<PAGE> 1
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, 1996
or
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from __________ to __________
Commission file number 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 x No
----- -----
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 November 1, 1996
- ----- -------------------------------
Common Stock, $1 par value 48,499,410 shares
<PAGE> 2
Part I - Financial Information
Item 1. Financial Statements
- -----------------------------
<TABLE>
Boston Edison Company
Consolidated Statements of Income
(Unaudited)
(in thousands, except per share amounts)
<CAPTION>
Three Months Nine Months
Ended September 30, Ended September 30,
1996 1995 1996 1995
-------- -------- ---------- ----------
<S> <C> <C> <C> <C>
Operating revenues $497,968 $498,554 $1,275,573 $1,259,061
-------- -------- ---------- ----------
Operating expenses:
Fuel 55,233 52,431 133,411 125,475
Purchased power 97,342 90,915 289,738 278,772
Other operations and
maintenance 101,119 115,204 300,722 326,131
Depreciation and amortization 54,608 51,142 149,694 130,052
Demand side management programs 8,031 15,223 23,029 39,646
Taxes - property and other 26,760 26,168 84,871 80,348
Income taxes 49,522 44,775 81,431 72,649
-------- -------- ---------- ----------
Total operating expenses 392,615 395,858 1,062,896 1,053,073
-------- -------- ---------- ----------
Operating income 105,353 102,696 212,677 205,988
Other income (expense), net 649 (528) 1,489 (896)
-------- -------- ---------- ----------
Operating and other income 106,002 102,168 214,166 205,092
-------- -------- ---------- ----------
Interest charges:
Long-term debt 22,847 28,312 71,555 79,605
Other 3,852 2,673 10,952 11,613
Allowance for borrowed funds
used during construction (708) (1,185) (1,482) (4,833)
-------- -------- ---------- ----------
Total interest charges 25,991 29,800 81,025 86,385
-------- -------- ---------- ----------
Net income 80,011 72,368 133,141 118,707
Preferred dividends provided 3,817 3,890 11,548 11,681
-------- -------- ---------- ----------
Earnings available for common
shareholders $ 76,194 $ 68,478 $ 121,593 $ 107,026
======== ======== ========== ==========
Weighted average common shares
outstanding 48,327 46,861 48,198 46,129
====== ====== ====== ======
Earnings per share of common stock $1.58 $1.46 $2.52 $2.32
===== ===== ===== =====
Dividends declared per share of
common stock $0.470 $0.455 $1.410 $1.365
====== ====== ====== ======
Common shares outstanding at end
of period 48,376 47,890
====== ======
</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,
1996 1995
------------- ------------
<S> <C> <C>
Assets
- ------
Utility plant in service, at original cost $4,363,070 $4,315,422
Less: accumulated depreciation 1,555,030 1,439,996
---------- ----------
2,808,040 2,875,426
Nuclear fuel, net 70,800 50,643
Construction work in progress 56,488 29,573
---------- ----------
Net utility plant 2,935,328 2,955,642
Investments in electric companies, at equity 22,993 23,620
Nuclear decommissioning trust 126,367 102,894
Current assets:
Cash and cash equivalents 3,328 5,841
Accounts receivable 275,329 219,114
Accrued unbilled revenues 47,685 37,113
Fuel, materials and supplies,
at average cost 57,630 59,631
Prepaid expenses and other 10,524 23,607
---------- ----------
Total current assets 394,496 345,306
---------- ----------
Regulatory assets:
Redemption premiums 40,263 44,709
Income taxes, net 47,142 46,121
Power contracts 17,852 21,396
Postretirement benefits costs 12,011 13,811
Nuclear outage costs 5,940 13,471
Other 16,102 17,266
---------- ----------
Total regulatory assets 139,310 156,774
Other deferred debits:
Intangible asset - pension 27,386 27,386
Other 24,526 32,227
---------- ----------
Total assets $3,670,406 $3,643,849
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements
<PAGE> 4
<TABLE>
Boston Edison Company
Consolidated Balance Sheets
(Unaudited)
(in thousands)
<CAPTION>
September 30, December 31,
1996 1995
------------- ------------
<S> <C> <C>
Capitalization and Liabilities
- ------------------------------
Common stock equity:
Common stock $ 741,128 $ 731,689
Retained earnings 311,310 257,749
---------- ----------
Total common stock equity 1,052,438 989,438
---------- ----------
Cumulative preferred stock:
Nonmandatory redeemable series 123,000 123,000
Mandatory redeemable series 88,000 92,000
---------- ----------
Total preferred stock 211,000 215,000
---------- ----------
Long-term debt 1,058,676 1,160,223
---------- ----------
Total capitalization 2,322,114 2,364,661
---------- ----------
Current liabilities:
Long-term debt/preferred stock
due within one year 103,067 102,667
Notes payable 241,175 126,441
Accounts payable 98,175 133,474
Accrued interest 13,093 25,113
Dividends payable 25,282 25,351
Pension benefits (15,788) 32,602
Other 152,027 105,442
---------- ----------
Total current liabilities 617,031 551,090
---------- ----------
Deferred credits:
Power contracts 19,852 21,396
Accumulated deferred income taxes 487,897 497,282
Accumulated deferred investment tax credits 59,917 62,970
Nuclear decommissioning liability 127,657 113,288
Other 35,938 33,162
---------- ----------
Total deferred credits 731,261 728,098
Commitments and contingencies
__________ __________
Total capitalization and liabilities $3,670,406 $3,643,849
========== ==========
</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,
1996 1995
--------- ---------
<S> <C> <C>
Operating activities:
Net income $ 133,141 $ 118,707
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 139,714 110,036
Amortization of nuclear fuel 15,836 13,279
Amortization of deferred nuclear outage
costs 7,531 16,625
Other amortization 9,785 11,975
Deferred income taxes and investment
tax credits (13,925) (12,060)
Allowance for borrowed funds used during
construction (1,482) (4,833)
Net changes in:
Accounts receivable and accrued
unbilled revenues (66,787) (49,849)
Fuel, materials and supplies (1,544) 5,143
Accounts payable (35,299) (46,156)
Other current assets and liabilities (811) 22,811
Other, net 28,830 19,386
--------- ---------
Net cash provided by operating activities 214,989 205,064
--------- ---------
Investing activities:
Plant expenditures (excluding AFUDC) (98,308) (125,468)
Nuclear fuel expenditures (35,484) (12,298)
Nuclear decommissioning trust investments (23,473) (15,451)
Electric company investments 627 961
--------- ---------
Net cash used in investing activities (156,638) (152,256)
--------- ---------
Financing activities:
Issuances:
Common stock 9,454 61,773
Long-term debt 0 125,000
Redemptions:
Preferred stock (4,000) (2,000)
Long-term debt (101,600) (600)
Net change in notes payable 114,734 (140,366)
Dividends paid (79,452) (74,467)
--------- ---------
Net cash used in financing activities (60,864) (30,660)
--------- ---------
Net (decrease) increase in cash and cash
equivalents (2,513) 22,148
Cash and cash equivalents at beginning of year 5,841 6,822
--------- ---------
Cash and cash equivalents at end of period $ 3,328 $ 28,970
========= =========
Supplemental disclosures of cash flow
information:
Cash paid during the period for:
Interest, net of amounts capitalized $ 87,724 $ 88,214
========= =========
Income taxes $ 69,241 $ 63,177
========= =========
</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) 1995 Form 10-K Annual
Report and Forms 10-Q for the periods ended March 31, 1996 and June 30, 1996.
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 adjustments to depreciation expense described
in Note C) necessary to present fairly the Company's financial position as of
September 30, 1996 and the results of its operations for the three and nine-
month periods ended September 30, 1996 and 1995 and its cash flows for the
nine-month periods ended September 30, 1996 and 1995. Certain
reclassifications have been made to the prior year data to conform to the
current presentation.
The financial statements conform with generally accepted accounting principles
(GAAP). The preparation of financial statements in conformity with GAAP
requires the Company to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosures 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 these estimates.
The results of operations for the three and nine-month periods ended
September 30, 1996 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
(MDPU). Accordingly, greater than half of the Company's annual earnings
typically occurs in the third quarter.
B) Nature of Operations
--------------------
The Company is an investor-owned regulated public utility operating in the
energy and energy services business. This includes the generation, purchase,
transmission, distribution and sale of electric energy and the development and
implementation of electric demand side management programs. A portion of the
generation is produced by the Company's wholly owned nuclear generating unit,
Pilgrim Nuclear Power Station (Pilgrim). The Company supplies electricity at
retail to an area of 590 square miles, including the City of Boston and 39
surrounding cities and towns. It also supplies electricity at wholesale for
resale to other utilities and municipal electric departments. Electric
operating revenues are approximately 90% to retail customers and 10% to
wholesale customers. In addition, the Company conducts unregulated activities
through its wholly owned subsidiary, Boston Energy Technology Group.
C) Depreciation Expense
--------------------
Upon the completion of a review of its electric generating units, the Company
determined that its oldest and least efficient units (Mystic 4, 5 and 6) were
<PAGE> 7
unlikely to provide competitively priced power beyond the year 2000. The
Company, therefore, revised the estimated remaining useful lives of these
units to five years during the second quarter of 1996. The effect of this
change in estimate is an annual increase to depreciation expense of
approximately $22 million, or $5.6 million for the third quarter.
In addition, the Company recorded an increase of $5.2 million to depreciation
expense to correct the accumulated depreciation balance of certain large
computer equipment. This adjustment is not material to the previously
reported operating results and therefore has been charged to the current
quarter.
D) 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
employees affected by the Company's 1988 reduction in force. In July 1996 the
Company reached a tentative settlement of this lawsuit under which there is no
finding or admission by the Company of discriminatory employment practices.
The Company anticipates that the settlement will be substantially recovered
from its insurance carrier. The Company has also been named as a party in a
lawsuit by Subaru of New England, Inc. and Subaru Distributors Corporation.
The plaintiffs are claiming certain automobiles stored on lots in South Boston
suffered pitting damage caused by emissions from the Company's New Boston
Generating Station. The Company believes that it has a strong defense in this
case. The Company is also involved in certain other legal matters. The
Company is unable to fully determine a range of reasonably possible litigation
costs in excess of amounts accrued, although, based on the information
currently available, the Company does not believe that it is probable that any
such additional costs will have a material impact on its financial condition.
However, it is reasonably possible that additional litigation costs that may
result from a change in estimates could have a material impact on the results
of a reporting period in the near term.
The Company owns or operates approximately 40 properties where oil or
hazardous materials were previously spilled or released. The Company is
required to clean up these properties in accordance with a timetable developed
by the Massachusetts 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 approximately ten 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, 1996, the Company has accrued $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 believe that it is probable that any such additional costs will have a
material impact on its financial condition. However, it is reasonably
possible that additional provisions for cleanup costs that may result from a
<PAGE> 8
change in estimates could have a material impact on the results of a reporting
period in the near term.
E) Income Taxes
------------
The following table reconciles the federal statutory income tax rate to the
annual estimated effective income tax rate for 1996 and the actual effective
income tax rate for 1995.
<TABLE>
<CAPTION>
1996 1995
---- ----
<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 (1.8) (2.3)
Other 0.3 0.1
---- ----
Effective tax rate 37.8% 37.1%
==== ====
</TABLE>
Item 2. Management's Discussion and Analysis
- ---------------------------------------------
Results of Operations - Three Months Ended September 30, 1996 vs. Three Months
- ------------------------------------------------------------------------------
Ended September 30, 1995
- ------------------------
Earnings per share of common stock for the three months ended September 30,
1996 were $1.58 as compared to $1.46 for the three months ended September 30,
1995.
Third quarter earnings were negatively impacted by two depreciation
adjustments as described in Note C to the consolidated financial statements.
A nonrecurring charge of $0.07 per share was recorded to correct the
accumulated depreciation balance of certain large computer equipment. In the
second quarter of 1996, the Company revised the estimated remaining useful
lives of certain electric generating units. This had a negative impact of
$0.07 per share on the third quarter.
The comparison of 1996 and 1995 third quarter earnings was also impacted by
two adjustments recorded in the prior year. A nonrecurring charge of $0.11
per share was recorded related to the Company's 1995 restructuring. In
addition, third quarter earnings increased $0.13 per share over the prior year
related to a retroactive change in the amortization period of deferred nuclear
outage costs from five to two years which occurred in the third quarter of
1995.
The remaining increase in 1996 earnings is primarily the result of a decrease
in other operations and maintenance 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.
<PAGE> 9
Operating revenues
Operating revenues decreased 0.1% in the third quarter of 1996 as follows:
<TABLE>
<CAPTION>
(in thousands)
- ------------------------------------------------------
<S> <C>
Retail electric revenues $10,042
Demand side management revenues (9,531)
Wholesale revenues (3,422)
Short-term sales and other revenues 2,325
- ------------------------------------------------------
Decrease in operating revenues $ (586)
=======================================================
</TABLE>
Retail electric revenues increased $10 million despite a $1 million decrease
in retail base revenues. Retail base revenues decreased primarily due to
cooler than normal summer temperatures, partially offset by an improving local
economy. Performance revenues, which vary annually based on the operating
performance of Pilgrim Station, increased $5.5 million due to higher Pilgrim
performance in 1996. The annual performance adjustment charge is discussed
further in the Electric Revenues section. In addition, fuel and purchased
power revenues increased approximately $5 million due to the timing effect of
fuel and purchased power cost recovery. These higher revenues are offset by
higher fuel and purchased power expenses and, therefore, have no net effect on
earnings.
Demand side management (DSM) revenues decreased primarily due to a decline in
current DSM program expenditures in 1996.
Operating expenses
Total fuel and purchased power expenses increased $9 million. This was
primarily due to an increase in fossil fuel prices, partially offset by a
decrease in company generation. An increase in purchased power expense was
offset by the timing effect of fuel and purchased power cost collection. Fuel
and purchased power expenses are substantially recoverable through fuel and
purchased power revenues.
Other operations and maintenance expense decreased $14 million. Third quarter
1995 other operations and maintenance expense includes $8 million for
severance benefits due to the 1995 corporate restructuring. The 1996 expense
reflects lower labor costs as a result of the restructuring and additional
savings from continuing cost control efforts.
The increase in depreciation and amortization expense is primarily due to the
depreciation adjustment of $5.6 million made as a result of the change in
estimated remaining useful lives of certain Company electric generating units.
In addition, the Company recorded $5.2 million to depreciation expense to
adjust the accumulated depreciation balance of certain large computer hardware
equipment. Both adjustments are discussed in Note C to the consolidated
financial statements. These 1996 increases were partially offset by a change
in the amortization period of deferred nuclear outage costs from five to two
years which resulted in an adjustment to amortization expense of approximately
$10 million in the third quarter of 1995. A higher average depreciable plant
balance also contributed to the increase.
<PAGE> 10
The decrease in DSM programs expense reflects the decline in current DSM
program expenditures.
Interest charges
Interest charges on long-term debt decreased due to the maturity of $100
million 8 7/8% debentures in December 1995 and $100 million 5 1/8% debentures
in March 1996.
Results of Operations - Nine Months Ended September 30, 1996 vs. Nine Months
- ----------------------------------------------------------------------------
Ended September 30, 1995
- ------------------------
Earnings per share of common stock for the nine months ended September 30,
1996 were $2.52 as compared to $2.32 for the nine months ended September 30,
1995.
The 1996 earnings were negatively impacted by the two depreciation adjustments
described in Note C to the consolidated financial statements. The correction
of accumulated depreciation of certain large computer equipment resulted in a
nonrecurring charge of $0.07 per share. Current year earnings decreased by an
additional $0.23 per share related to the change in the estimated remaining
useful lives of certain electric generating units.
The comparison of 1996 and 1995 earnings was also impacted by two adjustments
recorded in the prior year. A nonrecurring charge of $0.11 per share was
recorded related to the Company's 1995 restructuring. In addition, 1996
earnings increased $0.12 per share over the prior year related to the
retroactive change in the amortization period of deferred nuclear outage costs
from five to two years which occurred in the third quarter of 1995.
The remaining increase in earnings is primarily due to a decrease in other
operations and maintenance expense and higher Pilgrim performance revenues,
partially offset by higher depreciation and amortization expense.
The 1996 earnings per common share reflect an increase in the weighted average
number of common shares outstanding primarily associated with the issuance of
two million additional shares in 1995.
The results of operations for the nine months ended September 30, 1996 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 1.3% in the first nine months of 1996 as follows:
<TABLE>
<CAPTION>
(in thousands)
- ------------------------------------------------------
<S> <C>
Retail electric revenues $41,040
Demand side management revenues (20,998)
Wholesale revenues (1,920)
Short-term sales and other revenues (1,610)
- ------------------------------------------------------
Increase in operating revenues $16,512
======================================================
</TABLE>
<PAGE> 11
Retail electric revenues increased $41 million. Performance revenues
increased approximately $15 million due to the higher Pilgrim performance in
1996. Approximately $13 million of the increase resulted from a 3.7% increase
in retail kWh sales driven by a stronger economy and colder winter conditions.
Fuel and purchased power revenues increased approximately $13 million as a
result of the timing effect of fuel and purchased power cost recovery.
Operating expenses
As discussed in the results of operations for the third quarter, DSM revenues
decreased primarily due to the decline in current DSM program expenditures.
Total fuel and purchased power expenses increased 4.7%. Fuel expense
increased due to higher oil and gas prices, partially offset by a 19% decrease
in fossil generation. Purchased power expense reflects a 6% increase in
contract purchases. These increases were partially offset by a decrease in
the timing effect of fuel and purchased power cost collection. Fuel and
purchased power expenses are substantially recoverable through fuel and
purchased power revenues.
Other operations and maintenance expense decreased $25 million primarily due
to the lower labor costs resulting from the 1995 corporate restructuring and
the Company's continuing cost control efforts.
The increase in depreciation and amortization expense is primarily due to the
depreciation adjustment of $16.7 million related to the change in the
estimated remaining useful lives of Mystic 4, 5 and 6. In addition, the
Company recorded $5.2 million to depreciation expense to adjust the
accumulated depreciation balance of certain large computer hardware equipment.
These 1996 increases were partially offset by the change in amortization
period of deferred nuclear outage costs in the third quarter of 1995 which
resulted in an adjustment to amortization expense of approximately $10
million. A higher average depreciable plant balance also contributed to the
increase.
The decrease in DSM programs expense reflects the decline in current DSM
program expenditures.
The increase in property and other taxes is primarily due to higher property
taxes imposed by a majority of the municipalities in which the Company
operates.
Interest charges
The decrease in interest on long-term debt is due to the maturity of $100
million 8 7/8% debentures in December 1995 and $100 million 5 1/8% debentures
in March 1996, partially offset by the issuance of $125 million 7.80%
debentures in May 1995. Other interest charges decreased due to lower short-
term interest rates. The allowance for borrowed funds used during
construction decreased due to lower construction work in progress balances and
shorter construction periods.
<PAGE> 12
Electric Revenues
- -----------------
The annual performance adjustment charge provides the Company with
opportunities to improve its financial results. The most significant
potential impact of this performance incentive is based on Pilgrim Station's
annual capacity factor. Refer to the Electric revenues section of the
Company's 1995 Form 10-K Annual Report for detail regarding the annual
performance adjustment charge. Pilgrim's capacity factor for the performance
year ending October 1996 was approximately 91%.
Liquidity
- ---------
The Company continues to supplement 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
banks to provide additional short-term credit on a committed as well as on an
uncommitted and as available basis. At September 30, 1996 the Company had
approximately $241 million of short-term debt outstanding, none of which was
incurred under the revolving credit agreement. In 1996 the MDPU approved the
Company's request to extend its financing plan through 1998. Proceeds will be
used to refinance short and long-term securities and to fund capital
expenditures. There is approximately $322 million remaining under the plan.
Outlook for the Future
- ----------------------
In May 1996 the MDPU issued an explanatory statement and proposed rules (the
Statement) as a follow-up to its August 1995 order on restructuring of the
electric utility industry. The Statement was developed in order to address
certain issues identified in restructuring proposals that were submitted to
the MDPU by the Company, other electric utilities and the Massachusetts
Division of Energy Resources.
The Statement reiterated the MDPU's support for the principles of a
restructured industry identified in the 1995 order, including providing a
reasonable opportunity for the recovery of net, nonmitigatable potentially
strandable costs. The Statement also expressed the MDPU's support of the
functional separation of electric companies into distinct corporate entities
and would provide options for phased incentives for divestment of generation
assets.
The Statement and its specific proposals were not intended to represent a
final resolution of any issues. Their purpose was to serve as reference
points and to generate response and discussion in the MDPU's investigation on
industry restructuring. The MDPU held public hearings during June and July
1996 and stated that their goal is to issue final rules by the end of 1996.
On October 1, 1996 a major electric utility in Massachusetts, along with the
Massachusetts Attorney General, the Massachusetts Division of Energy Resources
and other parties announced the filing of a restructuring plan with the MDPU.
Under the plan, the utility has agreed to sell or otherwise spin off its
generation assets in return for the opportunity for full recovery of all
stranded costs. In addition, retail customers would receive a 10% reduction
<PAGE> 13
from current electric rates. The utility has requested that the MDPU hold
public hearings on the plan. Based on initial hearings the MDPU has indicated
that a ruling will not occur before January 1997. Implementation of the plan
is subject to the approval of the FERC. Additional regulatory approvals would
also be required for the transfer of generation assets.
The Company continues to pursue its interests in the electric industry
restructuring proceedings and is actively involved in discussions with
interested parties. The goal of the Company and the MDPU is for the Company
to enter into a settlement.
Although not anticipated by the Company, the potential exists that the final
rules issued by the MDPU or the enactment of legislation in Massachusetts
would require Massachusetts electric utilities to cease the application of
Statement of Financial Accounting Standards No. 71, Accounting for the Effects
of Certain Types of Regulation (SFAS 71). Should it be required to
discontinue the application of SFAS 71, the Company would be required to take
an immediate noncash charge to income for all of its regulatory assets and the
above-market portion of its purchased power contracts. In addition, a write-
down of utility plant assets could be required if competitive or regulatory
change should cause a substantial revenue loss, or lead to the permanent
shutdown or sale of generating facilities. However, if laws are enacted or
regulatory decisions are made that do not offer Massachusetts electric
utilities an opportunity to recover stranded costs, the Company believes it
has strong legal arguments to challenge such laws or decisions. The Company
will actively pursue the full recovery of its stranded costs and is prepared
to take the action necessary to protect the interests of its shareholders.
Other Matters
- -------------
Joint ventures
On September 30, 1996, the Company signed a letter of intent with Residential
Communications Network, Inc. (RCN), a subsidiary of C-TEC Corporation, to form
a joint venture to provide local and long-distance telephone service, video,
high speed internet access and other telecommunications-related services. The
projected cost of creating the Boston Edison/RCN telecommunications network,
which is planned to serve 1.6 million customers in the Greater Boston area, is
approximately $300 million. The unregulated entity will be majority owned and
controlled by RCN with the Company's interest anticipated to be 49%.
On October 25, 1996 the Company signed a letter of intent to form a joint
venture with Williams Energy Services Company (Williams). Williams, a
subsidiary of The Williams Companies, Inc. with headquarters in Tulsa,
Oklahoma, is a national energy company. The joint venture will market
electricity, natural gas and energy services to customers in the six New
England states. The Company expects the venture to be operational in Boston
in January 1997. The letter of intent states that the Company and Williams
will create a limited liability company (LLC). The expected combined initial
capital investment in the LLC is less than $10 million. Both the Company and
Williams will own 50% of the LLC.
Formation of these ventures is subject to the execution of definitive
agreements between the parties, and the satisfaction of a number of
<PAGE> 14
conditions, including the obtaining of all necessary regulatory approvals.
The Company anticipates finalization of the definitive agreements in the
fourth quarter.
Connecticut Yankee
On October 9, 1996, Connecticut Yankee Atomic Power Company (CYAPC), which
owns and operates the Connecticut Yankee (CY) nuclear electric generating
unit, a 580-megawatt unit in Haddam Neck, CT, announced that a permanent
shutdown of the unit seems likely based on an economic analysis of the costs
of operating the unit compared to the costs of closing the unit and incurring
replacement power for the same period. The final decision is pending a vote
by CYAPC's board of directors which is expected to occur in the fourth quarter
of 1996. The Company has a 9.5% equity investment in CYAPC of approximately
$9.7 million.
The preliminary estimate of the sum of future payments for the closing,
decommissioning, and recovery of the remaining investment in CY, assuming
permanent shutdown, is approximately $797 million. The Company's share of
these remaining estimated costs is approximately $76 million.
Should CYAPC board's decision result in permanent closure of CY, CYAPC expects
to file updated decommissioning costs and certain amendments to its power
contracts with the FERC. Based upon regulatory precedent, CYAPC believes it
will continue to collect from its power purchasers, including the Company, its
decommissioning costs, the owners' unrecovered investments in CYAPC and other
costs associated with the permanent closure of the unit over the remaining
period of the unit's operating license, which expires in 2007. The Company
expects that it will continue to be allowed to recover its share of such costs
from its customers.
Safe harbor cautionary statement
The Company occasionally makes forward-looking statements such as forecasts
and projections of expected future performance or statements of its plans and
objectives. These forward-looking statements may be contained in filings with
the Securities and Exchange Commission, press releases and oral statements.
Actual results could potentially differ materially from these statements.
Therefore, no assurances can be given that the outcomes stated in such
forward-looking statements and estimates will be achieved. Refer also to the
safe harbor cautionary statements included in the Company's 1995 Form 10-K
Annual Report and Forms 10-Q for the periods ended March 31, 1996 and June 30,
1996.
The above sections include certain forward-looking statements about
environmental and legal issues, industry restructuring, Connecticut Yankee
and joint ventures.
The impacts of various environmental and legal issues could differ from
current expectations. New regulations or changes to existing regulations
could impose additional operating requirements or liabilities. The effects of
changes in specific hazardous waste site conditions and cleanup technology
could affect estimated cleanup liabilities. The impacts of changes in
<PAGE> 15
available information and circumstances regarding legal issues could affect
the estimated litigation costs.
The effects of the ultimate outcome of the industry restructuring process
could differ from the Company's expectations. This could occur as regulatory
decisions and potential negotiated settlements or litigation between
utilities, intervenors and the MDPU are finalized during the industry
restructuring proceedings.
The timing and activities of the proposed joint ventures as well as the
Company's actual investment may differ from the current expectation.
The ultimate liability related to the potential shutdown of Connecticut Yankee
may differ from the current estimate. In addition, although currently not
anticipated, it is possible that some portion of the Company's share of post-
operation costs may not be recoverable from ultimate customers.
<PAGE> 16
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 1996 $30 1/8 $26 1/4 $0.470
Second quarter 1996 27 1/8 23 5/8 0.470
Third quarter 1996 25 3/8 21 3/4 0.470
</TABLE>
The market value per share of the Company's common stock as of the close of
business on November 8, 1996 was $25 1/2 per share as reported in the Wall
Street Journal.
Ratio of earnings to fixed charges and ratio of earnings to fixed charges and
preferred stock dividend requirements:
Twelve months ended September 30, 1996:
--------------------------------------
Ratio of earnings to fixed charges 2.70
Ratio of earnings to fixed charges and preferred
stock dividend requirements 2.24
<PAGE> 17
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, 1996
12.2 - Computation of ratio of earnings to fixed charges
and preferred stock dividend requirements for the
twelve months ended September 30, 1996
Exhibit 15 - Letter re unaudited interim financial information
15.1 - Report of Independent Accountants
Exhibit 27 - Financial Data Schedule
27.1 - Schedule UT
Exhibit 99 - Additional Exhibits
99.1 - Letter of Independent Accountants
Re Form S-3 Registration Statements filed by the
Company on 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) A Form 8-K dated September 30, 1996 was filed during the third
quarter of 1996 announcing the intent to form a joint venture
with Residential Communications Network, Inc. The joint venture
is to provide local and long-distance telephone service, video,
high-speed internet access and other telecommunications-related
services.
<PAGE> 18
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 14, 1996 /s/ Robert J. Weafer, Jr.
----------------------------
Robert J. Weafer, Jr.
Vice President-Finance,
Controller and Chief
Accounting Officer
<PAGE> 19
<TABLE>
<CAPTION>
Exhibit 12.1
Boston Edison Company
Computation of Ratio of Earnings to Fixed Charges
Twelve Months Ended September 30, 1996
(in thousands)
<S> <C>
Net income from continuing operations $126,744
Income taxes 75,649
Fixed charges 119,071
--------
Total $321,464
========
Interest expense $110,571
Interest component of rentals 8,500
--------
Total $119,071
========
Ratio of earnings to fixed charges 2.70
====
</TABLE>
<PAGE> 20
<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, 1996
(in thousands)
<S> <C>
Net income from continuing operations $126,744
Income taxes 75,649
Fixed charges 119,071
--------
Total $321,464
========
Interest expense $110,571
Interest component of rentals 8,500
--------
Subtotal 119,071
--------
Preferred stock dividend requirements 24,750
--------
Total $143,821
========
Ratio of earnings to fixed charges and preferred
stock dividend requirements 2.24
====
</TABLE>
<PAGE> 21
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, 1996 and the
related statements of income for the three and nine-month periods ended
September 30, 1996 and 1995 and cash flows for the nine-month periods ended
September 30, 1996 and 1995. 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 24, 1996
<PAGE> 22
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 24, 1996 on our review of the
interim financial information of Boston Edison Company for the period ended
September 30, 1996 and included in this Form 10-Q is incorporated by reference
in the Company's registration statements on Form S-3 (File Nos. 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 24, 1996
<TABLE> <S> <C>
<ARTICLE> UT
<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> 2,935,328
<OTHER-PROPERTY-AND-INVEST> 149,360
<TOTAL-CURRENT-ASSETS> 394,496
<TOTAL-DEFERRED-CHARGES> 191,222
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 3,670,406
<COMMON> 48,376
<CAPITAL-SURPLUS-PAID-IN> 692,752
<RETAINED-EARNINGS> 311,310
<TOTAL-COMMON-STOCKHOLDERS-EQ> 1,052,438
88,000
123,000
<LONG-TERM-DEBT-NET> 1,058,676
<SHORT-TERM-NOTES> 115,175
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 126,000
<LONG-TERM-DEBT-CURRENT-PORT> 101,067
2,000
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 1,004,050
<TOT-CAPITALIZATION-AND-LIAB> 3,670,406
<GROSS-OPERATING-REVENUE> 1,275,573
<INCOME-TAX-EXPENSE> 81,431
<OTHER-OPERATING-EXPENSES> 981,465
<TOTAL-OPERATING-EXPENSES> 1,062,896
<OPERATING-INCOME-LOSS> 212,677
<OTHER-INCOME-NET> 1,489
<INCOME-BEFORE-INTEREST-EXPEN> 214,166
<TOTAL-INTEREST-EXPENSE> 81,025
<NET-INCOME> 133,141
11,548
<EARNINGS-AVAILABLE-FOR-COMM> 121,593
<COMMON-STOCK-DIVIDENDS> 68,083
<TOTAL-INTEREST-ON-BONDS> 0
<CASH-FLOW-OPERATIONS> 214,989
<EPS-PRIMARY> 2.52
<EPS-DILUTED> 0
</TABLE>
