<PAGE 1> UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549-1004 FORM 10-Q (Mark One) [ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 1996 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Transition Period from ________________ to ________________ Commission File Number 1-7316 COMMONWEALTH ENERGY SYSTEM (Exact name of registrant as specified in its Declaration of Trust) Massachusetts 04-1662010 (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) Registrant's telephone number, including area code (617) 225-4000 (Former name, address and fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES X NO Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Outstanding at Class of Common Stock May 1, 1996 Common Shares of Beneficial Interest, $4 par value 10,764,838 shares <PAGE 2> PART I. - FINANCIAL INFORMATION Item 1. Financial Statements COMMONWEALTH ENERGY SYSTEM AND SUBSIDIARY COMPANIES CONDENSED BALANCE SHEETS MARCH 31, 1996 AND DECEMBER 31, 1995 ASSETS (Unaudited) March 31, December 31, 1996 1995 (Dollars in Thousands) PROPERTY, PLANT AND EQUIPMENT, at original cost Electric $1 109 185 $1 105 502 Gas 348 203 346 990 Other 63 331 63 132 1 520 719 1 515 624 Less - Accumulated depreciation and amortization 511 235 497 627 1 009 484 1 017 997 Add - Construction work in progress and nuclear fuel in process 14 120 10 276 1 023 604 1 028 273 LEASED PROPERTY, net 14 758 14 931 EQUITY IN CORPORATE JOINT VENTURES Nuclear electric power companies (2.5% to 4.5%) 10 045 9 814 Other investments 3 536 3 400 13 581 13 214 CURRENT ASSETS Cash and cash equivalents 4 753 4 319 Accounts receivable 120 149 105 377 Unbilled revenues 22 536 31 642 Inventories, at average cost 13 183 25 538 Prepaid taxes and other 9 308 15 843 169 929 182 719 DEFERRED CHARGES 145 163 150 964 $1 367 035 $1 390 101 See accompanying notes. <PAGE 3> COMMONWEALTH ENERGY SYSTEM AND SUBSIDIARY COMPANIES CONDENSED BALANCE SHEETS MARCH 31, 1996 AND DECEMBER 31, 1995 CAPITALIZATION AND LIABILITIES (Unaudited) March 31, December 31, 1996 1995 (Dollars in Thousands) CAPITALIZATION Common share investment - Common shares, $4 par value - Authorized - 18,000,000 shares Outstanding - 10,764,838 in 1996 and 10,764,134 in 1995 $ 43 059 $ 43 056 Amounts paid in excess of par value 111 778 111 749 Retained earnings 255 331 235 980 410 168 390 785 Redeemable preferred shares, less current sinking fund requirements 13 780 13 840 Long-term debt, including premiums, less current sinking fund requirements and maturing debt 376 137 377 181 800 085 781 806 CAPITAL LEASE OBLIGATIONS 13 088 13 291 CURRENT LIABILITIES Interim Financing - Notes payable to banks 21 875 55 600 Maturing long-term debt 33 230 33 230 55 105 88 830 Other Current Liabilities - Current sinking fund requirements 8 913 9 103 Accounts payable 123 328 134 908 Accrued taxes 36 462 31 587 Other 35 784 35 407 204 487 211 005 259 592 299 835 DEFERRED CREDITS Accumulated deferred income taxes 171 513 170 182 Unamortized investment tax credits and other 122 757 124 987 294 270 295 169 COMMITMENTS AND CONTINGENCIES $1 367 035 $1 390 101 See accompanying notes. <PAGE 4> COMMONWEALTH ENERGY SYSTEM AND SUBSIDIARY COMPANIES CONDENSED STATEMENTS OF INCOME FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1995 (Unaudited) 1996 1995 (Dollars in Thousands) OPERATING REVENUES Electric $167 768 $151 903 Gas 123 723 107 978 Steam and other 7 213 5 733 298 704 265 614 OPERATING EXPENSES Fuel and purchased power 99 019 87 216 Cost of gas sold 61 613 51 136 Other operation and maintenance 61 253 61 891 Depreciation 14 667 13 751 Taxes - Local property and other 8 534 8 363 Federal and state income 17 397 12 857 262 483 235 214 OPERATING INCOME 36 221 30 400 OTHER INCOME 2 401 1 513 INCOME BEFORE INTEREST CHARGES 38 622 31 913 INTEREST CHARGES Long-term debt 9 372 9 799 Other interest charges 1 448 1 433 Allowance for borrowed funds used during construction (105) (252) 10 715 10 980 NET INCOME 27 907 20 933 Dividends on preferred shares 267 282 EARNINGS APPLICABLE TO COMMON SHARES $ 27 640 $ 20 651 AVERAGE NUMBER OF COMMON SHARES OUTSTANDING 10 764 838 10 566 316 EARNINGS PER COMMON SHARE $2.57 $1.95 DIVIDENDS DECLARED PER COMMON SHARE $ .77 $ .75 See accompanying notes. <PAGE 5> COMMONWEALTH ENERGY SYSTEM AND SUBSIDIARY COMPANIES CONDENSED STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1995 (Unaudited) 1996 1995 (Dollars in Thousands) OPERATING ACTIVITIES Net income $ 27 907 $ 20 933 Effects of noncash items - Depreciation and amortization 17 583 17 249 Deferred income taxes and investment tax credits, net (270) 284 Earnings from corporate joint ventures (457) (299) Dividends from corporate joint ventures 90 389 Change in working capital, exclusive of cash, cash equivalents and interim financing 6 706 20 271 All other operating items 2 021 4 357 Net cash provided by operating activities 53 580 63 184 INVESTING ACTIVITIES Additions to property, plant and equipment (exclusive of AFUDC) - Electric (8 172) (8 955) Gas (1 381) (2 343) Other (135) (56) Allowance for borrowed funds used during construction (105) (252) Net cash used for investing activities (9 793) (11 606) FINANCING ACTIVITIES Sale of common shares 32 2 418 Payment of dividends (8 556) (8 224) Payment of short-term borrowings (33 725) (44 850) Sinking funds payments (1 104) (1 294) Net cash used for financing activities (43 353) (51 950) Net increase (decrease) in cash and cash equivalents 434 (372) Cash at beginning of period 4 319 7 722 Cash at end of period $ 4 753 $ 7 350 SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION Cash paid during the period for: Interest (net of capitalized amounts) $ 9 505 $ 8 736 Income taxes $ 9 986 $ 3 538 See accompanying notes. <PAGE 6> COMMONWEALTH ENERGY SYSTEM AND SUBSIDIARY COMPANIES NOTES TO CONDENSED FINANCIAL STATEMENTS (1) General Information Commonwealth Energy System, the parent company, is referred to in this report as the "System" and, together with its subsidiaries, is collec- tively 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. In addition, the System has interests in other utility and several non- regulated companies. The system has 2,077 regular employees including 1,227 (59%) represented by various collective bargaining units. Negotiations with one collective bargaining unit that represents approximately 18% of regular employees are ongoing. The agreement that covered these employees expired on March 31, 1996. A workforce of management personnel and experienced contractors are performing all essential tasks. Management is unable to predict the ultimate outcome of these negotiations. New agreements were reached with two other bargaining units (representing approximately 23% of regular employees) that were scheduled to expire on October 1, 1996 and November 1, 1997. These new agreements will remain in effect until 2002 and 2001, respectively. (2) Accounting Policies (a) Principles of Accounting The system's significant accounting policies are described in Note 1 of Notes to Consolidated Financial Statements included in its 1995 Annual Report on Form 10-K filed with the Securities and Exchange Commission. For interim reporting purposes, the system follows these same basic accounting policies but considers each interim period as an integral part of an annual period and makes allocations of certain expenses to interim periods based upon estimates of such expenses for the year. Generally, expenses which relate to more than one interim period are allocated to other periods to more appropriately match revenues and expenses. Principal items of expense which are allocated other than on the basis of passage of time are depreciation and property taxes of the gas subsidiary, Commonwealth Gas Company (Commonwealth Gas). These expenses are recorded for interim reporting purposes based upon projected gas revenue. Income tax expense is recorded using the statutory rates in effect applied to book income subject to tax for each interim period. The unaudited financial statements for the periods ended March 31, 1996 and 1995, reflect, in the opinion of the System, all adjustments necessary to summarize fairly the results for such periods. In addition, certain prior period amounts are reclassified from time to time to conform with the presentation used in the current period's financial statements. <PAGE 7> COMMONWEALTH ENERGY SYSTEM AND SUBSIDIARY COMPANIES The results for interim periods are not necessarily indicative of results for the entire year because of seasonal variations in the consumption of energy and Commonwealth Gas' seasonal rate structure. (b) Regulatory Assets and Liabilities Regulated subsidiaries of the System have established various regulatory assets in cases where the Massachusetts Department of Public Utilities (DPU) and/or the Federal Energy Regulatory Commission (FERC) have permitted or are expected to permit recovery of specific costs over time. Similarly, the regulatory liabilities established by the system are required to be refunded to customers over time. Based on the current regulatory framework, the system 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." On January 1, 1996, the system adopted 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. As of March 31, 1996, SFAS No. 121 did not have an impact on its financial position or results of operations. However, this result may change as modifications are made in the current regulatory framework pursuant to electric utility restructuring orders issued by the DPU. The principal regulatory assets included in deferred charges were as follows: March 31, December 31, 1996 1995 (Dollars in Thousands) Postretirement benefit costs including pensions $ 25 028 $ 24 608 Power contract buy-out 23 185 23 838 Fuel charge stabilization 17 901 22 063 Deferred income taxes 14 147 14 106 FERC Order 636 transition costs 11 326 11 711 Unrecovered plant and decommissioning costs 9 596 10 135 Seabrook related costs 8 701 9 511 Other 14 403 14 700 $124 287 $130 672 The regulatory liabilities, reflected in the accompanying balance sheets and related to deferred income taxes, were $13.9 million and $14 million at March 31, 1996 and December 31, 1995, respectively. <PAGE 8> COMMONWEALTH ENERGY SYSTEM AND SUBSIDIARY COMPANIES (3) Commitments and Contingencies Construction Program The system is engaged in a continuous construction program presently estimated at $293 million for the five-year period 1996 through 2000. Of that amount, $69.3 million is estimated for 1996. The program is subject to periodic review and revision. (4) Common Shares On March 28, 1996, the System's Board of Trustees had put forth in the System's 1996 proxy statement a proposal seeking shareholder approval to effect a two-for-one split of its outstanding common shares. On May 2, 1996, shareholders overwhelmingly supported the split. The split accompanies a change in the par value from four dollars to two dollars per share and an increase in the number of authorized common shares from 18 million to 50 million and will result in the issuance of an additional 10.8 million shares. The record date for the split is May 15, 1996. The impact of the stock split has not been reflected in the accompanying financial statements. <PAGE 9> COMMONWEALTH ENERGY SYSTEM AND SUBSIDIARY COMPANIES Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Financial Condition Capital resources of the System and its subsidiaries are derived principally from retained earnings and equity funds provided through the System's Dividend Reinvestment and Common Share Purchase Plan (DRP). However, effective February 1, 1996, the System's DRP common share requirement was fulfilled through open market purchases rather than the direct issue of common shares. This change was prompted by the System's improving financial condition and reduced need for equity capital. Supplemental interim funds are borrowed on a short-term basis and, when necessary, replaced with new equity and/or debt issues through permanent financing secured on an individual company basis. The system purchases 100% of all subsidiary common stock issues and provides, to the extent possible, a portion of the subsidiaries' short-term financing needs. These capital resources provide the funds required for the subsidiary companies' construction programs, current operations, debt service and other capital requirements. For the first three months of 1996, cash flows from operating activities amounted to approximately $53.6 million and reflect net income of $27.9 million and noncash items including depreciation of $14.7 million, $2.9 million in amortization and deferred income taxes (net of investment tax credits). The change in working capital since December 31, 1995, exclusive of cash, cash equivalents and interim financing, amounted to $6.7 million and had a positive impact on cash flows from operating activities, reflecting lower inventory levels ($12.4 million), unbilled revenues ($9.1 million) and prepaid taxes ($5.5 million), coupled with a higher level of accrued taxes ($4.9 million). These factors were offset, in part, by a higher level of accounts receivable ($14.8 million) and a decline in accounts payable ($11.6 million). Construction expenditures for the first three months of 1996 were approximately $9.8 million, including an allowance for funds used during construction (AFUDC) and nuclear fuel. Construction expenditures, preferred and common dividend requirements of the System ($8.6 million) and the payment of short-term borrowings ($33.7 million), were funded almost entirely with internally-generated funds. Results of Operations The following is a discussion of certain significant factors which have affected operating revenues, expenses and net income during the periods included in the accompanying condensed statements of income. This discussion should be read in conjunction with the Notes to Condensed Financial Statements appearing elsewhere in this report. <PAGE 10> COMMONWEALTH ENERGY SYSTEM AND SUBSIDIARY COMPANIES A summary of the period to period changes in the principal items included in the condensed statements of income for the three months ended March 31, 1996 and 1995 and unit sales for these periods are shown below: Three Months Ended March 31, 1996 and 1995 Increase (Decrease) (Dollars in Thousands) Operating Revenues - Electric $15 865 10.4% Gas 15 745 14.6 Steam and other 1 480 25.8 33 090 12.5 Operating Expenses - Fuel and purchased power 11 803 13.5 Cost of gas sold 10 477 20.5 Other operation and maintenance (638) (1.0) Depreciation 916 6.7 Taxes - Local property and other 171 2.0 Federal and state income 4 540 35.3 27 269 11.6 Operating Income 5 821 19.1 Other Income 888 58.7 Income Before Interest Charges 6 709 21.0 Interest Charges (265) (2.4) Net Income 6 974 33.3 Dividends on preferred shares (15) (5.3) Earnings Applicable to Common Shares $ 6 989 33.8 Unit Sales - Electric - Megawatthours (MWH) Retail 23 205 2.0 Wholesale 355 991 90.7 379 196 24.6 Gas - Billions of British Thermal Units (BBTU) Firm 2 083 12.9 Interruptible and other (1 170) (61.1) 913 5.1 <PAGE 11> COMMONWEALTH ENERGY SYSTEM AND SUBSIDIARY COMPANIES The following is a summary of electric and gas unit sales for the three-month periods indicated: Three Months Ended March 31, 1996 1995 Electric Sales - MWH Residential 486 024 457 491 Commercial 583 724 586 697 Industrial 94 051 96 309 Other 6 461 6 558 Total retail sales 1 170 260 1 147 055 Wholesale to other systems 748 448 392 457 Total 1 918 708 1 539 512 Gas Sales - BBTU Residential 10 424 9 404 Commercial 5 130 4 432 Industrial 1 674 1 474 Other 966 801 Total firm sales 18 194 16 111 Off-system sales 249 1 413 Quasi-firm sales 124 350 Interruptible sales 373 153 Total 18 940 18 027 Electric Revenues, Fuel and Purchased Power Costs For the first quarter of 1996, electric operating revenues increased approximately $15.9 million or 10.4% due to higher fuel costs and increased unit sales as a result of colder weather compared to the extremely mild weather conditions during the first quarter of 1995. The increase in revenues also reflects slightly higher conservation and load management (C&LM) costs. Fuel and purchased power costs increased during the first quarter of 1996 by approximately $11.8 million or 13.5% due mainly to higher unit sales and greater fuel oil costs at Canal (a major supplier of electricity to the system) that reflect the absence of scheduled maintenance on Unit 1 incurred in 1995. For the three-month period ending March 31, 1996, retail electric unit sales increased 2% reflecting higher sales to residential customers (6.2% increase) due to the colder weather during the current quarter. Retail unit sales to commercial and industrial customers changed marginally from the first quarter of 1995 since these customer sectors draw less energy for heating. Wholesale unit sales increased nearly 91% during the current quarter due to an annual inspection and unscheduled turbine maintenance for Canal Unit 1 in 1995. However, wholesale sales have little, if any, impact on net income. <PAGE 12> COMMONWEALTH ENERGY SYSTEM AND SUBSIDIARY COMPANIES Gas Revenues and Cost of Gas Sold For the first three months of 1996, gas operating revenues increased approximately $15.7 million (14.6%) due primarily to a higher level of cost of gas sold ($10.5 million) that reflected a 12.9% increase in firm unit sales. These increases were offset slightly by a decline in off-system sales and quasi-firm sales and a lower level of C&LM costs ($804,000). The increase in unit sales to firm customers reflects significant weather-related improvements in all customer segments including residential (10.8%), commercial (15.7%) and industrial (13.6%). For the current quarter, heating degree days totaled 3,324 compared to 2,914 for the same period in 1995, an increase of more than 14% and approximately 3% more than normal. Other Operating Expenses For the first three months of 1996, other operation and maintenance decreased 1% or $638,000 reflecting lower maintenance costs of $813,000, primarily associated with the Canal units, and a decline in the provision for bad debts ($337,000). These decreases were partially offset by higher labor, insurance and benefit costs ($848,000). Depreciation expense increased 6.7% or $916,000 due to a higher level of depreciable plant. The slight increase in local property and other taxes is due to higher rates and assessments within the system's service territory. Federal and state income taxes increased $4.5 million (35.3%) due primarily to a greater level of taxable income. Other Income and Interest Charges For the first quarter of 1995, other income increased by $888,000 due to the reversal of a reserve that had been established by Canal for costs associated with postretirement benefits that are now being recovered in wholesale rates. Total interest charges for the current quarter decreased 2.4% due to scheduled sinking fund payments and maturing long-term debt. Electric Industry Restructuring On August 16, 1995, the DPU issued an order calling for the restructuring of the electric utility industry in Massachusetts in order 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. Each of the state's electric utilities, together with other interested parties, participated in this proceeding that initially established a set of principles that would govern the restructuring of the electric industry in Massachusetts. <PAGE 13> COMMONWEALTH ENERGY SYSTEM AND SUBSIDIARY COMPANIES In February 1996, certain utilities submitted required proposals detailing how they would plan to move into a competitive market structure. Since that time, the DPU held a generic proceeding that focused on many of the policy issues raised in its original order. On April 12, 1996, Commonwealth Electric Company and Cambridge Electric Light Company (the Companies), in response to the generic proceeding, filed comments with the DPU on several issues that should be addressed in creating a restructured electric utility industry which, together with comments from other interested parties, provided valuable input to the DPU in its development of proposed rules that were summarized in its order issued on May 1, 1996. The proposed rules, which are subject to public comment and hearings prior to adoption of final rules in October 1996, are based on the following policies: (1) An Independent System Operator which: (a) operates the regional transmission system reliably; (b) is independent and unaffiliated with electric companies; and (c) applies comparable transmission rates, terms and conditions to all generators; (2) A Power Exchange to manage a competitive bidding pool for short-term power sales; (3) Functional separation of electric companies into generation, trans- mission and distribution corporate entities; (4) Preservation of discounts for low-income customers, shut-off protec- tions and provision of service to all customers; (5) Registration requirements for generation suppliers, including market- ers and aggregators; (6) A reasonable opportunity for recovery of stranded costs, including a proposal to protect municipalities from loss of utility property taxes associated with diminished generation plant value; (7) Options for phased incentives for electric companies to divest their generation assets to stimulate a robust competitive market; (8) Promotion of environmental goals; (9) Support for energy efficiency and renewable energy resources; (10) Encouragement, but not a requirement, for towns with Municipal Electric Companies to participate in the restructured industry; (11) A price cap system of economic incentive regulation for the remaining distribution and transmission monopolies; (12) Unbundling of rates on bills by January 1, 1997 into separate compo- nents of transmission, distribution and a market proxy for energy costs. Implementation of competitive generation market by January 1, 1998. <PAGE 14> COMMONWEALTH ENERGY SYSTEM AND SUBSIDIARY COMPANIES In its May 1, 1996 order, the DPU acknowledged that it does not have jurisdiction in such areas as environmental regulation and the establish- ment of an Independent System Operator or a Power Exchange. Federal and state environmental agencies and the Federal Energy Regulatory Commission have the requisite authority in these areas. However, the DPU determined that it was important for it to express its initial views regarding these components of a restructured electric industry. In accordance with the DPU's schedule, the Companies will file revenue-neutral unbundled rates in October 1996 for effect in January 1997. Also, during 1997, the Companies will file their comprehensive restructuring proposal. One element of the Companies' proposal (announced on February 15, 1996) would require the Companies to 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 competitive 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. Management is unable to predict the ultimate outcome of the overall proceedings or the Companies' specific proposal. Environmental Matters Commonwealth Gas is participating in the assessment of a number of former manufactured gas plant (MGP) sites and alleged MGP waste disposal locations to determine if and to what extent such sites have been contaminated and whether Commonwealth Gas may be responsible for remedial actions. Commonwealth Gas and certain other subsidiaries are also involved in other known or potentially contaminated sites where the associated costs may not be recoverable in rates. There were no significant new developments that occurred during the first quarter of 1996. For further information on these matters, refer to the System's 1995 Annual Report on Form 10-K. <PAGE 15> COMMONWEALTH ENERGY SYSTEM AND SUBSIDIARY COMPANIES PART II - OTHER INFORMATION Item 1. Legal Proceedings The System is subject to legal claims and matters arising from its course of business including Cambridge Electric as an intervenor in a pending appeal at the Massachusetts Supreme Judicial Court (SJC) filed by the Massachusetts Institute of Technology involving a DPU decision approving a customer transition charge for the recovery of stranded investment costs. The SJC has not yet established a schedule for submitting briefs. This issue is discussed more fully in the System's 1995 Annual Report on Form 10-K. At this time, management is unable to predict the outcome of this proceeding. Item 2. Changes in the Rights of the Company's Security Holders None Item 3. Defaults by the Company on its Senior Securities None Item 4. Results of Votes of Security Holders (a) The Annual Meeting of Shareholders was held on May 2, 1996. (b) The three nominees, Peter H. Cressy, William J. O'Brien and William G. Poist listed in the System's Notice of 1996 Annual Meeting, Proxy Statement and 1995 Financial Information dated March 29, 1996 were elected to the Board of Trustees of Commonwealth Energy System. (c) As set forth in the System's Notice of 1996 Annual Meeting, Proxy Statement and 1995 Financial Information dated March 29, 1996 as Item 2, a proposal to amend Sections 5 and 22 of the System's Declaration of Trust, which sections set forth the specific powers of the Board of Trustees, the present authorized number of Common Shares of beneficial interest and the par value of such Common Shares. The proposed amendments would change the par value of each Common Share from Four Dollars ($4.00) to Two Dollars ($2.00), increase the number of authorized Common Shares from 18,000,000 to 50,000,000 Common Shares, and allow for share splits or reverse share splits and changes in the par value of Common Shares under certain terms without specific Shareholder approval. There were 8,157,200 (75.8%) Common Shares voted for this proposal, 741,439 (6.9%) Common Shares voted against, 66,188 (.6%) Common Shares abstained and 1,800,011 (16.7%) Common Shares were not voted. The affirmative vote of the holders of a majority of the outstanding Common Shares was required for approval of this proposal. (d) As set forth in the System's Notice of 1996 Annual Meeting, Proxy Statement and 1995 Financial Information dated March 29, 1996 as Item 3, a shareholder proposal, which was also presented at the 1991, 1992, 1993, 1994 and 1995 Annual Meeting, requesting the Board of Trustees to repeal the classified board and institute annual election of trustees was voted upon and failed to pass at the 1996 Annual <PAGE 16> COMMONWEALTH ENERGY SYSTEM AND SUBSIDIARY COMPANIES Shareholders' Meeting. There were 1,918,941 (17.8%) Common Shares voted for this proposal, 5,627,348 (52.3%) Common Shares voted against, 310,765 (2.9%) Common Shares abstained and 2,907,784 (27%) Common Shares were not voted. The affirmative vote of the holders of a majority of the outstanding Common Shares was required for approval of this proposal. Item 5. Other Information None Item 6. Exhibits and Reports on Form 8-K (a) Exhibits Exhibit 27 - Financial Data Schedule Filed herewith as Exhibit 1 is the Financial Data Schedule for the three months ended March 31, 1996. Filed herewith as Exhibit 2 is the restated Financial Data Schedule for the three months ended March 31, 1995. (b) Reports on Form 8-K No reports on Form 8-K were filed during the three months ended March 31, 1996. <PAGE 17> COMMONWEALTH ENERGY SYSTEM SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. COMMONWEALTH ENERGY SYSTEM (Registrant) Principal Financial and Accounting Officer JAMES D. RAPPOLI James D. Rappoli, Financial Vice President and Treasurer Date: May 14, 1996