-----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, JKkDQSuPjqc/SIdwAz82QW7J5IwFtKnNjbfoklQdOBL7xsqKik+KSebWOLPrGgav O2cB7QbQF3lLM2CDJzL1AA== 0000071304-97-000046.txt : 19971117 0000071304-97-000046.hdr.sgml : 19971117 ACCESSION NUMBER: 0000071304-97-000046 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19970930 FILED AS OF DATE: 19971114 SROS: NONE 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: 97720701 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 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, 1997 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.) 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 November 1, 1997 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, 1997 AND DECEMBER 31, 1996 ASSETS (Dollars in thousands) September 30, December 31, 1997 1996 (Unaudited) PROPERTY, PLANT AND EQUIPMENT, at original cost $162 452 $161 331 Less - Accumulated depreciation 63 337 61 499 99 115 99 832 Add - Construction work in progress 940 546 100 055 100 378 INVESTMENTS Equity in nuclear electric power companies 10 152 9 403 Other 5 5 10 157 9 408 CURRENT ASSETS Cash 890 143 Accounts receivable Affiliates 755 1 452 Customers 12 079 11 285 Unbilled revenues 3 359 2 751 Prepaid taxes - Income 1 175 968 Property 2 580 1 704 Inventories and other 2 178 2 023 23 016 20 326 DEFERRED CHARGES Regulatory Assets 73 954 42 781 Other 2 047 2 258 76 001 45 039 $209 229 $175 151 CAMBRIDGE ELECTRIC LIGHT COMPANY CONDENSED BALANCE SHEETS SEPTEMBER 30, 1997 AND DECEMBER 31, 1996 CAPITALIZATION AND LIABILITIES (Dollars in thousands) September 30, December 31, 1997 1996 (Unaudited) CAPITALIZATION Common Equity - Common stock, $25 par value - Authorized and outstanding - 346,600 shares, wholly-owned by Commonwealth Energy System (Parent) $ 8 665 $ 8 665 Amounts paid in excess of par value 27 953 27 953 Retained earnings 11 226 9 233 47 844 45 851 Long-term debt, including premiums, less maturing debt and current sinking fund requirements 17 402 17 503 65 246 63 354 CURRENT LIABILITIES Interim Financing - Notes payable to banks 19 375 18 725 Advances from affiliates 7 895 5 065 Maturing long-term debt - 4 260 27 270 28 050 Other Current Liabilities - Current sinking fund requirements 100 100 Accounts payable Affiliates 5 168 4 429 Other 5 679 8 216 Accrued local property and other taxes 3 455 1 705 Accrued interest 196 475 Other 5 608 3 738 20 206 18 663 47 476 46 713 DEFERRED CREDITS Accumulated deferred income taxes 14 846 14 355 Yankee Atomic purchased power contract 2 694 3 466 Connecticut Yankee purchased power contract 30 021 35 879 Maine Yankee purchased power contract 37 596 - Unamortized investment tax credits and other 11 350 11 384 96 507 65 084 COMMITMENTS AND CONTINGENCIES $209 229 $175 151 See accompanying notes. CAMBRIDGE ELECTRIC LIGHT COMPANY CONDENSED STATEMENTS OF INCOME AND RETAINED EARNINGS FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996 (Dollars in thousands) (Unaudited) Three Months Ended Nine Months Ended 1997 1996 1997 1996 ELECTRIC OPERATING REVENUES $35 721 $33 229 $98 834 $90 984 OPERATING EXPENSES Electricity purchased for resale, transmission and fuel 23 388 21 750 66 250 59 261 Other operation and maintenance 6 547 5 214 21 158 17 175 Depreciation 1 119 1 086 3 357 3 258 Taxes - Income 1 181 1 370 1 317 2 641 Local property 776 785 2 310 2 286 Payroll and other 242 178 706 643 33 253 30 383 95 098 85 264 OPERATING INCOME 2 468 2 846 3 736 5 720 OTHER INCOME 335 420 1 360 2 032 INCOME BEFORE INTEREST CHARGES 2 803 3 266 5 096 7 752 INTEREST CHARGES Long-term debt 362 431 1 199 1 809 Other interest charges 474 412 1 338 950 Allowance for borrowed funds used during construction (13) (12) (23) (49) 823 831 2 514 2 710 NET INCOME 1 980 2 435 2 582 5 042 RETAINED EARNINGS - Beginning of period 9 246 8 522 9 233 7 561 Dividends on common stock - - (589) (1 646) RETAINED EARNINGS - End of period $11 226 $ 8 522 $11 226 $10 957 See accompanying notes. CAMBRIDGE ELECTRIC LIGHT COMPANY CONDENSED STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996 (Dollars in thousands) (Unaudited) 1997 1996 CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 2 582 $ 5 042 Effects of noncash items - Depreciation and amortization 3 357 3 258 Deferred income taxes and investment tax credits, net (446) 92 Earnings from corporate joint ventures (884) (908) Dividends from corporate joint ventures 135 617 Change in working capital, exclusive of cash and interim financing (400) 468 All other operating items 988 (2 392) Net cash provided by operating activities 5 332 6 177 CASH FLOWS FOR INVESTING ACTIVITIES Additions to property, plant and equipment (exclusive of AFUDC) (3 092) (2 850) Allowance for borrowed funds used during construction (23) (49) Net cash used for investing activities (3 115) (2 899) CASH FLOWS FROM FINANCING ACTIVITIES Payment of dividends (589) (1 646) Proceeds from short-term borrowings 650 15 775 Advances from affiliates 2 830 3 185 Long-term debt issues refunded (4 260) (20 000) Sinking funds payments (101) (102) Net cash used for financing activities (1 470) (2 788) Net increase (decrease) in cash 747 490 Cash at beginning of period 143 239 Cash at end of period $ 890 $ 729 SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION Cash paid during the period for: Interest (net of capitalized amounts) $ 2 770 $ 3 216 Income taxes $ 1 122 $ 3 049 See accompanying notes. CAMBRIDGE ELECTRIC LIGHT COMPANY NOTES TO CONDENSED FINANCIAL STATEMENTS (1) General Information 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 System 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 has 142 regular employees including 106 (75%) represented by a collective bargaining unit. The existing collective bargaining agreement remains in effect until September 1, 1998. Employee relations have generally been satisfactory. During the second quarter of 1997, the system initiated a voluntary personnel reduction program. For additional information, see the "Personnel Reduction Program" section under Management's Discussion and Analysis of Results of Operations. (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 1996 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, 1997 and 1996 reflect, in the opinion of the Company, all adjustments (consisting of only normal recurring accruals, except for those described in the "Personnel Reduction Program" section under Management's Discussion and Analysis of Results of Operations) 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. Income tax expense is recorded using the statutory rates in effect applied to book income subject to tax recorded in the interim period. 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 and the accrual of the costs associated with the Personnel Reduction Program referred to above. (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 CAMBRIDGE ELECTRIC LIGHT COMPANY (FERC) and the Massachusetts Department of Public Utilities (DPU). Based on the current regulatory framework, the Company accounts for the economic effects of regulation in accordance with the provisions of Statement of Financial Accounting Standards (SFAS) No. 71, "Accounting for the Effects of Certain Types of Regulation." The Company has established various regulatory assets in cases where the DPU and/or the FERC have permitted or are expected to permit recovery of specific costs over time. Similarly, regulatory liabilities established by the Company are required to be refunded to customers over time. Effective January 1, 1996, the Company adopted SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of." SFAS No. 121 imposes stricter criteria for regulatory assets by requiring that such assets be probable of future recovery at each balance sheet date. SFAS No. 121 did not have an impact on the Company's financial position upon adoption. This result may change as modifications are made to the current regulatory framework due to ongoing electric industry restructuring efforts in Massachusetts. If all or a separable portion of the Company's operations becomes no longer subject to the provisions of SFAS No. 71, a write-off of related regulatory assets and liabilities would be required, unless some form of transition cost recovery continues through rates established and collected for the Company's remaining regulated operations. In addition, the Company would be required to determine any impairment to the carrying costs of deregulated plant and inventory assets. However, pending Massachusetts legislation provides for recovery of stranded costs, subject to review. For additional information relating to industry restructuring, see the "Electric Industry Restructuring" section under Management's Discussion and Analysis of Results of Operations. The principal regulatory assets included in deferred charges were as follows: September 30, December 31, 1997 1996 (Dollars in thousands) Maine Yankee unrecovered plant and decommissioning costs $37 596 $ - Connecticut Yankee unrecovered plant and decommissioning costs 30 021 35 879 Yankee Atomic unrecovered plant and decommissioning costs 2 694 3 466 Postretirement benefits costs including pensions 3 027 2 988 Other 616 448 $73 954 $42 781 The regulatory liabilities, reflected in the accompanying Balance Sheets and related to deferred income taxes, were $3.2 million at September 30, 1997 and December 31, 1996. CAMBRIDGE ELECTRIC LIGHT COMPANY (2) Commitments and Contingencies (a) Construction Program The Company is engaged in a continuous construction program presently estimated at $27 million for the five-year period 1997 through 2001. Of that amount, $5.9 million is estimated for 1997. As of September 30, 1997 the Company's actual construction expenditures amounted to approximately $3.1 million 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 securities. 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) Maine Yankee Nuclear Power Plant The Company has a 4% equity ownership interest (approximately $3 million at September 30, 1997), with a power entitlement of 31.2 MW, in a nuclear power plant located in Wiscasset, Maine. The plant, operated by Maine Yankee Atomic Power Company (Maine Yankee), has been out of service since an outage that began in December of 1996. On August 6, 1997, the Board of Directors of Maine Yankee voted to permanently cease power operations and begin the process of decommissioning the plant. The decision to shut down the plant was based on an economic analysis of the costs, risks and uncertainties associated with operating the plant compared to those associated with closing and decommissioning the plant. Based upon regulatory precedent, Maine Yankee believes that it will be permitted to continue to collect from its power purchasers (including the Company) decommissioning costs, unrecovered plant investment and other costs associated with the permanent closure of the plant over the remain- ing period of the plant's operating license that expires in 2008. The Company does not believe the ultimate outcome of the early closing of this plant will have a material adverse effect on its operations and believes that recovery of these FERC-approved costs would continue to be allowed in its rates at the retail level. Therefore, the Company recorded a liability for its estimated share of decommissioning costs and a corresponding regulatory asset in the third quarter. CAMBRIDGE ELECTRIC LIGHT COMPANY Item 2. Management's Discussion and Analysis of Results of Operations The following is a discussion of major 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, 1997 and 1996 and unit sales for these periods is shown below: Three Months Ended Nine Months Ended September 30, September 30, 1997 and 1996 1997 and 1996 Increase (Decrease) (Dollars in thousands) Electric Operating Revenues $ 2 492 7.5 % $ 7 850 8.6 % Operating Expenses - Electricity purchased for resale, transmission and fuel 1 638 7.5 6 989 11.8 Other operation and maintenance 1 333 25.6 3 983 23.2 Depreciation 33 3.0 99 3.0 Taxes - Federal and state income (189) (13.8) (1 324) (50.1) Local property and other 55 5.7 87 3.0 2 870 9.5 9 834 11.5 Operating Income (378) (13.3) (1 984) (34.7) Other Income (85) (20.2) (672) (33.1) Income Before Interest Charges (463) (14.2) (2 656) (34.3) Interest Charges (8) (1.0) (196) (7.2) Net Income $ (455) (18.7) $(2 460) (48.8) Unit Sales (MWH) Retail 12 295 3.7 19 432 2.0 Wholesale (2 598) (4.1) 14 956 8.9 Total unit sales 9 697 2.4 34 388 3.1 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, 1997 409 792 348 987 60 805 1 156 843 974 145 182 698 September 30, 1996 400 095 336 692 63 403 1 122 455 954 713 167 742 CAMBRIDGE ELECTRIC LIGHT COMPANY Operating Revenues, Electricity Purchased For Resale, Transmission and Fuel For the nine months ended September 30, 1997 operating revenue increased approximately $7.9 million or 8.6% due primarily to increases in electricity purchased for resale ($7.5 million) and fuel costs ($1 million), offset in part by a decrease in transmission ($1.5 million). During the third quarter of 1997, operating revenue increased approximately $2.5 million or 7.5% due primarily to increases in electricity purchased for resale ($1.2 million), fuel costs ($218,000) and transmission ($227,000). Also contributing to the increase in both periods were higher unit sales. Total unit sales for the current nine-month period increased 3.1% due to higher retail sales (2%), reflecting increases in sales to residential and commercial customers, offset in part by lower sales to industrial customers. Also affecting the increase in unit sales were higher wholesale sales to the New England Power Pool. During the current quarter and first nine months of 1997, purchased power costs increased approximately $1.2 million (6.3%) and $7.5 million (14.6%) due to higher fuel costs and higher costs for replacement power reflecting the permanent shutdown of Connecticut Yankee during 1996 and the absence of power from Maine Yankee which had been out of service since December of 1996 and will be permanently shut down. Also included in purchased power is an increase in purchases from affiliate Canal Electric Company's Unit 1 and 2 reflecting the increased availability of these units. Operating Expenses For the current quarter and nine-month period, operation and maintenance increased $1,333,000 or 25.6% and $3,983,000 or 23.2%, respectively. The increase in the nine-month period was primarily due to a one-time charge ($2.5 million) related to a Personnel Reduction Program initiated during the second quarter (as further discussed below). Also affecting the increase in the current three and nine-month periods were higher insurance and benefit costs of $602,000 and $389,000, respectively and higher costs related to automated meter reading equipment of approximately $100,000 and $300,000, respectively. The significant decreases in federal and state income taxes for the nine-month period was due to a lower level of pretax income. Other Income and Interest Charges The decrease in other income for the nine-month period was primarily due to the absence of a gain relating to the 1996 sale of parcels of land ($664,000). Interest charges for the current nine-month period declined by 7.2% due to lower long-term interest costs reflecting the repayment of a $20 million (9.97%) long-term debt issue during the second quarter of 1996, the effect of which was partially offset by a higher average level of short-term borrowings. During the quarter, interest charges were virtually unchanged reflecting the aforementioned retirement of long-term debt offset by the higher average level of short-term borrowings. CAMBRIDGE ELECTRIC LIGHT COMPANY Personnel Reduction Program As initially discussed in the Company's 1996 Annual Report on Form 10-K filed with the Securities and Exchange Commission, the Company announced the details of a system-wide voluntary Personnel Reduction Program (PRP) in May 1997. The goal of the PRP is to achieve a reduced, more efficient and more productive workforce in response to the significant regulatory changes facing the System. This action followed the consolidation of the system's electric and gas operations. The expectation is that the system's workforce will be reduced by 15% to 20%. The PRP was offered to substantially all regular and part-time employees of the system. Eligibility for employees covered by collective bargaining agreements was subject to negotiation. The system reserves the right to limit the number of participants to 300; however, the system expects the final participation level to exceed this count. The program provides severance based on years of service, the continuation of certain health and dental insurance for specified periods and limited reimbursement for certain educational and/or outplacement services. To date, approximately 8% of the Company's employees have voluntarily terminated employment with the Company as a result of the PRP. The Company estimates that the cost of termination benefits as described above, including a portion of costs for certain affiliates but excluding generation-related costs that are being addressed separately as part of the industry restructur- ing process, will approximate $2.5 million which was recorded in the second quarter and had an after-tax income impact of $1.5 million. The payback period is expected to be less than one year. Electric Industry Restructuring On December 30, 1996 the DPU issued a final order announcing its "Model Rules and Legislative Proposal" as a guide in the creation of a competitive market for electric generation in Massachusetts. Legislative proposals concerning electric industry restructuring were filed by the Governor of the Commonwealth of Massachusetts on February 24, 1997, and by the Massachusetts Legislature's Joint Committee on Electric Utility Restructuring on March 20, 1997 that ultimately evolved into the proposal issued on August 4, 1997 by the Senate Chairman of the Joint Committee on Government Regulations. Additionally, during the past year, three Massachusetts electric utilities announced negotiated restructuring settlements with the Massachusetts Attorney General. Generally, these original proposals and settlement agreements included, among other things, provisions for a 10% reduction in customer charges, divestiture of non-nuclear generating assets, recovery of stranded costs through a non-bypassable access charge and an implementation date of January 1, 1998. Subsequently, on October 3, 1997, the House Chairman of the Joint Committee on Government Regulations issued another proposal that included, among other things, a provision calling for a 15% reduction in rates for customers taking standard offer service from the utility over a seven-year period, the establishment of an auditing board within the DPU that would review the stranded costs that would be included in each company's non- bypassable access charge, unbundled rates as of January 1, 1998 and implementation of customer choice of energy supplier by March 1, 1998. CAMBRIDGE ELECTRIC LIGHT COMPANY On October 29, 1997, a joint proposal was filed by the chairpersons of the Joint Committee on Government Regulations which essentially reflected the provisions previously proposed. This proposal was then forwarded to the Ways and Means Committee of the House of Representatives for further review and amendment. The House Ways and Means Committee then sent the amended legislative proposal to the House of Representatives (the House). On November 10, 1997, after a considerable number of additional amendments were made by members of the House, the legislation was passed in the House by a vote of 157 to 3. Provisions of this legislation include, among other things, a 10% discount on standard offer service and retail choice of energy supplier effective March 1, 1998, with a subsequent increase in the discount on standard offer service to 15% upon completion of divestiture of non-nuclear generating assets and securitization of net non-mitigable stranded costs (which, for the Company, are primarily the result of above-market purchased power contracts with non-utility generators); and, recovery of stranded costs subject to review and an audit process. A Senate version of electric industry restructuring legislation is expected shortly. The proposed legislation is lengthy, complex and subject to change before it is finalized. The Company cannot yet determine the final impact on its operations and financial condition. The final legislation must also be approved by the Massachusetts House and Senate and signed by the Governor of Massachusetts. While the Company is encouraged by the legislation's treatment of stranded cost recovery, the mandated customer discount could have a significant impact on future cash flows. The system is preparing a proposed restructuring plan in anticipation of final legislation being enacted. Auction Process On March 31, 1997, the system submitted a report to the DPU which detailed the proposed auction process for selling its electric generation assets and entitlements. The process includes a standard, sealed-bid auction for generation assets and purchased power contracts. The auction process would provide a market-based approach to maximizing stranded cost mitigation and minimizing the access charges that ratepayers will have to pay for stranded cost recovery. A request for bids from interested parties was issued during August and in October an Offering Memorandum was issued. The system expects that the final bidders will be chosen by year-end and that the entire process, including regulatory approvals, will be completed no later than the end of 1998. Provisions of Statement of Financial Accounting Standards No. 71 As described in Note 2(b) of the Notes to Condensed Financial Statements, the Company complies with the provisions of Statement of Financial Accounting Standards (SFAS) No. 71, "Accounting for the Effects of Certain Types of Regulation." In the event the Company is somehow unable to meet the criteria for following SFAS No. 71, the accounting impact would be an extraordinary, non-cash charge to operations in an amount that could be material. Criteria that could give rise to the discontinuance of SFAS No. 71 include: 1) increasing competition restricting the system's ability to establish prices to recover specific costs, and 2) a significant change in the current manner in which rates are set by regulators. The Company monitors these criteria to ensure that the continuing application of SFAS No. 71 is appropriate. Recently, the Securities and Exchange Commission has questioned the ability of certain utilities continuing the application of SFAS No. 71 where legislation provided for the transition to retail competition. The issue of when and how to discontinue the application of SFAS No. 71 by utilities during transition CAMBRIDGE ELECTRIC LIGHT COMPANY to competition was referred to the Financial Accounting Standards Board's Emerging Issues Task Force and guidance was issued in July 1997. Based on the current evaluation of the various factors and conditions that are expected to impact future cost recovery, the Company believes that its utility operations remain subject to SFAS No. 71 and its regulatory assets, including those related to electric generation, remain probable of future recovery. CAMBRIDGE ELECTRIC LIGHT COMPANY PART II - OTHER INFORMATION Item 1. Legal Proceedings The Company is an intervenor in a pending appeal at the Massachusetts Supreme Judicial Court (SJC) filed by the Massachusetts Institute of Technology (MIT)involving a DPU decision approving a customer transition charge (CTC) for the recovery of stranded investment costs. On September 18, 1997, the SJC announced its decision remanding the matter to the DPU 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 DPU's subsidiary findings precluded the SJC from undertaking a meaningful review of the DPU's calculations that formed the basis of the customer transition charge. Among the issues that the SJC directed the DPU to consider further are: the methodology for calculation of stranded costs, why 75% of stranded costs were allocated to MIT rather than 100%, the prudence of the stranded costs incurred by the Company, and whether the Company took the necessary mitigation efforts to reduce stranded costs. With the SJC's remand of the order to the DPU, the parties have been discussing a standstill agreement. The standstill agreement would not resolve questions about the ultimate level of CTC payments or what the final determination will be with respect to the CTC upon remand to the DPU. The standstill agreement, if finalized and approved by the SJC, would govern the obligations of MIT to pay the CTC, subject to reconciliation, during the term of the DPU's remand proceeding. This issue is discussed more fully in the Company's 1996 Annual Report on Form 10-K. At this time, management is unable to predict the outcome of this proceeding. Item 5. Other Information None Item 6. Exhibits and Reports on Form 8-K (a) Exhibits Exhibit 27 - Financial Data Schedule. Filed herewith as Exhibit 1 is the Financial Data Schedule for the nine months ended September 30, 1997. Filed herewith as Exhibit 2 is the restated Financial Data Schedule for the nine months ended September 30, 1996. (b) Reports on Form 8-K No reports on Form 8-K were filed during the three months ended September 30, 1997. 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 and Accounting Officer: JAMES D. RAPPOLI James D. Rappoli, Financial Vice President and Treasurer Date: November 14, 1997 EX-27 2
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, 1997 and is qualified in its entirety by reference to such financial statements. 0000016573 CAMBRIDGE ELECTRIC LIGHT COMPANY 1,000 DEC-31-1997 SEP-30-1997 9-MOS PER-BOOK 100,055 10,157 23,016 76,001 0 209,229 8,665 27,953 11,226 47,844 0 0 17,402 27,272 0 0 100 0 0 0 116,611 209,229 98,834 1,317 93,781 95,098 3,736 1,360 5,096 2,514 2,582 0 2,582 589 1,199 5,332 0 0
EX-27 3
UT This schedule contains restated 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, 1996 and is qualified in its entirety by reference to such financial statements. 0000016573 CAMBRIDGE ELECTRIC LIGHT COMPANY 1,000 DEC-31-1996 SEP-30-1996 9-MOS PER-BOOK 99,055 9,520 20,188 11,713 0 140,476 8,665 27,953 10,957 47,575 0 0 17,503 24,060 0 0 4,360 0 0 0 46,978 140,476 90,984 2,641 82,623 85,264 5,720 2,032 7,752 2,710 5,042 0 5,042 1,646 1,809 6,177 0 0
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