<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File Number 0-5464
(LOGO) MASSACHUSETTS ELECTRIC COMPANY
(Exact name of registrant as specified in charter)
MASSACHUSETTS 04-1988940
(State or other (I.R.S. Employer
jurisdiction of Identification No.)
incorporation or
organization)
25 Research Drive, Westborough, Massachusetts 01582
(Address of principal executive offices)
Registrant's telephone number, including area code
(508-389-2000)
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 ( )
Common stock, par value $25 per share, authorized and
outstanding: 2,398,111 shares at September 30, 1998.
<PAGE>
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
- ----------------------------
<TABLE>
MASSACHUSETTS ELECTRIC COMPANY
Statements of Income
Periods Ended September 30
(Unaudited)
<CAPTION>
Quarter Nine Months
------- -----------
1998 1997 1998 1997
---- ---- ---- ----
(In Thousands)
<S> <C> <C> <C> <C>
Operating revenue $380,409 $404,990 $1,139,012 $1,180,050
-------- -------- ---------- ----------
Operating expenses:
Purchased electric energy, principally from
New England Power Company, an affiliate 238,593 302,596 749,858 862,288
Other operation 74,818 51,398 201,816 149,478
Maintenance 7,867 8,185 25,215 24,489
Depreciation 16,171 12,638 46,865 37,714
Taxes, other than income taxes 13,444 7,620 30,382 24,534
Income taxes 9,166 4,932 23,195 19,988
-------- -------- ---------- ----------
Total operating expenses 360,059 387,369 1,077,331 1,118,491
-------- -------- ---------- ----------
Operating income 20,350 17,621 61,681 61,559
Other income (expense), net (91) (198) (3,418) (2,305)
-------- -------- ---------- ----------
Operating and other income 20,259 17,423 58,263 59,254
-------- -------- ---------- ----------
Interest:
Interest on long-term debt 6,673 6,688 20,214 20,775
Other interest 1,848 2,790 5,179 6,761
Allowance for borrowed funds used during
construction - credit (182) (96) (473) (312)
-------- -------- ---------- ----------
Total interest 8,339 9,382 24,920 27,224
-------- -------- ---------- ----------
Net income $ 11,920 $ 8,041 $ 33,343 $ 32,030
======== ======== ========== ==========
Statements of Retained Earnings
Retained earnings at beginning of period $196,918 $171,581 $ 201,156$ 165,936
Net income 11,920 8,041 33,343 32,030
Dividends declared on cumulative
preferred stock (240) (779) (720) (2,336)
Dividends declared on common stock (11,990) (2,398) (37,171) (19,185)
Premium on redemption of preferred stock (29) - (29) -
-------- -------- ---------- ----------
Retained earnings at end of period $196,579 $176,445 $ 196,579 $ 176,445
======== ======== ========== ==========
The accompanying notes are an integral part of these financial statements.
Per share data is not relevant because the Company's common stock is wholly
owned by New England Electric System.
</TABLE>
<PAGE>
<TABLE> MASSACHUSETTS ELECTRIC COMPANY
Statements of Income
Twelve Months Ended September 30
(Unaudited)
<CAPTION>
1998 1997
---- ----
(In Thousands)
<S> <C> <C>
Operating revenue $1,583,047 $1,570,747
---------- ----------
Operating expenses:
Purchased electric energy, principally from
New England Power Company, an affiliate 1,032,617 1,131,940
Other operation 269,488 208,286
Maintenance 37,632 32,504
Depreciation 58,845 48,959
Taxes, other than income taxes 36,991 31,238
Income taxes 45,661 32,308
---------- ----------
Total operating expenses 1,481,234 1,485,235
---------- ----------
Operating income 101,813 85,512
Other income (expense), net (2,649) (1,002)
---------- ----------
Operating and other income 99,164 84,510
---------- ----------
Interest:
Interest on long-term debt 27,051 27,668
Other interest 5,632 8,245
Allowance for borrowed funds used during
construction - credit (590) (395)
---------- ----------
Total interest 32,093 35,518
---------- ----------
Net income $ 67,071 $ 48,992
========== ==========
Statements of Retained Earnings
Retained earnings at beginning of period $ 176,445 $ 156,947
Net income 67,071 48,992
Dividends declared on cumulative preferred stock (1,205) (3,115)
Dividends declared on common stock (41,967) (26,379)
Premium on redemption of preferred stock (3,765) -
---------- ----------
Retained earnings at end of period $ 196,579 $ 176,445
========== ==========
The accompanying notes are an integral part of these financial statements.
Per share data is not relevant because the Company's common stock is wholly
owned by New England Electric System.
</TABLE>
<PAGE>
<TABLE>
MASSACHUSETTS ELECTRIC COMPANY
Balance Sheets
(Unaudited)
<CAPTION>
September 30, December 31,
ASSETS 1998 1997
------ ---- ----
(In Thousands)
<S> <C> <C>
Utility plant, at original cost $1,603,922 $1,579,309
Less accumulated provisions for depreciation 487,715 465,796
---------- ----------
1,116,207 1,113,513
Construction work in progress 19,011 13,363
---------- ----------
Net utility plant 1,135,218 1,126,876
---------- ----------
Current assets:
Cash 7,265 6,743
Accounts receivable:
From sales of electric energy 174,777 158,627
Other (including $33,796,000 and $1,321,000 from affiliates) 35,163 2,112
Less reserves for doubtful accounts 14,890 12,808
---------- ----------
195,050 147,931
Unbilled revenues 52,702 49,513
Materials and supplies, at average cost 9,274 9,599
Prepaid and other current assets 15,097 22,255
---------- ----------
Total current assets 279,388 236,041
---------- ----------
Deferred charges and other assets 43,314 45,450
---------- ----------
$1,457,920 $1,408,367
========== ==========
CAPITALIZATION AND LIABILITIES
------------------------------
Capitalization:
Common stock, par value $25 per share, authorized
and outstanding 2,398,111 shares $ 59,953 $ 59,953
Premiums on capital stocks 45,945 45,945
Other paid-in capital 193,498 193,224
Retained earnings 196,579 201,156
Unrealized gain on securities, net 165 129
---------- ----------
Total common equity 496,140 500,407
Cumulative preferred stock 15,739 15,739
Long-term debt 328,438 338,387
---------- ----------
Total capitalization 840,317 854,533
---------- ----------
Current liabilities:
Long-term debt due within one year 25,000 20,000
Short-term debt (including $52,950,000 and $4,800,000
to affiliates) 52,950 34,700
Accounts payable (including $112,820,000 and $179,211,000
to affiliates) 197,192 195,023
Accrued liabilities:
Taxes 1,893 8,275
Interest 7,775 9,183
Other accrued expenses 64,933 22,081
Customer deposits 4,639 4,487
Dividends payable 240 5,036
---------- ----------
Total current liabilities 354,622 298,785
---------- ----------
Deferred federal and state income taxes 185,106 179,474
Unamortized investment tax credits 14,649 15,463
Other reserves and deferred credits 63,226 60,112
---------- ----------
$1,457,920 $1,408,367
========== ==========
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
<TABLE>
MASSACHUSETTS ELECTRIC COMPANY
Statements of Cash Flows
Nine Months Ended September 30
(Unaudited)
<CAPTION> 1998 1997
---- ----
(In Thousands)
<S> <C> <C>
Operating Activities:
Net income $ 33,343 $ 32,030
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 46,865 37,714
Deferred income taxes and investment tax credit, net 6,010 (6,915)
Allowance for borrowed funds used during construction (473) (312)
Decrease (increase) in accounts receivable, net
and unbilled revenues (50,308) 31,681
Decrease (increase) in materials and supplies 325 (127)
Decrease (increase) in prepaid and other current assets 7,158 1,271
Increase (decrease) in accounts payable 2,169 13,870
Increase (decrease) in other current liabilities 35,214 21,285
Other, net 7,755 14,157
-------- --------
Net cash provided by operating activities $ 88,058 $144,654
-------- --------
Investing Activities:
Plant expenditures, excluding allowance for
funds used during construction $(54,805) $(64,712)
Other investing activities (3,539) (1,350)
-------- --------
Net cash used in investing activities $(58,344) $(66,062)
-------- --------
Financing Activities:
Capital contributions from parent $ 274 $ -
Dividends paid on common stock (41,967) (23,981)
Dividends paid on preferred stock (720) (2,336)
Long-term debt - issues 25,000 -
Long-term debt - retirements (30,000) (30,000)
Changes in short-term debt 18,250 (22,500)
Premium on reacquisition of preferred stock (29) -
-------- --------
Net cash used in financing activities $(29,192) $(78,817)
-------- --------
Net increase (decrease) in cash and cash equivalents $ 522 $ (225)
Cash and cash equivalents at beginning of period 6,743 2,356
-------- --------
Cash and cash equivalents at end of period $ 7,265 $ 2,131
======== ========
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
Note A - Hazardous Waste
- ------------------------
The Federal Comprehensive Environmental Response, Compensation
and Liability Act, more commonly known as the "Superfund" law,
imposes strict, joint and several liability, regardless of fault,
for remediation of property contaminated with hazardous substances.
A number of states, including Massachusetts, have enacted similar
laws.
The electric utility industry typically utilizes and/or
generates in its operations a range of potentially hazardous
products and by-products. Massachusetts Electric Company (the
Company) currently has in place an internal environmental audit
program and an external waste disposal vendor audit and
qualification program intended to enhance compliance with existing
federal, state, and local requirements regarding the handling of
potentially hazardous products and by-products.
The Company has been named as a potentially responsible party
(PRP) by either the United States Environmental Protection Agency
or the Massachusetts Department of Environmental Protection for 16
sites at which hazardous waste is alleged to have been disposed.
Private parties have also contacted or initiated legal proceedings
against the Company regarding hazardous waste cleanup. The most
prevalent types of hazardous waste sites with which the Company has
been associated are manufactured gas locations. (Until the early
1970s, New England Electric System (NEES) was a combined electric
and gas holding company system.) The Company is aware of
approximately 35 such manufactured gas locations in Massachusetts.
The Company has been identified as a PRP at eight of these
manufactured gas locations, which are included in the 16 PRP sites
discussed above. The Company is engaged in various phases of
investigation and remediation work at 17 of the manufactured gas
locations. The Company is currently aware of other possible
hazardous waste sites, and may in the future become aware of
additional sites, that it may be held responsible for remediating.
In 1993, the Massachusetts Department of Public Utilities
approved a settlement agreement regarding the rate recovery of
remediation costs of former manufactured gas sites and certain
other hazardous waste sites located in Massachusetts. Under that
agreement, qualified remedial costs related to these sites are paid
out of a special fund established on the Company's books. The
Company made an initial $30 million contribution to the fund.
Rate-recoverable contributions of $3 million, adjusted since 1993
for inflation, are added annually to the fund along with interest
and any recoveries from insurance carriers and other third parties.
At September 30, 1998, the fund had a balance of $46 million.
<PAGE>
Predicting the potential costs to investigate and remediate
hazardous waste sites continues to be difficult. There are also
significant uncertainties as to the portion, if any, of the
investigation and remediation costs of any particular hazardous
waste site that may ultimately be borne by the Company. The NEES
companies have recovered amounts from certain insurers and other
third parties, and, where appropriate, the Company intends to seek
recovery from other insurers and from other PRPs, but it is
uncertain whether, and to what extent, such efforts will be
successful. At September 30, 1998, the Company had total reserves
for environmental response costs of $47 million. This represents
an increase from the $35 million balance at the end of 1997. Since
all of the sites for which increased reserves were recognized are
covered by rate agreements, this increase in the reserves did not
have an adverse effect on net income. The Company believes that
hazardous waste liabilities for all sites of which it is aware, and
which are not covered by a rate agreement, are not material to its
financial position.
Note B - Comprehensive Income
- -----------------------------
In the first quarter of 1998, the Company adopted Statement of
Financial Accounting Standards No. 130, Reporting Comprehensive
Income (FAS 130). FAS 130 establishes standards for reporting
comprehensive income and its components. Comprehensive income for
the period is equal to net income plus "other comprehensive
income," which, for the Company, consists of the change in
unrealized holding gains on available-for-sale securities during
the period. Other comprehensive income was immaterial for the
Company for the third quarter and nine month periods ended
September 30, 1998 and 1997, respectively.
Note C - New Accounting Standards
- ---------------------------------
In 1997, the Financial Accounting Standards Board (FASB)
released Statement of Financial Accounting Standards No. 131,
Disclosure about Segments of an Enterprise and Related Information
(FAS 131), which goes into effect in 1998. FAS 131 requires the
<PAGE>
reporting in financial statements of certain new additional
information about operating segments of a business. Application of
FAS 131 is not required for interim reporting in the initial year
of application. The Company is currently evaluating the impact
that FAS 131 will have on its future reporting requirements.
In February 1998, the FASB issued Statement of Financial
Accounting Standards No. 132, Employers' Disclosures about Pensions
and Other Postretirement Benefits (FAS 132), which revises
disclosure requirements for pension and other postretirement
benefits. The Company will adopt FAS 132 in its financial
statements for the year ending December 31, 1998.
The adoption of FAS 131 and FAS 132 will have no impact on the
Company's operating results, financial position, or cash flows.
In June 1998, the FASB issued Statement of Financial Accounting
Standards No. 133, Accounting for Derivative Instruments and
Hedging Activities (FAS 133), which establishes accounting and
reporting standards for such instruments. FAS 133 is effective for
fiscal years beginning after June 15, 1999. Currently, the Company
has no such derivative holdings.
Note D
- ------
In the opinion of the Company, these statements reflect all
adjustments (which include normal recurring adjustments) necessary
for a fair statement of the results of its operations for the
periods presented and should be considered in conjunction with the
notes to the financial statements in the Company's 1997 Annual
Report.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
- -----------------------------------------------------------------
This section contains management's assessment of Massachusetts
Electric Company's (the Company) financial condition and the
principal factors having an impact on the results of operations.
This discussion should be read in conjunction with the Company's
financial statements and footnotes and the 1997 Annual Report on
Form 10-K.
Earnings
- --------
Net income for the third quarter and first nine months of 1998
increased by $3.9 million and $1.3 million, respectively, as
compared to the corresponding periods in 1997. These increases are
primarily due to a rate increase implemented in March 1998, and
increased kilowatthour (kWh) deliveries of 5.1 percent and 1.2
percent for the third quarter and year-to-date periods,
respectively. In addition, during 1997 the Company experienced an
underrecovery of purchased power costs in the third quarter,
although an overrecovery of such costs existed for the year-to-date
period in 1997. There is no such underrecovery or overrecovery of
purchased power costs in 1998. This reflects the implementation of
fully reconciling purchased power and transmission cost rate
mechanisms in March 1998 as compared to partially reconciling
mechanisms in place in 1997, as well as a retroactive purchased
power billing adjustment from New England Power Company (NEP) in
the first quarter of 1998. Earnings were reduced by one-time
property tax adjustments paid in the third quarter of 1998 to
certain municipalities, and increased depreciation expense.
This report contains statements that may be considered forward
looking under the securities laws. Actual results may differ
materially, for reasons described in this report.
Industry Restructuring
- ----------------------
For a full discussion of industry restructuring activities in
Massachusetts, stranded cost recovery, accounting implications of
industry restructuring and divestiture, workforce reductions, and
impact of industry restructuring on the distribution business, see
<PAGE>
the "Industry Restructuring" section in the Company's Form 10-K for
1997 and the Company's 1997 Annual Report.
Divestiture of Generating Business
On September 1, 1998, NEES subsidiaries NEP and The
Narragansett Electric Company completed the sale of substantially
all of their nonnuclear generating business to USGen New England,
Inc. (USGen), an indirect wholly owned subsidiary of PG&E
Corporation. Effective September 1, 1998, USGen and TransCanada
Power Marketing, Ltd. (TCPM) became the Company's suppliers for
meeting its obligations for transition service customers. For
more information on the terms and events leading to the sale, the
accounting implications of the sale, and the assets sold, see the
Company's Annual Report on Form 10-K for the year ended December
31, 1997.
Year 2000 Computer Issues
- -------------------------
Over the next year, most companies will face a potentially
serious information systems (computer) problem because many
software applications and operational programs written in the past
may not properly recognize calendar dates associated with the year
2000 (Y2K). This could cause computers to either shut down or lead
to incorrect calculations.
During 1996, the NEES companies began the process of
identifying the changes required to their computer software and
hardware to mitigate Y2K issues. The NEES companies established a
Y2K Project team to manage these issues. This team reports project
progress to a recently formed Y2K Executive Oversight Committee
each month. The team also makes regular reports to NEES' Board of
Directors and its Audit Committee. The NEES companies have
separated their Y2K Project into four parts as shown below, along
with the estimated completion dates for each part.
<PAGE>
<TABLE>
<CAPTION>
Substantial Contingency Testing,
Completion Documentation,
of Critical and Clean
Category Specific Example Systems Management
- ------- ------------- --------- ----------------
<S> <C> <C> <C>
Mainframe/Midrange Accounting/Customer Fourth quarter Throughout 1999
Systems service integrated 1998
systems
Desktop Systems Personal computers/ Mid-1999 Throughout 1999
Department software/
Networks
Operational/ Dispatching systems/ Mid-1999 Throughout 1999
Embedded Transmission and
Systems Distribution systems/
Telephone systems
External Issues Electronic Data Mid-1999 Throughout 1999
Interchange/Vendor
communications
</TABLE>
The NEES companies are using a three-phase approach in
coordinating their Y2K Project for system-related issues: (I)
Assessment and Inventory, (II) Pilot Testing, and (III) Renovation,
Conversion, or Replacement of Application and Operating Software
Packages and Testing. Phase I, which was an initial assessment of
all systems and devices for potential Y2K defects, was completed in
mid-1997. Phase II, which consisted of renovation pilots for a
cross-section of systems in order to facilitate the establishment
of templates for Phase III work, was completed in late 1997. Phase
III, which is currently ongoing, requires the renovation,
conversion, or replacement of the remaining applications and
operating software packages.
The NEES companies have also implemented a formalized
communication process with third parties to receive information
related to their progress in remediating their own Y2K issues, and
to communicate the NEES companies' progress in addressing the Y2K
issue. These third parties include major customers, suppliers, and
significant businesses with which the NEES companies have data
links (such as banks). The NEES companies cannot predict the
outcome of other companies' remediation efforts.
The NEES companies believe total costs associated with making
the necessary modifications to all centralized and noncentralized
<PAGE>
systems will be approximately $25 million. In addition, the NEES
companies are spending $4 million related to the implementation of
a new human resources and payroll system, the replacement of which
is in part due to the Y2K issue. To date, total Y2K-related costs
of $19 million have been incurred, of which $1 million has been
capitalized.
The NEES companies are in the process of developing Y2K
contingency plans to allow for critical information and operating
systems to function from January 1, 2000 forward. If required,
these plans are intended to address both internal risks as well as
potential external risks related to both suppliers and customers.
Part of the contingency planning for accounting and desktop systems
will include taking extensive data back-ups prior to year-end
closing. For operational systems, the NEES companies have in place
an overall disaster recovery program, which already includes
periodic disaster simulation training (for outages due to severe
weather, for instance). As part of Y2K contingency planning, the
NEES companies will review their disaster recovery plans, modifying
them for Y2K-specific issues. The NEES companies expect that these
contingency plans will be in place by mid-1999.
Interregional and regional contingency plans are being
formulated that address emergency scenarios due to the
interconnection of utility systems throughout the United States.
At a regional level, the NEES companies are participating and
cooperating with the New England Power Pool (NEPOOL) and the
Independent System Operator of the NEPOOL area (ISO New England).
Overall regional activities, including those of NEPOOL and ISO New
England, will be coordinated by the Northeast Power Coordinating
Council, whose activities will be incorporated into the
interregional coordinating effort by the North American Electric
Reliability Council. The target for completion of this planning
process is mid-1999. The NEES companies have noted that the Y2K
coordination efforts by ISO New England began only in May 1998,
resulting in a demanding and difficult schedule to attain regional
and interregional target dates.
The NEES companies believe the worst case scenario with a
reasonable chance of occurring is temporary disruptions of electric
service. This scenario could result from a failure to adequately
remediate Y2K problems at NEES company facilities or could be
caused by the inability of entities, such as ISO New England, to
maintain the short-term reliability of various generators and/or
transmission lines on a regional or superregional basis. The NEES
companies believe that the contingency plans being developed both
<PAGE>
internally and on a regional level, as described above, should
substantially mitigate the risks of this potential scenario. In
the event that a short-term disruption in service occurs, the
Company does not expect that it would have a material impact on its
financial position and results of operations.
While the NEES companies believe that their overall Y2K
program will satisfactorily address all critical operational and
system-related issues, significant risks remain. These risks
include, but are not limited to, the Y2K readiness of third
parties, including other utilities and power suppliers, cost and
timeline estimates of remaining Y2K mitigation efforts, and the
overall accuracy of assumptions made related to future events in
the development of the Y2K mitigation effort.
Operating Revenue
- -----------------
The following table summarizes the changes in operating
revenue:
Increase (Decrease) in Operating Revenue
Third Quarter Nine Months
------------- ------------
1998 vs 1997 1998 vs 1997
------------- ------------
(In Millions)
Purchased power and
transmission-related $(34) $(72)
1997 Purchased power cost
adjustment (PPCA) mechanism (2) 7
Distribution rate increase 11 26
KWh deliveries to ultimate customers 4 2
Other (4) (4)
---- ----
$(25) $(41)
==== ====
Historically, the Company purchased all of its electrical
requirements from NEP under the provisions of an all-requirements
contract at NEP's standard resale rate. Effective March 1, 1998,
the contract was amended, terminating the all-requirements
provision of the contract. The Company's customers also gained the
right to choose their power supplier. NEP continued to supply
power to the Company, at lower rates, for customers that continued
<PAGE>
to take power from the Company, until September 1, 1998, when USGen
and TCPM became the Company's wholesale power suppliers. All
customers pay rates that include contract termination charges due
NEP for its generation-related stranded costs. Commencing in March
1998, the revenues that the Company is billing to its customers
related to NEP's costs are all subject to true-up mechanisms based
on NEP's actual billings. The revenues that the Company bills
customers, related to power supply costs both prior to and
subsequent to NEP's sale of its nonnuclear generating business, are
also subject to true-up mechanisms. Prior to March, only the fuel
component of purchased power expense was subject to a similar fully
reconciling true-up mechanism. The remainder of purchased power
expense had previously been subject to a partial PPCA true-up
mechanism.
The Massachusetts Settlement provided for the end of the
Company's PPCA mechanism in 1996. Prior to Federal Energy
Regulatory Commission approval, which occurred in the fourth
quarter of 1997, PPCA refund provisions continued to be accrued.
In the third quarter, revenues of approximately $2 million were
recorded, resulting in net refund provisions of $7 million accrued
for the first nine months of 1997, which were subsequently reversed
in the fourth quarter of 1997.
In March 1998, the Company also put into effect a $45 million
rate increase. This increase reflects changes to the distribution
cost of service that include an $11 million increase in annual
depreciation expense, a $3 million annual contribution to a storm
fund, and increased amortization of unfunded deferred income taxes
of approximately $1 million per year over six years.
The third quarter and year-to-date increase in revenues related
to kWh deliveries to ultimate customers reflects an increase of 5.1
percent and 1.2 percent in kWh deliveries, respectively, primarily
due to warmer weather in the third quarter of 1998 as compared to
the corresponding period in 1997. The year-to-date increase is
driven entirely by the third quarter increase.
The decrease in other revenues is primarily due to a reduction
in demand-side management revenues and other miscellaneous
revenues.
<PAGE>
Operating Expenses
- ------------------
The following table summarizes the changes in operating
expenses:
Increase (Decrease) in Operating Expenses
Third Quarter Nine Months
------------- ------------
1998 vs 1997 1998 vs 1997
------------- ------------
(In Millions)
Purchased power and operation
and maintenance:
Purchased power and
transmission costs $(45) $(64)
Other 4 5
Depreciation 4 9
Taxes 10 9
---- ----
$(27) $(41)
==== ====
As noted above, effective March 1, 1998, purchased power
billings to the Company were significantly changed in connection
with the restructuring of the electric utility industry in
Massachusetts. Not only were NEP's rates reduced but the
transmission portion of NEP's costs are now billed separately and
recorded in operation and maintenance expense instead of as a
component of purchased power expense. Partially offsetting these
decreases in expense was a retroactive billing by NEP in February
1998 related to certain meter reading corrections which increased
purchased power expense by approximately $2 million.
The increase in other operation and maintenance expense
primarily reflects increased distribution-related and general and
administrative expenses, partially offset by lower charges for
postretirement benefits other than pensions expense and lower
uncollectible accounts expense.
The increase in depreciation expense primarily reflects a
portion of the $11 million increase in annual depreciation expense
provided for in the Massachusetts industry restructuring
<PAGE>
settlement, and depreciation expense on new utility plant
expenditures.
The increase in taxes is related to additional property tax
payments made during the third quarter to certain municipalities to
reflect corrections identified by the Company related to plant
valuation amounts used in the calculation of property taxes by
those municipalities. These revised valuation amounts are expected
to have a continuing impact on property taxes paid by the Company.
Utility Plant Expenditures and Financing
- ----------------------------------------
Cash expenditures for utility plant totaled $55 million for the
first nine months of 1998. The funds necessary for utility plant
expenditures during the period were primarily provided by net cash
from operating activities, after the payment of dividends, and
increased short-term debt.
In the first nine months of 1998, the Company issued $25
million of long-term debt, retired $30 million of mortgage bonds
and increased its short-term debt outstanding by $18 million.
At September 30, 1998, the Company had lines of credit with
banks totaling $65 million which are available to provide liquidity
support and for other corporate purposes. There were no borrowings
under these lines of credit at September 30, 1998.
In October 1998, the Company repurchased or redeemed preferred
stock with a par value of $5.1 million.
For the twelve-month period ended September 30, 1998, the
ratio of earnings to fixed charges was 4.42.
<PAGE>
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
- -----------------------------------------
The Company is filing the following revised exhibit for
incorporation by reference into its registration statement on Form
S-3, Commission File No. 33-59145.
12 Statement re computation of ratios
The Company is filing Financial Data Schedules.
The Company did not file any reports on Form 8-K during the
third quarter of 1998.
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report on Form 10-Q for
the quarter ended September 30, 1998 to be signed on its behalf by
the undersigned thereunto duly authorized.
MASSACHUSETTS ELECTRIC COMPANY
s/John G. Cochrane
John G. Cochrane, Treasurer,
Authorized Officer, and
Principal Financial Officer
Date: November 12, 1998
Exhibit Index
<PAGE>
Exhibit Index
-------------
Exhibit Description Page
- ------- ----------- ----
12 Statement re computation of Filed herewith
ratios
27 Financial Data Schedule Filed herewith
<PAGE>
<TABLE>
MASSACHUSETTS ELECTRIC COMPANY
Computation of Ratio of Earnings to Fixed Charges
(SEC Coverage)
(Unaudited)
<CAPTION>
12 Months
Ended
September 30, 1998 Years Ended December 31,
Actual -------------------------------------------------------------
(Unaudited) 1997 1996 1995 1994 1993
-------------- ---- ---- ---- ---- ----
(In Thousands)
<S> <C> <C> <C> <C> <C> <C>
Net Income $ 67,071 $ 65,758 $37,926 $29,101 $34,726 $23,779
- ----------
Add income taxes and fixed charges:
Current federal income taxes 26,134 34,244 25,867 9,437 (6,762) 5,606
Deferred federal income taxes 11,318 912 (6,052) 6,156 24,932 3,430
Investment tax credits - net (1,090) (1,103) (1,118) (1,132) (1,228) (1,228)
Massachusetts franchise tax 8,460 7,514 4,479 3,935 4,681 3,348
Interest on long-term debt 27,051 27,612 27,089 25,901 20,967 23,403
Interest on short-term debt and other5,632 7,214 6,473 6,784 6,366 3,638
-------- -------- ------- ------- ------- -------
Net earnings available for fixed charges $144,576 $142,151 $94,664 $80,182 $83,682 $61,976
======== ======== ======= ======= ======= =======
Fixed charges:
Interest on long-term debt $ 27,051 $ 27,612 $27,089 $25,901 $20,967 $23,403
Interest on short-term debt and other5,632 7,214 6,473 6,784 6,366 3,638
-------- ------- ------- ------- ------- -------
Total fixed charges $ 32,683 $ 34,826 $33,562 $32,685 $27,333 $27,041
======== ======= ======= ======= ======= =======
Ratio of earnings to fixed charges 4.42 4.08 2.82 2.45 3.06 2.29
- ----------------------------------
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> UT
<LEGEND> THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
THE BALANCE SHEET AND RELATED STATEMENTS OF INCOME, RETAINED
EARNINGS AND CASH FLOWS OF MASSACHUSETTS ELECTRIC COMPANY IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
<MULTIPLIER> 1,000
<S> <C>
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<PERIOD-TYPE> 9-MOS
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 1,135,218
<OTHER-PROPERTY-AND-INVEST> 0
<TOTAL-CURRENT-ASSETS> 279,388
<TOTAL-DEFERRED-CHARGES> 43,314 <F1>
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 1,457,920
<COMMON> 59,953
<CAPITAL-SURPLUS-PAID-IN> 239,443
<RETAINED-EARNINGS> 196,579
<TOTAL-COMMON-STOCKHOLDERS-EQ> 496,140 <F3>
0
15,739
<LONG-TERM-DEBT-NET> 328,438
<SHORT-TERM-NOTES> 52,950
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 25,000
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 539,653
<TOT-CAPITALIZATION-AND-LIAB> 1,457,920
<GROSS-OPERATING-REVENUE> 1,139,012
<INCOME-TAX-EXPENSE> 23,195
<OTHER-OPERATING-EXPENSES> 1,054,136
<TOTAL-OPERATING-EXPENSES> 1,077,331
<OPERATING-INCOME-LOSS> 61,681
<OTHER-INCOME-NET> (3,418)
<INCOME-BEFORE-INTEREST-EXPEN> 58,263
<TOTAL-INTEREST-EXPENSE> 24,920
<NET-INCOME> 33,343
720
<EARNINGS-AVAILABLE-FOR-COMM> 32,623
<COMMON-STOCK-DIVIDENDS> 37,171
<TOTAL-INTEREST-ON-BONDS> 20,214
<CASH-FLOW-OPERATIONS> 88,058
<EPS-PRIMARY> 0 <F2>
<EPS-DILUTED> 0 <F2>
<FN>
<F1> Total deferred charges includes other assets.
<F2> Per share data is not relevant because the Company's common stock is
wholly owned by New England Electric System.
<F3> Total common stockholders equity includes the unrealized gain on
securities.
</FN>
