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 June 30, 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 July 31, 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)
PART I - FINANCIAL INFORMATION
June 30, December 31,
ASSETS 1996 1995
Utility Plant in Service $ 135,683 $ 135,148
Less: Accumulated Provision for Depreciation
and Amortization 50,752 48,023
Net Utility Plant in Service 84,931 87,125
Construction Work in Progress 3,163 1,355
Net Utility Plant 88,094 88,480
Current Assets:
Cash and Temporary Cash Investments 72 753
Accounts Receivable - Associated Companies 542 429
- Other-Net 15,313 17,319
Materials, Supplies and Other Current Assets 1,300 1,332
Total Current Assets 17,227 19,833
Deferred Debits and Other Non-Current Assets 22,066 21,522
Total Assets $ 127,387 $ 129,835
LIABILITIES AND CAPITALIZATION
Capitalization:
Common Stock, $50 Par Value $ 9,203 $ 9,203
Other Paid-In Capital 17,908 17,908
Retained Earnings 9,467 9,934
Total Common Equity 36,578 37,045
Non-Redeemable Preferred Stock 6,130 6,130
Long-Term Debt 36,500 36,500
Total Capitalization 79,208 79,675
Current Liabilities:
Current Maturities of Long-Term Debt 1,500 1,500
Notes Payable 0 1,259
Accounts Payable - Associated Companies 16,978 17,371
- Other 495 282
Taxes Accrued 1,161 1,777
Interest Accrued 911 981
Other Current Liabilities 3,111 1,495
Total Current Liabilities 24,156 24,665
Accumulated Deferred Taxes, Deferred Credits
and Other Non-Current Liabilities 24,023 25,495
Total Liabilities and Capitalization $ 127,387 $ 129,835
See accompanying notes to condensed financial statements.
BLACKSTONE VALLEY ELECTRIC COMPANY
CONDENSED STATEMENTS OF INCOME
(In Thousands)
Three Months Ended Six Months Ended
June 30, June 30,
1996 1995 1996 1995
Operating Revenues $ 32,477 $ 34,577 $ 65,913 $ 68,796
Operating Expenses:
Purchased Power (princ. fr. an affil.) 21,713 23,927 43,268 46,769
Other Operation and Maintenance 5,283 4,885 10,618 9,755
Voluntary Retirement Incentive 0 912 912
Depreciation 1,398 1,376 2,797 2,752
Taxes - Other Than Income 2,061 1,944 4,338 4,290
- Current Income (Credit) 375 (469) 2,316 397
- Deferred Income (Credit) (14) 700 (1,358) 423
Total 30,816 33,275 61,979 65,298
Operating Income 1,661 1,302 3,934 3,498
Other Income (Deductions) - Net (28) (30) (52) (58)
Income Before Interest Charges 1,633 1,272 3,882 3,440
Interest Charges:
Interest on Long-Term Debt 846 888 1,685 1,769
Other Interest Expense 145 157 289 312
Allowance for Borrowed Funds Used
During Construction (Credit) (15) (17) (23) (28)
Net Interest Charges 976 1,028 1,951 2,053
Net Income 657 244 1,931 1,387
Preferred Dividend Requirements 72 72 144 144
Net Earnings $ 585 $ 172 $ 1,787 $ 1,243
See accompanying notes to condensed financial statements.
BLACKSTONE VALLEY ELECTRIC COMPANY
CONDENSED STATEMENTS OF CASH FLOWS
(In Thousands)
Six Months Ended
June 30,
1996 1995
CASH FLOW FROM OPERATING ACTIVITIES:
Net Income $ 1,931 $ 1,387
Adjustments to Reconcile Net Income to Net
Cash Provided from Operating Activities:
Depreciation and Amortization 2,932 3,090
Deferred Taxes (1,358) 423
Investment Tax Credit, Net (91) (92)
Allowance for Funds Used During Construction (4)
Other - Net (836) (414)
Change in Operating Assets and Liabilities 2,675 1,148
Net Cash Provided From Operating Activities 5,253 5,538
CASH FLOW FROM INVESTING ACTIVITIES:
Construction Expenditures (2,276) (2,983)
Net Cash (Used In) Investing Activities (2,276) (2,983)
CASH FLOW FROM FINANCING ACTIVITIES:
Common Stock Dividends Paid to EUA (2,255) (2,032)
Preferred Dividends Paid (144) (144)
Net (Decrease) Increase in Short-Term Debt (1,259) 0
Net Cash (Used In) Financing Activities (3,658) (2,176)
Net (Decrease) Increase in Cash and Temp. Cash Invest. (681) 379
Cash and Temporary Cash Investments at Beginning of Period 753 472
Cash and Temporary Cash Investments at End of Period $ 72 $ 851
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest (Net of Amount Capitalized) $ 1,704 $ 1,780
Income Taxes $ 2,210 $ 380
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 and the Company's Quarterly Report on Form 10-Q for
the period ended March 31, 1996.
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 June 30, 1996 and
December 31, 1995, and the results of operations for the
three and six months ended June 30, 1996 and 1995 and
cash flows for the six months ended June 30, 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.
The preparation of financial statements in conformity
with generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements
and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those
estimates.
The Company occasionally makes projections of expected
future performance or statements of its plans, objectives
and new business opportunities which are forward-looking
statements under federal securities law. Actual results
could differ materially from those discussed and there
can be no assurance that such estimates of future results
could be achieved.
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 for the three months ended June 30, 1996 were $585,000
compared to $172,000 for the same period in 1995. Net earnings for the six
months ended June 30, 1996 were $1.8 million versus $1.2 million for the
six months ended June 30, 1995. Earnings for both periods of 1995 include
a one-time charge of approximately $550,000, on an after-tax basis, related
to the 1995 voluntary retirement incentive (VRI) offer.
Kilowatthour (kWh) sales of electricity for the second quarter were
relatively flat, and increased 1.0% for the year-to-date period of 1996 as
compared to 1995. The year-to-date sales increase was led by increased
sales to residential customers, typically more weather sensitive, of 4.1%.
The first quarter of 1996 was significantly colder than the unusually mild
first quarter of 1995, while the second quarter of this year saw a return
to a more normal weather pattern.
Operating Revenues
Operating Revenues for the three and six months ended June 30, 1996
decreased by $2.1 million or 6.1% and $2.9 million or 4.2%, respectively,
as compared to the same periods in 1995. These changes were due primarily
to recoveries of lower purchased power expenses, as discussed below.
Operating Expenses
Purchased Power expense for the quarter and six months ended June
30, 1996 decreased approximately $2.2 million or 9.3% and $3.5 million or
7.5%, respectively, as compared to the same periods of 1995. These
decreases were primarily due to respective period decreases of 23.8% and
13.5% in the average cost of fuel as a result of the increased use of less
expensive nuclear fuel by the Company's power supplier, Montaup Electric
Company, and respective period decreases in conservation and load
management (C&LM) expenses included in purchased power expenses of
approximately $800,000 and $1.6 million.
Other Operation and Maintenance expenses during the second quarter
of 1996 increased by approximately $400,000 or 8.1% when compared to the
second quarter of 1995 as a result of approximately $300,000 of C&LM
expenses recorded as Other Operation and Maintenance expenses, and a
decrease in capitalized costs of approximately $100,000. For the year-to-
date period, the $900,000 increase in Other Operation and Maintenance
expense was primarily due to approximately $400,000 of C&LM expenses that
were recorded as Other Operation and Maintenance expenses, and a decrease
of approximately $400,000 in capitalized costs.
Effective Income Tax Rate
Blackstone's effective income tax rate for the three and six months
ended June 30, 1996 decreased from approximately 48.3% to 35.2% and from
36.8% to 33.0%, respectively, when compared with the same periods of a year
ago due primarily to increased consolidated 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 June 30, 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 June 30, 1996 and December 31, 1995, these unused EUA
System short-term lines of credit amounted to approximately $102.1 million
and $110.5 million, respectively. Blackstone had zero short-term debt at
June 30, 1996, and $1.3 million of short-term debt outstanding at December
31, 1995.
During the first six months of 1996 Blackstone's internally
generated funds available after the payment of dividends amounted to
approximately $1.0 million while cash construction requirements for the
same period amounted to approximately $2.3 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, governmental agencies
and consumer advocates in submitting similar sets of interdependent
principles to their respective state regulatory commissions which were
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 state regulators.
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.
On March 5, 1996 the RIPUC required electric utilities subject to
their jurisdiction to file electric industry restructuring plans. On April
19, 1996 both Blackstone and Newport filed a restructuring plan called
"Choice and Competition", described below. Hearings on the restructuring
plans submitted to the RIPUC were to have started on August 12, 1996. In
view of the restructuring legislation (described below) passed into law on
August 7, 1996, however, the RIPUC terminated its restructuring
proceedings.
On August 7, 1996 the Governor of Rhode Island signed into law the
Utility Restructuring Act of 1996 (URA). The URA provides for customer
choice of electricity supplier commencing July 1, 1997 for large
manufacturing customers, certain new commercial and industrial customers,
and State of Rhode Island accounts. Load, accounting for no more than 10%
of total electric distribution company's kWh sales is to be released to
retail access under this provision. An additional 10% of kWh sales is
released to retail access by permitting municipal and smaller manufacturers
to choose an electricity supplier commencing January 1, 1998. By July 1, 1998
or sooner, all customers will have retail access. This legislation
provides for recovery of "stranded costs" through a non-by-passable
transition charge initially set at 2.8 cents per kWh. The transition
charge covers costs of regulatory assets; nuclear decommissioning; above
market payments to power suppliers; and depreciated generation net of its
market value. Nuclear decommissioning costs and above market payments to
power suppliers will be reconciled to actual costs annually and the
transition charge will be spread over the period from July 1, 1997 through
December 31, 2009.
The implementation of the URA will require approvals from applicable
regulatory agencies, including the Federal Energy Regulatory Commission
(FERC), the RIPUC, and the Securities and Exchange Commission.
EUA believes that the URA settles much of the uncertainty regarding
"stranded cost" recovery related to serving the customers of Blackstone and
Newport.
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. On March 15,
1996, the MDPU issued a Notice of Inquiry (NOI) Rulemaking on electric
industry restructuring. The NOI incorporated by reference the
restructuring proposals previously submitted pursuant to the MDPU's earlier
order. In its NOI order the MDPU indicated that it planned to issue draft
rules to provide more specific guidance on the framework of a restructured
electric industry.
On May 1, 1996 the MDPU issued its proposed rules for the
restructuring of the electric industry. The MDPU stated the rules 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. Final rules were originally scheduled to be issued in
September 1996. On August 9, 1996 the MDPU issued a notice extending the
issuance date of the final rules. The MDPU goal is to issue final rules by
the end of calendar year 1996. The May 1st 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 participated in
hearings which were held in June and July, and on August 2, 1996, filed
comments and responded to MDPU discovery. EUA cannot predict the ultimate
outcome of this issue.
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 proposed, 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 keystone
to "Choice and Competition" was the adoption of common electric utility
restructuring implementation for the New England states operating with the
region's power pool. As different restructuring initiatives surfaced from
state regulatory agencies and state legislatures, it became apparent that a
New England region-wide approach to restructuring would be unlikely. Thus,
major elements of the "Choice and Competition" proposal have been
substantially modified to reflect that state by state, rather than
regional, plans will be adopted.
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. The Company believes that its operations
continue to meet the criteria established in these accounting standards.
PART II -- OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders.
1. (a) A Consent to Action in Lieu of a Special Meeting of
Stockholders (Consent to Action) was executed April
17, 1996 by Eastern Utilities Associates, the
holder of the entire issued and outstanding Common
Stock of the Company and the only class of stock
entitled to vote at the Special Meeting of
Stockholders.
(b) The board of directors as previously reported to
the Securities and Exchange Commission was re-elected in
its entirety.
(c) The only matter voted on in the Consent to Action
was the election of directors.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits - None
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the Registrant
during the three months ended June 30, 1996.
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: August 14, 1996 /s/ Clifford J. Hebert, Jr.
Clifford J. Hebert, Jr., Treasurer
(on behalf of the Registrant and
as Principal Financial Officer)