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 March 31, 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 May 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
MARCH 31, 1994 AND DECEMBER 31, 1993
ASSETS
(Unaudited)
March 31, December 31,
1994 1993
(Dollars in Thousands)
PROPERTY, PLANT AND EQUIPMENT, at original cost $145 636 $145 324
Less - Accumulated depreciation 53 418 52 382
92 218 92 942
Add - Construction work in progress 756 1 013
92 974 93 955
INVESTMENTS
Equity in nuclear electric power companies 9 259 9 059
Other 5 5
9 264 9 064
CURRENT ASSETS
Cash 497 1 624
Advances to affiliates 850 -
Accounts receivable
Affiliate companies 1 102 1 036
Customers 10 742 10 178
Unbilled revenues 3 279 3 835
Prepaid taxes -
Property 800 1 600
Income - 423
Inventories and other 1 990 2 289
19 260 20 985
DEFERRED CHARGES
Yankee Atomic purchased power contract 6 633 6 900
Other 4 013 3 084
10 646 9 984
$132 144 $133 988
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CAMBRIDGE ELECTRIC LIGHT COMPANY
CONDENSED BALANCE SHEETS
MARCH 31, 1994 AND DECEMBER 31, 1993
CAPITALIZATION AND LIABILITIES
(Unaudited)
March 31, 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 7 712 7 056
44 330 43 674
Long-term debt, including premiums, less
current sinking fund requirements 42 189 42 189
86 519 85 863
CURRENT LIABILITIES
Interim Financing -
Notes payable to banks - 2 000
Advances from affiliates - 1 305
- 3 305
Other Current Liabilities -
Current sinking fund requirements 160 160
Accounts payable
Affiliate companies 4 427 4 972
Other 5 661 5 187
Accrued taxes -
Local property and other 1 653 1 611
Income 396 97
Accrued interest 1 300 1 003
Other 2 335 2 776
15 932 15 806
15 932 19 111
DEFERRED CREDITS
Accumulated deferred income taxes 12 397 12 189
Unamortized investment tax credits 2 106 2 130
Yankee Atomic purchased power contract 6 633 6 900
Other 8 557 7 795
29 693 29 014
COMMITMENTS AND CONTINGENCIES
$132 144 $133 988
See accompanying notes.
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CAMBRIDGE ELECTRIC LIGHT COMPANY
CONDENSED STATEMENTS OF INCOME AND RETAINED EARNINGS
FOR THE THREE MONTHS ENDED MARCH 31, 1994 AND 1993
(Unaudited)
1994 1993
(Dollars in Thousands)
ELECTRIC OPERATING REVENUES $33 221 $27 611
OPERATING EXPENSES
Fuel, transmission and purchased power 22 182 18 671
Other operation and maintenance 5 936 5 917
Depreciation 1 017 990
Taxes -
Income 825 51
Local property 725 630
Payroll and other 242 267
30 927 26 526
OPERATING INCOME 2 294 1 085
OTHER INCOME 330 219
INCOME BEFORE INTEREST CHARGES 2 624 1 304
INTEREST CHARGES
Long-term debt 949 950
Other interest charges 113 25
Allowance for borrowed funds
used during construction 8 (1)
1 070 974
NET INCOME 1 554 330
RETAINED EARNINGS - Beginning of period 7 056 6 156
Dividends on common stock (898) -
RETAINED EARNINGS - End of period $ 7 712 $ 6 486
See accompanying notes.
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CAMBRIDGE ELECTRIC LIGHT COMPANY
CONDENSED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1994 AND 1993
(Unaudited)
1994 1993
(Dollars in Thousands)
OPERATING ACTIVITIES
Net income $ 1 554 $ 330
Effects of non-cash items -
Depreciation and amortization 1 091 1 002
Deferred income taxes and investment tax
credits, net 150 123
Earnings from corporate joint ventures (262) (276)
Change in working capital, exclusive of cash,
advances to affiliates and interim financing 1 574 830
All other operating items 237 (2 043)
Net cash provided by (used for)
operating activities 4 344 (34)
INVESTING ACTIVITIES
Additions to property, plant and equipment
(exclusive of AFUDC) (488) (290)
Allowance for borrowed funds used during
construction 8 (1)
Dividends from corporate joint ventures 62 84
Advances to affiliates (850) -
Net cash used for investing activities (1 268) (207)
FINANCING ACTIVITIES
Payment of dividends (898) -
Proceeds from (payment of)
short-term borrowings (2 000) 325
Payments to affiliates (1 305) -
Net cash provided by (used for)
financing activities (4 203) 325
Net increase (decrease) in cash (1 127) 84
Cash at beginning of period 1 624 2
Cash at end of period $ 497 $ 86
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid (received) during the period for
Interest, net of capitalized amounts $ 639 $ 639
Income taxes $ (67) $ (432)
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
subsidiary of Commonwealth Energy System. The parent company is referred to
in this report as the "System" and together with its subsidiaries is
collectively 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. At March 31, 1994, principal regulatory assets,
included in deferred charges, were $6.6 million for unrecovered plant and
decommissioning costs for the Yankee Atomic nuclear plant and $1.6 million
for postretirement benefit costs including pensions. The principal regula-
tory 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 expens-
es. 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 March 31, 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 consump-
tion 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 March 31, 1994 the
Company's actual construction expenditures amounted to $480,000, including
an allowance for funds used during construction. 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.
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CAMBRIDGE ELECTRIC LIGHT COMPANY
The program is subject to periodic review and revision because of
factors such as changes in business conditions, 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 $331.7
Company's decommissioning cost $ 14.6 $ 11.4 $ 5.7 $ 6.6
* 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 their 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 months ended March 31,
1994 and 1993 is shown below:
Three Months Ended
March 31,
1994 and 1993
Increase (Decrease)
(Dollars in Thousands)
Electric Operating Revenues $5 610 20.3%
Operating Expenses -
Fuel, transmission and purchased power 3 511 18.8
Other operation and maintenance 19 0.3
Depreciation 27 2.7
Taxes -
Federal and state income 774 1 517.6
Local property and other 70 7.8
4 401 16.6
Operating Income 1 209 111.4
Other Income 111 50.7
Income Before Interest Charges 1 320 101.2
Interest Charges 96 9.9
Net Income $1 224 370.9
Retail Unit Sales MWH Increase 53 -
The following is a summary of unit sales for the periods indicated:
Unit Sales (MWH)
Three Months Ended Total Retail Wholesale
March 31, 1994 453 550 331 753 121 797
March 31, 1993 394 705 331 700 63 005
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CAMBRIDGE ELECTRIC LIGHT COMPANY
Operating Revenues
Operating revenues increased approximately $5.6 million or 20.3% in the
first three months of 1994 due to primarily to a $3.5 million increase in
fuel, transmission and purchased power costs. Also contributing to the
increase were new base rates that became effective June 1, 1993.
The Company has received approval from the DPU to recover in revenues
current costs associated with 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 revenues.
Retail unit sales increased slightly during the current three-month period
compared to the same period in 1993. The increase was due primarily to an
increase in residential and commercial sales reflecting more extreme weather
conditions offset, in part, by a decrease in sales to municipal and industrial
customers. The increase in wholesale sales reflects the changing capacity
needs of non-affiliated utilities and the New England Power Pool. Fluctua-
tions in the level of wholesale sales have little, if any, impact on earnings.
Fuel, Transmission and Purchased Power
The cost of fuel, transmission and purchased power averaged 4.9 cents per
KWH in the current quarter compared to 4.7 cents per KWH for the same period
last year. The average cost during the period primarily reflects the higher
cost of fuel oil at affiliate Canal Electric Company, a major source of power
for the Company. The cost of oil at Canal averaged 2.7 cents per KWH and 2.3
cents per KWH for the three-month periods ended March 31, 1994 and 1993,
respectively.
The cost of electricity purchased for resale for the three-month period
ended March 31, 1994 reflects a $1 million overcollection, due to the recovery
mechanism established by the DPU, of capacity-related costs associated with
certain purchased power contracts. For the same period in 1993, approximately
$170,000 of these costs were not recovered in revenues. The impact of this
recovery mechanism affected net income by $633,000 and ($112,000), respective-
ly, for the quarterly periods ended March 31, 1994 and 1993 and was a signifi-
cant factor in the overall improvement in net income in the current period.
(Refer to the "Power Contracts" section to follow in this discussion.)
Other Operating Expenses
Other operation and maintenance expense was virtually unchanged in the
current three-month period reflecting increased other operation expense
($109,000) offset, in part, by a $90,000 decrease in maintenance expense. The
slight increase in other operation was due to higher insurance and benefit
costs ($114,000), a higher level of C&LM costs ($61,000) offset, in part, by
lower affiliated services company charges ($114,000) that reflect the impact
of a second quarter work force reduction and a decrease in the provision for
bad debts ($35,000) due to improved payment experience. In addition, other
operation expense for the current period includes a $110,000 reserve recorded
for the Company's anticipated share of site clean-up costs associated with
certain hazardous waste sites. (Refer to the "Environmental" section to
follow in this discussion.)
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CAMBRIDGE ELECTRIC LIGHT COMPANY
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 $111,000 in the first quarter of
1994 compared to 1993 due primarily to interest income ($79,000) recorded in
the current period related to a Massachusetts sales tax abatement and a higher
level of income from non-utility operations primarily reflecting 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 in the current three-month period of 1994
compared to 1993 primarily reflects the interest to be refunded to the
Company's customers in connection with the aforementioned sales tax abatement.
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
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. The Company and
Commonwealth Electric are unable to predict whether or not Eastern will
contest their termination of these agreements.
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CAMBRIDGE ELECTRIC LIGHT COMPANY
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.
The Company has been named a potentially responsible party for a site used
to dispose of PCB-contaminated transformers. In addition, the Company has
been sued regarding the clean-up of a former waste oil burning and recycling
center. The Company denies liability and is disputing this claim. A reserve
for the estimated cost of site clean-up in the amount of $110,000 was recorded
in Other Operation expense in the first quarter of 1994.
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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
March 31, 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: May 13, 1994
