-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, TB10AeTY4FzfKisI1k7HmPiK6NNg6epwH2IHNraOYS316MLhDO2nzQAwnb2967z2 2DMRx5QdH9J1m4ASJob6/g== /in/edgar/work/20000815/0000927016-00-003027/0000927016-00-003027.txt : 20000922 0000927016-00-003027.hdr.sgml : 20000921 ACCESSION NUMBER: 0000927016-00-003027 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 20000630 FILED AS OF DATE: 20000814 FILER: COMPANY DATA: COMPANY CONFORMED NAME: BOSTON EDISON CO CENTRAL INDEX KEY: 0000013372 STANDARD INDUSTRIAL CLASSIFICATION: [4911 ] IRS NUMBER: 041278810 STATE OF INCORPORATION: MA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-02301 FILM NUMBER: 701465 BUSINESS ADDRESS: STREET 1: 800 BOYLSTON ST STREET 2: ROOM P 344 CITY: BOSTON STATE: MA ZIP: 02199 BUSINESS PHONE: 6174242000 MAIL ADDRESS: STREET 1: 800 BOYLSTON ST STREET 2: ROOM P 344 CITY: BOSTON STATE: MA ZIP: 02199 10-Q 1 0001.txt FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q [x] Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended June 30, 2000 or [ ] Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from __________ to __________ Commission file number 1-2301 BOSTON EDISON COMPANY --------------------- (Exact name of registrant as specified in its charter) Massachusetts 04-1278810 ------------- ---------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 800 Boylston Street, Boston, Massachusetts 02199 - ------------------------------------------ ----- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: 617-424-2000 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [_] Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Class Outstanding at August 14, 2000 ----- ------------------------------ Common Stock, $1 par value 100 shares The Company meets the conditions set forth in General Instruction H(1)(a) and (b) of Form 10-Q as a wholly-owned subsidiary and is therefore filing this Form with the reduced disclosure format. Part I - Financial Information Item 1. Financial Statements Boston Edison Company Condensed Consolidated Statements of Income (Unaudited) (in thousands)
Three Months Six Months Ended June 30, Ended June 30, -------------- --------------- 2000 1999 2000 1999 -------- -------- -------- -------- Operating revenues $399,292 $379,144 $775,735 $750,339 -------- -------- -------- -------- Operating expenses: Fuel and purchased power 206,805 144,510 401,384 297,697 Operations and maintenance 53,807 69,229 110,167 146,644 Depreciation and amortization 41,093 47,561 82,627 94,965 Demand side management and renewable energy programs 13,716 13,433 27,397 26,701 Taxes - property and other 13,857 19,439 30,622 39,947 Income taxes 18,188 25,421 29,681 40,377 -------- -------- -------- -------- Total operating expenses 347,466 319,593 681,878 646,331 -------- -------- -------- -------- Operating income 51,826 59,551 93,857 104,008 Other income, net 2,686 1,265 3,501 1,874 -------- -------- -------- -------- Operating and other income 54,512 60,816 97,358 105,882 -------- -------- -------- -------- Interest charges: Long term debt 13,352 19,444 27,677 38,901 Transition property securitization certificates 11,456 - 23,402 - Other 237 668 919 1,864 Allowance for borrowed funds used during construction (851) (474) (1,448) (919) -------- -------- -------- -------- Total interest charges 24,194 19,638 50,550 39,846 -------- -------- -------- -------- Net income $ 30,318 $ 41,178 $ 46,808 $ 66,036 ======== ======== ======== ========
The accompanying notes are an integral part of the condensed consolidated financial statements. 2 Condensed Consolidated Statements of Retained Earnings (Unaudited) (in thousands)
Three Months Six Months Ended June 30, Ended June 30, ------------------------- ------------------------- 2000 1999 2000 1999 -------- -------- -------- -------- Balance at the beginning of the period $ 1,402 $295,655 $ 1,462 $297,347 Net income 30,318 41,178 46,808 66,036 Dividends declared: Dividends transferred from Paid in Capital (Note B) 224,201 - 224,201 - Dividends to Parent (25,000) (15,000) (50,000) Preferred stock (1,490) (1,490) (2,980) (2,980) -------- -------- -------- -------- Subtotal 254,431 310,343 254,491 310,403 -------- -------- -------- -------- Provision for preferred stock redemption and issuance costs (60) (128) (120) (188) -------- -------- -------- -------- Balance at the end of the period $254,371 $310,215 $254,371 $310,215 ======== ======== ======== ========
The accompanying notes are an integral part of the condensed consolidated financial statements. 3 Boston Edison Company Condensed Consolidated Balance Sheets (Unaudited) (in thousands)
June 30, December 31, 2000 1999 ---------- ---------- Assets - ------ Utility plant in service, at original cost $2,530,159 $2,494,720 Less: accumulated depreciation 883,603 848,544 ---------- ---------- 1,646,556 1,646,176 Construction work in progress 68,686 53,647 ---------- ---------- Net utility plant 1,715,242 1,699,823 Equity investments 19,966 19,880 Other investments 11,423 10,939 Current assets: Cash and cash equivalents 6,688 117,537 Restricted cash 3,625 3,625 Accounts receivable: Customers 228,473 237,841 Affiliates 95,861 84,327 Accrued unbilled revenues 26,651 16,138 Materials and supplies, at average cost 17,066 16,226 Prepaid expenses and other 171,866 177,722 ---------- ---------- Total current assets 550,230 653,416 ---------- ---------- Regulatory assets 829,351 820,810 Other deferred debits 99,796 38,133 ---------- ---------- Total assets $3,226,008 $3,243,001 ========== ==========
The accompanying notes are an integral part of the condensed consolidated financial statements. 4 Boston Edison Company Condensed Consolidated Balance Sheets (Unaudited) (in thousands) June 30, December 31, 2000 1999 ---------- ---------- Capitalization and Liabilities - ------------------------------ Common equity: Common stock, par value $1 per share (100 shares issued and outstanding) $ - $ - Premium on common stock 475,700 716,361 Retained earnings 254,371 1,462 ---------- ---------- Total common equity 730,071 717,823 ---------- ---------- Cumulative preferred stock: Nonmandatory redeemable series 43,000 43,000 Mandatory redeemable series 49,399 49,279 ---------- ---------- Total preferred stock 92,399 92,279 ---------- ---------- Long-term debt 577,779 613,283 Transition property securitization certificates 616,500 646,559 ---------- ---------- Total long-term debt 1,194,279 1,259,842 Total capitalization 2,016,749 2,069,944 ---------- ---------- Current liabilities: Transition property securitization certificates due within one year 31,961 50,922 Long-term debt due within one year 101,467 165,667 Notes payable 61,500 - Accounts payable: Affiliates 37,125 3,902 Other 118,728 99,738 Accrued interest 13,477 15,460 Dividends payable 2,345 993 Other 208,602 218,224 ---------- ---------- Total current liabilities 575,205 554,906 ---------- ---------- Deferred credits: Accumulated deferred income taxes 506,395 484,629 Accumulated deferred investment tax credits 20,276 21,336 Power contracts 40,523 45,123 Other 66,860 67,063 ---------- ---------- Total deferred credits 634,054 618,151 ---------- ---------- Commitments and contingencies Total capitalization and liabilities $3,226,008 $3,243,001 ========== ==========
The accompanying notes are an integral part of the condensed consolidated financial statements. 5 Boston Edison Company Condensed Consolidated Statements of Cash Flows (Unaudited) (in thousands)
Six Months Ended June 30, 2000 1999 --------- -------- Operating activities: Net income $ 46,808 $ 66,036 Adjustments to reconcile net income to net cash provided by operation activities: Depreciation and amortization 82,627 102,256 Deferred income taxes and investment tax credits 20,706 (7,526) Allowance for borrowed funds used during construction (1,448) (919) Power contract buyout - (65,780) Net changes in working capital 34,297 62,408 Other, net (117,691) (87,051) --------- -------- Net cash provided by operating activities 65,299 69,424 --------- -------- Investing activities: Plant expenditures (excluding AFUDC) (45,800) (55,549) Nuclear fuel expenditures - (15,751) Investments (570) (7,610) --------- -------- Net cash used in investing activities (46,370) (78,910) --------- -------- Financing activities: Long-term debt redemptions (100,785) (9,000) Transition property securitization certificates redemptions (62,513) - Net change in notes payable 61,500 - Dividends paid (27,980) (52,980) --------- -------- Net cash used in financing activities (129,778) (61,980) --------- -------- Net decrease in cash and cash equivalents (110,849) (71,466) Cash and cash equivalents at beginning of year 117,537 92,563 --------- -------- Cash and cash equivalents at end of period $ 6,688 $ 21,097 ========= ======== Supplemental disclosures of cash flow information: Cash paid during the period for: Interest, net of amounts capitalized $ 50,671 $ 38,596 ========= ======== Income taxes $ 3,922 $ 87 ========= ========
The accompanying notes are an integral part of the condensed consolidated financial statements. 6 Notes to Unaudited Condensed Consolidated Financial Statements The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the Boston Edison 1999 Annual Report on Form 10-K. A) Merger of BEC Energy and Commonwealth Energy System On August 25, 1999, Boston Edison Company's parent, BEC Energy (BEC), and Commonwealth Energy System (COM/Energy) completed a merger to create NSTAR, an energy delivery company serving approximately 1.3 million customers in Massachusetts including more than one million electric customers in 81 communities and 240,000 gas customers in 51 communities. NSTAR also supplies electricity at wholesale for resale to other utilities. NSTAR is an exempt public utility holding company under the provisions of the Public Utility Holding Company Act of 1935. NSTAR's utility subsidiaries include Boston Edison Company, Commonwealth Electric Company, Cambridge Electric Light Company, Canal Electric Company and Commonwealth Gas Company. NSTAR's non-utility operations include telecommunications, district heating and cooling operations and liquefied natural gas services. B) Basis of Presentation The merger of BEC and COM/Energy was accounted for as an acquisition of COM/Energy by BEC using the purchase method of accounting. Goodwill amounted to approximately $486 million while the original estimate of costs to achieve the merger was $111 million. Goodwill is being amortized by NSTAR over 40 years and will amount to approximately $12.2 million annually while the cost to achieve is being amortized over 10 years and will initially be approximately $11.1 million annually. The ultimate amortization of the cost to achieve will reflect the total actual costs. The results of operations of Boston Edison for the three and six month periods ended June 30, 2000 reflect $2.0 million and $4.0 million of goodwill amortization and $1.8 million and $3.6 million of cost to achieve amortization. Goodwill amortization represents an intercompany charge from the former COM/Energy subsidiaries and reflects the regulatory treatment of goodwill. The financial information presented as of June 30, 2000 and for the periods ended June 30, 2000 and 1999 have been prepared from Boston Edison's books and records without audit by independent accountants. Financial information as of December 31, 1999 has been derived from the audited financial statements of Boston Edison, but does not include all disclosures required by generally accepted accounting principles (GAAP). In the opinion of management, all adjustments (which are of a normal recurring nature) necessary for a fair presentation of the financial information for the periods indicated have been included. Certain reclassifications have been made to the prior year data to conform with the current presentation. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates. The results of operations for the periods ended June 30, 2000 and 1999 are not indicative of the results which may be expected for an entire year. Kilowatt- hour sales and revenues are typically higher in the winter and summer than in the spring and fall as sales tend to vary with weather conditions. 7 The Company's Board of Directors has recently determined and voted that a portion of the dividends declared on June 24, 1999 and July 22, 1999, which was paid out of retained earnings to its sole shareholder (parent company), was a partial distribution of a return of capital. As a result, the Company has appropriately transferred the portion of its dividends deemed return of capital against Premium on Common Stock. C) Securitization On July 27, 1999, BEC Funding LLC, a wholly owned special-purpose subsidiary of Boston Edison, closed the sale of $725 million of notes to a special purpose trust created by two Massachusetts state agencies. The trust then concurrently closed the sale of $725 million of electric rate reduction certificates as a public offering. The certificates are secured by a portion of the transition charge assessed on Boston Edison's retail customers as permitted under the Massachusetts Electric Industry Restructuring Act (the Restructuring Act) and authorized by the Massachusetts Department of Telecommunications and Energy (MDTE). These certificates are non-recourse to Boston Edison. Principal redemptions will occur on a semi-annual basis over the life of the certificates. Furthermore, the Company is required to transfer funds collected, on a daily basis, to its trustee and are held in escrow. These funds are used to meet BEC Funding's semi-annual principal and interest payments. D) Contingencies 1. Environmental Matters Boston Edison is an owner or operator of approximately 20 properties where oil or hazardous materials were spilled or released. As such, companies are required to clean-up these remaining properties in accordance with a timetable developed by the Massachusetts Department of Environmental Protection. There are uncertainties associated with these costs due to the complexities of clean-up technology, regulatory requirements and the particular characteristics of the different sites. Boston Edison also continues to face possible liability as a potentially responsible party in the cleanup of five multi-party hazardous waste sites in Massachusetts and other states where it is alleged to have generated, transported or disposed of hazardous waste at the sites. Boston Edison currently expects to have only a small percentage of the total potential liability for these sites. Approximately $7 million is included in the June 30, 2000 and December 31, 1999 Condensed Consolidated Balance Sheets related to these cleanup liabilities. Management is unable to fully determine a range of reasonably possible cleanup costs in excess of the accrued amount. Based on preliminary assessments of the specific site circumstances, management does not believe that it is probable that any such additional costs will have a material impact on Boston Edison's consolidated cash flows or financial position. Public concern continues regarding electro magnetic fields (EMF) associated with electric transmission and distribution facilities and appliances and wiring in buildings and homes. Such concerns have included the possibility of adverse health effects caused by EMF as well as perceived effects on property values. Boston Edison continues to support research into the subject and participates in the funding of industry-sponsored studies. It is aware that public concern regarding EMF in some cases has resulted in litigation, in opposition to existing or proposed facilities in proceedings before regulators or in requests for legislation or regulatory standards concerning EMF levels. It has addressed issues relative to EMF in various legal and regulatory proceedings and in discussions with customers and other concerned persons; however, to date it has not been significantly affected by these developments. Boston Edison continues to monitor all aspects of the EMF issue. Estimates related to environmental remediation costs are reviewed and adjusted periodically as further investigation and assignment of responsibility occurs. 8 Boston Edison is unable to estimate its ultimate liability for future environmental remediation costs. However, in view of Boston Edison's current assessment of its environmental responsibilities, existing legal requirements and regulatory policies, management does not believe that these matters will have a material adverse effect on Boston Edison's financial position, cash flows or results of operations for a reporting period. 2. Generating Unit Performance Programs The MDTE's generating unit performance programs ceased March 1, 1998. Under these programs, the recovery of incremental purchased power costs resulting from Boston Edison's generating unit outages occurring through the retail access date was subject to review by the MDTE. Proceedings relative to generating unit performance, including the review of replacement power costs associated with the shutdown of the Connecticut Yankee nuclear electric generating unit, were approved by the MDTE on August 1, 2000. The approved MDTE settlement will not have a material impact on Boston Edison's consolidated financial position, results of operation or cash flows. 3. Industry and Corporate Restructuring Legal Proceedings In July 1999, the MDTE approved a rate plan filed by the utility subsidiaries of BEC and COM/Energy in connection with the merger. A group of four intervenors and the Massachusetts Attorney General filed two separate appeals of the MDTE's rate plan order with the Massachusetts Supreme Judicial Court (SJC) in August 1999. While management anticipates that the MDTE's decision to approve the rate plan will be upheld by the SJC, it is unable to determine the ultimate outcome of these appeals. The MDTE order approving the Boston Edison electric industry restructuring settlement agreement was appealed by certain parties to the Massachusetts Supreme Judicial Court (SJC). One settlement agreement appeal remains pending. However, there has to date been no briefing, hearing or other action taken with respect to this proceeding. Management is currently unable to determine the outcome of this outstanding proceeding. However, if an unfavorable outcome were to occur, there could be a material adverse impact on business operations, the consolidated financial position, cash flows or results of operations for a reporting period. 4. Regulatory proceedings Boston Edison filed proposed adjustments to its standard offer and transition charges with the MDTE in November 1999. The MDTE approved these proposed adjustments to be effective January 1, 2000. The MDTE continues to examine Boston Edison's cost recovery mechanisms. Annual proceedings are conducted before the MDTE for the purpose of reconciliation of costs and revenues related to Boston Edison's transition charge and the charges for standard offer and default service. The Attorney General has contested cost allocations related to Boston Edison's wholesale customers related to 1998 and succeeding years. Management is unable to determine the outcome of the MDTE proceedings. However, if an unfavorable outcome were to occur, there would be a material adverse impact on Boston Edison's consolidated financial position, results of operations and cash flows in the near term. In October 1997, the MDTE opened a proceeding to investigate Boston Edison's compliance with a 1993 order that permitted the formation of Boston Energy Technology Group (BETG) and authorized Boston Edison to invest up to $45 million in unregulated activities. The hearing was completed during the first quarter of 1999. An MDTE ruling is expected by the end of 2000. Management is currently unable to determine the outcome of these proceedings. However, if an unfavorable outcome were to occur, there could be a material adverse impact on business operations, the consolidated financial position, cash flows or results of operations for a reporting period. 9 5. Other Matters In the normal course of its business Boston Edison is also involved in certain other legal and regulatory matters. Management is unable to fully determine a range of reasonably possible costs in excess of amounts accrued. Based on the information currently available, it does not believe that it is probable that any such additional costs will have a material impact on its consolidated financial position. However, it is reasonably possible that additional legal and regulatory costs that may result from a change in estimates could have a material impact on the results of a reporting period in the near term. E) Income Taxes The following table reconciles the statutory federal income tax rate to the annual estimated effective income tax rate for 2000 and the actual effective income tax rate for the year ended December 31, 1999.
2000 1999 ---- ----- Statutory tax rate 35.0% 35.0% State income tax, net of federal income tax benefit 4.4 4.3 Investment tax credit amortization (1.9) (10.1) Other 3.6 0.8 ---- ----- Effective tax rate 41.1% 30.0%
The effective tax rate for 1999 reflects $20.8 million of investment tax credits recognized as a result of generation asset divestiture in July 1999. The corresponding estimated effective tax rate for the same period in 1999 was 38.3%. Item 2. Management's Discussion and Analysis Boston Edison is a wholly-owned subsidiary of NSTAR. NSTAR was created through the merger of BEC Energy (BEC) and Commonwealth Energy System (COM/Energy) on August 25, 1999 as an exempt public utility holding company. NSTAR's utility subsidiaries are Boston Edison, Commonwealth Electric Company (ComElectric), Cambridge Electric Light Company (Cambridge Electric), Canal Electric Company (Canal Electric) and Commonwealth Gas Company (ComGas). The electric industry has continued to change in response to legislative, regulatory and marketplace demands for improved customer service at lower prices. These demands have resulted in an increasing trend in the industry to seek competitive advantages and other benefits through business combinations. NSTAR was created to operate in this new marketplace by combining the resources of its utility subsidiaries and concentrating its activities in the transmission and distribution of energy. This is illustrated by the sale of Boston Edison's fossil generating facilities in 1998 and its nuclear generating facility in 1999. Merger of BEC Energy and Commonwealth Energy System An integral part of the merger is the rate plan that was filed by the retail utility subsidiaries of BEC and COM/Energy, including Boston Edison, that was approved by the Massachusetts Department of Telecommunications and Energy (MDTE) on July 27, 1999. Significant elements of the rate plan include a four-year distribution rate freeze, recovery of the acquisition premium (goodwill) over 40 years and recovery of transaction and integration costs (costs to achieve) over 10 years. A group of four intervenors and the Massachusetts Attorney General filed two separate appeals of the MDTE's rate plan order with 10 the Massachusetts Supreme Judicial Court (SJC) in August 1999. While management anticipates that the MDTE's decision to approve the rate plan will be upheld by the SJC, it is unable to determine the ultimate outcome of these appeals. Refer to the "Retail Electric Rates" section of this discussion for more information. Generating Assets Divestiture To complete its divestiture of generating assets, Boston Edison sold Pilgrim Nuclear Generating Station (Pilgrim) on July 13, 1999, for $81 million to Entergy Nuclear Generating Company. As part of the sale, Boston Edison transferred approximately $228 million in decommissioning funds to Entergy. Entergy, by the contract, assumed all future liability related to the ultimate decommissioning of the plant. The difference between the total proceeds from the sale and the net book value of the Pilgrim assets plus the net amount to fully fund the decommissioning trust is included in regulatory assets on the accompanying Condensed Consolidated Balance Sheets as such amounts are collected from customers. Securitization of Boston Edison's Transition Charge On July 27, 1999, BEC Funding LLC, a wholly owned special-purpose subsidiary of Boston Edison, closed the sale of $725 million of notes to a special purpose trust created by two Massachusetts state agencies. The trust then concurrently closed the sale of $725 million of electric rate reduction certificates as a public offering. The certificates are secured by a portion of the transition charge assessed on Boston Edison's retail customers as permitted under the Restructuring Act and authorized by the MDTE. These certificates are non- recourse to Boston Edison. Retail Electric Rates As a result of the Restructuring Act, Boston Edison currently provides its standard offer customers service at inflation adjusted rates that are 15% lower than rates in effect prior to March 1, 1998, the retail access date. All distribution customers must pay a transition charge as a component of their rate. The purpose of the transition charge is to allow for the collection of generation-related costs that would not be collected in the competitive energy supply market. The plant and regulatory asset balances that will be recovered through the transition charge until 2009 were approved by the MDTE. The Restructuring Act requires regulated utilities to obtain and resell power to customers that choose not to buy energy from a competitive energy supplier. This is referred to as "standard offer service." Standard offer service will be available to customers through 2004 at prices approved by the MDTE. Boston Edison is currently evaluating proposals from a number of competitive energy providers to assume full responsibility for providing customers with standard offer service through 2004. The cost of providing standard offer service, which includes purchased power costs, is recovered from customers on a fully reconciling basis. New retail customers in the Boston Edison electric service territory and previously existing customers that are no longer eligible for the standard offer service and have not chosen to receive service from a competitive supplier, are on "default service." The price of default service is intended to reflect the average competitive market price for power. The Company's cost to provide default service, as well as, standard offer service is in excess of the price it is currently allowed to bill. As a result, the Company has recorded, as of June 30, 2000, a regulatory asset of approximately $61.5 million and is reflected on the accompanying Condensed Consolidated Balance Sheet as such. 11 Under its restructuring settlement agreement, Boston Edison's distribution business is subject to a minimum and maximum return on average common equity (ROE). The ROE is subject to a floor of 6% and a ceiling of 11.75%. If the ROE is below 6%, Boston Edison is authorized to add a surcharge to distribution rates in order to achieve the 6% floor. If the ROE is above 11%, it is required to adjust distribution rates by an amount necessary to reduce the calculated ROE between 11% and 12.5% by 50%, and a return above 12.5% by 100%. No adjustment is made if the ROE is between 6% and 11%. This rate mechanism expires on December 31, 2000. The cost of providing transmission service to all Boston Edison's distribution customers is recovered on a fully reconciling basis. Boston Edison filed proposed adjustments to its standard offer and transition charges with the MDTE in November 1999. The MDTE approved these proposed adjustments to be effective January 1, 2000. The MDTE continues to examine Boston Edison's cost recovery mechanisms. Annual proceedings are conducted before the MDTE for the purpose of reconciliation of costs and revenues related to Boston Edison's transition charge and the charges for standard offer and default service. The Attorney General has contested cost allocations related to Boston Edison's wholesale customers related to 1998 and succeeding years. Management is unable to determine the outcome of the MDTE proceedings. However, if an unfavorable outcome were to occur, there would be a material adverse impact on Boston Edison's consolidated financial position, results of operations and cash flows in the near term. Results of Operations - Three Months Ended June 30, 2000 vs. Three Months Ended June 30, 1999 Net income was $30.3 million for the three months ended June 30, 2000 compared to $41.2 million for the same period in 1999, a 26.5% decrease as described below. The results of operations for the quarter are not indicative of the results which may be expected for the entire year due to the seasonality of kilowatt- hour (kWh) sales and revenues. Refer to Note B to the Unaudited Condensed Consolidated Financial Statements. Operating revenues Operating revenues increased 5.3% during the second quarter of 2000 as follows:
(in thousands) - -------------------------------------------------------------------- Retail electric revenues $ 32,657 Wholesale electric revenues (16,798) Other revenues 4,289 - -------------------------------------------------------------------- Increase in operating revenues $ 20,148 ========
Retail revenues were $364.7 million in 2000 compared to $332.1 million in 1999, an increase of $32.6 million or 9.8%. This change reflects a 3.1% increase in retail kilowatt-hour (kWh) electric sales. The increase in retail kWh sales is the result of the higher than normal spring/early summer temperatures in 2000 and the continuing strong local economy. In addition, Boston Edison increased its standard offer rate in January 2000. The revenues charged for standard offer service are fully reconciled to the costs incurred and have no impact on net income. Further impacting this increase was an increase in residential and commercial sales reflecting consumer confidence, a robust housing market and continued improvements in economic conditions. Wholesale electric revenues were $17.4 million in 2000 compared to $34.2 million in 1999, a decrease of $16.8 million or 49%. This decrease in wholesale revenues primarily reflects a decrease in contract sales due to the sale of Pilgrim station in July 1999. Other revenues were $17.2 million in 2000 compared to $12.9 million in 1999, an increase of $4.3 million or 33%. This increase is due to higher transmission 12 revenues related to refunds to wholesale customers resulting from a FERC approved settlement for transmission contract customers during 1999. Operating expenses Fuel and purchased power expense was $206.8 million in 2000 compared to $144.5 million in 1999, an increase of $62.3 million or 43%. Purchased power expense increased $54 million reflecting the increase in purchased power due to the sale of Pilgrim in 1999. Boston Edison adjusts its electric rates to collect the costs related to fuel and purchased power from customers on a fully reconciling basis. Fuel and purchased power expenses in the year 2000 reflects an increase of $4.3 million in 2000 and $15.0 million in 1999 related to these rate recovery mechanisms. Due to the rate adjustment mechanisms, changes in the amount of fuel and purchased power expense have no impact on earnings. Offsetting these increases was the absence in the current period of fuel expense related to Pilgrim which decreased $2.2 million due to the sale of Pilgrim in July 1999. Operations and maintenance expense was $53.8 million in 2000 compared to $69.2 million in 1999, a decrease of $15.4 million or 22%. The change primarily reflects a decrease of nuclear power production expenses due to the sale of the Pilgrim plant in July 1999. Depreciation and amortization expense was $41.1 million in 2000 compared to $47.6 million in 1999, a decrease of $6.5 million or 13.7%. This decrease primarily reflects the nuclear divestiture in July 1999. This decreases was partially offset by $1.8 million from the amortization of costs to achieve related to the merger and $2 million from an affiliated company charge for Boston Edison's portion of goodwill. These amounts are being collected from Boston Edison's customers in accordance with the rate plan that was approved by the MDTE on July 27, 1999. Demand side management (DSM) and renewable energy programs expense was $13.7 million in 2000 compared to $13.4 million in 1999, an increase of $0.3 million or 2%. In accordance with legislative and regulatory directives, these costs are collected from customers on a fully reconciling basis. Therefore, the increase has no impact on earnings. Property and other taxes were $13.9 million in 2000 compared to $19.4 million in 1999, a decrease of $5.5 million or 28%. The decrease reflects lower municipal property taxes resulting from the divestiture of Pilgrim. Income taxes from operations were $18.2 million in 2000 compared to $25.4 million in 1999, a decrease of $7.2 million or 28.3%. This decrease reflects lower pretax operating income in 2000 and an increase in the effective tax rate. Refer to Footnote E "Income Taxes" enclosed herewith for further details. 13 Other income, net Other income, net of tax was $2.7 million in 2000 compared to $1.3 million in 1999, a net increase of $1.4 million. This change reflects an increase due to interest received from a third party of $4.5 million related to Pilgrim Contract buyout and partially offset by a decrease in nonutility revenues. Interest charges Interest on long-term debt and transition property securitization certificates was $24.8 million in 2000 compared to $19.4 million in 1999, an increase of $5.4 million or 28%. The increase reflects approximately $12 million related to securitization. These increases were partially offset by approximately $5.5 million of debt retirements related to $65 million of 6.8% debentures and $34 million of 9.875% debentures during the first half of 2000. Results of Operations - Six Months Ended June 30, 2000 vs. Six Months Ended June 30, 1999 Net income was $46.8 million for the six-months ended June 30, 2000 compared to $66.0 million for the same period in 1999, a 29.1% decrease as described below. The results of operations for the six months period are not indicative of the results which may be expected for the entire year due to the seasonality of kilowatt-hour (kWh) sales and revenues. Refer to Note B to the Condensed Consolidated Financial Statements. Operating revenues Operating revenues increased 3.4% during the six months ended June 30, 2000 as follows:
(in thousands) - ----------------------------------------------------------------------- Retail electric revenues $ 55,310 Wholesale electric revenues (32,182) Other revenues 2,272 - ----------------------------------------------------------------------- Increase in operating revenues $ 25,400 ========
Retail revenues were $707.3 million in 2000 compared to $652 million in 1999, an increase of $55.3 million or 8.5%. This change reflects a 4.8% increase in retail kilowatt-hour (kWh) electric sales. The increase in retail kWh sales is the result of the higher than normal spring/early summer temperatures in 2000 and the continuing strong local economy in 2000. In addition, Boston Edison increased its standard offer rate in January 2000. The revenues charged for standard offer service are fully reconciled to the costs incurred and have no impact on net income. Further impacting this increase was an increase in residential and commercial sales reflecting consumer confidence, a robust housing market and continued improvements in economic conditions. Wholesale electric revenues were $35.6 million in 2000 compared to $67.8 million in 1999, a decrease of $32.2 million or 47%. This decrease in wholesale revenues primarily reflects a decrease in contract sales due to the sale of Pilgrim in July 1999. Other revenues were $32.8 million in 2000 compared to $30.5 million in 1999, an increase of $2.3 million or 7.5% due to higher transmission revenues related to refunds to wholesale customers as the result of a FERC approved settlement for transmission contract customers during 1999. 14 Operating expenses Fuel and purchased power expense was $401.4 million in 2000 compared to $297.7 million in 1999, an increase of $103.7 million or 35%. Purchased power expense increased $103.7 million reflecting the increase in purchased power replacing that previously generated by Pilgrim during 1999. Boston Edison adjusts its electric rates to collect the costs related to fuel and purchased power from customers on a fully reconciling basis. Fuel and purchased power expenses in the year 2000 reflect an increase of $15.1 million in 2000 and $23.7 million in 1999 related to these rate recovery mechanisms. Due to the rate adjustment mechanisms, changes in the amount of fuel and purchased power expense have no impact on earnings. Offsetting these increases was the absence in the current period of fuel expense related to Pilgrim which decreased $8.7 million due to the sale of the plant in July 1999. Operations and maintenance expense was $110.2 million in 2000 compared to $146.6 million in 1999, a decrease of $36.4 million or 25%. The change primarily reflects a decrease of nuclear power production expenses due to the sale of the Pilgrim plant in July 1999. Depreciation and amortization expense was $82.6 million in 2000 compared to $95 million in 1999, a decrease of $12.4 million or 13.1%. This decrease primarily reflects the sale of Pilgrim in July 1999. This decreases was partially offset by $3.6 million from the amortization of costs to achieve related to the merger and $4 million from an affiliated company charge for Boston Edison's portion of goodwill. These amounts are being collected from Boston Edison's customers in accordance with the rate plan that was approved by the MDTE on July 27, 1999. Demand side management (DSM) and renewable energy programs expense was $27.4 million in 2000 compared to $26.7 million in 1999, an increase of $0.7 million or 3%. In accordance with legislative and regulatory directives, these costs are collected from customers on a fully reconciling basis. Therefore, the increase has no impact on earnings. Property and other taxes were $30.6 million in 2000 compared to $39.9 million in 1999, a decrease of $9.3 million or 23%. The decrease reflects lower municipal property taxes resulting from the divestiture of Pilgrim. Income taxes from operations were $29.7 million in 2000 compared to $40.4 million in 1999, a decrease of $10.7 million or 26%. This decrease reflects lower pretax operating income in 2000 and an increase in the effective rate. See Footnote E "Income Taxes" enclosed herewith for further details. Other income, net Other income, net of tax was $3.5 million in 2000 compared to $1.9 million in 1999, a net decrease of $1.6 million. This change reflects an increase due to interest received from a third party of $4.5 million related to Pilgrim contract buyout and partially offset by a decrease in nonutility revenues. 15 Interest charges Interest on long-term debt and transition property securitization certificates was $51.1 million in 2000 compared to $38.9 million in 1999, an increase of $12.2 million or 31%. The increase reflects approximately $23.4 million related to securitization. These increases were partially offset by approximately $10.4 million in reductions related to the following retirements: $19 million of 7.8% debentures, $66 million of 9.875% debentures, $91 million of 9.375% debentures during the third quarter of 1999, $65 million of 6.8% debentures and $34 million of 9.875% debentures during the first half of 2000. New Accounting Principles In June 1998, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" (SFAS 133). SFAS 133 establishes accounting and reporting standards requiring that every derivative instrument (including certain derivative instruments embedded in other contracts possibly including fixed-price fuel supply and power contracts) be recorded on the Consolidated Balance Sheets as either an asset or liability measured at its fair value SFAS 133, as amended by SFAS 137, "Accounting for Derivative Instruments and Hedging Activities - Deferral of the Effective Date of FASB Statement No 133", is effective for fiscal years beginning after June 15, 2000 (January 1, 2001 for calendar year companies). Initial application shall be as of the beginning of an entity's fiscal quarter. Boston Edison will adopt SFAS 133 as of January 1, 2001. The impact of adoption cannot be currently estimated and will be dependent upon the value, nature and purpose of the derivative instruments held, if any, as of January 1, 2001. Safe harbor cautionary statement Management occasionally makes forward-looking statements such as forecasts and projections of expected future performance or statements of its plans and objectives. These forward-looking statements may be contained in filings with the Securities and Exchange Commission (SEC), press releases and oral statements. Actual results could potentially differ materially from these statements. Therefore, no assurances can be given that the outcomes stated in such forward-looking statements and estimates will be achieved. The preceding sections include certain forward-looking statements about operating results, environmental and legal issues. The impacts of continued cost control procedures on operating results could differ from current expectations. The effects of changes in economic conditions, tax rates, interest rates, technology and the prices and availability of operating supplies could materially affect the projected operating results. The timing and total costs related to the year 2000 plan could differ from current expectations. Factors that may cause such differences include the ability to locate and correct all relevant computer codes and the availability of personnel trained in this area. In addition, management cannot predict the nature or impact on operations of third party noncompliance. The impacts of various environmental, legal issues, and regulatory matters could differ from current expectations. New regulations or changes to existing regulations could impose additional operating requirements or liabilities other than expected. The effects of changes in specific hazardous waste site conditions and cleanup technology could affect the estimated cleanup liabilities. The impacts of changes in available information and circumstances regarding legal issues could affect the estimated litigation costs. 16 Item 3. Quantitative and Qualitative Disclosures about Market Risk There have been no material changes since year-end. Part II - Other Information Item 5. Other Information The following additional information is furnished in connection with the Registration Statement on Form S-3 of the Registrant (File No. 33-57840), filed with the Securities and Exchange Commission on February 3, 1993. Ratio of earnings to fixed charges and ratio of earnings to fixed charges and preferred stock dividend requirements:
Twelve months ended June 30, 2000: - -------------------------------------------------------------------- Ratio of earnings to fixed charges 2.65 Ratio of earnings to fixed charges and preferred stock dividend requirements 2.48
Item 6. Exhibits and Reports on Form 8-K a) Exhibits filed herewith and incorporated by reference: Exhibit 4 - Instruments Defining the Rights of Security Holders, Including Indentures Management agrees to furnish to the Securities and Exchange Commission, upon request, a copy of any agreements or instruments defining the rights of holders of any long-term debt whose authorization does not exceed 10% of total assets. Exhibit 12 - Computation of Ratio of Earnings to Fixed Charges 12.1 - Computation of ratio of earnings to fixed charges for the twelve months ended June 30, 2000. 12.2 - Computation of ratio of earnings to fixed charges and preferred stock dividend requirements for the twelve months ended June 30, 2000. Exhibit 15 - Letter Re Unaudited Interim Financial Information 15.1 - Letter of Independent Accountants Form S-4 Registration Statement filed by NSTAR on May 12, 1999 (File No. 333-78285); Post-effective Amendment to Form S-4 on Form S-3 filed by NSTAR on August 19, 1999 (File NO. 333-78285); Post-effective Amendment to Form S-4 on Form S-8 filed by NSTAR on August 19, 1999 (File No. 333-78285); Form S-8 Registration Statement filed by NSTAR on August 19, 1999 (File No. 333-85559); and Form S-3 Registration Statement filed by NSTAR on January 12, 2000 (File No. 333-94735). 17 Exhibit 27 - Financial Data Schedule 27.1 - Schedule UT Exhibit 99 - Additional Exhibits 99.1 - Report of Independent Accountants b) No Form 8-K was filed during the second quarter of 2000. 18 Signature Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Boston Edison Company ---------------------------------------------- (Registrant) Date: August 14, 2000 /s/ R. J. Weafer Jr. ---------------------------------------------- Robert J. Weafer Jr. Vice President, Controller and Chief Accounting Officer 19 EX-12.1 2 0002.txt COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES Exhibit 12.1 Boston Edison Company Computation of Ratio of Earnings to Fixed Charges Twelve Months Ended June 30, 2000 (in thousands) Net income from continuing operations $141,086 Income taxes 60,308 Fixed charges (including securitization certificates) 121,890 -------- Total $323,284 ======== Interest expense $108,990 Interest component of rentals 12,900 -------- Total $121,890 ======== Ratio of earnings to fixed charges 2.65 ========
EX-12.2 3 0003.txt COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES Exhibit 12.2 Boston Edison Company Computation of Ratio of Earnings to Fixed Charges and Preferred Stock Dividend Requirements Twelve Months Ended June 30, 2000 (in thousands) Net income from continuing operations $141,086 Income taxes 60,308 Fixed charges (including securitization certificates) 121,890 -------- Total $323,284 ======== Interest expense $108,990 Interest component of rentals 12,900 -------- Subtotal $121,890 -------- Preferred stock dividend requirements 8,508 -------- Total $130,398 ======== Ratio of earnings to fixed charges and preferred 2.48 stock dividends requirements ====
EX-15.1 4 0004.txt LETTER OF INDEPENDENT ACCOUNTANTS Exhibit 15.1 Securities and Exchange Commission 450 Fifth Street, N.W. Washington, D.C. 20549 Re: Boston Edison Company Registration on Form S-3 We are aware that our report dated August 14, 2000 on our review of the condensed consolidated interim financial information of Boston Edison Company (Boston Edison) as of and for the period ended June 30, 2000 and included in this Form 10-Q is incorporated by reference in Boston Edison's registration statement on Form S-3 (File No. 33-57840). Pursuant to Rule 436 (c) under the Securities Act of 1933, this report should not be considered a part of the registration statement prepared or certified by us within the meaning of Sections 7 and 11 of that Act. PricewaterhouseCoopers LLP Boston, Massachusetts August 11, 2000 EX-27 5 0005.txt SCHEDULE UT
UT THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 6-MOS DEC-31-2000 JUN-30-2000 PER-BOOK 1,715,242 31,389 550,230 929,147 0 3,226,008 0 475,700 254,371 730,071 49,399 43,000 1,194,279 61,500 0 0 133,428 0 0 0 1,014,331 3,226,008 775,735 29,681 652,197 681,878 93,857 3,501 97,358 50,550 46,808 2,980 0 15,000 51,079 65,299 0 0
EX-99.1 6 0006.txt REPORT OF INDEPENDENT ACCOUNTANTS Exhibit 99.1 Report of Independent Accountants To the Board of Trustees and Shareholders We have reviewed the accompanying condensed consolidated balance sheet of Boston Edison as of June 30, 2000, and the related condensed consolidated statements of income and comprehensive income of retained earnings for the three and six-month periods ended June 30, 2000 and of cash flows for the six month period ended June 30, 2000. These consolidated financial statements are the responsibility of management. We conducted our review in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our review, we are not aware of any material modifications that should be made to the accompanying condensed consolidated interim financial statements in order for them to be in conformity with generally accepted accounting principles. We previously audited in accordance with generally accepted auditing standards, the consolidated balance sheet as of December 31, 1999, and the related consolidated statement of income, of retained earnings and of cash flows for the year then ended (not presented herein), and in our report dated January 26, 2000 we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the accompanying condensed consolidated balance sheet information as of June 30, 2000, is fairly stated in all material respects in relation to the consolidated balance sheet from which it has been derived. PricewaterhouseCoopers LLP Boston, Massachusetts August 11, 2000 -----END PRIVACY-ENHANCED MESSAGE-----