-----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, BQ8Ei3d2OQM1pTeopEXneJyWqOubEQbMzDtCfPkur3I02pz2/yCfTe4XF9iwEt8Z 87yVyM3exdUeJWCVpLutEA== 0000071304-96-000014.txt : 19960515 0000071304-96-000014.hdr.sgml : 19960515 ACCESSION NUMBER: 0000071304-96-000014 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: COMMONWEALTH GAS CO CENTRAL INDEX KEY: 0000022620 STANDARD INDUSTRIAL CLASSIFICATION: NATURAL GAS TRANSMISSION [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: 96563702 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 March 31, 1996 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 May 1, 1996 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 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 $349 497 $348 284 Less - Accumulated depreciation 97 310 92 881 252 187 255 403 Add - Construction work in progress 726 738 252 913 256 141 CURRENT ASSETS Cash 2 343 2 113 Advances to affiliates 5 500 - Accounts receivable 58 435 40 505 Unbilled revenues 12 475 22 850 Inventories, at average cost 6 629 18 625 Prepaid taxes - Property 565 3 094 Income - 384 Other 1 105 1 138 87 052 88 709 DEFERRED CHARGES Order 636 transition costs 11 326 11 711 Other 19 732 18 054 31 058 29 765 $371 023 $374 615 See accompanying notes. COMMONWEALTH GAS 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 - 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 18 284 10 495 117 448 109 659 Long-term debt, less current sinking fund requirements 78 100 78 100 195 548 187 759 CURRENT LIABILITIES Interim Financing - Notes payable to banks - 12 200 Advances from affiliates - 1 850 Maturing long-term debt 10 000 10 000 10 000 24 050 Other Current Liabilities - Current sinking fund requirements 3 650 3 650 Accounts payable - Affiliated companies 2 236 2 229 Other 30 451 37 471 Refundable gas costs 40 455 33 034 Accrued taxes - Income 3 288 - Local property and other 2 361 3 435 Other 6 307 6 827 88 748 86 646 98 748 110 696 DEFERRED CREDITS Accumulated deferred income taxes 36 617 35 586 Unamortized investment tax credits and other 28 784 28 863 Order 636 transition costs 11 326 11 711 76 727 76 160 $371 023 $374 615 See accompanying notes. COMMONWEALTH GAS COMPANY CONDENSED STATEMENTS OF INCOME AND RETAINED EARNINGS FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1995 (Unaudited) 1996 1995 (Dollars in Thousands) GAS OPERATING REVENUES $123 725 $107 932 OPERATING EXPENSES Cost of gas sold 64 150 53 498 Other operation and maintenance 22 554 23 565 Depreciation 4 335 4 399 Taxes - Income 10 374 7 803 Local property 2 443 2 453 Payroll and other 976 951 104 832 92 669 OPERATING INCOME 18 893 15 263 OTHER INCOME 207 53 INCOME BEFORE INTEREST CHARGES 19 100 15 316 INTEREST CHARGES Long-term debt 1 964 2 054 Other interest charges 782 927 Allowance for borrowed funds used during construction (6) (13) 2 740 2 968 NET INCOME 16 360 12 348 RETAINED EARNINGS - Beginning of period 10 495 6 837 Dividends on common stock (8 571) (5 000) RETAINED EARNINGS - End of period $ 18 284 $ 14 185 See accompanying notes. COMMONWEALTH GAS 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 $ 16 360 $ 12 348 Effects of noncash items - Depreciation and amortization 4 996 6 111 Deferred income taxes and investment tax credits, net 820 1 218 Change in working capital, exclusive of cash, advances to affiliates and interim financing 9 489 27 173 All other operating items (1 927) 6 328 Net cash provided by operating activities 29 738 53 178 INVESTING ACTIVITIES Additions to property, plant and equipment (exclusive of AFUDC) (1 381) (2 343) Allowance for borrowed funds used during construction (6) (13) Advances to affiliates (5 500) (12 165) Net cash used for investing activities (6 887) (14 521) FINANCING ACTIVITIES Payment of dividends (8 571) (5 000) Payment of short-term borrowings (12 200) (24 950) Advances from affiliates (1 850) (11 220) Net cash used for financing activities (22 621) (41 170) Net increase (decrease) in cash 230 (2 513) Cash at beginning of period 2 113 4 862 Cash at end of period $ 2 343 $ 2 349 SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION Cash paid during the period for: Interest, net of amounts capitalized $ 1 961 $ 2 047 Income taxes $ 5 768 $ 1 604 See accompanying notes. COMMONWEALTH GAS COMPANY NOTES TO CONDENSED FINANCIAL STATEMENTS (1) General Information 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 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 is currently involved in negotiations with a collective bargaining unit that represents approximately 364 (53%) of its regular employees. The agreement that covered these employees expired on March 31, 1996. A workforce of management personnel and experienced contractors are performing all essential tasks. Management is unable to predict the ultimate outcome of these negotiations. (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 revenue from firm sales for the year. 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 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 presenta- tion 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 (b) Regulatory Assets and Liabilities The Company is regulated as to rates, accounting and other matters by 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 has permitted or is expected to permit recovery of specific costs over time. Similarly, the regulatory liability established by the Company is 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 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. As of March 31, 1996, SFAS No. 121 did not have an impact on its financial position or results of operations. Management does not expect that the effects of SFAS No. 121 will have a material impact on the Company in the foreseeable future. The principal regulatory assets included in deferred charges were as follows: March 31, Dec. 31, 1996 1995 (Dollars in Thousands) Transition costs $11 326 $11 711 Postretirement benefit costs including pensions 8 392 7 744 Environmental costs 3 805 3 786 Total regulatory assets $23 523 $23 241 The principal regulatory liability, reflected in deferred credits-other and relating to income taxes, was $8.5 million and $8.6 million at March 31, 1996 and December 31, 1995, respectively. (3) Commitments Construction Program The Company is engaged in a continuous construction program presently estimated at $92 million for the five-year period 1996 through 2000. Of that amount, $17.7 million is estimated for 1996. As of March 31, 1996, the Company's actual construction expenditures amounted to approximately $1.4 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/or equity securities. COMMONWEALTH GAS COMPANY 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 delays, availability and cost of capital and environmental regulations. 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 months ended March 31, 1996 and 1995 is shown below: Three Months Ended March 31, 1996 and 1995 Increase (Decrease) (Dollars in Thousands) Gas Operating Revenues $ 15 793 14.6% Operating Expenses - Cost of gas sold 10 652 19.9 Other operation and maintenance (1 011) (4.3) Depreciation (64) (1.5) Taxes - Federal and state income 2 571 32.9 Local property and other 15 2.6 12 163 13.1 Operating Income 3 630 23.8 Other Income 154 290.6 Income Before Interest Charges 3 784 24.7 Interest Charges (228) (7.7) Net Income $ 4 012 32.5 Firm Unit Sales BBTU 2 083 12.9 The following is a summary of unit sales for the periods indicated: Unit Sales - In Billions of British Thermal Units (BBTU) Three Months Ended Off- Quasi- Total Firm Interruptible System Firm March 31, 1996 18 940 18 194 357 249 140 March 31, 1995 18 027 16 111 153 1 413 350 COMMONWEALTH GAS COMPANY Operating Revenues and Unit Sales For the first three months of 1996, operating revenues increased $15.8 million (14.6%) due primarily to a higher level of cost of gas sold ($10.7 million) that reflected a 12.9% increase in firm unit sales offset, in part, by a lower level of conservation and load management (C&LM) costs ($803,000) and a decrease in overall non-firm unit sales. For the first quarter of 1996, firm unit sales increased 12.9% as sales to all customer segments increased significantly due to the colder weather experienced in the region as compared to a much more mild period last year. Heating degree days totaled 3,324 this quarter compared to 2,914 during the same period last year. Interruptible sales increased during the first quarter of 1996 but these sales had no effect on net income since the margin from these sales are flowed back to firm customers through the CGA. Off-system and quasi-firm sales continued to contribute to the Company's total sales but had no impact on net income. A portion of the margin realized on these sales reduces the cost of gas sold to firm customers and the remaining amount is deferred pending approval of the Company's margin-sharing proposals. The proposal related to quasi-firm sales was filed in December 1995 and a ruling is expected from the DPU later this year. The proposal for off-system sales is expected to be filed by the end of this year. Other Operation and Maintenance For the current quarter, other operation and maintenance decreased by $1 million due primarily to lower C&LM costs ($803,000), a decline in insurance and benefit costs ($147,000) and a decline in the provision for bad debts ($121,000). Depreciation and Taxes Depreciation decreased slightly during the first quarter. The change in federal and state income taxes was due to the higher level of pretax income. Other Income and Interest Charges Other income increased by $154,000 during the first three months of 1996 due primarily to greater sales of design heating systems. Total interest charges decreased $228,000 mainly due to scheduled sinking fund payments and lower levels of short-term borrowings at more favorable interest rates. 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 Company is also involved in certain other known or potentially contaminated sites where the associated costs may not be recoverable in rates. There were no significant new developments that occurred during the first quarter of 1996. For further information on these matters, refer to the Company's 1995 Annual Report on Form 10-K. 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 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 for the three months ended March 31, 1996. 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 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, statement of retained earnings and statement of cash flows contained in Form 10-Q of Commonwealth Gas Company for the three months ended March 31, 1996 and is qualified in its entirety by reference to such financial statements. 0000022620 COMMONWEALTH GAS COMPANY 1,000 DEC-31-1996 MAR-31-1996 3-MOS PER-BOOK 252,913 0 87,052 31,058 0 371,023 71,425 27,739 18,284 117,448 0 0 78,100 0 0 0 13,650 0 0 0 161,825 371,023 123,725 10,374 94,458 104,832 18,893 207 19,100 2,740 16,360 0 16,360 8,571 1,964 29,738 0 0
-----END PRIVACY-ENHANCED MESSAGE-----