<PAGE> 1
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 June 30, 1997
-------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ______________ to _____________
Commission file number 1-12527
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BAYCORP HOLDINGS, LTD.
(Exact name of registrant as specified in its charter)
------------------------------------------------------
DELAWARE 02-0488443
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
COCHECO FALLS MILLWORKS, 100 MAIN STREET, SUITE 201
DOVER , NEW HAMPSHIRE 03820-3835
(Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (603) 742-3388
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
----- -----
Indicate by check mark whether the registrant has filed all documents
required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act
of 1934 subsequent to the distribution of securities under a plan confirmed by a
court.
Yes X No
----- -----
Class Outstanding at August 6, 1997
- --------------------------------------- -----------------------------
Common Stock, $0.01 Par Value per Share 8,277,748
<PAGE> 2
BAYCORP HOLDINGS, LTD.
INDEX
PART I - FINANCIAL INFORMATION:
Item 1 - Financial Statements:
Consolidated Statements of Income and Loss - Three and Six
Months Ended June 30, 1997 and 1996............................3
Consolidated Balance Sheets at June 30, 1997
and December 31, 1996..........................................4-5
Consolidated Statements of Cash Flows - Six
Months Ended June 30, 1997 and 1996............................6
Notes to Financial Statements......................................7-12
Item 2 - Financial Discussion:
Management's Discussion and Analysis of Financial Condition
and Results of Operations.....................................12-16
PART II - OTHER INFORMATION:
Item 1 - Legal Proceedings........................................16
Item 4 - Submission of Matters to a Vote of Securityholders.......16
Item 6 - Exhibits and Reports on Form 8-K.........................17
Signature.........................................................18
Exhibit Index.....................................................19
2
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
- ----------------------------
BAYCORP HOLDINGS, LTD.
<TABLE>
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT SHARES AND PER SHARE DATA)
<CAPTION>
Three Months Six Months
Ended June 30, Ended June 30,
1997 1996 1997 1996
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Operating Revenues $ 3,555 $ 7,305 $ 11,992 $ 14,196
Operating Expenses:
Production 5,063 3,855 9,457 7,443
Transmission 218 229 438 488
Administrative & General 1,436 1,310 3,369 3,224
Depreciation & Amortization 863 874 1,726 1,748
Taxes other than Income 1,127 1,023 2,289 2,077
---------- ---------- ---------- ----------
Total Operating Expenses 8,707 7,291 17,279 14,980
---------- ---------- ---------- ----------
Operating Loss (5,152) 14 (5,287) (784)
Other (Income) Deductions:
Interest and Dividend (Income) Expense (236) (199) (638) (470)
Decommissioning Cost Accretion 665 565 1,331 1,130
Decommissioning Trust Fund Income (100) (83) (211) (161)
Unit 2 Sales and Other (Income) 3 0 3 4
---------- ---------- ---------- ----------
Total Other Deductions 332 283 485 503
---------- ---------- ---------- ----------
Loss Before Income Taxes (5,484) (269) (5,772) (1,287)
Income Taxes 0 0 0 0
---------- ---------- ---------- ----------
Net Loss $ (5,484) $ (269) $ (5,772) $ (1,287)
========== ========== ========== ==========
Weighted Average Number of
Shares Outstanding 8,294,803 7,999,071 8,307,764 7,999,510
Loss Per Share $ (0.66) $ (0.03) $ (0.69) $ (0.16)
</TABLE>
(The accompanying notes are an integral part of these consolidated statements)
3
<PAGE> 4
<TABLE>
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<CAPTION>
June 30, December 31,
1997 1996
-------- ------------
<S> <C> <C>
ASSETS:
Current Assets:
Cash & Cash equivalents $ 4,453 $ 16,412
Short-term Investments, at market 16,924 12,363
Accounts Receivable 420 2,927
Materials & Supplies, net 4,086 4,121
Prepayments & Other Assets 3,168 434
-------- --------
Total Current Assets 29,051 36,257
-------- --------
Property, Plant, & Equipment:
Utility Plant 108,295 106,656
Less: Accumulated Depreciation (8,671) (7,152)
-------- --------
Net Utility Plant 99,624 99,504
Nuclear Fuel 21,813 20,091
Less: Accumulated Amortization (11,847) (9,692)
-------- --------
Net Nuclear Fuel 9,966 10,399
Net Property, Plant & Equipment 109,590 109,903
Other Assets:
Decommissioning Trust Fund 7,042 6,234
Deferred Debits & Other 25 24
-------- --------
Total Other Assets 7,067 6,258
-------- --------
TOTAL ASSETS $145,708 $152,418
======== ========
</TABLE>
(The accompanying notes are an integral part of these consolidated statements)
4
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BAYCORP HOLDINGS, LTD.
<TABLE>
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<CAPTION>
June 30, December 31,
1997 1996
-------- ------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current Liabilities:
Accounts Payable and Accrued Expenses $ 151 $ 129
Taxes Accrued 2,973 1,504
Miscellaneous Current Liabilities 620 4,072
-------- --------
Total Current Liabilities 3,744 5,705
Operating Reserves:
Decommissioning Liability 54,532 53,215
Miscellaneous Other 621 621
-------- --------
Total Operating Reserves 55,153 53,836
Other Liabilities & Deferred Credits 3,484 3,252
Commitments & Contingencies
Stockholders' Equity:
Common stock, $.01 par value,
Authorized - 20,000,000 shares, Issued - 8,417,748 84 84
Less: Treasury Stock - 140,000 and 78,045 shares, respectively, at cost (1,133) (633)
Additional paid-in capital 92,100 92,100
Holding Loss on Investments (175) (149)
Accumulated Deficit (7,549) (1,777)
-------- --------
Total Stockholders' Equity 83,327 89,625
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $145,708 $152,418
======== ========
</TABLE>
(The accompanying notes are an integral part of these consolidated statements)
5
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BAYCORP HOLDINGS, LTD.
<TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<CAPTION>
Six Months Six Months
Ended Ended
June 30, 1997 June 30, 1996
------------- -------------
<S> <C> <C>
Net cash flow from operating activities:
Net (Loss) $ (5,772) $(1,287)
Adjustments to reconcile net loss to net
cash provided by (used in) operating activities:
Depreciation 1,726 1,748
Amortization of nuclear fuel 2,156 1,974
Decommissioning trust accretion 1,331 1,130
Decommissioning trust interest (211) (161)
(Increase) decrease in accounts receivable 2,507 (1,212)
(Increase) decrease in materials & supplies (55) (14)
(Increase) decrease in prepaids and other assets (2,735) (1,588)
Increase (decrease) in accounts payable 21 (141)
Increase in taxes accrued 1,470 (1,293)
Other (3,219) 356
-------- -------
Net cash used in operating activities (2,781) (488)
-------- -------
Net cash flows provided by (used in) investing activities:
Utlility plant additions (1,756) (429)
Nuclear fuel additions (1,723) (383)
Payments to decommissioning fund (553) (451)
Holding Gain (Loss) (53) 0
Short term investments, net (4,593) 3,660
-------- -------
Net cash provided by (used in) investing activities (8,678) 2,397
-------- -------
Net cash provided by (used in) financing activities:
Common Stock Warrants 0 1,000
Reaquired Capital Stock (500) (96)
-------- -------
Net cash provided by (used in) financing activities (500) 904
-------- -------
Net increase (decrease) in cash and cash equivalents (11,959) 2,813
Cash and cash equivalents, beginning of period 16,412 8,874
======== =======
Cash and cash equivalents, end of period $ 4,453 $11,687
======== =======
</TABLE>
(The accompanying notes are an integral part of these consolidated statements)
6
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BAYCORP HOLDINGS, LTD.
NOTES TO FINANCIAL STATEMENTS
NOTE A - THE COMPANY
BayCorp Holdings, Ltd. ("BayCorp" or the "Company") serves as a holding
company for Great Bay Power Corporation ("Great Bay"). Great Bay is a public
utility whose principal asset is a 12.1% joint ownership interest in the
Seabrook Nuclear Power Project in Seabrook, New Hampshire (the "Seabrook
Project"). Great Bay is an exempt wholesale generator ("EWG") under the Public
Utility Holding Company Act of 1935 ("PUHCA").
Great Bay became a wholly-owned subsidiary of BayCorp in a corporate
reorganization that involved a merger of a newly-formed wholly-owned subsidiary
of BayCorp with and into Great Bay on January 24, 1997. The consolidated assets
and liabilities of Great Bay and its subsidiaries immediately before the
reorganization were the same as the consolidated assets and liabilities of
BayCorp and its subsidiaries immediately after the reorganization. Currently,
Great Bay is the sole subsidiary of BayCorp. BayCorp's principal asset is its
100% equity interest in Great Bay. The new corporate structure enables BayCorp,
either directly or through subsidiaries other than Great Bay, to engage in
businesses that Great Bay would be prohibited from pursuing due to its status as
an EWG under the PUHCA. BayCorp may in the future enter into new businesses or
acquire existing businesses, both in energy related fields and possibly in
unrelated fields.
BayCorp was incorporated in Delaware in March 1996. Great Bay was
incorporated in New Hampshire in 1986 and was formerly known as EUA Power
Corporation. Great Bay sells its share of the electricity output of the Seabrook
Project in the wholesale electricity market, primarily in the Northeast United
States. Neither BayCorp nor Great Bay has operational responsibilities for the
Seabrook Project. Great Bay's share of the Seabrook Project capacity is
approximately 140 megawatts ("MW"). Great Bay currently sells all but 10 MW of
its share of the Seabrook Project capacity in the short-term market.
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The unaudited financial statements included herein have been prepared
on behalf of the Company, without audit, pursuant to the rules and regulations
of the Securities and Exchange Commission ("SEC") and include, in the opinion of
management, all adjustments, consisting of normal recurring adjustments,
necessary for a fair presentation of interim period results. Certain information
and footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been omitted or
condensed pursuant to such rules and regulations. The Company believes, however,
its disclosures herein, when read in conjunction with the Company's audited
financial statements for the year ended December 31, 1996, are adequate to make
the information presented not misleading. The results for the interim periods
are not necessarily indicative of the results to be expected for the full fiscal
year.
In March 1997, the Financial Accounting Standards Board issued SFAS No.
128, Earnings Per Share. SFAS No. 128 establishes standards for computing and
presenting earnings per share and applies to entities with publicly held common
stock. This statement is effective for fiscal years ending after December 15,
1997 and early adoption is not permitted. The Company will adopt this statement
for its
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BAYCORP HOLDINGS, LTD.
fiscal year ending December 31, 1997 and does not believe that the effect of the
adoption of this standard would be materially different from the amounts
presented in the accompanying statements of income.
NOTE C - COMMITMENTS AND CONTINGENCIES
Nuclear Power, Energy and Utility Regulation
- --------------------------------------------
The Seabrook Project and Great Bay, as part owner of a licensed nuclear
facility, are subject to the broad jurisdiction of the Nuclear Regulatory
Commission ("NRC"), which is empowered to authorize the siting, construction and
operation of nuclear reactors after consideration of public health and safety,
environmental and antitrust matters. Great Bay has been, and will be, affected
to the extent of its proportionate share by the cost of any NRC requirements
applicable to the Seabrook Project.
Great Bay is also subject to the jurisdiction of the Federal Energy
Regulatory Commission ("FERC") under Parts II and III of the Federal Power Act
and, as a result, is required to file with FERC all contracts for the sale of
electricity. FERC has the authority to suspend the rates at which Great Bay
proposes to sell power, to allow such rates to go into effect subject to refund
and to modify a proposed or existing rate if FERC determines that such rate is
not "just and reasonable." FERC's jurisdiction also includes, among other
things, the sale, lease, merger, consolidation or other disposition of
facilities, interconnection of certain facilities, accounts, service and
property records.
Because it is an EWG, Great Bay is not subject to the jurisdiction of
the SEC under PUHCA. In order to maintain its EWG status, Great Bay must
continue to engage exclusively in the business of owning and/or operating all or
part of one or more "eligible facilities" and to sell electricity only at
wholesale (i.e. not to end users) and activities incidental thereto. An
"eligible facility" is a facility used for the generation of electric energy
exclusively at wholesale or used for the generation of electric energy and
leased to one or more public utility companies. The term "facility" may include
a portion of a facility. In the case of Great Bay, its 12.1% joint ownership
interest in the Seabrook Project comprises an "eligible facility."
Great Bay is subject to regulation by the New Hampshire Public
Utilities Commission ("NHPUC") in many respects, including the issuance of
securities, the issuance of debt, contracts with affiliates, forms of accounts,
transfers of utility properties, mortgaging of utility property and other
matters. The NHPUC does not regulate rates charged for sales of electricity at
wholesale.
Utility Deregulation; Public Controversy Concerning Nuclear Power Plants
- ------------------------------------------------------------------------
The NHPUC and the regulatory authorities with jurisdiction over
utilities in New Hampshire and state legislatures of several other states in
which Great Bay sells electricity are considering a range of proposals relating
to the deregulation of the utility industry. It is not possible to predict what
steps will be taken by these authorities and legislatures or their impact on
Great Bay.
Nuclear units in the United States have been subject to widespread
criticism and opposition, which has led to construction delays, cost overruns,
licensing delays and other difficulties. Various groups have sought to prohibit
the completion and operation of nuclear units and the disposal of nuclear waste
by litigation, legislation and participation in administrative proceedings. The
Seabrook Project
8
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BAYCORP HOLDINGS, LTD.
was the subject of significant public controversy during its construction and
licensing and remains controversial. An increase in public concerns regarding
the Seabrook Project or nuclear power in general could adversely affect the
operating license of Seabrook Unit 1. While Great Bay cannot predict the
ultimate effect of such controversy, it is possible that it could result in a
premature shutdown of the unit.
In the event of a permanent shutdown of any unit, NRC regulations
require that the unit be completely decontaminated of any residual
radioactivity. While the owners of the Seabrook Project are accumulating a trust
fund to pay decommissioning costs, if these costs exceed the amount of the trust
fund, the owners, including Great Bay, will be liable for the excess.
Decommissioning Liability
- -------------------------
Based on the Financial Accounting Standards Board's ("FASB") tentative
conclusions, Great Bay has recognized as a liability its proportionate share of
the estimated Seabrook Project decommissioning. The initial recognition of this
liability was capitalized as part of the fair value of the Seabrook plant at
November 23, 1994. The current estimated cost to decommission the Seabrook
Project, based on a study performed for the lead owner of the Plant, is
approximately $451 million in 1997 dollars and $2.3 billion in future year
dollars in years in which decommissioning will occur, assuming a 36-year life
for the facility and a future escalation rate of 5%. Based on this estimate,
Great Bay's share in 1997 dollars is approximately $54.5 million, which has been
recorded as a liability in the June 30, 1997 balance sheet.
During the first quarter of 1996, Great Bay began to accrete its share
of the Seabrook Project's Decommissioning Liability. This accretion is a
non-cash charge and recognizes Great Bay's liability related to the closure and
decommissioning of its nuclear plant in current year dollars over the licensing
period of the plant. As a result of this accretion, Great Bay's share of the
estimated decommissioning cost increased from $50.2 million as of December 31,
1995 to $54.5 million as of June 30, 1997.
The Seabrook Project's decommissioning estimate and funding schedule is
subject to review each year by the New Hampshire Nuclear Decommissioning Finance
Committee ("NDFC"). This estimate is based on a number of assumptions. Changes
in assumptions based on factors such as labor and material costs, technology,
inflation and timing of decommissioning could cause these estimates to change in
the future.
The Staff of the SEC has questioned certain of the current accounting
practices of the electric utility industry regarding the recognition,
measurement and classification of decommissioning costs for nuclear generating
stations and joint owners in the financial statements of these entities. In
response to these questions, the FASB has agreed to review the accounting for
nuclear decommissioning costs. In 1996, the FASB issued an Exposure Draft
entitled "Accounting for Certain Liabilities Related to Closure and Removal of
Long-Lived Assets." Either a revised exposure draft or a final statement is
scheduled to be issued by the FASB during 1997. Great Bay's accounting for
decommissioning was based on the FASB's original tentative conclusions. If the
current exposure draft is adopted or accounting practices for nuclear power
plant decommissioning are changed, Great Bay's decommissioning liability and
annual provision for decommissioning could change relative to amounts reflected
in the financial statements. The Company is unable to predict the impact, if
any, changes in the current accounting will have on the Company's financial
statements.
9
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BAYCORP HOLDINGS, LTD.
Although the owners of Seabrook are accumulating funds in an external
trust to defray decommissioning costs, these costs could substantially exceed
the value of the trust fund, and the owners, including Great Bay, would remain
liable for the excess. The amount that is required to be deposited in the trust
fund is subject to periodic review and adjustment by the NDFC, which could
result in material increases in such amounts.
Under a November 1992 settlement agreement with Eastern Utilities
Associates ("EUA"), a former parent of Great Bay, EUA reaffirmed its guarantee
of up to $10 million of Great Bay's future decommissioning costs of Seabrook
Unit 1.
On January 22, 1997, the NRC issued a temporary exemption to Great Bay
in which the NRC staff stated that it believed that Great Bay did not then
satisfy the NRC definition of "electric utility." The temporary exemption
granted Great Bay six months to establish itself as an "electric utility" as
defined in the NRC's regulations or obtain a surety bond or other allowable
decommissioning funding mechanism. In February 1997, Great Bay requested that
the NRC reconsider the staff's finding that Great Bay does not meet the NRC
definition of "electric utility." Great Bay also requested that the NRC consider
granting an extension to the temporary exemption as an alternative to making a
final determination as to whether Great Bay is an electric utility under the NRC
definition. On July 23, 1997, the NRC staff reaffirmed its finding that Great
Bay is not an "electric utility."
On July 23, 1997, the NRC issued a one-year exemption to Great Bay
from the obligation of Great Bay to comply with the NRC's regulations applicable
to an owner of an interest in a nuclear power plant that is not an "electric
utility" under the NRC's regulations. The exemption gives Great Bay until the
earlier of July 23, 1998 or 90 days following the effective date of any
revisions to the NRC's definition of "electric utility" to obtain a surety bond
or other allowable decommissioning funding assurance mechanism for Great Bay's
decommissioning liability related to its ownership in Seabrook. Later this year,
the NRC is expected to begin the process of revising its regulations in
anticipation of deregulation of the electric utility industry. The Company
believes that Great Bay satisfies the NRC's current decommissioning funding
requirements and intends to seek to establish Great Bay's status as an "electric
utility" through all appropriate channels. A decision as to Great Bay's status
as an "electric utility" may adversely affect Great Bay's liquidity, possibly
materially.
Liquidity and Capital Expenditures
- ----------------------------------
BayCorp anticipates that its share of the Seabrook Project's capital
expenditures for the 1997 fiscal year will total approximately $4.3 million,
primarily for nuclear fuel and various capital projects. This estimated amount
is based on the latest projections provided by the Managing Agent of the
Seabrook Project.
A scheduled refueling outage for the Seabrook Project began May 10,
1997 and lasted approximately fifty days. The Seabrook plant resumed operations
on June 28, 1997 and reached 100% power on July 3, 1997. An increased scope of
work was performed during this refueling following Seabrook's record 463
continuous days on-line. In addition to refueling the reactor, this refueling
outage
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BAYCORP HOLDINGS, LTD.
also included major plant maintenance which is expected to improve performance
at the Seabrook plant during its current operating cycle.
During outage periods at the Seabrook Project, BayCorp has no
electricity for sale and consequently no revenues. Great Bay accrues for the
incremental costs of the Seabrook Project's scheduled outages over the periods
between those outages. However, Great Bay continues to expense the normal
Seabrook operating and maintenance expenses as incurred. Therefore, the Company
incurs losses during scheduled outage periods as a result of the combination of
the lack of revenue and the recognition of normal recurring operation and
maintenance costs as well as the continuing depreciation of the Seabrook Plant.
The impact of refueling and other outages on the Company's results of operations
and financial position is materially adverse.
The 1997 outage cost an estimated $35 million. Great Bay's share is
approximately $4.3 million. This estimate is based on a number of assumptions,
including labor and contractor costs, required repairs and days to perform the
outage and plant operations in the interim. Changes in these and other
assumptions could cause this estimate to change in the near term. A final
accounting of outage related costs is expected in late August 1997.
The Company is reporting a loss of $5,484,000 in the second quarter of
1997 resulting from the decreased revenues coupled with continuing operating and
maintenance expenses and depreciation, as discussed above.
For the second quarter of 1997 the Company has reported the use of
approximately $3,747,000 of its cash and equivalents, largely to fund its share
of this refueling outage.
For each of the tax years 1994, 1995 and 1996, Great Bay has filed
property tax abatement applications with the three New Hampshire towns in which
the Seabrook Project is located. Great Bay paid its 1994, 1995 and the first
half of its 1996 property taxes billed by the Towns of Seabrook, Hampton and
Hampton Falls, New Hampshire (collectively, the "Towns") and withheld payment
of the second half of its 1996 property taxes based on the Company's position
that the portion of 1996 property taxes paid to the Towns exceeds the amount of
the total 1996 property taxes appropriately payable by Great Bay to the Towns.
Great Bay also withheld the first half of its 1997 property taxes to the Towns.
Under New Hampshire law, Great Bay will be required to pay an interest penalty
computed at an annual rate of 18% (or 12% for periods until a Town placed a
lien on the Seabrook Project) on all unpaid taxes if it is unsuccessful in its
tax abatement proceedings against the Towns. The full amount of property taxes
has been accrued and reflected by Great Bay on its 1997 and 1996 income
statements. As a result of Great Bay's withholding of its property tax payment
for the second half of 1996, two of the three Towns exercised their right to
place a lien on the Seabrook Project. The Town of Seabrook placed a lien on the
Seabrook Project on April 18, 1997 and the Town of Hampton Falls placed a lien
on the Seabrook Project on April 21, 1997. Under New Hampshire law, Seabrook
and Hampton Falls cannot take any action pursuant to their liens until two
years after the execution of the liens. The outcome of the Company's appeals
with respect to property tax assessments will affect the Company's liquidity
and obligation for property tax payments in the future.
As described above, a review of Great Bay's status as an "electric
utility" by the NRC is currently in process, which may adversely effect
BayCorp's and Great Bay's liquidity, possibly materially.
11
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BAYCORP HOLDINGS, LTD.
NOTE D - EQUITY
On January 27, 1997 Great Bay announced that it had received all
necessary shareholder and regulatory approvals for the formation of a holding
company structure for Great Bay. As a result of the restructuring, Great Bay
became a wholly-owned subsidiary of BayCorp. Shareholders of Great Bay common
stock received one share of BayCorp common stock for each share of Great Bay
common stock which they owned. The new BayCorp common stock began public trading
on the American Stock Exchange under the symbol "MWH" on January 28, 1997.
On June 4, 1996, the Board of Directors of Great Bay adopted a
resolution authorizing Great Bay to repurchase up to an aggregate of 140,000
shares of Great Bay's Common Stock on the open market or in privately negotiated
transactions. On March 4, 1997, the Board of Directors of BayCorp adopted a
similar resolution for Baycorp. As of June 30, 1997, the Company completed its
repurchase program, repurchasing 140,000 shares at a total cost of $1,133,223,
or an average price of approximately $8.09 per share.
The Company has never declared or paid cash dividends on its Common
Stock and currently does not anticipate paying a dividend in the foreseeable
future.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
- --------------------------------------------------------------------------------
of Operations
- -------------
Overview
As a result of a corporate restructuring that occurred in January 1997,
BayCorp's principal asset is its 100% equity interest in Great Bay. Great Bay is
a public utility whose principal asset is a 12.1% joint ownership interest in
the Seabrook Nuclear Power Project in Seabrook, New Hampshire. Unless the
context requires otherwise, references to BayCorp for events and time periods
before January 1997 reflect treatment of BayCorp as the successor to Great Bay.
A scheduled refueling outage for the Seabrook Project began on May 10,
1997 and lasted approximately fifty days. The Seabrook plant resumed operations
on June 28, 1997 and reached 100% power on July 3, 1997. In addition to
refueling the reactor, this refueling outage also included major plant
maintenance which is expected to improve performance at the Seabrook plant
during its current operating cycle. Based on the outage costs reported to date
by the Seabrook plant, the Company has reported a loss of approximately
$5,484,000 in the second quarter of 1997 resulting from decreased revenues
coupled with continuing operating and maintenance expenses and depreciation, as
discussed above. See "Liquidity and Capital Expenditures."
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BAYCORP HOLDINGS, LTD.
Results of Operations: Second Quarter of Fiscal 1997 Compared to the Second
- ---------------------------------------------------------------------------
Quarter of Fiscal 1996
- ----------------------
Operating Revenues
Operating Revenues decreased by approximately $3,750,000, or 51.3%, to
$3,555,000 in the second quarter of 1997 as compared to $7,305,000 in the second
quarter of 1996. This decrease in revenues was primarily due to the refueling
outage which took place during the second quarter of 1997. The refueling outage
lasted from May 10, 1997 though June 28, 1997. Refueling outages take place
approximately every eighteen to twenty months. There was no scheduled refueling
outage during the comparable period in 1996. During outage periods at the
Seabrook plant, the Company has no electricity for sale and consequently no
revenues. For the second quarter of 1997, the capacity factor at the Seabrook
plant was 43.3% versus a capacity factor of 100% for the second quarter of 1996.
Sales of electricity decreased by approximately 56.9% to 132,710,000
kilowatt hours ("kWhs") in the second quarter of 1997 as compared to 308,094,070
kWhs in the second quarter of 1996. During the second quarter of 1997 the sales
price per kWh (determined by dividing total sales revenue by the total number of
kWhs sold in the applicable period) increased 13.1% to 2.68 cents per kWh as
compared with 2.37 cents per kWh in the second quarter of 1996. BayCorp's cost
of power (determined by dividing total operating expenses by BayCorp's 12.1%
share of the power produced by the Seabrook Project during the applicable
period) increased 178% to 6.56 cents per kWh in the second quarter of 1997 as
compared to 2.36 cents per kWh in the second quarter of 1996. This increase was
the result of the scheduled refueling outage and its associated costs and the
resultant lower capacity factor at the Seabrook Project during the second
quarter of 1997 as compared to the second quarter of 1996. Scheduled and
unscheduled outage time increases BayCorp's cost of power because Seabrook costs
are spread over fewer kWhs.
Expenses
Production and Transmission expenses for the second quarter of 1997
increased approximately $1,197,000, or 29.3%, as compared to the second quarter
of 1996. This increase was primarily the result of an increase in the actual
outage related costs reported for the second quarter of 1997 as compared to the
budgeted costs for this outage which were accrued for during the second quarter
of 1996. The increase in outage related expenses is due to the increased scope
of work performed during the 1997 scheduled refueling outage.
During the second quarter of 1997, there was an overall increase of
approximately $219,000, or 6.8%, in depreciation and amortization, taxes, and
administrative and general expenses, from $3,207,000 in the second quarter of
1996 to $3,426,000 in the second quarter of 1997.
Other (Income) Deductions
Decommissioning Cost Accretion increased $100,000, to $665,000 during
the second quarter of 1997 as compared to $565,000 during the second quarter of
1996. This accretion is a non-cash charge and recognizes Great Bay's liability
related to the closure and decommissioning of its nuclear plant in current year
dollars over the licensing period of the plant. Interest (Income) Expense and
Decommissioning Trust Fund Income increased 18.1%, or $51,000, during the second
quarter of 1997 as
13
<PAGE> 14
BAYCORP HOLDINGS, LTD.
compared to the second quarter of 1996. This increase in interest income
reflects the Company's higher average cash and investment balances during the
second quarter of 1997 as compared to the second quarter of 1996.
Net Loss
As a result of the above factors, during the second quarter ended June
30, 1997, the Company recorded a net loss of $5,484,000, or approximately $.66
per share, as compared to a net loss of $269,000, or approximately $.03 per
share, during the second quarter ended June 30, 1996.
Results of Operations: First Six Months of Fiscal 1997 Compared to the First Six
- --------------------------------------------------------------------------------
Months of Fiscal 1996
- ---------------------
Operating Revenues
Operating Revenues decreased by approximately $2,204,000, or 15.5%, to
$11,992,000 in the first half of 1997 as compared with $14,196,000 in the first
half of 1996. This decrease in revenues was primarily due to the refueling
outage which took place during the first half of 1997. The refueling outage
lasted from May 10, 1997 though June 28, 1997. Refueling outages take place
approximately every eighteen to twenty months. There was no scheduled refueling
outage during the comparable period in 1996. During outage periods at the
Seabrook plant, the Company has no electricity for sale and consequently no
revenues. For the first half of 1997, the capacity factor at the Seabrook plant
was 71.6% as compared to 93.2% for the first half of 1996.
Sales of electricity decreased by approximately 23.6% to 437,185,500
kWhs in the first half of 1997 as compared to 572,228,470 kWhs in the first half
of 1996. During the first half of 1997 the sales price per kWh (determined by
dividing total sales revenue by the total number of kWhs sold in the applicable
period) increased 10.5% to 2.74 cents per kWh as compared with 2.48 cents per
kWh during the first half of 1996. BayCorp's cost of power (determined by
dividing total operating expenses by BayCorp's 12.1% share of the power produced
by the Seabrook Project during the applicable period) increased 51.3% to 3.95
cents per kWh in the first half of 1997 as compared to 2.61 cents per kWh in the
first half of 1996. This increase was the result of the scheduled refueling
outage and its associated costs and the resultant lower capacity factor at the
Seabrook Project during the first half of 1997 as compared to the first half of
1996. Scheduled and unscheduled outage time increases BayCorp's cost of power
because Seabrook costs are spread over fewer kWhs.
Expenses
Production and Transmission expenses for the first half of 1997
increased approximately $1,964,000, or 24.8%, as compared to the first half of
1996. This increase was primarily the result of an increase in the actual outage
related costs reported for the first half of 1997 as compared to the budgeted
costs for this outage which were accrued for during the first half of 1996. The
increase in outage related expenses is due to the increased scope of work
performed during the 1997 scheduled refueling outage.
During the first half of 1997, there was an overall increase of
approximately $335,000, or 4.8%, in depreciation and amortization,
administrative and general expenses and taxes other than income from $7,049,000
in the first half of 1996 to $7,384,000 in the first half of 1997.
14
<PAGE> 15
BAYCORP HOLDINGS, LTD.
Other (Income) Deductions
Decommissioning Cost Accretion increased $201,000, to $1,331,000 during
the first half of 1997 as compared to $1,130,000 during the first half of 1996.
This accretion is a non-cash charge and recognizes Great Bay's liability related
to the closure and decommissioning of its nuclear plant in current year dollars
over the licensing period of the plant. Interest (Income) Expense and
Decommissioning Trust Fund Income increased 34.9%, or $219,000, during the first
half of 1997 as compared to the first half of 1996. This increase in interest
income reflects the Company's higher average cash and investment balances during
the first half of 1997 as compared to the first half of 1996.
Net Loss
As a result of the above factors, during the six months ended June 30,
1997, the Company recorded a net loss of $5,772,000, or approximately $.69 per
share, as compared to a net loss of $1,287,000, or approximately $.16 per share,
during the six months ended June 30, 1996.
Net Operating Losses
For federal income tax purposes, as of December 31, 1996, the Company
had net operating loss carry forwards ("NOLs") of approximately $184 million,
which are scheduled to expire between 2003 and 2011. Because the Company has
experienced one or more ownership changes, within the meaning of Section 382 of
the Internal Revenue Code of 1986, as amended, an annual limitation is imposed
on the ability of the Company to use $136 million of these carryforwards. The
Company's best estimate at this time is that the annual limitation on the use of
$136 million of the Company's NOLs is approximately $5.5 million per year. Any
unused portion of the $5.5 million annual limitation applicable to the Company's
restricted NOL's is available for use in future years until such NOL's are
scheduled to expire. The Company's other $48 million of NOLs are not currently
subject to such limitations.
Liquidity
BayCorp's cash and short-term investments decreased approximately
$7,398,000 during the first six months of 1997. Principal factors affecting
liquidity during the first six months ended June 30,1997 included the operating
loss discussed above and cash expenditures of approximately $1,756,000 for
capital plant additions, $1,723,000 for nuclear fuel purchases and $553,000 for
decommissioning trust fund payments. An increase in prepaids and other assets of
approximately $2,735,000 and a decrease in other working capital items of
$3,219,000 primarily reflect payments to the Seabrook Project for nuclear fuel
of $4,600,000 and payment of 1996 accruals for Seabrook personnel employee
benefits of approximately $680,000 which are payable in the first quarter of
each year and the prepayment by the Company of a three year Directors and
Officers liability insurance policy. Also in the first six months of 1997,
BayCorp purchased 61,955 shares of the Company's Common Stock for $500,400.
Offsetting these cash charges were non-cash charges to income which included
$1,726,000 for depreciation, $2,156,000 for nuclear fuel amortization and
decommissioning trust fund accretion of $1,331,000, an increase in Taxes Accrued
of $1,470,000 and a decrease in accounts receivable of $2,507,000.
15
<PAGE> 16
BAYCORP HOLDINGS, LTD.
This Quarterly Report on Form 10-Q contains forward-looking statements
that involve a number of risks and uncertainties. Any statements contained
herein (including without limitation statements to the effect that the Company,
Great Bay or their management "believes", "expects", "anticipates", "plans" and
similar expressions) that are not statements of historical fact should be
considered forward-looking statements. Among the important factors that could
cause actual results to differ materially from those indicated by such
forward-looking statements are the factors set forth in the Company's Annual
Report on Form 10-K under the caption Management's Discussion and Analysis of
Financial Condition and Results of Operation - Certain Factors That May Affect
Future Results, which are incorporated by reference herein.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
- -------------------------
For each of the tax years 1994, 1995 and 1996, Great Bay has filed
property tax abatement applications with the three New Hampshire towns in which
the Seabrook Project is located. Great Bay paid its 1994, 1995 and half of the
1996 property taxes billed by the Towns of Seabrook, Hampton and Hampton Falls,
New Hampshire (collectively, the "Towns") and withheld payment of the second
half of its 1996 property taxes to the Towns, based on Great Bay's position that
the portion of 1996 property taxes paid to the Towns exceeds the amount of the
total 1996 property taxes appropriately payable by Great Bay to the Towns. Great
Bay also withheld the first half of its 1997 property taxes to the Towns. Under
New Hampshire law, Great Bay will be required to pay an interest penalty
computed at an annual rate of 18% (or 12% for periods until a Town placed a lien
on the Seabrook Project) on all unpaid taxes if it is unsuccessful in its tax
abatement proceedings against the Towns. The full amount of property taxes has
been accrued and reflected by Great Bay on its 1997 and 1996 income statements.
As a result of Great Bay's withholding of its property tax payment for the
second half of 1996, two of the three Towns exercised their right to place a
lien on the Seabrook Project. The Town of Seabrook placed a lien on the Seabrook
Project on April 18, 1997 and the Town of Hampton Falls placed a lien on the
Seabrook Project on April 21, 1997. Under New Hampshire law, Seabrook and
Hampton Falls cannot take any action pursuant to their liens until two years
after the execution of the liens. Great Bay is unable to express an opinion as
to the likely outcome of this matter.
In December 1996, eight of the Joint Owners of the Seabrook Project
(the "Demanding Joint Owners") served a demand on Great Bay for arbitration of a
dispute between Great Bay and the Demanding Joint Owners concerning the
allocation among the joint owners of real property taxes assessed by the Towns
against the Seabrook Project. Great Bay takes the position that the JOA does not
provide for allocation of real estate tax liabilities in proportion to each
joint owner's ownership interest in the Seabrook Project. The Demanding Joint
Owners claim that real estate taxes should be allocated in accordance with
ownership shares. Arbitration proceedings have commenced and Great Bay is unable
to express an opinion as to the likely outcome of this matter.
Item 4. Submission of Matters to a Vote of Securityholders
- -----------------------------------------------------------
The Company held its Annual Meeting of Shareholders on April 29, 1997. Proxies
for the meeting were solicited pursuant to Regulation 14A, and there were no
solicitations in opposition to management's
16
<PAGE> 17
BAYCORP HOLDINGS, LTD.
nominee's for Directors. All such nominees were elected. At the Annual Meeting,
the stockholders of the Company:
(1) elected a Board of Directors to serve until the next Annual
Meeting of Stockholders of the Company and until their successors
are duly elected and qualified (by a vote of 6,783,318 in favor of
the proposal, 0 votes against the proposal and 669 votes
abstained, as to all Directors),
(2) ratified the selection by the Board of Directors of Arthur
Andersen LLP as the Company's independent public accountants for
the current fiscal year (6,782,100 votes in favor of the proposal,
1,778 votes against the proposal and 109 votes abstained).
Item 6. Exhibits and Reports on Form 8-K
- ----------------------------------------
(a) See Exhibit Index
(b) There were no reports on Form 8-K submitted for the three months
ended June 30, 1997.
17
<PAGE> 18
BAYCORP HOLDINGS, LTD.
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
BAYCORP HOLDINGS, LTD.
August 11, 1997 By: /s/ John A. Tillinghast
-------------------------------------------------
John A. Tillinghast
President , Treasurer and Chief Executive Officer
(Principal Accounting Officer)
18
<PAGE> 19
BAYCORP HOLDINGS, LTD.
EXHIBIT INDEX
Exhibit No. Description
- ----------- -----------
27.1 Financial Data Schedule
99.1 Pages 18-21 of the Company's Annual Report on Form 10-K for
the period ended December 31, 1996 (which is not deemed to be
filed except to the extent that portions thereof are expressly
incorporated by reference herein)
19
<PAGE> 1
EXHIBIT 99.1
CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS
This Annual Report on Form 10-K contains forward-looking statements. For
this purpose, any statements contained herein that are not statements of
historical fact may be deemed to be forward-looking statements. Without limiting
the foregoing, the words "believes," "anticipates," "plans," "excepts,"
"intends" and similar expressions are intended to identify forward-looking
statements. There are a number of important factors that could cause the results
of BayCorp and/or Great Bay to differ materially from those indicated by such
forward-looking statements. These factors include, without limitation, those set
forth below and elsewhere in this Annual Report.
Ownership of a Single Asset. BayCorp's sole asset is it equity interest in
Great Bay. Great Bay owns a single principal asset, a 12.1% joint interest in
the Seabrook Nuclear Power Project in Seabrook, New Hampshire. Accordingly,
Great Bay's results of operations are completely dependent upon the successful
and continued operation of the Seabrook Project. In particular, if the Seabrook
Project experiences unscheduled outages of significant duration, Great Bay's
results of operations will be materially adversely affected.
History of Losses; Implementation of Business Strategy. Great Bay has
never reported an operating profit for any year since its incorporation. Great
Bay's business strategy is to seek purchasers for its share of the Seabrook
Project electricity output at prices, either in the short-term market or
pursuant to medium or long-term contracts, significantly in excess of the prices
currently available in the short-term wholesale electricity market since sales
at current short-term rates do not result in sufficient revenue to enable Great
Bay to meet its cash requirements for operations, maintenance and capital
related costs. Great Bay's ability to obtain such higher prices will depend on
regional, national and worldwide energy supply and demand factors which are
beyond the control of Great Bay. There can be no assurance that Great Bay ever
will be able to sell power at prices that will enable it to meet its cash
requirements.
Liquidity Needs. As of December 31, 1996, Great Bay had approximately
$28.8 million in cash and cash equivalents and short-term investments. The
Company believes that such cash, together with the anticipated proceeds from the
sale of electricity by Great Bay, will be sufficient to enable the Company to
meet its cash requirements until the prices at which Great Bay can sell its
electricity increase sufficiently to enable the Company to cover its annual cash
requirements. However, if the Seabrook Project operated at a capacity factor
below historical levels, or if expenses associated with the ownership or
operation of the Seabrook Project, including without limitation decommissioning
costs, are materially higher than anticipated, or if the prices at which Great
Bay is able to sell its share of the Seabrook Project electricity do not
increase at the rates and within the time expected by Great Bay, Great Bay or
the Company would be required to raise additional capital, either through a debt
financing or an equity financing, to meet its ongoing cash requirements. There
is no assurance that Great Bay or the Company would be able to raise such
capital or that the terms on which any additional capital is available would be
acceptable. If additional funds are raised by issuing equity securities,
dilution to then existing stockholders will result.
Changes in Power Sale Contract Terms Available in Wholesale Power
Market. In the past, wholesale sellers of electric power, which typically were
regulated electric utilities, frequently entered into medium or long-term power
sale contracts providing for prices in excess of the prices available in the
short-term market, which includes contracts of one year or less in duration. In
recent years, increased competition in the wholesale electric power market,
reduced growth in the demand for electricity, low prices in the short-term
market and the uncertainty associated with deregulation of the industry have
reduced the willingness of wholesale power purchasers to enter into medium or
long-term contracts and have reduced the prices obtainable from such contracts.
Risks in Connection with Joint Ownership of Seabrook Project. Great Bay is
required under the Agreement for Joint Ownership, Construction and Operation of
New Hampshire Nuclear Units dated May 1, 1973, as amended, by and among Great
Bay and the other 10 utility companies who are owners of the Seabrook Project
(the "JOA"), to pay its share of Seabrook Unit 1 and Seabrook Unit 2 expenses,
including without limitation operations and maintenance expenses, construction
and nuclear fuel expenditures and decommissioning costs, regardless of Seabrook
Unit 1's operations. Under certain circumstances, a failure by
18
<PAGE> 2
Great Bay to make its monthly payments under the JOA entitles certain other
joint owners of the Seabrook Project to purchase Great Bay's interest in the
Seabrook Project for 75% of the then fair market value thereof.
In addition, the failure to make monthly payments under the JOA by owners
of the Seabrook Project other than Great Bay may have a material adverse effect
on Great Bay by requiring Great Bay to pay a greater proportion of the Seabrook
Unit 1 and Seabrook Unit 2 expenses in order to preserve the value of its share
of the Seabrook Project. In the past, certain of the owners of the Seabrook
Project other than Great Bay have not made their full respective payments. The
electric utility industry is undergoing significant changes as competition and
deregulation are introduced into the marketplace. Some utilities, including
certain Participants, have indicated in state regulatory proceedings that they
may be forced to seek bankruptcy protection if regulators, as part of the
industry restructuring, do not allow for full recovery of stranded costs. On
February 28, 1997, the NHPUC issued an order requiring stranded cost recovery to
be based on the average market price of electricity in New England, rather than
alternative regulatory accounting methods that are more favorable to the
Participants. On March 3, 1997, one of the Participants, Northeast Utilities
(along with three of its subsidiaries) commenced litigation against the NHPUC
involving the issue of proper accounting for stranded cost recovery. If a
Participant other than Great Bay were to file for bankruptcy, and such
Participant was unable to pay its share of Seabrook Project expenses, Great Bay
might be required to pay a greater portion of Seabrook Project expenses. In the
past, the filing of bankruptcy by a Participant has not resulted in a failure to
pay Seabrook Project expenses or an increase in the percentage of expenses paid
by other Participants.
The Seabrook Project is owned by Great Bay and the other owners thereof as
tenants in common, with the various owners holding varying ownership shares.
This means that Great Bay, which owns only a 12.1% interest, does not have
control of the management of the Seabrook Project. As a result, decisions may be
made affecting the Seabrook Project notwithstanding Great Bay's opposition.
Certain costs and expenses of operating the Seabrook Project or owning an
interest therein, such as certain insurance and decommissioning costs, are
subject to increase or retroactive adjustment based on factors beyond BayCorp's
or Great Bay's control. The cost of disposing of Unit 2 of the Seabrook Project
is not known at this time. These various costs and expenses may adversely affect
Great Bay, possibly materially.
Extensive Government Regulation. The Seabrook Project is subject to
extensive regulation by federal and state agencies. In particular, the Seabrook
Project and Great Bay as part owner of a licensed nuclear facility, are subject
to the broad jurisdiction of the NRC, which is empowered to authorize the
siting, construction and operation of nuclear reactors after consideration of
public health and safety, environmental and antitrust matters. Great Bay is also
subject to the jurisdiction of the FERC and, as a result, is required to file
with FERC all contracts for the sale of electricity. FERC has the authority to
suspend the rates at which Great Bay proposes to sell power, to allow such rates
to go into effect subject to refund and to modify a proposed or existing rate if
FERC determines that such rate is not "just and reasonable." FERC's jurisdiction
also includes, among other things, the sale, lease, merger, consolidation or
other disposition of facilities, interconnection of certain facilities,
accounts, service and property records. Compliance with the various requirements
of the NRC and FERC is expensive. Noncompliance with NRC requirements may
result, among other things, in a shutdown of the Seabrook Project.
The NRC has promulgated a broad range of regulations affecting all aspects
of the design, construction and operation of a nuclear facility, such as the
Seabrook Project, including performance of nuclear safety systems, fire
protection, emergency response planning and notification systems, insurance and
quality assurance. The NRC retains authority to modify, suspend or withdraw
operating licenses, such as that pursuant to which the Seabrook project
operates, at any time that conditions warrant. The NRC might order Seabrook Unit
1 shut down (i) if flaws were discovered in the construction or operation of
Seabrook Unit 1, (ii) if problems developed with respect to other nuclear
generating plants of a design and construction similar to Unit 1, or (iii) if
accidents at other nuclear facilities suggested that nuclear generating plants
generally were less safe than previously believed.
Great Bay is also subject to the New Hampshire public utility law and
regulations of the NHPUC which affect, among other things, the issuance of
securities, transfer of utility property and contacts with affiliates as
19
<PAGE> 3
well as the sale, lease, merger, consolidation or other disposition of
facilities. The NHPUC does not regulate wholesale electricity rates.
Risk of Nuclear Accident. Nuclear reactors have been used to generate
electric power for more than 30 years and there are currently more than 100
nuclear reactors used for electric power generation in the United States.
Although the safety record of such nuclear reactors in the United States
generally has been very good, accidents and other unforeseen problems have
occurred both in the United States and elsewhere, including the well-publicized
incidents at Three Mile Island in Pennsylvania and Chernobyl in the former
Soviet Union. The consequences of such an accident can be severe, including loss
of life and property damage, and the available insurance coverage may not be
sufficient to pay all the damages incurred.
Public Controversy Concerning Nuclear Power Plants. Substantial
controversy has existed for some time concerning nuclear generating plants and
over the years such opposition has led to construction delays, cost overruns,
licensing delays, demonstrations and other difficulties. The Seabrook Project
was the subject of significant public controversy during its construction and
licensing and remains controversial. An increase in public concerns regarding
the Seabrook Project or nuclear power in general could adversely affect the
operating license of Seabrook Unit 1. While Great Bay cannot predict the
ultimate effect of such controversy, it is possible that it could result in a
premature shutdown of the unit.
Waste Disposal; Decommissioning Cost. There has been considerable public
concern and regulatory attention focused upon the disposal of low- and
high-level nuclear wastes produced at nuclear facilities and the ultimate
decommissioning of such facilities. As to waste disposal concerns, both the
federal government and the State of New Hampshire are currently delinquent in
the performance of their statutory obligations. See "Business -- Nuclear Waste
Disposal." In April 1995, a privately owned facility in Utah was approved as a
disposal facility for certain types of LLW. Additionally, the Barnwell, South
Carolina disposal facility was reopened in July 1995 to all states except North
Carolina as a result of legislation passed by the South Carolina legislature.
The Seabrook Project began shipping certain LLW to the Utah facility in December
1995. All LLW generated by the Seabrook Project which exceeds the maximum
radioactivity level of LLW accepted by the Utah facility is stored on-site at
the Seabrook facility. Based on information provided by NAESCO, management
believes that the on-site storage capacity for LLW generated by the Seabrook
Project is adequate until at least 2006.
As to decommissioning, the NRC regulations require that upon permanent
shutdown of a nuclear facility, appropriate arrangements for full
decontamination and decommissioning of the facility be made. These regulations
include a requirement to set aside during operation sufficient funds to defray
decommissioning costs. While the owners of the Seabrook Project are accumulating
a trust fund to defray decommissioning costs, these costs could substantially
exceed the value of the trust fund, and the owners (including Great Bay) would
remain liable for the excess. Moreover, the amount that is required to be
deposited in the trust fund is subject to periodic review and adjustment by an
independent commission of the State of New Hampshire, which could result in
material increases in such amounts.
In January 1997, the NRC issued a temporary exemption related to Great
Bay's status as an "electric utility" as defined in the NRC's regulations. In
the exemption, the NRC staff stated that it believes that Great Bay currently
does not satisfy the NRC definition of "electric utility." If Great Bay is an
"electric utility," then the NRC decommissioning requirements are satisfied by
Great Bay making monthly payments into the decommissioning trust fund. If Great
Bay is not an "electric utility," the NRC can require that Great Bay provide a
surety bond or other allowable decommissioning funding mechanisms. A review of
Great Bay's status as an "electric utility" by the NRC is currently in process,
which may materially and adversely affect Great Bay's liquidity.
Intense Competition. Great Bay sells its share of Seabrook Project
electricity primarily into the Northeast United States wholesale electricity
market. There are a large number of suppliers to this market and competition is
intense. A primary source of competition comes from traditional utilities, many
of which presently have excess capacity. In addition, non-utility wholesale
generators of electricity, such as IPPs, QFs and EWGs, as well as power
marketers and brokers, actively sell electricity in this market. Great Bay may
face increased competition, primarily based on price, from all sources in the
future.
20
<PAGE> 4
Risk Related to Holding Company. In contrast with Great Bay, the
activities of BayCorp will not be subject to the extensive government regulation
related to public utilities and licensed nuclear facilities. Thus, BayCorp will
not receive the benefit of the scrutiny by federal and state agencies that Great
Bay receives. In addition, BayCorp may pursue activities with a greater business
risk than those associated with a regulated entity such as Great Bay. Depending
on the success of any new activities that BayCorp determines to pursue, it is
possible that BayCorp's earnings per share and dividends, if any, might be lower
than if BayCorp did not pursue such activities.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF GREAT BAY POWER CORPORATION FOR THE SIX MONTHS
ENDED JUNE 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<EXCHANGE-RATE> 1
<CASH> 4,453
<SECURITIES> 16,924
<RECEIVABLES> 420
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 29,051
<PP&E> 109,590
<DEPRECIATION> 8,671
<TOTAL-ASSETS> 145,708
<CURRENT-LIABILITIES> 3,744
<BONDS> 0
0
0
<COMMON> 84
<OTHER-SE> 83,243
<TOTAL-LIABILITY-AND-EQUITY> 145,708
<SALES> 11,992
<TOTAL-REVENUES> 11,992
<CGS> 17,279
<TOTAL-COSTS> 17,279
<OTHER-EXPENSES> 485
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (5,772)
<INCOME-TAX> 0
<INCOME-CONTINUING> (5,772)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,772)
<EPS-PRIMARY> (0.69)
<EPS-DILUTED> (0.69)
</TABLE>
