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 March 31, 1995
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
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
800 Boylston Street, Boston, Massachusetts 02199
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 617-424-2000
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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
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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 March 31, 1995
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Common Stock, $1 par value 45,642,022 shares
2
Part I - Financial Information
Item 1. Financial Statements
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Boston Edison Company
Consolidated Balance Sheets
(Unaudited)
(in thousands)
March 31, December 31,
1995 1994
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Assets
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Utility plant in service, at original cost $4,136,495 $4,074,810
Less: accumulated depreciation 1,378,378 1,344,452
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2,758,117 2,730,358
Nuclear fuel, net 61,505 55,597
Construction work in progress 120,059 144,048
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2,939,681 2,930,003
Investments in electric companies, at equity 24,569 24,678
Nuclear decommissioning trust 87,246 82,831
Current assets:
Cash and cash equivalents 4,992 6,822
Accounts receivable 191,366 189,382
Accrued unbilled revenues 30,099 32,240
Fuel, materials and supplies,
at average cost 68,341 71,560
Prepaid expenses and other 25,093 26,705
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Total current assets 319,891 326,709
Regulatory assets:
Redemption premiums 50,964 52,859
Income taxes, net 45,089 44,745
Power contracts 36,068 40,277
Pension and postretirement costs 21,166 22,761
Nuclear outage costs 18,173 17,804
Other 17,260 19,702
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Total regulatory assets 188,720 198,148
Other deferred debits:
Intangible asset - pension 22,849 22,849
Other 30,519 31,392
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Total assets $3,613,475 $3,616,610
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Capitalization and Liabilities
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Common stock equity:
Common stock $ 670,968 $ 668,338
Retained earnings 242,942 247,409
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Total common stock equity 913,910 915,747
Cumulative preferred stock:
Non-mandatory redeemable series 123,000 123,000
Mandatory redeemable series 94,000 94,000
Long-term debt 1,036,447 1,136,617
Current liabilities:
Long-term debt/preferred stock
due within one year 200,100 102,250
Notes payable 264,603 214,786
Accounts payable 115,271 139,119
Interest accrued 12,064 24,464
Dividends payable 23,558 23,533
Pension benefits 36,449 31,908
Other 60,695 76,615
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Total current liabilities 712,740 612,675
Deferred credits:
Power contracts 36,068 40,277
Accumulated deferred income taxes 514,444 515,454
Accumulated deferred investment tax credits 66,025 67,048
Nuclear decommissioning reserve 96,118 92,404
Other 20,723 19,388
Commitments and contingencies - -
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Total capitalization and liabilities $3,613,475 $3,616,610
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The accompanying notes are an integral part of these financial statements.
3
Boston Edison Company
Consolidated Statements of Income
(Unaudited)
(in thousands, except per share amounts)
Three Months Ended March 31,
1995 1994
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Operating revenues $381,580 $377,449
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Operating expenses:
Fuel 40,102 43,844
Purchased power 97,191 89,803
Other operations and maintenance 107,225 108,163
Depreciation and amortization 39,516 39,116
Amortization of deferred cost of
cancelled nuclear unit 0 4,948
Demand side management programs 11,604 7,939
Taxes - property and other 27,144 26,321
Income taxes 11,790 11,520
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Total operating expenses 334,572 331,654
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Operating income 47,008 45,795
Other income, net 785 795
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Operating and other income 47,793 46,590
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Interest charges:
Long-term debt 25,033 26,042
Other 4,705 2,258
Allowance for borrowed funds used
during construction (2,147) (1,522)
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Total interest charges 27,591 26,778
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Net income 20,202 19,812
Preferred dividends provided 3,902 3,962
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Balance available for common stock $ 16,300 $ 15,850
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Weighted average common shares outstanding 45,601 45,189
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Earnings per share of common stock $0.36 $0.35
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Dividends declared per common share $0.455 $0.440
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The accompanying notes are an integral part of these financial statements.
4
Boston Edison Company
Consolidated Statements of Cash Flows
(Unaudited)
(in thousands)
Three Months Ended March 31,
1995 1994
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Operating activities:
Net income $20,202 $19,812
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 36,317 35,469
Amortization of nuclear fuel 6,258 6,081
Amortization of deferred cost of
cancelled nuclear unit, net 0 4,767
Other amortization 5,631 5,476
Deferred income taxes (1,621) 2,064
Investment tax credits (1,023) (1,018)
Allowance for borrowed funds used during
construction (2,147) (1,522)
Net changes in:
Accounts receivable and accrued
unbilled revenues 157 (15,932)
Fuel, materials and supplies 2,037 (1,820)
Accounts payable (23,848) (12,317)
Other current assets and liabilities (22,142) 11,049
Other, net 5,575 10,793
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Net cash provided by operating activities 25,396 62,902
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Investing activities:
Plant expenditures (excluding AFUDC) (38,031) (34,377)
Nuclear fuel expenditures (10,691) (1,525)
Capitalized demand side management
expenditures 0 (5,139)
Nuclear decommissioning trust investments (4,415) (3,714)
Electric company investments 109 (348)
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Net cash used by investing activities (53,028) (45,103)
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Financing activities:
Issuances:
Common stock 2,630 2,674
Long-term debt 0 15,000
Redemptions:
Preferred stock (2,000) 0
Long-term debt 0 (15,000)
Net change in notes payable 49,817 849
Dividends paid (24,645) (23,819)
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Net cash provided (used) by financing
activities 25,802 (20,296)
Decrease in cash and cash equivalents (1,830) (2,497)
Cash and cash equivalents at beginning of year 6,822 8,768
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Cash and cash equivalents at end of period $ 4,992 $ 6,271
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Cash paid during the period for:
Interest $42,138 $41,678
Less: amounts capitalized 2,147 1,522
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$39,991 $40,156
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Income taxes $ 9,875 $ 1,208
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The accompanying notes are an integral part of these financial statements.
5
Notes to Consolidated Financial Statements
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A) Basis of Presentation
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The accompanying unaudited consolidated financial statements should be read
in conjunction with the Boston Edison Company (the Company) 1994 Form 10-K
Annual Report. In the opinion of the Company, the accompanying unaudited
consolidated financial statements reflect all adjustments (which are all of
a normal recurring nature) necessary to present fairly the financial position
as of March 31, 1995 and the results of operations for the three months ended
March 31, 1995 and 1994 and the cash flows for the three months ended March
31, 1995 and 1994. Certain prior year balances have been reclassified to
reflect current classifications.
The results of operations for the three months ended March 31, 1995 are not
indicative of the results which may be expected for the entire year. The
Company's kWh 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. In
addition, the Company bills higher base rates to commercial and industrial
customers during the billing months of June through September as mandated by
the Massachusetts Department of Public Utilities (DPU). Accordingly, greater
than half of the Company's annual earnings occurs in the third quarter.
B) Commitments and Contingencies
-----------------------------
In 1991 the Company was named in a lawsuit alleging discriminatory employment
practices under the Age Discrimination in Employment Act of 1967 concerning 46
employees affected by the Company's 1988 reduction in force. Legal counsel
continues to vigorously defend this case. Based on the information presently
available the Company does not expect that this litigation or certain other
legal matters in which the Company is currently involved will have a material
impact on its financial condition. However, an unfavorable decision ordered
against the Company could have a material impact on the results of a reporting
period.
The Company owns or operates 48 properties where hazardous materials were
released in the past. The Company is required to clean up these properties in
accordance with a timetable developed by the Massachusetts Department of
Environmental Protection and is continuing to evaluate the costs associated
with their cleanup. There are uncertainties associated with these costs due
to the complexities of cleanup technology, regulatory requirements and the
particular characteristics of the different sites. The Company also continues
to face possible liability as a potentially responsible party in the cleanup
of ten 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. At the majority of these sites the Company is one of many
potentially responsible parties and currently expects to have only a small
percentage of the potential liability. Through March 31, 1995, the Company
has accrued approximately $7 million related to its cleanup liabilities. The
Company is unable to fully determine a range of reasonably possible cleanup
costs in excess of the accrued amount, although based on its assessments of
the specific site circumstances, it does not expect any such additional costs
to have a material impact on its financial condition. However, additional
provisions for cleanup costs could have a material impact on the results of a
reporting period.
6
C) Income Taxes
------------
The annual estimated effective income tax rate for 1995 and the actual
effective income tax rate for 1994 and the reasons for their differences
from the statutory federal income tax rate are explained below:
1995 1994
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Statutory tax rate 35.0% 35.0%
State income tax, net of federal income
tax benefit 4.2 4.3
Investment tax credits (1.9) (2.3)
Reversal of deferred taxes -
settlement agreement - (5.5)
Other 0.1 (0.1)
---- ----
Effective tax rate 37.4% 31.4%
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Item 2. Management's Discussion and Analysis
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Results of Operations
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Earnings per common share for the three months ended March 31, 1995 amounted
to $0.36 as compared to $0.35 per common share for the three months ended
March 31, 1994. The increase was primarily due to a $29 million annual retail
base rate increase effective November 1994, the ending of amortization of
deferred cancelled nuclear costs in 1994 and a provision for refunds recorded
in 1994. These positive changes were partially offset by a 4.0% decrease in
retail electricity sales, primarily caused by milder weather.
The results of operations for the quarter are not indicative of the results
which may be expected for the entire year due to the seasonality of the
Company's kWh sales and revenues. See Note A to the consolidated financial
statements.
Operating revenues
Operating revenues increased 1.1% as follows:
(in thousands)
- ------------------------------------------------------
Retail electric revenues $ (753)
Demand side management revenues 3,635
Wholesale and other revenues 5,936
Short-term sales revenues (4,687)
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Increase in operating revenues $4,131
======================================================
Retail electric revenues decreased $0.8 million. The 4% decrease in retail
kWh sales for the quarter resulted in a $9.6 million decrease in retail
revenues. In addition, performance revenues, which vary based on the annual
operating performance of Pilgrim Nuclear Power Station, decreased by $1.0
million. These decreases were offset by a $2.4 million increase from the
November 1994 base rate increase and a $7.5 million increase from the timing
of fuel and purchased power revenues. Performance revenues are expected to
increase for the year due to Pilgrim's three month outage in late 1994, which
resulted in a lower annual performance than was estimated and reflected in
revenues in the first quarter of 1994.
7
A new annual conservation charge for recovery of demand side management (DSM)
program costs was implemented in February 1995. Under the new charge
substantially all 1995 program costs will be recovered in the current year.
This results in higher DSM revenues and expenses as certain prior year program
costs were previously recovered over six years.
The increase in wholesale and other revenues is primarily due to a $5 million
provision for refunds recorded in 1994 for certain wholesale and contract
customers.
Decreased short-term sales revenues are primarily due to a decrease in short-
term power purchase requirements resulting from milder weather conditions in
1995. Revenues from short-term sales serve to reduce fuel and purchased power
billings to retail customers and therefore have no effect on earnings.
Operating expenses
Total fuel and purchased power expenses increased $4 million. The timing
effect of fuel and purchased power cost collection resulted in higher expenses
which more than offset the decrease in total fuel and purchased power costs.
Fuel expense decreased despite the timing effect primarily due to a 23%
decrease in fossil station output. Fuel and purchased power expenses are
substantially all recoverable through fuel and purchased power revenues.
In 1994 the Company fully expensed the remaining deferred costs of the
cancelled Pilgrim 2 nuclear unit.
The increase in demand side management programs expense is consistent with the
increase in DSM revenues. Beginning with the new annual conservation charge
implemented in February 1995 DSM costs are recovered and expensed primarily in
the year incurred.
Interest charges
Interest charges on long-term debt decreased due to a lower debt balance and a
1994 first mortgage bond refinancing. Other interest charges increased due to
higher short-term interest rates and a higher average short-term debt level.
Financial Condition
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The Company's 1992 settlement agreement with the DPU limits the annual rate of
return on equity during 1995 to 11.75%, excluding any penalties or rewards
from performance incentives. The Company's ability to achieve or exceed the
11.75% rate of return on equity is primarily dependent upon its ability to
control costs and to earn performance incentives, primarily based on Pilgrim
Station's annual capacity factor. Pilgrim's capacity factor for the
performance year ending October 1995 is currently expected to be approximately
67%.
Liquidity
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The Company supplements internally generated funds with external financings,
primarily through the issuance of short-term commercial paper and bank
borrowings. The Company has authority from the Federal Energy Regulatory
8
Commission (FERC) to issue up to $350 million of short-term debt. The Company
has a $200 million revolving credit agreement and arrangements with several
banks to provide additional short-term credit on a committed as well as on an
uncommitted and as available basis. At March 31, 1995 the Company had $265
million of short-term debt outstanding, none of which was incurred under the
revolving credit agreement. In 1994 the DPU approved the Company's financing
plan to issue up to $500 million of securities through 1996. Proceeds will be
used to refinance short and long-term securities and for capital expenditures.
Outlook for the Future
- ----------------------
A significant portion of the Company's electricity sales is made to commercial
customers rather than industrial customers. As a result the Company's sales
have been only moderately impacted by the unfavorable economic factors
affecting the manufacturing industry in Massachusetts. In addition, economic
factors have resulted in higher sales to the Company's commercial customers.
Retail electricity sales decreased 4% in the first quarter of 1995 primarily
due to mild weather conditions compared to extremely cold weather conditions
in 1994.
In March 1995 the Company filed a proposal with the DPU as part of its
proceeding investigating the restructuring of the electric utility industry in
Massachusetts. The proposal contains the following elements: market price
for generation, recovery of the cost of previous regulatory obligations,
pricing protection for all customers and broad-based performance incentives
focused on price, customer service and reliability. The Company's proposal
and those of other utilities, consumer advocate groups and other interested
parties are currently being discussed and evaluated by the DPU.
Also in March 1995, the FERC issued a Notice of Proposed Rulemaking (NOPR)
addressing open transmission access and recovery of stranded costs. If
approved, the NOPR would require all utilities with transmission systems to
file open access tariffs at the FERC, to provide service under those tariffs
to customers comparable to what they provide themselves and to take service
under the tariffs for wholesale purchases and sales. The NOPR also supports
the recovery of legitimate and verifiable stranded costs previously incurred
under federal and state regulation. The provisions in the NOPR provide a
framework for significant changes in the electric utility industry. The FERC
will receive comments on the NOPR through August 1995.
9
Part II - Other Information
Item 5. Other Information
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The following additional information is furnished in connection with the
Registration Statement on Form S-3 of the Registrant (File No. 33-57840),
filed with the Securities and Exchange Commission on February 3, 1993.
Price and dividend information per share of common stock:
Price Dividend
High Low Paid
------- ------- --------
First quarter 1995 $25 1/2 $23 1/8 $0.455
The last sales price of the Company's common stock on the New York Stock
Exchange as reported in the Wall Street Journal for May 5, 1995 was $24 1/8
per share.
Ratio of earnings to fixed charges and ratio of earnings to fixed charges and
preferred stock dividend requirements:
Twelve months ended March 31, 1995:
----------------------------------
Ratio of earnings to fixed charges 2.44
Ratio of earnings to fixed charges and preferred
stock dividend requirements 2.06
Item 6. Exhibits and Reports on Form 8-K
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a) Exhibits filed herewith:
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 March 31, 1995
12.2 - Computation of ratio of earnings to fixed charges
and preferred stock dividend requirements for the
twelve months ended March 31, 1995
Exhibit 15 - Letter re unaudited interim financial information
15.1 - Report of Independent Accountants
Exhibit 27 - Financial Data Schedule
27.1 - Schedule UT
10
Exhibit 99 - Additional Exhibits
99.1 - Letter of Independent Accountants
Re Form S-3 Registration Statements filed by the
Company on September 14, 1990 (File No. 33-36824),
February 3, 1993 (File No. 33-57840); Form S-8
Registration Statements filed by the Company on
October 10, 1985 (File No. 33-00810), July 28, 1986
(File No. 33-7558), December 31, 1990 (File No.
33-38434), June 5, 1992 (33-48424 and 33-48425),
March 17, 1993 (33-59662 and 33-59682) and
April 6, 1995 (33-58457)
b) No Form 8-K was filed during the first quarter of 1995.
11
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: May 9, 1995 /s/ Robert J. Weafer, Jr.
------------------------------
Robert J. Weafer, Jr.
Vice President, Controller
and Chief Accounting
Officer