ANNUAL REPORT 1994
MASSACHUSETTS ELECTRIC COMPANY
A Subsidiary of
New England Electric System
[LOGO] Massachusetts Electric
A New England Electric System company
MASSACHUSETTS ELECTRIC COMPANY
25 Research Drive
Westborough, Massachusetts 01582
Directors
(As of December 31, 1994)
Urville J. Beaumont Patricia McGovern
Treasurer and Director, Beaumont Of Counsel, Goulston and Storrs, P.C.,
and Campbell, P.A. (Attorneys), Boston, Massachusetts
Salem, New Hampshire
John F. Reilly
Joan T. Bok President and Chief Executive Officer
Chairman of the Board of New of Fred C. Church, Inc., Lowell,
England Electric System Massachusetts
Sally L. Collins John W. Rowe
Director--Workplace Health Services, President and Chief Executive Officer
Greenfield, Massachusetts of New England Electric System
John H. Dickson Richard P. Sergel
President and Chief Executive Chairman of the Company and Vice
Officer of the Company President of New England Electric
System
Charles B. Housen
Chairman and President, Erving Richard M. Shribman
Industries, Erving, Massachusetts Treasurer, Norick Realty Corporation,
Salem, Massachusetts
Dr. Kathryn A. McCarthy
Research Professor of Physics, Roslyn M. Watson
Tufts University, Medford, President, Watson Ventures, Boston,
Massachusetts Massachusetts
Officers
(As of December 31, 1994)
Richard P. Sergel Anthony C. Pini
Chairman of the Company and Vice President
Vice President of New England
Electric System Nancy H. Sala
Vice President
John H. Dickson
President and Chief Executive Dennis E. Snay
Officer Vice President
David L. Holt Michael E. Jesanis
Executive Vice President Treasurer of the Company and of New
England Electric System
John C. Amoroso
Vice President Robert King Wulff
Clerk of the Company and of certain
Peter H. Gibson affiliates
Vice President
Howard W. McDowell
Gregory A. Hale Controller and Assistant Treasurer of
Vice President the Company and Controller of certain
affiliates
Cheryl A. LaFleur
Vice President Frederic E. Greenman
Assistant Clerk and General Counsel of
Robert H. McLaren the Company and Senior Vice President,
Vice President General Counsel, and Secretary of New
England Electric System
Charles H. Moser
Vice President
Lydia M. Pastuszek
Vice President of the Company and
President of an affiliate
Transfer Agent, Dividend Paying Agent, and Registrar of Preferred Stock
State Street Bank and Trust Company, Boston, Massachusetts
This report is not to be considered an offer to sell or buy or solicitation of
an offer to sell or buy any security.
MASSACHUSETTS ELECTRIC COMPANY
Massachusetts Electric Company is a wholly-owned subsidiary of New
England Electric System operating in Massachusetts. The Company's business
is the distribution and sale of electricity at retail. Electric service is
provided to approximately 940,000 customers in 149 cities and towns having
a population of about 2,160,000 (1990 Census). The Company's service area
covers approximately 43 percent of Massachusetts. The cities and towns
served by the Company include the highly diversified commercial and
industrial cities of Worcester, Lowell, and Quincy, the Interstate 495 high
technology belt, suburban communities, and many rural towns. The principal
industries served include computer manufacturing and related businesses,
electrical and industrial machinery, plastic goods, fabricated metals and
paper, and chemical products. In addition, a broad range of professional,
banking, medical, and educational institutions is served.
The properties of the Company consist principally of substations and
distribution lines interconnected with transmission and other facilities of
New England Power Company (NEP), an affiliate. The Company buys its electric
energy requirements from NEP under a contract which obligates NEP to furnish
such requirements at its standard resale rate. The Company participates
through NEP in the New England Power Pool, which provides for the
coordination of the planning and operation of the generation and transmission
facilities in New England, and the region-wide central dispatch of
generation.
Report of Independent Accountants
Massachusetts Electric Company, Westborough, Massachusetts:
We have audited the accompanying balance sheets of Massachusetts
Electric Company (the Company), a wholly-owned subsidiary of New England
Electric System, as of December 31, 1994 and 1993 and the related statements
of income, retained earnings, and cash flows for each of the three years in
the period ended December 31, 1994. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of the Company as
of December 31, 1994 and 1993, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 1994 in
conformity with generally accepted accounting principles.
Boston, Massachusetts COOPERS & LYBRAND L.L.P.
February 27, 1995
MASSACHUSETTS ELECTRIC COMPANY
Financial Review
Overview
Net income for 1994 increased by $11 million compared with 1993. The
increase was primarily due to the inclusion in 1993 of one-time charges
associated with an early retirement program and the establishment of
additional gas waste reserves. In addition, the increase in 1994 earnings
reflects increased kilowatthour (KWH) sales. These factors were partially
offset by increased operation and maintenance expenses excluding the effect
of the one-time charges discussed above.
Net income decreased in 1993 by $11 million compared with 1992 primarily
due to the 1993 one-time charges mentioned above. The Company also
experienced an increase in purchased power expense due to increased
peak-demand billings. This decrease was partially offset by a $45.6 million
October 1992 rate increase, the effects of a 1993 rate agreement, and an
increase in KWH sales billed to ultimate customers.
Rate Activity
On March 15, 1995, the Company filed a request with the Massachusetts
Department of Public Utilities (MDPU) to increase its base rates by $62
million, effective October 1, 1995. As an alternative to this proposed
increase, the Company filed an incentive rate plan which would increase rates
by about $30 million effective October 1, 1995. Under the proposed incentive
rate plan, subsequent base rate adjustments could occur annually on May 1 and
would be based on a comparison of the Company's rates to rates of all
electric utilities in Massachusetts. The Company is the first electric
utility in the state to file under the MDPU's incentive ratemaking guidelines
issued in February 1995.
The Company also proposed a new discount program for large industrial
customers that are willing to make a minimum annual usage commitment for a
period of five years. The discounts would range from 5 percent to 12.5
percent of base rates depending on a customer's level of commitment. The
Company expects an MDPU decision on its filing in late September 1995.
In 1993, the MDPU approved a rate agreement filed by the Company, the
Massachusetts Attorney General, and two groups of large commercial and
industrial customers.
Under the agreement, effective December 1, 1993, the Company implemented
an 11 month general rate decrease of $26 million (annual basis). This rate
reduction continued in effect through October 31, 1994, at which time rates
increased to the previously approved levels. The Company also agreed not to
further increase its base rates before October 1, 1995. The agreement also
provided for the recognition of unbilled revenues for accounting purposes.
Unbilled revenues at September 30, 1993 of approximately $35 million were
amortized to income over 13 months commencing December 1993.
The agreement further provided for rate discounts for large commercial
and industrial customers who signed agreements to give a five-year notice to
the Company before they purchase power from another supplier or generate any
additional power themselves. The notice provision may be reduced from five
to three years under certain conditions. The aggregate amount of these
service extension discounts was $4 million during 1994 but will increase in
1995 to approximately $10 million per year under the terms of the agreement.
Customers representing approximately 88 percent of revenue from currently
eligible large commercial and industrial customers have signed these
agreements. The discounts are currently available to customers with average
monthly peak demands over 500 kilowatts. However, as part of its March 1995
rate filing with the MDPU, the Company proposed expanding this program to
customers with average monthly peak demands over 200 kilowatts. In addition,
commencing in 1995 the cost of these discounts is being passed on to New
England Power Company (NEP), the Company's affiliated wholesale power
supplier. This is the result of a NEP rate settlement that was approved by
the Federal Energy Regulatory Commission (FERC) in early 1995. The 1993
agreement also resolved all rate recovery issues associated with
environmental remediation costs of Massachusetts manufactured gas waste sites
formerly owned by the Company and its affiliates, as well as certain other
environmental cleanup costs (see "Hazardous Waste" section). Lastly, the
agreement provided for the rate recovery of $8 million of certain storm
restoration and other costs previously charged to expense. The deferral of
these expenses increased 1993 fourth quarter earnings.
Effective October 1992, the MDPU authorized a $45.6 million annual
increase in rates for the Company.
Demand-Side Management
The Company regularly files its demand-side management (DSM) programs
with the MDPU and has received approval to recover DSM program expenditures
in rates on a current basis. These expenditures were $59 million, $47
million, and $44 million in 1994, 1993, and 1992, respectively. Since 1990,
the Company has been allowed to earn incentives based on the results of its
DSM programs. The Company must be able to demonstrate the electricity
savings produced by its DSM programs to the MDPU before incentives are
recorded. The Company recorded before-tax incentives of $7.1 million, $6.7
million, and $8.6 million in 1994, 1993, and 1992, respectively. The Company
has received regulatory orders that will give it the opportunity to continue
to earn incentives based on 1995 DSM program results.
Operating Revenue
The following table summarizes the changes in operating revenue:
Increase (Decrease) in Operating Revenue
----------------------------------------
(In Millions) 1994 1993
- ------------- ---- ----
Sales growth $ 12 $10
General rate changes (22) 33
Unbilled revenues 21 11
Purchased power cost adjustment (PPCA) mechanism 7 (6)
DSM recovery 12 2
Fuel recovery (16) 6
---- ----
$ 14 $56
==== ====
KWH sales increased by 1.8 percent in 1994 compared with a 0.9 percent
increase in 1993. The increase in KWH sales in 1994 reflects an improved
economy.
The Company's rates contain a fuel clause and a PPCA provision. These
mechanisms are designed to allow the Company to pass on to its customers
changes in purchased energy costs resulting from rate increases or decreases
by NEP, the Company's affiliated wholesale power supplier.
General rate changes in 1994 reflect an 11 month rate decrease which
went into effect on December 1, 1993. The agreement also provided for the
recognition of unbilled revenues. For a further discussion, see the "Rate
Activity" section.
General rate changes in 1993 reflect general rate increases which went
into effect in October 1992.
Operating Expenses
The following table summarizes the changes in total operating expenses
discussed below:
Increase (Decrease) in Operating Expenses
-----------------------------------------
(In Millions) 1994 1993
- ------------ ---- ----
Purchased electric energy:
Fuel costs $(16) $ 6
NEP refunds 4 1
Purchases and demand charges from NEP 4 9
Other operation and maintenance:
DSM 11 4
Other (17) 48
Depreciation 2 2
Taxes 13 (5)
---- ----
$ 1 $65
==== ====
The changes in fuel costs in 1994 and 1993 are the result of changes in
the amount of New England Energy Incorporated (NEEI) costs passed through by
NEP. NEEI is an affiliated company involved in oil and gas exploration and
development. The 1994 decrease also reflects a reduction in the fuel
component of NEP's purchased electric energy costs. In addition, the
increase in fuel costs in 1993 reflects increased KWH purchases.
The changes in other operation and maintenance expense in 1994 and 1993
are primarily the result of 1993 one-time charges of $26 million for the
establishment of additional gas waste reserves and $13 million associated
with an early retirement program, partially offset by the effects in the
fourth quarter of 1993 of the Company's rate agreement which allowed recovery
of amounts previously charged to expense (see "Rate Activity" section).
Other operation and maintenance expense in 1994 and 1993 also included
increased computer system development costs, increased postretirement benefit
expenses, and general increases in other areas. The increase in 1993 also
included increased uninsured claims and increased costs associated with the
adoption of a new accounting standard for postemployment benefits.
The increase in taxes in 1994 was primarily due to increased income and
increased municipal property tax accruals.
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. New
England Electric System (NEES) subsidiaries currently have in place an
environmental audit 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 U.S. Environmental Protection Agency or the Massachusetts
Department of Environmental Protection for 17 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. The Company is
aware of approximately 35 such locations in Massachusetts (including seven
of the 17 locations for which the Company is a PRP). The Company is
currently aware of other sites, and may in the future become aware of
additional sites, that it may be held responsible for remediating.
In 1993, the MDPU approved a rate agreement filed by the Company (see
"Rate Activity" section) that allows for remediation costs of former
manufactured gas sites and certain other hazardous waste sites located in
Massachusetts to be met from a non-rate recoverable interest-bearing fund of
$30 million established on the Company's books. Rate recoverable
contributions of $3 million, adjusted for inflation, are added to the fund
annually in accordance with the agreement. Any shortfalls in the fund would
be paid by the Company and be recovered through rates over seven years.
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. Where appropriate, the Company intends to seek recovery from
its insurers and from other PRPs, but it is uncertain whether and to what
extent such efforts would be successful. At December 31, 1994, the Company
had total reserves for environmental response costs of $35 million and a
related regulatory asset of $9 million. The Company believes that hazardous
waste liabilities for all sites of which it is aware, and which are not
covered by a rate agreement, will not be material to its financial position.
Electric and Magnetic Fields (EMF)
In recent years, concerns have been raised about whether EMF, which
occur near transmission and distribution lines as well as near household
wiring and appliances, cause or contribute to adverse health effects.
Numerous studies on the effects of these fields, some of them sponsored by
electric utilities (including NEES companies), have been conducted and are
continuing. Some of the studies have suggested associations between certain
EMF and health effects, including various types of cancer, while other
studies have not substantiated such associations. It is impossible to
predict the ultimate impact on the Company and the electric utility industry
if further investigations were to demonstrate that the present electricity
delivery system is contributing to increased risk of cancer or other health
problems.
Many utilities, including the NEES companies, have been contacted by
customers regarding a potential relationship between EMF and adverse health
effects. To date, no court in the United States has ruled that EMF from
electrical facilities cause adverse health effects and no utility has been
found liable for personal injuries alleged to have been caused by EMF. In
any event, the Company believes that it currently has adequate insurance
coverage for personal injury claims.
Several state courts have recognized a cause of action for damage to
property values in transmission line condemnation cases based on the fear
that power lines cause cancer. It is difficult to predict what the impact
on the Company would be if this cause of action is recognized in
Massachusetts and in contexts other than condemnation cases.
Legislation has been introduced in Massachusetts that, if passed, would
require state agencies to study existing EMF-related research and make
recommendations for further legislation.
Competitive Conditions
The electric utility business is being subjected to increasing
competitive pressures, stemming from a combination of trends, including
increasing electric rates, improved technologies, and new regulations and
legislation intended to foster competition. To date, this competition has
been most prominent in the bulk power market in which non-utility generating
sources have noticeably increased their market share. For example, since
non-utilities were allowed to enter the wholesale generation market,
two-thirds of NEP's new generating capability has come from independent
generating sources and Hydro-Quebec.
Electric utilities are also facing increased competition in the retail
market. Currently, retail competition includes competition with alternative
fuel suppliers (including natural gas companies) for heating and cooling,
competition with customer-owned generation to displace purchases from
electric utilities, and direct competition among electric utilities to
attract major new facilities to their service territories. Electric
utilities, including the Company, are under increasing pressure from large
commercial and industrial customers to discount rates or face the possibility
that such customers might relocate or seek alternate suppliers. Across the
country, including Massachusetts and the other states in which the Company's
affiliates operate, there have been an increasing number of proposals to
allow retail customers to choose their electricity supplier, with utilities
required to deliver that electricity over their transmission and distribution
systems. The Massachusetts Division of Energy Resources (DOER) proposed in
January 1995 that the MDPU modify its regulations to allow retail utility
customers to choose a supplier and bid for access to the local utility's
transmission and distribution systems in situations where new generating
capacity is needed. The NEES companies have indicated their support for the
DOER proposal. The Company has announced plans to propose a limited bidding
experiment consistent with the DOER proposal. In addition, the MDPU
initiated a proceeding in February 1995 regarding electric industry
regulation and structure. In Rhode Island, the Rhode Island Public Utilities
Commission has convened a task force of utilities, commercial and industrial
customers, regulators, and other interested parties to prepare a report by
May 1995 regarding restructuring the industry. In New Hampshire, the New
Hampshire Public Utilities Commission is considering the proposal of a new
company to sell electricity at retail to large customers in New Hampshire.
The impact of increased customer choice on the financial condition of
utilities is uncertain. In recent years, substantial surplus generating
capacity in the Northeast has resulted in the sale of bulk power by utilities
to other utilities at prices substantially below the total costs of owning
and operating, or contracting for, such generating capacity. Should retail
customers gain access to the bulk power market, particularly while surplus
capacity exists, it is unlikely that utilities would be able to charge power
prices which fully cover their costs. Such unrecovered costs, which could
be substantial, have been referred to by the industry as stranded costs.
Whether and to what extent utilities should be able to recover stranded
costs resulting from increased customer choice has been the subject of much
debate. In 1994, the FERC issued a notice of proposed rule-making on the
recovery of stranded costs. The NEES companies and other utilities have
taken the position that when a regulatory body changes policies which govern
customer choice and the resultant rates paid by customers, utilities must be
compensated for commitments made under the former policies. Furthermore, the
utility industry believes that recovery of stranded costs is necessary to
promote efficient competition among market participants. Previously, the
FERC ruled in 1992, in a proceeding not involving NEES subsidiaries, that a
utility may recover such stranded costs from a departing wholesale
requirements customer. On appeal, the United States Court of Appeals for the
District of Columbia Circuit has questioned whether allowing utilities to
recover stranded costs is anti-competitive and the Court remanded the case
back to the FERC for further proceedings and development of the competitive
issues.
In addition to the arguments described above, the NEES companies have
taken the position that, because utility transmission and distribution assets
have a replacement value in excess of their historic costs (on which utility
rates are set), utilities should have the ability to recover stranded
generation-related costs by realizing the higher value of transmission and
distribution assets. The NEES companies have stated their willingness, in
order to assure stranded cost recovery and promote increased competition, to
consider divesting their transmission system, either through sale or spinoff.
The NEES companies are actively responding to current and anticipated
competitive pressures in a variety of ways, including cost control and a 1993
corporate reorganization into separate retail and wholesale business units.
The retail business unit, which includes the Company, is responding to
competition through the development of an EnergyFIT program, which offers
comprehensive value-added services for large business customers, intensified
business development efforts, including economic development rates and
service packages to encourage businesses to locate in the Company's service
territory, and development of new pricing and service options for customers.
Additionally, customers representing approximately 88 percent of the
Company's currently eligible revenues have signed service extension discount
contracts providing for discounts in exchange for agreements requiring three
to five years notice before they may change electricity suppliers (see "Rate
Activity" section). As part of their long-term planning process, the NEES
companies are from time to time evaluating other strategies, such as business
combinations and other forms of restructuring, to better respond to the
changing competitive environment.
Since the largest component of the Company's costs is represented by the
cost of power purchased from NEP, its competitive position is affected by
NEP's ability to control costs. NEP is controlling costs and positioning
itself for increased competition by freezing base rates until at least 1997
(wholesale base rates were last raised in March 1992), terminating certain
purchased power and gas pipeline contracts, shutting down uneconomic
generating stations, and accelerating the recovery of uneconomic assets and
other deferred costs. In addition, NEP's wholesale tariff requires its
wholesale customers, including the Company and NEES's other retail
subsidiaries, to provide seven years notice before they may terminate the
tariff.
Electric utility rates are generally based on a utility's costs. As a
result, electric utilities are subject to certain accounting standards that
are not applicable to other business enterprises in general. These
accounting rules require regulated entities, in appropriate circumstances,
to establish regulatory assets and liabilities, which defer the income
statement impact of certain costs that are expected to be recovered in future
rates. The effects of competition could ultimately cause the operations of
the Company, or a portion thereof, to cease meeting the criteria for
application of these accounting rules. In such an event, accounting
standards applicable to enterprises in general would apply and immediate
write-off of any previously deferred costs (regulatory assets) would be
necessary in the year in which these criteria were no longer applicable. In
addition, if, because of competition, utilities are unable to recover all of
their costs in rates, it may be necessary to write off those costs that are
not recoverable.
Utility Plant Expenditures and Financings
Cash expenditures for utility plant totaled $94 million in 1994. The
funds necessary for utility plant expenditures during 1994 were primarily
provided by net cash from operating activities, after the payment of
dividends, and long-term and short-term debt issues. Cash expenditures for
utility plant for 1995 are estimated to be approximately $105 million.
Internally generated funds are expected to meet approximately 65 percent of
capital expenditure requirements in 1995.
In 1994, the Company issued $36 million of first mortgage bonds, bearing
interest rates ranging from 7.05 percent to 8.85 percent. The Company has
issued $48 million of long-term debt to date in 1995 at interest rates
ranging from 7.79 percent to 8.46 percent, and plans to issue an additional
$42 million of long-term debt later in 1995 to meet maturing long-term debt
obligations and fund capital expenditures.
At December 31, 1994, the Company had $82 million of short-term debt
outstanding including $73 million in the form of commercial paper borrowings
and $9 million of borrowings from affiliates. As of December 31, 1994, the
Company had lines of credit with banks totaling $90 million which are
available to provide liquidity support for commercial paper borrowings and
other corporate purposes. There were no borrowings under these lines of
credit at December 31, 1994.
March 20, 1995
MASSACHUSETTS ELECTRIC COMPANY
Statements of Income
Year Ended December 31,
(In Thousands)
------------------------------------
1994 1993 1992
---- ---- ----
Operating revenue $1,482,070 $1,468,540 $1,412,948
---------- ---------- ----------
Operating expenses:
Purchased electric energy, principally
from New England Power Company,
an affiliate 1,074,402 1,081,918 1,065,189
Other operation 215,794 229,438 171,326
Maintenance 35,502 28,168 34,166
Depreciation 42,775 40,848 39,200
Taxes, other than income taxes 28,664 26,527 23,041
Income taxes 22,265 11,055 19,915
---------- ---------- ----------
Total operating expenses 1,419,402 1,417,954 1,352,837
---------- ---------- ----------
Operating income 62,668 50,586 60,111
Other income (expense) - net, including
related taxes (995) (64) 147
---------- ---------- ----------
Operating and other income 61,673 50,522 60,258
---------- ---------- ----------
Interest:
Interest on long-term debt 20,967 23,403 21,910
Other interest 6,366 3,638 3,657
Allowance for borrowed funds used during
construction - credit (386) (298) (214)
---------- ---------- ----------
Total interest 26,947 26,743 25,353
---------- ---------- ----------
Net income $ 34,726 $ 23,779 $ 34,905
========== ========== ==========
Statements of Retained Earnings
Year Ended December 31,
(In Thousands)
------------------------------------
1994 1993 1992
---- ---- ----
Retained earnings at beginning of year $ 135,276 $ 134,670 $ 125,976
Net income 34,726 23,779 34,905
Dividends declared on cumulative
preferred stock (3,114) (3,772) (3,428)
Dividends declared on common stock,
$12.50, $7.75, and $9.50 per share,
respectively (29,977) (18,585) (22,783)
Premium on redemption of preferred stock (816)
---------- ---------- ----------
Retained earnings at end of year $ 136,911 $ 135,276 $ 134,670
========== ========== ==========
The accompanying notes are an integral part of these financial statements.
MASSACHUSETTS ELECTRIC COMPANY
Balance Sheets
At December 31,
(In Thousands)
------------------------
1994 1993
---- ----
Assets
Utility plant, at original cost $1,346,824 $1,279,194
Less accumulated provisions for depreciation 373,501 352,467
---------- ----------
973,323 926,727
Construction work in progress 22,672 18,558
---------- ----------
Net utility plant 995,995 945,285
---------- ----------
Current assets:
Cash 1,225 773
Accounts receivable:
From sales of electric energy 137,431 142,532
Other (including $6,609,000 and $3,517,000
from affiliates) 36,022 22,881
Less reserves for doubtful accounts 10,394 10,534
---------- ----------
163,059 154,879
Unbilled revenues (Note A-2) 42,800 43,400
Materials and supplies, at average cost 11,524 10,601
Prepaid and other current assets 21,583 19,990
---------- ----------
Total current assets 240,191 229,643
---------- ----------
Deferred charges and other assets (Note A-6) 59,536 57,376
---------- ----------
$1,295,722 $1,232,304
========== ==========
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 45,862 45,862
Other paid-in capital 141,310 141,310
Retained earnings 136,911 135,276
---------- ----------
Total common equity 384,036 382,401
Cumulative preferred stock (Note G) 50,000 50,000
Long-term debt 265,631 264,719
---------- ----------
Total capitalization 699,667 697,120
---------- ----------
Current liabilities:
Long-term debt due in one year 35,000
Short-term debt (including $8,650,000 and
$8,350,000 to affiliates) 81,820 37,925
Accounts payable (including $157,076,000 and
$160,852,000 to affiliates) 182,102 178,117
Accrued liabilities:
Taxes 906 1,133
Interest 7,945 6,784
Other accrued expenses (Note A-7) 27,132 69,823
Customer deposits 4,985 5,907
Dividends payable 13,968 5,575
---------- ----------
Total current liabilities 353,858 305,264
---------- ----------
Deferred federal and state income taxes 176,913 146,414
Unamortized investment tax credits 18,816 20,044
Other reserves and deferred credits 46,468 63,462
Commitments and contingencies (Note C)
---------- ----------
$1,295,722 $1,232,304
========== ==========
The accompanying notes are an integral part of these financial statements.
MASSACHUSETTS ELECTRIC COMPANY
Statements of Cash Flows
Year Ended December 31,
(In Thousands)
------------------------------------
1994 1993 1992
---- ---- ----
Operating activities:
Net income $ 34,726 $ 23,779 $ 34,905
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation 42,775 40,848 39,200
Deferred income taxes and
investment tax credits - net 28,909 3,126 15,252
Allowance for borrowed funds
used during construction (386) (298) (214)
Amortization of unbilled revenues (32,300) (2,700)
Early retirement program 7,665
Decrease (increase) in accounts
receivable, net and unbilled
revenues (7,580) (46,434) (20,266)
Decrease (increase) in materials and
supplies (923) (682) 221
Decrease (increase) in prepaid and
other current assets (1,593) 6,229 (24,806)
Increase (decrease) in accounts
payable 3,985 (9,112) 5,678
Increase (decrease) in other current
liabilities (10,379) 32,507 2,804
Other, net (12,982) 14,723 (1,692)
-------- -------- --------
Net cash provided by operating
activities $ 44,252 $ 69,651 $ 51,082
-------- -------- --------
Investing activities:
Plant expenditures, excluding allowance
for funds used during construction $(94,105) $(80,473) $(80,547)
Other investing activities (4,892)
-------- -------- --------
Net cash used in investing
activities $(98,997) $(80,473) $(80,547)
-------- -------- --------
Financing activities:
Capital contributions from parent $ 50,572 $ 10,000
Dividends paid on common stock $(21,584) (19,185) (18,586)
Dividends paid on preferred stock (3,114) (3,850) (3,428)
Changes in short-term debt 43,895 (7,775) 31,150
Long-term debt - issues 36,000 116,000 150,000
Long-term debt- retirements (117,000) (138,000)
Preferred stock - issues 35,000
Preferred stock - retirements (35,000)
Premium on reacquisition of long-term
debt (7,089) (2,197)
Premium on redemption of preferred
stock (816)
-------- -------- --------
Net cash provided by financing
activities $ 55,197 $ 10,857 $ 28,939
-------- -------- --------
Net increase (decrease) in cash and
cash equivalents $ 452 $ 35 $ (526)
Cash and cash equivalents at
beginning of year 773 738 1,264
-------- -------- --------
Cash and cash equivalents at end
of year $ 1,225 $ 773 $ 738
======== ======== ========
Supplementary Information:
Interest paid less amounts capitalized $ 24,562 $ 25,220 $ 23,928
-------- -------- --------
Federal and state income taxes paid $ 1,645 $ 12,090 $ 11,521
-------- -------- --------
The accompanying notes are an integral part of these financial statements.
MASSACHUSETTS ELECTRIC COMPANY
Notes to Financial Statements
Note A - Significant Accounting Policies
- ----------------------------------------
1. System of Accounts:
The accounts of the Company are maintained in accordance with the
Uniform System of Accounts prescribed by regulatory bodies having
jurisdiction.
2. Revenue:
Under a 1993 rate agreement, the Company began recognizing, for
accounting purposes, revenues for electricity delivered but not yet billed
(unbilled revenues). At December 31, 1993, the Company recorded on its
balance sheet approximately $43 million of unbilled revenues, of which $11
million was recognized in income in the fourth quarter of 1993 pursuant to
this rate agreement, with the balance recognized in 1994. Other accrued
revenues are recorded in accordance with rate adjustment mechanisms.
3. Allowance for Funds Used During Construction (AFDC):
The Company capitalizes AFDC as part of construction costs. AFDC
represents an allowance for the cost of funds used to finance construction.
AFDC is capitalized in "Utility plant" with offsetting non-cash credits to
"Interest". This method is in accordance with an established rate-making
practice under which a utility is permitted a return on, and the recovery of,
prudently incurred capital costs through their ultimate inclusion in rate
base and in the provision for depreciation. The composite AFDC rates were
4.8 percent, 3.5 percent, and 3.9 percent, in 1994, 1993, and 1992,
respectively.
4. Depreciation:
Depreciation is provided annually on a straight-line basis. The
provisions for depreciation as a percentage of weighted average depreciable
property were 3.3 percent in 1994, 1993, and 1992.
5. Cash:
The Company classifies short-term investments with a remaining maturity
of 90 days or less as cash. Current banking arrangements do not require
outstanding checks to be funded until actually presented for payment.
Outstanding checks are therefore recorded in accounts payable until such time
as the banks present them for payment.
MASSACHUSETTS ELECTRIC COMPANY
Notes to Financial Statements (continued)
Note A - Significant Accounting Policies (continued)
- ----------------------------------------
6. Deferred Charges and Other Assets:
The components of deferred charges and other assets are as follows:
At December 31,
(In Thousands)
---------------------
1994 1993
---- ----
Regulatory assets:
Deferred SFAS No. 106 costs (see Note D-2) $16,079 $ 9,663
Environmental response costs (see Note C-2) 9,417 15,002
Unamortized losses on reacquired debt 8,848 9,843
Deferred SFAS No. 109 costs (see Note B) 8,445 8,083
Deferred storm costs 6,545 9,652
Other 1,764 2,212
------- -------
51,098 54,455
Other deferred charges and other assets:
Non-utility property 5,344 1,697
Other 3,094 1,224
------- -------
$59,536 $57,376
======= =======
Electric utility rates are generally based on a utility's costs. As a
result, electric utilities are subject to certain accounting standards that
are not applicable to other business enterprises in general. These
accounting rules require regulated entities, in appropriate circumstances,
to establish regulatory assets and liabilities, which defer the income
statement impact of certain costs that are expected to be recovered in future
rates. The effects of competition could ultimately cause the operations of
the Company, or a portion thereof, to cease meeting the criteria for
application of these accounting rules. In such an event, accounting
standards applicable to enterprises in general would apply and immediate
write-off of any previously deferred costs (regulatory assets) would be
necessary in the year in which these criteria were no longer applicable.
Approximately $25 million of the regulatory assets at December 31, 1994
listed above are expected to be recovered within 10 years. All of the
remainder will be fully recovered within the next 20 years with the exception
of the Deferred SFAS No. 109 costs which will take longer to recover.
7. Other Accrued Expenses:
The components of other accrued expenses are as follows:
At December 31,
(In Thousands)
---------------------
1994 1993
---- ----
Rate adjustment mechanisms $15,087 $21,560
Deferred unbilled revenues 32,300
Accrued wages and benefits 9,969 13,094
Other 2,076 2,869
------- -------
$27,132 $69,823
======= =======
MASSACHUSETTS ELECTRIC COMPANY
Notes to Financial Statements (continued)
Note B - Income Taxes
- ---------------------
The Company and other subsidiaries participate with New England Electric
System (NEES) in filing consolidated federal income tax returns. The
Company's income tax provision is calculated on a separate return basis.
Federal income tax returns have been examined and reported on by the Internal
Revenue Service through 1991.
Total income taxes in the statements of income are as follows:
Year Ended December 31,
(In Thousands)
---------------------------
1994 1993 1992
---- ---- ----
Income taxes charged to operations $22,265 $11,055 $19,915
Income taxes charged (credited) to
"Other income" (642) 101 143
------- ------- -------
Total income taxes $21,623 $11,156 $20,058
======= ======= =======
Total income taxes, as shown above, consist of the following components:
Year Ended December 31,
(In Thousands)
---------------------------
1994 1993 1992
---- ---- ----
Current income taxes $(7,286) $ 8,030 $ 4,806
Deferred income taxes 30,137 4,354 16,480
Investment tax credits--net (1,228) (1,228) (1,228)
------- ------- -------
Total income taxes $21,623 $11,156 $20,058
======= ======= =======
Total income taxes, as shown above, consist of federal and state
components as follows:
Year Ended December 31,
(In Thousands)
---------------------------
1994 1993 1992
---- ---- ----
Federal income taxes $16,942 $ 7,808 $16,200
State income taxes 4,681 3,348 3,858
------- ------- -------
Total income taxes $21,623 $11,156 $20,058
======= ======= =======
Investment tax credits are deferred and amortized over the estimated
lives of the property giving rise to the credits. Since the Tax Reform Act
of 1986 generally eliminated investment tax credits, the amounts shown above
principally reflect the amortization of investment tax credits generated in
prior years.
Consistent with rate-making policies of the Massachusetts Department of
Public Utilities (MDPU), the Company has adopted comprehensive interperiod
tax allocation (normalization) for temporary book/tax differences.
MASSACHUSETTS ELECTRIC COMPANY
Notes to Financial Statements (continued)
Note B - Income Taxes (continued)
- ---------------------
Total income taxes differ from the amounts computed by applying the
federal statutory tax rates to income before taxes. The reasons for the
differences are as follows:
Year Ended December 31,
(In Thousands)
---------------------------
1994 1993 1992
---- ---- ----
Computed tax at statutory rate $19,722 $12,227 $18,687
Increases (reductions) in tax resulting
from:
Amortization of investment tax credits (1,228) (1,228) (1,228)
Adjustment of prior year tax accruals (110) (2,528)
State income taxes, net of federal
income tax benefit 3,043 2,459 2,546
All other differences 196 226 53
------- ------- -------
Total income taxes $21,623 $11,156 $20,058
======= ======= =======
The Financial Accounting Standards Board established Statement of
Financial Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes"
which became effective in 1993. The application of this new standard did not
have a significant impact on 1993 or 1994 net income.
The following table identifies the major components of total deferred
income taxes:
At December 31,
(In Millions)
---------------------
1994 1993
---- ----
Deferred tax asset:
Plant related $ 8 $ 11
Investment tax credits 8 8
All other 45 59
----- -----
61 78
----- -----
Deferred tax liability:
Plant related (201) (191)
All other (37) (33)
----- -----
(238) (224)
----- -----
Net deferred tax liability $(177) $(146)
===== =====
There were no valuation allowances for deferred tax assets deemed
necessary.
The deferred taxes resulting from timing differences which appeared on
the income statement in 1992 (prior to the adoption of SFAS No. 109 in 1993)
primarily included deferred income taxes of $8 million related to utility
plant and $8 million in connection with postretirement benefits other than
pensions (PBOPs).
MASSACHUSETTS ELECTRIC COMPANY
Notes to Financial Statements (continued)
Note C - Commitments and Contingencies
- --------------------------------------
1. Plant Expenditures:
The Company's utility plant expenditures are estimated to be
approximately $105 million in 1995. At December 31, 1994, substantial
commitments had been made relative to future planned expenditures.
2. 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. NEES
subsidiaries currently have in place an environmental audit 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 U.S. Environmental Protection Agency or the Massachusetts
Department of Environmental Protection for 17 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. The Company is
aware of approximately 35 such locations in Massachusetts (including seven
of the 17 locations for which the Company is a PRP). The Company is
currently aware of other sites, and may in the future become aware of
additional sites, that it may be held responsible for remediating.
In 1993, the MDPU approved a rate agreement filed by the Company that
allows for remediation costs of former manufactured gas sites and certain
other hazardous waste sites located in Massachusetts to be met from a
non-rate recoverable interest-bearing fund of $30 million established on the
Company's books composed of previously recorded reserves of $21 million plus
$9 million of additional reserves recorded in the fourth quarter of 1993.
Rate recoverable contributions of $3 million, adjusted for inflation, are
added to the fund annually in accordance with the agreement. Any shortfalls
in the fund would be paid by the Company and be recovered through rates over
seven years.
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. Where appropriate, the Company intends to seek recovery from
its insurers and from other PRPs, but it is uncertain whether and to what
extent such efforts would be successful. At December 31, 1994, the Company
had total reserves for environmental response costs of $35 million and a
related regulatory asset of $9 million. The Company believes that hazardous
waste liabilities for all sites of which it is aware, and which are not
covered by a rate agreement, will not be material to its financial position.
MASSACHUSETTS ELECTRIC COMPANY
Notes to Financial Statements (continued)
Note D - Employee Benefits
- --------------------------
1. Pension Plans:
Employee Benefits The Company participates with other subsidiaries of
NEES in noncontributory defined-benefit plans covering substantially all
employees of the Company. The plans provide pension benefits based on the
employee's compensation during the five years before retirement. The
Company's funding policy is to contribute each year, the net periodic pension
cost for that year. However, the contribution for any year will not be less
than the minimum required contribution under federal law or greater than the
maximum tax deductible amount.
Net pension cost for 1994, 1993, and 1992 included the following
components:
Year Ended December 31,
(In Thousands)
---------------------------
1994 1993 1992
---- ---- ----
Service cost--benefits earned during
the period $ 4,134 $ 3,348 $ 3,326
Plus (less):
Interest cost on projected benefit
obligation 16,435 16,905 15,886
Return on plan assets at expected
long-term rate (17,223) (16,683) $(16,441)
Amortization 1,060 (208) (260)
-------- -------- --------
Net pension cost $ 4,406 $ 3,362 $ 2,511
======== ======== ========
Assumptions used to determine pension
cost:
Discount rate 7.25% 8.25% 8.50%
Average rate of increase in future
compensation levels 4.35% 5.35% 6.70%
Expected long-term rate of return on
assets 8.75% 8.75% 9.00%
-------- -------- --------
Actual return on plan assets $ 1,541 $ 25,785 $ 14,479
======== ======== ========
Service cost for 1993 does not reflect costs incurred in connection with
an early retirement program offered by the Company in that year (see Note
D-3).
The funded status of the plans cannot be presented separately for the
Company as the Company participates in the plans with other NEES
subsidiaries. The following table sets forth the funded status of the NEES
companies' plans at December 31:
MASSACHUSETTS ELECTRIC COMPANY
Notes to Financial Statements (continued)
Note D - Employee Benefits (continued)
- --------------------------
Retirement Plans,
(In Millions)
---------------------------
1994 1993
-------- --------
Union Non-Union Union Non-Union
Employee Employee Employee Employee
Plans Plans Plans Plans
-------- --------- -------- ---------
Benefits earned
Actuarial present value of
accumulated benefit liability:
Vested $251 $308 $251 $333
Non-vested 8 9 20 6
---- ---- ---- ----
Total $259 $317 $271 $339
==== ==== ==== ====
Reconciliation of funded status
Actuarial present value of projected
benefit liability $303 $355 $310 $383
Unrecognized prior service costs (8) (4) (8) (6)
SFAS No. 87 transition liability not
yet recognized (amortized) - (1) - (1)
Net loss not yet recognized
(amortized) (13) (33) (11) (45)
Additional minimum liability
recognized - - - 8
---- ---- ---- ----
282 317 291 339
---- ---- ---- ----
Pension fund assets at fair value 293 323 302 318
SFAS No. 87 transition asset not
yet recognized (amortized) (13) - (14) -
---- ---- ---- ----
280 323 288 318
---- ---- ---- ----
Accrued pension/(prepaid)
payments recorded on books $ 2 $ (6) $ 3 $ 21
==== ==== ==== ====
The assumed discount rate and the assumed average rate of increase in
future compensation levels used to calculate pension cost changed effective
January 1, 1995 to 8.25 percent and 4.63 percent, respectively. The expected
long-term rate of return on assets used to calculate pension cost was not
changed from the level shown in the table above. The plans' funded status
at December 31, 1994 was calculated using these revised rates.
Plan assets are composed primarily of corporate equity, guaranteed
investment contracts, debt securities, and cash equivalents.
2. Postretirement Benefit Plans Other Than Pensions and Postemployment
Benefits:
In 1993, SFAS No. 106, "Employer's Accounting for Postretirement
Benefits Other Than Pensions" (PBOPs) went into effect. The Company provides
health care and life insurance coverage to eligible retired employees.
Eligibility is based on certain age and length of service requirements and
in some cases retirees must contribute to the cost of their coverage.
MASSACHUSETTS ELECTRIC COMPANY
Notes to Financial Statements (continued)
Note D - Employee Benefits (continued)
- --------------------------
The total cost of PBOPs for 1994 and 1993 included the following
components:
Year Ended December 31,
(In Thousands)
-----------------------
1994 1993
---- ----
Service cost--benefits earned during the period $ 2,840 $ 2,613
Plus (less):
Interest cost on the accumulated benefit
obligation 11,050 12,007
Return on plan assets at expected long-term
rate (3,306) (2,095)
Amortization 7,287 7,302
------- -------
Net postretirement benefit cost $17,871 $19,827
======= =======
Actual return on plan assets $ 265 $ 2,125
======= =======
The following table sets forth benefits earned and the plans' funded
status:
At December 31,
(In Millions)
---------------------
1994 1993
---- ----
Accumulated postretirement benefit obligation:
Retirees $ 92 $ 100
Fully eligible active plan participants 19 10
Other active plan participants 33 48
----- -----
Total benefits earned 144 158
Unrecognized transition obligation (131) (138)
Net gain (loss) not yet recognized 15 (3)
----- -----
28 17
Plan assets at fair value 44 35
----- -----
Prepaid postretirement benefit costs recorded
on books $ 16 $ 18
===== =====
1995 1994 1993
---- ---- ----
Assumptions used to determine
postretirement benefit cost:
Discount rate 8.25% 7.25% 8.25%
Expected long-term rate of return on
assets 8.50% 8.50% 8.50%
Health care cost rate - 1994 and 1993 - 11.00% 12.00%
Health care cost rate - 1995 to 2004 8.50% 8.50% 9.50%
Health care cost rate - 2005 and beyond 6.25% 6.25% 7.25%
MASSACHUSETTS ELECTRIC COMPANY
Notes to Financial Statements (continued)
Note D - Employee Benefits (continued)
- --------------------------
The plans' funded status at December 31, 1994 and 1993 presented above
was calculated using the assumed rates in effect for 1995 and 1994,
respectively.
The health care cost trend rate assumption has a significant effect on
the amounts reported. Increasing the assumed rates by 1 percent in each year
would increase the accumulated postretirement benefit obligation as of
December 31, 1994 by approximately $22 million and the net periodic cost for
the year 1994 by approximately $2.5 million.
The Company funds the annual tax deductible contributions. Plan assets
are invested in equity and debt securities and cash equivalents.
Prior to 1993, the Company recorded the cost of PBOPs when paid. These
costs amounted to approximately $5.4 million in 1992. The Company has been
permitted by the MDPU to phase-in over a four year period that commenced in
October 1992, a level of rate recovery that is expected to equal or exceed
the amount of PBOP costs calculated in accordance with SFAS No. 106. At
December 31, 1994, the Company had deferred for later recovery, $16 million
representing that portion of increased PBOP costs not being recovered during
this phase-in period. Therefore, adoption of this new accounting standard
did not have a significant impact on net income.
In the fourth quarter of 1993, the Company recorded a $2 million charge
to earnings reflecting the cumulative effect of adopting a new accounting
standard for postemployment benefits.
3. 1993 Early Retirement and Special Severance Programs:
In February 1993, the Company offered a voluntary early retirement
program to non-union employees who were at least 55 years old with 10 years
of service. This program was part of an organizational review with the goal
of streamlining operations and reducing the work force. The early retirement
offer was accepted by 102 employees. A special severance program was also
announced in February 1993 for employees affected by the organizational
review, but who were not eligible for, or did not accept, the early
retirement offer. The Company recorded in the first quarter of 1993 a
one-time charge to earnings of approximately $8 million, after tax ($13
million, before tax), to reflect the cost of the early retirement and special
severance programs which consisted principally of pension benefits. This
total includes the Company's portion of its affiliated service company's cost
of these programs.
Note E - Short-term Borrowing Arrangements
- ------------------------------------------
At December 31, 1994, the Company had $82 million of short-term debt
outstanding including $73 million in the form of commercial paper borrowings
and $9 million of borrowings from affiliates. At December 31, 1994, the
Company had lines of credit with banks totaling $90 million which are
available to provide liquidity support for commercial paper borrowings and
other corporate purposes. There were no borrowings under these lines of
credit at December 31, 1994. Fees are paid in lieu of compensating balances
on most lines of credit. The weighted average rate on outstanding short-term
borrowings was 6.1 percent at December 31, 1994.
MASSACHUSETTS ELECTRIC COMPANY
Notes to Financial Statements (continued)
Note F - Intercompany Lending Arrangement
- -----------------------------------------
NEES and certain subsidiaries, including the Company, with regulatory
approval, operate a money pool to more effectively utilize cash resources and
to reduce outside short-term borrowings. Short-term borrowing needs are met
first by available funds of the money pool participants. Borrowing companies
pay interest at a rate designed to approximate the cost of outside short-term
borrowings. Companies which invest in the pool share the interest earned on
a basis proportionate to their average monthly investment in the money pool.
Funds may be withdrawn from or repaid to the pool at any time without prior
notice.
Note G - Cumulative Preferred Stock
- -----------------------------------
A summary of cumulative preferred stock at December 31, 1994 and 1993
is as follows (in thousands of dollars except for share data):
Shares
Authorized
and Dividends Call
Outstanding Amount Declared Price
------------- ------------- ------------- ------
1994 1993 1994 1993 1994 1993
---- ---- ---- ---- ---- ----
$25 Par value--
6.84% Series 600,000 600,000 $15,000 $15,000 $1,026 $ 370 (a)
$100 Par value--
4.44% Series 75,000 75,000 7,500 7,500 333 333 $104.068
4.76% Series 75,000 75,000 7,500 7,500 357 357 103.730
6.99% Series 200,000 200,000 20,000 20,000 1,398 658 (b)
7.80% Series 878
7.84% Series 1,176
------- ------- ------- ------- ------ ------
Total 950,000 950,000 $50,000 $50,000 $3,114 $3,772
======= ======= ======= ======= ====== ======
(a) Callable on or after October 1, 1998 at $25.80.
(b) Callable on or after August 1, 2003 at $103.50.
The annual dividend requirement for total cumulative preferred stock was
$3,114,000 for 1994 and 1993.
During 1993, all of the Company's 7.80 percent Series and 7.84 percent
Series of cumulative preferred stock were redeemed. Total premiums of
$816,000 in connection with these redemptions were charged to retained
earnings. There are no mandatory redemption provisions on the Company's
cumulative preferred stock.
MASSACHUSETTS ELECTRIC COMPANY
Notes to Financial Statements (continued)
Note H - Long-term Debt
- -----------------------
A summary of long-term debt is as follows:
At December 31, (In Thousands)
------------------------------
Series Rate % Maturity 1994 1993
- ------ ------ -------- ---- ----
First Mortgage Bonds:
R (92-2) 5.875 February 6, 1995 $ 10,000 $ 10,000
S (92-1) 5.860 June 26, 1995 15,000 15,000
S (92-8) 4.730 September 18, 1995 10,000 10,000
R (92-4) 7.230 June 3, 1997 10,000 10,000
R (92-5) 7.210 June 3, 1997 5,000 5,000
S (92-6) 6.120 August 15, 1997 12,000 12,000
S (92-7) 6.010 August 15, 1997 3,000 3,000
R (92-1) 7.240 December 30, 1998 10,000 10,000
S (92-3) 6.630 August 12, 1999 7,500 7,500
S (92-4) 6.600 August 12, 1999 7,500 7,500
S (92-2) 6.980 July 17, 2000 5,000 5,000
S (92-9) 6.310 September 15, 2000 10,000 10,000
R (92-6) 7.710 July 1, 2002 10,000 10,000
S (92-11) 7.250 October 28, 2002 5,000 5,000
S (92-12) 7.340 November 25, 2002 10,000 10,000
T (93-2) 7.090 January 27, 2003 20,000 20,000
T (93-5) 6.400 June 24, 2003 10,000 10,000
U (93-1) 6.240 November 17, 2003 5,000 5,000
U (94-6) 8.520 November 30, 2004 10,000
T (93-7) 6.660 June 23, 2008 5,000 5,000
T (93-8) 6.660 June 30, 2008 5,000 5,000
T (93-10) 6.110 September 8, 2008 10,000 10,000
T (93-11) 6.375 November 17, 2008 10,000 10,000
R (92-3) 8.550 February 7, 2022 5,000 5,000
S (92-5) 8.180 August 1, 2022 10,000 10,000
S (92-10) 8.400 October 26, 2022 5,000 5,000
T (93-1) 8.150 January 20, 2023 10,000 10,000
T (93-3) 7.980 January 27, 2023 10,000 10,000
T (93-4) 7.690 February 24, 2023 10,000 10,000
T (93-6) 7.500 June 23, 2023 3,000 3,000
T (93-9) 7.500 June 29, 2023 7,000 7,000
U (93-2) 7.200 November 15, 2023 10,000 10,000
U (93-3) 7.150 November 24, 2023 1,000 1,000
U (94-1) 7.050 February 2, 2024 10,000
U (94-2) 8.080 May 2, 2024 5,000
U (94-3) 8.030 June 14, 2024 5,000
U (94-4) 8.160 August 9, 2024 5,000
U (94-5) 8.850 November 7, 2024 1,000
Unamortized discounts and premiums (1,369) (1,281)
-------- --------
Total long-term debt 300,631 264,719
======== ========
Long-term debt due within year (35,000)
-------- --------
$265,631 $264,719
======== ========
MASSACHUSETTS ELECTRIC COMPANY
Notes to Financial Statements (continued)
Note H - Long-term Debt (continued)
- -----------------------
Substantially all of the properties and franchises of the Company are
subject to the lien of mortgage indentures under which the first mortgage
bonds have been issued.
The Company will make cash payments of $35,000,000 in 1995, $30,000,000
in 1997, $10,000,000 in 1998, and $15,000,000 in 1999 to retire maturing
mortgage bonds. There are no cash payments required in 1996.
Note I - Fair Value of Financial Instruments
- --------------------------------------------
At December 31, 1994, the Company's long-term debt, including long-term
debt due within one year, had a carrying value of approximately $301,000,000
and had a fair value of approximately $280,000,000. The fair market value
of the Company's long-term debt was estimated based on the quoted prices for
similar issues or on the current rates offered to the Company for debt of the
same remaining maturity. The fair value of the Company's short-term debt
equals carrying value.
Note J - Restrictions on Retained Earning Available for
Dividends on Common Stock
- -------------------------------------------------------
As long as any preferred stock is outstanding, certain restrictions on
payment of dividends on common stock would come into effect if the "junior
stock equity" was, or by reason of payment of such dividends became, less
than 25 percent of "total capitalization". However, the junior stock equity
at December 31, 1994 was 52 percent of total capitalization, including
long-term debt due in one year, and, accordingly, none of the Company's
retained earnings at December 31, 1994 were restricted as to dividends on
common stock under the foregoing restrictions.
Under restrictions contained in the indentures relating to first
mortgage bonds, $30,113,000 of the Company's retained earnings at December
31, 1994 were restricted as to dividends on common stock.
Note K - Supplementary Income Statement Information
- ---------------------------------------------------
Advertising expenses, expenditures for research and development, and
rents were not material and there were no royalties paid. Taxes, other than
income taxes, charged to operating expenses are set forth by classes as
follows:
Year Ended December 31,
(In Thousands)
---------------------------
1994 1993 1992
---- ---- ----
Municipal property taxes $21,186 $19,620 $16,525
Federal and state payroll and other taxes 7,478 6,907 6,516
------- ------- -------
$28,664 $26,527 $23,041
======= ======= =======
New England Power Service Company, an affiliated service company
operating pursuant to the provisions of Section 13 of the Public Utility
Holding Company Act of 1935, furnished services to the Company at the cost
of such services. These costs amounted to $71,107,000, $61,515,000, and
$47,360,000, including capitalized construction costs of $8,977,000,
$9,038,000, and $8,306,000, for each of the years 1994, 1993, and 1992,
respectively.
MASSACHUSETTS ELECTRIC COMPANY
Operating Statistics (Unaudited)
Year Ended December 31,
-----------------------
1994 1993 1992 1991 1990
---- ---- ---- ---- ----
Sources of Energy (Thousands of KWH)
Purchased energy:
From New England Power Company,
an affiliate 16,455,774 16,179,204 16,005,087 15,971,746 16,206,581
From others 3,364 12,676 13,916 12,865 13,180
---------- ---------- ---------- ---------- ----------
Total purchased 16,459,138 16,191,880 16,019,003 15,984,611 16,219,761
Losses, company use, etc. (733,804) (740,390) (711,157) (730,694) (699,383)
---------- ---------- ---------- ---------- ----------
Total sources of energy 15,725,334 15,451,490 15,307,846 15,253,917 15,520,378
========== ========== ========== ========== ==========
Sales of Energy (Thousands of KWH)
Residential 5,798,806 5,694,539 5,645,350 5,568,452 5,629,825
Commercial 5,936,170 5,743,924 5,645,867 5,585,604 5,648,759
Industrial 3,885,391 3,850,075 3,907,040 3,979,418 4,113,647
Other 95,382 99,991 105,842 113,444 120,142
---------- ---------- ---------- ---------- ----------
Total sales to ultimate customers 15,715,749 15,388,529 15,304,099 15,246,918 15,512,373
Sales for resale 9,585 62,961 3,747 6,999 8,005
---------- ---------- ---------- ---------- ----------
Total sales of energy 15,725,334 15,451,490 15,307,846 15,253,917 15,520,378
========== ========== ========== ========== ==========
Maximum Demand (Kw - one hour peak) 3,016,000 2,819,000 2,791,000 2,888,000 2,761,000
Average Annual Use per Residential
Customer (KWH) 6,948 6,888 6,886 6,832 6,926
Number of Customers at December 31
Residential 839,443 831,223 824,072 817,270 814,558
Commercial 95,430 93,414 92,281 81,355 85,597
Industrial 4,551 4,637 4,624 4,650 4,667
Other 880 906 952 986 910
---------- ---------- ---------- ---------- ----------
Total ultimate customers 940,304 930,180 921,929 904,261 905,732
Other (for resale) 178 278 22 21 22
---------- ---------- ---------- ---------- ----------
Total customers 940,482 930,458 921,951 904,282 905,754
========== ========== ========== ========== ==========
NEW ENGLAND POWER COMPANY
Operating Statistics (Unaudited) (continued)
Year Ended December 31,
-----------------------
1994 1993 1992 1991 1990
---- ---- ---- ---- ----
Operating Revenue (In Thousands)
Residential $ 589,447 $ 590,106 $ 549,884 $ 521,140 $ 475,004
Commercial 523,806 515,874 510,638 490,078 442,478
Industrial 301,144 314,132 319,905 318,502 294,037
Other 17,185 17,343 17,489 18,304 17,873
---------- ---------- ---------- ---------- ----------
Total revenue from ultimate customers 1,431,582 1,437,455 1,397,916 1,348,024 1,229,392
Unbilled revenues 31,700 11,100
Sales for resale 935 5,401 278 518 517
---------- ---------- ---------- ---------- ----------
Total revenue from electric sales 1,464,217 1,453,956 1,398,194 1,348,542 1,229,909
Other operating revenue 17,853 14,584 14,754 15,346 13,036
---------- ---------- ---------- ---------- ----------
Total operating revenue $1,482,070 $1,468,540 $1,412,948 $1,363,888 $1,242,945
========== ========== ========== ========== ==========
MASSACHUSETTS ELECTRIC COMPANY
Selected Financial Information
Year Ended December 31, (In Millions)
-------------------------------------
1994 1993 1992 1991 1990
---- ---- ---- ---- ----
Operating revenue:
Electric sales
(excluding fuel cost recovery) $1,088 $1,062 $1,012 $ 984 $ 898
Fuel cost recovery 376 392 386 366 332
Other 18 15 15 15 13
------ ------ ------ ------ ------
Total operating revenue $1,482 $1,469 $1,413 $1,364 $1,243
Net income $ 35 $ 24 $ 35 $ 25 $ 35
Total assets $1,296 $1,232 $1,015 $1,017 $1,014
Capitalization:
Common equity $ 384 $ 382 $ 331 $ 313 $ 296
Cumulative preferred stock 50 50 50 50 50
Long-term debt 266 265 266 194 254
------ ------ ------ ------ ------
Total capitalization $ 700 $ 697 $ 647 $ 557 $ 600
Preferred dividends declared $ 3 $ 4 $ 3 $ 3 $ 3
Common dividends declared $ 30 $ 19 $ 23 $ 5 $ 16
Selected Quarterly Financial Information (Unaudited)
First Second Third Fourth
(In Thousands) Quarter Quarter Quarter Quarter*
- -------------- ------- ------- ------- --------
1994
Operating revenue $381,712 $339,886 $376,582 $383,890
Operating income $ 17,124 $ 15,054 $ 10,120 $ 20,370
Net income $ 9,572 $ 8,215 $ 1,431 $ 15,508
1993
Operating revenue $378,441 $340,293 $376,137 $373,669
Operating income $ 13,831 $ 2,573 $ 7,988 $ 26,194
Net income (loss) $ 6,060 $ (4,144) $ 2,204 $ 19,659
Per share data is not relevant because the Company's common stock is
wholly-owned by New England Electric System.
* See Note A-2 for discussion of significant item that affected fourth
quarter 1993 net income.
A copy of Massachusetts Electric Company's Annual Report on Form 10-K
to the Securities and Exchange Commission, for the year ended December 31,
1994, will be available on or about April 1, 1995, without charge, upon
written request to Massachusetts Electric Company, Shareholder Services
Department, 25 Research Drive, Westborough, Massachusetts 01582.