UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark one)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period _________________ to ___________________
Commission File Number 0-2602
BLACKSTONE VALLEY ELECTRIC COMPANY
(Exact name of registrant as specified in its charter)
Rhode Island 05-0108587
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Washington Highway, Lincoln, Rhode Island
(Address of principal executive offices)
02865
(Zip Code)
(401)333-1400
(Registrant's telephone number including area code)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes....X......No..........
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practical date.
Class Outstanding at April 30, 1996
Common Shares, $50 par value 184,062 shares
PART I - FINANCIAL INFORMATION
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
BLACKSTONE VALLEY ELECTRIC COMPANY
CONDENSED BALANCE SHEETS
(In Thousands)
March 31, December 31,
ASSETS 1996 1995
Utility Plant in Service $ 135,217 $ 135,148
Less: Accumulated Provision for Depreciation
and Amortization 49,545 48,023
Net Utility Plant in Service 85,672 87,125
Construction Work in Progress 2,070 1,355
Net Utility Plant 87,742 88,480
Current Assets:
Cash and Temporary Cash Investments 1,200 753
Accounts Receivable - Associated Companies 362 429
- Other 13,809 17,319
Materials, Supplies and Other Current Assets 1,375 1,332
Total Current Assets 16,746 19,833
Deferred Debits and Other Non-Current Assets 15,994 15,665
Total Assets $ 120,482 $ 123,978
LIABILITIES AND CAPITALIZATION
Capitalization:
Common Stock, $50 Par Value $ 9,203 $ 9,203
Other Paid-In Capital 17,908 17,908
Retained Earnings 10,047 9,934
Total Common Equity 37,158 37,045
Non-Redeemable Preferred Stock 6,130 6,130
Long-Term Debt 36,500 36,500
Total Capitalization 79,788 79,675
Current Liabilities:
Current Maturities 1,500 1,500
Notes Payable 1,259
Accounts Payable - Associated Companies 13,510 17,371
- Other 188 282
Taxes Accrued 3,253 1,777
Interest Accrued 1,031 981
Other Current Liabilities 2,775 1,495
Total Current Liabilities 22,257 24,665
Accumulated Deferred Taxes, Deferred Credits
and Other Non-Current Liabilities 18,437 19,638
Total Liabilities and Capitalization $ 120,482 $ 123,978
See accompanying notes to condensed financial statements.
BLACKSTONE VALLEY ELECTRIC COMPANY
CONDENSED STATEMENTS OF INCOME
(In Thousands)
Three Months Ended
March 31,
1996 1995
Operating Revenues $ 33,436 $ 34,219
Operating Expenses:
Purchased Power (principally from an affiliate) 21,555 22,842
Other Operation and Maintenance 5,335 4,870
Depreciation 1,399 1,376
Taxes - Other Than Income 2,277 2,346
- Current Income 1,941 866
- Deferred Income (Credit) (1,344) (277)
Total 31,163 32,023
Operating Income 2,273 2,196
Other Income (Deductions) - Net (24) (28)
Income Before Interest Charges 2,249 2,168
Interest Charges:
Interest on Long-Term Debt 839 881
Other Interest Expense 144 155
Allowance for Borrowed Funds Used
During Construction (Credit) (8) (11)
Net Interest Charges 975 1,025
Net Income 1,274 1,143
Preferred Dividend Requirements 72 72
Net Earnings $ 1,202 $ 1,071
See accompanying notes to condensed financial statements.
BLACKSTONE VALLEY ELECTRIC COMPANY
CONDENSED STATEMENTS OF CASH FLOWS
(In Thousands)
Three Months Ended
March 31,
1996 1995
CASH FLOW FROM OPERATING ACTIVITIES:
Net Income $ 1,274 $ 1,143
Adjustments to Reconcile Net Income to Net
Cash Provided from Operating Activities:
Depreciation and Amortization 1,458 1,567
Deferred Taxes (1,344) (277)
Investment Tax Credit, Net (46) (46)
Allowance for Funds Used During Construction (8)
Other - Net (268) (482)
Change in Operating Assets and Liabilities 2,386 958
Net Cash Provided From Operating Activities 3,460 2,855
CASH FLOW FROM INVESTING ACTIVITIES:
Construction Expenditures (594) (2,430)
Net Cash (Used In) Investing Activities (594) (2,430)
CASH FLOW FROM FINANCING ACTIVITIES:
Redemptions:
Long-Term Debt
Common Stock Dividends Paid to EUA (1,088) (985)
Preferred Dividends Paid (72) (72)
Net (Decrease) Increase in Short-Term Debt (1,259) 650
Net Cash (Used In) Financing Activities (2,419) (407)
Net Increase in Cash and Temporary Cash Investments 447 18
Cash and Temporary Cash Investments at Beginning of Period 753 472
Cash and Temporary Cash Investments at End of Period $ 1,200 $ 490
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest (Net of Amount Capitalized) $ 713 $ 788
Income Taxes $ - $ 170
See accompanying notes to condensed financial statements.
BLACKSTONE VALLEY ELECTRIC COMPANY
NOTES TO CONDENSED FINANCIAL STATEMENTS
The accompanying Notes should be read in conjunction with the
Notes to Financial Statements appearing in the Blackstone Valley
Electric Company's (Blackstone or the Company) 1995 Annual Report
on Form 10-K.
Note A - In the opinion of the Company, the accompanying unaudited condensed
financial statements contain all normal and recurring adjustments
necessary to present fairly the financial position of the Company
as of March 31, 1996 and the results of operations and cash flows
for the three months ended March 31, 1996 and 1995. Certain
reclassifications have been made to prior period financial
statements to conform to current period classifications. The year-
end condensed balance sheet data was derived from audited financial
statements but does not include all disclosures required under
generally accepted accounting principles.
Note B - Results shown above for the respective interim periods are not
necessarily indicative of results to be expected for the fiscal
years due to seasonal factors which are inherent in electric
utilities in New England. A greater proportionate amount of
revenues is earned in the first and fourth quarters (winter season)
of each year because more electricity is sold due to weather
conditions, fewer daylight hours, etc.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The following is Management's discussion and analysis of certain
significant factors affecting the Company's earnings and financial condition
for the interim periods presented in this Form 10-Q.
Overview
Net Earnings were $1.2 million for the three month period ending March
31, 1996 as compared to $1.1 million for the same period in 1995 reflecting a
1.5% increase in year-to-date kilowatthour (kWh) sales. Operating Revenues
Operating Revenues for the quarter ended March 31, 1996 decreased
approximately $0.8 million as compared to the same period in 1995. The
decrease was primarily due to recoveries of decreased purchased power expense
of $1.3 million (see below) offset somewhat by increased transmission rental
revenues and the impact of increased kWh sales.
Operating Expense
Purchased Power expense for the first quarter of 1996 decreased by
approximately $1.3 million due primarily decreased conservation and load
management (C&LM) expense of approximately $0.7 million and a 2.7% decrease in
the average cost of fuel.
Other Operation and Maintenance (O&M) expenses during the quarter ended
March 31, 1996 increased by approximately $0.5 million or 9.6% when compared to
the same period in the previous year primarily as a result of a decrease in
capitalized costs and C&LM expenses recorded as Other O&M expenses in 1996 of
approximately $0.2 million.
Income Taxes
Blackstone's effective income tax rate for the quarter ended March 31,
1996 was approximately 31.8% compared to 33.7% for the same period of a year
ago. This decrease is the result of increased allocated consolidated tax
benefits and increased state tax benefits.
Liquidity and Sources of Capital
Blackstone's need for permanent capital is primarily related to
investments in facilities required to meet the needs of its existing and future
customers.
Traditionally, construction requirements in excess of internally
generated funds are financed through short-term borrowings which are ultimately
funded with permanent capital. At March 31, 1996 EUA System companies,
including Blackstone, maintained short-term lines of credit with various banks
aggregating approximately $150 million. These credit lines are available to
other affiliated companies under joint credit line arrangements. At March 31,
1996, these unused EUA System short-term lines of credit amounted to
approximately $108 million. Blackstone had no short-term debt outstanding at
March 31, 1996. During the first three months of 1996, internally generated
funds amounted to approximately $0.2 million while cash construction
requirements for the same period amounted to approximately $0.6 million.
Electric Utility Industry Restructuring
The electric industry is in a period of transition from a traditional
rate regulated environment to a competitive marketplace. While competition in
the wholesale electric market is not new, electric utilities are facing
impending competition in the retail sector.
In 1995, Eastern Edison, Blackstone and Newport participated with
collaborative groups in their respective states consisting of other utilities,
industrial users, environmental groups and consumer advocates in submitting
similar sets of interdependent principles with their respective state
regulatory commissions addressing electric utility industry restructuring.
These filings were intended to be statements of the consensus position by the
signatories of the principles that should underlie any electric industry
restructuring proposal and include but are not limited to principles addressing
stranded cost recovery, unbundling of services and demand side management
programs. Each set of principles was submitted on the condition they be
approved in full by the respective Commissions.
The Rhode Island Public Utilities Commission (RIPUC) accepted all but one
of the principles submitted by the Rhode Island Collaborative with minor
modifications to certain language in others and added a new principle which
supports negotiation (as opposed to litigation) to resolve conflicts as
restructuring moves forward and directed the Rhode Island Collaborative to
proceed with negotiations on the issues presented in the principles and to
submit a progress report, which was submitted in February 1996. The one
principle that was not accepted provided for subsidization of renewable energy
sources.
In February 1996 a bill was introduced in the Rhode Island legislature
that, if enacted, would allow customer choice of electricity supplier
commencing January 1, 1998 for large industrial customers and phasing in all
customers by January 1, 2001. The proposed legislation also provides for
recovery of "stranded investments" through a transition charge initially set
at three cents per kWh.
EUA believes that the development of the proposed legislation should have
been conducted in a public forum so that all interested stakeholders could have
participated. However, EUA believes that competition, if done right, whether
through legislation or regulation can benefit customers. There are substantial
issues about the proposed legislation which EUA is currently reviewing.
In August 1995, the Massachusetts Department of Public Utilities (MDPU)
issued an order enumerating principles, similar to those submitted by the
Massachusetts Collaborative, that describe the key characteristics of a
restructured electric industry and provides for, among other things, customer
choice of electric service providers, services, pricing options and payment
terms, an opportunity for customers to share in the benefits of increased
competition, full and fair competition in the generation markets and incentive
regulation for distribution services where regulation will still exist. This
order sets out principles for the transition from a regulated to a competitive
industry structure and identifies conditions for the transition process which
will require investor-owned utilities to unbundle rates, provide consumers with
accurate price signals and allow customers choice of generation services. The
order also provides for the principle of recovery of net, non-mitigable
stranded costs by investor-owned utilities resulting from the industry
restructuring.
Each Massachusetts investor-owned utility is required to file
restructuring proposals for moving from the current regulated industry
structure to a competitive generation market. The schedule for the filing
requirement is staggered. The initial group of utilities was required to file
their proposals in February 1996. The second group is required to file within
three months of the MDPU's orders on the first group of submissions. Eastern
Edison Company filed its proposal, "Choice and Competition" (see below) with
the first group of proposals and is awaiting MDPU review.
On May 1, 1996 the MDPU issued proposed rules for the restructuring of
the electric industry which are intended to reduce electricity costs over time
and provide broad customer choice of electric supplier promoting full and fair
competition in the generation of electricity. These proposed rules, which
amplify the principles set forth in the August 1995 order, were issued for
public comment and hearing before final rules are adopted in September 1996.
The proposed rules provide for, among other things:
- an independent system operator of the regional transmission
system in New England operating within established reliability
standards and a power exchange which would facilitate a short-term
pool for energy transactions;
- functional separation of electric companies into generation,
transmission and distribution corporate entities;
- a reasonable opportunity for recovery of net, non-mitigable
stranded costs periodically subject to some degree of
reconciliation;
- a price cap system for performance based regulation of electric
distribution companies;
- distribution company obligation to provide electric distribution
service to all customers within its service territory;
- environmental protection and support for renewable energy resources
and energy efficiency;
- implementation of unbundled rates beginning January 1, 1997 and a
competitive generation market by January 1, 1998;
The order also encourages settlements of outstanding company specific
electric restructuring filings, discussed above. EUA is currently reviewing
the order and will continue to be an active participant in this proceeding.
In January 1996, EUA unveiled its preliminary proposal for a
restructured electric utility industry called "Choice and Competition" and
began discussions with the Rhode Island and Massachusetts Collaboratives. The
plan proposes, among other things: choice of power supplier by all customers as
early as January 1998; open access transmission services; performance based
rates for electric distribution services; all utility generation competing for
power sales and; a transition charge allowing regional utilities the
opportunity to recover, among other things, the costs of past commitments to
nuclear and independent power. The company believes the plan, which requires
participation by all New England parties, satisfies the principles adopted in
both Rhode Island and Massachusetts, and provides a fair and equitable
transition to a competitive electric utility marketplace for all parties.
Historically, electric rates have been designed to recover a utility's full
costs of providing electric service including recovery of investment in plant
assets. Also, in a regulated environment, electric utilities are subject to
certain accounting rules that are not applicable to other industries. These
accounting rules allow regulated companies, in appropriate circumstances, to
establish regulatory assets and liabilities, which defer the current financial
impact of certain costs that are expected to be recovered in future rates. EUA
believes that its Core Electric operations continue to meet the criteria
established in these accounting standards. Effects of legislation and/or
regulatory initiatives or EUA's own initiatives such as "Choice and
Competition" could ultimately cause EUA's Core Electric companies to no longer
follow these accounting rules. In such an event, a non-cash write-off of
regulatory assets and liabilities could be required at that time.
In addition, if legislative or regulatory changes and/or competition result
in electric rates which do not fully recover the company's costs, a write-down
of plant assets could be required pursuant to Financial Accounting Standard No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of" (FAS121) issued in March 1995, effective for fiscal
year 1996.
Item 5. Other Information
On April 24, 1996, the Federal Energy Regulatory Commission (FERC) issued
orders on its March 24, 1995 Notice of Proposed Rulemaking (NOPR). FERC's
purpose in proposing the new rules was to encourage competition in the bulk
power market. The FERC's April 24th actions include:
- order No. 888, a final rule requiring open access transmission and
requiring all public utilities that own, operate or control interstate
transmission to file tariffs that offer others the same transmission
services they provide themselves, under comparable terms and conditions.
Utilities must take transmission service for their own wholesale
transactions under the terms and conditions of the tariff;
- recovery of prudently incurred stranded costs by public utilities and
transmitting utilities;
- order No. 889, a final rule requiring public utilities to implement
standards of conduct and an Open Access Same - time Information System
(OASIS). Utilities must obtain information about their transmission
the same way as their competitors through the OASIS;
- a Notice of Proposed Rulemaking (NOPR) requesting comment on replacing
the single tariff contained in the final open access rule with a
capacity reservation tariff that would reveal how much transmission is
available at any given time.
Open-access transmission tariffs for point-to-point and network service
filed with FERC by Montaup in February 1996 became effective April 21, 1996
subject to refund. Montaup believes these tariffs, scheduled for review by
FERC later in 1996, to be in compliance with FERC's April 24th rulings. EUA
remains committed to achieving a fair and equitable transition to a competitive
electric utility marketplace.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits - None
(b) Reports on Form 8-K - None.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Blackstone Valley Electric Company
(Registrant)
Date: May 15, 1996 /s/ Clifford J. Hebert, Jr.
Clifford J. Hebert, Jr.
(on behalf of the Registrant and
as Chief Financial Officer)