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 June 30, 1996
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 July 31, 1996
Common Shares, $25 par value 2,891,357 shares
PART I - FINANCIAL INFORMATION
PART I - FINANCIAL INFORMATION
<TABLE>
Item 1. Financial Statements
EASTERN EDISON COMPANY
CONSOLIDATED CONDENSED BALANCE SHEETS
(In Thousands)
<CAPTION>
ASSETS June 30, December 3 1,
1996 1995
<S> <C> <C>
Utility Plant in Service $ 796,290 $ 795,200
Less: Accumulated Provision for Depreciation
and Amortization 253,652 241,673
Net Utility Plant in Service 542,638 553,527
Construction Work in Progress 12,483 3,506
Net Utility Plant 555,121 557,033
Current Assets:
Cash and Temporary Cash Investments 1,954 533
Accounts Receivable - Associated Companies 25,228 25,861
- Other 35,297 37,236
Fuel, Materials and Supplies 9,490 11,322
Other Current Assets 4,840 4,170
Total Current Assets 76,809 79,122
Deferred Debits and Other Non-Current Assets 100,944 103,043
Total Assets $ 732,874 $ 739,198
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 122,833 124,878
Total Common Equity 242,323 244,368
Redeemable Preferred Stock - Net 29,665 29,665
Preferred Stock Redemption Cost (2,966) (3,447)
Long-Term Debt - Net 222,358 222,313
Total Capitalization 491,380 492,899
Current Liabilities:
Long-Term Debt Due Within One Year 7,000 7,000
Notes Payable 4,158
Accounts Payable - Associated Companies 4,978 3,913
- Other 23,308 27,242
Taxes Accrued 5,126 3,219
Interest Accrued 4,988 4,999
Other Current Liabilities 11,527 8,435
Total Current Liabilities 56,927 58,966
Deferred Credits and Other Non-Current Liabilities 55,511 58,567
Accumulated Deferred Taxes 129,056 128,766
Total Liabilities and Capitalization $ 732,874 $ 739,198
See accompanying notes to consolidated condensed financial statements.
</TABLE>
<TABLE>
EASTERN EDISON COMPANY
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(In Thousands)
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
<S> <C> <C> <C> <C>
1996 1995 1996 1995
Operating Revenues 91,847 $ 104,415 $ 196,866 $ 210,734
Operating Expenses:
Fuel 17,462 23,641 40,655 45,923
Purchased Power 28,599 31,469 58,571 63,445
Other Operation and Maintenance 22,741 24,643 45,500 47,752
Voluntary Retirement Incentive 0 2,413 0 2,413
Depreciation and Amortization 6,729 6,555 13,458 13,110
Taxes - Other Than Income 2,783 2,469 5,648 5,350
- Current Income 2,996 2,015 8,346 5,244
- Deferred Income 79 85 56 2,271
Total 81,389 93,290 172,234 185,508
Operating Income 10,458 11,125 24,632 25,226
Allowance for Other Funds
Used During Construction 58 151 95 282
Other Income (Deductions) - Net 483 544 976 875
Income Before Interest Charges 10,999 11,820 25,703 26,383
Interest Charges:
Interest on Long-Term Debt 3,836 4,636 7,673 9,272
Other Interest Expense 827 879 1,768 1,603
Allowance for Borrowed Funds Used
During Construction (Credit) (88) (132) (140) (224)
Net Interest Charges 4,575 5,383 9,301 10,651
Net Income 6,424 6,437 16,402 15,732
Preferred Dividend Requirements 497 497 994 994
Consolidated Net Earnings 5,927 $ 5,940 $ 15,408 $ 14,738
See accompanying notes to consolidated condensed financial statements.
</TABLE>
<TABLE>
EASTERN EDISON COMPANY
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(In Thousands)
<CAPTION>
Six Months Ended
June 30,
1996 1995
<S> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES:
Net Income $ 16,402 $ 15,732
Adjustments to Reconcile Net Income to Net
Cash Provided from Operating Activities:
Depreciation and Amortization 14,329 15,705
Amortization of Nuclear Fuel 1,000 1,936
Deferred Taxes 22 2,237
Investment Tax Credit, Net (470) (471)
Allowance for Other Funds Used During Construction (96) (282)
Other - Net (1,832) 1,697
Change in Operating Assets and Liabilities 5,853 (22,860)
Net Cash Provided From Operating Activities 35,208 13,694
CASH FLOW FROM INVESTING ACTIVITIES:
Construction Expenditures (11,663) (14,694)
Net Cash (Used in) Investing Activities (11,663) (14,694)
CASH FLOW FROM FINANCING ACTIVITIES:
Common Stock Dividends Paid to EUA (16,972) (8,558)
Preferred Dividends Paid (994) (994)
Net (Decrease) Increase in Short-Term Debt (4,158) 6,087
Net Cash (Used in) Financing Activities (22,124) (3,465)
Net Increase (Decrease) in Cash and Temporary
Cash Investments 1,421 (4,465)
Cash and Temporary Cash Investments at
Beginning of Period 533 11,265
Cash and Temporary Cash Investments at
End of Period $ 1,954 $ 6,800
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest (Net of Capitalized Interest) $ 7,657 $ 9,155
Income Taxes $ 6,970 $ 3,584
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) 1995 Annual Report on Form 10-K and the
Company's Quarterly Report on Form 10-Q for the period ended March 31,
1996.
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 June 30, 1996 and December 31, 1995, and
the results of operations for the three and six months
ended June 30, 1996 and 1995 and cash flows for the six
months ended June 30, 1996 and 1995. The year-end
consolidated condensed balance sheet data was derived
from audited financial statements but does not include
all disclosures required under generally accepted
accounting principles.
The preparation of financial statements in conformity
with generally accepted accounting principles requires
management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure 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
those estimates.
The Company occasionally makes projections of expected
future performance or statements of its plans, objectives
and new business opportunities which are forward-looking
statements under federal securities law. Actual results
could differ materially from those discussed and there
can be no assurance that such estimates of future results
could be achieved.
Note B - Results shown above for the respective interim periods
are not necessarily 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:
Recent Nuclear Regulatory Commission (NRC) Actions
Montaup Electric Company (Montaup), the wholesale generation
subsidiary of Eastern Edison, has a 4.01% ownership interest in
Millstone III, an 1154-MW nuclear unit that is jointly owned by a
number of New England utilities, including subsidiaries of
Northeast Utilities (Northeast). Northeast is the lead
participant in Millstone III, and on March 30, 1996, Northeast
determined to shut down the unit following an engineering
evaluation which determined that four safety-related valves would
not be able to perform their design function during certain
postulated events.
The NRC has raised issues with respect to Millstone III and
certain of the other nuclear units in which Northeast and its
subsidiaries, either individually or collectively, have the
largest ownership shares, including a 582-MW Nuclear unit owned
by Connecticut Yankee Atomic Power Company (Connecticut Yankee),
in which Montaup has 4.5% ownership share.
In July 1996 Northeast reported that it has been responding to a
series of requests from the NRC seeking assurance that the
Millstone III unit will be operated in accordance with the terms
of its operating license and other NRC requirements and
regulations and dealing with a series of issues that Northeast
has identified in the course of these reviews. Providing these
assurances and addressing these issues will be components of an
Operational Readiness Plan (ORP) to be developed for the
Millstone III unit. The ORP for Millstone III was submitted to
the NRC on July 2, 1996 and is presently being implemented.
Northeast now estimates that it will fully implement the
Millstone III ORP during October 1996. Following implementation
of the ORP, Northeast expects to file a letter with the NRC
expressing its belief that the unit is ready to restart. This
letter will be followed by extensive NRC staff inspections. The
NRC Commissioners will then have to affirmatively vote to allow
restart.
On August 6, 1996, the NRC indicated that it will require an
independent review team to evaluate corrective actions taken by
Northeast before the Millstone III unit will be allowed to
restart.
The most recent Northeast estimate of incremental direct costs
related to the outage of Millstone III is approximately $41
million. Montaup's share is $1.6 million, about half of which
has been incurred through June.
While Millstone III is out of service, Montaup will incur
incremental replacement power costs estimated at $0.4 million to
$0.8 million per month. Montaup bills its replacement power
costs through its fuel adjustment clause, a wholesale tariff
jurisdictional to the Federal Energy Regulatory Commission
(FERC). However, there is no comparable clause in Montaup's
FERC-approved rates which at this time would permit Montaup to
recover Montaup's share of the incremental direct costs incurred
by Northeast.
Eastern Edison cannot predict the ultimate outcome of the
NRC inquiries or the impact which they may have on
Montaup and the EUA system. Eastern Edison is also
evaluating its rights and obligations under the various
agreements relating to the ownership and operation of
Millstone III.
The Connecticut Yankee Nuclear Unit was taken off-line in
July because of issues related to certain containment air
recirculation and service water systems. At the time the
unit was taken off-line, it was anticipated that it would
return to service in August.
On August 2, the NRC informed Connecticut Yankee that until their
safety questions were satisfied, the Connecticut Yankee Unit
could not return to service.
As a result of the NRC's action, Connecticut Yankee announced
that it would immediately commence other maintenance work at the
unit and commence the refueling outage that was scheduled to take
place later in the year.
At this time, Connecticut Yankee is unable to predict a definite
restart date for the Connecticut Yankee unit.
The NRC has commissioned a Safety Assessment Team to assess the
conformance of the Maine Yankee Atomic Power Station to its
design and licensing basis. Montaup holds a 3.5% ownership
interest in the Maine Yankee Unit. The Assessment Team commenced
their activity at the Maine Yankee site on July 15, 1996 and it
is expected that the assessment will continue through early
October, 1996.
Maine Yankee is unable to predict what, if any, further actions
will be required as a result of the Safety Assessment. 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 second quarter of 1996 were $5.9
million, relatively unchanged as compared to the second quarter of 1995.
For the six months ended June 30, 1996, net earnings were $15.4 million, a
4.6% increase over 1995's six months net earnings of $14.7 million.
Increases in kilowatthour (kWh) sales of 1.6% for the second quarter and
4.2% for the six months ended June 1996, decreases in interest expense from
debt issues that matured in 1995 and expense savings from the 1995
voluntary retirement incentive offer (VRI) were offset by increased
expenses related to severe storms in Eastern Edison's service territory and
increased legal expenses.
Kilowatthour Sales
Retail sales increased by 1.1% and 3.7% for this year's second
quarter and year-to-date periods, respectively as compared to 1995. The
year-to-date increase was led by increased sales to the typically more
weather sensitive residential and commercial customers of 5.6% and 2.3%,
respectively. The first quarter of 1996 was significantly colder than the
unusually mild first quarter of 1995, while the second quarter of this year
saw a return to a more normal weather pattern. Sales to industrial
customers grew 2.6% in the year-to-date period, an indication of economic
recovery in the Company's service territory. Despite this strong sales
performance, the Company anticipates a slow economic recovery for the
foreseeable future.
Operating Revenues
Operating Revenues for the second quarter 1996 decreased by $12.6
million as compared to second quarter of 1995. This decrease was due to
recoveries of lower fuel expenses of $6.2 million, lower purchased power
expenses of $2.9 million and lower conservation and load management (C&LM)
expenses of $2.2 million. Also impacting revenues were decreased short-
term contract demand sales of approximately $500,000. Year-to-date
revenues decreased $13.9 million as compared to 1995 due to recoveries of
lower fuel expenses of $5.3 million, lower purchased power expenses of $4.8
million and lower C&LM expenses of $4.1 million, and decreased short-term
contract demand sales of approximately $1.2 million, offset by increased
base revenues of $1.6 million resulting from the year-to-date increase in
kWh sales.
Operations Expense
Fuel expense for the second quarter and year-to-date periods decreased
by approximately $6.2 million or 26.1% and $5.3 million or 11.5%,
respectively as compared to the same periods in 1995. The second quarter's
decrease was largely due to a 23.8% decrease in the average cost of fuel as
a result of the increased use of less expensive nuclear fuel and a 3.6%
decrease in total energy generated and purchased. For the year-to-date
period, the decrease in fuel expense was primarily due to a 13.5% decrease
in the average cost of fuel, offset by a 2.7% increase in total energy
generated and purchased.
Purchased Power demand expense for the second quarter and the six
months ended June 30, 1996 decreased approximately $2.9 million or 9.1% and
$4.9 million or 7.7%, respectively, as compared to the same periods in
1995. These decreases are due primarily to decreased billings from the
Yankee nuclear units and the Ocean State Power Project.
Other Operation and Maintenance expenses for the second quarter and
six months ended June 30, 1996 decreased by approximately $1.9 million or
7.7% and $2.3 million or 4.7%, respectively, from the same periods in 1995.
These changes were due primarily to respective period decreases in C&LM
expenses of $2.1 million and $3.8 million and jointly owned unit expenses
of $0.9 million and $1.4 million. The decrease in jointly owned unit
expenses was mitigated by incremental outage costs of the Millstone III
nuclear unit. In addition, maintenance expenses of the wholly-owned
Somerset unit decreased by approximately $1.1 million in each period
resulting primarily from timing of annual over-haul costs. Offsetting
these decreases somewhat were respective period increases in legal expenses
of $2.2 million and $2.1 and distribution expense of $0.5 million and $1.8
million related mainly to an unusual number of severe storms which struck
the retail service territory in the first half of this year.
Effective Income Tax Rate
Eastern Edison's effective income tax rate for the second quarter and
six months ended June 30, 1996 increased from approximately 25.6% to 33.1%
and from 32.9% to 34.3%, respectively, when compared with the same periods
of a year ago due primarily to certain tax benefits realized in the second
quarter of 1995.
Interest Charges
Net interest charges decreased by $0.8 million and $1.4 million,
respectively, in the second quarter and six months ended June 30, 1996 as
compared to the same periods in 1995 due primarily to the December 1995
maturity of $25 million of 9-9 1/4% Unsecured Medium Term Notes and $10
million of 8.9% First Mortgage and Collateral Trust Bonds of Eastern
Edison.
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 June 30, 1996 and at December 31, 1995 these unused EUA
System short-term lines of credit amounted to approximately $102.1 million
and $110.5 million, respectively. The Company had zero short-term debt at
June 30, 1996 and $4.2 million of short-term debt outstanding at December
31, 1995, respectively.
The Company's year-to-date June 30, 1996 internally generated funds
available after the payment of dividends amounted to $13.2 while its cash
construction requirements for the same period were $11.7.
Electric Utility Industry Restructuring
The electric industry is in a period of transition from a traditional
rate regulated environment to a competitive marketplace. While competition
in the wholesale electric market is not new, electric utilities are facing
impending competition in the retail sector.
In 1995, Eastern Edison, Blackstone and Newport participated with
collaborative groups in their respective states consisting of other
utilities, industrial users, environmental groups, governmental agencies
and consumer advocates in submitting similar sets of interdependent
principles to their respective state regulatory commissions which were
addressing electric utility industry restructuring. These filings were
intended to be statements of the consensus position by the signatories of
the 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.
Each set of principles was submitted on the condition they be approved in
full by the respective state regulators.
The Rhode Island Public Utilities Commission (RIPUC) accepted all but
one of the principles submitted by the Rhode Island Collaborative with
minor modifications to certain language in others and added a new principle
which supports negotiation (as opposed to litigation) to resolve conflicts
as restructuring moves forward and directed the Rhode Island Collaborative
to proceed with negotiations on the issues presented in the principles and
to submit a progress report, which was submitted in February 1996. The
one principle that was not accepted provided for subsidization of renewable
energy sources.
On March 5, 1996 the RIPUC required electric utilities subject to
their jurisdiction to file electric industry restructuring plans. On April
19, 1996 both Blackstone and Newport filed a restructuring plan called
"Choice and Competition", described below. Hearings on the restructuring
plans submitted to the RIPUC were to have started on August 12, 1996. In
view of the restructuring legislation (described below) passed into law on
August 7, 1996, however, the RIPUC terminated its restructuring
proceedings.
On August 7, 1996 the Governor of Rhode Island signed into law the
Utility Restructuring Act of 1996 (URA). The URA provides for customer
choice of electricity supplier commencing July 1, 1997 for large
manufacturing customers, certain new commercial and industrial customers,
and State of Rhode Island accounts. Load, accounting for no more than 10%
of total electric distribution company's kWh sales is to be released to
retail access under this provision. An additional 10% of kWh sales is
released to retail access by permitting municipal and smaller manufacturers
to choose an electricity supplier commencing January 1, 1998. By July 1,
1998 or sooner, all customers will have retail access. This legislation
provides for recovery of "stranded costs" through a non-by-passable
transition charge initially set at 2.8 cents per kWh. The transition
charge covers costs of regulatory assets; nuclear decommissioning; above
market payments to power suppliers; and depreciated generation net of its
market value. Nuclear decommissioning costs and above market payments to
power suppliers will be reconciled to actual costs annually and the
transition charge will be spread over the period from July 1, 1997 through
December 31, 2009.
The implementation of the URA will require approvals from applicable
regulatory agencies, including the Federal Energy Regulatory Commission
(FERC), the RIPUC, and the Securities and Exchange Commission.
EUA believes that the URA settles much of the uncertainty regarding
"stranded cost" recovery related to serving the customers of Blackstone and
Newport.
In August 1995, the Massachusetts Department of Public Utilities
(MDPU) issued an order enumerating principles, similar to those submitted
by the Massachusetts Collaborative, that describe the key characteristics
of a restructured electric industry and provides for, among other things,
customer choice of electric 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 for distribution services where regulation will
still exist. This 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 order also provides for the
principle of recovery of net, non-mitigable stranded costs by investor-
owned utilities resulting from the industry restructuring.
Each Massachusetts investor-owned utility is 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. The initial group of utilities was required to
file their proposals in February 1996. The second group is required to
file within three months of the MDPU's orders on the first group of
submissions. Eastern Edison Company filed its proposal, "Choice and
Competition" (see below) with the first group of proposals. On March 15,
1996, the MDPU issued a Notice of Inquiry (NOI) Rulemaking on electric
industry restructuring. The NOI incorporated by reference the
restructuring proposals previously submitted pursuant to the MDPU's earlier
order. In its NOI order the MDPU indicated that it planned to issue draft
rules to provide more specific guidance on the framework of a restructured
electric industry.
On May 1, 1996 the MDPU issued its proposed rules for the
restructuring of the electric industry. The MDPU stated the rules are
intended to reduce electricity costs over time and provide broad customer
choice of electric supplier promoting full and fair competition in the
generation of electricity. These proposed rules, which amplify the
principles set forth in the August 1995 order, were issued for public
comment and hearing. Final rules were originally scheduled to be issued in
September 1996. On August 9, 1996 the MDPU issued a notice extending the
issuance date of the final rules. The MDPU goal is to issue final rules by
the end of the calendar year 1996. The May 1st proposed rules provide for,
among other things:
- an independent system operator of the regional transmission
system in New England operating within established reliability
standards and a power exchange which would facilitate a short-term
pool for energy transactions;
- functional separation of electric companies into generation,
transmission and distribution corporate entities;
- a reasonable opportunity for recovery of net, non-mitigable
stranded costs periodically subject to some degree of
reconciliation;
- a price cap system for performance based regulation of
electric distribution companies;
- distribution company obligation to provide electric
distribution service to all customers within its service
territory;
- environmental protection and support for renewable energy
resources and energy efficiency;
- implementation of unbundled rates beginning January 1, 1997
and a competitive generation market by January 1, 1998;
The order also encourages settlements of outstanding company specific
electric restructuring filings discussed above. The Company participated
in hearings which were held in June and July, and on August 2, 1996, filed
comments and responded to MDPU discovery. The Company cannot predict the
ultimate outcome of this issue.
In January 1996, EUA unveiled its preliminary proposal for a
restructured electric utility industry called "Choice and Competition" and
began discussions with the Rhode Island and Massachusetts Collaboratives.
The plan proposed, among other things: choice of power supplier by all
customers as early as January 1998; open access transmission services;
performance based rates for electric distribution services; all utility
generation competing for power sales and; a transition charge allowing
regional utilities the opportunity to recover, among other things,
the costs of past commitments to nuclear and independent power. The
keystone to "Choice and Competition" was the adoption of common electric
utility restructuring implementation for the New England states operating
with the region's power pool. As different restructuring initiatives
surfaced from state regulatory agencies and state legislatures, it became
apparent that a New England region-wide approach to restructuring would be
unlikely. Thus, major elements of the "Choice and Competition" proposal
have been substantially modified to reflect that state by state, rather
than regional, plans will be adopted.
Historically, electric rates have been designed to recover a utility's
full costs of providing electric service including recovery of investment
in plant assets. Also, in a regulated environment, electric utilities are
subject to certain accounting rules that are not applicable to other
industries. These accounting rules allow regulated companies, in
appropriate circumstances, to establish regulatory assets and liabilities,
which defer the current financial impact of certain costs that are
expected to be recovered in future rates. The Company believes that its
operations continue to meet the criteria established in these accounting
standards.
However, the potential exists that the final outcome of state and
federal agency determinations could require the Company to no longer follow
these accounting rules. Current or future regulatory proposals regarding
the electric delivery business and the recovery of the the Company's
utility plant, stranded investment, and regulatory assets could trigger the
discontinuance of Statement of Financial Accounting Standards No. 71,
"Accounting for the Effects of Certain Types of Regulation" (FAS71).
Should it be required to discontinue the application of FAS71, the Company
would be required to take an immediate write down of the affected assets in
accordance with FAS101, "Accounting for the Discontinuation of Application
of FAS71."
In addition, if legislative or regulatory changes and/or competition
result in electric rates which do not fully recover the company's costs, a
write-down of plant assets could be required pursuant to Financial
Accounting Standard No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of" (FAS121) issued in
March 1995, effective for fiscal year 1996.
PART II -- OTHER INFORMATION
Item 1. Legal Proceedings
On December 15, 1995, Eastern Edison exercised its right to terminate
a Power Purchase Agreement (the PPA) entered into with the Meridian
Middleboro Limited Partnership (MMLP) and a related entity on September 20,
1993. In February and May of 1996, MMLP made demand for over $25 million
under the termination provision of the PPA. On June 17, 1996, Eastern
Edison responded to MMLP's demand stating that only $170,000 were due under
the termination provision. On July 18, 1996, Eastern Edison filed a
declaratory judgement action in Suffolk Superior Court in Boston,
Massachusetts against MMLP seeking a declaration of the rights of the
parties under the PPA. MMLP's response to the complaint, filed on August
8, 1996, included counter claims in excess of $20 million and a request for
treble damages. The Company intends to vigorously defend itself from the
counter claims. The Company cannot determine the outcome of this proceeding
at this time.
Item 4. Submission of Matters to a Vote of Security Holders.
(a) A Consent to Action in Lieu of a Special Meeting of
Stockholders (Consent to Action) was executed April
17, 1996 by Eastern Utilities Associates, the holder
of the entire issued and outstanding Common Stock of
the Company and the only class of stock entitled to
vote at the Special Meeting of Stockholders.
(b) The Board of Directors as previously reported to the
Securities and Exchange Commission was re-elected in
its entirety.
(C) The only matters voted on in the Consent to Action
were the election of directors and the election of
Clifford J. Hebert, Jr. to continue as Treasurer and
Clerk.
Item 5. Other Information
On April 24, 1996, FERC issued orders on its March 24, 1995 Notice of
Proposed Rulemaking (NOPR). FERC's purpose in proposing the new rules was
to encourage competition in the bulk power market. The FERC's April 24th
actions include:
- order No. 888, a final rule requiring open access
transmission and requiring all public utilities that own,
operate or control interstate transmission to file tariffs that
offer others the same transmission services they provide
themselves, under comparable terms and conditions. Utilities
must take transmission service for their own wholesale
transactions under the terms and conditions of the tariff;
- recovery of prudently incurred stranded costs by public utilities
and transmitting utilities;
- order No. 889, a final rule requiring public utilities to
implement standards of conduct and an Open Access Same-time
Information System (OASIS). Utilities must obtain information
about their transmission the same way as their competitors
through the OASIS;
- a Notice of Proposed Rulemaking (NOPR) requesting comment
on replacing the single tariff contained in the final open access
rule with a capacity reservation tariff that would reveal how
much transmission is available at any given time.
Open-access transmission tariffs for point-to-point and network service
filed with FERC by Montaup in February 1996 have been approved and became
effective April 21, 1996 for a period of at least one year. These tariffs
are in compliance with FERC's April 24th rulings. The Company remains
committed to achieving a fair and equitable transition to a competitive
electric utility marketplace.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits - None
(b) Reports on Form 8-K
- None filed in the quarter ended June 30, 1996
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
undersigned thereunto duly authorized.
Eastern Edison Company
(Registrant)
Date: August 14, 1996 /s/ Clifford J. Hebert, Jr.
Clifford J. Hebert, Jr., Treasurer
(on behalf of the Registrant and
as Principal Financial Officer)
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