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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 September 30, 1999
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.)
800 Boylston Street, Boston, Massachusetts 02142-9150
(Address of principal executive offices) (Zip Code)
(617) 225-4000
(Registrant's telephone number, including area code)
One Main Street, Cambridge, Massachusetts 02142
(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, 1999
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
SEPTEMBER 30, 1999 AND DECEMBER 31, 1998
ASSETS
(Dollars in thousands)
(Unaudited)
September 30, December 31,
1999 1998
PROPERTY, PLANT AND EQUIPMENT, at original cost$142,815 $140,642
Less - Accumulated depreciation 48,775 47,179
94,040 93,463
Add - Construction work in progress 1,863 937
95,903 94,400
INVESTMENTS
Equity in nuclear electric power companies 10,153 9,906
Other 5 5
10,158 9,911
LONG-TERM RECEIVABLE - AFFILIATE 29,838 35,441
GOODWILL 34,934 -
CURRENT ASSETS
Cash 787 778
Advances to affiliates 7,060 27,450
Accounts receivable -
Affiliates 679 1,729
Customers 11,842 10,774
Unbilled revenues 161 1,577
Prepaid taxes 3,572 1,410
Inventories and other 1,223 1,076
25,324 44,794
DEFERRED CHARGES
Regulatory assets 59,842 70,372
Other 1,443 2,012
61,285 72,384
$257,442 $256,930
The accompanying notes are an integral part of these financial statements.
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CAMBRIDGE ELECTRIC LIGHT COMPANY
CONDENSED BALANCE SHEETS
SEPTEMBER 30, 1999 AND DECEMBER 31, 1998
CAPITALIZATION AND LIABILITIES
(Dollars in thousands)
(Unaudited)
September 30, December 31,
1999 1998
CAPITALIZATION
Common Equity -
Common stock, $25 par value -
Authorized and outstanding -
346,600 shares $ 8,665 $ 8,665
Amounts paid in excess of par value 62,919 27,953
Retained earnings 10,839 16,182
82,423 52,800
Long-term debt, including premiums, less
maturing debt and current sinking fund
requirements 7,201 7,301
89,624 60,101
CURRENT LIABILITIES
Interim Financing -
Maturing long-term debt - 10,000
- 10,000
Other Current Liabilities -
Current sinking fund requirements 100 100
Accounts payable -
Affiliates 2,418 23,257
Other 11,613 8,328
Other 10,891 9,406
25,022 41,091
25,022 51,091
DEFERRED CREDITS
Accumulated deferred income taxes 15,501 15,328
Regulatory liabilities 61,913 65,124
Purchased power contracts 52,242 57,465
Unamortized investment tax credits and other 13,140 7,821
142,796 145,738
COMMITMENTS AND CONTINGENCIES
$257,442 $256,930
The accompanying notes are an integral part of these financial statements.
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CAMBRIDGE ELECTRIC LIGHT COMPANY
CONDENSED STATEMENTS OF INCOME AND RETAINED EARNINGS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
(Dollars in thousands)
(Unaudited)
Three Months Ended Nine Months Ended
1999 1998 1999 1998
ELECTRIC OPERATING REVENUES $28,625 $31,843 $77,613 $91,133
OPERATING EXPENSES
Electricity purchased for resale,
transmission and fuel 20,805 19,884 56,207 56,012
Other operation and maintenance 6,719 6,258 15,264 16,875
Depreciation 628 2,152 2,450 5,782
Taxes -
Income (1,050) 1,183 (1,020) 3,964
Local property 240 767 1,506 2,292
Payroll and other 150 187 453 571
27,492 30,431 74,860 85,496
OPERATING INCOME 1,133 1,412 2,753 5,637
OTHER INCOME 299 1,823 1,071 2,572
INCOME BEFORE INTEREST CHARGES 1,432 3,235 3,824 8,209
INTEREST CHARGES
Long-term debt 155 359 602 1,082
Other interest charges 2,390 559 4,025 1,446
2,545 918 4,627 2,528
NET (LOSS) INCOME (1,113) 2,317 (803) 5,681
RETAINED EARNINGS -
Beginning of period 12,246 12,372 16,182 11,607
Dividends paid to parent (294) (694) (4,540) (3,293)
RETAINED EARNINGS -
End of period $10,839 $13,995 $10,839 $13,995
The accompanying notes are an integral part of these financial statements.
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CAMBRIDGE ELECTRIC LIGHT COMPANY
CONDENSED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
(Dollars in thousands)
(Unaudited)
1999 1998
OPERATING ACTIVITIES
Net income (loss) $ (803) $ 5,681
Effects of noncash items -
Depreciation and amortization 2,984 5,782
Deferred income taxes and investment tax
credits, net (147) (135)
Earnings from corporate joint ventures (533) (830)
Dividends from corporate joint ventures 286 940
Change in working capital, exclusive of cash,
advances to affiliates and interim financing (16,925) 7,842
Transition costs deferral 8,778 (5,336)
EIS proceeds (Note 2) 5,603 -
All other operating items (1,190) (1,352)
Net cash provided by (used for) operating activities (1,947) 12,592
INVESTING ACTIVITIES
Payments from affiliates 20,390 -
Additions to property, plant and equipment
(exclusive of AFUDC) (3,794) (5,519)
Net cash provided by (used for) investing activities 16,596 (5,519)
FINANCING ACTIVITIES
Payment of dividends (4,540) (3,293)
Retirement of long-term debt (10,000) -
Payment of short-term borrowings - (2,325)
Payments to affiliates - (1,465)
Sinking funds payments (100) (101)
Net cash used for financing activities (14,640) (7,184)
Net increase (decrease) in cash 9 (111)
Cash at beginning of period 778 521
Cash at end of period $ 787 $ 410
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest (net of capitalized amounts) $ 727 $ 2,577
Income taxes $ 1,012 $ 3,580
The accompanying notes are an integral part of these financial statements.
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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 sub-
sidiary of NSTAR. NSTAR is the new holding company that was formed,
effective August 25, 1999 after receipt of all necessary approvals and upon
completion of a merger transaction between Commonwealth Energy System
(COM/Energy, formerly the parent of the Company) and BEC Energy (formerly
the parent company of Boston Edison Company). The merger creates an energy
delivery company, that includes the Company, serving approximately 1.3
million customers located in Massachusetts including more than one million
electric customers in 81 communities and 240,000 gas customers in 51
communities. NSTAR 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's operations are involved in the distribution and sale of
electricity to approximately 46,000 retail customers in the city of
Cambridge, Massachusetts.
The Company has 101 employees including 76 (75%) represented by a
collective bargaining unit with a contract that expires on March 1, 2001.
In response to the significant changes that have taken place in the
utility industry, the Company sold substantially all of its generating
assets in 1998 to focus on the transmission and distribution of energy and
related services (see Note 2(c)).
(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 1998 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,
1999 and 1998 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.
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.
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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).
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.
The principal regulatory assets included in deferred charges were as
follows:
September 30, December 31,
1999 1998
(Dollars in thousands)
Maine Yankee unrecovered plant
and decommissioning costs $28,514 $30,646
Connecticut Yankee unrecovered plant
and decommissioning costs 22,829 25,185
Yankee Atomic unrecovered plant
and decommissioning costs 899 1,634
Transition costs 1,745 9,149
Postretirement benefits costs 2,833 3,120
Merger costs 2,495 -
Other 527 638
$59,842 $70,372
The regulatory asset related to merger costs includes severance costs
($1.1 million) associated with a voluntary separation program (VSP) offered
to employees as a result of the merger, pension curtailment costs ($778,000)
resulting from the VSP and other costs to achieve the merger ($636,000).
The regulatory liabilities, reflected in the accompanying Condensed
Balance Sheets, were as follows:
September 30, December 31,
1999 1998
(Dollars in thousands)
Regulatory liability related to
sale of generating assets $52,196 $61,040
Pension costs 4,284 -
Deferred income taxes 2,316 2,402
Demand-side management deferral 3,117 1,682
$61,913 $65,124
The regulatory liability related to the sale of generating assets was
established pursuant to the Company's divestiture filing that was approved
by the DTE in which the Company agreed to use the net proceeds from the sale
of its generating assets and its share of the net proceeds from affiliate
Canal Electric Company's (Canal Electric) sale of generating assets to
reduce transition costs that are billed to its retail electric customers
over the next several years as a result of electric industry restructuring.
COM/Energy established Energy Investment Services, Inc. (EIS) as the vehicle
to invest the Company's share of the net proceeds from the sale of Canal
Electric's generating assets. These proceeds have been invested in a
portfolio of securities that is designed to maintain principal and earn a
reasonable return. Both the principal amount and income earned will be used
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CAMBRIDGE ELECTRIC LIGHT COMPANY
to reduce the transition costs that would otherwise be billed to customers
of the Company and affiliate Commonwealth Electric Company (Commonwealth
(Commonwealth Electric). The Company's share of the net proceeds from the
sale of Canal Electric's generating assets has been classified as a long-
term receivable - affiliate on the accompanying Condensed Balance Sheets.
The Company's regulatory assets, including the costs associated with
existing power contracts with three Yankee nuclear power plants that have
shut down permanently, and all of its regulatory liabilities are reflected
in rates charged to customers. Regulatory assets are to be recovered over
the next eleven years pursuant to a comprehensive electric utility industry
restructuring law enacted by the Commonwealth of Massachusetts in November
1997.
(c) Divestiture of Generation Assets
The cost of transitioning to competition is being mitigated, in part, by
the sale of COM/Energy's non-nuclear generating assets. On May 27, 1998,
COM/Energy agreed to sell substantially all of its non-nuclear generating
assets (984 MW) to affiliates of The Southern Company of Atlanta, Georgia.
The sale was conducted through an auction process that was outlined in a
restructuring plan filed with the DTE in November 1997 in conjunction with
the state's industry restructuring legislation enacted in 1997. The sale
was approved by the DTE on October 30, 1998 and by the FERC on November 12,
1998. Proceeds from the sale of the Company's Kendall Station generating
assets amounted to approximately $58.2 million or 8.2 times their book value
of approximately $7.1 million. The proceeds from the sale, net of book
value and transaction costs amounted to $49.3 million and are being used to
reduce transition costs related to electric industry restructuring that
otherwise would have been collected through a non-bypassable transition
charge. No gain was recorded on the sale of these generating assets because
the Company is obligated to reduce its transition costs by the net proceeds
of the sale. The Company has determined that this transaction was not a
taxable event because it provided no economic benefit to the Company.
(3) Commitments and Contingencies
Litigation
In the normal course of business, the Company is involved in various
legal matters. Management is unable to fully determine the range of
reasonably possible legal costs in excess of amounts accrued. Based on the
information currently available, it does not believe that it is probable
that any such additional costs will have a material impact on its financial
position. However, it is reasonably possible that additional legal costs
that may result from a change in estimates could have a material impact on
the results of a reporting period in the near term.
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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 nine months ended
September 30, 1999 and 1998 and unit sales for these periods is shown below:
Three Months Nine Months
Ended September 30, Ended September 30,
1999 and 1998 1999 and 1998
Increase (Decrease)
(Dollars in thousands)
Electric Operating Revenues $(3,218) (10.1)% $(13,520) (14.8)%
Operating Expenses -
Electricity purchased for
resale, transmission and fuel 921 4.6 195 0.3
Other operation and maintenance 461 7.4 (1,611) (9.5)
Depreciation (1,524) (70.8) (3,332) (57.6)
Taxes -
Federal and state income (2,233) (188.8) (4,984) (125.7)
Local property and other (564) (59.1) (904) (31.6)
(2,939) (9.7) (10,636) (12.4)
Operating Income (279) (19.8) (2,884) (51.2)
Other Income (1,524) (83.6) (1,501) (58.4)
Income Before Interest Charges (1,803) (55.7) (4,385) (53.4)
Interest Charges 1,627 177.2 2,099 83.0
Net Income $(3,430) (148.0) $ (6,484) (114.1)
Unit Sales (MWH)
Retail 26,583 7.1 18,586 1.8
Wholesale (27,721) (55.8) (49,081) (34.5)
Total unit sales (1,138) (0.3) (30,495) (2.6)
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,
1999 421,195 399,217 21,978 1,127,894 1,034,733 93,161
September 30,
1998 422,333 372,634 49,699 1,158,389 1,016,147 142,242
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CAMBRIDGE ELECTRIC LIGHT COMPANY
Operating Revenues, Electricity Purchased For Resale, Transmission and Fuel
Despite increases in retail unit sales, operating revenues for the current
quarter and first nine months of 1999 decreased $3.2 million (10.1%) and $13.5
million (14.8%), respectively due to decreases in fuel costs ($746,000 and
$2.1 million, respectively) and transmission charges ($1.2 million and
$54,000, respectively) as well as rate reductions resulting from electric
industry restructuring legislation. Somewhat offsetting the impact of these
items were increases in electricity purchased for resale during the current
quarter and nine-month period ($2.9 million and $2.4 million, respectively)
reflecting the absence of power previously available from the Company's
Kendall Station facility which was sold on December 30, 1998 (see Note 2(c)).
As a result of industry restructuring, the Company has unbundled its rates and
provided customers with a 10% rate reduction as of March 1, 1998 that was
increased to 16% effective January 1, 1999 in conjunction with the Company's
restructuring plan as approved by the DTE.
This legislation also provides customers with the opportunity to purchase
generation supply in the competitive market. Unbundled delivery rates are
composed of a customer charge (to collect metering and billing costs), a
distribution charge (to collect the costs of delivering electricity), a
transition charge (to collect past costs for investments in generating plants
and costs related to power contracts), a transmission charge (to collect the
costs of moving the electricity over high voltage lines from a generating
plant), an energy conservation charge (to collect costs for demand-side
management programs) and a renewable energy charge (to collect the cost to
support the development and promotion of renewable energy projects).
Electricity supply services provided by the Company include optional standard
offer service and default service. Standard offer service is the electricity
that is supplied by a local distribution company (such as the Company) until a
competitive supplier is chosen by the customer. It is designed as a seven-
year transitional service to give the customer time to learn about competitive
power suppliers. The price of standard offer service will increase over time.
Default service is the electricity that is supplied by the local distribution
company when a customer is not receiving power from either standard offer
service or a competitive power supplier. The market price for default service
will fluctuate based on the average market price for power. Amounts collected
through these various charges will be reconciled to actual expenditures on an
on-going basis. Currently, 70.3% of retail electric customers receive
standard offer service and 29.7% of retail customers receive default service.
For further information on electric industry restructuring, refer to the
Company's 1998 Annual Report on Form 10-K.
Retail unit sales for the quarter and nine-month periods ended September
30, 1999 increased primarily as a result of increases in the residential and
commercial sectors. Also included in both current periods is a decrease in
wholesale sales due primarily to a lower level of sales to ISO - New England.
Operating Expenses
For the first nine months of 1999, other operation and maintenance
decreased $1.6 million (9.5%) due primarily to lower operating costs as a
result of the sale of the Kendall Station facility on December 30, 1998 and
lower maintenance costs related to the sale of Kendall Station ($592,000).
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CAMBRIDGE ELECTRIC LIGHT COMPANY
Also contributing to the change in other operation and maintenance during both
the current quarter and nine-month period was the recognition of costs
allocated to the Company that relate to various compensation plans whose
benefits have vested as a result of a change in control at the parent company
level ($660,000), and amortization of goodwill and merger costs ($103,000)
(see merger discussion below). In addition, $1.5 million in pension costs
that were previously deferred, have been expensed in the current period
because recovery is no longer certain. Depreciation expense decreased in both
current periods reflecting the sale of the Kendall Station facility and the
absence of adjustments to depreciation recorded in 1998 pursuant to the
electric industry restructuring legislation. The decreases in federal and
state income taxes was due to a lower level of pre-tax income. During both
current periods the decrease in local property and other taxes reflects lower
property tax expense ($527,000 and $786,000, respectively), and lower payroll
and other taxes due to a decrease in the number of employees, both of which
reflect the impact of the asset sale.
Other Income
The decrease in other income during the current quarter and nine-month
period is primarily due to the absence of gains related to the sale of real
estate ($1.3 million) during the same periods a year ago.
Interest Charges
Interest charges for the current three and nine-month periods increased
$1.6 million (177.2%) and $2.1 million (83%), respectively due to increases in
other interest ($1.8 million and $2.6 million, respectively) that include
interest on customer refunds. This increase was offset in part by lower long-
term interest costs ($204,000 and $480,000) due to the repayment of a $10
million (8.04%) debt issue during the first quarter of 1999 and by the
significantly lower interest on short-term borrowings due to a lower average
level of short-term borrowings during the current periods.
Merger with BEC Energy
NSTAR, an exempt public utility holding company, was created after
completion of a merger transaction between BEC Energy (BEC) and Commonwealth
Energy System (COM/Energy) on August 25, 1999. The utility industry has
continued to change in response to legislative and regulatory mandates that
are aimed at lowering prices for energy by creating a more competitive market-
place. These pressures have resulted in an increasing trend in the utility
industry to seek competitive advantages and other benefits through business
combinations. NSTAR is focusing its utility operations on the transmission
and distribution of energy following the sale of BEC's fossil generating
facilities to Sithe Energies in May 1998, BEC's nuclear generation facility to
Entergy Nuclear Generating Company in July 1999 and substantially all of
COM/Energy's generating facilities to Southern Company in December 1998.
The utility companies of NSTAR form an energy delivery company serving
approximately 1.3 million customers located in Massachusetts, including more
than one million electric customers in 81 communities and 240,000 gas custom-
ers in 51 communities.
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CAMBRIDGE ELECTRIC LIGHT COMPANY
The merger became effective after receipt of various regulatory approvals.
The Federal Energy Regulatory Commission approved the merger on June 24, 1999.
The Nuclear Regulatory Commission approved the transfer of control of
affiliate Canal Electric Company's interest in the Seabrook nuclear plant from
COM/Energy to NSTAR on August 11, 1999. The Securities and Exchange
Commission issued its approval on August 24, 1999.
An integral part of the merger is the rate plan that was filed by the
retail utility subsidiaries of BEC and COM/Energy in February 1999 and
approved by the DTE on July 27, 1999. Significant elements of the rate plan
include a four-year distribution rate freeze (after an adjustment to the
distribution rates of affiliate Commonwealth Electric and the Company to
collect the appropriate level of distribution costs that is offset by a reduc-
tion in the transition charge that was previously approved by the DTE),
recovery of the acquisition premium (goodwill) over 40 years and recovery of
transaction and integration costs (costs to achieve) over 10 years.
The merger was accounted for by BEC as an acquisition of COM/Energy under
the purchase method of accounting. The goodwill amounted to approximately
$478 million while the original estimate of costs to achieve the merger was
$111 million to be amortized over 10 years. This estimate, which has been
allocated among the retail utility subsidiaries of NSTAR, will be reconciled
to actual costs and any difference is expected to be recovered over the
remainder of the amortization period. The amount of goodwill attributed to
the Company was approximately $35 million to be amortized over 40 years.
A group of four intervenors and the Massachusetts Attorney General filed
two separate appeals of the DTE's rate plan order with the Massachusetts
Supreme Judicial Court (SJC) in August 1999. While management anticipates
that the DTE's decision to approve the rate plan will be upheld by the SJC, it
is unable to determine the ultimate outcome of these appeals or their impact
on the rate plan.
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 Company and its affiliates (the companies) have been involved in Year 2000
compliancy since 1996. While the recent merger with BEC Energy has led to
some integrated planning efforts, the companies have essentially continued to
resolve Year 2000 issues independently of BEC Energy.
The companies have followed a five-phase process in its Year 2000 compli-
ance efforts, as follows: Awareness (through a series of internal announce-
ments to employees and through contacts with vendors); Inventory (all comput-
ers, applications and embedded systems that could potentially be affected by
the Year 2000 problem); Assessment (all applications or components and the
impact on overall business operations and a plan to correct deficiencies and
the cost to do so); Remediation (the modification, upgrade or replacement of
deficient hardware and software applications and infrastructure
modifications); and Testing (a detailed, comprehensive testing program for the
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CAMBRIDGE ELECTRIC LIGHT COMPANY
modified critical component, system or software that involves the planning,
execution and analysis of results).
The companies' inventory phase required an assessment of all date sensi-
tive information and transaction processing computer systems and determined
that approximately 90% of their software systems needed some modifications or
replacement. Plans were developed, implemented, and all of these systems have
been modified, upgraded or replaced.
The companies have also inventoried their non-information technology
systems that may be date sensitive (facilities, electric and gas operations,
energy supply/production and distribution) that use embedded technology such
as micro-controllers and micro-processors. The companies have completed their
assessment of these non-information technology systems and determined that 20%
of these systems required remediation or replacement. The companies have
reported to the North American Electric Reliability Council (NERC) that they
met the NERC target date of June 30, 1999 for 100% readiness of all their
mission critical components required for the continued safe and reliable
delivery of electricity into the Year 2000. The companies' gas and other
operations are also at a 100% completion level for all mission critical issues
regarding Year 2000 readiness.
Modifying and testing the companies' information and transaction process-
ing systems from 1996 through 2000 is currently expected to cost approximately
$10.3 million, including approximately $8.3 million incurred through September
30, 1999. Year 2000 costs have been expensed as incurred and will continue to
be funded from operations.
In addition to their internal efforts, the companies have initiated formal
communications with their significant suppliers to determine the extent to
which the companies may be vulnerable to their suppliers' failure to correct
their own Year 2000 issues. The companies have ranked their vendors in terms
of importance and have received adequate responses from all of their
"critical" and "high" rated vendors. Failure of the companies' significant
suppliers to address Year 2000 issues could have a material adverse effect on
the companies' 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 companies. Contact with all other vendors is continuing and
inadequate responses are being pursued by the companies.
In addition, parts of the global infrastructure, including national
banking systems, electrical power grids, gas pipelines, transportation facili-
ties, communications and governmental activities, may not be fully functional
after 1999. Infrastructure failures could significantly reduce the companies'
ability to acquire energy and their ability to serve their customers as ef-
fectively as they are now being served. The companies have identified the
elements of the infrastructure that are critical to their operations and have
requested and obtained information as to the expected Year 2000 readiness of
these elements.
The companies have completed the development of their Year 2000 contingen-
cy plans for all operational areas that may be effected by Year 2000 issues.
The companies' gas and electric operations currently have emergency operating
plans, as well as information technology disaster recovery plans, as compo-
nents of their standard operating procedures. These plans have been enhanced,
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CAMBRIDGE ELECTRIC LIGHT COMPANY
identifying potential Year 2000 risks to normal operations and the appropriate
response to these potential failures. These plans also include actions to be
taken in the event of third party and infrastructure failures with regard to
the Year 2000 event, although in certain cases, there may be no practical
alternative course of action available to the companies. The implementation
of the contingency plans will continue throughout the remainder of 1999.
The companies are working with other energy industry entities, both
regionally and nationally, with respect to Year 2000 readiness and is cooper-
ating in the development of local and wide-scale contingency planning.
While the companies believe their efforts to address the Year 2000 issue
will allow them to be successful in avoiding any material adverse effect on
the companies' operations or financial condition, they recognize that failing
to resolve Year 2000 issues on a timely basis would, in a "most reasonably
likely worst case scenario," significantly limit their ability to acquire and
distribute energy and process their daily business transactions for a period
of time, especially if such failure is coupled with third party or infra-
structure failures. Similarly, the companies could be significantly effected
by the failure of one or more significant suppliers, customers or components
of the infrastructure to conduct their respective operations after 1999.
Adverse affects on the companies 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 avail-
ability of key Year 2000 personnel, the readiness of third parties, and the
companies' ability to respond to unforeseen Year 2000 complications.
Vermont Yankee Nuclear Power Plant
The Company has a 2.5% equity ownership interest (approximately $1.4
million at September 30, 1999) in the Vermont Yankee nuclear power plant. The
owners of Vermont Yankee have reached an agreement to sell the plant to
Amergen Energy Co., a joint venture of Peco Energy and British Energy PLC.
The sale, which is subject to state and federal approvals, is expected to be
finalized July 1, 2000. Any shortfall between the book value of the plant and
the proceeds from the sale of the plant would be recovered in the transition
costs charge.
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 stated in the forward-looking state-
ments. Those factors include the ultimate impact of the merger, developments
in the legislative, regulatory and competitive environment, certain environ-
mental matters, demands for capital expenditures and the availability of cash
from various sources.
<PAGE>
<PAGE 15>
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. 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 filed herewith:
Exhibit 27 - Financial Data Schedule
27.1 - Schedule UT
Exhibit 99 - Additional Exhibits
99.1 - Report of Independent Accountants
(b) Reports on Form 8-K
No reports on Form 8-K were filed for the three months ended
September 30, 1999.
<PAGE>
<PAGE 16>
CAMBRIDGE ELECTRIC LIGHT COMPANY
SIGNATURE
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)
Date: November 15, 1999 R. J. WEAFER, JR.
Robert J. Weafer, Jr.
Vice President, Controller
and Chief Accounting Officer
<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, 1999 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-31-1999
<PERIOD-END> SEP-30-1999
<PERIOD-TYPE> 9-MOS
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 95,903
<OTHER-PROPERTY-AND-INVEST> 10,158
<TOTAL-CURRENT-ASSETS> 25,324
<TOTAL-DEFERRED-CHARGES> 61,285
<OTHER-ASSETS> 64,772
<TOTAL-ASSETS> 257,442
<COMMON> 8,665
<CAPITAL-SURPLUS-PAID-IN> 62,919
<RETAINED-EARNINGS> 10,839
<TOTAL-COMMON-STOCKHOLDERS-EQ> 82,423
0
0
<LONG-TERM-DEBT-NET> 7,201
<SHORT-TERM-NOTES> 0
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 100
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 167,718
<TOT-CAPITALIZATION-AND-LIAB> 257,442
<GROSS-OPERATING-REVENUE> 77,613
<INCOME-TAX-EXPENSE> (1,020)
<OTHER-OPERATING-EXPENSES> 75,880
<TOTAL-OPERATING-EXPENSES> 74,860
<OPERATING-INCOME-LOSS> 2,753
<OTHER-INCOME-NET> 1,071
<INCOME-BEFORE-INTEREST-EXPEN> 3,824
<TOTAL-INTEREST-EXPENSE> 4,627
<NET-INCOME> (803)
0
<EARNINGS-AVAILABLE-FOR-COMM> (803)
<COMMON-STOCK-DIVIDENDS> 4,540
<TOTAL-INTEREST-ON-BONDS> 602
<CASH-FLOW-OPERATIONS> (1,947)
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
Exhibit 99.1
Report of Independent Accountants
To the Board of Directors of Cambridge Electric Light Company:
We have reviewed the accompanying condensed balance sheet of Cambridge
Electric Light Company as of September 30, 1999 and the related condensed
statements of income for the three and nine-month periods ended September 30,
1999 and condensed cash flows for the nine-month period ended September 30,
1999. We did not perform a review of the condensed statements of income for
the three and nine-month periods ended September 30, 1998 and cash flows for
the nine-month period ended September 30, 1998. These financial statements
are the responsibility of management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures
to financial data and making inquiries of persons responsible for accounting
and financial matters. It is substantially less in scope than an audit
conducted in accordance with generally accepted auditing standards, the
objective of which is the expression of an opinion regarding the financial
statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that
should be made to the accompanying financial statements in order for them to
be in conformity with generally accepted accounting principles.
Hartford, Connecticut PricewaterhouseCoopers LLP
November 15, 1999
