<PAGE> 1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[ x ] Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended September 30, 1999
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, 1999
- ----- -------------------------------
Common Stock, $1 par value 100 shares
<PAGE> 2
Part I - Financial Information
Item 1. Financial Statements
- -----------------------------
<TABLE>
Boston Edison Company
Consolidated Statements of Income
(Unaudited)
(in thousands)
<CAPTION>
Three Months Nine Months
Ended September 30, Ended September 30,
1999 1998 1999 1998
-------- -------- ---------- ----------
<S> <C> <C> <C> <C>
Operating revenues $454,871 $479,664 $1,205,210 $1,259,129
-------- -------- ---------- ----------
Operating expenses:
Fuel and purchased power 182,472 154,785 480,170 424,914
Operations and maintenance 71,457 87,814 218,100 272,380
Depreciation and amortization 40,812 47,560 135,776 147,672
Demand side management and
renewable energy programs 13,871 20,002 40,572 37,043
Taxes - property and other 15,329 18,064 55,277 70,939
Income taxes 40,271 50,600 80,648 90,456
-------- -------- ---------- ----------
Total operating expenses 364,212 378,825 1,010,543 1,043,404
-------- -------- ---------- ----------
Operating income 90,659 100,839 194,667 215,725
Other income (expense), net 17,362 766 19,236 (4,734)
-------- -------- ---------- ----------
Operating and other income 108,021 101,605 213,903 210,991
-------- -------- ---------- ----------
Interest charges:
Transition property
securitization bonds 8,439 0 8,439 0
Long-term debt 17,033 19,457 55,934 63,486
Other 3,098 66 4,962 7,789
Allowance for borrowed funds
used during construction (449) (410) (1,368) (975)
-------- -------- ---------- ----------
Total interest charges 28,121 19,113 67,967 70,300
-------- -------- ---------- ----------
Net income $ 79,900 $ 82,492 $ 145,936 $ 140,691
======== ======== ========== ==========
</TABLE>
<TABLE>
Consolidated Statements of Retained Earnings
(Unaudited)
(in thousands)
<CAPTION>
Three Months Nine Months
Ended September 30, Ended September 30,
1999 1998 1999 1998
-------- -------- ---------- ----------
<S> <C> <C> <C> <C>
Balance at the beginning of the
period $310,215 $262,116 $ 297,347 $ 328,802
Net income 79,900 82,492 145,936 140,691
Dividends declared:
Dividends to common shareholders 0 0 0 (22,802)
Dividends to BEC Energy (400,000) (23,000) (450,000) (116,000)
Preferred stock (1,490) (1,486) (4,470) (7,275)
Transfer of BETG to BEC Energy 0 0 0 (2,980)
-------- -------- ---------- ----------
Subtotal (11,375) 320,122 (11,187) 320,436
-------- -------- ---------- ----------
Provision for preferred stock
redemption and issuance costs 9 (7,459) (179) (7,773)
-------- -------- ---------- ----------
Balance at the end of the period $(11,366) $312,663 $ (11,366) $ 312,663
======== ======== ========== ==========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE> 3
<TABLE>
Boston Edison Company
Consolidated Balance Sheets
(Unaudited)
(in thousands)
<CAPTION>
September 30, December 31,
1999 1998
------------- ------------
<S> <C> <C>
Assets
- ------
Utility plant in service, at original cost $2,386,241 $2,720,681
Less: accumulated depreciation 840,680 926,020
---------- ----------
1,545,561 1,794,661
Construction work in progress 39,600 40,965
---------- ----------
Net utility plant 1,585,161 1,835,626
Nuclear decommissioning trust 0 172,908
Equity investments 21,291 20,769
Other investments 10,504 10,029
Current assets:
Cash and cash equivalents 59,640 82,700
Accounts receivable 356,973 206,003
Accrued unbilled revenues 16,801 14,322
Fuel, materials and supplies, at average cost 14,211 10,287
Prepaid expenses and other 125,414 102,404
---------- ----------
Total current assets 573,039 415,716
---------- ----------
Other regulatory assets:
Generation-related regulatory asset, net 752,710 477,317
Power contracts 46,999 58,415
Income taxes, net 66,140 52,168
Merger costs 51,904 0
Redemption premiums 17,515 23,419
Other 32,842 1,825
---------- ----------
Total regulatory assets 968,110 613,144
Other deferred debits 38,376 26,423
---------- ----------
Total assets $3,196,481 $3,094,615
========== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE> 4
<TABLE>
Boston Edison Company
Consolidated Balance Sheets
(Unaudited)
(in thousands)
<CAPTION>
September 30, December 31,
1999 1998
------------- ------------
<S> <C> <C>
Capitalization and Liabilities
- ------------------------------
Common equity:
Common stock, par value $1 per share
(100 shares issued and outstanding) $ 0 $ 0
Premium on common stock 741,520 742,544
Retained earnings (11,366) 297,347
---------- ----------
Total common equity 730,154 1,039,891
---------- ----------
Cumulative preferred stock:
Nonmandatory redeemable series 43,000 43,000
Mandatory redeemable series 49,220 49,040
---------- ----------
Total preferred stock 92,220 92,040
---------- ----------
Transition property securitization bonds 646,558 0
Long-term debt 613,518 955,563
---------- ----------
Total capitalization 2,082,450 2,087,494
---------- ----------
Current liabilities:
Transition property securitization bonds
due within one year 68,561 0
Long-term debt due within one year 166,067 667
Accounts payable 78,423 90,890
Accrued interest 16,772 19,991
Dividends payable 993 25,993
Other 191,265 176,823
---------- ----------
Total current liabilities 522,081 314,364
---------- ----------
Deferred credits:
Accumulated deferred income taxes 449,200 348,557
Accumulated deferred investment tax credits 21,455 45,930
Nuclear decommissioning liability 0 176,578
Power contracts 46,999 58,415
Other 74,296 63,277
---------- ----------
Total deferred credits 591,950 692,757
Commitments and contingencies __________ __________
Total capitalization and liabilities $3,196,481 $3,094,615
========== ==========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE> 5
<TABLE>
Boston Edison Company
Consolidated Statements of Cash Flows
(Unaudited)
(in thousands)
<CAPTION>
Nine Months Ended September 30,
1999 1998
--------- ---------
<S> <C> <C>
Operating activities:
Net income $ 145,936 $ 140,691
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 145,094 178,051
Deferred income taxes and investment
tax credits 45,593 (149,710)
Allowance for borrowed funds used during
construction (1,368) (975)
Power contract buyout (65,781) 0
Net changes in:
Accounts receivable and accrued
unbilled revenues (153,449) (28,305)
Fuel, materials and supplies 610 28,667
Transition contract and other accounts
payable (7,055) 48,926
Other current assets and liabilities (11,786) 9,423
Other, net 55,205 3,801
--------- ---------
Net cash provided by operating activities 152,999 230,569
--------- ---------
Investing activities:
Plant expenditures (excluding AFUDC) (85,323) (66,998)
Costs of nuclear divestiture, net (127,061) 0
Proceeds from sale of fossil generating assets 0 533,633
Nuclear fuel expenditures (16,117) (11,141)
Investments (7,712) (29,639)
--------- ---------
Net cash (used in) provided by investing
activities (236,213) 425,855
--------- ---------
Financing activities:
Proceeds from transition property
securitization 725,000 0
Long-term debt redemptions (185,376) (201,600)
Preferred stock redemption 0 (71,519)
Net change in notes payable 0 (101,878)
Dividends paid (479,470) (146,833)
--------- ---------
Net cash provided by (used in) financing
activities 60,154 (521,830)
--------- ---------
Net (decrease) increase in cash and cash
equivalents (23,060) 134,594
Cash and cash equivalents at beginning of year 82,700 4,140
--------- ---------
Cash and cash equivalents at end of period $ 59,640 $ 138,734
========= =========
Supplemental disclosures of cash flow
information:
Cash paid during the period for:
Interest, net of amounts capitalized $ 68,949 $ 79,549
========= =========
Income taxes $ 87 $ 182,200
========= =========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE> 6
Notes to Unaudited Consolidated Financial Statements
- ----------------------------------------------------
A) Merger of BEC Energy and Commonwealth Energy System
---------------------------------------------------
On August 25, 1999, BEC Energy (BEC) and Commonwealth Energy System
(COM/Energy) completed a merger transaction to create a new holding company,
NSTAR, an energy delivery company serving approximately 1.3 million customers
in Massachusetts including more than one million electric customers in 81
communities and 240,000 gas customers in 51 communities. NSTAR is an exempt
public utility holding company under the provisions of the Public Utility
Holding Company Act of 1935. NSTAR's utility subsidiaries include Boston
Edison Company, Commonwealth Electric Company, Cambridge Electric Light
Company, Canal Electric Company and Commonwealth Gas Company. NSTAR's
nonutility operations include telecommunications, district heating and cooling
operations, liquefied natural gas services and five real estate trusts.
B) Basis of Presentation
---------------------
In May 1998, Boston Edison Company (Boston Edison) completed its
reorganization plan to form a holding company, with Boston Edison becoming a
wholly owned subsidiary of BEC Energy (BEC). Under the holding company
structure the owners of Boston Edison's common stock became BEC common
shareholders. Existing debt and preferred stock of Boston Edison remained
obligations of Boston Edison. Effective June 25, 1998, Boston Energy
Technology Group (BETG) ceased being a subsidiary of Boston Edison and became
a wholly owned subsidiary of BEC. Therefore, the 1998 consolidated financial
statements reflect the results of operations and cash flows of Boston Edison
prior to the reorganization.
The accompanying unaudited consolidated financial statements should be read in
conjunction with the Boston Edison 1998 Annual Report on Form 10-K/A and
quarterly report on Form 10-Q for the periods ended March 31, 1999 and
June 30, 1999. The financial information presented as of and for the periods
ended September 30 has been prepared from Boston Edison's books and records
without audit by independent accountants. Financial information as of
December 31 has been derived from the audited financial statements of Boston
Edison, but does not include all disclosures required by generally accepted
accounting principles (GAAP). In the opinion of management, all adjustments
(which are of a normal recurring nature) necessary for a fair presentation of
the financial information for the periods indicated have been included.
Certain reclassifications have been made to the prior year data to conform
with the current presentation.
The preparation of financial statements in conformity with GAAP requires
management 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-month and nine-month periods ended
September 30, 1999 and 1998 are not indicative of the results which may be
expected for an entire year. Kilowatt-hour sales and revenues are typically
<PAGE> 7
higher in the winter and summer than in the spring and fall as sales tend to
vary with weather conditions.
C) Pilgrim Nuclear Power Station
-----------------------------
Under Boston Edison's approved restructuring settlement agreement
approximately 75% of the net assets of Pilgrim Nuclear Power Station (Pilgrim)
are recoverable through a non-bypassable transition charge of the utility's
distribution business. All Boston Edison distribution customers must pay a
transition charge as a component of distribution electric rates. The purpose
of the transition charge is to allow Boston Edison to collect costs from
customers that would not be collected in the competitive energy supply market.
The distribution and transmission businesses continue to be subject to rate-
regulation. This Pilgrim regulatory asset is included in the generation-
related regulatory asset-net on the consolidated balance sheet.
On July 13, 1999, Boston Edison completed the sale of Pilgrim Nuclear
Generating Station to Entergy Nuclear Generating Company, a subsidiary of
Entergy Corporation, for $81 million. In addition to the amount received from
Entergy, Boston Edison will also receive a total of approximately $243 million
from the wholesale contract customers (including $105 million received from
Commonwealth Electric Company, an affiliate of Boston Edison) to terminate
their contracts and to release them from all future liabilities. As part of
the sale, Boston Edison transferred its decommissioning trust fund to Entergy,
and was released from all future liability related to the ultimate
decommissioning of the plant. In order to provide Entergy with a fully funded
decommissioning trust fund, Boston Edison contributed approximately $271
million to the fund at the time of the sale. As a result of a favorable IRS
tax ruling, Boston Edison received $43 million from Entergy reflecting a
reduction in the required decommissioning funding in the fourth quarter. The
difference between the total proceeds received and the net book value of the
Pilgrim assets sold plus the net amount to fully fund the decommissioning
trust will be included in the balance of generation-related regulatory asset-
net on the consolidated balance sheet as such amounts are being collected from
customers under Boston Edison's settlement agreement. The final amounts to be
collected from customers related to Pilgrim are subject to regulatory review.
Three municipal light departments had previously filed for separate claims
alleging that the sale of Pilgrim constituted a breach of their respective
power sale agreements. Boston Edison has reached a settlement in principle
with all fourteen municipal customers of Pilgrim. This settlement, effective
upon Federal Energy Regulatory Commission (FERC) approval, will terminate the
purchase power agreements between Boston Edison and the municipal light
departments and dispose of all disputes, including previously filed
arbitration claims, regarding the sale of Pilgrim to Entergy and the power
sale agreements.
D) Securitization
--------------
On July 29, 1999, a wholly owned special purpose subsidiary (SPS) of Boston
Edison closed the sale of $725 million of notes to a special purpose trust
created by two Massachusetts state agencies. The trust then concurrently
closed the sale of $725 million of electric rate reduction bonds to the
public. The notes are secured by a portion of the transition charge assessed
<PAGE> 8
on Boston Edison's retail customers as permitted under the Massachusetts
Electric Industry Restructuring Act and authorized by the Massachusetts
Department of Telecommunications and Energy (MDTE). These bonds are non-
recourse to Boston Edison.
E) Nature of Operations
--------------------
NSTAR is focusing its utility operations on the transmission and distribution
of energy. This is illustrated by the sale of Boston Edison's fossil
generating assets to Sithe Energies in May 1998 and the sale of Pilgrim to
Entergy Nuclear Generating Company in July 1999.
Boston Edison currently delivers 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 municipalities. Boston Edison is required to continue to
develop and implement electric demand side management programs as well as to
provide funding for renewable energy projects pursuant to Massachusetts law.
F) Contingencies
-------------
1. Hazardous Waste
Boston Edison is an owner or operator of approximately 20 properties where oil
or hazardous materials were spilled or released. As such, Boston Edison is
required to clean up these remaining properties in accordance with a timetable
developed by the Massachusetts Department of Environmental Protection. There
are uncertainties associated with these costs due to the complexities of
cleanup technology, regulatory requirements and the particular characteristics
of the different sites. Boston Edison also faces possible liability as a
potentially responsible party in the cleanup of five 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. Boston
Edison is one of many potentially responsible parties and currently expects to
have only a small percentage of the total potential liability for these sites.
Through September 30, 1999, Boston Edison had approximately $6 million accrued
on its consolidated balance sheet related to these cleanup liabilities.
Management is unable to fully determine a range of reasonably possible cleanup
costs in excess of the accrued amount. 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 consolidated
financial position. However, it is reasonably possible that additional
provisions for cleanup 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.
2. Generating Unit Performance Program
The MDTE's generating unit performance program ceased March 1, 1998. Under
this program the recovery of incremental purchased power costs resulting from
Boston Edison's generating unit outages and outages at units in which it had
entitlements was subject to review by the MDTE. Proceedings relative to
generating unit performance remain pending before the MDTE. These proceedings
will include the review of replacement power costs associated with the
shutdown of the Connecticut Yankee nuclear electric generating unit. Boston
Edison is a 9.5% equity investor in Connecticut Yankee Atomic Power Company
and was a power purchaser from the generating unit. Management is unable to
<PAGE> 9
fully determine a range of reasonably possible disallowance costs in excess of
amounts accrued. Based on its assessment of the information currently
available, it does not believe that it is probable that any such additional
costs will have a material impact on its consolidated financial position.
However, it is reasonably possible that additional provisions for disallowance
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.
3. Industry and Corporate Restructuring Legal Proceedings
The MDTE order approving the Boston Edison restructuring settlement agreement
was appealed by certain parties to the Massachusetts Supreme Judicial Court.
One settlement agreement appeal remains pending, however there has to date
been no briefing, hearing or other action taken with respect to this
proceeding.
In addition, along with other Massachusetts investor-owned utilities, Boston
Edison has been named as a defendant in a class action suit seeking to declare
certain provisions of the Massachusetts electric industry restructuring
legislation unconstitutional.
Management is currently unable to determine the outcome of these outstanding
proceedings however, if an unfavorable outcome were to occur, there could be a
material adverse impact on business operations, the consolidated financial
position or results of operations for a reporting period.
4. Regulatory Proceedings
In October 1997, the MDTE opened a proceeding to investigate Boston Edison's
compliance with the 1993 order which permitted the formation of BETG and
authorized Boston Edison to invest up to $45 million in unregulated
activities. Hearings were completed during the first quarter of 1999. A MDTE
ruling is expected in 2000.
Management is currently unable to determine the outcome of this proceeding
however, if an unfavorable outcome were to occur, there could be a material
adverse impact on business operations, the consolidated financial position or
results of operations for a reporting period.
5. Rate Plan
The MDTE issued an order approving most major elements of a rate plan filed by
the retail utility subsidiaries of NSTAR on July 27, 1999. The highlights of
the rate plan include a four-year distribution rate freeze for each of the
NSTAR retail utility subsidiaries, the collection from customers of the
acquisition premium of approximately $478 million over 40 years and the
recovery of transaction and integration costs initially estimated at
approximately $111 million over 10 years. The Massachusetts Attorney General
and a group of four intervenors filed separate appeals of the MDTE order with
the Massachusetts Supreme Judicial Court (SJC) regarding the rate plan. While
management anticipates that the MDTE's decision to approve the rate plan will
be upheld by the SJC, it cannot determine the ultimate outcome of these
appeals or their impact on the rate plan.
<PAGE> 10
6. Other Litigation
In the normal course of its business Boston Edison is also involved in certain
other legal matters. Management is unable to fully determine a range of
reasonably possible legal costs in excess of amounts accrued. Based on the
information currently available, management does not believe that it is
probable that any such additional costs will have a material impact on Boston
Edison's consolidated financial position. However, it is reasonably possible
that additional legal 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.
G) Income Taxes
------------
The following table reconciles the statutory federal income tax rate to the
annual estimated effective income tax rate for 1999 and the actual effective
income tax rate for 1998.
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Statutory tax rate 35.0% 35.0%
State income tax, net of federal income
tax benefit 4.3 5.1
Investment tax credit amortization (11.1) (6.8)
Other 0.7 0.8
---- ----
Effective tax rate 28.9% 34.1%
==== ====
</TABLE>
The 1999 estimated effective tax rate decreased by 9.8% as a result of the
recognition in net income of the remaining unamortized investment tax credits
related to Pilgrim at the time of its sale. The 1998 effective tax rate
declined by 4.5% as a result of the recognition in net income of the remaining
unamortized investment tax credits related to Boston Edison's fossil
generating assets at the time of their sale. This shareholder benefit, which
was realized in the second quarter of 1998, is included in other expense, net
on the 1998 consolidated statement of income.
H) Related Party Transactions
--------------------------
The September 30, 1999 consolidated balance sheet of Boston Edison includes a
$14 million receivable from BETG's wholly owned subsidiary, BECoCom. The
receivable is for construction and construction management services provided
by Boston Edison. The September 30, 1999 balance sheet also includes an $18
million receivable from NSTAR. This represents Boston Edison's share of BEC's
consolidated federal income tax benefit.
Item 2. Management's Discussion and Analysis
- ---------------------------------------------
Merger of BEC Energy and Commonwealth Energy System
- ---------------------------------------------------
NSTAR, an exempt public utility holding company, was created through a merger
transaction involving BEC Energy (BEC) and Commonwealth Energy System
(COM/Energy) on August 25, 1999. The utility industry has continued to change
in response to legislative and regulatory mandates that are aimed at lowering
prices for energy by creating a more competitive marketplace. These pressures
have resulted in an increasing trend in the industry to seek competitive
advantages and other benefits through business combinations. NSTAR is
<PAGE> 11
focusing its utility operations on the transmission and distribution of energy
following the sale of BEC's fossil generating facilities to Sithe Energies in
May 1998, BEC's nuclear generating facilities to Entergy Nuclear Generating
Company in July 1999 and substantially all of COM/Energy's generating
facilities to Southern Company in December 1998.
The utility companies of NSTAR form an energy delivery company serving
approximately 1.3 million customers in Massachusetts, including more than one
million electric customers in 81 communities and 240,000 gas customers in 51
communities.
The merger became effective after receipt of various regulatory approvals.
The Federal Energy Regulatory Commission approved the merger on June 24, 1999.
The Nuclear Regulatory Commission approved the transfer of control of
affiliate Canal Electric Company's interest in the Seabrook nuclear plant from
COM/Energy to NSTAR on August 11, 1999. The Securities and Exchange
Commission issued its approval on August 24, 1999.
An integral part of the merger is the rate plan that was filed by the retail
utility subsidiaries of BEC and COM/Energy and approved by the MDTE on
July 27, 1999. Significant elements of the rate plan include a four-year
distribution rate freeze (after an adjustment to the distribution rates of
affiliates Cambridge Electric Light Company and Commonwealth Electric Company
to collect the appropriate level of distribution costs that is offset by a
reduction in the transition charge that was previously approved by the MDTE),
recovery of the acquisition premium (goodwill) over 40 years and recovery of
transaction and integration costs (costs to achieve) over 10 years.
The merger was accounted for by BEC as an acquisition of COM/Energy under the
purchase method of accounting. The goodwill amounted to approximately $478
million while the original estimate of costs to achieve the merger was $111
million. The annual amortization of goodwill will be approximately $11.9
million while the cost to achieve amortization will initially be approximately
$11.1 million annually. The cost to achieve amortization is based on the
filed estimate of $111 million to be amortized over 10 years. NSTAR's retail
utility subsidiaries will reconcile the actual costs with that estimate and
any difference is expected to be recovered over the remainder of the
amortization period.
A group of four intervenors and the Massachusetts Attorney General filed two
separate appeals of the MDTE's rate plan order with the Massachusetts Supreme
Judicial Court (SJC) in August 1999. While management anticipates that the
MDTE's decision to approve the rate plan will be upheld by the SJC, it is
unable to determine the ultimate outcome of these appeals or their impact on
the rate plan.
Results of Operations - Three Months Ended September 30, 1999 vs. Three Months
- ------------------------------------------------------------------------------
Ended September 30, 1998
- ------------------------
Net income was $79.9 million for the three months ended September 30, 1999
compared to $82.5 million for the same period in 1998, a 3.2% decrease as
described below.
<PAGE> 12
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 kilowatt-
hour (kWh) sales and revenues. Refer to Note B to the Consolidated Financial
Statements.
Operating revenues
Operating revenues were $454.9 million in 1999 compared to $479.7 million in
1998, a decrease of $24.8 million or 5.2% as follows:
<TABLE>
<CAPTION>
(in thousands)
- ------------------------------------------------------
<S> <C>
Retail electric revenues $ (7,325)
Wholesale revenues (13,675)
Short-term sales and other revenues (3,793)
- ------------------------------------------------------
Decrease in operating revenues $(24,793)
======================================================
</TABLE>
Retail revenues were $412.1 million in 1999 compared to $419.5 million in
1998, a decrease of approximately $7.4 million or 2%. The decrease in retail
revenues reflects a 5% rate reduction in retail rates, from 10% to 15%,
effective September 1, 1999, as mandated by the Massachusetts Electric Utility
Industry Restructuring Act, partially offset by a 4.1% increase in retail kWh
sales resulting from the higher than normal summer temperatures in 1999 and a
continuing strong local economy.
Wholesale revenues were $22.4 million in 1999 compared to $36.1 million in
1998, a decrease of $13.7 million or 38%. This reflects a $15.9 million
decrease in sales to Pilgrim contract customers due to the Pilgrim
divestiture. This is partially offset by a $2.2 million increase in sales to
municipal wholesale customers.
Total short-term sales and other revenues were $20.4 million in 1999 compared
to $24.1 million in 1998, a decrease of $3.7 million or 15%. This decrease
reflects a $10.0 million decrease in short-term sales which is consistent with
the decrease in short-term kWh sales. Beginning December 1, 1998, under an
agreement with Select Energy, a subsidiary of Northeast Utilities, Boston
Edison is only purchasing enough power to meet its obligations to its retail
and wholesale customers. Therefore, Boston Edison has no excess power supply
to sell into the New England Power Pool. This decrease is partially offset by
an increase of $4.0 million due to a billing settlement related to the nuclear
divestiture.
Operating expenses
Fuel and purchased power expense was $182.5 million in 1999 compared to $154.8
million in 1998, an increase of $27.7 million or 18%. Fuel expense related to
Pilgrim station decreased $6 million due to the 1999 refueling outage and the
sale of the plant in July 1999. Boston Edison adjusts its electric rates to
collect the costs related to fuel and purchased power from customers on a
fully reconciling basis. Fuel and purchased power expense reflects a
reduction of $13 million in 1999 and $47 million in 1998 related to these rate
recovery mechanisms. Due to the rate adjustment mechanisms, changes in the
amount of fuel and purchased power expense has no net impact on earnings.
<PAGE> 13
Operations and maintenance expense was $71.5 million in 1999 compared to $87.8
million in 1998, a decrease of $16.3 million or 19%. This reflects a decrease
of $22 million of nuclear production expenses as a result of the sale of
Pilgrim station in the third quarter and a decrease of $5 million for the
deferral of costs related to the Pilgrim refueling outage. This decrease was
partially offset by increases of $2 million due to restoration efforts related
to Hurricane Floyd and $10 million for bad debt expense.
Depreciation and amortization expense was $40.8 million in 1999 compared to
$47.6 million in 1998, a decrease of $6.8 million or 14%. This decrease
reflects lower depreciation due to the nuclear divestiture.
Demand side management (DSM) and renewable energy programs expense was $13.9
million in 1999 compared to $20.0 million in 1998, a decrease of $6.1 million
or 31%. These costs are collected from customers on a fully reconciling
basis. Therefore, the decrease has no impact on earnings.
Property and other taxes were $15.3 million in 1999 compared to $18.1 million
in 1998, a decrease of $2.8 million or 15%. The decrease reflects lower
municipal property taxes resulting from the fossil and nuclear divestiture.
Other expense, net
Other income, net was $17.4 million in 1999 compared to $0.8 million in 1998,
a net increase of $16.6 million. Prior to the consideration of tax benefits,
other income was $1.3 million in both 1999 and in 1998. This reflects $2.7
million of interest income in 1999 compared to $0.7 million in 1998. Other
miscellaneous expense was $1.4 million in 1999 compared to income of $0.6
million in 1998. Income tax benefits in 1999 were $16.1 million compared to
income tax expense of $0.5 million in 1998. The 1999 income tax benefit
includes $20.8 million related to the recognition of previously deferred
investment tax credits associated with the Pilgrim nuclear generating station.
Interest charges
Interest on long-term debt and transmission property securitization bonds was
$25.5 million in 1999 compared to $19.5 million in 1998, an increase of $6
million or 31%. This increase reflects $8 million related to securitization.
This increase is partially offset by approximately $3 million in reductions
related to the retirement of $19 million of 7.8% debentures, $66 million of
9.875% debentures and $91 million of 9.375% debentures during the third
quarter of 1999.
Results of Operations - Nine Months Ended September 30, 1999 vs. Nine Months
- ----------------------------------------------------------------------------
Ended September 30, 1998
- ------------------------
Net income was $145.9 million for the nine months ended September 30, 1999
compared to $140.7 million for the same period in 1998, a 3.7% increase as
described below.
The results of operations for the nine months ended are not indicative of the
results which may be expected for the entire year due to the seasonality of
kilowatt-hour (kWh) sales and revenues. Refer to Note B to the Consolidated
Financial Statements.
<PAGE> 14
Operating revenues
Operating revenues were $1,205.2 million in 1999 compared to $1,259.1 million
in 1998, a decrease of $53.9 million or 4.3% as follows:
<TABLE>
<CAPTION>
(in thousands)
- ------------------------------------------------------
<S> <C>
Retail electric revenues $(13,152)
Wholesale revenues (14,828)
Short-term sales and other revenues (25,939)
- ------------------------------------------------------
Decrease in operating revenues $(53,919)
======================================================
</TABLE>
Retail revenues were $1,064.3 million in 1999 compared to $1,077.5 million in
1998, a decrease of $13.2 million or 1%. This decrease is due to a decrease
in retail revenues reflecting the impact of the 10% reduction in retail rates
mandated by the Massachusetts Electric Utility Industry Restructuring Act that
was implemented in March 1998 and an additional 5% rate reduction effective
September 1, 1999. This decrease is partially offset by increases reflecting
a 4.6% increase in kWh sales resulting from the higher than normal summer
temperatures and the continuing strong local economy in 1999.
Wholesale revenues were $91.5 million in 1999 compared to $106.3 million in
1998, a decrease of $14.8 million or 14%. This decrease in wholesale revenues
reflects a $19.4 million decrease in sales to Pilgrim contract customers due
to the scheduled 1999 refueling and maintenance outage and subsequent sale of
Pilgrim station in July 1999. This is partially offset by a $4.6 million
increase in sales to municipal wholesale contract customers.
Total short-term sales and other revenues were $49.4 million in 1999 compared
to $75.3 million in 1998, a decrease of $25.9 million or 34%. This reflects
$16 million of revenue received in 1998 as a result of support of standard
offer service by the fossil generating stations prior to divestiture. This
decrease also reflects a $22 million decrease in short-term sales which is
consistent with the decrease in short-term kWh sales. Beginning December 1,
1998, under an agreement with Select Energy, a subsidiary of Northeast
Utilities, Boston Edison is only purchasing enough power to meet its
obligations to its retail and wholesale customers. Therefore, Boston Edison
has no excess power supply to sell into the New England Power Pool. These
decreases are partially offset by a $6 million increase related to a FERC
approved settlement for transmission contract customers and a $4 million
increase for billing settlements to Pilgrim contract customers.
Operating expenses
Fuel and purchased power expense was $480.2 million in 1999 compared to $424.9
million in 1998, an increase of $55.3 million or 13%. Purchased power expense
increased $84 million reflecting the increase in Boston Edison's purchased
power requirements in the absence of its fossil generating units and the 1999
Pilgrim refueling outage and sale. Boston Edison adjusts its electric rates
to collect the costs related to fuel and purchased power from customers on a
fully reconciling basis. Fuel and purchased power expense reflects a
reduction of $38 million in 1999 and $88 million in 1998 related to these rate
recovery mechanisms. Due to the rate adjustment mechanisms, changes in the
amount of fuel and purchased power expense have no net impact on earnings.
The fuel expense related to Boston Edison's fossil generation units decreased
<PAGE> 15
$66 million reflecting the divestiture of those units in May 1998. Fuel
expense related to Pilgrim station decreased $10 million due to the 1999
refueling outage and the sale of the plant in July 1999. The increase is
additionally offset by a decrease of $2 million related to Boston Edison's
non-electric product costs.
Operations and maintenance expense was $218.1 million in 1999 compared to
$272.4 million in 1998, a decrease of $54.3 million or 20%. The decrease
reflects a $21 million decrease in fossil-related power production expenses
due to the fossil divestiture in May 1998. This also reflects a decrease of
$38 million of nuclear power production expenses due to the deferral of costs
related to the 1999 refueling outage at Pilgrim station and the sale of the
plant in July 1999. These decreases are partially offset by increases of $10
million for bad debt expense and $2 million incurred due to restoration
efforts related to Hurricane Floyd. This decrease also reflects $4 million of
expense from BETG in the first half of 1998.
Depreciation and amortization expense was $135.8 million in 1999 compared to
$147.7 million in 1998, a decrease of $11.9 million or 8%. This decrease
reflects decreases resulting from the nuclear divestiture and the amortization
of the gain on the sale of the fossil plants which began in June 1998. These
decreases are partially offset by an increase in depreciation on distribution
utility plant required under the terms of the Boston Edison settlement
agreement beginning March 1, 1998.
Demand side management (DSM) and renewable energy programs expense was $40.6
million in 1999 compared to $37.0 million in 1998, an increase of $3.6 million
or 10%. These costs are collected from customers on a fully reconciling
basis. Therefore, the increase has no impact on earnings.
Property and other taxes were $55.3 million in 1999 compared to $70.9 million
in 1998, a decrease of $15.6 million or 22%. The decrease is due to a
decrease in municipal property taxes resulting from the fossil and nuclear
divestiture.
Other expense, net
Other income was $19.2 million in 1999 compared to other expense of $4.7
million in 1998, a net increase in income of $23.9 million. Prior to the
consideration of tax benefits, other income was $4.3 million in 1999 compared
to expense of $25.7 million in 1998. BETG's 1998 total equity losses from its
RCN and EnergyVision joint ventures were $9.0 million. 1998 reflects $22.4
million of costs related to the fossil divestiture that is offset by the
recognition of investment tax credits disclosed below. These negative amounts
are offset by $2.2 million of interest income in 1999 compared to $6.3 million
in 1998 due to the level of cash on hand as a result of the proceeds of the
fossil divestiture. Other miscellaneous income was $2.1 million in 1999
compared to expense of $0.6 million in 1998. Income tax benefits in 1999 were
$14.9 million compared to $21.0 million in 1998. The income tax benefits
include $20.8 million in 1999 and $10.9 million in 1998 related to the
recognition of previously deferred investment tax credits associated with the
Pilgrim nuclear generating station sold in 1999 and the fossil generating
stations sold in 1998.
<PAGE> 16
Interest charges
Interest on long-term debt and transmission property securitization bonds was
$64.4 million in 1999 compared to $63.5 million in 1998, an increase of $0.9
million or 1%. This increase reflects $8 million related to securitization.
This increase is partially offset by reductions of approximately $2 million
due to the maturing of $100 million of 5.95% debentures in March 1998 and the
cessation of amortization of the associated discounts and redemption
premiums, and a reduction of approximately $3 million due to the redemption
of a $100 million 6.662% bank loan in June 1998. Additionally, interest
charges were lower by approximately $3 million due to the retirement of $19
million of 7.8% debentures, $66 million of 9.875% debentures and $91 million
of 9.375% debentures during the third quarter of 1999.
Preferred stock dividends
Preferred stock dividends were $4.5 million in 1999 compared to $7.3 million
in 1998, a decrease of $2.8 million or 38%. The decrease is due to the
redemption of 400,000 shares of 7.75% series cumulative preferred stock and
the remaining 320,000 shares of 7.27% series in July 1998.
Electric Revenues
- -----------------
Boston Edison's electric delivery business has provided its standard offer
customers service at rates designed to give 10% savings from rates in effect
prior to the retail access date (March 1, 1998) and an additional 5% average
savings, after an adjustment for inflation, as of September 1, 1999. The cost
of providing standard offer service, which includes fuel and purchased power
costs, is recovered from customers on a fully reconciling basis. New retail
customers in the Boston Edison service territory and previously existing
customers that are no longer eligible for the standard offer service and who
have not chosen to receive service from a competitive energy supplier are on
default service. The price of default service is based on the average
competitive market price for power. Refer also to the Electric Revenues
section of Item 7 of the Boston Edison 1998 Annual Report on Form 10-K/A.
Under the Boston Edison restructuring settlement agreement, the rates of
Boston Edison's distribution business will remain unchanged, subject to a
minimum and maximum return on average common equity (ROE), until December 31,
2000. Refer to the Electric Revenues section of Item 7 of the Boston Edison
1998 Annual Report on Form 10-K/A for detail regarding the minimum and maximum
ROE. Under the Boston Edison settlement agreement, the cost of providing
transmission service to distribution customers is recovered on a fully
reconciling basis.
Liquidity
- ---------
Boston Edison supplements internally generated funds as needed, primarily
through the issuance of short-term commercial paper and bank borrowings.
Boston Edison has authority from the Federal Energy Regulatory Commission to
issue up to $350 million of short-term debt. Boston Edison has a $200 million
revolving credit agreement with a group of banks as well as other arrangements
with several banks to provide additional short-term credit on an uncommitted
<PAGE> 17
and as available basis. No amount was outstanding under these revolving
credit agreements as of September 30, 1999.
On July 29, 1999, a wholly owned special purpose subsidiary (SPS) of Boston
Edison closed the sale of $725 million of notes to a special purpose trust
created by two Massachusetts state agencies. The trust then concurrently
closed the sale of $725 million of electric rate reduction bonds to the
public. The notes are secured by a portion of the transition charge assessed
on Boston Edison's retail customers as permitted under the Massachusetts
Electric Industry Restructuring Act and authorized by the MDTE. These bonds
were issued in five separate classes with variable payment periods ranging
from approximately one to ten years and bearing fixed interest rates ranging
from 5.99% to 7.03%. The bonds are non-recourse to Boston Edison. Proceeds
were utilized to finance a portion of the stranded costs that are being
collected from customers under Boston Edison's restructuring settlement
agreement. Boston Edison will collect a portion of the transition charge on
behalf of the SPS and remit the proceeds to the SPS. Boston Edison used a
portion of the proceeds received from the SPS to fund a portion of the nuclear
decommissioning fund transferred to Entergy as part of the sale of the Pilgrim
generating station. Boston Edison is using the remaining proceeds to reduce
capitalization and for general corporate purposes.
On July 30, 1999, Boston Edison announced a tender offer for any and all of
its outstanding 9-7/8% debentures due June 1, 2020 and its 9-3/8% debentures
due August 15, 2021. The aggregate principal amount of the securities is $215
million, of which approximately $157 million was redeemed. In addition,
unrelated to the tender offer, $19 million of 7.80% series due 2023 was
repurchased from the open market.
Year 2000 Computer Issue
- ------------------------
The year 2000 issue is the result of computer programs that were written using
two digits rather than four to define an applicable year. If computer
programs with date-sensitive functions are not year 2000 compliant, they may
recognize a date using "00" as the year 1900 rather than the year 2000. This
could result in system failures or miscalculations causing disruptions of
operations, including, among other things, a temporary inability to process
transactions and engage in other normal business activities. Boston Edison
has a year 2000 program in place to address the risk of non-compliant internal
business software, internal non-business software and embedded chip technology
and external noncompliance of third parties.
Boston Edison is addressing the year 2000 issue on a coordinated basis.
Boston Edison inventoried and assessed all date-sensitive systems including
mission critical systems, important business systems used for information and
transaction processing systems, and non-critical internal productivity
systems. The North American Electric Reliability Council (NERC) has defined
mission critical systems as those whose mis-operation could result in loss of
electric generation, transmission or load interruption. Important business
systems are those necessary to maintain core business functions such as
billing and accounting for electricity to customers.
Boston Edison has inventoried mission critical systems that may be date-
sensitive and that use embedded technology such as micro-controllers or
microprocessors. Approximately 27% of these systems required modification or
<PAGE> 18
replacement. These systems can be categorized as: (1) telecommunications,
(2) distribution systems controls, and (3) other distribution equipment.
Boston Edison has completed remediation and testing of mission critical
systems and reported to NERC on June 30, 1999 that all mission critical
systems are ready for year 2000.
Boston Edison inventoried important business systems that are date-sensitive
and determined that approximately one-third of these systems needed
modification or replacement. Plans were developed and implemented to correct
and test all affected systems, with priorities based on the importance of the
supported activity. As systems were remediated they were tested for
operational and year 2000 readiness in their own environment. After
completion of implementation, the systems were then tested for their
integration and compatibility with other interactive systems. All important
business system replacements, remediation and testing were completed by July
1999. These systems are now considered year 2000 ready.
In addition all non-critical internal productivity systems have been
inventoried and assessed. Approximately one-third of these systems required
modification or replacement. Under the year 2000 plan, each of these systems
has a form of readiness acceptance commensurate with its business importance.
More important and complex systems are tested as a means of acceptance. Less
important and non-complex systems may refer to industry test results, vendor
test results and/or vendor statements of readiness as a means of acceptance.
All of these systems were declared ready by September 30, 1999.
Costs incurred to remediate systems are expensed as incurred. In addition, a
decision was made to use this opportunity to upgrade some of Boston Edison's
less efficient centralized business systems. Systems' replacement costs will
be capitalized and amortized over future periods. Boston Edison expects the
modification and testing of its information and embedded systems to cost $32
million. Boston Edison has expended $29 million on this project through
September 30, 1999. Boston Edison has funded and plans on continuing to fund
all costs related to year 2000 with internally generated cash flows.
In addition to its internal efforts, Boston Edison has initiated formal
communications with its significant suppliers, service providers and other
vendors to determine the extent to which it may be vulnerable to their failure
to correct their own year 2000 issues. Boston Edison has received responses
from over 500 third party vendors including mission critical vendors. All of
these vendors have indicated that they will be year 2000 ready by the end of
1999. In addition, Boston Edison has contacted all of its significant power
suppliers. Each has indicated that they either are or will be year 2000 ready
by the end of 1999. In addition to the risk faced from its dependence on
third party suppliers for year 2000 readiness, Boston Edison has a risk that
power will not be available from the Independent System Operator-New England
(ISO-NE) for the purchase and distribution to Boston Edison's customers.
Should ISO-NE fail to resolve its year 2000 issues as planned, there would be
an adverse impact on Boston Edison and its customers. To mitigate this risk,
efforts are being coordinated with ISO-NE and the New England Power Pool
(NEPOOL) to establish inter-utility testing guidelines coordinated with NERC
plans to determine year 2000 readiness.
Boston Edison is a participant in the NEPOOL/ISO New England Year 2000 Joint
Oversight Committee which is overseeing ISO-NE's and NEPOOL's year 2000
readiness activities. Overall the Northeast Power Coordinating Council, whose
activities will be incorporated into the interregional coordinating efforts by
the NERC, will coordinate regional activities, including those of ISO-
NE/NEPOOL. Regional year 2000 contingency plans were developed and submitted
to NERC in June 1999. Drills will continue through the remainder of the year.
<PAGE> 19
In addition, parts of the global infrastructure, including national banking
systems, electrical power grids, gas pipelines, transportation facilities,
communications and government activities, may not be fully functional after
1999 due to the year 2000 issue. Infrastructure failures could significantly
reduce Boston Edison's ability to acquire energy and its ability to serve its
customers as effectively as they are now being served.
Boston Edison believes that its efforts to address the year 2000 issue will
allow it to successfully avoid any material adverse effect on its operations
or financial condition. However, it recognizes that failing to resolve year
2000 issues on a timely basis would, in a most reasonable worst case scenario,
significantly limit its ability to acquire and distribute energy or process
its daily business transactions for a period of time, especially if such
failure is coupled with third party or infrastructure failures. Similarly,
Boston Edison could be significantly affected by the failure of one or more
significant suppliers, customers or components of the infrastructure to
conduct their respective operations normally after 1999. Adverse effects on
Boston Edison could include, among other things, business disruption,
increased costs, loss of business and other similar risks.
Boston Edison's year 2000 program includes contingency plans. If required,
these plans are intended to address both internal risks as well as potential
external risks related to vendors, customers and energy suppliers. Plans have
been developed in conjunction with available national and regional guidance
and are based on system emergency plans that were developed and successfully
tested over the past several years. Included within its contingency plans are
procedures for the procurement of short-term power supplies and emergency
distribution system restoration procedures. The contract with ISO-NE requires
ISO-NE dispatch at all times sufficient resources to meet total New England
load requirements. ISO-NE has the responsibility and authority to dispatch
all regional generation sources including maintaining sufficient operating
reserves to respond to unanticipated system conditions. ISO-NE, in
conjunction with NEPOOL has an extensive year 2000 readiness program underway
to ensure that it will have sufficient generation and transmission resources
to reliably serve load. In addition, ISO-NE indicated that it will maximize
the operating reserves during the early year 2000 period.
The foregoing discussion regarding year 2000 project timing, effectiveness,
implementation and costs includes forward-looking statements that are based on
management's current evaluation using available information. Factors that
might cause material changes include, but are not limited to, the availability
of key year 2000 personnel, the readiness of third parties and Boston Edison's
ability to respond to unforeseen year 2000 complications.
Safe Harbor Cautionary Statement
- --------------------------------
Management 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 Boston Edison 1998 Annual
Report on Form 10-K/A.
The preceding sections include certain forward-looking statements about
merger, environmental and legal issues and year 2000 compliance.
<PAGE> 20
The cost savings and cost avoidances ultimately realized from the merger may
differ from current estimates.
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 other than
expected. The effects of changes in specific hazardous waste site conditions
and cleanup technology could affect estimated cleanup liabilities. The
impacts of changes in available information and circumstances regarding legal
issues could affect the estimated litigation costs.
The timing and total costs related to the year 2000 plan could differ from
current expectations. Factors that may cause such differences include the
ability to locate and correct all relevant computer codes and the availability
of personnel trained in this area. In addition, management cannot predict the
nature or impact on operations of third party noncompliance.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
- -------------------------------------------------------------------
There have been no material changes since year-end.
<PAGE> 21
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.
Ratio of earnings to fixed charges and ratio of earnings to fixed charges and
preferred stock dividend requirements:
Twelve months ended September 30, 1999:
--------------------------------------
Ratio of earnings to fixed charges 3.30
Ratio of earnings to fixed charges and preferred
stock dividend requirements 3.05
Item 6. Exhibits and Reports on Form 8-K
- -----------------------------------------
a) Exhibits filed herewith:
Exhibit 4 - Instruments Defining the Rights of Security Holders,
Including Indentures
Management agrees to furnish to the Securities and
Exchange Commission, upon request, a copy of any
agreements or instruments defining the rights of
holders of any long-term debt whose authorization
does not exceed 10% of total assets.
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, 1999
12.2 - Computation of ratio of earnings to fixed charges
and preferred stock dividend requirements for the
twelve months ended September 30, 1999
Exhibit 15 - Letter Re Unaudited Interim Financial Information
15.1 - Report of Independent Accountants
Exhibit 27 - Financial Data Schedule
27.1 - Schedule UT
<PAGE> 22
Exhibit 99 - Additional Exhibits
99.1 - Letter of Independent Accountants
Form S-3 Registration Statement filed by Boston
Edison Company on February 3, 1993 (File No.
33-57840)
b) SEC Form 8-K for Boston Edison Company was filed on August 13, 1999
relating to the issuance of notes totaling $725 million by its
wholly owned special purpose subsidiary BEC Funding LLC.
<PAGE> 23
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 15, 1999 /s/ R. J. Weafer, Jr.
------------------------------
Robert J. Weafer, Jr.
Vice President, Controller
and Chief Accounting
Officer
<PAGE> 24
Exhibit 12.1
<TABLE>
Boston Edison Company
Computation of Ratio of Earnings to Fixed Charges
Twelve Months Ended September 30, 1999
(in thousands)
<S> <C>
Net income from continuing operations $162,582
Income taxes 65,521
Fixed charges 99,007
--------
Total $327,110
========
Interest expense $ 89,174
Interest component of rentals 9,833
--------
Total $ 99,007
========
Ratio of earnings to fixed charges 3.30
====
</TABLE>
<PAGE> 25
Exhibit 12.2
<TABLE>
Boston Edison Company
Computation of Ratio of Earnings to Fixed Charges
and Preferred Stock Dividend Requirements
Twelve Months Ended September 30, 1999
(in thousands)
<S> <C>
Net income from continuing operations $162,582
Income taxes 65,521
Fixed charges 99,007
--------
Total $327,110
========
Interest expense $ 89,174
Interest component of rentals 9,833
--------
Subtotal 99,007
--------
Preferred stock dividend requirements 8,361
--------
Total $107,368
========
Ratio of earnings to fixed charges and preferred
stock dividend requirements 3.05
====
</TABLE>
<PAGE> 26
Exhibit 15.1
Report of Independent Accountants
To the Directors
of Boston Edison Company:
We have reviewed the accompanying consolidated balance sheet of Boston Edison
Company (Boston Edison) as of September 30, 1999 and the related statements of
income for the three and nine-month periods ended September 30, 1999 and 1998
and cash flows for the nine-month periods ended September 30, 1999 and 1998.
These financial statements are the responsibility of 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.
Hartford, Connecticut PricewaterhouseCoopers LLP
November 15, 1999
<PAGE> 27
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
We are aware that our report dated November 15, 1999 on our review of the
interim financial information of Boston Edison Company (Boston Edison) for
the period ended September 30, 1999 and included in this Form 10-Q is
incorporated by reference in Boston Edison's registration statement on Form
S-3 (File No. 33-57840). Pursuant to Rule 436(c) under the Securities Act of
1933, this report should not be considered a part of the registration
statement prepared or certified by us within the meaning of Sections 7 and 11
of that Act.
Hartford, Connecticut PricewaterhouseCoopers LLP
November 15, 1999
<TABLE> <S> <C>
<ARTICLE> UT
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 1,585,161
<OTHER-PROPERTY-AND-INVEST> 31,795
<TOTAL-CURRENT-ASSETS> 573,039
<TOTAL-DEFERRED-CHARGES> 1,006,486
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 3,196,481
<COMMON> 0
<CAPITAL-SURPLUS-PAID-IN> 741,520
<RETAINED-EARNINGS> (11,366)
<TOTAL-COMMON-STOCKHOLDERS-EQ> 730,154
49,220
43,000
<LONG-TERM-DEBT-NET> 1,260,076
<SHORT-TERM-NOTES> 0
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 234,628
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 879,403
<TOT-CAPITALIZATION-AND-LIAB> 3,196,481
<GROSS-OPERATING-REVENUE> 1,205,210
<INCOME-TAX-EXPENSE> 80,648
<OTHER-OPERATING-EXPENSES> 929,895
<TOTAL-OPERATING-EXPENSES> 1,010,543
<OPERATING-INCOME-LOSS> 194,667
<OTHER-INCOME-NET> 19,236
<INCOME-BEFORE-INTEREST-EXPEN> 213,903
<TOTAL-INTEREST-EXPENSE> 67,967
<NET-INCOME> 145,936
4,470
<EARNINGS-AVAILABLE-FOR-COMM> 0
<COMMON-STOCK-DIVIDENDS> 0
<TOTAL-INTEREST-ON-BONDS> 0
<CASH-FLOW-OPERATIONS> 152,999
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
