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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549-1004
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 September 30, 1994
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 2-30057
CANAL ELECTRIC COMPANY
(Exact name of registrant as specified in its charter)
Massachusetts 04-1733577
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One Main Street, Cambridge, Massachusetts 02142-9150
(Address of principal executive offices) (Zip Code)
(617) 225-4000
(Registrant's telephone number, including area code)
(Former name, address and fiscal year, if changed since last report.)
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.
Outstanding at
Class of Common Stock November 1, 1994
Common Stock, $25 par value 1,523,200 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.
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
CANAL ELECTRIC COMPANY
CONDENSED BALANCE SHEETS
SEPTEMBER 30, 1994 AND DECEMBER 31, 1993
ASSETS
(Unaudited)
September 30, December 31,
1994 1993
(Dollars in Thousands)
PROPERTY, PLANT AND EQUIPMENT, at original cost $408 020 $404 768
Less - Accumulated depreciation and
amortization 149 293 137 720
258 727 267 048
Add - Construction work in progress 3 668 2 501
Nuclear fuel in process 220 1 641
262 615 271 190
LEASED PROPERTY, net 13 719 14 150
INVESTMENTS
Equity in corporate joint venture 3 867 3 861
CURRENT ASSETS
Cash 14 12
Accounts receivable
Affiliated companies 10 317 12 215
Other 5 073 9 549
Electric production fuel oil 782 663
Prepaid taxes -
Property 1 398 891
Income 1 734 720
Other 2 828 3 602
22 146 27 652
DEFERRED CHARGES
Seabrook 1 7 991 9 002
Seabrook 2 5 608 6 937
Other 13 439 11 509
27 038 27 448
$329 385 $344 301
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CANAL ELECTRIC COMPANY
CONDENSED BALANCE SHEETS
SEPTEMBER 30, 1994 AND DECEMBER 31, 1993
CAPITALIZATION AND LIABILITIES
(Unaudited)
September 30, December 31,
1994 1993
(Dollars in Thousands)
CAPITALIZATION
Common Equity -
Common stock, $25 par value -
Authorized - 2,328,200 shares
Outstanding - 1,523,200 shares,
wholly-owned by Commonwealth
Energy System (Parent) $ 38 080 $ 38 080
Amounts paid in excess of par value 8 321 8 321
Retained earnings 52 963 48 151
99 364 94 552
Long-term debt, including premiums, less
current sinking fund requirements 87 897 88 446
187 261 182 998
CAPITAL LEASE OBLIGATIONS 13 145 13 575
CURRENT LIABILITIES
Interim Financing -
Notes payable to banks 4 375 28 000
Advances from affiliates 15 025 8 310
19 400 36 310
Other Current Liabilities -
Current sinking fund requirements 1 110 1 110
Accounts payable -
Affiliated companies 1 308 1 829
Other 9 640 15 244
Accrued taxes -
Income 424 460
Local property and other 1 627 923
Capital lease obligations 574 575
Accrued interest and other 4 115 3 547
18 798 23 688
38 198 59 998
DEFERRED CREDITS
Accumulated deferred income taxes 72 311 70 854
Unamortized investment tax credits and other 18 470 16 876
90 781 87 730
COMMITMENTS AND CONTINGENCIES
$329 385 $344 301
See accompanying notes.
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CANAL ELECTRIC COMPANY
CONDENSED STATEMENTS OF INCOME AND RETAINED EARNINGS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1994 AND 1993
(Unaudited)
Three Months Ended Nine Months Ended
1994 1993 1994 1993
(Dollars in Thousands)
ELECTRIC OPERATING REVENUES
Sales to affiliated companies $31 882 $35 507 $ 97 384 $101 837
Sales to non-affiliated companies 20 248 18 185 59 833 55 150
52 130 53 692 157 217 156 987
OPERATING EXPENSES
Fuel used in production 21 983 24 908 67 915 68 763
Electricity purchased for resale 7 758 7 554 22 392 20 702
Other operation and maintenance 10 008 8 562 29 267 28 307
Depreciation 3 414 3 376 10 244 10 127
Taxes -
Income 2 253 2 786 6 949 7 793
Local property 715 357 2 094 2 053
Payroll and other 178 151 586 602
46 309 47 694 139 447 138 347
OPERATING INCOME 5 821 5 998 17 770 18 640
OTHER INCOME 57 262 187 728
INCOME BEFORE INTEREST CHARGES 5 878 6 260 17 957 19 368
INTEREST CHARGES
Long-term debt 2 069 2 336 6 217 7 019
Other interest charges 314 127 909 542
Allowance for borrowed funds used
during construction (3) (25) (74) (53)
2 380 2 438 7 052 7 508
NET INCOME 3 498 3 822 10 905 11 860
RETAINED EARNINGS -
Beginning of period 52 512 61 874 48 151 64 498
Dividends on common stock (3 047) (3 991) (6 093) (14 653)
RETAINED EARNINGS -
End of period $52 963 $61 705 $ 52 963 $ 61 705
See accompanying notes.
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CANAL ELECTRIC COMPANY
CONDENSED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1994 AND 1993
(Unaudited)
1994 1993
(Dollars in Thousands)
OPERATING ACTIVITIES
Net income $10 905 $11 860
Effects of non-cash items -
Depreciation and amortization 14 375 14 432
Deferred income taxes and investment
tax credits, net 870 132
Earnings from corporate joint venture (381) (448)
Dividends from corporate joint venture 375 533
Change in working capital, exclusive of cash
and interim financing 618 6 348
All other operating items (161) (510)
Net cash provided by operating activities 26 601 32 347
INVESTING ACTIVITIES
Additions to property, plant and equipment
(exclusive of AFUDC) (2 973) (4 089)
Allowance for borrowed funds used
during construction (74) (53)
Net cash used for investing activities (3 047) (4 142)
FINANCING ACTIVITIES
Payment of short-term borrowings (23 625) (15 175)
Payment of dividends (6 093) (14 653)
Advances from affiliates 6 715 1 760
Sinking fund payments (549) (571)
Net cash used for financing activities (23 552) (28 639)
Net increase (decrease) in cash 2 (434)
Cash at beginning of period 12 446
Cash at end of period $ 14 $ 12
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest (net of capitalized amounts) $ 4 559 $ 6 532
Income taxes $ 7 220 $ 8 186
See accompanying notes.
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CANAL ELECTRIC COMPANY
NOTES TO CONDENSED FINANCIAL STATEMENTS
(1) Accounting Policies
Canal Electric Company (the Company) is a wholly-owned subsidiary of
Commonwealth Energy System. The parent company is referred to in this
report as the "System" and together with its subsidiaries is collectively
referred to as "the system."
The Company's significant accounting policies are described in Note 1
of Notes to Financial Statements included in its 1993 Annual Report on Form
10-K filed with the Securities and Exchange Commission. For interim
reporting purposes, the Company follows these same basic accounting
policies but considers each interim period as an integral part of an annual
period and makes allocations of certain expenses to interim periods based
upon estimates of such expenses for the year.
The Company has established various regulatory assets in cases where
the Massachusetts Department of Public Utilities (DPU) and/or the Federal
Energy Regulatory Commission (FERC) have permitted, or are expected to
permit, recovery of specific costs over time. As of September 30, 1994,
principal regulatory assets included in deferred charges were $13.2 million
for abandonment and nonconstruction costs related to the Seabrook project
and $7.3 million related to deferred income taxes.
Generally, expenses which benefit more than one interim period are
allocated to other periods to more appropriately match revenues and
expenses. Income tax expense is recorded using the statutory rates in
effect applied to book income subject to tax recorded in the interim
period.
The unaudited financial statements for the periods ended September 30,
1994 and 1993 reflect, in the opinion of the Company, all adjustments
(consisting of only normal recurring accruals) necessary to summarize
fairly the results for such periods. In addition, certain prior period
amounts are reclassified from time to time to conform with the presentation
used in the current period's financial statements.
The Company is a wholesale power company and operates its two
generating units under life-of-the-unit power contracts on file with the
FERC. The price of power under the power contracts is based on a two-part
rate consisting of a demand charge and an energy charge. The demand charge
covers all expenses except fuel costs and includes the recovery of the
original investment. It also provides for any adjustments to that
investment over the economic lives of the units. The energy charge is
based on the cost of fuel and is billed to each purchaser in proportion to
its purchase of power. Purchasers are billed monthly.
The Company also procures bulk electric power at the request of and
for its affiliates thereby securing cost savings for their respective
customers by planning for a power supply on a single system basis.
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CANAL ELECTRIC COMPANY
(2) Commitments and Contingencies
Construction
The Company is engaged in a continuous construction program presently
estimated at $64.8 million for the five-year period 1994 through 1998. Of
that amount, $13.2 million is estimated for 1994. As of September 30,
1994, construction expenditures, including an allowance for funds used
during construction, amounted to approximately $3 million. The majority of
1994 construction expenditures are anticipated to be incurred during the
fourth quarter of 1994. The Company's program is subject to periodic
review and revision.
(3) Decommissioning of Seabrook Nuclear Power Plant
The Company and the other joint owners of Seabrook have established a
Seabrook Nuclear Decommissioning Financing Fund to cover post operational
decommissioning costs. The estimated cost to decommission the plant is
$378 million, in 1994 dollars, through September 30, 1994. The Company's
share of this liability (approximately $13.3 million) less its share of the
market value of the decommissioning trust ($995,000) amounts to
approximately $12.3 million.
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CANAL ELECTRIC COMPANY
Item 2. Management's Discussion and Analysis of Results of Operations
The following is a discussion of certain significant factors which have
affected operating revenues, expenses and net income during the periods
included in the accompanying condensed statements of income. This discussion
should be read in conjunction with the Notes to Condensed Financial Statements
appearing elsewhere in this report.
A summary of the period to period changes in the principal items
included in the condensed statements of income for the three and nine months
ended September 30, 1994 and 1993 is shown below:
Three Months Ended Nine Months Ended
September 30, September 30,
1994 and 1993 1994 and 1993
Increase (Decrease)
(Dollars in Thousands)
Electric Operating Revenues $ (1 562) (2.9)% $ 230 0.2%
Operating Expenses
Fuel used in production (2 925) (11.7) (848) (1.2)
Electricity purchased for resale 204 2.7 1 690 8.2
Other operation and maintenance 1 446 16.9 960 3.4
Depreciation 38 1.1 117 1.2
Taxes -
Federal and state income (533) (19.1) (844) (10.8)
Local property and other 385 75.8 25 0.9
(1 385) (2.9) 1 100 0.8
Operating Income (177) (3.0) (870) (4.7)
Other Income (205) (78.2) (541) (74.3)
Income Before Interest Charges (382) (6.1) (1 411) (7.3)
Interest Charges (58) (2.4) (456) (6.1)
Net Income $ (324) (8.5) $ (955) (8.0)
Unit Sales (MWH) Decrease (195 023) (15.4) (129 750) (3.6)
Three Months Ended Nine Months Ended
September 30, September 30,
MWH Unit Sales 1994 and 1993 1994 and 1993
Canal Unit 1 617 567 624 115 1 959 113 2 149 445
Canal Unit 2 254 389 469 335 1 036 512 898 333
Seabrook 1 57 516 77 513 128 757 242 579
Purchased for Resale 138 636 92 168 375 634 339 409
1 068 108 1 263 131 3 500 016 3 629 766
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CANAL ELECTRIC COMPANY
Revenues, Fuel and Purchased Power
Operating revenues for the first nine months of 1994 were virtually
unchanged from those of a year ago due to an increase in the cost of
electricity purchased for resale being offset by lower fuel costs and a
3.6% decrease in unit sales. During the current three-month period,
operating revenues decreased by 2.9%, approximately $1.6 million, due to
the decrease in fuel costs and a 15.4% decrease in unit sales.
Purchased power and transmission costs are included in operating
expenses and result from the Company's role as wholesale agent to generate
and produce bulk electric power for affiliated retail distribution
companies.
Unit sales decreased 15.4% and 3.6% for the current three and nine-
month periods, respectively, due to the lower availability of Unit 1, the
timing of scheduled maintenance on Unit 2 and a refueling outage at
Seabrook 1 which began in early April 1994 and was extended for unscheduled
maintenance. Seabrook was returned to full-power operation in early August
1994.
Fuel used in production decreased in both periods due to the
decreases in unit sales. The per barrel cost of oil averaged $15.45 and
$14.35 during the current quarter and nine-month periods, respectively, as
compared to $13.92 and $14.19 during the corresponding periods of a year
ago. Fuel, purchased power and transmission costs in both the current
three and nine-month periods represents approximately 59% of operating
revenues and averaged 2.87 cents and 2.65 cents per KWH, respectively, as
compared to 2.64 cents and 2.54 cents per KWH for the same periods in 1993.
Other Operating Expenses
Other operation and maintenance expense increased in the current
three and nine-month periods by 16.9% and 3.4%, respectively, due primarily
to increases in costs associated with the operation of Seabrook 1
($215,000 and $1.1 million, respectively) and maintenance at Unit 1
(approximately $1 million and $1.4 million, respectively). Also
contributing to the increase in other operation and maintenance expense
were higher insurance and benefit costs for the three and nine-month
periods of $400,000 and $265,000, respectively. These items were offset
somewhat by the timing of scheduled maintenance at Unit 2 which occurred
during the first quarter of 1993. Depreciation expense increased in both
periods due to higher levels of plant in service. Federal and state income
taxes decreased due to a lower level of pretax income. The significant
increase in local property and other taxes during the quarter is due
primarily to the absence of an adjustment to the accrual rate during July
1993 (approximately $300,000) reflecting lower rates associated with the
nuclear station tax assessed by the state of New Hampshire to the joint-
owners of Seabrook.
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CANAL ELECTRIC COMPANY
Other Income and Interest Charges
The significant decrease in other income during the current three and
nine-month periods was primarily due to a higher level of other income
deductions reflecting postretirement benefit reserves ($123,000 and
$434,000 during the three and nine-month periods, respectively).
Total interest charges decreased 2.4% and 6.1% during the current
three and nine-month periods, respectively, reflecting decreases in long-
term interest ($267,000 and $802,000 during those periods) due to the early
redemption of the Company's Series D, 11.125% First Mortgage Bonds due
December 1, 2007 totaling $9.3 million, on December 1, 1993. Somewhat
offsetting the decrease during the period were increases in other interest
charges ($187,000 and $367,000 during the three and nine-month periods)
caused by a higher level of short-term borrowings coupled with higher
short-term interest rates.
Environmental Matters
The Company is subject to laws and regulations administered by
federal, state and local authorities relating to the quality of the
environment. These laws and regulations affect, among other things, the
siting and operation of generating facilities, and will continue to impact
future operations, capital costs and construction schedules.
The federal Clean Air Act, as amended, and certain state laws and
regulations impose restrictions on air emissions. Some of these
restrictions will become effective in 1995, and others by the year 2000.
These laws and regulations have a particular impact on the cost of electric
generating operations. As part of its emission reduction program, the
Company has been burning more lower-sulphur content fuel oil at the plant.
In addition, in October 1993, the Company and Montaup Electric Company
(joint owner of Unit 2) reached an agreement with Algonquin Gas
Transmission Company to build a natural gas pipeline that will serve Unit
2, subject to regulatory approvals. Unit 2 will be modified to burn gas in
addition to oil. The project will improve air quality on Cape Cod, and
will also strengthen the Company's bargaining position as it seeks to
secure the lowest-cost fuel for its customers. Plant conversion and
pipeline construction are expected to be completed in 1996 at an estimated
cost to the Company of approximately $7 million.
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CANAL ELECTRIC COMPANY
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
The Company is not a party to any pending material legal proceeding.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Incorporated herein by reference:
Exhibit 10 Material Contracts.
10.2 Other Agreements.
10.2.3.10 Twenty-Eighth Agreement Amending New England Power Pool
Agreement dated September 1, 1971, as amended September
15, 1992 (Exhibit 1 to Commonwealth Energy System's Form
10-Q (September 1994), File No. 1-7316).
10.2.3.11 Twenty-Ninth Agreement Amending New England Power Pool
Agreement dated September 1, 1971, as amended May 1, 1993
(Exhibit 2 to Commonwealth Energy System's Form 10-Q
(September 1994), File No. 1-7316).
Filed herewith:
Exhibit 27 Financial Data Schedule for the nine months ended
September 30, 1994 (Filed herewith as Exhibit 1).
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the three months ended
September 30, 1994.
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CANAL ELECTRIC COMPANY
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CANAL ELECTRIC COMPANY
(Registrant)
Principal Financial Officer:
JAMES D. RAPPOLI
James D. Rappoli,
Financial Vice President
and Treasurer
Principal Accounting Officer:
JOHN A. WHALEN
John A. Whalen,
Comptroller
Date: November 14, 1994