UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period _________________ to ___________________
Commission File Number 0-2602
BLACKSTONE VALLEY ELECTRIC COMPANY
(Exact name of registrant as specified in its charter)
Rhode Island 05-0108587
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Washington Highway, Lincoln, Rhode Island
(Address of principal executive offices)
02865
(Zip Code)
(401)333-1400
(Registrant's telephone number including area code)
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 practical date.
Class Outstanding at October 31, 1996
Common Shares, $50 par value 184,062 shares
<TABLE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
BLACKSTONE VALLEY ELECTRIC COMPANY
CONDENSED BALANCE SHEETS
(In Thousands)
<CAPTION>
September 30, December 31,
ASSETS 1996 1995
<S> <C> <C>
Utility Plant in Service $ 139,691 $ 135,148
Less: Accumulated Provision for Depreciation
and Amortization 51,998 48,023
Net Utility Plant in Service 87,693 87,125
Construction Work in Progress 205 1,355
Net Utility Plant 87,898 88,480
Current Assets:
Cash and Temporary Cash Investments 827 753
Accounts Receivable - Associated Companies 638 429
- Other 15,271 17,319
Materials, Supplies and Other Current Assets 1,116 1,332
Total Current Assets 17,852 19,833
Deferred Debits and Other Non-Current Assets 22,312 21,522
Total Assets $ 128,062 $ 129,835
LIABILITIES AND CAPITALIZATION
Capitalization:
Common Stock, $50 Par Value $ 9,203 $ 9,203
Other Paid-In Capital 17,907 17,908
Retained Earnings 9,159 9,934
Total Common Equity 36,269 37,045
Non-Redeemable Preferred Stock 6,130 6,130
Long-Term Debt 35,000 36,500
Total Capitalization 77,399 79,675
Current Liabilities:
Current Maturities of Long-Term Debt 1,500 1,500
Notes Payable 1,259
Accounts Payable - Associated Companies 19,028 17,371
- Other 119 282
Taxes Accrued 1,433 1,777
Interest Accrued 1,057 981
Other Current Liabilities 2,867 1,495
Total Current Liabilities 26,004 24,665
Accumulated Deferred Taxes, Deferred Credits
and Other Non-Current Liabilities 24,659 25,495
Total Liabilities and Capitalization $ 128,062 $ 129,835
See accompanying notes to condensed financial statements.
BLACKSTONE VALLEY ELECTRIC COMPANY
CONDENSED STATEMENTS OF INCOME
(In Thousands)
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Operating Revenues $ 37,015 $ 38,523 $ 102,928 $ 107,319
Operating Expenses:
Purchased Power (principally from an 25,366 26,735 68,634 73,504
Other Operation and Maintenance 5,701 4,691 16,319 14,445
Voluntary Retirement Incentive 0 0 912
Depreciation 1,399 1,377 4,196 4,129
Taxes - Other than Income 2,126 2,402 6,464 6,693
Income Taxes - Current (Credit) (22) 461 2,294 858
- Deferred (Credit) 601 373 (757) 796
Total 35,171 36,039 97,150 101,337
Operating Income 1,844 2,484 5,778 5,982
Other Income (Deductions) - Net (7) 22 (59) (36)
Income Before Interest Charges 1,837 2,506 5,719 5,946
Interest Charges:
Interest on Long-Term Debt 818 859 2,503 2,628
Other Interest Expense 115 131 404 443
Allowance for Borrowed Funds Used
During Construction (Credit) (29) (20) (52) (48)
Net Interest Charges 904 970 2,855 3,023
Net Income 933 1,536 2,864 2,923
Preferred Dividend Requirements 73 72 217 216
Net Earnings $ 860 $ 1,464 $ 2,647 $ 2,707
See accompanying notes to condensed financial statements.
BLACKSTONE VALLEY ELECTRIC COMPANY
CONDENSED STATEMENTS OF CASH FLOWS
(In Thousands)
<CAPTION>
Nine Months Ended
September 30,
1996 1995
<S> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES:
Net Income $ 2,864 $ 2,923
Adjustments to Reconcile Net Income to Net
Cash Provided from Operating Activities:
Depreciation and Amortization 4,455 4,633
Deferred Taxes (757) 796
Investment Tax Credit, Net (136) (138)
Allowance for Funds Used During Construction (2) (5)
Other - Net (1,196) (668)
Change in Operating Assets and Liabilities 4,655 1,249
Net Cash Provided From Operating Activities 9,883 8,790
CASH FLOW FROM INVESTING ACTIVITIES:
Construction Expenditures (3,411) (4,022)
Net Cash (Used In) Investing Activities (3,411) (4,022)
CASH FLOW FROM FINANCING ACTIVITIES:
Redemptions:
Long-Term Debt (1,500) (1,500)
Common Stock Dividends Paid to EUA (3,422) (3,088)
Preferred Dividends Paid (217) (216)
Net (Decrease) in Short-Term Debt (1,259) 0
Net Cash (Used In) Financing Activities (6,398) (4,804)
Net Increase (Decrease) in Cash and Temporary Cash Invest. 74 (36)
Cash and Temporary Cash Investments at Beginning of Period 753 472
Cash and Temporary Cash Investments at End of Period $ 827 $ 436
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest (Net of Amount Capitalized) $ 2,391 $ 2,559
Income Taxes $ 2,210 $ 380
See accompanying notes to condensed financial statements.
</TABLE>
BLACKSTONE VALLEY ELECTRIC COMPANY
NOTES TO CONDENSED FINANCIAL STATEMENTS
The accompanying Notes should be read in conjunction with the
Notes to Financial Statements appearing in the Blackstone Valley
Electric Company's (Blackstone or the Company) 1995 Annual Report
on Form 10-K and the Company's Quarterly Report on Form 10-Q for
the periods ended March 31, and June 30, 1996.
Note A - In the opinion of the Company, the accompanying unaudited
condensed financial statements contain all normal and
recurring adjustments necessary to present fairly the
financial position of the Company as of September 30,
1996 and December 31, 1995, and the results of operations
for the three and nine months ended September 30, 1996
and 1995 and cash flows for the nine months ended
September 30, 1996 and 1995. Certain reclassifications
have been made to prior period financial statements to
conform to current period classifications.
The preparation of financial statements in conformity
with generally accepted accounting principles requires
management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts
of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
The Company occasionally makes projections of expected
future performance or statements of its plans, objectives
and new business opportunities which are forward-looking
statements under federal securities law. Actual results
could differ materially from those discussed and there
can be no assurance that such estimates of future results
could be achieved.
Note B - Results shown above for the respective interim periods
are not necessarily indicative of results to be expected
for the fiscal years due to seasonal factors which are
inherent in electric utilities in New England. A greater
proportionate amount of revenues is earned in the first
and fourth quarters (winter season) of each year because
more electricity is sold due to weather conditions, fewer
daylight hours, etc.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
The following is Management's discussion and analysis of
certain significant factors affecting the Company's earnings and
financial condition for the interim periods presented in this Form
10-Q.
Overview
Net Earnings for the three months ended September 30, 1996
were approximately $900,000 compared to net earnings of $1.5
million for the same period in 1995. For the nine months ended
September 30, 1996 net earnings were $2.6 million, relatively
unchanged compared to the nine months ended September 30, 1995.
Earnings for the year-to-date period of 1995 include a one-time
charge of approximately $550,000, on an after-tax basis, related
to the costs of a voluntary retirement incentive offer recorded in
June 1995.
Kilowatthour sales decreased by 4.6% in this year's third
quarter as compared to the same period of 1995 largely due to
milder weather, essentially offsetting sales gains posted during
the first six months of 1996. Year-to-date sales decreased by
1.0%. Sales to residential and commercial customers, which are
typically more weather sensitive, decreased by 5.4% and 5.7%,
respectively, in the third quarter. For the year-to-date period,
sales to residential customers were essentially flat, sales to
commercial customers decreased by 1.9% and industrial sales fell
by 1.5% versus the same period of 1995.
Operating Revenues
Operating revenues for the three quarter and nine months ended
September 30, 1996 decreased by $1.5 million and $4.4 million as
compared to those of the same periods in 1995. These changes were
primarily due to recoveries of lower purchased power and
conservation and load management (C&LM) expenses, as discussed
below, and decreased kilowatthour sales.
Operating Expenses
Purchased Power expense for the quarter and nine months ended
September 30, 1996 decreased approximately $1.4 million or 5.1%
and $4.9 million or 6.6%, respectively, as compared to the same
periods of 1995. For the third quarter and year-to-date periods
of 1996, the average cost of fuel decreased 2.4% and 9.5%,
respectively, compared to the same periods of 1995. Also
impacting purchased power expense were respective period decreases
in C&LM included in purchased power expenses of approximately
$800,000 and $2.3 million.
Other Operation and Maintenance expenses during the three
months ended September 30, 1996 increased by approximately $1.0
million or 21.6% when compared to the third quarter of 1995. This
change is primarily due to an increase of $300,000 in C&LM
expenses recorded as Other Operation and Maintenance expenses and
an increase in FAS106 expense of approximately $200,000. Also
impacting third quarter results were increases in the provision
for uncollectible accounts, legal and storm related expenses
aggregating approximately $500,000.
For the year-to-date period, Other Operation and Maintenance
expenses increased by $1.9 million or 13.0%, primarily due to
increased C&LM expenses recorded as Other Operation and
Maintenance expenses of approximately $700,000, increased
provision for uncollectible accounts, storm related expenses,
FAS106 expense, and legal expenses aggregating approximately
$900,000. Also contributing to the year-to-date change was a
decrease in capitalized costs of approximately $400,000.
Effective Income Tax Rate
Blackstone's effective income tax rate decreased for the nine
months ended September 30, 1996 from approximately 36.1% to 34.8%
when compared with the same period of a year ago due primarily to
increased consolidated tax benefits.
Liquidity and Sources of Capital
Blackstone's need for permanent capital is primarily related
to investments in facilities required to meet the needs of its
existing and future customers.
Traditionally, construction requirements in excess of
internally generated funds are financed through short-term
borrowings which are ultimately funded with permanent capital. At
September 30, 1996, EUA System companies, including Blackstone,
maintained short-term lines of credit with various banks
aggregating approximately $150 million. These credit lines are
available to other affiliated companies under joint credit line
arrangements. At September 30, 1996 and December 31, 1995, these
unused EUA System short-term lines of credit amounted to
approximately $98.5 million and $110.5 million, respectively.
Blackstone had no short-term debt outstanding at September 30,
1996 and had $1.3 million outstanding at December 31, 1995.
During the first nine months of 1996 Blackstone's internally
generated funds amounted to approximately $2.8 million while cash
construction requirements for the same period amounted to
approximately $3.4 million.
Electric Utility Industry Restructuring
The electric industry is in a period of transition from a
traditional rate regulated environment to a competitive
marketplace. While competition in the wholesale electric market
is not new, electric utilities are facing impending competition in
the retail sector.
On March 5, 1996 the Rhode Island Public Utilities Commission
(RIPUC) required electric utilities subject to their jurisdiction
to file electric industry restructuring plans. On April 19, 1996
both Blackstone and Newport filed a restructuring plan called
"Choice and Competition", described below. Hearings on the
restructuring plans submitted to the RIPUC were to have started on
August 12, 1996. In view of the restructuring legislation
(described below) passed into law on August 7, 1996, however, the
RIPUC terminated its restructuring proceedings.
On August 7, 1996 the Governor of Rhode Island signed into law
the Utility Restructuring Act of 1996 (URA). The URA provides for
customer choice of electricity supplier commencing July 1, 1997
for large manufacturing customers, certain new commercial and
industrial customers, and State of Rhode Island accounts. Load,
accounting for no more than 10% of total electric distribution
company's kWh sales is to be released to retail access under this
provision. An additional 10% of kWh sales is to be released to
retail access by permitting municipal and smaller manufacturers to
choose an electricity supplier commencing January 1, 1998. By
July 1, 1998 or sooner, all customers will have retail access.
This legislation provides for recovery of "stranded costs" through
a non-by-passable transition charge initially set at 2.8 cents per
kWh. The transition charge covers costs of regulatory assets;
nuclear decommissioning; above market payments to power suppliers;
and depreciated generation net of its market value. Nuclear
decommissioning costs and above market payments to power suppliers
will be reconciled to actual costs annually and the transition
charge will be spread over the period from July 1, 1997 through
December 31, 2009.
The implementation of the URA will require approvals from
applicable regulatory agencies, including the Federal Energy
Regulatory Commission (FERC), the RIPUC, and the Securities and
Exchange Commission.
EUA believes that the URA settles much of the uncertainty
regarding "stranded cost" recovery related to serving the
customers of Blackstone and Newport.
In August 1995, the Massachusetts Department of Public
Utilities (MDPU) issued an order enumerating principles, that
describe the key characteristics of a restructured electric
industry and provides for, among other things, customer choice of
electric service providers, services, pricing options and payment
terms, an opportunity for customers to share in the benefits of
increased competition, full and fair competition in the generation
markets and incentive regulation for distribution services where
regulation will still exist. This order sets out principles for
the transition from a regulated to a competitive industry
structure and identifies conditions for the transition process
which will require investor-owned utilities to unbundle rates,
provide consumers with accurate price signals and allow customers
choice of generation services. The order also provides, in
principle, for the recovery of net, non-mitigable stranded costs
by investor-owned utilities resulting from the industry
restructuring.
Each Massachusetts investor-owned utility is required to file
restructuring proposals for moving from the current regulated
industry structure to a competitive generation market. An initial
group of utilities was required to file their proposals in
February 1996. The second group is required to file within three
months of the MDPU's orders on the first group of submissions.
Eastern Edison Company filed its proposal, "Choice and
Competition" (see below) with the first group of proposals. On
March 15, 1996, the MDPU issued a Notice of Inquiry (NOI)
Rulemaking on electric industry restructuring. The NOI
incorporated by reference the restructuring proposals previously
submitted pursuant to the MDPU's earlier order. In its NOI order
the MDPU indicated that it planned to issue draft rules to provide
more specific guidance on the framework of a restructured electric
industry.
On May 1, 1996 the MDPU issued its proposed rules for the
restructuring of the electric industry. The MDPU stated the rules
are intended to reduce electricity costs over time and provide
broad customer choice of electric supplier promoting full and fair
competition in the generation of electricity. These proposed
rules, which amplify the principles set forth in the August 1995
order, were issued for public comment and hearing. Final rules
were originally scheduled to be issued in September 1996. On
August 9, 1996 the MDPU issued a notice extending the issuance
date of the final rules. The MDPU goal is to issue final rules by
the end of calendar year 1996. The May 1st proposed rules provide
for, among other things:
- an independent system operator of the regional transmission
system in New England operating within established
reliability standards and a power exchange which would
facilitate a short-term pool for energy transactions;
- functional separation of electric companies into generation,
transmission and distribution corporate entities;
- a "reasonable" opportunity for recovery of net, non-
mitigable stranded costs periodically subject to some degree
of reconciliation;
- a price cap system for performance based regulation of
electric distribution companies;
- distribution company obligation to provide electric
distribution service to all customers within its service
territory;
- environmental protection and support for renewable energy
resources and energy efficiency;
- implementation of unbundled rates beginning January 1, 1997
and a competitive generation market by January 1, 1998;
EUA participated in hearings held during June and July of
1996, and on August 2, 1996, filed written comments addressing
restructuring issues. In its notice of August 9, 1996, the MDPU
encouraged stakeholders to work together toward consensual
resolution of restructuring issues. EUA is currently engaged in
settlement negotiations. One Massachusetts electric utility
company has submitted its offer of settlement on restructuring
issues to the MDPU. EUA cannot predict the ultimate outcome of
the restructuring process.
In January 1996, EUA unveiled its preliminary proposal for a
restructured electric utility industry called "Choice and
Competition" and began discussions with collaborative groups in
both Rhode Island and Massachusetts consisting of other utilities,
industrial users, environmental groups, governmental agencies and
consumer advocates. The plan proposed, among other things: choice
of power supplier by all customers as early as January 1998; open
access transmission services; performance based rates for electric
distribution services; all utility generation competing for power
sales; and a transition charge allowing regional utilities the
opportunity to recover, among other things, the costs of past
commitments to nuclear and independent power. The keystone to
"Choice and Competition" was the adoption of common electric
utility restructuring implementation for the New England states
operating with the region's power pool. As different
restructuring initiatives surfaced from state regulatory agencies
and state legislatures, it became apparent that a New England
region-wide approach to restructuring would be unlikely. Thus,
major elements of the "Choice and Competition" proposal have been
substantially modified to reflect that state by state, rather than
regional, plans will be adopted.
Historically, electric rates have been designed to recover a
utility's full costs of providing electric service including
recovery of investment in plant assets. Also, in a regulated
environment, electric utilities are subject to certain accounting
rules that are not applicable to other industries. These
accounting rules allow regulated companies, in appropriate
circumstances, to establish regulatory assets and liabilities,
which defer the current financial impact of certain costs that are
expected to be recovered in future rates. The Company believes
that its operations continue to meet the criteria established in
these accounting standards.
PART II -- OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits - None
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the Registrant
during the three months ended September 30, 1996.
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.
Blackstone Valley Electric Company
(Registrant)
Date: November 13, 1996 /s/Clifford J. Hebert, Jr.
Clifford J. Hebert, Jr., Treasurer
(on behalf of the Registrant and
as Principal Financial Offier)
<TABLE> <S> <C>
<ARTICLE> OPUR1
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 87898
<OTHER-PROPERTY-AND-INVEST> 46
<TOTAL-CURRENT-ASSETS> 17852
<TOTAL-DEFERRED-CHARGES> 22266
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 128062
<COMMON> 9203
<CAPITAL-SURPLUS-PAID-IN> 17907
<RETAINED-EARNINGS> 9159
<TOTAL-COMMON-STOCKHOLDERS-EQ> 36269
0
6130
<LONG-TERM-DEBT-NET> 35000
<SHORT-TERM-NOTES> 0
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 1500
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 49163
<TOT-CAPITALIZATION-AND-LIAB> 128062
<GROSS-OPERATING-REVENUE> 102928
<INCOME-TAX-EXPENSE> 1537
<OTHER-OPERATING-EXPENSES> 95613
<TOTAL-OPERATING-EXPENSES> 97150
<OPERATING-INCOME-LOSS> 5778
<OTHER-INCOME-NET> (59)
<INCOME-BEFORE-INTEREST-EXPEN> 5719
<TOTAL-INTEREST-EXPENSE> 2855
<NET-INCOME> 2864
217
<EARNINGS-AVAILABLE-FOR-COMM> 2647
<COMMON-STOCK-DIVIDENDS> 3422
<TOTAL-INTEREST-ON-BONDS> 2503
<CASH-FLOW-OPERATIONS> 9883
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
