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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549-1004
FORM 10-Q
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1999
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 August 1, 1999
Common Shares of Beneficial
Interest, $2 par value 21,540,550 shares
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PART I. - FINANCIAL INFORMATION
Item 1. Financial Statements
COMMONWEALTH ENERGY SYSTEM
CONSOLIDATED CONDENSED BALANCE SHEETS
JUNE 30, 1999 AND DECEMBER 31, 1998
ASSETS
(Dollars in thousands)
June 30, December 31,
1999 1998
(Unaudited)
PROPERTY, PLANT AND EQUIPMENT, at original cost
Electric $ 972,360 $ 963,181
Gas 395,754 391,069
Other 116,743 118,717
1,484,857 1,472,967
Less - Accumulated depreciation and
amortization 478,696 462,153
1,006,161 1,010,814
Add - Construction work in progress
and nuclear fuel in process 13,191 8,510
1,019,352 1,019,324
EQUITY IN CORPORATE JOINT VENTURES
Nuclear electric power companies (2.5%
to 4.5%) 10,518 10,391
Other investments 3,515 3,640
14,033 14,031
RESTRICTED CASH - LONG-TERM 176,789 172,239
CURRENT ASSETS
Cash and cash equivalents 7,252 74,840
Restricted cash 167,468 21,094
Accounts receivable 103,647 122,064
Unbilled revenues 7,886 17,849
Inventories, at average cost 26,050 32,924
Prepaid property taxes - 8,112
Other 8,215 5,466
320,518 282,349
DEFERRED CHARGES
Regulatory assets 224,247 210,628
Other 56,151 55,295
280,398 265,923
$1,811,090 $1,753,866
See accompanying notes.
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COMMONWEALTH ENERGY SYSTEM
CONSOLIDATED CONDENSED BALANCE SHEETS
JUNE 30, 1999 AND DECEMBER 31, 1998
CAPITALIZATION AND LIABILITIES
(Dollars in thousands)
June 30, December 31,
1999 1998
(Unaudited)
CAPITALIZATION
Common share investment -
Common shares, $2 par value -
Authorized - 50,000,000 shares
Outstanding - 21,540,550 in 1999 and
1998 $ 43,081 $ 43,081
Amounts paid in excess of par value 112,309 112,170
Retained earnings 304,409 294,341
459,799 449,592
Redeemable preferred shares, less current
sinking fund requirements - 11,380
Long-term debt, including premiums, less current
sinking fund requirements and maturing debt 384,457 385,602
844,256 846,574
CAPITAL LEASE OBLIGATIONS 10,576 10,982
CURRENT LIABILITIES
Interim Financing -
Notes payable to banks 90,000 2,000
Maturing long-term debt 28,500 49,000
118,500 51,000
Other Current Liabilities -
Current sinking fund requirements 7,196 8,123
Accounts payable 67,140 106,952
Accrued taxes -
Income 23,799 8,720
Local property and other 2,847 10,633
Other 98,157 67,985
199,139 202,413
317,639 253,413
DEFERRED CREDITS
Accumulated deferred income taxes 111,988 117,026
Regulatory liabilities 372,708 370,829
Purchased power contracts 55,413 59,507
Unamortized investment tax credits
and other 98,510 95,535
638,619 642,897
COMMITMENTS AND CONTINGENCIES
$1,811,090 $1,753,866
See accompanying notes.
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COMMONWEALTH ENERGY SYSTEM
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 1999 AND 1998
(Dollars in thousands except per share amounts - unaudited)
Three Months Ended Six Months Ended
1999 1998 1999 1998
OPERATING REVENUES
Electric $128,385 $139,393 $268,372 $295,197
Gas 53,958 58,235 168,899 173,374
Steam and other 13,222 6,663 27,963 12,324
195,565 204,291 465,234 480,895
OPERATING EXPENSES
Fuel and purchased power 68,271 69,398 147,588 156,006
Cost of gas sold 24,511 35,526 79,893 90,903
Other operation and maintenance 66,568 66,244 131,745 124,734
Depreciation 11,176 14,377 24,982 30,556
Taxes -
Federal and state income 3,290 912 18,638 17,018
Local property and other 6,680 6,288 15,870 15,078
180,496 192,745 418,716 434,295
OPERATING INCOME 15,069 11,546 46,518 46,600
OTHER INCOME
Gain from sale of
real estate, net 4,546 - 4,546 -
Other (132) 804 477 1,499
4,414 804 5,023 1,499
INCOME BEFORE INTEREST CHARGES 19,483 12,350 51,541 48,099
INTEREST CHARGES
Long-term debt 8,430 8,703 17,008 17,220
Other interest charges 4,436 2,678 6,529 4,445
Allowance for borrowed funds
used during construction (101) (96) (193) (200)
12,765 11,285 23,344 21,475
NET INCOME 6,718 1,065 28,197 26,624
Dividends on preferred shares - 237 222 474
EARNINGS APPLICABLE
TO COMMON SHARES $ 6,718 $ 828 $ 27,975 $ 26,150
AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 21,540,550 21,533,820 21,540,550 21,533,141
BASIC AND DILUTED EARNINGS
PER COMMON SHARE $ .31 $ .03 $1.30 $1.21
DIVIDENDS DECLARED PER
COMMON SHARE $.415 $.405 $.415 $.405
See accompanying notes.
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COMMONWEALTH ENERGY SYSTEM
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1999 AND 1998
(Dollars in thousands - unaudited)
1999 1998
OPERATING ACTIVITIES
Net income $ 28,197 $ 26,624
Gain from sale of real estate, net (4,546) -
Effects of noncash items -
Depreciation and amortization 31,708 36,447
Deferred income taxes and investment
tax credits, net 8,439 198
Earnings from corporate joint ventures (469) (852)
Dividends from corporate joint ventures 456 277
Change in working capital, exclusive of cash
and interim financing 37,343 27,637
Transition costs deferral (15,141) (30,246)
Power contract buy-out (2,265) -
All other operating items (28,220) 6,952
Net cash provided by operating activities 55,502 67,037
INVESTING ACTIVITIES
Purchase of total energy plant
and related contracts - (146,270)
Proceeds from sale of real estate 9,000 -
Additions to property, plant and equipment
(inclusive of AFUDC) -
Electric (13,396) (15,462)
Gas (7,440) (7,428)
Other (694) (3,246)
Net cash used for investing activities (12,530) (172,406)
FINANCING ACTIVITIES
Payment of dividends (18,129) (17,939)
Reimbursement of transaction costs 4,483 -
Proceeds from short-term borrowings 88,000 132,550
Long-term debt issues refunded (20,000) (10,000)
Redemption of preferred shares (12,285) -
Sinking funds payments (1,705) (1,397)
Net cash provided by financing activities 40,364 103,214
Net increase (decrease) in cash, cash
equivalents and restricted cash 83,336 (2,155)
Cash, cash equivalents and restricted
cash at beginning of period 268,173 4,299
Cash, cash equivalents and restricted
cash at end of period $351,509 $ 2,144
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period:
Interest (net of capitalized amounts) $ 18,382 $ 19,544
Income taxes $ 10,134 $ 22,130
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 "Parent" and, together with its subsidiaries, is collec-
tively referred to as "COM/Energy." The Parent 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 Parent has interests in other utility and several non-
regulated companies. In December 1998, the Parent signed an Agreement and
Plan of Merger with BEC Energy, the parent company of Boston Edison
Company, that will create an energy delivery company serving approximately
1.3 million customers located entirely within Massachusetts including more
than one million electric customers in 81 communities and 240,000 gas
customers in 51 communities.
COM/Energy has 1,603 regular employees including 1,019 (64%) repre-
sented by various collective bargaining units covered by separate con-
tracts with expiration dates ranging from March 2001 through April 2003.
In response to the significant changes that have taken place in the
utility industry, COM/Energy sold substantially all of its non-nuclear
generating assets in 1998 to focus on the transmission and distribution of
energy and related services (see Note 2 (c)).
(2) Accounting Policies
(a) Principles of Accounting
COM/Energy's significant accounting policies are described in Note 2
of Notes to Consolidated Financial Statements included in its 1998 Annual
Report on Form 10-K filed with the Securities and Exchange Commission.
For interim reporting purposes, COM/Energy 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 June 30, 1999
and 1998, reflect, in the opinion of the Parent, all adjustments (consist-
ing of only normal recurring accruals) necessary to summarize fairly the
results for such periods. In addition, certain prior period amounts are
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COMMONWEALTH ENERGY SYSTEM
reclassified from time to time to conform with the presentation used in
the current period's financial statements.
The results for interim periods are not necessarily indicative of
results for the entire year because of seasonal variations in the consump-
tion of energy and Commonwealth Gas' seasonal rate structure.
(b) Regulatory Assets and Liabilities
COM/Energy'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, COM/Energy 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 Parent 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 estab-
lished by COM/Energy 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 COM/Energy'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, COM/Energy believes that its regulatory
assets, including those related to generation, are probable of future
recovery.
As a result of electric industry restructuring, COM/Energy's retail
electric companies discontinued application of accounting principles
applied to their investment in electric generating facilities effective
March 1, 1998. COM/Energy 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 transi-
tion charge.
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COMMONWEALTH ENERGY SYSTEM
The principal regulatory assets included in deferred charges were as
follows:
June 30, December 31,
1999 1998
(Dollars in thousands)
Transition costs $ 66,277 $ 47,771
Maine Yankee unrecovered plant and
decommissioning costs 29,382 30,646
Fuel charge stabilization 25,983 26,682
Connecticut Yankee unrecovered plant and
decommissioning costs 23,496 25,185
Postretirement benefits costs 23,521 23,958
Deferred income taxes 15,737 15,737
Power contract buy-out 15,277 15,717
FERC Order 636 transition costs 6,206 5,968
Environmental costs 5,469 5,079
Yankee Atomic unrecovered plant and
decommissioning costs 2,535 3,676
Seabrook related costs 2,340 3,008
Other 8,024 7,201
$224,247 $210,628
The regulatory liabilities, reflected in the accompanying Consoli-
dated Condensed Balance Sheets, were as follows:
June 30, December 31,
1999 1998
(Dollars in thousands)
Regulatory liability related
to sale of generating assets $353,987 $354,226
Deferred income taxes 12,063 12,196
Demand-side management deferral 6,236 3,956
Other 422 451
$372,708 $370,829
The regulatory liability related to the sale of generating assets was
established pursuant to COM/Energy's divestiture filing that was approved
by the DTE in which COM/Energy agreed to use the net proceeds from the
sale of its non-nuclear generating assets to reduce transition costs that
are billed to its retail electric customers over the next several years as
a result of electric industry restructuring. COM/Energy established
Energy Investment Services, Inc. (EIS) as the vehicle to invest the net
proceeds from the sale of Canal Electric Company's (Canal Electric)
generating assets and a portion of the proceeds from the sale of Cambridge
Electric Light Company's (Cambridge Electric) generating assets. These
proceeds have been invested in a conservative portfolio of securities that
is designed to maintain principal and earn a reasonable return. Both the
principal amount and income earned will be used to reduce the transition
costs that would otherwise be billed to customers of Cambridge Electric
and Commonwealth Electric Company (Commonwealth Electric). The net
proceeds have been classified as restricted cash on the accompanying
Consolidated Condensed Balance Sheets.
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COMMONWEALTH ENERGY SYSTEM
COM/Energy's regulatory assets, including the costs associated with
existing power contracts with three Yankee nuclear power plants that have
shut down permanently, and all of its regulatory liabilities are reflected
in rates charged to customers. Regulatory assets are to be recovered over
11 years pursuant to the legislation discussed below. However, Common-
wealth Electric and Cambridge Electric received approximately $56 million
and $6.3 million, respectively, from EIS in July 1999 which will reduce
the amount of regulatory assets to be recovered in the future.
In November 1997, the Commonwealth of Massachusetts enacted a
comprehensive electric utility industry restructuring bill. On November
19, 1997, COM/Energy's electric subsidiaries filed a restructuring plan
with the DTE. The plan, approved by the DTE on February 27, 1998,
provides that COM/Energy'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 are
eligible for recovery. Costs that qualify as strandable costs and are
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 liabili-
ties related to the generation portion of the electric business.
(c) Divestiture of Generation Assets
The cost of transitioning to competition will be mitigated, in part,
by the sale of COM/Energy's non-nuclear generating assets. On May 27,
1998, COM/Energy agreed to sell substantially all of its non-nuclear
generating assets (984 MW) to affiliates of The Southern Company of
Atlanta, Georgia. The sale was conducted through an auction process that
was outlined in a restructuring plan filed with the DTE in November 1997
in conjunction with the state's industry restructuring legislation enacted
in 1997. The sale was approved by the DTE on October 30, 1998 and by the
FERC on November 12, 1998. Proceeds from the sale of these assets, after
construction-related adjustments at the closing that occurred on December
30, 1998, amounted to approximately $453.9 million or 6.1 times their book
value of approximately $74.2 million. An adjustment of $5.1 million was
recorded in the first quarter of 1999 that reduced the book value to $69.1
million. The proceeds from the sale, net of book value, transaction costs
and certain other adjustments, now amount to $354 million and will be used
to reduce transition costs related to electric industry restructuring that
otherwise would have been collected through a non-bypassable transition
charge. COM/Energy has determined that this transaction was not a taxable
event because it provided no economic benefit to COM/Energy.
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COMMONWEALTH ENERGY SYSTEM
(3) Commitments and Contingencies
Capital Expenditures
(a) Construction Program
COM/Energy is engaged in a continuous construction program presently
estimated at $327.9 million for the five-year period 1999 through 2003.
Of that amount, $63.4 million is estimated for 1999. The program is
subject to periodic review and revision.
(b) Acquisition
On June 1, 1998, Advanced Energy Systems, Inc. (AES), a wholly-owned
subsidiary of the Parent, 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 estab-
lished 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 Parent to AES of approximately $40 million (financed with a 2-year
variable rate term note issued by the Parent). A permanent financing was
completed on August 26, 1998 that consisted of $112.5 million in 23-year
term notes at a rate of 6.924% with quarterly sinking fund payments
scheduled to begin on September 30, 2003 that escalate from $790,000 to
$2.7 million at the end of the term. These notes are secured by long-term
contracts between MATEP and its customers. The 2-year term note will be
repaid in two installments of $20 million each on September 30, 1999 and
July 1, 2000. The variable interest rate averaged 5.667% during the first
half of 1999.
Results for MATEP are included in the accompanying Consolidated
Condensed Financial Statements from the date of acquisition.
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 six months ended June
30, 1998 as if the acquisition had occurred at the beginning of the year
presented:
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COMMONWEALTH ENERGY SYSTEM
Three Months Ended Six Months Ended
June 30, June 30,
1998 1998
(Dollars in thousands except per share amounts)
Revenues $212,581 $502,985
Net Income (Loss)
Applicable to
Common Shares $ (521) $ 24,335
Basic and Diluted
Earnings per
Common Share $(.02) $1.13
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 year presented, or of results that may occur
in the future.
(c) Pilgrim Power Contract
Commonwealth Electric had an 11% (73.6 megawatts) contract entitle-
ment in the output of the Pilgrim nuclear power plant, located in Plym-
outh, MA, which was sold by Boston Edison Company (Boston Edison) on July
13, 1999 to Entergy Nuclear Generating Company (Entergy). On April 29,
1999, the Nuclear Regulatory Commission issued an order approving the
transfer of the operating license for the plant from Boston Edison to
Entergy. In conjunction with this sale, Commonwealth Electric reached an
agreement with Boston Edison to buy out of this life-of-the-unit contract,
terminating Commonwealth Electric's rights and obligations under the
contract regarding the power output of the plant. Pursuant to the buy-out
agreement, Commonwealth Electric paid approximately $105 million in July
1999 to terminate this contract with Boston Edison. The buy-out was paid
with funds held by affiliate EIS (see Note 2(b)) that were provided from
Commonwealth Electric's share of the net proceeds from Canal Electric's
sale of its generating assets. The DTE approved the buy-out transaction
as a mitigation measure and approved inclusion of the buy-out payment as a
transition cost for purposes of cost recovery by Commonwealth Electric.
In a transaction related to the sale of the Pilgrim plant, Commonwealth
Electric will buy power generated by the Pilgrim plant from Entergy on a
declining basis through 2004.
(d) Lowell Cogeneration Company Power Contract
On July 22, 1999, Commonwealth Electric filed with the DTE a Petition
for Approval of an Amended and Restated Power Sale Agreement between
Commonwealth Electric and Lowell Cogeneration Company (Lowell). The
Petition requests approval of an amendment to the existing power sales
agreement that would terminate Commonwealth Electric's obligation to
purchase the output (28 megawatts) from the combined cycle cogeneration
facility located in Lowell, MA.
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COMMONWEALTH ENERGY SYSTEM
In September 1986, Commonwealth Electric had agreed to purchase all
of the electric capacity and energy produced by Lowell through the year
2008. A 1994 restructured agreement eliminated Commonwealth Electric's
purchase obligations through the year 2000 while extending the agreement
with Lowell through 2010 as a dispatchable unit.
Pursuant to the restructured agreement, Commonwealth Electric will
retain the right, at its sole option, to purchase the output of the unit
under call-back rights to ensure ongoing supply for default and standard
offer service. A filing was made with the DTE in July 1999 that seeks
approval of the new contract terms and the inclusion of the fixed costs
($1.1 million per month during the 4.5 year term of the restructured
agreement), to be paid to Lowell, in the transition costs to be collected
from Commonwealth Electric's retail customers. The fixed costs will be
paid with funds held by affiliate EIS provided from Commonwealth Elec-
tric's share of the net proceeds from Canal Electric's sale of its
generating assets. Upon approval of the filing, there will be a reduction
in the overall level of transition costs to be recovered from customers of
Commonwealth Electric.
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COMMONWEALTH ENERGY SYSTEM
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Merger with BEC Energy
The electric utility industry has continued to change in response to
legislative and regulatory mandates that are aimed at lowering prices for
energy by creating a more competitive marketplace. These pressures have
resulted in an increasing trend in the electric industry to seek competi-
tive advantages and other benefits through business combinations. On
December 5, 1998, COM/Energy and BEC Energy (BEC), headquartered in
Boston, Massachusetts, entered into an Agreement and Plan of Merger (the
Merger Agreement). Pursuant to the Merger Agreement, COM/Energy and BEC
will be merged into a new holding company to be known as NSTAR. Holders
of COM/Energy common shares will receive 1.05 shares of NSTAR common stock
for each share held while BEC common shareholders will receive one share
of NSTAR common stock for each share held. In addition, current
COM/Energy and BEC common shareholders have the right to receive cash
rather than NSTAR common stock in the amount of $44.10 for each share
held, up to an aggregate maximum of $300 million. At the close of the
merger, COM/Energy shareholders will own approximately 32% of NSTAR common
stock and BEC shareholders will own approximately 68%. The initial
quarterly dividend rate of NSTAR is anticipated to be equal to BEC's
current rate of 48.5 cents per share ($1.94 per share on an annualized
basis). The merger will create an energy delivery company serving
approximately 1.3 million customers located entirely within Massachusetts,
including more than one million electric customers in 81 communities and
240,000 gas customers in 51 communities. The merger is expected to occur
shortly after the satisfaction of certain conditions, including the
receipt of the required approvals. On June 24, 1999, common shareholders
of COM/Energy and BEC approved the merger. On June 30, 1999, the FERC
approved the merger. On July 27, 1999, the DTE approved the rate plan
filed by the utility subsidiaries of the two companies that is an integral
part of the merger. On August 16, 1999, the Massachusetts Attorney
General's Office and a group of four intervenors filed appeals of the
DTE's rate plan order with the Massachusetts Supreme Judicial Court. The
significant elements of the rate plan include a four-year distribution
rate freeze for each of the NSTAR retail utility subsidiaries and recovery
of all merger-related costs including an acquisition premium of approxi-
mately $516 million. On August 11, 1999, the Nuclear Regulatory Commis-
sion approved the transfer of control of Canal Electric's interest in the
Seabrook nuclear generating plant from COM/Energy to NSTAR. The remaining
merger approval from the Securities and Exchange Commission is expected to
be issued in August.
The Merger Agreement may be terminated under certain circumstances,
including by any party if the merger is not consummated by December 5,
1999, subject to an automatic extension of six months if the requisite
regulatory approvals have not yet been obtained by such date. The merger
will be accounted for as an acquisition of COM/Energy by BEC using the
purchase method of accounting.
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COMMONWEALTH ENERGY SYSTEM
Upon effectiveness of the merger, Thomas J. May, BEC's current
Chairman, President and Chief Executive Officer (CEO), will become the
Chairman and CEO of NSTAR. Russell D. Wright, COM/Energy's current
President and CEO, will become the President and Chief Operating Officer
of NSTAR and will serve on NSTAR's board of trustees. Also, upon effec-
tiveness of the merger, NSTAR's board of trustees will consist of
COM/Energy's and BEC's current trustees.
Financial Condition
Capital resources of the Parent 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 Parent purchases 100% of all subsidiary
common stock issues and provides, to the extent possible, a portion of the
subsidiaries' short-term financing needs. These capital resources provide
the funds required for the subsidiary companies' construction programs,
current operations, debt service and other capital requirements.
For the current six-month period, cash flows from operating activi-
ties amounted to approximately $55.5 million and reflect net income of
$28.2 million and noncash items including depreciation of $25 million and
amortization of $6.7 million. The change in working capital since
December 31, 1998, exclusive of cash, restricted cash, cash equivalents
and interim financing, amounted to $37.3 million and had a positive impact
on cash flows from operating activities, reflecting a lower level of
accounts receivable ($18.4 million), unbilled revenues ($10 million),
prepaid property taxes ($8.1 million) and inventories ($6.9 million)
coupled with a higher level of other current liabilities ($29.2 million)
and accrued taxes ($7.3 million). These factors were offset, in part, by
a decline in accounts payable ($39.8 million) and other current assets
($2.7 million).
Construction expenditures for the first half of 1999 were approxi-
mately $21.5 million, including an allowance for funds used during
construction (AFUDC) and nuclear fuel. Construction expenditures and the
preferred and common dividend requirements of the Parent ($18.1 million)
were funded with internally-generated funds.
On February 12, 1999, the holders of the Parent's Cumulative Pre-
ferred Shares (Series A 4.80%, Series B 8.10% and Series C 7.75%) were
notified that each series would be redeemed in full effective April 1,
1999. The redemption price of $102 for Series A and $101 for each of
Series B and C, plus accrued dividends, was paid by the Parent on April 1,
1999.
On July 13, 1999, Commonwealth Electric paid BEC approximately $105
million to buy out of its life-of-the-unit contract entitlement for 11% of
the output of the Pilgrim nuclear power plant. The buy-out (see Note
3(c)) was paid with funds held by subsidiary Energy Investment Services,
Inc.
<PAGE>
<PAGE 15>
COMMONWEALTH ENERGY SYSTEM
Cambridge Electric expects to issue $25 million in long-term debt by
the end of the third quarter of this year. The proceeds will be used to
repay short-term debt that was required to fund a maturing long-term debt
issue ($10 million) as well as construction expenditures.
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.
A summary of the period to period changes in the principal items
included in the Consolidated Condensed Statements of Income for the three
and six months ended June 30, 1999 and 1998 and unit sales for these
periods are shown below:
Three Months Six Months
Ended June 30, Ended June 30,
1999 and 1998 1999 and 1998
Increase (Decrease)
(Dollars in thousands)
Operating Revenues -
Electric $(11,008) (7.9)% $(26,825) (9.1)%
Gas (4,277) (7.3) (4,475) (2.6)
Steam and other 6,559 98.4 15,639 126.9
(8,726) (4.3) (15,661) (3.3)
Operating Expenses -
Fuel and purchased power (1,127) (1.6) (8,418) (5.4)
Cost of gas sold (11,015) (31.0) (11,010) (12.1)
Other operation and maintenance 324 0.5 7,011 5.6
Depreciation (3,201) (22.3) (5,574) (18.2)
Taxes -
Federal and state income 2,378 260.7 1,620 9.5
Local property and other 392 6.2 792 5.3
(12,249) (6.4) (15,579) (3.6)
Operating Income 3,523 30.5 (82) (0.2)
Other Income 3,610 449.0 3,524 235.1
Income Before Interest Charges 7,133 57.8 3,442 7.2
Interest Charges 1,480 13.1 1,869 8.7
Net Income 5,653 530.8 1,573 5.9
Dividends on preferred shares (237) (100.0) (252) (53.2)
Earnings Applicable to Common Shares $ 5,890 711.4 $ 1,825 7.0
<PAGE>
<PAGE 16>
COMMONWEALTH ENERGY SYSTEM
Unit Sales
Electric - Megawatthours (MWH)
Retail 22,079 2.0 73,151 3.2
Wholesale (424,105) (58.7) (1,108,280) (59.5)
(402,026) (22.0) (1,035,129) (25.0)
Gas - Billions of British Thermal
Units (BBTU)
Firm (970) (19.0) 870 4.4
Interruptible and other (513) (37.9) (177) (6.1)
Transportation 259 8.5 521 9.6
(1,224) (12.9) 1,214 4.4
The following is a summary of electric unit sales and gas throughput
for the periods indicated:
Three Months Ended Six Months Ended
June 30, June 30,
1999 1998 1999 1998
Electric Sales - MWH
Residential 404,901 379,912 907,431 852,131
Commercial 608,373 604,001 1,235,934 1,200,861
Industrial 106,968 114,247 198,380 215,527
Other 4,952 4,955 11,568 11,643
Total retail sales 1,125,194 1,103,115 2,353,313 2,280,162
Wholesale sales 297,943 722,048 754,095 1,862,375
Total 1,423,137 1,825,163 3,107,408 4,142,537
Gas Sales - BBTU
Residential 2,619 2,995 13,014 11,763
Commercial 1,154 1,463 5,600 5,515
Industrial 171 352 878 1,167
Other 193 297 943 1,120
Total firm sales 4,137 5,107 20,435 19,565
Interruptible
and other 841 1,354 2,740 2,917
Total sales 4,978 6,461 23,175 22,482
Transportation 3,291 3,032 5,920 5,399
Total throughput 8,269 9,493 29,095 27,881
Electric Revenues, Fuel and Purchased Power Costs
Operating revenues from regulated operations for the current quarter
and six-month period were $13.5 million and $30 million lower, respective-
ly, than the corresponding periods in 1998 primarily due to the absence of
wholesale revenues derived from the sale of power produced by Canal
Electric's generating assets that were sold in December 1998. Also
contributing to the decreases were rate reductions resulting from electric
industry restructuring legislation and a net decrease in electricity
purchased for resale, fuel and transmission charges of $1.1 million (1.6%)
and $8.4 million (5.4%), respectively. These decreases were partially
offset by higher retail unit sales in both periods. As a result of
industry restructuring, COM/Energy has unbundled its rates and provided
customers with a ten percent rate reduction as of March 1, 1998 that was
<PAGE>
<PAGE 17>
COMMONWEALTH ENERGY SYSTEM
subsequently increased to approximately 12% and 16% for Commonwealth
Electric and Cambridge Electric, respectively, effective January 1, 1999 in
conjunction with COM/Energy's restructuring plan as approved by the DTE.
Operating revenues from a non-regulated subsidiary increased by $2.5
million for the current quarter and $3.2 million for the current six-month
period.
This legislation also provides customers with the opportunity to
purchase generation supply in the competitive market. Unbundled delivery
rates are composed of a customer charge (to collect metering and billing
costs), a distribution charge (to collect the costs of delivering electric-
ity), a transition charge (to collect past costs for investments in
generating plants and costs related to power contracts), a transmission
charge (to collect the cost of moving the electricity over high voltage
lines from a generating plant), an energy conservation charge (to collect
costs for demand-side management programs) and a renewable energy charge
(to collect the cost to support the development and promotion of renewable
energy projects). Electricity supply services provided by COM/Energy
include optional standard offer service and default service. Standard
offer service is the electricity that is supplied by the local distribution
company (such as Commonwealth Electric and Cambridge Electric) until a
competitive supplier is chosen by the customer. It is designed as a seven-
year transitional service to give the customer time to learn about competi-
tive power suppliers. The price of standard offer service will increase
over time. Default service is the electricity that is supplied by the
local distribution company when a customer is not receiving power from
either standard offer service or a competitive power supplier. The market
price for default service will fluctuate based on the average market price
for power. Amounts collected through these various charges will be
reconciled to actual expenditures on an on-going basis. Currently, 85.8%
of retail customers receive standard offer service, 14.1% of retail
customers receive default service and 0.1% of retail customers receive
electricity supply services from competitive power suppliers. For further
information on electric industry restructuring, refer to COM/Energy's 1998
Annual Report on Forms 10-K and 10-K/A.
Total unit sales decreased in both the current quarter and six month
period of 1999 despite 2% and 3.2% increases, respectively, in retail sales
as wholesale sales decreased by 58.7% and 59.5%, respectively. These
significant decreases reflect the sale of Canal Units 1 and 2 in December
1998.
Gas Revenues and Cost of Gas Sold
Operating revenues from regulated operations decreased by $2.3
million during the current quarter due primarily to a 23% decrease in total
unit sales and a $5.2 million decrease in the cost of gas sold. Partially
offsetting these decreases was a $1.7 million increase in transportation
revenues. During the current six-month period operating revenues from
regulated operations decreased by $656,000 due to a $7.8 million decline in
the cost of gas sold offset by a 3.1% increase in total unit sales and a $3
million increase in transportation revenues. Additionally, affecting both
periods was a lower average cost of gas. Also during the current quarter
and six-month period, operating revenues from an unregulated subsidiary
<PAGE>
<PAGE 18>
COMMONWEALTH ENERGY SYSTEM
decreased by $6.5 million and $3.8 million, respectively, compared to the
same periods of 1998 due to the sale of that subsidiary's assets in
February 1999.
The 4.4% increase in unit sales to firm customers during the current
six-month period reflects higher sales to all customer segments due to
cooler weather conditions experienced during the first quarter of 1999
compared to the same period last year. The 19% decrease in firm unit sales
for the current quarter reflects the warmer weather experienced throughout
the region during that time. 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 six-month period, other operation and maintenance
increased by $7 million (5.6%) and reflects costs associated with the MATEP
facility that was acquired in June 1998 ($3.7 million), costs associated
with the sale of the assets of an unregulated subsidiary ($1.8 million),
the absence in the current period of an adjustment to year-end 1997 payroll
(made in January 1998) related to the 1997 personnel reduction program
(PRP) ($1.8 million), higher conservation and load management costs ($1.3
million) and an increase in the provision for bad debts ($1.1 million).
These increases were partially offset by a decline in insurance and
employee benefits costs ($1.5 million).
Depreciation decreased $3.2 million and $5.6 million during the
current quarter and six-month period of 1999, respectively, and reflects
the aforementioned sale of COM/Energy's generating assets in December 1998
partially offset by depreciation related to the MATEP facility. Federal
and state income taxes increased during both current periods reflecting a
higher level of pre-tax income. The increases in local property and other
taxes for both current periods was due primarily to real estate taxes
associated with MATEP and higher tax rates and assessments offset, in part,
by the absence of real estate taxes related to the generating assets that
were sold.
Other Income
The increase in other income in both current periods is primarily due
to the net gain from the sale of real estate by an unregulated subsidiary
($4.6 million) and interest accrued on deferred transition costs associated
with electric industry restructuring ($730,000 during the current quarter
and $1.3 million during the current six-month period) offset, in part, by
expenses incurred related to the pending merger with BEC Energy ($2.5
million during the current quarter and $4.4 million during the current six-
month period).
Interest Charges
The increase in total interest charges for both current periods
mainly reflects interest expense on amounts deferred in conjunction with
COM/Energy's restructuring plan as approved by the DTE and the issuance of
23-year term notes in August 1998 partially offset by maturing long-term
debt and scheduled sinking fund payments.
<PAGE>
<PAGE 19>
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 contami-
nated and whether Commonwealth Gas may be responsible for remedial actions.
The DTE has approved recovery of costs associated with MGP sites. Common-
wealth Gas is also involved in certain other known or potentially contami-
nated sites where the associated costs may not be recoverable in rates.
For additional information on other related environmental matters, refer to
the 1998 Annual Report on Forms 10-K and 10-K/A.
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. COM/Energy has been involved in Year 2000 compliancy
since 1996.
COM/Energy, on a coordinated basis and with the assistance of RCG
Information Technologies and other consultants, is addressing the Year 2000
issue. COM/Energy has followed a five-phase process in its Year 2000
compliance efforts, as follows: Awareness (through a series of internal
announcements to employees and through contacts with vendors); Inventory
(all computers, applications and embedded systems that could potentially be
affected by the Year 2000 problem); Assessment (all applications or
components and the impact on overall business operations and a plan to
correct deficiencies and the cost to do so); Remediation (the modification,
upgrade or replacement of deficient hardware and software applications and
infrastructure modifications); and Testing (a detailed, comprehensive
testing program for the modified critical component, system or software
that involves the planning, execution and analysis of results).
COM/Energy's inventory phase required an assessment of all date
sensitive information and transaction processing computer systems and
determined that approximately 90% of its software systems needed some
modifications or replacement. Plans were developed, implemented, and all
of these systems have been modified, upgraded or replaced. COM/Energy is
currently at a 98% completion level in its five-phase process for all
systems, with completion of the last stages of its extensive testing
process for the final six systems expected by September 30, 1999.
COM/Energy has also inventoried its non-information technology
systems that may be date sensitive (facilities, electric and gas opera-
tions, energy supply/production and distribution) that use embedded
technology such as micro-controllers and micro-processors. COM/Energy has
completed its assessment of these non-information technology systems and
determined that 20% of these systems required remediation or replacement.
COM/Energy has reported to the North American Electric Reliability Council
(NERC) that it met the NERC target date of June 30, 1999 for 100% readiness
of all its mission critical components required for the continued safe and
<PAGE>
<PAGE 20>
COMMONWEALTH ENERGY SYSTEM
reliable delivery of electricity into the Year 2000. COM/Energy's gas and
other operations are also at a 100% completion level for all mission criti-
cal issues regarding Year 2000 readiness. Overall, the non-information
technology systems are at a 99% completion level, with the final items
scheduled for completion by August 31, 1999.
Modifying and testing COM/Energy's information and transaction
processing systems from 1996 through 2000 is currently expected to cost
approximately $10.2 million, including approximately $900,000, $3.1 million
and $3.2 million incurred through 1997, 1998 and the first half of 1999,
respectively. Approximately $3 million is expected to be spent during the
remainder of 1999 and in 2000. Year 2000 costs have been expensed as
incurred and will continue to be funded from operations.
In addition to its internal efforts, COM/Energy has initiated formal
communications with its significant suppliers to determine the extent to
which COM/Energy may be vulnerable to its suppliers' failure to correct
their own Year 2000 issues. COM/Energy has ranked its vendors in terms of
importance, and as of June 30, 1999 has received adequate responses from
100% of its "critical" and "high" rated vendors. Failure of COM/Energy's
significant suppliers to address Year 2000 issues could have a material
adverse effect on COM/Energy'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 COM/Energy. Contact with all other vendors
is continuing and inadequate responses are being pursued by COM/Energy.
COM/Energy is prepared to replace certain suppliers or to initiate other
contingency plans for any vendor not responding to COM/Energy's satisfac-
tion.
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
COM/Energy's ability to acquire energy and its ability to serve its custom-
ers as effectively as they are now being served. COM/Energy has identified
the elements of the infrastructure that are critical to its operations and
has requested and obtained information as to the expected Year 2000
readiness of these elements.
COM/Energy has completed the development of its Year 2000 contingency
plans for all operational areas that may be effected by Year 2000 issues.
COM/Energy's gas and electric operations currently have emergency operating
plans, as well as information technology disaster recovery plans, as compo-
nents of their standard operating procedures. These plans have been
enhanced, identifying potential Year 2000 risks to normal operations and
the appropriate response to these potential failures. These plans also
include actions to be taken in the event of third party and infrastructure
failures with regard to the Year 2000 event, although in certain cases,
there may be no practical alternative course of action available to
COM/Energy. The implementation of the contingency plans will continue
throughout the remainder of 1999.
COM/Energy is working with other energy industry entities, both
regionally and nationally, with respect to Year 2000 readiness and is
<PAGE>
<PAGE 21>
COMMONWEALTH ENERGY SYSTEM
cooperating in the development of local and wide-scale contingency plan-
ning.
While COM/Energy believes its efforts to address the Year 2000 issue
will allow it to be successful in avoiding any material adverse effect on
COM/Energy'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 infra-
structure failures. Similarly, COM/Energy could be significantly effected
by the failure of one or more significant suppliers, customers or compo-
nents of the infrastructure to conduct their respective operations after
1999. Adverse affects on COM/Energy could include, among other things,
business disruption, increased costs, loss of business and other similar
risks.
The foregoing discussion regarding Year 2000 project timing, effec-
tiveness, 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 COM/Energy's ability to respond to unforeseen Year 2000
complications.
New Accounting Standard
In June 1998, the Financial Accounting Standards Board issued 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,
2000 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 adoption of SFAS No. 133 is not expected to have a material impact on
COM/Energy's results of operations or financial condition.
<PAGE>
<PAGE 22>
COMMONWEALTH ENERGY SYSTEM
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 Parent'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 develop-
ments 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
COM/Energy 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 approv-
ing a customer transition charge (CTC) for the recovery of stranded invest-
ment costs. By its terms, the CTC was terminated on March 1, 1998, coinci-
dent with the retail access date established by the Massachusetts Legisla-
ture 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. At this time, management is unable
to predict the ultimate outcome of this proceeding.
Item 2. Changes in Securities and Use of Proceeds
None
Item 3. Defaults by the Company on its Senior Securities
None
Item 4. Results of Votes of Security Holders
(a) A Special Meeting in Lieu of the Annual Meeting of Shareholders
(1999 Annual Meeting) was held on June 24, 1999.
(b) The three nominees, Peter H. Cressy, William J. O'Brien and
Russell D. Wright, listed in the Parent's Notice of 1999 Annual
Meeting and Proxy Statement dated May 14, 1999 were elected to the
Board of Trustees of Commonwealth Energy System at the 1999 Annual
Meeting.
(c) As set forth in COM/Energy's Notice of 1999 Annual Meeting and
Proxy Statement dated May 14, 1999, a proposal to consider and
vote upon the Agreement and Plan of Merger between COM/Energy and
BEC Energy was voted on and approved at the 1999 Annual Meeting.
There were 16,550,031 (76.7%) Common Shares voted for this propos-
al, 289,633 (1.4%) Common Shares voted against this proposal,
157,938 (0.7%) Common Shares abstained and 4,577,835 (21.2%)
Common Shares were not voted. In accordance with the shareholder
vote, which required the approval of the holders of two-thirds of
COM/Energy's Common Shares, the proposal passed and the Agreement
and Plan of Merger was approved.
<PAGE>
<PAGE 24>
COMMONWEALTH ENERGY SYSTEM
(d) As set forth in COM/Energy's Notice of 1999 Annual Meeting and
Proxy Statement dated May 14, 1999, a shareholder proposal
requesting the Board of Trustees to repeal the classified board
and institute annual election of trustees was voted upon and
failed to pass at the 1999 Annual Meeting. There were 4,518,949
(20.9%) Common Shares voted for this proposal, 11,660,675 (54.1%)
Common Shares voted against this proposal, 817,978 (3.8%) Common
Shares abstained and 4,577,835 (21.2%) Common Shares were not
voted. The affirmative vote of the holders of a majority of the
outstanding Common Shares was required for approval of this
proposal.
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 27 - Financial Data Schedule
Filed herewith as Exhibit 1 is the Financial Data Schedule for the
six months ended June 30, 1999.
Filed herewith as Exhibit 2 is the restated Financial Data
Schedule for the year ended December 31, 1998.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the three months ended
June 30, 1999.
<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: August 16, 1999
<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND>
This schedule contains summary financial information extracted from the
balance sheet, statement of income and statement of cash flows contained in
Form 10-Q of Commonwealth Energy System for the three months ended June 30,
1999 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-31-1999
<PERIOD-END> JUN-30-1999
<PERIOD-TYPE> 6-MOS
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 1,019,352
<OTHER-PROPERTY-AND-INVEST> 14,033
<TOTAL-CURRENT-ASSETS> 320,518
<TOTAL-DEFERRED-CHARGES> 280,398
<OTHER-ASSETS> 176,789
<TOTAL-ASSETS> 1,811,090
<COMMON> 43,081
<CAPITAL-SURPLUS-PAID-IN> 112,309
<RETAINED-EARNINGS> 304,409
<TOTAL-COMMON-STOCKHOLDERS-EQ> 459,799
0
0
<LONG-TERM-DEBT-NET> 384,457
<SHORT-TERM-NOTES> 90,000
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 35,696
0
<CAPITAL-LEASE-OBLIGATIONS> 10,576
<LEASES-CURRENT> 1,120
<OTHER-ITEMS-CAPITAL-AND-LIAB> 829,442
<TOT-CAPITALIZATION-AND-LIAB> 1,811,090
<GROSS-OPERATING-REVENUE> 465,234
<INCOME-TAX-EXPENSE> 18,638
<OTHER-OPERATING-EXPENSES> 400,078
<TOTAL-OPERATING-EXPENSES> 418,716
<OPERATING-INCOME-LOSS> 46,518
<OTHER-INCOME-NET> 5,023
<INCOME-BEFORE-INTEREST-EXPEN> 51,541
<TOTAL-INTEREST-EXPENSE> 23,344
<NET-INCOME> 28,197
222
<EARNINGS-AVAILABLE-FOR-COMM> 27,975
<COMMON-STOCK-DIVIDENDS> 17,908
<TOTAL-INTEREST-ON-BONDS> 17,008
<CASH-FLOW-OPERATIONS> 55,502
<EPS-BASIC> 1.30
<EPS-DILUTED> 1.30
</TABLE>
<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND>
This schedule contains restated summary financial information extracted from
the balance sheet, statement of income and statement of cash flows contained
in Form 10-K of Commonwealth Energy System for the fiscal year ended December
31, 1998 and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<RESTATED>
<CIK> 0000071304
<NAME> COMMONWEALTH ENERGY SYSTEM
<MULTIPLIER> 1,000
<S> <C>
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<PERIOD-TYPE> YEAR
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 1,019,324
<OTHER-PROPERTY-AND-INVEST> 14,031
<TOTAL-CURRENT-ASSETS> 282,349
<TOTAL-DEFERRED-CHARGES> 265,923
<OTHER-ASSETS> 172,239
<TOTAL-ASSETS> 1,753,866
<COMMON> 43,081
<CAPITAL-SURPLUS-PAID-IN> 112,170
<RETAINED-EARNINGS> 294,341
<TOTAL-COMMON-STOCKHOLDERS-EQ> 449,592
11,380
0
<LONG-TERM-DEBT-NET> 385,602
<SHORT-TERM-NOTES> 0
<LONG-TERM-NOTES-PAYABLE> 2,000
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 57,123
820
<CAPITAL-LEASE-OBLIGATIONS> 10,982
<LEASES-CURRENT> 1,340
<OTHER-ITEMS-CAPITAL-AND-LIAB> 835,027
<TOT-CAPITALIZATION-AND-LIAB> 1,753,866
<GROSS-OPERATING-REVENUE> 980,115
<INCOME-TAX-EXPENSE> 26,253
<OTHER-OPERATING-EXPENSES> 865,002
<TOTAL-OPERATING-EXPENSES> 891,255
<OPERATING-INCOME-LOSS> 88,860
<OTHER-INCOME-NET> 12,453
<INCOME-BEFORE-INTEREST-EXPEN> 101,313
<TOTAL-INTEREST-EXPENSE> 46,909
<NET-INCOME> 54,404
930
<EARNINGS-AVAILABLE-FOR-COMM> 53,474
<COMMON-STOCK-DIVIDENDS> 34,928
<TOTAL-INTEREST-ON-BONDS> 37,435
<CASH-FLOW-OPERATIONS> 81,949
<EPS-BASIC> 2.48
<EPS-DILUTED> 2.48
</TABLE>
