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, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period _________________ to ___________________
Commission File Number 0-8480
EASTERN EDISON COMPANY
(Exact name of registrant as specified in its charter)
Massachusetts 04-1123095
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
110 Mulberry Street, Brockton, Massachusetts
(Address of principal executive offices)
02402
(Zip Code)
(508)580-1213
(Registrant's telephone number including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that
the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes....X......No..........
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practical date.
Class Outstanding at October 31, 1995
Common Shares, $25 par value 2,891,357 shares
PART I - FINANCIAL INFORMATION
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
EASTERN EDISON COMPANY
CONSOLIDATED CONDENSED BALANCE SHEETS
(In Thousands)
<CAPTION>
ASSETS September 30, December 31,
1995 1994
<S> <C> <C>
Utility Plant in Service $ 785,526 $ 782,837
Less: Accumulated Provision for Depreciation
and Amortization 246,351 228,241
Net Utility Plant in Service 539,175 554,596
Construction Work in Progress 19,719 6,759
Net Utility Plant 558,894 561,355
Current Assets:
Cash and Temporary Cash Investments 17,936 11,265
Accounts Receivable - Associated Companies 30,013 18,061
- Other 33,649 37,979
Materials and Supplies 9,342 9,644
Other Current Assets 4,673 5,952
Total Current Assets 95,613 82,901
Deferred Debits and Other Non-Current Assets 101,896 111,789
Total Assets $ 756,403 $ 756,045
LIABILITIES AND CAPITALIZATION
Capitalization:
Common Stock, $25 Par Value $ 72,284 $ 72,284
Other Paid-In Capital 47,249 47,249
Common Stock Expense (43) (43)
Retained Earnings 119,220 105,574
Total Common Equity 238,710 225,064
Redeemable Preferred Stock - Net 29,665 29,665
Preferred Stock Redemption Cost (3,687) (4,408)
Long-Term Debt - Net 222,290 229,224
Total Capitalization 486,978 479,545
Current Liabilities:
Long-Term Debt Due Within One Year 42,000 35,000
Accounts Payable - Associated Companies 3,843 5,749
- Other 22,966 24,578
Taxes Accrued 761 1,411
Interest Accrued 5,790 5,486
Other Current Liabilities 6,705 16,360
Total Current Liabilities 82,065 88,584
Deferred Credits and Other Non-Current Liabilities 63,899 68,260
Accumulated Deferred Taxes 123,461 119,656
Total Liabilities and Capitalization $ 756,403 $ 756,045
See accompanying notes to consolidated condensed financial statements.
</TABLE>
<TABLE>
EASTERN EDISON COMPANY
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(In Thousands)
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1995 1994 1995 1994
<S> <C> <C> <C> <C>
Operating Revenues $ 107,854 $ 108,154 $ 318,588 $ 320,544
Operating Expenses:
Fuel 24,970 24,077 70,893 70,458
Purchased Power 30,570 33,105 94,015 90,829
Other Operation and Maintenance 23,172 24,385 70,924 74,207
Voluntary Retirement Incentive 2,413
Depreciation and Amortization 6,540 6,391 19,650 19,263
Taxes Other Than Income 2,462 2,506 7,812 8,071
Income Taxes - Current 4,458 2,844 9,702 10,605
- Deferred 892 1,431 3,163 3,870
Total 93,064 94,739 278,572 277,303
Operating Income 14,790 13,415 40,016 43,241
Allowance for Other Funds
Used During Construction 162 56 444 167
Other Income (Deductions) - Net 521 798 1,396 1,618
Income Before Interest Charges 15,473 14,269 41,856 45,026
Interest Charges:
Interest on Long-Term Debt 4,636 4,636 13,908 13,852
Other Interest Expense 952 923 2,555 3,695
Allowance for Borrowed Funds Used
During Construction(Credit) (129) (61) (353) (212)
Net Interest Charges 5,459 5,498 16,110 17,335
Net Income 10,014 8,771 25,746 27,691
Preferred Dividend Requirements 497 496 1,491 1,490
Consolidated Net Earnings $ 9,517 $ 8,275 $ 24,255 $ 26,201
See accompanying notes to consolidated condensed financial statements.
</TABLE>
<TABLE>
EASTERN EDISON COMPANY
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(In Thousands)
<CAPTION>
Nine Months Ended
September 30,
1995 1994
CASH FLOW FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net Income $ 25,746 $ 27,691
Adjustments to Reconcile Net Income to Net
Cash Provided from Operating Activities:
Depreciation and Amortization 22,934 21,811
Amortization of Nuclear Fuel 2,774 2,225
Deferred Taxes 3,113 3,820
Investment Tax Credit, Net (707) (690)
Allowance for Other Funds
Used During Construction (444) (167)
Other - Net 2,672 (1,644)
Change in Operating Assets and Liabilities (19,560) 2,600
Net Cash Provided From Operating Activities 36,528 55,646
CASH FLOW FROM INVESTING ACTIVITIES:
Construction Expenditures (18,478) (15,632)
Net Cash (Used in) Investing Activities (18,478) (15,632)
CASH FLOW FROM FINANCING ACTIVITIES:
Common Stock Dividends Paid to EUA (9,888) (20,731)
Preferred Dividends Paid (1,491) (1,491)
Premium on Reacquisition & Financing Expenses (62)
Net Cash (Used in) Financing Activities (11,379) (22,284)
Net Increase in Cash and Temporary
Cash Investments 6,671 17,730
Cash and Temporary Cash Investments at
Beginning of Period 11,265 697
Cash and Temporary Cash Investments at
End of Period $ 17,936 $ 18,427
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest (Net of Capitalized Interest) $ 13,279 $ 13,291
Income Taxes $ 5,391 $ 12,292
See accompanying notes to consolidated condensed financial statements.
</TABLE>
EASTERN_EDISON_COMPANY
NOTES_TO_CONSOLIDATED_CONDENSED_FINANCIAL_STATEMENTS
The accompanying Notes should be read in conjunction with the Notes to
Consolidated Financial Statements appearing in Eastern Edison Company's (Eastern
Edison or the Company) 1994 Annual Report on Form 10-K and the Company's
Quarterly Report on Form 10-Q for the periods ended March 31, and June 30, 1995.
Note A - In the opinion of the Company, the accompanying unaudited consolidated
condensed financial statements contain all adjustments (consisting of
only normal recurring accruals) necessary to present fairly the
financial position as of September 30, 1995 and December 31, 1994, and
the results of operations for the three and nine months ended
September 30, 1995 and 1994 and cash flows for the nine months ended
September 30, 1995 and 1994. Certain reclassifications have been made
to prior period financial statements to conform with current
classifications.
Note B - Results shown above for the respective interim periods are not neces-
sarily indicative of results to be expected for the fiscal years due
to seasonal factors which are inherent in electric utilities in New
England. A greater proportionate amount of revenues is earned in the
first and fourth quarters (winter season) of most years because more
electricity is sold due to weather conditions, fewer day-light hours,
etc.
Note C - Commitments and Contingencies:
Rate Activity
On March 21, 1994, Montaup Electric Company (Montaup), the wholesale
electric generating and transmission subsidiary of Eastern Edison,
filed an application with the Federal Energy Regulatory Commission
(FERC) for authorization to reduce its wholesale rates by $10.1
million, or three percent. Montaup supplies electricity at wholesale
to EUA's retail electric utilities - Eastern Edison, Blackstone Valley
Electric Company (Blackstone) and Newport Electric Corporation
(Newport) - and to two non-affiliated municipal utilities. This
application was designed to match more closely Montaup's revenues with
its decreasing cost of doing business resulting from, among other
things, a reduced rate base, lower interest costs and successful cost
control efforts.
On May 21, 1994, Montaup began billing the reduced rates and on April
14, 1995 FERC approved a settlement agreement between Montaup and the
intervenors in the case calling for an annual reduction of
approximately $13.9 million (inclusive of the filed $10.1 million
reduction).
Montaup refunded to its customers the difference collected between the
$10.1 million filed reduction and the $13.9 million settled reduction
in April 1995. Montaup had previously reserved for this refund.
Item_2. Management's_Discussion_and_Analysis_of_Financial_Condition_and
Results_of_Operations
The following is Management's discussion and analysis of certain
significant factors affecting the Company's earnings and financial condition for
the interim periods presented in this Form 10-Q.
Overview
Consolidated Net Earnings for the three and nine months ended September
30, 1995 were $9.5 million and $24.3 million, respectively, as compared to $8.3
million and $26.2 million for the respective periods of a year ago. The third
quarter increase was due primarily to decreased operation and maintenance
expenses resulting from on going savings related to the voluntary retirement
incentive offer, as discussed below, and other cost control efforts. The
year-to-date period of 1995 includes a one-time charge of approximately $1.5
million, on an after tax basis, related to the voluntary retirement incentive
offer. Also impacting 1995 earnings was Montaup's $13.9 million annual
wholesale rate reduction effective May 21, 1994. Offsetting these year-to-date
impacts somewhat were lower litigation expenses resulting from favorable court
decisions rendered in 1995, lower interest expense and successful cost control
efforts including ongoing savings of the voluntary retirement incentive.
Kilowatthour Sales
A 2.2% increase in retail sales in the third quarter of 1995 coupled
with the 1.4% increase in second quarter sales offset dismal first quarter sales
results. For the year-to-date period, retail sales were relatively flat
compared to those of the same period of 1994. Increases in kWh sales to
industrial customers of 3.1% in the year-to-date period, however, is an
indication of economic recovery in the Company's service territory. Despite
this strong sales performance, the Company anticipates a continuing slow
economic recovery for the foreseeable future. Total Energy sales for the three
and nine months ended September 30, 1995 decreased 10.4% and 23.0%,
respectively, due mainly to decreased energy sales to the New England Power Pool
and decreased short-term unit contract energy sales. Power purchase contracts
of Montaup totaling 41 MW which expired in October 1994 resulted in lower
kilowatthours available to Montaup for interchange and short-term energy sales.
These interchange and short-term energy sales essentially recover fuel costs
only and have little or no earnings impact.
Voluntary Retirement Incentive Offer
On March 15, 1995, EUA announced a corporate reorganization which, among
other things, consolidated management of Eastern Edison, Blackstone and
Newport. As part of the reorganization, a voluntary retirement incentive was
offered to sixty-six EUA System employees, including 22 employees of Eastern
Edison and Montaup. Forty-nine of those eligible for the program, including 16
employees of Eastern Edison and Montaup, accepted the incentive and retired
effective June 1, 1995. The cost to the Company of this incentive program
amounted to a one-time $2.4 million pre-tax ($1.5 million after-tax) charge to
second quarter 1995 earnings. The estimated payback period is approximately 18
months.
Operating_Revenues
Operating Revenues for the third quarter and year-to-date periods ended
September 30, 1995 decreased by approximately $0.3 million and $2.0 million,
respectively, as compared to the same period in 1994. The third quarter change
was due primarily to lower purchased power, fuel and Conservation and Load
Management (C&LM) expense recoveries aggregating $1.6 million offset by
increased Eastern Edison base rate recoveries aggregating approximately $0.7
million related to the increase in kWh sales, for the period and increases in
other operating revenues of Eastern Edison and Montaup. The year-to-date change
is primarily due to decreased C&LM expense recoveries of $2.6 million and the
negative impact of Montaup's wholesale rate reduction implemented on May 21,
1994 offset somewhat by increased purchased power and fuel expense recoveries
aggregating $3.2 million.
Operations_Expense
Fuel expense increased by $0.9 million or 3.7% and $0.4 million or almost
1.0% for the third quarter of 1995 and year-to-date periods, respectively, as
compared to the same periods in 1994. These changes were caused by the
increases of 12.5% and 17.2% in the average cost of fuel offset by decreases in
total energy generated and purchased of 10.4% and 23.0% for the quarter and
year-to-date periods, respectively.
Purchased Power demand expense for the third quarter and for the
year-to-date period ended September 30, 1995 decreased approximately $2.5
million or 7.7% and increased $3.2 million or 3.5%, respectively, as compared
to the same periods in 1994. The third quarter change was primarily due to a
decrease of approximately $1.7 million related to purchase power contracts
totaling 41 MW which expired in October 1994, and decreased purchases from other
power suppliers or $0.8 million. The year-to-date increase is due primarily to
the impact of Newport's purchased power contracts assumed by Montaup effective
May 21, 1994 coincident with Newport becoming an all-requirements customer of
Montaup, aggregating approximately $5.3 million and increased billings from the
Ocean State Power Project and the Yankee nuclear units aggregating $5.6
million. These increases were offset somewhat by decreases of approximately
$6.0 million resulting from the previously mentioned purchase power contract
expirations and a $1.7 million reduction in purchases from other power
suppliers.
Other Operation and Maintenance expenses for the third quarter and nine
months ended September 30, 1995 decreased by approximately $1.2 million or 5.0%
and $3.3 million or 4.6%, respectively, from the same periods in 1994. The
third quarter change was due primarily to lower C&LM and FAS106 expenses
aggregating $1.3 million. The year-to-date decrease includes lower C&LM expense
totaling $2.7 million and decreased direct controllable expenses aggregating
$2.1 million, which includes the on-going savings related to the VRI offer.
Offsetting these year-to date decreases somewhat were increases in Montaup power
contract expenses and jointly owned unit expenses totaling $1.2 million.
Interest Charges
Net interest charges were relatively unchanged for the third quarter of
1995 and decreased by $1.1 million for nine months ended September 30, 1995 as
compared to the same periods in 1994. Other Interest expense was greater in
1994 due to interest expense provisions recorded in June 1994 aggregating $1.0
million related to Internal Revenue Service audits.
Electric Utility Industry Restructuring
On July 17, 1995, Eastern Edison Company, along with other members of the
Electric Industry Restructuring Roundtable (the Massachusetts Roundtable) in
Massachusetts filed a set of principles with the Massachusetts Department of
Public Utilities (MDPU) addressing industry restructuring.
The Massachusetts Roundtable consists of a number of different utilities,
industrial users, environmental groups and consumer advocates. These principles
are intended to be statements of the consensus position by the signatories of
the interdependent principles that should underlie any electric industry
restructuring proposal and include but are not limited to principles addressing
stranded cost recovery, unbundling of services and demand side management
programs. The filing was submitted on the condition it be approved in full by
the MDPU. The MDPU is assessing the principles and is expected to make
recommendations to implement a competitive environment in the industry.
On August 16, 1995, the MDPU issued an order (the "MDPU Order") in Docket
No. 95-30, the MDPU's investigation into electric industry restructuring. The
MDPU Order develops principles that describe the key characteristics of a
restructured electric industry and provides for, among other things, customer
choice of service providers, services, pricing options and payment terms, an
opportunity for customers to share in the benefits of increased competition,
full and fair competition in the generation markets and incentive regulation
where competition cannot exist. The MDPU Order sets out principles for the
transition from a regulated to a competitive industry structure and identifies
conditions for the transition process which will require investor-owned
utilities to unbundle rates, provide consumers with accurate price signals and
allow customers' choice of generation services. The MDPU Order also provides
for the principle of recovery of net, non-mitigable stranded costs by
investor-owned utilities resulting from the industry restructuring.
Each investor-owned utility will be required to file restructuring
proposals for moving from the current regulated industry structure to a
competitive generation market. The schedule for the filing requirement is
staggered, with an initial group of utilities required to file within six months
of the date of the Order and a second group required to file within the three
months of the MDPU's orders on the first group of submissions. Eastern Edison
Company is in the second group and is currently preparing a plan for submission.
Liquidity_and_Sources_of_Capital
Eastern Edison's and Montaup's need for permanent capital is primarily
related to the construction of facilities required to meet the needs of their
existing and future customers.
Traditionally, cash construction requirements not met with internally
generated funds are obtained through short-term borrowings which are ultimately
funded with permanent capital. EUA System companies, including Eastern Edison
and Montaup, maintain short-term lines of credit with various banks aggregating
approximately $150 million. These credit lines are available to other
affiliated companies under joint credit line arrangements. At September 30,
1995 and at December 31, 1994 these unused EUA System short-term lines of credit
amounted to approximately $121.3 million and $118.3 million, respectively. The
Company had no outstanding short-term debt at September 30, 1995 and December
31, 1994, respectively.
The Company's year-to-date September 30, 1995 internally generated funds
amounted to $42.2 million while its cash construction requirements for the same
period were $18.5 million.
PART II -- OTHER INFORMATION
Item_6. Exhibits_and_Reports_on_Form_8-K
(a) Exhibits - None
(b) Reports on Form 8-K
- None filed in the quarter ended September 30, 1995
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the under
signed thereunto duly authorized.
Eastern_Edison_Company___________
(Registrant)
Date: November 13,_1995 /s/Richard_M._Burns_______________
Richard_M._Burns,_Vice_President
(on_behalf_of_the_Registrant_and
as Chief_Accounting_Officer)
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