<PAGE>
UNITED STATES 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 March 31, 2000
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 May 15, 2000
----- ---------------------------
Common Stock, $1 par value 100 shares
The Company meets the conditions set forth in General Instruction H(1)(a)
and (b) of Form 10-Q as a wholly-owned subsidiary and is therefore filing
this Form with the reduced disclosure format.
<PAGE>
Part I - Financial Information
- ------------------------------
Item 1. Financial Statements
- -----------------------------
Boston Edison Company
Condensed Consolidated Statements of Income
(Unaudited)
(in thousands)
<TABLE>
<CAPTION>
Three Months Ended March 31,
2000 1999
-------- --------
<S> <C> <C>
Operating revenues $376,443 $371,195
Operating expenses:
Fuel and purchased power 194,579 153,188
Operations and maintenance 56,360 77,415
Depreciation and amortization 41,534 47,404
Demand side management and renewable energy
programs 13,681 13,268
Taxes - property and other 16,765 20,507
Income taxes 11,493 14,956
-------- -------
Total operating expenses 334,412 326,738
-------- -------
Operating income 42,031 44,457
Other income (expense), net 815 609
-------- -------
Operating and other income 42,846 45,066
-------- -------
Interest charges:
Long-term debt 14,325 19,458
Transition property securitization
certificates 11,946 -
Other 682 1,197
Allowance for borrowed funds used during
construction (597) (446)
-------- -------
Total interest charges 26,356 20,209
-------- -------
Net income $ 16,490 $ 24,857
======== ========
<CAPTION>
Condensed Consolidated Statements of Retained Earnings
(Unaudited)
(in thousands)
Three Months Ended March 31,
2000 1999
-------- --------
<S> <C> <C>
Balance at the beginning of the period $ 1,462 $297,347
Net income 16,490 24,857
Dividends declared:
Dividends to Parent (15,000) (25,000)
Preferred stock (1,490) (1,490)
-------- -------
Subtotal 1,462 295,714
-------- -------
Provision for preferred stock redemption and
issuance costs (60) (59)
-------- -------
Balance at the end of the period $ 1,402 $295,655
======== ========
</TABLE>
Per share data is not relevant because Boston Edison Company's common stock
is wholly owned by NSTAR.
The accompanying notes are an integral part of the consolidated financial
statements.
2
<PAGE>
Boston Edison Company
Condensed Consolidated Balance Sheets
(in thousands)
<TABLE>
<CAPTION>
(Unaudited)
March 31, December 31,
2000 1999
--------- ------------
Assets
- ------
<S> <C> <C>
Utility plant in service, at original cost $2,408,089 $2,397,287
Less: accumulated depreciation 866,572 848,544
---------- ----------
1,541,517 1,548,743
Construction work in progress 66,343 53,647
---------- ----------
Net utility plant 1,607,860 1,602,390
Equity investments 20,055 19,880
Other investments 10,706 10,939
Current assets:
Cash and cash equivalents 2,195 117,537
Restricted cash 3,625 3,625
Accounts receivable 331,493 322,168
Accrued unbilled revenues 12,881 16,138
Materials and supplies, at average cost 17,408 16,226
Prepaid expenses and other 223,301 177,722
---------- ----------
Total current assets 590,903 653,416
---------- ----------
Regulatory assets 920,004 918,243
Other deferred debits 39,652 38,133
---------- ----------
Total assets $3,189,180 $3,243,001
========== ==========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
3
<PAGE>
Boston Edison Company
Condensed Consolidated Balance Sheets
(in thousands)
<TABLE>
<CAPTION>
(Unaudited)
March 31, December 31,
2000 1999
---------- ------------
Capitalization and Liabilities
- ------------------------------
<S> <C> <C>
Common equity:
Common stock, par value $1 per share
(100 shares issued and outstanding) $ - $ -
Premium on common stock 702,526 716,361
Retained earnings 1,402 1,462
---------- ----------
Total common equity 703,928 717,823
---------- ----------
Cumulative preferred stock:
Nonmandatory redeemable series 43,000 43,000
Mandatory redeemable series 49,339 49,279
---------- ----------
Total preferred stock 92,339 92,279
---------- ----------
Long-term debt 613,238 613,283
Transition property securitization
certificates 616,500 646,559
---------- ----------
Total long-term debt 1,229,738 1,259,842
Total capitalization 2,026,005 2,069,944
---------- ----------
Current liabilities:
Transition property securitization
certificates, due within one year 58,821 50,922
Long-term debt due within one year 100,267 165,667
Notes payable 56,000 -
Accounts payable 113,236 103,640
Accrued interest 2,363 15,460
Dividends payable 993 993
Other 217,408 218,224
---------- ----------
Total current liabilities 549,088 554,906
---------- ----------
Deferred credits:
Accumulated deferred income taxes 484,608 484,629
Accumulated deferred investment tax credits 20,807 21,336
Power contracts 43,223 45,123
Other 65,449 67,063
---------- ----------
Total deferred credits 614,087 618,151
Commitments and contingencies __________ __________
Total capitalization and liabilities $3,189,180 $3,243,001
========== ==========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
4
<PAGE>
Boston Edison Company
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(in thousands)
Three Months Ended March 31,
2000 1999
---- ----
Operating activities:
Net income $ 16,490 $ 24,857
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 41,534 53,757
Deferred income taxes and investment
tax credits 8,033 (2,900)
Allowance for borrowed funds used during
construction (597) (446)
Net changes in:
Accounts receivable and accrued
unbilled revenues (6,068) (14)
Materials and supplies (1,182) (4,899)
Accounts payable 9,596 (5,947)
Other current assets and liabilities (68,077) (1,757)
Other, net (38,597) 6,814
--------- --------
Net cash (used in) provided
by operating activities (38,868) 69,465
--------- --------
Investing activities:
Plant expenditures (excluding AFUDC) (16,353) (20,758)
Nuclear fuel expenditures -- (14,160)
Investments 58 (4,539)
--------- --------
Net cash used in investing activities (16,295) (39,457)
--------- --------
Financing activities:
Long-term debt redemptions (65,400) --
Transition property securitization
certificates redemptions (22,154) --
Net change in notes payable 56,000 --
Dividends paid (25,000) (26,490)
--------- --------
Net cash used in financing activities (56,554) (26,490)
--------- --------
Net increase in cash and cash equivalents (111,717) 3,518
Cash and cash equivalents at beginning of year 117,537 92,563
--------- --------
Cash and cash equivalents at end of period $ 5,820 $ 96,081
========= ========
Supplemental disclosures of cash flow
information:
Cash paid (refunded) during the period for:
Interest, net of amounts capitalized $ 26,975 $ 27,776
========= ========
Income taxes $ (10,536) $ -
========= ========
The accompanying notes are an integral part of the consolidated financial
statements.
5
<PAGE>
Notes to Unaudited Condensed Consolidated Financial Statements
- --------------------------------------------------------------
A) Merger of BEC Energy and Commonwealth Energy System
---------------------------------------------------
On August 25, 1999, Boston Edison Company's parent, BEC Energy (BEC), and
Commonwealth Energy System (COM/Energy) completed a merger 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
also supplies electricity at wholesale for resale to other utilities. 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 non-utility
operations include telecommunications, district heating and cooling operations
and liquefied natural gas services.
B) Basis of Presentation
---------------------
The merger of BEC and COM/Energy was accounted for as an acquisition of
COM/Energy by BEC using the purchase method of accounting. Goodwill amounted to
approximately $486 million while the original estimate of costs to achieve the
merger was $111 million. Goodwill is being amortized over 40 years and will
amount to approximately $12.2 million annually while the cost to achieve is
being amortized over 10 years and will initially be approximately $11.1 million
annually. The ultimate amortization of the cost to achieve will reflect the
total actual costs.
The accompanying unaudited consolidated financial statements should be read in
conjunction with the Boston Edison 1999 Form 10-K. The financial information
presented as of March 31, 2000 and for the periods ended March 31, 2000 and 1999
have been prepared from Boston Edison's books and records without audit by
independent accountants. Financial information as of December 31, 1999 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 periods ended March 31, 2000 and
1999 are not indicative of the results which may be expected for an entire year.
Kilowatt-hour 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.
C) Securitization
--------------
On July 29, 1999, BEC Funding LLC, a wholly owned special-purpose subsidiary of
Boston Edison, closed the sale of $725 million of notes to a special
6
<PAGE>
purpose trust created by two Massachusetts state agencies. The trust then
concurrently closed the sale on $725 million of electric rate reduction
certificates as a public offering. The certificates are secured by a portion of
the transition charge assessed on Boston Edison's retail customers as permitted
under the Massachusetts Electric Restructuring Act (the Restructuring Act) and
authorized by the MDTE. These certificates are non-recourse to Boston Edison.
Principal redemptions will occur on a semi-annual basis over the life of the
certificates.
D) Contingencies
-------------
1. Environmental Matters
Boston Edison is an owner or operator of approximately 20 properties where oil
or hazardous materials were spilled or released. As such, companies are 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 clean-up
technology, regulatory requirements and the particular characteristics of the
different sites. Boston Edison also continues to face possible liability as a
potentially responsible party (PRP) 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 currently expects to have only a small percentage of the total potential
liability for these sites. Approximately $6 million is included in the March 31,
2000 and December 31, 1999 Condensed Consolidated Balance Sheets 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
preliminary assessments of the specific site circumstances, 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.
Public concern continues regarding electromagnetic fields (EMF) associated with
electric transmission and distribution facilities and appliances and wiring in
buildings and homes. Such concerns have included the possibility of adverse
health effects caused by EMF as well as perceived effects on property values.
Boston Edison continues to support research into the subject and participates in
the funding of industry-sponsored studies. It is aware that public concern
regarding EMF in some cases has resulted in litigation, in opposition to
existing or proposed facilities in proceedings before regulators or in requests
for legislation or regulatory standards concerning EMF levels. It has addressed
issues relative to EMF in various legal and regulatory proceedings and in
discussions with customers and other concerned persons; however, to date it has
not been significantly affected by these developments. Boston Edison continues
to monitor all aspects of the EMF issue.
Estimates related to environmental remediation costs are reviewed and adjusted
periodically as further investigation and assignment of responsibility occurs.
Boston Edison is unable to estimate its ultimate liability for future
environmental remediation costs. However, in view of Boston Edison's current
assessment of its environmental responsibilities, existing legal requirements
and regulatory policies, management does not believe that these matters will
have a material adverse effect on Boston Edison's financial position or results
of operations for a reporting period.
7
<PAGE>
2. Generating Unit Performance Program
Boston Edison'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 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
In July, 1999, the MDTE approved a rate plan filed by the utility subsidiaries
of BEC and COM/Energy in connection with the merger. A group of four interveners
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.
The MDTE order approving the Boston Edison electric industry restructuring
settlement agreement was appealed by certain parties to the Massachusetts
Supreme Judicial Court (SJC). 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 Restructuring Act 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 Boston Edison
Technology Group (BETG) and authorized Boston Edison to invest up to $45 million
in unregulated activities. The hearing was completed during the first quarter of
1999. An MDTE ruling is expected in the later part of 2000.
Management is currently unable to determine the outcome of these 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.
8
<PAGE>
5. 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, 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 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.
E) Income Taxes
------------
The following table reconciles the statutory federal income tax rate to the
annual estimated effective income tax rate for 2000 and the actual effective
income tax rate for the year ended December 31, 1999.
2000 1999
---- ----
Statutory tax rate 35.0% 35.0%
State income tax, net of federal income
tax benefit 4.4 4.3
Investment tax credit amortization (1.9) (10.1)
Other 3.6 0.8
---- ----
Effective tax rate 41.1% 30.0%
---- ----
Item 2. Management's Discussion and Analysis
- ---------------------------------------------
Boston Edison is a wholly-owned subsidiary of NSTAR. NSTAR was created through
the merger of BEC Energy (BEC) and Commonwealth Energy System (COM/Energy) on
August 25, 1999 as an exempt public utility holding company. NSTAR's utility
subsidiaries are Boston Edison, Commonwealth Electric Company (ComElectric),
Cambridge Electric Light Company (Cambridge Electric), Canal Electric Company
(Canal Electric) and Commonwealth Gas Company (ComGas).
The electric and natural gas industries have continued to change in response to
legislative, regulatory and marketplace demands for improved customer service at
lower prices. These demands have resulted in an increasing trend in the
industry to seek competitive advantages and other benefits through business
combinations. NSTAR was created to operate in this new marketplace by combining
the resources of its utility subsidiaries and concentrating its activities in
the transmission and distribution of energy. This is illustrated by the sale of
Boston Edison's fossil generating facilities in 1998 and its nuclear generating
facility in 1999.
Merger of BEC Energy and Commonwealth Energy System
An integral part of the merger is the rate plan that was filed by the retail
utility subsidiaries of BEC and COM/Energy, including Boston Edison, that was
approved by the Massachusetts Department of Telecommunications and Energy (MDTE)
on July 27, 1999. Significant elements of the rate plan include a four-year
distribution rate freeze, recovery of the acquisition premium (goodwill) over 40
years and recovery of transaction and integration costs (costs to achieve)
9
<PAGE>
over 10 years. Refer to the Retail Electric Rates section of this discussion for
more information.
In July, 1999, the MDTE approved a rate plan filed by the utility subsidiaries
of BEC and COM/Energy in connection with the merger. A group of four interveners
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.
Generating Assets Divestiture
To complete its divestiture of generating assets, Boston Edison sold Pilgrim
Nuclear Generating Station (Pilgrim) on July 13, 1999, for $81 million to
Entergy Nuclear Generating Company. As part of the sale, Boston Edison
transferred approximately $228 million in decommissioning funds to Entergy.
Entergy, by the contract, assumed all future liability related to the ultimate
decommissioning of the plant. The difference between the total proceeds from the
sale and the net book value of the Pilgrim assets plus the net amount to fully
fund the decommissioning trust is included in generation-related regulatory
assets on the accompanying Condensed Consolidated Balance Sheets as such
amounts are collected from customers.
Securitization of Boston Edison's Transition Charge
On July 29, 1999, BEC Funding LLC, a wholly owned special-purpose subsidiary 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 on $725 million of electric rate reduction certificates as a
public offering. The certificates are secured by a portion of the transition
charge assessed on Boston Edison's retail customers as permitted under the
Restructuring Act and authorized by the MDTE. These certificates are non-
recourse to Boston Edison.
Retail Electric Rates
As a result of the Restructuring Act, Boston Edison currently provides its
standard offer customers service at inflation adjusted rates that are 15% lower
than rates in effect prior to March 1, 1998, the retail access date.
All distribution customers must pay a transition charge as a component of their
rate. The purpose of the transition charge is to allow for the collection of
generation-related costs that would not be collected in the competitive energy
supply market. The plant and regulatory asset balances that will be recovered
through the transition charge until 2009 were approved by the MDTE.
The Restructuring Act requires regulated utilities to obtain and resell power to
customers that choose not to buy energy from a competitive energy supplier. This
is referred to as "standard offer service." Standard offer service will be
available to customers through 2004 at prices approved by the MDTE. Boston
Edison is currently evaluating proposals from a number of competitive energy
providers to assume full responsibility for providing customers with standard
offer service through 2004. The cost of providing standard offer service, which
includes purchased power costs, is recovered from customers on a fully
reconciling basis. New retail customers in the Boston Edison electric service
territory and previously existing customers that are no longer eligible for the
standard offer service and have not chosen to receive service from a competitive
supplier, are on "default service." The
10
<PAGE>
price of default service is intended to reflect the average competitive market
price for power.
Under the restructuring settlement agreement, Boston Edison's distribution
business is subject to a minimum and maximum return on average common equity
(ROE). The ROE is subject to a floor of 6% and a ceiling of 11.75%. If the ROE
is below 6%, Boston Edison is authorized to add a surcharge to distribution
rates in order to achieve the 6% floor. If the ROE is above 11%, it is required
to adjust distribution rates by an amount necessary to reduce the calculated ROE
between 11% and 12.5% by 50%, and a return above 12.5% by 100%. No adjustment
is made if the ROE is between 6% and 11%. This rate mechanism expires on
December 31, 2000. The cost of providing transmission service to all Boston
Edison's distribution customers is recovered on a fully reconciling basis.
Boston Edison filed proposed adjustments to its standard offer and transition
charges with the MDTE in November 1999. The MDTE approved these proposed
adjustments to be effective January 1, 2000. The MDTE continues to examine
Boston Edison's cost recovery mechanisms.
Results of Operations - Three Months Ended March 31, 2000 vs. Three Months
- --------------------------------------------------------------------------
Ended March 31, 1999
- --------------------
Net income was $16.5 million for the three months ended March 31, 2000 compared
to $24.9 million for the same period in 1999, a 33.7% decrease as described
below.
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 A to the Condensed Consolidated
Financial Statements.
Operating revenues
Operating revenues increased 1.4% during the first quarter of 2000 as follows:
(in thousands)
- ------------------------------------------------------
Retail electric revenues $ 22,653
Wholesale revenues (15,384)
Other revenues (2,021)
- ------------------------------------------------------
Increase in operating revenues $ 5,248
======================================================
Retail revenues were $342.6 million in 2000 compared to $320.0 million in 1999,
an increase of $22.6 million or 7%. This change reflects a 6.5% increase in
retail kilowatt-hour (kWh) electric sales. The increase in retail kWh sales is
the result of a strong local economy and colder winter weather than was
experienced in 1999. In addition, Boston Edison increased its standard offer
rate in January 2000. The revenues charged for standard offer service are fully
reconciled to the costs incurred and have no impact on net income.
Wholesale electric revenues were $18.2 million in 2000 compared to $33.6 million
in 1999, a decrease of $15.4 million or 46%. This decrease in wholesale
revenues primarily reflects a decrease in contract sales due to the sale of
Pilgrim station in July 1999.
11
<PAGE>
Other revenues were $15.6 million in 2000 compared to $17.6 million in 1999, a
decrease of $2.0 million.
Operating expenses
Fuel and purchased power expense was $194.6 million in 2000 compared to $153.2
million in 1999, an increase of $41.4 million or 27%. Purchased power expense
increased $50 million reflecting the increase in purchased power due to the sale
of Pilgrim in 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 expenses in the year 2000 reflects an increase
of $11 million in 2000 and $8.7 million in 1999 related to these rate recovery
mechanisms. Due to the rate adjustment mechanisms, changes in the amount of fuel
and purchased power expense have no impact on earnings. Fuel expense related to
Pilgrim decreased $6.5 million due to the sale of the plant in July 1999.
Operations and maintenance expense was $56.4 million in 2000 compared to $77.4
million in 1999, a decrease of $21.0 million or 27%. The change primarily
reflects a decrease of nuclear power production expenses due to the sale of the
Pilgrim plant in July 1999.
Depreciation and amortization expense was $41.5 million in 2000 compared to
$47.4 million in 1999, a decrease of $5.9 million or 12.4%. This decrease
primarily reflects the nuclear divestiture in July 1999. This decrease was
partially offset by $2 million from the amortization of costs to achieve related
to the merger and $3 million from an affiliated company charge for Boston
Edison's portion of goodwill. These amounts are being collected from Boston
Edison's customers in accordance with the rate plan that was approved by the
MDTE on July 27, 1999.
Demand side management (DSM) and renewable energy programs expense was $13.7
million in 2000 compared to $13.3 million in 1999, an increase of $0.4 million
or 3%. In accordance with legislative and regulatory directives, these costs
are collected from customers on a fully reconciling basis. Therefore, the
increase has no impact on earnings.
Property and other taxes were $16.8 million in 2000 compared to $20.5 million in
1999, a decrease of $3.7 million or 18%. The decrease reflects lower municipal
property taxes resulting from the divestiture of Pilgrim.
Income taxes from operations were $11.5 million in 2000 compared to $15.0
million in 1999, a decrease of $3.5 million or 23%. This decrease reflects
lower pretax operating income in 2000.
Other income, net
Other income, net of tax was $0.8 million in 2000 compared to $0.6 million in
1999, a net increase of $0.2 million. This change reflects increases in
nonutility revenues.
Interest charges
Interest on long-term debt and transition property securitization certificates
was $26.3 million in 2000 compared to $19.5 million in 1999, an increase of
12
<PAGE>
$6.8 million or 35%. The increase reflects approximately $12 million related to
securitization. This increase is partially offset by a reduction of
approximately $5 million due to the following retirements: $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, and $65 million of 6.8% debentures
during the first quarter on 2000.
Electric Revenues
- -----------------
Retail kWh sales increased 6.5% in 2000. The increase in retail kWh was
primarily due to the continued strong economic conditions along with a colder
winter weather than in 1999. The increase in residential and commercial sales
reflect consumer confidence, a robust housing market and continued improvements
in economic conditions.
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 that serve as back up to Boston Edison's
$200 million commercial paper program. Boston Edison had $56 million short-term
debt outstanding as of March 31, 2000.
In July 1999, BEC Funding LLC, 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 on $725 million of electric rate reduction certificates to the
public. The certificates held by BEC Funding are secured by a portion of the
transition charge assessed to Boston Edison's retail customers as permitted
under the Massachusetts Electric Industry Restructuring Act and authorized by
the MDTE. The certificates were issued in five separate classes with variable
payment periods ranging from approximately one to ten years bearing fixed
interest rates ranging from 5.99% to 7.03%. The certificates are non-recourse to
Boston Edison. Net proceeds ($719 million received by Boston Edison from BEC
Funding) 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 BEC Funding and remit the proceeds to the SPS. Boston Edison used a
portion of the proceeds received from the financing to fund a portion of the
nuclear decommissioning fund transferred to Entergy Nuclear Generating Company
as part of the sale of the Pilgrim generating station. Boston Edison used the
remaining proceeds to reduce its capitalization and for general corporate
purposes.
Boston Edison's goal is to maintain a capital structure that preserves an
appropriate balance between debt and equity. Management believes its equity and
capital resources are sufficient to meet its current and projected requirements.
13
<PAGE>
New Accounting Principles
In June 1998, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" (SFAS 133). SFAS 133 establishes accounting
and reporting standards requiring that every derivative instrument (including
certain derivative instruments embedded in other contracts possibly
14
<PAGE>
including fixed-price fuel supply and power contracts) be recorded on the
Consolidated Balance Sheets as either an asset or liability measured at its fair
value, SFAS 133, as amended by SFAS 137, "Accounting for Derivative Instruments
and Hedging Activities - Deferral of the Effective Date of FASB Statement No
133", is effective for fiscal years beginning after June 15, 2000 (January 1,
2001 for calendar year companies). Initial application shall be as of the
beginning of an entity's fiscal quarter.
Boston Edison will adopt SFAS 133 as of January 1, 2001. The impact of adoption
cannot be currently estimated and will be dependent upon the value, nature and
purpose of the derivative instruments held, if any, as of January 1, 2001.
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 (SEC), 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.
The preceding sections include certain forward-looking statements about
operating results, environmental and legal issues.
The impacts of continued cost control procedures on operating results could
differ from current expectations. The effects of changes in economic
conditions, tax rates, interest rates, technology and the prices and
availability of operating supplies could materially affect the projected
operating results.
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.
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 the estimated cleanup liabilities. The impacts of
changes in available information and circumstances regarding legal issues could
affect the estimated litigation costs.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
- -------------------------------------------------------------------
There have been no material changes since year-end.
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:
15
<PAGE>
Twelve months ended March 31, 2000:
----------------------------------
Ratio of earnings to fixed charges 2.86
Ratio of earnings to fixed charges and preferred
stock dividend requirements 2.66
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 March 31, 2000
12.2 - Computation of ratio of earnings to fixed charges
and preferred stock dividend requirements for the
twelve months ended March 31, 2000
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
Form S-3 Registration Statement filed by Boston
Edison Company on February 3, 1993 (File No.
33-57840)
b) No Form 8-K was filed during the first quarter of 2000.
16
<PAGE>
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: May 15, 2000 /s/ Robert J. Weafer, Jr.
-------------------------
Robert J. Weafer, Jr.
Vice President,
Controller and Chief
Accounting Officer
17
<PAGE>
Exhibit 12.1
Boston Edison Company
Computation of Ratio of Earnings to Fixed Charges
Twelve Months Ended March 31, 2000
(in thousands)
Net income from continuing operations $151,947
Income taxes 65,221
Fixed charges 116,955
--------
Total $334,123
--------
Interest expense $104,055
Interest component of rentals 12,900
--------
Total $116,955
========
Ratio of earnings to fixed charges 2.86
====
<PAGE>
Exhibit 12.2
Boston Edison Company
Computation of Ratio of Earnings to Fixed Charges
and Preferred Stock Dividend Requirements
Twelve Months Ended March 31, 2000
(in thousands)
Net income from continuing operations $151,947
Income taxes 65,221
Fixed charges 116,955
--------
Total $334,123
========
Interest expense $104,055
Interest component of rentals 12,900
--------
Subtotal 116,955
--------
Preferred stock dividend requirements 8,518
--------
Total $125,473
========
Ratio of earnings to fixed charges and preferred
stock dividend requirements 2.66
====
<PAGE>
Exhibit 15.1
Report of Independent Accountants
To the Board of Trustees and Shareholders:
We have reviewed the accompanying condensed consolidated balance sheet of Boston
Edison as of March 31, 2000, and the related condensed consolidated statement of
income and comprehensive income of retained earnings and of cash flows for the
three month period ended March 31, 2000. These consolidated 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 condensed consolidated interim financial statements
in order for them to be in conformity with generally accepted accounting
principles.
We previously audited in accordance with generally accepted auditing standards,
the consolidated balance sheet as of December 31, 1999, and the related
consolidated statement of income and comprehensive income, of retained earnings
and of cash flows for the year then ended (not presented herein), and in our
report dated January 26, 2000 we expressed an unqualified opinion on those
consolidated financial statements. In our opinion, the accompanying condensed
consolidated balance sheet information as of March 31, 2000, is fairly stated in
all material respects in relation to the consolidated balance sheet from which
it has been derived.
PricewaterhouseCoopers LLP
Boston, Massachusetts
May 15, 2000
<TABLE> <S> <C>
<PAGE>
<ARTICLE> UT
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FORM
10-Q QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 1,607,860
<OTHER-PROPERTY-AND-INVEST> 30,761
<TOTAL-CURRENT-ASSETS> 590,903
<TOTAL-DEFERRED-CHARGES> 959,656
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 3,189,180
<COMMON> 0
<CAPITAL-SURPLUS-PAID-IN> 702,526
<RETAINED-EARNINGS> 1,402
<TOTAL-COMMON-STOCKHOLDERS-EQ> 703,928
49,339
43,000
<LONG-TERM-DEBT-NET> 1,229,738
<SHORT-TERM-NOTES> 0
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 159,088
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 1,004,087
<TOT-CAPITALIZATION-AND-LIAB> 3,189,180
<GROSS-OPERATING-REVENUE> 376,443
<INCOME-TAX-EXPENSE> 11,493
<OTHER-OPERATING-EXPENSES> 322,919
<TOTAL-OPERATING-EXPENSES> 334,412
<OPERATING-INCOME-LOSS> 42,031
<OTHER-INCOME-NET> 815
<INCOME-BEFORE-INTEREST-EXPEN> 42,846
<TOTAL-INTEREST-EXPENSE> 26,356
<NET-INCOME> 16,490
1,490
<EARNINGS-AVAILABLE-FOR-COMM> 0
<COMMON-STOCK-DIVIDENDS> 0
<TOTAL-INTEREST-ON-BONDS> 26,271
<CASH-FLOW-OPERATIONS> (38,868)
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
<PAGE>
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 May 15, 2000 on our review of the condensed
consolidated interim financial information of Boston Edison Company (Boston
Edison) as of and for the period ended March 31, 2000 and included in this Form
10-Q 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.
PricewaterhouseCoopers LLP
Boston, Massachusetts
May 15, 2000
