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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549-1004
Form 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 2-30057
CANAL ELECTRIC COMPANY
(Exact name of registrant as specified in its charter)
Massachusetts 04-1733577
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One Main Street, Cambridge, Massachusetts 02142-9150
(Address of principal executive offices) (Zip Code)
(617) 225-4000
(Registrant's telephone number, including area code)
(Former name, address and fiscal year, if changed since last report.)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. YES [x] NO [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Outstanding at
Class of Common Stock August 1, 1995
Common Stock, $25 par value 1,523,200 shares
The Company meets the conditions set forth in General Instruction H(1)(a) and
(b) of Form 10-Q as a wholly-owned subsidiary and is therefore filing this
Form with the reduced disclosure format.
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
CANAL ELECTRIC COMPANY
CONDENSED BALANCE SHEETS
JUNE 30, 1995 AND DECEMBER 31, 1994
ASSETS
(Unaudited)
June 30, December 31,
1995 1994
(Dollars in Thousands)
PROPERTY, PLANT AND EQUIPMENT, at original cost $410 394 $409 648
Less - Accumulated depreciation and
amortization 158 498 150 337
251 896 259 311
Add - Construction work in progress 17 054 6 250
Nuclear fuel in process 302 139
269 252 265 700
LEASED PROPERTY, net 13 551 13 844
INVESTMENTS
Equity in corporate joint venture 3 595 3 802
CURRENT ASSETS
Cash 14 12
Accounts receivable
Affiliates 7 428 7 935
Other 6 206 9 100
Electric production fuel oil 822 736
Prepaid taxes -
Property - 932
Income 1 944 61
Other 2 898 2 685
19 312 21 461
DEFERRED CHARGES
Seabrook 1 7 061 7 735
Seabrook 2 4 265 5 140
Other 19 720 12 195
31 046 25 070
$336 756 $329 877
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CANAL ELECTRIC COMPANY
CONDENSED BALANCE SHEETS
JUNE 30, 1995 AND DECEMBER 31, 1994
CAPITALIZATION AND LIABILITIES
(Unaudited)
June 30, December 31,
1995 1994
(Dollars in Thousands)
CAPITALIZATION
Common Equity -
Common stock, $25 par value -
Authorized - 2,328,200 shares
Outstanding - 1,523,200 shares,
wholly-owned by Commonwealth
Energy System (Parent) $ 38 080 $ 38 080
Amounts paid in excess of par value 8 321 8 321
Retained earnings 51 711 51 647
98 112 98 048
Long-term debt, including premiums, less
current sinking fund requirements 87 347 87 713
185 459 185 761
CAPITAL LEASE OBLIGATIONS 12 966 13 258
CURRENT LIABILITIES
Interim Financing -
Notes payable to banks 15 250 11 325
Advances from affiliates 19 185 9 350
34 435 20 675
Other Current Liabilities -
Current sinking fund requirements 1 110 1 110
Accounts payable -
Affiliates 1 675 1 932
Other 9 836 14 857
Accrued local property and other taxes 33 977
Capital lease obligations 585 586
Accrued interest and other 4 383 4 120
17 622 23 582
52 057 44 257
DEFERRED CREDITS
Accumulated deferred income taxes 68 326 68 732
Unamortized investment tax credits and other 17 948 17 869
86 274 86 601
COMMITMENTS AND CONTINGENCIES
$336 756 $329 877
See accompanying notes.
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CANAL ELECTRIC COMPANY
CONDENSED STATEMENTS OF INCOME AND RETAINED EARNINGS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 1995 AND 1994
(Unaudited)
Three Months Ended Six Months Ended
1995 1994 1995 1994
(Dollars in Thousands)
ELECTRIC OPERATING REVENUES
Sales to affiliated companies $17 815 $32 448 $ 42 759 $ 65 502
Sales to non-affiliated companies 10 223 18 742 18 696 39 585
28 038 51 190 61 455 105 087
OPERATING EXPENSES
Fuel used in production 8 475 21 701 16 298 45 932
Electricity purchased for resale 4 100 6 952 8 511 14 634
Other operation and maintenance 10 405 10 004 19 092 19 259
Depreciation 4 292 3 418 8 115 6 830
Taxes -
Income (5 701) 2 301 (3 673) 4 696
Local property 652 690 1 381 1 379
Payroll and other 203 189 418 408
22 426 45 255 50 142 93 138
OPERATING INCOME 5 612 5 935 11 313 11 949
OTHER INCOME 69 41 78 130
INCOME BEFORE INTEREST CHARGES 5 681 5 976 11 391 12 079
INTEREST CHARGES
Long-term debt 2 059 2 072 4 121 4 148
Other interest charges 449 321 865 595
Allowance for borrowed funds
used during construction (185) (34) (285) (71)
2 323 2 359 4 701 4 672
NET INCOME 3 358 3 617 6 690 7 407
RETAINED EARNINGS -
Beginning of period 51 552 51 941 51 647 48 151
Dividends on common stock (3 199) (3 046) (6 626) (3 046)
RETAINED EARNINGS -
End of period $51 711 $52 512 $ 51 711 $ 52 512
See accompanying notes.
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CANAL ELECTRIC COMPANY
CONDENSED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1995 AND 1994
(Unaudited)
1995 1994
(Dollars in Thousands)
OPERATING ACTIVITIES
Net income $ 6 690 $ 7 407
Effects of noncash items -
Depreciation and amortization 10 852 9 335
Deferred income taxes and investment
tax credits, net (4 842) 180
Earnings from corporate joint venture (258) (251)
Dividends from corporate joint venture 465 184
Change in working capital, exclusive of cash
and interim financing (3 809) 4 988
All other operating items (3 750) (458)
Net cash provided by operating activities 5 348 21 385
INVESTING ACTIVITIES
Additions to property, plant and equipment
(exclusive of AFUDC) (11 829) (1 412)
Allowance for borrowed funds used
during construction (285) (71)
Net cash used for investing activities (12 114) (1 483)
FINANCING ACTIVITIES
Proceeds from (payment of) short-term borrowings 3 925 (28 000)
Payment of dividends (6 626) (3 046)
Advances from affiliates 9 835 11 510
Sinking fund payments (366) (366)
Net cash used for financing activities 6 768 (19 902)
Net increase in cash 2 -
Cash at beginning of period 12 12
Cash at end of period $ 14 $ 12
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest (net of capitalized amounts) $ 4 581 $ 4 558
Income taxes $ 3 131 $ 3 748
See accompanying notes.
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CANAL ELECTRIC COMPANY
NOTES TO CONDENSED FINANCIAL STATEMENTS
(1) Accounting Policies
Canal Electric Company (the Company) is a wholly-owned subsidiary of
Commonwealth Energy System. The parent company is referred to in this
report as the "System" and together with its subsidiaries is collectively
referred to as "the system."
The Company's significant accounting policies are described in Note 1
of Notes to Financial Statements included in its 1994 Annual Report on Form
10-K filed with the Securities and Exchange Commission. For interim
reporting purposes, the Company follows these same basic accounting
policies but considers each interim period as an integral part of an annual
period and makes allocations of certain expenses to interim periods based
upon estimates of such expenses for the year.
The Company has established various regulatory assets in cases where
the Massachusetts Department of Public Utilities (DPU) and/or the Federal
Energy Regulatory Commission (FERC) have permitted or are expected to
permit recovery of specific costs over time. In March 1995, the Financial
Accounting Standards Board issued Statement of Financial Accounting
Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to be Disposed Of" (SFAS 121). SFAS 121 imposes
stricter criteria for regulatory assets by requiring that such assets be
probable of future recovery at each balance sheet date. Based on the
current regulatory framework, the Company accounts for the economic effects
of regulation in accordance with the provisions of SFAS No. 71, "Accounting
for the Effects of Certain Types of Regulation" and does not expect that
SFAS 121, which the Company expects to adopt on January 1, 1996, will have
a material impact on its financial position or results of operations.
However, this conclusion may change in the future if changes are made in
the current regulatory framework or as competitive factors influence
wholesale pricing in this industry. The principal regulatory assets
included in deferred charges were as follows:
June 30, December 31,
1995 1994
(Dollars in Thousands)
Seabrook related costs $11 095 $12 648
Deferred income taxes 9 626 5 537
Postretirement benefit costs 1 514 1 242
Total regulatory assets $22 235 $19 427
Income tax expense is recorded using the statutory rates in effect
applied to book income subject to tax recorded in the interim period.
The unaudited financial statements for the periods ended June 30, 1995
and 1994 reflect, in the opinion of the Company, all adjustments
(consisting of only normal recurring accruals) necessary to summarize
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CANAL ELECTRIC COMPANY
fairly the results for such periods. In addition, certain prior period
amounts are reclassified from time to time to conform with the presentation
used in the current period's financial statements.
The Company is a wholesale power company and operates its two generating
units under life-of-the-unit power contracts on file with the FERC. The
price of power under the power contracts is based on a two-part rate
consisting of a demand charge and an energy charge. The demand charge
covers all expenses except fuel costs and includes the recovery of the
original investment. It also provides for any adjustments to that
investment over the economic lives of the units. The energy charge is
based on the cost of fuel and is billed to each purchaser in proportion to
its purchase of power. Purchasers are billed monthly.
The Company also procures bulk electric power at the request of and for
its affiliates thereby securing cost savings for their respective customers
by planning for a power supply on a single system basis.
(2) Commitments and Contingencies
(a) Construction
The Company is engaged in a continuous construction program presently
estimated at approximately $70 million for the five-year period 1995
through 1999. Of that amount, $27.4 million is estimated for 1995. As of
June 30, 1995, construction expenditures, including an allowance for funds
used during construction, amounted to approximately $12.1 million. 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 that are ultimately expected to be repaid with proceeds from
sales of long-term debt and equity securities.
(b) Decommissioning of Seabrook Unit
The Company and the other joint owners of the Seabrook nuclear power
plant have established a decommissioning fund to cover post operation
decommissioning costs. The estimated cost to decommission the plant is
$390 million. The Company's share of this liability (approximately $13.7
million), less its share of the market value of the decommissioning trust
(approximately $1.3 million), is approximately $12.4 million.
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CANAL ELECTRIC COMPANY
Item 2. Management's Discussion and Analysis of Results of Operations
The following is a discussion of certain significant factors which have
affected operating revenues, expenses and net income during the periods
included in the accompanying condensed statements of income. This discussion
should be read in conjunction with the Notes to Condensed Financial Statements
appearing elsewhere in this report.
A summary of the period to period changes in the principal items
included in the condensed statements of income for the three and six months
ended June 30, 1995 and 1994 is shown below:
Three Months Ended Six Months Ended
June 30, June 30,
1995 and 1994 1995 and 1994
Increase (Decrease)
(Dollars in Thousands)
Electric Operating Revenues $(23 152) (45.2)% $(43 632) (41.5)%
Operating Expenses -
Fuel used in production (13 226) (60.9) (29 634) (64.5)
Electricity purchased for resale (2 852) (41.0) (6 123) (41.8)
Other operation and maintenance 401 4.0 (167) (0.9)
Depreciation 874 25.6 1 285 18.8
Taxes -
Federal and state income (8 002) (347.8) (8 369) (178.2)
Local property and other (24) (2.7) 12 0.7
(22 829) (50.4) (42 996) (46.2)
Operating Income (323) (5.4) (636) (5.3)
Other Income 28 68.3 (52) (40.0)
Income Before Interest Charges (295) (4.9) (688) (5.7)
Interest Charges (36) (1.5) 29 0.6
Net Income $ (259) (7.2) $ (717) (9.7)
Unit Sales (MWH) Decrease (741 250) (64.7) (1 607 136) (66.1)
Three Months Ended Six Months Ended
June 30, June 30,
MWH Unit Sales 1995 and 1994 1995 and 1994
Canal Unit 1 - 629 321 - 1 341 546
Canal Unit 2 267 736 411 997 511 676 782 123
Seabrook 1 77 322 6 861 165 356 71 241
Purchased for Resale 59 898 98 027 147 740 236 998
404 956 1 146 206 824 772 2 431 908
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CANAL ELECTRIC COMPANY
Revenue, Fuel and Purchased Power
Operating revenues for the three and six months ended June 30, 1995
decreased approximately $23.2 million or 45.2% and $43.6 million or 41.5%,
respectively. The decrease in both periods was due to lower unit sales and
a refund to customers during the second quarter (approximately $7.5
million) reflecting the settlement of certain Seabrook-related tax issues.
Also affecting operating revenues in both periods was a decrease in the
level of purchases made on behalf of affiliated retail distribution
companies.
Unit sales decreased significantly during both current periods due
primarily to a combination of scheduled maintenance and unscheduled
extensive repairs to the turbine which has kept Unit 1 out of service for
the first half of 1995. Also affecting unit sales in both periods was the
decreased availability of Unit 2 and increased availability of Seabrook 1
reflecting the timing of scheduled maintenance and a decline in the level
of purchases made on behalf of affiliated retail distribution companies.
The 64.5% decrease in fuel used in production during the first six
months of 1995 reflects the Unit 1 outage during the period. Fuel,
purchased power and transmission costs for the current three and six-month
periods represented approximately 48% and 43%, respectively, of operating
revenues and averaged 3.31 cents and 3.21 cents per KWH, respectively, as
compared to 2.57 cents and 2.56 cents per KWH for the same periods of 1994.
Other Operating Expenses
Other operation and maintenance decreased 0.9% during the first six
months of 1995 due primarily to decreases in costs associated with the
operation of Seabrook 1 ($1,232,000), lower insurance and benefits costs
($210,000) and continued cost containment efforts offset by an increase in
maintenance related to Unit 1 ($2.1 million). The 4% increase in other
operation and maintenance expense during the second quarter was due
primarily to increased maintenance ($1.1 million) related to Unit 1 offset
in part by the absence of maintenance on Seabrook 1 during the second
quarter of last year and lower other operation expense (approximately
$700,000) due to continued cost containment efforts and a decrease in
insurance and benefits costs ($98,000). Depreciation expense increased in
both current periods due to a higher level of plant-in-service and an
adjustment to the depreciation rate related to Unit 1 during the second
quarter. Federal and state income taxes decreased due to the second
quarter tax adjustment related to the settlement of certain Seabrook-
related income tax issues ($7.5 million) and a lower level of pretax
income.
Interest Charges
Total interest charges were virtually unchanged for the first six
months of 1995 reflecting an increase in short-term interest ($270,000) due
to higher interest rates (6.2% as compared to 3.7% in 1994) on a slightly
lower average level of short-term debt coupled with an increase in the debt
portion of allowance for funds used during construction (AFUDC) ($214,000)
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CANAL ELECTRIC COMPANY
reflecting greater construction activity. During the second quarter total
interest charges decreased 1.5% despite an increase in other interest
charges ($128,000) caused by a higher average level of short-term debt and
higher interest rates, due to an increase in the debt component of AFUDC
($151,000).
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 installation of expensive air and water pollution control
equipment such as the nitrogen oxide emissions control project underway at
Unit 1. These regulations have had an impact on the Company's operations
in the past and will continue to have an impact on future operations,
capital costs and construction schedules of major facilities.
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CANAL ELECTRIC COMPANY
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 27 - Financial Data Schedule
Filed herewith as Exhibit 1 is the Financial Data Schedule for the
six months ended June 30, 1995.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the three months ended June
30, 1995.
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CANAL ELECTRIC COMPANY
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CANAL ELECTRIC COMPANY
(Registrant)
Principal Financial Officer:
JAMES D. RAPPOLI
James D. Rappoli,
Financial Vice President
and Treasurer
Principal Accounting Officer:
JOHN A. WHALEN
John A. Whalen,
Comptroller
Date: August 14, 1995