ML19327B006
| ML19327B006 | |
| Person / Time | |
|---|---|
| Site: | Seabrook  |
| Issue date: | 12/31/1988 |
| From: | Anderson G, Siegfried R COMMONWEALTH ENERGY SYSTEM |
| To: | |
| Shared Package | |
| ML19327A998 | List: |
| References | |
| NUDOCS 8910240182 | |
| Download: ML19327B006 (36) | |
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1 8910240182 89g020 fDR ADOCK 03000443 PNV Energy l
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Our System Credo l In order to be successful, Commonwealth Energy l System and its subsidiaries need the approval and sup- l
/ port of our customers, our employees, the leaders of ,
the communttles we serve, and our shareholders. Every ;
decision we make at every level must be made with this j consideration in mind, it is the fcundation of our ,
T operations. l
?i.,
- m a)fc g ..' ._ ,, . c c.e s.r System Psofile .
Commonwealth Energy System is an exempt !
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St'A public utility holding company with investments in four i..
operating public utility compantes located in central and I
' % g} ' eastern Massachusetts. System electric operations are involved in the production and sale of electricity in 41 .
! rj Em" MM/
% 3 "-r' x/ ** = w s.,.
.D communities including New Bedford, Plymouth, Cambridge and the geographic area comprising Cape r
g Cod Gas operations serve 49 communities including ;
New Bedford, Cambridge, Plymouth and Worcester. !
in addition to the utility companies, the system i IO) Gas Electric Service Service Area Area includes a steam distribution company, five real estate ;
E Gas and Electric Service Area trusts and a company engaged in the operation of LNG facilities. The retall electric subsidiaries receive a portion ,
of their capacity and energy requirements from their t respective ownership interests in one oll. fired and four ;
nuclear electric generating facilities. -
The System is a business trust organized in l' 1926 under the laws of Massachusetts. Subsidia: of the System have common executive and financial m< . age.
ment and receive technical assistance as well as financial, -
data processing, accounting, legal, corporate planning !
and other services from a service company subsidiary. ;
r Annual Meeting l All shareholders are invited to attend the next Annual '
Meeting which will be held on May 4,1989. A formal notice of the meeting together with a proxy statement ,
and a form of proxy will be malled on or ebout April 1. ;
1989 to shaieholders entitled to vote at the meeting. 1 t
About the Cover !
The current, brisk pace of construction activity in the metropolitan areas served by System subsidiaries ;
continues to place ever increasing demands on gas and [
electric utility services.
Contents :
Letter to Shareholders :
Growing into the future. .
4 Financial Section C
! Trustees and Officers 32 l System Facts inside back covi l
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'I,Hashilshts ,
, i I' '
1988 1987 I Financial Statistics !
Total Operating Revenues 6 688,764,000 $ 660,443,000 :
Total Operating Expenses $40,244,000 622,982,000 !
34,959,000 32,354,000 Net locome 3 e
30,085,000 Earnings Applicable to Common Shares 33,427,000 :
1
~ Property, Plant and Equipment (including Construction Work in Progress) 1,133,767,000 1,025,440,000 -
Construction Expenditures (including Allowance for Funds Used During .
117,129,000 85,569,000 '
Construction) t Common Stock Data i Earnings Per Common Share 43,50 $3.20
$ 2.80 62,80 1 Common Share Dividend Rate at End of Year
- Av: rage Common Shares Outstanding 9,556,577 9,408,026 [
C;mmon Shareholders 19,185 19,373 j Cp:rsting Statistics Cust:mers Served ,
Electric 335,000 322,000 t Oas 220,000 216,000 .
Unit Sales I MWH - Retail 4,497,572 4,216,042 !
Wholesale 2,750,693 1,799,748 i MMCF - Firm 36,226 35,171 !
Interruptible 3,624 4,033 i
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i . . To Our Shareholders:
i ,
perating results for the year exceeded our The second event was an order from the Federa.
expectations. In 1988 we reported record unit Energy Regulatory Commission (FERC) on January 13, sales from our gas and electric businesses, 1989, which allowed Canal Electric Company to recover i increased camings and a stable dividend. current financing costs on 50% of its investment in Seabrook Unit 1. Collection of these funds will improve ,
{
Earnings per common share in 1988 rose 30' to net cash flow to Canal Electric by about $10 mil!!on in -
$3.50, an increase of more than 9% over 1987. Annual 1989. The final amount to be recovered is dependent
.A camings increased to nearly $35 million, en amount upon the FERC's subsequent determination of the
% that includes a $3.7 million reduction (or 39' per share) prudency of this investment. The FERC order, combined r:sulting from an after tax write off for our participation with our minimal remaining cash outlays for the plant.
.y in the previously cancelled Seabrook Unit 2. During has prompted Standard & Poor's to raise the bond p 1988 we paid shareholders quarterly dividends totaling rating for Canal Electric Company to BBB + from BBB.
h $2.80 per common share-a yleid of nearly 9%, based it was again necessary during 1988 for New England ,
i on the year end closing price. Return on common equity electric utilities to request that customers reduce electric 4 for the year was 11.6%, up from 10.8% for 1987, consumption during peak periods. Utilities made appeals a Contributing to these improved earnings were the in January and again in August, when both winter and cffects of a fullycar of increased rates for Commonwealth summer all time peak demand records were shattered.
Gas Company; stringent, continued cost control measures; This trend continued into 1989 when, on January 4 -
and unprecedented systemwide growth in our customer New England set an all time record peak for electric demand base and their energy use. Electrie unit sales to retall at 19,720 megawatts (MW). COM/ Electric also recorded ,
customers increased by 6.7%, Unit sales to firm gas a new all time peak of 916 MW on the same day.
customers increased by 3%. Despite this growth, no new major g enerating facilities ,
t 1988 proved to be eventful for both gas and electric were brought into commercial operation in New England t 0 operations. COM/ Electric and COM/ Gas continued to be during the year, and we anticipate continued short supplies ,
f highly productive in searching out innovative solutions for of electricity for the near term. However, new capacity
- meeting present and future energy demands of customers, to our System was provided by two smaller Massachusetts (Some of these solutions appear in the following text- non utility generating facilities-SEMASS, o trash to.enert,
)Q " Growing into the future.") Many significant positive developments occurred which will provide the springboard plant in Rochester, and CPC Cogen, a dual fuel unit in Lowell-which began commercial operation during the
, to propel the System into the next decade as a finan- year. These two units combined will provide COM/ Electric cially stable, healthy business entity. We plan to enter with an additional 77 MW of capacity. We have also the 1990s as a streamlined System, well positioned to deal contracted with Northeast Utilities to supply an average of with the effects of deregulation, increased competition, 50 MW of its system's capacity over the next five years.
cnd the economic uncertainties we're facing today and Several encouraging developments occurred on y expect to face in the future, the nuclear energy iront. The Nuclear Regulatory
- A couple of significant positive events on the electric Commission (NRC) issued a restart order for Boston i side of our business actually occurred just after we closed Edison Company's Pilgrim nuclear power plant in
. cut 1988. The first involved a favorable rate order that Plymouth, Massachusetts and subsequently authorized
Commonwealth Electric Company received from the operation of the plant at 25% of capacity. We anticipate
- c. Massachusetts Department of Public Utilities (DPU). On that during the second quarter of 1989 we should i January 31,1989, the DPU granted the company a receive some power from this unit, which has been out ravenue increase of $18 million-approximately 77% of of service for nearly three years. Additionally, the NRC cut original request. This represents an overall increase of approved evacuation plans for the New Hampshire
. 6.7% in our customers' electric rates. In keeping with communities surrounding the Seabrook nuclear power current regulatory practices, we redesigned rates to plant. This is a major step forward in Seabrook's final
? more closely reflect actual costs to serve each customer licensing process. We believe that a full power operating classification, Also related to rates is a planned filing license is attainable for this much needed power source within the next few months for an increase in rates by by the end of 1989.
- c ti our other retail electric subsidiary, Cambridge Electric in last November's election, Massachusetts voters overwhelmingly defeated a binding referendum question Q '
Light Company, which would have permanently closed the state's two I nuclear power plants. We are encouraged by the fact that voters understand the severity of the energy supp' i
~
issues facing the region.
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A major development occurred during 1988 in our 7
's) team business. In mid. December, COM/ 'c . ' ' ' Energy .3 Dy Steam began to provide servlee to Massachusetts General Hospital k i' Td in Boston. A new steam line, financed by the hospital, q*(( ., .:f-} ~ ffs :
sems the hospital's present steam needs and is capable ." - ? ' . .
of ocecmmodating future growth of its steam requirements.
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COM/ Gas delivered a year of remarkably strong ! ' WN ,
performance. The company's $ 12.5 million rate increase, %
which went into effect in January 1988, had an extremely ! t .A positive impact on System earnings. Moreover, we are y the first Massachusetts gas distribution company to imple. .
mint a wider range of rate opportunities for our larger s
@?
customers. Natural gas in the New England market has clactly become the fuel of choice. Our strong commitment
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U to critical supply and distribution planning has positioned us to take advantage of exciting new opportunities in a
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competitive and continually changhg natural gas industry.
Last year, COM/ Gas installed 0.000 new and replace, ment gas services. Substantial improvements, extensions and replacements were completed throughout the com-pany's distribution network. These included a record :
160 miles of gas lines Installed by the company, t We also achieved a major goal of reinforcing our natural gas supplies. One of the most significant develop.
msnts in the gas supply area was the completion and operation of the Marathon Pipeline project by Algonquin
'as Transmission Company. COM/ Gas has earned a
.eputation as being a low. cost supplier of quellty gas utility services. The Marathon line further enhances our ability to maintain this reputation.
As emphasized in our corporate credo. we p. ace a strong commitment on our mission to serve our customers in the most reliable and efficient manner. As a corollary, we continue to manage the System for the best long term results. We are convinced that quality services result in quality earnings. Our objective is to provide cost.competi.
tive, quality gas and electric utility services to our customers and a fair, dependable return to our shareholders.
Thank you for your loyal support and continued confidence. We will strive to perform up to your ;
expectations.
For the Trustees.
- u R. E. Siegfried.
Chairman
)
/ &dW G. E. Andercon.
President and Chief Executive Officer
)
G. E. Anderson and R. E. Siegfried 3
f,., Growing inte thG futurG...
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Massachusetts economy delivered nomic expansion within our service area, we will continue to be aggressive in managing v- p.Q, gp g .gg, ,..j. ~
T he unrelenting strength of the%_ 4:
yet another year of resounding economic expansion. The persis-tent demand for energy to main-and limiting growth of peak demand periods to defer construction of expensive new power supplies. We plan to achieve this important e
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,/g A j tain our wconomy's powerful momentum objective through conservation, pricing, U.4 V 5 continues to soar. and consumer involvement and education. *3@;p . A , ( .,m High rise office buildings, hotel com-plexes and towering residential developments continue to break the skyline in the metropol.
Meeting the demand for energy Cambridge, Massachusetts continues M(L .
4g . p Q[%,b{ Q i
itan areas. New construction of industrial to attract and spawn high technology com- ,,
C q parks, shopping malls and sprawling condo- panies because of the proximity of research &' ..
minium complexes line interstate highways facilities, educational institutions and the T I
in the suburban areas. Beyond, single quality of the labo'r force. The city's projected ::
family homes rise from subdivisions daily. energy growth continues to soar, with in The service territories of Common-wealth Energy System's gas and electric healthy increases expected in gas and elec-tric load through the turn of the century. %' M -
d'(
utility companies are located in the heart When complete, new construction alone 7 1 of the fastest growing areas in the state, in a five block triangle in Cambridge is '
Servicing the energy requirements of our expected to require an amount of electricity 555,000 customers today and into the next equal to that of 8,000 homes with a future ( 2 ,
cintury represents a formidable challenge- potential use of nearly double that. One j h,'
a challenge that will be guided by our of Cambridge Electric Light Company's many l4 r-System corporate philosophy of supplying additions to meet the city's present demand e cyr customers with a reliable source of and future growth is a $26 million project i olectricity and gas at the lowest possible including a 115 KV bulk power station and cost. This year, our annual report to a 3.7 mile underground oll cooled cable, shareholders profiles some of the challenges Steam sales are expected to increase that confront us and responsive solutions substantially with the addition of a major to carry us into the 1990s and beyond, new customer. COM/ Energy Stern has entered a contract to supply the steam needs A changing marketplace of Massachusetts General Hospitalin Boston.
Tomorrow's customers will demand A newly constructed 14. inch steam line, a wider range of services, products and which spans the Charles River from Cambddge rate structures. The thrust of our marketing to Boston, began operation in mid December efforts will take on a new emphasis. Natural of last year. COM/ Energy Steam was an gas will be marketed with a focus on con- active partner in the line's construction which venience, reliable supplies and desirability was totally financed by the hospital.
of today's least controversial fuel. Electricity The steam sold to the hospital is a will be marketed with an awareness of and by product in the generation of electricity at a concern for present and future capacity our Kendall Station. This is a prime example shortages. Emphasis will be placed on of the cogeneration principle. The second demand side management with a sharp use of this steam results in lower cost elec-focus on least cost planning and limiting tricity for Cambridge customers.
growth of peak demands. Public sentiment toward natural gas in The shift in the Massachusetts economy New England has never been more favorable.
frorr, traditional mill based manufacturing to Prepared with a proficient and technically high technology and service industries has oriented sales force, a distribution system brought about a more electricity intensive capable of serving new and existing cus-society. The added electric use puts an tomers and adequate, reliable sources of ever increasing demand on transmission and competitively priced natural gas. COM/ Gas is distribution systems and, more important, in a position to take advantage of the oppor.
on generating facilities. Although we have tt.nities provided by a changing gas industry.
little or no control over the explosive eco. Both Cambridge and Somerville 4
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Construction abounds in the Cambridge COM/ Energy Steam added Massachusetts I area (main photo) and other areas that we General Hospital as customer with no ad-serve. Photo insets: Recent additions to ditional capital Investment (right, bottom). meet the growing electric demands in this area include a 115,000 volt bulk power station (left) supplied by a 3.7. mile oil-cooled transmission line (right, top). $
, (v b a h continue to be rewarding areas of growth position among New England natural gas
- M for COM/ Gas. The resurgence of construe. distribution companies.
i-ticti activity in the state's older cities keeps both the new and conversion natural gas bildi J tos the future markets growing. Our sales force works Transporting natural gas to our service clowly with the firms responsible for new cu from producert wells hunareds of nlles construction during their most preliminary away is the first step in supplying our custom. stages of planning. This assures that archi, ers; the other side of the energy equation is P tect;, builders and developers will have moving that gas within our service area. W s the necessary information to make informed The demand for pas service, resulting S
' cnolces on fuels. The large commercial from rapid growth and development in 4
wnversion to. gas market continues to show ) north Worcester and bordering towns, was a strong growth as more building managers approaching the limits of our distribution look to the use of natural gas as the best way system. We responded to this challenge with , to avoid the meriy problems and regulations a two. phase construction project called the [ confronting facilities with underground fuel su ege tanks.
" Worcester Crosstown Feeder." This pipeline forms the foundation for future expansion h Just 35 miles west of Cambddge lies of our distribution system and can be incre.
_ Worcester, the second most heavily popu. mentally ennanced to serve the future needs
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lated city in the state. This burgeoning city of Worcester and extended to follow growth is a key market for COM/ Gas' Worcester paths into neighboring towns. The first division where nearly 90 percent of our phase of this feeder, which represented customern use natural gas for space heating. the installation of more than a mile of Delivering enouf natural gas to the 16 inch pipe through some of the oldest Cambridge and Worcester areas on winter's and most congested sections of Worcestei, coldest days remained a crucial concern was completed last year, in lime for the of the cornpany during the heavy. growth heating season and with minimal disruption period of the 1980s. Innovative energy to residents and businesses. The second supply planning eHminated that important phase-smaller in scope, with construction concern last Dec oer. The solution was scheduled for 1990-willincrease the capa. the Marathor. Pipei.ne sject, an eight mile city of the feeder by way of a connection to natural gas transmission line, a high. pressure source of supply. The Marathon Pipeline was the least cost COM/dlectric has experienced phenom. alternative to a most pressing problem- enal growth. The combined population of the supplying total customer needs during periods two counties that forec Cape Cod and Martha's of peak demand. Major benefits of the Vineyard grew at a staggering rate of over b Marathon line include improved reliability 15 percent from 1980 to 1986. This rate was and lower annual gas costs for our customers. three times faster than the next fastest grow. These savings will be achieved by avoiding Ing county in the state, Plymouth County, the need to participate in more expensive which we also serve. During the same period aupply projects and through the increased Massachusetts grew only 1.7 percent. purchasing leverage gained by adding a sec. Growth in the use of electricity generally u' ond major pipeline supplier to our liquefied tracks population growth. We expect electric natural gas (LNG) facility in Hopkinton, MA. demand on the Cape could grow as much as Competitive pricing by the two suppliers 60 megawatts over the next five years. The assures us of a lower price on our summer growth projections for all of our electric purchases of natural gas for liquefaction, service areas in southeastem Massachusetts storage and subsequent use during pt.ak could reach 100 megawatts. y winter periods. Keeping up with customer demand Accessibility to two interstate gas pipe. means substantial improvements in the elec. line suppliers on the doorstep of one of tric infrastructure. COM/ Electric expects to the nation's largest LNG facilities is a spend $225 million on construction pro. valuable asset, placing COM/ Gas in a premier grams required to strengthen its electric m n 6
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Cand,rldge Side Galleria Mall (main photo), now and in the future, we became a driving a $100 million project, featuring three force for the construction and operation anchor stores along with 150 other of tne Marathon Pipeline project. setall stores, wt.kh will be heated with natural gas. Photo insets: To assure Cambridge and other areas served by 7 e
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l 4-transmission and distribution system in performed to illustrate ways that businesses j m southeastem Massachusetts because of the can make energy efficient changes in their ; - Increase in electric demand. Among last design or selection of equipment, in tum, year's additions were a 345 KV bulk power based on the kilowatthours saved and } station and a seven mile 115 KV transmis. COM/ Electric's avolded cost, we offer a slon line running from Boume to Bamstable. proportionate financial incentive to the participating company. Managing energy growth The Mtleist Golf Division of the Acushnet We work to keep the price of elec. Company participated in the program and tricity affordable to customers by looking for expects an annual savings of 1.5 million savings on both sides of our customers' kilowatthours, the result of energy.saving meters-both supply and demand. Building, recommendations on its $26 million facility extending and improving is only one part being built to produce its Pinnacle
- Gold of the solution; another is managing that line of golf balls. COM/ Electric plans to fund growth with demand. side planning. Demand. $300,000 toward the higher costs associated side planning is simply making sure that with the purchase and installation of the more ,
our customers squeere as much energy efficient equipment to achieve these dramatic as possiDie from every kilowatthour the.t savings. A far greater degree of energy we sell, before we explore more expensive savings can be realized from a similar pro-supply alternatives, gram offered to electrically heated schools. ! Demand. side management has We will continue to work diligently with become one of our highest priorities at our human and financial resources to achieve COM/ Electric because of the high cost of optimum reductions in both the amount construction and ever increasing state and of electricity used ai the peak demand j federal regulations to obtain additional for that electricity. We will meet this goal l supply capacity. Add to this the economic with efficient and effective demand side uncertainties that make forecasts of future management programs that emphasize load growth and fuel prices about as unpre- customer choice and provide pricing m dictable as our New England weather, and signals that reflect the true economic m ? -- It becomes obvious why COM/ Electric has costs to serve our customers.
- placed a mejor emphasis on a known factor- We continually strive to keep ahead of f!
g '? Its customers. Results of a recent conserva. the growth in demand for gas and electricity. 3i , tion and load management study of the We've illustrated but a few of the creative ? p COM/ Electric service territory indicate a ways we have supported this goal. Tomorrow * . total potential ravings of 80110 megawatts, " will require even larger measures of ingenu-enough power to defer the construction of Ity and perseverance if we are to continue generating units for up to three years. to deliver quality utility services and achieve . Both COM/ Gas and COM/ Electric muimum value from all available assets. I continue to offer customers an array of energy conservation programs that promote Planning our energy future _ the efficient use of energv, reduce customer Looking ahead, COM/ Gas is presently - I costs and restrain growth of peak demands. exploring the possibility of expanding its m .. During the past decade our conservation existing undergrcund storage contracts. By . ..@:'.7 g. programs have achieved favorable results utilizing huge, underground caverns in two '
., , ,;,;g - -h-and usually at lower costs per unit of energy mid Atlantic states, we will t,e able to store ' eI W C :
saved than similar programs elsewhere. One of our newest conservation pro. large quantities of natural gas. Because these ,"~ ~/pp ;; stable geological fo-nations have held gas - grams is the " Energy Advisory Service.' a for millions of years, they make excellent I joint venture with the Massachusetts Executive storage facilities. ! Office of Energy Resources. COM/ Electric To make further cost effective use of ) encourages its large industrial customers to this concept. natural gas will be delivered participate in this service. An energy audit is to these caverns during the warmer months ] l l 8
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. Beyond city limits residential development with the installation of more than a mile of continues at a brisk pace with natural 16 inch pipe (left), t.eet year, COM/ Gas gas the fuel of choice for space heating installed 6,000 new and replacement (main photo). Photo insets: As commercial services (top, right) and installed more than development follows in the path of residen- 160 mlics of new gas lines (bottom, right).
tial growth, the unparalleled demand for gas in the north Worcester area was met 9
l .; } yy . ~e when excess pipeline capacity exists and 250,000 sq. ft. of research and development prices are lower. During peak winter periods, office space. High on the list of amenities pipelines south of this storage site run at offered by Research Park are on site parking, full capacity and prices are considerably access to a mass transit system, the service-higher. When we require additional supplies ability of Boston markets and the proximity during winter peaks, the lower cost " summer" to Logan Intemational Airport as well as gas will be transported by our pipeline leading educational Institutions. We have suppliers to our distribution system. This established a working relationship with a will benefit our customers with ivwer nationally recognized development firm and overall gas costs and keep our product are ner..ing compittion of a venture arrange-competitively priced. ment. We expect to formulate plans for the On the electric side, we optimiscically first phase quickly Construction of subse, look forward to public involvement in future quent phases will be developed over time. planning. COM/ Electric has formed an One of our most dynamic opportunities cillance with the Massachusetts Institute of awaits us 45 miles south of Cambridge in Technology's Energy Laboratory to bring Freetown, where the Assonet and Taunton about a more open planning process for Rivers join. This site is one of the most
,/
the development of future energy resources. Ideal locations in Massachusetts suitable Open planning offers interaction between for electric generation. Attributes of the 3 , COM/ Electric, an analysis team and an Freetowrs site make it an attractive location advisory group of concemed porties. This for an energy park capable of supporting concept incorporates these sectors into up to 1,200 megawatts of electric generation the planning process at an early stage; and other energy related ventures. Amenities ancourages consensus by providing informa- for these purposes include excellent access tion on options, uncertainties and trade offs; to regional highways, a railroad siding, oil and explores an uncertain ' S Wnalyzing and natural gas pipelines, water and access < multiple scenarios. Open plann: ; gives ,. to the electric trar,smission grid. all concemed parties direct input in utility Purchased in 1986 by COM/ Energy j pla ag for electric power systems. Freetown Realty a non.utilliy subsidiary, t'.e j l site will be developed jointiy with one or more Maximizing return on assets partners with COM/ Energy retaining land The horizon for our non utility opern- owne ship. Development may include tions remains bright. Investment in commer- multiple generating units with the power cial real estate is a logical path of growth generated to be sold on the open market. I for the System because of our valuable land Several leaders in the er;gineering and holdings in key locations. Our real estate construction industry have enthusiastically investments continue to produce attractive responded to our preliminary requests for returns with limited risks. Riverfront Office proposal to join COM/ Energy Freetown Park, Phase 1, is at full occupancy, and Realty in a pha;ed or total development the second phase is 87 percent occupied. of such an energy park. Before publication At this time we are carefully evaluating of our next annual report to shareholders, we , opportunities for two additional projects. hope to have formed a partnership and One includes development of a choice report to you on the first phase of this ~~ I nine. acre parcel in Cambridge: the other exciting concept. - f is development of a 600 acre tract of Our confidence in the future is buoyed l prime land in Freetown, Massachusetts. by the past accomplishments of our j The Cambridge site, adjacent to the employees and our expectations of their System corporate headquarters, will be a future performance. They are the reason four phase project called Research Park. for our success, and they deserve the Each phase will consist of a single building thanks and recognition for all that we are containing approximately 200.000 to today. Together we will continue to strive for excellence in all that we do. > i l 10
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b .. We encourage customets to use energy participation with COMfElectric (left)in , wisely. Following construction and oper. a load management program. To improve l allon of a new facility (main photo) the reliability and meet the gros:!ng needs Titleist Golf Division of the Acushnet of customers like Acushnes, we've added a Company w6li reallae an annual savings of 345,000-volt bulk power station (right, top) 1.5 million kilowatthours. Photo fitsets: and 7.5. mile,115 OOO volt transmission These savings result from Acushnet's line on Cape Cod (right, bottom). I1
4 M:n:gnm:nt'c Discus:ltn cnd An:lysia cf Fintnciti Ccndition :
- cnd Results of Operations l l
arrangements were no longer recoverable through the K Regulation ! The System's operating subsidiaries are subject to PCC, and ordered that such charges be collected !
~ the jurisdiction of state and federal regulatory agencies through base rates in the future, I with respect to the establishment of rates affecting retall The DPU rc<lews the performance of companies i relative to the operation of generating facilities, pur.
1 clectric and gas sales and wholesale electric sales. The Massachusetts Department of Public Utilities chased power and fuel procurement annually and is (DPU) requires historic test year information to support empowered to disallow recovery of costs found to have changes in rates. In a January 1989 decision, the DPU been incurred imprudently. The DPU conducts such granted an $ 18 million base rate increase to Commonwealth reviews of electric companies on a continuing basis, in-Electric Company, its first increase since 1982. As part cluding certain of the system's suppliers of electricity. cf its decision, the DPU allowed a retum on equity of Refer to Note 5 of the Notes to Consolidated Financial 13% and an overall rate of return of 10.89%. Previously, Statements, " Replacement Power Costs," for further these rates were 15.5% and 11.91%, respectively. The discussion of this issue. DPU also granted an inflation allowance of $1.8 million in September 1986, Canal Electric Company filed but, for the first time, disallowed recovery of charitable with the Federal Energy Regulatory Commission (FERC) contributions. In addition, the DPU directed Commonwealth new rates designed to recover its $23 million invest.
- Electric to continue its 50% discount rate to customers ment in the abandoned Seabrook 2 unit over a three. year riceiving Supplemental Security income and ordered the period. In November 1986, the FERC allowed the rates C:mpany to develop and provide to the DPU an implemen- to become effective April 11,1987, subject to refund, tation schedule for its conservation and load manage- In March,1988 Canal filed an Offer of Settlement with -
ment programs. Also, Commonwealth Electric w;ll now, the FERC, which was subsequently approved, allowing 5 ' pursuant to DPU precedent, recover certain long term recovery of 90% of its investment over a period of ten purchased power and transmission capacity expenses years. Pursuant to FERC policy, no return is allowed on through base rates rather than through its Power Cost the unamortized balance. Further, in an order issued Charge (PCC). January 13,1989, the FERC granted Canal recovery of in December 1987, the DPU granted a $ 12.5 million current financing costs, subject to refund, on approx. base rate increase to Commonwealth Gas Company, imstely 50% of its Seabrook 1 investment which also its first base rate increase since 1982. In that rate should provide approximately $10 million in net cash crder, the DPU allowed a return on equity of 13.25% and during 1989. .
- an overall rate of return of 11.2%. In addition, COM/ Gas Results of Operations I I became the fin,t gas distribution com any in the state Operatin to offer its large customers a compre ensive package of million or 4.3krevenues for 1988 increased by $28. -
- firm and interruptible transportation services. These services now allow customers to move their own gas across the positive impact purchased power of Commonwealth
($ 14.8 million), basscost
$3.2 m o I COM/ Gas,s system as an alternative to buying directly rate increase and the higher level of retail electrle an from COM/ Gas. Significant changes in rates and rate gas unit sales. Residential and commercial customers I design resulting from the DPU s order included a 20% contributors to the improved sales l were the primardecting performance re extreme weather conditions, lowj grice Icurity reduction to customers income and the initiationreceiving Supplemental of seasonal rates to unemployment levels and the continuous growth in new all customers to reflect the higher cost of gas during residential and commercial constructicn in the region. l the winter months. The number of electric and gas customers added during in 1989, Cambridge Electric Light Company is 1988 were 13,000 (4%) and 4,000 (2%), respectively. ,
expected to file for a base rate increase during the Also contributing to the change in operating revenues I was a substantialincrease in electric unit sales to wholesale inIIa 1$8 a i ge ectr r celved a .$oriza. " t te re availability i tion from t e DPU to implement the final stage in its [",st nal bsni I tuadons I move to equalize rates of return across rate classes. The electric and interruptible gas sales have little, if any, i revised rates reflect a settlement agreement which re. jmPa t j l ced base revenue by $300,000, effective March 1, n 19 , oper$t$ng revenues were $47.5 million higher due to increases in the cost of fuel used in electric l Cambridge Electric and Commonwealth Electric have PCC rate schedules subject to DPU regulation fnrefa e echr e uNt sales, s even cline under which they are, allowed current recovery of fuel despite increased firm unit sales, due to significantly and a substantial portion of purchased power costs. As I i0**I p9uel and$ts. ower costs per KWH were gart of the electric rate proceedings noted PU ruled that the capacity.related portion of purchasedabove, the 3.3C, 3.9C ancfurchased3.4C for f986,1987 and 1988, power costs associated with certain long. term power respectively. Costs for 1988 reflect the lower cost of oil at Canal which averaged $ 14.48, $ 17.59 and $ 12.89 per barrel in those years, respectively. Residual fuel oil accounts for 76% of the system s total generation, including , purchased power. The cost of gas per MCF averaged $3.9t. l L 12 g ---+-s--
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A ; 3 J $3.39 for 1986,1987 and 1988, respectively, gain from the sale of our investment in Algonquin Energy, Inc. In July 1986 and the equity earnings
, the increased availability and purchase of '
ust gas from alternative suppliers and a more previously attributed to Algonquin. impetitive environment during the period. Total interest charges increased by $ 5 million during i general, other operation has risen throughout 1988 mainly due to significantly higher levels of short. term , ree year period reflecting increases in the cost of debt and higher interest rates. During the previous two .
. , meterials and other services. Additionally, in years, interest rates had declined. Total interest charges 3 these expenses include costs associated with rose slightly during 1987 despite a 57 % increase in the debt
- l. 4/ Gas's automated mapping project (which are being component of AFUDC, reflecting the imi:act of parm6nent overed through base rates), costs associated with the financings by four system subsidiaries in late 1966 and ntinuous demand placed on the operation of the system's early 1987 on long and short term interut charges, cn: rating units and related equipment and higher Capital Resources asurance and benefits expenses. For the past three Interim and permanent financing is secured on an years, other operation also contains costs associated individual company basis. The System purchases 100%
with the relocation to our new corporate headquarters of all subsidiary common stock issues and rovides, to
! b
- in 1988, Canal adjusted its amortization for the h'm b'aQng$ e h.P;o[,lon gys pegfu incibal sources abandonment of Seabrook 2 as a result of a chang.e in ds provided the recovery period from three to ten years and a 10 cost capite.1 through itsare retainedReinvestment Dividend earnings andanequit[ Common Share '
disallowance pursuant to the settlement with the FERC. > Maintenance costs in 1988 decreased slightly Purchase Plan (DRP). when necessary, with newThese sources equit and/or deare subt issues,plem from the prior year level due to a more normal year in com. New permanent debt financing [s being considered in p:rlson to the extensive repairs and improvements to 1989 to enable the System to meet its expected capital transmission c.nd distribution facilities and equipment in
.1987 anc,1 the receipt,in 1988, of an insurance settlement rebutrements, its RP to al!aw forinthe September purchase of1988, Common the Shares System amende frr Canals tinit 1 turbine damage which occurred in market prices in August 1987. Also, in 1987, maintenance expenditures on the "open addition market" to its current at prevailinfssuing practice of authorized but wera required for extended overhaul repairs on system unissu d C Sh gent, rating facilities,and for additional costs associated During hYthird uar'ter of 1988, the S stem ,
uith wear and tear on generating facilities in providing retired at or below par its two Ion for the continued rapid growth in sales in our service Series E,4.80%, Due 1999 ($1.b. term million) anddebt issues-Series territories and tight energy supplies, a utility pole H,8 7/8 %, Due 1996 ($3.3 million). Since the indentures rIplacement program and costs to correct damage which secured these securities included several restrictive nts, this n ws e ystem more flexibility e raUani s$ ate inco$ees were virtually w unchanged in 19,88 despite en increase in pre tax in. CyhDue 1ng $ 1987, the System retired, in total, its come of $2.6 millian, due to the drop in the federalin. Series D 9.80% Cumulative Preferred Shares end also come tax rate to 34% from the blended rate of 40% in fund redem etion of 1987. Similarly, the reduction in tax expense for 1987 was due to lower earnings and a exercised 1,600 shares the oE.tional o Series B 8. sinkinf0% Cumulatfve Pr , Shares and 5,400 shares of Series C 7.75% Cumulative ' ($5.5 reduction million or 26%)l tax rate from 46%. The in the federa benefits Preferred Shares. There were no optional sinking fund from the reductions in federal income tax expense are redemptions in 1988. However, the combined 1987 being assed on to customers as a reduction in rates, optional and total redemptions noted above si nificantly ther income decreased in 1988 due to a $ 3.7 million reduced preferred dividends in both 1987 ancf1988, afttr. tax write off resulting from the FERC settlement there i oving e nIngs. agreement with Canal which allows recove of 90% ofits S abrook 2 costs over a ten. year pericd. his settlement with nks. At December 31,1988, short. term notes was accounted for in accordance with Financial Account. ayable to banks were $201.6 million, u $98.9 million ing Standards Board Statement No. 90, Regulated rom last year's level of $102.7 million. fhe significantly Enterprises-Accountin for Abandonments and higher level in bank borrowings is due to supporting l g Disallowances of Plant osts and includes both a ..d.is. construction expenditures for the year ($98 million) s$l wed costs ($tax) c nting 5 was provided in 19Yy l ss of fn the fu ure.
$702,000 (after.
i
. The tax ' effects of $2.3 million and $549,000 for 1988 and 1987, respectively, are included in Other, net in the Consolidated Statements of income. The discounting portion of this loss is being amortized to income over the recovery period, in 1987, other income decreased l $6.8 million due largely to the absence of the one time l
l l l Commonweakh Energy System and Subsidiary Companies 13
- l. _
r .. Montgement's Report , n. In April 1989, Cambridge Electric is expected to The financial stateme, ! pay off its short. term debt, refund an existing series of representations of the manas long term debt and finance additional construction expen. Energy System. Management i p ditures with the proceeds from a seven. year term loan for the preparation and presentata ($20 million) and the issuance of common stock to the in conformity with generally accepto g g System ($13 million), y To fulfill this responsibility, managem, Subsidiary companies also participate in the of internal accounting controls ir: clue, 9 COM/ Energy Money Pool (the Pool). This is an arrangement policies and procedures and a compre, whereby subsidiary companies'short. term cash surpluses auditing program to evaluate the adequg , are used to help meet the short term borrowing needs tiveness of accounting and operating contrs of the utility subsidiaries. In general, lenders to the Pool with system policies and procedures and th 5*e r ceive a higher rate of return than they otherwise would ing of system assets. 'o ' on such investments, while borrowers pay a lower interest The responsibility of our independent auw k rate than those available from banks. examination is limited to the expression of an or LI uldit as to the fairness of the financial statements prest
~ A ortion cf the system's cash requirements is The independent auditors are selected by the Boarc provide through the collection of accounts receivable Trustees and report their findings thereto through tht.
ed f h ale of electricit d Audit Committee, which is comprised of three outside ktabar d w$ sale customers. Othe[cas$fsources in$u ste s. e that bo the inde ndent auNot rantal income, dividends from investments, the sale of ,, ng nd , common shares through its DRP and periodic short. term management fulfill their res ective responsibilities as borrowings from banks. they pertain to these financbal statements, Construction expenditures for 1988 were appror, imately $117.1 million, including both components of AFUDC and nuclear fuel. Of this amount, approximately
- $26 million relates to our investment in Seabrook 1.
Currently, each month of delay in commercial operation R. D. Wright iguates to an additional $1.7 million in financing costs Financial Vice President for Canal Electric, approximately half of which ($10 ( million net per year) will now be collected currently as a February 22,1989. risult of the FERC s action, discussed previously, grant. Ing recovery of current financing costs. Over the next five years, the system projects capital requirements of $501 million, which includes
$439 million for construction expenditures and approx.
Imately $62 million for retirement and redemption of long. term debt and preferred shares. We anticipate generating approximately $300 million or 60% of these capital requirements internally. ' By the end of 1993, our financing program cells for the System and its operating subsidiaries to issue $70 million and $265 million, respectively, in new long. term d;bt. Additionally, the subsidiaries forecast the need for
$ 141 million in new equity capital. The system's expen.
ditures In Seabrook 1 at Decamber 31,1988 were cpproximately $225 million. Assuming for financial plInning purposes only, a commercial operation date of January 1990, the system's investment in the unit will ba approximately $242.6 million. 14
Report cf Ind: pend:nt Public Acccuntants t c - . L io the Board of Trustees of in addition, as discussed in Note 5, Commonwealth
' Commonwealth Energy System: has been incurring replace.
Electric ment power Company, and otheracosts subsidiary,ince s April 1986 due to a We have audited the accompanying consolidated Pilgrim Unit 1 outage. The Massachusetts Department balance sheets and consolidated statements of of Public Utilities (DPU) has disallowed recovery of a capitalization of COMMONWEALTH ENERGY SYSTEM (a Portion of replacement power costs required during Massachusetts trust) and subsidiary companies as of ri r Pilgrim Unit 1 out December 31,1988 and 1987, and the related consoll. fmPrudences of Pilgrim, ao ratorages by imputing the deem; to Commonwealth dated statements of income, changes in common Electric. Commonweal shar: holders' investment, changes in redeemable actions against Pil rim,th E ectric has initiated certains ref:rred shares and cash flow for each of the three 5. The outcome o these actions and whether the DPU ears in the period ended December 31,1988. These will dissilow Commonwealth Electric recovery of replace. financial statements are the responsibility of the System ment power and other costs incurred as a result of the and subsidiary companies' management. Our responsibili, current Pilgrim Unit 1 outage is uncertain at this time. ty is to express an opinion on these financial statements based on our audits. We conducted our audits in accord. Arthur Andersen & Co. ance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial stat;ments are free of material m!sstatement. An audit includes examining, on a test basis, evidence supporting i- . thm amounts and disclosures in the financial statements. B ston, Massachusetts An audit also includes assessing the accounting principles February 22,1989. us;d 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 the System and subsidiary companies as of Sec2mber 31,1988 and 1987, and the results of their Operations and their cash flows for each of the three yIars in the period ended December 31,1988, in confor. mity with generall accepted accounting principles. As more full discussed in Note 5, the S through its subsid ry Canal Electric Company,ystem,has an ownership interest in Seabrook Unit I which is not yet in commercial operation. While there have beer, positive dtvelopments during 1988, future regulatory epprovals,
.which cannot be predicted at this time, are required in ordtr for Unit I to reach commercial operation and to allow Canal to begin to recover its Unit 1 investment.
Accordingly, no provision has been made in the accom. l panying financial statements for the loss, if any, that would result if a portion of Canars investment is ultimately disallowed recovery. l l l Commonwealth Energy system and subsidiary Companies 15 1
q
" Consolid;tdd Ctat m:nts of Inc:ma ;
a l Years Ended December 31, 1988 1987 1986 _ Cperating Revenues: l
, Electric - $434,765 $429,851 $373,882.
Gas 243,380 219,841 228,113 Steam and other 10,619 10,751 10,945-688,764 660,443 612,940 -
,Cperating Expenses:
Fuel used in electric production, principally oil 115,633 122,991 .116,058 Electricity purchased for resale
'128,975 114,175 83,531.
Cost of gas sold 135,222 131,977 139,808
. Other operation 258,374 148,527 136,520
' Maintenance 42,803 43,570 34,765 Depreciation 28,286 25,288 24,609 Amortization of abandoned nuclear unit (Note 5) (2,004) 5,627 --
Taxes-Local property . 10,110' 8,775 10,256. ' Income (Note 4) 15,450 15,415 20,880-Payroll and other 7,395 6,637 6,588 , l 640,244 622,982 573,015
. Operating Income. 48,520. , 37,461 39,925 l l
' Other income (Expense): - *l Algonquin Energy, Inc. (Note 2)-
' Equity in earnings . - -
2,114 Gain on sale of investment, net - - 5,121
' A!!owance for equity funds used during construction' 8,825 8,377 7,216 Loss on abandoned nuclear unit (Note 5) (5,950) (1,251) .
- Other, net 4,095 3,169 2,054 6,970 10,295 16,510 ,
income Before Interest Charges 5 ti,490
.47,756 56.435 i Interest Charges:
l Long. term ' debt 20,151 20,876 16,576
- Other interest charges 10,732 4,019 4,738 l
. Allowance for borrowed funds used during construction (10,352) (9,493) (6,052) 20,531 lb,402 15,262 l . Net income 34,959 32,354 41,173 l Dividends on preferred shares 1,532 2,269 3,080-Earnings Applicable to Common Ehares 4 33,427 $ 30,085 5 38,093-l Average Number of Common Shares outstanding 9,556,577 9,408,026 9,253,694 ,
i Earnings Per Common Share $ 3,50 $ 3.20 $4.12 . l !
. The accompanying notes are an integraf Part of these consolidated financial statements.
l l'
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- v. .t J Consolld ted Statem:nts cf C:sh FI;w .
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- '% 1986 I fears Ended December 31, . 1988 1987
' (Dollars in Thousands) ,
' 'Ca'sh Flow From Operating Activities: .
Net income - 4 34,959 $ 32,354 $ 41,173 [ Gain on sale of interest in Algonquin l
- - (5,124)'
. Energy, Inc ', net -
Effects of non cash adjustments-pl 5,950' 1,251 - t Loss on abandoned nuclear unit (Note 5) 26,282 30,915 .24,609 l
, ' Depreciation and amortization 8,054 8,883 6,187 ,
b ' Deferred income taxes 1,390 p Investment tax credits, net. (709) (734)
' Allowance for equity funds used during construction (8,825) (8,377) (7,218)
- i. '
> Change in working capital, exclusive of cash-(4,136) . (6,302) 18,793 Accounts receivable and unbilled revenues (4,778) 8,560 i r' ;
Accrued income taxes'. ' (4,614)
- Local property and other taxes (328) (1,061) 818 Accounts payable and other (2,433) 6,821 (16,248)'
__1,983) ( _, (5,461) , (5,851) .
> All other operating items -
50,350- 52,682 69,785 Net cash provided by operating activities , H C:sh Flow For Investing Activities: , i
- Additions to property, plant and equipment (exclusive of AFUDC)
(71,017) (46,423) (59,935), i Electric . * (23,892) (17,786) (16,244) Oas (3,043) (3,490) - (1,141) , p . Other - -
. Allowance for borrowed funds used during
* (10,352) (9,493) (6,052)
. construction - - (16,300)
Purchase of land and facilities 1,430 2,722 . *
. Dividends from corporate joint ventures 1,077 (1,329) (1,533) (3,868)
Equity in earnings from corporate joint ventures 42,182 Proceeds frem sale of interest in Algonquin Energy, Inc., net - - N;t cash used for investing activities (108,556) (77,295) (58,636) Cash Flow From Financing Activities: 1 4,148 4,951 6,325 i Sale of common shares Paymerst of dividends (28,329) (28,463) (27,831) l Proceeds from (payment of) short term borrowings 98,925 73,990 (32,590)
- 4,460 112,540 -l' Long term debt issues
' Retirement of long term debt and preferred shares through sinking funds (4,16'i) (3,830) (7,175)
. Redemption of preferred shares
- (12,700) (1,000)
Long term debt issues refunded (10,943) (15,236) (60,862) , NKt cash provided by (used for) financing activities 59,634 23,172 (10.593) 1,428 (1,441) 556 l N:t increase (decrease) in cash 2,967 2,411 Cash at beginning of period 1,526 l tsh at end of period $ 2.954 $ 1,526 $ 2.967 l Supplemental Disclosures of Cash Flow information: i- Cash peld during the perled for:
. Interest 5 28,809 $ 23,365 $ 20,268 Income taxes s 11,817 $ 13,779 $ 16.345 1
The accompanying notes are an integral part of these consolidated financial statements. l l l: l l-l .. Commonwealth Energy system and subsidiary Compses 17 l
. . . ~ : - . - . .- - , , . - . - . . , . - . '
L ' ' % Consolid:ted 'Bal:nc6 Shcets a - l ll(' l- . a
.-~, :
l , D:cember 31, 1988 1987 (Dollars in Thousands) Property, Plant and Equipment, at original cost: Electric $ 590,073 . $547,839 i Oas . 219,713 199,446 Other 67,465 64.575 i 877,251 811,860 Less-Accumulated depreciation 295,674 276,374-581,577 535,486 1 Construction work in progress (Note 5) 256,516 213,580
, 838,093 749,066 Leased Property, net (Note 8) 8,704 9,880 .q l
Equity in Corporate Joint Ventures: ) Nuclear electric power companies (2.5% to 4.5%) 9,427 9,175 .
' Other investments .
1,408 1.582 J 10,835 10,757. l Current Assets: , Cash 2,954 1,526 : Accounts receivable, less reserves of $2,455,000 !
'in 1988 and $3,136,000 in 1987 60,917 59,808-Unbilled reven'ues 37,263 34,236 1
. inventories, at average cost- ;
Electric production fuel oil 4,353 4,272 ' Natural gas 10,984 12,163 i Materials and supplies 9,480' 8,384 Prepaid property taxes 5,416 5,039 Other 7,071 5.475 I 138,438 130,903 l I Diferred Charges (Note 5) 37,726 35,365 ,
$ 1,033,796 $935,971 ,
l 18' a_ _ _ _, +
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- m. . >.
L h n y hcember 31, - 1988 1987 ! (Dollars in Thousands) i
'I Capitallsation and Umbilities .
lCapitalisation (See separate statement): 4 293,508 $282,730 ~ Common share investment 20,400' Redeemable preferred shares, less current sinking fund requirements ! 19,580- l Long term debt, less current sinking fund requirements anc' maturities 222,324- 230,799 i i 535,412 533,929 - 6,658 7,923 Capital Lease Obilgstions (Note 8) , Current Liabilities: . Interim Financing (Note 6)- Notes payable to banks , 201,575 102,050 ;
", - 5,815 '
Maturing long term debt _ 'i & 201,575 108,465 Other Current Liabilities- ' Current sinking fund requirements 3,177 2,988_
' Accounts payable 56,319 54,070 L Accrued taxes-Local property and other 7,042 6,993 8,174 12,788 -
i income 5,360 5,700
. Accrued interest Dividends declared - 7,108 8,352 Capital lease obligations (Note 8) 2,046 1,957'-
8,992 10,774 Other 299,793 212,087 I Diferred Credits: 128,996 Accumulated deferred income taxes 135,516 , Unamortized investment tax credits 37,210 37,919
' Other 19,207 15.117 ;
191.933 182,032 i Ctmmitments and Contingencies (Note 5) 41,033,796 $935,971 The accompanying notes are an integral part of these conso!idated financial statements. ) I l r I 1 l l l 1 l l Commonwealth Energy System and Subsidiary Companies 19 f
] ,
- t. I 1
M 1:
~ ~ ~ ~ ~
, Consolid:ted Ctattm:nts cf C:pitaliz;ticn j
- p. .
y
+ '..t ,
7~, December 31, 1988 1987
' Common Share investment:
~
Common shares, $4 par value-Authorized-18,000,000 shares. . . t Outstanding-9,621,369 in 1988 and 9,479,301 in 1987 8 38,485 $ 37,917 Amounts paid in excess of par value- 72,219' 68,639- , Retained earnings (Note 9) 182,804 176,174 i Tetal common share investment . 293,508 282,730
' Redeemable Preferred Shares, Cumulative, $100 par value (Note 3): #
Ji
. Series A,4.80% 3,600 3,720 Series B,' 8.10%
'i 5,280, 5,440 t Series C,7.75% 11,520' 12,060 Less current sinking fund requirements
.i
, (820) (820) ;
. Total redeemable preferred shares 19,580 '20.400 i
L:ng. Term Debt,' including premiums (Note 6): System Bonds, collaterdized by common stock of utility operating subsidiaries, due- . 1988, 6% % - 2,525
'1996, 8% % - 3,357- J
'1999,4.80%- . - 2,340 -
Less current sinking fund requirements - (2,905). '.
. Total System long term debt - 5,417 .
Subsidiary companies' long. term debt 6'
- Mortgage Bond , collateralized by property of operating subsidiaries, due-1992, 8% % . 3,150 ~ 3,850 1993, 9 % 8,904 9,14*
-1996, 7 % 8,638 9,69'.a '
1996, 8.99%. 10,000 10,000 ;
-2001,8.99 %- 40,000 40,000 ;
2006, 8.85 % 35,011 35,012 > 2007, 11% % 9.300 9,300 Notes due-1988, 3% % - 3,190 , 1992,5% % 7,809 '7,938-1992, 8.48 % 10,000 10,000 1993,0.40% from 1987 91 and variable from 1992 93 7,000 7,000 1995, 8% % 5,744 5,772
'1997, 6% % 4,684 4,706 1997, 6% % 4,705 4,764
- 1998, 8% % 13,655 13,873 2001, 9% % 2,600 2,800 2002, 7% % 3,281 3,422 2002, 9.30 % 30,000 30,000 2012, 9.37 % 20,000 20,000 Less current sinking fund requirements and maturities (2,357) (5,078)
Total subsidiary companies' long term debt 222,324 225,382 Total long term debt 222,324 230.799 Total capitclization $535,412 $533,929 Ths accornpanying note
- Ste an integral part of thvse consondated fmancial statements. "
20 .. 1
a
. 3 F ' Cdasolidated Staitem:uts cf Ch:nges in. ,
r :.comm:0 Sh reh:Iders' Investm:nt a Ij'. r, 1 4- *s , ,. s- .;
. ears Ended December 31,1988,1987 and 1986 Amounts Par Value - Paid in
$4 Per Excess of - Retained Shares Share Par Value Eamings Total 9,160,357 $36,M4$ Dollars in Thousands)
$58,638 $1 60,063 $255,343 B-lance December 31,1985 ' f Add (Deduct)- - 41,173 '41,173' Net income - .,
168,309 673 5,652 - 6,325 Sale of shares
' Cash dividends declared-Common shares-$2,67 per share - - - (24,751) (24,751; Preferred shares
- (3,080) - (3,080)
Balance December 31,1986 9,328,666 37,315 64,290 173,405 275,010
' r Add (Deduct)- - - -
.-32,354 32,354 '
Net income '
- Sale of shares 150,635 602 4,349 - 4,951:
. Cash dividends declared-Common shares-$2,78 per share - - - (26,194). (26,194). .
Preferred shares - - - (2,269) - (2,269) ; Redemption costs . - - - (1,122) - (1,122)
' Balance December 31,1987 - 9,479.301 37,917 68,639 176,174 282,730- ;
/ Add (Dedact)- 34,959 34,959 Net income - - -
Sale of shares 142,068 568 3,580 - 4,148 ' Cash dividends declared-
' Common shares-$2,80 per share
- - - (26,797) (26,797)
Preferred shares - - - - (1,232) (1,532) ; l Jalance December 31,1988 9,621,369 $38,485 $72,219 $ 182,804 $293,508 . l l l k ) - C:nsolidated Statements of Changes in ,
;R:deemable Preferred Shares Years Ended December 31,1988,1987 and 1986 Authorized and Outstanding Cumulative Preferred Shares-$100 Per Value Series A Series B Series C 3eries D Tote!
4.80 % 8.10 % 7.75 % 9.80 % Shares ;
. Bilance December 31,1985 39,600 59.200 136,800 150,000 385,600 Liss-Sinking fund rede. nptions 1,200 1,600 5,400 20,000 28,200 Baltnce December 31,1986 38,400 57,600 131,400 130,000 357,400 Less-Sinking fund redemptions 1,200 3,200 10,800 20,000 35,200 i Optional redemption - - - 110,000 110,000 Balance December 31,1987 37,200 54,400 120,600 - 212.200 Less-Sinking fund redemptions 1,200 1,600 5,400 - 8,200
- Balance December 31,1988 36.000 52.800 115,200 - 204.000 the accompanying notes are en integral part of these consold.2ted financial statements.
i commonwealth Energ> hstem and Subsidiary Companies 21
3
~
Nctcs b con =lidctcd Fincncicl Stcttmanto - l - Depreciation 1 Significant Accounting Policies General and RegulatorU Depreciation is provided using the stral ht.line method at rates intended to amortize the or inal cost Commor vealth t.nergy System, the parent of properties over their estimated economic ives. The c:mpany, is ,eferred to in this report as the " System" average composite depreciation rates were as follows: I and together with its subsidiaries is sometimes collec. tively referred to as "the system." The operating com. 1988 1987 1986
^. Federal panies Energy are regulated by Commission various authorities
-the includin$ theElectric i Regulatory (FERC) ea 3.81 % 3.78 % 3.69 %
Massachusetts Dyartment of Public Utilities (DPU). Gas 2.99- 2.59' 3.03 J Principles of Consolidation The consolidated financial statements include {$* $$$ the accounts of the System and all of it$ subsidiary Allowance for Funds Used During Construction c:mpanies. All significant intercompany accounts and Under applicable rate. making practices, system - l
' trarisactions have been eliminated in consolidation. companies are permitted to include an allowance for .
Reclas.st/ications funds used during construction (AFUDC) as an element , Certain prior year amounts are reclassified from of their depreciable property costs. This allowance is .l time to time to conform with the presentation used in Sased on the amount of CWIP which is not included in the current year's financial statements. Accumulated the rate base on which utility cornpanies eam a return, dzferred income taxes related to property, construction An amount equal to the AFUDC so capitalized in the - work in progress (CWIP) and deferred charges for 1987 current period is reflected in the Consohdated Statements . have been reclassified on the Consolidated Balance of Income. l
. Sheet from a contra r.sset to a liability as discussed in While AFUDC does not provide funds currently, I Note 4. these amounts have been historically recoverable in I revenues over the service life of the constructed property. l Equity Method of Accounting The amount of AFUDC recorded was at a wel hted The system uses the equity method of account. average rate of 10% in 1988,1987 and 198b. l In for investments in corporate jolnt ventures. Under in January 1989, the FERC granted Canal recovery I th s method, it records as income the proportionate of current finar.cing costs, subject to refund, on approx, share of the net earnings of the joint ventures with a Imately 50% of its investment in Seabrook 1. As a result corresponding increase in the carrying value of the Canal will record significant!y less AFUDC in 1909; s I
investment. The investment is reduced as cash ; dividends are received. The system conducts business I with the corporate oint ventures in which it has Sale of Algonquin Energy, Inc. ' lovestments, princi lly four nuclear generating facilities l located in New En On July 15,1986, the System sold its 34.5% ! owne ship Interest in Algonquin Ener y, Inc., a l Massachusetts based natural as ipe ne company, to usto efs a e bifed for their use of electricity T as tern rpor tion t rece 6.3 l and gas on a cycle basis throu hout the month. To reflect the o p rio the estimated amount of cost of $5.9 million and a carrying value, at the time of I
'iv b s gnbi ,, ed the sale, of $37.1 million. After a ca ital ins tax ef System utility companies are ermitted to bill 'I II
' customers currendy for fuel used fn electric production, *j yg; hon, the System recognize a b ok gain of the energy portion of purchased power and total pas l ustment clauses while the capacity, i cests relatedthrough portion o ad,f purchased power is recovered throughRedeemable Preferred Shares '
base rates. The amount of such fuel and energy costs I incurred but not ,;t reflected in customers' bills, which Each series of the System's preferred shares has totaled $4,553,000 in 1988 and $4,981,000 in 1987, is been issued at par value, $100 per share, and is seb!ect rzcorded as unbilled revenues. to periodic, mandatory sinking fund payments. The System can make edditional voluntary redemptions, not exceeding the re ; cumulative basis,onquired redemption, each sinking at par, on a non. fund date. Preferred shares may also be called for redemption, in whole or in part, in excess of the required and volun. tary sinking fund redemptions. The obligation to make mandatory redemotions is cumulative and the System is not allowed to pay dividends to common shareholders or make optional sinking fund payments if mandatory redemptions are in arrears. Details of redemptions for each series are contained in the following table: t l 22 _i
~
c . +
, J
, l 1
. t Sinking Funds rate established for each series. No dividend can be .
'f Optional declared on an series unless proportionate dividends Dividend 1989 1993 Redemption are concurrent declared on the other outstanding l Rate Mandatory Optional Call Prices series and in t e event that dividend payments are in '
(Dotiers in Thousands) arrears, the System may riot redeem any shares unless Series A 4.80 % $120 $120 $102 all shares of all preferred series are redeemed. Series B . 8.10 160 160 101 Series C 7.75 540 540 101 Preferred shareholders have no votin rights except , in the event that six full quarterly dividenfs have not The system files a consolidated Federal income been pald. In this circumstance, the preferred share. tax return. For financial reporting purposes, the System
. h:lders are entitled, voting as a class, to elect two of and its subsidiaries provide taxes on a separate return tha nine Tsustees of the System, basis, The preference of these shares in involuntary li The following is a summary of the consolidated ti:n is equal to par value. The shares are rankof equa!quida-provisions for income taxes.for the years ended and are entitled to cumulative dividends at the annual December 31,1988,1987 and 1986:
1988 1987 1986 - Total Federal State Total Federal State Total Federal State (Dollars in Thousands) CurrIntly payable S 9,111 8 6,496 42,615 $ 13.129 $ 11,018 $ 2,111 $ 12,559 810,224 $ 2,335 CurrIntly deferred (1,409) (1,062) (347) (5,583) (4,777) (806) (1,952) (1,316) (636) 8,457 7,097 1,360 8,603 7.172 1,431 8,883 7,834 1,049 Leng term deferred (734) (734) 1,390 1,390 - inv:stment tax credits, net (709) (709) - - Total 15.450 11,822 3,628 15,415 12,679 2,736 20,880 18,132 2,748 Seabrook Unit 2 write off (2,270) (2,010) (260) (549) (468) (81) - - - L St:rm damage write.off (745) (657) (88) - - - - - ) Tax cn gain from sale of: Buildings - - - - - - 446 . 377 69
- 14,113 14,113 -
Algonquin Energy, Inc. - - - - - 812,435 6 9,155 83.280 $ 14.866 $ 12.211 $ 2,655 $35,439 $32.622 s2,817 ! Timing differences result from reporting income The tax effects of unbilled revenue of $(2,633,000) , and expense for tax purposes in periods different from in 1988 and $(2,379,000) in 1987 and other current lth:se used for financial reporting purposes. The system timing differences are included in the current deferred
=
provides income taxes currently on all timing differences. provision and accrued income taxes. Investment tax The system's long. term deferred provision credits are deferred and amortized over the life of the fu income taxes results from the following: property giving rise to the credits. In accordance with the Tax Reform Act of 1986, investment tax credits were 1988 1987 1986 recorded based upon the transition rules in the Act. i (DoHars in Thousands) The total Income tax provision set forth above N:n. construction costs relating represents 26% in 1988,31% in 1987 ard 46% in to Seabrook Units 1 and 2 8 1,626 $ 2,710 $ - 1986 of income before such taxes. The following table Abandonment of Seabrook reconciles the statutory Federal income tax rate to
! Unit 2 1,215 (2,626) 746 these percentages: ) Accalerated depreciation for ! ttx purposes 4,634 6,022 5,470 Capitalized interest during construolon 3,462 3,609 2,991 Contributions in and of construction (1,376) (1,716) -
Other (904) 604 (324) Long term deferred income tax provision S 8,457 $ 8,603 $ 8.883 1 CommonweaNh Energy system and subsidiary Companies 23
~
.. 1 n
9 m 1988 29F t956 Company of New Hampshire (PSNH), was originally designed to have two pressurized water reactors, each Statutory Federal income tax rate 34% C% t.6 % with a rated capacity of 1.150 MW, The second reactor, ' increase (Decrease) from statutory rate: however, has been abandoned - Capital galn from sale of Algonquin Seabrook 1-Energy, Inc. - - 7 General-Seabrook 1 has been complete since Capital gain from sale of mid 1986. However, difficulties and delays in plant buildings - -.
- 3) licensing procedures have resulted in postponement of Dividend received deduction (1) m (2) commercial operation and could, in fact, prevent com.
5 7 2 State tax net of Federal tax benefit mercial operation of the unit. As of December 31, , Amortization of investment tax 1988, Canars investment in Seabrook 1 amounted to credits (3) O' (2) Mowance for equity funds used dpFroximately $225 million. Currently, each month of (7) delay in commercial operation equates to an additional during conr.ruction (6) (4) $1.7 million in financing costs for Chnal. Approximately items taxed at different rates (3) -- - half of these financing costs will be collected currently Other, net - th - as a result of the. FERC's order, effective January 16. 26% %- 46% 1989, on Canais Seabrook 1 filing which grants recovery
" "" 8 to refu
, ok d on He bgs The Financial Accounting Standards bard t'FASB) (Ctely O of s tnvebsub ent n Se, Issued a new stndard (SFAS No. 96) on c:rceW before the FERC for final ap[roval of the order are ex.
for income taxes which the system must rowt h I h9,0. pected to begin in 1989 an will include a review of uirer the ett o;
.. the Among its provisions, the standard reqtion end mersare. the prudency of Canars investment la Seabrook 1. s l
liability method which bases recogn Financial-In Janua 1988, PSNH, lead owner ment of deferred taxes on the future tax conveqsentes tf all temporary differences at the balance thwt c!a:e. (35.6% under Chapter interest)1 1 of theof theBankruptcy deral p ect, filedCode, for protection in
- Based on current rate. making and tax law, it ts m conjunction with its bankruptcy proceeding, PSNH pro. '
cxpected that the new standerd will have s mnew posed, on December 27,1988, a prelimina Impact on the system's financial position, rmin of reorganization plan which would require a si ficant cperations or earnings. However, as a result of me: rate increase. The plan also seeks the estab shment of lower tax rates mandated by the Tax Retem Act of PSNH as a holding company and the creation of a , 1 1986, there will be a reduction in accurm.htet d e' erred wholesale company which would own Seabrook 1. This income taxes and the recognition of a liaM 4 te would place Seabrook under the jurisdiction of the l ratepayers for those deferred taxes esta:Mhrd e': ca:es FERC, which would set its rates. which exceeded current rates, in anticipa;.cn of tdopting SFAS No. 96, the system is reporting acum uct li is not possible to predict what impact the PSNH d;ferred Income taxes related to proper:t NG anc bankruptcy procei: dings will ultimately have on the
' deferred charges as a liability rather thas ra t rem.ction project or on the issuance of remaining licenses by the in the related asset consistent with rate mee; vn ticas. Nuclear Regulatory Commission (NRC); however, It is possible that events arising in these bankruptcy proceedings could lead to additinnal complications for the project.
Since PSNH announced its bankruptcy, several utilities 5 Commitments and Contingencies Construction have expressed an interest in its non.Seabrook assets. To date, PSNH has continued to meet !ts obligations The system is engaged in a continuous construction and plans to continue funding its share of the project .
. rogram presently estimated et $439.6 million for the unless ordered by the Bank:uptcy Court to reduce or
$12. .5bear period million 1989 through is estimated for 1989,1993. includinOf tha: amountceaseOn such funding.
June 1,1988, Massachusetts Municipal million related to the system's 3.52% interest the fn$21.4 Wholesale Electric Company (MMWEC), the fourth Stabrook project, discussed below. The program is sub. largest owner (11.6%) of the project, announced that it
;ct to penodic review and revision. See Management's was withdrawhg from the project. MMWEC indicated 3iscussion on page 12 for a description of the system's that its decision was influenced by PSNH's bankruptcy financing plans' filing, the slippage in the schedule for commercial Scabrook Status operation, mounting costs caused by numerous delays The system's interest in the Seabrook project is in obtaining plant licensing, and increasing difficulty In owned by Canal Electric Company (Canal) to provide financing its share of the project. On July 13,1988, for a portion of the capacity and energy needs of Cambridge Northeast (!tilities (NCl), a Connecticut. based utility and
. Electric Light Company (Carabridge) and Commonwealth 4.1 % owner in the Seabrook project. agreed to an interim Electric Company (Commonwealth Electric). The project. plan to minimize the impact of MMWEC's withdrawal.
which it currently under the management oi New NU provided short term funding to make up for MMWEC's Hampshire Yankee (NHY), a division of public Service share of project payments thrvugh November 1988. 24 L . - - _ _ - - - .- - - --__ - - .-. - - .
II .. i .- . i e-
. I
<, 1
- Subsequently, PSNH and MMWEC reached an full power license is denied. While this amount is con.
f['
. agreement whereby PSNH will pay MMWEC's Seabrook expenditures into early 1990, up to $30 million. In siderably higher than the originally filed $21.1 mi!! ion, the joint owners are confident in their ability to satisfy '
l exchange, PSNH will be teleased from a commitment this additional requirement. /; t) buy back excess power from MMWEC once the unit Seabrook 2 + l achieves commercial operation. This agreement is subject On March 30,1988, Canal filed an Offer of Settle-ti approval by the Bankruptcy Court. ment with the FERC for recove of costs associated 1
~
. All present and former owners of the Seabrook with the abandoned Seabrook 2. anal received both FERC pr: Ject (with the exception of three owners with minori. and DPU approval of its Offer of Settlement which ,
_ ty Interests) have entered into agreements, subject to allowed recovery of 90% of its investment ($23 million) i varl:us approvals and conditions, which, among other in Seabrook 2 over a period of ten years. Purs" ant to ' things, are Intended to resolve existing and potential no retum is allowed on the unamortized claims among such parties concerning the project, FERC balancepoliwh 7c,h is included in Deferred Charges in the Emeroency Response Planning-The Atomic Safety Consolidated Balance Sheets. and Licenilng Board (ASLB) of the NRC received Canal had been blhing Cambridge and Commonwealth testimony from the Federal Emergency Management Electric based upon its initial September 1986 filing. Agency (FEMA) during its hearings on the New Hampshire The rate 2, which FERC allowed to become effective . emergency evacuation plans. In June 1988, these hearings April 11,1987, subject to refund, were de>Igned to c:ncluded after eight months of testimony. On January 3, recover $23 million over a three year period. Cambridge 1989, the ASLB approved the eva:uation plans for and Commonwealth Electric, in turn, had been recover- - th:se New Hampsnire communities within the ten. mile ing these charges from retall customers under power radius of the plant. This decision is expected to be cost charge (PCC) schedules. As a result of the settle. appealed by parties opposed to Seabrook. Hearings on ment, Canal refunded, with interest, to Cambridge and the cvacuation plans for the six Massachusetts Commonwealth Electric the difference between what ' c:mmunities located within the ten mile radius, which was collected under the original. request and what shculd w:ra previously submitted by NHY, are expected to have been collected based upon the final settlement. begin in early 1989. Cambridge and Commonwealth Electric, in turn, refund. , On November 18,1988, President Reagan signed ed those amounts received from Canal to retail customers through the PCC.
- an crder which authorized FEMA to assist in the
'evilopment of emergency prepa/edness plans at commer. The f.ettlement was accounted for in accordance ,
ial nuclear power plants in cases where state and local with Statement of Financial Accounting Standards No. 90,
. g vernments fall or refuse to do so. This order verifles Regulated Enterprises-Accounting for Abandonment tha acceptability of plans drawn up and submitted by and Disallowances of Plant Costs (SFAS No. 90). SFAS '
NHY for the six Massachusetts communities within the No. 90 requires, among other things, that recoverable t:n. mile radius of Seabrook, provided those plans costs associated with an abandoned plant be reflected r: calve approval by FEMA and the ASLB. In the financial statements at the present value of future Durin the third quarter of 1988, the NRC, voting revenues. Therefore, in 1988 Canal recorded a dis-unanimous , ruled that a public warning system is not counting loss of $4.8 million and .s% disallowance nectssary fore a nuclear plant can begin low. power of $1.2 million which is net of a reserve recorded in ' testing because it does not pose a threat to the public's 1987. Also, Canal recorded approximately $1.9 million h:alth and safety. This ruling removes a major hurdle less in AFUDC for Seabrook I due to the adoption of to the issuance of a low power license for the facility. SFAS No. 90. The oint owners, however, have promised to provide Other Seabrook Related Matters an a ternative warning system prior to any testing. In January 1988, the FERC issued a ruling which Decommissioning-In September 1988, the NRC of the costs of cancelled electric
. also ruled that, in order to receive a low power license, requires a sharin$etween ratepayers and shareholders.
power projects the owners of Seabrook must provide information to This ruling did not affect Canal's recovery of Seabrook confirm that sufficient funds are available to safely 2 because of the ruling's exclusion of units for which decommission the reactor after low power testing recovery was sought prior to January 15,1988. However, should it subsequently not be granted a full. power the amount of recovery to be allowed should Seabrook license. The NRC deemed that the circumstances 1 be cancelled would be dramatically affected. Under surrounding Seabrook 1 warranted such a review, this ruling, ratepayers and shareholders will each bear On October 21,1988, in response to the NRC's one half the cost of an abandoned project's prudently requst, NHY filed a schedule which set the cost of incurred costs. The ratepayers' share would be collected decommissioning Seabrook 1 at $21.1 million. Subse. over the previously anticipated life of the abandoned quently, the NRC approved the issuance of a low power plant and would include carrying costs on unamortized , license conditioned upon the joint owners' ability to pro. balances. vide $72.1 million for possible decommissioning costs in the event that low power operation is achieved but a o Commonwealth Energy system and subsidia y Compan,es 25
I 4 Canal's participation in Seabrook 1 and 2, as well replacement power costs. Commonwealth Electric ! as other supply sources described below, is subject to a appealed the DPU's decision to the Massachusetts l Ca Supreme Judicial Court (SJC). which upheld the DPU's C:pacity Acquisition mmonwealth Electric.Agreement This Agreement, withwhich Cambridge has and deelston ena Commonwealth Flectric later unsuccessful. ! b:en accepted for filing as a rate schedule by the ly retitioned N U.S. Supre- "ourt to review the l FERC, enables Canal to recover costs incurred in connec. decision. These weisions dc Nlt Commonwealth i tion with any unit covered by such Agreement whether Electric's right to challenge ss % 4 ent rulings relating l cr not the unit becorets operational. Accordingly, Canal to recovery of replacement po .sts incurred during I has billed Cambridge and Commonwealth Electrle for other power plant outages. Cambridge has received a i c:rtain costs associated with units subject to this Agree. similar ruling from the DPU relative to a Connecticut l Yankee Atomic Power Company outage in 1984 and has ! ment, including a portion of Seabrook 1 financing costs and costs relating to abandoned units such as Seabrook appealed this decision to the SJC, Barring a change in i
-2. Cambridge and Commonwealth Electric, in turn, applicable statutes or further judicial action, the SJC's have billed, or intend to seek to bill, those charges to decision regarding Commonwearh Electric's appeal is ,
' their retall customers through rates which are subject to expected to be relied upon by the DPU in future cases.
DPU regulation. This Agreement, as it pertains to Commonwealth Electric believes that further cost ' Seabrook 1, will be affected by the aforementioned disallowances may occur from time to time based upon FERC ruling should that unit be cancelled, the DPU's position and thtt of the SJC in these matters, The system believes that Canal's participation in including future action relative to the Pilgrim outage the Seabrook pro which occurred from April 1986 through December dent, reasonable, ject from appropriate and itsaninception has been pru-integral and 1988. Following a lengthy trspection which began in necessary element in planning for the power needs of August 1988, Pilgrim was issued a restart order by the its electric customers. Accordingly, the system will NRC on December 21,1988. Thorough system checks vigorously pursue all rights to recovery of its investment on the plant will be performed at all operational levels
!a Seabrook 1 regardless of the eventual outcome of under the supervision of the NRC. A preliminary date of May 1,1989 has been set by BECO for full power commercialop's of the system investment in Seabrook I cannot beeration. commercialThe timing andPilgrim opuation. amount had ofbeen recovery idle since April ,
foreseen with certainty at this time. However, the 1986 due to operational and managerial problems and system believes that it is reasonable to expect that is the subject of a performance review by the DPU and may recovery of a substantial portion of the investment result in disallowances to BECO based upon findings of should ultimately be allowed. The Seabrook project imprudence. Such imprudence might then be imputed continues to be the subject of regulatory and political to Commonwealth Electric. During the plant's outage, controversy however, and future events could adversely Commonwealth Electric has been forced to purchase impact the system's current assessment of the status of replacement power from other sources at a cost of the project and investment recovery. epproximately $1.2 million more per month, in addition to paying contractual demand charges to BECO for Replacement Power Costs Pilgnm which were approximately $1.8 million per in connection with its ongoing review of the fuei month through December 31,1987 and $3 million per and purchased power costs of certain Massachusetts month es of January 1,1988. These replacement power ettetric companies, the DPU reviews the operating per. costs and demand charges are being recovered currently formance of all plants from which power is obtained, through Commonwealth Electric's PCC or through its in certain performance reviews, the DPU has base rates. The system is unable to predict the amount disallowed the collection by Cambridge and of replacement power costs, if any, it may ultimately be Commonwealth Electric, through the operation of their unable to recover as a result of this outage, respective PCC, of a portion of the costs incurred for On December 29,1987, Commonwealth Electric replacement power required when units, in which filed a petition with the FERC seeking relief from BECO entitlements are contracted for, experience extended for BECO s breach of its obligations under the Pilgrim outages, in particular, such disallowances have been contract. A similar complaint was filed with the United experienced in the past by Commonwealth Electric as a result of extended outages at the Pilgrim nuclear power States Federal Court for the District of Massachusetts erior plint (Pilgrim), located in Plymouth, MA. Pilgrim is (the CourtFederal Court) and the (the Massachusetts Massachusetts Court). The Compa ySup's contract owned and operated by Boston Edison Company calls for BECO to use due diligence and ap good (BECO) and Commenwealth Electric purchases approx. utility practice in the maintenance, repair an operation imately 11 % aoflife.of.the. the capacity of the of Pilgrim plant, lo its petition, Commonwealth the unit under unit (73.7 contract.MW)The DPUand energy Electric has specifically requested that the FERC: a.) found that part of the prior outage periods was due to imprudent conduct by BECO and imputed such imprudence comme,nce a full investigation to review Commonwealth Electric s claim that BECO has not fulfilled its obliga. to Commonwealth Electric. By reason of the finding of Imputed imprudence, the DPU further ruled that tions to manage Pilgrim prudently and diligently during its current and prior outages; b.) order BECO to refund Commonwealth Electne could not recover certain to Commonwealth Electric all unj,ustified charges which it has paid to BECO and pay to Commonwealth Electric 26
p ) l
- . l 1
s l i
. ,,dditional costs incurred for replacement power during Canal participated with other electric utilities in the these outages; and c.) order that Commonwealth Electric construction and operation of Hydro. Quebec Phase i be allowed to terminate the Pilgrim contract, or, in the transmission facilities in northeastern Vermont, which
< alternative, order that the Pilgrim contract be changed were completed in 1986 at a cost of approximately $140 1 I
to protect Commonwealth Electric and its customers in million. Under a support agreement, Canal is cbligated i the future. All other contract purchasers of power from to pay its 3.9% share of Hydro. Quebec Phase I operating l Pilgrim have also filed claims with the FERC with respect and capital costs over a ten. year period. Canal has also rim. Commonwealth Electric entered into a support agreement for 3.8% of Hydro. I t3 the current outage has Incurred approximately at Pilg$5 million in litigation costs Quebec Phase 11 transmission facilities which are being associated with its petition which are being deferred in constructed in northeastern Vermont at an estimated anticipation of recovery, cost of $565 million and are expected to be completed l Commonwealth Electric believes that the FERC in 1990. I l has primary jurisdiction in this case, and has taken the Environmental Matters additional step of fillna with the Federal Court and the The system is sub ect to evolvin r ulations !
. Massachusetts Court to helt the running of any time administered by federa , state and loc $1 Nthorities l l
limitation periods applicable to its claims and to invoke relating to the quality of the environment. These regula. tha assistance of another forum if and to the extent that tions affect, among other things, the siting of generating I thi FERC does not award complete relief to Commonwealth ose stricter standards for air and water ! Electric. The FERC agreed to review Commonwealth facilities quality andand nuc imfear plant licensing and safety. These ' l
- El:ctric s petition and a prehearing conference was regulations have had an impact upon the S stem's completed in late July 1988 which established an initial operations in the past and will continue to kave en schedule of April 1990 for hearings to begin. The impac't upon future operations, capital costs and Fed:ral Court and the Massachusetts Court granted construction schedules.
Crmmonwealth Electrics requested stay of proceedings pending the FERC's decision on the issue. The system is unable to predict the outcome of these proceedings. Interim Financing and Long Term Debt Power Contracts and Support Agreements Notes Payable to Banks : In addition to Commonwealth Electric's purchase System companies have banking relationships of 11 % of Pilgrim's capacity discussed above, Cambridge under which borrowings are arranged as required for interim ind Commonwealth Eiectric have long. term contracts for financing of their construction programs. The borrow.
.h2 purchase of electricity fromvarious sources. Through ings-are unsecured and are evidenced by notes having its 2.5% to 4.5% ownership in four nuclear generating maturities of 90 days or less. Lines of credit with facilities, the system has corresponding percentage banks, against which these notes are applied, total entitlements expiring from 1991 through 2008 in $261,000,000. The terms of one 1:ne of credit require approximately 76.6 MW of capacity. Commonwealth that when the s stem is borrowing, it must maintain ElIctric has also contracted to purchase 25 MW from normal operati balances for cash demand and bank Point Lepreau 1, a .iuclear unit, through October 1991 service charges. nterest rates on the outstanding pursuant to a unit participation agreement with the New borrowings generally are at an adjusted money market Brunswick Electric Power Commission. Costs incurred rate. Notes payable to banks totaled $201,575,000 from Pilgrim and the nuclear facilities amounted to and $102.650,000 at December 31,1988 and 1987, approximately $35 million and $29.8 million, respec. respectively, tiv:ly, in 1988. The system pays its share of decom. Long. Term Debt Maturftles and Retirements missioning expense to each of these operators as a cost Under terms of their various indentures, certain of electricity purchased for resale. In addition, Canal subsidiary companies are required to make periodic contracted to purchase 50 MW from NU for one year sinking fund payments for retirement of outstanding p and, in a separate agreemert. purchase 50 MW, on long term debt. The required sinking fund payments average, from NU annually from November 1989 and balances of maturing debt issues for the five years
, through 1994 due to the need for capacity to fulfill the subsequent to December 31,1988 are as follows: system's New England power Pool obligation and to L h:ve sufficient energy supply to meet customer needs. Sinking Fund Payments Maturing ' In late 1988, Commonwealth Electric began receiving power from SEMAS5, a waste.to energy plant, which is Year subsidiaries IIs'ue's Total 0 expected to provide 48 MW annually through 2015. 1989 $2.357 's - $ 2.357 , If Costs under these and otner contracts are included in 1990 3'521 - 3'521 elzctricity purchased for rasale in the Consolidated jggj 7,186 - 7.186
]; Statements of income and are normally recoverable in 1992 6.386 18.662 25.048 j revsnues through the PCC for the energy (fuel) portion 1993 6.126 15.079 21,205 g of purchased pcwer and through base rates for capacity related costs.
Commonweanh Energy system and Subud4;y Companies 27
y l During the third quarter, the System retired Pension expense for 1986 was determined in accordance - its remaining two series of outstandin long term debt I with the provisions of accounting pronouncements in at or below par-Series E,4.80%, Due 999 $ 1.8 million) i effect at that time, and Series H,8%%, Due 1996 ($3,3 millio ). l The funded status of the system's pension plan at i December 31 using a measurement date of October 1 s as Mon Employee and Postretirement Benefits 7 The system has a noncontributory pension plan ! 1988 1987 c;vering substantial all regular employees who have ; (Dollars in Thousands) attained the age of 1, Pension benefits are based on Accumulated benefit obligation f(123.707) *(115.022) an employee's years of service and com ensation. The Projected benefit obligation 6(168,929) $(152,843) system m:/nes monthly contributions to th plan consistent 15 X ,409 with the funding requirements of the Employee Retirement Plan assets at falt market value 150.619 income Security Act of 1974, ; Projected benefit obligation greater A comparison of accumulated benefits and net than plan assets (17,520) (2,224) assets for the system's be.nefit plan is presented below: Unamortlied transition obligation 20,892 22,499 Unrecognized gain (6,610) (21,567) October 1, Less: Plan contributions made in 1988 1987 the fourth quarter 2,020 771 Actuarial present value of accumulated plan benefits: Plan assets consist primarily of fixed income and i' Vested ,
$ 121,092 $ 112,660 equity securities. The fair market value of plan assete as Nonvested 2.615 2,354 of December 31,1988 and 1987 were $153,819,000 and s123,707 s115,022 $ 132,921,000, respectively, Fluctuations in fair market
$151,409 8150.6:9 value will affect pension expense in future years.
nit assets available for benefits in addition tu providin pension benefits, the e Durin 1987, the s r. tem adopted the pension system provides certain he th care and life insurance expense ca ulation and isclosure standards require <. benefits for eli Ible retired empl ees. stem employees j Statement of. Financial Accounting Standards No. S7, become eligib for those bene s If th ir a ,- e.. i mpt ers' Accountin for Pensions (SFAS No. 87). , of service at retirement equals 75 orprovid more;ge plus ears, 1 nsion expense neludes the following however, that such service was performed for a subsidiary
' of the System. The cost of retiree health care and life l components' ! insurrnce benefits is ree nized as claims are ald, and totaled $1,802,000 in 1 8, $ 1,437,000 in 987 and 1988 ' 9P
$1,253,000 in 1986. ,
(Dollars in Thousanc$) The system has an Employees Savings Pian which SIrvice cost 8 4,440 $ 4.25' rovides for system contributions equal to contributions ! n on plan assets y eligible employees up to four percent of each employee's R . ( 9; ; com nsation rate. The total s stem contribution was 25,5 CE' nit amortization and deferral 6,692 Tetal pension expense Liss amounts capitalized and other 8,100 833 7,6R 1,367 , h'gh$ I"n
, $3,108, 0 in 1987 and nit pension expense 8 7.267 5 5.6if f
! Lease Obligations Economic assumptions include the following:
System companies lease perty and e ulpment Discount rate 8.5 % E.5% under agreements, some of w are capital eases. Assumed rate of return 8.5 if i Several subsidiaries renegotiate certain lease agreements Rate of increase in future annually. These new agreements are for a term of one compensation 5.5 5f ear and are renewable monthl thereafter. COM/ Energy ervices Compa , the S stem s me or capital lessee, Pension expense for 1988 and 1987 reflects tw has agreements effect or office f rniture, computer, use of the o ted unit credit method as prestwet . t transportation and other eq ment, one of which is by SFAS . 7. The s stem also ado ted this ec:mei i supported by a letter of cre . Generall , these cost method in determi ing future fun ing of the l agreements re re the lessee to p Pension lan. ! tenance and o er costs of operat,ay ret ted ion. Leases taxes, main. currently Tot 1 pension expense, net of capitalized emwne i in effect contain no provisions which prohibit system has not been restated for 1986 and was $7.t.K 003 ' companies from entering into future tease agreements l or obligations. 1 28
F
.s , ,, 1 The following is an analysis, by major class, of Operating income of the various industry i segments includes income from transactions with prope y under capitallease at December 31,1988 affiliates and is exclusive of interest expense, income ,
and 1 B7: taxes, and equity in earnings of unconsolidated corporate 1988 1987 joint ventures. The amount of identifiable assets represented by (Dollars in Thousands)
~
Office fumiture and computer the system's investment in corporate joint ventures con.
$ 10,772 $10,888 sists princi of a percentage ownership in the assets cquipment of four te I electric generating plants, Other 75 66 10,847 10,954 1986 1,074 1988 1987 2,143 L:ss: Accumulated amortization 8 8,704 $ 9,880 Revenues from Unaffiliated Future minimum lease payments, by period and in . Customers:
the agg gate, of capital leases and non cancellable Electric $ 434,765 $429,851 $373,882 4 o ratin leases consisted of the following at December 31, Gas 243,380' 219,841 228,113 10,751 10,945 l I 00: Steam and other 10,619 Total Capital Operating Consolidated Leases Leases (Dollars in Thousands) Operating income 1989 $ 2.661 $ 10,262 2,629 9,992 Before income 1990- Taxes: 1,711 7,364 1991-1,629 6,277 Electric 8 33,692 $ 33,901 8 42,747 1992 Gas 28,531 17.368 16,507 19M 1,508 5,580 1,551 14,372 Steam and other 1,747 1.607 Beyv.d 1993 153 Tbtal future minimum len:;e payments 10,291 '$53,847 Total Consolidated ess: Estimated Interest element 9 included therein 1,587 h* Estimateo present value of future Before minimum lease payments 8 8.704 income Taxes s 63,970 $ 52,876 $ 60,805 ; Total rent expr.nse for all operating leases, except identifiable Assets: those with terms of a month or less, amounted to Electric 4 752'097 $671,606 $617'855 I
$11,151,000 in 1988, $9,455,000 in 1987 and
$6,100,000 in 1986. There were no contin nt rentals [g',sam and other ,
and no sublease rentals for the years 1988, 987 and 1,050,949 944,040 883,091 1986. Intercompany ; eliminations (27,988) (18,826) (22.794) Dividend Restriction - Investment in , 9 At December 31,1988, approximately $9,800,000 [ure J 10,835 10,757 10,858 of consolidated retained earnin s was restricted against I Total the p ment of cash dividends y terms of indentures Consolidated l secur g long term debt. Assets $ 1,033,796 $ 935.971 $ 871.155 l Depreciation Expense: Segment Information Electric s 21,189 $ 19,516 $ 17,699 I 4,767 5,187 1C System companies provide electric, gas and st:am services to retall customers in communities Gas Steam and other 6,075 1,022 1,005 1,723 located in central and eastern Massachusetts and, in Total ! addition, sell electricity at wholesie to Massachusetts Consolidated Depreciation s 28,286 $ 25.288 8 24,609 customers. Other operations of the system include the dsvelopment and operation of rental properties and Additional segment information relating to property additions is other activities which do not presently contribute shown in the Consolidated Statements of Cash Flow. si nificanti to either revenues or o erating income but d provid 8% of net income in 1 88,
)
Commonwealth Energy system and sut>sidiary Compan,es 29
- - ---om.s ; . : . . , .m. m..w -
2tu,- - , , . . . . -
.Est:cted Finr :Ibl Date 1-1988 1987 1986 __ 1985 1984 (Dollars in Thousands Exces Common Share Data)
Operating Revenues: Electric t 434,76L $ 429,851 $373,882 $415,723 $465,891 Gas 243,380 219,841 228,113 248,901 242,617 Steam and other 10,619 10,751 10,945 13.453 15.139 Total 6 688,764 $ 660,443 $612,94') 4678.077 $ 723,647 Net income 8 34,959 $ 32,354 $ 41,173 $ 43,962 8 44,968 Common Share Data-Earnings per share 83,50 $ 3.20 $ 4.12 $4.50 $4.75 Dividends declared per share $2.80 $2.78 $ 2.67 $ 2.47 $ 2.27 Average shares outstanding 9.556,577 9.408.026 9.253,694 9,040,220 8.747,626 Total Assets $ 1,033,796 $ 935,971 $ 871,155 $ 838,024 $ 784,373 Long. term debt 6 222,324 $ 230,799 $ 235,164 $ 160,240 $ 200,721 Redeemable preferred share investment 19,580 20,400 33,920 36,740 38,560 Common share investment 293,508 282,730 275,010 255,343 230,434 Total Capitalization 4 535,412 $ 533,9?C $ 544,094 $ 452,323 $469,715 1988 by Quarter 1st 2nd 3rd 4th (Dollars in Thou6 ands Except Per Share Amounts) Operatin Revenues $ 207.140 $ 145,111 4143,973 $ 192,540 Operatin income 23,932 5,588 2,065 16,935 income fore Interest Charges 23,231 8,859 4,507 18,893 Net income (Loss) 18,059 4,003 (208) 13,105 Earnings per Common Share 1,86 .38 (,07) 1.33 Dividends Declared per Common Share .70 .70 .70 .70 Closing Price of Common Shares-High 29% 30% 32% 32 Low 27% 26% 29% 29% 1987 by Quarter 1 st 2nd 3rd 4th (Dollars in Thousands Except Per Share Amounts) Operating Revenues $ 193,703 $ 149,791 $ 144,056 $ 172,893 Operating Income 16.345 3,929 5,258 11.929 income Before Interest Charges 18,449 8,049 7,626 13,632 Net income 15,191 3,992 3,416 9,755 Earnings per Common Share 1.55 .34 .32 .99 Dividends Declared per Common Share .68 .70 .70 .70 Closing Price of Common Shares- ,, High 42% 39% 34 32 ; Low 37% 32 30% 25% b se 9
e Comparativa Statisticcl Dcta-19884984; ' ( ' 1988 1987 1986 1985 1984 Irm tion) (Dollars in Thousands) Pa .ues $688,764 $660.443 ' $612.940 $678,077 $ 723,647
' vperating expenses-.
Operations 538,204 517,670 475,917 535,799 582,011
- Maintenance 42,803 43,570 34,765 ' 32,261 28,899
. Depreciation and amortization 26,282 30,915 24,609 23,139 22,345.
; Taxes. 32,955 30,827 37,724 46.443 46.9 4 Total 640,244 622.982 573.015 637,642 68092 Operating income 48,520 37,461 39,925 40.435 43,455 Other income 6,'970 10.295 16.510 17.230 15.589 '
.Tctal income 55.490 47,756 56,435 57,665 59,044 Interest charges 20,531 15.402 15,262 13,703 14,076 Net income 34.959- 32,354 41,173. 43,962 44,968-Preferred dividends 1,532 2,269 3,080 -3,264 3,423 E rnings applicable to common shares S 33,427
- 30,085 $ 38.093 $ 40,698 $ 41,545 Sources of Consolidated Net income- i Electric 6 16,873 $ 22,105 $ 23,576 '8 26,323 $ 23,588 l Gas 15,282 7,240 6,295 7,426 8,251 Steam and other 2,804 3,009 11.302 10,213 13,129 Total 8 34,959 $ 32.354 $ 41,173 -
- 43.962 $ 44.968 Financial (Dollars in Thousands)
Property, plant and egulpment (including construction work in progress) 61,133,767 $ 1,025,440 $ 947,673 $849,500 $754,451 Accumulated depreciation 295,674 276,374 262,892 248,547 216.514 Capitalization-Long. term debt (including maturing long term debt) $ 222,324 $236,614 {
$ 250,400 $ 204,077 $200,721 i Preferred shares 19,580 20,400 33,920 36,740 38,560- '
- ammon equity 293.508 282,730 275,010 255,343 230.434 - ;
Total 8535.412 $ 539,744 $559,330 - $496,160 $469,715 l
.8titistics and Ratlos
' Una sales-MWH -Retall 4,497.572 4,216.042 3,908,642 3,734,360 3,552,535 Wholesale 2,750,693 1,799,748 2,088,355 2,191,032 2,557,652 MMCF-Firm - 36,226 35,171 33,541 - 34,081 32,568 Interruptible 3,624 4.033 2,328 3,269 4.741 Capitalization ratios- !
Long. term debt 41.5% 43.8% 44.8% 41,1 % 42.7 % Preferred shares 3.7 3.8 3; 7.4 8.2 Common equity 54.8 52.4 49.1 51.5 49.1 i' Total- 100.0% 100.0 % 100.0 % 100.0 % 100.0 % Return on cornmon equity 11.6% 10.8% 14.4 % 16.8 % 19.2% i Common share dividend pay.out 80.2% 87.1% 65.0 % 55.0 % 48.0 %
- Average price / earnings ratio 9.0 10.6 9.1 5.9 4.4 Drta Per Common Share Earnings per share' $ 3.20 $ 4.12 $ 4.50 Dividends paid 8 3.50 $ 4.75 2.80 2.76 2.62 2.42 2.22 Annual dividend rate at end of year 2.80 2.80 2.72 2.52 2.32
. Book value 30.51 29.P' 29.40 27.87 25.88 Common share closing price range-High Low 32% 42% 45% 30% 25
,. 26% 25% 29% 22% 16%
- Based on the everage number of shares outstandmg 8
Commonwealth Energy System and Subsidiary Companies 31
p:. Trustess and OfflCero Trustees est Commonwealth Energy System Corporate Division Gerald E. Anderson, President and Chief Executive Officer *0erald E. Anderson, Chairman and Chief Executive Officer ! cf the System and Chairman and Chief Executive Officer of
- James M. Brown, Vice President and Chlef Information Officer
~
lts principal subsidiaries ! (t) William M. Cro ler, Jr., Chairman of the Board and President
- Peter B. Spillane, Vice President - Public Relations (4) cf BayBanks, Inc.. Boston, Massachusetts
- Michael P. Sullivan Vice President. Secretary and General Attorney (2) H:nry Dormitzer Executive Vice President, Wyman.Gordon Ccmpany. Worcester, Massachusetts ' John R. Williams, Vice President - Human Resources '
(u Haynes H. Fellows, Jr., formerly Vice President - Finance
- Russell D. Wright, Financial Vice President -
- (4) and Comptroller, liew England Telephone and Telegraph Ccmpany, Boston, Massachusetts Walter J. Cotting Assistant Vice President - In'ormation 3 ,
(3) Franklin M. Hundley, A Managing Director, Rich, May, ; (4) Bilodeau & Flahc.ty P.C., Boston, Massachusetts (Attorneys) Edwin M. Holmes Treasurer 1 (u Calvin Siegal, formerly President and Chief Executive Officer, John A. Whalen, Comptroller l Palm Beach incorporated New York, New York (3) R bert E. Siegfried Chairman of the Board of Trustees of Electric Division ! the System, formerly Chairman of the Board and Chief 1 Executive Officer, The Badger Company. Inc., Cambridge, ' Jeremiah V. Donovan, President and Chlef Operating ; Massachusetts Officer (2) Sinclair Weeks, Jr., Chairman of the Doard, Reed & Barton S. Robert Fox, Jr., Vice President-Facilities Development (3) Corp., Taunton, Massachusetts Andrew S. Griffiths, Vice President - Administration (2) Q:rald L. Wilson, Dean of the School of Engineering, Robert E. Healey, Vice President - Human Resources Vannevar Bush Professor, Massachusetts Institute of Technology, Cambridge, Massachusetts Ronald F. MacDonald, Vice President - Customer Services John M. Power'., Vice President - Energy Supply 4 (u Member of Audit Committee Gas Division (2) Member of Executive Compensation Committee !
- William G. Polst, President and Chief Operating Officer !
(3) Member of Nominating Committee : John J. Connors, Vice President - Human Resources and ! (4) Member of Benefit Review Committee Administration Leonard R. Devanna, Vice President - Gas Supply Richard D. Johnston, Vice President - Marketing and Customer Relations i
. Kenneth M. Margosslan, Vice President - Operations l'
' Member of Policy Committee Form 10.K The System files annually a report on Form 10.K with the Securities and Exchange Commission. Many of the informa.
tion requirements of Form 10 K are satisfied by this 1988 Annual Report. However, a copy of Form 10.K is available upon written request addres ed to Michael P. Sullivan Vice President. Secretary and General Attorney, Commonwealth Energy System, P.O. Box 9150, Cambridge, Massachusetts 02142 9150. l 32
~ ~ ' ~
{in x " .. ..S t L p System Fccts: ' A. ( 'i r hetern Companies Transfer Agents anct Registrars h I ' Electric - . Common Shares Cambridge Electric Light Company Transfer Agent and Registrar: JCanal Electric Company The First National Bank of Boston
- g. ' Commonwealth Electric Company Preferred Shares - Series A, B, C "
Transfer Agent: Commonwealth Energy System Gas . Registrar: State Street Bank and Trust Company
- C mmonwealth Gas Company H:pkinton LNG Corp. Dividend Payments Othtr Companies (Paid by the System subject to declaration by Trustees) v
' Preferred on the 1st t'sy of January, April, July, October -
' COM/ Energy Services Company (service company)
COM/ Energy Steam Company Common on the 1st day of February, May, August,
? . COM/ Energy Acushnet Realty (leases land to Hopkinton November
~ ng AMations ner y Cambridge Realty (organized to hold various properties) Common -
U . COM/ Energy Freetown Realty (organized to devetop a parcel - New York Stock Exchange, Inc.
" Boston Stock Exchange ,
cf land) Pacific Stock Exchange, Incorporated
~ : COM/ Energy Research Park Realty (organized to develop a rese:rch building in Cambridge) Trustees Under Indentures of Trust b Darvel Realty Trust (joint.cwner of the Riverfront Office Park Citibank, N.A. - Canal Electric Company Series B and D Bonds i t Bank and Trust Company - Other Subsidiary in addition, the systern h'as a 1,4% interest in a State C mPanlesStree, Long. term Debt t jointly. owned oil fired generating unit and also owns from .
2%% to 4%% interests in four nuclear power pl ants (located
- in Massachusetts, Connecticut, Vermont and Maine). -
T:rritory of Utility Operating Companies The name " Commonwealth Energy System" means the
. Electric Operations-1,112 square miles covering 41 trustees for the time being (as trustees but not Individually)' l under a Declaration of Trust dated December 31,1926, as i
>mmunities with population of 560,000
,as Operations-1,067 square miles covering 49 cities and towns ' amended, which is hereby referred to, and a copy of which (including 12 served with electricity) with population of 1,007,000 has been filed with the Secretary of The Commonwealth of Massachusetts. Any agreement, obligation or liability made, Cust entered into or incurred by or on behalf of said System binds
' Electr c- 5,000 only the trust estate, and no shareholder, director, trustee, as-220,M officer or agent assumes, or shall be held to, any liability by .
Employees and Shareholders at Year.End reason thereof. Employees-2,612 , Shireholders-19,185 El:ctric Plant Cipability-1,464.1 MW, including sales under long term c ntracts with other utilities of 429 MW resulting in a net capIbility of 1,035.1 MW
- Puk demand-916 MW on January 4,1989
' G:s Plant
- l. Distribution lines-2,602 miles b Pak day send out-331,134 MCF on January 14,1988 l
The sole purpose of this report is to give present security holdIrs information about this System and its subsidiary companies
- - and it is not a representation, prospectus or circular in respect l- to any security of this System or of its subsidiary companies.
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Energy Commonwealth F.nergy System ; Post Office Box 9150 ! Cambt:dge, Massachusetts 02142 9150 Tclephona (617) 225 4000 !'
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