<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 September 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
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 November 1, 1998
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.
<PAGE>
<PAGE 2>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
CAMBRIDGE ELECTRIC LIGHT COMPANY
CONDENSED BALANCE SHEETS
SEPTEMBER 30, 1998 AND DECEMBER 31, 1997
ASSETS
(Dollars in thousands)
September 30, December 31,
1998 1997
(Unaudited)
PROPERTY, PLANT AND EQUIPMENT, at original cost $167,231 $163,914
Less - Accumulated depreciation 68,659 63,706
98,572 100,208
Add - Construction work in progress 2,187 757
100,759 100,965
INVESTMENTS
Equity in nuclear electric power companies 9,739 9,849
Other 5 5
9,744 9,854
CURRENT ASSETS
Cash 410 521
Accounts receivable -
Affiliates 655 2,743
Customers 12,856 12,483
Unbilled revenues 2,404 3,047
Prepaid taxes -
Income 248 1,192
Property 2,545 1,697
Inventories and other 1,567 1,977
20,685 23,660
DEFERRED CHARGES
Regulatory assets 69,460 70,466
Other 3,390 2,176
72,850 72,642
$204,038 $207,121
See accompanying notes.
<PAGE>
<PAGE 3>
CAMBRIDGE ELECTRIC LIGHT COMPANY
CONDENSED BALANCE SHEETS
SEPTEMBER 30, 1998 AND DECEMBER 31, 1997
CAPITALIZATION AND LIABILITIES
(Dollars in thousands)
September 30, December 31,
1998 1997
(Unaudited)
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 13,995 11,607
50,613 48,225
Long-term debt, including premiums, less
maturing debt and current sinking fund
requirements 7,301 17,402
57,914 65,627
CURRENT LIABILITIES
Interim Financing -
Notes payable to banks 16,675 19,000
Advances from affiliates 9,825 11,290
Maturing long-term debt 10,000 -
36,500 30,290
Other Current Liabilities -
Current sinking fund requirements 100 100
Accounts payable -
Affiliates 4,791 4,144
Other 6,166 8,076
Accrued local property and other taxes 3,375 1,706
Other 8,862 4,290
23,294 18,316
59,794 48,606
DEFERRED CREDITS
Accumulated deferred income taxes 15,573 15,135
Purchased power contracts 59,603 66,223
Unamortized investment tax credits and other 11,154 11,530
86,330 92,888
COMMITMENTS AND CONTINGENCIES
$204,038 $207,121
See accompanying notes.
<PAGE>
<PAGE 4>
CAMBRIDGE ELECTRIC LIGHT COMPANY
CONDENSED STATEMENTS OF INCOME AND RETAINED EARNINGS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
(Dollars in thousands)
(Unaudited)
Three Months Ended Nine Months Ended
1998 1997 1998 1997
ELECTRIC OPERATING REVENUES $33,531 $35,721 $88,257 $98,834
OPERATING EXPENSES
Electricity purchased for resale,
transmission and fuel 20,794 23,388 51,575 66,250
Other operation and maintenance 7,036 6,547 18,436 21,158
Depreciation 2,152 1,119 5,782 3,357
Taxes -
Income 1,183 1,181 3,964 1,317
Local property 767 776 2,292 2,310
Payroll and other 187 242 571 706
32,119 33,253 82,620 95,098
OPERATING INCOME 1,412 2,468 5,637 3,736
OTHER INCOME 1,823 335 2,572 1,360
INCOME BEFORE INTEREST CHARGES 3,235 2,803 8,209 5,096
INTEREST CHARGES
Long-term debt 359 362 1,082 1,199
Other interest charges 559 461 1,446 1,315
918 823 2,528 2,514
NET INCOME 2,317 1,980 5,681 2,582
RETAINED EARNINGS -
Beginning of period 12,372 9,246 11,607 9,233
Dividends on common stock (694) - (3,293) (589)
RETAINED EARNINGS -
End of period $13,995 $11,226 $13,995 $11,226
See accompanying notes.
<PAGE>
<PAGE 5>
CAMBRIDGE ELECTRIC LIGHT COMPANY
CONDENSED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
(Dollars in thousands - unaudited)
1998 1997
OPERATING ACTIVITIES
Net income $ 5,681 $ 2,582
Effects of noncash items -
Depreciation and amortization 5,782 3,357
Deferred income taxes and investment tax
credits, net (135) (446)
Earnings from corporate joint ventures (830) (884)
Dividends from corporate joint ventures 940 135
Change in working capital, exclusive of cash and
interim financing 7,842 (400)
Transition costs deferral (5,336) -
All other operating items (1,296) 988
Net cash provided by operating activities 12,648 5,332
INVESTING ACTIVITIES
Additions to property, plant and equipment (5,575) (3,115)
(inclusive of AFUDC)
FINANCING ACTIVITIES
Payment of dividends (3,293) (589)
Proceeds from (payment of) short-term borrowings (2,325) 650
Advances from (payments to) affiliates (1,465) 2,830
Long-term debt issue refunded - (4,260)
Sinking funds payments (101) (101)
Net cash used for financing activities (7,184) (1,470)
Net change in cash (111) 747
Cash at beginning of period 521 143
Cash at end of period $ 410 $ 890
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest (net of capitalized amounts) $ 2,577 $ 2,770
Income taxes $ 3,580 $ 1,122
See accompanying notes.
<PAGE>
<PAGE 6>
CAMBRIDGE ELECTRIC LIGHT COMPANY
NOTES TO CONDENSED FINANCIAL STATEMENTS
(1) General Information
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 System is an exempt public utility
holding company under the provisions of the Public Utility Holding Company
Act of 1935 and, in addition to its investment in the Company, has interests
in other utility and several nonregulated companies.
The Company has 146 regular employees including 111 (76%) represented by
a collective bargaining unit. Upon expiration of the existing collective
bargaining agreement on September 1, 1998, a new agreement, which was
ratified earlier this year became effective through March 1, 2001. Employee
relations have generally been satisfactory.
On May 27, 1998, the System announced that three of its subsidiary
companies (Commonwealth Electric Company, Canal Electric Company and the
Company) selected affiliates of Southern Energy New England, L.L.C., an
affiliate of The Southern Company, to buy substantially all of their non-
nuclear electric generating assets in conjunction with electric industry
restructuring in Massachusetts.
(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 1997 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 September 30,
1998 and 1997 reflect, in the opinion of the Company, all adjustments
(consisting of only normal recurring accruals, except for a one-time charge
recorded in June 1997 as described in Management's Discussion and Analysis
of Results of Operations) 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 consump-
tion of energy.
<PAGE>
<PAGE 7>
CAMBRIDGE ELECTRIC LIGHT COMPANY
(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 Telecommunications and Energy
(DTE).
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 DTE 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. In the event the criteria
for applying SFAS No. 71 are no longer met, the accounting impact would be
an extraordinary, noncash charge to operations of an amount that could be
material. Criteria that give rise to the discontinuance of SFAS No. 71
include: 1) increasing competition that restricts the Company's ability to
establish prices to recover specific costs, and 2) a significant change in
the current manner in which rates are set by regulators from cost-based
regulation to another form of regulation. These criteria are reviewed on a
regular basis to ensure the continuing application of SFAS No. 71 is
appropriate. Based on the current evaluation of the various factors and
conditions that are expected to impact future cost recovery, the Company
believes that its regulatory assets including those related to generation,
are probable of future recovery.
As a result of electric industry restructuring, the Company discontinued
application of accounting principles applied to its investment in electric
generation facilities effective March 1, 1998. The Company will not be
required to write off any of its generation-related assets, including
regulatory assets. These assets will be retained on the Company's Balance
Sheets because the legislation and DTE's plan for the restructured electric
industry specifically provide for their recovery through a non-bypassable
transition charge.
The principal regulatory assets included in deferred charges were as
follows:
September 30, December 31,
1998 1997
(Dollars in thousands)
Maine Yankee unrecovered plant
and decommissioning costs $31,574 $34,908
Connecticut Yankee unrecovered plant
and decommissioning costs 26,007 28,566
Transition costs 5,930 -
Postretirement benefits costs 3,267 3,596
Yankee Atomic unrecovered plant
and decommissioning costs 2,022 2,749
Other 660 647
$69,460 $70,466
The regulatory liabilities, reflected in the accompanying Balance Sheets
and related to deferred income taxes, were $2.9 million and $3 million at
<PAGE>
<PAGE 8>
CAMBRIDGE ELECTRIC LIGHT COMPANY
September 30, 1998 and December 31, 1997, respectively.
In November 1997, the Commonwealth of Massachusetts enacted a comprehen-
sive electric utility industry restructuring bill. On November 19, 1997,
the Company, together with Commonwealth Electric Company (Commonwealth) and
Canal Electric Company (Canal), filed a restructuring plan with the DTE.
The plan, approved by the DTE on February 27, 1998, provides that the
Company and Commonwealth, beginning March 1, 1998, initiate a ten percent
rate reduction for all customer classes and allow customers to choose their
energy supplier. As part of the plan, the DTE authorized the recovery of
certain strandable costs and provides that certain future costs may be
deferred to achieve or maintain the rate reductions that the restructuring
bill mandates. The legislation gives the DTE the authority to determine the
amount of strandable costs that will be eligible for recovery. Costs that
will qualify as strandable costs and be eligible for recovery include, but
are not limited to, certain above market costs associated with generating
facilities, costs associated with long-term commitments to purchase power at
above market prices from independent power producers, and regulatory assets
and associated liabilities related to the generation portion of the electric
business.
The cost of transitioning to competition will be mitigated, in part, by
the sale of the system's non-nuclear generating assets. The sale was
approved by the DTE on October 30, 1998 and by the FERC on November 12, 1998
(see the "Industry Restructuring" section under Management's Discussion and
Analysis of Results of Operations for further discussion of the sale). The
net proceeds from the sale of these assets will be used to mitigate
transition costs.
The Company's ability to recover its transition costs will depend on
several factors, including the aggregate amount of transition costs the
Company will be allowed to recover and the market price of electricity.
Management believes that the Company will recover its transition costs. A
change in any of the above listed factors could affect the recovery of
transition costs and may result in a loss to the Company. For additional
information relating to industry restructuring, see the "Industry
Restructuring" section under Management's Discussion and Analysis of Results
of Operations.
(2) Commitments and Contingencies
(a) Construction Program
The Company is engaged in a continuous construction program presently
estimated at $24.8 million for the five-year period 1998 through 2002. Of
that amount, $7 million was estimated for 1998. As of September 30, 1998
the Company's actual construction expenditures amounted to approximately
$5.6 million 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
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.
<PAGE>
<PAGE 9>
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 nine months ended
September 30, 1998 and 1997 and unit sales for these periods is shown below:
Three Months Ended Nine Months Ended
September 30, September 30,
1998 and 1997 1998 and 1997
Increase (Decrease)
(Dollars in thousands)
Electric Operating Revenues $(2,190) (6.1)% $(10,577) (10.7)%
Operating Expenses -
Electricity purchased for
resale, transmission and fuel (2,594) (11.1) (14,675) (22.2)
Other operation and maintenance 489 7.5 (2,722) (12.9)
Depreciation 1,033 92.3 2,425 72.2
Taxes -
Federal and state income 2 0.2 2,647 201.0
Local property and other (64) (6.3) (153) (5.1)
(1,134) (3.4) (12,478) (13.1)
Operating Income (1,056) (42.8) 1,901 50.9
Other Income 1,488 444.2 1,212 89.1
Income Before Interest Charges 432 15.4 3,113 61.1
Interest Charges 95 11.5 14 0.6
Net Income $ 337 17.0 $ 3,099 120.0
Unit Sales (MWH)
Retail 23,647 6.8 42,002 4.3
Wholesale (11,106) (18.3) (40,456) (22.1)
Total unit sales 12,541 3.1 1,546 0.1
The following is a summary of unit sales for the periods indicated:
Unit Sales (MWH)
Three Months Nine Months
Period Ended Total Retail Wholesale Total Retail Wholesale
September 30,
1998 422,333 372,634 49,699 1,158,389 1,016,147 142,242
September 30,
1997 409,792 348,987 60,805 1,156,843 974,145 182,698
<PAGE>
<PAGE 10>
CAMBRIDGE ELECTRIC LIGHT COMPANY
Operating Revenues, Electricity Purchased For Resale, Transmission and Fuel
Operating revenues for current nine-month period decreased approximately
$10.6 million or 10.7% due to the 10 percent rate reduction (further discussed
below) and decreases in electricity purchased for resale and fuel ($1.4
million), offset in part by an increase in transmission charges ($818,000).
The decrease in electricity purchased for resale of $14.1 million reflects
lower fuel costs and a $5.3 million deferral of costs in conjunction with the
Company's restructuring plan as approved by the Massachusetts Department of
Telecommunications and Energy (DTE). The decrease in operating revenues for
the current quarter of $2.2 million or 6.1% reflects the 10 percent rate
reduction and a decrease in electricity purchased for resale ($3.3 million),
offset in part by an increase in transmission costs ($1.2 million). Operating
revenues for both current periods reflects a lower level of revenue associated
with demand-side management programs. The decrease in operating revenues for
both current periods was offset somewhat by increases in retail unit sales.
As a result of industry restructuring, the Company has unbundled its rates,
provided customers with a 10 percent rate reduction as of March 1, 1998 and
has afforded customers the opportunity to purchase generation supply in the
competitive market consistent with the electric industry restructuring
legislation further discussed below. Delivery rates are composed of a
customer charge (to collect metering and billing costs), a distribution
charge, a transition charge (to collect stranded costs), a transmission
charge, an energy conservation charge (to collect costs for demand-side
management programs) and a renewable energy charge. Electricity supply
services provided by the Company include optional standard offer service and
default service. Amounts collected through these various charges will be
reconciled to actual expenditures on an on-going basis.
The increase in retail sales for both current periods reflects increases
in sales to commercial and industrial customers reflecting improved economic
conditions, while for both periods the decrease in wholesale sales was due
primarily to a decrease in sales to ISO - New England (formerly the New
England Power Pool).
Operating Expenses
For the current nine-month period, other operation and maintenance
decreased $2.7 million (12.9%) due primarily to the absence of a one-time
charge ($2.5 million) related to the personnel reduction program initiated
during the second quarter of 1997. Also contributing to the decrease were
labor savings realized from the aforementioned personnel reduction program
($1.1 million) and lower insurance and benefits costs. The impact of these
factors was offset somewhat by higher costs relating to the outsourcing of the
information technology, telecommunications and network services function
($240,000 and $660,000 respectively, for the three and nine-month periods),
including costs associated with Year 2000 compliance and higher costs
associated with conservation and load management programs ($830,000 and $1.3
million, respectively, for the three and nine-month periods). Depreciation
expense increased reflecting the treatment allowed for production plant
pursuant to the electric industry restructuring legislation. The increase in
federal and state income taxes was due to a higher level of pretax income.
<PAGE>
<PAGE 11>
CAMBRIDGE ELECTRIC LIGHT COMPANY
Other Income and Interest Charges
The increase in other income during the current quarter and nine-month
period was primarily due to gains related to the sale of real estate ($1.3
million).
Total interest charges increased slightly during the nine-month period
reflecting lower long-term interest costs ($116,000) offset, in part, by an
increase in short-term interest costs ($132,000) that reflects a higher
average level of short-term borrowings. The increase in interest charges
during the current quarter reflects a higher average level of short-term
borrowings.
Industry Restructuring
On November 25, 1997, the Governor of Massachusetts signed into law the
Electric Industry Restructuring Act (the Act). This legislation provided,
among other things, that customers of retail electric utility companies who
take standard offer service receive a 10 percent rate reduction and be allowed
to choose their energy supplier, effective March 1, 1998. The Act also
provides that utilities be allowed full recovery of transition costs subject
to review and an audit process. The rate reduction mandated by the legisla-
tion increases to 15 percent effective September 1, 1999 for customers who
continue to take standard offer service. A statewide ballot referendum that
sought to repeal the legislation was defeated by a wide margin on November 3
of this year.
The Company, together with Canal and Commonwealth, filed a comprehensive
electric restructuring plan with the DTE in November 1997, that was
substantially approved by the DTE in February 1998. The divestiture of the
Company's non-nuclear generation assets and the entitlements associated with
its purchased power contracts is an integral part of the Company's
restructuring plan and is consistent with the Act. While the Company is
encouraged with the treatment afforded net non-mitigable transition costs
(which, for the Company, are primarily the result of above-market purchased
power contracts with non-utility generators) by the legislation and the DTE,
the mandated rate reduction has had a significant impact on cash flows of the
Company. However, the successful results of the generation auction, as
discussed below, could significantly reduce the impact that the rate
reductions will have on future cash flows.
In March 1997, the Company, together with Canal and Commonwealth, had
submitted a report to the DTE that detailed the proposed auction process for
selling their electric generation assets and the entitlements associated with
purchased power contracts. The auction process provided a market-based
approach to maximizing stranded cost mitigation and minimizing the transition
costs that retail customers will have to pay for stranded cost recovery. A
request for bids from interested parties was issued in August 1997 and an
Offering Memorandum followed in October 1997. Potential bidders examined all
pertinent information related to the generating facilities and purchased power
contracts in order to prepare and submit their first round of bids in mid-
December. Final binding bids were submitted in May 1998.
On May 27, 1998, the System announced that three of its subsidiary
companies (Commonwealth, Canal and the Company) selected affiliates of
<PAGE>
<PAGE 12>
CAMBRIDGE ELECTRIC LIGHT COMPANY
Southern Energy New England, L.L.C. (Southern Energy), an affiliate of The
Southern Company of Atlanta, Georgia, to buy substantially all of their non-
nuclear electric generating assets for approximately $462 million (subject to
certain adjustments at closing). These facilities represent 984 megawatts
(mw) of electric capacity and have an approximate book value of $79 million.
The plants being sold include: Canal Unit 1 (566 mw) and a one-half
interest in Canal Unit 2 (282.5 mw) located in Sandwich, MA and owned by Canal
Electric; the Kendall Station facility (67 mw) and the adjacent Kendall Jets
(46 mw), located in Cambridge, MA and owned by the Company; five diesel
generators (13.8 mw) in Oak Bluffs and West Tisbury on the island of Martha's
Vineyard that are owned by Commonwealth Electric, and a 1.4 percent joint-
ownership interest (8.9 mw) in Wyman Unit No. 4 located in Yarmouth, ME, also
owned by Commonwealth Electric.
The Company continues to evaluate bids related to the purchased power
contracts. The Company is also evaluating the disposition of the Blackstone
Station generating unit (15.3 mw) located in Cambridge, MA which is subject to
a right of first offer held by Harvard University on any divestiture of the
facility.
On July 31, 1998, a formal divestiture filing was submitted to the FERC
and the DTE that requested approval of the sale of the Company's generating
assets to Southern Energy and further proposes (subject to completion of the
sale) that the current 10 percent rate reduction increase, effective January
1, 1999, to 15.2 percent. In addition, the Company proposes to increase the
retail price of standard offer service, starting January 1, 1999, from the
present rate of 2.8 cents per kilowatthour (kwh) to 3.5 cents. At the same
time that the price for standard offer service is increased, the transition
charge for the Company's customers will decline from 2.73 cents per kwh to
1.56 cents. These proposed changes, which are intended to further reduce the
cost of electricity to customers, to make the market increasingly more
attractive for independent power suppliers to sell electricity directly to
consumers, and to reduce the Company's cost deferrals associated with the
pricing of standard offer service, are based on a specific allocation
methodology for the net proceeds from the sale of the Canal units.
On October 30, 1998, the DTE approved the system's sale of its generating
assets to Southern Energy. The DTE, however, deferred ruling on the
allocation of proceeds from the sale of Canal Units 1 and 2 between Cambridge
Electric and Commonwealth Electric and on the rate of return to be paid to
customers on the net proceeds from the sale over an eleven-year period. These
issues are not expected to impact the asset sale that is scheduled to close in
the fourth quarter. The FERC approved the sale on November 12, 1998.
Year 2000
The Year 2000 issue is the result of computer programs being written using
two digits rather than four to define the applicable year. Any computer
program that has date sensitive software may recognize a date using "00" as
the year 1900 rather than the year 2000. This could result in a temporary
inability to process transactions or engage in normal business activities.
The system has been involved in Year 2000 compliancy since 1996.
<PAGE>
<PAGE 13>
CAMBRIDGE ELECTRIC LIGHT COMPANY
The system, on a coordinated basis and with the assistance of RCG Informa-
tion Technologies and other consultants, is addressing the Year 2000 issue.
The system has inventoried and assessed all date sensitive information and
transaction processing computer systems and determined that a substantial
portion of its software needed to be modified or replaced. Plans have been
developed and are being implemented to correct and test all affected systems,
with priorities assigned based on the importance of the activity. The system
has identified the software and hardware installations that will be necessary.
All installations are expected to be completed and tested by mid-1999. The
system has also inventoried its non-information technology systems that may be
date sensitive, (facilities, electric and gas operations, energy sup-
ply/production and distribution), that use embedded technology such as micro-
controllers and micro-processors. The system anticipates that these systems
will be updated or replaced as necessary and tested by mid-1999.
Modifying and testing the system's information and transaction processing
systems from 1996 through 2000 is currently expected to cost $6 to $7 million,
including approximately $900,000 incurred through 1997 and $1.6 million spent
during the first nine months of 1998. Approximately $1.2 million is expected
to be spent in the fourth quarter of this year and the balance of $2.5 to $3
million in 1999 and 2000. Year 2000 costs have been expensed as incurred and
will continue to be funded from operations.
The system has initiated formal communications with its significant
suppliers to determine the extent to which the system may be vulnerable to
their failure to correct their own Year 2000 issues. The system has not
received enough responses to its survey to make an accurate assessment of the
Year 2000 readiness of its suppliers. Failure of the system's significant
suppliers to address Year 2000 issues could have a material adverse effect on
the system's operations, although it is not possible at this time to quantify
the amount of business that might be lost or the costs that could be incurred
by the system.
In addition, parts of the global infrastructure, including national
banking systems, electrical power grids, gas pipelines, transportation
facilities, communications and governmental activities, may not be fully
functional after 1999. Infrastructure failures could significantly reduce the
system's ability to acquire energy and its ability to serve its customers as
effectively as they are now being served. The system is identifying elements
of the infrastructure that are critical to its operations and is obtaining
information as to the expected Year 2000 readiness of these elements.
The system has started its contingency planning for critical operational
areas that might be affected by the Year 2000 issue if compliance by the
system is delayed. System gas and electric operations currently have
emergency operating plans as well as information technology disaster recovery
plans as components of its standard operating procedures. These plans will be
enhanced to identify potential Year 2000 risks to normal operations and the
appropriate reaction to these potential failures including contingency plans
that may be required for any third parties that fail to achieve Year 2000
compliance. All necessary contingency plans are expected to be completed by
early 1999, although in certain cases, especially infrastructure failures,
there may be no practical alternative course of action available to the
system.
<PAGE>
<PAGE 14>
CAMBRIDGE ELECTRIC LIGHT COMPANY
The system is working with other energy industry entities, both regionally
and nationally with respect to Year 2000 readiness and is cooperating in the
development of local and wide-scale contingency planning.
While the system believes its efforts to address the Year 2000 issue will
be successful in avoiding any material adverse effect on the system's opera-
tions or financial condition, it recognizes that failing to resolve Year 2000
issues on a timely basis would, in a "most reasonably likely worst case
scenario," significantly limit its ability to acquire and distribute energy
and process its daily business transactions for a period of time, especially
if such failure is coupled with third party or infrastructure failures.
Similarly, the system could be significantly affected by the failure of one or
more significant suppliers, customers or components of the infrastructure to
conduct their respective operations after 1999. Adverse effects on the system
could include, among other things, business disruption, increased costs, loss
of business and other similar risks.
The foregoing discussion regarding Year 2000 project timing, effective-
ness, implementation and costs includes forward-looking statements that are
based on management's current evaluation using available information. Factors
that might cause material changes include, but are not limited to, the
availability of key Year 2000 personnel, the readiness of third parties, and
the system's ability to respond to unforeseen Year 2000 complications.
New Accounting Standard
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133 (SFAS No. 133), "Accounting for
Derivative Instruments and Hedging Activities." SFAS No. 133 establishes
accounting and reporting standards requiring that every derivative instrument
(including certain derivative instruments embedded in other contracts possibly
including fixed-price power contracts) be recorded on the balance sheet as
either an asset or liability measured at its fair value. SFAS No. 133
requires that changes in the derivative's fair value be recognized currently
in earnings unless specific hedge accounting criteria are met. Special
accounting for qualifying hedges allows a derivative's gains and losses to
offset related results on the hedged item in the income statement, and
requires that a company must formally document, designate and assess the
effectiveness of transactions that receive hedge accounting.
SFAS No. 133 is effective for fiscal years beginning after June 15, 1999
and may be implemented as of the beginning of any fiscal quarter after
issuance but cannot be applied retroactively. SFAS No. 133 must be applied to
derivative instruments and certain derivative instruments embedded in hybrid
contracts that were issued, acquired or substantively modified after December
31, 1997 and, at the Company's election, before January 1, 1998.
The Company has not yet quantified the impacts of adopting SFAS No. 133 on
its financial statements and has not determined the timing of its method of
adopting SFAS No. 133.
<PAGE>
<PAGE 15>
CAMBRIDGE ELECTRIC LIGHT COMPANY
Forward-Looking Statements
This discussion contains statements which, to the extent it is not a
recitation of historical fact, constitute "forward-looking statements" and is
intended to be subject to the safe harbor protection provided by the Private
Securities Litigation Reform Act of 1995. A number of important factors
affecting the Company's business and financial results could cause actual
results to differ materially from those reflected in the forward-looking
statements or projected amounts. Those factors include developments in the
legislative, regulatory and competitive environment, certain environmental
matters, demands for capital and the availability of cash from various
sources.
<PAGE>
<PAGE 16>
CAMBRIDGE ELECTRIC LIGHT COMPANY
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
The Company was an intervenor in an appeal at the Massachusetts
Supreme Judicial Court (SJC) filed by the Massachusetts Institute of
Technology (MIT) involving a DTE decision approving a customer
transition charge (CTC) for the recovery of stranded investment
costs. By its terms, the CTC was terminated on March 1, 1998,
coincident with the retail access date established by the
Massachusetts Legislature in the Electric Industry Restructuring
Act. On September 18, 1997, the SJC remanded the CTC matter to the
DTE for further consideration. The SJC stated that, although
recovery of prudent and verifiable stranded costs by utility
companies is in the public interest and consistent with the Public
Utility Regulatory Policies Act, the insufficiencies of the DTE's
subsidiary findings precluded the SJC from undertaking a meaningful
review of the DTE's calculations that formed the basis of the CTC.
The DTE is in the process of determining whether to hear additional
evidence in the remand or to rely on the record and pleadings
already filed. On January 16, 1998, the Company had submitted to
the DTE a customer exit charge rate tariff and sought a finding that
the tariff would apply to MIT. On July 23, 1998, the DTE issued a
ruling which rejected the form of customer exit charge rate tariff,
but opened a new investigation into whether MIT should be required
to pay an exit charge, and, if so, what the amount of the exit
charge should be. Also, the DTE's investigation includes whether
this case should be joined with the remand proceeding currently
before the DTE. This issue is discussed more fully in the Company's
1997 Annual Report on Form 10-K. At this time, management is unable
to predict the ultimate 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
nine months ended September 30, 1998.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the three months ended
September 30, 1998.
<PAGE>
<PAGE 17>
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: November 13, 1998
<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 nine months ended
September 30, 1998 and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<CIK> 0000016573
<NAME> CAMBRIDGE ELECTRIC LIGHT COMPANY
<MULTIPLIER> 1,000
<S> <C>
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<PERIOD-TYPE> 9-MOS
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 100,759
<OTHER-PROPERTY-AND-INVEST> 9,744
<TOTAL-CURRENT-ASSETS> 20,685
<TOTAL-DEFERRED-CHARGES> 72,850
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 204,038
<COMMON> 8,665
<CAPITAL-SURPLUS-PAID-IN> 27,953
<RETAINED-EARNINGS> 13,995
<TOTAL-COMMON-STOCKHOLDERS-EQ> 50,613
0
0
<LONG-TERM-DEBT-NET> 7,301
<SHORT-TERM-NOTES> 26,500
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 10,100
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 109,524
<TOT-CAPITALIZATION-AND-LIAB> 204,038
<GROSS-OPERATING-REVENUE> 88,257
<INCOME-TAX-EXPENSE> 3,964
<OTHER-OPERATING-EXPENSES> 78,656
<TOTAL-OPERATING-EXPENSES> 82,620
<OPERATING-INCOME-LOSS> 5,637
<OTHER-INCOME-NET> 2,572
<INCOME-BEFORE-INTEREST-EXPEN> 8,209
<TOTAL-INTEREST-EXPENSE> 2,528
<NET-INCOME> 5,681
0
<EARNINGS-AVAILABLE-FOR-COMM> 5,681
<COMMON-STOCK-DIVIDENDS> 3,293
<TOTAL-INTEREST-ON-BONDS> 1,082
<CASH-FLOW-OPERATIONS> 12,648
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
