisfy the requirements of the Employee Retirement Income Security Act and the Internal Revenue Code. Pension costs are determined using market-related values of pension assets. The NU system's subsidiaries also provide certain health care benefits, primarily medical and dental, and life insurance benefits through a benefit plan to retired employees. These benefits are available for employees retiring irom the company who have met specified service requirements. For current employees and certain retirees, the total benefit is limited to two times the 1993 per-retiree health care cost. These costs are charged to expense over the future estimated work life of the employee. CL&P is funding postretirement costs through external trustc. CL&P is funding, on an annual basis, amounts that have been rate-recovered and which I also are tax deductible under the Internal Revenue Code. Pension and trust assets are invested primarily in domestic and international equity securities and bonds. The following table represents the plans' beginning benefit obligation balance reconciled to the ending benefit obligation balance, beginning fair value of plan assets balance reconciled to the ending fair value of plan assets balance and the respective funds' f u ..ied status reconciled to the Consolidated Balance Sheets: l l l l 25
The Connecticut Light and Power company and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The components of net cost are: At December 31, Postretirement Pension Benefits Benefits 1998 1997 1998 1997 (Thousands of Dollars) . Change in benefit obligation Benefit obligation at beginning of year. . . . . . . . . . . . . . . . . . $ (531,564) $ (514,989) $ (126,576) $ (137,377) L (9,782) (8,836) (2,006) (1,692) Service cost... ..................... (37,452) (37,938) (9,221) (9,152) Interest Cost........................ Transfers. ....................... (6,324) 2,625 - - Actuarial (loss) / gain. . . . . . . ........ (12,451) (9,666) (7,703) 8,475 34,900 36,291 11,705 13,170 Benefits paid............... . .. ... Curtailments and Settlements..... ...
- 949 - -
Benefit obligation at end of year... ...
. . . . . . . . . . . . . . . $ (562,673) $ (531,564) $ (133,801) $ (126,576)
Change in plan assets l Fair value of plan assets at beginning of year.... ........... $ 846,366 $ 736,448 $ 46,055 $ 38,783 Actual return on plan assets...... 117,889 148,834 6,143 7,639 Employer contribution............... - - 13,299 12,803 Benefits paid... .......... ....... (34,900) (36,291) (11,705) (13,170) Transfers.. .. ....... ............ 6,324 (2,625) - - Fair value of plan assets at end of year. ................. $ 935,679 $ 846,366 $ 53,792 $ 46,055 Funded status at December 31. . ................... 373,006 314,802 (80,009) $(80,521) , j Unrecognized transition amount... .. .................... (5,525) (6,445) 102,818 110,162 Unrecognized prior service cost . . . .. ........... ....... 3,231 3,524 - - Unrecognized net gain............... (295,763) (269,560) (22,809) (29,641) Prepaid benefit cost ............... $ 74,949 $ 42,321 $ - 26
The Connecticut Light and Power Company and SubsidAaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The following actuarial assumptions were used in calculating the plans' year-end funded status: At December 31, l Postretirement Pension Benefits Benefits 1998 1997 1998 1997 Discount rate.............. 7.00% 7.25% 7.00% 7.25% Compensation / progression rate......... 4.25 4.25 4.25 4.25 Health care cost trend rate (a) . ....... N/A N/A 5.22 5.76 (a) The annual growth in per capita cost of covered health care. benefits was assumed to decrease to 4.43 percent by 2001. The components of net periodic benefit cost are: For the Years Ended December 31,
- Pension Benefits Postretirement Benefits 1998 1997 1996 1998 1997 1996 (Thousands of Dollars)
Service cost S 9,782 $8,836 $9,058 2,006 1,692 2,270 Interest cost . 37,452 37,938 37,227 9,221 9,152 10,211 Expected return on plan assets (68,364) (59,608) (52,258) (3,555) (3,132) (981) Amortization of unrecognized transition obligation /(asset) (921) (921) (921) 7,344 7,344 7,344 Amortization of prior service costs 292 292 292 - - - Amortization of actuarial (gain)/ loss (10,873) (8,085) (5,062) - - - Other amortization, net .
- - - (1,717) (2,253) (967)
Curta11ments and settlements - (949) 2,838 - - - tie t periodic benefit cost /(credit) $32,632 $ (22,497) $(8,826) $13,299 $12,803 $17,877 27
The Connecticut Light and Power Company and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS For calculating pension and postretirement benefit costs, the following assumptions were used: For the Years Ended December 31, Postretirement Pension Benefits Benefits 1990 1997 1996 1998 1997 1996 , Discount rate......... .... 7.25% 7.75% 7.50% 7 25% 7.75% 7.50% Expected long-term rate of return. . .... 9.50 9.25 0.75 N/A N/A N/A Compensation / progression rate. .... ... 4.25 4.75 4.75 4.25 4.75 4.75 Long-term rate of return-Health assets, e n+ tax. N/A N/A N/A 7.75 7.50 5.25 Life assets... . ... N/A N/A N/A 9.50 9.25 8.75 Assumed health care cost trend rates have a significant effect on the amounts reported for the health care plans. The effect of changing the assumed health care cost trend rate by one percentage point in each year would have the following effects: One Percentage One Percentage (Thousands of Dollars) Point Increase Point Decrease Effect on total service and interest cost components.................... $ 553 $ (560) Effect on post-retirement benefit obligation.... ... ........... 7,358 (7,275) The trust holding the health plan assets is subject to federal income taxes at a 39.6 percent tax rate. . i
- 10. SALE OF CUSTOMER RECEIVABLES AND ACCRUED UTILITY REVENUES CL&P has entered into an agreement to sell up to $200 million of undivided ownership interests in eligible customer receivables and accrued utility revenues (receivables).
CL&P has established a special purpose, wholly owned subsidiary whose business consists of the purchase and resale of receivables, CL&P Receivables Corporation (CRC). For receivables sold, CL&P has retained collection responsibilities as agent for the purchaser under the company's. agreement . As collections reduce previously sold receivables, new receivables may be. sold. At l December 31, 1998, approximately $105 million of receivables had J been sold to third-party purchasers by CL&P. All receivables sold to CRC are not available to pay CL&P's creditors. 28
The Connecticut Light and Power Company and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The receivables are sold to a third-party purchaser with limited recourse. The sales agreements provide for a formula-based loss reserve in which additional receivables may be assigned to the third-party purchaser'for costs such as bad debt. The third-party purchaser absorbs the excess amount in the event that actual loss experience exceeds the loss reserve. At December 31, 1998, approximately $11.6 million was the formula-based amount of credit exposure and has been reserved as collateral by CRC. Historical losses for bad debt for CL&P has been substantially less. Concentrations of credit risk to the purchaser under CL&P's agreement with respect to the receivables are limited due to CL&P's diverse customer base within its service territory.
- 11. COMMITMENTS AND CONTINGENCIES A. Restructuring During April 1998, the utility restructuring bill was signed into law by the governor of the state of Connecticut. The legislation provides for electric utilities, including CL&P, to recover stranded costs. The legislation also allows for securitization of generation-related regulatory assets and the costs associated with renegotiated above-market purchased-power contracts and requires divestiture of generation-related assets through public auction.
As a result of the restructuring legislation, CL&P will sell non-nuclear generating assets and purchased-power contracts with nonutility generators through public auction. CL&P also will transfer its ownership interests in Millstone 2 and 3 and Seabrook to a corporate affiliate or division, subject to prior federal regulatory approvals, which would assume CL&P's responsibilities related to the plants for the period prior to offering them for the sale. In February 1999, the DPUC announced the offering for sale of CL&P's fossil fueled and hydroelectric generating facilities. Interested parties will be required to submit nonbinding bids by April 8, 1999. A smaller field of qualified bidders will be selected to participate in the second round of the auction and will be invited to submit binding bids. A winning bidder will be chosen by mid-1999 and the sale will be completed by the end of 1999. At December 31, 1998,- the book value of assets to be auctioned during 1999 was approximately $170 million. After restructuring is complete, . CL&P will be an electric transmission and distribution company which will continue to provide transmission and distribution services on a cost-of-service basis. Management continues to believe that it is probable that CL&P will fully recover its prudently incurred costs, including regulatory assets and stranded investments. 29
The Connecticut Light and Power Company and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS i B. Rate Matters On February 25, 1998, the DPUC issued its decision in CL&P's Interim Rate case. During the period from March 1, 1998 1 through September 28, 1998, rates were charged under an interim rate which required a $30.5 million annual credit to customer bills to reflect the removal of Millstone 1 from rates. , During April 1998, the DPUC issued a decision finding j Millstone 2 unlikely to restart in 1998 and ordered its . removal from rate base effective May 1, 1998. The DPUC . allowed the revenue requirement reductions related to this j decision to be potentially applied against regulatory asset balancec. As a result, there was no change in rates or CL&P's cash flow from rates. CL&P has accounted for these reductions as a reserve against revenues until such time when the regulatory asset balances are reduced. At December 31, 1998, the amount of revenue reductions related to this decision totaled approximately $36.4 million. The unit will remain out of rate base until the plant is restarted. On June 1, 1998, CL&P filed its rate application for a I comprehensive rate proceeding. On February 5, 1999, the DPUC issued its final decision in CL&P's rate case. The DPUC I concluded that CL&P's annual revenue requirements should be l reduced by approximately $232 million, or 9.68 percent, through a combination of a 4 percent reduction to CL&P's rates and accelerated amortization of approximately $136 ' i million of its deferred tax regulatory asset. The decision is retroactive to September 28, 1998. The retroactive portion of the decision did not require a base-rate decrease. It resulted in accelerated amortization of the deferred tax regulatory asset in the amount of $27.6 million. The decision also resulted in an after-tax write-off of approximately $80 million related to CL&P's investment in Millstone 1. For further information, see Note 3, " Nuclear Decommissioning and Plant Closure Costs," and the MD&A. FERC: During November 1997, MYAPC filed an amendment to its power contracts clarifying the obligations of its purchasing utilities following the decision to cease power production. During January 1998, the FERC accepte! Lhe amendments and proposed rates, subject to a refund. n January 18, 1999, MYAPC filed with the FERC Administrative Law Judge (ALJ) an Offer of Settlement which if accepted by the FERC, will resolve all the issues in the FERC decommissioning rate case proceeding. The settlement provides, among other things, the following: (1) MYAPC will collect $33.6 million annually to pay for decommissioning and spent fuel; (2) its return on . equity will be set at 6.5 percent; (3) MYAPC is permitted full recovery of all unamortized investment in MY, including fuel, and (4) an incentive budget for decommissioning is set at $436.3 million. 30
The Connecticut Light and Power Company and subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS During late December 1996, CYAPC filed an amendment to its , power contracts clarifying the obligations of its purchasing utilities following the decision to cease power production. On February 27, 1997, the FERC accepted CYAPC's contract amendment. The new rates became effective March 1, 1997, subject to a refund. On August 31, 1998, the FERC ALJ released an initial decision regarding the December 1996 filing. The decision contained provisions which would allow for the recovery, through rates, of the balance of the NU system companies' net unamortized investment in CYAPC, which was approximately $51.7 million as of December 31, 1998. The decision also called for the disallowance of the recovery of a portion of the return on the CY investment. The ALJ's decision also stated that decommissioning collections should continue to be based on the previously approved estimate of $309.1 million (in 1992 dollars), with an inflation adjustment of 3.8 percent per year, until a new, more reliable estimate has been prepared and tested. During October 1998, CYAPC, CL&P, PSNH and WMECO filed briefs on exceptions to the ALJ decision. If the initial ALJ decision is upheld, CYAPC could be required to write off a portion of the regulatory asset associated with the plant closing. If upheld, CYAPC's management has estimated the effect of the ALJ dceision on CYAPC's earnings would be approximately $37.5 million, of which CL&P's share would be approximately $6.4 million. NU management cannot predict the ultimate outcome of the hearing at this time, however, management believes that the associated regulatory assets are probable of recovery. C. Nuclear Performance Millstone: The three Millstone units are managed by NNECO. All three units were placed on the NRC watch list on January ^9, 1996. The units cannot be restarted without appropriate NRC approvals. Millstone 3 has received these approvals and resumed operation in July 1998. Restart efforts continue for Millstone 2 and it is expected to be ready to restart in the spring of 1999. The estimated replacement power costs are approximately $7 million per month while Millstone 2 remains out of service. In July 1998, CL&P and WMECO decided tc retire Millstone 1 and prepare for final decommissioning. Li tiga tion : Certain of the non-NU joint owners of Millstone 3 have filed demands for arbitration with CL&P and WMECO as well as lawsuits in Massachusetts Superior Court against NU and its current and former trustees related to the company's operation of Millstone 3. The arbitrations and lawsuits seek to recover compensatory damages in excess of $200 million, 31
The Connecticut Light and Power Company and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS . together with punitive damages, treble damages andoutcome attorney's l fees. Management cannot estimate the potential of l these suits but believes there is no legal basis for the i claims and intends to defend against them vigorously. l D. Environmental Matters The NU system is subject to regulation by federal, state and , local authorities with respect to air and water quality, the , handling and disposal of toxic substances and hazardous and i solid wastes, and the hand] 4.ng and use of chemical products. I The NU system has an active environmental auditing and f training program and believes that it is in substantial ( compliance with current environmental laws and regulations. pending. However, the NU system is subject to certain enforcement actions and governmental investigations in the environmental area. Management cannot predict the outcome of these enforcement actions and investigations. Environmental requirements could hinder the construction of new generating units, transmission and distribution lines, substations and other facilities. Changing environmental requirements could also require extensive and costly modifications to CL&P's existing generating units and l transmission and distribution systems, and could raise operating costs significantly. As a result, CL&P may incur significant additional environmental costs, greater than amounts included in cost of removal and other reserves, in connection with the generation and transmission of electricity and the storage, transportation and disposal of byproducts and wastes. CL&P also may encounter significantly increased costs to remedy the environmental effects of prior waste handling activities. The cumulative long-term cost impact of increasingly stringent environmental requirements cannot be estimated accurately. CL&P has recorded a liability based upon currently available information for the estimatedIn environmental remediation costs most cases, additional future that it expects to incur. environmental cleanup costs are not reasonably estimable due to a number of factors, including the unknown magnitude of possible contamination, the appropriate remediation methods, the possible effects of future legislation or regulation and At the possible effects of technological changes. December 31, 1998, the liability recorded by CL&P for its estimated environmental remediation costs, not considering any possible recoveries from third parties, amounted to approximately $8.0 million, within a range of $8.0 mJllion to
$19.3 million.
CL&P has received proceeds from several insurance carriers [ for the settlement with certain insurance companies of all past, present and future environmental matters. As a result of these settlements, CL&P will retain the risk loss, in part, for some environmental remediation costs. 32 l l
f I; The Connecticut Light and Power Company and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS l CL&P cannot estimate the potential liability for future claims, including environmental remediation coats, that may be brought against it. However, considering known facts, existing laws and regulatory practices, management does not believe the matters disclosed above will have a material effect on the NU system's financial position or future l results of operations, j
- E. Spent Nuclear Fuel Disposal Costs j Under the Nuclear Waste Policy Act of 1982, CL&P must pay the {
United States Department of Energy (DOE) for the disposal of j spent nuclear fuel and high-level radioactive waste. The DOE I is responsible for the. selection and development of repositories for, and the disposal of, spent nuclear fuel and high-level radioactive waste. Fees for nuclear fuel burned on or after April 7, 1983, are billed currently to customers and paid to the DOE on a quarterly basis. For nuclear fuel used to generate electricity . prior to April 7, 1983 (prior period fuel), payment must be made prior to the first delivery of spent fuel to the DOE. Until such payment is made, the outstanding balance will continue to accrue interest at the three-month Treasury Bill Yield Rate. At December 31, 1998, fees due to the DOE for the disposal of prior period fuel were approximately $175.0 million, including interest costs of $108.5 million. The DOE was originally scheduled to begin accepting delivery of spent fuel in 1998. However, delays in identifying a permanent storage site have continually postponed plans for the DOE's long-term storage and disposal site. Extended delays or a default by the DOE could lead to consideration of costly alternatives. The company has primary responsibility for the interim storage of its spent nuclear fuel. Adequate storage capacity exists to accommodate all spent nuclear fuel at Millstone 1. With the addition of new storage racks, storage facilities for Millstone 3 are expected to be adequate for the projected life of the unit. With the implementation of currently planned modifications, the storage facilities for Millstone 2 are expected to be adequate to accommodate a full-core discharge from the reactor until 2005. Fuel consolidation, which has been licon-for Millstone 2, could provide adequate storage
- c. 4 11cy for its projected life, Seabrook is expected to ha.e spent fuel storage capacity until at least 2010.
Meeting spent fuel storage requirements beyond these perir ds could require new and separate storage facilities, the costs for which have not been determined. In November 1997, the U.S. Court of Appeals for the D.C. Circuit ruled that the lack of an interim storage facility does not excuse the DOE from meeting its contractual obligation to begin accepting spent nuclear fuel no later than January 31, 1998. The 1997 ruling by the appeals court 33
The Connecticut Light and Power Company and~ Subsidiaries j i NOTES TO CONSOLIDATED FINANCIAL STATEMENTS said, however, that the 1982 federal law could not require the DOE to accept waste when it did not. have a suitable j storage facility. The court directed the plaintiffs to J pursue relief under the terms of their contracts with the DOE. Based on this ruling, since the DOE did not take the spent nuclear fuel as scheduled, it may have to pay contract damages. , In May 1998, the same court denied petitions from 60 states and state agencies, collectively, and 41 utilities, including, the company, asking the court to compel the DOE to submit a , program, beginning immediately, for disposing of spent i nuclear fuel. The petitions were filed after the DOE defaulted on its. January 31, 1998 obligation to begin accepting the fuel. The court directed the company and other plaintiffs to pursue relief under the terms of their contracts with the DOE. In a petition filed in August 1998, the court's May 1998 decision was appealed to the U.S. Supreme Court. In November 1998, the Supreme Court declined to review the lower court ruling that said utilities should go to court and seek monetary damages from the DOE. The ultimate outcome of this legal proceeding is uncertain at this time. F. Nuclear Insurance Contingencies Under certain circumstances, in the event of a nuclear incident at one of the nuclear facilities in the country covered by the federal government's third-party liability indemnification program, an owner of a nuclear unit could be assessed in proportion to its ownership interest in each of its nuclear units up to $83.9 million. Payments of this assessment would be limited to $10.0 million in any one year per nuclear incident based upon the owner's pro rata ownership interest in each of its nuclear units. In addition, the owner would be subject to an additional 5 percent or $4.2 million, in proportion to its ownership interests in each of its nuclear units, if the sum of all I claims and costs from any one nuclear incident exceeds the maximum amount of financial protection. Based upon its ownership interests in Millstone 1, 2 and 3 and in j Seabrook 1, CL&P's maximum liability, including any additional assessments, would be $192.9 million per incident, of which payments would be limited to $21.9 million per year. In addition, through power purchase contracts with VYNPC and CYAPC, CL&P would be responsible for up to an additional $8.4* million per incident, of which payments would be limited to
$1.0 million per year.
Insurance has been purchased to cover the primary cost of ) I repair, replacement or decontamination of utility property resulting from insured occurrences. CL&P is subject to retroactive- assessments if losses exceed the accumulated funds available to the insurer. The maximum potential i 34
The Connecticut Light-and Power Company and subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS assessment against CL&P with respect to losses arising during the current policy year is approximately $9.5 million under the primary property insurance program. Insurance has been purchased to cover certain extra costs incurred in obtaining replacement power during prolonged accidental outages and the excess cost of repair, replacement or decontamination or premature decommissioning of utility property resulting from insured occurrences. CL&P is subject to retroactive assessments if - losses exceed the accumulated funds available to the insurer. The maximum potential assessments against CL&P with respect to losses arising during current policy years are approximately $4.6 million under the replacement power policies and $10.0 million under the excess property damage, decontamination and decommissioning policies. The cost of a nuclear incident could exceed available insurance proceeds. Insurance has been purchased aggregating $200 million on an ind ry basis for coverage of' worker claims. G. Con ,ction Program The construction program is subject to periodic review and revision by management. CL&P currently forecasts construction expenditures of approximately $1.5 billion for the yeara 1999-2003, including $231 million for 1999. In addition, CL&P estimates that nuclear fuel requirements, including nuclear fuel financed threugh the NBFT, will be approximately $158.5 million for the years 1999-2003, including $25.2 million for 1999. See Note 2, " Leases," for additional information about the financing of nuclear. fuel. H. Long-Term Contractual Arrangements Yankee Companies: CL&P, WMECO and PSNH rely on VY for approximately 1.4 percent of their capacity under long-term contracts. Under the terms of their agreements, the NU system companies pay their ownership (or entitlement) shares of costs which include depreciation, operation and maintenance expenses, taxes, the estimated cost of decommissionin'.l and a return on invested capital. These costs are recorded as purchased-power expense and are recovered through the companies' rates. CL&P's total cost of purchases under contracts with VYNPC amounted to $15.9 . million in 1998,- $14.1 million in 1997 and $14.8 million in l . 1996. l l Nonu tili ty Generators: CL&P has . entered inte various I arrangements for the purchase of capacity .and energy from nonutility generators (NUGs). These arrangements have terms from 10 . to ~ 3 0 years, currently expiring in the years 1999 through 2029, and require CL&P to purchase energy at specified prices or formula rates. For the 12-month period ending December 1998, approximately 13 percent of ~ NU system electrien./ '21, . requirements were met by NUGs. CL&P's 35
The Connecticut Light and Power Company and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS total cost of purchases under these arrangements amounted to
$290.7 million in 1998, $283.2 million in 1997 and $279.5 million in 1996.
Hydro-Quebec: Along with other New England utilities, CL&P, PSNH, WMECO and HWP have entered into agreements to support transmission and terminal facilities to import electricity ' from the Hydro-Quebec system in Canada. CL&P is obligated to pay, over a 30-year period ending in 2020, its proportionate share of the annual O&M and capital costs of these , facilities. Estima ted Annual Costs: The estimated annual costs of CL&P's significant long-term contractual arrangements are as fellows: 1999 2000 2001 2002 2003 (Millions of Dollars) VYNPC. .. . $ 17.0 $ 15.8 $ 17.2 $ 17.5 $ 16.3 NUGs. . .. 290.3 298.7 292.3 296.1 301.6 Hydro-Quebec...... 18.3 17.6 17.1 16.7 16.2
- 12. FUEL-PRICE RISK-MANAGEMENT CL&P uses swap instruments with financial institutions to hedge against some of the fuel price risk created by long-term negotiated energy contracts. These agreements minimize exposure associated with rising fuel prices by managing a portion of CL&P's cost of producing power for these negotiated energy contracts. As of December 31, 1998, CMP had outstanding agree:ments with a total notional value of approximately $422.2 million and a negative marck-to-market position of approximately $44.9 million.
The terms of the agreements require CL&P to post cash collateral with its counterparties in the event of negative mark-to-market positions and lowered credit ratings. The amount of the collateral is to be returned to CL&P when the mark-to-market position becomes positive, when CL&P meets specified credit ratings or when an agreement ends and all open positions are properly settled. At December 31, 1998, cash collateral in the amount of $45.7 million was posted under these terms. This amount has been recorded in Other Investments on the accompanying Consolidated Balance Sheets. These agreements have been made with various financial institutions, each of which is rated "A3" or better by Moody's rating group. CL&P will be exposed to credit risk on its respective market risk management instruments if the counterparties fail to perform their obligations. However, 36
The Connecticut. Light and Power Company and Subsidiaries
~
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS management anticipates that the counterparties will be able to fully satisfy'their obligations under the agreements.
- 13. MINORITY INTEREST IN CONEOLIDATED SUBSIDIARY CL&P Capital LP (CL&P LP , a subsidiary of CL&P) had previously
. issued $100 million of cumulative 9.3 percent Monthly Income Preferred Securities (MIPS), Series A. CL&P has the sole ownership interest in CL&P LP, as a general partner, and is the guarantor of the MIPS securities. Subsequent to the MIPS issuance, CL&P LP loaned the proceeds of. the MIPS issuance, along with CL&P's $3.1 million capital contribution, back to CL&P in the form of an unsecured debenture. CL&P consolidates CL&P LP for financial reporting purposes. Upon consolidation, the unsecured debenture is eliminated and the MIPS securities a accounted for as minority interests.
- 14. FAIR VALUE OF FINANCIAL INSTRUMENTS The following methods and assumptions were used to estimate the fair value of each of the following financial instruments:
Supplemen tal Execu tive Re tiremen t Plan inves tmen ts : SFAS 115,
" Accounting for Certain Investments in Debt and Eqt i :y Securities," requires investments in debt and equity securities to be presented at fair value. As a result of this requirement, the investments having a cost basis of $5.4 million held for benefit of the Supplemental Executive Retirement Plan were recorded on the Consolidated Balance Sheets at their fair market value at December 31, 1998 of $8.7 million.
Nuclear decommissioning trusts: The investments held in the NU system companiea' nuclear decommissioning trusts were adjusted to market by approximately $110.4 million as of December 31, 1998 and
$69.6 million as of December 31, 1997, with corresponding offsets to the accumulated provision .for depreciation. The amounts adjusted in 1998 and in 1997 represent cumulative net unrealized gains, The cumulative gross unrealized holding losses were immaterial for both 1998 and 1997.
Preferred stock and long-term debt: The fair value of the NU system's fixed-rate securities is based upon the quoted market price for those issues or similar issues. Adjustable rate securities are assumed to have a fair value equal to their carrying value. The carrying amounts of CL&P's financial instruments and the estimated fair values are as follows: l J 37 *
~
j l
)
i I The Connecticut Light and Power Company and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Carrying Fair At December 31, 1998 Amount Value (Thousands of Dollars) Preferred stock not subject to mandatory redemption............... $ 116,200 $ 77,217 , Preferred stock subject to mandatory redemption.................. 119,289 108,108 Long-term debt - First mortgage bonds..... .......... 1,414,000 1,421,926 Other long-term debt...... . ....... 599,003 601,158 MIPS ................................... 100,000 102,000 Carrying Fair At December 31. 1997 Amount Value (Thousands of Dollars) Preferred stock not subject to mandatory redemption............... $ 116,200 $ 62,889 Preferred stock subject to mandatory redemption.................. 155,000 135,600 Long-term debt - First mortgage bonds.................. 1,459,000 1,435,772 Other long-term debt..... ............ 590,443 590,443 MIPS .. . .......................... ... 100,000 100,760 The fair values shown above have been reported to meet disclosure requirements and do not purport to represent the amounts at which those obligations would be settled.
)
l l I l 38
The Connecticut Light and Power Company and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- 15. OTHER COMPREHENSIVE INCOME During 1998, CL&P adopted SFAS 130, " Reporting Comprehensive Income," which established standards for reporting and displaying comprehensive income and its components in a financial statement that is displayed with the same prominence as other financial statements. During 1997 and 1996, CL&P had no material other comprehensive income items.
The accumulated balance for each other comprehensive income item is as follows: Current December 31, Period December 31, 1997 Change 1998 (Thousands of Dollars) Unrealized gain on securities.............. $- $ 638 $ 638 Minimum pension liability adjustment. . (260) (260) Accumulated other comprehensive income.... $- $ 378 $ 378 The changes in the components of other comprehensive income are reported on the Consolidated Statements of comprehensive Income net of the following income tax effects. 1998 1997 1996 (Thousands of Dollars) Unrealized gain on securities.... . .... .. $(446) $- $- Minimum pension liability adjustment.. 182 - - Other comprehensive income... .... ... ..... $(264) $- $- 39
l 1 .The Connecticut Light'and Power Company and Subsidiaries REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS l ro the Board of Directors of The Connecticut Light and Power Company: We have audited the accompanying consolidated balance sheets of The Connecticut Light and Power Company (a Connecticut corporation and1a wholly owned -subsidiary of Northeast Utilities) - and subsidiaries as of December 31, 1998 and 1997,'and the related - consolidated statements of income, - comprehensive income, common , stockholder's equity and cash flows for each of the three years in the period ended December 31, 1998. These financial statements are - '. the responsibility of the company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with-generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An' audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of The Connecticut Light and Power Company and subsidiaries as of December 31, 1998 and 1997, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1998, in conformity with generally accepted accounting principles.
/s/ ARTHUR ANDERSEN LLP ARTHUR ANDERSEN LLP Hartford, Connecticut February 23, 1999 e
40
i t The Connecticut Light and Power Company and Subsidiaries MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This section contains management's assessment of Connecticut Light and Power's (CL&P or the company) financial condition and the principal factors having an impact on the results of operations. The company is a , wholly owned subsidiary of Northeast Utilities (NU). This discussion j should be read in conjunction with the company's consolidated financial q statements and footnotes. J FINANCIAL CONDITION CL&P's financial outlook improved in 1998 despite reductions in retail rates. The improved outlook is a result of the successful restart of the Millstone 3 nuclear power plant, significant progress toward the restart of Millstone 2 and significant reductions in operating I expenses. . l CL&P had a net loss of approximately $196 million in 1998, compared to a net loss of approximately $140 million in 1997. The greater loss in 1998 was the result of significant write-offs of the company's investment in the retired Millstone 1 nuclear power plant and the accelerated amortization of regulatory assets as ordered by Connecticut regulators in a February 1999 retail rate decision. l Operation and maintenance (O&M) costs at Millstone Station declined to
$315 million in 1998 from $440 million in 1997. These decreases were driven primarily by the decision to retire Millstone 1 and the return ,
to service of Millstone 3. Ir. addition, total fuel and purchased power costs decreased to $887 million in 1998 as compared to $977 million in 1997, primarily due to the restart of Millstone 3. 1 Total revenues fell 3 percent to $2.39 billion in 1998 from $2.47 billion in 1997. The fal) in revenues occurred despite a 2.2 percent increase in retail kilcwatt-hour sales for the year. The lower revenues resulted primarily from the removal of the Millstone units l from the company's retail rate base. l Also offsetting the .ower O&M were significant increases in certain noncash expe'ises . Frimarily as a result of Connecticut regulatory decisions, a.riortizat!.on of regulatory assets totaled $121 million in , 1998, up trom $62 million in 1997. l l CL&P's ability to improve its financial perfornance in 1999 will ! depend primarily on.its success in bringing Millstone 2 back on line, and further reducing 3ts operating - costs to help offset continued downward pressure on retail revenues. CL&P will continue to be ; negatively impacted by the $232 million reduction in revenue l requirements ordered by Connecticut state regulators in February 1999. 41
l i l Restructuring Although CL&P continues to operate under cost-of-service based regulation, future rates and the recovery of stranded costs are issues that will be addressed as restructuring legislation is implemented. Stranded costs are expenditures or commitments that have been made to meet public service obligations with the expectation that they would be recovered from customers. However, under certain circumstances
- I these costs might not be recoverable from customers in a fully competitive electric utility industry (i.e., the costs may result in above-market energy prices).
CL&P has exposure to stranded costs for its investments in high-cost nuclear generating plants, state-mandated purchased-power obligations and significant regulatory assets. As of December 31, 1998, CL&P's net investment in nuclear generating plants was approximately $1.9 billion and its regulatory assets were approximately $1.4 billion. CL&P's financial strength will be negatively affected if it is unable to recover past investments and commitments. In April 1998, Connecticut enacted comprehensive _ electric utility restructuring legislation. The act provides for rates to be capped at December 31, 1996, levels until December 31, 1999. Retail choice will be phased in over six months beginning January 1, 2000, and will extend to all retail customers by July 2000. Customers not choosing an alternate supplier can continue to receive service until January 2004 at a rate that is at least 10 percent less than 1996 rates. The law allows for recovery of all prudently incurred stranded costs and mandates the functional separation of competitive and regulated businesses. To qualify for stranded cost recovery, CL&P must auction off its fossil and hydroelectric generating facilities prior to January 2000, and its nuclear generating assets prior to January 2004. CL&P also received regulatory approval to auction any of its , purchased-power contracts which cannot be renegotiated by March 1999. The Connecticut legislation allows the use of securitization after January 1, 2000, to further reduce the costs of the transition to a limited, competitive marketplace. The use of securitization is however, to non-nuclear generation-related regulatory assets and costs associated with the renegotiation of purchased-power contracts. CL&P may not securitize nuclear stranded costs. The Connecticut Department of Public Utility Control (DPUC) will initiate an investigation into CL&P's stranded costs in the spring of 1999 with a final decision expected before the end of the year. As a result of the corporate .unbundling and divestiture proposals, CL&P would redefine itself as a distribution company under the restructuring legislation, and would provide generation services only to the extent necessary to provide standard offer, backup and default services as required by customers who have not chosen an alternate energy supplier. 42 )
Rate Matters In February 1999, the DPUC issued'a final order in CL&P's retal; rate proceeding reducing CL&P's revenue requirements by~ $232 'million retroactive to September 28, 1998. To ~ implement ' .that reduction,.the DPUC ordered CL&P to-reduce'its retail base rates..by approximately-$96 million annually and to increase its amortization of regulatory assets by - $136 million annually. The rate order allowed CL&P to earn 'a return on equity of 10.3 percent. The DPUC also said it would-allow-CL&P to recover only $126 million of its investment in Millstone 1
. undepreciated plant and related assets. As a result of this decision, CL&P reflected in 1998 a one-time pre-tax charge of $11r.5 million and began amortizing its remaining Millstone 1 inveciment over three years.
In a February 1998 decision, the DPUC removed Millstone 2 from CL&P's rate base effective May 1, 1998, and Millstone 3 effective July 1, 1998. On July 18, 1998, Millstone 3 returned to rate base. Millstone 1 previously had been removed from CL&P's rate base effective March 1, 1998, with customers. receiving a temporary credit of approximately 1.4 percent, or $30 million annually, on their bills. The removal of Millstone 2 reduced CL&P's noncash revenues by approximately $3 million a month. This reduction was increased in the 1999 rate order to nearly $6.6 million per month to reflect lower fuel ; costs. Actual fuel costs are subject to true-up in the Energy i Adjustment Clause. -) l Millstone Nuclear Units ! CL&P owns 81.0 percent of Millstone 2 and approximately 52.9 percent of Millstone 3. CL&P's poor financial performance from 1996 through 1998 was primarily due to the lengthy outages at Millstone. Costs peaked in 1997 when replacement power costs and operation and maintenance costs totaled nearly $730 million. In 1998, Millstone-related costs fell significantly as Millstone 3 returned to service and Millstone 1 began to prepare for decommissioning. After a 27-month outage, Millstone 3 received Nuclear Regulatory Commission (NRC) permission to restart in June 1998 and reached ful-1 power in July. The unit achieved a capacity factor of approximately 70 percent in 1998 following its return to service. CL&P's share of the operation, maintenance and replacement power costs associated with Millstone 3 totaled approximately $131 million in 1998, down from $241-million in 1997. The unit remains on the NRC's watch list with a Category 2 designation, .which means . that it will continue to - be subject to heightened NRC oversight. A refueling and maintenance outage =is~ scheduled to begin in May 1999. Millstone 2 remains on the: NRC watch list with. a Category 3 - designation, meaning that NRC commissioners must formally vote to allow restart. Key steps before restart include final verification
-that._the. unit is in conformance with its design and licensing basis; i 43 i
l that management processes support safe and conservative operations; and that the employees are effective at identifying and correcting deficiencies at the unit. Millstone 2 is on schedule for a spring 1999 restart following final NRC review and approval. Millstone 2's return is expected to restore $6.6 million a month in noncash revenues to CL&P, reduce fuel and purchased-power expense by approximately $7 million a month, and significantly reduce the unit's operation and In a July i maintenance expenses, which totaled $178 million in 1998. 1998 filing with the DPUC, management concluded that Millstone 2 had over $400 million of economic value over the 17 years remaining on its license life. In its February rate decision, the DPUC concurred that the unit was economic for customers and ordered it to be restored to CL&P rate base once it operates at 75 percent or more power for 100 consecutive hours. Liquidity CL&P successfully refinanced more than $600 million in expiring debt obligations and bank commitments in 1998 despite a significant reported loss. CL&P converted a total of $362 million variable-rate tax exempt debt to fixed-rate tax exempt debt carrying interest rates of 5.85 to 5.95 percent. Niantic Bay Fuel Trust (NBFT), which finances CL&P's and WMECO's nuclear fuel at Millstone, refinanced maturing notes and bank lines through the issuance of $180 million of in refinancing CL&P's five-year 8.59 percent notes. The success obligations was due primarily to the progress shown in 1998 by returning Millstone 3 to service and improved cash flows. Net cash flows from operations totaled approximately $389 million in 1998, up sharply from $73 million in 1997. Approximatelyactivities,
$208 million including of net cash flow was used for investment construction expenditures and investments in nuclear decommissioning trusts, compared with $144 million in 1997. Another $14 million was used to pay preferred dividends, compared with $21 million in common and preferred dividends in 1997. The balance of cash used for financing activities, approximately $167 million, was used to pay off long-term, short-term debt and preferred stock, a significant shift from 1997 when net debt and preferred stock levels increased by $92 million.
The return to service of Millt .one 3 and resulting reduction in costs stabilized the NU system's cradit ratings in mid-1998 after repeated downgrades in 1996 and 1997. Moody's Investors Service, which had downgraded CL&P, WMECO, and NU debt in April 1998, upgraded those same ratings in July 1998 and established a " positive" outlook. Also in July, Standard & Poor's (S&P) removed the NU. system from "CreditWatch-negative" for the first time in more than two years. In September 1998, S&P upgraded CL&P, WMECO and PSNH first mortgage bonds. l The rating agency actions also were due in part to the NU system's success in 1998 in maintaining access to its various credit lines. Key covenants on a $313.75 million revolving credit line primarily 44
h .I serving CL&P and WMECO were adjusted in the fall. The CL&P rate decision resulted in'the need for a waiver of the revolver's equity test in the fourth quarter, which was negotiated with banks in March 1999. The $313.75 million revolving credit line.will expire on November 21, 1999. As of February 23, 1999, CL&P'had $165 .million outstanding under that line. CL&P met a $140 million bond maturity on February 1,. 1999. Management expects those borrowings to increase further in the first half of 1999 as CL&P pays off a $74 million bond issue that-
. matures July 1, 1999.
CL&P has also arranged financing agreements . through the' sale of its accounts receivables. CL&P can finance up to $200 million through these facilities. As of December 31, 1998, CL&P had financed $105 million through its accounts receivable line. For additional information '. on the sales of accounts receivable, see
" Notes to Consolidated Financial Statements," Note 10.
CL&P is party to an operating lease w'ith General- Electric Capital Corporation related to the use of four turbine generators having an installed cost of approximately $70 taillion and a stipulated . loss value of $59 million. CL&P must meet certain financial covenants that are substantially similar to the revolving credit line. CL&P has received a waiver of these tests for the fourth quarter of 1998 as a result of the CL&P rate decision. The permanent shutdown of Millstone 1 in July 1998 could require CL&P and WMECO to immediately repay the NBFT approximately $80 million of capital lease obligations. CL&P is seeking consents f rom the note holders to amend the lease so that they will not be obligated to make this payment. As consideration for the note holders' consents, the companies intend to issue an additional $80 million of first mortgage bonds in mid-1999. Nuclear Decommissioning The staff of the SEC has questioned certain current accounting practices of the electric utility industry, regarding the recognition, measurement and classification of decommissioning costs for. nuclear generating units in the financial statements. In response _to these questions, the Financial Accounting Standards Board (FASB) had agreed to review the - accounting 'for closure and removal costs, including decommissioning. If _ current . electric utility industry accounting
- practices for nuclear power plant decommissioning are changed, the -annual' provision for decommissioning _could increase relative to'1998, and the estimated cost for decommissioning could _be recorded as a liability .(rather than as accumulated depreciation) , with-recognition of an increase in - the cost of the .related nuclear power' plant. As management believes- decommissioning costs' will continue to- be recovered through' rates, changes-to the accounting will not affect: net income.
45-
s Millstone 1 CL&P has an ownership interest of 81 percent in Millstone-1. Based on a continued unit operation study filed with the DPUC in July 1998, CL&P and WMECO decided to retire Millstone.1 and begin decommissioning: activities. Subsequently, Millstone 1 was removed ' from the. NRC's-watch list. , CL&P's share of the total estimated decommissioning costs- for-Millstone 1, which have been updated to reflect the early shutdown of . the unit, is approximately $560.5 million in December 1998 - dollars. CL&P uses external trusts to fund the decommissioning costs. In'1998, CL&P recorded a charge of approximately $143.2.million for the write-off of its investment in Millstone 1 as a result of the February-1999 rate decision and an earlier settlement with the Connecticut Municipal Electric Energy Cooperative (CMEEC). At December 31, 1998, CL&P had unrecovered plant and related assets for Millstone :1 of- $129.5 million and an unrecovered decommissioning ob?.igation of $313.5 million. These amounts have been recorded as a regulatory asset, while decommissioning and closure -obligations have been recorded as a liability. CL&P has been allowed to recover its remaining investment-in Millstone 1 over three years beginning October 1998. The - rate decision also stated that' CL&P would be allowed to recover its decommissioning costs and could defer pre-decommissioning costs commencing July 1, 1999 for future recovery. Yankee Companies CL&P has a 34.5 percent ownership interest in the Connecticut Yankee Atomic Power Company (CYAPC), a 24.5 percent ownership i n t e r e s t'. i n Yankee Atomic Electric Company (YAEC), a 12 percent ownership interest in Maine Yankee Atomic Power Company (MYAPC) and a 9.5 percent ownership interest in Vermont Yankee Nuclear Power Corporation (VYNPC). The nuclear plants owned by YAEC, CYAPC and MYAPC were shut down permanently on February 26, 1992, December 4, 1996, and August 6, 1997, respectively. At December 31, 1998, CL&P's share of its estimated remaining contract obligations, including decommissioning, amounted to approximately
$277.8 million; $20.0 million for YAEC, $172.0 million ~ for CYAPC.and. $85.8 million for MYAPC. Under the terms of the contracts with the Yankee companies, CL&P is responsible for its proportionate share of the costs of the' units including decommissioning. Management expects to recover these costs from customers. Accordingly, .CL&P has recognized these costs as a regulatory ' asset , with a corresponding.
obligation on its balance sheet. ,
.CL&P has exposure for its investment in CYAPC as - a result of an initial decision at the Federal Energy Regulatory Commission - (FERC) .
' Additionally, in _ January 1999,. MYAPC filed an offer of. settlement. which, if accepted-by the FERC,<will resolve all the : issues in ..the FERC L decommissioning rate case proceeding. CL&P management . cannot . i 46
I predict the ultimate outcome of the FERC proceedings at this time, but believes that the associated regulatory assets are probable of recovery. For further information on these proceedings see " Notes to Consolidated Financial Statements," Note llB. CL&P's ownership share of the estimated costs of decommissioning the nuclear plant owned by VYNPC is approximately $50.4 million in year-end 1998 dollars. Millstone 2, 3 and Seabrook 1 CL&P's estimated cost to decommission its sharen of Millstone 2, Millstone 3 and Seabrook 1 is approximately $638 million in year-end 1998 dollars. These costs are being recognized over the lives of the respective units with a portion currently being recovered through rates. As of December 31, 1998, the market value of the contributions already made to the decommissioning trusts, including their investment returns, was approximately $242 million. See the " Notes to Consolidated Financial Statements," Note 3, for further information on nuclear decommissioning.
- Yocr 2000' Issues The NU system has established an action plan by which identified processes must be completed by certain dates in order to ensure its operating systemc, including nuclear systems, and reporting systems are able to properly recognize the year 2000. This action plan has three phases: the inventory phase, the detailed assessment phase and i the remediation phase. The inventory phase, which has been completed, identified operating and reporting systems which may need to be fixed.
The detailed assessment phase, which has been completed, determined exactly what needed to be done in order to ensure that the systems identified during the inventory phase are able to recognize properly and process the year 2000. The final phase is the remediation phase. By the end of this phase, mission critical systems (systems that are related to safety, keeping the lights on, regulatory requirements, and other systems that could have a significant financial impact) will be year 2000 ready; that is, these systems will perform their business functions properly in the year 2000. This phase includes making modifications, testing and validating changes and verifying that the year 2000 issues have been resolved. Although the identification and detailed assessment phases are complete, newly identified items, such as new software purchases, are added to the inventory as they are identified and are subject to detailed assessment and, if needed, remediation. The NU system purchasing policies require newly purchased software and devices to be year 2000 compliant. None of these newly identified items are expected to materially impact completion of the remediation phase. The NU system has identified and inventoried 2,497 computer systems (software) and over 24,000 devices (hardware) broken down into 3,450 device types containing date-sensitive computer chips. As of 47
t December 31, 1998, 73 percent of the software systems and 81 percent of the hardware were year 2000 ready. The remaining items are in various stages of modification or testing. Management anticipates the remediation phase for mission critical systems to be completed by mid-1999. 1 In addition, the NU system has been contacting its key suppliers and ; business partners to determine their ability to manage the year 2000 j problem successfully. The NU system is adjusting its inventories, J working with suppliers to provide backup inventories, and changing -
]
suppliers as needed to provide for an adequate supply of materials . { needed to conduct business into the year 2000. The NU system also has worked actively with the Independent System Operator (ISO) New England, the operator of the New England power grid and with the North American Electric Reliability Council to provide for the year 2000 readiness of the New England power grid. The NU system has utilized both internal and external resources to identify, assess, test and reprogram or replace the comIuter systems for year 2000 readiness. The current projected total cost of the Year 2000 Program to the NU system is $30 million. The total estimated remaining cost is $18 million, which is being funded through operating cash flows. The majority of these costs will be expensed as incurred in 1999. Since 1996, the NU system has incurred and expensed approximately $12 million related to year 2000 readiness efforts. Total expenditures related to the year 2000 are not expected to have a material effeet on the operations or financial condition of the NU system. The costs of the project and the date on which the NU system plans to complete the year 2000 modifications are based on management's best estimates, which were derived utilizing numerous assumptions of future events, including the continued availability of certain resources, third-party modification plans and other factors. However, there can be no guarantee that these estimates will be achieved, and actual results could differ materially from those plans. If the NU system's remediation plans or those of third parties are not successful, there could be a significant disruption of the NU system's operations. The most likely worst case scenario is a limited number of localized interruptions to electric service which can be restored within a few hours. As a precautionary measure, the NU system is formulating contingency plans that will- evaluate alternatives that could be implemented if our remediation efforts are not successful. The contingency plans are being developed by enhancing existing emergency operating procedures to include year 2000 issues. In addition, the NU system plans to have staff available to respond to any year 2000 situations that might arice. The contingency plan is expected to be available by July 30, 1999. 48
The NU system is committed to assuring that adequate resources are available in order to implement any changes necessary for its nuclear and other operations to be compatible with the new millennium. Risk-Management Instruments The following discussion about CL&P's risk-management activities includes forward looking statements that involve risks and uncertainties. Actual results could differ materially from those projected in the forward looking statements. This analysis presents the hypothetical loss in earnings related to the fuel price and interest rate market risks at December 31, 1998. CL&P uses swaps to manage the market risk exposures associated with changes in fuel prices and variable interest rates. CL&P uses these instruments to reduce risk by essentially creating of f setting market exposures. Based on the derivative instruments which are currently being utilized by CL&P to hedge some of their fuel price and interest rate risks, there will be an impact on earnings upon adoption of ! Statement of Financial Accounting Standards No. 133, Accounting for { Derivative Instruments and Hedging Activities, which management cannot ' estimate at this time. For more information on CL&P's use of risk-management instruments, see the " Notes to Consolidated Financial Statements," Notes 1L and 12. 1 Fual-Price Risk-Management Instruments In the generation of electricity, the most significant segment of the l variable cost component is the cost of fuel. Typically, most of CL&P's fuel purchases are protected by a regulatory fuel price adjustment clause. However, for a specific, well-defined volume of j fuel that is excluded from the fuel price adjustment clause, CL&P employs fuel-price risk-management instruments to protect itself against the risk of rising fuel prices, thereby limiting fuel costs and protecting its profit margins. These risks are primarily created by the sale of long-term, fixed-price electricity contracts to wholesale customers. At December 31, 1998, CL&P had outstanding fuel-price management instrument agreements with a total notional value of approximately
$422 million and a negative mark-to-market position of approximately
$45 million. A hypothetical 10 percent decrease in average 1998 fuel prices during 1999 may result in a $10 million decrease in the fair value of the fuel-price risk-management instruments. Because these instruments are used to hedge the fuel price risk created by the sale
. of long-term, fixed-price electricity contracts, it is expected that the hypothetical decrease in fuel prices during 1999 would result in a corresponding increase in the fair value of these contracts.
This analysis is based on the assumption that the amount of fuel-price risk-management instruments and the amount of long-term fixed-price electricity sales contracts to wholesale customers will not fluctuate 49
1 l duringT1999. This' analysis-is subject to change as these assumptions change. Environmental Matters CL&P is potentially liable for environmental cleanup costs at a. number of sites inside and outside its service territory. To date, the future estimated environmental remediation liability has not been material . with respect to the earnings or financial position of.CL&P. CL&P. had recorded an environmental reserve of approximately $8.0 and $6.4
- million, at December 31, 1996 and 1997, reapectively. See the " Notes Statements," Note 11D, for further to Consolidated Financial .
information on environmental matters. RESULTS OF OPERATIONS Income Statement Variances. (Millions of Dollars). 1998 over/ (under) 1997 1997 over/ (under) 1996 Amount Percent Amount- Percent Operating revenues $(79) (3)% $ 68 3% Fuel, purchased and net interchange power (90) (9) 146 18 Other operation (22) (3) (1) - Maintenance (84) (24) 56 19 Depreciation (22) (9) (8) (3) Amortization of regulatory assets, net 59 96 4 7 Federal and state income taxes (12) (18) (68) (a) Millstone 1 unrecoverable costs (143) (100) - - Other income, net (4) (a) (16) (89) Net loss (56) (40) (89) (a ) (a) Percentage greater than 100. Operating Revenues-The removal of the Millstone units f rom CL&P's rate base reduced revenues by $68 million in 1998. . Wholesale revenues-decreased by $33 , million primarily as a result of the terminated contract with CMEEC. These1 decreases were partially offset by higher _ retail' sales' volumes. Retail kilowatt-hour sales were 2.2 percent higher'and contributedi$36 million to.nonfuel revenues in 1998 primarily as a result of-economic -growth. 50
Total operating revenues increased in 1997, primarily due to higher l fuel recoveries and higher conservation recoveries. Fuel recoveries l increased $33 million, primarily due to higher fuel revenues as a l result of a lower fuel rate in 1996. Conservation recoveries increased i' by $17 million, primarily due to a 1996 reserve for overrecoveries of demand-side management costs. Fuol, Purchased and Net Interchange Power The change in fuel, purchased and net interchange power expense in
. 1998 is primarily due to lower replacement power costs due to the l I
return to service of Millstone 3. Fuel, purchased and net interchange power expense increased in 1997, primarily due to replacement power costs associated with the Millstone outages. Other Operation and Maintenance Other operation and maintenance expenses decreased in 1998, primarily due to lower costs at the Millstone nuclear units ($125 million), lower costs at the Yankee nuclear units ($21 million), lower administrative and general expenses ($12 million), the recognition of environmental insurance proceeds ($9 million), lower distribution costs ($8 million), a decrease in sales and marketing expenses ($8 l million), and lower costs from ISO-New England for interchange i services ($7 million). These decreases were partially offset by higher capacity charges ($51 million) and the recognition of nuclear refueling outage costs primarily as a result of the 1996 Rate Settlement ($34 million). Other operation and maintenance expenses increased in 1997, primarily due to higher costs associated with the Millstone restart effort ($173 million) and higher charges from MYAPC ($9 million), partially offset by lower recognition of nuclear refueling outage costs primarily as a result of the 1996 Rate Settlement ($72 million), lower capacity charges from CYAPC as a result of a property tax refund ($27 million), lower administrative and general expenses ($23 million) primarily due to lower pensions and benefit costs, and lower storm expenses. Dspreciation Depreciation decreased in 1998, primarily due to the retirement of Millstone 1. Depreciation decreased in 1997, primarily due to lower depreciation rates partially offset by higher plant balances. 51
Amortization of Regulatory Assets' Net Amortization of regulatory assets, net increased in 1998, - primarily due to accelerated amortizations in'accordance with retail regulatory decisions and the' beginning of the amortization of - the Millstone 'l . remaining investment. , Amortization of regulatory assets, net increased -in 1997, 'primarily-
- due to the completion of cogeneration deferrals in'1996 and increased amortization in 1997, -partially offset by the . ' completion of CL&P's Seabrook amo*tization in 1996. .
Faderal and State Income Taxes Federal and state income taxes decreased in 1998 primarily due to lower book taxable income and the increase in income tax credits due to the. Millstone 1 write off. Federal and state income taxes decreased in 1997 primarily due to lower book taxable income. Millstone 1 Unrecoverable Costs Millstone 1 unrecoverable costs represents the write-off of the Millstone 1 entitlement formerly held by CMEEC and the write-off of unrecoverable costs as a result of the February 1999 rate decision. Other Income, Net The change in other income, net in 1998 was not significant. Other income, net decreased in 1997, primarily due to costs associated with the sale of accounts receivable facility and lower miscellaneous income. 1 52 j
i e The Connecticut Light and Power Company and Subsidiaries l SELECTED TINANCI AL DATA'*3 1990 1997 1996 1995 1994 (Thousands of Dollars) oporating P.evenues.......... $2,386,864 $2,465,587 ,62,397,460 $2,387,069 $2,328,052 Operating Income /(Loss)..... 28,254 (12,399) 29,773 324,026 286,948 (195,72S) (144,377) (80,237) 205,216 198,288 Net (Loss)Dncome....... ... Cach Dividends on 159,388 common Stock.. ..... .....
- 5,989 138,608 164,154 6,050,198 6,081,223 6,244,036 6,045,631 6,217,457 Total Assets... .. ...
Long-Term Debt W . ..... ...
- 2,043,327 2,038,521 1,822,018 1,823,690 Preferred Stock Not Subject to Mandatory 116,200 116,200 116,200 116,200 166,200 Redemption.. ..........
Preferred Stock Subject to Mandatory Pedemption". ... .. ... 119,289 155,000 155,000 155,000 230,000 Obligations Under 172,264 175,969 capital Leases'" . ... 162,884 158,118 155,708 STATEMENTS OF QUARTERLY FINANCIAL DATA (Unaudited) Quarter Ended 1990 March 31 June 30 September 30 December 31 (Thousands of Dollars) Operating Revenues jj&M1 jhM,1 1_628.14.8 $ 588.5M Operating Income /(Loss) g g g1 (Agj $ 29.94j ggdig) Net Loss (,D.QM) M & Jf1) gjlQJM) MMMQ) 1997 Operating Revenues )RidQj j$1(1 g&M WMgj operating Income /(Loss) 2 ZLJJB $ f33.587) (JLMg) !J_JJ2 l l Net Loss (Jdll) $d.$dM2I IMMEI E C3'70SI Peclassifications of prior data have been made to conform with the current presentation.
- Includes the cumulative effect of change in accounting for municipal property tax expense, which increased earnings for common shares by $47.7 million.
W Includes portion due within one year.
-53
The Connecticut Light and Power Company and subsidiaries STATISTICS (Unaudited) Gross Electric Average Utility Plant Annual December 31, Use Per Electric (Thousands of kWh Sales Residential Customers Employees Dollars) (Millions) Customer (kWh) (Averace) (December 31) , 1998 $6,345,215 27,356 8,476 1,113,370 2,336 1997 6,639,786 26,766 8,526 1,103,309 2,163 - 1996 6,512,659 26,043 8,639 1,099,340 2,194 f 1995 6,389,190 26,366 8,506(a) 1,094,527 2,270 1994 6,327,967 26,975 8,775 1,086,400 2,587 (a) Effective January 1, 1996, the amounts shown reflect billed and unbilled sales. 1995 has been restated to reflect this change. 54
THIS PAGEINTENTIONALLYLEFT BLANK. 9 5 I
i i THISPAGE INTENTIONALLYLEFT BLANK.. i
The Connecticut Li.ht ond Power Com. .n First and Refunding Afortgage Bonds . Trustee and Interest Paying Agent Bankers Trust Company, Corporate Trust and Agency Group P.O. Box 318, Church Street Station New York, New York 10008-0318 - A PreferredStock Transfer Agent, Dividend Disbursing Agent and Registrar Northeast Utilities Service Company Shareholder Services < P.O. Box 5006' 11artford, Connecticut 06102-5006 1999 Dividend Payment Dates 5.28%,5.3b%, $3.24 Series January 1, April 1, July 1, and October 1 4.50 % (1956),4.96 %, 6.56 %
$1.90, $2.'00, $2.04, $2.06, $2.09, and $2.20 Series February 1, May 1. August 1, and November 1 3.90%,4 50% (1963),7.23% Series March 1, June 1, September 1, and December 1 h1onthly Income Preferred Securities 9.30% Cumulative Monthly income Preferred Securities (MIPS), Series A 1999 Payment Dates February 1, March 1,' March 31, April 30, June 1, June 30, August 2, August 31, September 30, November 1, November 30, and December 31 Address General Correspondence in Care of: i Northeast Utilities Service Company Investor Relations Department i I
. P.O. Box 270 Ilartford, Connecticut 061410270 Telephone:(860) 665 5000 l
. Data contained in this AnmsalReport are submined
. for the solepurpose ofpnwiding information to .
- IOl 00I000 Of(**f present scarrity holders alumt the Company. Berlin, Connecticut 06037-1616
-I U
Annu port OSI blaSSaCllH8eits The Northeast Utilities System
Directors Officers - l John 11. Forsgren Michael G. Morris Patricia A. Wood Executive Vice President and Chairman Clerk Chief Financial Officer . Ilugh C. MacKenzie Thetesa 11. Allsop Bruce D. Kenyon President Assistant Clerk President-Generation Group
. Bruce D. Kenyon O. Kay Comendul Ilugh C. MacKenzie President-Generation Group Assistant Clerk President J hn 11. Forsgren Deborah L Canyock Michael G. Morris Executive Vice President and Assistant Controller-Chairman Chief Financial Officer Management Information and Budgedag Servkes Cheryl W. Gris6 Senior Vice President, g'ori A. Mahler Secretary, Assistant Clerk Assistant Controller-and General Counsel Accounting Services Robert G. Abair William J. Starr Vice President and Chief Assistant Controller-Taxes Administrative Officer
- Thomas V. Foley David II. Iloguslawski Assistant Secretary Vice President-Energy Delivery Margaret L. Morton .
John B. Keane Assistant Secretary { Vice President-Administration l Robert C. Aronson Kerry J. Kuhlman Assistant Treasurer-Vice President- Treasury Operations Customer Operations Randy A. Shoop David R. Mcliale Assistant Treasurer-Finance Vice President and Treasurer William J. Nadeau I Vice President-Fossil /llydro Engineering and Operations John J. Roman Vice President and Controller Lisa J. Thibdaue Vice President-Rates, Regulatory Affairs and Compliance Dennis E. Welch Vice President-Environmental, Safety and Ethics Roger C. Zaklukiewicz , Vice President- . Transmission and Distribution John P. Stack Executive Director-Corporate Accounting and Taxes
'Mr. Abair will retire effecti t April 1,1999. March 1,1999 i
________u
1998 Annual Report i Western Massachusetts Electric Company and Subsidiary . Index Contents Pace Consolidated Balance Sheets................................. '2-3' Consolidated Statements of Income........................... 4' Consolidated Statements of Comprehensive Income............. 4 Concolidated Statements of Cash F1ows....................... 5 Consolidated Statements of Common Stockholder's Equity...... 6 Notes to Consolidated Financial Statements.................. 7 Report of Independent Public Accountants.................... 36 Management's Discussion and Analysis of Financial Condition and Results of Operations....................... 37 Selected Financial Data..................................... 45 Statements of Quarterly Financial Data (Unaudited).......... 45 Statistics (Unaudited)...................................... 46 Preferred Stockholder and Bondholder Information............ Back Cover
PART I. FINANCIAL INFORMATION WESTERN MASSACHUSETTS FLECTRIC COMPANY AND SUBSIDIARY I CONSOLIDATED BALANCE SHEETS 1998 -1997' AT DECEMBER 31, (Thousands of Dollars) ASSETS Utility Plant, at original cost: $ 1,221,257 $ 1,284,288 Electric................................................ 517,401 559,119 Less: Accumulated provision for depreciation......... ............. ............ 703,856 725,169 14,858 ~19,038 Construction work in progress...........................
........... .19,931 30,907 Nuclear fuel, net........................... ............. ............
738,645 775,114 Total net utility plant............................. ............. ............ Other Property and Investments: 125,598 102,708 Nuclear decommissioning trusts, at market............... Investments in regional nuclear generating 15,449 15,741 companies, at equity................................... 7,32) 4,900 Other, at cost.......................................... ............. ............ 148,360 123,349 Current Assets: 106- 105 Cash.................................................... 21,865 25,280 Investments in securitizable assets..................... Receivables, less accumulated provision for 2,739 uncollectible accounts of $50,000 in 1998 and 1997.... 862 4,188 3,933 Accounts receivable from affiliated companies........... 14,255 10,768 Taxes receivable........................................ 5,053 5,860 Fuel, materials and supplies, at average cost........... Recoverable energy costs, net.-current portion.... ..... 1,924 . 23,996 14,945 Prepayments and other................................... ............. ............ Deferred Charges: 211,377 322,435 Regulatory assets (Note 1G)............................. 2,695 2,298 Unamortized debt expense................................ 3,695 2,963 Other.................. ................................ ............. ............ 328,428 217,035 t Total Assets................................. ...... $ 1,287,682 $ 1.179,128, See accompanying notes tctconsolidated financial statements. 2
.=.
WESTERN MASSACHUSETTS ELECTRIC COMPANY AND SUBSIDIARY Col!SOLIDATED BALA".CE SNEETS L AT DECEMBER 31, , 1998 1997 (Thousands of Dollars) CAPITALIZATION AND LIABILITIES Cepitalization: Common stock--$25 par value. Authorized and outstanding 1,072,471 shares............ $ 26,812 $ . 26,812 151,431 151,171 Cepital surplus, paid 1n................................ 46,003 58,608 Ratcined earnings....................................... Accumulated other comprehensive income.................. 150 . Total common stockholder's equity.............. 224,396 236.591 Preferred stock not subject to mandatory redemption..... 20,000 20,000 Preferred stock subject to mandatory redemption......... 18,000 19,500 349,314 386,849 Long-term debt........................ ................. 611,710 662,940 Total capitalization........................... ............ Obligations Under Capital Leases....................... .. 12,129 217 Current Liabilities: 15,000 Notes payable to banks.................................. 20,000 30,900 14,350 Notes payable to affiliated companies................... Long-term debt and preferred stock.-current 41,500 11,300 portion................................................ Obligations under capital leases--current 21,964 32,670 portion................................................ 30,571 17,952 Accounts payable........................................ 21,209 Accounts payable to affiliated companies................ 12,866 1,264 522 Accrued taxes................................ ......... 8,030 3,318 Accrued interest........................................ 6,831 2.446 othtr....... ........................................... ............ 161,307 131,386 D2ferred Credits. 248,985 246,453 Accumulated deferred income taxes....................... 21,895 23,364 Accumulated deferred investment tax credits............. 131,500 Dacommissioning obligation--Millstone 1 (Note 2)........ - 93,628 74,534 Daferred contractual obligations........................ 25,622 21,140 Other................................................... ............. ............ 502,536 384,585 Commitments and Contingencies (Note 11) Total Capitalization an? Liabilities........... $ 1,287,682 $ 1,179,128 Sss accompanying notes to consolidated financial statements. 3
I WESTERN' MASSACHUSETTS ELECTRIC COMPANY,AND SUBSIDIARY-CONSOLIDhTED STATEMDTTS OF INCOME I
~l FOR THE YEARS ENDED DECEMBER 31, 1998- 1997 1996 .
(Thousands of Dollars)
$421,337 qperating Revenues............................. $ 393,322 $426,447 Operating Expenses: ,
Operation -- 140,976 11'5,691 Fuel, purchased and net interchange power. 113,148 134,916 153,399 136,897 Other..................................... 81,466 56,201 56,622 Maintenance.................................. 40,901 39,753 39,710 Depreciation................................. 6,428 9,170 Amortization of regulatory assets............ 6,016 2,109 _( 15,142) 10,628 Federal and state income taxes............... 19,756 19,316 19,850 Taxes other than income taxes................ .................... 373,468 426,196 388,147 Total operating expenses............... .......... ......... ......... 19,854 251 33,190 Operating Income............................... .......... ......... ......... Other Income: Equity in earnings of regional nuclear 1,699 1,524 1,800 generating companies....................... (1,905) (1,106) 1,153 Other, net... ............................... 1,026 1,068 2,198 Income taxes............................... . 1,992 1,444 4,021 Other income, net...................... Income before interest charges......... 21,846 1,695 37,211 Interest Charges: Interest on long-term debt................... 28,027 26,046 24,094 3,398 3,109 2,028 Other interest............................... .......... ......... ......... 31,425 29,155 26,122 Interest charges, net........... ......
$ (9,579) $ (27,4 60) $ 11,089 Net (Loss) / Income . . .. .......................
.......... u ....... .........
CONSOLIDATED STATEMDTIS OF COMPREHENSIVE INCOME (9,579) $ (27,460) Net ( Lo s s ) / I nc ome . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $.......... ......... .........
$ 11,089 Other comprehensive income, net of tax: )
Unrealized gains on securities,................ 183 - - Minimum pension' liability adjustments.......... (33) - - other comprehensive income, net of tax...... 150 . -
$ 11,089 .
Comprehensive (Loss ) / Income . . . . . . . . . . . . . . . . . . . . $ (9,429) $ (27,460)
- l
.......... ......... ==.......
1 See accompanying notes to consolidated financial statements. 4 f
' WES*'ERN MASSACHUSE7TS ELECTRIC COMPANY AND SUBSIDIARY -
~ CONSOLIDATED STATEMENTS OF CASr. FLOWS ~
For tha Years Ended December 31, 1998' 1996
..............................................................................'1997............'........
(Thousands of Dollars).
. operating Activities Net ( Los s ) / Inc ome . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (9,579) $ - (27,460) $' 11,089:
Adjustme.nts to reconcile to net cash from operating activities: . 39,753-
~39,710-Depreciation........ ...................................... 40,901 Deferred income taxes and investment tax credits, net..... 7,405 (1,256)- .1,194 Amortization of: regulatory assets - income taxes.......... 2,657_ .5,452 -2,917 Amortization of other regulatory assets................... 3.359 976 6,253 14,395 22,011- 7,749 .
Other sources of cash.............................. ...... (21,215) (10,270) Other usec of cash........................................ (11,809) Changes in working capital: (1,853) Receivables and accrued utility revenues.................. 1,622 29,415 Fuel, materials and supplies......................... ..... . ~807 (543) ~ (203) Accounts payable................................~... ...... (20,962) 4,826 :20,875 Sale of receivables and accrued utility revenues, net..... - 20,000 . Investment in securitizable assets. ............ . ... 3,415 (25,280) . Accrued taxes................................. . . ....... 742 (2,137) (805)' othe r working capital (excludes cash) . . . . . . . . . . . . . . . . . . . . . (3,441) (16,882) (8,144)L Net cash flows from operating activitics...................... 29,512 27,660 -68,512 Financing Activities: Issuance of long-term debt ...............................
. .60,000 .
Net increase /(decrease) in short-term debt.............. ... 21,550 (18,050) . 23,350 Reacquisitions and retirements of long-term debt........... (3,800) (14,700) . Reacquisitions and retirements of preferred stock......... . (1,500) - (36,500) Cash dividends on preferred stock........................... (3,026) (3,140) (5,305) Cash dividends on common stock..................... .... ... - (15,004) _(16,494)
. Net cash flows from/(used for) financing activities........... 7,224 9,106 (34,949)
Investment Activities: Investment in plants Electric utility plant.............. ..................... (19,895) (26,249) (23,468) Nuclear fuel..... .................... ................... (1,801) (8) 541 Net cash flows used for investments in plant... .. ..... (21,696) '(26,257) (22,927) Inve3tment in nuclear decommissioning trusts................ (12,918) (9,645) (9,794) Other investment activities, net....... .................. . (2,121) (826) (977) Net cash flows used for investments,.......................... (36,735) (36,728) (33,698) Net Increase /(Decrease) In Cash For The Period................ 1 38 (135)
~ Cash - beginning of period... ...... ..... ...... ... ...... 105 67 202 Cash - end of period...... ............... ...... ...... . .. $ 106 $ 105 $ 67 Supplemental Cash Flow Information:
Cash paid /(refunded) during the year fort 28,711 $ 21,725 Interest, net of amounts capitalized.....,... .......... ... $ 22,902 $
......... 3 .......n... ...........
Income taxes < . .................... .......,....... . .... $ (2,624) $ -(1,121) $ 7,816 Increase in obligations: Niantic Bay Fuel Trust.......................... . ..,. .... $ 962 $ 660 $ 669 See accompanying notes to consolidated financial statements. 5
n WESI'ERN MASSA 010SE'ITS ELECIRIC CXNPANY AIO StBSIDIARY - CENSOLIDATED STATDtENTS OF CD9M S'IDC300UER'S EQUITY
./ .
m,v,-1 =ted . ' Capital' Retained Other comen Surplus, namNs Chuprehensive . Stock Paid In (a) Income Total (1housands of Dollars). Balance at January 1, 1996............... $26,812 $150,182 $115,296 $ . $292,290 Net incm e........................... 11,089 11,089 m Cash dividends en preferred stock.............................. (5,305) (5,305) Cash dividends en corrman stock. . . . . . . (16,494) (16,494) loss en the retirement of preferred stock.............................. (374) (374) Capital stock expenses, net.......... 729 729 Balance at December 31, 1996............. 26,812 150,911 104,212 - 281,935 Net income........................... (27,460) (27,460) Cash dividends on preferred stock.............................. (3,140) (3,140) Cash dividends on connan stock. . . . . . . (15,004) (15,004) Capital stock expenses, net.......... 260 260 Balance at Decernber 31, 1997............. 26,812 151,171 58,608 - 236,591 Net loss.. .......................... (9,579) (9,579) , Cash dividends en preferred stock.............. ................ (3,026) (3,026) Capital stock expenses, net.......... 260 260 Other conprehensive income . . . . . . . . . . . . 150 150 Balance at December 31, 1998............. $26,812 $151,431 $ 46,003 $ 150 $224,396 (a) 'Ihe ccupany has dividend restricticms inposed by its 1cng-term debt wiwts. At December 31, 1998, these restrictions totaled approximately $33.8 million. See ceconpanying not.es to ocmsolidated financial statements. 6
-____._i____________.._______._______ _ _ . _ . _ _ _ _ . _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ - _ _ _ _ _ _ _ _ _ _ _ _ _ _ . . _ _ _ _ . . _ . _ _ _ _ _ _ _ _ _ _ _ _ _ .
Wactorn Macccchusotta Electric Comp 2ny cud Sub'Jidicry EQTES TO CONSOLIDATED FINANCIAL STATEMENTS
- 1.
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
. A. About Western Massachusetts Electric Company Western Massachusetts Electric Company and Stibsidiary (WMECO or the company), The Connecticut Light and Power Company (CL&P),
Holyoke Water Power Company (HWP), Public Service Company of New Hampshire (PSNH) and North Atlantic Energy Corporation (NAEC) are the operating subsidiaries comprising the ' Northeast Utilities system (the NU system) and are wholly owned by Northeast Utilities (NU). The NU system furnishes franchised retail electric service in Connecticut, New Hampshire and western Massachusetts through CL&P, PSNH and WMECO. NAEC sells all of its entitlement to the capacity and output of the Seabrook nuclear power plant (Seabrook) to PSNH under two life-of-unit, full cost recovery contracts. HWP is engaged in the production and distribution of electric power. The NU system also furnishes firm and other wholesale electric services to various municipalities and other utilities, and participates in limited retail access programs, providing off-system retail electric service. The NU system serves in excess of 30 percent of New England's electric needs and is one of the 24 largest electric utility systems in the country as measured by revenues. NU is registered with the Securities and Exchange Commission (SEC) as a holding company under the Public Utility Holding Company Act of 1935 (1935 Act). NU and its subsidiaries, including WMECO, are subject to the provisions of the 1935 Act. Arrangements among the NU system companies, outside agencies and other utilities covering interconnections, interchange of electric power and sales of utility property are subject to regulation by the Federal Energy Regulatory Commission (FERC) and/or the SEC. WMECO is subject to further regulation for rates, accounting, and other matters by the FERC and/or the applicable state regulatory commissions. Several wholly owned subsidiaries of NU provide support services for the NU system companies and, in some cases, for other New England utilities. Northeast Utilities Service Company (NUSCO) provides centralized accounting, administrative, information resources, engineering, financial, legal, operational, planning, purchasing and other services to the NU system companies. Northeast Nuclear Energy Company (NNECO) acts as agent for the NU system companies and other New England utilities in operating the Millstone nuclear generating facilities. In addition, CL&P and WMECO each have established a special purpose subsidiary whose business consists of the purchase and resale of i
. receivables.
During the first quarter of 1999, NU established three new subsidiaries: NU Enterprises, Inc., Northeast Generation Coupany and Northeast Generation Services Company. Directly or through multiple subsidiaries, these entities will engage in a va riety 7
Western Massachusetts Electric Company and Subsidiary NOTES TO CONSOLIDATED FINANCIAL STAT N S of energy-related activities, including the acquisition and management of non-nuclear generating plants. , E. Presentation The consolidated financial statements of WMECO include the accounts of its wholly owned subsidiary. Significant .'l intercompany transactions have been eliminated in consolidation. The preparation of financial statements in conformity with generally accepted accounting principles requires management to ! make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent I liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could difter from those estimates. Certain reclassifications of prior years' data have been made to conform with the current year's presentation. All transactions among affiliated companies are on a recovery of. cost basis which may include amounts representing a return on equity and are subject to approval by various federal and state regulatory agencies. C. New Accounting Standards The Financial Accounting Standards Board ('FASB) issued Statement of Financial Accounting Standards (SFAS) 132, " Employers' Disclosures About Pensions and Other Postretirement Benefits," in 1998. SFAS 132 revises employers' disclosures about pension and other postretirement benefit plans but it does not change the measurement or recognition of those plans. See Note 9,
" Pension Benefits and Postretirement Benefits Other Than Pensions," for further information on WMECO's pension and postretirement benefits disclosures.
During June 1997, the FASB issued SFAS 131, " Disclosures about Segments of an Enterprise and Related Information." SFAS 131 determines the standards for reporting and disclosing qualitative and quantitative information about a company's operating segments. More specifically, it requires financial information to be disclosed for segments whose operating results are received by the chief operating officer for decisions on resource allocation. It also requires related disclosures about products and services, geographic areas and , major customers. WMECO currently evaluates management - performance using a cost-based budget, and the information required by SFAS 131 is not available. ,. As a result of the changes WMECO and the industry are undergoing, the company will implement business segment reporting in 1999. This reporting will provide management with revenue and expense information at the business segment level. Management has identified significant segments to include 8
W: stern Massachusetts Electric Company and Subsidiary NOTES TO CONSOLIDATED FINANCIAL STATEMENTS transmission, distribution, generation-related and energy marketing.
'D . Investments and Jointly Owned Electric Utility Plant Regional Nuclear Generating Companies: WMECO owns common stock' of four regional nuclear generating companies (Yankee companies) which are accounted for on the equity basis due to WMECO's ability to exercise significant influence over their operating and financial policies. WMECO's equity investments and ownership interests in the Yankee companies at December 31, 1998 are:
(Thousands of Dollars, except for percentages) Connecticut Yankee Atomic Power Company (CYAPC) .................. $ 9,974 9.5% Yankee Atomic Electric Company (YAEC) ......................... 1,395 7.0 Maine Yankee Atomic Power Company (MYAPC) ........................ 2,629 3.0 Vermont Yankee Nuclear Power Corporation (VYNPC) .............. 1.442 2.5
$15,440 Each Yankee company owns a single nuclear generating unit.
YAEC's, CYAPC's and MYAPC's nuclear power plants were shut down permanently on February 26, 1992, December 4, 1996, and August 6, 1997, respectively. For additional information on the Yankee companies, see Note 2, " Nuclear Decommissioning and Plant Closure Costs." Millstone: WMECO has 19 percent joint-ownership interest in Millst.one 1, a 660-megawatt (MW) nuclear generating unit and Millstone 2, a 870-MW nuclear generating unit. WMECO has a 12.24 percent joint-ownership interest in Millstone 3, a 1,154-MW nuclear generating unit. During the third quarter of 1998, management decided to retire Millstone 1 and prepare. for final decommissioning. For further information on the Millstone 1 closure, see Note 2, " Nuclear Decommissioning and Plant Closure Costs," and Management 's Discussion and Analysis (MD&A). For further information on Millstone 2 and 3, see Note 2, " Nuclear Decommissioning and Plant Closure Costs," Note 11C, " Commitments and Contingencies - Nuclear Performance," and the MD&A. 9
1 Western Massachusetts Electric Company and Subsidiary NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
. 1 Plant-in-service and the accumulated provision for depreciation {
for WMECO's share of the three Millstone units are as follows: 4 At' December 31, (Millions of Dollars) 1998 1997 Plant-in-service Millstone 1 ................... $ -
$ 91.0 Millstone 2 ................... 177.5 162.4 Millstone 3 ................... 379.2 378.7 Accumulated provision for depreciation Millstone 1 ................... $ -
$ 40.1 Millstone 2 ................... 70.4 57.6 Millstone 3 ................... 121.1 110.1 WMECO's share of Millstone expenses are included in operating expenses on the accompanying Consolidated Statements of Income.
E. Depreciation The provision for depreciation is calculated using the straight-line method based on estimated remaining lives of depreciable utility plant-in-service, adjusted for salvage value and removal costs, as approved by the appropriate regulatory agency. Except for major facilities, depreciatic" rates are applied to the average plant-in-service during t ie period. Major facilities are depreciated from the time they are placed in service. When plant is retired from service, the original cost of plant, including costs of removal, less salvage, is charged to the accumulated provision for depreciation. The costs of closure and removal of non-nuclear facilities are accrued over the life of the plant as a component of depreciation. The depreciation rates for the several c. lasses of electric plant-in-service are equivalent to a composite rate of 2.9 percent in 1998 and 3.2 percent
- in 1997 and 1996. See Note 2, " Nuclear Decommissioning and Plant Closure Costs," for information on nuclear plant decommissioning.
At December 31, 1998 and 1997, the accumulated provision for depreciation included approximately $3.2 million accrued for the cost of removal, net of salvage, for non-nuclear generation property. WMECO is currently in the process of selling its non-nuclear generation. See 11A, " Commitment and Contingencies - Restructuring" for further information. e 10 j
Wactcrn Macccchuactto Elcctric Comptny and Subsidicry NOTES TO CONSOLIDATED FINANCIAL STATEMENTS F. Revenues
- Other than revenues under fixed-rate agreements negotiated with 4 certain wholesale, commercial and industrial customers and limited retail access programs, utility revenues are based on authorized rates applied to each customer's use of electricity.
In general, rates can be changed only through a formal proceeding before the appropriate regulatory commission. Regulatory commissions also have authority over the terms and ) conditions of nontraditional rate making arrangements. At the end of each accounting period, WMECO accrues an estimate for the ] amount of energy delivered but unbilled. G. Regulatory Accounting and Assets The accounting policies of WMECO and the accompanying consolidated financial statements conform to generally accepted accounting principles applicable to rate-regulated enterprises and reflect the effects of the ratemaking process in accordance with SFAS 71, " Accounting for the Effecte of Certain Types of Regulation." Assuming a cost-of-service based regulatory structure, regulators may permit incurred costs, normally i treated as expenses, to be deferred and recovered through future l revenues. Through their actions, regulators also may reduce or eliminate the value of an asset, or create a liability. If j WMECO was no longer subject to the provisions of SFAS 71, the ! company would be required to write-off all of its related regulatory assets and liabilities unless there is a formal ! transition plan which provides for the recovery, through j established rates, for the collection of these costs through a portion of the business which would remain regulated on a cost of service basis. At the time of transition, WMECO would also be required to determine any impairment to the carrying costs of deregulated plant and inventory assets. Electric utility industry restructuring in Massachusetts was effective March 1, 1998, however, management continues to believe the application of SFAS 71 remains appropriate at this time. Once WMECO's restructuring plan has been formally approved by the Massachusetts Department of Telecommunications and Energy (DTE) and management can determine the impacts of restructuring, WMECO's generation business will no longer be rate regulated on a cost-of-service basis. The majority of WMECO's regulatory assets are generation-related. Management expects that WMECO's transmission and distribution business will continue to be rate-regulated on a cost-of-service basis i and the restructuring plan will allow for the recovery of regulatory assets through this portion of the business. For further information on WMECO ' s regulatory environment and the potential impacts of restructuring, see Note 11A,
" Commitments and Contingencies-Restructuring, " and the MD&A.
11
Western Massachusetts Electric Company and Subsidiary NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Based on a current evaluation of the various factors and conditions that are expected to impact future cost recovery, management continues to believe it is probable that WMECO will
- recover its investments ir. long-lived assets, including regulatory assets. The components of WMECO's regulatory assets are as follows: ,
At December 31, 1998 1997 (Thousands of Dollars) Income taxes, net (Note 1H) ........... $57,079 $ 63,716 Unrecovered contractual obligations 74,534 93,628 (Note IJ) ........................... 26,270 Recoverable energy costs (Note II) .... 18,980 Millstone 1 (Note 1K) ................. 133,653 - Standard service offer deferral 13,271 (Note IL) 24.918 27,763 Other ................................. $211,377
$322,435 H. Income Taxes The tax effect of temporary differences (differences between the periods in which transactions affect income in the financial affect the statements and the periods in which they determination of taxable income) is accounted for in accordance regulatory with the ratemaking treatment of the applicable commissions. See Note 7, " Income Tax Expense" for the components of income tax expense.
The tax effect of temporary differences, including timing differences accrued under previously approved accounting standards, that give rise to the accumulated deferred tax obligation is as follows: At December 31, 1998 1997 (Thousands of Dol]Trs) Accelerated depreciation and other plant-related differences ....... $228,059 $223,038 Regulatory assets - income tax gross up 29,286 30,175 Other ................................. (8,360) (6,760) ,
$248,985 $246,453 I. Recoverable Energy Costs Under the Energy Policy Act of 1992 (Energy Act), WMECO is assessed for its proportionate share of the costs of decontaminating and decommissioning uranium enrichment plants 12
Wcatorn Macccchurotto Electric Company and Sub0idicry NOTES TO CONSOLIDATED FINANCIAL STATEMENTS owned by the United States Department- of Energy (D&D-assessment). The Energy Act requires that regulators treat D&D assessments as a reasonable and necessary current cost of fuel, to be fully recovered in rates like any other fuel cost. WMECO is currently recovering these costs through rates. As of December 31, 1998, WMECO's total D&D deferrals- were approximately $10.5 million. Prior to March 1, 1998, WMECO had.in place a comprehensive fuel adjustment clause which allowed for the collection or refund of fuel price differences between the cost of fuel and the amounts collected. Management expects the deferred fuel balance will be collected as part of the restructuring proceeding. J. Unrecovered Contractual Obligations Under the terms of contracts with MYAPC, CYAPC and YAEC, the shareholder-sponsor companies, including WMECO, are responsible for their proportionate share of the remaining costs of the units, including decommissioning. As management expects that WMECO will be allowed to recover these costs from its customers, WMECO has recorded regulatory assets, with corresponding obligations, on its balance sheets. For further information, see Note 2, " Nuclear Decommissioning and Plant Closure Costs." K. Millstone 1 The Millstone 1 regulatory asset includes the recoverable portion of the undepreciated plant and related balances of approximately $60.8 million, and the regulatory asset associated with the decommissioning and closure obligation of
$72.8 million. See Note 2, " Nuclear Decommissioning and Plant Closure Costs," for further information.
L. Standard Service Offer Deferral For the period March 1, 1998 through December 31, 1998, WMECO has recorded a standard service offer deferral regulatory asset representing a portion of the costs of providing energy 'in excess of the standard offer rate as allowed by the restructuring legislation. Management expects WMECO will be allowed to recover these costs under the restructuring plan.
- 2. NUCLEAR DECOMMISSIONING AND PLANT CLOSURE COSTS Millstone 2 and 3: WMECO's operating nuclear power plants have service lives that are expected to end during the years 2015 through Upon retirement, these units must be decommissioned. Current 2025.
decommissioning studies conclude that comploce and immediate.
. dismantlement at retirement continues to be the most viable and economic method of decommissioning the units. Decommissioning studies'are reviewed and updated periodically to reflect changes in decommissioning requirements, costs, technology and inflation.
l 13
l Western Massachusetts Electric Company and Subsidiary. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The estimated cost of decommissioning ' WMECO's ownership share of Millstone 2 and-3, in year-end 1998 dollars, is .$75.5 million and
$68.5 million, respectively. Millstone 2 and 3 decommissioning costs'
- will be increased annually by their. respective escalation rates.
Nuclear decommissioning costs are-accrued over the expected servic'e lives of the units and are included in depreciation expense on the' . Consolidated Statements of Income. Nuclear decommissioning costs for these units amounted to $3.7 million in 1998, 1997 -and 1996, respectively. Nuclear decommissioning, as a cost' of removal, is included in the accumulated provision for depreciation on the Consolidated Balance Sheets. At December 31, 1998 and .1997, the decommissioning balance in the accumulated provision for depreciation amounted to $35.5 million and $31.9 million, respectively. WMECO has established external decommissioning trusts for its portion of the costs of decommissioning Millstone 2 and.3. Funding of the estimated decommissioning costs for these units assumes levelized collections and after-tax earnings on the decommissioning funds of approximately 5.5 percent. As of December 31, 1998, WMECO has collected a total of $35.5 million through rates toward the future decommissioning costs of its share of Millstone 2 and 3, all of which has been transferred to the. external decommissioning trusts. Earnings on the decommissioning trusts increase the decommissioning trust balance and the accumulated reserve for depreciation. Unrealized gains and losses associated with the decommissioning trusts also impact the balance of the trust and the accumulated reserve for depreciation. The fair value of the amounts in the external decommissioning trusts was
$66.9 million at December 31, 1998.
Changes in requirements or technology, the timing of funding or dismantling, or adoption of a decommissioning method other than immediate dismantlement would change decommissioning cost estimates and the amounts required to be recovered. WMECO attempts to recover sufficient amounts through its allowed rates to cover its expected decommissioning costs. Only the portion of currently estimated total decommissioning costs that has. been accepted by regulatory agencies is reflected in the rates of WMECO. Based on present estimates and assuming its nuclear units operate to the end of their respective license periods, WMECO expects that the decommissioning trusts will be substantially funded when the units are retired from service. Millstone 2: WMECO's share of the total estimated _ decommissioning l costs for Millstone 1, which have been updated to- reflect the early shutdown of the unit, are approximately $131.5 million as of , December 31, 1998. The company has recorded the decommissioning - and closure obligation as a liability. Nuclear decommissioning costs for Millstone 1 were $2.5 million in 1998, 1997 and 1996, respectively. 14
Wootorn Macccchusctto Elcctric Comp ny cnd Subsidiary NOTES TO CONSOLIDATED FINANCIAL STATEMENTS , WMECO will seek recovery of unrecovered Millstone 1 balances of approximately $60.8 million and decommissioning related costs of approximately $63.3 million as part of its restructuring regulatory proceedings. Based upon the restructuring law in Massachusetts, management believes it is probable that WMECO will be allowed the recovery of these costs and has recorded a regulatory asset. WMECO uses external trusts to fund its estimated Millstone 1 decommissioning costs. As of December 31, 1998, WMECO had collected a total of $30.3 million through rates toward the future decommissioning costs of its share of Millstone 1, all of which has been transferred to external decommissioning trusts. At December 31, 1998, the fair market value of the balance in the external trusts was approximately $58.7 million. Yankee Companies: VYNPC owns and operates a nuclear generating unit with a service life that is expected to end in 2012. WMECO's ownership share of estimated costs, in year-end 1998 dollars, of decommissioning this unit is $13.2 million. At December 31, 1998, the remaining estimated obligation, including decommissioning, for the Yankee company nuclear generating facilities which have been shut down were: Total WMECO's (Thousands of Dollare} Obligation Share Maine Yankee .................. $715,065 $21,452 Connecticut Yankee ............ $498,557 $47,363 Yankee Atomic ................. $ 81,699 $ 5,719 For further information on the Yankee companies, see Note 11B, ,
" Commitments and Contingencies - Rate Matters."
1 For information on proposed changes to the accounting for i decommissioning, see the MD&A.
- 3. SHORT-TERM DEBT Limits: The amount of short-term borrowings that may be incurred by WMECO is subject to periodic approval by either the SEC under the 1935 Act or by the DTE. SEC authorization allowed WMECO, as of January 1, 1999, to incur short-term borrowings up to a maximum of
. $150 million. In addition, the charter of WMECO contains a preferred stock provision restricting the amount of unsecured debt that the company may incur. As of December 31, 1998, this charter permits
. WMECO to incur an additional $96 million of unsecured debt.
Credit Agreements: NU, CL&P and WMECO are parties to a $313.75 million revolving credit agreement (Credit Agreement). Under the , Credit Agreement amended on September 11, 1998, CL&P and WMECO are l 15 i
Western Massachusetts Electric Company and Subsidiary NOTES TO CONSOLIDATED FINANCIAL STATEMENTS able to borrow, subject to the availability of-first mortgage bond collateral, up to $313.75 million and $150 million, respectively. At December 31, 1998, CL&P and WMECO have issued first mortgage , bonds to enable borrowings under this facility up to a maximum of
$225 million and $80 million, respectively. NU, which cannot issue first mortgage bonds, would be able to borrow up to $50 million if NU consolidated, CL&P and WMECO each meet certain interest coverage tests for two consecutive quarters. This requirement for NU has not been met. In addition, CL&P and WMECO each must meet certain minimum quarterly financial ratios to access the Credit Agreement. CL&P is currently in the process of obtaining a waiver of the equity financial ratio requirement for the quarter ended December 31, 1998. WMECO satisfied these requirements for the quarter ending December 31, ".998. In connection with obtaining the waiver for the equity test, NU's participation in the credit Agreement will be terminated. The overall limit for all of the NU system companies under the entire credit Agreement is $313.75 million. The NU system companies are obligated to pay a facility fee of .50 percent per annum of each bank's total commitment under the Credit Agreement which will expire in November 1999. At December 31, 1998 and 1997, there were $30 million and $50 million, respectively, in borrowings under this Credit Agreement. Of these borrowings, $20 million was borrowed by WMECO in 1998 and $15 million was borrowed by WMECO in 1997.
Under the credit facility discussed above, WMECO may borrow funds on a short-term revolving basis under its agreement, using either fixed-rate loans or standby loans. Fixed rates are set using competitive bidding. Standby loans are based upon several alternative variable rates. The weighted average annual interest rate on WMECO's notes payable to banks outstanding on December 31, 1998 and 1997 was 6.53 percent and 6.95 percent, respectively. Money Pool: Certain subsidiaries of NU, including WMECO, are members of the Northeast Utilities System Money Pool (Pool). The , Pool provides a more ef ficient use of the cash resources of the NU system, and reduces outside short-term borrowings. NUSCO administers the Pool as agent for the member companies. Short-term borrowing needs of the member companies are first met with available funds of other member companies, including funds borrowed by NU parent. NU parent may lend to the Pool but may not borrow. Funds may be withdrawn from or repaid to the Pool at any time without prior notice. Investing and borrowing subsidiaries receive or pay interest based on the average daily Federal Funds rate. Borrowings
- based on loans from NU parent, however, bear interest at NU parent's cost and must be repaid based upon the terms of NU parent's original borrowing. At December 31, 1998 and 1997, WMECO had $30.9 million and $14.4 million, respectively, of borrowings outstanding from the Pool. The interest rate on borrowings from the Pool at December 31, 1998 and 1997, was 5.8 percent each year.
Maturities of short-term debt obligations were for periods of three months or less. 16
Wectorn Maccc.chucctte Elcctric Company and Sub3idicry NOTES TO CONSOLIDATED FINANCIAL STATEMENTS For further information on WMECO's short-term debt, see the MD&A.
- 4. PREFERRED STOCK NOT SUBJECT TO MANDATORY REDEMPTION Details of preferred stock not subject to mandatory redemptions are:
Pacember 31, Shares 1998 Outstanding Redemption December 31, December 31, Descriotion Price 1998 1998 1997 1996 (Thousands of Dollars) 7.72% Series B of 1971...... $103.51 200,000 $20,000 $20,000 $20,000 All or any part of the outstanding preferred stock may be redeemed by the company at any time at established redemption prices plus accrued dividends to the date of redemption.
- 5. PREFERRED STOCK SUBJECT TO MANDATORY REDEMPTION Details of preferred stock subject to mandatory redemption are:
December 31, Shares 1998 Outstanding Redemption December 31, December 31, Descriotion Price
- 1998 1998 1997 1996 (Thousands of Dollars) 7.60% Series of 1987....... $25.51 780,000 $19,500 $21,000 $21,000 Less preferred stock to be redeemed within one year, net of reacquired stock.......... 60,000 1,500 1,500 -
Total.......... $18,000 $19,500 $21,000 i
- Redemption price reduces in future years.
The minimum sinking-fund provisions of the 1987 Series subject to mandatory redemption at December 31, 1998, for the years 1999 ; through 2003 is $1.5 million per year. In case of default on sinking-fund payments, no payments may be made on any junior stock by way of dividends or otherwise (other than in shares of junior
. stock) so long as the default continues. If the company is in arrears in the payment of dividends on any outstanding shares of preferred stock, the company would be prohibited from redemption or purchase of less than all of the preferred stock outstanding. All or part of the 7.60% Series'of 1987 may be redeemed by the company 1 at any time at an established redemption price plus accrued l dividends to the date of redemption subject to certain refunding limitations.
17 i o .. .
. . .. -a
Western Massachusetts Electric Company and Subsidiary NOTES TO CONSOLIDATED FINAMC N- STATLunTS
-6. LONG-TERM DEBT Details of long-term debt outstanding are: .
December 31. 1998 1997 (Thousands of Dollars) . First mortgage bonds: 6 3/4% Series G, due 1998................. $ -
$ -9,800 6 1/4% Series X, due 1999................. 40,000 40,000 6 7/8% Series W, due 2000................. 60,000 60,000 7 3/8% Series B, due 2001................. 60,000 60,000 7 3/4% Series V, due 2002................. 85,000 85,000 7 3/4% Series Y, due 2024................. 50.000 50.000 Total ..................................... 295,000 304,800 Pollution control notes:
Tax Exempt 1993 A Series, 5.85% due 2028 .. 53,800 53,800 Fees and interest due for spent fuel disposal costs (Note 11E) ............ 41,355 39,045 Less: Amounts due within one year......... 40,000 9,800 Unamortized premium and discount, net ...... (841) (996)
$349.314 $386,849 Long-term debt, net ....,....................
On October 3, 1998, the , variable interest uCe on WMECO's $53.8 million principal amount PCRB, 1993 A Series, due September 1, 2028, was fixed at a rate of 5.85 percent per annum, Long-term debt maturities and cash sinking-fund requirements on debt outstanding at December 31, 1998 for the years 1999 through 2002 are approximately $40 million, $60 million, $60 million, and
$85 million, respectively. There are no long-term debt maturities or cash sinking-fund requirements for 2003. In addition, there are annual one-percent sinking- and improvement-fund requirements, currently amounting to $1.5 million for 1999 and 2000, $900 thousand for 2001 and 2002 and no requirement for 2003. Such sinking- and improvement-fund requirements may be satisfied by the deposit of cash or bonds by certification of property additions.
All or any part of each outstanding series of first mortgage bonds may be redeemed by WMECO at any time at established redemption prices plus accrued interest to the date of redemption, except certain series which are subject to certain refunding limitations during their respective initial five-year redemption periods. Essentially all of WMECO's utility plant is subject to the lien of I its first mortgage bond indenture. As of December 31, 1998 and 1997, WMECO has secured $53.8 million of pollution control notes ' with second mortgage liens on Millstone 1, junior to the liens of its_first mortgage bond indenture. The average effective interest rate on the variable-rate pollution control notes was 3.2 percent for 1998 and 3.5 percent for 1997. 18
Wactern Ma otihuOctto Elcctric Company cmd Subridicry NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- 7. INCOME TAX EXPENSE i
. The components of the federal and state income tax provisions were charged as follows:
1996 For the Years Ended December 31, 1998 1997 (Thousands of Dollars) Current income taxes: Federal..................... $(7,412) $ (14,277) $7,007 State....................... (82) (635) 1,358 Total current............. (7,494) (14,912) 8,365 Deferred income taxes, net: Federal..................... 6,535 3 2,054 State....................... 2,339 210 609 Total deferred............ 8,874 213 2,663 Investment tax credits, net... (1,469) (1,469) (1,468) Total income tax (credit) / expense..................... $ (89) $ (16,16 8 ) $9,560 The components of total income tax expense are classified as follows: Income taxes charged to operating expenses.......... $ 2,109 $ (15,14 2 ) $10,628 Other income taxes ........... (2,198) (1,026) (1,068) Total income tax (credit)/ $ 9,560 expenne..................... $ (89) $ (16,16 8 ) Deferred income taxes are comprised of the tax effects of temporary differences as follows: For the Years Ended December 31, 1998 1997 1996 ; (Thousands of Dollars) l Depreciation, leased nuclear l 1 fuel, settlement credits, and disposal costs............ $ 5,808 $ 1,407 $ 32 Energy adjustment clause........ 3,389 3,115 4,102 1 Demand side management.......... (1,192) 321 1,557 ! Nuclear plant deferrals......... (897) (3,431) (2,258) Pension......................... 950 999 (57)
., Bond redemptions................ (500) (535) (502) J Other........................... 1,316 (1,663) (211) l Deferred income taxes, net...... $ 8,874 $ 213 $ 2,663 1
19 i
Wastern Massachusetts Electric Company'and Subsidiary- l NOTES TO CONSOLIDATED FINANCIAL STATEMENTS A reconciliation between income tax expense and the expected tax i expense at the applicable statutory rate is as follows: For the Years Ended December 31, 1998 1997 1996 (Thousands of Dollars) . Expected federal income tax at 35 percent of pretax income for.... $ (3,3 84) $ (15,270) $7,076 Tax effect of differences: Depreciation....................... 1,765 630- 1,499 I Amortization of regulatory assets.. 938 1,916 1,029 Investment tax credit amortization. (1,469) (1,469) (1,468) Nondeductible penalties............ 599 (19) 89 State income taxes, net of federal benefit.................. 1,052 (225) 1,279 Adjustment for prior years' taxes.. 692 (967) - Dividends received reduction....... (666) (408) (378) Other, net......................... 384 (356) 434 Total income tax (credit) / expense . . . . $ (89) $(16,168) $9,560
- 8. LEASES WMECO finances its share of the nuclear fuel for Millstone 2 and Millstone 3 under the Niantic Bay Fuel Trust (NBFT) capital lease agreement. This lease agreement has an expiration date of June 1, 2040. On June 5, 1998, the NBFT issued $180 million Series G intermediate term notes (ITNs) through a private placement offering.
The five-year notes mature on June 5, 2003 and will bear interest at a rate of 8.59 percent per annum, payable semiannually. At December 31, 1998, WMECO's capital lease obligation to the NBFT was approximately $33.9 million. The permanent shutdown of Millstone 1 in July 1998 afforded the NBFT ITN holders the right to seek repurchase of a pro rata share of their notes based upon the stipulated loss value of Millstone 1 fuel compared to the stipulated loss value of all fuel then under the NBFT. This amount was approximately $80 million. The shutdown also obligates WMECO to pay such amount to the NBFT under the NBFT lease whether or not any ITN holders request repurchase. WMECO is seeking consents from the ITN holders to amend this lease provision so that they will not be obligated to make this payment, but instead will issue an additional $80 million of collateral first mortgage bonds in mid-1999. WMECO makes quarterly lease payments for the cost of nuclear fuel consumed in the reactors based on a units-of-production method at rates which reflect estimated kilowatt-hours of energy provided plus ' financing costs associated with the fuel in the reactors. Upon - permanent discharge from the reactors, ownership of the nuclear fuel transfers to WMECO. WMECO's current portion of the NBFT lease obligation at December 31, 1998 was approximately $21.9 million, including approximately $15.2 million reclassified to current as a result of the. shutdown of Millstone 1. Future minimum lease 20
W:st:rn M2ccachucctto Electric Comp my cnd Subsidicry NOTES TO CONSOLIDATED FINANCIAL STATEMENTS payments under the nuclear fuel capital lease for the remaining portion of the obligation cannot be reasonably estimated on an annual basis due to variations in the usage of nuclear fuel. WMECO also has entered into nonfuel lease agreements, some,of which may be capital leases, for the use of data processing and of fice equipment, vehicles, nuclear control room simulators and office space .1 The provisions of these lease agreements generally provide for renewal options. Future minimum lease payments for nonfuel capital' leases as of December 31, 1998, were approximately $36 thousand each year for 1999 through 2003. Future minimum rental payments, excluding executory costs such as property taxes, state 1 use taxes, insurance and maintenance under long-term noncancelable I operating leases, as of December 31, 1998, are: Year (Thousands of Dollars) 1999........................... $ 3,902 2000........................... 3,594 2001........................... 3,217 2002........................... 2,785 2003........................... 2,233 After 2003..................... 15,460
$31,191 The following rental payments have been charged to expense:
Year Caoital Leases Operatino Leases 1998 ........................... $4,137,000 $5,790,000 1997 ........................... 1,820,000 5,968,000 1996 ........................... 3,598,000 6,410,000 Interest included in capital lease rental payments was $2,796,000 in 1998, $1,820,000 in 1997, and $1,858,000 in 1996.
- 9. PENSION BENEFITS AND POSTRETIREMENT BENEFITS OTHER THAN PENSIONS The NU system subsidiaries participate in a uniform non-contributory defined benefit retirement plan covering all regular NU system employees.' Benefits are based on years of service and the employees' highest eligible compensation during 60 consecutive months of employment. WMECO's direct portion of the NU system's pension credit, part of which was credited to utility plant, approximated $7.4 million in 1998, $5.7 million in 1997, and $2.0 million in 1996.
'. Currently, WMECO funds annually an amount at least equal to that which will satisfy the requirements of the Employee Retirement Income Security Act and the Internal Revenue Code. Pension costs are determined using market-related values of pension assets. !
21 j
Western Massachusetts Electric Company and Subsidiary NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The NU system subsidiaries also provide certain healt h care benefits, primarily medical and dental, and life insurance benefits through a benefit plan to retired employees. These benefits are , available for employees retiring from the company who have met specified service requirements. For current employees and certain retirees, the total benefit is limited to two times the 1993 per-retiree health care cost. These costs are charged to expense over the future estimated work life of the employee. WMECO is funding postretirement costs through external trusts. WMECO is funding, on an annual basis, amounts that have been rate-recovered and which are also tax deductible under the Internal Revenue Code. Pension and trust assets are invested 'primarily in domestic and international equity securities and bonds. The following table represents the plans' beginning benefit obligation balance reconciled to the ending benefit obligation balance, beginning fair value of plan assets balance reconciled to the ending fair value of plan assets balance and the respective Balance funds' funded status reconciled to the Consolidated Sheets: j l 22
Wcotorn MacccchuSOtto ElCctric Company and Subsidicry NOTES TO CONSOLIDATED FTwa_uCIAL STATEMENTS The components of net cost are: At December 31, Postretirement Pension Benefits Benefits 1998 1997 1998 1997 (Thousands of Dol 1ars) Change in benefit obligation Benefit obligation at beginning of year ................. $ (109,536) $ (107,816) $ (2 7,826) $ (30,091) Service cost ........................ (2,192) (1,876) (460) (355) Interest Cost ....................... (7,914) (7,858) (2,074) (2,011) Transfers ........................... (3,044) 820 - - Actuarial (loss)/ gain ............... (3,751) (1,224) (2,415) 2,028 Benefits paid ...................... 7,700 7,889 2,661 2,603 Curtailments and settlements ........ - 529 - - Benefit obligation at end of year ....................... $ (118,737) $ (109,536) $ (30,114) $ (27,826) Change in plan assets Fair value of plan assets at beginning of year ................. $181,028 $157,863 $ 12,838 $ 10,215 Actual return on plan assets ....... 25,229 31,874 1,588 2,058 Employer contribution ............... - - 2,870 3,168 Benefits paid ....................... (7,700) (7,889) (2,661) (2,603) Transfers ........................... 3,044 (820) - - Fair value of plan assets at end of year ................ ... $201,601 $181,028 $14,635 $12,838 Funded status at December 31 ....................... $ 82,864 $ 71,492 $ (15,4 7 9) $(14,988) Unrecognized transition amount ............................ (1,492) (1,727) 22,977 24,618 Unrecognized prior service cost ............................. 1,070 1,142 '- - Unrecognized net gain ............... (66,542) (62,370) (7,498) (9,630) Prepaid benefit cost ............... $15,900 $ 8,537 $ - $ - i 23 l
Western Massachusetts Electric Company and Subsidiary NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The following actuarial assumptions were used in calculating the plans' year-end funded status: At December 31, Pension Postretirement Benefits Benefits , i 1998 1997 1998 1997 l 7.25% 7.00% 7.25% f Discount rate ............ 7.00% Compensation / progression rate ....... 4.25% 4.25% 4.25%. 4.25% Health care cost trend rate (a) ...... N/A N/A 5.22% 5.76% (a) The annual growth in per capita cost of covered health care benefits was assumed to decrease to 4.40 percent by 2001. The components of net periodic benefit cost are: For the Years Ended December 31, Pension Benefits Postretirement Benefits 1998 1997 1996 1998 1997 1996 (Thousands of Dollars) Service cost.. . . . $ 2,192 $ 1,876 $ 1,979 $ 460 $ 355 $ 490 7,914 7,858 7,786 2,074 2,011 2,236 Interest cost .. . . Expected return on plan assets . . .. .. (14,754) (12,746) (11,216) (935) (736) (330) Amortization of unrecognized transition (asset)/ obligation ... . ... (235) (235) (235) 1,641 1,641 1,641 Amortization of prior service cost . .. . 72 72 72 - - j Amortization of actuarial gain . . . . ..... . . (2,551) (2,022) (1,337) - - - Other amortization, net. .... (370) (484) (200) Curtailments and settlements - (529) 953 - - - Net periodic benefit (credit)/ cost $(7,362) $(5,726) $ (1, 998 ) $2,870 $2,787 $3,837 I i 1 24
Western Massachusetts Electric Company c.nd Subaidicry NOTES TO CONSOLIDATED FINANCIAL STATEMENTS For calculating pension and postretirement benefit costs, the following assumptions were used: For the Years Ended December 31, Postretirement Pension Benefits Benefits 1 1998 1997 1996 1998 1997 1996 Discount rate ........... 7.25% 7.75% 7.50% 7.25% 7.75% 7.50% Expected long-term rate of return .......... 9.50% 9.25% 8.75% N/A N/A N/A l Compensation / progression rate ....... 4.25% 4.75% 4.75% 4.25% 4.75% 4.75% Long-term rate of return-Health assets net of tax ............. N/A N/A N/A 7.75% 7.50% 5.25% Life assets ............. N/A N/A N/A 9.50% 9.25% 8.75% Assumed health care cost trend rates have a significant effect on the amounts reported for the health care plans. The effect of changing the assumed health care cost trend rate by one percentage point in each year would have the following effects: One Percentage One Percentage (Thousands of Dollars) Point Increase Point Decrease Effect on total service and interest cost components ..... .............. $ 130 $ (131) Effect on post-retirement benefit obligation ......... .......... 1,740 (1,698) The trust holding the health plan assets is subject to federal income taxes at a 39.6 percent tax rate.
- 10. SALE OF CUSTOMER RECEIVABLES AND ACCRUED UTILITY REVENUES WMECO has entered into an agreement to sell up to $40 million of 4 undivided ownership interests in eligible customer receivables and l accrued utility revenues (receivables).
WMECO has established a special purpose, wholly owned subsidiary, WMECO Receivables Corporation (WRC), whose business consists of I the purchase and resale of receivables. For receivables sold, i WMECO has retained collection responsibilities as agent for the I purchaser under its agreement. As collections reduce previously sold receivables, new receivables may be sold. At December 31, 1998, approximately $20 million of receivables had been sold to a third-party purchaser by - WMECO. All receivables sold to WRC are not available to pay WMECO's creditors. 25
\
Western Massnchuactto Electric Company and Sub;idicry NOTES TO CONSOLIDATED FIFM CIAL STATEMENTS The receivables are sold to a third-party purchaser with limited recourse. The sales agreement provides for a formula-based loss reserve in which additional receivables may be assigned to the . third-party purchaser for costs such as bad debt. The third-party purchaser absorbs the excess amount in the event that actual loss experience exceeds the loss reserve. At December 31, 1998 , approximately $2.9 million was the formula-based amount of credit exposure and has been reserved as collateral by WRC. Historical lossos for bad debt for WMECO have been substantially less. As a result of prior period downgrades on WMECO's'first mortgage bonds, the current bond rating is at a level where the sponsor of WMECO's accounts receivable program could take various actions at its discretion, which would have the practical effect of limiting WMECO's ability to utilize the facility. To date, the sponsor has not notified WMECO that it will elect to exercise those rights and the program is functioning in its normal mode. Concentrations of credit risk to the purchaser under WMECO's agreement with respect to the receivables are limited due to WMECO's diverse customer base within its service territory.
- 11. COMMITMENTS AND CONTINGENCIES A. Restructuring Electric utility industry restructuring in Massachusetts became effective March 1, 1998. As required by the legislation enacted in November 1997, WMECO will continue to operate and maintain its transmission and local distribution network and deliver electricity to all customers. The restructuring legislation specifically provides for the cost recovery of generation-related assets. The legislation gives the DTE the authority to determine the amount of stranded costs that will be eligible for recovery by utilities.
Costs which will qualify as stranded costs and be eligible for recovery include, but are not limited to, certain above-market costs associated with generating facilities, costs associated with long-term commitments to purchase power at above-market prices from small-power producers and nonutility generators (NUGs), and regulatory assets and associated liabilities related to the generation portion of WMECO's business. Effective March 1, 1998, WMECO's restructuring plan has been filed with the DTE and includes a 10 percent rate reduction, divestiture of generation assets, securitization of - approximately $500 million of stranded costs and customer choice of supplier. The DTE has not approved WMECO's plan A yet and rates are being charged under an interim order. final decision is expected in mid-1999. On January 22, 1999, WMECO signed an agreement to sell 290-MW of fossil and hydroelectric generation assets to 26
Wastern Massachusetts Electric Company and Subsidiary NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Consolidated Edison Energy, Inc. of New York for $47 million. The sale price is approximately 3.8 times greater . than the assets' 1997 book value of $12.5 million. WMECO did not offer its 19 percent share of the Northfield Mountain pumped storage generating facility and associated hydroelectric facilities. WMECO's book value in Northfield Mountain was $13.0 million at December 31, 1998. This asset will be auctioned in conjunction with CL&P's fossil / hydro auction to take place before 2000. The net proceeds in excess of book value received from the actual divestiture of these units will be used to mitigate stranded costs. Based upon the legislation and regulatory proceedings to date, management continues to believe that the company will recover its prudently incurred costs, including regulatory assets and generation-related investments. However, a change in one or more of these factors could affect the recovery of stranded costs and may result in a loss to the company. B. Rate Matters During November 1997, MYAPC filed an amendment to its power contracts clarifying the obligations of its purchasing utilities following the decision to cease pow'er production. During January 1998, the FERC accepted the amendments and proposed rates, subject to a refund. On January 18, 1999, MYAPC filed with the FERC Administrative Law Judge (ALJ) an Offer of Settlement which if accepted by the FERC, will resolve all the issues in the FERC decommissioning rate case proceeding. The settlement provides, among other things, the following: (1) MYAPC will collect $33.6 million annually to pay for decommissioning and spent fuel; (2) its return on equity will be set at 6.5 percent; (3) MYAPC is permitted full recovery of all unamortized investment in MY, including fuel, and (4) an incentive budget for
, decommissioning is set at $436.3 million.
During late December 1996, CYAPC filed an amendment to its power contracts clarifying the obligations of its purchasing utilities following the decision to cease power production. On February 27, 1997, the FERC accepted CYAPC's contract amendment. The new rates became effective March 1, 1997, subject to a refund. . On August 31, 1998, the FERC ALJ released an initial decision regarding the December 1996 filing. The decision
. contained provisions which would allow for the recovery, through rates, of the balance of WMECO's net unamortized inve,stment in CYAPC, which was approximately $10 million as of December 31, 1998. The decision also called for the disallowance of the recovery of a portion of the return on the CY investment. The ALJ's decision also stated that decommissioning collections should continue to be based on the previously approved estimate of $309.1 million (in 1992 dollars), with an inflation adjustment of 3.8 percent per 27
i W stern Massachusetts Electric Company and Subsidiary NOTES TO CONSOLIDATED FINANCIAL STATEMENTS year, until a new, more reliable estimate has been prepared and tested. During October 1998, CYAPC, CL&P, PSNH and WMECO filed briefs on exceptions to the ALJ decision. If the initial ALJ decision is upheld, CYAPC could be required to write-off ' a portion of the regulatory asset associated with the plant closing. . If upheld, CYAPC's management has estimated the effect of the ALJ decision on CYAPC's earnings would be approximately
$37.5 million of which WMECO's share would be approximately
$3.6 million. WMECO's management cannot predict the ultimate outcome of the hearing at this time, however, management believes that the associated regulatory assets are probable of recovery.
C. Nuclear Ptrformance Millstone: The three Millstone units are managed by NNECO. All three units were placed on the NRC watch list on January 29, 1996. The units cannot be restarted without appropriate NRC approvals. Millstone 3 has received these , approvals and resumed operation in July 1998. Restart efforts continue for Millstone 2 and it is expected to be ready to restart in the spring of 1999. WMECO's estimated replacement power costs are approximately $1 million per month while Millstone 2 remains out of service. In July 1998, CL&P and WMECO decided to retire Millstone 1 and prepare for final decommissioning. Li tiga tion: Certain of the non-NU joint owners of Millstone 3 have filed demands for arbitration with CL&P and WMECO as well as lawsuits in Massachusetts Superior Court against NU and its current and former trustees related to the company's operation of Millstone 3. The arbitrations and lawsuits seek to recover compensatory damages in excess of $200 million, together with punitive damages, treble damages and attorneys' fees. Management cannot estimate the potential outcome of these suits but believes there is no legal basis for the claims and intends to defend against them vigorously. D. Environmental Matters The NU system is subject to regulation by federal, state and local authorities with respect to air and water quality, the . handling and disposal of toxic substances and hazardous and solid wastes, and the handling and use of chemical products. The NU system has an active environmental auditing and ,- training program and believes that it is in substantial compliance with current environmental laws and regulations. However, the NU system is subject to certain enforcement actions and governmental investigations in the environmental 28 _ = _ _
Wcotern Massachusetts Electric Company and Subsidiary NOTES TO CONSOLIDATED FINANCIAL STATEMENTS area. Management cannot predict the outcome of these enforcement acts and investigations. Environmental requirements could hinder the construction of new generating units, transmission and distribution lines, substations and other facilities. Changing environmental requirements could also require extensive and costly modifications to WMECO's existing generating units, and l transmission and distribution systems, and could raise operating costs significantly. As a result, WMECO nay incur significant additional environmental costs, greater than amounts included in cost of removal und other reserves, in connection with the generation and transmission of electricity and the storage, transportation and disposal of by-products and wastes. WMECO also may encounter significantly increased costs to remedy the environmental effects of prior waste handling activities. The cumulative long-term cmt impact of increasingly stringent environmental requirements cannot be estimated accurately. WMECO has recorded a liability based upon currently available information for the estimated environmental remediation costs that it expects to incur. In most cases, additional future environmental cleanup costs are not reasonably estimable due to a number of factors, including the unknown magnitude of possible contamination, the appropriate remediation methods, the possible effects of future legislation or regulation and ; the possiblo effects of technological changes. At I December 31, 1998, the liability recorded by WMECO for its estimated environmental remediation costs, not considering any possible recoveries from third parties, amounted to approximately $1.9 million, within a range of $1.9 million to
$3.1 million.
WMECO has received proceeds from several insurance carriers for the settlement with certain insurance companies of all past, present and future environmental matters. As a result of these settlements, WMECO will retain the risk loss, in ' part, for some environmental remediation coats. WMECO cannot estimate the potential liability for future claims, including environmental remediation costs, that may be brought against it. However, considering known facts, existing laws and regulatory practices, management does not believe the matters disclosed above will have a material
. effect on WMECO's financial position or future results of operations.
% E. Spent Nuclear Fuel Disposal Costs Under the Nuclear Waste Policy Act of 1982, WMECO must pay the United States Department of Energy (DOE) for the disposal of spent nuclear fuel and high-level radioactive l waste. The DOE is responsible for the selection and development of repositories for, and the disposal of, spent ! 29 l l
Wastern Massachusetts Electric Company cnd Subsidicry NOTES TO CONSOLIDATED FINANCIAL STATEMENTS nuclear fuel and high-level radioactive waste. Fees for nuclear fuel burned on or after April 7, 1983, are billed currently to customers and paid to the DOE on a quarterly . basis. For nuclear fuel used to generate electricity prior to April 7, 1983 (prior period fuel) , payment must be made prior to the first delivery of spent fuel to the DOE. Until ~ such payment is made, the outstanding balance will continue to accrue interest at the three-month Treasury Bill Yield Rate. At December 31, 3998, fees due to the DOE for the disposal of prior period fuel were approximately $41.1 million, including interest costs of $25.5 million. The DOE originally was scheduled to begin accepting delivery of spent fuel in 1998. However, delays in identifying a permanent storage site have continually postponed plans for the DOE's long-term storage and disposal site. Extended dc. lays or a default by the DOE could lead to consideration of costly alternatives. The company has primary responsibility for the interim storage of its spent nuclear fuel. Adequate storagc capacity exists to accommodate all spent nuclear fuel at Millstone 1. With the addition of new storage racks, storage facilities for Millstone' 3 are expected to be adequate for the projected life of the unit. With the implementation of currently planned modifications, the storage facilities for Millstone 2 are expected to be adequate to accommodate a full-core discharge from the reactor until 2005. Fuel consolidation, which has been licensed for Millstone 2, could provide adequate storage capability for its projected life. Meeting spent fuel storage requirements beyond these periods could require new and separate storage facilities, the costs for which have not been determined. In November 1997, the U.S. Court of Appeals for the D.C. Circuit ruled that the lack of an interim storage facility does not excuse the DOE from meeting its contractual obligation to begin accepting spent nuclear fuel no later than January 31, 1998. The 1997 ruling by the appeals court said, however, that the 1982 federal law could not require the DOE to accept waste when it did not have a suitable storage facility. The court directed the plaintiffs to pursue relief under the terms of their contracts with the DOE. Based on this ruling, since the DOE did not take the spent nuclear fuel as scheduled, it may have to pay contract damages. In May 1998, the same court denied petitions from 60 states and state agencies, collectively, and 41 utilities, including the company, asking the court to compel the DOE to , submit a program, beginning immediately, for disposing of spent nuclear fuel. The petitions were filed after the DOE defaulted on its January 31, 1998 obligation to begin accept.0 3 the fuel. The court directed the company and 30
Western Massachusetts Electric Company and Subsidiary NOTES TO CONSOLIDATED FINANCIAL STATEMENTS other plaintiffs to pursue relief under the terms of their contracts with the DOE. In a petition filed in August 1998, the court's May 1998 decision was appealed to the U.S. Supreme Court. In November 1998, the Supreme Court declined to review the lower court ruling that said utilities should go to court and seek monetary damages from the DOE. The ultimate outcome of this legal proceeding is uncertain at this time. F. Nuclear Insurance Contingencies Under certain circumstances, in the event of a nuclear incident at one of the nuclear facilities in the country covered by the federal government's third-party liability indemnification program, WMECO could be assessed in proportion to its ownership interest in each of its nuclear units up to $83.9 million. WMECO's payments of this assessment would be limited to, in proportion to its ownership interest in each of its nuclear units, $10.0 million in any one year per nuclear incident. In addition, if the sum of all claims and costs from any one nuclear incident exceeds the maximum amount of financial protection, WMECO would be subject to an additional 5 percent, or $4.2 million, in proportion to its ownership interests in each of its nuclear units. Based upon its ownership interests in Millstone 1, 2 and 3, WMECO's maximum liability, including any additional assessments, would be $44.3 million per incident, of which payments would be limited to $5.0 million per year. In addition, through power purchase contracts with VYNPC, WMECO would be responsible for up to an additional $2.2 million per incident, of which payments would be limited to $0.3 million per year. The NRC approved CYAPC's and MYAPC's requests for ) withdrawal from participation in the secondary financial i protection program, effective November 19, 1998, and i January 17, 1999, respectively, due to their permanently shutdown and defueled status. Therefore, 'neither CYAPC, MYAPC, nor their sponsor companies have any future obligations for potential assessments. Insurance has been purchased to cover the primary cost of repair, replacement or decontamination of utility property resulting from insured occurrences. WMECO is subject to retroactive assessments if losses exceed the accumulated funds available to the insurer. The maximum potential assessment against WMECO with respect to losses arising during the current policy year is approximately $2.2 million under the primary property insurance program. 31
i Western Massachusetts Electric Company and Subsidicry NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Insurance has been purchased to cover certain extra costs incurred in obtaining replacement power during prolonged accidental outages and the excess cost of repair, . replacement, or decontamination or premature decommissioning of utility property resulting from insured occurrences. WMECO is subject to retroactive assessments if losses exceed
- the accumulated funds available to the insurer. The maximum potential assessments against WMECO with respect to losses arising during current policy years are approximately $1.0 million under the replacement power policies and $2.3 million under the excess property damage, decontamination and decommissioning policies. The cost of a nuclear incident could exceed available insurance proceeds.
Insurance has been purchased aggregating $200 million on an industry basis for coverage of worker claims. G. Construction Program The construction program is subject to periodic review and revision by management. WMECO currently forecasts construction expenditures of approximately $167.8 million for the years 1999-2003, including $33.5 million for 1999. In addition, WMECO estimates that nuclear fuel requirements, including nuclear fuel financed through the NBFT, will be approximately $35.5 million for the years 1999-2003, including $5.8 million for 1999. See Note 8, " Leases" for additional information about the financing of nuclear fuel. H. Long-Term Contractual Arrangements Yankee Companies: The NU system companies rely on VY for approximately 1.4 percent of their capacity under long-term contracts. Under the terms of their agreements, the NU system companies pay their ownership (or entitlement) shares of costs, which include depreciation, operation and maintenance expenses, taxes, the estimated cost of decommissioning and a return on invested capital. These costs are recorded as purchased- power expense and are recovered through the companies' rates. WMECO's total cost of purchases under contracts with VYNPC amounted to $4.4 million in 1998, $3.9 million in 1997 and $4.1 million in 1996. WMECO may also be asked to provide direct or indirect financial support from one or more of the Yankee companies, including VYNPC. NUGs: WMECO has entered into arrangements for the purchase . of capacity and energy from two NUGs . These arrangements have terms from 15 to 25 years, currently expiring in the
- years 2008 through 2013, and require WMECO to purchase .
energy at specified prices or formula rates. For the 12-month period ending December 31, 1998, approximately 13 percent of NU system electricity requirements were met by NUGs. WMECO's total cost of purchases under these 32
Wsstern Massachusetts Electric Company and Subsidiary NOTES TO CONSOLIDATED FINANCIAL STATEMENTS arrangements amounted to $29.9 million in 1998, $31.2 million in 1997 and $29.5 million in 1996. Hydro-Ouebec: Along with other New England utilities, WMECO, CL&P, PSNH and HWP have entered into agreements to support transmission and terminal facilities to import electricity from the Hydro-Quebec system in Canada. WMECO is obligated to pay, over a 30-year period ending in 2020, its proportionate share of the annual O&M and capital costs of these facilities. Es tima ted Annual Costs: The estimated annual costs of WMECO's significant long-term contractual arrangements are as follows: 1999 2000 2001 2002 2003 (Millions of Dollars) VYNPC................. $ 4.7 $ 4.3 $ 4.7 $ 4.8 $ 4.5 NUGs.................. 31.1 32.2 33.1 33.9 34.9 Hydro-Quebec.......... 3.7 3.6 3.5 3.4 3.3
- 12. FAIR VALUE OF FINANCIAL INSTRUMENTS The following methods and assumptions were used to estimate the fair value of each of the following financial instruments:
Supplemental Execu tive Re tiremen t Plan investments: SPAS 115,
" Accounting for Certain Invest.ments in Debt and Equity securities," requires investments in debt and equity securities to be presented at fair value. As a result of this requirement, the investments having a cost basis of $52,000 held for the benefit of j the Supplemental Executive Retirement Plan were recorded on the Consolidated Balance Sheets at their fair market value at December 31, 1998 of $352,000.
Nuclear decommissioning trusts: The investments held in WMECO's nuclear decommissioning trusts were adjusted to market by approximately $27.8 million as of December 31, 1998 and $17.9 million as of December 31, 1997, with corresponding offsets to the accumulated provision for depreciation. The amounts adjusted in 1998 and 1997 represent cumulative net unrealized gains. The
. cumulative gross unrealized holding losses were immaterial for both 1998 and 1997.
33 i
W stern Massachusetts Electric Company and Subsidiary NOTES TO CONSOLIDATED FINANCIAL STATenmTS i Preferred stock and long-term debt: The fair value of WMECO's fixed-rate securities is based upon the quoted market price for those issues or similar issues. Adjustable rate securities are . assumed to have a fair value equal to their carrying value. The carrying amount of WMECO's financial instruments and the estimated I fair values are as follows: . Carrying Fair At December 31, 1998 Amount Value (Thousands of Dollars) Preferred stock not subject to mandatory redemption................. $ 20,000 $ 19,800 Preferred stock subject to mandatory redemption.................. 19,500 19,796 Long-term debt - first mortgage bonds.. 295,000 297,162 Other long-term debt................... 95,155 95,419 Carrying Fair At December 31, 1997 Amount Value (Thousands of Dollars) Preferred stock not subject to mandatory redemption................. $ 20,000 $ 16,252 Preferred stock subject to mandatory redemption.................. 21,000 20,580 Long-term debt - first mortgage bonds.. 304,800 302,627 Other long-term debt................... 92,845 92,845
- 13. OTHER COMPREHENSIVE INCOME During 1998, WMECO adopted SFAS 130, " Reporting Comprehensive Income," which established standards for reporting and displaying comprehensive income and its components in a financial statement that is displayed with the same prominence as other financial statements. During 1997 and 1996, WMECO had no material other comprehensive income items. ,
34 a
wastern Massachusetts Electric Company and Subsidiary
. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The accumulated balance for each other comprehensive income item is as follows:
f Current l December 31, Period December 31, l 1997 Change 1998 l (Thousands of Dollars) Unrealized gains on securities............ $ -
$183 $183 Minimum pension liability adjustment... -
(33) (33) Accumulated other comprehensive income... $ ,
$150 $150 The changes in the components of other comprehensive income are reported on the Consolidated Statements of Comprehensive Income net of the following income tax effects:
1998 1997 1996 (Thousands of Dollars) Unrealized gains on securities............ $(117) $- $- Minimum pension liability adjustment...... 21 - - ! Other comprehensive income..................... $ (96) $- $- l t 35
wastern Massachusetts Electric Company and Suboidicry REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Board of Directors
- of Western Massachusetts Electric Company:
We have audited the accompanying consolidated balance sheets of - we' stern Massachusetts Electric Company (a Massachusetts corporation. and a wholly owned subsidiary of Northeast Utilities) and~ subsidiary as of December 31, ,1998 and 1997, and the related consolidated stockholder's statements of income, comprehensive income, common equity and cash flows for each of the three years in the period ended December 31, 1998. These financial statements are the responsibility of the-company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted-auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether theincludes An audit financial statements are free of materialevidence misstatement. supporting the amounts and examining, on a test basis, disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates financial made by management, as well as evaluating the overall audits provide a
- statement presentation. We believe that our reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Western Massachusetts Electric Company and subsidiary as of December 31, 1998 and 1997, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1998, in conformity with generally accepted accounting principles.
/s/ ARTHUR ANDERSEN LLP ARTHUR ANDERSEN LLP Hartford, Connecticut February 23, 1999
)
,. 1
'l 36
Waotern Massachusetts Electric Company and Subsidiary MANAGEMENT'S DISCUSSION AND ANALYSIS OF. FINANCIAL CONDITION AND RESULTS OF OPERATIONS This section contains management's assessment of Western Massachusetts Electric Company's (WMECO or the company) financial condition and the principal factors having an impact on the results of operations. The company is a wholly-owned subsidiary of ' Northeast Utilities (NU). This discussion should be read in conjunction with the company's consolidated financial statements and footnotes. FINANC.*AL CONDITION Overview WMECO's financial results improved in 1998 despite a reduction in retail rates. The improved results are a result of the successful restart of the Millstone 3 nuclear power plant, significant progress toward the restart of Millstone 2 and significant reductions in operating expenses. WMECO had a net loss of approximately $10 million in 1998, compared to a net loss of approximately $28 million in 1997. Improved results in 1998 were primarily due to a $43 million reduction in nonfuel operation and maintenance costs and a ' $28 million reduction in fuel and purchased power expense, partially offset by a reduction in operating revenues. Total revenues fell 8 percent to $393 million in 1998 from $426 million in 1997. The fall in revenues occurred despite a 1.3 percent increase in retail kilowatt-hour sales for the year. The revenue reduction primarily resulted from a 10 percent retail rate decrease required by Massachusetts restructuring legislation. WMECO's ability to improve its financial performance in 1999 will depend primarily on its success in bringing Millstone 2 back on line, and further reducing its operating costs to help offset continued dcwnward pressure on retail revenues. WMECO's financial performance will be affected by the carryover of 1998 rate reductions, plus another 5 percent rate reduction, adjusted for inflation, that is scheduled to take effect September 1, 1999. WMECO le 'in the process of auctioning approximately 560 megawatts (MW) of fossil and hydroelectric generating capacity. Management also hopes in 1999 to begin the process of securitizing stranded costs, a
. means of monetizing the' company's regulatory assets and certain other
- stranded costa. WMECO intends to use most of the proceeds from asset sales and securitization to repay outstanding debt and preferred securities.
37
Rcstructuring In November 1997, Massachusetts _ enacted comprehensive electric utility-indt.stry . restructuring legislation. As required by that. legislation, . WMECO instituted a 10 percent rate reduction'in 1998 and continuesand to work with the Massachusetts Department of- Telecommunications Energy - (DTE) on implementing WMECO's . restructuring plan._ In September . 1999, WMECO must institute another 5 percent rate reduction, adjusted for inflation. In January 1999, WMECO announced the sale of approximately 290 MW of fossil / hydro generating capacity to Consolidated Edison Energy, Inc. for $47 million. The sale price is approximately 3.8 times greater than the assets' 1997 book value of $12.5 million. WMECO' hopes to close on that transaction in midsummer and expects to use the majority of the proceeds to repay outstanding debt. The' sale of these assets and future asset sales will be used to reduce WMECO's stranded costs. WMECO will auction another 270 MW of pumped storage and conventional hydroelectric plant later in 1999. WMECO has notified the DTE that it will also seek to auction its ownership in the Millstone units. WMECO expects to seek approval to securitize up to $500 million in stranded Costs. Following the sale of its generating assets, WMECO will continue to operate and maintain the transmission and local distribution network and deliver electricity to its customers. Millstone Nuclear Units WMECO has a 19 percent ownership interest in Millstone 2 and a 12.24 percent ownership interest in Millstone 3. In 1998, Millstone-related costs fell significantly as Millstone 3 returned to service and Millstone 1 began to prepare for decommissioning. After a 27-month outage, Millstone 3 received Nuclear Regulatory Commission (NRC) permission to restart in June 1998 and reached full power in July. The unit achieved a capacity factor of approximately 70 percent in 1998 following its return to service. WMECO's share of the operation, maintenance and replacement power costs associated with Millstone 3 totaled approximately $28 million in 1998, down from $52 million in 1997. The unit remains on the NRC's watch list with a Category 2 designation, which means that it will continue to be subject to heightened NRC oversight. A refueling and maintenance outage is scheduled to begin in May 1999. Millstone 2 remains on the NRC watch list with a Category 3 ' designation, meaning that NRC commissioners must formally vote to allow - restart. Key steps before restart include final verification that the unit.is in conformance with its design and licensing basis; . that management processes support safe and conservative operations; and that . the employees are effective at identifying . and correcting deficiencies at the unit. Millstone - 2 is on schedule for a spring 38
1999 restart following final NRC review and approval. Millstone 2's return to service will reduce WMECO's fuel and purchased-power expense by approximately $1 million a month and significantly reduce O&M which totaled $42 million in 1998. Liquidity WMECO converted a total of $53.8 million variable-rate tax exempt debt to fixed-rate tax exempt debt carrying an interest rate of 5.85 percent. Niantic Bay Fuel Trust (NBFT), which finances CL&P's and WMECO's nuclear fuel at Millstone, refinanced maturing notes and bank lines through the issuance of $180 million of five-year 8.59 percent notes. Net cash flows from operations totaled approximately $30 million in 1998, up from $28 million in 1997. Approximately $37 million of net cash flow was used for investment activities, including construction expenditures and investments in nuclear decommissioning trusts, essentially unchanged from 1997. Approximately $7 million of net cash flows was from financing activities, compared with $9 million in 1997. Short-term debt increased by $22 million while long-term debt and preferred stock levels were reduced by $11 million in 1998. In 1997, j debt levels increased a net of $27 million. Approximately $3 million 4 was used to pay preferred dividends in 1998, compared with $18 million in preferred and common dividends in 1997. The return to service of Millstone 3 and resulting reduction in costs I stabilized the NU system's credit ratings in mid-1998 after repeated downgrades in 1996 and 1997. Moody's Investors Corvice, which had downgraded CL&P, WMECO, and NU debt in April 1998, upgraded those same ratings in July 1998 and established a " positive" outlook. Also in July, Standard & Poor's (S&P) removed the NU system from "CreditWatch--negative" for the first time in more than two years. In September 1998, S&P upgraded CL&P, WMECO and PSNH first mortgage bonds. l Key covenants or a $313.75 million revolving credit line primarily ! I serving CL&P and WMECO were adjusted in the fall. The $313.75 million revolving credit line will expire on November 21, 1999. As of February 23, 1999, WMECO had $60 million outstanding under that line. WMECO paid off a $40 million bond issue that matured on March 1, 1999. WMECO has arranged financing agreements through the sale of its accounts receivables. WMECO can finance up to $40 million through this facility. As of December 31, 1998, WMECO had financed $20 million through its accounts receivable line. The permanent shutdown of Millstone 1 in July 1998 could require CL&P and WMECO to immediately repay the NBFT approximately $80 million of
. capital lease obligations. The companies are seeking consents from the note holders to amend the lease so that they will not be obligated to make this payment. As consideration for the note holders' consent, 39
the companies intend to issue an additional $80 million of first mortgage bonds in mid-1999. Nuclear Decommissioning , Millstone 1 WMECO has a 19 percent ownership interest in Millstone 1. Based on a continued unit operation study filed with the Connecticut Department of Public Utility Control (DPUC) in July 1998, management decided to retire Millstone 1 and begin decommissioning activities. ' Subsequently, Millstone 1 was removed from the NRC's watch list. WMECO's share of the total estimated decommissioning costs for Millstone 1, which have been updated to reflect the early shutdown of the unit, are approximately $131.5 million in December 1998 dollars. WMECO uses external trusts to fund the decommissioning costs. At December 31, 1998, WMECO had unrecovered plant and related assets for Millstone 1 of $60.8 million and unrecovered decommissioning obligation of $72.8 million. These amounts have been recorded as a regulatory asset, while decon.missioning and closure obligations have been recorded as a liability. Management expects the DTE to decide on the recovery of WMECO's share of Millstone 1 investment and decommissioning liability as part of the ongoing restructuring docket. Yonkee Companies WMECO has a 9.5 percent ownership interest in the Connecticut Yankee Atomic Power Company (CYAPC), a 7.0 percent ownership interest in Yankee Atomic Electric Company (YAEC), a 3.0 percent ownership interest in Maine Yankee Atomic Power Company (MYAPC) and a 2.5 percent ownership interest in Vermont Yankee Nuclear Power Corporation (VYNPC). The nuclear plants owned by YAEC, CYAPC and MYAPC were shut down permanently on February 26, 1992, December 4, 1996, and August 6, 1997, respectively. , At December 31, 1998, WMECO's share of its estimated remaining contract obligations, including decommissioning, amounted to approximately $74.6 million: $47.4 million for CYAPC, $21.5 million , for MYAPC and $5.7 million for YAEC. Under the terms of the contracts f with the Yankee companies, WMECO is responsible for its proportionate i share of the costs of the units including decommissioning. Management expects to recover these costs from customers. Accordingly, WMECO has recognized these costs as regulatory assets, with corresponding obligations on its balance sheet. WMECO has exposure for its investment in CYAPC as a result of an initial decision at the Federal Energy Regulatory Commission (FERC). Additionally, in January 1999, MYAPC filed an offer of settlement ,. which, if accepted by the FERC, will resolve all the issues in the FERC decommissioning rate case proceeding. Management cannot predict the ultimate outcome of the FERC proceedings at this time, but 40
helieves that the . associated regulatory assets are probable of recovery. For further information on Yankee companies see " Notes to Consolidated Financial Statements," Note 11B. WMECO's share of estimated costs of decommissioning the nuclear plant owned by VYNPC is approximately $13.2 million in year-end 1998 dollars. Millstone 2 and 3 WMECO's estimated cost to decommission its shares of Millstone 2 and Millstone 3 is approximately $144.0 million in year-end 1998 dollars. These costs are being recognized over the lives of the respective units with a portion currently being recovered through rates. As of December 31, 1998, the market value of the contributions'already made to the decommissioning trusts, including their investment returns, was approximately $66.9 million. See the'" Notes to Consolidated Financial Statements," Note 2,- for further information on nuclear decommissioning. Yscr 2000 Issues The NU system has established an action plan _ by which identified processes must be completed by certain dates in order to ensure its operating systems, including nuclear systems, and reporting systems are able to properly recognize the year 2000. This action plan has three phases: the inventory phase, the detailed assessment phase and the remediation phase. The inventory phase, which has been completed, identified operating and reporting systems which may need to be fixed. The detailed assessment phase, which has been completed, determined exactly what needed to be done in order to ensure that the systems identified during the inventory phase are able to recognize properly and process the year 2000. The final phase is the remediation phase. By the end of this phase, mission critical systems (systems that are related to safety, keeping the lights on, regulatory requirements, and other systems that could have a significant financial impact) will be year 2000 ready; that is, these systems will perform their business functions properly in the year 2000. This phase includes making modifications, testing and validating changes and verifying that the year 2000 issues have been resolved. Although the identification and detailed assessment phases are complete, newly identified items, such as new software purchases, are added to the inventory as they are identified and are subject to detailed assessment and, if needed, remediation. NU system purchasing policies require newly purchased software and devices to be year 2000
. compliant. None of these newly identified items are expected to materially impact completion of the remediation phase.
The NU system has identified and inventoried 2,497 computer systems (software) and over 24,000 devices (hardware) broken down into 3,450 device types containing date-sensitive computer chips. As of 41
December 31, 1998, 73 percent of the software systems and 81 percent of the hardware were year 2000 ready. The remaining items are in various stages of modification or testing. Management anticipates the remediation phase for mission critical . systems to be completed by mid-1999. In addition, the NU system has been contacting its key suppliers and . business partners to determine their ability to manage the year 2000 problem successfully. The NU system is adjusting ita inventories, working with suppliers to provide backup inventories, and changing suppliers as needed to provide for an adequate supply of materials needed to conduct business into the year 2000, f The im system also has worked actively with the Independent System Operator (ISO) New England, the operator of the New England power grid, and with the North American Electric Reliability Council to provide for the year 2000 readiness of the New England power grid. The NU system has utilized both internal and external resources to identify, assess, test and reprogram or replace the computer systems for year 2000 readiness. The current projected total cost of the Year 2000 Program to the NU system is $30 million. The total estimated remaining cost is $18 million, which is being funded through operating cash flows. The majority of these costs will be expensed as incurred in 1999. Since 1996, the NU system has incurred and expensed approximately $12 million related to Year 2000 readiness efforts. Total expenditures related to the year 2000 are not expected to have a material effect on the operations or financial condition of the NU system. The costs of the project and the date on which the NU system plans to complete the year 2000 modifications are based on management's best estimates, which were derived utilizing numerous assumptions of future events, including the continued availability of certain resources, third-party modification plans and other factors. However, there can be no guarantee that these estimates will be achieved, and actual results could differ materially from those plans. If the NU system's remediation plans or those of third parties are not succcssful, there could be a significant disruption of the NU system's operations. The most likely worst case scenario is a limited number of localized interruptions to electric service which can be restored within a few hours. As a precautionary measure, the NU system is formulating contingency plans that will evaluate alternatives that could be implemented if our remediation efforts are not successful. The contingency plans are being developed by enhancing existing emergency operating procedures to include year 2000 issues. In addition, the NU system plaun to have staff available to respond to any year 2000 situations that might arise. The contingency plan is expected to be available by July 30, 1999. . 42
The NU system is . committed to' assuring that adequate resources are available in order to implement any changes necessary for its nuclear and other operations to be compatible with the new millennium. Environmental Matters WMECO is potentially liable for environmental cleanup costs at a number of sites inside and outside its service territory. To date, the future estimated environmental remediation liability has not been material with respect to the earnings or financial position of WMECO. At December 31, 1998, WMECO had recorded an environmental reserve of approximately $1.9 million. See the " Notes to Consolidated Financial Statements," Note 11D, for further information on environmental matters. RESULTS OF OPERATIONS Income. Statement Variances Millions of Dollars 1998 over/(under) 1997 1997 over/(under) 1996' Amount Percent Amount Egreent Operating revenues $ (33) (8) % $ 5 1% Fuel, purchased and net interchange power (28) (20) 25 22 Other operation (18) (12) 17 12 Maintenance (25) (30) 25 45 Amortization of regulatory assets, net - - (3) (30) I Federal and state income taxes 16 (99) (26) (a) Net income 18 (65) (39) (a) (a) Percentage greater than 100. 4 1 1
-43 I
i 1 Operating Revenues
-l Total operating revenues - decreased in 1998, primarily due to a 10 percent retail rate decrease in 1998, partially offset' by higher retail sales. Retail kilowatt-hour' sales-were 1.3 percent higher than .
1997. Total operating revenues increased in 1997, primarily due to higher- . transmission and' capacity. revenues, partially offset by lower retail' sales. Retail kilowatt-hour sales were 1.0 percent lower in 1997.as'a result of mild winter weather. Fuel, Purchased and Not Interchange Power Fuel, purchased and net interchanm power expense decreased in 1998, primarily due to lower replaceme... power costs as a result of the return to service of Millstone 3. Fuel, purchased and net interchange power expense increased in-1997, primarily due to replacement power costs associated with the Millstone outages. Other Operation and Maintenance other operation and maintenance expense decreased in 1998, primarily due to lower costs at the Millstone units .($3 0 ' million), lower capacity charges from CYAPC and MYAPC ($10 million) . and the recognition of environmental insurance proceeds ($2'million). _ Other operation and re.a:aenance expense increased in 1997, primarily due to higher costs associated with the Millstone restart effort ($40 million) higher capacity charges from MYAPC ($2 million) and higher costs to ensure adequate capacity ($6 million), partially of f set by lower capacity charges from CYAPC as a result of a property tax refund ($4 million) and lower administrative and general expenses'primarily due to lower pensions and benefit costs ($5 million). Amortization of Regulatory Assets, Net The change in amortization of regulatory assets, net in 1998 was not significant. Amortization of regulatory assets, net decreased in 1997, primarily-due to the completion of the amortization of Millstone 3 investment in 1996. Faderal and State Income Taxes ,. Federal _ and state . income taxes increased in 1998, pri.aarily due to higher book taxable income. .- Federal and state income taxes. decreased in .1997, primarily due to lower book taxableiincome. 44
estern Massachusetts Electric Company And Subsidiary 1990 1997 1996 1995 1994 EELECTED FINANCI AL DATA **' Phousands of Dollars) l bpersting Pevenues ............... $393,322 $426,447 $421,337 $ 420.434 $ 421,477 251 33,190 63,064 70,940 Teratirrg Income /(Loss) ......... 19,854 (9,579) (27,460) 11,089 39,133 49,457 Net (Loss)/ Income . .... ......... Octh Dividends on 15,004 16,494 30,223 29,514 Common Stock .. ............... 1,287,682 1,179,128 1,191.915 1,142,346 1,183,618 rotal Assets ... . ... ..... . . 349,442 347,470 379,969 Long Term Debt * .. . ... .. . 389,314 396,649 Preferred Stock Not Subject to Mandatory 20,000 20,000 20,000 53,500 68,500 Rsdemption ... . ... .... Prsferred Stock Subject to Mindstory 19,500 21.000 21,000 24,000 24,675 Redempt ion"" .... . . . Obligitions Under 32,234 36,011 36,797 Ctpitel Leases * . .... .. . 34,093 32,887
Rsclassifications of prior data have been 'ude to conform with the current presentation.
- Includes portion due within one year.
pTATEMENTS OF QUARTERLY FINANCIAL DATA (Unaudited) Quarter Ended '*' March 31 June 30 Sect. 30 Dec. 31 1998
$107,189 $90,649 $93,919 $101,645 Opstating Rever.ues .. . ... .. ...
'7,938 $ 6,614 $ 4,301 $ 1,101 Operating income . . ...... . $
N2t Income /(Loss) . ... . .. .. $ 1,367 $ (718) $ (3,54 6) $ (6. 66 2) 1997
$106.054 $104,130 $111,166 $105,097 Operating Revenues .. . ... .
675 $ (4,794) $ 1,875 $ 2,495 Operating income /(Loss) ... ....... . . $ NJL Loss . . .. ... , ,. . . . . $ (5,033) $(11.492) $ (5,303) $ (5,632,) 4 45
Western. Massachusetts Electric Company and Subsidiary STATISTICS (Unaudit.ed) Gross Electric Average . Utility Plant Annual December 31, Use'Per Electric kWh Sales Residencial Customers Employees . (Thousands - (December 31) of Dollars) (Millions) Customer (kWh) (Averace)
$1,256,046 4,091 6,979 196,339 533 )
1998 195,324 507 ) 1,334,233 4,300 7,121 1997 '194,705 497 1996 1,303,361 4,626 7,335 1,285,269 4,846 7,105* 193,964 527 1995 193,187 617 1994 1,271,513 4,978 7,433 j I oEffective January 1, 1996, the amounts shown reflect billed and unbilled sales. 1995 has been restated to reflect this change. f e b 46
F- - " - - - ' ' ' " " " ' ' ~'
?
i THIS PAGEINTENTIONALLYLEFT BLANK. ' 1 l l l l l l l l l 1 1 I
~
b
l 1 THIS PAGE INTENTIONALLYLEFT BLANK. I 1 i1 l
Western Mossochusetts Electric Compon First and Refunding Mortgage Bonds
- Trustee and Interest Paying Agent State Street Bank and Trust Company Corporate Trust Department d
'I\vo International Place,4th Floor Boston, Massachusetts 02110 PreferredStock Transfer Agent, Dividend Disbursing Agent and Registrar Northeast Utilities Service Company Shareholder Services P.O. Ik)x 5006 Hartford, Connecticut 06102-5006 1999 Dividend Payment Dates 7.72% Series B January 1, April 1, July 1, and October 1 7.60% Series February 1, May 1, August 1, and November 1
]
1 l l l l Address General Correspondence in Care of: Northeast Utilities Service Company investor Relations Department P.O. Box 270 Hartford, Connecticut 06141-0270 Telephone: (860) 665-5000 4 Data contained in this Annual Rqws are submitted G***(*l OEI5*** for the sole purpose ofprwiding infore arion to 174 Brush HilI Avenue present security holders about the Cw:1xany. West Springfield, Massachusetts 01090-0010 h.
yx..,, 1 _ , 7 ~ :.- y 7 ..
.3 7 c, k;- m
-- ,_ ,,$ _y$ d r .,(.,b- [NN}
-:d$..[$$
spq[p 1N " '
,. . e3 4,,
, ' 1, nN h< <*.o.s--:n' 3,. , . _ , fg# ^ ~ Yp_, . . , .7 f -.
a ; g <;
-y. a 933 q ~ + , , ;
v' e r ,
' L. " ' .
u, , - 1 7% wr ' ~ %
- :a. .
b r i>
, $?v,
_k, f $,_. s __, e e 1
, y_
~ h.
s s'pt .
.3.,
1^
>= *4
~.
W
;h ,. y w[g
~--lQ" , ,-
~ (+ , r ; , og e e .s .. a , . , . . r ~
' ' f :-5e
" j_ <[ , . ( p a ,.y b[-v
.Y, 3
- d. > 4t 4
, ! , $ j , . . ,' #2'
- , g_.y y'ye.
+ e .,. n
, ,g - , ,c ,
; w. ,r e
> g7 '_,+ ,;p; 4
my 4 , , c .L
"', [ j -
p r , _ r - 3;_'j, W '
' f.f_ ,
' n :;' s l, $' i " <
- s.
, , : f>d ,
s 8 - t 7
~ . .;,,: e "
- 'i ~ < < ,,- .,
,nw s.1,.c
,(<
- p. [3 7 -
1
$s
;__,e,'
', 0 '
(*n
, } ) $ 1 { . t'
., s 6,. ,
.. ~ , .
s 9 m e.-
,1 ' . . ,
, yy s;
s
.. i t
/ ,0 . My lIf -r
--6n. J '.7 x. ,
i., 4 t
- r
, , , -< , ,3 s :. f _s, f,,:; n QWp'- r L L x
? A 'w "1'3 3, +,.
, e- e t , ; .'"h .e ., A '.:,g.,: M erm' l
^
A t 7' k . m jf. t , n ;y ' .'q,' a [ ' (
$/O ,y[ 'N
, c ., Mi s G
s'Qf" r )' L 3 :$"' , ; ' yy:; y i
- r. ..
, > ~
, 1 , '
n t
~
.,T, ':' % -I.04
+
'
- s 4 1 J UJi *
) p
',? ; M , i . b y-, 's '[ b;,
,',a>,
g a i;;
,y. V'u u , .- -
, --+ ~ /, g, ._ . ., , +
, j -
, ; Q'i y, , , , g,f - --,' -
~
.,6 portR .
_f . 4
' ' , /1 h
h . ,^;
' f.
b 9 4 g ~' - ,, _> Q 4
',-i i
L.> \ < i A ; Y o_. 4 t [ .: (" l, < t F s t 4 , 4 - 4
.' 1 2
g,s
. 3,a
, t 2
~
.n
.t. ,
s 3' }l.g p';
)
- c. [ y < 4.. t
, . -' , ... c
. .w . ,
li b W; - ' 4.'
-. 4'.
t 1 ; q. I ..;
'n 4 t y r I *'- I r a
]
U : -
)
c
- j. I-
.., .~; ..
g , :? 1 s," -
.M, e y , ,'a . pg-
. q 4 . , - - ~ "
1- Mof New Hamp~shirei, *;- t
~# u.m >
m1 < ,a j . .
, m , 4
. d:
< m. > " m,-
..s n~
< ,cn -
r n ,
..,;, _, t ,; , ,
, . .-. s> ~' ~ . .-, ,s w >
qs
*h .2. ,. "
'oA y j1 .
- / . f g n g e
4 y , 7 L.,! ..n ~. ; , .yn mm, . ..g.y'e,e y %~ g"'t'- :, , . - - -
,, e g ,
.q g ge:J ' nr ,
, g '. ,yv
~
V y g .c = er " t t: a
, , ye g. : t<m a , '7 .u.v d # ' I-'T.,+',',.I'y s f, ^
h' m.-'l' t ', J' b' 4 H'
,)'. . ,' ; i /
4 'd -(
.'c.' l qa,..... , g g l v'h , , q*.) ;> ',e j
.<; n- .T,
!?y
; )'@'; . .
j r 2,4.J fr.sgra l .'<.5~
%.U ;..W O.e%g4.Y.' gW
.Q ' #,
3
,s -
dvf
~ + >
q y g A. ., i ") tP/ /
' k 5).'W, I . ,,.j " s
,j yt - j, v /'s .z ,' ' ,
v ' 1 y, , , - 3 ., .. x w' t v
- w. 3.,.~3 ,
'1,y m -
y
!, ( , 3 e
. m d.p. ( T
.. ,. % + M 7' <
4, e3je WWJ. s/." .t fn , ,i rs cDe -3= ,
; +3t N.0
, u; , 4 *v m M '. " G.y > '*,., -
.g '
s, uEij h'j ,, g n,,6, k If-f 3 .. / h.); '" ,fr ,[^h jg I . j. ' [; [ ,,f
',b rw( p/ '.wa: . < , ;, w . .
' +(,'h,.. , . . . . . . . . ,, ,
.w , m . c ., p. .n
, m- --
- p. .. , . . . . . .. .
j , 5
.y 4 ..
4 , , 4 4 - -
"'., f , .)
I
._ r
( \
/
4 g iJohriC Collins 1. - Michael G. MorrisL _ f Deborah L Canyocki Chief Executive Officer Chairman and Chief J ' Assistant ControikrA
-The liitchcock Clinic l Executive Officer - - Management Information and ,
^
y
. Budgeting Services (
- John 11. Forsgren c Willia'm T. Frain; Jro . . .' -
A,
~
- Executive Vice President and' : President and s ' : Lori A.' Mahler e Chief FinancialOfficer i Chief Operating'Officerf
~ Assistant Contr'oller-- L ' '
-r Northeast Utilities t Accounting Services'
' Bru'ce D. Kenyon . .
William T. Frain, Jr. President-Generation Group - '
- William J. Starr '
President and .
' Assistant Controller-Taxes Chicf Operating Officer John H. Forsgren L Executive Vice President and -- . Theresa 11. Allsop ; -
Bruce D. Kenyon Chief Financial Officer' <. Assistant Secretary ' President-Generation Group .
-Northeast Utilities Cheryl W. Grisd . . . .
._ _ . Robert A: Bersak
' Senior Vice President, Secreta.ry ? Assistant Secretary 3 Gerald Letendrc _ and General Counsel
- P*Id'"' '.0, Kay comendul :
. . Diamond Casting & . David 11. B6guslawski _
Assistant Secretary , Machme Co.. Ine- Vice President-Energy Delivery - flugh C. MacKenzie Robert C. Aronson . President-Retail Business Group Gary A. Ung . Assistant Treasurer " Vice President-Customer Service - 0,
.j Nonheast Utilities _
and Economic Development : Randy A. Shoop y _ a Michael G. Morris Assistant Trear ;cr-Finance
- Chairmanof the Board. President David R.-McIlale -
and Chief Executive Officer Vice President and Treasurer - ! Northeast Utilities ] Jane E. Newman William J. Nadeau - Managing Director VIC', President-Fossil /Ilydro The Commerce Group Engmeenng and Operations - 1 Paul E. Ramsey Vice President-Customer Operations Executive Committee e John L Roman
-i Vice President and Controller - '
of the Board ofDirectors l Lisa J.'Thibdaue Michael G. Morris ' Vice President-Rates, Regulatory. f' Affairs and Compliance - Chairman l John II. Forsgren Dennis E. Welch Vice President-Environmental, Bruce D. Kenyon Safety and Ethics . Ilugh C. MacKenzie ' Johh P. Stack - LWilliam T. Frain, Jr. Executive Director-Corporate - , Alternate t . AccountingandTaxes . a. l
~
,l 1
-% 9 [ya,cygjyqq t
9
--).
> s k .6 - 1 y
lj
., /n ,
, SC:
w w <
1998 Annual Report Public Service Company of New Hampshire
/ Index e
Contents Pace Balance Sheets.............................................. 2 Statements of Income........................................ 4 Statements of Comprehensive Income.......................... 4 Statements of Cash Flows....................................' 5 Statements of Common Stockholder's Equity................... 6' Notes to Financial Statements............................... 7 Report of Independent Public Accountants.................... 39 Management's Discussion and Analysis of Financial Condition and Results of Operations....................... 41, Selected Financial Data..................................... 50 Statistics (Unaudited)...................................... 52 Statements of Quarterly Financial Data (Unaudited).......... 52 Preferred Stockholder and Bondholder Information............ Back Cover 4 e
PART I. FINANCIAL INFORMATION-PUBLIC SERVICE COMPANY OF NEW HAMPSHIRE > BALANCE SHEETS
')
1998 .1997 ', AT DECEMBER 31, (Thousands of Dollars) ASSETS Utility Plant, at cost: $ 1,898,319 Electric.... ...........................................
$ 1,927,341 Less: Accumulated provision for depreciation......... 631,584 590,056 1,295,757 1,308,263 352,855 ' 402,285 Unamortized acquisition costs...........................
20,735 10,716' Construction work in progress........................... 1,323 Nuclear fuel, net.......................................
......_-1,308 _.....
Total net utility plant............................. 1,670,670 1,722,572 Other Property and Investments: 4,332 Nuclear decommissioning trusts, at market............... 5,580 Investments in regional nuclear generating 19,169 companies and subsidiary company, at equity............ 19,836 4,319 3,773 Other, at cost.......................................... ..< ...__..... .__... __.... 29,735 27,274 Current Assets: 94,459 Cash and cash equivalents............................... 60,885
- Receivables, less accumulated provision for uncollectible accounts of $2,041,000 in 1998 and of $1,702,000 in 1997............................. 89,044 89,338 Accounts receivable from affiliated companies........... 12,018 '38,520 Accrued utility revenues................................ 42,145 36,885 Fuel, materials and supplies, at average cost........... 36,642 40,161 Recoverable energy costs--current portion............... 65,257 31,886 22,744 11,271 Prepayments and other................................... ............. .............
328,735 342,520 Deferred Charges: Regulatory assets....................................... 610,222 695,418 Deferred receivable from affiliated company............. 22,728 32,472 13,995 11,749 Unamortized debt expense................................ 5,510 5,154 Other................................................... ............. . . _ _ . . . . . . . . . . 652,455 744,793 . Total Assets........................................ $ 2,681,595 $ 2,837,159 Sse accompanying notes to financial. statements.
.2
.. _____-_-_______-______2_--_-
PUBLIC SERVICE COMPANY OF NEW RAMPSHIRE BALANCE SHEETS i AT DECEMBER 31, 1998 1997 (Thousands of Dollars) CAPITALIZATION AND LIABILITIES 7 Capitalization: Common stock--$1 par value. Authorized and outstanding 1,000 shares................ $ 1 $ 1 Capital surplus, paid 1n................................ 424,250 423,713 Retained earnings....................................... 252,912 170,501 Accumulated other comprehensive income.................. 1,004 - Total common stockholder's equity.............. 678,167 594,215 Preferred stock subject to mandatory redemption......... 50,000 75,000 Long-term debt.......................................... 516,485 516,485 Total capitalization........ .................. 1,244,652 1,185,700 Obligations Under Seabrook Power Contracts and Other Capital Leases................................. 703,411 799,450 Current Liabilities: Long-term debt and preferred stock--current portion..... 25,000 195,000 Obligations under Seabrook Power Contracts and other capital leases--current portion........................ 138,812 122,363 Accounts payable........................................ 26,227 21,231 Accounts payable to affiliated companies................ 28,410 32,677 Accrued taxes........................................... 82,743 69,445 Accrued interest........................................ 5,894 7,197 Accrued pension benefits................................ 46,004 46,061 Other. ... ............................................ 8,540 9,417 361,630 503,391 Deferred Credits: 204,406 Accumulated deferred income taxes....................... 225,091 Accumulated deferred investment tax credits.. .......... 3,460 3,972 Deferred contractual obligations........................ 66,400 83,042 , Deferred revenue from affiliated company................ 22,728 32,472 Other.... .............................................. 54,223 24,726 l ............. I 371,902 348,618 1, Commitments and Contingencies (Note 6) Total Capitalization and Liabilities........... $ 2,681,595 $ 2,837,159
............. ...=.........
See accompanying notes to financial statements. 3
PUBLIC SERVICE COMPANY OF NEW HAMPSHIRE-STATEMENTS OF INCOME i FOR THE YEARS ENDED DECEMBER 31, 1998 1997 1996 (Thousands of Dollars) . Operating Revenues.................................. $ 1,087,247 $ 1,108,459 $ 1,110,169. Operating Expenses: Operation -- 356,679 Fuel, purchased and net interchange power..... 322,071 326,745 402,012 368,363 326,337 other......................................... 45,728 51,734 38,320 Maintenance...................................... 42,983 Depreciation....................... ............. 45,342 44,377 Amortization of regulatory assets, net........... 26,758 56,557 56,884 65,079 86,450 80,677 Federal and state incone taxes................... 43,052 43,623 45,123 Taxes other than income taxes.................... ............ ............ ........__.. 964,435 954,411 Total operating expenses................... 956,048 131,199 144,024 155,758 Operating Income............................. ..... Other Income: Equity in earnings of regional nuclear 1,373 2,075 generating companies and subsidary company..... 2,649 Other, net....................................... 9,222 '698 8,075 Income taxes..................................... (7,473) (2,391) (7,723) Other income, net.......................... 4,398 (320) 2,427 Income before interest charges . . . . . . . . . . . . . 135,597 143,704 158,185 Interest Charges: Interest on long-term debt....................... 43,317 51,259 57,557 Other interest... ............................. . 594 273 3,163 Interest charges, net...................... 43,911 51,532 60,720 Net Income......................................... $ 91,686 $ 92,172 $ 97,465 STATEMENTS OF COMPREHENSIVE INCOME . Net Income......................................... $ 91,686 $ 92,172 $ 97,465 Other comprehensive income, net of tax: - Unrealized gains on securities..................... 1,198 - - Minimum pension liability adjustments.............. (194) - - Other comprehensive income, net of tax........... 1,004 - . Comprehensive Income............................... $ 92,690 $ 92,172 $ 97,465 Se. acccmpanying notes to financial statements. 4
r PUBLIC SERVICE COMPANY OF NEW HAMPSHIRE STATEMENTS OF CASH FIDWS For the Years Ended December 31, 1998 '3997 1996 (Thousands of Dollars)~ . 1 Operating Activities: 92,172 $ . .97,465 j.- Nat Income.......... ........................................ $ 91,686 '$' f Adjustments to reconcile to net cash (l from operating activities: Depreciation.............................................. 45,342 44,377: ~42,983 Deferred income taxes and investment tax credits, nat..... 78,366. 21,645- 94,983 R*.coverable energy costs, net of amortization............. 2,065- (12,336) -31,663' , Amortization of acquisition costs......................... 49,431 89,417 89,744 (32,860) (32,860) l Amortization of regulatory liability...................... '(32,860) l Amortization of other regulatory assets................... 10,187 - - Deferred Seabrook capital costs .......................... .(31,587) (8,376) .. - Other sources of cash................... ..... ........... 32,255 51,054 65,922 Other uses of cash.................. ..................... (53,615) .(67,590) (51,188) Changes in working capital: Rac31vables and accrued utility revenues.................. 21,536 9,407 '(36,907). Fual, materials and su 3,519 4,691 (3,135) Accounts payable......pplies..............................
.................................... 729 (14,897). (7,714)
Accrued taxes............................................. 13,298. 69,364 (717) Other working capital (excludes cash) . . . . . . . . . . . . . . . . . . . . . (13,710) (13,365) (13,559) \ 2 42 232,703 27 80 j Net cash flows from operating activities.... ................. Financing Activities: Reacquisitions and retirements of long-tem debt. . . . . . . . . . . . (170,000) . (172,500) Reacquisitions and retirements of preferred stock. . . . . . . . . . . (25,000) (25,000) - Cash dividends on preferred stock........................... (9,.275) (11,925) (13,250) Cash dividends on comon stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - (85,000) (52,000) l Net cash flows used for financing activities.................. (204,275) (121,925) (237,750)
. Investment Activities:
Investment in plant: Electric utility plant............................... .... (43,780) (33,570) -(37,480) Nuclear fuel............................. ................ (307) 5 129 Net cash flows used for investments in plant............ (44,087) (33,565) (37,351) Investment in NU system Money Pool.......................... - 18,250 850 Investment in nuclear decomissioning trusts. . . . . . . . . . . . . . . . (641) (490) (521) Other investment activities, net............... .. ......... (1,213) (1,529) (1,010)
........... ........... ........... 1
[ Net cash flows used for investments........................... (45,941) (17,334) (38,032) ' Net (decrease) / increase in cash for the period. . . . . . . . . . ..... (33,574) 93,444 898-Cash and cash equivalents- beginning of period..... ......... 94,459 1,015 117 Cash and cash equivalents- end of period... .................. $ 60,885 $ 94,459 $ 1,015 Supplemental Cash Flow Infomation: Cash paid /(refunded) during the year for: Interest, net of amounts capitalized......... .............. $ 42,677 $ 51,775 $ 58,835 Income taxes.............................. ................. $ 18,948 $ 10,612 $ (457) p ........... ........... ........... '
) (Decrease)/ increase in obligations: -
Stabrook Power contracts and other capital leases........... $ (78,939) $ 6,197 $ 93 I (. See acconpanying notes to financial statements. 5
'I l
PUBLIC SERVICE CCMPANY OF NEM HAMPSHIRE 'J STATEME2 TIS OF CDtCN S'IOC100LDElR'S EQUITY
-6' 3 m 1.ted ' l Capital Other ~1 Ctrman Surplus, Retained Cbnprehensive Stock ~ Paid In Earnings T,ncome 'Ibtalq
('Ihousands.of Dollars)- Balance at January 1, 1996.. 4 ........... $ 1 $422,385 $143,039 $ -- $565,425 Ne t inotme . . . . . . . . . . . . . . . . . . . . . . . . . . . 97,465 97,465 Cash dividends cn preferred stock. . . . - (13,250) (13,250). Cash dividends cn ecmen stock. . . . . . . (52,000) (52,000) Capital stock expenses, net.......... 673 673 Balance at December 31, 1996............. 1 423,058 175,254' - 598,313 Net income........................... 92,152 92,172 Cash dividends en preferred stock.... (11,925) (11,925). Cash dividends en comTon stock. . . . . . (85,000) (85,000) Capital stock expenses, net.......... 655 655 ! Balance at Decenber 31, 1997.......... .. 1 423,713 170,501 - 594,215 Ne t incune . . . . . . . . . . . . . . . . . . . . . . . . . . . 91,686 91,686 Cash dividends cn preferred stock.... (9,275; (9,275) Capital stock expenses, net.......... 537 537 Other cornprehensive income. . . . . . . . . . . 1,004 1,004 Balance at December 31, 1998............. $ 1 $424,250 $252,912 $ 1,004 .$678,167 See accuTpanying notes to financial statements. . 6
Public Sorvico Company of N:,w Hamp hiro NOTES TO FINANCIAL STATEMENTS
- 1.
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES A. About Public Service Company of New Hampshire 3 Public Service ' Company of New Hampshire (PSNH or the company), The Connecticut Light and Power Company (CL&P), Western Massachusetts Electric Company (WMECO), North Atlantic Energy Corporation (NAEC) and Holyoke Water Power Company (HWP) are the operating subsidiaries comprising the Northeast Utilities system (the NU system) and are wholly owned by Northeast Utilities (NU). The NU system furnishes franchised retail electric service in Connecticut, New Hampshire, and western Massachusetts through CL&P, PSNH and WMECO. NAEC sells all of its entitlement to the capacity and output of the Seabrook nuclear power plant (Seabrook, a 1,148 megawatt (MW) nuclear power generating unit) to PSNH under two life-of-unit, full cost recovery contracts (the Seabrook Power Contracts). HWP is also engaged in the production and distribution of electric power. The NU system also furnishes firm and other wholesale electric services to various municipalities and other utilities, and participates in limited retail access programs, providing off-system retail electric service. The NU system serves in excess of 30 percent of New England's electric needs and is one of the 24 largest electric utility systems in the country as measured by revenues. ! NU is registered with the Securities and Exchange Commission (SEC) as a holding company under the Public Utility Holding Company Act of 1935 (1935 Act). NU and its subsidiaries, including PSNH, are subject to the provisions of the 1935 Act. Arrangements among the NU system companies, outside agencies and other utilities covering interconnections, interchange of electric power and sales of utility property are subject to regulation by the Federal Energy Regulatory Commission (FERC) and/or the SEC. PSNH is subject to further regulation for rates, accounting and other matters by the FERC and/or the applicable state regulatory commissions. Other wholly owned subsidiaries of NU provide support services for the NU system companies and, in some cases, for other New England utilities. Northeast Utilities Service Company (NUSCO)
'. provides centralized accounting, administrative, information resources, engineering, financial, legal, operational, planning, purchasing and other services to the NU system companies. North
- Atlantic Energy Service Corporation (NAESCO) acts as agent for CL&P and NAEC, and has operational responsibilities for Seabrook. Northeast Nuclear Energy Company (NNECO) acts an agent for the NU system companies and other New England utilities in operating the Millstone nuclear generating facilities.
During the first quarter of 1999, NU established three new subsidiaries: NU Enterprises, Inc., Northeast Generation Company, l 7
Public Servico Comp ny of New Hamp0hiro' NOTES TO FINANCIAL STATEMENTS and Northeast Generation Services Company. Directly or 'through multiple subsidiaries, these entitles will' engage in a varietyand acquisition ofi energy-related activities, including the management of non-nuclear generating plants. '.. B. Presentation in conformity with The preparation of financial statements generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts _of assets and liabilities and disclosure of contingent liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates Certain reclassifications of prior years' data have been.made to conform with the current year's presentation. i All transactions among affiliated companies are on a recovery of cost basis which may include amounts representing a return on equity and are subbet 3 approval by various federal and state regulatory agencier. C. New Accounting Stanc v is The Financial Acccunting Standards Board (FASB) issued a new accounting standard during 1998: Statement of Financial Accounting Standards (SFAS) 132, " Employers' Disclosures About Pensions and Other Postretirement Benefits." SFAS 132 revises employers' disclosures about pension and other postretirement benefit plans, but it does not change the measurement or recognition of those plans. See Note 6, " Pension Benefits and Postretirement Benefits Other Than Pensions," for further information on PSNH's pension and postretirement benefits disclosures. During June 1997, the FASB issued SFAS 131, " Disclosures about Segments of an Enterprise and Related Information." SFAS 131 determines the standards for reporting and disclosing qualitative and quantitative information about a company's operating segments. More specifically, it requires financial information to be disclosed for segments whose operating . results ar. received by the chief operating officer for - decisions on resource allocation. It also requires related disclosures about products and services, geographic areas and - major customers. PSNH currently evaluates management' performance using a cost-based budget, and the information required by SFAS 131 is not available. As a result of the changes which PSNH and the industry are undergoing, the company will implement business segment reporting in 1999. This reporting will provide management with revenue and expense information at the business segment level. 8
Public SOrvico Company of New Hamp hiro NOTES TO FINANCIAL STATEMENTS Management has identified significant segments to it"'ade transmission, distribution, generation-related and energy marketing. I D. Investments and Jointly Owned Electric Utility Plant Regional Nuclear Generating Companies: PSNH owns common stock of four regional nuclear generating companies (Yankee companies) which are accounted for on the equity basis due to PSNH's ability to exercise significant influence over their operating and financial policies. PSNH's ownership interests in the Yankee companies at December 31, 1998 are: Connecticut Yankee Atomic Power Company (CYAPC)...... 5.0% Yankee Atomic Electric Company (YAEC) . . . . . . . . . . . . . . . . 7.O Maine Yankee Atomic Power Company (MYAPC) . . . . . . . . . . . . 5.0 Vermont Yankee Nuclear Power Corporation (VYNPC)..... 4.O PSNH's equity investments in the Yankee companies at j December 31, 1998 are: j l 1 (Thousands of Dollars) CYAPC..................................... $ 5,457 YAEC...................................... 1,356 j MYAPC..................................... 4,312 VYNPC..................................... 2,227
$_13,352 Each Yankee company owns a single nuclear generating unit. YAEC's, CYAPC's and MYAPC's nuclear power plants were shut down permanently on February 26, 1992, December 4, 1996 and August 6, 1997, respectively. For further information on the Yankee companies, see Note 4, " Nuclear Decommissioning and Plant Closure Costs."
Millstone 3: PSNH has a 2.85 percent joint ownership interest in Millstone 3, a 1,154 MW nuclear generating unit. As of ;
- December 31, 1998 and 1997, plant-in-service included approximately $118.8 million and $118.7 million, respectively, and the accumulated provision for depreciation included approximately $35.5 million and $32.3 million, respectively, for PSNH's share of Millstone 3. PSNH's share of Millstone 3 expenses is included in the corresponding operating expenses on the accompanying Statements of Income. For further information on the Millstone 3 unit, see Note 10C, " Commitments and Contingencies - Nuclear Performance."
9
Public Servico Comp ny of New Hampchiro-NOTES TO PINANCIAL STATEMENTS Wyman Unit 4: PSNH has a 3.14 percent : cwnership interest in
- Wyman Unit 4 (Wyman), a 632 MW oil-fired generating unit. At' December 31, 1998 and 1997, plant-in-service . included approximately $6.1 million and $6.0 million,- respectively 'and included the accumulated provision for depreciation approximately $4.0 million and $3. 9 .million, respectively, for PSNH's share of Wyman. PSNH's share of- Wyman expenses is included in the corresponding' operating expenses on the accompanying Statements of Income.
E. Depreciation The provision for dspreciation is calculated using the straight-line method based-on estimated remaining lives - of depreciable utility plant-in-service, adjusted Zor salvage value and removal costs, as approved by the appropriate regulatory agency. Except for major facilities, depreciation rates are applied to the average plant-in-service during the period. Major facilities are depreciated from the time they- are placed in service. When plant is retired from service, the original cost of plant, including costs of removal, less salvage, is charged to the accumulated provision for depreciation. The costs of closure and removal of non-nuclear facilities are accrued over the life of the plant as a component of depreciation. The depreciation rates for the several classes of electric plant-in-service are equivalent to a composite rate of 3.6 percent in 1998 and 3.7 percent in 1997 and 1996. See Note 4, " Nuclear Decommissioning and Plant Closure Costs," for information on nuclear plant decommissioning. At December 31, 1998 and 1997, the accumulated provision for depreciation included approximately $37.3 million and $34.2 million, respectively, accrued for the cost of removal, net of salvage for non-nuclear generation property. F. Revenues other than revenues under fixed-rate agreements negotiated with certain wholesale, commercial and industrial customers and limited retail access programs, utility revenues are based on authorized rates applied to each customer's use of electricity. In general, rates can be changed only through a formal proceeding before the appropriate regulatory commission. . Regulatory commissions also have authority over the terms and - conditions of nontraditional rate making arrangements. At the end of each accounting period, PSNH accrues an estimate for the
- amount of energy del:vered but unbilled.
For information on PSNH rate proceedings and the impact on PSNH, see Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A), and Note 10B, " Commitments and Contingencies - Rate Matters." 10-
Public SOrvico Company of New Hamp:hiro NOTES TO FINANCIAL STATEMENTS G. Acquisition Costs The PSNH acquisition costs represent the aggregate value placed by the 1989 rate agreement with the state of New Hampshire (Rate Agreement) on PSNH's assets in excess of the net book value of PSNH's non-Seabrook assets, plus the $700 million value assigned to Seabrook by the Rate Agreement, as part of the bankruptcy resolution on June 5, 1992 (Acquisition Date). The Rate Agreement provides for the recovery through rates, with a return, of the PSNH acquisition costs. The unrecovered balance at December 31, 1998, was approximately $352.9 million and is being recovered ratably over a 20-year period through May 1, 2011 in accordance with the Rate Agreement. Through December 31, 1998, PSNH has collected approximately $640.0 million of acquisition Costs. H. Regulatory Accounting and Assets The accounting policies of PSNH and the accompanying financial ; statements conform to generally accepted accounting principles I applicable to rate-regulated enterprises and reflect the effects of the ratemaking process in accordance with SFAS 71, " Accounting for the Effects of Certain Types of Regulation." Assuming a cost-of-service based regulatory structure, regulators may permit incurred costs, normally treated as expenses, to be deferred and recovered through future revenues. Through their actions, regulators may also reduce or eliminate the value of an asset, or create a liability. If any portion of PSNH's operations were no longer subject to the provisions of SFAS 71, PSNH would be required to write off all of its related regulatory assets and liabilities unless there is a formal transition plan which provides for the recovery, through established rates, for the collection of these costs through a portion of the business which would remain regulated on a cost-of-service basis. At the time of transition, PSNH would be required to determine any impairment to the carrying costs of deregulated plant and inventory assets. Management anticipates that a restructuring program will be implemented in New Hampshire, and such a program is currently the focus of negotiations and proceedings within the federal and state legal systems. However, management continues to believe the application of SFAS 71 remains appropriate at this time. Once
- PSNH's restructuring plan has been formally approved by the appropriate regulatory agency and management can determine the impacts of restructuring, PSNH's generation businesses no longer will be rate regulated on a cost-of-service basis. The majority of PSNH's regulatory assets are related to its generation Nsiness. Management expects that the transmission and distribution business within New Hampshire will continue to be rate-regulated on a cost-of-service basis and restructuring plans will allow for the recovery of regulatory assets through this portion of the business.
11
Public Servico Comp my of New Hamp2hiro 1 I NOTES TO FINANCIAL STATEMENTS For further information on PSNH's regulatory environment and the potential impacts of restructuring, see Note 10A, " Commitments * ] and Contingencies - Restructuring" and the MD&A. Based on a current evaluation of' the various factors- a n d *. i conditions that are expected to impact future cost recovery, management continues to believe it is probable that PSNH will recover its investments in long-lived assets, including regulatory assets. The components of PSNH's regulatory assets are as follows: At December 31, 1998 1997 (Thousands of Dollars) Recoverable energy costs, net (Note 1J) .......................... $156,250 $191,686 Income taxes, net (Note II) .......... 139,739 128,244 Unrecovered contractual obligations (Note 1K) .............. 66,400 83,042 Deferred costs - nuclear plants (Note 1L) ................... 244,599 290,232 Other................................ 3.234 2.214
$610,222 $695,418 I. Income Taxes The tax effect of temporary differences (differences between the periods in which transactions affect income in the financial statements and the periods in which they affect the determination of taxable income) is accounted for in accordance with the ratemaking treatment of the applicable regulatory commissions. See Note 9, " Income Tax Expense" for the ;
components of income tax expense. i The tax effect of temporary differences, including timing differences accrued under previously approved accounting standards, that give rise to the accumulated deferred tax obligation is as follows: At December 31, 1998 1997 (Thousands of Dollars) . Accelerated depreciation and other plant-related differences..... $100,786 $103,985 , Net operating loss (NOL) . carryforwards....................... (25,610) (94,822) Regulatory assets - income tax l gross up............................ 52,425 49,101 l Other............................'..... 97.490 146.142
$225,091 $204,406 12
________________a
Public Sorvico Comp ny of Ncw Hampchire NOTES TO FINANCIAL STATEMENTS At December 31, 1998, PSNH had a. federal NOL. carryforward of approximately $94 million that can be used against .PSNH's federal taxable income-and which if unused, expires between the years 2005 and 2006. PSNH also=had Investment Tax Credit (ITC)
- carryforwards of $37 million which if unused,. expire between the years 1999 and 2004. The reorganization of PSNH under Chapter 11 of the United States Bankruptcy Code limits the annual amount of ITC carryforward that may be used. Approximately $6 million-of the ITC carryforward is subject to this limitation.
J. Recoverable Energy Costs Under the Energy Policy Act of 1992 (Energy Act), -PSNH is assessed for its proportionate share of the costs of decontaminating and decommissioning uranium enrichment plants owned by the United States Department of Energy (D&D assessment). The Energy Act requires that regulators treat D&D assessments as a reasonable and necessary current cost of fuel, to be fully recovered in rates like any other fuel cost. PSNH' is currently recovering these costs through rates. As of December 31, 1998, PSNH's total D&D deferrals were approximately
$237,000.
The Rate Agreement includes a comprehensive fuel and purchased power adjustment clause (FPPAC) permitting PSNH to pass through to retail customers, for a 10-year period that began in May 1991, the retail portion of differences between the fuel and purchased power costs assumed in the Rate Agreement and PSNH's actual costs, which include the costs related to the Seabrook Power Contracts and the Clean Air Act Amendment. The cost components of the FPPAC are subject to a prudence review by the New Hampshire Public Utilities Commission (NHPUC). At December 31, 1998, recoverable energy costs include $156.3 million of noncurrent recoverable energy costs deferred under the FPPAC. Under the Rate Agreement, charges made by NAEC through the Seabrook Power Contracts, including the deferred Seabrook capital expenses, are to be deferred by PSNH and subsequently billed and collected by PSNH through the FPPAC. PSNH began'to defer the amount of these costs on December 1, 1997 and continued to do so for the period December 1, 1997 through May 31, 1998. Beginning on June 1, 1998, these costs began to be recovered over a 36-month period. At December 31, 1998, PSNH has deferred approximately $40.0 million of these costs, which balance is recorded in PSNH's deferred costs, nuclear plants. See Note 10A, " Commitments and Contingencies - Restructuring" for the possible impacts on PSNH of the NHPUC's decision related to industry restructuring. 13
Public Servico Comptny of N:w Hamp;hiro NOTES TO FINANCIAL STATEMENTS K. Unrecovered Contractual Obligations Under the terms of contracts with MYAPC, CYAPC, and YAEC, the* shareholder-sponsor companies, including CL&P, PSNH and WMECO, are responsible for their proportionate share of the remaining costs of the units, including decommissioning. As management expects . that the NU system companies will be allowed to recover these costs from their customers, the NU system companies have recorded regulatory assets, with corresponding obligations on their respective balance sheets. For further information, see Note 4,
" Nuclear Decommissioning and Plant Closure Costs."
L. Deferred Costs - Nuclear Plants Under the Rate Agreement, the plant costs of Seabrook were phased into rates over a seven-year period beginning May 15, 1991. These deferred costs are being billed to PSNH by NAEC through the Seabrook Power Contracts beginning December 1, 1997, and will be fully recovered from PSNH's customers by May 2001. M. Cash and Cash Equivalents cash and cash equivalents includes cash on hand and short-term cash investments which are highly liquid in nature and have original maturities of three months or less.
- 2. SEABROOK POWER CONTRACTS PSNH and NAEC have entered into two power contracts that obligate PSNH to purchase NAEC's 35.98 percent ownership of the capacity and output of Seabrook for the term of Seabrook's Nuclear Regulatory Commission (NRC) operating license. Under these power contracts, PSNH is obligated to pay NAEC's cost of service during this period, regardless of whether Seabrook 1 is operating. NAEC's cost of service includes all of its Seabrook-related costs, including operation and maintenance (O&M) expenses, fuel expense, income and property tax expense, depreciation expense, certain overhead and other costs and a return on its allowed investment.
PSNH has included its right to buy power from NAEC on its Balance Sheets as part of utility plant and regulatory assets with a corresponding obligation. At December 31, 1998, this right was valued at approximately $838.1 million. . The contracts established the value of the initial investment in Seabrook (initial investment) at $700 million. As prescribed by tha . Rate Agreement, as of May 1, 1996, NAEC phased into rates 100 percent of its investment in Seabrook 1. This plan is in compliance with SFAS 92, " Regulated Enterprises-Accounting for Phase-in Plans. " From the Acquisition Date through November 1997, NAEC recorded
$203.9 millica of deferred return on its investment in Seabrook 1.
At November 30, 1997, NAEC's utility plant included $84,1 million of deferred return that was transferred as part of the Seabrook plant assets to NAEC on the Acquisition Date. Beginning on December 1, 14
hl$m% wq HIE k Qhjshh. eqwm kk y NW & f[>k 4 : h l y '
; '"% ff ;
^
ab : 9l M.a %?rt e. k 1 4M Qp; ipg$y2 Qp%dphp6 gpg g;gg ^4'yrp7;g1K79 ) { w ' ys $= Ag 4, y p %qu 7. gg - . ..- f - ., # w .
, s , r' ? .;xecutory costs, such as s c, 1 tig gg '$ y/d%; ,A , ,@
M 'e - and maintenance, under
- hh M Mfhg acember 31, 1998, are:
g,
~
g h h N$ko , ,h/ M .ses Operatina Leases
, [{ b/gpkhsk ' . Thousands of Dollars)
L? #' 4 ls
' Wgi%g/[ f $ 5,800 k '
4
}^1qp 4 i4;- jf y .,400_
hy
- cp g_ .
' 74,gr 14' 1,200 1,200 5,100 4,600 N k, '
Mr M 400 2,500 MW 1 y' 4 Mh 400 5 1,300 3- $-(d, i p :W ..... '6,100 $22,300 & ,e-if
- esenting q .......... 2.000
..ue of future lease _ payments .$4.?00 9 >R DECOMMISSIONING AND PLANT CLOSURE COSTS
. J a tone 3 and Seabrook 1: Millstone 3 and Seabrook 1 have
(" 2rvice lives that are ' expected to end during the years 2025 and 2026, respectively. Upon retirement, these units must be decommissioned. Current decommissioning studies conclude that complete and immediate dismantlement at retirement continues to be the most viable and economic method of decommissioning Millstone 3 1 and, Seabrook 1. Decommissioning studies are reviewed and updated periodically to reflect changes in decommissioning requirements, costs, technology ~and inflation. The estimated cost of decommissioning PSNH's 2.85 percent ownership share of Millstone 3 and NAEC's 35.98 percent share of Seabrook 1 l in year-end 1998 dollars is $15.9 million and $175.9 million, respectively. Millstone 3 and Seabrook 1 decommissioning costs will be increased annually by their respective escalation rates. PSNH's l Millstone 3 decommissioning costs are accrued over the expected service life of the unit and are included in depreciation expense on f its Statements of Income. Nuclear decommissioning costs related to PSNH's share of Millstone 3 amounted to $0.4 million in 1998, 1997 and 1996. Nuclear decommissioning, as a cost of removal, is included in the accumulated provision for depreciation on PSNH's Balance Sheets. At December 31, 1998 and 1997, the balance in the accumulated reserve for depreciation amounted to 03.0 million and l S2.6 million, respectively. 1 PSNH makes payments to an independent decommissioning trust for its portion of the costs of decommissioning Millstone 3. NAEC's portion of the cost of decommissioning Seabrook 1 ia paid to an independent 17 i L_ ______
I ) Public Service Company of New Hampshire NOTES TO FINANCIAL STATEMENTS l managed by the state of New decommissioning financing fund - Hampshire. Funding of the estimated decommissioning costs assumes levelized collections for Millstone and after-tax earnings 3onand theescalated Millstone collections and Seabrook for Seabrook 1, decommissioning funds of approximately 5.5 percent and 6.5 percent, PSNH is respectively. Under the terms of the Rate Agreement, obligated to pay NAEC's share of Seabrook's decommissioning costs, is shut down prior to the expiration of its operating license. Accordingly, NAEC bills PSNH directly for its even if the unit
- 1. PSNH records its share of the costs of decommissioning Seabrook Seabrook decommissioning costs as a component of purchased power Under the Rate Agreement, expense on its Statements of Income.
PSNH's Seabrook decommissioning costs are recovered through base rates. As of December 31, 1998, PSNH collected through rates approximately
$3.0 million toward the future decommissioning costs of its share of Millstone 3, which has been transferred to the external December 31, 1998, NAEC has paid decommissioning trust. As of approximately $25.6 million (includingSeabrook payments l's made prior to the decommissioning Acquisition Date by PSNH), into financing fund. Earnings on the decommissioning trust and financing fund increase the decommissioning balance and the accumulated trust gains reserve for depreciation. Unrealized and lossos associated with the decommissioning trust and financing fund also impact the balance of the trust, and the accumulated reserve for depreciation.
The fair value of che amounts in the external decommissioning trust and financing fund was $5.6 million and $35.2 million, respectively, as of December 31, 1998. l Changes in requirements or technology, the timing of funding or dismantling, or adoption of a decommissioning method other than l immediate dismantlement would change decommissioning cost estimates and the amounts required to be recovered. PSNH attempts to recover sufficient amounts through its allowed rates to cover its expected decommissioning costs. Only the portion of currently estimated total decommissioning costs that has been accepted Based by regulatory on present estimates agencies is reflected in rates of PSNH. operate to the end of their and assuming its nuclear units respective licensing periods, PSNH expects that the decommissioning trust and financing fund will be substantially funded when the units . are retired from service. Yankee Companies: VYNPC owns and operates a nuclear generating unit is expected to end in 2012. PSNH's with a service life that ownership share of estimated costs, and in year-end 1998 dollars, of decommissioning the unit owned operated by VYNPC is approximately $21.2 million. At December 31, 1998, the remaining estimated obligation, including generating l decommissioning, for the Yankee company nuclear 1 facilities which have been shut down were- 1 18
Public Service Company of New Hampshire NOTES TO FINANCIAL STATEMENTS Total PSNH's (Thousands of Dollars) Obligatton Share
$715,065 $ 35,753 Maine Yankee................... 24,928 Connecticut Yankee............. 498,557 81,699 5,719 Yankee Atomic..................
For further information on the Yankee companies, see Note 108,
" Commitments and Contingencies - Rate Matters."
For information on proposed changes to the accounting for decommissioning, see the MD&A.
- 5. SHORT-TERM DEBT The amount of short-term borrowings that may be incurred by PSNH is subject to periodic approval by either the SEC under the 1935 Act or by the NHPUC. Effective April 1998, PSNH was authorized under a to incur short-term borrowings up to a waiver from the NHPUC, maximum of $75 million.
PSNH has access to a $75 million revolving credit agreement entered into in April 1998 with a group of 16 banks. The borrowing level under this agreement was reduced from the previous $125 million level. The agreement will expire in April 1999. Under the terms of PSNH is obligated to pay a facility fee of .50 this agreement, percent per annum on the commitment. PSNH's borrowings under the $75 are secured, per dollar of borrowing, by $75 million agreement million of first mortgage bonds and substantially all of PSNH's accounts receivable. There were no borrowings under this facility at December 31, 1998. On March 20, 1998, in connection with the $75 million PSNH credit l agreement, the NHPUC issued an order requiring PSNH to obtain NHPUC approval before paying any dividends on its common stock and before investing any PSNH funds in the NU system Money Pool during the PSNH has not sought such expected 364-day term of the facilities. authorization. Under the credit agreement discussed above, PSNH may borrow funds on a short-term revolving basis under its agreement, using either fixed-rate loans or standby loans. Fixed rates are set using competitive bidding. Standby loans are based upon several alternative variable rates. Money Pool: Certain subsidiaries of NU, including PSNH, are members of the Northeast Utilities System Money Pool (Pool). The Pool provides a more efficient use of the cash resources borrowings. of theNUSCO NU system, and reduces outside short-term administers the Pool as agent for the member companies. Short-term borrowing needs of the member companies are first met with available 19
Public Scrvico Company cf New Hamp:hiro NOTES TO FINANCIAL STA1msaEsEB 1997, the deferred return, including the portion transferred to
- NAEC, is currently being billed through the Seabrook Power Contracts to PSNH and will be fully recovered from customers by May 2001. NAEC depreciated its initial investment over the term of Seabrook l's
- operating license (39 years) , and any subsequent plant additions are depreciated on a straight-line basis over the remaining term of the power contracts at the time the subsequent additions are placed in service.
If Seabrook 1 is shut down prior to the expiration of the NRC operating license, PSNH will be unconditionally required to pay NAEC termination costs for 39 years, less the period during which Seabrook 1 has operated. These termination costs will reimburse NAEC for its share of Seabrook 1 shut-down and decommissioning costs, and will pay NAEC a return of and on any undepreciated balance c,f its initial investment over the remaining term of the power contracts, and the return of and on any capital additions to the plant made after the Acquisition Date over a period of five years after shut down (net of any tax benefits to NAEC attributable to the cancellation). Contract payments charged to operating expenses are approximately: Year Contract Payments (Thousands of Dollars) 1998....................... $272,000 1997....................... 188,000 1996....................... 159,000 Interest included in the contract payment was $54 million in 1998,
$57 million in 1997, and $55 million in 1996.
f 15
Public Sorvico' Company,of New Hampshiro.4 - NOTES TO FINANCIAL STATLN WTS T' ' j-
. Future minimum payments, excluding executory costs, such as property taxes, state use taxes, insurance 'and maintenance, . under the terms -
of the~ contracts, as of December 31', 1998,-are approximately: Seabrook Power' Contracts Year (Thousands of Dollars) 1999........................ $ 195,000 2000........................ 193,000 2001........................ 117/000 2002........................ 78,100 2003........................ 76,000 After 2003 .................. 1.095.000 Future minimum payments..... 1.,754,000 Less amount representing interest.................. 916.000 Present value of Seabrook Power Contracts payments ....... $ 838,100 See Note 10A, " Commitments and Contingencies - Restructuring" for the possible impacts the NHPUC's restructuring decision may have on the Seabrook Power contracts.
- 3. LEASES PSNH has entered into lease agreements, some of which are capital leases, for the use of data processing and office equipment, vehicles and office space. The provisions of these lease agreements generally provide for renewal options. The following rental payments have been charged to expense:
Year Caoital Leases Operatina Leases 1998............... $1,584,000 $5,392,000 1997............... 1,579,000 5,657,000 1996............... 1,105,000 4,884,000 Interest included in capital lease rental payments was $193,000 in 1998, $272,000 in 1997 and $292,000 in 1996. .' 16
Public Servico Company of New Hampchiro NOTES TO FINANCIAL STATEMENTS Future minimum rental payments, excluding executory costs, such as property taxes, state use taxes, insurance and maintenance, under long-term noncancellable leases, as of December 31, 1998, are: Caoital Leases Operatina Leases
. Year (Thousands of Dollars)
$1,400 $.5,800 1999 ..................
5,100 2000 .................. 1,200 1,200 4,600 2001 .................. 2,500 2002 .................. 400 400 1,300 2003 .................. 3,000 1,500 After 2003.............. Future minimum lease 6,100 S22,300 payments.............. Less amount representing interest............... 2.000 Present value of future $4,100 minimum lease payments
- 4. NUCLEAR DECOMMISSIONING AND PLANT CLOSURE COSTS Millstone 3 and Seabrook 1: ML11 stone 3 and Seabrook 1 have service lives that are expected to end during the years 2025 must and be respectively. Upon retirement, these units 2026, decommissioned. Current decommissioning studies conclude that complete and immediate dismantlement at retirement continues to be the most viable and economic method of decommissioning Millstone 3 and Seabrook 1. Decommissioning studies are reviewed and updated periodically to reflect changes in decommissioning requirements, costs, technology and inflation.
The estimated cost of decommissioning PSNH's 2.85 percent ownership share of Millstone 3 and NAEC 's 3 5. 98 percent share of Seabrook million, 1, in year-end 1998 dollars is $15.9 million and $175.9 respectively. Millstone 3 and Seabrook 1 decommissioning costs will be increased annually by their respective escalation rates. expected PSNH's Millstone 3 decommissioning costs are accrued over the service life of the unit and are included in depreciation expense on e its Statements of Income. Nuclear decommissioning costs related to
- PSNH's share of Millstone 3 amounted to $0.4 million in removal, 1998, 1997 is and 1996. Nuclear decommissioning, as a cost of included in the accumulated provision for depreciation on PSNH's Balance Sheets. At December 31, 1998 and 1997, the balance in the accumulated reserve for depreciation amounted to $3.0 million and
$2.6 million, respectively.
PSNH makes payments to an independent decommissioning trust for its NAEC's portion portion of the costs of decommissioning Millstone 3. of-the cost of decommissioning Seabrook 1 is paid to an independent 17-u
Public.Scrvico Company of New Hampchiro NOTES TO FINANCIAL STATN WTS decommissioning financing' fund ~ managed by 'the state of New
-Hampshire. Funding of the estimated decommissioning . costs assumes. -
levelized collections for Millstone 3 and escalated collections for Seabrook 1, and after-tax earnings on the Millstone and Seabrook decommissioning funds of approximately 5.5 percent.and 6.5 percent,- : respectively.' Under the terms of the Rate Agreement,- PSNH is. cbligated to pay NAEC's share of Seabrook's decommissioning costs, even if the unit is shut down prior to the expiration of its operating license. Accordingly, NAEC bills PSNH directly for its share of the costs of decommissioning Seabrook 1. PSNH records its Seabrook decommissioning costs as a component of purchased power expense on its Statements of Income. Under ' the Rate Agreement, PSNH's Seabrook decommissioning costs are recovered through base rates. As of December 31, 1998, PSNH collected through rates approximately
'$3.0 million toward the future decommissioning costs of its share of Millstone 3, which has been transferred. to the external decommissioning trust. As of December 31, 1998, NAEC has paid approximately $25.6 million (including payments made prior to the Acquisition Date by PSNH), into Seabrook l's decommissioning financing fund. Earnings on the decommissioning trust and financing fund increase the decommissioning trust balance and the accumulated-reserve for depreciation. Unrealized gains and losses associated 1 with the decommissioning trust and financing fund also impact the balance of the trust, and the accumulated reserve for depreciation. 1 The fair value of the amounts in the external decommissioning trust and financing fund was $5.6 million and $35.2 million, respectively, q as of December 31, 1998.
Changes in requirements or technology, the timing of funding or I dismantling, or adoption of a decommissioning method other than immediate dismantlement would change decommissioning cost estimates and the amounts required to be recovered. PSNH attempts to recover sufficient amounts through its allowed rates to cover its expected decommissioning costs. Only the portion of currently estimated total decommissioning costs that has been accepted by regulatory agencies is reflected in rates of PSNH. Based on present estimates and assuming its nuclear units operate to the end of their respective licensing periods, PSNH expects that the decommissioning trust and financing fund will be substantially funded when the units are retired from service. ,- ; Yankee Companies: VYNPC owns and operates a nuclear generating unit I with a service life that is expected to end in 2012. PSNH's,' ownership share of estimated costs, in year-end 1998 dollars, of decommissioning the unit owned and operated by VYNPC is approximately $21.2 million. At December 31, 1998, the remaining estimated obligation, including decommissioning, for the Yankee company nuclear generating facilities which have been shut down were: 18
Public Sorvice CompOny of N w.Hampchiro NOTES TO FINANCIAL STATEMENTS Total -PSNH's (Thousands of Dollars) Obligation Share-Maine Yankee................... .$715,065 $ 35,753- 'l
; 24,928 !
Connecticut Yankee............. '498,557' 81,699 5,719 'l Yankee Atomic.................. For further information on the Yankee ' companies, see Note 108,
" Commitments and Contingencies - Rate Matters'." l For information on proposed changes to the accounting for decommissioning, see the MD&A.
- 5. SHORT-TERM DEBT i The amount of short-term borrowings that may be incurred by PSNH is -l i
subject to periodic approval by either the SEC under the 1935 Act or by the NHPUC. Effective April 1998, PSNH was authorized under a waiver from the NHPUC, to incur short-term borrowings up to a maximum of $75 million. , PSNH has access to a $75 million revolving credit agreement entered into in April 1998 with a group of 16 banks. The borrowing level ) under this agreement was reduced from the previous $125_ million level. The agreement will expire in April 1999. _Under the terms .50 of . 3 this agreement, PSMH is obligated to pay a facility fee of percent per annum on the commitment. PSNH's borrowings under the $75 million agreement are secured, per dollar of borrowing, by $75 million of first mortgage bonds and substantially all of PSNH's accounts receivable. There were no borrowings under this facility at December 31, 1998, t On March 20, 1998, in connection with the $75 million PSNH credit agreement, the NHPUC issued an order requiring PSNH to obtain NHPUC approval before paying any dividends on its common stock and before investing any PSNH funds in the NU systemPSNH Money Pool during the has not sought such expected 364-day term of the facilities. . j authorization, Under the credit agreement discussed above, PSNH may borrow funds on a short-term revolving basis under its agreement, using either fixed-rate loans or standby loans. Pixed rates are set using competitive bidding. Standby loans are based upon several alternative variable rates. Money Pool: Certain subsidiaries of NU, including PSNH, are members of the Northeast Utilities System Money Pool (Pool). The Pool provides a more efficient use of the . cash resources borrowings. of - theNUSCO NU system, and reduces outside short-term administers ' the Pool _ as agent for the member companies. Short-term borrowing needs of the member companies are first met with available 19
i ~ Public Scrvico Company of New Hamp hiro NOTES TO FINANCIAL STATEMENTS funds of other member companies, including funds borrowed by NU parent. NU parent may lend to the Pool but may not borrow. Funds _ - may be withdrawn from or repaid to the Pool at any time without prior notice. Investing and borrowing subsidiaries receiveHowever, or pay interest based on the average daily Federal Funds rate. ; borrowings based on loans from NU parent bear interest at NU parent's cost and must be repaid based upon the terms of NU parent's 1998 and 1997, -PSNH had - no original borrowing. At December 31, outstanding borrowings from the Pool. Due to the conditions placed on PSNH by lenders and the NHPUC during April 1998 refinancings, PSNH is presently restricted from lending money to the NU System Money Pool. Maturities of PSNH's short-term debt obligations are for periods of three months or less.
- 6. PENSION BENEFITS AND POSTRETIREMENT BENEFITS OTHER THAN PENSIONS The NU system's subsidiaries participate in a uniform noncontributory defined benefit retirement plan covering all regular NU system employees. Benefits are based on years of service and employees' highest eligible compensation during 60 consecutive '
months of employment. PSNH's direct portion of the NU system's pension (credit) / cost , part of which was charged to utility plant, approximated $ (0.06) million in 1998, $1.3 million in 1997 and $6.2 million in 1996. l Currently, PSNH annually funds an amount at least equal to that which will satisfy the requirements of the Employee Retirement Income Security Act and the Internal Revenue Code. Pension costs are determined using market-related values of pension assets. PSNH also provides certain health care benefits, primarily medical and dental, and life insurance benefits through a benefit plan to retired employees. These benefits are available for employees retiring from PSNH who have met specified service requirements. For current employees and certain retirees, the total benefit is limited to two times the 1993 per-retiree health care cost. These costs are charged to expense over the future estimated work life of the employee. PSNH is funding postretirement costs through external trusts. PSNH is funding, on an annual basis, amounts that have been rate-recovered and which also are tax deductible under the Internal Revenue Code. ,- Pension and trust assets are invested primarily in domestic and international equity securities and bonds. . The following table represents the plans' beginning benefit obligation balance reconciled to the ending benefit obligation balance, beginning fair value of plan assets balance reconciled to the ending fair value of plan assets balance and the respective funds' funded status reconciled to the Balance Sheets: 20
Public.Servico Company ~cf Nrw Hamp0hiro NOTES TO FINANCIAL STATEMENTS The components of. net cost are: At December 31, Postretirement I Pension Benefits Benefits 1998 1997 1998 1997 1 Thousands of Dollars) Change in benefit obligation Benefit obligation at beginning of year........ ...... $ (187,968) $(179,192) $(46,609) $ (47,963 ) Service cost..... . .... ...... (4,275) (4,021) (858) (802) (13,192) (13,398) (3,439) .(3,352) Interest Cost............. .......
.............. ..... (729) 1,049 - -
Transfers... (5,128) (4,434) (2,807) 1,782 Actuarial (loss)/ gain............. 10,249 10,995 3,644 3,726 Benefits paid..................... Special termination benefits......
- 1,033 - -
Benefit obligation at end of year. ................ .. $(201,043) $(187,968) $(50,069) $ (46,609) Change in plan assets Fair value of plan assets at
$195,612 $ 173,035 $ 22,908 $ 17,882 beginning of year., .... . ....
27,088 34,621 3,211 3,697 ; Actual return on plan assets. . . '
- - 4,847 5,055 Employer contribution. ... .. ...
(10,249) (10,995) (3,644) (3,726) Benefits paid.. . . ......... ... Transfers..... .. . .......... .. 729 (1,049) - - Fair value of plan assets
$213,180 $195,612 $ 27,322 $ 22,908 at end of year. ...... . .. ...
Funded status at December 31..................... $ 12,137 $ 7,644 $ (22,747) $(23,701) Unrecognized transition 3,670- 4,003 41,167 44,108 amount.. ....... .............. Unrecognized prior service cost .. .. .. ..... ...... . 7,058 7,597 - - (68,869) (65,305) (18,420) (20,407) Unrecognized net gain. . .... . Accrued benefit cost ... .... . .. $ (46,004) $ (4 G ,061) $ - 21
Public Service Comp:ny of New Hampchiro-HQTK_S TO FINANCIAL STATEMENTS The following actuarial assumptions were used in calculating the plan's - year-end funded status: At December 31, Pension Postretirement Benefits Benefits 1998 1997 1998 1997 7.00% 7.25% 7.00% 7.25% Discount rate................ Compensation / progression rate........... 4.25% 4.25% 4.25% 4.25%- Health care cost 5.76% trend rate (a)............. N/A N/A 5.22% (a) The annual growth in per capita cost of covered health care benefits was assumed to decrease to 4.40 percent by 2001. The components of net periodic benefit cost are: For the Years Ended December 31, Pension Benefits Postretirement Benefits 1998 1997 1996 1998 1997 1996 (Thousands of Dollars)
$ 4,275 $ 4,021 $ 4,245 $ 858 $ 802 $ 914 Service cost., . .. ...
13,192 13,398 12,808 3,439 3,352 3,559 Interest cost.. .. .. ..... Expected return on plan (15,626) (13,873) (12,344) (1,767) (1,385) (821) assets. .. . . . . Amortization of unrecognized transition 334 334 334 2,941 2,941 2,941 obligation.. . .. . j Amortization of prior service cost .... .. . .. 539 539 539 - - - Amortization of actuarial gain . .. .... ...... (2,771) (2,115) (1,315) - - - Other amortization, net.... . (624) (827) (352) Curta11 ment .. .. .. ... (1,033) 1,917 - -
$ (57) $ 1,271 $ 6,184 $ 4,847 $ 4,883 $ 6,241 Net periodic (credit)/ cost l
1 22 I
Public Sorvice Compnny of New Hamp:'hiro-NOTES TO FINANCIAL STATEMENTS For calculating pension and postretirement benefit costs,Tthe following assumptions were used: For the Years Ended December 31, Postretirement Pension Benefits Benefits 1998 1997 1996 1998 1997 1996 Discount rate........... 7.25% 7.75% 7.50% 7.25% 7.75% 7.50%. Expected long-term rate of return.......... 9.50% 9.25% 8.75% N/A N/A N/A Compensation / progression rate....... 4.25% 4.75% 4.75% 4.25% 4.75% 4.75% Long-term rate of return-Health assets net of tax............. N/A N/A N/A 7.75% 7.50% 5.25% Life assets............. N/A N/A N/A 9.50% 9.25% 8.75% Assumed health care cost trend rates have a significant effect on the amounts reported for the health care plans. The effect of changing the assumed health care cost trend rate by one percentage point in each year would have the following effects: ; One Percentage One Percentage (Thousands of Dollars) Point Increase Point Decrease Effect on total service
~
l and interest cost l components of net periodic retirement health care benefit costs................. $ 236 $ (224) Effect on accumulated post-retirement benefit obligation.................... 3,178 (2,952) The' trust holding the health plan assets is subject to federal income taxes at a 39.6 percent tax rate. e 6 23
Public Sorvico Company of New Hamipchiro HQ7ES TO FINANCIAL STATEMENTS
- 7. PREFERRED STOCK SUBJECT TO MANDATORY REDEMPTION .
Details of preferred stock subject to mandatory redemption are: Shares Outstanding December 31. Description December 31, 1998 1998 1997 1996 (Thousands of Dollars) 10.60% Series A of 1991..... 3,000,000 $ 75,000 $100,000 $125,000 , Less preferred stock to be redeemed within one year.... 1,000,000 25.000 25.00_q 25.000
$ 50,000 $ 75,000 $100,000 !
Total................ In case of default on dividends or sinking-fund payments, no payments may be made on any junior stock by way of dividends or otherwise (other than in shares of junior stock) so long as the default continues. If PSNH is in arrears in the payment of dividends on any outstanding shares of preferred stock, PSNH would be prohibited from redemption or purchase of less than all of the preferred stock outstanding. The Series A Preferred Stock is not subject to optional redemption by PSNH. It is subject to an annual sinking fund requirement of $25 million, which began on June 30, 1997, sufficient to retire annually 1,000,000 shares at $25 per share. s 4 24
Public Sorvico Company of New Hamp:hiro NOTES TO FINANCIAL STATEMENTS
- 8. LONG-TERM DEBT Details of long-term debt outstanding are:
At December 31, 2 1998 1997 (Thousands of Dollars) First Mortgage Bonds: 9.17% Series B, due 1998 ............. $ - $170,000 Pollution Control Revenue Bonds: 7.65% Tax-Exempt Series A, due 2021 .... 66,000 66,000 7.50% Tax-Exempt Series B, due 2021 .... 108,985 108,985 7.65% Tax-Exempt Series C, due 2021 .... 112,500 112,500 Adjustable Rate, Taxable, Series D, due 2021.............................. 39,500 39,500 Adjustable Rate, Taxable, Series E, due 2021.............................. 69,700 69,700 6% Tax-Exempt, Series D, due 2021....... 75,000 75,000
~
6% Tax-Exempt, Series E due 2021 (a).... 44,800 44,800 Less: Amounts due within one year...... - 170.000 Long-term debt, net............ $516,485 $516,485 (a) On April 23, 1998, PSNH amended and extended letters of credit and reimbursement agreements that provide credit support for
$39.5 million principal amount of taxable Pollution Control Refunding Revenue Bonds (PCRB), 1991 Series D, due May 1, 2021, and $69.7 million principal amount of taxable PCRB, 1991 Series E, due 2021.
The Series D and E taxable PCRB's are special limited obligations of the Business Finance Authority of the State of New Hampshire (BFA) and are payable solely by PSNH under the applicable loan and trust agreements. PSNH's obligations to make payments under the loan and trust agreements, letters of credit and reimbursement agreements are secured by approximately $110 million of first mortgage aonds and substantially all of PSNH's accounts receivable. On May 1, 1998, the $75 million principal amount of tax exempt PCRB, 1992 Series D, due May 1, 2021, and $44.8 million
. principal amount of tax-exempt PCRB, 1993 Series E, due May 1, 2021, which were previously issued by the BFA on PSNH's' behalf as variable rate bonds, were converted to fixed rate bonds bearing interest at 6 percent per annum. These bonds are special limited _ obligations of the BFA and are payable solely by PSNH under the applicable loan and trust agreement.
There are neither cash sinking-fund requirements nor debt maturities existing for..the years 1999 through 2003. There are annual renewal and replacement fund requirements equal to 2.25 percent of ' the average of net depreciable utility property owned by - PSNH at the reorganication date, plus cumulative gross property- additions 25.
)
Public Sorvico Comp ny of New Hamp:hiro j NOTES TO FINANCIAL STATEMENTS thereafter. PSNH expects to meet these future fund requirements by certifying property additions. Any deficiency would need to be - l satisfied by the deposit of cash or bonds. PSNH's $75 million Revolving Credit Facility has a lien, on all PSNH : property located in New Hampshire which will expire in April 1999. At December 31, 1998, there were no borrowings under the Revolving Credit Facility. Concurrent with the issuance of PSNH's Series A and B First Mortgage Bonds, PSNH entered into financing arrangements with the BFA. Pursuant to these arrangements, the BFA issued seven series of Pollution Control Revenue Bonds (PCRBs) and loaned the proceeds to PSNH. The average effective interest rates on the variable-rate pollution control notes ranged from 3.1 percent - to 5.6 percent in 1998 and from 3.8 percent to 5.6 percent in 1997. PSNH's obligation to repay each series of PCRBs is secured by a series of first mortgage bonds that were issued under its indenture. Each such series of first mortgage bonds contains terms and provisions with respect to maturity, principal payment, interest rate, and redemption that correspond to those of the applicable series of PCRBs. For financial reporting purposes, these bonds would not be considered outstanding unless PSNH fails to meet its obligations under the PCRBs. The PCRBs, except for taxable Series D and E and tax-exempt Series D and E, are redeemable on or after May 1, 2001 and May 1, 2008, respectively, at the option of the company with accrued interest and at specified premiums. Under current interest rate elections by PSNH, the Series D and E PCRBs are redeemable at par plus accrued interest at the end of each interest-rate period. Future interest-rate elections by PSNH could significantly defer or eliminate the availability of optional redemptions by PSNH and could affect costs as well. 4 26 j
Public SOrvico Company of New Hamp hiro NOTES TO FIMMCIAL STATunTS
- 9. INCOME TAX EXPENSE The components of the federal and state income tax provisions ;
charged to operations are: 1 For the Years Ended December 31, 1998 1997 1996 (Thousands of Dollars) , Current income taxes: Federal............................. $ (6,573) $67,148 $ (4,978) i State................................ 759 48 (1.605) Total current..................... (5,814) 67.196 (6,583) Deferred income taxes, net: Federal.... ........................ 78,022 20,983 95,225 9 tate............................... 855 1,202 306 Total deferred ................... 78,877 22,185 95,531 Investment tax credits, net........... (511) (540) (548) Total income tax expense.............. $72,552 $88,841 $88,400 The components of total income tax expense are classified as follows: Income taxes charged to operating expenses............................. $65,079 $36,450 $80,677 2,391 7,723 Other income taxes.................... 7,473 Total income tax expense.............. $72,552 $88,841 $88,400 Deferred income taxes are comprised of the tax effects of temporary differences as follows: For the Years Ended December 31, 1998 1997 1996 (Thousands of Dollars) Depreciation.......................... $ (4,317) $ (1,93 7) $(1,055) Deferred tax asset associated with NOL............................ 69,212 - 96,756 Energy adjustment clauses............. (765) 16,839 (10,716) Proceeds from the sale of NOX Credits. (7,813) - - Nuclear plant deferrals............... 11,836 - - Amortization of regulatory settlement.......................... 11,501 11,501 11,501 Other................................. (777) (4.218) (955) Deferred income taxes, net............ $78,877 $22,185 $95,531 27
Public Service Comp:ny of Ncw Hampshire NOTES TO FINANCIAL STATEnNTS A reconciliation .between income tax expense and the expected tax - expense at the applicable statutory rate is as follows: For the' Years Ended December 31. 1998 1997 1996 (Thousands of Dollars) ? Expected federal income tax at $64,931 35 percent of pretax income......... $57,484 $63,355 Tax effect of differences: Depreciation........................ (38) 1,890' 1,841 Amortization of acquisition costs... 17,301 31,298 31',410 Seabrook intercompany gains . 630 (3,898) (7,504) and losses......................... (1,974) (2,034) (2,182) Adjustment for prior years' taxes... Investment tax credit amortization.. (511) (540) (548)- State income taxes, net of federal-benefit.................. 306 1,085 (845) (646) (2,315) 1,297 Other, net. ........................
$72,552 $88,841 $88,400 Total income tax expense..............
- 10. COMMITMENTS AND CONTINGENCIES A. Restructuring New Hampshire: In 1996, New Hampshire enacted legislation requiring a competitive electric industry beginning in 1998. In February 1997, the NHPUC issued its restructuring order, which would have forced PSNH and NAEC to write off all of their regulatory assets, and possibly to seek protection under Chapter 11 of the bankruptcy laws. The amount of potential write-off which would have been triggered by the order is currently estimated to be in excess of approximately S400 million, after taxes.
Following the issuance of these orders, PSNH immediately sought declaratory and injunctive relief on various grounds in federal district court and has received a preliminary injunction that freezes implementation of the NHPUC's restructuring orders. Restructuring -in New Hampshire has resulted in numerous subsequent proceedings within the federal and state legal systems. As the court proceedings are ongoing, PSNH continues to be involved in settlement discussions with representatives-from the state of New Hampshire. PSNH hopes to reach a settlement, which . would include, among other things, recovery of regulatory assets and stranded costs, rate reductions, an auction of PSNH's generating units and securitization of PSNH's stranded costs. If a settlement is not reached, a trial is expected to begin mid to late 1999. As a result of the February 1997 NHPUC. decision and the potential consequences discussed above, the reports of our auditors on the 28
-\
j
Public Scrvico Comptny of Nnw Hcmpchiro NOTES TO FINANCIAL STATEMENTS individual financial statements of PSNH and NAEC contain . explanatory paragraphs. Those explanatory paragraphs indicate that a substantial doubt exists currently about the ability of PSNH and NAEC to continue as going concerns. Management believes that PSNH is entitled to full recovery of its prudently incurred costs, including regulatory assets and other stranded costs. It bases this belief both on the general nature of public utility industry cost-of-service based regulation and the specific circumstances of the resolution of PSNH's previous
' bankruptcy proceedings and its acquisition by NU, including the recoveties provided by the Rate Agreement and related agreements.
B. Rate Matters PSNH's Rate Agreement between NU, PSNH and the state of New Hampshire provided for seven base-rate increases of 5.5 percent per year beginning in 1990 and for the FPPAC. The final base-The Rate rate increase went into effect on June 1, 1996. Agreement contemplates that PSNH's rates are. subject to traditional rate regulation after the fixed-rate period, which expired on May 31, 1997. The FPPAC, however, would continue through May 31, 2001, and other Rate Agreement requirements would continue in accordance with the terms of the agreement. A PSNH base-rate case was filed in May 1997, but was delayed in connection with the restructuring proceedings discussed above. In November 1997, che NHPUC ordered a temporary base rate reduction for PSNH of 6.87 percent effective December 1, 1997. The NHPUC also set an interim return on equity of 11 percent. In December 1998, the base-rate case was reopened and an updated rate case was filed. A final decision, which will be reconciled to July 1, 1997, is currently scheduled to be issued by June 1, 1999. Concurrently with the 6.87 percent rate reduction beginning of in December 1997, the NHPUC allowed an FPPAC increase approximately 6 percent. This rate increase was effective for the period from December 1, 1997, through May 31, 1998. On May 29, 1998, the NHPUC approved slightly more than a one percent I increase in PSNH's FPPAC rate for the period June through November 1998. On December 1, 1998, the NHPUC allowed the current FPPAC rate to remain in place through May 31, 1999. As a result of this decision, unrecovered energy costs are projected to increase by approximately $17.4 million from January 1, 1999
. through May 31, 1999, to an estimated balance of approximately
$79.7 million. PSNH's ongoing restructuring settlement negotiations with the state of New Hampshire could resolve both the base-rate case and the FPPAC proceedings discussed above.
FERC: During November 1997, MYAPC filed an amendment to its power contracts clarifying the obligations of its purchasing utilities following the decision to cease power production. 29
Public Service Company.of New Hampchiro EOTES TO FINANCIAL STATEMENTS During January 1998, the FERC accepted the amendments and proposed rates, subject to a refund. On January 18, 1999, MYAPC filed with the FERC Administrative Law Judge (ALJ) an Offer of Settlement which, if accepted by the FERC, will resolve all the , issues in the FERC decommissioning rate case proceeding. The - settlement provides, among other things, the following: (1) MYAPC will collect $33.6 million annually to pay- for , decommissioning and spent fuel; (2) its return on equity will be set at 6.5 percent; (3) MYAPC is permitted fuel, full recovery of all an unamortized investment in MY, including and (4) incentive budget for decommissioning is set at $436.3 million. During late December 1996, CYAPC filed an amendment to its power contracts clarifying the obligations of its purchasing utilities On following the decision to cease power production. February 27, 1997, the FERC accepted CYAPC's contract amendment. The new rates became effective March 1, 1997, subject to a refund. On August 31, 1998, the FERC ALJ released an ini tial decision regarding the December 1996 filing. The decision contained provisions which would allow for the recovery, through rates, of the balance of PSNH's net unamortized investment in CYAPC, which was approximately $5.5 million as of December 31, 1998. The decision also called for the disallowance of the recovery of a portion of the return on the CY investment. The ALJ's decision also stated that decommissioning collections should continue to be based on the previously approved estimate of $309.1 million (in 1992 dollars), with an inflation adjustment of 3.8 percent per year, until a new, more reliable estimate has been prepared and tested. During October 1998, CYAPC, CL&P, PSNH and WMECO filed briefs on exceptions to the ALJ decision. If the initial ALJ decision is upheld, CYAPC could be required to write off a portion of the regulatory asset associated with the plant closing. If upheld, CYAPC's management has estimated the effect of the ALJ decision on CYAPC's earnings would be approximately $37.5 million, of which PSNH's share would be approximately $2.9 million. NU management cannot predict the ultimate outcome of the hearing at this time, however, management believes that the .. associated regulatory assets are probable of recovery. C. Nuclear Performance . Millstone: The three Millstone units are managed by NNECO. All three units were placed on the NRC watch list on January 29, 1996. The units cannot be restarted without appropriate NRC approvals. Millstone 3 has received these approvals and resumed operation in July 1998. 30
Public Service Ccmp:ny of N:w Hamp:hiro NOTRS TO FINANCIAL STATEMENTS Litigation: Certain of the non-NU joint owners of Millstone 3 have filed demands for arbitration with CL&P and WMECO as well as ! lawsuits in Massachusetts Superior Court against NU and its current and former trustees related to the company's operation of Millstone 3. The arbitrations and lawsuits seek to recover compensatory damages in excess of $200 million, together with punitive damages, treble damages and attorney's fees. Management cannot estimate the potential outcome of these suits but believes there is no legal basis for the claims and intends to defend against them vigorously. D. Environmental Matters PSNH is subject to regulation by federal, state and local , i authorities with respect to air and water quality, the handling and disposal of toxic substances and hazardous and solid wastes, and the handling and use of chemical products. The NU system has an active environmental auditing and training program and believes that it is in substantial compliance with current environmental laws and regulations. However, the NU system is subject to certain pending enforcement actions and governmental investigations in the environmental area. Management cannot predict the outcome of these enforcement actions and investigations. Environmental requirements could hinder the construction of new generating units, transmission and distribution lines, substations and other facilities. Changing environmental requirements could also require extensive and costly modifications to PSNH's existing generating units, and transmission and distribution systems, and could raise operating costs significantly. As a result, PSNH may incur significant additional environmental costs, greater than amounts included in cost of removal and other reserves, in connection with the generation and transmission of electricity l and the storage, transportation and disposal of by-products and wastes. PSNH may also encounter significantly increased costs to remedy the environmental effects of prior waste handling activities. The cumulative long-term cost impact of increasingly stringent environmental requirements cannot be estimated accurately. PSNH has recorded a liability based upon currently available information for what it believes are its estimated environmental remediation costs that it expects to incur for , waste disposal sites. In most cases, additional future environmental cleanup costs are not reasonably estimable due to a number of factors, including the unknown magnitude of possible contamination, the appropriate remediation methods, the possible effects of future legislation or regulation and the possible effects of technological changes. At December 31,
-1998, the liability recorded by PSNH for its estimated j environmental remediation costs, not considering any possible 31 ,
i
Public Servico Company of New Hampchiro NOTES TO FINANCIAL STATEMENTS recoveries from third parties, amounted to approximately $7.9 - million within a range of $7.9 million to $9.0 million. PSNH has received proceeds from several insurance carriers for ! the settlement with certain insurance companies of all past, present and future environmental. matters. As a result'of these settlements, PSNH will retain the risk loss, in part, for some
- environmental remediation costs.
PSNH cannot estimate the potential liability for future claims, including environmental remediation costs, that may be brought against it. However, considering known facts, existing laws, and regulatory practices, management does. not believe the matters disclosed above will have a material effect on PSNH's financial position or future results of operations. E. Spent Nuclear Fuel Disposal Costs Under the Nuclear Waste Policy Act of 1982, PSNH must pay the United States Department of Energy (DOE) for the disposal of spent nuclear fuel and high-level radioactive waste. The DOE is responsible for the selection and development of repositories for, and the disposal of, spent nuclear fuel and high-level radioactive waste. Fees are billed currently to customers and paid to the DOE on a quarterly basis. The DOE was originally scheduled to begin accepting delivery of spent fuel in 1998. However, delays in identifying a permanent storage site have continually postponed plans for the DOE's long-term storage and disposal site. Extended delays or a default by the DOE could lead to consideration of costly alternatives. The company has primary responsibility for the interim storage of its spent nuclear fuel. Current capability to store spent fuel at Seabrook are estimated to be adequate until at least the year 2010. Meeting spent fuel storage requirements beyond this period could require new and separate storage facilities, the costs for which have not been determined. In November 1997, the U.S. Court of Appeals for the D.C. Circuit ruled that the lack of an interim storage facility does not i excuse the DOE from meeting its contractual obligation to begin accepting spent nuclear fuel no later than . January 31, 1998. The 1997 ruling by the appeals court said, howevar, that the 1982 ,. federal law could not require the DOE to accept waste when it did not have a suitable storage facility. The court directed the plaintiffs to pursue relief under the terms of their contracts with the DOE. Based on this ruling, since the DOE did not take the spent nuclear fuel as scheduled, it may have to pay contract damages. ] In May 1998, the same court denied petitions from 60 states and state agencies, collectively, and 41 utilities, including the company, asking the court to compel the DOE to submit a program, beginning immediately, for disposing of-spent nuclear fuel. The 32
Pvblic Ssrvico CcapOny of New Hampchiro NOTES TO~ FINANCIAL STATEMENTS petitions were filed after the DOE defaulted on-its January ~31, 1998 obligation to begin accepting the fuel. The court directed. the company and other plaintiffs to pursue relief under the terms of their contracts with the DOE. In a petition filed in August 1998, the court's May 1998' decision was appealed to the U.S. Supreme Court. In November > 1998, the Supreme Court declined to review the lower court ruling that said utilities should go to court and seek monetary The ultimate outcome of this legal damages from the DOE. proceeding is uncertain at this time. F. Nuclear Insurance Contingencies Under certain circumstances, in the event of a nuclear incident at one of the nuclear facilities.in the country covered by the federal government's third-party liability indemnification program, an owner of a nuclear unit could be assessed in proportion to its ownership interest in each of its nuclear units up to $83.9 million. Payments of this assessment would be limited to $10.0 million in any one year per nuciear incident based upon the owner's pro rata ownership interest in each of its nuclear units. 5 Inpercentaddition, the owner would be subject to an additional or $4.2 million, in proportion to its ownership interests in each of its nuclear units, if the sum of all claims and costs from any one nuclear incident exceeds the maximum amount of financial protection. Under the terms of the Seabrook Power Contracts with NAEC, PSNH could be obligated to pay for any assessment charged to NAEC as a " cost of service." Based on its ownership interest in Millstone 3 and NAEC's ownership interest in Seabrook 1, PSNH's maximum liability, including any additional assessments, would be $28.8 million per incident of which payments would be limited to $3.8 million per year. In addition, through power purchase contracts with VYNPC, PSNH would be responsible for up to an additional $3.5 million per incident, of which payments l would be limited to a maximum of $0.4 million per year. Insurance has been purchased to cover the primary cost of repair, replacement or decontamination of utility property-resulting from insur.d occurrences. PSNH is subject to retroactive assessments if losses exceed the accumulated funds available to the insurer. The maximum potential asse'ssment against PSNH with respect to losses arising during the current policy year ~is approximately $0.4 million under the primary '. property insurance program.
-)
Insurance has- been purchased to cover certain extra- costs incurred in obtaining replacement power during prolonged accidental outages and the excess cost of repair, replacement, of utility decommissioning or decontamination- or premature property resulting from insured occurrences. PSNH is _ subject
.to retroactive assessments if losses exceed The the accumulated maximum- potential 1 funds available. to the insurer.
33 i
1 I l Public Service Company of New Hampchiro NOTES TO FINANCIAL STATEMENTS assessments against PSNH (including costs resulting from PSNH's
- contracts with NAEC), with respect to losses arising during current policy years are approximately $1.3 million under the replacement power policies and $4.1 million under the excess I property damage, decontamination and decommissioning policies.
Although PSNH has purchased the limits of coverage currently available from the conventional nuclear insurance pools, the 'i cost of a nuclear incident could exceed availalle insurance proceeds. The NRC approved CYAPC's and MYAPC's requests for withdrawal from participation in the secondary financial protection program on November 19, 1998 and January 17, 1999, respectively, due to their permanently shutdown and defueled status. Therefore, neither CYAPC nor their sponsor companies have any future obligations for potential assessment. Insurance has been purchased aggregating $200 million on an industry basis for coverage of worker claims. G. Construction Program The construction program is subject to periodic review and revision by management. PSNH currently forecasts construction expenditures of approximately $331.4 million for the years 1999-2003, including approximately $68.0 million for 1999. In addition, PSNH estimates that nuclear fuel requirements, for its share of Millstone 3, will be $4.5 million for the years 1999-2003, including $1.4 million for 1999. H. Long-Term Contractual Arrangements Yankee Companies: PSNH, CL&P and WMECO rely on VY for approximately 1.4 percent of their capacity under long-term contracts. Under the terms of their agreements, the NU system companies pay their ownership (or entitlement) shares of costs, which include depreciation, O&M expenses, taxes, the estimated cost of decommissioning and a return on invested capital. These costs are recorded as purchased-power expense and are recovered through the companies' rates. PSNH's total cost of purchases under contracts with VYNPC, amounted to $7.0 million in 1998,
$6.2 million in 1997 and $6.5 million in 1996. PSNH may also be asked to provide direct or indirect financial support for '
one or more of the Yankee companies, including VYNPC. Nonu tili ty Generators (NUGs) : PSNH has requirements under . various arrangements for the purchase of capacity and energy from NUGs. These arrangements have terms from 20 to 30 years, currently expiring in the years 1998 through 2023, and require PSNH to purchase energy at specified prices or formula rates. For the 12-month period ending December 31, 1998, approximately 13 percent of the NU system electricity requirements were met by NUGs. PSNH's total cost of purchases under these . u 34
Public Sorvico Comptny of N;w Hampchiro NOTES TO FINANCIAL STATEMENTS arrangements amounted to $139.1 million in 1998, $133.1 million , in 1997 and $132.6 million in 1996. New Hampshire Electric Cooperative: PSNH entered into a buy-back agreement to purchase the and energy of the New capacity Hampshire Electric Cooperative,-Inc.'s . (NHEC) share of Seabrook 1 and to pay all of NHEC's Seabrook 1 costs for a ten-year period, which began on July 1, 1990. The total cost of purchases under this agreement was $29.7 million in 1998, $23.4 million in 1997 and $14.6 million in 1996. The total cost of these purchases has been collected through the FPPAC in accordance with the Rate Agreement. Although under the agreement NHEC agreed to continue as a firm-requirements customer of PSNH for 15 years, it has recently received a FERC ruling allowing it to purchase, power from qualifying facilities. The ruling allows that the price for such purchases may be determined through negotiation between NHEC and the qualifying facility. The financial impact of this decision in the future will vary depending upon the level of purchases made by NHEC from the qualifying purchasers. NHEC also is seeking to be able to purchase energy under the agreement from competitive sources once competition has begun in its service territory. A final FERC decision is expected by March 1999. The financial impact of this decision in the future will depend upon the implementation of restructuring in NHEC's service territory. Hydro-Quebec: Along with other New England utilities, PSNH, CL&P, WMECO, and HWP have entered into agreements to support transmission and terminal facilities to import electricity from the Hydro-Quebec system in Canada. PSNH is obligated to pay, over a 30-year period ending in 2020, its proportionate share of the annual O&M and capital costs of these facilities. Estimated Annual Costs: The estimated annual costs of PSNH's significant long-term contractual arrangements are as follows: 1999 2000 2001 2002 2003 (Millions of Dollars) VYNPC.................. $ 7.5 $ 6.9 $ 7.5 $ 7.7 $ 7.1 NUGs......... ......... 142.9 147.1 151.3 155.5 160.3
- NHEC............. ..... 30.0 14.6 - - -
Hydro-Quebec........... 10.0 9.6 9.3 9.1 8.9 I. Deferred Receivable from Affiliated Company At the time PSNH emerged from bankruptcy on May 16, 1991, in accordance with the phase-in under the Rat e Agreement,. it began accruing a deferred return on a . port.Lon of its Seabrook 35 i des
Public Scrvico Comp ny of New Hampchiro NOTES TO FINANCIAL STATEMENTS investment. From May 16, 1991 to the Acquisition Date, PSNH accrued a deferred return of $50.9 million. On the Acquisition . Date, PSNH sold the $50.9 million deferred return to NAEC as part of the Seabrook-related assets. . At the time PSNH transferred the deferred return to NAEC, it realized, for income tax purposes, a gain that is deferred under the consolidated income tax rules. Beginning December 1, 1997, this gain is being restored for income tax purposes, as the deferred return of $50.9 million, and the' associated income taxes of $32.9 million, are being collected by NAEC through the Seabrook Power Contracts. As NAEC recovers the $32.9 million in years eight through ten of the Rate Agreement, it will be obligated to make these corresponding payments to PSNH. On the Acquisition Date, PSNH recorded the $32.9 million of income taxes associated with the deferred return as a deferred receivable from NAEC, with a corresponding entry to deferred revenue, on its Balance Sheet. In 1993, due to changes in tax rates, this amount was adjusted to $33.2 million. For further information related to the phase-in of the Seabrook power p:'nt, see Note 2, "Seabrook Power Contracts." See Note 10A, " Commitments and Contingencies - Restructuring" for the possible impacts of the NHPUC's decision related to industry restructuring on this intercompany transaction between PSNH and NAEC.
- 11. FAIR VALUE OF FINANCIAL INSTRUMENTS The following methods and assumptions were used to estimate the fair value of each of the following financial instruments:
l Cash and cash equi'nlents: The carrying amounts approximate fair { value due to short-term nature of cash and cash equivalents. I Supplementa- Execu tive Re tiremen t Plan investments: SFAS 115,
" Accounting for Certain Investments in Debt and Equity Securities," )
requires investments in debt and equity securities to be presented l at fair value. As a result of this requirement, the investments - j having a cost basis of $321,000 held for benefit of the ) Supplemental Executive Retirement Plan were recorded on,the balance l sheet at their fair market value at December 31, .1998, of $2.2 . million. 36
Public Servico Comptny of New Hamp: hire-NOTES TO FINANCIAL STATEMENTS Preferred stock and long-term debt: The . fair value of PSNH's fixed-rate securities is based upon the quoted market price for those issues or similar issues'. Adjustable rate securities are assumed to have a f air value equal to their carrying value. The carrying amounts of PSNH's financial instruments and the estimated fair values are as follows: Carrying Fair Amount Value At December 31. 1998 (Thousands of Dollars) Preferred stock subject to
$ 75,000 $ 78,000 mandatory redemption...................
516,485 535,401 Other long-term debt..................... Carrying Fair Amount Value At December 31. 1997 l (Thousands of Dollars) 1 Preferred stock subject
$100,000 $ 99,000 mandatory redemption...................
170,000 170,424 Long-term debt - First mortgage bonds.... 516,485 537,599 - Other long-term debt..................... to meet the The fair values shown above have been reported represent the to disclosure requirements and do not purport amounts at which those obligations would be settled. )
- 12. OTHER COMPREHENSIVE INCOME During 1998, the NU system adopted SFAS 130, " Reporting Comprehensive Income," which established standards for reporting and displaying comprehensive income and its same components in a financial prominence as other statement that is displayed with the financial statements. . During 1997 and 1996, PSNH had no material other comprehensive income items.
37 1
Public_Sorvico Compr.ny of New Hamp::hiro l
-NOTES TO FINANCIAL STATEMENTS The accumulated balance for each other comprehensive income item is as follows: ,
Current December 31 Period December 31, : 1997 Change 1998 (Thousande of Dollars) . Unrealized gain on securities............... $- $1,198 $1,198 Minimum pension liability adjustment..... - (194) (194) Accumulated other comprehensive income..... $- $1,004 $1,004 The changes in the components of other comprehensive income are reported on the Statements of Comprehensive . Income net of the following income tax effects: 1998 1997 1996 (Thousands of Dollare) Unrealized gain on securities............... $ (660) $- $- Minimum pension liability adjustment..... 107 - - Other comprehensive income................... $ 553 $- $- 6 9 4 38 j
Public S rvico Company'of New Hamp:hiro REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ~ To the Board of Directors of Public Service Company of New Hampshire: We have audited the accompanying balance sheets of Public Service i Company of New Hampshire (a New Hampshire corporation and a wholly owned subsidiary of Northeast Utilities) as of December 31, 1998 and-1997, and the related statements of income, comprehensive income, common stockholder's equity, and cash flows for each of the three years in the period ended December 31, 1998. These financial statements are the responsibility of the company's management. Our-responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Public Service Company of New Hampshire as of December 31, 1998 and 1997, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1998, in conformity with generally accepted accounting principles. The accompanying financial statements have been prepared assuming that the company will continue as a going concern. As discussed in Note 10A, on February 28, 1997, the State of New Hampshire Public Utilities Commission (the NHPUC) issued an order outlining its final plan to restructure the electric utility industry. The final plan announced a departure from cost-based rate making, which, if implemented, would require the company to discontinue the application of Financial Accounting Standard No. 71, " Accounting for the Effects of Certain Types of Regulation, " (FAS 71). The implementation of the final plan, including the effect of the discontinuation of FAS 71, would result in after tax write-off of over $400 million. Such a write-off would cause the company to be in technical default under financial covenants imposed by lenders, which, would, if not waived or renegotiated, give rise to the rights of lenders to accelerate the repayment of approximately $516 million of the company's indebtedness and approximately $475 million of an affiliated company's indebtedness. 39 j
Public Servico Compr.ny of New Hampchiro REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS These conditions raise substantial doubt about the company's ability to continue as a going concern. The financial statements referred to above do not include- any adjustments that might result from the outcome of this uncertainty.
/s/ ARTHUR ANDERSEN LLP ARTHUR ANDERSEN LLP Hartford, Connecticut February 23, 1999 40
______b
PUBLIC SERVICE COMPANY OF NEW HAMPSHIRE Management's Discussion and Analysis of Financial Condition and Results of Operations This section contains management's assessment of Public Service Company of New Hampshire's (PSNH or the company) financial condition 6 and the principal factors having an impact on the results of operations. The company is a wholly-owned subsidiary of Northeast Utilities (NU). This discussion should be read in conjunction with ? the company's financial statements and footnotes. FINANCIAL CONDITION Enrnings Overview PSNH had net income of approximately $92 million for 1998, essentially unchanged from the same period in 1997. Lower operating revenues as a result of rate decreases were offset by lower operating expenses and lower interest costs. Operating revenues fell 2 percent despite a 2.3 percent increase in retail kilowatt-hour sales. The resolution of New Hampshire restructuring and the final decision in PSNH's rate case, that is currently scheduled to be issued in 1999, will impact PSNH's ability to improve its results in 1999. Restructuring Although PSNH continues to operate under cost-of-service based regulation, future rates and the recovery of stranded costs are issues that will be addressed as restructuring legislation is implemented. Stranded costs are expenditures or commitments that have been made to meet public service obligations with the expectation that they would be recovered from customers. However, under certain circumstances these costs might not be recoverable from customers in a fully competitive electric utility industry (i.e., the costs may result in above-market energy prices). PSNH has exposure to stranded costs for its investments in high-cost nuclear generating plants, state-mandated purchased-power ~ obligations and significant regulatory assets. As of December 31, 1998, PSNH'e net investment in nuclear generating plants, was approximately $83 , million, and its regulatory assets were approximately $610 million. l PSNH's financial strength will be negatively affected if it is unable I to recover their past investments and commitments. Restructuring efforts in New Hampshire have resulted in numerous l proceedings within the federal and . state court systems. The New J Hampshire Public Utilities Commission's (NHPUC) 1997 restructuring orders have been prevented from being implemented as a result of various court actions pending the outcome of a full trial in the U.S. ; District Court. The 1997 orders would have forced PSNH to write-off 41 l l
substantially all of its regulatory assets. A trial is expected to begin in mid to late 1999. In January 1999, the NHPUC issued an order stating that it intends to reopen restructuring hearings. PSNH hhs requested barring the federal court the NHPUC from to enforce its preliminary injunction proceeding with restructuring The efforts NHPUC pending has the court's agreed to decision-on delay this new the merits after trial. proceeding until the federal court has had an opportunity to rule on . PSNH's enforcement motion. The litigation has caused New Hampshire to fall behind several other . Northeast states in implementing industry restructuring. PSNH hopes things, to reach a settlement that would include, among other substantial rate reductions, customer choice, an auction of PSNH's generating units and securitization of PSNH's stranded costs. PSNH believes that a negotiated resolution of oitstanding restructuring and rate issues would be in the best interest s of the state, the company and customers. Rate Matters In May 1998, the NHPUC approved slightly more than a 1 percent net increase in PSNH's fuel and purchased-power adjustment clause (FPPAC) rate for the period June through November 1998. As part of this proceeding, PSNH agreed to offset in base rates the scheduled reduction in acquisition premium amortization with the scheduled amortization of the Seabrook deferred return. On December 1, 1998, the NHPUC approved a Stipulation and Settlement executed by PSNH, the NHPUC staff, and the Governor's Office of Energy and Community Services. They recommended that PSNH's currently effective FPPAC rate be continued for another six-month period - December 1, 1998, through May 31, 1999. The FPPAC rate currently in effect will produce an estimated $80 million underrecovery as of May 31, 1999. All other FPPAC costs are being recovered on a current basis. A PSNH rate case has been pending at the NHPUC since May 1997 but was delayed in connection with various restructuring proceedings. In November 1997, the NHPUC ordered a temporary rate reduction of 6.87 percent effective December 1, 1997. A final rate case decision currently is scheduled to be issued by June 1, 1999, the same date when PSNH's FPPAC rate is scheduled to be set for the second half of 1999. The final decision will be reconciled to July 1, 1997. PSNH's ongoing settlement negotiations with the State of New Hampshire could ' resolve both the rate case and FPPAC issues discussed above. Millstone 3 ,- PSNH has a 2.85 percent joint ownership interest in Millstone 3. After a 27-month outage, Millstone 3 received Nuclear Regulatory Commission (NRC) permission to restart in June 1998 and reached full power in July. The unit achieved a capacity factor of approximately 70 percent in 1998 following its return to service. PSNH's share of tne operation, maintenance and replacement power costs associated with Millstone 3 totaled approximately $5 million in 1998, down from $11 42
million in 1997. The unit remains on the NRC's watch list with a Category 2 designation, which means that it will continue to be subject to heightened NRC oversight. A refueling and maintenance outage is scheduled to begin in May 1999. Socbrook PSNH is obligated to purchase North Atlantic Energy Corporation's (NAEC) 35.98 percent share of the capacity and output generated by Seabrook 1 (Seabrook) under the Seabrook Power Contract for a period equal to the length of the NRC full-power operating license for Seabrook (through 2026) whether or not Seabrook is operating and without regard to the cost of alternative sources of power. North Atlantic Energy Service Corporation is the managing agent and operates Seabrook. Seabrook operated at a capacity factor of 82.8 percent in 1998, compared to 78.3 percent for the same period in 1997. The unit operated well, except for two unplanned outages, one in late 1997 through early 1998 and the other in mid-1998, to repair the control building's air-conditioning system. Seabrook is scheduled to begin a refueling outage in March 1999. Liquidity And Capital Resources Cash provided from operations totaled approximately $217 million in 1998 compared to $233 million in 1997, primarily due to the billing from NAEC of the Seabrook phase-in costs beginning in December 1997 which were not being recovered from customers for the first six months of 1998. Approximately $195 million of net cash flows were used to repay long-term debt and preferred stock in 1998, compared to only $25 million in 1997. Another $9 million was used to pay cash dividends on preferred stock in 1998 compared to $97 million in 1997 for common and pref erred dividends. Approximately $46 million of net cash flows was used for investment in plant and other investment activities compared to a net of $17 million in 1997. During 1 1 PSNH converted a total of $119.8 million variable-rate tax exer debt to fixed-rate tax exempt debt carrying an interest rate of .0 percent. PSNH met a $170 million bond maturity in May 1998 wit: ash on hand and operating cash flows and successfully extended _ > million in credit ($75 million in bank credit lines and
$115 milli. in letters of credit).
In September 1998, S&P upgraded PSNH's first mortgage bonds. The rating agency actions were due in part to the NU system's success in 1998 in maintaining access to its various credit lines. PSNH renegotiated a one-year extension of the $75 million revolving credit
'. agreement in April 1998.
PSNH's revolving credit agreement expires on April 22, 1999, and the company currently does not intend to renew it. PSNH will fund its needs through operating cash flows or other short-term credit arrangements which may be negotiated later in the year. PSNH has had no borrowings under that line since October 1998. PSNH expects to renew the bank letters of credit that support nearly $110 million of 43
taxable variable-rate pollution control bonds. Those letters of credit also expire April 22, 1999. Nuclear Decommissioning SEC has questioned certain current accounting The staff of the practices of the electric utility industry, regarding the recognition, measurement and classification of decommissioning costs for nuclear generating units in the financial statements. In response to these-
- questions, the Financial Accounting Standards Board (FASB). had agreed including to review the accounting for closure and removal costs, decommissioning. If current electric utility industry accounting ,
practices for nuclear power plant decommissioning are changed, the annual provision for decommissioning could increase relative to.1998, l and the estimated cost for decommissioning could be recorded as a j liability (rather than as accumulated depreciation), with recognition i of an increase in the cost of the related nuclear power plant. As management believes decommissioning costs will continue to be recovered through rates, changes to the accounting will not affect net income. Yankee Companies PSNH has a 5 percent ownership interest in the Connecticut Yankee Atomic Power Company (CYAPC), a 7 percent ownership interest in Yankee Atomic Electric Company (YAEC), a 5 percent ownership interest in Maine Yankee Atomic Power Company (MYAPC)and a 4 percent ownership interest in Vermont Yankee Nuclear Power Corporation (VYNPC). The nuclear plants owned by YAEC, CYAPC and MYAPC were shut down permanently on February 26, 1992, December 4, 1996, and August 6, 1997, respectively. At December 31, 1998, PSNH's share of its estimated remaining contract obligations, including decommissioning, amounted to approximately
$66.5 million: $5.7 million for YAEC, $24.9 million for CYAPC and
$35.8 million for MYAPC. Under the terms of the contracts with the Yankee companies, PSNH is responsible for its proportionate share of the costs of the units including decommissioning. Management expects to recover these costs from customers. Accordingly, PSNH has recognized these costs as a regulatory asset, with a corresponding obligation on its balance sheet.
PSNH has exposure for its investment in CYAPC as a result of an initial decision at the Federal Energy Regulatory Commission (FERC). Additionally, in January 1999, MYAPC filed an offer of settlement which, if accepted by FERC, will resolve all the issues in the FERC decommissioning rate case proceeding. NU management cannot predict - the ultimate outcome of the FERC proceedings at this time, but believes that the associated regulatory assets are probable of recovery. For further information on these proceedings see the " Notes to-Consolidated Financial Statements," Note 10B. PSNH's ownership share of estimated costs, in year-end 1998 dollars, of decommissioning the nuclear plant owned by VYNPC is approximately
$21.2 million.
44
)
_ ..=_ __ _ _
Millatone 3 and Seabrook 1 PSNH's estimated cost to decommission its share ofThese Millstone 3 is approximately $15.9 million in year-end 1998 dollars. costs are being recognized over the life of the unit with a portion currently As of December 31, 1998, the market being recovered through rates. value of the contributions already made to the decommissioning trust, including its investment return, was approximately $5.6 million. PSNH is obligated to pay NAEC's share of Seabrook's decommissioning costs even if the unit is shut down prior to the expiration of its license. NAEC's estimated cost to decommission its share of Seabrook is approximately $175.9 million in year-end 1998 dollars. These costs are being recognized over the life of the unit with a portion currently being recovered through PSNH's rates. As of December 31, 1998, the market value of the contributions already made to Seabrook's decommissioning financing fund, including its investment returns, was approximately $35.2 million. 1 See the " Notes to Consolidated Financial Statements," Note 4, for { further information on nuclear decommissioning. j l Year 2000 Issue { The NU system has established an action plan by which identified processes must be completed by certain dates in order to ensure its operating systems, including nuclear systems and reporting systems, are able to properly recognize the year 2000. This action plan has three phases: the inventory phase, the detailed assessment phase and the remediation phase. The inventory phase, which has been completed, identified operating and reporting systems which may need to be fixed. The detailed assessment phase, which has been completed, determined exactly what needed to be done in order to ensure that the systems identified during the inventory phase are able to recognize properly and process the year 2000. The final phase is the remediation phase. { By the end of this phase, mission critical systems (systems that are related to safety, keeping the lights on, regulatory requirements, and other systems that could have a significant financial impact) will be ; year 2000 ready; that is, these systems will perform their business functions properly in the year 2000. This phase includes making modifications, testing and validating changes and verifying that the - year 2000 issues have been resolved. ; Although the identification and detailed assessment phases are complete, newly identified items, such as new software purchases, are added to the inventory as they are identified and are subject to detailed assessment and, if needed, remediation. NU system purchasing policies require newly purchased software and devices to be year 2000 compliant. None of these newly identified items are expected to materially impact completion of the remediation phase. The NU system has identified and inventoried 2,497 computer systems (software) and over 24,000 devices (hardware) broken down into 3,450 ; device types containing date-sensitive computer chips. As of l December 31, 1998, 73 percent of the software systems and 81 percent of the hardware were year 2000 ready. 45 1
The remaining items are in various stages of modification or testing. Management anticipates the remediation phase for mission critical systems to be completed by mid-1999. In addition, the NU system has been contacting its key suppliers and business partners to determine their ability to manage the year 2000 problem successfully. The NU system is adjusting its inventories, working with suppliers to provide backup inventories, and changing suppliers as needed to provide for an adequate supply of materials
- needed to conduct business into the year 2000.
The NU system also has worked actively with the Independent System
- Operator (ISO) New England, the operator of the New England power grid, and with the North American Electric Reliability Council to provide for the year 2000 readiness of the New England power grid.
The NU system has utilized both internal and external resources to identify, assess, test and reprogram or replace the computer systems for year 2000 readiness. The current projected total cost of the Year 2000 Program to the NU system is $30 million. The total estimated remaining cost is $18 million, which is being funded through operating cash flows. The majority of these costs will be expensed as incurred in 1999. Since 1996, the NU system has incurred and expensed approximately $12 million related to year 2000 readiness efforts. Total expenditures related to the year 2000 are not expected to have a material effect on the operations or financial condition of the NU system. The costs of the project and the date on which the NU system plans to complete the year 2000 modifications are based on management's best estimates, which were derived utilizing numerous assumptions of future events, including the continued availability of certain resources, third-party modification plans and other factors. However, there can be no guarantee that these estimates . vill be achieved, and actual results could dif fer materially from those plans. If the NU system's remediation plans or those of third parties are not successful, there could be a significant disruption of the NU system's operations. The most likely worst case scenario is a limited number of localized interruptions to electric service which can be restored within a few hours. As a precautionary measure, the NU system is formulating contingency plans that will evaluate alternatives that could be implemented if our remediation efforts are not successful. The contingency plans are being developed by enhancing existing emergency operating procedures to include year 2000 issues. In addition, the NU system plans to have staff available to respond to any year 2000 situations that might arise. The contingency plan is expected to be available by July 30, 1999. . The NU system is committed to assuring that adequate resources are available in order to implement any changes necessary for its nuclear and other operations to be compatible with the new millennium. Environmental Matters PSNH is potentially liable for environmental cleanup costs at a number of sites inside and outside its service territory. To date, the future estimated environmental remediation liability has not been material 46 l
with respect to the earnings or financial position of PSNH. At December 31, 1998, PSNH had recorded an environmental reserve of approximately $7.9 million. See the " Notes to Consolidated Financial Statements," Note 10D, for further information on environmental matters. RESULTS OF OPERATIONS Income Statement Variances Millions of Dollars 1998 over/ (under) 1997 1997 over/ (under) 1996 Amount Percent Amount Percent operating revenues $(21) (2)% $ (2) (-) % Fuel, purchased and net interchange power (5) (1) (30) (8) Other operation 34 9 42 13 Maintenance 13 35 (7) (16) Amortization of regulatory assets, net (30) (53) - - Federal and state income taxes (16) (18) - - Other, net 9 12 (7) (92) Interest on long-term debt (8) (15) (6) (11) Other interest expense - - (3) (91) (a) Percent greater than 100. Operating Revenues Retail nonfuel revenues decreased $97 million due to the 1997 retail rate decrease and the June 1998 base rate offset described under " Rate Matters" This decrease was partially offset by higher fuel recoveries and higher retail sales. Fuel recoveries increased $66 million due to the higher FPPAC rate and the base rate offset. Retail kilowatt-hour sales were 2.3 percent higher for 1998 and contributed approximately
$9 million to nonfuel revenues.
Total operating revenues decreased in 1997 primarily due to lower Fuel fuel recoveries, partially offset by higher retail revenues. recoveries decreased approximately $12 million, primarily due to the customer refund ordered by the NHPUC. Retail revenues increased approximately $9 million, primarily due to the June 1996 rate increase, partially offset by the December 1997 rate decrease sales and were , higher price discounts to retain customers. Retail essentially unchanged. Fuel Expense The change in fuel, purchased and net interchange power expense was not significant in 1998. 47
l l i
)
Fuel,.. purchased.and netLinterchange power expense decreased in 1997, l primarily due to the timing in-the recognition of fuel expenses under i the FPPAC, partially offset by higher purchased power costs. Other operation and Maintenance Expense other operation maintenance increased in 1998 primarily due to higher costs associated with the Seabrook Power contract as a result of the amortization of Seabrook phase-in costs that began in June 1998 ($57 million) and higher costs related to the January ice storm, net of t' insurance proceeds, ($8 million) ; partially offset by the recognition of environmental insurance proceeds ($12 million) and lower costs at ' Millstone 3 and the Maine Yankee nuclear unit ($10-million). other operation and maintenance expense increased in 1997 primarily due to higher capacity charges under the Seabrook Power Contract as a result of the scheduled May 1997 refueling and maintenance outage and the unplanned December 1997 outage ($23 million), higher capacity purchases from the New Hampshire Elactric Cooperative ($11 million), higher capacity charges from MYAPC ($4 million) and higher costs for PSNH's share of Millstone 3 ($2 million), partially offset by lower fossil costs ($4 million) and lower administration and sales costs ($3 million). Amortization of Regulatory Assets Amortization of regulatory assets decreased in 1998, primarily due to the completion of the amortization of a portion of the company's acquisition premium ($40 million), partially offset by the. additional amortization of Seabrook phase-in costs ($10 million). The change in amortization of regulatory assets in 1997 was not significant. Federal and State Income taxes Federal and state income taxes decreased in 1998 compared to 1997 primarily due to lower taxable income. The change in federal and state income taxes was not significant in 3 1997. Other, net income other, net income increased in 1998, primarily due to the amortization of the taxes associated with the Seabrook-phase-in costs which began ' in December 1997. .Other, net income decreased in 1997, primarily due to the deferral in , j 1996 of interest expense ($5 million) . associated with the FPPAC j refund. ; Interest on Long-Term Debt Interest on long-term debt decreased due to the maturity of bonds ($170 million) in May 1998. 48-
Interest on long-term debt decreased in 1997, primarily due to the repayment of the $172.5 million Series A first-mortgage bond in May 1996. Other Interest Expense The change in other interest in 1998 was not significant. Other interest expense decreased in 1997, primarily due to 1996 ' interest expense ($5 million) associated with the FPPAC refund. 1 4
)
49
)
i j l Public Service Company of New Hampshire SELECTED FINANCIAL DA'TA (a) Jan. 1, 1998 Jan. 1, 1997 Jan. 1, 1996 to to to' ,. Dec. 31, 1998 Dec. 31, 1997 Dec. 31, 1996 For the Periods (Thousands of Dollars) .
$1,087,247 $1,108,459 $1,110,169 Operating Revenues...
131,199 144,024 155,758 Operating Income..... 91,686' 92,172 97,465 Net Income .......... Cash Dividends on - 85,000 52,000 Common Stock....... Dec. 31, 1998 Dec. 31. 1997 Dec. 31, 1996 __ At
$2,681,595 $2,837,159 $2,851,212 Total Assets.........
*' 516,485 686,485 686,485 Long-Term Debt . .
Preferred Stock Subject to Mandatory 100,000 125,000 Redemption * ...... 75,000 Obligations Under Seabrook Power Contracts and Other 914,617 Capital Leases *' ... 838,100 921,813 (a) Reclassifications of prior data have been made to conform with the current presentation. (b) Includes portions due within one year. 5 50
-l
Public Service Company of New Hampshire l SELECTED FINANCIAL DATA Jan. 1, 1995 Jan. 1, 1994 to to Dec. 31, 1995 Dec. 31, 1994 (Thousands of Dollars) t
$979,971 $922,039 155,628 152,086 83,255 77,444 )
l 52,000 ) 1 l Dec. 31,1995 Dec. 31, 1994 ;
$2,920,487 $2,845,967 858,985 999,985 125,000 125,000 915,288 887,967 e
a
~51
4 Public Service Company of New Hampshire 4 l STATISTICS (Unaudited) Average 4 Gross Electric ' Annual I Utility Plant Use Per December 31, kWh Residential Electric m.ployees Sales Customer Customers (Thousands of (kWh) (Averace) (December 31) j Dollars) (a) (Millions) s 6,347 421,602 1,265 , 1998 $2,302,254 12,579 1,254 13,340 6,528 407,642 1997 2,312,628 407,082 1,279 2,382,009 10,501 6,567 1996 6,524 406,077 1,325 1995 2,469,474 11,001 1,374 11,008 6,768 400,775 1994 2,521,960 STATEMENTS OF OUARTERLY FINANCIAL DATA (Unaudited) Ouarter Ended (b) June 30 Sect.30 Dec. 31 1998 idarch 31
$250,784 $286,614 $288,104 Operating Revenues.... $261,745
$ 42,406 $ 37,434 $ 32,590 Operating Income. .....
$ 18,769
$ 31,601 $ 29,892 $ 23,402
$ 6,791 Net Income.... ........
June 30 Sect.30 Dec. 31 1997 March 31
$257,098 $285,390 $287,650 Operating Revenues... .
$278,321
$ 34,190 $ 32,166 $ 32,892 Operating Income..... .
S 44,776
$ 21,289 $ 18,900 $ 19,688
$ 32,295 Net Income... .... .. .
Includes reclassification of the unamortized acquisition costs to gross J utility plant.
*' Reclassifications of prior data have been made to conform with the current presentation.
"" Effective January 1, 1996, the amounts shown reflect billed and unbilled sales. 1995 has been restated to reflect this change. ,
52 i I
S E w 5 \ x 5 t
':l'.
.. /
~,/"
Public Service Company of New Hom. shire iFirsiMortgage Bonds
. Trustee and Interest Paying Agent..
First Union National Bank '
'21 South Street - U
. Morristown,New Jersep 07960) g.
t' PreferredStobk8 f 1
' Transfer Agent, Dividend Disbursing Agent and Registrar' ]
. Northeast Utilities Service Company Shareholder Services ^
' P.O. Box 50061 j:
l Hartford, Connecticut 06102-5006- ,
.q
' 1999 Dividend Payment Dates 1 l 10.60% Series A d March 31, Jurie 30, September 30, and December 31 T l
.i
.i
-l Address General Correspondence in Care of:
Northeast Utilities Service Company Investor Relations Department : P.O. Box 270 Hartford, Connecticut 06141-0270
- Telephone:(860) 665 5000 i.
t M
~
General Offices '
..~
~1000 Elm Strebf'
- Data contained in this Annual Report are submitted
?for thbole purpose ofproviding information to ; ..
+ . P. . Box 330
" ljnhent security holders about the company [ L '
- . Manchester, New Hampshire,03105-0330,
+ ,
3 <
' a
- p. _ l' ,
,, . c ,
?/-
_ .;i' a :fy ,, ,_. ,_ p_ _ _ _ _ _ jf . __
" 9 g .h x x r ,
c
,q
- s. ,
zy i
. c.
' d, $ . y 1.5
,f ..
'
- S
, +
y I 4 :. ' ~ Annua L L port ;19981
- li;
,l a
'l 1
F
.i k '\ -
Eg/p\i'l
// Adantiez h Northeast Utibtics Spectu -
e. I t'
- Directors .
Officers John H. Forsgren Michael G. Morris Deborah L. Canyock Executive Vice President and Chairman Assistant Controller ' _ Chief Financial Officer . Management Information and . Bruce D. Kenyon Uudgeting Services llruce D. Kenyon President and President and Chief Executive Officer . ' teri A. Mahler Chief Executise Officer Assistant Controller-Ted C. Fe.igenbaum Accounting Services - Michael G. Morris Executive Vice President and Chairman Chief Nuclear Officer # 3 William J. Starr . John II. Forsgren
^ " N"' """ '##~ "***
Executive Vice President and ' g,g g, gyg : Chief Financial Officer Assistant Secretary Cheryl W. Gris4
#U ersak Senior Vice President, Secretary Aus.stant Secretary and General Counsel .
O. Kay Comendul J hn B. Keane Assistant Secretary Vice President-Administration R bert C. Aronson ; David R. McHale A" ***"I ' * * * * ' ~ Vice Presiden and Treasurer e Treasury Operations John J. Roman Randy A. Shoop Vice President and Controller . Assistant Treasurer-Finance Dennis E. Welch Vice President-Environmental. Safety and Ethics John P. Stack Executive Director--Corporate Accounting and Taxes March 1.1999 . 4 _________._._.________._______________________________._____._____.____.________________.______________._.__________._._____._________..____f
y_ _ _ _ _ _ _ _ . - _ _ _ _ _ _ _ . _ _ _ - _ - _ _ _ _
/
l '% l I l l THIS PAGEINTENTIONALLYLEFT BLANK. 1 e l l l l l l I _ _ _ . _ _ _ _ . _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ . _ _ _ _ _ _ _ _ _ _ . . .d
THIS PAGEINTENTIONALLYLEFT BLANK. a
North Atlantic Energy Corporation SELECTED FINANCIAL DATA (a) 1998 1997 1996 1995 1994 (Thousands of Dollars) Operating Revenues.. ... . , $ 276,685 $ 192,3R1 $ 162,152 $ 157,183 $145,751 Operating Income , , . $ 54,057 $ 57,061 $ 54,889 $ 51,394 $ 42,950 1 Net Income ... '$ 29,494 $ 29,953 $ 32,072 $ 24,441 $ 30,535 Cash Dividends on
- Common Stock . . .. $ 45,000 $ 25,000 $ 39,000 $ 24,000 $ 10,000 Total Assets ., . $ 945,153 $1,014,639 $1,017,3RR $1,014,649 $963,579 Long-Term Debt (b) , , $ 475,000 $ 495,000 $ 515,000 $ 560,000 $560,000 STATISTICS (Unaudited) 1998 1997 1996 1995 1994 Gross Electric Utility Plant at December 31, )
(Thousands of Dollars) ,
$7R4,113 $R11,140 $816,446 $R06,892 $792,R80 kWh Sales (Millions) for the twelve month period ending December 31, .. 3,018 2,R59 3,542 3,016 2.229 STATEMENTS OF QUARTQ LY TINANCIAL DATA (Unaudited) (Thousands of Dollars)
Quarter Ended (a) 1998 March 31 June 30 Sept. 30 Dec. 31 Operating Pevenues . $69,169 $69,627 $64,087 $69,R02 Operating Income $13,64R $13,365 $13,159 $13,RR5 Net Income $ 6,409 $ R,303 $ 7,170 $ 7,112 a 1997 Operating Revenues . $41,476 $50,12R $45,943 $54,334 Operating Income . .. $14,406 $14,183 $14,124 $14,34R Net income $ 7,240 $ 6,95R $ R,0R6 $ 7,669 (a); Reclassifications of prior data have been made to conform with the current presentation. (b) Includes portion due within one year. 30 i l I
Psderal and State Inconte Taxes - -Federal Land' State income taxes increased tin 1998 primarily due to higher taxable income. Federal and State . income taxes increased in 1997 primarily' due to deferred tax benefits in 1996 associated with proceeds from the sale of the Seabrook Unit 2. steam generators. Other, not . Other, net income decreased in 1998 primarily due to the amortization of the-taxes associated with the Seabrook-phase-in costs which began .. in December 1997. other, net income decreased in 1997 primarily due to' lower. income 1from temporary cash investments and the amortization of the .Seabrook deferred charges associated with the taxes on the purchased return.
?
29
~
RESULTS OF OPERATIONS Income Statement Variances Increase /(Decrease) Millions of~ Dollars 1998 over/ (under)1997_1997 over/ (under)1996 Amount Percent Amount Percent Operating revenues $84 _44% ($30 - 19%? e other operation.and . . maintenance expense (12) (20)- 20_ 45 Amortization of Regulatory Assets, net 79 (a) 6 (a) Federal and State Income Taxes 11 (a) '3 14 3 Other, net (8) (a) (2) (a) _ (a) Percent greater than 100. Operating Revenues Operating-revenues represent amounts billed to.PSNH under the terms of the Power Contracts and billings.to PSNH for decommissioning expense. Operating revenues increased in 1998 primarily due to amounts billed to PSNH for the amortization of the 'Seabrook deferred return' which began in December 1997. Operating revenues increased in 1997 primarily due to higher operation and maintenance expenses and the increased return associated with the phase-in of the final 15 percent of the Seabrook plant investment in May, 1996. Other Operation and Maintenance Expense Other operation and maintenance expenses decreased in 1998 primarily due to lower costs associated with Seabrook outages in-1998. Other operation and maintenance expenses increased in 1997 primarily due to higher costs associated with a planned refueling and unplanned Seabrook outages in 1997. Amortization of Regulatory Assets, net ] l Amortization of Regulatory Assets, net increased in 1998 and 1997 primarily due to the amortization of the Seabrook deferred return which_ began'in December 1997 , l i
.28-
cost likely worst case scenario is a limited number of localized interruptions to electric service which can be resto' red-within a few hours. As a precautionary measure, NU is formulating contingency plans that will evaluate alternatives _that could be implemented if our remediation efforts are not successful. The. contingency plans are being developed by enhancing existing emergency operating procedures to include year 2000 issues. In addition, the NU system plans to have staff available to respond to any year 2000 situations that might. arise. The contingency plan is expected to be available by July 30, 1999. , The NU system is committed to assuring that adequate = resources are available in order to implement any changes necessary for_its nuclear . and other operations to be compatible with the new millennium. Risk-Management Instruments NAEC uses swaps to manage the market risk exposures associated with changes in variable interest rates. NAEC uses these instruments to reduce risk by essentially creating offsetting market exposures. Based on the derivative instruments which currently are being utilized by NAEC to hedge some of its interest rate risks, there will_be an impact on earnings upon adoption of Statement of Financial Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging Activities, which management cannot estimate at this time. For.more information on NU's use of risk-management instruments, see the " Notes to Consolidated Financial Statements," Notes 1K and 8. NEAC holds a variable-rate long-term note, exposing the company to interest rate risk. In order to hedge some of this risk, interest rate risk-management instruments have been entered into on NAEC's $200 million variable-rate note, effectively fixing the interest on this note at 7.823 percent. As of December 31, 1998, NAEC had outstanding agreements with a total notional value of approximately $200 million and a negative mark-to-market position of approximately $2.3 million. Environmental Matters NAEC is potentially liable for environmental cleanup costs at a number of sites inside and outside of its service territory. To date, the future estimated environmental remediation liability has not been . material with respect to the earnings or financial position of the company. See the " Notes to Consolidated Financial Statements," Note 7B, for further information on environmental matters. . l I 27
identified during the inventory phase are able to recognize properly and process the year 2000. The final phase is the remediation phase. By the end of this phase, mission critical systems (systems that are related to safety, keeping the lights on, regulatory requirements, and other systems that could have a significant financial impact) will be year 2000 ready; that is, these systems will perform their business functions properly in the year 2000. This phase includes making modifications, testing and validating changes and verifying that the year 2000 issues have been resolved. Although the identification and detailed assessment phases are complete, newly identified items, such as new software purchases, are added to the inventory as they are identified and are subject to . detailed assessment and, if needed, remediation. NU system purchasing ! policies require newly purchased software and devices to be year 2000 compliant. None of these newly identified items are expected to materially impact completion of the remediation phase. The NU system has identified and inventoried 2,497 computer systems (software) and over 24,000 devices (hardware) broken down into 3,450 device types containing date-sensitive computer chips. As of December 31, 1998, 77 percent of the software systems and 81 percent of the hardware at Seabrook were year 2000 ready. The remaining items are in various stages of modification or testing. Management anticipates the remediation phase for mission critical systems to be completed by mid-1999. In addition, the NU system has been contacting its key suppliers and j business partners to determine their ability to manage the year 2000 ( problem successfully. The NU system is adjusting its inventories, working with suppliers to provide backup inventories, and changing suppliers as needed to provide for an adequate supply of materials needed to conduct business into the year 2000. The NU system has utilized both internal and external resources to identify, assess, test and reprogram or replace the computer systems l for year 2000 readiness. The current projected total cost of the Year 2000 Program to the NU system is $30 million. The total estimated remaining cost is $18 million, which is being funded through operating cash flows. The majority of these costs will be expensed as incurred in 1999. Since 1996, the NU system has incurred and expensed approximately $12 million related to Year 2000 readiness efforts. Total expenditures related to the year 2000 are not expected to have a material effect on the operations or financial condition of the NU system. The costs of the project and the date on which the NU system plans to complete the year 2000 modifications are based on management's best estimates, which were derived utilizing numerous assumptions of future events, including the continued availability of certain resources, third-party modification plans and other factors. However, there can be no guarantee that these estimates will be achieved, and actual results could dif fer materially from those plans. If the NU system's , remediation plans or those of third parties are not successful, there { could be a significant disruption of the NU system's operations. The l l 26 l
)
l
write off substantially all of their regulatory assets. A trial is expected to begin in mid to late 1999. In January 1999, the NHPUC issued an order stating that it intends to reopen restructuring hearings. PSNH has requested the federal court from to enforce its preliminary injunction barring the NHPUC proceeding with restructuring efforts pending the court's decision on the merits after trial. The NHPUC has agreed to delay this new proceeding until the federal court has had an opportunity to rule on PSdH's enforcement motion. .- The litigation has caused New Hampshire to fall behind several other Northeast states in implementing industry restructuring. PSNH hopes
- to reach a settlement that would include, among other things, substantial rate reductions, customer choice, an auction of PSNH's generating units and securitization of PSNH's stranded costs. PSNH believes that a negotiated resolution of outstanding restructuring and rate issues would be in the best interests of the state, PSNH and customers.
Ssebrook Performance Seabrook operated at a capacity factor of 82.8 percent through December 1998, compared to 78.3 percent for the same period in 1997. The unit operated well, except for two unplanned outages, one in late 1997 through early 1998 and the other in mid-1998, to repair control building's air conditioning system. Seabrook is scheduled to begin a refueling outage in March 1999. 3sabrook Decommissioning NAEC's estimated cost to decomrc.ission its share of Seabrook is approximately $175.9 million in year-end 1998 dollars. These costs are being recognized over the life of the unit with a portion currently being recovered through PSNH's rates. PSNH is obligated to pay NAEC's share of Seabrook's decommissioning costs even if the unit is shut down prior to the expiration of its license. As of December 31, 1998, the market value of the contributions already made to the decommissioning trusts, including their investment returns, was approximately $35.2 million. See the " Notes to Consolidated Financial Statements," Note 2, for ' further information on nuclear decommissioning. Yonr 2000 Issue , The NU system has established an action plan by which identified processes must be completed by certain dates in order to ensure its operating systems, including nuclear systems, and reporting systems are able to properly recognize the year 2000. This action plan has three phases: the inventory phase, the detailed assessment phase and the remediation phase. The inventory phase, which has been completed, identified operating and reporting systems which may need to be fixed. The detailed assessment phase, which has been completed, determined exactly what needed to be done in order to ensure that the systems 25
North Atlantic Energy Corporation l Management's Discussion and Analysis of Financial ] Condition and Results of Operations j This section contains management's assessment of North Atlantic Energy Corporation's (NAEC or the company) financial condition and the principal factors having an impact on the results of operations. The
- company is a wholly-owned subsidiary of Northeast Utilities (NU). This discussion should be read in conjunction with the company's financial statements and notes to financial statements. i i
FINANCIAL CONDITION Earnings Overview NAEC's net income for 1998 was essentially unchanged. NAEC had net income of approximately $29 million in 1998 compared to approximately
$30 million in 1997.
The company's only assets are Seabrook and other Seabrook-related assets and its only source of revenues are the power contracts between PSNH and the company. PSNH's obligations under the Power Contracts are solely its own and have not been guaranteed by NU. The Power Contracts contain no provisions entitling PSNH to terminate its obligations. If, however, PSNH were to fail to perform its obligation under the Power Contracts, the company would be required to find other purchasers for Seabrook power. Liquidity and Capital Resources Net cash flows from operations totaled approximately $129 million in 1998, up sharply from $56 million in 1997. The increase resulted from the recovery of the Seabrook deferred nuclear costs beginning in December 1997. Approximately $54 million of net cash flow was used for investment activities, including construction expenditures, investments in the NU system money pool and investments in nuclear decommissioning trusts, compared with $18 million in 1997. Another
$45 million was used to pay common dividends, compared with $25 million in 1997. The balance of cash used for financing activities, approximately $30 million, was used to pay off long-term and short-term debt. In 1997 net debt and preferred stock levels were reduced by only $13 million.
PSNH Restructuring Restructuring efforts in New Hampshire have resulted in numerous proceedings within . the federal and state court systems. The New Hampshire Public Utilities Commission's (NHPUC) 1997 restructuring orders have been prevented from being implemented as a result- of various cou' t actions pending the outcome of a full trial in the U.S. District Court. The 1997 orders would have forced PSNH and NAEC to l i i 24 i 1 j
North Atlantic En rgy Corporctica REPORT OF INDEPENDENT PUBLIC' ACCOUNTANTS company's indebtedness. These conditions raise substantial doubt about the ecmpany's ability to continue as' a going ' ' concern . The financial statements referred to above do not include any: adjustments that might result from the outcome of this' uncertainty.
/s/ ARTHUR ANDERSEN LLP ARTHUR ANDERSEN LLP Hartford, Connecticut February 23, 1999 23
i i
. North Atlcntic En2rgy Corporation- j
\
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
-To the Board of Directors of North Atlantic Energy Corporation: l 1
-l We have audited the accompanying balance sheets of North Atlantic
. Energy Corporation (a New Hampshire corporation and a wholly owned subsidiary.of Northeast Utilities) as of December 31, 1998-and 1997,-
and the related statements of income, common stockholder's equity, and cash flows for each of the three years. in. the- period ended December 31, 1998. These financial statements are the responsibility of the company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan.and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of North Atlantic Energy Corporation as of December 31, 1998 and 1997, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1998, in conformity with generally accepted accounting principles. The accompanying financial statements have been prepared assuming that the company will continue as a going concern. As discussed in Note 7A, on February 28, 1997, the State of New Hampshire Public Utilities Commission (the NHPUC) issued an order outlining its final plan to restructure the electric utility industry. The final plan announced a departure from cost-based ratemaking for Public Service Company of New Hampshire (PSNH). PSNH is the sole customer of the company. The final plan, if implemented, would require PSNH to discontinue the application of Financial Accounting Standard No. 71,
" Accoun ting for the EEfects of Certain Types of Regulation," (FAS 71).
The effects of such a discontinuation would cause PSNH and the company to be in technical default under their current financial covenants, whicn would, if not waived or renegotiated, give rise to the rights of lenders to accelerate the repayment of approximately $516 million of PSNH's indebtedness and approximately $475 million of the
<. . 22
______.___________i_
North Atlantic Encrgy Corporation-NOTES TO FINANCIAL STATEMENTS
- 9. FAIR VALUE OF FINANCIAL INSTRUMENTS The following methods and assumptions were used to estimate the fair value of each of the following financial instruments:
Cash and cash equivalents: The carrying amounts approximate fair value due to the short-term nature of cash and cash equivalents. Nuclear decommissioning trust: The investments held in NAEC's
.uclear decommissioning fund were adjusted to market ~ by approximately $2.3 million as of December 31, - 1998 and by ;
approximately $1.5 million as of December 31, 1997 with corresponding offsets to the accumulated provision for depreciation. The amounts adjusted in 1998 and 1997 represent cumulative gross unrealized holding gains. The cumulative gross unrealized holding losses were immaterial for 1998 and 1997. Long-term debt: The fair value of NAEC's fixed-rate security is based upon the quoted market price for that issue or similar issue. The adjustable rate security is assumed to have a fair value equal to its carrying value. The carrying amounts of NAEC's financial instruments and the estimated fair values are as follows: Carrying Fair Amount Value At December 31. 1998 (Thousands of Dollars) First mortgage bonds..................... $275,000 $284,543 Other long-term debt..................... $200,000 $200,000 Carrying Fair At December 31. 1997 Amount Value (Thousands of Dollars) First mortgage bonds..................... $295,000 $301,599 Other long-term debt......... ........... $200,000 $200,000 , the The fair values shown above have been reported to meet to represent the disclosure requirements and do not purport amounts at which those obligations would be settled.
- 10. NUCLEAR PERFORMANCE For information on nuclear performance related to the Seabrook nuclear power plant, see the MD&A.
21
North Atlantic Energy Corporation NOTES-TO FINANCIAL STATEMENTS Insurance has been - purchased to cover certain extra ' costs of repair, replacement or decontamination or premature decommissioning of utility property resulting from insured occurrences. NAEC is subject to retroactive assessments if-losses exceed the accumulated funds _-available to the insurer. The maximum potential assessment against NAEC with respect to losses arising during current policy years is approximately.
$3.2 million. The cost of a nuclear incident could exceed available insurance proceeds.
,- Insurance has been purchased aggregating $200 million on an industry basis for coverage of worker claims. Under the terms of the Seabrook Power Contracts, any nuclear-insurance assessments described above would be passed on to PSNH as a " cost of service." E. Seabrook 1 Construction Program The construction program for Seabrook 1 is subject to periodic review and revision by management. NAEC currently forecasts construction expenditures for its share of Seabrook 1 to be
$27.3 million for the years 1999-2003, including approximately
$8.2 million for 1999. In addition, NAEC estimates that its share of Seabrook 1 nuclear fuel requirements will_ be approximately $53.7 million for the years 1999-2003, including
$1.6 million for 1999.
- 8. MARKET RISK-MANAGEMENT NAEC uses swap instruments with financial institutions to hedge.
against interest-rate risk associated with its $200 million variable rate bank note. The interest-rate management instruments employed eliminate the exposure associated with rising interest rates, and ef fectively fix the interest rate for this borrowing arrangement. Under the agreements, NAEC ' exchanges quarterly payments based on a differential between a fixed contractual interest rate and the three-month LIBOR rate at a given time. As of December 31, 1998, NAEC had outstanding agreements with a total notional value of $200 million and a negative mark-to-market
- position of approximately $2.3 million.
Credit Risk: These agreements have been made with various financial institutions, each of which is rated "A3" or better by Moody's rating group. NAEC will be exposed to credit risk on its respective market risk-management instruments if the counterparties fail to perform their obligations. However, management anticipates that the counterparties will be able to fully satisfy their obligations under the agreements. 20
North Atlantic Energy Corporation NOTES TO FINANCIAL STATEMENTS does not excuse the . DOE from meeting its contractual obligation to begin accepting spent nuclear fuel no later than January 31, 1998. The 1997 ruling by the. appeals court said, however, that the 1982 federal law could not require the DOE to accept waste when it did not have a suitable storage facility. The court directed the plaintiffs to. pursue relief under the terms of their contracts with the DOE. Based on-this ruling, since the DOE did not take the spent nuclear fuel : as scheduled, it may have to pay contract damages. In May 1998, the same court denied petitions.from 60 states and state agencies, collectively, and 41 utilities, including the company, asking the court to compel the DOE to submit a program, beginning immediately, for disposing of spent nuclear fuel. The petitions were filed after the DOE defaulted on its January 31, 1998 obligation to begin accepting the fuel. The court directed the company and other plaintiffs to pursue relief under the terms of their contracts with the DOE. In a petition filed in August 1998,. the court's May 1998 decision was appealed to the U.S. Supreme Court. In November 1998, the Supreme Court declined to review the lower court ruling that said utilities should go to court and seek monetary damages from the DOE. The ultimate outcome of this legal proceeding is uncertain at this time. D. Nuclear Insurance Contingencies Under certain circumstances, in the event.of a nuclear incident at one of the nuclear facilities in the country covered by the federal government's third-party liability indemnification program, an owner of a nuclear unit could be assessed in proportion to its ownership interest in each of its nuclear units up to $83.9 million. Payments of this assessment would be limited to, in proportion to its ownership interest in each of its nuclear units, $10.0 million in any one year per nuclear incident. In addition, if the sum of all claims and costs from any one nuclear incident exceeds the maximum amount of financial protection, the owner would be subject to an additional five percent or $4.2 million, in proportion to its ownership interests in each of its nuclear units. Based upon , its ownership interest in Seabrook 1, NAEC's maximum liability, including any additional assessments, would be $31.3 million per incident, of which payments would be limited to $3.6 million per year. Insurance has been purchased to cover the primary cost of repair, replacement or decontamination of utility property resulting from insured occurrences at Seabrook station. NAEC is subject to retroactive assessments if losses exceed the accumulated funds available to the insurer. The maximum potential assessment against NAEC with respect to losses arising during the current policy year is approximately $2.0 million. 19
North Atlcntic Enorgy Corporation NOTES TO FINANCIAL STATEMENTS active environmental auditing and training program and believes that it is in substantial ~ compliance with current environmental laws and regulations. However, the NU system is subject to certain pending enforcement actions and governmental investigations in the environme al area. Management cannot. predict the outcome of trase enforcement actions and investigations. Environmental requirements could hinder future construction. Changing environmental requirements could also require extensive and costly modifications' to NAEC's existing investment in Seabrook 1 and could raise operating costs significantly. As a result, NAEC may incur significant additional environmental costs, greater than amounts included in cost of removal and other reserves, in connection with the generation of electricity and the storage, transportation, and disposal of by-products and wastes. NAEC may also encounter significantly increased costs to remedy the environmental effects of prior waste handling activities. The cumulative long-term cost impact of increasingly stringent environmental requirements cannot be estimated accurately. NAEC cannot estimate the potential liability for future claims, including environmental remediation costs, that may be brought against it. However, considering known facts, existing laws and regulatory practices, management does not believe the matters disclosed above will have a material effect on NAEC's financial position or future results of operations. C. Spent Nuclear Fuel Disposal Costs Under the Nuclear Waste Policy Act of 1982, NAEC must pay the United States Department of Energy (DOE) for the disposal of spent nuclear fuel and high-level radioactive waste. The DOE is responsible for the selection and development of repositories for, and the disposal of, spent nuclear fuel and high-level radioactive waste. Fees for nuclear fuel burned on or after April 7, 1983, are billed currently to customers and paid to the DOE on a quarterly basis. The DOE was originally scheduled to begin accepting delivery of spent fuel in 1998. However, delays in identifying a permanent storage site have continually postponed plans for the DOE's long-term storage and disposal site. Extended delays or a def ault by the DOE could lead to consideration of costly alternatives. The company has primary responsibility for the interim storage of its spent nuclear fuel. Current capability to store spent fuel at Seabrook 1 is expected to have spent fuel storage capacity until at least 2010. Meeting spent fuel storage requirements beyond this period could require new and separate storage facilities, the costs for which have not been determined. In November 1997, the U.S. Court of Appeals for the D.C. Circuit ruled that the lack of an interim storage facility 18
North Atlantic' Energy Corporation NOTES TO FINANCIAL STATEMENTS .
- 7. COMMITMENTS AND CONTINGENCIES A. Restructuring New Hampshire: In 1996, New Hampshire enacted legislation requiring a competitive electric industry beginning in 1998.
In February 1997, the NHPUC issued its restructuring order, which would have forced PSNH and NAEC to write off all of
- their regulatory assets, and possibly to seek protection under Chapter 11 of the bankruptcy laws. The amount of potential ,
write-off which would have been _ triggered by the order is - currently estimated to be in excess of $400 million, after taxes. Following the issuance of these orders, PSNH immediately sought declaratory and injunctive relief-on various grounds in federal district court and has received a preliminary injunction that freezes implementation of the NHPUC's restructuring orders. Restructuring in New Hampshire has resulted in numerous subsequent proceedings within the federal and state legal systems. As the court proceedings are ongoing, PSNH continues to be involved in settlement discussions with representatives from the state of New Hampshire. PSNH hopes to reach a settlement, which would include, among other things, recovery of regulatory assets and stranded costs, rate reductions, an l auction of PSNH's generating units and securitization of PSNH's stranded costs. If a settlement is not reached a trial is expected to begin mid to late 1999. As a result of the NHPUC decision and the potential consequences discussed above, the reports of our auditors on the individual financial statements of PSNH and NAEC contain explanatory paragraphs. Those explanatory paragraphs indicate that a substantial doubt exists currently about the ability of PSNH and NAEC to continue as going concerns. Management believes that PSNH is entitled to full recovery of its prudently incurred costs, including regulatory assets and , other stranded costs (such as its obligations to NAEC under the Seabrook Power Contracts). It bases this belief both on the general nature of public utility industry cost-of-service based regulation and the specific circumstances of the resolution of PSNH's previous bankruptcy proceedings and its acquisition by NU, including the recoveries provided by the Rate Agreement and related agreements. B.- Environmental Matters NAEC is subject to regulation by federal, state and local authorities with respect to air and water quality, the handling and disposal of toxic substances and hazardous and solid wastes, and the handling and use of chemical products. NAESCO, on behalf of NAEC and the other Seabrook joint owners, has an-17
I North Atlantic Energy Corporation NOTES TO FINANCIAL STATEMENTS A reconciliation between income tax expense and the expected tax expense at the applicable statutory rate is as follows: For the Years Ended December 31. 1998 1997 1996 (Thousands of Dollars) Expected federal income tax
- at 35 percent of l pretax income ............... $17,959 $14,141- $13,776 Tax effect of differences:
Amortization of regulatory assets..................... 7,077 (319) - Depreciation................. 949 (1,049) (1,343) Deferred Seabrook 1 return... (2,356) (2,522) (2,695) State income taxes, net of federal benefit..... 1,657 718 634 Allocation of Parent Company's loss............. (3,874) (615) (578) Sale of Seabrook 2 steam generator......... .......... - - (2,516) Other, net. .......... ........ 404 97 11 Total incot. - ax expense....... $21.816 _$10 , 4 51 $ 7,289
- 6. DEFERRED OBLIGATION TO AFFILIATED COMPANY At the time PSNH emerged from bankruptcy on May 16, 1991, in accordance with the phase-in under the Rate Agreement, it began accruing a deferred return on the unphased-in portion of its Seabrook 1 investment. From May 16, 1991 to the Acquisition Date, l PSNH accrued a deferred return of $50.9 million. On the i Acquisition Date, PSNH transferred the $50.9 million deferred return to NAEC as part of the Seabrook-related assets.
At the time PSNH transferred the deferred return to NAEC, it realized, for income tax purposes, a gain that is deferred under the consolidated income tax rules. Beginning December 1, 1997, this gain is being restored-for income tax purposes as the deferred return of $50.9 million, and the associated income taxes of
$33.2 million, are collected by NAEC through the Seabrook Power
. Contracts. As NAEC recovers the $33.2 million in years eight through ten of the Rate Agreement, it will be obligated to make corresponding payments to PSNH. See Note 1F, "Seabrook Power Contracts" for further information on the phase-in of the Seabrook power plant and see Note 7A, -
" Commitments and Contingencies -
Restructuring" for the possible impacts on NAEC from the NHPUC's decision related to industry restructuring. ! l 16
Nsrth Atlantic En0rgy Carporntien NOTES TO FINANCIAL STATEMENTS
- 5. INCOME TAX EXPENSE The components of the federal and state income tax provisions-were I charged as follows:
I For the Years Ended December 31, 1998 1997 1996 (Thousands of Dollars) . Current income taxes: Federal...................... $15,206 $ (11, 889 ) $(8,570) State........................ 600 (309) 110 Total current .............. 15,806 (12.198) (8,460) Deferred income taxes, net: Federal...................... 4,032 21,528 14,884 State........................ 1,978 1,121 865 Total deferred.............. 6,010 22,649 15,749 Total income tax expense.... $21,816 $10,451 $ 7,289 The components of total income tax expense are classified as follows: For the Years Ended December 31, 1998 1997 1996 (Thousands of Dollars) Income taxes charged to operating expenses.......... $ 36,194 $14,845 $12,341 Other income taxes............ (14,378) (4,394) (5,052) Total income tax expense.... $ 21,816 $10,451 $ 7,289 Deferred income taxes are comprised of the tax effects of temporary differences as follows: For the Years Ended December 31, 1998 1997 1996 (Thousands of Dollars) Depreciation.................. $ 21,828 $20,823 $12,730 Bond redemptions.............. (2,824) (2,351) (2,359) Seabrook i deferred return.... (14,233) 3,338 5,438 Other......................... 1,239 839 (60) , Deferred income taxes, net.. $ 6,010 $22,649 $15,749 15
North Atlantic Energy Corporation 1 NOTES TO FINANCIAL STATEMENTS borrowing needs of the member companies are first met with available funds of other member companies, including funds borrowed by NU parent. NU parent may lend to the Pool but may not borrow. Funds may be withdrawn from or repaid t'o the Pool at any time without prior notice. Investing and borrowing subsidiaries receive or pay interest based on the average daily Federal Funds rate. " However, borrowings based on loans from NU parent bear interest at
- NU parent's cost and must be repaid based . upon the - terms of NU parent's original borrowing. At December 31,- 1998 and 1997, NAEC had no' borrowings and $9.95 million, respectively, of borrowings outstanding from the Pool. The interest rate on borrowings from -
the Pool at December 31, 1998 and 1997 was 5.8 percent,- respectively. I 1 Maturities of NAEC's short-term debt obligations were for periods of three months or less.
- 4. LONG-TERM DEBT Details of long-term debt outstanding are:
December 31, 1998 1997 (Thousands of Dollars) First Mortgage Bonds: 9.05% Series A, due 2002.. ........ $275,000 $295,000 Notes: Variable - Rate Facility, due 2000 200,000 200,000 ) Less: Amounts due within one year.. 70.000 20.000 Long-term debt, net.......... $405,000 $475,000 Long-term debt maturities and cash sinking-fund requirements on i debt outstanding at December 31, 1998 is $70 million for 1999, $270 million for 2000, $70 million for 2001, $65 million for 2002 and no requirements for the year 2003. Market risk-management instruments with financial institutions effectively fix the interest rate on NAEC's $200 million variable-rate bank note at 7.823 percent. For more information on the i interest-rate management instruments, see Note 8, " Market Risk- , Management." The Series A Bonds are not redeemable prior to maturity except out of proceeds of sales of property subject to the lien of the Series A First Mortgage Bond Indenture (Indenture), at general redemption prices established by the Indenture, and out of ) condemnation or insurance proceeds and through the operation of the i sinking fund. Essentially all of NAEC's utility plant is subject to the lien of its Indenture. 14 i i
North Atlantic Energy Corporation NOTES TO FINANCIAL STATEMENTS accrued over the expected service life of the unit and are included in depreciation expense on the Statements of Income. Nuclear
' decommissioning costs amounted to $4.7 million in 1998, $4.5 million in 1997 and $3.5 million in 1996'. Nuclear decommissioning, as a cost of removal, is included in the accumulated provision for depreciation on the Balance Sheets. At December 31, 1998 and 1997, the balance in the accumulated reserve for depreciation amounted to
$25.6 million and $21.1 million, respectively. .
Under the terms of the Rate Agreement, PSNH is obligated to pay NAEC's share of Seabrook l's decommissioning costs, even if .the , unit is shut down prior to the expiration of its operating license. NAEC's portion of the cost of decommissioning Seabrook 1 is paid to an independent decommissioning financing fund managed by the state of New Hampshire. Funding of the estimated decommissioning costs assumes escalated collections for Seabrook 1 and after-tax earnings on the Seabrook decommissioning fund of 6.5 percent. As of December 31, 1998, NAEC (including payments made prior to the Acquisition Date by PSNH) had paid approximately $25.6 million into seabrook l's decommissioning financing fund. Earnings on the decommissioning financing fund increase the decommissioning trust balance and the accumulated reserve for depreciation. Unrealized gains and losses associated with the decommissioning financing fund also impact the balance of the trust and the accumulated reserve for depreciation. The fair value of the amounts in the external decommissioning trusts was $35.2 million as of December 31, 1998. Changes in requirements or technology, the timing of funding or dismantling, or adoption of a decommissioning method other than immediate dismantlement would change decommissioning cost estimates and the amounts required to be recovered. PSNH attempts to recover sufficient amounts through its allowed rates to cover NAEC's expected decommissioning costs. Only the portion of currently estimated total decommissioning cost that has been accepted by regulatory agencies is reflected in PSNH's rates. Based on present estimates and assuming Seabrook 1 operates to the end of its licensing period, NAEC expects that the decommissioning financing fund will be substantially funded when Seabrook 1 is retired from service. ,
- 3. SHORT-TERM DEBT i
i i The amount of short'-term borrowings that may be incurred by NAEC is subject to periodic approval by either the SEC under the 1935 Act or by'its state regulator. Under the SEC restrictions, NAEC was authorized, as of January 1, 1999, to incur short-term borrowings up to a maximum of $60 million. Money Pool: Certain subsidiaries of NU, including NAEC, are members of the Northeast Utilities System Money Pool (Pool). The Pool provides a more efficient use of the cash resources of the system, and reduces outside short-term borrowings. NUSCO administers-the Pool as agent for the member companies. Short-term 13
\
l North Atlcntic Enzrgy Corporation NOTES TO FINANCIAL STATEMENTS owned by the- United States Department of Energy (D&D assessment). The Energy Act requires that regulators treat D&D assessments as a reasonable and necessary current cost of fuel, to be fully recovered in rates, like any other fuel cost. NAEC is currently recovering these costs through the Seabrook Power 1 Contracts. As of December 31, 1998, NAEC's total D&D deferral was approximately $1.9 million. ) l
- J. Deferred Cost - Seabrook 1 i i
Under the Rate Agreement, the plant costs of. Seabrook were phased into rates over a seven-year period beginning May 15, 1991. Total costs deferred under the phase-in plan were approximately $288 million. This plan is in compliance with SFAS 92, " Regulated Enterprises - Accounting for Phase-In Plans." These deferred costs are being billed to PSNH by.NAEC through the Seabrook Power Contracts beginning December 1, 1997, and will be fully recovered from PSNH by NAEC through the Seabrook Power Contracts beginning December 1, 1997, and will be fully recovered from PSNH's customers by May 2001. See Note 1F, " Summary of Significant Accounting Policies - Seabrook Power Contracts," for terms of Seabrook l's phase-in. See Note 7A, " Commitments and Contingencies - Restructuring" for the possible impacts of the NHPUC's decision related to industry restructuring. K. Market Risk-Management Policies NAEC utilizes market risk-management instruments to hedge well-defined risks associated with variable interest rates. To qualify for hedge treatment, the underlying hedged item must expose the company to risks associated with market fluctuations and the market risk-management instrument used must be designated as a hedge and must reduce the company's exposure to market fluctuations throughout the period. Amounts receivable or payable under interest-rate management instruments are accrued and offset against interest expense. For further information, see Note 8, " Market Risk-Management."
- 2. NUCLEAR DECOMMISSIONING ;
The Seabrook 1 nuclear power plant has a service life that is expected to end in the year 2026. Upon retirement, this unit must
. be decommissioned. A current decommissioning study concluded that complete and immediate dismantlement at retirement continues to be the most viable and economic method of decommissioning Seabrook 1.
Decommissioning studies are reviewed and updated periodically to reflect changes in decommissioning requirements, costs, technology ; and inflation. NAEC's 35.98 percent ownership of the estimated costs of decommissioning Seabrook 1, in year-end 1998 dollars, is $175.9 million. Seabrook i decommissioning costs will be increased annually by an escalation rate. Nuclear decommissioning costs are l'2 i
North Atlcntic En0rgy Corporation NOTES TO FINANCIAL STATEMENTS For further information on NAEC's regulatory environment and the potential- impacts of restructuring, see' Note 7A,
" Commitments and Contingencies - Restructuring," 'and Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A).
Based on a current evaluation of the various factors and conditions that -are expected to impact future cost recovery, management continues to believe it is probable that the operating companies, including NAEC, will recover their investments in long-lived assets, including regulatory assets. : The components of NAEC's regulatory assets are as follows: At December 31, 1998 1997 (Thousands of Dollars) Deferred costs-Seabrook 1 $199,753 (Note 1J) .......................... $147,169 Income taxes, net (Note 1H) .......... 39,472 48,736 Recoverable energy costs (Note II) ... 1,878 2,057 Unamortized loss on reacquired debt............................... 11,363 18.938
$199,882 $269,484 H. Income Taxes The tax effect of temporary differences (differences between the periods in which transactions affect income in the !
financial statements and the periods in which they affect the determination of taxable income) is accounted for in accordance regulatory with the ratemaking treatment of the applicable commissions. See Note 5, " Income Tax Expense" for the components of income tax expense. The tax effect of temporary differences, including timing differences accrued under previously approved accounting standards, which give rise to the accumulated deferred tax obligation is as follows: At December 31, 1998 1997 (Thousands of Dollars) - Accelerated depreciation and
- other plant-related differences.... $182,170 $159,251 Regulatory. assets - income tax gross up........................... 13,640 17,094 i Other................................ 13,824 40.356
$209,634 S216,701 I. Recoverable Energy Costs Under the Energy Policy Act of 1992 (Energy Act), NAEC is assessed for its proportionate -share of the costs of decontaminating and decommissioning uranium. enrichment plants 11
North Atlcntic Energy Corporation l NOTES TO FINANCIAL STATEMENTS Beginning on December 1, 1997, the deferred _ return, including the portion transferred to NAEC began to be billed through the Seabrook Power Contracts to PSNH, and will be fully recovered from customers by May 2001. NAEC is depreciating its initial investment over the term of Seabrook l's operating license (39
-years), and any subsequent plant additions are depreciated on a i straight-line basis over the remaining term of the Seabrook i Power Contracts at the time the subsequent additions are placed )
- in service.
If Seabrook 1 is shut down prior to the expiration of the NRC l operating license, PSNH will be unconditionally required to pay NAEC termination costs for 39 years, less the period during which Seabrook 1 has operated. These termination costs will reimburse NAEC for its share of Seabrook 1 shut-down and decommissioning costs, and will pay NAEC a return of and on any undepreciated balance of its initial investment over the remaining term of the Seabrook Power Contracts, and the return of and on any capital additions to the plant made after the Acquisition Date over a period of five years after shut down (net of any tax benefits to NAEC attributable to the cancellation). G. Regulatory Accounting and Assets The accounting policies of the company and the accompanying financial statements conform to generally accepted accounting principles applicable to rate-regulated enterprises and reflect the effects of the ratemaking process in accordance with SFAS 71, " Accounting for the Effects of Certain Types of Regulation." Assuming a cost-of-service based regulatory structure, regulators may permit incurred costs, normally treated as expenses, to be deferred and recovered through future revenues. Through their actions, regulators also may-reduce or eliminate the value of an asset, or create a liability. If any portion of the company's operations were no I longer subject to the provisions of SFAS 71, the company would I be required to write off all of its related regulatory assets and liabilities unless there is a formal transition plan which provides for.the recovery, through established rates, for the collection of these costs through a portion of the business
. which would remain regulated on a cost-of-service basis. At the time of transition, NAEC would be required to determine any impairment to the carrying costs of deregulated plant and inventory assets.
The issue of restructuring the electric utility industry in New Hampshire is currently the focus of negotiations and proceedings within the federal and state legal systems. The outcome of these court proceedings will impact NAEC due to NAEC's contractual relationship with PSNH through the Seabrook ' Power Contracts. Management continues to believe that NAEC's use of regulatory accounting remains appropriate while this issue remains in litigation. 10
~
North Atlcntic Enorgy Corporation NOTES TO FINANCIAL STATEMENTS As of December 31, 1998 and 1997, plant-in-service included' approximately $721.2 million and $723.2 million, respectively, and the accumulated provision for . depreciation included approximately $130.7 million and $116.1 million, respectively, for NAEC's share - of ~ Seabrook 1. NAEC's share of Seabrook l' expenses is included in~the corresponding operating expenses on the accompanying Statements of Income. E. Depreciation The provision for depreciation is calculated- using the , straight-line method based on estimated remaining lives of . depreciable utility plant-in-service, adjusted for salvage value and removal costs, as approved by the appropriate regulatory agency. Except for major facilities, depreciation rates are applied to the average plant-in-service during the period. Major facilities are depreciated from the time they are placed in service. When plant is retired from service, the original cost of plant, including costs of removal, less salvage, is charged to the accumulated provision for depreciation. The costs of closure and removal of non-nuclear facilities are accrued over the life of the plant as a component of depreciation. The depreciation rates for the several classes of electric plant-in-service are equivalent to a composite rate of 3.5 percent in 1998 and 1997, and 3.4 percent in 1996. See Note 2, " Nuclear Decommissioning" for additional information on nuclear plant decommissioning. F. Seabrook Power Contracts PSNH and NAEC have entered into the Seabrook Power Contracts which obligate PSNH to purchase NAEC's 35.98 percent ownership of the capacity and output of Seabrook 1 for the term of ! Seabrook l's Nuclear Regulatory Commission (NRC) operating license. Under these contracts, PSNH is obligated to pay NAEC's cost of service during this period, regardless if , Seabrook 1 is operating. NAEC's cost of service includes all of its Seabrook-related costs, including operation and maintenance (o&M) expenses, fuel expense, income and property tax expense, depreciation expense, certain overhead and other costs and a return on its allowed investment. The Seabrook Power Contracts established 'the value of the initial investment in Seabrook (initial investment) at $700-million. As prescribed by the 1989 rate agreement between NU,
- PSNH, the State of New Hampshire (Rate Agreement), as of May 1, 1996, NAEC phased into rates 100 percent of the recoverable portion of its investment in Seabrook 1. From' June 5, 1992 (the date NU acquired PSNH and NAEC acquired Seabrook 1 from PSNH -
the Acquisition Date) through ' November 1997, NAEC recorded
$203.9 million of ' deferred return on its investment in Seabrook 1. At November 30, 1997, NAEC's utility plant included
$84.1 million of deferred return that was transferred as part of the Seabrook plant assets to NAEC_on the Acquisition Date.
9
North Atlantic Energy Corporation NOTES TO FINANCIAL STATEMENTS Company, and Northeast Generation Services Company. Directly or through multiple subsidiaries, these entities will engage in a variety of energy-related activities, including the acquisition and management of non-nuclear generating plants. B. Presentation ~ The preparation of financial statements in conformity with - generally accepted accouncing principles requires management to
- make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities at the date of the financial statements and the C reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Certain reclassifications of prior years' data have been made j to conform with the current year's presentation. All transactions among af filiated companies are on a recovery of cost basis which may include amounts representing a return on equity and are subject to approval by various federal and state regulatory agencies. C. New Accounting Standards The Financial Accounting Standards Board (FASB) issued a new l accounting standard during 1998: Statement of Financial Accounting Standards (SFAS) 133, " Accounting for Derivative j Instruments and Hedging Activities." SFAS 133 establishes accounting and reporting standards for derivative instruments and hedging activities. This statement becomes effective for NAEC on January 1, 2000 and will require derivative instruments used by NAEC to be recognized on the balance sheets as assets or liabilities at fair value. NAEC uses derivative instruments for hedging purposes. The accounting for these hedging instruments will depend on which l hedging classification each derivative instrument falls under, l as defined by SFAS 133, offset by any changes in the market value of the hedged item. . Based on the derivative instruments which are currently being
. utilized by NAEC to hedge some of its interest-rate risks, ,
there will be an impact on earnings upon adoption of SFAS 133 which management cannot estimate at this time. For further information regarding derivative instruments, see Note 8,
" Market Risk-Management."
D. Jointly Owned Electric Utility Plant ,, NAEC has a 35.98 percent joint-ownership interest in seabrook which includes the 0.4 percent ownership interest in Seabrook 1 which NAEC acquired from Vermont Electric Generat4 and Transmission Cooperative in February 1994. NAEC sells 1 of its entitlement to the capacity (nd output of the Seabrook nuclear generating unit to PSNE under the Seabrook Power Contracts. 8
l North Atlantic Energy Corporation NOTES TO FINANCIAL STATEMENTS
- 1.
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES A. About North Atlantic Energy Corporation North Atlantic Energy Corporation (NAEC or the company), The Connecticut Light and Power Company (CL&P), Public Service Company of New Hampshire (PSNH), Western Massachusetts Electric Company (WMECO), and Holyoke Water Power Company (HWP), are the operating subsidiaries comprising the Northeast Utilities , system (the NU system) and are wholly owned by Northeast Utilities (NU). The NU system furnishes franchised retail electric service in Connecticut, New Hampshire, and western Massachusetts through CL&P, PSNH and WMECO. NAEC sells all of its entitlement to the capacity and output of the Seabrook nuclear power plant, l (Seabrook or Seabrook 1, a 1,148 megawatt nuclear generating unit) to PSNH under two life-of-unit full cost recovery contracts (the Seabrook Power Contracts). HWP is also engaged in the production and distribution of electric power. The NU system also furnishes firm and other wholesale electric services to various municipalities and other utilities, and participates in limited retail access programs, providing off-l system retail electric service. The NU system serves in excess of 30 percent of New England's electric needs and is one of the i 24 largest electric utility systems in the country as measured by revenues. NU is registered with the Securities and Exchange Commission (SEC) as a holding company under the Public Utility Holding Company Act of 1935 (1935 Act). NU and its subsidiaries, including NAEC, are subject to the provisions of the 1935 Act. Arrangements among the NU system companies, outside agencies and other utilities covering interconnections, interchange of electric power and sales of utility property are subject to regulation by the Federal Energy Regulatory Commission (FERC) l and/or the SEC. NAEC is subject to further regulation for ! rates, accounting and other matters by the FERC and/or applicable state regulatory commissions. Other wholly owned subsidiaries of NU provide support services for the NU system companies and, in some cases, for other New - England utilities. Northeast Utilities Service Company (NUSCO) provides centralized accounting, administrative, information ' resources, engineering, financial, legal, operational, planning, purchasing and other services to the NU system companies. North Atlantic Energy Service Corporation (NAESCO) acts as agent for NAEC and CL&P and has operational responsibility for Seabrook. Northeast Nuclear Energy Company (NNECO) acts as agent for the NU system companies and other New England utilities in operating the Millstone nuclear generating facilities. During the first quarter of 1999, NU established three new subsidiaries: NU Enterprises, Inc., Northeast Generation 7
NORTH ATLANTIC ENERGY CORPORATION l STATEMENTS OF COMMON STOCKHOLDER'S EQUITY Capital Retained Common Surplus, Earnings Stock Paid In (a) Total (Thousands of Dollars) Balance at January 1, 1996 ............ $ 1 $ 160,999 0 59,677 $ 220,677 32,072 32,072 Net income............ ... ... .... (38,000) (38,000) Cash dividends....... .... .. ..... 1 160,999 53,749 214,749 Balance at December 31, 1996... . .. ... 29,953 29,953 Net income............. ............ (25,000) (25,000) Cash dividends..... ...... ..... .. 1 160,999 58,702 219,702 Balance at December 31, 1997. ....... . 29,494 29,494 Net income.. ................. ..... (45,000) (45,000) Cash dividends. ................ ... l l Balance at December 31, 1998.......... $ 1 $ 160,999 $ 43,196 $ 204,196 l i .......... .......... ......... .......... (a) All retained earnings are available for distribution, plus an allowance of
$10 million. However, there is a 25% common equity ratio test that must be met in order to comply with the 1995 Term Credit Agreement maturing November 2000. Therefore, the company can pay out all of its retained earnings plus a portion of the allowance. Currently there is $45.8 million available for . dividends.
See accompanying notes to financial statements. 6
NORTH ATLANTIC ENERGY CORPORATION STATD4ENTS OF CASH FIDWS For the Years Ended December 31, 1998 1997 1996 (Thousands of Dollars) Operating Activities: 29,494 $ 29,953 $ 32,072 Net Income. .. ........ .. .................. ...... ..... $ Adjustments to reconcile to net cash from operating activities: 25,381 2:5,170 24,056 Depreciation......... .. ..... . ......................... 11,668
- 10,453 10,705 Amortization of nuclear fuel.... ...... ..................
22,649 15,749 Deferred income taxes and investment tax credits, net... . 6,010 (22,648) (18,900) (20,616) Deferred return - Seabrook.. . ......... ... .. ....... 66,376 7,182 -
- Amortization of nuclear plants return............... ....
- Amortization of other regulatory assets........... ...... (912) (912) (912)
Amortization of deferred obligation to affiliated company. (9,744) (812) -
- - 20,931 Sale of Seabrook 2 steam generator... . ......... .
24,643 12,776 10,087 Other sources of cash. .. . .. ........ ..... ... . (6,429) (9,406) (2,582) Other uses of cash........ .. . .... .. ..... ........ Changes in working capital: 1,891 (9,273) 2,270 Receivables.............. . .................. ........... (824) Materials and supplies... . . ...... ............. ... ... 191 90 Accounts payable... .. .. .......... . ......... ...... (7,161) (11,835) 19,509 710 (3,486) 2,140 Accrued taxes................................... ......... (13,258) 3,429 (7,675) Other working capital (excludes cash) . . .. ... ... ...... 128,745 55,614 103,841 Net cash flows from operating activities.. . . .. .. . Financing Activities: l (9,950) 7,450 (5,500) l Net (decrease) / increase in short-term debt. . . . . ... .... .. (20,000) (20,000) (45,000) Reacquisitions and retirements of long-term debt.......... . (45,000) (25,000) (38,000) Cash dividends on coninon stock. . .. . ... . ... . (74,950) (37,550) (88,500) Net cash flows used for financing activities. ... ..... Investment Activities: Investment in plant: (5,921) Electric utility plant. . . . . . . . . . . (9,028) (6,606) (15,752) (6,474) (6,147) Nuclear fuel. ... . . .... . . ...... ...... Net cash flows used for investments in plant... .... (15,502) (12,753) (21,673) Inves,tment in NU system Money Pool.. . .. . ....... (30,350) - 2,500 Investment in nuclear deconmissioning trusts. . . .... .. (7,885) (5,597) (4,404) Ot.her investment activities, net. . . . ....... .. ... 222 (53,737) (18,350) (23,355) Net cash flows used for investments. ..... .... ... . .. Net increase /(decrease) in cash for the period.. .. .... .. 58 (286) (8,014) 13 299 8,313 Cash . beginning of period. ... .... ..... ..... ...........
.$ 71 $ 13 $ 299 Cash - end of period. .. . . .. ... .... .. . . ...
Supplemental Cash Flow InforTnation: Cash paid /(refunded) during the year for: 42,498 $ 45,297 $ 46,322 Interest, net of amounts capitalized..... .. ...... ....... $
........... ........... === .......
........ ... $ 22,136 $ - $ (13,160)
Income taxes. .. .... ...... .. .... . See accompanying notes to financial statements. 5
NORTH ATLANTIC ENERGY CORPORATION STATD4ENTS OF INCOME l l
._........_.............................. _...........................1997............. 1996-For the Years Ended December 31, 1998 (Thousands of Dollars)
Operating Revenues.................................
$ 276,685 $ 192,381 $ 162,152 4
Operating Expenses: Operation -- 13,305 13,405 15,013 Fuel........... ....... .. ................. . 36,763 39,091 35,268 Other.................... ........ ........... 14,120 24,146 9,154 Maintenance........ ......................... ... l 25,381 25,170 24,056 i Depreciation..... ................ .............. 85,464 6,270 (912) Amortization of regulatory assets, net........... 36,194 14,845 12,341 Federal and state income taxes... ............ .. 12,393 12,343 11,401 Taxes other than income taxes.................... ...._ .... . .. . __. 222,628 135,320 107,263 Total operating expenses................. . 54,057 57,061 54,889 Operating Income. ..... .. ..... ... . ........... Other Income: 7,205 7,700 6,731 Deferred Seabrook retum--other funds. ......... 1,200 Other, net... ..... . ... . .... ....... .. . (8,435) (747) 14,378 4,394 5,052 Income taxes... .. .. ....... . ..... . .... 12,674 10,852 13,952 Other income, net.. . . ... . .... ..... 66,731 67,913 68,841 Income before interest charges..... ..... . Interest Charges: 50,082 50,722 52,414 Interest on long-term debt. .. .. .... .... ...
....... .. (676) 649 (697)
Other interest... ..... .... .. . (12,169) (13,411) (14,948) Deferred Seabrook return--borrowed funds. .. ... 37,237 37,960 36,769
- Interest charges, net.. . ..... .. .......
... .......... $ 29,494 $ 29,953 $ 32,072 Net Income.... ...... ... . .. ...
See accompanying notes to financial statements. 4 l L_ - - - _ __ _ _
l NORTH ATLANTIC ENERGY CORPORATION ( BALANCE SHEETS At December 31, 1998 1997 (Thousands of Dollars) *
- t CAPITALIZATION AND LIABILITIES Capitalization:
Common stock--$1 par value. Authorized
$ 1 $ 1 and outstanding 1,000 shares..........................
160,999 160,999 Capital surplus, paid 1n................................ 58,702 Retained earnings....................................... 43,196 204,196 219,702 Total common stockholder's equity.............. 475,000 Long-term debt... ..... ...................... ....... 405,000 Total capitalization... ............ ......... 609,296 694,702 Current Liabilities: 9,950 Notes payable to affiliated companies.. ........... .... 20,000 Long-term debt--current portion......... . ............ 70,000 5,924 7,912 Accounts payable........................... ...... .... Accounts payable to affiliated companies...... ......... 867 6,040
.......... ................ .... 2,987 3,025 Accrued interest.. . .
Accrued taxes. . ... . ... .. . ........ .............. 710 - 285 1,055 Other.. ...... . ..... ................ . ........... 80,773 47,982 l 1 ............. ............. Deferred Credits: 209,634 216,701 Accumulated deferred income taxes........ .. ......... 32,472 Deferred obligation to affiliated company............... 22,728
................................... 22,822 22,782 Other. ....... .....
255,184 271,955 Commitments and Contingencies (Note 7) . Total Capitalization and Liabilities........... $ 945,153 $ 1,014,639 See accompanying notes to financial statements. 3
PART I. FINANCIAL INFORMATION NORTH ATLAN'IIC ENERGY CORPORATION BALANCE SHEETS l 1 1 . At December 31, 1998 1997 l ......................................................................................... . (Thousands
~ of Dollars) s 1
1 ASSETS \ l l c utility Plant, at original coot: Electric................................................ $ 753,379 $ 779,111 l Less: Accumulated provision for depreciation......... 165,114 143,778 l ............. 588,265 635,333 Construction work in progress.. ....................... 7,090 4,616 Nuclear fuel, net....................................... 23,644 27,413 Total net utility plant............................. 618,999 667,362 Other Property and Investments: Nuclear decommissiening trust, at market................ 35,210 26,547 35,210 26,547 f Current Assets: Cash. .. ....... .......... ........................ 71 13 Special deposits................................ ....... 11,198 - Notes receivable from affiliated companies.............. 30,350 - Receivables from affiliated companies................... 23,804 25,695 7,887 4,613 Taxes receivable................ ....................... Materials and supplies, at average cost................. 12,812 13,003 l . Prepayments and other................................. . 2,198 4,220 1 ............. ............. \ 88,320 47,544 Deferred Charges: Regulatory assets....................................... 199,882 269,484 Unamortized debt expense................................ 2,742 3,702 202,624 273,186 Total Assets........................................ $ 945,153 $ 1,014,639 See accompanying notes to financial statements. 2
1998 Annual Report North Atlantic Energy Corporation ! Index l l i l l Contents Pace l l Balance Sheets.......................................... ... 2 Statements of Income. .... ........................ ........ 4 Statements of Cash Flows..... ........... .................. 5 l l - l Statements of Common Stockholder's Equity.................. 6 , Notes to Financial Statements............................... 7 Report of Independent Public Accountants.................... 22 Management's Discussion and Analysis of Financial Condition and Results of Operations..... ................ 24 Selected Financial Data..................................... 30 Statistics (Unaudited)..................................... 30 Statements of Quarterly Financial Data (Unaudited)...... . . 30 l Bondholder Information.. .... . ...... .. ........ ........ Back Cover l l l 5
- North Atlantic Ene . Co . .rotion _
First Afortgage Bonds Trustee and Interest Paying Agent i United States Trust Company of New York
- 114 West 47th Street l New York, New York 10036 I Address General Correspondence in Care of
Northeast Utilities Service Company Investor Relations Department P.O. Box 270 Hartford, Connecticut 06141-0270 Telephone: (860) 665-5000 t i L summmmmmmmmus General Offices 1000 Elm Street Daw cenitained in this Annual Report are sudnm.tred for the sole purpose ofproviding informaticut to P.O. Box 330 praent securig holders atua the Onnp<my. Manchester, New Hampshire 03105 0330
Ab Lp Form U 60 Mutual and Subsidiary Service Companies 9' [9'hi ! ANNUALREPORT f FOR THE PERIOD Beginning January 1,1998 and Ending December 31,1998 TO THE U. S. SECURITIES AND EXCHANGE COMMISSION OF NORTHEAST NUCLEAR ENERGY COMPANY A Subsidiary Service Company Date of incorporation - November 14,1950 State of Soverign Power under which incorporahd or Organized - Connecticut Location of Principal Executive Omces of Reporting Company - Seiden Street, Berlin, CT 06037 Name, title, and address of officar to whom correspondence concoming this report should be addressed: John J. Roman, Vice President and Controller, P.O. Box 270, Hartford, Ct. 06141-0270 Name of Principal Holding Company Whose Subsidiaries are served by Reporting Company: NORTHEAST UTILITIES
INSTRUCTIONS FOR USE ON FORM U-13-60
- 1. TIME OF FILING Rule 94 provides that on or before the first day of May in each calendar year, each mutual service company and each subsidiary service company as to which the Commission shall have made a favorable finding pursuant to Rule 88, and every service company whose application for approval or declaration pursuant to Rule 88 is pending shall file with the Commission an annual
/ report on Form U-13-60 and in accordance with the instructions for that form.
- 2. NUMBER OF COPIES l Each annual report shall be filed in duplicate. The company should prepare and retain at least one extra copy for itself in case correspondence with reference to the report becomes necessary.
- 3. PERIOD COVERED BY REPORT The first report filed by any company shall cover the period from the date the Uniform System of Accounts was required to be made effective as to that company under Rules 82 and 93 to the end of that calendar year. Subsequent reports should cover a calendar year.
- 4. REPORT FORMAT Reports shall be submitted on the forms prepared by the Commission. If the space provided on any sheet of such form is inadequate, additional sheets may be inserted of the same size as a sheet of the form or folded to such size.
- 5. MONEY AMOUNTS DISPLAYED All money amounts required to be shown in financial statements may be expressed in whole dollars, in thousands of dollars or in hundred thousands of dollars, as appropriate, and subject to provisions of Regulation S-X (5210.3-0.1(b))
- 6. DEFICITS DISPLAYED Deficits and other like entries shall be indicated by the use of either brackets or a parenthesis with corresponding reference in footnotes.
(Regulation S-X, ( $ 210. 3- 0.1 (c) ) . j
- 7. MAJOR AMENDMENTS OR CORRECTIONS Any company desiring to amend or correct a major omission or error in a 1 k
report after it has been filed with the Commirsion shall submit an amended report including only those pages, schedules, and entries thdt are to be amended or corrected. A cover letter shall be submitted requesting the Commission to incomorate the amended report changes and shall be signed by a duly authorized officer of the company.
- 8. DEFINITIONS i Definitions contained in Instruction 01-8 to the Uniform System of Accounts j for Mutual Service Companies and Subsidia n Service Companies, Public Utility i Holding Company Act of 1935, as amended February 2, 1979 shall be applicable j to words or terms used specifically within this Form U-13-60.
- 9. ORGANIZATION CHART The service company shall submit with each annual report a copy of its l current organizat on chart ]
a
- 10. METHODS OF ALLOCATION The service company shall submit with each annual report a listing of the i currently effective methods of allocation being used by the service company ,
and on file with the Securities and Exchange Commission pursuant to the ; Public Utility Holding Company Act of 1935.
- 11. ANNUAL STATEMENT OF COMPENSATION FOR USE OF CAPITAL BILTE The service cog any shall submit with each annual report a copy of the annual l statement supplied to each associate company in support of the amount of compensation for use in capital billed during the calendar year. i 1
J l i i 1
LISTING OF SCHEDULES AND ANALYSIS OF ACCOUNTS Schedule or Page Description of Schedules and Accounts' Acct. No. No. COMPARATIVE BALANCE SHEET Schedule'I 4-5 6 SERVICE COMPANY PROPERTY Schedule.II 6-7 ACCUMULATED PROVISION FOR DEPRECIATION AND
- Schedule III 8 AMORTIZATION OF SERVICE COMPANY INVESWENTS Schedule IV 9 ACCOUNTS RECEIVABLE FROM ASSOCIATE COMPANIES Schedule ~V 10-FUEL STOCK EXPENSES UNDISTRIBUTED Schedule VI 11 STORES EXPENSE UNDISTRIBUTED Schedule VII 12-MISCELLANEOUS CURRENT AND. ACCRUED ASSETS Schedule VIII 13-
' MISCELLANEOUS DEFERRED DEBITS Schedule IX. 14 RESEARCH, DEVELOPMENT, OR DEMONSTRATION EXPENDITURES Schedule X 15 PROPRIETARY CAPITAL Schedule XI 16 LONG-TERM DEBT Schedule XII 17 CURRENT AND ACCRUED LIABILTIES Schedule XIII- 18 NOTES TO FINANCIAL STATEMENTS Schedule XIV 19-COMPARATIVE INCOME STATEMENT Schedule XV 20 ANALYSIS OF BILLING - ASSOCIAT8C COMPANIES Account 457 21 ANALYSIS OF BILLING - NONASSOCIATE COMPANIES Account 458 22-ANALYSIS OF CHARGES FOR SERVICE - ASSOCIATE AND NONASSOCIATE COMPANIES Schedule XVI 23 SCHEDULE OF EXPENSE BY DEPARM ENT OR SERVICE FUNCTION Schedule XVII 24-25 DEPARTMENTAL ANALYSIS OF SALARIES Account 920 26 OUTSIDF SERVICES EMPLOYED Account 923 27 EMPI4YEE PENSIONS AND BENEFITS Account 926 28 GENERAL ADVERTISING EXPENSES- Account 930.1 29 MISCELLANEOUS GENERAL EXPENSES Account 930.2 1 30 RENTS Account 931 31 TAXE8 OTHER THAN INCOME TAXES Account 408 32 I
DONATIONS' Account 426.1 33 . OTHER DEDUCTIONS Account 426.5 34' NOTES TO STATEMENT OF INCOME Schedule XVIII 35
LISTING OF INSTRUCTIONAL-FILING REQUIREMENTS
'Page?
7' Description of Reports or Statements No. 0 0 ORGANIZATION CIIART 36 '- METHODS OF ALLOCATION 37 ANNUAL STATEMENT OF COMPENSATION FOR USE OF CAPITAL BILLED '38 SIGNATURE PAGE 39 o I k 1 I i
.i
-(
lI;
ANNUAL REPORT OF NORTHEAST NUCLEAR ENERGY COMPANY SCHEr'.*:.E I - COMPARATIVE BALANCE SHEET Give balance sheet of the Company as of December 31 of the curre.at and prior year. ASSETS AND OTHER DEBITS AS OF DECEMBER 31 ACCOUNT
....... ................................. .................__.... ............1998 ___...... 1997 SERVICE COMPANY PROPERTY (Thousands of Dollars) .
$ 39,152 $ 3'9,152 101 Service company property (Schedule II) 6,199 2,634 107 Construction work in progress (Schedule II) .......... .........
45,351- 41,786 Total Property .......... ......... 108 Less accumulated provision for depreciation and 14,527 12,867 amortization of service company property (Schedule III) Net Service Company Property bbbb4 bbbib INVESTMENTS 123 Investments in associate companies (Schedule IV) - - 124 Other investments (Schedule IV) .___...... ......__. Total Investments .......... ......... CURRENT AND ACCRUED ASSETS 776 - 131 Cash - - 134 Special deposits 2 2 , 135 Working. funds - - 136 Temporary cash investments (Schedule IV) - 2 141 Notes receivable 4,388 5,255 143 Accounts receivable - 144 Accumulated provision of uncollectible accounts . 71,688 152,978 146 Accounts receivable from associate companies (Schedule V) - 152 Puel stock expenses undistributed (Schedule VI) 68,787 65,829 154 Materials and supplies Stores expense rndistributed (Schedule VII) (6) 310 163 1,675 3,612 165 Prepayments - - 174 Miscellaneous current and accrued aseets (Schedule VIII) .......... ......... 147,310 227,988 Total Curtant and Accrued Assets- .......... ......... DEFERRED DEBITS Unamortized debt expense 87 125 181 198 377 184 Clearing accounts 15,231 10,318 - 186 Miscellaneous deferred debits (Schedule IX) ) 188 Research, development, or demonstration - expenditures (Schedule X) Unamortized loss on reacquired debt - 263 189 24,503 20,376 190 Accumulated deferred income taxes ..__...... ......... 35,106 36,372 Total Deferred Debits .......... ..__.....
$ 213,240 $ 293,279 TOTAL ASSETS AND OTHER DEBITS .........
I
ANNUAL REPORT OF NORTHEAST NUCLEAR ENERGY COMPANY f SCHEDULE I . COMPARATIVE BALANCE SHEET Give balance sheet of the Company as of December 31 of the current and prior year. ACCOUNT LIABILITIES AND PROPRIETARY CAPITAL AS OF DECEMBER-31 1998- 1997 PROPRIETARY CAPITAL (Thousands of Dollars) 201 Common stock issued (Schedule XI) $ 15 $ , 15 Miscellaneous paid-in capital -(Schedule XI) 15,229 15,350 211 215 Appropriated retained earnings (Schedule XI) - - 864 216 Unappropriated retained earnings (Schedule XI) 923 Total Proprietary Capital 16,167 16,229 LONG-TERM DEBT 223 Advances from associate companies (Schedule XII) - - Other long-term debt (Schedule XII) 12,022 18,033 224 225 Unamortized premium on long-term debt - - 226 Unamortized discount on long-term debt-debit - Total Long-Term Debt 12,022 18,033 CURRENT AND ACCRUED LIABILITIES 231 Notes payable 116,130 232 Accounts payable 48,667 233 Notes payable to associate companies (Schedule XIII) - 22,716 234 Accounts payable to associate companies (Schedule XIII) 2,089 236 Taxes accrued 11,534 13,742 237 Interest accrued . 238 Dividends declared 241 Tax collections payable .975 921 242 Miscellaneous current and accrued 103,345 87,097 ) liabilities (Schedule XIII) ..........
.........l Total Current and Accrued Liabilities 166,610 240,606 DEFERRED CREDITS l
................ j 253 Other deferred credits 17,330 17,235 '
255 Accumulated deferred investment tax credits 1,111 1,176 Total Deferred Credits 18,441 18,411 282 ACCUMULATED DEFERRED INCOME TAXES TOTAL LIABILITES AND PROPRIETARY CAPITAL $ 213,240 $ 293,279 f l
ANNUAL REPORT OF NORTHEAST NUCLEAR ENERGY COMPANY For the Year Ended December 31, 1998 SCHEDULE II - SERVICE COMPANY PROFERTY BALANCE AT RETIREMENTS BALANCE AT CLOSE OR OTHER BEGINNING OF YEAR ADDITIONS SALES CHANGES (1) , DESCRIPTION OF YEAR (Thousands of D'ollars) SERVICE COMPANY PROPERTY Account 301 ORGANIZATION 303 MISCELLANEOUS INTANGIBLE PLANT 304 LAND AND LAND RIGHTS 305 STRUCTURES AND IMPROVEMENTS 306 L'.ASEHOLD IMPROVEMENTG 307: EQUIPMENT (2) 308 OFFICE FURNITURE AND EQUIPMENT 309 AUTOMOBILES, OTHER VEHICLES AND RELATED GARAGE EQUIPMENT 310 AIRCRAFT AND AIRPORT EQUIPMENT 311 OTHER SERVICE COMPANY PROPERTY (3)
$33,282
$33,282 321 STRUCTURES AND IMPROVEMENTS 322 REACTOR PLANT EQUIPMENT 27 27 324 ACCESSORY ELECTRIC EQUIPMENT 325 MISCELLANEOUS POWER PLANT 4,575 4,575 EQUIPMENT 1,268 3,268 391 OFFICE FURNITURE AND EQUIPMENT.......... ......... ........... ..........
39,152 SUB-TOTAL 39,152 4 107 CONSTRUCTION WORK IN 6,199 2,634 3,565 PROGRESS (4)
$3,565 $0 $0 $45,351 TOTAL $41,786 (1) PROVIDE AN EXPLANATION OF THOSE CHANGES CONSIDERED MATERIAL:
NONE . 4
SCHEDULE II - CONTINUED (2) SUBACCOUNTS ARE REQUIRED FOR EACH CLASS OF EQUIPMENT OWNED. THE SERVICE COMPAN SHALL PROVIDE A LISTING BY SUBACCOUNT OF EQUIPMENT ADDITIONS DURING THE YEAR AND THE BALANCE AT THE CLOSE OF THE YEAR: BALANCE AT CLOSE ADDITIONS OF YEAR SUBACCOUNT DESCRIPTION (Thousands of Dollars) NONE e (3) DESCRIBE OTHER SERVICE COMPANY PROPERTY: (4) DESCRIBE CONSTRUCTION WORK IN PROGRESS: This account includes simulator upgrade, tools and general plant items. ? I i
ANNUAL REPORT OF NORTHEAST NUCLEAR ENERGY COMPANY For the Year Ended December 31, 1998 SCHEDULE III ., ACCUMULATED PROVISION FOR DEPRECIATION AND AMORTIZATION OF SERVICE COMPANY PROPERTY '
................................................................................ ADDITIONS OTHER CHANGES BALANCE BALANCE AT CHARGED TO ADD AT CLOSE BEGINNING ACCT 403 RETIREMENTS (DEDUCT)1/ OF YEAR DESCRIPTION OF YEAR
.......................................................................................... (Thousands of Dollars)
Account 301 ORGANIZATION 303 MISCELLANEOUS INTANGIBLE PLANT l 304 LAND AND LAND RIGHTS 305 STRUCTURES AND IMPROVEMENTS 306 LEASEHOLD IMPROVEMENTS 307 EQUIPMENT 308 OFFICE FURNITURE AND FIXTURES 309 AUTOMOBILES, OTHER VEHICLES AND RELATED GARAGE EQUIPMENT 310 AIRCRAFT AND AIRPORT EQUIPMENT 311 OTHER SERVICE COMPANY PROPERTY 9,178 1,384 0 0 10,562 321 STRUCTURES AND IMPROVEMENTS 0 0 0 0 0 322 REACTOR PLANT EQUIPMENT 0 14 14 0 0 324 ACCESSORY ELECTRIC EQUIPMENT 325 MISCELLANEOUS POWER PLANT 3,182 2,930 360 0 (108) EQUIPMENT 0 769 745 24 0 391 OFFICE FURNITURE AND FIXTURES
$12,867 $1,768 $0 ($108) $14,527 TOTAL 1/ PROVIDE AN EXPLANATION OF THOSE CHANGES CONSIDERED MATERIAL:
Depreciation charged to clearing account $60 Retdoval costs charged to reserve .(168) , ($108) 8
ANNUAL REPORT OF NORTHEAST NUCLEAR ENERGY COMPANY For the Year Ended December 31, 1998
** SCHEDULE IV - INVESTMENTS INSTRUCTIONS: Complete the following schedule concerning investments.
Under Account 124, "Other Investments,a state each investment separately, with description, including the name of issuing company, number of shares or principal amount, e t c '. Under Account 136, " Temporary Cash Investments," list each investment separately. BALANCE AT BALANCE AT BEGINNING CLOSE DESCRIPTION OF YEAR OF YEAR j ACCOUNT 123 - INVESIMENT IN ASSOCIATE COMPANIES NONE ACCOUNT 124 - OTHER INVESTMENTS NONE ACCOUNT 136 - TEMPORARY CASH INVESTMENTS NONE , TOTAL $- $- I . l 9 -- 2
ANNUAL REPORT OF NORTHEAST' NUCLEAR ENERGY COMPANY For'the Ytar Ended December 31,-1998 SCHEDULE V . ACCOUNTS RECEIVABLE FROM ASSOCIATE COMPANIES INSTRUCTIONS: Complete the following schedule listing accounts receivable from each associate company. Where the service company has provided accommodation or . convenience payments for. associate companies, a separate listing of total payments for each associate company by subaccount should be provided. BALANCE AT BALANCE AT BEGINNING CLOSE OF YEAR OF YEAR DESCRIPTION . (Thousands of Dollars) ACCOUNT 146 - ACCOUNTS RECEIVABLE FROM ASSOCIATE COMPANIES
$98,600 $25,900 Northeast Utilities System Money Pool 43,284 36,559 The Connecticut Light and Power Company 10,144 8,572 Wzstern Massachusetts Electric Company 918 540 Northeast Utilities Service Company 6 92 North Atlantic Energy Service Corporation 26 25 Public Service Company of New Hampshire
$152,978 $71,688 TOTAL .
ANALYSIS OF CONVENIENCE OR ACCOD000DATION PAYMENTS:
.See page 10A for details.
6 4 e 10 t
, - - .e ,- - . -- .. _ . . .,
ANNUAL REPORT OF NORTHEAST NUCLEAR ENERGY COMPANY For the Year Ended December 31, 1998
.* SCHEDULE V - ACCOUNTS RECEIVABLE FROM ASSOCIATE COMPANIES 1 INSTRUCTIONS: Complete the following schedule listing accounts receivable from each associate company. Where the service company has provided accommodation or convenience payments for associate companies, a separate listing of total payments for each associate company by subaccount should be provided.
TOTAL DESCRIPTION PAYMENTS (Thousands . of Dollars)l ANALYSIS OF CONVENIENCE OR ACCOMMODATION PAYMENTS: The Connecticut Light and Power Company $2,431 Western Massachusetts Electric Company 553 Public Service Company of New Hampshire 76 North Atlantic Energy Service Corporation 650 Northeast Utilities Service Company 2,489 TOTAL $6,199 Convenience payments result primarily from the following items: Engineering Services $3,994 Consulting Services 356 Computer Equipment & Supplies 291 Temporary Personnel Services 594 Miscellaneous . (143 items) 964 TOTAL $6,199 e 4
-10A-
ANNUAL REPORT OF NORTHEAST NUCLEAR ENERGY COMPANY For the Year Ended December 3), 1998 SCHEDULE VI - FUEL S~'OCK EXPENSES UNDISTRIBUTED .. INSTRUCTIONS: Report the~ amount of labor and expenses incurred with respect to fuel stock expenses during the year and indicate amount attributable to each associate company. Under the section headed "Summar'/" listed below, give , an overall report of the fuel functions performed by the service company. LABOR EXPENSES TOTAL DESCRIPTION (Thousands of Dollars) ACCOUNT 152 - FUEL STOCK EXPENSES - $ - UNDISTRIBUTED .......... .......... e 4 o
*, G
,9
ANNUAL REPORT OF NORTHEAST NUCLEAR ENERGY COMPANY For the Year Ended December 31, 1998 i SCHEDULE VII - STORES EXPENSE UNDISTRIBUTED a INSTRUCTIONS: Report the amount of labor and expenses incurred with respect to stores expense during the year and indicate amount attributable to each l associate company. i I EXPENSES TOTAL DESCRIPTION LASOR (Thousands of Dollars) ACCOUNT 163 - STORES EXPENSE UNDISTRIBUTED
$310 Beginning Balance as of January 1, 1998 Activity for the year:
$4,567 $2,056 6,623 Stores expense undistributed The above otores expenses are billed back to each of the companies listed below:
The Connecticut Light & Power Company (3,428) (1,543) (4,971) (801) (362) (1,163) Western Massachusetts Electric Company Public Service Company of New Hampshire (45) (20) (65) Nonassociate Companies (see page 22 for list of the companies) (510) (230) (740) (2,155) (6,939) Stores expense distributed (4,784) Net Activity for year ($217) ($99) (316) Ending Balance as of December 31, 1998 ($6) e '. 12
ANNUAL REPORT OF NORTHEAST NUCLEAR ENERGY COMPANY For the Year Ended December 31, 1998 SCHEDULE VIII . , , MISCELLANEOUS CURRENT AND ACCRUED ASSETS a
- Items less tlian $10,000 may be INSTRUCTIONS: Provide detail of items in this account 4 grouped, showing the number of items in each group, BALANCE AT BALANCE AT BEGINNING CLOSE OF YEAR OF YEAR DESCRIPTION (Thousands of Dollars)
ACCOUNT 174 - MISCELLANEOUS CURRENT AND ACCRUED ASSETS NONE TOTAL _ O 4 4 _13 4 8 e
ANNUAL REPORT OF NORTHEAST NUCLEAR ENERGY COMPANY For the Year Ended December 31, 1998
- SCHEDULE IX MISCELLANEOUS DEFERRED DEBITS INSTRUCTIONS: Provide detail of items in this account. Items less than $10,000 may be grouped, showing the number of items in each group.
BALANCE AT BALANCE AT BEGINNING CLOSE DESCRIPTION OF YEAR OF YEAR (Thousands of Dollars) ACCOUNT 186 - MISCELLANEOUS DEFERRED DEBITS Long term receivable from Rocky River $6,236 Realty Company (ascociated company) $6,576 Contractual retainage 5,175 634 2,270 1,032 Financial system development costs RABBI Trust funding 952 952 Connecticut sales tax under protest 99 99 Employee performance payments 97 - 53 53 External audit - Millstone Unit No. 3 10 1,061 Unfunded supplemental executive retirement plan Decommissioning costs - Millstone Unit No. 1
- 231 Restricted stock - unearned compensation - 11 Other deferred debits (1) 9 (3 items in 1998 and 7 items in 1997) _,......... ..........
TOTAL $15,231 $10,318
~
\
l 1
ANNUAL REPORT OF NORTHEAST NUCLEAR ENERGY COMPANY For the Year Ended December 31, 1998 SCHEDULE X RESEARCH, DEVELOPMENT, OR DEMONSTRATION EXPENDITURES INSTRUCTIONS: Provide a description of each material research, development, or , demonstration project which incurred costs by the service corporation during the year. DESCRIPTION AMOUNT (Thousands of Dollars) l ACCOUNT 188 - RESEARCH, DEVELOPMENT OR DEMONSTRATION EXPENDITURES
$92 EPRI Research Dues 510 BWR Vessel & Internal Project The above expenses are billed back to each of the associated companies listed below:
The Connecticut Light and Power Company (413) Western Massachusetts Electric Company (97) Public Service Company of New Hampshire (8) Nonawsociate Companies (see page 22 for list of the companies) (84) TOTAL $0
-15 *
]
9 4
ANNUAL REPORT OF NORTHEAST NUCLEAR ENERGY COMPANY For the Year Ended December 31, 1998 1 SCHEDULE XI PROPRIETARY CAPITAL NUMBER OF PAR OR STATED OUTSTANDING CLOSE OF PERIOD VALUE --------------------------- ACCOUNT SHARES NUMBER CLASS OF STOCK AUTHORIZED PER SHARE NO. OF SHARES TOTAL AMOUNT (Thousands of Dollars) 201 COMMON STOCK ISSUED 60,000 $10.00 1,500 $15 INSTRUCTIONS: Classify amounts in each account with brief explanation, disclosing the general nature of transactions which give rise to the reported amounts. DESCRIPTION AMOUNT (Thousands of Dollars) ACCOUNT 211 - MISCELLANEOUS PAID-IN-CAPITAL $15,229 , l ACCOUNT 215 - APPROPRIATED RETAINED EARNINGS TOTAL $15,229
.................__.......................... __.....................__................... j i
{ INSTRUCTIONS: Give particulars concerning net income or (loss) during the year, , distinguishing between compensation for the use of capital owed or net loss remaining from servicing nonassociated per the General Instructions of the Uniform Systems of Accounts. For dividends paid during the year in cash or otherwise, provide rate pecentage, amount of dividend, date declared and date paid. BALANCE AT NET INCOME BALANCE AT BEGINNING OR DIVIDENDS CLOSE. DESCRIPTION OF YEAR (LOSS) PAID OF YEAR (Thousands of Dollars) ACCOUNT 216-UNAPPROPRIATED RETAINED l EARNINGS $864 $2,059 $2,000 $923 l l TOTAL $864 $2,059 $2,000 $923 l
......... ......... ......... ......... 1 '
The net income is all compensation for use of capital. ~. The dividends are paid as follows: . Rate Percentage Amount of Per Share Dividend Date Declared Date Paid
$1,333.33 $2,000,000 10/14/98 12/31/98 1
1
. I
t _E R __ . 2 . 2 .
.C . 2 . 2 .
EA_ SE . 0 . 0, .. 'e s e
.AA
_NT _L OY_ L .
. 2
. 2 .
t _A CF __ . 1 . 1 . ten d . neo,n oru wcn a _B S N O_ 1 1 . O 1 _ 1 . n cod _ I 0 _ 0 . . osAietz _ T) _ e _ . 6 . 6 scrai . C (1 _ . enozr . U _ . caFio . D . . nv nh _ E . . . ad .at _ D . . . vangu _ S _ . 0 _ 0 . d mra . N_ _ = ahuo ._ O . _ cl t I _ riorn . _ ohcou _ T_ I E. f w nym o _ D _
. N . _ .
Y ymona D . O. _ . N _ A.)s N _ A loia _ G _ P ertpe _ M tf amh _ _E NR ._ r IA _ a 3 3
. 3 .
_ 3 . O 8 a got C . . 0 . C 9 9 rsic ael d .NT AA NE NY
.l l
0 Y 1 pi b r n ._ L I _o 8 _ 8 . _ 1 G enooa sapfi _A GF _D . 1 R E 1
, t
, .B E B O ._ f . _ $..
N 3 dmode . D . o . _ _ 0 . eo et . E _ . 0 E TZ _ s 0 _ 0 r tcsra . . _ 0 R e r ecr _ NI _ UR _d n
. 0, _ ,.
A b T oei _ _a 5 _ 5 . E L m e I I B E ptrft eaeos OO_s MH_ u AT
. 2 _ 2 C c X .D ris c er e . $
T U_o U e _ _ . N D E L M R eodme bsnat S A_hT % T d U E sanni _ EE_ _( 7 6 S e D T da _ A E d n E H G
- l ufsh se, .
. RT_ _
7 H E C N ooaty . EA_ T N R T S D h l t I R r I sscei _ _ O a e dr _ Y _ N e smeiu _ T. 0 Y eahvt _ E I . 0 F iNtoa _ TFR_ a.rp rm O e n A 0 DOU T _ h _ _ 2 T t pte f / R mndto _ A_ M_ 5 O r ounb _
.S e P
F o coueec G E N .. t S E ecn dt a I I O_ R _ LR I o N tawmd _ _ N O L . a or . B OS E AT_ d I T A inhe, . G_ C U cestn . F & I, _ e N op o . O T _ r U N s o e gi SB_ ru T D A s bnt . S S O_ oc B E E D anoll goa _ MA _ ie ns D R E L F_ en F T C m l i _ osarl ._ M SU M O rehebg_ O ._ O R E N R fcshon_ n t i_ _ F ES M T- O I sadOfd_ eve cdv- on_ STE EAI R E e ca G N T A nai st a_ _ CIN NCA T nc O L N A t a e R- : ai vdc4rtms_ _ _ R_ AOP EGT rr L n dne2eu_ _ O ._ VSM DSO HNB TOE ue sm R E P X e T m Aar2to.. S
- I _ ~
D _ AAC OLD nA I H T E y a N E _ 3 4 f O N p O ._ R _ 2 2 l o A I _ 2 2 a L l T _ C_ iy A E a p C F _ T T tn T V U ._ _ N N na O I i R _ O_ U O ep T G c T _ E _ O O dm n S . M_ _ C C C uo ) i r N . A C rC 1 I . N. A A P ( P
;?
-j j
ANNUAL REPORT OF NORTHEAST NUCLEAR ENERGY COMPANY For the Year Ended December.31, 1998 SCHEDULE XIII - CURRENT AND ACCRUED LIABILITIES INSTRUCTIONS: -Provide balance of notes and accounts payable to.each associate company. Give description and amount of miscellaneous current and accrued
- liabilities. Items less than $10,000 may be grouped, showing the~ number of items in each group.
BALANCE AT BALANCE AT BEGINNING
- CLOSE DESCRIPTION OF YEAR OF YEAR (Thousands'of Dollars)
ACCOUNT 233 - NOTES PAYABLE TO ASSOCIATE COMPANIES i J TOTAL $- $- j q ACCOUNT 234 - ACCOUNTS PAYABLE TO ASSOCIATE COMPANIES The Connecticut Light and Power Company $1,600 $1,092 Western Massachusetts Electric Company 46 47 Northeast Utilities Service Company 20,639 750 Northeast Utilities 180 195 Public Service Company of New Hampshire 210 - North Atlantic Energy Service Corporation 41 5 TOTAL $22,716 $2,089 l ACCOUNT 242 . MISCELLANEOUS CURRENT AND ACCRUED LIABILITIES Millstone 3 Funding Liability $39,801 $51,304 Pension Cost 35,855 42,075 s VIPCO and PECO Incentive Fees '4,752 - Performance Reward Program 3,485 6,310 Payroll Accrual 2,748 3,819 Severance Accrual 481 (158) Miscellaneous (2 items) -(25) (5) TOTAL $87,097 $103,345 f. i
, 3 j
ANNUAL REPORT OF NORTHEAST NUCLEAR ENERGY COMP ANY For the Year Ended December 31.1998 CCHEDULE 'XIV (
' NOTES TO FINANCIAL STATEMENTS ,,
INSTRUCTIONS: The space below is provided for important notes regarding the financial statements or any
- account thereof. Furnish particulars as to any significant contingent assets or liabilities existing at the end of the year. Notes relating to financial statements shown elsewhere in this report may be indicated here by reference.
- 1.
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES General Northeast Nuclear Energy Company (NNECO or the company) is a wholly owned subsidiary of Northeast Utilities (NU). The Connecticut Light and Power Company (CL&P), Public Service Company of New Hampshire (PSNH), Westem Massachusetts Electne Company (WMECO), Holyoke Water Power Company and North Atlantic Energy Corporation are the operating subsidiaries of the Northeast Utilities system (the NU system) and are wholly owned by NU. NNECO acts as agent for the NU system companies and other New England utilities in operating the Millstone nuclear generating facilities. Millstone 1 and 2 are wholly owned by CL&P and WMECO. Millstone 3 is owned by CL&P, PSNH, WMECO and other nonamliated utilities. The costs of the nuclear units are recorded on the books of CL&P, PSNH, WMECO and the nonamliated utilities are in their proportionate ownership shares. Other wholly owned subsidiaries of NU provide support services for_the NU system companies and, in some cases, for other New England utilities. Northeast Utilities Service Company (NU3CO) provides centralized accounting, administrative, data processing, engineering, financial, legal, operational, planning, purchasing and other services to the NU system companies. North Atlantic Energy Service Corporation has operational responsibility of the Seabrook nuclear power plant. All transactions among amlisted companies are on a recovery of cost basis which may include amounts representing a retum on equity and are subject to approval of various federal and state regulatory agencies. Public Utility Regulation NU is registered with the Securities and Exchange Commission (SEC) as a holding company under the Pubiic Utility Holding Company Act of 1935 (the 1935 Act). NU and its subsidiaries, including NNECO, are subject to the provisions of the 1935 Act. Revenues The company provides services to the amliated utility companies on the basis of recovery of cost plus retum on capital, as defined under the terms of agreements, which have been approved by various federal , and state regulatory commissions having jurisdiction over operations of the company and the amliated i utility companies. Depreciation - The provision for depreciation is calculated using the straight-line method based on estimated remaining lives of depreciable utility plant-in-service, adjusted for salvage value and removal costs, as approved by the appropriate regulatory agency. l 19 KwccTworm1998 U1360WNECO. DOC
ANNUAL REPORT OF NORTHEAST NUCLEAR ENERGY COMPANY For the Year Ended December 31.1998 SCHEDULE XIV ( - NOTES TO FINANCLAL STATEMENTS / Except for major facilities, depreciation rates are applied to the average plant-in-service during the period. Major facilities are depreciated from the time they are placed in service. When plant is retired from service, the original cost of plant, including costs of removal, less salvage, is charged to the accumulated provision for depreciation. The depreciation rates for the several classes of utility plant-in-service are equivalent to a composite rate of 4.6 percent in 1998 and 4.5 percent in 1997.
- 2. LEASES The company has entered into lease agreements with two unaffiliated third parties for the use of nuclear control room simulators (simulators) for Millstone 1 and 2, and CL&P's and WMECO's share of the Millstone 3 simulator, in addition the company's affiliates have entered into lease agreements for the use of data processing equipment, office equipment, vehicles and office space. NNECO is billed for its proportionate share of these leases through the intercompany billing system. The provisions of these lease agreements generally provide for renewal options.
Rental payments charged to operating expenses for 1998 and 1997 amounted to approximately
$4.8 million each year for capital lease rental payments and $5.1 million and $6.1 million, respectively, for operating lease rental payments.
Interest included in capital lease rental payments for 1998 and 1997 was approximately $1.2 million and
$1.6 million, respectively.
Future minimum rental payments, excluding executory costs such as property taxes, state use taxes, insurance and maintenance, under long-term noncancelable leases as of December 31,1998, are approximately: Penod Capital Leases Ooeratino Leases (Thousands of Dollars) ( 1 1999..... .. ............................ $4,100 $220 2000......................................... 3,800 150 2001................................... 1,700 60 2002.............................................. - 30 2003.......................................... - 20 After 2003 ..... .. ... ...... .. . ..... ...... ..... ... - _2Q Future minimum lease payments........ 9,600 gggg Less amount representing interest... ... _1JQQ
- Present value of future minimum lease payments ......... ... ........ . ....... . ggjgg
- 3. SHORT-TERM DEBT Certain subsidiaries of NU, including NNECO, are members of the Northeast Utilities System Money Pool (Pool). The Pool provides a more efficient use of the cash resources of the NU system, and reduces outside short-term boticiwirgs. NUSCO administers the Pool as agent for the member companies. Short-term borrowing needs of the member companies are first met with available funds of other member companies, including funds borrowed by NU parent. NU parent may lend to the Pool, but may not borrow 19A K:WCCTINGM90s U1300WNECO DOC
ANNUAL REPORT OF NORTHEAST NUCLEAR ENERGY COMPANY For the Year Ended December 31.1998 SCHEDULE XIV NOTES TO FINANCIAL STATEMENTS . Funds may be withdrawn from or repaid to the Pool at any time without prior notice investing and I borrowing subsidiaries receive and pay interest based on the average daily Federal Funds rate.
- Borrowings based on loans from NU parent, however, bear interest at NU parent's cost and must be repaid based upon the terms of NU parent's original borrowing. At December 31,1998 and 1997, NNECO had no borrowings outstanding under the Pool.
- 4. LONG TERM DEBT Detail of long-term debt outstanding is:
1998 1997 December 31. (Thousands of Dollars) 7.67% Senior Notes, due 2000. . . . . . . . . ..
$12,022 $18.033 Less: Amounts due within one year. . . . . . . . . . . . .
6.011 6.011 Long-term debt, net.. . . . . . . . . . . . . . . . . . . . . 5 6.011 }jiMg2 Cash sinking-fund requirements on debt outstanding at December 31,1998 are approximately $6,011,000 for 1999 and $5,776,000 for 2000. There are no cash sinking-fund requirements after 2000.
- 5. PENSION BENEFITS AND POSTRETIREMENT BENEFITS OTHER THAN PENSIONS The NU system subsidiaries, including NNECO, participate in a uniform noncontributory defined benefit retirement plan covering all regular NU system employees. Benefits are based on years of service and the employees' highest eligible compensation during 60 consecutive months of employment. NNECO's direct portion of the NU system's pension cost, part of which was charged to utility plant, approximated
$6.2 million in 1998 and $5.4 million in 1997.
Currently, NNECO funds annually an amount at least equal to that which will satisfy the requirements of l the Employee Retirement income Security Act and the Internal Revenue Code. Pension costs are determined using market related values of pension assets. i The NU system subsidiaries, including NNECO, also provide certain health care benefits, pdmarily medical and dental, and life insurance benefits through a benefit plan to retired employees. These benefits are available for employees retiring from the NU system who have met specified service requirements. For current employees and certain retirees, the total benefit is limited to two times the 1993 per-retiree health care cost. These costs are charged to expense over the future estimated worklife of the employee. NNECO is funding postretirernent costs through extemal trusts. NNECO is funding, on an annual basis, amounts that are tax-deductible under the Intemal Revenue Code. Pension and trust assets are invested primarily in domestic and intemational equity securities and bonds. 19B KWCCTWoM996 U1360WNECO. DOC
ANNUAL REPORT OF NORTHEAST NUCLEAR ENERGY COMPANY For the Year Ended December 31.1998 l SCHEDULE XIV l NOTES TO FINANCIAL STATEMENTS I The following table represents the plans' beginning benefit obligation balance reconciled to the ending benefit obligation balance, beginning fair value of plan assets balance reconciled to the ending fair value 7 of plan assets balance and the respective funds' funded status reconciled to the Balance Sheets: The components of net cost are: At December 31, Pension Benefits Postretirement Benefits 1998 1997 1998 1997 (Thousands of Dollars) Change in benefit obligation Benefit obligetion at beginning of year. . . . . . . . . . $(111,394) $(107,001) $(15,178) $(16,389) Service cost... . . . . . . . . (7,163) (5,572) (1,038) (689) Interest cost.. . . . . . .. (8,631) (7.715) (1,289) (1,072) Transfers... . . . . . . . . . .. (5,397) 1,190 - - Actuarial (loss)/ gain.. . . . . . . . .. (10,220) 4,897 (2,766) 2,263 Benefits paid.. . 2,826 2.827 1,017 709 Benefit obligation at end of year.... . $(139,979) $(111,394) $(19,254) $(15,178) Change in plan assets i l Fair value of plan assets at beginning of year... . . .. .. . ... . . $ 103,949 $ 89,828 $10,008 $ 7,881 Actual retum on plan assets.. . ... 14,492 18,138 1,290 1,599 1,634 1,237 Employer contribution... . . . . . . . . Benefits paid... . ..... . . ... .. ...... (2,826) (2,827) (1,017) (709) Transfers. 5,397 (1,190) - - I Fair value of plan assets at end of year ... . . . . . .
$121,012 $103,949 $11,915 $10,008 Funded statur at December 31. .... . $(18,967) $ (7,445) $ (7,339) $ (5,170)
Unrecognizer transition amount.. .. (1,439) (1,584) 3,882 4,159 Unrecognized pnor service cost..... 3,546 3,804 - - Unrecognized net gain . (30,630) 3.457 1,011 (25.215) Accrued benefit cost.. . . . . . .. . $(42,075) $(35,855) $ - S - The following actuarial assumptions were used in calculating the plans' year-end funded status: At December 31, Pension Benefits Postretirement Benefits 1998 1997 1998 1997 Discount rate . .. ........ ....... . . . . . . . . 7.00 % 7.25 % 7.00 % 7.25% Compensation / progression rate...... 4.25% 4.25% 4.25% 4.25% Health care cost trend rate (a) . .. N/A N/A 5.22 % 5.76 % (a) The annual growth in per capita cost of covered health care benefits was assumed to decrease to l 4.40 percent by 2001. 19C K%CCTING\1998 U1360WNECO. DOC
i ANNUAL REPORT OF NORTHEAST NUCLEAR ENERGY COMPANY For the Year Ended Dgcomber 31.1998 SCHEDULE XIV NOTES TO FINANCIAL STATEMENTS ,, The components of net periodic benefit cost are: *
.i For the Years Ended December 31.
Pension Benefits Postretirement Benefits 1998 1997 1998 1997 (Thousands of Dollars) S 7,163 $5,572 $1,038 $ 689 Service cost.. . . . . .. . 1,072 8,631 7,715 1,289 Interest cost.. . . .. . . . Expected retum on plan assets.. (8.848) (7,269) (747) (552) Amortization of unrecognized (145) 277 277 transition (asset)/ obligation . . (145) - Amortization of prior service cost.. . 258 258 - Amortization of actuarial gain. .... (838) (727) Other amortization, net.. - - (223) (250)
$ 6,221 $ 5,404 $1,634 $1,236 Net periodic benefit cost .. . . .
For calculating pension and postretirement benefit costs, the following assumptions, were used: For the Years Ended December 31, Pension Benefits Postratirement Benefits 1998 1997 1998 1997 7.25% 7.75 % 7.25% 7.75 % Discount rate. . . . . . . . . . . . . . . . . . . Expected long-term rate of retum.. . 9.50 % 9.25% N/A N/A Compensation / progression rate... .. 4.25% 4.75 % 4.25% 4.75 % ) Long-term rate of retum-Health assets, net of tax... . . . . . . . N/A N/A 7.75% 7.50 % N/A N/A 9.50 % 9.25 % Life assets.. . . . . . . . . Assumed health care cost trend rates have a significant effect on the amounts reported for the health care plans. The effect of changing the assumed health care cost trend rate by one percentage point in each year would have the following effects: One Percentage One Percentage (Thousands of Dollars) Pointincrease Point Decrease Effecton totalserviceand interest cost components .. . . . $ 87 $(99) Effecton postratirement benefit obligation .. .. . . . . . . . . . . . . . 727 (833) . The trust holding the health plan assets is subject to federal income taxes at a 39.6 percent tax rate. l 19D K:WCCTING\1998 U1360WNECO. doc
ANNUAL REPORT OF NORTHEAST NUCLEAR ENERGY COMPANY For the Year Ended December 31.1998 j SCHEDULE XIV NOTES TO FINANCIAL STATEMENTS
- 6. NUCLEAR PERFORMANCE All three Millstone units were placed on the NRC watch list on January 29,1996. The units cannot be restarted without appropriate NRC approvals. Millstone 3 has received these approvals and resumed operation in July 1998. Restart efforts continue for Millstone 2 and it is expected to be ready to restart in the spring of 1999. The estimated replacement power costs are approximately $8 million per month while Millstone 2 remains out of service. in July 1998, CL&P and WMECO decided to retire Millstone 1 and prepare for final decommissioning.
)
i I l j '4 19E K WCCTINGu996 U1360WNECO. DOC
ANNUAL REPORT OF NORTHEAST NUCLEAR ENERGY COMPANY FOR THE YEAR ENDED DSCEMBER 31, 1998 SCHEDULE XV I COMPARATIVE INCOME STATEMENT e ....................................................................................... 1997 1998 DESCRIPTION ACCOUNT (Thousands of Dollars) 1 f INCOME
$470,221 $631,692 457 Services rendered to associate companies 61,445 102,883 458 Services rendered to nonassociate companies 2,848 4,981 421 Miscellaneous income or loss ............ ...........
534,514 739,556 Total Income ............ ........... EXPENSE Nuclear Power Expenses 94,451 140,209 517 Operation Supervision and Engineering 4,743 4,410 519 Coolants and Water 27,362 30,906 520 Steam Expenses 10,540 11,807 523 Electric Expenses 78,377 74,041 524 Miscellaneous Nuclear Power Expenses 5,725 5,579 525 Rents 69,036 85,234 528 Maintenance Supervision and Engineering 14,332 14,799 529 Maintenance of Structures 88,581 162,792 Maintenance of Reactor Plant Equipment 530 51,885 115,900 ! 531 Maintenance of Electric Plant 500 663 l 532 Maintenance of Miscellaneous Nuclear Plant i Transmission W nses 0 0 l 560 Operation Supervision and Engineering 1,468 1,565 l 562 Station Expenses 0 0 566 Miscellaneous Transmission Expenses 0 0 568 Maintenance Supervision and Engineering 0 0 i 569 Maintenance of Structures 0 0 570 Maintenance of Station Equipment Administrative and General Expenses 12,469 12,177 920 Salaries and wages 6,969 8,153 921 Office supplies and expenses 0 922 Administrative expense transferred-credit 16,469 18,588 l 923 Outside services employed 1,098 (1,227) J 924 Property insurance 4,462 4,296 1 925 Injuries and damages 20,758 18,979 i 926 Employee pensions and benefits 15 90. i 928 Regulato n commission expense 0 0 1 930.1 General advertising expenses 947 { 930.2 Miscellaneous general expenses 398 3,002 . 4,434 ) 931 Rents 601 639 932 Maintenance of structures and equipment All other expenses 1,768 1,623 403 Depreciation and amortization axpense 12,860 11,239 408 Taxes other than income taxes 1,798 7,975 409 Income taxes 1,467 837 410 Provision for deferred income taxes (5,509) (5,989) ! 411 Provision for deferred income taxes-credit (65) (65) 411.5 Investment tax credit 32 24 , 426.1 Donations 4,195 4,121 426.5 Other deductions 1,921 2,007 427 Interest on long-term debt 0 430 Interest on debt to associate companies 0 805 431. Other interest expense 747 - Total Expense 532,455 737,558 Net Income $2,059 $1,998 t 4 u
ANNUAL REPORT OF NORTHEAST NUCLEAR ENERGY COMPANY l For the Year Ended December 31, 1998 .i l ANALYSIS OF BILLING ASSOCIATE COMPANIES l i ACCOUNT 457 1 DIRECT INDIRECT COMPENSATION TOTAL COSTS COSTS FOR USE AMOUNT a I CHARGED CHARGED OF CAPITAL BILLED NAME OF ASSOCIATE COMPANY (Thousands of Dollars) , 457-1 457-2 457-3 The Connecticut Light and
$372,882 $3,873 $376,755 Power Company Western Massachusetts Electric Company 87,127 906 88,033 Public Service Company 5,398 35 5,433 of New Hampshire TOTAL $465,407 $0 $4,814 $470,221
.......... ...c ..... ............ ...........
'a 21-
]
ANNUAL REPORT OF NORTHEAST NUCLEAR ENERGY COMPANY l l For the Year Ended Decemder 31, 1998 1
}
ANALYSIS OF BILLING e NONASSOCIATE COMPANIES ACCOUNT 458 . . . . . . . . . . . . . . . . . . . . . . . . . . . . .INDIRECT
. . . . . COMPENSATION
. . . . . . . . . . . . . . . . . EXCESS
. . . . . . . TOTAL DIRECT OR AMOUNT COSTS FOR USE TOTAL COSTS CHARGED OF CAPITAL COSTS DEFICIENCY BILLED CHARGED HAME OF NONASSOCIATE COMPANY (Thousands of Dollars) 458-2 458-3 458-4 458-1 Connscticut Yankee Atomic 0$ 155 $ $ 155 Power Company 155 4,771 31 4,771 Csntral Maine Power Company 4,740 3,308 3,287 21 3,308 ccntral Vermont Public Service 7,594 49 7,643 7,643 Montcup Electric Co. 150 23,388 23,388 N:w England Power Co. 23,238 7,022 6,978 44 7,022 Unitcd Illuminating Company 416 416 413 3 Fitchburg Gas & Electric Co. 17 2,611 2,611 Chicopee Municipal Electric 2,594 Ma:ccchusetts Municipal 59 9,256 9,256 Wholesale 9,197 94 93 1 94 Lyndonville Electric Department Ccnn:cticut Municipal Electric 13 2,091 2,091 Coop 2,078 4 690 690 V;rmont Electric Gen & Trans. 686 392 $ 61,445 $ 0 $ 61,445
$ 61,053 $ 0$
INSTRUCTIONS: Provide a brief description of the services rendered to each nonassociate company: Th3 Company acts as agent in operating Millstone Unit 3 for the ,rionassociate companies. . O h 4 22-9
I l . ...... .... . ...-
...n22.na. ..rl=
.m.
e u. a. 4 wan..co.n.-
.. .n. . . ...m. .. .... ...
- a ..mn..l m 2. . '. . !.
- p. a ..am m .
. .. e.
r e a.
- n. . ....... . .
.m
. m w.
> o.
p.
. r.a.m.a.
nue
-.m a
n
- a w .
n a
. n. . n.
wn-an a
. . m.-
a.
.i .n a i. n n a . ne
. o.e a.
- m. . .
.m . . .
.. .o e.o .o.aoaa oo...a o....o.a.... ...o.........a .
..e e
- e. m . g
.m ..
. e s.o a .
wu. .
. e
. e
.4.a .
.m.=
.u.. .
o.e.-. . - . e aa
.4. Up wanana.
m... nam.e
.aa.
..a...
. .... ... . . n..- e m . . .n a. ....m.nmaa.n *
..e
..e
.>.mo.
.o.mu.
m.
. r.a. m. a. .m e......-
m.o.*, a.m. n. .
. .- . r.
a
. n. .. e..
anaw
. e- r e. a.
.. n
..e
.>.w . . n-. .-.m - - n - - en - en.
. .a .
. . .i m e. n .e
.o.
m
. ...n...n.
..no.a.nem.
= ......
...n...n....
.~ ... ..n ..-
...n
.a..... ..e e i
i
- e. m e.4.-
a.m e . e.a.a.-e n n. .
.s e ,. a n. m
.. n . m.e -
. .e.
4 . . w 5 eu. m p.- op. or * -
- n
..e m
m.
.a . .
e
- o. .4. .i =
o . . u . . .
.em.
m o.
. e . . e
.ie o.
m ma uw
~4 m.m m.um.u.U .m .a.
..o.....oa. .aaaae ..a o.ao.....o.a ao.a.o ... .
..e
. e e
e ma .. e. . a w
>=.e.w mm 4 mo o
4 .
. .e me eu w.E u.*
.e m
4U . en. ...n -= ...... .......n.... ......aw... . a a wmm.o. pop.m m U. .- ..nn.w.. m . .. .... .en ..- w. w a. uu ne u m ma meu.o.m m w m. .i a . m w .
. . aw e.a. .. -enm.e n.* . .
.-n.
n n
.*e amo.m.m . . - . ..e e, nom.
- e. ame .. . . . .
. wo.a.nm. we e
e
.. . ...... . .a
== .. .- ...... won um = m En4 . .m . a. ...-- .... n.on.. . . .na.am..
n.w .
.n.. n mm ovo.m. . 4p.
mu a m.m. ,. ,. .....
.. . a. m. . m. a. . .
a .. *
. m o r.n.
a.m
. a.n.. . . . - . . .m n .o
. e. .
- a. . . a .m .e n .
.an...
. r. . . n. e os m .
oa.U op. . n . ..w w., a
. a a ****=
u -
.r- .ce me
=
> el..E..
w ..
..e
.e e
o. m
=m.4.0
. e
** a4.m.mp.. e
=
ou ww.m.m o.wo. . e e no Nu o u.Eu. . . . . e um e.m = . . . . m a 4 .w. 4.Up
.n.w.n ~.. ...... . . ........ ...r.......
4 . ..e 4 ev.m
.o.mo.
. ..m..a-. ...
. . . a. m. . m. a. . ,
n
- e. enn n
.a m
. c.n.
. .e .n em....n.n m .... -
..e n...
a e.
..e
.e I . ..wo . a. n ---*= a . n m
4 4.a .
........ . ... a w w -
. . > w
. . = a
. . o a . . e a
e - w m a I E o a a a ,e o - e = a a * = w a
- m w
e a a e a a w == m a a
- u. = a e
==
u. 5 m
=
a 4 a e ses as
. . m e a a a a em a w a == m a = es a
. . a w dm em a E m
m Ew o a Ewo a 8= m a m w5 4 5 u
.a .
w a o 5 m w
.o <wn pe--
m u
=
a EEa =E - E = em a
=
me a m 4 m e
==--
a w> >m
. . m m m es**
. . . Im Ees me ==== om Ea m > an a seam
. . m o a we s
- m. m e m o a o moe om al e mEaE m
e uU 4> mm oo uu e4 ww 4 n=4
> 4>w o umu 4
*E om a
u mes= enno E.. am w mm. IaE S ImEaw n m = wm Euo e me eu a e p. we
.I omEmuo e5as.ume m >
uno mamm a um um an ne
== E nom o e .
m swee
. o maa no amp . m e. .s..a w m.
o I u uUoma e woDUm u mo w wwn enon. 2 -- = I we Ia o ou a maw I4. nom a m enom 3 m4.m a = e.->
. == >mame = Emo amm a Sw Ema mm >>= o>>m 5 m ween wm .a => maw w mm4==
=== . m . m o o seen
. E.
we
. =>> m mamma >= m>>em menee mew u eenE aw=
o
> = muu somm ama sopa one a
e
=*o.
. em4 = emm m an w een
. c. Emmmm mano awlw>e m oome mom > = po e e5 m=== nooooen.eEmmI4.
emmeEm w>wo mome o =m e eoop smU wane ano o see e m e
. w e mEIemoo o e aw>= Iump u a a o u -ume
>o uewnwmoommmm Umma o o U. Ie EmE m Dmamme==Emums uuuum w ouve mumm =>am w5== cm um a 5suwe.
555emeE an
- m. a aan o m4 5enm4mm . moon mEp>E > w====
55 <>
. m. mInwu 55555mo >=mo .4ppo <>>E p....
. a.
== mw
> ma a ==
EEEE4apoaEEm*>wwwa>mmea m m em wa Eaumw ome=Eoneen em
==mu ao o an e u=*e-o a
. 4 EU==EEEEE.eUumEEEnauman m u pu oa ammu
==== mw><aameEeneEw>w.s mm pmamm
>m4mmum Eummmme amma un o
a-.we we e wwwww mm www= m no wwm => em
==Eman m paw woommmmIIIIIemewII4. mEEo mm w mmm n EEEa> wm e5 m me e
m. m. om m.e n o 4mo on m an wmenanwEen e mE mIa Im.eonwo m U uunwon o o E aamm e E a weene
. . - . . m.a m e
U 4
. er........ ne.......ena-nnnennaaaw.....eS.wna....
m m m m m m m m m m m m e m mm m.m m 4.n e..
.-a-a.
...n n.n.n-. n..n
. ......e a n a.4,...--
- - n e .n n. a. .a maan
...m e
-23
AaBf0AL REPORT OF IBORTEBAST NUCLEAR ENERGY CCSEPANY Por the Year Emded December 31, 1998 SCEEDULE IVII SCEEDULE OF BIPNISE DISTRIBUTICIt EY DEPARTMENT OR SERVICE FUNCTICII DEPART 8EENT OR SERVICE FUNCTICIt TOTAL MILLSTOIII MILLSTOIfB MILLSTOIEE ACCOUIFT UNIT 83 ABIOUlfT OVumwman UIIIT g1 tEtIT 82 , NOMEER DESCRIPTICII OF ITBES (Thousands of Dollars) Nuclear Power Expenses $29,557
$94,451 $0 $19,329 $45,545 $17 OPERATICII SUPERVISICIt ABID ENGINEERI3IG 1,528 2,147 4,743 0 1,068 519 C00LAltTS AND MhTER 10,104 11,631 27,362 0 5,627 520 STEAN EXPElf838 2,450 3,800 4,290 10,540 0 523 ELECTRIC BIPENSES 26,848 30,272 78,377 0 21,257 524 SEISCELIJurE003 NUCLEAR PONER EXPEItSES 1,666 1,334 5,725 1,225 1,500 525 RENTS 34,781 26,710 69,036 0 7,545 538 alAIIFTEMA31CE SUPERVISICIE AIED ENGIItBERIIIG 10,135 2,353 14,332 0 1,844 529 IEAI3rTENANCE OF STRUCTURSS 64,296 22,762 88,581 0 1,523 530 REAI3f7EMANCE OF REACTOR PLAarf EQUIPIEEIrr 24,984 23,297 51,885 0 3,604 531 IEh2NTEIUuICE OF ELECTRIC PLANT 172 500 0 164 164 532 IIAI3ffmEANCE OF MISCELL&lrEOUS NUCLEAR PLAarT Transmission Empenses 0 0 0 0 0 560 OPERATICII SUPERVISICII AIID WIGINmmG 1,468 1,468 0 0 0 562 STATICIf SIPMESBS 0 0 0 0 0 566 MISCELLANEOUS TRANSIEISSICII EIPNISES 0 0 0 0 0 568 ash 1NTWEAaICE SUPERVISICII AIID BIGINmmG 0 0 0 0 0 549 REhIsrfEIRAalCE OF STRUCTURES 0
t, 0 0 0 570 SEkI3rTEllAalCE OF STATICIt EQUIPIEENT Administrative and General Empenses 12,469 0 3,665 4,083 4,721 920 SALARIES AalD tenses 6,969 0 2,137 2,235 .7,597 921 0FFICE SUPPLIES ARID EI738558 0 0 0 0 0 922 anM7NISTRATIVE BIPEIBSE TRANSFERRED. CREDIT 16,469 0 4,022 3,934 S,513 923 OUTSIDE SEltVICES WEPLOYED 1,098 0 269 301 528 924 FROPERTY INSURAalCE 2,294 4,462 0 607 1,561 925 IIIJURIES ABID DAIEhGES 7,716 20,758 0 6,246 6,756 925 WEP!AYSE PERISICEIS AIID BEIBFITS 15 0 4 4 7 5 928 REGULATORT CCIBEISSICII BIFBBSE 0 0 0 0 0 930,1 GEItERAL ADVERTISING EIPBISES 394 0 131 124 143 930.2 BEISr'un mum ammmm4 EIPWISES 1,117 3,002 0 930 955 931 RElfr8 401 0 164 196 241 932 IEkIsrTBEh3 ICE OF ST3tOCTURES AM EQUIPIlarr All other expenses 1,768 0 719 491 558 403 DEPRECIATItSt AaID ARI0ttTIEATICII EIPNISES 12,860 0 3,807 4,127 4,926 408 TAIES OTEER TWhIt 23ICOIm TAIES 1,798 0 908 908 (18) 409 IIICOBER TAIES 1.467 0 734 733 0 414 PROVISIGIt FOR DEFEItRED INCCERE TAIES (5,509) 0 (2,755) (2,754) 0 411 PROVISICII POR DEFEllRED INCCIm TAIES. cit 3DIT (45) 0 (32) (33) 0 411.5 INVES7tIENT TAI CREDIT 32 0 10 11 11 426.1 DOIthTIDIES 4,195 0 1,054 1,538 1,613 426.5 erERR DEDUCTIONS 1,921 1,921 0 0 0 427 23rrEREST Cet 14EIG.TEIEE DEETS 0 0 0 'O O 430 IIrrEREST CEt DEET TO ASSOCIATE COREPAafIES 747 0 374 373 0 431 OTEER IsrfEREST EIPSISE TOTAL EIPmBSES . $532,455 $3,146 $48,945 $249,404 $190,960 INSTRUCTICIIS: Indicate each department or service fumaties. (See Instruction 01 3 General Structure of Asocuating Systent M form System of A8eOuats) e 24
l { J ANNUAL REPORT OF NORTHEAST NUCLEAR ENERGY COMPANY For.the Year Ended December 31, 1998 .
'l '
SCHEDULE XVII KEYS FOR SERVICE FUNCTIONS KEYS. SERVICE FUNCTION The individual generating units for which NNECO provides service are listed separately on Page 24. 1 o
.i i
) e 25 I i l I i 1
ANNUAL REPORT OF NORTHEAST NUCLEAR ENERGY COMPANY For'the Year Ended Decembqr 31, 1998 DEPARTMENTAL ANALYSIS OF SALARIES DEPARTMENTAL SALARY EXPENSE INCLUDED IN AMOUNTS BItJxn TO NUMBER OF NAME OF DEPARTMENT
.................. .....................................-- PERSONNEL: '
NON END Indicate each dept. TOTAL PARENT .OTHER AMOUNT COMPANY ASSOCIATES ASSOCIATES OF YEAR or service function. (Thousands of Dollars) . 20,954 0 20,954 0 365 MILLSTONE UNIT #1 48,507 0 48,507 0 596 MILLGTONE UNIT #2 52,310 0 35,581 16,729 657 MILLSTONE UNIT #3 ......... 121,771 0 105,042 16,729 1,618 )
ANWJAL REPORT OF NORTHEAST NLCLEAR ENERGY COMPANY For the Year Ended December 31. 1998 ] 1 i OlfTSIDE SERVICES EMPLOYED INSTRUCTIONS: Provide a breakdown by subaccount of outside services employed. If the aggregate amounts paid to any one payee and included within one subaccount is less than $100.000, only the aggregate number and amount of all j .' such payments included within the subaccount need be shown. Provide a 1 subtotal for ene.h .ype of service. RELATIONSHIP "A*. ASSOCIATE
- j
*NA*.NON ADDRESS ASSOCIATE AMOUNT !
FROM WH0H PURCHASED (Thousands of Dollars) ENGINEERING SERVICES
.................... J ABB CE NUCLEAR POWER NA $256 j l
NA $982 BARTLETT KICLEAR INC I CATARACT, INC. NA $1.981 C0KTINGENCY MANGEMENT ASSOCIATES NA $1.928 CONTRACT SOLlTTIONS E $449 NA $817 DUKE ENGINEERING & SERVICES INC ' NA $318 JANUS MANAGEMENT ASSOCIATES LITTLE HARBOR CONSULTANTS INC M $206 IOM ENGINEERING CORP M $262 l ONSITE M $1.606 l PARSONS POWER GROUP INC NA $9.514 PECO NUCLEAR NA $3.682 RAYTHEON QUALITY PROGRAMS DIVISION M $484 SARGENT & LUlOY. LLC M $3.812 1 NA $119 i SECORE L L C STONE & EBSTER CONSTRUCTION CO. INC. NA $1.509 NA $567 TEKTON RESOLRCES NA $371 TE IIC'JS GROUP INC VIRGINIA POER NA $5.647 W D ASSOCIATES INC M $34 ESTINCNOUSE ELECTRIC C0 NA $150 XCALIBER CONSULTING GROUP NA $529 YANKEE ATOMIC ELECTRIC CO NA $139 NA $404 MISCELLANEOUS (22 PAYEES) I TUTAL ENGIEERING SERVICES 36.078 J LEGAL SERVICES CARMODY & TORRANCE DR M $130 l COWDERY & ECKER LLC M $117 l DAY BERRY & HOMRD NA $1.004 IPR 0 INC M $551 l l KILLIAN & GEPMRT NA $244 MORGAN LEWIS & BOCK!US. LLP M $2.967 . RALPH G BIRD NA $108 ROSS DIXON & MASBACK NA $234 UPDIKE KELLY & SPELLACY M $544 WINSTON & STRAbM M $250 TUTAL LEGAL SERVICES $6.149 l l 27 1
ANNUAL REPORT OF NORI} FEAST NUCLEAR ENERGY COMPANY For the Year Ended December 31, 1998 OUTSIDE SERVICES EMPLOYED INSTRUCTIONS: Provide a breakdown by subaccount of outside services employed. If the ' aggregate amounts paid to any one payee and included within one subaccount. is less than $100.000, only the aggregate number and amount of all such payments included within the subaccount need be shown. Provide a " subtotal for each type of service. RELATIONSHIP "A". ASSOCIATE "NA" NON ADDRESS ASSOCIATE AMOUNT FROM nM0M PURCHASED (Thousands of Dollars) SECURITY SERVICES l NA $9.151 BURNS INTL SECURITY SERVICES NA $11 MISCELLANEOUS (1 PAYEE)
$9.162 TOTAL SECURITY SERVICES TELEC0191UNICATION SERVICES NA $144 i LUCENT TECHNOLOGIES !
NA $648 SNET NA $45 MISCELLAEOUS (9 PAYEES)
$837 TOTAL TELEC0691UNICATION SERVICES TEMPORARY EMPLOYENT SERVICES NA $606 MANPOWER INC EW ENGLA10 MECH SVC INC NA $150 NUCON NA $810 SUN TEC mlCAL SERVICES INC E $124 TOTAL TEMPORARY EMPLOYMENT SERVICES $1.690 ETER TREATENT SERVICES ECOLOCEM NA $867 TOTAL ETER TREATENT SERVICES $867 COMPUTERS SERVICES IlOUS INTERNAT10 M L INC E $265 INilRGRAPH CORP NA $150 PRIDE TEC m 0LOGIES INC NA $210 SCIENTECH INC NA $128 SMS SYSTEMS MAINTENANCE SERV NA $206 MISCELLANEOUS (3 PAYEES) NA $45 .
TOTAL COMPUTER SERVICES 1.004 27A-
ANNUAL REPORT OF NORTHEAST NUCLEAR ENERGY COMPANY l For the Year Ended December 31, 1998 OUTSIDE SERVICES EMPLOYED 1 INSTRUCTIONS: Provide a breakdown by subaccount of outside services employed. If the aggregate amounts paid to any one payee and included within one subaccount is less than $100.000, only the aggregate number and amount of all such payments included within the subaccount need be shown. Provide a subtotal for each type of service. RELATIONSHIP
*A". ASSOCIATE g .NON ADDRESS ASSOCIATE AMOUNT FROM M 0M PURCHASED (Thousands of Dollars)
OTHER SERVICES NA $721 IKON OFFICE SOLUTIONS INC MEGAN CORP NA $211 NA $502 NILSSON & ASSOCIATES PRICEWATERHOUSEC00PERS LLP NA $229 THAMES RECORDS MAMGEMENT INC NA $127 MISCELLANEOUS (400 PAYEES) NA $4.001
$5,791 TOTAL OTHER SERVICES NORTEAST UTILIITES SERVICE COMPANY !
(W11es centralized accounting, aoninistrative, data processing, engineering, financial. legal, operational, planning, purchasing and other services) A $5.821 i (RAND TOTAL $67.399 4 'a 27B.
ANNUAL REPORT OF NORTEAST NUCLEAR EERGY COMPMY - For the Year Ended December 31,1996 OLTTSIDE SERVICES EMPLOYED FOR PAYEES GSEATER THAN 8100.000 PAYEE NAE DESCRIPTION OF SERVICES REEERED ENGINEERIE SERVICES ABB CE NUCLEAR POER COMBUSTION EEINEERING RELATED SERVICES BARTLETT NUCLEAR INC PROVIDE HEALTH PHYSICS AE DECONTMINATION SERVICES CATARACT,INC. E EINEERING TECHNICAL SUPPORT SERVICES CONTINGENCY MANAGEMENT ASSOC FURNISH FIRE PROTECTION SERVICES . MILLSTONE FACILITY CONTRACT SOLUTIONS ENGINEERING RESTART ACTIVITIES ASSESSMENT DUKE E E & SERVICES INC ENGINEERING SUPPORT FOR THE MILLSTONE DESIGN EMIEERIE GROUP JANUS MANAGEMENT ASSOCIATES FURNISH CONSULTING SERVICES IN CONNECTION WITH ARBI , LITTLE HARBOR CONSULTANTS INC INDEPEWENT THIRD PARTY OVERSIGHT OF EMPLOYEE SAFE ) AT MILLSTOE EM ENGlEERING CORP ENGINEERING SUPPORT FOR RESTART EFFORTS INCLUDING IEEPEWENT REVIEW ' ONSITE ENGINEERING SERVICES RELATED TO OPERATION AE MAINTENANCE PARSONS POWER GROUP INC CONSULTING SERVICES TO PROVIDE AN INDEPEEENT CORRECTIVE ACTION VERIFICATION PROGRM (ICAVP) PECO NUCLEAR MANAGEMENT AW ENGINEERING CONSULTING SERVICES AT MILLSTONE ACTIVITIES RAYTE0N QUALITY PROGRMS DIV.FIRNISH ENGIEERING SERVICES TO PROVIDE PIPING AE COMP 0E . SARGENT & LUWY. LLC CONSULTING SERVICES TO PROVIDE M IEEPEEENT CORRECTIVE ACTION VERIFICATION PROGIM (ICAVP) SECORE L L C PROVIDE SCEDULING SERVICES TO MILLSTONE STOE & EBSTER CONST CO INC SITE MAINTENANCE AE JANITORIAL SERVICES TEKTON RESOURCES ENGIEERING TECHNICAL SUPPORT SERVICES TE IWUS GROUP INC PROVIDE SUPPORT CONTROL DOCLE N1ATION FOR ICAVP. PROCESS REVIEW VIRGINIA POER MANAGEMENT AE ENGIEERING CONSULTING SERVICES AT MILL 5 TONE W D ASSOCIATES INC OPERATIONS. PROCESS. REGULATORY LICENSING & ENGIEERING CONSULTING SERVICES FOR MILLSTOE RESTART EFFORTS ESTINGHOUSE ELECTRIC CO PROVIDE ENGINEERING SERVICES TO SUPPORT MILLSTOE RESTART EALIBER CONSULTING GROUP REVIEW ISSUES ON MANAGEENT AE SUPERVISORY PRACTICES AT MILLSTONE YANKEE ATOMIC ELECTRIC C0 ENGIEERING SERVICES TO SUPPORT IEEPEEENT ASSESSMENT TEM LEGAL SERVICES CARMODY & TORRANCE OR FURNISH LEGAL SERVICES ON M AS REQUESTED BASIS COWERY & ECKER LLC FLRNISH LEGAL SERVICES ON AN AS REQUESTED BASIS i DAY BERRY & HOWARD FIRNISH LEGAL SERVICES ON AN AS REQUESTED BASIS IPRO INC FLRNISH LEGAL SERVICES ON M AS REQESTED BASIS KILLIAN & GEPHART FIRNISH LEGAL SERVICES ON M AS REQESTED BASIS MORGAN LEW!$ & BOCK!US LLP FIRNISH LEGAL SERVICES ON AN AS REQUESTED BASIS RALPH G BIRD CONSULTING SERVICES TO SUPPORT LEGAL PROCEEDINGS FOR MILLSTOE OlfTAGES ROSS DIXON & MASBACK FLRNISH LEGAL SERVICES ON AN AS REQUESTED BASIS . UPDIKE KELLY & SPELIACY FIRNISH LEGAL SERVICES ON AN AS REQUESTED BASIS WINSTON & STRAbM , FUtNISH LIGAL SERVICES ON AN AS REQUESTED BASIS SECLRITY SERVICES BURNS INTL SECLRITY SERVICES FURNISH SECURITY SERVICES Am EQUIPENT FOR BASELINE SECURITY SUPPORT TELECO M NICATION SERVICES - LUCENT TECm0LOGIES PROVIDE TELEPHOE SERVICES SET PROVIDE TELEPHOE SERVICES 27C.
ANNUAL REPORT OF NORTHEAST NUCLEAR ENERGY COMPANY For the Year Ended December 31. 1998 1 Olf751DE SERVICES EMPLOYED FOR PAYEES GREATER T11AN $100.000 PAYEE NAME DESCRIPTION OF SERVICES REWERED TEMPORARY EMPLOYMENT SERVICES MANPOWER. INC. FURNISH TEMPORARY LABOR SERV!CES NEW ENGLAW HECH SVC INC FURNISH TEMPORARY LABOR SERVICES NUCON FURNISH TEMPORARY LABOR SERVICES SUN TECHNICAL SERVICES INC FURNISH TEMPORARY LABOR SERVICES , 1 WATER TREATMENT SERVICES EC0LOCHEM PROVIDE WATER TREATNENT PURIFICATION SERVICES l COMPlfTER SERVICES IWUS INTERNATIONAL INC CONSULTING SERVICES: SOFTWARE SUPPORT INTERGRAPH CORP PROVIDE COMPUTER EQUIPMENT A W SUPPLIES PRIDE TECHNOLOGIES INC PROVIDE COMPlTTER EQUIPMENT AND SUPPLIES SCIENTECH INC CONSULTING SERVICES: DATA IKTERFACE AE OTHER SOFTWARE WORK SMS SYSTEMS MAINTENANCE SERV PROVIDE COMPUTER HARDWARE MAINTENANCE OTHER SERVICES IKON OFFICE SOLUTIONS INC PROVIDE COPIERS AE MAINTENANCE MEGAN CORP PROVIDE CONSULTING SERVICES FOR MILLSTOE NILSSON & ASSOCIATES . PROVIDE CONSULTING SERVICES FOR MILLSTONE PRICE WATERHOUSE COOPERS LLP PROVIDE CONSULTING SERVICES FOR NORTEAST UTILITIES' STRATE 31C ENVIR0lMENTAL PLAN THAMES RECORDS MANAGEENT INC PROVIDE RECORD MANAGEMEKT SERVICES b 27D.
l j ANNUAL REPORT OF NORTHEAST NUCLEAR ENERGY COMPANY For the Year Ended December 31, 1998 l EMPLOYEE PENSIONS AND BENEFITS-ACCOUNT 926 INSTRUCTIONS: Provide a listing of each pension plan and benefit
~
program provided by the service company. Such
- listing should be limited to $25,000.
AMOUNT DESCRIPTION
. (Thousands of Dollars)
$3,453 Pension Plan 3,816 Supplemental Retirement and Savings Plan 2,971 Post Retirement Medical Benefit - FAS 106 0 Early Retirement Program Group Life, Long-term Disability, Hospital 10,403 and Medical Insurance Expenses 115 Other Employee Benefits Expenses ......._.
TOTAL $20,758 9 h 28-f
ANNUAL REPORT OF NORTHEAST NUCLEAR ENERGY COMPANY-For the Year Ended December 31, 1998 a GE!'ERAL ADVERTISING EXPENSES ACCOUNT 930.1 4
' INSTRUCTIONS: Provide a listing of the amount included in Account 930.1,
" General Advertising Expenses," classifying the items accordind to the nature of the advertising and as defined in the account definition. If a particular class includes an amount in excess of $3,000 applicable to a single payee, show separately the name of the payee and the aggregate amount applicable thereto.
DESCRIPTION NAME OF PAYEE AMOUNT (Thousands of Dollars) TOTAL $ - 1 4 29 l
ANNUAL REPORT OF NORTHEAST NUCLEAR ENERGY COMPANY For the Year Ended December 31, 1998 MISCELLANEOUS GENERAL EXPENSES ACCOUNT 930.2 INSTRUCTIONS: Provide a listing of the amount included in Account 930.2,
" Miscellaneous General Expenses," classifying such expenses '.
according to their nature. Payments and expenses permitted by Sections 321(b) (2) of the Federal Election Campaign Act, as amended by Public Law 94-283 in 1976 (2 U.S .C. 5441 (b) (2) ) shall be separately classified.
.........................................___....................___....... AMOUNT DESCRIPTION (Thousands of Dollars).
$394 Services billed from Northeast Utilities Service Company (an associate company) 4 Other miscellaneous expenses TOTAL $398 o
9 e 6
ANNUAL REPORT OF NORTHEAST NUCLEAR ENERGY COMPANY.
! For the' Year Ended December 31, 1998 RENTS INSTRUCTIONS: Provide a listing of the amount included in'" Rents,"
classifying such expenses by major groupings of property, as defined in the account definition of the Uniform System of Accounts. l i AMOUNT I TYPE OF PROPERTY (Thousands of Dollars) Buildings / office space 80 Computer / office equipment 324 1,285 Vehicles 5,611 Simulator Services billed from Northeast Utilities Service Company (an associate company) 3,006 TOTAL 10,306 1 l
.j - i x
I
)
9
ANNUAL REPORT OF NORTHEAST NUCLEAR ENERGY COMPANY For the Year Ended December 31, 1998 TAXES OTHER THAN INCOME TAXES , ACCOUNT 408 INSTRUCTIONS: Provide an analysis of Account 400, " Taxes Other Than Income Taxes." Separate the analysis into two groups: (1)Other than U.S. Government taxes, and (2) U.S. Government taxes. Specify each of the various kinds of taxes and show the amounts thereof. Provide a subtotal, for each class of tax. AMOUNT KIND OF TAX (Thousands of Dollars) (1) Other Than U.S. Government Taxes: Connecticut Unemployment $926 Connecticut Insurance Premium Excise Tax (12) 2 Massachusetts Unemployment 2 New Hampshire Business Enterprise Tax 1,294 Local property 49 Connecticut Sales Tax Connecticut Corporate Business Tax (137) Sub-Total 2,124 (2) U.S. Government Taxes: 8,245 Federal Insurance Contribution Act 2,360 Medicare Tax Federal Unemployment 131 Sub-Total 10,736 TOTAL 12,860 9
l i i Att10AL REPORT OF NORTHEAST NUCLEAR ENERGY CCNPANY ] l For the Year Ended M r 31, 1998 I
+
DONATICNS 4 ACCIXNT 426.1 ) a INS'IRUCTICNS : Provide a listing of the amount included in Account 426.1, . "Donaticris," classifying such expenses by its purpose. 'Ihe aggregate number and amount of all iterns of less than $3,000 may be shown in lieu of details. ! l l NAME OF RECIPIENT PURPOSE OF DONATION Al(XNr ; (Thousands of Dollars) j
$18. I Services billed from Northeast Utilities Service Conpany (an associate conpany) l
( 14 l Miscellaneous (4 payees) I t
'IUIAL $32 l
I s
ANNUAL REPORT OF NORTHEAST NUCLEAR ENERGY COMPANY For the Year Ended December 31, 1998 OTHER DEDUCTIONS ACCOUNT 426.5 INSTRUCTIONS: Provide a listing of the amount included in Account 426.5, "Other Deductions," classifying such expenses according to their nature. DESCRIPTION NAME OF PAYEE AMOUNT
..................................................................x........
Executive incentive 929 compensation plan Various Officers i Services billed from Northeast Utilities Service Company 1,985 (an associate company) Civil Penalties United States Nuclear Regulatory Commission 55 Miscellaneous (10 payees) 26 Communication services Stipulated judgment with State of Connecticut: 700 > Civil penalty State of Connecticut Supplemental environment projects funding to: University of Connecticut 300 Sea Research Foundation, Inc. 200 TOTAL $4,195
..I l
4 1
ANNUAL REPORT OF NORTHEAST NUCLEAR ENERGY COMPANY t For the Year Ended December 31, 1998 SCHEDULE XVIII 4 i NOTES TO STATEMENTS OF INCOME l INSTRUCTIONS: The space below is provided for important notes regarding the financial statements of income or any account thereof. j Furnish particulars as to any significant increases in ] services rendered or expenses incurred during the year. Notes relating to financial statements shown elsewhere in this report may be indicated here by reference. l 1 See Notes to Financial Statements on pages 19 through 19E. I 6 4
Annual Report of Northeast Nuclear Energy Company Organization Chart (As of December 31,1998) . President and Chief Executive Officer- Nuclear Senior Vice President and Chief Nuclear Officer - Millstone I i Millstone Unit #1 Millstone Unit #2 3 Millstone Unit #3 t & 8 NORTHEAST NUCLEAR ENERGY COMPANY M "CHODS OF ALLOCATION For the year ended December 31, 1998 The costs associated with the three Millstone units are billed-directly or allocated using one of three methods. The allocation
- methods are as follows:
- 1. One-third to each unit;
- 2. Number of employees;
- 3. Net capacity of each unit.
If Millstone Unit 3 is not-part of the allocation, then the allocated costs to Millstone 1 and 2 are on the basis of one-half to each of the two units. ie h j
\
ANNUAL REPORT OF NORTHEAST NUCLEAR ENERGY COMPANY ANNUAL STATEMENT OF COMPENSATION FOR USE OF CAPITAL BILLED The following annual statement was supplied to each associate company in support of the amount of compensation for use of capital billed during 1998: . In accordance with Instruction 01-12 of the Securities and Exchange Commission's Uniform System of Accounts for Mutual Service Companies and Subsidiary Service Companies, Northeast Nuclear Energy Company submits the T' '.oving information on the bi) ling of interest on bcrro,w! 6t- and a return on. equity capital to associated cor > .v: 'r the year 1998: (A) Amount cf compensat. ion for use M sital billed to (See Note). (B) The basis for billing of intervic and return on equity capital to the associated companies is based on the percentage ownership of the individual units. NOTE: For the associate companies and amounts, see " Analysis of Billing - , Associate Companies" on page 21. k 9
ANNUAL REPORT OF NORTHEAST NUCLEAR ENERGY COMPANY SIGNATURE CLAUSE- . ( Pursuant to the requirements of the Public Utility Hold'ing Company Act of.1935'and the rules and regulations of the Securities and Exchange Conmmission issued thereunder, the undersigned company has duly caused this report to be signed on its behalf by the undersigned office thereunto duly authorized. NORTHEAST NUCLEAR ENERGY COMPANY (Name of Reporting Company) By: /s/ John J. Roman (signature of Signing Officer) John J. Roman - Vice President and Controller :l
....................___...................... l (Printed Name and Title of Signing Officer) i, Date April 23, 1999 4
t l j
-.......,....,...............-.......c.... .. , . .. , , ,
4 i D e 6 e 4*
Form U-13-60 Mutual and Subsidiary Service Companies 40
/[
Revised February 7,1980 i e ANNUAL REPORT FOR THE PEHIOD , Beginning January 1,1998 and ending December 31,1998 TO THE U.S. SECURITIES AND EXCHANGE COMMISSION OF North Atlantic Enerav Service Corooration A Subsidiary Service Company l Date of incorporation: April 1,1992 State or Sovereign Power under which incorporated or Organized: New Hampshire Location of Principal Executive Offices of Reporting Company: Route 1 Lafavette Rd., Seabrook, NH,03874 i Name, title and address of officer to whom correspondence conceming this report should be addressed: .* John J. Roman V.P.- & Controller P.O. Box 270, Hartford, Ct. 06141-0270 j-e Name of Principal Holding Company Whose Subsidiaries are served by Reporting Company: Northeast Utilities- ; SEC 1924 (6 82) l
.j
INSTRUCTIONS FOR USE OF FORM U-13-60
- 1. Time of Filina. Rule 94 provides that on or before the first day of May in each calendar year,
.: each mutual service company and each subsidiary service company as to which .the Commission shall have made a favorable finding pursuant to Rule 88, and every service company whose application for approval or declaration pursuant to Rule 88 is pending shall file with the Commission , an annual report on Form U-13-60 and in accordance with the Instructions for that form. I
- 2. Number of Cooies. Each annual report shall be filed in duplicate. The company should prepare and retain at least one extra copy for itself in case correspondence with reference to the report becomes ncessary.
- 3. Period Covered by Reoort. The first report filed by any company shall cover the pcriod from the date the Uniform System of Accounts was required to be made effective as to that company under Rules 82 and 93 to the end of that calendar year. Subsequent reports should cover a calendar year.
- 4. Report Format._ Reports shall be submitted on the forms prepared by the Commission. If the space provided on any sheet of such form is inadequate, additional sheets may be inserted of the same size as a sheet of the form or folded to such size.
- 5. Monev Amounts Displayed. All money amounts required to be shown in financial statements may be expressed in whole dollars, in thousands of dollars or in hundred thousands of dollars, as .
appropriate and subject to provisions of Regulation S-X ('210.3-01(b)).
- 6. Deficits Disofaved. Deficits and other like entries shall be indicated by the use of either brackets or a parenthesis with corresponding reference in footnotes. (Regulation S-X. *210.3-01(c))
- 7. Maior Amendments or Corrections. Any company desiring to amend or correct a major omission or error in a report after it has been filed with the Commission shall submit an amended report including only those pages, schedules, and entries that are to be amended or corrected. A cover letter shall be submitted requesting the Commission to incorporate the amended report changes and shall be signed by a duly authorized officer of the company.
- 8. Definitions. Definidons contained in Instruction 01-8 to the Uniform SyMm of Accounts for Mutual Service Companies and Subsidiary Service Companies, Public Utility Hold.ng Company Act of 1935, as amended February 2,1979 shall be applicable to words or terms used specifically within this Form U-13 60.
- 9. Oraanization Chart. The service company shall submit with each annual report a copy of its current organization chart.
- 10. Methods of Allocation. The service company shall submit with each annual report a listing of
,,- the currently effective methods of allocation being used by the service company and on file with the Securities and Exchange Commission pursuant to the Public Utility Holding Company Act of 1935.
- 11. Annual Statement of Compensation for Use of Caoital Billed. The service company shall submit with each annual report a copy of the annual statement supplied to each associate company in support of the amount of compensation for use of capital billed during the calendar year.
1
LISTING OF SCHEDULES AND ANALYSIS OF ACCOUNTS Schedule or Page Descriotion of Schedules and Accounts Acet. No. No Comparative Balance Sheet Schedule i 4-5 Service Company Property Schedule il 6-7 Accumulated Provision for Depreciation and Amortization of Service Company Property Schedule 111 8 investments Schedule IV 9 Accounts Receivable from Associate Companies Schedule V 10 Fuel Stock Expenses Undistributed Schedule VI 11 Stores Expense Undistributed Schedule Vil 12 Miscellaneous Current and Accrued Assets Schedule Vill 13 Miscellaneous Deferred Debits Schedule IX 14 Research, Development, or Demonstration Expenditures Schedule X 15 Proprietary Capital Schedule XI 16 Long Term Debt Schedule Xil 17 Current and Accrued Liabilities Schedule Xill 18 Notes to Financial Statements Schedule XIV 19 Comparative income Statement Schedule XV 20 Analysis of Billing - Associate Companies Account 457 21 Analysis of Billing - Non-Associate Companies Account 458 22 Analysis of Charges for Service - Associate cnd Non-Associate Companies Schedule XVI 23 Schedule of Expense by Department or Service Function Schedule XVil 24 - 25 - Departmental Analysis of Salaries Account 920 26 , Outside Services Employed Account 923 27 _ _ _ _ _ - _ _ _ _ = _ _ _ _ _ _ _ _ _ _ _ - - _ _ _ - -
Schedule or Page Descriotion of Schedules and Accounts (cont.) Acet. No. JA-Employee Pensions and Benefits Account 926 28 General Advertising Expenses Account 030.1 29 Miscellaneous General Expenses Account 930.2 30 Rents Account 931 31 Taxes Other Than income Taxes Account 408 32 Donations Account 426.1 33 Other Deductions Account 426.5 34 Notes to Statement of income Schedule XVill 35 Descriotion of Reoorts or Statements Organization Chart 36 Methods of Allocation 37 Annual Statement of Compensation for Use of Capital Billed 38 Signature Page 39 6 tb e
.O.
ANNUAL REPORT OF NORTH ATLANTIC ENERGY SERVICE CORPORATION SCHEDULE I - COMPARATIVE BALANCE SHEET Give balance sheet of the Company as of December 31 of the current and prior year. ACCT ASSETS AND OTHER DEBITS AS OF DECEMBER 31 ; 1998 1997 SERVICE COMPANY PROPERTY (Thousands of Dollars) ., 101 Service company property (Schedule II) $ 0 $ 0 Construction work in progress (Schedule II) 0 0 107 ......... ...__..... Total Service Company Property $ 0 $ 0 108 Less accumulated provision for depreciation and 0 amortization of service company property (Schedule III) $ 0 $ Net Service Company Property $ 0 $ 0 INVESTMENTS Investments in associate companies (Schedule IV) $ 0 $ 0 123 124 Other investments (Schedule IV) 680 680 Total Investments $ 680 $ 680 CURRENT AND ACCRUED ASSETS 131 Cash $ 1,799 $ 1,675 0 0 134 Special deposits 135 Working funds 0 0 136 Temporary cash investments (Schedule IV) 16 15 141 Notes receivable 0 0 143 Accounts receivable 14,160 17,475 144 Accumulated provision of uncollectible accounts 0 0 146 Accounts receivable from associate companies (Schedule v) 12 54 152 Fuel stock expenses undistributed (Schedule VI) 0 0 154 Materials and supplies 0 0 163 Stores expense undistributed (Schedule VII) 24 (476) 165 Prepayments 1,221 2,593 174 Miscellaneous current and accrued assets (Schedule VIII) 0 0 Total Current and Accrued Assets $ 17,232 $ 21,336 DEFERRED DEBITS 181 Unamortized Debt Expense $ 0 $ 0 184 Clearing accounts 0 0 186 Miscellaneous deferred debits (Schedule IX) 26,769 24,328 188 Research, development, or demonstration expenditures (Schedule X) 0 0 190 Accumulated deferred income taxes 0 0 Total Deferred Debits $ 26,769 $ 24,328 TOTAL ASSETS AND OTHER DEBITS $ 44,681 $ 46,344 -
-4
ANNUAL REPORT OF NORTH ATIANTIC ENERGY SERVICE CORPORATION SCHEDULE I - COMPARATIVE BALANCE' SHEET Give balance sheet of the Company as of December 31 of the current and prior year. ACCT LIABILITIES AND PROPRIETARY CAPITAL AS OF DECEMBER 31 1998 1997 (Thousands of Dollars) PROPRIETARY CAPITAL 1 $ 1 201 Common stock issued (Schedule XI) $ 211 Miscellaneous paid-in-capital (Schedule XI) 9 9 Appropriated retained earnings (Schedule XI) 0 0 215 Unappropriated retained earnings (Schedule XI) 2 2 216 Total Proprietary Capital $ 12 $ 12 LONG-TERM DEBT Advances from associate companies (ScheduleXII) $ 0 $ 0 223 i' Other long-term debt (Schedule XII) 0 0 224 225 Unamortized premium on long-term debt 0 0 226 Unamortized discount on long-term debt 0 0 Total Long-Term Debt $ 0 $ 0 CURRENT AND ACCRUED LIABILITIES 231 Notes payable $ 0 $ 0 232 Accounts payable 9,523 10,352 233 Notes payable to associate companies (Schedule XIII) 0 0 234 Accounts payable to associate companies (Schedule XIII) 1,894 3,807 236 Taxes accrued 594 71 237 Interest accrued 0 0 238 Dividends declared 0 0 241 Tax collections payable 0 0 242 Miscellaneous current and accrued liabilities (Schedule XIII) 28,088 27,912 Total Current and Accrued Liabilities $ 40,099 $ 42,142 DEFERRED CREDITS 253 Other deferred credits $ 4,371 $ 4,081 255 Accumulated deferred investment tax credits 0 0 Total Deferred Credits $ 4,371 $ 4,081 282 ACCUMULATED DEFERRED INCOME TAXES $ 199 $ 109 TOTAL LIABILITIES AND PROPRIETARY CAPITAL $ 44,681 $ 46,344 e 1
i l ANNUAL REPORT OF NORTH ATLANTIC ENERGY SERVICE CORPORATION For the Year Ended December 31, 1998 SCHEDULE II - SERVICE COMPANY PROPERTY _........ .. . BEGINNING OR OTHER AT CLOSE OF YEAR ADDITIONS SALES CHANGES (1) OF YEAR ACCT DESCRIPTION l (Thousands of Dollars) SERVICE COMPANY PROPERTY 301 ORGANIZATION 303 MISCELLANEOUS INTANGIBLE PLANT 304 LAND AND LAND RIGHTS 305 STRUCTURES AND IMPROVEMENTS 306 LEASEHOLD IMPROVEMENTS NONE 307 EQUIPMENT (2) i 300 OFFICE FURNITURE AND EQUIPMENT 309 AUTOMOBILES, OTHER VEHICLES i AND RELATED GARAGE EQUIPMENT ] 310 AIRCRAFT AND AIRPORT EQUIPMENT 311 OTHER SERVICE COMPANY PROPERTY (3) (1) PROVIDE AN EXPLANATION OF THOSE CHANGES CONSIDERED MATERIAL: WONE 64
SCHEDULE II . CONTINUED (2) SUBACCOUNTS ARE REQUIRED FOR EACH CLASS OF EQUIPMENT OWNED. THE SERVICE COMPANY SHALL PROVIDE A LISTING BY SUBACCOUNT OF EQUIPMENT ADDITIONS DURING THE YEAR AND THE BALANCE AT THE CLOSE OF THE YEAR: i BALANCE AT CLOSE t SUBACCOUNT DESCRIPTION ADDITIONS OF YEAR i (Thousands of Dollara) NONE i (3) DESCRIBE OTHER SERVICE COMPANY PROPERTY: NONE l
ANNUAL-REPORT OF NORTH ATLANTIC ENERGY SERVICE CORPORATION For the Year Ended December 31,.1998 SCHEDULE III ACCUMULATED PROVISION FOR DEPRECIATION AND
- AMORTIZATION OF SERVICE COMPANY PROPERTY ADDITIONS OTHER BALANCE AT CHARGED CHANGES BALANCE BEGINNING TO ADD /- AT CLOSE OF YEAR ACCT 403 RETIREMENT (DEDUCT) (1) OF YEAR DESCRIPTION (Thousands of Dollars)
Account i 301 ORGANIZATION 303 MISCELLANEOUS INTANGIBLE PLANT l 304 LAND AND LAND RIGHTS 305 STRUCTURES AND IMPROVEMENTS 306 LEASEHOLD IMPROVEMENTS 307 EQUIPMENT NONE 308 OFFICE FURNITURE AND FIXTURES 309 AUTOMOBILES, OTHER VEHICLES AND RELATED GARAGE EQUIPMENT 310 AIRCRAFT AND AIRPORT EQUIPMENT 311 OTHER SERVICE COMPANY PROPERTY AMORTIZATION OF SERVICE COMPANY PROPERTY l
-(1) PROVIDE AN EXPLANATION OF THOSE CHANGES CONSIDERED MATERIAL:
NONE 8-l y
m ANNUAL REPORT OF NORTH ATLANTIC ENERGY SERVICE CORPORATION For the Year Ended December 31, 1998 SCHEDULE IV - INVESTMENTS INSTRUCTIONS: Complete the following schedule concerning investments. Under Account 124, "Other Investments," state each investment separately, with description, including the name of issuing company, number of shares or principal amount, etc. Under Account 136, " Temporary Cash Investments," list each investment separately. BALANCE AT BALANCE AT BEGINNING CLOSE DESCRIPTION OF YEAR OF YEAR (Thousands of Dollars) ACCOUNT 123 - INVESTMENT IN ASSOCIATE COMPANIES $ 0 $ 0 ACCOUNT 124 - OTHER INVESTMENTS Reliance Assurance - Workmen's Compensation Bond 680 680 ACCOUNT 136 . TEMPORARY CASH INVESTMENTS Fidelity Institute Tax Exempt Cash Portfolio 12 13 Citizens Bank Certificate of Deposit 3 3 i 15 16 TOTAL $ 695 $ 696 e4 9 L--
l I ANNUAL REPORT OF NORTH ATLANTIC ENERGY SERVICE CORPORATION For the Year Ended December 31, 1998 i SCHEDULE V - ACCOUNTS RECEIVABLE FROM ASSOCIATE COMPANIES INSTRUCTIONS Complete the following schedule listing accounts receivable : from each associate company. Where the service company has provided accommoda- tion or convenience payments for associate companies, a separate listing of total payments for each associate company by subaccount should be provided. BALANCE AT DALANCE AT BEGINNING CLOSE DESCRIPTION OF YEAR OF YEAR (Thousands of Dollars) ACCOUNT 146 - ACCOUNTS RECEIVABLE FROM ASSOCIATE COMPANIES Northeast Utilities Service Company $ 10 $ 5 Northeast Nuclear Energy Company 41 5 North Atlantic Energy Corporation 2 1 Public Service Company of New Hampshire 1 1 TOTAL $ 54 $ 12 ANALYSIS OF COlWENIENCE OR ACCOMMODATION PAYMENTS: NONE ANNUAL REPORT OF NORTH ATLANTIC ENERGY SERVICE CORPORATION For the Year Ended December 31, 1998 SCHEDULE VI - FUEL STOCK EXPENSES UNDISTRIBUTED INSTRUCTIONS: Report the amount of labor and expenses incurred with respect to fuel stock expenses during the year and indicate amount attributable to each associate company Under the section headed " Summary" listed below, give an overall report of the fuel functions performed by the service company. DESCRIPTION LABOR EXPENSES TOTAL (Thousands of Dollars) ACCOUNT 152 - FUEL STOCK EXPENSES NONE UNDISTRIBUTED I I l I l
)
l
-11
ANNUAL REPORT OF NORTH ATLANTIC ENERGY SERVICE CORPORATION. For the Year Ended December 31, 1998 SCHEDULE VII,- STORES EXPENSE UNDISTRIBUTED I INSTRUCTIONS's Report the amount of labor and expenses incurred with respect to stores expense during the year and indicate amount attributable to each associate company. , LABOR EXPENSES TOTAL DESCRIPTION (Thousands of Dollars) ACCOUNT 163 - STORES EXPENSE UNDISTRIBUTED Bsginning Balance as of January 1, 1998 $ (476) Activity for the year: 3,044 Stores expense undistributed $ 2,775 $~ 269 The above stores expenses are billed back to each of the companies listed below: The Connecticut Light and Power Company (94) (9) (103) North Atlantic Energy Corporation (835) (80) (915) Non-Associate Companies (see page 22 (1,393) (133) (1,526) for list of the companies) * ($2,322) ($222) ($2,544) Stores expense distributed ......... ......... ......... Nat activity for the year $ 453 $ 47 500 Ending Balance as of December 31, 1998 $ 24 12-e
ANNUAL REPORT OF NORTH ATLANTIC ENERGY SERVICE CORPORATION For the Year Ended December 31, 1998 SCHEDULE VIII MISCELLANEOUS CURRENT AND ACCRUED ASSETS-INSTRUCTIONS: Provide detail of items in this account. Items less than
$10,000 may be grouped, showing the number of items in each group.
BALANCE AT BALANCE AT BEGINNING CLOSE DESCRIPTION OF YEAR OF YEAR (Thousands of Dollars) ACCOUNT 174 - MISCELLANEOUS CURRENT NONE AND ACCRUED ASSETS ANNUAL REPORT OF NORTH ATLANTIC ENERGY SERVICE CORPORATION For the Year Ended December 31, 1998 SCHEDULE IX MISCELLANEOUS DEFERRED DEBITS
- INSTRUCTIONS: Provide detail of items in this account. Items less than $10,000 may be grouped, showing the number of items in each group.
BALANCE AT BALANCE AT BEGINNING CLOSE DESCRIPTION OF YEAR OF YEAR (Thousands of Dollars) ACCOUNT 186 - MISCELLANEOUS DEFERRED DEBITS Noncurrent receivable from Joint Owner funding $ 23,189 $ 25,900 Wastinghouse Reactor Coolant Pump Settlement 682 600 Accounting Treatment Change for Payroll 328 299 Miscellaneous (>100 items) 88 (64) Preliminary Engineering for: Steam generator blowdown 30 30 Miscellaneous (4 items 1997, 3 items 1998) 11 4 TOTAL $ 24,328 $ 26,769
~ i 14-
l ANNUAL REPORT OF NORTH ATLANTIC ENERGY SERVICE CORPORATION For the Year Ended December 31, 1998 ' SCHEDULE X ]1
-l RESEARCH, DEVELOPMENT, OR DEMONSTRATION-EXPENDITURES i I
INSTRUCTIONS: Provide a description of each material research, development, or demonstration project which incurred costs by the service corporation during the year. )
.___..............................__...___.....__..............____....__..... l DESCRIPTION AMOUNT l ......__..___.............___.___.__....__........................___....__... .]
(Thousands of Dollars) . ACCOUNT 188 - RESEARCH, DEVELOPMENT OR NONE DEMONSTRATION EXPENDITURES i
)
1 1 1 l i 9
ANNUAL REPORT OF NORTH ATLANTIC ENERGY SERVICE CORPORATION For.the Year Ended December 31, 1998 SCHEDULE XI PROPRIETARY CAPITAL NUMBER OF PAR OR STATED OUTSTANDING CLOSE OF PERIOD SHARES VALUE ------------------- ------- ACCOUNT NUMBER CLASS OF STOCK AUTHORIZED PER SHARE NO. OF SHARES ' TOTAL AMOUNT (Thousands of Dollars) 1,000 $ 1.00 1,000 $ 1 202, COMMON STOCK ISSUED INSTRUCTIONS: Classify amounts in each account with brief explanation, disclosing the general nature of transactions which give rise to the reported amounts. DESCRIPTION AMOUNT (Thousands of Dollars) ACCOUNT 211 - MISCELLANEOUS PAID-IN. CAPITAL $ 9 ACCOJNT 215 - APPROPRIATED RETAINED EARNINGS O TOTAL $ 9 INSTRUCTIONS: Give particulars concerning net income or (loss) during the year, distinguis between compensation for the use of capital owed or net loss remaining from servicing nonassociated per the General Instructions of the Uniform Systems of Accounts. For dividends paid during the year in cash or otherwise, provide rate percentage, amount of dividend, date declared and date paid. BALANCE AT NET INCOME BALANCE BEGINNING OR DIVIDENDS AT CLOSE DESCRIPTION OF YEAR (LOSS) PAID OF YEAR (Thousands of Dollars) ACCOUNT 216. UNAPPROPRIATED RETAINED EARNINGS.
$ 2 $ 0$ 0 $ 2 M
m m e _ _ b _ _ lt lb M - ae ds hdy t _s
) m n mi _T _ r adrr _A R _a eeu
,vtt
_ EEA_ a si eegm t cn _ N O YDo __ lCSE_l _ AL _ . oeof _ _A LC O_f F_ . nrl o o _ B _ nere . S _s oret _ N _ d eha _ O' _n swtd _ I _a e O _ T C )1 _s cs , _ U( _u ne ac n o D _ o vn i _ E D _h _( T da4t _ S av2 a _ _ d2g _ N_ ra i _ O_ I o tl _ _ fhnb _ T_ N O yi o cuo _ I D __ I lhcf _ D _ T ewco _ A_ A t A _ TG _ R am s rorm. O _ A NIAR __ P R aror pf F e g ENE _ E E E O e _ NI C NY_ N N N ssen,d.tn O O C 8 i O 9 AGF _ N N N E 9 dimnn _ AB _ L EO_ C I 1 enuoa t alit B _ V , rpots _ _ R 1 omcat _ D_ E E 3 po zu _ TZ _ S ecnio _ NI _ Y r e T r eiad on _ UR _ G _ OO _ _ b I B ett gn _ R m I E baara _ MH_ AT E e X D i go _ U_ N c dci d _ E e E M l ol re _ A __ D L R usboz _ T _ C U E oso i yr _ S _ I d D T ha _ EE _ T e E - s fno _ RT_ N d H G f oah _ A n C N so pt _ TR E A __ L T E S O L e iseoa smu _ N I A r neic _ Y_ H a e amr paern t _ T_ T Y mNsou E I R o to _ T F R_ O e c . dim A O U __ D N h t nda _ T_ A_ F t enae re M_ t u _ O r aosch _
.S _ :
o ics t _ G E N_ S T F ccaf _I I N R oal od _L R O __ I O O s c n S I _B SE T_ P sn ea _O G A_ E T E R aeem, pha _F & IL__ S T A C U motne _O E I T D L o t _ S B __ I C B E A U rnrea _ _S S O_ N O E D N foehr _M A A S D N A
'ssn eeues dt t _R L F _
_E C O __ MM OO P S A T B E M R F O cc de _T _ RC M D E N nnnir _ _ F O T- O aawve _ _ E R M I vvoot _ _ ST F R G T ddhrn A a s pi _ _ EA E N A
, _ _ CI S T O N
_ _ NC E R- L A _ R _ AO C EG L
. _ _ VS N HN R P
_ O_ T DS A TO E X
- _ I _ AA V OL H E S _ D_ - D - T N _ E_ 3 A 4 O N O _ R _ 2 2 A I _ C_ 2 L 2 L u
_ _ A A E u
. F _ T T T T V
. _ N O N O I R _ O_ U T U T G T _ E _ O O S _ C C )
N _ M __ A C C 1 I _ N_ A A (
.G.
ANNUAL REPORT OF NORTH ATLANTIC ENERGY SERVICE CORPORATION For the Year Ended December 31, 1998 SCHEDULE XIII - CURRENT AND ACCRUED LIABILITIES INSTRUCTIONSt Provide balance of notes and accounts payable to each associate company. Give description and amount of miscellaneous current and accrued liabilities. Items less than $10,000 may be grouped, '. showing the number of items in each group. BALANCE AT BALANCE AT BEGINNING CLOSE DESCRIPTION OF YEAR OF YEAR (Thousands of Dollars) ACCOUNT 233 - NOTES PAYABLE TO ASSOCIATE COMPANIES NONE i ACCOUNT 234 - ACCOUNTS PAYABLE TO ASSOCIATE COMPANIES Northeast Utilities Service Company $ 2,022 $ 1,767 Northeast Nuclear Electric Company 6 92 Public Service Company of New Hampshire 1,774 34 The Connecticut Light & Power Company 1 0 4 1 Miscellaneous (1 item) TOTAL $ 3,807 $ 1,894 ACCOUNT 242 - MISCELLANEOUS r* M ENT AND ACCRUED LIABILITIES Accrued payroll and other employee payables $ 3,751 $ 2,149 Accrued Pension Cost 20,142 23,144 On-hand operations funding from associate companies: North Atlantic Energy Corporation 1,446 1,006 The Connecticut Light & Power Company 163 113 On-hand operations funding from non-associate companies 2,410 1,676 TOTAL $ 27,912 $ 28,088
-18
l ANNUAL REPORT OF NORTH ATLANTIC ENERGY SERVICE CORPORATION - For the Year Ended December 31,1998 SCHEDULE XIV - NOTES TO FINANCIAL STATEMENTS INSTRUCTIONS: The space below is provided for important notes regarding the financial statements or any - account thereof. Furnish particulars as to any significant contingent assets or. liabilities existing at the end of the year. - Notes relating to financial statements shown elsewhere in this report may be indicated here by reference.
-i
- 1.
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES Generah North Atlantic Energy Service Corporation (the Company or NAESCO) is a wholly owned subsidiary of Northeast Utilities (NU). The Connecticut Light and Power Company (CL&P), Public Service Company'of New flampshire (PSNH), Westem Massachusetts Electric Company (WMECO), North Atlantic Energy Corporation (NAEC), and Holyoke Water Power Company (HWP) are operating subsidiaries which comprise in part, the Northeast Utilities System (the NU system) and are wholly owned by NU. The NU system furnishes franchised retait electric service in Connecticut, New Hampshire, and western Massachusetts through three wholly owned subsidiaries: CL&P, PSNH, and WMECO. NAEC sells all of its entitlement to the capacity and output of the Seabrook Nuclear Power Project (the Project or Seabrook) to PSNH under two life-of-unit, ) full cost recovery contracts. In addition to its retail service, the NU system fumishes firm and other wholesale electric services to various municipalities and other utilitics, and participates in limited retail access programs, which provide oft-system retail electric service, ne NU system serves in excess of 30 percent of New England's electric needs and is one of the 24 largest electric utility systems in the country as measured by revenues. The Company acts as agent in operating the Project pursuant to the Seabrook Project Managing Agent Operating Agreement (the Managing Agent Agreement) and the Seabrook Project Disbursing Agent Agreement (the Disbursing Agent Agreement). ne Project is owned jointly by NAEC and CL&P, both wholly owned subsidiaries of NU, and nine non-affiliated New Englaiid utility companies as tenants in common with undivided interests (the Seabrook Joint Owners). The cost of the Project is recorded on the books of the Seabrook Joint Owners based upon their proportionate ownership share of the Project. The Company does not have an ownership interest in the Project. De Company is only liable for payroll related expenditures and liabilities. De Seabrook Joint Owners are severally responsible for their respective share of the costs of operating and maintaining the Project. Ownership percentages of the Project as of December 31,1998 were as follows: OWNERSHIP PARTICIPANTS SHARE Canal Electric Company 3.52317 % Great Bay Power Corporation 12.13240 Hudson Light & Power Department .07737 Massachusetts Municipal Wholesale Electric Company 11.59340 Montaup Electric Company 2.89989 New England Power Company 9.95766 New Hampshire Electric Cooperative, Inc. 2.17391 North Atlantic Energy Corporation 35.98201 Taunton Municipal Lighting Plant .10034 ) ne Connecticut Light and Power Company 4.05985 -{ ne United Illuminating Company .17.50000 j 100.00000 %
)
i l 1
ANNUAL REPORT OF NORTH ATLANTIC ENERGY SERVICE CORPORATION For the Year Ended December 31,1998 SCHEDULE XIV : NOTES TO FINANCIAL STATEMENTS
- 1.
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
'I Other wholly owned subsidiaries of NU provide support services to the Company. Northeast Utilities Service.
Company (NUSCO) provides certain administrative support to the Company, pursuant to the Service Agreement between NUSCO and NAESCO acting as agent for the Seabrook Joint Owners, as amended, and to other NU system companies. Billings from NUSCO recorded by the Company approximated $6,281,000 and $9,405,000 in 1998 and 1997, respectively. PSNH provides certain services to the Company pursuant to the Service Agreement between PSNH and NAESCO acting as agent for the Seabrook Joint Owners,'ts amended. Billings from PSNH recorded by the Company were approximately $358,000 and $971,000 in 1998 and 1997, respectively. All transactions among affiliated companies are on a recovery orcost basis which may include amounts representing a retum on equity, and are subject to approval of various Federal and state regulatory agencies. Method ofAccounting: The accompanying financial statements were prepared in accordance with the Uniform System of Accounts for Mutual and Subsidiary Service Companies, promulgated pursuant to the Public Utility Holding Company Act of 1935, as modified (1935 Act). His system of accounts follows, with modifications, the Federal Energy Regulatory Co m mission's (the FERC) Uniform System of Accounts and the Managing Agent Agreement. The fmancial statements n:flect expenses associated with managing, operating, and maintaining the Project, excluding decommissioning costs, property taxes, amortization of nuclear fuel, reserves, and book depreciation. Pursuant to the Managing Agent Agreement, NAESCO does not earn a retum on capital and therefore, revenues represent the sum of the Company's operating expenses. The preparation of fmancial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the fmancial statements. Estimates also affect the reported amounts of revenues and expenses during the reporting period. Actual results could difTer from those estimates. Public Utility Regulation: NU and its subsidiaries, including the Company, are registered with the Securities and Exchange Commission as a holding company under the 1935 Act, and it and its subsidiaries, including the Company, are subject to the provisions of the 1935 Act. He Company is a registered utility company in the State of New Hampshire and is subject to appropriate regulation by the New Hampshire Public Utilities Commission (NHPUC). De Seabrook Joint Owners, whom the Company represents as agent, are subject to further regulation by the FERC. The Company therefore follows the accounting policies prescribed by the FERC.
- 2. PENSION AND POSTRETIREMENT BENEFITS remion: Employees'of NAESCO are covered by the NU system's uniform noncontributory-defined benefit plan covering all of its regular coployees. Benefits are based on years of service and employees' highest compensation during 60 consecutive months of employment. The Company's allocated portion of the NU system's pension cost for
- 1998 and 1997, part of which was capitalized and billed as utility plant, approximated $3,003,000 and $3,129,000, respectively. *
-19A-
ANNUAL REPORT OF NORTH ATLANTIC ENERGY SERVICE CORPORATION ' For the Year Ended December 31,1998 SCHEDULE XIV NOTES TO FINANCIAL STATEMENTS
- 2. PENSION AND POSTRETIREMENT BENEFITS (continued)
Currently, the NU system funds annually an amount at least equal to that which will satisfy the requirements of the Employee Retirement income Security Act and the Internal Revenue Code. Pension costs are determined using market related values of pension assets. Postrctirement Benefits: The Company also provides certain health care benefits, primarily medical and dental, and life insurance benefits through a benefit plan to retired employees (referred to as SFAS 106 benefits). These benefits are available for employees retiring from the Company who have met specified service requirements. For current employees and certain retirees, the total postretirement benefit is limited to two times the 1993 per-retiree health care cost. The postretirement benefit obligation has been calculated based on this assumption. The expected cost of postretirement benefits, primarily health and life insurance benefits are charged to expense during the years that eligible employees render service. The Company is funding its postretirement benefit costs through extemal trusts. The annually funded amounts are tax deductible under the Intemal Revenue Code. Actuarially determined total SFAS 106 benefits, part of which were capitalized and billed as utility plant, approximated $704,000 in 1998 and $674,000 in 1997. Pension and postretirement benefit assets are invested primarily in domestic and intemational equity securities and bonds. i I l 1 l l i
-198-1 1
I l l f ANNUAL REPORT OF NORTH ATLANTIC ENERGY SERVICE CORPORATION For the Year Ended December 31,1998 SCHEDULE XIV ] NOTES TO FINANCIAL STATEMENTS
- 2. PENSION AND POSTRETIREMENT BENEFITS (continued)
The components of net cost for the Company (in thousands) are: As of December 31, Pension Benefits Postretirement Benefits 1998 1997 1998 1997 Change in benefit obligation:
$ (59,416) $ ($2,049) $ (7,599) $ (7,652)
Benefit obligation at beginning of year (3,888) (3,512) (551) (475) Service cost (4,438) (4,067) (582) (531) Interest cost - (437) 439 - Transfers (5,307) (994) (318) 803 Actuarialgain/(loss) 724 767 304 256 Benefits paid (72,762) (59,416) (8,746) (7,599) Benefit obligation at end of year Change in plan assets: 57,396 48,656 6,447 5,143 Fair value of plan assets at beginning of year . 8,154 9,946 825 1,036 Actual return on plan assets
- - 606 524 Employer contribution Benefits paid (724) (767) (304) (256)
Transfers 437 (439) - - 65,263 57,396 7,574 6,447 Fair value of plan assets at end of year (7,499) (2,020) (1,172) (1,152) Funded status at year end 693 756 2,209 2,367 Unrecognized transition amount Unrecognized prior service cost 5,386 5,766 - - l Unrecognized net gain (21.724) (24.659) f1.037) (1.116) S (23.144) $ (20.157) S - $ 99 (Accrued)/ prepaid benefit cost Re following actuarial assumptions were used in calculating the plan's year-end funded status: As of December 31, Pension Benefits Postretirement Benefits 1998 1997 1998 1997 Discount rate 7.00 % 7.25 % 7.00 % 7.25 % Compensation / progression rate 4.25 4.25 4.25 4.25 Health care cost trend rate (a) N/A N/A 5.22 5.76 ) (a) He annual growth in per capita cost of covered health care benefits was assumed to decrease to 4.40 percent by 2001. i
-19C-
- _ - - - - _ _ _ - - _ _ _ _ - _ - _ _ _ _ _ - _ _ _ _ _ _ _ _ _ - . _- __ _ _-__ _ __ - _ _ _ ______- _ _ _ _-_ - _ _ - - _ _ _ _ _____ _ a
ANNUAL REPORT OF NORTH ATLANTIC ENERGY SERVICE CORPORATION For the Year Ended December 31,1998 SCHEDULE XIV NOTES TO FINANCIAL STATEMENTS
- 2. PENSION AND POSTRETIREMENT BENEFITS (continued)
The components of net periodic benefit cost (in thousands) are: For the Years Ended December 31, Pension Benefits Postretirement Benefits 1998 1997 1998 1997-S 3,888 $ 3,512 $ 551 $ 475 Service cost 4,438 4,067 582 531 Interest cost Expected return on plan assets (4,721) (3,991) (478) (362) Amortization of unrecognized transition obligation 63 63 158' '158 Amortization of prior service cost 380 380 - Amortization of actuarialgain (1,045) (902) Other amorization, net - - (109) (128)
$ 3.003 $ 3.129 704 674 Net periodic cost For calculating pension and postretirement benefit costs, the following assumptions were used:
For the Years Ended December 31, Pension Berefits Postretirement Benefits 1998 1997 1998 -1997 Discount Rate 7.25 % 7.75 % 7.25 % 7.75 % Expected long-term rate of return 9.50 9.25 N/A N/A Coinpensation/ progression rate 4.25 4.75 4.25 4.75 Long term rate of return Health assets, net of tax N/A N/A 7.75 7.50 Life assets N/A N/A 9.50 9.25 Assumed health care cost trend rates have a significant effect on the amounts reported for the health care plans. The efTect of changing the assumed health care cost trend rate by one percentage point in each year would have the following effects (in thousands); One Percentage One Percentage Point Increase Point Decrease Effect on total service and interest cost components $ 39 $ (42) Effect on postretirement benefit obligation 304 (331)
~
The trust holding the health plan assets is subject to federal income taxes at a 39.6 percent tax rate. 19D-
ANNUAL REPORT OF NORTH ATLANTIC ENERGY SERVICE CORPORATION For the Year Ended December 31,1998 SCHEDULE XIV : NOTES TO FINANCIAL STATEMENTS
- 3. LEASES The Company, on behalf of the Seabrook Joint Ownen, has entered into operating lease agreements for cenain data processing equipment, office equipment, vehicles and offsite facilities. He Company does not enter into capital leases.
Operating lease costs charged to expense approximated $1,753,000 and $1,498,000 in 1998 and 1997, respectively. The provisions of these lease agreements generally provide for renewal options. The Company has no noncancelable leases.
- 4. FINANCING Each of the Seabrook Joint Owners is responsible for financing its cost of participation in the Project in proportion to its respective ownership share. Such financing is provided to the Project in advance of such costs being incurred. The Company, therefore, has no long-term or short-term debt obligations.
- 5. OTIIER INVESTMENTS in order to be self-insured for basic worker's compensation coverage in the State of New Hampshire, financial assurance is required. Funds have been set aside in an interest bearing collateral account for such purpose. The balance at December 31,1998 and 1997 was approximately $680,000.
- 6. INCOME TAX EXPENSE The components of the Federal and state income tax provisions (in thousands) are:
For the Years Ended December 31, 1998 1997 Current income taxes: Federal $ 357 $ (386)
- (112)
State Total current S 357 $ (498) Deferred income taxes, net:
$ 103 $ 459 Federal (13) 47 State S 90 $ 506 Total deferred 10talincome tax expena $ 447 $ 8 d
-19E-
ANNUAL REPORT OF NORTH ATLANTIC ENERGY SERVICE CORPORATION For the Year Ended December 31,1998 SCHEDULE XIV NOTES TO FINANCIAL STATEMENTS
- 6. INCOME TAX EXPENSE (continued)
The components of total income tax expense (in thousands) are classified as follows: For the Years Ended December 31, 1998 1997 income taxes charged to operating expenses $ 447 $ 8 Other income taxes Totalincome tax expense $ 447 $ 8 Deferred income taxes (in thousands) are comprised of the tax effects of temporary differences as follows: For the Years Ended December 31, 1998 1997 Software amortization S 216 $ 455 Workforce reduction - 17 Injuries and damages reserve (51) 94 Accrued vacation 1I (20) Other (S6) (40) Deferred income taxes, net S 90 $ 506 A reconciliation between income tax expense and the expected tax expense at the applicable statutory rate (in thousands)is as follows: For the Years Ended December 31, 1998 1997 Expected Federal income tax at 35 percent of pretax $ income $ 157 3 Tax effect ofdifferences: State income taxes, net of Federal benefit - (11) Adjustment for prior years taxes 266 (12) Other, net 24 _ 28 i Totalincome tax expense $ 447 $ 8 f i The company, as a wholly-owned subsidiary of NU is included in NU's consolidated retum. Income tax expense is determined on a separate company basis.
-19F-I
ANNUAL REPORT OF NORTH ATLANTIC ENERGY' SERVICE CORPORATION For the Year Ended December 31, 1998 SCHEDULE XV COMPARATIVE INCOME STATEMENT-DESCRIPTION 1998' 1997 ACCT (Thousands of Dollars) , INCOME
~~~~~
Services Rendered to Associate Companies $ 57,982 $ 71,130 457' Services Rendered to Nonassociate Companies 86,821 106,509 458 421 Miscellaneous Income or Loss 39 19 Total Income $ 144,842 $ 177,658 EXPENSE Nuclear Power Expenses 517 Operation Supervision and Engineering $. 24,572 $ 20,694 518. Nuclear Fuel Expense 7,927 7,504 Coolants and Water 2,011 2,236 519 520 Steam Expenses 12,385 15,613 523 Electric Expenses 4,118 4,838 , 524 Miscellaneous Nuclear Power Expenses 26,858 25,906 528 Maintenance Supervision and Engineering 10,098 19,772 529 Maintenance of Structures 7,899 5,155 530 Maintenance of Reactor Plant Equipment 9,704 22,104 531 Maintenance of Electric Plant 10,920 19,221 532 Maintenance of Miscellaneous Nuclear Plant 590 758 Transmission Expenses 570 Maintenance of Station Equipment 15 28 Administrative and General Expenses 920 Salaries and Wages 3,609 4,717 921 Office Supplies and Expenses 1,100 1,620 922 Administrative Expense Transferred-Credit 0 (9) 923 Outside Services Employed 2,495 2,730 924 Property Insurance 1,886 3,729 925 Injuries and Damages 1,504 1,906 926 Employee Pensions and Benefits 10,861 13,152 928 Regulatory Commission Expense 1 6 930.1 General Advertising Expenses 186 203 930.2 Miscellaneous General Expenses 275 56 931 Rents 456 794 l 935 Maintenance of General Plant 15 64 l All Other Expenses 408 Taxes Other Than Income Taxes 4,412 4,550 409 Income Taxes 358 (498) 410 Provision for Deferred Income Taxes 435 704 411 Provision for Deferred Income Taxes (345) (197) 426.1 Donations 75 53 426.5 Other Deductions- 319 135 431 Other Interest Expense 83 113 Total Expense $ 144,842 $ 177,657 .- Net Income $ 0 $ 1
......... u.........
i 1
U ANNUAL REPORT OF NORTH ATLANTIC ENERGY SERVICE CORPORATION For the Year; Ended December 31, 1998 ANALYSIS OF BILLING
- ASSOCIATE COMPANIES ACCOUNT 457 t ...............................______..______.. __.....___....___............
DIRECT INDIRECT COMPENSATION . TOTAL COSTS COSTS FOR USE AMOUNT NAME OF ASSOCIATE COMPANY CHARGED -CHARGED OF CAPITAL - BIT.TRn (Thousands of Dollars) 457 1 457-2 457-3 The Connecticut Light and Power $ 5,879 $ $ $ 5,879 Company. North Atlantic Energy Corporation 52,103 52,103 TOTAL $ 57,982 $ 0 *$ 0 $ 57,982
...a=== ...... ==.--. ....... !
i l 1 l l i 1 4 l
)
[
ANNUAL REPORT OF NORTH ATLANTIC ENERGY SERVICE CORPORATION For the Year Ended December 31, 1998 ANALYSIS OF BILLIIG
}0NASSOCIATE COMPANIES
- ACCOUNT 458 DIRECT INDIRECT CCMPENSATICH EXCESS 7UTAL COSTS COSTS POR USE 'IUTAL OR. APEXRT NAME OF CHARGED CHARGED OF CAPITAL COSTS DEFICIENCY- BILLED NONASSOCIATE COMPANY (Thousands of Dollars) 458-1 458-2 458-3 458 4 5,102 $ $ 5,102 $ f,, 5,102 Canal Eh ric Conpany $ $
17,568 17,568 Great Bm/ dower Corporation 17,568 Hudson Light & Power Dept. 112 112 112 Ma sachusetts Municipal Wholesale 16,788 16,788 16,788 Electric Conpany 4,199 4,199 Montrup Electric Conpany 4,199 14,419 New England Power Conpany 14,419 14,419 3,148 3,148 New Hanpshire Electric Coop. 3,148 T&unton Municipal Lighting Plant 145 145 145 United Illuminating Coupany 25,340 25,340 25,340
$ 86,821 $ 0 $ 0 $ 86,821 $ 0 $ 86,821 INSTRUCTIONS: Provide a brief description of the services rendered to each nonassociate company:
The Conpany acts as agent in operating Seabrook Station for the nonassociate conpanies. I
) )
_ . 27158889400 5 900564116565 2855593- 9
. 72183599029 59031808795 1 00 9806 61 4858 124 8751 15347t8 i 3O 3 4343 3( i ( b
. . : s 5
~
L 4722460790 31 2110 4 i i 2 1 21 1 1 i i A. T i 5 O $ i
~
.i TT .
. C 6
~ '
h E . ~ R . ~ I
. DT .
NS IO. $ -i ) - i C. 27158889400 5 900564116565 2855593'
)
90'3 72183599029 1 00 9806 8751 1534718 s 3 4343 3 i ( U
. 59031808795 61 4858 124 ( i 5
. T :
C 4722460790 3 l' 2110 4' i i E 2 1 21 1 1 i I RT .. i i IS. DO. 5 - i I
. C..
23661256874 9 35028053145 66400%30112212539 167 5517510~) 4160495 1 i 205
)
3 " 77244107853 16 4195 112 6222 i ( 5
. (- s U
2 4417266456 2 11 6 s 5 L. 1 1 A s 5
. T
. . ~ "
T TO. $ i i C _ 6 U E _ R . I
. DT .
NS. IO $ i i C.. ) ) 23661256874 9 35028053145 77244107853 400%30112212539 66 16 4195 167 112 5517510-4160495 6222 1 i 20I i 3 ( E T . ( s 5 C 4417266456 2 11 6 2 s 5 E 1 1 s 5 RT . IS DO. C..
$ i $
. 04597633636 6 500952904036 7348083~ )
)-"
6 05 47055546873 44 9504 718 6473323 s s 1 ( 5 81896701832 44 9763 11 7111 ( 1 s - 5 L . 93 4104334 1 4 1 :
. i 3 A..
T 1 s 5
._ T O. $
i 5 C T.. - 6 b E . - R . . I DT . NS
. IO.C..
) s ) - 5 04597633636 6 500952904036 7348083~ 60 k' 470 5546873 44 9504 718 6473323 1 s 1 .
T C E . 818%.6701832 93 4104334 44 9763 1 4 11 7111 1 ( i s ( 5 U [ RT . . 1 i I IS. s 5 N . DO.C. 5 5 $ O . I T . A . . R t O n t P . . a R . g l d i O . n t P e r C 8 S. g i n r o - E9 E . n sr e r C - f C9 EI . i r ee se mp a e d e lao lf _ I1 CN . e xx S e E mo
._ nn i l at V . uos R .
E1 IA. Vf. RP e n ei pg q uu nc t r r aa TT S N c n qti e ey s S3 EO. _ i g xn E N e e s s s ee E SC n EE t m f te e P I Yr tns p ss i sss t e mm X - lhl - rd nau is o ue saen Ge .. E fnen n x oo g lta Pb Em RE. OT S. M. d waslPeal en qs nrd eese npnp a la cc T nnII E i n E i n wsa Ne Ec I FA_.I E. T. n a o eP n En eTee p y Pnr ca np xeo exex P BEcE x e L t A ar C I eie e CD e VSC_ XEO_ _ I F. nl ouril ritorl o Ex E sl dnEl a o ee l m dd e s T O e p V R cnt iaa vpr I Td GS. ERS_ O oa is asctte i eiuccc t np sno a r c rr dem e ai gr e n rr n e T O-E S rma eop
, Ne Ad LAA.
UHN
. N. .
sor l vraes alsnoEeg sne n ipe scrteli taeax cassin e I ee ff p x n F sces Ln E NOCO. O. I vst eueSREM Srg Esnmnise G n ee sE ria sN p eas eaao a DD n N o O fe TE HF A r S COD. T. P seDWsn ep uffff fnWeecrDimiG t f h ot T S otr s uld s eesSoooosoe i viu sors o T rr is s ai _ Ha N. I pu e GdlivsdnCeu soo te u O tie _ Te SA. R nSennxoeeeeese n pt r n n e vo e reff cr o C sch I C. e uaeEecccccn cd a pa eI aP yd e csex ue e oot RY
. O .
Ne Ft h SE YT LA. AI S E D pnF p nnnnnn en n urS x o sxcaaaaaapaasSt yseo a astToonen rAn n ehannsdt EirtEil tan rlnnnnn e e e ex eE n eeie seteetll eid ri ya aln nO iioDI ee essi n e L am A lo T lc O cssr lae. ands O r NC_. AO.
. rerllaccnnnnnn aeamtettttt tvrcnierolrestpsmiitrr niaiispu ctn xeovvaee en T cI tone onul To S. w ecoeesiiiiioitlfmto sniExcoonhh s T u RF S. opuotliaaaaaiaaafdur iea anrrott it ddd O A. . PONCSEMMMMMMsMrSOAOPI s t R MRMrTiPPDOO e MeN : nee N alh P . r- i s h O lc
.E R . T . a m i t Ieis
. NR. e s n O Ttb L UE l78903489012n0i0123456812.15 8901 1 5.1 1 Ca g A
U _. O i CM CL c11122222333a7m222222220033l0011663 Nu55555555555r5d999999993399l4444224 2 4 Uitn Rcni N N . AN T A 99 -A 44 Togl Ssal - A _ . hw' . Nsmi Iaab
ANNUAL REPORT OF NORTH ATLANTIC ENERGY SERVICE CORPORATION For the Year Ended December 31, 1998 SCHEDULE XVII SCHEDULE OF EXPENSE DISTRIBUTION BY DEPARTMENT OR SERVICE FUNCTION ....................................................................-....----..-- SERVICE ACCOUNT FUNCTION TOTAL. SEABROOK . DESCRIPTION OF ITEMS AMOUNT OVERHEAD STATION NUMBER (Thousands of Dollars) Nuclear Power Expenses 24,572 517 Operation Supervision and Engineering $ 24,572 $ $ 7,927 7,927 518 Nuclear Fuel Disposal 2,011 Coolants and Water 2,011 519 12,385 12,385 520 Steam Expenses 4,138 Electric Expenses 4,138 523 26,858. Miscellaneous Nuclear Power Expenses 26,858 524 10,098 528 Maintenance Supervision and Engineering 10,098 7,899 Maintenance of Structures 7,899 529 9,704. 530 Maintenance of Reactor Plant Equipment 9,704 10,920 531 Maintenance of Electric Plant 10,920 590 590 532 Maintenance of Miscellaneous Nuclear Plant Transmission Expenses 15 570 Maintenance of Station Equipment 15 Administrative and General Expenses 3,609 3,609 920 Salaries and Wages . 1,100 921 Office Supplies and Expenses 1,100 Administrative Expense Transferred Credit 0 0 922 2,495 923 Outside Services Employed 2,495 1,686 1,886. 924 Property Insurance 1,504 925 Injuries and Damages 1,504 10,861 10,861 926 Employee Pensions and Benefits 1 Regulatory Commission Expense 1 928 186 930.1 General Advertising Expenses 186 930.2 Miscellaneous General Expenses 275 275 456 456 931 Rents 15 935 Maintenance of General Plant 15 All Other Expenses Taxes Other Than Income Taxes 4,412 4,412 408 409 Income Taxes 358 358 410 Provision for Deferred Taxes 435 435 411 Provision for Deferred Taxes (345) (345) 426.1 Donations 75 75 426.5 Other Deductions 319 319 I 431 Other Interest Expense 83 83 TOTAL EXPENSES $ 144,842 .$ 0 $ 144,842 I INSTRUCTIONSt Indicate each department or service function. (See Instruction 01-3, , Ganaral Structure of Accounting System: Uniform System of Accounts) ANNUAL REPORT OF NORTH ATLANTIC ENERGY SERVICE CORPORATION For'the Year Ended December. 31,'1998 SCHEDULE XVII
- KEYS POR SERVICE FUNCTIONS
. KEYS SERVICE FUNCTION. The individual unit for which NAESCO provides service is listed separately on Page 24. i i
- a l
l
ANNUAL REPORT OF NORTH ATLANTIC ENERGY. SERVICE CORPORATION For-the Year Ended December 31, 1998 DEPARTMENTAL ANALYSIS OF SALARIES NAME OF DEPARTMENT DEPARTMENTAL' SALARY EXPENSE ' INCLUDED IN AMOUNTS BILLED TO NUMBER'OF .
................................--PERSONNEL PARENT OTHER NON END~
Indicate each department TOTAL COMPANY ASSOCIATES ASSOCIATES OF YEAR or service function. AMOUNT (Thousands of Dollars)
$ 59,569 $ $ 23,853 $ 35,716 845 Seabrook Station l
\
$ 59,569 $ 0 $ 23,853 $ 35,716 845
======= ======= ....... ....... .........
6' 26 . m, - c- _ , . . . . . . . . . . . . . . . . . . . - . - - -- - -
ANNUAL REPORT OF NORTH ATLANTIC ENERGY SERVICE CORPORATION For Year Ended December 31, 1998
$UTSIDE SERVICES EMPLOYED INSTRUCTIONS: . Provide a breakdown by subaccount of outside services employed. If the aggregate amounts paid to any one payee and included within one subaccount is less than $100,000, only the aggregate number and amount of all such payments included within the subaccount need be shown.
Provide a subtotal for each type of service. RELATIONSHIP "A"-ASSOCIATE "NA"-NON FROM WHOM PURCHASED ASSOCIATE ANOUNT (Thousands of Dollars) COMPUTER AND COMMUNICATION SERVICES Alpine Computer Systems NA $ 157 Ambit Technology NA 179 Creative Sysems, Inc. NA 228 IBM NA 433 Northeast Utilities Service Company A 2,422 SCS Systems NA 132 Miscellaneous (51 payees) NA 897 TOTAL COMPUTER SERVICES $ 4,448 ENGINEERING SERVICES Days International, Inc. NA $ 134 Duke Engineering NA 3,359 Excel Services, Inc. NA 165 Northeast Utilities Service Company A 564 Raytheon Nuclear Inc. NA 160 Stone & Webster Engineering NA 122 Tekton Resources NA 303 Miscellaneous (19 payees) NA 395 TOTAL ENGINEERING SERVICES $ 5,202 l LEGAL SERVICES Northeast Utilities Service company A $ 226 Miscellaneous (15 payees) NA 369 TOTAL LEGAL SERVICES $ 595 _27
ANNUAL REPORT OF NORTH ATLANTIC ENERGY SERVICE CORPORATION For the Year Ended December 31, 1998 OUTSIDE SERVICES EMPLOYED SECURITY SERVICES Green Mountain Security Service of NH- NA. $ 3,815 , TOTAL SECURITY SERVICES $ 3,815 OTHER SERVICES Entor Corp NA $ 327 Gilbart Consulting Services NA 165 Kelley Services, Inc. NA 178 Normandeau Associates, Inc. NA 1,002 Northeast Utilities Service Company A 3,069 NUCON Engineering Associates, Inc. NA 607 , NUMANCO L.L.P. NA 472 Parformance Improvement International NA 125 Public Service Company of New Hampshire A 358 RCS Corp NA 131 Saquoia Consulting Group, Inc. NA 184 Spac Group Holdings, Inc. NA 128 Miscellaneous (1,000 payees) NA 4,418 TOTAL OTHER SERVICES $ 11,164 GRAND TOTAL OUTSIDE SERVICES EMPLOYED $ 25,224
=== ......
-27A-4
~
ANMUAL REPORT OF NORTH ATLRMTZC ENERGY SERVZCE CORPORATION For the Year Ended December 31,.1998 OUTSIDE SERVICES EMPLOYED FROM WHOM PURCHASED DESCRIPTION OF SERVICES COMPUTER AND COMMUNICATION SERVICES Alpine Computer Systems Provides consulting and administrative support for PC network environment. Ambit Technology Provides PC software evaluation services. Creative Systems, Inc. Provides Y2K assessment services. IBM Provides support for mainframe operating environment and software upgrades. Northeast Utilities Service Company See note below SCS Systems Provides contract mainframe programming. j I ENGINEERING SERVICES Days International, Inc.Provides software engineer for simulator project. Duke Engineering Provides engineering, emergency planning, environmental monitoring, and other services. Excel Services, Inc. Provides engineering for technical specification project. Northeast Utilities Service Company See note below l Raytheon Engineers & Constructors Provides engineering and administrative services as requested. , l Stone & Webster. Engineering Provides engineering services as requested. Tekton Resources Provides engineering services as requested. LEGAL SERVICES .. Northeast Utilities { Service Company See note on page 27C i SECURITY SERVICES Green Mountain Securit) Service of NH Provides security services for baseline security support. (
)
l
-27B.
ANNUAL REPORT OF NORTH ATLANTIC ENERGY SERVICE CORPORATION For the Year Ended December 31, 1998 OUTSIDE SERVICES EMPLOYED OTHER SERVICES : Entor Corp. Provide contract operations instructors. Gilbsrt consulting , services Provide contract operations instructors. Kelley Services, Inc. Provide temporary manpower as needed, i Normandeau Associates Provides environmental monitoring services as requested. Northeast Utilities Service Company See note below NUCON Engineering Associates, Inc. Provides engineering services as requested. NUMANCO L.L.P. Provides temporary, technical manpower as needed. Parformance Improvement International Provides performance monitoring, trending and improvement services as requested. Public Service Company of New Hampshire Provides worker's compensation administration, facilities and miscellaneous service. RCS Corp. Provides temporary, technical manpower as needed. Sequoia Consulting , Group, Inc. Provides temporary, technical manpower as needed. ( Spec Group Holdings, Inc. Provides temporary, technical manpower as needed. Note: Northeast Utilities Service Company provides centralized accounting, administrative, data processing, engineering, financial, legal, operational, planning, purchasing and 1 other services.
-27C-
- - _ _ _ --.w-------.----_--__ _ _ _ . - - _ - - - --- ..
ANNUAL REPORT OF NORTH ATLANTIC ENERGY SERVICE CORPORATION For the Year Ended December 31,~1998 EMPLOYEE PENSIONS AND BENEFITS ACCOUNT 926 INSTRUCTIONS: Provide a listing of each pension plan and benefit program
- provided by the service company. Such listing should be limited to $25,000.
DESCRIPTION -AMOUNT (Thousands of Dollars)
$ 2,920 Pension Plan 1,428 Employees Incentive Plan Group Life, Long-term Disability, Hospital and Medical Insurance Expenses 4,167 FAS 106 VEBA Funding 701 Supplemental and Early Retirement Plans 638 Employee Stock Ownership Plan 966 Other Employee Benefits Expenses 41 TOTAL $ 10,861-
= .......
f l
ANNUAL REPORT OF NORTH ATLANTIC ENERGY SERVICE CORPORATION For the Year Ended Decerber 31, 1998 GENERAL ADVERTISING EXPENSES ACCOUNT 930.1 INSTRUCTIONS Provide a listing of the amount' included in Account 930.1,
" General Advertising Expenses," classifying the items according to the nature of the advertising and as defined in the account definition. If a particular class includes an amount in excess of $3,000 applicable to a single payee, show separately the name of the payee and the aggregate amount applicable thereto.
DESCRIPTION AMOUNT (Thousands of Dollars)
$ 45 Science & Nature Center ADECCO/ TAD 24 Barker Specialty Hartford Office Supplies 5 New England Aquarium 13 Various (46 items) 99 TOTAL 7 186 ,
1
ANNUAL REPORT OF NORTH ATLANTIC ENERGY SERVICE CORPORATION For-the Year Ended December 31, 1998 MISCELLANEOUS GENERAL EXPENSES ACCOUNT 930.2 INSTRUCTIONS: Provide a listing of the amount included in Account 930.2,
" Miscellaneous General Expenses,a classifying.such expenses according to their nature. Payments and expenses permitted by Sections 321 (b) (2) of the Federal Election Campaign Act, as amended by Public Law 94-283 in 1976 (2 U.S.C.
441(b) (2) ) shall be separately classified. DESCRIPTION- AMOUNT (Thousands of Dollars)
$ 6-Industry and association dues Information Technology./ Communication Services 59 185 Medical Services 11 Shareholder Services 14 Various (26 items) .__.__...
6 TOTAL $ 2'75 s
- l l
l
4 ANNUAL REPORT OF NORTH ATLANTIC ENERGY SERVICE CORPORATION For the Year Ended December 31, 1998 RENTS 4 INSTRUCTIONS: Provide a listing of the amount included in accounts entitled " Rents," classifying such expenses by major
-groupings of property, as defined in the account definition of the Uniform System of Accounts.
l TYPE OF PROPERTY AMOUNT (Thousands of Dollars) -1 Computers / Data processing' equipment $ 628 Communications equipment 112 104 Vahicles Buildings 12C Equipment and other 783 TOTAL $ 1,753 i 1 I j e . I i
-.31
_m.________ _ _ ___m_i__________________.______.._____________..___._____U
1 ANNUAL REPORT OF NORTH ATLANTIC ENERGY SERVICE CORPORATION For the Year Ended December 31, 1998 TAXES OTHER THAN INCOME TAXES ACCOUNT 408 INSTRUCTIONS: Provide an analysis of Account 408, " Taxes Other Than Income Taxes." Separate the analysis into two groups: (1)Other than U.S. Government taxes, and (2) U.S. Government taxes. Specify each of the various kinds of taxes and show the amounts thereof. Provide a subtotal for each class of tax. KIND OF TAX AMOUNT (Thousands of Dollars) (1) Other Than U.S. Government Taxes:
$ 74 Insurance Premium Excise Tax 25 Property Tax State Unemployment Tax 32 .
162 State Business Tax ........_ Sub-Total $ 293 l (2) U.S. Government Taxes: Federal Unemployment Tax $ 18 4,101 Federal Insurance Contribution Act ......... Sub-Total $ 4,119
......... 1 TOTAL $ 4,412 t
1 i ANNUAL REPORT OF NORTH ATLANTIC ENERGY SERVICE CORPORATION For the Year Ended December 31, 1998 DONATIONS ACCOUNT 426.1 INSTRUCTIONS: Provide a listing of the amount included in Account 426.1,
" Donations," classifying such expenses by its purpose. The aggregate number and amount of all items of less than $3,000 l
may be shown in lieu of details. AMOUNT NAME OF RECIPIENT PURPOSE OF DONATION (Thousands ' of Dollars) Charitable Contributions $ 22 Naw Hampshire Seacoast United Way Charitable Contributions 5 Haw England Aquarium Sascoast Repertory Theater Charitable Contributions 5 Charitable Contributions 43 Miscellaneous (87 items) 1
..w.....
TOTAL $ 75 I
ANNUAL REPORT OF NORTH ATLANTIC ENERGY SERVICE CORPORATION For the Year Ended December 31, 1998 CTHER DEDUCTIONS ACCOUNT 426.5 INSTRUCTIONS: Provide a listing of the Nmint included in Account 426.5, "Other Deductions," class 1rying such expenses according to their nature. DESCRIPTION NAME OF PAYEE AMOUNT (Thousands of Dollars) Murphy, SaH $ 40 Political activities 279 Executive Incentive Compensation Varioup l TOTAL $ 319 1 i s'
ANNUAL REPORT OF NORTH ATLANTIC ENERGY SERVICE CORPORATION For the Year Ended December 31, 1998 SCHEDULE XVIII NOTES TO STATEMENTS OF INCOME l INSTRUCTIONS: The space below is provided for important notes regarding' the financial statements of income or any account thereof. ! Furnish particulars as to any significant increases in services rendered or expenses incurred during the year. Notes relating to financial statements shown elsewhere in this report may be indicated here by reference. San Notes to Financial Statements on pages 19A through 19F. l
1i n r aso mca ur n et
. Huiodr ds o ae C o LeR N
O I T A r t r R o tcte p o O P esp i u R 8 i r O 9 D S C 9 1 E , C I 3 1 V R R E E S B Y M G E R C r E E N DF f e ec g E Nfik e r.ri n C O CfO v toar ee TI S &r
.a clce e
N AT A P. le e ir ui D Ngn r I R V. uc S E T A H A EN H C T N R O O I N T F A Z O NA T I R G O P R n oto r E O it c R ae t ir L A SD U N N A r s o e t cf i c eov r r i e D S s
$T
ANNUAL REPORT OF NORTH ATLANTIC ENERGY SERVICE CORPORATION For the Year Ended December 31, 1998 Methods of Allocation All costs are specific to seabrook Station and are direct charged. l
ANNUAL REPORT OF NORTH ATLANT8C ENERGY SERVICE CORPORATION ANNUAL STATEMENT OF COMPENSATION FOR USE OF CAPITAL BILLED For the' Year Ended December 31, 1998 i Expenses of Seabrook Station'are funded in advance therefore there are no charges for use of capital. l
'l I
I l O e
- l.
l l l
ANNUAL REPORT OF NORTH ATLANTIC ENERGY SERVICE CORPORATION CIGNATURE CLAUSE A Pursuant to the requirements of the_Public Utility Holding' Company Act of 1935 and the1 rulsa and regulations of the Securities and Exchange Conmmission issued thereunder, the undarsigned company has duly caused this report to be signed on its behalf by the undarsigned office thereunto duly authorized. NORTH ATLANTIC ENERGY SERVICE CORPORATION
....................__....____.____....__ l (Name of Reporting Company)
By: /s/ John J. Roman (Signature of Signing Officer) John J. Roman - Vice President and Controller I (Printed Name and Title of Signing Officer) Date: April 23, 1999 i 0 4 o i
)}}