-----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, lS9KWj4r+hFFgLMxz2BX+4Pcod6MwnvsGZeeyfoJNO9kMWunVoewwHkQTfMzntv6 cfizJajEFrMU0CnzDOgHpA== 0000071304-95-000014.txt : 19950516 0000071304-95-000014.hdr.sgml : 19950516 ACCESSION NUMBER: 0000071304-95-000014 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19950331 FILED AS OF DATE: 19950515 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: 95538790 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, 1995 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, 1995 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, 1995 AND DECEMBER 31, 1994 ASSETS (Unaudited) March 31, December 31, 1995 1994 (Dollars in Thousands) PROPERTY, PLANT AND EQUIPMENT, at original cost $500 472 $496 166 Less - Accumulated depreciation 147 402 143 877 353 070 352 289 Add - Construction work in progress 7 690 5 216 360 760 357 505 INVESTMENTS Equity in nuclear electric power company 602 654 Other 14 14 616 668 CURRENT ASSETS Cash 1 313 1 637 Accounts receivable - Affiliates 3 937 3 713 Customers 40 556 37 862 Unbilled revenues 7 967 8 899 Prepaid property taxes 1 369 2 739 Inventories and other 5 989 6 032 61 131 60 882 DEFERRED CHARGES 81 871 57 831 $504 378 $476 886 COMMONWEALTH ELECTRIC COMPANY CONDENSED BALANCE SHEETS MARCH 31, 1995 AND DECEMBER 31, 1994 CAPITALIZATION AND LIABILITIES (Unaudited) March 31, December 31, 1995 1994 (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 16 214 15 350 164 425 163 561 Long-term debt, less current sinking fund requirements 156 767 157 817 321 192 321 378 CURRENT LIABILITIES Interim Financing - Notes payable to banks - 6 400 Advances from affiliates 15 905 200 15 905 6 600 Current sinking fund requirements 1 053 1 053 Accounts payable - Affiliates 8 315 7 716 Other 26 177 31 911 Accrued taxes - Local property and other 2 623 3 721 Income 9 993 8 049 Other 37 647 13 691 85 808 66 141 101 713 72 741 DEFERRED CREDITS Accumulated deferred income taxes 42 587 42 074 Unamortized investment tax credits 7 885 7 994 Other 31 001 32 699 81 473 82 767 COMMITMENTS AND CONTINGENCIES $504 378 $476 886 See accompanying notes. COMMONWEALTH ELECTRIC COMPANY CONDENSED STATEMENTS OF INCOME AND RETAINED EARNINGS FOR THE THREE MONTHS ENDED MARCH 31, 1995 AND 1994 (Unaudited) 1995 1994 (Dollars in Thousands) ELECTRIC OPERATING REVENUES $113 208 $118 490 OPERATING EXPENSES Electricity purchased for resale, transmission and fuel 77 963 80 775 Other operation and maintenance 19 625 20 000 Depreciation 4 102 4 014 Taxes - Income 2 664 3 010 Local property 1 382 1 284 Payroll and other 1 010 992 106 746 110 075 OPERATING INCOME 6 462 8 415 OTHER INCOME 1 660 87 INCOME BEFORE INTEREST CHARGES 8 122 8 502 INTEREST CHARGES Long-term debt 3 521 3 546 Other interest charges 375 110 Allowance for borrowed funds used during construction (113) (65) 3 783 3 591 NET INCOME 4 339 4 911 RETAINED EARNINGS - Beginning of period 15 350 15 118 Dividends on common stock (3 475) (3 270) RETAINED EARNINGS - End of period $ 16 214 $ 16 759 See accompanying notes. COMMONWEALTH ELECTRIC COMPANY CONDENSED STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS ENDED MARCH 31, 1995 AND 1994 (Unaudited) 1995 1994 (Dollars in Thousands) OPERATING ACTIVITIES Net income $ 4 339 $ 4 911 Effects of noncash items - Depreciation and amortization 4 413 4 561 Deferred income taxes and investment tax credits, net (464) (139) Change in working capital, exclusive of cash, advances to affiliates and interim financing (6 406) (1 517) All other operating items (116) (1 238) Net cash provided by operating activities 1 766 6 578 INVESTING ACTIVITIES Additions to property, plant and equipment (exclusive of AFUDC) (6 757) (4 016) Allowance for borrowed funds used during construction (113) (65) Payment from affiliates - 1 400 Net cash used for investing activities (6 870) (2 681) FINANCING ACTIVITIES Payment of short-term borrowings (6 400) - Proceeds from affiliates 15 705 - Sinking funds payments (1 050) (1 050) Payment of dividends (3 475) (3 270) Net cash provided by (used for) financing activities 4 780 (4 320) Net decrease in cash (324) (423) Cash at beginning of period 1 637 2 794 Cash at end of period $ 1 313 $ 2 371 SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION Cash paid during the period for: Interest (net of capitalized amounts) $ 5 009 $ 4 862 Income taxes $ 315 $ 900 See accompanying notes. COMMONWEALTH ELECTRIC COMPANY NOTES TO CONDENSED FINANCIAL STATEMENTS (1) Accounting Policies 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 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 1994 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 Company has established various regulatory assets 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 regula- tory liabilities established by the Company are required to be refunded to its customers over time. In March 1995, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards (SFAS) No. 121, "Accounting for the Impairment of Long-Lived Assets and Long- Lived Assets to be Disposed Of" (SFAS 121). SFAS 121 imposes stricter criteria for regulatory assets by requiring that such assets be probable of future recovery at each balance sheet date. Based on the current regulatory framework, the Company accounts for the economic effects of regulation in accordance with the provisions of SFAS No. 71, "Accounting for the Effects of Certain Types of Regulation" and does not expect that the adoption of SFAS 121, which the Company expects to adopt on January 1, 1996, will have a material impact on its financial position or results of operations. However, this conclusion may change in the future as competitive factors influence wholesale and retail pricing in this industry. The principal regulatory assets included in deferred charges were as follows: March 31, December 31, 1995 1994 (Dollars in Thousands) Purchased power contract buy-out $25 500 $ - Fuel charge stabilization 14 054 16 638 Postretirement benefit costs including pensions 12 583 11 215 Yankee Atomic unrecovered plant and decommissioning costs 9 885 10 204 Pilgrim nuclear plant litigation costs 6 912 7 001 Cannon Street generating plant abandonment, net 4 400 4 400 Conservation and load management 3 577 3 659 Other 971 1 049 Total regulatory assets $77 882 $54 166 COMMONWEALTH ELECTRIC COMPANY The principal regulatory liabilities, reflected in deferred credits - other and relating to income taxes, were $3.7 million at both March 31, 1995 and December 31, 1994. Generally, expenses which relate to more than one interim period are allocated to other periods to more appropriately match revenues and expenses. 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, 1995 and 1994 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 seasonal variations in the con- sumption of energy. (2) Commitments and Contingencies (a) Construction and Financing Programs The Company is engaged in a continuous construction program presently estimated at $141 million for the five-year period 1995 through 1999. Of that amount, $27.1 million is estimated for 1995. As of March 31, 1995, the Company's construction expenditures amounted to approximately $6.9 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 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. (b) Power Contract Buy-out The Company terminated a Power Sale Agreement (PSA) with Pepperell Power Associates Limited Partnership (38 MW), effective January 27, 1995, through a buy-out arrangement that was approved by the FERC and the DPU. On April 11, 1995, the Company paid $25.5 million to Prudential Insurance Company of America and will recover this cost with carrying charges over a seven-year period beginning in April 1995. (c) Decommissioning of Yankee Atomic Nuclear Power Plant In February 1992, the Board of Directors of Yankee Atomic Electric Company (Yankee Atomic) agreed to permanently discontinue power operation of its plant and decommission the Yankee Nuclear Power Station (the COMMONWEALTH ELECTRIC COMPANY plant). The Company's 2.5% investment in Yankee Atomic is approximately $602,000. The most recent cost estimate to permanently shut down the plant is approximately $396 million. The Company's share of this liabili- ty is $9.9 million and is currently reflected in the accompanying balance sheets as a liability and corresponding regulatory asset. 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, 1995 and 1994 is shown below: Three Months Ended March 31, 1995 and 1994 Increase (Decrease) (Dollars in Thousands) Electric Operating Revenues $(5 282) (4.5)% Operating Expenses - Electricity purchased for resale, transmission and fuel (2 812) (3.5) Other operation and maintenance (375) (1.9) Depreciation 88 2.2 Taxes - Federal and state income (346) (11.5) Local property and other 116 5.1 (3 329) (3.0) Operating Income (1 953) (23.2) Other Income 1 573 1 808.0 Income Before Interest Charges (380) (4.5) Interest Charges 192 5.3 Net Income $ (572) (11.6) Retail Unit Sales MWH Decrease (52 356) (6.0) The following is a summary of unit sales for the periods indicated: Unit Sales (MWH) Three Months Ended Total Retail Wholesale March 31, 1995 1 086 851 813 534 273 317 March 31, 1994 1 254 373 865 889 388 484 COMMONWEALTH ELECTRIC COMPANY Operating Revenues, Electricity Purchased for Resale, Transmission and Fuel Operating revenues for the first quarter of 1995 decreased by $5.3 million (4.5%) from the corresponding period in 1994 due primarily to a 6% decline in retail unit sales (including a 9.7% decrease in residential unit sales) and nearly 30% lower wholesale unit sales that reflected reduced demand for power resulting from extremely mild weather as compared to the record cold experienced during the first quarter of 1994. The Company's residential customer class provides approximately 50% of its total retail sales and approximately 12% of those customers rely on electricity for space heating. Also included in revenues were wholesale sales to the New England Power Pool (NEPOOL) and to non-associate utilities of $5.2 million, a $2.3 million decrease from the first quarter last year 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 Company has received approval from the Massachusetts Department of Public Utilities (DPU) to recover in revenues current costs associated with conservation and load management (C&LM) programs through the operation of a Conservation Charge decimal on a dollar-for-dollar basis. 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 current quarter also includes reduced power purchases due to a combination of both scheduled and unscheduled maintenance at affiliate Canal Electric Company's Unit 1 and a decline in power purchased from an independent power producer (IPP) reflecting the restructuring of a power contract that defers purchases for a six-year period. In January 1995, the Company termi- nated a long-term power contract with another IPP through a buy-out arrange- ment which will reduce future power costs. In addition, the current three- month period reflects additional power purchases from several other higher- cost non-utility generators offset somewhat by reduced generation from Canal's Unit 2 and lower Seabrook 1 costs. Historically, revenues collected through base rates have been designed to reimburse the Company for all costs of operation other than fuel, the energy portion of purchased power, transmission and C&LM costs, and provide a fair return on capital invested in the business. However, as a result of a DPU- approved recovery mechanism for capacity-related costs associated with certain long-term purchased power contracts, the Company experiences a revenue excess or shortfall to the extent that unit sales and/or the costs recoverable in base rates vary from test-period levels. This issue, which can have a significant impact on net income, was addressed in a settlement agreement approved by the DPU in May 1995 whereby the Company will be allowed to defer for future recovery the capacity-related costs in excess of such costs currently included in the Company's retail base rates. (Refer to the "Rate Settlement Agreement" section for additional details.) Other Operation and Maintenance Other operation and maintenance declined by $375,000 (1.9%) due to lower C&LM program costs of $463,000, a decline in affiliated services company charges ($161,000) and continued savings from consolidated management func- tions and other on-going cost containment measures. These decreases were COMMONWEALTH ELECTRIC COMPANY somewhat offset by a higher level of transmission and distribution-related maintenance costs ($249,000) and an increase in insurance and employee benefit costs ($286,000). Depreciation and Taxes Depreciation expense increased slightly due to a higher level of depre- ciable property, plant and equipment. The $346,000 decrease in federal and state income taxes was due to a lower level of pretax income. Local property and other taxes increased $116,000 (5.1%) 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 increased by $1.6 million during the current three-month period due primarily to the partial reversal of a reserve that had been established by the Company in December 1994 related to a settlement negotiated with an outside party for certain costs associated with the Company's C&LM programs ($1.4 million), the recovery of which has since been approved by the DPU. Also contributing to the increase was the accrued interest on the fuel charge stabilization deferral ($390,000). Total interest charges increased $192,000 (7.2%) for the current three- month period reflecting an increase of $265,000 in interest on short-term borrowings which were not required in the first quarter of 1994. Rate Settlement Agreement On May 3, 1995, the DPU approved a settlement proposal sponsored jointly by the Company and the Attorney General of Massachusetts. This joint petition included the resolution of issues related to cost of service, rates, account- ing matters and generating unit performance reviews. The Company's settlement: (1) implements a $2.7 million annual retail base rate decrease effective May 1, 1995 including its share of excess deferred tax reserves related to Seabrook Unit No. 1 to be refunded to the Company by Canal Electric Company. Further, the Company is prevented from increasing retail base rates until October 1998; (2) limits the Company's return on equity, as defined in the settlement, for the period through December 31, 1997; (3) terminates several 1987-1994 generating unit performance review proceedings pending before the DPU; (4) amends the Company's current fuel charge stabilization mechanism to include deferral (without carrying charges) of certain long-term purchased power and transmission capacity costs up to the original limits established for the fuel charge stabilization deferral; (5) requires the Company to fully expense costs relating to postretire- ment benefits other than pensions in accordance with Statement of Financial Accounting Standards No. 106 (FAS 106) and amortize the current deferred balance of $7.6 million over a ten-year period; COMMONWEALTH ELECTRIC COMPANY (6) provides eligible Economic Development Rate customers with a discount of up to 30% but also requires these customers to provide the Company with a five-year notice if they intend to self-generate or acquire electricity from another provider; and (7) prohibits the Company from seeking recovery of the costs incurred in realizing costs savings through a 1993 work force reduction and restructuring, totaling approximately $3 million. The Company's management is encouraged by the support provided through the Office of the Attorney General and believes that this settlement will eliminate the need for potentially costly litigation and regulatory proceed- ings and, by moderating rate impacts and enabling the Company to remain competitive in a changing environment, is in the best interest of the Company and its customers. COMMONWEALTH ELECTRIC COMPANY PART II - OTHER INFORMATION Item 1. Legal Proceedings The Company is subject to legal claims and matters arising from its course of business, including its participation in power contract arbitrations involving the termination of a power purchase agreement with Eastern Energy Corporation as discussed more fully in the Company's 1994 Form 10-K. 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, 1995. (b) Reports on Form 8-K No reports on Form 8-K were filed during the three months ended March 31, 1995. COMMONWEALTH ELECTRIC 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 ELECTRIC 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: May 15, 1995 EX-27 2 FINANCIAL DATA SCHEDULE - MARCH 31, 1995
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, 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 0 166,228 504,378 113,208 2,664 104,082 106,746 6,462 1,660 8,122 3,783 4,339 0 4,339 3,475 3,521 1,766 0 0
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