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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, 1996
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 14, 1997
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 39 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
Regulation.................................... 6
(a) Cost Recovery........................... 6
(b) Electric Industry Restructuring......... 7
(c) Wholesale Proceedings................... 9
(d) Retail Choice Pilot Program............. 9
Competition................................... 10
Construction and Financing.................... 11
Employees..................................... 11
Item 2. Properties...................................... 11
Item 3. Legal Proceedings............................... 12
PART II
Item 5. Market for the Registrant's Common Stock and
Related Stockholder Matters..................... 13
Item 7. Management's Discussion and Analysis of
Results of Operations........................... 14
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............................. 39
Signatures.................................................. 51
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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 to approximately 318,700
retail customers (including 46,900 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. The Company also sells power to the New England Power Pool (NEPOOL), is
actively marketing sales of certain available capacity to other utilities in
and outside the New England region, and in early 1997, received approval to
participate as a broker in the purchase and sale of electricity.
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
distributes 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 significant. However, this past year the Company has
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 1996 retail electric
unit sales (80.1% of total sales), 47.9% was sold to residential customers,
41.3% to commercial customers, 10.4% to industrial and 0.4% to streetlighting
and similar types of 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 8.8 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
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COMMONWEALTH ELECTRIC COMPANY
contracts, system entitlements include one-quarter (141.5 MW) of the capacity
and energy of Canal Unit 1 and one-half (288 MW) of the capacity and energy of
Canal Unit 2. The Company's entitlements in these units are 113.3 MW and
230.6 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 and New England Power
Company (Bear Swamp Units). Exchange agreements are in place with 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 32.7 MW, respectively.
Pursuant to long-term contracts, several non-utility generating (NUG)
sources provided a substantial portion of the Company's power entitlements in
1996 as follows: 180.2 MW from four (4) natural gas-fired units; 67 MW from a
waste-to-energy unit (including an expansion unit); and 23.7 MW from four (4)
hydro-electric units.
On June 5, 1996, the DPU approved a power sale termination agreement
between the Company and Altresco Lynn, Inc. (Altresco) that related to a
purchase power obligation under which the Company would have been required to
purchase approximately 25 MW from Altresco beginning on January 1, 1997.
Under the terms of the termination agreement, the Company returned to Altresco
$550,000 of the $750,000 power sale agreement security deposit held by the
Company since April 1992. The remaining $200,000, plus accumulated interest,
was credited to the Company's fuel charge stabilization account. Consistent
with DPU precedent regarding provision of least-cost electric service, the
termination of the power sale agreement, coupled with providing replacement
power when necessary, will save the Company's customers approximately $34
million, in 1995 dollars, over the twenty-year life of the initial power sale
agreement.
In early 1995, the Company restructured a NUG power sale agreement with
Lowell Cogeneration Company L.P. (23 MW) that defers the purchase of capacity
and energy until December 31, 2000 and, when called back into service, power
will be dispatched only when needed at the discretion of the Company. Also,
the Company terminated a NUG power sale agreement with Pepperell Power
Associates L.P. (38 MW) effective January 27, 1995. In June 1995, the Company
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COMMONWEALTH ELECTRIC COMPANY
signed an agreement with another New England utility (Northeast Utilities) to
purchase peaking-unit capacity at rates lower than that available from NEPOOL
or other regional utilities. 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 and capacity from non-affiliate New England Power
Company's Bear Swamp Units (an initial, smaller exchange of 25 MW began in
1992).
The Company expects to provide for future peak load plus reserve require-
ments through existing system generation, including purchasing available
capacity from neighboring utilities, NUG facilities, power marketers and power
brokers. 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 aggressively pursues the
opportunity to market excess energy and capacity at rates greater than it
would receive from sales to NEPOOL. This competitive business developed for
the Company in the early 1990's when it began to formally respond to requests
for proposals to supply short-term energy and associated capacity to other
utilities. Increased emphasis on the marketing of excess energy and capacity
as well as increased emphasis on reducing production cost expenses through
aggressively seeking least-cost energy and capacity on the market has resulted
in approximate savings of $3.8 million, $2.0 million and $1.0 million in 1996,
1995 and 1994, 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
the member companies to fulfill the region's energy requirement. This concept
is accomplished by 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 approximately 20% of peak load.
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COMMONWEALTH ELECTRIC COMPANY
Energy Mix
The Company's energy mix which includes purchased power, is shown below:
1996 1995 1994
Natural gas 39% 42% 42%
Oil 21 15 22
Nuclear 20 22 18
Waste-to-energy 12 13 12
Hydro 8 5 3
Coal - 3 3
Total 100% 100% 100%
The Company's energy mix reflects the use of natural gas and other fuels
due to the requirement to purchase capacity from NUG facilities and continued
efforts to reduce its reliance on oil. The lower oil component in 1995
reflects Canal Unit 1 being off-line for the first seven months of the year,
an additional outage period of nearly one month during the fourth quarter and
decreased availability of Canal Unit 2.
Regulation
(a) Cost Recovery
Rate Schedule The Company files a quarterly Fuel Charge (FC) rate
schedule, subject to DPU regulation, under which it is allowed current
recovery from retail customers of costs 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.
Revenues collected through base rates are generally designed to reimburse
the Company for all costs of operation other than fuel, the energy portion of
purchased power, transmission and C&LM costs while providing a fair return on
capital invested in the business. However, as a result of the DPU-mandated
recovery mechanism described above for certain capacity-related costs, the
Company has experienced a revenue excess or shortfall when unit sales and/or
the costs recoverable in base rates vary from test-period levels. This issue,
which has had a significant impact on the Company's net income, was addressed
in a settlement agreement approved by the DPU in May 1995. The fuel charge
stabilization mechanism was amended to include the deferral (without carry-
ing charges) of these long-term purchased power and transmission capacity
costs within the original limits established for the fuel charge stabilization
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COMMONWEALTH ELECTRIC COMPANY
deferral ($16 million in any given calendar year and $40 million over the life
of the mechanism) and neutralizes the sometimes volatile impact these costs
have had on net income.
Conservation and Load Management Programs The Company has implemented a
variety of cost-effective conservation and load management (C&LM) programs
that are designed to reduce future energy use by its customers. In 1993, the
DPU began allowing the recovery by the Company of its "lost base revenues"
from customers as a rate component employed by the DPU to encourage effective
implementation of C&LM programs. These and other C&LM costs are recovered
through a Conservation Charge decimal. The KWH savings that are realized as a
result of the successful implementation of C&LM programs serve as the basis
for determining lost base revenues.
(b) Electric Industry Restructuring
In August 1995, the DPU issued an order calling for the restructuring of
the electric utility industry in Massachusetts. On May 1, 1996, the DPU
issued a second order containing proposed rules for implementing electric
industry restructuring that were the subject of public comment and hearings
during June and July 1996. Subsequently, on December 30, 1996, the DPU issued
another order announcing its "Model Rules and Legislative Proposal" as a guide
in the creation of a competitive market for electric generation in Massachu-
setts that would provide customers with the opportunity to achieve lower
electric bills beginning January 1, 1998. The order also required electric
utilities to file by March 3, 1997, revenue-neutral, unbundled rates and model
bills showing a breakdown of the bill into generation, transmission, distribu-
tion and access charge categories.
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. The Massachusetts Legislature (Legislature), which
will render the final passage of any restructuring law, is now considering the
DPU's proposed legislation. In addition, on March 20, 1997, the Legislature's
own Joint Committee on Electric Utility Restructuring (the Committee) issued a
comprehensive policy report which outlines options for the Legislature's
consideration as debate on this issue continues. In addition to the report,
the Committee formulated its own recommendations and corresponding legislative
package designed to address each of the major areas of the law which must
develop if electric utility restructuring is to be successfully implemented in
Massachusetts.
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 monopoly service offered exclusively by the existing local distribu-
tion companies in clearly defined service territories; and customers will have
three types of electric generation 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. 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
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COMMONWEALTH ELECTRIC COMPANY
price.
Changes in the electric industry could reduce the opportunity that
currently exists for electric companies to recover their investment in
generating plant and other expenditures previously approved by the DPU and
included in current rates. The 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 Company and Cambridge
Electric relates to above market purchased power contracts that both companies
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 minimum 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 obliga-
tion, 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. Further, the DPU will conduct stranded cost charge
reconciliations at years two, five and ten following the date of retail
access.
During the last several months, three Massachusetts electric utilities
have announced negotiated settlement agreements with the Massachusetts
Attorney General's Office (Attorney General) that include divestiture of
generating assets, provision for a ten percent reduction in customers' charges
and recovery of stranded costs through a non-bypassable access charge. One
settlement agreement has already been approved by the DPU. Implementation of
any restructuring settlement may be affected by actions of the Massachusetts
Legislature.
The Company and Cambridge Electric are engaged in preliminary settlement
discussions with the Attorney General, and expect to reach a comprehensive
settlement during the first half of 1997. In the unlikely event the parties
are unable to complete a settlement, the companies would file a full restruc-
turing plan with the DPU.
As described in Note 2(b) to the Company's 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 determined that it no longer met the
criteria for following SFAS No. 71, the accounting impact would be an extraor-
dinary, 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)
increasing competition restricting the Company'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. 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 generation, are probable of
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COMMONWEALTH ELECTRIC COMPANY
future recovery.
(c) Wholesale Rate Proceedings
The Company provides power supply and transmission services to its FERC-
jurisdictional wholesale customers and requires FERC approval to change its
wholesale rates.
On March 29, 1995, the FERC issued two notices of proposed rulemaking
concerning 1) open access transmission and 2) stranded costs. The FERC's
notices proposed to remove impediments to competition in the wholesale bulk
power marketplace and to bring more efficient, lower cost power to electric
consumers. On April 24, 1996, the FERC issued Order No. 888 which issued a
set of three interrelated rules resolving the above rulemakings. The FERC
required all public utilities that own, control or operate transmission
facilities in interstate commerce to have on file wholesale open access
transmission tariffs that conform to the FERC pro-forma tariff contained in
Order No. 888. On July 9, 1996 the Company and Cambridge Electric filed
tariffs that conform to the FERC's pro-forma tariffs and, on November 13,
1996, the FERC accepted the non-rate terms and conditions of these tariffs
effective July 9, 1996, subject to a revision of one section dealing with the
scheduling of services.
On December 31, 1996 the Company and Cambridge Electric filed market-based
power sales tariffs with the FERC. The Companies sought authorization to make
wholesale power sales at fully negotiated rates and requested authorization to
participate as brokers in the sale and purchase of electricity. On February
27, 1997, the FERC approved these market-based power sales tariffs.
(d) Retail Choice Pilot Program
On September 3, 1996, the DPU approved the Company's retail choice pilot
program. The program is comprised of two components: under Subscription A,
eligible customers have the opportunity to buy their power from a supplier
other than the Company (an alternative supplier); under Subscription B,
eligible customers continue to buy their power from the Company, but at prices
posted by the Company one day ahead. All participating customers will pay the
Company a customer charge, transmission and distribution charges, and an
access charge.
The program is available to the Company's 18 commercial and industrial
customers taking service under one of the Company's economic development
rates. Subscription A has been filled by 5 customers having an aggregate load
of approximately 15 megawatts. However, because this portion of the program
is temporarily suspended pending rebidding of the power supply, the Company is
assisting these customers to qualify them on Subscription B. The remaining
customers are eligible to participate in Subscription B.
The program is designed to allow a limited number of customers the
opportunity to possibly reduce their electric bills while the Company learns
more about real-time pricing and the administrative requirements associated
with open-market competition. Through the program, the Company expects to
develop internal procedures for billing and allocating the costs for providing
an alternative supply to its retail customers, and to develop methods for
educating customers regarding retail choice. The program is scheduled to
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COMMONWEALTH ELECTRIC COMPANY
continue until December 31, 1997.
Those customers that find that their selection is not right for them will
be able to return to the Company service at their prior rate.
Competition
The Company continues to develop and implement strategies that deal with
the increasingly competitive environment facing the electric business. The
inherently high cost of providing energy services in the Northeast has placed
the region at a competitive disadvantage as more customers begin to explore
alternative energy supply options. Pursuant to its aforementioned Model
Rules, the DPU is proposing to implement 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.
Company 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.
On February 6, 1997, due to the dramatically changing nature of the
electric and gas industries, the System announced the consolidation of
management personnel of Cambridge Electric, Commonwealth Gas, COM/Energy
Services Company and the Company effective on that date. COM/Electric and
COM/Gas will continue to operate under their existing company names. The
consolidation process for these companies will involve the merging of similar
functions and activities to eliminate duplication in order to create the most
efficient and cost-effective operation possible and will ultimately result in
the elimination of approximately 300 (15% of the system) positions system-
wide.
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, amended in May 1995, that stabilized its quarterly FC rate
during the years 1994 through 1996 at 6.5 cents per KWH and no greater than
6.7 cents per KWH during 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 settlement period (1994 through 1997) and is further
limited to an annual amount of $16 million. The Company reduced the deferred
balance by $2,372,000 in 1996, somewhat reversing prior year deferrals of
$3,447,000 and $15,964,000 in 1995 and 1994, respectively. Considering
contract renegotiations with non-utility generators and recent fuel price
increases, the Company expects cumulative deferred amounts to be approximately
$30 million through 1997.
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COMMONWEALTH ELECTRIC COMPANY
The rate stabilization mechanism is part of a long-term plan to control
the Company's retail rates. This plan will help eliminate the disincentive
for economic development resulting from a volatile and unpredictable FC rate.
The stabilized FC rate has enabled 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 was
widely supported by various business and customer groups and other political
interests.
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 help the region's economy. The Company
also funded the development of a business plan that focuses on improving
infrastructure, regulation, access to capital, marketing and promotion,
cooperation and leadership on Cape Cod.
In an effort to foster industrial development in its service area, the
Company began offering an Economic Development Rate in October 1991 to new or
existing industrial customers who have an electric demand of 500 kilowatts or
more and meet specific financial and other criteria. The number of commercial
and industrial customers that participated in this special rate were 31, 27
and 23 at December 31, 1996, 1995 and 1994, respectively. The rate is avail-
able for a six-year term. Revenues were lower by $1.3 million, $1.5 million
and $1.7 million in 1996, 1995 and 1994, respectively, and represent the
difference between what certain commercial and industrial customers would have
paid prior to the availability of this rate. The Company also offers a Vacant
Space Rate that is available to qualifying small commercial and industrial
customers who establish loads in previously unoccupied building space.
Construction and Financing
Information concerning the Company's financing and construction programs
is contained in Note 3(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 5.2% in
1996 to 843 from 889 employees at year-end 1995. The Company has 553 employ-
ees (65.6%) who are represented by the Brotherhood of Utility Workers of New
England, Inc. under three separate collective bargaining units with agreements
that expire April 30, 1998, October 31, 2001 and September 30, 2002. 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 8.8 MW.
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COMMONWEALTH ELECTRIC COMPANY
At December 31, 1996, the electric transmission and distribution system
consisted of 5,710 pole miles of overhead lines, 3,667 cable miles of under-
ground line, 138 substations and 333,141 active customer meters.
Item 3. Legal Proceedings
The Company is not a party to any pending material legal proceeding.
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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, 1996
One
(c) Frequency and Amount of Dividends Declared in 1996 and 1995
1996 1995
Per Share Per Share
Declaration Date Amount Declaration Date Amount
January 24, 1996 $4.30 January 25, 1995 $1.70
April 29, 1996 .75 April 24, 1995 2.10
November 4, 1996 1.30 July 25, 1995 1.00
$6.35 $4.80
Reference is made to Note 7 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, 1996
and 1995 and unit sales for these periods is shown below:
Years Ended Years Ended
December 31, December 31,
1996 and 1995 1995 and 1994
Increase (Decrease)
(Dollars in thousands)
Electric Operating Revenues $ 19,202 4.4% $ (4,046) (0.9)%
Operating Expenses -
Electricity purchased for resale
and fuel 9,033 3.2 (6,502) (2.3)
Transmission (617) (13.3) (81) (1.7)
Other operation 2,718 3.9 (1,040) (1.5)
Maintenance 2,280 21.6 516 5.1
Depreciation 664 4.1 758 4.9
Taxes -
Federal and state income 1,910 17.3 1,371 14.2
Local property and other 243 3.1 (123) (1.5)
16,231 4.0 (5,101) (1.3)
Operating Income 2,971 8.9 1,055 3.3
Other Income 799 62.6 366 22.3
Income Before Interest Charges 3,770 11.7 1,421 4.6
Interest Charges (666) (3.9) 2,325 15.9
Net Income $ 4,436 29.2 $ (904) (5.6)
Unit Sales (Megawatthours or MWH)
Retail 96,581 2.9 24,758 0.7
Wholesale (3,976) (0.5) (322,435) (27.3)
Total unit sales 92,605 2.2 (297,677) (6.6)
<PAGE>
<PAGE 15>
COMMONWEALTH ELECTRIC COMPANY
Unit Sales
The following is a summary of unit sales and customers for the periods
indicated:
Years Ended December 31,
1996 1995 1994
% %
Unit Sales (MWH): Change Change
Residential 1,645,011 3.1 1,595,161 (1.3) 1,616,750
Commercial 1,417,790 2.4 1,384,301 3.0 1,344,452
Industrial 356,009 3.8 343,004 1.7 337,191
Streetlighting 16,039 1.5 15,802 4.5 15,117
Total retail 3,434,849 2.9 3,338,268 0.7 3,313,510
Wholesale 852,938 (0.5) 856,914 (27.3) 1,179,349
Total 4,287,787 2.2 4,195,182 (6.6) 4,492,859
Customers - 12 Month Average:
Residential (a) 278,653 1.2 275,409 0.7 273,395
Commercial (a) 38,609 1.4 38,080 1.3 37,597
Industrial 299 (4.8) 314 (2.2) 321
Streetlighting 1,100 4.1 1,057 20.4 878
Total 318,661 1.2 314,860 0.9 312,191
(a) Includes seasonal customers of 46,862 in 1996, 47,497 in 1995 and 48,606
in 1994. 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.
The 2.9% increase in retail unit sales in 1996 was due to approximately
3,800 (1.2%) additional customers, the majority of which are permanent year-
round residential customers. The slight decrease in the level of wholesale
unit sales reflected a 3.5% decline in sales to the New England Power Pool.
In 1995, the decline in total unit sales was due to the decrease in wholesale
sales that reflected the reduced availability of power from several of the
Company's long-term supply sources. The slight increase in 1995 retail unit
sales reflected higher unit sales to commercial customers, including 5.3% and
3.3% increases in the second and third quarters, respectively. The decline in
sales to residential customers reflected reduced space heating requirements.
The Company's residential customer segment provides approximately 48% of
its total retail sales and approximately 10% of those customers rely on
electricity for space heating. The Company expects that its retail unit sales
growth will average 1%-2% over the next five years.
Operating Revenues
Operating revenues for 1996 increased by $19.2 million (4.4%) due mainly
to higher electricity purchased for resale and fuel costs of $9 million, the
impact of higher retail unit sales ($5.2 million) and a $4 million refund
associated with a power contract settlement agreement approved by the Federal
Energy Regulatory Commission related to billing issues in prior years. The
remainder of the change mainly reflects increased wholesale revenues. In
total, wholesale revenues were $18.2 million, $16.7 million and $23.8 million
<PAGE>
<PAGE 16>
COMMONWEALTH ELECTRIC COMPANY
in 1996, 1995 and 1994, respectively. Fluctuations in the level of wholesale
electric sales have no impact on earnings.
Operating revenues for 1995 decreased by $4 million (0.9%) due mainly to
lower wholesale sales ($7.1 million) primarily caused by maintenance and other
repairs to Canal's Unit 1 discussed above. Also contributing to the decline
in revenues were lower conservation and load management (C&LM) costs of $1.7
million and lower lost base revenues related to C&LM programs ($.6 million).
The recovery of lost base revenues through the operation of a Conservation
Charge decimal is allowed by the 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.
Pursuant to a 1995 settlement agreement with the DPU that limits the
Company's return on equity through 1997, revenues in 1996 and 1995 reflect a
customer refund of $1.8 million and $.4 million, respectively.
As a result of a DPU-mandated recovery mechanism implemented in July 1991
for capacity-related costs associated with certain long-term purchased power
contracts, the Company has experienced a revenue excess or shortfall when unit
sales and/or the costs recoverable in base rates vary from test-period levels.
This issue, which has had a significant impact on net income, was addressed in
a settlement agreement approved by the DPU in May 1995 (refer to the "Cost
Recovery" section in Item 1 of this report for additional details). The
Company can now defer these costs (within certain limits) to neutralize the
sometimes volatile effect on net income. During 1996, there was an
overcollection of approximately $.4 million which reduced the deferred balance
in the fuel charge stabilization account pursuant to the May 1995 settlement
agreement. During 1995, there was an undercollection of approximately $2.1
million of which $1.1 million was deferred resulting in $970,000 of capacity-
related costs not recovered in revenues. For 1994, revenues were undercollec-
ted by $4 million of such capacity-related costs. This recovery mechanism
reduced net income by approximately $600,000 and $2.5 million in 1995 and
1994, respectively. There was no net income impact in 1996.
Revenues also reflect the impact of the Company's Economic Development
Rate which became effective in 1991. Revenues were lower by $1.3 million,
$1.5 million and $1.7 million in 1996, 1995 and 1994, respectively. These
amounts represent the difference between what certain commercial and industri-
al customers would have paid prior to the availability of this rate. For
additional information on this special rate, refer to the "Economic Develop-
ment" section in Item 1 of this report.
<PAGE>
<PAGE 17>
COMMONWEALTH ELECTRIC COMPANY
The following is an analysis of revenue components for the years 1996,
1995 and 1994:
Years Ended December 31,
1996 1995 1994
(Dollars in thousands)
% %
Change Change
Costs recovered in Fuel,
Purchased Power, or
Conservation Charges $230,462 4.1 $221,367 2.3 $216,419
Certain power and other costs
recovered in base rates 52,607 (1.2) 53,268 0.3 53,116
Other (a) 152,561 6.5 143,197 (1.5) 145,315
Total retail revenue 435,630 4.3 417,832 0.7 414,850
Total wholesale revenue 18,150 8.4 16,746 (29.6) 23,774
Total revenues $453,780 4.4 $434,578 (0.9) $438,624
(a) Includes other base rate and miscellaneous revenues.
In the May 1995 settlement, the Company implemented a $2.7 million annual
retail base rate decrease effective May 1, 1995 and included its share of
excess deferred tax reserves related to Seabrook Unit 1 refunded in May 1995
to the Company by Canal. Further, the settlement imposed a moratorium on
retail rate filings until October 1998 and limits the Company's return on
equity through 1997.
Electricity Purchased for Resale, Transmission and Fuel
To satisfy demand requirements and provide required reserve capacity, the
Company purchases power on a long and short-term basis through entitlements
pursuant to power contracts with other New England and Canadian utilities,
Qualifying Facilities and other non-utility generators through a competitive
bidding process that is regulated by the DPU. The Company supplements these
sources with its own generating capacity.
The cost of electricity purchased for resale, fuel and transmission
constituted 64.8%, 65.8%, 66.7% in 1996, 1995 and 1994, respectively, of
electric operating revenues. These costs increased in 1996 due to the impact
of higher unit sales and to a lesser extent, an increase in power purchased
from affiliate Canal Electric Company's (Canal) Unit 1 offset, in part, by the
termination of an exchange agreement with another utility and reduced costs of
$3.3 million from the Pilgrim nuclear unit. During 1995, the 2.3% decline in
purchased power costs was due to reduced operation at Canal Unit 1 that
reflected maintenance and other repairs discussed previously.
Other Operating Expenses
Other operation increased $2.7 million (3.9%) in 1996 due to higher gen-
eral liability insurance costs ($3 million) and higher costs for postretire-
ment benefits ($1.5 million). Somewhat offsetting these higher costs was a
lower provision for bad debts ($.6 million) and the absence of legal fees ($.5
million) associated with the cancellation of a power contract in 1995.
<PAGE>
<PAGE 18>
COMMONWEALTH ELECTRIC COMPANY
In 1995, other operation decreased $1 million due to a decline in general
liability insurance caused by insurance accruals that reflected better than
anticipated experience ($1.9 million) and lower C&LM costs ($1.7 million).
This was offset, in part, by higher labor charges, and postretirement benefit
costs ($2.2 million) that reflected the full recognition of expenses and
amortization of previously deferred costs that were part of the rate settle-
ment agreement approved by the DPU in May 1995.
Included in other operation are certain costs, including amortization of
prior period amounts, associated with C&LM programs that amounted to $3.1
million, $2.6 million and $4.3 million in 1996, 1995 and 1994, respectively.
Maintenance increased $2.3 million (21.6%) in 1996 primarily due to storm
damage costs incurred for Hurricane Edouard ($2.1 million). In 1995, mainte-
nance increased $.5 millon (5.1%) due primarily to higher costs associated
with right-of-way brush and tree-trimming projects.
The total number of full-time employees declined 5.2% and 2.6% in 1996
and 1995, respectively, while labor costs, excluding benefit costs, were
virtually unchanged in 1996 and increased $1.4 million (4.4%) in 1995.
Depreciation expense increased $.7 million and $.8 million in 1996 and
1995, respectively, consistent with the Company's additions to and upgrading
of its property, plant and equipment.
Other Income (Expense)
The $.8 million increase in 1996 was mainly due to the absence of a 1995
reserve for the Cannon Street generating station ($2.7 million, net of tax)
and the absence in 1996 of a prior-year reversal of a $1.4 million reserve
that related to certain costs associated with the Company's energy conser-
vation program, the recovery of which was subsequently approved by the DPU.
The 1995 expense component of other income decreased due primarily to the
reserve activity mentioned above.
Interest Charges
Total interest charges declined in 1996 by 3.9% due to a lower average
level of short-term borrowings and interest rates that averaged 5.6% in 1996
versus 6.1% in 1995. These decreased charges were offset somewhat in 1996 by
a decrease ($214,000) in the allowance for borrowed funds used during con-
struction. Interest charges during 1995 increased $2.3 million (15.9%) due
primarily to higher short-term interest rates (6.1% for 1995 versus 4.9% in
1994) and a higher average level of borrowings ($7.9 million).
Forward-Looking Statements
This report contains statements which, to the extent they are not recita-
tions of historical fact, constitute "forward-looking statements" and are
intended to be subject to the safe harbor protection provided by the Private
Securities Litigation Reform Act of 1995. A number of important factors
affecting the Company's business and financial results could cause actual
results to differ materially from those stated in the forward-looking state-
ments. Those factors include developments in the legislative, regulatory
<PAGE>
<PAGE 19>
COMMONWEALTH ELECTRIC COMPANY
and competitive environment, certain environmental matters, demands for
capital expenditures and the availability of cash from various sources, and
uncertainty as to regulatory approval of the full recovery of regulatory
assets and other stranded costs.
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.
Effective January 1, 1997, the Company will adopt the provisions of
Statement of Position (SOP) 96-1, "Environmental Remediation Liabilities."
This Statement provides authoritative guidance for recognition, measurement,
display and disclosure of environmental remediation liabilities in financial
statements. The Company has recorded environmental remediation liabilities
net of amounts paid of $.8 million at December 31, 1996. Upon adoption of SOP
96-1, the Company's estimated liability will not incrementally change and
further, management does not believe that SOP 96-1 will have a material
adverse effect on the Company's results of operations or financial position.
Item 8. Financial Statements and Supplementary Data
The Company's financial statements required by this item are filed here-
with on pages 20 through 38 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 the Board of Directors of 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, 1996 and 1995, and the related
statements of income, retained earnings and cash flows for each of the three
years in the period ended December 31, 1996. 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 on 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, 1996 and 1995, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1996, in conformity with generally accepted accounting princi-
ples.
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
Boston, Massachusetts
February 19, 1997.
<PAGE>
<PAGE 21>
COMMONWEALTH ELECTRIC COMPANY
INDEX TO FINANCIAL STATEMENTS AND SCHEDULES
PART II.
FINANCIAL STATEMENTS
Balance Sheets at December 31, 1996 and 1995
Statements of Income for the Years Ended December 31, 1996, 1995 and 1994
Statements of Retained Earnings for the Years Ended December 31, 1996,
1995 and 1994
Statements of Cash Flows for the Years Ended December 31, 1996, 1995 and
1994
Notes to Financial Statements
PART IV.
SCHEDULES
I Investments in, Equity in Earnings of, and Dividends Received from
Related Parties - Years Ended December 31, 1996, 1995 and 1994
II Valuation and Qualifying Accounts - Years Ended December 31, 1996,
1995 and 1994
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, 1996 AND 1995
ASSETS
1996 1995
(Dollars in thousands)
PROPERTY, PLANT AND EQUIPMENT, at original cost $535,004 $520,714
Less - Accumulated depreciation 163,397 154,170
371,607 366,544
Add - Construction work in progress 2,315 1,912
373,922 368,456
INVESTMENTS
Equity in nuclear electric power company 643 590
Other 14 14
657 604
CURRENT ASSETS
Cash 358 1,430
Accounts receivable -
Affiliates 2,662 2,570
Customers, less reserves of $1,792,000 in 1996
and $2,379,000 in 1995 42,644 41,951
Unbilled revenues 6,741 6,813
Inventories, at average cost -
Materials and supplies 2,830 3,338
Electric production fuel oil 141 125
Prepaid property taxes 3,024 2,843
Other 1,609 1,799
60,009 60,869
DEFERRED CHARGES
Regulatory assets 68,129 74,230
Other 3,282 3,686
71,411 77,916
$505,999 $507,845
The accompanying notes are an integral part of these financial statements.
<PAGE>
<PAGE 23>
COMMONWEALTH ELECTRIC COMPANY
BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
CAPITALIZATION AND LIABILITIES
1996 1995
(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 27,334 20,708
175,545 168,919
Long-term debt, less current
sinking fund requirements 150,734 154,275
326,279 323,194
CURRENT LIABILITIES
Interim Financing -
Notes payable to banks 15,000 17,300
Advances from affiliates 3,070 1,545
18,070 18,845
Other Current Liabilities -
Current sinking fund requirements 3,553 3,553
Accounts payable -
Affiliates 10,213 8,987
Other 28,137 31,402
Accrued taxes -
Local property and other 3,025 3,068
Income 15,462 18,721
Accrued interest 3,894 3,946
Other 12,380 10,111
76,664 79,788
94,734 98,633
DEFERRED CREDITS
Accumulated deferred income taxes 47,716 44,211
Unamortized investment tax credits 7,126 7,559
Other 30,144 34,248
84,986 86,018
COMMITMENTS AND CONTINGENCIES
$505,999 $507,845
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, 1996, 1995 AND 1994
1996 1995 1994
(Dollars in thousands)
ELECTRIC OPERATING REVENUES $453,780 $434,578 $438,624
OPERATING EXPENSES
Electricity purchased for resale
and fuel 290,163 281,130 287,632
Transmission 4,036 4,653 4,734
Other operation 72,259 69,541 70,581
Maintenance 12,849 10,569 10,053
Depreciation 17,041 16,377 15,619
Taxes -
Income 12,951 11,041 9,670
Local property 5,485 5,137 5,275
Payroll and other 2,645 2,750 2,735
417,429 401,198 406,299
OPERATING INCOME 36,351 33,380 32,325
OTHER INCOME (EXPENSE)
Allowance for equity funds used
during construction - - 325
Other, net (477) (1,276) (1,967)
(477) (1,276) (1,642)
INCOME BEFORE INTEREST CHARGES 35,874 32,104 30,683
INTEREST CHARGES
Long-term debt 13,968 14,081 14,183
Other interest charges 2,399 3,166 703
Allowance for borrowed funds used
during construction (98) (312) (276)
16,269 16,935 14,610
NET INCOME $ 19,605 $ 15,169 $ 16,073
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, 1996, 1995 AND 1994
1996 1995 1994
(Dollars in thousands)
Balance at beginning of year $20,708 $15,350 $15,118
Add (Deduct):
Net income 19,605 15,169 16,073
Cash dividends on common stock (12,979) (9,811) (15,841)
Balance at end of year $27,334 $20,708 $15,350
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, 1996, 1995 AND 1994
1996 1995 1994
(Dollars in thousands)
OPERATING ACTIVITIES
Net income $ 19,605 $ 15,169 $ 16,073
Effects of noncash items -
Depreciation and amortization 21,815 20,087 17,723
Deferred income taxes 569 11,782 8,672
Investment tax credits (433) (435) (436)
Change in working capital, exclusive of
cash, advances from affiliates and
interim financing -
Accounts receivable and unbilled
revenues (713) (827) 2,423
Income taxes, net (3,259) 10,672 5,712
Local property and other taxes, net (224) (757) 503
Accounts payable and other 860 4,365 6,407
Fuel charge stabilization deferral 2,372 (3,447) (15,964)
Deferred postretirement benefits and
pension costs 191 (1,067) (4,609)
Power contract buy-out - (25,500) -
All other operating items (3,979) (4,041) (8,723)
Net cash provided by operating activities 36,804 26,001 27,781
INVESTING ACTIVITIES
Additions to property, plant and
equipment (exclusive of AFUDC) (20,483) (24,788) (22,865)
Allowance for borrowed funds used
during construction (98) (312) (276)
Payment from affiliates - - 4,485
Net cash used for investing activities (20,581) (25,100) (18,656)
FINANCING ACTIVITIES
Payment of dividends (12,979) (9,811) (15,841)
Proceeds from (payment of)
short-term borrowings (2,300) 10,900 6,400
Advances from affiliates 1,525 1,345 200
Retirement of long-term debt
through sinking funds (3,541) (3,542) (1,041)
Net cash used for financing activities (17,295) (1,108) (10,282)
Net decrease in cash (1,072) (207) (1,157)
Cash at beginning of period 1,430 1,637 2,794
Cash at end of period $ 358 $ 1,430 $ 1,637
Cash paid (received) during the periods for:
Interest (net of capitalized amounts) $ 15,436 $ 15,685 $ 13,908
Income taxes paid (refunded) $ 13,424 $ (1,119) $ 2,301
The accompanying notes are an integral part of these financial statements.
<PAGE>
<PAGE 27>
COMMONWEALTH ELECTRIC COMPANY
NOTES TO FINANCIAL STATEMENTS
(1) General Information
Commonwealth Electric Company (the Company) is a wholly-owned subsidiary
of Commonwealth Energy System (the System). The System is the parent company
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 with investments
in four operating public utility companies located in central, eastern and
southeastern Massachusetts and several nonregulated companies. The Company's
operations are involved in the production and sale of electricity to approxi-
mately 318,700 customers (including 46,900 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 Company has 843 regular employees including 553 (66%) who are repre-
sented by three collective bargaining units. New agreements were reached in
early 1996 with two bargaining units (representing approximately 55% 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. Employee relations have generally been satisfactory.
(2) Significant Accounting Policies
(a) Principles of Accounting
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Certain prior year amounts are reclassified from time to time to conform
with the presentation used in the current year's financial statements.
(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 regula-
tory 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
<PAGE>
<PAGE 28>
COMMONWEALTH ELECTRIC COMPANY
Company's financial position or results of operations upon adoption. This
result may change as modifications are made to the current regulatory frame-
work 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 deregulated 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 Discussion and Analysis of Results
of Operations.
The principal regulatory assets included in deferred charges at
December 31, 1996 and 1995 were as follows:
1996 1995
(Dollars in thousands)
Power contract buy-out $20,794 $23,838
Fuel charge stabilization 21,504 22,063
Postretirement benefits costs
including pensions 12,092 12,283
Yankee Atomic unrecovered plant
and decommissioning costs 4,333 5,630
Pilgrim nuclear plant litigation costs 6,286 6,644
Conservation and load management costs 2,322 2,968
Other 798 804
$68,129 $74,230
The regulatory liabilities reflected in the accompanying Balance Sheets in
deferred credits at December 31, 1996 and 1995 were as follows:
1996 1995
(Dollars in thousands)
Excess Seabrook-related deferred income taxes $ 2,792 $ 4,887
Other deferred income taxes 2,086 2,182
Excess replacement power refunds 982 1,719
$ 5,860 $ 8,788
As of December 31, 1996, $46.5 million of the Company's regulatory assets
and all of its regulatory liabilities are reflected in rates charged to
customers. Regulatory assets are being recovered over a weighted average
period of approximately 8 years. The fuel charge stabilization deferral is
expected to be recovered over a six-year period beginning in April 1998,
pursuant to a yet to be determined recovery schedule and subject to final DPU
approval.
<PAGE>
<PAGE 29>
COMMONWEALTH ELECTRIC COMPANY
(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 affiliated 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
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)
1996 $40,733 $31,848 $ 9,096
1995 29,469 26,905 17,240
1994 34,256 34,617 21,508
The costs for the Canal and Seabrook 1 units are included in the long-term
obligation table listed in Note 3(b). The Company sold electricity to other
affiliates, primarily station service for Canal, totaling $1,453,000,
$2,047,000 and $1,401,000 in 1996, 1995 and 1994, respectively.
(d) Operating Revenues
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 is generally permitted to bill customers for costs associated
with purchased power and transmission, fuel used in electric production and
conservation and load management (C&LM) costs through adjustment clauses.
Amounts recoverable under the adjustment clauses are subject to review and
adjustment by the DPU. The amount of such costs incurred by the Company but
not yet reflected in customers' bills is recorded as unbilled revenues.
(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 rate was 3.32% in 1996 and 3.31% in 1995 and 1994.
(f) Maintenance
Expenditures for repairs of property and replacement and renewal of items
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
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COMMONWEALTH ELECTRIC COMPANY
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 6.25% in 1996,
7.25% in 1995 and 10% in 1994.
(3) Commitments and Contingencies
(a) Financing and Construction Programs
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. 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 with internally generated funds and
short-term borrowings.
(b) 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 expenses under its nuclear contracts.
Information relative to these long-term contracts follows:
Range of
Contract
Expiration Entitlement 1996 1995 1994
Dates % MW Cost Cost Cost
(Dollars in thousands)
Type of Unit
Natural Gas 2008-2017 (a) 180.2 $111,007 $106,957 $122,496
Oil 2000-2009 (b) 266.0 36,060 29,468 34,256
Nuclear 2012-2026 (c) 106.1 68,716 71,953 76,092
Waste-to-energy 2015 100 67.0 39,622 37,526 38,107
Hydro 2014-2023 100 23.7 12,537 9,933 7,521
Total 643.0 $267,942 $255,837 $278,472
(a) Includes contracts to purchase power from various non-utility genera-
tors 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%).
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COMMONWEALTH ELECTRIC COMPANY
Costs pursuant to these contracts are included in electricity purchased
for resale in the accompanying Statements of Income and are recoverable in
revenues.
The estimated aggregate obligations for capacity under the life-of-the-
unit contracts, including the Canal and Seabrook 1 units, and other long-term
purchased power contracts in effect for the five years subsequent to 1996 are
as follows:
Long-Term
Purchased
Power
(Dollars in thousands)
1997 $300,214
1998 305,130
1999 313,081
2000 321,812
2001 337,205
(c) 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 could
have an impact on future operations, capital costs and construction schedules
of major facilities.
(4) 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.
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COMMONWEALTH ELECTRIC COMPANY
The following is a summary of the Company's provisions for income taxes
for the years ended December 31, 1996, 1995 and 1994:
1996 1995 1994
(Dollars in thousands)
Federal
Current $10,818 $(2,036) $ 1,133
Deferred 374 10,014 7,242
Investment tax credits, net (433) (435) (437)
10,759 7,543 7,938
State
Current 1,997 (39) 302
Deferred 195 1,768 1,315
2,192 1,729 1,617
12,951 9,272 9,555
Amortization of regulatory liability
relating to deferred income taxes - - 115
$12,951 $ 9,272 $ 9,670
Federal and state income taxes
charged to:
Operating expense $12,951 $11,041 $ 9,670
Other income - (1,769) -
$12,951 $ 9,272 $ 9,670
Deferred tax liabilities and assets are determined based on the difference
between the financial statement 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 1996 and
1995:
1996 1995
(Dollars in thousands)
Liabilities
Property-related $52,316 $49,089
Power contract buy-out 10,002 10,002
Fuel charge stabilization 8,124 8,149
All other 9,720 8,879
80,162 76,119
Assets
Investment tax credit 4,599 4,879
All other 10,791 7,318
15,390 12,197
Accumulated deferred income taxes, net $64,772 $63,922
The net year-end deferred income tax liability above includes a current
deferred tax liability of $17,056,000 and $19,711,000 in 1996 and 1995,
respectively, which are included in accrued income taxes in the accompanying
Balance Sheets.
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COMMONWEALTH ELECTRIC COMPANY
The total income tax provision set forth previously represents 40% in 1996
and 38% in 1995 and 1994 of income before such taxes. The following table
reconciles the statutory federal income tax rate to these percentages:
1996 1995 1994
(Dollars in thousands)
Federal statutory rate 35% 35% 35%
Federal income tax expense at statutory levels $11,395 $8,554 $9,010
Increase (Decrease) from statutory levels:
State tax net of federal tax benefit 1,425 1,124 1,051
Tax versus book depreciation 103 139 109
Amortization of investment tax credits (433) (435) (436)
Reversals of capitalized expenses (64) (64) (67)
Additional reserves for tax deficiencies 431 - -
Other 94 (46) 3
$12,951 $9,272 $9,670
Effective federal income tax rate 40% 38% 38%
(5) 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:
1996 1995 1994
(Dollars in thousands)
Service cost $ 3,405 $ 2,839 $ 3,196
Interest cost 11,300 10,983 9,793
Return on plan assets - (gain)/loss (20,771) (28,360) 2,043
Net amortization and deferral 10,912 19,180 (10,046)
Total pension expense 4,846 4,642 4,986
Transfers (to) from affiliated
companies, net (191) (157) 74
Less: Amounts capitalized and deferred 1,369 1,064 1,921
Net pension expense $ 3,286 $ 3,421 $ 3,139
Discount rate 7.25% 8.50% 7.25%
Assumed rate of return 8.75 9.00 8.50
Rate of increase in future compensation 4.25 5.00 4.50
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COMMONWEALTH ELECTRIC COMPANY
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 reflected in base rates, and
pension expense. The funded status of the Company's pension plan (using a
measurement date of December 31) is as follows:
1996 1995
(Dollars in thousands)
Accumulated benefit obligation:
Vested $(118,464) $(110,200)
Nonvested (13,687) (12,089)
$(132,151) $(122,289)
Projected benefit obligation $(157,604) $(148,445)
Plan assets at fair market value 155,650 139,387
Projected benefit obligation
greater than plan assets (1,954) (9,058)
Unamortized transition obligation 3,217 3,860
Unrecognized prior service cost 5,157 5,720
Unrecognized gain (13,087) (6,717)
Accrued pension liability $ (6,667) $ (6,195)
The following actuarial assumptions were used in determining the plan's
year-end funded status:
1996 1995
Discount rate 7.50% 7.25%
Rate of increase in future compensation 4.25 4.25
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
Certain employees are eligible for postretirement benefits if they meet
specific requirements. These benefits could include health and life insurance
coverage and reimbursement of Medicare Part B premiums. Under certain
circumstances, eligible employees are required to make contributions for
postretirement benefits.
To fund its postretirement benefits, the Company makes contributions to
various voluntary employees' beneficiary association trusts that were estab-
lished pursuant to section 501(c)(9) of the Internal Revenue Code (the Code).
The Company also makes contributions to a subaccount of its pension plan
pursuant to section 401(h) of the Code to fund a portion of its postretirement
benefit obligation. The Company contributed approximately $6,342,000,
$6,440,000 and $6,677,000 to these trusts during 1996, 1995 and 1994, respec-
tively.
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COMMONWEALTH ELECTRIC COMPANY
The net periodic postretirement benefit cost for the years ended
December 31, 1996, 1995 and 1994 include the following components and related
assumptions:
1996 1995 1994
(Dollars in thousands)
Service cost $ 1,132 $ 921 $ 1,127
Interest cost 4,383 4,158 3,799
Return on plan assets (2,576) (2,956) (95)
Amortization of transition obligation
over 20 years 2,417 2,417 2,417
Net amortization and deferral 1,011 1,918 (547)
Total postretirement benefit cost 6,367 6,458 6,701
Transfer from affiliated companies, net (500) (516) (465)
Less: Amounts capitalized and deferred (164) 1,733 4,268
Net postretirement benefit cost $ 5,703 $ 4,209 $ 1,968
Discount rate 7.25% 8.50% 7.25%
Assumed rate of return 8.75 9.00 8.50
Rate of increase in future compensation 4.25 5.00 4.50
The funded status of the Company's postretirement benefit plan using a
measurement date of December 31, 1996 and 1995 is as follows:
1996 1995
(Dollars in thousands)
Accumulated postretirement benefit obligation:
Retirees $(32,500) $ (31,561)
Fully eligible active plan participants (4,609) (5,032)
Other active plan participants (21,819) (21,752)
(58,928) (58,345)
Plan assets at fair market value 22,635 16,593
Accumulated postretirement benefit obligation
greater than plan assets (36,293) (41,752)
Unamortized transition obligation 38,666 41,083
Unrecognized (gain) loss (2,373) 669
$ - $ -
The following actuarial assumptions were used in determining the plan's
estimated accumulated postretirement benefit obligation (APBO) and funded
status for 1996 and 1995:
1996 1995
Discount rate 7.50% 7.25%
Rate of increase in future compensation 4.25 4.25
Medicare Part B premiums 9.50 12.20
Medical care 7.00 8.00
Dental care 5.00 5.00
The above dental rate remains constant through the year 2007. Rates for
Medicare Part B premiums and medical care decrease to 3.1% and 5%, respective-
ly, by 2007 and remain at that level thereafter. A one percent change in the
medical trend rate would have a $831,000 impact on the Company's annual
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COMMONWEALTH ELECTRIC COMPANY
expense and would change the APBO by approximately $7.9 million.
Plan assets consist primarily of fixed-income and equity securities.
Fluctuations in the fair market value of plan assets will affect postretire-
ment benefits expense in future years.
Effective May 1, 1995 the DPU approved a settlement proposal sponsored
jointly by the Company and the Attorney General of Massachusetts which allows
the Company to fully recover costs relating to postretirement benefits and to
amortize its $8.6 million deferred balance over a ten-year period. At
December 31, 1996 and 1995, the Company's deferral amounted to approximately
$7.1 million and $8 million, respectively.
(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 and up to five percent for those
employees no longer eligible for postretirement health benefits. The total
Company contribution was $1,788,000 in 1996, $1,813,000 in 1995 and $1,746,000
in 1994.
(6) 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, 1996, system
companies had $135 million of committed lines of credit that will expire at
varying intervals in 1997. These lines are normally renewed upon expiration
and require annual fees of up to .1875% of the individual line. At
December 31, 1996, the uncommitted lines of credit totaled $20 million.
Interest rates on the outstanding borrowings generally are at an adjusted
money market rate and averaged 5.6% and 6.1% in 1996 and 1995, respectively.
Notes payable to banks totaled $15 million and $17.3 million at December 31,
1996 and 1995, respectively.
(b) Advances from Affiliates
The Company had notes payable to the System of $2,240,000 at December 31,
1996. There were no notes payable to the System at December 31, 1995.
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 8.3% and 8.8% in 1996 and 1995, 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-
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COMMONWEALTH ELECTRIC COMPANY
ings are for a period of less than one year and are payable upon demand.
Rates on these borrowings averaged 5.3% and 5.8% in 1996 and 1995, respective-
ly. Notes payable to the Pool totaled $830,000 and $1,545,000 at December 31,
1996 and 1995, respectively.
(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 1996 1995
(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 15,789 16,842
10-Year Notes, 7.43%, due 2003 15,000 15,000 15,000
15-Year Notes, 9.50%, due 2004 15,000 10,000 12,500
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
$150,789 $154,342
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
for retirement of outstanding long-term debt.
The required sinking fund payments for the five years subsequent to
December 31, 1996 are as follows:
Year Sinking Funds
(Dollars in thousands)
1997 $3,553
1998 3,553
1999 3,553
2000 2,053
2001 3,481
(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, 1996 and 1995 is as follows:
1996 1995
(Dollars in thousands)
Carrying Fair Carrying Fair
Value Value Value Value
Long-Term Debt $154,287 $171,219 $157,828 $181,743
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COMMONWEALTH ELECTRIC COMPANY
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.
(7) Dividend Restriction
At December 31, 1996, approximately $6,075,000 of retained earnings was
restricted against the payment of cash dividends pursuant to the Company's
term loans and note agreements securing long-term debt.
(8) 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.
Future minimum lease payments, by period and in the aggregate, of noncan-
celable operating leases consisted of the following at December 31, 1996:
Operating Leases
(Dollars in thousands)
1997 $ 2,908
1998 2,185
1999 2,066
2000 1,142
2001 386
Beyond 2001 507
Total future minimum lease payments $ 9,194
Total rent expense for all operating leases, except those with terms of a
month or less, amounted to $2,814,000 in 1996, $3,164,000 in 1995 and
$3,491,000 in 1994. There were no contingent rentals and no sublease rentals
for the years 1996, 1995 and 1994.
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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, 1994, 1995
and 1996 (page 49).
Schedule II - Valuation and Qualifying Accounts - Years Ended
December 31, 1996, 1995 and 1994 (page 50).
(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 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).
10.1.5.1 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).
10.1.6 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).
10.1.7 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).
10.1.8 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).
10.1.8.1 Amendments No. 2 and 3 to 10.1.8 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).
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COMMONWEALTH ELECTRIC COMPANY
10.1.9 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).
10.1.10 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).
10.1.10.1 Supplement to 10.1.10 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).
10.1.10.2 Amendment to 10.1.10 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).
10.1.11 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).
10.1.11.1 Amendment No. 2 to 10.1.11 as amended November 1, 1982 (Exhibit 5
to the CE Form 10-Q (June 1984), File No. 2-7749).
10.1.11.2 Amendment No. 3 to 10.1.11 as amended January 1, 1986 (Exhibit 2
to the CE 1986 Form 10-K, File No. 2-7749).
10.1.12 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).
10.1.12.1 Supplement Amending 10.1.12 as amended June 24, 1970 (Exhibit 8 to
the CES Form S-7, Amendment No. 1, File No. 2-38372).
10.1.13 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).
10.1.14 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).
<PAGE>
<PAGE 43>
COMMONWEALTH ELECTRIC COMPANY
10.1.15 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).
10.1.15.1 Amendment to 10.1.15 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).
10.1.16 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).
10.1.16.1 Amendment No. 3 to 10.1.16 (Exhibit 2 to the CE Form 10-Q (June
1986), File No. 2-7749).
10.1.17 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).
10.1.18 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).
10.1.18.1 Amendatory Agreement No. 3 to 10.1.18 as amended June 1, 1990,
among certain NEPOOL utilities (Exhibit 1 to the CEC Form 10-Q
(September 1990), File No. 2-30057).
10.1.19 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).
10.1.20 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).
10.1.21 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).
10.1.21.1 First, Second and Third Amendments to 10.1.21 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).
10.1.21.2 Fifth, Sixth and Seventh Amendments to 10.1.21 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).
<PAGE>
<PAGE 44>
COMMONWEALTH ELECTRIC COMPANY
10.1.21.3 Fourth and Eighth Amendments to 10.1.21 as amended July 1, 1987
and August 1, 1988, respectively (Exhibit 3 to the CEC Form 10-Q
(September 1988), File No. 2-30057).
10.1.21.4 Ninth and Tenth Amendments to 10.1.21 as amended November 1, 1988
and January 15, 1989, respectively (Exhibit 2 to the CEC 1988 Form
10-K, File No. 2-30057).
10.1.21.5 Eleventh Amendment to 10.1.21 as amended November 1, 1989 (Exhibit
4 to the CEC 1989 Form 10-K, File No. 2-30057).
10.1.21.6 Twelfth Amendment to 10.1.21 as amended April 1, 1990 (Exhibit 1
to the CEC Form 10-Q (June 1990), File No. 2-30057).
10.1.22 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).
10.1.23 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).
10.1.24 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).
10.1.25 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).
10.1.25.1 Amendment No. 1 to 10.1.25 dated May 1, 1986 (Exhibit 6 to the CEC
Form 10-Q (March 1987), File No. 2-30057).
10.1.25.2 Amendment No. 2 to 10.1.25 as amended September 1, 1987 (Exhibit 3
to the CEC Form 10-Q (September 1987), File No. 2-30057).
10.1.26 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).
10.1.26.1 Amendments Nos. 1 and 2 to 10.1.26 as amended May 1, 1986 and
February 1, 1987, respectively (Exhibit 5 to the CEC Form 10-Q
(March 1987), File No. 2-30057).
10.1.26.2 Amendments Nos. 3 and 4 to 10.1.26 as amended June 1, 1987 and
September 1, 1987, respectively (Exhibit 5 to the CEC Form 10-Q
(September 1987), File No. 2-30057).
<PAGE>
<PAGE 45>
COMMONWEALTH ELECTRIC COMPANY
10.1.27 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).
10.1.27.1 Amendments Nos. 1 and 2 to 10.1.27 as amended May 1, 1986 and
February 1, 1987, respectively (Exhibit 2 to the CEC Form 10-Q
(March 1987), File No. 2-30057).
10.1.27.2 Amendments Nos. 3 and 4 to 10.1.27 as amended June 1, 1987 and
September 1, 1987, respectively (Exhibit 4 to the CEC Form 10-Q
(September 1987), File No. 2-30057).
10.1.28 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).
10.1.29 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).
10.1.29.1 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).
10.1.29.2 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).
10.1.30 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).
10.1.31 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).
10.1.31.1 System Power Sales Agreement by and between CL&P, WMECO, and PSNH,
as sellers, and the Company, as buyer, of power for peaking capac-
ity and related energy, dated January 13, 1995, as effective June
1, 1995 and extending to October 31, 2000 (Exhibit 2 to the CE
Form 10-Q (June 1995), File No. 2-7749).
10.1.32 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).
<PAGE>
<PAGE 46>
COMMONWEALTH ELECTRIC COMPANY
10.1.32.1 Power Sales Agreement to 10.1.32 for all capacity and related
energy produced, dated October 31, 1985 (Exhibit 2 to the CE 1985
Form 10-K, File No. 2-7749).
10.1.32.2 Amendment to 10.1.32 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).
10.1.32.3 Second Amendment to 10.1.32.2 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).
10.1.33 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).
10.1.34 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).
10.1.35 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).
10.1.35.1 First Amendment to 10.1.35 as amended August 15, 1988 (Exhibit 1
to the CE Form 10-Q (September 1988), File No. 2-7749).
10.1.35.2 Second Amendment to 10.1.35 as amended January 1, 1989 (Exhibit 2
to the CE 1988 Form 10-K, File No. 2-7749).
10.1.35.3 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).
10.1.35.4 Amendment to 10.1.35.3 as amended January 1, 1989 (Exhibit 3 to
the CE 1988 Form 10-K, File No. 2-7749).
10.1.36 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).
10.1.36.1 First Amendment, dated November 24, 1992, to 10.1.36 (Exhibit 1 to
the CE Form 10-Q (March 1993), File No. 2-7749).
10.1.37 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).
10.1.37.1 First Amendment, dated September 8, 1992, to 10.1.37, dated
January 16, 1992 (Exhibit 1 to the CE Form 10-Q (Sept. 1992), File
No. 2-7749).
<PAGE>
<PAGE 47>
COMMONWEALTH ELECTRIC COMPANY
10.1.37.2 Second Amendment, dated March 2, 1993, to 10.1.37 (Exhibit 2 to
the CE Form 10-Q (March 1993), File No. 2-7749).
10.1.38 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).
10.1.38.1 Second Amendment, dated June 23, 1994, to 10.1.38 (Exhibit 4 to
the CE Form 10-Q (June 1995), File No. 2-7749).
10.1.39 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).
10.1.40 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).
10.1.40.1 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).
10.1.40.2 First Amendment, dated November 7, 1994, to 10.1.40 by and between
the Company and Altresco Pittsfield, L.P. dated February 20, 1992
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 48>
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).
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the three months ended
December 31, 1996.
Exhibit 27. Financial Data Schedule
Filed herewith as Exhibit 1 is the Financial Data Schedule for the
twelve months ended December 31, 1996.
Filed herewith as Exhibit 2 is the restated Financial Data Sched-
ule for the twelve months ended December 31, 1995.
Filed herewith as Exhibit 3 is the restated Financial Data Sched-
ule for the twelve months ended December 31, 1994.
<PAGE>
<PAGE 49>
SCHEDULE I
COMMONWEALTH ELECTRIC COMPANY
INVESTMENTS IN, EQUITY IN EARNINGS OF, AND DIVIDENDS RECEIVED
FROM RELATED PARTIES
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
(Dollars in thousands)
Name of Issuer and
Description of Investment
Common Stock - Yankee Atomic Electric Company
Balance, December 31, 1993
Number of Shares: 3,835
Amount $601
1994
Add: Equity in Earnings 53
Less: Dividends Received -
Balance, December 31, 1994 654
1995
Add: Equity in Earnings (18)
Less: Dividends Received 46
Balance, December 31, 1995 590
1996
Add: Equity in Earnings 53
Less: Dividends Received -
Balance, December 31, 1996 $643
There were no changes in the number of shares held during the years 1994, 1995
or 1996.
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.
<PAGE>
<PAGE 50>
SCHEDULE II
COMMONWEALTH ELECTRIC COMPANY
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 and 1994
(Dollars in thousands)
Additions
Balance Provision Deductions Balance
Beginning Charged to Accounts End
Description of Year Operations Recoveries Written Off of Year
Allowance for
Doubtful Accounts Year Ended December 31, 1996
$2,379 $1,661 $601 $2,849 $1,792
Year Ended December 31, 1995
$2,841 $2,243 $704 $3,409 $2,379
Year Ended December 31, 1994
$3,268 $2,362 $641 $3,430 $2,841
<PAGE>
<PAGE 51>
COMMONWEALTH ELECTRIC COMPANY
FORM 10-K DECEMBER 31, 1996
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 27, 1997
William G. Poist,
Chairman of the Board and
Chief Executive Officer
R. D. WRIGHT March 27, 1997
Russell D. Wright,
President and Chief Operating Officer
Principal Financial and Accounting Officer:
JAMES D. RAPPOLI March 27, 1997
James D. Rappoli,
Financial Vice President and Treasurer
A majority of the Board of Directors:
WILLIAM G. POIST March 27, 1997
William G. Poist, Director
R. D. WRIGHT March 27, 1997
Russell D. Wright, Director
JAMES D. RAPPOLI March 27, 1997
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, 1996 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-31-1996
<PERIOD-END> DEC-31-1996
<PERIOD-TYPE> YEAR
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 373,922
<OTHER-PROPERTY-AND-INVEST> 657
<TOTAL-CURRENT-ASSETS> 60,009
<TOTAL-DEFERRED-CHARGES> 71,411
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 505,999
<COMMON> 51,099
<CAPITAL-SURPLUS-PAID-IN> 97,112
<RETAINED-EARNINGS> 27,334
<TOTAL-COMMON-STOCKHOLDERS-EQ> 175,545
0
0
<LONG-TERM-DEBT-NET> 150,734
<SHORT-TERM-NOTES> 18,070
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 3,553
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 158,097
<TOT-CAPITALIZATION-AND-LIAB> 505,999
<GROSS-OPERATING-REVENUE> 453,780
<INCOME-TAX-EXPENSE> 12,951
<OTHER-OPERATING-EXPENSES> 404,478
<TOTAL-OPERATING-EXPENSES> 417,429
<OPERATING-INCOME-LOSS> 36,351
<OTHER-INCOME-NET> (477)
<INCOME-BEFORE-INTEREST-EXPEN> 35,874
<TOTAL-INTEREST-EXPENSE> 16,269
<NET-INCOME> 19,605
0
<EARNINGS-AVAILABLE-FOR-COMM> 19,605
<COMMON-STOCK-DIVIDENDS> 12,979
<TOTAL-INTEREST-ON-BONDS> 13,968
<CASH-FLOW-OPERATIONS> 36,804
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND>
This schedule contains restated 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, 1995 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<RESTATED>
<CIK> 0000071222
<NAME> COMMONWEALTH ELECTRIC COMPANY
<MULTIPLIER> 1,000
<S> <C>
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<PERIOD-TYPE> YEAR
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 368,456
<OTHER-PROPERTY-AND-INVEST> 604
<TOTAL-CURRENT-ASSETS> 60,869
<TOTAL-DEFERRED-CHARGES> 77,916
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 507,845
<COMMON> 51,099
<CAPITAL-SURPLUS-PAID-IN> 97,112
<RETAINED-EARNINGS> 20,708
<TOTAL-COMMON-STOCKHOLDERS-EQ> 168,919
0
0
<LONG-TERM-DEBT-NET> 154,275
<SHORT-TERM-NOTES> 18,845
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 3,553
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 162,253
<TOT-CAPITALIZATION-AND-LIAB> 507,845
<GROSS-OPERATING-REVENUE> 434,578
<INCOME-TAX-EXPENSE> 11,041
<OTHER-OPERATING-EXPENSES> 390,157
<TOTAL-OPERATING-EXPENSES> 401,198
<OPERATING-INCOME-LOSS> 33,380
<OTHER-INCOME-NET> (1,276)
<INCOME-BEFORE-INTEREST-EXPEN> 32,104
<TOTAL-INTEREST-EXPENSE> 16,935
<NET-INCOME> 15,169
0
<EARNINGS-AVAILABLE-FOR-COMM> 15,169
<COMMON-STOCK-DIVIDENDS> 9,811
<TOTAL-INTEREST-ON-BONDS> 14,081
<CASH-FLOW-OPERATIONS> 26,001
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND>
This schedule contains restated 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>
<RESTATED>
<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> 60,915
<TOTAL-DEFERRED-CHARGES> 57,831
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 476,251
<COMMON> 51,099
<CAPITAL-SURPLUS-PAID-IN> 97,112
<RETAINED-EARNINGS> 15,350
<TOTAL-COMMON-STOCKHOLDERS-EQ> 163,561
0
0
<LONG-TERM-DEBT-NET> 157,817
<SHORT-TERM-NOTES> 6,600
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 1,053
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 147,220
<TOT-CAPITALIZATION-AND-LIAB> 476,251
<GROSS-OPERATING-REVENUE> 438,624
<INCOME-TAX-EXPENSE> 9,670
<OTHER-OPERATING-EXPENSES> 396,629
<TOTAL-OPERATING-EXPENSES> 406,299
<OPERATING-INCOME-LOSS> 32,325
<OTHER-INCOME-NET> (1,642)
<INCOME-BEFORE-INTEREST-EXPEN> 30,683
<TOTAL-INTEREST-EXPENSE> 14,610
<NET-INCOME> 16,073
0
<EARNINGS-AVAILABLE-FOR-COMM> 16,073
<COMMON-STOCK-DIVIDENDS> 15,841
<TOTAL-INTEREST-ON-BONDS> 14,183
<CASH-FLOW-OPERATIONS> 27,781
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
