File No. 70-8701
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NUMBER ONE
FORM U-1
DECLARATION WITH RESPECT TO REORGANIZATION
OF A SERVICE COMPANY
UNDER
THE PUBLIC UTILITY HOLDING COMPANY ACT OF 1935
EASTERN UTILITIES ASSOCIATES
P.O. Box 2333, Boston, Massachusetts 02107
EUA SERVICE CORPORATION
P.O. Box 2333, Boston, Massachusetts 02107
(Name of companies filing this statement
and address of principal executive office)
EASTERN UTILITIES ASSOCIATES
(Name of top registered holding company
parent of applicant or declarant)
CLIFFORD J. HEBERT, JR., TREASURER
EASTERN UTILITIES ASSOCIATES
P.O. Box 2333, Boston, Massachusetts 02107
(Name and address of agent for service)
The Commission is requested to mail signed copies
of all orders, notices and communications to:
ARTHUR I. ANDERSON, P.C.
McDermott, Will & Emery
75 State Street
Boston, MA 02109
ITEM 1. DESCRIPTION OF PROPOSED TRANSACTIONS.
Item 1 is amended and restated in its entirety as follows:
Introduction
Eastern Utilities Associates ("EUA"), a holding company
registered under the Public Utility Holding Company Act of 1935,
as amended (the "Act"), and EUA Service Corporation ("EUA
Service"), a wholly-owned subsidiary service company of EUA,
hereby request authorization pursuant to this Declaration with
respect to the reorganization and centralization of certain
service and management functions (the "Reorganization"). EUA
Service provides services to EUA's four electric utility
companies - Blackstone Valley Electric Company ("Blackstone"),
Montaup Electric Company ("Montaup"), Eastern Edison Company
("Eastern Edison") and Newport Electric Corporation ("Newport")
(Blackstone, Montaup, Eastern Edison and Newport, hereinafter
collectively, the "Operating Companies"), as well as to EUA's
other direct and indirect subsidiaries (collectively with the
Operating Companies, the "System Companies").
Overview
In March 1995, EUA announced the Reorganization which
is designed to consolidate and restructure operations in order to
allow more flexibility in the allocation of management and
supervisory resources throughout the System Companies, generally,
and more specifically, the Operating Companies, to meet the
challenges of the changing electric utility industry and to
compete effectively in the years ahead in an increasingly more
competitive environment.
EUA expects to realize a number of benefits from the
Reorganization, such as increased efficiencies and synergies
through the elimination of previously duplicated functions. By
streamlining operations, EUA expects to enhance communication and
efficiency, which should translate into a reduction in the rate
of growth in operating and maintenance ("O&M") costs of the
Operating Companies, thereby minimizing the need for future rate
increases.
In general, the Reorganization is designed to
consolidate and centralize in EUA Service certain functions
heretofore separately performed by each of the Operating
Companies and some of the other System Companies. In part, the
Reorganization shifts certain management functions relating to
certain administrative and support functions from the Operating
Companies to EUA Service, thereby reducing costs and freeing the
Operating Companies to focus on customer service and economic
development.
The Reorganization is intended to standardize certain
practices throughout the System Companies and to streamline
management. By reducing layers of management, management will be
closer to operations and communication should be enhanced.
Organizationally, the Reorganization does not involve
the formation of new entities and will not require utility assets
to be transferred among System Companies. In addition, the
Reorganization does not require the writedown of any rate base
assets.
Reorganization Structure
Under the new structure, Blackstone, Eastern Edison and
Newport share their President who is also an Executive Vice
President of EUA and EUA Service. EUA Service and the Operating
Companies also share Vice Presidents in field operations,
technical services and marketing. The reporting lines of the
System Companies' executives post-restructuring are set forth in
Exhibit G-1. Exhibit G-5 sets forth the various titles held by
the Operating Company executives before and after the
Reorganization.
Also contributing to the streamlining of management
resources and reduction in management and exempt staff is the
voluntary retirement incentive (the "VRI") offered to exempt
employees who met certain employment criteria. A total of 49
eligible employees accepted the VRI. The annual savings in
salaries attributed to this group amounted to $3,100,000.
Three major system core functions were consolidated
under EUA Service: field operations; technical services; and
marketing.
New services performed by the field operations
department as a result of the Reorganization include (i)
transmission, distribution overhead and underground lines
operation and maintenance; and (ii) meter services. The field
operations department also continues to assume the following
responsibilities for functions performed by EUA Service for the
System Companies prior to the Reorganization: (a) vegetation
management; (b) garage; (c) occupational health and safety; (d)
materials management; and (e) system stores.
New services performed by the technical services
department as a result of the Reorganization include (i)
distribution engineering; (ii) substation maintenance
(transmission and distribution); (iii) property maintenance; and
(iv) system real estate. The technical services department also
continues to assume responsibility for the following functions
performed for System Companies by EUA Service prior to the
Reorganization: (a) system operations (SCADA); (b) electrical,
mechanical, civil and environmental engineering; (c) substation
and communication; (d) radio and microwave; (e) electronics; (f)
telecommunications; (g) general office services; and (h)
security.
The new services performed by the marketing department
as a result of the Reorganization include: (i) consumer
services; (ii) marketing (i.e., market research, data tracking,
information processing for large commercial customers and growing
customers); and (iii) conservation and load management -
implementation. The marketing department also continues to
assume the following responsibilities for functions performed for
System Companies prior to the Reorganization: (a) corporate,
employee and media communications; (b) rates, load research and
revenue requirements; and (c) legislative affairs.
The consolidation of the various functions explained
above, resulted in transferring 95 personnel, primarily
management, supervisory and technical (engineering) levels from
Operating Companies to EUA Service. See Exhibit G-2 for a
reorganizational impact on employees. The annual salaries of
this group amounts to $5,300,000. The personnel transfers to EUA
Service (95) and the VRI which resulted in a reduction of 49
employees of System Companies, were essential in order to attain
the level of flexibility in the assignment of management and
supervisory resources throughout System Companies. Field
personnel and construction crews continue as employees of the
Operating Companies and will function from field locations.
The Reorganization, however, does not affect the
existing controls with respect to the provision of services by
EUA Service to the Operating Companies.
The bases for the allocation of costs to System
Companies will continue to be reviewed annually for their
reasonableness. The review process is initiated by the
Comptroller's department via memo to EUA Service department heads
requesting that they review the appropriateness of the current
allocation bases used for billing costs to System Companies. The
process is conducted to ensure that the allocation bases continue
to be reasonable and have a causal relationship to the types of
services or functions provided by the departments. This
assessment is important because departmental services or
functions may change and evolve over time. Department heads are
required to justify the appropriateness of the existing bases.
If a change is not warranted, the department head will respond
via a standard memo. If a change is necessary a memo is required
explaining the reason and recommended basis. Comments received
from department heads and any bases revisions are presented to
the "Bases Review Committee" which is comprised of the following
senior and middle management members from the System Companies:
- President of the Operating Companies
- Executive Vice-President of EUA Service
- Vice-Presidents of System Companies and EUA Service
- Vice-President and Comptroller of EUA Service
- Assistant Comptroller of EUA Service
- Internal Audit Manager
- Accounting Manager
The President and Vice-Presidents of the Operating Companies are
also officers of EUA Service. The extensive process of annually
reviewing the appropriateness of the current bases used for
billing EUA Service costs to System Companies involving key
officers, managers and the Internal Audit Manager is
representative of EUA Service's commitment to ensure continually
that System Companies are charged for services fairly and
equitably. Although none of the participants in the process are
exclusively Operating Company employees, EUA believes that the
interlocking positions held by the EUA President and Vice-
Presidents of the Operating Companies with EUA Service augments
the process because they are participants in the overall
management of the System, with the common objective of providing
reliable, safe, and competitive service in the most effective
manner.
The staff of the Office of Public Utility Regulation
performed an audit of EUA Service in 1991, covering the operating
year 1990, and issued a report of their findings dated April 2,
1992. In that report, issue #20 recommended that the Internal
Audit Department add to its annual audit plan compliance audits
to evaluate whether allocation methods are in compliance with the
Commission's requirements. Internal Audit has been performing
the recommended audit(s) each year since then. The scope of that
annual audit includes a review of the allocation factors proposed
for the following year, and a review and determination as to the
validity of the bases used to distribute costs.
Other controls with respect to the provision of
services by EUA Service include the following:
Annual budgets are developed with the
participation of Operating Company executives who sign off on the
services to be provided by EUA Service as part of the budget
review. In the budgeting process the cost effectiveness of the
services provided by EUA Service is evaluated and it is not
uncommon for services to be outsourced. Pole treatment, tree
trimming, and customer payment remittances have been outsourced
recently as a result of this budget review process.
Budgets, including the services to be provided by
EUA Service, are approved by the boards of directors of the
Operating Companies annually.
The service contract between EUA Service and each
of the Operating Companies is reviewed and approved by the boards
of directors of the respective Operating Companies annually.
Special services are only provided to the
Operating Companies pursuant to a requisition procedure where the
services are specifically requested through a work order by the
particular Operating Company. Currently, work orders are
normally approved by the Operating Company President.
EUA Service submits monthly bills to each of the
Operating Companies which are reviewed and approved by Operating
Company executives prior to payment. Charges for special
services are specifically identified in the monthly statements.
Prior to the submission of monthly bills to the Operating
Companies, a review of time documents for direct charging is
undertaken and approved by the department head or executive at
EUA Service. In addition, the time document review process for
direct charging includes examining the time documents to ensure
that EUA Service personnel are charging the Operating Companies
for time expended on their behalf which is accomplished by
analyzing the time document charges in relationship to a
department's function and employee. As an example, all
accounting is performed by EUA Service personnel. A visual
inspection of the time document is conducted to ensure that it
indicates in the description field, a specific function and
company. An accountant reviews the account number to ensure
billing to proper company. The time document review also
verifies the account number charged. An overview of EUA
Service's Inter-Company Billing System is set forth in Exhibit
G-6.
EUA in its budget process employs zero-based
budgeting procedures where all expenditures, including
expenditures on services provided by EUA Service, are re-examined
each year.
Another control which is performed every month is
the reconciliation of System Company billings to EUA Service
expenses with regard to services rendered for System Companies.
Such reconciliation ensures that all expenses have been billed
and also immediately detects any over/under billings. (See
Exhibit G-7.)
One of the measures of performance utilized in
EUA's Annual Cash Incentive Plan for executives, as described in
EUA's Proxy Statement dated March 27, 1996, is EUA's aggregate
Cost of Service per Operating Company customer measured against a
peer group of 20 New England utilities. Such a measure of
performance encourages EUA to reduce all costs, including costs
attributable to services performed by EUA Service.
To supplement these controls, EUA's internal audit
department will commence auditing EUA Service billings to the
Operating Companies on a two-year cycle. The Internal Audit
Manager has direct line reporting responsibilities to the Chief
Executive Officer and Chairman of the Board of Trustees. In
addition, the Internal Audit Manager has dotted-line reporting to
the Audit Committee of the Board of Trustees. The Audit
Committee is comprised completely of outside Trustees (as
required by the listing conditions of the New York Stock
Exchange) and meets with the Internal Audit Manager several times
per year. EUA Service believes that the above measures taken
together with certain regulatory and legislative initiative in
Massachusetts and Rhode Island are more than sufficient to ensure
the delivery of cost-effective services by EUA Service. The
controls in effect as previously explained i.e., budget review
and approvals, monthly budget analysis reporting, the ongoing
assessment by executives and department heads evaluating the most
economical way of performing services, scrutiny by the
Massachusetts Department of Public Utilities ("MDPU"), the Rhode
Island Public Utilities Commission ("RIPUC") and the Federal
Energy Regulatory Commission during rate proceedings and the
advent of competition are all instrumental in ensuring efficient
performance of services provided by EUA Service.
EUA Service will also supplement its existing controls
by having the Bases Review Committee review on a three-year
rolling basis the efficiency and cost-effectiveness of each of
EUA Service's 16 departments.
In both Massachusetts and Rhode Island, a movement is
well underway to effect a transition from traditional cost of
service rate of return regulation (COS/ROR) to methodologies
which in the case of the price of electricity rely entirely upon
an open and competitive marketplace where customers can choose
their suppliers and in the case of distribution services rely on
performance based regulation ("PBR").
On February 24, 1995, the MDPU concluded an
investigation into the theory and implementation of incentive
regulation for electric and gas companies under its jurisdiction
(D.P.U. 94-158), and found that COS/ROR regulation will not
continue "...to bring the benefits to consumers that it has in
the past" (Order at 9). Moreover, it determined that COS/ROR
regulation contributes to lack of incentive for cost control
through its inherent bias favoring expenditures which can be
passed through to customers, inflexible and less than efficient
pricing, persistent cross-subsidies, inefficient allocation of
resources, poor asset performance, risk adverse management, and
lack of incentive for innovation. Id. Incentive regulation is
intended to provide marketplace benefits to consumers by
promoting more efficient operations, cost control, and
opportunities for reduced rates and allow utilities to adjust to
emerging competition. Id. at 40.
Neither Massachusetts nor Rhode Island has prescribed a
particular form of PBR from the many available, but has left the
choice to the utilities. In Massachusetts, however, the MDPU has
issued a comprehensive policy statement which describes what
incentive proposals must contain and how they will be evaluated.
Id. at 52-66. EUA Service is well underway in the development
of a PBR plan that will meet these requirements for all the
operating companies.
Moreover, in dockets in both Massachusetts (D.P.U. 96-
100) and Rhode Island (R.I.P.U.C. 2320) the MDPU and the RIPUC
have initiated proceedings to introduce retail competition to the
delivery of electricity. In the Rhode Island proceeding, the
Rhode Island Operating Companies are required to file
restructuring plans by April 12, 1996. In the Massachusetts
proceeding the MDPU has announced that it intends to release
draft rules regarding restructuring on May 1, 1996.
Financial Impact
The costs of the VRI, which are the only costs
associated with the Reorganization, were initially estimated to
be $3-4 million and were expensed in June, 1995. After
progressing with the Reorganization, the final costs of the VRI
were approximately $4.8 million, all of which were incurred in
1995. Approximately $4.5 million of such costs were expensed and
the remaining amount was charged to capital. Approximately $2.4
million of such costs were or will be paid from general corporate
funds. The remaining $2.4 million will be paid from benefit plan
trusts; this amount represents the present value of enhanced
benefit amounts to be paid to participants over future years in
accordance with the early retirement program. These costs will
be funded from general corporate funds to the benefit plan trusts
over future years.
EUA expects to realize a number of benefits from the
Reorganization. Beginning in 1995 and continuing into the
future, increased efficiencies and synergies are expected to be
realized with the elimination of previously duplicated functions.
This should translate into a reduction in the rate of growth in
O&M costs and minimize the need for future rate increases. The
Reorganization costs described above are expected to be recovered
within 18 months of the implementation of the Reorganization.
Although the Reorganization increases the number of EUA
Service employees, EUA service will still represent only about
47% of EUA Service's and the Operating Companies' total
workforce. Exhibit G-2 shows the approximate staffing levels for
EUA Service, EUA's corporate employees, and the Operating
Companies, both before and after the Reorganization. Exhibit G-3
shows the areas of each Operating Company affected by the
Reorganization.
Because the Reorganization increases the amount of
services rendered by EUA Service, it is expected that the
absolute amount of EUA Service billings to the System Companies
will increase. But this increase will be more than offset by
savings resulting from centralization and standardization and
labor savings related to the VRI so that the Operating Companies'
overall costs will be lower. Annual labor savings related to the
VRI will exceed the one-time costs of the Reorganization by year
end 1996. Thereafter, annual savings in excess of the one-time
Reorganization costs of $3,035,862 will be realized (see
Exhibit G-4).
Under existing Commission authority, each of the
Operating Companies pays to EUA Service all costs which
reasonably can be identified and related to a particular
transaction or service performed by EUA Service on its behalf.
These costs are captured in work orders in accordance with the
Commission's Uniform System of Accounts for Mutual Service
Companies and Subsidiary Service Companies. Where one or more
System Companies is involved in or receives benefits from a
transaction or service performed, costs are allocated among the
companies on the basis most directly related to the transaction
or service performed. Costs incurred by EUA Service which are
not directly chargeable to one or more of the System Companies --
i.e., indirect costs -- are allocated among and billed to the
companies using an appropriate formula as authorized by the
Commission.
The foregoing billing principles will remain the basis
for EUA Service's charges to the System Companies unless and
until modified or new principles are adopted and reported to
and/or approved by the Commission. The services centralized in
EUA Service as a result of the Reorganization represent an
incremental extension of existing services to reflect changed
business conditions and cost reduction opportunities. They
therefore do not represent a fundamental change in the essential
scope or character of services to be rendered by EUA Service, and
will be billed in the same manner, using the same existing
allocation methods, as similar services heretofore provided by
EUA Service. Accordingly, there are no immediate plans to change
existing allocation methods or to adopt new allocation methods
for EUA Service's services except as otherwise noted herein.
However, EUA will continue working with the Commission to ensure
that the allocation methods used are effective in allocating
costs according to benefits received.
EUA does not now and will not in the future, other than in
compliance with the Act and all applicable rules and regulations,
own or operate or be an equity participant in any exempt
wholesale generator or foreign utility company, as such terms are
defined in the Energy Policy Act of 1992.
ITEM 2. FEES, COMMISSIONS AND EXPENSES.
Item 2 is hereby amended and restated in its entirety as
follows:
The estimated fees, commissions and expenses to be paid or
incurred directly or indirectly in connection with the proposed
transaction are as started in Item 1 and as follows:
Securities and Exchange Commission Fee $ 2,000*
Fees and Expenses of Company Counsel 17,500
TOTAL $ 19,500
(*actual)
ITEM 3. APPLICABLE STATUTORY PROVISIONS.
Item 3 is amended by adding the following:
The Reorganization has and will not result in the creation
of any new subsidiaries, the acquisition of any interest in
another business or the transfer of ownership of any utility
assets, and therefore does not involve any action requiring the
approval of the Commission under Section 9 of the Act.
ITEM 4. REGULATORY APPROVALS.
Item 4 is amended and restated in its entirety as follows:
No state commission and no Federal commission, other than
the Commission, has jurisdiction over the proposed transaction.
EUA has, however, endeavored to keep state regulatory authorities
apprised of the Reorganization, and has provided information on
the Reorganization to commissioners or members of the staffs of
RIPUC and MDPU.
In order to assist the efforts of state regulatory
authorities to monitor charges by EUA Service to the Operating
Companies, EUA Service will permit state regulatory authorities
to examine all books, accounts, memoranda, contracts and records
of EUA Service; provided, however, that EUA Service will permit
such examination if and only to the extent that any such charges
would be included in retail rates of any of the Operating
Companies and such examination is required for the effective
discharge of the state regulatory authorities' responsibilities.
ITEM 6. EXHIBITS. (*filed herewith)
*Exhibit F Opinion of McDermott, Will & Emery
Exhibit G-1 Reporting Lines
Exhibit G-2 Reorganizational Impact
*Exhibit G-3 Affected Departments
*Exhibit G-4 Reorganization Billing Impact Analysis
*Exhibit G-5 Titles of Operating Company Executives
*Exhibit G-6 Inter-Company Billing Executive Overview
*Exhibit G-7 Intercompany Bill Reconciliation
Exhibit H Proposed Form of Notice
SIGNATURE
Pursuant to the requirements of the Public Utility Holding
Company Act of 1935, the undersigned Declarants have duly caused
this statement to be signed on their behalf by the undersigned
duly authorized officers.
EASTERN UTILITIES ASSOCIATES
By: /s/ Clifford J. Hebert, Jr.
Clifford J. Hebert, Jr.
Treasurer
EUA SERVICE CORPORATION
By: /s/ Clifford J. Hebert, Jr.
Clifford J. Hebert, Jr.
Treasurer
Date: May 22, 1996
Exhibit F
May 22, 1996
Securities and Exchange Commission
Washington, D.C. 20549
Re: File No. 70-8701: Eastern Utilities Associates/EUA
Service Corporation -- Declaration with Respect to
Reorganization of a Service Company
Ladies and Gentlemen:
As counsel for Eastern Utilities Associates ("EUA") and its
wholly-owned subsidiary, EUA Service Corporation ("EUA Service"),
we are furnishing this opinion letter to be used in connection
with that certain declaration on Form U-1 dated September 22,
1995, as amended by Amendment No. 1 dated May 22, 1996, filed by
EUA and EUA Service with the Securities and Exchange Commission
(the "Commission") under the Public Utility Holding Company Act
of 1935, File No. 70-8701 (the "Declaration"), with respect to
the reorganization and centralization of certain service and
management functions (the "Proposed Transactions"), as more fully
described in the Declaration.
It is our opinion, subject to the additional assumptions,
exceptions and qualifications hereinafter stated, that in the
event the Proposed Transactions are consummated in accordance
with the terms and conditions of the Declaration:
(a) all State laws applicable to the Proposed Transactions
will have been complied with by EUA and EUA Service; and
(b) The consummation of the Proposed Transactions will not
violate the legal rights of the holders of any of the securities
of EUA or EUA Service or any of EUA Cogenex Corporation
("Cogenex"), EUA Energy Investment Corporation ("EUA Energy"),
Eastern Edison Company ("Eastern"), Montaup Electric Company
("Montaup"), Blackstone Valley Electric Company ("Blackstone"),
Newport Electric Corporation ("Newport"), EUA Ocean State
Corporation ("Ocean State"), OSP Finance Company ("OSP"),
Northeast Energy Management, Inc. ("NEM"), EUA Citizens
Conservation Services, Inc. ("CCS"), EUA Highland Corporation
("Highland"), EUA Cogenex-Canada Inc. ("Cogenex-Canada") (each of
NEM, CCS, Highland and Cogenex-Canada being an associate or
subsidiary company of Cogenex), EUA TransCapacity, Inc.
("TransCapacity"), EUA BIOTEN, Inc. ("BIOTEN") (TransCapacity and
BIOTEN being associate companies of EUA Energy), Ocean State
Power ("OSP I") or Ocean State Power II ("OSP II") (OSP I and OSP
II being Rhode Island general partnerships).
In addition to being subject to the consummation of the
Proposed Transactions in accordance with the provisions of the
Declaration, the opinions expressed in this letter are also
subject to the following additional assumptions, exceptions and
qualifications:
(1) compliance with such order or orders as the Commission
may issue from time to time upon the Declaration;
(2) the accuracy of information furnished to us as to the
outstanding securities of EUA, EUA Service, Cogenex, EUA Energy,
Eastern, Montaup, Blackstone, Newport, Ocean State, OSP, NEM,
CCS, Highland, Cogenex-Canada, TransCapacity, BIOTEN, OSP I and
OSP II;
(3) that the enforceability of the Proposed Transactions
may be subject to and affected by applicable bankruptcy,
receivership, insolvency, reorganization, moratorium, fraudulent
conveyance or other laws affecting the enforcement of the rights
and remedies of creditors generally (including, without
limitation, such as may deny giving effect to waivers of rights
to debtors or guarantors); and such duties and standards as are
or may be imposed on creditors, including, without limitation,
good faith, reasonableness and fair dealing under any applicable
statute, rule, regulation or judicial decision; and
(4) that the enforceability of the Proposed Transactions
may be subject to and affected by general principles of equity
(regardless of whether such enforceability is considered in a
proceeding in equity or at law) and the exercise of equitable
powers by a court of competent jurisdiction (and no opinion is
given herein as to specific performance or as to the availability
of other equitable remedies or equitable relief of any kind).
The opinions expressed in this letter relate only to federal
law and the laws of The Commonwealth of Massachusetts and we
express no opinion with respect to any other jurisdiction. To
the extent that certain matters addressed may involve the laws of
other states, we have assumed that such laws are not materially
different from the laws of The Commonwealth of Massachusetts.
We consent to the use of this opinion letter in connection
with the Application-Declaration filed with the Commission.
Very truly yours,
/s/ McDermott, Will & Emery
McDERMOTT, WILL & EMERY
<TABLE>
EXHIBIT G-3
EUA SERVICE CORPORATION
ADDITIONAL DEPARTMENTALIZED RESTRUCTURE
1995
<CAPTION>
DEPARTMENTAL RESPONSIBILITY EUA EUA
NUMBER CENTER BASIS TOTAL BLACKSTONE PARENT MONTAUP ENERGY
<S> <C> <C> <C> <C> <C> <C> <C>
120 CONS. SVCS - COMMERCIAL & INDUSTRIAL AVG COMM. AND IND. CUSTOMERS AND REVS. 100.00% 30.11% 0.00% 0.00% 0.00%
121 CONS. SVCS - RES. & SMALL COMMERCIAL AVG OF RESID. REVENUES AND CUSTOMERS 100.00% 26.47% 0.00% 0.00% 0.00%
122 CONSUMER SERVICES - ADMINISTRATION AVERAGE OF R/C 120 &121 100.00% 28.29% 0.00% 0.00% 0.00%
125 MTK./CONS. SVCS - ADMINI. & SUPPORT AVG OF RET. CUSTOMERS, REVENUES, (NET 100.00% 23.95% 0.00% 24.73% 0.00%
INTER CO.) AVERAGE OF EMPLOYEES
218 EMPLOYEE RELATIONS AVG OF EMP. AND TOTAL EUASC BILLINGS. 100.00% 22.83% 1.00% 21.95% 0.50%
269 CONSERVATION & LOAD MGMNT IMPLEM. AVG OF RET. SALES OF EL. & # OF CUST. 100.00% 28.85% 0.00% 0.00% 0.00%
271 MARKETING - ADMINISTRATIVE & SUPPORT AVERAGE OF R/C 266,272, AND 273 100.00% 21.89% 0.00% 50.00% 0.00%
272 MARKETING TARGETED COMM. & IND. CUSTOMER USUAGE 100.00% 43.77% 0.00% 0.00% 0.00%
273 MARKETING - SUPPORT SERVICES AVERAGE OF R/C 266 AND 272 100.00% 21.89% 0.00% 50.00% 0.00%
365 MATERIALS. MGMNT - ADMINI. & SUPPORT MATERIAL AND SUPPLIES INV. BALANCES 100.00% 15.59% 0.00% 37.64% 0.00%
452 BUILDING OPERATIONS & MAINTENANCE GROSS UTIL. PLANT IN SVC EXC. CWIP 100.00% 24.76% 0.00% 20.33% 0.00%
(EXC CANAL, WYMAN, SEABROOK &
MILLSTONE)
455 SYSTEM REAL ESTATE GROSS UTIL. PLANT IN SVC EXC. CWIP 100.00% 24.76% 0.00% 20.33% 0.00%
(EXC CANAL, WYMAN, SEABROOK &
MILLSTONE)
525 TRANSMISSION LINES MILES OF TRANSMISSION LINES 100.00% 15.94% 0.00% 47.82% 0.00%
560 TECH. SVCS - ADMINI. & SUPPORT AVERAGE OF R/C 451,571,581 AND 372 100.00% 24.65% 0.00% 23.04% 0.00%
573 DISTRIBUTION ENGINEERING AVG OF GROSS DIST. PLANT, DIST. LINES 100.00% 26.62% 0.00% 0.00% 0.00%
& KWH SALES NET OF INTER CO.
(EXCL. MONTAUP)
601 OP. & TECH. SVCS - ADMINI. & SUPPORT AVG OF GROSS UTIL. PLANT, T&D LINES 100.00% 23.28% 0.00% 16.27% 0.00%
AND KWH SALES
(NET OF INTERCOMPANY TRANSACTIONS)
605 FIELD OPERATIONS - ADMIN. & SUPPORT AVERAGE OF R/C 633,365,230,610 100.00% 22.10% 0.00% 18.81% 0.00%
610 TRANSMISSION & DISTRIBUTION AVERAGE OF R/C 625,620,650,525,587 100.00% 22.82% 0.00% 10.56% 0.00%
611 UNDERGROUND & OVERHEAD LINES AVERAGE OF T&D AND U.G. LINES 100.00% 22.14% 0.00% 1.70% 0.00%
620 OVERHEAD LINES - DISTRIBUTIONS MILES OF DISTRIBUTION LINES 100.00% 24.01% 0.00% 0.00% 0.00%
625 METER SERVICES NUMBER OF METERS 100.00% 26.87% 0.00% 0.00% 0.00%
650 UNDERGROUND LINES MILES OF UNDERGROUND LINES 100.00% 20.85% 0.00% 0.00% 0.00%
656 SUBSTATION MAINTENANCE INVESTMENT OF STATION EQUIPMENT 100.00% 54.05% 0.00% 0.00% 0.00%
</TABLE>
<TABLE>
<CAPTION>
EUA SERVICE CORPORATION
ADDITIONAL DEPARTMENTALIZED RESTRUCTURE (CONTINUED)
1995 T
<CAPTION>
DEPARTMENTAL RESPONSIBILITY EASTERN EUA EUA
NUMBER CENTER BASIS EDISON COGENEX OCEAN ST. NEWPORT
<S> <C> <C> <C> <C> <C> <C>
120 CONS. SVCS - COMMERCIAL & INDUSTRIAL AVG COMM. AND IND. CUSTOMERS AND REVS. 56.54% 0.00% 0.00% 13.34%
121 CONS. SVCS - RES. & SMALL COMMERCIAL AVG OF RESID. REVENUES AND CUSTOMERS 62.05% 0.00% 0.00% 11.48%
122 CONSUMER SERVICES - ADMINISTRATION AVERAGE OF R/C 120 & 121 59.30% 0.00% 0.00% 12.41%
125 MKT./CONS. SVCS - ADMINI. & SUPPORT AVG OF RET. CUSTOMERS, REVENUES, (NET 41.20% 0.00% 0.00% 10.12%
INTER CO.) AVERAGE OF EMPLOYEES
218 EMPLOYEE RELATIONS AVG OF EMP. AND TOTAL EUASC BILLINGS. 41.14% 0.00% 0.50% 12.08%
269 CONSERVATION & LOAD MGMNT IMPLEM. AVG OF RET. SALES OF EL. & # OF CUST. 59.20% 0.00% 0.00% 11.95%
271 MARKETING - ADMINISTRATIVE & SUPPORT AVERAGE OF R/C 266,272, AND 273 25.29% 0.00% 0.00% 2.82%
272 MARKETING TARGETED COMM. & IND. CUSTOMER USUAGE 50.57% 0.00% 0.00% 5.66%
273 MARKETING - SUPPORT SERVICES AVERAGE OF R/C 266 AND 272 25.29% 0.00% 0.00% 2.82%
365 MATERIALS. MGMNT - ADMINI. & SUPPORT MATERIAL AND SUPPLIES INV. BALANCES 32.39% 0.00% 0.00% 14.38%
452 BUILDING OPERATIONS & MAINTENANCE GROSS UTIL. PLANT IN SVC EXC. CWIP 41.14% 0.00% 0.00% 13.77%
(EXC CANAL, WYMAN, SEABROOK &
MILLSTONE)
455 SYSTEM REAL ESTATE GROSS UTIL. PLANT IN SVC EXC. CWIP 41.14% 0.00% 0.00% 13.77%
(EXC CANAL, WYMAN, SEABROOK &
MILLSTONE)
525 TRANSMISSION LINES MILES OF TRANSMISSION LINES 30.47% 0.00% 0.00% 5.77%
560 TECH. SVCS - ADMINI. & SUPPORT AVERAGE OF R/C 451,571,581 AND 372 41.68% 0.00% 0.00% 10.63%
573 DISTRIBUTION ENGINEERING AVG OF GROSS DIST. PLANT, DIST. LINES 60.77% 0.00% 0.00% 12.61%
& KWH SALES NET OF INTER CO.
(EXCL. MONTAUP)
601 OP. & TECH. SVCS - ADMINI. & SUPPORT AVG OF GROSS UTIL. PLANT, T&D LINES 49.52% 0.00% 0.00% 10.93%
AND KWH SALES
(NET OF INTERCOMPANY TRANSACTIONS)
605 FIELD OPERATIONS - ADMIN. & SUPPORT AVERAGE OF R/C 633,365,230,610 45.28% 0.00% 0.00% 13.81%
610 TRANSMISSION & DISTRIBUTION AVERAGE OF R/C 625,620,650,525,587 55.11% 0.00% 0.00% 11.51%
611 UNDERGROUND & OVERHEAD LINES AVERAGE OF T&D AND U.G. LINES 62.37% 0.00% 0.00% 13.79%
620 OVERHEAD LINES - DISTRIBUTIONS MILES OF DISTRIBUTION LINES 65.96% 0.00% 0.00% 10.03%
625 METER SERVICES NUMBER OF METERS 61.63% 0.00% 0.00% 11.50%
650 UNDERGROUND LINES MILES OF UNDERGROUND LINES 61.29% 0.00% 0.00% 17.86%
656 SUBSTATION MAINTENANCE INVESTMENT OF STATION EQUIPMENT 39.34% 0.00% 0.00% 6.61%
</TABLE>
<TABLE>
EXHIBIT G-4
EUA SERVICE CORPORATION
REORGANIZATION BILLING IMPACT ANALYSIS
1995
<CAPTION> (5A)
(5) EUASC
(1) (2) (3) (4) (4A) ANNUAL LABOR ANNUAL LABOR NET
NO. OF LABOR PRIOR TO LABOR AFTER BILLING NO. OF REDUCTION REDUCTION INCREASE
EMP. COMPANY EUASC TRANSFER EUASC TRANSFER IMPACT RETIREES V.R.I. V.R.I. (DECREASE)
1995-1998 1995-1998
<S> <C> <C> <C> <C> <C> <C> <C> <C>
34 BLACKSTONE VALLEY $1,591,684.00 $1,335,406.00 ($256,278.00) 5 $335,000.00 $282,867.00 ($874,145.00)
EASTERN UTILITIES ASSOC. $0.00 $7,128.79 $7,128.79 $7,010.00 118.79
4 MONTAUP ELECTRIC CO. $602,756.00 $679,708.93 $76,952.93 3 $215,700.00 $317,398.00 ($456,145.07)
47 EASTERN EDISON CO. $2,556,887.00 $2,615,919.86 $59,032.86 13 $766,710.00 $493,687.00 ($1,201,364.14)
COGENEX CORP. $0.00 $8,974.32 $8,974.32 $37,776.00 ($28,801.68)
EUA ENERGY INVESTMENT $0.00 $3,600.85 $3,600.85 $10,385.00 ($6,784.15)
EUA OCEAN STATE $0.00 $3,712.37 $3,712.37 $5,063.00 ($1,350.63)
10 NEWPORT ELECTRIC CORP. $566,116.00 $662,991.89 $96,875.89 6 $420,300.00 $143,966.00 ($467,390.11)
- ---- --------------- -------------- ------------ --- ------------- ------------- --------------
95 $5,317,443.00 $5,317,443.01 ($0.00) 27 $1,737,710.00 $1,298,152.00 ($3,035,862.00)
FOOTNOTES
(1) OPERATING COMPANY EMPLOYEES TRANSFERRED TO EUASC
(2) OPERATING COMPANY EMPLOYEES LABOR
(3) ESTIMATED LABOR BILLING TO OPERATING COMPANIES OF EMPLOYEES TRANSFERRED IN CONJUNCTION WITH THE ORGANIZATION STRUCTURE CHANGES.
(4A) TOTAL OPERATING CO. RETIREES: 27
(4A) TOTAL EUA SERVICE CORP. RETIREES: 22
(4A) TOTAL EMPLOYEE RETIREMENT: 49
(5) ANNUAL LABOR SAVINGS OF EARLY RETIREMENT OFFER (SYSTEM OPERATING COMPANIES)
(5A) ANNUAL LABOR SAVINGS OF EARLY RETIREMENT OFFER (EUA SERVICE CORP.)
(6) NET SAVINGS TO SYSTEM OPERATING COMPANIES ATTRIBUTED TO CENTRALIZATION OF EXECUTIVE AND MANAGEMENT FUNCTIONS AND
EARLY RETIREMENT OFFER.
ANNUAL LABOR PAYBACK PERIOD
COMPANY COST OF V.R.I.(a) SAVINGS FROM VRI (YEARS)
BLACKSTONE VALLEY $911,694.00
EASTERN UTILITIES ASSOC. $21,419.00
MONTAUP ELECTRIC CO. $891,923.00
EASTERN EDISON CO. $1,521,199.00
COGENEX CORP. $180,106.00
EUA ENERGY INVESTMENT $10,517.00
EUA OCEAN STATE $11,369.00
NEWPORT ELECTRIC CORP. $956,323.00
---------------
TOTAL $4,504,550.00 $3,035,862.00 1.5
(a) INCLUDES ALLOCATION OF EUASC VRI COSTS.
</TABLE>
<TABLE>
EXHIBIT G-5
EUA SERVICE CORPORATION
EXECUTIVE TRANSFERS
REORGANIZATION
<CAPTION>
POSITION BEFORE REORGANIZATION* POSITION AFTER REORGANIZATION**
<S> <C>
John Carney John Carney
President Eastern Edison Company Executive Vice President Operations-
Director Eastern Edison Company EUA Service Corporation
Vice President EUA Service Corpor. Director EUA Service Corporation
Director EUA Service Corporation President Blackstone Valley Electric
Vice President Montaup Electric Director Blackstone Valley Electric
Director Montaup Electric President Eastern Edison Company
Director Eastern Edison Company
President Newport Electric
Director Newport Electric
Executive Vice President Ocean State Power
Executive Vice President Montaup Electric
Director Montaup Electric
Executive Vice President EUA TransCapacity
Executive Vice President Eastern Utilities
Associates
Executive Vice President EUA Cogenex
Director EUA Cogenex
Executive Vice President EUA BIOTEN
Director EUA BIOTEN
Executive Vice President EUA Unicord
Director EUA Unicord
David Gulvin David Gulvin
President Blackstone Valley Electric Senior Vice President Marketing-
Director Blackstone Valley Electric EUA Service Corporation
President Newport Electric Director EUA Service Corporation
Director Newport Electric Senior Vice President Blackstone Valley
Vice President EUA Service Corpor. Electric
Director EUA Service Corporation Director Blackstone Valley Electric
Vice President Montaup Electric Senior Vice President Eastern Edison Company
Director Montaup Electric Director Eastern Edison Company
Senior Vice President Newport Electric
Director Newport Electric
Vice President Montaup Electric
Director Montaup Electric
Barbara Hassan Barbara Hassan
Vice President Eastern Edison Company Vice President Field Operations-
EUA Service Corporation
Vice President Blackstone Valley Electric
Vice President Eastern Edison Company
Vice President Newport Electric
Michael Hirsh Michael Hirsh
Vice President Blackstone Vice President Technical Services-
Valley Electric EUA Service Corporation
Vice President Blackstone Valley Electric
Vice President Eastern Edison Company
Vice President Newport Electric
* Data Source: 1994 U5S
** Board Of Directors Minutes
</TABLE>
EXHIBIT G-6
EUA SERVICE CORPORATION
INTER- COMPANY BILLING
EXECUTIVE OVERVIEW
The EUASC Inter-Company Billing System extracts data from the General
Ledger, Payroll and Accounts Payable Systems. Once that data is obtained, all
account numbers are re-verified using the "Central Account Validation" process.
After account corrections have been made, The "Internal Allocation" process
is used to assure all expenses are categorized by responsibility center. This
results in a "departmental expense pool" for each center.
From this "departmental expense pool", direct labor charges are removed with
their related overheads. Direct labor can be charged to Operating Companies
expense or construction; or to a Service Corporation Special Request" (which in
turn is allocated to Expense or Construction).
Two categories of Overheads are applied to 'direct labor' ; Direct Overheads
and General & Administrative Overheads.
Direct Overheads are those directly related to payroll, such as health
insurance and payroll taxes. Direct Overheads are applied to all labor.
General & Administrative Overheads are those "office expenses" which can be
thought of as being incurred in support of the employee's efforts, such as
heat, light and power; office rents; etc. G&A Overheads are applied only to
Construction labor.
At this stage of the billing process, internal "house Keeping" is performed.
Service Corporation labor charged directly to it's own Construction, Deferred
or Non-Affiliated Activity is removed from each departmental expense pool",
with their related overheads essentially the same as those described above.
Once all directly charged labor and overheads have been removed from the
"departmental expense pools" the final "Departmental Allocation" process is
performed.
Each responsibility center is assigned allocation factors based upon some
objective measurement of the service that they perform. For example, the Human
Resources Responsibility Center is allocated to each Operating Company based
upon "Number of Employees" at each location.
Upon completion of this final stage of the billing process, a staff accountant
then analyzes various reports to assure the accuracy of all reports and
processes.
EXHIBIT G7
EUA SERVICE CORPORATION
INTERCOMPANY BILLING RECONCILIATION
OCTOBER 1995
RECONCILIATION OF TOTAL EXPENSES
PER FINANCIAL STATEMENT (PAGE 1)
TOTAL OPERATING EXPENSES: $3,642,663.26
OPERATING INCOME:
OTHER INCOME: (BILLED TO ASSOC., CO's.) ($1,291.50)
OTHER DEDUCTIONS ( BILLED TO ASSOC. CO's.) $0.00
TOTAL INTEREST CHARGES: $ 103,964.90
------------
TOTAL EXPENSES $3,745,336.66
ADJUSTMENTS $0.00
------------
$3,745,336.66
PER REPORT 20 - CURRENT MONTH COMPANY RECAP
TOTAL ALLOCATED EXPENSES: $2,297,614.34
NON-AFFILIATED EXPENSES: $32,466.32
DIRECT EXPENSES
EXPENSES: $1,101,335.66
CONSTRUCTION $206,227.64
SPECIAL REQUEST $99,879.80
EUASC CAPITAL & DEFERRED (RPT. 29) $7,812.90
------------
$3,745,336.66
VARIANCE $0.00
