UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark one)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period _________________ to ___________________
Commission File Number 1-5366
EASTERN UTILITIES ASSOCIATES
(Exact name of registrant as specified in its charter)
Massachusetts 04-1271872
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One Liberty Square, Boston, Massachusetts
(Address of principal executive offices)
02109
(Zip Code)
(617)357-9590
(Registrant's telephone number including area code)
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 practical date.
Class Outstanding at October 31, 1995
Common Shares, $5 par value 20,378,862 shares
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
EASTERN UTILITIES ASSOCIATES
CONSOLIDATED CONDENSED BALANCE SHEETS
(In Thousands)
<CAPTION>
September 30, December 31,
ASSETS 1995 1994
<S> <C> <C>
Utility Plant and Other Investments:
Utility Plant in Service $ 1,025,151 $ 1,020,859
Less: Accumulated Provision for Depreciation
and Amortization 328,054 304,034
Net Utility Plant in Service 697,097 716,825
Construction Work in Progress 24,673 8,389
Net Utility Plant 721,770 725,214
Investments in Jointly Owned Companies 69,014 70,675
Non-Utility Plant - Net 85,807 107,803
Total Plant and Other Investments 876,591 903,692
Current Assets:
Cash and Temporary Cash Investments 23,667 20,109
Accounts Receivable, Net 90,430 89,348
Notes Receivable 21,759 13,906
Materials and Supplies 14,364 15,168
Other Current Assets 10,715 8,517
Total Current Assets 160,935 147,048
Deferred Debits and Other Non-Current Assets 180,794 183,309
Total Assets $ 1,218,320 $ 1,234,049
LIABILITIES AND CAPITALIZATION
Capitalization:
Common Shares, $5 Par Value $ 101,860 $ 99,685
Other Paid-In Capital 219,485 212,990
Common Share Expense (3,909) (3,849)
Retained Earnings 54,212 56,617
Total Common Equity 371,648 365,443
Non-Redeemable Preferred Stock - Net 6,900 6,900
Redeemable Preferred Stock - Net 26,111 25,390
Long-Term Debt - Net 444,747 455,412
Total Capitalization 849,406 853,145
Current Liabilities:
Long-Term Debt Due Within One Year 46,705 41,601
Notes Payable 28,660 31,678
Preferred Stock Sinking Fund 50 50
Accounts Payable 31,212 33,442
Taxes Accrued 7,461 6,465
Interest Accrued 9,956 10,889
Other Current Liabilities 20,522 29,566
Total Current Liabilities 144,566 153,691
Deferred Credits and Other Non-Current Liabilities 88,503 89,313
Accumulated Deferred Taxes 135,845 137,900
Total Liabilities and Capitalization $ 1,218,320 $ 1,234,049
See accompanying notes to consolidated condensed financial statements.
</TABLE>
<TABLE>
EASTERN UTILITIES ASSOCIATES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(In Thousands Except Number of Shares and Per Share Amounts)
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1995 1994 1995 1994
<S> <C> <C> <C> <C>
Operating Revenues $ 143,950 $ 143,859 $ 428,036 $ 431,325
Operating Expenses:
Fuel 24,973 24,078 70,900 70,507
Purchased Power 30,577 33,112 94,032 97,921
Other Operation and Maintenance 44,695 44,876 139,456 133,581
Voluntary Retirement Incentive 0 0 4,505 0
Depreciation and Amortization 11,073 11,802 34,553 35,273
Taxes Other than Income 5,005 5,867 16,043 18,829
Income Taxes - Current 5,556 3,435 10,804 11,815
- Deferred 1,804 2,479 4,921 5,372
Total 123,683 125,649 375,214 373,298
Operating Income 20,267 18,210 52,822 58,027
Other Income - Net 4,481 6,468 12,868 16,248
Loss on Disposal of Cogeneration
Operations (18,086) (18,086)
Income Tax Impact of Loss on Disposal
of Cogeneration Operations 7,588 7,588
Income Before Interest Charges 14,250 24,678 55,192 74,275
Interest Charges:
Interest on Long-Term Debt 9,593 9,730 28,911 29,249
Other Interest Expense 1,592 1,393 4,320 5,077
Allowance for Borrowed Funds Used
During Construction (Credit) (601) (345) (1,997) (894)
Net Interest Charges 10,584 10,778 31,234 33,432
Net Income 3,666 13,900 23,958 40,843
Preferred Dividends of Subsidiaries 582 583 1,743 1,750
Consolidated Net Earnings $ 3,084 $ 13,317 $ 22,215 $ 39,093
Weighted Average Number of
Common Shares Outstanding 20,336,703 17,762,952 20,183,205 19,602,771
Consolidated Earnings Per
Average Common Share $ 0.15 $ 0.67 $ 1.10 $ 1.99
Dividends Paid $ 0.40 $ 0.385 $ 1.185 $ 1.13
See accompanying notes to consolidated condensed financial statements.
</TABLE>
<TABLE>
EASTERN UTILITIES ASSOCIATES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(In Thousands)
<CAPTION>
Nine Months Ended
September 30,
1995 1994
<S> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES:
Net Income $ 23,958 $ 40,843
Adjustments to Reconcile Net Income
to Net Cash Provided from Operating Activities:
Depreciation and Amortization 42,799 41,136
Deferred Taxes (1,884) 6,083
Non-cash (Gains)/Expenses on Sales of Investments
in Energy Savings Projects (2,232) 1,232
Loss on Disposition of Cogeneration Projects 18,086
Investment Tax Credit, Net (909) (885)
Allowance for Funds Used During Construction (471) (205)
Collections and sales of project
notes and leases receivable 16,312 9,236
Other - Net 6,873 1,699
Change in Operating Assets and Liabilities (19,430) (5,011)
Net Cash Provided From Operating Activities 83,102 94,128
. CASH FLOW FROM INVESTING ACTIVITIES:
Construction Expenditures (63,574) (38,551
Collections on Notes and Lease Receivables of EUA Cogenex 2,392 1,451
Acquisition of Northeast Energy Management, Inc. (8,567)
Proceeds from Disposal of Cogeneration Assets 11,501
Increase in Other Investments (330)
Net Cash (Used in) Investment Activities (49,681) (45,997
CASH FLOW FROM FINANCING ACTIVITIES:
Issuances:
Common Stock 4,520 7,096
Long-Term Debt 7,927
Redemptions:
Long-Term Debt (5,664) (10,975
Premium on Reacquisition and Financing Expenses (60) (677)
EUA Common Share Dividends Paid (23,899) (22,162
Subsidiary Preferred Dividends Paid (1,742) (1,750)
Net (Decrease) Increase in Short-Term Debt (3,018) (5,531)
Net Cash (Used in) Provided from Financing Activities (29,863) (26,072)
Net Increase (Decrease) in Cash and Temp. Cash Investments 3,558 22,059
Cash and Temporary Cash Investments at Beginning of Period 20,109 4,180
Cash and Temporary Cash Investments at End of Period $ 23,667 $ 26,239
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest (Net of Capitalized Interest) $ 30,096 $ 30,928
Income Taxes $ 6,596 $ 12,786
Supplemental schedule of non-cash investing activities:
Conversion of Investments in Energy Savings
Projects to Notes and Leases Receivable $ 14,158 $ 6,578
See accompanying notes to consolidated condensed financial statements.
</TABLE>
EASTERN_UTILITIES_ASSOCIATES
NOTES_TO_CONSOLIDATED_CONDENSED_FINANCIAL_STATEMENTS
The accompanying Notes should be read in conjunction with the Notes to
Consolidated Financial Statements incorporated in the Eastern Utilities
Associates (EUA or the Company) 1994 Annual Report on Form 10-K and the
Company's Quarterly Report on Form 10-Q for the periods ended March 31, and
June 30, 1995.
Note A - In the opinion of the Company, the accompanying unaudited consolidated
condensed financial statements contain all adjustments (consisting of
only normal recurring accruals) necessary to present fairly its
financial position as of September 30, 1995 and December 31, 1994, and
the results of operations for the three and nine months ended
September 30, 1995 and 1994 and cash flows for the nine months ended
September 30, 1995 and 1994. Certain reclassifications have been made
to prior period financial statements to conform to current period
classifications.
The reduction in Non-Utility Plant-Net on the September 30, 1995
Consolidated Condensed Balance Sheet relates to EUA Cogenex's decision
to discontinue its cogeneration operations effective July 1, 1995.
Note B - Results shown above for the respective interim periods are not neces-
sarily indicative of results to be expected for the fiscal years due
to seasonal factors which are inherent in electric utilities in New
England. A greater proportionate amount of revenues is earned in the
first and fourth quarters (winter season) of most years because more
electricity is sold due to weather conditions, fewer day-light hours,
etc.
Note C - Commitments and Contingencies:
Rate Activity
On March 21, 1994, Montaup Electric Company (Montaup), the wholesale
electric generating and transmission subsidiary of EUA, filed an
application with the Federal Energy Regulatory Commission (FERC) for
authorization to reduce its wholesale rates by $10.1 million, or three
percent. Montaup supplies electricity at wholesale to EUA's retail
electric utilities - Eastern Edison Company (Eastern Edison),
Blackstone Valley Electric Company (Blackstone) and Newport Electric
Corporation (Newport) - and to two non-affiliated municipal utilities.
This application was designed to match more closely Montaup's revenues
with its decreasing cost of doing business resulting from, among other
things, a reduced rate base, lower interest costs and successful cost
control efforts.
On May 21, 1994, Montaup began billing the reduced rates and on April
14, 1995 FERC approved a settlement agreement between Montaup and the
intervenors in the case calling for an annual reduction of
approximately $13.9 million (inclusive of the filed $10.1 million
reduction).
Note C - Commitments and Contingencies (Cont'd):
Montaup refunded to its customers the difference collected between the
$10.1 million filed reduction and the $13.9 million settled reduction
in April 1995. Montaup had previously reserved for this refund.
Legal Proceedings
EUA Cogenex, through its EUA WestCoast L.P. (WestCoast), had under
development a cogeneration facility of approximately 1.5 MW. As of
July 1, 1995, WestCoast's investment in the project was approximately
$5.8 million. The cogeneration facility experienced numerous start-up
delays and cost overruns. The host of the facility has taken the
position that the energy services agreement between WestCoast and
itself is terminated due to, among other things, failure to complete
the project. WestCoast disagrees with the host's right to terminate,
but has decided not to contest the host's purported termination.
In June 1993, WestCoast filed a lawsuit against the contractors
responsible for the design and construction of the facility, as well
as the surety which issued a performance bond guaranteeing
construction. Certain defendants in that action have filed cross-
complaints against WestCoast and EUA Cogenex, seeking, among other
things, approximately $300,000 for payments withheld by WestCoast due
to the contractor's deficient performance. A contractor has also
filed a cross-complaint against the host. Additionally, the host has
filed a cross-complaint against Cogenex and the other parties in the
litigation, seeking approximately $7 million in damages arising
principally from lost economic advantage.
EUA Cogenex intends to vigorously prosecute its claims against the
contractors and surety and defend itself against any cross-complaints.
EUA Cogenex cannot predict the ultimate resolution of this matter. As
a result of EUA Cogenex's decision to discontinue cogeneration
operations effective as of July 1, 1995, EUA Cogenex has recorded a
reserve for its total investment in this project which is included in
the one-time after-tax charge to earnings of approximately $10.5
million. (See Management's Discussion and Analysis of Financial
Condition and Results of Operations under Discontinuation of
Cogeneration Operations).
On December 13, 1994, the United States District Court for the
District of Massachusetts (District Court) issued a judgment against
Blackstone, finding Blackstone liable to the Commonwealth of
Massachusetts (Commonwealth) for the full amount of response costs
incurred by the Commonwealth in the cleanup of 5,000 cubic yards of
soil mixed with oxide box waste, a by-product of manufactured gas at a
site at Mendon Road in Attleboro, Massachusetts. The judgment also
found Blackstone liable for interest and litigation expenses
calculated to the date of judgment. The total liability at December
31, 1994 was approximately $5.9 million, including approximately $3.6
million in interest which has accumulated since 1985.
Due to the uncertainty of the ultimate outcome of this proceeding and
anticipated recoverability, Blackstone recorded the $5.9 million
December 13, 1994 District Court judgment as a deferred debit and this
amount is included with Other Assets at December 31, 1994 and
September 30, 1995.
Blackstone filed a Notice of Appeal of the court's judgment and filed
its brief with the United States Court of Appeals for the First
Circuit (First Circuit) on February 24, 1995. On October 6, 1995 the
First Circuit vacated the District Court's judgment and ordered the
District Court to refer the matter to the EPA to determine whether a
chemical in the oxide box waste is a hazardous substance.
On January 20, 1995, Blackstone entered into an escrow agreement with
the Commonwealth whereby Blackstone deposited $5.9 million with an
escrow agent who transferred the funds into an interest bearing money
market account. The distribution of the proceeds of the escrow
account will be determined upon the final resolution of the judgment.
No additional interest expense will accrue on the judgment amount.
On January 28, 1994, Blackstone filed a complaint in the United States
District Court for the District of Massachusetts, seeking, among other
relief, contribution and reimbursement from Stone & Webster Inc., of
New York City and several of its affiliated companies (Stone &
Webster), and Valley Gas Company of Cumberland, Rhode Island (Valley)
for any damages incurred by Blackstone regarding the Mendon Road site.
On November 7, 1994, the court denied motions to dismiss the complaint
which were filed by Stone & Webster and Valley.
In addition, Blackstone has notified certain liability insurers and
has filed claims with respect to the Mendon Road site, as well as
other sites.
Item_2. Management's_Discussion_and_Analysis_of_Financial_Condition_and_
Results of_Operations
The following is Management's discussion and analysis of certain
significant factors affecting the Company's earnings and financial condition
for the interim periods presented in this Form 10-Q.
Discontinuation of Cogeneration Operations
In September 1995, EUA announced that EUA Cogenex was discontinuing its
cogeneration operations effective as of July 1, 1995 because overall, the total
cogeneration portfolio had not performed up to expectations. The total net
investment of EUA Cogenex's cogeneration portfolio was $29.2 million at July 1,
1995. Cogenex has sold a majority of its operating cogeneration portfolio to
Ridgewood Electric Power Trust III. The decision to discontinue the
underperforming cogeneration operations and the subsequent sale of a majority
of the operating cogeneration portfolio resulted in a one-time, after-tax
charge of approximately $10.5 million, or 52 cents per common share, in the
quarter ended September 30, 1995.
Discontinuance of the cogeneration business will allow Cogenex to devote
maximum resources to the business segment that has been the most profitable and
holds the most growth potential -- providing integrated energy services to
commercial, institutional and industrial customers. See EUA WestCoast L.P.,
below, for discussion of litigation concerning one of EUA Cogenex's
cogeneration projects.
Voluntary Retirement Incentive Offer
On March 15, 1995, EUA announced a corporate reorganization which, among
other things, consolidated management of Eastern Edison, Blackstone and
Newport. As part of the reorganization, a voluntary retirement incentive (VRI)
was offered to sixty-six EUA System employees. Forty-nine of those eligible
for the program accepted the incentive and retired effective June 1, 1995. The
cost of this incentive program amounted to a one-time $4.5 million pre-tax
($2.7 million after-tax) charge to second quarter 1995 earnings. The estimated
payback period is approximately 18 months.
Overview
Consolidated Net Earnings for the quarter ended September 30, 1995 were
$3.1 million compared to $13.3 million in the third quarter of 1994. The third
quarter 1995 earnings include a one-time after-tax charge of $10.5 million,
related to the loss on discontinuance of cogeneration operations (discussed
above). Net Earnings contributions by Business Unit for the third quarter of
1995 and 1994 were as follows (000's):
Three Months Ended September 30,
Increase
1995 1994 (Decrease)
Core Electric Business $12,593 $10,739 $ 1,854
Energy Related Business (9,522) 2,970 (12,492)
Corporate 13 (392) 405
Consolidated $ 3,084 $13,317 $(10,233)
======= ======= =========
Net Earnings of the Core Electric Business for the third quarter of 1995
increased by $1.9 million due primarily to a 1.9% increase in kWh sales and a
decrease in operating expenses including savings from the voluntary retirement
incentive offer and lower property tax expense.
Net Earnings of the Energy Related Business Unit decreased by
approximately $12.5 million in the third quarter of 1995 as compared to the
same period of a year ago due primarily to the one-time, after-tax charge of
$10.5 million related to Cogenex's discontinuance of its cogeneration
operations and increased losses of EUA Energy Investment Corporation (EUA
Energy) aggregating $300,000 related to increased operating and development
expenses of new business ventures. Also, third quarter 1994 results included
$1.3 million of investment tax credits recorded by EUA Ocean State.
The Corporate Business Unit Net Earnings for the third quarter of 1995
compared to the same period in 1994 increased by approximately $0.4 million due
primarily to decreased amortization and legal expenses.
Consolidated Net Earnings for the nine months ended September 30, 1995
were $22.2 million compared to $39.1 million for the same period of 1994.
Net Earnings contributions by Business Unit for the first nine months of 1995
and 1994 were as follows (000's):
Nine Months Ended September 30,
Increase
1995 1994 (Decrease)
Core Electric Business $29,686 $31,381 $ (1,695)
Energy Related Business (7,678) 8,695 (16,373)
Corporate 207 (983) 1,190
Consolidated $22,215 $39,093 $(16,878)
======= ======= =========
Net Earnings of the Core Electric Business for the nine months ended
September 30, 1995 decreased by $1.7 million. The VRI offer and Montaup's 1994
rate reduction, effective May 21, 1994, were the principal reasons for the
decrease in year-to-date earnings contributions of the Core Electric Business.
Offsetting these impacts somewhat were reductions in litigation expenses,
property taxes and other operating expenses including savings resulting from
the VRI offer.
Net Earnings of the Energy Related Business Unit decreased by
approximately $16.4 million in the nine months ended September 30, 1995 as
compared to the same period of a year ago. The principal reasons for this
decrease were the one-time after-tax charge of $10.5 million related to
Cogenex's discontinuance of its cogeneration operations, increased costs
related to new product development of EUA Cogenex's EUA Day division and
increased losses of EUA Energy aggregating $2.4 million related to additional
operating and development expenses of new business ventures. Also, 1994
results included $2.6 million of investment tax credits recorded by EUA Ocean
State.
The Corporate Business Unit Net Earnings for the first nine months of 1995
compared to the same period in 1994 increased by approximately $1.2 million due
primarily to decreased amortization, legal and interest expenses.
EUA WestCoast L.P.
EUA Cogenex, through its EUA WestCoast L.P. (WestCoast), has had under
development a cogeneration facility of approximately 1.5 MW. As of July 1,
1995, WestCoast's investment in the project was approximately $5.8 million.
The cogeneration facility has experienced numerous start-up delays and cost
overruns. The host of the facility has taken the position that the energy
services agreement between WestCoast and itself is terminated due to, among
other things, failure to complete the project. WestCoast disagrees with the
host's right to terminate, but has decided not to contest the host's purported
termination.
In June 1993, WestCoast filed a lawsuit against the contractors
responsible for the design and construction of the facility, as well as the
surety which issued a performance bond guaranteeing construction. Certain
defendants in that action have filed cross-complaints against WestCoast and EUA
Cogenex, seeking, among other things, approximately $300,000 for payments
withheld by WestCoast due to the contractor's deficient performance. A
contractor has also filed a cross-complaint against the host. Additionally,
the host has also stated that it intends to file a cross-complaint against
Cogenex and the other parties in the litigation, seeking approximately $7
million in damages arising principally from lost economic advantage.
EUA Cogenex intends to vigorously prosecute its claims against the
contractors and surety and defend itself against any cross-complaints. EUA
Cogenex cannot predict the ultimate resolution of this matter. As a result of
EUA Cogenex's decision to discontinue cogeneration operations as of July 1,
1995, EUA Cogenex has recorded a reserve for its total investment in this
project which is included in the one-time after-tax charge to earnings recorded
in the third quarter of 1995 (See Discontinuation of Cogeneration Operations
above).
Operating_Revenues
Operating Revenues for the third quarter of 1995 were relatively unchanged
when compared to the same period of 1994. Revenues by Business Unit operations
were as follows (000's):
Three Months Ended September 30,
Increase
1995 1994 (Decrease)
Core Electric Business $124,568 $125,053 $ (485)
Energy Related Business 19,382 18,806 576
Corporate 0 0 0
Consolidated $143,950 $143,859 $ 91
======== ======== =======
Core Electric Business revenues include the negative impact of decreased
recoveries of fuel, purchased power and conservation and load management (C&LM)
expenses aggregating $1.6 million partially offset by the positive impact of a
1.9% kWh sales increase and increases in other operating revenues. (see
Operations Expense below).
EUA Cogenex revenues, which account for all of the Energy Related Business
Unit revenues, increased due to the impact of Cogenex's acquisitions of
Highland Energy and Citizens Conservation Corporation in 1995. (See offsetting
impacts in operating expenses below).
Operating Revenues for the first nine months of 1995 decreased by $3.3
million or almost 1.0% when compared to the same period of 1994. Operating
Revenues by Business Unit for the first nine months of 1995 and 1994 were as
follows (000's):
Nine Months Ended September 30,
Increase
1995 1994 (Decrease)
Core Electric Business $366,523 $376,756 $(10,233)
Energy Related Business 61,513 54,569 6,944
Corporate 0 0 0
Consolidated $428,036 $431,325 (3,289)
======== ======== =======
Core Electric Business revenues decreased by $10.2 million due primarily
to lower purchased power, fuel and C&LM expense recoveries aggregating $6.2
million and Montaup's 1994 wholesale rate reduction.
EUA Cogenex revenues increased by $6.9 million due primarily to increases
in Nova division revenues and the impact of Cogenex's acquisitions of Highland
Energy Group and Citizens Conservation Corporation in 1995. (See offsetting
impacts in operating expenses below).
KWH Sales
Primary kWh sales of electricity by EUA's Core Electric Business Unit
increased by 1.9% in the third quarter of 1995 compared to the same period last
year and coupled with the slight increase in second quarter sales essentially
offset the dismal first quarter's sales results. Year-to-date September 30,
1995 sales of electricity were relatively flat compared to the same period of
1994 as a result of the unusually mild weather in the first quarter of this
year. A 1.2% improvement in year-to-date industrial sales, however, is an
indication of slowly improving economic conditions in EUA's service territory.
Total energy sales for the three and nine months ended September 30, 1995
decreased 7.4% and 16.2%, respectively, due mainly to decreased energy sales to
the New England Power Pool and decreased short-term unit contract energy sales.
Power purchase contracts of Montaup totaling 41 MW which expired in October 1994
resulted in lower kilowatthours available to Montaup for interchange and short-
term energy sales. These interchange and short-term energy sales essentially
recover fuel costs only and have little or no earnings impact.
Operations_Expense
Fuel expense of the Core Electric Business increased by $900,000 or 3.7%,
and $400,000 or almost 1.0% for the third quarter and year-to-date periods of
1995, respectively, as compared to the same periods of 1994. These changes
were caused by increases of 12.5% and 17.2% in the average cost of fuel, offset
by the decreases in total energy generated and purchased of 7.4% and 16.2% for
the quarter and year-to-date periods, respectively, as discussed above. Also,
for the year-to-date period, purchased power-energy, previously recorded as
purchased power expense by Newport, was recorded as fuel expense by Montaup as
a result of Newport becoming an all-requirements customer of Montaup effective
May 21, 1994. This resulted in a classification adjustment which increased
fuel expense and decreased purchased power expense by approximately $1.8
million in the year-to-date period of 1995.
Purchased Power demand expense for the third quarter of 1995 decreased
$2.5 million or 7.7% and decreased $3.9 million or 4.0% for the nine months
ended September 30, 1995. These changes are due primarily to the net impact of
decreases of $1.7 million and $6.0 million for the respective periods related
to 41 MW of purchase power contracts which expired in October 1994 and the
classification adjustments discussed above. Purchases from other power
suppliers decreased $0.8 million and $1.3 million for the respective periods.
The year-to-date decrease was partially offset by a $5.2 million increase in
billings from the Ocean State Power projects and Yankee nuclear units.
Other Operation and Maintenance expenses for the third quarter and nine
months ended September 30, 1995 increased approximately $0.2 million and $5.9
million respectively, from the same periods in 1994. EUA Cogenex expenses
increased $1.4 million and $9.0 million for the respective periods and are
directly related to increased revenues (see above) and increased personnel and
benefits costs. Operating and development expenses of new business ventures of
EUA Energy were relatively flat in the third quarter and increased $2.6 million
in the year-to-date period when compared to the same periods of 1994.
Offsetting these third quarter increases somewhat were decreases in C&LM and
FAS106 expenses aggregating $1.7 million. For the year-to-date period C&LM and
FAS106 expenses decreased $2.7 million, in aggregate, and direct controllable
expenses decreased by $3.4 million which includes on-going savings resulting
from the VRI offer.
Taxes Other Than Income
Taxes other than income decreased $0.9 million and $2.7 million in the
three month and year-to-date periods ended September 30, 1995, respectively,
compared to the same periods of 1994. The reversal of previously over-accrued
property taxes in the second and third quarters of 1995 and lower Rhode Island
gross receipts taxes, related to lower revenues and a decrease in the gross
receipts tax rate, account for most of these changes.
Other_Income_(Deductions) -_Net
Other Income and (Deductions)-Net decreased $2.0 million for the third
quarter and $3.4 million for the year-to-date period as compared to the same
periods of 1994. These decreases are due primarily to the absence of $1.3
million and $2.6 million in the respective periods of investment tax credits
recorded in 1994 by EUA Ocean State.
Interest_Charges
Net interest charges for the third quarter and nine months ended September
30, 1995 decreased approximately $200,000 and $2.2 million, respectively, as
compared to the same periods of 1994. These decreases were due primarily to
increases in capitalized interest of EUA Cogenex of $200,000 and $1.0 million
for the respective periods related to increased construction activity in 1995.
For the year-to-date period other interest expense of Eastern Edison and
Montaup decreased due to interest expense provisions recorded in June 1994
aggregating approximately $1.0 million related to Internal Revenue Service
audits.
Electric Utility Industry Restructuring
On May 12, 1995, Blackstone and Newport along with other members of the
Rhode Island Electric Industry Restructuring Collaborative (the Rhode Island
Collaborative), submitted to the Rhode Island Public Utilities Commission a
Report and Set of Interdependent Principles addressing industry restructuring.
On July 17, 1995, Eastern Edison Company, along with other members of the
Electric Industry Restructuring Roundtable (the Massachusetts Roundtable) in
Massachusetts filed a similar set of principles with the Massachusetts
Department of Public Utilities.
The Rhode Island Collaborative and the Massachusetts Roundtable consist of
a number of different utilities, industrial users, environmental groups and
consumer advocates. These filings are intended to be statements of the
consensus position by the signatories of the interdependent principles that
should underlie any electric industry restructuring proposal and include but
are not limited to principles addressing stranded cost recovery, unbundling of
services and demand side management programs. Each filing was submitted on the
condition they be approved in full by the respective Commissions. The
Commissions of each state are assessing the principles and are expected to make
recommendations to implement a competitive environment in the industry.
On August 16, 1995, the RIPUC issued an order regarding the principles
submitted by the Rhode Island Collaborative (the "RIPUC Order"). The RIPUC
Order accepts all but one of the principles with minor modifications to certain
language in others and adds a new principle which supports negotiation (as
opposed to litigation) to resolve conflicts as restructuring moves forward.
The one principle that was not accepted provided for subsidization of renewable
energy sources. Although not disagreeing with the Collaborative on the
importance of resource and fuel diversity, the RIPUC invites the Collaborative
to address how to incorporate renewables into the competitive marketplace in
other ways. The Rhode Island Order also directs the Collaborative to proceed
with negotiations on the issues presented in the principles and to submit a
progress report to the RIPUC by February 1, 1996.
Also on August 16, 1995, the MDPU issued an order (the "MDPU Order") in
Docket No. 95-30, the MDPU's investigation into electric industry
restructuring. The MDPU Order develops principles that describe the key
characteristics of a restructured electric industry and provides for, among
other things, customer choice of service providers, services, pricing options
and payment terms, an opportunity for customers to share in the benefits of
increased competition, full and fair competition in the generation markets and
incentive regulation where competition cannot exist. The MDPU Order sets out
principles for the transition from a regulated to a competitive industry
structure and identifies conditions for the transition process which will
require investor-owned utilities to unbundle rates, provide consumers with
accurate price signals and allow customers' choice of generation services. The
MDPU Order also provides for the principle of recovery of net, non-mitigable
stranded costs by investor-owned utilities resulting from the industry
restructuring.
Each investor-owned utility will be required to file restructuring
proposals for moving from the current regulated industry structure to a
competitive generation market. The schedule for the filing requirement is
staggered, with an initial group of utilities required to file within six
months of the date of the Order and a second group required to file within the
three months of the MDPU's orders on the first group of submissions. Eastern
Edison Company is in the second group and is currently preparing a plan for
submission.
Liquidity_and_Sources_of_Capital
The EUA system's need for permanent capital is primarily related to
investments in facilities required to meet the needs of its existing and future
customers.
Traditionally, cash construction requirements not met with internally
generated funds are financed through short-term borrowings which are ultimately
funded with permanent capital. At September 30, 1995, EUA System companies
maintained short-term lines of credit with various banks aggregating
approximately $150 million. Outstanding short-term debt at September 30, 1995
and December 31, 1994 by Business Unit was as follows (000's):
September 30, 1995 December 31, 1994
Core Electric Business $ 0 $ 0
Energy Related Business 12,384 23,476
Corporate 16,298 8,202
Consolidated $28,682 $31,678
======= =======
For the nine months ended September 30, 1995 internally generated funds
available after the payment of dividends amounted to approximately $71.6
million while the EUA System's cash construction requirements amounted to
approximately $63.6 million for the same period. Various laws, regulations and
contract provisions limit the use of EUA's internally generated funds such that
the funds generated by one subsidiary are not generally available to fund the
operations of another subsidiary.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
See Notes to Consolidated Condensed Financial Statements, Note C -
Commitments and Contingencies under Legal Proceedings for a discussion of legal
proceedings involving Blackstone and EUA Cogenex.
Item 5. Other Information
Item 6. Exhibits_and_Reports_on_Form_8-K
(a) Exhibits - None
(b) Reports on Form 8-K
- On October 4, 1995, the Registrant filed a current report on Form 8-K
with respect to Item 5. (Other Events).
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Eastern_Utilities_Associates______
(Registrant)
Date: November_13,_1995 /s/_Richard_M._Burns_______________
Richard M. Burns, Comptroller
(on behalf of the Registrant and
as Chief Accounting Officer)
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