-----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, RZt6Ck63Qq4P9zK9h17TV+sSI9APbamAINY8dVHSzHK/wZVIs+z0VaoxQ2NI+IHS GcOI14Slk77aj2Ij5AmLfw== 0000071304-96-000011.txt : 19960515 0000071304-96-000011.hdr.sgml : 19960515 ACCESSION NUMBER: 0000071304-96-000011 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960331 FILED AS OF DATE: 19960514 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: 1934 Act SEC FILE NUMBER: 002-07909 FILM NUMBER: 96563694 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 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549-1004 Form 10-Q (Mark One) [ x ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 1996 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] For the transition period from _______________ to _______________ Commission file number 2-7909 CAMBRIDGE ELECTRIC LIGHT COMPANY (Exact name of registrant as specified in its charter) Massachusetts 04-1144610 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) One Main Street, Cambridge, Massachusetts 02142-9150 (Address of principal executive offices) (Zip Code) (617) 225-4000 (Registrant's telephone number, including area code) (Former name, address and fiscal year, if changed since last report.) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES [ x ] NO [ ] Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Outstanding at Class of Common Stock May 1, 1996 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 MARCH 31, 1996 AND DECEMBER 31, 1995 ASSETS (Unaudited) March 31, December 31, 1996 1995 (Dollars in Thousands) PROPERTY, PLANT AND EQUIPMENT, at original cost $157 616 $156 925 Less - Accumulated depreciation 59 823 58 839 97 793 98 086 Add - Construction work in progress 1 405 1 225 99 198 99 311 INVESTMENTS Equity in nuclear electric power companies 9 437 9 224 Other 5 5 9 442 9 229 CURRENT ASSETS Cash 638 239 Accounts receivable - Affiliate companies 1 538 2 140 Customers 8 940 10 534 Unbilled revenues 3 131 1 769 Prepaid property taxes 831 1 690 Inventories and other 2 308 2 179 17 386 18 551 DEFERRED CHARGES Yankee Atomic purchased power contract 4 265 4 504 Other 5 179 5 447 9 444 9 951 $135 470 $137 042 See accompanying notes. CAMBRIDGE ELECTRIC LIGHT COMPANY CONDENSED BALANCE SHEETS MARCH 31, 1996 AND DECEMBER 31, 1995 CAPITALIZATION AND LIABILITIES (Unaudited) March 31, December 31, 1996 1995 (Dollars in Thousands) 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 7 131 7 561 43 749 44 179 Long-term debt, including premiums, less current sinking fund requirements 21 865 21 865 65 614 66 044 CURRENT LIABILITIES Interim Financing - Notes payable to banks 1 975 2 675 Advances from affiliates 1 190 2 425 Maturing long-term debt 20 000 20 000 23 165 25 100 Other Current Liabilities - Current sinking fund requirements 160 160 Accounts payable Affiliate companies 3 301 3 787 Other 9 364 8 870 Accrued taxes - Local property and other 1 717 1 690 Income 636 731 Accrued interest 1 272 973 Other 1 941 1 272 18 391 17 483 41 556 42 583 DEFERRED CREDITS Accumulated deferred income taxes 14 017 13 882 Unamortized investment tax credits 1 918 1 941 Yankee Atomic purchased power contract 4 265 4 504 Other 8 100 8 088 28 300 28 415 COMMITMENTS AND CONTINGENCIES $135 470 $137 042 See accompanying notes. . CAMBRIDGE ELECTRIC LIGHT COMPANY CONDENSED STATEMENTS OF INCOME AND RETAINED EARNINGS FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1995 (Unaudited) 1996 1995 (Dollars in Thousands) ELECTRIC OPERATING REVENUES $29 477 $30 326 OPERATING EXPENSES Electricity purchased for resale, transmission and fuel 19 319 21 077 Other operation and maintenance 5 906 5 879 Depreciation 1 086 1 038 Taxes - Income 412 95 Local property 757 772 Payroll and other 273 257 27 753 29 118 OPERATING INCOME 1 724 1 208 OTHER INCOME 265 219 INCOME BEFORE INTEREST CHARGES 1 989 1 427 INTEREST CHARGES Long-term debt 943 946 Other interest charges 111 94 Allowance for borrowed funds used during construction (21) (25) 1 033 1 015 NET INCOME 956 412 RETAINED EARNINGS - Beginning of period 7 561 7 166 Dividends on common stock (1 386) (1 005) End of period $ 7 131 $ 6 573 See accompanying notes. CAMBRIDGE ELECTRIC LIGHT COMPANY CONDENSED STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1995 (Unaudited) 1996 1995 (Dollars in Thousands) OPERATING ACTIVITIES Net income $ 956 $ 412 Effects of noncash items - Depreciation and amortization 1 086 1 111 Deferred income taxes and investment tax credits, net 69 47 Earnings from corporate joint ventures (303) (222) Dividends from corporate joint ventures 90 116 Change in working capital, exclusive of cash and interim financing 2 472 (1 775) All other operating items 233 (284) Net cash provided by (used for) operating activities 4 603 (595) INVESTING ACTIVITIES Additions to property, plant and equipment (exclusive of AFUDC) (862) (928) Allowance for borrowed funds used during construction (21) (25) Net cash used for investing activities (883) (953) FINANCING ACTIVITIES Payment of dividends (1 386) (1 005) Payment of short-term borrowings (700) (2 175) Advances from (payments to) affiliates (1 235) 4 670 Net cash provided by (used for) financing activities (3 321) 1 490 Net increase (decrease) in cash 399 (58) Cash at beginning of period 239 376 Cash at end of period $ 638 $ 318 SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION Cash paid during the period for Interest (net of capitalized amounts) $ 677 $ 648 Income taxes $ 780 $ 658 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 subsidiary of Commonwealth Energy System (the System). The System is the parent company and, together with its subsidiaries, is collectively 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 with investments in four operating public utility companies located in central, eastern and southeastern Massachusetts and several non-regulated companies. (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 1995 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 March 31, 1996 and 1995 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. 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 consumption of energy. (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 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, the regulatory liabilities established by the Company are required to be refunded to customers over time. On January 1, 1996, the Company adopted SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets to be Disposed Of." SFAS No. 121 imposes stricter criteria for CAMBRIDGE ELECTRIC LIGHT COMPANY regulatory assets by requiring that such assets be probable of future recovery at each balance sheet date. As of March 31, 1996, SFAS No. 121 did not have an impact on its financial position or results of operations. However, this result may change as modifications are made in the current regulatory framework pursuant to electric utility restructuring orders issued by the DPU. The principal regulatory assets included in deferred charges were as follows: March 31, December 31, 1996 1995 (Dollars in Thousands) Yankee Atomic unrecovered plant and decommissioning costs $ 4 265 $ 4 504 Postretirement benefit costs including pensions 2 933 2 807 Other 478 498 $ 7 676 $ 7 809 The regulatory liabilities, reflected in the accompanying balance sheets and related to deferred income taxes, were $3.2 million at March 31, 1996 and December 31, 1995. (2) Commitments and Contingencies The Company is engaged in a continuous construction program presently estimated at $27.2 million for the five-year period 1996 through 2000. Of that amount, $6.3 million is estimated for 1996. As of March 31, 1996 the Company's actual construction expenditures amounted to $883,000, including an allowance for funds used during construction. The Company expects to finance these expenditures on an interim basis with internally-generated funds and short-term borrowings which are ultimately expected to be repaid with the proceeds from sales of long-term debt and equity securities. 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. CAMBRIDGE ELECTRIC LIGHT COMPANY Item 2. Management's Discussion and Analysis of Results of Operations The following is a discussion of certain significant factors which have affected operating revenues, expenses and net income during the periods included in the accompanying condensed statements of income. This discussion should be read in conjunction with the Notes to Condensed Financial Statements appearing elsewhere in this report. A summary of the period to period changes in the principal items included in the condensed statements of income for the three months ended March 31, 1996 and 1995 and unit sales for these periods is shown below: Three Months Ended March 31, 1996 and 1995 Increase (Decrease) (Dollars in Thousands) Electric Operating Revenues $ (849) (2.8)% Operating Expenses - Electricity purchased for resale, transmission and fuel (1 758) (8.3) Other operation and maintenance 27 0.5 Depreciation 48 4.6 Taxes - Federal and state income 317 333.7 Local property and other 1 0.1 (1 365) (4.7) Operating Income 516 42.7 Other Income 46 21.0 Income Before Interest Charges 562 39.4 Interest Charges 18 1.8 Net Income $ 544 132.0 Unit Sales (Megawatthours or MWH) Retail (20 374) (6.0) Sales for resale 32 371 95.2 Total unit sales 11 997 3.2 The following is a summary of unit sales (in MWH) for the periods indicated: Unit Sales (MWH) Three Months Ended Total Retail Wholesale March 31, 1996 382 809 316 430 66 379 March 31, 1995 370 812 336 804 34 008 CAMBRIDGE ELECTRIC LIGHT COMPANY Operating Revenues and Electricity Purchased for Resale, Transmission and Fuel Operating revenues for the first quarter of 1996 decreased $849,000 or 2.8% due primarily to lower retail unit sales (6.0%) and decreases in electricity purchased for resale ($1.6 million), transmission charges ($109,000) and fuel along with conservation and load management (C&LM) costs ($35,000). This was offset, in part, by higher wholesale unit sales. The Company's total unit sales increased 3.2% due to significantly higher wholesale sales to the Town of Belmont and NEPOOL which were offset, somewhat, by reduced retail unit sales of 8.3% and 7.4% to industrial and commercial customers, respectively. During the current quarter, purchased power costs decreased approximately $1.6 million or 8.8% due to lower costs for nuclear power purchases and affiliate Canal Electric Company's (Canal) Unit 2 which is undergoing a plant conversion to natural gas. This was offset, in part, by an increase in power costs from Canal's Unit 1 which was out of service for maintenance during the first quarter in 1995. Other Operating Expenses For the first quarter of 1996, other operation and maintenance increased less than 1% and reflects higher costs for postretirement benefits ($78,000), maintenance on Kendall and Blackstone generating stations ($67,000) and increased health and life insurance costs ($40,000). Offsetting these increases were lower costs associated with research and development ($46,000), C&LM ($30,000) and labor ($16,000), and a decline in the provision for bad debts ($26,000). Depreciation and Taxes Depreciation expense increased 4.6% in 1996 due to a higher level of depreciable property, plant and equipment. The increase in federal and state income taxes of $317,000 was attributed to a higher level of pretax income. Local property and other taxes increased slightly reflecting lower property tax rates and assessments ($15,000) offset by higher payroll taxes ($16,000). Other Income and Interest Charges Other income increased 21% in the current three-month period due primarily to a higher level of equity earnings and the timing of dividend payments from the Company's investment in nuclear generating companies ($107,000). Other income for the first quarter of 1995 includes the reversal of a reserve that related to a settlement negotiated with an outside party for certain costs associated with the Company's C&LM programs ($47,000), the recovery of which was approved by the DPU. For the current quarter, interest charges increased 1.8% due primarily to a higher average level of short-term borrowings. Short-term interest rates for the current quarter averaged 5.6% compared to 6.1% for the first quarter of 1995. CAMBRIDGE ELECTRIC LIGHT COMPANY Electric Industry Restructuring On August 16, 1995, the DPU issued an order calling for the restructuring of the electric utility industry in Massachusetts in order to allow customers more flexibility in choosing their electric service provider and to develop an efficient industry structure and regulatory framework that minimizes long-term costs to consumers while maintaining the safety and reliability of electric services with a minimum impact on the environment. Each of the state's electric utilities, together with other interested parties, participated in this proceeding that initially established a set of principles that would govern the restructuring of the electric industry in Massachusetts. In February 1996, certain utilities submitted required proposals detailing how they would plan to move into a competitive market structure. Since that time, the DPU held a generic proceeding that focused on many of the policy issues raised in its original order. On April 12, 1996, the Company and Commonwealth Electric (the Companies), in response to the generic proceeding, filed comments with the DPU on several issues that should be addressed in creating a restructured electric utility industry which, together with comments from other interested parties, provided valuable input to the DPU in its development of proposed rules that were summarized in its order issued on May 1, 1996. The proposed rules, which are subject to public comment and hearings prior to adoption of final rules in October 1996, are based on the following policies: (1) An Independent System Operator which: (a) operates the regional transmission system reliably; (b) is independent and unaffiliated with electric companies; and (c) applies comparable transmission rates, terms and conditions to all generators; (2) A Power Exchange to manage a competitive bidding pool for short-term power sales; (3) Functional separation of electric companies into generation, trans- mission and distribution corporate entities; (4) Preservation of discounts for low-income customers, shut-off protec- tions and provision of service to all customers; (5) Registration requirements for generation suppliers, including market- ers and aggregators; (6) A reasonable opportunity for recovery of stranded costs, including a proposal to protect municipalities from loss of utility property taxes associated with diminished generation plant value; (7) Options for phased incentives for electric companies to divest their generation assets to stimulate a robust competitive market; (8) Promotion of environmental goals; (9) Support for energy efficiency and renewable energy resources; (10) Encouragement, but not a requirement, for towns with Municipal Electric Companies to participate in the restructured industry; CAMBRIDGE ELECTRIC LIGHT COMPANY (11) A price cap system of economic incentive regulation for the remain- ing distribution and transmission monopolies; (12) Unbundling of rates on bills by January 1, 1997 into separate compo- nents of transmission, distribution and a market proxy for energy costs. Implementation of competitive generation market by January 1, 1998. In its May 1, 1996 order, the DPU acknowledge that it does not have jurisdiction in such areas as environmental regulation and the establishment of an Independent System Operator or a Power Exchange. Federal and state environmental agencies and the Federal Energy Regulatory Commission have the requisite authority in these areas. However, the DPU determined that it was important for it to express its initial views regarding these components of a restructured electric industry. In accordance with the DPU's schedule, the Companies will file revenue- neutral unbundled rates in October 1996 for effect in January 1997. Also, during 1997, the Companies will file their comprehensive restructuring proposal. One element of the Companies' proposal (announced on February 15, 1996) would require the Companies to voluntarily put their power capacity entitlements (1,140 MW) to a market test in an effort to develop a competitive market whereby customers would have the flexibility of choosing their electric supplier. The proposal calls for the auctioning in a competitive market of entitlements in all twenty-one contracts, including contracts held by the Companies involving the System's generating subsidiary Canal Electric. The proposal provides for total recovery of the difference between the current market value of the Companies' power contracts and their original unavoidable costs. This difference, considered to be a stranded cost, would be recovered through a non-bypassable access charge paid over an appropriate time period by all customers in the Companies' service areas. The auction approach has received initial positive reviews from the Commonwealth of Massachusetts Division of Energy Resources and the Office of the Attorney General. Manage- ment is unable to predict the ultimate outcome of the overall proceedings or the Companies' specific proposal. 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 involving a DPU decision approving a customer transition charge for the recovery of stranded investment costs. The SJC has not yet established a schedule for submitting briefs. This issue is discussed more fully in the Company's 1995 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 three months ended March 31, 1996. (b) Reports on Form 8-K No reports on Form 8-K were filed during the three months ended March 31, 1996. 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: May 14, 1996 EX-27 2 FINANCIAL DATA SCHEDULE - MARCH 31, 1996
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 three months ended March 31, 1996 and is qualified in its entirety by reference to such financial statements. 0000016573 CAMBRIDGE ELECTRIC LIGHT COMPANY 1,000 DEC-31-1996 MAR-31-1996 3-MOS PER-BOOK 99,198 9,442 17,386 9,444 0 135,470 8,665 27,953 7,131 43,749 0 0 41,865 3,165 0 0 160 0 0 0 46,531 135,470 29,477 412 27,341 27,753 1,724 265 1,989 1,033 956 0 956 1,386 943 4,603 0 0
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