-----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, Xhm+E4Va3rLee29vaRLFoPU7AHh3VctbYLBKzzcThvPomXg7rCLpGKI//3V5yqgA AF0j7qymDaniAFWAqWkiqg== 0000071304-94-000022.txt : 19940815 0000071304-94-000022.hdr.sgml : 19940815 ACCESSION NUMBER: 0000071304-94-000022 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19940630 FILED AS OF DATE: 19940812 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: 94543445 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 COMPANY FORM 10-Q 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 June 30, 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 August 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 JUNE 30, 1994 AND DECEMBER 31, 1993 ASSETS (Unaudited) June 30, December 31, 1994 1993 (Dollars in Thousands) PROPERTY, PLANT AND EQUIPMENT, at original cost $146 040 $145 324 Less - Accumulated depreciation 54 315 52 382 91 725 92 942 Add - Construction work in progress 1 124 1 013 92 849 93 955 INVESTMENTS Equity in nuclear electric power companies 9 276 9 059 Other 5 5 9 281 9 064 CURRENT ASSETS Cash 410 1 624 Accounts receivable Affiliate companies 584 1 036 Customers 10 724 10 178 Unbilled revenues 3 635 3 835 Prepaid taxes - Property - 1 600 Income - 423 Inventories and other 1 672 2 289 17 025 20 985 DEFERRED CHARGES Yankee Atomic purchased power contract 6 140 6 900 Other 5 880 3 084 12 020 9 984 $131 175 $133 988 PAGE 3 CAMBRIDGE ELECTRIC LIGHT COMPANY CONDENSED BALANCE SHEETS JUNE 30, 1994 AND DECEMBER 31, 1993 CAPITALIZATION AND LIABILITIES (Unaudited) June 30, 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 8 061 7 056 44 679 43 674 Long-term debt, including premiums, less current sinking fund requirements 42 027 42 189 86 706 85 863 CURRENT LIABILITIES Interim Financing - Notes payable to banks - 2 000 Advances from affiliates 2 345 1 305 2 345 3 305 Other Current Liabilities - Current sinking fund requirements 160 160 Accounts payable Affiliate companies 4 685 4 972 Other 4 976 5 187 Accrued taxes - Local property and other 26 1 611 Income 200 97 Accrued interest 991 1 003 Other 1 939 2 776 12 977 15 806 15 322 19 111 DEFERRED CREDITS Accumulated deferred income taxes 12 607 12 189 Unamortized investment tax credits 2 082 2 130 Yankee Atomic purchased power contract 6 140 6 900 Other 8 318 7 795 29 147 29 014 COMMITMENTS AND CONTINGENCIES $131 175 $133 988 See accompanying notes. PAGE 4 CAMBRIDGE ELECTRIC LIGHT COMPANY CONDENSED STATEMENTS OF INCOME AND RETAINED EARNINGS FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 1994 AND 1993 (Unaudited) Three Months Ended Six Months Ended 1994 1993 1994 1993 (Dollars in Thousands) ELECTRIC OPERATING REVENUES $31 659 $30 273 $64 880 $57 884 OPERATING EXPENSES Fuel, transmission and purchased power 20 452 19 804 42 634 38 475 Other operation and maintenance 6 163 7 311 12 099 13 228 Depreciation 1 017 990 2 034 1 980 Taxes - Income 756 24 1 581 75 Local property 713 617 1 438 1 247 Payroll and other 183 222 425 489 29 284 28 968 60 211 55 494 OPERATING INCOME 2 375 1 305 4 669 2 390 OTHER INCOME 45 13 375 232 INCOME BEFORE INTEREST CHARGES 2 420 1 318 5 044 2 622 INTEREST CHARGES Long-term debt 948 949 1 897 1 899 Other interest charges 62 46 175 71 Allowance for borrowed funds used during construction (13) (1) (5) (2) 997 994 2 067 1 968 NET INCOME 1 423 324 2 977 654 RETAINED EARNINGS - Beginning of period 7 712 6 486 7 056 6 156 Dividends on common stock (1 074) (329) (1 972) (329) RETAINED EARNINGS - End of period $ 8 061 $ 6 481 $ 8 061 $ 6 481 See accompanying notes. PAGE 5 CAMBRIDGE ELECTRIC LIGHT COMPANY CONDENSED STATEMENTS OF CASH FLOWS FOR THE SIX MONTHS ENDED JUNE 30, 1994 AND 1993 (Unaudited) 1994 1993 (Dollars in Thousands) CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 2 977 $ 654 Effects of non-cash items - Depreciation and amortization 2 177 2 003 Deferred income taxes and investment tax credits, net 941 585 Equity earnings from corporate joint ventures (577) (519) Dividends from corporate joint ventures 360 393 Change in working capital, exclusive of cash and interim financing (83) (2 623) All other operating items (2 603) (2 423) Net cash provided by (used for) operating activities 3 192 (1 930) CASH FLOWS FOR INVESTING ACTIVITIES Additions to property, plant and equipment (exclusive of AFUDC) (1 307) (1 181) Allowance for borrowed funds used during construction (5) (2) Net cash used for investing activities (1 312) (1 183) CASH FLOWS FROM FINANCING ACTIVITIES Payment of dividends (1 972) (329) Proceeds from (payment of) short-term borrowings (2 000) 3 875 Advances from affiliates 1 040 770 Sinking funds payments (162) (162) Net cash provided by (used for) financing activities (3 094) 4 154 Net increase (decrease) in cash (1 214) 1 041 Cash at beginning of period 1 624 2 Cash at end of period $ 410 $ 1 043 SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION Cash paid (received) during the period for: Interest (net of capitalized amounts) $ 1 893 $ 1 931 Income taxes $ 716 $ (215) 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 subsid- iary of Commonwealth Energy System. The parent company is referred to in this report as the "System" and together with its subsidiaries is collec- tively 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. Similarly, certain regulatory liabilities estab- lished by the Company are expected to be refunded to customers over time. As of June 30, 1994, principal regulatory assets included in deferred charges were $6.1 million for unrecovered plant and decommissioning costs for the Yankee Atomic nuclear plant and $1.9 million for postretirement benefit costs including pensions. The principal regulatory 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 expenses. 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 June 30, 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 consumption 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 June 30, 1994 the Company's actual construction expenditures amounted to $1.3 million, including an allowance for funds used during construction. The majority of 1994 construction expenditures are anticipated to be incurred during the PAGE 7 CAMBRIDGE ELECTRIC LIGHT COMPANY second half of 1994. 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. The program is subject to periodic review and revision because of factors such as changes in business condi- tions, 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 $307.0 Company's decommissioning cost $ 14.6 $ 11.4 $ 5.7 $ 6.1 * 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 its 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 and six months ended June 30, 1994 and 1993 is shown below: Three Months Six Months Ended June 30, Ended June 30, 1994 and 1993 1994 and 1993 Increase (Decrease) (Dollars in Thousands) Electric Operating Revenues $1 386 4.6% $6 996 12.1% Operating Expenses - Fuel, transmission and purchased power 648 3.3 4 159 10.8 Other operation and maintenance (1 148) (15.7) (1 129) (8.5) Depreciation 27 2.7 54 2.7 Taxes - Local property and other 57 6.8 127 7.3 Federal and state income 732 3050.0 1 506 2008.0 316 1.1 4 717 8.5 Operating Income 1 070 82.0 2 279 95.4 Other Income 32 246.2 143 61.6 Income Before Interest Charges 1 102 83.6 2 422 92.4 Interest Charges 3 0.3 99 5.0 Net Income $1 099 339.2 $2 323 355.2 Retail Unit Sales MWH Decrease (6 255) (1.9) (6 202) (0.9) The following is a summary of unit sales for the periods indicated: Unit Sales (MWH) Three Months Six Months Period Ended Total Retail Wholesale Total Retail Wholesale June 30, 1994 392 941 318 026 74 915 846 491 649 779 196 712 June 30, 1993 373 344 324 281 49 063 768 049 655 981 112 068 PAGE 9 CAMBRIDGE ELECTRIC LIGHT COMPANY Operating Revenues Operating revenues increased by $1.4 million, or 4.6%, and $7 million, or 12.1%, respectively, due primarily to new base rates that became effective June 1, 1993, higher total unit sales and an increase in fuel, transmission and purchased power costs compared to the same periods in 1993. In addition, operating revenues for the current three and six-month periods include an overcollection of $437,000 and $1.5 million, respectively, of capacity-related costs associated with certain purchased power contracts. For the same periods in 1993, approximately $479,000 and $649,000 of these costs were not recovered in revenues due to the recovery mechanism established by the DPU. The impact of this recovery mechanism on net income was $266,000 and $899,000 in the current three and six-month periods compared to a net loss of $282,000 and $394,000 for the same periods in 1993. The improved recovery of these capacity-related costs is due to the aforementioned new base rates. (Refer to the "Power Contracts" section to follow in this discussion.) During the current periods retail unit sales decreased slightly compared to the same periods in 1993 due primarily to lower sales to a large municipal customer and more moderate weather during the second quarter of 1994 offset, in part, by higher sales to residential and commercial customers during the first quarter of 1994 because of more extreme weather conditions. The increase in wholesale sales reflects a higher level of sales to the New England Power Pool due to changes in the Company's capacity needs. Fluctua- tions in the level of wholesale sales have little, if any, impact on earnings. The Company received approval from the DPU to recover in revenues current costs associated with conservation and load management (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 reve- nues. Current three and six-month C&LM costs were $284,000 and $631,000, respectively, compared to $1.2 and $1.5 million for the same periods in 1993. Electricity Purchased For Resale, Transmission and Fuel Fuel, transmission and purchased power costs increased by $648,000 and $4.1 million for the current three and six-month periods compared to the same periods in 1993. These increases primarily reflect a greater demand for power as reflected by the higher level of sales during the first quarter of 1994 due to more extreme weather conditions. The cost of fuel, transmission and purchased power averaged 5.2 cents per KWH for the current quarter compared to 5.3 cents per KWH for the same period in 1993 and was unchanged for the current six-month period compared to the same period in 1993. The average cost of fuel, transmission and purchased power costs during the period primarily reflects the lower cost of fuel oil at affiliate Canal Electric Company's generating station, a major source of power for the Company, offset, in part, by power purchased from a higher-cost must-run non-utility generator. Average oil prices per barrel at Canal for the six-month periods ended June 30, 1994 and 1993 were $13.88 and 14.34. PAGE 10 CAMBRIDGE ELECTRIC LIGHT COMPANY Other Operation and Maintenance Other operation and maintenance expense declined approximately $1.1 million in the current quarter reflecting a decrease in other operation expense ($1.3 million) offset, in part, by an increase in maintenance expense ($150,000). The decrease in other operation expense was due primarily to a lower level of current and amortized C&LM costs ($871,000), lower affiliated services company charges ($233,000) that reflect the impact of a second quarter 1993 work force reduction and a decrease in the provision for bad debts ($113,000) due to improved payment experience. 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 $32,000 and $143,000 during the current quarter and first six months of 1994, respectively, due primarily to interest income ($79,000) recorded in the first quarter related to a Massachu- setts sales tax abatement and 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 ($99,000) in the current six-month period primarily reflects the interest to be refunded to the Company's customers in connection with the aforementioned sales tax abatement ($79,000) and interest on income tax deficiencies ($17,000). Interest charges for the current three- month period were virtually unchanged compared to the same period in 1993. 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 PAGE 11 CAMBRIDGE ELECTRIC LIGHT COMPANY 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. In a letter dated June 30, 1994, Eastern provided to Commonwealth Electric and the Company written notice of arbitration and its designation of an arbitrator pursuant to the 1989 agreements. The Company and Commonwealth Electric by letter dated July 29, 1994 provided to Eastern notice of the companies' designation of an arbitrator and on July 30, 1994 filed an action in the Middlesex Superior Court (the Court) which seeks to have the issues which are to be the subject of the arbitration decided by the Court. 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. 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 June 30, 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: August 12, 1994 -----END PRIVACY-ENHANCED MESSAGE-----