-----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, TXuRYmNcxXglc+Lyrdqhh1XzoQj7mxMQq1XonNPz1UdqHceNiOAGOVr9zWZYmsxt vAU/q6mitOf5HpI7HGVQ1A== 0000016573-99-000002.txt : 19991117 0000016573-99-000002.hdr.sgml : 19991117 ACCESSION NUMBER: 0000016573-99-000002 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19990930 FILED AS OF DATE: 19991115 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CAMBRIDGE ELECTRIC LIGHT CO CENTRAL INDEX KEY: 0000016573 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC SERVICES [4911] IRS NUMBER: 041144610 STATE OF INCORPORATION: MA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 002-07909 FILM NUMBER: 99753295 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 CAMBRIDGE ELECTRIC LIGHT CO 1999 3RD QTR FORM 10-Q 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 September 30, 1999 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 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.) 800 Boylston Street, Boston, Massachusetts 02142-9150 (Address of principal executive offices) (Zip Code) (617) 225-4000 (Registrant's telephone number, including area code) One Main Street, Cambridge, Massachusetts 02142 (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 November 1, 1999 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-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 CAMBRIDGE ELECTRIC LIGHT COMPANY CONDENSED BALANCE SHEETS SEPTEMBER 30, 1999 AND DECEMBER 31, 1998 ASSETS (Dollars in thousands) (Unaudited) September 30, December 31, 1999 1998 PROPERTY, PLANT AND EQUIPMENT, at original cost$142,815 $140,642 Less - Accumulated depreciation 48,775 47,179 94,040 93,463 Add - Construction work in progress 1,863 937 95,903 94,400 INVESTMENTS Equity in nuclear electric power companies 10,153 9,906 Other 5 5 10,158 9,911 LONG-TERM RECEIVABLE - AFFILIATE 29,838 35,441 GOODWILL 34,934 - CURRENT ASSETS Cash 787 778 Advances to affiliates 7,060 27,450 Accounts receivable - Affiliates 679 1,729 Customers 11,842 10,774 Unbilled revenues 161 1,577 Prepaid taxes 3,572 1,410 Inventories and other 1,223 1,076 25,324 44,794 DEFERRED CHARGES Regulatory assets 59,842 70,372 Other 1,443 2,012 61,285 72,384 $257,442 $256,930 The accompanying notes are an integral part of these financial statements. CAMBRIDGE ELECTRIC LIGHT COMPANY CONDENSED BALANCE SHEETS SEPTEMBER 30, 1999 AND DECEMBER 31, 1998 CAPITALIZATION AND LIABILITIES (Dollars in thousands) (Unaudited) September 30, December 31, 1999 1998 CAPITALIZATION Common Equity - Common stock, $25 par value - Authorized and outstanding - 346,600 shares $ 8,665 $ 8,665 Amounts paid in excess of par value 62,919 27,953 Retained earnings 10,839 16,182 82,423 52,800 Long-term debt, including premiums, less maturing debt and current sinking fund requirements 7,201 7,301 89,624 60,101 CURRENT LIABILITIES Interim Financing - Maturing long-term debt - 10,000 - 10,000 Other Current Liabilities - Current sinking fund requirements 100 100 Accounts payable - Affiliates 2,418 23,257 Other 11,613 8,328 Other 10,891 9,406 25,022 41,091 25,022 51,091 DEFERRED CREDITS Accumulated deferred income taxes 15,501 15,328 Regulatory liabilities 61,913 65,124 Purchased power contracts 52,242 57,465 Unamortized investment tax credits and other 13,140 7,821 142,796 145,738 COMMITMENTS AND CONTINGENCIES $257,442 $256,930 The accompanying notes are an integral part of these financial statements. CAMBRIDGE ELECTRIC LIGHT COMPANY CONDENSED STATEMENTS OF INCOME AND RETAINED EARNINGS FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998 (Dollars in thousands) (Unaudited) Three Months Ended Nine Months Ended 1999 1998 1999 1998 ELECTRIC OPERATING REVENUES $28,625 $31,843 $77,613 $91,133 OPERATING EXPENSES Electricity purchased for resale, transmission and fuel 20,805 19,884 56,207 56,012 Other operation and maintenance 6,719 6,258 15,264 16,875 Depreciation 628 2,152 2,450 5,782 Taxes - Income (1,050) 1,183 (1,020) 3,964 Local property 240 767 1,506 2,292 Payroll and other 150 187 453 571 27,492 30,431 74,860 85,496 OPERATING INCOME 1,133 1,412 2,753 5,637 OTHER INCOME 299 1,823 1,071 2,572 INCOME BEFORE INTEREST CHARGES 1,432 3,235 3,824 8,209 INTEREST CHARGES Long-term debt 155 359 602 1,082 Other interest charges 2,390 559 4,025 1,446 2,545 918 4,627 2,528 NET (LOSS) INCOME (1,113) 2,317 (803) 5,681 RETAINED EARNINGS - Beginning of period 12,246 12,372 16,182 11,607 Dividends paid to parent (294) (694) (4,540) (3,293) RETAINED EARNINGS - End of period $10,839 $13,995 $10,839 $13,995 The accompanying notes are an integral part of these financial statements. CAMBRIDGE ELECTRIC LIGHT COMPANY CONDENSED STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998 (Dollars in thousands) (Unaudited) 1999 1998 OPERATING ACTIVITIES Net income (loss) $ (803) $ 5,681 Effects of noncash items - Depreciation and amortization 2,984 5,782 Deferred income taxes and investment tax credits, net (147) (135) Earnings from corporate joint ventures (533) (830) Dividends from corporate joint ventures 286 940 Change in working capital, exclusive of cash, advances to affiliates and interim financing (16,925) 7,842 Transition costs deferral 8,778 (5,336) EIS proceeds (Note 2) 5,603 - All other operating items (1,190) (1,352) Net cash provided by (used for) operating activities (1,947) 12,592 INVESTING ACTIVITIES Payments from affiliates 20,390 - Additions to property, plant and equipment (exclusive of AFUDC) (3,794) (5,519) Net cash provided by (used for) investing activities 16,596 (5,519) FINANCING ACTIVITIES Payment of dividends (4,540) (3,293) Retirement of long-term debt (10,000) - Payment of short-term borrowings - (2,325) Payments to affiliates - (1,465) Sinking funds payments (100) (101) Net cash used for financing activities (14,640) (7,184) Net increase (decrease) in cash 9 (111) Cash at beginning of period 778 521 Cash at end of period $ 787 $ 410 SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION Cash paid during the period for: Interest (net of capitalized amounts) $ 727 $ 2,577 Income taxes $ 1,012 $ 3,580 The accompanying notes are an integral part of these financial statements. CAMBRIDGE ELECTRIC LIGHT COMPANY NOTES TO CONDENSED FINANCIAL STATEMENTS (1) General Information Cambridge Electric Light Company (the Company) is a wholly-owned sub- sidiary of NSTAR. NSTAR is the new holding company that was formed, effective August 25, 1999 after receipt of all necessary approvals and upon completion of a merger transaction between Commonwealth Energy System (COM/Energy, formerly the parent of the Company) and BEC Energy (formerly the parent company of Boston Edison Company). The merger creates an energy delivery company, that includes the Company, serving approximately 1.3 million customers located in Massachusetts including more than one million electric customers in 81 communities and 240,000 gas customers in 51 communities. NSTAR is an exempt public utility holding company under the provisions of the Public Utility Holding Company Act of 1935 and, in addition to its investment in the Company, has interests in other utility and several nonregulated companies. The Company's operations are involved in the distribution and sale of electricity to approximately 46,000 retail customers in the city of Cambridge, Massachusetts. The Company has 101 employees including 76 (75%) represented by a collective bargaining unit with a contract that expires on March 1, 2001. In response to the significant changes that have taken place in the utility industry, the Company sold substantially all of its generating assets in 1998 to focus on the transmission and distribution of energy and related services (see Note 2(c)). (2) Significant Accounting Policies (a) Principles of Accounting The Company's significant accounting policies are described in Note 2 of Notes to Financial Statements included in its 1998 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 unaudited financial statements for the periods ended September 30, 1999 and 1998 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 reclassified 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. CAMBRIDGE ELECTRIC LIGHT COMPANY (b) Regulatory Assets and Liabilities The Company is regulated as to rates, accounting and other matters by various authorities including the Federal Energy Regulatory Commission(FERC) and the Massachusetts Department of Telecommunications and Energy (DTE). The Company has established various regulatory assets in cases where the DTE and/or the FERC have permitted or are expected to permit recovery of specific costs over time. Similarly, the regulatory liabilities established by the Company are required to be refunded to customers over time. The principal regulatory assets included in deferred charges were as follows: September 30, December 31, 1999 1998 (Dollars in thousands) Maine Yankee unrecovered plant and decommissioning costs $28,514 $30,646 Connecticut Yankee unrecovered plant and decommissioning costs 22,829 25,185 Yankee Atomic unrecovered plant and decommissioning costs 899 1,634 Transition costs 1,745 9,149 Postretirement benefits costs 2,833 3,120 Merger costs 2,495 - Other 527 638 $59,842 $70,372 The regulatory asset related to merger costs includes severance costs ($1.1 million) associated with a voluntary separation program (VSP) offered to employees as a result of the merger, pension curtailment costs ($778,000) resulting from the VSP and other costs to achieve the merger ($636,000). The regulatory liabilities, reflected in the accompanying Condensed Balance Sheets, were as follows: September 30, December 31, 1999 1998 (Dollars in thousands) Regulatory liability related to sale of generating assets $52,196 $61,040 Pension costs 4,284 - Deferred income taxes 2,316 2,402 Demand-side management deferral 3,117 1,682 $61,913 $65,124 The regulatory liability related to the sale of generating assets was established pursuant to the Company's divestiture filing that was approved by the DTE in which the Company agreed to use the net proceeds from the sale of its generating assets and its share of the net proceeds from affiliate Canal Electric Company's (Canal Electric) sale of generating assets to reduce transition costs that are billed to its retail electric customers over the next several years as a result of electric industry restructuring. COM/Energy established Energy Investment Services, Inc. (EIS) as the vehicle to invest the Company's share of the net proceeds from the sale of Canal Electric's generating assets. These proceeds have been invested in a portfolio of securities that is designed to maintain principal and earn a reasonable return. Both the principal amount and income earned will be used CAMBRIDGE ELECTRIC LIGHT COMPANY to reduce the transition costs that would otherwise be billed to customers of the Company and affiliate Commonwealth Electric Company (Commonwealth (Commonwealth Electric). The Company's share of the net proceeds from the sale of Canal Electric's generating assets has been classified as a long- term receivable - affiliate on the accompanying Condensed Balance Sheets. The Company's regulatory assets, including the costs associated with existing power contracts with three Yankee nuclear power plants that have shut down permanently, and all of its regulatory liabilities are reflected in rates charged to customers. Regulatory assets are to be recovered over the next eleven years pursuant to a comprehensive electric utility industry restructuring law enacted by the Commonwealth of Massachusetts in November 1997. (c) Divestiture of Generation Assets The cost of transitioning to competition is being mitigated, in part, by the sale of COM/Energy's non-nuclear generating assets. On May 27, 1998, COM/Energy agreed to sell substantially all of its non-nuclear generating assets (984 MW) to affiliates of The Southern Company of Atlanta, Georgia. The sale was conducted through an auction process that was outlined in a restructuring plan filed with the DTE in November 1997 in conjunction with the state's industry restructuring legislation enacted in 1997. The sale was approved by the DTE on October 30, 1998 and by the FERC on November 12, 1998. Proceeds from the sale of the Company's Kendall Station generating assets amounted to approximately $58.2 million or 8.2 times their book value of approximately $7.1 million. The proceeds from the sale, net of book value and transaction costs amounted to $49.3 million and are being used to reduce transition costs related to electric industry restructuring that otherwise would have been collected through a non-bypassable transition charge. No gain was recorded on the sale of these generating assets because the Company is obligated to reduce its transition costs by the net proceeds of the sale. The Company has determined that this transaction was not a taxable event because it provided no economic benefit to the Company. (3) Commitments and Contingencies Litigation In the normal course of business, the Company is involved in various legal matters. Management is unable to fully determine the range of reasonably possible legal 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 financial position. However, it is reasonably possible that additional legal 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. 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 and nine months ended September 30, 1999 and 1998 and unit sales for these periods is shown below: Three Months Nine Months Ended September 30, Ended September 30, 1999 and 1998 1999 and 1998 Increase (Decrease) (Dollars in thousands) Electric Operating Revenues $(3,218) (10.1)% $(13,520) (14.8)% Operating Expenses - Electricity purchased for resale, transmission and fuel 921 4.6 195 0.3 Other operation and maintenance 461 7.4 (1,611) (9.5) Depreciation (1,524) (70.8) (3,332) (57.6) Taxes - Federal and state income (2,233) (188.8) (4,984) (125.7) Local property and other (564) (59.1) (904) (31.6) (2,939) (9.7) (10,636) (12.4) Operating Income (279) (19.8) (2,884) (51.2) Other Income (1,524) (83.6) (1,501) (58.4) Income Before Interest Charges (1,803) (55.7) (4,385) (53.4) Interest Charges 1,627 177.2 2,099 83.0 Net Income $(3,430) (148.0) $ (6,484) (114.1) Unit Sales (MWH) Retail 26,583 7.1 18,586 1.8 Wholesale (27,721) (55.8) (49,081) (34.5) Total unit sales (1,138) (0.3) (30,495) (2.6) The following is a summary of unit sales for the periods indicated: Unit Sales (MWH) Three Months Nine Months Period Ended Total Retail Wholesale Total Retail Wholesale September 30, 1999 421,195 399,217 21,978 1,127,894 1,034,733 93,161 September 30, 1998 422,333 372,634 49,699 1,158,389 1,016,147 142,242 CAMBRIDGE ELECTRIC LIGHT COMPANY Operating Revenues, Electricity Purchased For Resale, Transmission and Fuel Despite increases in retail unit sales, operating revenues for the current quarter and first nine months of 1999 decreased $3.2 million (10.1%) and $13.5 million (14.8%), respectively due to decreases in fuel costs ($746,000 and $2.1 million, respectively) and transmission charges ($1.2 million and $54,000, respectively) as well as rate reductions resulting from electric industry restructuring legislation. Somewhat offsetting the impact of these items were increases in electricity purchased for resale during the current quarter and nine-month period ($2.9 million and $2.4 million, respectively) reflecting the absence of power previously available from the Company's Kendall Station facility which was sold on December 30, 1998 (see Note 2(c)). As a result of industry restructuring, the Company has unbundled its rates and provided customers with a 10% rate reduction as of March 1, 1998 that was increased to 16% effective January 1, 1999 in conjunction with the Company's restructuring plan as approved by the DTE. This legislation also provides customers with the opportunity to purchase generation supply in the competitive market. Unbundled delivery rates are composed of a customer charge (to collect metering and billing costs), a distribution charge (to collect the costs of delivering electricity), a transition charge (to collect past costs for investments in generating plants and costs related to power contracts), a transmission charge (to collect the costs of moving the electricity over high voltage lines from a generating plant), an energy conservation charge (to collect costs for demand-side management programs) and a renewable energy charge (to collect the cost to support the development and promotion of renewable energy projects). Electricity supply services provided by the Company include optional standard offer service and default service. Standard offer service is the electricity that is supplied by a local distribution company (such as the Company) until a competitive supplier is chosen by the customer. It is designed as a seven- year transitional service to give the customer time to learn about competitive power suppliers. The price of standard offer service will increase over time. Default service is the electricity that is supplied by the local distribution company when a customer is not receiving power from either standard offer service or a competitive power supplier. The market price for default service will fluctuate based on the average market price for power. Amounts collected through these various charges will be reconciled to actual expenditures on an on-going basis. Currently, 70.3% of retail electric customers receive standard offer service and 29.7% of retail customers receive default service. For further information on electric industry restructuring, refer to the Company's 1998 Annual Report on Form 10-K. Retail unit sales for the quarter and nine-month periods ended September 30, 1999 increased primarily as a result of increases in the residential and commercial sectors. Also included in both current periods is a decrease in wholesale sales due primarily to a lower level of sales to ISO - New England. Operating Expenses For the first nine months of 1999, other operation and maintenance decreased $1.6 million (9.5%) due primarily to lower operating costs as a result of the sale of the Kendall Station facility on December 30, 1998 and lower maintenance costs related to the sale of Kendall Station ($592,000). CAMBRIDGE ELECTRIC LIGHT COMPANY Also contributing to the change in other operation and maintenance during both the current quarter and nine-month period was the recognition of costs allocated to the Company that relate to various compensation plans whose benefits have vested as a result of a change in control at the parent company level ($660,000), and amortization of goodwill and merger costs ($103,000) (see merger discussion below). In addition, $1.5 million in pension costs that were previously deferred, have been expensed in the current period because recovery is no longer certain. Depreciation expense decreased in both current periods reflecting the sale of the Kendall Station facility and the absence of adjustments to depreciation recorded in 1998 pursuant to the electric industry restructuring legislation. The decreases in federal and state income taxes was due to a lower level of pre-tax income. During both current periods the decrease in local property and other taxes reflects lower property tax expense ($527,000 and $786,000, respectively), and lower payroll and other taxes due to a decrease in the number of employees, both of which reflect the impact of the asset sale. Other Income The decrease in other income during the current quarter and nine-month period is primarily due to the absence of gains related to the sale of real estate ($1.3 million) during the same periods a year ago. Interest Charges Interest charges for the current three and nine-month periods increased $1.6 million (177.2%) and $2.1 million (83%), respectively due to increases in other interest ($1.8 million and $2.6 million, respectively) that include interest on customer refunds. This increase was offset in part by lower long- term interest costs ($204,000 and $480,000) due to the repayment of a $10 million (8.04%) debt issue during the first quarter of 1999 and by the significantly lower interest on short-term borrowings due to a lower average level of short-term borrowings during the current periods. Merger with BEC Energy NSTAR, an exempt public utility holding company, was created after completion of a merger transaction between BEC Energy (BEC) and Commonwealth Energy System (COM/Energy) on August 25, 1999. The utility industry has continued to change in response to legislative and regulatory mandates that are aimed at lowering prices for energy by creating a more competitive market- place. These pressures have resulted in an increasing trend in the utility industry to seek competitive advantages and other benefits through business combinations. NSTAR is focusing its utility operations on the transmission and distribution of energy following the sale of BEC's fossil generating facilities to Sithe Energies in May 1998, BEC's nuclear generation facility to Entergy Nuclear Generating Company in July 1999 and substantially all of COM/Energy's generating facilities to Southern Company in December 1998. The utility companies of NSTAR form an energy delivery company serving approximately 1.3 million customers located in Massachusetts, including more than one million electric customers in 81 communities and 240,000 gas custom- ers in 51 communities. CAMBRIDGE ELECTRIC LIGHT COMPANY The merger became effective after receipt of various regulatory approvals. The Federal Energy Regulatory Commission approved the merger on June 24, 1999. The Nuclear Regulatory Commission approved the transfer of control of affiliate Canal Electric Company's interest in the Seabrook nuclear plant from COM/Energy to NSTAR on August 11, 1999. The Securities and Exchange Commission issued its approval on August 24, 1999. An integral part of the merger is the rate plan that was filed by the retail utility subsidiaries of BEC and COM/Energy in February 1999 and approved by the DTE on July 27, 1999. Significant elements of the rate plan include a four-year distribution rate freeze (after an adjustment to the distribution rates of affiliate Commonwealth Electric and the Company to collect the appropriate level of distribution costs that is offset by a reduc- tion in the transition charge that was previously approved by the DTE), recovery of the acquisition premium (goodwill) over 40 years and recovery of transaction and integration costs (costs to achieve) over 10 years. The merger was accounted for by BEC as an acquisition of COM/Energy under the purchase method of accounting. The goodwill amounted to approximately $478 million while the original estimate of costs to achieve the merger was $111 million to be amortized over 10 years. This estimate, which has been allocated among the retail utility subsidiaries of NSTAR, will be reconciled to actual costs and any difference is expected to be recovered over the remainder of the amortization period. The amount of goodwill attributed to the Company was approximately $35 million to be amortized over 40 years. A group of four intervenors and the Massachusetts Attorney General filed two separate appeals of the DTE's rate plan order with the Massachusetts Supreme Judicial Court (SJC) in August 1999. While management anticipates that the DTE's decision to approve the rate plan will be upheld by the SJC, it is unable to determine the ultimate outcome of these appeals or their impact on the rate plan. Year 2000 The Year 2000 issue is the result of computer programs being written using two digits rather than four to define the applicable year. Any computer program that has date sensitive software may recognize a date using "00" as the year 1900 rather than the year 2000. This could result in a temporary inability to process transactions or engage in normal business activities. The Company and its affiliates (the companies) have been involved in Year 2000 compliancy since 1996. While the recent merger with BEC Energy has led to some integrated planning efforts, the companies have essentially continued to resolve Year 2000 issues independently of BEC Energy. The companies have followed a five-phase process in its Year 2000 compli- ance efforts, as follows: Awareness (through a series of internal announce- ments to employees and through contacts with vendors); Inventory (all comput- ers, applications and embedded systems that could potentially be affected by the Year 2000 problem); Assessment (all applications or components and the impact on overall business operations and a plan to correct deficiencies and the cost to do so); Remediation (the modification, upgrade or replacement of deficient hardware and software applications and infrastructure modifications); and Testing (a detailed, comprehensive testing program for the CAMBRIDGE ELECTRIC LIGHT COMPANY modified critical component, system or software that involves the planning, execution and analysis of results). The companies' inventory phase required an assessment of all date sensi- tive information and transaction processing computer systems and determined that approximately 90% of their software systems needed some modifications or replacement. Plans were developed, implemented, and all of these systems have been modified, upgraded or replaced. The companies have also inventoried their non-information technology systems that may be date sensitive (facilities, electric and gas operations, energy supply/production and distribution) that use embedded technology such as micro-controllers and micro-processors. The companies have completed their assessment of these non-information technology systems and determined that 20% of these systems required remediation or replacement. The companies have reported to the North American Electric Reliability Council (NERC) that they met the NERC target date of June 30, 1999 for 100% readiness of all their mission critical components required for the continued safe and reliable delivery of electricity into the Year 2000. The companies' gas and other operations are also at a 100% completion level for all mission critical issues regarding Year 2000 readiness. Modifying and testing the companies' information and transaction process- ing systems from 1996 through 2000 is currently expected to cost approximately $10.3 million, including approximately $8.3 million incurred through September 30, 1999. Year 2000 costs have been expensed as incurred and will continue to be funded from operations. In addition to their internal efforts, the companies have initiated formal communications with their significant suppliers to determine the extent to which the companies may be vulnerable to their suppliers' failure to correct their own Year 2000 issues. The companies have ranked their vendors in terms of importance and have received adequate responses from all of their "critical" and "high" rated vendors. Failure of the companies' significant suppliers to address Year 2000 issues could have a material adverse effect on the companies' operations, although it is not possible at this time to quantify the amount of business that might be lost or the costs that could be incurred by the companies. Contact with all other vendors is continuing and inadequate responses are being pursued by the companies. In addition, parts of the global infrastructure, including national banking systems, electrical power grids, gas pipelines, transportation facili- ties, communications and governmental activities, may not be fully functional after 1999. Infrastructure failures could significantly reduce the companies' ability to acquire energy and their ability to serve their customers as ef- fectively as they are now being served. The companies have identified the elements of the infrastructure that are critical to their operations and have requested and obtained information as to the expected Year 2000 readiness of these elements. The companies have completed the development of their Year 2000 contingen- cy plans for all operational areas that may be effected by Year 2000 issues. The companies' gas and electric operations currently have emergency operating plans, as well as information technology disaster recovery plans, as compo- nents of their standard operating procedures. These plans have been enhanced, CAMBRIDGE ELECTRIC LIGHT COMPANY identifying potential Year 2000 risks to normal operations and the appropriate response to these potential failures. These plans also include actions to be taken in the event of third party and infrastructure failures with regard to the Year 2000 event, although in certain cases, there may be no practical alternative course of action available to the companies. The implementation of the contingency plans will continue throughout the remainder of 1999. The companies are working with other energy industry entities, both regionally and nationally, with respect to Year 2000 readiness and is cooper- ating in the development of local and wide-scale contingency planning. While the companies believe their efforts to address the Year 2000 issue will allow them to be successful in avoiding any material adverse effect on the companies' operations or financial condition, they recognize that failing to resolve Year 2000 issues on a timely basis would, in a "most reasonably likely worst case scenario," significantly limit their ability to acquire and distribute energy and process their daily business transactions for a period of time, especially if such failure is coupled with third party or infra- structure failures. Similarly, the companies could be significantly effected by the failure of one or more significant suppliers, customers or components of the infrastructure to conduct their respective operations after 1999. Adverse affects on the companies could include, among other things, business disruption, increased costs, loss of business and other similar risks. The foregoing discussion regarding Year 2000 project timing, effective- ness, implementation and costs includes forward-looking statements that are based on management's current evaluation using available information. Factors that might cause material changes include, but are not limited to, the avail- ability of key Year 2000 personnel, the readiness of third parties, and the companies' ability to respond to unforeseen Year 2000 complications. Vermont Yankee Nuclear Power Plant The Company has a 2.5% equity ownership interest (approximately $1.4 million at September 30, 1999) in the Vermont Yankee nuclear power plant. The owners of Vermont Yankee have reached an agreement to sell the plant to Amergen Energy Co., a joint venture of Peco Energy and British Energy PLC. The sale, which is subject to state and federal approvals, is expected to be finalized July 1, 2000. Any shortfall between the book value of the plant and the proceeds from the sale of the plant would be recovered in the transition costs charge. Forward-Looking Statements This discussion contains statements which, to the extent it is not a recitation of historical fact, constitute "forward-looking statements" and is intended to be subject to the safe harbor protection provided by the Private Securities Litigation Reform Act of 1995. A number of important factors affecting the Company's business and financial results could cause actual results to differ materially from those stated in the forward-looking state- ments. Those factors include the ultimate impact of the merger, developments in the legislative, regulatory and competitive environment, certain environ- mental matters, demands for capital expenditures and the availability of cash from various sources. CAMBRIDGE ELECTRIC LIGHT COMPANY PART II - OTHER INFORMATION Item 1. Legal Proceedings The Company was an intervenor in an appeal at the Massachusetts Supreme Judicial Court (SJC) filed by the Massachusetts Institute of Technology (MIT) involving a DTE decision approving a customer transition charge (CTC) for the recovery of stranded investment costs. By its terms, the CTC was terminated on March 1, 1998, coincident with the retail access date established by the Massachusetts Legislature in the Electric Industry Restructuring Act. On September 18, 1997, the SJC remanded the CTC matter to the DTE for further consideration. The SJC stated that, although recovery of prudent and verifiable stranded costs by utility companies is in the public interest and consistent with the Public Utility Regulatory Policies Act, the insufficiencies of the DTE's subsidiary findings precluded the SJC from undertaking a meaningful review of the DTE's calculations that formed the basis of the CTC. The DTE is in the process of determining whether to hear additional evidence in the remand or to rely on the record and pleadings already filed. At this time, management is unable to predict the ultimate outcome of this proceeding. Item 5. Other Information None Item 6. Exhibits and Reports on Form 8-K (a) Exhibits filed herewith: Exhibit 27 - Financial Data Schedule 27.1 - Schedule UT Exhibit 99 - Additional Exhibits 99.1 - Report of Independent Accountants (b) Reports on Form 8-K No reports on Form 8-K were filed for the three months ended September 30, 1999. CAMBRIDGE ELECTRIC LIGHT COMPANY 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. CAMBRIDGE ELECTRIC LIGHT COMPANY (Registrant) Date: November 15, 1999 R. J. WEAFER, JR. Robert J. Weafer, Jr. Vice President, Controller and Chief Accounting Officer EX-27 2 CAMBRIDGE ELECTRIC LIGHT CO. FINANCIAL DATA SCHED.
UT This schedule contains summary financial information extracted from the balance sheet, statement of income and statement of cash flows contained in Form 10-Q of Cambridge Electric Light Company for the nine months ended September 30, 1999 and is qualified in its entirety by reference to such financial statements. 0000016573 CAMBRIDGE ELECTRIC LIGHT COMPANY 1,000 DEC-31-1999 SEP-30-1999 9-MOS PER-BOOK 95,903 10,158 25,324 61,285 64,772 257,442 8,665 62,919 10,839 82,423 0 0 7,201 0 0 0 100 0 0 0 167,718 257,442 77,613 (1,020) 75,880 74,860 2,753 1,071 3,824 4,627 (803) 0 (803) 4,540 602 (1,947) 0 0
EX-99 3 REPORT OF INDEPENDENT ACCOUNTANTS Exhibit 99.1 Report of Independent Accountants To the Board of Directors of Cambridge Electric Light Company: We have reviewed the accompanying condensed balance sheet of Cambridge Electric Light Company as of September 30, 1999 and the related condensed statements of income for the three and nine-month periods ended September 30, 1999 and condensed cash flows for the nine-month period ended September 30, 1999. We did not perform a review of the condensed statements of income for the three and nine-month periods ended September 30, 1998 and cash flows for the nine-month period ended September 30, 1998. These 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 accounting and financial 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 financial statements in order for them to be in conformity with generally accepted accounting principles. Hartford, Connecticut PricewaterhouseCoopers LLP November 15, 1999 -----END PRIVACY-ENHANCED MESSAGE-----