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