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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, 1996
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, 1996
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-Q 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, 1996 AND DECEMBER 31, 1995
ASSETS
(Unaudited)
March 31, December 31,
1996 1995
(Dollars in Thousands)
PROPERTY, PLANT AND EQUIPMENT, at original cost $157 616 $156 925
Less - Accumulated depreciation 59 823 58 839
97 793 98 086
Add - Construction work in progress 1 405 1 225
99 198 99 311
INVESTMENTS
Equity in nuclear electric power companies 9 437 9 224
Other 5 5
9 442 9 229
CURRENT ASSETS
Cash 638 239
Accounts receivable -
Affiliate companies 1 538 2 140
Customers 8 940 10 534
Unbilled revenues 3 131 1 769
Prepaid property taxes 831 1 690
Inventories and other 2 308 2 179
17 386 18 551
DEFERRED CHARGES
Yankee Atomic purchased power contract 4 265 4 504
Other 5 179 5 447
9 444 9 951
$135 470 $137 042
See accompanying notes.
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CAMBRIDGE ELECTRIC LIGHT COMPANY
CONDENSED BALANCE SHEETS
MARCH 31, 1996 AND DECEMBER 31, 1995
CAPITALIZATION AND LIABILITIES
(Unaudited)
March 31, December 31,
1996 1995
(Dollars in Thousands)
CAPITALIZATION
Common Equity -
Common stock, $25 par value -
Authorized and outstanding -
346,600 shares wholly-owned by
Commonwealth Energy System (Parent) $ 8 665 $ 8 665
Amounts paid in excess of par value 27 953 27 953
Retained earnings 7 131 7 561
43 749 44 179
Long-term debt, including premiums, less
current sinking fund requirements 21 865 21 865
65 614 66 044
CURRENT LIABILITIES
Interim Financing -
Notes payable to banks 1 975 2 675
Advances from affiliates 1 190 2 425
Maturing long-term debt 20 000 20 000
23 165 25 100
Other Current Liabilities -
Current sinking fund requirements 160 160
Accounts payable
Affiliate companies 3 301 3 787
Other 9 364 8 870
Accrued taxes -
Local property and other 1 717 1 690
Income 636 731
Accrued interest 1 272 973
Other 1 941 1 272
18 391 17 483
41 556 42 583
DEFERRED CREDITS
Accumulated deferred income taxes 14 017 13 882
Unamortized investment tax credits 1 918 1 941
Yankee Atomic purchased power contract 4 265 4 504
Other 8 100 8 088
28 300 28 415
COMMITMENTS AND CONTINGENCIES
$135 470 $137 042
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, 1996 AND 1995
(Unaudited)
1996 1995
(Dollars in Thousands)
ELECTRIC OPERATING REVENUES $29 477 $30 326
OPERATING EXPENSES
Electricity purchased for resale,
transmission and fuel 19 319 21 077
Other operation and maintenance 5 906 5 879
Depreciation 1 086 1 038
Taxes -
Income 412 95
Local property 757 772
Payroll and other 273 257
27 753 29 118
OPERATING INCOME 1 724 1 208
OTHER INCOME 265 219
INCOME BEFORE INTEREST CHARGES 1 989 1 427
INTEREST CHARGES
Long-term debt 943 946
Other interest charges 111 94
Allowance for borrowed funds
used during construction (21) (25)
1 033 1 015
NET INCOME 956 412
RETAINED EARNINGS -
Beginning of period 7 561 7 166
Dividends on common stock (1 386) (1 005)
End of period $ 7 131 $ 6 573
See accompanying notes.
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CAMBRIDGE ELECTRIC LIGHT COMPANY
CONDENSED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1995
(Unaudited)
1996 1995
(Dollars in Thousands)
OPERATING ACTIVITIES
Net income $ 956 $ 412
Effects of noncash items -
Depreciation and amortization 1 086 1 111
Deferred income taxes and investment tax
credits, net 69 47
Earnings from corporate joint ventures (303) (222)
Dividends from corporate joint ventures 90 116
Change in working capital, exclusive of cash
and interim financing 2 472 (1 775)
All other operating items 233 (284)
Net cash provided by (used for)
operating activities 4 603 (595)
INVESTING ACTIVITIES
Additions to property, plant and equipment
(exclusive of AFUDC) (862) (928)
Allowance for borrowed funds used during
construction (21) (25)
Net cash used for investing activities (883) (953)
FINANCING ACTIVITIES
Payment of dividends (1 386) (1 005)
Payment of short-term borrowings (700) (2 175)
Advances from (payments to) affiliates (1 235) 4 670
Net cash provided by (used for)
financing activities (3 321) 1 490
Net increase (decrease) in cash 399 (58)
Cash at beginning of period 239 376
Cash at end of period $ 638 $ 318
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period for
Interest (net of capitalized amounts) $ 677 $ 648
Income taxes $ 780 $ 658
See accompanying notes.
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CAMBRIDGE ELECTRIC LIGHT COMPANY
NOTES TO CONDENSED FINANCIAL STATEMENTS
(1) General Information
Cambridge Electric Light Company (the Company) is a wholly-owned
subsidiary of Commonwealth Energy System (the System). The System is the
parent company and, together with its subsidiaries, is collectively referred
to as "the system." The System is an exempt public utility holding company
under the provisions of the Public Utility Holding Company Act of 1935 with
investments in four operating public utility companies located in central,
eastern and southeastern Massachusetts and several non-regulated companies.
(2) Significant Accounting Policies
(a) Principles of Accounting
The Company's significant accounting policies are described in Note 2 of
Notes to Financial Statements included in its 1995 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 unaudited financial statements for the periods ended March 31, 1996
and 1995 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
reclassified from time to time to conform with the presentation used in the
current period's financial statements.
Income tax expense is recorded using the statutory rates in effect
applied to book income subject to tax recorded in the interim period.
The results for interim periods are not necessarily indicative of
results for the entire year because of seasonal variations in the
consumption of energy.
(b) Regulatory Assets and Liabilities
The Company is regulated as to rates, accounting and other matters by
various authorities including the Federal Energy Regulatory Commission
(FERC) and the Massachusetts Department of Public Utilities (DPU).
Based on the current regulatory framework, the Company accounts for the
economic effects of regulation in accordance with the provisions of
Statement of Financial Accounting Standards (SFAS) No. 71, "Accounting for
the Effects of Certain Types of Regulation." The Company has established
various regulatory assets in cases where the DPU and/or the FERC have
permitted or are expected to permit recovery of specific costs over time.
Similarly, the regulatory liabilities established by the Company are
required to be refunded to customers over time. On January 1, 1996, the
Company adopted SFAS No. 121, "Accounting for the Impairment of Long-Lived
Assets to be Disposed Of." SFAS No. 121 imposes stricter criteria for
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CAMBRIDGE ELECTRIC LIGHT COMPANY
regulatory assets by requiring that such assets be probable of future
recovery at each balance sheet date. As of March 31, 1996, SFAS No. 121 did
not have an impact on its financial position or results of operations.
However, this result may change as modifications are made in the current
regulatory framework pursuant to electric utility restructuring orders
issued by the DPU.
The principal regulatory assets included in deferred charges were as
follows:
March 31, December 31,
1996 1995
(Dollars in Thousands)
Yankee Atomic unrecovered plant
and decommissioning costs $ 4 265 $ 4 504
Postretirement benefit costs
including pensions 2 933 2 807
Other 478 498
$ 7 676 $ 7 809
The regulatory liabilities, reflected in the accompanying balance sheets
and related to deferred income taxes, were $3.2 million at March 31, 1996
and December 31, 1995.
(2) Commitments and Contingencies
The Company is engaged in a continuous construction program presently
estimated at $27.2 million for the five-year period 1996 through 2000. Of
that amount, $6.3 million is estimated for 1996. As of March 31, 1996 the
Company's actual construction expenditures amounted to $883,000, 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.
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.
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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,
1996 and 1995 and unit sales for these periods is shown below:
Three Months Ended
March 31,
1996 and 1995
Increase (Decrease)
(Dollars in Thousands)
Electric Operating Revenues $ (849) (2.8)%
Operating Expenses -
Electricity purchased for resale,
transmission and fuel (1 758) (8.3)
Other operation and maintenance 27 0.5
Depreciation 48 4.6
Taxes -
Federal and state income 317 333.7
Local property and other 1 0.1
(1 365) (4.7)
Operating Income 516 42.7
Other Income 46 21.0
Income Before Interest Charges 562 39.4
Interest Charges 18 1.8
Net Income $ 544 132.0
Unit Sales (Megawatthours or MWH)
Retail (20 374) (6.0)
Sales for resale 32 371 95.2
Total unit sales 11 997 3.2
The following is a summary of unit sales (in MWH) for the periods
indicated:
Unit Sales (MWH)
Three Months Ended Total Retail Wholesale
March 31, 1996 382 809 316 430 66 379
March 31, 1995 370 812 336 804 34 008
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CAMBRIDGE ELECTRIC LIGHT COMPANY
Operating Revenues and Electricity Purchased for Resale, Transmission and Fuel
Operating revenues for the first quarter of 1996 decreased $849,000 or
2.8% due primarily to lower retail unit sales (6.0%) and decreases in
electricity purchased for resale ($1.6 million), transmission charges
($109,000) and fuel along with conservation and load management (C&LM) costs
($35,000). This was offset, in part, by higher wholesale unit sales.
The Company's total unit sales increased 3.2% due to significantly higher
wholesale sales to the Town of Belmont and NEPOOL which were offset, somewhat,
by reduced retail unit sales of 8.3% and 7.4% to industrial and commercial
customers, respectively.
During the current quarter, purchased power costs decreased approximately
$1.6 million or 8.8% due to lower costs for nuclear power purchases and
affiliate Canal Electric Company's (Canal) Unit 2 which is undergoing a plant
conversion to natural gas. This was offset, in part, by an increase in power
costs from Canal's Unit 1 which was out of service for maintenance during the
first quarter in 1995.
Other Operating Expenses
For the first quarter of 1996, other operation and maintenance increased
less than 1% and reflects higher costs for postretirement benefits ($78,000),
maintenance on Kendall and Blackstone generating stations ($67,000) and
increased health and life insurance costs ($40,000). Offsetting these
increases were lower costs associated with research and development ($46,000),
C&LM ($30,000) and labor ($16,000), and a decline in the provision for bad
debts ($26,000).
Depreciation and Taxes
Depreciation expense increased 4.6% in 1996 due to a higher level of
depreciable property, plant and equipment. The increase in federal and state
income taxes of $317,000 was attributed to a higher level of pretax income.
Local property and other taxes increased slightly reflecting lower property
tax rates and assessments ($15,000) offset by higher payroll taxes ($16,000).
Other Income and Interest Charges
Other income increased 21% in the current three-month period due primarily
to a higher level of equity earnings and the timing of dividend payments from
the Company's investment in nuclear generating companies ($107,000). Other
income for the first quarter of 1995 includes the reversal of a reserve that
related to a settlement negotiated with an outside party for certain costs
associated with the Company's C&LM programs ($47,000), the recovery of which
was approved by the DPU.
For the current quarter, interest charges increased 1.8% due primarily to
a higher average level of short-term borrowings. Short-term interest rates
for the current quarter averaged 5.6% compared to 6.1% for the first quarter
of 1995.
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CAMBRIDGE ELECTRIC LIGHT COMPANY
Electric Industry Restructuring
On August 16, 1995, the DPU issued an order calling for the restructuring
of the electric utility industry in Massachusetts in order to allow customers
more flexibility in choosing their electric service provider and to develop an
efficient industry structure and regulatory framework that minimizes long-term
costs to consumers while maintaining the safety and reliability of electric
services with a minimum impact on the environment. Each of the state's
electric utilities, together with other interested parties, participated in
this proceeding that initially established a set of principles that would
govern the restructuring of the electric industry in Massachusetts.
In February 1996, certain utilities submitted required proposals detailing
how they would plan to move into a competitive market structure. Since that
time, the DPU held a generic proceeding that focused on many of the policy
issues raised in its original order. On April 12, 1996, the Company and
Commonwealth Electric (the Companies), in response to the generic proceeding,
filed comments with the DPU on several issues that should be addressed in
creating a restructured electric utility industry which, together with
comments from other interested parties, provided valuable input to the DPU in
its development of proposed rules that were summarized in its order issued on
May 1, 1996. The proposed rules, which are subject to public comment and
hearings prior to adoption of final rules in October 1996, are based on the
following policies:
(1) An Independent System Operator which: (a) operates the regional
transmission system reliably; (b) is independent and unaffiliated
with electric companies; and (c) applies comparable transmission
rates, terms and conditions to all generators;
(2) A Power Exchange to manage a competitive bidding pool for short-term
power sales;
(3) Functional separation of electric companies into generation, trans-
mission and distribution corporate entities;
(4) Preservation of discounts for low-income customers, shut-off protec-
tions and provision of service to all customers;
(5) Registration requirements for generation suppliers, including market-
ers and aggregators;
(6) A reasonable opportunity for recovery of stranded costs, including a
proposal to protect municipalities from loss of utility property
taxes associated with diminished generation plant value;
(7) Options for phased incentives for electric companies to divest their
generation assets to stimulate a robust competitive market;
(8) Promotion of environmental goals;
(9) Support for energy efficiency and renewable energy resources;
(10) Encouragement, but not a requirement, for towns with Municipal
Electric Companies to participate in the restructured industry;
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CAMBRIDGE ELECTRIC LIGHT COMPANY
(11) A price cap system of economic incentive regulation for the remain-
ing distribution and transmission monopolies;
(12) Unbundling of rates on bills by January 1, 1997 into separate compo-
nents of transmission, distribution and a market proxy for energy
costs. Implementation of competitive generation market by January
1, 1998.
In its May 1, 1996 order, the DPU acknowledge that it does not have
jurisdiction in such areas as environmental regulation and the establishment
of an Independent System Operator or a Power Exchange. Federal and state
environmental agencies and the Federal Energy Regulatory Commission have the
requisite authority in these areas. However, the DPU determined that it was
important for it to express its initial views regarding these components of a
restructured electric industry.
In accordance with the DPU's schedule, the Companies will file revenue-
neutral unbundled rates in October 1996 for effect in January 1997. Also,
during 1997, the Companies will file their comprehensive restructuring
proposal. One element of the Companies' proposal (announced on February 15,
1996) would require the Companies to voluntarily put their power capacity
entitlements (1,140 MW) to a market test in an effort to develop a competitive
market whereby customers would have the flexibility of choosing their electric
supplier. The proposal calls for the auctioning in a competitive market of
entitlements in all twenty-one contracts, including contracts held by the
Companies involving the System's generating subsidiary Canal Electric. The
proposal provides for total recovery of the difference between the current
market value of the Companies' power contracts and their original unavoidable
costs. This difference, considered to be a stranded cost, would be recovered
through a non-bypassable access charge paid over an appropriate time period by
all customers in the Companies' service areas. The auction approach has
received initial positive reviews from the Commonwealth of Massachusetts
Division of Energy Resources and the Office of the Attorney General. Manage-
ment is unable to predict the ultimate outcome of the overall proceedings or
the Companies' specific proposal.
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CAMBRIDGE ELECTRIC LIGHT COMPANY
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
The Company is an intervenor in a pending appeal at the
Massachusetts Supreme Judicial Court (SJC) filed by the
Massachusetts Institute of Technology involving a DPU decision
approving a customer transition charge for the recovery of stranded
investment costs. The SJC has not yet established a schedule for
submitting briefs. This issue is discussed more fully in the
Company's 1995 Annual Report on Form 10-K. At this time, management
is unable to predict the outcome of this proceeding.
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 27 - Financial Data Schedule
Filed herewith as Exhibit 1 is the Financial Data Schedule for the
three months ended March 31, 1996.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the three months ended
March 31, 1996.
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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 and
Accounting Officer
JAMES D. RAPPOLI
James D. Rappoli,
Financial Vice President
and Treasurer
Date: May 14, 1996
<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND>
This schedule contains summary financial information extracted from the
balance sheet, statement of income and statement of cash flows contained in
Form 10-Q of Cambridge Electric Light Company for the three months ended March
31, 1996 and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<CIK> 0000016573
<NAME> CAMBRIDGE ELECTRIC LIGHT COMPANY
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