-----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, BEeZoVhdnXfB0Y7aRIzNO4cAb67yqKjzq+lJBO5aH0GffVJshCupVySuISrcuurw H0R9bVSKLLHSZnipAYORaA== 0000071304-96-000019.txt : 19960816 0000071304-96-000019.hdr.sgml : 19960816 ACCESSION NUMBER: 0000071304-96-000019 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960630 FILED AS OF DATE: 19960814 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: 96612673 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 June 30, 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 August 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 JUNE 30, 1996 AND DECEMBER 31, 1995 ASSETS (Dollars in thousands) June 30, December 31, 1996 1995 (Unaudited) PROPERTY, PLANT AND EQUIPMENT, at original cost $351 112 $348 284 Less - Accumulated depreciation 98 893 92 881 252 219 255 403 Add - Construction work in progress 958 738 253 177 256 141 CURRENT ASSETS Cash 891 2 113 Advances to affiliates 4 200 - Accounts receivable 31 693 40 505 Unbilled revenues 2 788 22 850 Inventories, at average cost 17 039 18 625 Prepaid taxes - Property - 3 094 Income 1 296 384 Other 1 470 1 138 59 377 88 709 DEFERRED CHARGES Transition costs 10 726 11 711 Other 22 044 18 054 32 770 29 765 $345 234 $374 615 See accompanying notes. COMMONWEALTH GAS COMPANY CONDENSED BALANCE SHEETS JUNE 30, 1996 AND DECEMBER 31, 1995 CAPITALIZATION AND LIABILITIES (Dollars in thousands) June 30, December 31, 1996 1995 (Unaudited) 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 12 583 10 495 111 747 109 659 Long-term debt, less maturing debt and current sinking fund requirements 78 100 78 100 189 847 187 759 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 - Affiliates 3 536 2 229 Other 23 936 37 471 Refundable gas costs 30 050 33 034 Accrued local property and other taxes 605 3 435 Other 6 835 6 827 68 612 86 646 78 612 110 696 DEFERRED CREDITS Accumulated deferred income taxes 36 972 35 586 Unamortized investment tax credits and other 29 167 28 863 Transition costs 10 726 11 711 76 865 76 160 COMMITMENTS AND CONTINGENCIES $345 234 $374 615 See accompanying notes. COMMONWEALTH GAS COMPANY CONDENSED STATEMENTS OF INCOME AND RETAINED EARNINGS FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 1996 AND 1995 (Dollars in thousands) (Unaudited) Three Months Ended Six Months Ended 1996 1995 1996 1995 GAS OPERATING REVENUES $ 68 385 $ 67 802 $192 110 $175 734 OPERATING EXPENSES Cost of gas sold 40 814 42 265 104 964 95 763 Other operation and maintenance 23 235 21 489 45 789 45 054 Depreciation 1 511 1 423 5 846 5 822 Taxes - Income (652) (869) 9 722 6 934 Local property 1 000 936 3 443 3 389 Payroll and other 540 632 1 516 1 583 66 448 65 876 171 280 158 545 OPERATING INCOME 1 937 1 926 20 830 17 189 OTHER INCOME 111 355 318 408 INCOME BEFORE INTEREST CHARGES 2 048 2 281 21 148 17 597 INTEREST CHARGES Long-term debt 1 965 2 047 3 929 4 101 Other interest charges 797 1 303 1 579 2 230 Allowance for borrowed funds used during construction (13) (15) (19) (28) 2 749 3 335 5 489 6 303 NET INCOME (LOSS) (701) (1 054) 15 659 11 294 RETAINED EARNINGS - Beginning of period 18 284 14 185 10 495 6 837 Dividends on common stock (5 000) (7 571) (13 571) (12 571) RETAINED EARNINGS - End of period $ 12 583 $ 5 560 $ 12 583 $ 5 560 See accompanying notes. COMMONWEALTH GAS COMPANY CONDENSED STATEMENTS OF CASH FLOWS FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND 1995 (Dollars in thousands) (Unaudited) 1996 1995 OPERATING ACTIVITIES Net income $ 15 659 $ 11 294 Effects of noncash items - Depreciation and amortization 6 985 7 952 Deferred income taxes and investment tax credits, net 918 1 576 Change in working capital, exclusive of cash, advances to affiliates and interim financing 14 276 42 154 All other operating items (3 987) 17 649 Net cash provided by operating activities 33 851 80 625 INVESTING ACTIVITIES Additions to property, plant and equipment (exclusive of AFUDC) (3 233) (6 150) Allowance for borrowed funds used during construction (19) (28) Advances to affiliates (4 200) (29 150) Net cash used for investing activities (7 452) (35 328) FINANCING ACTIVITIES Payment of dividends (13 571) (12 571) Payment of short-term borrowings (12 200) (24 950) Payments to affiliates (1 850) (11 220) Net cash used for financing activities (27 621) (48 741) Net decrease in cash (1 222) (3 444) Cash at beginning of period 2 113 4 862 Cash at end of period $ 891 $ 1 418 SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION Cash paid during the period for: Interest (net of capitalized amounts) $ 3 990 $ 5 469 Income taxes $ 9 453 $ 3 570 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 to resolve a labor dispute with a collective bargaining unit that represents approximately 356 (52%) of its regular employees. The agreement that covered this bargaining unit expired on March 31, 1996 and work performed by these employees has been disrupted since that time. 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 June 30, 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, 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 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 June 30, 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: June 30, Dec. 31, 1996 1995 (Dollars in thousands) Transition costs $10 726 $11 711 Postretirement benefit costs including pensions 8 889 7 744 Environmental costs 3 787 3 786 Total regulatory assets $23 402 $23 241 The principal regulatory liability, reflected in deferred credits- other and relating to income taxes, was $8.4 million and $8.6 million at June 30, 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. Approximately $17.7 million of that amount is estimated for 1996, the majority of which is scheduled to be expended in the second half of the year. As of June 30, 1996, the Company's construction expenditures amounted to approximately $3.3 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 proceeds from the issuance of long-term debt and 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 and six months ended June 30, 1996 and 1995 is shown below: Three Months Six Months Ended June 30, Ended June 30, 1996 and 1995 1996 and 1995 Increase (Decrease) (Dollars in thousands) Gas Operating Revenues $ 583 0.9 % $ 16 376 9.3 % Operating Expenses - Cost of gas sold (1 451) (3.4) 9 201 9.6 Other operation and maintenance 1 746 8.1 735 1.6 Depreciation 88 6.2 24 0.4 Taxes - Federal and state income 217 25.0 2 788 40.2 Local property and other (28) (1.8) (13) (0.3) 572 0.9 12 735 8.0 Operating Income 11 0.6 3 641 21.2 Other Income (244) (68.7) (90) (22.1) Income Before Interest Charges (233) (10.2) 3 551 20.2 Interest Charges (586) (17.6) (814) (12.9) Net Income $ 353 33.5 $ 4 365 38.6 Firm Unit Sales - BBTU 648 10.4 2 731 12.2 The following is a summary of unit sales for the periods indicated: Unit Sales - In Billions of British Thermal Units (BBTU) Off- Quasi- Total Firm Interruptible System Firm Three Months Ended June 30, 1996 8 506 6 902 539 704 361 June 30, 1995 8 179 6 254 438 967 520 Six Months Ended June 30, 1996 27 430 25 096 896 953 485 June 30, 1995 26 206 22 365 591 2 380 870 COMMONWEALTH GAS COMPANY Operating Revenues and Unit Sales Operating revenues for the first six months of 1996 increased $16.4 million (9.3%) due to an increase in the cost of gas sold ($9.2 million) and higher firm and interruptible unit sales offset, in part, by a lower level of conservation and load management (C&LM) costs ($1.2 million) and lower off- system and quasi-firm unit sales. During the current quarter, operating revenues increased slightly due primarily to increases in firm and interruptible unit sales partially offset by a decrease in the cost of gas sold of $1.5 million, lower C&LM costs ($401,000) and a decline in off-system and quasi-firm unit sales. Firm unit sales increased 12.2% in the first half of 1996 as sales to all customer classes were higher due to the colder than normal weather experienced throughout the region, particularly during the first quarter, compared to a milder period last year. Degree days were nearly 11% higher than in the first six months of 1995. Firm unit sales increased by 10.4% during the current quarter as heating degree days were 4% higher than the same period last year. Also, a growing customer base has contributed to the increase in firm unit sales in both periods. Although non-firm sales have fluctuated during both the first half of 1996 and the current quarter, they have 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 being 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 Other operation and maintenance increased by $735,000 or 1.6% in the first half of 1996 due to the net impact of a labor dispute during the current quarter (discussed in Note 1 of Notes to Condensed Financial Statements in Item 1 of this report) and higher pension costs ($229,000) offset, in part, by a decline in the level of C&LM costs ($247,000) and a lower provision for bad debts ($94,000). Other operation and maintenance increased in the current quarter by $1.7 million or 8.1% due, in part, to the net effect of costs associated with the labor dispute, higher distribution expenses ($529,000) mainly due to increases in leak repair activities and an increase in costs associated with automated meter reading ($311,000) reflecting the leasing of equipment. These increases are partially offset by a decrease in C&LM costs ($1.2 million) and a lower provision for bad debts ($215,000). Depreciation and Taxes Depreciation expense increased during the current six-month period and the current quarter due to higher levels of depreciable plant-in-service. The change in federal and state income taxes in both periods reflects the level of pretax income. COMMONWEALTH GAS COMPANY Other Income and Interest Charges The decrease in other income for both the current six-month period and the current quarter reflects a decline in interest income received by the Company in connection with its participation in the COM/Energy Money Pool partially offset by greater sales of design heating systems. Total interest charges decreased 17.6% and 12.9% during the current three and six-month periods due to a decline in interest on deferred gas costs, a reduction in long-term interest charges reflecting scheduled sinking fund payments and a decrease in short-term interest charges due to a lower average level of short-term borrowings. 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 six months 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 six months ended June 30, 1996. (b) Reports on Form 8-K No reports on Form 8-K were filed for the three months ended June 30, 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: August 14, 1996 EX-27 2 FINANCIAL DATA SCHEDULE - JUNE 30, 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 six months ended June 30, 1996 and is qualified in its entirety by reference to such financial statements. 0000022620 COMMONWEALTH GAS COMPANY 1,000 DEC-31-1996 JUN-30-1996 6-MOS PER-BOOK 253,177 0 59,377 32,770 0 345,234 71,425 27,739 12,583 111,747 0 0 78,100 0 0 0 13,650 0 0 0 141,827 345,234 192,110 9,722 161,558 171,280 20,830 318 21,148 5,489 15,659 0 15,659 13,571 3,929 33,851 0 0
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