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 March 31, 1998
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.)
750 W. Center Street, West Bridgewater, Massachusetts
(Address of principal executive offices)
02379
(Zip Code)
(508)559-1000
(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 April 30, 1998
Common Shares, $25 par value 2,891,357 shares
<TABLE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
EASTERN EDISON COMPANY
CONSOLIDATED CONDENSED BALANCE SHEETS
(In Thousands)
<CAPTION>
ASSETS March 31, December 31,
1998 1997
<S> <C> <C>
Utility Plant in Service $ 819,374 $ 822,990
Less: Accumulated Provision for Depreciation
and Amortization 283,272 279,711
Net Utility Plant in Service 536,102 543,279
Construction Work in Progress 5,089 2,248
Net Utility Plant 541,191 545,527
Current Assets:
Cash and Temporary Cash Investments 3,454 461
Accounts Receivable - Other 40,500 40,777
- Assoc. Companies 11,125 14,143
Fuel, Materials and Supplies 7,889 7,982
Other Current Assets 4,046 3,688
Total Current Assets 67,014 67,051
Deferred Debits and Other Non-Current Assets 186,994 164,546
Total Assets $ 795,199 $ 777,124
LIABILITIES AND CAPITALIZATION
Capitalization:
Common Stock, $25 Par Value $ 72,284 $ 72,284
Other Paid-In Capital 47,249 47,249
Common Stock Expense (44) (44)
Retained Earnings 100,656 98,979
Total Common Equity 220,145 218,468
Redeemable Preferred Stock - Net 29,665 29,665
Preferred Stock Redemption Cost (1,943) (2,053)
Long-Term Debt - Net 162,513 162,491
Total Capitalization 410,380 408,571
Current Liabilities:
Long - Term Debt Due Within One Year 60,000 60,000
Notes Payable 2,240 4,675
Accounts Payable - Associated Companies 4,034 7,317
- Other 24,857 27,113
Taxes Accrued 1,461 2,325
Interest Accrued 4,688 4,923
Other Current Liabilities 17,015 15,011
Total Current Liabilities 114,295 121,364
Deferred Credits and Other Non-Current Liab. 128,877 107,714
Accumulated Deferred Taxes 141,647 139,475
Total Liabilities and Capitalization $ 795,199 $ 777,124
See accompanying notes to consolidated condensed financial statements.
</TABLE>
<TABLE>
EASTERN EDISON COMPANY
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(In Thousands)
<CAPTION>
Three Months Ended Three Months Ended
March 31,
1998 1997 1998 1997
<S> <C> <C>
Operating Revenues $ 108,928 $ 110,588 $ 108,928 $ 110,588
Operating Expenses:
Fuel 26,405 29,469 26,405 29,469
Purchased Power 27,891 32,484 27,891 32,484
Other Operation and Maintenance 23,568 22,460 23,568 22,460
Depreciation and Amortization 7,464 6,890 7,464 6,890
Taxes - Other Than Income 2,917 2,886 2,917 2,886
Income Taxes - Current 3,738 7,512 3,738 7,512
- Deferred (Credit) 2,583 (3,400) 2,583 (3,400)
Total 94,566 98,301 94,566 98,301
Operating Income 14,362 12,287 14,362 12,287
Allowance for Other Funds
Used During Construction 40 38 40 38
Other Income - Net 254 1,153 254 1,153
Income Before Interest Charges 14,656 13,478 14,656 13,478
Interest Charges:
Interest on Long-Term Debt 3,751 3,751 3,751 3,751
Other Interest Expense 848 829 848 829
Allowance for Borrowed Funds Used
During Construction (Credit) (33) (37) (33) (37)
Net Interest Charges 4,566 4,543 4,566 4,543
Net Income 10,090 8,935 10,090 8,935
Preferred Dividend Requirements 497 497 497 497
Consolidated Net Earnings $ 9,593 $ 8,438 $ 9,593 $ 8,438
See accompanying notes to consolidated condensed financial statements.
</TABLE>
<TABLE>
EASTERN EDISON COMPANY
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(In Thousands)
<CAPTION>
Three Months Ended
March 31,
<S> <C> <C>
1998 1997
CASH FLOW FROM OPERATING ACTIVITIES:
Net Income $ 10,090 $ 8,935
Adjustments to Reconcile Net Income to Net
Cash Provided from Operating Activities:
Depreciation and Amortization 7,981 7,221
Amortization of Nuclear Fuel 207 358
Deferred Taxes 2,585 (3,418)
Investment Tax Credit, Net (325) (234)
Allowance for Other Funds Used During Construction (40) (38)
Other - Net (2,568) (175)
Change in Operating Assets and Liabilities (1,605) 15,378
Net Cash Provided From Operating Activities 16,325 28,027
CASH FLOW FROM INVESTING ACTIVITIES:
Construction Expenditures (2,594) (3,864)
Net Cash (Used in) Investing Activities (2,594) (3,864)
CASH FLOW FROM FINANCING ACTIVITIES:
Common Stock Dividends Paid to EUA (7,806) (24,806)
Preferred Dividends Paid (497) (497)
Net (Decrease) in Short-Term Debt (2,435) (275)
Net Cash (Used in) Financing Activities (10,738) (25,578)
Net Increase (Decrease) in Cash and Temporary
Cash Investments 2,993 (1,415)
Cash and Temporary Cash Investments at
Beginning of Period 461 2,105
Cash and Temporary Cash Investments at
End of Period $ 3,454 $ 690
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest (Net of Capitalized Interest) $ 3,986 $ 3,972
Income Taxes $ 5,612 $ 5,141
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) 1997 Annual Report on Form 10-K.
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 March 31, 1998 and the results of operations and cash flows for the
three months ended March 31, 1998 and 1997. 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.
As more fully discussed in "Management's Discussion and Analysis of
Financial Condition and Results of Operations", customer choice of electricity
supplier commenced on January 1, 1998 and March 1, 1998 for EUA's Rhode Island
and Massachusetts retail distribution customers, respectively. Coincident
with retail access, Montaup Electric Company (Montaup), EUA's generation and
transmission company, began billing its affiliated EUA electric distribution
companies, Blackstone Valley Electric Company (Blackstone) and Newport
Electric Corporation (Newport), in Rhode Island, and Eastern Edison Company
(Eastern Edison), in Massachusetts, a contract termination charge (CTC). The
CTC permits Montaup to recover, among other things, its above market
investment in generation assets over a period of twelve years, a period
shorter than the expected useful lives of these assets. As a result, Montaup
is deferring revenue in an amount equal to the difference between depreciation
expense recorded pursuant to generally accepted accounting principles and the
level of asset recovery included in the CTC. In addition, provisions of the
CTC formula require Montaup to accrue and/or defer revenues related to
recovery of certain of its generation-related expenses.
Effective January 1, 1998, the Company adopted the Financial
Accounting Standards Board's Statement No. 130, "Reporting Comprehensive
Income," which establishes standards for reporting comprehensive income and
its components (revenues, expenses, gains, and losses) in a set of
general-purpose financial statements. This Statement requires that all items
that are required to be recognized under accounting standards as components of
comprehensive income be reported in a financial statement that is displayed
with the same prominence as other financial statements. Comprehensive income
of the Company is immaterial and therefore no recognition is required by the
Company.
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.
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
General:
Recent actions by the NRC indicate that the NRC has become more
critical and active in its oversight of nuclear power plants. Montaup is
unable to predict at this time, what, if any, ramifications these NRC actions
will have on any of the other nuclear power plants in which the Company has an
ownership interest or power contract.
Millstone 3:
Montaup has a 4.01% ownership interest in Millstone 3, an 1154-mw nuclear
unit that is jointly owned by a number of New England utilities, including
subsidiaries of Northeast Utilities (Northeast). Subsidiaries of Northeast
are the lead participants in Millstone 3. On March 30, 1996, it was necessary
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.
On April 8, 1998, Northeast announced that Millstone 3 was ready for NRC
inspection indicating that virtually all of the restart-required physical work
had been completed. Various independent inspections are required prior to
restart. The Company cannot predict when the plant will be restarted.
While Millstone 3 is out of service, Montaup will incur incremental
replacement power costs estimated at up to $1 million per month.
In August 1997, nine non-operating owners, including Montaup, who
together own approximately 19.5% of Millstone 3, filed a demand for
arbitration against Connecticut Light and Power (CL&P) and Western
Massachusetts Electric Company (WMECO) as well as lawsuits against Northeast
and its Trustees. CL&P and WMECO, owners of approximately 65% of Millstone 3,
are Northeast subsidiaries that agreed to be responsible for the proper
operation of the unit.
The non-operating owners of Millstone 3 claim that Northeast and its
subsidiaries failed to comply with NRC regulations, failed to operate the
facility in accordance with good utility operating practice and attempted to
conceal their activities from the non-operating owners and the NRC. The
arbitration and lawsuits seek to recover costs associated with replacement
power and operation and maintenance (O&M) costs resulting from the shutdown of
Millstone 3. The non-operating owners conservatively estimate that their
losses will exceed $200 million.
Montaup pays its share of Millstone 3's O&M expenses on a reservation of
right basis. The fact that Montaup makes payment for these expenses is not an
admission of financial responsibility for expenses incurred or to be incurred
due to the outage.
Montaup cannot predict the ultimate outcome of the NRC inquiries or legal
proceedings brought against CL&P, WMECO and Northeast or the impact which they
may have on the Company and the EUA system.
Maine Yankee:
On August 6, 1997, as the result of an economic evaluation, the Maine
Yankee Board of Directors voted to permanently close that nuclear plant.
Montaup has a 4.0% equity ownership in Maine Yankee.
On November 5, 1997, Maine Yankee submitted a rate filing to the FERC to
provide for recovery of its costs during the decommissioning period. The
filing provides for the investment in plant, nuclear fuel and associated
facilities to continue to be recovered through October 2008.
On November 6, 1997, Maine Yankee submitted an estimate of its costs to
the FERC reflecting the fact that the plant was no longer operating and had
entered the decommissioning phase. On January 14, 1998, the FERC accepted the
new rates, subject to refund, and amounts of Maine Yankee's collections for
decommissioning. FERC also granted intervention requests and ordered a public
hearing on the prudency of Maine Yankee's decision to shut down the plant and
on the reasonableness of the proposed rate amendments.
Also, as a result of the August 1997 shutdown, Montaup and the other
equity owners have been notified by the Secondary Purchasers that they will no
longer make payments for purchased power to Maine Yankee. The Secondary
Purchase Contracts are between the equity owners as a group and 30
municipalities throughout New England. Presently, the equity owners are
making payments to Maine Yankee to cover the payments that would be made by
the municipals.
On November 28, 1997, the Secondary Purchasers sent a Notice of
Initiation of Arbitration to the equity owners of Maine Yankee. On December
15, 1997, the equity owners as a group filed at FERC a Complaint and Petition
for Investigation, Contract Modification, and Declaratory Order. On April 7,
1998, a Maine judge denied the Secondary Purchasers' motion to compel
arbitration and indicated the jurisdictional question should be first decided
by FERC. On April 15, 1998, the Secondary Purchasers notified FERC of the
judge's decision and asked for expedited action on the pending complaint
against them for non payment. The equity owners are seeking an order from
FERC declaring that the Secondary Purchasers remain responsible for payments
due under the Purchase Contracts and directing the Secondary Purchasers to
make such payments. The equity owners also seek a modification of the
Secondary Purchase Contracts to extend the termination date or otherwise to
ensure that the equity owners may fully recover from the Secondary Purchasers
a share of the costs of shutting down and decommissioning the Maine Yankee
plant that is proportionate to the Secondary Purchasers' entitlements to
energy from the plant. Management does not believe that this contract issue
will have a material effect on Montaup's future operating results or financial
position and cannot predict its ultimate outcome at this time.
Department of Energy Actions:
In addition to its 4.0% equity ownership in Maine Yankee,
Montaup also has a 4.5% equity ownership interest in both the Yankee Atomic
and Connecticut Yankee nuclear generating stations. Both of these facilities
have permanently ceased power generation operations and are in the process of
decommissioning the sites.
In early 1998, Yankee Atomic, Maine Yankee and Connecticut
Yankee, individually, as well as a number of other utilities, filed suit in
federal appeals court seeking a court order to require the Department of
Energy (DOE) to immediately establish a program for the disposal of spent
nuclear fuel. Yankee Atomic and Connecticut Yankee are also seeking damages of
approximately $70 million and $90 million, respectively. Under the Nuclear
Waste Policy Act of 1992, the DOE was to provide for the disposal of
radioactive wastes and spent nuclear fuel starting in 1998 and has collected
funds from owners of nuclear facilities to do so. On February
19, 1998, Maine Yankee also filed a petition in the U.S. Court of Appeals
seeking to compel the Department of Energy to remove and dispose of the spent
fuel at the Maine Yankee site. Under their Standard Contract, the DOE had a
deadline for beginning the removal process at all nuclear plants on January
31, 1998, which was not met. On May 5, 1998, the Court of Appeals denied
several motions brought in the proceeding, including several motions for
injunctive relief brought by the utility petitioners. In particular, the
Court denied the requests to require the DOE to immediately establish a
program for the disposal of spent nuclear fuel. Management cannot predict the
ultimate outcome of this issue.
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 first quarter of 1998 were $9.6
million, compared to first quarter 1997 net earnings of $8.4 million. This
change was due primarily to a 2.1% increase in year-to-date retail
kilowatthour (kWh) sales and to accrued revenues of Montaup pursuant to
approved settlement agreements. The year-to-date sales improvement was led by
a 9.2% increase in sales to industrial customers, signaling an improvement in
economic conditions in the Company's service territory.
Operating Revenues
Operating Revenues decreased approximately $1.7 million to $108.9 million
in the first quarter of 1998 compared to the same period in 1997. This
decrease is primarily due to decreased recoveries of fuel, purchased power and
conservation and load management expenses aggregating $7.2 million.
Offsetting this decrease somewhat were increased base rate revenues resulting
from increased kWh sales and revenues accrued by Montaup pursuant to approved
settlement agreements.
Operating Expenses
Fuel expense for the first quarter of 1998 decreased from that of the
same period in 1997 by approximately $3.1 million or 10.4%. Nuclear units
provided a greater share of kilowatthour requirements and a 14% decrease in
the cost of fossil fuels resulted in a 15% decrease in average fuel costs.
Purchased Power expense for the first quarter of 1998 decreased
approximately $4.6 million or 14.1% as compared to last year's first quarter.
Lower costs billed to Montaup by Maine Yankee, Connecticut Yankee and Ocean
State Power in 1998's first quarter were primarily responsible for this
change.
Other Operation and Maintenance (O&M) expenses for the first quarter of
1998 increased approximately $1.1 million from the same period in 1997. This
increase is due primarily to increased legal expenses, increased conservation
and load management expenses, and increased customer accounts expense
aggregating approximately $1.3 million. In addition, transmission expenses
from other utilities increased approximately $400,000. These increases were
offset by decreased FAS106 expenses and decreased jointly owned unit expenses
aggregating approximately $700,000.
Income Taxes
Eastern Edison's effective tax rate for the quarter ended March 31, 1998
was approximately 39.6% compared to 34.0% for the same period of a year ago.
Provisions of restructuring settlement agreements which require the
acceleration of the catch-up of deferred tax deficiencies created under prior
regulatory practices are primarily responsible for this change.
Other Income and (Deductions) - Net
Other Income and (Deductions) - Net decreased by approximately $900,000
in this years first quarter. This decreased is primarily due to first quarter
1997 interest income allocated to the Company by EUA Service Corporation
related to the favorable resolution of a Massachusetts Corporate income tax
dispute.
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. In July 1997, several EUA System
companies, including Eastern Edison and Montaup, entered into a three-year
revolving credit agreement allowing for borrowings in aggregate of up to $120
million. As of March 31, 1998, various financial institutions have committed
up to $75 million under the revolving credit facility. At March 31, 1998,
under the revolving credit agreement the EUA System had short-term borrowings
available of approximately $4.2 million. At March 31, 1998, Eastern Edison
had $2.2 million of outstanding short-term debt and Montaup had zero
outstanding short-term debt. In the first quarter of 1998, internally
generated funds amounted to $9.9 million while cash construction requirements
for the same period were approximately $2.6 million.
Electric Utility Industry Restructuring
The electric utility industry in both Massachusetts and Rhode Island, the
states in which EUA provides electric services, is transitioning from a
traditional rate regulated environment to a competitive marketplace.
Traditional electric utility services - generation, transmission and
distribution - have been unbundled into separate and distinct services. The
generation, or supply, function is now competitive with customers able to
choose their own electricity supplier at market prices. The transmission and
distribution functions remain regulated services. The local distribution
company is responsible for providing distribution services to the ultimate
electricity consumer within its franchised service territory and the
transmission company is required to provide open access, non-discriminatory
transmission services to generation or supply companies.
Legislation in both Rhode Island and Massachusetts along with approved
electric utility industry restructuring settlement agreements in both states
and at the federal level, provided EUA's Rhode Island and Massachusetts
electric customers with choice of electricity supplier and immediate rate
reductions commencing January 1, 1998 and March 1, 1998, respectively. Until
a customer chooses an alternative supplier, that customer will receive
standard offer service. Blackstone, and Newport are required to arrange for
standard offer service through December 31, 2009 and Eastern Edison must
arrange for this service through 2004. Montaup has guaranteed standard offer
supply at a fixed price schedule for the duration of the standard offer
periods. The guaranteed standard offer price will increase over time to
encourage customers to leave standard offer service and enter the competitive
power supply market. Under the approved settlement agreements, Blackstone,
Newport and Eastern Edison agreed to subject their standard offer requirements
to a competitive bidding process in which competitive suppliers would bid
against the guaranteed price offered by Montaup. The competitive process was
completed in April, and resulted in none of the standard offer requirements
being awarded to competitive suppliers. Montaup will therefore continue to
provide the unawarded standard offer requirement at the indicated fixed price
schedule. This wholesale standard offer service will be assigned
proportionately to purchasers of Montaup's generating capacity.
Provisions of the approved settlement agreements also allowed Montaup to
replace its all-requirements wholesale contracts with its affiliated retail
distribution companies with a contract termination charge (CTC) which permits
Montaup to recover, among other things, its above market investments and
commitments in generation assets. Montaup began billing the CTC coincident
with retail access and the distribution companies are recovering the CTC
through a non-bypassable transition access charge to all of their distribution
customers.
As part of the approved settlement agreements, Montaup agreed to divest
its entire generation portfolio. The net proceeds of the sale, as defined in
the settlement agreements, will be used to mitigate Montaup's CTC to its
retail affiliates via a Residual Value Credit (RVC). The RVC will reduce the
fixed component of the CTC for the net proceeds, with a return, in equal
annual amounts over the period commencing on the date the RVC is implemented
through December 31, 2009. See Divestiture below.
For a more detailed discussion of electric industry restructuring, refer
to the Company's 1997 Annual Report on Form 10K.
Massachusetts Referendum
The Office of the Attorney General has certified a referendum petition to
repeal the Electric Industry Restructuring Act (the Act) as a matter
appropriate for a referendum initiative. The Act was signed into law in
November 1997. A petition was filed with the Election Division of the Office
of the Secretary of State in February 1998. A question on repealing the Act
will be presented to voters on the November 1998 ballot. EUA and the electric
industry in Massachusetts are actively opposing repeal. Management cannot
predict the outcome of the November ballot question.
Divestiture
Montaup began marketing its entire generation portfolio in July 1997, and
subsequently received bids from a number of potential purchasers. On January
23, 1998, based on a review of the offers and discussions with potential
purchasers, Montaup announced that it was reopening the sales process on the
majority of its generating assets and expects to execute purchase and sale
agreements by mid 1998. In March 1998, Montaup announced it would combine the
marketing of its 50% share (approximately 290 mw) in Unit 2 of the Canal
Generating station on Cape Cod with sales efforts of the plant's co-owner and
operator, Canal Electric Company. By doing this, potential purchasers are
offered an expandable site that includes 1,100 mw of existing generating
capacity, an excellent operating record and the capability of burning either
natural gas or oil as a fuel. In April 1998, EUA announced the signing of
agreements for the transfer of power purchase contracts for approximately 160
mw between Montaup and Ocean State Power and the sale of two diesel-powered
generating units (totaling approximately 16 mw) owned by Newport. Both the
transfer of the power contracts and sale of the diesel generating units are
subject to regulatory approval.
Other
The Company occasionally makes forward-looking projections of expected
future performance or statements of our plans and objectives. These
forward-looking statements may be contained in filings with the SEC, press
releases and oral statements. Actual results could differ materially from
these statements. Therefore, no assurances can be given that such
forward-looking statements and estimates will be achieved.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
See "Note C - Commitments and Contingencies: Recent Nuclear Regulatory
Commission (NRC) Actions" for a discussion of pending legal actions involving
several of the nuclear plants in which Montaup has an ownership interest.
Item 5. Other Information
NEPOOL is a voluntary organization open to any person engaged in the
electric business such as investor-owned utilities, municipals, cooperative
utilities, power marketers, brokers and load aggregators. On December 31,
1996, NEPOOL, on behalf of its participants, filed a restructuring proposal
with FERC. The key elements of the restructuring proposal are the
implementation of a regional NEPOOL Open Access Transmission Tariff (NEPOOL
Tariff), the creation of an Independent System Operator (ISO), and the
restatement of the NEPOOL Agreement to establish a broader governance
structure for NEPOOL and to develop a more open competitive market structure.
On June 25, 1997, FERC issued an order conditionally authorizing the
establishment of an ISO by NEPOOL effective July 1, 1997, affirming that the
transfer of control of transmission facilities owned by the public utility
members of NEPOOL to the ISO is consistent with the public interest under
Section 203 of the Federal Power Act.
To give market participants more choice and to foster competition, the
restructured NEPOOL proposes the unbundling of electric service in the NEPOOL
control area. The restructured NEPOOL calls for the development of competitive
wholesale markets for installed capability, operable capability, energy,
automatic generation control, and reserves. These wholesale products will be
market priced based on bid clearing pricing rather than the current cost-based
pricing. Market participants will be able to meet their responsibility for
these products by buying or selling these various services through bilateral
transactions or through the regional power exchange that will be administered
through the ISO. The installed capability market was implemented in April of
1998, and the operable capability, energy, automatic generation control and
the reserve markets are expected to start during the fourth quarter of 1998.
In general, the EUA System companies support the changes to NEPOOL
because much of the cross-subsidies for sharing costs will be eliminated.
These changes will have an impact on the Company's operating revenues and
costs as NEPOOL transitions from a cost based to a bid based system.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits - None.
(b) Reports on Form 8-K- None.
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: May 15, 1998 /s/Clifford J. Hebert, Jr., Treasurer
Clifford J. Hebert, Jr., Treasurer
(on behalf of the Registrant
and as Principal Financial Officer)
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