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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549-1004
FORM 10-Q
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998
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
(Former name, address and fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. YES X NO
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Outstanding at
Class of Common Stock November 1, 1998
Common Shares of Beneficial
Interest, $2 par value 21,533,820 shares
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PART I. - FINANCIAL INFORMATION
Item 1. Financial Statements
COMMONWEALTH ENERGY SYSTEM
CONSOLIDATED CONDENSED BALANCE SHEETS
SEPTEMBER 30, 1998 AND DECEMBER 31, 1997
ASSETS
(Dollars in thousands)
September 30, December 31,
1998 1997
(Unaudited)
PROPERTY, PLANT AND EQUIPMENT, at original cost
Electric $1,191,436 $1,173,797
Gas 383,468 373,541
Other 118,675 72,475
1,693,579 1,619,813
Less - Accumulated depreciation and
amortization 618,987 577,962
1,074,592 1,041,851
Add - Construction work in progress
and nuclear fuel in process 15,025 8,057
1,089,617 1,049,908
EQUITY IN CORPORATE JOINT VENTURES
Nuclear electric power companies (2.5%
to 4.5%) 10,217 10,368
Other investments 2,918 3,399
13,135 13,767
CURRENT ASSETS
Cash 3,650 4,299
Accounts receivable 100,523 128,946
Unbilled revenues 11,382 32,029
Inventories, at average cost 34,624 32,644
Prepaid taxes and other 22,614 15,068
172,793 212,986
DEFERRED CHARGES
Regulatory assets 198,605 178,864
Other 64,316 29,525
262,921 208,389
$1,538,466 $1,485,050
See accompanying notes.
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COMMONWEALTH ENERGY SYSTEM
CONSOLIDATED CONDENSED BALANCE SHEETS
SEPTEMBER 30, 1998 AND DECEMBER 31, 1997
CAPITALIZATION AND LIABILITIES
(Dollars in thousands)
September 30, December 31,
1998 1997
(Unaudited)
CAPITALIZATION
Common share investment -
Common shares, $2 par value -
Authorized - 50,000,000 shares
Outstanding - 21,533,820 in 1998 and
21,531,784 in 1997 $ 43,068 $ 43,063
Amounts paid in excess of par value 112,075 111,912
Retained earnings 291,585 275,795
446,728 430,770
Redeemable preferred shares, less current
sinking fund requirements 11,380 12,200
Long-term debt, including premiums, less current
sinking fund requirements and maturing debt 475,317 364,311
933,425 807,281
CAPITAL LEASE OBLIGATIONS 11,251 12,272
CURRENT LIABILITIES
Interim Financing -
Notes payable to banks 74,050 94,075
Maturing long-term debt 49,000 19,000
123,050 113,075
Other Current Liabilities -
Current sinking fund requirements 8,473 8,473
Accounts payable 74,076 107,157
Accrued taxes 31,103 24,205
Other 77,071 58,922
190,723 198,757
313,773 311,832
DEFERRED CREDITS
Accumulated deferred income taxes 109,018 176,354
Purchased power contracts 62,132 69,659
Unamortized investment tax credits
and other 108,867 107,652
280,017 353,665
COMMITMENTS AND CONTINGENCIES
$1,538,466 $1,485,050
See accompanying notes.
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COMMONWEALTH ENERGY SYSTEM
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
(Dollars in thousands except per share amounts - unaudited)
Three Months Ended Nine Months Ended
1998 1997 1998 1997
OPERATING REVENUES
Electric $178,196 $177,723 $473,393 $511,778
Gas 43,308 41,870 216,682 235,067
Steam and other 12,102 2,522 24,426 13,404
233,606 222,115 714,501 760,249
OPERATING EXPENSES
Fuel and purchased power 94,773 97,275 250,779 289,320
Cost of gas sold 25,145 25,390 116,048 128,127
Other operation and maintenance 73,142 59,809 197,876 199,996
Depreciation 14,456 12,078 45,012 40,398
Taxes -
Federal and state income 3,431 4,513 20,449 19,907
Local property and other 6,700 6,163 21,778 21,929
217,647 205,228 651,942 699,677
OPERATING INCOME 15,959 16,887 62,559 60,572
OTHER INCOME
Gain from sale of
real estate, net 10,789 - 10,789 -
Other 2,105 340 3,604 1,970
12,894 340 14,393 1,970
INCOME BEFORE INTEREST CHARGES 28,853 17,227 76,952 62,542
INTEREST CHARGES
Long-term debt 9,488 8,123 26,708 24,912
Other interest charges 3,426 2,077 7,881 5,695
Allowance for borrowed funds
used during construction (131) (120) (331) (278)
12,783 10,080 34,258 30,329
NET INCOME 16,070 7,147 42,694 32,213
Dividends on preferred shares 234 248 708 751
EARNINGS APPLICABLE
TO COMMON SHARES $ 15,836 $ 6,899 $ 41,986 $ 31,462
AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 21,533,820 21,531,784 21,533,368 21,530,378
BASIC AND DILUTED EARNINGS
PER COMMON SHARE $ .74 $ .32 $1.95 $1.46
DIVIDENDS DECLARED PER
COMMON SHARE $.405 $.395 $1.215 $1.185
See accompanying notes.
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COMMONWEALTH ENERGY SYSTEM
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
(Dollars in thousands - unaudited)
1998 1997
OPERATING ACTIVITIES
Net income $ 42,694 $ 32,213
Gain from sale of real estate, net (10,789) -
Effects of noncash items -
Depreciation and amortization 55,037 50,000
Deferred income taxes and investment
tax credits, net (1,833) (2,174)
Earnings from corporate joint ventures (1,300) (1,229)
Dividends from corporate joint ventures 1,698 545
Change in working capital, exclusive of cash
and interim financing 31,992 40,719
Transition costs deferral (31,288) -
All other operating items (16,951) (14,049)
Net cash provided by operating activities 69,260 106,025
INVESTING ACTIVITIES
Purchase of total energy plant
and related contracts (146,270) -
Proceeds from sale of real estate 22,175 -
Additions to property, plant and equipment
(inclusive of AFUDC) -
Electric (24,645) (23,055)
Gas (12,710) (11,632)
Other (1,713) (2,461)
Net cash used for investing activities (163,163) (37,148)
FINANCING ACTIVITIES
Payment of dividends (26,904) (26,302)
Payment of short-term borrowings (20,025) (57,425)
Long-term debt issues 152,500 35,000
Long-term debt issues refunded (10,000) (14,260)
Sinking funds payments (2,317) (2,316)
Net cash provided by (used for)
financing activities 93,254 (65,303)
Net increase (decrease) in cash (649) 3,574
Cash at beginning of period 4,299 1,495
Cash at end of period $ 3,650 $ 5,069
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest (net of capitalized amounts) $ 32,624 $ 29,082
Income taxes $ 27,286 $ 17,154
See accompanying notes.
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COMMONWEALTH ENERGY SYSTEM
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(1) General Information
Commonwealth Energy System, the parent company, is referred to in this
report as the "System" and, together with its subsidiaries, is collec-
tively 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. In
addition, the System has interests in other utility and several non-
regulated companies.
The system has 1,792 regular employees including 1,142 (64%)
represented by various collective bargaining units covered by separate
contracts with expiration dates ranging from March 2001 through April
2003.
Accounting Policies
(a) Principles of Accounting
The system's significant accounting policies are described in Note 2
of Notes to Consolidated Financial Statements included in its 1997 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.
Generally, certain 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 September 30,
1998 and 1997, reflect, in the opinion of the System, all adjustments
(consisting of only normal recurring accruals, except for a one-time
charge recorded in June 1997 as described in Management's Discussion and
Analysis of Financial Condition and Results of Operations) necessary to
summarize fairly the results for such periods. In addition, certain prior
period amounts are reclassified from time to time to conform with the
presentation used in the current period's financial statements.
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COMMONWEALTH ENERGY SYSTEM
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.
(b) Regulatory Assets and Liabilities
The system's operating utility companies are regulated as to rates,
accounting and other matters by various authorities, including the Federal
Energy Regulatory Commission (FERC) and the Massachusetts Department of
Telecommunications and Energy (DTE).
Based on the current regulatory framework, the system 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." Regulated subsidiaries of
the System have established various regulatory assets in cases where the
DTE and/or the 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 the event the criteria for applying SFAS No. 71 are no longer
met, the accounting impact would be an extraordinary, non-cash charge to
operations of an amount that could be material. Criteria that give rise
to the discontinuance of SFAS No. 71 include: 1) increasing competition
that restricts the system's ability to establish prices to recover
specific costs, and 2) a significant change in the current manner in which
rates are set by regulators from cost based regulation to another form of
regulation. These criteria are reviewed on a regular basis to ensure the
continuing application of SFAS No. 71 is appropriate. Based on the
current evaluation of the various factors and conditions that are expected
to impact future cost recovery, the system believes that its regulatory
assets, including those related to generation, are probable of future
recovery.
As a result of electric industry restructuring, the system's retail
electric companies discontinued application of accounting principles
applied to their investment in electric generation facilities effective
March 1, 1998. The system will not be required to write off any of its
generation-related assets, including regulatory assets. These assets will
be retained on the Consolidated Condensed Balance Sheets because the
legislation and the DTE's plan for a restructured electric industry
specifically provide for their recovery through a non-bypassable
transition charge.
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COMMONWEALTH ENERGY SYSTEM
The principal regulatory assets included in deferred charges were as
follows:
September 30, December 31,
1998 1997
(Dollars in thousands)
Transition costs $ 34,055 $ -
Maine Yankee unrecovered plant and
decommissioning costs 31,574 34,908
Fuel charge stabilization 27,283 29,655
Connecticut Yankee unrecovered plant and
decommissioning costs 26,007 28,566
Postretirement benefits costs 24,459 25,475
Power contract buy-out 16,116 17,609
Deferred income taxes 13,212 13,089
FERC Order 636 transition costs 6,310 7,336
Pilgrim litigation costs 5,553 5,929
Environmental costs 5,171 3,930
Yankee Atomic unrecovered plant and
decommissioning costs 4,552 6,184
Seabrook related costs 2,339 4,324
Other 1,974 1,859
$198,605 $178,864
The regulatory liabilities, reflected in deferred credits in the
accompanying Consolidated Condensed Balance Sheets and related primarily
to deferred income taxes, were $13.4 million and $14.1 million at
September 30, 1998 and December 31, 1997, respectively.
In November 1997, the Commonwealth of Massachusetts enacted a
comprehensive electric utility industry restructuring bill. On November
19, 1997, the System's electric subsidiaries filed a restructuring plan
with the DTE. The plan, approved by the DTE on February 27, 1998,
provides that the System's retail electric subsidiaries, beginning March
1, 1998, initiate a ten percent rate reduction for all customer classes
and allow customers to choose their energy supplier. As part of the plan,
the DTE authorized the recovery of certain strandable costs and provides
that certain future costs may be deferred to achieve or maintain the rate
reductions that the restructuring bill mandates. The legislation gives
the DTE the authority to determine the amount of strandable costs that
will be eligible for recovery. Costs that will qualify as strandable
costs and be eligible for recovery include, but are not limited to,
certain above market costs associated with generating facilities, costs
associated with long-term commitments to purchase power at above market
prices from independent power producers and regulatory assets and
associated liabilities related to the generation portion of the electric
business.
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COMMONWEALTH ENERGY SYSTEM
The cost of transitioning to competition will be mitigated, in part,
by the sale of the system's non-nuclear generating assets. The sale was
approved by the DTE on October 30, 1998 and by the FERC on November 12,
1998 (see the "Industry Restructuring - Electric" section under
Management's Discussion and Analysis of Financial Condition and Results of
Operations for further discussion of the sale). The net proceeds from the
sale of these assets will be used to mitigate transition costs.
The system's ability to recover its transition costs will depend on
several factors, including the aggregate amount of transition costs the
system will be allowed to recover and the market price of electricity.
Management believes that the system will recover its transition costs. A
change in any of the above listed factors could affect the recovery of
transition costs and may result in a loss to the system. For additional
information relating to industry restructuring, see the "Industry
Restructuring - Electric" section under Management's Discussion and
Analysis of Financial Condition and Results of Operations.
(3) Commitments and Contingencies
Capital Expenditures
Construction Program
The system is engaged in a continuous construction program presently
estimated at $248.6 million for the five-year period 1998 through 2002.
Of that amount, $60.7 million is estimated for 1998. The program is
subject to periodic review and revision.
Acquisition
On June 1, 1998, Advanced Energy Systems, Inc. (AES), a wholly-owned
subsidiary of the System, acquired for $146.3 million all of the issued
and outstanding shares of capital stock of Harvard University's Medical
Area Total Energy Plant, Inc. subsidiary (MATEP) and all rights under
customer contracts owned by Harvard University. MATEP's principal asset
is a cogeneration plant that provides heating, chilled water service and
electricity to several hospitals, medical research centers and teaching
institutions in the 200-acre Longwood Medical Area of Boston pursuant to
the contracts that were assigned to AES. The purchase price was
established through a sealed-bid auction process and the transaction was
initially financed with a short-term bank loan of $150 million that was
subsequently reduced with the proceeds from an equity contribution from
the System to AES of approximately $40 million. A permanent financing was
completed on August 26, 1998 that consisted of $112.5 million in 23-year
term notes at a rate of 6.92% with sinking fund payments scheduled to
begin in 2003. The notes are secured by long-term contracts between MATEP
and its customers.
MATEP had revenues of $58 million and net earnings of $7.3 million
for the fiscal year ended June 30, 1997. Results for MATEP are included
in the accompanying Consolidated Condensed Financial Statements from the
date of acquisition.
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COMMONWEALTH ENERGY SYSTEM
The acquisition was accounted for under the purchase method of
accounting. The purchase price was allocated based on the fair value of
assets acquired and resulted in the recognition of an intangible asset
amounting to approximately $31 million that is being amortized on a
straight-line basis over fifteen years.
Based on unaudited data, the following pro forma summary presents the
consolidated results of operations for the three and nine months ended
September 30, 1998 and 1997 as if the acquisition had occurred at the
beginning of the years presented:
Three Months Ended Nine Months Ended
September 30, September 30,
1998 1997 1998 1997
(Dollars in thousands except per share amounts)
Revenues $233,606 $239,386 $736,591 $806,227
Net Income
Applicable to
Common Shares $ 15,836 $ 9,305 $ 40,253 $ 33,835
Basic and Diluted
Earnings per
Common Share $ .74 $ .43 $1.87 $1.57
The pro forma results do not purport to be indicative of the results
of operations that actually would have resulted had the acquisition been
made at the beginning of the years presented, or of results that may occur
in the future.
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COMMONWEALTH ENERGY SYSTEM
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. 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.
Real estate consisting primarily of a ten acre site in Cambridge, MA
was sold for $22.2 million and resulted in a net gain of $10.8 million.
Future plans for the site announced by the developer include a hotel,
research and development facilities, laboratories, office, retail and
entertainment space and housing. This project represents further economic
growth in our service territory.
For the current nine-month period, cash flows from operating
activities amounted to approximately $69.3 million and reflect net income
of $42.7 million (which includes the net gain of $10.8 million from the
aforementioned sale of real estate) and noncash items including
depreciation of $45.5 million and amortization of $9.5 million. The
change in working capital since December 31, 1997, exclusive of cash and
interim financing, amounted to $32 million and had a positive impact on
cash flows from operating activities, reflecting a lower level of accounts
receivable ($28.4 million) and unbilled revenues ($20.6 million) coupled
with a higher level of other current liabilities ($18.1 million) and
accrued taxes ($6.9 million). These factors were offset, in part, by a
decline in accounts payable ($33.1 million) and a higher level of
inventories ($2 million), prepaid taxes ($5.8 million) and other current
assets ($1.7 million).
Construction expenditures for the current nine-month period were
approximately $39.1 million, including an allowance for funds used during
construction (AFUDC) and nuclear fuel. Construction expenditures and the
preferred and common dividend requirements of the System ($26.9 million)
were funded entirely with internally-generated funds.
The system, through its Advanced Energy Systems, Inc. subsidiary
(AES), purchased a total energy plant (MATEP), that was formerly owned and
operated by Harvard University and is located in the Longwood Medical Area
of Boston, and related contracts for $146.3 million on June 1, 1998. This
acquisition was originally financed through a $150 million term loan
agreement. The System, pursuant to a permanent financing plan, has
provided a $40 million equity contribution to AES which was financed with
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COMMONWEALTH ENERGY SYSTEM
a 2-year term note. The permanent financing, completed in August 1998,
consists of $112.5 million in 23-year term notes at a rate of 6.92% with
sinking fund payments scheduled to begin in 2003. The notes are secured
by long-term contracts between MATEP and its customers. It is projected
that this new venture will increase system revenues by approximately $45
million in 1998 and, on average, by approximately $65 million in the years
1999 through 2002.
On May 27, 1998, the System announced that three of its subsidiary
companies (Commonwealth Electric Company, Cambridge Electric Light Company
and Canal Electric Company) selected affiliates of Southern Energy New
England, L.L.C., an affiliate of The Southern Company, to buy
substantially all of their non-nuclear electric generating assets for $462
million, an amount that is six times the book value of $79 million. The
sale was approved by the DTE on October 30, 1998 and by the FERC on
November 12, 1998. The net proceeds from the sale of these assets will be
used to mitigate transition costs.
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 Consolidated Condensed Statements of
Income. This discussion should be read in conjunction with the Notes to
Condensed Financial Statements appearing elsewhere in this report.
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COMMONWEALTH ENERGY SYSTEM
A summary of the period to period changes in the principal items
included in the Consolidated Condensed Statements of Income for the three
and nine months ended September 30, 1998 and 1997 and unit sales for these
periods are shown below:
Three Months Nine Months
Ended September 30, Ended September 30,
1998 and 1997 1998 and 1997
Increase (Decrease)
(Dollars in thousands)
Operating Revenues -
Electric $ 473 0.3 % $(38,385) (7.5)%
Gas 1,438 3.4 (18,385) (7.8)
Steam and other 9,580 379.9 11,022 82.2
11,491 5.2 (45,748) (6.0)
Operating Expenses -
Fuel and purchased power (2,502) (2.6) (38,541) (13.3)
Cost of gas sold (245) (1.0) (12,079) (9.4)
Other operation and maintenance 13,333 22.3 (2,120) (1.1)
Depreciation 2,378 19.7 4,614 11.4
Taxes -
Federal and state income (1,082) (24.0) 542 2.7
Local property and other 537 8.7 (151) (0.7)
12,419 6.1 (47,735) (6.8)
Operating Income (928) (5.5) 1,987 3.3
Other Income 12,554 3,692.4 12,423 630.6
Income Before Interest Charges 11,626 67.5 14,410 23.0
Interest Charges 2,703 26.8 3,929 13.0
Net Income 8,923 124.8 10,481 32.5
Dividends on preferred shares (14) (5.6) (43) (5.7)
Earnings Applicable to Common Shares $ 8,937 129.5 $ 10,524 33.4
Unit Sales
Electric - Megawatthours (MWH)
Retail 64,504 4.9 37,261 1.0
Wholesale (82,983) (8.1) (91,105) (3.1)
(18,479) (0.8) (53,844) (0.8)
Gas - Billions of British Thermal
Units (BBTU)
Firm (425) (14.0) (4,921) (18.2)
Interruptible and other (61) (6.0) 419 12.1
(486) (12.0) (4,502) (14.7)
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COMMONWEALTH ENERGY SYSTEM
The following is a summary of electric unit sales and gas throughput
for the periods indicated:
Three Months Ended Nine Months Ended
September 30, September 30,
1998 1997 1998 1997
Electric Sales - MWH
Residential 517,615 482,030 1,369,746 1,376,795
Commercial 733,428 700,817 1,934,289 1,891,519
Industrial 113,564 117,416 329,091 327,433
Other 5,558 5,398 17,201 17,319
Total retail sales 1,370,165 1,305,661 3,650,327 3,613,066
Wholesale sales 941,029 1,024,012 2,803,404 2,894,509
Total 2,311,194 2,329,673 6,453,731 6,507,575
Gas Sales - BBTU
Residential 1,480 1,466 13,243 15,123
Commercial 818 1,012 6,333 7,776
Industrial 196 393 1,363 2,663
Other 108 156 1,228 1,526
Total firm sales 2,602 3,027 22,167 27,088
Interruptible
and other 959 1,020 3,876 3,457
Total sales 3,561 4,047 26,043 30,545
Transportation 1,075 498 6,474 4,627
Total throughput 4,636 4,545 32,517 35,172
Electric Revenues, Fuel and Purchased Power Costs
Operating revenues from regulated operations for the current quarter
and nine-month period were $8.8 million and $54.5 million lower,
respectively, than the corresponding periods in 1997 due to the 10 percent
rate reduction (further discussed below), decreases in electricity
purchased for resale, fuel and transmission charges ($3.9 million and $38
million, respectively), and a lower level of revenues associated with
demand-side management programs. The decline in these costs reflects a
cost deferral of $2 million for the quarter and $31.3 million for the nine-
month period in conjunction with the Company's restructuring plan as
approved by the DTE. As a result of industry restructuring, the Company
has unbundled its rates, provided customers with a 10 percent rate
reduction as of March 1, 1998 and has afforded customers the opportunity to
purchase generation supply in the competitive market consistent with the
electric industry restructuring legislation further discussed below.
Delivery rates are composed of a customer charge (to collect metering and
billing costs), a distribution charge, a transition charge (to collect
stranded costs), a transmission charge, an energy conservation charge (to
collect costs for demand-side management programs) and a renewable energy
charge. Electricity supply services provided by the Company include
optional standard offer service and default service. Amounts collected
through these various charges will be reconciled to actual expenditures on
an on-going basis. Operating revenues from two non-regulated subsidiaries
increased by $9.3 million and $16.1 million for the current quarter and
nine-month period.
Total unit sales decreased in both the current quarter and nine-
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COMMONWEALTH ENERGY SYSTEM
month period despite increases in retail sales as wholesale sales decreased
by 8.1% and 3.1%, respectively.
Gas Revenues and Cost of Gas Sold
Operating revenues from regulated operations decreased by $1.5
million and $29.7 million during the current quarter and nine-month period,
respectively, due primarily to the considerable declines in firm unit
sales. Operating revenues from an unregulated subsidiary increased by $2.9
million and $11.3 million for the current quarter and nine-month period.
Also affecting revenues in both periods was a lower average cost of gas.
The decrease in unit sales to firm customers reflects the impact of
the milder weather conditions experienced during 1998 on all customer
segments. The fluctuation in interruptible and other sales reflects the
competitive market that exists today in the natural gas industry.
Other Operating Expenses
For the current quarter, other operation and maintenance increased
by $13.3 million (22.3%) and reflects costs associated with new business
development ($5.8 million), higher costs relating to the outsourcing of the
information technology, telecommunications and network services function
($3 million) that includes costs associated with Year 2000 compliance,
higher conservation and load management (C&LM) costs ($2.6 million), an
increase in costs associated with non-regulated real estate operations
($1.5 million) and an increase in transmission charges ($1 million). These
increases were partially offset by a decline in insurance and employee
benefits costs ($2.3 million) and labor savings resulting from a personnel
reduction program (PRP) initiated during the second quarter of 1997 ($1
million). For the current nine-month period, other operation and mainten-
ance decreased by $2.1 million (1.1%) reflecting the absence of a one-time
charge ($17.7 million) related to the aforementioned PRP program, labor
savings realized from the PRP ($5.4 million), a reduction in insurance and
employee benefits costs ($3.8 million, the absence of storm damage costs
related to an April 1997 blizzard ($2 million) and a decline in the pro-
vision for bad debts ($1.6 million). These decreases were offset, in part,
by costs associated with new business development ($11.5 million), higher
costs ($9.1 million) associated with information technology and related
services as detailed above, increased C&LM costs ($2.6 million) and higher
costs associated with non-regulated real estate operations ($1.2 million).
Depreciation increased $2.4 million (19.7%) during the current
quarter and $4.6 million (11.4%) in the nine-month period and reflects the
treatment allowed for certain production plant pursuant to the electric
industry restructuring legislation as well as a higher level of depreciable
plant including the newly acquired MATEP facility. Federal and state
income taxes decreased $1.1 million (24%) during the current quarter and
increased $542,000 (2.7%) for the nine-month period reflecting the level of
pretax income related to continuing operations. The tax impact from the
sale of real estate ($6.3 million) was reflected as an offset to the gain
from the sale in Other Income on the Consolidated Condensed Statements of
Income. The increase of $537,000 (8.7%) in local property and other taxes
for the current quarter was due primarily to real estate taxes associated
<PAGE>
<PAGE 16>
COMMONWEALTH ENERGY SYSTEM
with MATEP and higher real estate tax rates and assessments offset, in
part, by a decline in payroll taxes attributable to savings realized from
the aforementioned PRP.
Other Income and Interest Charges
During the current quarter and nine-month period, other income
increased by $12.6 million and $12.4 million due to the gain from the
aforementioned sale of real estate ($10.8 million net of taxes).
The increase in total interest charges for the current three and
nine-month periods mainly reflects higher levels of short-term borrowings,
the issuance of two new series of long-term debt in September 1997 and the
issuance of 23-year term notes in August 1998 partially offset by maturing
long-term debt and scheduled sinking fund payments.
Industry Restructuring - Electric
On November 25, 1997, the Governor of Massachusetts signed into law
the Electric Industry Restructuring Act (the Act). This legislation
provided, among other things, that customers of retail electric utility
companies who take standard offer service receive a 10 percent rate
reduction and be allowed to choose their energy supplier, effective March
1, 1998. The Act also provides that utilities be allowed full recovery of
transition costs subject to review and an audit process. The rate
reduction mandated by the legislation increases to 15 percent effective
September 1, 1999 for customers who continue to take standard offer
service. A statewide ballot referendum that sought to repeal the
legislation was defeated by a wide margin on November 3 of this year.
The system filed a comprehensive electric restructuring plan with
the DTE in November 1997, that was substantially approved by the DTE in
February 1998. The divestiture of the system's non-nuclear generation
assets and the entitlements associated with its purchased power contracts
is an integral part of the system's restructuring plan and is consistent
with the Act. While the system is encouraged with the treatment afforded
net non-mitigable transition costs (which, for the system, are primarily
the result of above-market purchased power contracts with non-utility
generators) by the legislation and the DTE, the mandated rate reduction has
had a significant impact on cash flows of the system. However, the
successful results of the generation auction, as discussed below, could
significantly reduce the impact that the rate reductions will have on
future cash flows.
In March 1997, the system had submitted a report to the DTE that
detailed the proposed auction process for selling its electric generation
assets and the entitlements associated with purchased power contracts. The
auction process provided a market-based approach to maximizing stranded
cost mitigation and minimizing the transition costs that retail customers
will have to pay for stranded cost recovery. A request for bids from
interested parties was issued in August 1997 and an Offering Memorandum
followed in October 1997. Potential bidders examined all pertinent
information related to the generating facilities and purchased power
<PAGE>
<PAGE 17>
COMMONWEALTH ENERGY SYSTEM
contracts in order to prepare and submit their first round of bids in mid-
December. Final binding bids were submitted in May 1998.
On May 27, 1998, the System announced that three of its subsidiary
companies (Cambridge Electric Light Company, Canal Electric Company and
Commonwealth Electric Company) selected affiliates of Southern Energy New
England, L.L.C. (Southern Energy), an affiliate of The Southern Company of
Atlanta, Georgia, to buy substantially all of their non-nuclear electric
generating assets for approximately $462 million (subject to certain
adjustments at closing). These facilities represent 984 megawatts (mw) of
electric capacity and have an approximate book value of $79 million.
The plants being sold include: Canal Unit 1 (566 mw) and a one-half
interest in Canal Unit 2 (282.5 mw) located in Sandwich, MA and owned by
Canal Electric; the Kendall Station facility (67 mw) and the adjacent
Kendall Jets (46 mw), located in Cambridge, MA and owned by Cambridge
Electric; five diesel generators (13.8 mw) in Oak Bluffs and West Tisbury
on the island of Martha's Vineyard that are owned by Commonwealth Electric,
and a 1.4 percent joint-ownership interest (8.9 mw) in Wyman Unit No. 4
located in Yarmouth, ME, also owned by Commonwealth Electric.
The system continues to evaluate bids related to the purchased power
contracts. The system is also evaluating the disposition of the Blackstone
Station generating unit (15.3 mw) owned by Cambridge Electric and located
in Cambridge, MA which is subject to a right of first offer held by Harvard
University on any divestiture of the facility.
On July 31, 1998, a formal divestiture filing was submitted to the
FERC and the DTE that requested approval of the sale of the system's
generating assets to Southern Energy and further proposes (subject to
completion of the sale) that the current 10 percent rate reduction
increase, effective January 1, 1999, to 12.1 percent for Commonwealth
Electric and to 15.2 percent for Cambridge Electric. In addition, the
companies propose to increase the retail price of standard offer service,
starting January 1, 1999, from the present rate of 2.8 cents per
kilowatthour (kwh) to 3.5 cents. At the same time that the price for
standard offer service is increased, the transition charge for Commonwealth
Electric's customers will decline from 4.08 cents per kwh to 3.13 cents and
for Cambridge Electric's customers from 2.73 cents per kwh to 1.56 cents.
These proposed changes, which are intended to further reduce the cost of
electricity to customers, to make the market increasingly more attractive
for independent power suppliers to sell electricity directly to consumers,
and to reduce the system's cost deferrals associated with the pricing of
standard offer service, are based on a specific allocation methodology for
the net proceeds from the sale of the Canal units.
On October 30, 1998, the DTE approved the system's sale of its
generating assets to Southern Energy. The DTE, however, deferred ruling on
the allocation of proceeds from the sale of Canal Units 1 and 2 between
Cambridge Electric and Commonwealth Electric and on the rate of return to
be paid to customers on the net proceeds from the sale over an eleven-year
period. These issues are not expected to impact the asset sale that is
scheduled to close in the fourth quarter. The FERC approved the sale on
November 12, 1998.
<PAGE>
<PAGE 18>
COMMONWEALTH ENERGY SYSTEM
Industry Restructuring - Gas
On July 18, 1997, the DTE directed the ten Massachusetts gas
utilities, including Commonwealth Gas, to initiate a collaborative process
that will establish guiding principles and specific procedures for
unbundling rates and services for all customers.
The DTE listed six principles that it considers important to the
success of a competitive natural gas market that will provide safe and
reliable service at the lowest possible cost to customers. The natural gas
market would: (1) provide the broadest possible choice; (2) provide all
customers with an opportunity to share in the benefits of increased
competition; (3) ensure full and fair competition in the gas supply market;
(4) functionally separate supply from local distribution services; (5)
support and further the goals of environmental regulation; and lastly (6)
rely on incentive regulation where a fully competitive market cannot or
presently does not exist.
In addition, the DTE outlined several specific issues that it
expects the collaborative to address: (1) services that can be offered on a
competitive basis; (2) terms and conditions of service; (3) consumer
protections and social programs; (4) mitigation of gas related and non-gas
related transition costs; (5) third-party supplier qualifications; and (6)
curtailment principles. The DTE also suggested that the collaborative
reconsider the pricing and provision of interruptible transportation
services.
On August 18, 1997, the DTE noted that the development of unbundling
principles and procedures constitutes only a part of the effort necessary
to develop full customer choice for gas service. The DTE recognized that
each local distribution company will be filing a comprehensive unbundling
proposal at some later date. In the interim, the DTE directed those
companies that do not currently have unbundled rates, including Common-
wealth Gas, to have such rates in effect no later than November 1, 1998.
Commonwealth Gas and eight other gas utilities initiated the
Massachusetts Gas Unbundling Collaborative (the Collaborative) on September
15, 1997, to explore and develop generic principles to achieve the goals
set forth by the DTE. Collaborative participants represented a broad array
of stakeholder interests including the utilities, natural gas marketers,
interstate pipelines, producers, energy consultants, labor unions, consumer
advocates and representatives for the DTE, the Massachusetts Attorney
General's Office, and the Massachusetts Division of Energy Resources.
On November 15, 1997, the Collaborative filed a status report with
the DTE that outlined its progress in moving the gas industry to a more
competitive structure that provides all customers with meaningful access to
competitive markets consistent with public-policy objectives. The status
report summarized the substantive issues that had been the subject of
Collaborative discussion, including: (1) the disposition of interstate
pipeline capacity; (2) the unbundling of rates; (3) customer enrollment,
billing, termination, and information exchange procedures; and, (4)
consumer protections, low-income discounts, and competitive supplier
<PAGE>
<PAGE 19>
COMMONWEALTH ENERGY SYSTEM
registration. The status report also established a schedule to implement a
final unbundling plan by November 1, 1998.
In accordance with that schedule, the Collaborative submitted to the
DTE a Rate Unbundling Status Report on January 16, 1998. The report
detailed an overall process for developing unbundled rates consistent with
the DTE's rate structure goals of efficiency, fairness, simplicity,
continuity and earnings stability. In response to the Collaborative's
proposal, the DTE ordered Commonwealth Gas to submit, by April 15, 1998, a
consensus-based settlement, or partial settlement, of unbundled rate
tariffs designed according to the general concepts set forth in the report.
Subsequently, the DTE granted Commonwealth Gas an extension to reach a
settlement with the Collaborative's participants.
On March 18, 1998, the Collaborative filed a second status report
that summarized the progress made by the Collaborative since it had last
updated the DTE on its activities. The Collaborative reported that it had
made substantial progress in the areas of rate unbundling and terms and
conditions for unbundled services. The report also described at least two
policy issues, capacity disposition and cost responsibility, on which the
Collaborative's participants require specific regulatory guidance before
completing a comprehensive framework for the transition to a more
competitive market structure.
In response to the March report, the DTE issued a Notice of Inquiry
to address the Collaborative's unresolved issues. On May 1, 1998, Common-
wealth Gas filed initial written comments in the proceeding arguing in
favor of a mandatory capacity assignment proposal. On June 8, 1998, the
DTE, as part of the aforementioned Notice of Inquiry, received final
comments regarding the feasibility of implementing comprehensive unbundling
for all local distribution companies by November 1, 1998. On June 29,
1998, Commonwealth Gas and three other Massachusetts local distribution
companies submitted unbundled rate settlements to the DTE for
consideration.
The DTE issued a procedural order regarding the Notice of Inquiry
on July 2, 1998 which stated that the introduction of comprehensive un-
bundling for all classes of customers for all local distribution companies
is not feasible by November 1, 1998. The DTE stated that unbundled rates
for the four local distribution companies that filed settlements on June
29, 1998 (including Commonwealth Gas) shall be in place by November 1, 1998
and that comprehensive unbundling shall be implemented no later than April
1, 1999. Also, as part of the July 2, 1998 procedural order, the DTE
ordered that a set of proposed Model Terms and Conditions be submitted by
the Collaborative no later than July 15, 1998. These Model Terms and
Conditions were submitted on July 10, 1998 but a decision has not yet been
issued by the DTE.
<PAGE>
<PAGE 20>
COMMONWEALTH ENERGY SYSTEM
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. The DTE has approved recovery of costs associated with MGP sites.
Commonwealth Gas is also involved in certain other known or potentially
contaminated sites where the associated costs may not be recoverable in
rates. For further information on other related environmental matters,
refer to the System's 1997 Annual Report on Form 10-K.
New Accounting Standards
In June 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 133 (SFAS No. 133),
"Accounting for Derivative Instruments and Hedging Activities." SFAS No.
133 establishes accounting and reporting standards requiring that every
derivative instrument (including certain derivative instruments embedded in
other contracts possibly including fixed-price fuel supply and power
contracts) be recorded on the balance sheet as either an asset or liability
measured at its fair value. SFAS No. 133 requires that changes in the
derivative's fair value be recognized currently in earnings unless specific
hedge accounting criteria are met. Special accounting for qualifying
hedges allows a derivative's gains and losses to offset related results on
the hedged item in the income statement, and requires that a company must
formally document, designate and assess the effectiveness of transactions
that receive hedge accounting.
SFAS No. 133 is effective for fiscal years beginning after June 15,
1999 and may be implemented as of the beginning of any fiscal quarter after
issuance but cannot be applied retroactively. SFAS No. 133 must be applied
to derivative instruments and certain derivative instruments embedded in
hybrid contracts that were issued, acquired or substantively modified after
December 31, 1997 and, at the company's election, before January 1, 1998.
The system has not yet quantified the impacts of adopting SFAS No.
133 on its financial statements and has not determined the timing of its
method of adopting SFAS No. 133.
In April 1998, the American Institute of Certified Public
Accountants issued Statement of Position 98-5 "Reporting on the Costs of
Start-Up Activities" (SOP 98-5). SOP 98-5 provides guidance on the
financial reporting of start-up and organization costs and requires that
these costs be expensed as incurred. The impact of SOP 98-5 is not
expected to have a material impact on the system's results of operations or
financial condition.
<PAGE>
<PAGE 21>
COMMONWEALTH ENERGY SYSTEM
Year 2000
The Year 2000 issue is the result of computer programs being written
using two digits rather than four to define the applicable year. Any
computer program that has date sensitive software may recognize a date
using "00" as the year 1900 rather than the year 2000. This could result
in a temporary inability to process transactions or engage in normal
business activities. The system has been involved in Year 2000 compliancy
since 1996.
The system, on a coordinated basis and with the assistance of RCG
Information Technologies and other consultants, is addressing the Year 2000
issue. The system has inventoried and assessed all date sensitive informa-
tion and transaction processing computer systems and determined that a
substantial portion of its software needed to be modified or replaced.
Plans have been developed and are being implemented to correct and test all
affected systems, with priorities assigned based on the importance of the
activity. The system has identified the software and hardware
installations that will be necessary. All installations are expected to be
completed and tested by mid-1999. The system has also inventoried its non-
information technology systems that may be date sensitive, (facilities,
electric and gas operations, energy supply/production and distribution),
that use embedded technology such as micro-controllers and micro-
processors. The system anticipates that these systems will be updated or
replaced as necessary and tested by mid-1999.
Modifying and testing the system's information and transaction
processing systems from 1996 through 2000 is currently expected to cost $6
to $7 million, including approximately $900,000 incurred through 1997 and
$1.6 million spent during the first nine months of 1998. Approximately
$1.2 million is expected to be spent in the fourth quarter of this year and
the balance of $2.5 to $3 million in 1999 and 2000. Year 2000 costs have
been expensed as incurred and will continue to be funded from operations.
The system has initiated formal communications with its significant
suppliers to determine the extent to which the system may be vulnerable to
their failure to correct their own Year 2000 issues. The system has not
received enough responses to its survey to make an accurate assessment of
the Year 2000 readiness of its suppliers. Failure of the system's
significant suppliers to address Year 2000 issues could have a material
adverse effect on the system's operations, although it is not possible at
this time to quantify the amount of business that might be lost or the
costs that could be incurred by the system.
In addition, parts of the global infrastructure, including national
banking systems, electrical power grids, gas pipelines, transportation
facilities, communications and governmental activities, may not be fully
functional after 1999. Infrastructure failures could significantly reduce
the system's ability to acquire energy and its ability to serve its
customers as effectively as they are now being served. The system is
identifying elements of the infrastructure that are critical to its
operations and is obtaining information as to the expected Year 2000
readiness of these elements.
<PAGE>
<PAGE 22>
COMMONWEALTH ENERGY SYSTEM
The system has started its contingency planning for critical
operational areas that might be effected by the Year 2000 issue if
compliance by the system is delayed. System gas and electric operations
currently have emergency operating plans as well as information technology
disaster recovery plans as components of its standard operating procedures.
These plans will be enhanced to identify potential Year 2000 risks to
normal operations and the appropriate reaction to these potential failures
including contingency plans that may be required for any third parties that
fail to achieve Year 2000 compliance. All necessary contingency plans are
expected to be completed by early 1999, although in certain cases,
especially infrastructure failures, there may be no practical alternative
course of action available to the system.
The system is working with other energy industry entities, both
regionally and nationally with respect to Year 2000 readiness and is
cooperating in the development of local and wide-scale contingency
planning.
While the system believes its efforts to address the Year 2000 issue
will be successful in avoiding any material adverse effect on the system's
operations or financial condition, it recognizes that failing to resolve
Year 2000 issues on a timely basis would, in a "most reasonably likely
worst case scenario," significantly limit its ability to acquire and
distribute energy and process its daily business transactions for a period
of time, especially if such failure is coupled with third party or
infrastructure failures. Similarly, the system could be significantly
effected by the failure of one or more significant suppliers, customers or
components of the infrastructure to conduct their respective operations
after 1999. Adverse affects on the system could include, among other
things, business disruption, increased costs, loss of business and other
similar risks.
The foregoing discussion regarding Year 2000 project timing,
effectiveness, implementation and costs includes forward-looking statements
that are based on management's current evaluation using available
information. Factors that might cause material changes include, but are
not limited to, the availability of key Year 2000 personnel, the readiness
of third parties, and the system's ability to respond to unforeseen Year
2000 complications.
Forward-Looking Statements
This discussion contains statements which, to the extent it is not a
recitation of historical fact, constitute "forward-looking statements" and
is 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 System's business and financial results could cause
actual results to differ materially from those reflected in the forward-
looking statements or projected amounts. Those factors include
developments in the legislative, regulatory and competitive environment,
certain environmental matters, demands for capital and new business
development expenditures and the availability of cash from various sources.
<PAGE>
<PAGE 23>
COMMONWEALTH ENERGY SYSTEM
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
The System is subject to legal claims and matters arising from its
course of business including when Cambridge Electric was an intervenor
in an appeal at the Massachusetts Supreme Judicial Court (SJC) filed
by the Massachusetts Institute of Technology (MIT) involving a DTE
decision approving a customer transition charge (CTC) for the recovery
of stranded investment costs. By its terms, the CTC was terminated on
March 1, 1998, coincident with the retail access date established by
the Massachusetts Legislature in the Electric Industry Restructuring
Act. On September 18, 1997, the SJC remanded the CTC matter to the
DTE for further consideration. The SJC stated that, although recovery
of prudent and verifiable stranded costs by utility companies is in
the public interest and consistent with the Public Utility Regulatory
Policies Act, the insufficiencies of the DTE's subsidiary findings
precluded the SJC from undertaking a meaningful review of the DTE's
calculations that formed the basis of the CTC. The DTE is in the
process of determining whether to hear additional evidence in the
remand or to rely on the record and pleadings already filed. On
January 16, 1998 Cambridge Electric submitted to the DTE a customer
exit charge rate tariff and sought a finding that the tariff would
apply to MIT. On July 23, 1998 the DTE issued a ruling which rejected
the form of customer exit charge rate tariff, but opened a new
investigation into whether MIT should be required to pay an exit
charge, and, if so, what the amount of the exit charge should be.
Also, the DTE's investigation includes whether this case should be
joined with the remand proceeding currently before the DTE. This
issue is discussed more fully in the System's 1997 Annual Report on
Form 10-K. At this time, management is unable to predict the ultimate
outcome of this proceeding.
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
None
Item 5. Other Information
None.
<PAGE>
<PAGE 24>
COMMONWEALTH ENERGY SYSTEM
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 3 - Declaration of Trust
Commonwealth Energy System (Registrant)
3.1.1 Filed herewith as Exhibit 1 is the Declaration of Trust of CES
dated December 31, 1926, as amended by vote of the shareholders
and trustees May 7, 1998.
Exhibit 27 - Financial Data Schedule
Filed herewith as Exhibit 2 is the Financial Data Schedule for
the nine months ended September 30, 1998.
(b) Reports on Form 8-K
None.
<PAGE>
<PAGE 25>
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 and
Accounting Officer
JAMES D. RAPPOLI
James D. Rappoli,
Financial Vice President
and Treasurer
Date: November 13, 1998
<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 nine months ended September
30, 1998 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-31-1998
<PERIOD-END> SEP-30-1998
<PERIOD-TYPE> 9-MOS
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 1,089,617
<OTHER-PROPERTY-AND-INVEST> 13,135
<TOTAL-CURRENT-ASSETS> 172,793
<TOTAL-DEFERRED-CHARGES> 262,921
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 1,538,466
<COMMON> 43,068
<CAPITAL-SURPLUS-PAID-IN> 112,075
<RETAINED-EARNINGS> 291,585
<TOTAL-COMMON-STOCKHOLDERS-EQ> 446,728
11,380
0
<LONG-TERM-DEBT-NET> 475,317
<SHORT-TERM-NOTES> 74,050
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 56,653
820
<CAPITAL-LEASE-OBLIGATIONS> 11,251
<LEASES-CURRENT> 1,375
<OTHER-ITEMS-CAPITAL-AND-LIAB> 460,892
<TOT-CAPITALIZATION-AND-LIAB> 1,538,466
<GROSS-OPERATING-REVENUE> 714,501
<INCOME-TAX-EXPENSE> 20,449
<OTHER-OPERATING-EXPENSES> 631,493
<TOTAL-OPERATING-EXPENSES> 651,942
<OPERATING-INCOME-LOSS> 62,559
<OTHER-INCOME-NET> 14,393
<INCOME-BEFORE-INTEREST-EXPEN> 76,952
<TOTAL-INTEREST-EXPENSE> 34,258
<NET-INCOME> 42,694
708
<EARNINGS-AVAILABLE-FOR-COMM> 41,986
<COMMON-STOCK-DIVIDENDS> 26,196
<TOTAL-INTEREST-ON-BONDS> 26,708
<CASH-FLOW-OPERATIONS> 69,257
<EPS-PRIMARY> 1.95
<EPS-DILUTED> 1.95
</TABLE>
<PAGE 1>
EXHIBIT 1
COM/ENERGY
Commonwealth
Energy System
_________________________________________
Amended
Declaration of Trust
Dated December 31, 1926, as Amended,
By Vote of the Shareholders and
Trustees May 7, 1998 and by Proper Filing.
___________________________________________
<PAGE>
<PAGE 2>
INDEX
PAGE
Introductory 1
General Provisions
Section 1. Definitions 1
Massachusetts laws to govern 2
Name and Place of Business
Section 2. Trustees designated "Commonwealth Energy System" 2
Principal place of business-Cambridge,
Massachusetts 2
The Trust Property
Section 3. Trust Property vested in Trustees for benefit
of Shareholders 3
Real estate considered as personal property 3
Immunity of Shareholders and Others
Section 4. No Shareholder, officer or agent to be liable
for acts of Trustees 3
No Trustee to be liable unless expressly
stipulated and then only as Trustee 3
Trust Property only subject to debts or claims 3
Reference to Declaration of Trust shall be made
in every written agreement and obligation 3
No Trustee, officer or agent may look to
Shareholders for indemnification 4
Powers of Trustees
Section 5. (a) to acquire securities, including trust
securities 4
(b) to acquire real and personal property
and operate plants 4
(c) to acquire and carry on other business 4
(d) to manage such property and business 4
(e) to borrow money and issue securities to
carry out Alternate Plan of
Recapitalization and to secure payment by
pledge or otherwise 5
(f) to mortgage or pledge Trust Property
with consent of majority of Shareholders 5
(g) to execute indentures and sell trust
securities 5
(h) to lend money with or without security 6
(i) to exercise all rights belonging to
holders of securities forming part of
Trust Property 6
(j) to dispose of Trust Property, but no
disposition of substantially all of
property nor termination of trust nor
merger or consolidation shall be made
without consent of 3/4 of shares
entitled to vote 7
(k) to hold trust securities in name of
nominees 7
(l) to delegate all powers of Trustees except
those specified 8
<PAGE>
<PAGE 3>
PAGE
(m) to collect sums due trust 8
(n) to invest and reinvest trust funds 8
(o) to deposit money and trust securities 9
(p) to pay taxes including taxes assessed to
holders of trust obligations or shares 9
(q) to determine surplus 9
(r) to let Trust Property 10
(s) to pay commissions to brokers 10
(t) to obtain or surrender permits, licenses,
etc 10
(u) to take out insurance 10
(v) to adopt and use common seal 11
(w) to effect a share split or reverse share
split 11
(x) to deal with Trust Property as absolute
owners 11
The Trustees
Section 6. Two-Thirds of Trustees to be residents of
Massachusetts 11
Number of Trustees, their election and
compensation 11
Section 7. Vesting of property on resignation of Trustee 13
Section 8. Trustees to determine what constitutes capital
or income 13
Section 9. Declaration of dividends by Trustees 13
Section 10. Trustees to determine fiscal year and form
of accounts 14
Proceedings of the Trustees
Section 11. Regular, special and annual meetings 14
Majority of Trustees constitutes quorum 14
Section 12. May transact business without a meeting 15
Section 13. Records to be kept of Trustees' and
Shareholders' meetings, votes,
resolutions and consents 15
Officers: Depositaries and Other Agents
Section 14. Trustees to elect president, treasurer and
secretary annually and other officers when
occasion requires 16
Action of officers and agents binds Trust
Property 16
Duties of treasurer and secretary 16
Section 15. Trustees may appoint and remove Depositary 17
General Provisions Concerning the Trustees and Others
Section 16. Limitation of liability of Trustees, officers
and agents 17
Indemnification of Trustees, officers and
agents 18
Limitation of liability for actions required
by public authorities 19
Section 17. Trustees may consult experts 19
Section 18. Proof of Trustees' action by certificate 19
Section 19. Protection of persons dealing with Trustees,
officers or agents 20
Section 20. Corporations, etc. not affected by notice that
their securities are held by trust 21
<PAGE>
<PAGE 4>
PAGE
Interested Trustees, Officers, Agents and Shareholders
Section 21. Trustees, officers and agents may deal with
and hold office in the trust or any company
in which trust is interested 21
Trustees, officers and agents to disclose
interest in advance of dealings with trust 21
No shareholder disqualified IPSO FACTO from
dealing with or holding office in trust or
any company in which trust is interested 22
Liability under Public Utility Holding
Company Act of 1935 not affected 23
Shares and Shareholders
Section 22. Common and Preferred Shares authorized 23
Common may be issued to provide funds for
specific purposes and in certain exchanges
without consent of Shareholders and
remainder with consent of majority 23
Preferences of Preferred Shares
(a) Designation and variances between series 24
(b) Preference as to dividends and
restrictions on Common dividends 25
(c) Redemption provisions 26
(d) Preference on liquidation 28
(e) Right to elect two Trustees in case of
default in payment of dividends 28
(f) Restrictions on change in terms of
Preferred Shares, creation of any new
class of Preferred Shares, and issue of
additional Preferred Shares 30
(g) Preferred Shares have no preemptive rights 33
(h) Consideration for issuance of Preferred
Shares 33
(i) Immunity of Shareholders, Trustees, etc 33
(j) Terms applicable to particular series 33
Authorization of additional Common Shares with
consent of majority of Common 33
Authorization of shares, in addition to
Preferred Shares, having preference over
Common with consent of 2/3 of Common 34
Preemptive right of Common Shareholders to
subscribe for additional Common 34
Section 23. Disposition of shares purchased by trust 35
Section 24. Register of Shareholders and right of
inspection 36
Section 25. Appointment of Transfer Agents and Registrars 36
Section 26. Share certificates authorized 36
Section 27. Replacement of certificates lost, mutilated
or destroyed 37
Section 28. Transfer of Shares by holders 37
Section 29. Issue of new certificates in case of death,
bankruptcy, etc. 38
Section 30. Shares deemed personal property 38
Section 31. Shares held jointly, effect of 38
Section 32. Limitation on responsibility of Trustees and
Shareholders for shares held in trust,
pledged, etc 38
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<PAGE 5>
PAGE
Meetings of the Shareholders
Section 33. Annual meetings 39
Section 34. Right of Shareholders to elect Trustees 39
Section 35. Special meetings 39
Section 36. Business at special meeting limited 40
Section 37. Notice of annual and special meeting 40
Section 38. Method of giving notice of meetings 40
Section 39. Vote by joint owners or persons under
disability 41
Section 40. Closing transfer books to determine persons
entitled to vote 41
Section 41. Shareholders entitled to one vote for each
share unless other-wise restricted 41
Duration, Termination and Amendments
Section 42. Trust to terminate on January 2, 2050, or
20 years from the death of last survivor
of designated persons whichever shall
first occur 42
Section 43. Trust not terminated by death of a Trustee
or Shareholder 42
Section 44. Trust may be amended with consent of
designated percentage of shares 43
Section 45. Disposition of Trust Property on termination 43
Section 46. Execution in counterparts 44
Witness clause and signatures 44
Certificate of Secretary-Assistant Secretary 45
<PAGE>
<PAGE 6>
COMMONWEALTH ENERGY SYSTEM
AMENDED DECLARATION OF TRUST
THIS DECLARATION OF TRUST made at Boston, Massachusetts, this 31st day of
December, 1926, by Daniel Starch of Cambridge, Massachusetts, Harding U.
Greene of Falmouth, Massachusetts, and W. A. Hill of Watertown, Massachusetts,
the original Trustees hereunder,
WITNESSETH THAT:
General Provisions.
Section 1.-Except where the context otherwise requires, the following
expressions wherever used in this declaration of trust shall have the
following meanings:
"Depositary" means the Depositary or one of the Depositaries
for the time being hereunder, whether original or successor, and
includes any national bank into which any state bank or trust
company which may be Depositary hereunder shall have been
converted and any state bank or trust company into which any
national bank which may be Depositary hereunder shall have been
converted and any corporation with or into which any corporation
which may be Depositary hereunder shall have been consolidated or
merged.
"Hereby," "herein" and other like expressions refer to the
declaration of trust as a whole, as from time to time amended, and
not to the particular Section in which such expressions are found.
"Shareholder" means the person, firm, association, trust or
corporation, one or more, at the time registered as the holder or
holders of any Shares in this trust.
"Share" means a share of beneficial interest in this trust
and includes any subscription or subscription certificate or
part-paid share in this trust issued or accepted, except to the
extent therein limited.
"This trust" means the trust or trusts created by this
declaration of trust as from time to time amended.
"Trustees" means the Trustees, if more than one, in their
collective capacity as Trustees hereunder, but not in their
personal capacity, or if only one, the Trustee in his capacity as
Trustee hereunder but not in his personal capacity, for the time
being, whether original, additional or successor.
"Trust Property" means all the property which for the
purposes of these presents shall be at any time acquired by or
vested in or owned by the Trustees, directly or indirectly, and
the income and proceeds thereof; but "Trust Property" shall not be
construed to include property owned by any corporation, trust or
association in which the Trustees have an interest.
Any expression in the conjunctive or the disjunctive shall
include both the conjunctive and the disjunctive and any
expression in the singular or the plural shall include both the
singular and the plural.
The headings of the different parts of this declaration of
trust are inserted for convenience of reference and are not to be
taken as any part of the declaration or to control or affect the
meaning, construction or effect of the same.
This declaration of trust is executed by the Trustees and
delivered in the Commonwealth of Massachusetts and with reference
to the laws thereof, and the rights of all parties and the
construction and effect of every provision hereof shall be subject
to and construed according to the laws of said Commonwealth.
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<PAGE 7>
Name and Place of Business.
Section 2.-The Trustees shall be designated, and, so far as may be
practicable, all things relating to this trust shall be done under the name
of, "Commonwealth Energy System," hereinafter referred to as "the System"
which shall be deemed to refer to the Trustees. The principal place of
business of this trust shall be in Cambridge, Massachusetts, or at such other
place in Massachusetts as the Trustees may from time to time designate.
The Trust Property.
Section 3.-The Trust Property shall be held in trust by the Trustees in
the manner and with and subject to the powers and provisions herein contained
concerning the same for the benefit of the Shareholders in accordance with
their respective rights, ratably according to the number and kind of Shares
held by each. The Trust Property shall except as otherwise provided in
Sections 5(k) and 5(m) be transferred to and vested in the Trustees.
Notwithstanding any other provisions hereof, all real estate at any time
forming part of the Trust Property shall be held upon trust for sale and
conversion into personal property at such time or times, in such manner and
upon such terms as the Trustees shall determine, but the Trustees shall have
power to postpone such conversion so long as they in their uncontrolled
discretion shall think fit, provided that they shall have no power to postpone
such conversion beyond the termination of this trust; but all such real estate
shall at all times during any postponement of the sale and conversion thereof
be considered as personal property. For the purpose of such sale and
conversion of real estate the Trustees shall have full power to sell or
exchange the same and to execute and deliver proper deeds and instruments of
conveyance thereof.
Immunity of Shareholders and Others.
Section 4.-No Shareholder, officer or agent of this trust shall be held
to any liability for the payment of any sum of money or for damages for the
non-performance of anything that shall have been agreed upon on behalf of this
trust by the Trustees or any officer or agent, or in tort or otherwise, and no
Trustee shall be held to any such liability unless expressly stipulated to
that effect and then only as Trustee hereunder and not individually; and every
person, firm, association, trust and corporation shall look only to the Trust
Property for such payment or damages or otherwise. In every written agreement
and obligation entered into by or on behalf of this trust reference shall be
made to this declaration of trust, and the substance of such parts of the
preceding sentence of this Section as are applicable may be set forth, or may
be stated in a written notice or document previously filed with the party or
parties to such agreement or obligation; and neither the Trustees nor any
officer or agent of this trust shall have any power or authority to enter into
any agreement or obligation on behalf of this trust except in accordance with
the provisions of this Section. No Trustee, officer or agent of this trust
shall be entitled to look to the Shareholders personally for indemnity against
any liability incurred by them in the execution of this trust or to call upon
the Shareholders for the payment of any sum of money or any assessment
whatever, except only in the case of Shares in this trust which are by their
express terms issued part-paid and assessable and then only as therein
provided.
Powers of the Trustees.
Section 5.-The Trustees shall have full power and discretion from time
to time:
(a) To purchase, subscribe for or otherwise acquire any of
the stocks, shares, bonds or other securities or obligations of
any corporation, wherever incorporated, or of any trust or
association, or of any nation, state, municipality or other
governmental agency, and to exercise all the rights and privileges
<PAGE>
<PAGE 8>
of an owner thereof and, without limiting the generality of the
foregoing, to acquire by exchange, purchase or otherwise, shares
and rights incident thereto in, and bonds and other securities and
obligations of this trust, provided such exchange, purchase or
other acquisition does not result in the impairment of the capital
of this trust.
(b) To acquire, by means of the Trust Property, hold,
develop, operate, lease and otherwise utilize lands, or any rights
therein, water-rights, water-powers, plants for the production of
electricity, gas or power in any form and systems for the
distribution of water, gas, electricity or other power, and to
construct, lease or otherwise acquire, maintain and operate any
such plants or systems and plants of any description operated in
whole or in part by electricity, gas, coal, oil, water-power or
other, and generally to produce or acquire and to sell, distribute
and use, for operation of plants or otherwise, electricity, gas or
other power;
(c) By means of the Trust Property, to acquire, hold,
utilize and carry on any other business and any property, rights,
franchises or privileges which the Trustees may think suitable,
convenient or profitable for or in connection with any of the
purposes of this trust;
(d) To conduct and manage under contract any plants,
systems, business or property of the kind above enumerated;
(e) To borrow money and issue bonds, debentures, notes or
other evidences of indebtedness to the extent necessary to comply
with the Alternate Plan of Recapitalization of the System approved
by the Securities and Exchange Commission on February 11, 1947 and
by the United States District Court for the District of
Massachusetts on March 10, 1947 (hereinafter referred to as the
"Plan") and to secure the payment thereof if desired by mortgage,
pledge or charge of or upon the whole or any part of the Trust
Property at the time owned or thereafter acquired;
(f) To borrow from time to time money for the purposes of
the trust and to issue bonds, debentures, notes or other evidences
of indebtedness therefor in addition to the amount required under
the provisions of subsection (e) above, and to secure the payment
thereof by mortgage or pledge of the whole or any part of the
Trust Property at the time owned or which may thereafter be
acquired, and which shall be a lien thereon superior to any
unsecured obligation or liability of the trust then or thereafter
created or incurred;
(g) To execute, acknowledge and deliver any indenture or
indentures necessary or desirable in the opinion of the Trustees
for the purpose of securing such bonds, debentures, notes or other
evidences of indebtedness (hereinafter in this subparagraph called
"obligations") and specifying the rights, obligations and
limitations of the holders thereof and of the Trustees of this
trust and of the trustee under said indenture and the terms,
covenants, provisions and conditions on which the obligations are
to be issued, secured and held; which indenture or indentures may
provide for the delivery of possession of the trust property, or
any part thereof, to the holders of such obligations or the
trustee under such indenture, upon such conditions as may be
specified therein; and to sell and dispose of such obligations at
such times, in such amounts, to such purchasers and at such prices
as the Trustees may from time to time determine; and such
obligations may be signed on behalf of the Trustees by the
president or a vice-president, under the common seal of the
Trustees attested by the secretary or an assistant secretary, any
of whose signatures on such obligations or in attestation of the
seal thereon may, if authorized by the Trustees, be made by
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<PAGE 9>
engraving, lithographing, or printing thereon a facsimile of such
signatures in lieu of actual signature, in which case such
facsimile signature so engraved, lithographed, or printed thereon
shall have the same force and effect as if such officer had
actually signed the same or attested the seal thereon, and which
obligations may have affixed thereto the common seal of the
Trustees (or, if authorized by the Trustees, an engraved,
lithographed or printed facsimile of such common seal) and may
carry interest coupons authenticated by the facsimile signature of
the treasurer;
(h) To advance or lend money, on such terms as the Trustees
shall think proper and with or without security, to, and otherwise
aid by endorsement, guaranty or otherwise, any corporation, trust
or association any of the stocks, shares, bonds, or other
securities or obligations of which shall have been acquired or
subscribed for by or on behalf of this trust or by or on behalf of
any corporation, trust or association in which this trust has a
financial interest, and to discharge and cancel without payment
any indebtedness thus arising or to convert the same into stocks,
shares, bonds, or other obligations of such corporation, trust or
association, or any other with or into which it may be
consolidated or merged, or to which its property may be
transferred or leased;
(i) To exercise any and all powers and rights belonging to
the holder of any stocks, shares, bonds, securities or obligations
forming part of the Trust Property, whether by voting or by
giving any consent, request or notice, or otherwise, either in
person or by proxy or attorney, and to give proxies or powers of
attorney therefor, with or without power of substitution, which
proxies and powers of attorney may be for meetings or action
generally or for any particular meeting, meetings or action, and
may include the exercise of any discretionary powers; and, without
limiting the generality of the foregoing, to vote in favor of
or to consent to the creation of any mortgage, lien or other
encumbrance upon all or part of the franchises and property, real
and personal, then owned or thereafter acquired, of any or all of
the corporations, trusts and associations, any of the stocks,
shares, bonds, securities or obligations of which may at the time
be subject to this trust, or to vote in favor of or to consent to
the merger or consolidation of any such corporation, trust or
association with any other corporation, trust or association, or
the sale, lease, surrender or abandonment of all or part of the
franchises and property, real and personal, of any such
corporation, trust or association;
(j) To sell by public auction or private contract or
otherwise use and deal in and with the whole or any part of the
Trust Property, and to buy in or rescind or vary any contract of
sale and to resell, without being responsible for loss, and to
convert, exchange or refund the whole or any part of the Trust
Property for or into any shares, bonds or other securities or
obligations, property or effects in which the Trustees might,
under the provisions hereof, invest any moneys forming part of the
Trust Property; and, without limiting the generality of the
foregoing, to sell the whole or any part of the Trust Property for
any shares, bonds, or other securities or obligations of the
purchaser, as a step in proceedings looking towards the
termination of this trust or the carrying out of any plans for the
reorganization or rearrangement of the business or properties
conducted or held hereunder; provided, however, that, except for
purposes of terminating this trust at the expiration of the term,
as set forth in Section 42, no such sale, lease or other
disposition of the whole or substantially all of the Trust
Property (otherwise than by mortgage or by pledge) nor any
termination of this trust or merger or consolidation (to the
<PAGE>
<PAGE 10>
extent permitted by law) of this trust with or into another entity
shall be made without the consent of the holders of at least
three-quarters of the Shares then outstanding and entitled to
vote, given either in writing or at a meeting of Shareholders
called for that purpose. Notwithstanding the foregoing, the
aforesaid three-quarters Shareholder consent requirements shall
not be applicable to such a sale, lease, disposition, termination,
merger or consolidation which has been approved by the affirmative
vote of not less than two-thirds of the Trustees then in office,
and in such case no such sale, lease, disposition, termination,
merger or consolidation (to the extent permitted by law) shall be
made without the consent of the holders of two-thirds of the
Shares then outstanding and entitled to vote, given either in
writing or at a meeting of Shareholders called for that purpose;
(k) To cause any stocks, shares, bonds or other securities
or obligations subject to this trust to be transferred into the
name of Commonwealth Energy System or transferred into the names
of or vested in the Trustees, or any of them, whether or not
jointly with the right of survivorship, or as tenants in common or
otherwise, or in any one of them, or to allow any such stocks,
shares, bonds, or other securities or obligations to remain in the
name of or to be transferred into the name of, any nominees,
pledges, persons, firm, association, trust or corporation
responsible to the Trustees; and to convey and transfer or cause
to be conveyed and transferred to any wholly owned subsidiary
corporation, trust or association all or any part of the Trust
Property, without consideration or for such consideration
including stocks, shares, bonds and other securities and
obligations of said subsidiary corporation, trust or association,
as shall be determined by the Trustees;
(l) To act through and to delegate any of the duties,
powers, authorities and discretions of the Trustees (except the
declaration of dividends, the establishment of surplus and the
filling of vacancies in the Trustees) and to permit any of such
duties, powers, authorities and discretions to be exercised by any
of the officers, agents or representatives of this trust or of the
Trustees, including, without limitation, the officers, agents and
representatives referred to in Section 14 and such others as the
Trustees shall think proper, but the authority of the officers,
agents or representatives of this trust shall always be subject to
the provisions of Section 4 hereof;
(m) To collect, sue for, receive and receipt for all sums of
money coming due to this trust, to consent to the extension of the
time for payment or to the renewal, of any bonds or other
securities or obligations subject to this trust, and to compound,
compromise, abandon or adjust, by arbitration or otherwise, any
actions, suits, proceedings, disputes, claims, demands and things
relating to the Trust Property, and to transfer to and deposit
with any corporation, committee or other persons any stocks,
shares, bonds or other securities or obligations forming part of
the Trust Property for the purposes of any arrangement for
enforcing or protecting the interest of this trust in such stocks,
shares, bonds or other securities or obligations, and to pay any
assessment levied in connection with such arrangement, and to give
time, with or without security, for the payment or delivery of any
debts or property and to execute and enter into releases,
agreements and other instruments and to pay or satisfy any debts
or claims upon any evidence that the Trustees shall think
sufficient;
(n) To invest and reinvest the capital or other funds of
this trust from time to time in real or personal property of any
kind or any interest therein;
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<PAGE 11>
(o) To deposit any moneys included in or derived from the
Trust Property in any bank or trust company or with any bankers,
or in the banking department of any bank or trust company that may
at the time be a Depositary hereunder, and to entrust to any
Depositary or any other bank or trust company or safe deposit
company for safe-keeping, any of the stock or share certificates,
bonds or other securities or obligations and any documents and
papers comprised in or relating to the Trust Property;
(p) To pay any and all taxes or liens of whatever nature or
kind imposed upon or against the Trustees individually or
collectively in connection with the Trust Property, or upon or
against the Trust Property or any part thereof, and, so far as
permitted by law, to assume and agree to pay, on behalf of any
holders of bonds or other obligations of this trust or of Shares
in this trust of any or all classes or series, or to reimburse any
such holders for, all or any part of the taxes assessed upon any
such bonds or other obligations or Shares or in respect of the
income therefrom or upon such holders by reason of their ownership
thereof, and to pay the interest upon any such bonds or other
obligations and the dividends upon any such Shares without
deduction for all or a specified part of any tax which the
Trustees may be required or permitted to pay thereon or to retain
therefrom under any present or future law of the United States or
of any state, municipality or other political subdivision; and,
whether or not all of the Shareholders are residents of the
Commonwealth of Massachusetts, to make with the said Commonwealth
or the Commissioner of Corporations and Taxation or other
representative thereof any agreement for the payment of taxes to
said Commonwealth, whether or not said taxes would otherwise be
payable or assessable by or against or in respect of the Trustees
or the Trust Property or the income therefrom, all as may be
required or permitted by any present or future law for the purpose
of making partially or wholly tax-exempt any or all of the Shares
in this trust or the holders thereof or all or any part of the
dividends or income therefrom; and for any of the foregoing
purposes to make such returns and do all such other acts and
things as may be necessary or desirable;
(q) To determine surplus in accordance with sound accounting
principles and to use such surplus in accordance with the powers
and purposes of the trust herein established, except that cash
dividends may not be declared other than out of earned surplus
accumulated subsequent to the effective date of the Plan;
(r) To let to tenants at will or lease for any term or terms
beyond the possible termination of this trust, or for any lesser
term, upon such terms and conditions and with such stipulations
and agreements as they may deem advisable any part or parts of the
Trust Property and to make allowances to and arrangements with
tenants and others to accept surrenders of leases and tenancies
and to make such agreements with owners of adjoining property,
including without limitation any municipal authority, or in regard
to easements of every sort and description, boundary lines, party
walls or other like subjects of agreements as they may deem
necessary or convenient for the purposes of this trust;
(s) To pay commissions to brokers or others in respect of
the purchase or sale of property or of any interest therein or for
services in procuring subscriptions for or underwriting Shares or
bonds or other obligations issued hereunder or in procuring
tenants or insurance or fidelity bonds or otherwise or to sell at
a discount Shares or bonds or other obligations issued hereunder;
(t) To apply for and obtain and renew or surrender any and
all permits, approvals, consents, orders, licenses and permissions
from and to fulfill all requirements of any and all public
utilities commissions or other public authorities, laws,
ordinances or regulations and to pay all fees or other costs and
expenses connected therewith or relating thereto;
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<PAGE 12>
(u) To take out insurance upon the life or lives of any
person or persons upon whose life or lives, in the opinion of the
Trustees, the duration of this trust depends in such sums and upon
such terms and for such time as the Trustees shall determine and
take out insurance upon any of the Trust Property for the income
or rents or rental value thereof against loss or damage by fire,
theft or other casualty or against loss of rent and to take out
insurance against liability for injury or damage to persons and
property or insurance against loss of occupation of any of the
Trust Property or premises in which this trust has an interest or
any other insurance which is customary or which seems to the
Trustees desirable, and to procure, if the Trustees so desire in
any case, fidelity bonds and other insurance covering any
Trustees, officers or employees of this trust, and to extend or
renew any of the foregoing, and to apply the proceeds of any such
insurance policies or bonds to make good the damage, loss or
liability insured against;
(v) To use a common seal and to adopt a form for said seal,
which form may bear or contain the words "Commonwealth Energy
System"; provided that, unless the law otherwise requires, the
same shall consist of a facsimile imprint thereof or be impressed
upon the instrument to be sealed or upon a wafer or other
substance affixed to the instrument to be sealed;
(w) To effect a share split or reverse split of the Common
Shares of the System and to change the par value of Common Shares
of the System in connection with any such share split or reverse
share split, provided that such share split, reverse share split
or change in the par value of the Common Shares of the System does
not result in impairment of the capital of this trust, as
represented by the aggregate of the par value of its outstanding
shares and any cash premiums paid on the sale of such shares; to
effect, without the consent or vote of the holders of any Common
Shares or Preferred Shares, any amendments to this Declaration of
Trust necessary to reflect such a share split, reverse share split
or change in par value; and to issue Common Shares to effect any
such share split or reverse share split, notwithstanding any other
provisions of this Declaration of trust, including, without
limitation, the provisions of Section 22 and Section 44.
(x) Generally in all matters to deal with the Trust Property
and to manage and conduct the business of this trust as fully as
if the Trustees were the absolute owners of the Trust Property,
and to exercise full power of determination and decision in all
matters of any kind relating to the Trust Property and the
business of this trust, and without limiting the generality of the
foregoing, to rent suitable offices for the transaction of the
business of this trust; and to execute all such agreements, deeds,
covenants and instruments and do all such things as the Trustees
may deem proper for any of the purposes of this trust, and whether
any of said purposes be of a class legal for trustees or for the
investment of trust funds or not, and to authorize the execution
of any such agreements, deeds, covenants or instruments in the
name of Commonwealth Energy System by any of the officers or
agents of this trust or by any other persons; provided, however,
that the provisions of Section 4 hereof shall be observed.
The Trustees.
Section 6.-At least two-thirds of the Trustees hereunder shall at all
times be residents of Massachusetts. The number of Trustees shall be nine (9).
Subject to the provisions of Section 22 hereof, the Trustees shall be elected
by plurality vote of Shareholders entitled to vote and the Board of Trustees
shall be divided into three classes of three Trustees each, with the term of
office of one class expiring each year. At the annual meeting of Shareholders
in 1987, three Trustees of the first class (Class A) shall be elected to hold
office for a term expiring at the 1988 annual meeting of Shareholders and
until their respective successors are chosen and qualified, three Trustees of
the second class (Class B) shall be elected to hold office for a term expiring
at the 1989 annual meeting of Shareholders and until their respective
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<PAGE 13>
successors are chosen and qualified, and three Trustees of the third class
(Class C) shall be elected to hold office for a term expiring at the 1990
annual meeting of Shareholders and until their respective successors are
chosen and qualified. Commencing with the annual meeting of Shareholders in
1988, each class of Trustees whose term shall then expire shall be elected to
hold office for a three year term and until the election and qualification of
their respective successors in office. A Trustee may but need not be a
Shareholder. Any vacancy or vacancies in the number of Trustees may be filled
by a majority of the remaining Trustees by written instrument filed at the
principal office of this trust, and any Trustee so chosen shall continue in
office until the next succeeding annual meeting of Shareholders at which the
class for which such Trustee has been chosen is subject to election; provided,
however, that any vacancy or vacancies in the number of Trustees elected by a
class of voters under the provisions of Section 22 shall be filled by the
remaining Trustee or Trustees elected by such class. Until any such vacancy is
filled, the remaining Trustees may exercise all the powers, authorities and
discretions of the Trustees hereunder by a majority of their number as
hereinafter provided.
A Trustee may resign by delivering his resignation in writing at the
principal office of this trust, addressed to the remaining Trustees or by
delivering such resignation at a meeting of the Trustees or to the secretary
of this trust but such resignation shall take effect only upon its acceptance
by the remaining Trustees or upon the appointment of a new Trustee in his
place or upon the expiration of thirty (30) days after the delivery of the
said resignation, whichever event shall first occur, and after such
resignation, until it takes effect, the retiring Trustee may but shall not be
obliged to continue to act as one of the Trustees hereunder. Each Trustee
shall receive, for his services as such Trustee, such annual compensation,
plus such fees for each Trustees' meeting attended and additional services
rendered, as are fixed from time to time by the Trustees in their discretion.
Notwithstanding any other provisions of this Declaration of Trust (and
notwithstanding the fact that a lesser proportion or separate class vote may
be specified by law or this Declaration of Trust generally), the affirmative
vote or written consent of the holders of three-quarters of the then
outstanding Shares entitled to vote shall be required to amend or repeal, or
adopt any provisions inconsistent with this Section 6 including, without
limitation, provisions affecting the number, classes, term or incumbency of
Trustees.
Section 7.-Upon the resignation of any Trustee and upon the appointment
of a new Trustee such instruments shall be executed, acknowledged and
delivered as the Trustees or the new Trustee shall deem to be necessary or
convenient for vesting the Trust Property in the Trustees for the time being
or providing evidence of such vesting independently of such resignation or
appointment. But without the execution of any conveyance, the Trust Property
shall always (not restricting the same to the above enumerated cases) vest in
the Trustee or Trustees for the time being acting hereunder.
Section 8.-The Trustees shall have power to determine whether any moneys
or things are for the purposes of these presents to be considered as capital
or income, and what constitutes the income of this trust for any year or other
period, and in what manner any expenses or outgoings are to be borne as
between capital and income. In making any such determination, the Trustees
shall be guided by sound accounting principles but every such determination
made in good faith, whether express or implied in the acts or proceedings of
the Trustees, shall be conclusive and binding upon all persons interested.
Section 9.-Subject to the provisions contained in the rights,
preferences and limitations relating to any preferred shares in or any bonds
or other obligations of this trust, the Trustees may from time to time in
their discretion declare cash dividends out of earned surplus of the trust
accumulated subsequent to the effective date of the Plan; provided that
dividends in securities or rights or property or in shares of the System may
be declared as long as the payment of such dividend does not result in the
impairment of the capital of this trust, as represented by the aggregate of
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the par value of its outstanding shares and any cash premium paid in on the
sale of such shares; but no Shareholder shall have any right to any dividends
except when and as the same are declared by the Trustees, and no Shareholder,
Trustee, officer or agent of this trust shall be liable therefor, and any
Shareholder entitled thereto shall look only to the Trust Property for the
payment of any such dividends. For the purpose of determining the Shareholders
who are entitled to receive payment of any dividend, the register and transfer
books of this trust may be closed at the end of such day as the Trustees shall
direct, but not more than forty-five (45) days before the payment date for
such dividend, which register and transfer books, unless the Trustees
otherwise direct, shall remain closed until the close of business on said
dividend payment date, or without closing of said register and transfer books
the Trustees may fix a time not more than forty-five (45) days before any
dividend payment date as the time as of which the Shareholders entitled to
receive payment of such dividend shall be determined, and if such time is so
fixed only those Shareholders of record at such time shall be entitled to
receive payment of such dividend.
Section 10.-The Trustees may determine the fiscal year of this trust,
and the form in which the accounts of this trust shall be kept, and may from
time to time change the fiscal year or form of accounts, provided, however,
that such accounts shall be kept in accordance with sound accounting
principles. Until the Trustees shall change the same the fiscal year shall end
on the thirty-first day of December in each year.
Proceedings of the Trustees.
Section 11.-The Trustees, if more than one, may hold meetings for the
transaction of the business of this trust and the exercise of any of their
powers, authorities and discretions hereunder, and may prescribe regulations
for the conduct of such meetings, the times and places of regular meetings,
which may be held without call or further notice thereof, and the manner of
calling and giving and waiving of notice of special meetings. An annual
meeting of the Trustees shall be held in Cambridge, Massachusetts, as soon as
practicable after the annual meeting of the Shareholders, or any special
meeting held in lieu thereof, at which meeting action shall be taken on the
question that may be presented. No notice need be given of any meeting of the
Trustees provided that all the Trustees are present in person or waive notice
thereof in writing signed either before or after said meeting. A majority of
the Trustees shall constitute a quorum for the transaction of business, but a
lesser number may adjourn any meeting from time to time and the meeting may be
held as adjourned without further notice. Except as otherwise provided herein,
questions arising at any meeting of the Trustees at which a quorum is present
shall be decided by the vote or resolution of a majority present and such
majority shall have full power to exercise all or any of the duties, powers,
authorities and discretions at the time vested in their entire number.
Section 12.-The Trustees may, without a meeting, transact any business
of the trust and exercise any of their duties, powers, authorities and
discretions hereunder by vote or resolution signed by each of the Trustees and
any such written vote or resolution shall be as valid for all purposes as
action taken at a meeting.
Section 13.-The Trustees shall cause to be kept by the secretary or an
assistant or temporary secretary, in books provided for the purpose, minutes
of all meetings of the Trustees, specifying the names of the Trustees present,
and a record of all written votes and resolutions adopted by the Trustees, and
minutes of all meetings of the Shareholders, and a record of all written
consents of the Shareholders. Such minutes and records, if signed or certified
by the secretary or any assistant or temporary secretary, or in case of
Trustees' action by a majority of the Trustees who were present in person at
the meeting or who signed the written vote or resolution, shall be conclusive
evidence of the matters therein stated. A certificate signed by the president
or a vice-president or the treasurer or the secretary or an assistant or
temporary secretary shall be conclusive evidence, in favor of every person,
firm, association, trust and corporation acting in good faith in reliance
thereon, as to the contents of any such vote or resolution or written consent
and as to all matters in such certificate contained relating to a written vote
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<PAGE 15>
or resolution or written consent or relating to the meeting, if any, at which
such vote or resolution is therein certified to have been passed, including
the regularity of the said meeting and the passage of any vote or resolution
thereat, and as to all other matters and things stated in such certificate,
and no person, firm, association, trust or corporation shall be obliged to
make any inquiry as to any of the said matters, or as to the election or
appointment of any person acting at any such meeting or signing such vote or
resolution, or as to the holding of any Shares by any person, firm,
association, trust or corporation, acting as a Shareholder at such meeting or
signing such written consent, or be affected by actual or implied notice of
any irregularity whatsoever therein.
Officers: Depositaries and Other Agents.
Section 14.-The Trustees shall at their annual meeting elect a
president, a treasurer and a secretary and may at that or any other meeting
elect any other officers which they may consider necessary or desirable and
may permit any officer to resign and may remove any officer with or without
cause and may fill any vacancy and may elect temporary officers to serve
during the absence or disability of regular officers or for a specified
purpose and may likewise from time to time appoint or employ or authorize the
appointment or employment of agents, employees, or representatives of this
trust, may fix the compensation, term of employment, duties and powers of all
officers, agents, employees or representatives of this trust or authorize the
same to be fixed, and may remove them or terminate their employment or
authorize the same to be done. Any action taken and any obligations entered
into by such officers or agents on behalf of this trust pursuant to authority
to them granted shall be binding upon the Trust Property. All of the said
officers shall, unless otherwise determined by the Trustees, continue in
office until the first annual meeting of the Trustees following the meeting at
which such officers were elected, and until their successors are elected.
Subject to the limitations contained in Section 4 and in this Section, the
several officers shall have such authority and perform such duties and receive
such compensation, if any, as may from time to time be fixed by the Trustees,
and unless the Trustees otherwise determine, but subject to the same
limitations, they shall have the authority and perform the duties usually
incident to their respective offices in the case of corporations. In addition
to all other duties, the treasurer, under the supervision of the Trustees,
shall keep or cause to be kept accurate books of account, which shall be the
property of this trust and shall constitute the books of account of the
Trustees, and the secretary shall attend and keep minutes of all meetings of
the Trustees and Shareholders, and shall keep records of all written consents
of the Shareholders presented to him for that purpose, which books of account,
minutes and records shall at all times be open to the inspection of any
Trustee and of any officer. The minutes of the meetings and records of the
written consents of the Shareholders shall be open during business hours to
the inspection of the Shareholders. In the absence of the secretary, an
assistant secretary or temporary secretary shall perform the duties of the
secretary. Any officer may but need not be a Shareholder, or Trustee, and any
two or more offices may be held by the same person, except that the offices of
president and treasurer may not be held by the same individual.
Section 15.-The Trustees may appoint as Depositary or Depositaries
hereunder such national banks, state banks or trust companies doing business
in Boston, Massachusetts, or elsewhere, as they shall from time to time
select. Until its appointment is terminated as hereinafter provided, State
Street Trust Company, Boston, Massachusetts, shall be the principal Depositary
hereunder. Each Depositary shall have the custody of at least one duplicate
original or certified copy of this declaration of trust and of each
certificate of amendment, alteration, addition or rescission all of which
shall be available for inspection by the Shareholders during business hours.
Any Depositary may serve as Trustee under any indenture of trust issued
pursuant to the provisions hereof, registrar, transfer agent or other agent of
this trust, and may be changed or removed from time to time by the Trustees.
Any Depositary so removed or resigning shall turn over on demand to its
successor Depositary, or if none be selected, to the Trustees, all documents
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<PAGE 16>
and records in its possession or custody relating to this trust, or shall at
the request of the Trustees record any such document in any place of public
record selected by the Trustees; and thereupon its duty as to such documents
and records and its liability therefor hereunder shall cease. Any funds of
this trust in the hands of any Depositary as such may be deposited by it in
its banking department for its account as Depositary hereunder, and any
securities of this trust in the hands of any Depositary may be deposited by it
in its safekeeping or safe-deposit department. Copies of all documents and
records in the custody of any such Depositary duly certified by it and
certificates as to who are the Trustees, signed by any officer of such
Depositary, shall be conclusive upon all questions as to title or affecting
the rights of third persons, and in general shall have the effect of their
originals. The Depositary shall for all purposes hereof be deemed an agent of
this trust.
General Provisions Concerning the Trustees and Others.
Section 16.-Notwithstanding any other provisions of this instrument, no
Trustee (except to the extent that directors of a Massachusetts business
corporation are liable) and no officer, agent or other representative
appointed pursuant to any provision hereof shall be liable for any act or
default on the part of any co-Trustee, or any other officer, agent, attorney,
employee or representative, or for having permitted any co-Trustee, officer,
agent, attorney, employee or representative to receive or retain any money or
property receivable by the Trustees hereunder, or for errors of judgment made
in good faith in exercising or failing to exercise any of the duties, powers,
authorities or discretions conferred upon or resting upon him, or for any loss
arising out of any investment, or for failure to sue for or to collect any
moneys or property belonging to this trust or for any act or omission to act,
performed or omitted by him in good faith in the execution of this trust; but
each Trustee and each such officer, agent or representative shall be entitled
out of the Trust Property to reimbursement for his reasonable expenses and
outlays and to be put in funds and exonerated and indemnified to his
reasonable satisfaction from time to time against any and all loss, costs,
expense and liability incurred or to be incurred by him in good faith in the
execution of this trust. And no Trustee, however appointed, shall be obliged
to give any bond or surety or other security for the performance of any of his
duties as Trustee.
The System shall reimburse or indemnify each present and future Trustee,
officer, agent or representative (and his heirs, executors and administrators)
for or against all expenses reasonably incurred by him or imposed by him,
subsequent to the effective date of the Plan, in connection with, or arising
out of, any action, suit or proceeding in which he may be involved by reason
of his being or having been a Trustee, officer, agent or representative of the
System, where disposition of such action, suit or proceeding is made in favor
of such Trustee, officer, agent or representative; provided that no
reimbursement shall be made until such time has elapsed that appeal can no
longer be taken and that, in the judgment of the Trustees, such action, suit
or proceeding will not be recommended.
No Trustee, officer, agent or representative of the System (or its or
his successors, heirs, executors or administrators) shall be liable for any
act, omission, step or conduct taken or had in good faith which (whether by
condition or otherwise) is required, authorized or approved by any order or
orders issued pursuant to the Public Utility Holding Company Act of 1935, the
Federal Power Act or any state statute regulating the System or its
subsidiaries by reason of their being public utility companies or public
utility holding companies, or any amendments to any thereof. In any action,
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<PAGE 17>
suit or proceeding based on any act, omission, step or conduct, as in this
paragraph described, the provisions hereof shall be brought to the attention
of the court. In the event that the foregoing provisions of this paragraph are
found by the court not to constitute a valid defense on the grounds of not
being applicable to the particular class of plaintiff, each such Trustee,
officer, agent or representative (and its and his successors, heirs, executors
and administrators) shall be reimbursed for, or indemnified against, all
expenses and liabilities incurred by him or imposed on him, in connection
with, or arising out of, any such action, suit or proceeding based on any act,
omission, step or conduct taken or had in good faith as in this paragraph
described. Such expenses and liabilities shall include, but shall not be
limited to, judgments, court costs and attorneys' fees.
The foregoing rights shall not be exclusive of other rights to which any
Trustee, officer, agent or representative may otherwise be entitled and shall
be available whether or not the Trustee, officer, agent or representative
continues to be such at the time of incurring such expenses and liabilities.
Such other rights shall include, as to transactions subsequent to the
effective date of the Plan which are not within the protection afforded by the
foregoing paragraphs, the immunities and rights of reimbursement which would
have been allowable under the laws of The Commonwealth of Massachusetts had
this trust been a business corporation organized under such laws. As to
transactions on or prior to the effective date of said Plan, the immunities
and rights of reimbursement of any Trustee, officer, agent or representative
of the System (and its or his successors, heirs, executors and administrators)
shall be determined under the provisions of this declaration of trust as in
force at the time of such transactions.
Section 17.-The Trustees may consult with any counsel, lawyer, valuer,
surveyor, engineer, broker, auctioneer, accountant or other expert, consultant
or person deemed by them competent, to be selected, employed, retained or
consulted by the Trustees at the expense of the Trust Property, whether
individuals, firms or corporations, and whether or not generally or specially
employed, retained or consulted, and any action taken by the Trustees in good
faith on the opinion or advice of, or information received from, any such
counsel, lawyer, valuer, surveyor, engineer, broker, auctioneer, accountant or
other expert, consultant or person deemed by them competent, shall be complete
and conclusive protection to the Trustees and each of them.
Section 18.-Whenever in the administration of this trust the Trustees
shall deem it necessary or advisable that any matter be proved or established,
such matter (unless other evidence in respect thereof be herein specifically
prescribed) may be deemed by them and by each of them to be conclusively
proved and established by a certificate or instrument purporting to be signed
by the president or a vice-president or the treasurer or the secretary or any
assistant or temporary secretary of this trust and delivered to the Trustees,
or any of them, and such certificate or instrument shall be full warrant to
the Trustees and to each of them for any action taken or suffered by them or
by any of them under the provisions of this declaration of trust on the faith
thereof; but in their discretion the Trustees or any of them may accept other
evidence of such matter or may require or obtain from the officers of this
trust or from any other sources such further or additional evidence as to them
may seem reasonable. The Trustees may receive a certificate purporting to be
signed by the secretary or any assistant or temporary secretary as conclusive
evidence of the due adoption of any vote or resolution by the Shareholders and
conclusive evidence of the matters therein stated.
Section 19.-The receipts of the Trustees or any of them for moneys or
things paid or delivered to them or him shall be effectual discharges to the
person, firm, association, trust or corporation paying or delivering the same
therefrom and from all liability to see to the application thereof. And no
purchaser or person, firm, association, trust or corporation dealing with the
Trustees, officers or agents of this trust shall be bound to ascertain or
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<PAGE 18>
inquire whether any consent, resolution or other authorization of the Trustees
or Shareholders, as is herein required or provided for, has been obtained or
passed or as to the existence or occurrence of any event or purpose in or for
which a sale, lease, mortgage, pledge, or charge is herein authorized or
directed, or otherwise as to the purpose or regularity of any of the acts of
the Trustees, officers or agents of this trust purporting to be done in
pursuance of any of the trusts or powers herein contained, or as to the
regularity of the resignation or appointment of any Trustee, officer or agent;
and a transfer of the Trust Property, or any part thereof, executed by the
Trustee or Trustees in whom the same shall be vested at the time of any such
resignation or appointment (including any retiring Trustee who shall be
willing to act and shall act in executing such transfer but not otherwise
including any such retiring Trustee) for the purpose of vesting the same in
the Trustee or Trustees for the time being of these presents or providing
evidence of such vesting independently of such resignation or appointment,
shall, as to the property comprised in such transfer, be conclusive evidence
in favor of any such purchaser or other person, firm, association, trust or
corporation dealing with the Trustees of the validity of such transfer and of
the matters therein recited relating to such resignation or appointment or the
occasion thereof or the occasion of such transfer. And no purchaser or person,
firm, association, trust or corporation dealing with any Trustee purporting to
act during the absence or inability of any other Trustee shall be concerned to
ascertain to inquire whether an occasion exists upon which he is authorized so
to act.
Section 20.-No corporation, trust, association or body politic shall be
affected by notice that any of its shares or bonds or other securities or
obligations are subject to any of the trusts of these presents or be bound to
see to the execution of any such trusts or to ascertain or inquire whether any
transfer of any such shares, bonds or securities or obligations by the
Trustees, officers or agents of this trust is authorized, notwithstanding such
authority may be disputed by some other person, firm, association, trust or
corporation.
Interested Trustees, Officers, Agents and Shareholders.
Section 21.-No Trustee, officer or agent of this trust shall be
disqualified merely by the holding of such office from acquiring shares of
stock in or bonds and other obligations of or from holding any office or place
or profit under this trust or any company in which this trust or the Trustees
shall be interested as stockholder or otherwise, or from dealing or
contracting with this trust or with the Trustees, officers or agents hereof or
with any such company as vendor, purchaser or otherwise, nor shall any such
dealing or contract or any dealing, contract or arrangement entered into by or
in behalf of this trust or of the Trustees, officer or agents hereof or by or
in behalf of any such company, in which dealing, contract or arrangement any
such Trustee, officer or agent may be in any way interested be voided, nor
shall any Trustee, officer or agent so contracting or being so interested be
liable to account to this trust or to the Trustees, officers, agents or
Shareholders hereof, or otherwise, for any profit or benefit arising from any
such office or place of profit or realized through any such dealing, contract
or arrangement, merely by reason of such Trustee, officer or agent, holding
that office or of any fiduciary relation thereby established. Such Trustee,
and such officer or agent shall, however, disclose the nature and extent of
his interest in advance of any such dealings. No Trustee shall vote or act by
written vote or resolution as a Trustee in respect of any dealing, contract or
arrangement in which he is so interested, and if he does so vote or act his
vote or action shall not be counted but shall not operate to render the
dealing, contract or arrangement voidable; and any dealing, contract or
arrangement shall be valid if approved or ratified by vote or in writing by
the holders of a majority of the Shares of this trust notwithstanding that any
or all of the Trustees, officers or agents may be interested therein and shall
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<PAGE 19>
vote therefor. A general notice that a Trustee, officer or agent is a member,
trustee, director, officer or stockholder of any specified company, and is to
be regarded as interested in all transactions with the company, shall be a
sufficient disclosure under this clause as regards such Trustee, officer or
agent, and under such general notice it shall not be necessary for such
Trustee, officer or agent, to give a special notice in regard to any
particular transaction with that company.
No Shareholder shall be disqualified by his holding such shares, however
great in amount, from holding any office or place of profit hereunder or under
any company in which this trust or the Trustee shall be interested as
stockholder or otherwise, or from dealing or contracting with this trust or
with the Trustees, officers or agents hereof or with any such company as
vendor, purchaser or otherwise, nor shall any such dealing or contract or any
dealing, contract or arrangement entered into by or on behalf of this trust by
the Trustees, officers or agents hereof in which dealing, contract or
arrangement any such Shareholder shall be in any way interested be voided, nor
shall any such Shareholder so contracting or being so interested be liable to
account to this trust or to the Trustees, officers, agents or Shareholders
hereof, or otherwise, for any profit or benefit arising from any such office
or place of profit or realized through any such dealing, contract or
arrangement, by reason of such Shareholder holding such shares to any amount,
nor shall any fiduciary relation be deemed to be established by such
shareholding or any obligation imposed on such Shareholder to disclose the
fact of his interest.
Unless the context otherwise requires, the word "company" and
the word "stockholder" as used in this Section shall refer to corporations,
trusts, partnerships and associations and stockholder, shareholder and member
thereof respectively.
It is not intended by this Section to affect the liabilities of the
Trustees under Section 17 of Public Utility Holding Company Act of 1935.
Shares and Shareholders.
Section 22.-The beneficial interest in this trust shall be and during
the continuance of this trust shall remain in the owners from time to time of
transferable shares of beneficial interest. The shares of beneficial interest
now authorized shall consist of fifty million (50,000,000) Common Shares
having a par value of two dollars ($2) per share and a class of Cumulative
Preferred Shares having a par value of one hundred dollars ($100) per share
(hereinafter called "Preferred Shares").
Common Shares presently authorized but unissued may be issued by the
Trustees from time to time for such consideration and upon such terms and in
such manner as may be determined by vote at a meeting or by written consent of
the registered holders of a majority of the Common Shares at the time
outstanding, provided however that such presently authorized but unissued
Common Shares may be issued by the Trustees without such vote or written
consent upon such terms and in such manner as the Trustees may determine at
not less than the par value thereof, if issued:
(A) To Provide the System with Funds
(1) To acquire additional stock of any subsidiary of the
System which is authorized for its proper corporate purposes;
(2) To acquire common stock of any Massachusetts gas or
electric company if as a result of such transaction the System
will own 51% or more of such stock;
(3) To acquire debt securities maturing more than one year
from the date of issue thereof of any subsidiary of the System; or
(4) To retire temporary indebtedness of the System incurred
by it for the purchase of such stock or debt securities; or
(5) To make temporary advances to any subsidiary of the
System;. or
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<PAGE 20>
(B) In Exchange
(1) For publicly held stock of any subsidiary of the System; or
(2) For stock of any Massachusetts gas or electric company
if as a result of such exchange the System will own 51% or more
of such stock; or
(C) To Provide Common Shares to Fund Long-Term Incentive Compensation
Plans That may be Adopted from Time to Time and to fund compensation
plans applicable to the Board of Trustees for services as a Trustee.
The shares of beneficial interest now issued shall be fully paid and
non-assessable and all additional shares of beneficial interest hereafter
issued, upon receipt by the System of the consideration specified in the vote
or written consent authorizing the issue thereof, shall be fully paid and
non-assessable except to the extent otherwise specifically provided in the
certificates representing such shares.
The conditions, preferences, voting powers, restrictions and
qualifications of the Preferred Shares and Common Shares shall be as follows:
(a) The Preferred Shares shall be of the par value of $100 each and may
be issued in one or more series designated "Series________ ________%
Cumulative Preferred Shares" (inserting in each case a letter designation and
the dividend rate for the particular series). All Preferred Shares,
irrespective of series, shall constitute one and the same class of shares of
beneficial interest, shall be of equal rank and shall be identical in all
respects except that the shares of different series may vary, as determined by
vote at a meeting or by written consent of the registered holders of at least
two-thirds (2/3) of the Common Shares at the time outstanding and entitled to
vote, in the following respects:
(1) the authorized number of shares of the particular series;
(2) the amount payable on the particular series upon any
liquidation, dissolution or winding up of the affairs of the
System or distribution of capital;
(3) the terms of any conversion, participation or other
special rights which may lawfully be provided for the particular
series; and the shares of different series may vary, as determined
by the Trustees, in the following respects:
(1) the number of authorized shares of the particular series
which shall be issued;
(2) the annual dividend rate for the particular series;
(3) the date from which dividends on shares of the particular
series shall be cumulative;
(4) the date for payment of the first dividend and each
succeeding quarterly dividend payment date for the particular series;
(5) the redemption price or prices for the particular series;
(6) the terms and amounts of any sinking fund or purchase fund
which may be provided for the redemption or purchase of shares of
the particular series.
Whenever a vote of the Preferred Shares may be required for any purpose,
the shares voting, if of different series, shall be counted irrespective of
series and not by different series, except as otherwise provided by law or by
this trust. All shares of the same series shall be identical (except as to the
date from which dividends on shares issued at different times will be
cumulative) in all respects and each certificate representing Preferred Shares
shall state the designation of the series in which the shares represented by
such certificate are issued.
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<PAGE 21>
(b) Holders of the Preferred Shares shall be entitled to receive, when
and as declared by the Trustees out of funds legally available for the
declaration of dividends, cumulative dividends at the annual dividend rate per
share fixed for the particular series, and no more, payable in cash quarterly
in each year commencing on the date specified for the first dividend payment
as herein provided to shareholders of record on the respective record dates
fixed in advance for the purpose by the Trustees prior to the payment of each
such dividend, which record date for each dividend shall be the same for all
series, before any dividends on, or distribution of assets (by purchase of
shares or otherwise) to holders of, the Common Shares or any other shares
ranking junior to the Preferred Shares in respect of the payment of dividends
shall be declared or paid or set apart for payment. Dividends on Preferred
Shares shall be cumulative: (1) on shares of any series issued prior to the
first dividend payment date, from the date of issue of such shares or from
such other date as may be fixed by the Trustees prior to the issuance of such
shares; (2) on shares issued on or after such first dividend payment date,
from the quarterly dividend payment date next preceding the date of issue of
such shares or from the date of issue if that be a dividend payment date or
from such other date as may be fixed by the Trustees prior to the issuance of
such shares. No dividend shall be declared on any series of the Preferred
Shares or on any other class of Preferred Shares ranking on a parity with the
Preferred Shares in respect of the payment of dividends, for any quarterly
dividend period, unless there shall likewise be declared on all shares of all
series of the Preferred Shares and of any other such parity Preferred Shares
at the time outstanding, like proportionate dividends, ratably, in proportion
to the respective annual dividend rates fixed therefor, for the same quarterly
dividend period, to the extent that such shares are entitled to receive
dividends for such quarterly dividend period. Whenever dividends accrued on
all outstanding Preferred Shares to the last preceding quarterly dividend
payment date shall have been paid in full or declared and set apart for
payment, the Trustees may, without awaiting the expiration of the current
dividend period for the Preferred Shares, declare and pay dividends on the
Common Shares or any other shares ranking junior to the Preferred Shares in
respect of the payment of dividends.
The expression "dividends accrued," as used in this Section, shall mean
the sum of amounts in respect of Preferred Shares then outstanding which, as
to each share, shall be an amount computed at the dividend rate per annum
fixed for the particular share from the date from which dividends on such
share become cumulative to the date with reference to which the expression is
used, irrespective of whether such amount or any part thereof shall have been
declared as dividends or there shall have existed any funds legally available
for the payment thereof, less the aggregate of all dividends paid or declared
and set apart for payment on such share.
(c) The System shall have the right, at its option and by vote of the
Trustees, to redeem the Preferred Shares or any series thereof, as a whole at
any time, or in part from time to time, upon payment in cash of the redemption
price fixed for the shares of the particular series, together with dividends
accrued thereon to the redemption date. If less than all of any series of
Preferred Shares is to be redeemed at any time, the shares thereof to be
redeemed shall be selected by lot by the Trustees. If at any time the System
shall have failed to declare and pay or set apart for payment dividends in
full upon the Preferred Shares of all series for all past quarterly dividend
periods, thereafter and until all such dividends shall have been paid in full
or declared and set apart for payment, the System shall not redeem or
purchase, or permit any subsidiary to purchase, for any purpose, any Preferred
Shares of any series, unless all Preferred Shares of all series then
outstanding shall be redeemed. At its election, the System on or prior to the
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redemption date, may deposit an amount equal to the aggregate redemption price
of the shares so to be redeemed, together with dividends accrued thereon to
the redemption date, with a bank or trust company having a capital and surplus
of not less than $2,000,000 and its principal office in Boston, Massachusetts,
designated by the Trustees, in trust for the account of the holders of the
shares so to be redeemed.
Notice of any such redemption, and specifying the redemption date, shall
be mailed, postage prepaid, to each holder of record of the Preferred Shares
so to be redeemed, at his address as it appears on the books of the System,
not more than sixty (60) nor less than thirty (30) days prior to the
redemption date. Notice of redemption having been so given, the shares so to
be redeemed shall not be entitled to any dividends which may be declared after
the redemption date specified in such notice unless default be made in the
payment or deposit of the redemption price, together with dividends accrued
thereon to the redemption date, and on the redemption date, or on a date prior
thereto on which such deposit shall have been made, all rights of the
respective holders of such shares as shareholders of the System by reason of
the ownership of such shares shall cease, except the right to receive the
redemption price, together with dividends accrued thereon to the redemption
date, upon presentation and surrender of the certificates representing such
shares and such shares shall not be deemed to be outstanding after the
redemption date or the earlier date of such deposit. In case less than all the
shares represented by such certificates are to be redeemed, a new certificate
or certificates shall be issued representing the unredeemed shares. In case
the holders of Preferred Shares which shall have been redeemed shall not
within four (4) years after the redemption date claim any amount so
deposited in trust for the redemption of such shares, such bank or trust
company shall, upon demand, pay over to the System any such unclaimed amount
so deposited with it, and shall thereupon be relieved of all responsibility in
respect thereof, and thereafter the holders of such shares shall look only to
the System for payment of the redemption price thereof, together with
dividends accrued thereon to the redemption date, but without interest. All
Preferred Shares so redeemed shall be cancelled and retired and no shares
shall be issued in place thereof. Subject to the provisions of paragraphs (c)
and (d) of this Section, the System may also from time to time repurchase any
Preferred Shares at not exceeding the redemption price.
(d) In the event of any liquidation, dissolution or winding up (whether
voluntary or involuntary) of the affairs of the System or any distribution of
its capital, then the holders of each series of the Preferred Shares at the
time outstanding shall be entitled to be paid in cash the distributive amount
fixed for the particular series, together in each case with dividends accrued
thereon to the date fixed for payment of such distributive amounts, and no
more, before any distribution shall be made to the holders of Common Shares or
any other shares ranking junior to the Preferred Shares in respect of the
distribution of assets. No payments on account of such distributive amounts
shall be made to the holders of any series of the Preferred Shares or any
other Preferred Shares ranking on a parity with the Preferred Shares in
respect of the distribution of assets, unless there shall likewise be paid at
the same time to the holders of each other series of the Preferred Shares or
such parity shares like proportionate distributive amounts, ratably, in
proportion to the full distributive amounts to which they are respectively
entitled. After such payment to the holders of Preferred Shares or such parity
shares, the remaining assets and funds of the System shall be distributed
among the holders of the Common Shares. Consolidation or merger of the System
with or into any other corporation or corporations or association or
associations, or a sale or transfer of substantially all of the System's
assets as an entirety, shall not be deemed a liquidation, dissolution or
winding up of the affairs of the System within the meaning of this subsection
(d) if it does not effect any change in the preferences or rights of the
Preferred Shares as set forth herein which is substantially prejudicial to the
holders thereof.
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(e) Except as expressly provided in this Section 22, holders of the
Preferred Shares shall have no right to be represented at or to receive notice
of meetings of the Shareholders and shall have no right to vote for the
election of Trustees or for any other purpose or on any other subject.
However, whenever dividends accrued on any shares of any series of the
Preferred Shares at the time outstanding shall equal or exceed an amount
equivalent to six (6) full quarterly dividends thereon, holders of the
Preferred Shares shall have the right to be represented at and to receive
notice of any meeting of the Shareholders of the System held for the purpose
of electing Trustees and the exclusive right, voting separately as a class, to
elect two Trustees; and the remaining seven Trustees shall be elected by the
holders of the Common Shares.
If and when all dividends in default on the Preferred Shares shall have
been paid in full or declared and set apart for payment, the holders of the
Preferred Shares shall again be excluded from the right to be represented at
and to receive notice of meetings of the Shareholders and from the right to
vote, except as by law or in this trust provided.
Such dividends in default shall be declared and paid as soon as
reasonably practicable unless payment thereof is prevented by law or by the
provisions of any indenture or agreement to which the System is a party or
unless a majority of the Trustees elected otherwise than by holders of the
Preferred Shares shall determine that such payment is not in the best
interests of the System.
The term of office of all persons who may be Trustees of the System at
the time when the right to vote for two Trustees shall accrue to holders of
the Preferred Shares as herein provided shall terminate upon the election of
new Trustees at a meeting of Shareholders which, if not otherwise called,
shall be called by the secretary of the System upon request of, or may be
called by, the holders of record of at least 10% of all Preferred Shares then
outstanding. The new Trustees so elected shall serve until the next annual
meeting of Shareholders subject to the following provision and until their
successors shall be chosen and qualified.
When all dividends in default on the Preferred Shares shall have been
paid in full or declared and set apart for payment, each Trustee elected by
the holders of the Preferred Shares shall cease to hold office upon the
election of a successor or of a new Board of Trustees by the Shareholders
entitled to vote for Trustees at a meeting of Shareholders which, if not
otherwise called, shall be called by the secretary of the System upon request
of, or may be called by, one or more of the Trustees then in office.
If the event calling for any election of Trustees as provided for herein
shall occur not more than sixty (60) and not less than forty (40) days before
the date for an annual meeting of the Shareholders, the election of Trustees
shall be held at such annual meeting, otherwise at a special meeting of the
Shareholders to be called for the purpose.
Notice of every meeting of the Shareholders held for the election of
Trustees during a period when the holders of the Preferred Shares have the
right to vote for the election of two Trustees shall be given to the holders
of record of Preferred Shares and of Common Shares and shall state the purpose
of the meeting in respect of the election of Trustees representing the
different classes of shares.
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At each such meeting a majority of the outstanding Preferred Shares
shall be required to constitute a quorum for the election of two Trustees by
the Preferred Shares, which two Trustees shall be elected by plurality vote of
the Preferred Shares represented at the meeting; and a majority of the
outstanding Common Shares shall be required to constitute a quorum for the
election of the remaining Trustees by the Common Shares, which Trustees shall
be elected by plurality vote of the Common Shares represented at the meeting.
In case of any vacancy in the office of a Trustee elected by holders of the
Preferred Shares, the remaining Trustee elected by holders of the Preferred
Shares may fill the vacancy by the election of a successor to hold office for
the unexpired term of such Trustee. So long as any of the Preferred Shares of
any series are outstanding, no amendment of this trust shall authorize the
removal of any Trustee elected by holders of the Preferred Shares unless
consented to by vote of the holders thereof.
(f) (1) So long as any of the Preferred Shares of any series are
outstanding, the System shall not, without the vote at a meeting called for
that purpose of holders of at least two-thirds of the total number of the
Preferred Shares of all series then outstanding:
(a) change any of the provisions of the Preferred Shares,
or of any series thereof, which would alter the preferences or
rights of the holders thereof in any manner substantially
pre-judicial to the holders thereof, except that if such change
is prejudicial to the holders of one or more, but not all of
such series, only the vote of the holders of two-thirds of the
total number of shares of all series so affected and then
outstanding shall be required; or
(b) create any class of shares ranking prior to or on a
parity with the Preferred Shares in respect of either the
payment of dividends or the distribution of assets.
(2) So long as any of the Preferred Shares of any series are
outstanding, the System shall not, without the vote at a meeting called for
that purpose of the holders of at least a majority of the total number of the
Preferred Shares of all series then outstanding:
(a) issue any Preferred Shares in addition to the shares
of the first series thereof or of any class of shares ranking
prior to or on a parity with the Preferred Shares in respect
of either the payment of dividends or the distribution of assets
(except for the purpose of retiring shares ranking prior to the
Preferred Shares or for the purpose of retiring Preferred Shares
or shares ranking on a parity therewith if the shares issued
are only shares thereof or on a parity therewith, provided the
aggregate par or stated value of the shares to be retired) unless,
after giving effect thereto,
(i) consolidated net income of the System and its
subsidiaries for any period of twelve months within the
next preceding fifteen months (after adding back interest
charges on funded debt of the System deducted in the
computation) shall have been at least equal to one and
one-half (1/2) times the sum of the annual interest
charges on funded debt of the System to be outstanding
at the date of such issue plus the annual dividend
requirements on the Preferred Shares and on any class
of shares ranking prior to or on a parity with the
Preferred Shares in respect of either the payment of
dividends or the distribution of assets which is to be
outstanding at the date of such issue, including the
Shares to be issued but excluding any funded debt or
Shares of such prior or parity shares to be retired in
connection with such issue; and
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(ii) the aggregate amount of capital and paid-in
premiums represented by the Common Shares and any other
Shares ranking junior to the Preferred Shares in
respect of either the payment of dividends or the
distribution of assets plus the consolidated retained
earnings of the System and its subsidiaries would be at
least equal to the capital and paid-in premiums represented
by the Preferred Shares and all other Shares ranking
prior to or on a parity with the Preferred Shares in respect
of either the payment of dividends or the distribution of
assets to be outstanding after giving effect to such issue
but excluding any such shares to be retired in connection
therewith;
or
(b) merge into or consolidate with any other corporation or
association unless the System shall itself be the successor; or
otherwise sell or transfer its assets as, or substantially as, an
entirety. The term "sell or transfer", as used therein, includes
a lease or exchange, but does not include a mortgage or pledge.
The term "funded debt", as used in this subsection (f), shall mean all
indebtedness, other than indebtedness incurred in the ordinary course of
business, maturing by its terms more than twelve months from the date on which
it was incurred, except that there shall not be included in funded debt any
indebtedness for the payment or redemption of which at maturity or on a
redemption date sums sufficient have been deposited in trust.
The term "consolidated net income of the System and its subsidiaries" as
used in this subsection (f) shall mean for any particular period the net
income of the System and its subsidiaries on a consolidated basis for such
period determined in conformity with generally accepted accounting principles,
subject to any applicable requirements imposed by any regulatory body having
jurisdiction.
The term "subsidiary" shall mean any corporation or trust of which the
System (either alone or through a subsidiary or subsidiaries or together with
a subsidiary or subsidiaries) owns a majority of the shares outstanding and
having power to vote on the election of at least a majority of the directors
in the case of a corporation, or at least a majority of the trustees in the
case of a trust.
(g) Except as otherwise provided by law, no holder of Preferred
Shares shall be entitled as such as a matter of right to subscribe for or
purchase any part of any new or additional issue of Shares or warrants
carrying rights to Shares, or securities convertible into Shares, of any class
whatever, whether now or hereafter authorized, and whether issued for
cash, property, services or otherwise.
(h) Preferred Shares when duly authorized may be issued for such
consideration as may be fixed from time to time by the Trustees and upon
receipt by the System of the consideration so fixed such Shares shall be
deemed to have been fully paid and shall not be liable to any further call or
assessment.
(i) No Shareholder, Trustee, officer or agent of this trust
shall be held individually responsible for any action taken in good faith
though subsequently adjudged to be in violation of this Section.
(j) Terms applicable to particular series of the Preferred
Shares:
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<PAGE 26>
The first series of the Preferred Shares shall be designated "Series A
____% Cumulative Preferred Shares" (inserting the annual dividend rate for the
particular series); the number of Shares of the first series which may be
issued shall be limited to 60,000 shares; the annual dividend rate per share,
the date from which such dividends shall be cumulative, the first dividend
payment date and each succeeding quarterly dividend payment date, and the
redemption prices shall be determined by vote of the Trustees; the amount
payable upon any liquidation, dissolution or winding up of the affairs of the
System or distribution of capital, if involuntary, shall be $100 per Share
and, if voluntary, shall be equal to the applicable redemption price per
Share, plus in each case dividends accrue to the date of distribution.
Common Shares in addition to the 50,000,000 Shares herein authorized may
be authorized from time to time by vote at a meeting or by the written consent
of the registered holders of a majority of the Common Shares at the time
outstanding and entitled to vote and may be issued from time to time by the
Trustees at not less than par for such consideration and upon such terms and
in such manner as may be determined by such vote or written consent or, if
authorized by such vote or written consent, upon such terms and in such manner
and for such consideration as may be determined by the Trustees. Such
additional Common Shares shall rank pari passu with the Common Shares now
authorized. Subject to the provisions of paragraphs (a) and (f) of this
Section, Shares in addition to Preferred Shares with any preference as to
dividends or in liquidation or otherwise over the Common Shares may be
authorized from time to time by vote at a meeting or by written consent of the
registered holders of at least two-thirds (2/3) of the Common Shares at the
time outstanding and entitled to vote and such additional Shares shall,
subject to the provisions of this Section 22, have such par value or be
without par value as may be determined by such vote or written consent, may be
issued by the Trustees for such consideration and upon such terms and in such
manner as may be determined by such vote or written consent, or if authorized
by such vote or written consent, upon such terms and in such manner and for
such consideration as the Trustees may determine, and shall have such
preferences and other rights as may be determined by such vote or written
consent, except for the following matters which may be determined by the
Trustees:
(1) the annual dividend rate for such Shares;
(2) the date from which dividends on the Shares shall
be cumulative;
(3) the date for payment of the first dividend and each
succeeding dividend payment date for the Shares;
(4) the redemption price or prices for the Shares;
(5) the terms and amount of any sinking fund or purchase
fund which may be provided for the redemption or purchase of the Shares.
No Common Shares (other than initially issued pursuant to the Plan
referred to in Section 5 (e) of this trust) shall be issued or sold for cash
unless the same shall first be offered pro rata to the holders of the Common
Shares at such price and on such terms and conditions and for such period as
may be determined by the Trustees unless the holders of two-thirds (2/3) of
the outstanding Common Shares, by vote at a meeting or in writing, shall
consent to some other disposition thereof except as hereinafter provided. Any
such Shares or securities so offered for subscription and not subscribed for
within the period so determined may be issued and sold to such persons,
whether Shareholders or not, as may be determined by the Trustees but if so
offered other than at a public auction or pursuant to competitive bidding,
such unsubscribed Shares or securities shall not be issued at a price less
than the price at which such Shares or securities were so offered to the
Common Shareholders. Such preemptive rights shall not apply (1) to the issue
of Shares of any class or other securities issued otherwise than for cash or
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(2) unless the Trustees shall prescribe otherwise, to the issue of Shares of
any class or other securities where such Shares or other securities are
publicly offered by competitive bidding or are sold to or through underwriters
or investment bankers for public sale; (3) to the issue of Common Shares where
such Shares are offered to holders of Common Shares pursuant to a plan whereby
such holders may purchase Common Shares by either investing cash dividends
from Common Shares of the System or making optional cash payments or both; or
(4) to the issue of Common Shares where such Shares are offered to the
Employees Savings Plan of Commonwealth Energy System and Subsidiary Companies
or the Tax Reduction Act of 1975 Employees Stock Ownership Plan of
Commonwealth Energy System and Subsidiary Companies; and except as herein
specifically provided no holder of Shares of this trust of any class shall
have any preemptive or preferential right of subscription to any Shares or
other securities of this trust. At the time of any issue of additional Common
Shares for cash, the Trustees may, in cases where such preemptive rights
apply, specify that holders of outstanding Common Shares shall not be entitled
to receive subscription rights for fractions of a Share, provided that if the
Trustees so specify each such holder who would otherwise be entitled to
receive fractional interests shall be entitled to receive as determined by the
Trustees, either (a) cash equal to the value, if any, which said rights would
have had, as determined by the Trustees, or (b) sufficient subscription rights
to enable said holder to subscribe for one whole Share.
Section 23.-Shares in this trust acquired by this trust may be cancelled
and the number of Shares authorized be thereby reduced, or such Shares may be
held in the treasury or be reissued by the Trustees as the Trustees may from
time to time determine, provided, however, that before reissuing any Common
Shares, the same shall first be offered proportionally to holders of Common
Shares in the same manner as is provided in Section 22 hereof with respect to
additional Shares, unless the holders of a majority of the outstanding Common
Shares shall by vote at a meeting or in writing consent to some other
disposition; but such Shares while so held in the treasury shall not be
entitled to vote or give any consent hereunder or to receive any dividends and
shall not be deemed outstanding in computing proportions or percentages of
Shares or Shareholders hereunder or for any other purpose of this trust.
Section 24.-A register or registers shall be kept by or on behalf of
this trust under the direction of the Trustees, which shall contain the names
and addresses of the Shareholders and the number and kind of Shares held by
them respectively and a record of all transfers thereof, which register or
registers shall be open to inspection by the holders of Common Shares to the
same extent as the stock and transfer books of Massachusetts business
corporations are open to the inspection of their stockholders. No Shareholder
shall be entitled to receive payment of any dividend declared, nor to have any
notice given to him as herein provided, until he has given his address to the
transfer agent, or such other officer or agent of this trust as shall keep the
said register, for entry thereon.
Section 25.-The Trustees shall have power to employ in the city of
Boston and in any other cities the Trustees may designate a transfer agent or
transfer agents and a registrar or registrars and may employ as any such
transfer agent or registrar any corporation that is a Depositary hereunder.
The transfer agent or transfer agents shall keep the said registers and record
therein the transfers of any of the said Shares and countersign certificates
of Shares issued to the persons entitled to the same. The transfer agents and
registrars shall perform the duties usually performed by transfer agents and
registrars of certificates of stock in a corporation, except as modified by
the Trustees and the remuneration of such transfer agent or transfer agents
and such registrar or registrars shall be allowed as part of the expenses
incidental to the execution of this trust.
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Section 26.-Every Shareholder shall be entitled to receive a certificate
in such form as the Trustees shall from time to time approve, specifying the
number and kind of Shares held by him, with such description, if any, as may
be necessary to distinguish them from other Shares to which different rights
are attached. Such certificates shall, unless otherwise determined by the
Trustees, be signed by the president or a vice-president and the secretary or
treasurer or an assistant secretary or assistant treasurer of this trust and
countersigned by the transfer agent, if any, and registered by a registrar, if
any, and a notation of such registration shall be made thereon. The seal of
the System and the signature or signatures of the president, vice-president,
secretary, treasurer, assistant secretary and/or assistant treasurer upon any
such certificate, may be made by engraving, lithographing or printing thereon
a facsimile of such seal or of such signature or signatures, in lieu of such
seal or actual signature, and such facsimile seal or signature or signatures
so engraved, lithographed or printed thereon shall have the same force and
effect as if such seal had been affixed thereto and such officer or officers
had actually signed the same. In accordance with the usual custom of
corporations having a transfer agent, signed certificates for Shares in blank
may be deposited with any transfer agent of this trust, to be used by the
transfer agent in accordance with authority conferred upon it as occasion may
require, and in so doing the signers of such certificates shall not be
responsible for any loss resulting therefrom.
Section 27.-A new certificate may be issued by authority of the Trustees
to replace any certificate previously issued, on evidence satisfactory to the
Trustees that the said certificate previously issued has been worn out,
mutilated, lost or destroyed and on such terms, if any, as to indemnity and
otherwise, as the Trustees shall deem proper.
Section 28.-Every transfer of any Shares (otherwise than by operation of
law) shall be by assignment in writing by the transferor or of his agent
thereunto duly authorized in writing, and upon delivery thereof to the
transfer agent of this trust (and if there be no transfer agent then to the
principal office of this trust) accompanied by the existing certificate for
such Shares and such evidence of the genuineness of such assignment,
authorization and other matters as may reasonably be required, shall be
recorded in the register, and a new certificate therefor shall be issued to
the transferee, and in case of a transfer of only a part of the Shares
mentioned in any certificate a new certificate for the residue thereof shall
be issued to the transferor. Until the transfer shall be so delivered and
recorded, the transferor shall be deemed to be the holder of the Share or
Shares comprised therein for all purposes hereof, and neither the Trustees nor
any transfer agent or registrar nor any officer or agent of this trust shall
be affected by any notice of the transfer.
Section 29.-Any person becoming entitled to any Shares in consequence of
the death, bankruptcy or insolvency of any Shareholder, or otherwise, by
operation of law, shall be recorded in the register as the holder of the said
Shares, and receive a new certificate for the same, upon production of the
proper evidence thereof and delivery of the existing certificate to the
transfer agent of this trust and if there be no transfer agent then to the
principal office of the trust. But until such record is made the Shareholder
of record shall be deemed to be the holder of such Shares for all purposes
hereof, and neither the Trustees nor any transfer agent or registrar nor any
officer or agent of this trust shall be affected by any notice of such death,
bankruptcy or insolvency.
Section 30.-Shares shall be personal property entitling the holders only
to the rights and interest in the Trust Property set forth in these presents,
and it is expressly declared and agreed that a trust and not a partnership is
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intended to be created by this instrument and that the Shareholders shall be
deemed to hold only the relationship of cestuis que trustent to the Trustees,
with only such rights as are conferred upon them as such cestuis que trustent
hereunder.
Section 31.-Two or more persons holding any Share shall be joint tenants
of the entire interest therein, and no entry shall be made in the register or
in any certificate that any person is entitled to any future, limited or
contingent interest in any Share. But any person registered as a holder of any
Share may, subject to the provisions hereinafter contained, be described in
the register or in any certificate as a trustee of any kind, and any words may
be added to the description to identify the said trust.
Section 32.-The Trustees shall not, nor shall the Shareholders, transfer
agent or other agent of this trust or of the Trustees be bound to take notice
or be affected by notice of any trust, whether express, implied or
constructive, or of any charge, pledge or equity to which any of the said
Shares or the interest of any of the Shareholders in this trust may be
subject, or to ascertain or inquire whether any sale or transfer of any such
Shares or interest by any such Shareholder or his personal representatives is
authorized by such trust, charge or equity, or to recognize any person as
having any interest therein, except the persons registered as such
Shareholders. And the receipt of the person in whose name any Share is
registered, or, if such Share is registered in the names of more than one
person, the receipt of any one of such persons or of the duly authorized agent
of any such person, shall be a sufficient discharge for all dividends and
other money and for all shares, bonds, obligations and other property,
payable, issuable or deliverable in respect of such Share and from all
liability to see to the application thereof.
Meetings of the Shareholders.
Section 33.-An annual meeting of the Shareholders shall be held each
year at the principal office of the trust, in Cambridge, Massachusetts, or at
such other place either within or without the Commonwealth of Massachusetts as
shall be designated by the Trustees, on the first Tuesday of May of each such
year, or on such other date as the Trustees may fix (which date shall be not
more than 30 days before or after the first Tuesday of May), at which meeting
the Trustees shall submit to the Shareholders a financial report of the
affairs of the Trust for the past fiscal year and such other reports or
matters as the Trustees and officers of this trust may deem appropriate or
required. If such annual meeting is omitted on the day herein provided
therefor, a special meeting shall be held in lieu thereof and any business
transacted or election held at such special meeting shall have the same effect
as if transacted or held at the regular annual meeting.
Section 34.-Subject to the provisions of Section 6 and Section 22 hereof
the Shareholders entitled to vote shall, at each annual meeting or special
meeting held in lieu thereof, elect three (3) Trustees to serve for the
ensuing three years and take such other further action as may properly come
before the meeting.
Section 35.-The Trustees, president or treasurer of this trust may
whenever they think fit and the president or secretary of this trust, upon
written request of one-tenth (1/10) of all the Shares outstanding and entitled
to vote, shall call or direct any officer of this trust to call a special
meeting of the Shareholders to be held at the principal office of the trust or
at any place within or without the Commonwealth of Massachusetts as shall be
designated by the Trustees. Every such request shall express the purpose of
the meeting and shall be delivered at the principal office of the trust
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<PAGE 30>
addressed to the president or secretary of the trust. In the event that the
president or secretary shall refuse or fail for fourteen (14) days after such
request has been delivered to call such special meeting, then the same may be
called by the person or persons signing such request. Notice of such special
meeting shall be given to all Shareholders entitled to vote thereat, not less
than thirty (30) days nor more than sixty (60) days (including Sundays and
holidays) prior to such meeting. The president, or in case of his absence or
unwillingness to preside, any vice-president shall be entitled to preside at
such meeting but in case neither the president nor any vice-president shall be
present or though present shall be unwilling to preside, a chairman shall be
chosen by the Shareholders represented at the meeting.
Section 36.-At any special meeting no business or vote or resolution
shall be considered or adopted except such as is included in the purposes
specified in the notice of the meeting.
Section 37.-A written or printed notice of each meeting of the
Shareholders, whether annual or special, specifying the time, place and
purposes thereof, shall be given as provided in Section 38 by the president or
secretary or any assistant secretary to each Shareholder entitled to vote
thereat not less than thirty (30) days nor more than sixty (60) days
(including Sundays and holidays) before such meeting.
Section 38.-Every notice to any Shareholder required or provided for in
these presents may be given to him personally or by sending
it to him through the post office in a prepaid letter addressed to him at his
address specified in the Share register, and shall be deemed to have been
given at the time when it is so posted. But in respect of any Share held
jointly by several persons notice so given to any one of them shall be
sufficient notice to all of them. And any notice so sent to the registered
address of any Shareholder shall be deemed to have been duly sent in respect
of any such Share whether held by him solely or jointly with others,
notwithstanding he be then deceased or be bankrupt or insolvent, and whether
the Trustees or any person sending such notice have knowledge or not of his
death, bankruptcy or insolvency, until some other person or persons shall be
registered as holders. And the certificate of the person or persons giving
such notice shall be sufficient evidence thereof, and shall protect all
persons acting in good faith in reliance on such certificate.
Section 39.-When any Share is held jointly by several persons any one of
them may vote at any meeting in person or by proxy in respect of such Share,
but if more than one of them shall be present at such meeting in person or by
proxy and such joint owners or their proxies so present disagree as to any
vote to be cast, such vote shall not be received in respect of such Share. If
the holder of any share is a minor or a person of unsound mind, or subject to
guardianship or to the legal control of any other person as regards the charge
or management of such Share, he may vote by his guardian or such other person
appointed or having such control, and such vote may be given in person or by
proxy.
Section 40.-For the purposes of determining the Shareholders who are
entitled to vote or act at any meeting or any adjourned session thereof, the
Trustees may from time to time close the register and transfer books for such
period, not exceeding sixty (60) days, as the Trustees may determine; or,
without closing the said register or transfer books, the Trustees may fix a
time as of which the Shareholders entitled to vote or act at any meeting or
adjourned meetings held within sixty (60) days after the time so fixed shall
be determined.
Section 41.-At all meetings every Shareholder shall, subject to the
provisions of Section 40, have one vote for every share held by him (except as
may be otherwise provided in case of shares issued with restricted or extended
voting rights) and may vote at any meeting or any adjournment or adjournments
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thereof in person or by proxy in writing; and, except as otherwise provided
herein or in the rights, preferences and limitations relating to any class or
series of shares, the holders of a majority of all the shares issued and
outstanding and carrying the right to vote upon a question to be considered at
the meeting shall constitute a quorum for the consideration of such question.
If, at the expiration of half an hour from the time appointed for a meeting, a
quorum is not present, the Shareholders present in person or by proxy shall
constitute a quorum for the purpose of adjourning the meeting, either to a
later date or sine die but not for the transaction of any other business, and
the meeting may be held as adjourned without further notice.
Duration, Termination and Amendments.
Section 42.-Unless sooner terminated as provided in Section 44, this
trust shall continue in such manner that the Trustees shall have all the
duties, powers, authorities and discretions expressed to be given to them by
these presents, and that no Shareholder shall be entitled to put an end to the
same or to require a division of the Trust Property or any part thereof until
January 2, 2050, or the expiration date of twenty (20) years from the death of
the last survivor of the following persons:
Katherine Bilodeau, Kerri Bilodeau and Thomas H. Bilodeau III,
children of Thomas H. Bilodeau, Jr. of Milton; Jill Heggie,
daughter of James J. Heggie III of Milton; Maura J. Donlan,
daughter of Michael F. Donlan of West Roxbury; Sarah M. Hundley
and Laura S. Hundley, children of Franklin M. Hundley of Belmont;
William F. Griffin III and Amy C. Griffin, children of William F.
Griffin, Jr. of Melrose; Geoffrey May, Daniel May, John May and
Eleanor May, children of Gerald V. May of Newton; Arthur M.
Flaherty, Timothy E. Flaherty, Brian G. Flaherty, Shaun F.
Flaherty and Mark J. Flaherty, children of Arthur F. Flaherty
of North Scituate; Mary E. Landergan, Walter L. Landergan III
and Thomas J. Landergan, children of Walter L. Landergan, Jr.
of Lynnfield, all in the Commonwealth of Massachusetts,
whichever of the said periods shall first expire, and at the
expiration of the time so limited the said trust shall terminate.
Section 43.-The death of a Shareholder or a Trustee during the
continuance of this trust shall not operate to terminate this trust, nor the
appointment of any officer or agent, nor shall it entitle the legal
representatives of any such Shareholder or Trustee to an accounting or to take
any action in the courts or otherwise.
Section 44.-The Trustees may at any time alter, amend, add to or rescind
any of the terms, powers and provisions herein contained, if such alteration,
amendment, addition or rescission has been consented to by vote at a meeting
or by written consent obtained at a meeting or otherwise of the holders of a
majority of the outstanding Common Shares and of the holders of a majority (or
such greater or lesser proportion as the rights, preferences and limitations
relating to such class or series require or provide for) of the outstanding
Shares of each other class or series, if any, as shall, by the express terms
of the rights, preferences and privileges thereof, be entitled to vote thereon
or consent thereto. Such alteration, amendment, addition or rescission or any
termination of this trust shall, however, become effective only upon the
filing, at the principal office of the Depositary where this Declaration of
Trust is filed or at the principal office of this trust if there be no such
Depositary, of a certificate signed by a majority of the Trustees, setting
forth the said alteration, amendment, addition or rescission or termination
and that the Shareholders have consented thereto as required by this
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Declaration of Trust. The Trustees shall cause counterparts of said
certificate to be recorded in the various registries of deeds, if any, where
this Declaration of Trust is then recorded, and shall cause counterparts or
copies of said certificate to be recorded or filed in such other places as may
be required by law.
Notwithstanding the foregoing, no provision of this trust requiring the
vote of the registered holders of a specified proportion greater than a
majority of the Shares entitled to vote, may be altered, amended or rescinded
except by the affirmative vote or written consent of the holders of not less
than such specified proportion of such Shares.
Section 45.-Upon the termination of this trust by said limitation or
under the provisions herein contained the Trustees shall, upon such terms as
shall be determined by the Trustees, sell, and convert into money or into
shares, bonds and other securities or obligations, whether of the purchaser or
otherwise, the whole or any part of the Trust Property and, after paying or
otherwise providing for the payment of all of the obligations and liabilities
of the trust, shall apportion the net proceeds thereof and any property
forming part of the Trust Property excepted from such sale among all the
Shareholders in accordance with their respective rights ratably according to
the number and kind of Shares held by them respectively. And in making any
sale under these provisions the Trustees shall have power to sell by public
auction or private contract and to buy in or rescind or vary any contract of
sale and to resell, without being answerable for loss, and for the said
purposes to execute or cause to be executed all proper deeds and instruments
and to do all proper things. But the Trustees may, after the distribution of
the full amounts of money, if any, due upon liquidation or termination on the
preferred shares of any class or series which may be outstanding, divide the
whole or any part of the remaining Trust Property in its actual state of
investment among the Shareholders in accordance with their respective rights
ratably according to the number and kind of Shares held by them respectively,
and for such purposes the Trustees shall have power to determine the values of
the property comprising said remaining Trust Property.
Section 46.-This declaration of trust may be executed in any number of
counterparts, each of which shall be deemed an original, but all such
counterparts taken together shall constitute but one and the same instrument.
In Witness Whereof the said original Trustees have hereunto set their
hands and seals the day and year first above written.
Daniel Starch (Seal) Harding U. Greene (Seal)
W. A. Hill (Seal)
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I, Michael P. Sullivan hereby certify that I am Secretary of Commonwealth
Energy System, a Massachusetts Trust, established under a Declaration of Trust
dated December 31, 1926, and that the foregoing is a true composite copy of
said Declaration of Trust reflecting all amendments thereto through the date
hereof.
Witness my hand and the seal of Commonwealth Energy System hereto affixed
this day of May, 1998.
__________________________________
Secretary
