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 March 31, 1998
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.)
750 W. Center Street, West Bridgewater, Massachusetts
(Address of principal executive offices)
02379
(Zip Code)
(508) 559-1000
(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 April 30, 1998
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>
March 31, December 31,
ASSETS 1998 1997
<S> <C> <C> <C>
Utility Plant in Service $ 140,701 $ 140,572
Less: Accumulated Provision for Depreciation
and Amortization 57,161 55,851
Net Utility Plant in Service 83,540 84,721
Construction Work in Progress 1,971 1,037
Net Utility Plant 85,511 85,758
Current Assets:
Cash and Temporary Cash Investments 156 408
Accounts Receivable - Ass. Cos. 403 513
- Other 16,635 14,609
Materials, Supplies & Other Current Assets 1,260 1,154
Total Current Assets 18,454 16,684
Deferred Debits and Other Non-Current Assets 28,664 28,391
Total Assets $ 132,629 $ 130,833
LIABILITIES AND CAPITALIZATION
Capitalization:
Common Stock, $50 Par Value $ 9,203 $ 9,203
Other Paid-In Capital 17,908 17,908
Retained Earnings 12,000 10,981
Total Common Equity 39,111 38,092
Non-Redeemable Preferred Stock 6,130 6,130
Long-Term Debt 33,500 33,500
Total Capitalization 78,741 77,722
Current Liabilities:
Current Maturities of Long-Term Debt 1,500 1,500
Notes Payable 3,210 1,400
Accounts Payable - Associated Companies 9,571 8,332
- Other 467 960
Taxes Accrued 1,453 2,065
Interest Accrued 984 842
Other Current Liabilities 6,513 9,138
Total Current Liabilities 23,698 24,237
Accumulated Deferred Taxes, Deferred Credits
and Other Non-Current Liabilities 30,190 28,874
Total Liabilities and Cap. $ 132,629 $ 130,833
See accompanying notes to condensed financial statements.
</TABLE>
<TABLE>
BLACKSTONE VALLEY ELECTRIC COMPANY
CONDENSED STATEMENTS OF INCOME
(In Thousands)
<CAPTION>
Three Months Ended
March 31,
1998 1997
<S> <C> <C>
Operating Revenues $ 31,181 $ 34,531
Operating Expenses:
Purchased Power (principally from an a 19,064 22,418
Other Operation and Maintenance 5,316 5,155
Depreciation 1,539 1,441
Taxes Other Than Income 1,814 2,159
Income Taxe - Current (Credit) (386) 2,564
- Deferred (Credit) 1,372 (1,718)
Total 28,719 32,019
Operating Income 2,462 2,512
Other Income (Deductions) - Net (43) 173
Income Before Interest Charges 2,419 2,685
Interest Charges:
Interest on Long-Term Debt 769 805
Other Interest Expense 229 189
Allowance for Borrowed Funds Used
During Construction (Credit) (20) (6)
Net Interest Charges 978 988
Net Income 1,441 1,697
Preferred Dividend Requirements 72 72
Net Earnings $ 1,369 $ 1,625
See accompanying notes to condensed financial statements.
</TABLE>
<TABLE>
BLACKSTONE VALLEY ELECTRIC COMPANY
CONDENSED STATEMENTS OF CASH FLOWS
(In Thousands)
<CAPTION>
Three Months Ended
March 31,
1998 1997
<S> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES:
Net Income $ 1,441 $ 1,697
Adjustments to Reconcile Net Income to Net
Cash Provided from Operating Activities:
Depreciation and Amortization 1,639 1,502
Deferred Taxes 1,372 (1,718)
Investment Tax Credit, Net (45) (45)
Allowance for Funds Used During Construction 0 (5)
Other - Net (461) (289)
Change in Operating Assets and Liabilities (4,371) (1,560)
Net Cash (Used In) Operating Activities (425) (418)
CASH FLOW FROM INVESTING ACTIVITIES:
Construction Expenditures (1,216) (863)
Net Cash (Used In) Investing Activities (1,216) (863)
CASH FLOW FROM FINANCING ACTIVITIES:
Common Stock Dividends Paid to EUA (349) (874)
Preferred Dividends Paid (72) (72)
Net Increase in Short-Term Debt 1,810 2,765
Net Cash Provided From Financing Activities 1,389 1,819
Net (Decrease) Increase in Cash and Temporary Cash Investme (252) 538
Cash and Temporary Cash Investments at Beginning of Period 408 798
Cash and Temporary Cash Investments at End of Period $ 156 $ 1,336
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest (Net of Amount Capitalized) $ 558 $ 696
Income Taxes $ 720 $ 1,470
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) 1997 Annual Report on Form 10-K.
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 March 31, 1998 and
the results of operations and cash flows for the three months ended March 31,
1998 and 1997. The year-end condensed balance sheet data was derived from
audited financial statements but does not include all disclosures required
under generally accepted accounting principles.
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.
Effective January 1, 1998, the Company adopted the Financial
Accounting Standards Board's Statement No. 130, "Reporting Comprehensive
Income," which establishes standards for reporting comprehensive income and
its components (revenues, expenses, gains, and losses) in a set of
general-purpose financial statements. This Statement requires that all items
that are required to be recognized under accounting standards as components of
comprehensive income be reported in a financial statement that is displayed
with the same prominence as other financial statements. Comprehensive income
of the Company is immaterial and therefore no recognition is required by the
Company.
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 were $1.4 million for the three month period ended March 31,
1998 as compared to $1.6 million for the same period in 1997. Kilowatthour
sales decreased by 1.7% in the first quarter of 1998 as a compared to the
first quarter of 1997, largely due to milder weather. Sales to residential
customers decreased 4.5%, and to commercial customers decreased 3.7%. Sales
to industrial customers, generally less weather sensitive, increased 2.8% for
the period, signaling an improvement in economic conditions in the Company's
service territory.
Operating Revenues
Operating Revenues for the quarter ended March 31, 1998 decreased
approximately $3.4 million or 9.7% as compared to the same period in 1997. The
decrease was primarily due to decreased recoveries of purchased power expense
of approximately $3.4 million (see below) and a 1.7% decrease in kilowatthour
sales and rate reductions pursuant to electric industry restructuring
legislation and approved settlements agreements. Offsetting these decreases
somewhat was a 1.3% base rate increase pursuant to the Rhode Island Utility
Restructuring Act of 1996 (URA).
Operating Expenses
Purchased Power expense for the first quarter of 1998 decreased by
approximately $3.4 million, or 15%. Nuclear units provided a greater share of
system requirements and a 14% decrease in the cost of fossil fuels resulted in
a 15% decrease in average fuel costs. In addition, this decrease is a result
of approved electric industry restructuring settlement agreements and the
advent of customer choice. (See Electric Utility Industry Restructuring
below.)
Other Operation and Maintenance (O&M) expenses during the quarter ended
March 31, 1998 increased by approximately $200,000 or 3.1% when compared to
the same period in the previous year due to increases in employee benefits
expenses and uncollectible accounts expense.
Income Taxes
Blackstone's effective income tax rate for the quarter ended March 31,
1998 was approximately 40.5% compared to 35.8% for the same period of a year
ago. Provisions of restructuring settlement agreements which require
acceleration of the catch-up of deferred tax deficiencies created under prior
regulatory practices are primarily responsible for this change.
Other Income and (Deductions) - Net
Other Income and (Deductions) - Net decreased by approximately $200,000
in this year's first quarter. This decrease is due primarily to first quarter
1997 interest income allocated to the Company by EUA Service Corporation
related to the favorable resolution of a Massachusetts corporate income tax
dispute.
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. In July 1997, several EUA System
companies, including Blackstone, entered into a three-year revolving credit
agreement allowing for borrowings in aggregate of up to $120 million. As of
March 31, 1998, various financial institutions have committed up to $75
million under the revolving credit facility. At March 31, 1998, under the
revolving credit agreement, the EUA System had short-term borrowings available
of approximately $4.2 million. Blackstone had $3.2 million of short-term
borrowings outstanding at March 31, 1998. During the first three months of
1998, internally generated funds amounted to approximately $4.0 million while
cash construction requirements for the same period amounted to approximately
$1.2 million.
Electric Utility Industry Restructuring
The electric utility industry in both Massachusetts and Rhode Island, the
states in which EUA provides electric services, is transitioning from a
traditional rate regulated environment to a competitive marketplace.
Traditional electric utility services - generation, transmission and
distribution - have been unbundled into separate and distinct services. The
generation, or supply, function is now competitive with customers able to
choose their own electricity supplier at market prices. The transmission and
distribution functions remain regulated services. The local distribution
company is responsible for providing distribution services to the ultimate
electricity consumer within its franchised service territory and the
transmission company is required to provide open access, non-discriminatory
transmission services to generation or supply companies.
Rhode Island legislation along with approved electric utility industry
restructuring settlement agreements at both the state and federal level,
provided Blackstone's customers with choice of electricity supplier and
immediate rate reductions commencing January 1, 1998. Until a customer
chooses an alternative supplier, that customer will receive standard offer
service. Blackstone is required to arrange for standard offer service through
December 31, 2009 and Montaup has guaranteed standard offer supply at a fixed
price schedule for the duration of the standard offer period. The guaranteed
standard offer price will increase over time to encourage customers to leave
standard offer service and enter the competitive power supply market. Under
the approved settlement agreements, Blackstone agreed to subject its standard
offer requirements to a competitive bidding process in which competitive
suppliers would bid against the guaranteed price offered by Montaup. The
competitive process was completed in April, and resulted in none of the
standard offer requirements being awarded to competitive suppliers. Montaup
will therefore continue to provide the unawarded standard offer requirement at
the indicated fixed price schedule. This wholesale standard offer service
will be assigned proportionately to purchasers of Montaup's generating
capacity.
Provisions of the approved settlement agreements also allowed Montaup to
replace its all-requirements wholesale contract with Blackstone with a
contract termination charge (CTC) which permits Montaup to recover, among
other things, its above market investments and commitments in generation
assets. Montaup began billing the CTC to Blackstone coincident with retail
access and Blackstone is the recovering the CTC through a non-bypassable
transition access charge to all of its distribution customers.
As part of the approved settlement agreements, Montaup agreed to divest
its entire generation portfolio. The net proceeds of the sale, as defined in
the settlement agreements, will be used to mitigate Montaup's CTC to its
retail affiliates, including Blackstone, via a Residual Value Credit (RVC).
The RVC will reduce the fixed component of the CTC for the net proceeds, with
a return, in equal annual amounts over the period commencing on the date the
RVC is implemented through December 31, 2009. See "Divestiture" below.
For a more detailed discussion of electric industry restructuring, refer
to Blackstone's 1997 Annual Report on Form 10K.
Divestiture
Montaup began marketing its entire generation portfolio in July 1997, and
subsequently received bids from a number of potential purchasers. On January
23, 1998, based on a review of the offers and discussions with potential
purchasers, Montaup announced that it was reopening the sales process on the
majority of its generating assets and expects executing purchase and sale
agreements by mid 1998. In March 1998, Montaup announced it would combine the
marketing of its 50% share (approximately 245 mw) in Unit 2 of the Canal
Generating station on Cape Cod with sales efforts of the plant's co-owner and
operator, Canal Electric Company. By doing this, potential purchasers are
offered an expandable site that includes 1,100 mw of existing generating
capacity, an excellent operating record and the capability of burning either
natural gas or oil as a fuel. In April 1998, EUA announced the signing of
agreements for transfer of the power purchase contracts for approximately 160
mw between Montaup and Ocean State Power and the sale of two diesel-powered
generating units (totaling approximately 16 mw) owned by Newport. Both the
transfer of the power contracts and sale of the diesel generating units are
subject to regulatory approval.
Other
Blackstone occasionally makes forward-looking projections of expected
future performance or statements of our plans and objectives. These
forward-looking statements may be contained in filings with the SEC, press
releases and oral statements. Actual results could differ materially from
these statements, therefore, no assurances can be given that such
forward-looking statements and estimates will be achieved.
PART II - OTHER INFORMATION
Item 5. Other Information
NEPOOL is a voluntary organization open to any person engaged in the
electric business such as investor-owned utilities, municipals, cooperative
utilities, power marketers, brokers and load aggregators. On December 31,
1996, NEPOOL, on behalf of its participants, filed a restructuring proposal
with FERC. The key elements of the restructuring proposal are the
implementation of a regional NEPOOL Open Access Transmission Tariff (NEPOOL
Tariff), the creation of an Independent System Operator (ISO), and the
restatement of the NEPOOL Agreement to establish a broader governance
structure for NEPOOL and to develop a more open competitive market structure.
On June 25, 1997, FERC issued an order conditionally authorizing the
establishment of an ISO by NEPOOL effective July 1, 1997, affirming that the
transfer of control of transmission facilities owned by the public utility
members of NEPOOL to the ISO is consistent with the public interest under
Section 203 of the Federal Power Act.
To give market participants more choice and to foster competition, the
restructured NEPOOL proposes the unbundling of electric service in the NEPOOL
control area. The restructured NEPOOL calls for the development of competitive
wholesale markets for installed capability, operable capability, energy,
automatic generation control, and reserves. These wholesale products will be
market priced based on bid clearing pricing rather than the current cost-based
pricing. Market participants will be able to meet their responsibility for
these products by buying or selling these various services through bilateral
transactions or through the regional power exchange that will be administered
through the ISO. The installed capability market was implemented in April of
1998, and the operable capability, energy, automatic generation control and
the reserve markets are expected to start during the fourth quarter of 1998.
In general, the EUA System companies support the changes to NEPOOL
because much of the cross-subsidies for sharing costs will be eliminated.
These changes will have an impact on the Company's operating revenues and
costs as NEPOOL transitions from a cost based to a bid based system.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits - None
(b) Reports on Form 8-K - None.
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: May 15, 1998 /s/ Clifford J. Hebert, Jr.
Clifford J. Hebert, Jr., Treasurer
(on behalf of the Registrant and
as Principal Financial Officer)
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