ML20094F930

Eastern Utils 1994 Annual Rept

ML20094F930
Person / Time
Site:	Seabrook
Issue date:	12/31/1994
From:	Pardus D, Stevens J EASTERN UTILITIES ASSOCIATES
To:
Shared Package
ML20094F919	List: ML20094F916 ML20094F930 ML20094F938 ML20094F948 ML20094F959
References
NUDOCS 9511090148
Download: ML20094F930 (46)

Text

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• t flGHUGHTS 1994 1993 1992 FINANCIAL DATA ($in thousands)

Operating Revenues 564,278 566,477 541,9M Consolidated Net Earnings 47,370 44,931 34,111 Return on Average Common Equity 13.6 % 15.0 % 13.2% Common Shamholder Equity- % of Capitalization (Year-End) 42.8 % 38.7 % 34.5 % Total Assets 1,234,049 1,203,137 1,203,320 Cash Construction Expenditums 50,519 76,391 71,365 m COMMON SHARE DATA Consolidated Earmngs per Share 2.41 2.44 2.00 Dividends Paid perShare 1.515 1.42 1.36 AnnualDividend Rate 1.54 1.44 1.36 TotalCommonShares Outstanding 19,936,980 19,032,598 17,237,788 Average Common Shares Traded Daily 35,359 42,854 30,511' Book Value per Sham (Year-End) 18.33 17.50 15.48 MarketPrice *High 27% 29% 25%

• Low 21%

23% 20%

• Year End 22 28 24M OPERATING DATA TotalPrimary Sales (mwh) 4,410,000 4,352,000 4,279,000 System Requirements (mwh) 4,643,000 4,599,000 4,520,000 System Peak Demand (mw) 921 854 849 System ReserveMargin(At Peak) 22.4 %

37.1 % 46.1 % System Load Factor 57.5 % 61.5 % 57.5 % Customers (Year-End) 293,707 291,799 291,123 Employees (Year-End) - Core Electric 720 766 806 -Energy Related 240 238 150 l -Corporate 437 440 443 m 1993 and 1992 amounts restated to confirm with current pr presentation. Earnings & Dividends Per Share Dividend Payout Ratio Return On Equity U ~ 9(yt 20 % $2.00 80 % 15% 70 % 10% $1.00 50.50 60% 5% 1992 1993 1994 1992 1993 1994 1992 1993 1994 D Earnings per Share B Dividends per She 5 EUA E Indutry Average E EUA E Industry Average 1

e TO OUR SHAREHOLDERS y 1994 was the year we tion. PaineWebber has upgraded its recommendation on mom clearly defined EUA shares to " accumulate." Eastern Utilities in 1994, the average dividend increase for the utility Associates as a diversi-industry was only 2.4%. The dividend on your EUA shares, fled energy senices on the other hand, was increased 6.9% to an annual rate of l company. This was $1.54 - consistent with our goal of providing annual divi-j I part of management's dend increases above the utility industry average, while p,, continuing commit-maintaining a conservative dividend payout ratio. ment to enhance the In 1994, our Core Electric and Corporate Business units long-term value of your contributed 76% to consolidated earnings. We see signs in investment. the growth of electricity use that economic recovery has We want you to finally taken hold in our region: { know why EUAis

• 1994 marked the third consecutive year of improved conau a cardus evolving from the elec-primary sales of ekctricity, sparked by a 4.2% incmase in chain = as aef natig" tric utility of the past to sales to our industrial customers and increased use by resi-the diversified energy services company of the future.

dential customers. Certainly, our Core Electric Business continues to provide

• The summer of 1994 marked the first increase in peak I

a stable earnings foundation. However, growth prospects demand in three years, surpassing the presious all-time for the utility industry in the Northeast are limited. Our high set in 1991. continued emphasis on cost control and strategic planning in May, our Montaup Electric subsidiary was authoriad strengthened our position as competition continues to by the Federal Energy Regulatory Commission (FERC) to o velop w ithin the electric utility industry. implement a $10.1 million reduction in the wholesale rates it The contribution of our non-utility energy related busi-charges other utilities, nesses, on the other hand, grew to almost 24% of consolidat-including our Retail core business ed net earnings in 1994. Just fwe years ago the energy mlat-Business unit companies. nf aTkefi1#8 dCfivifM ed contribution to camings was less than 1/2 of 1%. This decrease was passed EUA 's 1994 consolidated net camings of $47.4 million thmugh to the customem esc 4I4fes represented a 5.4% increase over 1993 eamings. Despite this of our retail utilities. We incmase, EUA's share price declined during 1994, as did have filed settlement agreements with all wholesale cus-those of most electric utili-tomers to increase that rate mduction to approximately $14 EUA recognized ties. The primary reasons million. We await FERC certification of the settlements, for theindustry-wide down-which will enable our retail utilities to further reduce the as differentfront turnin stocu pricc,cre ,mouni tscy ca,,3c cng.usc,s. ofIler nfiliffes uncertainties regarding com-Red ucing electric rates is one step we can take in promot-petition and the risinginter-ing economic growth in our service territories. By helping est rate emironment that existed throughout 1994. our customers control their energy costs, we contribute Historically, utility Mocks trade inversely to interest rates - directly to their ability to remain competitive and continue as interest rates rise, utility stock prices typically decline. their important contributions to the economic health of our We wem painted with the same broad negative brush as service area. mom typical utility companies. However, we believe this To succeed in the competitive environment, we must pro-view of EUA is changing. Recent analyst recommendations vide a competitively priced product, and we must respond provide evidence for our belief that the investment commu-efficiently to the changing needs of our customers. Accord-nity is beginning to appreciate that EUA differs significantly ingly, effective in April 1993, we are reorganizing and con-from other electric utilities. Analysts are beginning to recog-solidating our core electric utility business - the Retail, nize that we are a diversified energy senices company. Wholesale and Corporate business units - under a central-Standard & Poor's, for example, gave EUA four STARS in ind management structure. This consolidation will not its Stock Appreciation Ranking System and included us on only reduce costs, but will also allow us to continue our high a list of eight " attractive" utility stocks in a recent publica-levelof service to our customers. 2

! y i 'the new marketing plan being implemented in 1995 by to enhance the value of 4' g g our Retail Business unit companies will enable us to work yourinvestment. Our ..9 even more closely with our largest customers. We can con-medium sizeis a plusin tribute to their business success by helping them manage this search,which we their ekctnc use in the most efficient way possible. willcontinue. Aninvest-Energy related diversification continues to play a mle of ment thatcontributes as j increasing importance to EUA. Companies within our little as $1 million to j Energy Related Business unit made significant prognss earnings equates to5 toward meeting their long-term goals of: (i) prvviding an cents per share for EUA. s increasing pen entage of camings;(ii) maintaining EUA At alargercompany,that Cogenex's leadership position in the enen;y services indus-contribution could get try; and (iii) investigating new energy related business lost in the rounding. opportunities. We vary theinvest-EUA Cogenex remains the most active of our diversified ment opportunities we Me sm.m businesses, with energy service contracts in M states and consider. But,theyhavea P"d"a"Nf4"h"X f" O the District of Columbia. EUA Cogenex has begun to common thread: They'm all energy mlated. We don't put expand its operations into Canada, and we recently our available investment funds into one company or one received an order fmm the Securities and Exchange industry. Our key is that we diversify our diversification. l Commission which removed the prohibition on EUA But we do so without making any overly large investments l Cogenex conducting mom than 50% of its business outside up fmnt. We plan to continue our program of mlatively the New England /New York area. ~ 1A Cogenex's record conservative investments in niche-type companies. Our of success, quality sen ice and the financial stability of being diversification plans are discussed in more detail in the part of the EUA System have combined to make it one of Business and Strategies section beginning on Page 5. the top three companies in its field nationwide! We appn ciate the contribution of all EUA System Acquisition of Citizens Conservation Corporation of employees to our successes to date. And we appreciate Boston enables EUA Cogenex to apply to govemment sub-your loyalty as shareholders. We want you to know that sidized public housing the same sort of shared-savings pro-EUA is committed to success in the changing utility world. grams it applies to commercial, industrial and other pro-Our strengths are based on the firm foundation of otr core jects. Acquisition of the Highland Energy Group in electric utility business, the success of our energy mlated Boulder, Colorado, will bring under the EUA Cogenex diversification efforts to date, and our ability to continue umbmila conservation and energy management programs those successes. Our Strategic Plan sets goals and strate-in Colorado, Texas, Ohio and North Carolina. gies designed to integrate the success of each oGU A's EUA Ocean State continued its significant contribution to business units - Retail, Wholesale, Energy Reimed and the Energy Related Bustness unit through its equity invest-Corporate - into enhanced value of your investment as a ment in the Ocean State Power project - the first true inde-shareholder. pendent power producer in New England. TransCapacity L P., the gas industry software developer g in whidt we invested through our EUA Energy Investment dd V & subsidiary in 1993, introduced its Capacity Scout system Donald G. Pardus to potential customers nationwide in late 1994. Capacity Chairman and Chief Executive Officer Scout"enableslocalgas companies guestfor and other gas users to find the most economic source of supply and fFPortunrtr.es aci;yc,y, quictiy,na cfficicniiy, vi, 'ContrHHes an electronic interface with a single John R. Stevens President and Chief Operating Officer source. The quest for niche-type investment opportunities for our Energy Related Business unit is another strategy designed March 15,1995 3

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. BUSINESSES AND STRATEGIES J! Overview Valley Electric in northem Rhode Island; when companies At EUA, we believe it's important that you know not only in the textile industry incmase their use of electricity by how we did last year, but also, whem we're headed and how nearly 10%, we see definite signs that the economy is we are positioning our System for the competitive challenges improving. Through our intensified marketing efforts and of thefuture. our continued involvement with kical and state economic The role of competition has incmased steadily in wcent development agencies, we play an important role in ensur-l years. Today it is the single biggest challenge faced by electric utilities nationwide. We recognized early that in order to sur-A Care [Ully Crafted Strategic plan provideS vive in the competitive environment, we would have to re-thefrainctvork tvhich led to our Current think the way we do business. As the industry retools to deal business unit Structure and tvhich tvill m a competitive marketplace, we're making adjustments, both in our Core Electric Business and as we pursue a con _ g!Ude our[ulure SNCCcSS. trolled diversification program into energy related businesses. At EUA, we are not complacently waiting to see what the ing this upward trend continues. future brings. We're taking a measumd approach during the Historically, electric rates in the northeastem United States transition kom the age of monopoly to the era of competition. have been higher than those in most other sections of the Our strategic plan provides the framework which led to our country. Some reasons for this are the lack of indigenous current business unit structure and which will guide our fuel and the high cost of transporting fuel needed to gener-future success, ate ekctricity. One of the primary goals of our Core Electric Our Core Electric Business includes two business units: Business is to reduce our costs relative to other utilities in Retail and Wholesale. Dese continue to be the foundation the Northeast and to position ourselves competitively as the on which we build. The Energy Related Business unit com-utility of choice by offering our customers added value. bines our energy related diversification efforts. It provides us How do you achieve this goal in an increasingly competi-the vehicle to invest in opportunities that have the potential tive business environment? Here are some of the steps EUA to enhance shareholder value. The Corporate Business unit has taken: provides professional and technical services to all EUA .In May 1994, we decreased the rates charged by our System companies. Wholesale Business unit. This decrease was passed through The following business review shows the strategic direc-to all customers of our Retail Business unit companies. By tion EUA is taking to succeed in today's increasingly compet-reducing ekctric rates we are helping our customers control itive environment. their costs, contributing directly to their ability to be com-Core Electric Business petitim nd mntinue their mntributions to the economic The Retail and Wholesale business units of EUA's Core vi bility of our wrvice area. Electric Business continue to be the base of EUA's financial

• A new marketing plan being implemented by the Retail strength;in 1994 these business units combined to contribute Business unit will help us to leam even more about how we

$1.88 of EUA's consolidated eamings per share. can best meet our customers' needs, and will enable us to Overall, the economic condition of the territories sermd by work more closely with our largest customers to contribute our Retail Business unit continued a steady, albeit slow, to their business success by helping them manage ekctric mcovery. The number of requests for new and upgraded use in the most efficient way possible. electric services continues to increase. The 4.2% increase in . Cost control continues to phy an important role in the kilowatthour sales to our ind ustrial customer class is an indi-success of our Retail Business unit. In 1994, this business catorof theeconomicrevival. unit's controllable operation and maintenance expenses When companies such as Hood Enterprises announce the were essentially flat compared to 1993 - despite a near 3% move of its luxury yacht-building facility from the Far East to increase in the Consumer Price Index. This was accom-our Newport Ekctric territory; when Molten Metal plished by reducing our Retail Business unit workforce by Technology, Inc. doubles the size of its technologically an additional 3%, bringing the total reductions since 1990 to advanced operation in Fall River; when Osram Sylvania over 14%, and by keeping an ever tighter rein on how our plans a significant expansion of its manufacture of glass bulbs operations and maintenance expense dollars are spent. for energy-efficient lighting at a plant serwd by Blackstone 5

e'

• During 1994, the Wholesale Business unit determined that ty, home environment and biomass technology. In essence, it would not be economically feasible to bring a 42-year-old we've diversified our diversification.

generating unit into compliance with 1995 requirements of EUA Cogenex, the most active member of this business the Clean Air Act Amendments; we shut down the unit and unit, continues to be a national leader in the field of energy transferred it to cold storage while we explore available gen-conservation and demand side management. Its record of cration options for the future. success and quality service, coupkd with financial stability,

• Our Wholesale Business unit saw a reduction of more than make EUA Cogenex one of the top three companies in its 13% in contmilable operation and maintenance costs and its field nationwide. It has projects under contract in 34 states workforce was mduced an additional 21% in 1994, bringing and the District of Columbia. Expansion of its services into the total workforce reductions since 1990 to almost 31%.

Canada is undenvay. And, a recent decision from the Securities and Exchange Commission removed that We will continue our cost control efforts at our Com agency's rule mstricting Cogenex from conducting mom Electric Business, to seek additional workforce reductions, than 50% of its business outside the New England /New to continue to lower our wholesale power cost relative to yg other suppliers and to k>ok for ways to work with all of our EUA Cogenex plans to continue its controlled growth customers so we will remain their " utility of choice." with its March 1995 acquisition of the principal energy ser-The outlook for our Core Electric Business is a stable one: Miom of Citizens Conservation Corporation of vi o stable investment, stable rate base, and stable annual Boston and the proposed acquisition of Highland Energy income potential. Also, we expect to have sufficient gener-Group,Inc.,of Boulder, Colorado. Highland manages con-ating capaaty available to meet the needs of customers servation and energy management programs in Colorado, thmugh the latter part of this decade. Each company w;ith-Texas, Ohio and North Carolina. The largest assets we m this business unit is obtained with the Citizens Conservation acquisition are con-Our Core Electric Business expected to cam at or tracts with various public and private housing authorities. ""'i " ""d" ' provides a solid base on Our EUA Ocean State subsidiary continued to provide a significant earnings contribution to this business unit during W/liCll to build a h con uc i n 1994 through its mvestment in the Ocean State Power (OSP) requirements with pmM Over time, the camings contribution of this invest-mternally generated funds. While we expect the Core ment is expected to decline gradually as the asset base on Electric Business to be stable, it will provide only limited which we camis depreciated. finanaal growth potential over the next few years. An investment of our EUA Energy Investment subsidiary Energy Related Business in 1993 was TransCapacity LP., a gas industry software Energy related diversification plays a significant role in developer. In late 1994, TransCapacity introduced its EUA's financial sucmss, although we believe many in the Capacity Scout program for the computerized tracking of investment community do not yet fully recognize how natural gas pipeline capacity pricing and availability to important a factor it is. The goals of our Energy Related potential customers in major gas hubs nationwide. Capacity Business unit are to provide an increasing percentage of EUA System camings, maintain EUA Cogenex's leadership EARNINGS CONTRIBtJIION COMPARISON in the energy services industry, and investigate and develop Anumnts an % new energy related business opportunities that will enhance shareholder value. K The camings contributions of our energy related diversifi-T cation efforts grew from less than 1/2 of 1% just five years ago to almost 24% at year-end 1994. From a modest start g g' 4-with the acquisition of EUA Cogenex we have spread our ~~ diversification to other fields. Today, our Energy Related mj' Business unit includes an independent power producer and 3939 3994 companies involved in energy conservation and demand side management, the natural gas industry, power reliabili-O Con **KoT"* O EnmN 6 fj

O Scout gathers, sorts and stores data from pipelines and mal positive camings contribution in 1995. However, other suppliers, enabling users to find the most economic because of the preliminary nature of the pilot program,it is source of gas supply and delivery, quickly and efficiently, difficult to assess long-term camings expectations at this time. without the need to check numerous individual pipeline The second of EUA Energy's investments in 1994 is a electronic bulletin boards. potential 45% ownership in the BIOTEN partnership with 'lhe first systems were installed at customer kications in the RBS/ Wood Group. BIOTEN is developing the commer-mid October 1994 and by year-end, TransCapacity had seven cialization of a biomass-fired combustion turbine electric customers operatingin five states. generation system. Research and development of system During 1995, TransCapacity expects to enhance its system design and engineering, including a prototype plant, are to pmvide automated ordering and scheduling of pipeline expected to be complete by January 1996. Additional invest-capacity through Electronic Data Interchange (EDI). This ments beyond 1996 by EUA Energy am dependent on the enhancement will enable customers to actually order, buy, sell successof thisR&Deffort. Again,becauseof thepreliminary and use their interstate gas pipeline capacity electronically. natum of this undertaking, assessing long-term camings TransCapacity is not expected to provide any significant expectations is prematum. eamings contributions to EUA in 1995. However, we believe EUA Energy will continue to seek energy-related niche-TransCapacity has the potential to be a significant source of type investments that are designed to enhance shareholder camings for EUA by the 1996-1997 time period assuming value over the long term. that its EDI senices and information enhancements are suc-We continue to believe it is in the best interests of our cessful. shareholders to pursue a controlled diversification program. Another of EUA Energy's investments is a 9.9% interest in We klok fonvard toincreased Quality Power Systems (QPS). This smallinvestment pro-camings contributions of EUA IraS Cnreiged aS vides potential camings contributions, as well as a product EUA Cogenex asit capital-

1. EN we can market to our Core Ekctric Business and EUA izes onits solid mputationin Cogenex customers. QPS is designing an uninterruptible the energy servicesindustry.

ScruiCCS Colnpany power supply system designed to protect sensitive electmnic EUA Cogenex will continue equipment from power surges. The QPS product is in the to be a major contributor to the Energy Related Business unit final development and testing stages, and sales are expected for the foreseeable future. to begin in mid-1995. We do not expect our small investment will pmduce significant contributions to EUA camings at may first, but we do expect small positive contributions by the There is no blueprint to direct the change occurring in the 1997-1998 time period. ekttric industry. However, the transition from the age of EUA Energy's quest for niche-type energy related invest-m n p listic utilities to the era of competition provides us ments continued in 1994. Initial research and development with a window of opportunity to continue EUA's carefully c nstructed plan to build a new kind of company. EUA's investments were madein 1 ability to diversify successfully will continue to be one of its

o n;;3reiatg p,ima,y st,a,egig o,i. is we stand on the b, ink of c3ange, weCont,.nue to Seek new g

{Helgy1FlaredinUCSilnC# alinvestments may be EUA can no longer be described as an ' electric utility holding UpportunitifS madeif certain miiestones company.' We've emerged as a diversified energy senices am reached in 1995. company, poised for competition and the opportunities it The first of these new investments is a potential 70% inter-pr vides. est in the Home & Family LP. Home & Family develops, markets and sells home envimamental audit senices and rtr-ommends remediation of home environmental problems. Phase 11 of a research and development pilot program will be completed in June 1995. At that time, EUA Energy will evalu-ate the results to determine whether to proctu! with this busi-ness opportunity on a regional, and ultimately, a national level. If we decide to move forward, we would expect a mini-7

SELECTED CONSOUDATED FINANCIAL DATAN Years Ended Deceber 31, (In1housands Except Common Share Data) 1994 1993 1992 1991 1990 INCOME STATEMENT DATA: Operating Revenues $ 564,278 $ 566,477 $ M1,9M $ 522,583 $ 465,685 OperatingIncome 73,130 75,406 M,347 66,336 55,385 Consolidated Net Earnings (Loss) 47,370 44,931 34,111 26,260 (130,182) l BALANCE SHEET DATA: PlantinService 1,020,859 1,016,453 1,002,717 990,726 985,138 Constmction Workin Progress 8,389 8,728 4,943 6,881 6,809 Gross Utility Plant 1,029,248 1,025,181 1,007,660 997,607 991,947 Accumulated Depreciationand Amortization 304,034 29_6,995 274,725 251,503 241,128 __ Net Utility Plant _ 725,214 _ _ 728,1_86-732,935 _ _ 746,104 _ 750,819 Total Assets _1,234,049_ 1,203,137 1,203,32p__1,163,776_1,094,740_ CAPITALIZATION: Long-Term Dtbt-Net 455,4U 4 %,816 462,958 488,452 443,595 Redeernable PrefernxiStock-Net 25,390 25,053 28,4 % 29,980 34,530 Non-Redeemable Preferred Stock - Net 6,900 6,900 15,850 15,850 15,850 Common Equity _ 365,443 333,165 266_,855 248,598 237,393 _ TotalCapitalization 853,145 861,934 774,159 78_2,880 731,368 Short-Term Debt 31,678__ 37,168 _ _ 109,936_ _ 72,449 _ j3,071___ COMMON SHARE DATA: Consolidated Eanungs (loss) per Average Common Shan> 2.41 2.44 2.00 1.58 (8.18) Average Number of Shares Outstanding 19,671,970 18,391,147 17,039,224 16,608,090 15,917,255 Retum on AverageCommon Equity 13.6 % 15.0 % 13.2 % 10.8 % (42.5%) Market Price-High 27X 29 % 25X 25 41M -low 21X 23% 20% 15X 20X -Year-End 22 28 24X 20% 23% Dividends Paid perShare 1.515 1.42 1.36 1.45 2.575 m includespnancialand operating statisticsfor Newport Electric Corporationfrom Apr01,1990 and EUA Pouxr Corporation through thremier 31,1990 at uhich time EUA Pourr uus deconsolidated)brpnancial reporting purposes. 8

S MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION ., AND REVIEW 0FOPERATIONS Overview The Effect of Rate Changes reflects base rate increases for: Consolidated net camings for the year ended December 31, (i) Blackstone Valley Electric Company (Blackstone) effec-1994 were $47.4 million on mvenues of $564.3 million, a tive in April 1992; (ii) Newport Electric Corporation 5.4% increase over 1993 consolidated net earnings of $44.9 (Newport) effective October 1992; (iii) Eastern Edison million, or $2.44 per share, on mvenues of $566.5 million. Company (Eastem Edison) effective January 1993; and (iv) Per share earnings for 1994 were $2.41 and reflected the a wholesale rate decrease for Montaup Electric Company l dilutive impact of a 7.0% increase in the average number of (Montaup) implemented on May 21,1994. (see Rate common shams outstanding in 1994 resulting from: (i) a Activity-Core Electric Business) full-year's impact of the April 1993 issuance of 13 million Revenues attributable to Unit Contracts and sales to the common shares, (ii) shams issued under the Dividend New England Power Pool (NEPOOL) reflect revenues from Reinvestment and Common Share Purchase Plan, and (iii) such short-term contracts and Montaup's and Newport's shares issued in connection with the December 1993 and interchange sales to NEPOOL January 1994 acquisitions by EUA's energy services sub-The change in revenues associated with kWh Sales and sidiary, EUA Cogenex Corporation (EUA Cogenex). Other reflects the effect of kWh sales on base revenues and Net Earrungs and Eamings Per Share by business unit: changes in other operating revenues. 1994 1993 Energy Related Business: Revenues of this Business unit are generated entimly by EUA Cogenex. The 1994 increase D D g$y of $7.6 million was due primarily to increased mvenues of g,ning ._ _ _._ M_ PerShare _ __ (Ws) PerShare James L Day Co.1nc., renamed EUA Day and Northeast Core Electric Business 5 36.897 5 1.88 $ 33,461 5 1.82 Energy Management, Inc. (NEM) aggregating approximate-Energy Related Business 11,290 0.57 7,243 0.39 ly $8.5 million. EUA Co8enex acquired EUA day and corporate 1817) .$ 2.41 5 44.931 $ 2.44 NEM in December 1993 and January 1994, respectively. (0.04) 4.227 .. _ o.23 considated $ 47,370 Partnership revenues and paid from savings contract rev-Major impacts on 1994 earnings by business unit are enues also incmased in 1994. These increases were offset described in the following paragraphs. somewhat by a decline in project sales revenues recognized Operating Revenues in 1994. The 1993 increase was due primarily to mvenues The table below sets forth estimates of the factors which fmm its EUA Nova division which was acquired in contributed to the change in Operating Revenues from 1992 December 1992 and incmased revenues related to project through1994: sales recogruzed in 1993. T**C",'s") Core Electric Business kWh Sales l Operating Revenue change attnbutable to:_ Total primary sales of electricity incmased 13% in 1994, (s in millionsE __ _ __. 1994 1993 despite the fourth quarter's mild weather, causing an 18.7% NRecovery 5 (8.0) $ 7.0 decrease in heating degree days compared to those of the l Recovery of fuelCosts 0.4) (2.3) fourth quarter 1993. An on-going review of our customer i Effect of Rate Changes (6.4) 8.6 classes resulted in the reclassification of certain customers j Unit Contracts and Sales to NEPOOL 1.8 (13.1) from the commercial class to the residential and industrial Kikwatthour(kWh) Sales and Other 4.2 15 Energy Related Busss: classes m. 1994. The impact of these reclassifications is _ EU3 M L _ _ _ ________ _. _ _7.6 ._ _ _22 8 reflected in the table Total s (2.2> 5245 below. Removing the primary kWh SalBSgrCW Core Electric Business: The revenues attributable to impactsof the again in 1994 pdCed by G reclassifications Purchased Power Recovery reflect our retail companies, resultsin salesincmas-StrongindnSin,alSCClor recovery of purchased power capacity costs. esof Ll%,0.6%and Revenues attributable to Recovery of Fuel Costs result from the operation of fuel adjustment clauses. The change 3M to our residential, commercial and industrial cus-in such revenues reflects corresponding underlying tomers, respectively, signaling continued economic recov-changesin fuelcosts. cry in our service territories. Economic indicators suggest l that this moderate trend will continue for the foreseeable 9

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future. He 1994 peak demand for electricity surpassed the lower billings by Montaup's suppliers aggmgating approxi-previous all-time high set in July 1991. The July 1994 peak of mately $8.6 million. Also, $2.1 million of the decrease is due to 921 megawatts was 4.8% higher than the previous high of hiontaup's mcognition of purchased power-energy as fuel 879 megawatts. expense (see above). These decmases were offset somewhat Total primary sales for 1993 increased by 1.7% over those by a $1.0 million incmase in conservation and load manage-of 1992 paced by improvements of 3.9% and 3.1% in sales to ment (C&LM) expenses reconk'd as pun hased power our industrial and msidential classes, respectively. expense. Contributing to these gains was the hotter than normal sum-Other Operation And hiaintenance: Other Operation and mer of 1993 and the slow but steady economic recovery tak-hiaintenance (O&M) expenses for 1994 totaled $184.5 million, ing place in our retail service territories. Total Energy Sales anincmase of $2.4 million over1993. decmased in 1993 from 1992 due to a significant decrease in Total O&M expenses are comprised of three components: short-term unit contract sales, which include sales to Direct Controllable, Indirect and Energy Related. Changes in NEPOOL Short-termunitcontractandNEPOOLsales these components for 1994 were as follows: recover the underlying cost of fuel only and therefore have Incn'ase noimpact on camings. (5 in mimong 19n Iw3 Neaw) thrtrt Controllat4e 5 84.4 5 82.7 51.7 Percentage Changes in kWh Sales by Class of Customer for Indirect 50.2 504 (0.4) the past twoyears were as follows: Energy Related 49.9 48.8 _ ._5 24 1.1 TotalO&M $ 184.5 _ 5 182.1 Percent increase (txtrease) Direct Controllable expenses of our Core Electric and From Pnor Year Corporate Business g 'i units mpresent 45.7"" Costcontrolcontinues "3 of total 1994O&M commeraal n.9) 0.0 Industrial 4.2 3f and include expense to zieapriinaryfocus Other Ekrtric Utilities _ 20.4 _ (9.9) items such as: ofEllA salaries, fringe bene-r e es I tosses and company use ' (s.3) ~ ~ 2.4 fits, insurance, maintenance, etc. Indirect expenses include TotalSystem Requirements _1.0 .(s42) 1.7 items over which we have limited short-term control. Unit contracts 20.2 Indirects include such expense items as: O&M expenses Total Energy Sales 4.2 (15.5) )N$"*" '[ *""'# '"*"*" "~" "*""'""' "" generating facilities such as Seabrook Unit 1 and Millstone Unit 3 (see Note H of Notes to Consolidated Financial Expenses 1994 vs.1993 Statements for other jointly owned units), power contracts Fuel And Purchased Power: The EUA System's most signif-where transmission rental fees are fixed, C&LM expenses icant expense items continue to be fuel and purchased that are fully mcovemd in revenues and expenses related to power expenses of our Core Ek'ctric Business which together accounting standards such as FAS106. comprised about 44.3% of total operating expenses for 1994. The Energy Related component relates to O&M expenses Fuel expense for 1994 increased $2.4 million from 1993. As of our Energy Related Business unit where increases are tied part of Montaup's wholesale rate reduction implemented in to new and expanded business activity. EUA Cogenex con-May 1994, Newport became an all-requirements customer of tinues to be the fastest growing of our Energy Related Montaup and Montaup assumed all of Newport's pur-Businesses and incurred 96% of the total O&M expenses of chased power contracts. Consequently approximately $2.1 this business unit. million of this year's increase relates to fuel expense previ-The changes ia 1994 O&M expenses were due primarily to ously mcorded as purchased power-demand expense by the following: Newport. A 4.8% decrease in the average cost of fuel in 1994 Core Elactric Pasiness: We mmain committed in our efforts essentially offset the 4.2% increase in total energy sales. to control costs wherever possible. In 1994 Direct Purhased Power expense decreawd from 1993 by $9.4 mil-Controllable expenses of this business unit decreased by lion or 6.8%. This decrease was due primarily to expiring approximately $1.1 million. We were able to do this, in part, contracts totaling approximately 41 megawatts (mw) and by reducing our Core Electric workforce by an additional 11

C&LM expense recorded as purchased power and a $1 mil-Offsetting these declines somewhat were the issuances by lion decrease attributable to Newport purchases from EUA Cogenex of $15 million of 7.22% Unsecumd Notes in sources other than Montaup. Offsetting these decreases September 1992 and $50 million of 7% Unsecumd Notes in somewhat wem the increased costs of $1.6 million billed by October 1993. Montaup's suppliers. Income Taxes: EUA's 1993 composite federal and state Other Operation And Maintenance: O&M expenses for effective tax rate was approximately 273%, compared to 1993 totaled $182.1 million, an increase of $29.2 million over approximately 32.4% in 1992. This decrease was primarily 1992. Changes by O&M component for 1993 were as follows: attributable to the income recognition of a portion of the incnme expected utilization of EUA Power's ITC, as presiously dis-(5in millmL _._. m3 _ M2_ _ M ag L cussed, which more than offset the 1% increase in the federal Direct Contmilable 5 827 5 885 5 (5.8) tax rate to 35%in 1993. Indirect 50.6 36.6 14.0 w-aated 48.8 2I8 2m Otheritems: Depmciation and Amortizationincreased by Totalom 5 182.1 5 152.9 5 29.2 $1.9 million or 4.4% due primarily to an incmase in EUA The mduction in Direct Controllable expenses in 1993 of Cogenex depreciation expense of $13 million. our Core Electric and Corporate Business units aflects our Equity in Eamings of Jointly Owned Companies decreased continued commitment to cost control. Our com electric in 1993 by approximately $2.7 million due primarily to lower workhrte was reduced by 5% in 1993 and through the dili-camings on EUA Ocean State's investment in OSP. gent efforts of our employees we were able to reduce direct Other Income (Deductions)-Net decreased $23 million in i i controllable expenses in spite of an increase in the Consumer 1993 due primarily to the 1992 reversal of certain presiously Price Index of approximately 3%. The incmase of $29.2 mil-established reserves relating to matters in litigation, the lion in 1993 was due primarily to the following. f v rable resolution of which was reached in 1992. Partially l Core Electric Business: (i)incmased C&LM expenses of SL1 ffsetting this decmase was a reduction in federal income tax million;(ii) additional expemes of approximately $3.5 million apense of $4.9 million as discussed above. mlating to EUA's adoption of FAS106;(iii) increases of he Pmfermd Dividend requirement of the mtail sub-l approximately $1.5 million relating to pension expeme accru-sidiaries decreased by approximately $700,000 or 18% in 1993 l als; and (iv) incmased expenses of approximately $3.9 million due to Eastem Edison's 1993 Preferred Stock financing activi-i relating to Montaup's jointly owned units. ty. In 1993 Eastern Edison used available cash to mdeem all l Energy Related Business: Increased EUA Cogenex expenses f its outstanding 4.64%,832% and 9.00% series of Preferred of approximately $193 million, mlating primarily to the oper-St ck aggmgating $21.6 million. Eastern Edison also issued ations ofits EUA Nova division and increased expenses of $30 million of 65/8% Preferred Stock in August 1993, the $2.2 million related to EUA Energy's expensing ofits initial pmceeds of which were used to redeem $20 million ofits investmentinTransCapacity LP. 9.80% Preferred Stock and for other corporate purposes Corporate: The fourth quarter 1992 settlement of legal Rate Activity-Core Electric Business proceedings related to EUA Power resulted in decreases Montaup, our wholesale electric subsidiary, supplies electric-of approximately $3.7 million in corporate legal expenses ity to our retail electric subsidiaries, Blackstone, Newport, in 1993. Intenst Charges: Interest on long-term debt for 1993 Our wholesale rate reduction which is passed l decmased approximately $11 million or 9%, compared t through to end-users by our Retail Business l 1992. His decmase was due primarily to Eastern Edison's 1993 mfinancing of $195 million of long-term debt at lower subsid aries can help our custorners stay intemst rates and the redemptions of $30 million of 9-1/4% Co,ngetitive and continue their contributions First Mortgage and Collateral Trust Bonds (FMBs) in Mar to the region's econoiny 1992 and $15 million of 8-1/2% FMBs in June 1992. The redemptions were made primarily with cash proceeds from and Eastem Edison, and to two non-System municipal utili-the early redemption of Montaup securities, which were ties. The Federal Energy Regulatory Commission allowed owned by Eastem Edison. Eastem Edison also refinanced $35 Montaup to reduce its wholesale rates by $10.1 million (3%) million of 10% FMBs with $35 million of 7.78% Medium Term annually effective May 21,1994, pending final adjudication. NotesinJuly1992. Settlement agreements with all intervenors with an annual 13

6 y 't futum. The 1994 peak demand for electricity surpassed the lower billings by Montaup's suppliers aggregating approxi-previous all-time high set in July 1991. The July 1994 peak of mately $8.6 million. Also, $2.1 million of the decrease is due to 921 megawatts was 4.8% higher than the previous high of Montaup's mcognition of purchased power-energy as fuel 879 megawatts. expense (see above). These decreases wem offset somewhat Total primary sales for 1993 increased by 1.7% over those by a $1.0 million incmase in conservation and load manage-of 1992 paced by improvements of 3.9% and 3.1% in sales to ment (C&LM) expenses reconied as pumhased power our industrial and residential classes, respectively. expense. Contributing to these gains was the hotter than normal sum-Other Operation And Maintenance: OtherOperation and mer of 1993 and the slow but steady economic recovery tak-Maintenance (O&M) expenses for 1994 totaled $184.5 million, ing place in our retail service territories. Total Energy Sales an increase of $2.4 million over 1993. I decmased in 1993 from 1992 due to a significant decrease in Total O&M expenses am comprised of three components: short-term unit contract sales, which include sales to Dimet Controllable, Indirect and Energy Related. Changes in NEPOOL Short-term unit contract and NEPOOL sales these components for 1994 were as follows: recover the underlying cost of fuel only and therefom have Increaw noimpact on camings. ($in min-) _. Im _ . _ m3 _ _ pmaw) Dtrwt ControllaNe 5 84.4 $ 82.7 51.7 Percentage Changes in kWh Sales by Class of Customer for Indirect 50.2 Sa6 (a4) the past twoyears were as follows: EmpWated _M _52.4 11 TotalO&M 5 184.5 5 182.1 Percent Inen ase(Decrease) Direct Contmilable expenses of our Core Electric and From Prior Year Corporate Business gg K units represent 45.7% Costcoritrolcoritiitties of total 1994O&M commercial n.9) or Industrial 4.2 3.9 and include expense tolie a prisiran/focris Other Dectnc Utilities 20.4 (9.9) itemssuch as: o[fUA $pnm salaries, fringe bene-Liaand companyDse~ 6.3i 2.4 - fits, insurance, maintenance, etc. Indimet expenses include TotalSptem Requirements _1h _ l.7 items over which we have limited short-term control. t Unit contracts 2a2 (n2) Indirects include such expense items as: O&M expenses Total Enerp Sales 4.2 (13.5) $N2" '"""'"'""" ' """" "" generating facilities such as Seabrook Unit 1 and Millstone Unit 3 (see Note H of Notes to Consolidated Financial Expenses 1994 vs.1993 statements for other jointly owned units), power contracts l Fuel And Punhased Powen Re EUA System's most signif-where transmission rental fees are fixed, C&LM expenses icant expense items continue to be feel and purchased that are fully mcovemd in revenues and expenses related to power expenses of our Core Electric Business which together accounting standards such as FAS106. l comprised about 44.3% of total operating expenses for 1994. ne Energy Related component relates to O&M expenses Fuel expense for 1994 increased $2.4 million from 1993. As of our Energy Related Business unit whem incmases are tied part of Montaup's wholesale rate reduction implemented in to new and expanded business activity. EUA Cogenex con-j May 1994, Newport became an all-requirements customer of tinues to be the fastest growing of our Energy Related l Montaup and Montaup assumed all of Newport's pur-Businesses and incurred 9% of the total O&M expenses of j chased power contracts. Consequently approximately $2.1 this business unit. million of this year's increase relates to fuel expense previ-The changes in 1994 O&M expenses were due primarily to ously recorded as purchased power-demand expense by the following: Newport. A 4.8% decrease in the average cost of fuel in 1994 Core Electric Business: We remain committed in our efforts essentially offset the 4.2% increase in total energy sales. to control costs wherever possible. In 1994 Direct Purchased Power expense decreased from 1993 by $9.4 mil-Controllable expenses of this business unit decreased by lion or 6.8%. This decrease was due primarily to expiring approximately $1.1 million. We were able to do this, in part, contracts totaling approximately 41 megawatts (mw) and by reducing our Core Electric workforce by an additional 11

._. - -. _. -. -. - - - = -. - - / 6.0% in 1994. Indirect expenses of this business unit Other Income and Deduction-Net on the Consolidated increased by appmximately $900,000 due primarily to Statement of Income. The System has no remaining ITC car-incmased FASL % expenses and Montaup C&LM and ryforwards available. power contract expenses aggregating $3.2 million. Partially OtherItems: Depmciation and Amortization expense offsetting theseincreases was a $23 million decreasein increased by $1.7 million or 3.9% in 1994. Increased EUA jointly owned generating unit expenses. Cogenex depmciation and amortization expense of $2.4 mil-Energy Related Business: EUA Cogenex's O&M expenses lion was offset somewhat by a decmase in amortization for1994incmased by expense of Montaup related to its Seabrook Unit 11 loss EUA Cogenex's contribution $1.7million. This amortization which was completed in 1993. The EUA to ConsolidatedNet incmaw was due pri-Cogenex incmase was due primarily to the operations of marily to theopera-EUA Day and NEM. Earningsgrew18% in1994 tions of EUA Day and Equity in Earnings of Jointly Owned Companies decreased NEM offset bya in 1994 by approximately $1.7 million due primarily to lower j reduction in expenses related to lower project sales recog-camings on EUA Ocean State's investment in OSP. nized in 1994. Research and Development expenses of EUA Other Income (Deductions)-Net increased by $3.6 million Energy Investment Corporation (EUA Energy) decreased in 1994 due to: (i) a decrease in tax expense recorded as $700,000 in 1994. other deductions of approximately $2.0 million; (ii) Corporate: Direct Controllable expenses of this business incmased EUA Cogenex interest income and management unit increased by $2.8 million due largely to our decision to fee income aggregating appmximately $900,000; (iii) a settle-expense one-time computer software development and ment of $900,000 received in 1994 fmm the Vermont Electric haniware buy-out costs aggregating $1.9 million in 1994. Generation and Transmission Cooperative,Inc. related to Indimet expenses were down by $1.5 million due primarily Seabrook Nucbar Project payments previously withheld; toa decmasein pension expense. and (iv) the 1994 income recognition of $900,000 of capital-Intenst Charges: Interest on long-term debt for 1994 ized costs related to nuclear fuel buyouts which wem previ-decmased approximately $2.5 million or 6.1%, compared to ously deferred. These impacts were partially offset by a net 1993. This decrease was due primarily to the full year decrease of $1.0 million in ITC utilized in 1994 versus 1993, impact of Eastem Edison's 1993 refinancing of $195 million as previously discussed. of long-term debt at lower rates and Newport's January The Pmfermd Dividend mquimment of the retail sub-1994 issuance of $7.9 million of variable rate Electric Energy sidiaries decreased by approximately $1.0 million or 29.6% Facilities Revenue Refunding Bonds due 2011. in 1994 due to a full-year impact of Eastem Edison's 1993 Offsetting these declines somewhat was the issuance by Prefermd Stock financingactivity. EUA Cogenex of $50 million of 7% Unsecumd Notes in Expenses 1993 vs.1992 October 1993. a en u nw mawd Income Taxes: EUA files a consolidated federalincome tax Pproximately $11.5 milhon or 11.9%, from 1992, due largely mtum for the EUA System. EUA's 1994 composite federal a maw m s em gmea n msuMng fmm wt-j and state effective tax rate was approximately 29% com-a mpanym un a n 2, pared to approximately 273% in 1993. This increase is pri-hich is 50% owwd by Mmtaup, bel;an a scheduled out-marily attributable to the net decrease in the income recog-g n February 13,1993, and retumed to senice on April 5, nition of investment Tax Credits (ITC)in 1994 versus 1993. mm ,a howwd unit of In 1993 EUA mcognized income of approximately $4.9 mil-aup, was ut of senice for most of 1993 due to unan-lion, representing a portion of the expected utilization of ticipated waterwall restoration. Also,Somerset Unit 5 was EUA Power Corporation's (EUA Power, now known as mt of wnice for five mmths prior to being placed in deacti-Gmat Bay Power Corporation) ITC, to reduce EUA's 1993 consolidated tax liability. In 1994 EUA Ocean State yated reserve on January 25,1994. Offsetting these decreases "C"^* "

1. #"P'8 Corporation (EUA Ocean State) recognized $3.9 million of E"

ITC related to its investment in the Ocean State Power Purchased Power expense decreased $23 million or 1.6% Pmject (OSP). These credits, for both years, are included in from 1992 primarily due to a $2.9 million decrease in i 12

C&LM expense recorded as purchased power and a $1 mil-Offsetting these declines somewhat were the issuances by lion decrease attributable to Newport purchases from EUA Cogenex of $15 million of 722% Unsecured Notes in sources other than Montaup. Offsetting these decmases September 1992 and $50 million of 7% Unsecured Notes in somewhat were the increased costs of $1.6 million billed by Occober 1993. Montaup's suppliers. Income Taxes: EUA's 1993 composite federal and state OtherOperation And Maintenance: O&M expenses for effective tax rate was approximately 273%, compamd to 1993 totaled $182.1 million, an increase of $29.2 million over approximately 32.4% in 1992. This decrease was primarily 1992. Changes by O&M component for 1993 were as follows: attributable to the incorne recognition of a portion of the increase expected utilization of EUA Power's ITC, as previously dis-(5in milip) ._ _ 1993. __ _ _1992 . Jkcrease) cussed, which more than offset the 1% increase in the federal D rect ControllaNe 5 82.7 5 88.5 5 (5.8) tax rate to 35%in 1993. Indirect 50.6 36.6 110 l Energy Related .5 182.1 __s 152.9 s 29.2 $L9 million car 4.4% due primarily to an increase in EUA 48.8 27.8_ _ 21.0 Other Items: Depreciation and Amortization increased by l Totalout The mduction in Dimet Controllable expenses in 1993 of Cogenex depreciation expense of $13 million. our Core Electric and Corporate Business units reflects our Equity in Eamings of Jointly Owned Companies decreased continued commitment to cost control. Our com electric in 1993 by approximately $2.7 million due primarily to lower l workforce was reduced by 5% in 1993 and through the dili, camings on EUA Ocean State's investment in OSP. I gent efforts of our employees we were able to reduce direct Other Income (Deductions)-Net decreased $23 million in contmllable expenses in spite of an increase in the Consumer 1993 due primarily to the 1992 reversal of certain previously Price Index of approximately 3%. The incmase of $29.2 mil-established reserves relating to matters in litigation, the lion in 1993 was due primarily to the following: fav rable resolution of which was mached in 1992. Partially Cc,m Electdc Business: (i) incmased C&LM expenses of M.1 ffsetting this decrease was a mduction in federal income tax million; (ii) additional expenses of approximatelv $3.5 million expense of M.9 million as discussed above. relating to EUA's adoption of FAS106; (iii) increases of The Pmfermd Dividend requirement of the retail sub-appmximately $1.5 million relating to pension expense accru-sidiaries decreased by approximately $700,000 or 18% in 1993 als; and (iv) incmased expenses of approximately $3.9 million due to Eastem Edison's 1993 Prefermd Stock financing activi-relating to Montaup's jointly owned units. ty. In 1993 Eastern Edison used available cash to redeem all Energy Related Business: Incmased EUA Cogenex expenses fits outstanding 4/4%,832% and 9.00% series of Preferred of approximately $193 million, mlating primarily to the oper-Stock aggregating $21.6 million. Eastern Edison also issued ations ofits EUA Nova division and increased expenses of $30 million of 65/8% Prefermd Stock in August 1993, the $2.2 million related to EUA Energy's expensing of its initial Proceeds of which were used to redeem $20 million of its investment in TransCapacity L.P. 9.80% Prefermd Stock and for other corporate purposes Corporate: The fourth quarter 1992 settlement of legal Rate Activity-Core Electric Business proceedings related to EUA Power resulted in decreases Montaup, our wholesale electric subsidiary, supplies electric-of approximately $3.7 million in corporate legal expenses ity to our retail electric subsidiaries, Blackstone, Newport, in 1993. Interest Charges: Interest on long-term debt for 1993 Our wholesale rate reduction which is passed decreased approximately M.1 million or 9%, compared to ghygyg gg gyg yggyg g gyy ggggjjgygjyggg g y l 1992. This decmase was due primarily to Eastem Edison's 1993 mfinancing of $195 million of long-tenn debt at lower substdiaries can help our customers stay l intemst rates and the redemptions of $30 million of 9-1/4% CoHipetitive aHN ContiHHe their Contributions l First Mortgage and Collateral Trust Bonds (FMBs) in May to the region's econoiny l 1992 and $15 million of 8-1/2% FMBs in June 1992. The redemptions were made primarily with cash proceeds from and Eastem Edison, and to two non-System municipal utili-the early redemption of Montaup securities, which were ties. The Federal Energy Regulatory Commission allowed owned by Eastem Edison. Eastem Edison also refinanced $35 Montaup to reduce its wholesale rates by $10.1 million (3%) million of 10% FMBs with $35 million of 7.78% Medium Term annually effective May 21,1994, pending final adjudication. NotesinJuly 1992. Settlement agreements with all intervenors with an annual 13 l

~ TransCapacitifg - m ,ou Capacity Scoutv L. . p ? stent enabla pur. 'hak'rs of naturalgag in bulk quantities tc use a singlecontruter. i:edinterpce tofird the nnst econi'rnical k'urce offueland Ihe best tuluein intir. stategas rijvitne N cQPacity to traHsivrt thatfuel to Ihar fgya $10H. As skM'n here, k W. naturalgas enters ISe interstate ...^' 4.. f!felinesfrorn p7p. '~4'3 c cessing plants i.ia >, ~ 'Y fee'lct"Ilnes. . 4 :. I b .,5 ' -e a. s

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v base rate reduction of approximately $14 million,(inclusive Refunding Bonds due 2011. The pmceeds were used to of the filed $10.1 million reduction) effective as of August redeem $6.0 million of 12% and $1.9 million of 8.5% Second 1994, awaits certification by the Commission. Mortgage Bonds. The wholesale rate mduction will have a dampening Corporate: EUA received proceeds of approximately $95 result on System mvenues; however, we expect offsetting million in 1994 from the issuance and sale of 424,942 com-factors to pmvent it fmm impacting significantly on cam-mon shares primarily thmugh its Dividend Reinvestment ings. While rate reductions are welcomed by all customers, and Common Share Purchase Plans. they are particularly significant to industrial customers, In January 1994 EUA issued 4M,579 common shares in where any reduction in the cost of doing business can help connection with the acquisition of NEM by EUA Cogenex. them remain competitive. Our Rhode Island industrial cus-See " Energy Related Businesses" below for more details. tomers will also benefit from newly enacted legislation Financial Condition And Liquidity: The EUA System's which phases out Rhode Island's 4% gross receipts tax on need for permanent capital is primarily related to invest-electricity used for manufacturing over a four year period ments in facilities mquired to meet the needs ofits existinp' commencing July 1,1994. This action should make Rhode and futum customers. Island manufactumrs more competitive by reducing their Core Electric Business: For 1994,1993 and 1992, the Core cost of doing business and contribute to the economic recov-cry in our Rhode Island service territories. Electric Business cash construction expenditures wem $33.0 In December 1994 the Massachusetts Department of Public milli n, $32.4 million and $22.5 million, respectively. Utilities (MDPU) approved a mquest made by Eastem in 1994, intemally generated funds available after the pay-ment of dividends of our Core Electric Business amounted to Edison to recover through a reconciling adjustment factor a portion of " lost base revenues." Imst base revenue mpre- $49.4 milli n, r 149.9% fits cash construction require-ments. sents amounts the company would have collected if it had not offemd demand-side management and conservation In 1993, inemally generated funds amounted to $51.8 mil-and load management programs to its customers. li n r 159.9% of the cash construction requirements of our On February 24,1995, the MDPU issued an order relating Core Electric Business. Various laws, regulations and con-to implementation of incentive regulation. In the order, the tract provisions limit the use of EUA's intemally generated MDPU strongly encouraged all jurisdictional electric utilities to devise and propose incentive plans. The objective of the Internallt/ generafed[Unds are CtpcCled to incentive regulation is to " provide marketplace benefits to pr0Ulde Over 100% of Core Electric Business consumers through (1) more efficient utility operations, ConstrnCtiOH GClivihf[Or theforeseeablefuture (2) stronger utility incentives for better cost control, and (3) enhanced opporttmities Cash Construction for lower rates." While no funds such that the funds generated by one subsidianj are Expenditures / timetableis specified,the n t generally available to fund the operations of another Internally Generated subsidiary. MDPU stated that the largest utilities should com-Cash construction expenditures for 1995,1996 and 1997 "" 8 in " d io"5 m --- - ~ mence the incentw.e plan are estimated to be approximately $36.8 million, $32.2 mil-d e.- _ _. _ design process as soon as lion and $333 million, respectively and are expected to be possible. financed with intemally generated funds. I m- - m f in addition to construction expenditures, projected r_ l f - r requirements for scheduled cash sinking fund payments and + r 1994 b bIEE 7 mandatory redemption of securities in 1995,1996,1997,1998 i [.; {( Financing Activity and 1999 am $373 million, $93 million, $23 million, $623 E f Core Electric Business: On million and $11.6 million, respectively. t [3 1 January 6,1994, Newport Energy Related Business: Construction expenditures of B]-))m f { issued $7.9 million of vari-our Energy Related Business amounted to $17.2 million, A able rate Electric Energy 93.6 million and M7.2 million in 1994,1993 and 1992, g,ynca Facilities Revenue respectively. Intemally generated funds supplied approxi-l i 15

J mately 111.9% and 29.6% of cash construction mquimments of Columbia. EUA Cogenex's camings increased by 18% in in1994 and 1993,mspectively. 1994 due primarily to its January 1994 acquisition of NB1, Estimated construction expenditums of the Energy Related an energy senices company which is now a wholly-owned Business are $483 million, H4.0 million and 94.0 million subsidiary of EUA Cogenex. In February 1995, EUA 1995,1996and 1997 respectively. Cogenex acquired certain energy sen ices assets of Citizens Intemally generated funds are expected to supply approxi-Conservation Corporation of Boston in exchange for pre-mately 53% of 1995 estimated cash construction requim-ferred stock of a newly formed subsidiary of EUA Cogenex, ments. Continued growth at EUA Cogenex may require Citizens Conservation Services, which will utilize those some extemal financing in the 1995-1996 time frame. assets. EUA Cogenex has also applied for authorization In addition to construction expenditures and energy related from the Securities and Exchange Commission (SEC) to investments, projected mquirements for scheduled cash sink-ing fund payments and mandatory redemption of securities In earl 1995 the SECmnoved thelast N in 1995,1996,1997,1998 and 1999 are $33 million, $92 mil-lion, $242 million, $9.2 million and $92 million, respectively. geographic barn,er to EUA Cogenex's Corporate: Construction activity of the Corporate Business growthpotential unitis mmimal. Projected requimments for scheduled cash sinking fund payments for the corporate operations for each acquire the Highland Energy Group, an energy senices of the five years following 1994 are $1.1 million. company in Boulder, Colorado in exchange for common Short-Term Lines of Credit: At December 31,1994,EUA shams of EUA. (See the Business and Strategies s& tion for a System companies maintained short-term lines of credit with further discussion of EUA Cogenex's activities). various banks aggmgating approximately $150 million. Until recently EUA Cogenex was subject to a SEC requim-Short-term debt outstanding at year's end was $31.7 million, ment that it generate more than 50% of its revenues in the a decmase of $5.5 million from year-end 1993 balances. New England /New York ama. In response to a request Year-End Short-Term Debt Outstanding by business unit: filed by EUA Cogenex in December 1994, the SEC removed this restriction. This action removes a barrier for EUA (Sin thmsands) _ 199 (, _ _ 1993 _ Cogenex expansion beyond its base New England /New Core ElectricBusiness 5 0 5 0 York territory. Energy Related Business 23,476 8,588 comorate 8,202 28,580 EUA Ocean State: EUA Ocean State owns 29.9% of each of Total 5 31.678 5 37.168 the partnerships which developed and operate Units 1 and EUA expects to mpay the outstanding balances of short-term Il f OSP, twin 250-megawatt gas-fired generating units indebtedness through intemally generated funds, the 1 cated in northem Rhode Island. Both units have prosided issuance of additional common shares thmugh its Dividend a premium mtum since their respective in-senice dates of Reinvestment and Common Sham Purchase Plan, and the December 31,1990 and October 1,1991. The 1994 increase possible issuance of additional EUA Cogenex debt securities. in EUA Ocean State's earnings contribution was due pri-marily to the utilization of $3.9 million of flC in 1994 offset Energy Related Businesses somewhat by a decrease in the allowed rate of rerum on Net Eamings and Eamings Per Share contributions of EUA's equity billed by the project and a decrease in the rate base Energy Related Businesses for 1994 and 1993 were as follows: and investment base from which the pmject's rates are _.._ 1994 . Net ._ 1993 determined. Net Earnings Earnings Eamings Earnings EUA Energy Investment: EUA Energy was organized to (loss) (Loss) (loss) (loss) seek out investments in energy related businesses. Prior to _ _ __JW. _Per Share _ _ (Oars)_ _ Per Share _ 1993 the company had bwn a mlatively inactive subsidiary f EUA.1994 results reflect a net decmase in research and o te 56 .42 EQEmgInmunen!_ (1,237[ _ _ _(0.06C(1.531L (0.09)_ development expenses versus 1993. Energy Related Business $ 11.290 5 0.s7 5 7.243 5 0.39 In late 1994, TransCapacity L.P., a limited partnership entered into by EUA Energy in 1993, unveiled its Capacity EUA Cogenex: EUA Cogenex participates in energy conser-Scout program for the computerized tracking of natural vation and cogeneration projects in 34 states and the District gas pipeline capacity pricing and availability. 16

• e Another of EUA Energy's investments was a 9.9% interest in the retail electric market. This incmased competition will in Quality Power Systems (QPS). The QPS product is an place added challenges on EUA's Core Electric Business. At uninterruptible power supply system designed to protect EUA we are not complacently waiting to see what the future sensitive equipment from power surges and is in the final brings. We have already taken decisive steps to respond to development and testing stages.

the increasing competitive environment. As described in Fuel Mix In 1994,EUA Energy madeini-more detail in the " Business and Strategies" section we have Amunts in % tial research and development morganized into strategic business units, voluntarily imple-1993 investmentsin two new energy mented a wholesale rate reduction, continued our focus on 28 mlated opportunities relating to controlling costs, shut home environmentalaudit ser-down an uneconomi-COntpflitiOH iS the j vices and biomass-fired combus-cal generating unit and Sif#8 e b

1. St ChallC1#8#

l tion turbme systems. (see the implemented a new Business and Strategies section for marketing plan. facing the electric utility ~ 199( a furtherdiscussionof EUA Across the country industry today 20 - Energy's investment activities). there has been an Energy Sources increasing focus on competitive issues. Regulators in Massachusetts and Rhode Island are currently examining, As shownin the accompanying am ng thethings,issuesrelated toincentiveregulation 6 pie chart the EUA System's fuel and potential electric industry restructuring. The timing and Estimated 1999 mix continues tobe diverse. The imp ct of these examinations on the financial condition of g 1994 decreaseinoilwasdue the utility industry in general and EUA's Core Electric

gy mainly to the unanticipated out-Business in particular is uncertain at this time. EUA will

] age at Canal Unit No.2 at the end c ntinuet m nitorand participateinallmgulatoryinvesti-of1994. Coalsupplied 12% of our gati ns into the many issues surrounding this move to a energy needsin 1994,up from 6% c mpetitivemarketplace. when Somerset Unit No.6 was t$ unavailable for most of1993. As a regulated industry, utilities are subject to certain [g accounting rules that are not applicable to other industries. C Other.pnncipdy Hydro ConSerVallon And These accounting rules allow mgulated companies, in appro-Load Management priate cimumstances, to establish regulatory assets and liabil-The EUA System offers customers a comprehensive group of ities, which defer the current financial impact of certain costs C&LM programs. These programs provide EUA with a flex-that are expected to be recovemd in future rates. The effects ible, cost-effective msource option, while serving customers of competition or change in regulation could ultimately with valued cost control opportunities to develop and main-cause EUA's core electric companies to no longer follow tain a competitive advantage. The programs also offer these accounting rules. In such an event, any regulatory opportunities to EUA and its customers to comply with envi-assets and liabilities would have to be fully expensed at that ronmental standards and reduce air emissions. time. We do not expect this situation to occur in the near During 1994, more than 44,000 customers participated in future. one or more of the EUA System C&LM programs, msulting Environmental Matters in 37,478 megawatthours of annual energy savings, nearly The federal Environmental Protection Agency (EPA), as well 1% of total system requirements. In addition, the programs s state and local authorities, has jurisdiction over releases of mduced customers' demand by 7,294 kilowatts in 1994 and p llutants into the environment. They have broad authority provided the long-term benefits of reducing the need to to set rules and regulations, including the requimd installa-invest in costly new generating facilities. tion of pollution control devices and remedial actions. The Competition EPA has updated its clean air standards mgulating the emis-The electric industry is in a period of transition from a tradi-sions from utility power plants into the air, to take effect in tional rate regulated environment to a competitive market-1995. Tests at Montaup's Somerset Station indicated that place. While competition in the wholesale electric market is Unit #6 would be able to utilize lower sulfur coal than had not new, electric utilities may also face increased competition been bumed to meet the 1995 air standards with only a mini-17

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s f mal capital investment. Montaup determined that it would $5.9 million was recorded and is included with Other Assets. not be economical to repair Unit # 5 of the Somerset Station On January 20,1995, Blackstone entered into an escrow and has placed it in deactivated reserve. agmement with the Commonwealth and deposited $5.9 mil-In April 1992, the Northeast States for Coordinated Air lion with an escrow agent who transferred the funds into an Use Management (NESCAUhi), an environmental advisory interest bearing money market account. The distribution of group for eight Northeast states including Massachusetts the proceeds of the escrow account will be determined upon and Rhode Island, issued recommendations for nitrogen the final msolution of the judgment. No additionalinterest oxide (NOx) contmls for existing utility boilers mquimd to expense will accrue on the judgment amount. meet the ozone non-attainment requirements of the Clean On January 28,1994, Blackstone filed a complaint in the Air Act Amendments of 1990 (Clean Air Act). The District Court seeking, among other relief, contribution and NESCAUM recommendations are more restrictive than the reimbursement fmm several other parties connected to the Clean Air Act requimments. He Massachusetts Department site. The court denied motions to dismiss the complaint of Emironmental Management has amended its regulations which wem filed by those parties in 1994. to require that Reasonably Available Control Technology In addition, Blackstone notified certain liability insurers (RACT) be implemented at all stationary sources potentially and has filed daims with respect to the Mendon Road site, as emitting 50 tons or more per year of NOx. Rhode Island wellas other sites. issued similar mgulations. Montaup has initiated compli-As of December 31,1994, the EUA System had incurred ance thmugh, among other things, selective noncatalytic costs of approximately $3.5 million (excluding the $5.9 mil-mduction processes. lion Mendon Road judgment)in connection with these sites, Because of the nature of the EUA System's business, vari-substantially all of which relate to Blackstone. Rese ous by-pmducts and substances are produced or handled amounts have been financed primarily by internally generat-which are classified as hazardous under the rules and regu-ed cash. Blackstone is currently amortizing substantially all lations promulgated by the EPA as well as state and local of its incurred costs over a five-year period and is recovering authorities. The EUA System generally provides for the dis-certainof thosecostsinrates. posal of such substances through licensed contractors, but EUA estimates that additional costs ranging from $2.6 mil-these statutory provisions generally impose potential joint lion to $5.6 million (exduding the $5.9 million Mendon Road and several responsibility on the generators of the wastes for judgment) may be incurred at these sites through 1996 by its deanup costs. Subsidiaries of EUA have been notified with subsidiaries and the other responsible parties. Of this mspect to a number of sites where they may be responsible amount, approximately $4.8 million relates to sites at which for such costs, induding sites where they may have joint and Blackstone is a potentially responsible party. Estimates several liability with other responsible parties. It is the poli-beyond 1996 cannot be made since site studies, which are the cy of the EUA System companies to notify liability insurers basis of these estimates, have not been completed. and to initiate claims however, EUA is unable to predict As a result of the mcoverability of deanup costs in rates whether liability, if any, will be assumed by, or can be and the uncertainty regarding both its estimated liability, as enforced against, the insurance carrier in these matters. well as its potential contributions from insurance carriers and On December 13,1994, the United States District Court for other responsible parties, EUA does not believe that the ulti-the District of Massachusetts (District Court) found mate impact of the environmental costs will be material to Blackstone liable to the Commonwealth of Massachusetts the financial position of the EUA System or to any individual (the Commonwealth) for the full amount of response costs subsidiary and thus no loss provision is required at this time. incurred by the Commonwealth in the cleanup of a coal gasi-A number of scientific studies in the past several years l fication waste site at Mendon Road in Attleboro, have examined the possibility of health effeds from electric Massachusetts. The total judgment is approximately $5.9 and magnetic fields (EMF) that are found everywhere there is million, induding approximately $3.6 million in interest electricity. Research to date has not conclusively established which has accumulated since 1985. a direct causal relationship between EMF exposure and ( Blackstone has filed a Notice of Appeal and filed its brief human health. Additional studies, which are intended to l with the First Circuit Court of Appeals in February 1995. provide a better understanding of the subject, are continuing. Due to the uncertainty of the ultimate outcome of this pro-I ceeding and anticipated recoverability, a deferred debit of 19

FINANCIALTABLE OFCONTENTS Consolidated Statementofincome 22 Consolidated Statement of Cash Flows 23 Consolidated Balance Sheet. .24 Consolidated Statement of Retained Earnings M Consolidated Statement of Equity Capital and Pmfened Stock- - -..-... 25 Consolidated Statement of Indebtedness .26 Notes to Consolidated Financial Statements 27 ReportofIndependent Accountants-38 Report of Management - 38 Quarterly Financial and Common Share Information 39 Consolidated Operating and Financial Statistics - 40 ShareholderInformation 42 Trusteesand Officers Inside BackCover i 21

J Some states have enacted regulations to limit the strength in January 1994, a counterclaim by Aquidneck claimed of magnetic fields at the edge of transmission line rights-of-certain breaches of the Power Purchase Agreement. Alsoin way. Rhode Island has enacted a statute which authorizes January 1994, Aquidneck sought to join EUA and EUA and directs the Energy Facility Siting Board to establish rules Seruce Corporation (EUA Senice) as parties to the suit. and mgulations governing construction of high voltage The Court has scheduled a hearing in April 1995 on transmission lines of 69kv or more. There is a bill pending in hiontaup's motion for default judgment. hiontaup intends the hiassachusetts legislature that would authorize the to file a motion for sununary judgment. hiontaup, EUA and hiDPU to examine the potential health effects of EhiE EUA Senice intend to defend the counterclaim vigomusly. hianagement cannot pmdic t the ultimate outcome of the On January 20,1995, EUA and a former shareholder of EhiF issue. EUA, which on February 11,1992 had filed suit against EUA ChangeSIn Accounting Standards and three officers of EUA in the District Court, filed a volun-In November 1992, FASB issued Statement No.112, tary dismissal of the suit following the fulfillment of the " Employers' Accounting for Post-employment Benefits," for terms of a confidential settlement agmement. The dismissal fiscal years beginning after December 15,1993. The estimat-Prevents the former shareholder fmm suing EUA again on ed impact of this standard on EUA System is immaterial to any claim assertedin the suit. EUA's results of operations and therefom no liability has EUA and the officer continue to deny any and all allega-been mcorded. tions of wmngdoing asserted by the former shamholder but determined it to be in their best interests to settle the suit. Other The Settlement Agmement will not have an adven;e impact hiontaup is recovering through rates its share of estimated on EUA's curmnt eamings due to resen>es that EUA had decommissioning costs for the hiillstone Unit 3 and pmviousl@blished. Seabmok Unit 1 nuclear generating units. hiontaup's share of the curently allowed estimated total costs to decommis-sion hiillstone Unit 3 is approximately $18.0 million in 1994 dollars and Seabrook Unit 1 is appmximately $11.5 million in 1994 dollars. These figures am based on studies per-fonned for the lead owners of the units. hiontaup also pays into decommissioning reserves, puniuant to contractual arrangements, at other nuclear generating facilities in which it has an equity ownership interest or life-of-unit entitle-ment. Such expenses are currently recovenxi through rates. In December 1992, hiontaup commenced a declaratory judgment action in which it sought to have the hiassachusetts Superior Court determine that the Power Purchase Agmement between it and Aquidneck Power Limited Partnership (Aquidneck) was binding on the parties according toits terms. 20

s CONSOUDATED STATEMENTOFINCOME Years Ended Dturnber31, On1housands Euxpt Common Shares and per Sham Amounts) 1994 199', 1992 OPERATING REVENUES $ 564,278 $ 566,477 541,964 OPERATING EXPENSES: Fuel 87,573 85,218 %,767 Punhased Power-Demand 130,080 139,524 141,829 OtherOperation 160,985 '156,972 131,348 Maintenance 23,510 25,148 21,589 Depmciation and Amortization' 46,455 44,722 42,824 Taxes-Other Than Income 24,337 24,468 23,785 IncomeTaxes 18,208 15,019 19,475 TotalOperating Expenses 491,148 491,071 477,617 , OperatingIncome 73,130 75,406 64,347 Equity in Eammgs of Jointly Owned Companies 12,485 14,140 16,790 AllowanceforOtherFundsUsxi DuringConstruction 351 379 549 OtherIncome(Deductions)-Net 7,512 3,898 6,1M IncomeBefomInterestChaq;es 93.478 93,823 87,870 INTERESTCIIARGES: Interest onlong-Term Debt 38,987 41,530 45,646 Amortization of Debt Expense and Premium - Net 2,729, 1,904 1,184 OtherInterestExpense 3,849 4,137 1,703 Allowance for Borrowed Funds Used During Constmetion(Credit) (1,788) (1,989)- (1,813)~ NetInterest Charges 43,777 43J82 49,710 NetIncome 49,701 48,241 38,150 Preferred Dividends of Subsidiaries 2,331 3,310 4,039 Consolidated NetEarrungs 47,370 44,931 34,111 AverageCommon Shares Outstandmg 19,671,970 18,391,147 17,039,224 Consolidated Earnings perShare 2.41 2.44 2.00 Dividends Paid perShare 1.515 1.42 136 The aaompnving notes are an integral prt of thefinancial statements. 22

CONSOUDATED STATEMENT OF CASH FLOWS-Years Ended December 31, (InThousands) - 1994 1993 1992 . N' t income $ ^ 49,701 - ~ $ 48,241. $ 38,150 ~ e Adjustments toReconcile NetIncome to Net Cash Provided fnxn Operating.Acthities: 50,492 47,492 Depmciationand Amortization-54,091 Amortizationof Nudear Fuel 3,310 5,136 5,054 Defermd Taxes 8,017 11,099 - (3,645) Gains on Sales of Investments in Energy Savings Prtvrts Paid forwith Notes Receivable (5,474) (5,415) (5,907) InvestmentTax Credit, Net. (181) (1,279) (1,452)- Allowance for Other Funds Used During Construction ~ (351) .(379) (549) Other-Net (4,504) 6,742 22,571 ' Changes in Operating Assets and liabilities: ~ Accounts Receivable : (4,509) (9,609) 6,572 Materials andSupplies - (2,035) - 452 -(629) Anounts Payable. (2,668) (1,885) 5,138 Taxes Accrued - (5,834) 3,382- .1,610 Other-Net 9,641 (8,405) - (3,169) Net Cash Pmvided imm Operating Activities. 99,204 98,572 111,236 CASH FLOW FROM INVESTING ACTIVITIES: Constmetion Expenditure:; (50,519) (76,391) (71,365) Collections on Notes and lease Receivables of EUA Cogenex - 12.750 4,722 8,190 . Increasein Otherinvestments - (11,329) - (5,311) EUA Power Settlement ' (20,000) Net Cash (Used in) Investing Activities (49,098) (71,669) ._ (88,486) CASH FLOW FROM FINANCING ACTIVITIES: Issuances. CommonShams 9,538 '46,313 .8,738 long-Term Debt 7,925 245,000 50,000 ~ Pmferred Stock. 30,000 Redemptions: . long-Term Debt (13,233) (214,809) (86,203) . Preferred Stock (100) (41,700) (1,300) Premium on Reacquisition and FinancmgExpenses (689) (14,956) (3,783) . EUA CommonShare Dividends Paid (29,795) (26,101) (23,114) Subsidiary Preferred Dividends Paid (2,333) (3,316) (4,039) Net (Decrease) Incmase in Sho& Term Debt (5,490) (72,7_68) 37,487 - Net Cash (Used in) Financing Activities (34,177) (52,337) (22,214) NETINCREASEIN CASH AND TEMPORARYCASHINVESTMENTS: 15,929 (25,434) 536 Cash and Temporary Cash Investments at Begmrung of Year 4,180 29,614 29 _,078 Cash and Temporary Cash Investments at End of Year $ 20,109 $ 4,180 $ 29,614 Cash Paid during theyearfor: Interest (Net of Amounts Capitalized) $ 39,650 $ 45,057 $ 47,132 IncomeTaxes $ 15,233 $ 12,919 897 Conversion of Investments in Energy Savings Projects to'Notesandleases Receivable $ 10,914 $ 16,591 $ 10,801 The accompnying notes are an integral part of thefinancial statements. 23

o CONSOLIDATED BALANCESHEET 7 Decernber3L Onihousands) 1994 1993 ASSETS Utility Plant and Other Investments: Utility PlantinService $ 1,020,859 $ 1,016,453 Irss Accumulated Provisions for Depreciation and Amortization 304,034 . 296,995 Net Utility Plantin Service 716,825 719,458 Construction Workin Progress 8,389 8,728 Net Utility Plant 725,214 728,186 Non-utility Property-Net 107,803 99,791 Investments in Jointly Owned Companies 70,675 73,632 Other. 55,416 51,282 Total Utility Plant and Other investments 959,108 952,891 Current Assets. Cash and TemporaryCashInvestments 20,109 4,180 Accounts Receivable: Customers, Net 63,709 57,473 Accrued Unbilled Revenues 10,178 10,481 Other 15,461 16,885 Notes Receivable 13,906 16,407 Materials and Supplies (at average cost): Fuel 6,413 6,411 Plant Materials and Operating Supplies 8,755 6,722 OtherCurrent Assets 8,517 7,798 TotalCurrent Assets 147,048 - 126,357 ~0ther Assets 127,ii93 12f,8@ l Total Assets - $ 1,234,049 $ 1,203,137 LIABILITIES AND CAPITALIZATION Capitalization: Common Equity $ 365,443 333,165 Non-Redeemable Pmferred Stock of Subsidiaries - Net 6,900 6,900 Redeemable Preferred Stock of Subsidiaries - Net 25,390 25,053 _Long-Term Debt -Net 455,412 4 %,816 TotalCapitalization 853,145 861,9M Current Liabilities: Notes Payable-Banks 31,678 37,168 Long-Term Debt DueWithinOne Year 41,601 5,415 Accounts Payable 33,442 36,111 Redeemable Pmferred Stock Sinking Fund Requirement 50 50 TaxesAccrued 6,465 12,299 Interest Accrued 10,889 10,688 OtherCurrent Liabilities 29,566 19,285 TotalCurrent Liabilities 153,691 121,016 Other Liabilities 89,313 82,747 Accumulated Deferred Taxes y@5hysyntingencies(NoteJ)~~ 137,900 137,440 [_- Total Liabilities and Capitalization $ 1,234,049 $ 1,203,137 The accompanying notes are an integral part of thefinancial staternents. 24

CONSOLIDATED STATEMENT OF RETAINED EARNINGS Years Ended December 31, -(In1housands) 1994 1993 1992 Retamed Eamings-Beguuungof Year 5 39,642 $ 21,434 $ 11,053 Consolidated Net Eammgs 47,370 44,931 34,111 Total 87,012 66,365 45,164 Dividends Paid-EUA CommonShares 29,795 26,101 23,114 Other 600 622 616 Retained Eamings - AccumulatedsinceJune1991 AccountingReorganization in which a deficit'of $80,034,506 was eliminated. $ 56,617 $ 39,642 5 21,434 CONSOLIDATED STATEMENT OF EQUITY CAPITAL & PREFERRED STOCK Decernber 31, (Dollar AmountsinThousands) 1994 1993 EASTERN UTILITIES ASSOCIATES: Common Shams- $5 par value 36,000,000 shares authorized,19,936,980 shams outstandmg in 1994 and 19,032,598 shares in 1993. $ 99,685 $ 95,163 OtherPaid-InCapital 212,990 202,182 C.ommonSham Expense 0,849) (3,822) Retamed Eamings Accumulated since June 1991 Accounting , _Rego anization in which a deficit of $80,034,506 was eliminated. 56,617 39,642 TotalCommon Equity 365,443 '333,165 CUMULATIVE PREFERRED STOCK OF SUBSIDIARIES: Non-Redeemable Prefermd: Blackstone Valley Electric Company: 4.25% $100 par value 35,000 shares (1) 3,500. 3,500 5.60% $100 par value 25,000 shares (1) 2,500 2,500 Premium 129 129 NewportElectricCorporation - 3.75% $100parvalue 7,689 shares (1) 769 769 Pmmium 2 2 Total Non-Redeemable Preferred Stock 6,900 6,900 Redeernable Pmfermd: Eastem EdisonCompany: 6 %% $100parvalue300,000 shares (2) 30,000 30,000 Expense,NetofPmmium 035) (330) Pmferred Stock Redemption Costs (4,408) (4,M6) Newport ElectricCorporation: 9.75% $100 par value 1,900 shams (1) 190 290 Expense (7) (11) Sinking Fund Requtrement Due Within One Year ('G (50) TotalRedeemable Pmfermd Stock 25,390 25,053 Total Prefermd Stock of Subsidiaries S 32,290 $ 31,953 m Authori:edandOutstanding. \\ W Authori:ed 0],000 shares. Outstanding 300,000 at December 31,1994. The accompnying notes are an integralprt of thefinancial statements. 25

l CONSOUDATED STATEMENT OF INDEBTEDNESS 1 Dtxernber 31, OnThousands) 1994 1993 EUA ServiceCorporation: 10.2% Sectutd Notes due 2008 $ 14,500 $ 15,600 EUA Cogenex Corporation: 7.22% Unsectatd Notes due 1997 15,000 15,000 7.0%Unsectued Notes due 2000 50,000 50,000 9.6% Unsecurtd Notes due2001 20,000 20,000 1056% Unsecured Notes due2005 35hol) 35,000 EUA OceanState Corporation: 9.59% UnsecuredNotes due2011 36,020 38,497 Blackstone Valley Electric Company: First Mortgage Bonds: 9 M%due2004(Series B) 15,000 15,000 10.35% due2010(Series C) 18,000 18,000 Variable Rate Demand Dmds due2014m 6,500 6,500 Eastern EdisonCompany First Mortgage and Collateral Trust Bonds: 8.9% Secured Meditun Term Notes due 1995 10,000 10,000 4 %% due1996 7,000 7,000 5%% due1998 20,000 20,000 l 5 %% due1998 40,000 40,000 7.78% Secured Medium Term Notes due 2002 35,000 35,000 6%% due2003 40,000 40,000 6.35%due 2003 8,000 8,000 8.0% due 2023 40,000 40,000 PollutionControlRevenue Bonds: 5 %% due2008 40,000 40,000 Unsecured Medium Term Nc'.es: ' 9-9 K% due 1995(Series A) 25,000 25/)00 Newport ElectricCorporation: First Mortgage Bonds: 4 %% due1994 1 # 10 9.0% due 1999 1,400 1,400 9.8% due 1999 8,000 8,000 8.95% due 2001 4,550 5,200 Second Mortgage Bonds: 8.5% due 1998 1,880 12.0% due2011 6A15 Small Business Administration loan: 65% due2005 894 975 Variable Rate Revenue Refunding Bonds due 2011m 7,925 Unamortized (Discount)-Net (866) (776) 497,013 502,231 b_s Portin Duey!@Ongeq__ __ _ __ 41,601 __ _ __ _5,415 Totalleng-Term Debt -Net S 455,412 5 4 %,816 m \\Veighted awrage interest rate u as 2.9%for 1994 and 2.5%for 1993. W Wesghted awrage interest rate was 2.6%for 1994 The accompanying notes are an integral part of thejinancial statements. 26

l NOTES TO CONSOUDATED FINANCIAL STATEMENTS l December 31,1994,1993 and 1992 (A) Summary Of Significant statement purtws, depreciation is computed on the Accounting Policies: straight-line method based on estimated usefullives of the Basis of Consolidation: The consolidated financial state. various classes of property. On a consolidated basis, prosi-ments indude the accounts of Eastern Utilities Associates sions for depreciation on utility plant were equivalent to a (EUA)andallsubsidiaries. Allmaterialintercompany composite rate of approximately 33% in 1994,3.4% in 1993 transactions between the consolidated subsidiaries have and 33% in 1992 based on the average depmciable property ( been eliminated. balances at the begmnmg and end of each year. System of Accounts: The accounts of EUA and its con. Non-utility property and equipment of EUA Cogenex I solidated subsidiaries are maintained in accordance with Corporation ( EUA Cogenex) is sta ted at original cost. For the uniform system of accounts prescribed by the regulato. financial statement purposes, depreciation on office furni-rybodies havingjurisdiction.- tum and equipment and computer equipment is computed Jointly Owned Companies: Montaup Electric Company on the straight-line method based on estimated usefullives (Montaup) follows the equity method of accounting for its ranging from five to fifteen years. Project equipment is stock ownership investments in jointly owned companies depreciated over the term of the applicable contracts or induding four regional nudear generating companies. based on the estimated useful lives, whichever is shorter, Montaup's investments in these nudear generating compa. ranging from five to fifteen years. nies range from 2.25% to 4.50% Montaup is entitled to elec. Electric Plant Held for future Use: In January 1994 tricity produced from these facilities based on its owner. Montaup determined that it would not be economically fea-ship interests and is billed for its entitlement pursuant to sible to bring its 42-year-old, coal-fired, Somerset Station contractual agreements which are approved by the Federal Unit 5 generating unit into compliance with the Clean Air Energy Regulatory Comnussion (FERC). One of the four Act Amend.nents of 1990 (Clean Air Act). The unit was P aced in cold storage and its net investment, $5.4 million, l facilities is being decommissioned, but Montaup is requimd to pay, and has received FERC authorization to was transfermd to electric plant held for future use pending recover,its proportionate share of any unmcovered costs final determination by Montaup of its usefulness. Under and costs incurred after the plant's retirement. terms of the settlement agmement entemd into by Montaup Montaup's share of all unmcoverd assets and the total and the intervenors in Montaup's 1994 rate decrease appli-estimated costs to decommission the unit aggregated cation and filed with FERC, Montaup continues to cam a retum on the net investment in the unit. approximately $18.4 million at December 31,1994 and is induded with Other Liabilities on the Consolidated Other Assets: The components of Other Assets at Balance Sheet. Also, due to recoverability, a mgulatory December 31,1994 and 1993 are detailed as follows: asset has been recorded for the same amount and is indud-On Up.mL __ _ _ _ _ _ _ _. _ 1994 __ _ 1993 ed with Other Assets. Regulatory Aswts: Montaup also has a stock ownership investment of 3.27% Unam rtimikssesonwacquimddebt 5 17,709 5 19,106 Unrecovered plant and in each of two companies which own and operate certam. decmunissioning costs 18,400 16,908 transmission facilities between the Hydro Quebec electric Rierred SFAS109 cats (NMe B) 43,535 46,698 system and New England. Rierred SFAS106cmts(NoteJ) 4,941 2,843 EUA Ocean State Corporation (EUA Ocean State) fol-Mendon Road judgment (NoteJ) 5,857 lows the equity method of accounting for its 29.9% partner. jther"Bulatgaws 9,438 ship intemst in the Ocean State Power Project (OSP). EUA Tmalgulatory aus _ __ J 505 __ 94,993 99,947 vd d Ocean State's investment in OSP and Montaup's stock g dd p M97 W l ownership investments are induded in " Investments in Goodwill 7,260 7,466 i Jointly Owned Companies" on the Consolidated Balance _ Other. __ . _ _1_ 4,489 _ $ 123,889 J4,788 Sheet. _ Totalother Assets _ . _ $ 127,893 l Plant and Depreciation: Utility plant is stated at original cost. The cost of additions to utility plant i ihdes contract-ed work, direct labor and material, alkrable overhead, allowance for funds used during construction and indirect charges for engineering and supervision. For financial 27

• i Allowance for Funds Used During Construction Reclassifications: Certain prior period amounts on the (AFUDC) and Capitalized Interest: AFUDC wpmsents financial statements have been reclassified to conform with the estimated cost of borrowed and equity funds used to curmnt pmsentation.

finance the EUA System's construction pmgram. In accor-- Cash and Temporary Cash Investments: EUAconsiders dance with mgulatory accounting, AFUDC is capitahzed as all highly liquid investments and temporary cash invest-a cost of utility plant in the same manner as certain general ments with a maturity of three months or less when and admmistrative costs. AFUDC is not an item of current acquirtd to be cash equivalents, cash income but is recovered over the service life of utility (B) Income Taxes: plant in the form ofincreased revenues collected as a result EUA adopted FASB statement No.109," Accounting for of higher depreciation expense. The combined rate used in income Taxes" (FAS109) which requimd mcognition of calculating AFUDC was 9.7% in 1994,9.5% in 1993, and deferred income taxes for temporary differences that are 10.8% in 1992. The caption Allowance for Borrowed Funds reported in different years for financial reporting and tax Used During Construction also includes intemst capitalized purposes using the liability method. Under the liability for non-regulated entities in accordance with Financial method, defermd tax liabilities or assets are computed using Accounting Standanis Board (FASB) Statement No. 34. the tax rates that will be in effect when temporary differ-Operating Revenues: Utility revenues are based on - billing rates authorized by applicable federa' and state reg-ences reverse. Generally, for regulated companies, the change in tax rates may not be immediately recogmzed in ulatory commissions. Eastem Edison Company (Estem operating msults because of rate making treatment and pm-Edison), Blackstone Valley Electric Company (Blackstone) visions in the Tax Reform Act of 1986. At December 31, and Newport Electric Corporation (Newport) (collectively, 1994 and 1993 no valuation allowance was deemed neces-the Retail Subsidiaries) accrue the estimated amount of sary for total defermd tax assets. Total deferred tax assets unbilled base rate revenues at the end of each month t and liabilities for 1994 and 1993 are comprised as follows: match costs and revenues more closely. In addition they also record the diffemnce between fuel costs incurred and ahned Tax metTax g "" ['h. fuel costs billed. Montaup mcogruzes revenaes when """dd billed. Montaup, Blackstone, and Newport also mcord mv-Plant Related Plant Related enues related to rate adjustment mechanisms. Ddemnces $19,072 $1954 Mennces $164,130 $15950 EUA Cogenex's revenues are recogmzed based on finan-Altemative Refinancing cial arrangements established by each indhidual contract. Minimum Tax : 9,446 9,220 Costs 2,1% 2,666 Under paid from savings contracts, revenues are mcog. utigation 902 1,218 Pensions 1,769 1,981 a 234 nized as energy savings are malized by customers. 99, Revenue from the sale of energy equipment is recogm7xd Acquisitions 4.575 when the sale is complete. Revenue from sales-type lease Other 5,U7 7,776 Other 10,627 14,690 contracts is recognized when savings to be realized by cus- ~ sal ~ii363 $41,559 Total $178,H271f8Fo/ T tomers are verified. Energy sales contracts revenue is rec-ogruzed as energy is pmvided to the customer. In circum-As of December 31,1994 and 1993, EUA has recorded on stances in which material uncertainties exist as to contract its Consolidated Balance Sheet a regulatory liability to profitability, cost recovery accounting is followed and rev-r tepayers of approximately $292 million and $28.8 million, enues mceived under such contracts are first accounted for mspecn

y. Reseam untsprimarilyrepmsentexcess as recovery of costs to the extent incurred.

defermd income taxes resulting fmm the red uction in the Federal Income Taxes: EUA and its subsidiaries general-fedaal inmme tax rate and also include defermd taxes pm- ~ vided on investment tax cmdits. Also at December 31.1994 IV reflect in income the estimated amount of taxes currently payable, and provide for defermd taxes on certain items and 1993, a regulatory asset of appmximately $43.5 million subject to temporary timing differences to the extent per-and 96.7 million, respectively, has been mcorded, repre-mitted by the various mgulatory agencies. EUA's rate-reg-sendng 6e mmulanw amount oHedaaHncome taws on ulated subsidiaries generally defer recognition of annual temporary depreciation differences which were pmviously investment tax cmdits (ITC) and amortize these credits over 6 weMmugh to rakpayas. EUA has $9.4 million of altemative minimum tax credits the pmductive lives of the related assets. which can be utilized to reduce the consolidated regular tax 28

l i liability and have no expiration. lized in 1993 of which $4.9 million was charged against 1993 ) 4 Under the terms of the December 1992 settlement agree-federalincome tax expense. ment with EUA Power Corporation (EUA Power, now In 1994, EUA Ocean State utihzed $3.9 million of invest- ) known as Gmat Bay Power Corporation), EUA was entitled ment tax credits mlated to its investment in OSP, which to utilize EUA Power's tax credits to reduce the 1993 were charged against 1994 federal income tax expense and 1 Consolidated Tax Liability without compensation to EUA nxiuced the consolidated regular tax liability. EUA has no Power. Approximately $6.9 million of such credits wem uti-mmaining 11C carryfonvards available. Components of income tax expense for the year 1994,1993, and 1992 are as follows: ($in thousands) 1994 1993 1992 Federal-Curmnt $ 6,651 $ 9,390 $ 7,761 Deferred 9,199 4,2N 9,977 Investment Tax Cmdit, Net (99) (1,197) - (1,371) 15,751 12,397 16,367 State: Current 1,154 2,289 1,900 i i Deferred 1,303 333 1,208_ 2,457 2,622 3,108 Charged toOperations - 18,208 15,019. 19,475 Charged toOtherIncome: Current 8,578 1,583 13,709 Deferred (2,486) 6,562 (14,830) Investment Tax Credit, Net (3,972) - (5,N9) (82) 2,120 3,096 (1,203) Total 5 20,328 $ 18,115 5 18,272 Total income tax expense was diffemnt from the amounts computed by applying federalincome tax statutory rates to book income subject to tax for the following reasons: - ($in thousands) 1994 1993 1992 Federal Income Tax Computed at Statutory Rates 5 24,510 5 23,224 5 19,184 (Decrease)1ncreaseinTax From: EquityComponent of AFUDC (123) (133) (171) DepreciationDifferences 50 1,230 745 Amortization and Utilization ofITC (5,115) (6,295) (1,338) State taxes, net of federal income tax benefit 2,285 2,237 2,307 Tax impact of EUA's writesff ofits investment in EUA Power (1,999) Cost of Removal (404) (583) (8) Other (875) (1,565) (448) TotalIncomeTax Expense $ 20,328 5 18,115 $ 18,272 29

~ -(C) Capital Stock: . The changes in the number of common shams outstanding and related increases in Other Paid-In Capital during the years ended December 31,1994,1993, and 1992 wem as follovs Numberof CommonShamsissued i Dividend Northeast Common Other Reinvestment Energy Shares Paid-in Public and Employee J.L Day Co. ' Management At Par. Capital Offering Savings Plans Acquisition Acquisition (000) .(000) '1994 427,304 12,499 464,579 $ 4,522 $ 10,209 1993 1,300,000 385,825 108,985 8,974 40,339 m2 406,726 2,034 6,704 In the event of involuntary liquidation, the holdes of in the event ofliquidation, tlw holders of Eastern Edison's 65 % Pmfermd Stock are entitled to $100 per non-redeemable pmfermd stock of the Retail Subsidiaries /s am entitled to $100 per sham plus accrued dividends. In shareplus accrued dividends. the event of voluntary liquidation, or if redeemed at the in the event of involuntary liquidation, the holders of . option of these companies, each share of the non-Newport's mdeemable prefermd stock am entitled to $100 redeemable preferred stock is entitled to accrued dividends per share plus accrued dividends. In the event of voluntary plus thefollowing: liquidation, or if mdeemed at the option of Newport, the holders of the 9.75% issue are entitled to $102.44 per share gg g g mckstone: - 125% issue smo plus accrued dividends prior to October 1,1998, thereafter 5.60% issue 103.82-no premium is payable upon such redemption. Newpat 3.75% issue 103.50 The aggmgate amount of redeemable preferred stock ne prefermd stock provisions of the Retail Subsidiaries sinking fund mqturements for each of the five yeam follow-place certain restrictions upon the payment of dividends on ing 1994 are $50,000 per year for 1995,1996 and 1997, H0,000 for1998 and zero for1999, . common stock by each company. At December 31,1994 and 1993, each company was in excess of the muumum (E) Long-Term Debt: requirements which would make these restrictions effec-Le various mortgage bond issues of Blackstone, Eastem tive. Edison, and Newport are collateralized by substantially all (D) Redeemable Preferred Stock: of their utility plant. In addition, Eastem Edison's bonds Eastem Edison's 65/s% Pmfermd Stock issue is entitled to are collateralized by securities of Montaup, which are whol-mandatory sinking funds sufficient to redeem 15,000 shares ly-wned by Eastem Edison,in the principal amount of during each twelve-month period commencing September PProximately $246million. Blackstone's Variable Rate Demand Bonds are collateral-1,2003. The redemption price is $100 per share plus accrued dividends. All outstanding shares of the 6 %% ized by an irrevocable letter of credit which expims on issue am subject to mandatory redemption on September 1, January 21,1996. Le letter of cmdit permits an extension 2008 at a price of $100 per share plus accrued dividends. f neyearuponmutualagmemmtof thebankand Blackstone. Newport's 9.75% Preferred Stock issue is entitled to a mandatory sinking fund sufficient to mdeem 500 shams EUA Service Corporation's (EUA Senice) 102% Secmed during each twelve-month period until the year 1999. The Notes due 2008 am collateralized by certain real estate and balance of any shams outstanding must be redeemed in Pr Pertyof thecompany. the year 2000. The mdemption price is $100 per sham plus On January 6,1994, Newport issued $7.9 million of vari-accrued dhidends. able rate Electric Energy Facilities Revenue Refunding Bonds due 2011. Le proceeds were used to redeem 30

Second Mortgage Bonds of Newport in amounts of $6.0 (G) Lines Of Credit: million at 12% and $1.9 million at 8.5%. Desebonds are EUA System companies maintain short-term lines of collaterahzed by an irrevocable letter of cmdit which credit with various banks aggmgating appmximately $150 expires on January 6,1997. The letter of cmdit permits an million. At December 31,1994, unused short-term lines of extension of one year upon mutual agreement of the bank credit wem approximately $118 million. In accordance and Newport. with informal agreements with the various banks, commit-Re EUA System's aggregate amount of curmnt cash ment fees are mquired to maintain certain lines of cmdit. sinking fund mquimments and maturities of long-term Dunng 1994 the weighted average interest rate for short-debt, (exduding amounts that may be satisfied by available term borrowings was 4.6%. property additions) for each of the five years following 1994 are: $41.6 million in 1995, $19.5 million in 1996, $27.5 mil. (H) Jointly Owned Facilities: lion in 1997, $72.5 million in 1998 and $21.9 million in 1999. At Demmber 31,1994, in addition to the stock owmership (F) Fair Value Of Financial Instruments: intemsts discussed in Note A, Sununary of Signincant Accounting Pohcies - Jointly Owmed Comparues, The following methods and assumptions were used to esti-Montaup and Newport had dinxt ownership intemsts mate the fair value of each dass of financial instruments for in the following electric generating facilities: whichitis practicable toestimate: Cash and Temporary Cash investments: The carrying Awumulains $"$" e%y 'L" amount approximates fair value because of the short-term eaty rercmt 1%nt in and Mant m Work in matWt),oMW inhmenk (S m thms.ande.) owned Smu Anurtizatkm Smim rmgns Long Term Notes Receivable and Net investment m Montaup: Sales-Type Leases: The carrying amounts approximate fair Canal Unit 2 50.00 % 5 67,031 541,400 $25,631 51,658 value due to the nature of the asset. wyman Unit 4 1.96 % 4,017 1,908 2,109 22 seabmok Unitt 2.90 % 203,772 19,458 184,314 664 Preferred Stock and Long-Term Debt of Subsidiaries: mum 3 (01% 183,532 37,154 m,378 462 The fair value of the S)' stem's redeemable Prefermd stock Newport: and long-term debt were based on quoted market prices for wyman Unit 4 0.67 % 1,313 643 670 such securities at December 31,1994. The estimated fair values of the System's financial instru. The foregoing amounts mpresent Montaup's and ments at December 31,1994 are as follows: Newport's intemst in each facility, induding nudear fuel whem appropriate, and are induded on the like-captioned Carrying Fair lineson theConsolidated BalanceSheet. At December 31, (Sin thousands) Amount Value 1994, Montaup's total net investment in nuclear fuel of the Seabrook and Millstone Units amounted to $4.0 million i Cashand Temporary Cashinvestments $20,109 520,109 and $1.9 million, respectively. Montaup's and Newport's i long-Term Notes Rewivable 38,269 38,269 ) shams of mlated operating and maintenance expenses NetInvestment inSales TypeIrases 911 911 Redeemable Preferred Stock 30,190 27,190 with respect to units reflected in tl+ able above are includ-long-Term Debt 497,789 477,306 ed in the corresponding operating expenses. 31

=. - "(I) Financial Infonnation By Business Energy Related Business includes results of our diversi. Segrnents: fled energy mlated subsidiaries, EUA Cogenex, EUA The Com Electric Business includes results of the System's Ocean State and EUA Energy investment Corporation electric utility operations of Blackstone, Eastern Edison, (EUA Energy).1 Newport and Montaup.. Corporate msults includ'e the operations of EUA Senice and EUA Panmt. . PeTax Depmciation Cash Equityin Operating ' Operating Income and Construction Subsidiary - .l ($in thousands) Revenues ~ -Income Taxes Amortization Expenditures Eamings. . Year Ended Demmber31,1994 ComElectric $ 489,798 $ 83,966 ~ $ 18,879 ' $ 33,409 $ 32,978 $ 1,700 i i Energy Related - 74,480 9,905 (484) -12,491 17,231 10,785 Corporate. _ 2,533). ( _ 187) _555_ _. 310 ' ( Total $ 564,278 $ 91,338 $ 18,208 5 46,455 - $ 50,519 $ 12,485_ _,, Year Ended i December 31,1993 I Com Bectric $ 499,565 $ 84,654 $ 18,443 - $ 34,035 $ 32,407 $ 1,750 1 Eneq;y Related 66,912 6,690 (3,523) 10,031 43,604 12,390 . Corporate (919) 99 656 380. Total 5 566,477 $ 90,425 $ 15,019 $ 44,722 $ 76,391 $ 14,140 - Year Ended. l December 31,1992 Core Bectric $ 497,810. S 80,324 - $ 17,869 $ 33,003 $ 22,497 $ 1,953 Energy Related 44,154 6,792 2,096 . 8,712 47,223 14,837 Corporate (3,294) (490) 1,109 1,645_ Total 5 511,964 $ 83,822 $ 19,475 $ 42.824 $ 71,365 $ 16,790 December 31,. ($in thousands) 1994 1993~ TotalPlant and OtherInvestments i Com Bectric $ 721,840 $ 723,664 EnergyRelated 217,584 208,457 Corporate - 19,684 20,770 TotalPlaniand Otherinvestments 959,108 952,891 OtherAssets Com Bectric 204,982 188,611 Energy Related 55,554 43,842 Corporate - 14,405 17,793 TotalOtherAssets 274,941 250,246 Total Assets - $1,234,049 $1,203,137 i i 32 i

P. ] G) Commitments And Contingencies: should be sufficient for twenty years, or to the year 2010. Nudear PowerIssues: Jointowners of nudearprojectsare No near-term capital expenditures am anticipated to l subject to the risk that one of their number may be unable accommodate an increase in storage mquimments after or unwilling to finance its share of the project's costs, thus 2010. Montaup is requimd to pay a fee based on its share of i jeopardizing continuation of the project. On February 28, the generation from Millstone Unit 3 and Seabrook Unit 1. ' 1991, EUA Power (now known as Gmat Bay Power Montaup is recovering these fees through its fuel adjust-l ment clause. l l Corporation), a 12.13% owner of the Seabrook nudear pn> ject, filed for pmtection under Chapter 11 of the Federal. Also, Montaup is mcovering thmugh rates its share of Bankmptcy Code. It conducted its business as a debtor-in. estimated decommissioning costs for Millstone Unit 3 and l_ possession until November 23,1994, at which time its plan Seabrook Unit 1. Montaup's share of the curmnt estimate j of total costs to decommission Millstone Unit 3 is $18.0 mil-l of morganization became effective and the company lion in 1994 dollars, and Seabrook Unit 1 is $11.5 million in l l emerged fmm Chapter 11. In addition to its 2.9% ownership intemst in Seabrook 1994 dollars. These figures are based on studies performed i Unit 1. Montaup also has a 2.9% ownership interest in for thelead owners of the plants. Montaup also pays into i Seabmok Unit 2. On November 6,1986, the joint owners of decommissioning reserves pursuant to contractual Seabrook, recognizing that Seabrook Unit 2 had been can, arrangements with other nuclear generating facilities in [ l celled, voted to dispose of the Unit. Plans regarding dispo. which it has an equity ownership interest or life of the unit l L sition of Seabrook Unit 2 are still under consideration, but entitlement. l l have not been finalized and approved. Montaup is unable, Such expenses are curmntly mcoverable through rates. therefom, to estimate the costs for which it would be Shareholder Pmceeding: On January 20,1995, EUA and j responsible in connection with the disposition of Seabrook a former shareholder of EUA, which on Februay 11,1992 l l . Unit 2. Montaup must pay monthly charges with mspect to had filed suit against EUA and three officers of EUA in the l Seabrook Unit 2 in order to preserve and pmtect its compo. Federal District Court of Massachusetts, filed a voluntary l nents and various warranties. These costs are currently dismissal of the suit with the court following the fulfillment i of the terms of a settlement agreement among EUA, the { being recoveredin rates. . Nuclear Fuel Disposal and Nuclear Plant one officer remaining as a defendant in the action and the I Decommissioning Costs: The Nudear Waste Policy Act of former shareholder. The dismissal prevents the fonner ' 1982 (NWPA) establishes that the federal government is shareholder from suing EUA again on any claim asserted f in the suit. msponsible for the disposal of spent nudear fuel and oblig. ates the Department of Energy (DOE) to design, license, EUA and the officer continue to deny any and all allega-build and operate a permanent repository for high level tions of wrongdoing asserted by the former shareholder but determined it to be in their best interests to settle the radioactive wastes and spent nudear fuel. NWPA specifies that DOE provide for the disposal of the waste and spent suit. Under the provisions of the Settlement Agreement,its terms are to remain confidential. The Settlement fuel starting in 1998. DOE does not expect to achieve this j date. As an interim strategy, DOE is considering making Agmement will not have an adverse impact on EUA's cur-l_ available other federal govemment sites to temporarily rent camings due to reserves that EUA had presiously l [. accommodate those firms that have depleted their own on_ established. In the suit the former shareholder alleged site spent nudear fuel storage capacity. The DOE antici-fraudulent and negligent misrepnsentations and siolations of Rule 10b-5 under the Securities Exchange Act of 1934 in j pates that a permanent disposal site for spent fuel will be connection with statements made regarding the business ready to accept fuel for storage or disposal on or before 2010. However, the NRC, which must license the site, has and prospects of EUA's former subsidiary, EUA Power, stated only that a permanent repository will become avail. and the portion of EUA's earnings attributable to allowance able by the year 2025. Millstone Unit 3 management has for funds used during construction (AFUDC) from EUA Power. indicated it has sufficient on-site storage facilities to accom_ modate high level wastes and spent fuel for the projected Pensions: The EUA System companies' retirement plans i 4 life of the unit. No significant expenditures are projated are non-contributory defined benefit pension plans cover-for the fomseeable future. At Seabrook them is on-site stor. ing substantially all of their employees. Regular plan bene-age capacity which, with minimal capital expenditures, fits are based on years of sersice and average compensation 33

over the four years prior to retirement or in the case of the and 1992 expenses related to the supplemental plan were supplemental retirement plan for certain officers of the $516,000, $2.3 million and $278,000, respectively. EUA System, benefits are based on compensation at retire-Post-Retirement Benefits: Retimd employees am enti-ment date. It is the EUA System's policy to fund the wgu-tied to participate in health care and life insurance benefit lar plan on a current basis in amounts determined to meet plans. Health care benefits are subject to deductibles and i the funding standards established by the Employee other limitations. Health care and life insurancelenefits Retimment Income Security Act of 1974. am partially funded by EUA System companies for all qual-Net pension expense (income) for the regular plan for ified employees. 1994,1993 and 1992 included the following components: 'Ihe EUA System adopted FAS106 " Accounting for Post-(5 in thousands) 1994 1993 IW2 Retirement Benefits Other Than Pensions," as of January 1, ) Servicecost+enefits earned 1993. This standard establishes accounting and reporting dun [n standards for such post-mtimment benefits as health care pt $ 3,281 5 2,567 5 2,395 benefit obligations 8,848 8,761 8,050 and life insurance. FAS106 further mquires the accrual of Actualloss (return) on assets 1,523 08,W5) (7,971) the cost of such benefits during an employee's years of ser-Net amortization and vice and the recognition of the actuarially determined total deferrals (12.494) 6,795 (2,683) post-retimment benefit obligations (Transition Obligation) eam d by existing employees and retimes. EUA elected to ___ex _e _ ) 5_ _1,1._58_5. _118_.5 (209)-- recognize the Transition Obligation over a period of 20 Assumptions used to determine pension costs: years, as permitted by FAS106 The resultant annual expense,includingamortizationof theTransition Dtscount Rate 7.25 % 8.75 % 8.75"'* Obligation and net of capitalized amounts, was approxi-ncr aYRate mately $7.9 million and $8.1 million in 1994 and 1993, 4.75 % 6.00 % 6.00 % tong-Term respectively. As a msult of December 1992 regulatory deci-Return on Asets 9.50 % 10.0&Y. 10.00 % sions, EUA's mtail subsidiaries established mgulatory assets The following table sets forth the actuarial present value f approximately $1.6 million and $1.5 million in 1994 and of benefit obligations and funded status at December 31, 1993, respectively, due to the future recoverability of such 1994,1993 and 1992: amounts. Montaup was allowed to defer FAS106-related (5 in thousands) ~ ~ ~~~~~---~~- - expenses through 1995 or until it filed for recovery of such 19M 1993 1992 AccimulAfbensobiigations amounts prior to that time. Accordingly approximately Vested 5 96,045 5 101,279 5 81,466 $400,000 and $1.4 million of FAS106-related expenses wem Nemted 315 358 _ _ 291 defermd by Montaup in 1994 and 1993, respectively. Total 596,360 _ 5 101,637 _, 5 81,757 Montaup requested and received authority to recover all of Pniected tmfit obligations $<112,483) 5 0 21,082) 5(99,862) its FAS106 expenses including a five-year amortization of Plan assets at fair value, deferred amounts in its 1994 rate decrease application. primarily stocksand bonds 122,816 130,M0 117,373 ) less: Unrecognized net gain i on asets (13,643) (11,689) (20,562) Unamortized net assets atlanuary_1_ _ _ _5,365_ _ _5,444_ _. 6,383 Netpeon asq _,_ _5_2,055 _ _5 3,213_ $. 3,332 The discount rate used to determine pension costs changed effective January 1,1995 to 8.25% and was used to calculate the plans funded status at December 31,1994. All benefits provided under the supplemental plan are unfunded and any payments to plan participants are made by EUA. As of December 31,1994 approximately $2.3 mil-lion was included in accrued expenses and other liabilities for this plan. For the years ended December 31,1994,1993 34

y The total cost of post-retirement benefits other than pen-Post-Employment Benefits: In November 1992, FASB sions fer 1994 and 1993 indudes the following cornponents: issued Statement No.112," Employers' Accounting for. ($in thousands) 1994 1993 ~ Post-employment Benefits" for fiscal years beginning after Senice cost $ 1,537 $ 1,337 December 15,1993. The impact of this standard on the Interest cost. 5,381 5,983 EUA System is immaterial to EUA's nsults of operations Actualn turn on plan assets. (126) (68) ' and therefom no liability was reconied. An ortization of transition obligation 3,429 3,429 Long-Term Purchased Power Contracts: The EUA ' Otheramortizations& deferrals-net (85) (60) System is committed under long-term purchased power ~ l Totalpost-retirementbenefit cost $10,136 $10,621 contracts, expiring on various dates,through September - 2021, to pay demand charges whether or not energy is te 7.25 % 87A received. Under terms in effect at December 31,1994, the Health care cost trend rate - near-term 13.00 % 13R)% aggmgate annual nurumum commitments for such con- -long-term 5.00 % 6.25 % tracts am approximately $129 million in 1995 and 1996,. Salaryincrease rate 4.75 % 6.00 % Rate of return on plan assets-union 8.50 % 8.50 % $128 million in 1997, $132 million in 1998, $133 million in -non-union 5.50 % 5.50 % 1999 and will aggregate $1.6 billion for the ensuing years. In addition, the EUA System is mquired to pay additional Reconciliation of fundalstatus: amounts depending on the actual amount of energy i ($in thousands) 1994 1993 mceived under such contracts. The demand costs associat-l Accumulated post-retirement benefit obligation (APDO): ed with these contracts are reflected as Purchased Power-i Retirees $(35,386) $(38,008) Demand on the Consolidated Statement of Income. Such Active employeesfullyeligible - costs are mcoverable through rates. Environmental Matters: The Comprehensive forbenefits (9,778) (15,324) ache emP oyees-(23 (25,3 l h db ddQW 1980, as amended by the Superfund Amendments and , primarily notes Reauthorization Act of 1986, and certain similar state j 7,722 3,522 statutes authorize various governmental authorities to Unauphi transition obligation 61,718 65,147 Unrecognized netloss(gain) - (9,098) 5,368 Seek court orders compelling msponsible parties to take (Accrued)/ prepaid post-retirement cleanup action at disposal sites which have been deter-ber2 fit cost $ (8,128) $(4.652) mined by such govemmental authorities to pmsent an unnunent and substantial danger to the public and to the The discount rate used to determme post-retimment envimnment because of an actual or thmatened release of benefit costs was changed effective January 1,1995 to hazardoussubstances. Becauseof thenatureof theEUA 8.25% and was used to calculate the funded status of Post-System's business, various by-products and substances are Retirement benefits at December 31,1994. Increasing the assumed health cam cost trend rate by 1% Produced or handled which are classified as hazardous under the rules and mgulations promulgated by the EPA l each year would increase the total post-retirement benefit as well as state and local authorities. The EUA System j cost for 1994 by $1.1 million and increase the total accumu-generally provides for the disposal of such substances j lated post-retirement benefit obligation by $9.0 million. thmugh limi core Actors, but these statutory provi-Prior to 1993 the EUA System followed the " pay-as-you-sions generally impose potentialjoint and several respon-go" methodology for accounting for post retirement bene _ sibility on the generators of the wastes for cleanup costs. ~ fitsotherthanpensions. Thecostsof thebenefits,which Subsidiaries of EUA have been notified with respect to a amounted to $2,367,000 in 1992, were charged to expense. numbe of sites whem they may be responsible for such The EUA System, has also established an irrevocable exter-c sts, including sites where they may have joint and sever-nal Voluntary Employee Benefit Association Trust Fund as al liability with other responsible parties. It is the policy of required by the aforementioned regulatory decisions. the EUA System companies to notify liability insurers and Contributions to the fund commenced in March 1993 and to initiate claims. EUA is unable to predict whether liabili-totaled approximately $6.7 million during 1994 and $6.0 ty, if any, will be assumed by, or can be enforced against, millionin 1993. the insurance carrier in these matters. 35

On December 13,1994, the United States District Court EUA estimates that additional costs ranging from $2.6 for the District of Massachusetts issued a judgment against million to $5.6 million (exduding the $5.9 million Mendon Blackstone Valley Electric Company, finding Blackstone Road judgment) may be incurred at these sites through 1996 liable to the Commonwealth of Massachusetts (the by its subsidiaries and the other responsible parties. Of this Commonwealth) for the full amount of response costs amount, appmximately $4.8 million mlates to sites at which. ) incurred by the Commonwealth in the deanup of a coal Blackstone is a potentially msponsible party. Estimates gasification waste site at Mendon Road in Attleboro, beyond 1996 cannot be made since site studies, which are ' i Massachusetts. Thejudgment also found Blackstone liable the basis of these estimates, have not been completed. for interest and litigation expenses calculated to the date of - As a msult of the recoverability of cleanup costs in rates judgment. The total liability is appmximately $5.9 million, and the uncertainty regarding both its estimated liability, as ) induding approximately $3.6 million in interest which has well as its potential contributions from insurance carriers accumulated since1985. and other responsible parties, EUA does not believe that the Blackstone has filed.a Notice of Appeal of the court's ultimate impact of the envimnmental costs will be material judgment and filed its brief with the First Circuit Court of - to the financial position of the EUA System or to any indi-Appealsin February 1995. vidual subsidiary and thus no loss provision is mquired at Due to the uncertainty of the ultimate outcome of this this time. j proceeding and anticipated recoverability, a deferred The Clean Air Act emated new regulatory pmgrams and debit of $5.9 million was recorded and is induded with generally updated and strengthened air pollution control Other Assets. laws. These amendments will expand the regulatory role of f On January 20,1995, Blackstone entered into an escrow the United States Emimnmental Protection Agency (EPA) agreement with the Commonwealth whereby Blackstone reganling emissions from electric generating facilities and a deposited $5.9 million with an escrow agent who trans-host of other sources. EUA System generating facilities will - ferred the funds into an interest bearing money market most probably be first affected in 1995, when EPA regula-account. Thedistributionof theproceedsof theescrow tions will take effect for facilities owned by the EUA System. account will be determined upon the final resolution of the Tests at Montaup's coal-fimi Somerset Unit #6 indicated it judgment. No additional interest expense will accrue on would be able to utilize lower sulfur coal than had been thejudgment amount. bumed to meet the 1995 air standards with only a mmimal On January 28,1994, Blackstone filed a complaint capitalinvestment. Montaup determined that it would not - in the United States District Court for the District of. be economical to repair Unit #5 of the Somerset Station and Massachusetts, seeking, among other relief, contribution therefom has placed it in deactivated reserve. EUA does not - and reimbursement from Stone & Webster,Inc. of New anticipate the impact from the Amendments to be material l York, and several of its affiliated companies (Stone & to the financial position of the EUA System. Webster) and Valley Gas Company of Cumberland, Rhode In April 1992, the Northeast States for Coordinated Air Island (Valley) for any damages incurred by Blackstone Use Management (NESCAUM), an emironmental advisory regarding the Mendon Road site. The court denied gmup for eight Northeast states induding Massachusetts motions to dismiss the complaint which were filed by and Rhode Island, issued mcommendations for nitrogen Stone & Websterand Valleyin1994. oxide (NOx) controls for existing utility boilers mquimd to In addition, Blackstone notified certam liability insurers meet the czone non-attainment requuements of the Clean and has filed clauns with respect to the Mendon Road site, Air Act. The NESCAUM recommendations are more mstric-as wellas othersites. tive than the Clean Air Act mquirements. The As of December 31,1994, the EUA System had incurmd Massachusetts Department of Environmental Management costs of approximately $3.5 million (exduding the $5.9 mil-has amended its mgulations to requim that Reasonably lion Mendon Road judgment) in connection with these Available Control Technology (RACT) be implemented at all sites, substantially all of which mlate to Blackstone. These stationary sources potentially emitting 50 tons or more per amounts have been financed primarily by intemally gener-year of NOx. Rhode Island has issued similar regulations ated cash. Blackstone is currently amortizing substantially also requiring that RACT be implemented at all stationary all ofits incurred costs over a five-year period and is recov-sources potentially emitting 50 tons or more per year of eringcertam of those costsin rates. NOx. Montaup has initiated compliance, through, among 36

~ G other things, selective noncatalytic mduction processes. lion of the outstanding debt of these two companies. In A munber of scientific studies in the past several years addition, Montaup and Newport have muumum mntal have examined the possibility of health effects from electric commitments which total approximately $14.2 million and and tnAgnetic fields (EMF) that am found everywhere them $1.8 million, respectively under a noncancelable transmis-is electricity While some of the studies have indicated. sion facilities support agreement for years subsequent to them may be some association between exposure to EMF 1994. and health effects, other studies have indicated no direct Othen in December 1992, Montaup commenced a association. In addition, the mscarch to date has not con-declaratory judgment action in which it sought to have the l dusively established a direct causal relationship between Massachusetts Superior Court determme its rights under EMF exposure and human health. Additional studies, the Power Purchase Agmement between it and Aquidneck which are intended to pmvide a better understanding of Power Limited Partnership (Aquidneck). Montaup sought the subject,are continuing. a declaration that the Power Purchase Agreement was bind-Some states have enacted regulations to limit the strength ing on the parties according to its terms. Aquidneck assert-of magnetic fields at the edge of transmission line rights-of-ed that Montaup had either an express or implied obligation way. Rhode Island has enacted a statute which authorizes to negotiate new terms and conditions to the Power and dimets the Energy Facility Siting Board to establish Purchase Agreement. Specifically, the defendants sought to rules and regulations governing construction of high volt-amend, through negotiations, certain milestone events to i age transmission lines of 69kv or mom. Them is a bill which they were bound in the Power Purchase Agmement pending in the Massachusetts Irgislature that would as written. Aquidneck failed to meet the first milestone of l authorize the Massachusetts Department of Public Utilities January 1,1993. Accordingly, on January 5,1993, Montaup to examme the potential health effects of EME exercised its rights to terminate the Power Purchase l Management cannot predict the ultimate outcome of the Agmement effectiveimmediately. EMFissue. In January 1994 a counterdaim by Aquidneck daimed Guarantee of Financial Obligations: EUA has guaran-certain bmaches of the Power Purchase Agmement,indud-tecd or entered into equity maintenance agreements in con-ing an alleged failum on the part of Montaup to mnegotiate nection with certain obligations of its subsidiaries. EUA the terms and conditions of the Power Purchase Agreement has guaranteed the repayment of EUA Cogenex's $35 mil-relating to the first milestone event. Also in January 1994, lion 10.56% unsecured long-term notes due 2005 and EUA Aquidneck sought to join EUA and EUA Senice as parties Ocean State's $36 million 9.59% unsecured long-term notes to the suit. l due 2011. In addition, EUA has entered into equity mainte-Aquidneck apparently claims $11 million of damages on nance agreements in connection with the issuance of EUA the theory that EUA can " avoid an approximately $11 mil-Service's 10.2% Secured Notes and EUA Cogenex's 7.22 % lion obligation to purchase capacity and power which it and 9.6% Unsecured Notes. does not currently need." Aquidneck seeks treble damages Under the December 1992 settlement agreement with claiming Montaup, EUA and EUA Senice violated state EUA Power, EUA reaffirmed its guarantee of up to $10 mil-laws willfully and knowingly, lion of EUA Power's share of the decommissioning costs of The Court has scheduled a hearing in April 1995 on Seabrook Unit 1 and any costs of cancellation of Unit 1 or Montaup's motion for default judgment based on Unit 2. EUA guaranteed this obligation in 1990 in order to Aquidneck's failure to meet its discovery obligations. In secure the mlease to EUA Power of a $10 million fund addition, Montaup intends to file a motion for summary established by EUA Power at the time EUA Power judgment. acquimd its Seabrook intemst. EUA has not provided a Montaup, EUA and EUA Service intend to defend the reserve for this guarantee because management believes countemlaim vigorously and believe that Aquidneck's that it is unlikely that EUA will ever be requimd to honor claims have no basisinlaw. the guarantee. Montaup is a 3.27% equity participant in two companies which own and operate transmission facilities interconnect-ing New England and the Hydro Quebec system in Canada. Montaup has guaranteed approximately $5.6 mil-37

REPORTOFINDEPENDENT ACCOUNTANTS REPORTOFMANAGEMENT To theTrustees and Shamholders of-The management of Eastem Utilities Associates is EastemUtilities Associates. msponsible for the consolidated financial statements and - related information induded in this annual report. The We have audited the accompanying consolidated balance finandal statements are pitpamd in accordance with gen-sheets and consolidated statements of equity capital and erally accepted accounting principles and indude amounts pmferred stock and indebtedness of Eastern Utilities based on the best estimates and judgments of manage-Associates and subsidiaries (the Company) as of December mert, giving appropriate consideration to materiality.. 31,1994 and 1993, and the related consolidated statements Financial information induded elsewhere in this annual of income, retained eamings and cash flows for each of the report is consistent with the financial statements. three years in theperiod ended December 31,1994. These The EUA System maintains an accounting system and financial statements are the responsibility of the Company's mlated intemal controls which are designed to provide rea-management. Our msponsibility is to express an opinion sonable assurances as to the aliability of financial records on these financial statements based on our audits. and the protection of assets. The system's staff ofintemal We conducted our audits in accordance with generally auditors conducts myiews to maintain the effectiveness of - accepted auditing standards. Those standards nquire that intemalcontrolprocedures. we plan and perform the audit to obtain reasonable assur-Coopers & Lybrand LLP., an independent accounting ance about whether the financial statements are fme of firm,is engaged by EUA to audit and expmss an opinion - material misstatement. An audit indudes examuung, on a on our financial statements. Their audit indudes a review test basis, evidence supporting the amounts and disdo-ofintemal controls to the extent mquired by generally sures in the financial statements. An audit also indudes accepted auditing standards for such audit. assessing the accounting principles used and significant The Audit Committee of the Board of Trustees, which estimates made by management, as well as evaluating the consists solely of outside Trustees, meets with manage-overall financial statement presentation. We believe that ment, intemal auditors and Coopers & Lybrand LLP. to 1 our audits provide a reasonable basis for our opinion. discuss auditing, internal controls and fir.ancial reporting In our opinion, the consolidated financial statements matters. The intemal auditors and Coopers & Lybrand mfernxi to above present fairly, in all material respects, the LLP.have free access to the Audit Committee without consolidated financial position of the Company as of management present. December 31,1994 and 1993,and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31,1994 in conformity - with generally accepted accounting principles. t mws y LJ 7-Boston, Mav,achusetts i Marth 2,1995 l 38

~ QUARTERLY FINANCIAL AND COMMON SHARE INF03MATl0N J, .(UNAUDITED) (11wusands ofLulars, Exapt Per Share and Share Price Annunts) Y 1)vuenas cannm%w y gg gg DD. S,o,n,, ina= tanuna %=m wm HA u= . FORTHE QUARTERS ENDED 1994: December 31 $ 132,953 $ 15,1N $ 8,858 $ 8,277 $ 0.42 5 0385 23 % 21 % - ~ September 30 - 143,859 1 18,210 13,900-13,316 0.67 0385 25 % 22 June 30 137,269 18,247 10,770 10,187 0.52-0385~ 255/s 22 Mardi 31 150,197 21,569 16,173 15,590 0.80 036 27 % 245/s FORTHE QUARTERS ' ENDED 1993: December 31 $ 147,036 $ 21,208 $ 10,282 $ 9,652 $0.51 $ 036 29 % 26 % September 30 146,4 % 18,186 14,719 13,913 0.74. 036 . 29 % 28 % June 30 135,262 16,331 9,999 9,119 0.49 036 28 % 25 % l March 31 137,683 19,681 13,241 12,247 0.71 034 27 % 23 %

0) The sum of the quarterly anwunts may not equal annual atrnings per axrage annmon share due to chtnge in shares outstanding.

t I l 39

.y CONSOLIDATED OPERATING AND FINANCIAL STATISTICS m p Years Endd Darnder31, 1994' 1993 1992 1991-1990-1989- -1984 ENERGYGENERATED AND PURCHASED (mimonsofhn): i Generated -bySomenet Station 658 319 936 957 985 '1,296 '1,130 -by Nuclear Units 1,008 1,033 1,050 1,109 - 1,635 9M-458 l ' byJointly Owned Units L. 1,615 1,809. 2,105 2,053 ' 1,793 , 2,075 1,507-j -byLifeof theUnitContracts 648-602. 793 863 753 836 814 1 -by Newport 1 1 1 7 Interchange with NEPOOL 295 360 157 191 298-1262 (136) Puxhased Power-UnliPower ' 1,526 1,3'X, 1,489 1,006 ' 380 - ~410 480 l ~fotalGenerated Ed Purchased 5J50 f,520 6531 6,180 5,851 5,835 4,303 ~ OPERATING REVENUES ($in thousands): Residential $ 190,662 - $ 189,470 $ 176,538 $ 178,812. $ 156,883 $ 141,2M $ 121,623 ' ~ Commercial ' 169,241 179,145 '170,034 171J32 149,514 131,306 - 105,310 Industrial. 81,500 81,445 76,946 78,273 - 69,885 70,852 75,850 ' Other ElectricUtilities ' 4,900 5,098 5,103 4,828 4,317 19,625 23,909 Other 17,282 21,790 . 21,314 .17,9M 22J48-11,642 9,3% TotalPrimarySales Revenues 463,585 - 476,948 449,935 451,629 403,M7 374,679 336,088 . Unit Contracts ' 26,213 - . 22,617 47,875 41225 43,670 ,46,373 25237 l ~Non-Electric 74,480 66,912 ~ 44,154 29J29 18,668 8,370 TotalOperating Revenues ' $ 564,278~ i K 477 $ 541,9M $522383 $T65T85. $4297422 $36i3f5 ' i ENERGY SALES (maions ofh*): Residential. 1,678 1,624 1,575 1,579 - 1531 1,416 1,205 Commercial 1,6 71 1,704 : 1,701 1,689 ' 1,623 1,497 1,113 Industrial 850 816

785 777 834 832 856 Other Electric Utilities 74 -

^ 61 68 66 130-389-3% ~ Other. 137 147 147 154 121 28 30 TotalPrimarySales. 4,410 - 4,352 4,279 4,265 4239 4,162 3,600 Agand CompanyUse 4,599 4,520 4,545 4,488 4,396 3,815 233 247 241 280 249 234 =215 1 TotalSystem Requirements 4,643 UnitContracts 1,107 921 2,011 1,635 1,363 1,439 488 TotalEnergySales 5,750 . 5,520 6531 6,180 5,851 : 5,835 4,303 NUMBER OFCUSTOMERS: Rer.idential 263,054 259,6M 257,026 255,620 254,928 227,440 211,622 Commercial 29,004 30,805 ' 32,851 32,745 32,836 27,890 . 22,177 Industrial 1,603 1,294 1,197 1,172 1,175 1,222 - 1209 Other Electric Utilities 12 12 15 15 12 14 .16 Other 34 M 34 34 M 29 29 lotalCustomers 293,707. 291,799 291,123 289,586 288,985 256595 235,053 - Average AnnualRevenue per ResidentialCustomer($) 725 730 687 699 636 621 575 l Average AnnualUseper Residential j Customer (kwh) 6,379 6,254 6,128 AVERAGE REVENUF __ 6,177 _ 6,221 6226 . 5,694 i PER KWH(r): Residential 1136 IL67 11.21 1132 10.25 9.98 10.09 Commercial 10.13 1051 9.98 10.17 9.21 8.77 9.46 Industrial 9.59 9.98 9.80 10.07 838 852 8.86 (1)includesfnancialandoperating statistics kr Newport Electric Corparationfrom April 1,1990and EUA Pouer Corpwation Ihvough Demnler 31,1990at uhich l time EUA Pouer Corparatwn uns deconsolidatedforpnancial repwtmg purposes. 40

h l 4 CONSOLIDATED OPERATING AND FINANCIAL STATISTICS

• l Yem Ended Drumler31, 1994 1993 1992 1991 1990 1989 1984 CAPITALIZATION (5in thousandsk Bonds-Net 5 288,449

$ 300,389 $ 306,898 $ 346,146 $ 363,566 $ 306,500 $ 266,500 Other Long-TermDebt-Net 166,963 1 %,427 156,060 142,306 80,029 299,579 22,376 ToTallEng~ Term DiWNet 455,412 496,816 462,958 4Bli,452 443,595 606,079 288,876 . Prefermd Stock-Net 32,290 31,953 44,346 45,830 50,380 49,691 48,319 _ Common Equity 365,443 333,165 _ 266,855 248,598 _ 237,393 375,016 191,619 TotalCapitalization $ 853,145_ $ 861,934. $ 774,159 $ 782,880 - $731,368 $ 1,030,786 $ 528,814 CAPITALIZATION RATIOS (%) lang-Term Debt 53 57 60 62 61 59 55 Pmfermd Stock 4 4 6 6 7 5 9 Common Equity 43 39 34 32 32 36 36 i COMMON SHARE DATA: Eanungs(loss)per Average Common Sham ($) 2.41 2.44 2.00 1.58 (8.18)(2) 2.95 2.85 - l Payout (%) 1.515 1.42 136 1.45 2575 2.475 1.90 DividendsperSham($) 62.9 582 68.0 9L8 (31 5) 83.9 67.0 Average Common SharesOutstanding 19,671,970 18,391,147 17,039,224 16,608,090 15,917,255 13,877,091 10,562,324 TotalCommonShares t Outstanding 19,936,980 19,032,598 17,237,788 16,831,062 16,352,708 15,262,237 10,892,886 BcokValueperShare($) 1833 17.50 15.48 14.77 1452 2457 1759 Perant Eamed On Average Common Equity 13.6 15.0 132 10.8 (42.5) 12.1 16.5 Market Price ($): High 27% 29 % 25X 25 41X 41 % 18 Low 21% 23 % 20 % -15X 20% 30X 12M Year End 22 28 24X 20 % 23 % 41 % 18 MISCELLANEOUS ($in thousandsk Total Construction Expenditures ($P 50,870 76,770 71,914 60,174 133,629 188,599 95,211 Cash Construction Expenditures ($P 50,519 76,391 71,365 57,570 59,929 75,861 73,159 Intemally Generated Funds ($)* 79,274 79,691 48,933 . 63,681 35,024(4). 32,734 - 40,858 IntemallyGenerated Fundsas a % of CashConstruction(%)* 156.9 1043 68.6 110.6 58.4(4) 432 55.8 Installed Capability-MW 1,212 1,256(5) 1,325 1,349 1,359 1,169 931 _less: Unit Contract Sales-MW 85 85 85 216 86 116 75 System Capability-MW 1,127 1,171 1,240 1,133 1,273 1,053 856 System PeakDemand-MW 921 854 849 879 850 831 716 ReserveMargin(%) 22.4 37.1 46.1 28.9 49.8 26.7 195 SystemLoad Factor (%) 57.5 61.5 575 59.0 603 60.4 60.6 Sources of Energy (%)- Nudear 33.8 34.0 34.1 31 3 37.8 26.8 10.9 Coal 11.7 5.4 18.6 21.0 22.6 28.9 29 3 Oil 20.0 283 12.7 26.9 37.9 443 59.8 Gas 28.4 26.0 29 3 172 1.7 Other 6.1 63 53 3.6 Cost of Fuel (Mills per kwh): Nuclear 6.1 7.5 7.7 8.7 83 7.6 8.9 Coal 20.9 24.1 21 2 21.4 212 20.1 27.8 Oil 27.1 25 5 26.0 18.9 263 24.7 43.6 Gas 14.1 15.1 13.0 162 30.6 AllFuels Combined 14.5 15.5 14.8 15.7 18.4 18.8 36.1 l time EUA l]ouvr Corporation uus dxonsolidatedforfinancial reporting purposes.nancialand operating l (1)Induar. (2) Afler c.iditionalcharges to 1990 earnings. (3) 1993 and 1992 amounts restated to amform with current,vear presentation. (4) Excludes EUA Pouvr Corpration's cash interest payments. (5) Excluda the 69 MW Somerset Station Unit #5 which uus placed in deactituted resene on January 25,1994. 41

,C iSHAREHOLDERINFORMATION S Shares of Eastem Utilities Associates are listed on the New Dividend Reinvestment And Common . York and Pacific Stock Exchanges, under the ticker symbol Share Purchase Plan EUA. As of February 1,1995, them wem 12,727 common A Dividend Reinvestment and Common Share Purchase shamholders of mcord. Plan is available to all mgistered shamholders and EUA Form 10-K System company employees. It is a simple and convenient - A copy of EUA's 1994 Annual Report on Form 10 K filed method of purchasing additional shams of EUA common ' with the Securities and Exchange Commission is available stock. i to shareholders without charge by writing to us. Participants also may make cash payments to purchase 7 AnnualMeeting dditi nal shares. You may obtain complete details by writ-Re 1995 Annual Meeting of Shareholders will be held on mg to: Monday, May 15,1995, at 9:30 a.m., in the William E O'Connor, Secretary ~ Eastem Utilities Associates Enterprise Room,5th Floor Postoffice Box 2333 State Street Bank and Trust Company 225 FranklinStreet Boston,MA 02107 i Boston, Massachusetts Duplicate Mailings l UP cate mailings are costly. Shareholders may be receiv-li Re8.istrar, Transfer A ent And ing duplicate copies of annual and quarterly reports due to Dividend Disbursm. 8 i g Agent For multiple stock accounts in the same household. To elimi-Common And Preferred Shares nate additional mailings of these reports, please wTite to us Shareholder Senices - Investor Relations and enclose label (s) or label information from the duplicate MailStop 450209 reports. Dividend checks and proxy material will continue t he First National Bank of Boston to be sent for each account on record. Post Office Box 644 EUA is mquired by law to create a separate account for Boston,MA 02102-0M4 each name when stock is held in similar but different names 1-800-736-3001 (Toll-Free) (e.g.: John A. Smith,J. A. Smith, John A. and Mary K. Smith, Lost Or Stolen Stock Certificates etc.). Please contact the Company for instructions if you If your stock certificate is lost, destroyed or stolen, you wish to consolidate multiple accounts. should notify the transfer agent immediately so a "stop Financial CommunityInquiries i transfer" order can be placed on the missing certificate. Institutional investors and securities analysts should dimet i The transfer agent then will send you the required docu- . inquiries to:. ments to obtain a replacement certificate. Clifford J. Hebert,Jr., Tmasurer Dividends Eastem Wlities Associates Schedule of anticipated reconi and payment dates for 1995 dividends on EUA Common Shares' (617)357-9590 i Record Payment February 1 IEruary15 The name Eastem Utilities Associates is the designation of May1 May15 the Trustees for the time being under a Declaration of Trust August 1 August 15 dated April 2,1928, as amended. All persons dealing with November 1 November 15 Eastem Utilities Associates must look solely to the trust property for the enforcement of any claims against Eastem Replacement Of Dividend Checks Utilities Associates, as neither the Trustees, Officers nor If you do not mceive your dividend check within ten busi-Shareholders assume any personal liability for obligations ness days after the dividend payment date, or if your check entered into on behalf of Eastem Utilities Associates. is lost, destmyed or stolen, you should notify the disburs-ing agent in writing for a replacement. 42}}