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 March 31, 2000
---------------
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
- --- SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
--------- ---------
Commission Registrant, State of Incorporation, I.R.S. Employer
File Number Address, and Telephone Number Identification No.
- ----------- ----------------------------------- ------------------
001-14786 CMP GROUP, INC. 01-0519429
83 Edison Drive, Augusta, Maine 04336
(207) 623-3521
1-5139 CENTRAL MAINE POWER COMPANY 01-0042740
83 Edison Drive, Augusta, Maine 04336
(207) 623-3521
Indicate by check mark whether the registrants (1) have 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
registrants were required to file such reports), and (2) have been subject to
the filing requirements for at least the past 90 days.
CMP Group, Inc.: Yes X No
Central Maine Power Company: Yes X No
This combined Form 10-Q is separately filed by CMP Group, Inc., and Central
Maine Power Company. Information contained herein relating to either individual
registrant is filed by such registrant on its own behalf. Each registrant makes
no representation as to information relating to the other registrant.
As of May 12, 2000, the number of shares of Common Stock outstanding for each
registrant was as follows:
Registrant Shares
CMP Group, Inc., Common Stock, $5 Par Value 32,442,552
Central Maine Power Company, Common Stock, $5 Par Value (All
held by CMP Group, Inc.) 31,211,471
<PAGE>
Table of Contents
Page
Number
Glossary 1
Part I. Financial Information
Item 1 - Consolidated Financial Statements
CMP Group, Inc.
Consolidated Statement of Earnings for the Three Months
Ended March 31, 2000 and 1999 4
Consolidated Balance Sheet - March 31, 2000 and December 31, 1999:
Assets 5
Stockholders' Equity and Liabilities 6
Consolidated Statement of Cash Flows for the Three Months
Ended March 31, 2000 and 1999 7
Central Maine Power Company
Consolidated Statement of Earnings for the Three Months
Ended March 31, 2000 and 1999 8
Consolidated Balance Sheet - March 31, 2000 and December 31, 1999:
Assets 9
Stockholders' Equity and Liabilities 10
Consolidated Statement of Cash Flows for the Three Months
Ended March 31, 2000 and 1999 11
Notes to Consolidated Financial Statements 12
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations 25
Item 3 - Quantitative and Qualitative Disclosures About Market Risk 39
Part II. Other Information 40
Signatures 42
<PAGE>
GLOSSARY
The following abbreviations or acronyms are used in the text of this Form 10-Q
as defined below:
Term Definition
Form 10-K Annual Report on Form 10-K
ARP Alternative Rate Plan
Central Maine Central Maine Power Company, a regulated
electric utility and subsidiary of CMP Group.
Central Securities Central Securities Corporation, a wholly owned
subsidiary of Central Maine which owns and
manages real estate.
CEP Competitive Energy Provider
CERCLA Comprehensive Environmental Response,
Compensation, and Liability Act.
CMP Group CMP Group, Inc., is the holding company
organized effective September 1, 1998, which
owns all of the common stock of Central Maine
Power Company, Union Water Power Company,
MaineCom Services, CNEX, MainePower, TeleSmart
and New England Gas Development.
CMP Group System CMP Group and its wholly-owned and directly and
indirectly controlled subsidiaries.
CNEX A wholly owned subsidiary of CMP Group,
(previously called CMP International
Consultants), which provides utility consulting
(domestic and international) and research.
Connecticut Yankee Connecticut Yankee Atomic Power Company
EITF Emerging Issues Task Force of FASB
Energy East Energy East Corporation, a New York holding
company and the parent company of NYSEG
effective May 1, 1998
EPA United States Environmental Protection Agency.
ERAM Electric Revenue Adjustment Mechanism
FASB Financial Accounting Standards Board
FERC Federal Energy Regulatory Commission
FEV Fairfield Energy Venture
FPL FPL Group, Inc.
IRS United States Internal Revenue Service
ISFSI Independent spent fuel storage installation
ISO Independent System Operator
Kwh Kilowatt-hour
MaineCom MaineCom Services, a CMP Group subsidiary which
arranges fiber-optic data service for bulk
carriers.
Maine Natural Gas Maine Natural Gas, L.L.C., (previously called
CMP Natural Gas, L.L.C.) a limited-liability
company owned by subsidiaries of CMP Group and
Energy East to distribute natural gas in Maine.
MEPCO Maine Electric Power Company, Inc., a 78-percent
owned subsidiary of Central Maine which owns a
345-KV transmission line from Wiscasset, Maine,
to New Brunswick, Canada.
MPUC Maine Public Utilities Commission
Maine Yankee Maine Yankee Atomic Power Company, a 38-percent
owned subsidiary of Central Maine.
NEON NorthEast Optic Network, Inc., a corporation of
which MaineCom indirectly owns approximately
38-percent of the common stock, which is
building a fiber optic network in New England
and New York.
NRC United States Nuclear Regulatory Commission
NYSEG New York State Electric & Gas Corporation, a
utility subsidiary of Energy East.
NUG Non-utility generator
New England Gas New England Gas Development Corporation, a
Development wholly-owned subsidiary of CMP Group created in
September 1998 to hold up to a 50-percent
ownership interest in Maine Natural Gas.
OPA Maine Office of the Public Advocate
Plant Maine Yankee nuclear generating plant at
Wiscasset, Maine
RCRA Resource Conservation and Recovery Act.
SEC Securities and Exchange Commission
Secondary Purchasers 28 municipal and cooperative utilities that had
purchased Maine Yankee power under identical
contracts with Maine Yankee sponsors.
SFAS Statement of Financial Accounting Standards
SOP Standard Offer Provider.
TeleSmart A closed wholly owned former subsidiary of CMP
Group which provided accounts receivable
management.
Union Water The Union Water Power Company, a wholly owned
subsidiary of CMP Group.
Vermont Yankee Vermont Yankee Nuclear Power Corporation.
Yankee Atomic Yankee Atomic Electric Company
<PAGE>
PART 1 - FINANCIAL INFORMATION
Item 1. Financial Statements
In the opinion of CMP Group, the unaudited financial statements included herein
reflect all adjustments necessary to present fairly the Consolidated Balance
Sheet as of March 31, 2000, and the Consolidated Statement of Earnings and
Consolidated Cash Flows for the periods ended March 31, 2000 and 1999. CMP Group
is the parent holding company of Central Maine, Union Water, MaineCom, CNEX and
New England Gas Development. Central Maine constitutes substantially all of CMP
Group's assets, revenues and expenses. All nonutility operating transactions are
included in other revenues and operating expenses in CMP Group's Consolidated
Statement of Income.
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CMP Group, Inc. and Subsidiaries
Consolidated Statement Of Earnings
(Unaudited)
(Dollars in thousands, except per-share amounts)
For the Three Months
Ended March 31,
--------------------
2000 1999
---- ----
Revenues
Electric operating revenues $263,038 $270,694
Other non-utility revenues 6,387 5,939
------- -------
Total Revenues 269,425 276,633
------- -------
Operating Expenses
Fuel used for company generation 270 8,947
Purchased power
Energy 110,404 94,475
Other (capacity) 28,410 22,774
Other operation 53,326 53,204
Maintenance 6,456 8,274
Depreciation and amortization 10,772 14,672
Taxes other than income taxes 4,915 7,405
------- -------
Total Operating Expenses 214,553 209,751
------- -------
Operating Income 54,872 66,882
------- -------
Other Income (Expense)
Equity in earnings (losses) of associated companies (2,712) (2,979)
Allowance for equity funds used during construction 223 192
Interest income 1,993 488
Recovery of nonprovided deferred income taxes 75,421 -
Other, net 5,292 747
Minority interest in consolidated net income (59) (625)
Gain on sale of investments and properties 223 7,011
------- -------
Total Other Income (Expense) 80,381 4,834
------- -------
Interest Charges
Long-term debt 3,464 10,553
Other interest 19,186 1,380
Allowance for borrowed funds used during construction (48) (137)
------- -------
Total Interest Charges 22,602 11,796
------- -------
Income Before Income Taxes and Preferred Dividends 112,651 59,920
Income taxes 83,713 25,744
Dividends on Preferred Stock of Subsidiary 559 919
-------- -------
Net Income $ 28,379 $ 33,257
======== =======
Weighted Average Number Of Shares Of Common
Stock Outstanding - Basic 32,442,552 32,442,552
Earnings Per Share Of Common Stock - Basic $.87 $1.03
Weighted Average Number of Shares of Common
Stock Outstanding - Diluted 32,762,419 32,553,706
Earnings Per Share Of Common Stock - Diluted $.87 $1.02
Dividends Declared Per Share Of Common Stock $0.225 $0.225
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
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CMP Group, Inc. and Subsidiaries
Consolidated Balance Sheet
(Unaudited)
(Dollars in thousands)
ASSETS March 31, December 31,
2000 1999
Current Assets
Cash and cash equivalents $ 139,818 $ 129,950
Accounts receivable, less allowance for uncollectible accounts of
$3,182 in 2000 and $2,994 in 1999
Service - billed 82,896 86,599
- unbilled 22,209 51,124
Other accounts receivable 18,843 21,662
Inventories, at average cost
Fuel oil 170 177
Materials and supplies 9,152 10,390
Prepayments and other current assets 6,108 9,716
---------- ----------
Total Current Assets 279,196 309,618
---------- ----------
Electric Property, at original cost 1,344,186 1,335,674
Less: Accumulated depreciation 553,623 551,014
---------- ----------
Net electric property in service 790,563 784,660
---------- ----------
Construction work in progress 32,702 33,681
Nuclear fuel, less accumulated amortization of $10,204 in 2000
and $9,516 in 1999 1,216 1,418
Property, non utility 21,213 18,487
Less: Accumulated Depreciation 6,579 5,574
---------- ----------
Net non-utility property 14,634 12,913
---------- ----------
Total net property 839,115 832,672
Investments In Associated Companies, at equity 46,597 51,059
---------- ----------
Total Net Property and Investments in Associated Companies 885,712 883,731
---------- ----------
Deferred Charges And Other Assets
Recoverable costs of Seabrook 1 and abandoned projects, net - 73,052
Nuclear purchased-power contracts 256,838 270,311
Regulatory assets-nuclear impairment 16,335 77,489
Regulatory assets - deferred taxes 123,779 204,994
Other deferred charges and other assets 144,965 228,065
---------- ----------
Deferred Charges and Other Assets, Net 541,917 853,911
---------- ----------
Total Assets $1,706,825 $2,047,260
========== =========
The accompanying notes are an integral part of these financial statements
</TABLE>
<PAGE>
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CMP Group, Inc. and Subsidiaries
Consolidated Balance Sheet
(Unaudited)
(Dollars in thousands)
STOCKHOLDERS' EQUITY AND LIABILITIES March 31, December 31,
2000 1999
Current Liabilities and Interim Financing
Interim financing $ 30,000 $ 60,199
Sinking-fund requirements 20,539 11,937
Accounts payable 71,896 104,581
Dividends payable 7,431 7,412
Accrued interest 2,005 2,678
Accrued income taxes 9,780 -
Accounts Payable to Energy Provider 9,352 -
Miscellaneous current liabilities 15,093 16,731
--------- ---------
Total Current Liabilities and Interim Financing 166,096 203,538
--------- ---------
Commitments and Contingencies
Reserves and Deferred Credits
Accumulated deferred income taxes 64,717 66,472
Unamortized investment tax credits 10,352 13,926
Nuclear purchased-power contracts 256,838 270,311
Regulatory liabilities-deferred taxes 46,298 60,564
Deferred gain on generation asset sale 250,447 536,368
Other reserves and deferred credits 199,396 194,162
--------- ---------
Total Reserves and Deferred Credits 828,048 1,141,803
--------- ---------
Long-Term Debt
Mortgage debt - -
Other long-term obligations 113,182 122,542
--------- ---------
Total Long-Term Obligations 113,182 122,542
--------- ---------
Redeemable Preferred Stock 910 910
--------- ---------
Stockholders' Equity
Common-stock 162,213 162,213
Other paid in capital 284,394 284,330
Reacquired common stock (1,596) (642)
Retained earnings 118,050 97,038
Preferred stock 35,528 35,528
--------- ---------
Total Stockholders' Equity 598,589 578,467
--------- ---------
Total Stockholders' Equity and Liabilities $1,706,825 $2,047,260
========= =========
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
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CMP Group, Inc. and Subsidiaries
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
(Dollars in thousands)
For the Three Months
ended March 31,
2000 1999
CASH FROM OPERATIONS
Net income $ 28,379 $33,257
Items not requiring (not providing) cash:
Depreciation 8,767 12,136
Amortization 7,337 9,179
Deferred income taxes and investment tax credits, net (13,462) (2,934)
Allowance for equity funds used during construction (223) (192)
Preferred stock dividends of subsidiary 559 919
Gain on sale of investments and properties - (7,060)
Recovery of power supply costs through the asset sale deferred gain (9,612) -
Changes in certain assets and liabilities:
Accounts receivable 21,765 3,139
Other current assets 2,671 494
Inventories 1,245 1,258
Accounts payable (29,645) (9,287)
Accrued taxes and interest 9,107 13,208
Miscellaneous current liabilities 7,714 3,055
Changes in deferred balances and related carrying costs 12,660 (734)
MaineCom equity losses in NEON 4,428 3,369
Other, net 3,209 3,648
------- -------
Net Cash Provided by Operating Activities 54,899 63,455
------- -------
INVESTING ACTIVITIES
Construction expenditures (19,161) (11,241)
Customer deposits for construction 16,940 -
Proceeds from sale of investments and properties - 7,563
Changes in accounts payable - investing activities (3,040) (4,709)
------- -------
Net Cash Used by Investing Activities (5,261) (8,387)
------- -------
FINANCING ACTIVITIES
Redemptions:
Medium-term notes (30,000) -
Revolving Credit Agreement - (40,000)
Other long-term obligations (957) -
Short-term obligations, net - (5,000)
Purchase of treasury stock (954) (187)
Dividends:
Common stock (7,300) (7,299)
Preferred stock of subsidiary (559)
------- -------
Net Cash Used by Financing Activities (39,770) (52,486)
------- -------
Net Increase in Cash 9,868 2,582
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 129,950 30,540
------- -------
CASH AND CASH EQUIVALENTS, END OF PERIOD $139,818 $33,122
======= ======
For purposes of the statement of cash flows, the Company considers all highly
liquid instruments purchased having a maturity of three months or less to be
cash equivalents.
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
In the opinion of Central Maine, the unaudited financial statements included
herein reflect all adjustments necessary to present fairly the Consolidated
Balance Sheet as of March 31, 2000, and the Consolidated Statement of Income and
Consolidated Cash Flows for the periods ended March 31, 2000 and 1999. Central
Maine's consolidated financial statements include the accounts of Central Maine
and its wholly owned and controlled subsidiaries. All nonutility operating
transactions are included in other revenues and operating expenses in Central
Maine's Consolidated Statement of Income.
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Central Maine Power Company and Subsidiaries
Consolidated Statement Of Earnings
(Unaudited)
(Dollars in thousands, except per-share amounts)
For the Three Months
Ended March 31,
2000 1999
---- ----
Revenues
Electric operating revenues $263,118 $270,570
Other non-utility revenues 223 479
------- -------
Total Revenues 263,341 271,049
------- -------
Operating Expenses
Fuel used for company generation 270 8,947
Purchased power
Energy 110,404 94,475
Other (capacity) 28,410 22,774
Other operation 46,755 47,849
Maintenance 6,476 8,061
Depreciation and amortization 10,398 14,449
Taxes other than income taxes 4,899 7,361
-------- -------
Total Operating Expenses 207,612 203,916
-------- -------
Operating Income 55,729 67,133
-------- -------
Other Income (Expense)
Equity in earnings of associated companies 1,754 971
Allowance for equity funds used during construction 223 192
Interest income 1,840 297
Recovery of nonprovided deferred income taxes 75,421 -
Other, net 5,259 277
Minority interest in consolidated net income (59) (625)
Gain on sale of investments and properties 223 7,010
-------- -------
Total Other Income (Expense) 84,661 8,122
-------- -------
Interest Charges
Long-term debt 3,420 10,504
Other interest 19,180 1,373
Allowance for borrowed funds used during construction (48) (137)
-------- -------
Total Interest Charges 22,552 11,740
-------- -------
Income Before Income Taxes 117,838 63,515
Income taxes 84,070 25,868
-------- -------
Net Income 33,768 37,647
Dividends on Preferred Stock 559 919
-------- -------
Earnings Applicable to Common Stock $ 33,209 $ 36,728
======== =======
Weighted Average Number Of Shares Of Common
Stock Outstanding 31,211,471 31,211,471
Earnings Per Share Of Common Stock - Basic and Diluted $1.06 $1.18
Dividends Declared Per Share Of Common Stock $0.360 $0.225
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
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Central Maine Power Company and Subsidiaries
Consolidated Balance Sheet
(Unaudited)
(Dollars in thousands)
ASSETS March 31, December 31,
2000 1999
Current Assets
Cash and cash equivalents $ 122,221 $ 112,872
Accounts receivable, less allowance for uncollectible accounts of
$3,182 in 2000 and $2,994 in 1999
Service - billed 82,634 86,455
- unbilled 22,209 51,124
Other accounts receivable 11,380 19,647
Inventories, at average cost
Fuel oil 170 177
Materials and supplies 9,134 9,927
Prepayments and other current assets 5,780 8,393
--------- ---------
Total Current Assets 253,528 288,595
--------- ---------
Electric Property, at original cost 1,344,182 1,335,670
Less: Accumulated depreciation 553,598 550,990
--------- ---------
Net electric property in service 790,584 784,680
--------- ---------
Construction work in progress 31,562 32,357
Nuclear fuel, less accumulated amortization of $10,204 in 2000
and $9,516 in 1999 1,216 1,418
Property, non utility 11,199 10,430
Less: Accumulated Depreciation 3,743 3,069
--------- ---------
Net non-utility property 7,456 7,361
--------- ---------
Total net property 830,818 825,816
Investments In Associated Companies, at equity 38,212 38,236
--------- ---------
Total Net Property and Investments in Associated Companies 869,030 864,052
--------- ---------
Deferred Charges And Other Assets
Recoverable costs of Seabrook 1 and abandoned projects, net - 73,052
Nuclear purchased-power contracts 256,838 270,311
Regulatory asset-nuclear impairment 16,335 77,489
Regulatory assets - deferred taxes 123,779 204,994
Other deferred charges and other assets 140,779 223,341
--------- ---------
Deferred Charges and Other Assets, Net 537,731 849,187
--------- ---------
Total Assets $1,660,289 $2,001,834
========= =========
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
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Central Maine Power Company and Subsidiaries
Consolidated Balance Sheet
(Unaudited)
(Dollars in thousands)
STOCKHOLDERS' EQUITY AND LIABILITIES March 31, December 31,
2000 1999
Current Liabilities and Interim Financing
Interim financing $ 30,000 $ 60,000
Sinking-fund requirements 20,539 11,937
Accounts payable 70,002 107,600
Dividends payable 131 112
Accrued interest 2,005 2,678
Income taxes payable to parent company 10,600 -
Accounts payable to energy provider 9,352 -
Miscellaneous current liabilities 14,412 15,855
--------- ---------
Total Current Liabilities and Interim Financing 157,041 198,182
--------- ---------
Commitments and Contingencies
Reserves and Deferred Credits
Accumulated deferred income taxes 62,510 63,792
Unamortized investment tax credits 10,352 13,926
Nuclear purchased-power contracts 256,838 270,311
Regulatory liabilities-deferred taxes 46,298 60,564
Deferred gain on generation asset sale 250,447 536,368
Other reserves and deferred credits 186,824 181,348
--------- ---------
Total Reserves and Deferred Credits 813,269 1,126,309
--------- ---------
Long-Term Debt
Mortgage debt - -
Other long-term obligations 110,850 120,186
--------- ---------
Total Long-Term Obligations 110,850 120,186
--------- ---------
Redeemable Preferred Stock 910 910
--------- ---------
Stockholders' Equity
Common-stock 162,213 162,213
Other paid in capital 276,776 276,709
Reacquired common stock (19,000) (19,000)
Retained earnings 122,659 100,754
Preferred stock 35,571 35,571
--------- ---------
Total Stockholders' Equity 578,219 556,247
--------- ---------
Total Stockholders' Equity and Liabilities $1,660,289 $2,001,834
========= =========
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
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Central Maine Power Company and Subsidiaries
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
(Dollars in thousands)
For the Three Months
Ended March 31,
2000 1999
---- ----
CASH FROM OPERATIONS
Net income $ 33,768 $ 37,647
Items not requiring (not providing) cash:
Depreciation 8,397 11,916
Amortization 7,333 9,179
Deferred income taxes and investment tax credits, net (12,979) (2,816)
Allowance for equity funds used during construction (223) (192)
Gain on sale of investments and properties - (7,060)
Recovery of power supply costs through asset sale deferred gain (9,612) -
Changes in certain assets and liabilities:
Accounts receivable 27,331 4,869
Other current assets 1,676 547
Inventories 800 1,445
Accounts payable (34,558) (10,689)
Accrued taxes and interest 9,927 12,181
Miscellaneous current liabilities 7,909 2,695
Changes in deferred balances and related carrying costs 12,660 (734)
Other, net 3,150 3,755
------- --------
Net Cash Provided by Operating Activities 55,579 62,743
------- --------
INVESTING ACTIVITIES
Construction expenditures (17,615) (10,505)
Customer deposits for construction 16,940 -
Proceeds from sale of investments and properties - 7,563
Changes in accounts payable - investing activities (3,040) (4,709)
------- --------
Net Cash Used by Investing Activities (3,715) (7,651)
------- --------
FINANCING ACTIVITIES
Redemptions:
Medium-term notes (30,000) -
Revolving Credit Agreement - (40,000)
Other long-term obligations (734) -
Short-term obligations - (5,000)
Dividends:
Common stock (11,222) (7,028)
Preferred stock (559) -
------- --------
Net Cash Used by Financing Activities (42,515) (52,028)
------- --------
Net Increase in Cash 9,349 3,064
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 112,872 22,628
------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD $122,221 $ 25,692
======= ========
For purposes of the statement of cash flows, the Company considers all highly
liquid instruments purchased having a maturity of three months or less to be
cash equivalents.
The accompanying notes are an integral part of these financial statements
</TABLE>
<PAGE>
CMP Group and
Central Maine Power Company
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
General Description - CMP Group was organized effective September 1, 1998,
at which time all of the shares of common stock of Central Maine were
converted into an equal number of shares of common stock of CMP Group. CMP
Group owns all of the shares of common stock of Central Maine and the
former non-utility subsidiaries of Central Maine (TeleSmart, MaineCom, CNEX
and Union Water Power Company) in addition to New England Gas Development
Corporation, a subsidiary organized in 1998.
Central Maine is primarily engaged in the business of transmitting and
distributing electric energy generated by others for the benefit of
customers in southern and central Maine. On March 1, 2000, Central Maine's
obligation to generate or otherwise supply electric energy terminated as
part of the restructuring of the electric utility industry in Maine, except
as directed by the MPUC to secure a supply of energy for the default
standard offer for medium and large customers.
CMP Group, Energy East and EE Merger Corp., a Maine corporation that is a
wholly-owned subsidiary of Energy East, entered into an Agreement and Plan
of Merger, dated as of June 14, 1999, providing for a merger transaction
among CMP Group, Energy East and EE Merger Corp. Refer to Note 2
"Commitments and Contingencies."
Financial Statements - CMP Group's consolidated financial statements
include the accounts of CMP Group and its wholly owned and controlled
subsidiaries, including Central Maine. Central Maine's consolidated
financial statements include its accounts as well as those of its wholly
owned and controlled subsidiaries. Central Maine's financial position and
results of operations account for substantially all of CMP Group's
consolidated financial position and results of operations. All intercompany
accounts and transactions have been eliminated in the consolidated
financial statements. The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements, and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates.
Also, beginning March 1, 2000, Central Maine became a billing agent for
standard offer providers and competitive energy providers. These
transactions are not recorded as revenues, but as Accounts Receivable and
Accounts Payable.
<PAGE>
Supplemental Cash Flow Disclosure - Cash paid for the three months ended
March 31, 2000 and 1999:
(In Millions)
2000 1999
---- ----
CMP Group
Interest, net of amounts capitalized $ 4.5 $13.1
Income taxes 10.0 12.0
Central Maine
Interest, net of amounts capitalized $ 4.5 $13.1
Income Taxes 10.0 12.0
Stock-Based Compensation - Under CMP Group's Long-Term Incentive Plan,
stock options were granted in 1998 and 1999 with an exercise price equal to
the fair market value on the date of the grants. They expire seven years
from their grant date. One third of the options vest annually, commencing
on the first anniversary of the options grant date. Upon vesting stock
options are exercisable during periods of active employment or within
thirty (30) days after termination of employment, provided termination did
not occur due to cause. Performance shares are granted at the beginning of
a three-year performance cycle and are paid out in the form of CMP Group
common stock at the end of the cycle, based on achievement of performance
goals directly linked to increasing shareholder value. If the goals are not
achieved at the end of the three-year cycle, the performance shares are
forfeited. Performance shares were granted in 1997, 1998 and 1999. In 2000,
phantom shares were granted which may be either converted to Energy East
shares, or prorated and paid out as cash equivalents by CMP Group. All
grants of performance shares have a three-year cycle and are being accrued
accordingly. The amount expensed in the first quarter 2000 for all
performance cycles was $903 thousand.
Earnings per Share - Stock options and performance shares granted to date
under CMP Group's Long-Term Incentive Plan resulted in potential
incremental shares of common stock outstanding for purposes of computing
both basic and diluted earnings per share for the three months ended March
31, 2000 and 1999. The following table presents the calculations of
earnings per share:
Three Months
Ended March 31,
(In thousands except per share amounts) 2000 1999
---- ----
Net income $28,379 $33,257
Basic average shares outstanding 32,442,552 32,442,552
Dilutive effect of stock options 319,867 111,154
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Diluted average shares outstanding 32,762,419 32,553,706
Basic earnings per share $.87 $1.03
Diluted earnings per share $.87 $1.02
Reclassification - Certain amounts from prior years financial statements
have been reclassified to conform to the current year presentation.
Impact of New Accounting Standards - In June 1998, the FASB issued SFAS No.
133, Accounting for Derivatives and Hedging Activities. The new standard
applies to all entities and is effective for all fiscal quarters of fiscal
years beginning after June 15, 2000, with earlier adoption encouraged. It
requires companies to record derivatives on the balance sheet at their fair
value depending on the intended use of the derivative. The adoption of this
standard did not have an impact on these financial statements.
2. Commitments and Contingencies
Proposed Merger with Energy East - CMP Group, Energy East and EE Merger
Corp., a Maine corporation that is a wholly-owned subsidiary of Energy
East, entered into an Agreement and Plan of Merger, dated as of June 14,
1999, providing for a merger transaction among CMP Group, Energy East and
EE Merger Corp. Energy East is an energy delivery, products and services
holding company doing business in New York, Massachusetts, Maine, New
Hampshire and New Jersey, which delivers electricity and natural gas to
retail customers and provides electricity, natural gas and energy
management and other services to retail and wholesale customers in the
Northeast.
Pursuant to the merger agreement, EE Merger Corp. will merge with and into
CMP Group with CMP Group being the surviving corporation and becoming a
wholly-owned subsidiary of Energy East. We expect the merger, which was
unanimously approved by the respective boards of directors of CMP Group,
Energy East and EE Merger Corp., to occur shortly after all of the
conditions to the consummation of the merger, including the receipt of
required regulatory approvals, are satisfied.
Under the terms of the merger agreement, each outstanding share of CMP
Group common stock, $5.00 par value per share, other than any treasury
shares or shares owned by Energy East or any subsidiary of CMP Group or
Energy East, will be converted into the right to receive $29.50 in cash.
Pursuant to the merger agreement, approximately $957 million in cash will
be paid to holders of shares of CMP Group common stock, with additional
payments being made to holders of stock options and performance shares
awarded under CMP Group's performance incentive plans.
The merger is subject to certain customary closing conditions, including
without limitation the receipt of all necessary governmental approvals and
the making of all necessary governmental filings. CMP Group's shareholders
approved the merger at a special meeting on October 7, 1999. The MPUC, the
U.S. Department of Justice, the Federal Trade Commission, Federal
Communications Commission, the NRC, the Connecticut DPUC and the FERC have
approved the merger. Final regulatory approval is pending from the SEC. If
the SEC approval is granted, we estimate that the merger could be completed
around mid-2000.
Permanent Shutdown of Maine Yankee Plant - On August 6, 1997, the Board of
Directors of Maine Yankee voted to permanently cease power operations at
its nuclear generating plant at Wiscasset, Maine (the "Plant") and to begin
decommissioning the Plant. The Plant had experienced a number of
operational and regulatory problems and did not operate after December 6,
1996. The decision to close the Plant permanently was based on an economic
analysis of the costs, risks and uncertainties associated with operating
the Plant compared to those associated with closing and decommissioning it.
The Plant's operating license from the NRC was scheduled to expire in 2008.
FERC Rate Case - On November 6, 1997, Maine Yankee submitted to FERC 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 for hearing Maine
Yankee's Amendatory Agreements, rates, and issues concerning the prudence
of the Plant-shutdown decision that had been raised by intervenors.
During 1998 and early 1999 the active intervenors, including among others
the MPUC Staff, the Maine Office of the Public Advocate ("OPA"), Central
Maine and other owners, municipal and cooperative purchasers of Maine
Yankee power (the "Secondary Purchasers"), and a Maine environmental group
(the "Settling Parties"), engaged in extensive discovery and negotiations,
which resulted in the filing of a settlement agreement with the FERC on
January 19, 1999. A separately negotiated settlement filed with the FERC on
February 5, 1999, resolved 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. Both settlements were found to be in the public interest and
approved by the FERC on June 1, 1999. The settlements constitute full
settlement of all issues raised in the 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.
The primary settlement provided for Maine Yankee to collect $33.1 million
in the aggregate annually, effective August 1, 1999, including both
decommissioning costs and costs related to Maine Yankee's planned on-site
independent spent fuel storage installation ("ISFSI"). The 1997 FERC filing
had called for an aggregate annual collection rate of $36.4 million for
decommissioning and the ISFSI, based on a 1997 estimate. Pursuant to the
approved settlement the amount collected annually has been reduced to
approximately $25.6 million, effective October 1, 1999, as a result of 1999
Maine legislation allowing Maine Yankee to (1) use for construction of the
ISFSI funds held in trust under Maine law for spent-fuel disposal, and (2)
access approximately $6.8 million 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 in question after rejection of the
selected disposal site in west Texas by a Texas regulatory agency.
The settlement also provides for recovery of the 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, which resulted in a pro-rata refund of $9.3 million
(including tax impacts) to the sponsors on July 15, 1999. The Settling
Parties also agreed 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. In addition, the settlement contains incentives for Maine Yankee to
achieve further savings in its decommissioning and ISFSI-related costs and
resolves issues concerning restoration and future use of the Plant site and
environmental matters of concern to certain of the intervenors in the
proceeding.
As a separate part of the settlement, Central Maine, the other two Maine
utilities which own interests in 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 is recovering
its Maine Yankee costs in accordance with its most recent rate order from
the MPUC.
Finally, the Maine Agreement requires Central Maine and the other two Maine
utilities, 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 $31.2 million
for the period. Based on the results of the two year entitlement auction
already completed, the Company will not incur any liability for this
provision in 2000 and does not believe that it will incur any liability in
2001.
CMP Group and Central Maine believe that the approved settlement, including
the Maine Agreement, constitutes a reasonable resolution of the issues
raised in the Maine Yankee FERC proceeding, which has eliminated
significant uncertainties concerning CMP Group's and Central Maine's future
financial performance.
Termination of Decommissioning Operations Contract - On May 4, 2000, Maine
Yankee notified its decommissioning operations contractor, Stone & Webster
Engineering Corporation ("Stone & Webster"), that it was terminating its
decommissioning operations contract pursuant to the terms of the contract.
Subsequently, Stone & Webster notified Maine Yankee that it was disputing
Maine Yankee's grounds for terminating the contract. On May 8, 2000, Stone
& Webster announced that it had signed a letter of intent with Jacobs
Engineering Group, Inc. ("Jacobs"), regarding a proposed transaction in
which Jacobs would acquire substantially all of Stone & Webster's assets in
exchange for an immediate $50 million secured credit facility and other
stated consideration, including cash and stock. Stone & Webster said that
the credit facility was intended to enable it to address its current
liquidity difficulties and continue to operate its businesses until the
asset sale is consummated. In addition, Stone & Webster announced that, as
a condition to the proposed transactions with Jacobs, it intended to seek
bankruptcy court approval of the asset sale and credit agreement, and
therefore intended to file a voluntary petition for reorganization under
Chapter 11 of the U.S. Bankruptcy Code after it signed a definitive sale
agreement with Jacobs, which it expected to occur later in May.
Maine Yankee has stated that it remains committed to the successful
completion of the decommissioning project and on May 10, 2000, entered into
an interim agreement with Stone & Webster for the purposes of avoiding the
adverse consequences of an abrupt or inefficient demobilization from the
Plant site and allowing decommissioning work to continue through June 30,
2000. During that period Maine Yankee will also continue to evaluate all
available long-term alternatives for safely and efficiently completing the
decommissioning project. However, we cannot predict at this time what
effect the financial difficulties of Stone & Webster, the interim
agreement, or any subsequent arrangement with Stone & Webster or a new
general contractor will have on the cost or schedule of the decommissioning
project.
Legal and Environmental Matters - CMP Group, Central Maine and certain of
its affiliates are subject to regulation by federal and state authorities
with respect to air and water quality, the handling and disposal of toxic
substances and hazardous and solid wastes, and the handling and use of
chemical products. Electric utility companies generally use or generate in
their operations a range of potentially hazardous products and by-products
that are the focus of such regulation. CMP Group and Central Maine believe
that their current practices and operations are in compliance with all
existing environmental laws except for such non-compliance as would not
have a material adverse effect on their financial position. Central Maine
reviews its overall compliance and measures the liability quarterly by
assessing a range of reasonably likely costs for each identified site using
currently available information, including existing technology, presently
enacted laws and regulations, experience gained at similar sites, and the
probable level of involvement and financial condition of other potentially
responsible parties. These estimates include costs for site investigations,
remediation, operation and maintenance, monitoring and site closure.
New and changing environmental requirements could hinder the construction
and/or modification of transmission and distribution lines, substations and
other facilities, and could raise operating costs significantly. As a
result, Central Maine may incur significant additional environmental costs,
greater than amounts reserved, in connection with the transmission of
electricity and the storage, transportation and disposal of by-products and
wastes. Central Maine may also encounter significantly increased costs to
remedy the environmental effects of prior waste handling activities. The
cumulative long-term cost impact of increasingly stringent environmental
requirements cannot accurately be estimated.
Central Maine has recorded a liability, based upon currently available
information, for what it believes are the estimated environmental
remediation costs that it expects to incur for identified waste disposal
sites. In most cases, additional future environmental cleanup costs are not
reasonably estimable due to a number of factors, including the unknown
magnitude of possible contamination, the appropriate remediation methods,
the possible effects of future legislation or regulation and the possible
effects of technological changes. Central Maine cannot predict the schedule
or scope of remediation due to the regulatory process and involvement of
non-governmental parties. At March 31, 2000, the liability recorded by
Central Maine for its estimated environmental remediation costs amounted to
$2.8 million, which management has determined to be the most probable
amount within the range of $2.8 million to $13.4 million. Such costs may be
higher if Central Maine is found to be responsible for cleanup costs at
additional sites or identifiable possible outcomes change.
Wyman No. 4 Arbitration - By notice of claim dated June 24, 1999, the
non-operator owners of the Wyman No. 4 oil-fired generating unit in
Yarmouth, Maine, which was approximately 60-percent owned by Central Maine,
served notice on Central Maine that they believe they are entitled to a
portion of the proceeds of the sale of Central Maine's interest in the unit
as part of the April 1999 sale of its non-nuclear generation assets to FPL
Energy. The claimants contend that certain sections of the joint ownership
agreement under which they share in the output of the unit require a
pro-rata distribution to them of part of those proceeds as a result of
Central Maine's sale of its interest in the unit. The joint ownership
agreement provides for arbitration of claims arising under the agreement.
Central Maine believes that although the amount of the claim is substantial
(up to $62 million), the claimants have suffered no loss and are not
entitled to any part of the generation-asset sale proceeds. Central Maine
intends to contest any such claim vigorously, but cannot predict the result
of the arbitration proceeding.
Millstone Unit No. 3 Litigation - In August 1997 Central Maine and other
minority owners of Millstone Unit No. 3 filed suit in Massachusetts
Superior Court against Northeast Utilities and its trustees, and initiated
an arbitration claim against two of its subsidiaries, alleging
mismanagement of the unit by the defendants. The minority owners are
seeking to recover their additional costs resulting from such
mismanagement, including their replacement power costs. Since the filing of
the suit and arbitration claim, the parties engaged in resolving
preliminary issues and in extensive pre-hearing discovery. The arbitration
hearing began on November 16, 1999.
On January 28, 2000, Central Maine entered into a settlement agreement with
the defendants and subsequently dismissed its lawsuit and arbitration
claim. The settlement is generally similar to earlier settlements with the
defendants by two joint owners which own in the aggregate approximately
sixteen percent of the unit. It calls for the payment of $4.8 million to
Central Maine, which has been reflected in 1999 net income, and other
amounts contingent upon future events, and would result in Central Maine's
2.5-percent interest in the unit being included in the auction of the
majority interests and certain of the minority interests in the Millstone
units expected to be completed by 2001.
Non-Utility Generators - Central Maine has entered into a number of
long-term, non-cancelable contracts for the purchase of capacity and energy
from non-utility generators ("NUG"). The agreements generally have terms of
five to 17 years, with expiration dates ranging from 2000 to 2016. They
require Central Maine to purchase the energy at specified prices per
kilowatt-hour, which are often above market prices.
As required by the Maine restructuring legislation, on July 30, 1999,
Central Maine offered at auction its rights to the capacity and energy from
its undivested generation assets and generation-related business. Upon
completion of the auctions, in December 1999 Central Maine contracted to
sell such rights with respect to its undivested nuclear generation assets
(Vermont Yankee and Millstone Unit 3) and its NUG contract entitlements to
the successful bidder for a two-year period commencing March 1, 2000.
Central Maine also auctioned its Hydro-Quebec entitlement to a different
buyer for the same period. All of the auction results were approved by the
MPUC.
The aggregate above-market costs associated with the NUG contracts is
estimated to be approximately $1 billion over the lives of the contracts,
based on certain market price assumptions. Those costs are being recovered
in rates as stranded costs over the lives of the contracts pursuant to the
January 27, 2000, rate-case settlement.
Natural Gas Distribution - New England Gas Development Corporation ("New
England Gas"), which is a wholly owned subsidiary of CMP Group, held
approximately a 16 percent interest at March 31, 2000, in CMP Natural Gas,
L.L.C., now called Maine Natural Gas, L.L.C. ("Maine Natural Gas"). Maine
Natural Gas is a joint venture of New England Gas and Energy East
Enterprises, a wholly owned subsidiary of Energy East. Maine Natural Gas
was formed to construct, own and operate a natural gas distribution system
to serve certain areas of Maine that did not have gas service, utilizing
natural gas delivered to Maine through new interstate pipeline facilities.
Maine Natural Gas began construction of its first local distribution system
in Windham, Maine, in early 1999 and began serving its first customer in
May 1999. On July 8, 1999, Maine Natural Gas and Calpine Corporation, a
California-based independent power company, announced the signing of a
20-year contract for Maine Natural Gas to provide natural gas delivery
service to Calpine's proposed 540-megawatt natural gas-fired power plant
under construction in Westbrook, Maine. Maine Natural Gas expects to
commence service to the plant in the summer of 2000, after construction of
a two-mile lateral pipeline along an existing Central Maine right of way
that would interconnect with the new interstate pipeline facilities. On
December 13, 1999, the MPUC authorized Maine Natural Gas to provide service
to the Calpine plant, as well as the unserved areas in the town of Gorham,
and on February 18, 2000, the MPUC approved an affiliated-interest
transaction allowing Maine Natural Gas to construct the pipeline on Central
Maine's transmission corridor.
If the merger of CMP Group and Energy East is completed, Maine Natural Gas
will become a wholly owned subsidiary of Energy East Enterprises, and New
England Gas will cease to exist. During 1999 Energy East also agreed to
business combinations with two established natural gas distribution
companies in Connecticut and one in western Massachusetts, subject to
closing conditions, including shareholder votes and regulatory approvals.
One of the Connecticut acquisitions was completed in February 2000. The
other two transactions are awaiting SEC approval.
3. Regulatory Matters and Electric-Utility Industry Restructuring
Alternative Rate Plan - On September 30, 1999, Central Maine submitted to
the MPUC a proposed seven-year rate plan ("ARP2000") to take effect after
completion of the merger with Energy East. The formula for ARP2000 is
substantially similar to that of the ARP, being based on an inflation
index, with a productivity offset, qualifying facility offset, and
provisions for earnings sharing and flowthrough and mandated items.
However, under ARP 2000 the one-percent productivity offset of the ARP
would escalate in annual increments of 0.25 percent from 1.00 percent for
the 2001 price change to 1.75 percent in 2004 to 2007. The purpose of the
proposed escalation is to assure that Central Maine's customers benefit
from the increased savings expected from the Energy East merger. In
addition, in the mandated-costs exclusion in ARP2000 only mandated costs
over $50,000 would be recognized and only the excess over $3 million of
accumulated mandated cost would be recoverable, not the entire $3 million
non-cumulative cost recoverable under the 1995-1999 ARP. The rate of return
on equity of 10.5 percent established by the MPUC for Central Maine
effective March 1, 2000, would be the basis for the earnings-sharing
bandwidth, and not the 11.5 percent under the ARP. ARP2000 is subject to
MPUC approval.
Maine Restructuring Legislation - The Maine Legislature enacted legislation
in 1997 to restructure the electric utility industry in Maine effective
March 1, 2000. The principal restructuring provisions of the legislation
provided for customers to have direct retail access to generation services
and for deregulation of competitive electric providers, commencing March 1,
2000, with transmission-and-distribution companies such as Central Maine
continuing to be regulated by the MPUC. By that date, investor-owned
utilities were required to divest all generation assets and
generation-related business activities, with two major exceptions: (1)
non-utility generator contracts with qualifying facilities and contracts
with demand-side management or conservation providers, brokers or hosts,
and (2) ownership interests in nuclear power plants. As discussed below
under "Sale of Generation Assets," Central Maine completed the sale of its
non-nuclear generating assets on April 7, 1999.
The legislation also required investor-owned utilities to sell their rights
to the capacity and energy from all undivested generation assets after
February 29, 2000, including nuclear generation assets and the
purchased-power contracts that had not previously been divested pursuant to
the legislation. On July 30, 1999, Central Maine offered its rights to the
capacity and energy from its undivested generation assets and
generation-related business to prospective bidders and in December 1999
contracted to sell such rights with respect to its undivested nuclear
generation assets (Vermont Yankee and Millstone Unit 3) and its NUG
contract entitlements for a two-year period commencing March 1, 2000.
As a transmission-and-distribution utility, Central Maine is prohibited
from selling electric energy to retail customers, except as may be directed
by the MPUC. Any competitive electricity provider affiliated with Central
Maine would be allowed to sell electricity outside Central Maine's service
territory without limitation as to amount, but within Central Maine's
service territory the affiliate would be limited to providing not more than
33 percent of the total kilowatt-hours sold with Central Maine's service
territory, as determined by the MPUC. CMP Group has determined that it does
not intend to create such an affiliate.
MPUC Proceeding on Stranded Costs, Revenue Requirements, and Rate Design -
By order dated March 19, 1999, the MPUC completed the first phase of its
proceeding contemplated by Maine's restructuring legislation to establish
the recoverable amount and timing of Central Maine's stranded costs, its
revenue requirements and the design of its rates effective March 1, 2000.
In its Phase I order the MPUC decided the "principles" by which it would
set Central Maine's transmission-and-distribution rates, but deferred
actually calculating the rates until later in the proceeding because some
of the necessary information was not yet available.
With respect to stranded costs, the MPUC indicated that it would set the
amount of recoverable stranded costs for Central Maine later in the
proceeding. The restructuring statute requires the MPUC to provide
transmission-and-distribution utilities a reasonable opportunity to recover
such costs that is equivalent to the utility's opportunity to recover those
costs prior to the commencement of retail access. The MPUC also reviewed
the prescribed methodology for determining the amount of a utility's
stranded costs, including among other factors the application of excess
value from Central Maine's divested generation assets to offset stranded
costs.
In the area of revenue requirements, the Phase I order did not establish
definitive amounts, but did contain the MPUC's conclusion that the
appropriate cost of common equity for Central Maine as a
transmission-and-distribution company was 10.50 percent, with a
common-equity component of 47 percent. In dealing with rate design, the
MPUC again limited itself primarily to establishing principles that would
guide it in designing Central Maine's rates effective March 1, 2000.
On July 1, 1999, Central Maine filed its Phase II case with the MPUC. In
that filing Central Maine updated certain test-year data to reflect known
and measurable changes to its revenue requirement, updated its stranded
cost estimate to reflect actual data from the April 1999 closing of its
generation-asset sale, and proposed its rate design based on the principles
enunciated in the Phase I order. Some of the information needed to
establish rates was still incomplete in that filing, however, since neither
the auction of the output of Central Maine's non-divested generation
resources nor the bid process for "standard-offer" service (for those
customers who do not select a competitive energy supplier) had been
completed. In addition, several issues raised by the Phase I MPUC order
remained unresolved, including, among others, (i) whether the MPUC could
require the unamortized investment tax credits and excess deferred income
taxes associated with the sale of Central Maine's generation assets to be
flowed through to ratepayers, and (ii) the rate treatment of the gain on
the sale of Union Water's generation-related assets to FPL and employee
transition costs resulting from the generation-asset sale.
In an order dated December 3, 1999, in a separate but related proceeding,
the MPUC approved Central Maine's plan for the sale of the output of its
non-divested generation assets. In another related proceeding, by order
dated October 25, 1999, the MPUC accepted a competitive energy supplier's
bid to provide standard-offer service to Central Maine's residential and
small commercial customers who did not select a competitive energy supplier
after March 1, 2000. In the same order the MPUC rejected all of the
standard-offer bids for Central Maine's medium and large commercial and
industrial customers and sought a second round of bids. In the December 3
order the MPUC rejected all of the second round of standard-offer bids for
Central Maine's medium and large classes and ordered that Central Maine
arrange such service for those classes.
On January 19, 2000, the MPUC issued its Phase II order determining Central
Maine's revenue requirement as a transmission-and-distribution utility,
effective March 1, 2000. In the order the MPUC disallowed approximately
$8 million of the approximately $12 million revenue increase requested in
Central Maine's Phase II filing, which had been based on certain known
and measurable changes to its revenue requirement.
A negotiated settlement approved by the MPUC on January 27, 2000, resolved
the major issues remaining outstanding in the final phase of the ratemaking
proceeding. The settlement confirmed that the $18.2 million of unamortized
investment tax credits and excess deferred income taxes related to Central
Maine's generation-asset sale would flow through to shareholders pursuant
to the normalization rules of the Internal Revenue Code. In addition,
Central Maine agreed not to seek judicial review of an August 2, 1999 MPUC
order regarding the treatment of gains from sales of easements that
required Central Maine to recognize 10 percent of the gain currently with
the remaining 90 percent being amortized over 5 years, effective as of the
dates of the 1998 and 1999 sale transactions. Central Maine also agreed not
to seek reconsideration of other cost-of-service updates in the rate case
or to challenge a $4.7 million disallowance of employee transition costs,
and to withdraw its appeal of the rate treatment of the gain on Union
Water's generation-related assets.
The settlement also allowed Central Maine to charge off $88 million on
March 1, 2000, representing its entire remaining investment in the
Millstone 3 nuclear unit in Connecticut, against the regulatory Asset Sale
Gain Account created in the ratemaking proceeding to recognize the
above-book value realized through Central Maine's generation-asset sale.
This provision reflected a recent resolution of Central Maine's arbitration
and litigation claims against the lead owners of the jointly-owned
Millstone 3 unit, in which Central Maine owns a 2.5-percent interest.
As part of the settlement Central Maine also agreed to a one-time earnings
cap for 1999. Earnings above the cap were deferred in 1999 and will be used
to offset rate increases that would otherwise be required to mitigate
stranded costs and increases in operating expenses through 2001.
Amortization from this account for the first quarter of 2000 provided
recovery of expenses in the amount of $625 thousand.
Finally, the rate settlement established Central Maine's rates as a
transmission-and-distribution utility effective March 1, 2000. A separate
order fixed the standard-offer prices for Central Maine's medium and large
commercial and industrial customers at levels intended to reflect current
market pricing and to avoid under-collection of Central Maine's costs.
The asset-sale gain account was drawn down on March 1 by CMP's writing off
$161.8 million of deferred regulatory assets relating to non-utility-power
contract restructurings and other assets, $65.2 million of CMP's interest
in the Millstone Unit 3 power plant in Connecticut, and $75.4 million in
regulatory assets related to deferred taxes.
Sale of Generation Assets - On April 7, 1999, Central Maine completed the
sale of all of its hydro, fossil and biomass power plants with a combined
generating capacity of 1,185 megawatts for $846 million in cash, including
approximately $18 million for assets of Union Water, to affiliates of
Florida-based FPL Group. The related book value for these assets was
approximately $217.3 million. In addition, as part of its agreement with
FPL Group, Central Maine entered into energy buy-back agreements to assist
in fulfilling its obligation to supply its customers with power until March
1, 2000. Subsequently, an agreement was reached to sell related storage
facilities to FPL Group for an additional $4.6 million ($1.5 million for
the assets and $3.1 million estimated for lease revenue associated with the
properties that Central Maine retained), including $2.0 million for Union
Water assets. The related book value of these assets was approximately
$11.4 million.
As required by the MPUC, Central Maine recorded a pre-tax deferred gain of
$518.8 million net of selling costs and certain non-normalized income tax
impacts from the sale of generation assets by establishing a regulatory
liability in 1999, which eliminated most income recognition. Central Maine
did record an income impact from the sale amounting to $18 million
associated with the related unamortized investment credits and excess
deferred tax reserves as required by the IRS regulations. Central Maine
also recorded curtailment and special termination deferred charges of $4.1
million associated with pension and postretirement benefit costs of
employees leaving the company as a result of the generation-asset sale.
These deferred charges are being amortized over a three-year period
beginning March 1, 2000, as required by the MPUC. The regulatory liability
for the asset sale gain, including interest, amounted to approximately $548
million at December 31, 1999, and is being amortized over an 8.5 year
period beginning March 1, 2000. The amortization will vary from year to
year. Amortization for the first quarter of 2000 was $2 million.
As required by the Maine restructuring legislation, on July 30, 1999,
Central Maine offered at auction its rights to the capacity and energy from
its undivested generation assets and generation-related business. Upon
completion of the auctions, in December 1999 Central Maine contracted to
sell such rights with respect to its undivested nuclear generation assets
(Vermont Yankee and Millstone Unit 3) and its NUG contract entitlements to
the successful bidder for a two-year period commencing March 1, 2000.
Central Maine also auctioned its Hydro-Quebec entitlement to a different
buyer for the same period. All of the auction results were approved by the
MPUC.
Meeting the Requirements of SFAS No. 71
Central Maine continues to meet the requirements of SFAS No. 71 for
transmission and distribution. The standard provides specialized accounting
for regulated enterprises, which requires recognition of "regulatory"
assets and liabilities that enterprises in general could not record.
Examples of regulatory assets include deferred income taxes associated with
previously flowed through items, NUG buyout costs, losses on abandoned
plants, deferral of postemployment benefit costs, and losses on debt
refinancing. If an entity no longer meets the requirements of SFAS No. 71,
then regulatory assets and liabilities must be written off.
The ARP provided incentive-based rates intended to recover the cost of
service plus a rate of return on Central Maine's investment together with a
sharing of the costs or earnings between ratepayers and the shareholders
should the earnings be less than or exceed a target rate of return. Central
Maine has received recognition from the MPUC that the rates implemented as
a result of the ARP continue to provide specific recovery of costs deferred
in prior periods.
The 1997 legislation enacted in Maine providing for industry restructuring
addressed the issue of cost recovery of regulatory assets stranded as a
result of industry restructuring. Specifically, the legislation requires
the MPUC, when retail access begins, to provide a "reasonable opportunity"
for the recovery of stranded costs through the rates of the
transmission-and-distribution company, comparable to the utility's
opportunity to recover stranded costs before the implementation of retail
access under the legislation. As provided for in EITF 97-4, "Deregulation
of the Pricing of Electricity," Central Maine will continue to record
regulatory assets in a manner consistent with SFAS No. 71 as long as future
recovery is probable, since the MPUC stranded costs, revenue requirements
and rate design orders provide for the recovery of regulatory assets
including stranded costs through the rates of the
transmission-and-distribution company. Central Maine discontinued SFAS No.
71 for any remaining generation segment of its business in 1999, based on
current generally accepted accounting principles. Management believes that
SFAS No. 71 will continue to apply to the regulated distribution and
transmission segments of its business. Future regulatory rules or other
circumstances could cause the application of SFAS No. 71 to be
discontinued, which could result in a non-cash write-off of previously
established regulatory assets.
4. Income Taxes
The effective tax rates of 74 percent for CMP Group and 71 percent for
Central Maine are significantly higher than the statutory rate of 40.8
percent for the first quarter 2000. This difference is due primarily to the
write-off of $161.8 million in regulatory assets and the investment in
Millstone Unit 3 of $65.2 million as ordered in the MPUC rate case
settlement. Past regulatory treatment of the tax timing differences related
to these assets created a non-provided deferred tax that was reflected on
the balance sheet. This write-off created a deferred tax expense of $75.4
million. The MPUC allows an offsetting amount to be included in other
income through the amortization of the asset sale gain account. Although
the effect to net income was zero, the effective tax rate was increased.
Concurrently, the effective tax rate was decreased by the gross-up of
carrying costs on the deferred costs associated with the asset sale gain
account, the 1998 ice storm, and hazardous waste clean-up costs.
Previously, these carrying costs were recorded at an after-tax rate.
Deferred tax expense was decreased by a net amount of $9.5 million, which
was offset in other interest expense and other, net. Deferred taxes will be
provided on all the tax timing differences created by the carrying costs in
the future.
Additionally, Central Maine flowed through all unamortized investment tax
credits and excess tax reserves of $4 million associated with the sale of
Cape Station and the write-off of Millstone Unit 3. This is consistent with
a Private Letter Ruling obtained from the IRS by the Company at the request
of the MPUC and affirmed by the MPUC in its approval of the negotiated rate
case settlement on January 27, 2000.
5. Transactions with Affiliated Companies
Central Maine provides certain services to CMP Group and its subsidiaries,
including administrative support services and pension and employee benefit
arrangements. Charges related to those services have been determined based
on a combination of direct charges and allocations designed to recover
Central Maine's cost. These assessments are reflected as an offset to
Central Maine's expenses and totaled approximately $1.1 million for the
quarter ended March 31, 2000.
CMP Group provides certain managerial services to its subsidiaries. Charges
related to those services have been determined based on a combination of
direct charges and allocations in order to recover the majority of their
expenses. These assessments are reflected as an offset to CMP Group's
expenses and totaled approximately $1.7 million for the quarter ended March
31, 2000.
In addition, a subsidiary of CMP Group provides certain real estate
services charged to Central Maine at cost and utility locator and
construction services based on a contracted rate. These expenses amounted
to $0.7 million for the quarter ended March 31, 2000.
As of March 31, 2000, Central Maine's accounts receivable and accounts
payable included the following:
(Dollars in thousands)
Accounts Accounts
Receivable Payable
CMP Group $2,004 $5,403
CNEX 25 51
MaineCom 215 -
Telesmart 27 121
Union Water 303 393
New England Gas 3 -
----- -----
$2,577 $5,968
===== =====
Item 2: Management's Discussion and Analysis of Financial Condition and Results
of Operations of CMP Group and Central Maine Power Company
This is a combined Quarterly Report on Form 10-Q of CMP Group and Central Maine.
Therefore, our Management's Discussion and Analysis of Financial Condition and
Results of Operations (MD&A) applies to both CMP Group and Central Maine. CMP
Group's consolidated financial statements include the accounts of CMP Group and
its wholly owned and controlled subsidiaries, including Central Maine
(collectively, the CMP Group System). Central Maine's consolidated financial
statements include its accounts as well as those of its wholly owned and
controlled subsidiaries. The MD&A should be read in conjunction with the
consolidated financial statements included herein.
Note re Forward-Looking Statements
This Report on Form 10-Q contains forecast information items that are
"forward-looking statements" as defined in the Private Securities Litigation
Reform Act of 1995. Such statements are subject to certain risks and
uncertainties which could cause actual results to differ materially from those
projected. Readers are cautioned not to place undue reliance on these
forward-looking statements, which speak only as of the date hereof. CMP Group
and Central Maine undertake no obligation to republish revised forward-looking
statements to reflect events or circumstances after the date hereof or to
reflect the occurrence of unanticipated events. Readers are urged to carefully
review and consider the factors in the succeeding paragraph.
Factors that could cause actual results to differ materially include, among
other matters, the results of the pending merger with Energy East, electric
utility industry restructuring, including the ongoing state and federal
activities that will determine Central Maine's ability to recover its stranded
costs and the cost of upgrades of transmission facilities to accommodate new
merchant generating plants; future economic conditions, earnings-retention and
dividend-payout policies; developments in the legislative, regulatory, and
competitive environments in which CMP Group and Central Maine operate;
investments in unregulated businesses; and other circumstances that could affect
anticipated revenues and costs, such as unscheduled maintenance and repairs of
transmission and distribution facilities, unanticipated environmental cleanups
and compliance with new or re-interpreted laws and regulations affecting the
operation of the business.
Formation of Holding Company and Proposed Merger
CMP Group is a holding company organized effective September 1, 1998, which owns
all of the common stock of Central Maine and the former non-utility subsidiaries
of Central Maine. As part of the reorganization, all of the shares of Central
Maine's common stock were converted into an equal number of shares of CMP Group
common stock, which are listed on the New York Stock Exchange under the symbol
CTP. The reorganization was approved by Central Maine's shareholders on May 21,
1998, and on various dates in 1998 by the appropriate state and federal
regulatory agencies.
On June 14, 1999, CMP Group, Energy East and EE Merger Corp., a Maine
corporation that is a wholly-owned subsidiary of Energy East, entered into an
Agreement and Plan of Merger, dated as of June 14, 1999, providing for a merger
transaction among CMP Group, Energy East and EE Merger Corp. Energy East is an
energy delivery, products and services holding company doing business in New
York, Massachusetts, Maine, New Hampshire and New Jersey, which delivers
electricity and natural gas to retail customers and provides electricity,
natural gas and energy management and other services to retail and wholesale
customers in the Northeast.
Pursuant to the merger agreement, EE Merger Corp. will merge with and into CMP
Group with CMP Group being the surviving corporation and becoming a wholly-owned
subsidiary of Energy East. We expect the merger, which was unanimously approved
by the respective boards of directors of CMP Group, Energy East and EE Merger
Corp., to occur shortly after all of the conditions to the consummation of the
merger, including the receipt of required regulatory approvals, are satisfied.
Under the terms of the merger agreement, each outstanding share of CMP Group
common stock, $5.00 par value per share, other than any treasury shares or
shares owned by Energy East or any subsidiary of CMP Group or Energy East, will
be converted into the right to receive $29.50 in cash. Pursuant to the merger
agreement, approximately $957 million in cash will be paid to holders of shares
of CMP Group Common Stock, with additional payments being made to holders of
stock options and performance shares awarded under CMP Group's performance
incentive plans.
The merger is subject to certain customary closing conditions, including without
limitation the receipt of all necessary governmental approvals and the making of
all necessary governmental filings. CMP Group's shareholders approved the merger
at a special meeting on October 7, 1999. The MPUC, the U.S. Department of
Justice, the Federal Trade Commission, Federal Communications Commission, the
NRC, the Connecticut DPUC and the FERC have approved the merger. The final
regulatory approval is pending from the SEC. If the SEC approval is granted, we
estimate that the merger could be completed around mid-2000.
<PAGE>
Operating Results
CMP
Group Central Maine
----- -------------
(dollars in millions)
Net income
Three months ended:
March 31, 2000 $28.4 $.87/share $33.8
March 31, 1999 33.3 $1.03/share 37.6
---- ----
Decrease $(4.9) $(3.8)
Earnings applicable to
common stock
Three months ended:
March 31, 2000 N/A $33.2 $1.06/share
March 31, 1999 N/A 36.7 $1.18/share
----
Decrease $ (3.5)
Effective March 1, 2000, Central Maine no longer sells electric energy to its
residential and small business customers. Central Maine is the default energy
provider for medium and large customers who choose not to select a competitive
energy provider. Central Maine provides transmission and distribution services
for electricity for all its customers, the rates for which are tariffed. As a
result of this change, when comparing year 2000 results post March 1, to the
same period in 1999, revenues and related energy costs are lower. The primary
reason that operating income for the quarter ending March 2000 is $12 million
lower than the same period in 1999 is due to the restructuring of services
associated with the deregulation of energy services. Partially offsetting the
$12 million operating income decrease is the impact of a one-time tax benefit
related to the increase in the depreciation reserve of Millstone Unit 3.
Unamortized investment tax credits and excess tax reserves of $4 million were
flowed through to net income.
Revenues also decreased as a result of a price reduction effective March 1,
2000, that is expected to produce total-bill savings averaging 10 percent for
residential and small business customers.
Service Area Kwh Sales - Central Maine's service area sales of electricity
totaled approximately 2.35 billion kilowatt-hours in the first quarter of 2000,
up 1.7 percent from the 2.31 billion kilowatt-hour level of a year ago, as
follows:
Service Area Kilowatt-hour Sales (Millions of KWHs)
Period Ended March 31,
Three Months
---------------------------------------
2000 1999 % Change
---- ---- --------
Residential 820.6 790.2 3.8%
Commercial 689.3 644.2 7.0
Industrial 833.4 831.0 .3
Other 8.8 47.4 (81.4)
------- -------
2,352.1 2,312.8 1.7%
======= =======
Kilowatt-hour sales for 1999 have been adjusted to reflect a change in unbilled
kwh sales to be consistent with the 2000 presentation.
The changes in service area kilowatt-hour sales reflect the following:
Kilowatt-hour sales to residential customers increased by 3.8 percent in
the first quarter of 2000 compared to 1999. The increase is attributable to
customer growth. Warmer temperatures in 2000 had a negative impact on sales
to the residential and commercial sectors, to slightly offset the increase.
Commercial kilowatt-hour sales increased by 7.0 percent in the first
quarter of 2000 compared to 1999. The increased sales in all sectors were
due to a strong economy which resulted in an increase in nonmanufacturing
jobs of 3.5 percent since February 1999. The retail and service sectors,
which together comprise approximately 62 percent of commercial kwh sales,
experienced 4 percent and 5.6 percent sales increases, respectively.
Industrial kilowatt-hour sales increased by 0.3 percent in the first
quarter of 2000 compared to 1999. Decreased sales to the paper industry
(2.6 million kwh) were more than offset by positive sales growth (19.2
million kwh) experienced in the "other industrial" sectors. The
pulp-and-paper sector of the industrial class accounts for approximately 53
percent of the industrial sales category. The primary factors contributing
to the 5.1 percent increase in sectors other than pulp and paper included
growth in food processing, by 20 percent, lumber and wood, by 15 percent,
printing and publishing, by 20 percent, and electrical machinery, by 19
percent.
Other service area sales decreased 81.4 percent from 1999 due to the
termination of wholesale contracts as a result of the sale of Central
Maine's generating assets in 1999.
Operating Expenses
Central Maine's fuel used for company generation decreased by approximately $8.7
million in the first quarter of 2000 compared to 1999 due to the sale of Central
Maine's generating assets in April 1999.
Central Maine's purchased power-energy expense increased by $16 million in the
first quarter of 2000, compared to 1999. The increase is due primarily to
purchases from FPL and higher sales volume.
Central Maine's purchased power-capacity expense increased $5.6 million in the
first quarter compared to 1999. Capacity charges from FPL were $5.9 million, and
$1.4 million from the standard offer energy provider. Lower operating costs at
Maine Yankee offset the increase by $1.5 million.
Central Maine's maintenance expense decreased $1.8 million for the three months
ended March 31, 2000 compared to 1999. This decrease was due primarily to the
asset sale. Amortization of ice storm costs of $1 million partially offset the
decrease.
Central Maine's other operations expense remained flat year to year. Decreases
as a result of the generation asset sale were offset by increased ISO costs,
demand-side management costs, and uncollectible accounts.
Federal and state income taxes fluctuate with the level of pre-tax earnings and
the regulatory treatment of taxes by the MPUC. This expense increased by $58
million for the quarter ended March 31, 2000 compared to 1999. The variance is
attributable to the treatment of $75.4 million of non-provided deferred taxes on
regulatory assets written off on March 1, 2000 as part of the rate case
settlement. This was directly offset in other income, and had no effect on net
income. Tax expense was decreased by the gross-up of carrying costs to a pre-tax
rate. See Note 4, "Income Taxes."
Other Income and Expense
Equity in Earnings of Associated Companies for CMP Group decreased by $0.3
million in the first quarter of 2000 compared to 1999. Amortization of gains on
sale of easements related to MEPCO increased equity earnings by $0.7 million. As
part of the January 2000 rate case settlement, Central Maine deferred these
gains and is amortizing them over five years. NEON, which is a 38-percent owned
indirect subsidiary of MaineCom, had losses $1 million greater than first
quarter last year.
Interest income increased $1.5 million due to investments from proceeds of the
generation-asset sale.
Other income, net increased $4.5 million from 1999. The increase relates to
amortization of the asset sale gain account of $2.5 million. The remainder of
the increase is carrying costs on deferred costs associated with the 1998 ice
storm, hazardous waste clean-up, and demand-side management.
Other income included $75.4 million of income associated with non-provided
deferred taxes on assets written off per the rate case settlement. A
corresponding charge to income tax expense resulted in no impact to net income.
See Note 4, "Income Taxes," for more details.
The decrease in gain on sale of investments and properties is due primarily to
the sale of transmission line right-of-way access to a gas-pipeline project in
1999.
Other Interest Expense increased by $17.8 million during the first three months
of 2000 as compared to 1999. The increase was due to the recording of $13.8
million to gross-up carrying costs on the asset sale gain account to a pre-tax
level with an offsetting decrease in deferred tax expense, and another $3.7
million of additional carrying costs for the quarter.
For the quarter ended March 31, 2000, Central Maine reduced preferred-stock
dividends by $360 thousand as a result of an earlier redemption of 180,000
shares of 7.99% Series Preferred Stock in 1999.
<PAGE>
Liquidity and Capital Resources
From 1995 through 1999 increases in Central Maine's retail rates were limited by
Central Maine's ARP. On September 30, 1999, Central Maine submitted to the MPUC
a proposed seven year rate plan ("ARP 2000") to take effect after the completion
of the merger with Energy East. A price decrease took effect March 1, 2000, for
most residential and small business customers. For a discussion of the proposed
new rate plan and the price decrease, see Note 3, "Regulatory Matters and
Electric-Utility Industry Restructuring" - "Alternative Rate Plan."
Approximately $30.8 million and $36.3 million of cash were provided during the
three months ended March 31, 2000, for CMP Group and Central Maine,
respectively, from net income before non-cash items, primarily depreciation,
amortization and deferred income taxes. During that period approximately $37.6
million and $28.9 million of cash were used for fluctuations in certain assets
and liabilities and from other operating activities for CMP Group and Central
Maine, respectively. In addition $9.6 million of incremental power costs was
recovered through amortization that had been deferred at the time of the sale of
generation assets.
CMP Group's investing activities utilized approximately $5.3 million of cash for
the three months ended March 31, 2000. Central Maine received $16.9 million in
deposits from customers relating to pending merchant plant activity. Central
Maine could be required in the future to refund some or all of the customer
deposits associated with merchant plant upon a decision by FERC regarding the
responsibility for funding associated network upgrades. In order to accommodate
existing and future loads on its electric system Central Maine is engaged in a
continuing construction program. Central Maine's plans for improvements and
expansions, its load forecasts and its power-supply sources are under a process
of continuing review. Actual construction expenditures depend upon the
availability of capital and other resources, load forecasts, customer growth,
the number of merchant plants constructed in Central Maine territory, and
general business conditions. The ultimate nature, timing and amount of financing
for Central Maine's total construction programs, refinancing, and
energy-management capital requirements will be determined in light of market
conditions, earnings and other relevant factors.
During the three months ended March 31, 2000, CMP Group paid dividends on common
stock of $7.3 million, while preferred-stock dividends paid by Central Maine
utilized $0.6 million of cash.
Central Maine's Articles of Incorporation limit certain unsecured indebtedness
that may be outstanding to 20 percent of capitalization, as defined, without the
consent of the holders of Central Maine's preferred stock; 20 percent of defined
capitalization amounted to $124 million as of March 31, 2000. Unsecured
indebtedness, as defined, amounted to $57 million as of March 31, 2000. Central
Maine's $500 million medium-term note program, having received the consent of
Central Maine's preferred stockholders in May 1997, is not included in
"unsecured indebtedness" for purposes of the 20-percent limitation. Central
Maine had $40 million of medium-term notes outstanding at March 31, 2000.
On December 31, 1999, Central Maine entered into a $75 million three-year
secured revolving-credit facility with three banks, with The Bank of New York
acting as administrative agent. The facility provides for LIBOR-priced and
base-rate-priced loans, which are secured by a security interest in Central
Maine's accounts receivable. The arrangement also requires the payment of
customary fees, based in large part on Central Maine's credit ratings. The
amount of Central Maine's short-term borrowing will fluctuate with day-to-day
operational needs, the timing of long-term financing, and market conditions. No
loans were outstanding under the new facility at March 31, 2000.
On February 15, 2000, CMP Group announced that New England Business Trust, a
wholly-owned indirect subsidiary, intended to sell approximately 2.5 million
shares of its 6.177-million-share common-stock holding in NEON through an
underwritten public offering expected to be completed during the second calendar
quarter of 2000. Although the market value of NEON's common stock is
substantially higher than it was at the time of NEON's 1998 initial public
offering, its market value has been fluctuating and CMP Group cannot accurately
estimate the amount of proceeds to be realized through the planned offering.
In August 1998, the MPUC approved Central Maine's application to purchase up to
11 million shares of its outstanding common stock over a three-year period, with
a limitation of three million shares that may be repurchased prior to the
closing of the sale of Central Maine's generating assets. The amount of any
stock purchases and their timing by Central Maine or CMP Group will depend on
the need for equity in the respective Company's capital structure, investment
opportunities and other considerations.
Upon completion of the merger of CMP Group and Energy East, Central Maine
intends to conform its capital structure to the 47-percent common-equity ratio
required by the MPUC. This process may include repurchases of common stock by
Central Maine and CMP Group and would reduce Central Maine's liquidity and
increase its financing requirements.
Permanent Shutdown of Maine Yankee Plant
On August 6, 1997, the Board of Directors of Maine Yankee voted to permanently
cease power operations at its nuclear generating plant at Wiscasset, Maine (the
"Plant") and to begin decommissioning the Plant. The Plant had experienced a
number of operational and regulatory problems and did not operate after December
6, 1996. The decision to close the Plant permanently was based on an economic
analysis of the costs, risks and uncertainties associated with operating the
Plant compared to those associated with closing and decommissioning it. The
Plant's operating license from the NRC was scheduled to expire in 2008.
FERC Rate Case - On November 6, 1997, Maine Yankee submitted to FERC 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 for hearing Maine
Yankee's Amendatory Agreements, rates, and issues concerning the prudence of the
Plant-shutdown decision that had been raised by intervenors.
During 1998 and early 1999 the active intervenors, including among others the
MPUC Staff, the Maine Office of the Public Advocate ("OPA"), Central Maine and
other owners, municipal and cooperative purchasers of Maine Yankee power (the
"Secondary Purchasers"), and a Maine environmental group (the "Settling
Parties"), engaged in extensive discovery and negotiations, which resulted in
the filing of a settlement agreement with the FERC on January 19, 1999. A
separately negotiated settlement filed with the FERC on February 5, 1999,
resolved 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. Both settlements were
found to be in the public interest and approved by the FERC on June 1, 1999. The
settlements constitute full settlement of all issues raised in the 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.
The primary settlement provided for Maine Yankee to collect $33.1 million in the
aggregate annually, effective August 1, 1999, including both decommissioning
costs and costs related to Maine Yankee's planned on-site independent spent fuel
storage installation ("ISFSI"). The 1997 FERC filing had called for an aggregate
annual collection rate of $36.4 million for decommissioning and the ISFSI, based
on a 1997 estimate. Pursuant to the approved settlement the amount collected
annually has been reduced to approximately $25.6 million, effective October 1,
1999, as a result of 1999 Maine legislation allowing Maine Yankee to (1) use for
construction of the ISFSI funds held in trust under Maine law for spent-fuel
disposal, and (2) access approximately $6.8 million 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 in question after rejection of
the selected disposal site in west Texas by a Texas regulatory agency.
The settlement also provides for recovery of the 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, which resulted in a pro-rata refund of $9.3 million (including tax
impacts) to the sponsors on July 15, 1999. The Settling Parties also agreed 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. In addition, the settlement contains incentives for Maine
Yankee to achieve further savings in its decommissioning and ISFSI-related costs
and resolves issues concerning restoration and future use of the Plant site and
environmental matters of concern to certain of the intervenors in the
proceeding.
As a separate part of the settlement, Central Maine, the other two Maine
utilities which own interests in 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 is recovering its Maine Yankee costs in
accordance with its most recent rate order from the MPUC.
Finally, the Maine Agreement requires Central Maine and the other two Maine
Utilities, 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 $31.2 million for the period.
Based on the results of the two year entitlement auction already completed, the
Company will not incur any liability for this provision in year 2000 and does
not believe that it will incur any liability in 2001.
CMP Group and Central Maine believe that the approved settlement, including the
Maine Agreement, constitutes a reasonable resolution of the issues raised in the
Maine Yankee FERC proceeding, which eliminated significant uncertainties
concerning CMP Group's and Central Maine's future financial performance.
Termination of Decommissioning Operations Contract - On May 4, 2000, Maine
Yankee notified its decommissioning operations contractor, Stone & Webster
Engineering Corporation ("Stone & Webster"), that it was terminating its
decommissioning operations contract pursuant to the terms of the contract.
Subsequently, Stone & Webster notified Maine Yankee that it was disputing Maine
Yankee's grounds for terminating the contract. On May 8, 2000, Stone & Webster
announced that it had signed a letter of intent with Jacobs Engineering Group,
Inc. ("Jacobs"), regarding a proposed transaction in which Jacobs would acquire
substantially all of Stone & Webster's assets in exchange for an immediate $50
million secured credit facility and other stated consideration, including cash
and stock. Stone & Webster said that the credit facility was intended to enable
it to address its current liquidity difficulties and continue to operate its
businesses until the asset sale is consummated. In addition, Stone & Webster
announced that, as a condition to the proposed transactions with Jacobs, it
intended to seek bankruptcy court approval of the asset sale and credit
agreement, and therefore intended to file a voluntary petition for
reorganization under Chapter 11 of the U.S. Bankruptcy Code after it signed a
definitive sale agreement with Jacobs, which it expected to occur later in May.
Maine Yankee has stated that it remains committed to the successful completion
of the decommissioning project and on May 10, 2000, entered into an interim
agreement with Stone & Webster for the purposes of avoiding the adverse
consequences of an abrupt or inefficient demobilization from the Plant site and
allowing decommissioning work to continue through June 30, 2000. During that
period Maine Yankee will also continue to evaluate all available long-term
alternatives for safely and efficiently completing the decommissioning project.
However, we cannot predict at this time what effect the financial difficulties
of Stone & Webster, the interim agreement, or any subsequent arrangement with
Stone & Webster or a new general contractor will have on the cost or schedule of
the decommissioning project.
Regulation
General - Central Maine and its public utility affiliates are subject to the
regulatory authority of the MPUC as to retail rates, accounting, service
standards, territory served, the issuance of securities maturing more than one
year after the date of issuance, certification of transmission projects and
various other matters. Central Maine is also subject to the jurisdiction of the
FERC under the Federal Power Act for some phases of its business, including
accounting, rates relating to wholesale sales and to interstate transmission and
sales of energy and certain other matters.
The Maine Yankee Plant and the other nuclear generating facilities in which
Central Maine has an interest are subject to regulation by the NRC. The NRC is
empowered to authorize the siting, construction, operation and decommissioning
of nuclear reactors after consideration of public health, safety, environmental
and antitrust matters.
The United States EPA administers programs which affect Central Maine's
remaining generating facilities. The EPA has broad authority in administering
these programs, including the ability to require installation of
pollution-control and mitigation devices. CMP Group and Central Maine are also
subject to regulation by various state, local and other federal authorities with
regard to land use and other environmental matters. For further discussion of
environmental considerations as they affect CMP Group and Central Maine, see
"Environmental Matters", below, and Note 2, "Legal and Environmental Matters."
Other activities of CMP Group and Central Maine from time to time are subject to
the jurisdiction of various other state and federal regulatory agencies,
including the SEC with respect to the issuance of securities and related
matters.
Electric-Utility Industry Restructuring
Maine Restructuring Legislation - The Maine Legislature enacted legislation in
1997 to restructure the electric utility industry in Maine effective March 1,
2000. The principal restructuring provisions of the legislation provided for
customers to have direct retail access to generation services and for
deregulation of competitive electric providers, commencing March 1, 2000, with
transmission-and-distribution companies such as Central Maine continuing to be
regulated by the MPUC. By that date, investor-owned utilities were required to
divest all generation assets and generation-related business activities, with
two major exceptions: (1) non-utility generator contracts with qualifying
facilities and contracts with demand-side management or conservation providers,
brokers or hosts, and (2) ownership interests in nuclear power plants. As
discussed below under "Sale of Generation Assets," Central Maine completed the
sale of its non-nuclear generating assets on April 7, 1999.
The legislation also required investor-owned utilities to sell their rights to
the capacity and energy from all undivested generation assets after February 29,
2000, including nuclear generation assets and the purchased-power contracts that
had not previously been divested pursuant to the legislation. On July 30, 1999,
Central Maine offered its rights to the capacity and energy from its undivested
generation assets and generation-related business to prospective bidders and in
December 1999 contracted to sell such rights with respect to its undivested
nuclear generation assets (Vermont Yankee and Millstone Unit 3) and its NUG
contract entitlements for a two-year period commencing March 1, 2000.
As a transmission-and-distribution utility since March 1, 2000, Central Maine is
prohibited from selling electric energy to retail customers, except as may be
directed by the MPUC. Any competitive electricity provider affiliated with
Central Maine would be allowed to sell electricity outside Central Maine's
service territory without limitation as to amount, but within Central Maine's
service territory the affiliate would be limited to providing not more than 33
percent of the total kilowatt-hours sold with Central Maine's service territory,
as determined by the MPUC. CMP Group has determined that it does not intend to
create such an affiliate.
MPUC Proceeding on Stranded Costs, Revenue Requirements, and Rate Design - By
order dated March 19, 1999, the MPUC completed the first phase of its proceeding
contemplated by Maine's restructuring legislation to establish the recoverable
amount and timing of Central Maine's stranded costs, its revenue requirements
and the design of its rates effective March 1, 2000. In its Phase I order the
MPUC decided the "principles" by which it would set Central Maine's
transmission-and-distribution rates, but deferred actually calculating the rates
until later in the proceeding because some of the necessary information was not
yet available.
With respect to stranded costs, the MPUC indicated that it would set the amount
of recoverable stranded costs for Central Maine later in the proceeding. The
restructuring statute requires the MPUC to provide transmission-and-distribution
utilities a reasonable opportunity to recover such costs that is equivalent to
the utility's opportunity to recover those costs prior to the commencement of
retail access. The MPUC also reviewed the prescribed methodology for determining
the amount of a utility's stranded costs, including among other factors the
application of excess value from Central Maine's divested generation assets to
offset stranded costs.
In the area of revenue requirements, the Phase I order did not establish
definitive amounts, but did contain the MPUC's conclusion that the appropriate
cost of common equity for Central Maine as a transmission-and-distribution
company was 10.50 percent, with a common-equity component of 47 percent. In
dealing with rate design, the MPUC again limited itself primarily to
establishing principles that would guide it in designing Central Maine's rates
effective March 1, 2000.
On July 1, 1999, Central Maine filed its Phase II case with the MPUC. In that
filing Central Maine updated certain test-year data to reflect known and
measurable changes to its revenue requirement, updated its stranded cost
estimate to reflect actual data from the April 1999 closing of its
generation-asset sale, and proposed its rate design based on the principles
enunciated in the Phase I order. Some of the information needed to establish
rates was still incomplete in that filing, however, since neither the auction of
the output of Central Maine's non-divested generation resources nor the bid
process for "standard-offer" service (for those customers who do not select a
competitive energy supplier) had been completed. In addition, several issues
raised by the Phase I MPUC order remained unresolved, including, among others,
(i) whether the MPUC could require the unamortized investment tax credits and
excess deferred income taxes associated with the sale of Central Maine's
generation assets to be flowed through to ratepayers, and (ii) the rate
treatment of the gain on the sale of Union Water's generation-related assets to
FPL and employee transition costs resulting from the generation-asset sale.
In an order dated December 3, 1999, in a separate but related proceeding, the
MPUC approved Central Maine's plan for the sale of the output of its
non-divested generation assets. In another related proceeding, by order dated
October 25, 1999, the MPUC accepted a competitive energy supplier's bid to
provide standard-offer service to Central Maine's residential and small
commercial customers who did not select a competitive energy supplier after
March 1, 2000. In the same order the MPUC rejected all of the standard-offer
bids for Central Maine's medium and large commercial and industrial customers
and sought a second round of bids. In the December 3 order the MPUC rejected all
of the second round of standard-offer bids for Central Maine's medium and large
classes and ordered that Central Maine arrange such service for those classes.
On January 19, 2000, the MPUC issued its Phase II order determining Central
Maine's revenue requirement as a transmission-and-distribution utility,
effective March 1, 2000. In the order the MPUC disallowed approximately $8
million of the approximately $12 million revenue increase requested in Central
Maine's Phase II filing, which had been based on certain known and measurable
changes to its revenue requirement.
A negotiated settlement approved by the MPUC on January 27, 2000, resolved the
major issues remaining outstanding in the final phase of the ratemaking
proceeding. The settlement confirmed that the $18.2 million of unamortized
investment tax credits and excess deferred income taxes related to Central
Maine's generation-asset sale would flow through to shareholders pursuant to the
normalization rules of the Internal Revenue Code. In addition, Central Maine
agreed not to seek judicial review of an August 2, 1999 MPUC order regarding the
treatment of gains from sales of easements that required Central Maine to
recognize 10 percent of the gain currently with the remaining 90 percent being
amortized over 5 years, effective as of the dates of the 1998 and 1999 sale
transactions. Central Maine also agreed not to seek reconsideration of other
cost-of-service updates in the rate case or to challenge an $4.7 million
disallowance of employee transition costs, and to withdraw its appeal of the
rate treatment of the gain on Union Water's generation-related assets.
The settlement also allowed Central Maine to charge off $88 million on March 1,
2000, representing its entire remaining investment in the Millstone 3 nuclear
unit in Connecticut, against the regulatory Asset Sale Gain Account created in
the ratemaking proceeding to recognize the above-book value realized through
Central Maine's generation-asset sale. This provision reflected a recent
resolution of Central Maine's arbitration and litigation claims against the lead
owners of the jointly-owned Millstone 3 unit, in which Central Maine owns a
2.5-percent interest.
As part of the settlement Central Maine also agreed to a one-time earnings cap
for 1999. Earnings above the cap were deferred in 1999 and will be used to
offset rate increases that would otherwise be required to mitigate stranded
costs and increases in operating expenses through 2001.
Finally, the rate settlement established Central Maine's rates as a
transmission-and-distribution utility effective March 1, 2000. A separate order
fixed the standard-offer prices for Central Maine's medium and large commercial
and industrial customers at levels intended to reflect current market pricing
and to avoid under-collection of Central Maine's costs.
The combined after-tax effect of the provisions of the ratemaking settlement,
including the earnings cap, was to reduce CMP Group's net income for 1999 by $11
million.
Central Maine estimates that customers on its standard residential rate and
small commercial customers are saving an average of nine to ten percent on their
total electric bills after March 1, 2000, compared to earlier bills for the same
kwh usage. Central Maine believes that its medium and large commercial and
industrial customers can realize savings ranging from minimal to almost fifteen
percent, with the greater savings going to customers who select a competitive
energy supplier rather than taking the standard-offer service.
<PAGE>
Expansion of Lines of Business
General - CMP Group has been expanding its business opportunities through
investments that capitalize on core competencies. CMP International Consultants
(d/b/a CNEX), a wholly owned subsidiary of CMP Group, provides management,
planning, consulting and research and information services to foreign and
domestic utilities and government agencies. TeleSmart, a wholly owned subsidiary
of CMP Group, which provided accounts receivable management services for utility
clients was closed by CMP Group on February 14, 2000, after a review of the
subsidiary's prospects. The Union Water-Power Company, a wholly owned subsidiary
of CMP Group, provides utility construction and support services (On Target
division); energy efficiency performance contracting and energy use and
management services (Combined Energies division); and real estate development
services (UnionLand Services division).
Natural Gas Distribution - New England Gas Development Corporation ("New England
Gas"), which is a wholly owned subsidiary of CMP Group, holds approximately a 16
percent interest at March 31, 2000 in CMP Natural Gas, L.L.C., now called Maine
Natural Gas, L.L.C. ("Maine Natural Gas"). Maine Natural Gas is a joint venture
of New England Gas and Energy East Enterprises, a wholly owned subsidiary of
Energy East, and is subject to regulation as a public utility by the MPUC. Maine
Natural Gas was formed to construct, own and operate a natural gas distribution
system to serve certain areas of Maine that did not have gas service, utilizing
natural gas delivered to Maine through new interstate pipeline facilities.
Maine Natural Gas began construction of its first local distribution system in
Windham, Maine, in early 1999 and began serving its first customer in May. On
July 8, 1999, Maine Natural Gas and Calpine Corporation, a California-based
independent power company, announced the signing of a 20-year contract for Maine
Natural Gas to provide natural gas delivery service to Calpine's proposed
540-megawatt natural gas-fired power plant under construction in Westbrook,
Maine. Maine Natural Gas expects to commence service to the plant in the summer
of 2000, after construction of a two-mile lateral pipeline along an existing
Central Maine right of way that would interconnect with the new interstate
pipeline facilities. On December 13, 1999, the MPUC authorized Maine Natural Gas
to provide service to the Calpine plant, as well as the unserved areas in the
town of Gorham, and on February 18, 2000, the MPUC approved an
affiliated-interest transaction allowing Maine Natural Gas to construct the
pipeline on Central Maine's transmission corridor.
If the merger of CMP Group and Energy East is completed, Maine Natural Gas will
become a wholly owned subsidiary of Energy East Enterprises, and New England Gas
will cease to exist. During 1999 Energy East also agreed to business
combinations with two established natural gas distribution companies in
Connecticut and one in western Massachusetts, subject to closing conditions,
including shareholder votes and regulatory approvals. One of the Connecticut
acquisitions was completed in February 2000. The other two transactions are
awaiting SEC approval.
Telecommunications Investment - MaineCom Services, which is wholly owned by CMP
Group, provides telecommunications services, including point-to-point
connections, private networking, consulting, private voice and data transport,
carrier services, and long-haul transport. MaineCom Services also holds, through
wholly owned New England Business Trust, an approximately 38-percent interest in
NorthEast Optic Network, Inc. ("NEON"), a facilities-based provider of
technologically advanced, high-bandwidth, fiber optic transmission capacity for
communications carriers on local loop, inter-city, and interstate facilities.
NEON owns and operates and is expanding a fiber optic network in New England and
New York, utilizing primarily electric utility rights of way, including some of
Central Maine's and some owned by other electric utilities including Northeast
Utilities, another substantial minority stockholder.
On November 23, 1999, NEON announced two major agreements, one with Consolidated
Edison Communications, Inc. ("CEC"), a wholly owned subsidiary of Consolidated
Edison, Inc., and the other with Excelon, a wholly owned subsidiary of PECO
Energy, Inc. The agreements effectively expanded the reach of the network to
include the Philadelphia, Baltimore and Washington, D.C., areas. As the
agreements are implemented, CEC will obtain an approximately ten-percent
interest in NEON and Excelon an interest of approximately nine percent.
In August 1998 NEON completed initial public offerings of $48 million of common
stock and $180 million of senior notes. As part of the common-stock offering
Central Maine sold some of the shares it then owned in NEON for approximately
$3.1 million. With some of the proceeds of the offerings NEON repaid
approximately $18 million Central Maine had advanced under an earlier
construction loan agreement.
On February 15, 2000, CMP Group announced that New England Business Trust, a
wholly-owned indirect subsidiary, intended to sell approximately 2.5 million
shares of its 6.177-million-share common-stock holding in NEON through an
underwritten public offering expected to be completed during the second calendar
quarter of 2000. Although the market value of NEON's common stock is
substantially higher than it was at the time of NEON's 1998 initial public
offering, its market value has been fluctuating and CMP Group cannot accurately
estimate the amount of proceeds to be realized through the planned offering.
CMP Group believes that although NEON operated at a loss in 1999 and in the
first quarter of 2000, there is a need for the fiber optic network it is
constructing in the northeastern United States. CMP Group, however, cannot
predict the future results of NEON's operations.
Environmental Matters
Federal, state and local environmental laws and regulations cover air and water
quality, land use, power plant and transmission line siting, noise and
aesthetics, solid and hazardous waste and other environmental matters.
Compliance with these laws and regulations impacts the manner and cost of
electric service by requiring, among other things, changes in the design and
operation of existing facilities and changes or delays in the location, design,
construction and operation of new facilities. In the past, these environmental
regulations most significantly affected Central Maine's electric power
generating facilities, which were sold to FPL Group in April 1999, as discussed
above. In addition, Central Maine is subject to environmental proceedings under
federal and state hazardous substance and hazardous waste regulations (such as
the Comprehensive Environmental Response, Compensation, and Liability Act
("CERCLA") and the Resource Conservation and Recovery Act ("RCRA") and similar
state statutes). Central Maine estimates that its capital expenditures for
improvements needed to comply with environmental laws and regulations were
approximately $9.9 million for the five years from 1995 through 1999.
Item 3: Quantitative and Qualitative Disclosures About Market Risk
CMP Group is exposed to interest rate risk through the use of fixed-rate and
variable-rate debt and preferred stock as sources of capital. As of March 31,
2000, Central Maine had $40 million of medium-term notes outstanding, $10
million of which bear floating, LIBOR-based rates.
Variable Long Term Fixed Long Term
------------------ ---------------
(dollars in thousands)
Weighted Average Rates 9.19% 7.22%
Balance at March 31, 2000 $34,854 $165,575
Maturity Period 2000 - 2019 2000 - 2021
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Regulatory Matters - For a discussion of certain significant regulatory matters
affecting CMP Group and Central Maine, including those related to the proposed
merger with Energy East, and an MPUC proceeding that determined Central Maine's
stranded costs, revenue requirements and related matters, see Item 2 of Part I,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations of CMP Group ad Central Maine Power Company," "Formation of Holding
Company and Proposed Merger," and "MPUC Proceeding on Stranded Costs, Revenue
Requirements and Rate Design," which are incorporated herein by reference.
Maine Yankee - For a discussion of the termination by Maine Yankee of its
decommissioning operations contract with Stone & Webster and related matters,
see Item 2 of Part I, "Management's Discussion and Analysis of Financial
Condition and Results of Operations of CMP Group and Central Maine Power
Company," - "Permanent Shutdown of Maine Yankee Plant," - "Termination of
Decommissioning Operations Contract."
Arbitration Claim - For a discussion of an arbitration claim by the minority
owners of the Wyman Unit No. 4 generating unit against Central Maine seeking a
share of the proceeds from Central Maine's generating-asset sale, see Note 2,
"Commitments and Contingencies" - "Wyman No. 4 Arbitration," which is
incorporated herein by reference.
Environmental Matters - For a discussion of administrative and judicial
proceedings concerning cleanup of hazardous waste sites, see Note 2,
"Commitments and Contingencies," "Legal and Environmental Matters," which is
incorporated herein by reference.
Item 2. through Item 4. Not applicable
Item 5. Other Information.
Change in Annual Meeting Date and Deadline for Shareholder Proposals - On
February 17, 2000, CMP Group announced a change in its annual shareholders
meeting date from May 18, 2000, to October 31, 2000.
For a shareholder proposal to be considered for inclusion in the proxy statement
and form of proxy for the 2000 annual meeting of shareholders of CMP Group, it
must be received by Anne M. Pare, Secretary, CMP Group, Inc., 83 Edison Drive,
Augusta, Maine 04336, on or before May 22, 2000.
Under the articles of incorporation of CMP Group, a shareholder who wishes to
nominate a candidate for election to the board of directors of CMP Group at the
2000 annual meeting of shareholders of CMP Group or bring any matter before that
meeting (other than matters included in CMP Group's proxy materials) must submit
the nomination or the matter to the Secretary of CMP Group no earlier than
August 2, 2000 and no later than September 1, 2000. The notice must also meet
other requirements set forth in the articles of incorporation.
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits. None.
(b) Reports on Form 8-K. The Company filed the following reports on Form
8-K during the first quarter of 2000 and thereafter to date:
Date of Report Items Reported
January 27, 2000 Item 5
CMP Group and Central Maine reported that on January 27, 2000, CMP Group had
issued a release reporting on (a) its 1999 operating results and a related
January 27, 2000, settlement of an MPUC regulatory proceeding involving several
Central Maine ratemaking issues, and (b) progress in obtaining regulatory
approvals for its planned merger with Energy East, and quoted relevant parts of
the release..
Date of Report Items Reported
February 17, 2000 Item 5
CMP Group reported that on February 17, 2000, it had issued a release announcing
a change in its annual meeting date from May 18, 2000, to October 31, 2000, and
quoted the release.
<PAGE>
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrants have duly caused this report to be signed on their respective
behalfs by the undersigned thereunto duly authorized.
CMP GROUP, INC.
Date: May 15, 2000 By /s/ Arthur W. Adelberg
--------------- ----------------------------------------------
Arthur W. Adelberg, Executive Vice President
and Chief Financial Officer (Principal
Financial Officer and duly authorized officer)
CENTRAL MAINE POWER COMPANY
Date: May 15, 2000 By /s/ Michael W. Caron
--------------- ----------------------------------------------
Michael W. Caron, Comptroller (Chief
Accounting Officer and duly authorized officer)
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This schedule contains summary financial information extracted from CMP
Group, Inc. Consolidated Statement of Earnings, Consolidated Balance
Sheet and Consolidated Statement of Cash Flows and is qualified in its entirety
by reference to such financial statements.
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