-----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, Pobia4FyXEXYf6nR1BgO2TmntYOSELHKvgeAm8u3JW1SqJMsMMAJUPtLLOvfLizY uV3xFrpUN5NcnVekcmhYgA== 0000071304-96-000013.txt : 19960515 0000071304-96-000013.hdr.sgml : 19960515 ACCESSION NUMBER: 0000071304-96-000013 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19960331 FILED AS OF DATE: 19960514 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: COMMONWEALTH ELECTRIC CO CENTRAL INDEX KEY: 0000071222 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] IRS NUMBER: 041659070 STATE OF INCORPORATION: MA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 002-07749 FILM NUMBER: 96563700 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: NEW BEDFORD GAS & EDISON LIGHT CO DATE OF NAME CHANGE: 19810331 FORMER COMPANY: FORMER CONFORMED NAME: NEW BEDFORD GAS LIGHT CO DATE OF NAME CHANGE: 19701106 10-Q 1 COMMONWEALTH ELECTRIC 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 2-7749 COMMONWEALTH ELECTRIC COMPANY (Exact name of registrant as specified in its charter) Massachusetts 04-1659070 (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 2,043,972 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 ELECTRIC 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 $523 782 $520 714 Less - Accumulated depreciation 157 653 154 170 366 129 366 544 Add - Construction work in progress 4 173 1 912 370 302 368 456 INVESTMENTS Equity in nuclear electric power company 609 590 Other 14 14 623 604 CURRENT ASSETS Cash 1 354 1 430 Accounts receivable - Affiliates 3 111 2 570 Customers 46 022 41 951 Unbilled revenues 6 097 5 795 Prepaid property taxes 1 422 2 843 Inventories and other 4 787 5 262 62 793 59 851 DEFERRED CHARGES 72 146 77 916 $505 864 $506 827 See accompanying notes. COMMONWEALTH ELECTRIC 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 - 2,043,972 shares wholly-owned by Commonwealth Energy System (Parent) $ 51 099 $ 51 099 Amounts paid in excess of par value 97 112 97 112 Retained earnings 16 792 20 708 165 003 168 919 Long-term debt, less current sinking fund requirements 153 225 154 275 318 228 323 194 CURRENT LIABILITIES Interim Financing - Notes payable to banks 10 325 17 300 Advances from affiliates 12 725 1 545 23 050 18 845 Other Current Liabilities - Current sinking fund requirements 3 553 3 553 Accounts payable - Affiliates 11 131 8 987 Other 31 062 32 699 Accrued taxes - Local property and other 2 418 3 068 Income 20 749 18 721 Other 10 350 11 742 79 263 78 770 102 313 97 615 DEFERRED CREDITS Accumulated deferred income taxes 44 657 44 211 Unamortized investment tax credits 7 451 7 559 Other 33 215 34 248 85 323 86 018 COMMITMENTS AND CONTINGENCIES $505 864 $506 827 See accompanying notes. COMMONWEALTH ELECTRIC COMPANY CONDENSED STATEMENTS OF INCOME AND RETAINED EARNINGS FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1995 (Unaudited) 1996 1995 (Dollars in Thousands) ELECTRIC OPERATING REVENUES $117 896 $113 598 OPERATING EXPENSES Electricity purchased for resale, transmission and fuel 79 230 77 963 Other operation and maintenance 20 113 19 625 Depreciation 4 290 4 102 Taxes - Income 2 996 2 664 Local property 1 434 1 382 Payroll and other 1 040 1 010 109 103 106 746 OPERATING INCOME 8 793 6 852 OTHER INCOME 28 1 270 INCOME BEFORE INTEREST CHARGES 8 821 8 122 INTEREST CHARGES Long-term debt 3 492 3 521 Other interest charges 504 375 Allowance for borrowed funds used during construction (48) (113) 3 948 3 783 NET INCOME 4 873 4 339 RETAINED EARNINGS - Beginning of period 20 708 15 350 Dividends on common stock (8 789) (3 475) End of period $ 16 792 $ 16 214 See accompanying notes. COMMONWEALTH ELECTRIC 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 $ 4 873 $ 4 339 Effects of noncash items - Depreciation and amortization 5 384 4 413 Deferred income taxes and investment tax credits, net (694) (464) Change in working capital, exclusive of cash and interim financing (2 525) (6 406) All other operating items 4 105 (116) Net cash provided by operating activities 11 143 1 766 INVESTING ACTIVITIES Additions to property, plant and equipment (exclusive of AFUDC) (5 537) (6 757) Allowance for borrowed funds used during construction (48) (113) Net cash used for investing activities (5 585) (6 870) FINANCING ACTIVITIES Payment of short-term borrowings (6 975) (6 400) Advances from affiliates 11 180 15 705 Payment of dividends (8 789) (3 475) Sinking funds payments (1 050) (1 050) Net cash provided by (used for) financing activities (5 634) 4 780 Net decrease in cash (76) (324) Cash at beginning of period 1 430 1 637 Cash at end of period $ 1 354 $ 1 313 SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION Cash paid during the period for: Interest (net of capitalized amounts) $ 5 183 $ 5 009 Income taxes $ 639 $ 315 See accompanying notes. COMMONWEALTH ELECTRIC COMPANY NOTES TO CONDENSED FINANCIAL STATEMENTS (1) General Information Commonwealth Electric 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 879 regular employees including 568 (65%) represented by three collective bargaining units. New agreements were reached with two bargaining units (representing approximately 54% of regular employees) that were scheduled to expire on October 1, 1996 and November 1, 1997. These new agreements will remain in effect until 2002 and 2001, respec- tively. (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 poli- cies but considers each interim period as an integral part of an annual period and makes allocations of certain expenses to interim periods based upon estimates of such expenses for the year. The unaudited financial statements for the periods ended March 31, 1996 and 1995 reflect, in the opinion of the Company, all adjustments (consisting of only normal recurring accruals) necessary to summarize fairly the results for such periods. In addition, certain prior period amounts are reclassified from time to time to conform with the presenta- tion 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 con- sumption of energy. (b) Regulatory Assets and Liabilities The Company is regulated as to rates, accounting and other matters by various authorities including the Federal Energy Regulatory Commission (FERC) and the Massachusetts Department of Public Utilities (DPU). Based on the current regulatory framework, the Company accounts for the economic effects of regulation in accordance with the provisions of Statement of Financial Accounting Standards (SFAS) No. 71, "Accounting for the Effects of Certain Types of Regulation." The Company has established COMMONWEALTH ELECTRIC COMPANY various regulatory assets in cases where the DPU and/or the FERC have permitted or are expected to permit recovery of specific costs over time. Similarly, the regulatory liabilities established by the Company are required to be refunded to customers over time. On January 1, 1996, the Company adopted SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets 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. However, this result may change as modifications are made in the current regulatory framework pursuant to electric utility restructuring orders issued by the DPU. The principal regulatory assets included in deferred charges were as follows: March 31, December 31, 1996 1995 (Dollars in Thousands) Purchased power contract buy-out $ 23 185 $ 23 838 Fuel charge stabilization 17 901 22 063 Postretirement benefit costs including pensions 12 180 12 283 Yankee Atomic unrecovered plant and decommissioning costs 5 331 5 630 Pilgrim nuclear plant litigation costs 6 554 6 644 Conservation and load management costs 2 806 2 968 Other 760 804 $ 68 717 $ 74 230 The regulatory liabilities included in deferred credits were as follows: March 31, December 31, 1996 1995 (Dollars in Thousands) Excess Seabrook-related deferred income taxes $ 4 363 $ 4 887 Other deferred income taxes 2 182 2 182 Excess replacement power refunds 1 535 1 719 $ 8 080 $ 8 788 (3) Commitments and Contingencies The Company is engaged in a continuous construction program presently estimated at $110 million for the five-year period 1996 through 2000. Of that amount, $24.1 million is estimated for 1996. As of March 31, 1996, the Company's construction expenditures amounted to approximately $5.6 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 and equity securities. The program is subject to periodic review and revision due to 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 environ- mental regulations. COMMONWEALTH ELECTRIC COMPANY Item 2. Management's Discussion and Analysis of Results of Operations The following is a discussion of certain significant factors which have affected operating revenues, expenses and net income during the periods included in the accompanying condensed statements of income. This discussion should be read in conjunction with the Notes to Condensed Financial Statements appearing elsewhere in this report. A summary of the period to period changes in the principal items included in the condensed statements of income for the three months ended March 31, 1996 and 1995 and unit sales for these periods is shown below: Three Months Ended March 31, 1996 and 1995 Increase (Decrease) (Dollars in Thousands) Electric Operating Revenues $ 4 298 3.8% Operating Expenses - Electricity purchased for resale, transmission and fuel 1 267 1.6 Other operation and maintenance 488 2.5 Depreciation 188 4.6 Taxes - Federal and state income 332 12.5 Local property and other 82 3.4 2 357 2.2 Operating Income 1 941 28.3 Other Income (1 242) (97.8) Income Before Interest Charges 699 8.6 Interest Charges 165 4.4 Net Income $ 534 12.3 Unit Sales (Megawatthours or MWH) Retail 44 628 5.5 Wholesale (42 855) (15.7) Total unit sales 1 773 0.2 The following is a summary of unit sales (in MWH) for the periods indicated: Unit Sales (MWH) Three Months Ended Total Retail Wholesale March 31, 1996 1 088 624 858 162 230 462 March 31, 1995 1 086 851 813 534 273 317 COMMONWEALTH ELECTRIC COMPANY Operating Revenues, Electricity Purchased for Resale, Transmission and Fuel Operating revenues for the first quarter of 1996 increased by $4.3 million (3.8%) from the corresponding period in 1995 due primarily to a 5.5% increase in retail unit sales, including a 6.6% increase in residential unit sales that resulted from a colder than normal first quarter this year compared to a very mild first quarter last year. The Company's residential customer class provided approximately 57% of its total retail sales revenue and approximately 10% of those customers rely on electricity for space heating. Revenues from wholesale sales were lower by 7.2% reflecting the changing capacity needs of non-affiliated utilities and NEPOOL. Fluctuations in the level of wholesale electric sales have no impact on net income. The current quarter reflects a reduced amount of power purchased from several higher-cost non-utility generators (approximately 5%) that was replaced with lower-cost generation from affiliate Canal Electric Company's Units 1 and 2 (approximately 44%). Purchases from these units were signifi- cantly lower in 1995 due to a combination of both scheduled and unscheduled maintenance. Other Operation and Maintenance The 2.5% increase in other operation and maintenance was primarily due to higher costs for postretirement benefits ($995,000) and conservation and load management programs ($535,000), offset somewhat by lower employee health and life insurance costs ($579,000) and a lower provision for bad debt expense. Depreciation and Taxes Depreciation expense increased 4.6% due to a higher level of depreciable property, plant and equipment. The increase in federal and state income taxes ($332,000) was due to a higher level of pretax income. Local property and other taxes increased $82,000 (3.4%) primarily reflecting higher tax rates and assessments in the Company's service area and, to a lesser extent, slightly higher payroll taxes. Other Income and Interest Charges Other income decreased $1.2 million in the current quarter from the same period in 1995 due to the reversal of a reserve last year related to certain costs associated with the Company's energy conservation program, the recovery of which was subsequently approved by the DPU. Total interest charges increased $165,000 (4.4%) for the current three- month period due to a higher average amount of short-term borrowings during the period, and a decrease in the allowance for borrowed funds used during construction. Electric Industry Restructuring On August 16, 1995, the DPU issued an order calling for the restructuring of the electric utility industry in Massachusetts in order to allow customers more flexibility in choosing their electric service provider and to develop an efficient industry structure and regulatory framework that minimizes long-term costs to consumers while maintaining the safety and reliability of electric COMMONWEALTH ELECTRIC COMPANY services with a minimum impact on the environment. Each of the state's electric utilities, together with other interested parties, participated in this proceeding that initially established a set of principles that would govern the restructuring of the electric industry in Massachusetts. In February 1996, certain utilities submitted required proposals detailing how they would plan to move into a competitive market structure. Since that time, the DPU held a generic proceeding that focused on many of the policy issues raised in its original order. On April 12, 1996, the Company and Cambridge Electric (the Companies), in response to the generic proceeding, filed comments with the DPU on several issues that should be addressed in creating a restructured electric utility industry which, together with comments from other interested parties, provided valuable input to the DPU in its development of proposed rules that were summarized in its order issued on May 1, 1996. The proposed rules, which are subject to public comment and hearings prior to adoption of final rules in October 1996, are based on the following policies: (1) An Independent System Operator which: (a) operates the regional transmission system reliably; (b) is independent and unaffiliated with electric companies; and (c) applies comparable transmission rates, terms and conditions to all generators; (2) A Power Exchange to manage a competitive bidding pool for short-term power sales; (3) Functional separation of electric companies into generation, trans- mission and distribution corporate entities; (4) Preservation of discounts for low-income customers, shut-off protec- tions and provision of service to all customers; (5) Registration requirements for generation suppliers, including market- ers and aggregators; (6) A reasonable opportunity for recovery of stranded costs, including a proposal to protect municipalities from loss of utility property taxes associated with diminished generation plant value; (7) Options for phased incentives for electric companies to divest their generation assets to stimulate a robust competitive market; (8) Promotion of environmental goals; (9) Support for energy efficiency and renewable energy resources; (10) Encouragement, but not a requirement, for towns with Municipal Electric Companies to participate in the restructured industry; (11) A price cap system of economic incentive regulation for the remaining distribution and transmission monopolies; (12) Unbundling of rates on bills by January 1, 1997 into separate components of transmission, distribution and a market proxy for energy costs. Implementation of competitive generation market by January 1, 1998. COMMONWEALTH ELECTRIC COMPANY In its May 1, 1996 order, the DPU acknowledged that it does not have jurisdiction in such areas as environmental regulation and the establishment of an Independent System Operator or a Power Exchange. Federal and state environmental agencies and the Federal Energy Regulatory Commission have the requisite authority in these areas. However, the DPU determined that it was important for it to express its initial views regarding these components of a restructured electric industry. In accordance with the DPU's schedule, the Companies will file revenue- neutral unbundled rates in October 1996 for effect in January 1997. Also, during 1997, the Companies will file their comprehensive restructuring proposal. One element of the Companies' proposal (announced on February 15, 1996) would require the Companies to voluntarily put their power capacity entitlements (1,140 MW) to a market test in an effort to develop a competitive market whereby customers would have the flexibility of choosing their electric supplier. The proposal calls for the auctioning in a competitive market of entitlements in all twenty-one contracts, including contracts held by the Companies involving the System's generating subsidiary Canal Electric. The proposal provides for total recovery of the difference between the current market value of the Companies' power contracts and their original unavoidable costs. This difference, considered to be a stranded cost, would be recovered through a non-bypassable access charge paid over an appropriate time period by all customers in the Companies' service areas. The auction approach has received initial positive reviews from the Commonwealth of Massachusetts Division of Energy Resources and the Office of the Attorney General. Manage- ment is unable to predict the ultimate outcome of the overall proceedings or the Companies' specific proposal. COMMONWEALTH ELECTRIC 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. Filed herewith as Exhibit 2 is the restated Financial Data Schedule for the three months ended March 31, 1995. (b) Reports on Form 8-K No reports on Form 8-K were filed during the three months ended March 31, 1996. COMMONWEALTH ELECTRIC COMPANY SIGNATURE 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 ELECTRIC COMPANY (Registrant) Principal Financial and Accounting Officer: Date: May 14, 1996 JAMES D. RAPPOLI James D. Rappoli, Financial Vice President and Treasurer EX-27 2 FINANCIAL DATA SCHEDULE - MARCH 31, 1996
UT This schedule contains summary financial information extracted from the balance sheet, statement of income and statement of cash flows contained in Form 10-Q of Commonwealth Electric Company for the three months ended March 31, 1996 and is qualified in its entirety by reference to such financial statements. 0000071222 COMMONWEALTH ELECTRIC COMPANY 1,000 DEC-31-1996 MAR-31-1996 3-MOS PER-BOOK 370,302 623 62,793 72,146 0 505,864 51,099 97,112 16,792 165,003 0 0 153,225 23,050 0 0 3,553 0 0 0 161,033 505,864 117,896 2,996 106,107 109,103 8,793 28 8,821 3,948 4,873 0 4,873 8,789 3,492 11,143 0 0
EX-27 3 RESTATED FINANCIAL DATA SCHEDULE - MARCH 31, 1995
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 Commonwealth Electric Company for the three months ended March 31, 1995 and is qualified in its entirety by reference to such financial statements. 0000071222 COMMONWEALTH ELECTRIC COMPANY 1,000 DEC-31-1995 MAR-31-1995 3-MOS PER-BOOK 360,760 616 61,131 81,871 0 504,378 51,099 97,112 16,214 164,425 0 0 156,767 15,905 0 0 1,053 0 0 0 166,228 504,378 113,598 2,664 104,082 106,746 6,852 1,270 8,122 3,783 4,339 0 4,339 3,475 3,521 1,766 0 0
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