1
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, 1997
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 11, 1997
- ----- ------------------------------
Common Stock, $1 par value 48,514,973 shares
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Part I - Financial Information
Item 1. Financial Statements
- -----------------------------
Boston Edison Company
Consolidated Statements of Income
(Unaudited)
(in thousands, except per share amounts)
Three Months Six Months
Ended June 30, Ended June 30,
1997 1996 1997 1996
-------- -------- -------- --------
Operating revenues $426,735 $389,756 $849,460 $777,605
-------- -------- -------- --------
Operating expenses:
Fuel and purchased power 164,396 128,213 345,564 271,131
Operations and maintenance 100,301 100,391 200,096 203,238
Depreciation and amortization 45,023 50,814 90,546 90,471
Demand side management programs 7,107 8,528 14,096 14,998
Taxes - property and other 28,723 29,320 57,895 58,109
Income taxes 20,698 17,014 33,188 31,909
-------- -------- -------- --------
Total operating expenses 366,248 334,280 741,385 669,856
-------- -------- -------- --------
Operating income 60,487 55,476 108,075 107,749
Other income (expense), net 578 (47) 442 414
-------- -------- -------- --------
Operating and other income 61,065 55,429 108,517 108,163
-------- -------- -------- --------
Interest charges:
Long-term and medium-term debt 22,988 23,718 46,387 48,708
Other 4,488 4,232 7,892 7,100
Allowance for borrowed funds
used during construction (389) (447) (677) (775)
-------- -------- -------- --------
Total interest charges 27,087 27,503 53,602 55,033
-------- -------- -------- --------
Net income 33,978 27,926 54,915 53,130
Preferred stock dividends 3,494 3,817 7,311 7,707
-------- -------- -------- --------
Earnings available for common
shareholders $ 30,484 $ 24,109 $ 47,604 $ 45,423
======== ======== ======== ========
Weighted average common shares
outstanding 48,515 48,194 48,515 48,132
====== ====== ====== ======
Earnings per share of common stock $0.63 $0.50 $0.98 $0.94
===== ===== ===== =====
Dividends declared per share of
common stock $0.47 $0.47 $0.94 $0.94
===== ===== ===== =====
Common shares outstanding at end
of period 48,515 48,240
====== ======
The accompanying notes are an integral part of the consolidated financial
statements
3
Boston Edison Company
Consolidated Balance Sheets
(Unaudited)
(in thousands)
June 30, December 31,
1997 1996
---------- ----------
Assets
- ------
Utility plant in service, at original cost $4,420,647 $4,393,585
Less: accumulated depreciation 1,626,702 1,550,317
---------- ----------
2,793,945 2,843,268
Nuclear fuel, net 77,303 82,944
Construction work in progress 56,629 30,376
---------- ----------
Net utility plant 2,927,877 2,956,588
Investments in electric companies, at equity 23,743 23,054
Nuclear decommissioning trust 142,221 132,076
Other investments 10,364 7,630
Current assets:
Cash and cash equivalents 6,130 5,651
Accounts receivable 219,813 233,024
Accrued unbilled revenues 50,191 34,922
Fuel, materials and supplies,
at average cost 49,471 57,075
Prepaid expenses and other 34,773 45,146
---------- ----------
Total current assets 360,378 375,818
---------- ----------
Regulatory assets:
Power contracts 78,293 88,963
Redemption premiums 28,868 31,052
Income taxes, net 48,163 47,483
Postretirement benefits costs 22,441 15,009
Nuclear outage costs 14,213 3,432
Other 15,354 16,087
---------- ----------
Total regulatory assets 207,332 202,026
Other deferred debits 30,843 32,099
---------- ----------
Total assets $3,702,758 $3,729,291
========== ==========
The accompanying notes are an integral part of the consolidated financial
statements.
4
Boston Edison Company
Consolidated Balance Sheets
(Unaudited)
(in thousands)
June 30, December 31,
1997 1996
---------- ----------
Capitalization and Liabilities
- ------------------------------
Common stock equity:
Common stock $ 744,400 $ 744,233
Retained earnings 290,832 292,191
---------- ----------
Total common stock equity 1,035,232 1,036,424
---------- ----------
Cumulative preferred stock:
Nonmandatory redeemable series 83,000 119,954
Mandatory redeemable series 77,779 81,465
---------- ----------
Total preferred stock 160,779 201,419
---------- ----------
Long-term and medium-term debt 1,057,242 1,058,644
---------- ----------
Total capitalization 2,253,253 2,296,487
---------- ----------
Current liabilities:
Long-term debt/preferred stock
due within one year 103,467 102,667
Notes payable 286,890 201,454
Accounts payable 96,350 134,083
Accrued interest 25,401 24,378
Dividends payable 24,748 25,343
Other 93,353 115,812
---------- ----------
Total current liabilities 630,209 603,737
---------- ----------
Deferred credits:
Power contracts 78,293 88,963
Accumulated deferred income taxes 492,686 498,718
Accumulated deferred investment tax credits 56,864 58,899
Nuclear decommissioning liability 143,525 133,388
Other 47,928 49,099
---------- ----------
Total deferred credits 819,296 829,067
Commitments and contingencies __________ __________
Total capitalization and liabilities $3,702,758 $3,729,291
========== ==========
The accompanying notes are an integral part of the consolidated financial
statements
5
Boston Edison Company
Consolidated Statements of Cash Flows
(Unaudited)
(in thousands)
Six Months Ended June 30,
1997 1996
-------- --------
Operating activities:
Net income $ 54,915 $ 53,130
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 105,885 111,121
Deferred income taxes and investment
tax credits (8,781) (6,768)
Allowance for borrowed funds used during
construction (677) (775)
Net changes in:
Accounts receivable and accrued
unbilled revenues (2,058) (42,881)
Fuel, materials and supplies 6,740 3,343
Accounts payable (37,733) (45,054)
Other current assets and liabilities (11,658) 11,396
Other, net (15,528) 20,290
-------- --------
Net cash provided by operating activities 91,105 103,802
-------- --------
Investing activities:
Plant expenditures (excluding AFUDC) (64,707) (59,907)
Nuclear fuel expenditures (1,828) (10,457)
Investments (10,834) (18,764)
-------- --------
Net cash used in investing activities (77,369) (89,128)
-------- --------
Financing activities:
Issuances:
Common stock 145 6,325
Medium-term debt 100,000 0
Redemptions:
Preferred stock (44,000) (4,000)
Long-term debt (101,600) (101,600)
Net change in notes payable 85,436 136,059
Dividends paid (53,238) (52,959)
-------- --------
Net cash used in financing activities (13,257) (16,175)
-------- --------
Net increase (decrease) in cash and cash
equivalents 479 (1,501)
Cash and cash equivalents at beginning of year 5,651 5,841
-------- --------
Cash and cash equivalents at end of period $ 6,130 $ 4,340
======== ========
Supplemental disclosures of cash flow
information:
Cash paid during the period for:
Interest, net of amounts capitalized $ 49,812 $ 51,782
======== ========
Income taxes $ 41,251 $ 41,189
======== ========
The accompanying notes are an integral part of the consolidated financial
statements.
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Notes to Consolidated Financial Statements
- ------------------------------------------
A) Basis of Presentation
---------------------
The accompanying consolidated financial statements should be read in
conjunction with the Boston Edison Company (the Company) 1996 Annual Report on
Form 10-K and Form 10-Q for the period ended March 31, 1997. The financial
information presented as of June 30 has been prepared from the Company's books
and records without audit by independent accountants. Financial information
as of December 31 has been derived from the audited financial statements of
the Company, but does not include all disclosures required by generally
accepted accounting principles (GAAP). In the opinion of the Company's
management, the accompanying financial statements reflect all adjustments
(which are all of a normal recurring nature) necessary for a fair
presentation of the financial information for the periods indicated. 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 the
Company 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 three and six-month periods ended June 30,
1997 and 1996 are not indicative of the results which may be expected for an
entire year. The Company's kilowatt-hour (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 (MDPU). Accordingly, greater than half of the Company's annual
earnings typically occurs in the third quarter.
B) Nature of Operations
--------------------
The Company is an investor-owned regulated public utility operating in the
energy and energy services business. This includes the generation, purchase,
transmission, distribution and sale of electric energy and the development and
implementation of electric demand side management programs. A portion of the
generation is produced by the Company's wholly owned nuclear generating unit,
Pilgrim Nuclear Power Station (Pilgrim). The Company supplies electricity at
retail to an area of 590 square miles, including the City of Boston and 39
surrounding cities and towns. It also supplies electricity at wholesale for
resale to other utilities and municipal electric departments. Electric
operating revenues were 88% retail and 12% wholesale in 1996. In addition,
the Company conducts unregulated activities through its wholly owned
subsidiary, Boston Energy Technology Group (BETG).
As discussed in the Company's 1996 Annual Report on Form 10-K, in December
1996, BETG signed a joint venture agreement with Residential Communications
Network, Inc., currently known as RCN Telecom Services, Inc. (RCN), to form a
limited liability company to provide certain telecommunications-related
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services. The final closing on the joint venture with RCN occurred on
June 17, 1997. BETG, through one of its wholly owned subsidiaries, owns 49%
of the limited liability company while RCN owns 51% and will maintain day-to-
day management responsibility. The joint venture will compete directly with
local and long-distance telephone, video, cable and Internet access companies.
Refer to Note A of Item 8 in the Company's 1996 Annual Report on Form 10-K for
information regarding the Company's energy marketing joint venture with
Williams Energy Services Company.
The Company's shareholders approved management's proposal to adopt a holding
company structure at the Annual Shareholders Meeting held in May 1997. The
holding company, to be called BEC Energy, is subject to the approval of the
MDPU, Federal Energy Regulatory Commission (FERC), Nuclear Regulatory
Commission and Securities and Exchange Commission. The Company filed for
approval with each of the various regulators during the second quarter.
C) Depreciation Expense
--------------------
Upon the completion of a review of its electric generating units, the Company
determined that its oldest and least efficient fossil generating units (Mystic
4, 5 and 6) were unlikely to provide competitively priced power beyond the
year 2000. Therefore, during the second quarter of 1996 the Company revised
the estimated remaining economic lives of these units to five years
retroactive to the beginning of that year. Depreciation expense in the second
quarter of 1996, therefore, includes $5.6 million, or $0.07 per share after
tax, in additional depreciation relating to this adjustment compared to the
same period in 1997. However, as the adjustment was reflected retroactive to
the beginning of 1996, it will have no impact on the comparative earnings for
the full year of 1997.
D) Contingencies
-------------
The Company owns or operates approximately 40 properties where oil or
hazardous materials were previously spilled or released. The Company is
required to clean up these properties in accordance with a timetable developed
by the Massachusetts Department of Environmental Protection and continues 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 approximately 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 June 30, 1997, the Company has approximately $7 million
accrued 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, however based on its assessments of the specific site
circumstances, it does not believe that it is probable that any such
additional costs will have a material impact on its financial condition.
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 a reporting period in the near term.
8
Statement of Position 96-1, Environmental Remediation Liabilities (SOP 96-1),
became effective in 1997. SOP 96-1 contains authoritative guidance on
specific accounting issues related to the recognition, measurement, display
and disclosure of environmental remediation liabilities. It requires that an
accrual for environmental liabilities include estimates of the costs to
perform all elements of the remediation effort including the costs of
compensation and benefits for those employees expected to devote a significant
amount of time directly to that effort. SOP 96-1 had no material effect on
the Company's consolidated results of operations or financial position.
The Company was named as a party in lawsuits by Subaru of New England, Inc.
and Subaru Distributors Corporation. The plaintiffs claimed certain
automobiles stored on lots in South Boston suffered pitting damage caused by
emissions from New Boston Station. In February 1997, the Company settled the
lawsuit brought by Subaru Distributors Corporation. The settlement did not
have a material impact on the Company's consolidated results of operations or
financial position. The Subaru of New England, Inc. lawsuit is still pending
and is scheduled to go to trial during the third quarter.
In the normal course of its business the Company is also involved in certain
other legal matters. The Company is unable to fully determine a range of
reasonably possible legal costs in excess of amounts accrued, although, 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
financial condition. However, it is reasonably possible that additional legal
costs that may result from a change in estimates could have a material impact
on the results of a reporting period in the near term.
E) Income Taxes
------------
The following table reconciles the federal statutory income tax rate to the
annual estimated effective income tax rate for 1997 and the actual effective
income tax rate for 1996.
1997 1996
---- ----
Statutory tax rate 35.0% 35.0%
State income tax, net of federal income
tax benefit 4.3 4.3
Investment tax credits (1.7) (1.8)
Other (0.6) 0.7
---- ----
Effective tax rate 37.0% 38.2%
==== ====
F) Financing Activity
------------------
In June 1997, $40 million of 8.25% nonmandatory redeemable series preferred
stock was redeemed. The Company also redeemed $2 million of mandatory and
$2 million of the optional 7.27% sinking fund series preferred stock in May
1997.
In March 1997, $100 million of 5.70% debentures matured. These debentures
were replaced with $100 million of 6.662% bank debt due in 1999.
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Item 2. Management's Discussion and Analysis
- ---------------------------------------------
Results of Operations - Three Months Ended June 30, 1997 vs. Three Months
- -------------------------------------------------------------------------
Ended June 30, 1996
- -------------------
Earnings per share of common stock for the three months ended June 30, 1997
were $0.63 as compared to $0.50 for the three months ended June 30, 1996. The
comparison of 1997 and 1996 earnings for the second quarter is impacted by a
retroactive adjustment related to a change in the estimated economic lives of
the Company's oldest and least efficient fossil generating units in 1996. The
adjustment, which began in the second quarter of 1996 retroactive to the
beginning of that year, positively impacted second quarter earnings by $0.07
per share after tax in relation to the same period in 1996. As the adjustment
was reflected retroactive to the beginning of 1996, it will have no impact on
the comparative annual earnings of 1996 and 1997. The remaining increase is
primarily the result of a 2.6% increase in retail kWh sales. This increase is
mainly the result of the positive effect on commercial customers of a
continued strong economy and a cooler than normal spring and a warmer than
normal early summer.
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. Refer to Note A to the Consolidated
Financial Statements.
Operating revenues
Operating revenues increased 9.5% during the second quarter of 1997 as
follows:
(in thousands)
- ------------------------------------------------------
Retail electric revenues $33,217
Demand side management revenues 317
Wholesale revenues (3,423)
Short-term sales and other revenues 6,868
- ------------------------------------------------------
Increase in operating revenues $36,979
======================================================
Retail electric revenues increased $33.2 million primarily due to the timing
effect of fuel and purchased power cost recovery. The increase in the
Company's fuel and purchased power clause revenues reflects the current
recovery of substantial prior year undercollections. These higher revenues
are offset by higher fuel and purchased power expenses and, therefore, have no
net effect on earnings. In addition, the 2.6% increase in retail kWh sales
contributed to the increase in revenues.
The decrease in wholesale revenues reflects lower sales to the Company's
Pilgrim contract customers primarily due to a refueling and maintenance outage
at Pilgrim Station that ended in late April 1997.
Short-term sales revenues increased $6.7 million primarily due to an increase
in short-term power purchase requirements resulting from a reduction in the
available nuclear energy supply in New England. In addition, an increase in
generation from the Company's fossil units enabled it to increase sales to the
power exchange.
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Operating expenses
Fuel and purchased power expenses increased $36 million primarily due to the
timing effect of fuel and purchased power cost recovery and the increase in
fossil generation resulting from the greater availability of the Company's
fossil units and reflecting the impact of the Pilgrim outage. Fuel and
purchased power expenses are substantially recoverable through fuel and
purchased power revenues.
On April 1, 1997, greater Boston was struck with one of the most severe late
winter storms in history. Despite the impact of this storm, which required
the assistance of crews from as far away as Pennsylvania and Ontario, total
operations and maintenance expense in the second quarter of 1997 remained
consistent with 1996. This is due to lower overall spending resulting from
operational efficiencies and lower labor costs due to the 1995 corporate
restructuring as the related reductions in employee staffing levels were not
complete until mid-1996.
The decrease in depreciation and amortization expense reflects the impact of
the change in estimated remaining economic lives of certain Company electric
generating units as discussed in Note C to the Consolidated Financial
Statements.
The decrease in demand side management (DSM) programs expense reflects a
decline in current DSM program expenditures.
Interest charges
Total interest charges on long-term and medium-term debt decreased due to the
maturity of $100 million of 5.70% debentures in March 1997 and the cessation
of amortization of the associated redemption premiums. This was partially
offset by the March 1997 issuance of $100 million of 6.662% bank debt due in
1999.
Preferred stock dividends
The decrease in preferred stock dividends is due to the redemption of 20,000
mandatory and 20,000 optional shares of 7.27% series preferred stock in May
1997 and the redemption of 400,000 shares of 8.25% series in June 1997.
Results of Operations - Six Months Ended June 30, 1997 vs. Six Months Ended
- ---------------------------------------------------------------------------
June 30, 1996
- -------------
Earnings per share of common stock for the six months ended June 30, 1997 were
$0.98 as compared to $0.94 for the six months ended June 30, 1996. The
increase in earnings is primarily due to lower operations and maintenance and
interest expenses.
The results of operations for the six months ended June 30, 1997 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. Refer to Note A to the
Consolidated Financial Statements.
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Operating revenues
Operating revenues increased 9.2% during the first six months of 1997 as
follows:
(in thousands)
- ------------------------------------------------------
Retail electric revenues $64,449
Demand side management revenues (19)
Wholesale revenues (6,017)
Short-term sales and other revenues 13,442
- ------------------------------------------------------
Increase in operating revenues $71,855
======================================================
Retail electric revenues increased $64.4 million primarily due to the timing
effect of fuel and purchased power cost recovery. The increase in the
Company's fuel and purchased power clause revenues reflects the current
recovery of substantial prior year undercollections. Retail kWh sales and
base revenues were relatively consistent with 1996.
The decrease in wholesale revenues reflects lower sales to the Company's
Pilgrim contract customers as discussed in the results of operations for the
second quarter.
Short-term sales revenues increased $11.4 million. As discussed in the
results of operations for the second quarter, this is primarily due to an
increase in short-term power purchase requirements resulting from the
reduction in available nuclear energy supply in New England combined with an
increase in the Company's fossil generation.
Operating expenses
Fuel and purchased power expenses increased $74 million. The increase is
primarily due to the timing effect of fuel and purchased power cost recovery
and a 72% increase in fossil generation.
Operations and maintenance expense decreased $3 million. The decrease is the
result of lower overall spending from the Company's continuing cost control
efforts and lower labor costs resulting from the 1995 corporate restructuring
as discussed in the results of operations for the second quarter. In
addition, the Company experienced significantly less overhaul activity in its
fossil generating units than in 1996. These decreases were partially offset
by costs associated with the April 1, 1997 storm.
Interest charges
The decrease in interest on long-term and medium-term debt is due to the
maturity of $100 million of 5.70% debentures in March 1997 and $100 million of
5 1/8% debentures in March 1996 along with the cessation of amortization of
the associated redemption premiums. These decreases were partially offset by
the March 1997 issuance of $100 million of 6.662% bank debt due in 1999.
Interest on short-term debt increased due to a higher average short-term debt
level in 1997 resulting from the overall decrease in operating cash flow
largely due to the scheduled refueling and maintenance outage at Pilgrim and
12
the preferred stock redemptions in 1997. A slightly higher effective interest
rate also contributed to the increase.
Electric Revenues
- -----------------
The annual Pilgrim performance adjustment charge provides the Company with
opportunities to improve its financial results. The most significant
potential impact of this performance incentive is based on Pilgrim Station's
annual capacity factor. Refer to the Electric revenues section of the
Company's 1996 Annual Report on Form 10-K for detail regarding the annual
performance adjustment charge.
The Company is currently billing customers based on a capacity factor of 77%
for the performance year ended October 1997. This is a decrease from the
capacity factor of 91% achieved in the performance year ended October 1996 in
which there was no refueling and maintenance outage. The current performance
year's outage, originally scheduled to be completed in March 1997, was
extended through April 1997 due to the replacement of Pilgrim's main
transformer. The power needs usually met by Pilgrim Station were met by other
generating plants or purchased from other suppliers during this period.
Liquidity
- ---------
The Company continues to supplement internally generated funds with external
financings, primarily through the issuance of short-term commercial paper and
bank borrowings. The Company has authority from the FERC to issue up to $350
million of short-term debt. The Company also 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 June 30, 1997 the Company had approximately $287 million of short-
term debt outstanding, none of which was incurred under the revolving credit
agreement. In 1994 the MDPU approved the Company's financing plan to issue up
to $500 million of equity and long-term securities through 1996. In 1996 the
MDPU approved the Company's request to extend this financing plan through
1998. Proceeds from issuances under this plan are to be used to refinance
short and long-term securities and to fund capital expenditures. There is
approximately $220 million remaining under the plan. Refer to Note F to the
Consolidated Financial Statements for the Company's recent financing
activities.
Outlook for the Future
- ----------------------
On July 9, 1997, the Company, along with the Massachusetts Attorney General,
the Massachusetts Division of Energy Resources and 15 other parties
representing environmental, competitor and other interests, filed a
comprehensive settlement agreement with the MDPU. If approved by the MDPU,
the settlement agreement allows retail electric customers the ability to
choose their electricity supplier (referred to as retail access) as early as
January 1, 1998 contingent upon choice being made available to all customers
of Massachusetts investor-owned utilities (the Retail Access Date). In
addition, the settlement agreement provides the Company with the ability to
fully recover its stranded costs incurred under the traditional ratemaking
structure. Refer to the Positioning in the Industry section of Item 7 in the
13
Company's 1996 Annual Report on Form 10-K for more information regarding the
Company's settlement agreement.
The Company anticipates that the MDPU will issue a decision on the settlement
agreement in the third or fourth quarter of 1997. Implementation of the
settlement agreement will also be subject to enactment of enabling legislation
by the Massachusetts legislature. The major principles of potential
legislation filed to date have been substantially consistent with those
included in the Company's settlement agreement.
Included in the settlement agreement is a provision for the Company to divest
its fossil generating assets no later than six months after the Retail Access
Date. The Company filed its Fossil Generation Divestiture Plan with the MDPU
along with its settlement agreement on July 9, 1997. The Company subsequently
issued an offering memorandum which commenced the bidding process. The
Company anticipates the execution of purchase and sale agreements by the end
of October 1997. Implementation of the divestiture plan will require certain
regulatory approvals including that of the MDPU and FERC.
The Company has offered a divestiture package that includes job options for
eligible union employees affected by the Fossil Generation Divestiture Plan.
The package has been ratified by the field service union. The Company is
continuing negotiations with the clerical and professional support union.
Under the Company's settlement agreement, severance and employee training
costs related to the divestiture will be recoverable through the distribution
business access charge which is further discussed in Item 7 of the Company's
1996 Annual Report on Form 10-K.
Other Matters
- -------------
Connecticut Yankee
In December 1996, the board of directors of Connecticut Yankee Atomic Power
Company (CYAPC), which owns and operates the Connecticut Yankee nuclear
electric generating unit, unanimously voted to permanently shut down the unit.
This decision was based on an economic analysis of the costs of operating the
unit compared to the costs of closing the unit and incurring replacement power
costs through the period of its operating license.
The Connecticut Department of Public Utility Control (DPUC) has raised
concerns to the FERC regarding CYAPC's estimate of the post-operation costs
and the plant operator's prudency prior to the shut down decision. The FERC
set CYAPC's request to recover certain post-operating expenses, including
decommissioning expenses, for hearing before an Administrative Law Judge. The
DPUC subsequently filed testimony in the proceeding asserting the position
that the FERC should deny recovery of substantial post-operating costs,
including a significant amount related to decommissioning and the return on
CYPAC's undepreciated investment. The litigation is in its initial stages.
The Company, a 9.5% equity investor in CYAPC and power purchaser, is currently
unable to determine the ultimate outcome of this proceeding or its impact on
the Company.
14
Safe Harbor Cautionary Statement
The Company 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, 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. Refer also to the
safe harbor cautionary statements included in the Company's 1996 Annual Report
on Form 10-K and Form 10-Q for the period ended March 31, 1997.
The preceding sections include certain forward-looking statements about
environmental and legal issues, Pilgrim Station's performance, the Company's
settlement agreement and Connecticut Yankee.
The impacts of various environmental and legal issues 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 the estimated litigation costs.
Pilgrim Station's performance could differ from current expectations. The
capacity factor could be impacted by changes in regulations or by unplanned
outages resulting from certain operating conditions.
The effects of the industry restructuring process currently underway at the
MDPU and the Company's related settlement agreement could differ from current
expectations. The impacts of legislative action may affect the ultimate
results of the industry restructuring and the Company's settlement agreement.
The ultimate liability related to the shutdown of Connecticut Yankee could
differ from the current estimate. In addition, although not anticipated, it
is possible that some portion of the Company's share of post-operation costs
may not be recoverable from ultimate customers.
15
Part II - Other Information
Item 4. Submission of Matters to a Vote of Security Holders
- ------------------------------------------------------------
The Company's Annual Shareholders Meeting was held on May 15, 1997.
The following four Class III directors were reelected to serve until the
Annual Meeting to be held in the year 2000:
Votes Votes
for abstained
---------- ---------
Gary L. Countryman 40,734,590 1,201,640
Thomas G. Dignan, Jr. 40,736,278 1,199,952
Herbert Roth, Jr. 40,780,980 1,155,250
Steven J. Sweeney 40,661,977 1,274,254
The following proposals were approved at the Annual Meeting:
Votes Votes Votes
for against abstained
---------- --------- ---------
Adoption of a holding
company structure 33,372,556 1,164,525 749,697
1997 Stock Incentive Plan 32,186,169 8,286,407 962,223
Item 5. Other Information
- --------------------------
Richard J. Egan, age 61, was elected as a Class I director and member of the
Executive Personnel and Nuclear Oversight Committees effective July 1, 1997.
Egan has been Chairman of the Board for EMC Corporation since 1988.
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 1997 $27 3/8 $26 $0.470
Second quarter 1997 26 5/8 24 5/8 0.470
The market value per share of the Company's common stock as of the close of
business on August 11, 1997 was $28 5/8 per share as reported in the Wall
Street Journal.
16
Ratio of earnings to fixed charges and ratio of earnings to fixed charges and
preferred stock dividend requirements:
Twelve months ended June 30, 1997:
---------------------------------
Ratio of earnings to fixed charges 3.02
Ratio of earnings to fixed charges and preferred
stock dividend requirements 2.50
Item 6. Exhibits and Reports on Form 8-K
- -----------------------------------------
a) Exhibits filed herewith:
Exhibit 10 - Material contracts
10.1 - Supplemental Executive Retirement Plan
10.2 - 1997 Stock Incentive Plan
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, 1997
12.2 - Computation of ratio of earnings to fixed charges
and preferred stock dividend requirements for the
twelve months ended June 30, 1997
Exhibit 15 - Letter re unaudited interim financial information
15.1 - Report of Independent Accountants
Exhibit 27 - Financial Data Schedule
27.1 - Schedule UT
Exhibit 99 - Additional Exhibits
99.1 - Letter of Independent Accountants
Re Form S-3 Registration Statements filed by the
Company on February 3, 1993 (File No. 33-57840)
and May 31, 1995 (File No. 33-59693); 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 (33-48425), March 17, 1993
(33-59662 and 33-59682) and April 6, 1995 (33-58457)
and in the Form S-4 Registration Statement filed
by Boston Edison Holdings, currently known as
BEC Energy, on March 17, 1997 (File No. 333-23439)
b) No Form 8-K was filed during the second quarter of 1996.
17
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 12, 1997 /s/ Robert J. Weafer, Jr.
------------------------------
Robert J. Weafer, Jr.
Vice President-Finance,
Controller and Chief
Accounting Officer