PAGE 1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549-1004
Form 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
(Mark One)
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1993
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from _______________ to _______________
Commission file number 2-30057
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)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
None None
Securities registered pursuant to Section 12(g) of the Act:
Title of Class
None
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 March 15, 1994
Common Stock, $25 par value 1,523,200 shares
The Company meets the conditions set forth in General Instruction J(1)(a) and
(b) of Form 10-K as a wholly-owned subsidiary and is therefore filing this
Form with the reduced disclosure format.
Documents Incorporated by Reference Part in Form 10-K
None Not Applicable
List of Exhibits begins on page 33 of this report.
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CANAL ELECTRIC COMPANY
FORM 10-K DECEMBER 31, 1993
TABLE OF CONTENTS
PART I
PAGE
Item 1. Business.......................................... 3
General......................................... 3
New England Power Pool.......................... 3
Regulation...................................... 4
Fuel Supply..................................... 4
Power Contracts................................. 5
Power Supply Commitments and
Support Agreements............................ 6
Construction and Financing...................... 6
Environmental Matters........................... 6
Employees....................................... 7
Item 2. Properties........................................ 7
Item 3. Legal Proceedings................................. 7
PART II
Item 5. Market for the Registrant's Common Stock and
Related Stockholder Matters..................... 8
Item 7. Management's Discussion and Analysis of
Results of Operations........................... 9
Item 8. Financial Statements and Supplementary Data....... 13
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure............. 13
PART IV
Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K............................. 33
Signatures................................................... 48
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CANAL ELECTRIC COMPANY
Part I.
Item 1. Business
General
Canal Electric Company (the Company) is a wholesale electric generating
company organized in 1902 under the laws of the Commonwealth of Massachu-
setts. The Company assumed its present corporate name in 1966 after the
sale to an affiliated company of its electric distribution and transmission
properties together with the right to do business in the territories served.
The Company is a wholly-owned subsidiary of Commonwealth Energy System
("System"), which together with its subsidiaries is collectively referred to
as "the system."
The Company's generating station is located in Sandwich, Massachusetts
at the eastern end of the Cape Cod Canal. The station consists of two oil-
fired steam electric generating units: Canal Unit 1, with a rated capacity
of 569 MW, wholly-owned by the Company; and Canal Unit 2, with a rated
capacity of 580 MW, jointly-owned by the Company and Montaup Electric
Company (Montaup) (an unaffiliated company). Canal Unit 2 is operated by
the Company under an agreement with Montaup which provides for the equal
sharing of output, fixed charges and operating expenses. Canal Units 1 and
2 commenced operation in 1968 and in 1976, respectively.
The Company also has a 3.52% interest in the Seabrook 1 nuclear power
plant located in Seabrook, New Hampshire, to provide for a portion of the
capacity and energy needs of Cambridge Electric Light Company (Cambridge)
and Commonwealth Electric Company (Commonwealth Electric), each of which are
retail distribution companies and wholly-owned subsidiaries of the System.
The plant has a rated capacity of 1,150 MW.
For additional information pertaining to the Company's relationship with
the system's retail distribution companies, together with more extensive
disclosures on the Company's participation in the Seabrook plant and with
other sources of power procurement, refer to the "Power Contracts" and
"Power Supply Commitments and Support Agreements" sections of this Item 1
and Note 5 of Notes to Financial Statements filed under Item 8 of this
report.
New England Power Pool
The Company, together with other electric utility companies in the New
England area, is a member of the New England Power Pool (NEPOOL), which was
formed in 1971 to provide for the joint planning and operation of electric
systems throughout New England.
NEPOOL operates a centralized dispatching facility to ensure reliability
of service and to dispatch the most economically available generating units
of the member companies to fulfill the region's energy requirements. This
concept is accomplished by use of computers to monitor and forecast load
requirements and provide for economic dispatching of generation. In the
past, this has required that Canal Unit 1 operate whenever possible since it
is one of the most efficient oil-fired units in the country. Canal Unit 2
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CANAL ELECTRIC COMPANY
is designed for cycling operation which provides for economic changes in
unit load permitting reduced generation during nights and weekends when
demand is lowest. It has performed as one of New England's most efficient
units in this type of service.
The Company and the System's other electric subsidiaries are also
members of the Northeast Power Coordinating Council (NPCC), an advisory
organization which includes the major power systems in New England and New
York plus the provinces of Ontario and New Brunswick in Canada. NPCC
establishes criteria and standards for reliability and serves as a vehicle
for coordination in the planning and operation of these systems in enhancing
reliability.
Regulation
The Company is a "public utility" within the meaning of Part II of the
Federal Power Act and is subject to regulations thereunder by the FERC as to
rates, accounting and other matters. The Company is subject to regulation
by the DPU as to the issuance of securities.
Fuel Supply
(a) Oil
Effective July 1, 1993, the Company executed a twenty-two month contract
with Coastal Oil New England, Inc. (Coastal) for the purchase of residual
fuel oil. The contract provides for delivery of a set percentage of the
Company's fuel requirement, the balance (a maximum of 20%) to be met by spot
purchases or by Coastal at the discretion of the Company.
Energy Supply and Credit Corporation (ESCO Massachusetts, Inc.) operates
the Company's oil terminal and manages the purchase, receipt and payment of
oil under assignment of the Company's supply contracts to ESCO
Massachusetts, Inc. Oil in the terminal's shore tanks is held in inventory
by ESCO Massachusetts, Inc. and delivered upon demand to the Company's day
tanks.
Fuel oil storage facilities at the Canal site have a capacity of
1,199,000 barrels, representing approximately 60 days of normal operation of
the two units. During 1993, ESCO maintained an average daily inventory of
583,000 barrels of fuel oil which represents 30 days of normal operation of
the two units. This supply is maintained by tanker deliveries approximately
every ten to fifteen days.
For a discussion on the cost of fuel oil, refer to "Management's
Discussion and Analysis of Results of Operations" filed under Item 7 of this
report.
(b) Nuclear Fuel
The nuclear fuel contract and inventory information for Seabrook 1 has
been furnished to the Company by North Atlantic Energy Services Corporation
(NAESCO), the plant manager responsible for operation of the unit.
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CANAL ELECTRIC COMPANY
The supply of fuel for nuclear generating plants generally involves the
acquisition of uranium concentrates, its conversion to uranium hexafluoride,
enrichment, fabrication of the nuclear fuel assemblies and, after its use in
the reactor, its storage as spent fuel until final disposal by the federal
government. Seabrook's requirement for each of these fuel components are
100% covered through 1999 by existing contracts.
There are no spent fuel reprocessing or disposal facilities currently
operating in the United States. Instead, commercial nuclear electric gener-
ating units operating in the United States are required to retain high level
wastes and spent fuel on-site. As required by the Nuclear Waste Policy Act
of 1982 (the Act), as amended, the joint-owners entered into a contract with
the Department of Energy for the transportation and disposal of spent fuel
and high level radioactive waste at a national nuclear waste repository.
Owners or generators of spent nuclear fuel or its associated wastes are
required to bear all of the costs for such transportation and disposal
through payment of a fee of approximately 1 mill/KWH based on net electric
generation to the Nuclear Waste Fund. Under the Act, a temporary storage
facility for nuclear waste was anticipated to be in operation by 1998; a
reassessment of the project's schedule requires extending the completion
date of the permanent facility until at least 2010. Seabrook 1 is currently
licensed for enough on-site storage to accommodate all spent fuel expected
to be accumulated through the year 2010.
Power Contracts
The Company is a party to substantially identical life-of-the-unit power
contracts with Boston Edison Company, Montaup Electric Company and New
England Power Company (unaffiliated utilities), under which each is
severally obligated to purchase one-quarter of the capacity and energy of
Canal Unit 1. Commonwealth Electric and Cambridge are jointly obligated to
purchase the remaining one-quarter of the unit's capacity and energy.
Similar contracts are in effect between the Company and Commonwealth
Electric and Cambridge under which those companies are jointly obligated to
purchase the Company's entire share of the capacity and energy of Canal Unit
2. The price of power 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 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 power contracts are on file with the FERC.
The Company's participation in various power arrangements is
accomplished through the use of a Capacity Acquisition and Disposition
Agreement (Agreement), a vehicle whereby bulk electric power is procured by
the Company at the request of and for resale to its affiliates Commonwealth
Electric and Cambridge. The Agreement allows the Company to act as agent
for Commonwealth Electric and/or Cambridge in the procurement of additional
capacity, or, to sell a portion of each company's entitlement in Unit 2.
Exchange agreements are in place with several utilities whereby, in certain
circumstances, it is possible to exchange capacity so that the mix of power
improves the pricing for dispatch for both the seller and purchaser.
Commonwealth Electric and Cambridge thus secure cost savings for their
respective customers by planning for bulk power supply on a single system
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CANAL ELECTRIC COMPANY
basis. This Agreement, which has been accepted for filing as a rate
schedule by the FERC, enables the Company to recover costs incurred in
connection with any unit covered by such Agreement whether or not the unit
becomes operational. Power contracts are in place, whereby the Company
bills Commonwealth Electric and Cambridge for certain costs associated with
units subject to this Agreement. Commonwealth Electric and Cambridge, in
turn, bill those charges to retail customers through rates subject to DPU
regulation. In accordance with applicable provisions of the Agreement, when
a source of power satisfactory to Commonwealth Electric and/or Cambridge has
been identified, a document, hereafter referred to as a Capacity Acquisition
or Disposition Commitment (Commitment), referencing such source of power and
binding the parties thereto to the terms of the Agreement is created.
Currently, Commitments are in effect for Seabrook 1, Phase I and Phase II of
the Hydro-Quebec Project, varying amounts of power acquired from Northeast
Utilities (NU), a 50 MW exchange with Central Vermont Public Service and a
20 MW exchange with New England Power Company through October 1993,
increased to 50 MW through April 1997.
Power Supply Commitments and Support Agreements
In response to solicitations by NU and other utilities, the Company, on
behalf of Commonwealth Electric and Cambridge, agreed to purchase
entitlements through short-term contracts in various selected generating
units. The contracts with NU cover the purchase of varying amounts of power
through October 1994. These and other bulk electric power purchases are
necessary in order to fulfill the system's NEPOOL obligation and for the
Company to acquire and deliver electric generating capacity to meet
Commonwealth Electric and Cambridge requirements. For additional
information, refer to "Transactions with Affiliates" in Note 1 of Notes to
Financial Statements and to "Management's Discussion and Analysis of Results
of Operations" filed under Items 8 and 7, respectively, of this report.
The Company is party to support agreements for Phase I and Phase II of
the Hydro-Quebec Project and is thereby obligated to pay its share of
operating and capital costs for Phase II over a 25 year period ending in
2015. Future minimum lease payments for Phase II have an estimated present
value of $14.2 million at December 31, 1993. In addition, the Company has
an equity interest in Phase II which amounted to $3.9 million in 1993 and
$4.2 million in 1992.
Construction and Financing
Information concerning the Company's financing and construction programs
is contained in Note 5 of Notes to Financial Statements filed under Item 8
of this report.
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.
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CANAL ELECTRIC COMPANY
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 this plant.
In addition, in October 1993, the Company reached an agreement with Montaup
Electric Company (50% owner of Unit 2) and 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, enable the plant to
exceed the stringent 1995 air quality standards established by the
Massachusetts Department of Environmental Protection 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.
Following the issuance of an environmental consent order in May 1993,
the plant was subject to an intensive 26 week review by the Massachusetts
Department of Environmental Protection. The on-site inspection of the plant
ended in December 1993, with the plant meeting all state requirements. The
plant will remain under state supervision and will be subject to unannounced
emissions checks in order to ensure that the highest standards of air
quality are maintained.
Employees
The Company has 124 regular employees, 88 (71%) are represented by the
Utility Workers' Union of America, A.F.L.-C.I.O. The existing collective
bargaining agreement expires on May 31, 1997. Employee relations have
generally been satisfactory.
Item 2. Properties
The Company operates a generating station located at the eastern end of
the Cape Cod Canal in Sandwich, Massachusetts. The station consists of two
oil-fired steam electric generating units: Canal Unit 1 with a rated
capacity of 569 MW, wholly-owned by the Company; and Canal Unit 2, with a
rated capacity of 580 MW, jointly-owned by the Company and Montaup Electric
Company, a wholly-owned subsidiary of Eastern Utilities Associates. In
addition, the Company has a 3.52% joint-ownership interest (40.5 MW of
capacity) in Seabrook 1. Refer to Note 3 of Notes to Financial Statements
filed under Item 8 of this report for encumbrances relative to the Company's
property.
Item 3. Legal Proceedings
The Company is subject to legal claims and matters arising from its
normal course of business, including its ownership interest in the Seabrook
plant.
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CANAL ELECTRIC COMPANY
PART II.
Item 5. Market for the Registrant's Common Stock and Related Stockholder
Matters
(a) Principal Market
Not applicable. The Company is a wholly-owned subsidiary of
Commonwealth Energy System.
(b) Number of Shareholders at December 31, 1993
One
(c) Frequency and Amount of Dividends Declared in 1993 and 1992
1993 1992
Per Share Per Share
Declaration Date Amount Declaration Date Amount
January 28, 1993 $ 4.35 February 24, 1992 $ 3.15
April 26, 1993 2.65 April 27, 1992 2.85
July 26, 1993 2.62 July 20, 1992 2.50
October 18, 1993 2.50 October 19, 1992 3.00
December 29, 1993 8.54 $11.50
$20.66
Reference is made to Note 6 of Notes to Financial Statements filed
under Item 8 of this report for restrictions against the payment of
cash dividends.
(d) Future dividends may vary depending upon the Company's earnings and
capital requirements as well as financial and other conditions
existing at that time.
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CANAL ELECTRIC COMPANY
Item 7. 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 statements of income and is presented to
facilitate an understanding of the results of operations. This discussion
should be read in conjunction with the Notes to Financial Statements filed
under Item 8 of this report.
A summary of the period to period changes in the principal items
included in the statements of income for the years ended December 31, 1993 and
1992 is shown below:
Years Ended Years Ended
December 31, December 31,
1993 and 1992 1992 and 1991
Increase (Decrease)
(Dollars in Thousands)
Electric Operating Revenues $(18 605) (8.4)% $ (22 163) (9.1)%
Operating Expenses:
Fuel used in production (13 324) (13.9) (3 526) (3.5)
Electricity purchased for resale (870) (3.0) (2 496) (8.0)
Other operation and maintenance (1 561) (3.9) (14 183) (26.3)
Depreciation (1 658) (11.0) 124 0.8
Amortization - - 4 653 378.3
Taxes -
Federal and state income (2 856) (24.3) 132 1.1
Local property and other (568) (13.9) 633 18.4
(20 837) (10.5) (14 663) (6.9)
Operating Income 2 232 9.8 (7 500) (24.8)
Other Income (5 479) (94.8) 4 477 343.9
Income Before Interest Charges (3 247) (11.4) (3 023) (9.6)
Interest Charges 978 10.6 (3 392) (26.9)
Net Income $ (4 225) (19.6) $ 369 1.9
Unit Sales (MWH)
Increase(Decrease) (1 076 059) (21.8) (362 532) (6.2)
The following is a summary of unit sales for the periods indicated:
Unit Sales (MWH)
Period Ended Seabrook Purchased
December 31, Unit 1 Unit 2 Unit 1 For Resale Total
1993 2 382 716 1 275 305 318 694 446 316 4 423 031
1992 3 173 668 1 590 643 273 859 460 920 5 499 090
1991 3 453 950 1 723 584 241 033 443 055 5 861 622
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CANAL ELECTRIC COMPANY
Revenue, Fuel and Purchased Power
Operating revenues for 1993 decreased by $18.6 million or 8.4% due
primarily to a 21.8% decrease in unit sales and the resultant decline in the
level of fuel costs.
Unit sales decreased 21.8% due to the timing of scheduled maintenance on
Units 1 and 2, the operation of the units at reduced capacity during
emissions testing and a decrease in the level of purchases through short-
term contracts on behalf of affiliated retail distribution companies. Also
contributing to the decrease was the impact of the excess capacity situation
which exists in New England. Somewhat offsetting the decline in unit sales
was an increase in power available from Seabrook 1.
During 1992, operating revenues decreased by $22.2 million or 9.1% due
primarily to a 6.2% decrease in unit sales and a $6.9 million revenue
decline associated with the operation of Seabrook 1. The reduction in
Seabrook revenues included a $4 million refund to customers resulting from
the 1992 Federal Energy Regulatory Commission (FERC) settlement which allows
a 11.72% return on equity for the Company's investment in the Seabrook
project.
Unit sales decreased 6.2% during 1992 due primarily to the operation of
Units 1 and 2 at reduced capacity during emissions testing and the excess
capacity situation in New England. Somewhat offsetting the decline was
increased power available from Seabrook 1 and a higher level of capacity
purchases on behalf of affiliated retail distribution companies.
Purchased power and transmission costs are included in operating
expenses and result from the Company's role as wholesale agent to generate
and procure bulk electric power for resale to its two affiliated retail
distribution companies.
Fuel, purchased power and transmission costs (included in other
operation) represented approximately 56% of the total revenue dollar in
1993, 58% in 1992 and 56% in 1991 and averaged 2.58 cents per KWH in 1993 as
compared to 2.33 cents in 1992 and 2.31 cents in 1991. The per barrel cost
of oil averaged $14.02 in 1993, $12.95 in 1992 and $12.53 in 1991. In
conformance with restrictions on air emissions, the Commonwealth of
Massachusetts mandated a reduction in sulphur dioxide emissions requiring
the periodic use of lower-sulphur (1%) content oil. In 1993, 1% oil
averaged $15.16 per barrel, a 12.1% decrease from the $17.25 cost in 1992.
However, lower-sulphur oil displaced 57.5% of the higher sulphur (2.2%)
content oil as compared to 24% in 1992. This higher cost is included in the
total average cost per barrel for 1993 and 1992 but 1% oil was not used in
1991. The price of oil is expected to average approximately $15.62 per
barrel in 1994.
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CANAL ELECTRIC COMPANY
Other Operating Expenses
Other operation includes the following:
Years Ended December 31,
1993 1992 1991
(Dollars in millions)
Other operation: $23.7 $27.0 $37.6
Less:
Seabrook 1 operations 4.6 5.7 9.2
Hydro-Quebec Phase II
transmission 3.5 3.5 4.7
Power purchased from affiliates 0.8 2.6 7.9
$14.8 $15.2 $15.8
After excluding the items noted above, other operation, net, decreased
2.6% in 1993 and 3.8% in 1992. The significant changes in power purchased
from affiliates were due to a damaged service station transformer at the
Company's Unit 1 from July 1991 through February 1992 which required the
Company to buy power normally generated at the plant and a refund ($594,000)
received in 1993 reflecting an overbilling which had occurred in December
1992. The refund was passed back to the Company's customers in 1993 and
produced a corresponding reduction to revenues.
The increase in maintenance expense in 1993 reflects the timing of a
scheduled inspection and overhaul of the Unit 2 boiler, turbine and
generator. Maintenance expense decreased in 1992 for both Units 1 and 2 as
capital projects increased.
Depreciation, Amortization and Taxes
Depreciation expense decreased 11%, or approximately $1.7 million,
during 1993 due to a revision to accrual rates used in determining
depreciation expense and an extension of the depreciable life of Unit 1 from
1996 to 2002, resulting from a study conducted as of December 31, 1992.
Depreciation expense increased in 1992 reflecting a higher level of plant-
in-service.
The fluctuation in amortization from 1991 to 1992 was due to a change in
the recovery period of Seabrook 1 nonconstruction costs from one year to ten
years pursuant to a settlement with the FERC in 1991. Amortization of these
costs began with commercial operation of the unit in 1990.
Income tax expense decreased approximately $2.9 million or 24.3% in 1993
due to a significantly lower level of pretax income offset, somewhat, by an
increase in the federal income tax rate to 35%, retroactive to January 1,
1993. Income tax expense increased during 1992 due to a higher level of
pretax income. The decrease in local property and other taxes during 1993
reflects lower rates and a refund ($306,000) associated with revisions to
the nuclear station property tax assessed by the state of New Hampshire to
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CANAL ELECTRIC COMPANY
the joint-owners of Seabrook. The 1992 increase in local property and other
taxes reflects an increase in the nuclear station property tax ($435,000),
which was first charged to the Company during 1991 and higher tax rates in
the Town of Sandwich.
Other Income
The significant decrease in other income during 1993 was due to the
absence of: 1) an equity component of allowance for funds used during
construction (AFUDC) resulting from an adjustment to reflect the 1992 FERC
settlement which finalized recovery of the Company's investment in Seabrook
1; 2) interest income related to contested tax issues; and 3) the reversal
of a reserve related to the Company's Seabrook investment which was
determined to be fully recoverable pursuant to the aforementioned FERC
settlement. Other income increased significantly during 1992 due to an
increase in the equity component of AFUDC again related to the FERC
settlement and an increase in interest income ($1,648,000) related to
contested income tax issues and a decrease in other income deductions
($901,000) reflecting the reversal of the aforementioned reserve related to
Seabrook.
Interest Charges
Total interest charges increased 10.6% during 1993 due to a signifi-
cantly lower level of debt AFUDC reflecting the Seabrook settlement noted
above. Other interest charges decreased $802,000, or approximately 44.8%,
due to a lower average level of short-term debt and lower interest rates.
Interest rates on bank borrowings averaged 3.4% during 1993 as compared to
4% for 1992. The 26.9% decrease in total interest charges during 1992
reflected an increase in the debt component of AFUDC as noted above, lower
interest rates and a lower level of short-term debt.
Early Retirement of Debt
On December 1, 1993, the Company redeemed its Series D, 11.125% First
Mortgage Bonds due December 1, 2007 totaling $9.3 million with short-term
borrowings. The Company paid a premium of $279,000 on this early redemption
and will amortize this amount to expense over the remaining original life of
the retired issue.
New Accounting Standards
Effective January 1, 1993, the Company adopted the provisions of a new
accounting standard, Statement of Financial Accounting Standards No. 106,
"Employers' Accounting for Postretirement Benefits Other Than Pensions."
For further information, refer to Note 7(b) of the Notes to Financial
Statements.
In 1992, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 112, "Employers' Accounting for
Postemployment Benefits" (SFAS 112). The Company is required to adopt this
statement effective January 1, 1994. SFAS 112 requires employers to
recognize the obligation to provide benefits to former or inactive employees
after employment but before retirement (postemployment). Those benefits
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CANAL ELECTRIC COMPANY
include salary continuation, supplemental employment benefits, severance
benefits, disability-related benefits and continuation of health care and
life insurance coverage if each of the following conditions are met: 1) the
obligation is attributable to employee services already rendered, 2) employ-
ees' rights to those benefits accumulate or vest, 3) payment of the benefits
is probable and 4) the cost of the benefits can be reasonably estimated.
The Company believes that the adoption of the provisions of SFAS 112 will
not have a material impact on its financial position or results of
operations.
Item 8. Financial Statements and Supplementary Data
The Company's financial statements required by this item are filed
herewith on pages 14 through 32 of this report.
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure
None
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CANAL ELECTRIC COMPANY
Item 8. Financial Statements and Supplementary Data
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Canal Electric Company:
We have audited the accompanying balance sheets of CANAL ELECTRIC
COMPANY, (a Massachusetts corporation and wholly-owned subsidiary of
Commonwealth Energy System) as of December 31, 1993 and 1992, and the related
statements of income, retained earnings and cash flows for each of the three
years in the period ended December 31, 1993. These financial statements and
the schedules referred to below are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Canal Electric
Company as of December 31, 1993 and 1992, and the results of its operations
and its cash flows for each of the three years in the period ended December
31, 1993, in conformity with generally accepted accounting principles.
As discussed in Note 7 to the financial statements, effective January 1,
1993, the Company changed its method of accounting for costs associated with
postretirement benefits other than pensions.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedules listed in the index to
financial statements and schedules are presented for purposes of complying
with the Securities and Exchange Commission's rules and are not part of the
basic financial statements. These schedules have been subjected to the
auditing procedures applied in the audits of the basic financial statements
and, in our opinion, fairly state in all material respects the financial data
required to be set forth therein in relation to the basic financial statements
taken as a whole.
ARTHUR ANDERSEN & CO.
Arthur Andersen & Co.
Boston, Massachusetts,
February 17, 1994.
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CANAL ELECTRIC COMPANY
INDEX TO FINANCIAL STATEMENTS AND SCHEDULES
PART II.
FINANCIAL STATEMENTS
Balance Sheets at December 31, 1993 and 1992
Statements of Income for the Years Ended December 31, 1993, 1992 and 1991
Statements of Retained Earnings for the Years Ended December 31, 1993, 1992
and 1991
Statements of Cash Flows for the Years Ended December 31, 1993, 1992 and
1991
Notes to Financial Statements
PART IV.
SCHEDULES
III Investments In, Equity Earnings of, and Dividends Received From
Related Parties for the Years Ended December 31, 1993, 1992 and 1991
V Property, Plant and Equipment for the Years Ended December 31, 1993,
1992 and 1991
VI Accumulated Depreciation of Property, Plant and Equipment and
Amortization of Nuclear Fuel for the Years Ended December 31, 1993,
1992 and 1991
IX Short-Term Borrowings for the Years Ended December 31, 1993, 1992 and
1991
SCHEDULES OMITTED
All other schedules are not submitted because they are not applicable or
required or because the required information is included in the financial
statements or notes thereto.
PAGE 16
CANAL ELECTRIC COMPANY
BALANCE SHEETS
DECEMBER 31, 1993 AND 1992
ASSETS
1993 1992
(Dollars in Thousands)
PROPERTY, PLANT AND EQUIPMENT, at original cost $404 768 $402 595
Less - Accumulated depreciation
and amortization 137 720 124 062
267 048 278 533
Add - Construction work in progress 2 501 1 625
Nuclear fuel in process 1 641 155
271 190 280 313
LEASED PROPERTY, net (Note 8) 14 150 14 868
INVESTMENTS
Equity in corporate joint venture 3 861 4 170
CURRENT ASSETS
Cash 12 446
Accounts receivable -
Affiliated companies 12 215 11 754
Other 9 549 9 497
Unbilled revenues 659 883
Inventories, at average cost
Electric production fuel oil 663 2 496
Materials and supplies 1 471 1 460
Prepaid taxes -
Income 720 -
Property 891 872
Other 1 472 1 086
27 652 28 494
DEFERRED CHARGES (Notes 1, 5 and 7)
Seabrook 1 9 002 9 931
Seabrook 2 6 937 8 792
Other 11 509 11 454
27 448 30 177
$344 301 $358 022
PAGE 17
CANAL ELECTRIC COMPANY
BALANCE SHEETS
DECEMBER 31, 1993 AND 1992
CAPITALIZATION AND LIABILITIES
1993 1992
(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 (Note 6) 48 151 64 498
94 552 110 899
Long-term debt, including premiums, less
current sinking fund requirements (Note 3) 88 446 98 478
182 998 209 377
CAPITAL LEASE OBLIGATIONS (Note 8) 13 575 14 270
CURRENT LIABILITIES
Interim Financing - (Note 3)
Notes payable to banks 28 000 19 350
Advances from affiliates 8 310 3 720
36 310 23 070
Other Current Liabilities -
Current sinking fund requirements 1 110 1 108
Accounts payable -
Affiliated companies 1 829 2 015
Other 15 244 16 149
Accrued taxes -
Local property and other 923 934
Income 460 730
Capital lease obligations (Note 8) 575 598
Accrued interest and other 3 547 2 268
23 688 23 802
59 998 46 872
DEFERRED CREDITS
Accumulated deferred income taxes 70 854 70 487
Unamortized investment tax credits 13 360 14 075
Other 3 516 2 941
87 730 87 503
COMMITMENTS AND CONTINGENCIES (Note 5)
$344 301 $358 022
The accompanying notes are an integral part of these financial statements.
PAGE 18
CANAL ELECTRIC COMPANY
STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
1993 1992 1991
(Dollars in Thousands)
ELECTRIC OPERATING REVENUES (Note 1)
Sales to affiliated companies $133 060 $144 214 $160 454
Sales to non-affiliated companies 70 000 77 451 83 374
203 060 221 665 243 828
OPERATING EXPENSES
Fuel used in production 82 624 95 948 99 474
Electricity purchased for
resale (Note 1) 27 977 28 847 31 343
Other operation 23 694 27 019 37 606
Maintenance 14 561 12 797 16 393
Depreciation 13 361 15 019 14 895
Amortization 3 423 3 423 (1 230)
Taxes -
Income (Note 2) 8 893 11 749 11 617
Local property 2 720 3 392 2 748
Payroll and other 790 686 697
178 043 198 880 213 543
OPERATING INCOME 25 017 22 785 30 285
OTHER INCOME
Allowance for equity funds used
during construction - 1 827 -
Other, net 300 3 952 1 302
300 5 779 1 302
INCOME BEFORE INTEREST CHARGES 25 317 28 564 31 587
INTEREST CHARGES
Long-term debt 9 267 9 403 9 416
Other interest charges 989 1 791 3 361
Allowance for borrowed funds used
during construction (61) (1 977) (168)
10 195 9 217 12 609
NET INCOME $ 15 122 $ 19 347 $ 18 978
The accompanying notes are an integral part of these financial statements.
PAGE 19
CANAL ELECTRIC COMPANY
STATEMENTS OF RETAINED EARNINGS
FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
1993 1992 1991
(Dollars in Thousands)
Balance at beginning of year $64 498 $62 668 $60 445
Add (Deduct)
Net income 15 122 19 347 18 978
Cash dividends on common stock (31 469) (17 517) (16 755)
Balance at end of year $48 151 $64 498 $62 668
The accompanying notes are an integral part of these financial statements.
PAGE 20
CANAL ELECTRIC COMPANY
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
1993 1992 1991
(Dollars in Thousands)
OPERATING ACTIVITIES
Net income $ 15 122 $ 19 347 $ 18 978
Effects of non-cash items -
Depreciation and amortization 20 333 22 138 17 488
Deferred income taxes 1 445 3 950 3 866
Investment tax credits (715) (744) (729)
Allowance for equity funds used
during construction - (1 827) -
Earnings from corporate joint venture (573) (620) (1 195)
Dividends from corporate joint venture 882 822 277
Change in working capital, exclusive
of cash and interim financing -
Accounts receivable (513) 1 304 3 087
Unbilled revenues 224 (193) 176
Accrued income taxes, net (990) 1 313 (2 710)
Local property and other taxes, net (30) (526) 326
Accounts payable and other 1 603 (2 491) (1 103)
All other operating items, net (2 326) (2 988) 1 405
Net cash from operating activities 34 462 39 485 39 866
INVESTING ACTIVITIES
Additions to property, plant and
equipment (exclusive of AFUDC) - (6 574) (5 474) (4 889)
Allowance for borrowed funds used
during construction (61) (1 977) (168)
Net cash used for investing activities (6 635) (7 451) (5 057)
FINANCING ACTIVITIES
Proceeds from (payment of)
short-term borrowings 8 650 (13 850) (16 800)
Proceeds from (payment of) affiliate
borrowings 4 590 215 (1 085)
Payment of dividends (31 469) (17 517) (16 755)
Long-term debt issue refunded (9 300) - -
Retirement of long-term debt through
sinking funds (732) (436) (327)
Net cash used for financing activities (28 261) (31 588) (34 967)
Net increase (decrease) in cash (434) 446 (158)
Cash at beginning of period 446 - 158
Cash at end of period $ 12 $ 446 $ -
The accompanying notes are an integral part of these financial statements.
PAGE 21
CANAL ELECTRIC COMPANY
NOTES TO FINANCIAL STATEMENTS
(1) Significant Accounting Policies
(a) General and Regulatory
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 referred to as
"the system." The Company is regulated as to rates, accounting and other
matters by various authorities including the Federal Energy Regulatory
Commission (FERC) and the Massachusetts Department of Public Utilities
(DPU). The System is an exempt 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 companies and
several non-regulated companies.
The Company has established various regulatory assets in cases where
the DPU and/or the FERC have permitted, or are expected to permit, recovery
of specific costs over time. At December 31, 1993, principal regulatory
assets included in deferred charges were $15.5 million for abandonment and
nonconstruction costs related to the Seabrook project and $7.3 million
related to deferred income taxes.
(b) Reclassifications
Certain prior year amounts are reclassified from time to time to
conform with the presentation used in the current year's financial
statements.
(c) Transactions with Affiliates
Transactions between the Company and other system companies include
purchases and sales of electricity, including the Company's acquisition and
resale of capacity entitlements and related energy generated by certain
units of other New England utilities. The Company functions as the
principal supplier of electric generation capacity for and on behalf of
affiliates Cambridge Electric Light Company (Cambridge) and Commonwealth
Electric Company (Commonwealth Electric) including abandonment and
nonconstruction costs related to the Seabrook project. In addition,
payments for management, accounting, data processing and other services are
made to affiliate COM/Energy Services Company. Transactions with other
system companies are subject to review by the FERC and the DPU.
The Company's operating revenues included the following intercompany
amounts for the periods indicated:
Period Ended Electricity Sales Seabrook Units
December 31, (Canal Units) Purchased Power and Other
(Dollars in Thousands)
1993 $53 174 $31 777 $48 109
1992 60 440 32 592 51 182
1991 65 756 36 337 58 361
PAGE 22
CANAL ELECTRIC COMPANY
(d) Other Major Customers
The Company is a wholesale electric generating company which sells
power under life-of-the-unit contracts, approved by FERC to Boston Edison
Company, Montaup Electric Company and New England Power Company,
(unaffiliated utilities). Each utility is obligated to purchase one-quarter
of the capacity and energy of Canal Unit 1.
(e) Equity Method of Accounting
The Company uses the equity method of accounting for its 3.8% invest-
ment in the New England/Hydro-Quebec Phase II transmission facilities due,
in part, to its ability to exercise significant influence over operating and
financial policies of the entity. Under this method, it records as income
the proportionate share of the net earnings of this project with a corre-
sponding increase in the carrying value of the investment. The investment
amount is reduced as cash dividends are received. For further information
on this investment, refer to Schedule III in Part IV of this report.
(f) Depreciation and Nuclear Fuel Amortization
Depreciation is provided using the straight-line method at rates
intended to amortize the original cost and the estimated cost of removal
less salvage of properties over their estimated economic lives. The
Company's composite depreciation rate, based on average depreciable property
in service, was 3.47% in 1993 and 3.92% in 1992 and 1991. The depreciable
life of Unit 1 was extended from 1996 to 2002 and resulted in a decrease in
depreciation expense of approximately $1.7 million in 1993.
The cost of nuclear fuel is amortized to fuel expense based on the
quantity of energy produced. Nuclear fuel expense also includes a provision
for the costs associated with the ultimate disposal of the spent nuclear
fuel.
(g) Maintenance
Expenditures for repairs of property and replacement and renewal of
items determined to be less than units of property are charged to
maintenance expense. Additions, replacements and renewals of property
considered to be units of property, are charged to the appropriate plant
accounts. Upon retirement, accumulated depreciation is charged with the
original cost of property units and the cost of removal net of salvage.
(h) Allowance for Funds Used During Construction
Under applicable rate-making practices, the Company is permitted to
include an allowance for funds used during construction (AFUDC) as an
element of its depreciable property costs. This allowance is based on the
amount of construction work in progress that is not included in the rate
base on which the Company earns a return. An amount equal to the AFUDC
capitalized in the current period is reflected in the accompanying
Statements of Income.
While AFUDC does not provide funds currently, these amounts are
recoverable in revenues over the service life of the constructed property.
PAGE 23
CANAL ELECTRIC COMPANY
The Company develops rates based upon its current cost of capital and used a
compound rate of 3.75% in 1993, 4.75% in 1992 and 6.5% in 1991.
(2) Income Taxes
For financial reporting purposes, the Company provides federal and
state income taxes on a separate return basis. However, for federal income
tax purposes, the Company's taxable income and deductions are included in
the consolidated income tax return of the System and it makes tax payments
or receives refunds on the basis of its tax attributes in the tax return in
accordance with applicable regulations.
The following is a summary of the provisions for income taxes for the
years ended December 31, 1993, 1992 and 1991:
1993 1992 1991
(Dollars in Thousands)
Federal:
Current $ 7 192 $ 7 636 $ 7 454
Deferred 1 476 3 506 2 890
Investment tax credits (715) (744) (729)
7 953 10 398 9 615
State:
Current 1 181 1 147 1 366
Deferred (31) 1 048 976
1 150 2 195 2 342
9 103 12 593 11 957
Amortization of regulatory liability
relating to deferred income taxes - (604) -
Total $ 9 103 $11 989 $11 957
Federal and state income taxes
charged to:
Operating expense $ 8 893 $11 749 $11 617
Other income 210 240 340
$ 9 103 $11 989 $11 957
Effective January 1, 1992, the Company adopted the provisions of
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes" (SFAS No. 109). SFAS No. 109 requires recognition of deferred tax
liabilities and assets for the expected future tax consequences of events that
have been included in the financial statements or tax returns. Under this
method, deferred tax liabilities and assets are determined based on the
difference between the financial statement and tax basis of assets and
liabilities using enacted tax rates in effect in the year in which the
differences are expected to reverse.
PAGE 24
CANAL ELECTRIC COMPANY
Accumulated deferred income taxes consisted of the following in 1993 and
1992:
1993 1992
(Dollars in Thousands)
Liabilities
Property-related $78 571 $75 948
Seabrook nonconstruction 6 017 8 175
All other 1 497 1 477
86 085 85 600
Assets
Investment tax credit 8 623 8 733
Regulatory liability 5 189 4 903
All other 2 047 1 957
15 859 15 593
Accumulated deferred income taxes, net $70 226 $70 007
The net year-end deferred income tax liability above is net of a current
deferred tax asset of $628,000 in 1993 and $480,000 in 1992 which was
included in prepaid income taxes in the accompanying Balance Sheets.
The following table, detailing the significant timing differences for
1991 which resulted in deferred income taxes, is required to be disclosed
pursuant to accounting standards for income taxes in effect prior to
adoption of SFAS No. 109:
1991
(Dollars in Thousands)
Seabrook nonconstruction costs $ 1 179
Recovery of Seabrook 2 (826)
Accelerated depreciation for tax purposes 4 308
Capitalized interest during construction (698)
Seabrook 2 accretion 340
Other (437)
Deferred income tax provision $ 3 866
The total income tax provision set forth on the previous page
represents 38% in 1993 and 1992, and 39% in 1991 of income before such
taxes. The following table reconciles the statutory federal income tax rate
PAGE 25
CANAL ELECTRIC COMPANY
to these percentages:
1993 1992 1991
Federal statutory rate 35% 34% 34%
Increase (Decrease) from statutory rate:
State tax net of federal
tax benefit 3 5 5
Amortization of investment
tax credits (3) (2) (2)
Allowance for equity funds
used during construction - (2) -
Tax versus book depreciation 5 4 3
Other (2) (1) (1)
Effective federal tax rate 38% 38% 39%
As a result of the Revenue Reconciliation Act of 1993, the Company's
federal income tax rate increased to 35% effective January 1, 1993.
(3) Long-Term Debt and Interim Financing
(a) Long-Term Debt
Long-term debt outstanding, exclusive of current sinking fund
requirements and related premiums, collateralized by substantially all of
the Company's property, is as follows:
Original Balance December 31,
Issue 1993 1992
(Dollars in Thousands)
First Mortgage Bonds -
Series A, 7%, due 1996 $19 000 $ 4 560 $ 5 320
Series B, 8.85%, due 2006 35 000 34 650 34 650
Series D, 11 1/8%, due 2007 9 300 - 9 300
Series E, 7 3/8%, due 2020 10 000 10 000 10 000
Series F, 9 7/8%, due 2020 40 000 40 000 40 000
$89 210 $99 270
The Series A First Mortgage Bonds require an annual sinking fund
payment of $760,000 with an option to retire an additional $95,000 per
quarter.
The Series B First and General Mortgage Bonds require an annual
sinking fund payment of $350,000. The requirement may be met by payment,
repurchase of bonds or certification of an amount of property additions
equal to 60% of bondable property (as that term is defined in the
indenture). The Company expects to certify additional bondable property in
lieu of making sinking fund payments on these bonds.
The Series E and Series F First and General Mortgage Bonds were issued
in conjunction with The Industrial Development Authority of the State of New
Hampshire issuing Solid Waste Disposal Bonds and Pollution Control Bonds,
PAGE 26
CANAL ELECTRIC COMPANY
respectively. The bonds were issued pursuant to a Loan and Trust Agreement
dated December 1, 1990 among the Authority, the Company and the First
National Bank of Boston, the Trustee.
(b) Notes Payable to Banks
The Company and other system companies maintain both committed and
uncommitted lines of credit for the financing of their construction
programs, on a short-term basis, and for other corporate purposes. As of
December 31, 1993, system companies had $115 million of committed lines of
credit that will expire at varying intervals in 1994. These lines are
normally renewed upon expiration and require annual fees of up to .1875% of
the individual line. At December 31, 1993, the uncommitted lines of credit
totaled $70 million. Interest rates on the outstanding borrowings generally
are at an adjusted money market rate. The Company's notes payable to banks
totaled $28,000,000 and $19,350,000 at December 31, 1993 and 1992,
respectively.
(c) Advances from Affiliates
At December 31, 1993 the Company had no notes payable to the System.
The Company had short-term notes payable to the System totaling $2,840,000
at December 31, 1992. These notes are written for a term of eleven months
and twenty-nine days. Interest is at the prime rate (6% at December 31,
1992) and is adjusted for changes in the rate during the term of the notes.
The Company is a member of the COM/Energy Money Pool (the Pool), an
arrangement among the subsidiaries of the System, whereby short-term cash
surpluses are used to help meet the short-term borrowing needs of the
utility subsidiaries. In general, lenders to the Pool receive a higher rate
of return than they otherwise would on such investments, while borrowers pay
a lower interest rate than that available from banks. At December 31, 1993
and 1992, the Company had borrowings from the Pool totaling $8,310,000 and
$880,000, respectively.
(d) Disclosures About Fair Value of Financial Instruments
As required by Statement of Financial Accounting Standards No. 107,
"Disclosures about Fair Value of Financial Instruments," the fair value of
certain financial instruments included in the accompanying Balance Sheets as
of December 31, 1993 and 1992 are as follows:
1993 1992
(Dollars in Thousands)
Carrying Fair Carrying Fair
Value Value Value Value
Long-Term Debt $89 556 $104 325 $99 586 $109 586
The carrying amount of cash, notes payable to banks and advances from
affiliates approximates the fair value because of the short maturity of
these financial instruments.
PAGE 27
CANAL ELECTRIC COMPANY
The estimated fair value of long-term debt is based upon quoted market
prices of the same or similar issues or on the current rates offered for
debt with the same remaining maturity. The fair values shown above do not
purport to represent the amounts at which those obligations would be
settled.
(4) Supplemental Disclosures of Cash Flow Information
The Company's supplemental information concerning cash flow activities is
as follows:
1993 1992 1991
(Dollars in Thousands)
Interest paid (net of
capitalized amounts) $ 9 704 $ 8 464 $12 529
Income taxes paid 9 467 8 123 11 072
(5) Commitments and Contingencies
(a) 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. The Company's program is
subject to periodic review and revision.
(b) Seabrook Nuclear Power Plant
The system's 3.52% interest in the Seabrook nuclear power plant is
owned by the Company to provide for a portion of the capacity and energy
needs of Cambridge and Commonwealth Electric. The Company is recovering
100% of its Seabrook 1 investment through a power contract with Cambridge
and Commonwealth Electric pursuant to FERC approval.
Pertinent information with respect to the Company's joint-ownership
interest in Seabrook 1 and information relating to operating expenses which
are included in the accompanying financial statements are as follows:
1993 1992
(Dollars in Thousands)
Utility plant-in-service $233 140 $233 651
Nuclear fuel 18 514 17 083
Accumulated depreciation
and amortization (34 771) (25 382)
Construction work in progress 881 623
$217 764 $225 975
PAGE 28
CANAL ELECTRIC COMPANY
1993 1992 1991
(Dollars in Thousands)
Operating expenses:
Fuel $ 3 853 $ 3 952 $ 4 337
Other operation 4 580 5 705 9 239
Maintenance 893 1 508 1 601
Depreciation 6 522 6 426 7 214
Amortization 1 319 1 320 (3 333)
$17 167 $18 911 $19 058
Plant capacity (MW) 1,150 In-service date 1990
Canal's share: Operating license
Percent interest 3.52% expiration date 2026
Entitlement (MW) 40.5
The Company and the other joint-owners have established a Seabrook
Nuclear Decommissioning Financing Fund to cover post-operational
decommissioning costs. For the years 1993, 1992 and 1991, the Company paid
$259,000, $235,000 and $181,000, respectively, as its share of the cost of
this fund. The estimated cost to decommission the plant is $366 million.
The Company's share, less its share of the market value of the
decommissioning trust, would amount to approximately $11.6 million.
(c)Power Contracts
In response to solicitations made to NEPOOL member companies by
Northeast Utilities (NU) and other utilities, the Company, on behalf of
Commonwealth Electric and Cambridge, agreed to purchase entitlements through
short-term contracts. These power contracts have been entered into with NU
to purchase varying amounts of power through October 1994. These and other
bulk electric power purchases are necessary in order to fulfill the system's
NEPOOL obligation and for the Company to acquire and deliver electric
generating capacity to meet Commonwealth Electric and Cambridge
requirements.
(d)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 electric generating and transmission facilities and
can require the installation of expensive air and water pollution control
equipment. These regulations have had an impact upon the Company's
operations in the past and will continue to have an impact upon future
operations, capital costs and construction schedules of major facilities.
(6) Dividend Restriction
At December 31, 1993, approximately $43,415,000 of retained earnings
was restricted against the payment of cash dividends by terms of the
Indenture of Trust securing long-term debt.
PAGE 29
CANAL ELECTRIC COMPANY
(7) Employee Benefit Plans
(a) Pension
The Company has a noncontributory pension plan covering substantially
all regular employees who have attained the age of 21 and have completed a
year of service. Pension benefits are based on an employee's years of
service and compensation. The Company makes monthly contributions to the
plan consistent with the funding requirements of the Employee Retirement
Income Security Act of 1974.
Components of pension expense were as follows:
1993 1992 1991
(Dollars in Thousands)
Service cost $ 384 $ 319 $ 343
Interest cost 960 799 676
Return on plan assets (1 741) (1 138) (2 119)
Net amortization and deferral 913 386 1 508
Total pension expense 516 366 408
Transfers from affiliates, net 145 181 172
Less: Amounts capitalized and other 160 150 147
Net pension expense $ 501 $ 397 $ 433
The following economic assumptions were used to measure year-end obliga-
tions and the estimated pension expense for the subsequent year:
1993 1992 1991
Discount rate 7.25% 8.50% 8.50%
Assumed rate of return 8.50 8.50 8.50
Rate of increase in future compensation 4.50 5.50 5.50
Pension expense reflects the use of the projected unit credit method
which is also the actuarial cost method used in determining future funding
of the plan. The funded status of the Company's pension plan (using a
measurement date of December 31) is as follows:
1993 1992
(Dollars in Thousands)
Accumulated benefit obligation:
Vested $ (9 333) $(6 525)
Nonvested (1 614) (914)
$(10 947) $(7 439)
Projected benefit obligation $(13 668) $(9 898)
Plan assets at fair market value 12 906 11 257
Projected benefit obligation less
(greater) than plan assets (762) 1 359
Unamortized transition obligation 138 156
Unrecognized prior service cost 532 370
Unrecognized gain (248) (2 174)
Accrued pension cost $ (340) $ (289)
PAGE 30
CANAL ELECTRIC COMPANY
Plan assets consist primarily of fixed income and equity securities.
Fluctuations in the fair market value of plan assets will affect pension
expense in future years. The increase in the accumulated benefit obligation
and the projected benefit obligation from December 31, 1992 to December 31,
1993 was primarily due to a reduction of the discount rate in light of
current interest rates.
(b) Other Postretirement Benefits
Through December 31, 1992, the Company provided postretirement health
care and life insurance benefits to all eligible retired employees.
Employees became eligible for these benefits if their age plus years of
service at retirement equaled 75 or more provided, however, that such
service was performed for the Company or another subsidiary of the System.
As of January 1, 1993, the Company eliminated postretirement health care
benefits for those non-bargaining employees who were less than 40 years of
age or had less than 12 years of service at that date. Under certain
circumstances, eligible employees are now required to make contributions for
postretirement benefits. Certain bargaining employees are also
participating under these new eligibility requirements.
Effective January 1, 1993, the Company adopted the provisions of
Statement of Financial Accounting Standards No. 106 "Employers' Accounting
for Postretirement Benefits Other Than Pensions" (SFAS No.106). This new
standard requires the accrual of the expected cost of such benefits during
the employees' years of service and the recognition of an actuarially
determined postretirement benefit obligation earned by existing retirees.
The assumptions and calculations involved in determining the accrual and the
accumulated postretirement benefit obligation (APBO) closely parallel
pension accounting requirements. The cumulative effect of implementation of
SFAS No. 106 as of January 1, 1993 was approximately $5 million which is
being amortized over twenty years. Prior to 1993, the cost of postretirement
benefits was recognized as the benefits were paid. The cost of retiree
medical care and life insurance benefits under the traditional pay-as-you-go
method totaled $131,000 in 1992 and $112,000 in 1991.
In 1993, the Company began making contributions to various voluntary
employee beneficiary association (VEBA) trusts that were established
pursuant to section 501(c)9 of the Internal Revenue Code (the Code). The
Company also made contributions to a sub-account of its pension plan
pursuant to section 401(h) of the Code to satisfy a portion of its
postretirement benefit obligation. The Company contributed approximately
$684,000 to these trusts during 1993.
The net periodic postretirement benefit cost for the year ended
PAGE 31
CANAL ELECTRIC COMPANY
December 31, 1993 included the following components:
1993
(Dollars in Thousands)
Service cost $ 169
Interest cost 428
Return on plan assets (35)
Amortization of transition obligation
over 20 years 249
Net amortization and deferral 1
Total postretirement benefit cost 812
Less: Amounts capitalized and other 536
Net postretirement benefit cost $ 276
The funded status of the Company's postretirement benefit plan using a
measurement date of December 31, 1993 is as follows:
1993
(Dollars in Thousands)
Accumulated postretirement benefit obligation:
Retirees $ (2 596)
Active participants (2 735)
(5 331)
Plan assets at fair market value 636
Projected postretirement benefit obligation
greater than plan assets (4 695)
Unamortized transition obligation 4 722
Unrecognized gain (27)
$ -
In determining its estimated APBO and the funded status of the plan, the
Company assumed a discount rate of 7.25%, an expected long-term rate of
return on plan assets of 8.5%, and a medical care cost trend rate of 9%,
which gradually decreases to 5% in the year 2007 and remains at that level
thereafter. The estimate also reflects a trend rate of 14.9% for
reimbursement of Medicare Part B premiums which decreases to 5% by 2007 and
a dental care trend rate of 5% in all years. A one percent change in the
medical trend rate would have a $100,000 impact on the Company's annual
expense (interest component-$60,000; service cost-$40,000) and would change
the accumulated benefit obligation by approximately $755,000.
Plan assets consist primarily of fixed income and equity securities.
Fluctuations in the fair market value of plan assets will affect
postretirement benefit expense in future years.
(c) Savings Plan
The Company has an Employees Savings Plan that provides for Company
contributions equal to contributions by eligible employees up to four
percent of each employee's compensation rate. Effective January 1, 1993,
the rate was increased to five percent for those employees no longer
eligible for postretirement benefits other than pensions. The Company's
contribution was $234,000 in 1993, $197,000 in 1992 and $185,000 in 1991.
PAGE 32
CANAL ELECTRIC COMPANY
(8) Lease Obligations
The Company leases equipment and office space under arrangements that are
classified as operating leases. These lease agreements are for terms of one
year or longer. Leases currently in effect contain no provisions which
prohibit the Company from entering into future lease agreements or
obligations.
The Company has entered into support agreements with other participating
New England utilities for 3.8% of the Hydro-Quebec Phase II transmission
facilities and makes monthly support payments to cover depreciation and
interest costs.
Future minimum lease payments, by period and in the aggregate, of capital
leases and non-cancelable operating leases consisted of the following at
December 31, 1993:
Operating Leases Capital Leases
(Dollars in Thousands)
1994 $ 438 $ 2 100
1995 372 2 036
1996 359 1 975
1997 359 1 912
1998 359 1 851
Beyond 1998 1 076 23 970
Total future minimum lease payments $2 963 33 844
Less:Estimated interest element
included therein 19 694
Estimated present value of future
minimum lease payments $14 150
Total rent expense for all operating leases, except those with terms
of a month or less, amounted to $438,000 in 1993 and $452,000 in 1992 and
1991. There were no contingent rentals and no sublease rentals for the
years 1993, 1992 and 1991.
PAGE 33
CANAL ELECTRIC COMPANY
PART IV.
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) 1. Index to Financial Statements
Financial statements and notes thereto of the Company together with the
Report of Independent Public Accountants, are filed under Item 8 of this
report and listed on the Index to Financial Statements and Schedules
(page 15).
(a) 2. Index to Financial Statement Schedules
Filed herewith at page(s) indicated are financial statement schedules of
the Company:
Schedule III - Investments in, Equity Earnings of, and Dividends
Received from Related Parties - Years Ended December 31, 1993, 1992 and
1991 (page 42).
Schedule V - Property, Plant and Equipment - Years Ended December 31,
1993, 1992 and 1991 (pages 43-45).
Schedule VI - Accumulated Depreciation and Amortization of Property,
Plant and Equipment - Years Ended December 31, 1993, 1992 and 1991 (page
46).
Schedule IX - Short-Term Borrowings - Years Ended December 31, 1993,
1992 and 1991 (page 47).
(a) 3. Exhibits:
Notes to Exhibits -
a. Unless otherwise designated, the exhibits listed below are
incorporated by reference to the appropriate exhibit numbers and the
Securities and Exchange Commission file numbers indicated in
parentheses.
b. If applicable, as designated by an asterisk, certain documents
previously filed by the Company have been disposed of by the
Commission pursuant to its Records Control Schedule and are hereby
being refiled by the Company.
c. The following is a glossary of Commonwealth Energy System and
subsidiary companies' acronyms that are used throughout the following
Exhibit Index:
CES.................... Commonwealth Energy System
CE..................... Commonwealth Electric Company
CEL.................... Cambridge Electric Light Company
CEC.................... Canal Electric Company
NBGEL.................. New Bedford Gas and Edison Light Company
PAGE 34
CANAL ELECTRIC COMPANY
Exhibit Index
Exhibit 3. Articles of incorporation and by-laws.
3.1. Articles of incorporation of CEC (Exhibit 1 to CEC's 1990 Form 10-
K, File No. 2-30057).
3.2. By-laws of CEC, as amended (Exhibit 2 to the CEC 1990 Form 10-K,
File No. 2-30057).
Exhibit 4. Instruments defining the rights of security holders, including
indentures
4.2.1 Indenture of Trust and First Mortgage between CEC and State Street
Bank and Trust Company, Trustee, dated October 1, 1968 (Exhibit
4(b) to the CEC Form S-1, File No. 2-30057).
4.2.2 First and General Mortgage Indenture between CEC and Citibank,
N.A., Trustee, dated September 1, 1976 (Exhibit 4(b)(2) to the CEC
Form S-1, File No. 2-56915).
4.2.3 First Supplemental dated October 1, 1968 with State Street Bank
and Trust Company, Trustee, dated September 1, 1976 (Exhibit
4(b)(3) to the CEC Form S-1, File No. 2-56915).
4.2.4 Second Supplemental dated September 1, 1976 with Citibank, N.A.,
New York, NY, Trustee, dated December 1, 1983 (Exhibit 1 to the
CEC 1983 Form 10-K, File No. 2-30057).
4.2.5 Third Supplemental dated September 1, 1976 with Citibank, N.A.,
New York, NY, Trustee, dated December 1, 1990 (Exhibit 3 to the
CEC 1990 Form 10-K, File No. 2-30057).
4.2.6 Fourth Supplemental dated September 1, 1976 with Citibank, N.A.,
New York, NY, Trustee, dated December 1, 1990 (Exhibit 4 to the
CEC 1990 Form 10-K, File No. 2-30057).
Exhibit 10. Material Contracts
10.1 Power contracts.
10.1.1 Power contracts between CEC and NBGEL and CEL dated December 1,
1965 (Exhibit 13(a)(1-4) to the CEC Form S-1, File No. 2-30057).
10.1.2.1 Agreement between CEC and Montaup Electric Company (MEC) for use of
common facilities by Canal Units I and II and for allocation of
related costs, executed October 14, 1975 (Exhibit 1 to the CEC 1985
Form 10-K, File No. 2-30057).
10.1.2.2 Agreement between CEC and MEC for joint-ownership of Canal Unit II,
executed October 14, 1975 (Exhibit 2 to the CEC 1985 Form 10-K,
File No. 2-30057).
PAGE 35
CANAL ELECTRIC COMPANY
10.1.2.3 Agreement between CEC and MEC for lease relating to Canal Unit II,
executed October 14, 1975 (Exhibit 3 to the CEC 1985 Form 10-K,
File No. 2-30057).
10.1.3 Contract between CEC, NBGEL and CEL, affiliated companies, for the
sale of specified amounts of electricity from Canal Unit 2 dated
January 12, 1976 (Exhibit 7 to the CES Form 10-K for 1985, File No.
1-7316).
10.1.4 Power contract, as amended to February 28, 1990, superceding the
Power Contract dated September 1, 1986 and amendment dated June 1,
1988, between CEC (seller) and CE and CEL (purchasers) for seller's
entire share of the Net Unit Capability of Seabrook 1 and related
energy (Exhibit 1 to the CEC Form 10-Q (March 1990), File No. 2-
30057).
10.1.5 Purchase and Sale Agreement together with an implementing Addendum
dated December 31, 1981 between CEC and CE for the purchase and
sale of the CE 3.52% joint-ownership interest in the Seabrook
units, dated January 2, 1981 (Exhibit 1 to the Company's Form 8-K
(January 13, 1982), File No. 2-30057).
10.1.6 Agreement for Joint-Ownership, Construction and Operation of the
New Hampshire Nuclear Units (Seabrook) dated May 1, 1973 and filed
by NBGEL as Exhibit 13(N) on Form S-1 dated October 1973, File No.
2-49013, and as amended below:
10.1.6.1 First through Fifth Amendments to 10.1.6 dated May 24, 1974,
June 21, 1974, September 25, 1974, October 25, 1974, and January
31, 1975, respectively (Exhibit 13(m) to the NBGEL Form S-1
(November 7, 1975), File No. 2-54995).
10.1.6.2 Sixth through Eleventh Amendments to 10.1.6 dated April 18, 1979,
April 18, 1979, April 25, 1979, June 8, 1979, October 11, 1979 and
December 15, 1979, respectively (Exhibit 1 to the CEC 1989 Form 10-
K, File No. 2-30057).
10.1.6.3 Twelfth and Thirteenth Amendments to 10.1.6 dated May 16, 1980 and
December 31, 1980, respectively ((Exhibit 1 and 2 to the CE Form
10-Q (June 1982), File No. 2-7749).
10.1.6.4 Fourteenth Amendment to 10.1.6 dated June 1, 1982 (Exhibit 3 to the
CE Form 10-Q (June 1982), File No. 2-7749).
10.1.6.5 Fifteenth and Sixteenth Amendments to 10.1.6 dated April 27, 1984
and June 15, 1984, respectively (Exhibit 1 to the CEC Form 10-Q
(June 1984), File No. 2-30057).
10.1.6.6 Seventeenth Amendment to 10.1.6 dated March 8, 1985 (Exhibit 1 to
the CEC Form 10-Q (March 1985), File No. 2-30057).
10.1.6.7 Eighteenth Amendment to 10.1.6 dated March 14, 1986 (Exhibit 1 to
the CEC Form 10-Q (March 1986), File No. 2-30057).
PAGE 36
CANAL ELECTRIC COMPANY
10.1.6.8 Nineteenth Amendment to 10.1.6 dated May 1, 1986 (Exhibit 1 to the
CEC Form 10-Q (June 1986), File No. 2-30057).
10.1.6.9 Twentieth Amendment to 10.1.6 dated September 19, 1986 (Exhibit 1
to the CEC Form 10-K for 1986, File No. 2-30057).
10.1.6.10 Twenty-First Amendment to 10.1.6 dated November 12, 1987 (Exhibit 1
to the CEC Form 10-K for 1987, File No. 2-30057).
10.1.6.11 Twenty-Second Amendment and Settlement Agreement to 10.1.6 dated
January 13, 1989 (Exhibit 4 to the CEC 1988 Form 10-K, File No. 2-
30057).
10.1.7 Resolutions proposed by Merrill Lynch Capital Markets and adopted
by the Joint-Owners of the Seabrook Nuclear Project regarding
Project financing, dated May 14, 1984 (Exhibit 1 to the CEC Form
10-Q (March 1984), File No. 2-30057).
10.1.8 Interim Agreement to Preserve and Protect the Assets of and
Investment in the New Hampshire Nuclear Units by and between CEC,
PSNH and other Participants dated April 27, 1984 (Exhibit 2 to the
CEC Form 10-Q (June 1984), File No.2-30057).
10.1.9 Agreement for Seabrook Project Disbursing Agent establishing Yankee
Atomic Electric Company as the disbursing agent under the Joint-
Ownership Agreement, dated May 23, 1984 (Exhibit 4 to the CEC Form
10-Q (June 1984), File No. 2-30057).
10.1.9.1 First Amendment to 10.1.9 dated March 8, 1985 (Exhibit 2 to the CEC
Form 10-Q (March 1985),File No.2-30057).
10.1.9.2 Second through Fifth Amendments to 10.1.9 dated May 20, 1985, June
18, 1985, January 2, 1986 and November 12, 1987, respectively,
(Exhibit 4 to the CEC 1987 Form 10-K, File No. 2-30057).
10.1.10 Capacity Acquisition Agreement between CEC, CEL and CE dated
September 25, 1980 (Exhibit 1 to the CEC 1991 Form 10-K, File No.
2-30057).
10.1.10.1 Supplement to 10.1.10 consisting of three Capacity Acquisition
Commitments each dated May 7, 1987, concerning Phases I and II of
the Hydro-Quebec Project and electricity acquired from Connecticut
Light and Power Company (CL&P) (Exhibit 1 to the CEC Form 10-Q
(September 1987), File No. 2-30057).
10.1.10.2 Supplements to 10.1.10 consisting of two Capacity Acquisition
Commitments each dated October 31, 1988, concerning electricity
acquired from Western Massachusetts Electric Company and/or CL&P
for periods ranging from November 1, 1988 to October 31, 1994
(Exhibit 2 to the CEC Form 10-Q (September 1989), File No. 2-
30057).
PAGE 37
CANAL ELECTRIC COMPANY
10.1.10.3 Amendment to 10.1.10 as amended, and restated, June 1, 1993,
henceforth referred to as the Capacity Acquisition and Disposition
Agreement, whereby CEC, as agent, in addition to acquiring power
may also sell bulk electric power which CEL and/or CE owns or
otherwise has the right to sell (Exhibit 1 to the CEC Form 10-Q
(September 1993), File No. 2-30057).
10.1.10.4 Capacity Disposition Commitment dated June 25, 1993 by and between
CEC (Unit 2) and CE for the sale of a portion of CE's entitlement
in Unit 2 to Green Mountain Power Corporation (Exhibit 1 to the CEC
Form 10-Q (September 1993), File No. 2-30057).
10.1.11 Termination Supplement between CEC, CE and CEL for Seabrook Unit 2,
dated December 8, 1986 (Exhibit 3 to the CEC Form 10-K for 1986,
File No. 2-30057).
10.1.12 Agreement, dated September 1, 1985, With Respect To Amendment of
Agreement With Respect To Use Of Quebec Interconnection, dated
December 1, 1981, among certain NEPOOL utilities to include Phase
II facilities in the definition of "Project" (Exhibit 1 to the CEC
Form 10-Q (September 1985), File No. 2-30057).
10.1.12.1 Amendatory Agreement No.3 with Respect to Use of Quebec
Interconnection dated December 1, 1981, as amended to June 1, 1990,
among certain NEPOOL utilities (Exhibit 1 to the CEC Form 10-Q
(September 1990), File No. 2-30057).
10.1.13 Preliminary Quebec Interconnection Support Agreement - Phase II
among certain New England electric utilities dated June 1, 1984
(Exhibit 6 to the CE Form 10-Q (June 1984), File No. 2-7749).
10.1.13.1 First through Third Amendments to 10.1.13 as amended March 1, 1985,
January 1, 1986 and March 1, 1987, respectively (Exhibit 1 to the
CEC Form 10-Q (March 1987), File No. 2-30057).
10.1.13.2 Fifth through Seventh Amendments to 10.1.13 as amended October 15,
1987, December 15, 1987 and March 1, 1988, respectively (Exhibit 1
to the CEC Form 10-Q (June 1988), File No. 2-30057).
10.1.13.3 Fourth and Eighth Amendments to 10.1.13 as amended July 1, 1987 and
August 1, 1988, respectively (Exhibit 3 to the CEC Form 10-Q
(September 1988), File No. 2-30057).
10.1.13.4 Ninth and Tenth Amendments to 10.1.13 as amended November 1, 1988
and January 15, 1989, respectively (Exhibit 2 to the CEC 1988 Form
10-K, File No. 2-30057).
10.1.13.5 Eleventh Amendment to 10.1.13 as amended November 1, 1989 (Exhibit
4 to the CEC 1989 Form 10-K, File No. 2-30057).
10.1.13.6 Twelfth Amendment to 10.1.13 as amended April 1, 1990 (Exhibit 1 to
the CEC Form 10-Q (June 1990) File No. 2-30057).
PAGE 38
CANAL ELECTRIC COMPANY
10.1.14 Agreement to Preliminary Quebec Interconnection Support Agreement -
Phase II among Public Service Company of New Hampshire (PSNH), New
England Power Co. (NEP) , Boston Edison Co. (BECO), and CEC whereby
PSNH assigns a portion of its interests under the original
Agreement to the other three parties, dated October 1, 1987
(Exhibit 2 to the CEC 1987 Form 10-K, File No. 2-30057).
10.1.15 Phase II Equity Funding Agreement for New England Hydro
Transmission Electric Company, Inc. (New England Hydro)
(Massachusetts), dated June 1, 1985, between New England Hydro and
certain NEPOOL utilities (Exhibit 2 to the CEC Form 10-Q (September
1985), File No. 2-30057).
10.1.16 Phase II Equity Funding Agreement for New England Hydro
Transmission Corporation (New Hampshire Hydro), dated June 1, 1985,
between New Hampshire Hydro and certain NEPOOL utilities (Exhibit 3
to the CEC Form 10-Q (September 1985), File No. 2-30057).
10.1.16.1 Amendment No. 1 to 10.1.16 as amended May 1, 1986 (Exhibit 6 to the
CEC Form 10-Q (March 1987), File No. 2-30057).
10.1.16.2 Amendment No. 2 to 10.1.16 as amended September 1, 1987 (Exhibit 3
to the CEC Form 10-Q (September 1987), File No. 2-30057).
10.1.17 Phase II Massachusetts Transmission Facilities Support Agreement,
dated June 1, 1985, refiled as a single agreement incorporating
Amendments 1 through 7 dated May 1, 1986 through January 1, 1989,
respectively, between New England Hydro and certain NEPOOL
utilities (Exhibit 2 to the CEC Form 10-Q (September 1990), File
No. 2-30057).
10.1.18 Phase II New Hampshire Transmission Facilities Support Agreement,
dated June 1, 1985, refiled as a single agreement incorporating
Amendments 1 through 8 dated May 1, 1986 through January 1, 1989,
respectively, between New Hampshire Hydro and certain NEPOOL
utilities (Exhibit 3 to the CEC Form 10-Q (September 1990), File
No. 2-30057).
10.1.19 Phase II New England Power AC Facilities Support Agreement dated
June 1, 1985, between New England Power and certain NEPOOL
utilities (Exhibit 6 to the CEC Form 10-Q (September 1985), File
No. 2-30057).
10.1.19.1 Amendments Nos. 1 and 2 to 10.1.19 as amended May 1, 1986 and
February 1, 1987, respectively (Exhibit 5 to the CEC Form 10-Q
(March 1987), File No. 2-30057).
10.1.19.2 Amendments Nos. 3 and 4 to 10.1.19 as amended June 1, 1987 and
September 1, 1987, respectively (Exhibit 5 to the CEC Form 10-Q
(September 1987), File No. 2-30057).
PAGE 39
CANAL ELECTRIC COMPANY
10.1.20 Phase II BECO AC Facilities Support Agreement, dated June 1, 1985,
between BECO and certain NEPOOL utilities (Exhibit 7 to the CEC
Form 10-Q (September 1985), File No. 2-30057).
10.1.20.1 Amendments Nos. 1 and 2 to 10.1.20 as amended May 1, 1986 and
February 1, 1987, respectively (Exhibit 2 to the CEC Form 10-Q
(March 1987), File No. 2-30057).
10.1.20.2 Amendments Nos. 3 and 4 to 10.1.20 as amended June 1, 1987 and
September 1, 1987, respectively (Exhibit 4 to the CEC Form 10-Q
(September 1987), File No. 2-30057).
10.1.21 Agreement Authorizing Execution of Phase II Firm Energy Contract,
dated September 1, 1985, among certain NEPOOL utilities in regard
to participation in the purchase of power from Hydro Quebec
(Exhibit 8 to the CEC Form 10-Q (September 1985), File No. 2-
30057).
10.1.22 Agreement to Share Certain Costs Associated with the Tewksbury-
Seabrook Transmission Line, by and among certain NEPOOL utilities,
amending participants, dated May 8, 1986 (Exhibit 2 to the CEC 1986
Form 10-K, File No. 2-30057).
10.1.23 Power Contract between CEC (seller) and CE and CEL (purchasers)
dated August 14, 1989 whereby purchasers agree to purchase the
capacity and energy from seller's "Slice-of-System" entitlement
from CL&P from November 1, 1989 to October 31, 1994 (Exhibit 1 to
the CEC Form 10-Q (September 1989), File No. 2-30057).
10.1.23.1 Power Sale Agreement dated November 1, 1988, by and between CEC
(buyer) and CL&P (seller) whereby buyer will purchase generating
capacity totaling 250 MW from various seller's units ("Slice of
System") for the term of November 1, 1989 to October 31, 1994
(Exhibit 3 to the CEC 1988 Form 10-K, File No. 2-30057).
10.1.24 Purchase Agreement dated March 1, 1991, by and between CEC (seller)
and Central Vermont Public Service Corporation (CVPS) whereby CVPS
will purchase 50 MW of capacity from CEC Unit 2 for the term of
March 1, 1991 to October 31, 1995 (Exhibit 1 to the CEC Form 10-Q
(June 1991), File No. 2-30057).
10.1.25 Power Sale Agreement dated March 1, 1991, by and between CEC
(purchaser) and CVPS (seller) whereby buyer will purchase 50 MW of
capacity from seller's units (25 MW from Vermont Yankee and 25 MW
from Merrimack 2) for the term of March 1, 1991 to October 31, 1995
(Exhibit 2 to the CEC Form 10-Q (June 1991), File No. 2-30057).
PAGE 40
CANAL ELECTRIC COMPANY
10.1.26 Power Exchange Contract, dated March 24, 1993, between New England
Power Company (NEP) and CEC for an exchange of unit capacity in
which NEP will purchase 20 MW of CEC's Unit 2 capacity in exchange
for CEC's purchase of 20 MW of NEP's Bear Swamp Units 1 and 2 (10
MW per unit) commencing May 31, 1993 through April 28, 1997 and NEP
will purchase 50 MW of CEC's Unit 2 capacity in exchange for CEC's
purchase of 50 MW of NEP's Bear Swamp Units 1 and 2 (25 MW per
unit) commencing November 1, 1993 through April 28, 1997 (Exhibit 1
to the CEC Form 10-Q (March 1993), File No. 2-30057).
10.2 Other agreements.
10.2.1 Employees Savings Plan of Commonwealth Energy System and Subsidiary
Companies as amended and restated as of January 1, 1993 (Exhibit 2
to the CES Form 10-Q (September 1993), File No. 1-7316).
10.2.2 Pension Plan for Employees of Commonwealth Energy System and
Subsidiary Companies as amended and restated January 1, 1993
(Exhibit 1 to the CES Form 10-Q (September 1993), File No.1-7316).
10.2.3 New England Power Pool Agreement (NEPOOL) dated September 1, 1971
as amended through August 1, 1977, between NEGEA Service Corp. as
agent for CEL, CEC, NBGEL, and various other electric utilities
operating in New England, together with amendments dated August 15,
1978 and January 31, 1979 and February 1, 1980 (Exhibit 5(c)(13) to
the CES Form S-16 (April 1980), File No. 2-64731).
10.2.3.1 Thirteenth Amendment to 10.2.3 as amended September 1, 1981
(Exhibit 5 to the CES Form 10-K for 1981, File No. 1-7316).
10.2.3.2 Fourteenth through Twentieth Amendments to 10.2.3 as amended
December 1, 1981, June 1, 1982, June 15, 1983, October 1, 1983,
August 1, 1985, August 15, 1985 and September 1, 1985, respectively
(Exhibit 4 to the CES Form 10-Q (September 1985), File No. 1-7316).
10.2.3.3 Twenty-first Amendment to the New England Power Pool Agreement
dated September 1, 1971, as amended January 1, 1986 (Exhibit 1 to
the CES Form 10-Q (March 1986), File No. 1-7316).
10.2.3.4 Twenty-second Amendment to 10.2.3 as amended to September 1, 1986
(Exhibit 1 to the CES Form 10-Q (September 1986), File No. 1-7316).
10.2.3.5 Twenty-third Amendment to 10.2.3 as amended to April 30, 1987
(Exhibit 1 to the CES Form 10-Q (June 1987), File No. 1-7316).
10.2.3.6 Twenty-fourth Amendment to 10.2.3 as amended to March 1, 1988
(Exhibit 1 to the CES Form 10-K for 1987, File No. 1-7316).
10.2.3.7 Twenty-fifth Amendment to 10.2.3 as amended to May 1, 1988 (Exhibit
1 to the CES Form 10-Q (March 1988), File No. 1-7316).
10.2.3.8 Twenty-sixth Amendment to 10.2.3 as amended to March 15, 1989
(Exhibit 1 to the CES Form 10-Q (March 1989), File No. 1-7316).
PAGE 41
CANAL ELECTRIC COMPANY
10.2.3.9 Twenty-seventh Amendment to 10.2.3 as amended to October 1, 1990
(Exhibit 3 to the CES 1990 Form 10-K, File No. 1-7316).
10.2.4 Fuel Supply, Facilities Lease and Operating Contract by and between
on the one side, ESCO (Massachusetts), Inc. and Energy Supply &
Credit Corporation on the other side and CEC dated February 1, 1985
(Exhibit 1 to the CEC Form 10-K for 1984, File No. 2-30057).
10.2.4.1 Amendments Nos. 1 and 2 to 10.2.4 as amended July 1, 1986 and
November 15, 1989, respectively (Exhibit 3 to the CEC 1989 Form
10-K, File No. 2-30057).
10.2.5 Oil Supply Contract by and between CEC (buyer) and Carey Energy
Fuels Corporation (seller) for a portion of CEC's requirements of
No. 6 residual fuel oil, dated July 1, 1991 (Exhibit 3 to the CEC
Form 10-Q (June 1991), File No. 2-30057).
10.2.6 Assignment Agreement between CEC and ESCO (Massachusetts), Inc.
(ESCO-Mass) and Energy Supply and Credit Corporation whereby CEC
assigns to ESCO-Mass rights and obligations under the Supply
Contract with Carey Energy Fuels Corporation, dated July 1, 1991
(Exhibit 4 to the CEC Form 10-Q (June 1991), File No. 2-30057).
10.2.7 Assignment and Sublease Agreement and CEC's Consent of Assignment
thereto whereby ESCO-Mass assigns its rights and obligations under
Part II of the Resupply Agreement dated February 1, 1985 to ESCO
Terminals Inc., dated June 4, 1985 (Exhibit 4 to the CEC Form 10-Q
(June 1985), File No. 2-30057).
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the three months ended
December 31, 1993.
PAGE 42
<TABLE>
SCHEDULE III
CANAL ELECTRIC COMPANY
INVESTMENTS IN, EQUITY EARNINGS OF,
AND DIVIDENDS RECEIVED FROM RELATED PARTIES
FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
(Dollars in Thousands)
<CAPTION>
Investment Investment
Balance Balance
Description of Investment and Beginning of Equity Dividends End of
Name of Issuer Year Shares Earnings Received Year
New England/Hydro-Quebec Phase II
HVDC Transmission Project -
YEAR ENDED DECEMBER 31, 1993
<S> <C> <C> <C> <C> <C>
New England Hydro-Transmission
Electric Company, Inc. $ 2 580 136 656 $ 361 $ 533 $2 408
New England Hydro-Transmission
Corporation 1 590 785.772 212 349 1 453
Total $ 4 170 $ 573 $ 882 $3 861
YEAR ENDED DECEMBER 31, 1992
<S> <C> <C> <C> <C> <C>
New England Hydro-Transmission
Electric Company, Inc. $ 2 753 136 656 $ 316 $ 489 $2 580
New England Hydro-Transmission
Corporation 1 619 785.772 304 333 1 590
Total $ 4 372 $ 620 $ 822 $4 170
YEAR ENDED DECEMBER 31, 1991
<S> <C> <C> <C> <C> <C>
New England Hydro-Transmission
Electric Company, Inc. $ 2 021 136 656 $ 835 $ 103 $2 753
New England Hydro-Transmission
Corporation 1 433 785.772 360 174 1 619
Total $ 3 454 $1 195 $ 277 $4 372
</TABLE>
PAGE 43
<TABLE>
SCHEDULE V
CANAL ELECTRIC COMPANY
PROPERTY, PLANT AND EQUIPMENT (A)
FOR THE YEAR ENDED DECEMBER 31, 1993
<CAPTION>
Balance Retirements Balance
Beginning Additions Charged to End of
Classification of Year at Cost Reserve Transfers Year
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
ELECTRIC
Intangible plant $ 316 $ - $ - $ - $ 316
Land and rights of way 1 475 - - - 1 475
Structures and leasehold improvements 92 570 5 12 - 92 563
Production equipment 280 015 3 967 1 915 - 282 067
Transmission equipment 9 123 322 100 - 9 345
Nuclear fuel in reactor 16 929 (56) - - 16 873
General equipment and other 2 167 35 73 - 2 129
Total plant in service 402 595 4 273 2 100 - 404 768
Construction work in progress 1 625 876 - - 2 501
Nuclear Fuel in process 155 1 486 - - 1 641
Total Property, Plant and Equipment 404 375 6 635 2 100 - 408 910
<FN>
(A) Refer to Note 1 of Notes to Financial Statements for depreciation method and rates.
</TABLE>
PAGE 44
<TABLE>
SCHEDULE V
CANAL ELECTRIC COMPANY
PROPERTY, PLANT AND EQUIPMENT (A)
FOR THE YEAR ENDED DECEMBER 31, 1992
<CAPTION>
Balance Retirements Adjustments Balance
Beginning Additions Charged to and End of
Classification of Year at Cost Reserve Transfers Year
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
ELECTRIC
Intangible plant $ 317 $ (1) $ - $ - $ 316
Land and rights of way 1 463 - - 12 1 475
Structures and leasehold improvements 91 126 237 93 1 300 92 570
Production equipment 275 184 3 764 1 600 2 667 280 015
Transmission equipment 8 973 180 30 - 9 123
Nuclear fuel in reactor 12 779 3 443 - 707 16 929
General equipment and other 2 152 16 1 - 2 167
Total plant in service 391 994 7 639 1 724 4 686 402 595
Construction work in progress 1 290 335 - - 1 625
Nuclear Fuel in process 2 561 (2 406) - - 155
Total electric 395 845 5 568 1 724 4 686 404 375
OTHER
Miscellaneous physical property 11 - - (11) -
Total Property, Plant and Equipment $395 856 $ 5 568 $1 724 $ 4 675 (B) $404 375
<FN>
(A) Refer to Note 1 of Notes to Financial Statements for depreciation method and rates.
(B) Adjustments to AFUDC related to Seabrook 1 resulting from FERC settlement.
</TABLE>
PAGE 45
<TABLE>
SCHEDULE V
CANAL ELECTRIC COMPANY
PROPERTY, PLANT AND EQUIPMENT (A)
FOR THE YEAR ENDED DECEMBER 31, 1991
<CAPTION>
Balance Retirements Balance
Beginning Additions Charged to End of
Classification of Year at Cost Reserve Transfers Year
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
ELECTRIC
Intangible plant $ 319 $ (2) $ - $ - $ 317
Land and rights of way 1 303 - - 160 1 463
Structures and leasehold improvements 91 390 (46) 167 (51) 91 126
Production equipment 272 898 3 365 977 (102) 275 184
Transmission equipment 8 744 496 267 - 8 973
Nuclear fuel in reactor 8 598 4 181 - - 12 779
General equipment and other 2 139 22 9 - 2 152
Total plant in service 385 391 8 016 1 420 7 391 994
Construction work in progress 919 465 - (94) 1 290
Nuclear Fuel in process 5 655 (3 341) - 247 2 561
Total electric 391 965 5 140 1 420 160 395 845
OTHER
Miscellaneous physical property 160 11 - (160) 11
Total Property, Plant and Equipment $392 125 $ 5 151 $1 420 $ - $395 856
<FN>
(A) Refer to Note 1 of Notes to Financial Statements for depreciation method and rates.
</TABLE>
PAGE 46
<TABLE>
SCHEDULE VI
CANAL ELECTRIC COMPANY
ACCUMULATED DEPRECIATION OF PROPERTY, PLANT AND EQUIPMENT AND AMORTIZATION OF NUCLEAR FUEL
FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
(Dollars in Thousands)
<CAPTION>
Provision
Balance at Nuclear Clearing Balance
Beginning Charged to Fuel Accounts and Removal at End
Classification of Year Operations Expense Other Income Retirements Cost Salvage of Year
YEAR ENDED DECEMBER 31, 1993
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Electric $124 062 $13 361 $3 549 $ - $2 100 $(1 168) $ 16 $137 720
Total Accumulated
Depreciation
and Amortization $124 062 $13 361 $3 549 $ - $2 100 $(1 168) $ 16 $137 720
YEAR ENDED DECEMBER 31, 1992
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Electric $108 234 $15 019 $3 696 $ - $1 724 $(1 210) $ 47 $124 062
Total Accumulated
Depreciation
and Amortization $108 234 $15 019 $3 696 $ - $1 724 $(1 210) $ 47 $124 062
YEAR ENDED DECEMBER 31, 1991
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Electric $91 386 $14 895 $3 823 $ - $1 420 $ (9) $(441) $108 234
Total Accumulated
Depreciation
and Amortization $91 386 $14 895 $3 823 $ - $1 420 $ (9) $(441) $108 234
</TABLE>
PAGE 47
SCHEDULE IX
CANAL ELECTRIC COMPANY
SHORT-TERM BORROWINGS (a)
FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
(Dollars in Thousands)
Maximum
Weighted Month-End Average Weighted
Category of Average Amount Amount Average
Aggregate Balance Interest Outstanding Outstanding Interest
Short-Term at End Rate at End During During the Rate During
Borrowings of Period of Period the Period Period(b) the Period(c)
December 31, 1993
Notes Payable
to Banks $28 000 3.2% $28 000 $14 142 3.4%
Notes Payable
to System $ - - $ 2 840 $ 543 6.0%
COM/Energy
Money Pool $ 8 310 3.2% $ 8 310 $ 3 224 3.2%
December 31, 1992
Notes Payable
to Banks $19 350 4.3% $33 300 $26 083 4.0%
Notes Payable
to System $ 2 840 6.0% $ 6 185 $ 3 341 6.3%
COM/Energy
Money Pool $ 880 3.4% $ 2 490 $ 1 356 3.7%
December 31, 1991
Notes Payable
to Banks $33 200 5.4% $42 875 $35 523 6.3%
Notes Payable
to System $ 2 570 6.5% $ 2 700 $ 1 458 7.6%
COM/Energy
Money Pool $ 935 4.6% $ 3 240 $ 2 143 5.8%
(a) Refer to Note 3 of Notes to Financial Statements filed under Item 8 of
this report for the general terms of each category of short-term
borrowings.
(b) The average amount outstanding during the period is determined by
averaging the level of month-end principal balances outstanding for the
prior thirteen-month period ending December 31.
(c) The weighted average interest rate during the period is determined by
averaging the interest rates in effect on all loans transacted for the
twelve-month period ended December 31.
PAGE 48
CANAL ELECTRIC COMPANY
FORM 10-K DECEMBER 31, 1993
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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)
By: WILLIAM G. POIST
William G. Poist,
Chairman of the Board and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Principal Executive Officers:
WILLIAM G. POIST March 30, 1994
William G. Poist,
Chairman of the Board and
Chief Executive Officer
R. D. WRIGHT March 28, 1994
Russell D. Wright,
President and Chief Operating Officer
Principal Financial Officer:
JAMES D. RAPPOLI March 30, 1994
James D. Rappoli
Financial Vice President and Treasurer
Principal Accounting Officer:
JOHN A. WHALEN March 28, 1994
John A. Whalen,
Comptroller
A majority of the Board of Directors:
WILLIAM G. POIST March 30, 1994
William G. Poist, Director
R. D. WRIGHT March 28, 1994
Russell D. Wright, Director
JAMES D. RAPPOLI March 30, 1994
James D. Rappoli, Director
