<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 March 31, 1997
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File Number 1-7471
(LOGO) THE NARRAGANSETT ELECTRIC COMPANY
(Exact name of registrant as specified in charter)
Rhode Island 05-0187805
(State or other (I.R.S. Employer
jurisdiction of Identification No.)
incorporation or
organization)
280 Melrose Street, Providence, R.I. 02901
(Address of principal executive offices)
Registrant's telephone number, including area code
(401-784-7000)
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 $50 per share, authorized and
outstanding: 1,132,487 shares at March 31, 1997.
<PAGE>
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
- ----------------------------
<TABLE>
THE NARRAGANSETT ELECTRIC COMPANY
Statements of Income
Periods Ended March 31
(Unaudited)
<CAPTION>
Three Months Twelve Months
------------ -------------
1997 1996 1997 1996
---- ---- ---- ----
(In Thousands)
<S> <C> <C> <C> <C>
Operating revenue $131,466 $127,285 $507,766 $501,378
-------- -------- -------- --------
Operating expenses:
Fuel for generation and purchased electric
energy (principally from New England
Power Company, an affiliate) 77,173 73,689 300,544 295,539
Other operation 17,826 17,103 72,348 72,648
Maintenance 2,715 3,987 11,737 12,492
Depreciation 6,104 7,137 26,866 31,163
Taxes, other than federal income taxes 10,268 10,081 38,717 37,041
Federal income taxes 3,977 3,002 12,926 10,429
-------- -------- -------- --------
Total operating expenses 118,063 114,999 463,138 459,312
-------- -------- -------- --------
Operating income 13,403 12,286 44,628 42,066
Other income:
Allowance for equity funds used
during construction (103)
Other income (expense) - net, including
related taxes (1,056) (1,109) (679) (980)
-------- -------- -------- --------
Operating and other income 12,347 11,177 43,949 40,983
-------- -------- -------- --------
Interest:
Interest on long-term debt 4,305 4,292 17,218 16,937
Other interest 393 684 2,592 3,246
Allowance for borrowed funds used during
construction - credit (44) (89) (218) (1,634)
-------- -------- -------- --------
Total interest 4,654 4,887 19,592 18,549
-------- -------- -------- --------
Net income $ 7,693 $ 6,290 $ 24,357 $ 22,434
======== ======== ======== ========
Statements of Retained Earnings
Retained earnings at beginning of period $119,978 $108,227 $111,716 $ 98,220
Net income 7,693 6,290 24,357 22,434
Dividends declared on cumulative
preferred stock (536) (536) (2,143) (2,143)
Dividends declared on common stock (3,397) (2,265) (10,192) (6,795)
-------- -------- -------- --------
Retained earnings at end of period $123,738 $111,716 $123,738 $111,716
======== ======== ======== ========
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> THE NARRAGANSETT ELECTRIC COMPANY
Balance Sheets
(Unaudited)
<CAPTION>
March 31, December 31,
ASSETS 1997 1996
------ ---- ----
(In Thousands)
<S> <C> <C>
Utility plant, at original cost $737,989 $742,481
Less accumulated provisions for depreciation 191,243 187,690
-------- --------
546,746 554,791
Construction work in progress 14,363 5,392
-------- --------
Net utility plant 561,109 560,183
-------- --------
Current assets:
Cash 1,258 1,727
Accounts receivable:
From sales of electric energy 57,123 54,426
Other (including $1,406,000 and $1,253,000 from affiliates) 2,676 3,415
Less reserves for doubtful accounts 6,104 5,149
-------- --------
53,695 52,692
Unbilled revenues 12,100 15,300
Fuel, materials, and supplies, at average cost 4,423 4,300
Prepaid and other current assets 16,064 15,919
-------- --------
Total current assets 87,540 89,938
-------- --------
Deferred charges and other assets 57,051 56,881
-------- --------
$705,700 $707,002
======== ========
CAPITALIZATION AND LIABILITIES
------------------------------
Capitalization:
Common stock, par value $50 per share,
authorized and outstanding 1,132,487 shares $ 56,624 $ 56,624
Premiums on preferred stocks 170 170
Other paid-in capital 80,000 80,000
Retained earnings 123,738 119,978
-------- --------
Total common equity 260,532 256,772
Cumulative preferred stock 36,500 36,500
Long-term debt 173,546 178,517
-------- --------
Total capitalization 470,578 471,789
-------- --------
Current liabilities:
Long-term debt due in one year 37,500 32,500
Short-term debt (including $2,650,000 and $5,300,000
to affiliates) 6,775 19,025
Accounts payable (including $44,477,000 and $40,425,000
to affiliates) 45,791 45,221
Accrued liabilities:
Taxes 9,620 3,877
Interest 3,281 5,677
Other accrued expenses 17,286 11,949
Customer deposits 5,724 5,638
Dividends payable 3,933 2,801
-------- --------
Total current liabilities 129,910 126,688
-------- --------
Deferred federal income taxes 81,121 81,880
Unamortized investment tax credits 7,393 7,517
Other reserves and deferred credits 16,698 19,128
-------- --------
$705,700 $707,002
======== ========
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
<TABLE>
THE NARRAGANSETT ELECTRIC COMPANY
Statements of Cash Flows
Quarters Ended March 31
(Unaudited)
<CAPTION>
1996 1995
---- ----
(In Thousands)
<S> <C> <C>
Operating activities:
Net income $ 7,693 $ 6,290
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 6,104 7,137
Deferred federal income taxes and investment
tax credit, net (996) (510)
Allowance for funds used during construction (44) (89)
Decrease (increase) in accounts receivable, net
and unbilled revenue 2,197 5,291
Decrease (increase) in fuel, materials, and supplies (123) (44)
Decrease (increase) in prepaid and other current assets (145) (610)
Increase (decrease) in accounts payable 570 (1,722)
Increase (decrease) in other current liabilities 8,770 2,700
Other, net (2,327) (122)
-------- --------
Net cash provided by operating activities $ 21,699 $ 18,321
-------- --------
Investing activities:
Plant expenditures, excluding allowance for
funds used during construction $ (6,990) $(15,346)
Other investing activities (127) (69)
-------- --------
Net cash used in investing activities $ (7,117) $(15,415)
-------- --------
Financing activities:
Dividends paid on common stock $ (2,265) $ (566)
Dividends paid on preferred stock (536) (536)
Long-term debt - issues 2,000
Long-term debt - retirements (2,000)
Changes in short-term debt (12,250) (3,000)
-------- --------
Net cash provided by (used in)
financing activities $(15,051) $ (4,102)
-------- --------
Net increase (decrease) in cash and cash equivalents $ (469) $ (1,196)
Cash and cash equivalents at beginning of period 1,727 1,999
-------- --------
Cash and cash equivalents at end of period $ 1,258 $ 803
======== ========
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
Note A
- ------
A 1986 Rhode Island Supreme Court decision held that the Rhode
Island Public Utilities Commission's (RIPUC) rate-making powers
include the authority to order refunds of amounts earned in excess
of an allowed return. As a result, the RIPUC monitors the
Company's earnings on a regular basis.
Note B - 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.
The electric utility industry typically utilizes and/or
generates in its operations a range of potentially hazardous
products and by-products. New England Electric System (NEES)
subsidiaries currently have 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
three sites (two of which are located in Massachusetts) at which
hazardous waste is alleged to have been disposed. The Company is
currently aware of other sites, and may in the future become aware
of additional sites, that it may be held responsible for
remediating.
Gas was manufactured from coal in Rhode Island in the past. The
Company is aware of five sites on which gas was manufactured or
manufactured gas was stored that were owned either by the Company
or by its predecessor companies. It is not known to what extent the
Company would be held liable for hazardous wastes, if any, left at
these manufactured gas locations.
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. A
<PAGE>
Note B - Hazardous Waste - Continued
- ------------------------
preliminary review by a consultant hired by the NEES companies of
the potential cost of investigating and, if necessary, remediating
Rhode Island manufactured gas sites resulted in costs per site
ranging from less than $1 million to $11 million. An informal
survey of other utilities conducted on behalf of NEES and its
subsidiaries indicated costs in a similar range. Where
appropriate, the Company intends to seek recovery from its insurers
and from other PRPs, but it is uncertain whether, and to what
extent, such efforts will be successful. The Company believes that
hazardous waste liabilities for all sites of which it is aware are
not material to its financial position.
In October 1996, the American Institute of Certified Public
Accountants issued new accounting rules for Environmental
Remediation Liabilities which become effective in 1997. These new
rules do not have a material effect on the Company's financial
position or results of operations.
Note C
- ------
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 1996 Annual
Report.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial
---------------------------------------------------------
Condition and Results of Operations
-----------------------------------
This section contains management's assessment of The
Narragansett Electric Company's 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 1996 Annual Report on
Form 10-K.
Earnings
- --------
Net income for the first quarter of 1997 increased $1.4 million
from the corresponding period in 1996. This increase reflects an
$11 million increase in base distribution rates that became
effective on January 1, 1997 and decreased distribution system-
related operation and maintenance expense. Partially offsetting
these increases to income is a 2.1 percent decrease in kilowatt-
hour (kWh) deliveries to ultimate customers due to milder weather
conditions in the first quarter of 1997 as compared to the first
quarter of 1996.
Industry Restructuring
- ----------------------
For a discussion of industry restructuring activities in
Massachusetts, Rhode Island and New Hampshire, see "Industry
Restructuring" in the Company's Form 10-K for 1996.
The NEES companies have reached an agreement with all three of
its unions - the Brotherhood of Utility Workers, the International
Brotherhood of Electrical Workers, and the Utility Workers Union of
America - regarding benefits and other assistance to union
employees that are affected by the restructuring of the electric
utility industry and the NEES companies divesture of its generation
business. The NEES companies anticipate that industry restructuring
and divestiture will lead to workforce reductions.
<PAGE>
Rhode Island
The Rhode Island legislature is considering a number of
proposed bills relating to industry restructuring. Possible
legislation dealing with securitization of stranded costs has been
discussed; however, to date no such legislation has been
introduced.
Accounting Implications
Historically, electric utility rates have been based on a
utility's costs. As a result, electric utilities are subject to
certain accounting standards that are not applicable to other
business enterprises in general. Financial Accounting Standards
No. 71, Accounting for the Effects of Certain Types of Regulation
(FAS 71), requires regulated entities, in appropriate
circumstances, to establish regulatory assets, and thereby defer
the income statement impact of certain costs expected to be
recovered in future rates. At December 31, 1996, the Company had
approximately $44 million in net regulatory assets in compliance
with FAS 71. The Company believes that the continuing rate-making
policies and practices of the RIPUC and the terms of the Rhode
Island statute will enable the Company to recover both its specific
costs of providing ongoing distribution services and stranded costs
billed to it by NEP. The Company believes that these factors will
allow it to continue to apply FAS 71. However, the Company
understands that members of the SEC staff have raised questions
concerning the continued applicability of FAS 71 to certain other
electric utilities facing restructuring. In connection therewith,
the Emerging Issues Task Force of the Financial Accounting
Standards Board has decided to take under consideration how FAS 71
should be applied in light of recent changes within the regulated
utility industry. In the event that future circumstances should
cause the application of FAS 71 to be discontinued, a noncash
write-off of previously established regulatory assets would be
required.
<PAGE>
Operating Revenue
- -----------------
The following table summarizes the changes in operating
revenue:
Increase (Decrease) in Operating Revenue
First Quarter
-------------
1997 vs 1996
-------------
(In Millions)
Sales to ultimate customers $(3)
Rate changes 3
Fuel Recovery 4
---
$ 4
===
For a discussion of sales to ultimate customers, see the
"Earnings" section.
The increase in revenues due to rate changes reflects an $11
million increase in base rates, approved by the RIPUC and
distribution rates, effective January 1, 1997 in accordance with
the utility Restructuring Act of 1996.
The increase in fuel recovery revenues is due to increased
replacement power fuel purchases by NEP due to the reduced
generation of partially owned nuclear units. These costs are
passed on to the Company through NEP's fuel clause. The Company,
in turn, passes these costs on to its customers.
<PAGE>
Operating Expenses
- ------------------
The following table summarizes the changes in operating
expenses which are discussed below:
Increase (Decrease) in Operating Expenses
First Quarter
-------------
1997 vs 1996
-------------
(In Millions)
Fuel for generation and
purchased electric energy:
Fuel $ 4
Integrated Facilities credit from NEP 1
Purchases and Demand Charges and Other (1)
Other operation and maintenance (1)
Depreciation (1)
Income Taxes 1
---
$ 3
===
For a discussion of fuel costs, see the "Operating Revenue"
section.
The decrease in other operation and maintenance expense in the
first quarter reflects a decrease in distribution system-related
expenses.
The decrease in depreciation and the decrease in the integrated
facilities credits from NEP both reflect reduced dismantlement
costs associated with the retired South Street generation plant.
This decrease in depreciation expense was partially offset by new
plant expenditures.
<PAGE>
Utility Plant Expenditures and Financings
- -----------------------------------------
Cash expenditures for utility plant totaled $7 million in the
first three months of 1997. The funds necessary for utility plant
expenditures were primarily provided by net cash from operating
activities, after the payment of dividends. The Company plans to
issue $40 million of long-term debt in 1997.
At March 31, 1997, the Company had $7 million of short-term
debt outstanding of which $4 million represents commercial paper
borrowings. The Company currently has lines of credit with banks
totaling $41 million. There were no outstanding borrowings under
these lines of credit at March 31, 1997.
For the twelve-month period ending March 31, 1997, the ratio of
earnings to fixed charges was 2.84.
<PAGE>
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security-Holders
- ------------------------------------------------------------
On March 18, 1997, the Annual Meeting of Stockholders was
held. The following actions were taken by the unanimous vote of
the 1,132,487 shares having general voting rights represented at
the meeting:
The number of directors was fixed at nine.
The following were elected as directors:
Joan T. Bok
Stephen A. Cardi
Richard W. Frost
Frances H. Gammell
Joseph J. Kirby
Robert L. McCabe
John W. Rowe
Richard P. Sergel
William E. Trueheart
Coopers & Lybrand L.L.P. was appointed as auditor for 1997.
Item 6. Exhibits and Reports on Form 8-K
- -----------------------------------------
The Company filed no report on Form 8-K during the quarter.
The Company is filing the following revised exhibit for
incorporation by reference into its registration statements on Form
S-3, Commission File No. 33-61131:
12 Statement re Computation of Ratios
The Company is filing Financial Data Schedules.
<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 March 31, 1997 to be signed on its behalf by the
undersigned thereunto duly authorized.
THE NARRAGANSETT ELECTRIC COMPANY
s/Howard W. McDowell
Howard W. McDowell
Controller, Authorized Officer, and
Principal Accounting Officer
Date: May 13, 1997
Exhibit Index
<PAGE>
Exhibit Index
-------------
Exhibit Description Page
- ------- ----------- ----
12 Statement re computation of Filed herewith
ratios
27 Financial Data Schedule Filed herewith
Exhibit 12
<PAGE>
<TABLE>
THE NARRAGANSETT ELECTRIC COMPANY
Computation of Ratio of Earnings to Fixed Charges
(SEC Coverage)
(Unaudited)
<CAPTION>
12 Months
Ended
March 31, 1997 Years Ended December 31,
Actual -------------------------------------------------------------
(Unaudited) 1996 1995 1994 1993 1992
-------------- ---- ---- ---- ---- ----
(In Thousands)
<S> <C> <C> <C> <C> <C> <C>
Net Income $24,357 $22,954 $23,910 $14,589 $14,274 $21,052
- ----------
Add income taxes and fixed charges
- ----------------------------------
Current federal income taxes 8,348 6,918 7,212 1,020 2,183 4,608
Deferred federal income taxes 4,223 4,675 3,512 3,930 2,199 4,560
Investment tax credits - net (497) (498) (503) (508) (508) (507)
Interest on long-term debt 17,218 17,205 16,627 14,334 12,715 13,290
Interest on short-term debt and other2,592 2,883 3,663 2,897 2,074 1,277
------- ------- ------- ------- ------- -------
Net earnings available for fixed charges $56,241 $54,137 $54,421 $36,262 $32,937 $44,280
------- ------- ------- ------- ------- -------
Fixed charges:
Interest on long-term debt $17,218 $17,205 $16,627 $14,334 $12,715 $13,290
Interest on short-term debt and other2,592 2,883 3,663 2,897 2,074 1,277
------- ------- ------- ------- ------- -------
Total fixed charges $19,810 $20,088 $20,290 $17,231 $14,789 $14,567
======= ======= ======= ======= ======= =======
Ratio of earnings to fixed charges 2.84 2.69 2.68 2.10 2.23 3.04
- ----------------------------------
</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 THE NARRAGANSETT ELECTRIC
COMPANY, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
<MULTIPLIER> 1,000
<S> <C>
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<PERIOD-TYPE> 3-MOS
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 561,109
<OTHER-PROPERTY-AND-INVEST> 0
<TOTAL-CURRENT-ASSETS> 87,540
<TOTAL-DEFERRED-CHARGES> 57,051 <F1>
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 705,700
<COMMON> 56,624
<CAPITAL-SURPLUS-PAID-IN> 80,170
<RETAINED-EARNINGS> 123,738
<TOTAL-COMMON-STOCKHOLDERS-EQ> 260,532
0
36,500
<LONG-TERM-DEBT-NET> 173,546
<SHORT-TERM-NOTES> 2,650 <F2>
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 4,125
<LONG-TERM-DEBT-CURRENT-PORT> 37,500
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 190,847
<TOT-CAPITALIZATION-AND-LIAB> 705,700
<GROSS-OPERATING-REVENUE> 131,466
<INCOME-TAX-EXPENSE> 3,977
<OTHER-OPERATING-EXPENSES> 114,086
<TOTAL-OPERATING-EXPENSES> 118,063
<OPERATING-INCOME-LOSS> 13,403
<OTHER-INCOME-NET> (1,056)
<INCOME-BEFORE-INTEREST-EXPEN> 12,347
<TOTAL-INTEREST-EXPENSE> 4,654
<NET-INCOME> 7,693
536
<EARNINGS-AVAILABLE-FOR-COMM> 7,157
<COMMON-STOCK-DIVIDENDS> 3,397
<TOTAL-INTEREST-ON-BONDS> 4,305
<CASH-FLOW-OPERATIONS> 21,699
<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.
</FN>
