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 June 30, 1994
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 2-30057
CANAL ELECTRIC COMPANY
(Exact name of registrant as specified in its charter)
Massachusetts 04-1733577
(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 August 1, 1994
Common Stock, $25 par value 1,523,200 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 2
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
CANAL ELECTRIC COMPANY
CONDENSED BALANCE SHEETS
JUNE 30, 1994 AND DECEMBER 31, 1993
ASSETS
(Unaudited)
June 30, December 31,
1994 1993
(Dollars in Thousands)
PROPERTY, PLANT AND EQUIPMENT, at original cost $407 960 $404 768
Less - Accumulated depreciation and
amortization 145 195 137 720
262 765 267 048
Add - Construction work in progress 2 194 2 501
Nuclear fuel in process 209 1 641
265 168 271 190
LEASED PROPERTY, net 13 862 14 150
INVESTMENTS
Equity in corporate joint venture 3 928 3 861
CURRENT ASSETS
Cash 12 12
Accounts receivable
Affiliated companies 11 637 12 215
Other 11 823 9 549
Electric production fuel oil 684 663
Prepaid taxes -
Property - 891
Income - 720
Other 2 648 3 602
26 804 27 652
DEFERRED CHARGES
Seabrook 1 8 332 9 002
Seabrook 2 6 032 6 937
Other 13 053 11 509
27 417 27 448
$337 179 $344 301
PAGE 3
CANAL ELECTRIC COMPANY
CONDENSED BALANCE SHEETS
JUNE 30, 1994 AND DECEMBER 31, 1993
CAPITALIZATION AND LIABILITIES
(Unaudited)
June 30, December 31,
1994 1993
(Dollars in Thousands)
CAPITALIZATION
Common Equity -
Common stock, $25 par value -
Authorized - 2,328,200 shares
Outstanding - 1,523,200 shares,
wholly-owned by Commonwealth
Energy System (Parent) $ 38 080 $ 38 080
Amounts paid in excess of par value 8 321 8 321
Retained earnings 52 512 48 151
98 913 94 552
Long-term debt, including premiums, less
current sinking fund requirements 88 080 88 446
186 993 182 998
CAPITAL LEASE OBLIGATIONS 13 288 13 575
CURRENT LIABILITIES
Interim Financing -
Notes payable to banks - 28 000
Advances from affiliates 19 820 8 310
19 820 36 310
Other Current Liabilities -
Current sinking fund requirements 1 110 1 110
Accounts payable -
Affiliated companies 1 095 1 829
Other 20 578 15 244
Accrued taxes -
Income 594 460
Local property and other 23 923
Capital lease obligations 574 575
Accrued interest and other 3 854 3 547
27 828 23 688
47 648 59 998
DEFERRED CREDITS
Accumulated deferred income taxes 71 420 70 854
Unamortized investment tax credits and other 17 830 16 876
89 250 87 730
COMMITMENTS AND CONTINGENCIES
$337 179 $344 301
See accompanying notes.
PAGE 4
CANAL ELECTRIC COMPANY
CONDENSED STATEMENTS OF INCOME AND RETAINED EARNINGS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 1994 AND 1993
(Unaudited)
Three Months Ended Six Months Ended
1994 1993 1994 1993
(Dollars in Thousands)
ELECTRIC OPERATING REVENUES
Sales to affiliated companies $32 448 $32 870 $ 65 502 $ 66 330
Sales to non-affiliated companies 18 742 15 425 39 585 36 965
51 190 48 295 105 087 103 295
OPERATING EXPENSES
Fuel used in production 21 701 21 362 45 932 43 855
Electricity purchased for resale 6 952 5 963 14 634 13 148
Other operation and maintenance 10 004 8 633 19 259 19 745
Depreciation 3 418 2 496 6 830 6 751
Taxes -
Income 2 301 2 510 4 696 5 007
Local property 690 839 1 379 1 696
Payroll and other 189 226 408 451
45 255 42 029 93 138 90 653
OPERATING INCOME 5 935 6 266 11 949 12 642
OTHER INCOME 41 215 130 466
INCOME BEFORE INTEREST CHARGES 5 976 6 481 12 079 13 108
INTEREST CHARGES
Long-term debt 2 072 2 342 4 148 4 683
Other interest charges 321 187 595 415
Allowance for borrowed funds used
during construction (34) (15) (71) (28)
2 359 2 514 4 672 5 070
NET INCOME 3 617 3 967 7 407 8 038
RETAINED EARNINGS -
Beginning of period 51 941 61 943 48 151 64 498
Dividends on common stock (3 046) (4 036) (3 046) (10 662)
RETAINED EARNINGS -
End of period $52 512 $61 874 $ 52 512 $ 61 874
See accompanying notes.
PAGE 5
CANAL ELECTRIC COMPANY
CONDENSED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1994 AND 1993
(Unaudited)
1994 1993
(Dollars in Thousands)
OPERATING ACTIVITIES
Net income $ 7 407 $ 8 038
Effects of non-cash items -
Depreciation and amortization 9 335 9 626
Deferred income taxes and investment
tax credits, net 180 12
Earnings from corporate joint venture (251) (280)
Dividends from corporate joint venture 184 294
Change in working capital, exclusive of cash
and interim financing 4 988 5 861
All other operating items (458) (219)
Net cash provided by operating activities 21 385 23 332
INVESTING ACTIVITIES
Additions to property, plant and equipment
(exclusive of AFUDC) (1 412) (2 575)
Allowance for borrowed funds used
during construction (71) (28)
Net cash used for investing activities (1 483) (2 603)
FINANCING ACTIVITIES
Payment of short-term borrowings (28 000) (7 400)
Payment of dividends (3 046) (10 662)
Advances from (payments to) affiliates 11 510 (2 720)
Sinking fund payments (366) (381)
Net cash used for financing activities (19 902) (21 163)
Net increase (decrease) in cash - (434)
Cash at beginning of period 12 446
Cash at end of period $ 12 $ 12
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest (net of capitalized amounts) $ 4 558 $ 4 888
Income taxes $ 3 748 $ 6 470
See accompanying notes.
PAGE 6
CANAL ELECTRIC COMPANY
NOTES TO CONDENSED FINANCIAL STATEMENTS
(1) Accounting Policies
Canal Electric Company (the Company) is a wholly-owned subsidiary of
Commonwealth Energy System. The parent company is referred to in this
report as the "System" and together with its subsidiaries is collectively
referred to as "the system."
The Company's significant accounting policies are described in Note 1
of Notes to Financial Statements included in its 1993 Annual Report on Form
10-K filed with the Securities and Exchange Commission. For interim
reporting purposes, the Company follows these same basic accounting
policies but considers each interim period as an integral part of an annual
period and makes allocations of certain expenses to interim periods based
upon estimates of such expenses for the year.
The Company has established various regulatory assets in cases where
the Massachusetts Department of Public Utilities (DPU) and/or the Federal
Energy Regulatory Commission (FERC) have permitted, or are expected to
permit, recovery of specific costs over time. As of June 30, 1994,
principal regulatory assets included in deferred charges were $13.9 million
for abandonment and nonconstruction costs related to the Seabrook project
and $7.3 million related to deferred income taxes.
Generally, expenses which benefit more than one interim period are
allocated to other periods to more appropriately match revenues and
expenses. Income tax expense is recorded using the statutory rates in
effect applied to book income subject to tax recorded in the interim
period.
The unaudited financial statements for the periods ended June 30, 1994
and 1993 reflect, in the opinion of the Company, all adjustments
(consisting of only normal recurring accruals) necessary to summarize
fairly the results for such periods. In addition, certain prior period
amounts are reclassified from time to time to conform with the presentation
used in the current period's financial statements.
The Company is a wholesale power company and operates its two
generating units under life-of-the-unit power contracts on file with the
FERC. The price of power under the power contracts is based on a two-part
rate consisting of a demand charge and an energy charge. The demand charge
covers all expenses except fuel costs and includes the recovery of the
original investment. It also provides for any adjustments to that
investment over the economic lives of the units. The energy charge is
based on the cost of fuel and is billed to each purchaser in proportion to
its purchase of power. Purchasers are billed monthly.
The Company also procures bulk electric power at the request of and
for its affiliates thereby securing cost savings for their respective
customers by planning for a power supply on a single system basis.
PAGE 7
CANAL ELECTRIC COMPANY
(2) Commitments and Contingencies
Construction
The Company is engaged in a continuous construction program presently
estimated at $64.8 million for the five-year period 1994 through 1998. Of
that amount, $13.2 million is estimated for 1994. As of June 30, 1994,
construction expenditures, including an allowance for funds used during
construction, amounted to approximately $1.5 million. The Company's
program is subject to periodic review and revision.
(3) Decommissioning of Seabrook Nuclear Power Plant
The Company and the other joint owners of Seabrook have established a
Seabrook Nuclear Decommissioning Financing Fund to cover post operational
decommissioning costs. The estimated cost to decommission the plant is
$374 million, in 1994 dollars, through June 30, 1994. The Company's share,
less its share of the market value of the decommissioning trust, amounts to
approximately $12.2 million.
PAGE 8
CANAL ELECTRIC 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 six months
ended June 30, 1994 and 1993 is shown below:
Three Months Ended Six Months Ended
June 30, June 30,
1994 and 1993 1994 and 1993
Increase (Decrease)
(Dollars in Thousands)
Electric Operating Revenues $ 2 895 6.0% $ 1 792 1.7%
Operating Expenses -
Fuel used in production 339 1.6 2 077 4.7
Electricity purchased for resale 989 16.6 1 486 11.3
Other operation and maintenance 1 371 15.9 (486) (2.5)
Depreciation 922 36.9 79 1.2
Taxes -
Federal and state income (209) (8.3) (311) (6.2)
Local property and other (186) (17.5) (360) (16.8)
3 226 7.7 2 485 2.7
Operating Income (331) (5.3) (693) (5.5)
Other Income (174) (80.9) (336) (72.1)
Income Before Interest Charges (505) (7.8) (1 029) (7.8)
Interest Charges (155) (6.2) (398) (7.9)
Net Income $ (350) (8.8) $ (631) (7.9)
Unit Sales (MWH) Increase 73 818 6.9 65 273 2.8
Three Months Ended Six Months Ended
June 30, June 30,
MWH Unit Sales 1994 and 1993 1994 and 1993
Canal Unit 1 629 321 642 487 1 341 546 1 525 330
Canal Unit 2 411 997 245 836 782 123 428 998
Seabrook 1 6 861 85 487 71 241 165 066
Purchased for Resale 98 027 98 578 236 998 247 241
1 146 206 1 072 388 2 431 908 2 366 635
PAGE 9
CANAL ELECTRIC COMPANY
Revenue, Fuel and Purchased Power
Operating revenues for the six months ended June 30, 1994 increased
approximately $1.8 million or 1.7% due to an increase in unit sales and the
resultant increase in the level of fuel costs. During the current three-
month period operating revenues increased approximately $2.9 million or 6%
due to an increase in unit sales and the absence of a refund made to
customers during the second quarter of 1993 (approximately $2 million)
reflecting an overbilling which had occurred during the first quarter of
1993 and December 1992. Also affecting operating revenues in both periods
were increased levels of purchased power costs.
Purchased power and transmission costs are included in operating
expenses and result from the Company's role as wholesale agent to generate
and produce bulk electric power for affiliated retail distribution
companies.
Unit sales increased 6.9% and 2.8%, respectively, for the current
three and six-month periods due to the increased availability of Unit 2
reflecting the timing of scheduled maintenance. Also affecting unit sales
in both current periods was the timing of a refueling outage at Seabrook 1
which began in early April and additional unscheduled maintenance.
Seabrook 1 returned to full-power operation in early August 1994.
Fuel used in production increased in both periods due to the
increases in unit sales. The per barrel cost of oil averaged $13.55 and
$13.88 during the current quarter and six-month periods, respectively, as
compared to $15.00 and $14.34 during the corresponding periods of a year
ago. Fuel, purchased power and transmission costs for the current three
and six-month periods represent approximately 58% and 59%, respectively, of
operating revenues and averaged 2.57 cents and 2.56 cents per KWH,
respectively, as compared to 2.63 cents and 2.48 cents per KWH for the same
periods of 1993.
Other Operating Expenses
Other operation and maintenance expense decreased 2.5% during the
first six months of 1994 due primarily to a decrease in maintenance expense
for Unit 2 (approximately $2.6 million) reflecting the timing of scheduled
maintenance, offset, somewhat by an increase in costs associated with the
operation of Seabrook 1 ($917,000). The 15.9% increase in other operation
and maintenance expense during the second quarter was due to the timing of
the aforementioned refund of $2 million to the Company which was related to
an overbilling to the Company. Depreciation expense increased in both
current periods due to a higher level of plant in service, and also
reflects in the current quarter the impact of a June 1993 adjustment that
resulted from a revision to the accrual rate to reflect the extension of
the depreciable life of Unit 1 from 1996 to 2002. Federal and state income
taxes decreased due to a lower level of pretax income, offset somewhat by
an increase in the federal tax rate to 35%. The decrease in local property
and other taxes reflects lower rates associated with the nuclear station
tax assessed by the state of New Hampshire to the joint-owners of Seabrook.
PAGE 10
CANAL ELECTRIC COMPANY
Other Income and Interest Charges
The significant decrease in other income during the current three and
six month periods was primarily due to a higher level of other income
deductions reflecting postretirement benefit reserves ($134,000 and
$311,000 during the three and six-month periods, respectively).
Total interest charges decreased 6.2% and 7.9% during the current
three and six-month periods, respectively, reflecting decreases in long-
term interest ($270,000 and $535,000 during those periods) due to the early
redemption of the Company's Series D, 11.125% First Mortgage Bonds due
December 1, 2007 totaling $9.3 million, on December 1, 1993. Somewhat
offsetting the decrease during the period was an increase in other interest
charges ($134,000 and $180,000 during the three and six-month periods,
respectively) caused by a higher level of short-term borrowings.
Environmental Matters
The Company is subject to laws and regulations administered by
federal, state and local authorities relating to the quality of the
environment. These laws and regulations affect, among other things, the
siting and operation of generating facilities, and will continue to impact
future operations, capital costs and construction schedules.
The federal Clean Air Act, as amended, and certain state laws and
regulations impose restrictions on air emissions. Some of these
restrictions will become effective in 1995, and others by the year 2000.
These laws and regulations have a particular impact on the cost of electric
generating operations. As part of its emission reduction program, the
Company has been burning more lower-sulphur content fuel oil at the plant.
In addition, in October 1993, the Company and Montaup Electric Company
(joint owner of Unit 2) reached an agreement with Algonquin Gas
Transmission Company to build a natural gas pipeline that will serve Unit
2, subject to regulatory approvals. Unit 2 will be modified to burn gas in
addition to oil. The project will improve air quality on Cape Cod, and
will also strengthen the Company's bargaining position as it seeks to
secure the lowest-cost fuel for its customers. Plant conversion and
pipeline construction are expected to be completed in 1996 at an estimated
cost to the Company of approximately $7 million.
PAGE 11
CANAL ELECTRIC COMPANY
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
The Company is not a party to any pending material legal proceeding.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
None
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the three months ended June
30, 1994.
PAGE 12
CANAL ELECTRIC 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.
CANAL ELECTRIC COMPANY
(Registrant)
Principal Financial Officer:
JAMES D. RAPPOLI
James D. Rappoli,
Financial Vice President
and Treasurer
Principal Accounting Officer:
JOHN A. WHALEN
John A. Whalen,
Comptroller
Date: August 12, 1994
