ML20133B163
| ML20133B163 | |
| Person / Time | |
|---|---|
| Site: | Seabrook  |
| Issue date: | 12/31/1995 |
| From: | COMMONWEALTH ENERGY SYSTEM |
| To: | |
| Shared Package | |
| ML20133B135 | List: |
| References | |
| NUDOCS 9701030021 | |
| Download: ML20133B163 (79) | |
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COMMONWEAIZH l
1 3NERGY SYSTEM l
1 1995
! Summary Annual Report J
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[( . ._, .1., ,= .,._..__.___.....,ij b b ] [] M m I C 1' 9701030021 961226 PDR ADOCK 05000443 g PDR _
.- COIIDara~1Ve =1g11g1:s 1995 1994 %
FINANCIAL DATA (in miiiions)
Operating Revenue $931.4 $979.2 (4.9)
Other Operation and Maintenance $238.8 $244.0 (2.2)
Operating Income $96.6 $93.5 3.4 Net Income $51.4 $49.0 5.0 OPERATING DATA Customers Served Electric 359,000 357,000 0.5 Gas 233,000 232,000 0.4 Unit Sales Electric (MWH)
Retail 4,647,840 4,621,209 0.6 Wh : sale 1,973,543 3.803,786 (48.1)
Gas ABTU)
Firm 38,458 38,539 (0.2)
Interruptible and Other 7,164 8,815 (18.7)
Transportation Volume 4,024 2.208 2.2 Regular Employees 2,096 2,169 (3.4)
COMMONSHARE DATA Earnings $4.72 $4.59 2.8 Dividends Paid $3.00 $2.98 0.7 Dividend Rate at End of Year $3.00 $3.00 -
Closing Price Range $47%-$35% $45K-$35% -
Closing Price at End of Year $44% $36% 23.0 Average Shares Outstanding 10,655,918 10,413,781 2.3 Book Value $36.30 $34.49 5.2 Dividend Payout Ratio 63.6 64.9 (2.0)
Price / Earnings Ratio 9.5 7.9 20.3 l Net income Earnings and Dividends Paid Per Common Share Other Operanon and Maintenance W $$3 4 5:50 52 " 0 $2M R ss u se un
,,9 1993 1994 IVV3 1993 1994 1993 IW3 1994 1995 M Earnmgs Per Share E Divtfends Paid M otheroper non M u.mienance l
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Please note that detailedfinancial statements and other information, prepared in accordance with the rules and regulations of the Securities and Exchange Commission.
are included in bhibit A of the 1996 Proxy Statement. !
@ Pnnted with soy bean ink on recycled paper to preserve our ernironment and natural resources. J
,f Commonwealth Energy System is an exempt public utility holding company with investments in four operating public utility companies located in central, eastern and southeastern Massachusetts.
S System electric operations are involved in the production and sale of electricity in 41 communities including New Bedford,
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_- Plymouth, Cambridge and the geographic area comprising Cape Cod. Gas operations serve 49 communities including New Bedford, Cambridge, Plymouth and Worcester.
In addition to the utility companies, the system includes a steam distribution company, five real estate trusts and a company engaged in the operation of LNG facilities. The retail electric subsidiaries receive a portion of their capacity and energy requirements from the system's ownership interests in four operating nuclear electric generating facilities and one oil-fired unit.
The System is a business trust organized in 1926 under the laws of Massachusetts.
Subsidiaries of the System have common executive and financial management and receive technical assistance as well as f'mancial, data processing, accounting, legal and other services from a services company subsidiary.
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. We are pleased to report to you that of approximately 33% assuming the 1995 was another excellent year for reinvestment of dividends.
Commonwealth Energy System.
In this summary annual rgon for e Our cash flow per share of $9.75 for pq 1995, we will be using a new format of the year exceeded tne dividend
{
}'L questions and answers that address the issues and concerns payment by more than three times.
most often raised e The system's capital structure con-S-- hd- V-V-throughout the year by shareholders and tinued to improve as long-term debt was reduced to 47% of total cap-j the investment italization, compared to 51% last year.
community.
. COM/ Energy Services Company is j hu v did COMEnergy do being redesigned to offer market-
. in 1995? priced services to our operating I companies and external clients.
The year 1995 was very
. . positive for Commonwealth e The first of a number of planned new Energy System and I am proud of the alliances was developed with A&C results we achieved: Enercom, Inc. to provide residential customers in a broad geographical area The results of
- Eamings per common appliance service and replacement share for 1995 were contracts, energy management and a our efforts '
will
$4.72, an increase of 13 host of related products and services.
be a stronger >
cents or 2.8% from the Commonwealth $4.59 attained in 1994 Beyond these strong achievements, Energy System that and the highest year-end COMEnergy made important strides will truly prosper level since 1984. in the regulatory and environmental through change. " arenas in 1995, both of w hich will be e Net income for the discussed in our repon on our gas and wmi. a ron year was $51.4 million, electric divisions.
Presktent and CIO . the highest we have ever reponed. What is COMEnergy's policy
. on common dividends?
e Retum on average common equity was 13.3%, far exceeding the During 1995 COMEnergy average for the industry. .Le paid a quarterly dividend of 75 cents per share, which equates to an e The market price per common share annual dividend rate of $3.00, and a closed 1995 at $44.75 per share, an dividend payout ratio of 63.3%. In increase of 23% when compared to a fact, COMEnergy has been rock-
$36.38 close in 1994. This price solid in paying dividends...without a appreciation together with the $3.00 decrease...in every quaner since 1947.
annualized common dividend per share The most recent dividend paid to share- i resulted in a total retum to shareholders holders, on February 1,1996, was the 3
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195th in a row, which I believe is quite an accom- COM/ Electric's plan is required for submission '
plishment considering the changes the utility by late summer 1996.
industry has gone through over the past 50 years. In this process, our electric division, Over the last five years, the dividend has been COM/ Electric, submitted brief comments increased twice, that we labeled the " Competitive Challenge,"
earnings have that suggested a concept for our companies
[-
+ continued to increase and the system's that would allow us to sell 100 percent of our 21 power capacity entitlements (including entitle-f
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overall financial ments with our own Canal Electric Company).
l condition has in turn, our customers would be free to buy l improved. Although their pow er in a fully competitive market from
9 past financial whomever they chose, and we would focus our l
I performance is no efforts as a local electric distribution company guarantee for the to provide top-notch distribution, customer future, it does lay a services, and a host of new energy-related l 3 j j solid foundation for products and services.
l progress and growth. In selling our entitlements through an auction, The Board of Trustees a true market-based value would be established l '
will continue to review for the contracts, with any difference treated as a the system's financial " stranded cost" that would be assumed by the
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- performance and other electric customer.
- e [ factors influencing the This proposal would make us the first utility in
! rate of dividends paid the state to voluntarily provide customers with and is committed to the type of competitive choice Massachusetts Prendent an lefb.tec rive Oficer dividend growth and hopes to ultimately achieve in its utility regula- l enhanced shareholder value. tions. At the same time,it allows the opportumty l
to remove ourselves from a portion of the l How will COM/ Energy be affected by business which provides only a pass-through of
. the restructuring of the electric industry? costs from power generator to customers and l retums nothing to shareholders.
Efforts now underway to restructure By selling our entitlements, we will
.Le the electric industry in Massachusetts become a stronger system because we shed may have a significant impact on the way our billions of dollars in long-term contractual electric division does business. The electric obligations for the years that some of these division contributed roughly 60 percent of the contracts are in effect.
system's net profit in 1995. Despite these potential A more detailed description of our changes,I believe that we will be a stronger and " Competitive Challenge" is included in better managed business because of it, providing our discussion of the electric division.
- even greater value to our shareholders.
Through March 1996 (when this report was What is your experience with
, published) the Massachusetts Department of e stranded costs?
j Public Utilities had received restructuring plans or comments from fise electric utilities, in 1995, the DPU ruled that one of although it had requested plans from only the L
- Cambridge Electric Light Company's three largest companies by February 16,1996. largest customers, the Massachusetts Institute of
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Technology, was obligated to pay for the costs and that allows us to take full advantage of our obligations we incurred on MIT's behalf, when experience in the gas and electric business while ,
its on-site cogeneration unit went on line and it better supponing the creation of new, fully- ;
substantially left the Cambridge Electric system. competitive, market-driven companies. Our aim Tle DPU's decision requires that we funher is to ensure that everything we do is profitable in address the issue of MIT's stranded costs in our its own right and can contribute to the profit:
restructuring plan, required for submission by bility of other Syste:r. companies.
late summer and that we explain the steps we have Our approach to new business development is taken to mitigate the loss of MIT as a customer. to forge alliances with other companies. 'de in the meantime, MIT tool ae issue to the first of these new alliances, I am pleased to ]'
Federal Energy Regulatory Commission (which report to you,is with A&C Enercom,Inc., a ruled in February that the state had the right to subsidiary of Virginia Power and Light, to impose a customer transition charge) and to the provide customers in a wide geographic area Massachusetts Supreme Judicial Court. with service contracts, energy management, We are very heartened that the FERC upheld power quality and reliability services, and a host the DPU's ruling regarding recovery of stranded of other related products and services. The costs and are optimistic that its decision will be development of upheld in the appeals process. In our view, the other strategic DPU has clearly reengnized the rights of host alliances are in utilities and the regulatory compact which has the works.
existed and it has set the stage for the recovery Also in the of all stranded costs. category of new business develop- g Where are we going and what are we ment is the re-
. doing to get us there? design of -
COM/ Energy y At last year's annual meeting we Services Com-l . L. talked about our plans to embark on pany. Over the a program we called " Prosperity Through years it has done g Change." It is an aggressive program which outstanding work will both strengthen the competitive position of on behalf of our our regulated core companies and create new regulated busi- ,
s opponunities in the unregulated arena that will nesses, but like Michael P. Sullivan (left), vice president, secretary and gen-provide greater shareholder value. those businesses, eral counsel: Leonard R. Devanna (centerI, vice president Our core businesses-gas and electric-are if it is to survive, systems, planning and development; andlames D. Rappoli working hard to meet the needs of their cus- (right), financial vice president and treasurer; are part of it too must now
' the policy-srtting Management Committee. Other members tomers, develop new products and services, redefine itself to of the committer are M*illiam G. Poist, president and chief cut operating costs, improve their competitive become more executive oficer; Russell D. H*right, president and (hief
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position, and prepare to take advantage of cost-effective, president and chief operating oficer, COMiGas.
regulatory changes. more competitive In developing new businesses, we are pur- and smarter in the way it does business. Our subg opportunities in the industry we know goal is to reshape the Services Company to best---energy-and our focus is on unregulated provide high-quality, market-priced services l energy endeavors. To aid us in this effort, this both to our operating companies as well as to a j year we established a new corporate structure host of extemal clients.
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Our effons are getting results. We have compounded annual rate of retum of necrly restructured the Services Company ppointing 18%. Assuming the reinvestment of quarterly Mr. John Whalen as Vice President and General dividends, at the end of 1995, that $1,000 invest-Manager. Mr. Whalen was formerly the System ment has gmwn to be wonh nearly $12,000.
comptroller. We have started to seek an array of We believe that a shareholder should consider contracts in the unregulated arena. Our work has the diversity of the system as a real strength.
just begun but we envision that the Services Because we operate in three energy markets- i Company will be able to provide a valuable electric, gas and steam-an investor in resource to our companies and enhance value to Commonwealth Energy System gets an electric our shareholders. company as well as a gas company to provide We believe that the results of our efforts stability. Also, an investor should be impressed in the regulated and unregulated environ- with our plans and efforts to successfully l ments will be a stronger, more valuable compete in the ever changing regulated and Commonwealth Energy System. unregulated energy markets. We are formulating and implementing plans which will not only Why should an investor consider ensure our successful transition into the new
. COM/ Energy? world of competition but strengthen our position in the distribution of gas, electricity, and steam.
CES Stock Performance Fift..a-Year Resuh of a S t.000 lnvestment One of the major attrac- In closing, we are confident that as
$11.936 e tions an investor may compedon comes hocMng, our experience consider when looking at and talents are ready for the challenge.
COM/ Energy is our tremendous We believe that the results of our effons track record of quarterly dividend will be a stronger Commonwealth Energy payments. Our overall total retum System...more efficient, better managed, Simo has also been quite impressive. and more diversified than ever...that will As an example, an investor who truly prosper through change. ;
Jan.1.1981 Dec. 31.1995 purchased $1.000 in COM/ Energy We extend our thanks to you, our share-
$14 375/ Share 544.75/ Share 4,,,,,,,,,,,,,,,,,,3,g,,,,,,,,
common shares at the close of 1980 holders, for your confidence and continued ;
em <f mo and re,mes,,,,,a' afdmdrads has benefited from a fifteen-year support of Commonwealth Energy System. I Sincerely, Sk William G. Poist President and Chief Executive Officer l
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electric rates through the purchase of What is COM/ Electric's Power on the ogn madet. h d 60
. position on electric industry protect our shareholders by simplifying restructuring?
the issue of stranded costs (see page 11
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- i On February 15, v,e presented for additional discussion of deregulation
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.L. our prelimmary comments to issues). Part of our proposalincludes g ,
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- the Massachusetts Department 100 percent recovery of the difference
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- between the current market value of our g of Public Utilities (DPU) out-I k lining a vision for restructur-J j
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ing which we called the power contracts and their original costs.
Recovery would be made through an 1 " Competitive Challenge." This vision access charge paid over time by all I is dramatic and is the result of many customers in our franchise area.
discussions with industry representatives, COM/ Electric's " Competitive govemment officials and customers. Challenge" has received positive Our " Competitive Challenge" proposes reviews from several state regulators, J
auctioning all 1,140 megawatts of power including Massachusetts Attorney f capacity entitlements held in 21 contracts General Scott Harshbarger who praised by both Commonwealth Electric the company for taking a " bold step."
Company and CambridF e Electric Light lie commended COM/ Electric for
- Company. The entitle. " stepping up to the plate and proposing that the market determine the amount, ments would be sold on f
- the open market, subse. if any, of its costs that are stranded by l
I # allowing consumers to freely choose quently allowing our cus.
tomers to purchase electri. suppliers of electric power."
l city from any supplier of What is COM/ Electric doing their choice at market prices. We would still .t I wer per ting costs to A '
improve its competitive position?
continue to provide our 6 service territory with dis- ,/1 Three years ago,COM/Electnc
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tribution, customer ser- ./. 3. began an aggressive cost-
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e vice and marketing criting program, which to date, has
% activities. included a reduction in our work force of In making this pro- over 10 percent; the closing of five of our posal, COM/ Electric is in district offices as well as our Cannon a unique position in Street power station; consolidating man-relation to other electric agement functions; renegotiating or can-Russell D. Wright President and Chief Operating Officer utilities in Massachusetts celing several power purchase contracts; in that nearly 100 percent of the and, stabilizing the fuel charge portion electricity our distribution companies of Commonwealth Electric customers' sell to customers is bought from other bills for a three-year period. In May companies. This " purchased power"is 1995, we ieceived approval to reduce relatively expensive and provides no Commonwealth Electric's residential j additional retum to shareholders. rates by $2.7 million per year through a We anticipate that our proposal will settlement agreement with the state j
allow our customers to achieve lower Attorney General's office.
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Other examples of our cost savings mea- expanded airport are being developed to com-l j sures include: pitment the city's free trade zone. A new com-i .
muter rail line to Boston is also on the drawing i
- Decreasing our annual construction expen-
! tv.jard, along with a new aquarium, and as a major
- ditures from approximately $50 million to
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complex and a host of spin-off businesses.
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- Marketing our excess power-saving $2 mil- Recently, we successfully completed the first l lion per year. pan of a broader program to sell a range of products I and services to residential customers. We're also
- Rece. .iving approval from the DPU on a settle-using our expertise in the commercial and indus-
. ment agreement that allows reduced spending .
! tnal area to market products and services such as
- on conservation measures during the restruc-surge protectors, power factor correction and
- turing of the electric utih.ty mdustry. .
, power system analysis. i
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- Negotiating cost-saving labor contracts. Our efforts have also focused on maximizing .
our existing assets. These efforts have included
- Cutting the total value of our inventories from I
, renting space on our radio towers to communica- 1 i $8 million to under 54 million through use of .
- tions companies and selh.ng nghts, nationwide,
- advanced computerized inventory control sys-to our Work Management Information System I
- tems and innovative partnerslu.ps with suppliers. I (WMIS) which was des.igned by our employees 1 l
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, to streamline our customer work flow.
i What COM/ Energy Steam Company, a non-regulated I
- E* affiliate of COM/ Electric, continues to achieve
- potential exists m ..
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very positive results, enjoying another record year, i the COM/Eleetnc both in revenue and steam output. We continue service area?
to stnve to provide high-quality service to our Recog- steam customers, and are exploring every oppor-j.~
, , g . L e nizing tunity to expand our steam sales into new markets.
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j that our fonunes j are closely tied to What is COM/ Electric doing to improve the economy of the e service and reliability for its customers?
In response to a requestfor help in lowering their electric regions we serve, bills. COMiElectric was able to ofer the malers of ;
- Chatham Village croutons in irareham, Massachusetts a we've undertaken Despite our continued focus on cost
! money-saving economic development rate. a number of initia. .
L e containment, we undertook a number t;ves to attract business to the area and help of projects to ensure that our service and relia-f those already here to expand. bility continue to excel. Here's what we've 1
- 'Ihese initiatives include working with regional done in 1995:
1
{ economic development councils to develop a mar-
- Increased reliability and capacity of our trans-1 keting brochure and companion video to promote 1
mission system with an upgrade of a ponion of our area as an ideal place for business to prosper.
1 .
our 115 KV transmission line. By accelerat-4 We are also working closely with local, state and 4
ing our design work, we were able to take full i federal officials, civic groups and individual cus-d advantage of a lull in construction activities tomers to bring additional development to the to reduce costs.
New Bedford area, which is the heart of our indus-j trial sales. This area has enormous potential and
- Completely updated our SCADA (System
]} is very receptive to new business. Plans for an Control and Data Acquisition) control center.
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With helpfrom COMIElectric, Brittany Dye & Printing of New Bedford l
f was able to applyfor a $500.000 grantfrom the Department of Energy to l explore using new electric technologies in the drying of textiles.
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All new hardware and volunteers, we are committed to being the best 4 . software gives us vastly corporate citizen possible.
improved flexibility A prime example is our Canal Electric
, and allows us to be plant where by burning lower sulfur oil and ready for our future installing new bumers and emissions needs. A new trouble monitoring equipment, we made a dramatic
,, call system linked with difference in sulfur and nitrogen emissions
, the new SCADA and greatly improved community relations system will be a big along the way. This past year, we went a step help for customer further by starting a conversion process of services, identifying Canal Unit 2 to clean-buming natural gas.
outage problems and On the new technology front, we are work-enabling our ime crews . .
When Sea Watch international, one of the world's "
to begin repairs faster.
largest specialty seqfoodprocessors. was considering nn a research partnership mvolving a photo-locating a new plant, COM$lectric provided the technical assistance and competstn e rates they
- Redesigned our voltaic system and special, highly-efficient needed to come to New Bedford. customers' bills to be variable speed motors at its national head-easier to understand and quarters in Cambridge. We helped fund a show customer-friendly information about rates, 22-passenger electric shuttle bus for the usage and temperature comparisons. Martha's Vineyard Transit Authority which went int c mmercial operation on the island
- Implemented a convenient automatic monthly direct bill payment system, and an integrated last summer. We are also continuing to voice response telephone system that wilj monitor the performance of New England's allow us to introduce pay-by-phone and a host first fuel cell at the U.S. Army's Soldier of other innovative customer services. Systems Command in Natick, Massachusetts.
Our commitment to the community is in addition, automatic meter reading devices clearly demonstrated in all our actions.
are now being installed in our high-cost-to-read . .
Whether it's partnersh.ips with schools, areas-first in New Bedford and then in beach cleanups, seafood festivals or donat-Cambridge. Installation of these meters will ing money to the United Way, our employees improve customer service by improving are quick to respond, building relationships accuracy and eliminating estimated bills,
""
- 3 #*'""" * * * "I' while reducing operating costs.
an integral part of the 41 cities and towns Other Operation and Maintenance - we serve.
$t48 i What is the com-Our community support was recc.. zed
. pany's relation-this past fall by the New Bedford Chamber l5120 ship with the communities j$ it serves? of Commerce. We were inducted into the E
sw Chamber's Hall of Fame for the tremen-540 Through our dous strides we have taken to work with 520 L. involvement our industrial customers, develop solid so
- ## /* with civic and community relationships with civic and community other operation M Maintenance groups, and provide personal attention to groups, interaction with elected officials, support of local causes, individual residents through a wide range and employee involvement as community of employee volunteer effo.m.
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Restructuring of the Electric Industry
- Separating or "unbundling" 1995 Retail Electric Unit Sales Massachusetts looks to industry restructuring, E'"*'I*"*"'*II*"*"d 0.5%
dIIb"'I*" *I"*;
9l competitive choicefor consumers
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With all the talk J
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of the restruc- -
receive electric service; turing of the .
, f electric utility
- Supporting and furthering the goals 52.7%,
of environmental regulation; mdustry, where .
does Massa-
- Providing incentives for better chusetts stand? .
N Residential Industnal utility performance. E.1 commercial [""3 omer g, ,
I debate varies j .
While the principles set the ground rules for ,
from state to .
competition, there are many issues that still have state with about to be worked out. The one that is central to the Deborah McLaughiin. vice pres.
35 states entire discussion of restructuring is the so-called ident ofcustomer service. is nationwide leading COM Electric's response " stranded costs" or commitments which utilities having begun to the state's elecinc industry made in power plants and related long-term j restructuring challenge.
g g7 power contracts under a regulated environment j revising regulations to promote competition, the to serve new and existing customers. The DPU l DPU dramatically accelerated the process with order indicated that utilities should have a its August 16,1995 order outlining a schedule reasonable opportunity to recover stranded costs, for Massachusetts utilities to submit individual probably through a non-bypassable access restructuring proposals. Under the order, three charge on customer bills.
utilities were required to submit their proposals The DPU affirmed its support of stranded by February 16,1996. Commonwealth Electric cost recosery with a and Cambridge Electric's formal plans are not landmark decision on due until the end of the summer, but we sub. September 29.1995 ,
mitted comments to the DPU on February 15, wben our Cambridge 1996, outlining our innovative " Competitive Electric Light Challenge" proposal. Company received .
The DPU order outlined seven " Principles" approval of its '
that will guide a future competitive electric indus. proposed Customer . .
try, consistent with those developed by the nearly Transition Charge 20 groups and agencies in the " Massachusetts (CTC) to be applied .
Electric Industry Restructuring Roundtable." when large customers .
They are: discontinue service ,
i from the company,
- Providing the broadest possible choice yet remain in Cambridge.
i for customers; On another front, the Massachusetts !
Legislature's Joint Ccmmittees on Energy and
- Easuring that all customers share in the Gosernment Regulations have both held }
j benefits of increased competition; '
hearings on the restructuring issue. As of March
- Ensuring full and fair competition in power 1996, no comprehensive package of legislation generation markets; has been proposed.
11
- Reduced from ten weeks to ten days What were COM/ Gas.
e financial results for 1995? the time required to provide gas service to a new customer's home.
1 1
COM/ Gas' earnings for the . Eliminated warehousing expense for l
i j
L. year increased sigmficantly our heating equipment inventory by compared to 1994 despite .htually using direct delivery from the
, unchanged firm sales and distributor. This allows us to be l p q ' -
n, lower revenues. Our strong more competitive in both equip-l V y j h performance is testimony to the aggressive cost control ment sales and gas conversions.
l
- Reduced our distribution and i and improved operating procedures we j have undertaken that allowed earnings construction crews from four-to grow without the to two-person crews.
l ,
j benefit of favorable l weather conditions. In addition to the continuous l
l .
j 4 improvement of our operations, i j flow is we are partnering with technology g M" . COM/ Gas to help reduce costs and enhance ser-
- * '" - reducing costs? vice wherever possible. Examples l -
j of our use of cost-effective tech-
, g Using the nology include:
(% '
perspective as a guide,
- Automated Meter Reading (AMR).
g .
The AMR System uses radio tech- I g / cross-functional l nology to enable us to read gas emplo)ee teams are ;
3 ,
y exPl onng every oppor-tunity to control costs and vehicle. This has dramatically lowered meter reading costs, j sharpen our competitive ; gg g ,
I position. These efforts Kenneth M. Margossian are read and enhanced customer President and Chief Operating Officer include increasing orga-venience. To date,80 percent i nizational knowledge, I of our meters are equipped with streamlining operations, and offering ; gg ,
j new technologies and innovative services .
, read rate has increased from 80 4 to increase efficiency and reduce costs.
j percent to 99.74 percent.
- In each case, the goal is to maximize profit potential while minimizing costs.
- Interactive Voice Response tele-l Other Operation and Maintenance
- This type of departmental inter- phone technology has been put in noo 586.4 SR17 583.7 action has resulted in meaningful place to help manage more than j reductions that would not other- 600,000 incoming calls annually j 580 j i 560 wise have been possible
- md has by automating certain telephone
,$ 540 allowed COM/ Gas to stay a step requests. Approximately 40 percent
$20 ahead of the competition. of our cJlers are choosing to use the I am very proud of the results system for convenient access to l g 1
1993 1994 1995 we have achieved. Some of our billing, credit and other account other operanon M Muntenance successes include: information 24 hours2.777778e-4 days <br />0.00667 hours <br />3.968254e-5 weeks <br />9.132e-6 months <br /> a day.
l 1
12
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- New trenchless technologies are being used to We have also expanded existing services such maintain or upgrade our distribution system as the merchandising of water heaters and heating l
with a minimum of cost and disturbance. systems. In addition, we changed the financing l
One technique employs a device known as of our mer-(
the " Bullet" which allows us to replace old chandising gas lines with polyethylene pipe, eliminating operation, the need for costly, disruptive and time. bringing it consuming street excavations. in-house and
- offering longer-What is CON 1/ Gas doing to term financing
! . increase revenues? which provides I benefits to our
! As part of the COhi/ Gas strategic customers L. plan, we identified opportunities for and improved l
revenue growth that take advantage of the unique retums for l
j character of our company and service territory, as the company.
j well as changes in state and federal regulations. \
We have offered expanded service options t What our customers. One example is our innovative use . new of quasi-tirm service rates to customers capable of opportunities do '"
use" ft' l "' ol g C buming attemate fuels. Typically these are former you see in your is using a miniature camera interruptible sales customers who require gas for 10 inspect the inside walls of market for Iowpressure gas mains without interrupting service to customers j longer periods than the interruptible selling season future growth? or disrupting local roadways. This is one ofseveralnew trenchless allows, but less than year round firm service. The technologies being used by COM' Gas to help reduce costs and l
'*#" ^
benefit of this service is twofold: It increases the The throughput by lengthening the time a customer L. area served by CONI / Gas has pockets bums gas, and, by retaining the same supplies in of strong growth w hich continue to provide excel-colder months, ensures that the Company has lent potential. One of these is New England's access to less expensive peak supply. second largest city-Worcester, hiassachusetts-In another example of accessing new markets where nearly $1 billion in development activity is by increasing our services, we received DPU underway including a new exit for Worcester approval in December 1995 to offer firm trans- from the hiassachusetts Turnpike.
portation service to all of our commercial and in addition. we see further growth l industrial customers. We also received approval opportunities in new technologies. 1995 Firm Gas Unit Sales to convert our industrial rate into a demand-based Improved natural gas engine-driven 5.1% '
rate, providing several of our major transporta- cooling and absorption chillers are i l
tion rate customers with an important incentive increasing in popularity and are 33 " N to shift back to firm service. desirable off-peak summer load addi-in November 1995, the DPU approved our tions. As an example of this.a 55.5%
(
i effort to scale back demand-side management team consisting of Worcester city j and phase out non-cost-effective programs. In officials and COhi/ Gas representa- m/ l 7 addition, we collected $1.4 million for 1995 in tives is gradually converting the lost margins (lost revenue associated with therms city's public schools to gas heat and air conditionir.g. Residenual Industrial j saved by conservation programs) and, in 1996, j will be collecting $2.1 million. Natural gas vehicles for fleets M commercial C3 Other l
4 p.$:
.~- yapp ,
i I. l represent another small but growing market as the renegotiation, we reduced pipeline charges, I the Clean Air Act restrictions take effect. The thereby reducing overall cost. I i Gas Research Institute (GRI) chose COM/ Gas We continue to benefit from our valuable for one of several LNG-to-CNG refueling sites Hopkinton LNG facility which straddles two j in the country. GRI is providing partial funding major pipelines, giving us the ability to move l of the station which we plan to have operational gas where it is most needed at any given time. by the end of We have added reliability and flexibility to
- 13 the year. our gas supply by purchasing pipeline capacity 4g ,
j g , When that was previously intended for a power plant in J- completed, Pepperell, Massachusetts. This additional firm this semi- capacity allows us to move more storage gas from l
- public station Steuben County, New York to our customers in will be the a timely and economical way.
l h b largest We have maintained an active presence at the Federal Energy Regulatory Commission J capacity station in through our participation in Asscciated Gas NC* Distributors, pipeline customer groups, and Laptop computers help COM! Gas employees streamline the process ofproviding gas service to a new customer's home and England. by holding a key Executive Comtnittee i
- providef7exibilityforfinancing residential appliances' Position on the Gas Industry Standards Board.
We are also i exploring other opportunities to use LNG as an H w is COM/ Gas viewed by its cus-onboard fuel for heavy-duty commercial vehicles.
. t mers and the communities it serves?
Last year we worked with the U.S. Army's Soldier Systems Command in Natick, Massachu-Our absolute focus on customers . setts to introduce New England's first fuel
.L. has resulted in excellent favorability
! cell. Fuel cell technology uses a non-polluting ! . ratings. For the fifth consecutive year, we 2 chem.ical process with natural gas to generate l . have earned the distinction of being the . < electricity. We are monitoring that installation . l Massachusetts gas utility with the fewest 4 closely as .m the long-term, f.uel cells represent a complaints filed with the DPU. } tremendous growth opportunity. .. We maintain a high visibility in the commun-ities we serve through school education pro-
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What is grams and school / business partnerships and
. COM/ Gas sponsoring programs such as Kids' Fair in j doing to maintain a low Worcester which attracts more than 17,000 c st. reliable gas supply?
l parents and children. i In addition, we have a strong emphasis on l Our gas volunteerism which has camed us wide-spread j . costs are public recognition. I am very proud of our j among the lowest in employees who selflessly and repeatedly donate Massachusetts. During their time and money to help those in need. l j 1995 we continued to Whether it is a food collection for the Salvation drive costs down by Army or a Christmas party for needy children, { j renegotiating a good COM/ Gas employees are there, making a differ-j portion of our gas supply contracts. As pan of ence in the communities where we live and work. 1 i j Afacy's and CObiIGas worked together to develop the perfect energy solution-l natural gas heating and air-conditioning in Afacy's new 210,000 square-foot j department store in the re-constructed Natick Afallin Natick, Afassachusetts. i 14 i . _ _ _ _ _ . __ _ ____ __ . _ _ _ _
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JinRECia Summary Commonicealth Energy System and Subsidiary Companies l The following is a brief discussion and analysis of during the summer months and the increase in heating degree financial condition and results of operations for days during the founh quarter. Somewhat offsetting these 1995. For a more detailed analysis, please refer increases was a slight decline in residential sales caused by i to Exhibit A of the 1996 Proxy Statement. the extremely mild weather conditions during the first quarter of 1995 compared to the record cold experienced in l Earnings andReturn on Equity 1994. The increase in retail unit sales also reflects a modest 1995 versus 1994 growth in customers, mainly in the residential and commer-cial sectors, resulting from more housing units and an / In 1995, earnings applicable to common shares increased $2.5 improved economy. The decrease in wholesale unit sales million or 5.2% surpassing 1994 s the highest year-end level reflects the decreased availability of Canal Unit 1. However, in the System's history. The return on average common equity fluctuations in the level of wholesale sales have little, if any, remained strong at 13.3%, down slightly from the 1994 retum of 13.7%. Factors that contributed to the improved eamings impact on net income. The $27.2 million decrease in the cost of fuel and pur-
- were
- (1) a $5.2 million reduction in other operation and main-chased power reflects a 36% decline in fuel purchases due to tenance; (2) the reversal of a reserve related to the system's the reduced consumption at Unit I reflecting maintenance electric energy conservation programs; and (3) higher steam and other repairs discussed previously. The fuel charge unit sales. Panially offsetting these factors was an increase in stabilization deferral ($3.4 million in 1995 compared to interest charges related to deferred gas costs and higher short-
$16 million in 1994), implemented in April 1994, was term interest rates.
favorably impacted by the successful renegotiation of a Earnings per share by organizational element is pre-c ntract with an independent power producer (IPP) in sented below: early 1995 that defers power purchases for a six-year n N period coupled with the termination of a second long-term 54 contract with another IPP through a buy-out arrangement. 53 s2 Gas Operating Reren ucs and Cost of Gas Sold si Gas operating revenues decreased $16.6 million t5.1%) due mainly to an $18.3 million (10.3%) decline in the cost of gas g . 1993 1994 1995 sold that reflects a 3.7% reduction in total sales and lower MElectne Gas M other C&LM costs ($910.000). Slightly offsetting these decreases w ere higher revenues from transportation volume and quasi-E/cetric Operating Rerenucs Fuel and fir ,s ,ies(3937,000). 9 ,,si. firm sai,s ,,,a , sign ,3 fo, ,us. Purchased [On'er tomers with dual fuel capability who receise interruptible Electric operating revenues decreased $32.8 million (5.1%) service in peak demand months and firm service in off-peak due mainly to lower fuel oil costs ($32.6 million) reflecting a periods. Presently, these sales have no impact on net income. combination of scheduled maintenance and other repairs to A portion of the margin realized on quasi-firm sales is used to Canal Electric Company's Unit I turbine, which kept the reduce the cost of gas sold to firm customers and the remain-oil-fired unit out of service until August 1995. Also ing amount is deferred pending the approval of a margin-contributing to this decline were lower conservation and sharing proposal filed with the Massachusetts Department load management (C&LM) costs ($3.3 million). Somew hat of Public Utihties (DPU)in December 1995. A similar offsetting these decreases was the recognition in revenues proposal for off-system sales is expected to be filed in 1995. of $5.9 million pertaining to Commonwealth Electnc Company's power contract buy-out and fuel charge Steam Opcmting Recennes stabilization deferral. Steam operating revenues increased $1.6 million (12%) due Retail unit sales increased due to higher sales to commer- primanly to a 10.6% increase in unit sales as a large customer cial customers reflecting increased air-conditioning load expanded its operations. mWmMeM@@W/Md"' rkWG8[f f .
~ c 3iD&DCia Summary Commonicealth Energy System and Subsidiary Companies February 1,1996, the common share requirements of the Other 0]>e/Yitl0il aiz(l MalitteitailCe DRP were fulfilled through open market purchases rather Other op-ration and maintenance declined $5.2 million (2.2%) than the direct issue of new common shares. reflecting lower liability insurance costs ($5.4 million) result-Supplemental interim funds are borrowed on a short-temi ing from adjustments to insurance accruals attributed to better basis and, when necessary, replaced with new equity and/or than anticipated experience. This decrease als'o reflects debt issues through permanent financing secured on an lower C&LM costs ($3.3 million) and a decline in the pro-individual company basis. These capital resources provide vision for bad debts ($1 million) that resulted from improved the funds required for the subsidiary companies' construc-collection experience. Somewhat offsetting these decreases tion programs, current operations, debt service and other were higher postretirement benefit and other labor-related capital requirements. System companies also maintain lines j costs ($2.6 million) and an increased level of maintenance f credit with banks. At December 31,1995, short-term costs ($1.9 million). notes payable to banks were $55.6 million, an increase of 5 8 *i"i " (24%) over last year. However, the average
'CClO tl0A M0Tll2GI/Oll Ullcl To.res level of borrowings declined 18.4% during 1995 versus 1994.
Depreciation and amortization increased approximately $4 Bank borrowings were used to temporarily fund construction ! million (8.1%) due to a higher level of depreciable plant-in- . l projects and to repay maturing long-term debt ($25 million service primarily related to electric operations. and $10 million in 1995 and 1994, respectively). The System's Total taxes declined $4.3 million (7.8%) reflecting a net cash flow from operating activities of approximately - Seabrook-related tax adjustment that resulted from a settle-
$124.7 million reflects a $25.5 million power contract ment agreement, discussed later m the " Regulation" section, buy-out between Commonwealth Electric and an IPP that offset, somewhat, by a higher level of pretax income. .
will provide future cost savings for customers. I The system's capitalization structure is presented below: ' OlllCTIllCollle Ull(IItitCrest CharyCs 8* 5* 65 The expense component of other income decreased due g, primarily to the reversal of a reserve that had been established gg by Commonwealth Electric which related to certain costs , associated with its energy conservation program, the recovery , of which was subsequently approved by the DPU. Offsetting this decrease was the recognition of a reserve ($2.7 million, net of tax) related to a generating station that discontinued 1993 1994 1se ! operations and the absence of the equity component of M Lon84erm Detx MCommon Equity i
'#'"'#* ""*""" i allowance for funds used during construction ($341,000).
The increase in interest charges was mainly attributed to The system anticipates that future capital requirements a higher level of interest on deferred gas costs ($2 million) will be met primarily through intemally-generated funds. and a rise in average short-term interest rates (6.1% for 1995 versus 4.4% in 1994). Somewhat offsetting these gpqgjggjgg increases were lower interest costs related to long-term debt ($861,000) reflecting scheduled sinking fund Rate Settlement Agreements payments and maturing long-term debt. In May 1995, the DPU approved settlement proposals spon-sored jointly by Commonw ealth Electric, Cambridge Electric CGJ)llalEcS0lITCCS Light Company and the Attomey General of Massachusetts Capital resources of the System and its subsidiaries were which resolved issues related to cost of service, rates, account-derived principally from retained earnings and equity funds ing matters and generating unit performance reviews. provided through the System's Dividend Reinvestment The system's management is encouraged by the support pro-and Common Share Purchase Plan (DRP). Effective vided through the Office of the Attorney General and believes 17
[ . r, l I "illanCia. Summar37 Conunontecalth Energy System and Subsidiary Companics that these settlements will eliminate the need for potentially power contracts and their original unavoidable costs. costly litigation and regulatory proceedings and, by modera- This difference, characterized as stranded costs, would ting rate impacts and enabling the system to remain competi- be recovered through a non bypassable access charge tive in a changing environment, the settlements are in the best paid over an appropriate time period by all customers j interest of the system and its customers and shareholders. in the Companies' service area. ? The auction approach has received initial positive reviews Electric Industry Restructuring from the Commonwealth of Massachusetts Division of f On August 16.1995, the DPU issued an order calling for the Energy Resources and the Office of the Attomey General. h restructuring of the electric utility industry in Massachusetts. j The stated purpose of the restructuring effort is to allow cus- Customer Transition Charge I tomers flexibility in choosing their electric service provider in September 1995, the DPU issued a mling largely approving and to develop an efficient industry structure and regulatory four rate tariffs, including a Customer Transition Charge (CTC), framework that minimizes long-term costs to consumers that were filed by Cambridge Electric on March 15,1995. while maintaining the safety and reliability of electric services The CTC will protect remaining customers from paying with minimum impact on the environment. He electric stranded costs that were incurred in the event that Cambridge utility industry could ultimately be functionally separated Electric's largest customers discontinue full service. These into three segments to help meet this objective: generation, costs include long-term power contracts entered into to meet transmission and distribution. projected energy requirements, investments in substations, in February 1996, certain utilities submitted required underground and overhead lines and current and future proposals detailing how they plan to move into a competitive decommissioning costs associated with nuclear plants. This market structure. Since that time, the DPU has given notice ruling is believed to be the first retail stranded cost charge of a generic proceeding that will focus on many of the policy approved nationally and follows the aforementioned DPU issues raised in the DPU's original order. Each of the state's restructuring order w hich endorsed, in principle, the electric utilities, together with other interested parties, will recovery of stranded investment costs. participate in this proceeding. The purpose of this generic Through the CTC, Cambridge Electric will initially j proceeding is to establish a set of rules goveming the restruc- recover 75% of net stranded investment costs as calculated ; turing of the electric industry in Massachusetts. These generic in its proposal. Cambridge Electric's other rates include a rules would set the basis for the DpU's review of each of the Supplemental Service Rate, a Standby Service Rate and a utility-specific restructuring proposals. Commonwealth Maintenance Service Rate each of which were approved Electric's and Cambridge Electric's (the Comp 3nies) with only minor changes. Management is encouraged by the , proposal is due in September 1996. Management n unable DPU's position on recovery of stranded investment costs and l to predict the ultimate outcome of these proceedings expects to address recovery of the remaining 25% in its ) restructuring filing. Competitive Challenge The Massachusetts Institute of Technology (MIT), one of I On February 15,1996, in response to the DPU's initial Cambridge Electric's largest customers, appealed the DPU's restructuring order, the Companies issued their " Competitive decision to the Massachusetts Supreme Judicial Court (the Challenge" by offering to voluntarily put their power genera- SJC). A decision from the SJC is pending. In addition, on tion capacity entitlements (1,140 MW) to a market test in an February 29,1996, the Federal Energy Regulatory Com-effort to develop a competitive market w hereby customers mission (FERC) denied a petition filed in January 1996 by would have the flexibility to choose their electric supplier. MIT, seeking relief from paying the CTC. The FERC ruled The proposal calls for the auctioning in a competitive market that the CTC does not discriminate against MIT as a quali-of entitlements in all twenty-one contracts, including contracts fying facility and that stranded costs are to be resolved at ! held by the Companies involving the System's generating the state level. Managen,ent believes that the FERC's subsidiary. The proposal provides for total recovery of the action will be an important factor that the SJC will con-difference between the current market value of the Companies' sider in the appeal process. 18
j [ l Concensec S':a:emems of ~ncome . Comm0ntecalth Energy System and Subsidiary Companies For the Years Ended December 31, 1995 1994 1993 (Dollars in Thousands. Except N Share Amounts) OPERATING REVENUES j Electric $607,047 $639,801 $624,020 Gas 306,953 323,568 302,644 Steam and other 17,355 15,867 14.035
- 931.355 979.236 940,699 OPERATING EXPENSES l Fuel and electricity purchased for resale 332,615 359,832 348,836 Cost of gas sold 158,835 177,150 156,709
! Other operation and maintenance 238,777 244,024 247,627 Depreciation and amortization 54,087 50,056 48,244 l Taxes 50,431 54,708 51.947 l 834.745 885,770 853,363 Operating income 96,610 93,466 87,336 OTHERINCOME(EXPENSE) (606) (1.024) 2,449 Income Before Interest Charges %,004 92,442 89,785 INTERESTCHARGES Long-tenn debt 38,581 39,442 37,416 Other interest charges 6,884 4,475 6,730 Allowance for borrowed funds used during construction (857) (443) (195) 44,608 43,474 43,951 ! NETINCOME 51,3% 48,968 45,834 l Dividends on preferred shares 1.110 1.170 1.230 1 l EARNINGS APPLICABLE ro COMMON Sll-IRES $ 50,286 $ 47.798 $ 44.604 AVERAGE NUMBER of COMMON SHARES OCTSTANDING 10,655,918 10,413,781 10,215,614 EARNINGS PERCOMMON SHARE $4.72 $4.59 $4.37 The accompanying notes are an integralpart of these condensedfinancial statements. 1 t
, 4 il ,I[ ;g o
, , S3 ,
1; w w.
Concensec 3aLance Slee:s Commonicealth Energy System and Subsidiary Companies December 31, 1995 1994 (Dullars in Thousands) i ASSLTS ! l PROPERTY. PLANT und EQLIPMENT, at original cost $1,515,624 $1,444,464 l Less-Accumulated depreciation and amortization 497,627 461,310 j l ! 1,017,997 983,154 i 10,276 15,974 l- Construction work in progress and nuclear fuel in process ) i 1,028,273 999,128 i LEASED PROPER'lT,nel 14,931 15,729 EQlTITINCOR10RATEJOINT\TSIERES 13,214 13.648 CURRENTASSLTS : I ! Cash 4,319 7,722 Accounts receivable, net 105,377 92,157 Unbilled revenues 31,642 33,161 Other current assets 41,381 48,250 4 182,719 181,290 DEFERREDCHARGES 150,964 134,921 l
$1,390,101 51,344,716 CAPITALIZATION und LIABILITIES
! CAPITALIZATION Common share investment $ 390,785 $ 362,997 Redeemable preferred shares,less current sinking fund , requirements 13,840 14,660 l Long-term debt,less current sinking fund requirements . and maturing debt 377,181 418,307 l 781,806 795,964 ! CAPITALLEASEOBLIGATIONS 13,291 14.098 i CGRENTLIABILITIES , Interim financing- ! ! Notes payable to banks 55,600 44,850 l Maturing long-term debt 33,230 25,000 l Accounts payable 134,908 117,953 Acaued tr.xes 31,587 17,947 Other current liabilities 44,510 45,297 4 299,835 251,047
- DEFERREDCREDITS i Accumulated deferred income taxes 170,182 160,944 Unamortized investment tax credits and other 124,987 122,663 295,169 283,607
] i COMMITMENIS und COXITNGENCIES
$1,390,101 51,344,716 j The accompanying notes are an integralpart of these condensedfinancial statements.
l 20
Concensec S:a:emems of CasHows Commontrealth Energy System and Subsidiary Companies For the Years Ended December 31, 1995 1994 1993 (Dollars in Thousands) OPERATING ACTIVITIES Net income $ 51,3% $ 48,%8 5 45,834 Effects of noncash items-Depreciation and amortization 50,799 53,727 53,088 Deferred income taxes and investment tax credits, net 2,781 13,376 15,559 Earnings from corporate joint ventures (1,633) (1,750) (1,642) Dividends from corporate joint ventures 2,067 1,651 1,981 Change in working capital, exclusive of cash 24,976 52,693 8,303 Power contract buy-out (25,500) - - ! - Fuel charge stabilization deferral (3,447) (15,964) - Deferred postretirement benefit and pension costs (4,479) (8,536) (10,175) Transition costs, net 11,390 (2,585) (8,805) i All other operating items 16,321 (15.017) (17,451) Net cash provided by operating activities 124,671 126,563 86,692 INVESTING ACTIVITIES
- Additions to property, plant and equipment (exclusive of AFUDC) (80,643) (57,833) (54,385) i Allowance for borrowed funds used during construction (857) (443) (195) l Net cash used for investing activities (81,500) (58.276) (54,580)
FINANCING ACTIVITIES Sale of common shares 9,534 9,434 7,118 l Payment of dividends (33,142) (32,475) (31,101) Proceeds from (payment of) short-term borrowings, nel 10,750 (27,125) (93,625) Long-term debt issues - - 134,000 Long-term debt issues refunded (25,000) (10,000) (37,600) Sinking funds payments (8,716) (6,406) (6,419) Net cash used for financing activities (46,574) (66,572) (27,627) (3,403) 1,715 4,485 Net increase (decrease)in cash 7,722 6,007 1,522 Cash at beginning of period Cash at end of period $ 4.319 $ 7,722 5 6,007 SUPPLEMENTAL DISCLOSURES v CASH FLOW INFOIBIATION Cash paid during the period for: Interest (net of capitalized amounts) $ 42,051 $ 41,022 $ 39,685 Income taxes $ 12,918 $ 17,563 $ 13.528 4 The accompanying notes are an integralpart of these condensedfinancial statements. j i i l l 21
1 l l No es to Concensec3inancia. Sxemen s Commonwealth Energy System and Subsidiary Companies ,
- 1) GENERALINFOIBIATION requi-ing that such assets be probable of future recovery at Commonwealth Energy System (the System)is an exempt each balance sheet date. Management does not expect that public utility holding company with investments in four the effects of SFAS No.121, which the system adopted on operating public utility companies located in central, eastern January 1,1996, will have a material impact on its financial and southeastern Massachusetts. The System is the parent position c,r results of operations. However, this conclusion p
company and, together with its subsidiaries, is collectively may change in the future as changes are made in the current referred to as "the system." regulatory framework pursuant to an electric utility restructuring The detailed Consolidated Balance Sheets, Statements of order issued by the DPU in August 1995. The principal l Income, Statements of Cash Flows, Statements of Capitalization, regulatory assets included in deferred charges at December 31, Statements of Changes in Common Shareholders' investmer t, 1995 and 1994 were as follows: Statements of Changes in Redeemable Preferred Shares Notes I" #4 to Consolidated Financial Statements and Management's i Discussion and Analysis of Financial Condition and Results po,,,,,,,,,,,,, ,ciudmg pensions s 24 o of Operations are included in the Proxy Statement. Power contract buy-out 23,838 -.- 0 Fuel charge stabilization 22,063 16,638 0 i N'"'d * ""^^*' im 5.537
$ SIGNIFICANT ACCOUNTING POLICIES FERC Order 636 transition costs 11,711 19.201 j Yankee Atomic unrecovered plant and la) Principles ofAccounting accommissionins cosis io i35 is.368 !
The preparation of financial statements in conformity with [,,' ""d ' "' j( 8 6 generally accepted accounting principles requires management $129,436 sti1.737 to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent The regulatory liabilities, reflected in the accompanying ! assets and liabilities at the date of the financial statements and balance sheets and related to deferred income taxes, were f' the reported amounts of revenues and expenses during the $14 million and $17.3 million at December 31,1095 and I reporting period. Actual results could differ from those 1994, respectively. estimates. Certain prior year amounts are reclassified from As of December 31,1995, $96.2 million of the system's time to time to conform with the presentation used in the regulatory assets and all of its regulatory liabilities are current year's financial statements. reflected in rates charged to customers over a weighted
. average period of approximately 10 years. In addition, the 3 (b) Regulatory Assets and Liabilitics .
fuel charge stabilization deferral is expected to be recovered / The system's operating utility companies are regulated as t over a six-year period beginning in April 1998, pursuant to a rates, accounting and other matters by various authorities, yet to be detemiined recovery schedule and subject to final including the Federal Energy Regulatory Commission (FERC) DPU approval. System companies intend to request and end the Massachusetts Department of Public Utilities (DPU). expect to receive approval for recovery of their remaining l Based on the current regulatory framework, the system regulatory assets in future rate proceedings. accounts for the economic effects of regulation in accordance j with the provisions of Statement of Financial Accounting I
- 3) COMMITMENTS mW CONTINGENCIES Standards (SFAS) No. 71," Accounting for the Effects of Certain Types of Regulation." Regulated subsidiaries of the la) [ouTT Conlmets j Cambridge Electric Light Company (Cambridge) and i System have established various regulatory assets in cases where the DPU and/or the FERC have permitted or are Commonwealth Electric Company (Commonwealth Electric) expected to permit recovery of specific costs over time, have long-term contracts for the purchase of electricity from j Similarly, the regulatory liabilities established by the system various sources. Generally, these contracts are for fixed periods ,
I are required to be refunded to customers over time. In March and require payment of a demand charge for the capacity 1995, the Financial Accounting Standards Board issued SFAS entitlement and an energy charge to cover the cost of fuel. [ No.121," Accounting for the Impairment of Long-Lived Pertinent information with respect to life-of-the-unit contracts Assets and for Long Lived Assets to be Disposed Of." SFAS for power from operating nuclear units in which the system No.121 imposes stricter criteria for regulatory assets by has an equity ownership (Yankee Nuclear Units) is as follows: 1 22
l % f l No:es toContenset Tinancia Sremems Commontecalth Energy System and Subsidiary Companies connecticut Maine vermont Pl ant). At December 31,1995 Cambridge and Commonwealth l Yankee Yankee Yankee Electric's respective 2% and 2.5% investment in Yankee Atomic
*Ha m h5aad" was approximately $1.1 million. The companies' estimated l
i Equity Ownership (%) 4.50 4 00 2.50 . . . . Plant Entitlement (%) 4.50 3.59 2.25 decommissionmg costs include their unrecovered share of all Plant Capabihty (MW) 560.0 870.0 496.0 costs associated with the shutdown of the plant, recovery of l System Enutlement (MW) 25.2 31.2 11.2 their plant investment, and decommissioning and closing the Pl ant. The most recent cost estimate to permanently shut down 993 A al C t($) 10 7. 50 4 6 i 1994 ActualCosi($) 8.902 6,250 3.660 the plant is approximately $225.2 million at December 31,1995. 1995 ActualCost($) 9,498 7,376 4,003 The companies' share of this liability is $10.1 million and is Decommissioning cost estimate (100% ) ($) 385,523 361,212 347,383 reflected in the accompanying balance sheets ss a liability and System's decommissioning cost ($) 17349 12.968 7.816 Market value of assets (100%)(5) 180388 142,116 141300 corresponding regulatory asset. The market value of the System's market value of assets ($) 8.117 5.102 3.179 ccmpanies' share of assets in the plant's decommissioning trust at December 31,1995 is approximately $5.7 million. Cambridge pays its shne of the decommissioning expense to each of the operators of these nuclear facilities as a cost of (c) SeabrookNuclearhurrPlant I electricity purchased for resale. The system's 3.52% interest in the Seabrook nuclear power The system also has long-term contracts to purchase capacity plant is owned by Canal Electric Company (Canal), a whole-from other generating facilities. Information relative to these sale electric generating subsidiary, to provide for a portion contracts is as follows: of the capacity and energy needs of affiliates Cambridge and Commonwealth Electric. Canal Range of contract is recovering 100% of its Seabrook 1 Type of Umi YtcN "N $ $ '$s c investment through a power contract w th Cambridge and Commonwealth (Dollars in Thousands) cogeneratmg 2008-2018
- 205 3 5121,636 $137,304 $104,599 Electric pursuant to FERC and Wuclear 2012 11 73.2 40J76 41.475 40,578 DPU approval.
Waste-to-energy 2015 100 67.0 37,526 38,107 34.189 8.904 Pertinent information with resEet Hydro 2014-2023 100 23.6 9.933 7.521 to Canal's joint-ownership interest in Total 369.1 $209,471 $224.407 $188.270 Seabrook 1 and information relating
*I l"d ' ' i dig'to igt* to Purchase power from vanous cogeneratmg umts uith capacity entitlements ranF to ng operating from expenses which are included in the accompanying ,
Costs pursuant to these contracts are included in fuel and financial statements are as follows: electricity purchased for resale in the accompanying statements I" '* of income and are recoverable in revenues. (Dollars in Thousands) The estimated aggregate obligations for capacity under the Utthty plant-in-tervice $232,547 $232374 Plant capacity (MW) 1,150 Nuclear fuel 20,138 18,500 Car.al's share: life-of-the-unit contracts from the operating Yankee Nuclear
. Accumulated depreciation Percent interest 3.52%
Um.ts and the other long-term purchased power contracts in and amoruzation (50,130) (41.654) Enutlement (MW) 40.5 construction work in-service date 1990 effect for the five years subsequent to 1995 is as follows: 3 in progress 946 651 Operating license teng-Term $203.401 $209,871 exPi ration date 2026 Equity Owned Purchased Nuclear Units Power Total 1995 1994 1993 (Dollars m Thousand4
)
(Dollars in Thousands) l 1996 $21,195 $211,037 $232.232 Operating expenses: I 1997 21,130 216.527 237,657 pue; - $ 2,353 $ 1,939 $ 3.853 1 1998 23.5 % 225.337 248.933 Other operat on 4,292 4340 4.580 1999 23.153 236,470 259,623 1,376 1.688 893 l Maintenance 2000 23.813 239,709 263.522 Depreciat on 6.542 6.531 6.522 Amonization 1,319 1J20 1319 [ (b) Yayk(g Afgm((gy([CarDUTr?[anf $15'881 5I5 8I8 5I11b1 l a In 1992, Yankee Atomic Electric Company (Yankee Atomic) i' permanently discontinued power operation and began the Canal and the other joint owners have established a decom-l decommissioning of the Yankee Nuclear Power Station (the missioning trust to cover decommissioning costs. The estimated i i 23 I
No:es to Conc ensec 7inancia. Sremen :s ! l Commonaccolth Energy System and Subsidiary Companics i l cost to decommission the plant is $431.6 million in current transition costs. Commonwealth Gas' current best estimate of ! dollars. Canal's share of this liability (approximately the total remaining transition costs from its suppliers is
$15.2 million),less its share of the market value of the assets approximately $11.7 million. This balance has been recorded ,
held in a decommissioning trust (approximately $1.5 million), as a liability with a corresponding regulatory asset. The is approximately $13.7 million at December 31,1995. ultimate level of costs is dependent upon future events, i including the market price of natural gas and final settlements , I id)EnrimnmentalMatters between the FERC and the pipeline suppliers. The system is subject to laws and regulations administered by in May 1995, the DPU allowed Commonwealth Gas to federal, state and local authorities relating to the quality of the accelerate recovery of its FERC Order No. 636 transition costs , environment. These laws and regulations affect, among other that were incurred to date. These costs had been deferred and things, the siting and operation of electric generating and trans- accumulated as a regulatory asset and were being recovered mission facilities and can require the installation of expensive air through the cost of gas adjustment (CGA) over a four-year and water pollution control equipment. These regulations have period that began in November 1993. The costs are now being i had an impact on the System's operations in the past and will recovered through the CGA over a one-year period that began continue to have an impact on future operations, capital costs May 1,1995. The accelerated recovery period was permitted , and construction schedules of major facilities. by the DPU due to the minimal impact on customers' bills. Any funher transition costs are expected to be recovered by [ (c) FERC0nicrXo.636 Commonweahh Gas through the CG A as incurred. ; As a result of implementing FERC Order No. 636 (Order 636), each interstate pipeline company is allowed to collect (f)OtherCommitments certain transition costs from its customers that resulted from Other major commitments include construction expendi-the pipelines
- need to buy out gas supply contracts entered tures, maturing debt issues and sinking fund payments as into prior to the issuance of Order 636. Commonweahh Gas summarized below:
Company (Commonwealth Gas) has been billed a total of approximately $23.8 million from Tennessee Gas Pipeline 1996 1997 1998 1999 2000 Company, Algonquin Gas Transmission Company and Texas N'"'"*"""" One evndaures m .272 m.20s uw ul,m n2m Eastern Transmission Company through December 31,1995. Marunng debiinues 33.230 14.260 19.000 20.000 - Commonwealth Gas' pipeline suppliers have made certain 8.473 8.473 8.473 6.973 su ing fund requirernents 9.103 filings with the FERC for the collection of their respective 3elor, of::ncelencen9ulic Accoun:an s , To the Board of Trustees of in our opinion, the information set forth in the accompany-Commonwealth Energy System: ing condensed consolidated balance sheets as of December 31. 1995 and 1994, and the related condensed statements of We have audited,in accordance with generally accepted c ns lidated income and cash flows for each of the three years auditing standards, the consolidated balance sheets and con-in the period ended December 31,1995,is fairly stated, m all solidated statements of capitalization of COMMONWEALTH matenal respects, in relation to the consolidated financial ( ENERGY SYSTEM (a Massachusetts Trust) and subsidiary statements from which it has been denved. companies as of December 31,1995 and 1994, and the related l consolidated statements of income, cash flows, changes in common shareholders' investment and changes in redeemable preferred shares for each of the three years in the period ended December 31,1995, appearing in Exhibit A to the proxy statement for the 1996 annual meeting of shareholders of the Boston, Massac husetts Arthur Andersen LLP System (not presented herein). February 16,1996. 24
Comaara:ive S~:a:is';ica. Da:a l Commonicealth Energy System and Subsidiary Companies I 1995 1994 1993 1992 1991 l (Dollars in Thousands) OPEllATIONS f Revenues $931,355 $979,236 $940.699 $906.450 $873.434 Operating Expenses l Operations 691,813 744,484 712,598 690,991 665,255 Maintenance 38,414 36,522 40,574 39,836 44,312 Depreciation and amortization 54,087 50,056 48,244 50,861 44,660 l Taxes 50,431 54,708 51.947 44,837 39,751 834,745 885,770 853,363 826,525 793,978 Operating income 96,610 93,466 87,336 79,925 79,456 Add-Other income (expense) (606) (1,024) 2,449 1,410 (13,419) Less-Interest charges 44,608 43,474 43,951 41,438 46,565 Net income 51,3 % 48,% 8 45,834 39,897 19,472 Preferred dividends 1,110 1,170 1.230 1,291 1.352 Earnings applicable to common shares $ 50,286 5 47,798 5 44,604 5 38,606 $ 18,120 Sources of Consolidated Net Income- 1 Electric $ 34,739 $ 36,473 $ 30,301 $ 28,415 5 32,874 Gas 16.229 13.568 16,299 14,855 3,120 Steam and other 428 (),073) (766) (3.373) (16.522) Total $ 51,3% $ 48,968 5 45,834 5 39,897 5 19.472 I FINANCIAL ! Property, plant and equipment (including construction work in progress, net and nuclear fuelin process) $1,525,900 $1,460,438 $1,409,997 $1,384,634 $1,335,795 l Accumulated depreciation and amortization 497,627 461310 425,483 406.069 372,987 I CAPITALIZATION ; Long-term debt 0) $ 410,411 $ 443,307 $ 458,893 $ 368,092 $ 409,582 Preferred shares 13,840 14,660 15,480 16,300 17,120 Common equity 390,785 362,997 337,070 315,219 300,859 Total $ 815,036 5 820,964 5 811,443 $ 699,611 $ 727.561 (1) includes maturing long term debt. 25
m l 1 7 Connara;ive S';a;is';ica: Ja~a Commontecalth Energy System and Subsidiary Companies l 1995 1994 1993 1992 1991 STATISTICS and RATIOS h Unit Sales - MWH - Residential 1,752,430 1,770,095 1,744,181 1,726,139 1,694,445 Commercial 2,450,390 2,406,077 2,378,073 2,305,720 2,272,146 v f i Industrial 421,224 421,821 411,527 414,777 419,940 ' - Other 23,7 % 23,216 22,243 23,236 20,565 Total Retail 4,647,840 4,621,209 4,556,024 4,469,872 4,407,096 Wholesale 1,973,543 3,803.786 3,689,129 3,898,924 4,027,714 Total 6,621.383 8,424.995 8,245,153 8,368,7 % 8,434,810 BBTU- Residential 21,336 21,515 22,252 22,392 19,851 Commercial 10,710 10,728 10,931 10,913 9,575 l Industrial 4,445 4,401 4.205 4,717 5,388 ; Other 1,967 1,895 1,831 1,788 1,581 Total Firm 38,458 38,539 39,219 39,810 36,395 Off-system 4,043 6,401 - - - l Quasi firm 1,906 487 - - -- Interruptible 1,215 1,927 1,896 2.464 2,937 'j Total 45.622 47,354 41.115 42.274 39,332 ! Capitalization Ratios - Long-term debt 50.4 % 54.0% 56.6% $2.6% 56.3 % Preferred shares 1.7 1.8 1.9 2.3 2.3 Common equity 47.9 44.2 41.5 45.1 41.4 Total 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % Return on average common equity 13.3 % 13.7 % 13.7 % 12.5 % 6.0 % Common share dividend payout 63.6 % 64.9 % 66.8 % 76.2 % 160.4 % 8.7 8.8 10.4 10.2 19.2 Average price /caminFs ratio Common Share Data - f Eamings per share U) $ 4.72 $ 4.59 5 4.37 $ 3.83 $ 1.82 Dividends paid 3.00 2.98 2.92 2.92 2.92 Annual dividend rate at end of year 3.00 3.00 2.92 2.92 2.92 , i 36.30 34.49 32.74 31.08 30.06 Book value Closing price range - 47% 45% $0A 43 39% High 35% 35% 40A 34% 30 Low e (1) Based on the average number of shares outstanding. i I i l 26 l
i, i 1 l Tllls:ees ana o"icers Corntnanarculth Energy System and Subsidiary Companies w Fe Q .: A . a g . m IVter IL Crm a Henn Dirnutzer m Betty L franas m Franklin M Hundley.
& Cham ellor Um'erun of te> Fewmerl_s E tec unsc \ nce m E terutn e t ue PressJent and <4 p Member atula Manaamg Masu kuurts-Darmumth Pressdent H yman-Gordon Chwf ftwicud ofic er Bam- Derect<w Ru h. May, Bdmleau 0, Sheklon A Buckler. Newth Dannumth Company n < wiener Bosum M<wyage Corporanon. & Flahern. P C Bosum.
Massac hu. wits Massac husetts Jac k sonnlie. Floruda Massachusetts o Art,wness e Chanman of the Board <{ Trusters of the 5surm. Fawmerh \'u r Chentman f-of the Boar <t Padarmd Corp . p .9 Camhndar. Mana< huwtts /
-p .
e -
~
r m Wilham J O'Bnen Wilham G 1%t a MichaelC Ruengers a Gerald L Wilma
,4. Prendent. M dham J O Bnen. im Preudent arulChwf Enen utne & PresnJent. Chuef Ltecurne & \ annesar Bush Prc$essin of Southtwough Massa hawin CTi er ef the 5surm amichaorman. Oficer and a Director EMC Engmeerms Massa < husetts Chwt Lm uine (Wicer amla Corporanon Haparnton insttrute of Ten kmdogs.
Duecue ofits subsuhars nentwmes Mas suchu vrts Camtwndge Massat hu.sern I i i COIMUIMTE DIVISION ElRTItIC DIVISION GAS DIVISION WilhamO het RUWl1 D WNZhl hennethM Ma@Mlan f Chaorman and Chat Em utn e Ofice Prendent and Chwf Operarmg Oft < er Prendent and Chwf Operarone Otti< v i OITICEof he t CEO I""# k" **"*"' Vu e Preusense supo and n T,arumusum t u e Preusem- narLenng and Cuname Reianons Imwrd R Ihaun ik4 rah A Mdnhha Np 11 Ibrahnn nce P,euarnnssue,ra Planmns andDevimmem \ u e Prrudem--cuw,me, serwe Yu e P,es,senaas suppu Jane D Rappoh. .lohn It Wilhams Richard D Johnston Fmannal Voce Pressdent and Treasurer Voce Preudem-Dreratums Vice Pressdem--Operatums Michael P Sullaan nce Preusem Secretan ans ceneraicoumer C()M ENEltGY SEltVICES C()MI%NY IohD A Whalen 4
\ u e Presndent und General Manager l lane M Bnmn
) Vu e Pr rudenwChwfinfarmanon oftw
]
t i m Member of Audit Comnutter t'2) Member of Ltet utne Com/wnsctwn Committee m Member of homr-ating Commstree (4 > Member of Benefit Reues Comm tire (5 n Member of Strategu Planmne Committee } l The sole purpose of this report us to gn e present secursts holders unformatwa about rhts 59 stem andits subssdiary < ompames a-J l tt as not a representatwn, prospec tus or < trcular m respet t to ans set ur tv of this 5sstem or ofits subssJnary c ompames ,l The name "Commonw eahh Energy 5sstem" means the trustersfor the time beunx ta. trustees but not mJruJuallM under a Det latarwn of Trust dated Det ember 31.19:6. as amended. m hu h n hereby referred to, and a wry of n - i has been filed m uth the Severan of The Commanu ealth of Manachusetts Ans agreement. obbeatnon or habdits maJc. entered mto or mcurred1 y or on behalf of sasJ System hunds only the trust estate and i no sharehnider. direc tor, trustee. offic er or agent auumes. or shall be helJ to. any bahrhty bs reason therenf i 27
l$ 4 - S.aaremer.n:orma lon Commonu calth Energy System and hbsidiary Companies ANNUAL MEETING DIVIDENDPADIENTS All shareholders are invited to attend the next Annual Dividends are paid by the System subject to declaration by t Meeting which will be held on May 2,1996 at the Systetn's the Board of Trustees. Common dividends are paid on the y corporate headquarters at One Main Stret in Kendall first day of February, May, August and November. Preferred ! Square, Cambridge, Massachusetts. A formal notice cf dividends are paid on the first day of January, April, July the meeting together with a proxy statement, a form of and October. , proxy and financial information is enclosed for use by shareholders entitled to vote at the meeting. i SHAREHOLDER SERVICES The System has a dividend reinvestment plan which 7 provides holders of Common Shares with an economical i CLOSING MARKET PRICE of COMMON SHARES and c nvenient meth d f r purchasing additional Common j and DIVIDENDS PAID Shares of the System without paying brokerage fees or service charges. 1995 High Low Dividends :
$41% $35% $ 75
- D *'" * "*" d*P"'" * * ' " " ** I Ist Quaner #" * * * '#* '### * * * * ' ' #" '
2nd Quaner 41 M 37 % 75
#*" ###""** "* **' "8 ' E ##
3rd Quarter 43 % 35 % .75 4th Quaner 47 % 41 .75 A seasonal tm!!ng address for your shareholder account (s) 1994 High Low Dividends is also available for the period of time requested. This can ; help avoid lost interest on delayed deposits caused by Ist Quarter 545 M $42% 5.73 l 2nd Quaner 43 % 39 % .75 3rd Quaner 40 % 37 % .75 For more information about these r,ervices or any other j 4th Quarter 38 % 35 % .75 inquiries, please contact a Shareholder Services representa- j tive at the appropriate toll free number listed below: The System's Common Shares are listed on the Boston, 1-800 336-3773 (within Massachusetts) , New York and Pacific stock exchanges: 1-800-447 1183 (outside Massachusetts) l Ticker Symbol "CES" l Daily Newspaper Quotation "ComES FORMS 10-K and1(K) , The System's annual report on Form 10.K and quanerly i TRANSFER AGENTS andREGISTRARS repons on Form 10-Q as filed with the Securities and l Shareholder communications regarding transfer of Common Exchange Commission are available without charge upon Shares or lost certificates should be directed to: request to: Michael P. Sullivan Common Shares - Vice President, Secretary and General Counsel ! Transfer Agent and Registrar: Commonwealth Energy System : 1 The First National Bank of Boston P.O. Box 9150 P.O. Box 644 Cambridge, MA 02142-9150 ] Boston, MA 02102-0644 Many of the information requirements of Form 10-K are satisfied by the 1996 Pioxy Statement. l Preferred Shares - , l Transfer Agent: Commonwealth Energy System BOND DATA i P. O. Box 9150 Trustees under indentures of trust are: Cambridge, MA 02142-9150 Citibank, N. A. - Canal Electric Company Series B, E and F Bonds Registrar: State Street Bank and Trust Company - l State Street Bank and Trust Company Other Subsidiary Companies' Long-term Debt l 28
.i P 1 l NEW HAMPSHIRE ELECTRIC COOPERATIVE, INC. l FINANCIAL STATEMENTS l December 31,1995 and 1994
)
L l With Independent Auditors' Report M .O N 3-i i
- I J
i
- f
).
f; BDN BERRY, DUNN, McNEIL & PARKER CERTIFIED PUBLIC ACCOUNTANTS y {Q)'; MANAGEMENTCONSULTANTS , u i k 4 INDEPENDENT AUDITORS' REPORT The Board of Directors and Members New Hampshire Electric Cooperative, Inc. 8 I f', We have audited the accompanying balance sheets of New Hampshire Electric Cooperative, Inc. (the I d Cooperative) as of December 31,1995 and 1994, and the related statements of operations and accumu-lated deficit and cash flows for the years then ended. These financial statements are the responsibility of
~,] the Cooperative's management. Our responsibility is to express an opinion on these fmancial statements p based on our audits.
L,]
~
We conducted our audits in accordance with generally accepted auditing standards and the standards for i fmancial audits contained in Government Auditing Standards, issued by the Comptroller General of the
# United States. Those standards require that we plan and perform the audits to obtain reasonable assurance d about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well i
B as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. m D In our opinion, such financial statements present fairly, in all material respects, the fmancial position of New Hampshire Electric Cooperative, Inc., as of December 31,1995 and 1994, and the results of its g operations and its cash flows for the years then ended in conformity with generally accepted accounting prmelples. 1 J As described in Note 1 to the fmancial statements, on March 20,1992, the Bankruptcy Court entered an order confirming the Second Amended Plan of Reorganization, as modified, which became effective on
- December 1,1993. Under the Plan of Reorganization, the Cooperative is required to comply with certain d conditions as morg fully described in Note 1.
rm g / ,C N-~ 7
&c.}1k Portland. Maine March 20,1996 E
Offices m: Bangor. Mame Ponland, Mame f.ebanon, New Hampsbe Manchesta, New Hampsbe
NEW HAMPSHIRE ELECTRIC COOPERATIVE, INC. Balance Sheets
'g December 31,1995 and 1994 i
ASSETS
= =
I (000s) (000s) Utility plant Nuclear production $105,855 $105,905 Transmission 4,329 4,343 g Distribution 129,451 123,818 General and other Construction work in progress 12,930 6.865 11,952 2 189 l Total utility plant 259,430 248,207 h Less accumulated depreciation and amortization 59.548 52.956 Net utility plant 199.882 195.251 Inves' ment in associated organizations, at cost 2.242 1.965 Current assets Cash and cash equivalents 888 264 g, Restricted cash 38 57 Temporary investments and special deposits Receivables from members 541 3,304 lli Energy sales, net of allowance for doubtful accounts
$367 and $439 in 1995 and 1994, respectively 7,448 5,845 Other 689 332 Receivable, Public Service Company of New Hampshire 3,101 3,024 Materials and supplies 2,571 2,978 Prepayments and other current assets
. 98.3. 1.146 Total current assets 16.259 16.950 Deferred debits and other assets _46.320 38.736 l
$1[gQ), $252.902 i
i The accompanying notes are an integral part of these financial statements. t! l h _ .... -l
9 LIABILITIES AND EQUITIES E N (000s) (000s) Equities Patronage capital $ 13,308 $ 13,308 Accumulated deficit (19.837) (21.514) Total deficit (6.529) (8.206) Current liabilities Line of credit - 3,000 Accounts payable 13,990' 10,735 l Accrued liabilities 3,642 2,223 Customer deposits 268 300 Current portion oflong-term obligations 4.700 2.961 Total current liabilities 22.600 19.219 Long-term liabilities Long-term obligations 246,005 241,446 g Other long-term liabilities 350 350 Totallong-term liabilities 246,355 241,796 f Deferred credits _ 1 222 93 b E .
$26:LZ92 $252.902 g _ _.
5 i
NEW HAMPSHIRE ELECTRIC COOPERATIVE, INC. Statements of Operations and Accumulated Deficit g Years Ended December 31,1995 and 1994
- = ,
(000s) (000s) 5 Operating revenues $ 96,487 $ 94,851 Operating expensu 83.131 78.432 Operating margin before interest and other deductions 13,356 16,419 Interest and other deductions 18.081 18.791 I Net operating margins (deficits) (4.725) (2.372) l Nonoperating margins (deficits) g Interest 3,431 3,199 y Other (327) (546) Total nonoperating margins 3.104 2.653 Net margins, before extraordinary item (1,621) 281 g~ Extraordinary item Gain on refinancing of long-term debt 3.298 - l Net margin, after extraordinary item 1,677 281 Accumulated deficit, beginning of year (21.514) (21.795) Accumulated deficit, end of year $M $g g E E R The accompanying notes are an integral part of these financial statements.
"r
,[
1 NEW HAMPSIHRE ELECTRIC COOPERATIVE, INC. Statements of Cash Flows Years Ended December 31,1995 and 1994 1225 1914 (000s) (000s) Cash flows from operating activities l Net margins $ 1,677 $ 281 l Adjustments to reconcile net margins to net cash l provided by operating activities I Depreciation and amortization 9,032 8,402 Gain on sale of fixed assets - (34) Interest added to principal 4,055 4,764 g Patronage capital dividends Deferred credits (42) (62) 633 (371) Deferred debits (4,860) (7,302) g Gain on refinancing oflong-term debt (3,298) - Decrease (increase) in Member and other accounts receivable (2,037) (2,477) l Materials and supplies 407 178 Prepayments and other current assets 163 201 Increase (decrease) in Accounts payable 3,255 1,283 Accrued liabilities 1,419 1,227 Customer deposits (32) __(100) Net cash provided by operating activities 10.372 5.990 Cash flows from investing activities Proceeds from sale of assets - 39 l Construction and acquisition of plant Plant removal costs (12,847) (186) (7,432) (216) Materials salvaged from retirements 142 184 Investments in capital term certificates (235) - Net cash used by investing activities (13.126) G.425) 2 (Continued next page) W 5 The accompanyag notes are an integral part of these fina7n iaisaFmTnE---------- ~ --
=
NEW HAMPSHIRE ELECTRIC COOPERATIVE, INC. Statements cf Cash Flows (Concluded) g Years Ended December 31,1995 and 1994 5 Cash flows from financing activities (000s) (000s) h Net proceeds (payments) on credit line $ (3,000) $ 3,000 Principal payments of long-term obligations g (6,639) (2,589) WI Proceeds from long-term debt 11,735 - Other payments on long-term debt (1.500) - Net cash provided by financing activities 5% 411 Net decrease in cash and cash equivalents (2,158) (1,024) Cash and cash equivalents, beginning of year _3,625 4.649 l Cash and cash equivalents, end of year $ 1.467 $ 3.625 1 Supplemental disclosures of cash flow information Cash paid during the year for interest $12143 $LtfdQ The Cooperative refinanced $187,464,000 oflong-term debt in a noncash transaction during 1995. g The Cooperative deferred interest expense of $4,500,000 in 1995 and $5,178,000 in 1994, and interest income of $3,743,000 in 1995 and $5,054,000 in 1994 in noncash transactions. h R R B B
~~
The accompanying notes are an integral part of these financial statements. G _1
! NEW HAMPSHIRE ELECTRIC COOPERATIVE, INC.
Notes to Financial Statements December 31,1995 and 1994
- 1. Reorganization Proceedings and Basis of Presentation On May 6,1991, New Hampshire Electric Cooperative, Inc. (NHEC or the Cooperative) filed a petition for relief under Chapter 11 of the Federal Bankruptcy Code in the United States Bankruptcy Court for the District of New Hampshire (the Bankruptcy Court). Under Chapter 11, most actions to recover claims against NHEC in existence prior to the filing of the petition for relief under the Federal Bankruptcy Code were stayed while NHEC continued business operations, under the direction of the Bankruptcy Court, as a debtor in possession.
7'; On January 13, 1992, a Second Amended Plan of Reorgamzation (the Plan) jointly proposed by a NHEC with the State of New Hampshire and Public Service Company of New Hampshire (PSNH) was submitted to the Bankruptcy Court. On March 20,1992, the Bankruptcy Court confirmed the g Second Amended Plan of Reorganization, as modified (the Plan). The Plan provided for NHEC to remain a member-owned electric cooperative and to retain all of its assets, including its 2.17391% undivided ownership interest in the Seabrook Nuclear Plant (Seabrook). Under the terms of the Plan,
! ; NHEC's indebtedness to the Rural Utilities Service (RUS) and the National Rural Utilities Coopera-L ^^" tive Finance Corporation (CFC) was restructured and other creditors of NHEC were paid in full.
m uj The Plan provided for NHEC to emerge from bankmptcy with forecast revenues sufficient both to meet its obligations for debt service and to provide continuing electric service to all of its members. Forecast revenues were based on load growth studies and certain retail rate assumptions. Retail rates N are regulated by the New Hampshire Public Utilities Commission (NHPUC) and, although certain assumptions have been made in the Plan, NREC is limited to those rates, approved in accordance with rate setting principles as implemented by the NHPUC. In addition to the restructuring of RUS and CFC debt, the Plan provided for the full resolution and g settlement of disputes between NHEC and PSNH, a subsidiary of Northeast Utilities (NU). NHEC will continue to purchase most of its wholesale power requirements from PSNH under a long-term contract through November 6,2006, and will sell its Seabrook power to PSNH under a Sellback j Contract through June 30, 2000. ly On December 1,1993, subsequent to satisfaction of all Plan conditions, the Plan became effective and Lj the comprehensive settlement and discharge of all litigation and claims encompassed by the Plan a became final. pq u H U hLJ __________________ __________ _ - - - - - - - - - - g - -- _.
NEW HAMPSIHRE ELECTRIC COOPERATIVE, INC. Notes to Financial Statements December 31,1995 and 1994 5
- 2. Sbmifiennt Accounting Policies Organi7ntion and Purnose NHEC is a rural electric cooperative utility established under the laws of the state of New Hampshire.
The Cooperative is subject to regulation by the Federal Energy Regulatory Commission (FERC) and the NHPUC for rates and other matters. Financing usistance has been provided by the RUS and, therefore, NHEC is subject to certahl rules and regulations promulgated for rural electric borrowers g by RUS. NHEC is a distribution cooperative, providing electric power to members in certain areas of New Hampshire, and has a 2.17391% ownership in the Seabrook nuclear facility. NHEC is presently serving over 66,000 members, spread over nine of New Hampshire's ten counties, glj Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the fm' ancial statements h , and the reported amounts of revenues and expenses during the reporting period. Actual results could ! differ from those estimates. ' Resmlatory Accounting The Cooperative follows the accounting prescribed by the FERC Chart of Accounts and the NHPUC and Statement of Financial Accounting Standards (SFAS) No. 71, " Accounting for the Effects of Certain Types of Regulations." This accounting recognizes the economic effects of rate regulation by gl recording costs and a return on investment as such amounts are recovered through rates authorized by regulatory authorities. The Cooperative annually reviews the continued applicability of SFAS No. 71 based on the current regulatory and competitive environment. l Utility PInnt and Denreciation Utility plant and constmetion work in progress is stated at cost which includes an allowance for funds g. , used during copstruction. E \ E R t
)
NEW HAMPSHIRE ELECTRIC COOPERATIVE, INC. h Notes to Financial Statements
,, December 31,1995 and 1994 l 2. Sionificant Accounting Policies (Continued)
I
, Utility Plant and Deprecintion (Concluded) d j The provision for depreciation and amortization is computed on a straight-line method at rata: based upon the estimated service lives of the assets. Depreciation and amortization expense was approxi-mately $8,303,000 in 1995 and $8,054,000 in 1994. Major depreciable assets are estimated to have the following services lives:
l Nuclear plant 36 Transmission plant 29 Distribution plant 36 E General plant 6 to 33 Maintenance and repairs of utility plant are charged to operations as incurred. Replacements and betterments are capitalized. At the time units of utility plant are retired, the cost of the property retired and costs of removal, less salvage, are charged to the allowance for depreciation. Allowance for Funds Used Durino Construction Allowance for funds used during construction represents the cost of related borrowed funds used for constmetion of utility plant. The allowance is capitalized as a component of the cost of utility plant. The Cooperative capitalized $259,000 and $60,000 ofinterest in 1995 and 1994, respectively. Operating Revenues R Operating revenues are based on rates, authorized by the NHPUC, which are applied to members' consumption of electricity. NHEC bills its members on a cycle basis throughout the month. NHEC records revenues as it bills its customers. The Cooperative extends credit to its electric customers after appropriate review, based on guidelines set by the NHPUC. h Purchased Power Costs g NHEC rates reflect estimates of the cost of purchased power. Retail members are billed at a levelized 4 power cost adjustment charge rate based on projected data for the cost of power from wholesale suppliers. To the extent that cost estimates differ from actual charges incurred, the differences are deferred and refunded or charged to members through periodic rate adjustments. 4 -
\
NEW HAMPSHIRE ELECTRIC COOPERATIVE, INC. Notes to Financial Statements December 31,1995 and 194 D
- 2. Simificant Accounting Policies (Continued)
Materints and Supplies Inventories of materials and supplies are stated at average cost. Demand Side Mannoement Costs NHEC rates reflect estimates of the cost of the Cooperative's demand side management (DSM) program. Retail members are billed at a levelized DSM rate based on projected expenditures for the g project. To the extent that cost estimates differ from actual charges incurred, the differences are deferred and refunded or charged to members through periodic rate adjustments. Income Tax Status NHEC is exempt from United States income taxes pursuant to f 501(c)(12) of the Internal Revenue h Code, which requires that at least 85% of a cooperative's net income be collected from its members. Patronnoe Canital
~
l l The bylaws of the Cooperative provide that operating revenues from the furnishing of electric energy p) EJ in excess of operating costs and expenses shall be allocated as patronage capital. All other amounts received in excess of other expenses shall be used to offset any losses incurred during the current or any prior fiscal year and, to the extent not needed for that purpose, allocated to its patrons on the gJ basis of their patronage, and any amount so allocated shall be included as part of the capital credited to the accounts of patrons. NHEC may refund patronage capital wib the consent of RUS and CFC. In the event of the dissolution or liquidation of NHEC, after all outstanding indebtedness has been h l paid, outstanding capital credits shall be retired without priority on a pro rata basis. Cash and Cash Eaulvalents NHEC considers all highly liquid debt instruments with an original maturity of three months or less to be cash equivalents. E t' (
I NEW HAMPSHIRE ELECTRIC COOPERATIVE, INC. f Notes to Financial Statements h
,. December 31,1995 and 1994 9 2. Slenificant Accountin Policies (Concluded) 4 Cash and Cash Eaulvalents (Concluded) 3l The Cooperative maintains its cash in bank deposit accounts which may exceed federally insured limits. The Cooperative has not experienced losses in such accounts, and management does not believe that it is exposed to any significant risk on cash and cash equivalents.
t J Postretirement Benefit Plan E The Cooperative sponsors a derined benerit postretirement medicai and iife insurance pian through National Rural Electric Cooperative Association (NRECA) that covers substantially all of its employ-g ees. The Cooperative adopted FASB Statement No.106 (FAS 106), " Employers' Accounting for Postretirement Benefits Other than Pension" for the year ended December 31,1995. Management has j chosen to account for the obligations under the statement in accordance with accounting treatment set i 5 f rth by the NHPUC and RUS, which allows recognition of the Accumulated Postretirement Benefits Obligation (APBO) transition obligation in expense over twenty years. The Cooperative is currently I, involved in rate making proceedings regarding the method of recovering FAS 106 costs. E Reclascifications Certain reclassifications have been made to 1994 balances so that they are consistent with 1995 presentation.
- 3. Utility Plant - Nuclear g The NHPUC, by an order dated May 3,1991, established that NHEC's " initial plant investment" in the Seabrook nuclear facility for " wholesale" rate setting purposes shall be $126 million as of the in-service date of July 1,1990.
a The Plan provides for the sale of all of the capacity and related output of NHEC's 2.17391% share of the Seabrook nuclear facility to PSNH through June 30,2000. The terms of the sale are specified g in a Unit Contract (the Sellback) between NHEC and PSNH which became effective on December 1, 1993. The Sellback also provided that the valuation of the plant will be further reduced on the effective date. As of the effective date, the value of the plant was adjusted to approximately $99 k million. E t
_ ~. _ _ . - .. NEW HAMPSHIRE ELECTRIC COOPERATIVE, INC. Notes to Financial Statements December 3I,1995 and 1994 I
- 3. Utility Pinnt - Nuclear (Continued) l Upon termination of the Sellback in June 2000, the capacity and output from NHEC's share of the Seabrook nuclear facility will be available for NHEC to use or sell. Becaust: current electric rates to power consumers other than PSNH exclude Seabrook costs, NHEC will be required to obtain l regulatory approval for any new retail rates which contain costs related to Seabrook.
In 1984, construction of Seabrook Unit 2 ceased and in November 1986 the Joint Owners in Seabrook (the Joint Owners) voted to abandon the unfmished plant and reflected in the other long-term liabilities is $350,000 provided for NHEC's share of the net costs of dismantling. Unit 2 has yet to be disman-tied. Decommissioning costs are accmed over the service life of the Seabrook Plant. Decommissioning expenses totaled approximately $182,000 and $163,000 in 1995 and 1994, respectively. The license for the plant is scheduled to expire in 2026. The Cooperative's share of the estimated decommission-ing cost is approximately $39 million. These costs are currently being recovered by NHEC through the Sellback Contract with PSNH. The Cooperative contributes its share of the costs of decommission-h ing to an external trust fund. The Cooperative's share of the decommissioning trust fund balance and - the accumulated provision for decommissioning were $670,000 and $507,000 at December 31,1995 and 1994, respectively. The Cooperative is scheduled to make payments ranging from $100,000 to
$463,000 per year, through the year 2026, to the Seabrook Decommissioning Fund. These contribu-tions will equal approximately $8,700,000 which, with fund earnings, are scheduled to be sufficient g'
to cover estimated decommissioning costs. These amounts are subject to review and revision semian-nually. g The Cooperative reflects its proportionate share of fmancial activities related to the operations of Seabrook in its fmancial statements when the activities are reported to the Cooperative on Seabrook owner reports. In addition to the financial activities reported to the Cooperative on the owner reports, h. NHEC records other balances and transactions related to the Cooperative's investment in Seabrook. PSNH purchases all of NHEC's Seabrook power capacity as disclosed with long-term power supply and sales agreements. Further, the Cooperative's initial investment in Seabrook was fmanced using k long-term notes payable which are included in long-term obligations. NHEC accounts for its investment in Seabrook utility plant based on amounts set forth in a NHPUC order. Seabrook owner reports do not reflect estimates of depreciation on utility plant or amortization of Nuclear fuel and, therefore, the Cooperative uses approved rates for the depreciation and amortiza-g . tion of these assets. R R h
NEW HAMPSHIRE ELECTRIC COOPERATIVE, INC. Notes to Financial Statements i December 31,1995 and 1994
- 3. Utility PInnt - Nuclear (Continued)
The Cooperative's proportionate share of expenses on the Seabrook owner reports were approximately d $3,207,000 and $3,392,000 for the years ended December 31,1995 and 1994, respectively. Other
- j expenses, excluding interest, related to the Cooperative's Seabrook activities were approximately
$4,753,000 and $4,272,000 for the years ended 1995 and 1994, respectively, including depreciation and amortization of $3,658,000 for 1995 and $3,402,000 for 1994.
) The Cooperative's assets and liabilities, excluding debt, related to its Seabrook investment, including amounts from the Seabrook owner reports, at December 31,1995 and 1994, are as follows: 1225 122.4 (000s) (000s) Nuclear plant $105,855 $105,905 I j'l ~ Transmission plant 1,494 1,491 l f Distribution plant 152 152 l General plant i 1,470 1,460
]
i Construction work-in-progress Accumulated depreciation and amortization 245 (15.233) 176 (12.48_7) i E i Net utility plant in service 93,983 96,697 g Other current and accrued assets 4,162 4,139 l m Deferred debits and other assets 39.369 35.396 g Total assets $137.514 $136.232 g Current and accrued liabilities Long-term obligations
$ 981 $ 653 470 478 Deferred credits 53 93 Total 6 abilities and credits $ 1.506 $ 1.224
.W NEW HAMPSHIRE ELECTRIC COOPERATIVE, INC. Notes to Financial Statements g i December 31,1995 and 1994 l 1 l
- 3. Utility Plant - Nuclear (Concluded)
Nuclear Liability Insurance The Price-Anderson Act (the Act), a federal statute amended in 1988 to extend to the year 2002, limits the public liability of a licensee on a nuclear plant for a nuclear incident to approximately $9 l billion. l Seabrook provides the Joint Owners with a primary layer of insurance in the amount of $200 million , maintained with private insurance companies. Secondary coverage of up to $8.72 billion is provided by a retrospective assessment of up to $79.2 million per incident levied on each of the licensed gl i operating nuclear units in the United States, subject to a $10 million maximum assessment per unit in any year. Additionally, if the sum of all public utility claims and legal costs arising from any , nuclear accident exceeds the maximum amount of fmancial protection, each licensee can be assessed an additional 5% (up to $3.8 million) of the maximum retrospective assessment. There is no limit on the number of incidents for which a licensee could be asassed these sums. h The Joint Owners are insured, through policies purchased from the Nuclear Electric Insurance - Limited (NEIL), for the cost of repair, replacement, decontammation or decommissioning of the plant l resulting from insured occurrences. The Joint Owners are subject to maximum potential assessments ; against Seabrook, with respect to losses arising during current policy years, of approximately $15.1 l million for excess property damage, decontamination and decommissioning. All companies insured -l with NEIL are subject to retroactive assessments if losses exceed the financial resources available to NEIL. However, over the years, the insurance has accumulated surpluses and assets which make the probability of retroactive premium assessments unlikely. g Insurance has been purchased from American Nuclear Insurers / Mutual Atomic Energy Liability Underwriters aggregating $200 million on an industry basis for coverage of worker claims. All g, participating reactors insured under this coverage are subject to retroactive assessments of $3 million per reactor. These policies expire January 1,1997. h is It IE h
, NEW HAMPSHIRE ELECTRIC COOPERATIVE, INC.
Notes to Financial Statements 1 December 31,1995 and 1994 I
- 4. Investment in Associated Organintion Investments in associated orgamzations, carried at cost, at December 31,1995 and 1994, consist of the following:
(000s) (000s) k Capital term certificates - CFC $2,136 $1,901 Patronage capital credits - CFC 105 63 Other 1 1 I i Total $M $3 5 5. Deferred Debits and Other Assets i E Deferred debits and other assets at December 31,1995 and 1994, were as follows: 1225. 129.4 E (000s) (000s) Deferred debits l m Deferred regulatory asset - Woodstock substation $ 357 5 387 LJ Deferred power costs 2,548 1,952 I Seabrook prefunding '472 593 ; Seabrook - other 312 392 E Demand side management - 235 l Unamortized debt expense 1,375 - g Deferred interest 859 414 Deferred postretirement benefits 1,508 - N Other assets PSNH deferred sellback receivable 36,940 33,197 Nuclear fuel - Seabrook 1,645 1,214 h Nonoperatpg property 91 100 Other 213 252 Total $4fL310 $},8JEg E E j
NEW HAMPSHIRE ELECTRIC COOPERATIVE, INC. Notes to Financial Statements Ih.cember 31,1995 and 1994
- 6. Lone-Term Oblientions As of December 31,1995 and 1994, long-term obligations were as follow-1225 122.4
! (000s) (000s) 2.0% note payable to RUS, payable in monthly installments, including interest, through December 2012 $ 10,808 $ 11,288 1 5.0% note payable to RUS, payable in monthly installments, including interest, through December 2012 26,321 55,593 6.45 % - 9.75 % notes payable to CFC, payable in monthly installments, including interest, through December 2012 7,806 8,106 6.2% - 7.7% notes payable to CFC, payable in quarterly installments, including interest, through December 2022 132,207 - 6.96% - 7.2 % notes payable to CFC, payable in quarterly installments, including interest, through December 2012 13,694 - 7.1 % note payable to CFC, payable in quarterly instalhnents, including interest, through December 2005 10,000 - Variable rate note payable to CFC, payable in quarterly install-ments including interest (6.2% at December 31,1995), through DecemMr 2022 5,848 - Variable rate notes payable to CFC, payable in quarterly install- , ments, interest only (6.2% at December 31,1995), through July 2000. Principal will be paid at the maturity date. 25,715 - Variable rate notes payable to CFC, payable in quarterly installments including interest (6.2% at December 31,1995), through December 2028 11,728 - PSNH Note - 6,376 5,930 , Other long-term obligations 202 277 Notes refinanced during 1995 - 163.213 Total obligations 250,705 244,407 ,, Less current portion (4.700) (2.961) Total long-term obligations $2.4ft&Q1 $241.446 h
, NEW HAMPSHIRE ELECTRIC COOPERATIVE, INC.
i a Notes to F'mancial Statements December 31,1995 and 1994 l 6. Long-Term Obligations (Continued)
, As provided in the Plan, accrued interest on certain notes is added to principal balances. Accrued interest of $4,500,000 and $5,178,000 was added to principal during 1995 and 1994, respectively.
4 The mortgage agreements provide that all outstanding obligations to RUS and CFC are collateralized by substantially all assets and the rents, income, revenues, proceeds and benefits derived, received or had for any and all such assets. g The Cooperative must also comply with certain covenants which include restrictions on the Coopera-P tive's ability to borrow additional monies, enter into specified transactions or to pay dividends or j distribute capital without first seeking the mortgagees' approval. Additional covenants address g insurance coverage, the sale of assets and other nonfinancial matters. t
.. CFC has made a commitment to the Cooperative for a $10 million line of credit through j December 31, 2023. There was no balance outs +.anding on the line of credit at December 31,1995, y and 53 million was outstanding at December 31,1994. CFC also made a commitment to the Coopera-3n tive for the 1973/1994 work plan loan of approximately $12.2 million to finance future plant addi-jl tions. Borrowings under this commitment were $11.7 million at December 31,1995, and there was no outstanding balance at December 31,1994.
t: During 1995, NHEC signed an agreement with CFC for a new work plan loan for approximately
$19.7 million that will be used for plant additions in 1995 and 1996. No amounts were drawn down on this loan during 1995. The interest rate will be determined based on the CFC market rates at the R time of each advance. The loan will be paid over a 35-year period from the date of each advance.
g CFC Mortgage notes are subject to repricing periodically to reflect current market interest rates. The PSNH note began accming interest at the rate of 7.5 % per annum starting on December 1,1993. I g As approved by the NHPUC, the interest cost will be deferred until January 2002 through October I 2006 during the time the note is repaid. Interest of approximately $445,000 and $414,000 were deferred in 1995 and 1994, respectively. Interest and principal will be payable as follows:
- a. Annually tIirough 2003, payments will be deemed made on the note in the amount of one cent for every kilowatt hour delivered by PSNH to NHEC under the amended wholesale power contract
, in excess of forecasted deliveries (deliveries credit). No deliveries credits were realized in 1995 or 1994.
b i NEW HAMPSHIRE ELECTRIC COOPERATIVE, INC. i J g Notes to Financial Statements December 31,1995 and 1994 D
- 6. Lone-Term Obilaations (Continued)
- b. Any balance of interest and principal remaining unpaid on January 1, 2002, shall mature on October 31,2006, and shall be payable by NHEC over the balance of the term of the note in equal monthly installments, adjusted for any payments in (a) above paid in 2002 and 2003, in an amount sufficient to pay such balance, and interest thereon on October 31, 2006.
On August 30,1995, NHEC signed a loan agreement with CFC for the purpose of refinancing the Cooperative's long-term notes payable with RUS. The Restated Mortgage, dated January 1,1993, was supplemented and amended to include the terms and conditions of the new financed notes. CFC has agreed and set forth a total commitment of $262,408,444. Included in the agreement with CFC and RUS was the cancellation of a $41.6 million contingent note that arose from the previously restruc- ' tured debt, resulting in the payment of $1.5 million to RUS which is reflected as a deferred debit as approved by the NHPUC. The payment is being amortized over sixty months which began August g' 30,1995. Amortization of $125,000 was taken in 1995 and is reflected in other nonoperating margins in the statement of operations. h The financing agreement requires the Cooperative to purchase long-term capital term certificates - (LCTC) in an amount not to exceed three percent of the total principal amount borrowed from CFC. .~ CFC calculates the amount of LCTC that are required to be purchased at the time of each loan advance. The Cooperative chose the option of purchasing the LCTC using future CFC patronage capital retirements. The amount of LCTC that NHEC is committed to purchase at December 31, . 1995, is approximately $2,190,000. CFC initially advanced funds totaling $187,464,000 on August 30,1995, at CFC's long-term variable ' rate. The loan agreement allc,wed NHEC the option to secure fixed interest rates on specific advance amounts subsequent to the closing based on the CFC weekly published rate. Within the appropriate g period NHEC elected to convert from the long-term variable rate to long-term fixed rate notes with various maturities and interest rates. . The refinancing transaction that occurred in 1995 resulted in a discount of approximately $3,298,000 which was reflected as an extraordinary item; gain on the retirement of debt. Under the terms of the agreement, NHEC will refinance its remaining obligations with RUS by January 31,1997. NHEC will receive an additional discount on the refinancing of the 2% and the 5% k U long-tenn debt notes payable. On January 30,1996, CFC advanced NHEC $24,698,000 to prepay the 5% note payable with RUS, realizing a discount of approximately $1.4 millien. The remaining 2% long-term obligation with RUS is scheduled to be refinanced in January 1997, at which time the g discount will be determined subject to current interest rates. (
I NEW HAMPSHIRE ELECTRIC COOPERATIVE, INC. Notes to Financial Statements December 31,1995 and 1994
- 6. Long-Term Obligations (Concluded)
Principal payments to be made on long-term obligations are as follows: i 1996 $4,700 l 1997 4,721 1998 5,153 1999 5,528 h 2000 31,646 I The above principal payments on long-term debt reflect the refinancing that will occur in 1996 and 1997 based on the agreement with CFC. The principal payments for the year 2000 reflect the pay off of certain variable rate notes payable to CFC. This pay off will be funded by payments from PSNH, commencing in July 1997, in accordance with the Seabrook Sellback Contract. E 7. Patronnye Eauities U At December 31,1995 and 1994, patronage capital consisted of: 1995 19 % 3 LJ (000s) (000s) Assigned $13,308 $10,072 g Unassigned - 3.236
$13J08 S11108
- 8. Lonn-Term Power Supply and Sale Aereements The Cooperative has traditionally been a distribution cooperative purchasing power at wholesale to distribute to its retail customers. In 1981, in connection with its acquisition of the 2.17391 % interest in the Seabrook nuclear facility, NHEC updated a partial requirements service arrangement with PSNH and entered into a Sellback Contract (Sellback) which, for a period of ten years, required ll PSNH to buy, at NHEC's cost, any part of NHEC's Seabrook capacity and energy determined to be in excess of NHEC's needs.
W
NEW HAMPSHIRE ELECTRIC COOPERATIVE, INC. Notes to Financial Statements December 31,1995 and 1994
- 8. Long-Term Power Suoplv and Sale Aereements (Concluded)
Pursuant to contracts agreed to under the Plan, PSNH provides NHEC wholesale power at the so-R called "Muni Rate" (the v holesale power rates established pursuant to the settlement among PSNH and certain municipal aectric utilities approved by the FERC) through November 1,2006, and continuing thereafter unless five years notice of termination has been provided by either party. NHEC has an exclusive option to extend .ne contract term until November 1,2011, upon notice to PSNH by November 1,2001. PSNH purchases power resulting from NHEC's Seabrook interest pursuant to a modified Sellback, The Sellback terms call for PSNH to purchase the entire amount of NHEC's Seabrook capacity and g-energy and to pay all NHEC's Seabrook and associated transmission costs, without regard to Sea-brook's operating status, for the ten-year period which began on July 1,1990. Revenue from the Sellback agreement, reflected in operating revenues, amounted to approximately $16,538,000 and
$17,587,000 in 1995 and 1994, respectively. Accounts receivable currently due from PSNH under the contract are approximately $3,101,000 and $3,024,000 at December 31,1995 and 1994, respec-tively. For purposes of the rates paid to the Cooperative by PSNH under the agreement, NHEC's h
initial cost of Seabrook was established at $126 million by order of the NHPUC. The initial cost was further reduced on December 1,1993 (effective date) by $17 million pursuant to the modified Sellback. The terms of payment also provide for phase-in of Sellback rates through a graduated deferral of costs in the first five years commencing July 1,1990, recovered with interest during the g last three years. The Cooperative deferred approximately $3,743,000 and $5,054,000 in costs during M 1995 and 1994, respectively, for a cumulative deferred balance of approximately $36,940,000 at December 31,1995, and $33,197,000 at December 31,1994. Interest on the deferred balance is accrued at the weighted average rate of Seabrook designated notes payable. g As part of the settlement between the Cooperative and PSNH, the Cooperative compensated PENH for its pre-bankruptcy claim resulting from the excess of NHEC's unpaid bills from PSNH over gl l PSNH's unpaid charges from NHEC under the Sellback (recomputed in accordance with the phase-in ! term discussed above). This compensation is in the form of a promissory note issued to PSNH on December 1,1993, in the principal amount of 55.5 million (see Note 6). h) l In addition, capacity and energy are purchased on a wholesale customer basis under contracts from four other suppliers. B' k 1 h
i NEW HAMPSHIRE ELECTRIC COOPERATIVE, INC. Notes to Financial Statements 3 December 31,1995 and 1994
- 9. Deferred Credits Deferred credits at December 31,1995 and 1994, were as follows:
f, i 122fi 1914 (000s) (000s) Demand side management over recovery $ 671 $- Seabrook { 55 93 1 Postretirement benefits 1.551 __
$2J22 $P),
- 10. Pension pd 401(k) Savings Plan I Substantially all of the employees of the Cooperative participate in the National Rural Electric j
E C Perative Association (NRECA) Retirement and Security Program, a multi employer, defined l benefit pension plan. The Cooperative funds accmed pension costs on an annual basis. From July 1, I L 198'i, through October 1994, a moratorium on payments for normal and past service cost contribu- ] tions had been imposed because the Pension Plan had reached funding limitations. The moratorium l was lifted in November 1994. The Cooperative made one annual past service cost payment and four monthly future service cost payments in 1995 and one annual past service cost payment and two N monthly future service cost payments in 1994. Pension costs totalled $560,500 and $383,900 for 1995 and 1994, respectively. The moratorium was reinstated in April of 1995 and is scheduled to y be lifted in April of 1996 for an undetermined period. Y The Cooperative has established a tax qualified 401(k) savings plan for the benefit of its employees
- g and their beneficiaries. The Cooperative's contribution ranges from 1.6% - 2.0% of annual base pay; bonuses and overtime are excluded. The Cooperative's contribution totalled $129,600 and $119,200 for 1995 and 1994, respectively.
- 11. Employee Severance Agreements l
l The Reorganization Plan provided for the severance of several senior management personnel. Severance agreements were entered into with these individuals and the Cooperative made all payments required under the agreements, totaling approximately $114,000, in 1994. E E NEW HAMPSHIRE ELECTRIC COOPERATIVE, INC. I'] Notes to Financial Statements December 31,1995 and 1994
- 12. Postretirement Benefit P!nn B
The Cooperative sponsors a defined benefit postretirement medical and life insurance plan for which it adopted FAS 106 for the year ended December 31,1995. Expenses for 1995 include only amounts paid for retirees as is allowed in approved rate tariffs. The remaining obligation for past service costs, as well as service and interest costs for 1995, have been accrued. A deferred asset of
$1,508,000 has been recorded for accrued unrecovered costs, the recovery of which is contingent g upon the outcome of the rate making proceedings. Management expects to begin recovery of costs in 1996.
The plan is contributory, with contributions set as a percent of benefit costs plus deductibles and coinsurance. Current costs of retired employees were paid from operations. B The following sets forth the plan's funded status reconciled with amounts reported in the Coopera-tive's balance sheet at December 31,1995: (000's) l Accumulated Postretirement Benefit Obligation (APBO): g Retirees and dependents $ (231) B-Fully eligible active plan participants (21) (1.299) Other active plan participants { (1,551) Plan assets at fair value g' APBO in excess of plan assets (1,551) Unrecognized net gain from past experience different [ from that assumed and from changes in assumptions Prior service costs not yet recognized in net periodic Postretirement benefit costs k Unrecognized transition obligation Accrued i>ostreiirement benefit cost
$(Ljjl)
E E E (
NEW HAMPSHIRE E.LECTRIC COOPERATIVE, INC. Notes to Financial Statements December 31,1995 and 1994
- 12. Postretirement Benefit Plan (Concluded)
Net periodic postretirement benefit cost for 1995 included the following companies: % i- (000's) Service costs $ 79 Interest costs 111 Amortization of transition obligation over 20 years __21 N Net periodic postretirement benefit cost 261 g Amount deferred for rate making 2M , Current expenses for retirees 5,,,61 a l t A 7% annual rate of increase in the per capita cost of covered health care benefits was assumed for l 1995 and 9.5% for 1996. The rate was assumed to decrease gradually to 5.5% per year by 2004 and remain at that level, thereafter. The health care cost trend rate assumption has a significant effect on the amounts reported. To illustrate, increasing the asstaned health care cost trend rates by 1 % in each l year would increase the APBO as of December 31,1995, by $152,900 and the aggregate of the service and interest cost components of the net periodic postretirement benefit cost for the year by w $20,500. The weighted-average of the assumed discount rate used in determming the APBO was 8%. l 4 1
- 13. Fair Value of Financial imtruments The Cooperative's financial instmments consist of cash, short-term trade receivables and payables, investments in nontraded stocks, lines of credit, and long-term debt. The carrying value of all Aj instruments, except long-term debt, approximate their fair value. Based on the borrowing rates currently available to the Cooperative for loans with similar terms and average maturities, the fair value oflong-term debt is approximately $261,300,000 as of December 31,1995. These estimates l are not necessarily indicative of the amounts that the Cooperative could realize in the current market and different methodologies may have a material effect on the estimated fair value amounts. l N
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NEW HAMPSHIRE ELECTRIC COOPERATIVE, INC. Notes to Financial Statements g December 31,1995 and 1994 ~
- 14. Subseauent Event - Pilot Program In 1996, the New Hampshire legislature passed a bill to create a pilot program (the Pilot) to test the
- impact of allowing electric customers to choose the source of their electric supply. The NHPUC is responsible for oversight of this Pilot, and has set May 28,1996, as the implementation date. The Pilot, which is expected to last up to two years, opens to competition the generation component of electric service and keeps the delivery of electricity with the existing franchised utilities. The Pilot is limited to 3% of NHEC's load which is approximately 2,350 of NHEC's 66,000 members.
Pursuant to the NHPUC's Pilot guidelines, NHEC has filed supplementary tariffs for the distribution of electric service and recovery ofimplementation costs for the Pilot. These tariffs and charges are subject to NHPUC approval which is anticipated prior to May 28,1996. NHEC suppons the program and views competition as a benefit to its members. Since the cost of " power is a significant component of NHEC's members electric bill and access to competitive power is anticipated to reduce members' bills, it is expected that NHEC's revenues will be reduced. However, if members purchase power directly from suppliers, NHEC's cost of purchase power h should also drop. NHEC does not expect any significant financial impact as a result of members switching power suppliers.
- 15. Commitments and Continnencies The Cooperative is involved in various legal proceedings incidental to the conduct of its normal business operations. In the opinion of management, these proceedings will not have a material adverse impact on the financial condition of the Cooperative. g i
k-k. Is' RE
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i l l t i l FINANCIAL STATEhENTS AND l REPORT OF INDEPENDENT ! CERTIFIED PUBLIC ACCOUNTAh7S l TAUNTON MUNICIPAL LIGHTING PLANT j December 31,1995 and 1994 l l ![ l ~I f i
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4 CONTENTS East ! REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS 3 1 FINANCIAL STATEMENTS BALANCE SHEETS 4 STATEMENTS OF EARNINGS 5 d l $ STATEMENTS OF RETAINED EARNINGS 6 STATEMENTS OF CASH FLOWS 7 i NOTES TO FINANCIAL STATEMENTS 9 i SUPPLEhENTAL INFORMATION . REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS ON SUPPLEMENTALINFORMATION 21 l OPERATING EXPENSES 22 UTILITY PLANT 24 l 4 i 1
98 NorG Washmgton street ! Boston.MA 021141013 [
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617 7217900 fq FAX G17 7213640 l l. l l l GrantThornton a l ama nowromur Accountants and l Management Consultants Tre U.S. Member Frm of l Grut Thornton international Reoort ofIndeoendent Certified Public Accountants l l Municipal Light Commission , of the City ofTaunton l Taunton, Massachusetts i We have audited the accompanying balance sheets of the Taunton Municipal Lighting Plant (a department cf the City of Taunton) as of December 31,1995 and 1994, and the related statements of eamings, retained eanungs and cash flows for the years then ended. The . dnancial statements are the responsibili y of the Plant's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about ' whether the Snancial statements are free of material misstatement. An audit includes examining, on a ; test basis, evidence supponing the amounts and disclosures in the fmancial statements. An audit also I includes assessing the accoun:ing principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe our audits provide a j reasonable basis for our opinion. i As discussed in note H to the financial statements, certain disclosures required by the j Governmental Accounting Standards Board relating to pensions have been omitted. In our opinion, except for the omission of certain pension plan disclosures required by the Governmental Accounting Standards Board, the financial statements referred to in the first paragraph above present fairly, in all material respects, the financial position of the Taunton Municipal Lighting Plant as of December 31,1995 and 1994, and the results ofits operations and its cash Dows for the years then ended in conformity with generally accepted accounting principles.
- As discussed in note A of notes to the financial statements, the Plant changed its I method of accouadng for vacation pay during 1994.
l Boston, Massachusetts March 1,1996 . _ l
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Taurnon Municipal Li8 inist Plant l BALANCE SHEETS December 31, , ASSETS i 1995 1994 5 LTILITY PLANT. AT COST
- Plant in service $102,837,518 $91,447.840 !
less accumulated depreciation (note A4) 59.865.179 56.046.338 ' Net utility plant in service 42.972.339 35,401,502 l l 3,054,850 3,189,676 [ Invemment in Seabrook (noise A9 and C) l Consruction work in proyees (note I) 2.447.515 6.431.926 Total utihty plant 48,474.704 45,023.104 l DEPRECIATION FUND (including certificanes of deposit of 54.490,000 ' 11,454,062
)
and 33,320,000 in 1995 and 1994, respectisely)(notes A4 and B) 12.547,801 1 SICK LEAVE TRUST FUND (note A7) 3,165,943 2.750,723 l OTHER ASSETS - Invesunent in Hydro Quebec Project (note O) 311.472 311,472 : Li 8htusves(note D) 190,024 286.124 Other deferred debits (note J) 157,029 ' 530,432 i CURRENT ASSETS - Cash (note B) 2.234,908 3.644,671 < Cumomer deposits (note B) 388,175 346,761 l Accounts receivable, less allower.ce for doubtful accounts of ' i 5666,721 and $703.154,respectively 4,003,474 3,273,919 j Due from TMLP Rourement Trust (notes A5 and H) 523,851 451,320 Materials and supphes inventory (note A6) 1,581,601 1,848,482 Prepaid expenses 239.923 261.433 Total current anasts 8.971.932 9.826.586 l $ 72 725.166 $2L22L2d2 l RETAINED EARNINGS AND LIABILT!1ES RETAINED EARNINGS Appropria'.ed retained earnings
~ Imnsrepayinent $ 17,677,000 $16,837,000 Construction repayinent 32.434 32.434 '
17,709.434 '16,869.434 Unappropriated retamed earnmes 28,763,980 26,777,454 Unrealized gain (loss) on escunues held for sale 61.173 (140.498) Totalretamed sermnas 46,534,587 43,506,390 LONO-TERM DEBT (note E) 14,563,$09 15.476,862 CURRENT IJABILITIES Accounts payable 2,506,746 2,430,151
- Cumomer credas(note A8) 3.099,239 4,301,356 Cumamer deposes 419,973 364.414 Current maturities orlanperm debt (note E) 910.000 840,000 Accruedliabilaies Sickleave(note A7) 3,3'i3,911 3.087,85I Vacation (note All) 609,647 550,819 Interest - $27,782 554,907 Pa> toll 157.100 153,335 l
[ Other 2.672 10.157 Total current habihties 11.627.070 12.292.990 (' # I t COMMITMENTS AND CONTINGENCIES (notes C, G. H. I and K) )
$ 72 725166 $2L22L132 l ]
i L The accompanying notes are an integral part of these Statements 4 l
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N. j i Taunton Municipal Lighting Plant STATEMENTS OF EARNINGS l a ^
.j Year ended December 31, 'i
~ : l 6 i -i __1995 1994 l
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- j. Operating revenues (note A3) ;
J Sales ofelectricity ' i Commercial andindustrial $22,478,329 $20,149,485.
%sidential 15,171,111 14,061,642 i ' Aes for resale (note G) 3,026,888 2,750,653 E Municipal 1.806.061 1.695.950 i 42,482,389 38,657,730-l Other operating revenues 287.218 224.284 i i-F Total operatmg revenues 42,769,607 38,882,014 }
l- Operatmg expenses l j Power production 23,423,761 20,359,073 l j Transmission and distribution 2,872,586 - 2,726,964 j ] Customer accounting 1,372,857 1,374,869 ;
- Administrative and general (notes A7 and H) 4,837,8 % 4,700,143 !
I Depreciation and amortization (note A4) 4,026,978 3,876,795 Nuclear expense 225.388 212.887 i Total operating expenses 36.759.466 33.250.731 Earnings from operations 6,010,141 5,631,283 Other expense (income) Interest expense 1,256,410 1,317,094 Interest income . (267,390) (276,044) Otherincome(note G) (165.405) (112.763) Total other expense 823.615 928.287 Eamings before provision for payment in lieu of taxes 5,186,526 4,702,996 Provision for payment in lieu of taxes (note F) 2.360.000 2.360.000 NET EARNINGS 5. 2 226 526 5.2.342.996 l . 1 i The accompanying notes are an integral part of these statements. I l 5 l e
Taunton Municipal Lighting Plant STATEhENTS OF RETAINED EARNINGS
' Years ended December 31,1995 and 1994 Appropriated Retained Earnines Unappropriated Loan Constmetion Retained I
Renavment Recavment Earnines
$16,062,000 $32,434 S25,209,458 Balance at January 1,1994 l
775,000 (775,000) Transfer forbond repayment 2.342.996 l Net eammgs 16,837,000 32,a34 26,777,454 Balance at December 31,1994 840,000 (840,000) Transfer for bond repayment 2.826.526 Net earnings Balance at December 31,1995 517 677 000
- $M $28.763.980 I
l l The accompanying notes are an integral pan of these statements. 6 s - i
c Taunton Municipal Lighting Plant STATEMENTS OF CASH FLOWS Year ended December 31, 1995 1994 Increase (Decrease) in Cash and Cash Equivalents Cash flows from operating activities: Net earnings S 2,826,526 $ 2,342,996 Adiustments to reconcile net earnings to net cash and cash equivalents gevided by operating activities: Depreciation and amortization 4,026,978 3,876,795 Amortization ofbond premium (3,353) (3,354) Equity in losses of Seabrook investment (20,418) (18,579) Changein assets and liabilities: (Increase)in customer deposit funds (41,414) (44,636) (Increase) decrease in accounts receivable (729,555) 78,093 Increase in due from retirement trust (72,531) i (63,484) Decreasein inventory 266,881 86,19? i (Increase) decrease in prepaid expenses 21,510 i (148,815) Decrease (increase)in Lightwaves 96,100 (23,261) Decrease in deferred debits 373,403 373,392 Increasein accounts payable 76,595 531,919 (Decrease) increase in customer credits (1,202,117) 2,087,590 Increasein customer deposits 55,559 55,761 Increase in accrued sick leave and vacation 364,888 239,156 (Decrease) in other accrued liabilities (30.845) (31.541) l Net cash provided by operating activities 6.008.207 9.338.231 Cash flows from investing activities: Net additions to utility plant (7,458,160) (5,776,631) Proceeds from maturing certificates ofdeposits - depreciation fund - 2,500,000 Increase in Sick Leave Trust Fund (213.549) (269.816) Net cash used in investing activities (7.671.709) (3.546.447) Cash flows from financing activities: Payment oflong-term debt (840.000) (775.000) Net (decrease) increase in cash and cash equivalents (2,503,502) 5,016,784 Cash and cash equivalents at beginning of, ear 12.872.472 7.855.688 Cash and cash equivalents at end ofyear $10.368.970 $12 872 472 7
.. l l l Taunton Municipal Lighting Plant i STATEMENTS OF CASH FLOWS - CONTINUED Year ended December 31, 1995 1994 Cash and cash equivalents at end ofyear is reflected on the balance sheets as follows: Depreciation funds $ 8,134,062 $ 9,227,801 Cash 2.234.908 3.644.671
$10.368.970 $12 872.472 Sunclemental Disclosure of Cash Flow Information:
Cash paid during the year for interest $ 1,286,889 $ 1,341,958 The accompanying notes are an integral part of these statements. 8 x .
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Taunton Municipal Lighting Plant NOTES TO FINANCIAL STATEMENTS December 31,1995 and 1994 1 NOTE A -
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES A summary of Taunton Municipal Lighting Plant's (the " Plant") significant accounting policies consistently l applied in the preparation of the accompanying financial statements follows.
- 1. Nature ofBusiness Taunton Municipal Light Plant (TMLP) is a regulated municipal electric utility located in Taunton, Massachusetts. TMLP operates as an enterprise fund of the City of Taunton, Massachusetts, and i produces, purchases and distributes electricity to appoximately 35,000 customers in the City of
. Taunton and the surrounding areas. 1 l l
- 2. Use of Estimates )
The preparation of fmancial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reponed amounts ofrevenues and expenses during the reporting period. Actual results could differ from those estimates (see note I).
- 3. Bates i l
The Plant is under the charge and control of the Musipal might Plant Commissioners in accordance l with Chapter 164, Section 55 of the General Laws of the Commonwealth ofMassachusetts. Electric power is both produced and purchased and is distributed to customers within their senice area. The rates charged by the Plant to its customers are filed with the Massachusetts Department of Public Utilities (MDPU) and are subject to Chapter 164, Section 58 of the General Laws, which prosides that prices shall be fixed to yield not more than 8% per annum on the cost of the plant after repayment of operating expenses, interest on outstanding debt and depreciation. The Plant's resulting net eammgs amounted to 3.9% of utility plant in both 1995 and 1994.
- 4. Depreciation Pursuant to the Department of Public Utilities regulations, depreciation is calculated as a percentage of depreciable property at January 1. Depreciation is computed at 4% of the cost of depreciable propeny.
Depreciation fund cash is used in accordance with state laws for replacements and additions to the utility plant in senice. 9 AL .
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Taunton Municipal Lighting Plant-I NOTES TO FINANCIAL STATEMENTS - CONTINUED December 31,1995 and 1994 a 1 NOTE A -
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES - Continued
- 5. Pension Plan Substantially all employees of the Plant are covered by a contributory pension plan administered by the City of Taunton in conformity with State Retirement Board requirements (see note H).
- 6. Inventorv Materials and supplies inventory is carried at cost, principally on the average cost method.
- 7. Sick Leave Tmst Fund The Plant established a Sick Leave Tmst Fund (" Trust") in 1982 for the financing of future sick leave payments. It is the Plant's intention that the Trust be funded to the extent of the Plant's sick liability and that future sick leave expense will be paid by the Tmst once full funding is achieve assets of the Tmst are shown in the financial statements to provide a more meaningful presentation, as the assets of the Trust are for the sole benefit of the Plant.
Effective December 31, 1995, the Plant adopted Statement of Financial Accounting Standards Under ("SFAS") No.115, " Accounting for Certain Investments in Debt and Equity Securities" SFAS No. I15, debt securities that the Company has the positive intent and ability to hold to maturity are classified as held to maturity and reponed at amortized cost; debt and equity se that are bought and held principally for the purpose of selling in the near term are classified as and reported at fair value, with unrealized gains and losses included in eamings; and debt securities not classified as either held to maturity or trading are classified as available for sale and reponed at fair value, with unrealized gains and losses excluded from eamings and reported separate component of retained earnmgs. Gains and losses on the sale of securities are re the time of sale on a specific identification basis. The effect of the adoption of SFAS No.115 on 1995 and 1994, was not significant. 10
j .: -l l l \ l D l Taunton Municipal Lighting Plant NOTES TO FINANCIAL STATEMENTS - CONTINUED l December 31,1995 and 1994 ) l l NOTE A -
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES - Continued j l In addition to money market funds and accmed income, the estimated market values of securities included in the Sick Leave Trust Fund at December 31, were as follows:
)
1 1 Estimated Unreahzed Unrealized Market Cost Gains Losses Value (In Thousands) i Securities available for sale at l December 31,1995 i US Treasury obligations (maturing l May 1997 through August 2023) 51,893 563 $1,956 US Government agency obligations ) (maturing August 1997 through ! September 1998) 218 1 55 214 I Other corporate obligations (maturing May 1996 through March 2000) 488 7 9 486 Foreign bonds and other 157 3 160 Total securities available for sale 52,2M SE SM $2116 l l Securities available for sale at December 31,1994 ) US Treasury obligations S 943 S1 5 58 $ 886 l US Government agency obligations 885 2 35 852 ~! Other corporate obligations 603 2 38 567 l Foreign bonds and other 244 l _ _15 _229 Total securities available for sale $2425 55 SB6 $2.1M l Net investment income for the Tr. st of approximately $219,000 and $147,000 in 1995 and 1994, respectively, is reflected in the statements of eammgs as an offset to compensated absence expense, l as these funds are restricted and can only be used for the payment of sick leave benefits. The net expense for sick leave was approximately $241,000 and $283,000 for the years ended s.cember 31, 1995 and 1994, respectively. I1
Taunton Municipal Lighting Plant NOTES TO FINANCIAL STATEhENTS - CONTINUED December 31,1995 and 1994 NOTE A -
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES - Continued
- 8. Customer Credits The Plant's rates include a Purchased Power Cost Adjustment (PPCA) which allows an adjustment of rates charged to customers in order to recover all changes in power costs from stipulated base costs.
The PPCA provides for a quarterly reconciliation of total power costs billed with the actual cost of power incurred. Any excess or deficiency in amounts collected as compared to costs incurred is deferred and either credited or billed to customers over subsequent periods.
- 9. Investment in Seabrook The Plant's Investment in Seabrook represents a 0.10034% joint ownership share. The Plant records annually depreciation computed at 4% of the initial investment in Seabrook. The Plant's percentage share of r.ew plant additions are capitalized and their share of operating and maintenance expenses, and decommissioning expenses (see note C) are charged against earmngs.
- 10. Cash riauivalents Tor purposes of the Statement of Cash Flows, the Plant considers certificates of deposit with maturities of three months or less to be cash equivalents.
- 11. Vacation In 1994, the Plant adopted Governmental Accounting Standards Board Statement No.16 (GASB No.16), " Accounting for Compensated Absences" The effect of the adoption was not material to operations in 1994.
- 12. Reclassifications Certain amounts in the financial statements for the year ended December 31, 1994, have been reclassified to conform to the current year presentation.
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Taunton Municipal Lighting Plant NOTES TO FINANCIAL STATEMENTS - CONTINUED December 31,1995 and 1994 NOTE B - CASH AND CERTIFICATES OF DEPOSIT The Plant's cash is deposited with the City of Taunton Treasurer who commmgles it with other City . ands. The City invests the cash and credits the Plant each year with interest earned on the cash deposits. Cash and certificates of deposit deposited with the City of Taunton consists of the following at December 31, 1995 1994 Interest bearing pooled funds including restricted customer deposits of $388,175 and $346,761, respectively $ 9,587,145 $12,309,233 Cenificates of deposit with rates of 4.95% - 5.25% maturing at valious dates during 1995 910,000 Certificates ofdeposit with rates of 5.08% - 5.69% maturing at various dates during 1996 4.490.000 3.320.000
$14 077145 $16.539 233 Cash and certificates of deposit at December 31, is reflected as follows:
1995 1994 Depreciation fund $ 7,399,833 $ 8,696,950 Depreciation fund - Unit 9 principal and interest 4,054,229 3,850,851 . Cash 2,234,908 3,644,671 Customer deposit principal and interest fund 388.175 346.761
$14 077.145 $16.539 233 L
NOTE C -INVESTMENT IN SEABROOK The Plant is a 0.10034% joint owner of the Seabrook New Hampshire Unit 1. Thejoint owners of Seabrook have established a Decommissioning Fund that is currently held by a Tmstee. The Plant's share of the estimated decommissioning liability is approximately $415,000 as ofJanuary 1,1995 (the most current valuation date). The Plant is currently contributing, based on a present value formula,
$550 per month over 36 years.
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4 I Taunton Municipal Lighting Plant NOTES TO FINANCIAL STATEMENTS - CONTINUED I December 31,1995 and 1994 NOTE D -LIGHTWAVES The Plant has initiated an energy saving program for commercial and industrial customers known as Lightwaves. The program entitles the customer to a free energy audit and installation of energy efficient i equipment. Customers are required to pay a monthly fee for a 60 month period. The fee is based upon the administrative costs related to the program. The related administrativs :osts are being deferred and amortized over the 60 month billing period. As of December 31,1994, the Plant has deferred these costs which will be billed to customers. During 1995, the Plant changed its method for accounting for the l administrative cost by expensing current administrative cost relating to the lightwaves program and continuing to amortize cost previously deferred. This change did not have a material effect on the financial statements. l l NOTE E - LONG-TERM DEBT Long-term debt is compdsed of the following bonds: l 1995 1994 l i Electricloan, Act of1969 Interest rate - various rates from 7.5% to 8%, interest payable Febmary 1 and August 1, due serially to February 1,2006 $15,440,000 $16,280,000 I Unamortized premium 33.509 36.862 15,473,509 16,316,862 Less current maturities __._910.000 840.000 Totallong-term debt $14.563.509 $15.476 862 Aggregate maturities oflong-term debt at December 31,1995, are as follows: 1996 $ 910,000 1997 985,000 1998 1,065,000 1999 1,150,000
'2000 1,250,000 Thereafter 10.080.000
$15.440.000 The fair market value of the debt approximates its book value.
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i 1 Taunton Municipal Lighting Plant NOTES TO FINANCIAL STATEMENTS - CONTINUED ,l December 31,1995 and 1994 NOTE F- CONTRIBUTION IN LIEU OF TAXES The Plant contributed $2,360,000 in 1995 and 1994 to the City of Taunton in lieu of taxes. All contnbutions to the City are voted by the Municipal Light Commission. NOTE G - COMMITMENTS AND COhTINGENCIES i Interconnection Agreement l The City of Taunton, acting by vote ofits Municipal Lighting Plant Commission, entered into an agreement ' with Montaup Electric Comoany ("Montaup"), dated July 31, 1970, as amended, concerning interconnection of electrical operations, purchase and sale of kilowatt capacity, and constmetion by , Taunton of a generating unit of approximately 110 megawatt capability. Under the current interconnection
- agreement, the City agrees to exchange with Montaup Electdc Company fifteen (15) megawatts of Unit
- No. 9 capacity for ten (10) megawatts of capacity from the Canal No. 2 generating unit, 50% of which is owned by Montaup. The Plant credited to sales for resale $377,383 and $317,755 of capacity and energy charges billed to Montaup Electric Company in 1995 and 1994, respectively, for its share of power under
- theinterconnection agreement.
- Hydro-Ouebec Agreement 3 In 1988, the Plant entered into an agreement with the Massachusetts Municipal Wholesale Electric -
l Company and other New England Utilities to support the operation of a transmission line to permit the interchange of electricity between such utilities and Hydro-Quebec Electric Corporation (HydroQuebec). In connection with the agreement, the Plant advanced approxunately $800,000 tow?rd development of the project of which approximately $450,000 was returned aGer the project had obtained financing. In 1991, the Hydro Quebec project was con.pleted. Upon completion of this project, each participant received stock in the New England Hydro Transmission Electric Company and The New England Hydro j Transmission Corporation proportional to their advances. The investment is being accounted for on the cost basis. The stock received is not readily marketable, but gives the holder rights to purchase power at a - percentage of the fossil fuel rate. l During the years ended December 31,1995 and 1994, the Plant received dividerws from the above noted _ Companies in the amounts of $53.638 and $55,055, respectively. 2 m 15
T Taunton Municipal Lighting Plant- ' NOTES TO FINANCIAL STATEMENTS - CONTINUED ' December 31,1995 and 1994
- NOTE G - COMMITMENTS AND CONTINGENCIES - Continued Litication and Other Matters The Plant is involved in various legal matters incident to its business, none of which is believed by
- management to be signi6 cant to the Snancial condition of the Plant (see note I).
The Plant is also involved in several proceedings relating to environmental matters. Although it is difficult to estimate the liability, if any, of the Plant related to those environmental matters, the Plant believes that those matters will not have a material adverse effect upon its fmancial condition. NOTE H- PENSION PLANS The Plant contributes to the City of Taunton Retirement System (" System"), a public employee retirement sys*em that acts as the investment and administrative agent for the City. All full-time employees participate in the System. i Instituted in 1937, the System is a member of the Massachusetts Contributory System and is govemed by Massachusetts General Laws Chapter 32. Membership in the System is mandatory upon the commencement of employment for all permanent, full-time employees. The System provides for retirement allowance beneSts up to a maximum of 80% of a member's highest three-year average annual rate of regular compensation. Benefit payments are based upon a member's age, length of creditable service, level of compensation and group classification. Members of the System become vested after 10 years of creditable service. A retirement allowance may be received upon reaching age 65 or upon attaining twenty years of service. The System also provides for early 4 retirement at age 55 if the participant (1) has a record of 10 years of creditable service, (2) was on the City's payroll on January 1, 1978, (3) voluntarily left City employment on or after that date, and (4) left accumulated annuity deductions in the fund. Active members contribute either 5%, 7% or 8% of their regular compensation depending on the date upon which their membership began. The System also provides death and disability benefits. 16
i l Taunton Municipal Lighting Plant j i NOTES TO FINANCIAL STATEMENTS - CONTINUED December 31,1995 and 1994 l l 1 NOTE H - PENSION PLANS - Continued The System does not make a separate measurement of assets and the pension benefit obligation for the Plant. The pension benefit obligation is a standardized disclosure measure of the present value of pension benefits, adjusted for the effects of projected salary increases and step-rate beneSts, estimated to be payable in the future as a result of employee service to date. The measure is intended to help users assess the funding status of the System on a going-concern basis, assess progress made in accumulating sufficient assets to pay beneSts when due, and make comparisons among employers. The measure is the actuarial present value of credited projected benefits and is indepadent of the funding method used to determine contributions to the System. As ofJuly 1,1995 (the most current valuation date), the Plant's unfunded actuarial accrued liability is approximately $14,699,000. The Plant has established a separate Employees Retirement Trust Fund Trust Fund) for the financing of future pension payments. The Trust Fund had net assets (at cost) of approximately $12,934,000 and i 512,806,000 at December 31,1995 and 1994, respectively. The market value of the net assets at December 31,1995 and 1994 was approximately $13,549,000 and $12,373,000, respectively. These funds are invested in money market funds, fixed income securities including government and corporate bonds and l other equity securities. The Plant has made no contributions to the Trust Fund in either 1995 or 1994. l l The Plant receives from the Trust Fund, over the next thiny-two years, an amount equal to eighty-five I percent of the annual amortization of the unfunded pension liability. The remaining fifteen percent of the unfunded pension liability will be contributed from current year operations. The following represents the components of the Plant's recorded pension expense: [ f December 31, 1995 1994 , Contributions to the System $1,547,652 $1,364,761 Contributions from the Trust Fund (975.163) (839.146) Recorded pension expense S 572 489 $ 525.615 Prior to 1993, the System's funding policy for the panicipating entities was not actuarially determined. The panicipating entities were required to contribute each fiscal year an amount approximating the pension benefits (less cenain interest credits) expected to be paid during the year (" pay-as-you-go" method). Effective for fiscal year ends 1993 and beyond, the System has removed the " pay-as-you-go" method and will amonize the unfunded pension benefit obligation over thiny-two years. This change has been approved by Public Employees Retirement Association. 17
}. . I n'
I t.. Taunton Municipal Lighting Plant l 1 NOTES TO FINANCIAL STATEMENTS - CONTINUED December 31,1995 and 1994 NOTE H -PENSION PLANS - Continued 4 Accounting standards require certain related disclosures be made including the components of pension costs and the funded status of the System The effect of omitting such disclosure on the accompanying fmancial , statements has not been determined for the year ended December 31,1995. l NOTE I - COAL FIRE ELECTRIC GENERATING FACILITY l On January 31,1991, the Plant entered into contracts with Silver City Energy Limited Partnership (the
" Developer), a Delaware limited pannership. The contracts penain to the leasing of a 25 acre parcel, owed by the Plant, adjacent to the Plant's Cleary-Flood Station and the subsequent building of a coal fired electric generating facility (coal plant) by the Developer.
The ground lease extends for a period of forty years. Rental payments to the Plant are $50,000 per year until the earlier of May 15, 1997, or the commencement date of operations, and $1,100,000 per year for the remaininglease term. The Plant has agreed to purchase 20% of the power generated once the coal plant is in operation, which is l approximately 30 megawatts. The agreement is for twenty years. l l The Plant has secured a mortgage on the buildings and facilities to be constmeted to secure payment of the aggregate differential. The aggregate differential represents funds to be paid to the Plant in the event that the project is not completed. Payment is based on a dollar value per kilowatt which increases over the duration of the constmetion period. i If operations do not commence by September 15, 1996, the Plant may terminate all contracts with the Developer. In the event of termination of the contracts, the Plant may be entitled to reimbursement by the Developer of up to 50% ofcenain costs incurred by the Plant. As of December 31,1995, the Plant has capitalized approximately $1,617,000 oflegal and administrative costs which are included in construction work in progress. These costs will be amonized over the contract period once operations have commenced. With respect to the proposed plant construction, the Plant is involved in certain legal matters relating to zoning. In the opinion ofmanagement, the resolution of these matters will not effect the ultimate completion of this project. Due to the uncenainties in the permitting process, however, it is at least reasonably possible that management's estimate of the outcome would change during the next year. 18
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J 4
- Taunton Municipal Lighting Plant NOTES TO FINANCIAL STATEMENTS - CONTINUED December 31,1995 and 1994 1
NOTE J - DEFERRED MAINTENANCE
; A unit of the Plant underwent a maintenance overhaul, of which the related costs are being amortized over a l 6ve-year period. The unamortized balance at December 31,1995 and 1994 is $157,029 and 5530,432, l respectively.
l j s NOTE K - POST EMPLOYMENT BENEFITS l t 4 i In addition to the pension benefits described in note H, the Plant provides post employment health care bene 6ts to retirees that meet certain requirements. Retirees of the Plant under age 65 are eligible for the ! same health bene 6ts as active employees, while retirees over the age of 65 are eligible for MEDEX. The ] costs of the bene 6ts provided to retirees are bome 75% by the Plant, and 25% by the retirees. Retiree's j sunivors must bear the full cost of the bene 6ts. The Plant is charged their prorata portion of the " pay-as-you-go" cost of benefits based on an allocation by 4 the City done annually. For 1995 and 1994, the costs allocated to the Plant were approximately $334,000 and $331,000, respectively. i i 4 e 4 1 4 4 4 19
1 '. I e i I I + d l i s i I t i 4 . l l t 1 ( . l i 1 4 h f } l l s i j
- SUPPLEhENTAL INFORMATION i
J f J I i 4 1 0 e a a d 1 e e
i
- l
, i l.. i i i Report ofindependent Cenified Public Accountants
- on SucolementalInformation
! Taunton Municipal Lighting Plant l Our audit was conducted for the purpose of forming an opinion on the basic financial ! statements taken as a whole of Taunton Municipal Lighting Plant for the year ended December 31, 1995, which are presented in the preceding section of this report. The supplemental information i
- presented hereinafter is presented for purposes of additional analysis and is not a required pan of the
! basic financial statements. Such information has been subjected to the auditing procedures applied in t j the audit of the basic fmancial statements and, in our opinion, is fairly stated, in all material respects, in ) relation to the basic financial statements taken as a whole. 1 i JLf Boston, Massachusetts March 1,1996 _ _ _ _ . . _ _ =
Taunton Municipal Lighting Plant OPERATING EXPENSES For the year ended December 31, 1995 1994 POWER PRODUCTION Operation Supenision and engineering $ 668,878 $ 649,953 Fuel 3,149,467 2,594,936 Labor and expenses 1.868.474 1.850.835 5,686,819 5,095,724 Maintenance Supenision and engineering 264,310 337,342 Structures 135,389 210,138 Boiler plant 804,485 826,422 Electric plant 968,278 497,693 Miscellaneous 321.262 219.876 2,493,724 2,091,471 Purchased power 15.243.218 13.171.878 Total power production 23.423.761 20.359.073 TRANSMISSION AND DISTRIBUTION Operation Supenision and engineering 162,262 159,522 l Labor 18,904 20,445 i Supplies and expenses 8,002 10,269 Meter expenses 180,971 167,969 Customerinstallation 19,165 17,896 Transmission by others 216,010 172,927 i Overhead lines 113,819 114,406 Miscellaneous 243.602 246.906 962,735 910,340 - Maintenance Supenision and engineering 313,039 341,599 Lines - electric 1,321,924 1,156,615 Street lighting and signal systems 132,137 147,579 Meters 9,915 9,117 Stmetures and equipment 1,238 11,786 Line transformers 69,279 51,205 Station equipment 53,449 88,307 Miscellaneous 8.870 10.416
~1.909.851 1.816.624 Total transmission and distribution 2.0'72.586 2.726.964 Fonvard 26.296.347 23.086.037 22
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- s -
l Taunton Municipal Lighting Piant ! OPERATING EXPENSES - CONTINUED i l Year ended December 31, i l 1995 1994 l Brought fonvard $26,296,347 $23,086,037 { CUSTOMER ACCOUNTING l Meter reading labor and expenses 227,147 208,332 l Accounting and collecting expenses 939,487 878,325 l Uncollectible accounts 188,400 282,234 { Advertising expense 17.823 5.978 l Total customer accounting 1,372,857 1,374,869 i I ADMINISTRATIVE AND GENERAL j Operation ! Administrative and general salaries 725,995 809,065
- OfIice supplies and expenses 211,145 209,479 i Outside services employed 190,561 175,767
! Propertyinsurance 149,223 125,092 l Injuries and damages 445,819 465,372 l Employee pensions and benefits 2,009,964 2,072,702 . I Miscellaneous general expenses 481,221 306,524 l l Transportation expenses 274,101 238,964 l Regulatory commission expense 193.452 116.290 l 4,681,481 4,519,255 ! Maintenance j General plant 156.415 180.888 Total administrative and general 4.837.896 4.700.143 DEPRECIATION AND AMORTIZATION 4,026,978 3,876,795 NUCLEAR EXPENSE 225.388 __ _2.12,887
$36.759.466 $33.250.731 23
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.. t Taunton Monopel Lighting Plant '
Utaty Piant For Pesiod Ensng Demmber 31.1995 Aotumulated s Balance Balance Depreonhan Deproosted Aa1 True of 01/01/95 ~ Adatumis Fleinements 12/3t/95 12/3t/95 Vafwe f 2/31/95 No Account Station Produchon Plant 749.366 - - 749.366 . 749.366 310 Land and Land Eghte 7.399.174 1.968.694 - 9.365.867 5.965.292 3.380.575 318 Structures & knprowments 19.I43.622 4.500.433 - 23.644.055 t4.347.I72 9.296.863 382 Boder Plant ?quipment 18.229.690 7I3.763 - 18.943.453 It.865.149 7.078.303 314 Turbo Generstor Units 2.066.8 F t 30.643 - 2.697.513 2.889.489 8.024 315 Acoseory ElodricOrcup Misc Power Plant Equsp. 679.263 126.467 - 805.731 677.934 127.797 316 48 867 986 7.338.000 56.205.985 35.565.106 20.640.949 Total Steam Produchon Plant Othes Ptaduden Plant 542.044 18.797 - 620.641 363.276 237.565 342 Fuel Holders & Acoessories 83 407 63 407 62.893 20.7I4 344 Generakss 407 598 40 F.598 302.859 104.739 345 Acoessory Electit Orcup t 033 049 78.797 - 1.111.846 748.828 363.017 Tctal Other Produchon Plant
$ Transmrssion Plant 216.242 - 216.242 - 218.242 350 Land & Land nghts -
35.022 - 35.022 - 35.022 351 Osanng land Nght of Way - 133.392 - - 133.392 90.000 43.392 352 Structures & ;.y-. c.ts 2.395.854 8.644 2.404.498 1.004.250 800.248 353 Staton Equement - 908.333 97 - 908.430 860 M9 240.284 354 Towers & Fixtures 2.139.909 f.539 - 2.141.448 786.741 1.352.707 355 Polma & Features I.227.329 - - t.227.329 494.752 732.578 356 Omrhead Conductor Devim 3.104 - - 3.104 2.235 000 357 Underground Conduet Elec 6.170 7 - 6.877 4.(UT 2.840 356 Underground Corductor Elec 7.065.355 10.286 - 7.075.642 3.852.161 3.423.46I Total Trenemmason Plant l 6
Balance Depreastion Depse ;isted j* ** ' Titta of Balance Velve 12/31/15
- Acct Addtions Rttiremente 12/31/95 12/31/25 t No. Account 01/01/25 .
. t Destreutson Plant 161,111 - 131,111 159.489 1,622 -
360 Lerni & Land Rights 667,700 276.165 391.535 Structurae & improvemente 667,485 215 - 657,578 361 319,137 3.114,380 2,456.802 2,795,243 362 Station Equipment 1,608 217 1,391 , 1.442 ISS - 1,294,799 363 Storage 8sttery Equip 4,360,284 3,065,485 4,040,324 319,960 - 364 Poles Towere & Fiatures 6.348,648 2,562,589 3,786,059 5,646,977 701,670 - 365 Overhead Conduit & Device 2,717,163 1,940,229 776,934 2,602.650 114.513 - 366 Underground Conduit 69,877 2.454,763 1,770,520 684.243 ' 2,384,886 367 underground Conductor & Device 4,643,873 1,919,713 2,724,160 4.133,175 510.698 - 537,734 ; 368 Line Treneformere 119,589 - 844,024 306,290 Servicae 724.435 371,544 369 58,038 1,767,545 1,396.001 ; 1,709,507 370 Meters 395,630 - 3,678,180 1,299,720 2,378.460 l 3.282,550 ! 372 E C S Program 30,928 1,557.578 869.422 688.156 St. Light & Signal Systems 1,526,650 - 373 [ 32,316,857 17,863,153 14,453,704 ! 29.674,813 2,642.044 - I Total Distribution Plant General Plant 40,972 40.972 - - 40.972 - 389 Leent & Land Rights 2.609.831 675.756 1,934,074 Structures & Improvemente 2.002,552 807.279 - 971,977 390 340,820 i 513,526 - 1,312,797 Of fice Furruture & Equipment 799.273 782.859 763,197 391 145,475 66,239 1,546,056 Transporation Equipment 1.466,820 17,357 179,024 392 26,281 - 196,381 , Store Equipment 170,100 y 393 2,498 - 34,823 21,310 13.513 394 Tool Shop Garage Equip 32.325 16,325 (918) 15,204 203 - 15,407 395 Laboratory Equipment 29,595 29,465 130 Power Operated Equipment 28.568 1.027 - 396 278,430 95,943 182.487 201.274 77,156 - 397 Communication Equipment - 113,709 56,165 57,544 Misc. Equipment 113,709 - 398 66,239 6,178,000 2,036,000 4,142.000 4,870,795 1,373,445 l Total Generet Plant (50,812) (50,812) (64.158) 13,346 : Lees Contributions in mid of construction t 66,239 102,837,518 59,885,173 42,972,339 91,447,840 11,455,917 Total Utility Plant in Service 11,499,983 2,447,515 - 2,447,515 6,4'1,926 7,515,572 107 Construction W.I.P. ! 11.566,222 105,285,033 59,865,179 45,419,854 97,879,766 18,971,489 I i _ _ . . .}}