-----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, DRqIS2v7SkrMSYfb2djPDDMVTvm+DbcNr2DKtuG5Nb+7Ws710/PayS4aVVzhZRGB Fvq63E9+jfyaycoUiuP50w== 0000071304-97-000020.txt : 19970815 0000071304-97-000020.hdr.sgml : 19970815 ACCESSION NUMBER: 0000071304-97-000020 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19970630 FILED AS OF DATE: 19970814 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: 97662630 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 June 30, 1997 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, 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-K 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 JUNE 30, 1997 AND DECEMBER 31, 1996 ASSETS (Dollars in thousands) June 30, December 31, 1997 1996 (Unaudited) PROPERTY, PLANT AND EQUIPMENT, at original cost $161 684 $161 331 Less - Accumulated depreciation 62 458 61 499 99 226 99 832 Add - Construction work in progress 753 546 99 979 100 378 INVESTMENTS Equity in nuclear electric power companies 9 956 9 403 Other 5 5 9 961 9 408 CURRENT ASSETS Cash 118 143 Accounts receivable Affiliates 729 1 452 Customers 11 408 11 285 Unbilled revenues 2 885 2 751 Prepaid taxes - Income 2 362 968 Property - 1 704 Inventories and other 2 255 2 023 19 757 20 326 DEFERRED CHARGES Regulatory Assets 38 574 42 781 Other 1 974 2 258 40 548 45 039 $170 245 $175 151 CAMBRIDGE ELECTRIC LIGHT COMPANY CONDENSED BALANCE SHEETS JUNE 30, 1997 AND DECEMBER 31, 1996 CAPITALIZATION AND LIABILITIES (Dollars in thousands) June 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 9 246 9 233 45 864 45 851 Long-term debt, including premiums, less maturing debt and current sinking fund requirements 17 402 17 503 63 266 63 354 CURRENT LIABILITIES Interim Financing - Notes payable to banks 27 600 18 725 Advances from affiliates 2 865 5 065 Maturing long-term debt - 4 260 30 465 28 050 Other Current Liabilities - Current sinking fund requirements 100 100 Accounts payable Affiliates 4 164 4 429 Other 6 430 8 216 Accrued local property and other taxes 28 1 705 Accrued interest 446 475 Other 5 787 3 738 16 955 18 663 47 420 46 713 DEFERRED CREDITS Accumulated deferred income taxes 14 691 14 355 Yankee Atomic purchased power contract 2 962 3 466 Connecticut Yankee purchased power contract 30 585 35 879 Unamortized investment tax credits and other 11 321 11 384 59 559 65 084 COMMITMENTS AND CONTINGENCIES $170 245 $175 151 See accompanying notes. CAMBRIDGE ELECTRIC LIGHT COMPANY CONDENSED STATEMENTS OF INCOME AND RETAINED EARNINGS FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 1997 AND 1996 (Dollars in thousands) (Unaudited) Three Months Ended Six Months Ended 1997 1996 1997 1996 ELECTRIC OPERATING REVENUES $30 048 $28 368 $63 113 $57 755 OPERATING EXPENSES Electricity purchased for resale, transmission and fuel 19 655 18 192 42 862 37 511 Other operation and maintenance 8 548 6 055 14 611 11 961 Depreciation 1 119 1 086 2 238 2 172 Taxes - Income (283) 859 136 1 271 Local property 757 744 1 534 1 501 Payroll and other 202 192 464 465 29 998 27 128 61 845 54 881 OPERATING INCOME 50 1 240 1 268 2 874 OTHER INCOME 587 1 257 1 025 1 612 INCOME BEFORE INTEREST CHARGES 637 2 497 2 293 4 486 INTEREST CHARGES Long-term debt 407 435 837 1 378 Other interest charges 481 427 864 538 Allowance for borrowed funds used during construction (4) (16) (10) (37) 884 846 1 691 1 879 NET INCOME (247) 1 651 602 2 607 RETAINED EARNINGS - Beginning of period 10 082 7 131 9 233 7 561 Dividends on common stock (589) (260) (589) (1 646) RETAINED EARNINGS - End of period $ 9 246 $ 8 522 $ 9 246 $ 8 522 See accompanying notes. CAMBRIDGE ELECTRIC LIGHT COMPANY CONDENSED STATEMENTS OF CASH FLOWS FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1996 (Dollars in thousands) (Unaudited) 1997 1996 CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 602 $ 2 607 Effects of noncash items - Depreciation and amortization 2 238 2 172 Deferred income taxes and investment tax credits, net (808) 91 Earnings from corporate joint ventures (644) (611) Dividends from corporate joint ventures 91 333 Change in working capital, exclusive of cash and interim financing (1 164) 4 291 All other operating items (180) (682) Net cash provided by operating activities 135 8 201 CASH FLOWS FOR INVESTING ACTIVITIES Additions to property, plant and equipment (exclusive of AFUDC) (1 876) (1 658) Allowance for borrowed funds used during construction (10) (37) Net cash used for investing activities (1 886) (1 695) CASH FLOWS FROM FINANCING ACTIVITIES Payment of dividends (589) (1 646) Proceeds from short-term borrowings 8 875 10 300 Advances from (payments to) affiliates (2 200) 4 975 Long-term debt issues refunded (4 260) (20 000) Sinking funds payments (100) (100) Net cash provided by (used for) financing activities 1 726 (6 471) Net increase (decrease) in cash (25) 35 Cash at beginning of period 143 239 Cash at end of period $ 118 $ 274 SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION Cash paid during the period for: Interest (net of capitalized amounts) $ 1 738 $ 2 201 Income taxes $ 883 $ 2 246 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 non-regulated companies. The Company has 150 regular employees including 111 (74%) 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 June 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, on December 30, 1996, the DPU issued an order containing "Model Rules" for industry restructuring that management believes would essentially allow full recovery of stranded costs. 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: June 30, December 31, 1997 1996 (Dollars in thousands) Connecticut Yankee unrecovered plant and decommissioning costs $30 585 $35 879 Yankee Atomic unrecovered plant and decommissioning costs 2 962 3 466 Postretirement benefits costs including pensions 2 906 2 988 Other 2 121 448 $38 574 $42 781 The regulatory liabilities, reflected in the accompanying Balance Sheets and related to deferred income taxes, were $3.2 million at June 30, 1997 and December 31, 1996. (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 CAMBRIDGE ELECTRIC LIGHT COMPANY that amount, $5.9 million is estimated for 1997. As of June 30, 1997 the Company's actual construction expenditures amounted to approximately $1.9 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 June 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), experienced two outages during 1996 and has remained out of service since the second outage which 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. Maine Yankee is in the process of developing an updated decommissioning cost estimate and expects to file a revised decommissioning cost study with FERC in the fall of 1997 as part of a rate filing reflecting the permanent shutdown of the plant. As a result, the Company is unable to estimate its obligation to Maine Yankee at this time. Based upon regulatory precedent, Maine Yankee believes that it would 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 would 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 will record 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 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, 1997 and 1996 and unit sales for these periods is shown below: Three Months Six Months Ended June 30, Ended June 30, 1997 and 1996 1997 and 1996 Increase (Decrease) (Dollars in thousands) Electric Operating Revenues $ 1 680 5.9 % $ 5 358 9.3 % Operating Expenses - Electricity purchased for resale, transmission and fuel 1 463 8.0 5 351 14.3 Other operation and maintenance 2 493 41.2 2 650 22.2 Depreciation 33 3.0 66 3.0 Taxes - Federal and state income (1 142) (132.9) (1 135) (89.3) Local property and other 23 2.5 32 1.6 2 870 10.6 6 964 12.7 Operating Income (1 190) (96.0) (1 606) (55.9) Other Income (670) (53.3) (587) (36.4) Income Before Interest Charges (1 860) (74.5) (2 193) (48.9) Interest Charges 38 4.5 (188) (10.0) Net Income $(1 898) (115.0) $(2 005) (76.9) Unit Sales (MWH) Retail 8 396 2.8 7 137 1.2 Wholesale 2 091 5.5 17 554 16.8 Total unit sales 10 487 3.1 24 691 3.4 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, 1997 350 038 309 987 40 051 747 051 625 158 121 893 June 30, 1996 339 551 301 591 37 960 722 360 618 021 104 339 CAMBRIDGE ELECTRIC LIGHT COMPANY Operating Revenues, Electricity Purchased For Resale, Transmission and Fuel Operating revenues for the first half of 1997 increased approximately $5.4 million or 9.3% due primarily to the increases in electricity purchased for resale ($6.3 million) and fuel ($727,000), offset, in part by a decrease in transmission ($1.7 million). The Company's total unit sales for the current six-month period increased 3.4% due to higher retail sales (1.2%), 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 six months of 1997, purchased power costs increased approximately $3 million (19.4%) and $6.3 million (19.6%) 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 remained out of service during the first half of 1997. 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 first half of 1997, operation and maintenance increased $2,493,000 or 41.2% and $2,650,000 or 22.2%, respectively due primarily to the recognition of one-time costs ($2.5 million) related to a Personnel Reduction Program (PRP) initiated during the current quarter (as further discussed below). The significant decreases in federal and state income taxes for the current quarter and six-month period were due to a lower level of pretax income. Other Income and Interest Charges The decrease in other income for the current quarter and first six months of 1997 was primarily due to the absence of a gain relating to the 1996 sale of parcels of land. Interest charges for the current six-month period declined by 10% due to lower long term interest 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. The increase in interest charges during the quarter reflects the higher average level of short-term borrowings. 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's companies. This action follows the recent management consolidation of the system's electric and gas operations. The expectation is that the workforce will be reduced by 15% to 20%. CAMBRIDGE ELECTRIC LIGHT COMPANY The PRP is offered to substantially all regular and part-time employees of the system. Eligibility for employees covered by collective bargaining agreements is subject to negotiation. The election period is from May 13 through August 29, 1997. The system reserves the right to limit the number of participants in the program to 300; however, the system expects the final participation level to exceed this amount. 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. Currently, approximately 14% of the Company's employees have applied for the PRP. The Company estimates that the cost of termination benefits as described above, excluding generation-related costs that are being addressed separately as part of the industry restructuring 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 former Governor of the Commonwealth of Massachusetts on February 24, 1997, and by the Massachusetts Legislature's own Joint Committee on Electric Utility Restructuring (the Committee) on March 20, 1997. Each of the plans proposed by the DPU, the Governor and the Committee is intended to provide customers with the opportunity to achieve lower electric bills beginning on the target date of January 1, 1998. In its "Model Rules," the DPU has proposed that the minimum structural reorganization needed to create a competitive market is the functional separation of generation, transmission and distribution within one integrated company, and the establishment of a separate marketing affiliate if a company retains generation assets. Other elements of the DPU's Model Rules provide that electric customers will be able to buy their power on the open market; distribution services will remain a service that continues to be provided exclusively by the existing local distribution companies in clearly defined service territories; and customers will have three types of electric generation choices. First, customers may enter into unregulated agreements with a competitive supplier for the provision of generation. Second, customers may continue to buy power directly from their electric distribution company at a price regulated by the DPU, which is known as standard offer service. Third, customers who have received generation from a competitive supplier but who, for any reason, have stopped receiving such generation will be able to receive default generation service provided by distribution companies at spot market price. In some regulatory jurisdictions, changes in the electric industry could reduce the opportunity that currently exists for electric companies to recover their investment in generating plant and other costs previously approved by CAMBRIDGE ELECTRIC LIGHT COMPANY regulators and included in current rates. These potential losses, which may result from subjecting electric company generation to the pressures of a competitive market, are typically referred to as "stranded costs." The single largest component of stranded costs, which are significant to the system, relates to above-market purchased power contracts that the Company and Commonwealth Electric have with non-utility generators. However, the DPU has concluded that it is in the public interest to provide electric companies a reasonable opportunity to collect net, non-mitigable stranded costs. The DPU has proposed that stranded costs associated with owned generation facilities, regulatory assets, and purchased power obligations be collected over the expected economic life of the generating facility, the current amortization schedule of the regulatory asset, or the contractual term of the purchased power obligation, respectively. The DPU's proposal requires that any stranded cost recovery for an electric utility be subject to mitigation efforts to reduce embedded costs over time. The Model Rules specify that mitigation should include such measures as sales of capacity and energy from owned generation, renegotiation or buy-out of purchased power contracts, and sales and voluntary writedowns of assets. The former Governor's restructuring proposal includes: a standard offer generation service option for residential and small business customers for a five-year period; recovery by electric utilities of net, non-mitigable stranded costs over a 12-year period; the recovery of reasonable employee transition costs for utility workers directly affected by electric industry restructuring; and, at a minimum, the functional separation of generation, transmission and distribution services. The former Governor's legislation also provides a mechanism for electric utilities to reduce their stranded costs by financing the renegotiation or buy-out of above-market purchased power contracts. The bill authorizes the Massachusetts Industrial Finance Agency to issue electric rate reduction bonds to electric utilities that receive a financing order from the DPU. The criteria for eligibility to apply for the financing order include: (1) DPU approval of a plan to provide retail access and divestiture of non-nuclear generating assets; and (2) demonstration that such contract buy-out or purchase, including the cost of financing, will substantially reduce costs to ratepayers. The Committee issued both a comprehensive report, which outlines options for the Legislature's consideration as debate on restructuring continues, and a set of recommendations and a legislative package that is designed to implement electric industry restructuring in Massachusetts. Elements of the Committee's legislative proposal include the functional separation of utility companies into generation, transmission and distribution companies. Transmission and distribution companies would remain regulated while generation companies would be unregulated with pricing determined by the market. The Committee's proposal establishes a retail access date of January 1, 1998 or later, as determined by the DPU, calls for a 10% rate reduction for all customers and allows for the recovery of certain net, non-mitigable stranded costs over a ten-year period. The proposal also encourages divestiture as a mitigation measure by authorizing companies to securitize stranded costs through the issuance of rate reduction bonds only where the company has divested itself of non-nuclear generation assets. On May 6, 1997, the Company and Commonwealth Electric submitted comments on the Committee's legislative proposal making specific recommendations for changes with respect to increasing the time frame for recovery of stranded costs including power contracts, the increased use of securitization and other issues. The CAMBRIDGE ELECTRIC LIGHT COMPANY Massachusetts Legislature, which will render the final passage of any restructuring law, is now considering the legislative proposals of the DPU, the former Governor and the Committee. During the last several months, three Massachusetts electric utilities announced negotiated settlement agreements with the Massachusetts Attorney General's Office (Attorney General) that include divestiture of generating assets, provision for a 10% reduction in customers' bills and recovery of stranded costs through a non-bypassable access charge. One settlement agreement has been approved by the DPU. Implementation of any restructuring settlement may be affected by actions of the Massachusetts Legislature. The Company and Commonwealth Electric have recently engaged in formal settlement discussions with the Attorney General and have provided the Attorney General with information to further the development of a comprehensive settlement. In the unlikely event that the parties are unable to complete a settlement, the companies would file a full restructuring plan with the DPU. On March 31, 1997, the Company and Commonwealth Electric submitted a report to the DPU which detailed the proposed auction process for selling their electric generation assets and entitlements. The process will include a standard, sealed-bid auction for generation assets and for power contracts with the securitization of remaining obligations. 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. The Company anticipates that the bidding process will begin shortly after Labor Day. 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) in- creasing competition restricting the Company'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 periodically reviews 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 to competition has been referred to the FASB's Emerging Issues Task Force and guidance on this issue is expected in the near future. Based on the current evaluation of the various factors and conditions that are expected to impact future cost recovery, the Company believes that its regulatory assets, including those related to electric generation, are 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 involving a DPU decision approving a customer transition charge for the recovery of stranded investment costs. No schedule has been set for a decision from the SJC. 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 six months ended June 30, 1997. Filed herewith as Exhibit 2 is the restated Financial Data Schedule for the six months ended June 30, 1996. (b) Reports on Form 8-K No reports on Form 8-K were filed during the three months ended June 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: August 14, 1997 EX-27 2 FINANCIAL DATA SCHEDULE - JUNE 30, 1997
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 six months ended June 30, 1997 and is qualified in its entirety by reference to such financial statements. 0000016573 CAMBRIDGE ELECTRIC LIGHT COMPANY 1,000 DEC-31-1997 JUN-30-1997 6-MOS PER-BOOK 99,979 9,961 19,757 40,548 0 170,245 8,665 27,953 9,246 45,864 0 0 17,402 30,465 0 0 100 0 0 0 76,414 170,245 63,113 136 61,709 61,845 1,268 1,025 2,293 1,691 602 0 602 589 837 135 0 0
EX-27 3 FINANCIAL DATA SCHEDULE - JUNE 30, 1996 RESTATED
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 six months ended June 30, 1996 and is qualified in its entirety by reference to such financial statements. 0000016573 CAMBRIDGE ELECTRIC LIGHT COMPANY 1,000 DEC-31-1996 JUN-30-1996 6-MOS PER-BOOK 98,925 9,507 18,094 10,269 0 136,795 8,665 27,953 8,522 45,140 0 0 21,764 20,375 0 0 100 0 0 0 49,416 136,795 57,755 1,271 53,610 54,881 2,874 1,612 4,486 1,879 2,607 0 2,607 1,646 1,378 8,201 0 0
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