UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark one)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period _________________ to ___________________
Commission File Number 0-8480
EASTERN EDISON COMPANY
(Exact name of registrant as specified in its charter)
Massachusetts 04-1123095
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
110 Mulberry Street, Brockton, Massachusetts
(Address of principal executive offices)
02402
(Zip Code)
(508)580-1213
(Registrant's telephone number including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that
the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes....X......No..........
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practical date.
Class Outstanding at April 30, 1995
Common Shares, $25 par value 2,891,357 shares
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
EASTERN EDISON COMPANY
CONSOLIDATED CONDENSED BALANCE SHEETS
(In Thousands)
ASSETS March 31, December 31,
1995 1994
Utility Plant in Service $ 785,105 $ 782,837
Less: Accumulated Provision for Depreciation
and Amortization 235,021 228,241
Net Utility Plant in Service 550,084 554,596
Construction Work in Progress 12,681 6,759
Net Utility Plant 562,765 561,355
Current Assets:
Cash and Temporary Cash Investments 6,255 11,265
Accounts Receivable-Associated Companies 22,773 18,061
-Other 35,830 37,979
Materials and Supplies 7,704 9,644
Other Current Assets 4,856 5,952
Total Current Assets 77,418 82,901
Deferred Debits and Other Non-Current Assets 108,840 111,789
Total Assets $ 749,023 $ 756,045
LIABILITIES AND CAPITALIZATION
Capitalization:
Common Stock, $25 Par Value $ 72,284 $ 72,284
Other Paid-In Capital 47,249 47,249
Common Stock Expense (43) (43)
Retained Earnings 106,817 105,574
Total Common Equity 226,307 225,064
Redeemable Preferred Stock - Net 29,665 29,665
Preferred Stock Redemption Cost (4,168) (4,408)
Long-Term Debt - Net 229,246 229,224
Total Capitalization 481,050 479,545
Current Liabilities:
Long-Term Debt Due Within One Year 35,000 35,000
Accounts Payable - Associated Companies 3,437 5,749
- Other 22,536 24,578
Taxes Accrued 1,446 1,411
Interest Accrued 5,761 5,486
Other Current Liabilities 11,974 16,360
Total Current Liabilities 80,154 88,584
Deferred Credits and Other
Non-Current Liabilities 65,762 68,260
Accumulated Deferred Taxes 122,057 119,656
Total Liabilities and Capitalization $ 749,023 $ 756,045
See accompanying notes to consolidated condensed financial statements.
EASTERN EDISON COMPANY
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(In Thousands)
Three Months Ended
March 31,
1995 1994
Operating Revenues $ 106,319 $ 110,388
Operating Expenses:
Fuel 22,282 23,137
Purchased Power 31,976 29,929
Other Operation and Maintenance 23,109 24,422
Depreciation and Amortization 6,555 6,415
Taxes - Other Than Income 2,881 2,932
- Current Income 3,229 5,263
- Deferred Income 2,186 1,469
Total 92,218 93,567
Operating Income 14,101 16,821
Allowance for Other Funds
Used During Construction 131 49
Other Income and (Deductions) - Net 331 387
Income Before Interest Charges 14,563 17,257
Interest Charges:
Interest on Long-Term Debt 4,636 4,580
Other Interest Expense 724 897
Allowance for Borrowed Funds Used
During Construction(Credit) (92) (68)
Net Interest Charges 5,268 5,409
Net Income 9,295 11,848
Preferred Dividend Requirements 497 497
Consolidated Net Earnings $ 8,798 $ 11,351
See accompanying notes to consolidated condensed financial statements.
EASTERN EDISON COMPANY
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(In Thousands)
Three Months Ended
March 31,
1995 1994
CASH FLOW FROM OPERATING ACTIVITIES:
Net Income $ 9,295 $ 11,848
Adjustments to Reconcile Net Income to Net
Cash Provided from Operating Activities:
Depreciation and Amortization 7,408 6,836
Amortization of Nuclear Fuel 1,205 1,110
Deferred Taxes 2,170 1,452
Investment Tax Credit, Net (236) (230)
Allowance for Other Funds Used During Construction (131) (49)
Other - Net (243) (768)
Change in Operating Assets and Liabilities (7,956) 1,285
Net Cash Provided From Operating Activities 11,512 21,484
CASH FLOW FROM INVESTING ACTIVITIES:
Construction Expenditures (8,710) (3,621)
Net Cash Used in Investing Activities (8,710) (3,621)
CASH FLOW FROM FINANCING ACTIVITIES:
Common Stock Dividends Paid to EUA (7,315) (6,419)
Preferred Dividends Paid (497) (497)
Premium on Reacquisition & Financing Expenses (52)
Net Cash Used in Financing Activities (7,812) (6,968)
Net (Decrease) Increase in Cash and Temporary
Cash Investments (5,010) 10,895
Cash and Temporary Cash Investments at
Beginning of Period 11,265 697
Cash and Temporary Cash Investments at
End of Period $ 6,255 $ 11,592
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest (Net of Capitalized Interest) $ 4,060 $ 4,110
Income Taxes $ 1,422 $ 1,280
See accompanying notes to consolidated condensed financial statements.
EASTERN_EDISON_COMPANY
NOTES_TO_CONSOLIDATED_CONDENSED_FINANCIAL_STATEMENTS
The accompanying Notes should be read in conjunction with the Notes to
Consolidated Financial Statements appearing in Eastern Edison Company's
(Eastern Edison or the Company) 1994 Annual Report on Form 10-K.
Note A - In the opinion of the Company, the accompanying unaudited consolidated
condensed financial statements contain all adjustments (consisting of
only normal recurring accruals) necessary to present fairly the
financial position as of March 31, 1995 and the results of operations
and cash flows for the three months ended March 31, 1995 and 1994.
Certain reclassifications have been made to prior period financial
statements to conform to current period classifications. The year-end
consolidated condensed balance sheet data was derived from audited
financial statements but does not include all disclosures required
under generally accepted accounting principles.
Note B - Results shown above for the respective interim periods are not neces-
sarily indicative of results to be expected for the fiscal years due
to seasonal factors which are inherent in electric utilities in New
England. A greater proportionate amount of revenues is earned in the
first and fourth quarters (winter season) of most years because more
electricity is sold due to weather conditions, fewer day-light hours,
etc.
Note C- Commitments and Contingencies:
Rate Activity
On March 21, 1994, Montaup Electric Company (Montaup), the wholesale
electric generating and transmission subsidiary of the Company, filed
an application with the Federal Energy Regulatory Commission (FERC)
for authorization to reduce its wholesale rates by $10.1 million, or
three percent. Montaup supplies electricity at wholesale to EUA's
retail electric utilities - Eastern Edison, Blackstone Valley Electric
Company (Blackstone) and Newport Electric Corporation (Newport) - and
to two non-affiliated municipal utilities. This application is
designed to match more closely Montaup's revenues with its decreasing
cost of doing business resulting from, among other things, a reduced
rate base, lower interest costs and successful cost control efforts.
On May 21, 1994, Montaup began billing the reduced rates, and on April
14, 1995 FERC approved a settlement agreement between Montaup and the
intervenors in the case calling for an annual reduction of
approximately $13.9 million (inclusive of the filed $10.1 million
reduction).
Montaup will refund to its customers the difference collected between
the $10.1 million filed reduction and the $13.9 million settled
reduction in the second quarter of 1995. Montaup has previously
reserved for this refund.
Maine Yankee
During the refueling-and-maintenance shutdown of the Maine Yankee
Nuclear Generating plant that started in early February of 1995, Maine
Yankee Atomic Power Company (Maine Yankee), the owner of the plant,
detected an increased rate of degradation of the plant's steam
generator tubes in excess of the number expected and started
evaluating several courses of action.
On April 7, 1995, Maine Yankee announced its intention to further
explore sleeving all 17,000 steam generator tubes. Although testing
of all tubes revealed that approximately 40% of the tubes are free of
defects, Maine Yankee plans to sleeve all of the tubes as a
preventative safety measure. Sleeving involves the inserting of a
tube of slightly smaller diameter into the defective tube, the sleeve
is welded in place and acts as a new tube. Sleeving is a proven
technology and must meet rigorous federal standards of safety and
licensing. If the sleeving option is approved and implemented, Maine
Yankee projects that the plant could return to service in the final
quarter of 1995.
Montaup owns 4% of the Common Stock of Maine Yankee, and its share of
the current estimated cost of the sleeving option could be
approximately $1.6 million. At this time, the Company cannot predict
whether this option will be approved for implementation or the
ultimate impact on the Company, if any, of this option or any other
course of action which may be taken with respect to the plant.
Item_2. Management's_Discussion_and_Analysis_of_Financial_Condition_and
_Results_of_Operations
The following is Management's discussion and analysis of certain
significant factors affecting the Company's earnings and financial condition
for the interim periods presented in this Form 10-Q.
Overview
Consolidated Net Earnings for the first quarter of 1995 were $8.8
million. Consolidated Net Earnings for the same period of a year ago were
$11.4 million. First quarter 1995 earnings reflect a full quarter's impact of
Montaup's wholesale rate reduction implemented on May 21, 1994 as well as a
3.1% decrease in retail kilowatthour (kWh) sales. The first quarter of 1995
was 18% warmer than last year's first quarter causing a sharp decline in
sales. While overall retail sales declined, sales to industrial customers
grew, signaling a continuation of the slow but steady economic recovery in the
Company's service territories.
Operating_Revenues
Operating Revenues decreased $4.1 million to $106.3 million in the first
quarter of 1995 compared to the same period in 1994. This decrease is due
primarily to a full quarter's revenue impact of Montaup's wholesale rate
reduction, approximately $3.9 million, recoveries of decreased fuel and
conservation and load management expenses aggregating $2.3 million and the
impact of lower kwh sales. Offsetting these decreases somewhat were recoveries
of increased purchased power expenses of approximately $2.0 million.
Operating_Expenses
Fuel expense for the first quarter of 1995 as compared to the same period
in 1994 decreased $900,000 or 3.7%. This decrease was due primarily to
decreased kWh sales and requirements offset somewhat by a 9.7% increase in the
average cost of fuel.
Purchased Power expense for the first quarter of 1995 increased
approximately $2.0 million or 6.8% as compared to the same period in 1994.
This increase is due primarily to a full quarter impact of Newport's purchased
power contracts assumed by Montaup on May 21, 1994 coincident with Newport
becoming an all-requirements customer of Montaup, aggregating approximately
$3.3 million. Also contributing to the increase were increased billings by
Montaup's suppliers totaling $700,000. These increases were offset somewhat by
a decrease of approximately $2.1 million resulting from contracts which expired
in October 1994 totaling 41 mw.
Other Operation and Maintenance (O&M) expenses for the first quarter of
1995 decreased approximately $1.3 million from the same period in 1994. This
decrease is due primarily to a decrease in conservation and load management
expenses of $1.3 million and decreased direct O&M expenses such as wages,
benefits, distribution and production expenses aggregating $1.1 million.
Offsetting these decreases somewhat were increased indirect expenses related to
jointly owned units, FAS 106 and rental of transmission and production
facilities aggregating approximately $1.0 million.
Liquidity_and_Sources_of_Capital
Eastern Edison's and Montaup's need for permanent capital is primarily
related to the construction of facilities required to meet the needs of their
existing and future customers.
Traditionally, cash construction requirements not met with internally
generated funds are obtained through short-term borrowings which are ultimately
funded with permanent capital. EUA System companies, including Eastern Edison
and Montaup, maintain short-term lines of credit with various banks aggregating
approximately $150 million. These credit lines are available to other
affiliated companies under joint credit line arrangements. At March 31, 1995,
these unused EUA System short-term lines of credit amounted to approximately
$115 million. Eastern Edison and Montaup had no short-term debt outstanding at
March 31, 1995. In the first quarter of 1995, internally generated funds
amounted to $12.0 million while cash construction requirements for the same
period were $8.7 million.
Voluntary Retirement Incentive Offer
On March 15, 1995, EUA announced a corporate reorganization which, among
other things, will consolidate management of Eastern Edison, Blackstone and
Newport. David H. Gulvin, formerly President of Blackstone and Newport, was
named Senior Vice President of Eastern Edison, Blackstone and Newport. John D.
Carney, President of Eastern Edison was named President of Blackstone and
Newport, also. As part of the reorganization, a voluntary retirement incentive
effective June 1, 1995, was offered to sixty-six EUA System employees,
including twenty-two employees of Eastern Edison and Montaup. Eastern Edison
and Montaup expect a majority of the eligible personnel to accept and
anticipate taking a one-time charge to earnings in the second quarter of this
year to reflect the cost of this early retirement incentive. The final amount
of this charge will depend on the final number of eligible employees that
accept the offer. The estimated payback period is approximately 18 months.
PART II -- OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
(a) A Consent to Action in lieu of an Annual Meeting of Stockholders
executed on March 7, 1995 (Consent to Action) by Eastern Utilities
Associates, the holder of the entire issued and outstanding common
stock of Eastern Edison and the only class of stock entitled to vote
at the Annual Meeting of Stockholders.
(b) The Board of Directors as previously reported to the Commission in the
Company's annual report on Form 10-K for the year ended December 31,
1994 was re-elected in its entirety by the Consent to Action.
(c) The matters voted on in the Consent to Action were: (i) a vote fixing
the number of directors of Eastern Edison at eight and re-electing the
entire Board and (ii) the election of the Treasurer and Clerk of the
Company.
Item 5. Other Information
On March 29, 1995, the Federal Energy Regulatory Commission (FERC) issued
a Notice of Proposed Rulemaking (NOPR) which will require public utilities
that own or control interstate transmission facilities to offer to other
utilities "open access" transmission service on a non-discriminatory basis and
file open access transmission tariffs. FERC also proposes to allow in certain
circumstances the collection of charges for the recovery of stranded costs
associated with requiring open access tariffs when former wholesale or retail
customers change power suppliers. The Commission's purpose in proposing the
new rules is to encourage competition in the bulk power market. At this time,
management is unable to predict the ultimate impact, if any, of the NOPR on the
Company.
Item_6. Exhibits_and_Reports_on_Form_8-K
(a) Exhibits - None
(b) Reports on Form 8-K - None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the under
signed thereunto duly authorized.
Eastern_Edison_Company___________
(Registrant)
Date: May_12,_1995 /s/ Clifford J. Hebert, Jr.
Clifford J. Hebert, Jr., Treasurer
(on_behalf_of_the_Registrant_and as
Principal_Financial_Officer)