<PAGE 1>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549-1004
Form 10-Q
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 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.)
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, 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.
<PAGE>
<PAGE 2>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
CAMBRIDGE ELECTRIC LIGHT COMPANY
CONDENSED BALANCE SHEETS
MARCH 31, 1999 AND DECEMBER 31, 1998
ASSETS
(Dollars in thousands)
March 31, December 31,
1999 1998
(Unaudited)
PROPERTY, PLANT AND EQUIPMENT, at original cost $141,381 $140,642
Less - Accumulated depreciation 48,245 47,179
93,136 93,463
Add - Construction work in progress 1,039 937
94,175 94,400
INVESTMENTS
Equity in nuclear electric power companies 9,849 9,906
Other 5 5
9,854 9,911
LONG-TERM RECEIVABLE - AFFILIATE 29,837 29,429
CURRENT ASSETS
Cash 447 778
Advances to affiliates 18,345 27,450
Accounts receivable -
Affiliates 537 1,729
Customers 10,665 10,774
Unbilled revenues 2,951 3,489
Prepaid taxes 858 1,410
Inventories and other 1,140 1,076
34,943 46,706
DEFERRED CHARGES
Regulatory assets 65,450 70,372
Other 5,867 6,112
71,317 76,484
$240,126 $256,930
See accompanying notes.
<PAGE>
<PAGE 3>
CAMBRIDGE ELECTRIC LIGHT COMPANY
CONDENSED BALANCE SHEETS
MARCH 31, 1999 AND DECEMBER 31, 1998
CAPITALIZATION AND LIABILITIES
(Dollars in thousands)
March 31, December 31,
1999 1998
(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 11,864 16,182
48,482 52,800
Long-term debt, including premiums, less
maturing debt and current sinking fund
requirements 7,301 7,301
55,783 60,101
CURRENT LIABILITIES
Interim Financing -
Maturing long-term debt - 10,000
Other Current Liabilities -
Current sinking fund requirements 100 100
Accounts payable -
Affiliates 23,448 23,257
Other 8,143 8,328
Other 8,486 9,406
40,177 41,091
40,177 51,091
DEFERRED CREDITS
Purchased power contracts 55,685 57,465
Regulatory liabilities 64,785 65,124
Accumulated deferred income taxes 15,718 15,328
Unamortized investment tax credits and other 7,978 7,821
144,166 145,738
COMMITMENTS AND CONTINGENCIES
$240,126 $256,930
See accompanying notes.
<PAGE>
<PAGE 4>
CAMBRIDGE ELECTRIC LIGHT COMPANY
CONDENSED STATEMENTS OF INCOME AND RETAINED EARNINGS
FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND 1998
(Dollars in thousands - unaudited)
1999 1998
ELECTRIC OPERATING REVENUES $27,372 $27,571
OPERATING EXPENSES
Electricity purchased for resale,
transmission and fuel 19,137 15,026
Other operation and maintenance 6,183 5,128
Depreciation 832 1,501
Taxes -
Income (149) 1,841
Local property 633 765
Payroll and other 160 203
26,796 24,464
OPERATING INCOME 576 3,107
OTHER INCOME 395 405
INCOME BEFORE INTEREST CHARGES 971 3,512
INTEREST CHARGES
Long-term debt 292 361
Other interest charges 751 442
1,043 803
NET INCOME (LOSS) (72) 2,709
RETAINED EARNINGS -
Beginning of period 16,182 11,607
Dividends on common stock (4,246) -
End of period $11,864 $14,316
See accompanying notes.
<PAGE>
<PAGE 5>
CAMBRIDGE ELECTRIC LIGHT COMPANY
CONDENSED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND 1998
(Dollars in thousands - unaudited)
1999 1998
OPERATING ACTIVITIES
Net income (loss) $ (72) $ 2,709
Effects of noncash items -
Depreciation and amortization 785 1,501
Deferred income taxes and investment tax
credits, net 83 120
Earnings from corporate joint ventures (184) (306)
Dividends from corporate joint ventures 241 -
Change in working capital, exclusive of cash,
advances to affiliates and interim financing 1,413 (460)
Transition costs deferral 3,755 (2,780)
All other operating items (152) 1,187
Net cash provided by operating activities 5,869 1,971
INVESTING ACTIVITIES
Payments from affiliates 9,105 -
Additions to property, plant and equipment
(inclusive of AFUDC) (1,059) (981)
Net cash provided by (used for) investing activities 8,046 (981)
FINANCING ACTIVITIES
Payment of dividends (4,246) -
Retirement of long-term debt (10,000) -
Proceeds from short-term borrowings - 6,225
Payments to affiliates - (7,220)
Net cash used for financing activities (14,246) (995)
Net decrease in cash (331) (5)
Cash at beginning of period 778 521
Cash at end of period $ 447 $ 516
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest (net of capitalized amounts) $ 610 $ 1,038
Income taxes $ 379 $ 895
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). The Parent, together with
its subsidiaries, is collectively referred to as "COM/Energy." The Parent
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. In December 1998, the Parent signed an Agreement
and Plan of Merger with BEC Energy, the parent company of Boston Edison
Company, that will create an energy delivery company, that includes the
Company, serving approximately 1.3 million customers located entirely within
Massachusetts including more than one million electric customers in 81
communities and 240,000 gas customers in 51 communities.
The Company has 101 regular employees including 75 (74%) represented by
a collective bargaining unit with a contract that expires on March 1, 2001.
Employee relations have generally been satisfactory.
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 March 31, 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.
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.
(b) Regulatory Assets and Liabilities
The Company is regulated as to rates, accounting and other matters by
<PAGE>
<PAGE 7>
CAMBRIDGE ELECTRIC LIGHT COMPANY
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 a 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:
March 31, December 31,
1999 1998
(Dollars in thousands)
Maine Yankee unrecovered plant
and decommissioning costs $30,004 $30,646
Connecticut Yankee unrecovered plant
and decommissioning costs 24,291 25,185
Yankee Atomic unrecovered plant
and decommissioning costs 1,389 1,634
Transition costs 5,828 9,149
Postretirement benefits costs 3,224 3,120
Other 714 638
$65,450 $70,372
<PAGE>
<PAGE 8>
CAMBRIDGE ELECTRIC LIGHT COMPANY
The regulatory liabilities, reflected in the accompanying Condensed
Balance Sheets, were as follows:
March 31, December 31,
1999 1998
(Dollars in thousands)
Regulatory liability related to
sale of generating assets $60,303 $61,040
Deferred income taxes 2,374 2,402
Demand-side management deferral 2,108 1,682
$64,785 $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.
The Company's share of the net proceeds from the sale of Canal Electric's
generating assets ($9.4 million) has been classified as a long-term
receivable - affiliate on the accompanying Condensed Balance Sheets.
In November 1997, the Commonwealth of Massachusetts enacted a comprehen-
sive electric utility industry restructuring bill. On November 19, 1997,
the Company, together with affiliates Commonwealth Electric Company
(Commonwealth Electric) and Canal Electric, filed a restructuring plan with
the DTE. The plan, approved by the DTE on February 27, 1998, provides that
the Company and Commonwealth Electric, 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 reduction 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.
(c) Divestiture of Generation Assets
The cost of transitioning to competition will be 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, after construction-related adjustments at the closing that occurred
on December 30, 1998, amounted to approximately $58.2 million or 8.2 times
their book value of approximately $7.1 million. The proceeds from the sale,
<PAGE>
<PAGE 9>
CAMBRIDGE ELECTRIC LIGHT COMPANY
net of book value and transaction costs amounted to $49.3 million and will
be used to reduce transition costs related to electric industry restructur-
ing 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.
COM/Energy established Energy Investment Services, Inc. as the vehicle
to invest the net proceeds from the sale of Canal Electric's generating
assets and a portion of the proceeds from the Company's sale of generating
assets ($20.4 million). These proceeds will be invested in a conservative
portfolio of securities that is designed to maintain principal and earn a
reasonable return. Both the principal amount and income earned will be used
to reduce the transition costs that would otherwise be billed to customers
of the Company and Commonwealth Electric.
(3) Commitments and Contingencies
(a) Construction Program
The Company is engaged in a continuous construction program presently
estimated at $59.2 million for the five-year period 1999 through 2003. Of
that amount, $7.8 million is estimated for 1999. As of March 31, 1999, the
Company's actual construction expenditures amounted to approximately $1.1
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 the issuance 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, availability and cost of capital and environmental
factors.
<PAGE>
<PAGE 10>
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, 1999
and 1998 and unit sales for these periods is shown below:
Three Months Ended
March 31,
1999 and 1998
Increase (Decrease)
(Dollars in thousands)
Electric Operating Revenues $ (199) (0.7)%
Operating Expenses -
Electricity purchased for resale,
transmission and fuel 4,111 27.4
Other operation and maintenance 1,055 20.6
Depreciation (669) (44.6)
Taxes -
Federal and state income (1,990) (108.1)
Local property and other (175) (18.1)
2,332 9.5
Operating Income (2,531) (81.5)
Other Income (10) (2.5)
Income Before Interest Charges (2,541) (72.4)
Interest Charges 240 29.9
Net Income $(2,781) (102.7)
Unit Sales (MWH)
Retail 7,548 2.4
Wholesale (6,008) (10.3)
Total unit sales 1,540 0.4
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, 1999 380,437 327,852 52,585
March 31, 1998 378,897 320,304 58,593
<PAGE>
<PAGE 11>
CAMBRIDGE ELECTRIC LIGHT COMPANY
Operating Revenues, Electricity Purchased For Resale, Transmission and Fuel
Operating revenues for the first quarter of 1999 decreased $199,000 (0.7%)
due to decreases in fuel costs ($311,000), transmission charges and wholesale
sales ($967,000) as well as rate reductions resulting from electric industry
restructuring legislation. These factors were offset by an increase in
purchased power costs ($5.4 million) and a 2.4% increase in retail unit sales.
During the quarter, the increase in purchased power reflects 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 ten percent rate reduction as of March 1, 1998 that was increased to
approximately 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, 77.3% of retail electric customers receive
standard offer service and 22.7% 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.
Total unit sales increased 0.4% during the quarter, reflecting a 2.4%
increase in retail unit sales that includes increases in sales to residential,
commercial and industrial customer segments, offset in part by a 10.3% decline
in wholesale sales due to a decrease in sales to ISO - New England.
Operating Expenses
For the first quarter of 1999, operation and maintenance increased $1.1
million, or 20.6%, primarily due to an increase in conservation and load
management costs ($646,000) and an increase in maintenance expense ($103,000),
primarily reflecting maintenance at Blackstone Station. Depreciation expense
decreased $669,000 or 44.6% due to a lower level of depreciable plant
reflecting the sale of the Kendall Station facility in December 1998 and the
<PAGE>
<PAGE 12>
CAMBRIDGE ELECTRIC LIGHT COMPANY
absence of adjustments to depreciation recorded in 1998 pursuant to the
electric industry restructuring legislation. The decrease in federal and
state income taxes was due to a lower level of pre-tax income. The decrease
in local property and other taxes reflects lower property tax expense
($133,000), and lower payroll and other taxes ($42,000) due to a decrease in
the number of employees, both of which reflect the impact of the asset sale
(see Note 2(c)).
Interest Charges
Interest charges for the current three-month period increased $240,000 or
29.9% due to an increase in other interest ($310,000) that includes interest
on amounts deferred in conjunction with the Company's restructuring plan as
approved by the DTE, offset in part by lower long-term interest costs
($70,000) due to the repayment of a $10 million (8.04%) debt issue during the
current quarter and by the absence of interest on short-term borrowings during
the period.
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 developments in the legislative, regulatory and
competitive environment, certain environmental matters, demands for capital
expenditures and the availability of cash from various sources.
Merger with BEC Energy
The electric 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 marketplace. These pressures have
resulted in an increasing trend in the electric industry to seek competitive
advantages and other benefits through business combinations. On December 5,
1998, the Parent and BEC Energy (BEC), headquartered in Boston, Massachusetts,
entered into an Agreement and Plan of Merger (the Merger Agreement). Pursuant
to the Merger Agreement, COM/Energy and BEC will be merged into a new holding
company to be known as NSTAR. The merger is expected to occur shortly after
the satisfaction of certain conditions, including the receipt of certain
regulatory approvals including that of the DTE. The regulatory approval
process is expected to be completed during the second half of 1999.
The merger will create an energy delivery company serving approximately
1.3 million customers located entirely within Massachusetts, including more
than one million electric customers in 81 communities and 240,000 gas custom-
ers in 51 communities.
Shareholder votes on the merger will be held as part of each of
COM/Energy's and BEC's annual shareholder meetings scheduled for June 24,
1999. The Merger Agreement may be terminated under certain circumstances,
including by any party if the merger is not consummated by December 5, 1999,
subject to an automatic extension of six months if the requisite regulatory
<PAGE>
<PAGE 13>
CAMBRIDGE ELECTRIC LIGHT COMPANY
approvals have not yet been obtained by such date. The merger will be
accounted for using the purchase method of accounting.
Upon effectiveness of the merger, Thomas J. May, BEC's current Chairman,
President and Chief Executive Officer (CEO), will become the Chairman and CEO
of NSTAR. Russell D. Wright, COM/Energy's current President and CEO,
willbecome the President and Chief Operating Officer of NSTAR and will serve
on NSTAR's board of trustees. Also, upon effectiveness of the merger, NSTAR's
board of trustees will consist of COM/Energy's and BEC's current trustees.
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.
COM/Energy has been involved in Year 2000 compliancy since 1996.
COM/Energy, on a coordinated basis and with the assistance of RCG Informa-
tion Technologies and other consultants, is addressing the Year 2000 issue.
COM/Energy has followed a five-phase process in its Year 2000 compliance
efforts, as follows: Awareness (through a series of internal announcements to
employees and through contacts with vendors); Inventory (all computers,
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 modified critical
component, system or software that involves the planning, execution and
analysis of results).
COM/Energy's inventory phase required an assessment of all date sensitive
information and transaction processing computer systems and determined that
approximately 90% of its software systems needed some modifications or
replacement. Plans were developed and are being implemented to correct and
test all affected systems, with priorities assigned based on the importance of
the activity. COM/Energy has identified the software and hardware installa-
tions that are necessary. All installations are expected to be completed and
tested by mid-1999.
COM/Energy has also inventoried its 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. COM/Energy has completed its assess-
ment of these non-information technology systems and determined that 20% of
these systems required remediation or replacement. COM/Energy is approximate-
ly 94% complete in its efforts to resolve non-compliance with Year 2000
requirements related to these systems and anticipates that these systems will
be updated or replaced and tested by mid-1999.
At present, the remediation phase for information technology as it applies
to hardware and non-technology issues is scheduled for completion by June 1,
1999. The testing phase for Year 2000 compliance is approximately 85%
<PAGE>
<PAGE 14>
CAMBRIDGE ELECTRIC LIGHT COMPANY
complete and is scheduled to be concluded by June 30, 1999. All other phases
are complete.
Modifying and testing COM/Energy's information and transaction processing
systems from 1996 through 2000 is currently expected to cost approximately
$9.85 million, including approximately $900,000, $3.1 million and $1.9 million
incurred through 1997, 1998 and the first quarter of 1999, respectively.
Approximately $3.95 million is expected to be spent in the remainder of 1999
and in 2000. Year 2000 costs have been expensed as incurred and will continue
to be funded from operations.
In addition to its internal efforts, COM/Energy has initiated formal
communications with its significant suppliers to determine the extent to which
COM/Energy may be vulnerable to its suppliers' failure to correct their own
Year 2000 issues. As of April 1, 1999, COM/Energy has received responses from
approximately 82% of those entities contacted, and nearly all have indicated
that they are or will be Year 2000 compliant. Failure of COM/Energy's
significant suppliers to address Year 2000 issues could have a material
adverse effect on COM/Energy'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 COM/Energy. Contact with significant vendors is continu-
ing and inadequate or marginal responses are being pursued by COM/Energy.
COM/Energy is prepared to replace certain suppliers or to initiate other
contingency plans should these vendors not respond to COM/Energy's satisfac-
tion by July 1, 1999.
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
COM/Energy's ability to acquire energy and its ability to serve its customers
as effectively as they are now being served. COM/Energy 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 ele-
ments.
COM/Energy has started its contingency planning for critical operational
areas that might be effected by the Year 2000 issue if compliance by
COM/Energy is delayed. COM/Energy's 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 June 30, 1999, although in certain cases, especially infra-
structure failures, there may be no practical alternative course of action
available to COM/Energy.
COM/Energy 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 COM/Energy believes its efforts to address the Year 2000 issue will
allow it to be successful in avoiding any material adverse effect on
<PAGE>
<PAGE 15>
CAMBRIDGE ELECTRIC LIGHT COMPANY
COM/Energy's operations 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 distrib-
ute 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, COM/Energy 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 COM/Energy 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
COM/Energy's ability to respond to unforeseen Year 2000 complications.
New Accounting Principles
In June 1998, the Financial Accounting Standards Board issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities." SFAS No.
133 establishes accounting and reporting standards requiring that every deri-
vative instrument (including certain derivative instruments embedded in other
contracts possibly including fixed-price fuel supply and 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 adoption of SFAS No. 133 is not expected to have a material impact on
the Company's results of operations or financial condition.
<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. 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
three months ended March 31, 1999.
Filed herewith as Exhibit 2 is the restated Financial Data Schedule
for the year ended December 31, 1998.
(b) Reports on Form 8-K
One report on Form 8-K was filed during the three months ended March
31, 1999. The report dated January 14, 1999 relates to an event
that occurred on December 30, 1998 regarding the sale of
substantially all of the Company's generating assets.
<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: May 17, 1999
<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, 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> MAR-31-1999
<PERIOD-TYPE> 3-MOS
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 94,175
<OTHER-PROPERTY-AND-INVEST> 9,854
<TOTAL-CURRENT-ASSETS> 34,943
<TOTAL-DEFERRED-CHARGES> 71,317
<OTHER-ASSETS> 29,837
<TOTAL-ASSETS> 240,126
<COMMON> 8,665
<CAPITAL-SURPLUS-PAID-IN> 27,953
<RETAINED-EARNINGS> 11,864
<TOTAL-COMMON-STOCKHOLDERS-EQ> 48,482
0
0
<LONG-TERM-DEBT-NET> 7,301
<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> 184,243
<TOT-CAPITALIZATION-AND-LIAB> 240,126
<GROSS-OPERATING-REVENUE> 27,372
<INCOME-TAX-EXPENSE> (149)
<OTHER-OPERATING-EXPENSES> 26,945
<TOTAL-OPERATING-EXPENSES> 26,796
<OPERATING-INCOME-LOSS> 576
<OTHER-INCOME-NET> 395
<INCOME-BEFORE-INTEREST-EXPEN> 971
<TOTAL-INTEREST-EXPENSE> 1,043
<NET-INCOME> (72)
0
<EARNINGS-AVAILABLE-FOR-COMM> 0
<COMMON-STOCK-DIVIDENDS> 4,246
<TOTAL-INTEREST-ON-BONDS> 292
<CASH-FLOW-OPERATIONS> 5,869
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND>
This schedule contains restated summary financial information extracted from
the balance sheet, statement of income, statement of retained earnings and
statement of cash flows contained in Form 10-K of Cambridge Electric Light
Company for the fiscal year ended December 31, 1998 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<RESTATED>
<CIK> 0000016573
<NAME> CAMBRIDGE ELECTRIC LIGHT COMPANY
<MULTIPLIER> 1,000
<S> <C>
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<PERIOD-TYPE> YEAR
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 94,400
<OTHER-PROPERTY-AND-INVEST> 9,911
<TOTAL-CURRENT-ASSETS> 46,706
<TOTAL-DEFERRED-CHARGES> 76,484
<OTHER-ASSETS> 29,429
<TOTAL-ASSETS> 256,930
<COMMON> 8,665
<CAPITAL-SURPLUS-PAID-IN> 27,953
<RETAINED-EARNINGS> 16,182
<TOTAL-COMMON-STOCKHOLDERS-EQ> 52,800
0
0
<LONG-TERM-DEBT-NET> 7,301
<SHORT-TERM-NOTES> 0
<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> 186,729
<TOT-CAPITALIZATION-AND-LIAB> 256,930
<GROSS-OPERATING-REVENUE> 118,707
<INCOME-TAX-EXPENSE> 3,423
<OTHER-OPERATING-EXPENSES> 105,316
<TOTAL-OPERATING-EXPENSES> 108,739
<OPERATING-INCOME-LOSS> 9,968
<OTHER-INCOME-NET> 2,236
<INCOME-BEFORE-INTEREST-EXPEN> 12,204
<TOTAL-INTEREST-EXPENSE> 3,383
<NET-INCOME> 8,821
0
<EARNINGS-AVAILABLE-FOR-COMM> 8,821
<COMMON-STOCK-DIVIDENDS> 4,246
<TOTAL-INTEREST-ON-BONDS> 1,442
<CASH-FLOW-OPERATIONS> 11,207
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
