<PAGE 1>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the registrant [ x ]
Filed by a party other than the registrant [ ]
Check the appropriate box:
[ x ] Preliminary proxy statement [ ] Confidential, for Use of the
Commission Only (as permitted
by Rule 14a-6(e)(2))
[ ] Definitive proxy statement
[ ] Definitive additional materials
[ ] Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12
COMMONWEALTH ENERGY SYSTEM
(Name of Registrant as Specified in Its Charter)
_____________________________________________________________________________
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of filing fee (Check the appropriate box):
[ ] $125 per Exchange Act Rule 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(i)(2)
or Item 22(a)(2) of Schedule 14A.
[ ] $500 per each party to the controversy pursuant to Exchange Act
Rule 14a-6(i)(3).
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4)
and 0-11.
1) Title of each class of securities to which transaction applies:
_______________________________________________________________
2) Aggregate number of securities to which transactions applies:
_______________________________________________________________
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
_______________________________________________________________
4) Proposed maximum aggregate value of transaction:
_______________________________________________________________
5) Total fee paid:
_______________________________________________________________
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
1) Amount previously paid:
_____________________________________________
2) Form, Schedule or Registration Statement No.:
_____________________________________________
3) Filing party:
_____________________________________________
4) Date filed:
_____________________________________________
<PAGE>
<PAGE 2>
Commonwealth
Energy System
Notice of 1995
Annual Meeting,
Proxy Statement
and 1994 Financial
Information
Please sign and return your
proxy promptly
<PAGE>
<PAGE 3>
COMMONWEALTH ENERGY SYSTEM
Cambridge, Massachusetts
Notice of Annual Meeting of Shareholders
May 4, 1995
To the Shareholders of
COMMONWEALTH ENERGY SYSTEM
Notice is hereby given that the Annual Meeting of Shareholders of
Commonwealth Energy System will be held at the office of the System, One Main
Street, P.O. Box 9150, Cambridge, Massachusetts 02142-9150, on Thursday,
May 4, 1995, at 10:30 o'clock A.M., Eastern Daylight Time, for the following
purposes:
1. To elect three Trustees to hold office for a three-year term and
until the election and qualification of their respective
successors.
2. To take action on a proposal by the Board of Trustees to amend
Section 6 of the System's Declaration of Trust, as amended, to
revise the geographic residency requirement for Trustees.
3. To consider and vote upon a shareholder proposal, if presented at
the meeting, as described herein.
4. To transact such other business as may properly come before the
meeting or any adjournment or adjournments thereof.
Common Shareholders of record at the close of business on March 17, 1995
are entitled to notice of, and to vote at, the meeting.
By order of the Trustees,
Michael P. Sullivan
Vice President, Secretary
and General Counsel
March 31, 1995
IMPORTANT
We cordially invite you to attend the Annual Meeting of Shareholders,
but IF YOU DO NOT EXPECT TO BE PRESENT, PLEASE MAIL YOUR PROXY IN ORDER THAT
THE PRESENCE OF A QUORUM MAY BE ASSURED. Because our shares are widely
distributed over a large number of holders, it is both necessary and desirable
that all Shareholders send in their proxies. Failure to secure a quorum on
the date set would necessitate an adjournment, which would cause the System
considerable and needless expense. To avoid this, please SIGN AND DATE the
accompanying proxy and mail it promptly in the enclosed envelope to
Commonwealth Energy System, P.O. Box 9150, Cambridge, Massachusetts 02142-
9150.
<PAGE>
<PAGE 4>
PROXY STATEMENT
This statement is furnished in connection with the solicitation of
proxies by the Board of Trustees of Commonwealth Energy System (hereinafter
called the "System") to be used at the Annual Meeting of Shareholders of the
System, to be held on Thursday, May 4, 1995, at the principal executive office
of the System, One Main Street, P.O. Box 9150, Cambridge, Massachusetts 02142-
9150, of which due notice has been given in accordance with the System's
Declaration of Trust dated December 31, 1926, as amended. If the enclosed
form of proxy is executed and returned, it may nevertheless be revoked at any
time insofar as it has not been exercised. A properly executed and returned
proxy will be voted in accordance with the directions contained thereon.
Abstentions shall be voted neither "for" nor "against," but shall be counted
in the determination of a quorum. Broker non-votes will not be counted either
in calculating the number of shares present for the purposes of determination
of a quorum or for the purposes of determining whether a matter has received
the required number of votes. The giving of a later-dated proxy revokes all
proxies previously given. The approximate date on which this Proxy Statement
and the accompanying proxy card will first be mailed to Shareholders is
March 31, 1995.
FINANCIAL STATEMENTS
The audited financial statements of Commonwealth Energy System and
Subsidiary Companies, which include comparative Balance Sheets as of December
31, 1994 and 1993, Statements of Income and Statements of Cash Flows for the
three years ended December 31, 1994 and the Report of Independent Public
Accountants, are included in Exhibit A of this Proxy Statement.
VOTING SECURITIES
Each Common Share is entitled to one vote. Only Shareholders of record
at the close of business on March 17, 1995 are qualified to vote at the
meeting. There were outstanding as of the record date 10,585,909 Common
Shares.
The Employees Savings Plan of Commonwealth Energy System and Subsidiary
Companies owned beneficially 1,711,590 Common Shares representing 16.2% of the
outstanding Common Shares as of February 1, 1995. Members of the Plan are
entitled to give voting instructions with respect to their interests.
OWNERSHIP BY MANAGEMENT OF VOTING SECURITIES
The following table shows the beneficial ownership, reported to the
System as of February 1, 1995 of Common Shares of the System owned by the
Chief Executive Officer and the four other most highly compensated Executive
Officers and, as a group, all Trustees and Executive Officers of the System.
Total
Common Percent of
Name Shares (1) Class
William G. Poist 5,309 0.1%
Russell D. Wright 4,153 0.1%
Kenneth M. Margossian 3,025 0.1%
James D. Rappoli 1,167 0.1%
Leonard R. Devanna 1,636 0.1%
All Trustees and Executive Officers
as a group (14 persons) 25,642 0.2%
<PAGE>
<PAGE 5>
(1) Beneficial ownership set forth in this Proxy Statement includes, where
applicable, shares with respect to which voting or investment power is
attributed to an Executive Officer or Trustee because of joint or
fiduciary ownership of the shares or relationship of the Executive Officer
or Trustee to the record owner, such as a spouse, together with shares
held under the Employees Savings Plan of Commonwealth Energy System and
Subsidiary Companies.
MATTERS TO BE BROUGHT BEFORE THE MEETING
1-ELECTION OF TRUSTEES
Three Trustees will be elected at the Annual Meeting of Shareholders to
hold office for the ensuing three years in accordance with the Declaration of
Trust, which provides for staggered terms of Trustees of three years each.
The three Trustees elected at this meeting will hold office for a three-year
term and until the election and qualification of their respective successors.
Under the terms of the Declaration of Trust, Trustees are required to be
elected by a plurality vote of the Shareholders.
The Shares represented by the enclosed form of proxy will be voted, and
the persons named in such form of proxy will, unless otherwise directed in the
proxy, vote shares represented by proxies received for the election of the
following nominees:
Sheldon A. Buckler
Betty L. Francis
Michael C. Ruettgers
Of the three nominees, Dr. Buckler and Ms. Francis are presently
Trustees. Mr. Ruettgers was nominated by the Board on February 23, 1995 to
fill a vacancy which will be occasioned by the retirement of Mr. Sinclair
Weeks, who is retiring from the Board at the conclusion of his term effective
May 4, 1995.
Although it is not contemplated that any of the three (3) nominees will
be unable to serve, in the event a vacancy in the list of the System's
nominees is occasioned by death or other unexpected occurrence, your proxy
will be voted for the election of a nominee acceptable to the remaining
Trustees.
INFORMATION CONCERNING NOMINEES AND TRUSTEES
Common Shares
Beneficially
Year First Owned as of
Became a February 1,
Name, Principal Occupation and Term of Office Trustee Age 1995
(B) SHELDON A. BUCKLER, formerly Vice Chairman
(C) of the Board and Director, Polaroid
(E) Corporation, Cambridge, Massachusetts
(Manufacturer of photographic equipment
and supplies); Director, Lord Corp.;
Aseco Corp.; Nashua Corporation; Parlex
Corp.; Spectrum Information Technologies,
Inc.; and Speech Systems, Inc.
TERM EXPIRES IN 1995 (NOMINEE).......... (1991) 63 1,069
(A) PETER H. CRESSY, Chancellor, University of
Massachusetts Dartmouth, North Dartmouth,
Massachusetts
TERM EXPIRES IN 1996 ................... (1994) 53 100
<PAGE>
<PAGE 6>
INFORMATION CONCERNING NOMINEES AND TRUSTEES
Common Shares
Beneficially
Year First Owned as of
Became a February 1,
Name, Principal Occupation and Term of Office Trustee Age 1995
(B) HENRY DORMITZER, formerly Executive Vice
(D) President, Wyman-Gordon Company, Worcester,
Massachusetts (Producer of forgings for
aerospace and transportation industries)
TERM EXPIRES IN 1997 ................... (1985) 60 700
(A) BETTY L. FRANCIS, Executive Vice President
and Chief Financial Officer, BancBoston
Mortgage Corporation, Jacksonville, Florida
TERM EXPIRES IN 1995 (NOMINEE).......... (1991) 48 100
(C) FRANKLIN M. HUNDLEY, Member and a Managing
(D) Director, Rich, May, Bilodeau & Flaherty,
P.C., Boston, Massachusetts (Attorneys);
Director, The Berkshire Gas Company
TERM EXPIRES IN 1997 ................... (1985) 60 2,293
(A) WILLIAM J. O'BRIEN, President, William J.
O'Brien, Inc., Southborough, Massachusetts
(management consulting)
TERM EXPIRES IN 1996................... (1994) 62 1,100
WILLIAM G. POIST, President and Chief
Executive Officer of Commonwealth Energy
System and Chairman, Chief Executive Officer
and a Director of its principal subsidiary
companies
TERM EXPIRES IN 1996 .................. (1992) 61 5,309
MICHAEL C. RUETTGERS, President, Chief
Executive Officer and Director, EMC
Corporation, Hopkinton, Massachusetts
(data storage technology); Director,
Keane, Inc. and Cross Comm Corporation
(NOMINEE).............................. - 52 -
(B) GERALD L. WILSON, Vannevar Bush Professor of
(D) Engineering, Massachusetts Institute of
(E) Technology, Cambridge, Massachusetts;
Director, Analogic Corp.
TERM EXPIRES IN 1997 ................... (1985) 55 464
Each of the persons named above has held his or her present position (or
another executive position with the same employer) for more than the past five
years except for Ms. Francis, who served in various executive capacities at
the Boston Five Cents Savings Bank from 1986 to 1990; Dr. Wilson, who served
as Vice President-Corporate Technology and Manufacturing at Carrier
Corporation during 1991-1992 while on a leave of absence from Massachusetts
Institute of Technology; and Mr. O'Brien, who served as President and Chief
Executive Officer of Hanover Insurance Company from 1979 to 1992.
During 1994, fees of $669,427 were incurred for legal services rendered
by the firm of Rich, May, Bilodeau & Flaherty, P.C., of which Mr. Hundley is a
Member and a Managing Director. The firm has been employed in the last fiscal
year and the current fiscal year.
<PAGE>
<PAGE 7>
Each Trustee, including nominees, owned beneficially less than one-third
of one percent of outstanding Common Shares.
- -------------------------
(A) Member of Audit Committee.
(B) Member of Executive Compensation Committee.
(C) Member of Nominating Committee.
(D) Member of Benefit Review Committee.
(E) Member of Strategic Planning Committee.
COMPENSATION OF EXECUTIVE OFFICERS DURING THE YEAR 1994
The following table shows compensation paid by the System and its
subsidiaries to the System's President and Chief Executive Officer and the
four other highest paid Executive Officers of the System whose total
compensation in 1994 exceeded $100,000.
<TABLE>
SUMMARY COMPENSATION TABLE
<CAPTION>
Long-Term Compensation (3)
Annual Compensation Awards Payouts
Long-
Options Term
Other /Stock Incen- All
Annual Restr- Apprec- tive Other
Compen- icted iation Plan Compen-
Name and Salary sation Stock Rights (LTIP) sation
Principal Position Year (1) Bonus (2) Awards (SARS) Payouts (4)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
William G. Poist 1994 $320,000 $98,721 - - - - $12,804
President and Chief 1993 291,888 78,031 - - - - 11,604
Executive Officer of 1992 270,000 65,121 - - - - 10,800
the System and Chair-
man and Chief Exec-
utive Officer of its
principal subsidiary
companies
Russell D. Wright 1994 $215,897 $60,964 - - - - $ 9,312
President and Chief 1993 195,000 53,814 - - - - 7,704
Operating Officer 1992 167,140 40,665 - - - - 6,884
of Cambridge
Electric Light
Company, Canal
Electric Company,
COM/Energy Steam
Company and
Commonwealth
Electric Company
Kenneth M. Margossian 1994 $179,917 $52,005 - - - - $ 7,140
President and 1993 165,000 47,256 - - - - 6,564
Chief Operating 1992 153,833 38,733 - - - - 6,120
Officer of Common-
wealth Gas Company
and Hopkinton LNG Corp.
</TABLE>
<PAGE>
<PAGE 8>
<TABLE>
SUMMARY COMPENSATION TABLE (CONT'D)
<CAPTION>
Long-Term Compensation (3)
Annual Compensation Awards Payouts
Long-
Options Term
Other /Stock Incen- All
Annual Restr- Apprec- tive Other
Compen- icted iation Plan Compen-
Name and Salary sation Stock Rights (LTIP) sation
Principal Position Year (1) Bonus (2) Awards (SARS) Payouts (4)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
James D. Rappoli 1994 $151,686 $43,196 - - - - $ 5,880
Financial Vice 1993 130,333 36,184 - - - - 5,082
President and 1992 93,917 21,931 - - - - 3,732
Treasurer of the
System and its
subsidiary companies
Leonard R. Devanna 1994 $142,166 $41,745 - - - - $ 5,912
Vice President-New 1993 133,333 37,542 - - - - 6,603
Business Development 1992 124,167 29,939 - - - - 4,899
of COM/Energy
Services Company
</TABLE>
- --------------------
(1) The amounts in this column represent the aggregate total of cash
compensation received and compensation deferred by the above-named
individuals. Compensation is deferred pursuant to the provisions of the
Employees Savings Plan and the Executive Salary Continuation and Excess
Benefit Plan of Commonwealth Energy System and Subsidiary Companies.
(2) The dollar value of perquisites and other personal benefits, securities
or property totalling either $50,000 or 10% of total annual salary and
bonus, together with various other earnings, amounts reimbursed for the
payment of taxes, and the dollar value of any stock discounts not
generally available are required to be disclosed in this column. In
1994, there were no such perquisites, earnings, reimbursements or
discounts paid or made.
(3) In 1994, the System did not provide to its employees, including
Executive Officers, any payments or awards in the form of restricted
stock, stock options, stock appreciation rights, long-term incentive
plan payouts or other forms of long-term compensation.
(4) The amounts in this column represent the aggregate contributions by the
System and certain subsidiary companies during 1994 on behalf of the
above-named individuals to the Employees Savings Plan and the Executive
Salary Continuation and Excess Benefit Plan of Commonwealth Energy
System and Subsidiary Companies. The Employees Savings Plan of
Commonwealth Energy System and Subsidiary Companies is a defined
contribution plan. The Plan incorporates salary deferral provisions
pursuant to Section 401(k) of the Internal Revenue Code for all
employees who have elected to participate on that basis. The Executive
Salary Continuation and Excess Benefit Plan of Commonwealth Energy
System and Subsidiary Companies is a defined contribution/defined
benefit plan. Unlike the Employees Savings Plan, this Plan is not a
qualified plan under Section 401(a) of the Internal Revenue Code of
1986. The Plan was established to provide an additional benefit to any
participant in the Employees Savings Plan whose
<PAGE>
<PAGE 9>
benefit under the plan would be curtailed by limits in effect under the
Internal Revenue Code for qualified plans. Of the amounts set forth in
the "All Other Compensation" column, $6,642, $912, $2,518, $3,569 and
$3,025 represent the contributions made on behalf of Messrs. Poist,
Wright, Margossian, Rappoli and Devanna, respectively, by the Employees
Savings Plan. Contributions made on behalf of Messrs. Poist, Wright,
Margossian, Rappoli and Devanna by the Executive Salary Continuation and
Excess Benefit Plan in 1994 equalled $6,162, $8,400, $4,622, $2,311 and
$2,887, respectively.
<PAGE>
<PAGE 10>
PENSION PLAN TABLE
The following table shows annual retirement benefits payable to employees,
including Executive Officers, upon retirement at age 65, in various
compensation and years of service classifications, assuming the election of a
retirement allowance payable as a life annuity from the Pension Plan for
Employees of Commonwealth Energy System and Subsidiary Companies and the
Executive Salary Continuation and Excess Benefit Plan of Commonwealth Energy
System and Subsidiary Companies, as of December 31, 1994.
<TABLE>
<CAPTION>
Highest Annual
Consecutive 3-Year
Average Base
Salary of Last Annual Benefit for Years of Service (1)
10 Years 10 Years 15 Years 20 Years 25 Years 30 Years 35 Years
<S> <C> <C> <C> <C> <C> <C>
$ 90,000 .... $15,818 $23,728 $ 31,637 $ 39,546 $ 47,455 $ 51,614
120,000 .... 21,318 31,978 42,637 53,296 64,955 69,614
150,000 .... 26,818 40,228 53,637 67,046 80,455 87,614
180,000 .... 32,318 48,478 64,637 80,796 96,955 105,614
210,000 .... 37,818 56,728 75,637 94,546 113,455 123,614
240,000 .... 43,318 64,978 86,637 108,296 129,955 141,614
270,000 .... 48,818 73,228 97,637 122,046 146,455 159,614
300,000 .... 54,318 81,478 108,637 135,796 162,955 177,614
330,000 .... 59,818 89,728 119,637 149,546 179,455 195,614
360,000 .... 65,318 97,978 130,637 163,296 195,955 213,614
- -------------
<FN>
(1) Federal law places certain limits on the amount of benefits which can be
paid from qualified pension plans. Payments made by the System in
excess of the applicable limitations are made pursuant to the terms of
the Executive Salary Continuation and Excess Benefit Plan of
Commonwealth Energy System and Subsidiary Companies. For 1994, the
maximum annual compensation limit under the Pension Plan for Employees
of Commonwealth Energy System and Subsidiary Companies was $150,000, and
the maximum annual benefit under that Plan was $118,800.
</TABLE>
The Pension Plan for Employees of Commonwealth Energy System and
Subsidiary Companies is a non-contributory defined benefit plan. The Plan is
a final average earnings type plan under which benefits reflect the employee's
years of credited service. The employee receives the higher of either an
integrated or non-integrated Plan formula to realize the maximum retirement
benefit applicable to his or her employment history. Both of the Plan
formulae are based on the average of the three highest consecutive January 1
base salaries during the ten-year period preceding the employee's retirement
or termination. Retirement benefits are available to employees on or after
age fifty-five provided the sum of their age and years of service is at least
seventy-five. Messrs. Poist, Wright, Margossian, Rappoli and Devanna have 30,
27, 25, 20 and 13 credited years of service respectively. For the purposes of
calculating the annual retirement benefits of Messrs. Poist, Wright,
Margossian, Rappoli and Devanna pursuant to the Plan, only the amounts set
forth in the summary compensation table as "Salary" are utilized to determine
each executive's three highest consecutive January 1 base salaries during the
ten year period preceding the executive's retirement or termination.
Each Executive Officer of the System has elected certain pre-retirement
death benefits and supplemental retirement benefits in exchange for waiving
certain standard life insurance benefits (in excess of $50,000), and the
survivor income benefits generally available to all eligible employees. The
alternative program for Executive Officers provides a pre-retirement death
benefit of either: (i) a lump-sum payment of three times salary; or (ii)
fifty percent of monthly base salary for one hundred and eighty months. The
supplemental retirement benefit provides that an Executive Officer may retire
after the attainment of age fifty-five and completion of ten years of service.
Normal retirement at age sixty-five provides an annual payment equal to
<PAGE>
<PAGE 11>
thirty-five percent of final base salary per year for life, or for a period of
one hundred and eighty months, whichever is longer. Benefits are reduced for
retirement prior to age sixty-five. The supplemental retirement benefits are
in addition to the amounts shown in the table above and are not subject to
limitation. If the employment of the Executive Officer shall terminate for any
reason other than death and before completion of ten years of service and
attainment of age fifty-five, there are no benefits payable under this
alternative program for Executive Officers.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Executive Compensation Committee of the Board of Trustees has
furnished the following report on executive compensation for 1994:
The Chief Executive Officer's base salary compensation is determined by
review of comparable utility salary data and evaluation of certain reference
criteria. The Executive Compensation Committee (the "Committee") reviews
compensation comparisons prepared by an independent consultant for roles
comparable in scope to the Chief Executive Officer's and other executives. In
addition, the Committee reviews market compensation data provided by the
System's human resources department, selected utility proxy material, and
utility industry references such as those provided by the Edison Electric
Institute. Among the reference criteria reviewed by the Committee in
developing external market pay norms are business type (investor-owned
utilities), scope (utilities with revenues of approximately $500 million to $2
billion) and location (utilities headquartered in the northeast region of the
U.S.). This market reference group of companies represents a sub-set of Value
Line's utility sample.
The Chief Executive Officer's base salary target (i.e., control point)
is designed to match the market median for the utility reference group. The
Committee adjusts the Chief Executive Officer's salary in relation to the
salary range target on a subjective basis through evaluation of the same
objective criteria used to determine the Chief Executive Officer's annual
incentive award and individual goals as set forth below.
The Chief Executive Officer's award for 1994 pursuant to the System's
Annual Incentive Plan, as hereinafter described, was determined on a weighted
basis, with two-thirds of the award potential attributable to the attainment
of System goals and objectives, and one-third of the award potential
attributable to individual goals and objectives. For 1994, the System
criteria forming the goals and objectives applicable to the Annual Incentive
Plan were: 1) meeting pre-established targets comparing System actual net
income to budgeted net income for 1994; 2) success in implementing budgetary
constraints in the interest of controlling costs; and 3) meeting certain pre-
established benchmark measures of operation and maintenance expenses per
customer, as compared to a peer group of 19 utility companies chosen by the
System's compensation consultant. Each of the three System goals and
objectives are equally weighted, and awards are made based on meeting,
exceeding or reaching maximum attainment of targets. The goal established for
actual net income was to meet or exceed the approved budgeted amounts. The
System's 1994 net income of $48.97 million exceeded targeted net income of
$41.20 million by 18.9%, resulting in a maximum award. The goal established
for cost control was for operating and maintenance expenses in 1994 to be
below the approved budgeted amounts. This goal was achieved by the System
having reduced actual operation and maintenance expenses to 5.3% below
established budgets, resulting in a maximum award for having exceeded the 5%
below budget maximum target. The goal of maintaining operating and
maintenance expenses per customer within the top 50% of the 19 company
industry peer group was exceeded, as the System was rated the seventh most
effective of the 19 companies in controlling operation and maintenance
expenses. In the aggregate, the goals and objectives applicable to the System
component of the Annual Incentive Plan were rated as 95.8% achieved.
<PAGE>
<PAGE 12>
The individual goals of the Chief Executive Officer for 1994 under the
Annual Incentive Plan included: developing a System business development
plan, overseeing the formation of a key performance factor metering system,
and improving electric operations' overall customer favorability as measured
by customer surveys. The Chief Executive Officer's performance relative to
achieving individual goals was rated as 90% achieved, resulting in an
aggregate performance rating of 94% achievement.
The System's Long Term Incentive Plan, approved by shareholders in 1994,
measures performance and provides the potential for awards of Common Shares
over a three-year Plan Period. The first year of the initial Plan Period
established under that Plan was 1994, and as a result no award was made under
the Plan for 1994.
With respect to other Executive Officers, the Chief Executive Officer,
in conjunction with the System's human resources staff, established salary
ranges for each Executive Officer. The salary ranges were based in part upon
salaries provided to executive officers in the System's industry peer group,
as reported by the Edison Electric Institute and from regional salary surveys
so as to establish salary ranges generally in the median of the peer group.
Specific salary levels were then established through an evaluation of the
Executive Officer's performance of goals and duties. The base salary levels,
as recommended by the Chief Executive Officer, were also reviewed and approved
by the Executive Compensation Committee.
In addition to base salary, the named Executive Officers are also
eligible under the Annual Incentive Plan to receive annual variable incentive
compensation of up to a maximum of 30% of annual base salary. In 1994, the
System goals and objectives constituting the annual performance criteria and
the corresponding weightings which determined eligibility for awards to the
named Executive Officers under the Annual Incentive Plan were the same as
those applicable to the Chief Executive Officer. The individual goals and
objectives of the other Executive Officer Plan participants included various
financial and operating performance standards, such as management costs of
outside legal services, the stabilization of electric customers' costs of
purchased power, and the maintenance of individual department total annual
expenses at amounts not exceeding approved budgets.
THE EXECUTIVE COMPENSATION COMMITTEE
Henry Dormitzer, Chairperson
Sheldon A. Buckler
Gerald L. Wilson
<PAGE>
<PAGE 13>
COMPARATIVE TOTAL SHAREHOLDER RETURN
Set forth below is a line graph comparing the cumulative total
shareholder return for the System's Common Shares to the cumulative total
return of the S&P 500 Stock Index and a Peer Group Index which is comprised of
93 utility companies (including the System) which are followed by Value Line,
Inc. The entities which comprise the Peer Group are also set forth
hereinafter.
Comparative Five-Year Total Returns
Commonwealth Energy System, S&P 500 and Value Line Peer Group
(Performance results through 12/31/94)
---------------------------------------------------------------
Line graph illustration of
comparative five-year (1990-1994) cumulative
total returns based on values listed
in chart below.
---------------------------------------------------------------
1989 1990 1991 1992 1993 1994
COM/Energy $100.00 $ 94.55 $121.82 $142.53 $164.76 $139.27
S&P 500 100.00 96.83 126.41 136.26 150.00 151.73
Peer Group 100.00 101.47 131.43 140.92 156.53 137.46
Assumes $100 invested at the close of trading on the last trading day of
1989 in COM/Energy Common Shares, S&P 500 and the Peer Group. Also
assumes reinvestment of dividends.
Source: Value Line, Inc.
PEER GROUP
Allegheny Power System, Inc. Minnesota Power & Light Co.
American Electric Power Co., Inc. Montana Power Co.
Atlantic Energy Inc. Nevada Power Co.
Baltimore Gas and Electric Company New England Electric System
Boston Edison Company New York State Electric & Gas Corp.
Carolina Power & Light Co. Niagara Mohawk Power Corporation
Centerior Energy Corporation NIPSCO Industries Inc.
Central Hudson Gas & Electric Corp. Northeast Utilities
Central Louisiana Electric Company Inc. Northern States Power Co.
Central Maine Power Co. Northwestern Public Service Co.
Central & South West Corp. Ohio Edison Co.
Central Vermont Public Service Corp. Oklahoma Gas & Electric Co.
CILCORP Inc. Orange and Rockland Utilities, Inc.
CINergy Corp. Otter Tail Power Co.
CIPSCO Incorporated Pacific Gas & Electric Co.
CMS Energy Corp. PacifiCorp.
<PAGE>
<PAGE 14>
Commonwealth Energy System PECO Energy Company
Consolidated Edison Co. of New York, Inc. Pennsylvania Power & Light Co.
DPL Inc. Pinnacle West Capital Corp.
Delmarva Power & Light Company Portland General Electric Co.
The Detroit Edison Company Potomac Electric Power Co.
Dominion Resources, Inc. Public Service Co. of Colorado
DQE Public Service Co. of New Mexico
Duke Power Co. Public Service Enterprise Group Inc.
Eastern Utilities Associates Puget Sound Power & Light Co.
El Paso Electric Rochester Gas and Electric Corp.
Empire District Electric Company St. Joseph Light & Power Co.
Entergy Corporation San Diego Gas & Electric Co.
Florida Progress SCANA Corp.
FPL Group, Inc. SCEcorp
General Public Utilities Corp. Sierra Pacific Power Co.
Green Mountain Power Corp. The Southern Company
Hawaiian Electric Co., Inc. Southern Indiana Gas & Electric Co.
Houston Industries Incorporated Southwestern Public Service Co.
Idaho Power Co. TECO Energy, Inc.
IES Industries Texas Utilities Company
Illinova Corp. TNP Enterprises, Inc.
Interstate Power Co. Tucson Electric Power Co.
Iowa-Illinois Gas and Electric Company Unicom Corp.
PIALCO Enterprises, Inc. Union Electric Co.
Kansas City Power & Light Co. United Illuminating Co.
KU Energy Corporation UtiliCorp. United Inc.
LG&E Energy Corp. Washington Water Power Co.
Long Island Lighting Co. Western Resources Inc.
MDU Resources Wisconsin Energy Corp.
Midwest Resources, Inc. Wisconsin Public Service Corp.
WPL Holdings, Inc.
MEETINGS OF THE BOARD OF TRUSTEES AND COMMITTEES
The System's Board of Trustees held thirteen meetings throughout 1994.
The Board has an Audit Committee, an Executive Compensation Committee, a
Nominating Committee, a Benefit Review Committee and a Strategic Planning
Committee.
The Audit Committee is composed of Betty L. Francis, Chairperson, Peter
H. Cressy and William J. O'Brien. The Committee held four meetings in 1994.
The Committee's functions are: to recommend the selection of an independent
public accountant; to review the scope of and approach to audit work; to
review non-audit services provided by the independent public accountants; and
to review accounting principles and practices and the adequacy of internal
controls.
The Executive Compensation Committee is composed of Henry Dormitzer,
Chairperson, Sheldon A. Buckler and Gerald L. Wilson. During 1994 the
Committee held four meetings. The Committee was formed for the purpose of
reviewing and recommending compensation and promotional adjustments for
certain of the System's personnel.
The Nominating Committee is composed of Sinclair Weeks, Jr.,
Chairperson, Franklin M. Hundley and Sheldon A. Buckler. The Committee held
four meetings in 1994. The functions of the Committee are: to coordinate
suggestions or searches
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for potential nominees for the position of Trustee; to review and evaluate
qualifications of potential nominees; and to recommend to the Board of
Trustees nominees for vacancies occurring from time to time on the Board of
Trustees. The Committee will consider nominees recommended by Shareholders
upon the timely submission of the names of such nominees with their
qualifications and biographical information forwarded to the Nominating
Committee of the Board of Trustees.
The Benefit Review Committee is composed of Franklin M. Hundley,
Chairperson, Henry Dormitzer and Gerald L. Wilson. During 1994 the Committee
held one meeting. The Committee was organized to consider and recommend to
the Board of Trustees matters associated with the System's major funded
benefit plans. Functions of the Committee include: recommending the
composition of benefit plan boards and reviewing investment policy,
objectives, performance or proposed changes related to the plans.
The Strategic Planning Committee is composed of Gerald L. Wilson,
Chairperson and Sheldon A. Buckler. The Committee held seven meetings during
1994. The functions of this Committee are: attendance at strategic planning
sessions, support and insight to management and coordination and communication
of management planning activities with the Board of Trustees.
Each Trustee who was not an employee of the System is compensated for
his or her services as Trustee at the rate of $10,000 per annum, plus $850 for
each Trustee and Committee meeting attended. The Chairpersons of the Audit,
Executive Compensation, Benefit Review and Strategic Planning Committees each
receive an additional $1,000 during the year. In addition, the Chairman of
the Board receives a retainer of $10,000 per year for his services as Chairman
of the Board and of the Nominating Committee.
The Retirement Plan for Trustees of Commonwealth Energy System was
adopted to provide retirement benefits to non-management members of the Board
of Trustees in recognition of their services to the System. Members of the
Board of Trustees who have served as Trustees for at least five years are
eligible to participate in the Plan. Each eligible Trustee qualifies for an
annual retirement benefit payment equal to fifty percent of the annual
retainer fee in effect at retirement (excluding retainers for chairing
committees), plus 10% of the annual retainer fee for each year in addition to
five years served, up to 100% of such fee. The annual retirement benefit
payment is adjusted to reflect the first subsequent increase, if any, in the
annual retainer fee for service on the Board following the Trustee's
retirement. The annual retirement benefit payment becomes vested at the time
of eligibility and is payable to Trustees for a period equal to the greater of
ten years or the number of years of service as a Trustee.
2-AMENDMENT TO SECTION 6 OF THE
DECLARATION OF TRUST
There will be presented to shareholders by the Board of Trustees a
proposal to consent to an amendment to Section 6 of the System's Declaration
of Trust, which section contains the requirement that at least two-thirds of
the Trustees be at all times residents of Massachusetts and that each of the
remaining Trustees be a resident of one of the New England states. The
purpose of the amendment is to remove the restriction which requires that each
of the Trustees who are not Massachusetts residents be a resident of one of
the New England states. The text of the proposed amendment to section 6 is
set forth as follows:
Section 6 of the System's Declaration of Trust would be amended by
deleting from the second and third lines of the first paragraph of Section 6
the words "and each of the remaining Trustees shall at all times be a resident
of one of the New England states" so that the first sentence of section 6
reads as follows:
"At least two-thirds of the Trustees hereunder shall at all times be
residents of Massachusetts".
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The Trustees believe that this amendment would be in the best interests
of Shareholders, as it will enable the System to attract and retain qualified
candidates for the position of Trustee throughout the System's geographic
shareholder base, which includes all of the United States. At the same time,
retention of the Massachusetts residency requirement for two-thirds of the
Board reflects the fact that the System is predominantly an intra-state
Massachusetts gas and electric utility company. The proposed amendment will
also allow for the continued service on the Board by Ms. Francis, who has
taken a position in the Jacksonville, Florida office of BancBoston Mortgage
Corporation.
The Board of Trustees believes that the restrictions relative to
residency which were inserted into the Declaration of Trust over forty years
ago no longer reflect the System's shareholder demographics, and that such
restrictions both limit the selection and retention of Trustees and fail to
provide for the mobility of today's workforce. At the same time, the
provisions set forth in section 6 requiring two-thirds of the Trustees to be
residents of Massachusetts will continue to ensure that the Board has a
majority of members who are aware of the business climate within which the
System operates so as to be able to provide valuable insight and advice in the
management of the System's affairs. Upon the consent of the holders of the
majority of the outstanding Common Shares present at the meeting and entitled
to vote on the proposed amendment, the Trustees of the System will on May 4,
1995 vote to amend the Declaration of Trust and will file the amended
Declaration of Trust, as required by the terms of the Declaration of Trust and
the laws of the Commonwealth of Massachusetts.
ACCORDINGLY, A VOTE "FOR" THE PROPOSAL IS RECOMMENDED.
3-SHAREHOLDER PROPOSAL
The System has been advised that Mr. John Jennings Crapo, Porter Square
Branch, P.O. Box 151, Cambridge, Massachusetts, 02140-0002, holder of 225
Common Shares, proposes to submit the following proposal at the 1995 Annual
Meeting:
RESOLVED: It is the judgment of the Shareholders of Commonwealth Energy
System ("CES") that it is advisable to amend the CES Declaration of Trust,
dated December 31, 1926, as amended, and that the Board of Trustees present to
Shareholders at the next Annual Meeting of Shareholders an appropriate
amendment to said Declaration of Trust to accomplish the following:
Trustees elected at the annual meeting of Shareholders commencing with the
1997 Annual Meeting of Shareholders shall be elected to hold office until the
next annual meeting and until their successors are elected and qualified.
SUPPORTING STATEMENT: This is a reasonable proposal. It has been
considered Annually at CES Shareholder Annual Meetings starting with 1991.
It provides for the appropriate modification to the Declaration of Trust in
1996, the election of ALL Trustees ANNUALLY commencing in 1997, in a carefully
thought out manner. This proposal at the May 05, 1994 Annual Meeting of
Shareholders received as follows:
1,483,947 Common Shares or 14% were voted "For" the Proposal
5,917,813 Common Shares or 57% were voted "Against" the Proposal, and
3% "Abstained" from the Proposal.
System Vice President, General Counsel, and Secretary, Mr. Michael P.
Sullivan, Esquire, has advised Proponent that based on this vote and the
applicable regulations Proponent may bring forth the Proposal again.
A proposal to abolish the Classified Board of Directors of Tri-Continental
Corporation, presented by this proponent May 19, 1994 at Chemical Bank, New
York City, received the following votes as reported to Proponent:
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<PAGE 17>
48,067,020 shareholders representing 59.8% of the shares outstanding &
eligible to vote balloted in person or by proxy ballot.
20.0% of the shares outstanding and 33.5% of the votes cast voted "For"
Proponent's proposal.
35.9% of the shares outstanding and entitled to vote and 60.9% of the
shareholder votes cast voted "Against" proponent's proposal.
And, 3.9% of the shares outstanding and entitled to vote and 6.5% of votes
cast votes "Abstained."
Objections of TY were that a classified board: provides continuity,
stability, and experience in leadership and in direction strategy...; ensures
Board Members will be fully accountable to Stockholders because each year a
portion of the Board must stand before Stockholders for election...; improves
the ability of Board Members to more effectively represent the interests of
all Stockholders.
The reactions of CES Shareholders and OTHER Shareholders points out the
necessity for CES Shareholders to vote again on Board declassification.
BOARD OF TRUSTEES RECOMMENDATION:
The Board of Trustees recommends a vote AGAINST this proposal for the
following reasons:
This proposal has been submitted at each Annual Meeting since 1991. It
requests that the Board of Trustees submit a proposal to Shareholders at the
1996 Annual Meeting, calling for the repeal of the classified Board, so that
all Trustees would be elected on an annual basis. The classified board was
adopted at the 1987 Annual Meeting, when Shareholders voted to amend the
System's Declaration of Trust to create three classes of Trustees, with an
equal number of Trustees in each class, and to provide that the Trustees would
serve three-year staggered terms, such that three Trustees are eligible for
election each year. The classified board is intended to help to ensure
continued familiarity of Board members with the business, management and
policies of the System, since a majority of the Trustees at any given time
would have prior experience as Board members. These amendments are also
designed to encourage persons seeking to acquire control of the System to
initiate an acquisition through arms-length negotiations with the System's
management and Board of Trustees, by making it more difficult to change the
composition of the Board. Also, the amendments may allow the System's
management to obtain more time and information for evaluating a takeover
proposal, in order to fully protect the interests of the System and its
Shareholders.
The Board continues to believe that each Trustee is fully accountable to
Shareholders throughout each term of office, whether that term is three years
or one year. The Board further notes that the classified board system was
determined to be of sufficient merit such that the Massachusetts legislature
has codified that system, in its 1990 amendments to the laws pertaining to
Massachusetts business corporations (however, the System, as a Massachusetts
Trust, is not affected by this legislation).
Repeal of the classified Board (which, if the present proposal is
adopted, would actually be pursuant to the acceptance of a proposed Amendment
to the Declaration of Trust to be offered at the 1996 Annual Meeting of
Shareholders) requires the affirmative vote or written consent of three-
quarters of the shares entitled to vote, in accordance with the terms of the
System's Declaration of Trust.
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ACCORDINGLY, A VOTE "AGAINST" THE PROPOSAL IS RECOMMENDED.
4-OTHER BUSINESS
The Board of Trustees of the System knows of no matters other than those
set forth in the Notice of the Annual Meeting which are likely to be brought
before the meeting. However, if any other matters of which the Board of
Trustees is not aware are appropriately presented for action, it is the
intention of the persons named in the proxy to vote in accordance with their
judgment on such matters.
MISCELLANEOUS
The independent public accounting firm selected by the Trustees as
Auditor of the System is Arthur Andersen LLP. It is expected that
representatives of Arthur Andersen LLP will be present at the Annual Meeting
with the opportunity to make a statement if they desire to do so and to
respond to appropriate questions.
The cost of soliciting proxies will be borne by the System. A limited
number of regular employees may solicit proxies by telephone or in person
subsequent to the initial solicitation by mail. In addition, the System has
retained the firm of D. F. King to aid in such solicitation of proxies. The
System expects to pay such firm a fee of $5,500 plus expenses. The System
will reimburse banks, brokerage firms and other custodians, nominees and
fiduciaries for reasonable expenses incurred in sending proxy material to
security owners.
The proxy card for a participant in the System's Dividend Reinvestment
and Common Share Purchase Plan includes the number of shares which are
registered in the participant's name and the number of shares beneficially
owned by the participant that are held in the name of the nominee of the
System for the Plan. A participant's vote with respect to the shares
registered in the participant's name is also an instruction by the participant
to the nominee to vote the shares credited to the participant's account under
the Plan.
In order for Shareholder proposals for the 1996 Annual Meeting of
Shareholders to be eligible for inclusion in the System's Proxy Statement,
they must be received by the System at its principal office in Cambridge,
Massachusetts, prior to December 2, 1995.
It is important that proxies be returned promptly to avoid unnecessary
expense. Therefore, Shareholders are urged, regardless of the number of
shares owned, to SIGN, DATE and RETURN the enclosed proxy promptly.
Michael P. Sullivan
Vice President, Secretary
and General Counsel
Cambridge, Massachusetts 02142-9150
March 31, 1995
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Appendices
COMMONWEALTH ENERGY SYSTEM
Proxy-Annual Meeting of Shareholders-May 4, 1995
This Proxy is Solicited on Behalf of the Board of Trustees
The undersigned hereby appoints Henry Dormitzer, William G. Poist and
Sinclair Weeks, Jr., and each or any of them, with power of substitution, as
proxies to attend the Annual Meeting of Shareholders of the System to be held
on Thursday, May 4, 1995 and at any adjournment thereof and to vote the number
of shares which the shareholder(s) would be entitled to vote if personally
present:
To vote your shares for all Trustee nominees, mark the "FOR" box on
item 1. To withhold voting for all nominees, mark the "WITHHELD" box. If you
do not wish your shares voted "FOR" a particular nominee, mark the
"EXCEPTION" box and enter name(s) of the exception(s) in the space provided.
_____________________________________________________________________________
The Trustees recommend a vote "FOR" #1 and #2
1. Election of Trustees
Nominees: S. A. Buckler, B. L. Francis, M. C. Ruettgers
[ ] FOR [ ] WITHHELD [ ] EXCEPTIONS
EXCEPTIONS: ____________________
2. Amendment to Declaration of Trust
[ ] FOR [ ] AGAINST [ ] ABSTAIN
_____________________________________________________________________________
The Trustees recommend a vote "AGAINST" #3
3. Shareholder Proposal
[ ] FOR [ ] AGAINST [ ] ABSTAIN
_____________________________________________________________________________
4. Upon any other business that may properly come before the meeting.
_____________________________________________________________________________
This Proxy will be voted as directed above. If no other indication
is made, this proxy will be voted FOR proposals #1 and 2,
and AGAINST proposal #3.
Any proxy or proxies to vote such shares at said meeting
heretofore given by the shareholder(s) are hereby revoked.
PLEASE SIGN AND DATE ON REVERSE SIDE
____________________________________________________
____________________________________________________
Signature(s)
should agree with name(s) printed below
(When signing as attorney, executor or administrator, trustee or
guardian, etc., please indicate your full title as such.)
Acct. No. No. of
Shares
Dated_______________________, 1994
PLEASE SIGN, DATE AND RETURN IN ENCLOSED PREPAID ENVELOPE
