<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, 1995
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, 1996
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
TABLE OF CONTENTS
PART I
PAGE
Item 1. Business........................................ 3
General....................................... 3
Electric Power Supply......................... 3
New England Power Pool........................ 5
Energy Mix.................................... 5
Regulation.................................... 6
(a) Cost Recovery........................... 6
(b) Rate Settlement Agreement............... 6
(c) Electric Industry Restructuring......... 7
(d) Potential Impact of Regulatory
Restructuring........................... 8
Competition................................... 8
Construction and Financing.................... 10
Employees..................................... 10
Item 2. Properties...................................... 11
Item 3. Legal Proceedings............................... 11
PART II
Item 5. Market for the Registrant's Common Stock and
Related Stockholder Matters..................... 12
Item 7. Management's Discussion and Analysis of
Results of Operations........................... 13
Item 8. Financial Statements and Supplementary Data..... 18
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure.......... 18
PART IV
Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K............................. 39
Signatures.................................................. 52
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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
314,900 customers (including 47,500 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 marketing 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
distributes 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. However, this
past year the Company continued to develop and implement strategies to deal
with the increasingly competitive environment. For further details, refer to
the "Competition" section that follows in this Item 1. Of the Company's 1995
retail electric unit sales (79.6% of total sales), 47.8% was sold to residen-
tial customers, 41.5% to commercial customers, 10.3% to industrial and 0.4% 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 megawatts (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 and Cambridge Electric. Under long-term con-
tracts, system entitlements include one-quarter (141.5 MW) of the capacity and
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COMMONWEALTH ELECTRIC COMPANY
energy of Canal Unit 1 and one-half (290 MW) of the capacity and energy of
Canal Unit 2. The Company's entitlements in these units are 113.3 MW and
232.2 MW, respectively.
Pursuant to a Capacity Acquisition and Disposition Agreement (CADA), 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. The CADA has
been accepted for filing as an amendment to Canal's FERC rate schedule and
allows Canal to act on behalf of the Company and Cambridge Electric in the
procurement of additional capacity for one or both companies, or, to sell
capacity and/or energy from each company's entitlements. The CADA is in
effect for Seabrook 1, Phases I and II of Hydro-Quebec and New England Power
Company (Bear Swamp Units). Exchange agreements are in place with 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
associated with these facilities. The Company and Cambridge Electric, in
turn, have billed or are billing these charges (net of revenues from sales) to
their customers through rates subject to DPU approval.
The Company has other long-term contracts for the purchase of electricity
from various sources including a 73.2 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 32.6 MW, respectively.
Pursuant to long-term contracts, several independent power producer (IPP)
sources provided a substantial portion of the Company's power entitlements in
1995 as follows: 180.8 MW from four (4) natural gas-fired units; 67 MW from a
waste-to-energy unit (including an expansion unit); and 23.6 MW from four (4)
hydro-electric units.
In early 1995, the Company restructured a IPP power sale agreement (23 MW)
that defers the purchase of capacity and energy until December 31, 2000 and,
when called back into service, power will be dispatched only when needed at
the discretion of the Company. Also, the Company terminated a IPP power sale
agreement (38 MW) effective January 27, 1995 and, in June 1995, signed an
agreement with another New England utility (Northeast Utilities) to purchase
peaking-unit capacity at rates lower than that available from NEPOOL or other
regional utilities. In 1993, the Company extended a commitment to April 1997
to exchange 50 MW of Canal Electric's oil-fired generation with 50 MW of
pumped storage energy and capacity from non-affiliate New England Power Com-
pany's Bear Swamp Units (an initial, smaller exchange of 25 MW began in 1992).
The Company expects to provide for future peak load plus reserve require-
ments through existing system generation, including purchasing available
capacity from neighboring utilities, IPP facilities, power marketers and
powerbrokers. 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
ambridge Electric's capacity requirements.
In addition to power purchases, the Company is actively pursuing the
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COMMONWEALTH ELECTRIC COMPANY
marketing of certain capacity at competitive terms and rates to utilities in
and outside the New England region at a higher price (thus saving the Com-
pany's customers the difference) than if it were to sell to NEPOOL. This
situation is a result of several utilities in New England (the Company
included) having excess capacity and lowered prospects for sales growth. This
competitive business developed for the Company in the early 1990s when it
began to formally request proposals to supply short-term energy and associated
capacity to other utilities on the open market to fulfill their power require-
ments. Increased emphasis on the marketing of this capacity yielded approxi-
mate savings of $2 million, $1,039,000 and $429,000 in 1995, 1994 and 1993,
respectively.
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
the member companies to fulfill the region's energy requirement. This concept
is accomplished by use of computers to monitor and forecast load requirements.
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
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.
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 20% to 25% of peak
load.
Energy Mix
The Company's energy mix which includes purchased power, is shown below:
1995 1994 1993
Natural gas 42% 42% 35%
Oil 15 22 27
Nuclear 22 18 20
Waste-to-energy 13 12 11
Hydro 5 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 fuels due to the requirement to purchase capacity
from IPP facilities and continued efforts to reduce its reliance on oil. The
lower oil component in 1995 reflects Canal Unit 1 being off-line for the first
seven months of the year and an additional outage period of nearly one month
during the fourth quarter.
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COMMONWEALTH ELECTRIC COMPANY
Regulation
(a) Cost Recovery
Rate Schedule The Company files a quarterly Fuel Charge (FC) rate
schedule, subject to DPU regulation, under which it is allowed current
recovery from retail customers of costs of fuel used in electric generation
and a substantial portion of purchased power, demand and transmission costs.
This schedule requires the quarterly computation and DPU approval of a FC
decimal based on forecasts of fuel, electricity purchased for resale 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 calculation 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 FC.
Revenues collected through base rates have generally been designed to
reimburse the Company for all costs of operation other than fuel, the energy
portion of purchased power, transmission and C&LM costs while providing a fair
return on capital invested in the business. However, as a result of a DPU-
mandated recovery mechanism for capacity-related costs associated with certain
long-term purchased power contracts introduced in July 1991, the Company,
because it collects through base rates a portion of its capacity-related
purchased power costs associated with certain long-term power arrangements,
has experienced a revenue excess or shortfall when unit sales and/or the costs
recoverable in base rates vary from test-period levels. This issue, which has
had a significant impact on the Company's net income, was addressed in a
settlement agreement approved by the DPU in May 1995. (Refer to the "Rate
Settlement Agreement" section for additional details.)
Conservation and Load Management Programs The Company has implemented a
variety of cost-effective conservation and load management (C&LM) programs
that are designed to reduce future energy use by its customers. In 1993, the
DPU began allowing the recovery by the Company of its "lost base revenues"
from customers as a rate component employed by the DPU to encourage effective
implementation of C&LM programs. These and other C&LM costs are recovered
through a Conservation Charge decimal. 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.
(b) Rate Settlement Agreement
In May 1995, the DPU approved settlement proposals sponsored jointly by
the Company, Cambridge Electric and the Attorney General of Massachusetts
which resolved issues related to cost-of-service, rates, accounting matters
and generating unit performance reviews. The Company's agreement: (1) imple-
mented a $2.7 million annual retail base rate decrease effective May 1, 1995
including its share of excess deferred tax reserves related to Seabrook Unit 1
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COMMONWEALTH ELECTRIC COMPANY
refunded in May 1995 to the Company by Canal. Further, the settlement imposes
a moratorium on retail rate filings until October 1998; (2) limits the
Company's return on equity as defined in the settlement, for the period
through December 31, 1997; (3) terminates several 1987-1994 generating unit
performance review proceedings pending before the DPU; (4) amends the Com-
pany's current fuel charge stabilization mechanism to include the deferral
(without carrying charges) of certain long-term purchased power and transmis-
sion capacity costs within the original limits established for the fuel charge
stabilization deferral ($16 million in any given calendar year and $40 million
over the life of the mechanism) that neutralizes the sometimes volatile impact
these costs have had on net income; (5) requires the Company to fully expense
costs relating to postretirement benefits other than pensions in accordance
with Statement of Financial Accounting Standards No. 106 and amortize the
deferred balance of $8.6 million over a ten-year period; (6) provides eligible
Economic Development Rate customers with a discount of up to 30% but also
requires these customers to provide the Company with a five-year notice if
they intend to self-generate or acquire electricity from another provider; and
(7) prohibits the Company from seeking recovery of the costs incurred in
realizing cost savings through a 1993 work force reduction and restructuring,
totaling approximately $3 million.
The Company's management is encouraged by the support provided through
the Office of the Attorney General and believes that this settlement will
eliminate the need for potentially costly litigation and regulatory proceed-
ings and, by moderating rate impacts and enabling the Company to remain
competitive in a changing environment, the settlement is in the best interest
of the Company and its customers.
(c) Electric Industry Restructuring
On August 16, 1995, the DPU issued an order calling for the restruc-
turing of the electric utility industry in Massachusetts. The stated purpose
of the restructuring effort is to allow customers more flexibility in choosing
their electric service provider and to develop an efficient industry structure
and regulatory framework that minimizes long-term costs to consumers while
maintaining the safety and reliability of electric services with a minimum
impact on the environment. The electric utility industry will ultimately be
functionally separated into three segments to help meet this objective:
generation, transmission and distribution.
In February 1996, certain utilities submitted required proposals detail-
ing how they plan to move into a competitive market structure. Since that
time, the DPU has given notice of a generic proceeding that will focus on many
of the policy issues raised in the DPU's original order. Each of the state's
electric utilities, together with other interested parties, will participate
in this proceeding. The purpose of this generic proceeding is to establish a
set of rules governing the restructuring of the electric industry in Massachu-
setts. These generic rules would set the basis for the DPU's review of each
of the utility-specific restructuring proposals. The proposal to be submitted
jointly by the Company and Cambridge Electric (the Companies) is due in
September 1996. Management is unable to predict the ultimate outcome of these
proceedings.
On February 15, 1996, in response to the DPU's initial restructuring
order, the Companies announced one element of the proposal entitled "Competi-
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COMMONWEALTH ELECTRIC COMPANY
tive Challenge" in which the Companies would voluntarily put their power
capacity entitlements (1,140 MW) to a market test in an effort to develop a
competitive market whereby customers would have the flexibility of choosing
their electric supplier. The proposal calls for the auctioning in a competi-
tive market of entitlements in all twenty-one contracts, including contracts
held by the Companies involving the System's generating subsidiary Canal
Electric. The proposal provides for total recovery of the difference between
the current market value of the Companies' power contracts and their original
unavoidable costs. This difference, considered to be a stranded cost, would
be recovered through a non-bypassable access charge paid over an appropriate
time period by all customers in the Companies' service areas.
The auction approach has received initial positive reviews from the
Commonwealth of Massachusetts Division of Energy Resources and the Office of
the Attorney General.
(d) Potential Impact of Regulatory Restructuring
Based on the current regulatory framework, the Company accounts for the
economic effects of regulation in accordance with the provisions of Statement
of Financial Accounting Standards (SFAS) No. 71, "Accounting for the Effects
of Certain Types of Regulation." The Company has established various regula-
tory assets in cases where the DPU and/or the FERC have permitted or are
expected to permit recovery of specific costs over time. These regulatory
assets amounted to $74.2 million (14.6% of total assets) as of December 31,
1995. Similarly, the regulatory liabilities established by the Company are
required to be refunded to customers over time. In March 1995, the Financial
Accounting Standards Board issued SFAS No. 121, "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to be Disposed Of." SFAS No.
121 imposes stricter criteria for regulatory assets by requiring that such
assets be probable of future recovery at each balance sheet date. Management
does not expect that the effects of SFAS No. 121, which the Company adopted 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 as
changes are made in the current regulatory framework pursuant to the aforemen-
tioned electric utility restructuring order issued by the DPU.
Competition
The Company continues to develop and implement strategies that deal with
the increasingly competitive environment facing its electric business. The
inherently high cost of providing energy services in the Northeast has placed
the region at a competitive disadvantage as more customers begin to explore
alternative energy supply options. Many state and federal government agencies
are considering implementing programs under which utility and non-utility
generators can sell electricity to customers of other utilities without regard
to previously closed franchise service areas. In 1994, the DPU began an
inquiry into incentive ratemaking and in February 1995 opened an investigation
into electric industry restructuring that led to the aforementioned restruc-
turing order.
The Company's actions in response to the new competitive challenges have
been well received by regulators, business groups and customers. The Company
has developed and will continue to develop innovative pricing mechanisms
designed to retain existing customers, add new retail and wholesale customers
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COMMONWEALTH ELECTRIC COMPANY
and expand beyond current markets.
The Company revised its Economic Development Rate which benefits a number
of high-use industrial customers and contributes to economic development in
the area. Another rate provides incentive for businesses to expand into
previously vacant space and its Rate Stabilization Plan, approved in 1994,
continues to hold the line on costs passed on to customers while aggressively
pursuing other cost reduction measures.
The Company continues to be aggressive in its cost containment efforts.
For example, through work force reductions and attrition the Company has
reduced its work force approximately 26.5% since 1989. Also, the introduction
of advanced technologies in the workplace continues to improve customer
service and the Company's competitive position. The Company has yet to be
significantly impacted by the increase in competition, and absent a major
shift in regulation at the state level, believes its current business strategy
will have a positive impact in the near-term.
Some of the more specific details of the innovative measures taken in
response to competition include the following:
Rate Stabilization Plan The Company implemented a FC rate settlement on
April 1, 1994, amended in May 1995, that stabilizes its quarterly FC rate
during the years 1994 through 1996 at 6.5 cents per KWH and no greater than
6.7 cents per KWH during 1997. This rate stabilization is achieved through
the use of a cost deferral mechanism that was sponsored jointly by the Company
and the Massachusetts Attorney General and approved by the DPU. The deferred
costs are reflected as a regulatory asset to be recovered, with carrying
charges, over the subsequent six-year period beginning in 1998 pursuant to a
recovery schedule yet to be determined and subject to DPU approval. The
deferred amount, excluding carrying charges, is restricted to a maximum of $40
million during the settlement period (1994 through 1997) and is further
limited to an annual amount of $16 million. The Company deferred $3,447,000
and $15,964,000 in 1995 and 1994, respectively. In view of contract renegoti-
ations with IPPs, the Company does not expect deferred amounts to exceed $20
million through 1997.
The rate stabilization mechanism is part of a long-term plan to control
the Company's retail rates. This plan will help eliminate the disincentive
for economic development resulting from a volatile and unpredictable FC rate.
The stabilized FC rate should enable current and prospective customers to
better plan their business and personal finances in a more efficient and
effective manner. In addition to the Massachusetts Attorney General, this
proposal was widely supported by various business and customer groups and
other political interests.
Economic Development Realizing a healthy regional economy benefits not
only businesses but all area residents, the Company actively encourages
economic growth by working in partnership with communities and businesses,
providing resources and incentives to help the region's economy. The Company
also funded the development of a business plan that focuses on improving
infrastructure, regulation, access to capital, marketing and promotion,
cooperation and leadership on Cape Cod.
In an effort to foster industrial development in its service area, the
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COMMONWEALTH ELECTRIC COMPANY
Company began offering an Economic Development Rate in October 1991 to new or
existing industrial customers who have an electric demand of 500 kilowatts or
more and meet specific financial and other criteria. As of December 31, 1995,
twenty-five commercial and industrial customers were benefitting from this
special rate. This is up approximately 17% over 1994. The rate is available
for a six-year term. Revenues were lower by $1.5 million, $1.7 million and
$1.5 million in 1995, 1994 and 1993, respectively. These amounts represent
the difference between what certain commercial and industrial customers would
have paid prior to the availability of this rate. The Company also offers a
Vacant Space Rate that is available to qualifying small commercial and indus-
trial customers who establish loads in previously unoccupied building space.
Marketing of Residential and Commercial Specialty Products As part of
its commitment to meet the demands of a new, competitive electric market, the
Company began marketing products specially designed for the residential and
commercial customer. Products offered to residential customers through the
Company include carbon monoxide detectors and a home safety kit containing
tests for: lead in paint and water; radiation leaks from microwave ovens;
drinking water safety; carbon monoxide; and radon gas.
Products offered to smaller commercial customers include: an energy
consumption monitor that will monitor two devices simultaneously, such as
refrigeration and air-conditioning equipment and at the same time provide
information about energy consumption and cost; a voltage scanner for sensitive
equipment; electric power surge protectors; and power-plug loggers that
monitor the KWH usage on a particular piece of electrical equipment.
For larger commercial or industrial customers, enhanced services focus on
information systems, utilizing real-time monitoring software so customers are
educated about their usage patterns, electrotechnologies in manufacturing
processes so customers can increase profits and competitive advantages in the
marketplace, engineering services, energy audit services, maintenance manage-
ment programs, and demand-side management programs.
In addition, the Company is also actively involved with the Chamber of
Commerce in each operating district as well as local and state economic
development offices. Information on foreign trade zones, tax incentive
programs and financial and lending institutions is provided to businesses to
attract and encourage relocation or expansion in the Company's region. The
Company is also involved in an outreach program that encourages businesses in
Canada to consider relocation to southeastern Massachusetts.
Construction and Financing
Information concerning the Company's financing and construction programs
is contained in Note 3(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 in 1995
to 889, a reduction of 2.6% from 913 employees at year-end 1994. The Company
has 571 employees (64.2%) who are represented by the Brotherhood of Utility
Workers of New England, Inc. under three separate collective bargaining units
with agreements that expire September 30, 1996, April 30, 1998 and October 31,
2001. Employee relations have generally been satisfactory.
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COMMONWEALTH ELECTRIC COMPANY
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.
At December 31, 1995, the electric transmission and distribution system
consisted of 5,696 pole miles of overhead lines, 3,580 cable miles of under-
ground line, 138 substations and 330,250 active customer meters.
Item 3. Legal Proceedings
The Company is not a party to any pending material legal proceeding.
<PAGE 12>
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, 1995
One
(c) Frequency and Amount of Dividends Declared in 1995 and 1994
1995 1994
Per Share Per Share
Declaration Date Amount Declaration Date Amount
January 25, 1995 $1.70 January 21, 1994 $1.60
April 24, 1995 2.10 April 25, 1994 1.90
July 25, 1995 1.00 July 18, 1994 1.00
$4.80 October 18, 1994 3.25
$7.75
Reference is made to Note 7 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.
<PAGE 13>
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 accompanying statements of income for the years ended December 31, 1995
and 1994 and unit sales for these periods is shown below:
Years Ended Years Ended
December 31, December 31,
1995 and 1994 1994 and 1993
Increase (Decrease)
(Dollars in Thousands)
Electric Operating Revenues $ (3 999) (0.9)% $ 8 140 1.9%
Operating Expenses -
Electricity purchased for resale
and fuel (6 502) (2.3) 2 652 0.9
Transmission (81) (1.7) (102) (2.1)
Other operation (1 040) (1.5) (2 381) (3.3)
Maintenance 516 5.1 (661) (6.2)
Depreciation 758 4.9 587 3.9
Taxes -
Federal and state income 1 371 14.2 2 512 35.1
Local property and other (123) (1.5) (79) (1.0)
(5 101) (1.3) 2 528 0.6
Operating Income 1 102 3.4 5 612 21.0
Other Income 319 19.4 (1 891)(759.4)
Income Before Interest Charges 1 421 4.6 3 721 13.8
Interest Charges 2 325 15.9 (274) (1.8)
Net Income $ (904) (5.6) $ 3 995 33.1
Unit Sales (Megawatthours or MWH)
Retail 24 758 0.7 85 272 2.6
Wholesale (322 435) (27.3) (105 375) (8.2)
Total unit sales (297 677) (6.6) (20 103) (0.4)
<PAGE 14>
COMMONWEALTH ELECTRIC COMPANY
Unit Sales
The following is a summary of unit sales and customers for the periods
indicated:
Years Ended December 31,
1995 1994 1993
% %
Unit Sales (MWH): Change Change
Residential 1 595 161 (1.3) 1 616 750 1.9 1 587 338
Commercial 1 384 301 3.0 1 344 452 3.6 1 297 765
Industrial 343 004 1.7 337 191 2.7 328 220
Municipal and other 15 802 4.5 15 117 1.4 14 915
Total retail 3 338 268 0.7 3 313 510 2.6 3 228 238
Wholesale 856 914 (27.3) 1 179 349 (8.2) 1 284 724
Total 4 195 182 (6.6) 4 492 859 (0.4) 4 512 962
Customers - 12 Month Average:
Residential (a) 275 409 0.7 273 395 1.4 269 736
Commercial (a) 38 080 1.3 37 597 2.1 36 826
Industrial 314 (2.2) 321 (1.5) 326
Municipal and other 1 057 20.4 878 3.1 852
Total 314 860 0.9 312 191 1.4 307 740
(a) Includes seasonal customers of 47,497 in 1995, 48,606 in 1994 and 48,364
in 1993. 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 1995, the 6.6% decline in total unit sales was due to the 27.3%
decrease in wholesale sales that reflected the reduced availability of power
from several of the Company's long-term supply sources. The slight increase
(0.7%) in 1995 retail unit sales reflected higher unit sales to commercial
customers that increased 3%, including 5.3% and 3.3% increases in the second
and third quarters, respectively. The 1.3% decline in sales to residential
customers reflected reduced space heating requirements due to extremely mild
weather in the first quarter of this year as compared to the record cold
experienced during the same period of 1994. The Company's residential
customer segment provides approximately 48% of its total retail sales and
approximately 10% of those customers rely on electricity for space heating.
The Company expects that its retail unit sales growth will average 1%-2% over
the next five years.
For 1994, retail electric unit sales increased 2.6% as a result of
increased heating demand caused by the extremely cold weather conditions
during the first quarter and greater usage, particularly air-conditioning load
during the summer months. Unit sales reflected a record peak demand of 672 MW
achieved on July 21, 1994 and continued moderate growth of nearly 4,500
customers (1.4%). Each customer segment improved, but the larger increases
were to the residential and commercial sectors, resulting from more housing
units and an improved economy that produced added heating and air-conditioning
loads. Growth in unit sales is reduced somewhat by the Company's conservation
programs.
<PAGE 15>
COMMONWEALTH ELECTRIC COMPANY
Operating Revenues
Operating revenues for 1995 decreased by $4 million (0.9%) due mainly to
lower wholesale sales ($7.1 million) primarily caused by a combination of
scheduled maintenance and other repairs to Canal Electric Company's Unit 1
turbine which kept the unit out of service until August 1995. In total,
wholesale revenues were $16.7 million, $23.8 million and $26.5 million 1995,
1994 and 1993, respectively. Fluctuations in the level of wholesale electric
sales have no impact on earnings. Also contributing to the decline in
revenues were lower conservation and load management (C&LM) costs of $1.7
million and lower lost base revenues related to C&LM programs ($600,000). The
recovery of lost base revenues through the operation of a Conservation Charge
decimal is allowed by the DPU to encourage effective implementation of C&LM
programs. To the extent that current costs associated with C&LM programs
increase or decrease from period to period based on customer participation, a
corresponding change will occur in revenues. Offsetting these declines were
increases in revenues related to slightly higher retail unit sales, the
recovery of costs associated with a power contract buy-out ($3.9 million
including $1.9 million in carrying charges) and the recognition in revenues of
$2 million in carrying charges associated with the Company's fuel charge
stabilization deferral.
As a result of a DPU-mandated recovery mechanism implemented in July 1991
for capacity-related costs associated with certain long-term purchased power
contracts, the Company has experienced a revenue excess or shortfall when unit
sales and/or the costs recoverable in base rates vary from test-period levels.
This issue, which has had a significant impact on net income, was addressed in
a settlement agreement approved by the DPU in May 1995 (refer to the "Cost
Recovery" section in Item 1 of this report for additional details). The
Company can now defer these costs (within certain limits) to neutralize their
sometimes volatile effect on net income. During 1995, there was an
undercollection of approximately $2.1 million of which $1.1 million was
deferred in accordance with the settlement agreement resulting in $970,000 of
capacity-related costs not recovered in revenues. For 1994 and 1993, revenues
were undercollected by $4 million and $5.1 million, respectively, of such
capacity-related costs. This recovery mechanism reduced net income by
approximately $600,000, $2.5 million and $3.1 million in 1995, 1994 and 1993,
respectively.
In 1994, operating revenues increased $7.5 million (1.7%) due to the
higher cost of electricity purchased for resale, transmission and fuel
(purchased power) ($2.6 million), a 2.6% increase in retail unit sales, a
higher level of lost base revenues related to C&LM programs ($951,000) and a
slightly higher level ($137,000) of C&LM program costs.
Revenues also reflect the impact of the Company's Economic Development
Rate which became effective in October 1991. Revenues were lower by $1.5
million, $1.7 million and $1.5 million in 1995, 1994 and 1993, 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" section in Item 1 of this report.
<PAGE 16>
COMMONWEALTH ELECTRIC COMPANY
The following is an analysis of revenue components for the years 1995,
1994 and 1993:
Years Ended December 31,
1995 1994 1993
(Dollars in Thousands)
% %
Change Change
Costs recovered in Fuel,
Purchased Power, or
Conservation Charges $221 367 2.3 $216 419 2.7 $210 717
Certain power and other costs
recovered in base rates 53 268 0.3 53 116 2.6 51 749
Other (a) 143 244 (1.4) 145 315 2.7 141 555
Total retail revenue 417 879 0.7 414 850 2.7 404 021
Total wholesale revenue 16 746 (29.6) 23 774 (10.2) 26 463
Total revenues $434 625 (0.9) $438 624 1.9 $430 484
(a) Includes other base rate and miscellaneous revenues.
The percentage breakdown of retail revenues as shown in the table above is
as follows:
Percent of Retail Electric Revenue
1995 1994 1993
Retail revenue components:
Costs recovered in Fuel,
Purchased Power or
Conservation Charges 53.0% 52.2% 52.2%
Certain power and other costs
recovered in base rates 12.7 12.8 12.8
Base rates and other 34.3 35.0 35.0
100.0% 100.0% 100.0%
Electricity Purchased for Resale, Transmission and Fuel
To satisfy demand requirements and provide required reserve capacity, the
Company purchases power on a long and short-term basis through entitlements
pursuant to power contracts with other New England and Canadian utilities,
Qualifying Facilities and other non-utility generators through a competitive
bidding process that is regulated by the DPU. The Company supplements these
sources with its own generating capacity.
The cost of purchased power constituted 65.8%, 66.7% and 67% in 1995, 1994
and 1993, respectively, of electric operating revenues. During 1995, the 2.3%
decline in purchased power costs was due to reduced operation at Canal Unit 1
reflecting maintenance and other repairs discussed previously. The fuel
charge stabilization deferral ($3.4 million in 1995 compared to $16 million in
1994), implemented in April 1994, was favorably impacted by the successful
renegotiation of a contract with an independent power producer (IPP) in early
1995 that defers power purchases for a six-year period coupled with the
termination of a second long-term contract with another IPP through a buy-out
arrangement that will provide additional savings in the future.
<PAGE 17>
COMMONWEALTH ELECTRIC COMPANY
For 1994, purchased power costs increased slightly due to higher unit
sales and the contractual obligations discussed above prior to the restructur-
ing of one IPP contract and the termination of a second. Further, there were
additional power purchases from certain natural gas-fired IPP facilities and
reduced generation from Canal Electric's units (for sales to non-associate
utilities).
Other Operation
In 1995, other operation decreased $1 million due to a decline in liabili-
ty insurance adjustments due to insurance accruals that reflect better than
anticipated experience ($1.9 million) and lower C&LM costs ($1.7 million).
This was offset, in part, by higher labor charges and postretirement benefit
costs ($2.2 million) that reflected the full recognition of expenses and
amortization of previously deferred costs that were part of the rate settle-
ment agreement approved by the DPU in May 1995.
In 1994, other operation decreased $2.4 million (3.3%) due to the savings
resulting from the second quarter 1993 work force reduction ($1.5 million) and
the absence of severance pay incurred in 1993 ($1.8 million). The 1993 work
force reduction will result in future savings of more than $4 million annually
in direct payroll costs. Also contributing to the decrease was a lower provi-
sion for bad debts of $811,000 (25.6%) due to better collection experience and
lower affiliate services company charges ($1.4 million). Offsetting these
decreases, in part, was higher insurance and employee benefit costs of
$924,000 and the impact of inflation on the cost of labor, materials and other
services.
Included in other operation are certain costs, including amortization of
prior period amounts, associated with C&LM programs which amounted to $2.6
million, $4.3 million and $4.2 million 1995, 1994 and 1993, respectively.
The total number of full-time employees declined 2.6% and 0.4% in 1995 and
1994, respectively.
Maintenance
In 1995, maintenance increased $516,000 (5.1%) due primarily to higher
costs associated with right-of-way brush and tree-trimming projects. Mainte-
nance decreased $661,000 (6.2%) in 1994 primarily due to the absence of storm-
related costs incurred in 1993 and a lower level of labor-related costs due to
the work force reduction, offset by higher expenditures for clearing right-of-
way brush and tree-trimming.
Depreciation and Taxes
In 1995 and 1994, depreciation expense increased $758,000 (4.9%) and
$587,000 (3.9%), respectively, due to higher levels of depreciable plant in
service in both years.
Income tax expense for 1995 and 1994 increased due to the higher levels of
pretax income.
<PAGE 18>
COMMONWEALTH ELECTRIC COMPANY
For 1995, there were no significant changes in local property and payroll
and other taxes. In 1994, local property taxes increased $252,000 (5%)
reflecting a combination of higher tax rates and/or assessments in certain
cities and towns in the Company's service area. Payroll and other taxes in
1994 declined $331,000 (10.8%) and reflected the lower number of employees.
Other Income
For 1995, the expense component of other income decreased due primarily to
the reversal of a reserve related to certain costs associated with the
Company's energy conservation program, the recovery of which was subsequently
approved by the DPU. Offsetting this decrease was the recognition of a
reserve ($2.7 million, net of tax) related to Cannon Street which discontinued
operations and, to a lesser extent, the absence of the equity component of
allowance for funds used during construction (AFUDC) ($325,000).
In 1994, the substantial decrease in other income reflected the cost of a
settlement associated with the Company's aforementioned energy conservation
program ($2 million, pretax), offset, somewhat, by the equity component of
AFUDC ($325,000). There was no equity AFUDC in 1993.
Interest Charges
Interest charges during 1995 increased $2.3 million (15.9%) due primarily
to higher short-term interest rates (6.1% for 1995 versus 4.9% in 1994) and a
higher average level of borrowings ($7.9 million).
For 1994, long-term interest charges increased $931,000 (7%) due to a full
year of new debt ($65 million) issued in March 1993 (offset somewhat by the
retirement of $21.3 million of debt in 1993). Other interest charges declined
by $1 million (59.6%) despite higher average rates on short-term borrowings
(4.9% versus 3.4%) due to the significantly lower average level of borrowings
($6.4 million versus $16.1 million) resulting from a higher level of internal-
ly generated funds and the 1993 financing activity.
Item 8. Financial Statements and Supplementary Data
The Company's financial statements required by this item are filed here-
with on pages 19 through 38 of this report.
Item 9. Changes in and Disagreements With Accountants on Accounting
and Financial Disclosure
None.
<PAGE 19>
COMMONWEALTH ELECTRIC COMPANY
Item 8. Financial Statements and Supplementary Data
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of 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, 1995 and 1994, and the related
statements of income, retained earnings and cash flows for each of the three
years in the period ended December 31, 1995. 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 on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Commonwealth Electric
Company as of December 31, 1995 and 1994, and the results of its operations
and its cash flows for each of the three years in the period ended Decem-
ber 31, 1995, in conformity with generally accepted accounting principles.
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 LLP
Arthur Andersen LLP
Boston, Massachusetts
February 16, 1996.
<PAGE 20>
COMMONWEALTH ELECTRIC COMPANY
INDEX TO FINANCIAL STATEMENTS AND SCHEDULES
PART II.
FINANCIAL STATEMENTS
Balance Sheets at December 31, 1995 and 1994
Statements of Income for the Years Ended December 31, 1995, 1994 and 1993
Statements of Retained Earnings for the Years Ended December 31, 1995,
1994 and 1993
Statements of Cash Flows for the Years Ended December 31, 1995, 1994 and
1993
Notes to Financial Statements
PART IV.
SCHEDULES
I Investments in, Equity in Earnings of, and Dividends Received from
Related Parties - Years Ended December 31, 1995, 1994 and 1993
II Valuation and Qualifying Accounts - Years Ended December 31, 1995,
1994 and 1993
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 21>
COMMONWEALTH ELECTRIC COMPANY
BALANCE SHEETS
DECEMBER 31, 1995 AND 1994
ASSETS
1995 1994
(Dollars in Thousands)
PROPERTY, PLANT AND EQUIPMENT, at original cost $520 714 $496 166
Less - Accumulated depreciation 154 170 143 877
366 544 352 289
Add - Construction work in progress 1 912 5 216
368 456 357 505
INVESTMENTS
Equity in nuclear electric power company 590 654
Other 14 14
604 668
CURRENT ASSETS
Cash 1 430 1 637
Accounts receivable -
Affiliates 2 570 3 713
Customers, less reserves of $2,379,000 in 1995
and $2,841,000 in 1994 41 951 37 862
Unbilled revenues 5 795 8 899
Inventories, at average cost -
Materials and supplies 3 338 4 152
Electric production fuel oil 125 149
Prepaid property taxes 2 843 2 739
Other 1 799 1 731
59 851 60 882
DEFERRED CHARGES 77 916 57 831
$506 827 $476 886
The accompanying notes are an integral part of these financial statements.
<PAGE 22>
COMMONWEALTH ELECTRIC COMPANY
BALANCE SHEETS
DECEMBER 31, 1995 AND 1994
CAPITALIZATION AND LIABILITIES
1995 1994
(Dollars in Thousands)
CAPITALIZATION
Common Equity -
Common stock, $25 par value -
Authorized and outstanding -
2,043,972 shares wholly-owned by
Commonwealth Energy System (Parent) $ 51 099 $ 51 099
Amounts paid in excess of par value 97 112 97 112
Retained earnings 20 708 15 350
168 919 163 561
Long-term debt, less current
sinking fund requirements 154 275 157 817
323 194 321 378
CURRENT LIABILITIES
Interim Financing -
Notes payable to banks 17 300 6 400
Advances from affiliates 1 545 200
18 845 6 600
Other Current Liabilities -
Current sinking fund requirements 3 553 1 053
Accounts payable -
Affiliates 8 987 7 716
Other 32 699 31 911
Accrued taxes -
Local property and other 3 068 3 721
Income 18 721 8 049
Accrued interest 3 946 3 966
Other 7 796 9 725
78 770 66 141
97 615 72 741
DEFERRED CREDITS
Accumulated deferred income taxes 44 211 42 074
Unamortized investment tax credits 7 559 7 994
Other 34 248 32 699
86 018 82 767
COMMITMENTS AND CONTINGENCIES
$506 827 $476 886
The accompanying notes are an integral part of these financial statements.
<PAGE 23>
COMMONWEALTH ELECTRIC COMPANY
STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
1995 1994 1993
(Dollars in Thousands)
ELECTRIC OPERATING REVENUES $434 625 $438 624 $430 484
OPERATING EXPENSES
Electricity purchased for resale
and fuel 281 130 287 632 284 980
Transmission 4 653 4 734 4 836
Other operation 69 541 70 581 72 962
Maintenance 10 569 10 053 10 714
Depreciation 16 377 15 619 15 032
Taxes -
Income 11 041 9 670 7 158
Local property 5 137 5 275 5 023
Payroll and other 2 750 2 735 3 066
401 198 406 299 403 771
OPERATING INCOME 33 427 32 325 26 713
OTHER INCOME (EXPENSE)
Allowance for equity funds used
during construction - 325 -
Other, net (1 323) (1 967) 249
(1 323) (1 642) 249
INCOME BEFORE INTEREST CHARGES 32 104 30 683 26 962
INTEREST CHARGES
Long-term debt 14 081 14 183 13 252
Other interest charges 3 166 703 1 738
Allowance for borrowed funds used
during construction (312) (276) (106)
16 935 14 610 14 884
NET INCOME $ 15 169 $ 16 073 $ 12 078
The accompanying notes are an integral part of these financial statements.
<PAGE 24>
COMMONWEALTH ELECTRIC COMPANY
STATEMENTS OF RETAINED EARNINGS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
1995 1994 1993
(Dollars in Thousands)
Balance at beginning of year $15 350 $15 118 $14 882
Add (Deduct):
Net income 15 169 16 073 12 078
Cash dividends on common stock (9 811) (15 841) (11 842)
Balance at end of year $20 708 $15 350 $15 118
The accompanying notes are an integral part of these financial statements.
<PAGE 25>
COMMONWEALTH ELECTRIC COMPANY
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
1995 1994 1993
(Dollars in Thousands)
OPERATING ACTIVITIES
Net income $ 15 169 $ 16 073 $ 12 078
Effects of noncash items -
Depreciation and amortization 19 849 17 723 16 447
Deferred income taxes 11 782 8 672 4 407
Investment tax credits (435) (436) (446)
Change in working capital, exclusive of
cash, advances to affiliates and
interim financing -
Accounts receivable and unbilled
revenues 158 14 5 228
Income taxes, net 10 672 5 712 1 727
Local property and other taxes, net (757) 503 222
Accounts payable and other 3 380 8 816 8 935
Fuel charge stabilization deferral (3 447) (15 964) -
Deferred postretirement benefit and
pension costs (1 067) (4 609) (5 189)
Power contract buy-out (25 500) - -
All other operating items (3 803) (8 723) (4 488)
Net cash provided by operating activities 26 001 27 781 38 921
INVESTING ACTIVITIES
Additions to property, plant and
equipment (exclusive of AFUDC) (24 788) (22 865) (18 631)
Allowance for borrowed funds used
during construction (312) (276) (106)
Payment from (advances to) affiliates - 4 485 (4 485)
Net cash used for investing activities (25 100) (18 656) (23 222)
FINANCING ACTIVITIES
Long-term debt issues - - 65 000
Sale of common stock to Parent - - 35 000
Payment of dividends (9 811) (15 841) (11 842)
Proceeds from (payment of)
short-term borrowings 10 900 6 400 (67 275)
Advances from (payment to) affiliates 1 345 200 (11 840)
Long-term debt issues refunded - - (21 300)
Retirement of long-term debt
through sinking funds (3 542) (1 041) (1 155)
Net cash used for financing activities (1 108) (10 282) (13 412)
Net increase (decrease) in cash (207) (1 157) 2 287
Cash at beginning of period 1 637 2 794 507
Cash at end of period $ 1 430 $ 1 637 $ 2 794
The accompanying notes are an integral part of these financial statements.
<PAGE 26>
COMMONWEALTH ELECTRIC COMPANY
NOTES TO FINANCIAL STATEMENTS
(1) General Information
Commonwealth Electric Company (the Company) is a wholly-owned subsidiary
of Commonwealth Energy System (the System). The System is the parent company
and, together with its subsidiaries, is collectively referred to as "the
system." The System is an exempt public utility holding company under the
provisions of the Public Utility Holding Company Act of 1935 with investments
in four operating public utility companies located in central, eastern and
southeastern Massachusetts and several nonregulated companies. The Company's
operations are involved in the production and sale of electricity to approxi-
mately 314,900 customers (including 47,500 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 Company has 889 regular employees including 571 (64%) who are repre-
sented by three collective bargaining units. An agreement with one unit
representing approximately 31% of regular employees was settled in early 1996.
Employee relations have generally been satisfactory.
(2) Significant Accounting Policies
(a) Principles of Accounting
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Certain prior year amounts are reclassified from time to time to conform
with the presentation used in the current year's financial statements.
(b) Regulatory Assets and Liabilities
The Company is regulated as to rates, accounting and other matters by
various authorities including the Federal Energy Regulatory Commission (FERC)
and the Massachusetts Department of Public Utilities (DPU).
Based on the current regulatory framework, the Company accounts for the
economic effects of regulation in accordance with the provisions of Statement
of Financial Accounting Standards (SFAS) No. 71, "Accounting for the Effects
of Certain Types of Regulation." The Company has established various regula-
tory assets in cases where the DPU and/or the FERC have permitted or are
expected to permit recovery of specific costs over time. Similarly, the
regulatory liabilities established by the Company are required to be refunded
to customers over time. In March 1995, the Financial Accounting Standards
Board issued SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed Of." SFAS No. 121 imposes stricter
criteria for regulatory assets by requiring that such assets be probable of
future recovery at each balance sheet date. Management does not expect that
the effects of SFAS No. 121, which the Company adopted on January 1, 1996,
will have a material impact on its financial position or results of opera-
<PAGE 27>
COMMONWEALTH ELECTRIC COMPANY
tions. However, this conclusion may change in the future as changes are made
in the current regulatory framework pursuant to an electric utility restruc-
turing order issued by the DPU in August 1995.
The principal regulatory assets included in deferred charges at
December 31, 1995 and 1994 were as follows:
1995 1994
(Dollars in Thousands)
Purchased power contract buy-out $23 838 $ -
Fuel charge stabilization 22 063 16 638
Postretirement benefit costs
including pensions 12 283 11 215
Yankee Atomic unrecovered plant
and decommissioning costs 5 630 10 204
Pilgrim nuclear plant litigation costs 6 644 7 001
Conservation and load management costs 2 968 3 659
Other 804 5 449
$74 230 $54 166
The regulatory liabilities reflected in the accompanying balance sheets in
deferred credits at December 31, 1995 and 1994 were as follows:
1995 1994
(Dollars in Thousands)
Excess Seabrook-related deferred income taxes $ 4 887 $ -
Other deferred income taxes 2 182 3 720
Excess replacement power refunds 1 719 -
Total regulatory liabilities $ 8 788 $ 3 720
As of December 31, 1995, $52.2 million of the Company's regulatory assets
and all of its regulatory liabilities are reflected in rates charged to
customers over a weighted average period of approximately 8 years. In
addition, the fuel charge stabilization deferral is expected to be recovered
over a six-year period beginning in April 1998, pursuant to a yet to be
determined recovery schedule and subject to final DPU approval. The Company
intends to request and expects to receive approval for recovery of its
remaining regulatory assets in future rate proceedings.
(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 affiliated wholesale electric generating company. Other
Canal transactions include costs relating to the abandonment of Seabrook 2 and
the recovery of a portion of Seabrook 1 pre-commercial operation costs. In
addition, payments for management, accounting, data processing and other
services are made to an affiliate, COM/Energy Services Company. Transactions
with other system companies are subject to review by the DPU.
<PAGE 28>
COMMONWEALTH ELECTRIC COMPANY
The Company's operating expenses include the following major intercompany
transactions for the periods indicated:
Purchased Power
Purchased Power and Transmission
Period Ended Purchased Power and Transmission From Canal
December 31, Canal Units Seabrook 1 as Agent
(Dollars in Thousands)
1995 $29 469 $26 905 $17 240
1994 34 256 34 617 21 508
1993 40 537 36 702 20 881
The costs for the Canal and Seabrook 1 units are included in the long-term
obligation table listed in Note 2(b). The Company sold electricity to other
affiliates, primarily station service for Canal, totaling $2,047,000,
$1,401,000 and $2,973,000 in 1995, 1994 and 1993, respectively.
(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 costs
associated with purchased power and transmission, fuel used in electric
production and conservation and load management (C&LM) costs through adjust-
ment clauses. Amounts recoverable under the adjustment clauses are subject to
review and adjustment by the DPU.
The amount of such costs incurred by the Company but not yet reflected in
customers' bills is recorded as unbilled revenues. However, as of
December 31, 1995 and 1994, the Company had overcollected $1,297,000 and
$1,323,000, respectively, which is reflected as a liability in the accompany-
ing balance sheets. These overcollected fuel-related amounts are returned to
customers in subsequent months.
(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 rate was 3.31% in 1995, 1994 and 1993.
(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
<PAGE 29>
COMMONWEALTH ELECTRIC COMPANY
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 7.25% in 1995, 10%
in 1994 and 4% in 1993.
(3) Commitments and Contingencies
(a) Financing and Construction Programs
The Company is engaged in a continuous construction program presently
estimated at $110 million for the five-year period 1996 through 2000. Of that
amount, $24.1 million is estimated for 1996. 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
payment of 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 decom-
missioning expense to nonaffiliated Boston Edison Company, the operator of the
Pilgrim nuclear facility, as a cost of electricity purchased for resale.
The Company also has long-term contracts to purchase capacity from other
generating facilities. Information relative to these contracts is as follows:
Range of
Contract
Expiration Entitlement 1995 1994 1993
Dates % MW Cost Cost Cost
(Dollars in Thousands)
Type of Unit
Cogenerating 2008-2018 (a) 180.8 $106 957 $122 496 $ 99 620
Oil 2000-2009 (b) 266.0 29 468 34 256 40 537
Nuclear 2012-2026 (c) 105.7 71 953 76 092 77 280
Waste-to-energy 2015 100 67.0 37 526 38 107 34 189
Hydro 2014-2023 100 23.6 9 933 7 521 8 904
Total 643.1 $255 837 $278 472 $260 530
(a) Includes contracts to purchase power from various cogenerating units
with capacity entitlements ranging from 11.1% to 100%.
(b) Includes entitlements in Canal Unit 1 (20%) and Canal Unit 2 (40%).
(c) Includes entitlements in Seabrook 1 (2.8%) and Pilgrim (11%).
<PAGE 30>
COMMONWEALTH ELECTRIC COMPANY
Costs pursuant to these contracts are included in electricity purchased
for resale in the accompanying statements of income and are recoverable in
revenues.
The estimated aggregate obligations for capacity under the life-of-the-
unit contracts, including the Canal and Seabrook 1 units, and other long-term
purchased power contracts in effect for the five years subsequent to 1995 are
as follows:
Long-Term
Purchased
Power
(Dollars in Thousands)
1996 $276 558
1997 293 671
1998 309 144
1999 317 637
2000 322 033
(c) Yankee Atomic Nuclear Power Plant
In 1992, Yankee Atomic Electric Company (Yankee Atomic) permanently
discontinued power operation and began the decommissioning of the Yankee
Nuclear Power Station (the plant). At December 31, 1995, the Company's 2.5%
investment in Yankee Atomic was $590,000. The Company's estimated decom-
missioning costs include its unrecovered share of all costs associated with
the shutdown of the plant, recovery of its plant investment, and decommission-
ing and closing the plant. The most recent cost estimate to permanently shut
down the plant is approximately $225.2 million at December 31, 1995. The
Company's share of this liability is $5.6 million and is reflected in the
accompanying balance sheets as a liability and corresponding regulatory asset.
The market value of the Company's share of assets in the plant's decommis-
sioning fund at December 31, 1995 is approximately $3.2 million.
(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 on the Company's operations in the past and will
continue to have an impact on future operations, capital costs and construc-
tion schedules of major facilities.
(4) 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.
<PAGE 31>
COMMONWEALTH ELECTRIC COMPANY
The following is a summary of the Company's provisions for income taxes
for the years ended December 31, 1995, 1994 and 1993:
1995 1994 1993
(Dollars in Thousands)
Federal
Current $(2 036) $ 1 133 $ 2 627
Deferred 10 014 7 242 3 705
Investment tax credits (435) (437) (446)
7 543 7 938 5 886
State
Current (39) 302 570
Deferred 1 768 1 315 749
1 729 1 617 1 319
9 272 9 555 7 205
Amortization of regulatory liability
relating to deferred income taxes - 115 (47)
$ 9 272 $ 9 670 $ 7 158
Federal and state income taxes
charged to:
Operating expense $11 041 $ 9 670 $ 7 158
Other expense (1 769) - -
$ 9 272 $ 9 670 $ 7 158
Deferred tax liabilities and assets are determined based on the difference
between the financial statement and tax bases of assets and liabilities using
enacted tax rates in effect in the year in which the differences are expected
to reverse.
Accumulated deferred income taxes consisted of the following in 1995 and
1994:
1995 1994
(Dollars in Thousands)
Liabilities
Property-related $49 089 $47 233
Power contract buy-out 10 002 -
Fuel charge stabilization 8 149 6 526
All other 8 879 7 305
76 119 61 064
Assets
Investment tax credit 4 879 5 159
Pension plan 1 539 1 496
Uncollectible accounts 936 1 118
Imprudence issues 1 136 -
All other 3 707 3 118
12 197 10 891
Accumulated deferred income taxes, net $63 922 $50 173
The net year-end deferred income tax liability above includes a current
deferred tax liability of $19,711,000 and $8,099,000 in 1995 and 1994, respec-
tively, which are included in accrued income taxes in the accompanying balance
sheets.
<PAGE 32>
COMMONWEALTH ELECTRIC COMPANY
The total income tax provision set forth previously represents 38% in 1995
and 1994, and 37% in 1993 of income before such taxes. The following table
reconciles the statutory federal income tax rate to these percentages:
1995 1994 1993
(Dollars in Thousands)
Federal statutory rate 35% 35% 35%
Federal income tax expense at statutory levels $8 554 $9 010 $6 733
Increase (Decrease) from statutory levels:
State tax net of federal tax benefit 1 124 1 051 858
Tax versus book depreciation 139 109 117
Amortization of investment tax credits (435) (436) (446)
Reversals of capitalized expenses (64) (67) (68)
Amortization of excess deferred reserves - 115 (47)
Equity AFUDC - (114) -
Other (46) 2 11
$9 272 $9 670 $ 7 158
Effective federal income tax rate 38% 38% 37%
(5) 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.
Components of pension expense and related assumptions to develop pension
expense were as follows:
1995 1994 1993
(Dollars in Thousands)
Service cost $ 2 839 $ 3 196 $ 2 630
Interest cost 10 983 9 793 9 283
Return on plan assets - (gain)/loss (28 360) 2 043 (16 412)
Net amortization and deferral 19 180 (10 046) 9 130
Total pension expense 4 642 4 986 4 631
Transfers to affiliated companies, net (157) 74 (465)
Less: Amounts capitalized and deferred 1 064 1 921 1 379
Net pension expense $ 3 421 $ 3 139 $ 2 787
Discount rate 8.50% 7.25% 8.50%
Assumed rate of return 9.00 8.50 8.50
Rate of increase in future compensation 5.00 4.50 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 ratemaking, is deferring the
difference between pension contribution, which is reflected in base rates, and
pension expense, recognized pursuant to SFAS No. 87, "Employers' Accounting
<PAGE 33>
COMMONWEALTH ELECTRIC COMPANY
for Pensions." The funded status of the Company's pension plan (using a
measurement date of December 31) is as follows:
1995 1994
(Dollars in Thousands)
Accumulated benefit obligation:
Vested $(110 200) $ (91 450)
Nonvested (12 089) (10 490)
$(122 289) $(101 940)
Projected benefit obligation $(148 445) $(125 534)
Plan assets at fair market value 139 387 114 876
Projected benefit obligation
greater than plan assets (9 058) (10 658)
Unamortized transition obligation 3 860 4 503
Unrecognized prior service cost 5 720 6 283
Unrecognized gain (6 717) (6 086)
Accrued pension liability $ (6 195) $ (5 958)
The following actuarial assumptions were used in determining the plan's
year-end funded status:
1995 1994
Discount rate 7.25% 8.50%
Rate of increase in future compensation 4.25 5.00
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.
(b) Other Postretirement Benefits
Historically, 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 that such service was performed for the Company or another
subsidiary of the System. However, as of January 1, 1993, the Company elimi-
nated postretirement health care benefits for those non-bargaining 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 required to
make contributions for postretirement benefits. In addition, certain collec-
tive bargaining employees are also participating under these new eligibility
requirements.
The Company adopted the provisions of SFAS No. 106, "Employers' Accounting
for Postretirement Benefits Other Than Pensions" as of January 1, 1993 and the
cumulative effect of implementation of SFAS No. 106 was approximately $48.3
million which is being amortized over 20 years. Prior to 1993, the cost of
postretirement benefits was recognized as benefits were paid.
The Company makes contributions to various voluntary employees' benefi-
ciary association (VEBA) trusts that were established pursuant to section
501(c)(9) of the Internal Revenue Code (the Code). The Company also makes
contributions to a subaccount of its pension plan pursuant to section 401(h)
of the Code to satisfy a portion of its postretirement benefit obligation.
<PAGE 34>
COMMONWEALTH ELECTRIC COMPANY
The Company contributed approximately $6,440,000, $6,677,000 and $5,964,000 to
these trusts during 1995, 1994 and 1993, respectively.
The net periodic postretirement benefit cost for the years ended
December 31, 1995, 1994 and 1993 include the following components and related
assumptions:
1995 1994 1993
(Dollars in Thousands)
Service cost $ 921 $1 127 $1 093
Interest cost 4 158 3 799 4 103
Return on plan assets (2 956) (95) (292)
Amortization of transition obligation
over 20 years 2 417 2 417 2 417
Net amortization and deferral 1 918 (547) 3
Total postretirement benefit cost 6 458 6 701 7 324
Transfer from affiliated companies, net (516) (465) (316)
Less: Amounts capitalized and deferred 1 733 4 268 5 144
Net postretirement benefit cost $4 209 $1 968 $1 864
Discount rate 8.50% 7.25% 8.50%
Assumed rate of return 9.00 8.50 8.50
Rate of increase in future compensation 5.00 4.50 4.50
The funded status of the Company's postretirement benefit plan using a
measurement date of December 31, 1995 and 1994 is as follows:
1995 1994
(Dollars in Thousands)
Accumulated postretirement benefit obligation:
Retirees $(31 561) $ (27 808)
Fully eligible active plan participants (5 032) (3 681)
Other active plan participants (21 752) (19 598)
(58 345) (51 087)
Plan assets at fair market value 16 593 9 797
Accumulated postretirement benefit obligation
greater than plan assets (41 752) (41 290)
Unamortized transition obligation 41 083 43 500
Unrecognized (gain) loss 669 (2 210)
$ - $ -
The following actuarial assumptions were used in determining the plan's
estimated accumulated postretirement benefit obligation (APBO) and funded
status for 1995 and 1994:
1995 1994
Discount rate 7.25% 8.50%
Rate of increase in future compensation 4.25 5.00
Medicare part B premiums 12.20 12.30
Medical care 8.00 8.50
Dental care 5.00 5.00
<PAGE 35>
COMMONWEALTH ELECTRIC COMPANY
The above rates, with the exception of the dental rate which remains
constant, decrease to five percent in the year 2007 and remain at that level
thereafter. A one percent change in the medical trend rate would have a
$695,000 impact on the Company's annual expense and would change the APBO by
approximately $7.1 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.
Effective May 1, 1995, the DPU approved a settlement proposal sponsored
jointly by the Company and the Attorney General of Massachusetts which allows
the Company to fully expense costs relating to SFAS No. 106 expense and to
amortize its $8.6 million deferred balance to expense over a ten-year period.
At December 31, 1995 and 1994, the Company's deferral amounted to approxi-
mately $8 million and $7.3 million, respectively.
(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 health benefits. The Company's contribution was $1,813,000 in
1995, $1,746,000 in 1994 and $1,700,000 in 1993.
(6) Interim Financing and Long-Term Debt
(a) 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, 1995, system
companies had $80 million of committed lines of credit that will expire at
varying intervals in 1996. These lines are normally renewed upon expiration
and require annual fees of up to .1875% of the individual line. At
December 31, 1995, the system's uncommitted lines of credit totaled $70
million. Interest rates on the Company's outstanding borrowings generally are
at an adjusted money market rate and averaged 6.1% and 4.9% in 1995 and 1994,
respectively. Notes payable to banks totaled $17.3 million and $6.4 million
at December 31, 1995 and 1994, respectively.
(b) Advances from Affiliates
The Company had no notes payable to the System at December 31, 1995.
Notes payable to the System totaled $200,000 at December 31, 1994. These
notes are written for a term of up to 11 months and 29 days. Interest is at
the prime rate and is adjusted for changes in that rate during the term of the
notes. The rate averaged 8.8% and 7.3% in 1995 and 1994, respectively.
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
<PAGE 36>
COMMONWEALTH ELECTRIC COMPANY
interest rate than those available from banks. Interest rates on the out-
standing borrowings are based on the monthly average rate the Company would
otherwise have to pay banks, less one-half the difference between that rate
and the monthly average U.S. Treasury Bill weekly auction rate. The borrow-
ings are for a period of less than one year and are payable upon demand.
Rates on these borrowings averaged 5.8 % and 4.3% in 1995 and 1994, respec-
tively. Notes payable to the Pool totaled $1,545,000 at December 31, 1995.
The Company had no notes payable to the Pool at December 31, 1994.
(c) 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 1995 1994
(Dollars in Thousands)
15-Year Term Loan, 9.30%, due 2002 $30 000 $30 000 $30 000
25-Year Term Loan, 9.37%, due 2012 20 000 16 842 17 895
10-Year Notes, 7.43%, due 2003 15 000 15 000 15 000
15-Year Notes, 9.50%, due 2004 15 000 12 500 15 000
15-Year Notes, 7.70%, due 2008 10 000 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 25 000
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 15 000
$154 342 $157 895
The Company, under favorable conditions, may purchase its outstanding
notes in advance; however, an early payment premium may be incurred. Certain
of these agreements require the Company 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, 1995 are as follows:
Year Sinking Funds
(Dollars in Thousands)
1996 $3 553
1997 3 553
1998 3 553
1999 3 553
2000 2 053
<PAGE 37>
COMMONWEALTH ELECTRIC COMPANY
(d) Disclosures About Fair Value of Financial Instruments
The fair value of certain financial instruments included in the accompany-
ing balance sheets as of December 31, 1995 and 1994 is as follows:
1995 1994
(Dollars in Thousands)
Carrying Fair Carrying Fair
Value Value Value Value
Long-Term Debt $157 828 $181 743 $158 870 $157 762
The carrying amount of cash, notes payable to banks and advances to/from
affiliates approximates the fair value because of the short maturity of these
financial instruments.
The estimated fair value of long-term debt is based on 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.
(7) Dividend Restriction
At December 31, 1995, approximately $9,617,000 of retained earnings was
restricted against the payment of cash dividends by terms of term loans and
note agreements securing long-term debt.
(8) 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 that
prohibit the Company from entering into future lease agreements or obliga-
tions.
Future minimum lease payments, by period and in the aggregate, of noncanc-
elable operating leases consisted of the following at December 31, 1995:
Operating Leases
(Dollars in Thousands)
1996 $ 2 486
1997 1 191
1998 695
1999 567
2000 389
Beyond 2000 926
Total future minimum lease payments $ 6 254
Total rent expense for all operating leases, except those with terms of a
month or less, amounted to $3,164,000 in 1995 and $3,491,000 in 1994 and 1993.
There were no contingent rentals and no sublease rentals for the years 1995,
1994 and 1993.
<PAGE 38>
COMMONWEALTH ELECTRIC COMPANY
(9) Supplemental Disclosures of Cash Flow Information
The Company's supplemental information concerning cash flow activities is
as follows:
1995 1994 1993
(Dollars in Thousands)
Cash paid (received) during the periods for:
Interest (net of capitalized amounts) $ 15 685 $ 13 908 $ 13 074
Income taxes (1 119) 2 301 2 438
<PAGE 39>
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 20).
(a) 2. Index to Financial Statement Schedules
Filed herewith at page(s) indicated -
Schedule I - Investments in, Equity in Earnings of, and Dividends
Received from Related Parties - Years Ended December 31, 1993, 1994
and 1995 (page 50).
Schedule II - Valuation and Qualifying Accounts - Years Ended
December 31, 1995, 1994 and 1993 (page 51).
(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. 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.
c. 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.
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).
<PAGE 40>
COMMONWEALTH ELECTRIC COMPANY
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).
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).
<PAGE 41>
COMMONWEALTH ELECTRIC COMPANY
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).
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).
<PAGE 42>
COMMONWEALTH ELECTRIC COMPANY
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).
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 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).
10.1.14 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 as Exhibit 1 to the CE 1993 Form 10-K, File No. 2-7749).
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 as Exhibit 2 to the CE 1993 Form 10-K,
File No. 2-7749).
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
10.1.33 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).
10.1.35.1 System Power Sales Agreement by and between CL&P, WMECO, and PSNH,
as sellers, and the Company, as buyer, of power for peaking capac-
ity and related energy, dated January 13, 1995, as effective June
1, 1995 and extending to October 31, 2000 (Exhibit 2 to the CE
Form 10-Q (June 1995), File No. 2-7749).
10.1.36 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).
10.1.36.1 Power Sales Agreement to 10.1.36 for all capacity and related
energy produced, dated October 31, 1985 (Exhibit 2 to the CE 1985
Form 10-K, File No. 2-7749).
10.1.36.2 Amendment to 10.1.36 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).
10.1.36.3 Second Amendment to 10.1.36.2 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).
<PAGE 47>
COMMONWEALTH ELECTRIC COMPANY
10.1.37 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).
10.1.38 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).
10.1.39 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).
10.1.39.1 First Amendment to 10.1.39 as amended August 15, 1988 (Exhibit 1
to the CE Form 10-Q (September 1988), File No. 2-7749).
10.1.39.2 Second Amendment to 10.1.39 as amended January 1, 1989 (Exhibit 2
to the CE 1988 Form 10-K, File No. 2-7749).
10.1.39.3 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).
10.1.39.4 Amendment to 10.1.39.3 as amended January 1, 1989 (Exhibit 3 to
the CE 1988 Form 10-K, File No. 2-7749).
10.1.40 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).
10.1.40.1 First Amendment, dated November 24, 1992, to 10.1.40 (Exhibit 1 to
the CE Form 10-Q (March 1993), File No. 2-7749).
10.1.41 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).
10.1.41.1 First Amendment, dated September 8, 1992, to 10.1.41, dated
January 16, 1992 (Exhibit 1 to the CE Form 10-Q (Sept. 1992), File
No. 2-7749).
10.1.41.2 Second Amendment, dated March 2, 1993, to 10.1.41 (Exhibit 2 to
the CE Form 10-Q (March 1993), File No. 2-7749).
10.1.42 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).
10.1.42.1 Second Amendment, dated June 23, 1994, to 10.1.42 (Exhibit 4 to
the CE Form 10-Q (June 1995), File No. 2-7749).
<PAGE 48>
COMMONWEALTH ELECTRIC COMPANY
10.1.43 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).
10.1.44 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).
10.1.44.1 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).
10.1.44.2 First Amendment, dated November 7, 1994, to 10.1.44 by and between
the Company and Altresco Pittsfield, L.P. dated February 20, 1992
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).
10.2.2.1 First Amendment to the Employees Savings Plan of Commonwealth
Energy System and Subsidiary Companies, as amended and restated as
of January 1, 1993, effective October 1, 1994. (Exhibit 1 to CES
Form S-8 (January 1995), 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).
<PAGE 49>
COMMONWEALTH ELECTRIC COMPANY
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).
10.2.3.10 Twenty-eighth Agreement to 10.2.3 as amended September 15, 1992
(Exhibit 1 to the CES Form 10-Q (September 1994), File No. 1-
7316).
10.2.3.11 Twenty-ninth Agreement to 10.2.3 as amended May 1, 1993 (Exhibit 2
to the CES Form 10-Q (September 1994), File No. 1-7316).
Exhibit 27. Financial Data Schedule
Filed herewith as Exhibit 1 is the Financial Data Schedule for the
twelve months ended December 31, 1995.
Filed herewith as Exhibit 2 is the restated Financial Data Sched-
ule for the twelve months ended December 31, 1994.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the three months ended
December 31, 1995.
<PAGE 50>
SCHEDULE I
COMMONWEALTH ELECTRIC COMPANY
INVESTMENTS IN, EQUITY IN EARNINGS OF, AND DIVIDENDS RECEIVED
FROM RELATED PARTIES
FOR THE YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
(Dollars in Thousands)
Name of Issuer and
Description of Investment
Common Stock - Yankee Atomic Electric Company
Balance, December 31, 1992
Number of Shares: 3 835
Amount $601
1993
Add: Equity in Earnings -
Less: Dividends Received -
Balance, December 31, 1993 601
1994
Add: Equity in Earnings 53
Less: Dividends Received -
Balance, December 31, 1994 654
1995
Add: Equity in Earnings (18)
Less: Dividends Received 46
Balance, December 31, 1995 $590
There were no changes in the number of shares held during the years 1993, 1994
or 1995.
Under terms of the capital funds agreements and power contracts, no stock may
be sold or transferred except to another stockholder; however, no market
exists for these securities.
See Note 3(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 II
COMMONWEALTH ELECTRIC COMPANY
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 and 1993
(Dollars in Thousands)
Additions
Balance Provision Deductions Balance
Beginning Charged to Accounts End
Description of Year Operations Recoveries Written Off of Year
Allowance for
Doubtful Accounts Year Ended December 31, 1995
$2 841 $2 243 $704 $3 409 $2 379
Year Ended December 31, 1994
$3 268 $2 362 $641 $3 430 $2 841
Year Ended December 31, 1993
$3 131 $3 173 $783 $3 819 $3 268
<PAGE 52>
COMMONWEALTH ELECTRIC COMPANY
FORM 10-K DECEMBER 31, 1995
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 28, 1996
William G. Poist,
Chairman of the Board and
Chief Executive Officer
R. D. WRIGHT March 29, 1996
Russell D. Wright,
President and Chief Operating Officer
Principal Financial and Accounting Officer:
JAMES D. RAPPOLI March 28, 1996
James D. Rappoli,
Financial Vice President and Treasurer
A majority of the Board of Directors:
WILLIAM G. POIST March 28, 1996
William G. Poist, Director
R. D. WRIGHT March 29, 1996
Russell D. Wright, Director
JAMES D. RAPPOLI March 28, 1996
James D. Rappoli, Director