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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549-1004
FORM 10-Q
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
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)
(Former name, address and fiscal year, if changed since last report.)
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 August 1, 1997
Common Stock, $25 par value 2,043,972 shares
The Company meets the conditions set forth in General Instruction H(1)(a) and
(b) of Form 10-Q as a wholly-owned subsidiary and is therefore filing this
Form with the reduced disclosure format.
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
COMMONWEALTH ELECTRIC COMPANY
CONDENSED BALANCE SHEETS
JUNE 30, 1997 AND DECEMBER 31, 1996
ASSETS
(Dollars in thousands)
June 30, December 31,
1997 1996
(Unaudited)
PROPERTY, PLANT AND EQUIPMENT, at original cost $543,060 $535,004
Less - Accumulated depreciation 170,367 163,397
372,693 371,607
Add - Construction work in progress 1,989 2,315
374,682 373,922
INVESTMENTS
Equity in nuclear electric power company 597 643
Other 14 14
611 657
CURRENT ASSETS
Cash 2,430 358
Accounts receivable -
Affiliates 2,873 2,662
Customers 40,390 42,644
Unbilled revenues 10,539 6,741
Prepaid property taxes - 3,024
Inventories and other 5,022 4,580
61,254 60,009
DEFERRED CHARGES
Regulatory assets 71,700 68,129
Other 7,799 3,282
79,499 71,411
$516,046 $505,999
See accompanying notes.
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COMMONWEALTH ELECTRIC COMPANY
CONDENSED BALANCE SHEETS
JUNE 30, 1997 AND DECEMBER 31, 1996
CAPITALIZATION AND LIABILITIES
(Dollars in thousands)
June 30, December 31,
1997 1996
(Unaudited)
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 27,687 27,334
175,898 175,545
Long-term debt, less current sinking
fund requirements 149,687 150,734
325,585 326,279
CURRENT LIABILITIES
Interim Financing -
Notes payable to banks 24,325 15,000
Advances from affiliates 7,665 3,070
31,990 18,070
Other Current Liabilities -
Current sinking fund requirements 3,553 3,553
Accounts payable -
Affiliates 8,594 10,213
Other 27,452 28,137
Accrued taxes -
Local property and other 93 3,025
Income 12,757 15,462
Other 22,034 16,274
74,483 76,664
106,473 94,734
DEFERRED CREDITS
Accumulated deferred income taxes 48,938 47,716
Unamortized investment tax credits 6,910 7,126
Other 28,140 30,144
83,988 84,986
COMMITMENTS AND CONTINGENCIES
$516,046 $505,999
See accompanying notes.
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COMMONWEALTH ELECTRIC COMPANY
CONDENSED STATEMENTS OF INCOME AND RETAINED EARNINGS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 1997 AND 1996
(Dollars in thousands)
(Unaudited)
Three Months Ended Six Months Ended
1997 1996 1997 1996
ELECTRIC OPERATING REVENUES $111,405 $104,958 $228,766 $222,854
OPERATING EXPENSES
Electricity purchased for
resale, transmission and fuel 73,261 66,304 150,328 145,534
Other operation and maintenance 29,472 20,263 51,223 40,376
Depreciation 4,419 4,290 8,838 8,580
Taxes -
Income (847) 2,910 2,103 5,906
Local property 1,529 1,457 3,152 2,891
Payroll and other 682 645 1,641 1,685
108,516 95,869 217,285 204,972
OPERATING INCOME 2,889 9,089 11,481 17,882
OTHER INCOME (EXPENSE) (65) (289) (55) (261)
INCOME BEFORE INTEREST CHARGES 2,824 8,800 11,426 17,621
INTEREST CHARGES
Long-term debt 3,407 3,492 6,796 6,984
Other interest charges 515 588 955 1,092
Allowance for borrowed funds
used during construction (26) (21) (51) (69)
3,896 4,059 7,700 8,007
NET INCOME (LOSS) (1,072) 4,741 3,726 9,614
RETAINED EARNINGS -
Beginning of period 32,132 16,792 27,334 20,708
Dividends on common stock (3,373) (1,533) (3,373) (10,322)
End of period $ 27,687 $ 20,000 $ 27,687 $ 20,000
See accompanying notes.
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COMMONWEALTH ELECTRIC COMPANY
CONDENSED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1996
(Dollars in thousands)
(Unaudited)
1997 1996
OPERATING ACTIVITIES
Net income $ 3,726 $ 9,614
Effects of noncash items -
Depreciation and amortization 12,697 10,782
Deferred income taxes and investment
tax credits, net (504) 273
Change in working capital, exclusive of cash
and interim financing (1,354) (12,091)
Fuel charge stabilization deferral (6,873) 970
All other operating items (6,311) (5,274)
Net cash provided by operating activities 1,381 4,274
INVESTING ACTIVITIES
Additions to property, plant and equipment
(exclusive of AFUDC) (8,758) (10,445)
Allowance for borrowed funds used during
construction (51) (69)
Net cash used for investing activities (8,809) (10,514)
FINANCING ACTIVITIES
Proceeds from short-term borrowings 9,325 6,775
Proceeds from affiliates 4,595 10,920
Payment of dividends (3,373) (10,322)
Sinking funds payments (1,047) (1,047)
Net cash provided by financing activities 9,500 6,326
Net increase in cash 2,072 86
Cash at beginning of period 358 1,430
Cash at end of period $ 2,430 $ 1,516
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest (net of capitalized amounts) $ 7,504 $ 7,791
Income taxes $ 3,913 $ 6,159
See accompanying notes.
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COMMONWEALTH ELECTRIC COMPANY
NOTES TO CONDENSED FINANCIAL STATEMENTS
(1) General Information
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 System is an exempt public
utility 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 and several non-regulated companies.
The Company has 799 regular employees including 521 (65%) who are
represented by three collective bargaining units. New agreements were
reached in early 1996 with two bargaining units (representing approximate-
ly 54% of regular employees) that were scheduled to expire on October 1,
1996 and November 1, 1997. These new agreements will remain in effect
until 2002 and 2001, respectively. The third agreement representing 11%
of regular employees expires on April 30, 1998. Employee relations have
generally been satisfactory.
During the second quarter of 1997, the system initiated a voluntary
personnel reduction program. For additional information, see the "Person-
nel Reduction Program" section under Management's Discussion and Analysis
of Results of Operations.
(2) Significant Accounting Policies
(a) Principles of Accounting
The Company's significant accounting policies are described in Note 2
of Notes to Financial Statements included in its 1996 Annual Report on
Form 10-K filed with the Securities and Exchange Commission. For interim
reporting purposes, the Company follows these same basic accounting poli-
cies but considers each interim period as an integral part of an annual
period and makes allocations of certain expenses to interim periods based
upon estimates of such expenses for the year.
The unaudited financial statements for the periods ended June 30, 1997
and 1996 reflect, in the opinion of the Company, all adjustments (consist-
ing of only normal recurring accruals, except for those described in the
"Personnel Reduction Program" section under Management's Discussion and
Analysis of Results of Operations) necessary to summarize fairly the
results for such periods. In addition, certain prior period amounts are
reclassified from time to time to conform with the presentation used in
the current period's financial statements.
Income tax expense is recorded using the statutory rates in effect
applied to book income subject to tax recorded in the interim period.
The results for interim periods are not necessarily indicative of
results for the entire year because of seasonal variations in the con-
sumption of energy and the accrual for costs associated with the personnel
reduction program referred to above.
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COMMONWEALTH ELECTRIC COMPANY
(b) Regulatory Assets and Liabilities
The Company is regulated as to rates, accounting and other matters by
various authorities including the Federal Energy Regulatory Commission
(FERC) and the Massachusetts Department of Public Utilities (DPU).
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." 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, the regulatory liabilities established by the Company are
required to be refunded to customers over time. Effective January 1,
1996, the Company adopted SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of." SFAS No.
121 imposes stricter criteria for regulatory assets by requiring that such
assets be probable of future recovery at each balance sheet date. SFAS
No. 121 did not have an impact on the Company's financial position or
results of operations upon adoption. This result may change as modifica-
tions are made to the current regulatory framework due to ongoing electric
industry restructuring efforts in Massachusetts. If all or a separable
portion of the Company's operations becomes no longer subject to the
provisions of SFAS No. 71, a write-off of related regulatory assets and
liabilities would be required, unless some form of transition cost
recovery continues through rates established and collected for the
Company's remaining regulated operations. In addition, the Company would
be required to determine any impairment to the carrying costs of deregu-
lated plant and inventory assets. However, on December 30, 1996, the DPU
issued an order containing "Model Rules" for industry restructuring that
management believes would essentially allow full recovery of stranded
costs. For additional information relating to industry restructuring, see
the "Electric Industry Restructuring" section under Management's Discus-
sion and Analysis of Results of Operations.
The principal regulatory assets included in deferred charges at
June 30, 1997 and December 31, 1996 were as follows:
June 30, December 31,
1997 1996
(Dollars in thousands)
Fuel charge stabilization $29,508 $21,504
Power contract buy-out 19,236 20,794
Postretirement benefits costs
including pensions 11,781 12,092
Pilgrim nuclear plant litigation costs 6,108 6,286
Yankee Atomic unrecovered plant
and decommissioning costs 3,711 4,333
Conservation and load management costs 629 2,322
Other 727 798
$71,700 $68,129
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COMMONWEALTH ELECTRIC COMPANY
The regulatory liabilities included in other deferred credits at
June 30, 1997 and December 31, 1996 were as follows:
June 30, December 31,
1997 1996
(Dollars in thousands)
Excess Seabrook-related deferred income taxes $ 1,745 $ 2,792
Other deferred income taxes 1,970 2,086
Excess replacement power refunds 614 982
$ 4,329 $ 5,860
(3) Commitments and Contingencies
The Company is engaged in a continuous construction program presently
estimated at $109 million for the five-year period 1997 through 2001. Of
that amount, $23.3 million is estimated for 1997. As of June 30, 1997,
the Company's construction expenditures amounted to approximately $8.8
million, including an allowance for funds used during construction. The
Company expects to finance these expenditures on an interim basis with
internally-generated funds and short-term borrowings.
The program is subject to periodic review and revision due to 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 environ-
mental regulations.
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COMMONWEALTH ELECTRIC COMPANY
Item 2. 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 condensed statements of income. This discussion
should be read in conjunction with the Notes to Condensed Financial Statements
appearing elsewhere in this report.
A summary of the period to period changes in the principal items included
in the condensed statements of income for the three and six months ended
June 30, 1997 and 1996 and unit sales for these periods is shown below:
Three Months Ended Six Months Ended
June 30, June 30,
1997 and 1996 1997 and 1996
Increase (Decrease)
(Dollars in thousands)
Electric Operating Revenues $ 6,447 6.1% $ 5,912 2.7%
Operating Expenses -
Electricity purchased for resale,
transmission and fuel 6,957 10.5 4,794 3.3
Other operation and maintenance 9,209 45.4 10,847 26.9
Depreciation 129 3.0 258 3.0
Taxes -
Federal and state income (3,757) (129.1) (3,803) (64.4)
Local property and other 109 5.2 217 4.7
12,647 13.2 12,313 6.0
Operating Income (6,200) (68.2) (6,401) (35.8)
Other Income 224 77.5 206 78.9
Income Before Interest Charges (5,976) (67.9) (6,195) (35.2)
Interest Charges (163) (4.0) (307) (3.8)
Net Income $ (5,813) (122.6) $ (5,888) (61.2)
Unit Sales (Megawatthours or MWH)
Retail 3,216 0.4 2,473 0.1
Wholesale 59,120 31.7 132,726 31.8
Total 62,336 6.1 135,199 6.4
The following is a summary of unit sales (in MWH) for the periods
indicated:
Three Months Six Months
Period Ended Total Retail Wholesale Total Retail Wholesale
June 30, 1997 1,078,398 832,794 245,604 2,239,885 1,690,213 549,672
June 30, 1996 1,016,062 829,578 186,484 2,104,686 1,687,740 416,946
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COMMONWEALTH ELECTRIC COMPANY
Operating Revenues, Electricity Purchased for Resale, Transmission and Fuel
The increase in operating revenues for the six-month period ended June 30,
1997 from the corresponding period in 1996 was due to wholesale sales ($3.9
million) reflecting the changing capacity needs of non-affiliated utilities
and the New England Power Pool. Fluctuations in the level of wholesale
electric sales have no impact on net income. The recovery of costs associated
with conservation and load management programs ($1.1 million) and other
miscellaneous revenues ($.8 million) also contributed to the increase in the
current six-month period.
The increase in operating revenues for the three-month period ended June
30, 1997 from the corresponding period in 1996 was primarily due to the
increased cost of electricity purchased for resale, transmission and fuel to
retail customers ($5.6 million) and higher wholesale sales ($1.1 million).
Electricity purchased for resale, transmission and fuel expense increased
in the current quarter and six-month period due to higher unit sales offset
somewhat by greater available generation (by 97,000 MWH (48.5%) and 383,000
MWH (129.2%)), respectively, from the Company's affiliate, Canal Electric
Company (Canal), at a lower cost than was available from several non-utility
generating units and other contracted purchased power sources in the same
period of a year ago. Purchases from Canal were lower in 1996 due to sched-
uled maintenance on Canal Unit 2.
Other Operation and Maintenance
Other operation and maintenance includes the following:
Three Months Ended Six Months Ended
June 30, June 30,
1997 1996 1997 1996
(Dollars in millions)
Other operation and maintenance $29.5 $20.3 $51.2 $40.4
Less:
Personnel Reduction Program 8.4 - 8.4 -
Storm-related maintenance 2.0 - 2.0 -
Conservation and load manage-
ment accelerated recovery - - 1.3 -
Net $19.1 $20.3 $39.5 $40.4
The increase in other operation and maintenance was primarily due to one-
time costs related to a Personnel Reduction Program initiated during the
current quarter (as further discussed below), to storm damage costs related to
an April 1 blizzard, and to costs attributable to conservation and load
management programs due to approval received in the first quarter of 1997 from
the Massachusetts Department of Public Utilities (DPU) for accelerated
recovery of costs. In the current quarter, after excluding the impact of the
above factors, the decline in expense was primarily due to a $671,000 reduc-
tion in insurance and employee benefits costs.
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COMMONWEALTH ELECTRIC COMPANY
Depreciation and Taxes
Depreciation expense increased slightly in the current three and six-month
periods due to a higher level of depreciable property, plant and equipment.
The decline in federal and state income taxes was due to a lower level of
pretax income. Local property and other tax increases for the current three
and six-month periods primarily reflect higher rates and assessments in the
Company's service area.
Other Income and Interest Charges
Other income increased in the current three and six-month periods from the
same periods in 1996 due to the absence of a settlement paid in the second
quarter of 1996 by the Company related to conservation management services
provided by an outside vendor.
Total interest charges declined in the current three and six-month periods
reflecting scheduled sinking fund payments on long-term debt and a lower
average amount of short-term borrowings during the period.
Personnel Reduction Program
As initially discussed in the Company's 1996 Annual Report on Form 10-K
filed with the Securities and Exchange Commission, the Company announced the
details of a system-wide voluntary Personnel Reduction Program (PRP) in May
1997. The goal of the PRP is to achieve a reduced, more efficient and more
productive workforce in response to the significant regulatory changes facing
the System's companies. This action follows the recent management consolida-
tion of the system's electric and gas operations. The expectation is that the
workforce will be reduced by 15% to 20%.
The PRP is offered to substantially all regular and part-time employees of
the system. Eligibility for employees covered by collective bargaining
agreements is subject to negotiation. The election period is from May 13
through August 29, 1997. The system reserves the right to limit the number of
participants in the program to 300; however, the system expects the final
participation level to exceed this amount.
The program provides severance based on years of service, the continuation
of certain health and dental insurance for specified periods and limited
reimbursement for certain educational and/or outplacement services.
Currently, approximately 14% of the Company's employees have applied for
the PRP. The Company estimates that the cost of termination benefits as
described above, including a portion of costs for certain affiliates but
excluding generation-related costs that are being addressed separately as part
of the industry restructuring process, will approximate $8.4 million which was
recorded in the second quarter and had an after-tax income impact of $5.1
million. The payback period is expected to be less than one year.
Electric Industry Restructuring
On December 30, 1996, the DPU issued a final order announcing its "Model
Rules and Legislative Proposal" as a guide in the creation of a competitive
market for electric generation in Massachusetts. Legislative proposals
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COMMONWEALTH ELECTRIC COMPANY
concerning electric industry restructuring were filed by the former Governor
of the Commonwealth of Massachusetts on February 24, 1997, and by the Massa-
chusetts Legislature's Joint Committee on Electric Utility Restructuring (the
Committee) on March 20, 1997. Each of the plans proposed by the DPU, the
former Governor and the Committee is intended to provide customers with the
opportunity to achieve lower electric bills beginning on the target date of
January 1, 1998.
In its "Model Rules," the DPU has proposed that the minimum structural
reorganization needed to create a competitive market is the functional
separation of generation, transmission and distribution within one integrated
company, and the establishment of a separate marketing affiliate if a company
retains generation assets. Other elements of the DPU's Model Rules provide
that electric customers will be able to buy their power on the open market;
distribution services will remain a service that continues to be provided
exclusively by the existing local distribution companies in clearly defined
service territories; and customers will have three types of electric genera-
tion choices. First, customers may enter into unregulated agreements with a
competitive supplier for the provision of generation. Second, customers may
continue to buy power directly from their electric distribution company at a
price regulated by the DPU, which is known as standard offer service. Third,
customers who have received generation from a competitive supplier but who,
for any reason, have stopped receiving such generation will be able to receive
default generation service, provided by distribution companies at spot market
prices.
In some regulatory jurisdictions, changes in the electric industry could
reduce the opportunity that currently exists for electric companies to recover
their investment in generating plant and other costs previously approved by
regulators and included in current rates. These potential losses, which may
result from subjecting electric company generation to the pressures of a
competitive market, are typically referred to as "stranded costs." The single
largest component of stranded costs, which are significant to the system,
relates to above-market purchased power contracts that the Company and
Cambridge Electric have with non-utility generators. However, the DPU has
concluded that it is in the public interest to provide electric companies a
reasonable opportunity to collect net, non-mitigable stranded costs. The DPU
has proposed that stranded costs associated with owned generation facilities,
regulatory assets, and purchased power obligations be collected over the
expected economic life of the generating facility, the current amortization
schedule of the regulatory asset, or the contractual term of the purchased
power obligation, respectively. The DPU's proposal requires that any stranded
cost recovery for an electric utility be subject to mitigation efforts to
reduce embedded costs over time. The Model Rules specify that mitigation
should include such measures as sales of capacity and energy from owned
generation, renegotiation or buy-out of purchased power contracts, and sales
and voluntary writedowns of assets.
The former Governor's restructuring proposal includes: a standard offer
generation service option for residential and small business customers for a
five-year period; recovery by electric utilities of net, non-mitigable
stranded costs over a 12-year period; the recovery of reasonable employee
transition costs for utility workers directly affected by electric industry
restructuring; and, at a minimum, the functional separation of generation,
transmission and distribution services. The former Governor's legislation
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COMMONWEALTH ELECTRIC COMPANY
also provides a mechanism for electric utilities to reduce their stranded
costs by financing the renegotiation or buy-out of above-market purchased
power contracts. The bill authorizes the Massachusetts Industrial Finance
Agency to issue electric rate reduction bonds to electric utilities that
receive a financing order from the DPU. The criteria for eligibility to apply
for the financing order include: (1) DPU approval of a plan to provide retail
access and divestiture of non-nuclear generating assets; and (2) demonstration
that such contract buy-out or purchase, including the cost of financing, will
substantially reduce costs to ratepayers.
The Committee issued both a comprehensive report, which outlines options
for the Legislature's consideration as debate on restructuring continues, and
a set of recommendations and a legislative package that is designed to imple-
ment electric industry restructuring in Massachusetts. Elements of the
Committee's legislative proposal include the functional separation of utility
companies into generation, transmission and distribution companies. Transmis-
sion and distribution companies would remain regulated while generation
companies would be unregulated with pricing determined by the market. The
Committee's proposal establishes a retail access date of January 1, 1998 or
later, as determined by the DPU, calls for a 10% rate reduction for all
customers and allows for the recovery of certain net, non-mitigable stranded
costs over a ten-year period. The proposal also encourages divestiture as a
mitigation measure by authorizing companies to securitize stranded costs
through the issuance of rate reduction bonds only where the company has
divested itself of non-nuclear generation assets. On May 6, 1997, the Company
and Cambridge Electric submitted comments on the Committee's legislative
proposal making specific recommendations for changes with respect to increas-
ing the time frame for recovery of stranded costs including power contracts,
the increased use of securitization and other issues. The Massachusetts
Legislature, which will render the final passage of any restructuring law, is
now considering the legislative proposals of the DPU, the former Governor and
the Committee.
During the last several months, three Massachusetts electric utilities
announced negotiated settlement agreements with the Massachusetts Attorney
General's Office (Attorney General) that include divestiture of generating
assets, provision for a 10% reduction in customers' bills and recovery of
stranded costs through a non-bypassable access charge. One settlement
agreement has been approved by the DPU. Implementation of any restructuring
settlement may be affected by actions of the Massachusetts Legislature.
The Company and Cambridge Electric have recently engaged in formal settle-
ment discussions with the Attorney General and have provided the Attorney
General with information to further the development of a comprehensive
settlement. In the unlikely event that the parties are unable to complete a
settlement, the companies would file a full restructuring plan with the DPU.
On March 31, 1997, the Company and Cambridge Electric submitted a report
to the DPU which detailed the proposed auction process for selling their
electric generation assets and entitlements. The process will include a
standard, sealed-bid auction for generation assets and purchased power
contracts with the securitization of remaining obligations. The auction
process would provide a market-based approach to maximizing stranded cost
mitigation and minimizing the access charges that ratepayers will have to pay
for stranded cost recovery. The Company and Cambridge Electric anticipate
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COMMONWEALTH ELECTRIC COMPANY
that the bidding process will begin shortly after Labor Day.
As described in Note 2(b) of the Notes to Condensed Financial Statements,
the Company complies with the provisions of Statement of Financial Accounting
Standards (SFAS) No. 71, "Accounting for the Effects of Certain Types of
Regulation." In the event the Company is somehow unable to meet the criteria
for following SFAS No. 71, the accounting impact would be an extraordinary,
non-cash charge to operations in an amount that could be material. Criteria
that could give rise to the discontinuance of SFAS No. 71 include: 1) increas-
ing competition restricting the system's ability to establish prices to
recover specific costs, and 2) a significant change in the current manner in
which rates are set by regulators. The Company periodically reviews these
criteria to ensure that the continuing application of SFAS No. 71 is appropri-
ate. Recently, the Securities and Exchange Commission has questioned the
ability of certain utilities continuing the application of SFAS No. 71 where
legislation provided for the transition to retail competition. The issue of
when and how to discontinue the application of SFAS No. 71 by utilities during
transition to competition has been referred to the Financial Accounting
Standards Board's Emerging Issues Task Force and guidance on this issue is
expected in the near future. Based on the current evaluation of the various
factors and conditions that are expected to impact future cost recovery, the
Company believes that its regulatory assets, including those related to
electric generation, are probable of future recovery.
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COMMONWEALTH ELECTRIC COMPANY
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
The Company is not a party to any pending material legal proceeding.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 27 - Financial Data Schedule
Filed herewith as Exhibit 1 is the Financial Data Schedule for
the six months ended June 30, 1997.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the three months ended
June 30, 1997.
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COMMONWEALTH ELECTRIC COMPANY
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
COMMONWEALTH ELECTRIC COMPANY
(Registrant)
Principal Financial and
Accounting Officer:
Date: August 14, 1997 JAMES D. RAPPOLI
James D. Rappoli,
Financial Vice President
and Treasurer
<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND>
This schedule contains summary financial information extracted from the
balance sheet, statement of income and statement of cash flows contained in
Form 10-Q of Commonwealth Electric Company for the six months ended June 30,
1997 and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<CIK> 0000071222
<NAME> COMMONWEALTH ELECTRIC COMPANY
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