-----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, n+e2uo/TBZk5Za7ErPO2+esUiBPmahVlbih/WXUkurEDJxIHkCW9I47h17rTbJOf rZVXMJpY0ThYFycrZzm54g== 0000022620-94-000002.txt : 19941116 0000022620-94-000002.hdr.sgml : 19941116 ACCESSION NUMBER: 0000022620-94-000002 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19940930 FILED AS OF DATE: 19941114 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: COMMONWEALTH GAS CO CENTRAL INDEX KEY: 0000022620 STANDARD INDUSTRIAL CLASSIFICATION: 4922 IRS NUMBER: 041989250 STATE OF INCORPORATION: MA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 002-01647 FILM NUMBER: 94559613 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 FORMER COMPANY: FORMER CONFORMED NAME: WORCESTER GAS LIGHT CO DATE OF NAME CHANGE: 19720126 10-Q 1 COMMONWEALTH GAS 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 September 30, 1994 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 2-1647 COMMONWEALTH GAS COMPANY (Exact name of registrant as specified in its charter) Massachusetts 04-1989250 (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, 1994 Common Stock, $25 par value 2,857,000 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 COMMONWEALTH GAS COMPANY CONDENSED BALANCE SHEETS SEPTEMBER 30, 1994 AND DECEMBER 31, 1993 ASSETS (Unaudited) September 30, December 31, 1994 1993 (Dollars in Thousands) PROPERTY, PLANT AND EQUIPMENT, at original cost $333 368 $323 607 Less - Accumulated depreciation 83 083 77 155 250 285 246 452 Add - Construction work in progress 1 100 400 251 385 246 852 CURRENT ASSETS Cash 1 165 1 297 Accounts receivable 19 107 33 239 Unbilled revenues 4 972 29 068 Inventories, at average cost 28 325 27 789 Prepaid taxes - Property 5 012 2 629 Income 1 400 1 812 Other 1 327 992 61 308 96 826 DEFERRED CHARGES Order 636 transition costs 20 047 21 938 Other 15 720 11 067 35 767 33 005 $348 460 $376 683 COMMONWEALTH GAS COMPANY CONDENSED BALANCE SHEETS SEPTEMBER 30, 1994 AND DECEMBER 31, 1993 CAPITALIZATION AND LIABILITIES (Unaudited) September 30, December 31, 1994 1993 (Dollars in Thousands) CAPITALIZATION Common Equity - Common stock, $25 par value - Authorized and outstanding - 2,857,000 shares, wholly-owned by Commonwealth Energy System (Parent) $ 71 425 $ 71 425 Amounts paid in excess of par value 27 739 27 739 Retained earnings 1 948 7 840 101 112 107 004 Long-term debt, less current sinking fund requirements 95 400 95 400 196 512 202 404 CURRENT LIABILITIES Interim Financing - Notes payable to banks 9 550 40 975 Advances from affiliates 13 110 2 835 22 660 43 810 Other Current Liabilities - Current sinking fund requirements 3 650 3 650 Accounts payable - Affiliates 2 920 1 811 Other 9 645 32 944 Refundable gas costs 33 719 13 253 Accrued local property and other taxes 5 252 2 940 Other 7 427 6 661 62 613 61 259 85 273 105 069 DEFERRED CREDITS Accumulated deferred income taxes 31 947 30 176 Unamortized investment tax credits and other 28 010 25 901 Order 636 transition costs 6 718 13 133 66 675 69 210 $348 460 $376 683 See accompanying notes. COMMONWEALTH GAS COMPANY CONDENSED STATEMENTS OF INCOME AND RETAINED EARNINGS FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1994 AND 1993 (Unaudited) Three Months Ended Nine Months Ended 1994 1993 1994 1993 (Dollars in Thousands) GAS OPERATING REVENUES $46 979 $48 190 $246 118 $223 376 OPERATING EXPENSES Cost of gas sold 32 281 33 825 145 996 128 528 Other operation and maintenance 20 664 19 627 66 883 63 688 Depreciation 930 864 6 577 6 004 Taxes - Income (4 157) (3 588) 5 016 4 779 Local property 508 469 3 555 3 367 Payroll and other 580 622 2 150 2 214 50 806 51 819 230 177 208 580 OPERATING INCOME (LOSS) (3 827) (3 629) 15 941 14 796 OTHER INCOME 296 149 404 261 INCOME (LOSS) BEFORE INTEREST CHARGES (3 531) (3 480) 16 345 15 057 INTEREST CHARGES Long-term debt 2 128 1 588 6 386 4 762 Other interest charges 455 765 1 309 2 131 Allowance for borrowed funds used during construction (15) (9) (29) (18) 2 568 2 344 7 666 6 875 NET INCOME (LOSS) (6 099) (5 824) 8 679 8 182 RETAINED EARNINGS - Beginning of period 9 476 6 750 7 840 6 994 Dividends on common stock (1 429) (1 203) (14 571) (15 453) RETAINED EARNINGS - End of period $ 1 948 $ (277) $ 1 948 $ (277) See accompanying notes. COMMONWEALTH GAS COMPANY CONDENSED STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1994 AND 1993 (Unaudited) 1994 1993 (Dollars in Thousands) OPERATING ACTIVITIES Net income $ 8 679 $ 8 182 Effects of non-cash items - Depreciation and amortization 10 599 7 581 Deferred income taxes and investment tax credits, net 3 465 1 514 Change in working capital, exclusive of cash and interim financing 36 740 3 378 All other operating items (12 514) (5 233) Net cash provided by operating activities 46 969 15 422 INVESTING ACTIVITIES Additions to property, plant and equipment (exclusive of AFUDC) (11 351) (14 766) Allowance for borrowed funds used during construction (29) (18) Net cash used for investing activities (11 380) (14 784) FINANCING ACTIVITIES Payment of dividends (14 571) (15 453) Proceeds from (payment of) short-term borrowings (31 425) 5 525 Advances from affiliates 10 275 10 060 Net cash provided by (used for) financing activities (35 721) 132 Net increase (decrease) in cash (132) 770 Cash at beginning of period 1 297 10 Cash at end of period $ 1 165 $ 780 SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION Cash paid during the period for: Interest (net of capitalized amounts) $ 6 657 $ 6 437 Income taxes $ 3 202 $ 5 956 See accompanying notes. COMMONWEALTH GAS COMPANY NOTES TO CONDENSED FINANCIAL STATEMENTS (1) Accounting Policies Commonwealth Gas Company (the Company) is a wholly-owned subsidiary of Commonwealth Energy System. The parent company is referred to in this report as the "System" and, together with its subsidiaries, is collectively 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 revenue from firm sales for the year. The Company has established various regulatory assets and liabilities in cases where the Massachusetts Department of Public Utilities (DPU) and/or the Federal Energy Regulatory Commission (FERC) have permitted, or are expected to permit, recovery of specific costs over time. Similarly, certain regulatory liabilities established by the Company are required to be refunded to customers over time. As of September 30, 1994, principal regulatory assets included in deferred charges were $20 million for transition costs associated with FERC Order No. 636, $4.7 million for postretirement benefit costs and $2.3 million for environmental clean-up costs. The principal regulatory liability, reflected in deferred credits, was $9.8 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. Principal items of expense which are allocated other than on the basis of passage of time are depreciation and property taxes. These expenses are recorded for interim reporting purposes based upon projected gas revenue. 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 September 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 reclassified from time to time to conform with the presentation used in the current period's financial statements. The results for interim periods are not necessarily indicative of results for the entire year because of variations in gas consumption due to the heating season and also because of the Company's seasonal rate structure. COMMONWEALTH GAS COMPANY (2) Commitments (a) Construction Program The Company is engaged in a continuous construction program presently estimated at $112.4 million for the five-year period 1994 through 1998. Of that amount, $21.9 million is estimated for 1994. As of September 30, 1994, the Company's construction expenditures amounted to approximately $11.4 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 the issuance 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 growth, effects of inflation, equipment delivery schedules, licensing de- lays, availability and cost of capital and environmental regula- tions. (b) FERC Order No. 636 As a result of implementing FERC Order No. 636 (Order 636), each interstate pipeline company is allowed to collect certain transition costs from their customers that resulted from the pipelines' need to buy out gas supply contracts entered into prior to the issuance of Order 636. The Company has been billed a total of approximately $24.5 million from Tennessee Gas Pipeline Company (Tennessee), Algonquin Gas Transmission Company and Texas Eastern Transmission Company (Texas Eastern) through September 30, 1994. As of October 29, 1993, the Company received preliminary DPU autho- rization to recover these costs, with carrying charges, through the cost of gas adjustment (CGA) over a four-year period that began in November 1993. As a result, a regulatory asset totaling $20 million was reflected in deferred charges as of September 30, 1994. In addition, a related liability of $6.7 million was reflected in deferred credits. After extensive negotiations between Texas Eastern, Tennessee and their customers (including the Company), settlements were reached regarding a number of transition obligation issues. The settlement with Texas Eastern, which was recently approved by FERC, calls for the pipeline to absorb approximately 20% of all transition costs incurred from June 1993 forward. This agreement also provides for an extended billing period and annual caps on the collection of future costs. The Company believes that the absorption requirement will give the pipeline incentive to minimize future costs. The settlement with Tennessee, which has yet to be approved by FERC, will lower one element of the Company's transition obligation by approx- imately $1 million. Further negotiations are underway with Tennessee to craft a total settlement similar to that achieved with Texas Eastern. COMMONWEALTH GAS COMPANY The Company is continuing to negotiate with the pipelines on several other issues. As a result, the Company is unable to predict its final transition obligation at this time, however, based on these and subsequent settlement activities, the Company will adjust its regulatory asset and liability accounts accordingly. COMMONWEALTH GAS COMPANY Item 2. Management's Discussion and Analysis of Results of Operations The following is a discussion of certain significant factors which have affected operating revenues, expenses and net income during the periods included in the accompanying condensed statements of income. This discussion should be read in conjunction with the Notes to Condensed Financial Statements appearing elsewhere in this report. A summary of the period to period changes in the principal items included in the condensed statements of income for the three and nine months ended September 30, 1994 and 1993 is shown below: Three Months Nine Months Ended September 30, Ended September 30, 1994 and 1993 1994 and 1993 Increase (Decrease) (Dollars in Thousands) Gas Operating Revenues $(1 211) (2.5)% $22 742 10.2 % Operating Expenses Cost of gas sold (1 544) (4.6) 17 468 13.6 Other operation and maintenance 1 037 5.3 3 195 5.0 Depreciation 66 7.6 573 9.5 Taxes - Federal and state income (569) (15.9) 237 5.0 Local property and other (3) (0.3) 124 2.2 (1 013) 2.0 21 597 10.4 Operating Income (198) (5.5) 1 145 7.7 Other Income 147 98.7 143 54.8 Income Before Interest Charges (51) (1.5) 1 288 8.6 Interest Charges 224 9.6 791 11.5 Net Income $ (275) (4.7) $ 497 6.1 Firm Unit Sales BBTU Increase 82 2.6 1 164 4.3 The following is a summary of unit sales for the periods indicated: Unit Sales - In Billions of British Thermal Units (BBTU) Three Months Nine Months Period Ended Total Firm Interruptible Total Firm Interruptible September 30, 1994 7 335 3 206 4 129 34 882 28 116 6 766 September 30, 1993 4 350 3 124 1 226 28 849 26 952 1 897 COMMONWEALTH GAS COMPANY Operating Revenues, Cost of Gas Sold and Unit Sales Operating revenues for the first nine months of 1994 increased $22.7 million or 10.2% due to an increase in the cost of gas sold of $17.5 million, increased unit sales and higher conservation and load management (C&LM) charges of $2.5 million. For the current quarter, operating revenues decreased by $1.2 million or 2.5% mainly due to a decrease in the cost of gas sold of $1.5 million partially offset by higher C&LM charges of $500,000 and higher unit sales. The Company is recovering in revenues current costs associated with C&LM programs on a dollar-for-dollar basis through the operation of a conservation charge decimal. To the extent that these expenses increase or decrease from period to period based on customer participation, a corresponding change will occur in revenues. The cost of gas sold averaged $4.19 per MMBTU in the current nine-month period compared to $4.46 for the same period last year. For the current quarter, the cost of gas sold averaged $4.40 per MMBTU compared to $7.78 for the third quarter last year. The decrease from both periods of last year was mainly due to the inclusion of transition charges related to Order 636 in the cost of gas sold last year. These charges totaled $6.8 million in the third quarter and $9.6 million for the nine-month period. In the fourth quarter of 1993, these charges were reclassified as a regulatory asset pursuant to the aforementioned DPU order issued on October 29, 1993. Also contributing to the decrease in the current quarter were lower LNG costs and gas prices. Partially offsetting the decreases in both periods was amortization related to Order 636 transition costs and, in the current nine-month period, higher LNG costs. Firm unit sales for the first nine months of 1994 increased 4.3% due to higher sales in all sectors as a result of the extremely cold weather experienced throughout the region during the first quarter. Firm unit sales were 2.6% higher during the current quarter despite slight decreases in residential and commercial sales as industrial and other sales showed continued improvement. Although interruptible sales increased significantly during both periods, fluctuations in the level of interruptible sales have little, if any, impact on net income. Other Operating Expenses In the current three and nine-month periods, other operation and maintenance expense increased by $1 million and $3.2 million, respectively, primarily due to higher C&LM charges ($464,000 and $2.5 million), increased insurance and employee benefit costs ($668,000 and $685,000) and, in the current nine-month period, higher costs associated with both the Company's automated mapping system ($222,000) and the Gas Administration and Supply System ($108,000). These increases were offset, in part, by company-wide cost containment efforts and, in the current nine-month period, a decline in the cost of services rendered by affiliate COM/Energy Services Company attributable, in part, to a second quarter 1993 work force reduction. Depreciation and Taxes Depreciation increased due to higher levels of depreciable plant in service. The change in federal and state income taxes for the current nine- month period reflects the level of pretax income. The decrease in the current COMMONWEALTH GAS COMPANY quarter was primarily due to the absence of a retroactive adjustment made in the third quarter of 1993 to reflect the increase in the federal tax rate to 35% and, to a lesser extent, the level of pretax income. The 2.2% increase in local property and other taxes for the current nine-month period was due to higher tax rates and assessments in the Company's service territory. Other Income and Interest Charges Other income increased by $147,000 and $143,000 in the current three and nine-month periods, respectively, due to higher merchandising and jobbing revenues resulting from increased sales of design heating units ($170,000 and $290,000) and interest related to a Massachusetts sales tax abatement ($14,000 and $58,000). These increases were partially offset in the current quarter by lower interest on deferred gas costs ($21,000) and, in the current nine-month period, by the absence of proceeds from a second quarter 1993 litigation settlement ($193,000). Total interest charges increased 9.6% and 11.5% during the current three and nine-month periods due to the issuance of $35 million in new long-term debt in December 1993 and, to a lesser extent, higher interest rates and interest to be refunded to the Company's customers in connection with the aforementioned sales tax abatement. Interest rates on bank borrowings averaged 4.7% and 4.0% for the current three and nine-month periods compared to 3.3% and 3.4% for the same periods a year ago. Environmental Matters The Company is participating in the assessment of a number of former manufactured gas plant (MGP) sites and alleged MGP waste disposal locations to determine if and to what extent such sites have been contaminated and whether the Company may be responsible for remedial actions. The costs associated with the assessment and clean-up of these sites are recoverable in rates through the cost of gas adjustment clause pursuant to a 1990 DPU order over a seven-year amortization period without carrying costs. The Company has recorded an estimated $2.3 million liability that reflects its best estimate (based on current information) of the costs to be incurred in connection with the assessment and remediation activities identified to this point. The Company has also recorded a regulatory asset in anticipation of recovery of these costs. The Company is unable to predict the total cost to ultimately resolve these matters due to significant uncertainty as to the actual site conditions and the extent of any associated remediation activities and the assignment of responsibility. However, it is expected that all such costs will continue to be recovered in rates as described above. The Company is also involved in certain other known or potentially contaminated sites where the accociated costs may not be recoverable in rates. The Company has recorded an estimated liability (and a charge to operations) of $300,000 to cover the expected costs associated with assessment and remediation activities. These estimates are reviewed and adjusted periodically as further investigation and assignment of responsibility occurs. As noted above, the Company is unable to predict at this time the ultimate cost to resolve these matters due to the uncertainties inherent in the site investigation and remediation process. COMMONWEALTH GAS 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 Filed herewith: Exhibit 27 Financial Data Schedule for the nine months ended September 30, 1994 (Filed herewith as Exhibit 1). (b) Reports on Form 8-K No reports on Form 8-K were filed for the three months ended September 30, 1994. COMMONWEALTH GAS 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. COMMONWEALTH GAS 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: November 14, 1994 EX-27 2 FINANCIAL DATA SCHEDULE - 9/30/94
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 Commonwealth Gas Company for the nine months ended September 30, 1994 and is qualified in its entirety by reference to such financial statements. 0000022620 COMMONWEALTH GAS COMPANY 1,000 9-MOS DEC-31-1994 SEP-30-1994 PER-BOOK 251,385 0 61,308 35,767 0 348,460 71,425 27,739 1,948 101,112 0 0 95,400 22,660 0 0 3,650 0 0 0 125,638 348,460 246,118 5,016 225,161 230,177 15,941 404 16,345 7,666 8,679 0 8,679 14,571 6,386 46,969 0 0
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