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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
For the fiscal year ended December 31, 1997
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)
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 16, 1998
Common Stock, $25 par value 2,857,000 shares
The Company meets the conditions set forth in General Instruction I(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 34 of this report.
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COMMONWEALTH GAS COMPANY
FORM 10-K DECEMBER 31, 1997
TABLE OF CONTENTS
PART I
PAGE
Item 1. Business........................................ 3
General....................................... 3
Gas Supply
General..................................... 3
Hopkinton LNG Facility...................... 4
Rates and Regulation.......................... 5
Competition................................... 6
Construction and Financing.................... 7
Employees..................................... 7
Item 2. Properties...................................... 7
Item 3. Legal Proceedings............................... 8
PART II
Item 5. Market for the Registrant's Common Stock and
Related Stockholder Matters..................... 9
Item 7. Management's Discussion and Analysis of
Results of Operations........................... 10
Item 8. Financial Statements and Supplementary Data..... 15
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure............. 15
PART IV
Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K............................. 34
Signatures.................................................. 38
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COMMONWEALTH GAS COMPANY
PART I.
Item 1. Business
General
Commonwealth Gas Company (the Company) is engaged in the distribution
and sale of natural gas at retail to approximately 237,000 customers in a
1,067 square mile area which includes 49 communities in eastern, southeastern
and central Massachusetts. The approximate year-round population of this
service area is 1,128,000.
The Company, which was organized in 1851 under the laws of the
Commonwealth of Massachusetts, operates under the jurisdiction of the
Massachusetts Department of Telecommunication and Energy (DTE), formerly the
Massachusetts Department of Public Utilities, which regulates retail rates,
accounting, issuance of securities and other matters. The Company is a
wholly-owned subsidiary of Commonwealth Energy System ("System"), which,
together with its subsidiaries, is collectively referred to as "the system."
Since the date of its organization the Company has, from time to time,
acquired the property and franchises of, or merged with, other gas companies.
The Company is the only gas distribution utility in its service area
and, by virtue of its existing franchises, no other gas distribution utility
may extend its operations into the Company's service area without the
authorization of the DTE. Alternative sources of energy are available to
customers within the service territory, but competition from these sources has
not been a significant factor affecting the Company's firm gas sales to
existing customers. Even with the higher cost of storage and liquefied
natural gas (LNG), which is required to supplement pipeline supply, the
overall long-term cost of gas has been competitive with the cost of
alternative fuel sources for most of the Company's customers.
Of the Company's 1997 firm gas unit sales, 56.9% was sold to residential
customers, 28.6% to commercial customers, 9.0% to industrial customers and
5.5% to other customers. Capital expenditures are required to bring gas into
areas of anticipated growth and both the distribution capability and gas
supply must be available when new development begins or potential customers
will seek alternative sources of fuel. Certain industrial customers with
dual-fuel capability can convert from gas to alternative fuels under terms of
contracts which permit interruption of their service upon short notice or at
contractually scheduled times.
Gas Supply
(a) General
The Company purchases transportation, storage and balancing services
from Tennessee Gas Pipeline Company (Tennessee) and Algonquin Gas Transmission
Company (and other upstream pipelines that bring gas from the supply wells to
the final transporting pipelines) and purchases all of its gas supplies from
third-party vendors, utilizing firm contracts with terms of less than one
year. The vendors vary from small independent marketers to major gas and oil
companies.
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COMMONWEALTH GAS COMPANY
In addition to firm transportation and gas supplies mentioned above, the
Company utilizes contracts for underground storage and LNG facilities to meet
its winter peaking demands. The underground storage contracts are a
combination of existing and new agreements which are the result of Federal
Energy Regulatory Commission (FERC) Order 636 service unbundling. The LNG
facilities, described below, are used to liquefy and store pipeline gas during
the warmer months for use during the heating season.
The Company entered into a multi-party agreement in 1992 to assume a
portion of Boston Gas Company's contracts to purchase Canadian gas supplies
from Alberta Northeast (ANE) and have the volumes delivered by the Iroquois
Gas Transmission System and Tennessee pipelines. The ANE gas supply contract
was filed with the DTE and hearings were completed in April 1993. The DTE
approved the ANE gas supply contract in November 1995. The Company is
presently in negotiations with the parties to allow for final execution of all
pertinent agreements and contracts.
The Company began transporting gas on its distribution system in 1990
for end-users. As of December 31, 1997 there were 218 customers using this
transportation service, accounting for 8,462 BBTU or approximately 16% of
total throughput.
(b) Hopkinton LNG Facility
A portion of the Company's gas supply during the heating season is
provided by Hopkinton LNG Corp. (Hopkinton), a wholly-owned subsidiary of the
System. The facility consists of a liquefaction and vaporization plant and
three above-ground cryogenic storage tanks having an aggregate capacity of
3 million MCF of natural gas.
In addition, Hopkinton owns a satellite vaporization plant and two
above-ground cryogenic storage tanks located in Acushnet, Massachusetts with
an aggregate capacity of 500,000 MCF of natural gas that are filled with LNG
trucked from Hopkinton.
The Company has contracts for LNG service with Hopkinton extending on a
year to year basis with notice of termination required five years in advance
of the anticipated termination date. The Company and Hopkinton are currently
evaluating the contracts to determine if amendments to the contracts should be
negotiated in light of the ongoing deregulation of the natural gas industry.
Current contract payments include a demand charge sufficient to cover
Hopkinton's fixed charges and an operating charge which covers liquefaction
and vaporization expenses. The Company furnishes pipeline gas during the
period April 15 to November 15 each year for liquefaction and storage. As the
need arises, LNG is vaporized and placed in the distribution system of the
Company.
Based upon information presently available regarding projected growth in
demand and estimates of availability of future supplies of pipeline gas, the
Company believes that its present sources of gas supply are adequate to meet
existing load and allow for future growth in sales.
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COMMONWEALTH GAS COMPANY
Rates and Regulation
(a) Automatic Adjustment Clauses
The Company has a Standard Seasonal Cost of Gas Adjustment rate schedule
(CGA) that provides for the recovery, from firm customers, of purchased gas
and conservation and load management costs not recovered through base rates.
These schedules, which require DTE approval, are estimated semi-annually and
include credits for gas pipeline refunds and profit margins applicable to
capacity release, off-system sales and interruptible sales. Actual gas costs
are reconciled annually as of October 31, and any difference is included as an
adjustment in the calculation of the decimals for the two subsequent six-month
periods.
Periodically, the Company is required to file a long-range forecast of
the energy needs and requirements of its market area and annual supplements
thereto with the DTE. To approve this long-range forecast and resource plans,
the DTE must find, among other things, that the Company's projected firm load
is reasonable and based on proven and verifiable forecasting methods and data,
and that the Company assembles its supply portfolio based on a prudent
resource planning process that can be reasonably expected to meet projected
demands on a cost efficient basis. The Company filed its forecast, covering
the period November 1996 through October 2001, with the DTE on December 20,
1996.
(b) Gas Demand and Transition Costs
The Company is obligated, as part of its pipeline transportation
contracts, storage contracts and gas purchase contracts, to pay monthly demand
charges which are recovered from customers through the CGA.
As a direct result of implementation of FERC Order 636, most pipeline
companies are incurring transition costs which include the cost of
restructuring gas supply contracts, the value of facilities that were
supporting the gas sales function and are no longer used and useful for
transportation only services, the cost of contracts with upstream pipeline
companies and various miscellaneous costs. These costs are billed to the
Company and other local distribution companies.
The Company is collecting all contract restructuring costs from its
customers through the CGA as permitted by the DTE.
(c) Regulatory Matters
In May 1994, the Company requested the DTE to change the back-up service
charges under its firm transportation rate. Back-up charges result when the
Company sells gas from its system supplies to a customer whose off-system gas
supply has failed or is temporarily unavailable for reasons beyond the
customer's control. The change involved an upward indexing of back-up charges
based on changes in the gas supply demand costs occasioned by FERC Order 636.
On December 22, 1994, the DTE approved the Company's requested change
effective January 1, 1995. This change, which has no effect on revenue,
results in a more equitable recovery of pipeline capacity costs between
Commonwealth Gas' total requirements and transportation customers.
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COMMONWEALTH GAS COMPANY
(d) Quasi-firm, Off-system Gas Sales and Capacity Release Services
Pursuant to regulatory approval, the Company offers quasi-firm sales
service, providing a level of service between interruptible and firm, to
customers with dual-fuel capability. Such sales were minimal during 1997
totaling 51 BBTU. Under a margin-sharing agreement approved by the DTE on
January 15, 1997, the Company will retain 25% of the gross margins realized on
these sales above a certain threshold amount as set from year to year. The
remaining margins will be credited to firm customers through the CGA.
The Company also utilizes the off-system sales and capacity release
markets as a means to sell excess resources. Off-system sales totaled 3,572
BBTU in 1997, while 15,481 BBTU of capacity was sold in the capacity release
market. A margin-sharing agreement for these sales was approved by the DTE on
February 14, 1996 allowing the Company to retain 25% of the gross margins
realized above a certain threshold amount as set from year to year with the
remaining margins credited to firm customers through the CGA. As a result of
this margin-sharing agreement, the Company retained approximately $644,000 in
1997.
(e) Conservation and Load Management Program
The Company offers conservation measures to its residential and multi-
family customers through programs approved by the DTE in June 1992. The
Company recovers the costs of these programs via separately stated
Conservation Charge (CC) decimals. The programs have been extended through
subsequent DTE approvals, the most noteworthy being the settlement agreement
approved on November 23, 1994 which enabled the Company to recover "lost
margins" from customers effective January 1995. Specifically, the settlement
allows the Company to remain whole while it offers programs that reduce sales,
by recovering through the CC decimal the portion of the lost margins revenue
associated with saved therms resulting from conservation program
installations. The Company collected $1.6 million in lost margins during
1997.
(f) Gas Industry Restructuring
As more fully discussed in "Management's Discussion and Analysis of
Results of Operations" in Item 7 of this report, the Company has undertaken a
DTE directive to establish a common set of guiding principles and procedures
for the comprehensive unbundling of the natural gas industry in Massachusetts.
Competition
The Company faces competition from suppliers of fuel oil, propane and
electricity and also, for large commercial and industrial customers, from
other suppliers of natural gas. The Company is continuously developing and
implementing strategies to deal with the increasingly competitive environment.
FERC Order 636 marked the beginning of the deregulation and
restructuring of the natural gas industry. In addition to opening up customer
markets to competition, the regulations shifted many supply-related
responsibilities to local distribution companies including direct gas
purchases from suppliers, pipelines and producers, transportation services and
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COMMONWEALTH GAS COMPANY
storage services. The Company has developed a gas control and information
system that has purchasing and tracking systems. This ability, coupled with
aggressive planning and procurement strategies, will secure the Company's
existing market share and permit the expansion of core and non-core supply
capabilities.
The Company's substantial LNG and storage capabilities provide it with
the reliability needed during the coldest winter days and the flexibility to
sell capacity when supply and pricing conditions are favorable. Through
expanding non-firm and transportation sales, the Company has been able to
maximize the use of its gas supply and transportation system resulting in a
lower cost of gas for firm customers helping the Company to remain competitive
in its traditional markets.
On February 6, 1997, due to the dramatically changing nature of the
electric and gas industries, the System announced the consolidation of
management personnel of affiliated companies Cambridge Electric Light Company
(Cambridge Electric), Commonwealth Electric Company (Commonwealth Electric),
COM/Energy Services Company and the Company effective on that date. The
Company and these affiliates continue to operate under their existing company
names. The consolidation process for these companies involved the merging of
similar functions and activities to eliminate duplication in order to create
the most efficient and cost-effective operation possible. As part of this
consolidation effort, the Company initiated a voluntary Personnel Reduction
Program that ultimately resulted in a decrease of 100 regular employees
(approximately 15%) in 1997.
Construction and Financing
Information concerning the Company's financing and construction programs
is contained in Note 6(a) of the Notes to Financial Statements filed under
Item 8 of this report.
Employees
The Company has 558 regular employees, a decline of 15% compared to last
year. Approximately 69% of these employees are represented by three
collective bargaining units. One agreement, representing approximately 2% of
regular employees, is scheduled to expire in September 1998. The other two
agreements remain in effect through March 31, 2002 and June 30, 2002.
Although a labor dispute with one collective bargaining unit occurred during
1996, employee relations have generally been satisfactory since the dispute
was resolved in September 1996.
Item 2. Properties
The Company's principal gas properties consist of distribution mains,
services and meters necessary to maintain reliable service to customers. At
December 31, 1997, the gas system included 2,811 miles of gas distribution
lines, 167,777 services and 245,246 customer meters together with the
necessary measuring and regulating equipment.
In addition, the Company owns a central headquarters and service
building in Southborough, Massachusetts, five district office buildings and
various natural gas receiving and take stations.
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COMMONWEALTH GAS COMPANY
The Company's property is subject to encumbrances under its Indenture of
Trust and First Mortgage Bonds.
Item 3. Legal Proceedings
The Company is not a party to any pending material legal proceeding.
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COMMONWEALTH GAS 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, 1997
One
(c) Frequency and Amount of Dividends Declared in 1997 and 1996
1997 1996
Per Share Per Share
Declaration Date Amount Declaration Date Amount
April 25, 1997 $2.00 January 24, 1996 $3.00
December 22, 1997 1.30 April 11, 1996 1.75
$3.30 July 25, 1996 1.00
$5.75
(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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COMMONWEALTH GAS 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 accompanying Statements of Income for the years ended December
31, 1997 and 1996 and unit sales for these periods is shown below:
Years Ended Years Ended
December 31, December 31,
1997 and 1996 1996 and 1995
Increase (Decrease)
(Dollars in thousands)
Gas Operating Revenues $(11,353) (3.3)% $ 33,566 10.9 %
Operating Expenses -
Cost of gas sold (6,452) (3.3) 28,553 16.9
Other operation
and maintenance (4,468) (5.0) 4,523 5.3
Depreciation 421 4.2 405 4.2
Taxes -
Federal and state income (629) (6.1) 613 6.3
Local property 372 6.3 145 2.5
Payroll and other 840 35.2 (433) (15.4)
(9,916) (3.1) 33,806 12.0
Operating Income (1,437) (5.4) (240) (0.9)
Other Income (256) (27.4) (298) (24.2)
Income Before Interest Charges (1,693) (6.1) (538) (1.9)
Interest Charges (347) (3.2) (1,098) (9.2)
Net Income $(1,346) (8.0) $ 560 3.5
Unit Sales (BBTU)
Firm (2,279) (5.6) % 2,535 6.6 %
Interruptible (4) (0.2) 562 42.4
Off-system 253 10.5 (1,623) (40.1)
Quasi-firm (1,015) (95.2) (840) (44.1)
(3,045) (6.6) 634 1.4
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COMMONWEALTH GAS COMPANY
The following is a summary of unit sales, transportation volume and customers
for the periods indicated:
Years Ended December 31,
1997 1996 1995
Unit Sales (BBTU):
Residential 22,043 22,759 21,336
Commercial 11,077 11,558 10,710
Industrial 3,483 4,468 4,445
Other 2,111 2,208 1,967
Total firm 38,714 40,993 38,458
Off-System 2,673 2,420 4,043
Quasi-Firm 51 1,066 1,906
Interruptible 1,882 1,886 1,324
Total sales 43,320 46,365 45,731
Transportation 8,478 6,192 6,791
Total 51,798 52,557 52,522
Customers at End of Period:
Residential 215,757 213,474 212,329
Commercial 19,292 18,907 18,761
Industrial 934 930 933
Other 1,181 1,169 1,168
Total 237,164 234,480 233,191
Operating Revenues, Cost of Gas Sold and Unit Sales
During 1997, operating revenues decreased by $11.4 million or 3.3% due
to a 6.6% decline in total unit sales, lower conservation and load management
(C&LM) costs ($1.8 million) and to a lesser extent, lower gas costs. Revenues
for 1997 also include the recognition of margins earned on off-system
contracts ($644,000). In 1996, operating revenues increased by $33.6 million
due to higher gas costs ($28.6 million) and higher firm unit sales ($6.9
million), including transportation, offset, in part, by lower conservation and
load management (C&LM) costs ($2.8 million). The higher gas costs reflect
both higher prices from suppliers and the increased unit sales to customers.
The cost of gas sold in 1997 and 1996 reflects changes in gas prices,
sales levels, margin-sharing agreements on non-firm sales and refunds received
from gas suppliers.
The decline in firm unit sales for 1997 reflects decreases to all
customer segments including residential (3.1%), commercial (4.2%) and
industrial (22%) that were due primarily to milder weather experienced in this
region during the first quarter as compared to a much colder period in 1996.
Degree days for 1997 totaled 6,463, 3.6% lower than last year and 1.2% below
the normal level of 6,541. The significant fluctuations in non-firm sales for
1997 and 1996 continue to reflect the competitive environment that currently
exists in the natural gas industry. Interruptible sales have no impact on net
income since all of the margins from these sales are flowed back to firm
customers through the CGA.
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COMMONWEALTH GAS COMPANY
The number of customers increased slightly in 1997 and 1996 due mainly
to new residential and commercial construction activity, reflecting an
improving economic environment.
Other Operating Expenses
During 1997, other operation and maintenance decreased by $4.5 million
or 5% due to the absence of net costs associated with a 1996 labor dispute
($4.6 million), lower labor costs resulting from a decrease in the number of
employees through attrition and a Personnel Reduction Program (PRP) ($5.7
million), reduced maintenance costs relating to distribution ($2.2 million)
and lower C&LM costs ($1.8 million). These decreases were partially offset by
a one-time charge ($6.8 million) related to the PRP initiated during the
second quarter and higher postretirement benefit costs ($2 million) reflecting
the full recognition of expense and amortization of previously deferred costs
associated with postretirement benefits.
The goal of the PRP was to achieve a reduced, more efficient and more
productive workforce in response to the significant regulatory changes facing
the Company. In 1997, approximately 15% of the Company's employees
voluntarily terminated employment as a result of the PRP. The payback period
for the cost of the PRP is expected to be about one year. This action
followed the consolidation of the system's electric and gas operations earlier
in 1997.
In 1996, other operation and maintenance increased by $4.5 million or
5.3% primarily due to the net impact of the labor dispute, higher liability
insurance costs due to increased reserve requirements ($1.6 million) and an
accrual for a 1996 vacation time carry-over related to the labor dispute
($800,000) offset, in part, by lower C&LM costs ($2.8 million).
Depreciation and Taxes
The 4.2% increase in depreciation in both 1997 and 1996 resulted from
higher levels of depreciable plant-in-service.
The fluctuation in federal and state income taxes during 1997 and 1996
was due to the respective levels of pre-tax income. The change in payroll and
other taxes for 1997 and 1996 reflects additional payroll-related costs
associated with the 1996 labor dispute. The increase in local property taxes
during both 1997 and 1996 was due to higher tax rates and assessments in the
Company's service territory.
Other Income and Interest Charges
During 1997, other income decreased $256,000 or 27.4% due primarily to
a reduction in interest income ($167,000) in connection with the Company's
participation in the COM/Energy Money Pool (the Pool) and the absence of
interest ($74,000) relating to a Massachusetts income tax abatement received
in 1996. In 1996, other income decreased by $298,000 due primarily to a
reduction in interest income ($591,000) relating to the Company's
participation in the Pool offset by a $452,000 increase in revenues associated
with the Company's merchandising program for water heaters and heating
systems.
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COMMONWEALTH GAS COMPANY
For 1997, total interest charges decreased $347,000 due primarily to
lower interest on deferred gas costs ($1 million) and a decline in interest
costs relating to long-term debt ($365,000) reflecting the impact of a sinking
fund payment and debt that was retired in October 1996. The impact of these
factors was offset, in part, by an increase in short-term interest ($783,000)
due to a higher average level of borrowings, higher interest relating to gas
refunds ($194,000) and higher interest charges relating to contested tax
issues ($115,000). Total interest charges decreased by $1.1 million in 1996
primarily due to lower interest on deferred gas costs and pipeline refunds and
the retirement of $10 million of long-term debt in October 1996. These
decreases were partially offset by higher short-term interest charges
reflecting a higher level of borrowings during the year.
Long-term Financing
On September 26, 1997, the Company issued $10 million of First Mortgage
Sinking Fund Bonds (Series L, 6.54% due 2007) and $25 million of First
Mortgage Bonds (Series M, 7.04% due 2017). The proceeds of $35 million were
used to retire short-term debt that had been incurred to temporarily finance
additions to property, plant and equipment and for general working capital
needs. This financing had been approved by the DTE on June 12, 1997.
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.
Gas Industry Restructuring
On July 18, 1997, the DTE directed the ten Massachusetts gas utilities,
including the Company, to initiate a collaborative process that will establish
guiding principles and specific procedures for unbundling rates and services
for all customers.
The DTE listed six principles that it considers important to the
success of a competitive natural gas market that will provide safe and
reliable service at the lowest possible cost to customers. The natural gas
market would: (1) provide the broadest possible choice; (2) provide all
customers with an opportunity to share in the benefits of increased
competition; (3) ensure full and fair competition in the gas supply market;
(4) functionally separate supply from local distribution services; (5) support
and further the goals of environmental regulation; and lastly (6) rely on
incentive regulation where a fully competitive market cannot or presently does
not exist.
In addition, the DTE outlined several specific issues that it expects
the collaborative to address: (1) services that can be offered on a
competitive basis; (2) terms and conditions of service; (3) consumer
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COMMONWEALTH GAS COMPANY
protections and social programs; (4) mitigation of gas related and non-gas
related transition costs; (5) third-party supplier qualifications; and (6)
curtailment principles. The DTE also suggested that the collaborative
reconsider the pricing and provision of interruptible transportation services.
On August 18, 1997, the DTE noted that the development of unbundling
principles and procedures constitutes only a part of the effort necessary to
develop full customer choice for gas service. The DTE recognized that each
local distribution company will be filing a comprehensive unbundling proposal
at some later date. In the interim, the DTE directed those companies that do
not currently have unbundled rates, including Commonwealth Gas, to have such
rates in effect no later than November 1, 1998.
Commonwealth Gas and eight other gas utilities initiated the Massachu-
setts Gas Unbundling Collaborative (the Collaborative) on September 15, 1997,
to explore and develop generic principles to achieve the goals set forth by
the DTE. Collaborative participants represented a broad array of stakeholder
interests including the utilities, natural gas marketers, interstate pipe-
lines, producers, energy consultants, unions, consumer advocates and represen-
tatives for the DTE, the Massachusetts Attorney General, and the Massachusetts
Division of Energy Resources.
On November 15, 1997, the Collaborative filed a status report with the
DTE that outlined its progress in moving the gas industry to a more competi-
tive structure that provides all customers with meaningful access to competi-
tive markets consistent with public-policy objectives. The status report
summarized the substantive issues that had been the subject of Collaborative
discussion, including: (1) the disposition of interstate pipeline capacity;
(2) the unbundling of rates; (3) customer enrollment, billing, termination,
and information exchange procedures; and, (4) consumer protections, low-income
discounts, and competitive supplier registration. The status report also
established a schedule to implement a final unbundling plan by November 1,
1998.
In accordance with that schedule, the Collaborative submitted with the
DTE a Rate Unbundling Status Report on January 16, 1998. The report detailed
an overall process for developing unbundled rates consistent with the DTE's
rate structure goals of efficiency, fairness, simplicity, continuity and
earnings stability. In response to the Collaborative's proposal, the DTE
ordered the Company to submit, no later than April 15, 1998, a consensus-based
settlement, or partial settlement, of unbundled rate tariffs designed
according to the general concepts set forth in the report.
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. In April 1997, the
Company recorded an additional liability and corresponding regulatory asset of
$1.2 million due to an increase in the site clean-up cost estimate for an MGP
site for which Commonwealth Gas was previously cited as a Potentially
Responsible Party. The DTE has approved recovery of costs associated with MGP
sites.
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COMMONWEALTH GAS COMPANY
The Company is also involved in other known or potentially contaminated
sites where the associated costs may not be recoverable in rates and have
recorded in prior years an estimated liability (and a charge to operations) of
$500,000 to cover the expected costs associated with assessment and
remediation activities. These estimates are reviewed and adjusted
periodically as further investigation and assignment of responsibility occurs.
The Company is unable to estimate its ultimate liability for future
environmental remediation costs. However, in view of the Company's current
assessment of its environmental responsibilities, existing legal requirements
and regulatory policies, management does not believe that these matters will
have a material adverse effect on the Company's results of operations or
financial position.
On January 1, 1997, the Company adopted the provisions of Statement of
Position (SOP) 96-1, "Environmental Remediation Liabilities." SOP 96-1 pro-
vides authoritative guidance for recognition, measurement, display and
disclosure of environmental remediation liabilities in financial statements.
The Company has recorded environmental remediation liabilities net of amounts
paid of $1.3 million at December 31, 1997. The adoption of SOP 96-1 did not
have a material adverse effect on the Company's results of operations or
financial position.
Year 2000
The Company has been involved in the Year 2000 compliancy since 1996.
A complete inventory and review of software, information processing and
delivery systems has been completed, and work continues on computer systems
wherever necessary. While some computer systems have already been updated,
tested and placed in production, the system expects to complete the balance of
the modifications by early 1999.
Expenditures incurred by the system through 1997 to review existing
computer systems and to modify existing software and applications amounted to
nearly $900,000, and it is estimated that approximately $2.6 million will be
incurred in 1998 and 1999.
Management believes that, with appropriate modifications, the Company
will be fully compliant regarding all Year 2000 issues and will continue to
provide its products and services uninterrupted through the millennium change.
Failure to become fully compliant could have a significant impact on the
Company's operations.
Item 8. Financial Statements and Supplementary Data
The Company's financial statements required by this item are filed
herewith on pages 16 through 33 of this report.
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure
None.
<PAGE>
<PAGE 16>
COMMONWEALTH GAS COMPANY
FORM 10-K DECEMBER 31, 1997
Item 8. Financial Statements and Supplementary Data
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of Commonwealth Gas Company:
We have audited the accompanying balance sheets of COMMONWEALTH GAS
COMPANY (a Massachusetts corporation and wholly-owned subsidiary of
Commonwealth Energy System) as of December 31, 1997 and 1996, and the related
statements of income, retained earnings and cash flows for each of the three
years in the period ended December 31, 1997. 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 Commonwealth Gas
Company as of December 31, 1997 and 1996, and the results of its operations
and its cash flows for each of the three years in the period ended
December 31, 1997, in conformity with generally accepted accounting prin-
ciples.
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, 1998.
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<PAGE 17>
COMMONWEALTH GAS COMPANY
INDEX TO FINANCIAL STATEMENTS AND SCHEDULE
PART II.
FINANCIAL STATEMENTS
Balance Sheets at December 31, 1997 and 1996
Statements of Income for the Years Ended December 31, 1997, 1996 and
1995
Statements of Retained Earnings for the Years Ended December 31, 1997,
1996 and 1995
Statements of Cash Flows for the Years Ended December 31, 1997, 1996 and
1995
Notes to Financial Statements
PART IV.
SCHEDULE
II Valuation and Qualifying Accounts for the Years Ended December 31,
1997, 1996 and 1995
SCHEDULES OMITTED
All other schedules are not submitted because they are not applicable or
not required or because the required information is included in the
financial statements or notes thereto.
<PAGE>
<PAGE 18>
COMMONWEALTH GAS COMPANY
BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
ASSETS
1997 1996
(Dollars in thousands)
PROPERTY, PLANT AND EQUIPMENT, at original cost $375,083 $358,783
Less - Accumulated depreciation 110,661 102,278
264,422 256,505
Add - Construction work in progress 570 836
264,992 257,341
CURRENT ASSETS
Cash 1,867 421
Accounts receivable -
Affiliated companies 592 242
Customers, less reserves of $2,853 in 1997
and $2,738 in 1996 48,731 47,087
Unbilled revenues 19,121 20,885
Inventories, at average cost -
Natural gas 23,301 23,084
Materials and supplies 1,225 1,620
Prepaid taxes -
Property 3,176 3,061
Income 5,640 5,619
Other 1,234 981
104,887 103,000
DEFERRED CHARGES
Regulatory assets 20,873 23,522
Other 5,214 5,067
26,087 28,589
$395,966 $388,930
The accompanying notes are an integral part of these financial statements.
<PAGE>
<PAGE 19>
COMMONWEALTH GAS COMPANY
BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
CAPITALIZATION AND LIABILITIES
1997 1996
(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 16,871 10,856
116,035 110,020
Long-term debt, less maturing issues and
current sinking fund requirements 105,800 74,450
221,835 184,470
CURRENT LIABILITIES
Interim Financing -
Notes payable to banks 39,325 58,200
Advances from affiliates - 10,400
Maturing long-term debt - -
39,325 68,600
Other Current Liabilities -
Current sinking fund requirements 3,650 3,650
Accounts payable -
Affiliated companies 1,869 3,081
Other 32,450 32,904
Customer deposits 1,006 952
Accrued local property and other taxes 3,366 3,060
Accrued interest 1,038 458
Other 18,551 16,681
61,930 60,786
101,255 129,386
DEFERRED CREDITS
Accumulated deferred income taxes 38,322 37,088
Unamortized investment tax credits 5,461 5,660
Other 29,093 32,326
72,876 75,074
COMMITMENTS AND CONTINGENCIES
$395,966 $388,930
The accompanying notes are an integral part of these financial statements.
<PAGE>
<PAGE 20>
COMMONWEALTH GAS COMPANY
STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
1997 1996 1995
(Dollars in thousands)
GAS OPERATING REVENUES $331,135 $342,488 $308,922
OPERATING EXPENSES
Cost of gas sold 191,213 197,665 169,112
Other operation 74,402 75,279 72,138
Maintenance 10,580 14,171 12,789
Depreciation 10,482 10,061 9,656
Taxes -
Income 9,653 10,282 9,669
Local property 6,315 5,943 5,798
Payroll and other 3,225 2,385 2,818
305,870 315,786 281,980
OPERATING INCOME 25,265 26,702 26,942
OTHER INCOME 679 935 1,233
INCOME BEFORE INTEREST CHARGES 25,944 27,637 28,175
INTEREST CHARGES
Long-term debt 7,251 7,604 8,174
Other interest charges 3,250 3,244 3,772
10,501 10,848 11,946
NET INCOME $ 15,443 $ 16,789 $ 16,229
The accompanying notes are an integral part of these financial statements.
<PAGE>
<PAGE 21>
COMMONWEALTH GAS COMPANY
STATEMENTS OF RETAINED EARNINGS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
1997 1996 1995
(Dollars in thousands)
Balance at beginning of year $10,856 $10,495 $ 6,837
Add (Deduct):
Net income 15,443 16,789 16,229
Cash dividends on common stock (9,428) (16,428) (12,571)
Balance at end of year $16,871 $10,856 $10,495
The accompanying notes are an integral part of these financial statements.
<PAGE>
<PAGE 22>
COMMONWEALTH GAS COMPANY
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
1997 1996 1995
(Dollars in thousands)
OPERATING ACTIVITIES
Net income $15,443 $16,789 $16,229
Effects of noncash items -
Depreciation and amortization 13,190 12,034 12,983
Deferred income taxes 746 4,249 (4,026)
Investment tax credits (199) (202) (203)
Change in working capital exclusive
of cash and interim financing -
Accounts receivable and unbilled
revenues (230) (4,859) (9,111)
Income taxes (21) (5,235) 235
Local property and other taxes 191 (342) (115)
Accounts payable and other 763 (31,407) 15,985
Deferred postretirement benefit costs (414) (2,228) (2,376)
FERC Order 636 transition costs, net - - 11,390
All other operating items (2,278) (3,267) 10,908
Net cash provided by (used for)
operating activities 27,191 (14,468) 51,899
INVESTING ACTIVITIES
Additions to property, plant and
equipment (inclusive of AFUDC) (18,392) (11,696) (16,307)
FINANCING ACTIVITIES
Payment of dividends (9,428) (16,428) (12,571)
Proceeds from (payment of) short-term
borrowings (18,875) 46,000 (12,750)
Proceeds from (payment of) affiliate
borrowings (10,400) 8,550 (9,370)
Long-term debt issues 35,000 - -
Long-term debt issue refunded - (10,000) -
Retirement of long-term debt
through sinking funds (3,650) (3,650) (3,650)
Net cash provided by (used for)
financing activities (7,353) 24,472 (38,341)
Net increase (decrease) in cash 1,446 (1,692) (2,749)
Cash at beginning of period 421 2,113 4,862
Cash at end of period $ 1,867 $ 421 $ 2,113
Supplemental Disclosures of Cash Flow Information
Cash paid during the period for:
Interest (net of amounts capitalized) $ 9,162 $10,619 $11,035
Income taxes $ 8,916 $14,165 $ 8,118
The accompanying notes are an integral part of these financial statements.
<PAGE>
<PAGE 23>
COMMONWEALTH GAS COMPANY
NOTES TO FINANCIAL STATEMENTS
(1) General Information
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 referred to
as "the system." The System is an exempt public utility 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 engaged in the distribution and sale of natural gas at
retail to approximately 237,000 customers in a 1,067 square-mile area which
includes 49 communities in eastern, southeastern and central Massachusetts
including New Bedford, Cambridge, Plymouth and Worcester. The approximate
year-round population of this service area is 1,128,000.
The Company has 558 regular employees including 387 (69%) who are repre-
sented by three collective bargaining units. In September 1998, a
collective bargaining unit representing approximately 2% of regular
employees is scheduled to expire and two additional contracts (together
representing approximately 67% of regular employees) are scheduled to
expire in March and June of 2002.
During the second quarter of 1997, the system initiated a voluntary
personnel reduction program. As a result of this program, the Company's
total number of regular employees declined by approximately 15%.
(2) Significant Accounting Policies
(a) Principles of Accounting
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 conform
with the presentation used in the current year's financial statements.
(b) Regulatory Assets and Liabilities
The Company is regulated as to rates, accounting and other matters by the
Massachusetts Department of Telecommunications and Energy (DTE), formerly
the Massachusetts Department of Public Utilities.
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 DTE has permitted or is
<PAGE>
<PAGE 24>
COMMONWEALTH GAS COMPANY
expected to permit recovery of specific costs over time. Effective January
1, 1996, the Company adopted SFAS No. 121, "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to be Disposed of." SFAS
No. 121 imposes stricter criteria for regulatory assets by requiring that
such assets be probable of future recovery at each balance sheet date.
SFAS No. 121 did not have an impact on the Company's financial position or
results of operations upon adoption. This result may change as
modifications are made to the current regulatory framework including
utility industry restructuring efforts in Massachusetts. If all or a
separable portion of the Company's operations becomes no longer subject to
the provisions of SFAS No. 71, a write-off of related regulatory assets and
liabilities would be required, unless some form of transition cost recovery
continues through rates established and collected for the Company's
remaining regulated operations. In addition, the Company would be required
to determine any impairment to the carrying costs of deregulated plant and
inventory assets.
The principal regulatory assets included in deferred charges at
December 31, 1997 and 1996 were as follows:
1997 1996
(Dollars in thousands)
Postretirement benefit costs $ 9,607 $ 9,972
FERC Order 636 transition costs 7,336 9,680
Environmental costs 3,930 3,870
Total regulatory assets $20,873 $23,522
The principal regulatory liability, reflected in deferred credits-other
and relating to income taxes, was $8.3 million and $8.6 million at December
31, 1997 and 1996, respectively. As of December 31, 1997, $18.9 million of
the Company's regulatory assets and all of its regulatory liabilities are
reflected in rates charged to customers. Regulatory assets, including
postretirement benefit costs, are being recovered over a weighted average
period of approximately 8 years. These regulatory assets will be a
component that will be included in the Company's consensus-based settlement
to be submitted to the DTE no later than April 15, 1998.
(c) Transactions with Affiliates
Operating revenues include sales of gas to affiliate Cambridge Electric
Light Company as follows:
1997 1996 1995
(Dollars in thousands)
Cost $ - $ 11 $ 289
Margin - - 64
Total $ - $ 11 $ 353
The margin realized on these sales is credited to firm customers through
the Cost of Gas Adjustment (CGA).
Other intercompany transactions include payments by the Company for
management, accounting, data processing and other services provided by
COM/Energy Services Company. In addition, the Company incurred costs paid to
affiliate Hopkinton LNG Corp. for liquefaction and vaporization services that
<PAGE>
<PAGE 25>
COMMONWEALTH GAS COMPANY
amounted to $10,172,000, $10,124,000 and $9,988,000 in 1997, 1996 and 1995,
respectively. Transactions with system companies are subject to review by
the DTE.
(d) Operating Revenues
Customers are billed for their use of gas on a cycle basis throughout
the month. To reflect revenues in the proper period, the estimated amount of
unbilled sales revenue is recorded each month.
The Company is permitted to bill customers currently for total gas
costs, certain conservation and load management costs and environmental costs
through adjustment clauses. Amounts recoverable under the adjustment clauses
are subject to review and adjustment by the DTE. The amount of such costs
incurred by the Company but not yet reflected in customers' bills is recorded
as unbilled revenues.
(e) Depreciation
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 2.95% in 1997, 2.94% in 1996 and 2.90% in 1995.
(f) 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 less salvage.
(g) 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 other interest charges in the accompanying
Statements of Income and amounted to $55,000, $20,000 and $55,000 in 1997,
1996 and 1995, respectively.
While AFUDC does not provide funds currently, these amounts are
recoverable in revenues over the service life of the constructed property.
The amount of AFUDC recorded was at a weighted average rate of 5.75% in 1997,
6% in 1996 and 6.50% in 1995.
(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
<PAGE>
<PAGE 26>
COMMONWEALTH GAS COMPANY
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, 1997, 1996 and 1995:
1997 1996 1995
(Dollars in thousands)
Federal -
Current $ 7,544 $ 5,220 $11,602
Deferred 775 3,508 (3,155)
Investment tax credits (199) (202) (203)
8,120 8,526 8,244
State -
Current 1,562 1,015 2,296
Deferred 168 713 (618)
1,730 1,728 1,678
9,850 10,254 9,922
Amortization of regulatory liability
relating to deferred income taxes (197) 28 (253)
Total federal and state
income taxes $ 9,653 $10,282 $ 9,669
Deferred tax liabilities and assets are determined based on the
difference between the financial statement basis and tax basis of assets and
liabilities using enacted tax rates in effect in the year in which the
differences are expected to reverse.
Accumulated deferred income taxes consisted of the following in 1997 and
1996:
1997 1996
(Dollars in thousands)
Liabilities
Property-related $44,730 $43,751
Postretirement benefits plan 3,877 3,903
All other 1,691 1,602
50,298 49,256
Assets
Investment tax credit 3,524 3,653
Pension plan 2,921 3,458
Regulatory liability 2,883 3,010
Inventory repricing 2,948 3,202
All other 3,359 2,363
15,635 15,686
Accumulated deferred income taxes, net $34,663 $33,570
The net year-end deferred income tax liability above is net of current
deferred tax assets of $3,659,000 in 1997 and $3,518,000 in 1996 which are
included in other deferred charges in the accompanying Balance Sheets.
<PAGE>
<PAGE 27>
COMMONWEALTH GAS COMPANY
The total income tax provision set forth on the previous page
represents 38% in 1997 and 1996 and 37% in 1995 of income before such taxes.
The following table reconciles the statutory federal income tax rate to these
percentages:
1997 1996 1995
Federal statutory rate 35% 35% 35%
Federal income tax expense at statutory levels $ 8,784 $ 9,475 $9,064
Increase (Decrease) from statutory rate:
State tax net of federal tax benefit 1,124 1,123 1,091
Amortization of investment tax credits (200) (202) (203)
Amortization of excess deferred reserves (197) 28 (253)
Tax versus book depreciation 19 (123) (16)
Other 123 (19) (14)
$ 9,653 $10,282 $9,669
Effective federal tax rate 38% 38% 37%
(4) Long-Term Debt and Interim Financing
(a) Long-Term Debt
Long-term debt outstanding, exclusive of current maturities and current
sinking fund requirements, collateralized by substantially all of the
Company's property, is as follows:
Original Balance December 31,
Issue 1997 1996
(Dollars in thousands)
First Mortgage Bonds -
8.99%, Series I, due 2001 $40,000 $ 10,800 $14,450
9.95%, Series J, due 2020 25,000 25,000 25,000
7.11%, Series K, due 2033 35,000 35,000 35,000
6.54%, Series L, due 2007 10,000 10,000 -
7.04%, Series M, due 2017 25,000 25,000 -
$105,800 $74,450
Under terms of its indenture, the Company is required to make periodic
sinking fund payments for retirement of outstanding long-term debt. The
Company may purchase its outstanding bonds in advance of sinking fund
requirements under favorable conditions. The required sinking fund payments
and balances of maturing debt issues for the five years subsequent to
December 31, 1997 are as follows:
Sinking Fund Maturing Debt
Year Requirements Issues Total
(Dollars in thousands)
1998 $3,650 $ - $3,650
1999 3,650 - 3,650
2000 3,650 - 3,650
2001 5,079 3,500 8,579
2002 1,429 - 1,429
<PAGE>
<PAGE 28>
COMMONWEALTH GAS COMPANY
(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, 1997,
system companies had $145 million of committed lines that will expire at
varying intervals in 1997. These lines are normally renewed upon expiration
and require annual fees up to .1875% of the individual line. At December 31,
1997, the uncommitted lines of credit totaled $10 million. Interest rates on
the outstanding borrowings generally are at an adjusted money market rate and
averaged 5.8% and 5.6% in 1997 and 1996, respectively. The Company's notes
payable to banks totaled $39,325,000 and $58,200,000 at December 31, 1997 and
1996, respectively.
(c) Advances from Affiliates
The Company had no notes payable to the System at December 31, 1997
compared to $5,495,000 at December 31, 1996. 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 term of the notes. This rate
averaged 8.5% and 8.3% during 1997 and 1996, 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 those available from banks. Interest rates on the
outstanding borrowings are based on the monthly average rate the Company
would otherwise have to pay banks, less one-half the difference between that
rate and the monthly average U.S. Treasury Bill weekly auction rate. The
borrowings are for a period of less than one year and are payable upon
demand. Rates on these borrowings averaged 5.4% and 5.3% during 1997 and
1996, respectively. The Company had no borrowings from the Pool at December
31, 1997 compared to $4,905,000 at December 31, 1996.
(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, 1997 and 1996 are as follows:
1997 1996
Carrying Fair Carrying Fair
Value Value Value Value
(Dollars in thousands)
Long-Term Debt $109,450 $122,744 $78,100 $85,289
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.
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<PAGE 29>
COMMONWEALTH GAS COMPANY
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) 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 a
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:
1997 1996 1995
(Dollars in thousands)
Service cost $ 2,252 $ 2,310 $ 1,912
Interest cost 7,242 7,172 7,094
Return on plan assets - (gain)/loss (17,925) (13,542) (18,598)
Net amortization and deferral 11,244 7,445 12,909
Total pension expense 2,813 3,385 3,317
Transfers from affiliated
companies, net 515 487 463
Less: Amounts capitalized
and deferred 375 292 342
Net pension expense $ 2,953 $ 3,580 $ 3,438
Discount rate 7.50% 7.25% 8.50%
Assumed rate of return 8.75 8.75 9.00
Rate of increase in future compensation 4.25 4.25 5.00
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 plan (using a measurement date of
December 31) is as follows:
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<PAGE 30>
COMMONWEALTH GAS COMPANY
1997 1996
(Dollars in thousands)
Accumulated benefit obligation:
Vested $ (95,346) $(74,341)
Nonvested (12,524) (9,084)
$(107,870) $(83,425)
Projected benefit obligation $(120,179) $(99,811)
Plan assets at fair market value 114,394 101,182
Projected benefit obligation
(greater) less than plan assets (5,785) 1,371
Unamortized transition obligation 2,477 3,098
Unrecognized prior service cost 4,317 4,824
Unrecognized gain (8,874) (16,566)
Accrued pension liability $ (7,865) $ (7,273)
The following actuarial assumptions were used in determining the plan's
year-end funded status:
1997 1996
Discount rate 7.00% 7.50%
Rate of increase in future compensation 3.75 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
$3.7 million, $4.3 million and $4.4 million to these trusts during 1997, 1996
and 1995, respectively.
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<PAGE 31>
COMMONWEALTH GAS COMPANY
The net periodic postretirement benefit cost for the years ended
December 31, 1997, 1996 and 1995 include the following components and related
assumptions:
1997 1996 1995
(Dollars in thousands)
Service cost $ 441 $ 551 $ 452
Interest cost 2,788 2,878 2,848
Return on plan assets (2,462) (1,348) (1,408)
Amortization of transition obligation
over 20 years 1,700 1,700 1,700
Net amortization and deferral 1,297 482 811
Total postretirement benefit cost 3,764 4,263 4,403
Transfers to affiliated companies, net 484 520 524
Less: Amounts capitalized and deferred 86 2,612 2,834
Net postretirement benefits cost $ 4,162 $ 2,171 $ 2,093
Discount rate 7.50% 7.25% 8.50%
Assumed rate of return 8.75 8.75 9.00
Rate of increase in future compensation 4.25 4.25 5.00
The funded status of the Company's plan using a measurement date of
December 31, 1997 and 1996 is as follows:
1997 1996
(Dollars in thousands)
Accumulated postretirement benefit obligation:
Retirees $ (32,945) $ (24,302)
Fully eligible active plan participants (5,163) (3,456)
Other active plan participants (9,163) (10,885)
(47,271) (38,643)
Plan assets at fair market value 16,720 12,636
Accumulated postretirement benefit obligation
greater than plan assets (30,551) (26,007)
Unamortized transition obligation 25,501 27,203
Unrecognized (gain) loss 5,050 (1,196)
$ - $ -
The following actuarial assumptions were used in determining the plan's
estimated accumulated postretirement benefit obligation (APBO) and funded
status for 1997 and 1996:
1997 1996
Discount rate 7.00% 7.50%
Rate of increase in future compensation 3.75 4.25
Medicare Part B premiums 3.10 9.50
Medical care 6.75 7.00
Dental care 4.50 5.00
<PAGE>
<PAGE 32>
COMMONWEALTH GAS COMPANY
The above dental rate remains constant through the year 2007. Rates for
Medicare Part B premiums and medical care decrease to 3.1% and 4.5%,
respectively, by 2007 and remain at that level thereafter. A one percent
change in the medical trend rate would have $398,000 impact on the Company's
annual expense and would change the APBO by approximately $5.7 million.
Plan assets consist primarily of fixed-income and equity securities.
Fluctuations in the fair market value of plan assets will affect post-
retirement benefit expense in future years.
On April 15, 1997, the DTE issued an accounting ruling allowing the
Company to include postretirement benefits costs in cost-of-service and to
amortize the deferred balance of $10.5 million at March 31, 1997 associated
with these costs over a period not to exceed ten years that began in April
1997.
(c) Savings Plan
The Company has an Employees Savings Plan that provides for Company
contributions equal to contributions by eligible employees of up to four
percent of each employee's compensation rate. Effective January 1, 1993, the
rate was increased to five percent for those employees no longer eligible for
postretirement health benefits. The Company's contribution was $1,366,000 in
1997, $1,100,000 in 1996 and $1,439,000 in 1995.
(6) Commitments and Contingencies
(a) Construction and Financing Program
The Company is engaged in a continuous construction program presently
estimated at $93 million for the five-year period 1998 through 2002. Of that
amount, $17.9 million is estimated for 1998. 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, equipment
delivery schedules, licensing delays, availability and cost of capital and
environmental factors.
(b) LNG Service Contract
The Company has long-term contracts with Hopkinton LNG Corp., a wholly-
owned subsidiary of the System, for liquefaction and vaporization services.
The contracts extend on a year-to-year basis, subject to the giving of a
notice to terminate by the Company at least five years in advance of the
anticipated termination date.
(7) Gas Refunds
During 1997, 1996 and 1995, the Company received refunds from its gas
suppliers in settlement of several rate cases that had been pending before
the FERC. Operating revenues and the cost of gas sold have been reduced by
the amounts refunded to firm customers totaling $2,374,000 in 1997,
$7,656,000 in 1996 and $9,061,000 in 1995.
<PAGE>
<PAGE 33>
COMMONWEALTH GAS COMPANY
(8) Lease Obligations
The Company leases equipment and office space under arrangements that
are classified as operating leases. These lease agreements are for terms of
one year or longer. Leases currently in effect contain no provisions that
prohibit the Company from entering into future lease agreements or
obligations.
Future minimum lease payments, by period and in the aggregate, of non-
cancelable operating leases consisted of the following at December 31, 1997:
Operating Leases
(Dollars in thousands)
1998 $ 4,884
1999 3,688
2000 2,629
2001 2,176
2002 2,176
Beyond 2002 7,376
Total future minimum lease payments $22,929
Total rent expense for all operating leases, except those with terms of
a month or less, amounted to $4,866,000 in 1997, $5,027,000 in 1996 and
$4,931,000 in 1995. There were no contingent rentals and no sublease rentals
for the years 1997, 1996 and 1995.
(9) 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 regulations authorize federal and state regulatory agencies to identify
and remediate hazardous waste sites and to seek recovery from statutorily
liable parties (usually referred to as potentially responsible parties or
PRPs), or to order these PRPs to undertake the clean-up themselves. (Refer to
"Environmental Matters" filed under Item 7 of this report for additional
information.)
<PAGE>
<PAGE 34>
COMMONWEALTH GAS COMPANY
PART IV.
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) 1. Index to Financial Statements
Financial statements and notes thereto of the Company together
with the Report of Independent Public Accountants, are filed under
Item 8 of this report and listed on the Index to Financial
Statements and Schedules (page 15).
(a) 2. Index to Financial Statement Schedules
Filed herewith at page indicated is the following financial
statement schedule of the Company:
Schedule II - Valuation and Qualifying Accounts - Years Ended
December 31, 1997, 1996 and 1995 (page 37).
(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 acronyms used throughout the
Exhibit Index:
CES Commonwealth Energy System
CG Commonwealth Gas Company
CNG CNG Transmission Corporation
TGP Tennessee Gas Pipeline Company
Exhibit Index:
Exhibit 3. Articles of incorporation and by-laws.
3.1.1 Articles of incorporation of CG (Exhibit 1 to the CG 1991 Form
10-K, File No. 2-1647).
3.1.2 By-laws of CG, as amended (Exhibit 2 to the CG 1992 Form 10-K,
File No. 2-1647).
Exhibit 4. Instruments defining the rights of security holders, including
indentures.
4.1. Indentures of Trust or Supplemental Indenture of Trust
(as filed by the Registrant, except First Supplemental which was
filed by the System)
1. Original Indenture on Form S-1 (Feb., 1949) (Exhibit 7(a), File
No. 2-7820).
<PAGE>
<PAGE 35>
COMMONWEALTH GAS COMPANY
2. First Supplemental on Form S-1 (Mar., 1950) (Exhibit 7(a), File
No. 2-8418).
3. Second Supplemental on Form S-1 (Nov., 1952) (Exhibit 4(a)(2),
File No. 2-10445).
4. Third Supplemental on Form S-1 (Nov., 1952) (Exhibit 4(a)(3), File
No. 2-10445).
5. Fourth Supplemental on Form S-9 (Oct. 1954) (Exhibit 2(b)(5), File
No. 2-15089).
6. Fifth Supplemental on Form S-9 (Mar., 1956) (Exhibit 2(b)(6), File
No. 2-15089).
7. Sixth Supplemental on Form S-9 (Apr., 1957) (Exhibit 2(b)(7), File
No. 2-15089).
8. Seventh Supplemental on Form S-9 (June 1959) (Exhibit 2(b)(8),
File No. 2-20532).
9. Eighth Supplemental on Form S-9 (Sept. 1961) (Exhibit 2(b)(9),
File No. 2-20532).
10. Ninth Supplemental on Form 8-K (Aug. 1962) (Exhibit A, File No. 2-
1647).
11. Tenth Supplemental on Form 10-K (1970) (Exhibit 2, File No. 2-
1647).
12. Eleventh Supplemental on Form S-1 (June, 1972) (Exhibit 4(b)(2),
File No. 2-48556).
13. Twelfth Supplemental on Form S-1 (Aug., 1973) (Exhibit
4(b)(3), File No. 2-48556).
14. Thirteenth Supplemental on Form 10-K (1992) (Exhibit 1, File No.
2-1647).
15. Fourteenth Supplemental on Form 10-K (1990) (Exhibit 1, File No.
2-1647).
16. Fifteenth Supplemental on Form 10-K (1982) (Exhibit 1, File No. 2-
1647).
17. Sixteenth Supplemental on Form 10-K (1986) (Exhibit 1, File No. 2-
1647).
18. Seventeenth Supplemental on Form 10-K (1990) (Exhibit 2, File No.
2-1647).
19. Eighteenth Supplemental on Form 10-Q (March, 1994) (Exhibit 1,
File No. 2-1647).
Filed herewith:
4.4.20 Nineteenth Supplemental Indenture dated September 1, 1997 to
Indenture of Trust and First Mortgage Dated as of February 1, 1949
(Filed herewith as Exhibit 1).
Exhibit 10. Material Contracts.
10.1. Natural Gas Purchase Contracts.
10.1.1 Transportation Agreement between CNG and CG to provide for
transportation of natural gas on a daily basis from Steuben Gas
Storage Company to TGP, dated September 24, 1991 (Exhibit 10 to
the CG 1991 Form 10-K, File No. 2-1647).
<PAGE>
<PAGE 36>
COMMONWEALTH GAS COMPANY
10.2 Other Agreements.
10.2.1 Pension Plan for Employees of Commonwealth Energy System and
Subsidiary Companies as amended and restated January 1, 1993
(Filed as Exhibit 1 to the System's Form 10-Q (September 1993),
File No. 1-7316).
10.2.2 Employees Savings Plan for Employees of Commonwealth Energy System
and Subsidiary Companies as amended and restated January 1, 1993
(Filed as Exhibit 2 to the System's Form 10-Q (September 1993),
File No. 1-7316).
10.2.2.1 First Amendment to the Employees Savings Plan of Commonwealth
Energy System and Subsidiary Companies, as amended and restated as
of January 1, 1993, effective October 1, 1994. (Exhibit 1 to CES
Form S-8 (January 1995), File No. 1-7316).
10.2.2.2 Second Amendment to the Employees Savings Plan of Commonwealth
Energy System and Subsidiary Companies, as amended and restated as
of January 1, 1993, effective April 1, 1996. (Exhibit 1 to CES
Form 10-K/A Amendment No. 1 (April 30, 1996), File No. 1-7316).
10.2.2.3 Third Amendment to the Employees Savings Plan of Commonwealth
Energy System and Subsidiary Companies, as amended and restated as
of January 1, 1993, effective January 1, 1997. (Exhibit 1 to CES
Form 10-K/A Amendment No. 1 (April 29, 1997), File No. 1-7316).
Filed herewith:
Exhibit 27.
Financial Data Schedule for the year ended December 31, 1997
(Filed herewith as Exhibit 2).
(b) Reports on Form 8-K.
No reports on Form 8-K were filed during the three months ended
December 31, 1997.
<PAGE>
<PAGE 37>
SCHEDULE II
COMMONWEALTH GAS COMPANY
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 and 1995
(Dollars in thousands)
Additions
Balance Provision Deductions Balance
Beginning Charged to Accounts at End
Description of Year Operations Recoveries Written Off of Year
Allowance for
Doubtful Accounts Year Ended December 31, 1997
$ 2,738 $ 4,979 $ 1,333 $ 6,197 $ 2,853
Year Ended December 31, 1996
$ 2,691 $ 4,381 $ 1,213 $ 5,547 $ 2,738
Year Ended December 31, 1995
$ 2,827 $ 4,855 $ 1,375 $ 6,366 $ 2,691
<PAGE>
<PAGE 38>
COMMONWEALTH GAS COMPANY
FORM 10-K DECEMBER 31, 1997
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.
COMMONWEALTH GAS COMPANY
(Registrant)
By: WILLIAM G. POIST
William G. Poist,
Chairman of the Board
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 31, 1998
William G. Poist,
Chairman of the Board
R. D. WRIGHT March 31, 1998
Russell D. Wright,
Vice Chairman and Chief Executive Officer
DEBORAH A. MCLAUGHLIN March 31, 1998
Deborah A. Mclaughlin,
President and Chief Operating Officer
Principal Financial and Accounting Officer:
JAMES D. RAPPOLI March 31, 1998
James D. Rappoli,
Financial Vice President and Treasurer
A majority of the Board of Directors:
DEBORAH A. MCLAUGHLIN March 31, 1998
Deborah A. McLaughlin, Director
WILLIAM G. POIST March 31, 1998
William G. Poist, Director
JAMES D. RAPPOLI March 31, 1998
James D. Rappoli, Director
R. D. WRIGHT March 31, 1998
Russell D. Wright, Director
<PAGE 1>
COMMONWEALTH GAS COMPANY
(formerly Worcester Gas Light Company)
TO
STATE STREET BANK AND TRUST COMPANY,
Trustee
Nineteenth Supplemental Indenture
Dated as of September 1, 1997
To
INDENTURE OF TRUST
And
FIRST MORTGAGE
Dated as of February 1, 1949
$35,000,000
$10,000,000 First Mortgage Sinking Fund 6.54% Bonds, Series L, Due 2007
$25,000,000 First Mortgage 7.04% Bonds, Series M, Due 2017
<PAGE>
<PAGE 2>
THIS Nineteenth SUPPLEMENTAL INDENTURE dated as of September 1, 1997 by
and between COMMONWEALTH GAS COMPANY (formerly named Worcester Gas Light
Company), a corporation duly organized and existing under the laws of The
Commonwealth of Massachusetts (hereinafter sometimes called the "Company"),
and STATE STREET BANK AND TRUST COMPANY (formerly named State Street Trust
Company and Second Bank-State Street Trust Company), a corporation duly
organized and existing under the laws of The Commonwealth of Massachusetts, as
Trustee (hereinafter sometimes called the "Trustee"),
WITNESSETH that:
WHEREAS the Company has heretofore executed and delivered to the Trustee
an Indenture of Trust and First Mortgage dated as of February 1, 1949, as
amended (hereinafter called the "Principal Indenture") and eighteen indentures
supplemental thereto dated as of March 1, 1950, November 14, 1952,
September 1, 1953, October 21, 1954, March 21, 1956, April 16, 1957,
June 1, 1959, September 28, 1961, August 1, 1962, July 1, 1970, June 1, 1972,
August 1, 1973, April 1, 1974, October 1, 1977, October 1, 1982,
October 1, 1986, December 1, 1990 and December 1, 1993, respectively
(hereinafter collectively called the "Supplemental Indentures"), said
Principal Indenture and said Supplemental Indentures having been duly recorded
as set forth therein and herein; and
WHEREAS the Eighteenth Supplemental Indenture was duly recorded and
filed as follows:
Date 1993 Book Page
December 29
Bristol County South District Registry 3212 211
of Deeds
December 29
Bristol County South Registry District 73 37
registered as Document #63327 and
noted on Certificate of Title No. 13509
December 29
Fall River District of Bristol County 2751 301
Registry of Deeds
December 29
Middlesex South District Registry of Deeds 21016 212
December 29
South Registry District of Middlesex 814 27
County registered as Document #93206 896 172
and noted on Certificates of Title
Nos. 136777 and 153322
December 29
Norfolk County Registry of Deeds 10310 222
December 29
Plymouth County Registry of Deeds 12539 1
December 29
Suffolk County Registry of Deeds 18766 1
December 29
Worcester District Registry of Deeds 15919 180
December 29
Worcester Registry District of Worcester 14 & 24
County registered as Document #58164 and
noted on Certificates of Title Nos. 2701
and 4618
<PAGE>
<PAGE 3>
Date 1993 Book Page
December 29
Office of the Massachusetts Secretary of
State, An Amendment Form UCC-3, Amendment (Filing
to the Financing Statement originally No.
filed September 26, 1968 under No. 206817)
534945
WHEREAS Section I of Article XI of said Principal Indenture provides,
among other things, that without any action or consent by, or notice to the
holders of any of the bonds, the Company and the Trustee may enter into such
other and further indentures supplemental to the Principal Indenture as shall
be by them deemed necessary or desirable to add to the covenants and
agreements of the Company for the protection of the holders of the bonds or
for any other purpose not inconsistent with the terms of the Principal
Indenture and which shall not impair the security of the same; and
WHEREAS Section 2 of Article III of said Principal Indenture, as
amended, provides, among other things, that bonds of subsequent series in
addition to the Series A Bonds, when authorized as therein provided and
subject to the provisions and limitations therein set forth, may be executed
and delivered by the Company to the Trustee and thereupon shall be certified
and delivered by the Trustee to or upon the written order of the President or
Treasurer of the Company; and
WHEREAS the Company proposes to issue in accordance with the provisions
of said Section 2 of said Article III, as amended, and other applicable
provisions of said Principal Indenture and pursuant to and in execution of the
powers and authorities conferred and reserved therein and of every other power
and authority thereto appertaining or enabling two new series of bonds to be
designated First Mortgage Sinking Fund 6.54% Bonds, Series L, Due 2007
(hereinafter sometimes referred to as "Series L Bonds" and First Mortgage
7.04% Bonds, Series M, Due 2017 (hereinafter sometimes referred to as "Series
M Bonds"); and
WHEREAS the Company deems it advisable to enter into an Indenture with
the Trustee supplemental to said Principal Indenture to further secure the
payment of the principal, premium, if any, and the interest on the bonds
issued and to be issued thereunder, and to confirm and renew the conveyances
made therein; and to grant, bargain, sell, release, convey, assign, transfer,
mortgage, pledge, set over and confirm unto the Trustee additional properties
of the Company as herein provided; and
WHEREAS the Company and the Trustee have authorized and approved this
Nineteenth Supplemental Indenture and the form and execution thereof in
accordance with the requirements of Article XI of said Principal Indenture,
and all requirements of law and said Principal Indenture necessary to the
authorization and validity of this Nineteenth Supplemental Indenture have been
complied with; and
WHEREAS the Series L Bonds and Series M Bonds are to be issued only as
fully registered bonds without coupons, and such bonds, the Trustee's
certificate, and the endorsement thereon are to be substantially in the
following forms, respectively:
<PAGE>
<PAGE 4>
[FORM OF FULLY REGISTERED Series L BOND]
COMMONWEALTH GAS COMPANY
First Mortgage Sinking Fund 6.54% Bond, Series L, Due 2007
REGISTERED
REGISTERED NO. L- ______ $___________________
Commonwealth Gas Company (formerly named Worcester Gas Light Company), a
corporation organized and existing under the laws of THE COMMONWEALTH OF
MASSACHUSETTS (hereinafter called the "Company"), for value received, hereby
promises to pay to ____________, or registered assigns, the principal sum of
___________________________________________ Dollars (or so much thereof as
shall not have been redeemed as provided in the Nineteenth Supplemental
Indenture referred to below) on September 30, 2007, and to pay interest
thereon at the rate of 6.54% per annum from the last day of March or
September, as the case may be, to which interest has been paid preceding the
date hereof (unless the date hereof is a March 31 or September 30 to which
interest has been paid, in which case from the date hereof, or unless the date
hereof is prior to the first payment of interest, in which case from the date
of original issuance of the bonds of Series L) semi-annually on March 31 and
September 30, commencing March 31, 1998, until the principal hereof shall have
become due and payable (whether at maturity or at a date fixed for redemption
or by declaration or otherwise), and with interest on any overdue principal
(including any overdue prepayment of principal) and (to the extent permitted
by applicable law) overdue premium, if any, and (to the extent permitted by
applicable law) on any overdue installment of interest, at the rate of 8.54%
per annum until paid, payable semi-annually as aforesaid or, at the option of
the registered owner hereof, on demand, provided that in no event shall the
amount payable by the Company as interest and premium on this bond exceed the
highest lawful rate permissible under any law applicable hereto. The interest
so payable on any March 31 or September 30 will, subject to certain exceptions
provided in the Nineteenth Supplemental Indenture hereinafter referred to, be
paid to the person in whose name this bond is registered at the close of
business on the March 15 prior to such March 31 or the September 15 prior to
such September 30, unless such March 15 or September 15 shall not be a
business day, in which event on the next succeeding business day, the term
"business day" meaning for this purpose a day which in the City of Boston is
not a legal holiday or a day on which banking institutions in the City of
Boston are not authorized by law to close. Principal, premium, if any, and
interest on this bond shall be payable in such coin or currency of the United
States of America as at the time of payment is legal tender for public and
private debts, at the principal corporate trust office of State Street Bank
and Trust Company (hereinafter called the "Trustee," which term shall include
its successors in the trusts hereinafter referred to), in the City of Boston,
Massachusetts, or of any successor as such Trustee, or, at the option of the
registered owner, at the office of any other paying agent appointed by the
Company, provided that payment of principal, premium, if any, and interest on
any bond of Series L and any redemption price of all or a portion of the
principal amount thereof shall be made by the Trustee to the registered owner
thereof without presentation or surrender thereof to the Trustee if there
shall be on file with the Trustee (and not theretofore rescinded by written
notice from such registered owner to the Trustee) an agreement (or a conformed
copy thereof) between the Company and such registered owner or the person for
whom such registered owner is the nominee or a predecessor in interest of the
registered owner or the person for whom the registered owner is the nominee,
to the effect that (1) payments will be so made, and (2) such registered owner
will not sell, pledge, transfer or otherwise dispose of such bond of Series L
without first either (i) surrendering such bond of Series L to the Trustee in
exchange for a bond or bonds of Series L, aggregating the same principal
amount as the principal amount of the bond of Series L so surrendered which
shall remain unpaid, or (ii) making notation on such bond of Series L (or on a
schedule annexed thereto) of all portions of the principal amount thereof
which have been redeemed; it being understood that the Bond Purchase Agreement
<PAGE>
<PAGE 5>
dated as of September 1, 1997 pursuant to which the bonds of Series L were
initially issued constitutes such an agreement on file with the Trustee for
purposes of this paragraph (until rescinded as provided above).
This bond shall not be valid or become obligatory for any purpose or
entitled to any security or benefit under the Indenture (as hereinafter
defined) unless or until the certificate endorsed hereon shall have been
executed by the Trustee under the Indenture.
This bond is one of a duly authorized issue of First Mortgage Bonds of
the Company to be issued in series with distinctive designations, the series
of which this bond is one being designated as Series L and limited to an
aggregate principal amount of ten million dollars ($10,000,000), which issue
of bonds together with all other series which may now or hereafter be
outstanding are issued and are to be issued under and equally and ratably
secured by a certain Indenture of Trust and First Mortgage dated as of
February 1, 1949 (hereinafter, with all indentures stated to be supplemental
thereto, including a Nineteenth Supplemental Indenture dated as of September
1, 1997, to which the Trustee is a party, called the "Indenture") by and
between the Company and State Street Trust Company (now known as State Street
Bank and Trust Company), as Trustee, to which Indenture reference is hereby
made for a description of the mortgaged property, the nature and extent of the
security, the terms and conditions under which the bonds of Series L are
issued and under which bonds of any subsequent series may be issued, the
rights and limitations of the rights of the bondholders and the rights and
obligations of the Company and the rights, duties and immunities of the
Trustee.
The Company has covenanted in the Nineteenth Supplemental Indenture to
establish a sinking fund for bonds of Series L into which it will pay each
year, beginning with the year 2001, in cash, an amount sufficient to retire
$1,428,571 in aggregate principal amount of the bonds of Series L in each of
the years 2001 to 2007, both inclusive. Through operation of the sinking
fund, Bonds of Series L shall be redeemable on September 30 in each of the
years 2001 to 2007, both inclusive, at a redemption price of 100% of the
principal amount of the bonds to be redeemed, together with accrued interest
to the date fixed for redemption.
Subject to certain conditions and restrictions, additional first
mortgage bonds of one or more series, equally and ratably secured by the
Indenture, may be issued under the Indenture.
This bond shall be treated as negotiable, subject to the provisions for
registration and transfer herein and in the Indenture contained, and the
Company and the registered owner hereof and every successive owner and
assignee of this bond, by accepting and holding the same, consent to the
foregoing provisions and each invites the others, and all persons, to rely
thereon.
The bonds of Series L are issuable only as fully registered bonds
without coupons in denominations of one-hundred thousand dollars ($100,000) or
integral multiples thereof. The holder of any Series L bond or bonds may, upon
payment of the charges and subject to the conditions specified in the
Indenture, exchange the same at the principal corporate trust office of the
Trustee in the City of Boston, Massachusetts for a like aggregate principal
amount of fully registered Series L bonds of different authorized
denominations, provided, however, that the Company and the Trustee shall not
be required (i) to transfer or exchange any bond of Series L during a period
beginning at the opening of business fifteen (15) days before the day of the
mailing of a notice of redemption of bonds of Series L and ending at the close
of business on the day of such mailing or (ii) to transfer or exchange any
bond of Series L so selected for redemption in whole or in part.
As provided in the Nineteenth Supplemental Indenture, this bond shall be
subject to redemption (i) at par, upon the concurrent payment of accrued
interest and the Make-Whole Amount (as defined in the Nineteenth Supplemental
<PAGE>
<PAGE 6>
Indenture), at the option of the Company, (ii) at par, upon the concurrent
payment of accrued interest, under certain circumstances from the proceeds of
insurance for casualty or from the proceeds of taking by or sale to a public
authority and (iii) through operation of the sinking fund referred to above.
If this bond is called for redemption in whole or in part and payment is
duly provided as specified in the Indenture, this bond, or the part thereof so
called, shall cease to be entitled to the security of the Indenture, and from
and after the date fixed in the call for such redemption, interest shall cease
to accrue on this bond, or on such part so called; and if less than the whole
principal amount hereof shall be called, the registered owner hereof shall, in
addition to the sums payable on account of the part called, be entitled, at
his option, to receive on surrender hereof one or more bonds of this series,
of an aggregate principal amount equal to that part of the principal amount
hereof not called and paid, or to present this bond for the notation hereon by
the Trustee (or to make such notation in accordance with an agreement for
payment of principal filed with the Trustee as provided in this bond) of the
payment of the part of the principal amount hereof then called and paid.
The principal hereof may be declared and become due prior to maturity in
case of certain events of default specified in the Indenture.
The Indenture may be modified and amended in certain respects upon the
conditions and in the manner provided therein, if such modification is
approved and authorized by the Board of Directors of the Company and approved
by the holders of not less than a majority in principal amount of the bonds
then outstanding; provided, however, that no such amendment or modification
shall (i) extend the time of payment of the principal, premium, if any, or
interest on this bond or change the principal amount, premium, if any, or rate
of interest payable on this bond or affect or impair the obligations of the
Company in respect of the principal or interest of this bond without the
written consent of the holder hereof, (ii) permit the creation by the Company
of any lien ranking prior to or on a parity with the lien of the Indenture
with respect to any property covered thereby, (iii) affect the rights of any
series of bonds in a manner differing from that of any other series except
with the consent, given as provided in the Indenture, of the owners of not
less than 66-2/3% in principal amount of the outstanding bonds of each series
so affected, (iv) change the percentages of the holders of bonds required for
any action or consent under the Indenture without the consent of the holders
of all of the bonds then outstanding, or (v) modify the rights, duties or
immunities of the Trustee without its written consent.
The Company and the Trustee may, without action or consent by or notice
to the bondholders, enter into supplemental indentures for the purposes of
conveying additional property, adding further limitations upon the issuance of
additional bonds, setting forth the form of additional bonds and the terms not
inconsistent with the Indenture under which they may be issued, establishing a
successor trustee, modifying the Indenture or the form of any bonds or coupons
in a manner not prejudicial to holders in order to facilitate listing of such
outstanding bonds on any stock exchange, curing ambiguities or remedying
defects or manifest errors in the Indenture or a supplemental indenture, or
for any other purpose not inconsistent with and not impairing the benefits of
the Indenture.
Any consent or waiver by the holder of this bond as aforesaid shall be
conclusive and binding upon such holder and upon all future holders and
registered owners of this bond or of any other bond issued in lieu hereof or
in substitution hereof (unless effectively revoked, as provided in the
Indenture) whether or not any notation of such consent or waiver is made upon
this bond.
This bond is transferable on the books of the Company at said principal
corporate trust office, upon surrender hereof, accompanied by a written
instrument of transfer in form satisfactory to the Trustee, duly executed by
the registered owner hereof in person or by his duly authorized
representative, or by his agent or attorney duly appointed in writing, and
thereupon a new fully registered bond or fully registered bonds of authorized
<PAGE>
<PAGE 7>
denominations of the same series for a like principal amount will be issued to
the transferee or transferees in exchange for this bond. The Company, the
Trustee, and any paying agents and registrars may deem and treat the person in
whose name this bond is registered as the absolute owner for the purpose of
receiving payment and for all other purposes.
No recourse upon any obligation contained in this bond or in the
Indenture or otherwise shall be had against any incorporator or any officer,
director or stockholder, past, present or future, of the Company or of any
successor corporation, such personal liability of every kind being expressly
waived.
IN WITNESS WHEREOF, Commonwealth Gas Company has caused this bond to be
executed on its behalf by the facsimile signature of its President or one of
its Vice Presidents and its Treasurer or one of its Assistant Treasurers, and
a facsimile of its corporate seal to be imprinted hereon.
Dated_____________________
COMMONWEALTH GAS COMPANY
(Corporate Seal)
By________________________________
President
By________________________________
Treasurer
<PAGE>
<PAGE 8>
[FORM OF TRUSTEE'S CERTIFICATE]
This bond is one of the fully registered bonds of Series L referred to in the
within-mentioned Indenture.
STATE STREET BANK AND TRUST COMPANY,
Trustee
By______________________________
Authorized Signature
<PAGE>
<PAGE 9>
[Form of Endorsement]
FOR VALUE RECEIVED ____________________________ hereby sell(s), assign(s)
and transfer(s) unto
PLEASE INSERT SOCIAL SECURITY OR
OTHER IDENTIFYING NUMBERS OF ASSIGNEE
______________________________
______________________________
this bond, and all rights thereunder, hereby irrevocably constituting and
appointing __________________attorney to transfer the said bond on the books
of the Company, with full power of substitution in the premises.
Dated:_________________________
Signature guaranteed by:
_______________________________
Participant in a Recognized
Signature Guaranty
Medallion Program
[Note: The signature to this assignment must correspond with the name of the
registered owner as written upon the within bond in every particular, without
alteration or enlargement or any change whatsoever.]
[END OF FORM OF Series L BOND]
<PAGE>
<PAGE 10>
[FORM OF FULLY REGISTERED Series M BOND]
COMMONWEALTH GAS COMPANY
First Mortgage 7.04% Bond, Series M, Due 2017
REGISTERED
REGISTERED NO. M - ______ $_______________________
Commonwealth Gas Company (formerly named Worcester Gas Light Company), a
corporation organized and existing under the laws of THE COMMONWEALTH OF
MASSACHUSETTS (hereinafter called the "Company"), for value received, hereby
promises to pay to ____________, or registered assigns, the principal sum of
___________________________________________ Dollars (or so much thereof as
shall not have been redeemed as provided in the Nineteenth Supplemental
Indenture referred to below) on September 30, 2017, and to pay interest
thereon at the rate of 7.04% per annum from the last day of March or
September, as the case may be, to which interest has been paid preceding the
date hereof (unless the date hereof is a March 31 or September 30 to which
interest has been paid, in which case from the date hereof, or unless the date
hereof is prior to the first payment of interest, in which case from the date
of original issuance of the bonds of Series M) semi-annually on March 31 and
September 30, commencing March 31, 1998, until the principal hereof shall have
become due and payable (whether at maturity or at a date fixed for redemption
or by declaration or otherwise), and with interest on any overdue principal
(including any overdue prepayment of principal) and (to the extent permitted
by applicable law) overdue premium, if any, and (to the extent permitted by
applicable law) on any overdue installment of interest, at the rate of 9.04%
per annum until paid, payable semi-annually as aforesaid or, at the option of
the registered owner hereof, on demand, provided that in no event shall the
amount payable by the Company as interest and premium on this bond exceed the
highest lawful rate permissible under any law applicable hereto. The interest
so payable on any March 31 or September 30 will, subject to certain exceptions
provided in the Nineteenth Supplemental Indenture hereinafter referred to, be
paid to the person in whose name this bond is registered at the close of
business on the March 15 prior to such March 31 or the September 15 prior to
such September 30, unless such March 15 or September 15 shall not be a
business day, in which event on the next succeeding business day, the term
"business day" meaning for this purpose a day which in the City of Boston is
not a legal holiday or a day on which banking institutions in the City of
Boston are not authorized by law to close. Principal, premium, if any, and
interest on this bond shall be payable in such coin or currency of the United
States of America as at the time of payment is legal tender for public and
private debts, at the principal corporate trust office of State Street Bank
and Trust Company (hereinafter called the "Trustee," which term shall include
its successors in the trusts hereinafter referred to), in the City of Boston,
Massachusetts, or of any successor as such Trustee, or, at the option of the
registered owner, at the office of any other paying agent appointed by the
Company, provided that payment of principal, premium, if any, and interest on
any bond of Series M and any redemption price of all or a portion of the
principal amount thereof shall be made by the Trustee to the registered owner
thereof without presentation or surrender thereof to the Trustee if there
shall be on file with the Trustee (and not theretofore rescinded by written
notice from such registered owner to the Trustee) an agreement (or a conformed
copy thereof) between the Company and such registered owner or the person for
whom such registered owner is the nominee or a predecessor in interest of the
registered owner or the person for whom the registered owner is the nominee,
to the effect that (1) payments will be so made, and (2) such registered owner
will not sell, pledge, transfer or otherwise dispose of such bond of Series M
without first either (i) surrendering such bond of Series M to the Trustee in
exchange for a bond or bonds of Series M, aggregating the same principal
amount as the principal amount of the bond of Series M so surrendered which
shall remain unpaid, or (ii) making notation on such bond of Series M (or on a
schedule annexed thereto) of all portions of the principal amount thereof
<PAGE>
<PAGE 11>
which have been redeemed; it being understood that the Bond Purchase Agreement
dated as of September 1, 1997 pursuant to which the bonds of Series M were
initially issued constitutes such an agreement on file with the Trustee for
purposes of this paragraph (until rescinded as provided above).
This bond shall not be valid or become obligatory for any purpose or
entitled to any security or benefit under the Indenture (as hereinafter
defined) unless or until the certificate endorsed hereon shall have been
executed by the Trustee under the Indenture.
This bond is one of a duly authorized issue of First Mortgage Bonds of the
Company to be issued in series with distinctive designations, the series of
which this bond is one being designated as Series M and limited to an
aggregate principal amount of twenty-five million dollars ($25,000,000), which
issue of bonds together with all other series which may now or hereafter be
outstanding are issued and are to be issued under and equally and ratably
secured by a certain Indenture of Trust and First Mortgage dated as of
February 1, 1949 (hereinafter, with all indentures stated to be supplemental
thereto, including a Nineteenth Supplemental Indenture dated as of September
1, 1997, to which the Trustee is a party, called the "Indenture") by and
between the Company and State Street Trust Company (now known as State Street
Bank and Trust Company), as Trustee, to which Indenture reference is hereby
made for a description of the mortgaged property, the nature and extent of the
security, the terms and conditions under which the bonds of Series M are
issued and under which bonds of any subsequent series may be issued, the
rights and limitations of the rights of the bondholders and the rights and
obligations of the Company and the rights, duties and immunities of the
Trustee.
Subject to certain conditions and restrictions, additional first mortgage
bonds of one or more series, equally and ratably secured by the Indenture, may
be issued under the Indenture.
This bond shall be treated as negotiable, subject to the provisions for
registration and transfer herein and in the Indenture contained, and the
Company and the registered owner hereof and every successive owner and
assignee of this bond, by accepting and holding the same, consent to the
foregoing provisions and each invites the others, and all persons, to rely
thereon.
The bonds of Series M are issuable only as fully registered bonds without
coupons in denominations of one-hundred thousand dollars ($100,000) or
integral multiples thereof. The holder of any Series M bond or bonds may, upon
payment of the charges and subject to the conditions specified in the
Indenture, exchange the same at the principal corporate trust office of the
Trustee in the City of Boston, Massachusetts for a like aggregate principal
amount of fully registered Series M bonds of different authorized
denominations, provided, however, that the Company and the Trustee shall not
be required (i) to transfer or exchange any bond of Series M during a period
beginning at the opening of business fifteen (15) days before the day of the
mailing of a notice of redemption of bonds of Series M and ending at the close
of business on the day of such mailing or (ii) to transfer or exchange any
bond of Series M so selected for redemption in whole or in part.
As provided in the Nineteenth Supplemental Indenture, this bond shall be
subject to redemption (i) at par, upon the concurrent payment of accrued
interest and the Make-Whole Amount (as defined in the Nineteenth Supplemental
Indenture), at the option of the Company, and (ii) at par, upon the concurrent
payment of accrued interest, under certain circumstances from the proceeds of
insurance for casualty or from the proceeds of taking by or sale to a public
authority.
If this bond is called for redemption in whole or in part and payment is
duly provided as specified in the Indenture, this bond, or the part thereof so
called, shall cease to be entitled to the security of the Indenture, and from
and after the date fixed in the call for such redemption, interest shall cease
to accrue on this bond, or on such part so called; and if less than the whole
<PAGE>
<PAGE 12>
principal amount hereof shall be called, the registered owner hereof shall, in
addition to the sums payable on account of the part called, be entitled, at
his option, to receive on surrender hereof one or more bonds of this series,
of an aggregate principal amount equal to that part of the principal amount
hereof not called and paid, or to present this bond for the notation hereon by
the Trustee (or to make such notation in accordance with an agreement for
payment of principal filed with the Trustee as provided in this bond) of the
payment of the part of the principal amount hereof then called and paid.
The principal hereof may be declared and become due prior to maturity in
case of certain events of default specified in the Indenture.
The Indenture may be modified and amended in certain respects upon the
conditions and in the manner provided therein, if such modification is
approved and authorized by the Board of Directors of the Company and approved
by the holders of not less than a majority in principal amount of the bonds
then outstanding; provided, however, that no such amendment or modification
shall (i) extend the time of payment of the principal, premium, if any, or
interest on this bond or change the principal amount, premium, if any, or rate
of interest payable on this bond or affect or impair the obligations of the
Company in respect of the principal or interest of this bond without the
written consent of the holder hereof, (ii) permit the creation by the Company
of any lien ranking prior to or on a parity with the lien of the Indenture
with respect to any property covered thereby, (iii) affect the rights of any
series of bonds in a manner differing from that of any other series except
with the consent, given as provided in the Indenture, of the owners of not
less than 66-2/3% in principal amount of the outstanding bonds of each series
so affected, (iv) change the percentages of the holders of bonds required for
any action or consent under the Indenture without the consent of the holders
of all of the bonds then outstanding, or (v) modify the rights, duties or
immunities of the Trustee without its written consent.
The Company and the Trustee may, without action or consent by or notice to
the bondholders, enter into supplemental indentures for the purposes of
conveying additional property, adding further limitations upon the issuance of
additional bonds, setting forth the form of additional bonds and the terms not
inconsistent with the Indenture under which they may be issued, establishing a
successor trustee, modifying the Indenture or the form of any bonds or coupons
in a manner not prejudicial to holders in order to facilitate listing of such
outstanding bonds on any stock exchange, curing ambiguities or remedying
defects or manifest errors in the Indenture or a supplemental indenture, or
for any other purpose not inconsistent with and not impairing the benefits of
the Indenture.
Any consent or waiver by the holder of this bond as aforesaid shall be
conclusive and binding upon such holder and upon all future holders and
registered owners of this bond or of any other bond issued in lieu hereof or
in substitution hereof (unless effectively revoked, as provided in the
Indenture) whether or not any notation of such consent or waiver is made upon
this bond.
This bond is transferable on the books of the Company at said principal
corporate trust office, upon surrender hereof, accompanied by a written
instrument of transfer in form satisfactory to the Trustee, duly executed by
the registered owner hereof in person or by his duly authorized
representative, or by his agent or attorney duly appointed in writing, and
thereupon a new fully registered bond or fully registered bonds of authorized
denominations of the same series for a like principal amount will be issued to
the transferee or transferees in exchange for this bond. The Company, the
Trustee, and any paying agents and registrars may deem and treat the person in
whose name this bond is registered as the absolute owner for the purpose of
receiving payment and for all other purposes.
No recourse upon any obligation contained in this bond or in the Indenture
or otherwise shall be had against any incorporator or any officer, director or
stockholder, past, present or future, of the Company or of any successor
corporation, such personal liability of every kind being expressly waived.
<PAGE>
<PAGE 13>
IN WITNESS WHEREOF, Commonwealth Gas Company has caused this bond to be
executed on its behalf by the facsimile signature of its President or one of
its Vice Presidents and its Treasurer or one of its Assistant Treasurers, and
a facsimile of its corporate seal to be imprinted hereon.
Dated_____________________
COMMONWEALTH GAS COMPANY
(Corporate Seal) By________________________________
President
By________________________________
Treasurer
<PAGE>
<PAGE 14>
[FORM OF TRUSTEE'S CERTIFICATE]
This bond is one of the fully registered bonds of Series M referred to in
the within-mentioned Indenture.
STATE STREET BANK AND TRUST COMPANY,
Trustee
By_______________________________
Authorized Signature
<PAGE>
<PAGE 15>
[Form of Endorsement]
FOR VALUE RECEIVED ____________________________ hereby sell(s), assign(s)
and transfer(s) unto
PLEASE INSERT SOCIAL SECURITY OR
OTHER IDENTIFYING NUMBERS OF ASSIGNEE
_______________________________
_______________________________
this bond, and all rights thereunder, hereby irrevocably constituting and
appointing __________________attorney to transfer the said bond on the books
of the Company, with full power of substitution in the premises.
Dated:_________________________
Signature guaranteed by:
_______________________________
Participant in a Recognized
Signature Guaranty
Medallion Program
[Note: The signature to this assignment must correspond with the name of the
registered owner as written upon the within bond in every particular, without
alteration or enlargement or any change whatsoever.]
[END OF FORM OF Series M BOND]
<PAGE>
<PAGE 16>
AND WHEREAS all things necessary to make the Series L Bonds and Series M
Bonds when executed by the Company, duly certified by the Trustee and
delivered, all as herein and in the Principal Indenture provided, valid,
binding and legal obligations of the Company and to make this Nineteenth
Supplemental Indenture a valid, binding and legal instrument for the security
thereof have been done and performed, and the issue of the Series L Bonds and
Series M Bonds, as in this Nineteenth Supplemental Indenture and in the
Principal Indenture provided, have been in all respects duly authorized;
NOW, THEREFORE, this Nineteenth Supplemental Indenture Witnesseth and it
is hereby covenanted and declared as follows:
That the Company in consideration of the premises and of the mutual
covenants herein contained and of the purchase and acceptance of the bonds by
the holders thereof and of one dollar ($1.00) to it duly paid by the Trustee,
at or before the ensealing and delivery of these presents, the receipt whereof
is hereby acknowledged, and in order to secure the payment of the principal,
premium, if any, and interest on the bonds issued and to be issued hereunder
and under the Principal Indenture according to their tenor and effect, and the
faithful performance and observance of all the covenants, obligations,
conditions and provisions in this Nineteenth Supplemental Indenture and in
said Principal Indenture contained, and in order to declare the terms and
conditions upon which the Series L Bonds and Series M Bonds are to be secured,
certified, transferred, delivered and exchanged, the Company has executed this
Nineteenth Supplemental Indenture and by these presents does hereby grant,
bargain, sell, convey, assign, transfer, mortgage, pledge, set over, and
confirm unto the Trustee, its successors and assigns in the trusts and upon
the terms and conditions in said Principal Indenture contained, but without
restricting the generality of the grant contained in said Principal Indenture,
all of its plants, properties, franchises, locations, rights and privileges in
or over public or private streets or ways and in or over private premises and
all other property real, personal or mixed of whatever kind and wherever
situated now owned or hereafter acquired by the Company and all easements,
tenements, hereditaments, rights, privileges, appurtenances belonging or in
any way appertaining to the aforesaid property or any part thereof with the
reversions and remainders and all rents, earnings, incomes, issues and profits
thereof and all the estate, right, title, interest and claim whatsoever
whether at law or in equity which the Company now has or may hereafter acquire
in or to the aforesaid property and every part or parcel thereof, hereby
expressly confirming the grant, assignment, transfer, mortgage and pledge,
unto the Trustee, its successors and assigns in the trusts and upon the terms
and conditions in said Principal Indenture contained, of all properties and
interests granted, assigned, transferred, mortgaged and pledged by said
Principal Indenture and said Supplemental Indentures or intended so to be,
including without limiting the generality of the foregoing, the following
described property acquired by the Company since the execution of the
Eighteenth Supplemental Indenture:
Two parcels of land situated in Acushnet, Bristol County, Massachusetts,
on the northerly side of Peckham Road and approximately 3/4 of a mile
east of the New Bedford-Acushnet town line described in a deed of
Commonwealth Electric Company to the Company dated December 31, 1996 and
recorded in the Bristol County South District Registry of Deeds in Book
3817, Page 135.
Expressly excepting and reserving, however, the properties and interests
of the Company expressly excepted and reserved under the said Principal
Indenture, such of said properties or interests therein as may have been
released by the Trustee or sold or disposed of in whole or in part as
permitted by the provisions of the Principal Indenture and all cash on hand or
in banks; all shares of stock and other certificates or evidences of interest
and all bonds, notes and other evidences of indebtedness, and other securities
including bills, notes and accounts receivable now owned or hereafter acquired
<PAGE>
<PAGE 17>
or possessed by the Company, all property and franchises of any other
corporation of whatever character, securities whereof or obligations secured
upon the properties and franchises whereof, may be now owned or hereafter
acquired or possessed by the Company; the last day of the term of each
leasehold estate (oral or written, and/or any agreement therefor) now or
hereafter enjoyed by the Company, and whether falling within a general or
particular description of property herein; and all materials, merchandise and
supplies now owned or hereafter acquired by the Company for the purpose of
resale in the ordinary course of business.
TO HAVE AND TO HOLD all of the aforesaid property and all property which
shall become subject to said Principal Indenture and to indentures
supplemental thereto unto the Trustee, its successors and assigns in the
trusts and upon the terms and conditions in said Principal Indenture contained
in its and their own use and benefit forever.
SUBJECT, HOWEVER, to any easements, rights-of-way, restrictions and
reservations, now existing by operation of law or otherwise, over, under, upon
or against the mortgaged property or any part thereof and which have existed
either from the date of delivery of the Principal Indenture or, as to any
property acquired thereafter, from the time of acquisition of such property by
the Company.
IN TRUST NEVERTHELESS for the equal and proportionate benefit and
security of all present and future holders of the bonds and coupons issued or
to be issued under and secured by said Principal Indenture and indentures
supplemental thereto in accordance with the provisions thereof without
preference, priority or distinction as to lien or otherwise, of any thereof
over any other by reason of priority in the issue, sale or negotiation thereof
or otherwise except as provided in Section 8 of Article II of said Principal
Indenture.
PROVIDED, HOWEVER, that these presents are upon the condition that if
the Company, its successors or assigns, shall pay or cause to be paid the
principal, premium, if any, and interest on the said bonds as they become due
at the times and in the manner stipulated therein and in said Principal
Indenture and indentures supplemental thereto, and shall perform and observe
all the terms, covenants and conditions in the bonds and coupons and in said
Principal Indenture and indentures supplemental thereto, expressed to be
performed and observed by or on the part of the Company, then this Nineteenth
Supplemental Indenture and the estate and rights hereby granted, shall cease,
determine and be void; otherwise to remain in full force and effect all as
more fully provided in Article XIV of said Principal Indenture.
AND IT IS HEREBY expressly covenanted and agreed between the parties
hereto that the protection and security of said Principal Indenture is hereby
extended to all bonds of Series L and Series M issued, certified and delivered
hereunder and under said Principal Indenture and that all such bonds of Series
L and Series M are to be issued, certified and delivered, and that the
additional property hereby mortgaged to and pledged with the Trustee is to be
held subject to the covenants, uses and trusts set forth herein and in said
Principal Indenture, as amended. And the Company for itself and its
successors and assigns does hereby further covenant, agree and declare to and
with the Trustee and its successors and assigns in said trust, for the benefit
of said Series L Bonds and Series M Bonds, or any of them, as follows:
ARTICLE I
SECTION 1. A. There is hereby created and established under the
Principal Indenture and hereunder a new series of bonds of the Company,
limited in aggregate principal amount to ten million dollars ($10,000,000),
designated "First Mortgage Sinking Fund 6.54% Bonds, Series L, Due 2007,"
which shall mature September 30, 2007, and shall bear interest at the rate of
6.54% per annum, payable semi-annually, on the last day of March and September
in each year until the principal of the Series L Bonds shall have become due
and payable (whether at maturity or at a date fixed for redemption or by
<PAGE>
<PAGE 18>
declaration or otherwise), and with interest on any overdue principal
(including any overdue prepayment of principal) and (to the extent permitted
by applicable law) overdue premium, if any, and (to the extent permitted by
applicable law) on any overdue installment of interest, at the rate of 8.54%
per annum until paid, payable semi-annually as aforesaid, or, at the option of
the registered owner of any Series L Bond, on demand.
B. There is hereby created and established under the Principal
Indenture and hereunder a new series of bonds of the Company, limited in
aggregate principal amount to twenty-five million dollars ($25,000,000),
designated "First Mortgage 7.04% Bonds, Series M, Due 2017," which shall
mature September 30, 2017, and shall bear interest at the rate of 7.04% per
annum, payable semi-annually, on the last day of March and September in each
year until the principal of the Series M Bonds shall have become due and
payable (whether at maturity or at a date fixed for redemption or by
declaration or otherwise), and with interest on any overdue principal
(including any overdue prepayment of principal) and (to the extent permitted
by applicable law) overdue premium, if any, and (to the extent permitted by
applicable law) on any overdue installment of interest, at the rate of 9.04%
per annum until paid, payable semi-annually as aforesaid, or, at the option of
the registered owner of any Series M Bond, on demand.
C. Forthwith upon and from time to time after the execution and
delivery of this Nineteenth Supplemental Indenture, the Company may execute
and deliver to the Trustee and thereupon the Trustee shall certify and deliver
to or upon the written order of the President or Treasurer of the Company,
Series L Bonds to an aggregate principal amount not exceeding ten million
dollars ($10,000,000) and Series M Bonds to an aggregate principal amount not
exceeding twenty-five million dollars ($25,000,000) in temporary or permanent
form, being all the Series L Bonds and Series M Bonds authorized to be issued
hereunder, upon receipt by the Trustee in each case of the Votes,
Certificates, Opinions of Counsel, and a certified copy (or assurances
satisfactory to the Trustee that there will be delivered to the Trustee,
within a time deemed reasonable by it, a certified copy) of an order or orders
of each governmental agency having jurisdiction releasing, exempting,
authorizing or consenting to the issuance by the Company of a principal amount
of said bonds at least equal to the principal amount of bonds the
certification and delivery of which is requested by the written order or
orders of the President or Treasurer of the Company, all as required by
Section 2 of Article III of the Principal Indenture, as amended.
SECTION 2. The bonds of Series L and Series M are issuable only as fully
registered bonds without coupons in denominations of one-hundred thousand
dollars ($100,000) or integral multiples thereof. Bonds of Series L and
Series M may be transferred and may be exchanged for one or more bonds of the
same series in authorized denominations, as provided in the Principal
Indenture, provided, however, that the Company and the Trustee shall not be
required (i) to transfer or exchange any bond of Series L or Series M during a
period beginning at the opening of business fifteen (15) days before the day
of the mailing of a notice of redemption of bonds of such Series and ending at
the close of business on the day of such mailing or (ii) to transfer or
exchange any bond of Series L or Series M so selected for redemption in whole
or in part. Notwithstanding any provisions of the Indenture or the Series L
Bonds or the Series M Bonds to the contrary, no service charge shall be made
to the holder for any such transaction.
<PAGE>
<PAGE 19>
Except as hereinafter provided, each bond of Series L and Series M shall
be dated the date of certification and shall bear interest from the last
preceding interest payment date to which interest has been paid (unless the
date thereof is an interest payment date to which interest has been paid, in
which case from the date thereof, or unless the date thereof is prior to the
first payment of interest, in which case from the date of original issuance of
the bonds of such series).
The person in whose name any bond of Series L or Series M is registered
at the close of business on the record date (hereinafter defined) with respect
to a semi-annual interest payment date shall be entitled to receive the
interest payable on such interest payment date notwithstanding the
cancellation of such bond upon any transfer or exchange thereof subsequent to
such record date and prior to such interest payment date; provided, however,
that if and to the extent the Company shall default in the payment of the
interest due on such interest payment date, such defaulted interest, together
with interest thereon at the rate set forth in Section 1 hereof to the extent
permitted by applicable law, shall be paid to the person in whose name such
bond is registered at the close of business on the business day immediately
prior to the date of payment of such defaulted interest. The term "record
date" as used with respect to a semi-annual interest payment date shall mean
the fifteenth day of the same calendar month of such interest payment date
unless such day shall not be a business day, in which event the term "record
date" shall mean the next succeeding business day, the term "business day"
meaning for this purpose a day which in the City of Boston is not a legal
holiday or a day on which banking institutions in the City of Boston are not
authorized by law to close.
Subject to the provisions of Section 4 of this Article I, the principal,
premium, if any, and interest on the Series L and Series M Bonds shall be
payable in any coin or currency of the United States of America which at the
time of payment is legal tender for the payment of public and private debts,
at the principal corporate trust office of the Trustee in the City of Boston,
Massachusetts, or, at the option of the registered owner, at the office of any
other paying agent appointed by the Company.
The Company may cause bonds of Series L and Series M to be executed on
its behalf by the facsimile signatures of its President or a Vice President
and its Treasurer or an Assistant Treasurer, which may be imprinted or
otherwise reproduced on such bonds, and may cause a facsimile of its official
seal to be imprinted thereon. In case any officer whose facsimile signature
has been so imprinted or otherwise reproduced on any bond of Series L or
Series M shall cease to be such officer of the Company before such bond shall
have been actually certified and delivered by the Trustee, such bond may
nevertheless be certified and delivered and issued as though the person whose
facsimile signature has been so imprinted or otherwise reproduced had not
ceased to be an officer of the Company.
SECTION 3. The provisions of the Series L and Series M Bonds relating to
redemption prior to maturity are as follows:
A. The Company may redeem Series L and Series M Bonds at par,
plus accrued interest, pursuant to Section 7(d) of Article VI of the
Principal Indenture, but any such redemption of the Series L Bonds or
Series M Bonds pursuant to such Section 7(d) of Article VI of the
Principal Indenture shall be made (i) only from money received by the
Trustee as proceeds of property taken by the power of eminent domain or
acquired by public authority, or as insurance money, (ii) only in
principal amounts of one-hundred thousand dollars ($100,000) or integral
multiples thereof and (iii) only if such redemption pursuant to such
Section 7(d) of Article VI of the Principal Indenture is made pro rata
among all series of bonds then outstanding under the Principal Indenture
in proportion to their then outstanding principal amounts, provided,
however, to the extent, but only to the extent, that such prorating
would involve the redemption of the bonds of any series in any amount
other than that permitted under the terms of the bonds of such series,
the Trustee may upon any such redemption of such series, in its
<PAGE>
<PAGE 20>
reasonable discretion, increase or decrease the amount of bonds of such
series to be redeemed in such manner as the Trustee, in its reasonable
discretion, shall deem appropriate to maintain, in so far as possible,
the principal of pro rata redemption in any such redemption or in any
series of successive redemptions.
B. The Series L Bonds and Series M Bonds are redeemable prior to
maturity at the option of the Company, as a whole at any time, or in
part from time to time, in a minimum aggregate principal amount at any
one time of not less than one million dollars ($1,000,000), provided,
that not less than five million dollars ($5,000,000) in the aggregate
principal amount of the Series L Bonds and not less than five million
dollars ($5,000,000) in the aggregate principal amount of the Series M
Bonds remain outstanding after giving effect to any such partial
redemption, upon at least 30 days' but not more than 45 days' prior
notice, as set forth below, of the principal amount of Series L Bonds or
Series M Bonds so to be redeemed and accrued interest to the date fixed
for redemption, together with a premium equal to the Make-Whole Amount
(hereinafter defined) calculated as of three days prior to the date
fixed for such redemption, provided, that the Company shall, on the
second day preceding the date of any such redemption, deliver to the
Trustee and to the holders of the Series L Bonds or Series M Bonds, as
the case may be, so to be redeemed a certificate of an officer of the
Company stating the amount of the Make-Whole Amount being paid upon such
redemption and demonstrating the calculation thereof. The term
"premium" when used in the bonds of Series L or Series M or the
Indenture in conjunction with references to principal and interest on
the bonds of Series L or Series M shall mean any amount due upon any
payment, redemption or prepayment of any of the bonds of Series L and
Series M, other than principal and interest, and shall include the Make-
Whole Amount.
C. For purposes of this Nineteenth Supplemental Indenture, the
term "Make-Whole Amount" shall mean: the excess, if any, of (i) the
present value of the principal and interest payments on and in respect
of the Series L Bonds or Series M Bonds being redeemed, that would
otherwise become due and payable (without giving effect to such
redemption), discounted semi-annually at a rate which is equal to the
Treasury Rate plus 50 basis points over (ii) the principal amount of the
Series L Bonds or Series M Bonds being redeemed.
For purposes of this Nineteenth Supplemental Indenture, the term
"Treasury Rate" shall mean at the time of any redemption with respect to
any Series L Bonds or Series M Bonds being redeemed, the arithmetic
average of the two most recent yields to maturity on the United States
Treasury obligation with a constant maturity (as compiled by and
published by the United States Federal Reserve Statistical Release
designated H.15(519) or its successor publication for the two business
days next preceding the date of such redemption) most nearly equal to
(by rounding to the nearest month) the remaining average life to
maturity (calculated in accordance with generally accepted financial
practice) of the Series L Bonds or Series M bonds then being redeemed.
If no maturity exactly corresponding to such Remaining Life to Maturity
of the Series L Bonds or Series M Bonds then being redeemed shall appear
therein, the yields for the two most closely corresponding published
maturities shall be calculated pursuant to the foregoing sentence and
the Treasury Rate shall be interpolated from such yields on a straight-
line basis (rounding, in the case of relevant periods, to the nearest
month).
D. Notwithstanding the provisions of Section 2 of Article IV of
the Principal Indenture, the Company will cause the Trustee to give
irrevocable notice to each registered owner of the Series L Bonds or
Series M Bonds, as the case may be, of any redemption of Bonds pursuant
to the preceding paragraphs A or B not less than 30 days nor more than
45 days before the date upon which the redemption is to be made,
specifying (i) the date upon which redemption is to be made (the
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"Prepayment Date") and (ii) that the principal amount of the holder's
Series L Bonds or Series M Bonds, as the case may be, to be so redeemed
shall become due and payable on the Prepayment Date.
E. The Company shall, so long as any Series L Bonds remain
outstanding, pay to the Trustee at its principal corporate trust office
in the City of Boston, Massachusetts, or to any successor Trustee at its
principal corporate trust office, prior to September 30 of each year,
beginning with the year 2001, as and for a sinking fund for the Series L
Bonds, a sum of money in coin or currency of the United States which at
the time is legal tender for public or private debts sufficient to
retire $1,428,571 in aggregate principal amount of bonds of the Series L
in each of the years 2001 to 2007, both inclusive. The Trustee shall on
September 30, in each such year, unless the Company is in default
hereunder, apply the money then in the Series L sinking fund, so far as
it is sufficient for the purpose, to the redemption of Series L Bonds in
the manner hereinafter provided, at a redemption price of 100% of the
principal amount of the Bonds to be redeemed, in each case together with
accrued principal to the date fixed for redemption.
The Trustee shall notify or cause notices to be given to the
registered owner of each Series L Bond any portion of which is to be
redeemed by sending to such registered owners, at his registered
address, by mail not less than 30 days prior to the 30th day of
September (but no later than 10:00 a.m. on the immediately preceding
day) in such year a printed or written notice stating the serial numbers
of the Bonds to be redeemed (and, if less than the whole principal
amount of any registered bond is called for redemption, the portion
thereof which is to be redeemed) and that interest on such bonds or
portions thereof shall cease after the 30th day of September in that
year, and that on such date there will become due and payable on each of
said bonds or portions thereof at the principal corporate trust office
of the Trustee in the City of Boston, Massachusetts, the principal or
such portion thereof, together with accrued interest to such date
(provided, however, that such accrued interest shall be paid to the
persons in whose names said Bonds are registered at the close of
business on the record date next preceding such September 30), and
requiring such bonds, accompanied by instruments of transfer
satisfactory to said Trustee, or, if called only in part, either by such
instruments of transfer or a request for notation of payment thereon, to
be delivered to the Trustee at said office for redemption as aforesaid
for the sinking fund. On September 30 of such year, provided such
notice shall have been given and such sinking fund payment shall have
been made, the interest on the bonds so called shall cease, as stated in
the notice, and the portions of the principal amount of any bond so
called for redemption shall become due and payable at the time, in the
manner and at the place set forth in the notice and the holders of such
bonds shall look for payment of the redemption price thereof, and the
registered owners thereof at the close of business on the applicable
record date shall look for payment of the accrued interest thereon, only
to the funds so held by the Trustee and in no event to the Company and
such bonds and the portions thereof so called for redemption, shall no
longer be deemed outstanding hereunder; and fully registered bonds for
the unpaid balance, if any, of the principal amount of any fully
registered bond so surrendered shall be issued by the Company and
certified and delivered by the Trustee without charge therefor, or, at
the option of the registered owner, notation of payment of part then
called and paid shall be made thereon.
All bonds redeemed and paid hereunder delivered to the Trustee for
the sinking fund shall, except as to fully registered bonds redeemed in
part and delivered to the Trustee for notation thereon of payment of the
part then called and paid, be forthwith cancelled by the Trustee and a
certificate to that effect delivered by it to the Company and may
thereafter, at the written request of the Company, be delivered to the
Company or destroyed and no bonds shall be issued under the provisions
of the Principal Indenture or this Nineteenth Supplemental Indenture in
substitution for the bonds, or parts thereof, so redeemed and paid.
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Any notice given by mail as hereinbefore provided shall be deemed
to have been duly given on the date upon which such notice shall be
deposited in a United States mailbox or post office, postage prepaid and
addressed to the bondholder at his last address registered on the books
and company or the Trustee, as the case may be.
SECTION 4. Notwithstanding the foregoing provisions of this Article, of
Sections 2, 3 and 6 of Article IV of the Principal Indenture and of any bond
of Series L or Series M:
A. Payment of principal, premium, if any, and interest on any bond
of Series L and Series M and any redemption price of all or a portion of
the principal amount thereof shall be made by the Trustee to the
registered owner thereof without presentation or surrender thereof to
the Trustee if there shall be on file with the Trustee (and not
theretofore rescinded by written notice from such registered owner to
the Trustee) an agreement (or a conformed copy thereof) between the
Company and such registered owner or the person for whom such registered
owner is the nominee or a predecessor in interest of such registered
owner or the person for whom the registered owner is the nominee, to the
effect that (1) payments will be so made, and (2) such registered owner
will not sell, pledge, transfer or otherwise dispose of such bond of
Series L or Series M without first either (i) surrendering such bond of
Series L or Series M to the Trustee in exchange for a bond or bonds of
Series L or Series M, as the case may be, aggregating the same principal
amount as the principal amount of the bond of Series L or Series M so
surrendered which shall remain unpaid, or (ii) making notation on such
bond of Series L or Series M (or on a schedule annexed thereto) of all
portions of the principal amount thereof which have been redeemed; it
being understood that the Bond Purchase Agreement dated as of September
1, 1997 pursuant to which the bonds of Series L and Series M were
initially issued constitutes such an agreement on file with the Trustee
for purposes of this paragraph A (until rescinded as provided above).
The Trustee shall not be under any duty to determine that such notations
have been made nor be liable in any manner with respect thereto or with
respect to any failure to make such notations. In case any payment is
made as provided in this subparagraph A, the Trustee shall make an
appropriate notation of such payment on its records, which records
shall, in the absence of manifest error, be controlling and conclusive.
B. In case less than all of the outstanding bonds of Series L or
Series M are to be redeemed the Trustee shall, at the time of each such
partial redemption, prorate among the registered owners of the bonds of
Series L or Series M in proportion to their then respective holdings the
amount of bonds of Series L or Series M then to be redeemed and
designate for redemption the particular bonds of Series L or Series M,
or the principal amount so prorated, in such manner as the Trustee in
its uncontrolled discretion may deem most practicable, provided,
however, to the extent, but only to the extent, that such prorating
would involve the redemption of bonds of Series L or Series M from any
registered owner in any amount which would not be an integral multiple
of one-hundred thousand dollars ($100,000), the Trustee may, upon any
partial redemption, in its reasonable discretion, increase or decrease
the amount of bonds of Series L or Series M to be redeemed from any
registered owner in such manner as the Trustee, in its reasonable
discretion, shall deem appropriate to maintain, insofar as possible, the
principle of pro rata redemption in any partial redemption or in any
series of successive partial redemptions. The acceptance of bonds of
Series L or Series M by the registered owners thereof shall be deemed to
constitute a consent to the foregoing provisions of this subparagraph B
with the same force and effect as if the provisions of this subparagraph
B had been set forth in a written agreement duly executed by the
registered owners of all the bonds of Series L or Series M, as the case
may be, and an executed counterpart of said agreement had been filed
with the Trustee.
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<PAGE 23>
ARTICLE II
SECTION 1. The Company covenants and agrees that, so long as any Series
L or Series M Bonds are outstanding, dividends (hereinafter defined) paid by
the Company subsequent to December 31, 1996 will not exceed net income and
earned surplus available for dividends accumulated subsequent to December 31,
1996 determined in accordance with any system of accounts required by law to
be followed by the Company, or in the absence of such requirements, in
accordance with generally accepted accounting principles consistently applied
and with depreciation computed as set forth under Section 2 of Article III of
the Principal Indenture, plus an amount of ten million eight-hundred and
fifty-six thousand dollars ($10,856,000) from earned surplus not appropriated,
representing the amount not restricted at December 31, 1996. For purposes of
this Section 1, "dividends" shall include any distribution with respect to the
capital stock of the Company, including the purchase or redemption thereof.
SECTION 2. The Company covenants and agrees that, so long as any Series
L or Series M Bonds are outstanding, the Company will not create, assume,
incur or suffer to exist any mortgage, lien, pledge, charge, security interest
or other encumbrance of any kind in respect of any of the mortgaged property
as security for any bonds, debentures, notes or other evidences of
indebtedness which by their terms mature one year or less from the date of
issue thereof.
SECTION 3. The Company covenants and agrees that, so long as any Series
L or Series M Bonds are outstanding, the Company will not, and will not permit
any Subsidiary (as defined in the Principal Indenture) to, sell, lease,
transfer or otherwise dispose of, in any transaction or series of related
transactions, any of its property or assets, including, without limitation,
any shares of capital stock of any Subsidiary, (except in the ordinary course
of business) unless:
A. In the case of all such sales, leases, transfers and
dispositions, at the time of and immediately after giving effect to such
sale, lease, transfer or disposition, no condition or event shall exist
which constitutes or, after notice or lapse of time or both, would
constitute a default or event of default (as defined in the Principal
Indenture) under the Principal Indenture;
B. In the case of any sale, transfer, lease or disposition of
property or assets by the Company or a Subsidiary, which together with
all other properties and assets sold, leased, transferred or otherwise
disposed of by the Company and its Subsidiaries (except in the ordinary
course of business) during the same fiscal year have an aggregate book
value of not more than 5% of the consolidated assets of the Company and
its Subsidiaries as shown by a consolidated balance sheet of the Company
and its Subsidiaries as at the end of the preceding fiscal year of the
Company prepared in accordance with any System of accounts required by
law to be followed by the Company, or in the absence of such
requirements, in accordance with generally accepted accounting
principles consistently applied, the Company either (x) at the time of
such sale, transfer, lease or disposition, shall be permitted to become
liable in respect of at least one dollar ($1.00) additional funded debt
under Section 17 of Article V of the Principal Indenture or (y) shall,
or shall cause such Subsidiary, promptly to apply the aggregate net
proceeds from such sales, leases, transfers or dispositions in such
fiscal year to (i) the acquisition of property or assets substantially
similar to the property or assets so disposed of, and/or (ii) the
repayment or redemption of bonds outstanding under the Principal
Indenture, as supplemented, in accordance with the terms thereof, upon
the concurrent payment of any premium due upon such repayment or
redemption, which in the case of any redemption of the Series L or
Series M Bonds pursuant to paragraph B of Section 3 of Article I of this
Nineteenth Supplemental Indenture shall include the Make-Whole Amount;
C. In the case of any sale, transfer, lease or disposition of
property or assets by the Company or a Subsidiary, which together with
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<PAGE 24>
all other properties and assets sold, leased, transferred or otherwise
disposed of by the Company and its Subsidiaries (except in the ordinary
course of business) during the same fiscal year have an aggregate book
value of more than 5% of the consolidated assets of the Company and its
Subsidiaries as shown by a consolidated balance sheet of the Company and
its Subsidiaries as at the end of the preceding fiscal year of the
Company prepared in accordance with any system of accounts required by
law to be followed by the Company, or in the absence of such
requirements, in accordance with generally accepted accounting
principles consistently applied, the Company shall at the time of such
sale, transfer, lease or disposition be permitted to become liable in
respect of at least one dollar ($l.00) additional funded debt under
Section 17 of Article V of the Principal Indenture;
D. In the case of any sale, transfer, lease or disposition of
property or assets by the Company or a Subsidiary, which together with
all other properties and assets sold, leased, transferred or otherwise
disposed of by the Company and its Subsidiaries (except in the ordinary
course of business) during the same fiscal year have an aggregate book
value of more than 10% of the consolidated assets of the Company and its
Subsidiaries as shown by a consolidated balance sheet of the Company and
its Subsidiaries as at the end of the preceding fiscal year of the
Company prepared in accordance with any system of accounts required by
law to be followed by the Company, or in the absence of such
requirements, in accordance with generally accepted accounting
principles consistently applied, the Company (x) at the time of such
sale, transfer, lease or disposition shall be permitted to become liable
in respect of at least one dollar ($l.00) additional funded debt under
Section 17 of Article V of the Principal Indenture and (y) shall, or
shall cause such Subsidiary, promptly to apply the amount by which the
aggregate net proceeds from such sales, leases, transfers or
dispositions in such fiscal year exceeds 10% of the consolidated assets
of the Company and its Subsidiaries as shown on such balance sheet to
(i) the acquisition of property or assets substantially similar to the
property or assets so disposed of, and/or (ii) the repayment or
redemption of bonds outstanding under the Principal Indenture in
accordance with the terms thereof, upon the concurrent payment of any
premium due upon such repayment or redemption, which in the case of any
redemption of the Series L or Series M Bonds pursuant to paragraph B of
Section 3 of Article I of this Nineteenth Supplemental Indenture shall
include the Make-Whole Amount; provided, however, that nothing contained
in this Section 3 shall prohibit any Subsidiary from selling, leasing,
transferring or otherwise disposing of any of its property or assets to
the Company or another Subsidiary, and provided, further, that any
redemption of bonds outstanding under the Indenture required pursuant to
this Section 3 shall be made pro rata among all series of bonds then
outstanding under the Principal Indenture in proportion to their then
outstanding principal amounts, provided, however, to the extent, but
only to the extent, that such prorating would involve the redemption of
bonds of any series in any amount other than that permitted under the
terms of the bonds of such series, the Trustee may, upon any such
redemption of such series, in its reasonable discretion, increase or
decrease the amount of bonds of such series to be redeemed in such
manner as the Trustee, in its reasonable discretion, shall deem
appropriate to maintain, in so far as possible, the principle of pro
rata redemption in any such redemption or in any series of successive
redemptions.
SECTION 4. The Company covenants and agrees that, so long as any Series
L or Series M Bonds are outstanding, the Company will not, and will not permit
any Subsidiary to, make or own any Investment (hereinafter defined) other
than:
A. Investments in Wholly-Owned Subsidiaries (hereinafter defined) (or
in corporations which simultaneously therewith become Wholly-Owned
Subsidiaries) made by stock purchase, capital contribution, loan or
advance;
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<PAGE 25>
B. readily marketable obligations of, or fully and unconditionally
guaranteed (as to both principal and interest) by, the United States of
America and having a maturity not in excess of 12 months from the date
of acquisition thereof;
C. negotiable certificates of deposit (having a maturity not in excess
of 12 months from the date of acquisition thereof) evidencing direct
obligations of any commercial bank or trust company organized and
operating in the United States of America and having capital, surplus
and undivided profits of at least one-hundred million dollars
($100,000,000);
D. accounts receivable arising from transactions in the ordinary course
of business;
E. contingent liabilities represented by endorsements of negotiable
instruments for collection or deposit in the ordinary course of
business;
F. advances, deposits, down payments and prepayments on account of firm
purchase orders made in the ordinary course of business;
G. property to be used in the ordinary course of business;
H. commercial paper having a maturity not in excess of 270 days from
the date of acquisition thereof and having a rating of "A-l" or better
from Standard & Poor's Corporation or "P-l" or better from Moody's
Investors Service, Inc.;
I. Investments pursuant to the COM/ENERGY Money Pool Agreement as was
approved in an order dated November 12, 1981 of the Massachusetts
Department of Public Utilities in D.P.U. 880, as said agreement may be
amended from time to time with the written approval of the Massachusetts
Department of Public Utilities; and
J. Investments not otherwise permitted under clauses A through I above
in an aggregate amount at any time, valued at the lower of cost and fair
market value, not in excess of five percent (5%) of the Consolidated Net
Worth of the Company and its Subsidiaries, as shown on the consolidated
balance sheet of the Company and its Subsidiaries as at the end of the
preceding fiscal year of the Company, prepared in accordance with any
system of accounts required by law to be followed by the Company, or in
the absence of such requirement, in accordance with generally accepted
accounting principles consistently applied.
SECTION 5. The Company covenants and agrees that, so long as any Series
L or Series M Bonds are outstanding, the Company will not, and will not permit
any Subsidiary to, engage in any transaction with an Affiliate (hereinafter
defined) of the Company (other than a Wholly-Owned Subsidiary) or of such
Subsidiary (other than the Company or a Wholly-Owned Subsidiary) which
materially and adversely affects the financial integrity of the Company or of
the Company and its Subsidiaries taken as a whole, provided, however, all
transactions with Affiliates specifically approved or permitted by the
Massachusetts Department of Public Utilities shall be deemed not to materially
and adversely affect the financial integrity of the Company or of the Company
and its Subsidiaries taken as a whole.
SECTION 6. The Company covenants and agrees that, so long as any Series
L or Series M Bonds are outstanding, the Company will not permit the aggregate
principal amount of outstanding funded debt (as defined in the Indenture) of
its Subsidiaries to exceed at any time fifteen percent (15%) of the
Consolidated Net Worth (hereinafter defined) of the Company and its
Subsidiaries.
SECTION 7. The Company covenants and agrees that so long as any Series
L or Series M Bonds are outstanding (i) not less than 75% of the Consolidated
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<PAGE 26>
Adjusted Net Income (hereinafter defined) of the Company and its Subsidiaries
in each fiscal year shall have been derived directly from the Company's gas
utility operations and businesses related to gas utility operations or (ii)
assets representing not less than 75% of the book value of the assets of the
Company and its Subsidiaries (as shown on the consolidated balance sheet of
the Company and its Subsidiaries as at the end of such fiscal year) shall have
been assets used in the Company's gas utility operations and businesses
related to gas utility operations.
SECTION 8. The Company covenants and agrees that so long as any Series
L or Series M Bonds are outstanding, the Company shall perform and fulfill all
its covenants and agreements contained in the Bond Purchase Agreement dated as
of September 1, 1997 pursuant to which the bonds of Series L and Series M were
initially issued.
SECTION 9. For purposes of this Article II of this Nineteenth
Supplemental Indenture the following capitalized terms shall have the
following respective meanings:
"Affiliate" of any Person shall mean any Person which, directly or
indirectly, controls or is controlled by or is under common control with such
Person and, without limiting the generality of the foregoing, shall include
(a) any Person beneficially owning or holding 5% or more of any class of
voting securities of such Person or (b) any other Person of which such first-
mentioned Person owns or holds 5% or more of any class of voting securities.
For the purposes of this definition, "control" (including, with correlative
meanings, the terms "controlled by" and "under common control with"), as used
with respect to any Person, shall mean the possession, directly or indirectly,
of the power to direct or cause the direction of the management and policies
of such Person, whether through the ownership of voting securities or by
contract or otherwise; provided that the fact that a Person may be a member of
the Board of Directors or an officer of such Person shall not by itself be a
presumption of control, and provided, further, that in no event shall the fact
that a Person is a holder of indebtedness of such Person be considered to
enable such Person to direct or cause the direction of the management and
policies of such Person.
"Consolidated Adjusted Net Income" shall mean net earnings after income
taxes of the Company and each Subsidiary, determined on a consolidated basis
and (except as may be hereinafter provided) in accordance with any system of
accounts required by law to be followed by the Company, or in the absence of
such requirements, in accordance with generally accepted accounting
principles, excluding:
(1) any gain arising from any write-up of assets;
(2) net earnings of any Person in which the Company or any Subsidiary
has an ownership interest unless those net earnings have actually been
received by the Company or the Subsidiary in the form of cash distributions
or, to the extent of their fair market value, in the form of any other freely
transferable property; and
(3) any portion of the net earnings of any Subsidiary which for any
reason is unavailable to pay dividends to the Company or any other Subsidiary.
"Consolidated Net Worth" of the Company and its Subsidiaries shall mean,
at any date, the sum of the capital stock (minus treasury stock and capital
stock subscribed and unissued) and surplus (including retained earnings,
additional paid-in capital and the balance of the current profit and loss
account not transferred to surplus) of the Company and its Subsidiaries,
prepared on a consolidated basis in accordance with generally accepted
accounting principles, and after giving appropriate effect to outside minority
interests, if any, in Subsidiaries.
"Investment" shall mean any investment made by stock purchase, capital
contribution, loan, advance, acquisition of indebtedness, guaranty, or
otherwise.
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<PAGE 27>
"Person" shall mean an individual, a corporation, a partnership, a
trust, an unincorporated organization or a government or any agency or
political subdivision thereof.
"Wholly-Owned Subsidiary" shall mean any Subsidiary all of the
outstanding shares of which, other than directors' qualifying shares, shall at
the time be owned by the Company or by one or more Wholly-Owned Subsidiaries
or by the Company and one or more Wholly-Owned Subsidiaries and the accounts
of which are consolidated with those of the Company in accordance with
generally accepted accounting principles.
ARTICLE III
SECTION 1. All the trusts, terms, conditions, provisions and powers
conferred and set forth in the Principal Indenture and the Supplemental
Indentures (except as expressly amended hereby and except insofar as they
shall apply and relate solely to the bonds of any series issued prior to the
Series L and Series M Bonds, or are not fully consistent with the terms and
provisions hereof and of the bonds of Series L or Series M issued hereunder)
apply and relate to the Series L and Series M Bonds, as fully in all respects
as if they had been specifically contained and set forth herein.
SECTION 2. The Trustee shall be entitled to, may exercise and shall be
protected by, where and to the full extent that the same are applicable, all
the rights, powers, privileges, immunities and exemptions and shall be subject
to the duties and liabilities of the Trustee provided in the Principal
Indenture as if the provisions concerning the same were incorporated herein at
length. The remedies and provisions of the Principal Indenture applicable in
case of any default by the Company thereunder are hereby adopted and made
applicable in case of any default with respect to the properties hereby
mortgaged and pledged to and with the Trustee. Without limiting the
generality of the foregoing, there are hereby conferred upon the Trustee the
same powers of sale and other powers over the properties described herein as
are by the Principal Indenture expressed to be conferred. The Company further
confirms that in exercising any remedy of sale under Article VII of the
Indenture and the Supplemental Indentures, the Trustee shall be entitled to
the STATUTORY POWER OF SALE.
SECTION 3. The recitals and statements in this Nineteenth Supplemental
Indenture shall be taken as statements by the Company alone and shall not be
considered as made by or as imposing any obligation or liability upon the
Trustee nor shall the Trustee be held responsible for the legality or validity
of this Nineteenth Supplemental Indenture, and the Trustee makes no covenants
or representations, and shall not be responsible as to or for the effect,
authorization, execution, delivery, recording or filing of this Nineteenth
Supplemental Indenture, except as expressly set forth herein and in the
Principal Indenture.
SECTION 4. This Nineteenth Supplemental Indenture is expressly made
supplemental to said Principal Indenture, and the use of terms and expressions
herein is in accordance with the definitions and constructions contained
therein which Principal Indenture is hereby in all respects ratified, approved
and confirmed, except as expressly amended hereby.
SECTION 5. Any term used in this Nineteenth Supplemental Indenture, not
otherwise defined herein or in the Principal Indenture, which is defined in
the Trust Indenture Act of 1939, directly or by reference to the Securities
Act of 1933, shall have the meaning prescribed in said Trust Indenture Act of
1939.
SECTION 6. This Nineteenth Supplemental Indenture may be simultaneously
executed in any number of counterparts, and all of said counterparts executed
and delivered each as an original, shall constitute but one and the same
instrument.
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IN WITNESS WHEREOF said Commonwealth Gas Company has caused its
corporate seal to be hereto affixed and attested and these presents to be
signed in its name and behalf by its officer thereunto duly authorized by vote
of its Board of Directors and its Stockholder, and State Street Bank and Trust
Company, in token of its acceptance of the trusts herein set forth, has caused
its corporate seal to be hereto affixed and attested and these presents to be
signed by its duly authorized officers as of the day and year first above
written.
COMMONWEALTH GAS COMPANY
(CORPORATE SEAL)
By___________________________________
Financial Vice President and
Treasurer
Attest__________________________________
Assistant Clerk
STATE STREET BANK AND TRUST COMPANY,
Trustee
(CORPORATE SEAL) ____________________________________
Assistant Vice President
Attest____________________________
Assistant Secretary
<PAGE>
<PAGE 29>
THE COMMONWEALTH OF MASSACHUSETTS
Middlesex County, ss.
On this ________ day of September in the year 1997 before me personally
came James D. Rappoli to me personally known and being duly sworn did depose
and say that he is the Financial Vice President and Treasurer of Commonwealth
Gas Company, one of the corporations described in and which executed the
foregoing Nineteenth Supplemental Indenture; that said instrument was signed
on behalf of said corporation by authority and order of its board of directors
and by authority of its stockholders; that he signed his name thereto by like
authority and order; and he acknowledged said instrument to be his free act
and deed as such officer, and the free act and deed of said Commonwealth Gas
Company.
(Notary Seal) ________________________________
Notary Public
for The Commonwealth of
Massachusetts
My Commission expires: September 23, 1999
<PAGE>
<PAGE 30>
THE COMMONWEALTH OF MASSACHUSETTS
Norfolk County, ss.
On this ________ day of September in the year 1997 before me personally
came Daniel Golden to me personally known and being duly sworn did depose and
say that he is Assistant Vice President of State Street Bank and Trust
Company, one of the corporations described in and which executed the foregoing
Nineteenth Supplemental Indenture; that said instrument was signed on behalf
of said corporation by authority of its board of directors; and said officer
acknowledged said instrument to be his free act and deed as such officer and
the free act and deed of said State Street Bank and Trust Company.
(Notary Seal) _________________________________________
Notary Public
for The Commonwealth of
Massachusetts
My Commission expires:
<PAGE>
<PAGE 31>
RECORDING DATA
Date Book Page
<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND>
This schedule contains summary financial information extracted from the
balance sheet, statement of income, statement of retained earnings and
statement of cash flows contained in Form 10-K of Commonwealth Gas Company for
fiscal year ended December 31, 1997 and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<CIK> 0000022620
<NAME> COMMONWEALTH GAS COMPANY
<MULTIPLIER> 1,000
<S> <C>
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<PERIOD-TYPE> YEAR
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 264,992
<OTHER-PROPERTY-AND-INVEST> 0
<TOTAL-CURRENT-ASSETS> 104,887
<TOTAL-DEFERRED-CHARGES> 26,087
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 395,966
<COMMON> 71,425
<CAPITAL-SURPLUS-PAID-IN> 27,739
<RETAINED-EARNINGS> 16,871
<TOTAL-COMMON-STOCKHOLDERS-EQ> 116,035
0
0
<LONG-TERM-DEBT-NET> 105,800
<SHORT-TERM-NOTES> 39,325
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 3,650
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 131,156
<TOT-CAPITALIZATION-AND-LIAB> 395,966
<GROSS-OPERATING-REVENUE> 331,135
<INCOME-TAX-EXPENSE> 9,653
<OTHER-OPERATING-EXPENSES> 296,217
<TOTAL-OPERATING-EXPENSES> 305,870
<OPERATING-INCOME-LOSS> 25,265
<OTHER-INCOME-NET> 679
<INCOME-BEFORE-INTEREST-EXPEN> 25,944
<TOTAL-INTEREST-EXPENSE> 10,501
<NET-INCOME> 15,443
0
<EARNINGS-AVAILABLE-FOR-COMM> 15,443
<COMMON-STOCK-DIVIDENDS> 9,428
<TOTAL-INTEREST-ON-BONDS> 7,251
<CASH-FLOW-OPERATIONS> 27,191
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
