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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549-1004
Form 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 2-1647
COMMONWEALTH GAS COMPANY
(Exact name of registrant as specified in its charter)
Massachusetts 04-1989250
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One Main Street, Cambridge, Massachusetts 02142-9150
(Address of principal executive offices) (Zip Code)
(617) 225-4000
(Registrant's telephone number, including area code)
(Former name, address and fiscal year, if changed since last report.)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. YES [x] NO [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Outstanding at
Class of Common Stock August 1, 1995
Common Stock, $25 par value 2,857,000 shares
The Company meets the conditions set forth in General Instruction H(1)(a) and
(b) of Form 10-Q as a wholly-owned subsidiary and is therefore filing this
Form with the reduced disclosure format.
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
COMMONWEALTH GAS COMPANY
CONDENSED BALANCE SHEETS
JUNE 30, 1995 AND DECEMBER 31, 1994
ASSETS
(Unaudited)
June 30, December 31,
1995 1994
(Dollars in Thousands)
PROPERTY, PLANT AND EQUIPMENT, at original cost $338 640 $339 476
Less - Accumulated depreciation 90 537 85 162
248 103 254 314
Add - Construction work in progress 1 747 719
249 850 255 033
CURRENT ASSETS
Cash 1 418 4 862
Advances to affiliates 29 150 -
Accounts receivable 26 011 33 252
Unbilled revenues 2 517 20 892
Inventories, at average cost 17 947 25 754
Prepaid taxes -
Property - 2 861
Income - 619
Other 1 586 1 076
78 629 89 416
DEFERRED CHARGES
Transition costs 7 205 19 201
Other 16 577 17 155
23 782 36 356
$352 261 $380 805
See accompanying notes.
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COMMONWEALTH GAS COMPANY
CONDENSED BALANCE SHEETS
JUNE 30, 1995 AND DECEMBER 31, 1994
CAPITALIZATION AND LIABILITIES
(Unaudited)
June 30, December 31,
1995 1994
(Dollars in Thousands)
CAPITALIZATION
Common Equity -
Common stock, $25 par value -
Authorized and outstanding -
2,857,000 shares, wholly-owned by
Commonwealth Energy System (Parent) $ 71 425 $ 71 425
Amounts paid in excess of par value 27 739 27 739
Retained earnings 5 560 6 837
104 724 106 001
Long-term debt, less current
sinking fund requirements 91 750 91 750
196 474 197 751
CURRENT LIABILITIES
Interim Financing -
Notes payable to banks - 24 950
Advances from affiliates - 11 220
- 36 170
Other Current Liabilities -
Current sinking fund requirements 3 650 3 650
Accounts payable -
Affiliates 2 710 2 669
Other 38 746 33 214
Refundable gas costs 29 685 27 832
Accrued taxes -
Income 910 -
Local property and other 711 3 317
Other 6 859 6 928
83 271 77 610
83 271 113 780
DEFERRED CREDITS
Accumulated deferred income taxes 34 710 32 699
Unamortized investment tax credits and other 30 601 28 764
Transition costs 7 205 7 811
72 516 69 274
COMMITMENTS AND CONTINGENCIES
$352 261 $380 805
See accompanying notes.
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COMMONWEALTH GAS COMPANY
CONDENSED STATEMENTS OF INCOME AND RETAINED EARNINGS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 1995 AND 1994
(Unaudited)
Three Months Ended Six Months Ended
1995 1994 1995 1994
(Dollars in Thousands)
GAS OPERATING REVENUES $ 67 802 $ 63 581 $175 734 $199 139
OPERATING EXPENSES
Cost of gas sold 42 265 39 890 95 763 113 714
Other operation and maintenance 21 489 22 680 45 054 46 219
Depreciation 1 423 1 566 5 822 5 647
Taxes -
Income (869) (2 024) 6 934 9 173
Local property 936 937 3 389 3 047
Payroll and other 632 611 1 583 1 571
65 876 63 660 158 545 179 371
OPERATING INCOME (LOSS) 1 926 (79) 17 189 19 768
OTHER INCOME (EXPENSE) 355 (48) 408 108
INCOME (LOSS) BEFORE INTEREST
CHARGES 2 281 (127) 17 597 19 876
INTEREST CHARGES
Long-term debt 2 047 2 129 4 101 4 258
Other interest charges 1 303 419 2 230 854
Allowance for borrowed funds
used during construction (15) (8) (28) (14)
3 335 2 540 6 303 5 098
NET INCOME (LOSS) (1 054) (2 667) 11 294 14 778
RETAINED EARNINGS -
Beginning of period 14 185 19 285 6 837 7 840
Dividends on common stock (7 571) (7 142) (12 571) (13 142)
RETAINED EARNINGS -
End of period $ 5 560 $ 9 476 $ 5 560 $ 9 476
See accompanying notes.
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COMMONWEALTH GAS COMPANY
CONDENSED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1995 AND 1994
(Unaudited)
1995 1994
(Dollars in Thousands)
OPERATING ACTIVITIES
Net income $ 11 294 $ 14 778
Effects of noncash items -
Depreciation and amortization 7 952 8 214
Deferred income taxes and investment
tax credits, net 1 576 (63)
Change in working capital, exclusive of cash,
advances to affiliates and interim financing 42 154 44 637
Transition costs, net 11 390 (3 128)
All other operating items 6 259 (1 049)
Net cash provided by operating activities 80 625 63 389
INVESTING ACTIVITIES
Additions to property, plant and equipment
(exclusive of AFUDC) (6 150) (8 303)
Allowance for borrowed funds used
during construction (28) (14)
Advances to affiliates (29 150) -
Net cash used for investing activities (35 328) (8 317)
FINANCING ACTIVITIES
Payment of dividends (12 571) (13 142)
Payment of short-term borrowings (24 950) (40 975)
Payments to affiliates (11 220) (860)
Net cash used for financing activities (48 741) (54 977)
Net increase (decrease) in cash (3 444) 95
Cash at beginning of period 4 862 1 297
Cash at end of period $ 1 418 $ 1 392
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest (net of capitalized amounts) $ 5 469 $ 4 893
Income taxes $ 3 570 $ 1 225
See accompanying notes.
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COMMONWEALTH GAS COMPANY
NOTES TO CONDENSED FINANCIAL STATEMENTS
(1) Accounting Policies
Commonwealth Gas Company (the Company) is a wholly-owned subsidiary
of Commonwealth Energy System. The parent company is referred to in this
report as the "System" and together with its subsidiaries is collectively
referred to as "the system."
The Company's significant accounting policies are described in Note
1 of Notes to Financial Statements included in its 1994 Annual Report on
Form 10-K filed with the Securities and Exchange Commission. For interim
reporting purposes, the Company follows these same basic accounting
policies but considers each interim period as an integral part of an
annual period and makes allocations of certain expenses to interim
periods based upon estimates of revenue from firm sales for the year.
The Company has established various regulatory assets in cases where
the Massachusetts Department of Public Utilities (DPU) and/or the Federal
Energy Regulatory Commission (FERC) have permitted or are expected to
permit recovery of specific costs over time. Similarly, the regulatory
liabilities established by the Company are required to be refunded to
customers over time. In March 1995, the Financial Accounting Standards
Board issued Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of" (SFAS 121). SFAS 121 imposes stricter criteria
for regulatory assets by requiring that such assets be probable of future
recovery at each balance sheet date. Based on the current regulatory
framework, the Company accounts for the economic effects of regulation in
accordance with the provisions of SFAS No. 71, "Accounting for the
Effects of Certain Types of Regulation" and does not expect that SFAS
121, which the Company expects to adopt on January 1, 1996, will have a
material impact on its financial position or results of operations.
However, this conclusion may change in the future if changes are made in
the current regulatory framework or as competitive factors influence
wholesale and retail pricing in this industry. The principal regulatory
assets included in deferred charges at June 30, 1995 and December 31,
1994 were as follows:
June 30, Dec. 31,
1995 1994
(Dollars in Thousands)
Transition costs $ 7 205 $19 201
Postretirement benefit costs including
pensions 6 674 5 367
Environmental costs 2 537 2 346
Total regulatory assets $16 416 $26 914
The regulatory liabilities, included in deferred credits-other and
principally related to income taxes, amounted to $9.8 million and $9.9
million at June 30, 1995 and December 31, 1994, respectively.
Generally, expenses which relate to more than one interim period are
allocated to other periods to more appropriately match revenues and
expenses. Principal items of expense which are allocated other than on
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COMMONWEALTH GAS COMPANY
the basis of passage of time are depreciation and property taxes. These
expenses are recorded for interim reporting purposes based upon projected
gas revenue. Income tax expense is recorded using the statutory rates in
effect applied to book income subject to tax recorded in the interim
period.
The unaudited financial statements for the periods ended June 30,
1995 and 1994 reflect, in the opinion of the Company, all adjustments
(consisting of only normal recurring accruals) necessary to summarize
fairly the results for such periods. In addition, certain prior period
amounts are reclassified from time to time to conform with the presenta-
tion used in the current period's financial statements.
The results for interim periods are not necessarily indicative of
results for the entire year because of variations in gas consumption due
to the heating season and also because of the Company's seasonal rate
structure.
(2) Commitments
(a) Construction Program
The Company is engaged in a continuous construction program present-
ly estimated at $106.4 million for the five-year period 1995 through
1999. Approximately $21.2 million of that amount is estimated for 1995,
the majority of which is scheduled to be expended in the second half of
the year. As of June 30, 1995, the Company's construction expenditures
amounted to approximately $6.2 million, including an allowance for funds
used during construction. The Company expects to finance these
expenditures on an interim basis with internally-generated funds and
short-term borrowings which are ultimately expected to be repaid with
proceeds from the issuance of long-term debt and equity securities.
The program is subject to periodic review and revision because of
factors such as changes in business conditions, rates of growth, effects
of inflation, equipment delivery schedules, licensing delays, availabili-
ty and cost of capital and environmental regulations.
(b) FERC Order No. 636
In May 1995, the DPU allowed the Company to accelerate recovery of
its FERC Order No. 636 transition costs that were incurred to date.
These costs had been deferred and accumulated as a regulatory asset and
were being recovered through the cost of gas adjustment (CGA) over a
four-year period that began in November 1993. The costs are now being
recovered through the CGA over a one-year period that began May 1, 1995.
The accelerated recovery period was permitted by the DPU due to the
minimal impact on customers' bills. Any further transition costs will be
recovered by the Company through the CGA as incurred. At June 30, 1995,
a regulatory asset totaling $7.2 million was reflected in deferred
charges. In addition, a related liability of $7.2 million was reflected
in deferred credits.
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COMMONWEALTH GAS COMPANY
Item 2. Management's Discussion and Analysis of Results of Operations
The following is a discussion of certain significant factors which have
affected operating revenues, expenses and net income during the periods
included in the accompanying condensed statements of income. This discussion
should be read in conjunction with the Notes to Condensed Financial Statements
appearing elsewhere in this report.
A summary of the period to period changes in the principal items included
in the condensed statements of income for the three and six months ended June
30, 1995 and 1994 is shown below:
Three Months Six Months
Ended June 30, Ended June 30,
1995 and 1994 1995 and 1994
Increase (Decrease)
(Dollars in Thousands)
Gas Operating Revenues $ 4 221 6.6 % $(23 405) (11.8)%
Operating Expenses -
Cost of gas sold 2 375 6.0 (17 951) (15.8)
Other operation and maintenance (1 191) (5.3) (1 165) (2.5)
Depreciation (143) (9.1) 175 3.1
Taxes -
Federal and state income 1 155 57.1 (2 239) (24.4)
Local property and other 20 1.3 354 7.7
2 216 3.5 (20 826) (11.6)
Operating Income 2 005 2 538.0 (2 579) (13.0)
Other Income 403 839.6 300 277.8
Income Before Interest Charges 2 408 1 896.1 (2 279) (11.5)
Interest Charges 795 31.3 1 205 23.6
Net Income $ 1 613 60.5 $ (3 484) (23.6)
Firm Unit Sales - BBTU 427 7.3 (2 545) (10.2)
The following is a summary of unit sales for the periods indicated:
Unit Sales - In Billions of British Thermal Units (BBTU)
Off- Quasi-
Total Firm Interruptible System Firm
Three Months Ended
June 30, 1995 8 179 6 254 438 967 520
June 30, 1994 8 012 5 827 2 185 - -
Six Months Ended
June 30, 1995 26 206 22 365 591 2 380 870
June 30, 1994 27 190 24 910 2 280 - -
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COMMONWEALTH GAS COMPANY
Operating Revenues and Unit Sales
Operating revenues for the first six months of 1995 decreased $23.4
million or 11.8% due to a reduction in the cost of gas sold of $18 million and
lower firm and interruptible unit sales offset, in part, by off-system and
quasi-firm unit sales that began in 1994. During the current quarter,
operating revenues increased by $4.2 million or 6.6% due primarily to a $2.4
million increase in the cost of gas sold, higher firm unit sales and off-
system and quasi-firm sales, partially offset by a decline in interruptible
sales.
Firm unit sales decreased 10.2% in the first half of 1995 as sales to all
customer classes were lower due to the mild weather experienced throughout the
region in the first quarter compared to a colder than normal first quarter
last year. Firm unit sales were 7.3% higher during the current quarter as
heating degree days totaled 892 compared to 797 for the same period in 1994.
Although interruptible sales declined significantly during both the first half
and the second quarter of 1995, fluctuations in these sales have little, if
any, impact on net income. Off-system and quasi-firm sales have contributed
to the Company's total sales but, at this time, have no impact on net income.
One-half of the margin realized on these sales is used to reduce the cost of
gas to firm customers. The remaining half is deferred pending DPU approval of
the Company's margin sharing proposal that is expected to be filed later this
year.
Other Operation and Maintenance
Other operation and maintenance declined for the first half of 1995 by
$1.2 million or 2.5% mainly due to the Company's continuing cost-containment
efforts, a lower provision for bad debts ($599,000), reflecting lower billed
sales and improved collection experience, a reduction in engineering costs due
to the timing of payments related to the Company's automated mapping system
($262,000) and a decline in distribution and customer service expenses due to
fewer leak repair activities and a reduction in meter work ($479,000). These
decreases were partially offset by higher costs associated with automated
meter reading ($686,000), higher C&LM expenses ($315,000), an increase in
labor costs ($335,000) and higher insurance and benefits expenses ($178,000).
Other operation and maintenance decreased by $1.2 million or 5.3% during the
current quarter due to continuing cost-containment efforts, lower insurance
and benefits expenses ($485,000), a decline in the level of C&LM costs
($247,000), a lower provision for bad debts ($134,000) and a decline in
distribution and customer service expenses ($108,000) offset, in part, by
higher expenses associated with automated meter reading ($385,000) and
increased labor costs ($447,000).
Depreciation and Taxes
Depreciation expense increased during the current six-month period due to
higher levels of depreciable plant-in-service. The change in federal and
state income taxes in both periods reflects the level of pretax income. The
increase in local property and other taxes for the current six-month period
was due to higher rates and assessments.
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COMMONWEALTH GAS COMPANY
Other Income and Interest Charges
The increase in other income for both periods was due primarily to
interest income received by the Company in connection with its participation
in the COM/Energy Money Pool. This was partially offset by lower
merchandising and jobbing revenue.
Total interest charges increased 31.3% and 23.6% during the current three
and six-month periods due to higher interest on deferred gas costs offset
somewhat by a decline in short-term interest charges reflecting a lower
average level of short-term borrowings.
Environmental Matters
The Company is participating in the assessment of a number of former
manufactured gas plant (MGP) sites and alleged MGP waste disposal locations to
determine if and to what extent such sites have been contaminated and whether
the Company may be responsible for remedial actions. The Company is also
involved in certain other known or potentially contaminated sites where the
associated costs may not be recoverable in rates. There were no significant
new developments that occurred during the first six months of 1995. For
further information on these matters, refer to the Company's 1994 Annual
Report on Form 10-K.
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COMMONWEALTH GAS COMPANY
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
The Company is not a party to any pending material legal proceeding.
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 27 - Financial Data Schedule
Filed herewith as Exhibit 1 is the Financial Data Schedule for the
six months ended June 30, 1995.
(b) Reports on Form 8-K
No reports on Form 8-K were filed for the three months ended June
30, 1995.
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COMMONWEALTH GAS COMPANY
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
COMMONWEALTH GAS COMPANY
(Registrant)
Principal Financial Officer:
JAMES D. RAPPOLI
James D. Rappoli,
Financial Vice President
and Treasurer
Principal Accounting Officer:
JOHN A. WHALEN
John A. Whalen,
Comptroller
Date: August 14, 1995
<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND>
This schedule contains summary financial information extracted from the
balance sheet, statement of income, statement of retained earnings and
statement of cash flows contained in Form 10-Q of Commonwealth Gas Company for
the six months ended June 30, 1995 and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<CIK> 0000022620
<NAME> COMMONWEALTH GAS COMPANY
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