ML20062B447

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Commonwealth Energy Sys,1989 Annual Rept
ML20062B447
Person / Time
Site: Seabrook 
Issue date: 12/31/1989
From:
COMMONWEALTH ENERGY SYSTEM
To:
Shared Package
ML20062A991 List:
References
NUDOCS 9010250068
Download: ML20062B447 (33)
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"'i t-Syst2m Profile i Commonwealth Energy System is an exempt pubhc utshty holding company with investments in four opera-ting pubitC Utility companies located in Central and eastern Massachusetts System electnc operations are involved in the production and sa:e 0 eleCthCity in 41 communit:es including New Bedfctr Piymouth. Cambodge and the geog *achic sa comonsing Cape Cod Gas operations serve 49 communities including New Bedford Cambridge Plymouth and Worcester I Ir addition to the utmty com- ~- - ~ -- - - b; w panies the system enctodes a gijgg.ag g'e steam astr but'on compam tve g cc. 9 .. ~., t, rea' estate trusts anc a ccmoam j'f.}.-[,'5 U.N 1,y(' engaged in the coerahon of w r., t.3 - f m:.q. : 1 h LNG ta: cities The retan eiectne l. ,.eq %, -... ' f,7 '... r [- subsidianes receive a pcrtion of ? - % ~..' ' ; n w ., W.s.. ' their caoacity and energy ~ requirements from the r respec- .U _p: L_ ~ =. sq ' [3'. 7 ' tive ownersnip interests in one 2- ? 1 od. fired and four nuclear elec-i ', ~,.D.. h m W N.. -, z ^ d tnc generating facihties f4t-l

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The System is a business .j .1 f~. ' [i':. trust organized in 1926 unt.,er 4 y ',g 4-the laws of Massachusetts 4. g $.h ? Subsidianes of the System have ', ^

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common executive and finan. kg ~ g% cra1 management and receive g hy. -TS.. A (.. technical assistance as well as 1j] h

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cas Serrce Area our system credo M E'ectnc bervice Area in orde' to be successful Commonwealtn Ene'gy vas a^d Electo: Seroce Area System and its subsidianes need the accrova and support of our customers our empicyees the Commu i-n ties we serve. and our snareholders Every decision Ae make at every level must be made with this Consid-eration in mind It is the foundation of our operaDons l l Annual Meeting i Ali sharenolders are invited to attend the net! Annua! Meeting which M be held on May 3 1990 A forr*a nct.ce of the creeting togethe' wth a oroxy statement a term of proxy and financia:informanor.s encrosea for use of Shareholders ent tied to vote at the '"eeting Contents Letter to Shareholders 2 ( System AttnDutes 5 l Financial Information 2C Trustees and 0+ce's 2e l I l .~ System Facts laside back coa' l l

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i s k. 'j'- mv; x; i_.y. l ' ... m ~E'" } 4 " I' i g,.: % im 4 ' t ) ( x 4 '[: c Financial and Statistical Highlights - 4 1989- -1988 .1 -; = Financial Highlights ? l Total Operating Revenues, 8! 805,860,000 ' f $. 688.764.000 0 Total Operating Expenses n734,719,000 639,973.000L Net income, 41,618,000 ! ' 34.959.000- ' Earnings Apphcable to Common Shares 40,145,000-33.427,000 -y . Property, Plant and Equipment (including Construction '. Work in Progress, net). 1,231,564,000 = 1,133.767.000 4 Construction Expenditures (including Aliowance for Funds 'M Used During Construction) 106,434,000 -117;129.000 -- p'~ . Common Share Data ; j Eammgs Per Common Share $4.14. ~ $3 50 - .l Common Share Dividend Rate at End of Year $2.80 - $2.80 - S t Average Common Shares Outstanding 9,690,277! 9.556.577i U iCommon Shareholders

16,067 19,185.-

>4 Operating Statistics Customers Served. Electnc' 342,000' 335.000-Gas - 224,000 1 220,000? l ' Unit Sales > d ' MWH-Retail

4,684,179 -

4.497.572 - EI r ' Wholesa!e .2,606,105-2.750.693 ,MMCF-Firm. , 38,546 36.226. < ' l M. lnterruptible 3,564 3.624 :

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lN-1989 was a year of major accomplishments for Commonwealth Energy System, with positive news and significant developments occurring o 1 mant tronts Earnings per share increased. Kev tinancial ratios improved. Freetown plans moved tor-ward Energy supplies met demand Seabrook won a tull-power licen e. And we settled our suit agamst Boston Edison Compant relatwe to its Pilgrim nuclear power plant Earnings Our earning. momentum contmoed through 1989. delivering a year of strong.mancial returns. Earnings per common share rose 64 cents to $4.14, an increase of 18 percent over the prior year. Net income from operations grew from 535 million to 541.6 million. The increase resulted from favorable rate relief, higher retail electnc and firm gas unit saks and continuing impros ements in efficiency and productr 'tv in 1989 we paid common shareholders c-quarterly dividends totaling 52 80 per share This represents a 7.3 percent yield based on the year-end closing market price of our =., shares. Our quarterlv dividends have been I paid consecutively for 43 vears, without a I ' single decrease in the rate. . j.. Return on common shareholders equitt

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improved from 11.6 percent in 1985 to 13 3 percent in 1989, a 14.6 percent increase. 4 ' ?. r NfN 4tned i h,urm iti y. L f -l%~ ^ ~ G E Anderwn President and Chiet Executa e Orncer s

4 Lo i Utility operations effective on January 31,1989.. [ ' Unit sales to firm gas and retail electric - New rates for CambrLige Electric Light.. customers for 1984 rose 6.4 and 4.1 percent, Company became effective on December 18, p respectively. These increases were primarily 1989. Cambridge Electric originally filed for a the result of a record breaking weather pattern 56.1 million increase in rates. Subsequently, '? in December. all parties involved in the rate case settled on Our core businesses were highlighted by the 54.4 million.This increase is 73 percent of the 3c coldest December in more than 1M years. amount requested and represents an overall Natural gas demand for % period was 32 increase in rates of 5 percent. L percent above normal, sq "es became A federal regulatory decision early in 1989 extremely tight, and gas reserves fell precip-allowed Canal Electric to collect half of its itouslyL Electric demand for the month was up 1989 financing costs incurred from its itwest-113 percent over the prior year. Although ment in Seabrook Unit 1. This amounted to emergency operating procedures were $10 million on an after tax basis. implemented on a few occasions in December, requiring a 5 percent voltage reduction at one Key milestones reached point, supplies were adequate because all of The balance of this letter relates to three New England's major generating units were significant events which actually occurred - on line and performed well. after December 31,1989. Each is important in The predominant focus in meeting energy its own right and in each case represents a demand centered on natural gas supply major milestone in resolving problems or operations. In order to locate, secure and defining future direction. transport additional natural gas supplies to Because these areas have been worked on meet this unprecedented demand so early in diligently during 1989 and in earlier years, we the heating season, employees in our gas believe it is important that they be covered in supply area worked around the clock. They this report. The three events follow: formulated strategy early on and performed under extraordinary stress with unquestioned

1. Pilgrim contract settlement reached.

competence. The decisions they made and the

2. Freetown Energy Park plans finalized, rapidity with which they were made gave us a
3. Seabrook full power license issued.

clear edge in securing gas supplies. On the electric side of or msiness, Canal Pilgrim contract settlement reached Electric Company had its nmA. productive January 10,1990-After long, intensive negotia-year. During 1989 Canal Units One and Two tions with Boston Edison Company, an agree-generated 6.8 billion kilowatthours of electricity, ment was reached which settled our differ- - the highest amount ever. The system also set a ences relating to the 32 month outage of the new record for electric production at 7.3 billion Pilgrim nuclear power plant. Commonwealth kilowatthours. Canars Unit One was again Electric has a life-of the unit contract to L recognized in a national survey as being the purchase 11 percent (74 htW) of Pilgrim's most efficient oil fired plant in the country, output. This settlement is conditioned upon v receiving approvals from both federal and Rate changes state regulatory agencies. Among other Our two retail electrie utilities filed for and things, the settlement provides that Boston ^ received approval from the hiassachusetts Edison will pay Commonwealth Electric $11 Department of Public Utilities to increase base million for replacement power costs which we electric rates. incurred during the outage. This amount will Commonwealth Electric Company received be refunded to our ratepayers. Boston Edison an increase of $18 million,77 percent of what will also pay a total of $1,950,000 toward our x it had requested. This resulted in an overall increase in rates of 6.7 percent and became i 1 )

e~-- ( L L conservation and load manag: ment programs Seabrook full power license issued over the next three years. We will also receive March 15,1990 -The Seabrook nuclear power I $11 million from Boston Edison to defray a plant in New Hampshire reached a mono-portion of our litigation expense. Equally mental milestone with the issuance of a full-p important, significant contract changes were power license by the Nuclear Regulatory made to protect both our ratepayers and Commission. This is the final regulatory shareholders against future extended outages action to occur before commercial operation of of the unit. the plant. Plant operators are preparing to The Pilgrim l' nit has been back on line and begin the power ascension test program. This has run at close to full capacity from last program includes start-up of the plant and a October until early March IWO. At that time gradual buildup to 100 percent of the plant's j the generating unit was taken out of service capacity. During power ascension the plant for scheduled maintenance. will be connected to the New England power [ grid. It is expected that the unit should be in Freetown Evergy Park plans finalized full commercial operation by early summer. Tchruaru 5,1990-We announced our final Finally, after 14 years of licensing and con-plans for development of an energy park on struction delays, the finish line is near. We - 1 our 600-acre site in Freetown, Massachusetts. have a 3.5 percent ownership interest in this We have reached a preliminary agreement 1,150-MW unit, which is vitally needed now with General Electric and Texaco Syngas, Inc., to supply the ever increasing electric energy a subsidiary of Texaco, to develop an demands of the New England region. integrated coal gasification combined-cycle electric generating unit. This joins two known Our employees technologies: coal gasification and combined-The greatest strength of Commonwealth 7 \\ - cycle power generation. The coal will be first Energy System is its people-their outstanding ) converted to a gas (Texaco's process) which performance and high commitment to attain will then be used to fuel a combined cycle gas excellence in service to customers. We are turbine (General Electric's turbine). grateful to have such a highly skilled, moti-We selected this project because we believe vated workforce, and we thank them for their - that it is the most environmentally sound way support in meeting our objectives. You will to convert coalinto electricity. Demonstration have the opportunity to " meet" some of them plants previously built using this process have on the next several pages, where we have greatly exceeded the Environmental Protec-focused on seven of our System's more tion Agency's air emission performance important attributes. standards Coal was selected as the primary fuel because of its abundant supply in this country; how. For the Trustees, ever, the plant will also be capable of burning oil or natural gas. Other factors in our decision i to select this tvpe of plant include: (1) a shorter .k.

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0) the ability to match electric demand with incremental additions.

When fully developed,1,320 MW of genera- /- NM44*- - ting capacity will be constructed on the site, G E. Anderson with *he first of three 440-MW units planned President and Chief Esecutive Ofhcer () to commence operation by late 1994. The l electricity generated will be sold at competi-j tive market rates to other electric utilities, y i m

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i o e' One of our most prominent strengths lies in the ^ diversification of our business operations. This gives us a wide degree of flexibility and presents Q us with a variety of business opportunities. 3 As a combina' tion utility system, CONT / Gas serves 224 000 customers, and CON 1/ Electric' serves 342,000 customers in service areas with diversity in climatic conditions. Diversity is a characteristic shared by both the System and the markets it serves. Both of our retail companies enjoy a varied mix of residential and commercial customers. The types of i commercial customers we serve are as varied - as the hlassachusetts economy itself. We are. j no; dependent on a single customer or induery. In fact, our 20 largest gas and electric edustrial customers only account for 6 percent anci 6.4 percent of sales, respectively. ~ Hopkinton LNG Corp. provides additional j diversification-liquefying, storing and vaporizing natural gas for subsequent use by CON 1/Cas during periods of peak energy ~ demand. Related to our electric utility services, we s also generate and sell wholesale electricity to l " Diversification into the LNG other utilities through Canal Electric Com'pany l Nmncss reinforces scrrice and to the town of Belmont through Cambridge reliabilityfor COMIGas and, Electric Light Company. ~ ~ for that m.rtter, all of New Through the operation of a non regulated c England. Looking back to last subsidiarv, CON 1/ Energy Steam Company, we l-Deccinber, the region wa8 provide steam to 26 large custom'ers in ihe ~ L fortminte that tee had the Cambridge-Boston area. After passing through equivalerit of 3.5 billion cubic turbine blades, the steam used in the process l. [cci of naturalgas in sferage." of generating electricity becomes a marketable i Mkhael A.Nicoloro. Manager - commodity whose sales lower electricity costs Gas Su ply and LNG Operations to customers in Cambridge. This is now com-monly referred to as " cogeneration" which we have done in Cambridge for over a half century, t We have achieved a further degree of diver-sity by moving into such non-regulated activ-ities as real estate.-office towers, a planned modern research and development center and g a state-of the-art energy park featuring i integrated coal gasification combined cycle j technology for the production of electricity. W w Our joint ownership in well planned choice real estate has provided us with above "Frcctoren is a pritne exampic average returns on our investments. of diversification working to Diversity does not stop with our business maximi:e the value of our operations. Nowhere is diversity more k assets." pronounced than in our work force-the men Jenrev H. Hanson and women who are called to task every day Senio'r Mechanical Engineer of the year-chemists, linemen, accountants, COM/ Electric L . - _ _... _. _. - - _ _ _., _ _. ~ ~-..--,!

gas streetmen, computer programmers, electncians. customer service representatives, ~ gjg'... ~ pipe fitters. tinancial analvsts, meter readers, o-7 engmeett 1% operators and rate analvsts + ~- are but a few l c' in pres mu-shareholder reports. vou have 5' ~ 4 seen exanT e-or cxt eptional on-the-}ob f i performance dehs cred bv this diverse group .,.;-~p of emplos ces llut dit ersits ha another gI Jimension in a hat our emplos ces do ott the W - Job their actis e participation in bot and girl "Diversitu to nic nicalis the si out. s outh -port voluntarv sen ice and conipatiu 13 ;cilling te take a church group. Thev are artisans. athletes and chance on 3entethnic nc e it the pubh6 otticials Our 1**o hareholder quar-retcards niatch the ri L Disr terly reports n ill give you the opportunity to dircrsification also provide a . hare our employees' photographic talents; trensendoi4s opportunitu ter their work will be pubbsbed on each of the personal groteth and covers. These tour photos were selected from development." those submitted to a recent photo contest for thli zampareth our active and retired employees. Real Estate Spectahst

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CON! / Energy '.ernces The renowned \\tassachusetts General Hospital in Eloston uses our high-quality steam for its central sterilisation facility, shown here, and many other usen such as cooking, space heating, and cancer research. ~ m s :o .t ,s g~ s.- y ..~~4 ,g +.. ' (1 p. 's '.i e1 b-. s ML .Y ~ w g n M 1,. 7 x 4 N w3 1 smw x + -e .M 'b ~ i s_.

\\ ( a. The essence of stability begins with an endur ' ing sense of purpose. Stability is the return on decades of consistent and predictable financial performance. For nearly a half century Commonwealth Energy System has been both consistent and predictable, producing a solid record of earnings for growth and dividends for investors. Our stability in the energy business results from long term orientation. We will continue to manage our operations for the best long-term financial strength of the System. Over the years, our fundamental structure and oper-ating philosophy have remained the same. The varied mix of our shareholders-18,000 g spread through 50 states and a dozen foreign a countries---adds to the stability of the System, g More than three fourths of our shareholders are individuals or families, holding 35 percent of the nearly 10 million outstanding shares. Just over half of our shareholders own 200 shares or less, and one in three shareholders ; resides in Massachusetts. Stability and financial soundn'ess go hand in hand. Consistent, good financial performance - 7'- .,. g - translates into " bottom line" stability. Our 4 .n. :. May 1990 dividend to common shareholders [f g~ N@. wili be our 172nd consecutive quarterly '/ 1 dividend. That's a span of 43 years-and 4" m c r i,. without a single decrease in our dividend. _ g ~ > W( For 1989, earnings per common share rose 18 percent to $4.14. But probably the best ~ measure of how well we are managing a "Cominonwcalth Energy shareholder's investment is our return on System is highly regarded in equity. We are very proud of our 13.3 percent the banking and financial return on common equity for 1989, up from communifics. Ourfarnity of 11.6 percent for the prior year. Moreover, the companics is synonymous with market price of our shares enjoys a healthy stability." margin over the book value of the System. Total dividends of $2.80 per common share i Bernard B. P& quin senior Financiaunakst and a n,se m the market value of our shares dur-COM / Energy Servicei ing 1989 produced a total return of 30.7 percent. The dedication of our employees to fulfill our corporate purpose reinforces the System's l strength to perform under a variety.of circum-stances. Their stake in Commonwealth Energy System is more than that of employ-ment. They are equity holders and often customers of the company as well. We value our employees, and they value their company. Ninety-nine percent of our eligible employees -i participate in a savings plan through which they own nearly 20 percent of our outstanding common shares. Their confidence in the

p, l; 's j .n y 1 - e A p 6-s. 1-e o* ~ J,, .\\ 2 ~ A 3.. r_ ~ + ~ !4 \\ t + a %m crtand i 1 .,n, W "Our natural gas lines are like ~~3 y~ the cornpany's roots in the O' ~;n, 9 ground. They run long and deep. %)H bet u'e're here for the ~ long terrn. ' Scott Alexander Streetman B h_ e CONI / Gas Our earliest beginnings date back 140 years. When Ntal Holman, senior project engineer, joined Cambridge Electric Light Company 53 years ago, nuclear power, computers and calculators were only a vision. He attributes staying power to a strong commit-ment to purpose. "whether it's a profession or a g businen operation." System is our encouragement for the future. .? ~ } y ~ Our pnmarv nnancial objective is to main-r4 tain the fmancial integrity of the System. Customer satisfaction. employee job fulfill-l~ gj ment. good returns to shareholders and our " Building assets is only one ability to finance future growth depend on our ,,g,

  • atioit P'rondirg meeting that objective--from this emerges stability.

and inaintaining them is the ofher haif.' Cynthia Blank Assistant Risk Nianager CON 1/ Energy Services o

A 2 ( y,- More than 1.5 million people rely on our ser.

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vices, and we take great pride in our past per-formance of providing the most dependable a utility scwices. Commonwealih Ergy S,rstem's one billion l dollars in assets backs up the service behind 1 every light switch or gas burner. When a c customer flips a switch or a thermostat calls for heat, our job is to make sure that the electricity or gas is there to do the job. Reliability is not sitting back waiting to j correct problems; it is taking a proactive posture - j along every step of the service connection. It 1 4 means solving problems before they occur,1 i minimizing customer inconvenience. During the past two years, COht/ Electric 7-has completed four major construction T, g projects which significantly improve the reliability of its service now and into the next '? [ century. These enhancements, which include y substations and high voltage transmission - i l lines, were completed at a cost of $40 million. { a p,- We have also initiated a program to replace i uncoated distribution wires with a sheathed " Making sure that our people cable in heavily wooded areas. This cable, while higher m cost, prevents customer outages hat'e a,j the m. fortnation that. caused by tree branches falling across wires. they necd, tchen they need it,is Underground residential distribution l pararnount. We respond to systems underwent major changes during the these information requests 24 past decade, converting from direct burial of ' ~ hours a day,365 days a year." cables to a full duct system. This, when com-t John Semper bined with changes in the cable's insulation, j Shif t Supervimr has produced for us an enviable track record cowLnen;y Services of no cable related faults in these installations in over a decade. Last year, COM/ Gas replaced eight miles of. j . (g cast iron pipe, a record amount, and relayed ? -s 68 miles of gas mains and service piping to i improve service reliability. For 1989, total replacement piping installed and piping into i new areas totaled 140 miles. A long-standing practice at CON 1/ Gas is to { maintain close contact with municipalities. Whenever a street is slated for resurfacing, COM/ Gas makes a thorough evaluation of its " Reliability is having the ri parts on the truck at 4:00 a.'ght ? facilities below that street. Replacements or - in. upgrades m facilities,if necessary, are made on a bone-chilling morninK simultaneously with road constr' ction-u tohen a customer's kids are up increasing relia'bility while virtually eliminating and his heating systern is resurfacing costs. i down." These ambitious construction projects require accurate and timely inventory information. Clup Breed serviceman COM/ Electric will soon manage inventory co w cas control at seven district warehouses with a new I ,y.- ,e,~. .,,,e m.., ,,_,,..-_...m_._,,_,.m. ,.,.. ~.......,

) interactive computer system. These strate-1 gically located warehouses support activities of construction and repair crews and require up-to-the-minute ms entor control during service re-toration-especially during storm-related re-tor ation T hi -s tem w ill optunize ms enton r n > tate : rat kmc of nM ditterent D item-with a s alue of 510 million and provide in lantanctiu Intt'rmation betheen users { j (()\\1 L.a-the pride in its reputation to { ~ -atists it t u-ti>mer needs on the first call ~ f or ( ()\\1 (.a-a new computeri/ed mventurv ~ t ontroi pn,eram u :l! brmg about an even - is higher les t i o -en ne with balanced and = adequate steck on hand at ali times 'Q 'lodat s ophisticated gas equipment requires a large mventory of specialized parts. W iri rM ttM'b No longer is there a " universal part" because to buy oil to keep our plants of the technology that supports contemporary runiling. lAst year wc hought i appliance teatures. Capital costs committed to 77 million harrcIs of oil to I stock will be reduced because of optimum generate electricity for mventory turnover and better tracking of use customers." patterns for more than 2.000 items. The ultimate nature of reliability centers on \\vilham Duncan \\ tanner of Fuels rehable people ( O\\1 Electric Called into work at 2:47 a.m. in sub-rero temperatures with biting winds, LNG operators prepare to begin vaporisation of liquefied natural gas to meet customer 5' demand. ..s.. ...._...,.~..;...................._...,

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.1 d Responsiveness is determining customers' 1 needs and working hard to meet those needs. We are driven by our customers. Their '[Y needs, preferences and expectations constantly i V change But our fundamentalobjective > remains to satisfy their needs, accommodate their preferences and meet their expectations. j In order to meet this objective, we are com< mitted to be consumer-responsive to the degree necessary to rise to the top in a fully l competitive marketplace. A dynamic response to all of our customers' needs i, the only way that we can out perform competition. l We understand better than anyone else that 6 gas and electric services are not c luxury, but a. necessity. This is the driving force behind keeping our costs and rates as low as possible. Even so, not all customers have the same ability to pay for these essential servicesc Using the latest managerial and technological l 1" ' gllllllly !ll l concepts, both COM/ Electric and COM/ Gas t 1A g developed a consistent, confidential and c e customer-sensitive approach to credit and h'Ih,, ' collection supported by automation. A careful e blend of automation and customer sensitivity .{ has worked to bring about an efficient credit. i and collection system highly focused on ' customers' needs. . This " intelligent" system monitors accounts h "Information is power. Our daily and takes mdependent action according people handh.ng customer inquiries have megabutes of to pre-programmed logic that originates info' mation availabic at the messages, leuers and, based on specific ~ r C nditi "S, inserts aCC untS mt ateleP one h touch of a finger....I'd call that a powerful response to customer 9ueue f r Personal contact. Preset parameters also keep us m comphance with all regulatory g, ,j g, requirements. a stacy Mason. supervisor Early detection through daily monitoring of $f"$'/"9""Y these a'ccounts allows us to become involved 4 in solutions for the customer. These include, - + for those who qualify, referral to such programs as fuel assistance, public and private funding, and payment plans to better accommodate a customer's ability to pay. Moving from economics to ecology, preservation, improvement and protection of the air, water, land and other natural resources v in the areas where we live and operate our i businesses ranks at the top of the list of our priorities. Through our interest in the development of an energy park in Freetown, Massachusetts, we are active in the fuel and facility selection and development of our 600-acre site to assure that this pristine area of the state remains that way. 19 c ,. +. -

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.y , # :.g i / '- ~ .,ch, i I*/,,'- v ' ,y i9 _ ; } 4 [7 fL Q ..w 4 k N. , ~)k. ,.f" f' F ~ ,4by- $.,g h. A ,Iy pp ' ~ .= 'l "lf Olty crtlplot/CCs are gol!!Q to j l .f resp 0rld appropriatclu !O ~ L L. Customers arid develop,ac e work hahts first wc crinst t l'VSl10?lb fl' (?tly (1\\/(l's ? f,lllll'! g' l pj((jg ( Jr! E rh bt 'r [ ' ' d.;- OlttTtortif \\ldfh)Rt@ty ? [ l \\ t'i 't - t and Tramne ....l ( l I\\1 [perg\\ vr is Jeanne Carrier, a customer service representative, esplains compans pros edures to a customer. 1 I he technologs selected-integrated gasiti-q cation combined-cn le 'lGCC h-Is the cleanest commercialh pros en method in the world tor o using coal for electric power production Alotig with reat hing emission standards far superior \\ l to stringent Ens ironmental Protection Agency requ ireme n t s inhet ens ironmental ad vantages to the It 4 L prot ess include lower demands _x on area isate: re%, sts and non-leachable. "P.lulli.Q attCI!tl0!! 10 Cltst09' ICY % 1' ntin - h a / a rJ a u s is a stt orihius !s u hich can be FlCCby l,lClps ll> H!lsl I!CW WaUs !O ~!!'C'! 't!!C Fl Cit ?!Ot?lt'F used in the y Nit. i>!'tif \\ arlous tonstruction \\ prod uc t s t Cla fl0 Fla!!lps Comnhinh calth [.nergs 5\\ stem people Will ,7 g. sontmue to be ms oh ed m eVerv phase of thi, w \\t nectn, exciting new protect which will be the most environmentally sound coal-based plant in the World i m

s m An idea has to be more than just novel to be called innovative at Commomvealth Energy System. Before new ideas earn the distinction as innovative, they ultimately must achieve a higher level of satisfaction with customers, employees or shareholders. Letting imagina-tions rtm free so people can be the best they can be and fostering a workplace where creativity thrives set the stage for innovation A design engineer at COM / Electric made mnovation work for him bv u ing a sof tware package to assist in the design or foundation - ior transmission towers. L' sing a new rounda-l' tion analysts and design program. COM/ Electric was able to change foundation designs-within minutes and with confidence-to compensate for variations in soil conditions along a 17.5-mile route consisting of 151 trans-mission towers on Cape Cod. This sof tware. developed by the Electric Power Research Institute, cut engineering time by 30 percent and saved over $150,000. About six years ago, COM / Electric's concern for the environment prompted it to initiate mechanical vegetation control tech-niques along transmission line routes in place of chemical methods. Following a short and N1odifying an existing product used in automatic reading of gas meters, CON 1Tlectric's Donald Dassman developed the technology to enable the equipment to read both gas and electric meters. ....... -.. - _. - -.3 N q w

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V successful pilot program, we were the first electric utility in New England to contract for a five year mechanical vegetation control pro-gram at a cost comparable to chemical methods; h1 the natural gas industry, change abismds. Not too long ago gas pitvline companies bought gas trom producers and then sold and transported the gas to distribution companies. Local distribution companies typically bought their gas supplies from a single pipeline at a 14 ,-^ fixed price for a specific period with little or ~ .. ;) no flexibility. / _ q Since the phase-in of deregulation, distri-Dh' ~ =A ~ bution companies, along with other' gas con-fg gk~[ l 4 I sumers, can now purchase gas from producers, pipelines, hundreds of sources in the spot mar-system for the transportation of natural gas. ~ ' ' ]f. ket or a combination of any of these. Pipeline companies have become a nationwide highway t f i This has brought about an increasingly " Auditing adds up to more sophisticated marketplace for natural gas. than bahincing numbers. An CON 1/Cas is an active participant in this arena auditor is a facilitator of because our energ'y supply professionals believe Chd"SP-0"f Tho takes a fresh that it is a marketplace full of opportunities look at our busn.uys prachces, for those who can recognize and seize them. scarches for solutions and Success in this market demands proficient F"XSf5f8 ""9 cffective and i people and suitable tools. When these tools C08t"C0",'PCIII'PCTd!/8Old"',"X ' do not exist, it sometimes means creating and II""SS- . developing the tools to get the job done Sheila Curnow efficiently. Auditor COM / Energy Services A method of tracking, managing and storing l Ley data relative to the spot market is an important competitive tool-one that does not exist today. Ftom this need surged a sea of { 4 creative thinking, and COM / Gas is well on l the way to developing a spot market manage-l ment system-a novelidea that has prompted 1 o_ne computer software vendor to participate in its development. j '

  1. K When operational, this enhancement to gas 6

[ supply (vill expedite decision making, a' ' mprove responsiveness to market conditions "New ideas are worthic85 i g and give the company the flexibility it needs unless the performan'y measure up to our to maintain its reputation as a low-cost t .+ cc standards, and at a supplier ot quality gas services. COM/ Electric we set fougher .? ? Thanks to our employees, many new ideas standards for ourselves than do 1 - are coming into focus. We look to the future our customers." I with growing optimism, strengthened by the C. Brad curtis commitment and enthusiasm of our employees. Design Engineer . The spirit of innovation at Commonwealth COM/ Electric Energy System resides in the energy of our people.' As we shift our focus to the 90s, l innovation will keep us on the leading edge k during a period of intensifying competition. 15

j l 'k ' amounts of reliable energy at the lowest j Serving customers efficiently with adequate > 1* possible cost is our definition of productivity-d _N. a statement easy to articulate, but a constant ' l ~ i and formidable challenge in practice.: d We sell billions of kilowatthours of elec-l tricity and billions of cubic feet of natural gas, but the most important energy that we- . [' harness in the course of any day is that of out. 2,tiOO employees. Productivity' increased l! significantly throughout Com'monwealth' E c Energy System during the 80s, the result of management's strong commitment to auto-mation, continued containment of controllable costs and " work smarter" programs, i L Over the next decade, we expect to reap the ,3 L full benefit of investments made in automation during the 80s. Today, virtually every infor-mation system is automated We have made moves into dynamic, on-line, interactive f computer systemsJ The result is instant retrieval and verification of information, reduced paperwork, lower operating costs [ and improved service to customers. 1 L _q p _.Over a two-year period, we reduced staffing - 1 L ( at COM/ Energy Services by 15 percent. This pm. t . reduction was achieved primarily through ' L 5; attrition, but also by empioyee-initiated h 'j implementation of part time positions and job - sharing, which, collectively, resulted in savings of over $3 million. COM/ Gas has dramatically cut response B time and increased operational efficiency in its "Because of new technology in. service dispatch operation. Specialized software tracks service' orders from start to i; material handling equipment j . finish and allows instantaneous sharing of. i and highly [ocused teork and information between crucial departments j s safety practiccs, our having interaction with customers. Within L - performance record is minutes of a serviceman's completing work in ontstanding." a customer's home, all pertinent information Charles (.. Johnson Jr. is relayed back to service dispatch and also r une crew t.eader becomes available to any one of 30 customer a tmiedrx nquiry representatives. This system T expedites emergency repair service, allows better scheduling of customers' service calls and improves communication with customers. The computer aided dispatch system takes advantage of our existing customer information system and required no capital investment. Future enhancements include ) :.A. bringing computer power into the service van. V.. Because of different needs, COM/Electrk has recently acquired software for a program called Work Management Information ',ystem. 16 !b { , -. ~,

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n;_,'; Custorners, e. Tj Susan Daltvmple Service Dispatcher A CONI Gas CON 1' Gas uses an electro-fusion system for service I additions, main construction, repair, and tie-in of I polyethylene gas pipe. This new electro-fusion tech-g ~' nology has enabled CON 1/Cas to make inherently .wy' flawless joints 100 percent of the time while reducing the site of the escavation and time required to + * / complete the job. 'w 1 l This addition, scheduled for implementation ~ ' ' ' in lW1. will automate most of the now man-ual tunctmn-unohed m the planning and wnte-up or con 3truction and maintenance g work perrormed m the transmission and dis- - ~ - ' - - tribution area. This will mean improved "Our work load has increased efficiency in tracking and managing current tremendouslu. We haven't and tuture work loads as well as improved added people. We've introduced service and reliabihtv for customers. autonsation, and we're getting nlore donc in less time. hm Gntriths. Coordmator Legal C ollections CONI Energv Services l~

--- ~ -.-- - - - _ - - - - - _. --- _ - - -_.- _ _ - _ _ _ _ _ - n; ? l Quality at Commonwealth Energy System i 3 means providing our customers with a i superior value. An inherent part of that value is meeting the espectations of customers. employees and shareholders. This means handling customer calls promptly and erficiently or earning the dis-i tinction of operating the most efficient oil-I + fired electric generating unit in the country. 1 Quality can be as simple as a triendiv smile beanung across a meter reader tace or as arduous as restoration of power to thousands of customers under the most adverse of con-ditions during and after a storm. It is accurate meter reading and billing: keeping rates as low as possible; or finding, securing and trans-porting natural gas supplies. when others could not, during the coldest December since the beginning of weather record keeping. For us, quality doesn't stop with the sale of kilowatthours of electricity or cubic feet of natural gas. We are investing approximatelv New England weather isn't always cooperatise in our efforts to deliver quality services, tiut we stand ready to face any challenge to uphold the quality of our gas and electric utility services, g ^ .j .,c.. r l 'At Canal Electric we J,,

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Ifhlll!!ili!! lllf IligllCit IcVC$s of sfildiltll. fro!!! thC Oli (lhlt goc $ l !!! 10 till <!!! ctllissl0lls lllat Gn!!C Ois: That's whv we're -{ w,ipe, o,iC vl the countrur u Fernandi Nusa. C hemi.t t ana; i iectru Compam g y.. a L.' s - ~ ~ 5 1Q

i I $5 million in'a new sophisticated, customer i o i . information system to be completed by mid-N90. The software and advanced computer { system maintain precise, confidential records on more than one-half million customers. All information is instantaneousiv accessible, l' allowing us to react or responId to any customer at any location-quickly and in the most appropriate manner. i Complementary services are just as impor-tant as supplying the energy itself. These + services include no-cost or low-cost conserva-tion programs that enable customers to gain c-

1 greater control over their energy usage and costs, critical tracking of customers with life t

g support equipment, safety programs for l schools, special telephone service for the w i hearing impaired, consumer advisory panels _l 4 and collaboration with interested parties in planning future energy needs. 4 - Quality has yet another dimension. Not

  • - - Ib only did our earnin;;s increase significantly during 1989, but the quality of these carnings "Our goalis to satish/ the -

3 improved. The proportion of earnings customer on thefirst call, it's l derived from certain non-cash additions to rare that rec don't." r income determines the quality of earnings. Lucy hchilli, senior clerk The lower this percentage, the higher the customer inquiry center , quality of earnings per share. In 1988 and coM/ca, 1987, these items accounted for approximately 57 percent and 59 percent of our net income, L, respectively, compared to 34 percent last year. We expect continued improvement in the 7 j f.; t quality of our earnings, the result of some of i i the positive items discussed in our precedmg s c shareholder letter. Any quality product, in the final analysis, is always the result of quality people. We can't L ~ begin to hope for quality in one without quality ~ I,- in the other. We strive to hire the best people for every job at every level. This is not a pro. "Getting 066,000 cncrgy bills h gram, but a way of life for our human resource mailed crery month, cach one professionals..hnd we will continue to attract, reith the appropriate informa- ~ train and retain the best employees available. tion,is an awesome respon-t in our pledge to quality, we have not over-sibility. Qualitt/for us is i looked our employees, and we continue to gettin's it right thefirst time." f - provide them with a quality work environ-lack MacDonald, supervisor, ment that is safe and appropriate. This means Mail operations and services equal opportunity for employment, develop-COM/ Energy services ment and advancement for those who qualify. -It means fair and adequate wages and com-petitive benefits. Moreover, we encourage our employees to be mentally and physically fit by j providing financial incentives toward educa-tion and health and fitness programs. 1A ---ef= =esas + mv--,-w w -g++-e-+,e--w- +-w,e s-m a ,a s*we-e+---ww.m-- e

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bl t. e -t N'.. Commonwealth Erwegy System c nd Sutwd:ry Companws [Q0l* q@. O Condensed Statements of income .7 4. Years Ended DecemDer 31, 1989 1988 1937 (Dola's in imo sarcs) , Operating Flevenues: Eiectric S$24,523 $434,765 $429 651 g Gas ^ .268,140 243.380 219 B41 ~ Steam ano other 13,197 10.619 10 751 805,860 688.764 $60 443 ~ Operating Expenses: Fuel and purchased power 288,400 = 244.608 237.166 Cost of gas sold 152,649 135.222 - 131.977 Other operation and maintenance 224,131 201,177 '192 097' Depreciation 29,769 23.286 25.288' Amorteation of Seabrook 2 2,103 (2.004) 5627. Taxes 37,667 ' 32.684 30 827 > 734,719 639.973 622.982 Operating income 71,141 48.791 ~ 375~ S Other income (Expense): Allowance for equ:ty funds useo during construction 5,162 8.825 8.377 . Abandonment of Seabrock 2 833: (5 243) (1.251) Other net . (1,058) 3.117 3.169-4,937 6.699 10.295 .-Income Before interest Charges 76,078 55.490 47.7561 Interest Charges: Long. term acbt 23,308 20,151 20.876 Other interest charges < 18,880 10.732 4.019 Allowance for borrowed funds used during construction (7.728) - ' (10.352). (9.493) i j 34,460 20.531 15.402.

1 Net income 41,618-34.959 32.354 Dividencs on preferred shares 1,473 1.532 2.269 i

Eamings Apphcable to Common Shares $ 40,145 $ 33.427. $ 30.085 .j Average Number of Common Shares Outstanding 9,690,277 9.556 577'.9.408.026 Earnings Per Common Share $4.14 $3.50 $3 20 4 Tr4 d.MC"C 4% q *o:9$ n's aa Neg'& pa't O' trieSe COncensed fen 4%&# Sta*ements

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m .y M' k l ( L.,, n Condensid Balance Sheets E - December 31, 1989 Lissa. (Os ars e Twsanost . Assett 1 I t Property, Plant and Equipment, at origina' cost $ 976,470 5 877 25t - LesS-Accumulated depreciation 316,007 295 67.1 m 660,463 5S1.577 ' Construction work in progress, net 255,094 256 516 915,557 838 093 Leased Property, net 7,498-8.704 Equity in Corporate Joint Ventures - 13,803 10 835 , Current Assets: Cash 102 '2.954' Accounts receivable, net 74,452-60.917 [.. Unbilled reyenues 62,046 37.263 ' H . Otner current assets 35,142 37 304 - t u-171,742 138.438 Deferred Charges 56,106 ' 35 B46 ' $1,164,706 $1.0319 ?6 Capitalization e' d Llabilities n Capitalization: Common sha'e investment $ 310,566 $ 293'.508 Redeemable preferred shares. less current sinking fund requirements '18,760 - 19.580 Long term debt, less current sinking fund reautrements 342,937 222.324 v g 672,263 ,535 412 Capital Lease Obhgations 5,249 6.6 Current Liabihties: V-Interim f.nancing 153,275 , 201.575 Accounts payable 83,246 56.319' Accruea tame

  • 4,338 -

15.216 i . Other current hab*t.es . 29,846 26 683 i - 1 280,705 299.793 - i Defert_ ed Credits: I Accumulated deferred income taxes 146,164 133.636 .- Unamortized investment tax credits and other 60,325 56.417 ~ l ( 206,489 190.053 Commitments and Contingencies ( Note 2) $1,164,706 $1,031,916 .m Ihe a*CompanyeQ nNeS 8'e AW10gf 8 Dart O theS9 Concensed hnanC;81 Statements f i l

(-] ? M . Cornmonwealth Erwegy System and Sutmdiary Companies - i Condensed Statements of Cash Flow Yea's Encea Decemoe* 31. 1989 1953 9 87-(Doca s x T e,,sa an Cash Flow From Operat;ng Activities: Net income $ 41,618 .S 34.95? 5 32,354-Effects of non cashitems- . Abanconment of Seabrook 2 (833)- $.243 1.251' Depreciation and amortization 31,872 -26.282 30 915 3-Deferred income taxes ano investment tax credits, net 11,263 3.324 - 1,737 Allowance for equity funds used during construction (5,162) (8.825) (8.377) Earnings from corporate joint ventures (1,367).- (1 329) (1.533) Change in working capital, exclusive of cash (6,944) (11.511) - (5,320) All other operating items (17,011) _ 8781 122 Nel cash provided by operating activities 53,436 -49 021. 51.149 ' Cash Flow For investing Activities: Additions to property, p! ant and equipment (exclusive of AFUDC) (93,544) (97.952) ~ (67 699) Allowance for borrowed funds used during construction (7,728) (10.352) (9 493) D!vicends from corporate joint ventures 1,410 1.077 ~

1 433 '

Eauity investment in ccrporate joint venture - (3,359) Net cash used for investing activities (103,221) (107,227).. (75,762) i? ) / Cash Flow From Financing Activities: Saie of comrnon shares 4,077 4.148 4.951 Payment of dividends (28,637) (28.329) '(28.463) O Proceeds from (payment of) short term borrowings (48,300) 99.925 '73.990 .i i: Long-term deot issues 126,000 4 460. Long term debt issues refunded (2,600) (10.943) (15,236)' Sinking funds payments (3,607) (4,167) (16.530)- Net cash provided by financing activities 46,933 - 59.634 23.172 g y 'M Net increase (decrease)in cash (2,852) 1.428 ' (1,441 ) Cash at beginqng of per od 2,954 1.526 2.967 Cash at enc of penod 102 $ 2.954 $ 1.526 Suppiemen:at Dtsciosures of Cash Flow information: Cash pa;d duvg the period for: Inte'est $ 40,812 $ 31,906 $ 23.365 income taxes S 9,21." $ 11,817. $ 13.779 - T e e.m y ecas n ae mera om v rese c:noeaswnax.a s a emems L 1 f y_) l 1

[gr { h 1. Detailed Information ( y ^ u The detailed Consolidated Statements of Income, h Statements of Cash Flow, Balance Sheets State-l: ments_of Capitalization Statements of Changes in N Common Shareholders' investment, Statements of. Changes in Redeemable Preferred Shares, Notes to Consolidated Financial Statements and \\tanage-ment's Discussion and Analysis of Financial L Condition and Results of Operations are included [ . m the Proxy Statement. in p/ 2. Commitments and Contingencies b m . Seal wok Status The system's 3.529 interest in the Seabreok project. is owned by Canal Electric Company (Canal), a wholly owned subsidiary of the System. As of !c Decet6ber 31,1989, Cana'l's investinent in Seabnuk amounted to approximately $244 million. Assum-j ing, for financial planning purposes only, a com-i e mercial operation date of June 1,1990, our ineest-ment will be approximately $250 million. The. Nabnek unit, which has been complete since mid. '1986 but has experienced difficulties and delays in e plant licensing, has a rated capacity of 1,150 N!W.' L On Ntarch 1,1490, the Nuclear Regulatory Commission (NRC) approved a full-power oper- [, ating license for Seabrtok 1. The license became effective after a two-week stay during which 2 intervenors filed appeals with the United States Circuit Court of Appeals. The stay appeals were f denied by the Court and the plant is prepared to' begin its ascension to full-mwer operation which h. expected to be reached in une IWO. Subsequently, Canal made a rate filing with the Federal Energy. J Regulatory Commission (FERC) for recovery ot Seabnok costs from its affiliates Commonwealth 2i Electric Company and Cambrid Company. These affiliates have'ge Electne Light : I filed for recov-ery C,( these costs in their respective power cost charge proceedings. The system continues to believe firmly that its 7j~ ' participation in the Seabrook project from its q inception has been prudent. reasonable, appropriate' l i and an integral and necessary element in planning + for the power needs of its electric customers.- -i Accordingly, the system will vigorousiv pursue all rights to recovery of its investment in seabrook 1. The timing and amount of recovery of the system's ' \\ investment in Seabnek I cannot be foreseen at this time. However, the system believes that it is reason-J able to expect that recovery of a substantial portion

]

of this investment should ultimately be allowed. For additional information on the Seabrook l project, please refer to Note 4 of the Notes to 1 Consolidated Financial Statements included in the 1940 Proxy Statement. -1 Replacement Pawer Cests Commonwealth Electric has a life-of the-unit contract for 11% of the output from the Pilgrim nuclear power plant located in Plvmouth NlA. l i M b

ys a m h1 . Pilgrim, which is owned cnd oper;ted by Boston theSuperfund Amendmentcnd Reauthorization Edison Company (BECOL had been idle from Act tSARA) to initiate the clean up of the environ-Apnl 1% throu'gh luss and went through a ment. These acts, commonly referred to as gradual restart program during 1%u, ultimately "Superfund" legislation, authorire the United F achieving rull pmer operatmn in October 19tx States Environmental Protection Agency (EI'Al to L. During the outage.Commomvealth Electric had identify and clean up hazardous waste site and to 1 been purcha mg replacement power from other week recovery from statutorily liable parties, sour (es averagmg S1.2 million per month more usually referred to as potentially rewn ible than what Pilgrim power uould have cost. In parties, or PRPs, or to order the PRPs to undertake addition. contractual demand charges to BECO for the clean-up themselves. Pilgrim were approumatelv $1.8 million per month Commonwealth Electric and Commomvealth through December 31, lW and S3 million per Gas Company have each been designated by the: 4 month.ince then. Replacement power costs EPA as a PRP under the Superfund legi-lation and r. {J. Juring 19 were at a h>wer level due to Pilgrim's are potentially liable along with certain other desic-gradual restart program. These replacement nated PRPs for a share of the clean-up costs at the power co ts and demand charges were recos ered Sullivan's Ledge site in New Bedford. NIA. Some from customers through Commonwealth Electrici twenty two parties are known to has e been desig- [y power cost charge or its base rates. Escess nated PRPs at this site with an estimated total replacement power costs through the term of the present worth clean-up cost of $10.2 million. System outage and during the restart process were companies are not involve ( in any other Superfund approsimately 543 million. sites, except perhaps in a "de minimis" capacity, in January IWO, Commonwealth Electric signed in additmn, the Ntassachusetts Department of. settlement agreements, subject to state and federal Environmental Protection (DEP) has designatal a L b regulatory approval, with BECO with regard to former coal gasification plant site which occupies this outage. These agreements resolve all property owned by Commonwealth Gas at outstanding issues concerning Commonwealth Quinsigamond Avenue in Worcester, NI A as a ha/- Electric's liability to refund replacement power ardous waste site. Several other smaller,less *.igni-costs. In brief, BECO will pay 511 million in ficant ites (both coal gas and other hazardous replacement power costs related to the outage to waste) have also been designated by DEP as repre-Commonwealth Electric, which in turn, will senting a potentialliability to system companies. rehmd this amount to its customers. No other Commonwealth Gas is currently participating in replacement power costs related to this outage will a generic rule-making proceeding betore the DPU be subject to refund by Commonwealth Electric. that is intended to result in the establishment of a To date. Commonwealth Electric has deferred, procedure for rate recovery of all or a portwn of with FERC approval, approximately 520 million in the costs associated with the clean up of coal litigation costs relating to this proceeding. gasification waste. This procedure may also be j Commonweahh Electric espects to receive 511 applied to future requests for recovery of other p' million, trom BECO, upon regulatory approval of types of clean up costs. Also, comprehensive s the settlement agreements. Deferral of the general liability insurance coverage may provide i remaining portion of these litigation costs will compensation for remediation costs incurred in the [ continue pending final resolution in a future clean up of the above referenced sites. While the regulatory proceeding. Nianagement believes that system is unable to predict the final outcome, costs [ there is adequate regulatory and legal precedent or remediation involved in any of these eftorts, g for recovery of these costs. Please refer to Note 4 management believes that there are reasonable of the Notes to Consolidated Financial Statements prospects for recovery. included in the IWO Proxy Statement for additional information on these settlement Poavr Contracts agreements and replacement power costs. Cambridge and Commonwealth Electric have i long term contracts for the purchase of electricity Emveomental Mutcrs from various sources. Generally, these contracts j The wstem is subject to evolving regulations are for fised periods and require payment of a adr.anistered by federal. state and kical authorities demand charge for their capacity entitlement in relating to the quahty of the environment. These each unit and an energy charge to cover the cost of regulations affect, among other things, the siting of fuel. Total costs under these contracts are included '{ generating facilities and impose stricter standards in fuel and purchased power in the Condensed for air and water quality and nuclear plant Statements of income. Pertinent information with licensing and safety. These regulations have had respect to ownership interests in these generating an impact on the system's operations in the past units is as follows: and will continue to impact future operations, i capital costs and construction schedules. i in 1980, the federal government passed the Comprehensive Environmental Response, Compen-sation and Liability Act (CERCLA), and in 1956, ) s< k j u a

V2T L .D, WW 'Q, N l I 18 u, t %C : N,Q f ^ !n + 'i X e y lJ.?y @ iL l ,c ac l r pp g. m e m + g,g%q am. m A~ - w- - s m m.( _.1 ,6 * ( ',< A', Connecticut ' 'MaineL - Vermont Yankee ; 4

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h -, J Eauity ownersrup ? t 50% i :4 00 % 2 50 %) 4 50 % m '. Plant entitleme%. 4$0'e 3 59 %. : 2.25 % : - 4 50 % : a . J Plant capabMy W1WM 591.1 870 0 520 0: 1736 m@, % System entpe Mntp,wp 26 6-31 2-11 7 7 8!. . Cont act eWat* owe- '1993 _ 2008 -2007- _ 1991i , 11989 actue.est Wu00)i 39.16B f i $5 796 : : $3 299 L $3.120 'y

t990estrnatoctces (5000 58 834 156.3E6 '

$3 754 e 52.547?, Comminwlcalth Electric also iontracted to purchase power from various other generating facilities as 4 ~g follows; f h T 1989 ' hetual Cest Estmatea CostL J S' MW' t g _ _ _.19c9 . y _....,,. 7. _. tw 4 p# SDota s e tro sanosyH s Wudear unds. 98.7 .547.113 - $52 M Jiq Hydro units - 24.4 9 894 ^

9 095'.

t PF. e Cogenerating units. . 26.8.- 5 4 244 = 24.749 - l ; f Waste to-energ/ units .46.2 17,879i --i t238 ' 4 Other units - '32 170 1438!

g, m

o, ' n' addition, Canal contracted to purchase 50 MW, on average, from Northeast Utilities annually from1 ' i November 1989 through 1994 due to the need for capacity to fulfill the's i

obligation arid to have sufficient energy supply to meet customer needs.ystem's New England Power Poo 4

The cost of this power in 1989 ] '] mounted to $35.5 million; j W- ' OOkr Commitinents I w[< a.Other major commitments of the System and its subsidhaes include construction expenditures, sinking : a. a co - fund payments and, maturing debt issues as summarir.d below. 4 n 1990- =1991 1992 '1993 t994 lls +6: (Dotars m Tneusa-os). . Coristraction emenetures ' $86J181. $87.523 - 584.505 570 439 - $74 64h g,

Sinbng fund reaudements ;

2.979 4 i 7,806' 7,006 6146 7.799 : y( s Waturng debt jssues W '39 658-- 1.5.075 M J n m Q i fM . Report bfIndependent Public Accountants d + To the Bodrd of Trustees of covered by a January 1990 settlement with 'the-4' g Commonwealth Energy System operator of the Pilgiim nuclear power plant as W discussed in Note 4 to'those consolidated finaticial ' We ha've audited,in accordance with generally statements. Additionally, the January 1990 ' ' mf" 4 accepted auditing standards, the consolidated ' settleuent as set forth in' Note 4 is su'bject to

balance sheets and consolidated statements of further regulatory approvals.

l d 4: -capitalization of COMMONWEALTil ENERGY In our opinion, the information set forth in the. N SYSTEM (a Mawchusetts Trust) and subsidiary accompanying condensed consolidated balande g p' : companies as of December 31; 1989 and 1988, and sheets as of December 31,1989 and 198Sland the 4 (the related consolidated statementiof income,. related condensed statements of consolidated ' %m > ' changes in common shareholders' investment, income and cash flows for each of the three years 4'N chapiN micemable preferred shares and cash - in the period ended December 31,1989,is filriy 1 7a iflow for sact, of the three years in the period ended stated,in all material respects,in relation to the - b December 3L 1989, appedring in Exhibit A to the consolidated financial statements from which it 4 - proxy statement for the 1990 annual meeting of has been derwed.

  • 4

L shareholders of the System (not presented hereint 1 Our report dated March 1,1990, also appearing in : t the proxy statement, contains explanatory = Arthur Andersen & Co. 1 paragraphs calling attention to uncertainties i usurrounding the recovery of Canal Electric Boston, Massachusetts 1 t Company's investment in Seabrook 1 and the. March 1,1990. , f &, recevery of certain unreimbursed costs not ,.s p t 4 ,,m;. ffN. g &, ? h<y~ g-bh; 'j v 1 hh[ h y "g[bb gi;ng pq, g 1 u

y i m., 4 p; ki4 [ d . Commonwealth Energy 5ntem and Subudiary Companin v j.- .; 1, j' [..v. in m. Comparative Statistical Data. f 1989 1993 997 . '. _.. -. _1936 1955' 3Dyrs + 7msran Operations: Re$enses $ 805,860 5 688 764 $ 660 443 3612 940 $673 077 Ocerat:ng Escenses - Operations 617,053 539 204 517.670 - '475 917 ~ 535,799 ' Matnienance 48,127 42.803 43.570 34.765 32 261-Depreciation and amortization 31,872 26.282 30.915 24 609 23.139 7ames 37,667. 32.684 30.827 37.724 '46 443; 1 734,719 639.973-622,982-573.015 637.642 f-Operating income 71,141 48,791-l 37.461 39.925 40.435 Add-Other income - 4,937 6.699 10.295 16.510 17 230 Less-Interest charges 34,460 20.531 .15.402 15.262 13.703 ic Not income 41,618 34 959 32.354 - 41,173 43 962-Preferred d>vidends 1,473 1 532 2.269 3.080 _ ],.3 264 l Eaming app 6 cable to common sha<es $ 40,145 $ 33.427 $ 30 085- ' $ 39 093 $ 40699-Sources cf Consolidated Net income-r-f Electnc - $ 26,975 $ 16.873 $ 21,403 $ 23 576. $ 26 323 } p.( Gas 12,386 15.282 7.240 6.295. =7 426 Steam and otner 2,257 2,B04 3,711 11.302 __._ '213' 10. ~ q Totai $ 41,618 $ 34 959' $ 32.354 5 41.173 5 43.962 ' Financial-Property clant and equipment (includ:ng s construction work in progress net) $1,231,564 $1.133,767. $1.025.440 $947.673 $549.500 AccumWated depreciation 316,007 295.674 276.374 262.892 248 547 Capitahzation - $ 342,937 $ 222.324 $ :236.614 $250,400 $204.077 5 Long term debt (1) l: j' Preferred shres 18,760 19.580 -20.400 - 33.920 36.740 l l Common eawtv 310,566 293.508 -282.730 ' 275.010 255 343 r Totat S 672,263 $ 535 412 $ 539.744 $559.330 $496.160 l l me -evenwm cect l l-i e ? i; ). w

~

.rI D._ 3.): b _h f"" i 1 Av/ ' Comparative Statistical Data 1989 1998. 1957 .1986-- ...t. .-,-,,=.r. ..... ~,.. 1935 ) Stat:stes anc Rateos I Un't sats -- MWH-Amad 4,684,179. 4 497.572 4 216 042 3.908 642 3 734.360 ' Wnotesaie. 2,606,105 2 750.693 1.799.743 2.088 355 2.191.032 : MMCF Jirm. 38,546 36.226 35 171 33 541-R081 ~ Interruobbie - 3.564 3.624 4.033 2 328 3 269 Capitakzation ratios - Long. term debt - > $1.0 % 41 5 % 43 8 % - 44 8 % 41 1 *. - ? Preferred shares 2.8 37 38 6.1 - 74 ? Common eouity 46.2 - 54.8 52 4 49 1 . St 5-Totat 100.0 % 100 0 % 100 0 % 100.0 % 100 0 % - Return on common equity. - 13.3 % i1.6% 10 8 % 14 4 % 166%- [ Common snare dividend pay.out 67.7 % 80.2 % 87.1 % 65 0 %. 55 0 % Average price carrvngs ratio 8.2 85 10 6 91 59 Data Per Common Share . b .- Eam'ngs per share' $ 4.14 .$ 3 50 $ 3 20 ' S 4 12 $ 4 50

D:vicenas pa:o '

2.80 , 2 80 2 76 2 62 2 421 ' Mnuandend raie at end of year 2.80 2 80' 2 80 -2 72 2 52 l Bec* Vsue. 31.87 30.51 29 83 29 48-27 37 Common snare c'esing pree range, M gn 38 % 32 a 42 i 45, 30 - . Los. 29 % 26 h 25 n 29 1, 22 ?, Based on :r e ave ago nameer of sna<es outstanc>ng. 4 i' l' l ? k w ~ '

,m, ,f; y~ v Trustees > . Corporate Division ll-p Gerald E. Anderson.

  • Gerald E. Anderson.

President anc Chief Charman and Chief Executive Officer of the Executive Office. System anc Cha<rman and ~e Ch'ef Executive Office' of ' James M. Brown, its pnnc' pal subsid: anes - Mce Presdent and Chief. F Informat;on Officer m William M. Crozier. Jr.,. (* Chairman of the Board

  • Peter B Spillane, and Presioent of

%ce President-Puche BayBanks. loc., Boston, Retations

  • Massachuse:ts
  • Michael P. Sullivan; 42> Henry Dormrtzer,

%ce Presioent, Secretary formerly Executive %ce and Generai Attorrey - l" Company. Worcester. ' John R. Williams,- President. Wyman-Gordon Massachusetts. Mce President-Corpora'e l m Haynes H. Fellows, Jr., (d' formerly %ce President- -

  • Russell D. Wnght.

} . Finance and Comptroller, Financial Wee President New England Telephone and Treasurer and Telegraph Company. Boston, Massachusetts Walter J. Cotting. ' Assistant %ce Presdent-p th Franklin M. Hundley, informat.on Services (') A Managing Director. Rich. May. Bilodeau & John A. Whalen.

l Flaherty PC., Boston Comptrolier Massachusetts (Attorneys),

I j to Calvin Siega!, Electn,c D,v,sion i i formerly President and Chief Executae Officer, . Jeremiah V. Donovan. f Palm Beach incorporated. . President and Chief New York. New York. Operating Oncer p) Robert E. Siegfried. O 0** Chairman of 'he Board of - . Vice President-Trustees of the System... Engineenng and formerly Chattman of the Construction Board and Chief Execu. tive Officer. The Badger Andrew S. Gntfiths. ~ Company Inc.. Camendge. g Massachusetts Administration (2i Sinclair Weeks, Jr.,

  • Chairman of the Board.

' ** Y' Mce President-Customer a Reed & Barton Corp.. Taunton, Massachusetts Operations j Donald J. LeBlanc, (2) Gerald L Wilson, Vice President-Resource l f Dean of the School of Planning and Development Engineenng, Vannevar l Bush Professor, Massa. John M. Powers, chusetts Institute of Vice Pres. dent-Energy { i Technology Cambridge, .i.' Massachusetts Supply j t O } Member of Audit Commt'ee

  • Member of Policy Committee j

'j (2) Member d Executwe j Conansanon Comrruttee j (3) Member of Nominabog a Commmee -l (4) Member of Benefit Review Conmt'ee l l QIl

a -4 Gas Division Transfer Agents System Facts and Registrars SWaliam G. Po:st. Common Shares E!ectnc Customers presdent and Chet has'er Aget and Camondge Electnc L ght E!ectnc-342 000 j( - Operabog C" ice' Aegoat Company Gas-224 000 The F.rst N r enai Bank of Canat Electnc Company John J. Connors, Bestyn . Vice Presce% T Commonwealth Electne mp yees and Sha+ "5"

  • "" "O netou ces a,d Aom:n.

Prete* red Shares - Cor pany Regu:a* Employees-2 590 ust' aron Senes A. B. C ,t Gas Sna'eholders-18.067 e Mrver Agent Common-Commonwea in Gas Leonard R Devanna. 3egin Erergj system Company c nc Rant i V ce Pres >dert-Gas peg stry Swe S: eet "U#D Ssch 34n" and Nst Ocm' cam Heosunton LNG Core mcudag sats unoe Ricnard D Johnston. Dividend Payments Other Companies gt] 'attj g{ vice Presider %Ma4etng (Pa d of tne S, stem CCM/ Energy Sereces Company resutt ng m a aet caca-and Customer Retators sue;ect to dema'aton of bil.ty of t10~ 1 MW Trustees) Pretened on tne COMEnergy Steam Peak demand-925 MW Kenneth M. Margossian, 1st day of Jan ary Aprit. Company on January 4 19E3 u V ce Pres, dent-Operatons Juty. Octooer COM/ Energy Acushnet Common on the 1st day Realty (leases land to Gas Plant 4

  • Memoer of Poicy Comm ttee of February. May. August.

Hopkinton LNG Corp ) Distnbuten hnes-2.641 - November COM/ Energy Cambodge miles Rea!!y (organized to hold Peak day send out-Listing Aff:hations vanous properties) 327.183 MCP on Common COM/ Energy Freetown January 14.1933 Realty (organized to New York Stock develop a parcel of tand) Exchange inc 1 The solo purpose of tnis Boston Stock COM/ Energy Researcn report is to g$e presen! ExchangeIne Park Reatty (organ;2ed to Form 10 K secunty ho!ders informa' Pacific Stock Exchange The System fdes annuahy l de* lop a research t on about this System and incorporated budding in Cambodge) a report on Form 10-K 1 .( q i its subscary compan'es Darvel Realty Trust (pnt-w:th the Secunties ano V-and 41 is not a representa-Trustees Under owner of the Rivertront Exchange Commisson tion. prospectus or circu-incentures of Trust Office Park complex) Many of the informaton .{ lar.n respect to any secu-Citcas N A - Canal in aditon. the system reawrements of Fo m 10-K rity of itvs System or of its Electnc Company Senes has a 14% interest in a are sabsfied by tne 1990

l sucs o,ary compan es.

B and D Bonds pntly owned oil-fired Proy Statement A copy i State Street Bank and generating unit and also of Form 10 K is avariatie Trust Company - Other owns from 2 > % to 4 W upon wntten reauest Subsoary Companies' interests in five nuclear addressed to M enael P. Tne name 'Commonweattn Long-term Debt power plants (located in Sulhvan. Vice President, Energy System ' means Massachusetts. New Secretary and General the trustees for the tirre Hampshee. Connecticut, Attorney. Commonwea;th being (as trustees but not Vermont and Maine) Energy System. PO Box +nd".adualy) under a 9150. Cambndge Massa-l Terntory of Utility chusetts 02142-9150 Declaraton cf Trust cated Decemoer 31.1926 as Operating Companies amendea wn:cn s ne ety Electne Operatons-referred to ano a coef c' L112 s@are mdes wnicn has teen f.:ea,wir, cc enng 41 commun Ses tne Secreta'y of The with population of 560.000 Commonweann of Massa-Gas Operatons-1.067 chusatts Any agreement, square mdes covenng 49 cbbgaton or itaodif y made. cities and towns (includ-q entered into or incurred ing 12 served with elec-by or on behad of said tncity) with populaton of i System binds only the t00E000 trust estate, and no share-holder, director. trustee. ofijcer or agent assumes jq of shall be he!d to. any liability by reason thereof. _ (v) 1

y- .v (( ' '.'t : ^d ?- ) '- ,m 9 , - Commonwealth Energ'v Systero - Post Office Box 9150 J Cambridge, Massachusetts 02142 9150 .v. s-- - Telephone (617)225-4000 = k .) 4 1 F l i.. ? 9 ' 5 --r l > 1.': 1 'fM f / . tit .w + g. .4 k I m g .)-' 3h .'n 'U

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