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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549-1004
Form 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1994
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from ________________ to ________________
Commission file number 2-7749
COMMONWEALTH ELECTRIC COMPANY
(Exact name of registrant as specified in its charter)
Massachusetts 04-1659070
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One Main Street, Cambridge, Massachusetts 02142-9150
(Address of principal executive offices) (Zip Code)
617-225-4000
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
None None
Securities registered pursuant to Section 12(g) of the Act:
Title of Class
None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. YES [x] NO [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Outstanding at
Class of Common Stock March 15, 1995
Common Stock, $25 par value 2,043,972 shares
The Company meets the conditions set forth in General Instruction J(1)(a) and
(b) of Form 10-K as a wholly-owned subsidiary and is filing this Form with the
reduced disclosure format.
Documents Incorporated by Reference Part in Form 10-K
None Not Applicable
List of Exhibits begins on page 40 of this report.
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COMMONWEALTH ELECTRIC COMPANY
TABLE OF CONTENTS
PART I
PAGE
Item 1. Business........................................ 3
General....................................... 3
Electric Power Supply......................... 3
New England Power Pool........................ 5
Energy Mix.................................... 6
Rates and Regulatory Matters.................. 6
(a) Retail Rate Proceeding.................. 6
(b) Cost Recovery........................... 6
Competition................................... 8
Power Contract Arbitrations................... 10
Construction and Financing.................... 10
Employees..................................... 10
Item 2. Properties...................................... 10
Item 3. Legal Proceedings............................... 11
PART II
Item 5. Market for the Registrant's Common Stock and
Related Stockholder Matters..................... 12
Item 7. Management's Discussion and Analysis of
Results of Operations........................... 13
Item 8. Financial Statements and Supplementary Data..... 19
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure.......... 19
PART IV
Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K............................. 40
Signatures.................................................. 53
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COMMONWEALTH ELECTRIC COMPANY
PART I.
Item 1. Business
General
Commonwealth Electric Company (the Company) is engaged in the generation,
transmission, distribution and sale of electricity at retail to approximately
312,200 customers (including 48,600 seasonal) in 40 communities located in
southeastern Massachusetts, including Cape Cod and the island of Martha's
Vineyard, having an approximate year-round population of 549,000 and a large
influx of summer residents. The results of the 1990 federal census taken in
the Company's service area indicated a population increase of 18.1% since
1980. Also, the Company sells power to the New England Power Pool (NEPOOL)
and is actively marketing sales of certain available capacity to other
utilities in and outside the New England region.
The Company, which was organized on April 4, 1850 pursuant to a special
act of the legislature of the Commonwealth of Massachusetts, operates under
the jurisdiction of the Massachusetts Department of Public Utilities (DPU),
which regulates retail rates, accounting, issuance of securities and other
matters. In addition, the Company files its wholesale rates with the Federal
Energy Regulatory Commission (FERC). Since the date of its organization, the
Company has from time to time acquired or disposed of the property and
franchises of or merged with various gas or electric companies. The Company
is a wholly-owned subsidiary of Commonwealth Energy System (System), which,
together with its subsidiaries, is collectively referred to as "the system."
By virtue of its charter, which is unlimited in time, the Company distrib-
utes electricity without direct competition in kind from any privately or
municipally-owned utilities. Alternate sources of energy are available to
customers within the service territory, but competition from these sources to
date has not been a significant factor affecting the Company. However, this
past year the Company continued to develop and implement strategies to deal
with the increasingly competitive environment. For further details, refer to
the "Competition" section that follows in this Item 1. Of the Company's 1994
retail electric unit sales (73.8% of its total sales), 48.8% was sold to
residential customers, 32.1% to commercial customers, 10.2% to industrial and
8.9% to municipal and other customers.
Electric Power Supply
The Company relies almost entirely on purchased power to meet its electric
energy requirements. The Company owns generating facilities with a total
capacity of 13.8 megawatts (MW), which are principally used for emergency and
peaking purposes. The Company also has a joint-ownership interest of 8.9 MW
in Central Maine Power Company's oil-fired Wyman Unit 4.
Power purchases for the Company and Cambridge Electric Light Company
(Cambridge Electric), the other wholly-owned electric distribution subsidiary
of the System, are arranged in accordance with their requirements. These
arrangements include purchases from Canal Electric Company (Canal), another
wholly-owned subsidiary of the System. Canal is a wholesale electric generat-
ing company located in Sandwich, Massachusetts and an important source of
purchased power for the Company and Cambridge Electric. Under long-term con-
tracts, system entitlements include one-quarter (140 MW) of the capacity and
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COMMONWEALTH ELECTRIC COMPANY
energy of Canal Unit 1 and one-half (292 MW) of the capacity and energy of
Canal Unit 2. The Company's entitlements in these units are 112.5 MW and
141.9 MW, respectively.
Pursuant to a Capacity Acquisition and Disposition Agreement (CADA), Canal
seeks to secure bulk electric power on a single system basis to provide cost
savings for the customers of the Company and Cambridge Electric. The CADA has
been accepted for filing as an amendment to Canal's FERC rate schedule and
allows Canal to act on behalf of the Company and Cambridge Electric in the
procurement of additional capacity for one or both companies, or, to sell
capacity and/or energy from each company's entitlements. The CADA is in
effect for Seabrook 1, Phases I and II of Hydro-Quebec, New England Power
Company (Bear Swamp Units), Northeast Utilities and Central Vermont Public
Service Corp. (Vermont Yankee and Merrimack 2 Unit). Exchange agreements are
in place with several of these utilities whereby, in certain circumstances, it
is possible to exchange capacity so that the mix of power improves the pricing
for dispatch for both the seller and the purchaser. Power contracts are in
place whereby Canal bills or credits the Company and Cambridge Electric for
the costs or revenues associated with these facilities. The Company and
Cambridge Electric, in turn, have billed or are billing these charges (net of
revenues from sales) to their customers through rates subject to DPU approval.
The Company has other long-term contracts for the purchase of electricity
from various sources including a 73.5 MW entitlement from a nuclear unit in
Plymouth, Massachusetts (Pilgrim) under a life-of-the-unit contract with
Boston Edison Company. Also, through Canal's equity ownership in Hydro-Quebec
Phase II and its 3.52% interest in the Seabrook nuclear power plant, the
Company has entitlements of 48.2 MW and 32.4 MW, respectively.
Several independent power producer (IPP) sources provided a substantial
portion of the Company's requirements in 1994 as follows:
Company Entitlement (MW)
Natural gas fired units -
Lowell Cogeneration Company, L.P. (a) 23.0
Pepperell Power Associates, L.P. (a) 38.0
Northeast Energy Associates 46.0
Masspower 59.9
Altresco Pittsfield, L.P. 27.5
Dartmouth Power Associates 67.2
261.6
Waste-to-Energy fired units (b) -
SEMASS 70.2
Hydro sources (5) 29.9
(a) For further information on these units, refer to the "Power Contract
Negotiations" section that follows in this Item 1.
(b) Includes an expansion unit that became operational in May 1993.
There were no new sources of system generation or purchased power in 1994.
In 1993, the Company extended a commitment to April 1997 to exchange 50 MW of
Canal Electric's oil-fired generation with 50 MW of pumped storage energy
capacity from non-affiliate New England Power Company's Bear Swamp Units (an
initial, smaller exchange of 25 MW began in 1992). In 1991, Canal Electric
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COMMONWEALTH ELECTRIC COMPANY
arranged for a long-term exchange of power with Central Vermont Public Service
Company (CVPS) whereby 50 MW from Canal Electric's oil-fired Unit 2 was
exchanged for 25 MW from CVPS's Vermont Yankee nuclear unit and 25 MW from its
Merrimack Unit 2 coal-fired facility. This agreement expires in October 1995.
The Canal Electric/Bear Swamp transaction alone will save the Company's
customers $2.7 million over a four-year period that began in June 1993. In
1995, it is expected that these exchanges, combined with a reduction in the
capacity from purchased power contracts with natural gas-fired IPPs, will
necessitate increased purchases from the oil-fired Canal Electric units.
The Company expects to provide for future peak load plus reserve require-
ments through existing system generation, including purchasing available
capacity from neighboring utilities and/or IPP generators. These and other
bulk electric power purchases are necessary in order to fulfill the system's
NEPOOL obligation and for Canal to acquire and deliver sufficient electric
generating capacity to meet the Company's and Cambridge Electric's capacity
requirements.
In addition to power purchases, the Company is actively pursuing the
marketing of certain capacity at competitive terms and rates to utilities in
and outside the New England region at a higher price (thus saving the Com-
pany's customers the difference) than if it were to sell to NEPOOL. This
situation is a result of several utilities in New England (the Company
included) having excess capacity and lowered prospects for sales growth. This
competitive business developed for the Company in the early 1990s when it
began to formally request proposals to supply short-term energy and associated
capacity to other utilities on the open market to fulfill their power require-
ments. Increased emphasis on the marketing of this capacity yielded approxi-
mate savings of $1,039,000, $429,000 and $451,000 in 1994, 1993 and 1992,
respectively.
New England Power Pool
The Company, together with other electric utility companies in the New
England area, is a member of NEPOOL, which was formed in 1971 to provide for
the joint planning and operation of electric systems throughout New England.
NEPOOL operates a centralized dispatching facility to ensure reliability
of service and to dispatch the most economically available generating units of
member companies to fulfill the region's energy requirements. This concept is
accomplished through the use of computers to monitor and forecast load
requirements.
The Company and the System's other electric subsidiaries are also members
of the Northeast Power Coordinating Council (NPCC), an advisory organization
that includes the major power systems in New England and New York plus the
provinces of Ontario and New Brunswick in Canada. NPCC establishes criteria
and standards for reliability and serves as a vehicle for coordination in the
planning and operation of these systems.
The reserve requirements used by the NEPOOL participants in planning
future additions are determined by NEPOOL to meet the reliability criteria
recommended by NPCC. The system estimates that, during the next ten years,
reserve requirements so determined will be in the range of 16% to 25% of peak
load.
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COMMONWEALTH ELECTRIC COMPANY
Energy Mix
The Company's energy mix, including purchased power, is shown below:
Actual
1994 1993 1992
Natural gas 42% 35% 24%
Oil 22 27 39
Nuclear 18 20 22
Waste-to-energy 12 11 9
Hydro 3 4 3
Coal 3 3 3
Total 100% 100% 100%
The Company's energy mix has shifted during the last several years from
oil to natural gas and other fuels due to the requirement to purchase capacity
from IPP facilities and, to a lesser extent, the exchange agreements noted in
the "Electric Power Supply" section above.
Rates and Regulatory Matters
(a) Retail Rate Proceeding
The Company operates under the jurisdiction of the DPU which requires
historical test-year information to support changes in rates. The Company's
most recent general rate proceeding approved by the DPU was as follows:
Return on
Effective Common Total
Date Requested Authorized Equity Return
(Dollars in Millions)
July 1, 1991 $17.3 $10.9 12% 10.49%
(b) Cost Recovery
Rate Schedule The Company files a Fuel Charge (FC) rate schedule, which
provides for the current recovery, from retail customers, of fuel used in
electric generation and a substantial portion of purchased power, demand and
transmission costs. This schedule requires the quarterly computation and DPU
approval of a FC decimal based on forecasts of fuel, electricity purchased for
resale and transmission costs and billed unit sales for each period. To the
extent that collections under the rate schedule do not match actual costs for
that period, an appropriate adjustment is reflected in the calculation of the
decimal for the next calendar quarter.
Purchased Power The Company has long-term contracts for the purchase of
electricity from various sources. Generally, these contracts are for fixed
periods and require that the Company pay a demand charge for its capacity
entitlement and an energy charge to cover the cost of fuel. The DPU ordered
the Company, effective July 1, 1991, to collect its capacity-related costs
associated with certain long-term power arrangements through base rates.
Prior to that date, the Company was recovering these costs through its FC.
The current recovery mechanism uses a per kilowatthour (KWH) factor that is
calculated using historical (test-period) capacity costs and unit sales. This
factor is then applied to current monthly KWH sales. When current period
capacity costs and/or unit sales vary from test-period levels, the Company
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COMMONWEALTH ELECTRIC COMPANY
experiences a revenue excess or shortfall which can have a significant impact
on net income. All other capacity and energy-related electricity purchased
for resale costs are recovered dollar-for-dollar through the FC. The Company
and Cambridge Electric made a filing in late 1992 with the DPU seeking an
alternative method of recovery. This request was denied in a letter order
issued on October 6, 1993. However, the Company and Cambridge Electric were
encouraged by the DPU's acknowledgement that the issues presented warrant
further consideration. The DPU encouraged each company to continue to work
with other interested parties, including the Attorney General of Massachu-
setts, to reach a consensus solution on the issue for future consideration.
The Company and Cambridge Electric have been involved in settlement discus-
sions with interested parties in an effort to resolve this issue in a positive
fashion and hope to reach an agreement in the near future.
Conservation and Load Management Programs The Company has implemented a
variety of cost-effective conservation and load management (C&LM) programs for
its customers which are designed to reduce future energy use. On June 30,
1993, the DPU issued an order in Phase I of a C&LM cost recovery filing made
by the Company and Cambridge Electric which allows the recovery of "lost base
revenues" from electric customers. The recovery of lost base revenues is
employed by the DPU to encourage effective implementation of C&LM programs.
The KWH savings that are realized as a result of the successful implemen-
tation of C&LM programs serve as the basis for determining lost base revenues.
The Company recovered approximately $3.5 million based on estimated KWH
savings for the eighteen-month period that began January 1, 1993 beginning
July 1, 1993 over a twelve-month period. On June 30, 1994, the DPU issued an
order that further allows the Company to recover approximately $3.7 million in
additional lost base revenues for a one-year period that commenced July 1,
1994. Through December 31, 1994, the combined recovery was approximately $5.6
million, $2.3 million of which was collected in 1993.
Seabrook Costs The FERC, in a final order issued on August 4, 1992,
approved full recovery of Canal's investment in the Seabrook nuclear power
plant. The Company and Cambridge Electric had been billing, subject to
refund, Seabrook 1 charges to their retail customers since August 1, 1990
through FC decimals approved by the DPU. In its June 1, 1993 rate decision,
the DPU allowed Cambridge Electric to recover its Seabrook 1 costs in base
rates. However, the Company continues to recover these costs through the FC.
The Company and Cambridge Electric collect, through their respective base
rates, amounts being billed to them by Canal for costs associated with Sea-
brook 2 (over a ten-year period ending in 1997) pursuant to a Capacity Acqui-
sition Agreement the terms of which were approved by both FERC and the DPU.
Potential Impact of Regulatory Restructuring Based on the current
regulatory framework, the Company accounts for the economic effects of
regulation in accordance with the provisions of Statement of Financial
Accounting Standards (SFAS) No. 71, "Accounting for the Effects of Certain
Types of Regulation." Under SFAS No. 71, a utility is allowed to defer costs
that would otherwise be expensed in recognition of the ability to recover them
in future rates. As a result, the Company has accumulated $54.2 million
(approximately 11% of total assets) of regulatory assets as of December 31,
1994. Management believes that the current regulatory framework provides for
the continued recovery of these assets.
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COMMONWEALTH ELECTRIC COMPANY
In the event that recovery of specific costs through rates becomes
uncertain or unlikely in the future either as a result of the expanding
effects of competition or specific regulatory actions, the Company could be
required to move away from cost-of-service ratemaking and, therefore, SFAS No.
71 would no longer apply. Discontinuation of SFAS No. 71 could lead to the
write-off of various regulatory assets, which would have an adverse impact on
the Company's financial position and results of operations. At this time,
management believes that it is unlikely that regulatory action would lead to
the discontinuation of SFAS No. 71 in the near future.
Competition
This past year, the Company continued to develop and implement strategies
to deal with the increasingly competitive environment in its electric busi-
nesses. The inherently high cost of providing energy services in the North-
east has placed the region at a competitive disadvantage as more customers
begin to explore alternative supply options. Many state and federal govern-
ment agencies are considering implementing programs under which utility and
non-utility generators can sell electricity to customers of other utilities
without regard to previously closed franchise service areas. In 1994, the DPU
began an inquiry into incentive ratemaking and in February 1995 opened an
investigation into electric industry restructuring.
The Company's actions in response to the new competitive challenges have
been well received by regulators, business groups and customers. The Company
has developed and will continue to develop innovative pricing mechanisms
designed to retain existing customers, add new retail and wholesale customers
and expand beyond current markets.
The Company recently revised its Economic Development Rate which will
benefit a number of high-use industrial customers and contribute to economic
development in the area. Another new rate will provide incentive for business
to expand into previously vacant space and its Rate Stabilization Plan,
approved in 1994, continues to hold the line on costs passed on to customers
while aggressively pursuing other cost reduction measures. Recently completed
contract negotiations are expected to save customers approximately $42 million
through 1999 as the Company continues to explore opportunities to reduce
purchased power costs. The Company recently signed an agreement with another
New England utility to purchase peaking-unit capacity at rates lower than that
available from NEPOOL or other regional utilities.
The Company continues to be aggressive in its cost containment efforts.
For example, through work force reductions and attrition the Company has
reduced its work force approximately 26.5% since 1989. Also, the introduction
of advanced technologies in the workplace continues to improve customer
service and the Company's competitive position. The Company has yet to be
significantly impacted by the increase in competition, and absent a major
shift in regulation at the state level, believes its current business strategy
will have a positive impact in the near-term.
Some of the more specific details of the innovative measures taken in
response to competition include the following:
Rate Stabilization Plan The Company implemented a FC rate settlement on
April 1, 1994 that stabilizes its quarterly FC rate during the years 1994
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COMMONWEALTH ELECTRIC COMPANY
through 1996 at 6.5 cents per KWH and no greater than 6.7 cents per KWH during
1997. The settlement results in billings at a lower rate than would have
otherwise been in effect and could save customers between 1.75% and 5% on
their annual electric bills through 1997. This rate stabilization is achieved
through the use of a cost deferral mechanism that was sponsored jointly by the
Company and the Massachusetts Attorney General and approved by the DPU. The
deferred costs are reflected as a regulatory asset to be recovered, with
carrying charges, over the subsequent six-year period beginning in 1998
pursuant to a recovery schedule yet to be determined and subject to DPU
approval. The deferred amount, excluding carrying charges, is restricted to a
maximum of $40 million during the deferral period (1994 through 1997) and is
further limited to an annual amount of $16 million. The Company deferred
$15,964,000 in 1994. In view of recent contract renegotiations, the Company
does not expect deferred amounts to exceed $20 million through 1997.
The rate stabilization mechanism is part of a long-term plan to control
the Company's retail rates and will help to eliminate the disincentive for
economic development resulting from a volatile and unpredictable FC rate.
Further, the stabilized FC rate will enable current and prospective customers
to better plan their business and personal finances in a more efficient and
effective manner. In addition to the Massachusetts Attorney General, this
proposal has been widely supported by various business and customer groups and
other political interests.
Power Contract Negotiations The Company concluded the negotiation of a
restructured Power Sale Agreement (PSA), effective January 1, 1995, with
Lowell Cogeneration Company Limited Partnership (23 MW). The restructured PSA
will allow the Company to defer the purchase of capacity and energy for a
maximum of six years and, when called back into service, power will be
dispatched only when needed at the discretion of the Company. In addition,
the Company terminated a PSA with Pepperell Power Associates Limited Partner-
ship (38 MW), effective January 27, 1995, through a buy-out arrangement that
is subject to final FERC approval. In 1994, the power purchased from these
units cost the Company 6 cents per kilowatthour as compared to costs at the
Canal units of 3.5 cents. It is expected that the resolution of these
contracts will enhance the Company's competitiveness by lowering costs and
saving customers approximately $42 million through 1999.
Economic Development Realizing a healthy regional economy benefits not
only businesses but all area residents, the Company actively encourages
economic growth by working in partnership with communities and businesses,
providing resources and incentives to drive the region's economy.
In an effort to foster industrial development in its service area, the
Company began offering an Economic Development Rate (EDR) in October 1991 to
new or existing industrial customers who have demand of 500 kilowatts or more
and meet specific financial and other criteria. As of December 31, 1994,
twenty-three commercial and industrial customers were benefitting from this
special rate which is available for a six-year term. In 1993, the DPU
conducted a generic investigation into EDRs and rendered a decision on
September 1, 1993 that established rate design guidelines and minimum customer
eligibility requirements. The Company refiled its EDRs to comply with the
ruling. The new EDR is available to both commercial and industrial customers
with loads greater than 500 kilowatts. Revenues were lower by $1.7 million,
$1.5 million and $1.3 million in 1994, 1993 and 1992, respectively. These
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COMMONWEALTH ELECTRIC COMPANY
amounts represent the difference between what these customers would have paid
prior to the availability of this rate. The Company also received approval
for a Vacant Space Rate that is available to qualifying small commercial and
industrial customers who establish loads in previously unoccupied building
space.
Power Contract Arbitrations
On May 2, 1994, the Company and Cambridge Electric gave notice of termina-
tion of power purchase agreements with Eastern Energy Corporation, the
developer of a proposed 300 MW coal-fired plant, based upon the developer's
failure to meet its contractual obligations. In June 1989, the Company and
Cambridge Electric agreed to buy 27% (50 MW and 33 MW, respectively) of the
power to be produced by the proposed plant, originally scheduled to begin
operation in January 1992. The developer did not meet the permitting,
construction or operation milestones established by the contracts, and has not
yet obtained the required permits, commenced construction or sold any addi-
tional power from the proposed plant. Efforts to reshape the power purchase
agreements to provide a satisfactory arrangement were unsuccessful. In a
letter dated June 30, 1994, the developer objected to the notices of termina-
tion and invoked arbitration, which is pending. A decision by the arbitrators
on the legality of the Company's and Cambridge Electric's termination is
expected in 1995.
The Company has initiated an arbitration proceeding with Dartmouth Power
Associates, an IPP, seeking approximately $5 million for recovery of excess
fuel charges billed to the Company for power purchases in 1992. A decision is
expected from the arbitrators in 1995.
Construction and Financing
Information concerning the Company's financing and construction programs
is contained in Note 2(a) of Notes to Financial Statements filed under Item 8
of this report.
Employees
The total number of full-time employees for the Company declined 12.4% to
913 in 1994 from 1,042 employees at year-end 1992 due to a second quarter 1993
work force reduction. 592 employees (64.6%) are represented by the Brother-
hood of Utility Workers of New England, Inc. under three separate collective
bargaining units with agreements expiring September 30, 1996, October 31, 1997
and April 30, 1998. Employee relations have generally been satisfactory.
Item 2. Properties
The principal properties of the Company consist of an integrated system of
transmission and distribution lines, substations, an office building in the
Town of Wareham, Massachusetts and other structures such as garages and
service buildings. In addition, the Company owns and operates, for standby
and emergency purposes only, two diesel plants with a combined capability of
13.8 MW located on the island of Martha's Vineyard. The Company also has a
1.4% joint-ownership interest in Central Maine Power Company's Wyman Unit 4
with an entitlement of 8.9 MW.
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COMMONWEALTH ELECTRIC COMPANY
At December 31, 1994, the electric transmission and distribution system
consisted of 5,697 pole miles of overhead lines, 3,511 cable miles of under-
ground line, 138 substations and 329,051 active customer meters.
Item 3. Legal Proceedings
The Company is subject to legal claims and matters arising from its course
of business, including its participation in power contract arbitrations as
discussed in Item 1 above.
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COMMONWEALTH ELECTRIC COMPANY
PART II.
Item 5. Market for the Registrant's Common Stock and Related Stockholder
Matters
(a) Principal Market
Not applicable. The Company is a wholly-owned subsidiary of Common-
wealth Energy System.
(b) Number of Shareholders at December 31, 1994
One
(c) Frequency and Amount of Dividends Declared in 1994 and 1993
1994 1993
Per Share Per Share
Declaration Date Amount Declaration Date Amount
January 21, 1994 $1.60 January 28, 1993 $1.90
April 25, 1994 1.90 April 26, 1993 1.10
July 18, 1994 1.00 October 18, 1993 3.20
October 24, 1994 3.25 $6.20
$7.75
On January 28, 1993, dividends were declared on the 1,606,472
outstanding shares of common stock of the Company. Beginning on
April 26, 1993, dividends were declared on the 2,043,972 outstanding
shares of common stock of the Company.
Reference is made to Note 6 of the Notes to Financial Statements
filed under Item 8 of this report for the restriction against the
payment of cash dividends.
(d) Future dividends may vary depending upon the Company's earnings and
capital requirements as well as financial and other conditions
existing at that time.
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COMMONWEALTH ELECTRIC COMPANY
Item 7. Management's Discussion and Analysis of Results of Operations
The following is a discussion of certain significant factors which have
affected operating revenues, expenses and net income during the periods
included in the accompanying statements of income and is presented to facili-
tate an understanding of the results of operations. This discussion should be
read in conjunction with Item 1 of this report and the Notes to Financial
Statements filed under Item 8 of this report.
A summary of the period to period changes in the principal items included
in the accompanying statements of income for the years ended December 31, 1994
and 1993 and unit sales for these periods is shown below:
Years Ended Years Ended
December 31, December 31,
1994 and 1993 1993 and 1992
Increase (Decrease)
(Dollars in Thousands)
Electric Operating Revenues $ 7 466 1.7% $ 20 991 5.1%
Operating Expenses -
Electricity purchased for resale
and fuel 2 652 0.9 30 664 12.1
Transmission (102) (2.1) (404) (7.7)
Other operation (2 381) (3.3) (14 936) (17.0)
Maintenance (661) (6.2) (1 429) (11.8)
Depreciation 587 3.9 20 0.1
Taxes -
Federal and state income 2 512 35.1 3 602 101.3
Local property and other (79) (1.0) 349 4.5
2 528 0.6 17 866 4.6
Operating Income 4 938 18.5 3 125 13.2
Other Income (1 217) (488.8) (4) (1.6)
Income Before Interest Charges 3 721 13.8 3 121 13.1
Interest Charges (274) (1.8) 47 0.3
Net Income $ 3 995 33.1 $ 3 074 34.1
Unit Sales (Megawatthours or MWH)
Retail 85 272 2.6 22 203 0.7
Sales for resale (105 375) (8.2) 292 770 29.5
Total unit sales (20 103) (0.4) 314 973 7.5
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COMMONWEALTH ELECTRIC COMPANY
Unit Sales
The following is a summary of unit sales and customers for the periods
indicated:
Years Ended December 31,
1994 1993 1992
% %
Unit Sales (MWH): Change Change
Residential 1 616 750 1.9 1 587 338 0.1 1 586 577
Commercial 1 065 539 3.4 1 030 050 1.2 1 018 162
Industrial 337 191 2.7 328 220 0.7 325 912
Municipal and other 294 030 4.0 282 630 2.6 275 384
Total retail 3 313 510 2.6 3 228 238 0.7 3 206 035
Sales for resale 1 179 349 (8.2) 1 284 724 29.5 991 954
Total 4 492 859 (0.4) 4 512 962 7.5 4 197 989
Customers - 12 Month Average:
Residential (a) 273 395 1.4 269 736 1.2 266 513
Commercial (a) 34 938 1.7 34 362 0.4 34 348
Industrial 321 (1.5) 326 1.2 322
Municipal and other 3 537 6.7 3 316 3.7 3 198
Total 312 191 1.4 307 740 1.1 304 381
(a) Includes seasonal customers of 48,606 in 1994, 48,364 in 1993 and 47,527
in 1992. Service is considered to be "seasonal" when the kilowatthours
used in the billing months ending between June 1 and September 30 exceed
the kilowatthours used in the preceding eight months.
For 1994, retail electric unit sales increased 2.6% as a result of
increased heating demand caused by the extremely cold weather conditions
during the first quarter and greater usage, particularly air conditioning load
during the summer months. Unit sales reflect a record peak demand of 672 MW
achieved on July 21, 1994 and continued moderate growth of nearly 4,500
customers (1.4%). Each customer segment improved, but the larger increases
were to the residential and commercial sectors, resulting from more housing
units and an improved economy that produces added heating and air conditioning
loads. Growth in unit sales is reduced somewhat by the Company's conservation
programs. The Company expects that its retail unit sales growth will average
1%-2% over the next five years.
Although 1993 retail electric unit sales increased by less than 1%, each
customer segment did show improvement. Unit sales reflect moderate growth in
customers, primarily residential, a greater demand for power from commercial
and seasonal customers reflecting an improving economy and, to a lesser
extent, more extreme weather conditions resulting in additional use to meet
heating or air conditioning requirements, offset somewhat by the impact of
conservation programs.
Operating Revenues
In 1994, operating revenues increased $7.5 million (1.7%) due to the
higher cost of electricity purchased for resale, transmission and fuel ($2.6
million), a 2.6% increase in retail unit sales, greater recovery of base rate
<PAGE>
<PAGE 15>
COMMONWEALTH ELECTRIC COMPANY
revenues ($1.4 million) due to the recovery mechanism governing certain
purchased power contracts, a higher level of lost base revenues related to
conservation and load management (C&LM) programs ($951,000) and a slightly
higher level ($137,000) of C&LM program costs. The recovery of lost base
revenues through the operation of a Conservation Charge (CC) decimal is
allowed by the Massachusetts Department of Public Utilities (DPU) to encourage
effective implementation of C&LM programs. To the extent that current costs
associated with C&LM programs increase or decrease from period to period based
on customer participation, a corresponding change will occur in revenues.
Revenues reflect reduced sales for resale to the New England Power Pool ($6.2
million) offset somewhat by a $3.5 million increase in sales to non-associate
utilities. In total, wholesale revenues were $23.8 million, $26.5 million and
$22.3 million in 1994, 1993 and 1992, respectively. Fluctuations in the level
of wholesale electric sales have no impact on earnings.
In 1993, operating revenues increased $21 million (5.1%) due primarily to
the increase in the cost of electricity purchased for resale, transmission and
fuel costs of $30.3 million (11.7%), a 7.5% increase in total unit sales and
the recovery of approximately $2.3 million in lost base revenues related to
C&LM programs. Partially offsetting these increases was a lower level ($7.6
million) of C&LM program costs.
Historically, revenues collected through base rates have been designed to
reimburse the Company for all costs of operation other than fuel, the energy
portion of electricity purchased for resale, transmission and C&LM costs and
provide a fair return on capital invested in the business. However, as a
result of the DPU approved recovery mechanism for capacity-related costs
associated with certain purchased power contracts, the Company experiences a
revenue excess or shortfall to the extent that unit sales and/or the costs
recoverable in base rates vary from test-period levels. In 1994, 1993 and
1992, the Company realized an undercollection ($4 million, $5.1 million and
$1.5 million, respectively) of these capacity-related costs due to this
recovery mechanism. This method of recovery reduced net income by approxi-
mately $2.5 million, $3.1 million and $900,000 in 1994, 1993 and 1992,
respectively. For more information, refer to the "Cost Recovery" section
filed under Item 1 of this report.
Capacity costs that are not collected in base rates through the previously
mentioned recovery mechanism are collected through the Fuel Charge decimal as
approved by the DPU.
Revenues also reflect the impact of the Company's Economic Development
Rate which became effective in October 1991. Revenues were lower by $1.7
million, $1.5 million and $1.3 million in 1994, 1993 and 1992, respectively.
These amounts represent the difference between what certain commercial and
industrial customers would have paid prior to the availability of this rate.
For additional information on this special rate, refer to the "Economic
Development" section in Item 1 of this report.
<PAGE>
<PAGE 16>
COMMONWEALTH ELECTRIC COMPANY
The following is an analysis of revenue components for the years 1994,
1993 and 1992:
Years Ended December 31,
1994 1993 1992
(Dollars in Thousands)
% %
Change Change
Costs recovered in Fuel
or Conservation Charges $215 745 1.3 $210 717 12.4 $187 474
Certain power and other costs
recovered in base rates 53 116 2.6 51 749 (14.0) 60 188 (a)
Other (b) 145 315 2.7 141 555 1.4 139 579
Total retail revenue 414 176 2.5 404 021 4.3 387 241
Total wholesale revenue 23 774 (10.2) 26 463 18.9 22 252
Total revenues $437 950 1.7 $430 484 5.1 $409 493
(a) Includes $8.6 million related to C&LM revenues
(b) Includes other base rate and miscellaneous revenues.
The percentage breakdown of retail revenues as shown in the table above is
as follows:
Percent of Retail Electric Revenue
1994 1993 1992
Retail revenue components:
Costs recovered in Fuel or
Conservation Charges 52.1% 52.2% 48.4%
Certain power and other costs
recovered in base rates 12.8 12.8 15.5
Base rates and other 35.1 35.0 36.1
100.0% 100.0% 100.0%
Electricity Purchased for Resale, Transmission and Fuel
To satisfy demand requirements and provide required reserve capacity, the
Company supplements its generating capacity by purchasing power on a long and
short-term basis through capacity entitlements under power contracts with
other New England and Canadian utilities and with independent power producers
(IPP) through a competitive bidding process that is regulated by the DPU.
The cost of electricity purchased for resale, transmission and fuel used
for electric generation per kilowatthour (KWH) sold was $.065, $.064 and $.062
for 1994, 1993 and 1992, respectively. These costs constitute 67% in both
1994 and 1993 and 63% in 1992 of electric operating revenues for the respec-
tive years and reflect the impact of the Company's contractual obligations to
purchase higher-cost power. These contracts, negotiated in the 1980s when the
Company's customer base grew dramatically and forecasts predicted continued
growth, persisted to drive costs up as additional "must run" capacity came on
line displacing lower cost units as the economy slowed. In 1994, the Company
continued to take aggressive action to deal with the escalating energy costs.
(Refer to "Power Contract Negotiations" in Item 1 of this report).
In 1994, the average cost reflects the moderating impact of the deferral
of $16 million of costs associated with the Company's rate stabilization
<PAGE>
<PAGE 17>
COMMONWEALTH ELECTRIC COMPANY
mechanism that was implemented on April 1, 1994 and is further discussed in
the "Rate Stabilization Plan" section in Item 1 of this report. The cost per
KWH would have been $.069 in 1994 were this mechanism not in effect.
For 1994 and 1993, electricity purchased for resale, transmission and fuel
costs increased $2.6 million (0.9%) and $30.3 million (11.7%), respectively,
due to higher unit sales in both years, the increased cost of using cleaner
burning but more expensive fuel oil (1% sulphur) at Canal Electric Company
(Canal Electric) and the contractual obligations discussed above. In both
years, there were additional power purchases from certain natural gas-fired
IPP facilities and reduced generation from Canal Electric's units (for sales
to non-associate utilities).
Other Operation
In 1994, other operation decreased $2.4 million (3.3%) due to the savings
resulting from the second quarter 1993 work force reduction ($1.5 million) and
the absence of severance pay incurred in 1993 ($1.8 million). The 1993 work
force reduction will result in future savings of more than $4 million annually
in direct payroll costs. Also contributing to the decrease was a lower provi-
sion for bad debts of $811,000 (25.6%) due to better collection experience and
lower affiliate services company charges ($1.4 million). Offsetting these
decreases, in part, was higher insurance and employee benefit costs of
$924,000 and the impact of inflation on the cost of labor, materials and other
services.
Major factors contributing to the $14.9 million (17%) decrease in other
operation in 1993 were: 1) a decrease of $7.6 million in recoverable C&LM
costs (including a $5.2 million reduction in cash expenditures); 2) the
absence of costs associated with the Company's Cannon Street generating
station ($1.5 million) and the net savings of $1.1 million ($2.9 million in
payroll savings less $1.8 million in severance costs) associated with the work
force reduction; 3) a decrease in the provision for bad debts of $2 million
(39.2%) due to better collection experience; 4) lower affiliate services
company charges ($1 million); 5) the absence in 1993 of consulting fees
($900,000) associated with an independent management audit conducted in 1992;
and 6) a decline in insurance and employee benefit costs $486,000.
Included in other operation are certain costs, including amortization of
prior period amounts, associated with C&LM programs which amounted to $4.3
million, $4.2 million and $11.8 million in 1994, 1993 and 1992, respectively.
The total number of full-time employees declined 17.7% to 916 in 1994 from
1,113 employees at year-end 1991.
Maintenance
Maintenance decreased $661,000 (6.2%) in 1994 primarily due to a reduction
in computer-related charges, the absence of storm-related costs incurred in
1993 and a lower level of labor-related costs due to the work force reduction.
These decreases were somewhat offset in 1994 by higher outside contractor
charges for right-of-way brush and tree-trimming projects. For 1993, the
reduction of $1.4 million (11.8%) was due to lower transmission and distribu-
tion-related costs and, to a lesser extent, the closing of the Cannon Street
facility.
<PAGE>
<PAGE 18>
COMMONWEALTH ELECTRIC COMPANY
Depreciation and Taxes
Depreciation expense in 1994 increased by $587,000 (3.9%) due to a higher
level of depreciable property, plant and equipment. In 1993, this expense was
virtually the same compared to 1992 due to the abandonment of the Cannon
Street generating station offsetting the impact of additions during the
period.
Income tax expense for 1994 and 1993 increased due to the higher levels of
pretax income. In addition, 1993 reflects an increase in the federal income
tax rate to 35%, retroactive to January 1, 1993.
The 1994 and 1993 increases in local property and other taxes reflect a
combination of higher tax rates and/or assessments in certain cities and towns
in the Company's service area, offset by the reduction in payroll-related
taxes due to fewer employees.
Other Income
In 1994, the substantial decrease in other income reflects the cost of a
settlement dealing with the Company's energy conservation program ($2 million
pretax), offset, somewhat, by accrued interest on the fuel charge stabili-
zation deferral ($674,000) and the equity component of allowance for funds
used during construction (AFUDC) of $325,000. There was no equity AFUDC in
1993.
In 1993, the slight decrease in other income was due to the absence in
1993 of interest income from overpayment of Seabrook costs ($232,000) which
were refunded to customers in 1992. This decrease was somewhat offset by an
increase in interest income ($201,000) from loans to affiliated companies and
a reduction in other income deductions ($117,000) that reflects a $75,000
reversal (in the third quarter of 1993) of a 1992 charge related to the
Company's 2.5% interest in the Yankee Atomic Power Company.
Interest Charges
For 1994, long-term interest charges increased $931,000 (7%) due to a full
year of new debt ($65 million) issued in March 1993 (offset somewhat by the
debt retirement of $21.8 million). Other interest charges declined by $1
million (59.6%) despite higher average rates on short-term borrowings (4.9%
versus 3.4%) due to the significantly lower average level of borrowings ($6.4
million versus $16.1 million) resulting from a higher level of internally
generated funds and the 1993 financing activity.
In 1993, short-term interest charges decreased $2.5 million due to lower
rates and a lower average level of borrowings. Short-term interest rates
averaged 3.4% in 1993 compared to 4% in 1992. In addition, 1993 reflects the
absence of interest paid to customers in 1992 ($232,000) relating to the
overcollection of Seabrook costs. The decreases in short-term interest
charges were nearly offset by increases in long-term charges of $2.4 million
in 1993, reflecting the issuance of $65 million in new long-term debt in March
1993.
<PAGE>
<PAGE 19>
COMMONWEALTH ELECTRIC COMPANY
Item 8. Financial Statements and Supplementary Data
The Company's financial statements required by this item are filed here-
with on pages 20 through 39 of this report.
Item 9. Changes in and Disagreements With Accountants on Accounting
and Financial Disclosure
None.
<PAGE>
<PAGE 20>
COMMONWEALTH ELECTRIC COMPANY
Item 8. Financial Statements and Supplementary Data
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Commonwealth Electric Company:
We have audited the accompanying balance sheets of COMMONWEALTH ELECTRIC
COMPANY (a Massachusetts corporation and wholly-owned subsidiary of Common-
wealth Energy System) as of December 31, 1994 and 1993, and the related
statements of income, retained earnings and cash flows for each of the three
years in the period ended December 31, 1994. These financial statements and
the schedules referred to below are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and schedules based upon our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Commonwealth Electric
Company as of December 31, 1994 and 1993, and the results of its operations
and its cash flows for each of the three years in the period ended Decem-
ber 31, 1994, in conformity with generally accepted accounting principles.
As discussed in Note 4 to the financial statements, effective January 1,
1993, the Company changed its method of accounting for costs associated with
postretirement benefits other than pensions.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedules listed in the index to
financial statements and schedules are presented for purposes of complying
with the Securities and Exchange Commission's rules and are not part of the
basic financial statements. These schedules have been subjected to the
auditing procedures applied in the audits of the basic financial statements
and, in our opinion, fairly state, in all material respects, the financial
data required to be set forth therein in relation to the basic financial
statements taken as a whole.
ARTHUR ANDERSEN LLP
Arthur Andersen LLP
Boston, Massachusetts
February 21, 1995
<PAGE>
<PAGE 21>
COMMONWEALTH ELECTRIC COMPANY
INDEX TO FINANCIAL STATEMENTS AND SCHEDULES
PART II.
FINANCIAL STATEMENTS
Balance Sheets at December 31, 1994 and 1993
Statements of Income for the Years Ended December 31, 1994, 1993 and 1992
Statements of Retained Earnings for the Years Ended December 31, 1994,
1993 and 1992
Statements of Cash Flows for the Years Ended December 31, 1994, 1993 and
1992
Notes to Financial Statements
PART IV.
SCHEDULES
I Investments in, Equity in Earnings of, and Dividends Received from
Related Parties - Years Ended December 31, 1994, 1993 and 1992
II Valuation and Qualifying Accounts - Years Ended December 31, 1994,
1993 and 1992
SCHEDULES OMITTED
All other schedules are not submitted because they are not applicable or
not required or because the required information is included in the financial
statements or notes thereto.
Financial statements of 50% or less owned companies accounted for by the
equity method have been omitted because they do not, considered individually,
constitute a significant subsidiary.
<PAGE>
<PAGE 22>
COMMONWEALTH ELECTRIC COMPANY
BALANCE SHEETS
DECEMBER 31, 1994 AND 1993
ASSETS
1994 1993
(Dollars in Thousands)
PROPERTY, PLANT AND EQUIPMENT, at original cost $496 166 $475 348
Less - Accumulated depreciation 143 877 133 349
352 289 341 999
Add - Construction work in progress 5 216 5 478
357 505 347 477
INVESTMENTS
Equity in nuclear electric power company 654 601
Other 14 14
668 615
CURRENT ASSETS
Cash 1 637 2 794
Advances to affiliates - 4 485
Accounts receivable -
Affiliates 3 713 2 413
Customers, less reserves of $2,841,000 in 1994
and $3,268,000 in 1993 37 862 38 743
Unbilled revenues 8 899 9 332
Inventories, at average cost -
Materials and supplies 4 152 4 658
Electric production fuel oil 149 202
Prepaid property taxes 2 739 2 538
Other 1 731 1 927
60 882 67 092
DEFERRED CHARGES 57 831 34 619
$476 886 $449 803
<PAGE>
<PAGE 23>
COMMONWEALTH ELECTRIC COMPANY
BALANCE SHEETS
DECEMBER 31, 1994 AND 1993
CAPITALIZATION AND LIABILITIES
1994 1993
(Dollars in Thousands)
CAPITALIZATION
Common Equity -
Common stock, $25 par value -
Authorized and outstanding -
2,043,972 shares wholly-owned by
Commonwealth Energy System (Parent) $ 51 099 $ 51 099
Amounts paid in excess of par value 97 112 97 112
Retained earnings 15 350 15 118
163 561 163 329
Long-term debt, less current
sinking fund requirements 157 817 158 858
321 378 322 187
CURRENT LIABILITIES
Interim Financing -
Notes payable to banks 6 400 -
Advances from affiliates 200 -
6 600 -
Other Current Liabilities -
Current sinking fund requirements 1 053 1 053
Accounts payable -
Affiliates 7 716 10 088
Other 31 911 22 044
Accrued taxes -
Local property and other 3 721 3 017
Income 8 049 2 337
Accrued interest 3 966 4 027
Other 9 725 9 098
66 141 51 664
72 741 51 664
DEFERRED CREDITS
Accumulated deferred income taxes 42 074 39 396
Unamortized investment tax credits 7 994 8 430
Other 32 699 28 126
82 767 75 952
COMMITMENTS AND CONTINGENCIES
$476 886 $449 803
The accompanying notes are an integral part of these financial statements.
<PAGE>
<PAGE 24>
COMMONWEALTH ELECTRIC COMPANY
STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
1994 1993 1992
(Dollars in Thousands)
ELECTRIC OPERATING REVENUES $437 950 $430 484 $409 493
OPERATING EXPENSES
Electricity purchased for resale
and fuel 287 632 284 980 254 316
Transmission 4 734 4 836 5 240
Other operation 70 581 72 962 87 898
Maintenance 10 053 10 714 12 143
Depreciation 15 619 15 032 15 012
Taxes -
Income 9 670 7 158 3 556
Local property 5 275 5 023 4 694
Payroll and other 2 735 3 066 3 046
406 299 403 771 385 905
OPERATING INCOME 31 651 26 713 23 588
OTHER INCOME (EXPENSE)
Allowance for equity funds used
during construction 325 - -
Other, net (1 293) 249 253
(968) 249 253
INCOME BEFORE INTEREST CHARGES 30 683 26 962 23 841
INTEREST CHARGES
Long-term debt 14 183 13 252 10 891
Other interest charges 703 1 738 4 248
Allowance for borrowed funds used
during construction (276) (106) (302)
14 610 14 884 14 837
NET INCOME $ 16 073 $ 12 078 $ 9 004
The accompanying notes are an integral part of these financial statements.
<PAGE>
<PAGE 25>
COMMONWEALTH ELECTRIC COMPANY
STATEMENTS OF RETAINED EARNINGS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
1994 1993 1992
(Dollars in Thousands)
Balance at beginning of year $15 118 $14 882 $14 151
Add (Deduct):
Net income 16 073 12 078 9 004
Cash dividends on common stock (15 841) (11 842) (8 273)
Balance at end of year $15 350 $15 118 $14 882
The accompanying notes are an integral part of these financial statements.
<PAGE>
<PAGE 26>
COMMONWEALTH ELECTRIC COMPANY
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
1994 1993 1992
(Dollars in Thousands)
OPERATING ACTIVITIES
Net income $ 16 073 $ 12 078 $ 9 004
Effects of noncash items -
Depreciation and amortization 17 723 16 447 19 666
Deferred income taxes 8 672 4 407 (5 176)
Investment tax credits (436) (446) (452)
Allowance for equity funds used
during construction (325) - -
Change in working capital, exclusive of
cash, advances to affiliates and
interim financing -
Accounts receivable and unbilled
revenues 14 5 228 7 119
Income taxes, net 5 712 1 727 (3 705)
Local property and other taxes, net 503 222 (25)
Accounts payable and other 8 816 8 935 (2 159)
Fuel charge stabilization deferral (15 964) - -
Deferred postretirement benefit and
pension costs (4 609) (5 189) (1 418)
All other operating items (8 398) (4 488) 8 923
Net cash provided by operating activities 27 781 38 921 31 777
INVESTING ACTIVITIES
Additions to property, plant and
equipment (exclusive of AFUDC) (22 865) (18 631) (20 821)
Allowance for borrowed funds used
during construction (276) (106) (302)
Payment from (advances to) affiliates 4 485 (4 485) -
Net cash used for investing activities (18 656) (23 222) (21 123)
FINANCING ACTIVITIES
Long-term debt issues - 65 000 -
Sale of common stock to Parent - 35 000 -
Payment of dividends (15 841) (11 842) (8 273)
Proceeds from (payment of)
short-term borrowings 6 400 (67 275) 3 975
Advances from (payment to) affiliates 200 (11 840) 2 290
Long-term debt issues refunded - (21 300) (7 522)
Retirement of long-term debt
through sinking funds (1 041) (1 155) (631)
Net cash used for financing activities (10 282) (13 412) (10 161)
Net increase (decrease) in cash (1 157) 2 287 493
Cash at beginning of period 2 794 507 14
Cash at end of period $ 1 637 $ 2 794 $ 507
The accompanying notes are an integral part of these financial statements.
<PAGE>
<PAGE 27>
COMMONWEALTH ELECTRIC COMPANY
NOTES TO FINANCIAL STATEMENTS
(1) Significant Accounting Policies
(a) General and Regulatory
Commonwealth Electric Company (the Company) is a wholly-owned subsidiary
of Commonwealth Energy System. The parent company is referred to in this
report as the "System" and, together with its subsidiaries, is collectively
referred to as "the system." The Company is regulated as to rates, accounting
and other matters by various authorities including the Federal Energy Regula-
tory Commission (FERC) and the Massachusetts Department of Public Utilities
(DPU). The System is an exempt holding company under the provisions of the
Public Utility Holding Company Act of 1935 and, in addition to its investment
in the Company, has interests in other utility companies and several nonregu-
lated companies.
The Company has established various regulatory assets in cases where the
DPU and/or the FERC have permitted or are expected to permit recovery of
specific costs over time. Similarly, certain regulatory liabilities estab-
lished by the Company are required to be refunded to its customers over time.
The principal regulatory assets included in deferred charges at December 31,
1994 and 1993 were as follows:
1994 1993
(Dollars in Thousands)
Fuel charge stabilization $16 638 $ -
Postretirement benefit costs
including pensions 11 215 6 607
Yankee Atomic unrecovered plant
and decommissioning costs 10 204 8 625
Pilgrim nuclear plant litigation costs 7 001 7 358
Cannon Street generating plant abandonment, net 4 400 4 391
Conservation and load management 3 659 3 611
Other 1 049 1 361
Total regulatory assets $54 166 $31 953
Regulatory assets as a percent of total assets 11.4% 7.1%
The principal regulatory liabilities, reflected in deferred credits -
other and relating to income taxes, were $3.7 million and $4 million at
December 31, 1994 and 1993, respectively.
(b) Reclassifications
Certain prior year amounts are reclassified from time to time to conform
with the presentation used in the current year's financial statements.
(c) Transactions with Affiliates
Transactions between the Company and other system companies include
purchases and sales of electricity, including purchases from Canal Electric
Company (Canal), an affiliate wholesale electric generating company. Other
Canal transactions include costs relating to the abandonment of Seabrook 2 and
the recovery of a portion of Seabrook 1 pre-commercial operation costs. In
<PAGE>
<PAGE 28>
COMMONWEALTH ELECTRIC COMPANY
addition, payments for management, accounting, data processing and other
services are made to an affiliate, COM/Energy Services Company. Transactions
with other system companies are subject to review by the DPU.
The Company's operating expenses include the following major intercompany
transactions for the periods indicated:
Purchased Power
Purchased Power and Transmission
Period Ended Purchased Power and Transmission From Canal
December 31, Canal Units Seabrook 1 as Agent
(Dollars in Thousands)
1994 $34 256 $34 617 $21 508
1993 40 537 36 702 20 881
1992 46 844 37 691 22 992
The costs for the Canal and Seabrook 1 units are included in the long-term
obligation table listed in Note 2(b). The Company sold electricity to other
affiliates, primarily station service for Canal, totaling $1,401,000,
$2,973,000 and $2,733,000 in 1994, 1993 and 1992, respectively, and the
Company also purchased natural gas from an affiliate Commonwealth Gas Company,
totaling $106,000 in 1992 (there were no purchases in 1994 and 1993).
(d) Operating Revenues
The Company is generally permitted to bill customers currently for fuel
used in electric production, purchased power and transmission costs, and
conservation and load management (C&LM) costs through adjustment clauses.
Amounts recoverable under these clauses are subject to review and adjustment
by the DPU. Customers are billed for their use of electricity on a cycle
basis throughout the month. To reflect revenues in the proper period, the
estimated amount of unbilled sales revenue is recorded each month. The
Company collects a portion of capacity-related purchased power costs associat-
ed with certain long-term power arrangements through base rates. The amount
of such fuel and energy costs incurred but not yet reflected in customers'
bills, which totaled $3,056,000 in 1993, is recorded as unbilled revenues.
There were no unbilled amounts in 1994. The Company also has implemented a
Fuel Charge (FC) rate settlement that stabilizes its quarterly FC rate for the
years 1994 through 1997 by utilizing a cost deferral mechanism approved by the
DPU. The deferral, which will ultimately be recovered in revenues beginning
in 1998, is limited to $16 million annually (excluding carrying charges) and
is further restricted to a maximum of $40 million during the settlement
period.
(e) Depreciation
Depreciation is provided using the straight-line method at rates intended
to amortize the original cost and the estimated cost of removal less salvage
of properties over their estimated economic lives. The average composite
depreciation rates were 3.31% in 1994 and 1993 and 3.39% in 1992.
(f) Maintenance
Expenditures for repairs of property and replacement and renewal of items
<PAGE>
<PAGE 29>
COMMONWEALTH ELECTRIC COMPANY
determined to be less than units of property are charged to maintenance
expense. Additions, replacements and renewals of property considered to be
units of property are charged to the appropriate plant accounts. Upon
retirement, accumulated depreciation is charged with the original cost of
property units and the cost of removal less salvage.
(g) Allowance for Funds Used During Construction
Under applicable rate-making practices, the Company is permitted to
include an allowance for funds used during construction (AFUDC) as an element
of its depreciable property costs. This allowance is based on the amount of
construction work in progress that is not included in the rate base on which
the Company earns a return. An amount equal to the AFUDC capitalized in the
current period is reflected in the accompanying statements of income.
While AFUDC does not provide funds currently, these amounts are recover-
able in revenues over the service life of the constructed property. The
amount of AFUDC recorded was at a weighted average rate of 10% in 1994, 4% in
1993 and 4.5% in 1992.
(2) Commitments and Contingencies
(a) Financing and Construction Programs
The Company is engaged in a continuous construction program presently
estimated at $141 million for the five-year period 1995 through 1999. Of that
amount, $27.1 million is estimated for 1995. The program is subject to
periodic review and revision because of factors such as changes in business
conditions, rates of customer growth, effects of inflation, maintenance of
reliable and safe service, equipment delivery schedules, licensing delays,
availability and cost of capital and environmental factors. The Company
expects to finance these expenditures on an interim basis with internally
generated funds and short-term borrowings which are ultimately expected to be
repaid with the proceeds from sales of long-term debt and equity securities.
(b) Long-Term Power Contracts
The Company has long-term contracts for the purchase of electricity from
various sources. Generally, these contracts are for fixed periods and require
payment of a demand charge for the capacity entitlement and an energy charge
to cover the cost of fuel. In addition, the Company pays its share of decom-
missioning expense to nonaffiliated Boston Edison Company, the operator of the
Pilgrim nuclear facility, as a cost of electricity purchased for resale.
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COMMONWEALTH ELECTRIC COMPANY
The Company also has long-term contracts to purchase capacity from other
generating facilities. Information relative to the Company's power contracts
is as follows:
Range of
Contract
Expiration Entitlement 1994 1993 1992
Dates % MW Cost Cost Cost
(Dollars in Thousands)
Type of Unit
Cogenerating 2008-2017 (a) 261.6 $122 496 $ 99 620 $ 69 742
Oil 2002-2009 (b) 254.4 34 256 40 537 46 844
Nuclear 2012-2026 (c) 105.9 76 092 77 280 75 207
Waste-to-energy 2015 100 70.2 38 107 34 189 27 206
Hydro 2008-2014 100 29.9 7 521 8 904 10 941
Total 722.0 $278 472 $260 530 $229 940
(a) Includes contracts to purchase power from various cogenerating units
with capacity entitlements ranging from 11.1% to 100%.
(b) Includes entitlements in Canal Unit 1 (20%) and Canal Unit 2 (40%).
(c) Includes entitlements in Seabrook 1 (2.8%) and Pilgrim (11%).
Costs pursuant to these contracts are included in electricity purchased
for resale in the accompanying statements of income and are recoverable in
revenues through either the Fuel Charge or in base rates.
The estimated aggregate capacity obligations under the life-of-the-unit
contracts, including the Canal and Seabrook 1 units, and from other long-term
purchased power contracts, in effect for the five years subsequent to 1994 is
as follows:
Long-Term
Purchased
Power
(Dollars in Thousands)
1995 $267 183
1996 281 118
1997 296 183
1998 319 824
1999 319 288
The Company successfully negotiated a restructured Power Sale Agreement
(PSA), effective January 1, 1995, with an independent power producer (IPP),
that defers purchases for a maximum of six years and requires the facility to
provide power on a dispatchable basis at the discretion of the Company. In
addition, the Company terminated a PSA with another IPP, effective January 27,
1995, through a buyout arrangement, the cost of which will be recorded as a
regulatory asset in 1995 pending final FERC approval.
(c) Yankee Atomic Nuclear Power Plant
In February 1992, the Board of Directors of Yankee Atomic Electric Company
(Yankee Atomic) agreed to permanently discontinue power operation and decom-
mission the Yankee Nuclear Power Station (the Plant). At December 31, 1994,
the Company's 2.5% investment in Yankee Atomic was $654,000. The Company's
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<PAGE 31>
COMMONWEALTH ELECTRIC COMPANY
estimated decommissioning costs include its unrecovered share of all costs
associated with the shutdown of the Plant, recovery of its plant investment,
and the decommissioning and closing of the Plant. The most recent cost
estimate to permanently shut down the plant is approximately $408.2 million.
The Company's share of this liability is $10.2 million and is currently
reflected in the accompanying balance sheets as a liability and corresponding
regulatory asset. The market value of the Company's share of assets in the
plant's decommissioning fund at December 31, 1994 is approximately $2.7
million.
(d) Environmental Matters
The Company is subject to laws and regulations administered by federal,
state and local authorities relating to the quality of the environment. These
laws and regulations affect, among other things, the siting and operation of
electric generating and transmission facilities and can require the installa-
tion of expensive air and water pollution control equipment. These regula-
tions have had an impact on the Company's operations in the past and will
continue to have an impact on future operations, capital costs and construc-
tion schedules of major facilities.
(3) Income Taxes
For financial reporting purposes, the Company provides federal and state
income taxes on a separate-return basis. However, for federal income tax
purposes, the Company's taxable income and deductions are included in the
consolidated income tax return of the System and it makes tax payments or
receives refunds on the basis of its tax attributes in the tax return in
accordance with applicable regulations.
The following is a summary of the Company's provisions for income taxes
for the years ended December 31, 1994, 1993 and 1992.
1994 1993 1992
(Dollars in Thousands)
Federal
Current $ 1 133 $ 2 627 $ (15)
Deferred 7 242 3 705 (4 548)
Investment tax credits (437) (446) (452)
7 938 5 886 (5 015)
State
Current 302 570 (34)
Deferred 1 315 749 348
1 617 1 319 314
9 555 7 205 (4 701)
Amortization of regulatory liability
relating to deferred income taxes 115 (47) (976)
$ 9 670 $ 7 158 $(5 677)
Federal and state income taxes
charged to:
Operating expense $ 9 670 $ 7 158 $ 3 556
Other expense - - (9 233)
$ 9 670 $ 7 158 $(5 677)
Effective January 1, 1992, the Company adopted the provisions of Statement
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COMMONWEALTH ELECTRIC COMPANY
of Financial Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS
No. 109). SFAS No. 109 requires recognition of deferred tax liabilities and
assets for the expected future tax consequences of events that have been
included in the financial statements or tax returns. Under this method,
deferred tax liabilities and assets are determined based on the difference
between the financial statement basis and tax bases of assets and liabilities
using enacted tax rates in effect in the year in which the differences are
expected to reverse.
Accumulated deferred income taxes consisted of the following in 1994 and
1993:
1994 1993
(Dollars in Thousands)
Liabilities
Property-related $47 233 $44 837
Fuel charge stabilization 6 526 -
Litigation costs 2 746 2 886
Postretirement benefits plan 2 857 2 222
All other 1 702 1 918
61 064 51 863
Assets
Investment tax credit 5 159 5 441
Pension plan 1 496 1 384
Uncollectible accounts 1 118 1 282
All other 3 118 2 463
10 891 10 570
Accumulated deferred income taxes,net $50 173 $41 293
The net year-end deferred income tax liability above includes current
deferred tax liabilities of $8,099,000 and $1,897,000 in 1994 and 1993,
respectively, which are included in accrued income taxes in the accompanying
balance sheets.
The total income tax provision set forth above represents 38% in 1994, 37%
in 1993 and (171)% in 1992 of income before such taxes. The following table
reconciles the statutory federal income tax rate to these percentages:
1994 1993 1992
(Dollars in Thousands)
Federal statutory rate 35% 35% 34%
Federal income tax expense at statutory levels $9,010 $6,733 $1,131
Increase (Decrease) from statutory levels:
Amortization of regulatory liability
relating to deferred income taxes - - (5 768)
State tax, net of federal tax benefit 1,051 858 228
Tax versus book depreciation 109 117 111
Amortization of investment tax credits (436) (446) (452)
Reversals of capitalized expenses (67) (68) -
Amortization of excess deferred reserves 115 (47) (920)
Equity AFUDC (114) - -
Other 2 11 (7)
$9,670 $7,158 $(5,677)
Effective federal income tax rate 38% 37% (171)%
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COMMONWEALTH ELECTRIC COMPANY
On April 22, 1992, the DPU approved a settlement agreement among the
Company, the Attorney General of Massachusetts and a consumer group, which
resulted in the issuance of an accounting order authorizing the Company's
retention of $5.7 million in excess deferred taxes subject to obtaining a
favorable ruling from the Internal Revenue Service which was received on
November 30, 1992.
In accordance with the above settlement agreement, the Company wrote off
in 1992 storm damage costs of $9.2 million ($5.7 million net of tax). The
balance of the excess reserves was removed from the deferred tax reserve
account and, after adjustment to its pretax amount as required by SFAS 109,
was credited to a liability account. The excess reserves/regulatory liability
that the Company would retain pursuant to the settlement agreement was also
removed from this liability account and credited to other income, together
with the related income taxes. These amounts were classified as income tax
expense and were used in the reconciliation of the income tax rate.
As a result of the Revenue Reconciliation Act of 1993, the Company's
federal income tax rate increased to 35% effective January 1, 1993.
(4) Employee Benefit Plans
(a) Pension
The Company has a noncontributory pension plan covering substantially all
regular employees who have attained the age of 21 and have completed a year of
service. Pension benefits are based on an employee's years of service and
compensation. The Company makes monthly contributions to the plan consistent
with the funding requirements of the Employee Retirement Income Security Act
of 1974.
Components of pension expense and related assumptions to develop pension
expense were as follows:
1994 1993 1992
(Dollars in Thousands)
Service cost $ 3 196 $ 2 630 $ 2 728
Interest cost 9 793 9 283 8 506
Return on plan assets - (gain)/loss 2 043 (16 412) (10 992)
Net amortization and deferral (10 046) 9 130 4 235
Total pension expense 4 986 4 631 4 477
Transfers to affiliated companies, net 74 (465) (609)
Less: Amounts capitalized and deferred 1 921 1 379 2 127
Net pension expense $ 3 139 $ 2 787 $ 1 741
Discount rate 7.25% 8.50% 8.50%
Assumed rate of return 8.50 8.50 8.50
Rate of increase in future compensation 4.50 5.50 5.50
Pension expense reflects the use of the projected unit credit method,
which is also the actuarial cost method used in determining future funding of
the plan. The Company, in accordance with current ratemaking, is deferring
the difference between pension contribution, which is allowed currently in
base rates, and pension expense, recognized pursuant to Statement of
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COMMONWEALTH ELECTRIC COMPANY
Financial Accounting Standards No. 87, "Employers' Accounting for Pensions."
The funded status of the Company's pension plan (using a measurement date of
December 31) is as follows:
1994 1993
(Dollars in Thousands)
Accumulated benefit obligation:
Vested $ (91 450) $ (95 433)
Nonvested (10 490) (13 030)
$(101 940) $(108 463)
Projected benefit obligation $(125 534) $(131 066)
Plan assets at fair market value 114 876 120 685
Projected benefit obligation
greater than plan assets (10 658) (10 381)
Unamortized transition obligation 4 503 5 146
Unrecognized prior service cost 6 283 5 520
Unrecognized gain (6 086) (5 095)
Accrued pension liability $ (5 958) $ (4 810)
The following actuarial assumptions were used in determining the plan's
year-end funded status:
1994 1993
Discount rate 8.50% 7.25%
Rate of increase in future compensation 5.00 4.50
Plan assets consist primarily of fixed income and equity securities.
Fluctuations in the fair market value of plan assets will affect pension
expense in future years.
(b) Other Postretirement Benefits
Through December 31, 1992, the Company provided postretirement health care
and life insurance benefits to eligible retired employees. Employees became
eligible for these benefits if their age plus years of service at retirement
equaled 75 or more, provided, however, that such service was performed for the
Company or another subsidiary of the System. As of January 1, 1993, the
Company eliminated postretirement health care benefits for those nonbargaining
employees who were less than 40 years of age or had less than 12 years of
service at that date. Under certain circumstances, eligible employees are now
required to make contributions for postretirement benefits.
Effective January 1, 1993, the Company adopted the provisions of Statement
of Financial Accounting Standards No. 106, "Employers' Accounting for Postre-
tirement Benefits Other Than Pensions" (SFAS No. 106). This new standard
requires the accrual of the expected cost of such benefits during the employ-
ees' years of service and the recognition of an actuarially determined postre-
tirement benefit obligation earned by existing retirees. The assumptions and
calculations involved in determining the accrual and the accumulated postre-
tirement benefit obligation (APBO) closely parallel pension accounting
requirements. The cumulative effect of implementation of SFAS No. 106 as of
January 1, 1993 was approximately $48.3 million, which is being amortized over
20 years. Prior to 1993, the cost of postretirement benefits was recognized
as the benefits were paid. The cost of retiree medical care and life
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<PAGE 35>
COMMONWEALTH ELECTRIC COMPANY
insurance benefits totaled $1,915,000 during 1992.
In 1993, the Company began making contributions to various voluntary
employees' beneficiary association (VEBA) trusts that were established
pursuant to section 501(c)9 of the Internal Revenue Code (the Code). The
Company also makes contributions to a sub-account of its pension plan pursuant
to section 401(h) of the Code to satisfy a portion of its postretirement
benefit obligation. The Company contributed approximately $6,677,000 and
$5,964,000 to these trusts during 1994 and 1993, respectively.
The net periodic postretirement benefit cost for the years ended December
31, 1994 and 1993 include the following components and related assumptions:
1994 1993
(Dollars in Thousands)
Service cost $1 127 $1 093
Interest cost 3 799 4 103
Return on plan assets (95) (292)
Amortization of transition obligation
over 20 years 2 417 2 417
Net amortization and deferral (547) 3
Total postretirement benefit cost 6 701 7 324
Transfer from affiliated companies, net (465) (316)
Less: Amounts capitalized and deferred 4 268 5 144
Net postretirement benefit cost $1 968 $1 864
Discount rate 7.25% 8.50%
Assumed rate of return 8.50 8.50
Rate of increase in future compensation 4.50 4.50
The funded status of the Company's postretirement benefit plan using a
measurement date of December 31, 1994 and 1993 is as follows:
1994 1993
(Dollars in Thousands)
Accumulated postretirement benefit obligation:
Retirees $(27 808) $ (27 520)
Fully eligible active plan participants (3 681) (3 756)
Other active plan participants (19 598) (19 277)
(51 087) (50 553)
Plan assets at fair market value 9 797 5 308
Accumulated postretirement benefit obligation
greater than plan assets (41 290) (45 245)
Unamortized transition obligation 43 500 45 917
Unrecognized gain (2 210) (672)
$ - $ -
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COMMONWEALTH ELECTRIC COMPANY
The following actuarial assumptions were used in determining the plan's
year-end funded status:
1994 1993
Discount rate 8.50% 7.25%
Rate of increase in future compensation 5.00 4.50
In determining its estimated APBO and the funded status of the plan for
1994 and 1993, the Company assumed health care trend rates as follows:
1994 1993
Medicare Part B premiums 12.3% 14.9%
Medical care 8.5 9.0
Dental care 5.0 5.0
The above rates, with the exception of the dental rate, which remains
constant, decrease to five percent in the year 2007 and remain at that level
thereafter. A one percent change in the medical trend rate would have a
$769,000 impact on the Company's annual expense (interest component -
$503,000; service cost - $266,000) and would change the transition obligation
by approximately $6.6 million.
Plan assets consist primarily of fixed-income and equity securities.
Fluctuations in the fair market value of plan assets will affect postretire-
ment benefit expense in future years.
The DPU's policy on postretirement benefits is to allow in rates the
maximum tax deductible contributions made to trusts that have been established
specifically to pay postretirement benefits. The Company intends to seek
regulatory approval to recover these costs and, while the outcome cannot be
predicted, it is likely that the DPU will authorize similar rate treatment as
was provided to Cambridge Electric and other Massachusetts electric and gas
companies. A deferral representing the difference between what is being
collected in rates and the SFAS No. 106 accrual amounted to approximately $7.3
million in 1994 and $4.1 million in 1993.
(c) Savings Plan
The Company has an Employees Savings Plan that provides for Company
contributions equal to contributions by eligible employees of up to four
percent of each employee's compensation rate. Effective January 1, 1993, the
rate was increased to five percent for those employees no longer eligible for
postretirement health benefits. The Company's contribution was $1,746,000 in
1994, $1,700,000 in 1993 and $1,808,000 in 1992.
(5) Interim Financing and Long-Term Debt
(a) Notes Payable to Banks
The Company and other system companies maintain both committed and
uncommitted lines of credit for the short-term financing of their construction
programs and other corporate purposes. As of December 31, 1994, system
companies had $90 million of committed lines that will expire at varying
intervals in 1995. These lines are normally renewed upon expiration and
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COMMONWEALTH ELECTRIC COMPANY
require annual fees of up to .1875% of the individual line. At December 31,
1994, the uncommitted lines of credit totaled $90 million. Interest rates on
the outstanding borrowings generally are at an adjusted money market rate and
averaged 4.9% and 3.4% in 1994 and 1993, respectively. Notes payable to banks
totaled $6.4 million at December 31, 1994. The Company had no notes payable
to banks at December 31, 1993.
(b) Advances from Affiliates
Notes payable to the System totaled $200,000 at December 31, 1994. The
Company had no notes payable to the System at December 31, 1993. These notes
are written for a term of up to 11 months and 29 days. Interest is at the
prime rate and is adjusted for changes in that rate during the term of the
notes. The rate averaged 7.3% and 6% in 1994 and 1993, respectively.
The Company is a member of the COM/Energy Money Pool (the Pool), an
arrangement among the subsidiaries of the System, whereby short-term cash
surpluses are used to help meet the short-term borrowing needs of the utility
subsidiaries. In general, lenders to the Pool receive a higher rate of return
than they otherwise would on such investments, while borrowers pay a lower
interest rate than those available from banks. Interest rates on the out-
standing borrowings are based on the monthly average rate the Company would
otherwise have to pay banks, less one-half the difference between that rate
and the monthly average U.S. Treasury Bill weekly auction rate. The borrow-
ings are for a period of less than one year and are payable upon demand.
Rates on these borrowings averaged 4.3% and 3.2% in 1994 and 1993, respective-
ly. The Company had no notes payable to the Pool at December 31, 1994 and had
$4,485,000 invested in the Pool at December 31, 1993.
(c) Long-Term Debt Maturities and Retirements
Long-term debt outstanding, exclusive of current maturities, current
sinking fund requirements and related premiums, is as follows:
Original Balance December 31,
Issue 1994 1993
(Dollars in Thousands)
15-Year Term Loan, 9.30%, due 2002 $30 000 $30 000 $30 000
25-Year Term Loan, 9.37%, due 2012 20 000 17 895 18 947
10-Year Notes, 7.43%, due 2003 15 000 15 000 15 000
15-Year Notes, 9.50%, due 2004 15 000 15 000 15 000
15-Year Notes, 7.70%, due 2008 10 000 10 000 10 000
18-Year Notes, 9.55%, due 2007 10 000 10 000 10 000
20-Year Notes, 7.98%, due 2013 25 000 25 000 25 000
25-Year Notes, 9.53%, due 2014 10 000 10 000 10 000
30-Year Notes, 9.60%, due 2019 10 000 10 000 10 000
30-Year Notes, 8.47%, due 2023 15 000 15 000 15 000
$157 895 $158 947
The Company, under favorable conditions, may purchase its outstanding
notes in advance; however, an early payment premium may be incurred. Certain
of these agreements require the Company to make periodic sinking fund payments
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COMMONWEALTH ELECTRIC COMPANY
for retirement of outstanding long-term debt. The required sinking fund
payments for the five years subsequent to December 31, 1994 are as follows:
Year Sinking Funds
(Dollars in Thousands)
1995 $1 053
1996 3 553
1997 3 553
1998 3 553
1999 3 553
(d) Disclosures about Fair Value of Financial Instruments
The fair value of certain financial instruments included in the accompany-
ing balance sheets as of December 31, 1994 and 1993 are as follows:
1994 1993
(Dollars in Thousands)
Carrying Fair Carrying Fair
Value Value Value Value
Long-Term Debt $158 870 $157 762 $159 911 $184 180
The carrying amount of cash, notes payable to banks and advances to/from
affiliates approximates the fair value because of the short maturity of these
financial instruments.
The estimated fair value of long-term debt is based on quoted market
prices of the same or similar issues or on the current rates offered for debt
with the same remaining maturity. The fair values shown above do not purport
to represent the amounts at which those obligations would be settled.
(6) Dividend Restriction
At December 31, 1994, approximately $10,659,000 of retained earnings was
restricted against the payment of cash dividends by terms of term loans and
note agreements securing long-term debt.
(7) Lease Obligations
The Company leases equipment and office space under arrangements that are
classified as operating leases. These lease agreements are for terms of one
year or longer. Leases currently in effect contain no provisions that
prohibit the Company from entering into future lease agreements or obliga-
tions.
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COMMONWEALTH ELECTRIC COMPANY
Future minimum lease payments, by period and in the aggregate, of noncanc-
elable operating leases consisted of the following at December 31, 1994:
Operating Leases
(Dollars in Thousands)
1995 $ 2 809
1996 2 117
1997 842
1998 388
1999 261
Beyond 1999 1 036
Total future minimum lease payments $ 7 453
Total rent expense for all operating leases, except those with terms of a
month or less, amounted to $3,491,000 in 1994 and 1993 and $3,669,000 in 1992.
There were no contingent rentals and no sublease rentals for the years 1994,
1993 and 1992.
(8) Supplemental Disclosures of Cash Flow Information
The Company's supplemental information concerning cash flow activities is
as follows:
1994 1993 1992
(Dollars in Thousands)
Cash paid during the periods for:
Interest (net of capitalized amounts) $ 13 908 $ 13 074 $ 14 084
Income taxes 2 301 2 438 1 491
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COMMONWEALTH ELECTRIC COMPANY
PART IV.
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) 1. Index to Financial Statements
Financial statements and notes thereto of the Company together with
the Report of Independent Public Accountants, are filed under Item 8
of this report and listed on the Index to Financial Statements and
Schedules (page 21).
(a) 2. Index to Financial Statement Schedules
Filed herewith at page(s) indicated -
Schedule I - Investments in, Equity in Earnings of, and Dividends
Received from Related Parties - Years Ended December 31, 1992, 1993
and 1994 (page 51).
Schedule II - Valuation and Qualifying Accounts - Years Ended
December 31, 1994, 1993 and 1992 (page 52).
(a) 3. Exhibits:
Notes to Exhibits -
a. Unless otherwise designated, the exhibits listed below are incorporat-
ed by reference to the appropriate exhibit numbers and the Securities
and Exchange Commission file numbers indicated in parentheses.
b. During 1981, the Company sold its gas business and properties to
Commonwealth Gas and changed its corporate name from New Bedford Gas
and Edison Light Company to Commonwealth Electric Company.
c. The following is a glossary of Commonwealth Energy System and subsid-
iary companies' acronyms that are used throughout the following
Exhibit Index:
CES ...................... Commonwealth Energy System
CEL ...................... Cambridge Electric Light Company
CEC ...................... Canal Electric Company
CG ....................... Commonwealth Gas Company
NBGEL .................... New Bedford Gas and Edison Light Co.
Exhibit Index:
Exhibit 3. Articles of incorporation and by-laws
3.1.1 By-laws of the Company as amended, (Refiled as Exhibit 1 to the CE
1991 Form 10-K, File No. 2-7749).
3.1.2 Articles of Incorporation, as amended, of NBGEL, including certif-
ication of name change to Commonwealth Electric Company as filed
with the Massachusetts Secretary of State on March 1, 1981 (Re-
filed as Exhibit 1 to the CE 1990 Form 10-K, File No. 2-7749).
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COMMONWEALTH ELECTRIC COMPANY
Exhibit 10. Material Contracts.
10.1 Power contracts.
10.1.1 Power contracts between CEC (Unit 1) and NBGEL and CEL dated
December 1, 1965 (Exhibit 13(a)(1-4) to the CEC Form S-1, File No.
2-30057).
10.1.2 Power contract between Yankee Atomic Electric Company (YAEC) and
NBGEL dated June 30, 1959, as amended April 1, 1975 (Refiled as
Exhibit 2 to the CE 1991 Form 10-K, File No. 2-7749).
10.1.2.1 Second, Third and Fourth Amendments to 10.1.2 as amended October
1, 1980, April 1, 1985 and May 6, 1988, respectively (Exhibit 1 to
the CE Form 10-Q (June 1988), File No. 2-7749).
10.1.2.2 Fifth and Sixth Amendments to 10.1.2 as amended June 26, 1989 and
July 1, 1989, respectively (Exhibit 3 to the CE Form 10-Q (Septem-
ber 1989), File No. 2-7749).
10.1.3 Agreement between NBGEL and Boston Edison Company (BECO) for the
purchase of electricity from BECO's Pilgrim Unit No. 1 dated Aug-
ust 1, 1972 (Exhibit 7 to the CE 1984 Form 10-K, File No. 2-7749).
10.1.3.1 Service Agreement between NBGEL and BECO for purchase of stand-by
power for BECO's Pilgrim Station dated August 16, 1978 (Exhibit 1
to the CE 1988 Form 10-K, File No. 2-7749).
10.1.3.2 System Power Sales Agreement by and between CE and BECO dated July
12, 1984 (Exhibit 1 to the CE Form 10-Q (September 1984), File No.
2-7749).
10.1.3.3 Power Exchange Agreement by and between BECO and CE dated December
1, 1984 (Exhibit 16 to the CE 1984 Form 10-K, File No. 2-7749).
10.1.4 Agreement for Joint-Ownership, Construction and Operation of New
Hampshire Nuclear Units (Seabrook) dated May 1, 1973 (Exhibit
13(N) to the NBGEL Form S-1 dated October 1973, File No. 2-49013),
and as amended below:
10.1.4.1 First through Fifth Amendments to 10.1.4 as amended May 24, 1974,
June 21, 1974, September 25, 1974, October 25, 1974 and January
31, 1975, respectively (Exhibit 13(m) to the NBGEL Form S-1 (No-
vember 7, 1975), File No. 2-54995).
10.1.4.2 Sixth through Eleventh Amendments to 10.1.4 as amended April 18,
1979, April 25, 1979, June 8, 1979, October 11, 1979 and December
15, 1979, respectively (Refiled as Exhibit 1 to the CEC 1989 Form
10-K, File No. 2-30057).
10.1.4.3 Twelfth through Fourteenth Amendments to 10.1.4 as amended May 16,
1980, December 31, 1980 and June 1, 1982, respectively (Refiled as
Exhibits 1, 2, and 3 to the CE 1992 Form 10-K, File No.2-7749).
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COMMONWEALTH ELECTRIC COMPANY
10.1.4.4 Fifteenth and Sixteenth Amendments to 10.1.4 as amended April 27,
1984 and June 15, 1984, respectively (Exhibit 1 to the CEC Form
10-Q (June 1984), File No. 2-30057).
10.1.4.5 Seventeenth Amendment to 10.1.4 as amended March 8, 1985 (Exhibit
1 to the CEC Form 10-Q (March 1985), File No. 2-30057).
10.1.4.6 Eighteenth Amendment to 10.1.4 as amended March 14, 1986 (Exhibit
1 to the CEC Form 10-Q (March 1986), File No. 2-30057).
10.1.4.7 Nineteenth Amendment to 10.1.4 as amended May 1, 1986 (Exhibit 1
to the CEC Form 10-Q (June 1986), File No. 2-30057).
10.1.4.8 Twentieth Amendment to 10.1.4 as amended September 19, 1986 (Ex-
hibit 1 to the CEC 1986 Form 10-K, File No. 2-30057).
10.1.4.9 Twenty-First Amendment to 10.1.4 as amended November 12, 1987
(Exhibit 1 to the CEC 1987 Form 10-K, File No. 2-30057).
10.1.4.10 Settlement Agreement and Twenty-Second Amendment to 10.1.4, both
dated January 13, 1989 (Exhibit 4 to the CEC 1988 Form 10-K, File
No. 2-30057).
10.1.5 Interim Agreement to Preserve and Protect the Assets of and In-
vestment in the New Hampshire Nuclear Units dated April 27, 1984
(Exhibit 2 to the CEC Form 10-Q (June 1984), File No. 2-30057).
10.1.6 Resolutions proposed by Merrill Lynch Capital Markets and adopted
by the Joint-Owners of the Seabrook Nuclear Project regarding
Project financing, dated May 14, 1984 (Exhibit 1 to the CEC Form
10-Q (March 1984), File No. 2-30057).
10.1.7 Agreement for Seabrook Project Disbursing Agent establishing YAEC
as the disbursing agent under the Joint-Ownership Agreement, dated
May 23, 1984 (Exhibit 4 to the CEC Form 10-Q (June 1984), File No.
2-30057).
10.1.7.1 First Amendment to 10.1.7 as amended March 8, 1985 (Exhibit 2 to
the CEC Form 10-Q (March 1985), File No. 2-30057).
10.1.7.2 Second through Fifth Amendments to 10.1.7 as amended May 20, 1985,
June 18, 1985, January 2, 1986 and November 12, 1987, respectively
(Exhibit 4 to the CEC 1987 Form 10-K, File No. 2-30057).
10.1.8 Purchase and Sale Agreement together with an implementing Addendum
dated December 31, 1981, between CE and CEC, for the purchase and
sale of the CE 3.52% joint-ownership interest in the Seabrook
units, dated January 2, 1981 (Refiled as Exhibit 4 to the CE 1992
Form 10-K, File No. 2-7749).
10.1.8.1 Agreement to transfer ownership, construction and operational
interest in the Seabrook Units 1 and 2 from CE to CEC dated Janu-
ary 2, 1981 (Refiled as Exhibit 3 to the CE 1991 Form 10-K, File
No. 2-7749).
<PAGE>
<PAGE 43>
COMMONWEALTH ELECTRIC COMPANY
10.1.9 Termination Supplement between CEC, CE and CEL for Seabrook Unit
2, dated December 8, 1986 (Exhibit 3 to the CEC 1986 Form 10-K,
File No. 2-30057).
10.1.10 Power Contract, as amended to February 28, 1990, superseding the
Power Contract dated September 1, 1986 and amendment dated June 1,
1988, between CEC (seller) and CE and CEL (purchasers) for sell-
er's entire share of the Net Unit Capability of Seabrook 1 and
related energy (Exhibit 1 to the CEC Form 10-Q (March 1990), File
No. 2-30057).
10.1.11 Agreement between NBGEL and Central Maine Power Company (CMP), for
the joint-ownership, construction and operation of William F.
Wyman Unit No. 4 dated November 1, 1974 together with Amendment
No. 1 dated June 30, 1975 (Exhibit 13(N) to the NBGEL Form S-1,
File No. 2-54955).
10.1.11.1 Amendments No. 2 and 3 to 10.1.11 as amended August 16, 1976 and
December 31, 1978 (Exhibit 5(a) 14 to the System's Form S-16 (June
1979), File No. 2-64731).
10.1.12 Contract between CEC and NBGEL and CEL, affiliated companies, for
the sale of specified amounts of electricity from Canal Unit 2
dated January 12, 1976 (Exhibit 7 to the System's 1985 Form 10-K,
File No. 1-7316).
10.1.13 Capacity Acquisition Agreement between CEC,CEL and CE dated Sep-
tember 25, 1980 (Exhibit 1 to the CEC 1991 Form 10-K, File No. 2-
30057).
10.1.13.1 Supplement to 10.1.13 consisting of three Capacity Acquisition
Commitments each dated May 7, 1987, concerning Phases I and II of
the Hydro-Quebec Project and electricity acquired from Connecticut
Light and Power Company CL&P) (Exhibit 1 to the CEC Form 10-Q
(September 1987), File No. 2-30057).
10.1.13.2 Amendment to 10.1.13 as amended and restated June 1, 1993, hence-
forth referred to as the Capacity Acquisition and Disposition
Agreement, whereby CEC, as agent, in addition to acquiring power
may also sell bulk electric power which CEL and/or the Company
owns or otherwise has the right to sell (Exhibit 1 to the CEC Form
10-Q (September 1993), File No. 2-30057).
10.1.14 Phase 1 Vermont Transmission Line Support Agreement and Amendment
No. 1 thereto between Vermont Electric Transmission Company, Inc.
and certain other New England utilities, dated December 1, 1981
and June 1, 1982, respectively (Refiled as Exhibits 5 and 6 to the
1992 CE Form 10-K, File No. 2-7749).
10.1.14.1 Amendment No. 2 to 10.1.14 as amended November 1, 1982 (Exhibit 5
to the CE Form 10-Q (June 1984), File No. 2-7749).
10.1.14.2 Amendment No. 3 to 10.1.14 as amended January 1, 1986 (Exhibit 2
to the CE 1986 Form 10-K, File No. 2-7749).
<PAGE>
<PAGE 44>
COMMONWEALTH ELECTRIC COMPANY
10.1.15 Participation Agreement between MEPCO and CEL and/or NBGEL dated
June 20, 1969 for construction of a 345 KV transmission line
between Wiscasset, Maine and Mactaquac, New Brunswick, Canada and
for the purchase of base and peaking capacity from the NBEPC
(Exhibit 13 to the CES 1984 Form 10-K, File No. 1-7316).
10.1.15.1 Supplement Amending 10.1.15 as amended June 24, 1970 (Exhibit 8 to
the CES Form S-7, Amendment No. 1, File No. 2-38372).
10.1.16 Power Purchase Agreement (Revised) between Weweantic Hydro Associ-
ates and the Company for the purchase of available hydro-electric
energy produced by a facility located in Wareham, MA, originally
dated December 13, 1982, revised and dated March 12, 1993 (Filed
as Exhibit 1 to the CE Form 10-Q (June 1993), File No. 2-7749).
10.1.17 Power Purchase Agreement between Pioneer Hydropower, Inc. and CE
for the purchase of available hydro-electric energy produced by a
facility located in Ware, Massachusetts, dated September 1, 1983
(Refiled as Exhibit 1 to the CE 1993 Form 10-K, File No. 2-7749).
10.1.18 Power Purchase Agreement between Corporation Investments, Inc.
(CI), and CE for the purchase of available hydro-electric energy
produced by a facility located in Lowell, Massachusetts, dated
January 10, 1983 (Refiled as Exhibit 2 to the CE 1993 Form 10-K,
File No. 2-7749).
10.1.18.1 Amendment to 10.1.18 between CI and Boott Hydropower, Inc., an
assignee therefrom, and CE, as amended March 6, 1985 (Exhibit 8 to
the CE 1984 Form 10-K, File No. 2-7749).
10.1.19 Phase 1 Terminal Facility Support Agreement dated December 1,
1981, Amendment No. 1 dated June 1, 1982 and Amendment No. 2 dated
November 1, 1982, between New England Electric Transmission Corpo-
ration (NEET), other New England utilities and CE (Exhibit 1 to
the CE Form 10-Q (June 1984), File No. 2-7749).
10.1.19.1 Amendment No. 3 to 10.1.19 (Exhibit 2 to the CE Form 10-Q (June
1986), File No. 2-7749).
10.1.20 Preliminary Quebec Interconnection Support Agreement dated May 1,
1981, Amendment No. 1 dated September 1, 1981, Amendment No. 2
dated June 1, 1982, Amendment No. 3 dated November 1, 1982, Amend-
ment No. 4 dated March 1, 1983 and Amendment No. 5 dated June 1,
1983 among certain New England Power Pool (NEPOOL) utilities
(Exhibit 2 to the CE Form 10-Q (June 1984), File No. 2-7749).
10.1.21 Agreement with Respect to Use of Quebec Interconnection dated
December 1, 1981, Amendment No. 1 dated May 1, 1982 and Amendment
No. 2 dated November 1, 1982 among certain NEPOOL utilities (Ex-
hibit 3 to the CE Form 10-Q (June 1984), File No. 2-7749).
10.1.21.1 Amendatory Agreement No. 3 to 10.1.21 as amended June 1, 1990,
among certain NEPOOL utilities (Exhibit 1 to the CEC Form 10-Q
(September 1990), File No. 2-30057).
<PAGE>
<PAGE 45>
COMMONWEALTH ELECTRIC COMPANY
10.1.22 Phase I New Hampshire Transmission Line Support Agreement between
NEET and certain other New England Utilities dated December 1,
1981 (Exhibit 4 to the CE Form 10-Q (June 1984), File No. 2-7749).
10.1.23 Agreement, dated September 1, 1985, with Respect To Amendment of
Agreement With Respect To Use Of Quebec Interconnection, dated
December 1, 1981, among certain NEPOOL utilities to include Phase
II facilities in the definition of "Project" (Exhibit 1 to the CEC
Form 10-Q (September 1985), File No. 2-30057).
10.1.24 Preliminary Quebec Interconnection Support Agreement - Phase II
among certain New England electric utilities dated June 1, 1984
(Exhibit 6 to the CE Form 10-Q (June 1984), File No. 2-7749).
10.1.24.1 First, Second and Third Amendments to 10.1.24 as amended March 1,
1985, January 1, 1986 and March 1, 1987, respectively (Exhibit 1
to the CEC Form 10-Q (March 1987), File No. 2-30057).
10.1.24.2 Fifth, Sixth and Seventh Amendments to 10.1.24 as amended October
15, 1987, December 15, 1987 and March 1, 1988, respectively (Ex-
hibit 1 to the CEC Form 10-Q (June 1988), File No. 2-30057).
10.1.24.3 Fourth and Eighth Amendments to 10.1.24 as amended July 1, 1987
and August 1, 1988, respectively (Exhibit 3 to the CEC Form 10-Q
(September 1988), File No. 2-30057).
10.1.24.4 Ninth and Tenth Amendments to 10.1.24 as amended November 1, 1988
and January 15, 1989, respectively (Exhibit 2 to the CEC 1988 Form
10-K, File No. 2-30057).
10.1.24.5 Eleventh Amendment to 10.1.24 as amended November 1, 1989 (Exhibit
4 to the CEC 1989 Form 10-K, File No. 2-30057).
10.1.24.6 Twelfth Amendment to 10.1.24 as amended April 1, 1990 (Exhibit 1
to the CEC Form 10-Q (June 1990), File No. 2-30057).
10.1.25 Phase II Equity Funding Agreement for New England Hydro-Transmis-
sion Electric Company, Inc. (New England Hydro) (Massachusetts),
dated June 1, 1985, between New England Hydro and certain NEPOOL
utilities (Exhibit 2 to the CEC Form 10-Q (September 1985), File
No. 2-30057).
10.1.26 Phase II Massachusetts Transmission Facilities Support Agreement
dated June 1, 1985, refiled as a single agreement incorporating
Amendments 1 through 7 dated May 1, 1986 through January 1, 1989,
respectively, between New England Hydro and certain NEPOOL utili-
ties (Exhibit 2 to the CEC Form 10-Q (September 1990), File No. 2-
30057).
10.1.27 Phase II New Hampshire Transmission Facilities Support Agreement
dated June 1, 1985, refiled as a single agreement incorporating
Amendments 1 through 8 dated May 1, 1986 through January 1, 1990,
respectively, between New England Hydro-Transmission Corporation
(New Hampshire Hydro) and certain NEPOOL utilities (Exhibit 3 to
the CEC Form 10-Q (September 1990), File No. 2-30057).
<PAGE>
<PAGE 46>
COMMONWEALTH ELECTRIC COMPANY
10.1.28 Phase II Equity Funding Agreement for New Hampshire Hydro, dated
June 1, 1985, between New Hampshire Hydro and certain NEPOOL util-
ities (Ex. 3 to the CEC Form 10-Q (Sept. 1985), File No. 2-30057).
10.1.28.1 Amendment No. 1 to 10.1.28 dated May 1, 1986 (Exhibit 6 to the CEC
Form 10-Q (March 1987), File No. 2-30057).
10.1.28.2 Amendment No. 2 to 10.1.28 as amended September 1, 1987 (Exhibit 3
to the CEC Form 10-Q (September 1987), File No. 2-30057).
10.1.29 Phase II New England Power AC Facilities Support Agreement, dated
June 1, 1985, between NEP and certain NEPOOL utilities (Exhibit 6
to the CEC Form 10-Q (September 1985), File No. 2-30057).
10.1.29.1 Amendments Nos. 1 and 2 to 10.1.29 as amended May 1, 1986 and
February 1, 1987, respectively (Exhibit 5 to the CEC Form 10-Q
(March 1987), File No. 2-30057).
10.1.29.2 Amendments Nos. 3 and 4 to 10.1.29 as amended June 1, 1987 and
September 1, 1987, respectively (Exhibit 5 to the CEC Form 10-Q
(September 1987), File No. 2-30057).
10.1.30 Phase II Boston Edison AC Facilities Support Agreement, dated June
1, 1985, between BECO and certain NEPOOL utilities (Exhibit 7 to
the CEC Form 10-Q (September 1985), File No. 2-30057).
10.1.30.1 Amendments Nos. 1 and 2 to 10.1.30 as amended May 1, 1986 and
February 1, 1987, respectively (Exhibit 2 to the CEC Form 10-Q
(March 1987), File No. 2-30057).
10.1.30.2 Amendments Nos. 3 and 4 to 10.1.30 as amended June 1, 1987 and
September 1, 1987, respectively (Exhibit 4 to the CEC Form 10-Q
(September 1987), File No. 2-30057).
10.1.31 Agreement Authorizing Execution of Phase II Firm Energy Contract,
dated September 1, 1985, among certain NEPOOL utilities in regard
to participation in the purchase of power from Hydro-Quebec (Ex-
hibit 8 to the CEC Form 10-Q (September 1985), File No. 2-30057).
10.1.32 System Power Sales Agreement by and between CE, as seller, and
Central Vermont Public Service Corporation (CVPS), as buyer, dated
September 15, 1984 (Exhibit 2 to the CE Form 10-Q (September
1984), File No. 2-7749).
10.1.32.1 System Sales Agreement by CVPS, as seller, and CE, as buyer, dated
September 15, 1984 (Exhibit 9 to the CE 1984 Form 10-K, File No.
2-7749).
10.1.32.2 System Sales and Exchange Agreement by and between CVPS and CE on
energy transactions, dated September 15, 1984 (Exhibit 10 to the
CE 1984 Form 10-K, File No. 2-7749).
10.1.32.3 System Exchange Agreement by and between CE and CVPS for the
exchange of capacity and associated energy, dated September 3,
1985 (Exhibit 1 to the CE 1985 Form 10-K, File No. 2-7749).
<PAGE>
<PAGE 47>
COMMONWEALTH ELECTRIC COMPANY
10.1.32.4 Purchase Agreement by and between CEC and CVPS for the purchase of
capacity from CEC for the term March 1, 1991 to October 31, 1995,
dated March 1, 1991 (Exhibit 1 to CEC Form 10-Q (June 1991), File
No. 2-30057).
10.1.32.5 Power Sale Agreement by and between CEC and CVPS for the purchase
of 50 MW of capacity from CVPS's units (25 MW from Vermont Yankee
and 25 MW from Merrimack 2) for the term of March 1, 1991 to
October 31, 1995, dated March 1, 1991 (Exhibit 2 to CEC Form 10-Q
(June 1991), File No. 2-30057).
10.1.33 Agreements by and between Swift River Company and CE for the
purchase of available hydro-electric energy to be produced by
units located in Chicopee and North Willbraham, Massachusetts,
both dated September 1, 1983 (Exhibits 11 and 12 to the CE 1984
Form 10-K, File No. 2-7749).
10.1.33.1 Transmission Service Agreement between Northeast Utilities' compa-
nies (NU) - The Connecticut Light and Power Company (CL&P) and
Western Massachusetts Electric Company (WMECO), and CE for NU
companies to transmit power purchased from Swift River Company's
Chicopee Units to CE, dated October 1, 1984 (Exhibit 14 to the CE
1984 Form 10-K, File No. 2-7749).
10.1.33.2 Transformation Agreement between WMECO and CE whereby WMECO is to
transform power to CE from the Chicopee Units, dated December 1,
1984 (Exhibit 15 to the CE 1984 Form 10-K, File No. 2-7749).
10.1.34 System Power Sales Agreement by and between CL&P and WMECO, as
buyers, and CE, as seller, dated January 13, 1984 (Exhibit 13 to
the CE 1984 Form 10-K, File No. 2-7749).
10.1.35 System Power Sales Agreement by and between CL&P, WMECO, as sell-
ers, and CEL, as buyer, of power in excess of firm power customer
requirements from the electric systems of the NU Companies, dated
June 1, 1984, as effective October 25, 1985 (Exhibit 1 to CEL 1985
Form 10-K, File No. 2-7909).
10.1.36 Power Purchase Agreement with Respect to South Meadow Unit Nos.
11, 12, 13, and 14 of the NU system company of CL&P (seller) and
CE (buyer), dated November 1, 1985 (Exhibit 1 to the CE Form 10-Q
(June 1986), File No. 2-7749).
10.1.37 Power Purchase Agreement by and between SEMASS Partnership, as
seller, to construct, operate and own a solid waste disposal
facility at its site in Rochester, Massachusetts and CE, as buyer
of electric energy and capacity, dated September 8, 1981 (Exhibit
17 to the CE 1984 Form 10-K, File No. 2-7749).
10.1.37.1 Power Sales Agreement to 10.1.37 for all capacity and related
energy produced, dated October 31, 1985 (Exhibit 2 to the CE 1985
Form 10-K, File No. 2-7749).
<PAGE>
<PAGE 48>
COMMONWEALTH ELECTRIC COMPANY
10.1.37.2 Amendment to 10.1.37 for all additional electric capacity and
related energy to be produced by an addition to the Original Unit,
dated March 14, 1990 (Exhibit 1 to the CE Form 10-Q (June 1990),
File No. 2-7749).
10.1.37.3 Second Amendment to 10.1.37.2 for all additional electric capacity
and related energy to be produced by an addition to the Original
Unit, dated May 24, 1991 (Exhibit 1 to the CE Form 10-Q (June
1991), File No. 2-7749).
10.1.38 System Power Sales Agreement by and between CE (seller) and NEP
(buyer), dated January 6, 1984 (Exhibit 1 to the CE Form 10-Q
(June 1985), File No. 2-7749).
10.1.39 Service Agreement by and between CE and NEP dated March 24, 1984,
whereas CE agrees to purchase short-term power applicable to NEP'S
FERC Electric Tariff Number 5 (Exhibit 1 to the CE Form 10-Q (June
1987), File No. 2-7749).
10.1.40 Power Sale Agreement by and between CE (buyer) and Northeast
Energy Associates, Ltd. (NEA) (seller) of electric energy and
capacity, dated November 26, 1986 (Exhibit 1 to the CE Form 10-Q
(March 1987), File No. 2-7749).
10.1.40.1 First Amendment to 10.1.40 as amended August 15, 1988 (Exhibit 1
to the CE Form 10-Q (September 1988), File No. 2-7749).
10.1.40.2 Second Amendment to 10.1.40 as amended January 1, 1989 (Exhibit 2
to the CE 1988 Form 10-K, File No. 2-7749).
10.1.40.3 Power Sale Agreement dated August 15, 1988 between NEA and CE for
the purchase of 21 MW of electricity (Exhibit 2 to the CE Form
10-Q (September 1988), File No. 2-7749).
10.1.40.4 Amendment to 10.1.40.3 as amended January 1, 1989 (Exhibit 3 to
the CE 1988 Form 10-K, File No. 2-7749).
10.1.41 Power Sale Agreement by and between CE (buyer) and Pepperell Power
Associates Limited Partnership (seller) of all electricity pro-
duced from a 38 KW generating unit, dated April 13, 1987 (Exhibit
3 to the CE Form 10-Q (March 1987), File No. 2-7749).
10.1.42 Exchange of Power Agreement between Montaup Electric Company and
CE dated January 17, 1991 (Exhibit 2 to the CE Form 10-Q (Septem-
ber 1991), File No. 2-7749).
10.1.42.1 First Amendment, dated November 24, 1992, to Exchange of Power
Agreement between Montaup Electric Company and the Company dated
January 17, 1991 (Exhibit 1 to the CE Form 10-Q (March 1993), File
No. 2-7749).
10.1.43 System Power Exchange Agreement by and between CE and New England
Power Company dated January 16, 1992 (Exhibit 1 to the CE Form
10-Q March 1992), File No. 2-7749).
<PAGE>
<PAGE 49>
COMMONWEALTH ELECTRIC COMPANY
10.1.43.1 First Amendment, dated September 8, 1992, to 10.1.43, dated
January 16, 1992 (Exhibit 1 to the CE Form 10-Q (Sept. 1992), File
No. 2-7749).
10.1.43.2 Second Amendment, dated March 2, 1993, to System Power Exchange
Agreement by and between the Company and New England Power Company
dated January 16, 1992 (Exhibit 2 to the CE Form 10-Q (March
1993), File No. 2-7749).
10.1.44 Power Purchase Agreement and First Amendment, dated September 5,
1989 and August 3, 1990, respectively, by and between CE (buyer)
and Dartmouth Power Associates Limited Partnership (seller),
whereby buyer will purchase all of the energy (67.6 MW) produced
by a single gas turbine unit (Exhibit 1 to the CE Form 10-Q (June
1992), File No. 2-7749).
10.1.45 Power Purchase Agreement by and between Masspower (seller)
and the Company (buyer) for a 11.11% entitlement to the electric
capacity and related energy of a 240 MW gas-fired cogeneration
facility, dated February 14, 1992 (Exhibit 1 to the CE Form 10-Q
(September 1993), File No. 2-7749).
10.1.46 Power Sale Agreement by and between Altresco Pittsfield, L.P.
(seller) and the Company (buyer) for a 17.2% entitlement to the
electric capacity and related energy of a 160 MW gas-fired cogen-
eration facility, dated February 20, 1992 (Exhibit 2 to the CE
Form 10-Q (September 1993), File No. 2-7749).
10.1.46.1 System Exchange Agreement by and among Altresco Pittsfield, L.P.,
CEL, the Company and New England Power Company, dated July 2, 1993
(Exhibit 3 to the CE Form 10-Q (September 1993), File No. 2-7749).
10.2 Other agreements.
10.2.1 Pension Plan for Employees of Commonwealth Energy System and
Subsidiary Companies as amended and restated January 1, 1993
(Exhibit 1 to the CES Form 10-Q (Sept. 1993), File No. 1-7316).
10.2.2 Employees Savings Plan of Commonwealth Energy System and Subsid-
iary Companies as amended and restated as of January 1, 1993 (Ex-
hibit 2 to the CES Form 10-Q (September 1993), File No. 1-7316).
10.2.2.1 First Amendment to the Employees Savings Plan of Commonwealth
Energy System and Subsidiary Companies, as amended and restated as
of January 1, 1993, effective October 1, 1994. (Exhibit 1 to CES
Form S-8 (January 1995), File No. 1-7316).
10.2.3 New England Power Pool Agreement (NEPOOL) dated September 1, 1971
as amended through August 1, 1977, between NEGEA Service Corpora-
tion, as agent for CEL, CEC, NBGEL, and various other electric
utilities operating in New England together with amendments dated
August 15, 1978, January 31, 1979 and February 1, 1980 (Exhibit
5(c)13 to New England Gas and Electric Association's Form S-16
(April 1980), File No. 2-64731).
<PAGE>
<PAGE 50>
COMMONWEALTH ELECTRIC COMPANY
10.2.3.1 Thirteenth Amendment to 10.2.3 as amended September 1, 1981 (Re-
filed as Exhibit 3 to the CES 1991 Form 10-K, File No. 1-7316).
10.2.3.2 Fourteenth through Twentieth Amendments to 10.2.3 as amended
December 1, 1981, June 1, 1982, June 15, 1983, October 1, 1983,
August 1, 1985, August 15, 1985 and September 1, 1985, respective-
ly (Exhibit 4 to the CES Form 10-Q (Sept. 1985), File No. 1-7316).
10.2.3.3 Twenty-first Amendment to 10.2.3 as amended to January 1, 1986
(Exhibit 1 to the CES Form 10-Q (March 1986), File No. 1-7316).
10.2.3.4 Twenty-second Amendment to 10.2.3 as amended to September 1, 1986
(Exhibit 1 to the CES Form 10-Q (Sept. 1986), File No. 1-7316).
10.2.3.5 Twenty-third Amendment to 10.2.3 as amended to April 30, 1987
(Exhibit 1 to the CES Form 10-Q (June 1987), File No. 1-7316).
10.2.3.6 Twenty-fourth Amendment to 10.2.3 as amended March 1, 1988 (Exhib-
it 1 to the CES Form 10-Q (March 1989), File No. 1-7316).
10.2.3.7 Twenty-fifth Amendment to 10.2.3. as amended to May 1, 1988 (Ex-
hibit 1 to the CES Form 10-Q (March 1988), File No. 1-7316).
10.2.3.8 Twenty-sixth Agreement to 10.2.3 as amended March 15, 1989 (Exhib-
it 1 to the CES Form 10-Q (March 1989), File No. 1-7316).
10.2.3.9 Twenty-seventh Agreement to 10.2.3 as amended October 1, 1990
(Exhibit 3 to the CES 1990 Form 10-K, File No. 1-7316).
10.2.3.10 Twenty-eighth Agreement to 10.2.3 as amended September 15, 1992
(Exhibit 1 to the CES Form 10-Q (September 1994), File No. 1-
7316).
10.2.3.11 Twenty-ninth Agreement to 10.2.3 as amended May 1, 1993 (Exhibit 2
to the CES Form 10-Q (September 1994), File No. 1-7316).
Exhibit 27. Financial Data Schedule
Filed herewith as Exhibit 1 is the Financial Data Schedule for the
twelve months ended December 31, 1994.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the three months ended
December 31, 1994.
<PAGE>
<PAGE 51>
SCHEDULE I
COMMONWEALTH ELECTRIC COMPANY
INVESTMENTS IN, EQUITY IN EARNINGS OF, AND DIVIDENDS RECEIVED
FROM RELATED PARTIES
FOR THE YEARS ENDED DECEMBER 31, 1992, 1993 AND 1994
(Dollars in Thousands)
Name of Issuer and
Description of Investment
Common Stock - Yankee Atomic Electric Company
Balance, December 31, 1991
Number of Shares: 3 835
Amount $526
1992
Add: Equity in Earnings 75
Less: Dividends Received -
Balance, December 31, 1992 601
1993
Add: Equity in Earnings -
Less: Dividends Received -
Balance, December 31, 1993 601
1994
Add: Equity in Earnings 53
Less: Dividends Received -
Balance, December 31, 1994 $654
There were no changes in the number of shares held during the years 1992, 1993
or 1994.
Under terms of the capital funds agreements and power contracts, no stock may
be sold or transferred except to another stockholder; however, no market
exists for these securities.
See Note 2(c) of the Notes to Financial Statements included in Item 8 of this
report for a discussion of the permanent closing of the nuclear plant owned by
Yankee Atomic Electric Company.
<PAGE>
<PAGE 52>
SCHEDULE II
COMMONWEALTH ELECTRIC COMPANY
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 and 1992
(Dollars in Thousands)
Additions
Balance Provision Deductions Balance
Beginning Charged to Accounts at End
Description of Year Operations Recoveries Written Off of Year
Allowance for
Doubtful Accounts Year Ended December 31, 1994
$3 268 $2 362 $641 $3 430 $2 841
Year Ended December 31, 1993
$3 131 $3 173 $783 $3 819 $3 268
Year Ended December 31, 1992
$2 653 $5 216 $854 $5 592 $3 131
<PAGE>
<PAGE 53>
COMMONWEALTH ELECTRIC COMPANY
FORM 10-K DECEMBER 31, 1994
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
COMMONWEALTH ELECTRIC COMPANY
(Registrant)
By: WILLIAM G. POIST
William G. Poist,
Chairman of the Board and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Principal Executive Officers:
WILLIAM G. POIST March 29, 1995
William G. Poist,
Chairman of the Board and
Chief Executive Officer
R. D. WRIGHT March 29, 1995
Russell D. Wright,
President and Chief Operating Officer
Principal Financial Officer:
JAMES D. RAPPOLI March 29, 1995
James D. Rappoli,
Financial Vice President and Treasurer
Principal Accounting Officer:
JOHN A. WHALEN March 29, 1995
John A. Whalen,
Comptroller
A majority of the Board of Directors:
WILLIAM G. POIST March 29, 1995
William G. Poist, Director
R. D. WRIGHT March 29, 1995
Russell D. Wright, Director
JAMES D. RAPPOLI March 29, 1995
James D. Rappoli, Director
<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND>
This schedule contains summary financial information extracted from the
balance sheet, statement of income, statement of retained earnings and
statement of cash flows contained in Form 10-K of Commonwealth Electric
Company for the fiscal year ended December 31, 1994 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<CIK> 0000071222
<NAME> COMMONWEALTH ELECTRIC COMPANY
<MULTIPLIER> 1,000
<S> <C>
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> DEC-31-1994
<PERIOD-TYPE> YEAR
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 357,505
<OTHER-PROPERTY-AND-INVEST> 668
<TOTAL-CURRENT-ASSETS> 60,882
<TOTAL-DEFERRED-CHARGES> 57,831
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 476,886
<COMMON> 51,099
<CAPITAL-SURPLUS-PAID-IN> 97,112
<RETAINED-EARNINGS> 15,350
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0
0
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0
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0
<EARNINGS-AVAILABLE-FOR-COMM> 16,073
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</TABLE>
