<PAGE 1>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549-1004
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Transition Period from ________________ to ________________
Commission File Number 1-7316
COMMONWEALTH ENERGY SYSTEM
(Exact name of registrant as specified in its Declaration of Trust)
Massachusetts 04-1662010
(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)
Registrant's telephone number, including area code (617) 225-4000
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 May 1, 1995
Common Shares of Beneficial
Interest, $4 par value 10,642,294 shares
<PAGE>
<PAGE 2>
PART I. - FINANCIAL INFORMATION
Item 1. Financial Statements
COMMONWEALTH ENERGY SYSTEM AND SUBSIDIARY COMPANIES
CONDENSED BALANCE SHEETS
MARCH 31, 1995 AND DECEMBER 31, 1994
ASSETS
(Unaudited)
March 31, December 31,
1995 1994
(Dollars in Thousands)
PROPERTY, PLANT AND EQUIPMENT, at original cost
Electric $1 053 396 $1 047 140
Gas 334 786 338 111
Other 60 095 59 213
1 448 277 1 444 464
Less - Accumulated depreciation and
amortization 474 241 461 310
974 036 983 154
Add - Construction work in progress
and nuclear fuel in process 17 719 15 974
991 755 999 128
LEASED PROPERTY, net 15 694 15 729
EQUITY IN CORPORATE JOINT VENTURES
Nuclear electric power companies (2.5%
to 4.5%) 9 871 9 818
Other investments 3 687 3 830
13 558 13 648
CURRENT ASSETS
Cash and cash equivalents 7 350 7 722
Accounts receivable 114 598 92 157
Unbilled revenues 26 523 33 161
Inventories, at average cost 20 709 33 586
Prepaid taxes and other 9 506 14 664
178 686 181 290
DEFERRED CHARGES 159 262 134 921
$1 358 955 $1 344 716
<PAGE>
<PAGE 3>
COMMONWEALTH ENERGY SYSTEM AND SUBSIDIARY COMPANIES
CONDENSED BALANCE SHEETS
MARCH 31, 1995 AND DECEMBER 31, 1994
CAPITALIZATION AND LIABILITIES
(Unaudited)
March 31, December 31,
1995 1994
(Dollars in Thousands)
CAPITALIZATION
Common share investment -
Common shares, $4 par value -
Authorized - 18,000,000 shares
Outstanding - 10,585,909 in 1995 and
10,525,897 in 1994 $ 42 344 $ 42 103
Amounts paid in excess of par value 105 345 103 168
Retained earnings 230 435 217 726
378 124 362 997
Redeemable preferred shares, less current
sinking fund requirements 14 600 14 660
Long-term debt, including premiums, less current
sinking fund requirements and maturing debt 417 073 418 307
809 797 795 964
CAPITAL LEASE OBLIGATIONS 14 008 14 098
CURRENT LIABILITIES
Interim Financing -
Notes payable to banks - 44 850
Maturing long-term debt 25 000 25 000
25 000 69 850
Other Current Liabilities -
Current sinking fund requirements 6 793 6 793
Accounts payable 128 631 117 953
Accrued taxes 24 283 17 947
Other 65 029 38 504
224 736 181 197
249 736 251 047
DEFERRED CREDITS
Accumulated deferred income taxes 162 791 160 944
Unamortized investment tax credits
and other 122 623 122 663
285 414 283 607
COMMITMENTS AND CONTINGENCIES
$1 358 955 $1 344 716
See accompanying notes.
<PAGE>
<PAGE 4>
COMMONWEALTH ENERGY SYSTEM AND SUBSIDIARY COMPANIES
CONDENSED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 1995 AND 1994
(Unaudited)
1995 1994
(Dollars in Thousands)
OPERATING REVENUES
Electric $151 513 $171 243
Gas 107 978 135 549
Steam and other 5 733 6 114
265 224 312 906
OPERATING EXPENSES
Fuel and purchased power 87 216 102 129
Cost of gas sold 51 136 71 407
Other operation and maintenance 61 891 62 723
Depreciation 13 751 12 889
Taxes -
Local property and other 8 363 7 888
Federal and state income 12 857 17 735
235 214 274 771
OPERATING INCOME 30 010 38 135
OTHER INCOME 1 903 610
INCOME BEFORE INTEREST CHARGES 31 913 38 745
INTEREST CHARGES
Long-term debt 9 799 9 850
Other interest charges 1 433 1 043
Allowance for borrowed funds
used during construction (252) (99)
10 980 10 794
NET INCOME 20 933 27 951
Dividends on preferred shares 282 297
EARNINGS APPLICABLE TO COMMON SHARES $ 20 651 $ 27 654
AVERAGE NUMBER OF COMMON SHARES OUTSTANDING 10 566 316 10 328 461
EARNINGS PER COMMON SHARE $1.95 $2.68
DIVIDENDS DECLARED PER COMMON SHARE $ .75 $ .75
See accompanying notes.
<PAGE>
<PAGE 5>
COMMONWEALTH ENERGY SYSTEM AND SUBSIDIARY COMPANIES
CONDENSED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1995 AND 1994
(Unaudited)
1995 1994
(Dollars in Thousands)
OPERATING ACTIVITIES
Net income $ 20 933 $ 27 951
Effects of non cash items -
Depreciation and amortization 17 249 16 678
Deferred income taxes and investment
tax credits, net 284 478
Earnings from corporate joint ventures (299) (399)
Dividends from corporate joint ventures 389 62
Change in working capital, exclusive of cash,
cash equivalents and interim financing 20 271 24 523
All other operating items 4 357 (1 616)
Net cash provided by operating activities 63 184 67 677
INVESTING ACTIVITIES
Additions to property, plant and equipment
(exclusive of AFUDC) -
Electric (8 955) (4 511)
Gas (2 343) (4 069)
Other (56) (8)
Allowance for borrowed funds used during
construction (252) (99)
Net cash used for investing activities (11 606) (8 687)
FINANCING ACTIVITIES
Sale of common shares 2 418 2 266
Payment of dividends (8 224) (8 057)
Payment of short-term borrowings (44 850) (52 500)
Sinking funds payments (1 294) (1 294)
Net cash used for financing activities (51 950) (59 585)
Net decrease in cash and cash equivalents (372) (595)
Cash at beginning of period 7 722 6 007
Cash at end of period $ 7 350 $ 5 412
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest (net of capitalized amounts) $ 8 736 $ 9 179
Income taxes $ 3 538 $ 2 214
See accompanying notes.
<PAGE>
<PAGE 6>
COMMONWEALTH ENERGY SYSTEM AND SUBSIDIARY COMPANIES
NOTES TO CONDENSED FINANCIAL STATEMENTS
(1) Accounting Policies
Commonwealth Energy System, the parent company, is referred to in
this report as the "System" and, together with its subsidiaries, is
collectively referred to as "the system."
The system's significant accounting policies are described in Note 1
of Notes to Consolidated Financial Statements included in its 1994 Annual
Report on Form 10-K filed with the Securities and Exchange Commission.
For interim reporting purposes, the system follows these same basic
accounting policies but considers each interim period as an integral part
of an annual period and makes allocations of certain expenses to interim
periods based upon estimates of such expenses for the year.
Regulated subsidiaries of the System have established various
regulatory assets in cases where the Massachusetts Department of Public
Utilities (DPU) and/or the Federal Energy Regulatory Commission (FERC)
have permitted or are expected to permit recovery of specific costs over
time. Similarly, the regulatory liabilities established by the system are
required to be refunded to customers over time. In March 1995, the
Financial Accounting Standards Board issued Statement of Financial
Accounting Standards (SFAS) No. 121, "Accounting for the Impairment of
Long-Lived Assets and Long-Lived Assets to be Disposed Of" (SFAS 121).
SFAS 121 imposes stricter criteria for regulatory assets by requiring that
such assets be probable of future recovery at each balance sheet date.
Based on the current regulatory framework, the system accounts for the
economic effects of regulation in accordance with the provisions of SFAS
No. 71, "Accounting for the Effects of Certain Types of Regulation" and
does not expect that the adoption of SFAS 121, which the system expects to
adopt on January 1, 1996, will have a material impact on its financial
position or results of operations. However, this conclusion may change in
the future as competitive factors influence wholesale and retail pricing
in this industry. The principal regulatory assets included in deferred
charges at March 31, 1995 and December 31, 1994 were as follows:
1995 1994
(Dollars in Thousands)
Power contract buy-out $ 25 500 $ -
Postretirement benefit costs including pensions 22 619 20 129
FERC Order 636 transition costs 18 447 19 201
Yankee Atomic unrecovered plant and
decommissioning costs 17 836 18 368
Fuel charge stabilization 14 054 16 638
Seabrook related costs 11 878 12 648
Pilgrim nuclear plant litigation costs 6 912 7 001
Deferred income taxes 5 537 5 537
Cannon Street generating plant abandonment, net 4 400 4 400
Conservation and load management 3 691 3 773
Other 4 056 4 042
Total regulatory assets $134 930 $111 737
<PAGE>
<PAGE 7>
COMMONWEALTH ENERGY SYSTEM AND SUBSIDIARY COMPANIES
The principal regulatory liabilities, reflected in deferred credits-
other and relating to income taxes, were $17.2 million and $17.3 million
at March 31, 1995 and December 31, 1994, respectively.
Generally, expenses which relate to more than one interim period are
allocated to other periods to more appropriately match revenues and
expenses. Principal items of expense which are allocated other than on
the basis of passage of time are depreciation and property taxes of the
gas subsidiary, Commonwealth Gas Company (Commonwealth Gas). These
expenses are recorded for interim reporting purposes based upon projected
gas revenue. Income tax expense is recorded using the statutory rates in
effect applied to book income subject to tax for each interim period.
The unaudited financial statements for the periods ended March 31,
1995 and 1994, reflect, in the opinion of the System, all adjustments
necessary to summarize fairly the results for such periods. In addition,
certain prior period amounts are reclassified from time to time to con-
form with the presentation used in the current period's financial
statements.
The results for interim periods are not necessarily indicative of
results for the entire year because of seasonal variations in the
consumption of energy and Commonwealth Gas' seasonal rate structure.
(2) Commitments and Contingencies
(a) Construction
The system is engaged in a continuous construction program presently
estimated at $357.4 million for the five-year period 1995 through 1999.
Of that amount, $87.7 million is estimated for 1995. The program is
subject to periodic review and revision.
(b) Decommissioning of Nuclear Power Plants
The system, through Canal Electric Company (Canal), has a 3.52%
joint-ownership interest in the Seabrook nuclear power plant. Canal and
the other joint owners have established a decommissioning fund to cover
post operational decommissioning costs. The estimated cost to
decommission the plant is $386 million. Canal's share of this liability
(approximately $13.6 million), less its share of the market value of the
decommissioning trust (approximately $1.2 million), is approximately $12.4
million.
Yankee Atomic Nuclear Power Plant
In February 1992, the Board of Directors of Yankee Atomic Electric
Company (Yankee Atomic) agreed to permanently discontinue power operation
and decommission the Yankee Nuclear Power Station (the plant). At March
31, 1995, Cambridge Electric Light Company (Cambridge Electric) and
Commonwealth Electric Company's (Commonwealth Electric) respective 2% and
2.5% investment in Yankee Atomic was approximately $1.1 million. The most
<PAGE>
<PAGE 8>
COMMONWEALTH ENERGY SYSTEM AND SUBSIDIARY COMPANIES
recent cost estimate to permanently shut down the plant is approximately
$396 million. The companies' share of this liability is $17.8 million and
is currently reflected in the accompanying consolidated balance sheets as
a liability and corresponding regulatory asset.
Other Nuclear Plants
Cambridge Electric also has equity ownership interests ranging from
2.5% to 4.5% in three operating nuclear generating facilities located in
New England with contract expiration dates ranging from 2007 to 2012.
Cambridge Electric is obligated to pay its proportionate share of the
capacity and energy costs associated with these units, which include
depreciation, operations and maintenance, a return on invested capital and
the estimated cost of decommissioning the nuclear plants at the end of
their estimated service lives. Cambridge Electric's estimated total
decommissioning cost and associated market value share of decommissioning
trust assets for these units is approximately $36 million and $13.3
million, respectively.
(c) Maine Yankee Nuclear Power Plant
Cambridge Electric also has a 4% equity ownership interest in the
Maine Yankee Nuclear Power Plant, located in Wiscasset, Maine and operated
by Maine Yankee Atomic Power Company (Maine Yankee). The plant has been
experiencing degradation of its steam generator tubes, principally in the
form of circumferential cracking, which until early 1995 was believed to
be limited to a relatively small number of tubes. During a refueling and
maintenance outage that began in early February 1995, Maine Yankee,
through the use of new inspection methods, detected increased degradation
involving approximately 60% of the tubes which was well beyond Maine
Yankee's expectations.
Maine Yankee is currently evaluating alternative courses of action
to remedy this situation including sleeving all 17,000 steam generator
tubes, which could result in significant capital expenditures and an
extended outage period. Maine Yankee estimates that it could take
approximately six months and cost about $40 million to sleeve the tubes.
At this time, Cambridge Electric cannot predict what action will be taken
to resolve the situation. The Board of Directors of Maine Yankee will
meet in late May to consider various options.
(d) FERC Order No. 636
As a result of implementing FERC Order 636 (Order 636), each
interstate pipeline company is allowed to collect certain transition costs
from its customers that resulted from the pipelines' need to buy out gas
supply contracts entered into prior to the issuance of Order 636.
Commonwealth Gas has been billed a total of approximately $22.4 million
from Tennessee Gas Pipeline Company, Algonquin Gas Transmission Company
and Texas Eastern Transmission Company through March 31, 1995.
In May 1995, the DPU allowed Commonwealth Gas to accelerate recovery
of the transition costs that were incurred to date. These costs had been
<PAGE>
<PAGE 9>
COMMONWEALTH ENERGY SYSTEM AND SUBSIDIARY COMPANIES
deferred and accumulated as a regulatory asset and were being recovered
through the cost of gas adjustment (CGA) over a four-year period that
began in November 1993. The costs are now being recovered through the CGA
over one-year that began May 1, 1995. The accelerated recovery period was
permitted by the DPU due to the minimal impact on customers' bills. Any
further transition costs will be recovered by Commonwealth Gas through the
CGA as incurred. At March 31, 1995, a regulatory asset totaling $18.4
million was reflected in deferred charges. In addition, a related
liability of $7.9 million was reflected in deferred credits.
<PAGE>
<PAGE 10>
COMMONWEALTH ENERGY SYSTEM AND SUBSIDIARY COMPANIES
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Financial Condition
Capital resources of the System and its subsidiaries are derived
principally from retained earnings and equity funds provided through the
System's Dividend Reinvestment and Common Share Purchase Plan (DRP).
Supplemental interim funds are borrowed on a short-term basis and, when
necessary, replaced with new equity and/or debt issues through permanent
financing secured on an individual company basis. The system purchases
100% of all subsidiary common stock issues and provides, to the extent
possible, a portion of the subsidiaries' short-term financing needs.
These capital resources provide the funds required for the subsidiary
companies' construction programs, current operations, debt service and
other capital requirements.
For the first three months of 1995, cash flows from operating
activities amounted to approximately $63.2 million and reflect net income
of $20.9 million and non cash items such as depreciation ($13.8 million),
amortization ($3.4 million) and deferred income taxes (net of investment
tax credits) which amounted to $284,000. The change in working capital
since December 31, 1994, exclusive of cash, cash equivalents and interim
financing, amounted to $20.3 million and had a significant positive impact
on cash flows from operating activities, reflecting lower levels of
inventory ($12.9 million), unbilled revenues ($6.6 million), prepaid taxes
($4.9 million), coupled with higher levels of accounts payable and accrued
taxes of $10.7 million and $6.3 million, respectively. These factors were
offset, in part, by a higher level of accounts receivable ($22.4 million).
Also included as a current liability on the consolidated balance sheets at
March 31, 1995 is $25.5 million relating to Commonwealth Electric's power
contract buy-out with an independent power producer. This amount was paid
in April 1995 and will be recovered with carrying charges over a seven-
year period beginning in April 1995.
Construction expenditures for the first three months of 1995 were
approximately $11.6 million, including an allowance for funds used during
construction (AFUDC) and nuclear fuel. Construction expenditures,
preferred and common dividend requirements of the System ($8.2 million)
and the payment of short-term borrowings ($44.9 million), were funded
almost entirely with internally generated funds.
Results of Operations
The following is a discussion of certain significant factors which
have affected operating revenues, expenses and net income during the
periods included in the accompanying condensed statements of income. This
discussion should be read in conjunction with the Notes to Condensed
Financial Statements appearing elsewhere in this report.
<PAGE>
<PAGE 11>
COMMONWEALTH ENERGY SYSTEM AND SUBSIDIARY COMPANIES
A summary of the period to period changes in the principal items
included in the condensed statements of income for the three months ended
March 31, 1995 and 1994 is shown below:
Three Months
Ended March 31,
1995 and 1994
Increase (Decrease)
(Dollars in Thousands)
Operating Revenues -
Electric $(19 730) (11.5)%
Gas (27 571) (20.3)
Steam and other (381) (6.2)
(47 682) (15.2)
Operating Expenses -
Fuel and purchased power (14 913) (14.6)
Cost of gas sold (20 271) (28.4)
Other operation and maintenance (832) (1.3)
Depreciation 862 6.7
Taxes -
Local property and other 475 6.0
Federal and state income (4 878) (27.5)
(39 557) (14.4)
Operating Income (8 125) (21.3)
Other Income 1 293 212.0
Income Before Interest Charges (6 382) (17.6)
Interest Charges 186 1.7
Net Income (7 018) (25.1)
Dividends on preferred shares (15) (5.1)
Earnings Applicable to Common Shares $ (7 003) (25.3)
Unit Sales -
Electric - Megawatthours (MWH)
Retail (45 957) (3.9)
Wholesale (778 749) (66.5)
(824 706) (34.9)
Gas - Billions of British Thermal Units (BBTU)
Firm (3 020) (15.8)
Interruptible and other 1 869 -
(1 151) (6.0)
<PAGE>
<PAGE 12>
COMMONWEALTH ENERGY SYSTEM AND SUBSIDIARY COMPANIES
The following is a summary of electric and gas unit sales for the
three-month periods indicated:
Three Months Ended
March 31,
1995 1994
Electric Sales - MWH
Residential 457 491 504 889
Commercial 491 812 489 396
Industrial 96 309 96 557
Other 101 443 102 170
Total retail sales 1 147 055 1 193 012
Wholesale to other systems 392 457 1 171 206
Total 1 539 512 2 364 218
Gas Sales - BBTU
Residential 9 404 11 123
Commercial 4 432 5 337
Industrial 1 474 1 683
Other 801 988
Total firm sales 16 111 19 131
Off-system sales 1 413 -
Quasi-firm sales 350 -
Interruptible sales 153 47
Total 18 027 19 178
Electric Revenues, Fuel and Purchased Power Costs
For the first three months of 1995, electric operating revenues
declined approximately $19.7 million or 11.5% due to lower fuel and
purchased power costs and lower unit sales due to extremely mild weather
conditions compared to the record cold experienced during the first quarter
of 1994.
Fuel and purchased power costs decreased during the first quarter of
1995 by approximately $14.9 million or 14.6% due primarily to lower
electric unit sales, lower fuel oil costs at Canal (a major supplier of
electricity to the system) due to scheduled maintenance on Unit 1 and a
decrease in power purchased from an independent power producer (IPP)
reflecting the restructuring of a power contract that defers purchases for
a six-year period. In January 1995, Commonwealth Electric terminated a
long-term power contract with another IPP through a buy-out arrangement
which will reduce future power costs.
For the three-month period ending March 31, 1995, retail electric
unit sales decreased 3.9% with most of this decline reflected in
residential unit sales (9.4% decrease). Unit sales to commercial and
industrial customers changed marginally from the first quarter of 1994
since these customer sectors draw less energy for heating. Wholesale unit
sales declined nearly 67% during the current quarter due to the annual
inspection and unscheduled turbine maintenance for Canal Unit 1; however,
these sales have little, if any, impact on net income.
<PAGE>
<PAGE 13>
COMMONWEALTH ENERGY SYSTEM AND SUBSIDIARY COMPANIES
Historically, revenues collected through base rates have been
designed to reimburse Commonwealth Electric and Cambridge Electric for all
costs of operation other than fuel, the energy portion of purchased power,
transmission and C&LM costs, and provide a fair return on capital invested
in the business. However, as a result of a DPU-approved recovery mechanism
for capacity-related costs associated with certain long-term purchased
power contracts, Commonwealth Electric and Cambridge Electric experience a
revenue excess or shortfall to the extent that unit sales and/or the costs
recoverable in base rates vary from test-period levels. During the first
quarter of 1995, as a result of this recovery mechanism, revenues reflect
an underrecovery of approximately $1.1 million of these capacity-related
costs; however, revenues for 1994 included approximately $713,000 in excess
of such capacity-related costs due to the recovery mechanism. This method
of recovery decreased net income by approximately $653,000 in 1995 while
increasing net income by $434,000 in 1994. This issue was addressed in
settlement agreements approved by the DPU in May 1995 whereby Commonwealth
Electric and Cambridge Electric will be allowed to defer for future
recovery the capacity-related costs in excess of such costs currently
included in Commonwealth Electric's retail base rates subject to certain
limitations. (Refer to the "Rate Settlement Agreement" section for
additional details.)
Gas Revenues and Cost of Gas Sold
For the first three months of 1995, gas operating revenues decreased
approximately $27.6 million or 20.3% due primarily to a $20.3 million
(28.4%) reduction in cost of gas sold and significantly lower firm unit
sales offset, in part, by off-system sales and quasi-firm sales that began
in 1994 and a slightly higher level of conservation and load management
costs.
Gas unit sales to firm customers declined 15.8% and reflect
significant weather-related declines in all sectors including residential
(15.5%), commercial (17%) and industrial (12.4%).
Other Operating Expenses
For the first three months of 1995, other operation and maintenance
decreased 1.3% or $832,000 due to declines in the provision for bad debts
($501,000), conservation and load management costs ($440,000) and continued
cost containment efforts at the electric, gas and corporate divisions
offset, in part, by higher labor and benefit costs ($1.8 million) and
increased maintenance costs relative to the Canal units ($531,000).
Depreciation expense increased 6.7% or $862,000 due to higher levels of
depreciable plant. The 6% increase in local property and other taxes is
due to higher tax rates and assessments within the system's service terri-
tory. The reduction in state and local income taxes of approximately 27%
is due to a significantly lower level of taxable income ($11.9 million).
Other Income and Interest Charges
For the first quarter of 1995, other income increased by $1.3
million due to the partial reversal of a reserve that had been established
<PAGE>
<PAGE 14>
COMMONWEALTH ENERGY SYSTEM AND SUBSIDIARY COMPANIES
by Commonwealth Electric in December 1994 that related to a settlement
negotiated with an outside party for certain costs associated with
Commonwealth Electric's conservation and load management program ($1.4
million), the recovery of which has since been approved by the DPU. Also
contributing to the increase were interest charges relating primarily to
Commonwealth Electric's fuel charge stabilization ($390,000). These
amounts were offset, somewhat, by a lower level of equity earnings and the
timing of dividend payments from Cambridge Electric's investment in nuclear
generating units and Canal's equity investment in Hydro-Quebec ($186,000).
Total interest charges increased 1.7% during the first quarter
despite a lower average level of short-term borrowings and an increase in
the debt component of AFUDC due to higher short-term interest rates (which
averaged 6.1% compared to 3.4% for the same period in 1994). Also
contributing to this increase were higher interest charges relating to
Commonwealth Gas Company's deferred gas costs ($361,000) and interest owed
due to customer refunds ($177,000).
Regulatory Matters
Rate Settlement Agreement
On May 3, 1995, the DPU approved settlement proposals sponsored
jointly by Commonwealth Electric, Cambridge Electric and the Attorney
General of Massachusetts. These joint petitions included the resolution of
issues related to cost of service, rates, accounting matters and generating
unit performance reviews. Commonwealth Electric's agreement:
(1) implements a $2.7 million annual retail base rate decrease effective
May 1, 1995 including its share of excess deferred tax reserves
related to Seabrook Unit No. 1 to be refunded to Commonwealth
Electric by Canal. Further, Commonwealth Electric is prevented from
increasing retail base rates until October 1998;
(2) limits Commonwealth Electric's return on equity as defined in the
settlement, for the period through December 31, 1997;
(3) terminates several 1987-1994 generating unit performance review
proceedings pending before the DPU;
(4) amends Commonwealth Electric's current fuel charge stabilization
mechanism to include deferral (without carrying charges) of certain
long-term purchased power and transmission capacity costs up to the
original limits established for the fuel charge stabilization;
(5) requires Commonwealth Electric to fully expense costs relating to
postretirement benefits other than pensions in accordance with State-
ment of Financial Accounting Standards No. 106 (FAS 106) and amortize
the current deferred balance of $7.6 million over a ten-year period;
(6) provides eligible Economic Development Rate customers with a discount
of up to 30% but also requires these customers to provide
Commonwealth Electric with a five-year notice if they intend to self-
generate or acquire electricity from another provider; and
<PAGE>
<PAGE 15>
COMMONWEALTH ENERGY SYSTEM AND SUBSIDIARY COMPANIES
(7) prohibits Commonwealth Electric from seeking recovery of the costs
incurred in realizing costs savings through a 1993 work force reduc-
tion and restructuring, totaling approximately $3 million.
Cambridge Electric's agreement:
(1) implements a $1.5 million refund to Cambridge Electric's customers
through the Fuel Charge during the third and fourth quarters of 1995
including its share of excess deferred tax reserves related to
Seabrook Unit No. 1 to be refunded to Cambridge Electric by Canal;
(2) allows Cambridge Electric to defer certain long-term purchased power
and transmission capacity costs in excess of the amount of such
capacity costs currently included in Cambridge Electric's base rates
up to an annual amount of $2 million for recovery in its next general
retail base rate case;
(3) prohibits Cambridge Electric from seeking recovery of costs it
incurred in obtaining costs savings by work force reduction and
restructuring, totaling approximately $400,000; and
(4) includes the DPU's withdrawal of all related requests, appeals,
motions or other issues raised by parties regarding certain
generating unit performance reviews.
The system's management is encouraged by the support provided through the
Office of the Attorney General and believes that these settlements will
eliminate the need for potentially costly litigation and regulatory
proceedings and, by moderating rate impacts and enabling the system to remain
competitive in a changing environment, are in the best interest of the system
and its customers.
Rate Tariff Filing
On March 15, 1995, Cambridge Electric filed four rate tariffs with
the DPU to establish rates for its largest customers should they decide
to generate their own power or purchase from another source while
remaining in Cambridge. In an effort to protect its other customers from
increased costs, Cambridge Electric is requesting that these large
customers pay their share of the costs that were incurred on their behalf
to ensure that their energy needs will be met at all times. These costs
include long-term power contracts entered into to meet projected energy
requirements, investments in substations, underground and overhead lines
and current and future decommissioning costs associated with nuclear
plants. A ruling is expected from the DPU in 1995.
Environmental Matters
Commonwealth Gas is participating in the assessment of a number of
former manufactured gas plant (MGP) sites and alleged MGP waste disposal
locations to determine if and to what extent such sites have been
contaminated and whether Commonwealth Gas may be responsible for remedial
actions. Commonwealth Gas is also involved in certain other known or
<PAGE>
<PAGE 16>
COMMONWEALTH ENERGY SYSTEM AND SUBSIDIARY COMPANIES
potentially contaminated sites where the associated costs may not be
recoverable in rates. There were no significant new developments that
occurred during the first quarter of 1995. For further information on
these matters, refer to the System's 1994 Annual Report on Form 10-K.
<PAGE>
<PAGE 17>
COMMONWEALTH ENERGY SYSTEM AND SUBSIDIARY COMPANIES
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
The system is subject to legal claims and matters arising from the
course of business, including its participation in power contract
arbitrations involving the termination of a power purchase agreement
with Eastern Energy Corporation as discussed more fully in the
System's 1994 Annual Report on Form 10-K.
Item 2. Changes in the Rights of the Company's Security Holders
None
Item 3. Defaults by the Company on its Senior Securities
None
Item 4. Results of Votes of Security Holders
(a) The Annual Meeting of Shareholders was held on May 4, 1995.
(b) The three nominees, Sheldon A. Buckler, Betty L. Francis and
Michael C. Ruettgers listed in the System's Notice of 1995 Annual
Meeting, Proxy Statement and 1994 Financial Information dated March
31, 1995 were elected to the Board of Trustees of Commonwealth Energy
System.
(c) As set forth in the System's Notice of 1995 Annual Meeting, Proxy
Statement and 1994 Financial Information dated March 31, 1995 as Item
2, a proposal to consent to an amendment to Section 6 of the System's
Declaration of Trust, by removing the restriction which requires that
each of the Trustees who are not Massachusetts residents be a resident
of one of the New England States and replace it with the requirement
that at least two-thirds of the Trustees shall at all times be
residents of Massachusetts was voted upon and approved at the 1995
Annual Shareholders' Meeting. There were 8,272,462 (78.2%) Common
Shares voted for this proposal, 396,688 (3.7%) Common Shares voted
against, 180,534 (1.7%) Common Shares abstained and 1,736,225 (16.4%)
Common Shares were not voted. The affirmative vote of the holders of
a majority of the outstanding Common Shares was required for approval
of this proposal.
(d) As set forth in the System's Notice of 1995 Annual Meeting, Proxy
Statement and 1994 Financial Information dated March 31, 1995 as Item
3, a shareholder proposal, which was also presented at the 1991, 1992,
1993 and 1994 Annual Meeting, requesting the Board of Trustees to
repeal the classified board and institute annual election of trustees
was voted upon and failed to pass at the 1995 Annual Shareholders'
Meeting. There were 1,713,558 (16.2%) Common Shares voted for this
proposal, 5,510,161 (52.0%) Common Shares voted against, 379,064
(3.6%) Common Shares abstained and 2,983,126 (28.2%) Common Shares
were not voted. The affirmative vote of the holders of a majority of
the outstanding Common Shares was required for approval of this
proposal.
<PAGE>
<PAGE 18>
COMMONWEALTH ENERGY SYSTEM AND SUBSIDIARY COMPANIES
Item 5. Other Information
On May 4, 1995, the System announced the appointment of Dr.
Sheldon A. Buckler, age 63, as Chairman of The Board of Trustees. He
succeeds Sinclair Weeks, Jr, age 72, who retired effective May 4,
1995. Dr. Buckler has been a member of the Board of Trustees since
1991 and also serves as director of the Nashua Corporation, Aseco
Corporation, Parlex Corporation, Spectrum Information Technologies,
Inc., Speech Systems, Inc. and Lord Corporation. Dr. Buckler also
serves as vice chairman of the Board of Massachusetts Eye and Ear
Infirmary. Dr. Buckler holds a doctorate in chemistry from Columbia
University.
Michael C. Ruettgers has been elected to the System's Board of
Trustees effective May 4, 1995. Mr. Ruettgers, age 52, is currently
the President and Chief Executive Officer of EMC Corporation (EMC) of
Hopkinton, Massachusetts, a leading developer of data storage
technology. Mr. Ruettgers holds an MBA from Harvard Business School
and also serves on the board of directors of EMC and Cross Comm
Corporation.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 27 - Financial Data Schedule
Filed herewith as Exhibit 1 is the Financial Data Schedule for
the three months ended March 31, 1995.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the three months ended
March 31, 1995.
<PAGE>
<PAGE 19>
COMMONWEALTH ENERGY SYSTEM
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
COMMONWEALTH ENERGY SYSTEM
(Registrant)
Principal Financial Officer:
JAMES D. RAPPOLI
James D. Rappoli,
Financial Vice President
and Treasurer
Principal Accounting Officer:
JOHN A. WHALEN
John A. Whalen,
Comptroller
Date: May 15, 1995
<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND>
This schedule contains summary financial information extracted from the
balance sheet, statement of income and statement of cash flows contained in
Form 10-Q of Commonwealth Energy System for the three months ended March 31,
1995 and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<CIK> 0000071304
<NAME> COMMONWEALTH ENERGY SYSTEM
<MULTIPLIER> 1,000
<S> <C>
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> MAR-31-1995
<PERIOD-TYPE> 3-MOS
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 991,755
<OTHER-PROPERTY-AND-INVEST> 13,558
<TOTAL-CURRENT-ASSETS> 178,686
<TOTAL-DEFERRED-CHARGES> 159,262
<OTHER-ASSETS> 15,694
<TOTAL-ASSETS> 1,358,955
<COMMON> 42,344
<CAPITAL-SURPLUS-PAID-IN> 105,345
<RETAINED-EARNINGS> 230,435
<TOTAL-COMMON-STOCKHOLDERS-EQ> 378,124
14,600
0
<LONG-TERM-DEBT-NET> 417,073
<SHORT-TERM-NOTES> 0
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 30,973
820
<CAPITAL-LEASE-OBLIGATIONS> 14,008
<LEASES-CURRENT> 1,686
<OTHER-ITEMS-CAPITAL-AND-LIAB> 501,671
<TOT-CAPITALIZATION-AND-LIAB> 1,358,955
<GROSS-OPERATING-REVENUE> 265,224
<INCOME-TAX-EXPENSE> 12,857
<OTHER-OPERATING-EXPENSES> 222,357
<TOTAL-OPERATING-EXPENSES> 235,214
<OPERATING-INCOME-LOSS> 30,010
<OTHER-INCOME-NET> 1,903
<INCOME-BEFORE-INTEREST-EXPEN> 31,913
<TOTAL-INTEREST-EXPENSE> 10,980
<NET-INCOME> 20,933
282
<EARNINGS-AVAILABLE-FOR-COMM> 20,651
<COMMON-STOCK-DIVIDENDS> 7,942
<TOTAL-INTEREST-ON-BONDS> 9,799
<CASH-FLOW-OPERATIONS> 63,184
<EPS-PRIMARY> 1.95
<EPS-DILUTED> 0
</TABLE>
