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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, 1995
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, 1996
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, 1995
TABLE OF CONTENTS
PART I
PAGE
Item 1. Business.......................................... 3
General......................................... 3
New England Power Pool.......................... 3
Regulation...................................... 4
Electric Industry Restructuring................. 4
Potential Impact of Regulatory Restructuring.... 5
Fuel Supply..................................... 5
Power Contracts................................. 6
Power Supply Commitments and
Support Agreements............................ 7
Construction and Financing...................... 7
Employees....................................... 7
Item 2. Properties........................................ 7
Item 3. Legal Proceedings................................. 8
PART II
Item 5. Market for the Registrant's Common Stock and
Related Stockholder Matters..................... 9
Item 7. Management's Discussion and Analysis of
Results of Operations........................... 10
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................................................... 42
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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
information on the Company's participation in the Seabrook plant and on
other sources of power procurement, refer to the "Power Contracts" and
"Power Supply Commitments and Support Agreements" sections of this Item 1.
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. 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 is designed for cycling operation which provides
for economic changes in unit load permitting reduced generation during
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CANAL ELECTRIC COMPANY
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.
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.
Electric Industry Restructuring
On August 16, 1995, the DPU issued an order calling for the
restructuring of the electric utility industry in Massachusetts. The stated
purpose of the restructuring effort is to allow customers more flexibility
in choosing their electric service provider and to develop an efficient
industry structure and regulatory framework that minimizes long-term costs
to consumers while maintaining the safety and reliability of electric
services with a minimum impact on the environment. The electric utility
industry will ultimately be functionally separated into three segments to
help meet this objective: generation, transmission and distribution.
In February 1996, certain utilities submitted required proposals
detailing how they plan to move into a competitive market structure. Since
that time, the DPU has given notice of a generic proceeding that will focus
on many of the policy issues raised in the DPU's original order. Each of
the state's electric utilities, together with other interested parties, will
participate in this proceeding. The purpose of this generic proceeding is
to establish a set of rules governing the restructuring of the electric
industry in Massachusetts. These generic rules would set the basis for the
DPU's review of each of the utility-specific restructuring proposals. The
proposal to be submitted jointly by Cambridge and Commonwealth Electric is
due in September 1996. Management is unable to predict the ultimate outcome
of these proceedings.
On February 15, 1996, in response to the DPU's initial restructuring
order, Cambridge and Commonwealth Electric announced one element of the
proposal entitled "Competitive Challenge" in which they would voluntarily
put their power capacity entitlements (1,140 MW) to a market test in an
effort to develop a competitive market whereby customers would have the
flexibility of choosing their electric supplier. The proposal calls for the
auctioning in a competitive market of entitlements in all twenty-one
contracts, including contracts between Cambridge and Commonwealth Electric
and the Company. The proposal provides for total recovery of the difference
between the current market value of the Companies' power contracts and their
original unavoidable costs.
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CANAL ELECTRIC COMPANY
The auction approach has received initial positive reviews from the
Commonwealth of Massachusetts Division of Energy Resources and the Office of
the Attorney General.
Potential Impact of Regulatory Restructuring
Based on the current regulatory framework, the Company accounts for the
economic effects of regulation in accordance with the provisions of
Statement of Financial Accounting Standards (SFAS) No. 71, "Accounting for
the Effects of Certain Types of Regulation." The Company has established
various regulatory assets in cases where the FERC has permitted or is
expected to permit recovery of specific costs over time. The regulatory
assets amounted to $25.4 million (7.3% of total assets) as of December 31,
1995. In March 1995, the Financial Accounting Standards Board issued SFAS
No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-
Lived Assets to be Disposed Of." SFAS 121 imposes stricter criteria for
regulatory assets by requiring that such assets be probable of future
recovery at each balance sheet date. Management does not expect that the
effects of SFAS 121, which the Company adopted 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 changes are made in the
current regulatory framework pursuant to the aforementioned electric utility
restructuring order issued by the DPU.
Fuel Supply
Effective October 1, 1995, the Company executed a nine-month contract
with Coastal Refining and Marketing, 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 30%) to be met
by spot purchases or by Coastal at the discretion of the Company. Through
December 1995, 14.4% of the Company's total requirements have been met by
lower-cost, spot purchases resulting in savings to its customers.
Energy Supply and Credit Corporation (ESCO Massachusetts, Inc.) operates
the Company's fuel oil terminal and manages the receipt and payment for the
fuel 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 two
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 1995, ESCO Massachusetts, Inc. maintained an average
daily inventory of 554,000 barrels of fuel oil which represents 28 days of
normal operation of the two units. This supply is maintained by tanker
deliveries.
In October 1993, the Company reached an agreement with Montaup and
Algonquin Gas Transmission Company (AGT) to build a new natural gas pipeline
that will serve Unit 2, which will be modified to burn gas in addition to
oil. The first phase of the project was completed in July 1995 when a 1,400
foot gas pipeline was installed 80 feet below the surface of the Cape Cod
Canal. The second phase involves the construction of a four-mile pipeline
that will ultimately connect Unit 2 to the AGT pipeline system. The project
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CANAL ELECTRIC COMPANY
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 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 mid-1996.
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.
Seabrook's requirement for nuclear 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 or
Monitored Retrievable Storage (MRS) facility. 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 at
least 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 acts 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
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CANAL ELECTRIC COMPANY
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 basis. A Capacity Acquisition and
Disposition 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 transaction covered by such Agreement. Commonwealth Electric and
Cambridge, in turn, bill charges to retail customers through rates subject
to DPU regulation. Currently, Agreements are in effect for Seabrook 1,
Phase I and Phase II of the Hydro-Quebec Project and a 50 MW exchange with
New England Power Company through April 1997. An agreement for a 50 MW
exchange with Central Vermont Public Service expired on October 31, 1995.
Power Supply Commitments and Support Agreements
In response to solicitations by NU and other utilities, the Company, on
behalf of Commonwealth Electric and Cambridge, purchased entitlements
through short-term contracts in various selected generating units. 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 2(c) 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 $13.1 million at December 31, 1995. In addition, the Company has
an equity interest in Phase II which amounted to $3.4 million in 1995 and
$3.8 million in 1994.
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.
Employees
The Company has 121 regular employees, 90 (74%) 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
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CANAL ELECTRIC COMPANY
capacity) in Seabrook 1. Refer to Note 4 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, 1995
One
(c) Frequency and Amount of Dividends Declared in 1995 and 1994
1995 1994
Per Share Per Share
Declaration Date Amount Declaration Date Amount
January 25, 1995 $ 2.25 April 25, 1994 $ 2.00
April 21, 1995 2.10 July 18, 1994 2.00
July 24, 1995 2.00 October 24, 1994 3.00
November 14, 1995 2.65 $ 7.00
$ 9.00
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, 1995 and
1994 is shown below:
Years Ended Years Ended
December 31, December 31,
1995 and 1994 1994 and 1993
Increase (Decrease)
(Dollars in Thousands)
Electric Operating Revenues $(51 432) (25.9)% $ (4 674) (2.3)%
Operating Expenses:
Fuel used in production (33 157) (40.5) (760) (0.9)
Electricity purchased for resale (12 628) (45.7) (350) (1.2)
Other operation and maintenance (648) (1.6) (1 998) (5.2)
Depreciation 2 934 21.7 178 1.3
Taxes -
Federal and state income (7 781) (92.7) (503) (5.7)
Local property and other (12) (0.3) 12 0.3
(51 292) (29.4) (3 421) (1.9)
Operating Income (140) (0.6) (1 253) (5.0)
Other Income 124 90.5 (163) (54.3)
Income Before Interest Charges (16) (0.1) (1 416) (5.6)
Interest Charges 10 0.1 (452) (4.4)
Net Income $ (26) (0.2) $ (964) (6.4)
Unit Sales Decrease (MWH) (1 959 307) (45.2) (85 345) (1.9)
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
1995 942 574 830 827 295 264 309 714 2 378 379
1994 2 594 406 1 047 214 218 560 477 506 4 337 686
1993 2 382 716 1 275 305 318 694 446 316 4 423 031
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CANAL ELECTRIC COMPANY
Revenue, Fuel and Purchased Power
During 1995, operating revenues decreased nearly 26% or $51.4 million
primarily due to the 45.2% decrease in unit sales. The significant decrease
in unit sales was due to a combination of scheduled maintenance and other
repairs to the turbine which kept Unit 1 out of service for the first seven
months of the year and an additional inspection outage of nearly one month
during the fourth quarter. Also contributing to the decline in unit sales
was the decreased availability of Unit 2 and a lower level of purchases made
on behalf of affiliated retail distribution companies. Somewhat offsetting
these items was an increase in power available from Seabrook 1.
Operating revenues for 1994 declined by approximately $4.7 million or
2.3% due to a decrease in unit sales. The 1.9% decrease in unit sales was
caused by the reduced availability of Seabrook 1 due to the timing of a
scheduled refueling outage which began in early April and was extended
through early August 1994 for unscheduled maintenance. Somewhat offsetting
the decline was an increase in purchases made on behalf of affiliated retail
distribution companies. Also reflected in the change in unit sales was the
increased availability of Unit 1 that was offset by the decline in
generation from Unit 2 due to scheduled and unscheduled maintenance on the
units.
Fuel, purchased power and transmission costs (included in other
operation) represented approximately 46% of the total revenue dollar in
1995, 57% in 1994 and 56% in 1993 and averaged 2.83 cents per KWH in 1995 as
compared to 2.60 cents in 1994 and 2.58 cents in 1993. The per barrel cost
of oil averaged $15.95 in 1995, $14.33 in 1994 and $14.02 in 1993. 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. During
1995, 1% oil averaged $15.96 per barrel as compared to $14.92 per barrel in
1994 and $15.16 per barrel in 1993. However, during 1995 virtually all
(99.6%) of the oil used by Units 1 and 2 was 1%, while lower-sulphur oil
displaced 70.4% of the higher sulphur (2.2%) content oil in 1994 and 57.5%
in 1993.
Other Operating Expenses
Other operation includes the following:
Years Ended December 31,
1995 1994 1993
(Dollars in millions)
Other operation: $23.2 $24.7 $23.7
Less:
Seabrook 1 operations 4.3 4.3 4.6
Hydro-Quebec Phase II transmission 3.5 3.5 3.5
Power purchased from affiliates 1.9 1.3 0.8
$13.5 $15.6 $14.8
After excluding the above items, other operation, net, decreased
approximately $2.1 million or 13.5% in 1995 and increased 5.4% in 1994. The
decrease in 1995 was mainly due to lower insurance and benefit costs
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CANAL ELECTRIC COMPANY
including a significant decrease in liability insurance ($1.6 million)
reflecting adjustments to insurance accruals reflecting better than
anticipated experience.
The increase in maintenance expense (8.1%) in 1995 reflects the
previously discussed major repair work done at Unit 1 offset in part by
lower maintenance costs at Unit 2. The decrease in maintenance expense in
1994 was due primarily to the timing of maintenance on Unit 1 and the major
overhaul of Unit 2 which occurred in 1993.
Depreciation and Taxes
Depreciation expense increased approximately $2.9 million or 21.7% due
to the higher level of plant-in-service and an adjustment to the
depreciation rate related to Unit 1 made during the second quarter. The
1.3% increase in depreciation expense in 1994 was due to a higher level of
plant-in-service.
Income tax expense declined 92.7% or approximately $7.8 million due to a
second quarter tax adjustment related to the settlement of certain Seabrook-
related tax issues ($7.6 million) and a lower level of pretax income. The
5.7% decrease in income tax expense (approximately $503,000) during 1994 was
due to a lower level of pretax income.
Other Income
The increase in other income during 1995 was due primarily to an
increase in interest income related to contested income tax issues
($97,000). During 1994 other income decreased due primarily to lower equity
earnings ($67,000) related to the Company's investment in Hydro-Quebec.
Interest Charges
Total interest charges were virtually unchanged for the year 1995
reflecting an increase in short-term interest ($332,000) due to higher
interest rates (6.1% as compared to 4.3% in 1994) on a higher average level
of short-term debt, offset by a slight decline ($54,000) in interest on
long-term debt and an increase in the debt component of the allowance for
funds used during construction (AFUDC) ($268,000). The increase in AFUDC
reflects the increase in construction activity during the year. During 1994
total interest charges decreased 4.4% reflecting lower long-term interest
($984,000) due to the early redemption of the Company's Series D, 11.125%
First Mortgage Bonds due in 2007. Somewhat offsetting the decrease in long-
term interest was an increase in other interest charges ($427,000) caused by
a higher average level of short-term borrowings coupled with higher short-
term interest rates.
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.
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CANAL ELECTRIC COMPANY
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.
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 the Board of Directors of 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, 1995 and 1994, and the related
statements of income, retained earnings and cash flows for each of the three
years in the period ended December 31, 1995. These financial statements and
the schedule referred to below are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and schedule 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, 1995 and 1994, and the results of its operations
and its cash flows for each of the three years in the period ended
December 31, 1995, in conformity with generally accepted accounting
principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in the index to
financial statements and schedule is presented for purposes of complying with
the Securities and Exchange Commission's rules and is not part of the basic
financial statements. This schedule has been subjected to the auditing
procedures applied in the audits of the basic financial statements and, in our
opinion, fairly states, 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 LLP
Boston, Massachusetts
February 16, 1996.
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CANAL ELECTRIC COMPANY
INDEX TO FINANCIAL STATEMENTS AND SCHEDULE
PART II.
FINANCIAL STATEMENTS
Balance Sheets at December 31, 1995 and 1994
Statements of Income for the Years Ended December 31, 1995, 1994 and 1993
Statements of Retained Earnings for the Years Ended December 31, 1995, 1994
and 1993
Statements of Cash Flows for the Years Ended December 31, 1995, 1994 and
1993
Notes to Financial Statements
PART IV.
SCHEDULE
I Investments In, Equity Earnings of, and Dividends Received From
Related Parties for the Years Ended December 31, 1995, 1994 and 1993
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.
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CANAL ELECTRIC COMPANY
BALANCE SHEETS
DECEMBER 31, 1995 AND 1994
ASSETS
1995 1994
(Dollars in Thousands)
PROPERTY, PLANT AND EQUIPMENT, at original cost $436 531 $409 648
Less - Accumulated depreciation
and amortization 163 929 150 337
272 602 259 311
Add - Construction work in progress 5 759 6 250
Nuclear fuel in process 122 139
278 483 265 700
LEASED PROPERTY, net 13 128 13 844
INVESTMENTS
Equity in corporate joint venture 3 372 3 802
CURRENT ASSETS
Cash 12 12
Accounts receivable -
Affiliated companies 9 282 7 935
Other 9 520 9 100
Unbilled revenues 438 -
Inventories, at average cost -
Electric production fuel oil 762 736
Materials and supplies 1 375 1 408
Prepaid taxes -
Income - 132
Property 874 932
Other 1 622 1 277
23 885 21 532
DEFERRED CHARGES
Seabrook 1 6 436 7 735
Seabrook 2 3 343 5 140
Other 20 813 12 195
30 592 25 070
$349 460 $329 948
The accompanying notes are an integral part of these financial statements.
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CANAL ELECTRIC COMPANY
BALANCE SHEETS
DECEMBER 31, 1995 AND 1994
CAPITALIZATION AND LIABILITIES
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 52 070 51 647
98 471 98 048
Long-term debt, including premiums, less
current sinking fund requirements 83 941 87 713
182 412 185 761
CAPITAL LEASE OBLIGATIONS 12 547 13 258
CURRENT LIABILITIES
Interim Financing -
Notes payable to banks 23 425 11 325
Advances from affiliates 5 865 9 350
Maturing long-term debt 3 230 -
32 520 20 675
Other Current Liabilities -
Current sinking fund requirements 920 1 110
Accounts payable -
Affiliated companies 2 049 1 932
Other 19 757 14 857
Accrued taxes -
Local property and other 855 977
Income 3 159 71
Capital lease obligations 581 586
Accrued interest and other 3 608 4 120
30 929 23 653
63 449 44 328
DEFERRED CREDITS
Accumulated deferred income taxes 72 914 68 732
Unamortized investment tax credits 12 020 12 658
Other 6 118 5 211
91 052 86 601
COMMITMENTS AND CONTINGENCIES
$349 460 $329 948
The accompanying notes are an integral part of these financial statements.
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CANAL ELECTRIC COMPANY
STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
1995 1994 1993
(Dollars in Thousands)
ELECTRIC OPERATING REVENUES
Sales to affiliated companies $ 94 447 $122 310 $133 060
Sales to non-affiliated companies 52 507 76 076 70 000
146 954 198 386 203 060
OPERATING EXPENSES
Fuel used in production 48 707 81 864 82 624
Electricity purchased for resale 14 999 27 627 27 977
Other operation 23 153 24 731 23 694
Maintenance 12 456 11 526 14 561
Depreciation 16 473 13 539 13 361
Amortization 3 423 3 423 3 423
Taxes -
Income 609 8 390 8 893
Local property 2 777 2 793 2 720
Payroll and other 733 729 790
123 330 174 622 178 043
OPERATING INCOME 23 624 23 764 25 017
OTHER INCOME 261 137 300
INCOME BEFORE INTEREST CHARGES 23 885 23 901 25 317
INTEREST CHARGES
Long-term debt 8 229 8 283 9 267
Other interest charges 1 878 1 546 989
Allowance for borrowed funds used
during construction (354) (86) (61)
9 753 9 743 10 195
NET INCOME $ 14 132 $ 14 158 $ 15 122
The accompanying notes are an integral part of these financial statements.
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CANAL ELECTRIC COMPANY
STATEMENTS OF RETAINED EARNINGS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
1995 1994 1993
(Dollars in Thousands)
Balance at beginning of year $51 647 $48 151 $64 498
Add (Deduct)
Net income 14 132 14 158 15 122
Cash dividends on common stock (13 709) (10 662) (31 469)
Balance at end of year $52 070 $51 647 $48 151
The accompanying notes are an integral part of these financial statements.
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CANAL ELECTRIC COMPANY
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
1995 1994 1993
(Dollars in Thousands)
OPERATING ACTIVITIES
Net income $ 14 132 $ 14 158 $ 15 122
Effects of noncash items -
Depreciation and amortization 21 929 18 668 20 333
Deferred income taxes (3 239) 1 815 1 445
Investment tax credits (638) (702) (715)
Earnings from corporate joint venture (539) (507) (573)
Dividends from corporate joint venture 969 566 882
Change in working capital, exclusive
of cash and interim financing -
Accounts receivable (1 767) 4 729 (513)
Unbilled revenues (438) 659 224
Prepaid (accrued) income taxes, net 3 220 199 (990)
Local property and other taxes, net (64) 13 (30)
Accounts payable and other 3 972 485 1 603
All other operating items, net (1 380) (3 571) (2 326)
Net cash provided by operating activities 36 157 36 512 34 462
INVESTING ACTIVITIES
Additions to property, plant and
equipment (exclusive of AFUDC) (30 167) (9 396) (6 574)
Allowance for borrowed funds used
during construction (354) (86) ( 61)
Net cash used for investing activities (30 521) (9 482) (6 635)
FINANCING ACTIVITIES
Proceeds from (payment of)
short-term borrowings 12 100 (16 675) 8 650
Proceeds from (payment of)
affiliate borrowings (3 485) 1 040 4 590
Payment of dividends (13 709) (10 662) (31 469)
Long-term debt issue refunded - - (9 300)
Retirement of long-term debt through
sinking funds (542) (733) (732)
Net cash used for financing activities (5 636) (27 030) (28 261)
Net increase (decrease) in cash - - (434)
Cash at beginning of period 12 12 446
Cash at end of period $ 12 $ 12 $ 12
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Interest paid (net of capitalized
amounts) $9 436 $9 224 $9 704
Income taxes paid $2 269 $9 055 $9 467
The accompanying notes are an integral part of these financial statements.
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CANAL ELECTRIC COMPANY
NOTES TO FINANCIAL STATEMENTS
(1) General Information
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 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 is a wholesale electric generating company organized in
1902 under the laws of the Commonwealth of Massachusetts. The Company's
generating station which is located in Sandwich, Massachusetts consists of
two units: Canal Unit 1 wholly-owned by the Company; and Canal Unit 2
jointly-owned by the Company and Montaup Electric Company (Montaup) (an
unaffiliated company). The Company's largest customers with respect to
output from Unit 1 and Unit 2 are affiliates Cambridge and Commonwealth
Electric. The Company also has a 3.52% interest in the Seabrook 1 nuclear
power plant to provide a portion of the capacity and energy needs of
Cambridge and Commonwealth Electric and acts as agent in the procurement of
additional capacity for the aforementioned affiliates.
The Company has 121 regular employees including 90 (74%) who are
represented by the Utility Workers' Union of America, A.F.L.-C.I.O. The
existing collective bargaining agreement expires in 1997. Employee
relations have generally been satisfactory.
(2) Significant Accounting Policies
(a) Accounting Principles
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Certain prior year amounts are reclassified from time to time to con-
form with the presentation used in the current year's financial statements.
(b) Regulatory Assets
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).
Based on the current regulatory framework, the Company accounts for
the economic effects of regulation in accordance with the provisions of
Statement of Financial Accounting Standards (SFAS) No. 71, "Accounting for
the Effects of Certain Types of Regulation." The Company has established
various regulatory assets in cases where the FERC has permitted or is
expected to permit recovery of specific costs over time. In March 1995, the
Financial Accounting Standards Board issued SFAS No. 121, "Accounting for
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CANAL ELECTRIC COMPANY
the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of." SFAS No. 121 imposes stricter criteria for regulatory assets by
requiring that such assets be probable of future recovery at each balance
sheet date. Management does not expect that the effects of SFAS No. 121,
which the Company adopted 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 changes are made in the current regulatory
framework pursuant to an electric utility restructuring order issued by the
DPU in August 1995.
The principal regulatory assets included in deferred charges at
December 31, 1995 and 1994 were as follows:
1995 1994
(Dollars in Thousands)
Seabrook related costs $ 9 511 $12 648
Deferred income taxes 14 106 5 537
Postretirement benefit costs 1 774 1 242
Total regulatory assets $25 391 $19 427
As of December 31, 1995, all of the Company's regulatory assets,
except postretirement benefit costs, are reflected in rates charged to
customers over a weighted average period of approximately 19 years. In
February 1996, FERC accepted for filing rate schedules that provide for the
recovery of the postretirement benefit costs over a six-month period
beginning in March 1996.
(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)
1995 $39 617 $18 694 $36 136
1994 45 906 31 288 45 116
1993 53 174 31 777 48 109
(d) Other Major Customers
The Company is a wholesale electric generating company that sells
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CANAL ELECTRIC COMPANY
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 I 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 4.09% in 1995, 3.49% in 1994 and 3.47% in 1993. In 1993,
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 that
period.
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.
The Company develops rates based upon its current cost of capital and used a
compound rate of 6.75% in 1995, 5.25% in 1994 and 3.75% in 1993.
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CANAL ELECTRIC COMPANY
(3) 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, 1995, 1994 and 1993:
1995 1994 1993
(Dollars in Thousands)
Federal:
Current $ 3 637 $ 6 321 $ 7 192
Deferred 1 585 1 460 1 476
Investment tax credits (638) (702) (715)
4 584 7 079 7 953
State:
Current 955 1 138 1 181
Deferred (11) 355 (31)
944 1 493 1 150
5 528 8 572 9 103
Amortization of regulatory liability
relating to deferred income taxes (4 813) - -
Total $ 715 $ 8 572 $ 9 103
Federal and state income taxes
charged to:
Operating expense $ 609 $ 8 390 $ 8 893
Other income 106 182 210
$ 715 $ 8 572 $ 9 103
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.
In May 1995, the Company refunded certain unprotected excess deferred
taxes to Commonwealth Electric and Cambridge Electric resulting in a
reduction to the 1995 tax provision.
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CANAL ELECTRIC COMPANY
Accumulated deferred income taxes consisted of the following in 1995 and
1994:
1995 1994
(Dollars in Thousands)
Liabilities
Property-related $79 918 $77 587
Seabrook nonconstruction 3 089 4 504
All other 2 327 1 291
85 334 83 382
Assets
Investment tax credit 7 758 8 170
Regulatory liability 2 335 5 189
All other 1 443 1 247
11 536 14 606
Accumulated deferred income taxes, net $73 798 $68 776
The net year-end deferred income tax liability above includes a current
deferred tax liability of $884,000 and $44,000 in 1995 and 1994,
respectively, which are included in accrued income taxes in the accompanying
balance sheets.
The total income tax provision set forth on the previous page
represents 5% in 1995 and 38% in 1994 and 1993, of income before such taxes
in each year. The following table reconciles the statutory federal income
tax rate to these percentages:
1995 1994 1993
Federal statutory rate 35% 35% 35%
Federal income tax expense at statutory levels $5 196 $7 956 $ 8 479
Increase (Decrease) from statutory rate:
Tax versus book depreciation 1 227 1 311 1 318
State tax, net of federal tax benefit 613 970 748
Amortization of investment tax credits (638) (689) (671)
Excess deferred reserves (4 813) - -
Reversals of capitalized expenses (556) (555) (555)
Other (314) (421) (216)
$ 715 $8 572 $ 9 103
Effective federal tax rate 5% 38% 38%
(4) 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
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CANAL ELECTRIC COMPANY
the Company's property, is as follows:
Original Balance December 31,
Issue 1995 1994
(Dollars in Thousands)
First Mortgage Bonds -
Series A, 7%, due 1996 $19 000 $ - $ 3 800
Series B, 8.85%, due 2006 35 000 34 650 34 650
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
$84 650 $88 450
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,
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 short-term financing of their
construction programs and other corporate purposes. As of December 31,
1995, system companies had $80 million of committed lines of credit that
will expire at varying intervals in 1996. These lines are normally renewed
upon expiration and require annual fees of up to .1875% of the individual
line. At December 31, 1995, the system's uncommitted lines of credit
totaled $70 million. Interest rates on the Company's outstanding borrowings
generally are at an adjusted money market rate and averaged 6.1% and 4.3% in
1995 and 1994, respectively. The Company's notes payable to banks totaled
$23,425,000 and $11,325,000 at December 31, 1995 and 1994, respectively.
(c) Advances from Affiliates
The Company had short-term notes payable to the System totaling
$555,000 and $9,350,000 at December 31, 1995 and 1994, respectively. These
notes are written for a term of up to 11 months and 29 days. Interest is at
the prime rate and is adjusted for changes in that rate during the terms of
the notes. This rate averaged 8.8% and 7.3% in 1995 and 1994, respectively.
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
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CANAL ELECTRIC COMPANY
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. Interest rates on the
outstanding borrowings are based on the monthly average rate the Company
would otherwise have to pay banks, less one-half the difference between that
rate and the monthly average U.S. Treasury Bill weekly auction rate. The
borrowings are for a period of less than one year and are payable upon
demand. Rates on these borrowings averaged 5.8% and 4.3% in 1995 and 1994,
respectively. The Company notes payable to the Pool of $5,310,000 at
December 31, 1995 and had no notes payable to the Pool at December 31, 1994.
(d) Disclosures About Fair Value of Financial Instruments
The fair value of certain financial instruments included in the
accompanying balance sheets as of December 31, 1995 and 1994 are as follows:
1995 1994
(Dollars in Thousands)
Carrying Fair Carrying Fair
Value Value Value Value
Long-term Debt $88 091 $105 197 $88 823 $91 020
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.
The estimated fair value of long-term debt is based on 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.
(5) Commitments and Contingencies
(a) Construction
The Company is engaged in a continuous construction program presently
estimated at $57.2 million for the five-year period 1996 through 2000. Of
that amount, $19.1 million is estimated for 1996. 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) 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 power contracts pursuant to FERC
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CANAL ELECTRIC COMPANY
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:
1995 1994
(Dollars in Thousands)
Utility plant-in-service $232 547 $232 374
Nuclear fuel 20 138 18 500
Accumulated depreciation
and amortization (50 230) (41 654)
Construction work in progress 946 651
$203 401 $209 871
1995 1994 1993
(Dollars in Thousands)
Operating expenses:
Fuel $ 2 353 $ 1 939 $ 3 853
Other operation 4 292 4 340 4 580
Maintenance 1 376 1 688 893
Depreciation 6 542 6 531 6 522
Amortization 1 319 1 320 1 319
$15 882 $15 818 $17 167
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
decommissioning fund to cover decommissioning costs. The estimated cost to
decommission the plant is $431.6 million in current dollars. The Company's
share of this liability (approximately $15.2 million), less its share of the
market value of the assets held in a decommissioning trust (approximately
$1.5 million), is approximately $13.7 million at December 31, 1995.
(c) 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.
(6) Dividend Restriction
At December 31, 1995, approximately $41,683,000 of retained earnings
was restricted against the payment of cash dividends by terms of the
Indenture of Trust securing long-term debt.
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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 one
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 and related assumptions to develop
pension expense were as follows:
1995 1994 1993
(Dollars in Thousands)
Service cost $ 435 $ 457 $ 384
Interest cost 1 151 995 960
Return on plan assets - (gain)/loss (3 113) 220 (1 741)
Net amortization and deferral 2 045 (1 139) 913
Total pension expense 518 533 516
Transfers from affiliates, net 324 279 270
Less: Amounts capitalized and other 193 181 160
Net pension expense $ 649 $ 631 $ 626
Discount rate 8.50% 7.25% 8.50%
Assumed rate of return 9.00 8.50 8.50
Rate of increase in future
compensation 5.00 4.50 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:
1995 1994
(Dollars in Thousands)
Accumulated benefit obligation:
Vested $(10 208) $ (8 698)
Nonvested (1 910) (1 641)
$(12 118) $(10 339)
Projected benefit obligation $(15 287) $(12 579)
Plan assets at fair market value 15 452 12 479
Projected benefit obligation
(greater) less than plan assets 165 (100)
Unamortized transition obligation 102 120
Unrecognized prior service cost 534 588
Unrecognized gain (1 239) (1 057)
Accrued pension liability $ (438) $ (449)
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CANAL ELECTRIC COMPANY
The following actuarial assumptions were used in determining the
plan's year-end funded status:
1995 1994
Discount rate 7.25% 8.50%
Rate of increase in future compensation 4.25 5.00
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.
(b) Other Postretirement Benefits
Historically, the Company provided postretirement health care and life
insurance benefits to eligible retired employees. Employees became eligible
for these benefits if their age plus years of service at retirement equaled
75 or more. However, 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.
The Company adopted the provisions of Statement of Financial
Accounting Standards No. 106 "Employers' Accounting for Postretirement
Benefits Other Than Pensions" (SFAS No. 106) as of January 1, 1993 and the
cumulative effect of implementation of SFAS No. 106 was approximately $5
million, which is being amortized over 20 years. Prior to 1993, the cost of
postretirement benefits was recognized as the benefits were paid.
The Company makes contributions to various voluntary employees'
beneficiary association (VEBA) trusts that were established pursuant to
section 501(c)(9) of the Internal Revenue Code (the Code). The Company also
makes contributions to a subaccount 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 $693,000, $740,000 and
$684,000 to these trusts during 1995, 1994 and 1993, respectively.
The net periodic postretirement benefit cost for the years ended
December 31, 1995, 1994 and 1993 includes the following components and
related assumptions:
1995 1994 1993
(Dollars in Thousands)
Service cost $ 131 $ 164 $ 169
Interest cost 441 409 428
Return on plan assets (383) (11) (35)
Amortization of transition
obligation over 20 years 248 248 249
Net amortization and deferral 261 (66) 1
Total postretirement benefit cost 698 744 812
Transfers from affiliates, net 447 426 374
Less: Amounts capitalized and other 867 892 857
Net postretirement benefit cost $ 278 $ 278 $ 329
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CANAL ELECTRIC COMPANY
1995 1994 1993
Discount rate 8.50% 7.25% 8.50%
Assumed rate of return 9.00 8.50 8.50
Rate of increase in future compensation 5.00 4.50 4.50
The funded status of the Company's postretirement benefit plan using a
measurement date of December 31, 1995 and 1994 is as follows:
1995 1994
(Dollars in Thousands)
Accumulated postretirement benefit obligation:
Retirees $(2 829) $(2 710)
Fully eligible active plan participants (1 028) (553)
Other active plan participants (2 409) (2 250)
(6 266) (5 513)
Plan assets at fair market value 2 048 1 187
Accumulated postretirement benefit obligation
greater than plan assets (4 218) (4 326)
Unamortized transition obligation 4 226 4 474
Unrecognized gain (8) (148)
$ - $ -
The following actuarial assumptions were used in determining the plan's
estimated accumulated postretirement benefit obligation (APBO) and the
funded status for 1995 and 1994:
1995 1994
Discount rate 7.25% 8.50%
Rate of increase in future compensation 4.25 5.00
Medicare part B premiums 12.20 12.30
Medical care 8.00 8.50
Dental care 5.00 5.00
The above rates, with the exception of the dental rate, which remains
constant, decrease to five percent in the year 2007 and remain at that level
thereafter. A one percent change in the medical trend rate would have an
$87,000 impact on the Company's annual expense and would change the APBO by
approximately $834,000.
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.
In February 1996, FERC accepted for filing rate schedules that provide
for the recovery of the Company's SFAS No. 106 expense effective with its
March 1996 contract billings, including the recovery of previously deferred
costs over a six-month period.
(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
<PAGE>
<PAGE 32>
CANAL ELECTRIC COMPANY
eligible for postretirement health benefits. The Company's contribution was
$258,000 in 1995, $250,000 in 1994 and $234,000 in 1993.
(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 that
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 noncancelable operating leases consisted of the following at
December 31, 1995:
Operating Leases Capital Leases
(Dollars in Thousands)
1996 $ 468 $ 1 997
1997 468 1 932
1998 424 1 869
1999 412 1 806
2000 412 1 744
Beyond 2000 1 181 20 671
Total future minimum lease payments $3 365 30 019
Less:Estimated interest element
included therein 16 891
Estimated present value of future
minimum lease payments $13 128
Total rent expense for all operating leases, except those with terms
of a month or less, amounted to $431,000 in 1995, $421,000 in 1994 and
$438,000 in 1993. There were no contingent rentals and no sublease rentals
for the years 1995, 1994 and 1993.
<PAGE>
<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 indicated are financial statement schedules of
the Company:
Schedule I - Investments in, Equity Earnings of, and Dividends Received
from Related Parties - Years Ended December 31, 1995, 1994 and 1993
(page 41).
(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. 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
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).
<PAGE>
<PAGE 34>
CANAL ELECTRIC COMPANY
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 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).
4.2.5 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).
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, superseding 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).
<PAGE>
<PAGE 35>
CANAL ELECTRIC COMPANY
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).
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).
<PAGE>
<PAGE 36>
CANAL ELECTRIC COMPANY
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 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).
10.1.10.3 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).
<PAGE>
<PAGE 37>
CANAL ELECTRIC COMPANY
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).
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).
<PAGE>
<PAGE 38>
CANAL ELECTRIC COMPANY
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).
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 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).
<PAGE>
<PAGE 39>
CANAL ELECTRIC COMPANY
10.1.23 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).
<PAGE>
<PAGE 40>
CANAL ELECTRIC COMPANY
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).
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).
10.2.3.10 Twenty-eighth Amendment to 10.2.3 as amended September 15, 1992
(Exhibit 1 to the CES Form 10-Q (September 1994), File No. 1-7316).
10.2.3.11 Twenty-ninth Amendment to 10.2.3 as amended May 1, 1993 (Exhibit 2
to the CES Form 10-Q (September 1994), 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).
Filed herewith:
Exhibit 27.
Financial Data Schedule for the year ended December 31, 1995
(Filed herewith as Exhibit 1)
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the three months ended
December 31, 1995.
<PAGE>
<PAGE 41>
<TABLE> SCHEDULE I
CANAL ELECTRIC COMPANY
INVESTMENTS IN, EQUITY EARNINGS OF,
AND DIVIDENDS RECEIVED FROM RELATED PARTIES
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(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, 1995
<S> <C> <C> <C> <C> <C>
New England Hydro-Transmission
Electric Company, Inc. $ 2 313 136 656 $ 328 $ 615 $2 026
New England Hydro-Transmission
Corporation 1 489 734.526 211 354 1 346
Total $ 3 802 $ 539 $ 969 $3 372
YEAR ENDED DECEMBER 31, 1994
<S> <C> <C> <C> <C> <C>
New England Hydro-Transmission
Electric Company, Inc. $ 2 408 136 656 $ 314 $ 409 $2 313
New England Hydro-Transmission
Corporation 1 453 785.772 193 157 1 489
Total $ 3 861 $ 507 $ 566 $3 802
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
<FN>
In 1995, New England Hydro-Transmission Corporation repurchased 6.52% of their outstanding shares at
$1,834.62 per share. The Company received $94,017 for the repurchase of 51.246 shares, and has included
this amount with dividends.
</TABLE>
<PAGE>
<PAGE 42>
CANAL ELECTRIC COMPANY
FORM 10-K DECEMBER 31, 1995
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 28, 1996
William G. Poist,
Chairman of the Board and
Chief Executive Officer
R. D. WRIGHT March 29, 1996
Russell D. Wright,
President and Chief Operating Officer
Principal Financial Officer:
JAMES D. RAPPOLI March 28, 1996
James D. Rappoli
Financial Vice President and Treasurer
A majority of the Board of Directors:
WILLIAM G. POIST March 28, 1996
William G. Poist, Director
R. D. WRIGHT March 29, 1996
Russell D. Wright, Director
JAMES D. RAPPOLI March 28, 1996
James D. Rappoli, Director
<PAGE>
<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-K of Canal Electric Company for
fiscal year ended December 31, 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> DEC-31-1995
<PERIOD-TYPE> YEAR
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 278,483
<OTHER-PROPERTY-AND-INVEST> 3,372
<TOTAL-CURRENT-ASSETS> 23,885
<TOTAL-DEFERRED-CHARGES> 30,592
<OTHER-ASSETS> 13,128
<TOTAL-ASSETS> 349,460
<COMMON> 38,080
<CAPITAL-SURPLUS-PAID-IN> 8,321
<RETAINED-EARNINGS> 52,070
<TOTAL-COMMON-STOCKHOLDERS-EQ> 98,471
0
0
<LONG-TERM-DEBT-NET> 83,941
<SHORT-TERM-NOTES> 29,290
<LONG-TERM-NOTES-PAYABLE> 3,230
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 920
0
<CAPITAL-LEASE-OBLIGATIONS> 12,547
<LEASES-CURRENT> 581
<OTHER-ITEMS-CAPITAL-AND-LIAB> 120,480
<TOT-CAPITALIZATION-AND-LIAB> 349,460
<GROSS-OPERATING-REVENUE> 146,954
<INCOME-TAX-EXPENSE> 609
<OTHER-OPERATING-EXPENSES> 122,721
<TOTAL-OPERATING-EXPENSES> 123,330
<OPERATING-INCOME-LOSS> 23,624
<OTHER-INCOME-NET> 261
<INCOME-BEFORE-INTEREST-EXPEN> 23,885
<TOTAL-INTEREST-EXPENSE> 9,753
<NET-INCOME> 14,132
0
<EARNINGS-AVAILABLE-FOR-COMM> 14,132
<COMMON-STOCK-DIVIDENDS> 13,709
<TOTAL-INTEREST-ON-BONDS> 8,229
<CASH-FLOW-OPERATIONS> 36,157
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
