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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, 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 May 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.
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
CANAL ELECTRIC COMPANY
CONDENSED BALANCE SHEETS
MARCH 31, 1995 AND DECEMBER 31, 1994
ASSETS
(Unaudited)
March 31, December 31,
1995 1994
(Dollars in Thousands)
PROPERTY, PLANT AND EQUIPMENT, at original cost $410 266 $409 648
Less - Accumulated depreciation and
amortization 154 030 150 337
256 236 259 311
Add - Construction work in progress 6 599 6 250
Nuclear fuel in process 158 139
262 993 265 700
LEASED PROPERTY, net 13 697 13 844
INVESTMENTS
Equity in corporate joint venture 3 658 3 802
CURRENT ASSETS
Cash 13 12
Accounts receivable-
Affiliated companies 8 239 7 935
Other 6 385 9 100
Electric production fuel oil 330 736
Prepaid taxes -
Property 466 932
Income 249 132
Other 2 879 2 685
18 561 21 532
DEFERRED CHARGES
Seabrook 1 7 400 7 735
Seabrook 2 4 699 5 140
Other 13 682 12 195
25 781 25 070
$324 690 $329 948
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CANAL ELECTRIC COMPANY
CONDENSED BALANCE SHEETS
MARCH 31, 1995 AND DECEMBER 31, 1994
CAPITALIZATION AND LIABILITIES
(Unaudited)
March 31, 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 51 552 51 647
97 953 98 048
Long-term debt, including premiums, less
current sinking fund requirements 87 530 87 713
185 483 185 761
CAPITAL LEASE OBLIGATIONS 13 112 13 258
CURRENT LIABILITIES
Interim Financing -
Notes payable to banks - 11 325
Advances from affiliates 19 290 9 350
19 290 20 675
Other Current Liabilities -
Current sinking fund requirements 1 110 1 110
Accounts payable -
Affiliated companies 1 349 1 932
Other 9 586 14 857
Accrued taxes -
Income 1 913 71
Local property and other 839 977
Capital lease obligations 585 586
Accrued interest and other 4 604 4 120
19 986 23 653
39 276 44 328
DEFERRED CREDITS
Accumulated deferred income taxes 68 830 68 732
Unamortized investment tax credits and other 17 989 17 869
86 819 86 601
COMMITMENTS AND CONTINGENCIES
$324 690 $329 948
See accompanying notes.
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CANAL ELECTRIC COMPANY
CONDENSED STATEMENTS OF INCOME AND RETAINED EARNINGS
FOR THE THREE MONTHS ENDED MARCH 31, 1995 AND 1994
(Unaudited)
1995 1994
(Dollars in Thousands)
ELECTRIC OPERATING REVENUES
Sales to affiliated companies $24 944 $33 054
Sales to non-affiliated companies 8 473 20 843
33 417 53 897
OPERATING EXPENSES
Fuel used in production 7 823 24 231
Electricity purchased for resale 4 411 7 682
Other operation and maintenance 8 687 9 255
Depreciation 3 823 3 412
Taxes -
Income 2 028 2 395
Local property 729 689
Payroll and other 215 219
27 716 47 883
OPERATING INCOME 5 701 6 014
OTHER INCOME 9 89
INCOME BEFORE INTEREST CHARGES 5 710 6 103
INTEREST CHARGES
Long-term debt 2 062 2 076
Other interest charges 416 274
Allowance for borrowed funds
used during construction (100) (37)
2 378 2 313
NET INCOME 3 332 3 790
RETAINED EARNINGS -
Beginning of period 51 647 48 151
Dividends on common stock (3 427) -
RETAINED EARNINGS -
End of period $51 552 $51 941
See accompanying notes.
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CANAL ELECTRIC COMPANY
CONDENSED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1995 AND 1994
(Unaudited)
1995 1994
(Dollars in Thousands)
OPERATING ACTIVITIES
Net income $ 3 332 $ 3 790
Effects of noncash items -
Depreciation and amortization 5 225 4 963
Deferred income taxes and investment
tax credits, net (131) 2
Earnings from corporate joint venture (129) (127)
Dividends from corporate joint venture 273 -
Change in working capital, exclusive of cash
and interim financing (695) 4 176
All other operating items (1 493) (162)
Net cash provided by operating activities 6 382 12 642
INVESTING ACTIVITIES
Additions to property, plant and equipment
(exclusive of AFUDC) (1 286) (486)
Allowance for borrowed funds used
during construction (100) (37)
Net cash used for investing activities (1 386) (523)
FINANCING ACTIVITIES
Payment of short-term borrowings (11 325) (16 250)
Payment of dividends (3 427) -
Advances from affiliates 9 940 4 315
Sinking fund payments (183) (183)
Net cash used for financing activities (4 995) (12 118)
Net increase in cash 1 1
Cash at beginning of period 12 12
Cash at end of period $ 13 $ 13
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid (received) during the period for:
Interest (net of capitalized amounts) $ 1 846 $1 770
Income taxes $ 392 $ (100)
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 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 (SFAS) No. 121, "Accounting for the Impairment of Long-Lived
Assets and 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 expects to 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 as
competitive factors influence wholesale pricing in this industry. The
principal regulatory assets included in deferred charges were as follows:
March 31, December 31,
1995 1994
(Dollars in Thousands)
Seabrook related costs $11 878 $12 648
Deferred income taxes 5 537 5 537
Postretirement benefit costs 1 421 1 242
Total regulatory assets $18 836 $19 427
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, 1995
and 1994 reflect, in the opinion of the Company, all adjustments
(consisting of only normal recurring accruals) necessary to summarize
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CANAL ELECTRIC COMPANY
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.
(2) Commitments and Contingencies
(a) Construction
The Company is engaged in a continuous construction program presently
estimated at $69.8 million for the five-year period 1995 through 1999. Of
that amount, $27.4 million is estimated for 1995. As of March 31, 1995,
construction expenditures, including an allowance for funds used during
construction, amounted to approximately $1.4 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
$386 million. The Company's share of this liability (approximately $13.6
million), less its share of the market value of the decommissioning trust
(approximately $1.2 million), is approximately $12.4 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, 1995 and 1994 is shown below:
Three Months
Ended March 31,
1995 and 1994
Increase (Decrease)
(Dollars in Thousands)
Electric Operating Revenues $(20 480) (38.0)%
Operating Expenses -
Fuel used in production (16 408) (67.7)
Electricity purchased for resale (3 271) (42.6)
Other operation and maintenance (568) (6.1)
Depreciation 411 12.1
Taxes -
Federal and state income (367) (15.3)
Local property and other 36 4.0
(20 167) (42.1)
Operating Income (313) (5.2)
Other Income (80) (89.9)
Income Before Interest Charges (393) (6.4)
Interest Charges 65 2.8
Net Income $ (458) (12.1)
Unit Sales (MWH) Decrease (865 886) (67.4)
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, 1995 - 243 940 87 842 88 034 419 816
March 31, 1994 712 225 370 126 138 971 64 380 1 285 702
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CANAL ELECTRIC COMPANY
Revenue, Fuel and Purchased Power
Operating revenues for the first three months of 1995 decreased
approximately $20.5 million or 38% due primarily to a combination of both
scheduled and unscheduled maintenance which kept Unit 1 out of service for
the entire first quarter and a decrease in the level of purchases made on
behalf of affiliated retail distribution companies. The decline in unit
sales also reflects the impact of the excess capacity situation in New
England.
The 67.7% decrease in fuel used in production reflects the Unit 1
outage during the first three months of 1995. Fuel, purchased power and
transmission costs represented approximately 39% and 61% of operating
revenues in the first three months of 1995 and 1994, respectively, and
averaged 3.1 cents per KWH in the current period as compared to 2.5 cents
per KWH for the corresponding period of last year.
Other Operating Expenses
Other operation and maintenance expense declined by 6.1% due to a
decrease in costs associated with the operation of Seabrook 1 ($301,000),
lower insurance and benefit costs ($112,000) and continued cost containment
efforts, offset, in part, by an increase in maintenance costs ($419,000)
related to Units 1 and 2. The 12.1% increase in depreciation expense
reflects a higher level of plant-in-service. Federal and state income
taxes decreased due to a lower level of pretax income.
Other Income and Interest Charges
The significant decrease in other income during the current three-
month period was primarily due to a lower level of income related to
carrying costs on unrecovered Seabrook 2 costs.
Total interest charges increased 2.8% during the period despite a
lower average level of short-term borrowings and an increase in the debt
component of allowance for funds used during construction due to higher
short-term interest rates (which averaged 6.1% as compared to 3.4% during
the same period of 1994).
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 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.
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CANAL ELECTRIC COMPANY
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 27 - Financial Data Schedule
Filed herewith as Exhibit 1 is the Financial Data Schedule for the
three months ended March 31, 1995.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the three months ended March
31, 1995.
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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 15, 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 three months ended March 31, 1995 and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
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<NAME> CANAL ELECTRIC COMPANY
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