-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, Tfop3tVZtzglQUItjx03JwmNXXZV2PqvTP8uMw8eadej7RQrxBEN77yz8Dlg1m/E MjEZkf4fjUJKzKyidPnLtQ== 0000016573-94-000001.txt : 19940526 0000016573-94-000001.hdr.sgml : 19940526 ACCESSION NUMBER: 0000016573-94-000001 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19940331 FILED AS OF DATE: 19940513 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CAMBRIDGE ELECTRIC LIGHT CO CENTRAL INDEX KEY: 0000016573 STANDARD INDUSTRIAL CLASSIFICATION: 4911 IRS NUMBER: 041144610 STATE OF INCORPORATION: MA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 002-07909 FILM NUMBER: 94528185 BUSINESS ADDRESS: STREET 1: ONE MAIN ST CITY: CAMBRIDGE STATE: MA ZIP: 02142 BUSINESS PHONE: 6172254000 MAIL ADDRESS: STREET 1: P O BOX 9150 CITY: CAMBRIDGE STATE: MA ZIP: 02142-9150 10-Q 1 FORM 10-Q FOR CAMBRIDGE ELECTRIC LIGHT COMPANY PAGE 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549-1004 Form 10-Q (Mark One) X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 1994 OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] For the transition period from _______________ to _______________ Commission file number 2-7909 CAMBRIDGE ELECTRIC LIGHT COMPANY (Exact name of registrant as specified in its charter) Massachusetts 04-1144610 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) One Main Street, Cambridge, Massachusetts 02142-9150 (Address of principal executive offices) (Zip Code) (617) 225-4000 (Registrant's telephone number, including area code) (Former name, address and fiscal year, if changed since last report.) 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. Outstanding at Class of Common Stock May 1, 1994 Common Stock, $25 par value 346,600 shares The Company meets the conditions set forth in General Instruction H(1)(a) and (b) of Form 10-K as a wholly-owned subsidiary and is therefore filing this Form with the reduced disclosure format. PAGE 2 PART I - FINANCIAL INFORMATION Item 1. Financial Statements CAMBRIDGE ELECTRIC LIGHT COMPANY CONDENSED BALANCE SHEETS MARCH 31, 1994 AND DECEMBER 31, 1993 ASSETS (Unaudited) March 31, December 31, 1994 1993 (Dollars in Thousands) PROPERTY, PLANT AND EQUIPMENT, at original cost $145 636 $145 324 Less - Accumulated depreciation 53 418 52 382 92 218 92 942 Add - Construction work in progress 756 1 013 92 974 93 955 INVESTMENTS Equity in nuclear electric power companies 9 259 9 059 Other 5 5 9 264 9 064 CURRENT ASSETS Cash 497 1 624 Advances to affiliates 850 - Accounts receivable Affiliate companies 1 102 1 036 Customers 10 742 10 178 Unbilled revenues 3 279 3 835 Prepaid taxes - Property 800 1 600 Income - 423 Inventories and other 1 990 2 289 19 260 20 985 DEFERRED CHARGES Yankee Atomic purchased power contract 6 633 6 900 Other 4 013 3 084 10 646 9 984 $132 144 $133 988 PAGE 3 CAMBRIDGE ELECTRIC LIGHT COMPANY CONDENSED BALANCE SHEETS MARCH 31, 1994 AND DECEMBER 31, 1993 CAPITALIZATION AND LIABILITIES (Unaudited) March 31, December 31, 1994 1993 (Dollars in Thousands) CAPITALIZATION Common Equity - Common stock, $25 par value - Authorized and outstanding - 346,600 shares in 1994 and 1993, wholly-owned by Commonwealth Energy System (Parent) $ 8 665 $ 8 665 Amounts paid in excess of par value 27 953 27 953 Retained earnings 7 712 7 056 44 330 43 674 Long-term debt, including premiums, less current sinking fund requirements 42 189 42 189 86 519 85 863 CURRENT LIABILITIES Interim Financing - Notes payable to banks - 2 000 Advances from affiliates - 1 305 - 3 305 Other Current Liabilities - Current sinking fund requirements 160 160 Accounts payable Affiliate companies 4 427 4 972 Other 5 661 5 187 Accrued taxes - Local property and other 1 653 1 611 Income 396 97 Accrued interest 1 300 1 003 Other 2 335 2 776 15 932 15 806 15 932 19 111 DEFERRED CREDITS Accumulated deferred income taxes 12 397 12 189 Unamortized investment tax credits 2 106 2 130 Yankee Atomic purchased power contract 6 633 6 900 Other 8 557 7 795 29 693 29 014 COMMITMENTS AND CONTINGENCIES $132 144 $133 988 See accompanying notes. PAGE 4 CAMBRIDGE ELECTRIC LIGHT COMPANY CONDENSED STATEMENTS OF INCOME AND RETAINED EARNINGS FOR THE THREE MONTHS ENDED MARCH 31, 1994 AND 1993 (Unaudited) 1994 1993 (Dollars in Thousands) ELECTRIC OPERATING REVENUES $33 221 $27 611 OPERATING EXPENSES Fuel, transmission and purchased power 22 182 18 671 Other operation and maintenance 5 936 5 917 Depreciation 1 017 990 Taxes - Income 825 51 Local property 725 630 Payroll and other 242 267 30 927 26 526 OPERATING INCOME 2 294 1 085 OTHER INCOME 330 219 INCOME BEFORE INTEREST CHARGES 2 624 1 304 INTEREST CHARGES Long-term debt 949 950 Other interest charges 113 25 Allowance for borrowed funds used during construction 8 (1) 1 070 974 NET INCOME 1 554 330 RETAINED EARNINGS - Beginning of period 7 056 6 156 Dividends on common stock (898) - RETAINED EARNINGS - End of period $ 7 712 $ 6 486 See accompanying notes. PAGE 5 CAMBRIDGE ELECTRIC LIGHT COMPANY CONDENSED STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS ENDED MARCH 31, 1994 AND 1993 (Unaudited) 1994 1993 (Dollars in Thousands) OPERATING ACTIVITIES Net income $ 1 554 $ 330 Effects of non-cash items - Depreciation and amortization 1 091 1 002 Deferred income taxes and investment tax credits, net 150 123 Earnings from corporate joint ventures (262) (276) Change in working capital, exclusive of cash, advances to affiliates and interim financing 1 574 830 All other operating items 237 (2 043) Net cash provided by (used for) operating activities 4 344 (34) INVESTING ACTIVITIES Additions to property, plant and equipment (exclusive of AFUDC) (488) (290) Allowance for borrowed funds used during construction 8 (1) Dividends from corporate joint ventures 62 84 Advances to affiliates (850) - Net cash used for investing activities (1 268) (207) FINANCING ACTIVITIES Payment of dividends (898) - Proceeds from (payment of) short-term borrowings (2 000) 325 Payments to affiliates (1 305) - Net cash provided by (used for) financing activities (4 203) 325 Net increase (decrease) in cash (1 127) 84 Cash at beginning of period 1 624 2 Cash at end of period $ 497 $ 86 SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION Cash paid (received) during the period for Interest, net of capitalized amounts $ 639 $ 639 Income taxes $ (67) $ (432) See accompanying notes. PAGE 6 CAMBRIDGE ELECTRIC LIGHT COMPANY NOTES TO CONDENSED FINANCIAL STATEMENTS (1) Accounting Policies Cambridge Electric Light Company (the Company) is a wholly-owned subsidiary of Commonwealth Energy System. The parent company is referred to in this report as the "System" and together with its subsidiaries is collectively referred to as "the system." The Company's significant accounting policies are described in Note 1 of Notes to Financial Statements included in its 1993 Annual Report on Form 10-K filed with the Securities and Exchange Commission. For interim reporting purposes, the Company follows these same basic accounting policies but considers each interim period as an integral part of an annual period and makes allocations of certain expenses to interim periods based upon estimates of such expenses for the year. The Company has established various regulatory assets in cases where the Massachusetts Department of Public Utilities (DPU) and/or the Federal Energy Regulatory Commission have permitted, or are expected to permit, recovery of specific costs over time. At March 31, 1994, principal regulatory assets, included in deferred charges, were $6.6 million for unrecovered plant and decommissioning costs for the Yankee Atomic nuclear plant and $1.6 million for postretirement benefit costs including pensions. The principal regula- tory liability, reflected in deferred credits, was $3.9 million related to income taxes. Generally, expenses which relate to more than one interim period are allocated to other periods to more appropriately match revenues and expens- es. Income tax expense is recorded using the statutory rates in effect applied to book income subject to tax recorded in the interim period. The unaudited financial statements for the periods ended March 31, 1994 and 1993 reflect, in the opinion of the Company, all adjustments (consisting of only normal recurring accruals) necessary to summarize fairly the results for such periods. In addition, certain prior period amounts are reclassi- fied from time to time to conform with the presentation used in the current period's financial statements. The results for interim periods are not necessarily indicative of results for the entire year because of seasonal variations in the consump- tion of energy. (2) Commitments and Contingencies (a) Construction Program The Company is engaged in a continuous construction program presently estimated at $33.1 million for the five-year period 1994 through 1998. Of that amount, $10.3 million is estimated for 1994. As of March 31, 1994 the Company's actual construction expenditures amounted to $480,000, including an allowance for funds used during construction. The Company expects to finance these expenditures on an interim basis with internally generated funds and short-term borrowings which are ultimately expected to be repaid with the proceeds from sales of long-term debt and equity securities. PAGE 7 CAMBRIDGE ELECTRIC LIGHT COMPANY The program is subject to periodic review and revision because of factors such as changes in business conditions, rates of customer growth, effects of inflation, maintenance of reliable and safe service, equipment delivery schedules, licensing delays, availability and cost of capital and environmental regulations. (b) Decommissioning of Nuclear Power Plants The Company has equity ownership interests in four nuclear generating facilities in New England and is obligated to pay its proportionate share of the capacity and energy costs associated with these units, which include depreciation, operations and maintenance, a return on invested capital and the estimated cost of decommissioning the nuclear plants at the end of their estimated service lives. Pertinent information with respect to projected decommissioning costs, in 1993 dollars, resulting from life-of-the-unit contracts from these units is as follows: Connecticut Maine Vermont Yankee Yankee Yankee Yankee Atomic* (dollars in millions) Equity ownership 4.50% 4.00% 2.50% 2.00% Plant entitlement 4.50% 3.59% 2.25% 2.00% Plant capability (MW) 560.0 870.0 496.0 - Company entitlement (MW) 25.2 31.2 11.2 - Contract expiration date 1998 2008 2012 - Decommissioning cost estimate (100%) $325.0 $316.6 $253.0 $331.7 Company's decommissioning cost $ 14.6 $ 11.4 $ 5.7 $ 6.6 * On February 26, 1992, the Board of Directors of Yankee Atomic Elec- tric Company agreed to permanently discontinue power operation of its plant and decommission the facility. The Company's estimated decom- missioning costs include their unrecovered share of all costs associ- ated with the shutdown of the facility, recovery of its plant invest- ment, and decommissioning and closing the plant. This amount is reflected in the accompanying Balance Sheets as a liability and a corresponding regulatory asset. PAGE 8 CAMBRIDGE ELECTRIC LIGHT COMPANY Item 2. Management's Discussion and Analysis of Results of Operations The following is a discussion of certain significant factors which have affected operating revenues, expenses and net income during the periods included in the accompanying condensed statements of income. This discussion should be read in conjunction with the Notes to Condensed Financial Statements appearing elsewhere in this report. A summary of the period to period changes in the principal items included in the condensed statements of income for the three months ended March 31, 1994 and 1993 is shown below: Three Months Ended March 31, 1994 and 1993 Increase (Decrease) (Dollars in Thousands) Electric Operating Revenues $5 610 20.3% Operating Expenses - Fuel, transmission and purchased power 3 511 18.8 Other operation and maintenance 19 0.3 Depreciation 27 2.7 Taxes - Federal and state income 774 1 517.6 Local property and other 70 7.8 4 401 16.6 Operating Income 1 209 111.4 Other Income 111 50.7 Income Before Interest Charges 1 320 101.2 Interest Charges 96 9.9 Net Income $1 224 370.9 Retail Unit Sales MWH Increase 53 - The following is a summary of unit sales for the periods indicated: Unit Sales (MWH) Three Months Ended Total Retail Wholesale March 31, 1994 453 550 331 753 121 797 March 31, 1993 394 705 331 700 63 005 PAGE 9 CAMBRIDGE ELECTRIC LIGHT COMPANY Operating Revenues Operating revenues increased approximately $5.6 million or 20.3% in the first three months of 1994 due to primarily to a $3.5 million increase in fuel, transmission and purchased power costs. Also contributing to the increase were new base rates that became effective June 1, 1993. The Company has received approval from the DPU to recover in revenues current costs associated with C&LM programs through the operation of a Conservation Charge decimal on a dollar-for-dollar basis. To the extent that these expenses increase or decrease from period to period based on customer participation, a corresponding change will occur in revenues. Retail unit sales increased slightly during the current three-month period compared to the same period in 1993. The increase was due primarily to an increase in residential and commercial sales reflecting more extreme weather conditions offset, in part, by a decrease in sales to municipal and industrial customers. The increase in wholesale sales reflects the changing capacity needs of non-affiliated utilities and the New England Power Pool. Fluctua- tions in the level of wholesale sales have little, if any, impact on earnings. Fuel, Transmission and Purchased Power The cost of fuel, transmission and purchased power averaged 4.9 cents per KWH in the current quarter compared to 4.7 cents per KWH for the same period last year. The average cost during the period primarily reflects the higher cost of fuel oil at affiliate Canal Electric Company, a major source of power for the Company. The cost of oil at Canal averaged 2.7 cents per KWH and 2.3 cents per KWH for the three-month periods ended March 31, 1994 and 1993, respectively. The cost of electricity purchased for resale for the three-month period ended March 31, 1994 reflects a $1 million overcollection, due to the recovery mechanism established by the DPU, of capacity-related costs associated with certain purchased power contracts. For the same period in 1993, approximately $170,000 of these costs were not recovered in revenues. The impact of this recovery mechanism affected net income by $633,000 and ($112,000), respective- ly, for the quarterly periods ended March 31, 1994 and 1993 and was a signifi- cant factor in the overall improvement in net income in the current period. (Refer to the "Power Contracts" section to follow in this discussion.) Other Operating Expenses Other operation and maintenance expense was virtually unchanged in the current three-month period reflecting increased other operation expense ($109,000) offset, in part, by a $90,000 decrease in maintenance expense. The slight increase in other operation was due to higher insurance and benefit costs ($114,000), a higher level of C&LM costs ($61,000) offset, in part, by lower affiliated services company charges ($114,000) that reflect the impact of a second quarter work force reduction and a decrease in the provision for bad debts ($35,000) due to improved payment experience. In addition, other operation expense for the current period includes a $110,000 reserve recorded for the Company's anticipated share of site clean-up costs associated with certain hazardous waste sites. (Refer to the "Environmental" section to follow in this discussion.) PAGE 10 CAMBRIDGE ELECTRIC LIGHT COMPANY Depreciation and Taxes Depreciation expense increased due to a higher level of depreciable property, plant and equipment. Federal and state income taxes increased due to a greater level of pretax income and, to a lesser extent, an increase in the federal tax rate to 35%. The increase in local property and other taxes was due to higher tax rates, offset, in part, by lower assessments in the City of Cambridge. Other Income and Interest Charges Other income increased by approximately $111,000 in the first quarter of 1994 compared to 1993 due primarily to interest income ($79,000) recorded in the current period related to a Massachusetts sales tax abatement and a higher level of income from non-utility operations primarily reflecting the absence in 1994 of a loss recorded in January 1993 ($33,000) in connection with the Company's equity investment in Yankee Atomic Electric Company. The increase in interest charges in the current three-month period of 1994 compared to 1993 primarily reflects the interest to be refunded to the Company's customers in connection with the aforementioned sales tax abatement. Power Contracts The Company has long-term contracts for the purchase of electricity from various sources. Generally, these contracts are for fixed periods and require that the Company pay a demand charge for its capacity entitlement in each unit and an energy charge to cover the cost of fuel. The Company collects a portion of its capacity-related purchased power costs associated with certain long-term power arrangements through its base rates. The recovery mechanism for these costs uses a per KWH factor which is calculated using historical (test-period) capacity costs and unit sales. This factor is then applied to current monthly KWH sales. When current period capacity costs and/or unit sales vary from test-period levels, the Company experiences a revenue excess or shortfall. All other capacity and energy-related purchased power costs are recovered through the Company's Fuel Charge. Power Agreement Cancelled On May 2, 1994, the Company and its affiliate Commonwealth Electric Company (Commonwealth Electric) gave notice of termination of power purchase agreements with Eastern Energy Corp. (Eastern), the developer of a proposed 300 MW coal-fired plant in New Bedford, Massachusetts. In June 1989, in order to meet rising energy requirements, the Company and Commonwealth Electric agreed to buy 27% (33 MW and 50 MW, respectively) of the power to be produced by the proposed plant, originally scheduled to begin operation in January 1992. That date and later revised scheduled operating dates have not been achieved, and the proposed plant has still not received the necessary permits. Efforts to reshape the Eastern power purchase agreements to provide a satis- factory arrangement were unsuccessful. The companies' actions are based on Eastern's failure to meet its contractual obligations. The Company and Commonwealth Electric are unable to predict whether or not Eastern will contest their termination of these agreements. PAGE 11 CAMBRIDGE ELECTRIC LIGHT COMPANY Environmental Matters The Company is subject to laws and regulations administered by federal, state and local authorities relating to the quality of the environment. These laws and regulations affect, among other things, the siting and operation of generating facilities, and will continue to impact future operations, capital costs and construction schedules. Air emission regulations require the use of more costly lower-sulphur content fuels (0.5% maximum in the case of the Company's facilities, which are located in a populated urban area) in electric generating facilities. The amendments to the federal Clean Air Act enacted in 1990 will impose restrictions on air emissions, and have a particular impact on the cost of electric generating operations. Regulations enacted by the state of Massachusetts will require a reduction in sulphur dioxide emission rates effective December 31, 1994. A plan to meet this target date was developed and submitted to the state in compliance with applicable regula- tions. These regulations may also result in an increase in the cost of power purchased from others. The Company recovers its cost of fuel and purchased power through its Fuel Charge or base rates. The Company has been named a potentially responsible party for a site used to dispose of PCB-contaminated transformers. In addition, the Company has been sued regarding the clean-up of a former waste oil burning and recycling center. The Company denies liability and is disputing this claim. A reserve for the estimated cost of site clean-up in the amount of $110,000 was recorded in Other Operation expense in the first quarter of 1994. PAGE 12 CAMBRIDGE ELECTRIC LIGHT COMPANY PART II - OTHER INFORMATION Item 1. Legal Proceedings The Company is not a party to any pending material legal proceeding. Item 5. Other Information None Item 6. Exhibits and Reports on Form 8-K (a) Exhibits None. (b) Reports on Form 8-K No reports on Form 8-K were filed during the three months ended March 31, 1994. PAGE 13 CAMBRIDGE ELECTRIC LIGHT COMPANY SIGNATURES 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. CAMBRIDGE ELECTRIC LIGHT COMPANY (Registrant) Principal Financial Officer: JAMES D. RAPPOLI James D. Rappoli, Financial Vice President and Treasurer Principal Accounting Officer: JOHN A. WHALEN John A. Whalen, Comptroller Date: May 13, 1994 -----END PRIVACY-ENHANCED MESSAGE-----