PAGE 1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549-1004
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, 1994
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from _______________ to _______________
Commission file number 2-7909
CAMBRIDGE ELECTRIC LIGHT COMPANY
(Exact name of registrant as specified in its charter)
Massachusetts 04-1144610
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One Main Street, Cambridge, Massachusetts 02142-9150
(Address of principal executive offices) (Zip Code)
(617) 225-4000
(Registrant's telephone number, including area code)
(Former name, address and fiscal year, if changed since last report.)
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.
Outstanding at
Class of Common Stock August 1, 1994
Common Stock, $25 par value 346,600 shares
The Company meets the conditions set forth in General Instruction H(1)(a) and
(b) of Form 10-K as a wholly-owned subsidiary and is therefore filing this
Form with the reduced disclosure format.
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
CAMBRIDGE ELECTRIC LIGHT COMPANY
CONDENSED BALANCE SHEETS
JUNE 30, 1994 AND DECEMBER 31, 1993
ASSETS
(Unaudited)
June 30, December 31,
1994 1993
(Dollars in Thousands)
PROPERTY, PLANT AND EQUIPMENT, at original cost $146 040 $145 324
Less - Accumulated depreciation 54 315 52 382
91 725 92 942
Add - Construction work in progress 1 124 1 013
92 849 93 955
INVESTMENTS
Equity in nuclear electric power companies 9 276 9 059
Other 5 5
9 281 9 064
CURRENT ASSETS
Cash 410 1 624
Accounts receivable
Affiliate companies 584 1 036
Customers 10 724 10 178
Unbilled revenues 3 635 3 835
Prepaid taxes -
Property - 1 600
Income - 423
Inventories and other 1 672 2 289
17 025 20 985
DEFERRED CHARGES
Yankee Atomic purchased power contract 6 140 6 900
Other 5 880 3 084
12 020 9 984
$131 175 $133 988
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CAMBRIDGE ELECTRIC LIGHT COMPANY
CONDENSED BALANCE SHEETS
JUNE 30, 1994 AND DECEMBER 31, 1993
CAPITALIZATION AND LIABILITIES
(Unaudited)
June 30, December 31,
1994 1993
(Dollars in Thousands)
CAPITALIZATION
Common Equity -
Common stock, $25 par value -
Authorized and outstanding -
346,600 shares in 1994 and 1993,
wholly-owned by Commonwealth
Energy System (Parent) $ 8 665 $ 8 665
Amounts paid in excess of par value 27 953 27 953
Retained earnings 8 061 7 056
44 679 43 674
Long-term debt, including premiums, less
current sinking fund requirements 42 027 42 189
86 706 85 863
CURRENT LIABILITIES
Interim Financing -
Notes payable to banks - 2 000
Advances from affiliates 2 345 1 305
2 345 3 305
Other Current Liabilities -
Current sinking fund requirements 160 160
Accounts payable
Affiliate companies 4 685 4 972
Other 4 976 5 187
Accrued taxes -
Local property and other 26 1 611
Income 200 97
Accrued interest 991 1 003
Other 1 939 2 776
12 977 15 806
15 322 19 111
DEFERRED CREDITS
Accumulated deferred income taxes 12 607 12 189
Unamortized investment tax credits 2 082 2 130
Yankee Atomic purchased power contract 6 140 6 900
Other 8 318 7 795
29 147 29 014
COMMITMENTS AND CONTINGENCIES
$131 175 $133 988
See accompanying notes.
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CAMBRIDGE ELECTRIC LIGHT COMPANY
CONDENSED STATEMENTS OF INCOME AND RETAINED EARNINGS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 1994 AND 1993
(Unaudited)
Three Months Ended Six Months Ended
1994 1993 1994 1993
(Dollars in Thousands)
ELECTRIC OPERATING REVENUES $31 659 $30 273 $64 880 $57 884
OPERATING EXPENSES
Fuel, transmission and
purchased power 20 452 19 804 42 634 38 475
Other operation and maintenance 6 163 7 311 12 099 13 228
Depreciation 1 017 990 2 034 1 980
Taxes -
Income 756 24 1 581 75
Local property 713 617 1 438 1 247
Payroll and other 183 222 425 489
29 284 28 968 60 211 55 494
OPERATING INCOME 2 375 1 305 4 669 2 390
OTHER INCOME 45 13 375 232
INCOME BEFORE INTEREST CHARGES 2 420 1 318 5 044 2 622
INTEREST CHARGES
Long-term debt 948 949 1 897 1 899
Other interest charges 62 46 175 71
Allowance for borrowed funds
used during construction (13) (1) (5) (2)
997 994 2 067 1 968
NET INCOME 1 423 324 2 977 654
RETAINED EARNINGS -
Beginning of period 7 712 6 486 7 056 6 156
Dividends on common stock (1 074) (329) (1 972) (329)
RETAINED EARNINGS -
End of period $ 8 061 $ 6 481 $ 8 061 $ 6 481
See accompanying notes.
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CAMBRIDGE ELECTRIC LIGHT COMPANY
CONDENSED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1994 AND 1993
(Unaudited)
1994 1993
(Dollars in Thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 2 977 $ 654
Effects of non-cash items -
Depreciation and amortization 2 177 2 003
Deferred income taxes and investment tax
credits, net 941 585
Equity earnings from corporate
joint ventures (577) (519)
Dividends from corporate joint ventures 360 393
Change in working capital, exclusive of cash and
interim financing (83) (2 623)
All other operating items (2 603) (2 423)
Net cash provided by (used for)
operating activities 3 192 (1 930)
CASH FLOWS FOR INVESTING ACTIVITIES
Additions to property, plant and equipment
(exclusive of AFUDC) (1 307) (1 181)
Allowance for borrowed funds used during
construction (5) (2)
Net cash used for investing activities (1 312) (1 183)
CASH FLOWS FROM FINANCING ACTIVITIES
Payment of dividends (1 972) (329)
Proceeds from (payment of) short-term borrowings (2 000) 3 875
Advances from affiliates 1 040 770
Sinking funds payments (162) (162)
Net cash provided by (used for)
financing activities (3 094) 4 154
Net increase (decrease) in cash (1 214) 1 041
Cash at beginning of period 1 624 2
Cash at end of period $ 410 $ 1 043
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid (received) during the period for:
Interest (net of capitalized amounts) $ 1 893 $ 1 931
Income taxes $ 716 $ (215)
See accompanying notes.
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CAMBRIDGE ELECTRIC LIGHT COMPANY
NOTES TO CONDENSED FINANCIAL STATEMENTS
(1) Accounting Policies
Cambridge Electric Light Company (the Company) is a wholly-owned subsid-
iary of Commonwealth Energy System. The parent company is referred to in
this report as the "System" and together with its subsidiaries is collec-
tively referred to as "the system."
The Company's significant accounting policies are described in Note 1 of
Notes to Financial Statements included in its 1993 Annual Report on
Form 10-K filed with the Securities and Exchange Commission. For interim
reporting purposes, the Company follows these same basic accounting policies
but considers each interim period as an integral part of an annual period
and makes allocations of certain expenses to interim periods based upon
estimates of such expenses for the year.
The Company has established various regulatory assets in cases where the
Massachusetts Department of Public Utilities (DPU) and/or the Federal Energy
Regulatory Commission have permitted, or are expected to permit, recovery of
specific costs over time. Similarly, certain regulatory liabilities estab-
lished by the Company are expected to be refunded to customers over time.
As of June 30, 1994, principal regulatory assets included in deferred
charges were $6.1 million for unrecovered plant and decommissioning costs
for the Yankee Atomic nuclear plant and $1.9 million for postretirement
benefit costs including pensions. The principal regulatory liability,
reflected in deferred credits, was $3.9 million related to income taxes.
Generally, expenses which relate to more than one interim period are
allocated to other periods to more appropriately match revenues and
expenses. Income tax expense is recorded using the statutory rates in
effect applied to book income subject to tax recorded in the interim period.
The unaudited financial statements for the periods ended June 30, 1994 and
1993 reflect, in the opinion of the Company, all adjustments (consisting of
only normal recurring accruals) necessary to summarize fairly the results
for such periods. In addition, certain prior period amounts are reclassi-
fied from time to time to conform with the presentation used in the current
period's financial statements.
The results for interim periods are not necessarily indicative of results
for the entire year because of seasonal variations in the consumption of
energy.
(2) Commitments and Contingencies
(a) Construction Program
The Company is engaged in a continuous construction program presently
estimated at $33.1 million for the five-year period 1994 through 1998. Of
that amount, $10.3 million is estimated for 1994. As of June 30, 1994 the
Company's actual construction expenditures amounted to $1.3 million,
including an allowance for funds used during construction. The majority of
1994 construction expenditures are anticipated to be incurred during the
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CAMBRIDGE ELECTRIC LIGHT COMPANY
second half of 1994. The Company expects to finance these expenditures on
an interim basis with internally generated funds and short-term borrowings
which are ultimately expected to be repaid with the proceeds from sales of
long-term debt and equity securities. The program is subject to periodic
review and revision because of factors such as changes in business condi-
tions, rates of customer growth, effects of inflation, maintenance of
reliable and safe service, equipment delivery schedules, licensing delays,
availability and cost of capital and environmental regulations.
(b) Decommissioning of Nuclear Power Plants
The Company has equity ownership interests in four nuclear generating
facilities in New England and is obligated to pay its proportionate share of
the capacity and energy costs associated with these units, which include
depreciation, operations and maintenance, a return on invested capital and
the estimated cost of decommissioning the nuclear plants at the end of their
estimated service lives. Pertinent information with respect to projected
decommissioning costs, in 1993 dollars, resulting from life-of-the-unit
contracts from these units is as follows:
Connecticut Maine Vermont Yankee
Yankee Yankee Yankee Atomic*
(dollars in millions)
Equity ownership 4.50% 4.00% 2.50% 2.00%
Plant entitlement 4.50% 3.59% 2.25% 2.00%
Plant capability (MW) 560.0 870.0 496.0 -
Company entitlement (MW) 25.2 31.2 11.2 -
Contract expiration date 1998 2008 2012 -
Decommissioning cost estimate (100%) $325.0 $316.6 $253.0 $307.0
Company's decommissioning cost $ 14.6 $ 11.4 $ 5.7 $ 6.1
* On February 26, 1992, the Board of Directors of Yankee Atomic Elec-
tric Company agreed to permanently discontinue power operation of its
plant and decommission the facility. The Company's estimated decom-
missioning costs include its unrecovered share of all costs associ-
ated with the shutdown of the facility, recovery of its plant invest-
ment, and decommissioning and closing the plant. This amount is
reflected in the accompanying Balance Sheets as a liability and a
corresponding regulatory asset.
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CAMBRIDGE ELECTRIC LIGHT COMPANY
Item 2. Management's Discussion and Analysis of Results of Operations
The following is a discussion of certain significant factors which have
affected operating revenues, expenses and net income during the periods
included in the accompanying condensed statements of income. This discussion
should be read in conjunction with the Notes to Condensed Financial Statements
appearing elsewhere in this report.
A summary of the period to period changes in the principal items
included in the condensed statements of income for the three and six months
ended June 30, 1994 and 1993 is shown below:
Three Months Six Months
Ended June 30, Ended June 30,
1994 and 1993 1994 and 1993
Increase (Decrease)
(Dollars in Thousands)
Electric Operating Revenues $1 386 4.6% $6 996 12.1%
Operating Expenses -
Fuel, transmission and
purchased power 648 3.3 4 159 10.8
Other operation and maintenance (1 148) (15.7) (1 129) (8.5)
Depreciation 27 2.7 54 2.7
Taxes -
Local property and other 57 6.8 127 7.3
Federal and state income 732 3050.0 1 506 2008.0
316 1.1 4 717 8.5
Operating Income 1 070 82.0 2 279 95.4
Other Income 32 246.2 143 61.6
Income Before Interest Charges 1 102 83.6 2 422 92.4
Interest Charges 3 0.3 99 5.0
Net Income $1 099 339.2 $2 323 355.2
Retail Unit Sales MWH Decrease (6 255) (1.9) (6 202) (0.9)
The following is a summary of unit sales for the periods indicated:
Unit Sales (MWH)
Three Months Six Months
Period Ended Total Retail Wholesale Total Retail Wholesale
June 30, 1994 392 941 318 026 74 915 846 491 649 779 196 712
June 30, 1993 373 344 324 281 49 063 768 049 655 981 112 068
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CAMBRIDGE ELECTRIC LIGHT COMPANY
Operating Revenues
Operating revenues increased by $1.4 million, or 4.6%, and $7 million, or
12.1%, respectively, due primarily to new base rates that became effective
June 1, 1993, higher total unit sales and an increase in fuel, transmission
and purchased power costs compared to the same periods in 1993.
In addition, operating revenues for the current three and six-month
periods include an overcollection of $437,000 and $1.5 million, respectively,
of capacity-related costs associated with certain purchased power contracts.
For the same periods in 1993, approximately $479,000 and $649,000 of these
costs were not recovered in revenues due to the recovery mechanism established
by the DPU. The impact of this recovery mechanism on net income was $266,000
and $899,000 in the current three and six-month periods compared to a net loss
of $282,000 and $394,000 for the same periods in 1993. The improved recovery
of these capacity-related costs is due to the aforementioned new base rates.
(Refer to the "Power Contracts" section to follow in this discussion.)
During the current periods retail unit sales decreased slightly compared
to the same periods in 1993 due primarily to lower sales to a large municipal
customer and more moderate weather during the second quarter of 1994 offset,
in part, by higher sales to residential and commercial customers during the
first quarter of 1994 because of more extreme weather conditions. The
increase in wholesale sales reflects a higher level of sales to the New
England Power Pool due to changes in the Company's capacity needs. Fluctua-
tions in the level of wholesale sales have little, if any, impact on earnings.
The Company received approval from the DPU to recover in revenues current
costs associated with conservation and load management (C&LM) programs through
the operation of a Conservation Charge decimal on a dollar-for-dollar basis.
To the extent that these expenses increase or decrease from period to period
based on customer participation, a corresponding change will occur in reve-
nues. Current three and six-month C&LM costs were $284,000 and $631,000,
respectively, compared to $1.2 and $1.5 million for the same periods in 1993.
Electricity Purchased For Resale, Transmission and Fuel
Fuel, transmission and purchased power costs increased by $648,000 and
$4.1 million for the current three and six-month periods compared to the same
periods in 1993. These increases primarily reflect a greater demand for power
as reflected by the higher level of sales during the first quarter of 1994 due
to more extreme weather conditions. The cost of fuel, transmission and
purchased power averaged 5.2 cents per KWH for the current quarter compared to
5.3 cents per KWH for the same period in 1993 and was unchanged for the
current six-month period compared to the same period in 1993. The average
cost of fuel, transmission and purchased power costs during the period
primarily reflects the lower cost of fuel oil at affiliate Canal Electric
Company's generating station, a major source of power for the Company, offset,
in part, by power purchased from a higher-cost must-run non-utility generator.
Average oil prices per barrel at Canal for the six-month periods ended June
30, 1994 and 1993 were $13.88 and 14.34.
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CAMBRIDGE ELECTRIC LIGHT COMPANY
Other Operation and Maintenance
Other operation and maintenance expense declined approximately $1.1
million in the current quarter reflecting a decrease in other operation
expense ($1.3 million) offset, in part, by an increase in maintenance expense
($150,000). The decrease in other operation expense was due primarily to a
lower level of current and amortized C&LM costs ($871,000), lower affiliated
services company charges ($233,000) that reflect the impact of a second
quarter 1993 work force reduction and a decrease in the provision for bad
debts ($113,000) due to improved payment experience.
Depreciation and Taxes
Depreciation expense increased due to a higher level of depreciable
property, plant and equipment. Federal and state income taxes increased due
to a greater level of pretax income and, to a lesser extent, an increase in
the federal tax rate to 35%. The increase in local property and other taxes
was due to higher tax rates, offset, in part, by lower assessments in the City
of Cambridge.
Other Income and Interest Charges
Other income increased by approximately $32,000 and $143,000 during the
current quarter and first six months of 1994, respectively, due primarily to
interest income ($79,000) recorded in the first quarter related to a Massachu-
setts sales tax abatement and the absence in 1994 of a loss recorded in
January 1993 ($33,000) in connection with the Company's equity investment in
Yankee Atomic Electric Company.
The increase in interest charges ($99,000) in the current six-month period
primarily reflects the interest to be refunded to the Company's customers in
connection with the aforementioned sales tax abatement ($79,000) and interest
on income tax deficiencies ($17,000). Interest charges for the current three-
month period were virtually unchanged compared to the same period in 1993.
Power Contracts
The Company has long-term contracts for the purchase of electricity from
various sources. Generally, these contracts are for fixed periods and require
that the Company pay a demand charge for its capacity entitlement in each unit
and an energy charge to cover the cost of fuel. The Company collects a
portion of its capacity-related purchased power costs associated with certain
long-term power arrangements through its base rates. The recovery mechanism
for these costs uses a per KWH factor which is calculated using historical
(test-period) capacity costs and unit sales. This factor is then applied to
current monthly KWH sales. When current period capacity costs and/or unit
sales vary from test-period levels, the Company experiences a revenue excess
or shortfall. All other capacity and energy-related purchased power costs are
recovered through the Company's Fuel Charge.
Power Agreement Cancelled
On May 2, 1994, the Company and its affiliate Commonwealth Electric
Company (Commonwealth Electric) gave notice of termination of power purchase
agreements with Eastern Energy Corp. (Eastern), the developer of a proposed
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CAMBRIDGE ELECTRIC LIGHT COMPANY
300 MW coal-fired plant in New Bedford, Massachusetts. In June 1989, in order
to meet rising energy requirements, the Company and Commonwealth Electric
agreed to buy 27% (33 MW and 50 MW, respectively) of the power to be produced
by the proposed plant, originally scheduled to begin operation in January
1992. That date and later revised scheduled operating dates have not been
achieved, and the proposed plant has still not received the necessary permits.
Efforts to reshape the Eastern power purchase agreements to provide a satis-
factory arrangement were unsuccessful. The companies' actions are based on
Eastern's failure to meet its contractual obligations. In a letter dated June
30, 1994, Eastern provided to Commonwealth Electric and the Company written
notice of arbitration and its designation of an arbitrator pursuant to the
1989 agreements. The Company and Commonwealth Electric by letter dated July
29, 1994 provided to Eastern notice of the companies' designation of an
arbitrator and on July 30, 1994 filed an action in the Middlesex Superior
Court (the Court) which seeks to have the issues which are to be the subject
of the arbitration decided by the Court.
Environmental Matters
The Company is subject to laws and regulations administered by federal,
state and local authorities relating to the quality of the environment. These
laws and regulations affect, among other things, the siting and operation of
generating facilities, and will continue to impact future operations, capital
costs and construction schedules. Air emission regulations require the use of
more costly lower-sulphur content fuels (0.5% maximum in the case of the
Company's facilities, which are located in a populated urban area) in electric
generating facilities. The amendments to the federal Clean Air Act enacted in
1990 will impose restrictions on air emissions, and have a particular impact
on the cost of electric generating operations. Regulations enacted by the
state of Massachusetts will require a reduction in sulphur dioxide emission
rates effective December 31, 1994. A plan to meet this target date was
developed and submitted to the state in compliance with applicable regula-
tions. These regulations may also result in an increase in the cost of power
purchased from others. The Company recovers its cost of fuel and purchased
power through its Fuel Charge or base rates.
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CAMBRIDGE ELECTRIC LIGHT COMPANY
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
The Company is not a party to any pending material legal proceeding.
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
None.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the three months ended
June 30, 1994.
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CAMBRIDGE ELECTRIC LIGHT COMPANY
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.
CAMBRIDGE ELECTRIC LIGHT COMPANY
(Registrant)
Principal Financial Officer:
JAMES D. RAPPOLI
James D. Rappoli,
Financial Vice President
and Treasurer
Principal Accounting Officer:
JOHN A. WHALEN
John A. Whalen,
Comptroller
Date: August 12, 1994
