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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549-1004
Form 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1994
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 2-30057
CANAL ELECTRIC COMPANY
(Exact name of registrant as specified in its charter)
Massachusetts 04-1733577
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One Main Street, Cambridge, Massachusetts 02142-9150
(Address of principal executive offices) (Zip Code)
(617) 225-4000
(Registrant's telephone number, including area code)
(Former name, address and fiscal year, if changed since last report.)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. YES x NO
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Outstanding at
Class of Common Stock May 1, 1994
Common Stock, $25 par value 1,523,200 shares
The Company meets the conditions set forth in General Instruction H(1)(a) and
(b) of Form 10-Q as a wholly-owned subsidiary and is therefore filing this
Form with the reduced disclosure format.
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
CANAL ELECTRIC COMPANY
CONDENSED BALANCE SHEETS
MARCH 31, 1994 AND DECEMBER 31, 1993
ASSETS
(Unaudited)
March 31, December 31,
1994 1993
(Dollars in Thousands)
PROPERTY, PLANT AND EQUIPMENT, at original cost $404 822 $404 768
Less - Accumulated depreciation and
amortization 141 761 137 720
263 061 267 048
Add - Construction work in progress 2 999 2 501
Nuclear fuel in process 1 611 1 641
267 671 271 190
LEASED PROPERTY, net 14 006 14 150
INVESTMENTS
Equity in corporate joint venture 3 988 3 861
CURRENT ASSETS
Cash 13 12
Accounts receivable
Affiliated companies 11 527 12 215
Other 8 887 9 549
Electric production fuel oil 782 663
Prepaid taxes -
Property 445 891
Income - 720
Other 2 895 3 602
24 549 27 652
DEFERRED CHARGES
Seabrook 1 8 662 9 002
Seabrook 2 6 454 6 937
Other 12 799 11 509
27 915 27 448
$338 129 $344 301
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CANAL ELECTRIC COMPANY
CONDENSED BALANCE SHEETS
MARCH 31, 1994 AND DECEMBER 31, 1993
CAPITALIZATION AND LIABILITIES
(Unaudited)
March 31, December 31,
1994 1993
(Dollars in Thousands)
CAPITALIZATION
Common Equity -
Common stock, $25 par value -
Authorized - 2,328,200 shares
Outstanding - 1,523,200 shares,
wholly-owned by Commonwealth
Energy System (Parent) $ 38 080 $ 38 080
Amounts paid in excess of par value 8 321 8 321
Retained earnings 51 941 48 151
98 342 94 552
Long-term debt, including premiums, less
current sinking fund requirements 88 263 88 446
186 605 182 998
CAPITAL LEASE OBLIGATIONS 13 432 13 575
CURRENT LIABILITIES
Interim Financing -
Notes payable to banks 11 750 28 000
Advances from affiliates 12 625 8 310
24 375 36 310
Other Current Liabilities -
Current sinking fund requirements 1 110 1 110
Accounts payable -
Affiliated companies 1 288 1 829
Other 14 586 15 244
Accrued taxes -
Income 2 309 460
Local property and other 749 923
Capital lease obligations 574 575
Accrued interest and other 4 144 3 547
24 760 23 688
49 135 59 998
DEFERRED CREDITS
Accumulated deferred income taxes 71 041 70 854
Unamortized investment tax credits and other 17 916 16 876
88 957 87 730
COMMITMENTS AND CONTINGENCIES
$338 129 $344 301
See accompanying notes.
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CANAL ELECTRIC COMPANY
CONDENSED STATEMENTS OF INCOME AND RETAINED EARNINGS
FOR THE THREE MONTHS ENDED MARCH 31, 1994 AND 1993
(Unaudited)
1994 1993
(Dollars in Thousands)
ELECTRIC OPERATING REVENUES
Sales to affiliated companies $33 054 $33 460
Sales to non-affiliated companies 20 843 21 540
53 897 55 000
OPERATING EXPENSES
Fuel used in production 24 231 22 493
Electricity purchased for resale 7 682 7 185
Other operation and maintenance 9 255 11 112
Depreciation 3 412 4 255
Taxes -
Income 2 395 2 497
Local property 689 857
Payroll and other 219 225
47 883 48 624
OPERATING INCOME 6 014 6 376
OTHER INCOME 89 251
INCOME BEFORE INTEREST CHARGES 6 103 6 627
INTEREST CHARGES
Long-term debt 2 076 2 341
Other interest charges 274 228
Allowance for borrowed funds
used during construction (37) (13)
2 313 2 556
NET INCOME 3 790 4 071
RETAINED EARNINGS -
Beginning of period 48 151 64 498
Dividends on common stock - (6 626)
RETAINED EARNINGS -
End of period $51 941 $61 943
See accompanying notes.
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CANAL ELECTRIC COMPANY
CONDENSED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1994 AND 1993
(Unaudited)
1994 1993
(Dollars in Thousands)
OPERATING ACTIVITIES
Net income $ 3 790 $ 4 071
Effects of non-cash items -
Depreciation and amortization 4 963 5 984
Deferred income taxes and investment
tax credits, net 2 (378)
Earnings from corporate joint venture (127) (168)
Change in working capital, exclusive of cash
and interim financing 4 176 1 787
All other operating items (162) (165)
Net cash provided by operating activities 12 642 11 131
INVESTING ACTIVITIES
Additions to property, plant and equipment
(exclusive of AFUDC) (486) (577)
Allowance for borrowed funds used
during construction (37) (13)
Net cash used for investing activities (523) (590)
FINANCING ACTIVITIES
Payment of short-term borrowings (16 250) (1 000)
Payment of dividends - (6 626)
Advances from (payments to) affiliates 4 315 (3 175)
Sinking fund payments (183) (185)
Net cash used for financing activities (12 118) (10 986)
Net increase (decrease) in cash 1 (445)
Cash at beginning of period 12 446
Cash at end of period $ 13 $ 1
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid (received) during the period for:
Interest (net of capitalized amounts) $ 1 770 $ 1 629
Income taxes $ (100) $ 1 366
See accompanying notes.
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CANAL ELECTRIC COMPANY
NOTES TO CONDENSED FINANCIAL STATEMENTS
(1) Accounting Policies
Canal Electric Company (the Company) is a wholly-owned subsidiary of
Commonwealth Energy System. The parent company is referred to in this
report as the "System" and together with its subsidiaries is collectively
referred to as "the system."
The Company's significant accounting policies are described in Note 1
of Notes to Financial Statements included in its 1993 Annual Report on Form
10-K filed with the Securities and Exchange Commission. For interim
reporting purposes, the Company follows these same basic accounting
policies but considers each interim period as an integral part of an annual
period and makes allocations of certain expenses to interim periods based
upon estimates of such expenses for the year.
The Company has established various regulatory assets in cases where
the Massachusetts Department of Public Utilities (DPU) and/or the Federal
Energy Regulatory Commission (FERC) have permitted, or are expected to
permit, recovery of specific costs over time. At March 31, 1994, principal
regulatory assets included in deferred charges were $14.7 million for
abandonment and nonconstruction costs related to the Seabrook project and
$7.3 million related to deferred income taxes.
Generally, expenses which benefit more than one interim period are
allocated to other periods to more appropriately match revenues and
expenses. Income tax expense is recorded using the statutory rates in
effect applied to book income subject to tax recorded in the interim
period.
The unaudited financial statements for the periods ended March 31,
1994 and 1993 reflect, in the opinion of the Company, all adjustments
(consisting of only normal recurring accruals) necessary to summarize
fairly the results for such periods. In addition, certain prior period
amounts are reclassified from time to time to conform with the presentation
used in the current period's financial statements.
The Company is a wholesale power company and operates its two
generating units under life-of-the-unit power contracts on file with the
FERC. The price of power under the power contracts is based on a two-part
rate consisting of a demand charge and an energy charge. The demand charge
covers all expenses except fuel costs and includes the recovery of the
original investment. It also provides for any adjustments to that
investment over the economic lives of the units. The energy charge is
based on the cost of fuel and is billed to each purchaser in proportion to
its purchase of power. Purchasers are billed monthly.
The Company also procures bulk electric power at the request of and
for its affiliates thereby securing cost savings for their respective
customers by planning for a power supply on a single system basis.
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CANAL ELECTRIC COMPANY
(2) Commitments and Contingencies
Construction
The Company is engaged in a continuous construction program presently
estimated at $64.8 million for the five-year period 1994 through 1998. Of
that amount, $13.2 million is estimated for 1994. As of March 31, 1994,
construction expenditures, including an allowance for funds used during
construction, amounted to $523,000. The Company's program is subject to
periodic review and revision.
(3) Decommissioning of Seabrook
The Company and the other joint owners of Seabrook have established a
Seabrook Nuclear Decommissioning Financing Fund to cover post operational
decommissioning costs. The estimated cost to decommission the plant is
$370 million, in 1994 dollars, through March 31, 1994. The Company's
share, less its share of the market value of the decommissioning trust,
would amount to approximately $12.1 million.
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CANAL ELECTRIC COMPANY
Item 2. Management's Discussion and Analysis of Results of Operations
The following is a discussion of certain significant factors which have
affected operating revenues, expenses and net income during the periods
included in the accompanying condensed statements of income. This discussion
should be read in conjunction with the Notes to Condensed Financial Statements
appearing elsewhere in this report.
A summary of the period to period changes in the principal items
included in the condensed statements of income for the three months ended
March 31, 1994 and 1993 is shown below:
Three Months
Ended March 31,
1994 and 1993
Increase (Decrease)
(Dollars in Thousands)
Electric Operating Revenues $(1 103) (2.0)%
Operating Expenses -
Fuel used in production 1 738 7.7
Electricity purchased for resale 497 6.9
Other operation and maintenance (1 857) (16.7)
Depreciation (843) (19.8)
Taxes -
Federal and state income (102) (4.1)
Local property and other (174) (16.1)
(741) (1.5)
Operating Income (362) (5.7)
Other Income (162) (64.5)
Income Before Interest Charges (524) (7.9)
Interest Charges (243) (9.5)
Net Income $ (281) (6.9)
Unit Sales (MWH) Decrease (8 545) (0.7)
The following is a summary of unit sales for the periods indicated:
Unit Sales (MWH)
Three Months Purchased
Ended Unit 1 Unit 2 For Resale Seabrook 1 Total
March 31, 1994 712 225 370 126 138 971 64 380 1 285 702
March 31, 1993 882 843 183 162 148 663 79 579 1 294 247
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CANAL ELECTRIC COMPANY
Revenue, Fuel and Purchased Power
Operating revenues for the first three months of 1994 decreased
approximately $1.1 million or 2%, despite increases in fuel used in
production and purchased power, due primarily to the decrease in unit sales
and the absence in the current period of an overbilling to the Company
during the first quarter of 1993 (approximately $1.4 million) which was in
turn billed to customers.
Purchased power and transmission costs are included in operating
expenses and result from the Company's role as wholesale agent to generate
and produce bulk electric power for affiliated retail distribution
companies.
The 0.7% decrease in unit sales during the period reflects the
decreased availability of Unit 1 offset by the timing of scheduled
maintenance on Unit 2 which occurred during the first quarter of 1993.
Also affecting unit sales were decreases in the level of purchases made by
the Company acting as an agent on behalf of affiliated retail distribution
companies and in power available from Seabrook 1 due to unscheduled
maintenance. The decline in sales also reflects the impact of the excess
capacity situation in New England.
The 7.7% increase in fuel used in production reflects the increased
cost of oil. Average oil prices per barrel for the three-month periods
ended March 31, 1994 and 1993 were $14.19 and $13.77, respectively. In
conformance with restrictions on air emissions, the Commonwealth of
Massachusetts mandated a reduction in sulphur dioxide emissions requiring
the periodic use of more expensive lower-sulphur (1%) content oil. Fuel,
purchased power and transmission costs represented approximately 61% and
56% of operating revenues in the first three months of 1994 and 1993,
respectively, and averaged 2.5 cents per KWH in the current period as
compared to 2.4 cents per KWH for the same period a year ago.
Other Operating Expenses
The 16.7% decrease in other operation and maintenance expense was due
to the absence of the aforementioned overbilling to the Company which
occurred during the first quarter of 1993 (approximately $1.4 million).
This overbilling was refunded to the Company during the second quarter of
1993 and, in turn, was refunded to the Company's customers. Also
contributing to the reduction was a decrease in maintenance expense related
to Unit 2 ($695,000) due to the timing of scheduled maintenance.
Depreciation expense decreased 19.8%, approximately $840,000 due to an
adjustment to the accrual rate in the second quarter of 1993 to reflect the
extension of the depreciation recovery period from 1996 to 2002. Federal
and state income taxes decreased due to a lower level of pretax income,
offset somewhat by an increase in the federal tax rate to 35%. The
decrease in local property and other taxes reflects lower rates associated
with the nuclear station tax assessed by the state of New Hampshire to the
joint-owners of Seabrook.
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CANAL ELECTRIC COMPANY
Other Income and Interest Charges
The significant decrease in other income during the current three
month period was primarily due to a higher level of other income deductions
reflecting postretirement benefit reserves ($177,000).
Total interest charges decreased 9.5% during the period reflecting
lower long-term interest ($265,000) due primarily to the early redemption
of the Company's Series D, 11.125% First Mortgage Bonds due December 1,
2007 totaling $9.3 million, on December 1, 1993. Somewhat offsetting the
decrease during the period, was an increase in other interest charges
($46,000) caused by a higher level of short-term borrowings.
Environmental Matters
The Company is subject to laws and regulations administered by
federal, state and local authorities relating to the quality of the
environment. These laws and regulations affect, among other things, the
siting and operation of generating facilities, and will continue to impact
future operations, capital costs and construction schedules.
The federal Clean Air Act, as amended, and certain state laws and
regulations impose restrictions on air emissions. Some of these
restrictions will become effective in 1995, and others by the year 2000.
These laws and regulations have a particular impact on the cost of electric
generating operations. As part of its emission reduction program, the
Company has been burning more lower-sulphur content fuel oil at this plant.
In addition, in October 1993, the Company and Montaup Electric Company
(joint owner of Unit 2) reached an agreement with Algonquin Gas
Transmission Company to build a natural gas pipeline that will serve Unit
2, subject to regulatory approvals. Unit 2 will be modified to burn gas in
addition to oil. The project will improve air quality on Cape Cod, and
will also strengthen the Company's bargaining position as it seeks to
secure the lowest-cost fuel for its customers. Plant conversion and
pipeline construction are expected to be completed in 1996.
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. This review period ended in
December 1993, with the plant meeting all state requirements.
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CANAL ELECTRIC COMPANY
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 10. Material Contracts
None
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the three months ended March
31, 1994.
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CANAL ELECTRIC COMPANY
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CANAL ELECTRIC COMPANY
(Registrant)
Principal Financial Officer:
JAMES D. RAPPOLI
James D. Rappoli,
Financial Vice President
and Treasurer
Principal Accounting Officer:
JOHN A. WHALEN
John A. Whalen,
Comptroller
Date: May 13, 1994
