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 September 30, 1998 OR ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File Number 0-5464 (LOGO) MASSACHUSETTS ELECTRIC COMPANY (Exact name of registrant as specified in charter) MASSACHUSETTS 04-1988940 (State or other (I.R.S. Employer jurisdiction of Identification No.) incorporation or organization) 25 Research Drive, Westborough, Massachusetts 01582 (Address of principal executive offices) Registrant's telephone number, including area code (508-389-2000) 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 ( ) Common stock, par value $25 per share, authorized and outstanding: 2,398,111 shares at September 30, 1998. PART I FINANCIAL INFORMATION Item 1. Financial Statements - ---------------------------- MASSACHUSETTS ELECTRIC COMPANY Statements of Income Periods Ended September 30 (Unaudited) Quarter Nine Months ------- ----------- 1998 1997 1998 1997 ---- ---- ---- ---- (In Thousands) Operating revenue $380,409 $404,990 $1,139,012 $1,180,050 -------- -------- ---------- ---------- Operating expenses: Purchased electric energy, principally from New England Power Company, an affiliate 238,593 302,596 749,858 862,288 Other operation 74,818 51,398 201,816 149,478 Maintenance 7,867 8,185 25,215 24,489 Depreciation 16,171 12,638 46,865 37,714 Taxes, other than income taxes 13,444 7,620 30,382 24,534 Income taxes 9,166 4,932 23,195 19,988 -------- -------- ---------- ---------- Total operating expenses 360,059 387,369 1,077,331 1,118,491 -------- -------- ---------- ---------- Operating income 20,350 17,621 61,681 61,559 Other income (expense), net (91) (198) (3,418) (2,305) -------- -------- ---------- ---------- Operating and other income 20,259 17,423 58,263 59,254 -------- -------- ---------- ---------- Interest: Interest on long-term debt 6,673 6,688 20,214 20,775 Other interest 1,848 2,790 5,179 6,761 Allowance for borrowed funds used during construction - credit (182) (96) (473) (312) -------- -------- ---------- ---------- Total interest 8,339 9,382 24,920 27,224 -------- -------- ---------- ---------- Net income $ 11,920 $ 8,041 $ 33,343 $ 32,030 ======== ======== ========== ========== Statements of Retained Earnings Retained earnings at beginning of period $196,918 $171,581 $ 201,156$ 165,936 Net income 11,920 8,041 33,343 32,030 Dividends declared on cumulative preferred stock (240) (779) (720) (2,336) Dividends declared on common stock (11,990) (2,398) (37,171) (19,185) Premium on redemption of preferred stock (29) - (29) - -------- -------- ---------- ---------- Retained earnings at end of period $196,579 $176,445 $ 196,579 $ 176,445 ======== ======== ========== ========== The accompanying notes are an integral part of these financial statements. Per share data is not relevant because the Company's common stock is wholly owned by New England Electric System. MASSACHUSETTS ELECTRIC COMPANY Statements of Income Twelve Months Ended September 30 (Unaudited) 1998 1997 ---- ---- (In Thousands) Operating revenue $1,583,047 $1,570,747 ---------- ---------- Operating expenses: Purchased electric energy, principally from New England Power Company, an affiliate 1,032,617 1,131,940 Other operation 269,488 208,286 Maintenance 37,632 32,504 Depreciation 58,845 48,959 Taxes, other than income taxes 36,991 31,238 Income taxes 45,661 32,308 ---------- ---------- Total operating expenses 1,481,234 1,485,235 ---------- ---------- Operating income 101,813 85,512 Other income (expense), net (2,649) (1,002) ---------- ---------- Operating and other income 99,164 84,510 ---------- ---------- Interest: Interest on long-term debt 27,051 27,668 Other interest 5,632 8,245 Allowance for borrowed funds used during construction - credit (590) (395) ---------- ---------- Total interest 32,093 35,518 ---------- ---------- Net income $ 67,071 $ 48,992 ========== ========== Statements of Retained Earnings Retained earnings at beginning of period $ 176,445 $ 156,947 Net income 67,071 48,992 Dividends declared on cumulative preferred stock (1,205) (3,115) Dividends declared on common stock (41,967) (26,379) Premium on redemption of preferred stock (3,765) - ---------- ---------- Retained earnings at end of period $ 196,579 $ 176,445 ========== ========== The accompanying notes are an integral part of these financial statements. Per share data is not relevant because the Company's common stock is wholly owned by New England Electric System. MASSACHUSETTS ELECTRIC COMPANY Balance Sheets (Unaudited) September 30, December 31, ASSETS 1998 1997 ------ ---- ---- (In Thousands) Utility plant, at original cost $1,603,922 $1,579,309 Less accumulated provisions for depreciation 487,715 465,796 ---------- ---------- 1,116,207 1,113,513 Construction work in progress 19,011 13,363 ---------- ---------- Net utility plant 1,135,218 1,126,876 ---------- ---------- Current assets: Cash 7,265 6,743 Accounts receivable: From sales of electric energy 174,777 158,627 Other (including $33,796,000 and $1,321,000 from affiliates) 35,163 2,112 Less reserves for doubtful accounts 14,890 12,808 ---------- ---------- 195,050 147,931 Unbilled revenues 52,702 49,513 Materials and supplies, at average cost 9,274 9,599 Prepaid and other current assets 15,097 22,255 ---------- ---------- Total current assets 279,388 236,041 ---------- ---------- Deferred charges and other assets 43,314 45,450 ---------- ---------- $1,457,920 $1,408,367 ========== ========== CAPITALIZATION AND LIABILITIES ------------------------------ Capitalization: Common stock, par value $25 per share, authorized and outstanding 2,398,111 shares $ 59,953 $ 59,953 Premiums on capital stocks 45,945 45,945 Other paid-in capital 193,498 193,224 Retained earnings 196,579 201,156 Unrealized gain on securities, net 165 129 ---------- ---------- Total common equity 496,140 500,407 Cumulative preferred stock 15,739 15,739 Long-term debt 328,438 338,387 ---------- ---------- Total capitalization 840,317 854,533 ---------- ---------- Current liabilities: Long-term debt due within one year 25,000 20,000 Short-term debt (including $52,950,000 and $4,800,000 to affiliates) 52,950 34,700 Accounts payable (including $112,820,000 and $179,211,000 to affiliates) 197,192 195,023 Accrued liabilities: Taxes 1,893 8,275 Interest 7,775 9,183 Other accrued expenses 64,933 22,081 Customer deposits 4,639 4,487 Dividends payable 240 5,036 ---------- ---------- Total current liabilities 354,622 298,785 ---------- ---------- Deferred federal and state income taxes 185,106 179,474 Unamortized investment tax credits 14,649 15,463 Other reserves and deferred credits 63,226 60,112 ---------- ---------- $1,457,920 $1,408,367 ========== ========== The accompanying notes are an integral part of these financial statements. MASSACHUSETTS ELECTRIC COMPANY Statements of Cash Flows Nine Months Ended September 30 (Unaudited) 1998 1997 ---- ---- (In Thousands) Operating Activities: Net income $ 33,343 $ 32,030 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 46,865 37,714 Deferred income taxes and investment tax credit, net 6,010 (6,915) Allowance for borrowed funds used during construction (473) (312) Decrease (increase) in accounts receivable, net and unbilled revenues (50,308) 31,681 Decrease (increase) in materials and supplies 325 (127) Decrease (increase) in prepaid and other current assets 7,158 1,271 Increase (decrease) in accounts payable 2,169 13,870 Increase (decrease) in other current liabilities 35,214 21,285 Other, net 7,755 14,157 -------- -------- Net cash provided by operating activities $ 88,058 $144,654 -------- -------- Investing Activities: Plant expenditures, excluding allowance for funds used during construction $(54,805) $(64,712) Other investing activities (3,539) (1,350) -------- -------- Net cash used in investing activities $(58,344) $(66,062) -------- -------- Financing Activities: Capital contributions from parent $ 274 $ - Dividends paid on common stock (41,967) (23,981) Dividends paid on preferred stock (720) (2,336) Long-term debt - issues 25,000 - Long-term debt - retirements (30,000) (30,000) Changes in short-term debt 18,250 (22,500) Premium on reacquisition of preferred stock (29) - -------- -------- Net cash used in financing activities $(29,192) $(78,817) -------- -------- Net increase (decrease) in cash and cash equivalents $ 522 $ (225) Cash and cash equivalents at beginning of period 6,743 2,356 -------- -------- Cash and cash equivalents at end of period $ 7,265 $ 2,131 ======== ======== The accompanying notes are an integral part of these financial statements. Note A - Hazardous Waste - ------------------------ The Federal Comprehensive Environmental Response, Compensation and Liability Act, more commonly known as the "Superfund" law, imposes strict, joint and several liability, regardless of fault, for remediation of property contaminated with hazardous substances. A number of states, including Massachusetts, have enacted similar laws. The electric utility industry typically utilizes and/or generates in its operations a range of potentially hazardous products and by-products. Massachusetts Electric Company (the Company) currently has in place an internal environmental audit program and an external waste disposal vendor audit and qualification program intended to enhance compliance with existing federal, state, and local requirements regarding the handling of potentially hazardous products and by-products. The Company has been named as a potentially responsible party (PRP) by either the United States Environmental Protection Agency or the Massachusetts Department of Environmental Protection for 16 sites at which hazardous waste is alleged to have been disposed. Private parties have also contacted or initiated legal proceedings against the Company regarding hazardous waste cleanup. The most prevalent types of hazardous waste sites with which the Company has been associated are manufactured gas locations. (Until the early 1970s, New England Electric System (NEES) was a combined electric and gas holding company system.) The Company is aware of approximately 35 such manufactured gas locations in Massachusetts. The Company has been identified as a PRP at eight of these manufactured gas locations, which are included in the 16 PRP sites discussed above. The Company is engaged in various phases of investigation and remediation work at 17 of the manufactured gas locations. The Company is currently aware of other possible hazardous waste sites, and may in the future become aware of additional sites, that it may be held responsible for remediating. In 1993, the Massachusetts Department of Public Utilities approved a settlement agreement regarding the rate recovery of remediation costs of former manufactured gas sites and certain other hazardous waste sites located in Massachusetts. Under that agreement, qualified remedial costs related to these sites are paid out of a special fund established on the Company's books. The Company made an initial $30 million contribution to the fund. Rate-recoverable contributions of $3 million, adjusted since 1993 for inflation, are added annually to the fund along with interest and any recoveries from insurance carriers and other third parties. At September 30, 1998, the fund had a balance of $46 million. Predicting the potential costs to investigate and remediate hazardous waste sites continues to be difficult. There are also significant uncertainties as to the portion, if any, of the investigation and remediation costs of any particular hazardous waste site that may ultimately be borne by the Company. The NEES companies have recovered amounts from certain insurers and other third parties, and, where appropriate, the Company intends to seek recovery from other insurers and from other PRPs, but it is uncertain whether, and to what extent, such efforts will be successful. At September 30, 1998, the Company had total reserves for environmental response costs of $47 million. This represents an increase from the $35 million balance at the end of 1997. Since all of the sites for which increased reserves were recognized are covered by rate agreements, this increase in the reserves did not have an adverse effect on net income. The Company believes that hazardous waste liabilities for all sites of which it is aware, and which are not covered by a rate agreement, are not material to its financial position. Note B - Comprehensive Income - ----------------------------- In the first quarter of 1998, the Company adopted Statement of Financial Accounting Standards No. 130, Reporting Comprehensive Income (FAS 130). FAS 130 establishes standards for reporting comprehensive income and its components. Comprehensive income for the period is equal to net income plus "other comprehensive income," which, for the Company, consists of the change in unrealized holding gains on available-for-sale securities during the period. Other comprehensive income was immaterial for the Company for the third quarter and nine month periods ended September 30, 1998 and 1997, respectively. Note C - New Accounting Standards - --------------------------------- In 1997, the Financial Accounting Standards Board (FASB) released Statement of Financial Accounting Standards No. 131, Disclosure about Segments of an Enterprise and Related Information (FAS 131), which goes into effect in 1998. FAS 131 requires the reporting in financial statements of certain new additional information about operating segments of a business. Application of FAS 131 is not required for interim reporting in the initial year of application. The Company is currently evaluating the impact that FAS 131 will have on its future reporting requirements. In February 1998, the FASB issued Statement of Financial Accounting Standards No. 132, Employers' Disclosures about Pensions and Other Postretirement Benefits (FAS 132), which revises disclosure requirements for pension and other postretirement benefits. The Company will adopt FAS 132 in its financial statements for the year ending December 31, 1998. The adoption of FAS 131 and FAS 132 will have no impact on the Company's operating results, financial position, or cash flows. In June 1998, the FASB issued Statement of Financial Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging Activities (FAS 133), which establishes accounting and reporting standards for such instruments. FAS 133 is effective for fiscal years beginning after June 15, 1999. Currently, the Company has no such derivative holdings. Note D - ------ In the opinion of the Company, these statements reflect all adjustments (which include normal recurring adjustments) necessary for a fair statement of the results of its operations for the periods presented and should be considered in conjunction with the notes to the financial statements in the Company's 1997 Annual Report. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations - ----------------------------------------------------------------- This section contains management's assessment of Massachusetts Electric Company's (the Company) financial condition and the principal factors having an impact on the results of operations. This discussion should be read in conjunction with the Company's financial statements and footnotes and the 1997 Annual Report on Form 10-K. Earnings - -------- Net income for the third quarter and first nine months of 1998 increased by $3.9 million and $1.3 million, respectively, as compared to the corresponding periods in 1997. These increases are primarily due to a rate increase implemented in March 1998, and increased kilowatthour (kWh) deliveries of 5.1 percent and 1.2 percent for the third quarter and year-to-date periods, respectively. In addition, during 1997 the Company experienced an underrecovery of purchased power costs in the third quarter, although an overrecovery of such costs existed for the year-to-date period in 1997. There is no such underrecovery or overrecovery of purchased power costs in 1998. This reflects the implementation of fully reconciling purchased power and transmission cost rate mechanisms in March 1998 as compared to partially reconciling mechanisms in place in 1997, as well as a retroactive purchased power billing adjustment from New England Power Company (NEP) in the first quarter of 1998. Earnings were reduced by one-time property tax adjustments paid in the third quarter of 1998 to certain municipalities, and increased depreciation expense. This report contains statements that may be considered forward looking under the securities laws. Actual results may differ materially, for reasons described in this report. Industry Restructuring - ---------------------- For a full discussion of industry restructuring activities in Massachusetts, stranded cost recovery, accounting implications of industry restructuring and divestiture, workforce reductions, and impact of industry restructuring on the distribution business, see the "Industry Restructuring" section in the Company's Form 10-K for 1997 and the Company's 1997 Annual Report. Divestiture of Generating Business On September 1, 1998, NEES subsidiaries NEP and The Narragansett Electric Company completed the sale of substantially all of their nonnuclear generating business to USGen New England, Inc. (USGen), an indirect wholly owned subsidiary of PG&E Corporation. Effective September 1, 1998, USGen and TransCanada Power Marketing, Ltd. (TCPM) became the Company's suppliers for meeting its obligations for transition service customers. For more information on the terms and events leading to the sale, the accounting implications of the sale, and the assets sold, see the Company's Annual Report on Form 10-K for the year ended December 31, 1997. Year 2000 Computer Issues - ------------------------- Over the next year, most companies will face a potentially serious information systems (computer) problem because many software applications and operational programs written in the past may not properly recognize calendar dates associated with the year 2000 (Y2K). This could cause computers to either shut down or lead to incorrect calculations. During 1996, the NEES companies began the process of identifying the changes required to their computer software and hardware to mitigate Y2K issues. The NEES companies established a Y2K Project team to manage these issues. This team reports project progress to a recently formed Y2K Executive Oversight Committee each month. The team also makes regular reports to NEES' Board of Directors and its Audit Committee. The NEES companies have separated their Y2K Project into four parts as shown below, along with the estimated completion dates for each part. Substantial Contingency Testing, Completion Documentation, of Critical and Clean Category Specific Example Systems Management - ------- ------------- --------- ---------------- Mainframe/Midrange Accounting/Customer Fourth quarter Throughout 1999 Systems service integrated 1998 systems Desktop Systems Personal computers/ Mid-1999 Throughout 1999 Department software/ Networks Operational/ Dispatching systems/ Mid-1999 Throughout 1999 Embedded Transmission and Systems Distribution systems/ Telephone systems External Issues Electronic Data Mid-1999 Throughout 1999 Interchange/Vendor communications The NEES companies are using a three-phase approach in coordinating their Y2K Project for system-related issues: (I) Assessment and Inventory, (II) Pilot Testing, and (III) Renovation, Conversion, or Replacement of Application and Operating Software Packages and Testing. Phase I, which was an initial assessment of all systems and devices for potential Y2K defects, was completed in mid-1997. Phase II, which consisted of renovation pilots for a cross-section of systems in order to facilitate the establishment of templates for Phase III work, was completed in late 1997. Phase III, which is currently ongoing, requires the renovation, conversion, or replacement of the remaining applications and operating software packages. The NEES companies have also implemented a formalized communication process with third parties to receive information related to their progress in remediating their own Y2K issues, and to communicate the NEES companies' progress in addressing the Y2K issue. These third parties include major customers, suppliers, and significant businesses with which the NEES companies have data links (such as banks). The NEES companies cannot predict the outcome of other companies' remediation efforts. The NEES companies believe total costs associated with making the necessary modifications to all centralized and noncentralized systems will be approximately $25 million. In addition, the NEES companies are spending $4 million related to the implementation of a new human resources and payroll system, the replacement of which is in part due to the Y2K issue. To date, total Y2K-related costs of $19 million have been incurred, of which $1 million has been capitalized. The NEES companies are in the process of developing Y2K contingency plans to allow for critical information and operating systems to function from January 1, 2000 forward. If required, these plans are intended to address both internal risks as well as potential external risks related to both suppliers and customers. Part of the contingency planning for accounting and desktop systems will include taking extensive data back-ups prior to year-end closing. For operational systems, the NEES companies have in place an overall disaster recovery program, which already includes periodic disaster simulation training (for outages due to severe weather, for instance). As part of Y2K contingency planning, the NEES companies will review their disaster recovery plans, modifying them for Y2K-specific issues. The NEES companies expect that these contingency plans will be in place by mid-1999. Interregional and regional contingency plans are being formulated that address emergency scenarios due to the interconnection of utility systems throughout the United States. At a regional level, the NEES companies are participating and cooperating with the New England Power Pool (NEPOOL) and the Independent System Operator of the NEPOOL area (ISO New England). Overall regional activities, including those of NEPOOL and ISO New England, will be coordinated by the Northeast Power Coordinating Council, whose activities will be incorporated into the interregional coordinating effort by the North American Electric Reliability Council. The target for completion of this planning process is mid-1999. The NEES companies have noted that the Y2K coordination efforts by ISO New England began only in May 1998, resulting in a demanding and difficult schedule to attain regional and interregional target dates. The NEES companies believe the worst case scenario with a reasonable chance of occurring is temporary disruptions of electric service. This scenario could result from a failure to adequately remediate Y2K problems at NEES company facilities or could be caused by the inability of entities, such as ISO New England, to maintain the short-term reliability of various generators and/or transmission lines on a regional or superregional basis. The NEES companies believe that the contingency plans being developed both internally and on a regional level, as described above, should substantially mitigate the risks of this potential scenario. In the event that a short-term disruption in service occurs, the Company does not expect that it would have a material impact on its financial position and results of operations. While the NEES companies believe that their overall Y2K program will satisfactorily address all critical operational and system-related issues, significant risks remain. These risks include, but are not limited to, the Y2K readiness of third parties, including other utilities and power suppliers, cost and timeline estimates of remaining Y2K mitigation efforts, and the overall accuracy of assumptions made related to future events in the development of the Y2K mitigation effort. Operating Revenue - ----------------- The following table summarizes the changes in operating revenue: Increase (Decrease) in Operating Revenue Third Quarter Nine Months ------------- ------------ 1998 vs 1997 1998 vs 1997 ------------- ------------ (In Millions) Purchased power and transmission-related $(34) $(72) 1997 Purchased power cost adjustment (PPCA) mechanism (2) 7 Distribution rate increase 11 26 KWh deliveries to ultimate customers 4 2 Other (4) (4) ---- ---- $(25) $(41) ==== ==== Historically, the Company purchased all of its electrical requirements from NEP under the provisions of an all-requirements contract at NEP's standard resale rate. Effective March 1, 1998, the contract was amended, terminating the all-requirements provision of the contract. The Company's customers also gained the right to choose their power supplier. NEP continued to supply power to the Company, at lower rates, for customers that continued to take power from the Company, until September 1, 1998, when USGen and TCPM became the Company's wholesale power suppliers. All customers pay rates that include contract termination charges due NEP for its generation-related stranded costs. Commencing in March 1998, the revenues that the Company is billing to its customers related to NEP's costs are all subject to true-up mechanisms based on NEP's actual billings. The revenues that the Company bills customers, related to power supply costs both prior to and subsequent to NEP's sale of its nonnuclear generating business, are also subject to true-up mechanisms. Prior to March, only the fuel component of purchased power expense was subject to a similar fully reconciling true-up mechanism. The remainder of purchased power expense had previously been subject to a partial PPCA true-up mechanism. The Massachusetts Settlement provided for the end of the Company's PPCA mechanism in 1996. Prior to Federal Energy Regulatory Commission approval, which occurred in the fourth quarter of 1997, PPCA refund provisions continued to be accrued. In the third quarter, revenues of approximately $2 million were recorded, resulting in net refund provisions of $7 million accrued for the first nine months of 1997, which were subsequently reversed in the fourth quarter of 1997. In March 1998, the Company also put into effect a $45 million rate increase. This increase reflects changes to the distribution cost of service that include an $11 million increase in annual depreciation expense, a $3 million annual contribution to a storm fund, and increased amortization of unfunded deferred income taxes of approximately $1 million per year over six years. The third quarter and year-to-date increase in revenues related to kWh deliveries to ultimate customers reflects an increase of 5.1 percent and 1.2 percent in kWh deliveries, respectively, primarily due to warmer weather in the third quarter of 1998 as compared to the corresponding period in 1997. The year-to-date increase is driven entirely by the third quarter increase. The decrease in other revenues is primarily due to a reduction in demand-side management revenues and other miscellaneous revenues. Operating Expenses - ------------------ The following table summarizes the changes in operating expenses: Increase (Decrease) in Operating Expenses Third Quarter Nine Months ------------- ------------ 1998 vs 1997 1998 vs 1997 ------------- ------------ (In Millions) Purchased power and operation and maintenance: Purchased power and transmission costs $(45) $(64) Other 4 5 Depreciation 4 9 Taxes 10 9 ---- ---- $(27) $(41) ==== ==== As noted above, effective March 1, 1998, purchased power billings to the Company were significantly changed in connection with the restructuring of the electric utility industry in Massachusetts. Not only were NEP's rates reduced but the transmission portion of NEP's costs are now billed separately and recorded in operation and maintenance expense instead of as a component of purchased power expense. Partially offsetting these decreases in expense was a retroactive billing by NEP in February 1998 related to certain meter reading corrections which increased purchased power expense by approximately $2 million. The increase in other operation and maintenance expense primarily reflects increased distribution-related and general and administrative expenses, partially offset by lower charges for postretirement benefits other than pensions expense and lower uncollectible accounts expense. The increase in depreciation expense primarily reflects a portion of the $11 million increase in annual depreciation expense provided for in the Massachusetts industry restructuring settlement, and depreciation expense on new utility plant expenditures. The increase in taxes is related to additional property tax payments made during the third quarter to certain municipalities to reflect corrections identified by the Company related to plant valuation amounts used in the calculation of property taxes by those municipalities. These revised valuation amounts are expected to have a continuing impact on property taxes paid by the Company. Utility Plant Expenditures and Financing - ---------------------------------------- Cash expenditures for utility plant totaled $55 million for the first nine months of 1998. The funds necessary for utility plant expenditures during the period were primarily provided by net cash from operating activities, after the payment of dividends, and increased short-term debt. In the first nine months of 1998, the Company issued $25 million of long-term debt, retired $30 million of mortgage bonds and increased its short-term debt outstanding by $18 million. At September 30, 1998, the Company had lines of credit with banks totaling $65 million which are available to provide liquidity support and for other corporate purposes. There were no borrowings under these lines of credit at September 30, 1998. In October 1998, the Company repurchased or redeemed preferred stock with a par value of $5.1 million. For the twelve-month period ended September 30, 1998, the ratio of earnings to fixed charges was 4.42. PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K - ----------------------------------------- The Company is filing the following revised exhibit for incorporation by reference into its registration statement on Form S-3, Commission File No. 33-59145. 12 Statement re computation of ratios The Company is filing Financial Data Schedules. The Company did not file any reports on Form 8-K during the third quarter of 1998. SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report on Form 10-Q for the quarter ended September 30, 1998 to be signed on its behalf by the undersigned thereunto duly authorized. MASSACHUSETTS ELECTRIC COMPANY s/John G. Cochrane John G. Cochrane, Treasurer, Authorized Officer, and Principal Financial Officer Date: November 12, 1998