SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[x] Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended September 30, 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 1-2301
BOSTON EDISON COMPANY
(Exact name of registrant as specified in its charter)
Massachusetts 04-1278810
- ------------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
800 Boylston Street, Boston, Massachusetts 02199
- ------------------------------------------ -----
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 617-424-2000
------------
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 No x
----- -----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at September 30, 1995
- ----- ---------------------------------
Common Stock, $1 par value 47,890,445 shares
<PAGE> 2
Part I - Financial Information
Item 1. Financial Statements
- -----------------------------
<TABLE>
Boston Edison Company
Consolidated Balance Sheets
(Unaudited)
(in thousands)
<CAPTION>
September 30, December 31,
1995 1994
------------- ------------
<S> <C> <C>
Assets
- ------
Utility plant in service, at original cost $4,239,525 $4,074,810
Less: accumulated depreciation 1,430,307 1,344,452
---------- ----------
2,809,218 2,730,358
Nuclear fuel, net 56,331 55,597
Construction work in progress 82,357 144,048
---------- ----------
Net utility plant 2,947,906 2,930,003
Investments in electric companies, at equity 23,717 24,678
Nuclear decommissioning trust 98,282 82,831
Current assets:
Cash and cash equivalents 28,970 6,822
Accounts receivable 234,183 189,382
Accrued unbilled revenues 37,283 32,240
Fuel, materials and supplies,
at average cost 62,872 71,560
Prepaid expenses and other 22,263 26,705
---------- ----------
Total current assets 385,571 326,709
---------- ----------
Regulatory assets:
Redemption premiums 46,604 52,859
Income taxes, net 45,777 44,745
Power contracts 33,203 40,277
Pension and postretirement costs 16,645 22,761
Nuclear outage costs 15,778 17,804
Other 8,362 19,702
---------- ----------
Total regulatory assets 166,369 198,148
Other deferred debits:
Intangible asset - pension 33,184 22,849
Other 31,382 31,392
---------- ----------
Total assets $3,686,411 $3,616,610
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements
<PAGE> 3
<TABLE>
Boston Edison Company
Consolidated Balance Sheets
(Unaudited)
(in thousands)
<CAPTION>
September 30, December 31,
1995 1994
------------- ------------
<S> <C> <C>
Capitalization and Liabilities
- ------------------------------
Common stock equity:
Common stock $ 728,610 $ 668,338
Retained earnings 290,601 247,409
---------- ----------
Total common stock equity 1,019,211 915,747
Cumulative preferred stock:
Non-mandatory redeemable series 123,000 123,000
Mandatory redeemable series 92,000 94,000
Long-term debt 1,160,256 1,136,617
Current liabilities:
Long-term debt/preferred stock
due within one year 203,067 102,250
Notes payable 74,420 214,786
Accounts payable 84,155 139,119
Interest accrued 15,096 24,464
Dividends payable 24,582 23,533
Pension benefits 34,718 31,908
Other 109,296 76,615
---------- ----------
Total current liabilities 545,334 612,675
---------- ----------
Deferred credits:
Power contracts 33,203 40,277
Accumulated deferred income taxes 507,762 515,454
Accumulated deferred investment tax credits 63,979 67,048
Nuclear decommissioning reserve 108,139 92,404
Other 33,527 19,388
---------- ----------
Total deferred credits 746,610 734,571
Commitments and contingencies - -
---------- ----------
Total capitalization and liabilities $3,686,411 $3,616,610
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 4
<TABLE>
Boston Edison Company
Consolidated Statements of Income
(Unaudited)
(in thousands, except per share amounts)
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1995 1994 1995 1994
-------- -------- ---------- ----------
<S> <C> <C> <C> <C>
Operating revenues $500,179 $449,094 $1,265,794 $1,195,198
-------- -------- ---------- ----------
Operating expenses:
Fuel 52,431 42,114 125,475 125,499
Purchased power 90,915 94,013 278,772 267,909
Other operations and maintenance 116,820 109,825 333,638 320,640
Depreciation and amortization 38,520 37,487 113,839 112,051
Amortization of deferred cost of
cancelled nuclear unit 0 4,948 0 14,844
Amortization of deferred nuclear
outage costs 12,765 1,930 16,625 5,791
Demand side management programs 15,223 9,405 39,646 27,451
Taxes - property and other 26,267 25,038 80,506 76,370
Income taxes 44,709 27,735 72,289 51,854
-------- -------- ---------- ----------
Total operating expenses 397,650 352,495 1,060,790 1,002,409
-------- -------- ---------- ----------
Operating income 102,529 96,599 205,004 192,789
Other income (expense), net (342) 819 140 2,477
-------- -------- ---------- ----------
Operating and other income 102,187 97,418 205,144 195,266
-------- -------- ---------- ----------
Interest charges:
Long-term debt 28,312 25,560 79,605 77,346
Other 2,692 3,934 11,665 9,182
Allowance for borrowed funds
used during construction (1,185) (2,258) (4,833) (5,238)
-------- -------- ---------- ----------
Total interest charges 29,819 27,236 86,437 81,290
-------- -------- ---------- ----------
Net income 72,368 70,182 118,707 113,976
Preferred dividends provided 3,890 3,926 11,681 11,839
-------- -------- ---------- ----------
Balance available for common
stock $ 68,478 $ 66,256 $ 107,026 $ 102,137
======== ======== ========== ==========
Weighted average common shares
outstanding 46,861 45,382 46,129 45,286
====== ====== ====== ======
Earnings per share of common stock $1.46 $1.46 $2.32 $2.26
===== ===== ===== =====
Dividends declared per common share $0.455 $0.440 $1.365 $1.320
====== ====== ====== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 5
<TABLE>
Boston Edison Company
Consolidated Statements of Cash Flows
(Unaudited)
(in thousands)
<CAPTION>
Nine Months Ended September 30,
1995 1994
-------- --------
<S> <C> <C>
Operating activities:
Net income $118,707 $113,976
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 110,036 107,581
Amortization of nuclear fuel 13,279 16,738
Amortization of deferred cost of
cancelled nuclear unit, net 0 14,301
Amortization of deferred nuclear outage
costs 16,625 5,791
Other amortization 11,975 11,000
Deferred income taxes (8,991) 12,114
Investment tax credits (3,069) (3,055)
Allowance for borrowed funds used during
construction (4,833) (5,238)
Net changes in:
Accounts receivable and accrued
unbilled revenues (49,844) (36,188)
Fuel, materials and supplies 5,143 2,045
Accounts payable (54,964) (20,486)
Other current assets and liabilities 31,614 21,504
Other, net 19,386 19,488
-------- --------
Net cash provided by operating activities 205,064 259,571
-------- --------
Investing activities:
Plant expenditures (excluding AFUDC) (125,468) (124,370)
Nuclear fuel expenditures (12,298) (9,956)
Capitalized demand side management
expenditures 0 (15,325)
Nuclear decommissioning trust investments (15,451) (11,750)
Electric company investments 961 (205)
-------- --------
Net cash used by investing activities (152,256) (161,606)
-------- --------
Financing activities:
Issuances:
Common stock 61,773 7,978
Long-term debt 125,000 15,000
Redemptions:
Preferred stock (2,000) (2,000)
Long-term debt (600) (28,600)
Net change in notes payable (140,366) (22,237)
Dividends paid (74,467) (71,549)
-------- --------
Net cash used by financing activities (30,660) (101,408)
-------- --------
Increase/(decrease) in cash and cash equivalents 22,148 (3,443)
Cash and cash equivalents at beginning of year 6,822 8,768
-------- --------
Cash and cash equivalents at end of period $ 28,970 $ 5,325
======== ========
Cash paid during the period for:
Interest $100,638 $99,944
Less: amounts capitalized 4,833 5,238
-------- -------
$ 95,805 $94,706
======== =======
Income taxes $ 63,177 $28,690
======== =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 6
Notes to Consolidated Financial Statements
- ------------------------------------------
A) Basis of Presentation
---------------------
The accompanying unaudited consolidated financial statements should be read in
conjunction with the Boston Edison Company (the Company) 1994 Form 10-K Annual
Report and Forms 10-Q for the periods ended March 31, 1995 and June 30, 1995.
In the opinion of the Company, the accompanying unaudited consolidated
financial statements reflect all adjustments (which are all of a normal
recurring nature, except for the amortization of deferred nuclear outage costs
as described in Note B) necessary to present fairly the financial position as
of September 30, 1995 and the results of operations for the three and nine
months ended September 30, 1995 and 1994 and the cash flows for the nine
months ended September 30, 1995 and 1994. Certain reclassifications have been
made to the prior year data to conform to the current presentation.
The results of operations for the three and nine months ended September 30,
1995 are not indicative of the results which may be expected for the entire
year. The Company's kWh sales and revenues are typically higher in the winter
and summer than in the spring and fall as sales tend to vary with weather
conditions. In addition, the Company bills higher base rates to commercial
and industrial customers during the billing months of June through September
as mandated by the Massachusetts Department of Public Utilities (DPU).
Accordingly, greater than half of the Company's annual earnings typically
occurs in the third quarter.
B) Deferred Nuclear Outage Costs
-----------------------------
In the third quarter of 1995 the Company changed the amortization period of
deferred nuclear outage costs to two from five years. The two year
amortization period is consistent with the two year cycle between nuclear
refueling outages at Pilgrim Station. The change from the prior five year
amortization period per the 1992 settlement agreement was made following the
DPU's August 1995 order on electric industry restructuring, which is discussed
further in the outlook for the future section of management's discussion and
analysis. This order requires utilities to mitigate potentially strandable
costs by available and reasonable means. The prior regulatory treatment of
recovery over a five year period resulted in a significant lag between the
expenditure and recovery of outage costs. The Company decided not to request
recovery of the buildup of costs resulting from this regulatory lag.
Accordingly, the remaining $9 million of deferred costs allocable to retail
customers for refueling outages performed in 1991 and 1993 were written off.
Approximately $15 million of deferred costs from the 1995 refueling outage are
being amortized over two years.
C) Commitments and Contingencies
-----------------------------
In 1991 the Company was named in a lawsuit alleging discriminatory employment
practices under the Age Discrimination in Employment Act of 1967 concerning 46
employees affected by the Company's 1988 reduction in force. Legal counsel
continues to defend this case vigorously. Based on the information presently
available, the Company does not expect that this litigation or certain other
legal matters in which the Company is currently involved will have a material
impact on its financial condition. However, an unfavorable decision ordered
against the Company could have a material impact on the results of a reporting
period.
The Company currently owns or operates 43 specific properties where hazardous
materials were released in the past. The Company is required to clean up
these properties in accordance with a timetable developed by the Massachusetts
<PAGE> 7
Department of Environmental Protection and is continuing to evaluate the costs
associated with their cleanup. There are uncertainties associated with these
costs due to the complexities of cleanup technology, regulatory requirements
and the particular characteristics of the different sites. The Company also
continues to face possible liability as a potentially responsible party in the
cleanup of eight multi-party hazardous waste sites in Massachusetts and other
states where it is alleged to have generated, transported or disposed of
hazardous waste at the sites. At the majority of these sites the Company is
one of many potentially responsible parties and currently expects to have only
a small percentage of the potential liability. Through September 30, 1995,
the Company has accrued approximately $7 million related to its cleanup
liabilities. The Company is unable to fully determine a range of reasonably
possible cleanup costs in excess of the accrued amount, although based on its
assessments of the specific site circumstances, it does not expect any such
additional costs to have a material impact on its financial condition.
However, additional provisions for cleanup costs could have a material impact
on the results of a reporting period.
D) Corporate Reorganization
------------------------
In July 1995 the Company announced a corporate reorganization into four
separate business units effective November 1, 1995: Customer, Generating-
Fossil, Generating-Nuclear and Corporate Services. As part of this
reorganization, the Company intends to reduce its workforce by approximately
450 employees by the end of 1996. Part of this reduction will be achieved
through a voluntary retirement incentive. The Company announced voluntary
enhanced retirement programs for all employees who are at least 55 years old
with varying years of service requirements for management and union employees.
Approximately 600 employees are eligible for the programs, which are available
until early December. A majority of the eligible employees are expected to
participate in the programs. The Company will incur a one-time charge to
fourth quarter earnings as a result of the programs; the charge will be
determined by the number of employees that accept the offer.
Approximately 70 of the Company's upper and middle management positions and
related administrative support positions will be eliminated by the end of 1995
regardless of the results of the enhanced retirement programs. A special
severance program was announced for these affected employees who are not
eligible for or do not accept the enhanced retirement program, which resulted
in a one-time, pre-tax charge to third quarter earnings of $7 million. The
total of the $7 million third quarter charge and the fourth quarter charge to
be incurred from the enhanced retirement programs is estimated to be
approximately $25 million on a pre-tax basis. Depending on the level of
participation, the charge could be higher or lower. The Company is currently
evaluating its options in order to achieve the 450 employee reduction if it is
not achieved through the enhanced retirement program and the management and
administrative support reduction.
<PAGE> 8
E) Income Taxes
------------
The following table reconciles the federal statutory income tax rate to the
annual estimated effective income tax rate for 1995 and the actual effective
income tax rate for 1994.
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Statutory tax rate 35.0% 35.0%
State income tax, net of federal income
tax benefit 4.3 4.3
Investment tax credits (2.0) (2.3)
Reversal of deferred taxes -
settlement agreement - (5.5)
Other 0.5 (0.1)
---- ----
Effective tax rate 37.8% 31.4%
==== ====
</TABLE>
F) Long-Term Securities
--------------------
On September 29, 1995, the Company sold one million shares of common stock
with net proceeds of $26 million to Merrill Lynch & Co. as underwriters for a
public offering. The proceeds, which are included in the cash balance at
September 30, were used to reduce short-term debt in early October.
Item 2. Management's Discussion and Analysis
- ---------------------------------------------
Results of Operations - Three Months ended September 30, 1995 vs. Three Months
- ------------------------------------------------------------------------------
ended September 30, 1994
- ------------------------
Earnings per common share amounted to $1.46 for both the three months ended
September 30, 1995 and 1994. Third quarter earnings in 1995 include a one-
time charge of $0.09 per share for severance benefits relating to the
Company's restructuring, which is discussed in the outlook for the future
section. Excluding the one-time charge, earnings increased due to a $29
million annual retail base rate increase effective November 1994, lower
revenue reserves and the ending of amortization of deferred cancelled nuclear
costs in 1994. These positive changes were partially offset by higher
amortization of deferred nuclear outage costs and income tax expense.
The results of operations for the quarter are not indicative of the results
which may be expected for the entire year due to the seasonality of the
Company's kWh sales and revenues. Refer to Note A to the consolidated
financial statements.
Operating revenues
Operating revenues increased 11.4% in the third quarter of 1995 as follows:
<TABLE>
<CAPTION>
(in thousands)
- ------------------------------------------------------
<S> <C>
Retail electric revenues $26,488
Demand side management revenues 9,173
Wholesale and other revenues 11,157
Short-term sales revenues 4,267
- ------------------------------------------------------
Increase in operating revenues $51,085
======================================================
</TABLE>
Retail electric revenues increased $26.5 million. The November 1994 base rate
increase resulted in approximately $17 million of the increased revenues and
approximately $4 million was due to a 2.3% increase in retail kWh sales.
Performance revenues, which vary annually based on the operating performance
<PAGE> 9
of Pilgrim Nuclear Power Station, increased approximately $5 million mainly as
a result of an outage that occurred at the station in 1994.
A new annual conservation charge for recovery of demand side management (DSM)
program costs was implemented in February 1995. Under this current charge
substantially all 1995 program costs are recovered in the current year. This
results in higher DSM revenues and expenses than in prior years when certain
program costs were capitalized for recovery over six years.
The net increase in wholesale and other revenues is primarily due to $10
million of revenue reserves recorded in 1994 mainly related to potential
customer contract issues.
Increased short-term sales revenues are the result of higher Company
generating availability in 1995. Revenues from short-term sales serve to
reduce fuel and purchased power billings to retail customers and therefore
have no effect on earnings.
Operating expenses
Total fuel and purchased power expenses increased $7 million due to the timing
effect of fuel and purchased power cost collection. In addition to the timing
effect, fuel expense increased despite lower fossil fuel prices primarily due
to a 41% increase in Company generation, while purchased power expense
decreased due to a 28% decrease in kWh purchases. Fuel and purchased power
expenses are substantially all recoverable through fuel and purchased power
revenues.
The increase in other operations and maintenance expense is due to a $7
million one-time charge for severance benefits. Refer to the outlook for the
future section for more information regarding the severance program related to
the Company's restructuring.
In 1994 the Company fully expensed the remaining deferred costs of the
cancelled Pilgrim 2 nuclear unit.
The 1995 amortization of deferred nuclear outage costs reflects a change in
the amortization period to two from five years as discussed in Note B to the
consolidated financial statements. The remaining $9 million of deferred costs
allocable to retail customers for refueling outages performed in 1991 and
1993 were written off. Approximately $15 million of deferred costs from the
1995 refueling outage are being amortized over two years.
The increase in demand side management programs expense is related to the
increase in DSM revenues. Beginning with the annual conservation charge
implemented in February 1995, DSM costs are recovered and expensed primarily
in the year incurred.
Property and other taxes increased due to higher property taxes imposed by a
majority of the municipalities in which the Company operates.
The Company's estimated effective annual income tax rate for 1995 is 37.8%
versus an actual rate of 31.4% for 1994. The higher rate is the result of a
$10 million adjustment to deferred income taxes in 1994 made in accordance
with the Company's 1992 settlement agreement.
<PAGE> 10
Interest charges
Interest charges on long-term debt increased primarily due to a $125 million
debentures issuance in May 1995. Other interest charges decreased due to a
lower average short-term debt level partially offset by higher short-term
interest rates. The allowance for borrowed funds used during construction
(AFUDC) decreased due to a lower construction work in progress balance
partially offset by a higher AFUDC rate related to the higher short-term
interest rates.
Results of Operations - Nine Months ended September 30, 1995 vs. Nine Months
- ----------------------------------------------------------------------------
ended September 30, 1994
- ------------------------
Earnings per common share for the nine months ended September 30, 1995
amounted to $2.32 as compared to $2.26 per common share for the nine months
ended September 30, 1994. The increase in earnings is primarily due to the
$29 million base rate increase effective November 1994, the ending of
amortization of deferred cancelled nuclear costs in 1994 and lower revenue
reserves. These positive changes were partially offset by higher amortization
of deferred nuclear outage costs and higher operations and maintenance,
property tax, income tax and interest expenses.
The results of operations for the nine months ended September 30, 1995 are not
indicative of the results which may be expected for the entire year due to the
seasonality of the Company's kWh sales and revenues. Refer to Note A to the
consolidated financial statements.
Operating revenues
Operating revenues increased 5.9% in the first nine months of 1995 as follows:
<TABLE>
<CAPTION>
(in thousands)
- ------------------------------------------------------
<S> <C>
Retail electric revenues $39,578
Demand side management revenues 13,880
Wholesale and other revenues 18,234
Short-term sales revenues (1,096)
- ------------------------------------------------------
Increase in operating revenues $70,596
======================================================
</TABLE>
Retail electric revenues increased $39.6 million. The November 1994 base rate
increase resulted in approximately $27 million of the increase. Fuel and
purchased power revenues increased approximately $9 million as a result of the
timing effect of fuel and purchased power cost recovery. However, these
higher revenues are offset by higher fuel and purchased power expenses and
have no effect on earnings. Performance revenues increased $4 million
primarily due to a higher rate effective in the performance year ended October
1995 and an outage that occurred at the station in 1994.
A new annual conservation charge for recovery of demand side management
program costs was implemented in February 1995, resulting in higher DSM
revenues and expenses, as discussed in the results of operations for the third
quarter.
The net increase in wholesale and other revenues is primarily due to a $14
million decrease in revenue reserves. In 1994 $16 million of reserves were
recorded primarily related to certain wholesale and contract customers. The
August 1994 acquisition of Coneco Corporation also provided an additional $4
million of revenues in 1995.
<PAGE> 11
Operating expenses
Total fuel and purchased power expenses increased $11 million primarily due to
the timing effect of fuel and purchased power cost collection. The increase
in fuel expense due to the timing effect and a 9% increase in fossil station
output was offset by lower fossil fuel prices and a 10% decrease in nuclear
generation.
Other operations and maintenance expense increased 4% due to the $7 million
one-time charge for severance benefits in the third quarter and increases in
employee benefit expenses. Subsidiary operation expenses also increased due
to the Coneco Corporation acquisition.
The increase in amortization of deferred nuclear outage costs reflects a
change in the amortization period to two from five years as discussed in the
results of operations for the third quarter.
The increase in demand side management programs expense is related to the
increase in DSM revenues. Both revenues and expenses are higher due to the
1995 change in DSM recovery timing that results in the current year recovery
and expense recognition of program costs.
The Company's estimated effective annual income tax rate for 1995 is 37.8%
versus an actual rate of 31.4% for 1994 as discussed in the results of
operations for the third quarter.
Interest charges
Interest charges on long-term debt increased due to the $125 million
debentures issuance in May 1995 partially offset by debentures and first
mortgage bond redemptions in 1994. Other interest charges increased due to
higher short-term interest rates partially offset by a lower average short-
term debt level.
Financial Condition
- -------------------
The Company's 1992 settlement agreement with the DPU limits the annual rate of
return on equity during 1995 to 11.75%, excluding any penalties or rewards
from performance incentives. The Company's ability to achieve or exceed the
11.75% rate of return on equity is primarily dependent upon its ability to
control costs and to earn performance incentives, primarily based on Pilgrim
Station's annual capacity factor. The capacity factor for the recently
concluded performance year ended October 1995 was 67%.
The Company does not plan to make a base rate filing following the expiration
of the 1992 settlement agreement and therefore anticipates base rates to
remain in effect at their current levels. However, as discussed in the
outlook for the future section, the Company is required to file a plan with
the DPU in February 1996 based on the recent industry restructuring order. It
is uncertain how and when the filing and subsequent negotiations and industry
changes will impact the Company's rates.
Liquidity
- ---------
The Company supplements internally generated funds with external financings,
primarily through the issuance of short-term commercial paper and bank
borrowings. The Company has authority from the Federal Energy Regulatory
Commission (FERC) to issue up to $350 million of short-term debt. The Company
has a $200 million revolving credit agreement and arrangements with several
<PAGE> 12
banks to provide additional short-term credit on a committed as well as on an
uncommitted and as available basis. At September 30, 1995 the Company had
$74 million of short-term debt outstanding, none of which was incurred under
the revolving credit agreement. In 1994 the DPU approved the Company's
financing plan to issue up to $500 million of securities through 1996 using
the proceeds to refinance short and long-term securities and for capital
expenditures. See Note F to the consolidated financial statements for
specific information relating to recent financing activities.
Outlook for the Future
- ----------------------
A significant portion of the Company's electricity sales is made to commercial
customers rather than industrial customers. As a result the Company's sales
have been only moderately impacted by unfavorable economic factors affecting
the manufacturing industry in Massachusetts and have been positively impacted
by economic growth in the commercial sector. Retail electricity sales
decreased 0.4% in the first nine months of 1995 primarily due to mild winter
weather conditions compared to extremely cold weather conditions in 1994.
The DPU is currently investigating whether the Company should again be ordered
to negotiate a contract to purchase power from an independent power producer,
JMC Altresco, Inc. The investigation is in response to the Massachusetts
Supreme Judicial Court's (SJC) decision remanding the DPU's previous order due
to its failure to evaluate the cost of the project to customers. The Company
filed a motion to dismiss the matter, but also filed testimony comparing the
cost of Altresco to projected market costs and hearings are currently ongoing
In a separate but related matter, the Company supported an appeal filed by
other parties of the Massachusetts Energy Facilities Siting Board's (EFSB)
conditional approval of construction of Altresco's generating station project.
In January 1995 the SJC reversed and remanded the EFSB's approval on the basis
that there was no showing of need for the project in Massachusetts prior to
2000. In August 1995 the EFSB issued a subsequent approval for the Altresco
project with an in-service date of 1998 finding that the project would provide
a necessary energy supply for Massachusetts. The Company appealed the August
approval to the SJC based on the denial of the Company's petition to intervene
and the EFSB's failure to consider current market information and forecasts.
In July 1995 the Company announced a corporate reorganization as discussed in
Note D to the consolidated financial statements. In order to achieve a
workforce reduction of approximately 450 employees by the end of 1996, the
Company offered enhanced retirement programs and is eliminating certain
management and support positions. The Company will incur a one-time charge to
fourth quarter earnings as a result of the enhanced retirement programs; the
charge will be determined by the number of employees that accept the offer.
A special severance program announced for affected employees who are not
eligible for or do not accept the enhanced retirement programs resulted in a
one-time, pre-tax charge to third quarter earnings of $7 million. The total
of the $7 million third quarter charge and the fourth quarter retirement
programs charge is estimated to be approximately $25 million on a pre-tax
basis. Depending on the level of participation, the charge could be higher or
lower. The Company is currently evaluating its options in order to achieve
the 450 employee reduction if it is not achieved through the enhanced
retirement programs and the management and administrative support reduction.
The Company anticipates ongoing savings as a result of the reorganization.
On August 16, 1995, the DPU issued an order on restructuring of the electric
utility industry. The order provides for Massachusetts-based electric
utilities to restructure their operations to permit more competition for
customers. It includes principles for a restructured electric industry that
consist of customer choice and the benefits of competition for all customers;
<PAGE> 13
full competition in generation markets; functionally separate generation,
transmission and distribution services; universal service; support for
environmental regulation goals; and incentive regulation for the transmission
and distribution of electricity, which remain monopoly services. The DPU's
order also set principles to guide the transition from a regulated to a
competitive industry structure: honor existing commitments; unbundle rates
for generation, transmission, and distribution; reduce rates in the near term;
maintain demand-side management programs; and ensure an orderly and quick
transition which minimizes customer confusion. The order allows a reasonable
opportunity for the recovery of net, non-mitigable potentially strandable
costs, over a period of five to ten years. These costs include investments in
plant that might not be recoverable in a competitive market, liabilities for
future decommissioning of nuclear plants, the amounts by which certain
purchase power contracts exceed the competitive price for generation, and
prudently incurred regulatory assets. The procedure and criteria for
recovering potentially strandable costs are uncertain, and the extent of the
Company's ability to recover all or part of its potentially strandable costs
is unknown at this time.
The order established only general principles for the transition to a
competitive market and did not establish a particular model for the new
industry structure. The order requires each of the Massachusetts-based
electric utilities to develop a plan for moving toward competition consistent
with the DPU's order and encourages utilities to negotiate with all interested
parties while doing so. The Company is one of three companies required to
file a restructuring plan by February 16, 1996.
<PAGE> 14
Part II - Other Information
Item 5. Other Information
- --------------------------
The following additional information is furnished in connection with the
Registration Statement on Form S-3 of the Registrant (File No. 33-57840),
filed with the Securities and Exchange Commission on February 3, 1993.
Price and dividend information per share of common stock:
<TABLE>
<CAPTION>
Price Dividend
High Low Paid
------- ------- -------
<S> <C> <C> <C>
First quarter 1995 $25 1/2 $23 1/8 $0.455
Second quarter 1995 27 23 3/8 0.455
Third quarter 1995 27 1/2 24 1/2 0.455
</TABLE>
The last sales price of the Company's common stock on the New York Stock
Exchange as reported in the Wall Street Journal for November 9, 1995 was
$27 3/8 per share.
Ratio of earnings to fixed charges and ratio of earnings to fixed charges and
preferred stock dividend requirements:
Twelve months ended September 30, 1995:
--------------------------------------
Ratio of earnings to fixed charges 2.59
Ratio of earnings to fixed charges and preferred
stock dividend requirements 2.18
Item 6. Exhibits and Reports on Form 8-K
- -----------------------------------------
a) Exhibits filed herewith:
Exhibit 12 - Computation of ratio of earnings to fixed charges
12.1 - Computation of ratio of earnings to fixed charges
for the twelve months ended September 30, 1995
12.2 - Computation of ratio of earnings to fixed charges
and preferred stock dividend requirements for the
twelve months ended September 30, 1995
Exhibit 15 - Letter re unaudited interim financial information
15.1 - Report of Independent Accountants
Exhibit 27 - Financial Data Schedule
27.1 - Schedule UT
<PAGE> 15
Exhibit 99 - Additional Exhibits
99.1 - Letter of Independent Accountants
Re Form S-3 Registration Statements filed by the
Company on September 14, 1990 (File No. 33-36824),
February 3, 1993 (File No. 33-57840) and May 31,
1995 (File No. 33-59693); Form S-8 Registration
Statements filed by the Company on October 10, 1985
(File No. 33-00810), July 28, 1986 (File No. 33-
7558), December 31, 1990 (File No. 33-38434),
June 5, 1992 (33-48424 and 33-48425), March 17, 1993
(33-59662 and 33-59682) and April 6, 1995 (33-58457)
b) No Form 8-K was filed during the third quarter of 1995.
<PAGE> 16
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.
BOSTON EDISON COMPANY
---------------------
(Registrant)
Date: November 13, 1995 /s/ Robert J. Weafer, Jr.
-------------------------
Robert J. Weafer, Jr.
Vice President, Controller
and Chief Accounting
Officer
<PAGE> 17
<TABLE>
<CAPTION>
Exhibit 12.1
Boston Edison Company
Computation of Ratio of Earnings to Fixed Charges
Twelve Months Ended September 30, 1995
(in thousands)
<S> <C>
Net income from continuing operations $129,753
Income taxes 76,864
Fixed charges 129,701
--------
Total $336,318
========
Interest expense $119,679
Interest component of rentals 10,022
--------
Total $129,701
========
Ratio of earnings to fixed charges 2.59
====
</TABLE>
<PAGE> 18
<TABLE>
<CAPTION>
Exhibit 12.2
Boston Edison Company
Computation of Ratio of Earnings to Fixed Charges
and Preferred Stock Dividend Requirements
Twelve Months Ended September 30, 1995
(in thousands)
<S> <C>
Net income from continuing operations $129,753
Income taxes 76,864
Fixed charges 129,701
--------
Total $336,318
========
Interest expense $119,679
Interest component of rentals 10,022
--------
Subtotal 129,701
========
Preferred stock dividend requirements 24,503
--------
Total $154,204
========
Ratio of earnings to fixed charges and preferred
stock dividend requirements 2.18
====
</TABLE>
<PAGE> 19
Exhibit 15.1
Report of Independent Accountants
To the Stockholders and Directors
of Boston Edison Company
We have reviewed the accompanying consolidated balance sheet of Boston Edison
Company (the Company) and subsidiaries as of September 30, 1995 and the
related statements of income for the three and nine-month periods ended
September 30, 1995 and 1994 and statements of cash flows for the nine-month
periods ended September 30, 1995 and 1994. These financial statements are the
responsibility of the Company's management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures
to financial data and making inquiries of persons responsible for financial
and accounting matters. It is substantially less in scope than an audit
conducted in accordance with generally accepted auditing standards, the
objective of which is the expression of an opinion regarding the financial
statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that
should be made to the accompanying financial statements in order for them to
be in conformity with generally accepted accounting principles.
Boston, Massachusetts COOPERS & LYBRAND L.L.P.
October 26, 1995
<PAGE> 20
Exhibit 99.1
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: Boston Edison Company
Registration on Form
S-3 and Form S-8
We are aware that our report dated October 26, 1995 on our review of the
interim financial information of Boston Edison Company for the period ended
September 30, 1995 and included in this Form 10-Q is incorporated by reference
in the Company's registration statements on Form S-3 (File Nos. 33-36824, 33-
57840 and 33-59693) and on Form S-8 (File Nos. 33-00810, 33-7558, 33-38434,
33-48424, 33-48425, 33-59662, 33-59682 and 33-58457). Pursuant to Rule 436(c)
under the Securities Act of 1933, this report should not be considered a part
of the registration statements prepared or certified by us within the meaning
of Sections 7 and 11 of that Act.
Boston, Massachusetts COOPERS & LYBRAND L.L.P.
October 26, 1995
<TABLE> <S> <C>
<ARTICLE> UT
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> SEP-30-1995
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 2,947,906
<OTHER-PROPERTY-AND-INVEST> 121,999
<TOTAL-CURRENT-ASSETS> 385,571
<TOTAL-DEFERRED-CHARGES> 230,935
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 3,686,411
<COMMON> 47,890
<CAPITAL-SURPLUS-PAID-IN> 680,720
<RETAINED-EARNINGS> 290,601
<TOTAL-COMMON-STOCKHOLDERS-EQ> 1,019,211
92,000
123,000
<LONG-TERM-DEBT-NET> 1,160,256
<SHORT-TERM-NOTES> 10,420
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 64,000
<LONG-TERM-DEBT-CURRENT-PORT> 201,067
2,000
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 1,014,457
<TOT-CAPITALIZATION-AND-LIAB> 3,686,411
<GROSS-OPERATING-REVENUE> 1,265,794
<INCOME-TAX-EXPENSE> 72,289
<OTHER-OPERATING-EXPENSES> 988,501
<TOTAL-OPERATING-EXPENSES> 1,060,790
<OPERATING-INCOME-LOSS> 205,004
<OTHER-INCOME-NET> 140
<INCOME-BEFORE-INTEREST-EXPEN> 205,144
<TOTAL-INTEREST-EXPENSE> 86,437
<NET-INCOME> 118,707
11,681
<EARNINGS-AVAILABLE-FOR-COMM> 107,026
<COMMON-STOCK-DIVIDENDS> 63,835
<TOTAL-INTEREST-ON-BONDS> 0
<CASH-FLOW-OPERATIONS> 205,064
<EPS-PRIMARY> 2.32
<EPS-DILUTED> 0
</TABLE>
