Item 1. Business
General
Commonwealth Electric Company (the Company) is engaged in the generation, transmission, distribution and sale of electricity at retail to approximately 312,200 customers (including 48,600 seasonal) in 40 communities located in southeastern Massachusetts, including Cape Cod and the island of Martha's Vineyard, having an approximate year-round population of 549,000 and a large influx of summer residents. The results of the 1990 federal census taken in the Company's service area indicated a population increase of 18.1% since 1980. Also, the Company sells power to the New England Power Pool (NEPOOL) and is actively marketing sales of certain available capacity to other utilities in and outside the New England region.
The Company, which was organized on April 4, 1850 pursuant to a special act of the legislature of the Commonwealth of Massachusetts, operates under the jurisdiction of the Massachusetts Department of Public Utilities (DPU), which regulates retail rates, accounting, issuance of securities and other matters. In addition, the Company files its wholesale rates with the Federal Energy Regulatory Commission (FERC). Since the date of its organization, the Company has from time to time acquired or disposed of the property and franchises of or merged with various gas or electric companies. The Company is a wholly-owned subsidiary of Commonwealth Energy System (System), which, together with its subsidiaries, is collectively referred to as "the system."
By virtue of its charter, which is unlimited in time, the Company distrib- utes electricity without direct competition in kind from any privately or municipally-owned utilities. Alternate sources of energy are available to customers within the service territory, but competition from these sources to date has not been a significant factor affecting the Company. However, this past year the Company continued to develop and implement strategies to deal with the increasingly competitive environment. For further details, refer to the "Competition" section that follows in this Item 1. Of the Company's 1994 retail electric unit sales (73.8% of its total sales), 48.8% was sold to residential customers, 32.1% to commercial customers, 10.2% to industrial and 8.9% to municipal and other customers.
Electric Power Supply
The Company relies almost entirely on purchased power to meet its electric energy requirements. The Company owns generating facilities with a total capacity of 13.8 megawatts (MW), which are principally used for emergency and peaking purposes. The Company also has a joint-ownership interest of 8.9 MW in Central Maine Power Company's oil-fired Wyman Unit 4.
Power purchases for the Company and Cambridge Electric Light Company (Cambridge Electric), the other wholly-owned electric distribution subsidiary of the System, are arranged in accordance with their requirements. These arrangements include purchases from Canal Electric Company (Canal), another wholly-owned subsidiary of the System. Canal is a wholesale electric generat- ing company located in Sandwich, Massachusetts and an important source of purchased power for the Company and Cambridge Electric. Under long-term con- tracts, system entitlements include one-quarter (140 MW) of the capacity and
COMMONWEALTH ELECTRIC COMPANY
energy of Canal Unit 1 and one-half (292 MW) of the capacity and energy of Canal Unit 2. The Company's entitlements in these units are 112.5 MW and 141.9 MW, respectively.
Pursuant to a Capacity Acquisition and Disposition Agreement (CADA), Canal seeks to secure bulk electric power on a single system basis to provide cost savings for the customers of the Company and Cambridge Electric. The CADA has been accepted for filing as an amendment to Canal's FERC rate schedule and allows Canal to act on behalf of the Company and Cambridge Electric in the procurement of additional capacity for one or both companies, or, to sell capacity and/or energy from each company's entitlements. The CADA is in effect for Seabrook 1, Phases I and II of Hydro-Quebec, New England Power Company (Bear Swamp Units), Northeast Utilities and Central Vermont Public Service Corp. (Vermont Yankee and Merrimack 2 Unit). Exchange agreements are in place with several of these utilities whereby, in certain circumstances, it is possible to exchange capacity so that the mix of power improves the pricing for dispatch for both the seller and the purchaser. Power contracts are in place whereby Canal bills or credits the Company and Cambridge Electric for the costs or revenues associated with these facilities. The Company and Cambridge Electric, in turn, have billed or are billing these charges (net of revenues from sales) to their customers through rates subject to DPU approval.
The Company has other long-term contracts for the purchase of electricity from various sources including a 73.5 MW entitlement from a nuclear unit in Plymouth, Massachusetts (Pilgrim) under a life-of-the-unit contract with Boston Edison Company. Also, through Canal's equity ownership in Hydro-Quebec Phase II and its 3.52% interest in the Seabrook nuclear power plant, the Company has entitlements of 48.2 MW and 32.4 MW, respectively.
Several independent power producer (IPP) sources provided a substantial portion of the Company's requirements in 1994 as follows:
Company Entitlement (MW) Natural gas fired units - Lowell Cogeneration Company, L.P. (a) 23.0 Pepperell Power Associates, L.P. (a) 38.0 Northeast Energy Associates 46.0 Masspower 59.9 Altresco Pittsfield, L.P. 27.5 Dartmouth Power Associates 67.2 261.6 Waste-to-Energy fired units (b) - SEMASS 70.2
Hydro sources (5) 29.9
(a) For further information on these units, refer to the "Power Contract Negotiations" section that follows in this Item 1. (b) Includes an expansion unit that became operational in May 1993.
There were no new sources of system generation or purchased power in 1994. In 1993, the Company extended a commitment to April 1997 to exchange 50 MW of Canal Electric's oil-fired generation with 50 MW of pumped storage energy capacity from non-affiliate New England Power Company's Bear Swamp Units (an initial, smaller exchange of 25 MW began in 1992). In 1991, Canal Electric
COMMONWEALTH ELECTRIC COMPANY
arranged for a long-term exchange of power with Central Vermont Public Service Company (CVPS) whereby 50 MW from Canal Electric's oil-fired Unit 2 was exchanged for 25 MW from CVPS's Vermont Yankee nuclear unit and 25 MW from its Merrimack Unit 2 coal-fired facility. This agreement expires in October 1995. The Canal Electric/Bear Swamp transaction alone will save the Company's customers $2.7 million over a four-year period that began in June 1993. In 1995, it is expected that these exchanges, combined with a reduction in the capacity from purchased power contracts with natural gas-fired IPPs, will necessitate increased purchases from the oil-fired Canal Electric units.
The Company expects to provide for future peak load plus reserve require- ments through existing system generation, including purchasing available capacity from neighboring utilities and/or IPP generators. These and other bulk electric power purchases are necessary in order to fulfill the system's NEPOOL obligation and for Canal to acquire and deliver sufficient electric generating capacity to meet the Company's and Cambridge Electric's capacity requirements.
In addition to power purchases, the Company is actively pursuing the marketing of certain capacity at competitive terms and rates to utilities in and outside the New England region at a higher price (thus saving the Com- pany's customers the difference) than if it were to sell to NEPOOL. This situation is a result of several utilities in New England (the Company included) having excess capacity and lowered prospects for sales growth. This competitive business developed for the Company in the early 1990s when it began to formally request proposals to supply short-term energy and associated capacity to other utilities on the open market to fulfill their power require- ments. Increased emphasis on the marketing of this capacity yielded approxi- mate savings of $1,039,000, $429,000 and $451,000 in 1994, 1993 and 1992, respectively.
New England Power Pool
The Company, together with other electric utility companies in the New England area, is a member of NEPOOL, which was formed in 1971 to provide for the joint planning and operation of electric systems throughout New England.
NEPOOL operates a centralized dispatching facility to ensure reliability of service and to dispatch the most economically available generating units of member companies to fulfill the region's energy requirements. This concept is accomplished through the use of computers to monitor and forecast load requirements.
The Company and the System's other electric subsidiaries are also members of the Northeast Power Coordinating Council (NPCC), an advisory organization that includes the major power systems in New England and New York plus the provinces of Ontario and New Brunswick in Canada. NPCC establishes criteria and standards for reliability and serves as a vehicle for coordination in the planning and operation of these systems.
The reserve requirements used by the NEPOOL participants in planning future additions are determined by NEPOOL to meet the reliability criteria recommended by NPCC. The system estimates that, during the next ten years, reserve requirements so determined will be in the range of 16% to 25% of peak load.
COMMONWEALTH ELECTRIC COMPANY
Energy Mix
The Company's energy mix, including purchased power, is shown below:
Actual 1994 1993 1992 Natural gas 42% 35% 24% Oil 22 27 39 Nuclear 18 20 22 Waste-to-energy 12 11 9 Hydro 3 4 3 Coal 3 3 3 Total 100% 100% 100%
The Company's energy mix has shifted during the last several years from oil to natural gas and other fuels due to the requirement to purchase capacity from IPP facilities and, to a lesser extent, the exchange agreements noted in the "Electric Power Supply" section above.
Rates and Regulatory Matters
(a) Retail Rate Proceeding
The Company operates under the jurisdiction of the DPU which requires historical test-year information to support changes in rates. The Company's most recent general rate proceeding approved by the DPU was as follows: Return on Effective Common Total Date Requested Authorized Equity Return (Dollars in Millions) July 1, 1991 $17.3 $10.9 12% 10.49%
(b) Cost Recovery
Rate Schedule The Company files a Fuel Charge (FC) rate schedule, which provides for the current recovery, from retail customers, of fuel used in electric generation and a substantial portion of purchased power, demand and transmission costs. This schedule requires the quarterly computation and DPU approval of a FC decimal based on forecasts of fuel, electricity purchased for resale and transmission costs and billed unit sales for each period. To the extent that collections under the rate schedule do not match actual costs for that period, an appropriate adjustment is reflected in the calculation of the decimal for the next calendar quarter.
Purchased Power The Company has long-term contracts for the purchase of electricity from various sources. Generally, these contracts are for fixed periods and require that the Company pay a demand charge for its capacity entitlement and an energy charge to cover the cost of fuel. The DPU ordered the Company, effective July 1, 1991, to collect its capacity-related costs associated with certain long-term power arrangements through base rates. Prior to that date, the Company was recovering these costs through its FC. The current recovery mechanism uses a per kilowatthour (KWH) factor that is calculated using historical (test-period) capacity costs and unit sales. This factor is then applied to current monthly KWH sales. When current period capacity costs and/or unit sales vary from test-period levels, the Company
COMMONWEALTH ELECTRIC COMPANY
experiences a revenue excess or shortfall which can have a significant impact on net income. All other capacity and energy-related electricity purchased for resale costs are recovered dollar-for-dollar through the FC. The Company and Cambridge Electric made a filing in late 1992 with the DPU seeking an alternative method of recovery. This request was denied in a letter order issued on October 6, 1993. However, the Company and Cambridge Electric were encouraged by the DPU's acknowledgement that the issues presented warrant further consideration. The DPU encouraged each company to continue to work with other interested parties, including the Attorney General of Massachu- setts, to reach a consensus solution on the issue for future consideration. The Company and Cambridge Electric have been involved in settlement discus- sions with interested parties in an effort to resolve this issue in a positive fashion and hope to reach an agreement in the near future.
Conservation and Load Management Programs The Company has implemented a variety of cost-effective conservation and load management (C&LM) programs for its customers which are designed to reduce future energy use. On June 30, 1993, the DPU issued an order in Phase I of a C&LM cost recovery filing made by the Company and Cambridge Electric which allows the recovery of "lost base revenues" from electric customers. The recovery of lost base revenues is employed by the DPU to encourage effective implementation of C&LM programs.
The KWH savings that are realized as a result of the successful implemen- tation of C&LM programs serve as the basis for determining lost base revenues. The Company recovered approximately $3.5 million based on estimated KWH savings for the eighteen-month period that began January 1, 1993 beginning July 1, 1993 over a twelve-month period. On June 30, 1994, the DPU issued an order that further allows the Company to recover approximately $3.7 million in additional lost base revenues for a one-year period that commenced July 1, 1994. Through December 31, 1994, the combined recovery was approximately $5.6 million, $2.3 million of which was collected in 1993.
Seabrook Costs The FERC, in a final order issued on August 4, 1992, approved full recovery of Canal's investment in the Seabrook nuclear power plant. The Company and Cambridge Electric had been billing, subject to refund, Seabrook 1 charges to their retail customers since August 1, 1990 through FC decimals approved by the DPU. In its June 1, 1993 rate decision, the DPU allowed Cambridge Electric to recover its Seabrook 1 costs in base rates. However, the Company continues to recover these costs through the FC.
The Company and Cambridge Electric collect, through their respective base rates, amounts being billed to them by Canal for costs associated with Sea- brook 2 (over a ten-year period ending in 1997) pursuant to a Capacity Acqui- sition Agreement the terms of which were approved by both FERC and the DPU.
Potential Impact of Regulatory Restructuring Based on the current regulatory framework, the Company accounts for the economic effects of regulation in accordance with the provisions of Statement of Financial Accounting Standards (SFAS) No. 71, "Accounting for the Effects of Certain Types of Regulation." Under SFAS No. 71, a utility is allowed to defer costs that would otherwise be expensed in recognition of the ability to recover them in future rates. As a result, the Company has accumulated $54.2 million (approximately 11% of total assets) of regulatory assets as of December 31, 1994. Management believes that the current regulatory framework provides for the continued recovery of these assets.
COMMONWEALTH ELECTRIC COMPANY
In the event that recovery of specific costs through rates becomes uncertain or unlikely in the future either as a result of the expanding effects of competition or specific regulatory actions, the Company could be required to move away from cost-of-service ratemaking and, therefore, SFAS No. 71 would no longer apply. Discontinuation of SFAS No. 71 could lead to the write-off of various regulatory assets, which would have an adverse impact on the Company's financial position and results of operations. At this time, management believes that it is unlikely that regulatory action would lead to the discontinuation of SFAS No. 71 in the near future.
Competition
This past year, the Company continued to develop and implement strategies to deal with the increasingly competitive environment in its electric busi- nesses. The inherently high cost of providing energy services in the North- east has placed the region at a competitive disadvantage as more customers begin to explore alternative supply options. Many state and federal govern- ment agencies are considering implementing programs under which utility and non-utility generators can sell electricity to customers of other utilities without regard to previously closed franchise service areas. In 1994, the DPU began an inquiry into incentive ratemaking and in February 1995 opened an investigation into electric industry restructuring.
The Company's actions in response to the new competitive challenges have been well received by regulators, business groups and customers. The Company has developed and will continue to develop innovative pricing mechanisms designed to retain existing customers, add new retail and wholesale customers and expand beyond current markets.
The Company recently revised its Economic Development Rate which will benefit a number of high-use industrial customers and contribute to economic development in the area. Another new rate will provide incentive for business to expand into previously vacant space and its Rate Stabilization Plan, approved in 1994, continues to hold the line on costs passed on to customers while aggressively pursuing other cost reduction measures. Recently completed contract negotiations are expected to save customers approximately $42 million through 1999 as the Company continues to explore opportunities to reduce purchased power costs. The Company recently signed an agreement with another New England utility to purchase peaking-unit capacity at rates lower than that available from NEPOOL or other regional utilities.
The Company continues to be aggressive in its cost containment efforts. For example, through work force reductions and attrition the Company has reduced its work force approximately 26.5% since 1989. Also, the introduction of advanced technologies in the workplace continues to improve customer service and the Company's competitive position. The Company has yet to be significantly impacted by the increase in competition, and absent a major shift in regulation at the state level, believes its current business strategy will have a positive impact in the near-term.
Some of the more specific details of the innovative measures taken in response to competition include the following:
Rate Stabilization Plan The Company implemented a FC rate settlement on April 1, 1994 that stabilizes its quarterly FC rate during the years 1994
COMMONWEALTH ELECTRIC COMPANY
through 1996 at 6.5 cents per KWH and no greater than 6.7 cents per KWH during 1997. The settlement results in billings at a lower rate than would have otherwise been in effect and could save customers between 1.75% and 5% on their annual electric bills through 1997. This rate stabilization is achieved through the use of a cost deferral mechanism that was sponsored jointly by the Company and the Massachusetts Attorney General and approved by the DPU. The deferred costs are reflected as a regulatory asset to be recovered, with carrying charges, over the subsequent six-year period beginning in 1998 pursuant to a recovery schedule yet to be determined and subject to DPU approval. The deferred amount, excluding carrying charges, is restricted to a maximum of $40 million during the deferral period (1994 through 1997) and is further limited to an annual amount of $16 million. The Company deferred $15,964,000 in 1994. In view of recent contract renegotiations, the Company does not expect deferred amounts to exceed $20 million through 1997.
The rate stabilization mechanism is part of a long-term plan to control the Company's retail rates and will help to eliminate the disincentive for economic development resulting from a volatile and unpredictable FC rate. Further, the stabilized FC rate will enable current and prospective customers to better plan their business and personal finances in a more efficient and effective manner. In addition to the Massachusetts Attorney General, this proposal has been widely supported by various business and customer groups and other political interests.
Power Contract Negotiations The Company concluded the negotiation of a restructured Power Sale Agreement (PSA), effective January 1, 1995, with Lowell Cogeneration Company Limited Partnership (23 MW). The restructured PSA will allow the Company to defer the purchase of capacity and energy for a maximum of six years and, when called back into service, power will be dispatched only when needed at the discretion of the Company. In addition, the Company terminated a PSA with Pepperell Power Associates Limited Partner- ship (38 MW), effective January 27, 1995, through a buy-out arrangement that is subject to final FERC approval. In 1994, the power purchased from these units cost the Company 6 cents per kilowatthour as compared to costs at the Canal units of 3.5 cents. It is expected that the resolution of these contracts will enhance the Company's competitiveness by lowering costs and saving customers approximately $42 million through 1999.
Economic Development Realizing a healthy regional economy benefits not only businesses but all area residents, the Company actively encourages economic growth by working in partnership with communities and businesses, providing resources and incentives to drive the region's economy.
In an effort to foster industrial development in its service area, the Company began offering an Economic Development Rate (EDR) in October 1991 to new or existing industrial customers who have demand of 500 kilowatts or more and meet specific financial and other criteria. As of December 31, 1994, twenty-three commercial and industrial customers were benefitting from this special rate which is available for a six-year term. In 1993, the DPU conducted a generic investigation into EDRs and rendered a decision on September 1, 1993 that established rate design guidelines and minimum customer eligibility requirements. The Company refiled its EDRs to comply with the ruling. The new EDR is available to both commercial and industrial customers with loads greater than 500 kilowatts. Revenues were lower by $1.7 million, $1.5 million and $1.3 million in 1994, 1993 and 1992, respectively. These
COMMONWEALTH ELECTRIC COMPANY
amounts represent the difference between what these customers would have paid prior to the availability of this rate. The Company also received approval for a Vacant Space Rate that is available to qualifying small commercial and industrial customers who establish loads in previously unoccupied building space.
Power Contract Arbitrations
On May 2, 1994, the Company and Cambridge Electric gave notice of termina- tion of power purchase agreements with Eastern Energy Corporation, the developer of a proposed 300 MW coal-fired plant, based upon the developer's failure to meet its contractual obligations. In June 1989, the Company and Cambridge Electric agreed to buy 27% (50 MW and 33 MW, respectively) of the power to be produced by the proposed plant, originally scheduled to begin operation in January 1992. The developer did not meet the permitting, construction or operation milestones established by the contracts, and has not yet obtained the required permits, commenced construction or sold any addi- tional power from the proposed plant. Efforts to reshape the power purchase agreements to provide a satisfactory arrangement were unsuccessful. In a letter dated June 30, 1994, the developer objected to the notices of termina- tion and invoked arbitration, which is pending. A decision by the arbitrators on the legality of the Company's and Cambridge Electric's termination is expected in 1995.
The Company has initiated an arbitration proceeding with Dartmouth Power Associates, an IPP, seeking approximately $5 million for recovery of excess fuel charges billed to the Company for power purchases in 1992. A decision is expected from the arbitrators in 1995.
Construction and Financing
Information concerning the Company's financing and construction programs is contained in Note 2(a) of Notes to Financial Statements filed under Item 8 of this report.
Employees
The total number of full-time employees for the Company declined 12.4% to 913 in 1994 from 1,042 employees at year-end 1992 due to a second quarter 1993 work force reduction. 592 employees (64.6%) are represented by the Brother- hood of Utility Workers of New England, Inc. under three separate collective bargaining units with agreements expiring September 30, 1996, October 31, 1997 and April 30, 1998. Employee relations have generally been satisfactory.
Item 2.
Item 2. Properties
The principal properties of the Company consist of an integrated system of transmission and distribution lines, substations, an office building in the Town of Wareham, Massachusetts and other structures such as garages and service buildings. In addition, the Company owns and operates, for standby and emergency purposes only, two diesel plants with a combined capability of 13.8 MW located on the island of Martha's Vineyard. The Company also has a 1.4% joint-ownership interest in Central Maine Power Company's Wyman Unit 4 with an entitlement of 8.9 MW.
COMMONWEALTH ELECTRIC COMPANY
At December 31, 1994, the electric transmission and distribution system consisted of 5,697 pole miles of overhead lines, 3,511 cable miles of under- ground line, 138 substations and 329,051 active customer meters.
Item 3.
Item 3. Legal Proceedings
The Company is subject to legal claims and matters arising from its course of business, including its participation in power contract arbitrations as discussed in Item 1 above.
COMMONWEALTH ELECTRIC COMPANY
PART II.
Item 5.
Item 5. Market for the Registrant's Common Stock and Related Stockholder Matters
(a) Principal Market
Not applicable. The Company is a wholly-owned subsidiary of Common- wealth Energy System.
(b) Number of Shareholders at December 31, 1994
One
(c) Frequency and Amount of Dividends Declared in 1994 and 1993
1994 1993 Per Share Per Share Declaration Date Amount Declaration Date Amount
January 21, 1994 $1.60 January 28, 1993 $1.90 April 25, 1994 1.90 April 26, 1993 1.10 July 18, 1994 1.00 October 18, 1993 3.20 October 24, 1994 3.25 $6.20 $7.75
On January 28, 1993, dividends were declared on the 1,606,472 outstanding shares of common stock of the Company. Beginning on April 26, 1993, dividends were declared on the 2,043,972 outstanding shares of common stock of the Company.
Reference is made to Note 6 of the Notes to Financial Statements filed under Item 8 of this report for the restriction against the payment of cash dividends.
(d) Future dividends may vary depending upon the Company's earnings and capital requirements as well as financial and other conditions existing at that time.
COMMONWEALTH ELECTRIC COMPANY
Item 7.
Item 7. Management's Discussion and Analysis of Results of Operations
The following is a discussion of certain significant factors which have affected operating revenues, expenses and net income during the periods included in the accompanying statements of income and is presented to facili- tate an understanding of the results of operations. This discussion should be read in conjunction with Item 1 of this report and the Notes to Financial Statements filed under Item 8
Item 8. Financial Statements and Supplementary Data
The Company's financial statements required by this item are filed here- with on pages 20 through 39 of this report.
Item 9.
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
None.
COMMONWEALTH ELECTRIC COMPANY
Item 8. Financial Statements and Supplementary Data
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Commonwealth Electric Company:
We have audited the accompanying balance sheets of COMMONWEALTH ELECTRIC COMPANY (a Massachusetts corporation and wholly-owned subsidiary of Common- wealth Energy System) as of December 31, 1994 and 1993, and the related statements of income, retained earnings and cash flows for each of the three years in the period ended December 31, 1994. These financial statements and the schedules referred to below are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedules based upon our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Commonwealth Electric Company as of December 31, 1994 and 1993, and the results of its operations and its cash flows for each of the three years in the period ended Decem- ber 31, 1994, in conformity with generally accepted accounting principles.
As discussed in Note 4 to the financial statements, effective January 1, 1993, the Company changed its method of accounting for costs associated with postretirement benefits other than pensions.
Our audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole. The schedules listed in the index to financial statements and schedules are presented for purposes of complying with the Securities and Exchange Commission's rules and are not part of the basic financial statements. These schedules have been subjected to the auditing procedures applied in the audits of the basic financial statements and, in our opinion, fairly state, in all material respects, the financial data required to be set forth therein in relation to the basic financial statements taken as a whole.
ARTHUR ANDERSEN LLP Arthur Andersen LLP
Boston, Massachusetts February 21, 1995
COMMONWEALTH ELECTRIC COMPANY INDEX TO FINANCIAL STATEMENTS AND SCHEDULES PART II.
FINANCIAL STATEMENTS
Balance Sheets at December 31, 1994 and 1993
Statements of Income for the Years Ended December 31, 1994, 1993 and 1992
Statements of Retained Earnings for the Years Ended December 31, 1994, 1993 and 1992
Statements of Cash Flows for the Years Ended December 31, 1994, 1993 and
Notes to Financial Statements
PART IV.
SCHEDULES
I Investments in, Equity in Earnings of, and Dividends Received from Related Parties - Years Ended December 31, 1994, 1993 and 1992
II Valuation and Qualifying Accounts - Years Ended December 31, 1994, 1993 and 1992
SCHEDULES OMITTED
All other schedules are not submitted because they are not applicable or not required or because the required information is included in the financial statements or notes thereto.
Financial statements of 50% or less owned companies accounted for by the equity method have been omitted because they do not, considered individually, constitute a significant subsidiary.
COMMONWEALTH ELECTRIC COMPANY BALANCE SHEETS DECEMBER 31, 1994 AND 1993 ASSETS
1994 1993 (Dollars in Thousands)
PROPERTY, PLANT AND EQUIPMENT, at original cost $496 166 $475 348 Less - Accumulated depreciation 143 877 133 349 352 289 341 999 Add - Construction work in progress 5 216 5 478 357 505 347 477
INVESTMENTS Equity in nuclear electric power company 654 601 Other 14 14 668 615
CURRENT ASSETS Cash 1 637 2 794 Advances to affiliates - 4 485 Accounts receivable - Affiliates 3 713 2 413 Customers, less reserves of $2,841,000 in 1994 and $3,268,000 in 1993 37 862 38 743 Unbilled revenues 8 899 9 332 Inventories, at average cost - Materials and supplies 4 152 4 658 Electric production fuel oil 149 202 Prepaid property taxes 2 739 2 538 Other 1 731 1 927 60 882 67 092
DEFERRED CHARGES 57 831 34 619
$476 886 $449 803
COMMONWEALTH ELECTRIC COMPANY BALANCE SHEETS DECEMBER 31, 1994 AND 1993 CAPITALIZATION AND LIABILITIES
1994 1993 (Dollars in Thousands)
CAPITALIZATION Common Equity - Common stock, $25 par value - Authorized and outstanding - 2,043,972 shares wholly-owned by Commonwealth Energy System (Parent) $ 51 099 $ 51 099 Amounts paid in excess of par value 97 112 97 112 Retained earnings 15 350 15 118 163 561 163 329 Long-term debt, less current sinking fund requirements 157 817 158 858 321 378 322 187
CURRENT LIABILITIES Interim Financing - Notes payable to banks 6 400 - Advances from affiliates 200 - 6 600 -
Other Current Liabilities - Current sinking fund requirements 1 053 1 053 Accounts payable - Affiliates 7 716 10 088 Other 31 911 22 044 Accrued taxes - Local property and other 3 721 3 017 Income 8 049 2 337 Accrued interest 3 966 4 027 Other 9 725 9 098 66 141 51 664 72 741 51 664
DEFERRED CREDITS Accumulated deferred income taxes 42 074 39 396 Unamortized investment tax credits 7 994 8 430 Other 32 699 28 126 82 767 75 952 COMMITMENTS AND CONTINGENCIES $476 886 $449 803
The accompanying notes are an integral part of these financial statements.
COMMONWEALTH ELECTRIC COMPANY STATEMENTS OF INCOME FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
1994 1993 1992 (Dollars in Thousands)
ELECTRIC OPERATING REVENUES $437 950 $430 484 $409 493
OPERATING EXPENSES Electricity purchased for resale and fuel 287 632 284 980 254 316 Transmission 4 734 4 836 5 240 Other operation 70 581 72 962 87 898 Maintenance 10 053 10 714 12 143 Depreciation 15 619 15 032 15 012 Taxes - Income 9 670 7 158 3 556 Local property 5 275 5 023 4 694 Payroll and other 2 735 3 066 3 046 406 299 403 771 385 905
OPERATING INCOME 31 651 26 713 23 588
OTHER INCOME (EXPENSE) Allowance for equity funds used during construction 325 - - Other, net (1 293) 249 253 (968) 249 253
INCOME BEFORE INTEREST CHARGES 30 683 26 962 23 841
INTEREST CHARGES Long-term debt 14 183 13 252 10 891 Other interest charges 703 1 738 4 248 Allowance for borrowed funds used during construction (276) (106) (302) 14 610 14 884 14 837
NET INCOME $ 16 073 $ 12 078 $ 9 004
The accompanying notes are an integral part of these financial statements.
COMMONWEALTH ELECTRIC COMPANY STATEMENTS OF RETAINED EARNINGS FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
1994 1993 1992 (Dollars in Thousands)
Balance at beginning of year $15 118 $14 882 $14 151
Add (Deduct): Net income 16 073 12 078 9 004 Cash dividends on common stock (15 841) (11 842) (8 273)
Balance at end of year $15 350 $15 118 $14 882
The accompanying notes are an integral part of these financial statements.
COMMONWEALTH ELECTRIC COMPANY STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
1994 1993 1992 (Dollars in Thousands) OPERATING ACTIVITIES Net income $ 16 073 $ 12 078 $ 9 004 Effects of noncash items - Depreciation and amortization 17 723 16 447 19 666 Deferred income taxes 8 672 4 407 (5 176) Investment tax credits (436) (446) (452) Allowance for equity funds used during construction (325) - - Change in working capital, exclusive of cash, advances to affiliates and interim financing - Accounts receivable and unbilled revenues 14 5 228 7 119 Income taxes, net 5 712 1 727 (3 705) Local property and other taxes, net 503 222 (25) Accounts payable and other 8 816 8 935 (2 159) Fuel charge stabilization deferral (15 964) - - Deferred postretirement benefit and pension costs (4 609) (5 189) (1 418) All other operating items (8 398) (4 488) 8 923
Net cash provided by operating activities 27 781 38 921 31 777
INVESTING ACTIVITIES Additions to property, plant and equipment (exclusive of AFUDC) (22 865) (18 631) (20 821) Allowance for borrowed funds used during construction (276) (106) (302) Payment from (advances to) affiliates 4 485 (4 485) -
Net cash used for investing activities (18 656) (23 222) (21 123)
FINANCING ACTIVITIES Long-term debt issues - 65 000 - Sale of common stock to Parent - 35 000 - Payment of dividends (15 841) (11 842) (8 273) Proceeds from (payment of) short-term borrowings 6 400 (67 275) 3 975 Advances from (payment to) affiliates 200 (11 840) 2 290 Long-term debt issues refunded - (21 300) (7 522) Retirement of long-term debt through sinking funds (1 041) (1 155) (631)
Net cash used for financing activities (10 282) (13 412) (10 161)
Net increase (decrease) in cash (1 157) 2 287 493 Cash at beginning of period 2 794 507 14 Cash at end of period $ 1 637 $ 2 794 $ 507
The accompanying notes are an integral part of these financial statements.
COMMONWEALTH ELECTRIC COMPANY NOTES TO FINANCIAL STATEMENTS
(1) Significant Accounting Policies
(a) General and Regulatory
Commonwealth Electric Company (the Company) is a wholly-owned subsidiary of Commonwealth Energy System. The parent company is referred to in this report as the "System" and, together with its subsidiaries, is collectively referred to as "the system." The Company is regulated as to rates, accounting and other matters by various authorities including the Federal Energy Regula- tory Commission (FERC) and the Massachusetts Department of Public Utilities (DPU). The System is an exempt holding company under the provisions of the Public Utility Holding Company Act of 1935 and, in addition to its investment in the Company, has interests in other utility companies and several nonregu- lated companies.
The Company has established various regulatory assets in cases where the DPU and/or the FERC have permitted or are expected to permit recovery of specific costs over time. Similarly, certain regulatory liabilities estab- lished by the Company are required to be refunded to its customers over time. The principal regulatory assets included in deferred charges at December 31, 1994 and 1993 were as follows:
1994 1993 (Dollars in Thousands)
Fuel charge stabilization $16 638 $ - Postretirement benefit costs including pensions 11 215 6 607 Yankee Atomic unrecovered plant and decommissioning costs 10 204 8 625 Pilgrim nuclear plant litigation costs 7 001 7 358 Cannon Street generating plant abandonment, net 4 400 4 391 Conservation and load management 3 659 3 611 Other 1 049 1 361 Total regulatory assets $54 166 $31 953
Regulatory assets as a percent of total assets 11.4% 7.1%
The principal regulatory liabilities, reflected in deferred credits - other and relating to income taxes, were $3.7 million and $4 million at December 31, 1994 and 1993, respectively.
(b) Reclassifications
Certain prior year amounts are reclassified from time to time to conform with the presentation used in the current year's financial statements.
(c) Transactions with Affiliates
Transactions between the Company and other system companies include purchases and sales of electricity, including purchases from Canal Electric Company (Canal), an affiliate wholesale electric generating company. Other Canal transactions include costs relating to the abandonment of Seabrook 2 and the recovery of a portion of Seabrook 1 pre-commercial operation costs. In
COMMONWEALTH ELECTRIC COMPANY
addition, payments for management, accounting, data processing and other services are made to an affiliate, COM/Energy Services Company. Transactions with other system companies are subject to review by the DPU.
The Company's operating expenses include the following major intercompany transactions for the periods indicated: Purchased Power Purchased Power and Transmission Period Ended Purchased Power and Transmission From Canal December 31, Canal Units Seabrook 1 as Agent (Dollars in Thousands)
1994 $34 256 $34 617 $21 508 1993 40 537 36 702 20 881 1992 46 844 37 691 22 992
The costs for the Canal and Seabrook 1 units are included in the long-term obligation table listed in Note 2(b). The Company sold electricity to other affiliates, primarily station service for Canal, totaling $1,401,000, $2,973,000 and $2,733,000 in 1994, 1993 and 1992, respectively, and the Company also purchased natural gas from an affiliate Commonwealth Gas Company, totaling $106,000 in 1992 (there were no purchases in 1994 and 1993).
(d) Operating Revenues
The Company is generally permitted to bill customers currently for fuel used in electric production, purchased power and transmission costs, and conservation and load management (C&LM) costs through adjustment clauses. Amounts recoverable under these clauses are subject to review and adjustment by the DPU. Customers are billed for their use of electricity on a cycle basis throughout the month. To reflect revenues in the proper period, the estimated amount of unbilled sales revenue is recorded each month. The Company collects a portion of capacity-related purchased power costs associat- ed with certain long-term power arrangements through base rates. The amount of such fuel and energy costs incurred but not yet reflected in customers' bills, which totaled $3,056,000 in 1993, is recorded as unbilled revenues. There were no unbilled amounts in 1994. The Company also has implemented a Fuel Charge (FC) rate settlement that stabilizes its quarterly FC rate for the years 1994 through 1997 by utilizing a cost deferral mechanism approved by the DPU. The deferral, which will ultimately be recovered in revenues beginning in 1998, is limited to $16 million annually (excluding carrying charges) and is further restricted to a maximum of $40 million during the settlement period.
(e) Depreciation
Depreciation is provided using the straight-line method at rates intended to amortize the original cost and the estimated cost of removal less salvage of properties over their estimated economic lives. The average composite depreciation rates were 3.31% in 1994 and 1993 and 3.39% in 1992.
(f) Maintenance
Expenditures for repairs of property and replacement and renewal of items
COMMONWEALTH ELECTRIC COMPANY
determined to be less than units of property are charged to maintenance expense. Additions, replacements and renewals of property considered to be units of property are charged to the appropriate plant accounts. Upon retirement, accumulated depreciation is charged with the original cost of property units and the cost of removal less salvage.
(g) Allowance for Funds Used During Construction
Under applicable rate-making practices, the Company is permitted to include an allowance for funds used during construction (AFUDC) as an element of its depreciable property costs. This allowance is based on the amount of construction work in progress that is not included in the rate base on which the Company earns a return. An amount equal to the AFUDC capitalized in the current period is reflected in the accompanying statements of income.
While AFUDC does not provide funds currently, these amounts are recover- able in revenues over the service life of the constructed property. The amount of AFUDC recorded was at a weighted average rate of 10% in 1994, 4% in 1993 and 4.5% in 1992.
(2) Commitments and Contingencies
(a) Financing and Construction Programs
The Company is engaged in a continuous construction program presently estimated at $141 million for the five-year period 1995 through 1999. Of that amount, $27.1 million is estimated for 1995. The program is subject to periodic review and revision because of factors such as changes in business conditions, rates of customer growth, effects of inflation, maintenance of reliable and safe service, equipment delivery schedules, licensing delays, availability and cost of capital and environmental factors. The Company expects to finance these expenditures on an interim basis with internally generated funds and short-term borrowings which are ultimately expected to be repaid with the proceeds from sales of long-term debt and equity securities.
(b) Long-Term Power Contracts
The Company has long-term contracts for the purchase of electricity from various sources. Generally, these contracts are for fixed periods and require payment of a demand charge for the capacity entitlement and an energy charge to cover the cost of fuel. In addition, the Company pays its share of decom- missioning expense to nonaffiliated Boston Edison Company, the operator of the Pilgrim nuclear facility, as a cost of electricity purchased for resale.
COMMONWEALTH ELECTRIC COMPANY
The Company also has long-term contracts to purchase capacity from other generating facilities. Information relative to the Company's power contracts is as follows:
Range of Contract Expiration Entitlement 1994 1993 1992 Dates % MW Cost Cost Cost (Dollars in Thousands) Type of Unit Cogenerating 2008-2017 (a) 261.6 $122 496 $ 99 620 $ 69 742 Oil 2002-2009 (b) 254.4 34 256 40 537 46 844 Nuclear 2012-2026 (c) 105.9 76 092 77 280 75 207 Waste-to-energy 2015 100 70.2 38 107 34 189 27 206 Hydro 2008-2014 100 29.9 7 521 8 904 10 941 Total 722.0 $278 472 $260 530 $229 940
(a) Includes contracts to purchase power from various cogenerating units with capacity entitlements ranging from 11.1% to 100%. (b) Includes entitlements in Canal Unit 1 (20%) and Canal Unit 2 (40%). (c) Includes entitlements in Seabrook 1 (2.8%) and Pilgrim (11%).
Costs pursuant to these contracts are included in electricity purchased for resale in the accompanying statements of income and are recoverable in revenues through either the Fuel Charge or in base rates.
The estimated aggregate capacity obligations under the life-of-the-unit contracts, including the Canal and Seabrook 1 units, and from other long-term purchased power contracts, in effect for the five years subsequent to 1994 is as follows: Long-Term Purchased Power (Dollars in Thousands)
1995 $267 183 1996 281 118 1997 296 183 1998 319 824 1999 319 288
The Company successfully negotiated a restructured Power Sale Agreement (PSA), effective January 1, 1995, with an independent power producer (IPP), that defers purchases for a maximum of six years and requires the facility to provide power on a dispatchable basis at the discretion of the Company. In addition, the Company terminated a PSA with another IPP, effective January 27, 1995, through a buyout arrangement, the cost of which will be recorded as a regulatory asset in 1995 pending final FERC approval.
(c) Yankee Atomic Nuclear Power Plant
In February 1992, the Board of Directors of Yankee Atomic Electric Company (Yankee Atomic) agreed to permanently discontinue power operation and decom- mission the Yankee Nuclear Power Station (the Plant). At December 31, 1994, the Company's 2.5% investment in Yankee Atomic was $654,000. The Company's
COMMONWEALTH ELECTRIC COMPANY
estimated decommissioning costs include its unrecovered share of all costs associated with the shutdown of the Plant, recovery of its plant investment, and the decommissioning and closing of the Plant. The most recent cost estimate to permanently shut down the plant is approximately $408.2 million. The Company's share of this liability is $10.2 million and is currently reflected in the accompanying balance sheets as a liability and corresponding regulatory asset. The market value of the Company's share of assets in the plant's decommissioning fund at December 31, 1994 is approximately $2.7 million.
(d) Environmental Matters
The Company is subject to laws and regulations administered by federal, state and local authorities relating to the quality of the environment. These laws and regulations affect, among other things, the siting and operation of electric generating and transmission facilities and can require the installa- tion of expensive air and water pollution control equipment. These regula- tions have had an impact on the Company's operations in the past and will continue to have an impact on future operations, capital costs and construc- tion schedules of major facilities.
(3) Income Taxes
For financial reporting purposes, the Company provides federal and state income taxes on a separate-return basis. However, for federal income tax purposes, the Company's taxable income and deductions are included in the consolidated income tax return of the System and it makes tax payments or receives refunds on the basis of its tax attributes in the tax return in accordance with applicable regulations.
The following is a summary of the Company's provisions for income taxes for the years ended December 31, 1994, 1993 and 1992.
1994 1993 1992 (Dollars in Thousands) Federal Current $ 1 133 $ 2 627 $ (15) Deferred 7 242 3 705 (4 548) Investment tax credits (437) (446) (452) 7 938 5 886 (5 015) State Current 302 570 (34) Deferred 1 315 749 348 1 617 1 319 314 9 555 7 205 (4 701) Amortization of regulatory liability relating to deferred income taxes 115 (47) (976) $ 9 670 $ 7 158 $(5 677) Federal and state income taxes charged to: Operating expense $ 9 670 $ 7 158 $ 3 556 Other expense - - (9 233) $ 9 670 $ 7 158 $(5 677)
Effective January 1, 1992, the Company adopted the provisions of Statement
COMMONWEALTH ELECTRIC COMPANY
of Financial Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS No. 109). SFAS No. 109 requires recognition of deferred tax liabilities and assets for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred tax liabilities and assets are determined based on the difference between the financial statement basis and tax bases of assets and liabilities using enacted tax rates in effect in the year in which the differences are expected to reverse.
Accumulated deferred income taxes consisted of the following in 1994 and 1993: 1994 1993 (Dollars in Thousands) Liabilities Property-related $47 233 $44 837 Fuel charge stabilization 6 526 - Litigation costs 2 746 2 886 Postretirement benefits plan 2 857 2 222 All other 1 702 1 918 61 064 51 863 Assets Investment tax credit 5 159 5 441 Pension plan 1 496 1 384 Uncollectible accounts 1 118 1 282 All other 3 118 2 463 10 891 10 570 Accumulated deferred income taxes,net $50 173 $41 293
The net year-end deferred income tax liability above includes current deferred tax liabilities of $8,099,000 and $1,897,000 in 1994 and 1993, respectively, which are included in accrued income taxes in the accompanying balance sheets.
The total income tax provision set forth above represents 38% in 1994, 37% in 1993 and (171)% in 1992 of income before such taxes. The following table reconciles the statutory federal income tax rate to these percentages:
1994 1993 1992 (Dollars in Thousands) Federal statutory rate 35% 35% 34%
Federal income tax expense at statutory levels $9,010 $6,733 $1,131 Increase (Decrease) from statutory levels: Amortization of regulatory liability relating to deferred income taxes - - (5 768) State tax, net of federal tax benefit 1,051 858 228 Tax versus book depreciation 109 117 111 Amortization of investment tax credits (436) (446) (452) Reversals of capitalized expenses (67) (68) - Amortization of excess deferred reserves 115 (47) (920) Equity AFUDC (114) - - Other 2 11 (7) $9,670 $7,158 $(5,677)
Effective federal income tax rate 38% 37% (171)%
COMMONWEALTH ELECTRIC COMPANY
On April 22, 1992, the DPU approved a settlement agreement among the Company, the Attorney General of Massachusetts and a consumer group, which resulted in the issuance of an accounting order authorizing the Company's retention of $5.7 million in excess deferred taxes subject to obtaining a favorable ruling from the Internal Revenue Service which was received on November 30, 1992.
In accordance with the above settlement agreement, the Company wrote off in 1992 storm damage costs of $9.2 million ($5.7 million net of tax). The balance of the excess reserves was removed from the deferred tax reserve account and, after adjustment to its pretax amount as required by SFAS 109, was credited to a liability account. The excess reserves/regulatory liability that the Company would retain pursuant to the settlement agreement was also removed from this liability account and credited to other income, together with the related income taxes. These amounts were classified as income tax expense and were used in the reconciliation of the income tax rate.
As a result of the Revenue Reconciliation Act of 1993, the Company's federal income tax rate increased to 35% effective January 1, 1993.
(4) Employee Benefit Plans
(a) Pension
The Company has a noncontributory pension plan covering substantially all regular employees who have attained the age of 21 and have completed a year of service. Pension benefits are based on an employee's years of service and compensation. The Company makes monthly contributions to the plan consistent with the funding requirements of the Employee Retirement Income Security Act of 1974.
Components of pension expense and related assumptions to develop pension expense were as follows:
1994 1993 1992 (Dollars in Thousands)
Service cost $ 3 196 $ 2 630 $ 2 728 Interest cost 9 793 9 283 8 506 Return on plan assets - (gain)/loss 2 043 (16 412) (10 992) Net amortization and deferral (10 046) 9 130 4 235 Total pension expense 4 986 4 631 4 477 Transfers to affiliated companies, net 74 (465) (609) Less: Amounts capitalized and deferred 1 921 1 379 2 127 Net pension expense $ 3 139 $ 2 787 $ 1 741
Discount rate 7.25% 8.50% 8.50% Assumed rate of return 8.50 8.50 8.50 Rate of increase in future compensation 4.50 5.50 5.50
Pension expense reflects the use of the projected unit credit method, which is also the actuarial cost method used in determining future funding of the plan. The Company, in accordance with current ratemaking, is deferring the difference between pension contribution, which is allowed currently in base rates, and pension expense, recognized pursuant to Statement of
COMMONWEALTH ELECTRIC COMPANY
Financial Accounting Standards No. 87, "Employers' Accounting for Pensions." The funded status of the Company's pension plan (using a measurement date of December 31) is as follows: 1994 1993 (Dollars in Thousands) Accumulated benefit obligation: Vested $ (91 450) $ (95 433) Nonvested (10 490) (13 030) $(101 940) $(108 463)
Projected benefit obligation $(125 534) $(131 066) Plan assets at fair market value 114 876 120 685 Projected benefit obligation greater than plan assets (10 658) (10 381) Unamortized transition obligation 4 503 5 146 Unrecognized prior service cost 6 283 5 520 Unrecognized gain (6 086) (5 095) Accrued pension liability $ (5 958) $ (4 810)
The following actuarial assumptions were used in determining the plan's year-end funded status: 1994 1993
Discount rate 8.50% 7.25% Rate of increase in future compensation 5.00 4.50
Plan assets consist primarily of fixed income and equity securities. Fluctuations in the fair market value of plan assets will affect pension expense in future years.
(b) Other Postretirement Benefits
Through December 31, 1992, the Company provided postretirement health care and life insurance benefits to eligible retired employees. Employees became eligible for these benefits if their age plus years of service at retirement equaled 75 or more, provided, however, that such service was performed for the Company or another subsidiary of the System. As of January 1, 1993, the Company eliminated postretirement health care benefits for those nonbargaining employees who were less than 40 years of age or had less than 12 years of service at that date. Under certain circumstances, eligible employees are now required to make contributions for postretirement benefits.
Effective January 1, 1993, the Company adopted the provisions of Statement of Financial Accounting Standards No. 106, "Employers' Accounting for Postre- tirement Benefits Other Than Pensions" (SFAS No. 106). This new standard requires the accrual of the expected cost of such benefits during the employ- ees' years of service and the recognition of an actuarially determined postre- tirement benefit obligation earned by existing retirees. The assumptions and calculations involved in determining the accrual and the accumulated postre- tirement benefit obligation (APBO) closely parallel pension accounting requirements. The cumulative effect of implementation of SFAS No. 106 as of January 1, 1993 was approximately $48.3 million, which is being amortized over 20 years. Prior to 1993, the cost of postretirement benefits was recognized as the benefits were paid. The cost of retiree medical care and life
COMMONWEALTH ELECTRIC COMPANY
insurance benefits totaled $1,915,000 during 1992.
In 1993, the Company began making contributions to various voluntary employees' beneficiary association (VEBA) trusts that were established pursuant to section 501(c)9 of the Internal Revenue Code (the Code). The Company also makes contributions to a sub-account of its pension plan pursuant to section 401(h) of the Code to satisfy a portion of its postretirement benefit obligation. The Company contributed approximately $6,677,000 and $5,964,000 to these trusts during 1994 and 1993, respectively.
The net periodic postretirement benefit cost for the years ended December 31, 1994 and 1993 include the following components and related assumptions:
1994 1993 (Dollars in Thousands)
Service cost $1 127 $1 093 Interest cost 3 799 4 103 Return on plan assets (95) (292) Amortization of transition obligation over 20 years 2 417 2 417 Net amortization and deferral (547) 3 Total postretirement benefit cost 6 701 7 324 Transfer from affiliated companies, net (465) (316) Less: Amounts capitalized and deferred 4 268 5 144 Net postretirement benefit cost $1 968 $1 864
Discount rate 7.25% 8.50% Assumed rate of return 8.50 8.50 Rate of increase in future compensation 4.50 4.50
The funded status of the Company's postretirement benefit plan using a measurement date of December 31, 1994 and 1993 is as follows:
1994 1993 (Dollars in Thousands)
Accumulated postretirement benefit obligation: Retirees $(27 808) $ (27 520) Fully eligible active plan participants (3 681) (3 756) Other active plan participants (19 598) (19 277) (51 087) (50 553) Plan assets at fair market value 9 797 5 308 Accumulated postretirement benefit obligation greater than plan assets (41 290) (45 245) Unamortized transition obligation 43 500 45 917 Unrecognized gain (2 210) (672) $ - $ -
COMMONWEALTH ELECTRIC COMPANY
The following actuarial assumptions were used in determining the plan's year-end funded status: 1994 1993
Discount rate 8.50% 7.25% Rate of increase in future compensation 5.00 4.50
In determining its estimated APBO and the funded status of the plan for 1994 and 1993, the Company assumed health care trend rates as follows:
1994 1993
Medicare Part B premiums 12.3% 14.9% Medical care 8.5 9.0 Dental care 5.0 5.0
The above rates, with the exception of the dental rate, which remains constant, decrease to five percent in the year 2007 and remain at that level thereafter. A one percent change in the medical trend rate would have a $769,000 impact on the Company's annual expense (interest component - $503,000; service cost - $266,000) and would change the transition obligation by approximately $6.6 million.
Plan assets consist primarily of fixed-income and equity securities. Fluctuations in the fair market value of plan assets will affect postretire- ment benefit expense in future years.
The DPU's policy on postretirement benefits is to allow in rates the maximum tax deductible contributions made to trusts that have been established specifically to pay postretirement benefits. The Company intends to seek regulatory approval to recover these costs and, while the outcome cannot be predicted, it is likely that the DPU will authorize similar rate treatment as was provided to Cambridge Electric and other Massachusetts electric and gas companies. A deferral representing the difference between what is being collected in rates and the SFAS No. 106 accrual amounted to approximately $7.3 million in 1994 and $4.1 million in 1993.
(c) Savings Plan
The Company has an Employees Savings Plan that provides for Company contributions equal to contributions by eligible employees of up to four percent of each employee's compensation rate. Effective January 1, 1993, the rate was increased to five percent for those employees no longer eligible for postretirement health benefits. The Company's contribution was $1,746,000 in 1994, $1,700,000 in 1993 and $1,808,000 in 1992.
(5) Interim Financing and Long-Term Debt
(a) Notes Payable to Banks
The Company and other system companies maintain both committed and uncommitted lines of credit for the short-term financing of their construction programs and other corporate purposes. As of December 31, 1994, system companies had $90 million of committed lines that will expire at varying intervals in 1995. These lines are normally renewed upon expiration and
COMMONWEALTH ELECTRIC COMPANY
require annual fees of up to .1875% of the individual line. At December 31, 1994, the uncommitted lines of credit totaled $90 million. Interest rates on the outstanding borrowings generally are at an adjusted money market rate and averaged 4.9% and 3.4% in 1994 and 1993, respectively. Notes payable to banks totaled $6.4 million at December 31, 1994. The Company had no notes payable to banks at December 31, 1993.
(b) Advances from Affiliates
Notes payable to the System totaled $200,000 at December 31, 1994. The Company had no notes payable to the System at December 31, 1993. These notes are written for a term of up to 11 months and 29 days. Interest is at the prime rate and is adjusted for changes in that rate during the term of the notes. The rate averaged 7.3% and 6% in 1994 and 1993, respectively.
The Company is a member of the COM/Energy Money Pool (the Pool), an arrangement among the subsidiaries of the System, whereby short-term cash surpluses are used to help meet the short-term borrowing needs of the utility subsidiaries. In general, lenders to the Pool receive a higher rate of return than they otherwise would on such investments, while borrowers pay a lower interest rate than those available from banks. Interest rates on the out- standing borrowings are based on the monthly average rate the Company would otherwise have to pay banks, less one-half the difference between that rate and the monthly average U.S. Treasury Bill weekly auction rate. The borrow- ings are for a period of less than one year and are payable upon demand. Rates on these borrowings averaged 4.3% and 3.2% in 1994 and 1993, respective- ly. The Company had no notes payable to the Pool at December 31, 1994 and had $4,485,000 invested in the Pool at December 31, 1993.
(c) Long-Term Debt Maturities and Retirements
Long-term debt outstanding, exclusive of current maturities, current sinking fund requirements and related premiums, is as follows:
Original Balance December 31, Issue 1994 1993 (Dollars in Thousands)
15-Year Term Loan, 9.30%, due 2002 $30 000 $30 000 $30 000 25-Year Term Loan, 9.37%, due 2012 20 000 17 895 18 947 10-Year Notes, 7.43%, due 2003 15 000 15 000 15 000 15-Year Notes, 9.50%, due 2004 15 000 15 000 15 000 15-Year Notes, 7.70%, due 2008 10 000 10 000 10 000 18-Year Notes, 9.55%, due 2007 10 000 10 000 10 000 20-Year Notes, 7.98%, due 2013 25 000 25 000 25 000 25-Year Notes, 9.53%, due 2014 10 000 10 000 10 000 30-Year Notes, 9.60%, due 2019 10 000 10 000 10 000 30-Year Notes, 8.47%, due 2023 15 000 15 000 15 000 $157 895 $158 947
The Company, under favorable conditions, may purchase its outstanding notes in advance; however, an early payment premium may be incurred. Certain of these agreements require the Company to make periodic sinking fund payments
COMMONWEALTH ELECTRIC COMPANY
for retirement of outstanding long-term debt. The required sinking fund payments for the five years subsequent to December 31, 1994 are as follows:
Year Sinking Funds (Dollars in Thousands)
1995 $1 053 1996 3 553 1997 3 553 1998 3 553 1999 3 553
(d) Disclosures about Fair Value of Financial Instruments
The fair value of certain financial instruments included in the accompany- ing balance sheets as of December 31, 1994 and 1993 are as follows:
1994 1993 (Dollars in Thousands)
Carrying Fair Carrying Fair Value Value Value Value
Long-Term Debt $158 870 $157 762 $159 911 $184 180
The carrying amount of cash, notes payable to banks and advances to/from affiliates approximates the fair value because of the short maturity of these financial instruments.
The estimated fair value of long-term debt is based on quoted market prices of the same or similar issues or on the current rates offered for debt with the same remaining maturity. The fair values shown above do not purport to represent the amounts at which those obligations would be settled.
(6) Dividend Restriction
At December 31, 1994, approximately $10,659,000 of retained earnings was restricted against the payment of cash dividends by terms of term loans and note agreements securing long-term debt.
(7) Lease Obligations
The Company leases equipment and office space under arrangements that are classified as operating leases. These lease agreements are for terms of one year or longer. Leases currently in effect contain no provisions that prohibit the Company from entering into future lease agreements or obliga- tions.
COMMONWEALTH ELECTRIC COMPANY
Future minimum lease payments, by period and in the aggregate, of noncanc- elable operating leases consisted of the following at December 31, 1994:
Operating Leases (Dollars in Thousands)
1995 $ 2 809 1996 2 117 1997 842 1998 388 1999 261 Beyond 1999 1 036 Total future minimum lease payments $ 7 453
Total rent expense for all operating leases, except those with terms of a month or less, amounted to $3,491,000 in 1994 and 1993 and $3,669,000 in 1992. There were no contingent rentals and no sublease rentals for the years 1994, 1993 and 1992.
(8) Supplemental Disclosures of Cash Flow Information
The Company's supplemental information concerning cash flow activities is as follows:
1994 1993 1992 (Dollars in Thousands) Cash paid during the periods for: Interest (net of capitalized amounts) $ 13 908 $ 13 074 $ 14 084 Income taxes 2 301 2 438 1 491
COMMONWEALTH ELECTRIC COMPANY PART IV.
Item 14.
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) 1. Index to Financial Statements
Financial statements and notes thereto of the Company together with the Report of Independent Public Accountants, are filed under Item 8 of this report and listed on the Index to Financial Statements and Schedules (page 21).
(a) 2. Index to Financial Statement Schedules
Filed herewith at page(s) indicated -
Schedule I - Investments in, Equity in Earnings of, and Dividends Received from Related Parties - Years Ended December 31, 1992, 1993 and 1994 (page 51).
Schedule II - Valuation and Qualifying Accounts - Years Ended December 31, 1994, 1993 and 1992 (page 52).
(a) 3. Exhibits: Notes to Exhibits -
a. Unless otherwise designated, the exhibits listed below are incorporat- ed by reference to the appropriate exhibit numbers and the Securities and Exchange Commission file numbers indicated in parentheses.
b. During 1981, the Company sold its gas business and properties to Commonwealth Gas and changed its corporate name from New Bedford Gas and Edison Light Company to Commonwealth Electric Company.
c. The following is a glossary of Commonwealth Energy System and subsid- iary companies' acronyms that are used throughout the following Exhibit Index:
CES ...................... Commonwealth Energy System CEL ...................... Cambridge Electric Light Company CEC ...................... Canal Electric Company CG ....................... Commonwealth Gas Company NBGEL .................... New Bedford Gas and Edison Light Co.
Exhibit Index:
Exhibit 3. Articles of incorporation and by-laws
3.1.1 By-laws of the Company as amended, (Refiled as Exhibit 1 to the CE 1991 Form 10-K, File No. 2-7749).
3.1.2 Articles of Incorporation, as amended, of NBGEL, including certif- ication of name change to Commonwealth Electric Company as filed with the Massachusetts Secretary of State on March 1, 1981 (Re- filed as Exhibit 1 to the CE 1990 Form 10-K, File No. 2-7749).
COMMONWEALTH ELECTRIC COMPANY
Exhibit 10. Material Contracts.
10.1 Power contracts.
10.1.1 Power contracts between CEC (Unit 1) and NBGEL and CEL dated December 1, 1965 (Exhibit 13(a)(1-4) to the CEC Form S-1, File No. 2-30057).
10.1.2 Power contract between Yankee Atomic Electric Company (YAEC) and NBGEL dated June 30, 1959, as amended April 1, 1975 (Refiled as Exhibit 2 to the CE 1991 Form 10-K, File No. 2-7749).
10.1.2.1 Second, Third and Fourth Amendments to 10.1.2 as amended October 1, 1980, April 1, 1985 and May 6, 1988, respectively (Exhibit 1 to the CE Form 10-Q (June 1988), File No. 2-7749).
10.1.2.2 Fifth and Sixth Amendments to 10.1.2 as amended June 26, 1989 and July 1, 1989, respectively (Exhibit 3 to the CE Form 10-Q (Septem- ber 1989), File No. 2-7749).
10.1.3 Agreement between NBGEL and Boston Edison Company (BECO) for the purchase of electricity from BECO's Pilgrim Unit No. 1 dated Aug- ust 1, 1972 (Exhibit 7 to the CE 1984 Form 10-K, File No. 2-7749).
10.1.3.1 Service Agreement between NBGEL and BECO for purchase of stand-by power for BECO's Pilgrim Station dated August 16, 1978 (Exhibit 1 to the CE 1988 Form 10-K, File No. 2-7749).
10.1.3.2 System Power Sales Agreement by and between CE and BECO dated July 12, 1984 (Exhibit 1 to the CE Form 10-Q (September 1984), File No. 2-7749).
10.1.3.3 Power Exchange Agreement by and between BECO and CE dated December 1, 1984 (Exhibit 16 to the CE 1984 Form 10-K, File No. 2-7749).
10.1.4 Agreement for Joint-Ownership, Construction and Operation of New Hampshire Nuclear Units (Seabrook) dated May 1, 1973 (Exhibit 13(N) to the NBGEL Form S-1 dated October 1973, File No. 2-49013), and as amended below:
10.1.4.1 First through Fifth Amendments to 10.1.4 as amended May 24, 1974, June 21, 1974, September 25, 1974, October 25, 1974 and January 31, 1975, respectively (Exhibit 13(m) to the NBGEL Form S-1 (No- vember 7, 1975), File No. 2-54995).
10.1.4.2 Sixth through Eleventh Amendments to 10.1.4 as amended April 18, 1979, April 25, 1979, June 8, 1979, October 11, 1979 and December 15, 1979, respectively (Refiled as Exhibit 1 to the CEC 1989 Form 10-K, File No. 2-30057).
10.1.4.3 Twelfth through Fourteenth Amendments to 10.1.4 as amended May 16, 1980, December 31, 1980 and June 1, 1982, respectively (Refiled as Exhibits 1, 2, and 3 to the CE 1992 Form 10-K, File No.2-7749).
COMMONWEALTH ELECTRIC COMPANY
10.1.4.4 Fifteenth and Sixteenth Amendments to 10.1.4 as amended April 27, 1984 and June 15, 1984, respectively (Exhibit 1 to the CEC Form 10-Q (June 1984), File No. 2-30057).
10.1.4.5 Seventeenth Amendment to 10.1.4 as amended March 8, 1985 (Exhibit 1 to the CEC Form 10-Q (March 1985), File No. 2-30057).
10.1.4.6 Eighteenth Amendment to 10.1.4 as amended March 14, 1986 (Exhibit 1 to the CEC Form 10-Q (March 1986), File No. 2-30057).
10.1.4.7 Nineteenth Amendment to 10.1.4 as amended May 1, 1986 (Exhibit 1 to the CEC Form 10-Q (June 1986), File No. 2-30057).
10.1.4.8 Twentieth Amendment to 10.1.4 as amended September 19, 1986 (Ex- hibit 1 to the CEC 1986 Form 10-K, File No. 2-30057).
10.1.4.9 Twenty-First Amendment to 10.1.4 as amended November 12, 1987 (Exhibit 1 to the CEC 1987 Form 10-K, File No. 2-30057).
10.1.4.10 Settlement Agreement and Twenty-Second Amendment to 10.1.4, both dated January 13, 1989 (Exhibit 4 to the CEC 1988 Form 10-K, File No. 2-30057).
10.1.5 Interim Agreement to Preserve and Protect the Assets of and In- vestment in the New Hampshire Nuclear Units dated April 27, 1984 (Exhibit 2 to the CEC Form 10-Q (June 1984), File No. 2-30057).
10.1.6 Resolutions proposed by Merrill Lynch Capital Markets and adopted by the Joint-Owners of the Seabrook Nuclear Project regarding Project financing, dated May 14, 1984 (Exhibit 1 to the CEC Form 10-Q (March 1984), File No. 2-30057).
10.1.7 Agreement for Seabrook Project Disbursing Agent establishing YAEC as the disbursing agent under the Joint-Ownership Agreement, dated May 23, 1984 (Exhibit 4 to the CEC Form 10-Q (June 1984), File No. 2-30057).
10.1.7.1 First Amendment to 10.1.7 as amended March 8, 1985 (Exhibit 2 to the CEC Form 10-Q (March 1985), File No. 2-30057).
10.1.7.2 Second through Fifth Amendments to 10.1.7 as amended May 20, 1985, June 18, 1985, January 2, 1986 and November 12, 1987, respectively (Exhibit 4 to the CEC 1987 Form 10-K, File No. 2-30057).
10.1.8 Purchase and Sale Agreement together with an implementing Addendum dated December 31, 1981, between CE and CEC, for the purchase and sale of the CE 3.52% joint-ownership interest in the Seabrook units, dated January 2, 1981 (Refiled as Exhibit 4 to the CE 1992 Form 10-K, File No. 2-7749).
10.1.8.1 Agreement to transfer ownership, construction and operational interest in the Seabrook Units 1 and 2 from CE to CEC dated Janu- ary 2, 1981 (Refiled as Exhibit 3 to the CE 1991 Form 10-K, File No. 2-7749).
COMMONWEALTH ELECTRIC COMPANY
10.1.9 Termination Supplement between CEC, CE and CEL for Seabrook Unit 2, dated December 8, 1986 (Exhibit 3 to the CEC 1986 Form 10-K, File No. 2-30057).
10.1.10 Power Contract, as amended to February 28, 1990, superseding the Power Contract dated September 1, 1986 and amendment dated June 1, 1988, between CEC (seller) and CE and CEL (purchasers) for sell- er's entire share of the Net Unit Capability of Seabrook 1 and related energy (Exhibit 1 to the CEC Form 10-Q (March 1990), File No. 2-30057).
10.1.11 Agreement between NBGEL and Central Maine Power Company (CMP), for the joint-ownership, construction and operation of William F. Wyman Unit No. 4 dated November 1, 1974 together with Amendment No. 1 dated June 30, 1975 (Exhibit 13(N) to the NBGEL Form S-1, File No. 2-54955).
10.1.11.1 Amendments No. 2 and 3 to 10.1.11 as amended August 16, 1976 and December 31, 1978 (Exhibit 5(a) 14 to the System's Form S-16 (June 1979), File No. 2-64731).
10.1.12 Contract between CEC and NBGEL and CEL, affiliated companies, for the sale of specified amounts of electricity from Canal Unit 2 dated January 12, 1976 (Exhibit 7 to the System's 1985 Form 10-K, File No. 1-7316).
10.1.13 Capacity Acquisition Agreement between CEC,CEL and CE dated Sep- tember 25, 1980 (Exhibit 1 to the CEC 1991 Form 10-K, File No. 2- 30057).
10.1.13.1 Supplement to 10.1.13 consisting of three Capacity Acquisition Commitments each dated May 7, 1987, concerning Phases I and II of the Hydro-Quebec Project and electricity acquired from Connecticut Light and Power Company CL&P) (Exhibit 1 to the CEC Form 10-Q (September 1987), File No. 2-30057).
10.1.13.2 Amendment to 10.1.13 as amended and restated June 1, 1993, hence- forth referred to as the Capacity Acquisition and Disposition Agreement, whereby CEC, as agent, in addition to acquiring power may also sell bulk electric power which CEL and/or the Company owns or otherwise has the right to sell (Exhibit 1 to the CEC Form 10-Q (September 1993), File No. 2-30057).
10.1.14 Phase 1 Vermont Transmission Line Support Agreement and Amendment No. 1 thereto between Vermont Electric Transmission Company, Inc. and certain other New England utilities, dated December 1, 1981 and June 1, 1982, respectively (Refiled as Exhibits 5 and 6 to the 1992 CE Form 10-K, File No. 2-7749).
10.1.14.1 Amendment No. 2 to 10.1.14 as amended November 1, 1982 (Exhibit 5 to the CE Form 10-Q (June 1984), File No. 2-7749).
10.1.14.2 Amendment No. 3 to 10.1.14 as amended January 1, 1986 (Exhibit 2 to the CE 1986 Form 10-K, File No. 2-7749).
COMMONWEALTH ELECTRIC COMPANY
10.1.15 Participation Agreement between MEPCO and CEL and/or NBGEL dated June 20, 1969 for construction of a 345 KV transmission line between Wiscasset, Maine and Mactaquac, New Brunswick, Canada and for the purchase of base and peaking capacity from the NBEPC (Exhibit 13 to the CES 1984 Form 10-K, File No. 1-7316).
10.1.15.1 Supplement Amending 10.1.15 as amended June 24, 1970 (Exhibit 8 to the CES Form S-7, Amendment No. 1, File No. 2-38372).
10.1.16 Power Purchase Agreement (Revised) between Weweantic Hydro Associ- ates and the Company for the purchase of available hydro-electric energy produced by a facility located in Wareham, MA, originally dated December 13, 1982, revised and dated March 12, 1993 (Filed as Exhibit 1 to the CE Form 10-Q (June 1993), File No. 2-7749).
10.1.17 Power Purchase Agreement between Pioneer Hydropower, Inc. and CE for the purchase of available hydro-electric energy produced by a facility located in Ware, Massachusetts, dated September 1, 1983 (Refiled as Exhibit 1 to the CE 1993 Form 10-K, File No. 2-7749).
10.1.18 Power Purchase Agreement between Corporation Investments, Inc. (CI), and CE for the purchase of available hydro-electric energy produced by a facility located in Lowell, Massachusetts, dated January 10, 1983 (Refiled as Exhibit 2 to the CE 1993 Form 10-K, File No. 2-7749).
10.1.18.1 Amendment to 10.1.18 between CI and Boott Hydropower, Inc., an assignee therefrom, and CE, as amended March 6, 1985 (Exhibit 8 to the CE 1984 Form 10-K, File No. 2-7749).
10.1.19 Phase 1 Terminal Facility Support Agreement dated December 1, 1981, Amendment No. 1 dated June 1, 1982 and Amendment No. 2 dated November 1, 1982, between New England Electric Transmission Corpo- ration (NEET), other New England utilities and CE (Exhibit 1 to the CE Form 10-Q (June 1984), File No. 2-7749).
10.1.19.1 Amendment No. 3 to 10.1.19 (Exhibit 2 to the CE Form 10-Q (June 1986), File No. 2-7749).
10.1.20 Preliminary Quebec Interconnection Support Agreement dated May 1, 1981, Amendment No. 1 dated September 1, 1981, Amendment No. 2 dated June 1, 1982, Amendment No. 3 dated November 1, 1982, Amend- ment No. 4 dated March 1, 1983 and Amendment No. 5 dated June 1, 1983 among certain New England Power Pool (NEPOOL) utilities (Exhibit 2 to the CE Form 10-Q (June 1984), File No. 2-7749).
10.1.21 Agreement with Respect to Use of Quebec Interconnection dated December 1, 1981, Amendment No. 1 dated May 1, 1982 and Amendment No. 2 dated November 1, 1982 among certain NEPOOL utilities (Ex- hibit 3 to the CE Form 10-Q (June 1984), File No. 2-7749).
10.1.21.1 Amendatory Agreement No. 3 to 10.1.21 as amended June 1, 1990, among certain NEPOOL utilities (Exhibit 1 to the CEC Form 10-Q (September 1990), File No. 2-30057).
COMMONWEALTH ELECTRIC COMPANY
10.1.22 Phase I New Hampshire Transmission Line Support Agreement between NEET and certain other New England Utilities dated December 1, 1981 (Exhibit 4 to the CE Form 10-Q (June 1984), File No. 2-7749).
10.1.23 Agreement, dated September 1, 1985, with Respect To Amendment of Agreement With Respect To Use Of Quebec Interconnection, dated December 1, 1981, among certain NEPOOL utilities to include Phase II facilities in the definition of "Project" (Exhibit 1 to the CEC Form 10-Q (September 1985), File No. 2-30057).
10.1.24 Preliminary Quebec Interconnection Support Agreement - Phase II among certain New England electric utilities dated June 1, 1984 (Exhibit 6 to the CE Form 10-Q (June 1984), File No. 2-7749).
10.1.24.1 First, Second and Third Amendments to 10.1.24 as amended March 1, 1985, January 1, 1986 and March 1, 1987, respectively (Exhibit 1 to the CEC Form 10-Q (March 1987), File No. 2-30057).
10.1.24.2 Fifth, Sixth and Seventh Amendments to 10.1.24 as amended October 15, 1987, December 15, 1987 and March 1, 1988, respectively (Ex- hibit 1 to the CEC Form 10-Q (June 1988), File No. 2-30057).
10.1.24.3 Fourth and Eighth Amendments to 10.1.24 as amended July 1, 1987 and August 1, 1988, respectively (Exhibit 3 to the CEC Form 10-Q (September 1988), File No. 2-30057).
10.1.24.4 Ninth and Tenth Amendments to 10.1.24 as amended November 1, 1988 and January 15, 1989, respectively (Exhibit 2 to the CEC 1988 Form 10-K, File No. 2-30057).
10.1.24.5 Eleventh Amendment to 10.1.24 as amended November 1, 1989 (Exhibit 4 to the CEC 1989 Form 10-K, File No. 2-30057).
10.1.24.6 Twelfth Amendment to 10.1.24 as amended April 1, 1990 (Exhibit 1 to the CEC Form 10-Q (June 1990), File No. 2-30057).
10.1.25 Phase II Equity Funding Agreement for New England Hydro-Transmis- sion Electric Company, Inc. (New England Hydro) (Massachusetts), dated June 1, 1985, between New England Hydro and certain NEPOOL utilities (Exhibit 2 to the CEC Form 10-Q (September 1985), File No. 2-30057).
10.1.26 Phase II Massachusetts Transmission Facilities Support Agreement dated June 1, 1985, refiled as a single agreement incorporating Amendments 1 through 7 dated May 1, 1986 through January 1, 1989, respectively, between New England Hydro and certain NEPOOL utili- ties (Exhibit 2 to the CEC Form 10-Q (September 1990), File No. 2- 30057).
10.1.27 Phase II New Hampshire Transmission Facilities Support Agreement dated June 1, 1985, refiled as a single agreement incorporating Amendments 1 through 8 dated May 1, 1986 through January 1, 1990, respectively, between New England Hydro-Transmission Corporation (New Hampshire Hydro) and certain NEPOOL utilities (Exhibit 3 to the CEC Form 10-Q (September 1990), File No. 2-30057).
COMMONWEALTH ELECTRIC COMPANY
10.1.28 Phase II Equity Funding Agreement for New Hampshire Hydro, dated June 1, 1985, between New Hampshire Hydro and certain NEPOOL util- ities (Ex. 3 to the CEC Form 10-Q (Sept. 1985), File No. 2-30057).
10.1.28.1 Amendment No. 1 to 10.1.28 dated May 1, 1986 (Exhibit 6 to the CEC Form 10-Q (March 1987), File No. 2-30057).
10.1.28.2 Amendment No. 2 to 10.1.28 as amended September 1, 1987 (Exhibit 3 to the CEC Form 10-Q (September 1987), File No. 2-30057).
10.1.29 Phase II New England Power AC Facilities Support Agreement, dated June 1, 1985, between NEP and certain NEPOOL utilities (Exhibit 6 to the CEC Form 10-Q (September 1985), File No. 2-30057).
10.1.29.1 Amendments Nos. 1 and 2 to 10.1.29 as amended May 1, 1986 and February 1, 1987, respectively (Exhibit 5 to the CEC Form 10-Q (March 1987), File No. 2-30057).
10.1.29.2 Amendments Nos. 3 and 4 to 10.1.29 as amended June 1, 1987 and September 1, 1987, respectively (Exhibit 5 to the CEC Form 10-Q (September 1987), File No. 2-30057).
10.1.30 Phase II Boston Edison AC Facilities Support Agreement, dated June 1, 1985, between BECO and certain NEPOOL utilities (Exhibit 7 to the CEC Form 10-Q (September 1985), File No. 2-30057).
10.1.30.1 Amendments Nos. 1 and 2 to 10.1.30 as amended May 1, 1986 and February 1, 1987, respectively (Exhibit 2 to the CEC Form 10-Q (March 1987), File No. 2-30057).
10.1.30.2 Amendments Nos. 3 and 4 to 10.1.30 as amended June 1, 1987 and September 1, 1987, respectively (Exhibit 4 to the CEC Form 10-Q (September 1987), File No. 2-30057).
10.1.31 Agreement Authorizing Execution of Phase II Firm Energy Contract, dated September 1, 1985, among certain NEPOOL utilities in regard to participation in the purchase of power from Hydro-Quebec (Ex- hibit 8 to the CEC Form 10-Q (September 1985), File No. 2-30057).
10.1.32 System Power Sales Agreement by and between CE, as seller, and Central Vermont Public Service Corporation (CVPS), as buyer, dated September 15, 1984 (Exhibit 2 to the CE Form 10-Q (September 1984), File No. 2-7749).
10.1.32.1 System Sales Agreement by CVPS, as seller, and CE, as buyer, dated September 15, 1984 (Exhibit 9 to the CE 1984 Form 10-K, File No. 2-7749).
10.1.32.2 System Sales and Exchange Agreement by and between CVPS and CE on energy transactions, dated September 15, 1984 (Exhibit 10 to the CE 1984 Form 10-K, File No. 2-7749).
10.1.32.3 System Exchange Agreement by and between CE and CVPS for the exchange of capacity and associated energy, dated September 3, 1985 (Exhibit 1 to the CE 1985 Form 10-K, File No. 2-7749).
COMMONWEALTH ELECTRIC COMPANY
10.1.32.4 Purchase Agreement by and between CEC and CVPS for the purchase of capacity from CEC for the term March 1, 1991 to October 31, 1995, dated March 1, 1991 (Exhibit 1 to CEC Form 10-Q (June 1991), File No. 2-30057).
10.1.32.5 Power Sale Agreement by and between CEC and CVPS for the purchase of 50 MW of capacity from CVPS's units (25 MW from Vermont Yankee and 25 MW from Merrimack 2) for the term of March 1, 1991 to October 31, 1995, dated March 1, 1991 (Exhibit 2 to CEC Form 10-Q (June 1991), File No. 2-30057).
10.1.33 Agreements by and between Swift River Company and CE for the purchase of available hydro-electric energy to be produced by units located in Chicopee and North Willbraham, Massachusetts, both dated September 1, 1983 (Exhibits 11 and 12 to the CE 1984 Form 10-K, File No. 2-7749).
10.1.33.1 Transmission Service Agreement between Northeast Utilities' compa- nies (NU) - The Connecticut Light and Power Company (CL&P) and Western Massachusetts Electric Company (WMECO), and CE for NU companies to transmit power purchased from Swift River Company's Chicopee Units to CE, dated October 1, 1984 (Exhibit 14 to the CE 1984 Form 10-K, File No. 2-7749).
10.1.33.2 Transformation Agreement between WMECO and CE whereby WMECO is to transform power to CE from the Chicopee Units, dated December 1, 1984 (Exhibit 15 to the CE 1984 Form 10-K, File No. 2-7749).
10.1.34 System Power Sales Agreement by and between CL&P and WMECO, as buyers, and CE, as seller, dated January 13, 1984 (Exhibit 13 to the CE 1984 Form 10-K, File No. 2-7749).
10.1.35 System Power Sales Agreement by and between CL&P, WMECO, as sell- ers, and CEL, as buyer, of power in excess of firm power customer requirements from the electric systems of the NU Companies, dated June 1, 1984, as effective October 25, 1985 (Exhibit 1 to CEL 1985 Form 10-K, File No. 2-7909).
10.1.36 Power Purchase Agreement with Respect to South Meadow Unit Nos. 11, 12, 13, and 14 of the NU system company of CL&P (seller) and CE (buyer), dated November 1, 1985 (Exhibit 1 to the CE Form 10-Q (June 1986), File No. 2-7749).
10.1.37 Power Purchase Agreement by and between SEMASS Partnership, as seller, to construct, operate and own a solid waste disposal facility at its site in Rochester, Massachusetts and CE, as buyer of electric energy and capacity, dated September 8, 1981 (Exhibit 17 to the CE 1984 Form 10-K, File No. 2-7749).
10.1.37.1 Power Sales Agreement to 10.1.37 for all capacity and related energy produced, dated October 31, 1985 (Exhibit 2 to the CE 1985 Form 10-K, File No. 2-7749).
COMMONWEALTH ELECTRIC COMPANY
10.1.37.2 Amendment to 10.1.37 for all additional electric capacity and related energy to be produced by an addition to the Original Unit, dated March 14, 1990 (Exhibit 1 to the CE Form 10-Q (June 1990), File No. 2-7749).
10.1.37.3 Second Amendment to 10.1.37.2 for all additional electric capacity and related energy to be produced by an addition to the Original Unit, dated May 24, 1991 (Exhibit 1 to the CE Form 10-Q (June 1991), File No. 2-7749).
10.1.38 System Power Sales Agreement by and between CE (seller) and NEP (buyer), dated January 6, 1984 (Exhibit 1 to the CE Form 10-Q (June 1985), File No. 2-7749).
10.1.39 Service Agreement by and between CE and NEP dated March 24, 1984, whereas CE agrees to purchase short-term power applicable to NEP'S FERC Electric Tariff Number 5 (Exhibit 1 to the CE Form 10-Q (June 1987), File No. 2-7749).
10.1.40 Power Sale Agreement by and between CE (buyer) and Northeast Energy Associates, Ltd. (NEA) (seller) of electric energy and capacity, dated November 26, 1986 (Exhibit 1 to the CE Form 10-Q (March 1987), File No. 2-7749).
10.1.40.1 First Amendment to 10.1.40 as amended August 15, 1988 (Exhibit 1 to the CE Form 10-Q (September 1988), File No. 2-7749).
10.1.40.2 Second Amendment to 10.1.40 as amended January 1, 1989 (Exhibit 2 to the CE 1988 Form 10-K, File No. 2-7749).
10.1.40.3 Power Sale Agreement dated August 15, 1988 between NEA and CE for the purchase of 21 MW of electricity (Exhibit 2 to the CE Form 10-Q (September 1988), File No. 2-7749).
10.1.40.4 Amendment to 10.1.40.3 as amended January 1, 1989 (Exhibit 3 to the CE 1988 Form 10-K, File No. 2-7749).
10.1.41 Power Sale Agreement by and between CE (buyer) and Pepperell Power Associates Limited Partnership (seller) of all electricity pro- duced from a 38 KW generating unit, dated April 13, 1987 (Exhibit 3 to the CE Form 10-Q (March 1987), File No. 2-7749).
10.1.42 Exchange of Power Agreement between Montaup Electric Company and CE dated January 17, 1991 (Exhibit 2 to the CE Form 10-Q (Septem- ber 1991), File No. 2-7749).
10.1.42.1 First Amendment, dated November 24, 1992, to Exchange of Power Agreement between Montaup Electric Company and the Company dated January 17, 1991 (Exhibit 1 to the CE Form 10-Q (March 1993), File No. 2-7749).
10.1.43 System Power Exchange Agreement by and between CE and New England Power Company dated January 16, 1992 (Exhibit 1 to the CE Form 10-Q March 1992), File No. 2-7749).
COMMONWEALTH ELECTRIC COMPANY
10.1.43.1 First Amendment, dated September 8, 1992, to 10.1.43, dated January 16, 1992 (Exhibit 1 to the CE Form 10-Q (Sept. 1992), File No. 2-7749).
10.1.43.2 Second Amendment, dated March 2, 1993, to System Power Exchange Agreement by and between the Company and New England Power Company dated January 16, 1992 (Exhibit 2 to the CE Form 10-Q (March 1993), File No. 2-7749).
10.1.44 Power Purchase Agreement and First Amendment, dated September 5, 1989 and August 3, 1990, respectively, by and between CE (buyer) and Dartmouth Power Associates Limited Partnership (seller), whereby buyer will purchase all of the energy (67.6 MW) produced by a single gas turbine unit (Exhibit 1 to the CE Form 10-Q (June 1992), File No. 2-7749).
10.1.45 Power Purchase Agreement by and between Masspower (seller) and the Company (buyer) for a 11.11% entitlement to the electric capacity and related energy of a 240 MW gas-fired cogeneration facility, dated February 14, 1992 (Exhibit 1 to the CE Form 10-Q (September 1993), File No. 2-7749).
10.1.46 Power Sale Agreement by and between Altresco Pittsfield, L.P. (seller) and the Company (buyer) for a 17.2% entitlement to the electric capacity and related energy of a 160 MW gas-fired cogen- eration facility, dated February 20, 1992 (Exhibit 2 to the CE Form 10-Q (September 1993), File No. 2-7749).
10.1.46.1 System Exchange Agreement by and among Altresco Pittsfield, L.P., CEL, the Company and New England Power Company, dated July 2, 1993 (Exhibit 3 to the CE Form 10-Q (September 1993), File No. 2-7749).
10.2 Other agreements.
10.2.1 Pension Plan for Employees of Commonwealth Energy System and Subsidiary Companies as amended and restated January 1, 1993 (Exhibit 1 to the CES Form 10-Q (Sept. 1993), File No. 1-7316).
10.2.2 Employees Savings Plan of Commonwealth Energy System and Subsid- iary Companies as amended and restated as of January 1, 1993 (Ex- hibit 2 to the CES Form 10-Q (September 1993), File No. 1-7316).
10.2.2.1 First Amendment to the Employees Savings Plan of Commonwealth Energy System and Subsidiary Companies, as amended and restated as of January 1, 1993, effective October 1, 1994. (Exhibit 1 to CES Form S-8 (January 1995), File No. 1-7316).
10.2.3 New England Power Pool Agreement (NEPOOL) dated September 1, 1971 as amended through August 1, 1977, between NEGEA Service Corpora- tion, as agent for CEL, CEC, NBGEL, and various other electric utilities operating in New England together with amendments dated August 15, 1978, January 31, 1979 and February 1, 1980 (Exhibit 5(c)13 to New England Gas and Electric Association's Form S-16 (April 1980), File No. 2-64731).
COMMONWEALTH ELECTRIC COMPANY
10.2.3.1 Thirteenth Amendment to 10.2.3 as amended September 1, 1981 (Re- filed as Exhibit 3 to the CES 1991 Form 10-K, File No. 1-7316).
10.2.3.2 Fourteenth through Twentieth Amendments to 10.2.3 as amended December 1, 1981, June 1, 1982, June 15, 1983, October 1, 1983, August 1, 1985, August 15, 1985 and September 1, 1985, respective- ly (Exhibit 4 to the CES Form 10-Q (Sept. 1985), File No. 1-7316).
10.2.3.3 Twenty-first Amendment to 10.2.3 as amended to January 1, 1986 (Exhibit 1 to the CES Form 10-Q (March 1986), File No. 1-7316).
10.2.3.4 Twenty-second Amendment to 10.2.3 as amended to September 1, 1986 (Exhibit 1 to the CES Form 10-Q (Sept. 1986), File No. 1-7316).
10.2.3.5 Twenty-third Amendment to 10.2.3 as amended to April 30, 1987 (Exhibit 1 to the CES Form 10-Q (June 1987), File No. 1-7316).
10.2.3.6 Twenty-fourth Amendment to 10.2.3 as amended March 1, 1988 (Exhib- it 1 to the CES Form 10-Q (March 1989), File No. 1-7316).
10.2.3.7 Twenty-fifth Amendment to 10.2.3. as amended to May 1, 1988 (Ex- hibit 1 to the CES Form 10-Q (March 1988), File No. 1-7316).
10.2.3.8 Twenty-sixth Agreement to 10.2.3 as amended March 15, 1989 (Exhib- it 1 to the CES Form 10-Q (March 1989), File No. 1-7316).
10.2.3.9 Twenty-seventh Agreement to 10.2.3 as amended October 1, 1990 (Exhibit 3 to the CES 1990 Form 10-K, File No. 1-7316).
10.2.3.10 Twenty-eighth Agreement to 10.2.3 as amended September 15, 1992 (Exhibit 1 to the CES Form 10-Q (September 1994), File No. 1- 7316).
10.2.3.11 Twenty-ninth Agreement to 10.2.3 as amended May 1, 1993 (Exhibit 2 to the CES Form 10-Q (September 1994), File No. 1-7316).
Exhibit 27. Financial Data Schedule
Filed herewith as Exhibit 1 is the Financial Data Schedule for the twelve months ended December 31, 1994.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the three months ended December 31, 1994.
SCHEDULE I
COMMONWEALTH ELECTRIC COMPANY INVESTMENTS IN, EQUITY IN EARNINGS OF, AND DIVIDENDS RECEIVED FROM RELATED PARTIES
FOR THE YEARS ENDED DECEMBER 31, 1992, 1993 AND 1994
(Dollars in Thousands)
Name of Issuer and Description of Investment
Common Stock - Yankee Atomic Electric Company
Balance, December 31, 1991
Number of Shares: 3 835
Amount $526
Add: Equity in Earnings 75
Less: Dividends Received -
Balance, December 31, 1992 601
Add: Equity in Earnings -
Less: Dividends Received -
Balance, December 31, 1993 601
Add: Equity in Earnings 53
Less: Dividends Received -
Balance, December 31, 1994 $654
There were no changes in the number of shares held during the years 1992, 1993 or 1994.
Under terms of the capital funds agreements and power contracts, no stock may be sold or transferred except to another stockholder; however, no market exists for these securities.
See Note 2(c) of the Notes to Financial Statements included in Item 8 of this report for a discussion of the permanent closing of the nuclear plant owned by Yankee Atomic Electric Company.
SCHEDULE II
COMMONWEALTH ELECTRIC COMPANY VALUATION AND QUALIFYING ACCOUNTS FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 and 1992
(Dollars in Thousands)
Additions Balance Provision Deductions Balance Beginning Charged to Accounts at End Description of Year Operations Recoveries Written Off of Year
Allowance for Doubtful Accounts Year Ended December 31, 1994
$3 268 $2 362 $641 $3 430 $2 841
Year Ended December 31, 1993
$3 131 $3 173 $783 $3 819 $3 268
Year Ended December 31, 1992
$2 653 $5 216 $854 $5 592 $3 131
COMMONWEALTH ELECTRIC COMPANY FORM 10-K DECEMBER 31, 1994
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
COMMONWEALTH ELECTRIC COMPANY (Registrant)
By: WILLIAM G. POIST William G. Poist, Chairman of the Board and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Principal Executive Officers:
WILLIAM G. POIST March 29, 1995 William G. Poist, Chairman of the Board and Chief Executive Officer
R. D. WRIGHT March 29, 1995 Russell D. Wright, President and Chief Operating Officer
Principal Financial Officer:
JAMES D. RAPPOLI March 29, 1995 James D. Rappoli, Financial Vice President and Treasurer
Principal Accounting Officer:
JOHN A. WHALEN March 29, 1995 John A. Whalen, Comptroller
A majority of the Board of Directors:
WILLIAM G. POIST March 29, 1995 William G. Poist, Director
R. D. WRIGHT March 29, 1995 Russell D. Wright, Director
JAMES D. RAPPOLI March 29, 1995 James D. Rappoli, Director