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, 1994
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 1-5139
CENTRAL MAINE POWER COMPANY
(Exact name of registrant as specified in its charter)
Incorporated in Maine 01-0042740
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Edison Drive, Augusta, Maine 04336
(Address of principal executive offices) (Zip Code)
207-623-3521
(Registrant's telephone number including area code)
(Former name, former address and former fiscal year, if changed
since last report.)
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to the filing
requirements for at least the past 90 days.
Yes X No
Indicate the number of shares outstanding of each of the
issuer's classes of Common Stock, as of the latest practicable
date.
Shares Outstanding
Class as of May 9, 1994
Common Stock, $5 Par Value 32,442,752
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Central Maine Power Company
INDEX
Page No.
Part I. Financial Information
Consolidated Statement of Earnings for the
Three Months Ended March 31, 1994 and 1993 1
Consolidated Balance Sheet - March 31, 1994 and
December 31, 1993:
Assets 2
Stockholders' Investment and Liabilities 3
Consolidated Statement of Cash Flows for the
Three Months Ended March 31, 1994 and 1993 4
Notes to Consolidated Financial Statements 5
Management's Discussion and Analysis of Financial
Condition and Results of Operations 11
Part II. Other Information 16
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Central Maine Power Company
CONSOLIDATED STATEMENT OF EARNINGS
(Unaudited)
(Dollars in Thousands Except Per Share Amounts)
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For the Three
Months Ended
March 31,
1994 1993
ELECTRIC OPERATING REVENUES $241,026 $236,021
OPERATING EXPENSES
Fuel Used for Company Generation 5,388 3,654
Purchased Power
Energy 122,932 109,193
Capacity 15,070 19,647
Other Operation 36,952 34,558
Maintenance 7,050 6,476
Depreciation and Amortization 13,881 13,107
Federal and State Income Taxes 8,328 10,307
Taxes Other Than Income Taxes 6,672 7,360
Total Operating Expenses 216,273 204,302
EQUITY IN EARNINGS OF ASSOCIATED COMPANIES 1,480 1,579
OPERATING INCOME 26,233 33,298
OTHER INCOME (EXPENSE)
Allowance for Equity Funds Used During Construction 221 473
Other, Net (4,357) 918
Income Taxes Applicable to Other Income (Expense) 1,512 (394)
Total Other Income (Expense) (2,624) 997
INCOME BEFORE INTEREST CHARGES 23,609 34,295
INTEREST CHARGES
Long-Term Debt 11,120 11,192
Other Interest 1,207 1,798
Allowance for Borrowed Funds Used During
Construction (134) (268)
Total Interest Charges 12,193 12,722
NET INCOME 11,416 21,573
DIVIDENDS ON PREFERRED STOCK 2,628 2,268
EARNINGS APPLICABLE TO COMMON STOCK $ 8,788 $ 19,305
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING 32,441,356 31,348,321
EARNINGS PER SHARE OF COMMON STOCK $0.27 $0.62
DIVIDENDS DECLARED PER SHARE OF COMMON STOCK $0.225 $0.39
The accompanying notes are an integral part of these financial statements.
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Central Maine Power Company
CONSOLIDATED BALANCE SHEET
(Dollars in Thousands)
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March 31, Dec. 31,
1994 1993
(Unaudited)
ASSETS
ELECTRIC PROPERTY, at Original Cost $1,557,652 $1,564,875
Less: Accumulated Depreciation 495,309 503,280
Electric Property in Service 1,062,343 1,061,595
Construction Work in Progress 14,576 19,689
Net Nuclear Fuel 1,599 1,822
Net Electric Property and Nuclear Fuel 1,078,518 1,083,106
INVESTMENTS IN ASSOCIATED COMPANIES, at Equity 47,579 47,452
Net Electric Property, Nuclear Fuel and
Investments in Associated Companies 1,126,097 1,130,558
CURRENT ASSETS
Cash and Temporary Cash Investments 48,107 1,956
Accounts Receivable, Less Allowance for
Uncollectible Accounts of $2,245 in 1994 and
$2,704 in 1993
Service - Billed 92,729 83,330
- Unbilled 59,334 67,022
Other Accounts Receivable 9,561 10,651
Prepaid Income Taxes - 1,335
Undercollected Retail Fuel Costs 45,976 84,708
Inventories, at Average Cost
Fuel Oil 5,144 6,939
Materials and Supplies 14,627 14,430
Funds on Deposit With Trustee 27,758 27,758
Prepayments and Other Current Assets 6,764 8,008
Total Current Assets 310,000 306,137
DEFERRED CHARGES AND OTHER ASSETS
Recoverable Costs of Seabrook 1 and Abandoned
Projects, Net 108,326 110,443
Regulatory Assets-Deferred Taxes 238,576 237,387
Yankee Atomic Purchase Power Contract 31,463 32,775
Other Deferred Charges and Other Assets 181,883 187,562
Deferred Charges and Other Assets, Net 560,248 568,167
TOTAL ASSETS $1,996,345 $2,004,862
The accompanying notes are an integral part of these financial statements.
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Central Maine Power Company
CONSOLIDATED BALANCE SHEET
(Dollars in Thousands)
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March 31, Dec. 31,
1994 1993
(Unaudited)
STOCKHOLDERS' INVESTMENT AND LIABILITIES
CAPITALIZATION
Common Stock Investment $ 555,787 $ 553,389
Preferred Stock 65,571 65,571
Redeemable Preferred Stock 80,000 80,000
Long-Term Obligations 590,894 581,844
Total Capitalization 1,292,252 1,280,804
CURRENT LIABILITIES AND INTERIM FINANCING
Interim Financing 48,500 68,500
Sinking Fund Requirements 3,290 3,421
Accounts Payable 95,237 94,417
Dividends Payable 9,932 9,468
Accrued Interest 7,944 12,680
Accrued Income Taxes 2,058 -
Miscellaneous Current Liabilities 12,421 13,137
Total Current Liabilities and Interim
Financing 179,382 201,623
COMMITMENTS AND CONTINGENCIES
RESERVES AND DEFERRED CREDITS
Accumulated Deferred Income Taxes 344,410 341,349
Unamortized Investment Tax Credits 36,275 36,679
Regulatory Liabilities-Deferred Taxes 51,158 49,734
Yankee Atomic Purchase Power Contract 31,463 32,775
Other Reserves and Deferred Credits 61,405 61,898
Total Reserves and Deferred Credits 524,711 522,435
TOTAL STOCKHOLDERS' INVESTMENT AND
LIABILITIES $1,996,345 $2,004,862
The accompanying notes are an integral part of these financial statements.
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Central Maine Power Company
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
(Dollars in Thousands)
(Note 1)
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For the Three
Months Ended
March 31,
1994 1993
CASH FROM OPERATIONS
Net Income $ 11,416 $ 21,573
Items Not Requiring (Not Providing) Cash:
Depreciation and Amortization 17,880 15,397
Deferred Income Taxes and Investment Tax
Credits, Net 2,454 1,016
Allowance for Equity Funds Used During
Construction (221) (473)
Changes in Certain Assets and Liabilities:
Accounts Receivable (621) (16,602)
Other Current Assets 1,244 3,558
Inventories 1,598 622
Retail Fuel Costs 38,732 38,367
Accounts Payable 3,856 (5,167)
Accrued Interest (4,736) (1,154)
Accrued Income Taxes 3,393 8,822
Miscellaneous Current Liabilities (716) 483
Deferred Energy Management Costs (1,200) (1,689)
Maine Yankee Outage Accrual (2,207) (2,126)
Other, Net 4,754 1,282
Net Cash Provided By Operating Activities 75,626 63,909
INVESTING ACTIVITIES
Construction Expenditures (6,883) (11,073)
Changes in Accounts Payable - Investing
Activities (3,036) (4,901)
Net Cash Used by Investing Activities (9,919) (15,974)
FINANCING ACTIVITIES
Issuances:
Common Stock 927 6,303
Mortgage Bonds 75,000
Medium Term Notes 4,000
Redemptions:
Short-Term Obligations, Net (15,000) (52,500)
Premium on Redemptions (3,075)
Preferred Stock (7,125)
Mortgage Bonds (50,000)
Dividends:
Common Stock (7,305) (12,175)
Preferred Stock (2,178) (2,479)
Net Cash Used by Financing Activities (19,556) (46,051)
Net Increase In Cash 46,151 1,884
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 1,956 926
$ 2,810 CASH AND CASH EQUIVALENTS, END OF PERIOD
The accompanying notes are an integral part of these financial
statements.
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Central Maine Power Company
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
Certain information in footnote disclosures normally included
in financial statements prepared in accordance with generally
accepted accounting principles has been condensed or omitted
in this Form 10-Q pursuant to the rules and regulations of
the Securities and Exchange Commission. However, the
disclosures herein, when read with the Annual Report on Form
10-K for the year ended December 31, 1993 (Form 10-K), are
adequate to make the information presented herein not
misleading.
The consolidated financial statements include the accounts of
Central Maine Power Company (the Company) and its 78
percent-owned subsidiary, Maine Electric Power Company, Inc.
(MEPCO). The Company accounts for its investments in
associated companies not subject to consolidation using the
equity method.
The Company's significant accounting policies are contained
in Note 1 of Notes to Consolidated Financial Statements in
the Company's Form 10-K. For interim accounting periods the
policies are the same. The interim financial statements
reflect all adjustments that are, in the opinion of
management, necessary to a fair statement of results for the
interim periods presented. All such adjustments are of a
normal recurring nature. For purposes of the statement of
cash flows, the Company considers all highly liquid
instruments purchased having maturities of three months or
less to be cash equivalents.
Supplemental Cash Flow Disclosure - Cash paid for the three
months ended March 31, 1994 and 1993 for interest, net of
amounts capitalized, amounted to $15.8 million and $13.0
million, respectively. Income taxes paid amounted to $1.0
million and $.8 million for the three months ended March 31,
1994 and 1993, respectively. The Company incurred no new
capital lease obligations in either period.
2. Commitments and Contingencies
Legal and Environmental Matters - The Company is a party in
legal and administrative proceedings that arise in the normal
course of business. In connection with one such proceeding,
the Company has been named a potentially responsible party
and has been incurring costs to determine the best method of
cleaning up an Augusta, Maine, site formerly owned by a
salvage company and identified by the Environmental
Protection Agency (EPA) as containing soil contaminated by
polychlorinated biphenyls (PCBs) from equipment originally
owned by the Company.
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In 1990, the Company and the EPA signed a negotiated consent
agreement, which was entered as an order by the United States
District Court for the District of Maine in 1991. The
agreement provided for studies, development of work plans,
additional EPA review, and eventual cleanup of the site by
the Company over a period of years, using the method and
level of cleanup selected by the EPA.
The Company has been investigating other courses of action
that might result in lower costs, and, in March 1992,
acquired title to the site to pursue the possibility of
developing it in a manner that would not require the same
method and level of cleanup currently provided in the
agreement. The Company also initiated a lawsuit against the
original owners of the site and Westinghouse Electric Co.
(Westinghouse), which had arranged for the equipment
disposal, seeking contributions toward past and future
cleanup costs. On November 8, 1993, the United States
District Court for the District of Maine rendered its
decision in the suit, holding that Westinghouse was
responsible for 41 percent of the necessary past and future
cleanup costs and the former owners 12.5 percent, other than
a small amount (less than 5 percent) of such costs not
attributable to PCB's for which Westinghouse was not held
responsible and the former owners were held responsible for
33 percent. The Court further concluded that the Company had
incurred approximately $3.3 million to that point in costs
subject to sharing among the parties.
At the same time, the Company has been actively pursuing
recovery of its costs through its insurance carriers and has
reached agreement with one for recovering a portion of those
costs. It has also filed lawsuits seeking such recovery from
other carriers.
In August 1991, the Company requested permission from the
Maine Public Utilities Commission (MPUC) to defer its
cleanup-related costs, with accrued carrying costs, on the
basis that such costs are allowable costs of service and
should be recoverable in rates. In August 1992, the MPUC
issued an order authorizing the Company to defer direct costs
associated with the site, incurred after August 9, 1991, with
accrued carrying costs. Approximately $1 million of costs
incurred from August 9, 1991, to date have been deferred.
Such costs incurred before the request were charged to a $3-
million reserve established in 1985.
Initial tests on the site have been completed and more
complex technological studies are still in progress. Prior
to the April 1994 change in the cleanup standard discussed
below, the Company believed that its share of the remaining
costs of the cleanup would total between $7 million and $11
million, depending on the level of cleanup ultimately
required and other variable factors. Such estimate was net
of the agreed insurance recovery and considered contributions
from Westinghouse and the former owners, but excluded
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contributions from the insurance carriers the Company has
sued, or any other third parties. As a result, the Company
recorded an estimated liability of $7 million and an equal
regulatory asset, reflecting the anticipated ratemaking
recovery of such costs when ultimately paid.
On April 8, 1994, the EPA announced changes to the remedy it
had previously selected, the principal change being to adjust
the soil cleanup standard to ten parts per million from the
one part per million established in the EPA's 1989 Record of
Decision, on the part of the site where PCBs were found in
their highest concentration. The EPA stated that the purpose
of adjusting the standard of cleanup was to accommodate the
selected technology's current inability to eliminate PCBs and
other chemical components on the site to the original
standard.
Because of the changes, the Company believes it is now more
probable that its share of the remaining cleanup costs will
total near the lower end of its previously estimated range of
$7 million to $11 million, based on the selected cleanup
method and the new standard, and considering the same third-
party contributions as described above. The Company cannot
predict with certainty the level and timing of the cleanup
costs, the extent they will be covered by insurance, or the
ratemaking treatment of such costs, but believes it should
recover substantially all of such costs through insurance and
rates. The Company also believes that the ultimate
resolution of the legal and environmental proceedings in
which it is currently involved will not have a material
adverse effect on its financial condition.
Power Purchase Contract Suit - In December 1992, the Company
terminated a 30-year power-purchase contract with Caithness
King of Maine Limited Partnership (Caithness) for the
purchase of approximately 80 megawatts of electric power from
a cogeneration project proposed for construction by Caithness
at Topsham, Maine. On March 17, 1993, after legal action was
threatened against the Company by Caithness, the Company
instituted a declaratory-judgment action against Caithness
and certain affiliated entities in the United States District
Court for the District of Maine seeking a judicial
confirmation of its right to terminate the contract. On
April 15, 1993, Caithness filed its response to the action,
including counterclaims alleging a breach of the contract by
the Company, among other claims, and seeking damages
estimated by Caithness to be in excess of $100 million or, in
the alternative, reformation of the contract, and other legal
relief.
In January 1994, a termination-and-settlement agreement was
reached between the parties, whereby Caithness would
terminate the project and release all rights, claims,
interests and entitlement thereunder, and the Company would
pay Caithness $5 million in consideration.
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On April 4, 1994, the MPUC approved a stipulation in which
the Company agreed not to seek recovery in rates of the costs
incurred pursuant to the termination and buy-out of its
purchased-power contract with Caithness. As a result, $4.5
million of costs not previously charged to expense were
reflected as a reduction in other income (expense) during the
first quarter of 1994. See Note 3, "Regulatory Matters -
Maine Public Utilities Commission," for further discussion of
the stipulation.
3. Regulatory Matters
Maine Public Utilities Commission - On December 14, 1993, the
MPUC issued its order in the Company's $83 million base-rate
proceeding. The MPUC's analysis indicated a need for
additional revenues of $51.5 million, yet found the Company
to be entitled to a net revenue increase of $26.2 million.
The Commission found a total cost of capital of 8.52 percent
and a cost of equity of 10.05 percent, after deducting a one-
half percent (.5%) return-on-equity penalty established by
the MPUC in a 1993 investigation of the Company's management
of certain independent-power-producer contracts as discussed
below. To arrive at its revenue-requirement conclusion, the
MPUC deducted $25.3 million "to adjust for management
inefficiency" after finding the Company's performance in the
areas of management efficiency and cost-cutting to have been
"inadequate."
The Company strongly disagreed with the MPUC's management-
efficiency finding and with the resulting deduction of nearly
one-half the revenue increase to which the Commission itself
found the Company to be otherwise entitled using traditional
ratemaking principles. The Company filed an appeal of the
base-rate order with the Maine Supreme Judicial Court (Law
Court).
On April 4, 1994, the MPUC approved a stipulation supported
by the Company and other parties to an earlier proceeding on
independent-power-producer contracts and the Company's 1993
base-rate case. In the stipulation, the Company agreed to
write-off $5 million in purchased-power costs, to be
implemented through a one-time reduction in its deferred fuel
cost balance and further agreed not to seek recovery in rates
of the approximately $5.5 million (of which $4.5 million was
deferred) in costs incurred in pursuing the termination and
buy-out in January 1994 of its purchased-power contract with
Caithness. The Company also agreed to withdraw its appeal to
the Law Court of the MPUC's October 1993 order in its power-
contract investigation, which will have the effect of
increasing the Company's annual base revenues by $4 million,
the amount of the stayed one-half percent return-on-equity
penalty, and to withdraw its appeal to the Law Court of the
MPUC's December 1993 decision in the Company's base-rate
case.
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In return, the stipulation provides that the Company will be
subject to no further prudence investigation, penalties or
disallowances resulting from any actions prior to March 1,
1994, in any respect in connection with the two contracts
that were the subject of the MPUC's imprudence finding and
the Caithness contract. In the stipulation the parties also
agreed that any further prudence investigation by the MPUC of
the Company's administration of purchased-power contracts
before April 4, 1994, would conclude with the issuance of a
final MPUC order no later than October 1, 1994. In addition,
the stipulation provides, in the event any such further
investigation occurs and the Company is found imprudent in
the administration of purchased-power contracts, in no event
will the Company be subject to a "disallowance or other
financially adverse consequences" if the Company's financial
condition is impaired to the extent such consequence, if
imposed in 1994, would result in the Company's earned rate of
return on common equity for the calendar year 1994 falling
325 basis points below the 10.05-percent rate of return on
common equity found reasonable by the MPUC in its December
1993 base-rate decision, regardless of when such disallowance
or adverse financial consequence is determined by the MPUC.
The stipulation also provides that the Company will not be
held imprudent for any action necessary to conform to a
standard of "commercial reasonableness" in contract
administration.
Finally, in addition to agreement on procedural matters, the
stipulation contains an agreement that the Company will be
subject to no further investigation, disallowance or other
financially adverse consequence with respect to its
administration of its "Capacity Deficiency Fund" and will not
be required to flow through to ratepayers any amounts
previously recorded to that fund. That provision allowed the
Company to reverse the $4.1 million charged against its
deferred fuel-cost balance.
The Company believes that the approval of the stipulation by
the MPUC resolves or limits a number of complex issues that
were posing significant risks to the Company and will allow
it to continue its efforts to restructure high-cost purchased
power contracts and work with the MPUC and other parties to
formulate an appropriate rate-stability plan.
Federal Energy Regulatory Commission - On August 2, 1991, the
Federal Energy Regulatory Commission (FERC) issued an order
requiring the Company to revise its rates to a level
reflecting the filed cost of service associated with each of
14 contracts for non-territorial sales, rather than the
negotiated market-based levels. On February 7, 1992, the
Company filed a settlement agreement under which, upon
approval by the FERC, the Company would be required to pay
approximately $2.6 million in refunds and for which the
Company had recorded a reserve of $4.5 million. On April 17,
1992, the FERC approved the settlement and made effective the
rates and refund obligations submitted with the settlement.
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As a result, $1.9 million of the reserve was reversed and
credited to income during the second quarter of 1992.
After rejection by the FERC of the Company's continuing
claims of disparate treatment based on its having been
ordered to make refunds while several similarly situated
utilities were not, on September 29, 1993, the FERC rescinded
the Company's obligation to make refunds. In making its
decision, the FERC invoked its "equitable discretion" and
agreed that, based on its having granted a general amnesty
from refunds to other utilities, circumstances had changed so
dramatically since its approval of the Company's 1992 refund
settlement that it would be "unfair to continue to single out
Central Maine for refunds." The FERC order allowed the
utilities that had shared the $2.6 million in refunds to
repay the Company, with interest, over a 24-month period.
The Company recorded approximately $3.0 million of income
during the third quarter of 1993, reflecting the refund
including interest.
The utility that had received the major share of the amount
refunded by the Company requested reconsideration of the FERC
rescission order. In April, 1994, the FERC approved a
settlement agreement filed by the Company and the utility
that received the major share of the original amount refunded
by the Company, which requires the Company to make cash
payments of $.4 million and sales of system power at a
discount to that utility. A similar proposal is being
negotiated with another party and, once it has been accepted,
it will be filed with FERC for approval. As a result of
these negotiations the Company reflected approximately $.6
million as a reduction in Electric Operating Revenues during
the first quarter of 1994.
Non-utility Generators - On April 15, 1994, the Governor of
Maine signed into law a bill allowing the Finance Authority
of Maine to borrow up to $100 million to lend to electric
utilities for financing buy-outs or other changes in NUG
contracts that would save money for customers. The State
agency's bonds, which do not pledge the full faith and credit
of the state, would nevertheless be likely to bear lower
interest rates than the bonds of the Company with its down-
graded credit rating. All agreements under the new law must
be approved by the MPUC and must be completed by May 1, 1995.
The new law will be effective July 14, 1994.
See Note 2, "Commitments and Contingencies - Power Purchase
Contract Suit," for a discussion of the Company's action
regarding the termination of one such contract.
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Item 2: Management's Discussion and Analysis of Financial
Condition and Results of Operations
Operating Results
Operating revenues in the first quarter of 1994 totaled $241
million, up 2.1 percent from $236 million in the first quarter of
1993. Revenues reflect rate increases as a result of the 1993
base rate case, fuel and Electric Revenue Adjustment Mechanism
(ERAM) decisions and a stipulation approved by the Maine Public
Utilities Commission (MPUC) in April 1994.
The combination of weak sales due to economic and competitive
pressures and a very disappointing and inadequate rate case
decision in December 1993, cannot provide the Company any
reasonable opportunity to achieve a level of 1994 earnings near
the 1993 level or its currently allowed rate of 10.55 percent on
common equity. The reduction in the Company's earnings capacity
for the near term takes into account the significant reductions
in previously planned 1994 operation, maintenance and capital
expenditures.
The Company's financial objectives for 1994 and beyond include
seeking cost reductions and cost control, risk reduction
associated with purchased-power contract review proceedings,
restructuring prices, achieving price flexibility to enhance its
ability to compete for sales and seeking rate recovery of the
costs of providing electric service. The Company's ability to
restore earnings to competitive levels and to improve overall
financial health depends significantly on meeting these
challenges.
As discussed further in Note 3 to Consolidated Financial
Statements "Regulatory Matters - Maine Public Utilities
Commission," on April 4, 1994, the MPUC unanimously approved a
negotiated settlement of a two-year-old dispute over the
Company's administration of contracts with non-utility generators
(NUGs). The stipulation requires a one-time $5 million write-off
of unrecovered fuel costs, precludes recovery of $4.5 million of
the costs of terminating the Caithness King NUG contract and
permits retention of $4.1 million of payments associated with the
capacity deficiency fund. As a result, first quarter 1994
earnings reflect a net reduction of $4.5 million before taxes, or
approximately $2.7 million or $0.08 per share after taxes. Over
the remainder of 1994, settlement of the one-half percent NUG
penalty will provide about $3.1 million of additional revenues.
Cumulatively, the stipulation will result in a net reduction in
earnings of $1.4 million before taxes, or approximately $800,000
or $0.02 per share after taxes.
The Company believes that the approval of the stipulation by the
MPUC resolves or limits a number of complex issues that were
posing significant risks to the Company and will permit it to
continue its efforts to restructure high-cost power purchase
contracts and work with the MPUC and other parties to formulate
an appropriate rate-stability plan.
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Net Income was $11.4 million for the first quarter of 1994
compared to $21.6 million for the corresponding period in 1993.
Earnings applicable to Common Stock were $8.8 million or $.27 per
share for the first three months of 1994 compared to $19.3
million or $.62 per share for the comparable period in 1993.
Weak sales due to economic and competitive pressures, the impact
of a disappointing rate case decision in December 1993 and the
recording of certain charges related to a settlement of the
purchased-power contract investigation (as discussed above) were
the primary contributors to the reduced earnings.
Average shares outstanding increased due to the issuance of 1.1
million shares since March 1993 through the Company's Dividend
Reinvestment and Common Stock Purchase Plan. Effective January
1994, the Company elected the option under the Dividend
Reinvestment and Common Stock Purchase Plan to purchase shares
pursuant to the plan on the market, rather than issue new shares.
Service-area sales of electricity totaled approximately 2.5
billion kilowatt-hours for the three-month period ended March 31,
1994, an increase of 0.1% compared to the first three months of
1993.
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Service Area Kilowatt-hour Sales (Millions of KWHs)
Three Months Ended March 31,
1994 1993 % Change
Residential 878.3 878.5 - %
Commercial 646.8 629.7 2.7
Industrial 916.3 930.8 (1.6)
Other 42.4 41.6 1.8
2,483.8 2,480.6 0.1%
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The changes in service area kilowatt-hour sales reflect the
following:
Kilowatt-hour sales to residential customers decreased
slightly in the first quarter compared to 1993 despite
colder weather during the 1994 billing period; usage per
customer was down 1.0 percent, and a decline in the space
and water heating subclass usage contributed to this
decrease.
Commercial sales increased by 2.7% from 1993 due primarily
to an increase in the service sector usage while sales in
the other sectors increased also. Sales to the service
sector comprise approximately 33% of the Company's
commercial sales.
Industrial kilowatt-hour sales decreased by 1.6% over 1993
due primarily to decreased sales to the pulp and paper
industry of 3.0%. The primary factor in the decline in
sales to this industry was higher than normal purchases in
January 1993, and the addition of 10 megawatts of
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generation by one customer in March 1993. The pulp and
paper industry accounts for approximately 60% of the
industrial sales category. A slight sales increase of
1.4% occurred to all other industrial customers as a
group.
The components of the change in electric operating revenues for
the three-months ended March 31, 1994, as compared to the same
period in 1993, are as follows:
<TABLE>
<S> <C> <S> <C>
(Dollars in Thousands)
Revenues from Kilowatt-hour Sales:
Total Service-Area Base Revenue $ 13,052
Fuel Cost Recoveries 9,844
Non-Territorial Base Revenues 514
Revenues from Kilowatt-hour Sales 23,410
Other Operating Revenues:
Electric Revenue Adjustment Mechanism
Including Revenue Adjustment-Tax
Flowback (17,343)
Other, including Maine Electric
Power Company, Inc. (1,062)
Total Change in Electric Operating Revenues $ 5,005
</TABLE>
Total service-area base revenues increased for the first quarter
of 1994 reflecting slightly higher kilowatt-hour sales, the July
1993 increase in rates to continue collection of accrued ERAM
revenue and the annual rate increase of $26.2 million pursuant to
the MPUC's base rate case decision effective December 1, 1993.
Fuel revenue increases reflect the increase discussed below
relating to fuel used for company generated and purchased-power
energy expense. Other revenues reflect the elimination of ERAM
accruals, effective December 1, 1993. During the first quarter
of 1993, the Company accrued approximately $13.5 million of
unbilled ERAM revenues.
MEPCO's electric sales and transmission revenues from New England
utilities other than the Company (included in other operating
revenues in the preceding table) amounted to $1.8 million and
$1.2 million in the first quarters of 1994 and 1993,
respectively. Under a Participation Agreement that terminates in
1996, all of MEPCO's costs, including a return on invested
capital, are paid by the participating utilities (Participants),
which include the Company and most of the larger New England
electric companies. The level of MEPCO's revenues and expenses
changes depending upon the level of energy purchases by
Participants.
The Company's Fuel Used for Company Generation and Purchased
Power-Energy expenses are recoverable through approved fuel
tariffs while Purchased Power-Energy incurred by MEPCO is billed
to MEPCO's Participants. The Company's Fuel Used for Company
Generation increased by $1.7 million in the first quarter of 1994
over the first quarter of 1993. Compared to 1993, total oil-
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fired generation increased by 80% in the first quarter of 1994.
The quarterly increase is the result of the Company's W. F. Wyman
oil-fired plant generating significantly more in the first
quarter of 1994. However, the cost of this generation on a per
megawatt-hour basis was 15% lower as a result of decreases in the
price of oil purchases. The Company's Purchased Power-Energy
expense increased by $13.7 million due to purchases from non-
utility generators. The cost of this energy on a per
megawatt-hour basis increased 3.3% primarily due to pre-set
pricing increases.
On April 15, 1994, the Governor of Maine signed into law a bill
allowing the Finance Authority of Maine to borrow up to $100
million to lend to electric utilities for financing buy-outs or
other changes in NUG contracts that would save money for
customers. The State agency's bonds, which do not pledge the
full faith and credit of the state, would nevertheless be likely
to bear lower interest rates than the bonds of the Company with
its down-graded credit rating. All agreements under the new law
must be approved by the MPUC and must be completed by May 1,
1995. The new law will be effective July 14, 1994.
Other Operation and Maintenance expenses increased by $3.0
million compared to the first quarter of 1993 reflecting
severance costs associated with restructuring plans in early
1994, increases in expenses of the Electric Lifeline Program (the
MPUC-mandated low income energy assistance program) and other
planned cost increases. Operation and maintenance expense in
1993 reflects a $900,000 reimbursement of previously incurred
legal costs. Ongoing cost control activities are directed toward
limiting growth in this area for the remainder of 1994.
Federal and state income taxes fluctuate with the level of pre-
tax earnings and the regulatory treatment of taxes by the MPUC.
This expense decreased as a result of lower pre-tax earnings in
the first quarter of 1994.
Allowance for Funds Used During Construction (AFC) (equity and
borrowed) represented approximately 4.0% of Earnings Applicable
to Common Stock for the three months ended March 31, 1994.
Interest on long-term debt decreased slightly while other
interest expense decreased as a result of lower levels of short-
term borrowing outstanding during the first quarter of 1994
combined with lower short-term interest rates.
Liquidity and Capital Resources
Approximately $31.5 million of cash was provided during the first
quarter of 1994 from net income before non-cash items, primarily
depreciation and amortization. During such period, approximately
$44.1 million of cash was provided by fluctuations in certain
assets and liabilities and from other operating activities.
During the first quarter of 1994, the Company reduced the level
of short-term borrowing outstanding by $15 million. Medium term
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note activity provided a net $4 million in cash. Dividends paid
on common stock were $7.3 million, while preferred-stock
dividends utilized $2.2 million of cash.
Investing activities, primarily construction expenditures,
utilized $9.9 million in cash during the first quarter of 1994
for generating projects, transmission, distribution, and general
construction expenditures.
In order to accommodate existing and future loads on its electric
system the Company is engaged in a continuing construction
program. The Company's plans for improvements and expansions,
its load forecast and plans for the purchase of power are under a
process of continuing review. Actual construction expenditures
will depend upon the availability of capital and other resources,
load forecasts, customer growth and general business conditions.
Current financing plans anticipate the issuance of a combination
of long-term debt and medium-term notes during 1994 to meet
capital and refunding needs. However, the ultimate nature,
timing and amount of financing for the Company's total
construction programs, refinancing and energy-management capital
requirements will be determined in light of market conditions,
earnings and other relevant factors.
To support its short-term capital requirements, the Company
maintains lines of credit totaling $68 million and has an
unsecured $50-million revolving credit agreement with several
banks that can be used to support commercial paper borrowing or
as short-term financing. However, access to commercial paper
markets has been substantially reduced, if not eliminated, as a
result of the downgrading of the Company's credit ratings during
1993. Borrowing under lines of credit may be subject to more
stringent terms and conditions in the future. The amount of
outstanding short-term borrowing will fluctuate with day-to-day
operational needs, the timing of long-term financing, and market
conditions.
On April 6, 1994, Standard & Poor's Corp (S&P). revised its
outlook on the Company's securities from "negative" to "stable"
and affirmed its ratings on the Company's senior secured debt at
"BB+", its senior unsecured debt at "BB-", its preferred stock at
"B+" and its commercial paper at "B". S&P cited the MPUC's April
4, 1994 approval of the stipulation resolving uncertainty
relating to purchased-power contract investigations as reasons
for the revision.
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<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Environmental Matters. For a discussion of
administrative and judicial proceedings concerning
cleanup of a site containing soil contaminated by PCB's
from equipment originally owned by the Company, see Note
2, "Commitments and Contingencies," "Legal and
Environmental Matters," which is incorporated herein by
reference.
Regulatory Matters. For a discussion of certain other
regulatory matters affecting the Company, see Note 3,
"Regulatory Matters," which is incorporated herein by
reference.
Item 2. through Item 5. Not applicable
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 1994 and
thereafter to date:
Date of Report Items Reported
January 5, 1994 Item 5
Lowering of debt and preferred stock ratings. On
January 5, 1994, Standard & Poor's Corp. ("S&P") removed
the Company's ratings from "CreditWatch" and lowered
them.
Date of Report Items Reported
January 13, 1994 Item 4
Changes in Registrant's Certifying Accountant. On
January 19, 1994, the Board of Directors of the Company
engaged Coopers & Lybrand as the Company's principal
accountant to audit the Company's 1994 financial
statements.
January 13, 1994 Item 5
(a) Debt and preferred stock ratings. On January 13,
1994, Moody's Investor Service ("Moody's") lowered its
ratings on the Company's preferred stock and short-term
debt and confirmed its ratings on the Company's General
and Refunding Mortgage Bonds, unsecured medium-term
notes and pollution-control revenue bonds and the
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<PAGE>
Company's Securities and Exchange Commission "shelf"
registration.
(b) Power purchase contract suit. On January 14, 1994,
the Company and Caithness entered into a Termination and
Settlement Agreement under which the Company paid
Caithness a total of $5 million, and the parties agreed
to the termination of the power-purchase contract and to
dismiss the suit and counterclaims.
Date of Report Items Reported
February 3, 1994 Item 5
PUC motion on independent power producer contracts. On
February 3, 1994, the MPUC filed a Motion to Dismiss
with the Maine Supreme Judicial Court, stating that by
Order dated February 3, 1994, the Commission had
reopened and reconsidered its October 28, 1993 decision.
On February 4, 1994, the Chief Justice of the Maine
Supreme Judicial Court declined to dismiss the appeal
and issued an Order establishing March 17, 1994 as the
date for the oral argument of the Motion to Dismiss
submitted by the MPUC.
Date of Report Items Reported
April 4, 1994 Item 5
MPUC order on independent power producer contracts. On
April 4, 1994, the MPUC approved a stipulation supported
by the Company and other parties to an investigation of
the Company's administration of certain power contracts
with non-utility generators and the Company's 1993 base-
rate case.
Date of Report Items Reported
April 6, 1994 Item 5
(a) Debt and Preferred Stock Ratings. On April 6, 1994
S&P revised its outlook on the Company's securities from
"negative" to "stable" and affirmed its ratings on the
Company's senior secured debt at "BB+", its senior
unsecured debt at "BB-", its preferred stock at "B+" and
its commercial paper at "B".
(b) Environmental Contingencies. On April 8, 1994 the
Environmental Protection Agency (EPA) announced changes
to the remedy it had previously selected to clean-up an
Augusta, Maine site identified as containing
polychlorinated biphenyls. The new soil cleanup
standard was adjusted from ten parts per million from
the one part per million originally established in the
EPA's 1989 Record of decision.
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<PAGE>
As a result of the changes, the Company believes it is
now more probable that its share of the remaining
cleanup costs will total near the lower end of the
previously disclosed range of $7 million to $11 million,
based on the selected cleanup method and the new
standard, and considering third-party contributions.
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<PAGE>
Signatures
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
CENTRAL MAINE POWER COMPANY
(Registrant)
Date: May 13, 1994 /S/R. S. Howe
R. S. Howe, Comptroller (Chief Accounting
Officer)
/S/D. E. Marsh
David E. Marsh, Vice President, Corporate
Services, and Chief Financial Officer
(Principal Financial Officer and duly
authorized officer)
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<PAGE>
