SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): January 19, 1999
Exact Name of
Commission Registrant as IRS Employer Registrants'
File Specified in its State of Identification Telephone
Number Charter Incorporation Number Number
- -------------------------------------------------------------------------------
001-14786 CMP Group, Inc. Maine 01-0519429 207 623-3521
1-5139 Central Maine Power Maine 01-0042740 207 623-3521
Company
83 Edison Drive, Augusta, Maine 04336
(Address of principal executive offices) (zip code)
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Item 1 through Item 4. Not applicable.
Item 5. Other Events.
(a) Generating-asset sale. As previously reported, FPL Group, Inc. ("FPL"),
which had agreed on January 6, 1998, to purchase the non-nuclear generating
assets of Central Maine Power Company ("Central Maine") and certain of its
affiliates for approximately $846 million in cash, announced on November 17,
1998, that its subsidiary, FPL Energy Maine, Inc. ("FPL Energy") had filed a
civil action in the United States District Court for the Southern District of
New York requesting a declaratory judgment that Central Maine could not meet
essential terms of the January agreement. FPL asserted that based on recent
Federal Energy Regulatory Commission ("FERC") rulings on transmission access, as
well as other issues, it believes that Central Maine cannot comply with the
conditions in the purchase contract and that FPL Energy should not be bound to
complete the transaction.
FPL Energy contended in its complaint that the recent FERC rulings (1)
constitute a material adverse effect under the purchase agreement and
substantially lessen the value of Central Maine's generating assets, and (2)
preclude Central Maine from obtaining all federal, state and local consents and
approvals required for the ownership, operation and maintenance of the
generating assets in a manner substantially consistent with Central Maine's
historical ownership, operation, and maintenance thereof, as required by the
purchase agreement. In addition, FPL Energy asserted that the recent FERC
rulings limit the ability of the prospective buyer to get power from the Central
Maine generating assets to market unconstrained by transmission limitations
resulting from new generators being added to the New England Power Pool
("NEPOOL") system, and therefore, based on the doctrine of frustration of
purpose, FPL Energy should be "excused without further obligation or liability
from effecting the purchase of [Central Maine's] generating assets." Central
Maine, FPL Energy, NEPOOL, and other parties interested in New England
transmission-access issues have requested rehearing of the recent FERC rulings.
Earlier, on November 23, 1998, the Maine Public Utilities Commission ("MPUC")
granted its approval of the sale to FPL Energy of the generating assets
contemplated by the purchase agreement, finding the sale to be in the public
interest. The MPUC also made the findings required as a prerequisite to a FERC
designation of the generating facilities as "exempt wholesale generators," which
had been requested by FPL Energy Maine.
On November 24, 1998, the FERC approved the sale of the Central Maine generating
assets to FPL Energy, after making the required finding that the sale was
consistent with the public interest, and accepted certain implementing
agreements for filing. In discussing an issue raised by an intervenor the FERC
stated that by purchasing the generating assets FPL Energy would be "stepping
into the shoes of Central Maine" with respect to access to the Central Maine and
NEPOOL transmission system, but did not disturb the earlier transmission-access
rulings. After the approval of the transfer of hydroelectric and water storage
licenses on December 28, 1998, the sole remaining regulatory approval
contemplated by the purchase agreement is the granting by FERC of the requested
exempt wholesale generator status for the generating facilities to be sold,
which Central Maine expects in the first quarter of 1999.
On December 11, 1998, the presiding judge in the court action directed the
parties to attempt to narrow the issues in dispute and to identify any that
might be resolved by FERC, and set a date of February 2, 1999, for the hearing
on the declaratory judgment complaint. On January 11, 1999, Central Maine filed
its formal answer to the complaint, denying the material allegations in the
complaint and asserting affirmative defenses against FPL Energy. Central Maine
subsequently moved the court for an order referring certain transmission-related
issues in the court action to the FERC, so the FERC could "exercise its primary
jurisdiction in the subject matter" of the action. Central Maine then petitioned
the FERC for a declaratory order seeking clarification on an expedited schedule
of the FERC's earlier transmission-related rulings.
Central Maine believes that the substantive positions asserted by FPL Energy in
the court action are without legal merit and intends to continue to contest
those positions vigorously, but cannot predict the outcome of the court action
or any related FERC action or whether, or the terms on which, the
generating-asset sale will be completed.
(b) Maine Yankee rate-case settlement proposal. Maine Yankee Atomic Power
Company ("Maine Yankee"), which is 38-percent owned by Central Maine, owns and
operated a single-unit nuclear generating plant at Wiscasset, Maine (the
"Plant"). On August 6, 1997, the Board of Directors of Maine Yankee voted to
cease operations permanently at the Plant. The entire output of the Plant had
been sold at wholesale by Maine Yankee to ten New England electric utilities,
which collectively own all of the common equity of Maine Yankee; a portion of
that output (approximately 6.2 percent) was in turn resold by certain of the
owner utilities to 28 municipal and cooperative utilities in New England (the
"Secondary Purchasers"). Maine Yankee recovered, and since the shutdown decision
has continued to recover, its costs of providing service through a formula rate
filed with the FERC and contained in Power Contracts with its utility
purchasers, which are also filed with the FERC.
As previously reported, on November 6, 1997, Maine Yankee submitted for filing
certain amendments to the Power Contracts (the "Amendatory Agreements") and
revised rates to reflect the decision to shut down the Plant and to request
approval of an increase in the decommissioning component of its formula rates.
Maine Yankee's submittal also requested certain other rate changes, including
recovery of unamortized investment (including fuel) and certain changes to its
billing formula, consistent with the non-operating status of the Plant. By Order
dated January 14, 1998, the FERC accepted Maine Yankee's new rates for filing,
subject to refund after a minimum suspension period, and set Maine Yankee's
Amendatory Agreements, rates, and issues concerning the prudence of the
Plant-shutdown decision for hearing.
By Complaint dated December 9, 1997, the Maine Office of the Public Advocate
("OPA") sought a FERC investigation of Maine Yankee's actions leading to the
decision to shut down the Plant, including actions associated with the
management and operation of Maine Yankee since 1993. The MPUC had initiated an
investigation in Maine earlier, raising generally similar issues. By decision
dated May 4, 1998, the FERC consolidated the OPA Complaint with the
comprehensive rate proceeding. In addition, the Secondary Purchasers intervened
in the FERC proceeding, raising similar prudence issues and other issues unique
to their status as indirect purchasers from Maine Yankee.
In support of its request for an increase in decommissioning collections, Maine
Yankee submitted with its initial filing a 1997 decommissioning cost study
performed by TLG Services, Inc. ("TLG"). During 1998, Maine Yankee engaged in an
extensive competitive bid process to hire a Decommissioning Operations
Contractor ("DOC") to perform certain major decontamination and dismantlement
activities at the Plant on a fixed-price, turnkey basis. As a result of that
process, a consortium headed by Stone & Webster Engineering Corporation ("Stone
& Webster") was selected to perform such activities under a fixed-price
contract. The contract provides for, among other undertakings, construction of
an independent spent fuel storage installation ("ISFSI") and completion of major
decommissioning activities and site restoration by the end of 2004. The DOC
process resulted in fixing certain costs that had been estimated in the earlier
decommissioning cost estimate performed by TLG.
Since the filing of the rate request, Maine Yankee and the active intervenors,
including among others the MPUC Staff, the OPA, Central Maine and other owners,
the Secondary Purchasers, and a Maine environmental group (the "Settling
Parties"), engaged in extensive discovery. More recently, those parties
participated in settlement discussions that resulted in an Offer of Settlement
filed by those parties with the FERC on January 19, 1999, which, if approved by
the FERC, would result in full settlement of all issues raised in the
consolidated FERC proceeding, including decommissioning-cost issues and issues
pertaining to the prudence of the management, operation, and decision to
permanently cease operation of, the Plant. Approval of the settlement would also
resolve the issues raised by the Secondary Purchasers by limiting the amounts
they will pay for decommissioning the Plant and by settling other points of
contention affecting individual Secondary Purchasers.
The Offer of Settlement provides for Maine Yankee to collect $33.6 million in
the aggregate annually, effective January 15, 1998: (1) $26.8 million for
estimated decommissioning costs, and (2) $6.8 million for ISFSI-related costs.
The original filing with FERC on November 6, 1997, called for an aggregate
annual collection rate of $36.4 million for decommissioning and the ISFSI, based
on the TLG estimate. The amount collected annually could be reduced to
approximately $26 million if Maine Yankee is able to (1) use in connection with
the construction of the ISFSI funds held in trust under Maine law for spent-fuel
disposal, and (2) access approximately $6.8 million being held by the State of
Maine for eventual payment to the State of Texas pursuant to a compact for
low-level nuclear waste disposal, the future of which is now in question after
rejection of the selected disposal site in west Texas by a Texas regulatory
agency. Both would require authorizing legislation in Maine, which Maine Yankee
intends to pursue.
The Offer of Settlement also provides for recovery of all unamortized investment
(including fuel) in the Plant, together with a return on equity of 6.50 percent,
effective January 15, 1998, on equity balances up to maximum allowed equity
amounts. The Settling Parties also agreed in the proposed settlement not to
contest the effectiveness of the Amendatory Agreements submitted to FERC as part
of the original filing, subject to certain limitations including the right to
challenge any accelerated recovery of unamortized investment under the terms of
the Amendatory Agreements after a required informational filing with the FERC by
Maine Yankee.
As a separate part of the Offer of Settlement, Central Maine, the other two
Maine owners of Maine Yankee, the MPUC Staff, and the OPA entered into a further
agreement resolving retail rate issues and other issues specific to the Maine
parties, including those that had been raised concerning the prudence of the
operation and shutdown of the Plant (the "Maine Agreement"). Under the Maine
Agreement Central Maine would continue to recover its Maine Yankee costs in
accordance with its most recent Alternative Rate Plan ("ARP") order from the
MPUC without any adjustment reflecting the outcome of the FERC proceeding. To
the extent that Central Maine has collected from its retail customers a return
on equity in excess of the 6.50 percent contemplated by the Offer of Settlement,
no refunds would be required, but such excess amounts would be credited to the
customers to the extent required by the ARP.
The final major provision of the Maine Agreement requires the Maine owners, for
the period from March 1, 2000, through December 1, 2004, to hold their Maine
retail ratepayers harmless from the amounts by which the replacement power costs
for Maine Yankee exceed the replacement power costs assumed in the report to the
Maine Yankee Board of Directors that served as a basis for the Plant shutdown
decision, up to a maximum cumulative amount of $41 million. Central Maine's
share of that amount would be $31.16 million for the period. The Maine
Agreement, which was approved by the MPUC on December 22, 1998, also sets forth
the methodology for calculating such replacement power costs.
Central Maine believes that the Offer of Settlement, including the Maine
Agreement, constitutes a reasonable resolution of the issues raised in the Maine
Yankee FERC proceeding, and that approval of the Offer of Settlement by the FERC
would eliminate significant uncertainties concerning Central Maine's future
financial performance. Although all of the active parties to the proceeding have
agreed to support or, with respect to certain individual provisions, not oppose,
the Offer of Settlement, Central Maine cannot predict with certainty whether or
in what form it will be approved by the FERC.
(c) MPUC proceeding on stranded costs, revenue requirements, and rate design. As
previously reported, the MPUC has been conducting the first phase of the
proceeding contemplated by Maine's 1997 electric-utility restructuring
legislation that will ultimately determine the recovery of Central Maine's
stranded costs, its revenue requirements, and the design of its rates to be
effective when Central Maine becomes a transmission-and-distribution ("T&D")
utility at the time retail access to generation begins in Maine on March 1,
2000. On December 23, 1998, the MPUC Hearing Examiners in the proceeding issued
their report, in the form of a recommended decision. Central Maine disagrees
with a number of the individual recommendations in the stranded-costs and
revenue-requirements areas and is preparing exceptions to those recommendations
to be filed by January 25, 1999. The MPUC is scheduled to consider the
Examiners' Report on February 5, 1999.
Among the recommendations of the Hearing Examiners with which Central Maine
disagrees is the Examiners' finding that after the planned sale of generating
assets to FPL Energy is completed there would be $505 million of asset-sale
proceeds, in excess of the book basis of the assets and costs of sale, available
to reduce stranded costs, whereas Central Maine believed the appropriate amount
to be $476 million. As part of the Hearing Examiners' recommendation on
available value, approximately $15.5 million of Union Water Power Company (a
wholly owned subsidiary of CMP Group) assets included in the sale to FPL Energy
and approximately $14 million of employee transition costs associated with the
sale would accrue to Central Maine's ratepayers or be funded by shareholders.
The Examiners agreed, however, that certain of Central Maine's regulatory assets
should be written off with available value from the generating-assets sale
proceeds and that taxes relating to those assets should also be paid for with
such available value.
In the area of revenue requirements, Central Maine strongly opposes the
Examiners' recommended return on equity of 10 percent on a 45-percent equity
component in the capital structure, yielding a weighted-average cost of capital
of 8.39 percent. Central Maine had proposed a return of 12 percent on a
55-percent equity component, which would produce a 9.8-percent cost of capital.
Central Maine also plans to contest the Examiners' allocating a portion of
administrative and general expenses to CMP Group businesses that have not yet
been developed, thus effectively disallowing an estimated $7.5 million of such
costs. Those costs would be incurred for essential services in such areas as
information services, finance and accounting, legal, and human resources. Two
significant issues which the Examiners recommended be deferred for later
determination are the treatment of customer discounts and the methodology of the
sales forecast to be used in post-March 1, 2000, rate-setting.
In the area of rate design, the Hearing Examiners generally adopted Central
Maine's proposal, with a fixed charge as the mechanism to recover appropriate
stranded costs. The Examiners also recommended some modifications to specific
rate structures and agreed that adverse impacts on customers' bills should be
avoided.
Central Maine cannot predict what action the MPUC will take on the Hearing
Examiners' report.
(d) Shareholder Proposals, Nomination of Directors by Shareholders. The CMP
Group charter provides that in order for a shareholder to properly bring a
proposal before the CMP Group annual meeting of shareholders, such proposal must
be received by CMP Group not less than 60 days nor more than 90 days prior to
the first anniversary of the preceding year's annual meeting. If the date of
such annual meeting is advanced by more than 30 days or delayed by more than 60
days, or in the case of CMP Group's first annual meeting after September 1,
1998, notice by the shareholder to be timely must be received not earlier than
the ninetieth day prior to such annual meeting and not later than the close of
business on the later of (i) the sixtieth day prior to such annual meeting or
(ii) the tenth day following the date on which notice of the date of the annual
meeting was given. This requirement is in addition to, and does not otherwise
affect, the provisions of the Securities Exchange Act that will govern the
submission of proposals by shareholders for inclusion in CMP Group's proxy
statement. The Central Maine charter and Central Maine by-laws do not contain
similar provisions. The CMP Group charter also requires that shareholder
nominations of candidates for election to the Board of Directors of CMP Group be
in writing and be received not less than 60 days nor more than 90 days prior to
the first anniversary of the preceding year's annual meeting. If the date of
such annual meeting is advanced by more than 30 days or delayed by more than 60
days, or in the case of CMP Group's first annual meeting after September 1,
1998, the nomination must be received not earlier than the ninetieth day prior
to such annual meeting and not later than the close of business on the later of
(i) the sixteenth day prior to such annual meeting or (ii) the tenth day
following the date on which notice of the date of the annual meeting was given.
The Central Maine charter and Central Maine by-laws do not contain similar
provisions. The 1999 annual meeting of shareholders of CMP Group will be held on
May 20, 1999. For a shareholder to bring a proposal before the 1999 annual
meeting or to nominate a candidate for election as a director at that meeting,
the proposal or nomination, as the case may be, must be received by CMP Group
not earlier than February 19, 1999, or later than March 21, 1999.
Item 6 through Item 9. Not applicable.
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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.
CMP GROUP, INC.
By /s/ David E. Marsh________________
David E. Marsh
Chief Financial Officer
CENTRAL MAINE POWER COMPANY
By /s/ Curtis I. Call___________________
Curtis I. Call
Treasurer
Dated: January 19, 1999
