UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[x] Quarterly report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended June 30, 2001
or
[ ] Transition report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from __________
to
Commission file number 1-2301
BOSTON EDISON COMPANY
(Exact name of registrant as specified in its charter)
Massachusetts 04-1278810
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
800 Boylston Street, Boston,Massachusetts 02199
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 617-424-2000
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Class Outstanding at August 10, 2001
Common Stock, $1 par value 100 shares
The Company meets the conditions set forth in General Instruction
H(1)(a) and (b) of Form 10-Q as a wholly-owned subsidiary and is
therefore filing this Form with the reduced disclosure format.
Part I - Financial Information
Item 1. Financial Statements
Boston Edison Company
Condensed Consolidated Statements of Income
(Unaudited)
(in thousands)
Three Months Ended Six Months Ended
June 30, June 30,
2001 2000 2001 2000
Operating revenues $476,755 $399,292 $942,917 $775,735
Operating expenses:
Purchased power 280,175 206,805 556,960 401,384
Operations and maintenance 41,895 53,807 93,444 110,167
Depreciation and amortization 41,601 41,093 83,865 82,627
Demand side management and
renewable energy programs 13,290 13,716 27,057 27,397
Property and other taxes 16,703 13,857 34,829 30,622
Income taxes 23,507 18,188 39,895 29,681
Total operating expenses 417,171 347,466 836,050 681,878
Operating income 59,584 51,826 106,867 93,857
Other income, net 2,432 2,686 3,264 3,501
Operating and other income 62,016 54,512 110,131 97,358
Interest charges:
Long term debt 11,728 13,352 23,528 27,677
Transition property
securitization 10,431 11,456 21,229 23,402
certificates
Other 3,444 237 5,858 919
Allowance for borrowed funds
used during construction (622) (851) (1,175) (1,448)
Total interest charges 24,981 24,194 49,440 50,550
Net income $ 37,035 $ 30,318 $ 60,691 $ 46,808
======== ======== ======== ========
Per share data is not relevant because Boston Edison Company's
common stock is wholly owned by NSTAR.
The accompanying notes are an integral part of the condensed
consolidated financial statements.
Boston Edison Company
Condensed Consolidated Statements of Retained Earnings
(Unaudited)
(in thousands)
Three Months Ended Six Months Ended
June 30, June 30,
2001 2000 2001 2000
Balance at the beginning of the period $342,615 $ 1,402 $352,832 $ 1,462
Add:
Net income 37,035 30,318 60,691 46,808
Dividends transferred from Premium
on common stock (Note B) - 224,201 - 224,201
Subtotal 379,650 255,921 413,523 272,471
Deduct:
Dividends declared:
Dividends to Parent 31,250 63,573 15,000
Preferred stock 1,490 1,490 2,980 2,980
Subtotal 32,740 1,490 66,553 17,980
Provision for preferred stock
redemption and issuance costs 60 60 120 120
Balance at the end of the $346,850 $254,371 $346,850 $254,371
period ======== ======== ======== =======
The accompanying notes are an integral part of the condensed
consolidated financial statements
Boston Edison Company
Condensed Consolidated Balance Sheets
(Unaudited)
(in thousands)
June 30, December 31,
2001 2000
Assets
Utility plant in service, at originalcost $2,560,768 $2,522,682
Less: accumulated depreciation 859,416 825,367
1,701,352 1,697,315
Construction work in progress 55,928 39,820
Net utility plant 1,757,280 1,737,135
Equity investments 15,009 15,512
Other investments 9,553 9,599
Current assets:
Cash and cash equivalents 2,081 12,125
Restricted cash 3,616 3,625
Accounts receivable:
Customers 274,085 200,479
Affiliates 68,327 54,392
Regulatory assets 113,866 193,641
Accrued unbilled revenues 55,297 66,879
Materials and supplies, at average cost 14,900 15,621
Other 11,424 5,919
Total current assets 543,596 552,681
Deferred debits:
Regulatory assets 810,306 780,974
Prepaid pension expense 170,551 149,889
Other deferred debits 47,307 46,250
Total assets $3,353,602 $3,292,040
========== ==========
The accompanying notes are an integral part of the condensed
consolidated financial statements.
Boston Edison Company
Condensed Consolidated Balance Sheets
(Unaudited)
(in thousands)
June 30, December 31,
2001 2000
Common equity:
Common stock, par value $1 per share
(100 shares issued and outstanding) $ - $ -
Premium on common stock 479,086 482,004
Retained earnings 346,850 352,832
Total common equity 825,936 834,836
Accumulated other comprehensive loss, net (117) (117)
Cumulative nonmandatory redeemable
preferred stock 43,000 43,000
Long-term debt 551,857 577,618
Transition property securitization
certificates 548,000 584,130
Total long-term debt 1,099,857 1,161,748
Total capitalization 1,968,676 2,039,467
Current liabilities:
Transition property securitization
certificates due within one year 41,871 36,443
Redeemable preferred stock and long-term
debt due within one year 75,375 50,186
Notes payable 278,000 96,500
Accounts payable:
Affiliates 71,215 116,610
Other 108,540 115,783
Deferred taxes 61,797 99,542
Accrued interest 23,837 24,269
Other 124,973 113,409
Total current liabilities 785,608 652,742
Deferred credits:
Accumulated deferred income taxes 493,807 491,098
Accumulated deferred investment tax credits 19,850 20,346
Power contracts 24,124 25,868
Other 61,537 62,519
Total deferred credits 599,318 599,831
Commitments and contingencies
Total capitalization and liabilities $3,353,602 $3,292,040
========== ==========
The accompanying notes are an integral part of the condensed
consolidated financial statements.
Boston Edison Company
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(in thousands)
Six Months Ended June 30,
2001 2000
Operating activities:
Net income $ 60,691 $ 46,808
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 83,865 82,627
Deferred income taxes and investment
tax credits (35,532) 20,706
Allowance for borrowed funds
used during construction (1,175) (1,448)
Net changes in working capital (18,989) 34,297
Other, net (95,212) (131,184)
Net cash (used in) provided by
operating activities (6,352) 51,806
Investing activities:
Plant expenditures (excluding AFUDC) (62,308) (45,800)
Other investments 549 (570)
Net cash used in investing activities (61,759) (46,370)
Financing activities:
Long-term debt redemptions (25,761) (100,785)
Transition property securitization
certificates redemptions (30,702) (49,020)
Net change in notes payable 181,500 61,500
Dividends paid (66,970) (27,980)
Net cash provided by (used in)
financing activities 58,067 (116,285)
Net decrease in cash and cash equivalents (10,044) (110,849)
Cash and cash equivalents at beginning of year 12,125 117,537
Cash and cash equivalents at end of period $ 2,081 $ 6,688
========= =========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest, net of amounts capitalized $ 46,931 $ 50,671
========= =========
Income taxes $ 75,301 $ 3,922
========= =========
The accompanying notes are an integral part of the condensed
consolidated financial statements.
Notes to Unaudited Condensed Consolidated Financial Statements
The accompanying Notes should be read in conjunction with Notes
to the Consolidated Financial Statements incorporated in Boston
Edison's 2000 Annual Report on Form 10-K.
A) The Company
Boston Edison Company ("Boston Edison" or "the Company") is a
regulated public utility incorporated in 1886 under Massachusetts
law and is a wholly owned subsidiary of NSTAR. NSTAR is
Massachusetts' largest investor-owned combined electric and gas
utility and is an exempt public utility holding company. NSTAR
is an energy delivery company serving approximately 1.3 million
customers in Massachusetts, including more than one million
electric customers in 81 communities and 244,000 gas customers in
51 communities. NSTAR's retail utility subsidiaries are Boston
Edison, Commonwealth Electric Company (ComElectric), Cambridge
Electric Light Company (Cambridge Electric) and NSTAR Gas Company
(NSTAR Gas). Its wholesale electric subsidiary is Canal Electric
Company (Canal Electric). Effective November 1, 2000, NSTAR's
three retail electric companies are operating under the brand
name "NSTAR Electric." Reference in this report to "NSTAR
Electric" shall mean each of Boston Edison, ComElectric and
Cambridge Electric.
B) Basis of Presentation
The financial information presented as of June 30, 2001 and
for the periods ended June 30, 2001 and 2000 have been
prepared from Boston Edison's books and records without audit
by independent accountants. Financial information as of
December 31, 2000 was derived from the audited consolidated
financial statements of Boston Edison, but does not include
all disclosures required by generally accepted accounting
principles (GAAP). In the opinion of management, all
adjustments (which are of a normal recurring nature)
necessary for a fair presentation of the financial
information for the periods indicated have been included.
Certain reclassifications have been made to the prior year data
to conform with the current presentation.
The preparation of financial statements in conformity with GAAP
requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosures 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
these estimates.
The results of operations for the periods ended June 30, 2001 and
2000 are not indicative of the results that may be expected for
an entire year. Kilowatt-hour sales and revenues are typically
higher in the winter and summer than in the spring and fall as
sales tend to vary with weather conditions.
The Company's Board of Directors determined and voted that a
portion of the dividends declared on June 24, 1999 and July 22,
1999, which were paid out of retained earnings to its sole
shareholder, was a partial distribution of a return of capital.
As a result, the Company has appropriately transferred the
portion of its dividends deemed return of capital against Premium
on Common Stock.
C) Goodwill and Costs to Achieve Amortization
The merger of BEC and COM/Energy was accounted for as an
acquisition of COM/Energy by BEC under the purchase method of
accounting. In accordance with Accounting Principles Board (APB)
No. 16 - Business Combinations, all goodwill was recorded on the
books of the subsidiaries of COM/Energy. However, under the
merger rate plan approved by the MDTE, all of NSTAR's utility
subsidiaries share in the recovery of goodwill in their rates.
As a result, goodwill amortization expense has been allocated to
Boston Edison from ComElectric, Cambridge Electric and NSTAR Gas
through an intercompany charge. The Company is currently
recovering such amount in its rates.
NSTAR recorded goodwill associated with the merger of BEC Energy
and COM/Energy of approximately $490 million and the original
estimate of transaction and integration costs to achieve the
merger was $111 million. Boston Edison's share of goodwill and
costs to achieve are approximately $319 million and $72 million,
respectively. For NSTAR, goodwill is being amortized over 40
years and will amount to approximately $12.2 million annually,
while the cost to achieve is being amortized over 10 years and
will initially be approximately $11.1 million annually. As of
June 30, 2001, Boston Edison's portion of goodwill and costs to
achieve amortization are approximately $4 million and $3.6
million, respectively. Goodwill is being recovered in Boston
Edison's rates and is treated as an intercompany charge among the
Company and its affiliated companies, ComElectric, Cambridge
Electric and NSTAR Gas. The ultimate amortization of the cost to
achieve will reflect the total actual costs.
In July 2001, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standard (SFAS) No. 142,
"Goodwill and Other Intangible Assets" (SFAS 142). This
Statement, which is effective for fiscal years beginning after
December 15, 2001, establishes accounting and reporting standards
for acquired goodwill and other intangible assets. It prohibits
entities from continuing amortization of these assets. Instead,
goodwill and other intangible assets will be subject to review
for impairment. Management is currently assessing the impact of
SFAS 142 in light of its regulatory and accounting requirements.
Therefore, NSTAR is unable to reasonably estimate the impact of
the adoption of this statement.
D) Contingencies
1. Environmental Matters
Boston Edison is involved in approximately 16 state-regulated
properties where oil or other hazardous materials were previously
spilled or released. Boston Edison is required to clean up these
properties in accordance with specific state regulations. There
are uncertainties associated with these costs due to the
complexities of cleanup technology, regulatory requirements and
the particular characteristics of the different sites. Boston
Edison also continues to have potential liability as a
potentially responsible party in the cleanup of five multi-party
hazardous waste sites in Massachusetts and other states where it
is alleged to have generated, transported or disposed of
hazardous waste at the sites. Boston Edison generally expects to
have only a small percentage of the total potential liability for
these sites. Approximately $4.8 million and $5 million is
included as a liability in the accompanying Condensed
Consolidated Balance Sheets at June 30, 2001 and December 31,
2000, respectively, related to the non-recoverable portion of
these cleanup liabilities. Management is unable to fully
determine a range of reasonably possible cleanup costs in excess
of the accrued amount. Based on its assessments of the specific
site circumstances, management does not believe that it is
probable that any such additional costs will have a material
impact on the Company's consolidated financial position. However,
it is reasonably possible that additional provisions for cleanup
costs that may result from a change in estimates could have a
material impact on the results of operations for a reporting
period in the near term.
Estimates related to environmental remediation costs are reviewed
and adjusted periodically as further investigation and assignment
of responsibility occurs. Boston Edison is unable to estimate its
ultimate liability for future environmental remediation costs.
However, in view of Boston Edison's current assessment of its
environmental responsibilities, existing legal requirements and
regulatory policies, management does not believe that these
matters will have a material adverse effect on Boston Edison's
financial position or results of operations for a reporting
period.
2. Industry and Corporate Restructuring Legal Proceedings
The MDTE order approving Boston Edison's electric restructuring
settlement agreement was appealed by certain parties to the
Massachusetts Supreme Judicial Court. One appeal remains pending.
However, to date there has been no briefing, hearing or other
action taken with respect to this proceeding. However, if an
unfavorable outcome were to occur, there could be a material
adverse impact on business operations, the consolidated financial
position, cash flows and the results of operations for a
reporting period.
3. Regulatory proceedings
In a Boston Edison 1999 reconciliation filing with the MDTE, the
Massachusetts Attorney General contested cost allocations related
to Boston Edison's wholesale customers for 1998. On June 1,
2001, the MDTE approved Boston Edison's revenue-credit ratemaking
approach for wholesale sales to be consistent with the Company's
restructuring settlement and MDTE precedent that predated
industry restructuring. The accounting reconciliation of wholesale
revenues and costs will be addressed in Boston Edison's
outstanding filing covering the 1999 and 2000 reconciliation.
In October 1997, the MDTE opened a proceeding to investigate
Boston Edison's compliance with a 1993 order that permitted the
formation of Boston Energy Technology Group and authorized Boston
Edison to invest up to $45 million in non-utility activities.
Hearings were completed during 1999. Management is currently
unable to determine the timing and outcome of this proceeding.
However, if an unfavorable outcome were to occur, there could be
a material adverse impact on business operations, the
consolidated financial position, cash flows and results of
operations for a reporting period.
4. Other litigation
In the normal course of its business Boston Edison is also
involved in certain other legal matters. Management is unable to
fully determine a range of reasonably possible legal costs in
excess of amounts accrued. Based on the information currently
available, it does not believe that it is probable that any such
additional costs will have a material impact on its consolidated
financial position
E) Income Taxes
The following table reconciles the statutory federal income tax
rate to the annual estimated effective income tax rate for 2001
and the actual effective income tax rate for the year ended
December 31, 2000:
2001 2000
Statutory tax rate 35.0% 35.0%
State income tax, net of federal
income tax benefit 4.4 4.4
Investment tax credit amortization (0.4) (0.4)
Other 1.8 1.8
Effective tax rate 40.8% 40.8%
===== =====
Item 2. Management's Discussion and Analysis
Boston Edison Company ("Boston Edison" or "the Company") is a
regulated public utility incorporated in 1886 under
Massachusetts' law and is a wholly owned subsidiary of NSTAR.
NSTAR is Massachusetts' largest investor-owned combined electric
and gas utility. NSTAR is an energy delivery company serving
approximately 1.3 million customers in Massachusetts including
more than one million electric customers in 81 communities and
244,000 gas customers in 51 communities. Boston Edison serves
approximately 681,000 electric customers in the city of Boston
and 39 surrounding communities. NSTAR's retail utility
subsidiaries are Boston Edison, Commonwealth Electric Company
(ComElectric), Cambridge Electric Light Company (Cambridge
Electric) and NSTAR Gas Company (NSTAR Gas). Its wholesale
electric subsidiary is Canal Electric Company (Canal Electric).
Effective November 1, 2000, NSTAR's three retail electric
companies are operating under the brand name "NSTAR Electric."
Reference in this report to "NSTAR Electric" shall mean each of
Boston Edison, ComElectric and Cambridge Electric.
The electric industry has continued to change in response to
legislative, regulatory and marketplace demands for improved
customer service at lower prices. These demands have resulted in
an increasing trend in the industry to seek competitive
advantages and other benefits through business combinations.
NSTAR was created to operate in this new marketplace by combining
the resources of its utility subsidiaries and concentrating its
activities in the transmission and distribution of energy.
Goodwill and Costs to Achieve Amortization
The merger of BEC and COM/Energy was accounted for as an
acquisition of COM/Energy by BEC using the purchase method of
accounting. In accordance with Accounting Principles Board (APB)
No. 16 - Business Combinations, all goodwill has been recorded on
the books of the subsidiaries of COM/Energy. However, under the
merger rate plan approved by the MDTE, all of NSTAR's utility
subsidiaries share in the recovery of goodwill in their rates.
As a result, goodwill amortization expense is allocated to Boston
Edison from ComElectric, Cambridge Electric and NSTAR Gas through
an intercompany charge. The Company is currently recovering such
amount in its rates.
NSTAR recorded goodwill associated with the merger of BEC Energy
and COM/Energy of approximately $490 million, resulting in an
annual amortization of goodwill of approximately $12.2 million.
Boston Edison will be allocated $319 million of goodwill and will
expense this amount. Such amount is being recovered in Boston
Edison's rates and is treated as an intercompany charge among the
Company and its affiliated companies, ComElectric, Cambridge
Electric and NSTAR Gas. Costs to achieve are being amortized
based on the filed estimate of $111 million over 10 years. As of
June 30, 2001, Boston Edison's portion of goodwill and costs to
achieve amortization are approximately $4 million and $3.6
million, respectively. NSTAR's retail utility subsidiaries will
reconcile the ultimate costs to achieve with that estimate, and
any difference is expected to be recovered over the remainder of
the amortization period.
Retail Electric Rates
The 1997 Massachusetts Electric Restructuring Act (Restructuring
Act) requires electric distribution companies to obtain and
resell power to retail customers which choose not to buy energy
from a competitive energy supplier. This is through either
standard offer service or default service. As a result of the
Restructuring Act, standard offer customers of Boston Edison
currently pay rates that are 15% lower, on an inflation-adjusted
basis, than rates in effect prior to March 1, 1998, the retail
access date. All distribution customers must pay a transition
charge as a component of their rate.
From March 1, 1998, Boston Edison's accumulated cost to provide
default and standard offer service was in excess of the revenues
it was allowed to bill. As a result, Boston Edison recorded a
regulatory asset of approximately $193.6 million at December 31,
2000 that is reflected as a component of Current assets on the
accompanying Condensed Consolidated Balance Sheets. As a result
of new rates for standard offer and default service that became
effective January 1, 2001, the regulatory asset has declined to
$113.9 million as of June 30, 2001.
Boston Edison must, on an annual basis, file a forecast
reconciliation of its rates for the upcoming year along with any
proposed adjustments of prior year revenues and costs for standard
offer, default service, transmission and transition charges.
The MDTE will approve rates for the coming year before the current
year-end to allow the new rates to become effective the first of
January. Later in the year, the estimates for the prior year are
trued-up to the actual amounts for the year. The MDTE reviews
these costs and approves the amounts subject to any required
adjustments. Occasionally, an issue will be left to be resolved
in a later filing. This was the case with the wholesale revenue
credit issue for Boston Edison that was resolved in the June 1,
2001 order.
In November 2000, Boston Edison made a similar filing containing
proposed rate adjustments for 2001, including a reconciliation of
costs and revenues through 2000 (the filing was updated in April
2001 to include final costs for 2000). The MDTE has approved
Tariffs effective January 1, 2001. The MDTE has not yet ruled
on the reconciliation component of this filing. Management
is unable to determine the outcome of the MDTE proceedings.
However, based upon past procedures and on information currently
available, management does not believe that it is probable that
the final MDTE approval will have a material adverse impact on
Boston Edison's consolidated financial position, results of
operations and cash flows in the near term.
In addition to the annual rate filings referenced above, Boston
Edison also made separate filings with the MDTE concerning
charges for standard offer and default service. In December
2000, the MDTE approved an increase of 1.321 cents per kWh in
Boston Edison's standard offer service rates for the first-half
of 2001, and in June 2001, the MDTE approved an additional
increase of 1.23 cents per kWh based on a fuel adjustment formula
contained in its standard offer tariffs that reflects the prices
of natural gas and oil. The MDTE has ruled that these fuel
adjustments are excluded from the 15% rate reduction requirement
under the Restructuring Act. The MDTE will re-examine these
rates in January 2002.
In December 2000 and June 2001, the MDTE approved market-based
default service rates for the first and second six-month periods
of 2001, respectively. Approximately one-third of NSTAR
Electric's customers are currently on default service and,
beginning in July 2001, these customers will automatically be
provided with either a fixed or a variable price, depending on
their rate class. These and future prices for default service
are based upon market solicitations for power supply for default
service consistent with provisions of the Restructuring Act and
MDTE orders.
Long-Term Power Purchase Contracts
NSTAR Electric, on behalf of Boston Edison and other affiliated
companies, has existing long-term power purchase contracts.
These long-term contracts are expected to supply approximately
90%-95% of its standard offer service obligations. NSTAR
Electric has entered into six-month and shorter-term agreements
to meet the remaining standard offer service obligation. In July
2001, NSTAR Electric issued a request for proposals for standard
offer and wholesale service requirements commencing January 1,
2002 for a term of between six and thirty-eight months.
In November 2000, NSTAR Electric entered into power purchase
agreements to meet its entire default service supply obligation
for the period January through June of 2001. In May 2001, NSTAR
Electric entered into purchased power agreements to meet the
default service obligation for the remainder of 2001. NSTAR
Electric expects to continue to make periodic market
solicitations for default service power supply consistent with
provisions of the Restructuring Act and MDTE orders. The cost of
providing standard offer and default service, which includes
purchased power costs, is recovered from customers on a fully
reconciling basis.
Results of Operations - Three Months Ended June 30, 2001 vs.
Three Months Ended June 30, 2000
Net income was $37 million for the three months ended June 30,
2001 compared to $30.3 million for the same period in 2000, a
$6.7 million or 22.1% increase.
The results of operations for the quarter are not indicative of
the results that may be expected for the entire year due to the
seasonality of kilowatt-hour (kWh) sales and revenues. Refer to
Note B to the Condensed Consolidated Financial Statements.
Operating revenues
Operating revenues increased $77.5 million or 19.4% during the
second quarter of 2001 as follows:
(in thousands)
Retail electric revenues $ 75,067
Wholesale revenues 1,285
Other revenues 1,111
Increase in operating revenues $ 77,463
=========
Retail revenues were $439.7 million in 2001 compared to $364.7
million in 2000, an increase of $75 million, or 20.6%. The
change in retail revenues includes higher rates implemented in
January 2001 for standard offer and default service ($92.3
million), a 0.4% increase in retail kilowatt-hour (kWh) electric
sales, the absence in the current quarter of a $0.3 million fuel
charge refund to customers in the prior period and the current
period recognition of incentive revenue entitlements for
successfully lowering transition charges ($5.5 million). These
increases in revenue were partially offset by a $14.1 million
decline in transition revenues due to a decline in rates charged
to customers. Boston Edison recognized revenue for earned
mitigation incentives for the years 1998 through September 2000
per the transition charge true-up filed with the MDTE in November
2000. Boston Edison will continue to earn mitigation incentive
revenue as it lowers its transition charge through 2009. The
revenues related to standard offer and default services are fully
reconciled to the costs incurred and have no impact on net
income.
Wholesale electric revenues were $18.7 million in 2001 compared
to $17.4 million in 2000, an increase of $1.3 million, or 7.5%.
This increase in wholesale revenues reflects increased kWh sales
of 8.8%, primarily as the result of increased demand from a
public transit authority and the recovery of higher purchased
power costs.
Other revenues were $18.3 million in 2001 compared to $17.2
million in 2000, an increase of $1.1 million, or 6.4%. This
change reflects higher Regional Network Services transmission
revenues partially offset by the absence of a $1.6 million
transmission refund relating to Local Network Services
transmission revenues as recognized in 2000 due to a Federal
Energy Regulatory Commission (FERC)-approved settlement.
Operating expenses
Purchased power costs were $280.2 million in 2001 compared to
$206.8 million in 2000, an increase of $73.4 million, or 35.5%.
The increase reflects higher purchased power requirements due to
an 8.8% increase in wholesale sales and higher purchased power
costs that reflect the higher prices of natural gas and oil.
Boston Edison adjusts its electric rates to collect the costs
related to energy supply from customers on a fully reconciling
basis. Due to the rate adjustment mechanisms, changes in the
amount of energy supply expense have no impact on earnings.
Operations and maintenance expense was $41.9 million in 2001
compared to $53.8 million in 2000, a decrease of $11.9 million,
or 22.1%. This decrease reflects lower payroll and employee-
related benefit costs and merger-related operating efficiencies.
Depreciation and amortization expense was $41.6 million in 2001
compared to $41.1 million in 2000, an increase of $0.5 million,
or 1.2%. The increase reflects a slightly higher level of
depreciable plant in service.
Demand side management (DSM) and renewable energy programs
expense was $13.3 million in 2001 compared to $13.7 million in
2000, a decrease of $0.4 million, or 2.9%. This decrease is
primarily due to timing in spending levels for programs. In
accordance with legislative and regulatory directives, these
costs are collected from customers on a fully reconciling basis.
Therefore, these costs have no impact on earnings.
Property and other taxes were $16.7 million in 2001 compared to
$13.9 million in 2000, an increase of $2.8 million, or 20.1%.
The increase was primarily due fact that during 2000, Boston
Edison was reimbursed for the majority of to the payments in lieu
of property taxes to the Town of Plymouth by Entergy. Entergy
purchased the Pilgrim Station in 1999. This increase was
partially offset by lower property taxes paid to the City of
Boston of $0.3 million.
Income taxes from operations were $23.5 million in 2001 compared
to $18.2 million in 2000, an increase of $5.3 million, or 29.1%.
This increase reflects higher pretax operating income in 2001.
Other income
Other income was $2.4 million in the second quarter of 2001
compared to income of $2.7 million in the same period of 2000, a
net decrease in income of $0.3 million directly attributable to
the absence of interest income recognized in the second quarter
of 2000 related to $4.5 million from a third party in conjunction
with the Pilgrim contract buyout, partially offset by the
recognition of $3.0 million of income associated with the receipt
of common stock in connection with demutualization of two
insurance companies.
Interest charges
Interest on long-term debt and transition property securitization
certificates was $22.2 million in 2001 compared to $24.8 million
in 2000, a decrease of $2.6 million, or 10.5%. The decrease
primarily reflects the retirement of several long term debt
issues during the second half of 2000 by Boston Edison. The
current period also reflects a reduction of securitization
certificates interest of $1.0 million due to the partial
retirement of this debt.
Other interest charges were $3.4 million in 2001 compared to $0.2
million in 2000, an increase of $3.2 million. The increase
reflects current interest charges associated with the
reconciliation to the 1998 and 1999 transition charge true-up
filings with the MDTE in November 2000 and a higher level of
short-term borrowings primarily resulting from working capital
requirements, partially offset by lower short-term interest
rates.
Results of Operations - Six Months Ended June 30, 2001 vs. Six
Months Ended June 30, 2000
Net income was $60.7 million for the six months ended June 30,
2001 compared to $46.8 million for the same period in 2000, a
29.7% increase.
The results of operations for the six month period are not
indicative of the results which may be expected for the entire
year due to the seasonality of kWh sales and revenues. Refer to
Note B to the Condensed Consolidated Financial Statements.
Operating revenues
Operating revenues increased $ 167.2 million or 21.6% during the
six months ended June 30, 2001 as follows:
(in thousands)
Retail electric revenues $ 157,119
Wholesale revenues 6,634
Other revenues 3,429
Increase in operating revenues $ 167,182
=========
Retail revenues were $864.4 million in 2001 compared to $707.3
million in 2000, an increase of $157.1 million, or 22.2%. The
change in retail revenues includes higher rates implemented in
January 2001 for standard offer and default service ($168.9
million), a 0.5% increase in retail kilowatt-hour (kWh) electric
sales, the absence in the current period of a $23.7 million fuel
charge refund to customers and the current period recognition of
incentive revenue entitlements for successfully lowering
transition charges ($11.0 million). These increases in revenue
were partially offset by a $37.6 million decline in transition
revenues. Boston Edison recognized revenue for earned mitigation
incentives for the years 1998 through September 2000 per the
transition charge true-up filed with the MDTE in November 2000.
Boston Edison will continue to earn mitigation incentive revenue
as it lowers its transition charge through 2009. The revenues
related to standard offer and default services are fully
reconciled to the costs incurred and have no impact on net
income.
Wholesale electric revenues were $42.2 million in 2001 compared
to $35.6 million in 2000, an increase of $6.6 million, or 18.5%.
This increase in wholesale revenues reflects increased kWh sales
of 8.8%, primarily as the result of increased demand from a
public transit authority and the recovery of higher purchased
power costs.
Other revenues were $36.2 million in 2001 compared to $32.8
million in 2000, an increase of $3.4 million, or 10.4%. This
change reflects higher Regional Network Services transmission
revenues partially offset by the absence of a $1.6 million
transmission refund relating to Local Network Services
transmission revenues as recognized in the second quarter 2000
due to a FERC approved settlement.
Operating expenses
Purchased power costs were $557 million in 2001 compared to
$401.4 million in 2000, an increase of $155.6 million, or 38.8%.
The increase reflects higher purchased power requirements due to
an 8.8% increase in wholesale sales and higher purchased power
costs that reflect the higher prices of natural gas and oil.
Boston Edison adjusts its electric rates to collect the costs
related to energy supply from customers on a fully reconciling
basis. Due to the rate adjustment mechanisms, changes in the
amount of energy supply expense have no impact on earnings.
Operations and maintenance expense was $93.4 million in 2001
compared to $110.2 million in 2000, a decrease of $16.8 million,
or 15.2%. This decrease reflects lower payroll and employee-
related benefit costs and merger-related operating efficiencies.
Depreciation and amortization expense was $83.9 million in 2001
compared to $82.6 million in 2000, an increase of $1.3 million,
or 1.6%. The increase reflects a slightly higher level of
depreciable plant in service.
Demand side management (DSM) and renewable energy programs
expense was $27.1 million in 2001 compared to $27.4 million in
2000, a decrease of $0.3 million, or 1.1%. This decrease is
primarily due to timing in spending levels for programs. In
accordance with legislative and regulatory directives, these
costs are collected from customers on a fully reconciling basis.
Therefore, these costs have no impact on earnings.
Property and other taxes were $34.8 million in 2001 compared to
$30.6 million in 2000, an increase of $4.2 million, or 13.7%.
The increase was due to the fact that during 2000, Boston Edison
was reimbursed for the majority of its payments in lieu of
property taxes to the Town of Plymouth by Entergy. Entergy
purchased the Pilgrim Station in 1999. The increase was
partially offset by lower property taxes paid to the City of
Boston of $1.1 million.
Income taxes from operations were $39.9 million in 2001 compared
to $29.7 million in 2000, an increase of $10.2 million, or 34.3%.
This increase reflects higher pretax operating income in 2001.
Other income
Other income was $3.3 million in 2001 compared to income of $3.5
million in the same period of 2000, a net decrease in income of
$0.2 million directly attributable to the absence of interest
income recognized in the second quarter of 2000 related to $4.5
million from a third party in conjunction with the Pilgrim
contract buyout, partially offset by the recognition of $3.0
million of income associated with the receipt of common stock in
connection with demutualization of two insurance companies.
Interest charges
Interest on long-term debt and transition property securitization
certificates was $44.8 million in 2001 compared to $51.1 million
in 2000, a decrease of $6.3 million, or 12.3%. Approximately
$2.2 million of the decrease is related to securitization
certificate interest reflecting the scheduled retirement of this
debt. The decrease in interest on long-term debt is primarily
the result of a reduction of approximately $4.8 million due to
the following retirements: $65 million of 6.8% debentures, $34
million of 9.875% debentures and $100 million of 6.05% debentures
during the third quarter of 2000.
Other interest charges were $5.9 million in 2001 compared to $0.9
million in 2000, an increase of $5.0 million. The increase
reflects current interest charges associated with the
reconciliation to the 1998 and 1999 transition charge true-up
filings with the MDTE in November 2000 and a higher level of
short-term borrowings primarily resulting from working capital
requirements, partially offset by lower short-term interest
rates.
New Accounting Standards
In July 2001, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standard (SFAS) No. 142,
"Goodwill and Other Intangible Assets" (SFAS 142). This
Statement, which is effective for fiscal years beginning after
December 15, 2001, establishes accounting and reporting standards
for acquired goodwill and other intangible assets. It prohibits
entities from continuing amortization of these assets. Instead,
goodwill and other intangible assets will be subject to review
for impairment. Management is currently assessing the impact of
SFAS 142 in light of its regulatory and accounting requirements.
Therefore, NSTAR is unable to reasonably estimate the impact of
the adoption of this statement.
As of January 1, 2001, Boston Edison adopted the FASB Statement
of Financial Accounting Standards No. 133, "Accounting for
Derivative Instruments and Hedging Activities" (SFAS 133), as
amended by Statements of Financial Accounting Standards No. 137
and 138, and collectively referred to as SFAS 133. SFAS 133
established accounting and reporting standards requiring that
every derivative instrument (including certain derivative
instruments embedded in contracts possibly including fixed-price
fuel supply and power contracts) be recorded on the Consolidated
Balance Sheets as either an asset or liability measured at its
fair value.
The impact of this adoption has been assessed by the management
of the Company. As part of this assessment, the Company formed
an implementation team in 2000 consisting of key individuals from
various operational and financial areas of the organization. The
primary role of this team was to inventory and determine the
impact of potential contractual arrangements for SFAS 133
application. The implementation team has performed extensive
reviews of critical operating areas of the Company and has
documented its procedures in applying the requirements of SFAS
133 to Boston Edison's contractual arrangements in effect on
January 1, 2001. Based on Boston Edison's assessment to date,
the adoption of SFAS 133 has not had a material adverse effect on
its results of operations, cash flows, or financial position.
Safe harbor cautionary statement
Management occasionally makes forward-looking statements such as
forecasts and projections of expected future performance or
statements of its plans and objectives. These forward-looking
statements may be contained in filings with the Securities and
Exchange Commission (SEC), press releases and oral statements.
Actual results could potentially differ materially from these
statements. Therefore, no assurances can be given that the
outcomes stated in such forward-looking statements and estimates
will be achieved.
The preceding sections include certain forward-looking statements
about operating results and environmental and legal issues.
The impact of continued cost control procedures on operating
results could differ from current expectations. The effects of
changes in economic conditions, tax rates, interest rates,
technology and the prices and availability of operating supplies
could materially affect the projected operating results.
The impacts of various environmental, legal issues, and
regulatory matters could differ from current expectations. New
regulations or changes to existing regulations could impose
additional operating requirements or liabilities other than
expected. The effects of changes in specific hazardous waste
site conditions and cleanup technology could affect estimated
cleanup liabilities. The impacts of changes in available
information and circumstances regarding legal issues could affect
estimated litigation costs.
Part II - Other Information
Item 3. Quantitative and Qualitative Disclosures about Market
Risk
There have been no material changes since year-end.
Item 5. Other Information
The following additional information is furnished in connection
with the Registration Statements on Form S-3 of the Registrant
(File Nos. 33-57840 and 333-55890), filed with the Securities and
Exchange Commission on February 3, 1993 and February 20, 2001,
respectively.
Ratio of earnings to fixed charges and ratio of earnings to fixed
charges and preferred stock dividend requirements:
Twelve months ended June 30, 2001:
Ratio of earnings to fixed charges 3.11
Ratio of earnings to fixed charges and preferred
stock dividend requirements 2.88
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits filed herewith
Exhibit 4 - Instruments defining the rights of security
holders, including indentures
Management agrees to furnish to the
Securities and Exchange Commission, upon
request, a copy of any agreements or
instruments defining the rights of holders of
any long-term debt whose authorization does
not exceed 10% of total assets
Exhibit 12 - Computation of ratio of earnings to fixed
charges
12.1 - Computation of ratio of earnings to fixed
charges for the twelve months ended June 30,
2001
12.2 - Computation of ratio of earnings to fixed
charges and preferred stock dividend
requirements for the twelve months ended June
30, 2001
Exhibit 15 - Letter re unaudited interim financial
information
15.1 - Report of Independent Accountants
Exhibit 99 - Additional exhibits
99.1 - Letter of Independent Accountants
Form S-3 Registration Statements filed by
Boston Edison Company on February 3, 1993
(File No. 33-57840) and February 20, 2001
(File No. 333-55890).
b) No Form 8-K was filed during the second quarter of 2001.
Signature
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.
BOSTON EDISON COMPANY
(Registrant)
Date: August 14, 2001 /s/ Robert J. Weafer, Jr.
Robert J. Weafer, Jr.
Vice President,
Controller and Chief
Accounting Officer