BECO-96-096, Forwards 1995 Annual Rept for Boston Edison Company,Form 10-Q for Quarter Ended 960930,cash Flow Forecast for 1997 & Narrative Statement of Curtailment of Capital Expenditures
| ML20134M344 | |
| Person / Time | |
|---|---|
| Site: | Pilgrim |
| Issue date: | 11/15/1996 |
| From: | Weafer R BOSTON EDISON CO. |
| To: | NRC OFFICE OF INFORMATION RESOURCES MANAGEMENT (IRM) |
| Shared Package | |
| ML20134M348 | List: |
| References | |
| BECO-96-096, BECO-96-96, NUDOCS 9611250049 | |
| Download: ML20134M344 (25) | |
Text
- BOSTON EDISON
- 800 Boylston Street Boston, Massachusetts 02199 4
Robert J.Weafer, Jr. (617)424-2463 Vice President. Controller andChief AccountingOfficer BECo Ltr. #96-096 U. S.' Nuclear Regulatory Commission l Attn: Document Control Desk l Washington, D.C. 20555 l l
Docket No. 50-293
Dear Sir:
License Nn. DPR-35 In accordance with 10CFR140.21 and the 197' .endments to the Price Anderson Act (Public Law 94-197), Boston Edison is submitting the following:
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- 1. Boston Edison Company Annual Report for 1995 ]
- 2. Boston Edison Company Form 10-Q for the quarter ended September 30,1996 l as filed with the Securities and Exchange Commission
- 3. Cash Flow Forecast for the Year 1997 l
- 4. Narrative Statement of Curtailment of Capital Expenditures l
l Very truly yours, j
Enclosures cc: Mr. Alan B. Wang, Project Manager Mr. Ira P. Dintz Project Directorate 1-1 Insurance Indemnity Specialist Office of Nuclear Reactor Regulation Office of Nuclear Reactor Regulation g Mail Stop: 14B2 Mail Stop: 10H5 I U. S. Nuclear Regulatory Commission U. S. Nuclear Regulatory Commission I 1 White Flint North 1 Whho Flint North I.4 11555 Rockville Pike 11555 Rockville Pike Rockville, MD 20852 Rockville, MD 20852 Regional Administrator, Region 1 Senior Resident inspector U. S. Nuclear Regulatory Commission Pilgrim Nuclear Power Station 475 Allendale Road King of Prussia, PA 19406 9611250049 961115 PDR ADOCK 050002 3
4 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q
[x] Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended September 30, 1996 or
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from to Commission file number 1-2301 BOSTON EDISON COMPANY (Exact name of registrant as specified in its charter)
Massachusetts 04-1278810 (State or other jurisdiction of (I . R. S . Empleyer incorporation or organization) Identification No. )
800 Boylston Street, Boston, Massachusetts 02199 (Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 617-424-2000 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
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1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to ]
such filing requirements for the past 90 days. 1
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Yes x No i
! l Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.
1 Class Outstanding at November 1, 1996 Common Stock, $1 par value 48,499,410 shares i
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Part I - Financial Information 1 Item 1. Financial Statements 4
Boston Edison Company l Consolidated Statements of Income I (Unaudited)
(in thousands, except per share amounts) l Three Months Nine Months !
Ended September 30, Ended Septenber 30, 1996 1995 1996 1995 I i
Operating revenues $497,968 S498,554 $1,275,573 $1,259,061 Operating expenses-Fuel 55,233 52,431 133,411 125,475 l Purchased power 97,342 90,915 289,738 278,772 Other operations and maintenance 101,119 115,204 300,722 326,131 Depreciation and amortization 54,608 51,142 149,694 130,052 j Demand side management programs 8,031 15,223 23,029 39,646 l l Taxes - property and other 26,760 26,168 84,871 80,348 Income taxes 49,522 44,775 81,431 72,649 j Total operating expenses 392,615 395,858 1,062,896 1,053,073 l 1 1 operating income 105,353 102,696 212,677 205,988 Other income (expense), net 649 (528) 1,489 (896) ,
Operating and other income 106,002 102,168 214,166 205,092 l l
Interest charges:
Long-term debt 22,847 28,312 71,555 79,605 other 3,852 2,673 10,952 11,613 Allowance for borrowed funds used during construction (708) (1,185) (1,482) (4,833)
Total interest charges 25,991 29,800 81,025 86,385 Net income 80,011 72,368 133,141 118,707 Preferred dividends provided 3,817 3,890 11,548 11,681 Earnings available for common shareholders S 76,194 S 68,478 $ 121,593 $ 107.026 Weighted average common shares outstanding 48,327 istB61 48,198 46,129 Earnings per share of common stock $1.58 $1.46 $2.52 $2.32 Dividends declared per share of common stoch $0.470 S0.455 El u410 $1.365 Common shares outstanding at end of period 48,376 47,8(0 The accompanying notes are an integral part of these financial statements.
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l Boston Edison Company consolidated Balance Sheets (Unaudited).
(in thousands) I l
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September 30, December 31,- l 1996 1995
. Assets Utility plant in service, at original cost $4,363,070 $4,315,422 ;
Less: accumulated deprecirtion 1,555,030 1,439,996
.2,808,040 2,875,426 Nuclear fuel, net 70,800 50,643 3 Construction work in progress 56,488 29,573 I Net utility plant 2,935,328 2,955,642 Investments in electric companies, at equity 22,993 23,620 Nuclear decommissioning trust 126,367 102,894 l
Current assets:
Cash and cash equivalents 3,328 5,841 l Accounts receivable 275,329 219,114 ;
Accrued unbilled revenues 47,685 37,113 '
. Fuel, materials and supplies, at average cost 57,630 59',631 )
Prepaid expenses and other 10,524 23,607 i Total current assets __ 394,496 345,306 l Regulatory assets:
Redemption premiums 40,263 44,709 q Income taxes, net 47,142 46,121' l Power contracts 17,852 21,396 ;
Postretirement benefits costs 12,011 '13,811 i Nuclear outage costs 5,940 13,471 l Other 16,102 17,266 Total regulatory assets 139,310 156,774 i
Other deferred debitst
. Intangible asset - pension 27,386 27,386 other 24,526 32,227 Total assets $3,670,406 $3,643,849 i
The accompanying notes are an integral part of these financial statements.
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- Boston Edison Company i
Consolidated Balance Sheets (Unaudited) i
- f. (in thousands) ;
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! j Septenber 30, December 31, 4
1996 1995- s
!- Capitalization and Liabilities Connen stock equity: !
Common stock $ 741,128 $ 731,689 l Retained earnings 311,310 257,749 Total common stock equity _ 1,052,438 989,438 Cumulative preferred stock:
Nonmandatory redeemable series 123,000 123,000 Mandatory redeemable series 88,000 92,000 Total preferred stock 211,0C 215,000 Long-term debt 1,058,676 1,160,223 Total capitalization 2,322,114 2,364,661 Current liabilities:
Long-term debt / preferred stock due within one year 103,067 102,667 Notes payable 241,175 126,441 Accounts payable 98,175 133,474 Accrued interest 13,093 25,113 Dividends payable 25,282 25,351 Pension benefits (15,788) 32,602 Other 152,027 105,442 Total current liabilities 617,031 551,090 Deferred credits:
Power contracts 19,852 21,396 Accumulated deferred income taxes 487,897 497,282 Accumulated deferred investment tax credits 59,917 62,970 Nuclear decommissioning liability 127,657 113,288 ;
Other 35,938 33,162 i Total deferred credits 731,261 728,098 l l
Commitments and contingencies Total capitalization and liabilities S3,670,406 $3,643,849 I l
The accompanying notes are an integral part of these financial statements.
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. Boaton Edison Company I Congolidated Statements of Cash Flows (Unaudited)
(in thousands) I i
Nine Months Ended September 30, i 1996 1995 !
operating activities:
l l Net income $ 133,141 $ 118,707 l Adjustments to reconcile. net income to net cash provided by operating activities:
Depreciation 139,714 110,036 l Amortization of nuclear fuel 15,836 13,279
[ Amortization of deferred nuclear outage ;
i costs 7,531 16,625 '
Other amortization 9,785 11,975 +
-Deferred income taxes and investment j tax credits (13,925) (12,060) ;
L Allowance for borrowed funds used during L construction (1,482) (4,833) l Net changes in: , '
l Accounts receivable and accrued unbilled revenues (66,787) (49,849)
- Fuel, materials and supplies (1,544) 5,143 !
l Accounts payable (35,299) (46,156) :
Other current assets and liabilities (811) 22,811 t
( Other, net .
28,830 19,386 I Net cash provided by operating activities 214,989 205,064 Investing activities: ,
l Plant expenditures (excluding AFUDC) (98,308) (125,468) i l Nuclear l'uel expenditures (35,484) (12,298) l- Nuclear decommissioning trust investments- (23,473) (15,451)
- Electric company investments 627 961 Net cash used in investing activities (156,638) (152,256) 1 Financing activities
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Issuances:
Common stock 9,454 61,773 l
l Long-term debt 0 125,000' i i
Redemptions: l Preferred stock (4,000) (2,000) I Long-term debt (101,600) (600)
Net change in notes payable 114,734 (140,366)
Dividends paid (79,452) (74,467)
Net cash used in financing activities (60,864) (30,660)
Net (decrease) increase in cash and cash l equivalents (2,513) 22,148 Cash and cash equivalents at beginning of year 5,841 6,822 Cash and cash equivalents at end of period S 3,328 $ 28,970 i Supplemental disclosures of cash flow
- 1. information:
[ Cash paid during the period for:
$ 87,724 $ 88,214
[ Interest, net of amounts capitalized Income taxes S 69,241 $ 63,177 I
.The accompanying notes are an integral part of these financial statements.
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i Notes to Consolidated Financial Statements A) Basis of Presentation The accompanying unaudited consolidated financial statements should be read in conjunction with the Boston Edison Company (the Company) 1995 Form 10-K Annual Report and Forms 10-Q for the periods ended March 31, 1996 and June 30, 1996.
In the opinion of the Company, the accompanying unaudited consolidated financial statements reflect all adjustments (which are all of a normal recurring nature, except for the adjustments to depreciation expense described )
in Note C) necessary to present fairly the Company's financial position as of !
Septenber 30, 1996 and the results of its operations for the three and nine-month periods ended September 30, 1996 and 1995 and its cash flows for the nine-month periods ended Septeraber 30, 1996 and 1995. Certain reclassifications have been made to the prior year data to conform to the current presentation.
The financial statements conform with generally accepted accounting principles (GAAP). The preparation of financial statements in conformity with GAAP requires the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expeuses during the reporting period. Actual results could differ from these estimates.
The results of operations for the three and nine-month periods ended September 30, 1996 are not indicative of the results which may be expected for the entire year. The Company's kWh sales and revenues are typically higher in l the winter and summer than in the spring and fall as sales tend to vary with ;
weather conditions. In addition, the Company bills higher base rates to l commercial and industrial customers during the billing months of June through September as mandated by the Massachusetts Department of Public Utilities (MDPU). Accordingly, greater than half of the Company's annual earnings )
typically occurs in the third quarter.
B) Nature of Operations The Company is an investor-owned regulated public utilitj operating in the energy and energy services business. This includes the generation, purchase, transudssion, distribution and sale of electric energy and the development and implementation of electric demand side management prograns. A portion of the generation is produced by the Company's wholly owned nuclear generating unit, Pilgrim Nuclear Power Station (Pilgrim). The Company supplies electricity at retail to an area of 590 square miles, including the City of Boston and 39 surrounding cities and towns. It also supplies electricity at wholesale for resale to other utilities and municipal electric departments. Electric operating revenues are approxinately 90% to retail customers and 10% to wholesale customers. In addition, the Company conducts unregulated activities through its wholly owned subsidiary, Boston Energy Technology Group.
C) Depreciation Expense Upon the completion of a review of its electric generating units, the Company determined that its oldest and least efficient units (Mystic 4, 5 and 6) were 6
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unlikely to provide competitively priced power beyond the year 2000. The I
Company, therefore, revised the estimated remaining useful lives of these units to five years during the second quarter of 1996. The effect of this change in estimate is an annual increase to depreciation expense of ,
- approximately $22 ndllion, or $5.6 ndllion for the third quarter.
In addition,.the Company recorded an increase of $5.2 million to depreciation expense to correct the accumulated depreciation balance of certain large computer equipment. This adjustment is not material to the previously reported operating results and therefore has been charged to the current I q quarter. I i '
l j D) Commitments and Contingencies In 1991 the Company was named in a lawsuit alleging discriminatory employment )
practices under the Age Discrimination in Employment Act of 1967 concerning employees affected by the Company's 1988 reduction in force. In July 1996 the Company reached a tentative settlement of this lawsuit under which there is no finding or admission by the company of discriminatory employment practices.
The company anticipates that the settlement will be substantially recovered from its insurance carrier. The Company has also been named as a party in a lawsuit by Subaru of New England, Inc. and Subaru Distributors Corporation.
The plaintiffs are claiming certain automobiles stored on lots in South Boston suffered pitting damage caused by emissions from the Company's New Boston Generating Station. The company believes that it has a strong defense in this case. The Company is also involved in certain other legal matters. The Company is unable to fully determine a range of reasonably possible litigation costs in excess of amounts accrued, although, based on the information currently available, the Company does not believe that it is probable that any such additional costs will have a mater.al impact on its financial condition. i i However, it is reasonably possible that additional litigation costs that may J
. result from a change in estimates could have a material impact on the results l of a reporting period in the near term. ;
4 The Company owns or operates approximately 40 properties where oil or hazardous materials were previously spilled or released. The Company is required to clean up these properties in accordance with a timetable developed by the Massachusetts Department of Environmental Protection and is continuing
- to evaluate the costs associated with their cleanup. There are uncertainties associated with these costs due to the complexities of cleanup technology, regulatory requirements and the particular characteristics of the different sites. The company also continues to face possible liability as a potentially
- responsible party in the cleanup of approximately ten multi-party hazardous
- waste sites in Massachusetts and other states where it is alleged to have generated, transported or disposed of hazardous waste at the sites. At the majority of these sites the Company is one of many potentially responsible
, parties and currently expects to have only a small percentage of the potential liability. Through September 30, 1996, the Company has accrued $7 million related to its cleanup liabilities. The Company is unable to fully determine a range of reasonably possible cleanup costs in excess of the accrued amount, although based on its assessments of the specific site circumstances, it does not believe that it is probable that any such additional costs will have a material impact on its financial condition. However, it is reasonably possible that additional provisions for cleanup costs that may result from a 4
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change in estimates could have a material impact on the results of a reporting period in the near term.
'E ) Income Taxes The following table reconciles the federal statutory income tax rate to the annual estimated effective income tax rate for 1996 and the actual effective income tax rate for 1995.
1996 1995 Statutory tax rate 35.0% 35.0%
State income tax, net of federal income tax benefit 4.3 4.3 Investment tax credits (1.8) (2.3) )
Other 0.3 0.1 ;
Effective tax rate 37.8% 37.1% '
Item 2. Management's Discussion and Analysis Results of Operations - Three Months Ended September 30, 1996 vs. Three Months I s Ended September 30, 1995 l
l Earnings per share of common stock for the three months ended September 30, )
1996 were $1.58 as compared to $1.46 for the three months enden September 30, 1 1995.
Third quarter earnings were negatively impacted by two depreciation adjustments as described in Note C to the consolidated financial statements.
A nonrecurring charge of $0.07 per share was recorded to correct the i accumulated depreciation balance of certain large computer equipment. In the i I
second quarter of 1996, the Company revised the estimated remaining useful lives of certain electric generating units. This had a negative impact of
$0.07 per share on the third quarter.
The comparison of 1996 and 1995 third quarter earnings was also impacted by two adjustments recorded in the prior year. A nonrecurring charge of $0.11 per share was recorded related to the Company's 1995 restructuring. In addition, third quarter earnings increased $0.13 per share over the prior year related to a retroactive change in the amortization period of deferred nuclear outage costs from five to two years which occurred in the third quarter of 1995.
The remaining increase in 1996 earnings is primarily the result of a decrease in other operations and maintenance expense.
The results of operations for the quarter are not indicative of the results !
which may be expected for the entire year due to the seasonality of the Company's kWh sales and revenues. Refer to Note A to the consolidated financial statements.
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Qperating revenues operating revenues decreased 0.1% in the third quarter of 1996 as follows:
l (in thousands)
Retail electric revenues $10,042 Demand side management revenues (9,531) i Wholesale revenues (3,422) l Short-term sales and other revenues 2,325 !
Decrease in operatino revenues S (586) i Retail electric revenues increased $10 ndllion despite a $1 million decrease in retail base revenues. Retail base revenues decreased prinarily due to f cooler than normal summer temperatures, partially offset by an improving local '
economy. Performance revenues, which vary annually based on the operating performance of Pilgrim Station, increased $5.5 ndllion due to higher Pilgrim performance in 1996. The annual performance adjustment charge is discussed further in the Electric Revenues section. In addition, fuel and purchased power revenues increased approxinately $5 million due to the tindng effect of fuel and purchased power cost recovery. These higher revenues are offset by i higher fuel and purchased power expenses and, therefore, have no net effect on I earnings.
Demand side management (DSM) revenues decreased primarily due to a decline in l current DSM program expenditures in 1996. I Qperating expenses Total fuel and purchased power expenses increased $9 million. This was primarily due to an increase in fossil fuel prices, partially offset by a decrease in company generation. An increase in purchased power expense was offset by the timing effect of fuel and purchased power cost collection. Fuel and purchased power expenses are substantially recoverable through fuel and purchased power revenues.
Other operations and maintenance expense decreased $14 million. Third quarter 1995 other operations and maintenance expense includes $8 ndllion for severance benefits due to the 1995 corporate restructuring. The 1996 expense reflects lower labor coats as a result of the restructuring and additicnal savings from continuing cost control efforts.
The increase in depreciation and amortization expense is primarily due to the depreciation adjustment of $5.6 million made as a result of the change in estimated remaining useful lives of certain Company electric generating units.
In addition, the Company recorded $5.2 million to depreciation er; 'nse to adjust the accumulated depreciation balance of certain large compt- - hardware equipment. Both adjustments are discussed in Note C to the consol_Jated financial statements. These 1996 increases were partially offset by a change in the amortization period of deferred nuclear outage costs from five to two years which resulted in an adjustment to amortization expense of approximately
$10 ndllion in the third quarter of 1995. A higher average depreciable plant balance also contributed to the increase.
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t The decrease in DSM programs expense reflects the decline in current DSM program expenditures.
Interest charges Interest charges on long-term debt decreased due to the maturity of $100 million 8 7/8% debentures in December 1995 and $100 million 5 1/8% debentures in March 1996.
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Results of Operations - Nine Months Ended September 30, 1996 vs. Nine Months l Ended September 30, 1995 Earnings per share of common stock for the nine months ended September 30, 1996 were $2.52 as compared to $2.32 for the nine months ended September 30, 1995.
The 1996 earnings were negatively impacted by the two depreciation adjustments
! described in Note C to the consolidated financial statements. The correction of accumulated depreciation of certain large computer equipment resulted in a nonrecurring charge of $0.07 per share. Current year earnings decreased by an additional $0.23 per share related to the change in the estimated remaining useful lives of certain electric generating units.
i j The comparison of 1996 and 1995 earnings was also impacted by two adjustments l recorded in the prior year. A nonrecurring charge of $0.11 per share was recorded related to the Company's 1995 restructuring. In addition, 1996 l ,
I earnings increased $0.12 per share over the prior year related to the l
retroactive change in the amortization period of deferred nuclear outage costs from five to two years which occurred in the third quarter of 1995.
The remaining increase in earnings is primarily due to a decrease in other operations and maintenance expense and higher Pilgrim performance revenues, partially offset by higher depreciation and amortization expense.
The 1996 earnings per common share reflect an increase in the weighted average number of common shares outstanding primarily associated with the issuance of two ndllion additional shares in 1995.
The results of operations for the nine months ended September 30, 1996 are not indicative of the results which may be expected for the entire year due to the seasonality of the Company's kWh sales and revenues. Refer to Note A to the consolidated financial statements.
Operating revenues l Operating revenues increased 1.3% in the first nine months of 1996 as follows:
! (in thousands) 4 Retail electric revenues $41,040 Demand side manr.gement revenues (20,998)
Wh'olesale revenues (1,920)
Short-term sales and other revenues (1,610)
Increase in operatina revenues $16,512 10
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l Retail electric revenues increased $41 million. Performance revenues increased approximately $15 ndllion due to the higher Pilgrim performance in l 1996. Approximately $13 ndllion of the increase resulted from a 3.7% increase in retail kWh sales driven by a stronger economy and colder winter conditions. '
i Fuel and purchased power revenues increased approximately $13 million as a result of the timing effect of fuel and purchased power cost recovery.
Operating expenses As discussed in the results of operations for the third quarter, DSM revenues decreased primarily due to the decline in current DSM program expenditures.
Total fuel and purchased power expenses increased 4.7%. Fuel expense l increased due to higher oil and gas prices, partially offset by a 19% decrease in fossil generation. Purchased power expense reflects a 6% increase in contract purchases. These increases were partially offset by a decrease in the timing effect of fuel and purchased power cost collection. Fuel and purchased power expenses are substantially recoverable through fuel and purchased power revenues.
Other operations and maintenance expense decreased $25 million primarily due to the lower labor costs resulting from the 1995 corporate restructuring and the Company's continuing cost control ef forts.
The increase in depreciation and amortization expense is primarily due to the depreciation adjustment of $16.7 million related to the change in the estimated remaining useful lives of Mystic 4, 5 and 6. In addition, the company recorded $5.2 million to depreciation expense to adjust the accumulated depreciation balance of certain large computer hardware equipment.
These 1996 increases were partially offset by the change in amortization period of deferred nuclear outage costs in the third quarter of 1995 which resulted in an adjustment to amortization expense of approximately $10 ndllion. A higher average depreciable plant balance also contributed to the increase.
The decrease in DSM programs expense reflects the decline in current DSM program expenditures.
The increase in property and other taxes is primarily due to higher property taxes imposed by a majority of the municipalities in which the company operates.
l l Interest charges j The decrease in interest on long-term debt is due to the maturity of $100 l
million 8 7/8% debentures in December 1995 and $100 ndllion 51/8% debentures in March 1996, partially offset by the issuance of $125 million 7.80%
debentures in May 1995. Other interest charges decreased due to lower short-term interest rates. The allowance for borrowed funds used during construction decreased due to lower construction work in progress balances and shorter construction periods.
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u Electric Revenues The annual performance adjustment charge provides the Company with opportunities to improve its financial results. The most significant potential impact of this performance incentive is based on Pilgrim Station's annual capacity factor.
Refer to the Electric revenues section of the Company's 1995 Form 10-K Annual Report for detail regarding the annual
, performance adjustment charge. Pilgrim's capacity factor for the performance year ending October 1996 was approximately 91%.
Liquidity The Company continues to supplement internally generated funds with external financings, primarily through the issuance of short-term commercial paper and bank borrowings. The Company has authority from the Federal Energy Regu]atory Commission (FERC) to issue up to $350 million of short-term debt. The Company has a $200 ndllion revolving credit agreement and arrangements with several banks to provide additional short-term credit on a committed as well as on an unconadtted and as available basis. At September 30, 1,996 the Company had approximately $241 million of short-term debt outstanding, none of which was incurred under the revolving credit agreement. In 1996 the MDPU approved the Company's request to extend its financing plan through 1998. Proceeds will be used to refinance short and long-term securities and to fund capital expenditures. There is approximately $322 million remaining under the pl:n.
Outlook for the Future In May 1996 the MDPU issued an explanatory statement and proposed rules (the {
Statement) as a follow-up to its August 1995 order on restructuring of the '
electric utility industry. The Statement was developed in order to address l certain issues identified in restructuring proposals that were submitted to the MDPU by the Company, other electric utilities and the Massachusetts I l
Division of Energy Resources.
The Statement reiterated the MDFU's support for the principles of a l
restructured industry identified in the 1995 order, including providing a :
reasonable opportunity for the recovery of net, nonmitigatable potentially strandable costs. The Statement also expressed the MDPU's support of the J functional separation of electric companies into distinct corporate entities and would provide options for phased incentives for divestment of generation assets.
j The Statement and its specific proposals were not intended to represent a final resolution of any issues. Their purpose was to serve as reference points and to generate response and discussion in the MDPU's investigation on industry restructuring. The MDPU held public hearings during June and July 1996 and stated that their goal is to issue final rules by the end of 1996.
On October 1, 1996 a major electric utility in Massachusetts, along with the Massachusetts Attorney General, the Massachusetts Division of Energy Resources and other parties announced the filing of a restructuring plan with the MDPU.
Under the plan, the utility has agreed to sell or otherwise spin off its generation assets in return for the opportunity for full recovery of all stranded costs. In addition, retail customers would receive a 10% reduction 12
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i t from current electric rates. The utility has requested that the MDPU hold j .public hearings on the plan. Based on initial hearings the MDPU has indicated that a ruling will not occur before January 1997. Implementation of the plan !
is subject to the approval of the FERC. Additional regulatory approvals would also be required for the transfer of generation assets.
The Company continues to pursue its interests.in the electric industry l restructuring proceedings and is actively involved in discussions with i
, interested parties. The goal of the Company and the MDPU is for the Company ;
i .to enter into a settlement. 1 l l i Although not anticipated by the Company, the potential exists that the final l rules issued by the MDPU or the enactment of legislation in Massachusetts I would require Massachusetts electric utilities to cease the application of d
Statement of Financial Accounting Standards No. 71, Accounting for the Effects l of Certain Types of Regulation (SEAS 71). Should it be required to discontinue the application of SEAS 71, the Company would be required to take
- an immediate noncash charge to income for all of its regulatory assets and the i above-market portion of its purchased power contracts. In addition, a write-d down of utility plant assets could be required if competitive or regulatory I I
j change should cause a substantial revenue loss, or lead to-the permanent 2 shutdown or sale of generating facilities. However, if laws are enacted or regulatory decisions are made that do not offer Massachusetts electric utilities an opportunity to recover stranded costs, the Company believes it has strong legal arguments to challenge such laws or decisions. The Company I will actively pursue the full recovery of its stranded costs and is prepared- !
to take the action necessary to protect the interests of its shareholders.
l 1 Other Matters
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1 Joint ventures i
- On September 30, 1996, the Company signed a letter of intent with Residential i Communications Network, Inc. (RCN), a subsidiary of C-TEC Corporation, to form
! a joint venture to provide local and long-distance telephone service, video,
- high speed internet access and other telecommunications-related services. The a
projected cost of creating the Boston Edison /RCN telecommunications network, j which is planned to serve 1.6 million customers in the Greater Boston area, is
- approximately $300 ndllion. The unregulated entity will be najority owned and
- controlled by RCN with the Company's interest anticipated to be 49%.
I' On October 25, 1996 the Company signed a letter of intent to form a joint venture with Williams Energy Services Company (Williams). Williams, a j subsidiary of The Williams Com'anies, p Inc. with headquarters in Tulsa, i Oklahoma, is a national energy company. The joint venture will market j electricity, natural gas and energy services to customers in the six New j England states. The Company expects the venture to be operational in Boston in January 1997. The letter of intent states that the Company and Williams will create a limited liability company (LLC). The expected combined initial capital investment in the LLC is less than $10 million, Both the Company and
, Williams will own 50% of the LLC.
f Formation of these ventures is subject to the execution of definitive agreements between the parties, and the satisfaction of a number of 13 1
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conditions, including the obtaining of all necessary regulatory approvals. j The Company anticipates finalization of the definitive agreements in the fourth quarter.
Connecticut Yankee on October 9, 1996, Connecticut Yankee Atomic Power Company (CYAPC), which owns and operates the Connecticut Yankee (CY) nuclear electric generating j unit, a 580-megawatt ur.it in Haddam Neck, CT, announced that a permanent shutdown of the unit seems likely based on an economic analysis of the costs of operating the unit compared to the costs of c.'.osing the unit and incurring replacement power for the same period. The fina:L decision is pending a vote by CYAPC's board of directors which is expected to occur in the fourth quarter of 1996. The Company has a 9.5% equity investment in CYAPC of approxinately
$9.7 ndllion. l l
The preliminary estimate of the sum of future payments for the closing, decommissioning, and recovery of the remaining investment in CY, assuming permanent shutdown, is approximately S797 millien. The Company's share of i I
these remaining estimated costs is approximately $76 million.
Should CYAPC board's decision result in permanent closure of CY, CYAPC expects to file updated decommissioning costs and certain amendments to its power contracts with the FERC. Based upon regulatory precedent, CYAPC believes it will continue to collect from its power purchasers, including the Company, its I decommissioning costs, the owners' unrecovered investments in CYAPC and other l costs associated with the permanent closure of the unit over the remaining period of the unit's operating license, which expires in 2007. The Company l l
expects that it will continue to be allowed to recover its share of such costs from its customers. l Safe harbor cautionary statement The Company occasionally makes forward-looking statements such as forecasts and projections of expected future performance or statements of its plans and I objectives. These forward-looking statements nay be contained in filings with l the Securities and Exchange Commission, press releases and oral statements. ;
Actual results could potentially differ materially from these statements. l Therefore, no assurances can be given that the outcomes stated in such l forward-looking statements and estimates will be achieved. Refer also to the ]
safe harbor cautionary statements included in the Company's 1995 Form 10-K l Annual Report and Forms 10-Q for the periods ended March 31, 1996 and June 30, 1996.
The above sections include certain forward-locking statements about environmental and legal issues, industry restructuring, Connecticut Yankee and joint ventures.
The impacts of various environmental and legal issues could ciffer from current expectations. New regulations or changes to existing regulations could impose additional operating requirements or liabilities. The effects of changes in specific hazardous waste site conditions and cleanup technology could affect estimated cleanup liabilities. The impacts of changes in 14
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available information and circumstances'regarding legal issues could affect the estimated litigation costs.
The ef fects o' the ultimate outcome of the industry restructuring process
. could differ from the company's expectations. This could occur as regulatory decisions and potential negotiated settlements.or litigation between-utilities, intervenors and the MDPU are finalized during the industry restructuring proceedings.
The timing and activities of the proposed joint ventures as well as the company's actual investment may differ from the current expectation.
The ultimate liability related to the potential' shutdown of Connecticut Yankee may differ from the current estimate. In addition, although currently not anticipated, it is possible that some portion of the company's share of post-operation costs may not be recoverable from ultimate customers.
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i Item 5. Other Information The following additional information is furnished in connection with the Registration Statement on Form S-3 of the Registrant (File No. 33-57840), '
filed with the Securities and Exchange Commission on February 3, 1993.
Price and dividend information per share of common stock: I l
Price Dividend
$ High Low Paid First quarter 1996 $30 1/8 $26 1/4 $0.470 l Second quarter 1996 27 1/8 23 5/8 0.470 3 Third quarter 1996 25 3/8 21 3/4 0.470 l The market value per share of the Company's common stock as of the close of ,
business on November 8, 1996 was $25 1/2 per share as reported in the Nall l
Street Journal. ;
Ratio of earnings to fixed charges and ratio of earnings to fixed charges and l
, preferred stock dividend requirements:
Twelve months ended September 30, 1996:
l Ratio of earnings to fixed charges 2.70
- Ratio of earnings to fixed charges and preferred stock dividend requirements 2.24
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- Item 6. Exhibits and Reports on Fons 8-K l
a)- Exhibits filed herewith:
Exhibit 12 - Computation of ratio of earnings to fixed charges 12.1 - Computation of ratio of earnings to fixed charges, for'the-twelve months ended September 30,'1996 !
F 12.2 - Computation of ratio of earnings to fixed charges
[ .and preferred stock. dividend requirements for the twelve months ended September 30, 1996 [
- Exhibit 15 - Lette'r re unaudited interim financial information !
- l. 15.1 - Report of Independent Accountants l Exhibit 27 - Financial Data Schedule l
27.1 - Schedule UT l
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! Exhibit 99 - Additional Exhibits i 99.1 - Letter of Independent Accountants Re Fonm S-3 Registration Statements filed by the. ;
j _ Company on February 3, 1993 (File No. 33-57840) i l and May 31, 1995 (File No. 33-59693); Form S-8 j j Registration Statements filed-by the Company on October 10, 1985 (File No. 33-00810), July 28, 1986
- (File No. 33-7558), December 31, 1990 (File No.
(~ 33-38434), June 5, 1992 (33-48424 and 33-48425),
March 17, 1993 (33-59662 and 33-59682). and April 6, 1995 (33-58457) :
i b) A Form 8-K dated September 30, 1996 was filed during the third l
quarter of 1996 announcing the intent touform a joint venture with Residential Communications Network, Inc. The joint venture is to provide local and long-distance telephone service, video,
[ high-speed internet access and other telecommunications-related services.
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Signature Pursuant to the-requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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l BOSTON EDISON COMPANY l (Registrant)
! Date: November 14, 1996 /s/ Robert J. Weafer, Jr.
Robert J. Weafer, Jr.
Vice President-Finance, Controller and Chief Accounting Officer i
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.a Exhibit 12.1 Boston Edison Company l Computation of Ratio of Earnings to Fixed Charges l Twelve Months Ended September 30, 1996 (in thousands)
Net income from continuing operations $126,744 Income taxes 75,649 Fixed charges 119,071 Total $321,464 Interest expense $110,571 Interest component of rentals 8,500 Total S119,071 Ratio of earnings'to fixed charges 2.70 l
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4 Exhibit 12,2 Boston Edison Company Computation of Ratio of Earnings to Fixed Charges and Preferred Stock Dividend Requirements Twelve Months Ended September 30, 1996
-(in thousands)
Net income from continuing operations $126,744 Income taxes 75,649 Fixed charges 119,071 Total $321,464 Interest expense $110,571 Interest component of rentals 8,500 Subtotal 119,071 Preferred stock dividend requirements 24,750 Total S143,821 Ratio of earnings to fixed charges and preferred stock dividend requirements 2.24 1
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Exhibit 15.1 Report of Independent Accountants To the Stockholders and Directors of Boston Edison Company We have reviewed the accompanying consolidated balance sheet of Boston Edison Company (the Company) and subsidiaries as of September 30, 1996 and the related statements of inccme for the three and nine-month periods ended September 30, 1996 and 1995 and cash flows for the nine-month periods ended September 30, 1996 and 1995. These financial statements are the responsibility of the Company's management.
We conducted our review in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit 4 conducted in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should be made to the accompanying financial statements in order for them to be in conformity with generally accepted accounting principles.
Boston, Massachusetts COOPERS & LYBRAND L.L.P.
October 24, 1996 21
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!*~ Exhibit 99.1 ;
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' Securities and Exchange commission
- - .450 Fifth Street, N.W. ,
L Washington, *>.C.1 20549 >
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Re: Boston Edison Company 1 Registration on Form
- S-3 and Form S )
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We are aware that our report' dated October 24, 1996 on our review of'the
- interim. financial information of Boston Edison Company for the period ended ,
September 30,'1996 and included in this Form 10-Q is incorporated by reference !
- in the Company's registration. statements on Fonn S-3 (File Nos. 33-57840 and j
. 33-59693) and on' Form S-8 (File Nos. 33-00010, 33-7558, 33-38434, 33-48424, ;
33-48425, 33-59662, 33-59682 and 33-58457). . Pursuant to Rule 436(c) under the.
Securities Act of 1933, this report should;not be considered a part of'the 4 registration statements prepared or certified by us within the meaning of l 3
Sections 7 and 11 of that Act.
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Boston, Massachusetts. Co0PERS & LYBRAND L.L.P. !
L, October 24, 1996 ,
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BOSTON EDISON COMPANY 1997 INTERNAL CASII FLOW PROJECTION FOR PILGRIM UNIT #1 NUCLEAR POWER STATION (DOLLARS IN THOUSANDS) 12 Months Ended Projected Year 9/30/96 1997 Net income After Taxes $126,744 $140,000 Less Dividends Paid (105.137) (110.000)
Retained Earnings 21,607 30,000 Adjustments Depreciation and Amortization 213,406 219,000 Depreciation Nuclear Outage Costs 9,839 (7,000)
Deferred Taxes and ITC (27,058) (28,000)
AFUDC (1.416) (3.000)
Total Adjustments 194.771 181.000 Internal Cash Flow $216.378 $211.000 Average Quarterly Cash Flow $54.095 $52.750 Percentage Ownership in All Operating Pilgrim Unit #1 74 %
Nuclear Units Maximum Total Contingency Liability $10,000 a
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4 ITEM (4) NARRATIV ri STATEMENTS OF CURTAILMENT OF CAPITAL EXPENDITURES:
A The Boston Edison Company would be able to curtail $10 million of capital
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expenditures within any three month period of the next twelve months if it becomes necessary to pay retrospective premiums, i
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