01—Abstract
Summary
Summary of the 10-K filed March 27, 1995. Cited figures are marked; the original filing is the authoritative source.
Northeast Utilities (NU), parent of The Connecticut Light and Power Company (CL&P), Public Service Company of New Hampshire (PSNH), Western Massachusetts Electric Company (WMECO), and North Atlantic Energy Corporation (NAEC), reported a stronger 1994 driven by retail sales growth and cost controls.
Earnings per common share rose to $2.30a from $2.02 in 1993 (the 1993 figure included a one-time $0.42 property-tax accounting benefit), and net income was $286.9 million. Retail kilowatt-hour sales grew 2.9%, the strongest increase in six years, on the New England economic recovery. NU's 1994 wholesale revenues fell to about $331 million from $383 million as major contracts expired, and management expects further declines in 1995 before stabilization in 1996-1997.
The balance sheet is improving but remains burdened by nuclear and regulatory exposures. Total debt fell to $4.54 billionb from $4.88 billion a year earlier, and NU's common equity ratio was 33.4%, above the 27% covenant threshold. Key risks include Millstone 2's extended outage and NRC criticism, a 1994 nuclear capacity factor of 67.5%, PSNH's dependence on a rate agreement and negotiations with wood-fired NUGs, and decommissioning liabilities of roughly $1.2 billion for the Millstone and Seabrook units.
Regulatory uncertainty is also rising, with Connecticut, New Hampshire and Massachusetts all studying electric industry restructuring and retail wheeling. For investors, the 1994 results and deleveraging are constructive, but the outlook is clouded by the expected wholesale revenue decline, the Millstone 2 outage, and the possibility of restructuring.
The dividend was held at $1.76c per share annually ($0.44 quarterly), with a $0.44 dividend declared in January 1995. This filing is a combined annual report covering the four registrants.
02—Key points
Key Highlights
- EPS rose to $2.30 in 1994 from $2.02 in 1993, though 1993 included a one-time $0.42 property-tax accounting benefit (underlying 1993 EPS was $1.86).
- Retail kWh sales grew 2.9% in 1994, the strongest growth in six years, with PSNH sales up 2.0%, CL&P up 3.4%, and WMECO up 1.4%.
- Wholesale revenues fell to about $331 million from $383 million in 1993 as major contracts expired, and are expected to decline further in 1995.
- Total System debt was reduced to $4.54 billion from $4.88 billion, and NU's common equity ratio was 33.4% versus the 27% covenant threshold.
- Millstone 2 remains offline in an extended refueling outage (expected return around April-May 1995), with NRC criticism of its operations; the system nuclear capacity factor was 67.5% in 1994.
- PSNH is pursuing renegotiation of NUG contracts, including a $52 million buyout agreement with one wood-fired NUG, and its 1989 Rate Agreement fixes base rate increases of 5.5% annually.
- Connecticut, New Hampshire and Massachusetts regulators are reviewing electric industry restructuring and retail wheeling, with a Connecticut decision expected in mid-1995.
03—Questions
Frequently Asked Questions
How did Northeast Utilities perform financially in 1994?
Earnings per common share were $2.30, up from $2.02 in 1993, and net income was $286.9 million. Growth came from higher retail sales, rate increases at CL&P and PSNH, deferral of cogeneration costs in Connecticut, and lower operating and interest costs. The 1993 base was inflated by a one-time property-tax accounting change, so the underlying improvement was larger than the headline figure suggests.
Is the dividend at risk?
The dividend was $1.76 per share annually in both 1993 and 1994, and the Board declared $0.44 payable March 31, 1995. Dividends are subject to declaration by the Board of Trustees and depend on capital requirements and earnings. Restrictions from subsidiary debt agreements limit the retained earnings available for NU dividends, and PSNH has paid no common dividends to NU since 1992, so NU may have to fund its share through borrowings or stock issuance.
What are the biggest near-term risks to earnings?
Wholesale revenues are expected to fall further in 1995 before stabilizing in 1996-1997. Millstone 2's extended outage adds replacement-power and O&M costs, subject to prudence reviews. The DPU may limit lost fixed-cost recovery in Massachusetts, which could cost WMECO several million dollars starting in 1995-1996. PSNH's rate increases are constrained by political pressure, and the NUG negotiations could require additional financing.
How exposed is the company to nuclear decommissioning and nuclear operating risk?
The system's estimated decommissioning cost for its Millstone and Seabrook shares is about $1.2 billion in year-end 1994 dollars, plus about $300 million for regional Yankee units. Only the portion accepted by regulators is currently in rates, and the SEC staff and FASB are reviewing decommissioning accounting, which could change reported expenses. Nuclear performance was weak in 1994, and the NRC has pressed Millstone 2 on operational weaknesses.
Will retail competition or restructuring affect the business soon?
Retail wheeling is not currently required in any of the System's jurisdictions, and Connecticut regulators determined it was not in the state's interest until new capacity is needed around 2009. However, Connecticut's DPUC restructuring proceeding is expected to produce a decision in mid-1995, and the NU companies have proposed phased plans in Connecticut and are preparing similar filings in New Hampshire and Massachusetts. Special rate agreements already cover about 4% of retail revenues, and restructuring outcomes remain uncertain.
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