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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended
OR |
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission |
Exact name of Registrant as specified in its charter, |
IRS Employer |
1-14766 |
Energy East Corporation (A New York Corporation) P. O. Box 12904 Albany, New York 12212-2904 (518) 434-3049 www.energyeast.com |
14-1798693 |
1-5139 |
Central Maine Power Company (A Maine Corporation) 83 Edison Drive Augusta, Maine 04336 (207) 623-3521 |
01-0042740 |
1-3103-2 |
New York State Electric & Gas Corporation (A New York Corporation) P. O. Box 5224 Binghamton, New York 13902-5224 (607) 762-7200 |
15-0398550 |
1-672 |
Rochester Gas and Electric Corporation (A New York Corporation) 89 East Avenue Rochester, New York 14649 (585) 546-2700 |
16-0612110 |
Indicate by check mark whether each 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 by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).
Registrant |
||
Energy East Corporation |
Yes X |
No |
Central Maine Power Company |
Yes |
No X |
New York State Electric & Gas Corporation |
Yes |
No X |
Rochester Gas and Electric Corporation |
Yes |
No X |
As of July 31, 2004, shares of common stock outstanding for each registrant were:
Registrant |
Description |
Shares |
Energy East Corporation |
Par value $.01 per share |
146,706,572 |
Central Maine Power Company |
Par value $5 per share |
31,211,471 (1) |
New York State Electric & Gas Corporation |
Par value $6.66 2/3 per share |
64,508,477 (2) |
Rochester Gas and Electric Corporation |
Par value $5 per share |
34,506,513 (2) |
(1)
All shares are owned by CMP Group, Inc., a wholly-owned subsidiary of Energy East Corporation.This combined Form 10-Q is separately filed by Energy East Corporation, Central Maine Power Company, New York State Electric & Gas Corporation and Rochester Gas and Electric Corporation. Information contained herein relating to any individual registrant is filed by such registrant on its own behalf. Each registrant makes no representation as to information relating to the other registrants.
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TABLE OF CONTENTS - continued |
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1 |
Notes to Condensed Financial Statements Forward-looking Statements |
41 |
3 |
Quantitative and Qualitative Disclosures About Market Risk |
53 |
4 |
Controls and Procedures |
54 |
PART II - OTHER INFORMATION |
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2 |
Changes in Securities, Use and Proceeds and Issuer Purchases of Equity Securities |
54 |
4 |
Submission of Matters to a Vote of Security Holders |
56 |
6 |
Exhibits and Reports on Form 8-K (a) Exhibits (b) Reports on Form 8-K |
57 |
Signatures |
58 |
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Exhibit Index |
59 |
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Energy East Corporation |
||||
Three Months |
Six Months |
|||
Periods ended June 30 |
2004 |
2003 |
2004 |
2003 |
(Thousands, except per share amounts) |
||||
Operating Revenues |
||||
Sales and services |
$980,566 |
$979,113 |
$2,561,639 |
$2,483,944 |
Operating Expenses |
||||
Electricity purchased and fuel used in generation |
338,253 |
300,967 |
734,906 |
659,334 |
Natural gas purchased |
169,700 |
178,414 |
669,549 |
629,465 |
Other operating expenses |
158,065 |
199,916 |
372,072 |
394,539 |
Maintenance |
42,814 |
43,309 |
85,476 |
89,556 |
Depreciation and amortization |
84,799 |
73,774 |
169,934 |
149,107 |
Other taxes |
58,248 |
58,382 |
133,670 |
143,649 |
Gain on sale of generation assets |
(319,487) |
- |
(319,487) |
- |
Deferral of asset sale gain |
214,368 |
- |
214,368 |
- |
Total Operating Expenses |
746,760 |
854,762 |
2,060,488 |
2,065,650 |
Operating Income |
233,806 |
124,351 |
501,151 |
418,294 |
Other (Income) |
(11,681) |
(2,278) |
(17,409) |
(6,810) |
Other Deductions |
4,398 |
1,261 |
7,675 |
3,048 |
Interest Charges, Net |
68,822 |
68,090 |
138,812 |
135,825 |
Preferred Stock Dividends of Subsidiaries |
1,791 |
8,739 |
2,779 |
17,157 |
Income From Continuing Operations |
|
|
|
|
Income Taxes |
127,694 |
20,206 |
205,803 |
109,050 |
Income From Continuing Operations |
42,782 |
28,333 |
163,491 |
160,024 |
Discontinued Operations |
||||
(Loss) income from discontinued operations |
(4,249) |
(901) |
(4,527) |
5,058 |
Income taxes (benefits) |
467 |
(285) |
346 |
1,901 |
(Loss) Income From Discontinued Operations |
(4,716) |
(616) |
(4,873) |
3,157 |
Net Income |
$38,066 |
$27,717 |
$158,618 |
$163,181 |
Earnings Per Share From Continuing |
|
|
|
|
Earnings Per Share From Continuing |
|
|
|
|
Earnings Per Share From Discontinued |
|
|
|
|
Earnings Per Share From Discontinued |
|
|
|
|
Total Earnings Per Share, basic |
$.26 |
$.19 |
$1.09 |
$1.12 |
Total Earnings Per Share, diluted |
$.26 |
$.19 |
$1.08 |
$1.12 |
Dividends Paid Per Share |
$.26 |
$.25 |
$.52 |
$.50 |
Average Common Shares Outstanding, basic |
146,148 |
145,415 |
146,116 |
145,256 |
Average Common Shares Outstanding, diluted |
146,596 |
145,640 |
146,512 |
145,429 |
Energy East Corporation |
||||
June 30, 2004 |
Dec. 31, |
|||
(Thousands) |
||||
Liabilities |
||||
Current Liabilities |
||||
Current portion of preferred stock of subsidiary subject to |
|
|
||
Current portion of long-term debt |
$24,711 |
30,989 |
||
Notes payable |
31,201 |
308,406 |
||
Accounts payable and accrued liabilities |
390,469 |
339,812 |
||
Interest accrued |
47,395 |
48,989 |
||
Taxes accrued |
118,666 |
43,710 |
||
Other |
136,869 |
191,873 |
||
Total Current Liabilities |
749,311 |
965,029 |
||
Regulatory and Other Liabilities |
||||
Regulatory liabilities |
||||
Accrued removal obligation |
735,879 |
731,621 |
||
Deferred income taxes |
14,858 |
181,211 |
||
Gain on sale of generation assets |
238,887 |
129,640 |
||
Pension benefits |
31,728 |
51,970 |
||
Other |
123,878 |
96,509 |
||
Total regulatory liabilities |
1,145,230 |
1,190,951 |
||
Other liabilities |
||||
Deferred income taxes |
947,843 |
853,489 |
||
Nuclear plant obligations |
265,022 |
277,643 |
||
Other postretirement benefits |
424,817 |
408,903 |
||
Asset retirement obligation |
3,049 |
437,076 |
||
Environmental remediation costs |
147,897 |
145,446 |
||
Other |
365,769 |
346,630 |
||
Total other liabilities |
2,154,397 |
2,469,187 |
||
Total Regulatory and Other Liabilities |
3,299,627 |
3,660,138 |
||
Debt owed to subsidiary holding solely parent debentures |
355,670 |
355,670 |
||
Preferred stock of subsidiary subject to mandatory |
|
|
||
Other long-term debt |
3,552,011 |
3,638,426 |
||
Total long-term debt |
3,907,681 |
4,017,846 |
||
Total Liabilities |
7,956,619 |
8,643,013 |
||
Commitments |
- |
- |
||
Preferred Stock of Subsidiaries |
|
|
||
Common Stock Equity Common stock |
|
|
||
Capital in excess of par value |
1,464,528 |
1,458,802 |
||
Retained earnings |
1,209,131 |
1,126,457 |
||
Accumulated other comprehensive income (loss) |
(2,931) |
(11,214) |
||
Deferred compensation |
(6,765) |
(2,820) |
||
Treasury stock, at cost |
(645) |
(364) |
||
Total Common Stock Equity |
2,664,785 |
2,572,324 |
||
Total Liabilities and Stockholders' Equity |
$10,668,028 |
$11,306,432 |
||
The
Consolidated Statements of Cash Flows - (Unaudited) | ||
Six months ended June 30 |
2004 |
2003 |
(Thousands) |
||
Net Cash Provided by Operating Activities |
$405,808 |
$377,971 |
Investing Activities |
||
Proceeds from sale of generation assets |
428,541 |
- |
Refund of excess decommissioning fund |
76,593 |
- |
Utility plant additions |
(123,554) |
(112,955) |
Other property and investments additions |
(2,045) |
(13,631) |
Other property and investments sold |
7,957 |
5,054 |
Special deposits |
27,396 |
(81,134) |
Other |
(3,501) |
(2,377) |
Net Cash Provided (Used) in Investing Activities |
411,387 |
(205,043) |
Financing Activities |
||
Issuance of common stock |
1,252 |
2,466 |
Repurchase of common stock |
(6,071) |
- |
Outstanding customer refund, overdraft |
57,388 |
- |
Repayments of first mortgage bonds and preferred stock of |
|
|
Long-term note issuances |
12,000 |
196,986 |
Long-term note repayments |
(12,778) |
(6,140) |
Notes payable three months or less, net |
(279,203) |
(128,700) |
Notes payable issuances |
3,000 |
- |
Notes payable repayments |
(16,000) |
(91,435) |
Dividends on common stock |
(66,858) |
(63,803) |
Net Cash Used in Financing Activities |
(469,323) |
(205,896) |
Net Increase (Decrease) in Cash and Cash Equivalents |
347,872 |
(32,968) |
Cash and Cash Equivalents, Beginning of Period |
113,187 |
250,490 |
Cash and Cash Equivalents, End of Period |
$461,059 |
$217,522 |
Consolidated Statements of Retained Earnings - (Unaudited) | ||
Six months ended June 30 |
2004 |
2003 |
(Thousands) |
||
Balance, Beginning of Period |
$1,126,457 |
$1,061,428 |
Add net income |
158,618 |
163,181 |
Deduct dividends on common stock |
75,944 |
72,566 |
Balance, End of Period |
$1,209,131 |
$1,152,043 |
Energy East Corporation |
||||
Three Months |
Six Months |
|||
Periods ended June 30 |
2004 |
2003 |
2004 |
2003 |
(Thousands) |
||||
Net income |
$38,066 |
$27,717 |
$158,618 |
$163,181 |
Other comprehensive income, net of tax |
||||
Net unrealized gains (losses) on investments, |
|
|
|
|
Unrealized gains (losses) on derivatives |
|
|
|
|
Reclassification adjustment for derivative |
|
|
|
|
Net unrealized (losses) gains on derivatives |
|
|
|
|
Total other comprehensive income (loss) |
(2,452) |
(10,270) |
8,283 |
5,318 |
Comprehensive Income |
$35,614 |
$17,447 |
$166,901 |
$168,499 |
Energy East Corporation
Overview
Energy East Corporation's (Energy East or the company) management focuses its strategic efforts on those areas of the company that have the greatest effect on shareholder value. Efficient operations are a key aspect of increasing shareholder value. As discussed below, management has implemented plans to achieve savings through a company-wide restructuring, consolidation of utility support services and other changes.
In addition, because Energy East's primary operations - its electric and natural gas utility operations - are subject to rate regulation, the approved regulatory treatment on various matters could significantly affect the company's operations and, therefore, its financial position and results of operations. In May 2004 Rochester Gas and Electric Corporation (RG&E), an operating company of Energy East, received approval for long-term electric and natural gas rate plans. As a result, Energy East now has long-term rate plans for all of its major utility operating companies including New York State Electric & Gas Corporation (NYSEG), Central Maine Power Company (CMP), Connecticut Natural Gas Corporation (CNG), The Southern Connecticut Gas Company (SCG) and The Berkshire Gas Company (Berkshire Gas). The plans provide for sharing of achieved savings among customers and shareholders, allow for recovery of certain costs including exogenous and uncontrollable costs, and provide stable rates for customers a nd revenue predictability for those six operating companies.
Over the last several years Energy East has focused its strategic efforts on its electric and natural gas delivery operations, rather than on the more volatile electricity generation business, and has sought to rationalize its nonutility businesses to ensure they fit its strategic focus. As discussed below, RG&E successfully completed the sale of its Ginna nuclear generating station (Ginna) to Constellation Generation Group LLC (CGG) on June 10, 2004. In addition, on July 26, 2004, CMP Group, Inc. sold the majority of the assets of its subsidiary, Union Water Power Company (UWP).
The continuing evolution of the utility industry, particularly the electric utility industry, has resulted in several federal and state regulatory proceedings that could significantly affect operations, although the outcomes of those proceedings are difficult to predict. Those proceedings could have an effect on the nature of the electric and natural gas utility industry in New York and New England. Recent events in the proceedings are described below.
The company engages in various investing and financing activities to meet its strategic objectives. Investing activities are conducted primarily to maintain a reliable energy delivery infrastructure and are funded primarily with internally generated funds. Financing activities, therefore, are focused on maintaining adequate liquidity, improving credit quality and minimizing the cost of capital. As a result of the Ginna sale, the company will have funds available to reduce its outstanding debt as well as that of RG&E.
Management's discussion and analysis of financial condition and results of operations
Energy East Corporation
(a) Liquidity and Capital Resources
In the first quarter of 2004 the company completed its consolidation of various accounting and finance functions. Energy East recognized a $4 million total liability for an enhanced severance program for 83 accounting and finance employees who were employed through March 31, 2004. The company recorded approximately $2 million of that liability as of the end of the fourth quarter of 2003 and recorded the remaining $2 million of the liability in the first quarter of 2004. The liability was entirely paid off as of June 30, 2004.
Electric Delivery Business
The company's electric delivery business consists primarily of its regulated electricity transmission, distribution and generation operations in upstate New York and Maine.
RG&E 2003 Electric and Natural Gas Rate Agreements: In May 2003 RG&E filed a rate case with the New York State Public Service Commission (NYPSC) to recover costs that RG&E has incurred and will continue to incur in providing safe and reliable electric and natural gas service. On May 20, 2004, the NYPSC approved Electric and Natural Gas Joint Proposals (Electric and Natural Gas Rate Agreements) that had been negotiated with Staff of the NYPSC and other interested parties and that address RG&E's electric and natural gas rates through 2008.
Key features of the Electric Rate Agreement include:
Management's discussion and analysis of financial condition and results of operations
Energy East Corporation
Key features of the Natural Gas Rate Agreement include:
The Electric and Natural Gas Rate Agreements resolve all outstanding issues in the RG&E Cost Deferral Petitions and the RG&E 2002 Electric and Gas Rate Proceeding. In addition, RG&E has withdrawn its appeal of an order the NYPSC issued in March 2003. (See report on Form 10-Q for Energy East and RG&E for the quarter ended March 31, 2004, Item 2, Electric Delivery Business - RG&E Cost Deferral Petitions and RG&E 2002 Electric and Gas Rate Proceeding.)
Sale of Ginna Station: On June 10, 2004, after receiving all regulatory approvals, RG&E sold Ginna to CGG. RG&E received at closing $429 million in cash. RG&E's Electric Rate Agreement resolves all regulatory and ratemaking aspects related to the sale of Ginna. On May 20, 2004, the NYPSC issued an order approving the sale of Ginna. RG&E's Electric Rate Agreement provides for an ASGA, established at the time of closing in the amount of approximately $357 million, and addresses the disposition of the asset sale gain. (See RG&E 2003 Electric and Natural Gas Rate Agreements and Note 2 to the Condensed Financial Statements.)
Upon closing of the Ginna sale, RG&E transferred $201 million of decommissioning funds to CGG, which will take responsibility for all future decommissioning funding. This amount fully meets the Nuclear Regulatory Commission's decommissioning funding requirements for Ginna. RG&E retained $77 million in excess decommissioning funds, which is part of the ASGA. The sale agreement includes a 10-year, fixed-price power purchase agreement that calls for CGG to provide electricity to RG&E at 90% of the plant's output.
RG&E Electric Rate Unbundling: In June 2003, as required by NYPSC's Order issued March 7, 2003, RG&E filed documentation with the NYPSC to unbundle commodity charges from delivery charges and to create electric commodity options for all customers. The Electric Rate Agreement provides for that unbundling and for the commodity options. Beginning January 1, 2005, customers will have an opportunity to choose to purchase commodity service from RG&E at a fixed rate or at a price that varies monthly based on the market price of electricity. Alternatively, customers may continue to choose to purchase their commodity service from an ESCO.
Management's discussion and analysis of financial condition and results of operations
Energy East Corporation
RG&E Transmission Project: In September 2003 RG&E applied to the NYPSC for approval to upgrade its electric transmission system. The project includes building or rebuilding 38 miles of transmission lines and upgrading substations in the Rochester, NY, area in order to assure adequate service to customers after the planned closing of RG&E's 257 megawatt coal-fired Russell Station in 2007. The estimated cost of the multi-year project is $75 million. Construction on the project is expected to begin in the spring of 2005.
CMP Alternative Rate Plan: In September 2000 the Maine Public Utilities Commission (MPUC) approved CMP's Alternative Rate Plan (ARP 2000). ARP 2000 applies only to CMP's state jurisdictional distribution revenue requirement and excludes revenue requirements related to stranded costs and transmission services. ARP 2000 began January 1, 2001, and continues through December 31, 2007, with price changes, if any, occurring on July 1, in the years 2002 through 2007. Effective July 1, 2004, CMP's distribution prices decreased by about 1% as a result of inflation being less than the productivity offset for 2004. In addition, CMP decreased its transmission rates to eliminate billings for congestion costs that have been fully recovered and, pursuant to its formula rate approved by the Federal Energy Regulatory Commission (FERC), to reflect CMP's and the New England Power Pool's actual costs for 2003.
Regional Transmission Organization: ISO New England and the New England transmission owners, including CMP, made a joint regional transmission organization (RTO) filing with FERC in October 2003. On March 24, 2004, the FERC issued an order (RTO Order) accepting the six-state New England RTO filing submitted by ISO New England and the New England transmission owners, subject to certain conditions. FERC approved a proposed 50 basis point incentive adder to the ROE component, to be recovered in RTO New England's rates for regional network service. The FERC accepted a proposed 100 basis point ROE adder to reward new transmission investment for regional network services (RNS) facilities, subject to suspension, hearing and application of the FERC's Pricing Policy Statement when it is issued. The FERC also accepted, subject to suspension and hearing, the transmission owners' proposed base level ROE of 12.8% on RNS facilities but not on local network system (LNS) facilities. To pro vide parties an opportunity to resolve matters, the FERC instituted settlement procedures covering all matters set for hearing. The initial settlement discussions did not produce a resolution and the parties are conducting discovery of the issues set for hearing. CMP and the other New England transmission owners have requested rehearing on the issue of whether LNS facilities will earn the 12.8% base ROE and incentive adders, and clarification on
Management's discussion and analysis of financial condition and results of operations
Energy East Corporation
other aspects of the FERC's RTO Order. In addition, ISO New England and the New England transmission owners, including CMP, made a joint compliance filing as required by the RTO Order. At this time, CMP and the other New England transmission owners have informed the FERC that it needs to resolve the issues in the request for rehearing and clarification before the New England transmission owners can make a final decision regarding whether and when to join the RTO.
CMP Collective Bargaining Agreement: Effective April 30, 2004, the union contract expired between CMP and the local union of the International Brotherhood of Electrical Workers. On May 5, 2004, the union membership voted to accept CMP's offer for a new contract, which expires on April 30, 2009. The contract provides for wage increases of 3.25% in 2004, 3.0% in each year 2005, 2006 and 2007, and 2.75% in 2008. It also includes provisions for active employees to contribute to medical insurance plans at a level reflecting CMP's cost-sharing philosophy for all such plans by the end of the contract period and for employees who retire on or after July 1, 2005, to contribute toward the cost of medical insurance according to a predetermined schedule.
CMP Stranded Cost Proceeding: Through its stranded cost rates, CMP recovers the above-market costs of its purchased power agreements, as well as costs incurred to decommission and dismantle the nuclear facilities in which CMP has an ownership share, pursuant to Maine statute. The current stranded cost rates were set in 2003 and are scheduled to be updated in February 2005. CMP filed revised stranded cost estimates in July 2004, as ordered by the MPUC. CMP expects an MPUC order setting new stranded cost rates in February 2005.
CMP Nuclear Costs: CMP has ownership interests in three nuclear facilities in New England that have been permanently shutdown, and are in the process of being decommissioned: Maine Yankee Atomic Power Company (38% owned), Connecticut Yankee Atomic Power Company (6% owned) and Yankee Atomic Electric Power Company (9.5% owned) (the Yankee companies). The Yankee companies filed litigation in 1998 charging that the federal government breached contracts it entered into with each of the Yankee companies in 1983 to begin removing spent nuclear fuel from the Maine Yankee, Connecticut Yankee and Yankee Rowe nuclear plants, which are owned by the Yankee companies, no later than January 31, 1998, in return for payments by each of the Yankee companies. Two federal courts found that the federal government did breach its contracts with the Yankee companies and other utilities. A trial to determine the monetary damages owed to the Yankee companies for the Department of Energy's (DOE) co ntinued failure to remove spent nuclear fuel began in the U.S. Court of Federal Claims in July 2004. The Yankee companies' individual damage claims are specific to each plant and include costs through 2010, the earliest date the DOE expects that it will begin removing fuel. The Yankee companies' damage claims total approximately $550 million and CMP's sponsor-weighted share is approximately $90 million. The claims also note additional costs that will be incurred for each year that fuel remains at the sites beyond 2010. If the Yankee companies prevail in these cases, any damages awarded by the Court of Federal Claims would be credited to their respective decommissioning or spent fuel trust funds and any remaining funds would be returned to electric customers when decommissioning is complete.
Management's discussion and analysis of financial condition and results of operations
Energy East Corporation
Pursuant to a year 2000 settlement (2000 Settlement) in a prior FERC rate case, Connecticut Yankee, on July 1, 2004, filed a revised schedule of decommissioning charges to be collected from its wholesale customers, based on an updated estimate of the costs of decommissioning. Estimated decommissioning and long-term spent fuel storage costs for the period 2000 through 2023 increased by approximately $390 million in 2003 dollars compared to the April 2000 estimate of $434 million approved by the FERC in the 2000 Settlement. The revised estimate reflects the fact that Connecticut Yankee is now self-performing all work to complete the decommissioning of the plant and the termination of Bechtel Power Corporation (Bechtel), the turnkey decommissioning contractor, in July 2003. In addition, the revised estimate contains increases in the projected costs of spent fuel storage, security, and liability and property insurance. The estimated remaining decommissioning and long-term spent fuel storage costs as of Decemb er 31, 2003, are approximately $504 million in 2003 dollars.
Connecticut Yankee is seeking recovery of incremental decommissioning costs and other damages from Bechtel and, if necessary, its surety. In turn, Bechtel has filed a complaint in Connecticut Superior Court seeking damages of $93 million for wrongful termination of the decommissioning contract. Connecticut Yankee has filed counterclaims for excess completion costs and other damages. Discovery is underway and a trial has been scheduled for May 2006.
The revised schedule for decommissioning collections is based on the 2003 estimate. Under the revised schedule, increased collections of $93 million annually would commence in January 2005 and extend through December 2010. Any increase in rates approved by the FERC will be charged to Connecticut Yankee's owners, including CMP, whose share of a $93 million increase would be approximately $6 million. Under prior regulatory settlements, CMP is allowed to defer any increased decommissioning costs for future recovery.
On June 10, 2004, the Connecticut Department of Public Utility Control (DPUC) and the Connecticut Office of Consumer Counsel filed a petition with the FERC asking the FERC to determine that, if it should find any of Connecticut Yankee's decommissioning costs were not prudently incurred, the owners may not recover those costs in rates that are ultimately charged to retail customers but must be borne by the owners of Connecticut Yankee. Connecticut Yankee and its owners, including CMP, filed protests to contest this petition. CMP cannot predict the outcome of these proceedings.
Natural Gas Delivery Business
The company's natural gas delivery business consists of its regulated natural gas transportation, storage and distribution operations in New York, Connecticut, Maine and Massachusetts.
Natural Gas Supply Agreements: Energy East's natural gas companies - NYSEG, RG&E, SCG, CNG, Berkshire Gas and Maine Natural Gas - have a three-year strategic alliance with BP Energy Company, effective April 1, 2004, for the acquisition of natural gas supply and optimization of transportation and storage services.
Management's discussion and analysis of financial condition and results of operations
Energy East Corporation
On June 30, 2004, NYSEG filed a Joint Proposal executed by NYSEG and other parties, resolving outstanding issues in NYSEG's Natural Gas Rate Plan related to its natural gas delivery rate design, natural gas economic development plan and its natural gas Affordable Energy Program. Pursuant to NYSEG's Natural Gas Rate Plan, delivery rate designs in the Joint Proposal were developed for each of the remaining years on an overall revenue neutral manner, consistent with the billing units and firm delivery revenues contained in NYSEG's Natural Gas Rate Plan. The company expects the NYPSC to address the Joint Proposal at its open session on September 22, 2004.
RG&E 2003 Electric and Natural Gas Rate Agreements: See Electric Delivery Business. NYPSC Collaborative on End State of Energy Competition: See Electric Delivery Business.SCG Request for Recovery of Exogenous Costs: In December 2003 SCG filed an application with the DPUC to recover approximately $21 million of exogenous costs under its approved Incentive Rate Plan (IRP). The exogenous costs to be recovered include qualified pension and other postretirement benefits expenses, taxes, uncollectible expense and the cost of SCG's Customer Hardship Arrearage Forgiveness Program. Those costs were the result of events that were unanticipated and beyond SCG's control. SCG's IRP decision from the DPUC allows SCG to petition for relief from substantial and material costs resulting from such exogenous events. The DPUC established a docket for this proceeding and hearings were held in April 2004. A DPUC draft decision in this proceeding is now scheduled to be released some time in August. SCG cannot predict the outcome of this proceeding.
CNG's Purchased Gas Adjustment Clause: In April 2002 the DPUC initiated a semiannual review of CNG's Purchased Gas Adjustment Clause (PGA). The DPUC issued its draft decision in December 2002, disallowing approximately $1 million of natural gas costs that would be returned to customers through the PGA. As a result, on December 31, 2002, CNG set up a reserve to recognize a potential $1 million liability for this disallowance. In May 2004 the DPUC issued its final decision in a subsequent PGA case that clarified a number of issues and allowed CNG to reverse the $1 million reserve.
Connecticut Merger-Enabled Gas Supply Savings and Gas Cost Reduction Plan Filings: In 2001 CNG and SCG submitted filings to the DPUC regarding merger-enabled gas supply savings (MEGS) and a gas-cost reduction plan, which covered the initial period April 1, 2001, through September 30, 2001. CNG provided calculations for total MEGS of $1.3 million and SCG provided calculations for total MEGS of $2.2 million. In February 2003, based on its understanding of the components of the MEGS, the DPUC issued a draft decision on CNG's and SCG's filed MEGS and gas-cost reduction plan results, modifying the MEGS amounts to
Management's discussion and analysis of financial condition and results of operations
Energy East Corporation
$134,000 for CNG and $9,000 for SCG. CNG and SCG filed comments and additional detail with regard to the draft decision. On March 26, 2004, the DPUC issued a notice that encouraged the parties to settle the MEGS issue, which resulted in the assignment of Prosecutorial Staff of the DPUC to assist in the settlement process. The docket was suspended to allow the settlement process to proceed. CNG and SCG are diligently working toward settlement of the issues but cannot predict the final outcome of these proceedings.
Other Businesses
Sale of Other Businesses: The company continues to rationalize its nonutility businesses to ensure that they fit its strategic focus. On July 26, 2004, UWP, a subsidiary of CMP Group, Inc., sold all of the assets related to its utility locating and construction businesses. The after tax loss resulting from the sale is estimated at $5 million and includes a reduction in the goodwill that was assigned to UWP at the time of Energy East's purchase of CMP Group.
Accounting Issues
FIN 46R: In December 2003 the Financial Accounting Standards Board (FASB) issued its revised FASB Interpretation No. 46, Consolidation of Variable Interest Entities, an interpretation of Accounting Research Bulletin (ARB) No. 51 (FIN 46R). FIN 46R addresses consolidation of variable interest entities. A variable interest entity is an entity that is not controllable through voting interests and/or in which the equity investor does not bear the residual economic risks and rewards. The company was required to apply FIN 46R to all entities subject to the interpretation as of March 31, 2004. (See Note 7 to the Condensed Financial Statements.)
FASB Staff Position No. FAS 106-2: In May 2004 the FASB issued its FASB Staff Position (FSP) No. FAS 106-2, which addresses how and when a plan sponsor should account for the federal subsidy introduced by the Medicare Prescription Drug, Improvement and Modernization Act of 2003 and could require the plan sponsor to change previously reported information. FSP No. FAS 106-2 is effective for the first interim or annual period beginning after June 15, 2004. When FSP No. FAS 106-2 becomes effective it supersedes FSP No. FAS 106-1. The company, CMP, NYSEG and RG&E will apply FSP No. 106-2 beginning July 1, 2004. (See Note 9 to the Condensed Financial Statements.)
Investing and Financing Activities
Investing Activities: Capital spending for the first six months of 2004 was $124 million, including nuclear fuel. Capital spending is projected to be $345 million for 2004, including nuclear fuel, and is expected to be paid for primarily with internally generated funds. Capital spending will be primarily for the extension of energy delivery service, necessary improvements to existing facilities, compliance with environmental requirements and governmental mandates and merger integration.
Management's discussion and analysis of financial condition and results of operations
Energy East Corporation
Financing Activities: The financing activities discussed below include those activities necessary for the company and its subsidiaries to maintain adequate liquidity, improve credit quality and ensure access to capital markets. Activities include maintenance of credit facilities, minimal common stock issuances and various medium-term and long-term debt arrangements. They also include the steps taken at RG&E to revise its capital structure as a result of the Ginna sale. (See
RG&E Financing Activities.)During the six months ended June 30, 2004, the company issued 444,122 shares of common stock, at an average price of $23.15 per share, through its Investor Services Program (formerly known as the Dividend Reinvestment and Stock Purchase Plan). The shares issued were original issue shares.
In July 2004 the company replaced its $150 million 364-day revolving credit facility with a $150 million five-year revolving credit facility that expires in July 2009.
During the first quarter of 2004 the company awarded 242,038 shares of its common stock, issued out of its treasury stock, to certain employees through its Restricted Stock Plan and recorded deferred compensation of $6 million based on the market price per share of common stock on the dates of the awards, which averaged $23.90.
NYSEG Financing Activities: In May 2004 NYSEG entered into forward starting swaps on three adjustable-rate pollution control notes to fix the interest rates on the anniversary dates of the notes. NYSEG will receive the Bond Market Association Municipal Swap rate, an indexed floating rate, and pay fixed rates on the notional amounts as follows: 4.387% on $60 million (anniversary date March 15, 2005), 4.330% on $30 million (anniversary date October 15, 2004) and 4.390% on $42 million (anniversary date December 1, 2004).
In July 2004 NYSEG and RG&E replaced their joint 364-day revolving credit facility, which was due to expire in December 2004, with a five-year $230 million revolving credit facility with certain banks. NYSEG is permitted to borrow up to $180 million under the facility, RG&E is permitted to borrow up to $75 million, and NYSEG and RG&E are allowed to issue letters of credit totaling up to $40 million, not to exceed a combined total of $230 million.
In August 2004 NYSEG expects to refund $204 million of tax-exempt fixed-rate pollution control notes that have interest rates ranging from 5.70% to 6.05% with proceeds from the issuance of $204 million of multi-mode tax-exempt pollution control notes, which will initially be in a Dutch Auction mode. In July 2004 NYSEG entered into a forward starting swap to fix the interest rate on one of the tax-exempt pollution control notes in the Dutch Auction mode. NYSEG will pay a fixed rate of 3.80% and will receive 67% of the one-month LIBOR rate on a notional amount of $70 million.
RG&E Financing Activities: On March 1, 2004, RG&E redeemed, at par, as required by a mandatory sinking fund provision, $1.25 million of 6.60% Series V preferred stock, Par Value $100, using available cash. On May 5, 2004, RG&E redeemed, at par, the remaining $23.75 million of the 6.60% Series V preferred stock, using available cash. The 6.60% Series V preferred stock, because it was mandatorily redeemable, was classified as a liability as of July 1, 2003, in accordance with FASB Statement of Financial Accounting Standards No. 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity.
Management's discussion and analysis of financial condition and results of operations
Energy East Corporation
On May 5, 2004, RG&E redeemed its remaining preferred stock, including: $12 million of 4% Series F (120,000 shares), $8 million of 4.10% Series H (80,000 shares), $6 million of 4 3/4% Series I (60,000 shares), $5 million of 4.10% Series J (50,000 share), $6 million of 4.95% Series K (60,000 shares) and $10 million of 4.55% Series M (100,000 shares), all redeemed at a premium. On May 6, 2004, RG&E redeemed, at a premium, $40 million of 7.45% Series first mortgage bonds due July 2023, and the following Series of first mortgage bonds due March 2023: $33 million of 7.64%, $5 million of 7.66%, and $12 million of 7.67%. Those redemptions were financed through available cash and a short-term credit facility. The short-term credit facility was repaid with proceeds from the sale of Ginna.
In July 2004 RG&E and NYSEG replaced their joint 364-day revolving credit facility, which was due to expire in December 2004, with a five-year $230 million revolving credit facility with certain banks. RG&E is permitted to borrow up to $75 million under the facility, NYSEG is permitted to borrow up to $180 million, and RG&E and NYSEG are allowed to issue letters of credit totaling up to $40 million, not to exceed a combined total of $230 million.
In August 2004 RG&E expects to refund $60 million of fixed-rate tax-exempt mortgage bonds that have rates ranging from 6.35% to 6.5% with proceeds from the issuance of $60 million of multi-mode tax-exempt pollution control notes, which will initially be in a Dutch Auction mode.
In the second quarter of 2004, RG&E declared common dividends of $170 million in order to rebalance its capital structure after the Ginna sale. These funds will be used to reduce debt outstanding at Energy East.
Other Financing Activities:
In the second quarter of 2004 Berkshire Gas, CNG and SCG renewed their joint $105 million 364-day revolving credit facility. The amounts the companies are permitted to borrow up to: Berkshire Gas - $15 million, CNG - $50 million and SCG - $55 million, not to exceed a combined total of $105 million.
Management's discussion and analysis of financial condition and results of operations
Energy East Corporation
Three months ended June 30 |
2004 |
2003 |
Change |
(Thousands, except per share amounts) |
|||
Operating Revenues |
$980,566 |
$979,113 |
- |
Operating Income |
$233,806 |
$124,351 |
88% |
Income from Continuing Operations |
$42,782 |
$28,333 |
49% |
Net Income |
$38,066 |
$27,717 |
37% |
Average Common Shares Outstanding, basic |
146,148 |
145,415 |
1% |
Earnings Per Share from Continuing Operations, basic and diluted |
$.29 |
$.19 |
53% |
Earnings Per Share, basic and diluted |
$.26 |
$.19 |
37% |
Dividends Paid Per Share |
$.26 |
$.25 |
4% |
Earnings from continuing operations were 29 cents per share for the quarter ended June 30, 2004, compared to 19 cents per share for the quarter ended June 30, 2003. The increase is primarily due to one-time effects from the sale of Ginna and the approval of RG&E's Electric and Natural Gas Rate Agreements, which increased earnings 7 cents per share. The one-time effects include the flow-through of excess deferred taxes and investment tax credits and the elimination of certain reserves established pending regulatory determination. Ongoing effects from RG&E's Electric and Natural Gas Rate Agreements added 5 cents per share to earnings, and include increases as a result of RG&E's electric retail access surcharge and natural gas merchant function charge, and annual credits to RG&E from the ASGA as provided in the Electric Rate Agreement. (See
RG&E 2003 Electric and Natural Gas Rate Agreements.) Lower stock-based compensation expenses contributed another 5 cents per share to earnings. Those increases were partially offset by a decrease of 5 cents per share from lower natural gas deliveries due to milder weather.
Six months ended June 30 |
2004 |
2003 |
Change |
(Thousands, except per share amounts) |
|||
Operating Revenues |
$2,561,639 |
$2,483,944 |
3% |
Operating Income |
$501,151 |
$418,294 |
20% |
Income from Continuing Operations |
$163,491 |
$160,024 |
2% |
Net Income |
$158,618 |
$163,181 |
(3%) |
Average Common Shares Outstanding, basic |
146,116 |
145,256 |
1% |
Earnings Per Share from Continuing Operations, basic |
$1.12 |
$1.10 |
2% |
Earnings Per Share from Continuing Operations, diluted |
$1.11 |
$1.10 |
1% |
Earnings Per Share, basic |
$1.09 |
$1.12 |
(3%) |
Earnings Per Share, diluted |
$1.08 |
$1.12 |
(4%) |
Dividends Paid Per Share |
$.52 |
$.50 |
4% |
Earnings from continuing operations were $1.12 per share for the six months ended June 30, 2004, compared to $1.10 per share for the six months ended June 30, 2003. The increase is primarily the result of the second quarter effects of the sale of Ginna and RG&E's Electric and Natural Gas Rate Agreements discussed above, and because of integration savings and other cost reductions. Earnings were reduced 5 cents per share due to the accumulated effects of stock-based compensation expenses as a result of the changes in the market value of Energy East stock during the first two quarters of 2004 as compared to the same periods last year. Earnings were reduced another 9 cents per share because of lower natural gas deliveries due to milder weather.
Management's discussion and analysis of financial condition and results of operations
Energy East Corporation
Operating Results for the Electric Delivery Business
Three months ended June 30 |
2004 |
2003 |
Change |
(Thousands) |
|||
Retail Deliveries - Megawatt-hours |
7,295 |
7,141 |
2% |
Operating Revenues |
$641,057 |
$640,035 |
- |
Operating Expenses |
$425,098 |
$536,329 |
(21%) |
Operating Income |
$215,959 |
$103,706 |
108% |
Operating revenues for the second quarter of 2004 decreased $1 million primarily as a result of lower revenues of $10 million due to a change in market structure for RG&E that allows ESCOs to provide electricity and $5 million because of lower prices for CMP's retail customers. Those decreases were partially offset by higher retail deliveries of $10 million and higher wholesale revenues of $9 million for NYSEG.
Operating expenses decreased $111 million primarily due to RG&E's recognition of a $319 million pretax gain on the Ginna sale, partially offset by RG&E's deferral of the gain net of tax of $214 million.
Six months ended June 30 |
2004 |
2003 |
Change |
(Thousands) |
|||
Retail Deliveries - Megawatt-hours |
15,345 |
15,231 |
1% |
Operating Revenues |
$1,371,652 |
$1,398,748 |
(2%) |
Operating Expenses |
$1,012,909 |
$1,139,237 |
(11%) |
Operating Income |
$358,743 |
$259,511 |
38% |
Operating revenues for the six months decreased $27 million. The primary factors were revenue decreases of approximately $21 million because of rate reductions for CMP to reflect lower amortization of storm and demand-side management costs; and $22 million due to a change in market structure for RG&E that allows ESCOs to provide electricity, resulting in lower retail revenues offset by higher wholesale revenues and lower fuel costs. Those decreases were partially offset by increased retail deliveries of $4 million, increased wholesale revenues of $8 million and an $8 million increase in transmission revenues for NYSEG.
Operating expenses for the six months decreased $126 million primarily due to RG&E's recognition of a $319 million pretax gain on the Ginna sale, partially offset by RG&E's deferral of the gain net of tax of $214 million. In addition, operating expenses for the first quarter of 2004 decreased $15 million primarily due to a reduction in purchased power costs.
Management's discussion and analysis of financial condition and results of operations
Energy East Corporation
Operating Results for the Natural Gas Delivery Business
Three months ended June 30 |
2004 |
2003 |
Change |
(Thousands |
|||
Retail Deliveries - Dekatherms |
35,952 |
39,026 |
(8%) |
Operating Revenues |
$240,282 |
$264,054 |
(9%) |
Operating Expenses |
$232,485 |
$244,033 |
(5%) |
Operating Income |
$7,797 |
$20,021 |
(61%) |
Operating revenues decreased $24 million for the second quarter of 2004 primarily due to lower deliveries that reduced revenues $40 million, partially offset by higher gas costs that are passed on to customers that increased revenues $16 million.
Operating expenses decreased $12 million compared to the prior year quarter. The primary cause was a decrease in volume of natural gas purchases of $14 million. This decrease was offset by higher natural gas prices of $10 million. Lower wholesale volumes decreased expenses $4 million for the quarter.
Six months ended June 30 |
2004 |
2003 |
Change |
(Thousands |
|||
Retail Deliveries - Dekatherms |
123,549 |
128,242 |
(4%) |
Operating Revenues |
$922,006 |
$904,167 |
2% |
Operating Expenses |
$789,191 |
$751,569 |
5% |
Operating Income |
$132,815 |
$152,598 |
(13%) |
Operating revenues increased $18 million for the six months compared to the prior year period. The increase is primarily due to an $80 million increase in revenues due to higher natural gas costs, which are passed on to customers, partially offset by lower deliveries of $40 million. Other items, including lower transportation revenues and wholesale entitlements further decreased revenues.
Operating expenses increased $42 million for the six months ended June 30, 2004, primarily due to higher natural gas prices of $62 million, partially offset by fewer purchases of natural gas of $28 million as a result of lower deliveries.
Central Maine Power Company |
||||
Three Months |
Six Months |
|||
Periods ended June 30 |
2004 |
2003 |
2004 |
2003 |
(Thousands) |
||||
Operating Revenues |
||||
Sales and services |
$129,748 |
$135,259 |
$292,498 |
$311,676 |
Operating Expenses |
||||
Electricity purchased |
57,422 |
60,048 |
120,395 |
120,686 |
Other operating expenses |
37,825 |
41,817 |
79,484 |
88,305 |
Maintenance |
7,016 |
8,765 |
14,841 |
16,135 |
Depreciation and amortization |
13,173 |
10,145 |
21,297 |
20,365 |
Other taxes |
3,317 |
3,448 |
8,324 |
10,404 |
Total Operating Expenses |
118,753 |
124,223 |
244,341 |
255,895 |
Operating Income |
10,995 |
11,036 |
48,157 |
55,781 |
Other (Income) |
(1,032) |
(761) |
(2,083) |
(1,748) |
Other Deductions |
164 |
420 |
299 |
799 |
Interest Charges, Net |
6,131 |
6,614 |
12,272 |
13,287 |
Income Before Income Taxes |
5,732 |
4,763 |
37,669 |
43,443 |
Income Taxes |
2,302 |
1,942 |
13,412 |
16,520 |
Net Income |
3,430 |
2,821 |
24,257 |
26,923 |
Preferred Stock Dividends |
361 |
361 |
721 |
721 |
Earnings Available for Common Stock |
$3,069 |
$2,460 |
$23,536 |
$26,202 |
Central Maine Power Company |
||
June 30, 2004 |
Dec. 31, |
|
(Thousands) |
||
Liabilities |
||
Current Liabilities |
||
Current portion of long-term debt |
$3,007 |
$2,999 |
Notes payable |
25,000 |
15,000 |
Accounts payable and accrued liabilities |
53,211 |
45,815 |
Interest accrued |
5,471 |
5,397 |
Taxes accrued |
2,626 |
1,206 |
Other |
24,192 |
48,322 |
Total Current Liabilities |
113,507 |
118,739 |
Regulatory and Other Liabilities |
||
Regulatory liabilities |
||
Accrued removal obligation |
84,096 |
80,128 |
Deferred income taxes |
78,748 |
77,849 |
Gain on sale of generation assets |
58,674 |
76,998 |
Other |
21,708 |
17,127 |
Total regulatory liabilities |
243,226 |
252,102 |
Other liabilities |
||
Deferred income taxes |
75,272 |
65,555 |
Nuclear plant obligations |
160,322 |
173,548 |
Other postretirement benefits |
75,258 |
73,181 |
Environmental remediation costs |
2,867 |
3,017 |
Other |
114,062 |
113,880 |
Total other liabilities |
427,781 |
429,181 |
Total Regulatory and Other Liabilities |
671,007 |
681,283 |
Long-term debt |
313,046 |
314,511 |
Total Liabilities |
1,097,560 |
1,114,533 |
Commitments |
- |
- |
Preferred Stock Preferred stock |
|
|
Common Stock Equity Common stock |
|
|
Capital in excess of par value |
482,882 |
482,794 |
Retained earnings |
33,608 |
35,072 |
Accumulated other comprehensive (loss) |
(17,174) |
(17,174) |
Total Common Stock Equity |
655,373 |
656,749 |
Total Liabilities and Stockholder's Equity |
$1,788,504 |
$1,806,853 |
Central Maine Power Company |
||||
Three Months |
Six Months |
|||
Periods ended June 30 |
2004 |
2003 |
2004 |
2003 |
(Thousands) |
||||
Net income |
$3,430 |
$2,821 |
$24,257 |
$26,923 |
Other comprehensive income, net of tax |
||||
Net unrealized (losses) on derivatives qualified as three months in 2004 and $624 in 2003, and $- for the six months in 2004 and $631 in 2003 |
|
|
|
|
Total other comprehensive income |
- |
(904) |
- |
(915) |
Comprehensive Income |
$3,430 |
$1,917 |
$24,257 |
$26,008 |
Central Maine Power Company
(a) Liquidity and Capital Resources
Restructuring
See Energy East's Item 2(a), Restructuring, for this discussion.
Electric Delivery Business
CMP's electric delivery business consists of its regulated electricity transmission and distribution operations.
CMP Alternative Rate Plan: See Energy East's Item 2(a), Electric Delivery Business, for this discussion.
Regional Transmission Organization: See Energy East's Item 2(a), Electric Delivery Business, for this discussion.
CMP Collective Bargaining Agreement: See Energy East's Item 2(a), Electric Delivery Business, for this discussion.
CMP Stranded Cost Proceeding: See Energy East's Item 2(a), Electric Delivery Business, for this discussion. CMP Nuclear Costs: See Energy East's Item 2(a), Electric Delivery Business, for this discussion.Other Matters
Accounting Issues
FIN 46R: See Energy East's Item 2(a),
Other Matters, for this discussion. (See Note 7 to the Condensed Financial Statements.)FASB Staff Position No. FAS 106-2: See Energy East's Item 2(a),
Other Matters, for this discussion. (See Note 9 to the Condensed Financial Statements.)Investing Activities
Capital spending for the first six months of 2004 was $25 million. Capital spending is projected to be $50
million for 2004, and is expected to be paid for primarily with internally generated funds. Capital spending will be primarily for the extension of energy delivery service, necessary improvements to existing facilities, compliance with environmental requirements and governmental mandates and merger integration.Management's discussion and analysis of financial condition and results of operations
Central Maine Power Company
Three months ended June 30 |
2004 |
2003 |
Change |
(Thousands) |
|||
Retail Deliveries - Megawatt-hours |
2,124 |
2,110 |
1% |
Operating Revenues |
$129,748 |
$135,259 |
(4%) |
Operating Expenses |
$118,753 |
$124,223 |
(4%) |
Operating Income |
$10,995 |
$11,036 |
- |
Earnings Available for Common Stock |
$3,069 |
$2,460 |
25% |
Earnings for the quarter increased less than $1 million. A slight decrease in operating income was offset by higher other income and lower interest expense.
Operating revenues for the quarter decreased by $6 million due primarily to rate reductions totaling $5 million reflecting lower amortization of storm and demand-side management costs.
Operating expenses decreased $5 million for the quarter primarily due to lower amortization of ice storm and other costs of $4 million and lower NUG costs of $2 million.
Six months ended June 30 |
2004 |
2003 |
Change |
(Thousands) |
|||
Retail Deliveries - Megawatt-hours |
4,459 |
4,373 |
2% |
Operating Revenues |
$292,498 |
$311,676 |
(6%) |
Operating Expenses |
$244,341 |
$255,895 |
(5%) |
Operating Income |
$48,157 |
$55,781 |
(14%) |
Earnings Available for Common Stock |
$23,536 |
$26,202 |
(10%) |
Earnings for the six months decreased $3 million compared to the prior year period primarily as a result of lower operating revenues.
Operating revenues for the six months decreased $19 million due primarily to a $23 million decrease because of rate reductions reflecting mainly lower amortization of storm and demand-side management costs. That decrease was partially offset by an increase of $4 million for higher deliveries resulting from economic growth.
Operating expenses for the six months decreased $12 million primarily due to lower amortization of ice storm and other costs of $8 million and a decrease in other taxes of $2 million.
Item 1. Financial Statements
New York State Electric & Gas Corporation |
||||
Three Months |
Six Months |
|||
Periods ended June 30 |
2004 |
2003 |
2004 |
2003 |
(Thousands) |
||||
Operating Revenues |
||||
Electric |
$358,521 |
$338,353 |
$762,505 |
$744,320 |
Natural Gas |
69,974 |
75,011 |
258,204 |
244,775 |
Total Operating Revenues |
428,495 |
413,364 |
1,020,709 |
989,095 |
Operating Expenses |
||||
Electricity purchased |
193,753 |
179,603 |
422,430 |
398,114 |
Natural gas purchased |
41,452 |
43,569 |
173,747 |
150,626 |
Other operating expenses |
51,642 |
52,685 |
110,984 |
100,499 |
Maintenance |
19,195 |
17,034 |
34,095 |
38,430 |
Depreciation and amortization |
25,849 |
25,063 |
51,214 |
49,995 |
Other taxes |
25,669 |
25,291 |
56,081 |
60,664 |
Total Operating Expenses |
357,560 |
343,245 |
848,551 |
798,328 |
Operating Income |
70,935 |
70,119 |
172,158 |
190,767 |
Other (Income) |
(216) |
(184) |
(172) |
(2,108) |
Other Deductions |
454 |
(1,553) |
172 |
(1,297) |
Interest Charges, Net |
18,597 |
21,022 |
37,398 |
40,360 |
Income Before Income Taxes |
52,100 |
50,834 |
134,760 |
153,812 |
Income Taxes |
21,204 |
20,911 |
50,947 |
63,272 |
Net Income |
30,896 |
29,923 |
83,813 |
90,540 |
Preferred Stock Dividends |
99 |
99 |
198 |
198 |
Earnings Available for Common Stock |
$30,797 |
$29,824 |
$83,615 |
$90,342 |
New York State Electric & Gas Corporation |
||
June 30, |
Dec. 31, |
|
(Thousands) |
||
Liabilities |
||
Current Liabilities |
||
Current portion of long-term debt |
$338 |
$710 |
Notes payable |
6,197 |
41,400 |
Accounts payable and accrued liabilities |
143,611 |
148,918 |
Interest accrued |
8,748 |
10,068 |
Taxes accrued |
13,350 |
15,367 |
Other |
27,904 |
74,819 |
Total Current Liabilities |
200,148 |
291,282 |
Regulatory and Other Liabilities |
||
Regulatory liabilities |
||
Gain on sale of generation assets |
52,809 |
52,642 |
Accrued removal obligation |
314,463 |
304,065 |
Other |
21,363 |
21,571 |
Total regulatory liabilities |
388,635 |
378,278 |
Other liabilities |
||
Deferred income taxes |
532,176 |
522,919 |
Other postretirement benefits |
214,795 |
208,393 |
Asset retirement obligation |
382 |
377 |
Environmental remediation costs |
97,075 |
97,400 |
Other |
59,386 |
50,840 |
Total other liabilities |
903,814 |
879,929 |
Total Regulatory and Other Liabilities |
1,292,449 |
1,258,207 |
Long-term debt |
1,065,829 |
1,065,590 |
Total Liabilities |
2,558,426 |
2,615,079 |
Commitments |
- |
- |
Preferred Stock Redeemable solely at NYSEG's option |
|
|
Common Stock Equity Common stock |
|
|
Capital in excess of par value |
277,543 |
277,462 |
Retained earnings |
212,663 |
229,048 |
Accumulated other comprehensive income |
35,137 |
25,760 |
Total Common Stock Equity |
955,400 |
962,327 |
Total Liabilities and Stockholder's Equity |
$3,523,985 |
$3,587,565 |
New York State Electric & Gas Corporation |
||
Six months ended June 30 |
2004 |
2003 |
(Thousands) |
||
Net Cash Provided by Operating Activities |
$164,178 |
$107,090 |
Investing Activities |
||
Utility plant additions |
(50,662) |
(38,836) |
Proceeds from sale of utility plant |
- |
211 |
Special deposits |
25,259 |
(81,128) |
Other |
1 |
(17) |
Net Cash Used in Investing Activities |
(25,402) |
(119,770) |
Financing Activities |
||
Notes payable three months or less, net |
(35,203) |
5,000 |
Repayments of first mortgage bonds, including net premiums |
- |
(74,390) |
Long-term note issuances |
(373) |
196,986 |
Dividends on common and preferred stock |
(100,198) |
(90,198) |
Net Cash Used in Financing Activities |
(135,774) |
37,398 |
Net Increase (Decrease) in Cash and Cash Equivalents |
3,002 |
24,718 |
Cash and Cash Equivalents, Beginning of Period |
14,458 |
11,490 |
Cash and Cash Equivalents, End of Period |
$17,460 |
$36,208 |
New York State Electric & Gas Corporation |
||||
Three Months |
Six Months |
|||
Periods ended June 30 |
2004 |
2003 |
2004 |
2003 |
(Thousands) |
||||
Net income |
$30,896 |
$29,923 |
$83,813 |
$90,540 |
Other comprehensive income, net of tax |
||||
Net unrealized gains on investments, net of in 2004 and $(173) in 2003 and for the six months of $- in 2004 and $(166) in 2003 |
|
|
|
|
Unrealized (losses) gains on derivatives qualified |
|
|
|
|
Reclassification adjustment for derivative (gains) |
|
|
|
|
Net unrealized (losses) gains on derivatives |
|
|
|
|
Total other comprehensive income |
(1,504) |
(7,472) |
9,378 |
7,176 |
Comprehensive Income |
$29,392 |
$22,451 |
$93,191 |
$97,716 |
Item 2.
Management's discussion and analysis of financial conditionNew York State Electric & Gas Corporation
(a) Liquidity and Capital Resources
Restructuring
See Energy East's Item 2(a), Restructuring, for this discussion.
Electric Delivery Business
NYSEG's electric delivery business principally consists of its regulated transmission and distribution operations. It also generates electricity primarily from its hydroelectric stations.
NYPSC Collaborative on End State of Energy Competition: See Energy East's Item 2(a), Electric Delivery Business, for this discussion.Natural Gas Delivery Business
NYSEG's natural gas delivery business consists of its regulated transportation, storage and distribution operations.
Natural Gas Supply Agreements: See Energy East's Item 2(a), Natural Gas Delivery Business, for this discussion. NYSEG Natural Gas Rate Plan: See Energy East's Item 2(a), Natural Gas Delivery Business, for this discussion. NYPSC Collaborative on End State of Energy Competition: See Energy East's Item 2(a), Electric Delivery Business, for this discussion.Other Matters
Accounting Issues
FIN 46R: See Energy East's Item 2(a),
Other Matters, for this discussion. (See Note 7 to the Condensed Financial Statements.)FASB Staff Position No. FAS 106-2: See Energy East's Item 2(a),
Other Matters, for this discussion. (See Note 9 to the Condensed Financial Statements.)Investing and Financing Activities
Investing Activities: Capital spending for the first six months of 2004 was $51 million. Capital spending is projected to be $113 million for 2004 and is expected to be paid for primarily with internally generated funds. Capital spending will be primarily for necessary improvements to existing facilities, the extension of energy delivery service, compliance with environmental requirements and governmental mandates and merger integration.
Financing Activities: See Energy East's Item 2(a),
NYSEG Financing Activities, for this discussion.Management's discussion and analysis of financial condition and results of operations
New York State Electric & Gas Corporation
Three months ended June 30 |
2004 |
2003 |
Change |
(Thousands) |
|||
Operating Revenues |
$428,495 |
$413,364 |
4% |
Operating Income |
$70,935 |
$70,119 |
1% |
Earnings Available for Common Stock |
$30,797 |
$29,824 |
3% |
Second quarter 2004 earnings increased $1 million as compared to the prior year. An increase in earnings as a result of higher electricity deliveries due to weather was substantially offset by a decrease in earnings due to lower natural gas wholesale deliveries.
Six months ended June 30 |
2004 |
2003 |
Change |
(Thousands) |
|||
Operating Revenues |
$1,020,709 |
$989,095 |
3% |
Operating Income |
$172,158 |
$190,767 |
(10%) |
Earnings Available for Common Stock |
$83,615 |
$90,342 |
(7%) |
Earnings decreased $7 million for the six months primarily due to lower deliveries in the first quarter because of warmer winter weather in 2004.
Operating Results for the Electric Delivery Business
Three months ended June 30 |
2004 |
2003 |
Change |
(Thousands) |
|||
Retail Deliveries - Megawatt-hours |
3,472 |
3,362 |
3% |
Operating Revenues |
$358,521 |
$338,353 |
6% |
Operating Expenses |
$293,592 |
$276,011 |
6% |
Operating Income |
$64,929 |
$62,342 |
4% |
The $20 million increase in operating revenues for the quarter was primarily due to increased retail deliveries of $10 million and higher wholesale revenues of $9 million.
Operating expenses increased $18 million for the quarter primarily due to higher purchased power costs of $14 million as a result of higher retail and wholesale sales.
Management's discussion and analysis of financial condition and results of operations
New York State Electric & Gas Corporation
Six months ended June 30 |
2004 |
2003 |
Change |
(Thousands) |
|||
Retail Deliveries - Megawatt-hours |
7,448 |
7,408 |
1% |
Operating Revenues |
$762,505 |
$744,320 |
2% |
Operating Expenses |
$626,937 |
$600,753 |
4% |
Operating Income |
$135,568 |
$143,567 |
(6%) |
The $18 million increase in operating revenues for the six months was primarily due to higher retail deliveries of $4 million, increased wholesale revenues of $8 million and an $8 million increase in transmission revenues.
Operating expenses increased $26 million for the six months primarily due to higher purchased power costs of $21 million as a result of higher deliveries.
Operating Results for the Natural Gas Delivery Business
Three months ended June 30 |
2004 |
2003 |
Change |
(Thousands) |
|||
Retail Deliveries - Dekatherms |
10,096 |
11,301 |
(11%) |
Operating Revenues |
$69,974 |
$75,011 |
(7%) |
Operating Expenses |
$63,968 |
$67,234 |
(5%) |
Operating Income |
$6,006 |
$7,777 |
(23%) |
Operating revenues decreased $5 million for the quarter primarily as a result of an $8 million reduction due to lower retail deliveries and an $5 million decrease in wholesale revenues. Those decreases were partially offset by higher revenues of $8 million as a result of higher market prices that were passed on to customers.
Operating expenses decreased $3 million for the quarter, primarily due to lower natural gas purchases of $2 million.
Six months ended June 30 |
2004 |
2003 |
Change |
(Thousands) |
|||
Retail Deliveries - Dekatherms |
35,440 |
37,809 |
(6%) |
Operating Revenues |
$258,204 |
$244,775 |
5% |
Operating Expenses |
$221,614 |
$197,575 |
12% |
Operating Income |
$36,590 |
$47,200 |
(22%) |
Operating revenues increased $13 million for the six months primarily due to higher natural gas prices of $43 million that were passed on to customers. This increase was somewhat offset by a $15 million decrease because of lower wholesale sales, and a $15 million decrease due to lower retail deliveries because of warmer weather.
Operating expenses for the six months increased $24 million primarily due to higher natural gas purchases of $23 million; reflecting higher prices offset by lower purchase volumes.
Item 1. Financial Statements
Rochester Gas and Electric Corporation |
||||
Three Months |
Six Months |
|||
Periods ended June 30 |
2004 |
2003 |
2004 |
2003 |
(Thousands) |
||||
Operating Revenues |
||||
Electric |
$160,209 |
$166,384 |
$324,393 |
$342,678 |
Natural Gas |
63,520 |
62,228 |
212,682 |
212,628 |
Total Operating Revenues |
223,729 |
228,612 |
537,075 |
555,306 |
Operating Expenses |
||||
Electricity purchased and fuel used in generation |
43,161 |
34,025 |
69,792 |
76,458 |
Natural gas purchased |
35,092 |
33,545 |
134,174 |
131,250 |
Other operating expenses |
34,266 |
64,846 |
90,736 |
155,328 |
Maintenance |
13,183 |
14,017 |
28,461 |
27,450 |
Depreciation and amortization |
31,984 |
25,688 |
67,977 |
52,913 |
Other taxes |
18,929 |
19,457 |
38,969 |
43,792 |
Gain on sale of generation assets |
(319,487) |
- |
(319,487) |
- |
Deferral of asset sale gain |
214,368 |
- |
214,368 |
- |
Total Operating Expenses |
71,496 |
191,578 |
324,990 |
487,191 |
Operating Income |
152,233 |
37,034 |
212,085 |
68,115 |
Other (Income) |
(7,437) |
(423) |
(8,100) |
(2,541) |
Other Deductions |
1,570 |
815 |
1,943 |
963 |
Interest Charges, Net |
13,696 |
12,405 |
27,800 |
46,387 |
Income Before Income Taxes |
144,404 |
24,237 |
190,442 |
23,306 |
Income Taxes |
115,475 |
9,564 |
135,573 |
7,143 |
Net Income |
28,929 |
14,673 |
54,869 |
16,163 |
Preferred Stock Dividends |
1,315 |
925 |
1,828 |
1,850 |
Earnings Available for Common Stock |
$27,614 |
$13,748 |
$53,041 |
$14,313 |
Rochester Gas and Electric Corporation |
||
June 30, |
Dec. 31, |
|
(Thousands) |
||
Liabilities |
||
Current Liabilities |
||
Current portion of preferred stock subject to mandatory |
|
|
Accounts payable and accrued liabilities |
$131,065 |
77,476 |
Interest accrued |
10,552 |
11,540 |
Taxes accrued |
71,976 |
24,130 |
Other |
52,806 |
29,642 |
Total Current Liabilities |
266,399 |
144,038 |
Regulatory and Other Liabilities |
||
Regulatory liabilities |
||
Unfunded future income taxes |
87,379 |
- |
Accrued removal obligation |
169,618 |
185,472 |
Deferred income taxes |
5,471 |
186,571 |
Gain from sale of generation assets |
127,403 |
- |
Other |
37,851 |
46,173 |
Total regulatory liabilities |
427,722 |
418,216 |
Other liabilities |
||
Deferred income taxes |
170,865 |
72,568 |
Nuclear waste disposal |
104,699 |
104,095 |
Other postretirement benefits |
73,664 |
71,956 |
Environmental remediation costs |
26,357 |
22,356 |
Asset retirement obligation |
2,171 |
436,096 |
Other |
45,925 |
39,831 |
Total other liabilities |
423,681 |
746,902 |
Total Regulatory and Other Liabilities |
851,403 |
1,165,118 |
Preferred stock subject to mandatory redemption requirements |
- |
23,750 |
Other long-term debt |
736,563 |
826,511 |
Total long-term debt |
736,563 |
850,261 |
Total Liabilities |
1,854,365 |
2,159,417 |
Commitments |
- |
- |
Preferred Stock |
||
Redeemable solely at the option of RG&E |
- |
47,000 |
Common Stock Equity |
||
Common stock |
194,429 |
194,429 |
Capital in excess of par value |
556,550 |
556,190 |
Retained earnings |
4,073 |
121,032 |
Treasury stock, at cost |
(117,238) |
(117,238) |
Total Common Stock Equity |
637,814 |
754,413 |
Total Liabilities and Stockholder's Equity |
$2,492,179 |
$2,960,830 |
Rochester Gas and Electric Corporation |
||
Six months ended June 30 |
2004 |
2003 |
(Thousands) |
||
Net Cash Provided by Operating Activities |
$85,551 |
$139,955 |
Investing Activities |
||
Proceeds from sale of generation assets |
428,541 |
- |
Refund of excess decommissioning fund |
76,593 |
- |
Advance to affiliate |
(25,000) |
- |
Utility plant additions |
(32,361) |
(40,044) |
Nuclear generating plant decommissioning fund |
(8,560) |
(8,662) |
Other |
3,706 |
(2,052) |
Net Cash Provided by (Used in) Investing Activities |
442,919 |
(50,758) |
Financing Activities |
||
Repayments of first mortgage bonds and preferred stock |
(162,000) |
(40,000) |
Outstanding customer refund, overdraft |
57,388 |
- |
Repayment of promissory notes |
- |
(79,935) |
Dividends on common and preferred stock |
(171,828) |
(31,850) |
Net Cash Used in Financing Activities |
(276,440) |
(151,785) |
Net Increase (Decrease) in Cash and Cash Equivalents |
252,030 |
(62,588) |
Cash and Cash Equivalents, Beginning of Period |
13,596 |
86,385 |
Cash and Cash Equivalents, End of Period |
$265,626 |
$23,797 |
Rochester Gas and Electric Corporation |
||
Six months ended June 30 |
2004 |
2003 |
(Thousands) |
||
Balance, Beginning of Period |
$121,032 |
$154,267 |
Add net income |
54,869 |
16,163 |
175,901 |
170,430 |
|
Deduct Dividends on Capital Stock |
||
Preferred |
1,828 |
1,850 |
Common |
170,000 |
30,000 |
|
171,828 |
31,850 |
Balance, End of Period |
$4,073 |
$138,580 |
Item 2.
Management's discussion and analysis of financial conditionRochester Gas and Electric Corporation
(a) Liquidity and Capital Resources
Restructuring
See Energy East's Item 2(a), Restructuring, for this discussion.
Electric Delivery Business
RG&E's electric delivery business consists of its regulated transmission and distribution operations. It also generates electricity from its one coal-fired plant, three gas turbines and several smaller hydroelectric stations.
RG&E 2003 Electric and Natural Gas Rate Agreements: See Energy East's Item 2(a), Electric Delivery Business, for this discussion. Sale of Ginna Station: See Energy East's Item 2(a), Electric Delivery Business, for this discussion. RG&E Electric Rate Unbundling: See Energy East's Item 2(a), Electric Delivery Business, for this discussion. RG&E Transmission Project: See Energy East's Item 2(a), Electric Delivery Business, for this discussion. NYPSC Collaborative on End State of Energy Competition: See Energy East's Item 2(a), Electric Delivery Business, for this discussion.Natural Gas Delivery Business
RG&E's natural gas delivery business consists of its regulated transportation, storage and distribution operations.
Natural Gas Supply Agreements: See Energy East's Item 2(a), Natural Gas Delivery Business, for this discussion. RG&E 2003 Electric and Natural Gas Rate Agreements: See Energy East's Item 2(a), Electric Delivery Business, for this discussion. NYPSC Collaborative on End State of Energy Competition: See Energy East's Item 2(a), Electric Delivery Business, for this discussion.Other Matters
Accounting Issues
FASB Staff Position No. FAS 106-2: See Energy East's Item 2(a),
Other Matters, for this discussion. (See Note 9 to the Condensed Financial Statements.)
Management's discussion and analysis of financial condition and results of operations
Rochester Gas and Electric Corporation
Investing and Financing Activities
Investing Activities: Capital spending for the first six months of 2004 was $32 million, including nuclear fuel. Capital spending is projected to be $123 million for 2004, including nuclear fuel, and is expected to be paid for primarily with internally generated funds. Capital spending will be primarily for the extension of energy delivery service, necessary improvements to existing facilities, compliance with environmental requirements and governmental mandates and merger integration.
Financing Activities: See Energy East's Item 2(a),
RG&E Financing Activities, for this discussion.
Three months ended June 30 |
2004 |
2003 |
Change |
(Thousands) |
|||
Operating Revenues |
$223,729 |
$228,612 |
(2%) |
Operating Income |
$152,233 |
$37,034 |
311% |
Earnings Available for Common Stock |
$27,614 |
$13,748 |
101% |
Earnings increased $14 million for the quarter primarily due to one-time effects from the sale of Ginna and the approval of RG&E's Electric and Natural Gas Rate Agreements, which increased earnings $10 million. The one-time effects include the flow-through of excess deferred taxes and investment tax credits and the elimination of certain reserves established pending regulatory determination. Ongoing effects from RG&E's Electric and Natural Gas Rate Agreements added $7 million to earnings, and include increases as a result of RG&E's electric retail access surcharge and natural gas merchant function charge, and annual credits to RG&E from the ASGA as provided in the Electric Rate Agreement. (See
RG&E 2003 Electric and Natural Gas Rate Agreements.)
Six months ended June 30 |
2004 |
2003 |
Change |
(Thousands) |
|||
Operating Revenues |
$537,075 |
$555,306 |
(3%) |
Operating Income |
$212,085 |
$68,115 |
211% |
Earnings Available for Common Stock |
$53,041 |
$14,313 |
271% |
Earnings for the six months increased $39 million primarily due to the second quarter effects of the sale of Ginna and RG&E's Electric and Natural Gas Rate Agreements discussed above that added $17 million to earnings and the recognition of the terms and conditions of the NYPSC rate order for RG&E, which became effective in January 2003, and reduced earnings by $30 million in the first quarter of 2003. The January 2003 rate order included $26 million for excess earnings and related interest.
Management's discussion and analysis of financial condition and results of operations
Rochester Gas and Electric Corporation
Operating Results for the Electric Delivery Business
Three months ended June 30 |
2004 |
2003 |
Change |
(Thousands) |
|||
Retail Deliveries - Megawatt-hours |
1,699 |
1,669 |
2% |
Operating Revenues |
$160,209 |
$166,384 |
(4%) |
Operating Expenses |
$14,603 |
$136,048 |
(89%) |
Operating Income |
$145,606 |
$30,336 |
380% |
The $6 million decrease in operating revenues for the quarter is primarily due to a change in market structure that allows ESCOs to provide electricity, which reduced retail revenues by $41 million and increased wholesale revenues by $27 million. That decrease was partially offset by higher retail deliveries that added $3 million to revenues.
Operating expenses decreased $121 million for the quarter primarily due to RG&E's recognition of a $319 million pretax gain on the Ginna sale, partially offset by RG&E's deferral of the gain net of tax of $214 million. The remaining $16 million reduction was primarily the result of lower electricity purchases as a result of the change in market structure and the net effects of the Ginna sale that reduced operating expenses and increased purchased power costs.
Six months ended June 30 |
2004 |
2003 |
Change |
(Thousands) |
|||
Retail Deliveries - Megawatt-hours |
3,439 |
3,450 |
- |
Operating Revenues |
$324,393 |
$342,678 |
(5%) |
Operating Expenses |
$144,345 |
$309,196 |
(53%) |
Operating Income |
$180,048 |
$33,482 |
438% |
Operating revenues for the six months decreased $18 million due a change in market structure that allows ESCOs to provide electricity, which reduced retail revenues by $77 million and increased wholesale revenues by $55 million.
Operating expenses decreased $165 million for the six primarily due to RG&E's recognition of a $319 million pretax gain on the Ginna sale, partially offset by RG&E's deferral of the gain net of tax of $214 million. An additional decrease of $30 million resulted from the recognition of the terms and conditions of the NYPSC rate order for RG&E, which became effective in January 2003, and increased operating expenses by $30 million in 2003. The remaining $25 million reduction was primarily the result of lower electricity purchases as a result of the change in market structure, and the net effects of the Ginna sale that reduced operating expenses and increased purchased power costs.
Management's discussion and analysis of financial condition and results of operations
Rochester Gas and Electric Corporation
Operating Results for the Natural Gas Delivery Business
Three months ended June 30 |
2004 |
2003 |
Change |
(Thousands) |
|||
Retail Deliveries - Dekatherms |
8,529 |
9,314 |
(8%) |
Operating Revenues |
$63,520 |
$62,228 |
2% |
Operating Expenses |
$56,893 |
$55,530 |
2% |
Operating Income |
$6,627 |
$6,698 |
(1%) |
Operating revenues increased $1 million for the quarter. Higher market prices for natural gas purchased of $9 million that were passed on to customers were offset by lower deliveries that reduced revenues $7 million.
Operating expenses increased $1 million for the quarter primarily due to higher market prices for purchased natural gas that were offset by fewer purchases because of lower deliveries.
Six months ended June 30 |
2004 |
2003 |
Change |
(Thousands) |
|||
Retail Deliveries - Dekatherms |
32,677 |
34,347 |
(5%) |
Operating Revenues |
$212,682 |
$212,628 |
- |
Operating Expenses |
$180,645 |
$177,995 |
1% |
Operating Income |
$32,037 |
$34,633 |
(7%) |
Operating revenues remained relatively flat for the six months. Higher market prices for natural gas purchased of $13 million that were passed on to customers were offset by lower deliveries that reduced revenues $13 million.
Operating expenses increased $3 million for the quarter primarily due to higher market prices for purchased natural gas that were offset by lower operating costs.
Item 1. Financial Statements
Notes to Condensed Financial Statements
for
Energy East Corporation
Central Maine Power Company
New York State Electric & Gas Corporation
Rochester Gas and Electric Corporation
Notes to Condensed Financial Statements of Registrants:
Registrant |
Applicable Notes |
Energy East |
1, 2, 3, 4, 5, 6, 7, 8, 9, 10, 11 |
CMP |
1, 3, 4, 7, 8, 9, 10, 11 |
NYSEG |
1, 3, 4, 7, 8, 9, 10, 11 |
RG&E |
1, 2, 3, 4, 8, 9, 10, 11 |
Note 1. Unaudited Condensed Financial Statements
The accompanying unaudited condensed financial statements reflect all adjustments necessary, in the opinion of the management of the registrants, for a fair presentation of the interim results. All such adjustments are of a normal, recurring nature. The year-end condensed balance sheet data presented in this quarterly report was derived from audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States of America.
Energy East's financial statements and CMP's financial statements consolidate their majority-owned subsidiaries after eliminating all intercompany transactions.
The accompanying unaudited financial statements for each registrant should be read in conjunction with the financial statements and notes contained in the report on Form 10-K filed by each registrant for the year ended December 31, 2003. Due to the seasonal nature of the registrants' operations, financial results for interim periods are not necessarily indicative of trends for a 12-month period.
Reclassifications: Certain amounts have been reclassified in the company's unaudited financial statements to conform to the 2004 presentation and to reflect discontinued operations.
Note 2. Sale of Ginna Nuclear Generating Station
On June 10, 2004, after receiving all regulatory approvals, RG&E sold Ginna to CGG. RG&E received at closing $429 million in cash. The gain on the sale of Ginna of $319 million net of income taxes of $105 million equals the $214 million deferral of asset sale gain, as reflected on RG&E's statement of income.
RG&E's Electric Rate Agreement resolves all regulatory and ratemaking aspects related to the sale of Ginna, including providing for an ASGA, established at the time of closing in the amount of $357 million, and addressing the disposition of the asset sale gain. Upon closing of the Ginna sale, RG&E transferred $201 million of decommissioning funds to CGG, which will take responsibility for all future decommissioning funding. RG&E retained $77 million in excess decommissioning funds, which was credited to customers as part of the ASGA.
A summary of information on the sale of Ginna and the related ASGA at the time of the sale follows (in thousands):
Cash proceeds |
$428,541 |
Net book value of property sold, excluding decommissioning reserve |
(184,564) |
Decommissioning reserve |
311,571 |
Decommissioning funds |
(277,113) |
Excess decommissioning funds retained |
76,593 |
Miscellaneous assets and liabilities, including deferred selling costs |
(35,541) |
Gain on sale of generation assets, deferred |
319,487 |
Income taxes payable |
(105,119) |
Deferral of asset sale gain |
214,368 |
Regulatory liability equal to deferred income taxes on the deferred asset sale gain |
143,000 |
Balance at closing, Gain from sale of generation assets, deferred |
$357,368 |
The ASGA was adjusted subsequent to the sale to reflect provisions of RG&E's Electric Rate Agreement, including refunds due to customers. Adjustments to the ASGA to reconcile to the balance of the deferred regulatory liability as of June 30, 2004, were as follows (in thousands):
Gain from sale of generation assets, deferred |
$357,368 |
Regulatory liability equal to deferred income taxes on the deferred asset sale gain |
(143,000) |
Refund to customers June 2004 |
(60,003) |
Refund to customers January 2005 - Other current liability |
(24,997) |
Other |
(1,965) |
Balance at June 30, 2004, Gain from sale of generation assets |
$127,403 |
In addition, the company's and RG&E's effective tax rate was significantly affected by the sale of Ginna. Due to the regulatory accounting for the gain on the sale, any gain in excess of what was required to offset income taxes payable on the sale was required to be deferred. Therefore, RG&E recorded pretax income of $105,119 and income tax expense of $105,119 resulting in a 100% effective tax rate on this income, increasing the effective tax rate from an expected rate of 39% for the company and 41% for RG&E, to an effective rate of 56% for the company and 71% for RG&E.
Note 3. Restructuring
The company recognized a $4 million total liability for an enhanced severance program for 83 accounting and finance employees who were employed through March 31, 2004. During the fourth quarter of 2003, 40%, or approximately $2 million, of the estimated liability was charged to other operating expenses and represented the company's cumulative expense and liability as of December 31, 2003. The remaining $2 million of the liability was charged to other operating expenses in the first quarter of 2004. The total liability includes $0.9 million for CMP, $0.9 million for NYSEG and $1.4 million for RG&E. Approximately $3 million of the total cost was incurred by the electric delivery business and $1 million by the natural gas delivery business. The liability was paid off as of June 30, 2004.
Note 4. Other (Income) and Other Deductions
Three Months |
Six Months |
|||
Periods ended June 30 |
2004 |
2003 |
2004 |
2003 |
(Thousands) |
||||
Energy East |
||||
Interest income |
$(959) |
$(1,086) |
$(1,365) |
$(2,355) |
Allowance for funds used during construction |
(160) |
(422) |
(262) |
(966) |
Gains from the sale of nonutility property |
(1,159) |
(5) |
(1,236) |
(59) |
Earnings from equity investments |
(852) |
(884) |
(2,557) |
(2,542) |
2003 RG&E Electric and Natural Gas |
|
|
|
|
Miscellaneous |
(2,434) |
119 |
(5,872) |
(888) |
Total other (income) |
$(11,681) |
$(2,278) |
$(17,409) |
$(6,810) |
Losses from disposition of property |
$3,474 |
- |
$4,048 |
- |
Miscellaneous |
924 |
$1,261 |
3,627 |
$3,048 |
Total other deductions |
$4,398 |
$1,261 |
$7,675 |
$3,048 |
CMP |
||||
Interest income |
$(20) |
$(162) |
$(34) |
$(418) |
Earnings from equity investments |
(217) |
(480) |
(513) |
(1,018) |
Miscellaneous |
(795) |
(119) |
(1,536) |
(312) |
Total other (income) |
$(1,032) |
$(761) |
$(2,083) |
$(1,748) |
Miscellaneous |
$164 |
$420 |
$299 |
$799 |
Total other deductions |
$164 |
$420 |
$299 |
$799 |
NYSEG |
||||
Interest income |
$(58) |
$(274) |
$(119) |
$(652) |
Miscellaneous |
(158) |
90 |
(53) |
(1,456) |
Total other (income) |
$(216) |
$(184) |
$(172) |
$(2,108) |
Miscellaneous |
$454 |
$(1,553) |
$172 |
$(1,297) |
Total other deductions |
$454 |
$(1,553) |
$172 |
$(1,297) |
RG&E |
||||
Interest income |
$(794) |
$(236) |
$(462) |
$(1,947) |
2003 RG&E Electric and Natural Gas |
|
|
|
|
Miscellaneous |
(526) |
(187) |
(1,521) |
(594) |
Total other (income) |
$(7,437) |
$(423) |
$(8,100) |
$(2,541) |
Losses from disposition of property |
$3,158 |
- |
$3,158 |
- |
Miscellaneous |
(1,588) |
$815 |
(1,215) |
$963 |
Total other deductions |
$1,570 |
$815 |
$1,943 |
$963 |
Note 5. Basic and Diluted Earnings per Share
Basic earnings per share (EPS) is determined by dividing net income by the weighted-average number of shares of common stock outstanding during the period. The weighted-average common shares outstanding for diluted EPS include the incremental effect of restricted stock and stock options issued and exclude stock options issued in tandem with stock appreciation rights (SARs). However, all stock options are issued in tandem with SARs and, historically, substantially all stock option plan participants have exercised the SARs instead of the stock options. The numerator used in calculating both basic and diluted EPS for each period is the reported net income.
The reconciliation of basic and dilutive average common shares for each period follows:
Three Months |
Six Months |
|||
Periods ended June 30 |
2004 |
2003 |
2004 |
2003 |
(Thousands) |
||||
Basic average common shares outstanding |
146,148 |
145,415 |
146,116 |
145,256 |
Restricted stock awards |
448 |
225 |
396 |
173 |
Potentially dilutive common shares |
302 |
107 |
266 |
127 |
Options issued with SARs |
(302) |
(107) |
(266) |
(127) |
Dilutive average common shares outstanding |
146,596 |
145,640 |
146,512 |
145,429 |
Options to purchase shares of common stock are excluded from the determination of EPS when the exercise price of an option is greater than the average market price of a common share during the period. Shares excluded from the EPS calculation for the three months ended June 30 were: 0.7 million in 2004 and 5.2 million in 2003, and for the six months ended June 30 were: 1.3 million in 2004 and 5.2 million in 2003.
During the first quarter of 2004 the company awarded 242,038 shares of its common stock, issued out of its treasury stock, to certain employees through its Restricted Stock Plan and recorded deferred compensation of $6 million based on the market price per share of common stock on the dates of the awards, which averaged $23.90.
Note 6. Discontinued Operations
In keeping with its focus on regulated electric and natural gas delivery businesses, during recent years the company has been systematically exiting certain noncore businesses. In June 2004 UWP, a subsidiary of CMP Group, Inc., reached an agreement to sell the assets associated with its utility locating and construction divisions. The sale was completed on July 26, 2004. In 2003 Berkshire Propane, Inc., a subsidiary of Berkshire Energy Resources, sold its assets and Energetix, a subsidiary of RGS Energy Group, Inc. which is a wholly-owned subsidiary of Energy East, sold its Griffith Oil Co., Inc. All three businesses were previously reported in the company's Other business segment. Certain financial information concerning the businesses for the three months and six months ended June 30, 2004 and 2003, is shown in the table below.
|
Three Months |
Six Months |
||
Periods ended June 30 |
2004 |
2003 |
2004 |
2003 |
(Thousands) |
||||
Certain Divisions of Union Water Power Co. |
||||
Revenues |
$8,157 |
$6,969 |
$13,175 |
$10,432 |
Income (loss) from businesses held for sale |
|
|
|
|
Income taxes (benefits) |
467 |
100 |
346 |
(712) |
Income (loss) from discontinued operations |
$(4,716) |
$519 |
$(4,873) |
$(663) |
Griffith Oil Co., Inc. |
||||
Revenues |
- |
$83,922 |
- |
$211,544 |
Income (loss) from businesses sold |
- |
$(1,503) |
- |
$5,916 |
Income taxes (benefits) |
- |
(671) |
- |
2,107 |
Income (loss) from discontinued operations |
- |
$(832) |
- |
$3,809 |
Berkshire Propane, Inc. |
||||
Revenues |
- |
$1,041 |
- |
$4,472 |
Income (loss) from businesses sold |
- |
$(17) |
- |
$517 |
Income taxes |
- |
286 |
- |
506 |
Income (loss) from discontinued operations |
- |
$(303) |
- |
$11 |
Note 7. FIN 46R
In December 2003 the FASB issued its revised FASB Interpretation No. 46, Consolidation of Variable Interest Entities, an interpretation of ARB No. 51 (FIN 46R). FIN 46R addresses consolidation of variable interest entities. A variable interest entity is an entity that is not controllable through voting interests and/or in which the equity investor does not bear the residual economic risks and rewards. FIN 46R requires a business enterprise to consolidate a variable interest entity if that enterprise has a variable interest that will absorb a majority of the entity's expected losses. The company was required to apply FIN 46R to all entities subject to the interpretation as of March 31, 2004.
CMP and NYSEG have independent, ongoing, power purchase contracts with various nonutility generators (NUGs). (See report on Form 10-K for Energy East, CMP and NYSEG for fiscal year ended December 31, 2003, Item 7 - Liquidity and Capital Resources, Contractual Obligations and Commercial Commitments.) CMP and NYSEG were not involved in the formation of and do not have ownership interests in any NUGs. The company evaluated each of CMP's and NYSEG's power purchase contracts with NUGs with respect to FIN 46R. Most of the power purchase contracts were determined not to be variable interests due to one of the following reasons: the contract is based on a fixed price or a market price and there is no other involvement with the NUG, the contract is short-term in duration, the contract is for a minor portion of the NUG's capacity or the NUGs are either governmental organizations or individuals.
The companies are not able to apply FIN 46R to seven remaining NUGs because they are unable to obtain the information necessary to: (1) determine if the NUGs are variable interest entities, (2) determine if either CMP or NYSEG is a NUG's primary beneficiary or (3) perform the accounting required to consolidate any of the seven NUGs. CMP requested necessary information from four NUGs and NYSEG requested information from three NUGs. Three of the NUGs responded but none provided the requested information. The companies will continue to make efforts to obtain information, including from the four NUGs that did not respond to the request.
The companies purchase electricity from the seven NUGs at above-market prices. CMP and NYSEG are not exposed to any loss as a result of their involvement with NUGs because they are allowed to recover through rates the cost of their purchases. Also, they are under no obligation to a NUG if it decides not to operate for any reason. The combined contractual capacity for the four NUGS from which CMP purchases electricity is approximately 22 MW. CMP's purchases from the four NUGs totaled $7 million for the six months ended June 30, 2004, and $5 million for the six months ended June 30, 2003. The combined contractual capacity for the three NUGS from which NYSEG purchases electricity is approximately 494 MW. NYSEG's purchases from the three NUGs totaled $172 million for the six months ended June 30, 2004, and $169 million for the six months ended June 30, 2003.
CMP and NYSEG did not consolidate any NUGs as of June 30, 2004.
Note 8. Accounts Receivable
Accounts receivable for the companies include unbilled revenues as follows: Energy East - consolidated unbilled revenues of $86 million at June 30, 2004, and $219 million at December 31, 2003; CMP - consolidated unbilled revenues of $13 million at June 30, 2004, and $25 million at December 31, 2003; NYSEG - unbilled revenues of $43 million at June 30, 2004, and $72 million at December 31, 2003; RG&E - unbilled revenues of $20 million at June 30, 2004, and $50 million at December 31, 2003.
Note 9. Retirement Benefits
Components of net periodic benefit cost
Pension Benefits |
Postretirement Benefits |
|||
Three months ended June 30 |
2004 |
2003 |
2004 |
2003 |
(Thousands) |
||||
Energy East |
||||
Service cost |
$7,807 |
$7,606 |
$1,407 |
$1,501 |
Interest cost |
32,931 |
33,008 |
8,987 |
9,446 |
Expected return on plan assets |
(51,742) |
(51,309) |
(672) |
(786) |
Amortization of prior service cost |
1,161 |
1,246 |
(1,713) |
(1,723) |
Recognized net actuarial (gain) loss |
(210) |
(596) |
1,583 |
2,254 |
Amortization of transition (asset) obligation |
(307) |
(1,809) |
1,984 |
2,016 |
Curtailment |
- |
202 |
- |
(307) |
Net periodic benefit cost |
$(10,360) |
$(11,652) |
$11,576 |
$12,401 |
CMP |
||||
Service cost |
$1,017 |
$1,107 |
$353 |
$399 |
Interest cost |
3,506 |
3,429 |
2,067 |
1,976 |
Expected return on plan assets |
(3,852) |
(3,688) |
(265) |
(379) |
Amortization of prior service cost |
50 |
61 |
(157) |
(164) |
Recognized net actuarial (gain) loss |
1,277 |
1,103 |
695 |
539 |
Curtailment |
- |
202 |
- |
(307) |
Net periodic benefit cost |
$1,998 |
$2,214 |
$2,693 |
$2,064 |
NYSEG |
||||
Service cost |
$4,471 |
$4,053 |
$793 |
$777 |
Interest cost |
17,421 |
17,072 |
4,506 |
5,012 |
Expected return on plan assets |
(30,968) |
(30,231) |
- |
- |
Amortization of prior service cost |
1,084 |
1,166 |
(1,532) |
(1,540) |
Recognized net actuarial (gain) loss |
(2,758) |
(4,071) |
808 |
1,431 |
Amortization of transition (asset) obligation |
(307) |
(1,809) |
1,983 |
2,016 |
Net periodic benefit cost |
$(11,057) |
$(13,820) |
$6,558 |
$7,696 |
RG&E |
||||
Service cost |
$1,234 |
$1,572 |
$243 |
$292 |
Interest cost |
7,435 |
8,086 |
1,502 |
1,562 |
Expected return on plan assets |
(12,136) |
(12,823) |
- |
- |
Unrecognized transition obligation |
- |
- |
514 |
621 |
Amortization of prior service cost |
306 |
365 |
277 |
335 |
Recognized net actuarial (gain) loss |
(1,788) |
(2,062) |
(110) |
(69) |
Net periodic benefit cost |
$(4,949) |
$(4,862) |
$2,426 |
$2,741 |
Pension Benefits |
Postretirement Benefits |
|||
Six months ended June 30 |
2004 |
2003 |
2004 |
2003 |
(Thousands) |
||||
Energy East |
||||
Service cost |
$16,055 |
$15,608 |
$3,250 |
$3,343 |
Interest cost |
65,492 |
66,245 |
18,369 |
18,356 |
Expected return on plan assets |
(103,060) |
(102,087) |
(1,336) |
(1,400) |
Amortization of prior service cost |
2,325 |
2,493 |
(3,424) |
(3,440) |
Recognized net actuarial (gain) loss |
(535) |
(3,093) |
3,795 |
3,365 |
Amortization of transition (asset) obligation |
(615) |
(3,619) |
4,001 |
4,033 |
Curtailment |
- |
202 |
- |
(307) |
Net periodic benefit cost |
$(20,338) |
$(24,251) |
$24,655 |
$23,950 |
CMP |
||||
Service cost |
$2,118 |
$2,206 |
$839 |
$907 |
Interest cost |
6,968 |
6,787 |
4,110 |
3,957 |
Expected return on plan assets |
(7,444) |
(7,053) |
(520) |
(582) |
Amortization of prior service cost |
99 |
109 |
(314) |
(321) |
Recognized net actuarial (gain) loss |
2,420 |
2,000 |
1,271 |
1,047 |
Curtailment |
- |
202 |
- |
(307) |
Net periodic benefit cost |
$4,161 |
$4,251 |
$5,386 |
$4,701 |
NYSEG |
||||
Service cost |
$9,054 |
$8,434 |
$1,745 |
$1,616 |
Interest cost |
34,435 |
33,928 |
9,413 |
9,413 |
Expected return on plan assets |
(61,908) |
(60,333) |
- |
- |
Amortization of prior service cost |
2,167 |
2,329 |
(3,065) |
(3,079) |
Recognized net actuarial (gain) loss |
(6,144) |
(8,355) |
2,227 |
1,885 |
Amortization of transition (asset) obligation |
(615) |
(3,619) |
4,000 |
4,033 |
Net periodic benefit cost |
$(23,011) |
$(27,616) |
$14,320 |
$13,868 |
RG&E |
||||
Service cost |
$2,740 |
$3,143 |
$515 |
$584 |
Interest cost |
14,902 |
16,172 |
3,027 |
3,124 |
Expected return on plan assets |
(24,592) |
(25,646) |
- |
- |
Unrecognized transition obligation |
- |
- |
1,059 |
1,242 |
Amortization of prior service cost |
631 |
731 |
571 |
670 |
Recognized net actuarial (gain) loss |
(3,453) |
(4,124) |
(132) |
(138) |
Net periodic benefit cost |
$(9,772) |
$(9,724) |
$5,040 |
$5,482 |
In April of 2004 Energy East contributed $19 million to its retirement benefit plans, including $11 million for CMP.
In December 2003 President Bush signed into law the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (the Act). The Act introduces a federal subsidy to sponsors of retiree health care benefit plans that provide a benefit that is at least actuarially equivalent to Medicare Part D.
In May 2004 the FASB issued its FASB Staff Position (FSP) No. FAS 106-2, which addresses how and when a plan sponsor should account for the federal subsidy introduced by the Act and could require the plan sponsor to change previously reported information. FSP No. FAS 106-2 is effective for the first interim or annual period beginning after June 15, 2004. When FSP No. FAS 106-2 becomes effective it supersedes FSP No. FAS 106-1. The company, CMP, NYSEG and RG&E will apply FSP No. 106-2 beginning July 1, 2004. However, since detailed regulations necessary to implement the Act have not been issued, the companies are unable to conclude whether the benefits provided by their plans are actuarially equivalent to Medicare Part D under the Act. Any measures of the accumulated pension benefit obligation or net periodic postretirement benefit cost in the companies' financial statements or accompanying notes do not reflect any amount associated with the subsidy because the companies' are unable to conclude whether the benefits provided by their plans are actuarially equivalent to Medicare Part D. The companies have not yet determined the potential effects of the Act on their future postretirement costs, including the participation rates in their benefit plans, or whether any amendments to their benefit plans are appropriate given the provisions of the Act.
Note 10. Goodwill and Intangible Assets
The companies no longer amortize goodwill effective January 1, 2002, and do not amortize intangible assets with indefinite lives (unamortized intangible assets). RG&E has no goodwill or intangible assets with indefinite lives. The companies test both goodwill and unamortized intangible assets for impairment at least annually. The companies amortize intangible assets with finite lives (amortized intangible assets) and review them for impairment. Annual impairment testing was completed and it was determined that there was no impairment of goodwill or unamortized intangible assets for the companies at September 30, 2003.
Changes in the carrying amounts of Energy East's goodwill, by operating segment, from January 1, 2004, to June 30, 2004, are shown in the table below.
Electric |
Natural Gas |
|
|
|
(Thousands) |
||||
Balance, January 1, 2004 |
$844,531 |
$677,119 |
$11,473 |
$1,533,123 |
Goodwill related to |
|
|
|
|
Preacquisition income tax |
|
|
|
|
Balance, June 30, 2004 |
$844,491 |
$676,588 |
$6,090 |
$1,527,169 |
The carrying amount of CMP's goodwill, which is included in its electric delivery operating segment, was $325 million as of June 30, 2004, and January 1, 2004. The carrying amount of NYSEG's goodwill, which is included in its natural gas delivery operating segment, was $11 million as of June 30, 2004, and January 1, 2004.
The company's unamortized intangible assets had a carrying amount of $10 million at June 30, 2004, and December 31, 2003, and primarily consisted of pension assets. The company's amortized intangible assets had a gross carrying amount of $31 million at June 30, 2004, and December 31, 2003, and primarily consisted of investments in pipelines. Accumulated amortization was $13 million at June 30, 2004, and $12 million at December 31, 2003. Estimated amortization expense for intangible assets for the next five years is approximately $3 million for 2004, $2 million for 2005, and $1 million each year for 2006 through 2008.
CMP's unamortized intangible assets consist of pension assets and had a carrying amount of $2 million at June 30, 2004, and December 31, 2003. CMP's amortized intangible assets had a gross carrying amount and accumulated amortization of less than $0.3 million at June 30, 2004, and December 31, 2003, and primarily consisted of technology rights. Estimated amortization expense for intangible assets is $26 thousand for the years 2004 through 2006, and $8 thousand for 2007, after which amortization will be complete.
NYSEG's unamortized intangible assets had a carrying amount of $1.4 million at June 30, 2004, and December 31, 2003, and primarily consisted of pension assets, franchises and consents. NYSEG's amortized intangible assets had a gross carrying amount of $1.8 million at June 30, 2004, and $1.5 million at December 31, 2003, and accumulated amortization of $1 million at June 30, 2004, and December 31, 2003, and consisted of hydroelectric licenses. Estimated amortization expense for intangible assets for the next five years is $41 thousand for the years 2004 through 2006, $38 thousand for 2007 and $35 thousand for 2008.
RG&E's amortized intangible assets consist of water rights, and had a gross carrying amount of $3 million and accumulated amortization of $2 million at June 30, 2004, and December 31, 2003. Estimated amortization expense for intangible assets is $78 thousand for each of the next five years, 2004 through 2008.
Note 11. Segment Information
Energy East's electric delivery business consists of its regulated transmission, distribution and generation operations in Maine and New York; and its natural gas delivery business consists of its regulated transportation, storage and distribution operations in Connecticut, Maine, Massachusetts and New York. Other includes: the company's corporate assets, interest income, interest expense and operating expenses; intersegment eliminations; and nonutility businesses.
CMP's electric delivery business, which it conducts in Maine, consists of its regulated transmission and distribution operations.
NYSEG's electric delivery business consists of its regulated transmission, distribution and generation operations. Its natural gas delivery business consists of its regulated transportation, storage and distribution operations. NYSEG operates in the State of New York. Other includes NYSEG's corporate assets.
RG&E's electric delivery business consists of its regulated transmission, distribution and generation operations. Its natural gas delivery business consists of its regulated transportation, storage and distribution operations. RG&E operates in the State of New York. Other includes RG&E's corporate assets.
Selected information for Energy East's, CMP's, NYSEG's and RG&E's business segments is:
Electric |
Natural Gas |
|
|
|
(Thousands) |
||||
Three Months Ended |
||||
June 30, 2004 |
||||
Operating Revenues |
|
|
|
|
Net Income (Loss) |
|
|
|
|
June 30, 2003 |
||||
Operating Revenues |
|
|
|
|
Net Income (Loss) |
|
|
|
|
Electric |
Natural Gas |
|
|
|
(Thousands) |
||||
Six Months Ended |
||||
June 30, 2004 |
||||
Operating Revenues |
|
|
|
|
Net Income (Loss) |
|
|
|
|
June 30, 2003 |
||||
Operating Revenues |
|
|
|
|
Net Income (Loss) |
|
|
|
|
Total Assets |
||||
June 30, 2004 Energy East CMP NYSEG RG&E |
|
|
|
|
December 31, 2003 Energy East CMP NYSEG RG&E |
|
|
|
|
This Form 10-Q contains certain forward-looking statements that are based upon management's current expectations and information that is currently available. The Private Securities Litigation Reform Act of 1995 provides a safe harbor for forward-looking statements in certain circumstances. Whenever used in this report, the words "estimate," "expect," "believe," or similar expressions are intended to identify such forward-looking statements.
In addition to the assumptions and other factors referred to specifically in connection with such statements, factors that involve risks and uncertainties and that could cause actual results to differ materially from those contemplated in any forward-looking statements include, among others: the deregulation and continued regulatory unbundling of a vertically integrated industry; the companies' ability to compete in the rapidly changing and increasingly competitive electricity and/or natural gas utility markets; regulatory uncertainty in a politically-charged environment of changing energy prices; the operation of the New York Independent System Operator and ISO New England, Inc.; the operation of a regional transmission organization; the ability to recover nonutility generator and other costs; changes in fuel supply or cost and the success of strategies to satisfy power requirements; the company's ability to expand its products and services, including its energy infrastructure in the Northeast; the compa ny's ability to integrate the operations of Berkshire Energy Resources, CMP Group, Inc., Connecticut Energy Corporation, CTG Resources, Inc, RGS Energy Group, Inc., and NYSEG; the company's ability to achieve enterprise-wide integration synergies; market risk; the ability to obtain adequate and timely rate relief; nuclear or environmental incidents; legal or administrative proceedings; changes in the cost or availability of capital; growth in the areas in which the companies are doing business; weather variations affecting customer energy usage; authoritative accounting guidance; acts of terrorists; and other considerations, such as the effect of the volatility in the equity markets on pension benefit cost, that may be disclosed from time to time in the companies' publicly disseminated documents and filings. The companies undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
(See report on Form 10-K for Energy East, CMP, NYSEG and RG&E for fiscal year ended December 31, 2003, Item 7A - Quantitative and Qualitative Disclosures About Market Risk.)
Commodity Price Risk: NYSEG and RG&E use electricity contracts, both physical and financial, to manage fluctuations in the cost of electricity. The cost or benefit of those contracts is included in the amount expensed for electricity purchased when the electricity is sold.
NYSEG's current electric rate plan offers retail customers choice in their electricity supply including a variable rate option, an option to purchase electricity supply from an alternative energy company, and a bundled rate option. Approximately 38% of NYSEG's total electric load is now provided by an alternative energy company or at the market price. NYSEG's exposure to fluctuations in the market price of electricity is limited to the load required to serve those customers who select the bundled rate option, which combines delivery and supply service at a fixed price. For 2004 the customer supply cost component is based on average electricity forward prices for 2003 and 2004 available during September 2002, plus 35% to cover the costs and risk that NYSEG is assuming by providing a bundled rate option to retail customers. NYSEG actively hedges the load required to serve customers who select the bundled rate option. As of July 30, 2004, NYSEG's load was 98% hedged for on-peak periods and 92% hedged for off - -peak periods in 2004. A fluctuation of $1.00 per megawatt-hour in the price of electricity would change earnings by $0.25 million for August through December 2004. The percentage of NYSEG's hedged load is based on NYSEG's load forecasts, which include certain assumptions such as historical weather patterns. Actual results could differ as a result of changes in the load compared to the load forecast.
Under the terms of its Electric Rate Agreement RG&E is allowed to recover its actual fuel expenses effective May 1, 2004, and the earnings risks related to changes in market value of electricity are eliminated. Beginning January 1, 2005, in accordance with its Electric Rate Agreement, RG&E will offer its retail customers choice in their electricity supply including a variable price option, an option to purchase electricity supply from an alternative energy company and a fixed price option. RG&E's exposure to fluctuations in the market price of electricity will be limited to the load required to serve those customers who select the fixed rate option, which combines delivery and supply service at a bundled price.
NYSEG and RG&E use natural gas futures and forwards to manage fluctuations in natural gas commodity prices and provide price stability to customers. The cost or benefit of natural gas futures and forwards is included in the commodity cost when the related sales commitments are fulfilled. NYSEG and RG&E are allowed to pass all actual natural gas commodity costs through to customers.
Item 4. Controls and Procedures
The principal executive officers and principal financial officers of Energy East, CMP, NYSEG and RG&E evaluated the effectiveness of their respective company's disclosure controls and procedures as of the end of the period covered by this report. "Disclosure controls and procedures" are controls and other procedures of a company that are designed to ensure that information required to be disclosed by the company in the reports that it files or submits under the Securities Exchange Act of 1934, within the time periods specified in the Securities and Exchange Commission's rules and forms, is recorded, processed, summarized and reported, and is accumulated and communicated to the company's management, including its principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure. Based on their evaluation, they concluded that their respective company's disclosure controls and procedures are effective.
Energy East, CMP, NYSEG and RG&E each maintain a system of internal control over financial reporting designed to provide reasonable assurance to its management and board of directors regarding the preparation of reliable published financial statements and the safeguarding of assets against loss or unauthorized use. Each company's system of internal control over financial reporting contains self-monitoring mechanisms and actions are taken to correct deficiencies as they are identified. There were no changes in the companies' internal control over financial reporting that occurred during each company's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the respective company's internal control over financial reporting. On January 1, 2004, Energy East commenced using a new accounting system to record and report financial transactions. The system change was undertaken to standardize accounting systems and to consolidate the accounting functions for Energ y East's principal operating companies, including CMP, NYSEG and RG&E.
PART II - OTHER INFORMATION
Item 2. Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities
(a) Changes in Rights of Holders of Energy East Common Stock
On June 18, 2004, the stockholders of the company approved amendments to the Certificate of Incorporation to eliminate the classification of the Board of Directors and to eliminate cumulative voting in the election of directors. On June 21, 2004, the company filed an Amendment to the Certificate of Incorporation to reflect the changes. All directors will be elected annually beginning at the 2005 Annual Meeting.
(e) Issuer Purchases of Equity Securities
Energy East Corporation |
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|
|
(c) |
(d) |
|
Month #1 (April 1, 2004 to April 30, 2004) |
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|
|
|
Month #2 (May 1, 2004 to May 31, 2004) |
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|
|
|
|
Month #3 (June 1, 2004 to June 30, 2004) |
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|
|
|
|
Total |
20,258 |
$23.39 |
- |
- |
|
(1)
Represents shares of the company's common stock (Par Value $.01) purchased in open-market transactions on behalf of the company's Employees' Stock Purchase Plan.
Rochester Gas and Electric Corporation |
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(c) |
(d) |
Month #1 (April 1, 2004 to April 30, 2004) |
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||
Month #2 (May 1, 2004 to May 31, 2004) |
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|
|
|
Month #3 (June 1, 2004 to June 30, 2004) |
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Total |
470,000 |
$102.31 |
- |
- |
(1)
These share purchases were a redemption of all of RG&E's remaining preferred stock, all Par Value $100. (See Energy East's Part I, Item 2(a) - RG&E Financing Activities.)CMP and NYSEG had no issuer purchases of equity securities during the quarter ended June 30, 2004.
Item 4. Submission of Matters to a Vote of Security Holders
Energy East Corporation
Energy East's Annual Meeting of Stockholders was held on June 18, 2004. The following matters were voted on:
(a) The election of four directors:
Nominees |
Votes For |
Votes Withheld |
Richard Aurelio |
126,363,429 |
4,134,624 |
James A. Carrigg |
126,050,963 |
4,447,090 |
David M. Jagger |
125,642,840 |
4,855,213 |
Ben E. Lynch |
125,253,822 |
5,244,231 |
(b) Approval of an amendment to the Certificate of Incorporation to eliminate the classification of the Board of Directors:
Shares For: |
123,959,588 |
Shares Against: |
4,664,053 |
Shares Abstain: |
1,874,412 |
(c) Approval of an amendment to the Certificate of Incorporation to eliminate cumulative voting in the election of directors:
Shares For: |
80,144,510 |
Shares Against: |
26,967,131 |
Shares Abstain: |
1,881,723 |
Broker Nonvoted: |
21,504,689 |
(d) Approval of an existing employee stock purchase plan:
Shares For: |
103,745,975 |
Shares Against: |
3,712,018 |
Shares Abstain: |
1,535,371 |
Broker Nonvoted: |
21,504,689 |
(e) Ratification of the appointment of PricewaterhouseCoopers LLP as independent public accountants:
Shares For: |
126,296,571 |
Shares Against: |
3,107,602 |
Shares Abstain: |
1,093,880 |
Central Maine Power Company
CMP's Annual Meeting of Stockholders was held on June 18, 2004. The election of three directors was voted on:
Nominees |
Votes For |
Votes Withheld |
Sara J. Burns |
3,121,680 |
- |
Kenneth M. Jasinski |
3,121,680 |
- |
Wesley W. von Schack |
3,121,680 |
- |
New York State Electric & Gas Corporation
On June 18, 2004, RGS Energy Group, Inc., a wholly-owned subsidiary of Energy East Corporation and the owner of all of the outstanding shares of NYSEG's common stock, by written consent in lieu of the annual meeting of stockholders, elected Kenneth M. Jasinski, James P. Laurito, Wesley W. von Schack and Denis Wickham directors of NYSEG. Mr. Wickham retired on July 1, 2004, in accordance with his previously announced plans.
Rochester Gas and Electric Corporation
On June 18, 2004, RGS Energy Group, Inc., a wholly-owned subsidiary of Energy East Corporation and the owner of all of the outstanding shares of RG&E's common stock, by written consent in lieu of the annual meeting of stockholders, elected Kenneth M. Jasinski, James P. Laurito, Wesley W. von Schack and Denis Wickham directors of RG&E. Mr. Wickham retired on July 1, 2004, in accordance with his previously announced plans.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits - See
Exhibit Index.(b) The following reports on Form 8-K were filed or furnished during the quarter:
Energy East filed four reports on Form 8-K. One report, dated May 7, 2004, was furnished to report certain information under Item 7, "Financial Statements and Exhibits," Item 9, "Regulation FD Disclosure," and Item 12, " Results of Operation and Financial Condition," Two other reports, dated May 19, 2004, and May 24, 2004, were filed to report certain information under Item 5, "Other Events," and Item 7, "Financial Statements and Exhibits." Another report, dated June 10, 2004, was filed to report certain information under Item 5, "Other Events."
RG&E filed three reports on Form 8-K. Two reports, dated May 19, 2004, and May 24, 2004, were filed to report certain information under Item 5, "Other Events," and Item 7, "Financial Statements and Exhibits." Another report, dated June 10, 2004, was filed to report certain information under Item 5, "Other Events."
Pursuant to the requirements of the Securities Exchange Act of 1934, each Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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ENERGY EAST CORPORATION |
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CENTRAL MAINE POWER COMPANY |
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NEW YORK STATE ELECTRIC & GAS CORPORATION |
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ROCHESTER GAS AND ELECTRIC CORPORATION |
(a) (1) The following exhibits are delivered with this report:
Registrant |
Exhibit No. |
Description of Exhibit |
Energy East Corporation |
3-5 - |
Certificate of Amendment of the Certificate of Incorporation filed in the Office of the Secretary of State of the State of New York on June 21, 2004. |
(A)10-21 - |
Amended and Restated Employment Agreement dated as of July 1, 2004, by an among the Company, Energy East Management Corporation and W. W. von Schack. |
|
(A)10-22 - |
Supplemental Executive Retirement Plan Amendment No. 2. |
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31-1 - |
Certification under Section 302 of the Sarbanes-Oxley Act of 2002. |
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31-2 - |
Certification under Section 302 of the Sarbanes-Oxley Act of 2002. |
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32* - |
Certifications under Section 906 of the Sarbanes-Oxley Act of 2002. |
|
Central Maine Power |
31-1 - |
Certification under Section 302 of the Sarbanes-Oxley Act of 2002. |
Company |
31-2 - |
Certification under Section 302 of the Sarbanes-Oxley Act of 2002. |
32* - |
Certifications under Section 906 of the Sarbanes-Oxley Act of 2002. |
|
New York State Electric |
31-1 - |
Certification under Section 302 of the Sarbanes-Oxley Act of 2002. |
& Gas Corporation |
31-2 - |
Certification under Section 302 of the Sarbanes-Oxley Act of 2002. |
32* - |
Certifications under Section 906 of the Sarbanes-Oxley Act of 2002. |
|
Rochester Gas and |
31-1 - |
Certification under Section 302 of the Sarbanes-Oxley Act of 2002. |
Electric Corporation |
31-2 - |
Certification under Section 302 of the Sarbanes-Oxley Act of 2002. |
32* - |
Certifications under Section 906 of the Sarbanes-Oxley Act of 2002. |
*Furnished pursuant to Regulation S-K Item 601(b)(32).
(a) (2) The following exhibits are incorporated herein by reference:
Registrant |
Exhibit No. |
Filed in |
As Exhibit No. |
Energy East Corporation |
3-1 - |
Restated Certificate of Incorporation of the Company pursuant to Section 807 of the Business Corporation Law filed in the Office of the Secretary of State of the State of New York on April 23, 1998 - Post-effective Amendment No.1 to Registration No. 033-54155 |
|
3-2 - |
Certificate of Amendment of the Certificate of Incorporation filed in the Office of the Secretary of State of the State of New York on April 26, 1999 - Company's 10-Q for the quarter ended March 31, 1999 - File No. 1-14766 |
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|
Central Maine Power |
(A)10-27 - |
Energy East Corporation's Supplemental Executive Retirement Plan Amendment No. 2 - Energy East Corporation's 10-Q for the quarter ended June 30, 2004 - File No. 1-14766 |
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New York State Electric |
(A)10-34 - |
Energy East Corporation's Supplemental Executive Retirement Plan Amendment No. 2 - Energy East Corporation's 10-Q for the quarter ended June 30, 2004 - File No. 1-14766 |
|
Registrant |
Exhibit No. |
Filed in |
As Exhibit No. |
Rochester Gas and |
(A)10-27 - |
Energy East Corporation's Supplemental Executive Retirement Plan - Energy East Corporation's 10-Q for the quarter ended September 30, 2001 - File No. 1-14766 |
|
(A)10-28 - |
Energy East Corporation's Supplemental Executive Retirement Plan Amendment No. 1 - Energy East Corporation's 10-K for the year ended December 31, 2001 - File No. 1-14766 |
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|
(A)10-29 - |
Energy East Corporation's Supplemental Executive Retirement Plan Amendment No. 2 - Energy East Corporation's 10-Q for the quarter ended June 30, 2004 - File No. 1-14766 |
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_________________________________
(A) Management contract or compensatory plan or arrangement.
Energy East agrees to furnish to the Commission, upon request, a copy of (i) the Five-Year Revolving Credit Agreement among Energy East, certain lenders, Wachovia Bank, National Association, as Administrative Agent, JP Morgan Chase Bank, as Syndication Agent and Citibank, N.A., KeyBank N.A. and UBS Loan Finance, LLC, as Co-Documentation Agents, dated as of July 21, 2004; and (ii) the Revolving Credit Agreement among NYSEG, RG&E, certain lenders, JP Morgan Chase Bank, as Administrative Agent, Wachovia Bank, National Association, as Syndication Agent and Citibank, N.A., KeyBank N.A. and UBS Loan Finance, LLC, as Co-Documentation Agents, dated as of July 21, 2004 (the "Joint Revolving Credit Agreement"). The total amount of securities under each such document does not exceed 10% of the total assets of Energy East.
NYSEG agrees to furnish to the Commission, upon request, a copy of the Joint Revolving Credit Agreement. The total amount of securities issuable by NYSEG under the Joint Revolving Credit Agreement does not exceed 10% of the total assets of NYSEG.
RG&E agrees to furnish to the Commission, upon request, a copy of the Joint Revolving Credit Agreement. The total amount of securities issuable by RG&E under the Joint Revolving Credit Agreement does not exceed 10% of the total assets of RG&E.