PAGE 1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549-1004
Form 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
(Mark One)
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1993
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from ________________ to ________________
Commission file number 2-7749
COMMONWEALTH ELECTRIC COMPANY
(Exact name of registrant as specified in its charter)
Massachusetts 04-1659070
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One Main Street, Cambridge, Massachusetts 02142-9150
(Address of principal executive offices) (Zip Code)
617-225-4000
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
None None
Securities registered pursuant to Section 12(g) of the Act:
Title of Class
None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. YES x NO
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Outstanding at
Class of Common Stock March 15, 1994
Common Stock, $25 par value 2,043,972 shares
The Company meets the conditions set forth in General Instruction J(1)(a) and
(b) of Form 10-K as a wholly-owned subsidiary and is filing this Form with the
reduced disclosure format.
Documents Incorporated by Reference Part in Form 10-K
None Not Applicable
List of Exhibits begins on page 39 of this report.
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COMMONWEALTH ELECTRIC COMPANY
FORM 10-K DECEMBER 31, 1993
TABLE OF CONTENTS
PART I
PAGE
Item 1. Business........................................ 3
General....................................... 3
Electric Power Supply......................... 3
New England Power Pool........................ 4
Power Contracts and Capacity
Acquisition and Disposition Agreement....... 5
Energy Mix.................................... 5
Rates and Regulation.......................... 6
(a) Rate Proceedings........................ 6
(b) Cost Recovery........................... 6
(c) Economic Development Rate............... 7
Construction and Financing.................... 8
Employees..................................... 8
Item 2. Properties...................................... 8
Item 3. Legal Proceedings............................... 8
PART II
Item 5. Market for the Registrant's Common Stock and
Related Stockholder Matters..................... 9
Item 7. Management's Discussion and Analysis of
Results of Operations........................... 10
Item 8. Financial Statements and Supplementary Data..... 17
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure.......... 17
PART IV
Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K............................. 38
Signatures.................................................. 57
PAGE 3
COMMONWEALTH ELECTRIC COMPANY
PART I.
Item 1. Business
General Commonwealth Electric Company (the Company) is engaged in the
generation, transmission, distribution and sale of electricity at retail to
approximately 307,700 customers (including 48,400 seasonal) in 40 communities
located in southeastern Massachusetts, including Cape Cod and the island of
Martha's Vineyard, having an approximate year-round population of 549,000 and
a large influx of summer residents. The results of the 1990 federal census
taken in the Company's service area indicated a population increase of 18.1%
since 1980. Also, the Company sells power to the New England Power Pool
(NEPOOL) and is actively pursuing sales of certain available capacity to other
utilities in and outside the New England region.
The Company, which was organized on April 4, 1850 pursuant to a special
act of the legislature of the Commonwealth of Massachusetts, operates under
the jurisdiction of the Massachusetts Department of Public Utilities (DPU),
which regulates retail rates, accounting, issuance of securities and other
matters. In addition, the Company files its wholesale rates with the Federal
Energy Regulatory Commission (FERC). Since the date of its organization, the
Company has from time to time acquired or disposed of the property and
franchises of or merged with various gas or electric companies. The Company
is a wholly-owned subsidiary of Commonwealth Energy System ("System"), which,
together with its subsidiaries, is collectively referred to as "the system."
By virtue of its charter, which is unlimited in time, the Company distrib-
utes electricity without direct competition in kind from any privately or
municipally-owned utilities. Alternate sources of energy are available to
customers within the service territory, but competition from these sources to
date has not been a significant factor affecting the Company. Of the Com-
pany's 1993 retail electric unit sales, 49% was sold to residential customers,
32% to commercial customers, 10% to industrial and 9% to municipal and other
customers.
Electric Power Supply
The Company relies almost entirely on purchased power to meet its electric
energy requirements. The Company owns generating facilities with a total
capacity of 13.8 MW, which are principally used for emergency and peaking
purposes. The Company also has a joint-ownership interest of 8.8 MW in
Central Maine Power Company's oil-fired Wyman Unit 4.
Power purchases for the Company and Cambridge Electric Light Company
(Cambridge Electric), the other wholly-owned electric distribution subsidiary
of the System, are arranged in accordance with their requirements. These
arrangements include purchases from Canal Electric Company (Canal), another
wholly-owned subsidiary of the System. Canal is a wholesale electric generat-
ing company located in Sandwich, Massachusetts and an important source of
purchased power for the Company. Under long-term contracts, system entitle-
ments include one-quarter (143 MW) of the capacity and energy of Canal Unit 1
and one-half (292 MW) of the capacity and energy of Canal Unit 2. In 1991,
Canal, on behalf of the Company, exchanged 50 MW of the system's entitlement
in Canal Unit 2 with Central Vermont Public Service Corporation (CVPS) for 25
MW each of CVPS's entitlement in the Vermont Yankee nuclear power plant and
the Merrimack 2 coal-fired unit through October 1995 in order to reduce the
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COMMONWEALTH ELECTRIC COMPANY
Company's reliance on oil-fired generation. Additionally, in 1993, Canal
executed an exchange transaction with New England Power Company whereby 20 MW
of Canal Unit 2 was exchanged for 20 MW of Bear Swamp Unit Nos. 1 and 2
through October 1993. On November 1, 1993, the exchange was increased to 50
MW through April 1997. The Bear Swamp Units are pumped storage hydro-electric
generating facilities.
In response to solicitations made to the NEPOOL member companies by
Northeast Utilities (NU), Canal, on behalf of the Company and Cambridge
Electric, agreed to purchase entitlements through various contracts ranging up
to five years in length. The terms of the five-year agreement stipulate the
purchase of 50 MW, on average, from NU annually from November 1989 through
October 1994. The Company and Cambridge Electric are each appropriated a
portion of the power received from NU based on need.
In addition, the Company has a 73.1 MW entitlement from a nuclear unit in
Plymouth, Massachusetts (Pilgrim) under a life-of-the-unit contract with
Boston Edison Company. Also, through Canal's equity ownership in Hydro-Quebec
Phase II and its 3.52% interest in the Seabrook nuclear power plant, the
Company has entitlements of 48.2 MW and 32.4 MW, respectively. In-state non-
utility sources which provide a portion of the Company's requirements include
67.0 MW from the SEMASS waste-to-energy plant (which includes 20.8 MW from the
expansion unit which went on-line May 17, 1993), 10.0 MW from Boott Hydropow-
er, Inc., 2.0 MW from Swift River Company and 0.5 MW from Pioneer Hydropower,
Inc. In addition, the Company has contracted to purchase power from: (1) five
natural gas-fired cogenerating facilities as follows: 23.8 MW from Consolidat-
ed Power Company; 31.4 MW from Pepperell Power Associates; 44 MW from North-
east Energy Associates, and effective July 31 and September 1, 1993, 51 MW and
27.5 MW from Masspower and Altresco Pittsfield, L.P., respectively, and (2),
61.8 MW from Dartmouth Power Associates, a natural gas-fired independent power
producer.
The Company expects to provide for future peak load plus reserve require-
ments through existing and planned system generation, including purchasing
available capacity from neighboring utilities and/or non-utility generators.
These and other bulk electric power purchases are necessary in order to
fulfill the system's NEPOOL obligation and for Canal to acquire and deliver
sufficient electric generating capacity to meet the Company's and Cambridge
Electric's capacity requirements.
New England Power Pool
The Company, together with other electric utility companies in the New
England area, is a member of NEPOOL, which was formed in 1971 to provide for
the joint planning and operation of electric systems throughout New England.
NEPOOL operates a centralized dispatching facility to ensure reliability
of service and to dispatch the most economically available generating units of
member companies to fulfill the region's energy requirements. This concept is
accomplished through the use of computers to monitor and forecast load
requirements and provide for the economic dispatch of generation.
The Company and the System's other electric subsidiaries are also members
of the Northeast Power Coordinating Council (NPCC), an advisory organization
that includes the major power systems in New England and New York plus the
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COMMONWEALTH ELECTRIC COMPANY
provinces of Ontario and New Brunswick in Canada. NPCC establishes criteria
and standards for reliability and serves as a vehicle for coordination in the
planning and operation of these systems in enhancing reliability.
The reserve requirements used by the NEPOOL participants in planning
future additions are determined by NEPOOL to meet the reliability criteria
recommended by NPCC. The system estimates that, during the next ten years,
reserve requirements so determined will be in the range of 23% to 29% of peak
load.
Power Contracts and Capacity Acquisition and Disposition Agreement
The Company has long-term contracts for the purchase of electricity from
various sources. In addition, the Company's future generation needs will be
met substantially through a Capacity Acquisition and Disposition Agreement
with Canal. For further information on this agreement, refer to Note 2(b) of
the Notes to Financial Statements filed under Item 8 of this report.
Energy Mix
The Company's energy mix, including purchased power, was as follows:
1993 1992 1991
Oil 27% 39% 36%
Nuclear 20 22 28
Natural gas 35 24 19
Waste-to-energy 11 9 10
Hydro 4 3 4
Coal 3 3 3
Total 100% 100% 100%
The Company's energy mix has shifted during the last several years from
oil to natural gas and other types of generation due to the availability of
capacity from independent power producing (IPP) facilities and cogenerating
units and, to a lesser extent, an effort to reduce its reliance on oil. As
stated in the "Electric Power Supply" section above, in 1993, the Company
began receiving power from two gas-fired sources (Altresco Pittsfield and
Masspower), additional energy from the expansion of a waste-to-energy plant
(SEMASS) and extended commitments from a pumped storage facility (Bear Swamp)
in exchange for power from the oil-fired Canal Unit 2. In 1991, Canal
arranged for a long-term exchange of power with certain CVPS nuclear (Vermont
Yankee) and a coal-fired unit (Merrimack 2). In certain circumstances, it is
possible to exchange capacity with another utility so that the mix of power
improves the pricing for dispatch for both the seller and the purchaser. The
Canal/Bear Swamp transaction alone will save the Company's customers $2.7
million over a four-year period that began in June 1993. These exchanges and
other future capacity purchase power contracts with natural gas-fired IPPs
will continue to shift the Company's energy mix from oil to other sources. In
addition, the Company is actively pursuing sales of certain available capacity
to utilities in and outside the New England region.
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COMMONWEALTH ELECTRIC COMPANY
Rates and Regulation
(a) Rate Proceedings
The Company operates under the jurisdiction of the DPU, which regulates
retail rates, accounting, issuance of securities and other matters. In
addition, the Company files its respective wholesale rates with FERC.
The DPU requires historic test-year information to support changes in
rates. In its last base rate filing with the DPU in December 1990, the
Company requested a $17.3 million revenue increase. On July 1, 1991, the DPU
issued an order increasing the Company's retail electric revenues by $10.9
million or 3.1% over the test year ended June 30, 1990. The DPU also ordered
the Company to undertake an independent management audit in 1992. In October
1992, the DPU released the results of the audit which evaluated existing
activities and processes and identified opportunities for improved operations
in the areas of strategic planning, budget development, control of capital and
operational costs, management of outside services, employment policies and
customer services. Throughout 1993, follow-up discussions were held between
Commonwealth Electric and the DPU regarding the status of each audit recommen-
dation with both parties expressing overall satisfaction with their progress.
Changes in the implementation plan were discussed, with the plan expected to
be complete in 1994.
(b) Cost Recovery
Rate Schedule The Company files a Fuel Charge rate schedule, subject to
DPU regulation, under which it is allowed current recovery, from retail
customers, of fuel used in electric generation and a substantial portion of
purchased power, demand and transmission costs. This schedule requires the
quarterly computation of a Fuel Charge decimal based on forecasts of fuel,
purchased power and transmission costs and billed unit sales for each period.
To the extent that collections under the rate schedule do not match actual
costs for that period, an appropriate adjustment is reflected in the calcula-
tion of the decimal for the next calendar quarter.
Purchased Power The Company has long-term contracts for the purchase of
electricity from various sources. Generally, these contracts are for fixed
periods and require that the Company pay a demand charge for its capacity
entitlement and an energy charge to cover the cost of fuel. The DPU ordered
the Company, effective July 1, 1991, to collect its capacity-related costs
associated with certain long-term power arrangements through base rates.
Prior to that date, the Company was recovering these costs through its Fuel
Charge. The current recovery mechanism utilizes a cost per kilowatthour (KWH)
factor that is calculated using historical (test-period) capacity costs and
unit sales. This factor is then applied to current monthly KWH sales. When
current period capacity costs and/or unit sales vary from test-period levels,
the Company experiences a revenue excess or shortfall which can have a
significant impact on net income. All other capacity and energy-related
purchased power costs are recovered through the Fuel Charge. The Company and
Cambridge Electric made a filing in late 1992 with the DPU seeking an alterna-
tive method of recovery. This request was denied in a letter order issued on
October 6, 1993. However, the Company and Cambridge Electric were encouraged
by the DPU's acknowledgement that the issues presented warrant further
consideration. The DPU encouraged each company to continue to work with other
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COMMONWEALTH ELECTRIC COMPANY
interested parties, including the Attorney General of Massachusetts, to reach
a consensus solution on the issue for consideration in each company's next
base rate proceeding.
Conservation and Load Management Programs The Company and Cambridge Elec-
tric have received approval from the DPU to recover conservation and load
management program (C&LM) costs. The programs offer opportunities to all
customers to save energy by investing in C&LM measures. The overall objective
of the programs is to reduce capacity and energy requirements which in turn
reduce the cost of providing service. The Company has Conservation Charge
(CC) rate schedules which allow for current cost recovery from retail custom-
ers. On June 30, 1993, the DPU issued an order in Phase I of a C&LM filing by
the Company and Cambridge Electric which authorizes the recovery of "lost base
revenues" from electric customers. The recovery of lost base revenues is
allowed by the DPU to encourage effective implementation of C&LM programs.
The KWH savings that are realized as a result of the successful implementation
of C&LM programs serve as the basis for determining lost base revenues. The
amount to be recovered is approximately $3.5 million for the Company and is
based on anticipated KWH savings for the eighteen-month period beginning
January 1, 1993. The revenue will be recovered from customers over a twelve-
month period which began July 1, 1993. Through December 31, 1993, the Company
had recovered approximately $2.3 million in lost base revenue.
On October 25, 1993, the DPU issued an order in Phase II of the C&LM
proceeding. In that order, the DPU disallowed approximately $195,000 in
expenditures that it determined exceeded benefits to customers. In addition,
the DPU ruled that approximately $1.1 million in C&LM Task Force related
expenditures are not recoverable by the Company "at this time" because certain
programs have yet to be implemented and thus ratepayers are receiving no
current benefits. The Company removed these costs from the current CC decimal
and is continuing with the development of the programs and plans to seek
recovery of these costs in a subsequent filing with the DPU. Based on the
language in the order and subsequent discussions with the parties involved in
the proceeding, management believes that the ultimate recovery of a substan-
tial portion of these costs is likely.
Seabrook Costs The full commission of the FERC, in a final order issued
on August 4, 1992, approved full recovery of Canal's investment in the
Seabrook nuclear power plant. The Company and Cambridge Electric had been
billing, subject to refund, Seabrook 1 charges to their retail customers since
August 1, 1990 through Fuel Charge decimals approved by the DPU. In its June
1, 1993 rate decision, the DPU allowed Cambridge Electric to recover its
Seabrook 1 costs in base rates. However, the Company continues to recover
these costs through the Fuel Charge.
The Company and Cambridge Electric collect, through their respective Fuel
Charge, amounts being billed to them by Canal for costs associated with
Seabrook 2 (over a ten-year period ending in 1997) pursuant to a Capacity
Acquisition Agreement the terms of which were approved by both FERC and the
DPU.
(c) Economic Development Rate
In an effort to foster industrial development in its service area, the
Company began offering an Economic Development Rate (EDR) on October 1, 1991.
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COMMONWEALTH ELECTRIC COMPANY
The rate is offered to new or existing commercial and industrial customers who
have an electric demand of 500 kilowatts or more and meet specific financial
and other criteria. As of December 31, 1993, twenty-two industrial customers
are benefitting from this special rate. The rate is available for a six-year
term. In 1993, the DPU conducted a generic investigation into EDRs and
rendered a decision on September 1, 1993 that established rate design guide-
lines and minimum customer eligibility requirements. The Company refiled its
EDRs to comply with the ruling. The Company also received approval for a
Vacant Space Rate which it filed in conformance with the new EDR guidelines
that is available to qualifying small commercial and industrial customers who
establish loads in previously unoccupied building space.
Construction and Financing
Information concerning the Company's financing and construction programs
is contained in Note 2(a) of Notes to Financial Statements filed under Item 8
of this report.
Employees
The total number of full-time employees for the Company declined 12% to
917 in 1993 from 1,042 employees at year-end 1992 due to a second quarter work
force reduction. Of the current total, 602 employees (66%) are represented by
the Brotherhood of Utility Workers of New England, Inc. under three separate
collective bargaining units with agreements expiring October 31, 1994,
September 30, 1996 and October 31, 1997. Employee relations have generally
been satisfactory and management views the current work force level to be
appropriate to service the Company's customers.
Item 2. Properties
The principal properties of the Company consist of an integrated system of
transmission and distribution lines, substations, an office building in the
Town of Wareham, Massachusetts and other structures such as garages and
service buildings. In addition, the Company owns and operates, for standby
and emergency purposes only, two diesel plants with a combined capability of
13.8 MW located on the island of Martha's Vineyard. The Company also has a
1.4% joint-ownership interest in Central Maine Power Company's Wyman Unit 4
with an entitlement of 8.8 MW.
The Company also owns a 60 MW steam electric generating station located in
New Bedford, Massachusetts. This unit, which ceased operations in October
1992, was abandoned in 1993. As a result, the net book value of the plant of
approximately $4 million was reclassified from Property, Plant and Equipment
to a regulatory asset in anticipation of recovery.
At December 31, 1993, the electric transmission and distribution system
consisted of 5,691 pole miles of overhead lines, 3,423 cable miles of under-
ground line, 142 substations and 326,674 active customer meters.
Item 3. Legal Proceedings
The Company is not a party to any pending material legal proceeding.
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COMMONWEALTH ELECTRIC COMPANY
PART II.
Item 5. Market for the Registrant's Common Stock and Related Stockholder
Matters
(a) Principal Market
Not applicable. The Company is a wholly-owned subsidiary of Common-
wealth Energy System.
(b) Number of Shareholders at December 31, 1993
One
(c) Frequency and Amount of Dividends Declared in 1993 and 1992
1993 1992
Per Share Per Share
Declaration Date Amount Declaration Date Amount
January 28, 1993 $1.90 February 24, 1992 $1.45
April 23, 1993 1.10 April 27, 1992 1.20
October 18, 1993 3.20 October 19, 1992 2.50
$6.20 $5.15
In 1992 and on January 28, 1993, dividends were declared on the
1,606,472 outstanding shares of common stock of the Company. On
April 23, 1993 and October 18, 1993, dividends were declared on the
2,043,972 outstanding shares of common stock of the Company.
Reference is made to Note 6 of the Notes to Financial Statements
filed under Item 8 of this report for the restriction against the
payment of cash dividends.
(d) Future dividends may vary depending upon the Company's earnings and
capital requirements as well as financial and other conditions
existing at that time.
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COMMONWEALTH ELECTRIC COMPANY
Item 7. Management's Discussion and Analysis of Results of Operations
The following is a discussion of certain significant factors which have
affected operating revenues, expenses and net income during the periods
included in the accompanying statements of income and is presented to facili-
tate an understanding of the results of operations. This discussion should be
read in conjunction with Item 1 of this report and the Notes to Financial
Statements filed under Item 8 of this report.
A summary of the period to period changes in the principal items included
in the statements of income for the years ended December 31, 1993 and 1992, is
shown below:
Years Ended Years Ended
December 31, December 31,
1993 and 1992 1992 and 1991
Increase (Decrease)
(Dollars in Thousands)
Electric Operating Revenues $ 20 991 5.1% $(13 746) (3.2)%
Operating Expenses -
Electricity purchased for resale
and fuel 30 664 12.1 8 755 3.6
Transmission (404) (7.7) (1 831) (25.9)
Other operation (7 275) (9.6) 3 430 4.7
Maintenance (1 429) (11.8) (712) (5.5)
Depreciation 20 0.1 528 3.6
Conservation and load management (7 661) (64.8) (22 373) (65.4)
Taxes -
Federal and state income 3 602 101.3 (1 258) (26.1)
Local property and other 349 4.5 869 12.6
17 866 4.6 (12 592) (3.2)
Operating Income 3 125 13.2 (1 154) (4.7)
Other Income (4) (1.6) (258) (50.5)
Income Before Interest Charges 3 121 13.1 (1 412) (5.6)
Interest Charges 47 0.3 (559) (3.6)
Net Income $ 3 074 34.1 $ (853) (8.7)
Retail Unit Sales MWH Increase 22 203 0.7 7 106 0.2
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COMMONWEALTH ELECTRIC COMPANY
Revenues and Unit Sales
The following is a summary of unit sales and customers for the periods
indicated:
Years Ended December 31,
1993 1992 1991
% %
Unit Sales (MWH): Change Change
Residential 1 587 338 0.1 1 586 577 2.7 1 545 308
Commercial 1 030 050 1.2 1 018 162 (4.0) 1 060 622
Industrial 328 220 0.7 325 912 (1.0) 329 173
Municipal and other 282 630 2.6 275 384 4.4 263 826
Total retail 3 228 238 0.7 3 206 035 0.2 3 198 929
Sales to other utilities 1 284 724 29.5 991 954 11.3 891 452
Total 4 512 962 7.5 4 197 989 2.6 4 090 381
Customers - 12 Month Average:
Residential (1) 269 736 1.2 266 513 0.2 265 969
Commercial (1) 34 362 0.4 34 348 0.9 34 057
Industrial 326 1.2 322 (5.8) 342
Municipal and other 3 315 3.7 3 198 4.7 3 055
Total 307 739 1.1 304 381 0.3 303 423
(1) Includes seasonal customers of 48,364 in 1993, 47,527 in 1992 and 47,200
in 1991. Service is considered to be "seasonal" when the kilowatthours
used in the billing months ending between June 1 and September 30 exceed
the kilowatthours used in the preceding eight months.
In 1993, operating revenues increased $21 million or 5.1% due primarily to
the increase in purchased power and fuel costs of $30.7 million (12.1%), a
7.5% increase in total unit sales and the recovery of approximately $2.3
million in lost base revenues related to conservation and load management
(C&LM) programs. Partially offsetting these increases was a lower level ($7.7
million) of C&LM program costs. Included in revenues were wholesale sales to
NEPOOL and to non-associate utilities of $26.5 million, $22.3 million and
$20.5 million in 1993, 1992 and 1991, respectively. Fluctuations in the level
of wholesale electric sales have little, if any, impact on earnings.
The Company has received approval from the Massachusetts Department of
Public Utilities (DPU) to recover in revenues current costs associated with
C&LM programs through the operation of a Conservation Charge (CC) decimal on a
dollar-for-dollar basis. To the extent that these expenses increase or
decrease from period to period based on customer participation, a corre-
sponding change will occur in revenues.
1992 operating revenues decreased $13.7 million or 3.2% despite an
increase in fuel and purchased power costs of $8.8 million (3.6%), a slight
increase in retail unit sales and a full year of higher base rates for the
Company. This reduction was due primarily to a $22.4 million or 65.4%
decrease in C&LM costs recovered by the Company.
Revenues during a portion of 1991 and through 1993 also reflect the impact
of the Company's Economic Development Rate which became effective on October
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COMMONWEALTH ELECTRIC COMPANY
1, 1991. Revenues were lower by $1.5 million, $1.3 million and $552,000 in
1993, 1992 and 1991, respectively. These amounts represent the difference
between what certain commercial and industrial customers would have paid prior
to the availability of this rate. For additional information on this special
rate, refer to the "Economic Development Rate" section in Item 1 of this
report.
Although 1993 retail electric unit sales increased by less than 1%, each
customer segment did show improvement. Unit sales reflect moderate growth in
customers, primarily residential, a greater demand for power from commercial
and seasonal customers reflecting an improving economy and, to a lesser
extent, more extreme weather conditions resulting in additional use to meet
heating or air conditioning requirements, offset somewhat by the impact of
conservation programs. Retail electric unit sales were virtually unchanged in
1992 due primarily to a 2.7% increase in the residential sector caused by a
return to normal (colder) temperatures, resulting in a more normal heating
season in the first and fourth quarters of the year, offset somewhat by a
cooler than average summer period, C&LM programs and the difficult economic
conditions in communities served by the Company.
Purchased Power, Fuel and Transmission
The cost of fuel used for electric generation and purchased power per KWH
sold was $.063, $.061 and $.060 for 1993, 1992 and 1991, respectively. These
costs constitute 66%, 62% and 58% of electric operating revenues for the
respective years. The upward trend since 1991 reflects the impact of the
Company's contractual obligations to take higher-cost power contracted for in
the 1980s when the Company's customer base grew dramatically and forecasts
predicted continued growth. These contracts, which are typically long-term,
will continue to drive costs up as additional capacity comes on line. The
Company is currently involved in negotiations to restructure or buy out
certain of these long-term contracts.
For 1993 and 1992, fuel and purchased power costs increased $30.7 million
or 12.1% and $8.8 million or 3.6%, respectively, due to higher unit sales in
both years and the contractual obligations discussed above including addition-
al power purchases from certain gas-fired independent power producing (IPP)
facilities. Both 1993 and 1992 reflect reduced purchases from Canal Electric
Company's units and other oil-fired units. The increased costs for power from
the IPPs and other sources were offset somewhat by lower Seabrook 1 costs in
both years. Reflected in purchased power and fuel for 1993 and 1992 was a
reduction in fuel costs of nearly $900,000 and $1.5 million, respectively, due
to the closing of the Company's Cannon Street generating station in late 1992
and a decline in other Company generation.
In addition, purchased power and fuel expense for 1993 and 1992 includes
$5.1 million and $1.5 million, respectively, for capacity-related costs
associated with certain purchased power contracts that were not recovered in
revenues due to the mechanism established by the DPU. The impact of this
under-recovery reduced net income by $3.1 million and $906,000 in 1993 and
1992, respectively. (Refer to the "Purchased Power" section in Item 1 on page
6 of this report.)
As more fully discussed in the "Energy Mix" section of Item 1 of this
report, the Company's energy mix has shifted during the last several years
PAGE 13
COMMONWEALTH ELECTRIC COMPANY
from oil to natural gas and other types of generation due to the availability
of capacity from IPP facilities and, to a lesser extent, an effort to reduce
its reliance on oil.
Oil-fired generation, although reduced from prior years' levels, still
accounts for a major percentage of the Company's total sources, including
purchased power. Reflected in the 1993 and 1992 cost is the increased use of
a cleaner burning but more expensive (1% sulphur) fuel oil at Canal. Average
oil prices in 1993 at Canal's generating plant were $14.02 per barrel as
compared to $12.95 and $12.53 per barrel in 1992 and 1991, respectively. In
compliance with restrictions on stack emissions, the Commonwealth of Massa-
chusetts mandated a reduction in sulphur dioxide emissions requiring the
periodic use of lower-sulphur (1%) content oil. In 1993, 1% oil averaged
$15.16 per barrel for Canal, a 12.1% decrease from the $17.25 cost in 1992.
However, lower-sulphur oil displaced 57.5% of the higher-sulphur (2.2%)
content oil as compared to 24% in 1992. This higher cost oil is reflected in
the total average cost per barrel for 1993 and 1992 but was not used at Canal
in 1991. The price of oil at Canal is expected to average approximately
$15.62 per barrel in 1994.
Shown below is an analysis of fuel, purchased power and C&LM costs
together with base rate components of retail electric revenue:
Percent of Retail Electric Revenue
1993 1992 1991
Revenue components:
Costs recovered in Fuel or
Conservation Charges 52.2% 48.4% 57.6%
Conservation and power costs in base rates 12.8 15.5 8.7
Base rates and other 35.0 36.1 33.7
100.0% 100.0% 100.0%
Historically, revenue collected through base rates has been designed to
reimburse the Company for all costs of operation other than fuel, purchased
power and transmission expenses and provide a fair return on the capital
invested in the business. As a result of the DPU's approval of new retail
rates effective July 1, 1991, the Company was ordered to collect certain long-
term capacity-related purchased power costs ($56.8 million in 1993, $52.9
million in 1992 and $26.2 million in 1991) and a portion of costs related to
its C&LM programs ($8.6 million in 1992 and $8.3 million in 1991) through its
base rates. Beginning February 1, 1992, the Company's recovery of C&LM costs
were split from base rates through a separately stated Conservation Charge
(CC) decimal based on KWH used.
PAGE 14
COMMONWEALTH ELECTRIC COMPANY
The following is an analysis of the Company's revenue components and
current recoverable costs for the years 1993, 1992 and 1991:
Years Ended December 31,
1993 1992 1991
(Dollars in Thousands)
% %
Retail electric revenue: Change Change
Costs recovered in Fuel
or Conservation Charges $210 717 12.4 $187 474 (19.2) $232 086
Conservation Charges and
power costs in base rates 51 749 (14.0) 60 188 71.3 35 146
Base rates and other 141 555 1.4 139 579 3.0 135 531
Total retail revenue 404 021 4.3 387 241 (3.9) 402 763
Total wholesale revenue 26 463 18.9 22 252 8.7 20 476
Total revenue $430 484 5.1 $409 493 (3.2) $423 239
Other Operation
In 1993, other operation decreased $7.3 million or 9.6% due to the absence
in the current year of costs associated with the Company's Cannon Street
generating station ($1.5 million) and the net savings of $1.1 million ($2.9
million in payroll savings less $1.8 million in severance costs) associated
with the second quarter work force reduction which is expected to save more
than $4 million annually in direct payroll costs. Also contributing to the
lower costs in 1993 was the provision for bad debts expense which declined $2
million or 39.2% due to better payment experience reflecting improving
economic conditions, lower affiliate services company charges ($1 million) due
to the work force reduction and the absence in the current year of consulting
fees ($900,000) associated with the independent management audit conducted in
1992. Also contributing to the lower expense level in 1993 was a decline in
employee medical and life insurance costs of $700,000 and lower liability
insurance costs of $300,000 due to fewer and less costly claims. Offsetting
these decreases somewhat was an increase in pension costs of $600,000.
Major factors contributing to the 4.7% increase in other operation in 1992
were the higher cost ($1.2 million) of medical and other types of insurance
and approximately $900,000 for consulting fees associated with the aforemen-
tioned management audit. Also, computer-related and other professional
services provided to the Company by an affiliate services company were higher
by $1.2 million in 1992. The provision for bad debts increased by $70,000
reflecting the difficult economic conditions in the Company's service territo-
ry and a decline in fuel assistance programs. Certain factors offsetting
these increases were: 1) a $1.7 million reduction in net pension expense as a
result of asset valuation changes and the Company's deferral of $1.4 million
of accrued pension costs pursuant to current rate-making; and 2) continued
positive results from the Company's cost containment efforts, including
reduced overtime, work force reductions through attrition, early retirements
and the elimination of forty positions and associated costs relating to the
closing of the Company's Cannon Street generating station on October 1.
PAGE 15
COMMONWEALTH ELECTRIC COMPANY
The total number of full-time employees declined 17.6% to 917 in 1993 from
1,113 employees at year-end 1991. Management views the current work force
level to be appropriate for service to its customers.
Maintenance
Maintenance continued to decrease in 1993 from 1992 and 1991 levels due
primarily to reduced transmission and distribution-related costs and, to a
lesser extent, the decreased use and subsequent closing of the Cannon Street
facility.
Depreciation, Conservation and Load Management and Taxes
Depreciation expense was virtually unchanged compared to 1992 reflecting a
somewhat level depreciable plant base resulting from the abandonment of the
Cannon Street generating station offsetting the impact of additions during the
period. In 1992 depreciation expense rose 3.6% as a result of a higher level
of plant in service, particularly additions to transmission and distribution
facilities.
C&LM costs for 1993 and 1992 included cash expenditures of $3.7 million
and $8.1 million, respectively, and amortization of previously deferred costs
which amounted to $500,000 in 1993 and $3.7 million in 1992.
Income tax expense increased due to the significantly higher level of
pretax income and, to a lesser extent, an increase in the federal income tax
rate to 35%, retroactive to January 1, 1993. In 1992, income tax expense
decreased $1.3 million or 26.1% as a result of lower pretax income.
The 1993 and 1992 increases in local property and other taxes reflect a
combination of higher property tax rates and/or assessments in certain cities
and towns in the Company's service area.
Other Income and Interest Charges
In 1993, the slight decrease in other income was due to the absence in
1993 of interest income from overpayment of Seabrook costs ($232,000) which
were refunded to customers in 1992, a decrease in the interest on the unamor-
tized portion of prior period conservation and load management program costs
($71,000) and a loss ($38,000) resulting from the disposition of the Cannon
Street station oil inventory. This decrease was somewhat offset by an
increase in interest income ($201,000) from loans to affiliated companies and
a reduction in other income deductions ($117,000) that reflects a $75,000
reversal (in the third quarter of 1993) of a 1992 charge related to the
Company's 2.5% interest in the Yankee Atomic Power Company. This reversal was
made as a result of a Federal Energy Regulatory Commission audit in late 1993.
The decline in other income in 1992 was due to a decrease in interest
income ($208,000) from overpayment of Seabrook costs which were recovered in
early 1992 and the inclusion in 1992 of industry-related membership fees
($120,000) in other income deductions which were included in other operation
expense in 1991. Also included in 1992 is the Company's write-off of Hurri-
cane Bob (August 1991) expenses of $9.2 million ($5.7 million after-tax) which
had been deferred in 1991 and an equal after-tax amount of the regulatory
PAGE 16
COMMONWEALTH ELECTRIC COMPANY
liability related to deferred income taxes that would have otherwise been
returned to customers.
In 1993, short-term interest charges decreased $2.5 million due to lower
interest rates and a lower average level of borrowings. Interest rates on
short-term borrowings averaged 3.4% in 1993 compared to 4% in 1992. In addi-
tion, 1993 reflects the absence of interest paid to customers in 1992
($232,000) relating to the overcollection of Seabrook costs. The decreases in
short-term interest charges were nearly offset by increases in long-term
charges of $2.4 million in 1993, reflecting the issuance of $65 million in new
long-term debt in March 1993.
Total interest charges decreased 3.6% in 1992 due to the 9.7% decline in
short-term interest charges ($456,000) and the 3.1% decline in long-term
interest charges ($348,000). Despite a higher average level of short-term
borrowings created, in part, by the retirement of the Company's $7.5 million
Series D Note, short-term interest declined due to lower interest rates on
bank borrowings which averaged 4% for 1992 as compared to 6.3% for 1991. In
addition, accrued interest on the overcollection of Seabrook 1 costs noted
above decreased $208,000.
Financing Activity
On March 31, 1993, the Company issued long-term notes totaling $65
million. The notes, which were sold through a private placement with institu-
tional investors, consisted of the following:
10 Year, 7.43% Notes, Due 2003 $15,000,000
15 Year, 7.70% Notes, Due 2008 10,000,000
20 Year, 7.98% Notes, Due 2013 25,000,000
30 Year, 8.47% Notes, Due 2023 15,000,000
$65,000,000
The proceeds from the notes, together with the proceeds from the Company's
sale of 437,500 shares of common stock to the System for $35 million, were
used to repay outstanding short-term borrowings incurred to temporarily
finance additions to property, plant and equipment and to retire $21.8 million
of three series of long-term debt on March 1, 1993, as follows:
Series E, 8.125% Notes, Due 1995 $ 4,860,000
Series B, 6.125% Notes, Due 1997 4,440,000
Series F, 8.375% Notes, Due 1998 12,000,000
$21,300,000
The Company paid a premium totaling $337,000 on the early retirement of
debt and is amortizing this amount to expense over the remaining original life
of the retired issues.
New Accounting Standards
Effective January 1, 1993, the Company adopted the provisions of State-
ment of Financial Accounting Standards No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions." For further information, refer
to Note 4(b) of the Notes to Financial Statements.
PAGE 17
COMMONWEALTH ELECTRIC COMPANY
In 1992, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 112, "Employers' Accounting for Postemploy-
ment Benefits" (SFAS 112). The Company is required to adopt this statement
effective January 1, 1994. SFAS 112 requires employers to recognize the
obligation to provide benefits to former or inactive employees after employ-
ment but before retirement (postemployment). Those benefits include salary
continuation, supplemental employment benefits, severance benefits, disabili-
ty-related benefits and continuation of health care and life insurance
coverage if each of the following conditions are met: 1) the obligation is
attributable to employee services already rendered, 2) employees' rights to
those benefits accumulate or vest, 3) payment of the benefits is probable and
4) the cost of the benefits can be reasonably estimated. The Company believes
that the adoption of the provisions of SFAS 112 will not have a material
impact on its financial position or results of operations.
Item 8. Financial Statements and Supplementary Data
The Company's financial statements required by this item are filed here-
with on pages 18 through 37 of this report.
Item 9. Changes in and Disagreements With Accountants on Accounting
and Financial Disclosure
None.
PAGE 18
COMMONWEALTH ELECTRIC COMPANY
Item 8. Financial Statements and Supplementary Data
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Commonwealth Electric Company:
We have audited the accompanying balance sheets of COMMONWEALTH ELECTRIC
COMPANY (a Massachusetts corporation and wholly-owned subsidiary of Common-
wealth Energy System) as of December 31, 1993 and 1992, and the related
statements of income, retained earnings and cash flows for each of the three
years in the period ended December 31, 1993. These financial statements and
the schedules referred to below are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and schedules based upon 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 Commonwealth
Electric Company as of December 31, 1993 and 1992, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1993, in conformity with generally accepted accounting princi-
ples.
As discussed in Note 4 to the financial statements, effective January 1,
1993, the Company changed its method of accounting for costs associated with
postretirement benefits other than pensions.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedules listed in the index to
financial statements and schedules are presented for purposes of complying
with the Securities and Exchange Commission's rules and are not part of the
basic financial statements. These schedules have been subjected to the
auditing procedures applied in the audits of the basic financial statements
and, in our opinion, fairly state in all material respects the financial data
required to be set forth therein in relation to the basic financial statements
taken as a whole.
ARTHUR ANDERSEN & CO.
Arthur Andersen & Co.
Boston, Massachusetts,
February 17, 1994.
PAGE 19
COMMONWEALTH ELECTRIC COMPANY
INDEX TO FINANCIAL STATEMENTS AND SCHEDULES
PART II.
FINANCIAL STATEMENTS
Balance Sheets at December 31, 1993 and 1992
Statements of Income for the Years Ended December 31, 1993, 1992 and 1991
Statements of Retained Earnings for the Years Ended December 31, 1993,
1992 and 1991
Statements of Cash Flows for the Years Ended December 31, 1993, 1992 and
1991
Notes to Financial Statements
PART IV.
SCHEDULES
III Investments in, Equity in Earnings of, and Dividends Received from
Related Parties for the Years Ended December 31, 1991, 1992 and 1993
V Property, Plant and Equipment for the Years Ended December 31, 1993,
1992 and 1991
VI Accumulated Depreciation of Property, Plant and Equipment for the
Years Ended December 31, 1993, 1992 and 1991
VIII Valuation and Qualifying Accounts for the Years Ended December 31,
1993, 1992 and 1991
IX Short-Term Borrowings for the Years Ended December 31, 1993, 1992 and
1991
SCHEDULES OMITTED
All other schedules are not submitted because they are not applicable or
not required or because the required information is included in the financial
statements or notes thereto.
Financial statements of 50% or less owned companies accounted for by the
equity method have been omitted because they do not, considered individually,
constitute a significant subsidiary.
PAGE 20
COMMONWEALTH ELECTRIC COMPANY
BALANCE SHEETS
DECEMBER 31, 1993 AND 1992
ASSETS
1993 1992
(Dollars in Thousands)
PROPERTY, PLANT AND EQUIPMENT, at original cost $475 348 $476 839
Less - Accumulated depreciation 133 349 135 684
341 999 341 155
Add - Construction work in progress 5 478 4 794
347 477 345 949
INVESTMENTS
Equity in nuclear electric power company 601 601
Other 14 14
615 615
CURRENT ASSETS
Cash 2 794 507
Advances to affiliates 4 485 -
Accounts receivable -
Affiliated companies 2 413 3 906
Customers, less reserves of $3,268,000 in 1993
and $3,131,000 in 1992 38 743 36 366
Unbilled revenues 9 332 15 444
Inventories, at average cost -
Materials and supplies 4 658 6 040
Electric production fuel oil 202 485
Prepaid property taxes 2 538 2 380
Other 1 927 1 547
67 092 66 675
DEFERRED CHARGES (Notes 1, 2 and 4) 34 619 25 300
$449 803 $438 539
PAGE 21
COMMONWEALTH ELECTRIC COMPANY
BALANCE SHEETS
DECEMBER 31, 1993 AND 1992
CAPITALIZATION AND LIABILITIES
1993 1992
(Dollars in Thousands)
CAPITALIZATION
Common Equity -
Common stock, $25 par value -
Authorized and outstanding -
2,043,972 shares in 1993 and
1,606,472 shares in 1992,
wholly-owned by Commonwealth
Energy System (Parent) $ 51 099 $ 40 162
Amounts paid in excess of par value 97 112 73 049
Retained earnings (Note 6) 15 118 14 882
163 329 128 093
Long-term debt, including premiums, less
current sinking fund requirements (Note 5) 158 858 116 213
322 187 244 306
CURRENT LIABILITIES
Interim Financing (Note 5) -
Notes payable to banks - 67 275
Advances from affiliates - 11 840
- 79 115
Other Current Liabilities -
Current sinking fund requirements 1 053 537
Accounts payable -
Affiliated companies 10 088 10 797
Other 22 044 17 231
Accrued taxes -
Local property and other 3 017 2 637
Income 2 337 610
Accrued interest 4 027 3 092
Other 9 098 7 003
51 664 41 907
51 664 121 022
DEFERRED CREDITS
Accumulated deferred income taxes 39 396 34 346
Unamortized investment tax credits 8 430 8 876
Other 28 126 29 989
75 952 73 211
COMMITMENTS AND CONTINGENCIES (Note 2)
$449 803 $438 539
The accompanying notes are an integral part of these financial statements.
PAGE 22
COMMONWEALTH ELECTRIC COMPANY
STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
1993 1992 1991
(Dollars in Thousands)
ELECTRIC OPERATING REVENUES $430 484 $409 493 $423 239
OPERATING EXPENSES
Electricity purchased for resale
and fuel 284 980 254 316 245 561
Transmission 4 836 5 240 7 071
Other operation 68 797 76 072 72 642
Maintenance 10 714 12 143 12 855
Depreciation 15 032 15 012 14 484
Conservation and load
management 4 165 11 826 34 199
Taxes -
Income (Note 3) 7 158 3 556 4 814
Local property 5 023 4 694 3 730
Payroll and other 3 066 3 046 3 141
403 771 385 905 398 497
OPERATING INCOME 26 713 23 588 24 742
OTHER INCOME, net 249 253 511
INCOME BEFORE INTEREST CHARGES 26 962 23 841 25 253
INTEREST CHARGES
Long-term debt 13 252 10 891 11 239
Other interest charges 1 738 4 248 4 704
Allowance for borrowed funds used
during construction (106) (302) (547)
14 884 14 837 15 396
NET INCOME $ 12 078 $ 9 004 $ 9 857
The accompanying notes are an integral part of these financial statements.
PAGE 23
COMMONWEALTH ELECTRIC COMPANY
STATEMENTS OF RETAINED EARNINGS
FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
1993 1992 1991
(Dollars in Thousands)
Balance at beginning of year $14 882 $14 151 $12 246
Add (Deduct):
Net income 12 078 9 004 9 857
Cash dividends on common stock (11 842) (8 273) (7 952)
Balance at end of year $15 118 $14 882 $14 151
The accompanying notes are an integral part of these financial statements.
PAGE 24
COMMONWEALTH ELECTRIC COMPANY
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
1993 1992 1991
(Dollars in Thousands)
OPERATING ACTIVITIES
Net income $ 12 078 $ 9 004 $ 9 857
Effects of non-cash items -
Depreciation and amortization 16 447 19 666 25 224
Deferred income taxes 4 407 (5 176) (729)
Investment tax credits (446) (452) (482)
Earnings from corporate joint ventures - (75) (73)
Change in working capital exclusive of cash
and interim financing -
Accounts receivable and unbilled
revenues 5 228 7 119 (7 485)
Income taxes, net 1 727 (3 705) (2 280)
Local property and other taxes, net 222 (25) 390
Accounts payable and other 8 935 (2 159) 4 608
Uncollected postretirement benefits
costs (Note 4) (4 087) - -
All other operating items (5 590) 7 580 (10 856)
Net cash provided by operating activities 38 921 31 777 18 174
INVESTING ACTIVITIES
Additions to property, plant and
equipment (exclusive of AFUDC) (18 631) (20 821) (31 303)
Allowance for borrowed funds used
during construction (106) (302) (547)
Advances to affiliates (4 485) - -
Net cash used for investing activities (23 222) (21 123) (31 850)
FINANCING ACTIVITIES
Long-term debt issues 65 000 - -
Sale of common stock to Parent 35 000 - -
Payment of dividends (11 842) (8 273) (7 952)
Proceeds from (payment of)
short-term borrowings (67 275) 3 975 15 050
Advances from (payment to) affiliates (11 840) 2 290 7 215
Long-term debt issues refunded (21 300) (7 522) -
Retirement of long-term debt
through sinking funds (1 155) (631) (636)
Net cash provided by (used for)
financing activities (13 412) (10 161) 13 677
Net increase in cash 2 287 493 1
Cash at beginning of period 507 14 13
Cash at end of period $ 2 794 $ 507 $ 14
The accompanying notes are an integral part of these financial statements.
PAGE 25
COMMONWEALTH ELECTRIC COMPANY
NOTES TO FINANCIAL STATEMENTS
(1) Significant Accounting Policies
(a) General and Regulatory
Commonwealth Electric Company (the Company) is a wholly-owned subsidiary
of Commonwealth Energy System. The parent company is referred to in this
report as the "System" and, together with its subsidiaries, is collectively
referred to as "the system." The Company is regulated as to rates, accounting
and other matters by various authorities including the Federal Energy Regula-
tory Commission (FERC) and the Massachusetts Department of Public Utilities
(DPU). The System is an exempt holding company under the provisions of the
Public Utility Holding Company Act of 1935 and, in addition to its investment
in the Company, has interests in other utility companies and several non-
regulated companies.
The Company has established various regulatory assets in cases where the
DPU and/or the FERC have permitted, or are expected to permit, recovery of
specific costs over time. At December 31, 1993, principal regulatory assets
included in deferred charges were $8.6 million for unrecovered plant and
decommissioning costs for the Yankee Atomic nuclear plant, $7.4 million in
litigation costs associated with a settlement agreement with Boston Edison
Company relative to the Pilgrim nuclear power plant, $4.4 million in abandon-
ment costs for the Cannon Street generating station and $4.1 million for
postretirement benefits costs. The more significant regulatory liabilities,
reflected in deferred credits, include $8.6 million related to the Yankee
Atomic nuclear plant and $4 million related to income taxes.
(b) Reclassifications
Certain prior year amounts are reclassified from time to time to conform
with the presentation used in the current year's financial statements.
(c) Transactions with Affiliates
Transactions between the Company and other system companies include
purchases and sales of electricity, including purchases from Canal Electric
Company (Canal), an affiliate wholesale electric generating company. Other
costs billed by Canal relate to the abandonment of Seabrook 2 for the three
years ending in 1993 and the recovery of a portion of Seabrook 1 pre-commer-
cial operation financing costs in 1991. In addition, payments for management,
accounting, data processing and other services are made to affiliate COM/Ener-
gy Services Company. Transactions with other system companies are subject to
review by the DPU.
The Company's operating revenues include the following major intercompany
transactions for the periods indicated:
Purchased Power
and Transmission
Period Ended Purchased Power Purchased Power From Canal
December 31, Canal Units Seabrook 1 As Agent
(Dollars in Thousands)
1993 $40 537 $36 467 $20 881
1992 46 844 37 482 22 992
1991 53 547 50 912 26 422
PAGE 26
COMMONWEALTH ELECTRIC COMPANY
The Company sold electricity to other affiliates, primarily station
service for Canal, totaling $2,973,000, $2,733,000 and $8,065,000 in 1993,
1992 and 1991, respectively, and the Company also purchased natural gas from
affiliate Commonwealth Gas Company totaling $106,000 in 1992 and $1,288,000 in
1991 (there were no purchases in 1993).
(d) Operating Revenues
Customers are billed for their use of electricity on a cycle basis
throughout the month. To reflect revenues in the proper period, the estimated
amount of unbilled sales revenue is recorded each month.
The Company is generally permitted to bill customers currently for fuel
used in electric production, purchased power and transmission costs, and
conservation and load management costs through adjustment clauses. Amounts
recoverable under these clauses are subject to review and adjustment by the
DPU. The Company collects a portion of capacity-related purchased power costs
associated with certain long-term power arrangements through base rates. The
amount of such fuel and energy costs incurred but not yet reflected in
customers' bills, which totaled $3,056,000 in 1993 and $6,918,000 in 1992, is
recorded as unbilled revenues.
(e) Depreciation
Depreciation is provided using the straight-line method at rates intended
to amortize the original cost and the estimated cost of removal less salvage
of properties over their estimated economic lives. The average composite
depreciation rates were 3.31% in 1993 and 3.39% in 1992 and 1991.
(f) Maintenance
Expenditures for repairs of property and replacement and renewal of items
determined to be less than units of property are charged to maintenance
expense. Additions, replacements and renewals of property considered to be
units of property are charged to the appropriate plant accounts. Upon
retirement, accumulated depreciation is charged with the original cost of
property units and the cost of removal less salvage.
(g) Allowance for Funds Used During Construction
Under applicable rate-making practices, the Company is permitted to
include an allowance for funds used during construction (AFUDC) as an element
of its depreciable property costs. This allowance is based on the amount of
construction work in progress that is not included in the rate base on which
the Company earns a return. An amount equal to the AFUDC capitalized in the
current period is reflected in the accompanying Statements of Income.
While AFUDC does not provide funds currently, these amounts are recover-
able in revenues over the service life of the constructed property. The
amount of AFUDC recorded was at a weighted average rate of 4% in 1993, 4.50%
in 1992 and 6.75% in 1991.
PAGE 27
COMMONWEALTH ELECTRIC COMPANY
(2) Commitments and Contingencies
(a) Financing and Construction Programs
The Company is engaged in a continuous construction program presently
estimated at $141 million for the five-year period 1994 through 1998. Of that
amount, $24.8 million is estimated for 1994. The program is subject to
periodic review and revision because of factors such as changes in business
conditions, rates of customer growth, effects of inflation, maintenance of
reliable and safe service, equipment delivery schedules, licensing delays,
availability and cost of capital and environmental factors. The Company
expects to finance these expenditures on an interim basis with internally
generated funds and short-term borrowings which are ultimately expected to be
repaid with the proceeds from sales of long-term debt and equity securities.
(b) Power Contracts
The Company has long-term contracts for the purchase of electricity from
various sources. Generally, these contracts are for fixed periods and require
that the Company pay a demand charge for the capacity entitlement and an
energy charge to cover the cost of fuel. In addition, the Company pays its
share of decommissioning expense to non-affiliate Boston Edison Company, the
operator of the Pilgrim nuclear facility, as a cost of electricity purchased
for resale.
The Company has entered into Power Contracts with Canal for a portion of
the capacity from Canal Units 1 and 2. In addition, Canal seeks to secure
bulk electric power on a single system basis to provide cost savings for the
customers of the Company and Cambridge Electric under terms of a Capacity
Acquisition and Disposition Agreement (CADA) which has been accepted for
filing as an amendment to Canal's rate schedule by the FERC. The CADA allows
Canal to act as agent for the Company and Cambridge Electric in the procure-
ment of additional capacity for one or both companies, or, to sell a portion
of each company's entitlement of capacity and/or energy produced by Canal Unit
2. Such "Commitments" are in effect for Seabrook 1, Phases I and II of Hydro-
Quebec, New England Power Company (Bear Swamp Units), Green Mountain Power
Corporation, Northeast Utilities and for Central Vermont Public Service Corp.
(Vermont Yankee and Merrimac 2 Unit). Exchange agreements are in place with
several of these utilities whereby, in certain circumstances, it is possible
to exchange capacity so that the mix of power improves the pricing for
dispatch for both the seller and the purchaser. Power contracts are in place,
whereby Canal bills or credits the Company and Cambridge Electric for the
costs or revenues received associated with these facilities. The Company and
Cambridge Electric, in turn, have billed or are billing these net charges (net
of revenues from sales) to their customers through rates which are subject to
DPU approval.
PAGE 28
COMMONWEALTH ELECTRIC COMPANY
Pertinent information with respect to life-of-the-unit contracts for power
from the Pilgrim unit and an ownership in Central Maine Power Company's Wyman
Unit 4, an oil-fired unit, is as follows:
Wyman
Pilgrim Unit 4
(Dollars in Thousands)
Joint Ownership - 1.4%
Plant Entitlement 11.0% 1.4%
Plant Capability (MW) 664.7 619.2
Company's Entitlement (MW) 73.1 8.8
Contract Expiration Date 2012 -
1991 Actual Cost $30 992 $296
1992 Actual Cost 37 516 332
1993 Actual Cost 40 578 163
1994 Estimated Cost 41 963 205
The Company has also contracted to purchase power and transmission
capacity from various other generating and transmission facilities as follows:
Estimated
1991 1992 1993 1994
MW Cost MW Cost MW Cost MW Cost
(Dollars in Thousands)
Purchased Power -
Nuclear 82.6 $42 016 6.8 $ 1 560 3.7 $ 1 187 2.2 $ 506
Hydro 30.9 13 052 14.0 11 784 15.1 9 731 15.0 11 087
Cogenerating 117.0 34 938 162.0 69 742 161.0 104 719 261.5 135 363
Waste-to-energy
and other 92.1 33 009 78.9 31 336 74.7 36 013 72.1 35 862
Transmission -
(Hydro-Quebec) - 3 884 - 2 991 - 3 015 - 3 165
Costs under these and other contracts are included in electricity pur-
chased for resale and fuel in the accompanying Statements of Income and are
recoverable in revenues through either the Fuel Charge or in base rates.
(c) Yankee Atomic Nuclear Power Plant
On February 26, 1992, the Board of Directors of Yankee Atomic Electric
Company agreed to permanently discontinue power operation of its plant and, in
time, decommission that facility. This plant provided less than 1% of the
Company's capacity. The Company's 2.5% investment in Yankee Atomic is
approximately $600,000. Presently, purchased power costs, which include a
provision for ultimate decommissioning of the unit, are billed to the Company
and collected from customers.
The Company has estimated its unrecovered share of all costs associated
with the shutdown of the facility, recovery of its respective plant investment
and decommissioning and closing the plant to be approximately $8.6 million.
This amount is reflected in the accompanying Balance Sheets as a liability and
a corresponding regulatory asset at December 31, 1993.
PAGE 29
COMMONWEALTH ELECTRIC COMPANY
(d) Environmental Matters
The Company is subject to laws and regulations administered by federal,
state and local authorities relating to the quality of the environment. These
laws and regulations affect, among other things, the siting and operation of
electric generating and transmission facilities and can require the installa-
tion of expensive air and water pollution control equipment. These regula-
tions have had an impact upon the Company's operations in the past and will
continue to have an impact upon future operations, capital costs and construc-
tion schedules of major facilities.
(3) Income Taxes
For financial reporting purposes, the Company provides federal and state
income taxes on a separate return basis. However, for federal income tax
purposes, the Company's taxable income and deductions are included in the
consolidated income tax return of the System and it makes tax payments or
receives refunds on the basis of its tax attributes in the tax return in
accordance with applicable regulations.
The following is a summary of the Company's provisions for income taxes
for the years ended December 31, 1993, 1992 and 1991.
1993 1992 1991
(Dollars in Thousands)
Federal
Current $ 2 627 $ (15) $ 4 948
Deferred 3 705 (4 548) (668)
Investment tax credits (446) (452) (482)
5 886 (5 015) 3 798
State
Current 570 (34) 1 057
Deferred 749 348 (61)
1 319 314 996
7 205 (4 701) 4 794
Amortization of regulatory liability
relating to deferred income taxes (47) (976) -
$ 7 158 $(5 677) $ 4 794
Federal and state income taxes
charged to:
Operating expense $ 7 158 $ 3 556 $ 4 814
Other income - (9 233) (20)
$ 7 158 $(5 677) $ 4 794
Effective January 1, 1992, the Company adopted the provisions of Statement
of Financial Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS
No. 109). SFAS No. 109 requires recognition of deferred tax liabilities and
assets for the expected future tax consequences of events that have been
included in the financial statements or tax returns. Under this method,
deferred tax liabilities and assets are determined based on the difference
between the financial statement and tax basis of assets and liabilities using
tax rates in effect in the year in which the differences are expected to
reverse.
PAGE 30
COMMONWEALTH ELECTRIC COMPANY
Accumulated deferred income taxes consisted of the following in 1993 and
1992:
1993 1992
(Dollars in Thousands)
Liabilities
Property-related $44 837 $40 483
Litigation costs 2 886 2 957
Postretirement benefits plan 2 222 376
All other 1 918 2 050
51 863 45 866
Assets
Investment tax credit 5 441 5 507
Pension plan 1 384 1 302
Regulatory liability - 630
Uncollectible accounts 1 282 1 137
All other 2 463 1 706
10 570 10 282
Accumulated deferred income taxes $41 293 $35 584
The year-end deferred income tax liability above includes a current
deferred tax liability of $1,897,000 in 1993 and $1,238,000 in 1992 which was
reported in accrued income taxes in the accompanying Balance Sheets.
The following table, detailing the significant timing differences for 1991
which resulted in deferred income taxes, is required to be disclosed pursuant
to accounting standards for income taxes in effect prior to adoption of SFAS
No. 109:
1991
(Dollars in Thousands)
Accelerated depreciation $ 3 593
Seabrook power contract settlement (2 229)
Capitalized interest during construction (150)
Contributions in aid of construction (451)
Capitalized leases (579)
Pension costs and deferred compensation (394)
Conservation and load management (4 370)
Replacement power costs 1 656
Transmission costs (508)
Storm damage 3 638
Voluntary retirement program (20)
Other (915)
Deferred income tax provision $ (729)
PAGE 31
COMMONWEALTH ELECTRIC COMPANY
The total income tax provision set forth above represents 37% in 1993,
(171)% in 1992 and 33% in 1991 of income before such taxes. The following
table reconciles the statutory federal income tax rate to these percentages:
1993 1992 1991
(000's)
Federal statutory rate 35% 34% $ 1 131 34%
Increase (Decrease) from statutory rate:
Amortization of regulatory liability
relating to deferred income taxes - (173) (5 768) -
State tax net of federal tax benefit 4 7 228 5
Amortization of investment tax credit (2) (14) (452) (3)
Tax versus book depreciation 1 3 111 1
Amortization of excess
deferred reserves - (28) (920) (3)
Other (1) - (7) (1)
Effective federal tax rate 37% (171)% $(5 677) 33%
On April 22, 1992, the Company reached a settlement agreement with the
Attorney General of Massachusetts and a consumer group, which was approved by
the DPU. The settlement resulted in the issuance of an accounting order
authorizing the Company's retention of $5.7 million in excess deferred taxes
subject to obtaining a favorable ruling from the Internal Revenue Service
which was received on November 30, 1992.
In accordance with the above settlement agreement, the Company wrote off
in 1992 storm damage costs of $9.2 million ($5.7 million net of tax). The
balance of the excess reserves that would have been returned to customers was
removed from the deferred tax reserve account and, after adjustment to its
pretax amount as required by SFAS 109, was credited to a liability account.
The excess reserves/regulatory liability which the Company would retain
pursuant to the settlement agreement was also removed from this liability
account and credited to other income together with the related income taxes.
These amounts were classified as income tax expense and were used in the
reconciliation of the income tax rate.
As a result of the Revenue Reconciliation Act of 1993, the Company's
federal income tax rate increased to 35% effective January 1, 1993.
(4) Employee Benefit Plans
(a) Pension
The Company has a noncontributory pension plan covering substantially all
regular employees who have attained the age of 21 and have completed a year of
service. Pension benefits are based on an employee's years of service and
compensation. The Company makes monthly contributions to the plan consistent
with the funding requirements of the Employee Retirement Income Security Act
of 1974.
PAGE 32
COMMONWEALTH ELECTRIC COMPANY
Components of pension expense were as follows:
1993 1992 1991
(Dollars in Thousands)
Service cost $ 2 630 $ 2 728 $ 2 815
Interest cost 9 283 8 506 7 532
Return on plan assets (16 412) (10 992) (20 677)
Net amortization and deferral 9 130 4 235 15 209
Total pension expense 4 631 4 477 4 879
Transfers to affiliated companies, net (465) (609) (575)
Less: Amounts capitalized and deferred 1 379 2 127 839
Net pension expense $ 2 787 $ 1 741 $ 3 465
The following economic assumptions were used to measure year-end obliga-
tions and the estimated pension expense for the subsequent year:
1993 1992 1991
Discount rate 7.25% 8.50% 8.50%
Assumed rate of return 8.50 8.50 8.50
Rate of increase in future compensation 4.50 5.50 5.50
Pension expense reflects the use of the projected unit credit method which
is also the actuarial cost method used in determining future funding of the
plan. The Company, in accordance with current rate-making, is deferring the
difference between pension contribution, which is allowed currently in base
rates, and pension expense recognized pursuant to Statement of Financial
Accounting Standards No. 87, "Employers' Accounting for Pensions." The funded
status of the Company's pension plan (using a measurement date of December 31)
is as follows:
1993 1992
(Dollars in Thousands)
Accumulated benefit obligation:
Vested $ (95 433) $ (74 178)
Nonvested (13 030) (5 815)
$(108 463) $ (79 993)
Projected benefit obligation $(131 066) $(104 024)
Plan assets at fair market value 120 685 107 529
Projected benefit obligation less
(greater) than plan assets (10 381) 3 505
Unamortized transition obligation 5 146 5 789
Unrecognized prior service cost 5 520 4 139
Unrecognized gain (5 095) (17 321)
Accrued pension liability $ (4 810) $ (3 888)
Plan assets consist primarily of fixed income and equity securities.
Fluctuations in the fair market value of plan assets will affect pension
expense in future years. The increase in the accumulated benefit obligation
and the projected benefit obligation from December 31, 1992 to December 31,
1993 was primarily due to a reduction of the discount rate in light of current
interest rates.
PAGE 33
COMMONWEALTH ELECTRIC COMPANY
(b) Other Postretirement Benefits
Through December 31, 1992, the Company provided postretirement health care
and life insurance benefits to eligible retired employees. Employees became
eligible for these benefits if their age plus years of service at retirement
equaled 75 or more provided, however, that such service was performed for the
Company or another subsidiary of the System. As of January 1, 1993, the
Company eliminated postretirement health care benefits for those nonbargaining
employees who were less than 40 years of age or had less than 12 years of
service at that date. Under certain circumstances, eligible employees are now
required to make contributions for postretirement benefits. Certain bargain-
ing employees are also participating under these new eligibility requirements.
Effective January 1, 1993, the Company adopted the provisions of Statement
of Financial Accounting Standards No. 106, "Employers' Accounting for Postre-
tirement Benefits Other Than Pensions" (SFAS No. 106). This new standard
requires the accrual of the expected cost of such benefits during the employ-
ees' years of service and the recognition of an actuarially determined postre-
tirement benefit obligation earned by existing retirees. The assumptions and
calculations involved in determining the accrual and the accumulated postre-
tirement benefit obligation (APBO) closely parallel pension accounting
requirements. The cumulative effect of implementation of SFAS No. 106 as of
January 1, 1993 was approximately $48.3 million which is being amortized over
20 years. Prior to 1993, the cost of postretirement benefits was recognized
as the benefits were paid. The cost of retiree medical care and life insur-
ance benefits under the traditional pay-as-you-go method totaled $1,915,000
during 1992 and $1,668,000 in 1991.
In 1993, the Company began making contributions to various voluntary
employee beneficiary association (VEBA) trusts that were established pursuant
to section 501(c)9 of the Internal Revenue Code (the Code). The Company also
made contributions to a sub-account of its pension plan pursuant to section
401(h) of the Code to satisfy a portion of its postretirement benefit obliga-
tion. The Company contributed approximately $5,964,000 to these trusts during
1993.
The net periodic postretirement benefit cost for the year ended December
31, 1993 included the following components:
1993
(Dollars in Thousands)
Service cost $ 1 093
Interest cost 4 103
Return on plan assets (292)
Amortization of transition obligation over 20 years 2 417
Net amortization and deferral 3
Total postretirement benefit cost 7 324
Less: Amounts capitalized and deferred 5 701
Net postretirement benefit cost $ 1 623
PAGE 34
COMMONWEALTH ELECTRIC COMPANY
The funded status of the Company's postretirement benefit plan using a
measurement date of December 31, 1993 is as follows:
1993
(Dollars in Thousands)
Accumulated postretirement benefit obligation:
Retirees $ (27 520)
Active participants (23 033)
(50 553)
Plan assets at fair market value 5 308
Projected postretirement benefit obligation greater
than plan assets (45 245)
Unamortized transition obligation 45 917
Unrecognized gain (672)
$ -
In determining its estimated APBO and the funded status of the plan, the
Company assumed a discount rate of 7.25%, an expected long-term rate of return
on plan assets of 8.5%, and a medical care cost trend rate of 9%, which
gradually decreases to 5% in the year 2007 and remains at that level thereaf-
ter. The estimate also reflects a trend rate of 14.9% for reimbursement of
Medicare Part B premiums which decreases to 5% by 2007 and a dental care trend
rate of 5% in all years. A one percent change in the medical trend rate would
have an $836,000 impact on the Company's annual expense (interest component -
$564,000; service cost - $272,000) and would change the accumulated benefit
obligation by $6.9 million.
Plan assets consist primarily of fixed income and equity securities.
Fluctuations in the fair market value of plan assets will affect postretire-
ment benefit expense in future years.
The DPU's policy on postretirement benefits is to allow in rates the
maximum tax deductible contributions made to trusts that have been established
specifically to pay postretirement benefits. Effective with its June 1, 1993
rate order from the DPU, Cambridge Electric was allowed to recover its SFAS
No. 106 expense in base rates over a four-year phase-in period with carrying
costs on the deferred balance. The Company intends to seek recovery in its
next rate proceeding. While the Company is unable to predict the outcome of
that rate proceeding, it believes the DPU will authorize similar rate treat-
ment as provided to Cambridge Electric and other Massachusetts electric and
gas companies for the recovery of the cost of these benefits. Further, based
on recent DPU action and discussions with regulators, the Company believes
that it is appropriate to record the difference between the amount included in
rates and SFAS No. 106 costs as a regulatory asset. At December 31, 1993,
this deferral amounted to approximately $4.1 million.
(c) Savings Plan
The Company has an Employees Savings Plan that provides for Company
contributions equal to contributions by eligible employees of up to four
percent of each employee's compensation rate. Effective January 1, 1993, the
rate was increased to five percent for those employees no longer eligible for
postretirement benefits other than pensions. The Company's contribution was
$1,700,000 in 1993, $1,808,000 in 1992 and $1,703,000 in 1991.
PAGE 35
COMMONWEALTH ELECTRIC COMPANY
(5) Long-Term Debt and Interim Financing
(a) Long-Term Debt Maturities and Retirements
Long-term debt outstanding, exclusive of current maturities, current
sinking fund requirements and related premiums, is as follows:
Original Balance December 31,
Issue 1993 1992
(Dollars in Thousands)
25-Year Notes -
Series E, 8 1/8%, due 1995 $ 9 000 $ - $ 4 860
Series F, 8 3/8%, due 1998 20 000 - 12 000
30-Year Notes -
Series B, 6 1/8%, due 1997 6 000 - 4 440
15-Year Term Loan, 9.30%, due 2002 30 000 30 000 30 000
25-Year Term Loan, 9.37%, due 2012 20 000 18 947 20 000
10-Year Notes, 7.43%, due 2003 15 000 15 000 -
15-Year Notes, 9.50%, due 2004 15 000 15 000 15 000
15-Year Notes, 7.70%, due 2008 10 000 10 000 -
18-Year Notes, 9.55%, due 2007 10 000 10 000 10 000
20-Year Notes, 7.98%, due 2013 25 000 25 000 -
25-Year Notes, 9.53%, due 2014 10 000 10 000 10 000
30-Year Notes, 9.60%, due 2019 10 000 10 000 10 000
30-Year Notes, 8.47%, due 2023 15 000 15 000 -
$158 947 $116 300
The balance of long-term debt at December 31, 1992 was exclusive of
$103,000 principal amount purchased by the Company and deposited with the
Trustee in anticipation of future sinking fund requirements. The Company may
continue to purchase its outstanding notes in advance of sinking fund require-
ments under favorable conditions.
Under terms of its Indentures of Trust, the Company is required to make
periodic sinking fund payments for retirement of outstanding long-term debt.
The required sinking fund payments for the five years subsequent to December
31, 1993 are as follows:
Year Sinking Funds
(Dollars in Thousands)
1994 $1 053
1995 1 053
1996 3 553
1997 3 553
1998 3 553
(b) Notes Payable to Banks
The Company and other system companies maintain both committed and
uncommitted lines of credit for the short-term financing of their construction
programs and other corporate purposes. As of December 31, 1993, system
companies had $115 million of committed lines of credit that will expire at
varying intervals in 1994. These lines are normally renewed upon expiration
PAGE 36
COMMONWEALTH ELECTRIC COMPANY
and require annual fees up to .1875% of the individual line. At December 31,
1993, the uncommitted lines of credit totaled $70 million. Interest rates on
the outstanding borrowings generally are at an adjusted money market rate. At
December 31, 1993, the Company had no notes payable to banks. The Company had
short-term notes payable to banks totaling $67,275,000 at December 31, 1992.
(c) Advances from Affiliates
At December 31, 1993, the Company had no notes payable to the System. The
Company had short-term notes payable to the System totaling $8,445,000 at
December 31, 1992. These notes are written for a term of eleven months and
twenty-nine days. Interest is at the prime rate (6% at December 31, 1992) and
is adjusted for changes in the rate during the term of the notes.
The Company is a member of the COM/Energy Money Pool (the Pool), an
arrangement among the subsidiaries of the System, whereby short-term cash
surpluses are used to help meet the short-term borrowing needs of the utility
subsidiaries. In general, lenders to the Pool receive a higher rate of return
than they otherwise would on such investments, while borrowers pay a lower
interest rate than those available from banks. The Company had $4,485,000
invested in the Pool at December 31, 1993, but had borrowings from the Pool of
$3,395,000 at December 31, 1992.
(d) Disclosures about Fair Value of Financial Instruments
As required by Statement of Financial Accounting Standards No. 107,
"Disclosures about Fair Value of Financial Instruments," the fair value of
certain financial instruments included in the accompanying Balance Sheets as
of December 31, 1993 and 1992 are as follows:
1993 1992
(Dollars in Thousands)
Carrying Fair Carrying Fair
Value Value Value Value
Long-Term Debt $159 911 $184 180 $116 750 $128 600
The carrying amount of cash, advances to/from affiliates and notes payable
to banks approximates the fair value because of the short maturity of the
instruments.
The estimated fair value of long-term debt is based upon quoted market
prices of the same or similar issues or on the current rates offered for debt
with the same remaining maturity. The fair values shown above do not purport
to represent the amounts at which those obligations would be settled.
(6) Dividend Restriction
At December 31, 1993, approximately $11,700,000 of retained earnings was
restricted against the payment of cash dividends by terms of the Indenture of
Trust securing long-term debt. As of the same date, retained earnings also
included approximately $218,000 representing the Company's equity in undis-
tributed earnings of Yankee Atomic Electric Company.
PAGE 37
COMMONWEALTH ELECTRIC COMPANY
(7) Lease Obligations
The Company leases equipment and office space under arrangements that are
classified as operating leases. These lease agreements are for terms of one
year or longer. Leases currently in effect contain no provisions which
prohibit the Company from entering into future lease agreements or obliga-
tions.
Future minimum lease payments, by period and in the aggregate, of non-can-
celable operating leases consisted of the following at December 31, 1993:
Operating Leases
(Dollars in Thousands)
1994 $ 3 412
1995 2 832
1996 2 020
1997 773
1998 352
Beyond 1998 1 192
Total future minimum lease payments $10 581
Total rent expense for all operating leases, except those with terms of a
month or less, amounted to $3,491,000 in 1993, $3,669,000 in 1992 and
$3,783,000 in 1991. There were no contingent rentals and no sublease rentals
for the years 1993, 1992 and 1991.
(8) Supplemental Disclosures of Cash Flow Information
The Company's supplemental information concerning cash flow activities is
as follows:
1993 1992 1991
(Dollars in Thousands)
Cash paid during the periods for:
Interest (net of capitalized amounts) $ 13 074 $ 14 084 $ 14 714
Income taxes 2 438 1 491 6 275
PAGE 38
COMMONWEALTH ELECTRIC COMPANY
PART IV.
Item 14.Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) 1. Index to Financial Statements
Financial statements and notes thereto of the Company together with
the Report of Independent Public Accountants, are filed under Item 8
of this report and listed on the Index to Financial Statements and
Schedules (page 19).
(a) 2. Index to Financial Statement Schedules
Filed herewith at page(s) indicated -
Schedule III - Investments in, Equity in Earnings of, and Dividends
Received from Related Parties - Years Ended December 31, 1991, 1992
and 1993 (page 50).
Schedule V - Property, Plant and Equipment - Years Ended December 31,
1993, 1992 and 1991 (pages 51-53).
Schedule VI - Accumulated Depreciation of Property, Plant and Equip-
ment - Years Ended December 31, 1993, 1992 and 1991 (page 54).
Schedule VIII - Valuation and Qualifying Accounts - Years Ended Decem-
ber 31, 1993, 1992 and 1991 (page 55).
Schedule IX - Short-term Borrowings - Years Ended December 31, 1993,
1992 and 1991 (page 56).
(a) 3. Exhibits:
Notes to Exhibits -
a. Unless otherwise designated, the exhibits listed below are incorporat-
ed by reference to the appropriate exhibit numbers and the Securities
and Exchange Commission file numbers indicated in parentheses.
b. If applicable, as designated by an asterisk, certain documents previ-
ously filed by the Company have been disposed of by the Commission
pursuant to its Records Control Schedule and are hereby being refiled
by the Company.
c. During 1981, the Company sold its gas business and properties to
Commonwealth Gas and changed its corporate name from New Bedford Gas
and Edison Light Company to Commonwealth Electric Company.
d. The following is a glossary of Commonwealth Energy System and subsid-
iary companies' acronyms that are used throughout the following
Exhibit Index:
CES ...................... Commonwealth Energy System
CEL ...................... Cambridge Electric Light Company
CEC ...................... Canal Electric Company
CG ....................... Commonwealth Gas Company
NBGEL .................... New Bedford Gas and Edison Light Co.
PAGE 39
COMMONWEALTH ELECTRIC COMPANY
Exhibit Index:
Exhibit 3. Articles of incorporation and by-laws
3.1.1 By-laws of the Company as amended, (Refiled as Exhibit 1 to the CE
1991 Form 10-K, File No. 2-7749).
3.1.2 Articles of Incorporation, as amended, of NBGEL, including certif-
ication of name change to Commonwealth Electric Company as filed
with the Massachusetts Secretary of State on March 1, 1981 (Re-
filed as Exhibit 1 to the CE 1990 Form 10-K, File No. 2-7749).
Exhibit 4. Instruments defining the rights of security holders, including
indentures.
4.1.1 Original Indenture on Form S-1 (Nov., 1948) (Exhibit 7(a), File
No. 2-7749).
4.1.2 First Supplemental on Form S-1 (Oct., 1950) (Exhibit 7(a-1), File
No. 2-8605).
4.1.3 Second Supplemental (Exhibit 1 to the CE 1984 Form 10-K, File No.
2-7749).
4.1.4 Third Supplemental on Form 8-K (Feb., 1962) (Exhibit A, File No.
2-7749).
4.1.5 Fourth Supplemental (Exhibit 2 to the CE 1984 Form 10-K, File No.
2-7749).
4.1.6 Fifth Supplemental (Exhibit 3 to the CE 1984 Form 10-K, File No.
2-7749).
4.1.7 Sixth Supplemental (Exhibit 4 to the CE 1984 Form 10-K, File No.
2-7749).
4.1.8 Seventh Supplemental on Form S-1 (Dec., 1975) (Exhibit 4(b)2, File
No. 2-54955).
Cape & Vineyard Electric Company**:
4.1.9 Original Indenture on Form S-1 (Apr., 1957) (Exhibit 4(b)1, File
No. 2-26429).
4.1.10 First Supplemental (Exhibit 5 to the CE 1984 Form 10-K, File No.
2-7749).
4.1.11 Second Supplemental (Exhibit 6 to the CE 1984 Form 10-K, File No.
2-7749).
**Merged with the Company on January 1, 1971
Exhibit 10. Material Contracts.
10.1 Power contracts.
10.1.1 Power contracts between CEC (Unit 1) and NBGEL and CEL dated
December 1, 1965 (Exhibit 13(a)(1-4) to the CEC Form S-1, File No.
2-30057).
10.1.2 Power contract between Yankee Atomic Electric Company (YAEC) and
NBGEL dated June 30, 1959, as amended April 1, 1975 (Refiled as
Exhibit 2 to the CE 1991 Form 10-K, File No. 2-7749).
PAGE 40
COMMONWEALTH ELECTRIC COMPANY
10.1.2.1 Second, Third and Fourth Amendments to 10.1.2 as amended October
1, 1980, April 1, 1985 and May 6, 1988, respectively (Exhibit 1 to
the CE Form 10-Q (June 1988), File No. 2-7749).
10.1.2.2 Fifth and Sixth Amendments to 10.1.2 as amended June 26, 1989 and
July 1, 1989, respectively (Exhibit 3 to the CE Form 10-Q (Septem-
ber 1989), File No. 2-7749).
10.1.3 Agreement between NBGEL and Boston Edison Company (BECO) for the
purchase of electricity from BECO's Pilgrim Unit No. 1 dated Aug-
ust 1, 1972 (Exhibit 7 to the CE 1984 Form 10-K, File No. 2-7749).
10.1.3.1 Service Agreement between NBGEL and BECO for purchase of stand-by
power for BECO's Pilgrim Station dated August 16, 1978 (Exhibit 1
to the CE 1988 Form 10-K, File No. 2-7749).
10.1.3.2 System Power Sales Agreement by and between CE and BECO dated July
12, 1984 (Exhibit 1 to the CE Form 10-Q (September 1984), File No.
2-7749).
10.1.3.3 Power Exchange Agreement by and between BECO and CE dated December
1, 1984 (Exhibit 16 to the CE 1984 Form 10-K, File No. 2-7749).
10.1.4 Agreement for Joint-Ownership, Construction and Operation of New
Hampshire Nuclear Units (Seabrook) dated May 1, 1973 (Exhibit
13(N) to the NBGEL Form S-1 dated October 1973, File No. 2-49013),
and as amended below:
10.1.4.1 First through Fifth Amendments to 10.1.4 as amended May 24, 1974,
June 21, 1974, September 25, 1974, October 25, 1974 and January
31, 1975, respectively (Exhibit 13(m) to the NBGEL Form S-1 (No-
vember 7, 1975), File No. 2-54995).
10.1.4.2 Sixth through Eleventh Amendments to 10.1.4 as amended April 18,
1979, April 25, 1979, June 8, 1979, October 11, 1979 and December
15, 1979, respectively (Refiled as Exhibit 1 to the CEC 1989 Form
10-K, File No. 2-30057).
10.1.4.3 Twelfth through Fourteenth Amendments to 10.1.4 as amended May 16,
1980, December 31, 1980 and June 1, 1982, respectively (Refiled as
Exhibits 1, 2, and 3 to the CE 1992 Form 10-K, File No.2-7749).
10.1.4.4 Fifteenth and Sixteenth Amendments to 10.1.4 as amended April 27,
1984 and June 15, 1984, respectively (Exhibit 1 to the CEC Form
10-Q (June 1984), File No. 2-30057).
10.1.4.5 Seventeenth Amendment to 10.1.4 as amended March 8, 1985 (Exhibit
1 to the CEC Form 10-Q (March 1985), File No. 2-30057).
10.1.4.6 Eighteenth Amendment to 10.1.4 as amended March 14, 1986 (Exhibit
1 to the CEC Form 10-Q (March 1986), File No. 2-30057).
10.1.4.7 Nineteenth Amendment to 10.1.4 as amended May 1, 1986 (Exhibit 1
to the CEC Form 10-Q (June 1986), File No. 2-30057).
PAGE 41
COMMONWEALTH ELECTRIC COMPANY
10.1.4.8 Twentieth Amendment to 10.1.4 as amended September 19, 1986 (Ex-
hibit 1 to the CEC 1986 Form 10-K, File No. 2-30057).
10.1.4.9 Twenty-First Amendment to 10.1.4 as amended November 12, 1987
(Exhibit 1 to the CEC 1987 Form 10-K, File No. 2-30057).
10.1.4.10 Settlement Agreement and Twenty-Second Amendment to 10.1.4, both
dated January 13, 1989 (Exhibit 4 to the CEC 1988 Form 10-K, File
No. 2-30057).
10.1.5 Interim Agreement to Preserve and Protect the Assets of and In-
vestment in the New Hampshire Nuclear Units dated April 27, 1984
(Exhibit 2 to the CEC Form 10-Q (June 1984), File No. 2-30057).
10.1.6 Resolutions proposed by Merrill Lynch Capital Markets and adopted
by the Joint-Owners of the Seabrook Nuclear Project regarding
Project financing, dated May 14, 1984 (Exhibit 1 to the CEC Form
10-Q (March 1984), File No. 2-30057).
10.1.7 Agreement for Seabrook Project Disbursing Agent establishing YAEC
as the disbursing agent under the Joint-Ownership Agreement, dated
May 23, 1984 (Exhibit 4 to the CEC Form 10-Q (June 1984), File No.
2-30057).
10.1.7.1 First Amendment to 10.1.7 as amended March 8, 1985 (Exhibit 2 to
the CEC Form 10-Q (March 1985), File No. 2-30057).
10.1.7.2 Second through Fifth Amendments to 10.1.7 as amended May 20, 1985,
June 18, 1985, January 2, 1986 and November 12, 1987, respectively
(Exhibit 4 to the CEC 1987 Form 10-K, File No. 2-30057).
10.1.8 Purchase and Sale Agreement together with an implementing Addendum
dated December 31, 1981, between CE and CEC, for the purchase and
sale of the CE 3.52% joint-ownership interest in the Seabrook
units, dated January 2, 1981 (Refiled as Exhibit 4 to the CE 1992
Form 10-K, File No. 2-7749).
10.1.8.1 Agreement to transfer ownership, construction and operational
interest in the Seabrook Units 1 and 2 from CE to CEC dated Janu-
ary 2, 1981 (Refiled as Exhibit 3 to the CE 1991 Form 10-K, File
No. 2-7749).
10.1.9 Termination Supplement between CEC, CE and CEL for Seabrook Unit
2, dated December 8, 1986 (Exhibit 3 to the CEC 1986 Form 10-K,
File No. 2-30057).
10.1.10 Power Contract, as amended to February 28, 1990, superseding the
Power Contract dated September 1, 1986 and amendment dated June 1,
1988, between CEC (seller) and CE and CEL (purchasers) for sell-
er's entire share of the Net Unit Capability of Seabrook 1 and
related energy (Exhibit 1 to the CEC Form 10-Q (March 1990), File
No. 2-30057).
PAGE 42
COMMONWEALTH ELECTRIC COMPANY
10.1.11 Agreement between NBGEL and Central Maine Power Company (CMP), for
the joint-ownership, construction and operation of William F.
Wyman Unit No. 4 dated November 1, 1974 together with Amendment
No. 1 dated June 30, 1975 (Exhibit 13(N) to the NBGEL Form S-1,
File No. 2-54955).
10.1.11.1 Amendments No. 2 and 3 to 10.1.11 as amended August 16, 1976 and
December 31, 1978 (Exhibit 5(a) 14 to the System's Form S-16 (June
1979), File No. 2-64731).
10.1.12 Contract between CEC and NBGEL and CEL, affiliated companies, for
the sale of specified amounts of electricity from Canal Unit 2
dated January 12, 1976 (Exhibit 7 to the System's 1985 Form 10-K,
File No. 1-7316).
10.1.13 Capacity Acquisition Agreement between CEC,CEL and CE dated Sep-
tember 25, 1980 (Exhibit 1 to the CEC 1991 Form 10-K, File No. 2-
30057).
10.1.13.1 Supplement to 10.1.13 consisting of three Capacity Acquisition
Commitments each dated May 7, 1987, concerning Phases I and II of
the Hydro-Quebec Project and electricity acquired from Connecticut
Light and Power Company CL&P) (Exhibit 1 to the CEC Form 10-Q
(September 1987), File No. 2-30057).
10.1.13.2 Supplements to 10.1.13 consisting of two Capacity Acquisition
Commitments each dated October 31, 1988, concerning electricity
acquired from Western Massachusetts Electric Company and/or CL&P
for periods ranging from November 1, 1988 to October 31, 1994
(Exhibit 2 to the CEC Form 10-Q (September 1989), File No. 2-
30057).
10.1.13.3 Amendment to 10.1.13 as amended and restated June 1, 1993, hence-
forth referred to as the Capacity Acquisition and Disposition
Agreement, whereby CEC, as agent, in addition to acquiring power
may also sell bulk electric power which CEL and/or the Company
owns or otherwise has the right to sell (Exhibit 1 to the CEC Form
10-Q (September 1993), File No. 2-30057).
10.1.13.4 Capacity Disposition Commitment dated June 25, 1993 by and between
CEC (Unit 2) and the Company for the sale of a portion of the Com-
pany's entitlement in Unit 2 to Green Mountain Power Corp.(Exhibit
2 to the CEC Form 10-Q (September 1993), File No. 2-30057).
10.1.14 Phase 1 Vermont Transmission Line Support Agreement and Amendment
No. 1 thereto between Vermont Electric Transmission Company, Inc.
and certain other New England utilities, dated December 1, 1981
and June 1, 1982, respectively (Refiled as Exhibits 5 and 6 to the
1992 CE Form 10-K, File No. 2-7749).
10.1.14.1 Amendment No. 2 to 10.1.14 as amended November 1, 1982 (Exhibit 5
to the CE Form 10-Q (June 1984), File No. 2-7749).
10.1.14.2 Amendment No. 3 to 10.1.14 as amended January 1, 1986 (Exhibit 2
to the CE 1986 Form 10-K, File No. 2-7749).
PAGE 43
COMMONWEALTH ELECTRIC COMPANY
10.1.15 Participation Agreement between MEPCO and CEL and/or NBGEL dated
June 20, 1969 for construction of a 345 KV transmission line
between Wiscasset, Maine and Mactaquac, New Brunswick, Canada and
for the purchase of base and peaking capacity from the NBEPC
(Exhibit 13 to the CES 1984 Form 10-K, File No. 1-7316).
10.1.15.1 Supplement Amending 10.1.15 as amended June 24, 1970 (Exhibit 8 to
the CES Form S-7, Amendment No. 1, File No. 2-38372).
10.1.16 Power Purchase Agreement (Revised) between Weweantic Hydro Associ-
ates and the Company for the purchase of available hydro-electric
energy produced by a facility located in Wareham, MA, originally
dated December 13, 1982, revised and dated March 12, 1993 (Filed
as Exhibit 1 to the CE Form 10-Q (June 1993), File No. 2-7749).
10.1.17* Power Purchase Agreement between Pioneer Hydropower, Inc. and CE
for the purchase of available hydro-electric energy produced by a
facility located in Ware, Massachusetts, dated September 1, 1983
(Refiled herewith as Exhibit 1).
10.1.18* Power Purchase Agreement between Corporation Investments, Inc.
(CI), and CE for the purchase of available hydro-electric energy
produced by a facility located in Lowell, Massachusetts, dated
January 10, 1983 (Refiled herewith as Exhibit 2).
10.1.18.1 Amendment to 10.1.18 between CI and Boott Hydropower, Inc., an
assignee therefrom, and CE, as amended March 6, 1985 (Exhibit 8 to
the CE 1984 Form 10-K, File No. 2-7749).
10.1.19 Phase 1 Terminal Facility Support Agreement dated December 1,
1981, Amendment No. 1 dated June 1, 1982 and Amendment No. 2 dated
November 1, 1982, between New England Electric Transmission Corpo-
ration (NEET), other New England utilities and CE (Exhibit 1 to
the CE Form 10-Q (June 1984), File No. 2-7749).
10.1.19.1 Amendment No. 3 to 10.1.19 (Exhibit 2 to the CE Form 10-Q (June
1986), File No. 2-7749).
10.1.20 Preliminary Quebec Interconnection Support Agreement dated May 1,
1981, Amendment No. 1 dated September 1, 1981, Amendment No. 2
dated June 1, 1982, Amendment No. 3 dated November 1, 1982, Amend-
ment No. 4 dated March 1, 1983 and Amendment No. 5 dated June 1,
1983 among certain New England Power Pool (NEPOOL) utilities
(Exhibit 2 to the CE Form 10-Q (June 1984), File No. 2-7749).
10.1.21 Agreement with Respect to Use of Quebec Interconnection dated
December 1, 1981, Amendment No. 1 dated May 1, 1982 and Amendment
No. 2 dated November 1, 1982 among certain NEPOOL utilities (Ex-
hibit 3 to the CE Form 10-Q (June 1984), File No. 2-7749).
10.1.21.1 Amendatory Agreement No. 3 to 10.1.21 as amended June 1, 1990,
among certain NEPOOL utilities (Exhibit 1 to the CEC Form 10-Q
(September 1990), File No. 2-30057).
PAGE 44
COMMONWEALTH ELECTRIC COMPANY
10.1.22 Phase I New Hampshire Transmission Line Support Agreement between
NEET and certain other New England Utilities dated December 1,
1981 (Exhibit 4 to the CE Form 10-Q (June 1984), File No. 2-7749).
10.1.23 Agreement, dated September 1, 1985, with Respect To Amendment of
Agreement With Respect To Use Of Quebec Interconnection, dated
December 1, 1981, among certain NEPOOL utilities to include Phase
II facilities in the definition of "Project" (Exhibit 1 to the CEC
Form 10-Q (September 1985), File No. 2-30057).
10.1.24 Preliminary Quebec Interconnection Support Agreement - Phase II
among certain New England electric utilities dated June 1, 1984
(Exhibit 6 to the CE Form 10-Q (June 1984), File No. 2-7749).
10.1.24.1 First, Second and Third Amendments to 10.1.24 as amended March 1,
1985, January 1, 1986 and March 1, 1987, respectively (Exhibit 1
to the CEC Form 10-Q (March 1987), File No. 2-30057).
10.1.24.2 Fifth, Sixth and Seventh Amendments to 10.1.24 as amended October
15, 1987, December 15, 1987 and March 1, 1988, respectively (Ex-
hibit 1 to the CEC Form 10-Q (June 1988), File No. 2-30057).
10.1.24.3 Fourth and Eighth Amendments to 10.1.24 as amended July 1, 1987
and August 1, 1988, respectively (Exhibit 3 to the CEC Form 10-Q
(September 1988), File No. 2-30057).
10.1.24.4 Ninth and Tenth Amendments to 10.1.24 as amended November 1, 1988
and January 15, 1989, respectively (Exhibit 2 to the CEC 1988 Form
10-K, File No. 2-30057).
10.1.24.5 Eleventh Amendment to 10.1.24 as amended November 1, 1989 (Exhibit
4 to the CEC 1989 Form 10-K, File No. 2-30057).
10.1.24.6 Twelfth Amendment to 10.1.24 as amended April 1, 1990 (Exhibit 1
to the CEC Form 10-Q (June 1990), File No. 2-30057).
10.1.25 Phase II Equity Funding Agreement for New England Hydro-Transmis-
sion Electric Company, Inc. (New England Hydro) (Massachusetts),
dated June 1, 1985, between New England Hydro and certain NEPOOL
utilities (Exhibit 2 to the CEC Form 10-Q (September 1985), File
No. 2-30057).
10.1.26 Phase II Massachusetts Transmission Facilities Support Agreement
dated June 1, 1985, refiled as a single agreement incorporating
Amendments 1 through 7 dated May 1, 1986 through January 1, 1989,
respectively, between New England Hydro and certain NEPOOL utili-
ties (Exhibit 2 to the CEC Form 10-Q (September 1990), File No. 2-
30057).
10.1.27 Phase II New Hampshire Transmission Facilities Support Agreement
dated June 1, 1985, refiled as a single agreement incorporating
Amendments 1 through 8 dated May 1, 1986 through January 1, 1990,
respectively, between New England Hydro-Transmission Corporation
(New Hampshire Hydro) and certain NEPOOL utilities (Exhibit 3 to
the CEC Form 10-Q (September 1990), File No. 2-30057).
PAGE 45
COMMONWEALTH ELECTRIC COMPANY
10.1.28 Phase II Equity Funding Agreement for New Hampshire Hydro, dated
June 1, 1985, between New Hampshire Hydro and certain NEPOOL util-
ities (Ex. 3 to the CEC Form 10-Q (Sept. 1985), File No. 2-30057).
10.1.28.1 Amendment No. 1 to 10.1.28 dated May 1, 1986 (Exhibit 6 to the CEC
Form 10-Q (March 1987), File No. 2-30057).
10.1.28.2 Amendment No. 2 to 10.1.28 as amended September 1, 1987 (Exhibit 3
to the CEC Form 10-Q (September 1987), File No. 2-30057).
10.1.29 Phase II New England Power AC Facilities Support Agreement, dated
June 1, 1985, between NEP and certain NEPOOL utilities (Exhibit 6
to the CEC Form 10-Q (September 1985), File No. 2-30057).
10.1.29.1 Amendments Nos. 1 and 2 to 10.1.29 as amended May 1, 1986 and
February 1, 1987, respectively (Exhibit 5 to the CEC Form 10-Q
(March 1987), File No. 2-30057).
10.1.29.2 Amendments Nos. 3 and 4 to 10.1.29 as amended June 1, 1987 and
September 1, 1987, respectively (Exhibit 5 to the CEC Form 10-Q
(September 1987), File No. 2-30057).
10.1.30 Phase II Boston Edison AC Facilities Support Agreement, dated June
1, 1985, between BECO and certain NEPOOL utilities (Exhibit 7 to
the CEC Form 10-Q (September 1985), File No. 2-30057).
10.1.30.1 Amendments Nos. 1 and 2 to 10.1.30 as amended May 1, 1986 and
February 1, 1987, respectively (Exhibit 2 to the CEC Form 10-Q
(March 1987), File No. 2-30057).
10.1.30.2 Amendments Nos. 3 and 4 to 10.1.30 as amended June 1, 1987 and
September 1, 1987, respectively (Exhibit 4 to the CEC Form 10-Q
(September 1987), File No. 2-30057).
10.1.31 Agreement Authorizing Execution of Phase II Firm Energy Contract,
dated September 1, 1985, among certain NEPOOL utilities in regard
to participation in the purchase of power from Hydro-Quebec (Ex-
hibit 8 to the CEC Form 10-Q (September 1985), File No. 2-30057).
10.1.32 System Power Sales Agreement by and between CE, as seller, and
Central Vermont Public Service Corporation (CVPS), as buyer, dated
September 15, 1984 (Exhibit 2 to the CE Form 10-Q (September
1984), File No. 2-7749).
10.1.32.1 System Sales Agreement by CVPS, as seller, and CE, as buyer, dated
September 15, 1984 (Exhibit 9 to the CE 1984 Form 10-K, File No.
2-7749).
10.1.32.2 System Sales and Exchange Agreement by and between CVPS and CE on
energy transactions, dated September 15, 1984 (Exhibit 10 to the
CE 1984 Form 10-K, File No. 2-7749).
10.1.32.3 System Exchange Agreement by and between CE and CVPS for the
exchange of capacity and associated energy, dated September 3,
1985 (Exhibit 1 to the CE 1985 Form 10-K, File No. 2-7749).
PAGE 46
COMMONWEALTH ELECTRIC COMPANY
10.1.32.4 Purchase Agreement by and between CEC and CVPS for the purchase of
capacity from CEC for the term March 1, 1991 to October 31, 1995,
dated March 1, 1991 (Exhibit 1 to CEC Form 10-Q (June 1991), File
No. 2-30057).
10.1.32.5 Power Sale Agreement by and between CEC and CVPS for the purchase
of 50 MW of capacity from CVPS's units (25 MW from Vermont Yankee
and 25 MW from Merrimack 2) for the term of March 1, 1991 to
October 31, 1995, dated March 1, 1991 (Exhibit 2 to CEC Form 10-Q
(June 1991), File No. 2-30057).
10.1.33 Agreements by and between Swift River Company and CE for the
purchase of available hydro-electric energy to be produced by
units located in Chicopee and North Willbraham, Massachusetts,
both dated September 1, 1983 (Exhibits 11 and 12 to the CE 1984
Form 10-K, File No. 2-7749).
10.1.33.1 Transmission Service Agreement between Northeast Utilities' compa-
nies (NU) - The Connecticut Light and Power Company (CL&P) and
Western Massachusetts Electric Company (WMECO), and CE for NU
companies to transmit power purchased from Swift River Company's
Chicopee Units to CE, dated October 1, 1984 (Exhibit 14 to the CE
1984 Form 10-K, File No. 2-7749).
10.1.33.2 Transformation Agreement between WMECO and CE whereby WMECO is to
transform power to CE from the Chicopee Units, dated December 1,
1984 (Exhibit 15 to the CE 1984 Form 10-K, File No. 2-7749).
10.1.34 System Power Sales Agreement by and between CL&P and WMECO, as
buyers, and CE, as seller, dated January 13, 1984 (Exhibit 13 to
the CE 1984 Form 10-K, File No. 2-7749).
10.1.35 System Power Sales Agreement by and between CL&P, WMECO, as sell-
ers, and CEL, as buyer, of power in excess of firm power customer
requirements from the electric systems of the NU Companies, dated
June 1, 1984, as effective October 25, 1985 (Exhibit 1 to CEL 1985
Form 10-K, File No. 2-7909).
10.1.36 Power Purchase Agreement with Respect to South Meadow Unit Nos.
11, 12, 13, and 14 of the NU system company of CL&P (seller) and
CE (buyer), dated November 1, 1985 (Exhibit 1 to the CE Form 10-Q
(June 1986), File No. 2-7749).
10.1.37 Power Purchase Agreement by and between SEMASS Partnership, as
seller, to construct, operate and own a solid waste disposal
facility at its site in Rochester, Massachusetts and CE, as buyer
of electric energy and capacity, dated September 8, 1981 (Exhibit
17 to the CE 1984 Form 10-K, File No. 2-7749).
10.1.37.1 Power Sales Agreement to 10.1.37 for all capacity and related
energy produced, dated October 31, 1985 (Exhibit 2 to the CE 1985
Form 10-K, File No. 2-7749).
PAGE 47
COMMONWEALTH ELECTRIC COMPANY
10.1.37.2 Amendment to 10.1.37 for all additional electric capacity and
related energy to be produced by an addition to the Original Unit,
dated March 14, 1990 (Exhibit 1 to the CE Form 10-Q (June 1990),
File No. 2-7749).
10.1.37.3 Second Amendment to 10.1.37.2 for all additional electric capacity
and related energy to be produced by an addition to the Original
Unit, dated May 24, 1991 (Exhibit 1 to the CE Form 10-Q (June
1991), File No. 2-7749).
10.1.38 System Power Sales Agreement by and between CE (seller) and NEP
(buyer), dated January 6, 1984 (Exhibit 1 to the CE Form 10-Q
(June 1985), File No. 2-7749).
10.1.39 Service Agreement by and between CE and NEP dated March 24, 1984,
whereas CE agrees to purchase short-term power applicable to NEP'S
FERC Electric Tariff Number 5 (Exhibit 1 to the CE Form 10-Q (June
1987), File No. 2-7749).
10.1.40 Power Sale Agreement by and between CE (buyer) and Northeast
Energy Associates, Ltd. (NEA) (seller) of electric energy and
capacity, dated November 26, 1986 (Exhibit 1 to the CE Form 10-Q
(March 1987), File No. 2-7749).
10.1.40.1 First Amendment to 10.1.40 as amended August 15, 1988 (Exhibit 1
to the CE Form 10-Q (September 1988), File No. 2-7749).
10.1.40.2 Second Amendment to 10.1.40 as amended January 1, 1989 (Exhibit 2
to the CE 1988 Form 10-K, File No. 2-7749).
10.1.40.3 Power Sale Agreement dated August 15, 1988 between NEA and CE for
the purchase of 21 MW of electricity (Exhibit 2 to the CE Form
10-Q (September 1988), File No. 2-7749).
10.1.40.4 Amendment to 10.1.40.3 as amended January 1, 1989 (Exhibit 3 to
the CE 1988 Form 10-K, File No. 2-7749).
10.1.41 Power Sale Agreement by and between CE (buyer) and CPC Lowell
Cogeneration Corp.(seller) of all capacity and related energy
produced, dated September 29, 1986 (Exhibit 2 to the CE Form 10-Q
(March 1987), File No. 2-7749).
10.1.41.1 Restatement of 10.1.41 as restated March 30, 1987 (Exhibit 2 to
the CE Form 10-Q (June 1987), File No. 2-7749).
10.1.42 Power Sale Agreement by and between CE (buyer) and Pepperell Power
Associates Limited Partnership (seller) of all electricity pro-
duced from a 38 KW generating unit, dated April 13, 1987 (Exhibit
3 to the CE Form 10-Q (March 1987), File No. 2-7749).
10.1.43 Power Contract between CEC (seller) and CE and CEL (purchasers)
dated August 14, 1989 whereby purchasers agree to purchase the
capacity and energy from seller's "Slice-of-System" entitlement
from CL&P for the term of November 1, 1989 to October 31, 1994
(Exh. 1 to the CEC Form 10-Q (September 1989), File No. 2-30057).
PAGE 48
COMMONWEALTH ELECTRIC COMPANY
10.1.43.1 Power Sale Agreement dated November 1, 1988, by and between CEC
(buyer) and CL&P (seller), whereby buyer will purchase generating
capacity totaling 250 MW from various seller's units ("Slice of
System") for the term November 1, 1989 to October 31, 1994 (Exhib-
it 3 to the CEC 1988 Form 10-K, File No. 2-30057).
10.1.44 Exchange of Power Agreement between Montaup Electric Company and
CE dated January 17, 1991 (Exhibit 2 to the CE Form 10-Q (Septem-
ber 1991), File No. 2-7749).
10.1.44.1 First Amendment, dated November 24, 1992, to Exchange of Power
Agreement between Montaup Electric Company and the Company dated
January 17, 1991 (Exhibit 1 to the CE Form 10-Q (March 1993), File
No. 2-7749).
10.1.45 System Power Exchange Agreement by and between CE and New England
Power Company dated January 16, 1992 (Exhibit 1 to the CE Form 10-
Q (March 1992), File No. 2-7749).
10.1.45.1 First Amendment, dated September 8, 1992, to 10.1.45, dated
January 16, 1992 (Exhibit 1 to the CE Form 10-Q (Sept. 1992), File
No. 2-7749).
10.1.45.2 Second Amendment, dated March 2, 1993, to System Power Exchange
Agreement by and between the Company and New England Power Company
dated January 16, 1992 (Exhibit 2 to the CE Form 10-Q (March
1993), File No. 2-7749).
10.1.46 Power Purchase Agreement and First Amendment, dated September 5,
1989 and August 3, 1990, respectively, by and between CE (buyer)
and Dartmouth Power Associates Limited Partnership (seller),
whereby buyer will purchase all of the energy (67.6 MW) produced
by a single gas turbine unit (Exhibit 1 to the CE Form 10-Q (June
1992), File No. 2-7749).
10.1.47 Power Purchase Agreement by and between Masspower (seller)
and the Company (buyer) for a 11.11% entitlement to the electric
capacity and related energy of a 240 MW gas-fired cogeneration
facility, dated February 14, 1992 (Exhibit 1 to the CE Form 10-Q
(September 1993), File No. 2-7749).
10.1.48 Power Sale Agreement by and between Altresco Pittsfield, L.P.
(seller) and the Company (buyer) for a 17.2% entitlement to the
electric capacity and related energy of a 160 MW gas-fired cogen-
eration facility, dated February 20, 1992 (Exhibit 2 to the CE
Form 10-Q (September 1993), File No. 2-7749).
10.1.48.1 System Exchange Agreement by and among Altresco Pittsfield, L.P.,
CEL, the Company and New England Power Company, dated July 2, 1993
(Exhibit 3 to the CE Form 10-Q (September 1993), File No. 2-7749).
PAGE 49
COMMONWEALTH ELECTRIC COMPANY
10.2 Other agreements.
10.2.1 Pension Plan for Employees of Commonwealth Energy System and
Subsidiary Companies as amended and restated January 1, 1993
(Exhibit 1 to the CES Form 10-Q (Sept. 1993), File No. 1-7316).
10.2.2 Employees Savings Plan of Commonwealth Energy System and Subsid-
iary Companies as amended and restated as of January 1, 1993 (Ex-
hibit 2 to the CES Form 10-Q (September 1993), File No. 1-7316).
10.2.3 New England Power Pool Agreement (NEPOOL) dated September 1, 1971
as amended through August 1, 1977, between NEGEA Service Corpora-
tion, as agent for CEL, CEC, NBGEL, and various other electric
utilities operating in New England together with amendments dated
August 15, 1978, January 31, 1979 and February 1, 1980 (Exhibit
5(c)13 to New England Gas and Electric Association's Form S-16
(April 1980), File No. 2-64731).
10.2.3.1 Thirteenth Amendment to 10.2.3 as amended September 1, 1981 (Re-
filed as Exhibit 3 to the CES 1991 Form 10-K, File No. 1-7316).
10.2.3.2 Fourteenth through Twentieth Amendments to 10.2.3 as amended
December 1, 1981, June 1, 1982, June 15, 1983, October 1, 1983,
August 1, 1985, August 15, 1985 and September 1, 1985, respective-
ly (Exhibit 4 to the CES Form 10-Q (Sept. 1985), File No. 1-7316).
10.2.3.3 Twenty-first Amendment to 10.2.3 as amended to January 1, 1986
(Exhibit 1 to the CES Form 10-Q (March 1986), File No. 1-7316).
10.2.3.4 Twenty-second Amendment to 10.2.3 as amended to September 1, 1986
(Exhibit 1 to the CES Form 10-Q (Sept. 1986), File No. 1-7316).
10.2.3.5 Twenty-third Amendment to 10.2.3 as amended to April 30, 1987
(Exhibit 1 to the CES Form 10-Q (June 1987), File No. 1-7316).
10.2.3.6 Twenty-fourth Amendment to 10.2.3 as amended March 1, 1988 (Exhib-
it 1 to the CES Form 10-Q (March 1989), File No. 1-7316).
10.2.3.7 Twenty-fifth Amendment to 10.2.3. as amended to May 1, 1988 (Ex-
hibit 1 to the CES Form 10-Q (March 1988), File No. 1-7316).
10.2.3.8 Twenty-sixth Agreement to 10.2.3 as amended March 15, 1989 (Exhib-
it 1 to the CES Form 10-Q (March 1989), File No. 1-7316).
10.2.3.9 Twenty-seventh Agreement to 10.2.3 as amended October 1, 1990
(Exhibit 3 to the CES 1990 Form 10-K, File No. 1-7316).
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the three months ended
December 31, 1993.
PAGE 50
SCHEDULE III
COMMONWEALTH ELECTRIC COMPANY
INVESTMENTS IN, EQUITY IN EARNINGS OF, AND DIVIDENDS RECEIVED
FROM RELATED PARTIES
FOR THE YEARS ENDED DECEMBER 31, 1991, 1992 AND 1993
(Dollars in Thousands)
Name of Issuer and
Description of Investment
Common Stock - Yankee Atomic Electric Company
Balance, December 31, 1990
Number of Shares: 3 835
Amount $524
1991
Add: Equity in Earnings 73
Less: Dividends Received 71
Balance, December 31, 1991 526
1992
Add: Equity in Earnings 75
Less: Dividends Received -
Balance, December 31, 1992 601
1993
Add: Equity in Earnings -
Less: Dividends Received -
Balance, December 31, 1993 $601
There were no changes in the number of shares held during the years 1991, 1992
or 1993.
Under terms of the capital funds agreements and power contracts, no stock may
be sold or transferred except to another stockholder and, as such, no market
exists for these securities.
See Note 2(c) of the Notes to Financial Statements included in Item 8 of this
report for a discussion of the permanent closing of the nuclear plant owned by
Yankee Atomic Electric Company.
PAGE 51
SCHEDULE V
COMMONWEALTH ELECTRIC COMPANY
PROPERTY, PLANT AND EQUIPMENT (A)
FOR THE YEAR ENDED DECEMBER 31, 1993
Balance Retirements Balance
Beginning Additions Charged To End of
Classification of Year at Cost Reserve Other Transfers(B) Year
(Dollars in Thousands)
ELECTRIC
Intangible plant $ 1 837 $ - $ - $ - $ - $ 1 837
Land and rights of way 7 885 5 - 1 - 7 889
Structures and leasehold improvements 24 995 654 69 - - 25 580
Production equipment 4 078 (10) 24 - 24 4 068
Transmission equipment 87 740 2 505 678 - 13 89 580
Distribution equipment 324 440 14 787 3 326 - (9) 335 892
General equipment, vehicles and other 24 205 112 64 - (15 560) 8 693
Total plant in service 475 180 18 053 4 161 1 (15 532) 473 539
Construction work in progress 4 794 684 - - - 5 478
Total electric 479 974 18 737 4 161 1 (15 532) 479 017
OTHER
Miscellaneous physical property 1 659 - - - 150 1 809
Total property, plant and equipment $481 633 $18 737 $4 161 $ 1 $(15 382) $480 826
<FN>
(A) Refer to Note 1 of Notes to Financial Statements for depreciation method and rates.
(B) Represents the abandoned Cannon Street Generating Station reclassified to Deferred Charges.
Amounts transferred from Property Held for Future Use to Deferred Charges (net of accumulated
depreciation of $11,010,000) in anticipation of recovery.
PAGE 52
SCHEDULE V
COMMONWEALTH ELECTRIC COMPANY
PROPERTY, PLANT AND EQUIPMENT (A)
FOR THE YEAR ENDED DECEMBER 31, 1992
Balance Retirements Balance
Beginning Additions Charged To End of
Classification of Year at Cost Reserve Other Transfers Year
(Dollars in Thousands) (B)
ELECTRIC
Intangible plant $ 1 837 $ - $ - $ - $ - $ 1 837
Land and rights of way 7 927 195 - - (237) 7 885
Structures and leasehold improvements 30 039 143 13 - (5 174) 24 995
Production equipment 15 610 63 1 - (11 594) 4 078
Transmission equipment 79 519 9 287 1 047 - (19) 87 740
Distribution equipment 311 824 16 117 3 495 - (6) 324 440
General equipment, vehicles and other 8 601 228 82 - 15 458 24 205
Total plant in service 455 357 26 033 4 638 - (1 572) 475 180
Construction work in progress 9 704 (4 910) - - - 4 794
Total electric 465 061 21 123 4 638 - (1 572) 479 974
OTHER
Miscellaneous physical property 87 - - - 1 572 1 659
Total property, plant and equipment $465 148 $21 123 $4 638 $ - $ - $481 633
<FN>
(A) Refer to Note 1 of Notes to Financial Statements for depreciation method and rates.
(B) Principally Cannon Street generating station which ceased power generation on October 1.
Applicable plant balances transferred to Property Held for Future Use from Plant in Service.
PAGE 53
SCHEDULE V
COMMONWEALTH ELECTRIC COMPANY
PROPERTY, PLANT AND EQUIPMENT (A)
FOR THE YEAR ENDED DECEMBER 31, 1991
Balance Retirements Balance
Beginning Additions Charged To End of
Classification of Year at Cost Reserve Other Transfers Year
(Dollars in Thousands)
ELECTRIC
Intangible plant $ 1 678 $ 159 $ - $ - $ - $ 1 837
Land and rights of way 7 912 13 - 1 3 7 927
Structures and leasehold improvements 29 249 604 (186) - - 30 039
Production equipment 15 386 235 11 - - 15 610
Transmission equipment 76 944 2 643 69 - 1 79 519
Distribution equipment 288 460 26 331 2 966 - (1) 311 824
General equipment, vehicles and other 8 453 373 221 - (4) 8 601
Total plant in service 428 082 30 358 3 081 1 (1) 455 357
Construction work in progress 8 212 1 492 - - - 9 704
Total electric 436 294 31 850 3 081 1 (1) 465 061
OTHER
Miscellaneous physical property 86 - - - 1 87
Total property, plant and equipment $436 380 $31 850 $3 081 $ 1 $ - $465 148
<FN>
(A) Refer to Note 1 of Notes to Financial Statements for depreciation method and rates.
PAGE 54
SCHEDULE VI
COMMONWEALTH ELECTRIC COMPANY
ACCUMULATED DEPRECIATION OF PROPERTY, PLANT AND EQUIPMENT (A)
FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
(Dollars in Thousands)
Provision
Balance at Transferred Clearing Amortization Balance
Classifi- Beginning to Deferred Charged to Accounts and of Leasehold Removal at End
cation of Year Charges (B) Operations Other Income Improvements Retirements Cost Salvage of Year
YEAR ENDED DECEMBER 31, 1993
Electric $135 684 $(11 010) $15 032 $ - $ 424 $4 162 $3 263 $ 644 $133 349
YEAR ENDED DECEMBER 31, 1992
Electric $128 253 $ - $15 012 $ 5 $ 422 $4 638 $4 291 $ 921 $135 684
YEAR ENDED DECEMBER 31, 1991
Electric $118 646 $ - $14 484 $ - $ 434 $3 081 $2 802 $ 572 $128 253
<FN>
(A) Refer to Note 1 of Notes to Financial Statements for depreciation method and rates.
(B) Represents accumulated depreciation applicable to the abandoned Cannon Street generating
station reclassified to Deferred Charges.
PAGE 55
SCHEDULE VIII
COMMONWEALTH ELECTRIC COMPANY
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 and 1991
(Dollars in Thousands)
Additions
Balance Provision Deductions Balance
Beginning Charged to Accounts at End
Description of Year Operations Recoveries Written Off of Year
Allowance for
Doubtful Accounts Year Ended December 31, 1993
$3 131 $3 173 $783 $3 819 $3 268
Year Ended December 31, 1992
$2 653 $5 216 $854 $5 592 $3 131
Year Ended December 31, 1991
$2 341 $5 286 $985 $5 959 $2 653
PAGE 56
SCHEDULE IX
COMMONWEALTH ELECTRIC COMPANY
SHORT-TERM BORROWINGS (a)
FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
(Dollars in Thousands)
Maximum Weighted
Weighted Month-End Average Average
Category of Average Amount Amount Interest
Aggregate Balance Interest Outstanding Outstanding Rate
Short-Term at End Rate at End During During the During the
Borrowings of Period of Period the Period Period (b) Period (c)
December 31, 1993
Notes Payable
to Banks $ - - $80 350 $16 121 3.4%
Notes Payable
to System $ - - $12 970 $ 2 451 6.0%
COM/Energy
Money Pool $ - - $ 4 005 $ 858 3.2%
December 31, 1992
Notes Payable
to Banks $67 275 3.8% $68 700 $62 460 4.0%
Notes Payable
to System $ 8 445 6.0% $11 030 $ 7 765 6.3%
COM/Energy
Money Pool $ 3 395 3.4% $ 6 060 $ 3 856 3.7%
December 31, 1991
Notes Payable
to Banks $63 300 5.5% $68 250 $55 612 6.3%
Notes Payable
to System $ 5 950 6.5% $ 5 950 $ 2 167 8.3%
COM/Energy
Money Pool $ 3 600 4.6% $ 3 795 $ 2 878 5.8%
(a) Refer to Note 5 of Notes to Financial Statements filed under Item 8 of
this report for the general terms of each category of short-term
borrowings.
(b) The average amount outstanding during the period is determined by
averaging the level of month-end principal balances outstanding for the
prior thirteen-month period ending December 31.
(c) The weighted average interest rate during the period is determined by
averaging the interest rates in effect on all loans transacted for the
twelve-month period ended December 31.
PAGE 57
COMMONWEALTH ELECTRIC COMPANY
FORM 10-K DECEMBER 31, 1993
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
COMMONWEALTH ELECTRIC COMPANY
(Registrant)
By: WILLIAM G. POIST
William G. Poist,
Chairman of the Board and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Principal Executive Officers:
WILLIAM G. POIST March 30, 1994
William G. Poist,
Chairman of the Board and
Chief Executive Officer
R. D. WRIGHT March 28, 1994
Russell D. Wright,
President and Chief Operating Officer
Principal Financial Officer:
JAMES D. RAPPOLI March 30, 1994
James D. Rappoli,
Financial Vice President and Treasurer
Principal Accounting Officer:
JOHN A. WHALEN March 28, 1994
John A. Whalen,
Comptroller
A majority of the Board of Directors:
WILLIAM G. POIST March 30, 1994
William G. Poist, Director
JAMES D. RAPPOLI March 30, 1994
James D. Rappoli, Director
R. D. WRIGHT March 28, 1994
Russell D. Wright, Director