Commonwealth Energy System

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Commonwealth Energy System

One Main Street
Cambridge, Massachusetts 02142-9150
U.S.A.
(617) 225-4000
Fax: (617) 225-4481

Public Company
Incorporated: 1926 as New England Gas & Electric
Association
Operating Revenues: $978.6 million
Employees: 2,169
Stock Exchanges: New York Boston Pacific
SICs: 4911 Electric Services; 4924 Natural Gas Distribution;
4961 Steam & Air Conditioning Supply; 6512 Operators
of Nonresidential Buildings

Commonwealth Energy System (COM/Energy) is a public utility holding company with four subsidiaries operating in Massachusetts. Three are engaged in the generation, transmission, and distribution of electricity, and the fourth in the distribution of natural gas. COM/Energy also owns a steam distribution company, a liquefied natural-gas and vaporization facility, and five real-estate trusts.

Commonwealth Energy System was the name adopted in 1981 for what had been formerly the New England Gas & Electric Association. New England Gas & Electric was founded on the last day of 1926 as an unincorporated trust to control various gas and electric companies. The oldest of these was the Worcester Gas Light Co., formed in 1849 after winning a contract to provide gas street lighting along Main Street in Worcester, Massachusetts. Another early member of the future system, New Bedford Gas Co., was incorporated in 1850. It absorbed New Bedford Electric Light Co. in 1888 and Edison Electric Illuminating Co. of New Bedford in 1890. This consolidated utility became New Bedford Gas & Edison Light Co. in 1891. Yet another early unit was Cambridge Electric Light Co., organized in 1886 as one of the first electric utilities in the United States.

At the time of its founding New England Gas & Electric was affiliated with the Associated Gas & Electric system through ownership and control of its common shares by important stockholders and officials of Associated Gas & Electric Co. Associated was one of the eight great systems that, with only a few exceptions, controlled all private gas and electric companies in Massachusetts. In 1928 Associated served 50 cities and towns in the state with an aggregate population of 788,000. By the use of the holding-company device, a relatively small investment could result in control of properties many times greater in value. Associated’s capital structure was characterized as early as 1927 as “a financial nightmare,” and the company was placed in bankruptcy by the federal Securities and Exchange Commission in 1940.

Before federal legislation enacted in 1935 broke up a number of far-flung combines, New England Gas & Electric owned public electric utilities in New Hampshire, Maine, and the maritime provinces of Canada as well as Massachusetts. In 1930 the system owned and operated nine steam, internal-combustion, and hydroelectric generating stations in Massachusetts, New Hampshire, Nova Scotia, and Prince Edward Island. Its gas plants, which at this time provided manufactured rather than natural gas, served Worcester, Cambridge, New Bedford, and a number of smaller Massachusetts communities. In 1929 New England Gas & Electric served 115,204 electric and 141,343 gas customers. Gross earnings came to $14.5 million that year and gross income to $2.2 million.

Service to Canada ended when New England Gas & Electric divested itself of four utility subsidiaries during 1935 and 1936. By 1940 the New Bedford Gas & Edison Light Co. subsidiary was accounting for more than half of the system’s electricity sales, followed by Cambridge Electric Light Co. New Hampshire Gas & Electric Co., serving chiefly Portsmouth, was third in sales of electricity, followed closely by Plymouth County Electric Co. and Cape and Vineyard Electric Co., the latter serving the island of Martha’s Vineyard and most of Cape Cod. The system’s gas sales were chiefly by its Worcester, Cambridge, and New Bedford subsidiaries. Steam for heating was being sold to ten Cambridge customers by Cambridge Steam Co. Gross income came to $2.8 million in 1939 and net income to $298,424.

Except for the divestiture of electric service to Calais, Maine, the scope of New England Gas & Electric’s operations remained the same in the 1940s. In 1950 it was providing electric service to about 151,000 customers in 77 communities and gas service to about 169,000 customers in 39 communities. There was no direct competition in kind from any privately or municipally owned public utility. New England Gas & Electric had taken a 36-percent stake in Algonquin Gas Transmission Co., a company formed in 1949 for the purpose of building natural-gas pipeline. The system’s total operating revenues rose from $19.4 million in 1944 to $31.2 million in 1950. Net income rose from $520,864 to more than $2.3 million over the same period.

In 1954 New England Gas & Electric sold its New Hampshire Electric Co. subsidiary and New Hampshire’s subsidiary, Kittery Electric Light Co., to Public Service Co. of New Hampshire, thereby restricting its operations to Massachusetts. Because of consolidation, by 1960 only seven operating subsidiaries remained in the system: Cambridge Electric Light Co., Cambridge Gas Co., Cambridge Steam Corp., Cape and Vineyard Electric Co., New Bedford Gas & Edison Light Co., Plymouth County Electric Co., and Worcester Gas Light Co. Electric and gas service now was being provided to 41 communities each. Operating revenues increased from $34 million in 1951 to $52 million in 1959, while net income rose from $2.4 million to $3.8 million during the same period.

New England Gas & Electric fully entered the atomic age in 1968, when the Yankee nuclear power plant began operations in Rowe, Massachusetts. The system took a combined interest, through a consortium, of 15.5 percent in four such plants. The others were Connecticut Yankee of Haddam, Connecticut; Maine Yankee of Wiscasset, Maine; and Vermont Yankee of Vernon, Vermont, all of which became operational in 1972. The Rowe facility was closed in 1992.

In 1966 New England Gas & Electric’s operating revenues reached $75 million, and net income was $7.2 million. One of the system’s assets was the rise in the year-round population of Cape Cod from 37,000 in 1940 to an estimated 85,000 in 1965. A new subsidiary, Canal Electric Co., formed in 1966, was completing a 560-megawatt oil-fired electric generating station in Sandwich, at the eastern end of Cape Cod Canal. This facility soon was providing 70 percent of the system’s electrical capacity, three-quarters of which was being sold to other utilities. In Cambridge, an influx of diverse industries and research institutes was increasing sales volume. A new superhighway promised to attract industry to Worcester.

The system’s electric service was in 1967 reaching about 200,000 customers in 41 communities, while natural gas was being distributed to 177,000 customers in 44 communities, ten of which were also being served by the system’s electricity. Natural gas was being supplied to companies under long-term contracts with Tennessee Gas Transmission Co. as well as by Algonquin Gas Transmission Co. Among the 40-odd Cambridge Steam customers, the best-known were Harvard University and the Massachusetts Institute of Technology.

In 1971 preliminary agreement was reached for the purchase of a still-uncompleted liquefied natural-gas facility at Hopkinton, Massachusetts, in a joint venture with Air Products and Chemicals, Inc. This facility, which became operational in 1972, gave the system a gas surplus during periods of extreme weather that was also available for sale to other gas companies. COM/Energy bought out its partner in 1985, but Air Products and Chemicals continued to operate and maintain the facility under contract.

Commonwealth Gas Co. (COM/Gas) was formed in 1971 by the merger of the Cambridge and Worcester gas companies. In the same year Cape and Vineyard was merged into New Bedford Gas & Edison Light. This subsidiary was renamed Commonwealth Electric Co. (COM/Electric) in 1981. Meanwhile, Canal Electric was constructing another large oil-fired generating plant in Sandwich, this time in partnership with Montaup Electric Co. It became operational in 1976.

New England Gas & Electric’s record income of $9.6 million in 1967 was not matched until 1971 because of a combination of factors, including higher interest expenses and increased local taxes. But by 1981, when New England Gas & Electric Association was renamed Commonwealth Energy System, operating revenues had reached $512.5 million and net income $26.9 million. The number of customers receiving electric service in the system’s 41 communities had reached about 267,900. The number of communities receiving gas had reached 47 (of which 12 also received electricity from the system), and the number of customers had reached about 194,600. Also in that year, COM/Gas purchased the gas business and assets of New Bedford Gas & Edison Light, subsequently Commonwealth Electric Co. (COM/Electric).

COM/Energy weathered the petroleum shortages and price hikes of the 1970s and early 1980s and the waning of nuclear power as an alternative generating fuel better than most public utilities. Between 1984 and 1988 it had the third-best annual average return on equity among 24 Northeast utilities, with 17 percent. It had the second-lowest percentage of debt to equity among the 24 in this period, at 75.5 percent.

In the early 1990s, however, COM/Electric came under fire from the Massachusetts Department of Public Utilities for its rates, which were second-highest in the state and among the highest in the country. An audit commissioned by the department in 1991 recommended 62 changes, including stricter budgeting and control processes, more competitive bidding and monitoring of outside service vendors, and major improvements in customer service. In 1993 the state’s Division of Energy Resources responded to a Cambridge Electric request for a ten-percent rate hike by asking it and COM/Electric to explore mergers with two competing utilities. State officials were said to feel that Massachusetts’s eight electric companies were too many and that high electric rates were a factor in the high cost of doing business there.

The typical COM/Electric residential customer was using about 500 kilowatt hours of electricity a month in early 1993 and paying $70 a month. The average cost of 14 cents per kilowatt-hour compared to a typical charge of 11 cents per kilowatt-hour by other state electric utilities. In April 1993 COM/Electric announced that it was laying off between 150 and 175 employees in all departments to cut costs. The COM/Energy system also, in 1995, curtailed power purchases from a costly cogeneration plant in Lowell, Massachusetts, and bought out a contract to purchase power supplies from a plant in Pepperell, Massachusetts.

COM/Electric announced a four-year, $10.8-million rate cut in April 1995, which it attributed to its “aggressive cost-cutting” efforts. However, an official in the state attorney general’s office said some of the reduction was owed to customers because of “power outages due to management mistakes” and attributed some of the rest to accounting matters that had nothing to do with cost-cutting. As part of the deal with the attorney general’s office, COM/Electric agreed to refund to customers half of any earnings above 9.5 percent of revenues through 1998.

COM/Energy’s operating revenues rose from $835.8 million in 1990 to $978.6 million in 1994. Of the 1994 total, 65 percent came from electricity, 33 percent from gas, and two percent from steam. Net income grew from $22.6 million to almost $49 million in this period. Consolidated long-term debt was $418.3 million at the end of 1994.

The system had 356,697 electricity customers at the end of 1994, of which residential customers numbered 311,153. Of its 8.4 million megawatt-hours of electricity sales in 1994, residential sales comprised 21 percent; commercial sales, 24 percent; industrial sales, five percent; other sales, five percent; and wholesale sales to other systems, 45 percent. Of 231,609 natural gas customers at the end of 1994, 211, 075 were residential. Of 47.4 billion BTUs of gas sales in 1994, residential sales accounted for 45 percent; commercial sales, 23 percent; industrial sales, nine percent; other sales, four percent; and interruptible and other sales, 19 percent.

COM/Energy system companies owned electric-power generating facilities with capability of 1,046.5 megawatts at the end of 1994. Cambridge Electric Co. had two steam electric-generating stations in Cambridge with a capability of 76.5 megawatts. Canal Electric Co., which did not serve retail customers, owned and operated the 560-megawatt oil-fired steam-generating unit (Unit No. 1) at Sandwich, Massachusetts, and operated and half owned the similar 584-megawatt unit (Unit No. 2) at Sandwich. Three-quarters of Unit No. 1’s capacity was being sold to neighboring utilities under long-term contract. Canal Electric also had a minor ownership interest in the Seabrook (New Hampshire) 1 nuclear power plant, from which it received 40.5 megawatt capability, and COM/Electric had a minor interest in Central Maine Power Company’s oil-fired Wyman Unit 4, from which it received 8.8 megawatt capability. COM/Electric’s 60 megawatt New Bedford steam electric-generating plant closed in 1993.

Through equity ownership in Hydro-Quebec Phase II, a Canadian waterpower project, Canal had an entitlement of 67.9 megawatts of electricity. From four nuclear units an additional 140.7 megawatts were available to the COM/Energy system, which had an equity interest in the Connecticut Yankee, Maine Yankee, and Vermont Yankee units, but not in the fourth, the Pilgrim nuclear power plant in Plymouth, Massachusetts. COM/Energy and its units also purchased and exchanged power with other companies in order to reduce its reliance on oil. Of COM/Energy’s retail energy generation in 1994, 38 percent was fueled by natural gas, 25 percent by nuclear power, 24 percent from oil, two percent from hydro (waterpower), and 11 percent from waste-to-energy and other sources.

COM/Energy sold its interest in Algonquin Gas Transmission Co. to Texas Eastern Corp. in 1986 for $56.3 million. Prior to a federal order that became effective in 1993, COM/Gas purchased most of its natural gas from either Algonquin or Tennessee Gas Pipeline Co. Following the order, which required interstate pipelines to unbundle existing gas sales contracts into separate components, it turned to third-party vendors for gas while continuing to purchase transportation, storage, and balancing services from Tennessee, Algonquin, and other companies. Hopkinton LNG Corp., another COM/Energy subsidiary, had a liquefaction plant and three above-ground storage tanks in Hopkinton, Massachusetts, and a satellite vaporization plant in Acushnet, Massachusetts, with additional storage capacity. The system’s gas properties included 2,761 miles of gas distribution lines at the end of 1994.

COM/Energy Steam Co. was purchasing steam produced by Cambridge Electric in connection with the latter’s generation of electricity and was also producing steam itself. In 1994 it distributed steam to 20 customers in Cambridge and to Massachusetts General Hospital in Boston, but in 1995 MIT, its largest customer, turned to cogeneration. During 1994 the company sold a record 1.5 billion pounds of steam. COM/Energy Services Co. provided essential services to the system and its subsidiaries, including executive and financial management, accounting, data processing, and legal and other services.

Among COM/Energy’s five real-estate subsidiaries in 1995, Darvel Realty Trust held Riverfront Office Park in Cambridge, while COM/Energy Research Park Realty planned to develop another parcel in Cambridge. COM/Energy Freetown Realty held 596 acres of land in Freetown, Massachusetts, but was planning to sell it.

Principal Subsidiaries

Cambridge Electric Light Co.; Canal Electric Co.; COM/Energy Acushnet Realty; COM/Energy Cambridge Realty; COM/Energy Freetown Realty; COM/Energy Research Park Realty; COM/Energy Steam Co.; Commonwealth Electric Co.; Commonwealth Gas Co.; Darvel Realty Trust; Hopkinton LNG Corp.