Northeast Utilities Business Information, Profile, and History
History of Northeast Utilities
Northeast Utilities (NU) is New England's largest utility company and ranks among the 30 largest in the United States. With the expected addition of Public Service Company of New Hampshire in 1992, NU would serve 1.6 million electricity customers in Connecticut, western Massachusetts, and New Hampshire.
In 1966 Northeast Utilities was formed by combining Western Massachusetts Electric Company with Connecticut Light and Power Company and Hartford Electric Light Company. Western Massachusetts Companies, a voluntary association, had been organized in 1927 to acquire 11 utility companies in western Massachusetts. These were subsequently consolidated into Western Massachusetts Electric Company (WMECO), based in Springfield, Massachusetts. The company added Huntington Electric Light Company to its holdings in 1959.
An early NU project, begun in 1968, was the construction of a million-kilowatt, $72 million pumped-storage hydroelectric power project on the Connecticut River in Franklin County, Massachusetts. In a pumped-storage system, power is produced from high-elevation lakes during high demand periods; during less busy times, the water is pumped back to the high elevation.
Lelan F. Sillin, Jr., became president of NU in April 1968. Sillin was committed to developing New England's use of nuclear power. The region's electricity prices were higher than the national average, and Sillin viewed nuclear power as the least expensive, most efficient, and cleanest energy option. In 1973, NU generated 24% of its energy from nuclear units. By 1974, it was 33%, and by 1980 nuclear energy supplied almost half the company's requirements. As of 1992 nuclear power accounted for 60% of NU's energy needs.
Before joining the holding company, the individual utilities had invested together in four nuclear plants in New England known as the Yankee Rowe, Vermont Yankee, Maine Yankee, and Connecticut Yankee plants. NU added its Millstone Point nuclear power station whose first unit went into commercial operation in 1970. Its second unit was completed in 1975. Millstone Point Company was established to construct and operate these two units. The company in 1972 launched a new program for nuclear fuel financing in which the fuel itself served as security on long-term debt. Plans for a third Millstone unit were set in 1975, and two more installations were planned for Montague, Massachusetts.
During the 1970s, the Middle East oil embargo, escalating inflation, and rising construction cost and time requirements began eroding NU's financial viability. The Montague units, originally set for 1981 and 1983, were rescheduled to start up in 1988 and 1992, and the third Millstone unit's in-service date was first pushed up from 1978 to 1980, to 1982, then to 1986, to reduce the company's financial burden. The delay in the Millstone unit, along with inflation and regulatory requirements, increased its cost from $400 million to $2.49 billion. The company decreased its overall building budget by $2.5 billion from 1974 to 1982.
The 1970s were punctuated by annual tussles with the regulatory boards in Connecticut and Massachusetts. In all, the company filed eight rate increase requests in Connecticut and six in Massachusetts. Never successful in obtaining its full request, NU averaged about 51% of the total amount applied for. In 1976, for instance, the Connecticut regulatory commission answered the company's request for a $56 million increase with a rate reduction of $22 million.
The company had borrowed all that it could under federal laws by 1976 but still did not have enough money to remain financially stable. NU stock fell from 120% of book value in 1970 to 65% in 1981, and bond ratings deteriorated from AA to BAA standing in the same period.
By the early 1980s, NU had revamped its demand outlook considerably. In 1970 it had anticipated a decade of growth at 9% per year and intended to build 6,238 megawatts of capacity, but the company actually experienced cumulative growth of only 25% during the entire decade and added only 2,813 megawatts of capacity. By 1980 its projected annual growth rate was reduced to just 1.7% with a target zone of no more than 1.5% annually.
NU would change its direction during the 1980s, largely due to its new chief executive officer, William B. Ellis. At Sillin's behest, Ellis left the consulting firm of McKinsey & Co. in 1976 to become NU's chief financial officer. In that year, total income was $85 million on revenues of $830 million. Two years later he was named president, and in 1983 he became chief executive officer. By 1982 revenues were up to $1.8 billion, but income had risen only to $151 million; by 1986, however, margins had improved, with sales of $2 billion and income of $300.9 million.
Ellis was able to create a more friendly relationship with regulators, one of his most successful negotiations being the Connecticut rate case settlement of 1986, the year Millstone's third unit came into full production. NU initially requested a $155.5 million increase, $133 million of which would go toward the Millstone unit's expenses. The request was denied, and the state ordered NU to put $46.5 million in a fund to offset rate increases in 1987. NU sued to protest the state's demand for this fund; eventually, in an out-of-court settlement, the state agreed to restore this amount, as well as to allow a rate increase phased in over five years, beginning in 1988, to cover Millstone. Also, NU's Connecticut Light and Power subsidiary agreed not to ask for any more rate increases until 1988.
NU's financial recovery strategy also included a massive conservation effort. The utility planned to reduce all energy consumption, especially oil-generated energy. Oil-based production, already reduced from 74% in 1973 to 47% in 1980, was to be 10% by 1987. The Massachusetts legislature and the regulatory commissions of both Connecticut and Massachusetts allowed the company to use two-thirds of the fuel cost savings to fund the conversion of facilities from oil- to coal-burning. The other third was passed on to customers immediately. The Mt. Tom plant was converted to coal in 1981 at a cost of about $35 million, recovered through oil-cost savings in about three years. The company planned to convert seven more plants, which originally had been oil-burning units but were switched to coal in 1971 in order to meet more stringent air pollution-control standards.
Other conservation efforts included ongoing research on fuel cells, modular plants that cleanly and efficiently convert various fuels directly into electricity without burning them. NU also gave conservation tips to customers and gave school districts rebates for switching to energy-efficient equipment, such as fluorescent rather than incandescent lighting.
Despite these efforts, Connecticut regulators ruled during a 1988 rate-increase hearing that NU must greatly expand its conservation efforts. The company therefore put up $250,000 to fund a collaborative project between itself and the Conservation Law Foundation of New England, attorneys general, consumer counsels, and other agencies in Massachusetts and Connecticut. The first project began in Connecticut in February 1988 and a multiutility process followed in Massachusetts, with WMECO as a participant. This effort identified new areas for conservation by bringing the company into closer contact with the communities it served; for example, a conservation program for public housing projects was a result of the process.
In April 1990 NU took over management of Public Service Company of New Hampshire (PSNH), which had filed for bankruptcy in 1988, substantially because of its investment in the Seabrook nuclear power plant. NU offered to buy PSNH outright, and PSNH accepted pending regulatory approval. In late 1991 the companies were awaiting approval from the Nuclear Regulatory Commission, the Federal Energy Regulatory Commission, and the Connecticut Department of Public Utility Control. With NU's purchase of PSNH's stock, valued at $750 million, and assumption of its liabilities, the deal's total price was $2.36 billion. The company would have enough capacity to sell over $100 million worth of excess electricity to other utilities each year. NU projected $516 million in savings from its management and operation of PSNH and Seabrook. The addition of Seabrook would eliminate the need for significant construction during the next decade.
Principal Subsidiaries: The Connecticut Light and Power Company; Holyoke Water Power Company; Western Massachusetts Electric Company.
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