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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, 1996
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, 1997
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 32 of this report.
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CANAL ELECTRIC COMPANY
FORM 10-K DECEMBER 31, 1996
TABLE OF CONTENTS
PART I
PAGE
Item 1. Business.......................................... 3
General......................................... 3
New England Power Pool.......................... 3
Regulation...................................... 4
Electric Industry Restructuring................. 4
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................................. 7
PART II
Item 5. Market for the Registrant's Common Stock and
Related Stockholder Matters..................... 8
Item 7. Management's Discussion and Analysis of
Results of Operations........................... 9
Item 8. Financial Statements and Supplementary Data....... 12
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure............. 12
PART IV
Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K............................. 32
Signatures................................................... 41
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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
electric generating units: Canal Unit 1 is an oil-fired facility with a
rated capacity of 569 MW, wholly-owned by the Company; and Canal Unit 2
which was converted to dual-fuel capability (oil and natural gas) in 1996,
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
nights and weekends when demand is lowest. It has performed as one of New
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CANAL ELECTRIC COMPANY
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
In August 1995, the DPU issued an order calling for the restructuring of
the electric utility industry in Massachusetts. On May 1, 1996, the DPU
issued a second order containing proposed rules for implementing electric
industry restructuring that were the subject of public comment and hearings
during June and July 1996. Subsequently, on December 30, 1996, the DPU
issued another order announcing its "Model Rules and Legislative Proposal"
as a guide in the creation of a competitive market for electric generation
in Massachusetts that would provide customers with the opportunity to
achieve lower electric bills beginning January 1, 1998. The order also
required electric utilities to file by March 3, 1997, revenue-neutral,
unbundled rates and model bills showing a breakdown of the bill into
generation, transmission, distribution and access charge categories.
In its "Model Rules," the DPU has proposed that the minimum structural
reorganization needed to create a competitive market is the functional
separation of generation, transmission and distribution within one
integrated company, and the establishment of a separate marketing affiliate
if a company retains generation assets. The Massachusetts Legislature,
which will render the final passage of any restructuring law, is now
considering the DPU's proposed legislation. In addition, on March 20, 1997,
the Legislature's own Joint Committee on Electric Utility Restructuring (the
Committee) issued a comprehensive policy report which outlines options for
the Legislature's consideration as debate on this issue continues. In
addition to the report, the Committee formulated its own recommendations and
corresponding legislative package designed to address each of the major
areas of the law which must develop if electric utility restructuring is to
be successfully implemented in Massachusetts.
Other elements of the DPU's Model Rules provide that electric customers
will be able to buy their power on the open market; distribution services
will remain a monopoly service offered exclusively by the existing local
distribution companies in clearly defined service territories; and customers
will have three types of electric generation choices. First, customers may
enter into unregulated agreements with a competitive supplier for the provi-
sion of generation. Second, customers may continue to buy power directly
from their electric distribution company at a price regulated by the DPU.
Third, customers who have received generation from a competitive supplier
but who, for any reason, have stopped receiving such generation will be able
to receive default generation service, provided by distribution companies at
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CANAL ELECTRIC COMPANY
spot market price.
The Company has FERC-approved power contracts in effect with various
retail electric utilities (including certain affiliates). The retail
electric utilities with whom the Company has power contracts are directly
affected by the state's electric industry restructuring order. The Company
believes that it will continue to collect the costs associated with these
FERC-approved power contracts.
During the last several months, three Massachusetts electric utilities
have announced negotiated settlement agreements with the Massachusetts
Attorney General's Office (Attorney General) that include divestiture of
generating assets, provision for a ten percent reduction in customers'
charges and recovery of stranded costs through a non-bypassable access
charge. One settlement agreement has already been approved by the DPU.
Implementation of any restructuring settlement may be affected by actions of
the Massachusetts Legislature.
The system is engaged in preliminary settlement discussions with the
Attorney General, and expects to reach a comprehensive settlement during the
first half of 1997. In the unlikely event the parties are unable to
complete a settlement, the system would file a full restructuring plan with
the DPU.
Fuel Supply
Effective October 1, 1996, the Company executed a fifteen-month contract
with Enron Liquid Fuels, Inc. (Enron) for the purchase of 1% sulfur residual
fuel oil. The contract provides for delivery of a set percentage of the
Company's fuel requirement, the balance (a maximum of 35%) to be met by spot
purchases or by Enron at the discretion of the Company. Through December
31, 1996, 17.6% 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 fuel
oil under assignment of the Company's supply contracts to ESCO Massachu-
setts, Inc. Residual fuel 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 1996, ESCO Massachusetts, Inc. maintained an average
daily inventory of 421,000 barrels of fuel oil which represents 34 days of
normal operation of the two units. This supply is maintained by tanker
deliveries.
During 1996 Unit 2 was converted to dual-fuel capability, residual fuel
oil and natural gas. During September and October 1996, Unit 2 burned
approximately 1.6 million MMBTU's of natural gas, saving customers
approximately $1.1 million. Natural gas was not burned at Unit 2 during
November and December as the cost of residual fuel oil was more economical
during that period. The Company anticipates that its dual fuel capability
will result in future savings as the least expensive fuel is utilized.
The Company has entered into a contract with Duke/Louis Dreyfus, L.L.C.
to provide 100% of the natural gas requirements of Unit 2 through
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CANAL ELECTRIC COMPANY
December 31, 1997.
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 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 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 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
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 com-
pany's entitlement in Unit 2. Exchange agreements are in place with several
utilities whereby, in certain circumstances, it is possible to exchange
capacity so that the mix of power improves the pricing for dispatch for both
the seller and purchaser. Commonwealth Electric and Cambridge thus secure
cost savings for their respective customers by planning for bulk power
supply on a single system 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
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CANAL ELECTRIC COMPANY
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.
Power Supply Commitments and Support Agreements
In response to solicitations by Northeast Utilities 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 $12.5 million at December 31, 1996. In addition, the Company has
an equity interest in Phase II which amounted to $3.3 million in 1996 and
$3.4 million in 1995.
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 118 regular employees, 91 (77%) 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
steam electric generating units: Canal Unit 1 with a rated capacity of
569 MW, wholly-owned by the Company; and Canal Unit 2, with a rated capacity
of 580 MW, jointly-owned by the Company and Montaup Electric Company, a
wholly-owned subsidiary of Eastern Utilities Associates. In addition, the
Company has a 3.52% joint-ownership interest (40.5 MW of capacity) in
Seabrook 1. Refer to Note 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, 1996
One
(c) Frequency and Amount of Dividends Declared in 1996 and 1995
1996 1995
Per Share Per Share
Declaration Date Amount Declaration Date Amount
January 24, 1996 $ 2.52 January 25, 1995 $ 2.25
April 29, 1996 3.25 April 21, 1995 2.10
July 30, 1996 2.50 July 24, 1995 2.00
November 4, 1996 2.25 November 14, 1995 2.65
$10.52 $ 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, 1996 and
1995 is shown below:
Years Ended Years Ended
December 31, December 31,
1996 and 1995 1995 and 1994
Increase (Decrease)
(Dollars in Thousands)
Electric Operating Revenues $ 39 565 27.1 % $ (51 835) (26.2)%
Operating Expenses:
Fuel used in production 30 414 62.4 (33 157) (40.5)
Electricity purchased for resale (6 523) (43.5) (12 628) (45.7)
Other operation and maintenance 2 728 7.0 (648) (1.6)
Depreciation 2 209 13.4 2 934 21.7
Taxes -
Federal and state income 9 111 1 496.1 (7 781) (92.7)
Local property and other (181) (5.2) (12) (0.3)
37 758 30.6 (51 292) (29.4)
Operating Income 1 807 8.0 (543) (2.3)
Other Income 1 163 94.6 527 75.0
Income Before Interest Charges 2 970 12.4 (16) (0.1)
Interest Charges 528 5.4 10 0.1
Net Income $ 2 442 17.3 $ (26) (0.2)
Unit Sales Increase
(Decrease) (MWH) 795 899 33.5 (1 959 307) (45.2)
The following is a summary of unit sales for the periods indicated:
Unit Sales (MWH)
Period Ended Seabrook Purchased
December 31, Unit 1 Unit 2 Unit 1 For Resale Total
1996 2 104 132 455 054 345 204 269 888 3 174 278
1995 942 574 830 827 295 264 309 714 2 378 379
1994 2 594 406 1 047 214 218 560 447 506 4 337 686
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CANAL ELECTRIC COMPANY
Revenue, Fuel and Purchased Power
Operating revenues for 1996 increased by nearly $39.6 million or 27.1%
due to a 33.5% increase in unit sales. The significant increase in unit
sales was primarily due to the increased availability of Unit 1 which was
out of service for approximately eight months in 1995 due to a combination
of scheduled and unscheduled maintenance and an increase in power available
from Seabrook 1. Somewhat offsetting the increase in unit sales were the
decreased availability of Unit 2 which returned to service in August 1996,
following approximately five months of scheduled maintenance and a lower
level of purchases made on behalf of affiliated retail distribution
companies.
During 1995, operating revenues decreased 26.2% or $51.8 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.
The significant changes in fuel used in production reflect the impacts
of the aforementioned outages and during 1996 reflects an increase in the
average cost of oil. Fuel, purchased power and transmission costs (included
in other operation) represented approximately 49% of the total revenue
dollar in 1996, 46% in 1995 and 57% in 1994 and averaged 2.86 cents per KWH
in 1996 as compared to 2.83 cents in 1995 and 2.60 cents in 1994.
Other Operating Expenses
Other operation includes the following:
Years Ended December 31,
1996 1995 1994
(Dollars in millions)
Other operation: $26.6 $23.2 $24.7
Less:
Seabrook 1 operations 4.1 4.3 4.3
Hydro-Quebec Phase II transmission 3.3 3.5 3.5
Power purchased from affiliates 1.3 1.9 1.3
$17.9 $13.5 $15.6
After excluding the above items, other operation, net, increased approx-
imately $4.4 million or 32.6% in 1996 and decreased 13.5% in 1995. The
increase in 1996 was primarily due to higher postretirement benefits costs
reflecting the Federal Energy Regulatory Commission's acceptance of rate
schedules which allowed the recovery of previously deferred costs ($1.8
million) over a six-month period which began in March. Also contributing to
the increase was greater liability insurance costs ($800,000) due to the
absence of adjustments made to the insurance accruals during 1995 reflecting
better than anticipated experience. The decrease in 1995 was mainly due to
lower insurance and benefit costs including a significant decrease in
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CANAL ELECTRIC COMPANY
liability insurance ($1.6 million) reflecting adjustments to insurance
accruals.
The 5.5% decrease in maintenance expense during 1996 reflects lower
maintenance costs associated with Unit 1 ($1.5 million), offset in part by
increased maintenance costs for Unit 2 ($1.2 million). 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.
Depreciation and Taxes
During 1996 depreciation expense increased due to the higher level of
plant-in-service. During 1995, 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.
Federal and state income taxes increased in 1996 due to the absence of a
tax adjustment during the second quarter of 1995 that related to the
settlement of certain Seabrook-related income tax issues ($7.5 million) and
a higher level of pretax income. Income tax expense declined 92.7% or
approximately $7.8 million in 1995 due to the aforementioned tax adjustment
and a lower level of pretax income.
Other Income
The change in other income was due to the recording of a regulatory
asset for costs associated with postretirement benefits (approximately $1.8
million) following FERC acceptance of rate schedules which provided for
recovery of these costs over a six-month period that began in March 1996.
The increase in other income during 1995 was due primarily to an increase in
interest income related to contested income tax issues ($97,000).
Interest Charges
Total interest charges increased 5.4% in 1996 reflecting an increase in
short-term interest ($459,000) due to a higher average level of short-term
borrowings coupled with a decrease in the debt component of allowance for
funds used during construction ($281,000), partially offset by lower long-
term interest ($213,000) reflecting the retirement of Series A first
Mortgage Bonds during the second quarter. During 1995 total interest
charges were virtually unchanged, 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 in interest on long-term debt and an increase in the debt component
of AFUDC ($268,000). The increase in AFUDC reflected the increase in
construction activity during the year.
Canal Unit 2
September 30, 1996 marked the completion of a two and one-half year
project that will enable Unit 2 to burn natural gas, or a combination of gas
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CANAL ELECTRIC COMPANY
and oil, up to 250 days each year, while maintaining the ability to burn
only fuel oil the remainder of the year. The ability to burn natural gas in
combination with fuel oil will reduce overall emissions by 25%. The $23
million project included the construction of a 1,400 foot pipeline under the
Cape Cod Canal and a four and one-half mile pipeline through the adjacent
town of Bourne, MA.
Forward-Looking Statements
This report contains statements which, to the extent they are not
recitations of historical fact, constitute "forward-looking statements" and
are intended to be subject to the safe harbor protection provided by the
Private Securities Litigation Reform Act of 1995. A number of important
factors affecting the Company's business and financial results could cause
actual results to differ materially from those stated in the forward-looking
statements. Those factors include developments in the legislative,
regulatory and competitive environment, certain environmental matters,
demands for capital expenditures and the availability of cash from various
sources, and uncertainty as to regulatory approval of the full recovery of
regulatory assets and other stranded costs.
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.
Effective January 1, 1997, the Company will adopt the provisions of
Statement of Position (SOP) 96-1, "Environmental Remediation Liabilities."
This Statement provides authoritative guidance for recognition, measurement,
display and disclosure of environmental remediation liabilities in financial
statements. Management does not believe that SOP 96-1 will have a material
adverse effect on the Company's results of operations or financial position.
Item 8. Financial Statements and Supplementary Data
The Company's financial statements required by this item are filed
herewith on pages 13 through 31 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, 1996 and 1995, and the related
statements of income, retained earnings and cash flows for each of the three
years in the period ended December 31, 1996. 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, 1996 and 1995, and the results of its operations
and its cash flows for each of the three years in the period ended
December 31, 1996, 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 19, 1997.
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CANAL ELECTRIC COMPANY
INDEX TO FINANCIAL STATEMENTS AND SCHEDULE
PART II.
FINANCIAL STATEMENTS
Balance Sheets at December 31, 1996 and 1995
Statements of Income for the Years Ended December 31, 1996, 1995 and 1994
Statements of Retained Earnings for the Years Ended December 31, 1996, 1995
and 1994
Statements of Cash Flows for the Years Ended December 31, 1996, 1995 and
1994
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, 1996, 1995 and 1994
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, 1996 AND 1995
ASSETS
1996 1995
(Dollars in Thousands)
PROPERTY, PLANT AND EQUIPMENT, at original cost $464 003 $449 659
Less - Accumulated depreciation
and amortization 179 307 163 929
284 696 285 730
Add - Construction work in progress 943 5 759
Nuclear fuel in process 1 597 122
287 236 291 611
INVESTMENTS
Equity in corporate joint venture 3 321 3 372
CURRENT ASSETS
Cash 12 12
Accounts receivable -
Affiliated companies 10 294 9 282
Other 12 390 9 520
Unbilled revenues 675 438
Inventories, at average cost -
Electric production fuel oil 979 762
Materials and supplies 1 296 1 375
Prepaid taxes -
Income 64 -
Property 795 874
Other 1 116 1 622
27 621 23 885
DEFERRED CHARGES
Regulatory assets 19 859 25 391
Other 5 486 5 201
25 345 30 592
$343 523 $349 460
The accompanying notes are an integral part of these financial statements.
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CANAL ELECTRIC COMPANY
BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
CAPITALIZATION AND LIABILITIES
1996 1995
(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 52 620 52 070
99 021 98 471
Long-term debt, including premiums, less
current sinking fund requirements 83 618 83 941
182 639 182 412
CAPITAL LEASE OBLIGATIONS 11 878 12 547
CURRENT LIABILITIES
Interim Financing -
Notes payable to banks 26 550 23 425
Advances from affiliates 7 250 5 865
Maturing long-term debt - 3 230
33 800 32 520
Other Current Liabilities -
Current sinking fund requirements 350 920
Accounts payable -
Affiliated companies 1 347 2 049
Other 18 123 19 757
Accrued taxes -
Local property and other 795 855
Income - 3 159
Capital lease obligations 576 581
Accrued interest and other 3 986 3 608
25 177 30 929
58 977 63 449
DEFERRED CREDITS
Accumulated deferred income taxes 71 550 72 914
Unamortized investment tax credits 11 493 12 020
Other 6 986 6 118
90 029 91 052
COMMITMENTS AND CONTINGENCIES
$343 523 $349 460
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, 1996, 1995 AND 1994
1996 1995 1994
(Dollars in Thousands)
ELECTRIC OPERATING REVENUES
Sales to affiliated companies $107 842 $ 93 478 $121 744
Sales to non-affiliated companies 77 708 52 507 76 076
185 550 145 985 197 820
OPERATING EXPENSES
Fuel used in production 79 121 48 707 81 864
Electricity purchased for resale 8 476 14 999 27 627
Other operation 26 569 23 153 24 731
Maintenance 11 768 12 456 11 526
Depreciation 18 682 16 473 13 539
Amortization 3 423 3 423 3 423
Taxes -
Income 9 720 609 8 390
Local property 2 603 2 777 2 793
Payroll and other 726 733 729
161 088 123 330 174 622
OPERATING INCOME 24 462 22 655 23 198
OTHER INCOME 2 393 1 230 703
INCOME BEFORE INTEREST CHARGES 26 855 23 885 23 901
INTEREST CHARGES
Long-term debt 8 017 8 229 8 283
Other interest charges 2 337 1 878 1 546
Allowance for borrowed funds used
during construction (73) (354) (86)
10 281 9 753 9 743
NET INCOME $ 16 574 $ 14 132 $ 14 158
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, 1996, 1995 AND 1994
1996 1995 1994
(Dollars in Thousands)
Balance at beginning of year $52 070 $51 647 $48 151
Add (Deduct)
Net income 16 574 14 132 14 158
Cash dividends on common stock (16 024) (13 709) (10 662)
Balance at end of year $52 620 $52 070 $51 647
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, 1996, 1995 AND 1994
1996 1995 1994
(Dollars in Thousands)
OPERATING ACTIVITIES
Net income $ 16 574 $ 14 132 $ 14 158
Effects of noncash items -
Depreciation and amortization 23 485 21 929 18 668
Deferred income taxes (963) (3 239) 1 815
Investment tax credits (527) (638) (702)
Earnings from corporate joint venture (498) (539) (507)
Dividends from corporate joint venture 549 969 566
Change in working capital, exclusive
of cash and interim financing -
Accounts receivable (3 882) (1 767) 4 729
Unbilled revenues (237) (438) 659
Income taxes (3 223) 3 220 199
Local property and other taxes 19 (64) 13
Accounts payable and other (1 595) 3 972 485
All other operating items, net 565 (1 380) (3 571)
Net cash provided by operating activities 30 267 36 157 36 512
INVESTING ACTIVITIES
Additions to property, plant and
equipment (exclusive of AFUDC) (14 557) (30 167) (9 396)
Allowance for borrowed funds used
during construction (73) (354) (86)
Net cash used for investing activities (14 630) (30 521) (9 482)
FINANCING ACTIVITIES
Proceeds from (payment of)
short-term borrowings 3 125 12 100 (16 675)
Proceeds from (payment of)
affiliate borrowings 1 385 (3 485) 1 040
Payment of dividends (16 024) (13 709) (10 662)
Long-term debt issue refunded (3 420) - -
Retirement of long-term debt through
sinking funds (703) (542) (733)
Net cash used for financing activities (15 637) (5 636) (27 030)
Net increase (decrease) in cash - - -
Cash at beginning of period 12 12 12
Cash at end of period $ 12 $ 12 $ 12
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Interest paid (net of capitalized
amounts) $ 9 959 $9 436 $9 224
Income taxes paid $14 128 $2 269 $9 055
The accompanying notes are an integral part of these financial statements.
<PAGE>
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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 118 regular employees including 91 (77%) 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. Effective January
1, 1996, the Company adopted SFAS No. 121, "Accounting for the Impairment of
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CANAL ELECTRIC COMPANY
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. SFAS No.
121 did not have an impact on the Company's financial position upon
adoption. This result may change as modifications are made to the current
regulatory framework due to ongoing electric industry restructuring efforts
in Massachusetts. For additional information relating to industry
restructuring, see the "Electric Industry Restructuring" section under Item
1 of this report.
The principal regulatory assets included in deferred charges at
December 31, 1996 and 1995 were as follows:
1996 1995
(Dollars in Thousands)
Seabrook related costs $ 6 262 $ 9 511
Deferred income taxes 13 597 14 106
Postretirement benefit costs - 1 774
Total regulatory assets $19 859 $25 391
As of December 31, 1996 all of the Company's regulatory assets are
reflected in rates charged to customers over a weighted average period of
approximately 23 years. In February 1996, FERC accepted for filing rate
schedules that provided for the recovery of the postretirement benefit costs
over a six-month period which began 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)
1996 $52 035 $11 882 $43 925
1995 39 617 18 694 35 167
1994 45 906 31 288 44 550
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CANAL ELECTRIC COMPANY
(d) Other Major Customers
The Company is a wholesale electric generating company that sells
power under life-of-the-unit contracts, approved by FERC to Boston Edison
Company, Montaup Electric Company and New England Power Company,
(unaffiliated utilities). Each utility is obligated to purchase one-quarter
of the capacity and energy of Canal Unit 1.
(e) Equity Method of Accounting
The Company uses the equity method of accounting for its 3.8% invest-
ment in the New England/Hydro-Quebec Phase II transmission facilities due in
part to its ability to exercise significant influence over operating and
financial policies of the entity. Under this method, it records as income
the proportionate share of the net earnings of this project with a corre-
sponding increase in the carrying value of the investment. The investment
amount is reduced as cash dividends are received. For further information
on this investment, refer to Schedule 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 4.42% in 1996, 4.09% in 1995 and 3.49% in 1994.
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 6.25% in 1996, 6.75% in 1995 and 5.25% in 1994.
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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, 1996, 1995 and 1994:
1996 1995 1994
(Dollars in Thousands)
Federal:
Current $ 9 511 $ 3 637 $ 6 321
Deferred (577) 1 585 1 460
Investment tax credits (527) (638) (702)
8 407 4 584 7 079
State:
Current 1 747 955 1 138
Deferred (223) (11) 355
1 524 944 1 493
9 931 5 528 8 572
Amortization of regulatory liability
relating to deferred income taxes (163) (4 813) -
Total $ 9 768 $ 715 $ 8 572
Federal and state income taxes
charged to:
Operating expense $ 9 720 $ 609 $ 8 390
Other income 48 106 182
$ 9 768 $ 715 $ 8 572
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 1996 and
1995:
1996 1995
(Dollars in Thousands)
Liabilities
Property-related $78 542 $79 918
Seabrook nonconstruction 1 183 3 089
All other 3 535 2 327
83 260 85 334
Assets
Investment tax credit 7 418 7 758
Regulatory liability 2 230 2 335
All other 1 569 1 443
11 217 11 536
Accumulated deferred income taxes, net $72 043 $73 798
The net year-end deferred income tax liability above includes a current
deferred tax liability of $493,000 and $884,000 in 1996 and 1995,
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
37% in 1996, 5% in 1995 and 38% in 1994, of income before such taxes. The
following table reconciles the statutory federal income tax rate to these
percentages:
1996 1995 1994
Federal statutory rate 35% 35% 35%
Federal income tax expense at statutory levels $9 220 $5 196 $ 7 956
Increase (Decrease) from statutory rate:
Tax versus book depreciation 1 479 1 227 1 311
State tax, net of federal tax benefit 991 613 970
Amortization of investment tax credits (527) (638) (689)
Excess deferred reserves (163) (4 813) -
Reversals of capitalized expenses (559) (556) (555)
Other (673) (314) (421)
$9 768 $ 715 $ 8 572
Effective federal tax rate 37% 5% 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 1996 1995
(Dollars in Thousands)
First Mortgage Bonds -
Series B, 8.85%, due 2006 $35 000 $34 300 $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
$84 300 $84 650
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 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,
1996, system companies had $135 million of committed lines of credit that
will expire at varying intervals in 1997. These lines are normally renewed
upon expiration and require annual fees of up to .1875% of the individual
line. At December 31, 1996, the system's uncommitted lines of credit
totaled $20 million. Interest rates on the Company's outstanding borrowings
generally are at an adjusted money market rate and averaged 5.6% and 6.1% in
1996 and 1995, respectively. The Company's notes payable to banks totaled
$26,550,000 and $23,425,000 at December 31, 1996 and 1995, respectively.
(c) Advances from Affiliates
The Company had short-term notes payable to the System totaling
$5,620,000 and $555,000 at December 31, 1996 and 1995, 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 8.3% and 8.8% in 1996 and 1995, 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
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
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<PAGE 26>
CANAL ELECTRIC COMPANY
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 5.3% and 5.8% in 1996 and 1995,
respectively. The Company had notes payable to the Pool of $1,630,000 and
$5,310,000 at December 31, 1996 and 1995, respectively.
(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, 1996 and 1995 are as follows:
1996 1995
(Dollars in Thousands)
Carrying Fair Carrying Fair
Value Value Value Value
Long-term Debt $83 968 $97 446 $88 091 $105 197
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 $68.2 million for the five-year period 1997 through 2001. Of
that amount, $20 million is estimated for 1997. 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 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:
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CANAL ELECTRIC COMPANY
1996 1995
(Dollars in Thousands)
Utility plant-in-service $232 183 $232 547
Nuclear fuel 21 613 20 138
Accumulated depreciation
and amortization (57 359) (50 230)
Construction work in progress 844 946
$197 281 $203 401
1996 1995 1994
(Dollars in Thousands)
Operating expenses:
Fuel $ 1 727 $ 2 353 $ 1 939
Other operation 4 091 4 292 4 340
Maintenance 990 1 376 1 688
Depreciation 6 544 6 542 6 531
Amortization 1 319 1 319 1 320
$14 671 $15 882 $15 818
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 decommis-
sioning fund to cover decommissioning costs. The estimated cost to decom-
mission the plant is $449.9 million in current dollars. The Company's share
of this liability (approximately $15.8 million), less its share of the
market value of the assets held in a decommissioning trust (approximately
$1.9 million), is approximately $13.9 million at December 31, 1996.
The New Hampshire Public Utilities Commission issued an electric utility
industry restructuring order on February 28, 1997 that, if upheld, would
have a significant negative financial impact on a New Hampshire joint-owner
of the Seabrook unit that has a 35% interest. The joint-owner is now
involved in litigation to prevent the order from being implemented. The
Company is unable to predict the final outcome of this litigation and its
impact, if any, on the Company.
(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 could have an impact on future operations, capital costs and
construction schedules of major facilities.
(6) Dividend Restriction
At December 31, 1996, approximately $37,561,000 of retained earnings was
restricted against the payment of cash dividends by terms of the Indenture
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CANAL ELECTRIC COMPANY
of Trust securing long-term debt.
(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:
1996 1995 1994
(Dollars in Thousands)
Service cost $ 527 $ 435 $ 457
Interest cost 1 254 1 151 995
Return on plan assets - (gain)/loss (2 321) (3 113) 220
Net amortization and deferral 1 157 2 045 (1 139)
Total pension expense 617 518 533
Transfers from affiliates, net 347 324 279
Less: Amounts capitalized and other 224 193 181
Net pension expense $ 740 $ 649 $ 631
Discount rate 7.25% 8.50% 7.25%
Assumed rate of return 8.75 9.00 8.50
Rate of increase in future
compensation 4.25 5.00 4.50
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:
1996 1995
(Dollars in Thousands)
Accumulated benefit obligation:
Vested $(12 241) $(10 208)
Nonvested (2 180) (1 910)
$(14 421) $(12 118)
Projected benefit obligation $(17 576) $(15 287)
Plan assets at fair market value 17 523 15 452
Projected benefit obligation
(greater) less than plan assets (53) 165
Unamortized transition obligation 84 102
Unrecognized prior service cost 480 534
Unrecognized gain (985) (1 239)
Accrued pension liability $ (474) $ (438)
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CANAL ELECTRIC COMPANY
The following actuarial assumptions were used in determining the
plan's year-end funded status:
1996 1995
Discount rate 7.50% 7.25%
Rate of increase in future compensation 4.25 4.25
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
Certain employees are eligible for postretirement benefits if they meet
specific requirements. These benefits could include health and life
insurance coverage and reimbursement of Medicare Part B premiums. Under
certain circumstances, eligible employees are required to make contributions
for postretirement benefits.
To fund its postretirement benefits, 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 fund a portion of its
postretirement benefit obligation. The Company contributed approximately
$725,000, $693,000 and $740,000 to these trusts during 1996, 1995 and 1994,
respectively.
The net periodic postretirement benefit cost for the years ended
December 31, 1996, 1995 and 1994 includes the following components and
related assumptions:
1996 1995 1994
(Dollars in Thousands)
Service cost $ 187 $ 131 $ 164
Interest cost 490 441 409
Return on plan assets (324) (383) (11)
Amortization of transition
obligation over 20 years 248 248 248
Net amortization and deferral 131 261 (66)
Total postretirement benefit cost 732 698 744
Transfers from affiliates, net 446 447 426
Less: Amounts capitalized and other 1 230 867 892
Net postretirement benefit cost $2 408 $ 278 $ 278
Discount rate 7.25% 8.50% 7.25%
Assumed rate of return 8.75 9.00 8.50
Rate of increase in future compensation 4.25 5.00 4.50
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CANAL ELECTRIC COMPANY
The funded status of the Company's postretirement benefit plan using a
measurement date of December 31, 1996 and 1995 is as follows:
1996 1995
(Dollars in Thousands)
Accumulated postretirement benefit obligation:
Retirees $(3 108) $(2 829)
Fully eligible active plan participants (858) (1 028)
Other active plan participants (2 620) (2 409)
(6 586) (6 266)
Plan assets at fair market value 2 825 2 048
Accumulated postretirement benefit obligation
greater than plan assets (3 761) (4 218)
Unamortized transition obligation 3 978 4 226
Unrecognized gain (217) (8)
$ - $ -
The following actuarial assumptions were used in determining the plan's
estimated accumulated postretirement benefit obligation (APBO) and the
funded status for 1996 and 1995:
1996 1995
Discount rate 7.50% 7.25%
Rate of increase in future compensation 4.25 4.25
Medicare part B premiums 9.50 12.20
Medical care 7.00 8.00
Dental care 5.00 5.00
The above dental rate remains constant through the year 2007. Rates for
Medicare Part B premiums and medical care decrease to 3.1% and 5%,
respectively, by 2007 and remain at that level thereafter. A one percent
change in the medical trend rate would have a $111,000 impact on the
Company's annual expense and would change the APBO by approximately
$946,000.
Plan assets consist primarily of fixed-income and equity securities.
Fluctuations in the fair market value of plan assets will affect
postretirement benefit expense in future years.
(c) Savings Plan
The Company has an Employees Savings Plan that provides for Company
contributions equal to contributions by eligible employees up to four
percent of each employee's compensation rate and up to five percent for
those employees no longer eligible for postretirement health benefits. The
Company's contribution was $261,000 in 1996, $258,000 in 1995 and $250,000
in 1994.
(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
<PAGE>
<PAGE 31>
CANAL ELECTRIC COMPANY
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, 1996:
Operating Leases Capital Leases
(Dollars in Thousands)
1997 $ 522 $ 1 921
1998 479 1 856
1999 468 1 794
2000 468 1 732
2001 468 1 669
Beyond 2001 1 292 18 845
Total future minimum lease payments $3 697 27 817
Less:Estimated interest element
included therein 15 363
Estimated present value of future
minimum lease payments $12 454
Total rent expense for all operating leases, except those with terms
of a month or less, amounted to $475,000 in 1996, $431,000 in 1995 and
$421,000 in 1994. There were no contingent rentals and no sublease rentals
for the years 1996, 1995 and 1994.
<PAGE>
<PAGE 32>
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 14).
(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, 1996, 1995 and 1994
(page 40).
(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 33>
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 34>
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 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).
<PAGE>
<PAGE 35>
CANAL ELECTRIC COMPANY
10.1.7.1 Supplement to 10.1.7 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).
10.1.7.2 Amendment to 10.1.7 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).
10.1.7.3 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).
10.1.8 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).
10.1.9 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).
10.1.9.1 Amendatory Agreement No.3 with Respect to Use of Quebec
Interconnection dated December 1, 1981, as amended to June 1, 1990,
among certain NEPOOL utilities (Exhibit 1 to the CEC Form 10-Q
(September 1990), File No. 2-30057).
10.1.10 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).
10.1.10.1 First through Third Amendments to 10.1.10 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).
10.1.10.2 Fifth through Seventh Amendments to 10.1.10 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).
10.1.10.3 Fourth and Eighth Amendments to 10.1.10 as amended July 1, 1987 and
August 1, 1988, respectively (Exhibit 3 to the CEC Form 10-Q
(September 1988), File No. 2-30057).
10.1.10.4 Ninth and Tenth Amendments to 10.1.10 as amended November 1, 1988
and January 15, 1989, respectively (Exhibit 2 to the CEC 1988 Form
10-K, File No. 2-30057).
10.1.10.5 Eleventh Amendment to 10.1.10 as amended November 1, 1989 (Exhibit
4 to the CEC 1989 Form 10-K, File No. 2-30057).
<PAGE>
<PAGE 36>
CANAL ELECTRIC COMPANY
10.1.10.6 Twelfth Amendment to 10.1.10 as amended April 1, 1990 (Exhibit 1 to
the CEC Form 10-Q (June 1990) File No. 2-30057).
10.1.11 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).
10.1.12 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).
10.1.13 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).
10.1.13.1 Amendment No. 1 to 10.1.13 as amended May 1, 1986 (Exhibit 6 to the
CEC Form 10-Q (March 1987), File No. 2-30057).
10.1.13.2 Amendment No. 2 to 10.1.13 as amended September 1, 1987 (Exhibit 3
to the CEC Form 10-Q (September 1987), File No. 2-30057).
10.1.14 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).
10.1.15 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).
10.1.16 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).
10.1.16.1 Amendments Nos. 1 and 2 to 10.1.16 as amended May 1, 1986 and
February 1, 1987, respectively (Exhibit 5 to the CEC Form 10-Q
(March 1987), File No. 2-30057).
10.1.16.2 Amendments Nos. 3 and 4 to 10.1.16 as amended June 1, 1987 and
September 1, 1987, respectively (Exhibit 5 to the CEC Form 10-Q
(September 1987), File No. 2-30057).
<PAGE>
<PAGE 37>
CANAL ELECTRIC COMPANY
10.1.17 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).
10.1.17.1 Amendments Nos. 1 and 2 to 10.1.17 as amended May 1, 1986 and
February 1, 1987, respectively (Exhibit 2 to the CEC Form 10-Q
(March 1987), File No. 2-30057).
10.1.17.2 Amendments Nos. 3 and 4 to 10.1.17 as amended June 1, 1987 and
September 1, 1987, respectively (Exhibit 4 to the CEC Form 10-Q
(September 1987), File No. 2-30057).
10.1.18 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).
10.1.19 Agreement to Share Certain Costs Associated with the Tewksbury-
Seabrook Transmission Line, by and among certain NEPOOL utilities,
amending participants, dated May 8, 1986 (Exhibit 2 to the CEC 1986
Form 10-K, File No. 2-30057).
10.1.20 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).
<PAGE>
<PAGE 38>
CANAL ELECTRIC COMPANY
10.2.3.2 Fourteenth through Twentieth Amendments to 10.2.3 as amended
December 1, 1981, June 1, 1982, June 15, 1983, October 1, 1983,
August 1, 1985, August 15, 1985 and September 1, 1985, respectively
(Exhibit 4 to the CES Form 10-Q (September 1985), File No. 1-7316).
10.2.3.3 Twenty-first Amendment to the New England Power Pool Agreement
dated September 1, 1971, as amended January 1, 1986 (Exhibit 1 to
the CES Form 10-Q (March 1986), File No. 1-7316).
10.2.3.4 Twenty-second Amendment to 10.2.3 as amended to September 1, 1986
(Exhibit 1 to the CES Form 10-Q (September 1986), File No. 1-7316).
10.2.3.5 Twenty-third Amendment to 10.2.3 as amended to April 30, 1987
(Exhibit 1 to the CES Form 10-Q (June 1987), File No. 1-7316).
10.2.3.6 Twenty-fourth Amendment to 10.2.3 as amended to March 1, 1988
(Exhibit 1 to the CES Form 10-K for 1987, File No. 1-7316).
10.2.3.7 Twenty-fifth Amendment to 10.2.3 as amended to May 1, 1988 (Exhibit
1 to the CES Form 10-Q (March 1988), File No. 1-7316).
10.2.3.8 Twenty-sixth Amendment to 10.2.3 as amended to March 15, 1989
(Exhibit 1 to the CES Form 10-Q (March 1989), File No. 1-7316).
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).
<PAGE>
<PAGE 39>
CANAL ELECTRIC COMPANY
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.
Filed herewith as Exhibit 1 is the Financial Data Schedule for the
year ended December 31, 1996.
Filed herewith as Exhibit 2 is the restated Financial Data
Schedule for the year ended December 31, 1995.
Filed herewith as Exhibit 3 is the restated Financial Data
Schedule for the year ended December 31, 1994.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the three months ended
December 31, 1996.
<PAGE>
<PAGE 40>
<TABLE> SCHEDULE I
CANAL ELECTRIC COMPANY
INVESTMENTS IN, EQUITY EARNINGS OF,
AND DIVIDENDS RECEIVED FROM RELATED PARTIES
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(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, 1996
<S> <C> <C> <C> <C> <C>
New England Hydro-Transmission
Electric Company, Inc. $ 2 026 136 656 $ 311 $ 307 $2 030
New England Hydro-Transmission
Corporation 1 346 673.031 187 242 1 291
Total $ 3 372 $ 498 $ 549 $3 321
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
In 1996 New England Hydro-Transmission Corporation (NEHTC) repurchased 6.52% of their outstanding shares at
$1,831.30 per share. The Company received $112,616 for the repurchase of 61.495 shares, and included this
amount with dividends. In 1995, NEHTC 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 included this amount with dividends.
</TABLE>
<PAGE>
<PAGE 41>
CANAL ELECTRIC COMPANY
FORM 10-K DECEMBER 31, 1996
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 27, 1997
William G. Poist,
Chairman of the Board and
Chief Executive Officer
R. D. WRIGHT March 27, 1997
Russell D. Wright,
President and Chief Operating Officer
Principal Financial Officer:
JAMES D. RAPPOLI March 27, 1997
James D. Rappoli
Financial Vice President and Treasurer
A majority of the Board of Directors:
WILLIAM G. POIST March 27, 1997
William G. Poist, Director
R. D. WRIGHT March 27, 1997
Russell D. Wright, Director
JAMES D. RAPPOLI March 27, 1997
James D. Rappoli, Director
<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
the fiscal year ended December 31, 1996 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-31-1996
<PERIOD-END> DEC-31-1996
<PERIOD-TYPE> YEAR
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 287,236
<OTHER-PROPERTY-AND-INVEST> 3,321
<TOTAL-CURRENT-ASSETS> 27,621
<TOTAL-DEFERRED-CHARGES> 25,345
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 343,523
<COMMON> 38,080
<CAPITAL-SURPLUS-PAID-IN> 8,321
<RETAINED-EARNINGS> 52,620
<TOTAL-COMMON-STOCKHOLDERS-EQ> 99,021
0
0
<LONG-TERM-DEBT-NET> 83,618
<SHORT-TERM-NOTES> 33,800
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 350
0
<CAPITAL-LEASE-OBLIGATIONS> 11,878
<LEASES-CURRENT> 576
<OTHER-ITEMS-CAPITAL-AND-LIAB> 114,280
<TOT-CAPITALIZATION-AND-LIAB> 343,523
<GROSS-OPERATING-REVENUE> 185,550
<INCOME-TAX-EXPENSE> 9,720
<OTHER-OPERATING-EXPENSES> 151,368
<TOTAL-OPERATING-EXPENSES> 161,088
<OPERATING-INCOME-LOSS> 24,462
<OTHER-INCOME-NET> 2,393
<INCOME-BEFORE-INTEREST-EXPEN> 26,855
<TOTAL-INTEREST-EXPENSE> 10,281
<NET-INCOME> 16,574
0
<EARNINGS-AVAILABLE-FOR-COMM> 16,574
<COMMON-STOCK-DIVIDENDS> 16,024
<TOTAL-INTEREST-ON-BONDS> 8,017
<CASH-FLOW-OPERATIONS> 30,267
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND>
This schedule contains restated 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
the fiscal year ended December 31, 1995 and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<RESTATED>
<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> 291,611
<OTHER-PROPERTY-AND-INVEST> 3,372
<TOTAL-CURRENT-ASSETS> 23,885
<TOTAL-DEFERRED-CHARGES> 30,592
<OTHER-ASSETS> 0
<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> 145,985
<INCOME-TAX-EXPENSE> 609
<OTHER-OPERATING-EXPENSES> 122,721
<TOTAL-OPERATING-EXPENSES> 123,330
<OPERATING-INCOME-LOSS> 22,655
<OTHER-INCOME-NET> 1,230
<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>
<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND>
This schedule contains restated 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
the fiscal year ended December 31, 1994 and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<RESTATED>
<CIK> 0000016906
<NAME> CANAL ELECTRIC COMPANY
<MULTIPLIER> 1,000
<S> <C>
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> DEC-31-1994
<PERIOD-TYPE> YEAR
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 265,700
<OTHER-PROPERTY-AND-INVEST> 3,802
<TOTAL-CURRENT-ASSETS> 21,532
<TOTAL-DEFERRED-CHARGES> 25,070
<OTHER-ASSETS> 13,844
<TOTAL-ASSETS> 329,948
<COMMON> 38,080
<CAPITAL-SURPLUS-PAID-IN> 8,321
<RETAINED-EARNINGS> 51,647
<TOTAL-COMMON-STOCKHOLDERS-EQ> 98,048
0
0
<LONG-TERM-DEBT-NET> 87,713
<SHORT-TERM-NOTES> 20,675
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 1,110
0
<CAPITAL-LEASE-OBLIGATIONS> 13,258
<LEASES-CURRENT> 586
<OTHER-ITEMS-CAPITAL-AND-LIAB> 108,558
<TOT-CAPITALIZATION-AND-LIAB> 329,948
<GROSS-OPERATING-REVENUE> 197,820
<INCOME-TAX-EXPENSE> 8,390
<OTHER-OPERATING-EXPENSES> 166,232
<TOTAL-OPERATING-EXPENSES> 174,622
<OPERATING-INCOME-LOSS> 23,198
<OTHER-INCOME-NET> 703
<INCOME-BEFORE-INTEREST-EXPEN> 23,901
<TOTAL-INTEREST-EXPENSE> 9,743
<NET-INCOME> 14,158
0
<EARNINGS-AVAILABLE-FOR-COMM> 14,158
<COMMON-STOCK-DIVIDENDS> 10,662
<TOTAL-INTEREST-ON-BONDS> 8,283
<CASH-FLOW-OPERATIONS> 36,512
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
