-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, KqOVmj4GILtoASA+opxZ3AUfv4M20j7TzZSRl71IqaVeHK+hlDLc7Okg3j+wLhwq lP1VjPUy7mYy/gQiRLa91g== 0000071304-97-000006.txt : 19970401 0000071304-97-000006.hdr.sgml : 19970401 ACCESSION NUMBER: 0000071304-97-000006 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970331 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: CANAL ELECTRIC CO CENTRAL INDEX KEY: 0000016906 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC SERVICES [4911] IRS NUMBER: 041733577 STATE OF INCORPORATION: MA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 002-30057 FILM NUMBER: 97570654 BUSINESS ADDRESS: STREET 1: ONE MAIN ST CITY: CAMBRIDGE STATE: MA ZIP: 02142 BUSINESS PHONE: 6172254000 MAIL ADDRESS: STREET 1: P O BOX 9150 CITY: CAMBRIDGE STATE: MA ZIP: 02142-9150 FORMER COMPANY: FORMER CONFORMED NAME: PLYMOUTH COUNTY ELECTRIC CO DATE OF NAME CHANGE: 19680912 10-K 1 CANAL ELECTRIC CO. - 1996 FORM 10-K UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549-1004 Form 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (Mark One) [ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED] For the fiscal year ended December 31, 1996 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] For the transition period from _______________ to _______________ Commission file number 2-30057 CANAL ELECTRIC COMPANY (Exact name of registrant as specified in its charter) Massachusetts 04-1733577 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) One Main Street, Cambridge, Massachusetts 02142-9150 (Address of principal executive offices) (Zip Code) (617) 225-4000 (Registrant's telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act: Title of each class Name of each exchange on which registered None None Securities registered pursuant to Section 12(g) of the Act: Title of Class None Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES [ x ] NO [ ] Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Outstanding at Class of Common Stock March 15, 1997 Common Stock, $25 par value 1,523,200 shares The Company meets the conditions set forth in General Instruction J(1)(a) and (b) of Form 10-K as a wholly-owned subsidiary and is therefore filing this Form with the reduced disclosure format. Documents Incorporated by Reference Part in Form 10-K None Not Applicable List of Exhibits begins on page 32 of this report. CANAL ELECTRIC COMPANY FORM 10-K DECEMBER 31, 1996 TABLE OF CONTENTS PART I PAGE Item 1. Business.......................................... 3 General......................................... 3 New England Power Pool.......................... 3 Regulation...................................... 4 Electric Industry Restructuring................. 4 Fuel Supply..................................... 5 Power Contracts................................. 6 Power Supply Commitments and Support Agreements............................ 7 Construction and Financing...................... 7 Employees....................................... 7 Item 2. Properties........................................ 7 Item 3. Legal Proceedings................................. 7 PART II Item 5. Market for the Registrant's Common Stock and Related Stockholder Matters..................... 8 Item 7. Management's Discussion and Analysis of Results of Operations........................... 9 Item 8. Financial Statements and Supplementary Data....... 12 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure............. 12 PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K............................. 32 Signatures................................................... 41 CANAL ELECTRIC COMPANY Part I. Item 1. Business General Canal Electric Company (the Company) is a wholesale electric generating company organized in 1902 under the laws of the Commonwealth of Massachu- setts. The Company assumed its present corporate name in 1966 after the sale to an affiliated company of its electric distribution and transmission properties together with the right to do business in the territories served. The Company is a wholly-owned subsidiary of Commonwealth Energy System ("System"), which together with its subsidiaries is collectively referred to as "the system." The Company's generating station is located in Sandwich, Massachusetts at the eastern end of the Cape Cod Canal. The station consists of two electric generating units: Canal Unit 1 is an oil-fired facility with a rated capacity of 569 MW, wholly-owned by the Company; and Canal Unit 2 which was converted to dual-fuel capability (oil and natural gas) in 1996, with a rated capacity of 580 MW, jointly-owned by the Company and Montaup Electric Company (Montaup) (an unaffiliated company). Canal Unit 2 is operated by the Company under an agreement with Montaup which provides for the equal sharing of output, fixed charges and operating expenses. Canal Units 1 and 2 commenced operation in 1968 and in 1976, respectively. The Company also has a 3.52% interest in the Seabrook 1 nuclear power plant located in Seabrook, New Hampshire, to provide for a portion of the capacity and energy needs of Cambridge Electric Light Company (Cambridge) and Commonwealth Electric Company (Commonwealth Electric), each of which are retail distribution companies and wholly-owned subsidiaries of the System. The plant has a rated capacity of 1,150 MW. For additional information pertaining to the Company's relationship with the system's retail distribution companies, together with more extensive information on the Company's participation in the Seabrook plant and on other sources of power procurement, refer to the "Power Contracts" and "Power Supply Commitments and Support Agreements" sections of this Item 1. New England Power Pool The Company, together with other electric utility companies in the New England area, is a member of the New England Power Pool (NEPOOL), which was formed in 1971 to provide for the joint planning and operation of electric systems throughout New England. NEPOOL operates a centralized dispatching facility to ensure reliability of service and to dispatch the most economically available generating units of the member companies to fulfill the region's energy requirements. This concept is accomplished by use of computers to monitor and forecast load requirements. In the past, this has required that Canal Unit 1 operate whenever possible since it is one of the most efficient oil-fired units in the country. Canal Unit 2 is designed for cycling operation which provides for economic changes in unit load permitting reduced generation during nights and weekends when demand is lowest. It has performed as one of New CANAL ELECTRIC COMPANY England's most efficient units in this type of service. The Company and the System's other electric subsidiaries are also members of the Northeast Power Coordinating Council (NPCC), an advisory organization which includes the major power systems in New England and New York plus the provinces of Ontario and New Brunswick in Canada. NPCC establishes criteria and standards for reliability and serves as a vehicle for coordination in the planning and operation of these systems. Regulation The Company is a "public utility" within the meaning of Part II of the Federal Power Act and is subject to regulations thereunder by the FERC as to rates, accounting and other matters. The Company is subject to regulation by the DPU as to the issuance of securities. Electric Industry Restructuring In August 1995, the DPU issued an order calling for the restructuring of the electric utility industry in Massachusetts. On May 1, 1996, the DPU issued a second order containing proposed rules for implementing electric industry restructuring that were the subject of public comment and hearings during June and July 1996. Subsequently, on December 30, 1996, the DPU issued another order announcing its "Model Rules and Legislative Proposal" as a guide in the creation of a competitive market for electric generation in Massachusetts that would provide customers with the opportunity to achieve lower electric bills beginning January 1, 1998. The order also required electric utilities to file by March 3, 1997, revenue-neutral, unbundled rates and model bills showing a breakdown of the bill into generation, transmission, distribution and access charge categories. In its "Model Rules," the DPU has proposed that the minimum structural reorganization needed to create a competitive market is the functional separation of generation, transmission and distribution within one integrated company, and the establishment of a separate marketing affiliate if a company retains generation assets. The Massachusetts Legislature, which will render the final passage of any restructuring law, is now considering the DPU's proposed legislation. In addition, on March 20, 1997, the Legislature's own Joint Committee on Electric Utility Restructuring (the Committee) issued a comprehensive policy report which outlines options for the Legislature's consideration as debate on this issue continues. In addition to the report, the Committee formulated its own recommendations and corresponding legislative package designed to address each of the major areas of the law which must develop if electric utility restructuring is to be successfully implemented in Massachusetts. Other elements of the DPU's Model Rules provide that electric customers will be able to buy their power on the open market; distribution services will remain a monopoly service offered exclusively by the existing local distribution companies in clearly defined service territories; and customers will have three types of electric generation choices. First, customers may enter into unregulated agreements with a competitive supplier for the provi- sion of generation. Second, customers may continue to buy power directly from their electric distribution company at a price regulated by the DPU. Third, customers who have received generation from a competitive supplier but who, for any reason, have stopped receiving such generation will be able to receive default generation service, provided by distribution companies at CANAL ELECTRIC COMPANY spot market price. The Company has FERC-approved power contracts in effect with various retail electric utilities (including certain affiliates). The retail electric utilities with whom the Company has power contracts are directly affected by the state's electric industry restructuring order. The Company believes that it will continue to collect the costs associated with these FERC-approved power contracts. During the last several months, three Massachusetts electric utilities have announced negotiated settlement agreements with the Massachusetts Attorney General's Office (Attorney General) that include divestiture of generating assets, provision for a ten percent reduction in customers' charges and recovery of stranded costs through a non-bypassable access charge. One settlement agreement has already been approved by the DPU. Implementation of any restructuring settlement may be affected by actions of the Massachusetts Legislature. The system is engaged in preliminary settlement discussions with the Attorney General, and expects to reach a comprehensive settlement during the first half of 1997. In the unlikely event the parties are unable to complete a settlement, the system would file a full restructuring plan with the DPU. Fuel Supply Effective October 1, 1996, the Company executed a fifteen-month contract with Enron Liquid Fuels, Inc. (Enron) for the purchase of 1% sulfur residual fuel oil. The contract provides for delivery of a set percentage of the Company's fuel requirement, the balance (a maximum of 35%) to be met by spot purchases or by Enron at the discretion of the Company. Through December 31, 1996, 17.6% of the Company's total requirements have been met by lower- cost, spot purchases resulting in savings to its customers. Energy Supply and Credit Corporation (ESCO Massachusetts, Inc.) operates the Company's fuel oil terminal and manages the receipt and payment for fuel oil under assignment of the Company's supply contracts to ESCO Massachu- setts, Inc. Residual fuel oil in the terminal's shore tanks is held in inventory by ESCO Massachusetts, Inc. and delivered upon demand to the Company's two day tanks. Fuel oil storage facilities at the Canal site have a capacity of 1,199,000 barrels, representing approximately 60 days of normal operation of the two units. During 1996, ESCO Massachusetts, Inc. maintained an average daily inventory of 421,000 barrels of fuel oil which represents 34 days of normal operation of the two units. This supply is maintained by tanker deliveries. During 1996 Unit 2 was converted to dual-fuel capability, residual fuel oil and natural gas. During September and October 1996, Unit 2 burned approximately 1.6 million MMBTU's of natural gas, saving customers approximately $1.1 million. Natural gas was not burned at Unit 2 during November and December as the cost of residual fuel oil was more economical during that period. The Company anticipates that its dual fuel capability will result in future savings as the least expensive fuel is utilized. The Company has entered into a contract with Duke/Louis Dreyfus, L.L.C. to provide 100% of the natural gas requirements of Unit 2 through CANAL ELECTRIC COMPANY December 31, 1997. The nuclear fuel contract and inventory information for Seabrook 1 has been furnished to the Company by North Atlantic Energy Services Corporation (NAESCO), the plant manager responsible for operation of the unit. Seabrook's requirement for nuclear fuel components are 100% covered through 1999 by existing contracts. There are no spent fuel reprocessing or disposal facilities currently operating in the United States. Instead, commercial nuclear electric gener- ating units operating in the United States are required to retain spent fuel on-site. As required by the Nuclear Waste Policy Act of 1982 (the Act), as amended, the joint-owners entered into a contract with the Department of Energy for the transportation and disposal of spent fuel and high level radioactive waste at a national nuclear waste repository or Monitored Retrievable Storage (MRS) facility. Owners or generators of spent nuclear fuel or its associated wastes are required to bear the costs for such transportation and disposal through payment of a fee of approximately 1 mill/KWH based on net electric generation to the Nuclear Waste Fund. Under the Act, a storage facility for nuclear waste was anticipated to be in operation by 1998; a reassessment of the project's schedule requires extending the completion date of the permanent facility until at least 2010. Seabrook 1 is currently licensed for enough on-site storage to accommodate spent fuel expected to be accumulated through at least the year 2010. Power Contracts The Company is a party to substantially identical life-of-the-unit power contracts with Boston Edison Company, Montaup Electric Company and New England Power Company (unaffiliated utilities), under which each is severally obligated to purchase one-quarter of the capacity and energy of Canal Unit 1. Commonwealth Electric and Cambridge are jointly obligated to purchase the remaining one-quarter of the unit's capacity and energy. Similar contracts are in effect between the Company and Commonwealth Electric and Cambridge under which those companies are jointly obligated to purchase the Company's entire share of the capacity and energy of Canal Unit 2. The price of power is based on a two-part rate consisting of a demand charge and an energy charge. The demand charge covers all expenses except fuel costs and includes recovery of the original investment. It also provides for any adjustments to that investment over the economic lives of the units. The energy charge is based on the cost of fuel and is billed to each purchaser in proportion to its purchase of power. Purchasers are billed monthly. The power contracts are on file with the FERC. The Company acts as agent for Commonwealth Electric and/or Cambridge in the procurement of additional capacity, or, to sell a portion of each com- pany's entitlement in Unit 2. Exchange agreements are in place with several utilities whereby, in certain circumstances, it is possible to exchange capacity so that the mix of power improves the pricing for dispatch for both the seller and purchaser. Commonwealth Electric and Cambridge thus secure cost savings for their respective customers by planning for bulk power supply on a single system basis. A Capacity Acquisition and Disposition Agreement, which has been accepted for filing as a rate schedule by the FERC, enables the Company to recover costs incurred in connection with any transaction covered by such Agreement. Commonwealth Electric and Cambridge, in turn, bill charges to retail customers through rates subject to DPU CANAL ELECTRIC COMPANY regulation. Currently, Agreements are in effect for Seabrook 1, Phase I and Phase II of the Hydro-Quebec Project and a 50 MW exchange with New England Power Company through April 1997. Power Supply Commitments and Support Agreements In response to solicitations by Northeast Utilities and other utilities, the Company, on behalf of Commonwealth Electric and Cambridge, purchased entitlements through short-term contracts in various selected generating units. These and other bulk electric power purchases are necessary in order to fulfill the system's NEPOOL obligation and for the Company to acquire and deliver electric generating capacity to meet Commonwealth Electric and Cambridge requirements. For additional information, refer to "Transactions with Affiliates" in Note 2(c) of Notes to Financial Statements and to "Management's Discussion and Analysis of Results of Operations" filed under Items 8 and 7, respectively, of this report. The Company is party to support agreements for Phase I and Phase II of the Hydro-Quebec Project and is thereby obligated to pay its share of operating and capital costs for Phase II over a 25 year period ending in 2015. Future minimum lease payments for Phase II have an estimated present value of $12.5 million at December 31, 1996. In addition, the Company has an equity interest in Phase II which amounted to $3.3 million in 1996 and $3.4 million in 1995. Construction and Financing Information concerning the Company's financing and construction programs is contained in Note 5 of Notes to Financial Statements filed under Item 8 of this report. Employees The Company has 118 regular employees, 91 (77%) are represented by the Utility Workers' Union of America, A.F.L.-C.I.O. The existing collective bargaining agreement expires on May 31, 1997. Employee relations have generally been satisfactory. Item 2. Properties The Company operates a generating station located at the eastern end of the Cape Cod Canal in Sandwich, Massachusetts. The station consists of two steam electric generating units: Canal Unit 1 with a rated capacity of 569 MW, wholly-owned by the Company; and Canal Unit 2, with a rated capacity of 580 MW, jointly-owned by the Company and Montaup Electric Company, a wholly-owned subsidiary of Eastern Utilities Associates. In addition, the Company has a 3.52% joint-ownership interest (40.5 MW of capacity) in Seabrook 1. Refer to Note 4 of Notes to Financial Statements filed under Item 8 of this report for encumbrances relative to the Company's property. Item 3. Legal Proceedings The Company is subject to legal claims and matters arising from its normal course of business, including its ownership interest in the Seabrook plant. CANAL ELECTRIC COMPANY PART II. Item 5. Market for the Registrant's Common Stock and Related Stockholder Matters (a) Principal Market Not applicable. The Company is a wholly-owned subsidiary of Commonwealth Energy System. (b) Number of Shareholders at December 31, 1996 One (c) Frequency and Amount of Dividends Declared in 1996 and 1995 1996 1995 Per Share Per Share Declaration Date Amount Declaration Date Amount January 24, 1996 $ 2.52 January 25, 1995 $ 2.25 April 29, 1996 3.25 April 21, 1995 2.10 July 30, 1996 2.50 July 24, 1995 2.00 November 4, 1996 2.25 November 14, 1995 2.65 $10.52 $ 9.00 Reference is made to Note 6 of Notes to Financial Statements filed under Item 8 of this report for restrictions against the payment of cash dividends. (d) Future dividends may vary depending upon the Company's earnings and capital requirements as well as financial and other conditions existing at that time. CANAL ELECTRIC COMPANY Item 7. Management's Discussion and Analysis of Results of Operations The following is a discussion of certain significant factors which have affected operating revenues, expenses and net income during the periods included in the accompanying Statements of Income and is presented to facilitate an understanding of the results of operations. This discussion should be read in conjunction with the Notes to Financial Statements filed under Item 8 of this report. A summary of the period to period changes in the principal items included in the Statements of Income for the years ended December 31, 1996 and 1995 is shown below: Years Ended Years Ended December 31, December 31, 1996 and 1995 1995 and 1994 Increase (Decrease) (Dollars in Thousands) Electric Operating Revenues $ 39 565 27.1 % $ (51 835) (26.2)% Operating Expenses: Fuel used in production 30 414 62.4 (33 157) (40.5) Electricity purchased for resale (6 523) (43.5) (12 628) (45.7) Other operation and maintenance 2 728 7.0 (648) (1.6) Depreciation 2 209 13.4 2 934 21.7 Taxes - Federal and state income 9 111 1 496.1 (7 781) (92.7) Local property and other (181) (5.2) (12) (0.3) 37 758 30.6 (51 292) (29.4) Operating Income 1 807 8.0 (543) (2.3) Other Income 1 163 94.6 527 75.0 Income Before Interest Charges 2 970 12.4 (16) (0.1) Interest Charges 528 5.4 10 0.1 Net Income $ 2 442 17.3 $ (26) (0.2) Unit Sales Increase (Decrease) (MWH) 795 899 33.5 (1 959 307) (45.2) The following is a summary of unit sales for the periods indicated: Unit Sales (MWH) Period Ended Seabrook Purchased December 31, Unit 1 Unit 2 Unit 1 For Resale Total 1996 2 104 132 455 054 345 204 269 888 3 174 278 1995 942 574 830 827 295 264 309 714 2 378 379 1994 2 594 406 1 047 214 218 560 447 506 4 337 686 CANAL ELECTRIC COMPANY Revenue, Fuel and Purchased Power Operating revenues for 1996 increased by nearly $39.6 million or 27.1% due to a 33.5% increase in unit sales. The significant increase in unit sales was primarily due to the increased availability of Unit 1 which was out of service for approximately eight months in 1995 due to a combination of scheduled and unscheduled maintenance and an increase in power available from Seabrook 1. Somewhat offsetting the increase in unit sales were the decreased availability of Unit 2 which returned to service in August 1996, following approximately five months of scheduled maintenance and a lower level of purchases made on behalf of affiliated retail distribution companies. During 1995, operating revenues decreased 26.2% or $51.8 million primarily due to the 45.2% decrease in unit sales. The significant decrease in unit sales was due to a combination of scheduled maintenance and other repairs to the turbine which kept Unit 1 out of service for the first seven months of the year and an additional inspection outage of nearly one month during the fourth quarter. Also contributing to the decline in unit sales was the decreased availability of Unit 2 and a lower level of purchases made on behalf of affiliated retail distribution companies. Somewhat offsetting these items was an increase in power available from Seabrook 1. The significant changes in fuel used in production reflect the impacts of the aforementioned outages and during 1996 reflects an increase in the average cost of oil. Fuel, purchased power and transmission costs (included in other operation) represented approximately 49% of the total revenue dollar in 1996, 46% in 1995 and 57% in 1994 and averaged 2.86 cents per KWH in 1996 as compared to 2.83 cents in 1995 and 2.60 cents in 1994. Other Operating Expenses Other operation includes the following: Years Ended December 31, 1996 1995 1994 (Dollars in millions) Other operation: $26.6 $23.2 $24.7 Less: Seabrook 1 operations 4.1 4.3 4.3 Hydro-Quebec Phase II transmission 3.3 3.5 3.5 Power purchased from affiliates 1.3 1.9 1.3 $17.9 $13.5 $15.6 After excluding the above items, other operation, net, increased approx- imately $4.4 million or 32.6% in 1996 and decreased 13.5% in 1995. The increase in 1996 was primarily due to higher postretirement benefits costs reflecting the Federal Energy Regulatory Commission's acceptance of rate schedules which allowed the recovery of previously deferred costs ($1.8 million) over a six-month period which began in March. Also contributing to the increase was greater liability insurance costs ($800,000) due to the absence of adjustments made to the insurance accruals during 1995 reflecting better than anticipated experience. The decrease in 1995 was mainly due to lower insurance and benefit costs including a significant decrease in CANAL ELECTRIC COMPANY liability insurance ($1.6 million) reflecting adjustments to insurance accruals. The 5.5% decrease in maintenance expense during 1996 reflects lower maintenance costs associated with Unit 1 ($1.5 million), offset in part by increased maintenance costs for Unit 2 ($1.2 million). The increase in maintenance expense (8.1%) in 1995 reflects the previously discussed major repair work done at Unit 1 offset, in part, by lower maintenance costs at Unit 2. Depreciation and Taxes During 1996 depreciation expense increased due to the higher level of plant-in-service. During 1995, depreciation expense increased approximately $2.9 million or 21.7% due to the higher level of plant-in-service and an adjustment to the depreciation rate related to Unit 1 made during the second quarter. Federal and state income taxes increased in 1996 due to the absence of a tax adjustment during the second quarter of 1995 that related to the settlement of certain Seabrook-related income tax issues ($7.5 million) and a higher level of pretax income. Income tax expense declined 92.7% or approximately $7.8 million in 1995 due to the aforementioned tax adjustment and a lower level of pretax income. Other Income The change in other income was due to the recording of a regulatory asset for costs associated with postretirement benefits (approximately $1.8 million) following FERC acceptance of rate schedules which provided for recovery of these costs over a six-month period that began in March 1996. The increase in other income during 1995 was due primarily to an increase in interest income related to contested income tax issues ($97,000). Interest Charges Total interest charges increased 5.4% in 1996 reflecting an increase in short-term interest ($459,000) due to a higher average level of short-term borrowings coupled with a decrease in the debt component of allowance for funds used during construction ($281,000), partially offset by lower long- term interest ($213,000) reflecting the retirement of Series A first Mortgage Bonds during the second quarter. During 1995 total interest charges were virtually unchanged, reflecting an increase in short-term interest ($332,000) due to higher interest rates (6.1% as compared to 4.3% in 1994) on a higher average level of short-term debt, offset by a slight decline in interest on long-term debt and an increase in the debt component of AFUDC ($268,000). The increase in AFUDC reflected the increase in construction activity during the year. Canal Unit 2 September 30, 1996 marked the completion of a two and one-half year project that will enable Unit 2 to burn natural gas, or a combination of gas CANAL ELECTRIC COMPANY and oil, up to 250 days each year, while maintaining the ability to burn only fuel oil the remainder of the year. The ability to burn natural gas in combination with fuel oil will reduce overall emissions by 25%. The $23 million project included the construction of a 1,400 foot pipeline under the Cape Cod Canal and a four and one-half mile pipeline through the adjacent town of Bourne, MA. Forward-Looking Statements This report contains statements which, to the extent they are not recitations of historical fact, constitute "forward-looking statements" and are intended to be subject to the safe harbor protection provided by the Private Securities Litigation Reform Act of 1995. A number of important factors affecting the Company's business and financial results could cause actual results to differ materially from those stated in the forward-looking statements. Those factors include developments in the legislative, regulatory and competitive environment, certain environmental matters, demands for capital expenditures and the availability of cash from various sources, and uncertainty as to regulatory approval of the full recovery of regulatory assets and other stranded costs. Environmental Matters The Company is subject to laws and regulations administered by federal, state and local authorities relating to the quality of the environment. These laws and regulations affect, among other things, the siting and operation of electric generating and transmission facilities and can require the installation of expensive air and water pollution control equipment. These regulations have had an impact on the Company's operations in the past and will continue to have an impact on future operations, capital costs and construction schedules of major facilities. Effective January 1, 1997, the Company will adopt the provisions of Statement of Position (SOP) 96-1, "Environmental Remediation Liabilities." This Statement provides authoritative guidance for recognition, measurement, display and disclosure of environmental remediation liabilities in financial statements. Management does not believe that SOP 96-1 will have a material adverse effect on the Company's results of operations or financial position. Item 8. Financial Statements and Supplementary Data The Company's financial statements required by this item are filed herewith on pages 13 through 31 of this report. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None CANAL ELECTRIC COMPANY Item 8. Financial Statements and Supplementary Data REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Board of Directors of Canal Electric Company: We have audited the accompanying balance sheets of CANAL ELECTRIC COMPANY, (a Massachusetts corporation and wholly-owned subsidiary of Commonwealth Energy System) as of December 31, 1996 and 1995, and the related statements of income, retained earnings and cash flows for each of the three years in the period ended December 31, 1996. These financial statements and the schedule referred to below are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedule 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 financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Canal Electric Company as of December 31, 1996 and 1995, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1996, in conformity with generally accepted accounting principles. Our audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole. The schedule listed in the index to financial statements and schedule is presented for purposes of complying with the Securities and Exchange Commission's rules and is not part of the basic financial statements. This schedule has been subjected to the auditing procedures applied in the audits of the basic financial statements and, in our opinion, fairly states, in all material respects, the financial data required to be set forth therein in relation to the basic financial statements taken as a whole. ARTHUR ANDERSEN LLP Boston, Massachusetts February 19, 1997. CANAL ELECTRIC COMPANY INDEX TO FINANCIAL STATEMENTS AND SCHEDULE PART II. FINANCIAL STATEMENTS Balance Sheets at December 31, 1996 and 1995 Statements of Income for the Years Ended December 31, 1996, 1995 and 1994 Statements of Retained Earnings for the Years Ended December 31, 1996, 1995 and 1994 Statements of Cash Flows for the Years Ended December 31, 1996, 1995 and 1994 Notes to Financial Statements PART IV. SCHEDULE I Investments In, Equity Earnings of, and Dividends Received From Related Parties for the Years Ended December 31, 1996, 1995 and 1994 SCHEDULES OMITTED All other schedules are not submitted because they are not applicable or required or because the required information is included in the financial statements or notes thereto. CANAL ELECTRIC COMPANY BALANCE SHEETS DECEMBER 31, 1996 AND 1995 ASSETS 1996 1995 (Dollars in Thousands) PROPERTY, PLANT AND EQUIPMENT, at original cost $464 003 $449 659 Less - Accumulated depreciation and amortization 179 307 163 929 284 696 285 730 Add - Construction work in progress 943 5 759 Nuclear fuel in process 1 597 122 287 236 291 611 INVESTMENTS Equity in corporate joint venture 3 321 3 372 CURRENT ASSETS Cash 12 12 Accounts receivable - Affiliated companies 10 294 9 282 Other 12 390 9 520 Unbilled revenues 675 438 Inventories, at average cost - Electric production fuel oil 979 762 Materials and supplies 1 296 1 375 Prepaid taxes - Income 64 - Property 795 874 Other 1 116 1 622 27 621 23 885 DEFERRED CHARGES Regulatory assets 19 859 25 391 Other 5 486 5 201 25 345 30 592 $343 523 $349 460 The accompanying notes are an integral part of these financial statements. CANAL ELECTRIC COMPANY BALANCE SHEETS DECEMBER 31, 1996 AND 1995 CAPITALIZATION AND LIABILITIES 1996 1995 (Dollars in Thousands) CAPITALIZATION Common Equity - Common stock, $25 par value - Authorized - 2,328,200 shares Outstanding - 1,523,200 shares, wholly-owned by Commonwealth Energy System (Parent) $ 38 080 $ 38 080 Amounts paid in excess of par value 8 321 8 321 Retained earnings 52 620 52 070 99 021 98 471 Long-term debt, including premiums, less current sinking fund requirements 83 618 83 941 182 639 182 412 CAPITAL LEASE OBLIGATIONS 11 878 12 547 CURRENT LIABILITIES Interim Financing - Notes payable to banks 26 550 23 425 Advances from affiliates 7 250 5 865 Maturing long-term debt - 3 230 33 800 32 520 Other Current Liabilities - Current sinking fund requirements 350 920 Accounts payable - Affiliated companies 1 347 2 049 Other 18 123 19 757 Accrued taxes - Local property and other 795 855 Income - 3 159 Capital lease obligations 576 581 Accrued interest and other 3 986 3 608 25 177 30 929 58 977 63 449 DEFERRED CREDITS Accumulated deferred income taxes 71 550 72 914 Unamortized investment tax credits 11 493 12 020 Other 6 986 6 118 90 029 91 052 COMMITMENTS AND CONTINGENCIES $343 523 $349 460 The accompanying notes are an integral part of these financial statements. CANAL ELECTRIC COMPANY STATEMENTS OF INCOME FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994 1996 1995 1994 (Dollars in Thousands) ELECTRIC OPERATING REVENUES Sales to affiliated companies $107 842 $ 93 478 $121 744 Sales to non-affiliated companies 77 708 52 507 76 076 185 550 145 985 197 820 OPERATING EXPENSES Fuel used in production 79 121 48 707 81 864 Electricity purchased for resale 8 476 14 999 27 627 Other operation 26 569 23 153 24 731 Maintenance 11 768 12 456 11 526 Depreciation 18 682 16 473 13 539 Amortization 3 423 3 423 3 423 Taxes - Income 9 720 609 8 390 Local property 2 603 2 777 2 793 Payroll and other 726 733 729 161 088 123 330 174 622 OPERATING INCOME 24 462 22 655 23 198 OTHER INCOME 2 393 1 230 703 INCOME BEFORE INTEREST CHARGES 26 855 23 885 23 901 INTEREST CHARGES Long-term debt 8 017 8 229 8 283 Other interest charges 2 337 1 878 1 546 Allowance for borrowed funds used during construction (73) (354) (86) 10 281 9 753 9 743 NET INCOME $ 16 574 $ 14 132 $ 14 158 The accompanying notes are an integral part of these financial statements. CANAL ELECTRIC COMPANY STATEMENTS OF RETAINED EARNINGS FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994 1996 1995 1994 (Dollars in Thousands) Balance at beginning of year $52 070 $51 647 $48 151 Add (Deduct) Net income 16 574 14 132 14 158 Cash dividends on common stock (16 024) (13 709) (10 662) Balance at end of year $52 620 $52 070 $51 647 The accompanying notes are an integral part of these financial statements. CANAL ELECTRIC COMPANY STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994 1996 1995 1994 (Dollars in Thousands) OPERATING ACTIVITIES Net income $ 16 574 $ 14 132 $ 14 158 Effects of noncash items - Depreciation and amortization 23 485 21 929 18 668 Deferred income taxes (963) (3 239) 1 815 Investment tax credits (527) (638) (702) Earnings from corporate joint venture (498) (539) (507) Dividends from corporate joint venture 549 969 566 Change in working capital, exclusive of cash and interim financing - Accounts receivable (3 882) (1 767) 4 729 Unbilled revenues (237) (438) 659 Income taxes (3 223) 3 220 199 Local property and other taxes 19 (64) 13 Accounts payable and other (1 595) 3 972 485 All other operating items, net 565 (1 380) (3 571) Net cash provided by operating activities 30 267 36 157 36 512 INVESTING ACTIVITIES Additions to property, plant and equipment (exclusive of AFUDC) (14 557) (30 167) (9 396) Allowance for borrowed funds used during construction (73) (354) (86) Net cash used for investing activities (14 630) (30 521) (9 482) FINANCING ACTIVITIES Proceeds from (payment of) short-term borrowings 3 125 12 100 (16 675) Proceeds from (payment of) affiliate borrowings 1 385 (3 485) 1 040 Payment of dividends (16 024) (13 709) (10 662) Long-term debt issue refunded (3 420) - - Retirement of long-term debt through sinking funds (703) (542) (733) Net cash used for financing activities (15 637) (5 636) (27 030) Net increase (decrease) in cash - - - Cash at beginning of period 12 12 12 Cash at end of period $ 12 $ 12 $ 12 SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION Interest paid (net of capitalized amounts) $ 9 959 $9 436 $9 224 Income taxes paid $14 128 $2 269 $9 055 The accompanying notes are an integral part of these financial statements. CANAL ELECTRIC COMPANY NOTES TO FINANCIAL STATEMENTS (1) General Information Canal Electric Company (the Company) is a wholly-owned subsidiary of Commonwealth Energy System. The parent company is referred to in this report as the "System" and together with its subsidiaries is referred to as "the system." The System is an exempt holding company under the provisions of the Public Utility Holding Company Act of 1935 and, in addition to its investment in the Company, has interests in other utility companies and several non-regulated companies. The Company is a wholesale electric generating company organized in 1902 under the laws of the Commonwealth of Massachusetts. The Company's generating station which is located in Sandwich, Massachusetts consists of two units: Canal Unit 1 wholly-owned by the Company; and Canal Unit 2 jointly-owned by the Company and Montaup Electric Company (Montaup) (an unaffiliated company). The Company's largest customers with respect to output from Unit 1 and Unit 2 are affiliates Cambridge and Commonwealth Electric. The Company also has a 3.52% interest in the Seabrook 1 nuclear power plant to provide a portion of the capacity and energy needs of Cambridge and Commonwealth Electric and acts as agent in the procurement of additional capacity for the aforementioned affiliates. The Company has 118 regular employees including 91 (77%) who are represented by the Utility Workers' Union of America, A.F.L.-C.I.O. The existing collective bargaining agreement expires in 1997. Employee relations have generally been satisfactory. (2) Significant Accounting Policies (a) Accounting Principles 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 financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Certain prior year amounts are reclassified from time to time to con- form with the presentation used in the current year's financial statements. (b) Regulatory Assets The Company is regulated as to rates, accounting and other matters by various authorities, including the Federal Energy Regulatory Commission (FERC) and the Massachusetts Department of Public Utilities (DPU). Based on the current regulatory framework, the Company accounts for the economic effects of regulation in accordance with the provisions of Statement of Financial Accounting Standards (SFAS) No. 71, "Accounting for the Effects of Certain Types of Regulation." The Company has established various regulatory assets in cases where the FERC has permitted or is expected to permit recovery of specific costs over time. Effective January 1, 1996, the Company adopted SFAS No. 121, "Accounting for the Impairment of CANAL ELECTRIC COMPANY Long-Lived Assets and for Long-Lived Assets to be Disposed Of." SFAS No. 121 imposes stricter criteria for regulatory assets by requiring that such assets be probable of future recovery at each balance sheet date. SFAS No. 121 did not have an impact on the Company's financial position upon adoption. This result may change as modifications are made to the current regulatory framework due to ongoing electric industry restructuring efforts in Massachusetts. For additional information relating to industry restructuring, see the "Electric Industry Restructuring" section under Item 1 of this report. The principal regulatory assets included in deferred charges at December 31, 1996 and 1995 were as follows: 1996 1995 (Dollars in Thousands) Seabrook related costs $ 6 262 $ 9 511 Deferred income taxes 13 597 14 106 Postretirement benefit costs - 1 774 Total regulatory assets $19 859 $25 391 As of December 31, 1996 all of the Company's regulatory assets are reflected in rates charged to customers over a weighted average period of approximately 23 years. In February 1996, FERC accepted for filing rate schedules that provided for the recovery of the postretirement benefit costs over a six-month period which began in March 1996. (c) Transactions with Affiliates Transactions between the Company and other system companies include purchases and sales of electricity, including the Company's acquisition and resale of capacity entitlements and related energy generated by certain units of other New England utilities. The Company functions as the principal supplier of electric generation capacity for and on behalf of affiliates Cambridge Electric Light Company (Cambridge) and Commonwealth Electric Company (Commonwealth Electric), including abandonment and nonconstruction costs related to the Seabrook project. In addition, payments for management, accounting, data processing and other services are made to affiliate COM/Energy Services Company. Transactions with other system companies are subject to review by the FERC and the DPU. The Company's operating revenues included the following intercompany amounts for the periods indicated: Period Ended Electricity Sales Seabrook Units December 31, (Canal Units) Purchased Power and Other (Dollars in Thousands) 1996 $52 035 $11 882 $43 925 1995 39 617 18 694 35 167 1994 45 906 31 288 44 550 CANAL ELECTRIC COMPANY (d) Other Major Customers The Company is a wholesale electric generating company that sells power under life-of-the-unit contracts, approved by FERC to Boston Edison Company, Montaup Electric Company and New England Power Company, (unaffiliated utilities). Each utility is obligated to purchase one-quarter of the capacity and energy of Canal Unit 1. (e) Equity Method of Accounting The Company uses the equity method of accounting for its 3.8% invest- ment in the New England/Hydro-Quebec Phase II transmission facilities due in part to its ability to exercise significant influence over operating and financial policies of the entity. Under this method, it records as income the proportionate share of the net earnings of this project with a corre- sponding increase in the carrying value of the investment. The investment amount is reduced as cash dividends are received. For further information on this investment, refer to Schedule I in Part IV of this report. (f) Depreciation and Nuclear Fuel Amortization Depreciation is provided using the straight-line method at rates intended to amortize the original cost and the estimated cost of removal less salvage of properties over their estimated economic lives. The Company's composite depreciation rate, based on average depreciable property in service, was 4.42% in 1996, 4.09% in 1995 and 3.49% in 1994. The cost of nuclear fuel is amortized to fuel expense based on the quantity of energy produced. Nuclear fuel expense also includes a provision for the costs associated with the ultimate disposal of the spent nuclear fuel. (g) Maintenance Expenditures for repairs of property and replacement and renewal of items determined to be less than units of property are charged to maintenance expense. Additions, replacements and renewals of property considered to be units of property, are charged to the appropriate plant accounts. Upon retirement, accumulated depreciation is charged with the original cost of property units and the cost of removal net of salvage. (h) Allowance for Funds Used During Construction Under applicable rate-making practices, the Company is permitted to include an allowance for funds used during construction (AFUDC) as an element of its depreciable property costs. This allowance is based on the amount of construction work in progress that is not included in the rate base on which the Company earns a return. An amount equal to the AFUDC capitalized in the current period is reflected in the accompanying Statements of Income. While AFUDC does not provide funds currently, these amounts are recoverable in revenues over the service life of the constructed property. The Company develops rates based upon its current cost of capital and used a compound rate of 6.25% in 1996, 6.75% in 1995 and 5.25% in 1994. CANAL ELECTRIC COMPANY (3) Income Taxes For financial reporting purposes, the Company provides federal and state income taxes on a separate return basis. However, for federal income tax purposes, the Company's taxable income and deductions are included in the consolidated income tax return of the System and it makes tax payments or receives refunds on the basis of its tax attributes in the tax return in accordance with applicable regulations. The following is a summary of the provisions for income taxes for the years ended December 31, 1996, 1995 and 1994: 1996 1995 1994 (Dollars in Thousands) Federal: Current $ 9 511 $ 3 637 $ 6 321 Deferred (577) 1 585 1 460 Investment tax credits (527) (638) (702) 8 407 4 584 7 079 State: Current 1 747 955 1 138 Deferred (223) (11) 355 1 524 944 1 493 9 931 5 528 8 572 Amortization of regulatory liability relating to deferred income taxes (163) (4 813) - Total $ 9 768 $ 715 $ 8 572 Federal and state income taxes charged to: Operating expense $ 9 720 $ 609 $ 8 390 Other income 48 106 182 $ 9 768 $ 715 $ 8 572 Deferred tax liabilities and assets are determined based on the difference between the financial statement and tax basis of assets and liabilities using enacted tax rates in effect in the year in which the differences are expected to reverse. In May 1995, the Company refunded certain unprotected excess deferred taxes to Commonwealth Electric and Cambridge Electric resulting in a reduction to the 1995 tax provision. CANAL ELECTRIC COMPANY Accumulated deferred income taxes consisted of the following in 1996 and 1995: 1996 1995 (Dollars in Thousands) Liabilities Property-related $78 542 $79 918 Seabrook nonconstruction 1 183 3 089 All other 3 535 2 327 83 260 85 334 Assets Investment tax credit 7 418 7 758 Regulatory liability 2 230 2 335 All other 1 569 1 443 11 217 11 536 Accumulated deferred income taxes, net $72 043 $73 798 The net year-end deferred income tax liability above includes a current deferred tax liability of $493,000 and $884,000 in 1996 and 1995, respectively, which are included in accrued income taxes in the accompanying balance sheets. The total income tax provision set forth on the previous page represents 37% in 1996, 5% in 1995 and 38% in 1994, of income before such taxes. The following table reconciles the statutory federal income tax rate to these percentages: 1996 1995 1994 Federal statutory rate 35% 35% 35% Federal income tax expense at statutory levels $9 220 $5 196 $ 7 956 Increase (Decrease) from statutory rate: Tax versus book depreciation 1 479 1 227 1 311 State tax, net of federal tax benefit 991 613 970 Amortization of investment tax credits (527) (638) (689) Excess deferred reserves (163) (4 813) - Reversals of capitalized expenses (559) (556) (555) Other (673) (314) (421) $9 768 $ 715 $ 8 572 Effective federal tax rate 37% 5% 38% (4) Long-Term Debt and Interim Financing (a) Long-Term Debt Long-term debt outstanding, exclusive of current sinking fund requirements and related premiums, collateralized by substantially all of CANAL ELECTRIC COMPANY the Company's property, is as follows: Original Balance December 31, Issue 1996 1995 (Dollars in Thousands) First Mortgage Bonds - Series B, 8.85%, due 2006 $35 000 $34 300 $34 650 Series E, 7 3/8%, due 2020 10 000 10 000 10 000 Series F, 9 7/8%, due 2020 40 000 40 000 40 000 $84 300 $84 650 The Series B First and General Mortgage Bonds require an annual sinking fund payment of $350,000. The requirement may be met by payment, repurchase of bonds or certification of an amount of property additions equal to 60% of bondable property (as that term is defined in the indenture). The Series E and Series F First and General Mortgage Bonds were issued in conjunction with The Industrial Development Authority of the State of New Hampshire issuing Solid Waste Disposal Bonds and Pollution Control Bonds, respectively. The bonds were issued pursuant to a Loan and Trust Agreement dated December 1, 1990 among the Authority, the Company and the First National Bank of Boston, the Trustee. (b) Notes Payable to Banks The Company and other system companies maintain both committed and uncommitted lines of credit for the short-term financing of their construction programs and other corporate purposes. As of December 31, 1996, system companies had $135 million of committed lines of credit that will expire at varying intervals in 1997. These lines are normally renewed upon expiration and require annual fees of up to .1875% of the individual line. At December 31, 1996, the system's uncommitted lines of credit totaled $20 million. Interest rates on the Company's outstanding borrowings generally are at an adjusted money market rate and averaged 5.6% and 6.1% in 1996 and 1995, respectively. The Company's notes payable to banks totaled $26,550,000 and $23,425,000 at December 31, 1996 and 1995, respectively. (c) Advances from Affiliates The Company had short-term notes payable to the System totaling $5,620,000 and $555,000 at December 31, 1996 and 1995, respectively. These notes are written for a term of up to 11 months and 29 days. Interest is at the prime rate and is adjusted for changes in that rate during the terms of the notes. This rate averaged 8.3% and 8.8% in 1996 and 1995, respectively. The Company is a member of the COM/Energy Money Pool (the Pool), an arrangement among the subsidiaries of the System, whereby short-term cash surpluses are used to help meet the short-term borrowing needs of the utility subsidiaries. In general, lenders to the Pool receive a higher rate of return than they otherwise would on such investments, while borrowers pay a lower interest rate than that available from banks. Interest rates on the outstanding borrowings are based on the monthly average rate the Company would otherwise have to pay banks, less one-half the difference between that CANAL ELECTRIC COMPANY rate and the monthly average U.S. Treasury Bill weekly auction rate. The borrowings are for a period of less than one year and are payable upon demand. Rates on these borrowings averaged 5.3% and 5.8% in 1996 and 1995, respectively. The Company had notes payable to the Pool of $1,630,000 and $5,310,000 at December 31, 1996 and 1995, respectively. (d) Disclosures About Fair Value of Financial Instruments The fair value of certain financial instruments included in the accompanying balance sheets as of December 31, 1996 and 1995 are as follows: 1996 1995 (Dollars in Thousands) Carrying Fair Carrying Fair Value Value Value Value Long-term Debt $83 968 $97 446 $88 091 $105 197 The carrying amount of cash, notes payable to banks and advances from affiliates approximates the fair value because of the short maturity of these financial instruments. The estimated fair value of long-term debt is based on quoted market prices of the same or similar issues or on the current rates offered for debt with the same remaining maturity. The fair values shown above do not purport to represent the amounts at which those obligations would be settled. (5) Commitments and Contingencies (a) Construction The Company is engaged in a continuous construction program presently estimated at $68.2 million for the five-year period 1997 through 2001. Of that amount, $20 million is estimated for 1997. The program is subject to periodic review and revision because of factors such as changes in business conditions, rates of customer growth, effects of inflation, maintenance of reliable and safe service, equipment delivery schedules, licensing delays, availability, and cost of capital and environmental factors. The Company expects to finance these expenditures on an interim basis with internally generated funds and short-term borrowings that are ultimately expected to be repaid with proceeds from sales of long-term debt and equity securities. (b) Seabrook Nuclear Power Plant The system's 3.52% interest in the Seabrook nuclear power plant is owned by the Company to provide for a portion of the capacity and energy needs of Cambridge and Commonwealth Electric. The Company is recovering 100% of its Seabrook 1 investment through power contracts pursuant to FERC approval. Pertinent information with respect to the Company's joint-ownership interest in Seabrook 1 and information relating to operating expenses which are included in the accompanying financial statements, are as follows: CANAL ELECTRIC COMPANY 1996 1995 (Dollars in Thousands) Utility plant-in-service $232 183 $232 547 Nuclear fuel 21 613 20 138 Accumulated depreciation and amortization (57 359) (50 230) Construction work in progress 844 946 $197 281 $203 401 1996 1995 1994 (Dollars in Thousands) Operating expenses: Fuel $ 1 727 $ 2 353 $ 1 939 Other operation 4 091 4 292 4 340 Maintenance 990 1 376 1 688 Depreciation 6 544 6 542 6 531 Amortization 1 319 1 319 1 320 $14 671 $15 882 $15 818 Plant capacity (MW) 1,150 In-service date 1990 Canal's share: Operating license Percent interest 3.52% expiration date 2026 Entitlement (MW) 40.5 The Company and the other joint-owners have established a decommis- sioning fund to cover decommissioning costs. The estimated cost to decom- mission the plant is $449.9 million in current dollars. The Company's share of this liability (approximately $15.8 million), less its share of the market value of the assets held in a decommissioning trust (approximately $1.9 million), is approximately $13.9 million at December 31, 1996. The New Hampshire Public Utilities Commission issued an electric utility industry restructuring order on February 28, 1997 that, if upheld, would have a significant negative financial impact on a New Hampshire joint-owner of the Seabrook unit that has a 35% interest. The joint-owner is now involved in litigation to prevent the order from being implemented. The Company is unable to predict the final outcome of this litigation and its impact, if any, on the Company. (c) Environmental Matters The Company is subject to laws and regulations administered by federal, state and local authorities relating to the quality of the environment. These laws and regulations affect, among other things, the siting and operation of electric generating and transmission facilities and can require the installation of expensive air and water pollution control equipment. These regulations have had an impact on the Company's operations in the past and could have an impact on future operations, capital costs and construction schedules of major facilities. (6) Dividend Restriction At December 31, 1996, approximately $37,561,000 of retained earnings was restricted against the payment of cash dividends by terms of the Indenture CANAL ELECTRIC COMPANY of Trust securing long-term debt. (7) Employee Benefit Plans (a) Pension The Company has a noncontributory pension plan covering substantially all regular employees who have attained the age of 21 and have completed one year of service. Pension benefits are based on an employee's years of service and compensation. The Company makes monthly contributions to the plan consistent with the funding requirements of the Employee Retirement Income Security Act of 1974. Components of pension expense and related assumptions to develop pension expense were as follows: 1996 1995 1994 (Dollars in Thousands) Service cost $ 527 $ 435 $ 457 Interest cost 1 254 1 151 995 Return on plan assets - (gain)/loss (2 321) (3 113) 220 Net amortization and deferral 1 157 2 045 (1 139) Total pension expense 617 518 533 Transfers from affiliates, net 347 324 279 Less: Amounts capitalized and other 224 193 181 Net pension expense $ 740 $ 649 $ 631 Discount rate 7.25% 8.50% 7.25% Assumed rate of return 8.75 9.00 8.50 Rate of increase in future compensation 4.25 5.00 4.50 Pension expense reflects the use of the projected unit credit method which is also the actuarial cost method used in determining future funding of the plan. The funded status of the Company's pension plan (using a measurement date of December 31) is as follows: 1996 1995 (Dollars in Thousands) Accumulated benefit obligation: Vested $(12 241) $(10 208) Nonvested (2 180) (1 910) $(14 421) $(12 118) Projected benefit obligation $(17 576) $(15 287) Plan assets at fair market value 17 523 15 452 Projected benefit obligation (greater) less than plan assets (53) 165 Unamortized transition obligation 84 102 Unrecognized prior service cost 480 534 Unrecognized gain (985) (1 239) Accrued pension liability $ (474) $ (438) CANAL ELECTRIC COMPANY The following actuarial assumptions were used in determining the plan's year-end funded status: 1996 1995 Discount rate 7.50% 7.25% Rate of increase in future compensation 4.25 4.25 Plan assets consist primarily of fixed-income and equity securities. Fluctuations in the fair market value of plan assets will affect pension expense in future years. (b) Other Postretirement Benefits Certain employees are eligible for postretirement benefits if they meet specific requirements. These benefits could include health and life insurance coverage and reimbursement of Medicare Part B premiums. Under certain circumstances, eligible employees are required to make contributions for postretirement benefits. To fund its postretirement benefits, the Company makes contributions to various voluntary employees' beneficiary association (VEBA) trusts that were established pursuant to section 501(c)(9) of the Internal Revenue Code (the Code). The Company also makes contributions to a subaccount of its pension plan pursuant to section 401(h) of the Code to fund a portion of its postretirement benefit obligation. The Company contributed approximately $725,000, $693,000 and $740,000 to these trusts during 1996, 1995 and 1994, respectively. The net periodic postretirement benefit cost for the years ended December 31, 1996, 1995 and 1994 includes the following components and related assumptions: 1996 1995 1994 (Dollars in Thousands) Service cost $ 187 $ 131 $ 164 Interest cost 490 441 409 Return on plan assets (324) (383) (11) Amortization of transition obligation over 20 years 248 248 248 Net amortization and deferral 131 261 (66) Total postretirement benefit cost 732 698 744 Transfers from affiliates, net 446 447 426 Less: Amounts capitalized and other 1 230 867 892 Net postretirement benefit cost $2 408 $ 278 $ 278 Discount rate 7.25% 8.50% 7.25% Assumed rate of return 8.75 9.00 8.50 Rate of increase in future compensation 4.25 5.00 4.50 CANAL ELECTRIC COMPANY The funded status of the Company's postretirement benefit plan using a measurement date of December 31, 1996 and 1995 is as follows: 1996 1995 (Dollars in Thousands) Accumulated postretirement benefit obligation: Retirees $(3 108) $(2 829) Fully eligible active plan participants (858) (1 028) Other active plan participants (2 620) (2 409) (6 586) (6 266) Plan assets at fair market value 2 825 2 048 Accumulated postretirement benefit obligation greater than plan assets (3 761) (4 218) Unamortized transition obligation 3 978 4 226 Unrecognized gain (217) (8) $ - $ - The following actuarial assumptions were used in determining the plan's estimated accumulated postretirement benefit obligation (APBO) and the funded status for 1996 and 1995: 1996 1995 Discount rate 7.50% 7.25% Rate of increase in future compensation 4.25 4.25 Medicare part B premiums 9.50 12.20 Medical care 7.00 8.00 Dental care 5.00 5.00 The above dental rate remains constant through the year 2007. Rates for Medicare Part B premiums and medical care decrease to 3.1% and 5%, respectively, by 2007 and remain at that level thereafter. A one percent change in the medical trend rate would have a $111,000 impact on the Company's annual expense and would change the APBO by approximately $946,000. Plan assets consist primarily of fixed-income and equity securities. Fluctuations in the fair market value of plan assets will affect postretirement benefit expense in future years. (c) Savings Plan The Company has an Employees Savings Plan that provides for Company contributions equal to contributions by eligible employees up to four percent of each employee's compensation rate and up to five percent for those employees no longer eligible for postretirement health benefits. The Company's contribution was $261,000 in 1996, $258,000 in 1995 and $250,000 in 1994. (8) Lease Obligations The Company leases equipment and office space under arrangements that are classified as operating leases. These lease agreements are for terms of one year or longer. Leases currently in effect contain no provisions that CANAL ELECTRIC COMPANY prohibit the Company from entering into future lease agreements or obligations. The Company has entered into support agreements with other participating New England utilities for 3.8% of the Hydro-Quebec Phase II transmission facilities and makes monthly support payments to cover depreciation and interest costs. Future minimum lease payments, by period and in the aggregate, of capital leases and noncancelable operating leases consisted of the following at December 31, 1996: Operating Leases Capital Leases (Dollars in Thousands) 1997 $ 522 $ 1 921 1998 479 1 856 1999 468 1 794 2000 468 1 732 2001 468 1 669 Beyond 2001 1 292 18 845 Total future minimum lease payments $3 697 27 817 Less:Estimated interest element included therein 15 363 Estimated present value of future minimum lease payments $12 454 Total rent expense for all operating leases, except those with terms of a month or less, amounted to $475,000 in 1996, $431,000 in 1995 and $421,000 in 1994. There were no contingent rentals and no sublease rentals for the years 1996, 1995 and 1994. CANAL ELECTRIC COMPANY PART IV. Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K (a) 1. Index to Financial Statements Financial statements and notes thereto of the Company together with the Report of Independent Public Accountants, are filed under Item 8 of this report and listed on the Index to Financial Statements and Schedules (page 14). (a) 2. Index to Financial Statement Schedules Filed herewith at page indicated are financial statement schedules of the Company: Schedule I - Investments in, Equity Earnings of, and Dividends Received from Related Parties - Years Ended December 31, 1996, 1995 and 1994 (page 40). (a) 3. Exhibits: Notes to Exhibits - a. Unless otherwise designated, the exhibits listed below are incorporated by reference to the appropriate exhibit numbers and the Securities and Exchange Commission file numbers indicated in parentheses. b. The following is a glossary of Commonwealth Energy System and subsidiary companies' acronyms that are used throughout the following Exhibit Index: CES.................... Commonwealth Energy System CE..................... Commonwealth Electric Company CEL.................... Cambridge Electric Light Company CEC.................... Canal Electric Company NBGEL.................. New Bedford Gas and Edison Light Company Exhibit Index Exhibit 3. Articles of incorporation and by-laws. 3.1. Articles of incorporation of CEC (Exhibit 1 to CEC's 1990 Form 10- K, File No. 2-30057). 3.2. By-laws of CEC, as amended (Exhibit 2 to the CEC 1990 Form 10-K, File No. 2-30057). CANAL ELECTRIC COMPANY Exhibit 4. Instruments defining the rights of security holders, including indentures 4.2.1 Indenture of Trust and First Mortgage between CEC and State Street Bank and Trust Company, Trustee, dated October 1, 1968 (Exhibit 4(b) to the CEC Form S-1, File No. 2-30057). 4.2.2 First and General Mortgage Indenture between CEC and Citibank, N.A., Trustee, dated September 1, 1976 (Exhibit 4(b)(2) to the CEC Form S-1, File No. 2-56915). 4.2.3 First Supplemental dated October 1, 1968 with State Street Bank and Trust Company, Trustee, dated September 1, 1976 (Exhibit 4(b)(3) to the CEC Form S-1, File No. 2-56915). 4.2.4 Third Supplemental dated September 1, 1976 with Citibank, N.A., New York, NY, Trustee, dated December 1, 1990 (Exhibit 3 to the CEC 1990 Form 10-K, File No. 2-30057). 4.2.5 Fourth Supplemental dated September 1, 1976 with Citibank, N.A., New York, NY, Trustee, dated December 1, 1990 (Exhibit 4 to the CEC 1990 Form 10-K, File No. 2-30057). Exhibit 10. Material Contracts 10.1 Power contracts. 10.1.1 Power contracts between CEC and NBGEL and CEL dated December 1, 1965 (Exhibit 13(a)(1-4) to the CEC Form S-1, File No. 2-30057). 10.1.2.1 Agreement between CEC and Montaup Electric Company (MEC) for use of common facilities by Canal Units I and II and for allocation of related costs, executed October 14, 1975 (Exhibit 1 to the CEC 1985 Form 10-K, File No. 2-30057). 10.1.2.2 Agreement between CEC and MEC for joint-ownership of Canal Unit II, executed October 14, 1975 (Exhibit 2 to the CEC 1985 Form 10-K, File No. 2-30057). 10.1.2.3 Agreement between CEC and MEC for lease relating to Canal Unit II, executed October 14, 1975 (Exhibit 3 to the CEC 1985 Form 10-K, File No. 2-30057). 10.1.3 Contract between CEC, NBGEL and CEL, affiliated companies, for the sale of specified amounts of electricity from Canal Unit 2 dated January 12, 1976 (Exhibit 7 to the CES Form 10-K for 1985, File No. 1-7316). 10.1.4 Power contract, as amended to February 28, 1990, superseding the Power Contract dated September 1, 1986 and amendment dated June 1, 1988, between CEC (seller) and CE and CEL (purchasers) for seller's entire share of the Net Unit Capability of Seabrook 1 and related energy (Exhibit 1 to the CEC Form 10-Q (March 1990), File No. 2- 30057). CANAL ELECTRIC COMPANY 10.1.5 Purchase and Sale Agreement together with an implementing Addendum dated December 31, 1981 between CEC and CE for the purchase and sale of the CE 3.52% joint-ownership interest in the Seabrook units, dated January 2, 1981 (Exhibit 1 to the Company's Form 8-K (January 13, 1982), File No. 2-30057). 10.1.6 Agreement for Joint-Ownership, Construction and Operation of the New Hampshire Nuclear Units (Seabrook) dated May 1, 1973 and filed by NBGEL as Exhibit 13(N) on Form S-1 dated October 1973, File No. 2-49013, and as amended below: 10.1.6.1 First through Fifth Amendments to 10.1.6 dated May 24, 1974, June 21, 1974, September 25, 1974, October 25, 1974, and January 31, 1975, respectively (Exhibit 13(m) to the NBGEL Form S-1 (November 7, 1975), File No. 2-54995). 10.1.6.2 Sixth through Eleventh Amendments to 10.1.6 dated April 18, 1979, April 18, 1979, April 25, 1979, June 8, 1979, October 11, 1979 and December 15, 1979, respectively (Exhibit 1 to the CEC 1989 Form 10- K, File No. 2-30057). 10.1.6.3 Twelfth and Thirteenth Amendments to 10.1.6 dated May 16, 1980 and December 31, 1980, respectively ((Exhibit 1 and 2 to the CE Form 10-Q (June 1982), File No. 2-7749). 10.1.6.4 Fourteenth Amendment to 10.1.6 dated June 1, 1982 (Exhibit 3 to the CE Form 10-Q (June 1982), File No. 2-7749). 10.1.6.5 Fifteenth and Sixteenth Amendments to 10.1.6 dated April 27, 1984 and June 15, 1984, respectively (Exhibit 1 to the CEC Form 10-Q (June 1984), File No. 2-30057). 10.1.6.6 Seventeenth Amendment to 10.1.6 dated March 8, 1985 (Exhibit 1 to the CEC Form 10-Q (March 1985), File No. 2-30057). 10.1.6.7 Eighteenth Amendment to 10.1.6 dated March 14, 1986 (Exhibit 1 to the CEC Form 10-Q (March 1986), File No. 2-30057). 10.1.6.8 Nineteenth Amendment to 10.1.6 dated May 1, 1986 (Exhibit 1 to the CEC Form 10-Q (June 1986), File No. 2-30057). 10.1.6.9 Twentieth Amendment to 10.1.6 dated September 19, 1986 (Exhibit 1 to the CEC Form 10-K for 1986, File No. 2-30057). 10.1.6.10 Twenty-First Amendment to 10.1.6 dated November 12, 1987 (Exhibit 1 to the CEC Form 10-K for 1987, File No. 2-30057). 10.1.6.11 Twenty-Second Amendment and Settlement Agreement to 10.1.6 dated January 13, 1989 (Exhibit 4 to the CEC 1988 Form 10-K, File No. 2- 30057). 10.1.7 Capacity Acquisition Agreement between CEC, CEL and CE dated September 25, 1980 (Exhibit 1 to the CEC 1991 Form 10-K, File No. 2-30057). CANAL ELECTRIC COMPANY 10.1.7.1 Supplement to 10.1.7 consisting of three Capacity Acquisition Commitments each dated May 7, 1987, concerning Phases I and II of the Hydro-Quebec Project and electricity acquired from Connecticut Light and Power Company (CL&P) (Exhibit 1 to the CEC Form 10-Q (September 1987), File No. 2-30057). 10.1.7.2 Amendment to 10.1.7 as amended, and restated, June 1, 1993, henceforth referred to as the Capacity Acquisition and Disposition Agreement, whereby CEC, as agent, in addition to acquiring power may also sell bulk electric power which CEL and/or CE owns or otherwise has the right to sell (Exhibit 1 to the CEC Form 10-Q (September 1993), File No. 2-30057). 10.1.7.3 Capacity Disposition Commitment dated June 25, 1993 by and between CEC (Unit 2) and CE for the sale of a portion of CE's entitlement in Unit 2 to Green Mountain Power Corporation (Exhibit 1 to the CEC Form 10-Q (September 1993), File No. 2-30057). 10.1.8 Termination Supplement between CEC, CE and CEL for Seabrook Unit 2, dated December 8, 1986 (Exhibit 3 to the CEC Form 10-K for 1986, File No. 2-30057). 10.1.9 Agreement, dated September 1, 1985, With Respect To Amendment of Agreement With Respect To Use Of Quebec Interconnection, dated December 1, 1981, among certain NEPOOL utilities to include Phase II facilities in the definition of "Project" (Exhibit 1 to the CEC Form 10-Q (September 1985), File No. 2-30057). 10.1.9.1 Amendatory Agreement No.3 with Respect to Use of Quebec Interconnection dated December 1, 1981, as amended to June 1, 1990, among certain NEPOOL utilities (Exhibit 1 to the CEC Form 10-Q (September 1990), File No. 2-30057). 10.1.10 Preliminary Quebec Interconnection Support Agreement - Phase II among certain New England electric utilities dated June 1, 1984 (Exhibit 6 to the CE Form 10-Q (June 1984), File No. 2-7749). 10.1.10.1 First through Third Amendments to 10.1.10 as amended March 1, 1985, January 1, 1986 and March 1, 1987, respectively (Exhibit 1 to the CEC Form 10-Q (March 1987), File No. 2-30057). 10.1.10.2 Fifth through Seventh Amendments to 10.1.10 as amended October 15, 1987, December 15, 1987 and March 1, 1988, respectively (Exhibit 1 to the CEC Form 10-Q (June 1988), File No. 2-30057). 10.1.10.3 Fourth and Eighth Amendments to 10.1.10 as amended July 1, 1987 and August 1, 1988, respectively (Exhibit 3 to the CEC Form 10-Q (September 1988), File No. 2-30057). 10.1.10.4 Ninth and Tenth Amendments to 10.1.10 as amended November 1, 1988 and January 15, 1989, respectively (Exhibit 2 to the CEC 1988 Form 10-K, File No. 2-30057). 10.1.10.5 Eleventh Amendment to 10.1.10 as amended November 1, 1989 (Exhibit 4 to the CEC 1989 Form 10-K, File No. 2-30057). CANAL ELECTRIC COMPANY 10.1.10.6 Twelfth Amendment to 10.1.10 as amended April 1, 1990 (Exhibit 1 to the CEC Form 10-Q (June 1990) File No. 2-30057). 10.1.11 Agreement to Preliminary Quebec Interconnection Support Agreement - Phase II among Public Service Company of New Hampshire (PSNH), New England Power Co. (NEP), Boston Edison Co. (BECO), and CEC whereby PSNH assigns a portion of its interests under the original Agreement to the other three parties, dated October 1, 1987 (Exhibit 2 to the CEC 1987 Form 10-K, File No. 2-30057). 10.1.12 Phase II Equity Funding Agreement for New England Hydro Transmission Electric Company, Inc. (New England Hydro) (Massachusetts), dated June 1, 1985, between New England Hydro and certain NEPOOL utilities (Exhibit 2 to the CEC Form 10-Q (September 1985), File No. 2-30057). 10.1.13 Phase II Equity Funding Agreement for New England Hydro Transmission Corporation (New Hampshire Hydro), dated June 1, 1985, between New Hampshire Hydro and certain NEPOOL utilities (Exhibit 3 to the CEC Form 10-Q (September 1985), File No. 2-30057). 10.1.13.1 Amendment No. 1 to 10.1.13 as amended May 1, 1986 (Exhibit 6 to the CEC Form 10-Q (March 1987), File No. 2-30057). 10.1.13.2 Amendment No. 2 to 10.1.13 as amended September 1, 1987 (Exhibit 3 to the CEC Form 10-Q (September 1987), File No. 2-30057). 10.1.14 Phase II Massachusetts Transmission Facilities Support Agreement, dated June 1, 1985, refiled as a single agreement incorporating Amendments 1 through 7 dated May 1, 1986 through January 1, 1989, respectively, between New England Hydro and certain NEPOOL utilities (Exhibit 2 to the CEC Form 10-Q (September 1990), File No. 2-30057). 10.1.15 Phase II New Hampshire Transmission Facilities Support Agreement, dated June 1, 1985, refiled as a single agreement incorporating Amendments 1 through 8 dated May 1, 1986 through January 1, 1989, respectively, between New Hampshire Hydro and certain NEPOOL utilities (Exhibit 3 to the CEC Form 10-Q (September 1990), File No. 2-30057). 10.1.16 Phase II New England Power AC Facilities Support Agreement dated June 1, 1985, between New England Power and certain NEPOOL utilities (Exhibit 6 to the CEC Form 10-Q (September 1985), File No. 2-30057). 10.1.16.1 Amendments Nos. 1 and 2 to 10.1.16 as amended May 1, 1986 and February 1, 1987, respectively (Exhibit 5 to the CEC Form 10-Q (March 1987), File No. 2-30057). 10.1.16.2 Amendments Nos. 3 and 4 to 10.1.16 as amended June 1, 1987 and September 1, 1987, respectively (Exhibit 5 to the CEC Form 10-Q (September 1987), File No. 2-30057). CANAL ELECTRIC COMPANY 10.1.17 Phase II BECO AC Facilities Support Agreement, dated June 1, 1985, between BECO and certain NEPOOL utilities (Exhibit 7 to the CEC Form 10-Q (September 1985), File No. 2-30057). 10.1.17.1 Amendments Nos. 1 and 2 to 10.1.17 as amended May 1, 1986 and February 1, 1987, respectively (Exhibit 2 to the CEC Form 10-Q (March 1987), File No. 2-30057). 10.1.17.2 Amendments Nos. 3 and 4 to 10.1.17 as amended June 1, 1987 and September 1, 1987, respectively (Exhibit 4 to the CEC Form 10-Q (September 1987), File No. 2-30057). 10.1.18 Agreement Authorizing Execution of Phase II Firm Energy Contract, dated September 1, 1985, among certain NEPOOL utilities in regard to the purchase of power from Hydro Quebec (Exhibit 8 to the CEC Form 10-Q (September 1985), File No. 2-30057). 10.1.19 Agreement to Share Certain Costs Associated with the Tewksbury- Seabrook Transmission Line, by and among certain NEPOOL utilities, amending participants, dated May 8, 1986 (Exhibit 2 to the CEC 1986 Form 10-K, File No. 2-30057). 10.1.20 Power Exchange Contract, dated March 24, 1993, between New England Power Company (NEP) and CEC for an exchange of unit capacity in which NEP will purchase 20 MW of CEC's Unit 2 capacity in exchange for CEC's purchase of 20 MW of NEP's Bear Swamp Units 1 and 2 (10 MW per unit) commencing May 31, 1993 through April 28, 1997 and NEP will purchase 50 MW of CEC's Unit 2 capacity in exchange for CEC's purchase of 50 MW of NEP's Bear Swamp Units 1 and 2 (25 MW per unit) commencing November 1, 1993 through April 28, 1997 (Exhibit 1 to the CEC Form 10-Q (March 1993), File No. 2-30057). 10.2 Other agreements. 10.2.1 Employees Savings Plan of Commonwealth Energy System and Subsidiary Companies as amended and restated as of January 1, 1993 (Exhibit 2 to the CES Form 10-Q (September 1993), File No. 1-7316). 10.2.2 Pension Plan for Employees of Commonwealth Energy System and Subsidiary Companies as amended and restated January 1, 1993 (Exhibit 1 to the CES Form 10-Q (September 1993), File No.1-7316). 10.2.3 New England Power Pool Agreement (NEPOOL) dated September 1, 1971 as amended through August 1, 1977, between NEGEA Service Corp. as agent for CEL, CEC, NBGEL, and various other electric utilities operating in New England, together with amendments dated August 15, 1978 and January 31, 1979 and February 1, 1980 (Exhibit 5(c)(13) to the CES Form S-16 (April 1980), File No. 2-64731). 10.2.3.1 Thirteenth Amendment to 10.2.3 as amended September 1, 1981 (Exhibit 5 to the CES Form 10-K for 1981, File No. 1-7316). CANAL ELECTRIC COMPANY 10.2.3.2 Fourteenth through Twentieth Amendments to 10.2.3 as amended December 1, 1981, June 1, 1982, June 15, 1983, October 1, 1983, August 1, 1985, August 15, 1985 and September 1, 1985, respectively (Exhibit 4 to the CES Form 10-Q (September 1985), File No. 1-7316). 10.2.3.3 Twenty-first Amendment to the New England Power Pool Agreement dated September 1, 1971, as amended January 1, 1986 (Exhibit 1 to the CES Form 10-Q (March 1986), File No. 1-7316). 10.2.3.4 Twenty-second Amendment to 10.2.3 as amended to September 1, 1986 (Exhibit 1 to the CES Form 10-Q (September 1986), File No. 1-7316). 10.2.3.5 Twenty-third Amendment to 10.2.3 as amended to April 30, 1987 (Exhibit 1 to the CES Form 10-Q (June 1987), File No. 1-7316). 10.2.3.6 Twenty-fourth Amendment to 10.2.3 as amended to March 1, 1988 (Exhibit 1 to the CES Form 10-K for 1987, File No. 1-7316). 10.2.3.7 Twenty-fifth Amendment to 10.2.3 as amended to May 1, 1988 (Exhibit 1 to the CES Form 10-Q (March 1988), File No. 1-7316). 10.2.3.8 Twenty-sixth Amendment to 10.2.3 as amended to March 15, 1989 (Exhibit 1 to the CES Form 10-Q (March 1989), File No. 1-7316). 10.2.3.9 Twenty-seventh Amendment to 10.2.3 as amended to October 1, 1990 (Exhibit 3 to the CES 1990 Form 10-K, File No. 1-7316). 10.2.3.10 Twenty-eighth Amendment to 10.2.3 as amended September 15, 1992 (Exhibit 1 to the CES Form 10-Q (September 1994), File No. 1-7316). 10.2.3.11 Twenty-ninth Amendment to 10.2.3 as amended May 1, 1993 (Exhibit 2 to the CES Form 10-Q (September 1994), File No. 1-7316). 10.2.4 Fuel Supply, Facilities Lease and Operating Contract by and between on the one side, ESCO (Massachusetts), Inc. and Energy Supply & Credit Corporation on the other side and CEC dated February 1, 1985 (Exhibit 1 to the CEC Form 10-K for 1984, File No. 2-30057). 10.2.4.1 Amendments Nos. 1 and 2 to 10.2.4 as amended July 1, 1986 and November 15, 1989, respectively (Exhibit 3 to the CEC 1989 Form 10-K, File No. 2-30057). 10.2.5 Oil Supply Contract by and between CEC (buyer) and Carey Energy Fuels Corporation (seller) for a portion of CEC's requirements of No. 6 residual fuel oil, dated July 1, 1991 (Exhibit 3 to the CEC Form 10-Q (June 1991), File No. 2-30057). 10.2.6 Assignment Agreement between CEC and ESCO (Massachusetts), Inc. (ESCO-Mass) and Energy Supply and Credit Corporation whereby CEC assigns to ESCO-Mass rights and obligations under the Supply Contract with Carey Energy Fuels Corporation, dated July 1, 1991 (Exhibit 4 to the CEC Form 10-Q (June 1991), File No. 2-30057). CANAL ELECTRIC COMPANY 10.2.7 Assignment and Sublease Agreement and CEC's Consent of Assignment thereto whereby ESCO-Mass assigns its rights and obligations under Part II of the Resupply Agreement dated February 1, 1985 to ESCO Terminals Inc., dated June 4, 1985 (Exhibit 4 to the CEC Form 10-Q (June 1985), File No. 2-30057). Filed herewith: Exhibit 27. Filed herewith as Exhibit 1 is the Financial Data Schedule for the year ended December 31, 1996. Filed herewith as Exhibit 2 is the restated Financial Data Schedule for the year ended December 31, 1995. Filed herewith as Exhibit 3 is the restated Financial Data Schedule for the year ended December 31, 1994. (b) Reports on Form 8-K No reports on Form 8-K were filed during the three months ended December 31, 1996. SCHEDULE I CANAL ELECTRIC COMPANY INVESTMENTS IN, EQUITY EARNINGS OF, AND DIVIDENDS RECEIVED FROM RELATED PARTIES FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994 (Dollars in Thousands)
Investment Investment Balance Balance Description of Investment and Beginning of Equity Dividends End of Name of Issuer Year Shares Earnings Received Year New England/Hydro-Quebec Phase II HVDC Transmission Project - YEAR ENDED DECEMBER 31, 1996 New England Hydro-Transmission Electric Company, Inc. $ 2 026 136 656 $ 311 $ 307 $2 030 New England Hydro-Transmission Corporation 1 346 673.031 187 242 1 291 Total $ 3 372 $ 498 $ 549 $3 321 YEAR ENDED DECEMBER 31, 1995 New England Hydro-Transmission Electric Company, Inc. $ 2 313 136 656 $ 328 $ 615 $2 026 New England Hydro-Transmission Corporation 1 489 734.526 211 354 1 346 Total $ 3 802 $ 539 $ 969 $3 372 YEAR ENDED DECEMBER 31, 1994 New England Hydro-Transmission Electric Company, Inc. $ 2 408 136 656 $ 314 $ 409 $2 313 New England Hydro-Transmission Corporation 1 453 785.772 193 157 1 489 Total $ 3 861 $ 507 $ 566 $3 802 In 1996 New England Hydro-Transmission Corporation (NEHTC) repurchased 6.52% of their outstanding shares at $1,831.30 per share. The Company received $112,616 for the repurchase of 61.495 shares, and included this amount with dividends. In 1995, NEHTC repurchased 6.52% of their outstanding shares at $1,834.62 per share. The Company received $94,017 for the repurchase of 51.246 shares, and included this amount with dividends.
CANAL ELECTRIC COMPANY FORM 10-K DECEMBER 31, 1996 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. CANAL ELECTRIC COMPANY (Registrant) By: WILLIAM G. POIST William G. Poist, Chairman of the Board and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Principal Executive Officers: WILLIAM G. POIST March 27, 1997 William G. Poist, Chairman of the Board and Chief Executive Officer R. D. WRIGHT March 27, 1997 Russell D. Wright, President and Chief Operating Officer Principal Financial Officer: JAMES D. RAPPOLI March 27, 1997 James D. Rappoli Financial Vice President and Treasurer A majority of the Board of Directors: WILLIAM G. POIST March 27, 1997 William G. Poist, Director R. D. WRIGHT March 27, 1997 Russell D. Wright, Director JAMES D. RAPPOLI March 27, 1997 James D. Rappoli, Director EX-27 2 FINANCIAL DATA SCHEDULE - 1996
UT This schedule contains summary financial information extracted from the balance sheet, statement of income, statement of retained earnings and statement of cash flows contained in Form 10-K of Canal Electric Company for the fiscal year ended December 31, 1996 and is qualified in its entirety by reference to such financial statements. 0000016906 CANAL ELECTRIC COMPANY 1,000 DEC-31-1996 DEC-31-1996 YEAR PER-BOOK 287,236 3,321 27,621 25,345 0 343,523 38,080 8,321 52,620 99,021 0 0 83,618 33,800 0 0 350 0 11,878 576 114,280 343,523 185,550 9,720 151,368 161,088 24,462 2,393 26,855 10,281 16,574 0 16,574 16,024 8,017 30,267 0 0
EX-27 3 FINANCIAL DATA SCHEDULE - 1995 (RESTATED)
UT This schedule contains restated summary financial information extracted from the balance sheet, statement of income, statement of retained earnings and statement of cash flows contained in Form 10-K of Canal Electric Company for the fiscal year ended December 31, 1995 and is qualified in its entirety by reference to such financial statements. 0000016906 CANAL ELECTRIC COMPANY 1,000 DEC-31-1995 DEC-31-1995 YEAR PER-BOOK 291,611 3,372 23,885 30,592 0 349,460 38,080 8,321 52,070 98,471 0 0 83,941 29,290 3,230 0 920 0 12,547 581 120,480 349,460 145,985 609 122,721 123,330 22,655 1,230 23,885 9,753 14,132 0 14,132 13,709 8,229 36,157 0 0
EX-27 4 FINANCIAL DATA SCHEDULE - 1994 (RESTATED)
UT This schedule contains restated summary financial information extracted from the balance sheet, statement of income, statement of retained earnings and statement of cash flows contained in Form 10-K of Canal Electric Company for the fiscal year ended December 31, 1994 and is qualified in its entirety by reference to such financial statements. 0000016906 CANAL ELECTRIC COMPANY 1,000 DEC-31-1994 DEC-31-1994 YEAR PER-BOOK 265,700 3,802 21,532 25,070 13,844 329,948 38,080 8,321 51,647 98,048 0 0 87,713 20,675 0 0 1,110 0 13,258 586 108,558 329,948 197,820 8,390 166,232 174,622 23,198 703 23,901 9,743 14,158 0 14,158 10,662 8,283 36,512 0 0
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