<PAGE 1>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549-1004
Form 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1995
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 November 1, 1995
Common Stock, $25 par value 1,523,200 shares
The Company meets the conditions set forth in General Instruction H(1)(a) and
(b) of Form 10-Q as a wholly-owned subsidiary and is therefore filing this
Form with the reduced disclosure format.
<PAGE 2>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
CANAL ELECTRIC COMPANY
CONDENSED BALANCE SHEETS
SEPTEMBER 30, 1995 AND DECEMBER 31, 1994
ASSETS
(Unaudited)
September 30, December 31,
1995 1994
(Dollars in Thousands)
PROPERTY, PLANT AND EQUIPMENT, at original cost $431 468 $409 648
Less - Accumulated depreciation and
amortization 163 134 150 337
268 334 259 311
Add - Construction work in progress 4 011 6 250
Nuclear fuel in process 452 139
272 797 265 700
LEASED PROPERTY, net 13 404 13 844
INVESTMENTS
Equity in corporate joint venture 3 651 3 802
CURRENT ASSETS
Cash 12 12
Accounts receivable
Affiliates 8 757 7 935
Other 6 497 9 100
Electric production fuel oil 738 736
Prepaid taxes -
Property 1 339 932
Income - 61
Other 2 726 2 685
20 069 21 461
DEFERRED CHARGES
Seabrook 1 6 704 7 735
Seabrook 2 3 805 5 140
Other 16 460 12 195
26 969 25 070
$336 890 $329 877
<PAGE 3>
CANAL ELECTRIC COMPANY
CONDENSED BALANCE SHEETS
SEPTEMBER 30, 1995 AND DECEMBER 31, 1994
CAPITALIZATION AND LIABILITIES
(Unaudited)
September 30, December 31,
1995 1994
(Dollars in Thousands)
CAPITALIZATION
Common Equity -
Common stock, $25 par value -
Authorized - 2,328,200 shares
Outstanding - 1,523,200 shares,
wholly-owned by Commonwealth
Energy System (Parent) $ 38 080 $ 38 080
Amounts paid in excess of par value 8 321 8 321
Retained earnings 52 299 51 647
98 700 98 048
Long-term debt, including premiums, less
current sinking fund requirements 87 164 87 713
185 864 185 761
CAPITAL LEASE OBLIGATIONS 12 820 13 258
CURRENT LIABILITIES
Interim Financing -
Notes payable to banks 16 825 11 325
Advances from affiliates 14 810 9 350
31 635 20 675
Other Current Liabilities -
Current sinking fund requirements 1 110 1 110
Accounts payable -
Affiliates 1 149 1 932
Other 10 103 14 857
Accrued taxes -
Local property and other 1 560 977
Income 330 -
Capital lease obligations 584 586
Accrued interest and other 5 222 4 120
20 058 23 582
51 693 44 257
DEFERRED CREDITS
Accumulated deferred income taxes 68 458 68 732
Unamortized investment tax credits and other 18 055 17 869
86 513 86 601
COMMITMENTS AND CONTINGENCIES
$336 890 $329 877
See accompanying notes.
<PAGE 4>
CANAL ELECTRIC COMPANY
CONDENSED STATEMENTS OF INCOME AND RETAINED EARNINGS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1994
(Unaudited)
Three Months Ended Nine Months Ended
1995 1994 1995 1994
(Dollars in Thousands)
ELECTRIC OPERATING REVENUES
Sales to affiliated companies $26 710 $31 882 $ 69 469 $ 97 384
Sales to non-affiliated companies 17 182 20 248 35 878 59 833
43 892 52 130 105 347 157 217
OPERATING EXPENSES
Fuel used in production 16 371 21 983 32 669 67 915
Electricity purchased for resale 4 013 7 758 12 524 22 392
Other operation and maintenance 10 222 10 008 29 314 29 267
Depreciation 4 292 3 414 12 407 10 244
Taxes -
Income 2 191 2 253 (1 482) 6 949
Local property 710 715 2 091 2 094
Payroll and other 176 178 594 586
37 975 46 309 88 117 139 447
OPERATING INCOME 5 917 5 821 17 230 17 770
OTHER INCOME 53 57 131 187
INCOME BEFORE INTEREST CHARGES 5 970 5 878 17 361 17 957
INTEREST CHARGES
Long-term debt 2 056 2 069 6 177 6 217
Other interest charges 527 314 1 392 909
Allowance for borrowed funds
used during construction (247) (3) (532) (74)
2 336 2 380 7 037 7 052
NET INCOME 3 634 3 498 10 324 10 905
RETAINED EARNINGS -
Beginning of period 51 711 52 512 51 647 48 151
Dividends on common stock (3 046) (3 047) (9 672) (6 093)
RETAINED EARNINGS -
End of period $52 299 $52 963 $ 52 299 $ 52 963
See accompanying notes.
<PAGE 5>
CANAL ELECTRIC COMPANY
CONDENSED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1994
(Unaudited)
1995 1994
(Dollars in Thousands)
OPERATING ACTIVITIES
Net income $10 324 $10 905
Effects of noncash items -
Depreciation and amortization 16 502 14 375
Deferred income taxes and investment
tax credits, net (4 931) 870
Earnings from corporate joint venture (408) (381)
Dividends from corporate joint venture 559 375
Change in working capital, exclusive of cash
and interim financing (2 132) 618
All other operating items (291) (161)
Net cash provided by operating activities 19 623 26 601
INVESTING ACTIVITIES
Additions to property, plant and equipment
(exclusive of AFUDC) (19 830) (2 973)
Allowance for borrowed funds used
during construction (532) (74)
Net cash used for investing activities (20 362) (3 047)
FINANCING ACTIVITIES
Proceeds from (payment of) short-term borrowings 5 500 (23 625)
Payment of dividends (9 672) (6 093)
Advances from affiliates 5 460 6 715
Sinking fund payments (549) (549)
Net cash used for financing activities 739 (23 552)
Net increase in cash - 2
Cash at beginning of period 12 12
Cash at end of period $ 12 $ 14
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest (net of capitalized amounts) $ 6 388 $ 6 396
Income taxes $ 3 081 $ 7 220
See accompanying notes.
<PAGE 6>
CANAL ELECTRIC COMPANY
NOTES TO CONDENSED FINANCIAL STATEMENTS
(1) Accounting Policies
Canal Electric Company (the Company) is a wholly-owned subsidiary of
Commonwealth Energy System. The parent company is referred to in this
report as the "System" and together with its subsidiaries is collectively
referred to as "the system."
The Company's significant accounting policies are described in Note 1
of Notes to Financial Statements included in its 1994 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. In March 1995, the Financial
Accounting Standards Board issued Statement of Financial Accounting
Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to be Disposed Of" (SFAS 121). SFAS 121 imposes
stricter criteria for regulatory assets by requiring that such assets be
probable of future recovery at each balance sheet date. Based on the
current regulatory framework, the Company accounts for the economic effects
of regulation in accordance with the provisions of SFAS No. 71, "Accounting
for the Effects of Certain Types of Regulation" and does not expect that
SFAS 121, which the Company will adopt on January 1, 1996, will have a
material impact on its financial position or results of operations.
However, this conclusion may change in the future if changes are made in
the current regulatory framework or as competitive factors influence
wholesale pricing in this industry. The principal regulatory assets
included in deferred charges were as follows:
September 30, December 31,
1995 1994
(Dollars in Thousands)
Seabrook related costs $10 300 $12 648
Deferred income taxes 9 667 5 537
Postretirement benefit costs 1 660 1 242
Total regulatory assets $21 627 $19 427
The unaudited financial statements for the periods ended September 30,
1995 and 1994 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.
<PAGE 7>
CANAL ELECTRIC COMPANY
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.
(2) Commitments and Contingencies
(a) Construction
The Company is engaged in a continuous construction program presently
estimated at approximately $70 million for the five-year period 1995
through 1999. Of that amount, $27.4 million is estimated for 1995. As of
September 30, 1995, construction expenditures, including an allowance for
funds used during construction, amounted to approximately $20.4 million.
The program is subject to periodic review and revision because of factors
such as changes in business conditions, rates of customer growth, effects
of inflation, maintenance of reliable and safe service, equipment delivery
schedules, licensing delays, availability, and cost of capital and
environmental factors. The Company expects to finance these expenditures
on an interim basis with internally generated funds and short-term
borrowings that are ultimately expected to be repaid with proceeds from
sales of long-term debt and equity securities.
(b) Decommissioning of Seabrook Unit
The Company and the other joint owners of the Seabrook nuclear power
plant have established a decommissioning fund to cover post operation
decommissioning costs. The estimated cost to decommission the plant is
$394 million. The Company's share of this liability (approximately $13.9
million), less its share of the market value of the decommissioning trust
(approximately $1.4 million), is approximately $12.5 million.
<PAGE 8>
CANAL ELECTRIC COMPANY
Item 2. Management's Discussion and Analysis of Results of Operations
The following is a discussion of certain significant factors which have
affected operating revenues, expenses and net income during the periods
included in the accompanying condensed statements of income. This discussion
should be read in conjunction with the Notes to Condensed Financial Statements
appearing elsewhere in this report.
A summary of the period to period changes in the principal items
included in the condensed statements of income for the three and nine months
ended September 30, 1995 and 1994 and unit sales for these periods is shown
below:
Three Months Ended Nine Months Ended
September 30, September 30,
1995 and 1994 1995 and 1994
Increase (Decrease)
(Dollars in Thousands)
Electric Operating Revenues $ (8 238)(15.8)% $(51 870) (33.0)%
Operating Expenses -
Fuel used in production (5 612) (25.5) (35 246) (51.9)
Electricity purchased for resale (3 745) (48.3) (9 868) (44.1)
Other operation and maintenance 214 2.1 47 0.2
Depreciation 878 25.7 2 163 21.1
Taxes -
Federal and state income (62) (2.8) (8 431) (121.3)
Local property and other (7) (0.8) 5 0.2
(8 334) (18.0) (51 360) (36.8)
Operating Income 96 1.6 (540) (3.0)
Other Income (4) (7.0) (56) (29.9)
Income Before Interest Charges 92 1.6 (596) (3.3)
Interest Charges (44) (1.8) (15) (0.2)
Net Income $ 136 3.9 $ (581) (5.3)
Unit Sales (MWH) Decrease (278 975) (26.1) (1 886 111) (53.9)
Three Months Ended Nine Months Ended
September 30, September 30,
MWH Unit Sales 1995 and 1994 1995 and 1994
Canal Unit 1 438 166 617 567 438 166 1 959 113
Canal Unit 2 180 325 254 389 692 001 1 036 512
Seabrook 1 80 901 57 516 246 257 128 757
Purchased for Resale 89 741 138 316 237 481 375 634
789 133 1 068 108 1 613 905 3 500 016
<PAGE 9>
CANAL ELECTRIC COMPANY
Revenue, Fuel and Purchased Power
Operating revenues for the three and nine months ended September 30,
1995 decreased approximately $8.2 million or 15.8% and $51.9 million or
33%, respectively. The decrease in both periods was due to lower unit
sales. The nine-month period also includes a refund to customers made
during the second quarter (approximately $7.5 million) reflecting the
settlement of certain Seabrook-related tax issues. Also affecting
operating revenues in both periods was a decrease in the level of purchases
made on behalf of affiliated retail distribution companies.
Unit sales decreased significantly during both current periods due
primarily to a combination of scheduled maintenance and other repairs to
the turbine which kept Unit 1 out of service from the start of the year
until late July. Unit sales in both periods also reflect the decreased
availability of Unit 2, and an increase in power available from Seabrook 1
due to the timing of scheduled maintenance and a decline in the level of
purchases made on behalf of affiliated retail distribution companies.
The 51.9% decrease in fuel used in production during the current nine
months reflects the previously mentioned Unit 1 outage and the decreased
availability of Unit 2. Fuel, purchased power and transmission costs for
the current three and nine-month periods represented approximately 45% and
48%, respectively, of operating revenues and averaged 2.69 cents and 2.96
cents per KWH, respectively, as compared to 2.87 cents and 2.65 cents per
KWH for the same periods a year ago.
Other Operating Expenses
Other operation and maintenance was virtually unchanged for the
current nine-month period due primarily to decreases in costs associated
with the operation of Seabrook 1 ($1.5 million), lower insurance and
benefits costs ($245,000) and a decrease in transmission charges associated
with the Company's investment in Hydro-Quebec Phase II ($75,000) offset in
part by an increase in maintenance related to Unit 1 ($2.4 million). The
2.1% increase in other operation and maintenance expense during the third
quarter was due primarily to maintenance related to Unit 1 ($1.2 million)
offset in part by lower maintenance on Seabrook 1 during the third quarter
($355,000) due to the timing of a refueling outage. Depreciation expense
increased in both current periods due to a higher level of plant-in-service
and an adjustment to the depreciation rate related to Unit 1 made during
the second quarter. The decrease in federal and state income taxes was due
to the second quarter tax adjustment related to the settlement of certain
Seabrook-related income tax issues ($7.5 million) and a lower level of
pretax income.
Interest Charges
Total interest charges were virtually unchanged for the current nine-
month period reflecting an increase in short-term interest ($483,000) due
to higher interest rates (6.1% as compared to 4% in 1994) on a higher
average level of short-term debt, offset by an increase in the debt
component of the allowance for funds used during construction (AFUDC)
<PAGE 10>
CANAL ELECTRIC COMPANY
($458,000). During the third quarter total interest charges decreased 1.8%
despite an increase in other interest charges ($213,000), due to an
increase in the debt component of AFUDC ($244,000).
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 such as the nitrogen oxide emissions control project underway at
Unit 1. These regulations have had an impact on the Company's operations
in the past and will continue to have an impact on future operations,
capital costs and construction schedules of major facilities.
<PAGE 11>
CANAL ELECTRIC COMPANY
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 5. Other Information
Effective October 1, 1995, John A. Whalen, formerly the Company's
Comptroller, was appointed Vice President and General Manager of
COM/Energy Services Company, an affiliate of the Company. James D.
Rappoli, the Company's Financial Vice President and Treasurer,
assumed Mr. Whalen's former duties as Comptroller.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 27 - Financial Data Schedule
Filed herewith as Exhibit 1 is the Financial Data Schedule for the
nine months ended September 30, 1995.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the three months ended
September 30, 1995.
<PAGE 12>
CANAL ELECTRIC COMPANY
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CANAL ELECTRIC COMPANY
(Registrant)
Principal Financial and
Accounting Officer:
JAMES D. RAPPOLI
James D. Rappoli,
Financial Vice President
and Treasurer
Date: November 13, 1995
<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND>
This schedule contains summary financial information extracted from the
balance sheet, statement of income, statement of retained earnings and
statement of cash flows contained in Form 10-Q of Canal Electric Company for
the nine months ended Septmber 30, 1995 and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<CIK> 0000016906
<NAME> CANAL ELECTRIC COMPANY
<MULTIPLIER> 1,000
<S> <C>
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> SEP-30-1995
<PERIOD-TYPE> 9-MOS
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 272,797
<OTHER-PROPERTY-AND-INVEST> 3,651
<TOTAL-CURRENT-ASSETS> 20,069
<TOTAL-DEFERRED-CHARGES> 26,969
<OTHER-ASSETS> 13,404
<TOTAL-ASSETS> 336,890
<COMMON> 38,080
<CAPITAL-SURPLUS-PAID-IN> 8,321
<RETAINED-EARNINGS> 52,299
<TOTAL-COMMON-STOCKHOLDERS-EQ> 98,700
0
0
<LONG-TERM-DEBT-NET> 87,164
<SHORT-TERM-NOTES> 31,635
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 1,110
0
<CAPITAL-LEASE-OBLIGATIONS> 12,820
<LEASES-CURRENT> 584
<OTHER-ITEMS-CAPITAL-AND-LIAB> 104,877
<TOT-CAPITALIZATION-AND-LIAB> 336,890
<GROSS-OPERATING-REVENUE> 105,347
<INCOME-TAX-EXPENSE> (1,482)
<OTHER-OPERATING-EXPENSES> 89,599
<TOTAL-OPERATING-EXPENSES> 88,117
<OPERATING-INCOME-LOSS> 17,230
<OTHER-INCOME-NET> 131
<INCOME-BEFORE-INTEREST-EXPEN> 17,361
<TOTAL-INTEREST-EXPENSE> 7,037
<NET-INCOME> 10,324
0
<EARNINGS-AVAILABLE-FOR-COMM> 10,324
<COMMON-STOCK-DIVIDENDS> 9,672
<TOTAL-INTEREST-ON-BONDS> 6,177
<CASH-FLOW-OPERATIONS> 19,623
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
