SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.
FORM 10-K/A
AMENDMENT NO. 1 TO APPLICATION OR REPORT
FILED PURSUANT TO SECTION 12, 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
CENTRAL MAINE POWER COMPANY
(Exact name of registrant as specified in charter)
The undersigned registrant hereby amends the following items, financial
statements, exhibits or other portions of its Annual Report Pursuant to Section
13 or 15(d) of the Securities Exchange Act of 1934 on Form 10-K for the fiscal
year ended December 31, 1995 as set forth in the pages attached hereto.
Central Maine Power Company originally filed its Form 10-K on March 29,
1995 and received notification of its acceptance and disemination on that date.
Subsequently, Central Maine discovered it had erroneously applied certain
document tags thereon in the Edgar process resulting in some sections of the
report to be mislabeled.
Pursuant to the requirements of Section 13 of the Securities Exchange Act
of 1934, the Registrant has duly caused this amendment to be signed on its
behalf by the undersigned, thereunto duly authorized.
CENTRAL MAINE POWER COMPANY
By
Robert E. Tuoriniemi, Comptroller
<PAGE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1995
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from to
Commission file number 1-5139
CENTRAL MAINE POWER COMPANY
(Exact name of registrant as specified in its charter)
Maine 01-0042740
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
83 Edison Drive, Augusta, Maine 04336
(Address of principal executive (Zip Code)
offices)
Registrant's telephone number, including area code: (207) 623-3521
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
Preferred Stock, 7 7/8% Series New York Stock Exchange
Common Stock, $5 Par Value New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
6% Preferred Stock, $100 Par Value (Voting, Noncallable)
(Title of class)
Dividend Series Preferred Stock, $100 Par Value (Callable)
(Title of class)
<PAGE>
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes x No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K __.
State the aggregate market value of the voting stock held by non-affiliates
of the registrant. The aggregate market value of the voting stock held by
non-affiliates of the Company was $436,908,006 on March 15, 1996 (based, in the
case of the common stock of the Company, on the last reported sale price thereof
on the New York Stock Exchange on March 15, 1996).
(APPLICABLE ONLY TO CORPORATE REGISTRANTS)
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date. The number of shares
of the Company's Common Stock, $5 par value (being the only class of common
stock of the Company), outstanding on March 15, 1996, was 32,442,752 shares.
DOCUMENTS INCORPORATED BY REFERENCE
List hereunder the following documents if incorporated by reference and the
Part of the Form 10-K (e.g., Part I, Part II, etc.) into which the document is
incorporated: (1) Any annual report to security holders; (2) Any proxy or
information statement; and (3) Any prospectus filed pursuant to Rule 424(b) or
(c) under the Securities Act of 1933.
Portions of the Company's Annual Report to Shareholders for the year ended
December 31, 1995 are incorporated by reference in Part I and Part II hereof.
Portions of the definitive proxy statement for the Company's 1996 Annual
Meeting of Shareholders are incorporated by reference in Part III hereof.
<PAGE>
CENTRAL MAINE POWER COMPANY
INFORMATION REQUIRED IN FORM 10-K
Item Number Page
Part I
Item 1. Business 1
Item 2. Properties 16
Item 3. Legal Proceedings 23
Item 4. Submission of Matters to a Vote of Security Holders 24
Item 4.1. Executive Officers of the Registrant 24
Part II
Item 5. Market for the Registrant's Common
Equity and Related Stockholder Matters 26
Item 6. Selected Financial Data 26
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 27
Item 8. Financial Statements and Supplementary Data 27
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure 28
Part III
Item 10. Directors and Executive Officers of the Registrant 29
Item 11. Executive Compensation 29
Item 12. Security Ownership of Certain Beneficial Owners
and Management 29
Item 13. Certain Relationships and Related Transactions 29
Part IV
Item 14. Exhibits, Financial Statement Schedules, and Reports
on Form 8-K 30
Signatures 31
<PAGE>
FORWARD LOOKING INFORMATION
In addition to the historical information contained herein, this report
contains a number of "forward-looking statements", within the meaning of the
Securities and Exchange Act of 1934. Such statements address future events and
conditions concerning capital expenditures, earnings on assets, resolution and
impact of litigation, regulatory matters, liquidity and capital resources, and
accounting matters. Actual results in each case could differ materially from
those projected in such statements, by reason of factors including, without
limitation, electric utility restructuring, including the ongoing state and
federal activities; future economic conditions; earnings retention and dividend
payout policies; developments in the legislative, regulatory and competitive
markets in which the Company operates; and other circumstances that could affect
anticipated revenues and costs, such as unscheduled maintenance or repair
requirements and compliance with laws and regulations. These and other factors
are discussed in the Company's filings with the Securities and Exchange
Commission, including this report.
PART I
Item 1. BUSINESS.
Introduction
General. Central Maine Power Company (the "Company") is an investor-owned
Maine public utility incorporated in 1905. The Company is primarily engaged in
the business of generating, purchasing, transmitting, distributing and selling
electric energy for the benefit of retail customers in southern and central
Maine and wholesale customers, principally other utilities. Its principal
executive offices are located at 83 Edison Drive, Augusta, Maine 04336, where
its general telephone number is (207) 623-3521.
The Company has more customers and greater revenues than any other electric
utility in Maine, serving approximately 516,000 customers in its 11,000
square-mile service area in southern and central Maine and having $916 million
in consolidated electric operating revenues in 1995 (reflecting consolidation of
financial statements with a majority-owned subsidiary, Maine Electric Power
Company, Inc. ("MEPCO")). The Company's service area contains the bulk of
Maine's industrial and commercial centers, including Portland (the state's
largest city), South Portland, Westbrook, Lewiston, Auburn, Rumford, Bath,
Biddeford, Saco, Sanford, Kittery, Augusta (the state's capital), Waterville,
Fairfield, Skowhegan and Rockland, and approximately 943,000 people,
representing about 77 percent of the total population of the state. The
Company's industrial and commercial customers include major producers of pulp
and paper products, producers of chemicals, plastics, electronic components,
processed food, and footwear, and shipbuilders. Large pulp-and-paper industry
customers account forapproximately 63 percent of the Company's industrial sales
and approximately 25 percent of total service-area
sales.
Extended Maine Yankee Shutdown. In March 1995, Maine Yankee Atomic Power
Company, a 38-percent-owned subsidiary of the Company, detected increased
degradation of the steam generator tubes at its Wiscasset, Maine, nuclear
generating plant while the plant was off-line for refueling and maintenance,
which led to an extended shutdown of the plant until mid-January 1996. The
Company's share of repair costs was approximately $10 million, with another $29
million incurred for replacement power. For a more complete discussion of this
matter and its significant effects on the Company and its 1995 financial
results, see "Maine Yankee Atomic Power Company," below.
1995 Results. The Company generated net earnings of $38.0 million in 1995,
compared to a net loss of $23.3 million in 1994. The earnings applicable to
common stock was $27.8 million, or $0.86 per share in 1995, compared to a loss
applicable to common stock of $33.8 million, or $1.04 per share, in 1994. The
weak earnings for 1995 reflected the unexpected repair and replacement-power
costs ($0.70 per share) of having the Maine Yankee nuclear plant off-line for
eleven months of the year to repair defective steam-generator tubes.
Electric operating revenues increased by $11.1 million, or 1.2 percent, to
$916.0 million in 1995. Total service-area sales decreased by 2.2 percent in
1995, with residential sales decreasing by 2.0 percent, commercial sales
increasing by 1.6 percent, industrial sales decreasing by 4.7 percent, and the
small wholesale and lighting category decreasing by 8.7 percent. The principal
reasons for the kilowatt-hour sales decrease in 1995 were the continued effect
of the loss of a major industrial customer, Madison Paper Industries, in
September 1994 in connection with the loss of a wholesale customer to a
competitor, the loss of sales due to conversions from electricity to other fuels
for such purposes as space and water heating, and energy management, along with
a low rate of growth in the local economy.
In order to compete effectively in an increasingly competitive electric
utility industry, the Company has adopted a strategy based on stabilizing its
price of electricity, in real terms, through the rest of the decade. To
accomplish that goal, the Company in 1995 continued its efforts to control
costs, reduce its costs of non-utility purchased power, and expand its lines of
business. Significant progress was made in stabilizing rates with the adoption
effective January 1, 1995, of the Alternative Rate Plan (the "ARP"), which
contains inflation-based price caps, additional pricing flexibility, and
efficiency incentives. In addition, as a result of the ARP the Company was able
to enter into five-year reduced-price contracts in early 1995 with a number of
its largest customers designed to ensure that those customers would remain on
the Company's system over the five-year period.
The Company is also actively addressing the widely-anticipated transition
to a more competitive industry. The Company and most other electric utilities
are considering various forms of restructuring to make themselves more
competitive. While many factors are uncertain, a transition to direct retail
competition could have substantial impacts on the value of utility assets and on
the ability of electric utilities to recover their costs through rates. Without
proper action by regulators, utilities could find their above-market costs to be
"stranded," or unrecoverable, in the new competitive setting. The Company has
substantial exposure to cost stranding relative to its size.
The ARP, restructuring, strandable costs, and other significant
developments are discussed in succeeding sections of this report. In some cases
more complete information has been incorporated in the succeeding sections by
reference to the Notes to Consolidated Financial Statements in the Company's
Annual Report to Shareholders for the year ended December 31, 1995, which appear
in Exhibit 13-1 to this report. In those cases the incorporated Notes should be
read in conjunction with the sections below for a full discussion of the
subjects covered in that manner.
The following topics are discussed under the general heading of Business.
Where applicable, the discussions make reference to the various other Items of
this Report. In addition, for further discussion of information required to be
furnished in response to this Item, see pages 1 through 55 of Exhibit 13-1
hereto (the Company's Annual Report to Shareholders for the year ended December
31, 1995), which pages are hereby incorporated herein by reference.
Topic Page
Regulation and Rates 3
Competition 6
Restructuring and Strandable Costs 7
Non-utility Generation 9
Maine Yankee Atomic Power Company 10
Financing and Related Considerations 12
Environmental Matters 14
Water Quality Control 14
Air Quality Control 14
Hazardous Waste Regulations 14
Electromagnetic Fields 15
Capital Expenditures 15
Employee Information 15
Regulation and Rates
General. The Company is subject to the regulatory authority of the Maine
Public Utilities Commission (the "MPUC" or the "PUC") 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
generation and transmission projects and various other matters. The Company is
also subject as to some phases of its business, including licensing of its
hydroelectric stations, accounting, rates relating to wholesale sales and to
interstate transmission and sales of energy and certain other matters, to the
jurisdiction of the Federal Energy Regulatory Commission ("FERC") under Parts I,
II and III of the Federal Power Act. Other activities of the Company from time
to time are subject to the jurisdiction of various other state and federal
regulatory agencies.
The Maine Yankee Atomic Power Company ("Maine Yankee") nuclear generating
plant (the "Maine Yankee Plant") and the other nuclear facilities in which the
Company has an interest are subject to extensive regulation by the federal
Nuclear Regulatory Commission ("NRC"). The NRC is empowered to authorize the
siting, construction and operation of nuclear reactors after consideration of
public health, safety, environmental and antitrust matters. Under its continuing
jurisdiction, the NRC may, after appropriate proceedings, require modification
of units for which construction permits or operating licenses have already been
issued, or impose new conditions on such permits or licenses, and may require
that the operation of a unit cease or that the level of operation of a unit be
temporarily or permanently reduced
The United States Environmental Protection Agency ("EPA") administers
programs which affect the Company's thermal and hydroelectric generating
facilities as well as the nuclear facilities in which it has an interest. The
EPA has broad authority in administering these programs, including the ability
to require installation of pollution-control and mitigation devices. The Company
is also subject to regulation by various state, local and other federal
authorities with regard to environmental matters and land use. For further
discussion of environmental considerations as they affect the Company, see
"Environmental Matters", below.
Under the Federal Power Act, the Company's hydroelectric projects
(including storage reservoirs) on navigable waters of the United States are
required to be licensed by the FERC. The Company is a licensee, either by itself
or in some cases with other parties, for 26 FERC-licensed projects, some of
which include more than one generating unit. Thirteen licenses expired in 1993,
one expires in 1997, and fourteen after 2000. The Company has filed all
applications for relicensing the projects whose licenses were scheduled to
expire in 1993 and has been authorized to continue to operate those projects
pending action on relicensing by the FERC. Of the thirteen projects with
licenses which expired in 1993, ten are operating under annual licenses, one
project is operating under a new license issued in 1993, one license was allowed
to expire, and one project was sold. New licenses may contain conditions that
reduce operating flexibility and require substantial additional investment by
the Company.
The United States has the right upon or after expiration of a license to
take over and thereafter maintain and operate a project upon payment to the
licensee of the lesser of its "net investment" or the fair value of the property
taken, and any severance damages, less certain amounts earned by the licensee in
excess of specified rates of return. If the United States does not exercise its
statutory right, the FERC is authorized to issue a new license to the original
licensee, or to a new licensee upon payment to the original licensee of the
amount the United States would have been obligated to pay had it taken over the
project. The United States has not asserted such a right with respect to any of
the Company's licensed projects.
Rate Regulation. Effective January 1, 1995, rate regulation for the Company
underwent a fundamental change with the implementation of the ARP, which
replaced traditional regulation. Instead of rate changes based on the level of
costs incurred and capital investments, the ARP provides for one annual
adjustment of an inflation-based cap on each of the Company's rates, with no
separate reconciliation and recovery of fuel and purchased-power costs. Under
the ARP, the MPUC is continuing to regulate the Company's operations and prices,
provide for continued recovery of deferred costs, and specify a range for its
rate of return. The MPUC confirmed in its order approving the ARP that the ARP
is intended to comply with the provisions of Statement of Financial Accounting
Standards No. 71, "Accounting for the Effects of Certain Types of Regulation."
In addition to predictability of prices for the Company's customers, the
ARP provides the Company with the flexibility to set prices quickly to meet the
competitive options available to many of its customers. In response to growing
competitive pressures, the Company used the pricing flexibility provisions of
the ARP to enter into five-year service contracts, effective January 1, 1995,
that ensure continued purchases of electricity from the Company by eighteen of
its largest customers. Those contracts incorporate a tariff reduction of fifteen
percent for the years 1995 through 1997, with an additional one percent in 1998
and another two percent in 1999, and exempt those customers signing the
contracts from the price increases contemplated by the ARP. The revenue
reductions that would be expected under the contracts are being largely offset
by reductions in the cost of purchased-power expense under several NUG contracts
under which the prices paid by the Company to the NUGs are directly related to
the Company's retail price of electricity.
In addition, the Company has instituted programs in specific residential
and commercial markets where the Company believes customers have competitive
options that should be addressed by lowering applicable tariffs to more
competitive levels. Approximately 35 percent of annual kilowatt-hour sales and
22 percent of annual revenues are now covered by special tariffs allowed under
the pricing flexibility provisions of the ARP.
As previously reported, the Company agreed in connection with the adoption
of the ARP to record charges of approximately $100 million ($60 million, net of
tax) against earnings in 1994. For a detailed explanation of those write-offs,
as well as a thorough discussion of the ARP, see Note 3 of Notes to Consolidated
Financial Statements, "Regulatory Matters" - "Alternative Rate Plan", which is
incorporated herein and made a part hereof.
On March 15, 1995, the Company submitted its first compliance filing under
the ARP to the PUC, documenting a price-cap increase of 2.43 percent, effective
July 1, 1995, under the price-cap formula in the ARP. The filing was based on an
inflation-index component of 2.92 percent, reduced by a productivity offset of
0.50 percent, and increased by 0.01 percent for flow-through items and mandated
costs. The increase was effective July 1, 1995.
On March 15, 1996, the Company submitted its second ARP compliance filing
to the PUC, documenting a price-cap increase of 1.64 percent, effective July 1,
1996, under the price-cap formula. The amount was based on an inflation-index
component of 2.55 percent, reduced by a productivity offset of 1.00 percent, and
increased by 0.35 percent for earnings sharing, various flow-through items and
shared NUG-contract savings, and further reduced by 0.26 percent as the net
result of a price-cap change to mitigate the level of increase and that would
affirm rate treatment of a pre-ARP regulatory asset. The Company believes the
filing complies with the terms of the ARP.
The ARP, when it became effective, was an unprecedented ratemaking
mechanism for electric utilities and is still relatively untested in practice.
Its provisions were negotiated by the Company with regulators and intervenors
whose interests and objectives were sometimes at odds with those of the Company.
It is possible that controversies will arise over interpretations of the
provisions of the ARP, including whether certain unforeseen costs are subject to
the price cap or may be passed through as flow-through items or mandated costs,
and it is likely that the Company's revenues and costs will vary from projected
levels. The ARP offers new opportunities for the Company to be rewarded for
efficiency gains, but also clearly presents the risk of reduced rates of return
if costs are not controlled, or if revenues from sales decline or prove
inadequate to fund costs and provide fair returns on invested capital. Therefore
the Company cannot predict the financial performance it will achieve under the
ARP, but continues to believe that implementing the ARP in the form approved by
the MPUC effective January 1, 1995, places the Company in a more favorable
position to meet its anticipated competitive challenges and that the ARP is in
the best long-term interest of the Company.
Competition
General. In 1992 the United States Congress enacted the Energy Policy Act
of 1992 (the "Policy Act"). The Policy Act was designed to encourage competition
among electric utility companies, improve energy resource planning by utility
companies, and encourage the development of alternative fuels and sources of
energy. The Policy Act provides for, among other things, enhanced access to
electric transmission to promote competition for wholesale purchasers and
sellers. The Policy Act has combined with trends developing in the electric
utility industry to create new areas of competition for the Company, resulting
in more options for its wholesale and retail customers. Even though the
Company's customers are at present generally unable to seek direct service from
another utility, some can curtail usage, switch fuels, install their own
generation, cancel plans to expand their operations, or even leave the Company's
service territory. In response to those threats, the Company has initiated
several programs, including the implementation of special rates to maintain or
increase employment at specific large customers' plants and incremental-energy
rates to avoid losing specific groups of customers to other energy sources. In
addition, the Company has redesigned some rates to encourage off-peak usage and
discourage switching to alternative fuels.
Another way the Company is addressing competition is by diversifying
through new and existing subsidiaries. The subsidiaries utilize skills developed
through former employees of the Company and compete for business with other
companies.
The Company is also actively promoting economic development for Maine.
Results have included the announcement of a $600-million expansion at one of its
major customers through the implementation of new economic-development rates and
active sponsorship of a new private-public partnership that is promoting Maine
as a favorable business environment.
For a detailed discussion of the loss of a wholesale customer, Madison
Electric Works, to a competing supplier and of five-year rate agreements entered
into by the Company and several of its largest customers in connection with the
adoption of the ARP, see Note 4 of Notes to Consolidated Financial Statements,
"Commitments and Contingencies" - "Competition", which is incorporated herein
and made a part hereof.
As a result of the Company's rising electric rates over several years prior
to the adoption of the ARP, four Maine communities voted in November 1994 on
questions proposing the creation of municipal electric districts. In three of
the towns, Westbrook, Norway, and Old Orchard Beach, the proposals were
defeated. The fourth town, Jay, voted to create a district, and, in March 1995,
obtained MPUC approval to form a municipal power district. Additional regulatory
approvals, however, are required before Jay would be authorized to furnish
electric utility service, and they have not been pursued. The Company believes
that the creation of any such districts within its service territory is not in
the best interests of either its customers or its investors, and will strongly
oppose such action. The Company further believes that major obstacles will be
encountered by Jay or any other group in attempting to implement the formation
of such districts, including obtaining the required legal findings by the MPUC
and economically acquiring or constructing the necessary facilities for a local
utility system. The Company cannot, however, predict the ultimate results of
such initiatives.
Restructuring and Strandable Costs
The enactment by Congress of the Energy Policy Act of 1992 accelerated
planning by electric utilities, including the Company, for a transition to a
more competitive industry. The functional areas in which competition will take
place, the regulatory changes that will be implemented, and the resulting
structure of both the industry and the Company are all uncertain, but a
transition to direct competition to serve retail customers is widely
anticipated. A departure from traditional regulation, however, could have
substantial impacts on the value of utility assets and on the ability of
electric utilities to recover their costs through rates. In the absence of full
recovery, utilities would find their above-market costs to be "stranded," or
unrecoverable, in the new competitive setting.
On March 29, 1995, as part of a broader Notice of Proposed Rulemaking
("NOPR") related to open-access transmission and stranded costs, and designed to
facilitate the development of a competitive market, the FERC expressed support
for the principle that utilities are entitled to full recovery of their
"legitimate and verifiable" stranded costs at both the state and federal levels.
Earlier, the MPUC had initiated a rulemaking proceeding on stranded costs at the
retail level with a preliminary proposal that supported recovery of stranded
costs, but that contained significant mitigation requirements which the Company
believed would have resulted in non-recovery of significant costs. The MPUC
terminated its proceeding after the FERC issued its NOPR to avoid "parallel and
duplicative proceedings."
In 1995 the Maine Legislature commenced a process of developing
recommendations for the MPUC on the future structure of the electric utility
industry in Maine. A diverse committee appointed by the Maine Legislature failed
to reach consensus by its late 1995 deadline.
As part of the same process, in late January 1996 the Company filed a
proposal outlining its recommendations for an orderly transition to competition
and adequate reimbursement of its potentially strandable costs with the MPUC.
The major elements of the Company's proposed plan are the following:
(1) The Company's generating assets, contracts and obligations would be
separated from its transmission and distribution assets and obligations by
distributing shares of a newly formed transmission-and-distribution company to
the Company's stockholders;
(2) Assuming certain necessary changes in the management and operation of
the regional transmission grid, retail customers would begin to have the
opportunity to purchase unbundled energy directly from suppliers, marketers, or
load aggregators in the year 2000, with possible phase-in to total open access
to such energy over a period of years;
(3) Economic and resource-planning regulation of generation would cease,
with FERC continuing to regulate transmission, and distribution remaining a
franchised monopoly. The entity providing distribution services would be subject
to performance-based regulation of its earnings, similar to the Company's
present ARP, and the duty to serve would be replaced by a duty to connect
customers to the retail generation market; and
(4) Full recovery of strandable costs would be achieved through a
transition charge to all retail customers, with generation-related strandable
costs recovered through a transition contract between the generation company and
the transmission-and-distribution company. Amounts recovered would include costs
of fulfilling obligations under contracts with NUGs, as well as investments (and
returns thereon) and other obligations undertaken by the Company in fulfilling
its legal duty to serve, with incentives for the Company to mitigate such costs
where practicable.
Substantial opposition has emerged in both the FERC and state proceedings
to allowing full recovery of stranded costs, largely from customer groups, and a
number of forms of restructuring have been proposed by various groups. The
Company expects to expend significant effort on restructuring initiatives at
both the state and federal level in 1996, although the timing of any formal
recommendations in any proceedings is yet to be determined.
The Company has substantial exposure to cost stranding relative to its
size. As of December 31, 1995, the Company estimates its strandable costs could
be approximately $2 billion. These costs represent the excess of the costs of
purchased-power obligations and the Company's own generating costs over the
market value of the power, and the costs of deferred charges and other
regulatory assets. Of the $2 billion, approximately $1.3 billion is related to
above-market costs of purchased-power obligations, approximately $200 million is
related to estimated net above-market cost of the Company's own generation, and
the remaining $500 million is related to deferred regulatory assets.
The estimated market rate for power is based on existing market conditions
and anticipated inflation escalation. The present value of future
purchased-power obligations and the Company's generating costs reflects the
underlying costs of those sources of generation in place today, with reductions
for contract expiration and ongoing depreciation. Deferred regulatory asset
totals reflect the current uncollected balances and existing amortization
schedules. The Company's strandable-cost exposure is expected to decline over
time as the market price of power increases, non-utility generator ("NUG")
contracts expire, and regulatory assets are recovered.
Estimates of strandable costs are highly dependent on estimates of the
future market for power. Higher market rates reduce stranded-cost exposure,
while lower market rates increase it. In addition to market-related impacts, any
estimate of the ultimate level of strandable costs depends on state and federal
regulations; the extent, timing and form that competition for electric service
will take; the ongoing level of the Company's costs of operations; regional and
national economic conditions; growth of the Company's sales; timing of any
changes that may occur from state and federal initiatives on restructuring; and
the extent to which regulatory policies ultimately address recovery of
strandable costs.
Major cost stranding would have a material adverse effect on the Company's
results of operations. The Company believes it is entitled to recover
substantially all of its potential strandable costs, but cannot predict when or
if open electric energy competition will occur in its service territory, how
much it might ultimately be allowed to recover through state or federal
regulation, the future market price of electricity, or the timing or
implementation of any formal recommendations in any regulatory or legislative
proceedings dealing with such issues.
The Company believes there are many uncertainties associated with any major
restructuring of the electric utility industry in Maine. Among them are: the
positions that will ultimately be taken by the MPUC on the Company's proposal
and other options and proposals submitted in response to the MPUC's request for
comments and restructuring plans; the role of the FERC in any restructuring
involving the Company and the ultimate positions the FERC will take on relevant
issues within its jurisdiction; the extent to which the United States Congress
will become involved in resolving or redefining the issues through legislative
action and, if so, with what results; whether the necessary political consensus
can be reached on the significant and complex issues involved in changing the
long-standing structure of the electric-utility industry; and, particularly with
respect to the Company, to what extent the Company will be permitted to recover
its strandable costs.
Non-utility Generation
After enactment of the federal Public Utility Regulatory Policies Act of
1978 ("PURPA") and companion legislation in Maine, the Company became an
industry leader in developing supplies of energy from non-utility generators
("NUGs"), including cogeneration plants and small power producers. These sources
supplied 3.7 billion kilowatt-hours of electricity to the Company in 1995,
representing 37 percent of total generation, the same percentage as in 1994, and
the Company expects to obtain approximately 42 percent of its energy from these
sources in 1996. The Company's contracts with non-utility generators, however,
which were entered into pursuant to the mandates of PURPA and vigorous state
implementation of its policies, have contributed the largest part of the
Company's increased costs and the resulting rate increases in recent years prior
to 1995, and constitute the largest part of the Company's strandable costs.
PURPA provided substantial economic incentives to NUGs by allowing
cogenerators and small power producers to sell their entire electrical output to
an electric utility at the utility's avoided-cost rate, which has often been
substantially higher than market rates, while purchasing their own electric
energy requirements at the utility's established rate for that customer class.
Thus the Company in a number of cases has been required to pay a higher price
for energy purchased from a NUG than the NUG, which in some cases is a large
customer of the Company, has paid the Company for the NUG's energy requirements.
In addition, with the current surplus of relatively low-cost power in the New
England market, prices paid by the Company under NUG contracts are often well
above current wholesale market prices.
The Company's NUG contracts generally have had terms of five to 30 years,
and expiration dates ranging from 1997 to 2021. They require the Company to
purchase the energy at specified prices per kilowatt-hour. As of December 31,
1995, facilities having 538 megawatts of capacity covered by these contracts
were in service. The costs of purchases under all of these contracts amounted to
$314.4 million in 1995, $373.5 million in 1994, and $360.7 million in 1993.
Because of the upward price pressure resulting in large part from costs
associated with its NUG contracts, the Company has been taking steps to reduce
those costs. The Company has reached agreement with a number of NUGs to buy out
their contracts or to give the Company options to restructure their contracts
through lump-sum or periodic payments. The Company restructured 37 contracts
representing 297 megawatts of capacity that the Company believes should result
in approximately $260 million in fuel savings over the next five years.
Pursuant to one NUG contract buy-out, Aroostook Valley Electric Company
("AVEC"), a wholly-owned subsidiary of the Company, acquired a 33-megawatt
wood-fired generating plant in Fort Fairfield, in northern Maine. AVEC reduced
the operating costs of the plant and, after competitive bidding, was awarded a
12.5-megawatt contract to supply the Town of Houlton municipal electric utility,
which is outside the Company's retail service territory, at wholesale for ten
years starting January 1, 1996.
In accordance with prior MPUC policy and the ARP, $125 million of buyout or
restructuring costs since January 1992 has been included in Deferred Charges and
Other Assets on the Company's balance sheet and will be amortized over their
respective fuel savings periods. The Company will continue to seek opportunities
to reduce its NUG costs, but cannot predict what level of additional savings it
will be able to achieve.
Maine Yankee Atomic Power Company
The Company owns a 38 percent stock interest in Maine Yankee, which owns
and operates the Maine Yankee Plant and is entitled under a cost-based power
contract to an approximately equal percentage of the Maine Yankee Plant's
output. The Maine Yankee Plant has been in commercial operation since 1972 and
has generally produced power at a cost among the lowest in the country for
nuclear plants. In 1994 the Maine Yankee Plant produced 6.6 billion
kilowatt-hours of electric power, its second highest total ever, at an average
cost of 2.6 cents per kilowatt-hour.
The Maine Yankee Plant, like other pressurized water reactors, experienced
degradation of its steam generator tubes, principally in the form of
circumferential cracking, which, until early 1995, was believed to be limited to
a relatively small number of tubes. During the refueling-and-maintenance
shutdown that commenced in early February 1995, Maine Yankee detected through
new inspection methods increased degradation of the Plant's steam generator
tubes. Approximately 60 percent of the Plant's 17,000 steam generator tubes
appeared to have defects to some degree. Mitigating the problem by plugging
additional tubes was therefore not a viable option.
Following a detailed analysis of safety, technical, and financial
considerations, Maine Yankee repaired the tubes by inserting and welding short
reinforcing sleeves of an improved material in substantially all of the Plant's
steam generator tubes; this was completed in December 1995. The project caused
Maine Yankee to incur additional costs during 1995, with the Company being
responsible for its pro-rata share. The Company has also incurred substantial
incremental costs for replacement power.
The Company's share of the repair costs of approximately $10 million was
less than the $15-million estimate recorded during the second quarter of 1995,
resulting in a reversal of approximately $5 million of Purchased power-capacity
expense in the fourth quarter of 1995. The earnings impact was $0.18 per share,
net of taxes. Both the Company and Maine Yankee implemented significant
cost-reduction measures to partially offset the additional costs. In addition to
its share of costs related to the steam-generator repairs, the Company's
incremental replacement-power costs during the outage totaled approximately $29
million or $0.52 per share, net of taxes, for 1995.
With the effective termination of the reconcilable fuel-and-purchased-power
adjustment under the ARP, costs of replacement power during a Maine Yankee
outage have been treated like other Company expenses, i.e., subject to the ARP's
price-index mechanism, and were not deferred and collected through a specific
fuel-rate adjustment, as under pre-1995 ratemaking. Under the ARP, no additional
price increase other than the 2.43-percent increase effective July 1, 1995,
associated with the price index, could take effect in 1995 as a result of the
Maine Yankee outage.
On December 4, 1995, when the sleeving project was substantially complete,
Maine Yankee obtained a copy of a letter from the Union of Concerned Scientists,
an organization with a history of opposing nuclear power, to a State of Maine
nuclear safety official based on documentation from an anonymous employee or
former employee of Yankee Atomic Electric Company ("Yankee"), an affiliate of
the Company and Maine Yankee that has regularly performed nuclear engineering
and related services for Maine Yankee and other nuclear plant operators. The
letter contained allegations that Yankee knowingly performed inadequate analyses
to support two license amendments to increase the rated thermal power at which
the Maine Yankee Plant could operate. It was further alleged in the letter that
Maine Yankee deliberately misrepresented the analyses to the NRC in seeking the
license amendments and in other contexts. The allegedly inadequate analyses
related to the operation of the Plant's emergency core cooling system ("ECCS")
and the calculation of the Plant containment's peak postulated accident
pressure, both under certain assumed accident conditions. The analyses were used
in support of license amendments that authorized Plant power uprates from 2440
megawatts thermal, a level equal to approximately 90 percent of the maximum
electrical capability of the Plant, to its current 100-percent rated level of
2700 megawatts thermal.
In response to technical issues raised by the allegations, the NRC
initiated a special technical review of the safety analyses performed by Yankee
relating to Maine Yankee's license amendment applications for the power uprates.
At the same time, Maine Yankee and Yankee initiated intensive internal
investigations of the allegations, including an investigation by an outside law
firm of any possible wrongdoing, and provided responsive information and
documentation to the NRC. Subsequently, the NRC informed Maine Yankee that the
allegations would be the subject of investigations by the NRC's Office of
Investigations and the Office of the Inspector General.
On January 3, 1996, the NRC issued an order that limited the power output
of the Maine Yankee Plant to approximately 90 percent of its rated maximum until
the NRC had reviewed and approved a Plant-specific ECCS analysis and ordered
that internal containment pressure be limited until the NRC had reviewed the
design-basis analysis of containment pressure. The order further contained a
request for information prior to restart, which Maine Yankee satisfied.
On January 10, 1996, Maine Yankee filed with the NRC information specified
in the order that it believed supported operation of the Plant at up to 90
percent of the Plant's capability. In its submittal Maine Yankee also notified
the NRC that it expected to proceed with initial operation of the Plant on
January 11, 1996, and the Plant commenced operation on that day. The Plant began
normal operation at a 90-percent level on January 24, 1996.
The Company cannot predict whether or when the Plant will attain a
100-percent operating level, or the results of the internal and external
investigations of the allegations brought to Maine Yankee's attention on
December 4, 1995. Maine Yankee has stated that it intends, however, to pursue
its internal investigation diligently and cooperate with the governmental
investigations, and believes that after it develops the information requested by
the NRC for operation of the Plant at full capacity it should be able to operate
the Plant at that level while meeting all applicable NRC safety requirements.
For further discussion of Maine Yankee issues, see Item 2, Properties,
"Existing Facilities".
Financing and Related Considerations
Financing and Refinancing in 1995. During 1995 the Company issued $30
million of notes under its $150-million Medium-Term Note program at an average
interest rate of 7.45 percent and an average life of 3 years. Notes in the
amount of $73 million (including $8 million classified as short-term) matured
during the year, decreasing the total outstanding notes at the end of 1995 to
$92 million, from $135 million at the end of 1994.
In October 1994 the Company issued a note in the amount of $66.4 million to
the Finance Authority of Maine ("FAME") in connection with a $79.3 million note
issued by FAME, a state agency, under a 1994 Maine law designed to assist
electric utilities in buying out or restructuring high-cost NUG contracts. For a
complete discussion of this transaction, see Note 3 of Notes to Consolidated
Financial Statements, "Regulatory Matters" - "Non-Utility Generators", which is
incorporated herein and made a part hereof.
In November 1994 the Company entered into a Competitive Advance and
Revolving Credit Facility (revolving-credit facility), with several banks and
Chemical Bank, as agent for the lenders, to provide up to $80 million of
short-term revolving-credit loans, which in November 1995 was extended to
October 15, 1996. The revolving-credit facility supplements an earlier
$50-million revolving-credit agreement and replaced the Company's $73 million of
individual bank lines of credit it had formerly maintained.
Shareholder Rights Plan. In September 1994 the Board of Directors of the
Company adopted a shareholder-rights plan and declared a dividend of one
common-share purchase right for each outstanding share of common stock of the
Company. The dividend was distributed to the shareholders of record in October
1994.
The plan was designed to protect shareholders against unsolicited attempts
to acquire control of the Company that do not offer what the Company believes to
be an adequate price to all shareholders. The plan could also have had the
effect of delaying, deferring or preventing a takeover or change in control of
the Company that had not been approved by the Board of Directors.
On May 24, 1995, the shareholders of the Company, by a vote of 50.36
percent to 49.64 percent, approved a shareholder proposal at the Company's
annual meeting of shareholders recommending termination of the plan. On July 19,
1995, the Board of Directors of the Company terminated the plan, and the rights
that had earlier been distributed by dividend action were redeemed on August 28,
1995.
Securities Ratings. The current ratings assigned the Company's securities
by the three major securities-rating agencies, Standard & Poor's Corp. ("S&P"),
Moody's Investors Service ("Moody's") and Duff & Phelps Credit Rating Co.
("D&P"), are shown below:
Mortgage Unsecured Commercial Preferred
Bonds Notes Paper Stock
S&P BB+ BB B B+
Moody's Baa2 Baa3 P2 Baa3
D&P BBB- BB+ D3 BB
For further discussion of financing considerations affecting the Company,
see the information incorporated by reference in Item 7, Management's Discussion
and Analysis of Financial Condition and Results of Operations, below.
Environmental Matters
In connection with the operation and construction of its facilities,
various federal, state and local authorities regulate the Company regarding air
and water quality, hazardous wastes, land use, and other environmental
considerations.
Such regulation sometimes requires review, certification or issuance of
permits by various regulatory authorities. In addition, implementation of
measures to achieve environmental standards may hinder the ability of the
Company to conduct day-to-day operations, or prevent or substantially increase
the cost of construction of generating plants, and may require substantial
investment in new equipment at existing generating plants. Although no
substantial investment is presently necessary, the Company is unable to predict
whether such investment may be required in the future.
Water Quality Control. The federal Clean Water Act provides that every
"point source" discharger of pollutants into navigable waters must obtain a
National Pollutant Discharge Elimination System ("NPDES") permit specifying the
allowable quantity and characteristics of its effluent. Maine law contains
similar permit requirements and authorizes the state to impose more stringent
requirements. The Company holds all permits required for its plants by the Clean
Water Act, but such permits may be reopened at any time to reflect more
stringent requirements promulgated by the EPA or the Maine Department of
Environmental Protection ("DEP"). Compliance with NPDES and state requirements
has necessitated substantial expenditures and may require further substantial
expenditures in the future.
Air Quality Control. Under the federal Clean Air Act, as amended, the EPA
has promulgated national ambient air quality standards for certain air
pollutants, including sulfur oxides, particulate matter and nitrogen oxides. The
EPA has approved a Maine implementation plan prepared by the DEP for the
achievement and maintenance of these standards. The Company believes that it is
in compliance with the requirements of the Maine plan. The Clean Air Act also
imposes stringent emission standards on new and modified sources of air
pollutants. Maintaining compliance with more stringent standards, if they should
be adopted, could require substantial expenditures by the Company. Although 1990
amendments to the Clean Air Act require, among other things, an aggregate
reduction of sulfur dioxide emissions by United States electric utilities by the
year 2000, the Company believes that the amendments will not have a material
adverse effect on the Company's operations.
In addition, state regulations restrict the sulfur content and other
characteristics of the fuel oil burned at the Company's William F. Wyman Station
in Yarmouth, Maine. The Company believes that it will continue to be able to
obtain a sufficient supply of oil with the required specifications, subject to
unforeseen events and the factors influencing the availability of oil discussed
under Item 2, Properties, "Fuel Supply", below.
Hazardous Waste Regulations. Under the federal Resource Conservation and
Recovery Act of 1976, as amended ("RCRA"), the generation, transportation,
treatment, storage and disposal of hazardous wastes are subject to EPA
regulations. Maine has adopted state regulations that parallel RCRA regulations,
but in some cases are more stringent. The notifications and applications
required by the present regulations have been made. The procedures by which the
Company handles, stores, treats, and disposes of hazardous waste products have
been revised, where necessary, to comply with these regulations and with more
stringent requirements on hazardous waste handling imposed by amendments to RCRA
enacted in 1984.
For a discussion of a continuing matter in which the Company has been named
a potentially responsible party by the EPA with respect to the disposal of
certain toxic substances, see Item 3, Legal Proceedings, under the caption "PCB
Disposal", below.
Electromagnetic Fields. Public concern has arisen in recent years as to
whether electromagnetic fields associated with electric transmission and
distribution facilities and appliances and wiring in buildings ("EMF")
contribute to certain public health problems. This concern has resulted in some
areas in opposition to existing or proposed utility facilities, requests for new
legislative and regulatory standards, and litigation. On the basis of the
scientific studies to date, the Company believes that no persuasive evidence
exists that would prove a causal relationship or justify substantial capital
outlays to mitigate the perceived risks. Although the Company has suffered no
material effect as a result of this concern, the Company since 1988 has been
compiling and disseminating through a regular periodic publication information
on all related studies and published materials as a central clearing house for
such information, as well as providing such information to its customers. The
Company intends to continue to monitor all significant developments in this
field.
Capital Expenditures. The Company estimates that its capital expenditures
for environmental purposes for the five years from 1991 through 1995 totaled
approximately $23.1 million. The Company cannot presently predict the amount of
such expenditures in the future, as such estimates are subject to change in
accordance with changes in applicable environmental regulations.
Employee Information
A local union affiliated with the International Brotherhood of Electrical
Workers (AFL-CIO) represents operating and maintenance employees in each of the
Company's operating divisions, and certain office and clerical employees. At
December 31, 1995, the Company had 1,659 full-time employees, of whom
approximately 45 percent are represented by the union. At the end of 1990 the
Company had 2,322 full-time employees. The reduction in the number of full-time
employees from 1991 through 1995 was due largely to the implementation of an
early-retirement program and other efficiency measures in 1991 and 1992, further
staff reductions in the first quarter of 1994 in connection with the Company's
restructuring and cost-reduction program and another early-retirement program in
mid-1995.
In November 1991 the Company and the union agreed to a three-year labor
contract extension that provided for annual wage increases of 3 percent, 3
percent, and 3.5 percent for the three years ended May 1, 1995. In April 1995
the Company and the union agreed to another three-year extension that provided
for an annual wage increase of 2 percent on May 1, 1995, 2 percent on May 1,
1996, and a reopening of wage negotiations for the year commencing May 1, 1997.
Item 2. PROPERTIES.
Existing Facilities
The electric properties of the Company form a single integrated system
which is connected at 345 kilovolts and 115 kilovolts with the lines of Public
Service Company of New Hampshire at the southerly end and at 115 kilovolts with
Bangor Hydro-Electric Company at the northerly end of the Company's system. The
Company's system is also connected with the system of The New Brunswick Power
Corporation and with Bangor Hydro-Electric Company, in each case through the
345-kilovolt interconnection constructed by MEPCO, a 78 percent-owned subsidiary
of the Company. At December 31, 1995, the Company had approximately 2,288
circuit-miles of overhead transmission lines, 18,967 pole-miles of overhead
distribution lines and 1,261 miles of underground and submarine cable. The
maximum one-hour firm system net peak load experienced by the Company during the
winters of 1995 and 1996 was approximately 1,321 megawatts on January 11, 1995.
At the time of the peak, the Company's net capability was 1,855 megawatts.
The Company operates 30 hydroelectric generating stations with an estimated
net capability of 369 megawatts and purchases an additional 99 megawatts of
non-utility hydroelectric generation in Maine. It is currently re-evaluating
some of its older hydroelectric plants in conjunction with efforts to obtain new
federal operating licenses, with the objective of increasing their output and
extending their usefulness. The Company also operates one oil-fired
steam-electric generating station, William F. Wyman Station in Yarmouth, Maine.
The Company's share of William F. Wyman Station has an estimated net capability
of 589 megawatts. The oil-fired station is located on tidewater, permitting
waterborne delivery of fuel. The Company also has internal combustion generating
facilities with an estimated aggregate net capability of 41 megawatts.
The Company has ownership interests in five nuclear generating plants in
New England. The largest is a 38-percent interest in Maine Yankee, which
generates power at its plant in Wiscasset, Maine. In addition, the Company owns
a 9.5 percent interest in Yankee Atomic Electric Company ("Yankee Atomic"),
which has permanently shut down its plant located in Rowe, Massachusetts, a 6
percent interest in Connecticut Yankee Atomic Power Company ("Connecticut
Yankee"), with an operating plant in Haddam, Connecticut, and a 4 percent
interest in Vermont Yankee Nuclear Power Corporation ("Vermont Yankee"), which
owns an operating plant in Vernon, Vermont (collectively, with Maine Yankee, the
"Yankee Companies"). In addition, pursuant to a joint ownership agreement, the
Company has a 2.5 percent direct ownership interest in the Millstone 3 nuclear
unit ("Millstone 3") in Waterford, Connecticut.
In February 1992, the Board of Directors of Yankee Atomic, after concluding
that it would be uneconomic to continue to operate, decided to permanently
discontinue power operation at the Yankee Atomic plant and to decommission that
facility. The Company had relied on Yankee Atomic for less than one percent of
the Company's system capacity. Its 9.5-percent equity investment in Yankee
Atomic is approximately $2.2 million. Currently, purchased-power costs billed to
the Company, which include the estimated cost of the ultimate decommissioning of
the unit, are collected by the Company from its customers through the Company's
rates.
In 1993 the FERC approved a settlement agreement regarding the
decommissioning plan, recovery of plant investment, and all issues with respect
to the prudence of the decision to discontinue operation of the Yankee Atomic
plant. The Company has estimated its remaining share of the cost of Yankee
Atomic's continued compliance with regulatory requirements, recovery of its
plant investments, decommissioning and closing the plant, to be approximately
$21.4 million. This estimate, which is subject to ongoing review and revision,
has been recorded by the Company as a regulatory asset and a liability on the
Company's balance sheet. As part of the MPUC's decision in the Company's 1993
base-rate case, the Company's current share of costs related to the deactivation
of Yankee Atomic is being recovered through rates.
The Company's share of the capacity of the four operating nuclear
generating plants, as of December 31, 1995, amounted to the following:
Maine Yankee 330 MW Connecticut Yankee 35 MW
Vermont Yankee 19 MW Millstone 3 29 MW
The Company is obligated to pay its proportionate share of the operating
expenses, including depreciation and a return on invested capital, of each of
the Yankee Companies referred to above for periods expiring at various dates to
2012. Pursuant to the joint ownership agreement for Millstone 3, the Company is
similarly obligated to pay its proportionate share of the operating costs of
Millstone 3. The Company is also required to pay its share of the estimated
decommissioning costs of each of the Yankee Companies and Millstone 3. The
estimated decommissioning costs are paid as a cost of energy in the amounts
allowed in rates by the FERC.
On March 7, 1996, the NRC requested certain information from Northeast
Utilities ("NU"), the operator and majority owner of Millstone 3, and from
Connecticut Yankee, and notified them that the NRC was commencing extensive
on-site inspection work to provide an assessment of the two units' conformance
to regulatory requirements. Two other nuclear units owned and operated by NU,
Millstone 1 and Millstone 2, were already the subjects of similar inspections by
the NRC. The Company cannot predict the results of those inspections.
MEPCO owns and operates a 345-kilovolt transmission interconnection,
completed in 1971, extending from the Company's substation at Wiscasset to the
Canadian border where it connects with a line of The New Brunswick Power
Corporation ("NB Power") under a 25-year interconnection agreement. MEPCO
transmits power between NB Power and various New England utilities under
separate agreements.
NEPOOL, of which the Company is a member, contracted in connection with its
Hydro-Quebec projects to purchase power from Hydro-Quebec. The contracts entitle
the Company to 85.9 megawatts of capacity credit in the winter and 127.25
megawatts of capacity credit during the summer. The Company also entered into
facilities-support agreements for its share of the related transmission
facilities, with its share of the support responsibility and of associated
benefits being approximately 7 percent of the totals. The Company is making
facilities-support payments on approximately $30.6 million, its share of the
construction cost for the transmission facilities incurred through December 31,
1995.
Maine Yankee Decommissioning. Effective in 1988 Maine Yankee began
collecting $9.1 million annually for decommissioning the Maine Yankee plant,
based on a FERC-approved funding level of $167 million. In 1994, Maine Yankee,
pursuant to FERC authorization, increased its annual collection to $14.9 million
and reduced its return on common equity to 10.65 percent, for a total increase
in rates of approximately $3.4 million. The increase in decommissioning
collection was based on the estimated cost of decommissioning the Maine Yankee
Plant, assuming dismantlement and removal, of $317 million (in 1993 dollars)
based on a 1993 external engineering study. The estimated cost of
decommissioning nuclear plants is subject to change due to the evolving
technology of decommissioning and the possibility of new legal requirements.
Maine Yankee's accumulated decommissioning funds were $132.8 million (including
actual interest earned) as of December 31, 1995, with an adjusted market value
as of that date of $142.1 million.
Maine Yankee Low-Level Waste Disposal. The federal Low-Level Radioactive
Waste Policy Amendments Act (the "Waste Act"), enacted in 1986, required
operating disposal facilities to accept low-level nuclear waste from other
states until December 31, 1992. Maine did not satisfy its milestone obligation
under the Waste Act requiring submission of a site license application by the
end of 1991, and therefore became subject to surcharges on its waste and did not
have access to regulated disposal facilities after the end of 1992. Maine Yankee
then began storing all low-level waste generated at an on-site storage facility.
On July 1, 1995, however, the State of South Carolina restored access to its
facility and Maine Yankee began to ship low-level waste to the South Carolina
facility for disposal.
The states of Maine, Texas and Vermont have been pursuing the
implementation of a compact for the disposal of low-level waste at a site in
Texas. The ratification bill for the compact is before Congress for
consideration at its 1996 session. The compact provides for Texas to take
Maine's low-level waste over a 30-year period for disposal at a planned facility
in west Texas. In return, Maine would be required to pay $25 million, assessed
to the Company by the State of Maine, payable in two equal installments, the
first after ratification by Congress and the second upon commencement of
operation of the Texas facility. In addition, Maine Yankee would be assessed a
total of $2.5 million for the benefit of the Texas county in which the facility
would be located and would also be responsible for its pro-rata share of the
Texas governing commission's operating expenses. The Maine Low-Level Radioactive
Waste Authority suspended its search for a suitable disposal site in Maine and,
as of June 30, 1994, ceased operations.
In the event the required ratification by Congress is not obtained, subject
to continued NRC approval, Maine Yankee has said it will ship low-level waste
offsite for disposal in South Carolina or other available sites as long as such
sites are available, reserving its capacity to store approximately ten to twelve
years' production of low-level waste at its facility at the Plant site. Subject
to obtaining necessary regulatory approval, Maine Yankee could also build a
second facility on the Plant site. Maine Yankee believes it is probable that it
will have adequate storage capacity for such low-level waste available on-site,
if needed, through the current licensed operating life of the Plant.
The Company cannot predict whether the final required ratification of the
Texas compact or other regulatory approvals required for on-site storage will be
obtained, but Maine Yankee has stated that it intends to utilize its on-site
storage facility as well as dispose of low-level waste at the South Carolina
site or other available sites in the interim and continue to cooperate with the
State of Maine in pursuing all appropriate options.
Nuclear Insurance. The Price-Anderson Act is a federal statute providing,
among other things, a limit on the maximum liability for damages resulting from
a nuclear incident. Coverage for the liability is provided for by existing
private insurance and retrospective assessments for costs in excess of those
covered by insurance, up to $79.3 million for each reactor owned, with a maximum
assessment of $10 million per reactor in any year. Based on the Company's stock
ownership in four nuclear generating facilities and its 2.5 percent direct
ownership interest in the Millstone 3 nuclear unit, the Company's retrospective
premium could be as high as $6 million in any year, for a cumulative total of
$47.6 million, exclusive of the effect of inflation indexing and a 5-percent
surcharge in the event that total public liability claims from a nuclear
incident should exceed the funds available to pay such claims.
In addition to the insurance required by the Price-Anderson Act, the
nuclear generating facilities mentioned above carry additional nuclear
property-damage insurance. This additional insurance is provided from commercial
sources and from the nuclear electric utility industry's insurance company
through a combination of current premiums and retrospective premium adjustments.
Based on current premiums and the Company's indirect and direct ownership in
nuclear generating facilities, this adjustment could range up to approximately
$11.6 million annually.
For a discussion of issues relating to Maine Yankee's spent nuclear fuel
disposal, see "Fuel Supply" - "Nuclear", below.
Construction Program
The Company's plans for improvements and expansion of generating,
transmission and distribution facilities and power-supply sources are under
continuing review. Actual construction expenditures depend on the availability
of capital and other resources, load forecasts, customer growth, and general
business conditions. Recent economic and regulatory considerations have led the
Company to hold its planned 1996 capital investment outlays, including deferred
demand-side management expenditures, to minimum levels. During the five-year
period ended December 31, 1995, the Company's construction and acquisition
expenditures amounted to $293.4 million (including investment in jointly-owned
projects and excluding MEPCO). The program is currently estimated at
approximately $67 million for 1996 and $267 million for 1997 through 2000.
The following table sets forth the Company's estimated capital expenditures
as discussed above:
1997-
1996 2000 Total
Type of Facilities (Dollars in Millions)
Generating Projects $13 $ 49 $ 62
Transmission 4 16 20
Distribution 30 132 162
General facilities and Other 20 70 90
Total $67 267 $334
Demand-side Management
The Company's demand-side-management initiatives have included programs
aimed at residential, commercial and industrial customers. Among the residential
efforts have been programs that offer energy audits, low-cost insulation and
weatherization packages, water heater wraps, energy-efficient light bulbs, and
water heater cycling credits. Among the commercial and industrial efforts have
been programs that offer rebates for efficient lighting systems and motors,
energy-management loans, grants to customers who make efficiency improvements,
and shared savings arrangements with customers who undertake qualifying
conservation and load management programs.
Actual demand-side management expenditures depend on such factors as
availability of capital and other resources, load forecasts, customer growth,
and general business conditions. Because of budget constraints, the Company is
seeking to concentrate its efforts where the need and cost-effectiveness are the
greatest, while continuing to honor contractual commitments.
NEPOOL
The Company is a member of NEPOOL, which is open to all investor-owned,
municipal and cooperative electric utilities in New England under an agreement
in effect since 1971 that provides for coordinated planning and operation of
approximately 99 percent of the electric power production, purchases and
transmission in New England. The NEPOOL Agreement imposes obligations concerning
generating capacity reserve and the use of major transmission lines, and
provides for central dispatch of the region's facilities. The members of NEPOOL
are re-examining the structure and operation of NEPOOL in view of issues arising
in connection with the anticipated restructuring of the electric-utility
industry.
Fuel Supply
The Company's total kilowatt-hour production by energy source for each of
the last two years and as estimated for 1996 (assuming normal operation of the
Maine Yankee Plant) is shown below:
Actual Estimated
Source 1994 1995 1996
Nuclear (principally from Maine
Yankee) .................................... 29% 7% 31%
Hydro ...................................... 13 15 16
Oil ........................................ 12 21 5
Non-utility ................................ 37 37 42
Other purchases ............................ 9 20 6
100% 100% 100%
The 1996 estimated kilowatt-hour output from oil and purchased power may
vary depending upon the relative costs of Company-generated power and power
purchased through independent producers and other sources.
Oil. The Company's William F. Wyman Station in Yarmouth, Maine, and its
internal combustion electric generating units are oil-fired. The Company's last
contract for the supply of fuel oil requirements at market prices was allowed to
expire in 1993. Since then the Company has been purchasing its fuel-oil
requirements on the open market.
The average cost per barrel of fuel oil purchased by the Company during the
five calendar years commencing with 1991 was $12.87, $14.02, $13.12, $12.93 and
$16.16, respectively. A substantial portion of the fuel oil burned by the
Company and the other member utilities of NEPOOL is imported. The availability
and cost of oil to the Company, both under contract and in the open market,
could be adversely affected by policies and events in oil-producing nations and
other factors affecting world supplies and domestic governmental action.
Nuclear. As described above, the Company has interests in a number of
nuclear generating units. The cycle of production and utilization of nuclear
fuel for such units consists of (1) the mining and milling of uranium ore, (2)
the conversion of the resulting concentrate to uranium hexafluoride, (3) the
enrichment of the uranium hexafluoride, (4) the fabrication of fuel assemblies,
(5) the utilization of the nuclear fuel, and (6) the disposal of spent fuel.
Maine Yankee has entered into a contract with the United States Department
of Energy ("DOE") for disposal of its spent nuclear fuel, as required by the
Nuclear Waste Policy Act of 1982, pursuant to which a fee of one dollar per
megawatt-hour is currently assessed against net generation of electricity and
paid to the DOE quarterly. Under this Act, the DOE has assumed the
responsibility for disposal of spent nuclear fuel produced in private nuclear
reactors. In addition, Maine Yankee is obligated to make a payment with respect
to generation prior to April 7, 1983 (the date current DOE assessments began).
Maine Yankee has elected under terms of this contract to make a single payment
of this obligation prior to the first delivery of spent fuel to DOE, scheduled
to begin no earlier than 1998. The payment will consist of $50.4 million (all of
which Maine Yankee has previously collected from its customers, but for which a
reserve was not funded), which is the approximate one-time fee charge, plus
interest accrued at the 13-week Treasury Bill rate compounded on a quarterly
basis from April 7, 1983, through the date of the actual payment. Current costs
incurred by Maine Yankee under this contract are recoverable under the terms of
its Power Contracts with its sponsoring utilities, including the Company. Maine
Yankee has accrued and billed $63.8 million of interest cost for the period
April 7, 1983, through December 31, 1995.
Maine Yankee has formed a trust to provide for payment of its long-term
spent fuel obligation, and is funding the trust with deposits at least
semiannually which began in 1985, with currently projected semiannual deposits
of approximately $1.8 million through December 1997. Deposits are expected to
total approximately $73.2 million, with the total liability, including interest
due at the time of disposal, estimated to be approximately $126.5 million at
January 31, 1998. Maine Yankee estimates that trust fund deposits plus estimated
earnings will meet this total liability if funding continues without material
changes.
Under the terms of a license amendment approved by the NRC in 1984, the
present storage capacity of the spent fuel pool at the Maine Yankee Plant will
be reached in 1999 and after 1996 the available capacity of the pool will not
accommodate a full-core removal. After consideration of available technologies,
Maine Yankee elected to provide additional capacity by replacing the fuel racks
in the spent fuel pool at the Maine Yankee Plant for more compact storage and in
March 1994 the NRC granted its authorization. Installation of the new racks is
scheduled for 1996. Maine Yankee believes that the replacement of the fuel racks
will provide adequate storage capacity through the Maine Yankee Plant's licensed
operating life. Maine Yankee has stated that it cannot predict with certainty
whether or to what extent the storage capacity limitation at the plant will
affect the operation of the plant or the future cost of disposal.
Federal legislation enacted in December 1987 directed the DOE to proceed
with the studies necessary to develop and operate a permanent high-level waste
(spent fuel) disposal site at Yucca Mountain, Nevada. The legislation also
provided for the possible development of a Monitored Retrievable Storage ("MRS")
facility and abandoned plans to identify and select a second permanent disposal
site. An MRS facility would provide temporary storage for high-level waste prior
to eventual permanent disposal. In late 1989 the DOE announced that the
permanent disposal site is not expected to open before 2010, although originally
scheduled to open in 1998. Additional delays due to political and technical
problems are probable.
The Company has been advised by the companies operating nuclear generating
stations in which the Company has an interest that each of those companies has
contracted for certain segments of the nuclear fuel production and utilization
cycle through various dates. Contracts for other segments of the fuel cycle will
be required in the future, but their availability, prices and terms cannot now
be predicted. Those companies have also advised the Company that they are
assessing options generally similar to those described above with respect to
Maine Yankee in connection with disposal of spent nuclear fuel.
Item 3. LEGAL PROCEEDINGS.
Material proceedings before the Maine PUC involving the Company are
discussed above in Item 1, Business.
PCB Disposal
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 as 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.
In July 1994, the EPA approved changes to the remedy it had previously
selected, the principal change being to adjust the soil cleanup standard to 10
parts per million from the standard of 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 reduce PCBs and other chemical components on the site to the
original standard.
In June 1995, after discussions between the Company and the EPA, design
work on the selected remedy was suspended. On July 7, 1995, the Company formally
requested that the EPA abandon that remedy for an already-designated alternative
remedy that the Company believes could result in substantially lower costs. On
October 10, 1995, the EPA approved the new remedy after determining that the old
remedy was no longer feasible or cost-effective at the site. The new remedy
involves transporting the contaminated soil to a secure off-site landfill.
The Company believes that its share of the remaining costs of the cleanup
under the new method could total approximately $3.5 million to $5 million. This
estimate is net of an agreed partial insurance recovery and the 1993
court-ordered contribution of 41 percent from Westinghouse Electric Corp., but
does not reflect any possible contributions from other insurance carriers the
Company has sued, or from any other parties. The Company has recorded an
estimated liability of $3.5 million and an equal regulatory asset, reflecting an
accounting order to defer such costs and the anticipated ratemaking recovery of
such costs when ultimately paid. In addition, the Company has deferred as a
regulatory asset $3.9 million of costs incurred through December 31, 1995.
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.
Item 4 SUBMISSION OF MATTERS TO A VOTE
OF SECURITY HOLDERS.
Not applicable.
Item 4.1 EXECUTIVE OFFICERS OF THE REGISTRANT.
The following are the present executive officers of the Company with all
positions and offices held. There are no family relationships between any of
them, nor are there any arrangements or understandings pursuant to which any
were selected as officers.
Name, Age, and Year
First Became Officer Office
David M. Jagger, 54, 1996 Chairman of the Board of Directors
Charles H. Abbott, 60, 1996 Vice Chairman of the Board of Directors
David T. Flanagan, 48, 1984 President and Chief Executive Officer, and
Director
Arthur W. Adelberg, 44, 1985 Vice President, Law and Power Supply
Richard A. Crabtree, 49, 1978 Vice President, Retail Operations
David E. Marsh, 48, 1986 Vice President, Corporate Services, Treasurer
and Chief Financial Officer
Curtis A. Mildner, 42, 1994 Vice President, Marketing
Gerald C. Poulin, 54, 1984 Vice President, Generation and Technical
Support
Robert E. Tuoriniemi, 39, 1995 Comptroller
William M. Finn, 59, 1984 Secretary and Clerk
Each of the executive officers has for the past five years been an officer
or employee of the Company except Messrs. Jagger and Abbott, who have been
non-employee directors since 1988, and Mr. Mildner. Mr. Mildner joined the
Company as Vice President, Marketing, on February 7, 1994. Prior to his
employment by the Company, he had been employed since 1987 by Hussey Seating
Company of Berwick, Maine, as Vice President, Marketing, and in related
capacities.
<PAGE>
PART II
Item 5 MARKET FOR THE REGISTRANT'S COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS.
The Company's common stock is traded on the New York Stock Exchange. As of
March 15, 1996, there were 43,053 holders of record of the Company's common
stock.
Price Range of and Dividends on Common Stock
Market Price Dividends
High Low Declared
1995
First Quarter $14 1/8 $10 3/4 $0.225
Second Quarter 12 5/8 10 1/4 0.225
Third Quarter 13 1/2 11 0.225
Fourth Quarter 15 1/8 13 0.225
1994
First Quarter $15 $12 $0.225
Second Quarter 12 3/4 10 5/8 0.225
Third Quarter 12 1/8 10 7/8 0.225
Fourth Quarter 13 3/4 10 3/4 0.225
Under the most restrictive terms of the indenture securing the Company's
General and Refunding Mortgage Bonds and of the Company's Articles of
Incorporation, no dividend may be paid on the common stock of the Company if
such dividend would reduce retained earnings below $29.6 million. At December
31, 1995, the Company's retained earnings were $51.5 million, of which $21.9
million was not so restricted. Future dividend decisions will be subject to
future earnings levels and the financial condition of the Company and will
reflect the evaluation by the Company's Board of Directors of then existing
circumstances.
Item 6. SELECTED FINANCIAL DATA.
The following table sets forth selected consolidated financial data of the
Company for the five years ended December 31, 1991 through 1995. This
information should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the consolidated
financial statements and related notes thereto included elsewhere herein. The
selected consolidated financial data for the years ended December 31, 1991
through 1995 are derived from the audited consolidated financial statements of
the Company.
Selected Consolidated Financial Data
<TABLE>
(Dollars in Thousands, Except
<S> <C> <C> <C> <C> <C>
Per Share Amounts) 1995 1994 1993 1992 1991
Electric operating revenue $ 916,016 $ 904,883 $ 893,577 $ 877,695 $ 866,539
Net income (loss) 37,980 (23,265) 61,302 63,583 59,134
Long-term obligations 622,251 638,841 581,844 499,029 518,625
Redeemable preferred stock 67,528 80,000 80,000 40,750 43,500
Total assets 1,992,919 2,046,007 2,004,862 1,690,005 1,574,501
Earnings (loss) per common share $0.86 $(1.04) $ 1.65 $1.85 $1.82
Dividends declared per common share $0.90 $0.90 $1.395 $1.56 $1.56
</TABLE>
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
The information required to be furnished in response to this Item is
submitted as pages 1 to 16 of Exhibit 13-1 hereto (the Company's Annual Report
to Shareholders for the year ended December 31, 1995), which pages are hereby
incorporated herein by reference.
<PAGE>
Item 8. FINANCIAL STATEMENTS AND
SUPPLEMENTARY DATA.
The information required to be furnished in response to this Item is
submitted as pages 17 through 55 of Exhibit 13-1 hereto (the Company's Annual
Report to Shareholders for the year ended December 31, 1995), which pages are
hereby incorporated herein by reference. For ease of reference, the following is
a listing of financial information incorporated by reference to Exhibit 13-1
hereto, which shows the page number or numbers of said Exhibit on which such
information is presented.
Financial Information Page(s) of Exhibit 13-1
Management report on responsibility
for financial reporting 55
Consolidated statement of earnings for
the three years ended December 31,
1995, 1994 and 1993 17
Consolidated balance sheet as of
December 31, 1995 and 1994 18
Consolidated statement of cash flows for
the three years ended December 31, 1995,
1994 and 1993 20-21
Consolidated statement of capitalization
and interim financing as of
December 31, 1995 and 1994 22-23
Consolidated statement of changes
in common stock investment for the
three years ended December 31, 1995,
1994 and 1993 24
Notes to consolidated financial statements 25
Supplementary quarterly financial
data (unaudited) 53-54
Item 9. CHANGES IN AND DISAGREEMENTS WITH
ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not applicable.
<PAGE>
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS
OF THE REGISTRANT.
See the information under the heading "Election of Directors" in the
registrant's definitive proxy material for its annual meeting of shareholders to
be held on May 22, 1996, and Item 4.1, Executive Officers of the Registrant,
above, both of which are hereby incorporated herein by reference.
Item 11. EXECUTIVE COMPENSATION.
See the information under the heading "Board Committees, Meetings and
Compensation" and the heading "Executive Compensation" in the registrant's
definitive proxy material for its annual meeting of shareholders to be held on
May 22, 1996, which is hereby incorporated herein by reference.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT.
See the information under the heading "Security Ownership" in the
registrant's definitive proxy material for its annual meeting of shareholders to
be held on May 22, 1996, which is hereby incorporated herein by reference.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
See the information under the heading, "Board Committees, Meetings and
Compensation" in the registrant's definitive proxy material for its annual
meeting of shareholders to be held on May 22, 1996, which is hereby incorporated
herein by reference.
<PAGE>
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES,
AND REPORTS ON FORM 8-K.
(a) Listing of Exhibits. The exhibits which are filed with this Form 10-K
or are incorporated herein by reference are set forth in the Exhibit Index,
which immediately precedes the exhibits to this report.
(b) Reports on Form 8-K. The Company filed the following reports on Form
8-K during the last quarter of 1995 and thereafter to date:
Date of Report Items Reported
December 4, 1995 Item 5
The Company reported on the extended outage at the Maine Yankee Atomic
Power Company nuclear generating plant, including a Nuclear Regulatory
Commission investigation of anonymous allegations of wrongdoing by Maine Yankee,
and the Company reported re-starting of the plant on January 11, 1996.
Date of Report Items Reported
January 25, 1996 Item 5
On January 25, 1996, the Company announced its financial results for 1995.
The Company also reported on its filing of a restructuring plan with the MPUC on
January 31, 1996.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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, in the City of
Augusta, and State of Maine on the 29TH day of March, 1996.
CENTRAL MAINE POWER COMPANY
By
David E. Marsh
Vice President, Corporate Services,
Treasurer, and Chief Financial Officer
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons in the capacities and on
the dates indicated.
Signature Title Date
President and March 29, 1996
David T. Flanagan Chief Executive
(Principal Executive Officer; Director
Officer)
Vice President, March 29, 1996
David E. Marsh Corporate Services,
(Principal Financial Treasurer, and,
Officer) Chief Financial
Officer
Comptroller March 29, 1996
Robert E. Tuoriniemi
(Principal Accounting
Officer)
Chairman of the March 29, 1996
David M. Jagger Board of Directors
Vice Chairman of the March 29, 1996
Charles H. Abbott Board of Directors
Director March 29, 1996
Charleen M. Chase
Director March 29, 1996
E. James Dufour
Director March 29, 1996
Robert H. Gardiner
Director March 29, 1996
Charles E. Monty
Director March 29, 1996
Peter J. Moynihan
Director March 29, 1996
Robert H. Reny
Director March 29, 1996
Kathryn M. Weare
Director March 29, 1996
Lyndel J. Wishcamper
<PAGE>
The following report and consent and financial schedules of Central Maine
Power Company are filed herewith and included in response to Item 14(a).
Page
Reports of independent public
accountants F-2, F-3
Consents of independent public
accountants F-4, F-5
Schedule VIII - Valuation and Qualifying
Accounts F-6 to F-8
Any and all other schedules are omitted because the required information is
inapplicable or the information is presented in the financial statements or
related notes.
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Directors and Stockholders
Central Maine Power Company
We have audited the consolidated financial statements and the financial
statement schedule of Central Maine Power Company and subsidiary listed in Item
8 and Item 14(a) of this Form 10-K as of and for the years ended December 31,
1995 and 1994. These financial statements and financial statement schedule are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated financial statements and financial statement
schedule based on our audit.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall consolidated financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Central Maine
Power Company and subsidiary as of December 31, 1995 and 1994, and the
consolidated results of their operations and their cash flows for the years then
ended in conformity with generally accepted accounting principles. In addition,
in our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly, in all material respects, the information required to be
included
therein.
Coopers & Lybrand L.L.P.
Portland, Maine
January 24, 1996
F-2
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders and Board of Directors of
Central Maine Power Company:
We have audited the accompanying consolidated statements of earnings, changes in
common stockholders' investment and cash flows for the year ended December 31,
1993. These financial statements and the schedule referred to below are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the results of the operations of Central Maine Power
Company and subsidiaries and their cash flows for the year ended December 31,
1993, in conformity with generally accepted accounting principles.
Our audit was made for the purpose of forming an opinion on the basic financial
statements taken as a whole. The schedule listed on the accompanying index of
schedules included in response to Item 14(a) of this Form 10-K is presented for
purposes of complying with the Securities and Exchange Commission's rules and is
not a required part of the basic financial statements. The schedule for 1993 has
been subjected to the auditing procedures applied in our audit of the basic
financial statements and, in our opinion, is fairly stated, in all material
respects, in relation to the basic financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Boston, Massachusetts
February 4, 1994
F-3
<PAGE>
Central Maine Power Company
Form 10-K - 1995
Schedule VIII
Page 1 of 3
Central Maine Power Company
VALUATION AND QUALIFYING ACCOUNTS
For the Year Ended December 31, 1995
(Dollars in Thousands)
<TABLE>
Additions
Charged Charged to
Balance to costs other Balance
at Beginning and accounts- Deductions at end
Description of Period Expenses describe -describe of period
Reserves deducted from
assets to which they apply:
<S> <C> <C> <C> <C>
Uncollectible accounts $ 3,301 $4,407 $ $ 4,395(A) $ 3,313
Reserves not applied
against assets:
Casualty and insurance $ 1,275 $1,274 $273(B) $ 1,547(C) $ 1,275
Workers' compensation 6,400 6,400
Hazardous material
clean-up 10,000 6,460(D) 3,540
Postemployment benefits 1,045 1,045(E)
Compensation 2,344 2,344(E) -
Interest on IRS issues 1,000 1,000(F)
Total $22,064 $1,274 $273 $12,396 $11,215
Notes: (A) Amounts charged off as uncollectible after deducting customers' deposits and recoveries of
accounts previously charged off.
(B) Amounts charged to capital accounts.
(C) Principally payments for various injuries and damages and expenses in connection therewith.
(D) To adjust the estimated minimum liability balance for a change in clean-up method.
(E) Amounts transferred to deferred credit account.
(F) Reversal of reserve.
</TABLE>
F-6
<PAGE>
Central Maine Power Company
Form 10-K - 1995
Schedule VIII
Page 2 of 3
Central Maine Power Company
VALUATION AND QUALIFYING ACCOUNTS
For the Year Ended December 31, 1994
(Dollars in Thousands)
<TABLE>
Additions
Charged Charged to
Balance to costs other Balance
at Beginning and accounts- Deductions at end
Description of Period Expenses describe -describe of period
Reserves deducted from
assets to which they apply:
<S> <C> <C> <C> <C>
Uncollectible accounts $ 2,704 $4,924 $ $4,327(A) $ 3,301
Reserves not applied
against assets:
Casualty and insurance $ 1,075 $2,492 $ 548(B) $2,840(C) $ 1,275
Workers' compensation 6,400 6,400
Hazardous material
clean-up 6,828 5,730(D) 2,558(E) 10,000
Postemployment benefits 1,045 1,045
Compensation 181 1,283 1,108(D) 228(B) 2,344
Interest on IRS issues 1,000 1,000
Total $14,484 $5,820 $7,386 $5,626 $22,064
Notes: (A) Amounts charged off as uncollectible after deducting customers' deposits and recoveries of
accounts previously charged off.
(B) Amounts charged to capital accounts.
(C) Principally payments for various injuries and damages and expenses in connection therewith.
(D) Amounts charged to regulatory asset account.
(E) Amounts paid, charged against the reserve.
</TABLE>
F-7
<PAGE>
Central Maine Power Company
Form 10-K - 1995
Schedule VIII
Page 3 of 3
Central Maine Power Company
VALUATION AND QUALIFYING ACCOUNTS
For the Year Ended December 31, 1993
(Dollars in Thousands)
<TABLE>
Additions
Balance Charged Charged to
at Beginning to costs other Balance
of Period and accounts- Deductions at end
Description Expenses describe -describe of period
Reserves deducted from
assets to which they apply:
<S> <C> <C> <C> <C>
Uncollectible accounts $ 2,250 $5,548 $ $ 5,094(A) $ 2,704
Reserves not applied
against assets:
Casualty and insurance $ 1,077 $1,123 $ 272(B) $ 1,397(C) $ 1,075
Workers' compensation 6,400 6,400
Hazardous material
clean-up 2,981 5,019(D) 1,172(E) 6,828
Millstone III sales tax 423 423(F)
Obsolete inventory 250 250(G)
Revenue adjustment of
tax flowback 9,990 9,990(H)
Compensation 499 483 46(D) 847(B) 181
Total $21,620 $1,606 $5,337 $14,079 $14,484
Notes: (A) Amounts charged off as uncollectible after deducting customers' deposits and recoveries of
accounts previously charged off.
(B) Amounts charged to capital accounts.
(C) Principally payments for various injuries and damages and expenses in connection therewith.
(D) Amounts charged to regulatory asset account.
(E) Amounts paid, charged against the reserve.
(F) Amounts reversed, charged to nuclear operating expenses.
(G) Amounts charged off as Distribution Expense.
(H) Refer to Note 3 of Notes to Consolidated Financial Statements in the 1993 Annual Report.
</TABLE>
F-8
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO
SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR
ENDED DECEMBER 31, 1995
CENTRAL MAINE POWER COMPANY
File No. 1-5139
(Exact name of Registrant as specified in charter)
EXHIBITS
<PAGE>
The following designated exhibits, as indicated below, are either filed
herewith or have heretofore been filed with the Securities and Exchange
Commission under the Securities Act of 1933, the Securities Exchange Act of 1934
or the Public Utility Holding Company Act of 1935 and are incorporated herein by
reference to such filings. Reference is made to Item 8 of this Form 10-K for a
listing of certain financial information and statements incorporated by
reference herein.
<TABLE>
Prior
<S> <C> <C> <C> <C> <C> <C>
Exhibit Description of Exhibit
No. Document SEC Docket No.
EXHIBIT 2: PLAN OF ACQUISITION, REORGANIZATION, ARRANGEMENT,
LIQUIDATION OR SUCCESSION
Not Applicable.
EXHIBIT 3: ARTICLES OF INCORPORATION AND BY-LAWS
Incorporated herein by reference:
<S> <C> <C> <C>
3-1 Articles of Incorporation, as amended. Annual Report on Form 10-K 3.1
for year ended December 31,
1992
3-2 Bylaws, as amended. Annual Report on Form 10-K 3.2
for the year ended
December 31, 1990
EXHIBIT 4: INSTRUMENTS DEFINING THE RIGHTS OF SECURITY HOLDERS
Incorporated herein by reference:
4-1 General and Refunding Mortgage between the Company 2-58251 2.18
and The First National Bank of Boston, as Trustee,
dated as of April 15, 1976, relating to the Series
A Bonds.
4-2 First Supplemental Indenture dated as of March 15, 2-60786 2.19
1977 to the General and Refunding Mortgage.
4-3 Supplemental Indenture to the General and Annual Report on Form 10-K A
Refunding Mortgage Indenture dated as of for the year ended
October 1, 1978 relating to the Series B Bonds. December 31, 1978
4-4 Supplemental Indenture to the General and Quarterly Report on for the A
Refunding Mortgage Indenture dated as of quarter ended September 30,
October 1, 1979, relating to the Series C Bonds. 1979
4.10 Supplemental Indenture to the General and 33-9232 4.16
Refunding Mortgage Indenture dated as of December
1, 1986, relating to the Series I Bonds.
4.14 Indenture, dated as of August 1, 1989, between the 33-29626 4.1
Company and The Bank of New York, Trustee,
relating to the Medium-Term Notes.
4.15 First Supplemental Indenture, dated as of Current Report on Form 8-K 4.15
August 7, 1989, relating to the Medium-Term Notes, dated August 16, 1989
Series A, and supplementing the Indenture relating
to the Medium-Term Notes.
4.15.1 Second Supplemental Indenture, dated as of Current Report on Form 8-K 4.1
January 10, 1992, relating to the Medium-Term dated January 28, 1992
Notes, Series B, and supplementing the Indenture
relating to the Medium-Term Notes.
4.15.2 Third Supplemental Indenture, dated as of December Annual Report on Form 10-K 4.15.2
15, 1994, relating to the Medium-Term Notes, for year ended December 31,
Series C, and supplementing the Indenture relating 1994
to the Medium-Term Notes.
4.17 Supplemental Indenture to the General and Current Report on Form 8-K 4.1
Refunding Mortgage Indenture, dated as of dated September 17, 1991
September 15, 1991, relating to the Series N Bonds.
4.18 Supplemental Indenture to the General and Current Report on Form 8-K 1.2
Refunding Mortgage Indenture, dated as of dated December 10, 1991
December 1, 1991, relating to the Series O Bonds.
4.19 Supplemental Indenture to the General and Annual Report on Form 10-K 4.19
Refunding Mortgage Indenture, dated as of for year ended December 31,
December 15, 1992, relating to the Series P Bonds. 1992
4.20 Supplemental Indenture to the General and Current Report on Form 8-K 4.1
Refunding Mortgage Indenture, dated as of February dated March 1, 1993
15, 1993, relating to the Series Q Bonds.
4.21 Supplemental Indenture to the General and Current Report on Form 8-K 4.1
Refunding Mortgage Indenture, dated as of May 20, dated May 20, 1993
1993, relating to the Series R Bonds.
4.22 Supplemental Indenture to the General and Current Report on Form 8-K 4.1
Refunding Mortgage Indenture, dated as of August dated November 30, 1993
15, 1993, relating to the Series S Bonds.
4.23 Supplemental Indenture to the General and Current Report on Form 8-K 4.2
Refunding Mortgage Indenture, dated as of November dated November 30, 1993
1, 1993, relating to the Series T Bonds.
4.24 Supplemental Indenture to the General and Annual Report on Form 10-K 4.24
Refunding Mortgage Indenture, dated as of April for year ended December 31,
12, 1994, relating to the Series U Bonds. 1994
4.26 Supplemental Indenture to the General and Filed herewith
Refunding Mortgage Indenture, dated as of February
15, 1996, evidencing the succession of State
Street Bank and Trust Company as Trustee
EXHIBIT 9: VOTING TRUST AGREEMENT
Not applicable.
EXHIBIT 10: MATERIAL CONTRACTS
Incorporated herein by reference:
10-1 Agreement dated April 1, 1968 between the Company 2-30554 4.27
and Northeast Utilities Service Company relating
to services in connection with the New England
Power Pool and NEPEX.
10-2 Form of New England Power Pool Agreement dated as 2-55385 4.8
of September 1, 1971 as amended to November 1,
1975.
10-3 Agreement setting forth Supplemental NEPOOL 2-50198 5.10
Understandings dated as of April 2, 1973.
10-4 Sponsor Agreement dated as of August 1, 1968 among 2-32333 4.27
the Company and the other sponsors of Vermont
Yankee Nuclear Power Corporation.
10-5 Power Contract dated as of February 1, 1968 2-32333 4.28
between the Company and Vermont Yankee Nuclear
Power Corporation.
10-6 Amendment to Exhibit 10.5 dated as of June 1, 1972. 2-46612 13-21
10-7 Capital Funds Agreement dated as of February 1, 2-32333 4.29
1968 between the Company and Vermont Yankee
Nuclear Power Corporation.
10-8 Amendment to Exhibit 10.7 dated as of March 12, 70-4611 B-3
1968.
10-9 Stockholder Agreement dated as of May 20, 1968 2-32333 4.30
among the Company and the other stockholders of
Maine Yankee Atomic Power Company.
10-10 Power Contract dated as of May 20, 1968 between 2-32333 4.31
the Company and Maine Yankee Atomic Power Company.
10-10.1 Amendment No. 1 to Exhibit 10-10 dated as of Annual Report on Form 10-K 10-1.1
March 1, 1984. for the year ended
December 31, 1985 of Maine
Yankee Atomic Power company
(File No. 1-6554)
10-10.2 Amendment No. 2 to Exhibit 10-10 dated as of Annual Report on Form 10-K 10-1.2
January 1, 1984. for the year ended
December 31, 1985 of Maine
Yankee Atomic Power Company
(File No. 1-6554)
10-10.3 Amendment No. 3 to Exhibit 10-10 dated as of Annual Report on Form 10-K 10-1.3
October 1, 1984. for the year ended
December 31, 1985 of Maine
Yankee Atomic Power Company
(File No. 1-6554)
10-10.4 Additional Power Contract between the Company and Annual Report on Form 10-K 10-1.4
Maine Yankee Atomic Power Company dated for the year ended
February 1, 1984. December 31, 1985 of Maine
Yankee Atomic Power Company
(File No. 1-6554)
10-11 Capital Funds Agreement dated as of May 20, 1968 2-32333 4.32
between the Company and Maine Yankee Atomic Power
Company.
10-11.1 Amendment No. 1 to Exhibit 10-11 dated as of Annual Report on Form 10-K 10-2.1
August 1, 1985. for the year ended
December 31, 1985 of Maine
Yankee Atomic Power Company
(File No. 1-6554)
10-25 Agreement dated as of May 1, 1973 for Joint 2-48966 13-57
Ownership, Construction and Operation of New
Hampshire Nuclear Units among Public Service
Company of New Hampshire and certain other
utilities, including the Company.
10-42 Twentieth Amendment to Exhibit 10-25 dated as of Annual Report on Form 10-K 10-42
September 19, 1986. for the year ended
December 31, 1986
10-46 Participation Agreement, dated June 20, 1969 among 2-35073 4.23.1
Maine Electric Power Company, Inc., the Company
and certain other utilities.
10-47 Power Purchase and Transmission Agreement dated 2-35073 4.23.2
August 1, 1969, among Maine Electric Power
Company, Inc., the Company and certain other
utilities, relating to purchase and transmission
of power from The New Brunswick Electric Power
Commission.
10-48 Agreement amending Exhibit 10-47 dated June 24, 2-37987 4.41
1970.
10-49 Agreement supplementing Exhibit 10-47 dated 2-51545 5.7.4
December 1, 1971.
10-50 Assignment Agreement dated March 20, 1972, between 2-51545 5.7.5
Maine Electric Power Company, Inc., and the New
Brunswick Electric Power Commission.
10-51 Capital Funds Agreement dated as of September 1, 2-24123 4.19.1
1964 among Connecticut Yankee Atomic Power
Company, the Company and certain other utilities.
10-52 Power Contract dated as of July 1, 1964 among 2-24123 4.19.2
Connecticut Yankee Atomic Power Company, the
Company and certain other utilities.
10-53 Stockholder Agreement dated as of July 1, 1964 2-24123 4.19.3
among the stockholders of Connecticut Yankee
Atomic Power Company, including the Company.
10-54 Connecticut Yankee Transmission Agreement dated as 2-24123 4.19.4
of October 1, 1964 among the stockholders of
Connecticut Yankee Atomic Power Company, including
the Company.
10-55 Agreements with Yankee Atomic Electric Company
each dated June 30, 1959, as follows:
10-55.1 Stock Agreement. 2-15553 4.17.1
10-55.2 Power Contract. 2-15553 4.17.2
10.55.3 Research Agreement. 2-15553 4.17.3
10-56 Transmission Agreement with Cambridge Electric 2-15553 4.18
Light Company and other sponsoring stockholders of
Yankee Atomic Electric Company.
10-57 Agreement for Joint Ownership, Construction and 2-52900 5.16
Operation of Wyman Unit No. 4 dated November 1,
1974 among the Company and certain utilities.
10-58 Amendment to Exhibit 10-57 dated as of June 30, 2-55458 5.48
1975.
10-59 Amendment to Exhibit 10-57 dated as of August 16, 2-58251 5.19
1976.
10-60 Amendment to Exhibit 10-57 dated as of 2-68184 5.31
December 31, 1978.
10-61 Transmission Agreement dated November 1, 1974 2-54449 13-57
among the Company and certain other utilities,
relating to Wyman Unit No. 4.
10-62 Sharing Agreement--1979 Connecticut Nuclear Unit 2-50142 2.43
dated September 1, 1973 among the Company and
certain other utilities, relating to Millstone
Unit No. 3.
10-63 Amendment to Exhibit 10-62 dated as of August 1, 2-51999 5.16
1974, relating to Millstone Unit
No. 3.
10-64 Agreement dated as of February 25, 1977 among the 2-58251 5.24
Company, the Connecticut Light and Power Company,
the Hartford Electric Light Company and Western
Massachusetts Electric Company, relating to
Millstone Unit No. 3.
10-70 Project Agreement dated December 5, 1984 among the Annual Report on Form 10-K 10-69
Company, the Cities of Lewiston and Auburn, Maine for the year ended
and certain other parties, relating to development December 31, 1984
of hydro-electric plant.
10-73 Trust Indenture dated as of June 1, 1977 between 2-60786 5.27
the Town of Yarmouth and Casco Bank & Trust
Company, as trustee, relating to the Town of
Yarmouth's 6 3/4% Pollution Control Revenue Bonds
(Central Maine Power Company, 1977 Series A).
10-74 Installment Sale Agreement dated as of June 1, 2-60786 5.28
1977 between the Town of Yarmouth and the Company.
10-75 Agreements Relating to $11,000,000 Floating/Fixed
Rate Pollution Control Revenue Refunding Bonds:
10-75.1 Bond Purchase Agreement dated as of May 1, 1984. Quarterly Report on Form 28.3
10-Q for the quarter ended
June 30, 1984
10-75.2 Loan Agreement dated as of May 1, 1984. Quarterly Report on Form 28.4
10-Q for the quarter ended
June 30, 1984
10-76 Agreements Relating to $8,500,000 Floating/Fixed
Rate Pollution Control Revenue Bonds:
10-76.1 Bond Purchase Agreement dated December 28, 1984. Annual Report on Form 10-K 10-77.1
for year ended December 31,
1984
10-76.2 Loan Agreement dated as of December 1, 1984. Annual Report on Form 10-K 10-77.2
for year ended December 31,
1984
10-77.1 Indenture of Trust dated as of March 14, 1988 Annual Report on Form 10-K 10-1.4
between Maine Yankee Atomic Power Company and for year ended December 31,
Maine National Bank relating to decommissioning 1987, of Maine Yankee Atomic
trust funds. Power Company (1-6554)
10-77.1(a) Amended and Restated Indenture of Trust dated as Annual Report on Form 10-K 10-6.1
of January 1, 1993 between Maine Yankee Atomic for year ended Decembe 31,
Power Company and The Bank of New York relating to 1992, of Maine Yankee Atomic
decommissioning trust funds. Power Company (1-6554)
10-77.2 Indenture of Trust dated as of October 16, 1985 Annual Report on Form 10-K 10-7
between the Company and Norstar Bank of Maine for year ended December 31,
relating to the spent fuel disposal funds. 1985, of Maine Yankee Atomic
Power Company (1-6554)
10-78 Form of Agreement of Purchase and Sale dated Annual Report on Form 10-K 0.79
February 19, 1986 between the Company and Eastern for the year ended
Utilities Associates, relating to the sale of the December 31, 1985
Company's Seabrook Project interest.
10-79 Addendum to Agreement of Purchase and Sale dated Quarterly Report on Form 2.1
June 23, 1986, among the Company, Eastern 10-Q for the quarter ending
Utilities Associates and EUA Power Corporation, June 30, 1986
amending Exhibit 10-78.
10-80 Agreement, dated as of October 29, 1986, between Quarterly Report on Form 2.1
the Company and EUA Power Corporation, relating to 10-Q for the quarter ended
the sale of the Company's interest in the Seabrook September 30, 1986
Project.
10-81 Credit Agreement, dated as of October 15, 1986, Quarterly Report on Form 2.2
among the Company, various banks and Continental 10-Q for the quarter ended
Illinois National Bank and Trust Company of September 30, 1986
Chicago, as agent, establishing the terms of a $40
million unsecured credit facility.
10-86 Labor Agreement dated as of May 1, 1989 between Annual Report on Form 10-K 10.86
the Company (Northern, Western and Southern for the year ended
Division) and Local 1837 of the International December 31, 1989
Brotherhood of Electrical Workers.
10-86.1 Agreement dated as of November 25, 1991 extending Annual Report on Form 10-K 10.86.1
Labor Contract. for year ended December 31,
1991
10-89 1987 Executive Incentive Plan, as amended Annual Report on Form 10-K 10.89
January 20, 1993.* for year ended December 31,
1992
10-90 Deferred Compensation Plan for Non-Employee Annual Report on Form 10-K 10.90
Directors, as amended and restated effective for year ended December 31,
February 1, 1992.* 1992
10-91 Retirement Plan for Outside Directors, as amended Annual Report on Form 10-K 10.91
and restated effective April 24, 1991.* for year ended December 31,
1992
10-92 Employment Agreement between the Company and Annual Report on Form 10-K 10.92
Matthew Hunter dated as of October 20, 1993.* for year ended December 31,
1993.
10-93 Central Maine Power Company Long-Term Incentive Annual Report on Form 10-K 10.93
Plan.* for year ended December 31,
1993.
10-94.1 Central Maine Power Company Supplemental Executive Filed herewith
Retirement Plan, as Amended and Restated Effective
January 1, 1993, and as further Amended Effective
January 1, 1996.*
10-95 Competitive Advance and Revolving Credit Facility Annual Report on Form 10-K 10.95
between the Company and Chemical Bank dated as of for year ended December 31,
November 7, 1994. 1994
10-96.5 Employment Agreement between the Company and Filed herewith
Arthur W. Adelberg As Amended and Restated
Effective December 9, 1994.*
10-96.6 Employment Agreement between the Company and Filed herewith
Richard A. Crabtree As Amended and Restated
Effective December 9, 1994.*
10-96.7 Employment Agreement between the Company and Filed herewith
Gerald C. Poulin As Amended and Restated Effective
December 9, 1994.*
10-96.8 Employment Agreement between the Company and David Filed herewith
E. Marsh As Amended and Restated Effective
December 9, 1994.*
10-97 Employment Agreement between the Company and Filed herewith
David T. Flanagan dated December 29, 1995.*
*Management contract or compensatory plan or arrangement required to be filed in response to Item 14(c) of Form 10-K.
EXHIBIT 11: STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
Not Applicable.
EXHIBIT 12: STATEMENTS RE COMPUTATION OF RATIOS
Not Applicable.
EXHIBIT 13: ANNUAL REPORT TO SECURITY HOLDERS, FORM 10-Q OR
QUARTERLY REPORT TO SECURITY HOLDERS
13-1 Management's Discussion and Analysis of Financial Filed herewith
Condition and Results of Operations and Financial
Statements from Annual Report of Central Maine
Power Company to Shareholders for the year ended
December 31, 1995 (pages 1-55).
EXHIBIT 16: LETTER RE CHANGE IN CERTIFYING ACCOUNTANT
Not Applicable.
EXHIBIT 18: LETTER RE CHANGE IN ACCOUNTING PRINCIPLES
Not Applicable.
EXHIBIT 21: SUBSIDIARIES OF THE REGISTRANT
List of subsidiaries of registrant. Filed herewith
EXHIBIT 22: PUBLISHED REPORT CONCERNING MATTERS SUBMITTED TO
VOTE OF SECURITY HOLDERS
Not Applicable.
EXHIBIT 23: CONSENTS OF EXPERTS AND COUNSEL
23-1 Consent of Arthur Andersen & Co. to the Filed herewith at page F-5
incorporation by reference of their reports
included or incorporated by reference herein in
the Company's Registration Statements (File Number
33-36679, 33-39826, 33-44754, 33-51611 and
33-56939).
23-2 Consent of Coopers & Lybrand to the incorporation Filed herewith at page F-4
by reference of their reports included or
incorporated by reference herein in the Company's
Registration Statements (File Number 33-36679,
33-39826, 33-44754, 33-51611 and 33-56939).
EXHIBIT 24: POWER OF ATTORNEY
Not Applicable.
EXHIBIT 27: FINANCIAL DATA SCHEDULE Filed herewith
EXHIBIT 28: INFORMATION FROM REPORTS FURNISHED TO STATE
INSURANCE REGULATORY AUTHORITIES
Not Applicable.
EXHIBIT 99: ADDITIONAL EXHIBITS
To be filed under cover of a Form 10-K/A amendment
of this Form 10-K within 180 days after
December 31, 1995, pursuant to Rule 15d-21 under
the Securities Exchange Act of 1934:
99-1 and -2 Information, financial statements and exhibits
required by Form 11-K with respect to certain
employee savings plans maintained by the Company.
</TABLE>
<PAGE>
Exhibit 4.26
Executed Original
SUPPLEMENTAL INDENTURE
Dated as of February 15, 1996
among
CENTRAL MAINE POWER COMPANY,
THE FIRST NATIONAL BANK OF BOSTON, TRUSTEE, and
STATE STREET BANK AND TRUST COMPANY, SUCCESSOR TRUSTEE
TO
GENERAL AND REFUNDING MORTGAGE INDENTURE
Dated as of April 15, 1976, as Amended
Concerning the Succession of State Street Bank and
Trust Company to the Trusteeship under the General and
Refunding Mortgage Indenture
<PAGE>
CENTRAL MAINE POWER COMPANY
SUPPLEMENTAL INDENTURE
Dated as of February 15, 1996
TABLE OF CONTENTS
Parties.................................................................1
Recitals................................................................1
Consideration ..........................................................2
ARTICLE I
TRUSTEE SUCCESSION
Section 1.01. Resignation of Trustee...................................3
Section 1.02. Appointment of Successor Trustee.........................3
Section 1.03. Acceptance and Assurances by
Successor Trustee............................3
Section 1.04. Confirmatory Assignment .....................4
Section 1.05. Costs and Expenses ......................................4
ARTICLE II
MISCELLANEOUS PROVISIONS
Section 2.01. This Instrument Supplemental to the Indenture............4
Section 2.02. Effect of Table of Contents and Headings.................4
Section 2.03. Trust Indenture Act to Control...........................4
Section 2.04. Counterparts.............................................4
TESTIMONIUM.............................................................5
SIGNATURES..............................................................5
ACKNOWLEDGMENTS.........................................................7
<PAGE>
THIS SUPPLEMENTAL INDENTURE, dated as of February 15, 1996, is among
CENTRAL MAINE POWER COMPANY, a Maine corporation, with its principal office at
83 Edison Drive, Augusta, Maine 04336 (hereinafter generally referred to as the
Company), THE FIRST NATIONAL BANK OF BOSTON, a national banking association,
with its principal office at 100 Federal Street, Boston, Massachusetts 02110, as
trustee under the General and Refunding Mortgage Indenture referred to in the
first recital hereof (hereinafter generally referred to as the Trustee), and
STATE STREET BANK and TRUST COMPANY, a Massachusetts trust company, with its
principal office at 225 Franklin Street, Boston, Massachusetts 02110
(hereinafter generally referred to as the Successor Trustee).
WHEREAS, the Company has heretofore duly executed and delivered to the
Trustee its General and Refunding Mortgage Indenture dated as of April 15, 1976
and Supplemental Indentures thereto dated respectively as of March 15, 1977,
May 20, 1977, March 15, 1978, October 1, 1978, March 15, 1979, October 1, 1979,
March 15, 1980, March 15, 1981, April 15, 1981, September 17, 1981, November 15,
1981, March 15, 1982, March 15, 1983, April 15, 1983, March 15, 1984, September
1, 1984, March 15, 1985, March 15, 1986, April 15, 1986, October 15, 1986,
December 1, 1986, March 15, 1987, November 15, 1987, January 15, 1988, April 15,
1988, November 15, 1988, April 15, 1989, April 15, 1990, December 10, 1990,
April 15, 1991, September 15, 1991, December 1, 1991, April 15, 1992, December
15, 1992, February 15, 1993, April 15, 1993, May 20, 1993, August 15, 1993,
November 1, 1993, April 12, 1994, April 20, 1994, and April 15, 1995 (said
General and Refunding Mortgage Indenture being hereinafter generally referred to
as the Original Indenture, and the Original Indenture together with all
indentures stated to be supplemental thereto, including this Supplemental
Indenture, being hereinafter generally referred to as the Indenture), to which
this instrument is supplemental, whereby all the properties of the Company,
whether then owned or thereafter acquired, with certain reservations, exceptions
and exclusions fully set forth in the Indenture, were given, granted, bargained,
sold, transferred, assigned, pledged, mortgaged, warranted, conveyed and
confirmed to the Trustee, its successors and assigns, in trust upon the terms
and conditions set forth therein, to secure bonds of the Company issued and to
be issued thereunder, and for other purposes more particularly specified
therein; and
WHEREAS, the Company has issued, and there are outstanding under the
Indenture, $22,500,000 in aggregate principal amount of General and Refunding
Mortgage Bonds, Series N 8.50% Due 2001, $50,000,000 in aggregate principal
amount of General and Refunding Mortgage Bonds, Series O 7 3/8% Due 1999,
$75,000,000 in aggregate principal amount of General and Refunding Mortgage
Bonds, Series P 7.66% Due 2000, $75,000,000 in aggregate principal amount of
General and Refunding Mortgage Bonds, Series Q 7.05% Due 2008, $50,000,000 in
aggregate principal amount of General and Refunding Mortgage Bonds,
Series R 7 7/8% Due 2023, $60,000,000 in aggregate principal amount of General
and Refunding Mortgage Bonds, Series S 6.03% Due 1998, $75,000,000 in aggregate
principal amount of General and Refunding Mortgage Bonds, Series T 6.25% Due
1998 and $25,000,000 in aggregate principal amount of General and Refunding
Mortgage Bonds, Series U 7.54% (Adjustable Rate) Due 1998; and
WHEREAS, pursuant to a separate agreement between the Trustee and the
Successor Trustee, the Trustee has agreed to sell, assign and transfer to the
Successor Trustee substantially all of the Trustee's corporate trust business
(said agreement and transaction being hereinafter generally referred to as the
Transaction); and
WHEREAS, the Transaction may not meet the precise terms of Section 16.20 of
the Indenture, providing for automatic succession of the Successor Trustee to
the trusteeship under the Indenture, and, accordingly, the succession must take
the form of the resignation of the Trustee, and appointment of and acceptance by
the Successor Trustee; and
WHEREAS, pursuant to Section 17.01(f) of the Indenture, the Company and the
Trustee may enter into an indenture supplemental to the Indenture to evidence
the succession of a new trustee under the Indenture; and
WHEREAS, upon the terms of this Supplemental Indenture, the Company is
willing to take action to permit the succession of the Successor Trustee to the
trusteeship under the Indenture; and
WHEREAS, each of the parties hereto confirms to the others that its
execution and delivery of this Supplemental Indenture and other necessary
actions have been duly authorized by, or pursuant to authority granted by, its
Board of Directors and have been duly approved to the extent required by law by
the appropriate governmental authorities; and
WHEREAS, all acts and things necessary to make this Supplemental Indenture
when executed and delivered by each of the parties a valid, binding and legal
obligation of such party have been done and performed.
NOW, THEREFORE, in consideration of the premises, and of other good and
valuable consideration, the receipt whereof is hereby acknowledged, and in
confirmation of and supplementing the Indenture, the parties hereby agree as
follows:
<PAGE>
ARTICLE I
TRUSTEE SUCCESSION
Resignation of Trustee. Pursuant to Section 16.16 of the Indenture, the Trustee
hereby resigns as trustee under the Indenture, effective at the opening of
business on March 1, 1996. The Company acknowledges receipt of the written
notice of resignation from the Trustee required under said Section 16.16. The
Trustee confirms that it has taken action to publish notice of resignation in
compliance with said Section 16.16. The Trustee covenants to and with the
Company that all actions which have been and will be taken by the Trustee in
connection with the succession of the trusteeship under the Indenture
(including, without limitation, transfers of portions of the trust estate) have
been and will be proper under the Indenture and fully protective of the
respective interests of the Company and the holders of bonds issued and to be
issued under the Indenture.
Appointment of Successor Trustee. Pursuant to Section 16.18 of the Indenture,
and in reliance upon the agreements and assurances of the Trustee and Successor
Trustee contained in this Supplemental Indenture, the Company hereby appoints
the Successor Trustee as the new trustee under the Indenture. This appointment
shall be effective upon the effectiveness of the resignation of the Trustee
under the Indenture at the opening of business on March 1, 1996, and fully vests
the Successor Trustee with all the estates, properties, rights, powers, trusts,
duties and obligations of its predecessor in trust under the Indenture, with
like effect as if originally named as trustee thereunder. The Company shall
publish notice of such appointment in the manner provided in Section 16.16 of
the Indenture.
Acceptance and Assurances by Successor Trustee. The Successor Trustee hereby
accepts appointment as Successor Trustee under the Indenture, and assumes all
rights, powers, duties and obligations of the trustee under the Indenture. In
connection therewith, the Successor Trustee confirms its eligibility under
Section 16.01 of the Indenture and its qualification under Section 16.14 of the
Indenture. All portions of the trust estate received by the Successor Trustee
from the Trustee or the Company, either in the Successor Trustee's capacity as
agent of the Trustee or by virtue of the Successor Trustee's acceptance of
appointment hereunder and the conveyance made to it under Section 1.04 hereof,
have been received and are held by the Successor Trustee in trust under the
Indenture in full protection of the respective interests of the Company and the
holders of bonds issued and to be issued under the Indenture.
SECTION 1.04. Confirmatory Assignment. In order more certainly to vest and
confirm the same in the Successor Trustee, the Trustee by these presents does
give, grant, bargain, sell, transfer, assign, convey and confirm unto the
Successor Trustee all the estates, properties, rights, powers, trusts, duties
and obligations of the Trustee as trustee under the Indenture, effective at the
opening of business on March 1, 1996.
Costs and Expenses. As between the Trustee and the Company, the Trustee hereby
agrees to pay or reimburse the Company for payment of all costs and expenses
relating to or arising out of the succession of the trusteeship under the
Indenture, including, without limitation, reasonable legal fees and expenses,
expenses of publication and documenting of the succession, expenses of necessary
or appropriate filings in public records to evidence the succession, and any
expenses incurred in the event of bondholder action to appoint a trustee to
replace the Successor Trustee under Section 16.18 of the Indenture.
ARTICLE II
MISCELLANEOUS PROVISIONS
This Instrument Supplemental to the Indenture. This instrument is expressly made
supplemental to the Original Indenture as heretofore supplemented, and, except
as otherwise provided herein, the use of terms and expressions herein is in
accordance with the definitions and constructions contained in the Indenture.
This Supplemental Indenture shall become void when the Indenture shall become
void.
Effect of Table of Contents and Headings. The Table of Contents and headings of
the different Articles and Sections of this Supplemental Indenture are inserted
for convenience of reference, and are not to be taken to be any part of those
provisions, or to control or affect the meaning, construction or effect of the
same.
Trust Indenture Act to Control. If any provision of this Supplemental Indenture
limits, qualifies or conflicts with the duties imposed by any of Sections 310 to
317, inclusive, of the Trust Indenture Act of 1939, as amended by the Trust
Indenture Reform Act of 1990, through operation of Section 318(c), such imposed
duties shall control.
Counterparts. This Supplemental Indenture may be simultaneously executed in any
number of counterparts and on separate counterparts, each of which shall be
deemed an original; and all said counterparts executed and delivered, each as an
original, shall constitute but one and the same instrument, which shall for all
purposes be sufficiently evidenced by any such original counterpart.
<PAGE>
IN WITNESS WHEREOF, CENTRAL MAINE POWER COMPANY has caused this instrument
to be duly executed in its name and behalf by one of its Vice Presidents,
thereto duly authorized, and its corporate seal to be hereto affixed and
attested by its Secretary; THE FIRST NATIONAL BANK OF BOSTON has caused this
instrument to be duly executed in its name and behalf by one of its Authorized
Officers, thereto duly authorized, and its corporate seal to be hereto affixed;
and STATE STREET BANK and TRUST COMPANY has caused this instrument to be duly
executed in its name and behalf by one of its Assistant Vice Presidents, thereto
duly authorized, and its corporate seal to be hereto affixed--all as of the day
and year first above written.
CENTRAL MAINE POWER COMPANY
By: /s/ D. E. Marsh
Vice President
[CORPORATE SEAL]
ATTEST:
/s/ William M. Finn
Secretary
Signed, sealed and
delivered on behalf of
Central Maine Power
Company in the presence of:
/s/ Brenda L. Robbins
-8-
THE FIRST NATIONAL BANK OF
BOSTON, TRUSTEE
By /s/ Michael R. Garfield
Authorized Officer
[CORPORATE SEAL]
Signed, sealed and
delivered on behalf of The
First National Bank of
Boston in the presence of:
/s/ Brian M. Baker
STATE STREET BANK AND
TRUST COMPANY, SUCCESSOR
TRUSTEE
By /s/ Eric J. Donaghey
Assistant Vice President
[CORPORATE SEAL]
Signed, sealed and
delivered on behalf of
State Street Bank and
Trust Company in the
presence of:
/s/ Henry W. Seemore
STATE OF MAINE )
) ss.:
KENNEBEC, )
At Augusta, on this 28th day of February, 1996, before me, a Notary Public
in and for the County of Kennebec and State of Maine, personally appeared D. E.
Marsh, a Vice President of Central Maine Power Company, to me personally known,
who executed the foregoing instrument on behalf of said corporation, and
acknowledged the same to be his free act and deed in such capacity and the free
act and deed of Central Maine Power Company.
(NOTARIAL SEAL)
/s/ Karla E. Swasey
My Commission Expires:
April 1,2001
COMMONWEALTH OF MASSACHUSETTS )
) ss.:
SUFFOLK, )
At Boston, on this 27th day of February, 1996, before me, a Notary Public
in and for the County of Suffolk and Commonwealth of Massachusetts, personally
appeared Michael R. Garfield, an Authorized Officer of The First National Bank
of Boston, to me personally known, who executed the foregoing instrument on
behalf of said national banking association and acknowledged the same to be the
free act and deed of such Authorized Officer in such capacity and the free act
and deed of The First National Bank of Boston.
(NOTARIAL SEAL)
/s/ Scott Knox
My Commission Expires:
July 12, 2002
COMMONWEALTH OF MASSACHUSETTS )
) ss.:
SUFFOLK, )
At Boston, on this 27th day of February, 1996, before me, a Notary Public
in and for the County of Suffolk and Commonwealth of Massachusetts, personally
appeared Eric J. Donaghey, an Assistant Vice President of State Street Bank and
Trust Company, to me personally known, who executed the foregoing instrument on
behalf of said trust company and acknowledged the same to be the free act and
deed of such Assistant Vice President in such capacity and the free act and deed
of State Street Bank and Trust Company.
(NOTARIAL SEAL)
/s/ Scott Knox
My Commission Expires:
July 12, 2002
1 Not part of Supplemental Indenture.
<PAGE>
Exhibit 10.94.1
CENTRAL MAINE POWER COMPANY
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
As Amended and Restated Effective January 1, 1993
As further Amended Effective January 1, 1996
PREAMBLE
The primary objective of the Central Maine Power Company Supplemental
Executive Retirement Plan is to provide a competitive level of retirement income
in order to attract and retain selected executives. The plan is designed to
provide a benefit which, when added to other retirement income of an executive,
will meet this objective. Participation in the plan shall be limited to senior
officers of the Company who are selected by the Board of Directors. This plan is
effective as of January 1, 1993.
ARTICLE I
Definitions
1.1 "Basic Plan" shall mean the Retirement Income Plan for Non-Union
Employees of Central Maine Power Company, as amended from time to time.
1.2 "Basic Plan Benefit" shall mean the amount of benefit payable annually
from the Basic Plan to the Participant in the form of a Single Life Annuity.
1.3 "Benefit Service" shall mean benefit service as defined in the Basic
Plan.
1.4 "Board" or "Board of Directors" shall mean the Board of Directors of
Central Maine Power Company.
1.5 "Code" shall mean the Internal Revenue Code of 1986, as amended.
1.6 "Committee" shall mean the Compensation and Benefits Committee of the
Board of Directors.
1.7 "Company" shall mean Central Maine Power Company.
1.8 "Credited Service" shall mean credited service as defined in the Basic
Plan.
1.9 "Earnings" shall mean a Participant's earnings as defined in the Basic
Plan, but determined without regard to those provisions in the Basic Plan
incorporating the limits of Section 401(a)(17) of the Code, and including
amounts deferred by the Participant under any elective deferred compensation
plan maintained by the Company and any amounts received by the Participant from
the Executive Incentive Plan.
1.10 "Effective Date" shall mean January 1, 1993.
1.11 "ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended.
1.12 "Final Average Earnings" shall mean the average of a Participant's
highest thirty-six (36) consecutive months of Earnings while employed by the
Company.
1.13 "Participant" shall mean an employee of the Company who is a member of
the select group of management employees identified in Schedule A, attached
hereto and made a part hereof, and who is vested under the Basic Plan.
1.14 "Plan" shall mean the Central Maine Power Company Supplemental
Executive Retirement Plan as set forth herein and hereafter amended.
1.15 "Retirement" shall mean the termination of a Participant's employment
with the Company and the commencement of benefit payments under the Plan.
1.16 "Retirement Date" shall mean one of the dates specified in Article II.
1.17 "Single Life Annuity" shall mean a series of equal monthly payments,
beginning on the Participant's Retirement Date and ending with the monthly
payment immediately preceding the Participant's death.
1.18 "Surviving Spouse" shall mean the surviving spouse of the Participant
but only if the Participant and the surviving spouse had been married throughout
the one-year period ending on the date of the Participant's death. A former
spouse will be treated as the Surviving Spouse with specific reference to this
Plan only to the extent provided under a qualified domestic relations order as
described in Section 206(d)(3) of ERISA and applicable regulations thereunder.
ARTICLE II
Eligibility for Benefits
A Participant is eligible to retire from the Company and receive a benefit
under the Plan beginning on one of the following dates:
2.1 "Normal Retirement Date," which is the first day of the month
coinciding with or next following the date on which the Participant reaches age
65.
2.2 "Early Retirement Date," which is the first day of any month, prior to
the Participant's Normal Retirement Date, coinciding with or following the date
on which the Participant has both reached age 55 and completed five (5) years of
Credited Service.
2.3 "Deferred Retirement Date," which is the first day of the month, after
the Participant's Normal Retirement Date, coinciding with or next following the
date on which the Participant terminates employment with the Company.
The benefit to which the Participant will be entitled upon his or her
Retirement Date shall be determined in accordance with Article III.
ARTICLE III
Supplemental Plan Benefits
3.1 Retirement Benefit. On Retirement a Participant shall be entitled to an
annual benefit under this Plan equal to the amount determined under subsection
(a) less the amounts determined under subsections (b), (c), and (d):
(a) 2.6% of the Participant's Final Average Earnings, multiplied by --
(i) the Participant's completed years of Benefit Service (excluding any
partial years), not in excess of 25; and
(ii) except as provided in Section 3.2, if a Participant retires before age
62, the applicable early retirement reduction factor specified in the Basic
Plan.
(b) 100% of the Participant's Basic Plan Benefit, determined in accordance
with all applicable provisions of the Basic Plan.
(c) 100% of the amount payable annually as a Single Life Annuity that is
the actuarial equivalent of the Participant's retirement benefit under any other
nonqualified retirement plan of (or employment agreement with) the Company,
determined in accordance with all applicable provisions of the nonqualified
retirement plan or employment agreement, as the case may be.
(d) 100% of the amount payable annually as a Single Life Annuity that is
the actuarial equivalent of any amount released to the Participant under any
split-dollar life insurance agreement with the Company.
For purposes of this Section, actuarial equivalence shall be determined in
accordance with the actuarial assumptions specified in the Basic Plan.
3.2 Disability Retirement Benefit. If a Participant retires before age 62
with a disability benefit payable from the Basic Plan, the amount determined
under subsection (a) of Section 3.1 shall not be reduced by the application of
any early retirement reduction factor.
3.3 Pre-Retirement Death Benefit. If a Participant dies prior to the date
his or her Retirement benefits commence under this Plan, a death benefit shall
be payable to his or her Surviving Spouse in an amount equal to fifty percent
(50%) of the amount the Participant would have received under the Plan had he or
she been eligible to and elected early retirement the day before the date of his
or her death with a benefit payable in the form of a qualified joint and
survivor annuity, as described in the Basic Plan.
3.4 Post-Retirement Death Benefit. If the Participant dies after his or her
Retirement benefits commence under this Plan a death benefit shall be payable
only to the extent that such benefit is provided under the form of benefit
payment in effect under Section 3.5.
3.5 Payment of Benefits. The benefits payable under the Plan shall be paid
at such time and in such form as the benefits payable under the Basic Plan that
the benefits payable hereunder are intended to supplement, unless the Committee
shall otherwise determine. No benefit shall be paid hereunder until an
application shall be made to the Committee in writing. In addition, the
Committee may require an applicant for a benefit hereunder to furnish such
information as it may reasonably request, and may delay the commencement of
benefits, if necessary, until such information is made available.
ARTICLE IV
Administration
4.1 The complete authority to control and manage the operation and
administration of the Plan shall be placed in the Committee. The Committee shall
have sole discretion to construe the Plan and to determine all questions
relating to eligibility for and entitlement to benefits. Further, the Committee
shall have the sole discretion to determine the time and form of benefit
payments under the Plan.
4.2 Subject to the provisions of this Plan, the Committee from time to time
may establish rules for the administration and interpretation of the Plan. The
determination of the Committee as to any disputed questions shall be conclusive.
All actions, decisions and interpretations of the Committee in administering the
Plan shall be performed in a uniform and nondiscriminatory manner.
4.3 If an application for a benefit ("claim") is denied by the Committee,
the Committee shall give written notice of such denial to the applicant, by
certified or registered mail, within 60 days after the claim was filed with the
Committee; provided, however, that such 60-day period may be extended to 120
days by the Committee if it determines that special circumstances exist which
require an extension of the time required for processing the claim. Such denial
shall set forth:
(a) the specific reason or reasons for the denial;
(b) the specific Plan provisions on which the denial is based;
(c) any additional material or information necessary for the
applicant to perfect the claim and an explanation of why such material or
information is necessary; and
(d) an explanation of the Plan's claim review procedure.
Following receipt of such denial, the applicant or his or her duly authorized
representative may:
(a) request a review of the denial by filing a written
application for review with the Committee within 60 days after receipt by the
applicant of such denial;
(b) review documents pertinent to the claim at such
reasonable time and location as shall be mutually agreeable to the applicant
and the Committee; and
(c) submit issues and comments in writing to the Committee
relating to its review of the claim.
The Committee shall, after consideration of the application for review,
render a decision and shall give written notice thereof to the applicant, by
certified or registered mail, within 60 days after receipt by the Committee of
the application for review; provided, however, that such 60-day period may be
extended to 120 days by the Committee if it determines that special
circumstances exist which require an extension of the time required for
processing the application for review. Such notice shall include specific
reasons for the decision and specific references to the pertinent Plan
provisions on which the decision is based.
4.4 Any act that the Plan authorizes or requires the Committee to do may be
done by a majority of its members. The action of such majority, expressed from
time to time by a vote at a meeting or in writing without a meeting, shall
constitute the action of the Committee and shall have the same effect for all
purposes as if assented to by all members of the Committee at the time in
office.
4.5 The members of the Committee may authorize one or more of their number
to execute or deliver any instrument, make any payment or perform any other act
which the Plan authorizes or requires the Committee to do.
4.6 The Committee may employ counsel and other agents, may delegate
ministerial duties to such agents or to employees of the Company and may procure
such clerical, accounting, actuarial, consulting and other services as it may
require in carrying out the provisions of the Plan.
4.7 The Company shall indemnify and save harmless each member of the
Committee against all expenses and liabilities arising out of his or her acts or
omissions with respect to the Plan, provided such member would be entitled to
indemnification pursuant to the By-Laws of the Company.
ARTICLE V
Miscellaneous
5.1 The Board may at any time, in its sole discretion, terminate this Plan
or amend the Plan in whole or in part. No such termination or amendment shall
have the effect of retroactively reducing any benefit, based on a Participant's
Benefit Service, Credited Service, and Earnings as of the date of such
termination or amendment, or restricting any right of a Participant, retired
Participant, Surviving Spouse, or other person or estate entitled to benefits
hereunder.
5.2 Nothing contained herein will confer upon any Participant the right to
be retained in the service of the Company or any other right not expressly
provided for herein, nor will the existence of this Plan impair the right of the
Company to discharge or otherwise deal with a Participant.
5.3 This Plan is unfunded for purposes of the Code and ERISA and is not
intended to meet the requirements of Section 401(a) of the Code. This Plan
constitutes a mere promise by the Company to make benefit payments in the
future, and the Participant hereunder shall have no greater rights than a
general, unsecured creditor of the Company.
5.4 To the maximum extent permitted by law, no benefit under this Plan
shall be assignable or subject in any manner to alienation, sale, transfer,
claims of creditors, pledge, attachment or encumbrances of any kind.
5.5 Each Participant shall receive a copy of this Plan and the Committee
will make available for inspection by the Participant a copy of any rules and
regulations adopted by the Committee in administering the Plan.
5.6 This Plan is established under and will be construed according to the
laws of the State of Maine, except to the extent such laws may be preempted by
ERISA.
IN WITNESS WHEREOF, Central Maine Power Company has caused this document to
be executed by its duly authorized officer on this ________________ day of
January, 1996.
CENTRAL MAINE POWER COMPANY
By: ___________________________________
Chairman of the Board
SCHEDULE A
(As Amended Effective January 1, 1996)
Arthur W. Adelberg
Vice President,
Law and Power Supply
Richard A. Crabtree
Vice President,
Retail Operations
Matthew Hunter
President and Chief Executive Officer (retired)
David T. Flanagan
President and Chief Executive Officer
Donald F. Kelly
Senior Vice President,
Production, Engineering and Power Supply (retired)
David E. Marsh
Vice President, Corporate Services, Treasurer,
and Chief Financial Officer
Gerald C. Poulin
Vice President,
Generation and Technical Support
<PAGE>
Exhibit 10-96.5
EMPLOYMENT AGREEMENT
As Amended and Restated Effective December 9, 1994
THIS EMPLOYMENT AGREEMENT is made, effective as of the ninth (9th) day of
December, 1994, by and between Central Maine Power Company, a Maine corporation
with its principal place of business in Augusta, Maine (hereinafter referred to
as the "Company"), and Arthur W. Adelberg (hereinafter referred to as the
"Executive").
WHEREAS, the Company recognizes that the Executive is a valued officer
because of his knowledge of the Company's affairs and his experience and
leadership capabilities, and desires to encourage his continued employment with
the Company to assure itself of the continuing advantage of that knowledge,
experience and leadership for the benefit of customers and shareholders,
particularly during a period of transition in various aspects of the Company's
business and in the event of a Change of Control of the Company; and
WHEREAS, the Executive desires to serve in the employ of the Company on a
full-time basis for a period provided in this Employment Agreement (hereinafter
referred to as the "Agreement") on the terms and conditions hereinafter set
forth; and
WHEREAS, to these ends the Company desires to provide the Executive with
certain payments and benefits in the event of the termination of his employment
in certain circumstances; and
WHEREAS, the Company and the Executive wish to set forth the terms and
conditions under which such employment and payments and benefits will occur.
NOW, THEREFORE, in consideration of the continued offer of employment by
the Company and the continued acceptance of employment by the Executive, and the
mutual promises and covenants contained herein, the Company and the Executive
hereby agree as follows:
1. Term of Agreement. a. The term of this Agreement shall begin on December
9, 1994 (hereinafter referred to as the "Effective Date") and shall expire on
December 31, 1997; provided, however, that on December 31, 1997 and on each
December 31 thereafter, the term of this Agreement shall automatically be
extended for one (1) additional year unless not later than the preceding October
31 either the Company or the Executive shall have given notice that such party
does not wish to extend the term of this Agreement.
b. If a Change of Control occurs during the original term of this Agreement
or any extension, then the term of this Agreement shall be automatically
extended for a thirty-six (36) calendar month period beginning on the first day
of the month following the month in which such Change of Control occurs.
c. Notwithstanding anything to the contrary in this Section 1, this
Agreement and all obligations of the Company hereunder shall terminate on the
date of the Executive's death, or thirty (30) days after the Company gives
notice to the Executive that the Company is terminating the Executive's
employment for reason of Total Disability or Cause.
2. Definitions. The following terms shall have the meanings set forth
below:
"Affiliate" means a person that directly or indirectly through one or more
intermediaries controls, is controlled by, or is under common control with the
Company.
"Board" means the Board of Directors of the Company.
"Cause" means any of the following events or occurrences:
(i) An act of material dishonesty taken by, or committed at the request of,
the Executive.
(ii) Any illegal or unethical conduct which, in the good faith judgment of
the Board, would impair the Executive's ability to perform his duties under this
Agreement or would impair the business reputation of the Company.
(iii) Conviction of a felony.
(iv) The continued failure of the Executive to perform substantially his
responsibilities and duties under this Agreement, after demand for performance
has been delivered in writing to the Executive specifying the manner in which
the Company believes that the Executive is not performing.
Notwithstanding any contrary provision of this Agreement, the Executive
shall not be deemed to have been terminated for Cause unless and until there
shall have been delivered to the Executive a certified copy of a resolution duly
adopted by the affirmative vote of two-thirds of the members of the Board who
are not employees of the Company at a meeting of the Board called and held for
such purpose (after reasonable notice to the Executive and an opportunity for
the Executive, together with his counsel, to be heard before the Board), finding
in good faith one of the events or occurrences set forth in parts(i) through
(iv) of the definition of "Cause" in this Agreement and specifying the
particulars thereof in detail.
"Change of Control" means the occurrence of any of the following events:
(i) Any "person," as such term is used in Sections 13(d) and 14(d) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act") (other than the
Company or any Affiliate or any trustee or other fiduciary holding securities
under an employee benefit plan of the Company or any Affiliate), is or becomes
the beneficial owner, as defined in Rule 13d-3 under the Exchange Act, directly
or indirectly, of stock of the Company representing thirty percent (30%) or more
of the combined voting power of the Company's then outstanding stock eligible to
vote.
(ii) During any period of two (2) consecutive years after the execution of
this Agreement, individuals who at the beginning of such period constitute the
Board, and any new director whose election by the Board or nomination for
election by the Company's stockholders was approved by a vote of at least
two-thirds of the directors then in office who either were directors at the
beginning of the period or whose election or nomination for election was
previously so approved, cease for any reason to constitute at least a majority
thereof.
(iii) The stockholders of the Company approve a merger or consolidation of
the Company with any other corporation, other than a merger or consolidation
which would result in the voting stock of the Company outstanding immediately
prior thereto continuing to represent (either by remaining outstanding or by
being converted into voting securities of the surviving entity) more than fifty
percent (50%) of the combined voting power of the outstanding voting stock of
the Company or such surviving entity immediately after such merger or
consolidation; provided, that a merger or consolidation effected to implement a
recapitalization of the Company (or similar transaction) in which no "person"
(as hereinabove defined) acquires more than thirty percent (30%) of the combined
voting power of the Company's then outstanding securities shall not constitute a
Change of Control of the Company.
(iv) The stockholders of the Company approve a plan of complete liquidation
of the Company or an agreement for the sale, lease, exchange or other
disposition by the Company of all or substantially all of the Company's assets
(or any transaction having a similar effect). "Constructive Discharge" means, so
long as no Change of Control has occurred, any reduction in the Executive's
annual base salary in effect as of the Effective Date of this Agreement, or as
the same may be increased from time to time, other than any across-the-board
base salary reduction for a group or all of the executive officers of the
Company, and also means, on or after a Change of Control,
(i) any reduction in the Executive's annual base salary in effect as of the
Effective Date of this Agreement, or as the same may be increased from time to
time;
(ii) a failure to increase the Executive's annual base salary commensurate
with any across-the-board percentage increases in the compensation of other
executive officers of the Company;
(iii) a substantial reduction in the nature or scope of the Executive's
responsibilities, duties or authority from those described in Section 3.c of
this Agreement;
(iv) a material adverse change in the Executive's title or position; or
(v) relocation of the Executive's place of employment from the Company's
principal executive offices or to a place more than twenty-five (25) miles from
Augusta, Maine without the Executive's consent.
"Severance Benefits" means the benefits set forth in Section 5.a or 5.c of
this Agreement, as applicable.
"Severance Period" means, in the case of a Change of Control, the period
from the date of termination as determined in accordance with Section 6 of this
Agreement until the third anniversary of such date.
"Total Disability" means the complete and permanent inability of the
Executive to perform all of his duties under this Agreement on a full-time basis
for a period of at least six (6) consecutive months, as determined by the Board
upon the basis of such evidence, which may include independent medical reports
and data, as the Board deems appropriate or necessary.
3. Employment. a. The Company hereby agrees to continue its employment of
the Executive in the capacity of Vice President, Law and Power Supply, and the
Executive hereby agrees to remain in the employ of the Company for the period
beginning on the Effective Date and ending on the date on which the Executive's
employment is terminated in accordance with this Agreement (the "Employment
Period"). This Agreement shall not restrict in any way the right of the Company
to terminate the Executive's employment at whatever time and for whatever reason
it deems appropriate, nor shall it limit the right of the Executive to terminate
employment at any time for whatever reason he deems appropriate.
b. The Executive agrees that during the Employment Period he shall devote
substantially all his business attention and time to the business and affairs of
the Company and its Affiliates, and use his best efforts to perform faithfully
and efficiently the duties and responsibilities of the Executive under this
Agreement. It is expressly understood that (i) the Executive may devote a
reasonable amount of time to such industry associations and charitable and civic
endeavors as shall not materially interfere with the services that the Executive
is required to render under this Agreement, and (ii) the Executive may serve as
a member of one or more boards of directors of companies that are not affiliated
with the Company and do not compete with the Company or any of its Affiliates.
c. The following listing of job duties shall represent the Executive's
primary responsibilities. Such responsibilities may be expanded, and so long as
no Change of Control has occurred may be decreased, as the business needs of the
Company require. The Executive's primary job responsibilities shall include, but
not be limited to:
participation in the development and general oversight of corporate
policies, strategies and business initiatives as a member of the Company's
Executive Committee;
the development and implementation of strategies to control non-utility
generation costs; and
the development, implementation and general oversight of corporate
strategies in legislative and regulatory matters and wholesale power and
transmission marketing issues.
The departments reporting directly to the Executive shall be as follows: Law;
Power Supply; Government Relations; Legislative Affairs; Community Relations;
Internal Audit; and Regulatory Services.
4. Compensation and Benefits.
a. During the Employment Period, the Executive shall be compensated as
follows:
(i) He shall receive an annual base salary, the amount of which shall be
reviewed regularly and determined from time to time by the Board, but which
shall not be less than $153,450. His salary shall be payable in accordance with
Company payroll practices.
(ii) He shall be entitled to participate in any and all plans and programs
maintained by the Company from time to time to provide benefits for its
executives, including without limitation any short-term or long-term incentive,
pension, or supplemental pension plan or program, in accordance with the terms
and conditions of any such plan or program or the administrative guidelines
relating thereto, as may be amended from time to time.
(iii) He shall be entitled to participate in any and all plans and programs
maintained by the Company from time to time to provide benefits for its salaried
employees generally, including without limitation any savings and investment,
stock purchase or group medical, dental, life, accident or disability insurance
plan or program, subject to all eligibility requirements of general
applicability, to the extent that executives are not excluded from participation
therein under the terms thereof or under the terms of any executive plan or
program or any approval or adoption thereof.
(iv) He shall be entitled to all fringe benefits generally provided by the
Company at any time to its full-time salaried employees, including without
limitation paid vacation, holidays and sick leave but excluding severance pay,
in accordance with generally applicable Company policies with respect to such
benefits.
(v) He shall be entitled to all rights and benefits under the Split-Dollar
Life Insurance Agreement between the Company and the Executive in effect as of
the Effective Date of this Agreement in accordance with the terms of such
Split-Dollar Life Insurance Agreement.
b. Notwithstanding any contrary provision of this Agreement, any
compensation or benefits which are vested in the Executive or which the
Executive is otherwise entitled to receive under any plan or program of the
Company or any agreement between the Company and the Executive before, at or
subsequent to the Executive's termination of employment shall be furnished and
paid in accordance with the terms and provisions of such plan, program or
agreement.
c. All compensation payable under this Section 4 shall be subject to normal
payroll deductions for withholding income taxes, social security taxes and the
like.
5. Severance Benefits. a. If, on or after a Change of Control, the
Executive's employment with the Company is terminated during the Employment
Period by the Company and/or any successor for any reason other than death,
Total Disability or Cause, or by the Executive within twelve (12) calendar
months of a Constructive Discharge, Severance Benefits shall be provided as
follows:
(i) The Company shall pay the Executive, in one cash lump sum within sixty
(60) days following the date of termination of employment as determined under
Section 6 of this Agreement, an amount equal to 2.99 times the Executive's "base
amount," as defined in Section 280G(b)(3) of the Internal Revenue Code of 1986,
as amended (the "Code").
(ii) Core coverage for the Executive under the Company's group medical,
life, accident and disability plans or programs shall continue for the Severance
Period on the same terms and conditions, as if the Executive's employment had
not terminated. In the event that the Executive's participation in any such plan
or program is barred, the Company shall arrange at its expense to provide him
during the Severance Period with core benefits substantially similar to those
which he would otherwise be entitled to receive under such plans and programs.
(iii) The Severance Period shall count as service for all purposes
(including benefit accrual and eligibility) under any benefit plan of the
Company applicable to the Executive immediately prior to the Executive's
termination of employment, for which service with the Company is taken into
account, including without limitation any pension or supplemental pension plan,
and all benefits under such plans that are subject to vesting shall vest as of
the date of such termination of employment.
(iv) The Company shall pay a fee to an independent outplacement firm
selected by the Executive for outplacement services in an amount equal to the
actual fee for such services up to a total of $10,000.
b. Notwithstanding the provisions of Section 5.a hereof, if, in the opinion
of tax counsel selected by the Company's independent auditors,
(i) the Severance Benefits set forth in said Section 5.a and any payments
or benefits otherwise payable to the Executive would constitute "parachute
payments" within the meaning of Section 280G(b)(2) of the Code (said Severance
Benefits and other payments or benefits being hereinafter collectively referred
to as "Total Payments"), and
(ii) the aggregate present value of the Total Payments would exceed 2.99
times the Executive's base amount, as defined in Section 280G(b)(3) of the Code,
then, such portion of the Severance Benefits described in Section 5.a hereof as,
in the opinion of said tax counsel, constitute "parachute payments" shall be
reduced as directed by tax counsel so that the aggregate present value of the
Total Payments is equal to 2.99 times the Executive's base amount. The tax
counsel selected pursuant to this Section 5.b may consult with tax counsel for
the Executive, but shall have complete, sole and final discretion to determine
which Severance Benefits shall be reduced and the amounts of the required
reductions. For purposes of this Section 5.b, the Executive's base amount and
the value of the Total Payments shall be determined by the Company's independent
auditors in accordance with the principles of Section 280G of the Code and based
upon the advice of tax counsel selected thereby.
c. If no Change of Control has occurred and the Executive's employment with
the Company is terminated during the Employment Period by the Company for any
reason other than death, Total Disability or Cause, or by the Executive within
six (6) calendar months of a Constructive Discharge, the Company shall pay the
Executive, in twelve (12) equal monthly cash installments beginning not later
than sixty (60) days following the date of termination of employment as
determined under Section 6 of this Agreement, Severance Benefits equal to one
(1) times the Executive's annual base salary in effect on the date immediately
preceding the date of termination, or preceding the date of a Constructive
Discharge attributable to a base salary reduction if applicable; provided,
however, that each of the last six (6) monthly cash installments shall be
reduced by an amount equal to any base salary or other base pay or commissions
earned through other employment or any fees earned as a consultant for the
particular month, such that an installment shall not be paid or payable by the
Company for any month for which such other base salary, base pay, commissions or
fees equal or exceed the amount of the installment.
6. Date of Termination. For purposes of this Agreement, the date of
termination of the Executive's employment shall be the date notice is given to
the Executive by the Company and/or any successor or, in the case of a
Constructive Discharge, the date set forth in a written notice given to the
Company by the Executive, provided that the Executive gives such notice within
twelve (12) calendar months of the Constructive Discharge in the case of a
Change of Control, and within six (6) calendar months of the Constructive
Discharge in other cases, and specifies therein the event constituting the
Constructive Discharge.
7. Taxes. a. In the event that any portion of the Severance Benefits is
subject to tax under Section 4999 of the Internal Revenue Code of 1986, as
amended, or any successor provision thereto (the "Excise Tax"), the Company
shall pay to the Executive an additional amount (the "Gross-Up Amount") which,
after payment of all federal and State income taxes thereon (assuming the
Executive is at the highest marginal federal and applicable State income tax
rate in effect on the date of payment of the Gross-Up Amount) and payment of any
Excise Tax on the Gross-Up Amount, is equal to the Excise Tax payable by the
Executive on such portion of the Severance Benefits. Any Gross-Up Amount payable
hereunder shall be paid by the Company coincident with the payment of the
Severance Benefits described in Section 5.a(i) of this Agreement.
b. All amounts payable to the Executive under this Agreement shall be
subject to applicable withholding of income, wage and other taxes.
8. Non-Competition, Confidentiality and Cooperation. The Executive agrees
that:
(i) during the Employment Period and for one (1) year after the termination
of the Executive's employment with the Company for any reason other than a
Change of Control, the Executive shall not serve as a director, officer,
employee, partner or consultant or in any other capacity in any business that is
involved in the generation, transmission or distribution of electric energy
within the New England states, or solicit Company employees for employment or
other participation in any such business, or take any other action intended to
advance the interests of such business;
(ii) during and after the Executive's employment with the Company, he shall
not divulge or appropriate to his own use or the use of others any secret,
proprietary or confidential information or knowledge pertaining to the business
of the Company, or any of its Affiliates, obtained during his employment with
the Company; and
(iii) during the Employment Period, he shall support the Company's
interests and efforts in all regulatory, administrative, judicial or other
proceedings affecting the Company and, after the termination of his employment
with the Company, he shall use best efforts to comply with all reasonable
requests of the Company that he cooperate with the Company, whether by giving
testimony or otherwise, in regulatory, administrative, judicial or other
proceedings affecting the Company except any proceeding in which he may be in a
position adverse to that of the Company. After the termination of employment,
the Company shall reimburse the Executive for his reasonable expenses and his
time, at a reasonable rate to be determined, for the Executive's cooperation
with the Company in any such proceeding.
The provisions of this Section 8 shall survive the expiration or termination of
this Agreement. The Executive agrees that the Company shall be entitled to
injunctive relief to prevent any breach or threatened breach of these
provisions. In the event of a failure to comply with part (i), (ii) or (iii) of
this Section 8, the Executive agrees that the Company shall have no further
obligation to pay the Executive any Severance Benefits under Section 5.c of this
Agreement. In the event of a failure to comply with part (i) or (ii) hereof, the
Executive agrees that he shall repay to the Company any such Section 5.c
Severance Benefits paid to him. The Company shall have the right to offset any
amounts payable to the Executive under this Agreement or otherwise against any
Severance Benefits which he is obligated to repay to the Company.
9. No Mitigation. The Executive shall not be required to mitigate the
amount of any payment provided for in this Agreement by seeking other
employment.
10. Assignment. This Agreement and the rights and obligations of the
Company hereunder shall inure to the benefit of and shall be binding upon the
successors and assigns of the Company, including without limitation any
corporation or other entity acquiring all or substantially all of the business
or assets of the Company whether by operation of law or otherwise. This
Agreement and the rights of the Executive hereunder shall not be assignable by
the Executive, and any assignment by the Executive shall be null and void.
11. Arbitration. Any dispute or controversy arising under or in connection
with this Agreement shall be settled exclusively by arbitration in Augusta,
Maine, in accordance with the rules of the American Arbitration Association then
in effect. The pendency of any such dispute or controversy shall not affect any
rights or obligations under this Agreement. Judgment may be entered on the
arbitrator's award in any court having
jurisdiction.
12. Waiver; Amendment. The failure of either party to enforce, or any delay
in enforcing, any rights under this Agreement shall not be deemed to be a waiver
of such rights, unless such waiver is an express written waiver which has been
signed by the waiving party. Waiver of any one breach shall not be deemed to be
a waiver of any other breach of the same or any other provision hereof. This
Agreement can be amended only by a written instrument signed by each party
hereto and no course of dealing or practice or failure to enforce or delay in
enforcing any rights hereunder may be claimed to have effected an amendment of
this Agreement.
13. Notices. Any notice required or permitted to be given under this
Agreement shall be sufficient if in writing and sent by first-class, registered
or certified mail or hand-delivered to the Executive at the last residence
address he has provided to the Company or, in the case of the Company, at its
principal executive offices to the attention of the Corporate Secretary.
14. Miscellaneous. This Agreement shall be construed and enforced in
accordance with the laws of the State of Maine. In the event that any provisions
of this Agreement shall be held to be invalid, the other provisions hereof shall
remain in full force and effect.
15. Entire Agreement. The terms of this Agreement are intended by the
parties to be the final expression of their agreement with respect to the
employment of the Executive by the Company and may not be contradicted by
evidence of any prior or contemporaneous oral or written agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
effective as of the date first written above.
WITNESS:
Arthur W. Adelberg
CENTRAL MAINE POWER COMPANY
By:
David M. Jagger
Chairman of the Board of Directors
<PAGE>
Exhibit 10-96.6
EMPLOYMENT AGREEMENT
As Amended and Restated Effective December 9, 1994
THIS EMPLOYMENT AGREEMENT is made, effective as of the ninth (9th) day of
December, 1994, by and between Central Maine Power Company, a Maine corporation
with its principal place of business in Augusta, Maine (hereinafter referred to
as the "Company"), and Richard A. Crabtree (hereinafter referred to as the
"Executive").
WHEREAS, the Company recognizes that the Executive is a valued officer
because of his knowledge of the Company's affairs and his experience and
leadership capabilities, and desires to encourage his continued employment with
the Company to assure itself of the continuing advantage of that knowledge,
experience and leadership for the benefit of customers and shareholders,
particularly during a period of transition in various aspects of the Company's
business and in the event of a Change of Control of the Company; and
WHEREAS, the Executive desires to serve in the employ of the Company on a
full-time basis for a period provided in this Employment Agreement (hereinafter
referred to as the "Agreement") on the terms and conditions hereinafter set
forth; and
WHEREAS, to these ends the Company desires to provide the Executive with
certain payments and benefits in the event of the termination of his employment
in certain circumstances; and
WHEREAS, the Company and the Executive wish to set forth the terms and
conditions under which such employment and payments and benefits will occur.
NOW, THEREFORE, in consideration of the continued offer of employment by
the Company and the continued acceptance of employment by the Executive, and the
mutual promises and covenants contained herein, the Company and the Executive
hereby agree as follows:
1. Term of Agreement. a. The term of this Agreement shall begin on December
9, 1994 (hereinafter referred to as the "Effective Date") and shall expire on
December 31, 1997; provided, however, that on December 31, 1997 and on each
December 31 thereafter, the term of this Agreement shall automatically be
extended for one (1) additional year unless not later than the preceding October
31 either the Company or the Executive shall have given notice that such party
does not wish to extend the term of this Agreement.
b. If a Change of Control occurs during the original term of this Agreement
or any extension, then the term of this Agreement shall be automatically
extended for a thirty-six (36) calendar month period beginning on the first day
of the month following the month in which such Change of Control occurs.
c. Notwithstanding anything to the contrary in this Section 1, this
Agreement and all obligations of the Company hereunder shall terminate on the
date of the Executive's death, or thirty (30) days after the Company gives
notice to the Executive that the Company is terminating the Executive's
employment for reason of Total Disability or Cause.
2. Definitions. The following terms shall have the meanings set forth
below:
"Affiliate" means a person that directly or indirectly through one or more
intermediaries controls, is controlled by, or is under common control with the
Company.
"Board" means the Board of Directors of the Company.
"Cause" means any of the following events or occurrences:
(i) An act of material dishonesty taken by, or committed at the request of,
the Executive.
(ii) Any illegal or unethical conduct which, in the good faith judgment of
the Board, would impair the Executive's ability to perform his duties under this
Agreement or would impair the business reputation of the Company.
(iii) Conviction of a felony.
(iv) The continued failure of the Executive to perform substantially his
responsibilities and duties under this Agreement, after demand for performance
has been delivered in writing to the Executive specifying the manner in which
the Company believes that the Executive is not performing.
Notwithstanding any contrary provision of this Agreement, the Executive shall
not be deemed to have been terminated for Cause unless and until there shall
have been delivered to the Executive a certified copy of a resolution duly
adopted by the affirmative vote of two-thirds of the members of the Board who
are not employees of the Company at a meeting of the Board called and held for
such purpose (after reasonable notice to the Executive and an opportunity for
the Executive, together with his counsel, to be heard before the Board), finding
in good faith one of the events or occurrences set forth in parts (i) through
(iv) of the definition of "Cause" in this Agreement and specifying the
particulars thereof in detail.
"Change of Control" means the occurrence of any of the following events:
(i) Any "person," as such term is used in Sections 13(d) and 14(d) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act") (other than the
Company or any Affiliate or any trustee or other fiduciary holding securities
under an employee benefit plan of the Company or any Affiliate), is or becomes
the beneficial owner, as defined in Rule 13d-3 under the Exchange Act, directly
or indirectly, of stock of the Company representing thirty percent (30%) or more
of the combined voting power of the Company's then outstanding stock eligible to
vote.
(ii) During any period of two (2) consecutive years after the execution of
this Agreement, individuals who at the beginning of such period constitute the
Board, and any new director whose election by the Board or nomination for
election by the Company's stockholders was approved by a vote of at least
two-thirds of the directors then in office who either were directors at the
beginning of the period or whose election or nomination for election was
previously so approved, cease for any reason to constitute at least a majority
thereof.
(iii) The stockholders of the Company approve a merger or consolidation of
the Company with any other corporation, other than a merger or consolidation
which would result in the voting stock of the Company outstanding immediately
prior thereto continuing to represent (either by remaining outstanding or by
being converted into voting securities of the surviving entity) more than fifty
percent (50%) of the combined voting power of the outstanding voting stock of
the Company or such surviving entity immediately after such merger or
consolidation; provided, that a merger or consolidation effected to implement a
recapitalization of the Company (or similar transaction) in which no "person"
(as hereinabove defined) acquires more than thirty percent (30%) of the combined
voting power of the Company's then outstanding securities shall not constitute a
Change of Control of the Company.
(iv) The stockholders of the Company approve a plan of complete liquidation
of the Company or an agreement for the sale, lease, exchange or other
disposition by the Company of all or substantially all of the Company's assets
(or any transaction having a similar effect). "Constructive Discharge" means, so
long as no Change of Control has occurred, any reduction in the Executive's
annual base salary in effect as of the Effective Date of this Agreement, or as
the same may be increased from time to time, other than any across-the-board
base salary reduction for a group or all of the executive officers of the
Company, and also means, on or after a Change of Control,
(i) any reduction in the Executive's annual base salary in effect as of the
Effective Date of this Agreement, or as the same may be increased from time to
time;
(ii) a failure to increase the Executive's annual base salary commensurate
with any across-the-board percentage increases in the compensation of other
executive officers of the Company;
(iii) a substantial reduction in the nature or scope of the Executive's
responsibilities, duties or authority from those described in Section 3.c of
this Agreement;
(iv) a material adverse change in the Executive's title or position; or
(v) relocation of the Executive's place of employment from the Company's
principal executive offices or to a place more than twenty-five (25) miles from
Augusta, Maine without the Executive's consent.
"Severance Benefits" means the benefits set forth in Section 5.a or 5.c of
this Agreement, as applicable.
"Severance Period" means, in the case of a Change of Control, the period
from the date of termination as determined in accordance with Section 6 of this
Agreement until the third anniversary of such date.
"Total Disability" means the complete and permanent inability of the
Executive to perform all of his duties under this Agreement on a full-time basis
for a period of at least six (6) consecutive months, as determined by the Board
upon the basis of such evidence, which may include independent medical reports
and data, as the Board deems appropriate or necessary.
3. Employment. a. The Company hereby agrees to continue its employment of
the Executive in the capacity of Vice President, Retail Operations, and the
Executive hereby agrees to remain in the employ of the Company for the period
beginning on the Effective Date and ending on the date on which the Executive's
employment is terminated in accordance with this Agreement (the "Employment
Period"). This Agreement shall not restrict in any way the right of the Company
to terminate the Executive's employment at whatever time and for whatever reason
it deems appropriate, nor shall it limit the right of the Executive to terminate
employment at any time for whatever reason he deems appropriate.
b. The Executive agrees that during the Employment Period he shall devote
substantially all his business attention and time to the business and affairs of
the Company and its Affiliates, and use his best efforts to perform faithfully
and efficiently the duties and responsibilities of the Executive under this
Agreement. It is expressly understood that (i) the Executive may devote a
reasonable amount of time to such industry associations and charitable and civic
endeavors as shall not materially interfere with the services that the Executive
is required to render under this Agreement, and (ii) the Executive may serve as
a member of one or more boards of directors of companies that are not affiliated
with the Company and do not compete with the Company or any of its
Affiliates.
c. The following listing of job duties shall represent the Executive's
primary responsibilities. Such responsibilities may be expanded, and so long as
no Change of Control has occurred may be decreased, as the business needs of the
Company require. The Executive's primary job responsibilities shall include, but
not be limited to:
participation in the development and general oversight of corporate
policies, strategies and business initiatives as a member of the Company's
Executive Committee;
the development, implementation and overall management and oversight of all
aspects of the Company's retail operations policies, strategies, plans,
initiatives and activities including those concerning market share, sales
volume, customer contacts, billing and service, the design, promotion and sales
of energy product and service options, transmission and distribution, and joint
use of distribution facilities; and
service as Chairman of the Pricing Council.
The departments reporting directly to the Executive shall be as follows:
Distribution Operations; Energy Service and Sales; Consumer Affairs;
Transmission and Distribution Planning; Substation Operations; and Technical
Services.
4. Compensation and Benefits. a. During the Employment Period, the
Executive shall be compensated as
follows:
(i) He shall receive an annual base salary, the amount of which shall be
reviewed regularly and determined from time to time by the Board, but which
shall not be less than $153,400. His salary shall be payable in accordance with
Company payroll practices.
(ii) He shall be entitled to participate in any and all plans and programs
maintained by the Company from time to time to provide benefits for its
executives, including without limitation any short-term or long-term incentive,
pension, or supplemental pension plan or program, in accordance with the terms
and conditions of any such plan or program or the administrative guidelines
relating thereto, as may be amended from time to time.
(iii) He shall be entitled to participate in any and all plans and programs
maintained by the Company from time to time to provide benefits for its salaried
employees generally, including without limitation any savings and investment,
stock purchase or group medical, dental, life, accident or disability insurance
plan or program, subject to all eligibility requirements of general
applicability, to the extent that executives are not excluded from participation
therein under the terms thereof or under the terms of any executive plan or
program or any approval or adoption thereof.
(iv) He shall be entitled to all fringe benefits generally provided by the
Company at any time to its full-time salaried employees, including without
limitation paid vacation, holidays and sick leave but excluding severance pay,
in accordance with generally applicable Company policies with respect to such
benefits.
(v) He shall be entitled to all rights and benefits under the Split-Dollar
Life Insurance Agreement between the Company and the Executive in effect as of
the Effective Date of this Agreement in accordance with the terms of such
Split-Dollar Life Insurance Agreement.
b. Notwithstanding any contrary provision of this Agreement, any
compensation or benefits which are vested in the Executive or which the
Executive is otherwise entitled to receive under any plan or program of the
Company or any agreement between the Company and the Executive before, at or
subsequent to the Executive's termination of employment shall be furnished and
paid in accordance with the terms and provisions of such plan, program or
agreement.
c. All compensation payable under this Section 4 shall be subject to normal
payroll deductions for withholding income taxes, social security taxes and the
like.
5. Severance Benefits. a. If, on or after a Change of Control, the
Executive's employment with the Company is terminated during the Employment
Period by the Company and/or any successor for any reason other than death,
Total Disability or Cause, or by the Executive within twelve (12) calendar
months of a Constructive Discharge, Severance Benefits shall be provided as
follows:
(i) The Company shall pay the Executive, in one cash lump sum within sixty
(60) days following the date of termination of employment as determined under
Section 6 of this Agreement, an amount equal to 2.99 times the Executive's "base
amount," as defined in Section 280G(b)(3) of the Internal Revenue Code of 1986,
as amended (the "Code").
(ii) Core coverage for the Executive under the Company's group medical,
life, accident and disability plans or programs shall continue for the Severance
Period on the same terms and conditions, as if the Executive's employment had
not terminated. In the event that the Executive's participation in any such plan
or program is barred, the Company shall arrange at its expense to provide him
during the Severance Period with core benefits substantially similar to those
which he would otherwise be entitled to receive under such plans and programs.
(iii) The Severance Period shall count as service for all purposes
(including benefit accrual and eligibility) under any benefit plan of the
Company applicable to the Executive immediately prior to the Executive's
termination of employment, for which service with the Company is taken into
account, including without limitation any pension or supplemental pension plan,
and all benefits under such plans that are subject to vesting shall vest as of
the date of such termination of employment.
(iv) The Company shall pay a fee to an independent outplacement firm
selected by the Executive for outplacement services in an amount equal to the
actual fee for such services up to a total of $10,000.
b. Notwithstanding the provisions of Section 5.a hereof, if, in the opinion
of tax counsel selected by the Company's independent auditors,
(i) the Severance Benefits set forth in said Section 5.a and any payments
or benefits otherwise payable to the Executive would constitute "parachute
payments" within the meaning of Section 280G(b)(2) of the Code (said Severance
Benefits and other payments or benefits being hereinafter collectively referred
to as "Total Payments"), and
(ii) the aggregate present value of the Total Payments would exceed 2.99
times the Executive's base amount, as defined in Section 280G(b)(3) of the Code,
then, such portion of the Severance Benefits described in Section 5.a hereof as,
in the opinion of said tax counsel, constitute "parachute payments" shall be
reduced as directed by tax counsel so that the aggregate present value of the
Total Payments is equal to 2.99 times the Executive's base amount. The tax
counsel selected pursuant to this Section 5.b may consult with tax counsel for
the Executive, but shall have complete, sole and final discretion to determine
which Severance Benefits shall be reduced and the amounts of the required
reductions. For purposes of this Section 5.b, the Executive's base amount and
the value of the Total Payments shall be determined by the Company's independent
auditors in accordance with the principles of Section 280G of the Code and based
upon the advice of tax counsel selected thereby.
c. If no Change of Control has occurred and the Executive's employment with
the Company is terminated during the Employment Period by the Company for any
reason other than death, Total Disability or Cause, or by the Executive within
six (6) calendar months of a Constructive Discharge, the Company shall pay the
Executive, in twelve (12) equal monthly cash installments beginning not later
than sixty (60) days following the date of termination of employment as
determined under Section 6 of this Agreement, Severance Benefits equal to one
(1) times the Executive's annual base salary in effect on the date immediately
preceding the date of termination, or preceding the date of a Constructive
Discharge attributable to a base salary reduction if applicable; provided,
however, that each of the last six (6) monthly cash installments shall be
reduced by an amount equal to any base salary or other base pay or commissions
earned through other employment or any fees earned as a consultant for the
particular month, such that an installment shall not be paid or payable by the
Company for any month for which such other base salary, base pay, commissions or
fees equal or exceed the amount of the installment.
6. Date of Termination. For purposes of this Agreement, the date of
termination of the Executive's employment shall be the date notice is given to
the Executive by the Company and/or any successor or, in the case of a
Constructive Discharge, the date set forth in a written notice given to the
Company by the Executive, provided that the Executive gives such notice within
twelve (12) calendar months of the Constructive Discharge in the case of a
Change of Control, and within six (6) calendar months of the Constructive
Discharge in other cases, and specifies therein the event constituting the
Constructive Discharge.
7. Taxes. a. In the event that any portion of the Severance Benefits is
subject to tax under Section 4999 of the Internal Revenue Code of 1986, as
amended, or any successor provision thereto (the "Excise Tax"), the Company
shall pay to the Executive an additional amount (the "Gross-Up Amount") which,
after payment of all federal and State income taxes thereon (assuming the
Executive is at the highest marginal federal and applicable State income tax
rate in effect on the date of payment of the Gross-Up Amount) and payment of any
Excise Tax on the Gross-Up Amount, is equal to the Excise Tax payable by the
Executive on such portion of the Severance Benefits. Any Gross-Up Amount payable
hereunder shall be paid by the Company coincident with the payment of the
Severance Benefits described in Section 5.a(i) of this Agreement.
b. All amounts payable to the Executive under this Agreement shall be
subject to applicable withholding of income, wage and other taxes.
8. Non-Competition, Confidentiality and Cooperation. The Executive agrees
that:
(i) during the Employment Period and for one (1) year after the termination
of the Executive's employment with the Company for any reason other than a
Change of Control, the Executive shall not serve as a director, officer,
employee, partner or consultant or in any other capacity in any business that is
involved in the generation, transmission or distribution of electric energy
within the New England states, or solicit Company employees for employment or
other participation in any such business, or take any other action intended to
advance the interests of such business;
(ii) during and after the Executive's employment with the Company, he shall
not divulge or appropriate to his own use or the use of others any secret,
proprietary or confidential information or knowledge pertaining to the business
of the Company, or any of its Affiliates, obtained during his employment with
the Company; and
(iii) during the Employment Period, he shall support the Company's
interests and efforts in all regulatory, administrative, judicial or other
proceedings affecting the Company and, after the termination of his employment
with the Company, he shall use best efforts to comply with all reasonable
requests of the Company that he cooperate with the Company, whether by giving
testimony or otherwise, in regulatory, administrative, judicial or other
proceedings affecting the Company except any proceeding in which he may be in a
position adverse to that of the Company. After the termination of employment,
the Company shall reimburse the Executive for his reasonable expenses and his
time, at a reasonable rate to be determined, for the Executive's cooperation
with the Company in any such proceeding.
The provisions of this Section 8 shall survive the expiration or termination of
this Agreement. The Executive agrees that the Company shall be entitled to
injunctive relief to prevent any breach or threatened breach of these
provisions. In the event of a failure to comply with part (i), (ii) or (iii) of
this Section 8, the Executive agrees that the Company shall have no further
obligation to pay the Executive any Severance Benefits under Section 5.c of this
Agreement. In the event of a failure to comply with part (i) or (ii) hereof, the
Executive agrees that he shall repay to the Company any such Section 5.c
Severance Benefits paid to him. The Company shall have the right to offset any
amounts payable to the Executive under this Agreement or otherwise against any
Severance Benefits which he is obligated to repay to the Company.
9. No Mitigation. The Executive shall not be required to mitigate the
amount of any payment provided for in this Agreement by seeking other
employment.
10. Assignment. This Agreement and the rights and obligations of the
Company hereunder shall inure to the benefit of and shall be binding upon the
successors and assigns of the Company, including without limitation any
corporation or other entity acquiring all or substantially all of the business
or assets of the Company whether by operation of law or otherwise. This
Agreement and the rights of the Executive hereunder shall not be assignable by
the Executive, and any assignment by the Executive shall be null and void.
11. Arbitration. Any dispute or controversy arising under or in connection
with this Agreement shall be settled exclusively by arbitration in Augusta,
Maine, in accordance with the rules of the American Arbitration Association then
in effect. The pendency of any such dispute or controversy shall not affect any
rights or obligations under this Agreement. Judgment may be entered on the
arbitrator's award in any court having
jurisdiction.
12. Waiver; Amendment. The failure of either party to enforce, or any delay
in enforcing, any rights under this Agreement shall not be deemed to be a waiver
of such rights, unless such waiver is an express written waiver which has been
signed by the waiving party. Waiver of any one breach shall not be deemed to be
a waiver of any other breach of the same or any other provision hereof. This
Agreement can be amended only by a written instrument signed by each party
hereto and no course of dealing or practice or failure to enforce or delay in
enforcing any rights hereunder may be claimed to have effected an amendment of
this Agreement.
13. Notices. Any notice required or permitted to be given under this
Agreement shall be sufficient if in writing and sent by first-class, registered
or certified mail or hand-delivered to the Executive at the last residence
address he has provided to the Company or, in the case of the Company, at its
principal executive offices to the attention of the Corporate Secretary.
14. Miscellaneous. This Agreement shall be construed and enforced in
accordance with the laws of the State of Maine. In the event that any provisions
of this Agreement shall be held to be invalid, the other provisions hereof shall
remain in full force and effect.
15. Entire Agreement. The terms of this Agreement are intended by the
parties to be the final expression of their agreement with respect to the
employment of the Executive by the Company and may not be contradicted by
evidence of any prior or contemporaneous oral or written agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
effective as of the date first written
above.
WITNESS:
Richard A. Crabtree
CENTRAL MAINE POWER COMPANY
By:
David M. Jagger
Chairman of the Board of Directors
<PAGE>
Exhibit 10-96.7
EMPLOYMENT AGREEMENT
As Amended and Restated Effective December 9, 1994
THIS EMPLOYMENT AGREEMENT is made, effective as of the ninth (9th) day of
December, 1994, by and between Central Maine Power Company, a Maine corporation
with its principal place of business in Augusta, Maine (hereinafter referred to
as the "Company"), and Gerald C. Poulin (hereinafter referred to as the
"Executive").
WHEREAS, the Company recognizes that the Executive is a valued officer
because of his knowledge of the Company's affairs and his experience and
leadership capabilities, and desires to encourage his continued employment with
the Company to assure itself of the continuing advantage of that knowledge,
experience and leadership for the benefit of customers and shareholders,
particularly during a period of transition in various aspects of the Company's
business and in the event of a Change of Control of the Company; and
WHEREAS, the Executive desires to serve in the employ of the Company on a
full-time basis for a period provided in this Employment Agreement (hereinafter
referred to as the "Agreement") on the terms and conditions hereinafter set
forth; and
WHEREAS, to these ends the Company desires to provide the Executive with
certain payments and benefits in the event of the termination of his employment
in certain circumstances; and
WHEREAS, the Company and the Executive wish to set forth the terms and
conditions under which such employment and payments and benefits will occur.
NOW, THEREFORE, in consideration of the continued offer of employment by
the Company and the continued acceptance of employment by the Executive, and the
mutual promises and covenants contained herein, the Company and the Executive
hereby agree as follows:
1. Term of Agreement. a. The term of this Agreement shall begin on December
9, 1994 (hereinafter referred to as the "Effective Date") and shall expire on
December 31, 1997; provided, however, that on December 31, 1997 and on each
December 31 thereafter, the term of this Agreement shall automatically be
extended for one (1) additional year unless not later than the preceding October
31 either the Company or the Executive shall have given notice that such party
does not wish to extend the term of this Agreement.
b. If a Change of Control occurs during the original term of this Agreement
or any extension, then the term of this Agreement shall be automatically
extended for a thirty-six (36) calendar month period beginning on the first day
of the month following the month in which such Change of Control occurs.
c. Notwithstanding anything to the contrary in this Section 1, this
Agreement and all obligations of the Company hereunder shall terminate on the
date of the Executive's death, or thirty (30) days after the Company gives
notice to the Executive that the Company is terminating the Executive's
employment for reason of Total Disability or Cause.
2. Definitions. The following terms shall have the meanings set forth
below:
"Affiliate" means a person that directly or indirectly through one or more
intermediaries controls, is controlled by, or is under common control with the
Company.
"Board" means the Board of Directors of the Company.
"Cause" means any of the following events or occurrences:
(i) An act of material dishonesty taken by, or committed at the request of,
the Executive.
(ii) Any illegal or unethical conduct which, in the good faith judgment of
the Board, would impair the Executive's ability to perform his duties under this
Agreement or would impair the business reputation of the Company.
(iii) Conviction of a felony.
(iv) The continued failure of the Executive to perform substantially his
responsibilities and duties under this Agreement, after demand for performance
has been delivered in writing to the Executive specifying the manner in which
the Company believes that the Executive is not performing.
Notwithstanding any contrary provision of this Agreement, the Executive shall
not be deemed to have been terminated for Cause unless and until there shall
have been delivered to the Executive a certified copy of a resolution duly
adopted by the affirmative vote of two-thirds of the members of the Board who
are not employees of the Company at a meeting of the Board called and held for
such purpose (after reasonable notice to the Executive and an opportunity for
the Executive, together with his counsel, to be heard before the Board), finding
in good faith one of the events or occurrences set forth in parts (i) through
(iv) of the definition of "Cause" in this Agreement and specifying the
particulars thereof in detail.
"Change of Control" means the occurrence of any of the following events:
(i) Any "person," as such term is used in Sections 13(d) and 14(d) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act") (other than the
Company or any Affiliate or any trustee or other fiduciary holding securities
under an employee benefit plan of the Company or any Affiliate), is or becomes
the beneficial owner, as defined in Rule 13d-3 under the Exchange Act, directly
or indirectly, of stock of the Company representing thirty percent (30%) or more
of the combined voting power of the Company's then outstanding stock eligible to
vote.
(ii) During any period of two (2) consecutive years after the execution of
this Agreement, individuals who at the beginning of such period constitute the
Board, and any new director whose election by the Board or nomination for
election by the Company's stockholders was approved by a vote of at least
two-thirds of the directors then in office who either were directors at the
beginning of the period or whose election or nomination for election was
previously so approved, cease for any reason to constitute at least a majority
thereof.
(iii) The stockholders of the Company approve a merger or consolidation of
the Company with any other corporation, other than a merger or consolidation
which would result in the voting stock of the Company outstanding immediately
prior thereto continuing to represent (either by remaining outstanding or by
being converted into voting securities of the surviving entity) more than fifty
percent (50%) of the combined voting power of the outstanding voting stock of
the Company or such surviving entity immediately after such merger or
consolidation; provided, that a merger or consolidation effected to implement a
recapitalization of the Company (or similar transaction) in which no "person"
(as hereinabove defined) acquires more than thirty percent (30%) of the combined
voting power of the Company's then outstanding securities shall not constitute a
Change of Control of the Company.
(iv) The stockholders of the Company approve a plan of complete liquidation
of the Company or an agreement for the sale, lease, exchange or other
disposition by the Company of all or substantially all of the Company's assets
(or any transaction having a similar effect).
"Constructive Discharge" means, so long as no Change of Control has occurred,
any reduction in the Executive's annual base salary in effect as of the
Effective Date of this Agreement, or as the same may be increased from time to
time, other than any across-the-board base salary reduction for a group or all
of the executive officers of the Company, and also means, on or after a Change
of Control,
(i) any reduction in the Executive's annual base salary in effect as of the
Effective Date of this Agreement, or as the same may be increased from time to
time;
(ii) a failure to increase the Executive's annual base salary commensurate
with any across-the-board percentage increases in the compensation of other
executive officers of the Company;
(iii) a substantial reduction in the nature or scope of the Executive's
responsibilities, duties or authority from those described in Section 3.c of
this Agreement;
(iv) a material adverse change in the Executive's title or position; or
(v) relocation of the Executive's place of employment from the Company's
principal executive offices or to a place more than twenty-five (25) miles from
Augusta, Maine without the Executive's consent.
"Severance Benefits" means the benefits set forth in Section 5.a or 5.c of
this Agreement, as applicable.
"Severance Period" means, in the case of a Change of Control, the period
from the date of termination as determined in accordance with Section 6 of this
Agreement until the third anniversary of such date.
"Total Disability" means the complete and permanent inability of the
Executive to perform all of his duties under this Agreement on a full-time basis
for a period of at least six (6) consecutive months, as determined by the Board
upon the basis of such evidence, which may include independent medical reports
and data, as the Board deems appropriate or necessary.
3. Employment. a. The Company hereby agrees to continue its employment of
the Executive in the capacity of Vice President, Generation and Technical
Support, and the Executive hereby agrees to remain in the employ of the Company
for the period beginning on the Effective Date and ending on the date on which
the Executive's employment is terminated in accordance with this Agreement (the
"Employment Period"). This Agreement shall not restrict in any way the right of
the Company to terminate the Executive's employment at whatever time and for
whatever reason it deems appropriate, nor shall it limit the right of the
Executive to terminate employment at any time for whatever reason he deems
appropriate.
b. The Executive agrees that during the Employment Period he shall devote
substantially all his business attention and time to the business and affairs of
the Company and its Affiliates, and use his best efforts to perform faithfully
and efficiently the duties and responsibilities of the Executive under this
Agreement. It is expressly understood that (i) the Executive may devote a
reasonable amount of time to such industry associations and charitable and civic
endeavors as shall not materially interfere with the services that the Executive
is required to render under this Agreement, and (ii) the Executive may serve as
a member of one or more boards of directors of companies that are not affiliated
with the Company and do not compete with the Company or any of its Affiliates.
c. The following listing of job duties shall represent the Executive's
primary responsibilities. Such responsibilities may be expanded, and so long as
no Change of Control has occurred may be decreased, as the business needs of the
Company require. The Executive's primary job responsibilities shall include, but
not be limited to:
participation in the development and general oversight of corporate
policies, strategies and business initiatives as a member of the Company's
Executive Committee;
the development, management and oversight of policies, plans and activities
relating to all aspects of generation, engineering, environmental and subsidiary
operations; and
oversight of Company participation in nuclear electric generating plants.
The departments reporting directly to the Executive shall be as follows: Fossil
Operations; Hydro Operations; Subsidiary Operations; Technical Support; and
Environmental.
4. Compensation and Benefits. a. During the Employment Period, the
Executive shall be compensated as follows:
(i) He shall receive an annual base salary, the amount of which shall be
reviewed regularly and determined from time to time by the Board, but which
shall not be less than $122,100. His salary shall be payable in accordance with
Company payroll practices.
(ii) He shall be entitled to participate in any and all plans and programs
maintained by the Company from time to time to provide benefits for its
executives, including without limitation any short-term or long-term incentive
or pension plan or program, in accordance with the terms and conditions of any
such plan or program or the administrative guidelines relating thereto, as may
be amended from time to time.
(iii) He shall be entitled to participate in any and all plans and programs
maintained by the Company from time to time to provide benefits for its salaried
employees generally, including without limitation any savings and investment,
stock purchase or group medical, dental, life, accident or disability insurance
plan or program, subject to all eligibility requirements of general
applicability, to the extent that executives are not excluded from participation
therein under the terms thereof or under the terms of any executive plan or
program or any approval or adoption thereof.
(iv) He shall be entitled to all fringe benefits generally provided by the
Company at any time to its full-time salaried employees, including without
limitation paid vacation, holidays and sick leave but excluding severance pay,
in accordance with generally applicable Company policies with respect to such
benefits.
b. Notwithstanding any contrary provision of this Agreement, any
compensation or benefits which are vested in the Executive or which the
Executive is otherwise entitled to receive under any plan or program of the
Company or any agreement between the Company and the Executive before, at or
subsequent to the Executive's termination of employment shall be furnished and
paid in accordance with the terms and provisions of such plan, program or
agreement.
c. All compensation payable under this Section 4 shall be subject to normal
payroll deductions for withholding income taxes, social security taxes and the
like.
5. Severance Benefits. a. If, on or after a Change of Control, the
Executive's employment with the Company is terminated during the Employment
Period by the Company and/or any successor for any reason other than death,
Total Disability or Cause, or by the Executive within twelve (12) calendar
months of a Constructive Discharge, Severance Benefits shall be provided as
follows:
(i) The Company shall pay the Executive, in one cash lump sum within sixty
(60) days following the date of termination of employment as determined under
Section 6 of this Agreement, an amount equal to 2.99 times the Executive's "base
amount," as defined in Section 280G(b)(3) of the Internal Revenue Code of 1986,
as amended (the "Code").
(ii) Core coverage for the Executive under the Company's group medical,
life, accident and disability plans or programs shall continue for the Severance
Period on the same terms and conditions, as if the Executive's employment had
not terminated. In the event that the Executive's participation in any such plan
or program is barred, the Company shall arrange at its expense to provide him
during the Severance Period with core benefits substantially similar to those
which he would otherwise be entitled to receive under such plans and programs.
(iii) The Severance Period shall count as service for all purposes
(including benefit accrual and eligibility) under any benefit plan of the
Company applicable to the Executive immediately prior to the Executive's
termination of employment, for which service with the Company is taken into
account, including without limitation any pension plan, and all benefits under
such plans that are subject to vesting shall vest as of the date of such
termination of employment.
(iv) The Company shall pay a fee to an independent outplacement firm
selected by the Executive for outplacement services in an amount equal to the
actual fee for such services up to a total of $10,000.
b. Notwithstanding the provisions of Section 5.a hereof, if, in the opinion
of tax counsel selected by the Company's independent auditors,
(i) the Severance Benefits set forth in said Section 5.a and any payments
or benefits otherwise payable to the Executive would constitute "parachute
payments" within the meaning of Section 280G(b)(2) of the Code (said Severance
Benefits and other payments or benefits being hereinafter collectively referred
to as "Total Payments"), and
(ii) the aggregate present value of the Total Payments would exceed 2.99
times the Executive's base amount, as defined in Section 280G(b)(3) of the Code,
then, such portion of the Severance Benefits described in Section 5.a hereof as,
in the opinion of said tax counsel, constitute "parachute payments" shall be
reduced as directed by tax counsel so that the aggregate present value of the
Total Payments is equal to 2.99 times the Executive's base amount. The tax
counsel selected pursuant to this Section 5.b may consult with tax counsel for
the Executive, but shall have complete, sole and final discretion to determine
which Severance Benefits shall be reduced and the amounts of the required
reductions. For purposes of this Section 5.b, the Executive's base amount and
the value of the Total Payments shall be determined by the Company's independent
auditors in accordance with the principles of Section 280G of the Code and based
upon the advice of tax counsel selected thereby.
c. If no Change of Control has occurred and the Executive's employment with
the Company is terminated during the Employment Period by the Company for any
reason other than death, Total Disability or Cause, or by the Executive within
six (6) calendar months of a Constructive Discharge, the Company shall pay the
Executive, in twelve (12) equal monthly cash installments beginning not later
than sixty (60) days following the date of termination of employment as
determined under Section 6 of this Agreement, Severance Benefits equal to one
(1) times the Executive's annual base salary in effect on the date immediately
preceding the date of termination, or preceding the date of a Constructive
Discharge attributable to a base salary reduction if applicable; provided,
however, that each of the last six (6) monthly cash installments shall be
reduced by an amount equal to any base salary or other base pay or commissions
earned through other employment or any fees earned as a consultant for the
particular month, such that an installment shall not be paid or payable by the
Company for any month for which such other base salary, base pay, commissions or
fees equal or exceed the amount of the installment.
6. Date of Termination. For purposes of this Agreement, the date of
termination of the Executive's employment shall be the date notice is given to
the Executive by the Company and/or any successor or, in the case of a
Constructive Discharge, the date set forth in a written notice given to the
Company by the Executive, provided that the Executive gives such notice within
twelve (12) calendar months of the Constructive Discharge in the case of a
Change of Control, and within six (6) calendar months of the Constructive
Discharge in other cases, and specifies therein the event constituting the
Constructive Discharge.
7. Taxes. a. In the event that any portion of the Severance Benefits is
subject to tax under Section 4999 of the Internal Revenue Code of 1986, as
amended, or any successor provision thereto (the "Excise Tax"), the Company
shall pay to the Executive an additional amount (the "Gross-Up Amount") which,
after payment of all federal and State income taxes thereon (assuming the
Executive is at the highest marginal federal and applicable State income tax
rate in effect on the date of payment of the Gross-Up Amount) and payment of any
Excise Tax on the Gross-Up Amount, is equal to the Excise Tax payable by the
Executive on such portion of the Severance Benefits. Any Gross-Up Amount payable
hereunder shall be paid by the Company coincident with the payment of the
Severance Benefits described in Section 5.a(i) of this Agreement.
b. All amounts payable to the Executive under this Agreement shall be
subject to applicable withholding of income, wage and other taxes.
8. Non-Competition, Confidentiality and Cooperation. The Executive agrees
that:
(i) during the Employment Period and for one (1) year after the termination
of the Executive's employment with the Company for any reason other than a
Change of Control, the Executive shall not serve as a director, officer,
employee, partner or consultant or in any other capacity in any business that is
involved in the generation, transmission or distribution of electric energy
within the New England states, or solicit Company employees for employment or
other participation in any such business, or take any other action intended to
advance the interests of such business;
(ii) during and after the Executive's employment with the Company, he shall
not divulge or appropriate to his own use or the use of others any secret,
proprietary or confidential information or knowledge pertaining to the business
of the Company, or any of its Affiliates, obtained during his employment with
the Company; and
(iii) during the Employment Period, he shall support the Company's
interests and efforts in all regulatory, administrative, judicial or other
proceedings affecting the Company and, after the termination of his employment
with the Company, he shall use best efforts to comply with all reasonable
requests of the Company that he cooperate with the Company, whether by giving
testimony or otherwise, in regulatory, administrative, judicial or other
proceedings affecting the Company except any proceeding in which he may be in a
position adverse to that of the Company. After the termination of employment,
the Company shall reimburse the Executive for his reasonable expenses and his
time, at a reasonable rate to be determined, for the Executive's cooperation
with the Company in any such proceeding.
The provisions of this Section 8 shall survive the expiration or termination of
this Agreement. The Executive agrees that the Company shall be entitled to
injunctive relief to prevent any breach or threatened breach of these
provisions. In the event of a failure to comply with part (i), (ii) or (iii) of
this Section 8, the Executive agrees that the Company shall have no further
obligation to pay the Executive any Severance Benefits under Section 5.c of this
Agreement. In the event of a failure to comply with part (i) or (ii) hereof, the
Executive agrees that he shall repay to the Company any such Section 5.c
Severance Benefits paid to him. The Company shall have the right to offset any
amounts payable to the Executive under this Agreement or otherwise against any
Severance Benefits which he is obligated to repay to the Company.
9. No Mitigation. The Executive shall not be required to mitigate the
amount of any payment provided for in this Agreement by seeking other
employment.
10. Assignment. This Agreement and the rights and obligations of the
Company hereunder shall inure to the benefit of and shall be binding upon the
successors and assigns of the Company, including without limitation any
corporation or other entity acquiring all or substantially all of the business
or assets of the Company whether by operation of law or otherwise. This
Agreement and the rights of the Executive hereunder shall not be assignable by
the Executive, and any assignment by the Executive shall be null and void.
11. Arbitration. Any dispute or controversy arising under or in connection
with this Agreement shall be settled exclusively by arbitration in Augusta,
Maine, in accordance with the rules of the American Arbitration Association then
in effect. The pendency of any such dispute or controversy shall not affect any
rights or obligations under this Agreement. Judgment may be entered on the
arbitrator's award in any court having jurisdiction.
12. Waiver; Amendment. The failure of either party to enforce, or any delay
in enforcing, any rights under this Agreement shall not be deemed to be a waiver
of such rights, unless such waiver is an express written waiver which has been
signed by the waiving party. Waiver of any one breach shall not be deemed to be
a waiver of any other breach of the same or any other provision hereof. This
Agreement can be amended only by a written instrument signed by each party
hereto and no course of dealing or practice or failure to enforce or delay in
enforcing any rights hereunder may be claimed to have effected an amendment of
this Agreement.
13. Notices. Any notice required or permitted to be given under this
Agreement shall be sufficient if in writing and sent by first-class, registered
or certified mail or hand-delivered to the Executive at the last residence
address he has provided to the Company or, in the case of the Company, at its
principal executive offices to the attention of the Corporate Secretary.
14. Miscellaneous. This Agreement shall be construed and enforced in
accordance with the laws of the State of Maine. In the event that any provisions
of this Agreement shall be held to be invalid, the other provisions hereof shall
remain in full force and effect.
15. Entire Agreement. The terms of this Agreement are intended by the
parties to be the final expression of their agreement with respect to the
employment of the Executive by the Company and may not be contradicted by
evidence of any prior or contemporaneous oral or written agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
effective as of the date first written
above.
WITNESS:
Gerald C. Poulin
CENTRAL MAINE POWER COMPANY
By:
David M. Jagger
Chairman of the Board of Directors
<PAGE>
AMENDMENT NO. 1
TO
EMPLOYMENT AGREEMENT
AS AMENDED AND RESTATED EFFECTIVE DECEMBER 9, 1994
WHEREAS, Central Maine Power Company, a Maine corporation with its
principal place of business in Augusta, Maine (hereinafter referred to as the
"Company"), and Gerald C. Poulin (hereinafter referred to as the "Executive")
entered into an Employment Agreement As Amended and Restated Effective December
9, 1994 (hereinafter referred to as the "Agreement"); and
WHEREAS, the Company and the Executive wish to amend the Agreement to
acknowledge the Executive's participation in the Company's Supplemental
Executive Retirement Plan as of January 1, 1996 and the Company's intended entry
into a Split-Dollar Life Insurance Agreement with the Executive effective as of
the same date.
NOW, THEREFORE, the Company and the Executive hereby agree that the
Agreement shall be amended as follows:
1. Section 4.a(ii) of the Agreement shall be amended so that it reads in
its entirety as follows:
(ii) He shall be entitled to participate in any and all plans and programs
maintained by the Company from time to time to provide benefits for its
executives, including without limitation any short-term or long-term incentive,
pension, or supplemental pension plan or program, in accordance with the terms
and conditions of any such plan or program or the administrative guidelines
relating thereto, as may be amended from time to time.
2. Section 4.a shall be amended by adding thereto a new part (v), as
follows:
(v) He shall be entitled to all rights and benefits under the Split-Dollar
Life Insurance Agreement into which the Company and the Executive intend to
enter, in accordance with the terms of such Split-Dollar Life Insurance
Agreement, which shall be made effective as of January 1, 1996.
3. Section 5.a(iii) of the Agreement shall be amended so that it reads in
its entirety as follows:
(iii) The Severance Period shall count as service for all purposes
(including benefit accrual and eligibility) under any benefit plan of the
Company applicable to the Executive immediately prior to the Executive's
termination of employment, for which service with the Company is taken into
account, including without limitation any pension or supplemental pension plan,
and all benefits under such plans that are subject to vesting shall vest as of
the date of such termination of employment.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment to the
Agreement effective as of January 1, 1996.
WITNESS:
Gerald C. Poulin
CENTRAL MAINE POWER COMPANY
By:
David M. Jagger
Chairman of the Board of Directors
<PAGE>
Exhibit 10-96.8
EMPLOYMENT AGREEMENT
As Amended and Restated Effective December 9, 1994
THIS EMPLOYMENT AGREEMENT is made, effective as of the ninth (9th) day of
December, 1994, by and between Central Maine Power Company, a Maine corporation
with its principal place of business in Augusta, Maine (hereinafter referred to
as the "Company"), and David E. Marsh (hereinafter referred to as the
"Executive").
WHEREAS, the Company recognizes that the Executive is a valued officer
because of his knowledge of the Company's affairs and his experience and
leadership capabilities, and desires to encourage his continued employment with
the Company to assure itself of the continuing advantage of that knowledge,
experience and leadership for the benefit of customers and shareholders,
particularly during a period of transition in various aspects of the Company's
business and in the event of a Change of Control of the Company; and
WHEREAS, the Executive desires to serve in the employ of the Company on a
full-time basis for a period provided in this Employment Agreement (hereinafter
referred to as the "Agreement") on the terms and conditions hereinafter set
forth; and
WHEREAS, to these ends the Company desires to provide the Executive with
certain payments and benefits in the event of the termination of his employment
in certain circumstances; and
WHEREAS, the Company and the Executive wish to set forth the terms and
conditions under which such employment and payments and benefits will occur.
NOW, THEREFORE, in consideration of the continued offer of employment by
the Company and the continued acceptance of employment by the Executive, and the
mutual promises and covenants contained herein, the Company and the Executive
hereby agree as follows:
1. Term of Agreement. a. The term of this Agreement shall begin on December
9, 1994 (hereinafter referred to as the "Effective Date") and shall expire on
December 31, 1997; provided, however, that on December 31, 1997 and on each
December 31 thereafter, the term of this Agreement shall automatically be
extended for one (1) additional year unless not later than the preceding October
31 either the Company or the Executive shall have given notice that such party
does not wish to extend the term of this Agreement.
b. If a Change of Control occurs during the original term of this Agreement
or any extension, then the term of this Agreement shall be automatically
extended for a thirty-six (36) calendar month period beginning on the first day
of the month following the month in which such Change of Control occurs.
c. Notwithstanding anything to the contrary in this Section 1, this
Agreement and all obligations of the Company hereunder shall terminate on the
date of the Executive's death, or thirty (30) days after the Company gives
notice to the Executive that the Company is terminating the Executive's
employment for reason of Total Disability or Cause.
2. Definitions. The following terms shall have the meanings set forth
below:
"Affiliate" means a person that directly or indirectly through one or more
intermediaries controls, is controlled by, or is under common control with the
Company.
"Board" means the Board of Directors of the Company.
"Cause" means any of the following events or occurrences:
(i) An act of material dishonesty taken by, or committed at the request of,
the Executive.
(ii) Any illegal or unethical conduct which, in the good faith judgment of
the Board, would impair the Executive's ability to perform his duties under this
Agreement or would impair the business reputation of the Company.
(iii) Conviction of a felony.
(iv) The continued failure of the Executive to perform substantially his
responsibilities and duties under this Agreement, after demand for performance
has been delivered in writing to the Executive specifying the manner in which
the Company believes that the Executive is not performing.
Notwithstanding any contrary provision of this Agreement, the Executive shall
not be deemed to have been terminated for Cause unless and until there shall
have been delivered to the Executive a certified copy of a resolution duly
adopted by the affirmative vote of two-thirds of the members of the Board who
are not employees of the Company at a meeting of the Board called and held for
such purpose (after reasonable notice to the Executive and an opportunity for
the Executive, together with his counsel, to be heard before the Board), finding
in good faith one of the events or occurrences set forth in parts (i) through
(iv) of the definition of "Cause" in this Agreement and specifying the
particulars thereof in detail.
"Change of Control" means the occurrence of any of the following events:
(i) Any "person," as such term is used in Sections 13(d) and 14(d) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act") (other than the
Company or any Affiliate or any trustee or other fiduciary holding securities
under an employee benefit plan of the Company or any Affiliate), is or becomes
the beneficial owner, as defined in Rule 13d-3 under the Exchange Act, directly
or indirectly, of stock of the Company representing thirty percent (30%) or more
of the combined voting power of the Company's then outstanding stock eligible to
vote.
(ii) During any period of two (2) consecutive years after the execution of
this Agreement, individuals who at the beginning of such period constitute the
Board, and any new director whose election by the Board or nomination for
election by the Company's stockholders was approved by a vote of at least
two-thirds of the directors then in office who either were directors at the
beginning of the period or whose election or nomination for election was
previously so approved, cease for any reason to constitute at least a majority
thereof.
(iii) The stockholders of the Company approve a merger or consolidation of
the Company with any other corporation, other than a merger or consolidation
which would result in the voting stock of the Company outstanding immediately
prior thereto continuing to represent (either by remaining outstanding or by
being converted into voting securities of the surviving entity) more than fifty
percent (50%) of the combined voting power of the outstanding voting stock of
the Company or such surviving entity immediately after such merger or
consolidation; provided, that a merger or consolidation effected to implement a
recapitalization of the Company (or similar transaction) in which no "person"
(as hereinabove defined) acquires more than thirty percent (30%) of the combined
voting power of the Company's then outstanding securities shall not constitute a
Change of Control of the Company.
(iv) The stockholders of the Company approve a plan of complete liquidation
of the Company or an agreement for the sale, lease, exchange or other
disposition by the Company of all or substantially all of the Company's assets
(or any transaction having a similar effect). "Constructive Discharge" means, so
long as no Change of Control has occurred, any reduction in the Executive's
annual base salary in effect as of the Effective Date of this Agreement, or as
the same may be increased from time to time, other than any across-the-board
base salary reduction for a group or all of the executive officers of the
Company, and also means, on or after a Change of Control,
(i) any reduction in the Executive's annual base salary in effect as of the
Effective Date of this Agreement, or as the same may be increased from time to
time;
(ii) a failure to increase the Executive's annual base salary commensurate
with any across-the-board percentage increases in the compensation of other
executive officers of the Company;
(iii) a substantial reduction in the nature or scope of the Executive's
responsibilities, duties or authority from those described in Section 3.c of
this Agreement;
(iv) a material adverse change in the Executive's title or position; or
(v) relocation of the Executive's place of employment from the Company's
principal executive offices or to a place more than twenty-five (25) miles from
Augusta, Maine without the Executive's consent.
"Severance Benefits" means the benefits set forth in Section 5.a or 5.c of
this Agreement, as applicable.
"Severance Period" means, in the case of a Change of Control, the period
from the date of termination as determined in accordance with Section 6 of this
Agreement until the third anniversary of such date.
"Total Disability" means the complete and permanent inability of the
Executive to perform all of his duties under this Agreement on a full-time basis
for a period of at least six (6) consecutive months, as determined by the Board
upon the basis of such evidence, which may include independent medical reports
and data, as the Board deems appropriate or necessary.
3. Employment. a. The Company hereby agrees to continue its employment of
the Executive in the capacity of Vice President, Corporate Services, and Chief
Financial Officer, and the Executive hereby agrees to remain in the employ of
the Company for the period beginning on the Effective Date and ending on the
date on which the Executive's employment is terminated in accordance with this
Agreement (the "Employment Period"). This Agreement shall not restrict in any
way the right of the Company to terminate the Executive's employment at whatever
time and for whatever reason it deems appropriate, nor shall it limit the right
of the Executive to terminate employment at any time for whatever reason he
deems appropriate.
b. The Executive agrees that during the Employment Period he shall devote
substantially all his business attention and time to the business and affairs of
the Company and its Affiliates, and use his best efforts to perform faithfully
and efficiently the duties and responsibilities of the Executive under this
Agreement. It is expressly understood that (i) the Executive may devote a
reasonable amount of time to such industry associations and charitable and civic
endeavors as shall not materially interfere with the services that the Executive
is required to render under this Agreement, and (ii) the Executive may serve as
a member of one or more boards of directors of companies that are not affiliated
with the Company and do not compete with the Company or any of its Affiliates.
c. The following listing of job duties shall represent the Executive's
primary responsibilities. Such responsibilities may be expanded, and so long as
no Change of Control has occurred may be decreased, as the business needs of the
Company require. The Executive's primary job responsibilities shall include, but
not be limited to:
participation in the development and general oversight of corporate
policies, strategies and business
initiatives as a member of the Company's Executive Committee;
the development, implementation, management and oversight of financial and
administrative policies, strategies, plans and activities including those
concerning rate cases, capital structure and financing, investor and financial
community relations, financial reporting, accounting, treasury operations,
information services, telecommunications, administrative services, the Company's
pension fund and Savings and Investment (401(k)) Plan assets, and operating and
capital budgets; and
coordination of business opportunities and investment decisions with
overall corporate goals and objectives.
The departments reporting directly to the Executive shall be as follows:
Information Services; Corporate Services; Accounting; and Treasury.
4. Compensation and Benefits. a. During the Employment Period, the
Executive shall be compensated as follows:
(i) He shall receive an annual base salary, the amount of which shall be
reviewed regularly and determined from time to time by the Board, but which
shall not be less than $153,450. His salary shall be payable in accordance with
Company payroll practices.
(ii) He shall be entitled to participate in any and all plans and programs
maintained by the Company from time to time to provide benefits for its
executives, including without limitation any short-term or long-term incentive,
pension, or supplemental pension plan or program, in accordance with the terms
and conditions of any such plan or program or the administrative guidelines
relating thereto, as may be amended from time to time.
(iii) He shall be entitled to participate in any and all plans and programs
maintained by the Company from time to time to provide benefits for its salaried
employees generally, including without limitation any savings and investment,
stock purchase or group medical, dental, life, accident or disability insurance
plan or program, subject to all eligibility requirements of general
applicability, to the extent that executives are not excluded from participation
therein under the terms thereof or under the terms of any executive plan or
program or any approval or adoption thereof.
(iv) He shall be entitled to all fringe benefits generally provided by the
Company at any time to its full-time salaried employees, including without
limitation paid vacation, holidays and sick leave but excluding severance pay,
in accordance with generally applicable Company policies with respect to such
benefits.
(v) He shall be entitled to all rights and benefits under the Split-Dollar
Life Insurance Agreement between the Company and the Executive in effect as of
the Effective Date of this Agreement in accordance with the terms of such
Split-Dollar Life Insurance Agreement.
b. Notwithstanding any contrary provision of this Agreement, any
compensation or benefits which are vested in the Executive or which the
Executive is otherwise entitled to receive under any plan or program of the
Company or any agreement between the Company and the Executive before, at or
subsequent to the Executive's termination of employment shall be furnished and
paid in accordance with the terms and provisions of such plan, program or
agreement.
c. All compensation payable under this Section 4 shall be subject to normal
payroll deductions for withholding income taxes, social security taxes and the
like.
5. Severance Benefits. a. If, on or after a Change of Control, the
Executive's employment with the Company is terminated during the Employment
Period by the Company and/or any successor for any reason other than death,
Total Disability or Cause, or by the Executive within twelve (12) calendar
months of a Constructive Discharge, Severance Benefits shall be provided as
follows:
(i) The Company shall pay the Executive, in one cash lump sum within sixty
(60) days following the date of termination of employment as determined under
Section 6 of this Agreement, an amount equal to 2.99 times the Executive's "base
amount," as defined in Section 280G(b)(3) of the Internal Revenue Code of 1986,
as amended (the "Code").
(ii) Core coverage for the Executive under the Company's group medical,
life, accident and disability plans or programs shall continue for the Severance
Period on the same terms and conditions, as if the Executive's employment had
not terminated. In the event that the Executive's participation in any such plan
or program is barred, the Company shall arrange at its expense to provide him
during the Severance Period with core benefits substantially similar to those
which he would otherwise be entitled to receive under such plans and programs.
(iii) The Severance Period shall count as service for all purposes
(including benefit accrual and eligibility) under any benefit plan of the
Company applicable to the Executive immediately prior to the Executive's
termination of employment, for which service with the Company is taken into
account, including without limitation any pension or supplemental pension plan,
and all benefits under such plans that are subject to vesting shall vest as of
the date of such termination of employment.
(iv) The Company shall pay a fee to an independent outplacement firm
selected by the Executive for outplacement services in an amount equal to the
actual fee for such services up to a total of $10,000.
b. Notwithstanding the provisions of Section 5.a hereof, if, in the opinion
of tax counsel selected by the Company's independent auditors,
(i) the Severance Benefits set forth in said Section 5.a and any payments
or benefits otherwise payable to the Executive would constitute "parachute
payments" within the meaning of Section 280G(b)(2) of the Code (said Severance
Benefits and other payments or benefits being hereinafter collectively referred
to as "Total Payments"), and
(ii) the aggregate present value of the Total Payments would exceed 2.99
times the Executive's base amount, as defined in Section 280G(b)(3) of the Code,
then, such portion of the Severance Benefits described in Section 5.a hereof as,
in the opinion of said tax counsel, constitute "parachute payments" shall be
reduced as directed by tax counsel so that the aggregate present value of the
Total Payments is equal to 2.99 times the Executive's base amount. The tax
counsel selected pursuant to this Section 5.b may consult with tax counsel for
the Executive, but shall have complete, sole and final discretion to determine
which Severance Benefits shall be reduced and the amounts of the required
reductions. For purposes of this Section 5.b, the Executive's base amount and
the value of the Total Payments shall be determined by the Company's independent
auditors in accordance with the principles of Section 280G of the Code and based
upon the advice of tax counsel selected thereby.
c. If no Change of Control has occurred and the Executive's employment with
the Company is terminated during the Employment Period by the Company for any
reason other than death, Total Disability or Cause, or by the Executive within
six (6) calendar months of a Constructive Discharge, the Company shall pay the
Executive, in twelve (12) equal monthly cash installments beginning not later
than sixty (60) days following the date of termination of employment as
determined under Section 6 of this Agreement, Severance Benefits equal to one
(1) times the Executive's annual base salary in effect on the date immediately
preceding the date of termination, or preceding the date of a Constructive
Discharge attributable to a base salary reduction if applicable; provided,
however, that each of the last six (6) monthly cash installments shall be
reduced by an amount equal to any base salary or other base pay or commissions
earned through other employment or any fees earned as a consultant for the
particular month, such that an installment shall not be paid or payable by the
Company for any month for which such other base salary, base pay, commissions or
fees equal or exceed the amount of the installment.
6. Date of Termination. For purposes of this Agreement, the date of
termination of the Executive's employment shall be the date notice is given to
the Executive by the Company and/or any successor or, in the case of a
Constructive Discharge, the date set forth in a written notice given to the
Company by the Executive, provided that the Executive gives such notice within
twelve (12) calendar months of the Constructive Discharge in the case of a
Change of Control, and within six (6) calendar months of the Constructive
Discharge in other cases, and specifies therein the event constituting the
Constructive Discharge.
7. Taxes. a. In the event that any portion of the Severance Benefits is
subject to tax under Section 4999 of the Internal Revenue Code of 1986, as
amended, or any successor provision thereto (the "Excise Tax"), the Company
shall pay to the Executive an additional amount (the "Gross-Up Amount") which,
after payment of all federal and State income taxes thereon (assuming the
Executive is at the highest marginal federal and applicable State income tax
rate in effect on the date of payment of the Gross-Up Amount) and payment of any
Excise Tax on the Gross-Up Amount, is equal to the Excise Tax payable by the
Executive on such portion of the Severance Benefits. Any Gross-Up Amount payable
hereunder shall be paid by the Company coincident with the payment of the
Severance Benefits described in Section 5.a(i) of this Agreement.
b. All amounts payable to the Executive under this Agreement shall be
subject to applicable withholding of income, wage and other taxes.
8. Non-Competition, Confidentiality and Cooperation. The Executive agrees
that:
(i) during the Employment Period and for one (1) year after the termination
of the Executive's employment with the Company for any reason other than a
Change of Control, the Executive shall not serve as a director, officer,
employee, partner or consultant or in any other capacity in any business that is
involved in the generation, transmission or distribution of electric energy
within the New England states, or solicit Company employees for employment or
other participation in any such business, or take any other action intended to
advance the interests of such business;
(ii) during and after the Executive's employment with the Company, he shall
not divulge or appropriate to his own use or the use of others any secret,
proprietary or confidential information or knowledge pertaining to the business
of the Company, or any of its Affiliates, obtained during his employment with
the Company; and
(iii) during the Employment Period, he shall support the Company's
interests and efforts in all regulatory, administrative, judicial or other
proceedings affecting the Company and, after the termination of his employment
with the Company, he shall use best efforts to comply with all reasonable
requests of the Company that he cooperate with the Company, whether by giving
testimony or otherwise, in regulatory, administrative, judicial or other
proceedings affecting the Company except any proceeding in which he may be in a
position adverse to that of the Company. After the termination of employment,
the Company shall reimburse the Executive for his reasonable expenses and his
time, at a reasonable rate to be determined, for the Executive's cooperation
with the Company in any such proceeding.
The provisions of this Section 8 shall survive the expiration or termination of
this Agreement. The Executive agrees that the Company shall be entitled to
injunctive relief to prevent any breach or threatened breach of these
provisions. In the event of a failure to comply with part (i), (ii) or (iii) of
this Section 8, the Executive agrees that the Company shall have no further
obligation to pay the Executive any Severance Benefits under Section 5.c of this
Agreement. In the event of a failure to comply with part (i) or (ii) hereof, the
Executive agrees that he shall repay to the Company any such Section 5.c
Severance Benefits paid to him. The Company shall have the right to offset any
amounts payable to the Executive under this Agreement or otherwise against any
Severance Benefits which he is obligated to repay to the Company.
9. No Mitigation. The Executive shall not be required to mitigate the
amount of any payment provided for in this Agreement by seeking other
employment.
10. Assignment. This Agreement and the rights and obligations of the
Company hereunder shall inure to the benefit of and shall be binding upon the
successors and assigns of the Company, including without limitation any
corporation or other entity acquiring all or substantially all of the business
or assets of the Company whether by operation of law or otherwise. This
Agreement and the rights of the Executive hereunder shall not be assignable by
the Executive, and any assignment by the Executive shall be null and void.
11. Arbitration. Any dispute or controversy arising under or in connection
with this Agreement shall be settled exclusively by arbitration in Augusta,
Maine, in accordance with the rules of the American Arbitration Association then
in effect. The pendency of any such dispute or controversy shall not affect any
rights or obligations under this Agreement. Judgment may be entered on the
arbitrator's award in any court having
jurisdiction.
12. Waiver; Amendment. The failure of either party to enforce, or any delay
in enforcing, any rights under this Agreement shall not be deemed to be a waiver
of such rights, unless such waiver is an express written waiver which has been
signed by the waiving party. Waiver of any one breach shall not be deemed to be
a waiver of any other breach of the same or any other provision hereof. This
Agreement can be amended only by a written instrument signed by each party
hereto and no course of dealing or practice or failure to enforce or delay in
enforcing any rights hereunder may be claimed to have effected an amendment of
this Agreement.
13. Notices. Any notice required or permitted to be given under this
Agreement shall be sufficient if in writing and sent by first-class, registered
or certified mail or hand-delivered to the Executive at the last residence
address he has provided to the Company or, in the case of the Company, at its
principal executive offices to the attention of the Corporate Secretary.
14. Miscellaneous. This Agreement shall be construed and enforced in
accordance with the laws of the State of Maine. In the event that any provisions
of this Agreement shall be held to be invalid, the other provisions hereof shall
remain in full force and effect.
15. Entire Agreement. The terms of this Agreement are intended by the
parties to be the final expression of their agreement with respect to the
employment of the Executive by the Company and may not be contradicted by
evidence of any prior or contemporaneous oral or written agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
effective as of the date first written above.
WITNESS:
David E. Marsh
CENTRAL MAINE POWER COMPANY
By:
David M. Jagger
Chairman of the Board of Directors
<PAGE>
Exhibit 10-97
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT is made this twenty-ninth (29th) day of December,
1995, by and between Central Maine Power Company, a Maine corporation with its
principal place of business in Augusta, Maine (hereinafter referred to as the
"Company"), and David T. Flanagan (hereinafter referred to as the "Executive").
WHEREAS, the Company recognizes that the Executive is a valued officer
because of his knowledge of the Company's affairs and his experience and
leadership capabilities, and desires to encourage his continued employment with
the Company to assure itself of the continuing advantage of that knowledge,
experience and leadership for the benefit of customers and shareholders,
particularly during a period of transition in various aspects of the Company's
business and in the event of a Change of Control of the Company; and
WHEREAS, the Executive desires to serve in the employ of the Company on a
full-time basis for a period provided in this Employment Agreement (hereinafter
referred to as the "Agreement") on the terms and conditions hereinafter set
forth; and
WHEREAS, to these ends the Company desires to provide the Executive with
certain payments and benefits in the event of the termination of his employment
in certain circumstances; and
WHEREAS, the Company and the Executive wish to set forth the terms and
conditions under which such employment and payments and benefits will occur.
NOW, THEREFORE, in consideration of the continued offer of employment by
the Company and the continued acceptance of employment by the Executive, and the
mutual promises and covenants contained herein, the Company and the Executive
hereby agree as follows:
1. Term of Agreement. a. The term of this Agreement shall begin on December
29, 1995 (hereinafter referred to as the "Effective Date") and shall expire on
December 31, 1998; provided, however, that on December 31, 1998 and on each
December 31 thereafter, the term of this Agreement shall automatically be
extended for one (1) additional year unless not later than the preceding October
31 either the Company or the Executive shall have given notice that such party
does not wish to extend the term of this Agreement.
b. If a Change of Control occurs during the original term of this Agreement
or any extension, then the term of this Agreement shall be automatically
extended for a thirty-six (36) calendar month period beginning on the first day
of the month following the month in which such Change of Control occurs.
c. Notwithstanding anything to the contrary in this Section 1, this
Agreement and all obligations of the Company hereunder shall terminate on the
date of the Executive's death, or thirty (30) days after the Company gives
notice to the Executive that the Company is terminating the Executive's
employment for reason of Total Disability or Cause.
2. Definitions. The following terms shall have the meanings set forth
below:
"Affiliate" means a person that directly or indirectly through one or more
intermediaries controls, is controlled by, or is under common control with the
Company.
"Board" means the Board of Directors of the Company.
"Cause" means any of the following events or occurrences:
(i) An act of material dishonesty taken by, or committed at the request of,
the Executive.
(ii) Any illegal or unethical conduct which, in the good faith judgment of
the Board, would impair the Executive's ability to perform his duties under this
Agreement or would impair the business reputation of the Company.
(iii) Conviction of a felony.
(iv) The continued failure of the Executive to perform substantially his
responsibilities and duties under this Agreement, after demand for performance
has been delivered in writing to the Executive specifying the manner in which
the Company believes that the Executive is not performing.
Notwithstanding any contrary provision of this Agreement, the Executive shall
not be deemed to have been terminated for Cause unless and until there shall
have been delivered to the Executive a certified copy of a resolution duly
adopted by the affirmative vote of two-thirds of the members of the Board who
are not employees of the Company at a meeting of the Board called and held for
such purpose (after reasonable notice to the Executive and an opportunity for
the Executive, together with his counsel, to be heard before the Board), finding
in good faith one of the events or occurrences set forth in parts (i) through
(iv) of the definition of "Cause" in this Agreement and specifying the
particulars thereof in detail.
"Change of Control" means the occurrence of any of the following events:
(i) Any "person," as such term is used in Sections 13(d) and 14(d) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act") (other than the
Company or any Affiliate or any trustee or other fiduciary holding securities
under an employee benefit plan of the Company or any Affiliate), is or becomes
the beneficial owner, as defined in Rule 13d-3 under the Exchange Act, directly
or indirectly, of stock of the Company representing thirty percent (30%) or more
of the combined voting power of the Company's then outstanding stock eligible to
vote.
(ii) During any period of two (2) consecutive years after the execution of
this Agreement, individuals who at the beginning of such period constitute the
Board, and any new director whose election by the Board or nomination for
election by the Company's stockholders was approved by a vote of at least
two-thirds of the directors then in office who either were directors at the
beginning of the period or whose election or nomination for election was
previously so approved, cease for any reason to constitute at least a majority
thereof.
(iii) The stockholders of the Company approve a merger or consolidation of
the Company with any other corporation, other than a merger or consolidation
which would result in the voting stock of the Company outstanding immediately
prior thereto continuing to represent (either by remaining outstanding or by
being converted into voting securities of the surviving entity) more than fifty
percent (50%) of the combined voting power of the outstanding voting stock of
the Company or such surviving entity immediately after such merger or
consolidation; provided, that a merger or consolidation effected to implement a
recapitalization of the Company (or similar transaction) in which no "person"
(as hereinabove defined) acquires more than thirty percent (30%) of the combined
voting power of the Company's then outstanding securities shall not constitute a
Change of Control of the Company.
(iv) The stockholders of the Company approve a plan of complete liquidation
of the Company or an agreement for the sale, lease, exchange or other
disposition by the Company of all or substantially all of the Company's assets
(or any transaction having a similar effect).
"Constructive Discharge" means, so long as no Change of Control has occurred,
any reduction in the Executive's annual base salary in effect as of the
Effective Date of this Agreement, or as the same may be increased from time to
time, other than any across-the-board base salary reduction for a group or all
of the executive officers of the Company, and also means, on or after a Change
of Control,
(i) any reduction in the Executive's annual base salary in effect as of the
Effective Date of this Agreement, or as the same may be increased from time to
time;
(ii) a substantial reduction in the nature or scope of the Executive's
responsibilities, duties or authority from those described in Section 3.c of
this Agreement;
(iii) a material adverse change in the Executive's title or position; or
(iv) relocation of the Executive's place of employment from the Company's
principal executive offices or to a place more than twenty-five (25) miles from
Augusta, Maine without the Executive's consent.
"Severance Benefits" means the benefits set forth in Section 5.a or 5.c of
this Agreement, as applicable.
"Severance Period" means, in the case of a Change of Control, the period
from the date of termination as determined in accordance with Section 6 of this
Agreement until the third anniversary of such date.
"Total Disability" means the complete and permanent inability of the
Executive to perform all of his duties under this Agreement on a full-time basis
for a period of at least six (6) consecutive months, as determined by the Board
upon the basis of such evidence, which may include independent medical reports
and data, as the Board deems appropriate or necessary.
3. Employment. a. The Company hereby agrees to continue its employment of
the Executive in the capacity of President and Chief Executive Officer, and the
Executive hereby agrees to remain in the employ of the Company for the period
beginning on the Effective Date and ending on the date on which the Executive's
employment is terminated in accordance with this Agreement (the "Employment
Period"). This Agreement shall not restrict in any way the right of the Company
to terminate the Executive's employment at whatever time and for whatever reason
it deems appropriate, nor shall it limit the right of the Executive to terminate
employment at any time for whatever reason he deems appropriate.
b. The Executive agrees that during the Employment Period he shall devote
substantially all his business attention and time to the business and affairs of
the Company and its Affiliates, and use his best efforts to perform faithfully
and efficiently the duties and responsibilities of the Executive under this
Agreement. It is expressly understood that (i) the Executive may devote a
reasonable amount of time to such industry associations and charitable and civic
endeavors as shall not materially interfere with the services that the Executive
is required to render under this Agreement, and (ii) the Executive may serve as
a member of one or more boards of directors of companies that are not affiliated
with the Company and do not compete with the Company or any of its Affiliates.
c. The following listing of job duties shall represent the Executive's
primary responsibilities. Such responsibilities may be expanded, and so long as
no Change of Control has occurred may be decreased, as the business needs of the
Company require. The Executive shall be responsible for the overall active
management of the Company and his primary job responsibilities shall include,
but not be limited to, authority over the following functions:
the development, implementation and ongoing management of short and
long-range corporate planning and strategy with guidance from the Board with
respect to long-range or major corporate strategies, policies, and objectives;
the development and promotion of an organization capable of competing
effectively in selected markets; and
the development and oversight of broad marketing, public issue
communication and advertising programs to reposition the Company's products and
services as business needs require and to enhance the corporate image.
The departments and officers reporting directly to the Executive shall be as
follows: Vice President, Law and Power Supply; Vice President, Retail
Operations; Vice President, Corporate Services, Treasurer, and Chief Financial
Officer; Vice President, Marketing; Vice President, Generation and Technical
Support; Human Resources; and Public and Employee Communications.
4. Compensation and Benefits. a. During the Employment Period, the
Executive shall be compensated as follows:
(i) He shall receive an annual base salary, the amount of which shall be
reviewed regularly and determined from time to time by the Board, but which
shall not be less than $240,000. His salary shall be payable in accordance with
Company payroll practices.
(ii) He shall be entitled to participate in any and all plans and programs
maintained by the Company from time to time to provide benefits for its
executives, including without limitation any short-term or long-term incentive,
pension, or supplemental pension plan or program, in accordance with the terms
and conditions of any such plan or program or the administrative guidelines
relating thereto, as may be amended from time to time.
(iii) He shall be entitled to participate in any and all plans and programs
maintained by the Company from time to time to provide benefits for its salaried
employees generally, including without limitation any savings and investment,
stock purchase or group medical, dental, life, accident or disability insurance
plan or program, subject to all eligibility requirements of general
applicability, to the extent that executives are not excluded from participation
therein under the terms thereof or under the terms of any executive plan or
program or any approval or adoption thereof.
(iv) He shall be entitled to all fringe benefits generally provided by the
Company at any time to its full-time salaried employees, including without
limitation paid vacation, holidays and sick leave but excluding severance pay,
in accordance with generally applicable Company policies with respect to such
benefits.
(v) He shall be entitled to all rights and benefits under the Split-Dollar
Life Insurance Agreement between the Company and the Executive in effect as of
the Effective Date of this Agreement in accordance with the terms of such
Split-Dollar Life Insurance Agreement.
(vi) He shall be entitled to individual long-term disability insurance
coverage, at the Company's expense, under a non-cancellable policy providing
incremental coverage from the maximum level available under any group disability
insurance plan or program maintained by the Company for salaried employees
generally up to seventy percent (70%) of his monthly earnings, subject to
medical underwriting.
b. Notwithstanding any contrary provision of this Agreement, any
compensation or benefits which are vested in the Executive or which the
Executive is otherwise entitled to receive under any plan or program of the
Company or any agreement between the Company and the Executive before, at or
subsequent to the Executive's termination of employment shall be furnished and
paid in accordance with the terms and provisions of such plan, program or
agreement.
c. All compensation payable under this Section 4 shall be subject to normal
payroll deductions for withholding income taxes, social security taxes and the
like.
d. In addition to the pension benefits to which the Executive is entitled
under the Company's Retirement Income Plan for Non-Union Employees (the "Plan")
and the Supplemental Executive Retirement Plan adopted by the Board on
December 16, 1992 and made effective as of January 1, 1993 (the "SERP"), the
Executive shall be entitled to receive, over his lifetime, a pension benefit at
an annual rate equal to sixty-five percent (65%) of (1) the Executive's base
salary earned during the twelve (12) months immediately preceding the effective
date of termination of the Executive's employment for any reason and (2) the
three (3) year average of amounts earned under the Company's 1987 Executive
Incentive Plan or any successor short-term executive incentive plan for the
three (3) years preceding such termination of employment (the "Retirement
Benefit"), payable in equal monthly payments commencing on the later of July 1,
2002 or the first day of the month immediately following such termination (the
"Commencement Date"). Notwithstanding the foregoing provisions concerning the
period for which base salary and incentive payments earned shall be taken into
account in calculating the Retirement Benefit, in the case of a Constructive
Discharge attributable to a reduction in the Executive's base salary, the base
salary used for the purpose of calculating the amount of the Retirement Benefit
shall be the Executive's base salary earned during the twelve (12) months
immediately preceding such base salary reduction and the three (3) year average
of said incentive payments shall be based on the three (3) years preceding such
salary reduction. The Retirement Benefit shall be payable to the Executive on
the terms described in this Section 4.d without regard to the reason that the
Executive's employment with the Company has terminated and without regard to any
Change of Control.
(i) The Retirement Benefit shall not be diminished by (a) any Social
Security benefit payable to the Executive or (b) any early retirement reduction
factors, such as age or years of service with the Company.
(ii) The Retirement Benefit shall be reduced by the actuarial equivalent of
any benefits accrued as of the Commencement Date under the Plan or under the
SERP, or by the actuarial equivalent of any amount released to the Executive
under any split-dollar life insurance agreement with the Company. For purposes
of offsetting as provided in this part (ii), benefits and other amounts payable
shall be calculated on the basis of a single life annuity in accordance with the
actuarial assumptions in effect under the Plan as of the Commencement Date.
5. Severance Benefits. a. If, on or after a Change of Control, the
Executive's employment with the Company is terminated during the Employment
Period by the Company and/or any successor for any reason other than death,
Total Disability or Cause, or by the Executive within twelve (12) calendar
months of a Constructive Discharge, Severance Benefits shall be provided as
follows:
(i) The Company shall pay the Executive, in one cash lump sum within sixty
(60) days following the date of termination of employment as determined under
Section 6 of this Agreement, an amount equal to 2.99 times (a) the Executive's
base salary earned during the twelve (12) months immediately preceding the
Change of Control and (b) the three (3) year average of amounts earned under the
Company's 1987 Executive Incentive Plan or any successor short-term executive
incentive plan for the three (3) years preceding the Change of Control.
(ii) Core coverage for the Executive under the Company's group medical,
life, accident and disability plans or programs shall continue for the Severance
Period on the same terms and conditions, as if the Executive's employment had
not terminated. In the event that the Executive's participation in any such plan
or program is barred, the Company shall arrange at its expense to provide him
during the Severance Period with core benefits substantially similar to those
which he would otherwise be entitled to receive under such plans and programs.
(iii) The Severance Period shall count as service for all purposes
(including benefit accrual and eligibility) under any benefit plan of the
Company applicable to the Executive immediately prior to the Executive's
termination of employment, for which service with the Company is taken into
account, including without limitation any pension or supplemental pension plan,
and all benefits under such plans that are subject to vesting shall vest as of
the date of such termination of employment. In addition, the Executive shall
continue to be entitled to receive the Retirement Benefit, calculated in
accordance with the provisions of Section 4.d of this Agreement, which shall be
payable to the Executive in equal monthly payments beginning on the later of
July 1, 2002 or the first day of the month immediately following termination of
the Executive's employment.
(iv) The Company shall pay a fee to an independent outplacement firm
selected by the Executive for outplacement services in an amount equal to the
actual fee for such services up to a total of $10,000.
b. Notwithstanding the provisions of Section 5.a hereof, if, in the opinion
of tax counsel selected by the Company's independent auditors,
(i) the Severance Benefits set forth in said Section 5.a and any payments
or benefits otherwise payable to the Executive would constitute "parachute
payments" within the meaning of Section 280G(b)(2) of the Internal Revenue Code
of 1986, as amended (the "Code"), (said Severance Benefits and other payments or
benefits being hereinafter collectively referred to as "Total Payments"), and
(ii) the aggregate present value of the Total Payments would exceed 2.99
times the Executive's "base amount," as defined in Section 280G(b)(3) of the
Code, then, such portion of the Severance Benefits described in Section 5.a
hereof as, in the opinion of said tax counsel, constitute "parachute payments"
shall be reduced as directed by tax counsel so that the aggregate present value
of the Total Payments is equal to 2.99 times the Executive's base amount. The
tax counsel selected pursuant to this Section 5.b may consult with tax counsel
for the Executive, but shall have complete, sole and final discretion to
determine which Severance Benefits shall be reduced and the amounts of the
required reductions. For purposes of this Section 5.b, the Executive's base
amount and the value of the Total Payments shall be determined by the Company's
independent auditors in accordance with the principles of Section 280G of the
Code and based upon the advice of tax counsel selected thereby.
c. If no Change of Control has occurred and the Executive's employment with
the Company is terminated during the Employment Period by the Company for any
reason other than death, Total Disability or Cause, or by the Executive within
six (6) calendar months of a Constructive Discharge, Severance Benefits shall be
provided as follows:
(i) The Company shall pay the Executive, in twelve (12) equal monthly cash
installments beginning not later than sixty (60) days following the date of
termination of employment as determined under Section 6 of this Agreement,
Severance Benefits equal to one (1) times the Executive's annual base salary in
effect on the date immediately preceding the date of termination, or, in the
case of a Constructive Discharge attributable to a reduction in the Executive's
base salary, one (1) times the Executive's base salary in effect on the date
immediately preceding such reduction.
(ii) The Executive shall continue to be entitled to receive the Retirement
Benefit, calculated in accordance with the provisions of Section 4.d of this
Agreement, which shall be payable to the Executive in equal monthly payments
beginning on the later of July 1, 2002 or the first day of the month immediately
following termination of the Executive's employment.
6. Date of Termination. For purposes of this Agreement, the date of
termination of the Executive's employment shall be the date notice is given to
the Executive by the Company and/or any successor or, in the case of a
Constructive Discharge, the date set forth in a written notice given to the
Company by the Executive, provided that the Executive gives such notice within
twelve (12) calendar months of the Constructive Discharge in the case of a
Change of Control, and within six (6) calendar months of the Constructive
Discharge in other cases, and specifies therein the event constituting the
Constructive Discharge.
7. Taxes. a. In the event that any portion of the Severance Benefits is
subject to tax under Section 4999 of the Internal Revenue Code of 1986, as
amended, or any successor provision thereto (the "Excise Tax"), the Company
shall pay to the Executive an additional amount (the "Gross-Up Amount") which,
after payment of all federal and State income taxes thereon (assuming the
Executive is at the highest marginal federal and applicable State income tax
rate in effect on the date of payment of the Gross-Up Amount) and payment of any
Excise Tax on the Gross-Up Amount, is equal to the Excise Tax payable by the
Executive on such portion of the Severance Benefits. Any Gross-Up Amount payable
hereunder shall be paid by the Company coincident with the payment of the
Severance Benefits described in Section 5.a(i) of this Agreement.
b. All amounts payable to the Executive under this Agreement shall be
subject to applicable withholding of income, wage and other taxes.
8. Non-Competition, Confidentiality and Cooperation. The Executive agrees
that:
(i) during the Employment Period and for one (1) year after the termination
of the Executive's employment with the Company for any reason other than a
Change of Control, the Executive shall not serve as a director, officer,
employee, partner or consultant or in any other capacity in any business that is
involved in the generation, transmission or distribution of electric energy
within the New England states, or solicit Company employees for employment or
other participation in any such business, or take any other action intended to
advance the interests of such business;
(ii) during and after the Executive's employment with the Company, he shall
not divulge or appropriate to his own use or the use of others any secret,
proprietary or confidential information or knowledge pertaining to the business
of the Company, or any of its Affiliates, obtained during his employment with
the Company; and
(iii) during the Employment Period, he shall support the Company's
interests and efforts in all regulatory, administrative, judicial or other
proceedings affecting the Company and, after the termination of his employment
with the Company, he shall use best efforts to comply with all reasonable
requests of the Company that he cooperate with the Company, whether by giving
testimony or otherwise, in regulatory, administrative, judicial or other
proceedings affecting the Company except any proceeding in which he may be in a
position adverse to that of the Company. After the termination of employment,
the Company shall reimburse the Executive for his reasonable expenses and his
time, at a reasonable rate to be determined, for the Executive's cooperation
with the Company in any such proceeding.
The provisions of this Section 8 shall survive the expiration or termination of
this Agreement. The Executive agrees that the Company shall be entitled to
injunctive relief to prevent any breach or threatened breach of these
provisions. In the event of a failure to comply with part (i), (ii) or (iii) of
this Section 8, the Executive agrees that the Company shall have no further
obligation to pay the Executive any Severance Benefits under Section 5.c of this
Agreement. In the event of a failure to comply with part (i) or (ii) hereof, the
Executive agrees that he shall repay to the Company any such Section 5.c
Severance Benefits paid to him. The Company shall have the right to offset any
amounts payable to the Executive under this Agreement or otherwise against any
Severance Benefits which he is obligated to repay to the Company.
9. No Mitigation. The Executive shall not be required to mitigate the
amount of any payment provided for in this Agreement by seeking other
employment.
10. Assignment. This Agreement and the rights and obligations of the
Company hereunder shall inure to the benefit of and shall be binding upon the
successors and assigns of the Company, including without limitation any
corporation or other entity acquiring all or substantially all of the business
or assets of the Company whether by operation of law or otherwise. This
Agreement and the rights of the Executive hereunder shall not be assignable by
the Executive, and any assignment by the Executive shall be null and void.
11. Arbitration. Any dispute or controversy arising under or in connection
with this Agreement shall be settled exclusively by arbitration in Augusta,
Maine, in accordance with the rules of the American Arbitration Association then
in effect. The pendency of any such dispute or controversy shall not affect any
rights or obligations under this Agreement. Judgment may be entered on the
arbitrator's award in any court having jurisdiction.
12. Waiver; Amendment. The failure of either party to enforce, or any delay
in enforcing, any rights under this Agreement shall not be deemed to be a waiver
of such rights, unless such waiver is an express written waiver which has been
signed by the waiving party. Waiver of any one breach shall not be deemed to be
a waiver of any other breach of the same or any other provision hereof.
ThisAgreement can be amended only by a written instrument signed by each party
hereto and no course of dealing or practice or failure to enforce or delay in
enforcing any rights hereunder may be claimed to have effected an amendment of
this Agreement.
13. Notices. Any notice required or permitted to be given under this
Agreement shall be sufficient if in writing and sent by first-class, registered
or certified mail or hand-delivered to the Executive at the last residence
address he has provided to the Company or, in the case of the Company, at its
principal executive offices to the attention of the Corporate Secretary.
14. Miscellaneous. This Agreement shall be construed and enforced in
accordance with the laws of the State of Maine. In the event that any provisions
of this Agreement shall be held to be invalid, the other provisions hereof shall
remain in full force and effect.
15. Entire Agreement. The terms of this Agreement are intended by the
parties to be the final expression of their agreement with respect to the
employment of the Executive by the Company and may not be contradicted by
evidence of any prior or contemporaneous oral or written agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first written above.
WITNESS:
David T. Flanagan
CENTRAL MAINE POWER COMPANY
By:
David M. Jagger
Chairman of the Board of Directors
<PAGE>
Exhibit 13-1
Management's Discussion and Analysis of Financial Condition
and Results of Operations
Overview
In 1995, the Company faced the financial challenge of an 11-month outage at
the Maine Yankee Atomic Power Company (Maine Yankee) nuclear plant, and used new
pricing flexibility under the Alternative Rate Plan (ARP) to retain and promote
electric sales. The Company continued to control costs, reduce non-utility
purchased power expense, and expand its lines of business.
The Company's share of repair costs to the Maine Yankee steam-generator
tubes was approximately $10 million; another $29 million was incurred for
replacement power during the plant's outage. Under the ARP, these additional
costs cannot be deferred for later cost recovery consideration. The ARP
effectively eliminated traditional regulatio's reconcilable fuel clause
adjustment mechanism.
Earnings per share in 1995 were $0.86 after recognition of the
approximately $0.70 per share in Maine Yankee-related repair and
replacement-power costs.
In mid-January 1996, Maine Yankee returned to operation and was producing
power at 90-percent of its maximum production capacity. The Company will incur
approximately $300,000 to $500,000 of replacement-power costs for each month
that the plant operates at the 90-percent level. Replacement-power expenses in
1996 at that level of production would not involve the level of extraordinary
costs incurred in 1995.
The ARP form of price regulation took effect January 1, 1995. The Company
used the ARP's pricing flexibility and entered into five-year definitive
agreements with 18 of its large general-service customers. Additionally, the
Company has instituted programs in specific residential and commercial markets
where it believes customers have competitive options that need to be addressed
by lowering applicable tariffs to more competitive levels. Approximately 35
percent of annual kilowatt-hour sales and 22 percent of annual revenues are now
covered by special tariffs allowed under the ARP.
During 1995 the ceiling prices that the Company could charge rose by 2.43
percent under the ARP annual adjustment mechanism. Increases made pursuant to
the price-cap adjustment should generate additional annual revenue of
approximately $15 million.
A sharing mechanism in the ARP designed to protect the Company from
fluctuations of return on equity outside a specified bandwidth was triggered by
the low 1995 earnings. A component of the 1996 ARP increase in price caps will
reflect the operation of this mechanism, although the Company has discretion
under the ARP to set rates lower than the caps.
Because the ARP bases annual price changes on an external inflation measure
adjusted for productivity gains, managing cost increases below the level of
inflation and achieving revenues from sales volume are important for improving
the Company's profitability.
The Company continues to address the anticipated transition to a more
competitive industry. While many factors are uncertain, a transition to direct
retail competition, could have substantial impacts on the value of utility
assets and on their ability to recover costs through rates. Without proper
action by regulators, utilities could find above-market costs to be "stranded,"
or unrecoverable, in the new competitive setting.
In December 1995, the Maine Public Utilities Commission (MPUC) issued a
Notice of Inquiry for investigating the future structure of the electric-utility
industry in Maine. The MPUC proceeding is being conducted as the result of a
1995 Maine Legislative Resolve that established a process for reviewing issues
of competition and structure for electric utilities. The MPUC is expected to
conclude its investigation under the Notice of Inquiry by late 1996 and report
its findings and recommendations to the Legislature in early 1997.
In late January 1996, the Company filed a proposal in response to a MPUC
Notice of Inquiry outlining its recommendations for an orderly transition to
competition and for adequate reimbursement of its potentially strandable costs.
The major elements of the Company's proposed plan are:
(1) The Company's generating assets, contracts and obligations would be
separated from its transmission-and-distribution assets and obligations;
(2) Retail customers would begin to have the opportunity to purchase
unbundled energy directly from suppliers, marketers or load aggregators in the
year 2000, with possible phase-in to total open access over a period of years;
(3) Economic and resource-planning regulation of generation would cease,
with the Federal Energy Regulatory Commission (FERC) continuing to regulate
transmission, and distribution remaining a franchised monopoly. The entity
providing distribution services would be subject to performance-based earnings
regulation similar to the ARP; the duty to serve would be replaced by a duty to
connect customers to the retail generation market;
(4) An opportunity for full recovery of strandable costs would be achieved
through a transition charge to all retail customers; generation-related
strandable costs would be recovered through a transition contract between the
generation company and the transmission-and-distribution company.
The Company has substantial exposure to cost stranding relative to its
size. As of December 31, 1995, the Company estimates its strandable costs could
be approximately $2 billion. These costs represent the excess of the costs of
purchased-power obligations and the Company's own generating costs over the
market value of the power, and the costs of deferred charges and other
regulatory assets. Of the $2 billion, approximately $1.3 billion is related to
above-market costs of purchased-power obligations, approximately $200 million is
related to estimated net above-market cost of the Company's own generation, and
the remaining $500 million is related to deferred regulatory assets.
The estimated market rate for power is based on currently existing market
conditions and anticipated inflation escalation. The present value of future
purchased-power obligations and the Company's generating costs reflects the
underlying costs of those sources of generation in place today, with reductions
for contract expiration and ongoing depreciation. Deferred regulatory asset
totals reflect the current uncollected balances and existing amortization
schedules. The Company's strandable-cost exposure is expected to decline over
time as the market price of power increases, non-utility generator (NUG)
contracts expire, and regulatory assets are recovered.
Estimated strandable costs are highly dependent on estimates of the future
market for power. Higher market rates lower stranded-cost exposure, while lower
market rates increase it. In addition to market-related impacts, any estimate of
the ultimate level of strandable costs depends on state and federal regulations;
the extent, timing and form that competition for electric service will take; the
ongoing level of the Company's costs of operations; regional and national
economic conditions; growth of the Company's sales; timing of any changes that
may occur from state and federal initiatives on restructuring; and the extent to
which regulatory policies ultimately address recovery of strandable costs.
Major cost stranding would have a material adverse effect on the Company's
results of operations. The Company believes it is entitled to recover
substantially all of its potential strandable costs, but cannot predict when or
if open electric energy competition will occur in its service territory, how
much it might ultimately be allowed to recover through state or federal
regulation, the future market price of electricity, or the timing or
implementation of any formal recommendations in any regulatory or legislative
proceedings dealing with such issues.
The Company declared dividends of $0.90 per share in 1995, unchanged from
the 1994 level. In December 1993, the quarterly dividend payment per share of
common stock was reduced from $0.39 to $0.225. This reduction reflected the
then-current earnings levels and the near-term financial outlook. Dividend and
capital structure policy will continue to be reviewed by management and the
Board of Directors and will take into consideration such issues as achieved and
anticipated earnings, capital needs, business opportunities and business risk,
the structure of the Company and the industry, and the overall need to assure
that financial risk and business risk are aligned. Near-term, the Company
anticipates a need to increase its equity capitalization as a result of higher
business risk and a desire to restore its credit standing that has been weakened
in recent years.
The Company continues to face the challenges of change and must achieve and
maintain financial performance and resources commensurate with both the
provision of service as demanded by customers and the obligation to achieve
competitive returns on investor capital.
The ensuing issues associated with the restructuring of the electric
industry, the pressure from existing competitive energy sources, and the
appetite of customers for choices and enhanced service are challenges that the
Company is aggressively addressing.
Financial Objectives:
1. Continue increasing the efficiency of operations; cost management under
price-cap regulation must replace the cost-plus culture that traditional
regulation can entail.
2. Focus on volume of sales as a revenue builder; revenue from prices is
capped.
3. Align financial policies to match changing business needs and risks;
competition tends to increase business risk, which in turn impacts the desired
level of fixed-charge obligations.
4. Expand areas of investment for growth; open competition in electric
energy could significantly reduce traditional sales-growth opportunities.
5. Recover the substantial investments made and costs being incurred for
existing service obligations; open competition could strand these costs, absent
a transition mechanism for recovery.
<PAGE>
Management's Discussion & Analysis
Earnings and Dividends
For 1995, the Company generated net income of $38.0 million, compared to a
net loss of $23.3 million in 1994, and net income of $61.3 million in 1993. The
earnings applicable to common stock were $27.8 million in 1995 or $0.86 per
share, while the loss applicable to common stock was $33.8 million or $1.04 per
share in 1994. Earnings applicable to common stock were $52.5 million or $1.65
per share in 1993. Net income in 1995 reflects $29 million of replacement
purchased-power energy expense and $10 million for the Company's share of
sleeving repair costs during the extended shutdown at Maine Yankee. The two
items reduced earnings applicable to common stock by $22.9 million after income
taxes, or $0.70 per share. See "Maine Yankee Steam-Generator Tubes," below, for
a detailed discussion of these matters. The loss in 1994 reflects the write-off
of approximately $100 million ($60 million after taxes) of deferred balances in
accordance with the MPUC order in the ARP proceeding discussed fully below under
the caption "Alternative Rate Plan" and Note 3 to Consolidated Financial
Statements, "Regulatory Matters - Alternative Rate Plan." This write-off had the
effect of reducing earnings per share by $1.85. Absent the write-off, earnings
for 1994 would have been $0.81 per share.
Total dividends declared in 1995 and 1994 were $0.90 per common share, and
$1.395 per share for 1993. In December 1993, the quarterly dividend payment per
share of common stock was reduced from $0.39 to $0.225.
Revenues and Sales
Electric operating revenues increased by $11.1 million or 1.2 percent to
$916.0 million in 1995, and by $11.3 million or 1.3 percent to $904.9 million in
1994. The components of the change in electric operating revenues are as
follows:
(Dollars in millions) .................................... 1995 1994
Revenues from kilowatt-hour sales ........................ $ (4.7) $ 20.7
Other operating revenues ................................. 8.7 (8.1)
Maine Electric Power Company, Inc. - Fuel cost recovery .. 7.1 (1.3)
Total Change in Electric Operating Revenues .............. $ 11.1 $ 11.3
Refer to "Alternative Rate Plan" below, for a discussion of new rates and
their impact on revenues.
The Company's service-area sales for the years 1995, 1994, and 1993 are
shown in the following table:
<PAGE>
<TABLE>
(Kilowatt-hours in millions)
1995 1994 1993
KWH % change KWH % change KWH % change
<S> <C> <C> <C> <C> <C> <C>
Residential ........................ 2,802 (2.0)% 2,860 (0.9)% 2,884 (3.5)%
Commercial ......................... 2,477 1.6 2,439 2.2 2,387 0.9
Industrial ......................... 3,547 (4.7) 3,720 (1.9) 3,791 3.2
Wholesale and
lighting ........................ 136 (8.7) 149 (3.5) 155 0.3
Total Service-
Area Sales ....................... 8,962 (2.2)% 9,168 (0.5)% 9,217 0.4%
</TABLE>
The primary factors in the service-area kilowatt-hour sales decrease were
low economic growth, the loss of a major industrial customer in September 1994,
energy management, and loss of sales due to conversions from electricity to
alternative fuels for such purposes as space and water heating.
The average number of residential customers increased by 5,076 in 1995,
4,679 in 1994, and 4,771 in 1993, while average usage per residential customer
declined by 3.1 percent in 1995, 1.9 percent in 1994 and 4.5 percent in 1993.
The 1995 and 1994 increases in commercial sales reflect increases in the
retail and service sectors. Combined, these sectors comprise approximately 60
percent of commercial sales. Also, sales to Maine Yankee increased by 14.7
million kilowatt hours in 1995 due to its extended outage.
Industrial sales levels are significantly affected by changes in power
supplied to the pulp-and-paper industry customers, who account for approximately
63 percent of industrial sales and approximately 25 percent of total
service-area sales. Sales to the pulp-and-paper sector decreased by 8.6 percent
in 1995 and by 3.6 percent in 1994, and increased by 3.2 percent in 1993. The
1995 and 1994 decreases reflect lower sales levels primarily due to the
late-1994 loss of a major customer that had previously purchased approximately
280 million kilowatt-hours annually. Refer to "Alternative Rate Plan" and
"Competition and Economic Development," below, and Note 4 to Consolidated
Financial Statements, "Commitment's and Contingencies - Competition," for
additional information regarding the loss of this customer and the Company's
actions to preserve its remaining large-industrial-customer base and other
customer groups. Sales to all other industrial customers as a group increased
2.7 percent in 1995, 1.5 percent in 1994, and 3.3 percent in 1993.
Alternative Rate Plan
In December 1994, the MPUC approved a stipulation, signed by most of the
parties to the Company's ARP proceeding, to take effect January 1, 1995. This
follow-up proceeding to the Company's 1993 base-rate case was ordered by the
MPUC in an effort to develop a five-year plan containing price-cap,
profit-sharing, and pricing-flexibility components. The price-cap mechanism
provides for the Company's retail rate increase to be capped annually on July 1,
commencing July 1, 1995, at a percentage combining (1) a price index, (2) a
productivity offset, (3) a sharing mechanism, and (4) flow-through items and
mandated costs. The price cap applies to all of the Company's retail rates, and
includes fuel-and-purchased-power costs that previously had been treated
separately. The components of the July 1, 1995, rate increase of 2.43 percent
are the inflation index of 2.92 percent, reduced by a productivity offset of 0.5
percent, and increased by 0.01 percent for flowthrough items and mandated costs.
As stated in the MPUC's order approving the ARP, operation under the ARP
continues to meet the criteria of Statement of Financial Accounting Standards
No. 71, "Accounting for the Effects of Certain Types of Regulation" (SFAS No.
71). As a result, the Company will continue to apply the provisions of SFAS No.
71 to its accounting transactions and to its financial statements.
For a detailed discussion of each of the individual provisions of the ARP
refer to Note 3 to Consolidated Financial Statements, "Regulatory Matters -
Alternative Rate Plan."
In 1994, the Company agreed in the ARP negotiations to record charges of
approximately $100 million ($60 million, net of tax) against 1994 earnings.
These charges, along with the other provisions of the ARP, will lessen the
impact of future price increases for MPUC-mandated costs.
The Company believes the ARP provides the benefits of needed pricing
flexibility to set prices between defined floor and ceiling levels in three
service categories: (1) existing customer classes, (2) new customer classes for
optional targeted services, and (3) special-rate contracts. The Company believes
that the added flexibility will position it more favorably to meet the
competition from other energy sources that has eroded segments of its customer
base. Some price adjustments could be implemented upon 30-days' notice by the
Company, while certain others would be subject to expedited review by the MPUC.
The ARP also contains provisions to protect the Company and ratepayers
against unforeseen adverse results from its operation. These include review by
the MPUC if the Company's actual return on equity falls outside a designated
range, a mid-period review of the ARP by the MPUC in 1997 (including possible
modification or termination), and a "final" review by the MPUC in 1999 to
determine whether or with what changes the ARP should continue in effect after
1999.
During 1995, primarily as a result of the extended Maine Yankee outage, the
Company's rate of return on equity was 5.7 percent, a level below the low end of
the earnings-sharing mechanism. Return on equity is one factor in the ARP for
determining the maximum annual adjustment in the Company's rates, scheduled for
July 1996.
While the ARP provides the Company with an expanded opportunity to be
rewarded for efficiency, it also presents the risk of reduced rates of return if
costs are not controlled, or if revenues from sales decline or are not adequate
to fund costs and provide fair rates of return on invested capital.
Maine Yankee Steam-Generator Tubes
The Company, through its equity investment totaling approximately $26.8
million at December 31, 1995, owns a 38-percent stock interest in Maine Yankee,
which owns and operates an 880-megawatt nuclear generating plant in Wiscasset,
Maine, and is entitled under a cost-based power contract to an approximately
equal percentage of the Plant's output. The Maine Yankee Plant, like other
pressurized-water reactors, experienced degradation of its steam-generator
tubes, principally in the form of circumferential cracking, which, until early
1995, was believed to be limited to a relatively small number of tubes. During
the refueling-and-maintenance shutdown that commenced in early February 1995,
Maine Yankee detected through new inspection methods increased degradation of
the Plant's steam-generator tubes. Approximately 60 percent of the Plant's
17,000 steam-generator tubes appeared to have defects to some degree. Because of
the large number of affected tubes, the remedy of plugging the degraded tubes to
take them out of service was no longer a viable option.
Following a detailed analysis of safety, technical, and financial
considerations, Maine Yankee elected to repair the tubes by inserting and
welding short reinforcing sleeves of an improved material in substantially all
of the Plant's steam-generator tubes; this was completed in December 1995. The
project caused Maine Yankee to incur additional costs during 1995, with the
Company being responsible for its pro-rata share. The Company has also incurred
substantial incremental costs for replacement power.
With the termination of the reconcilable fuel-and-purchased-power
adjustment under the ARP, the Company's costs of replacement power during the
Maine Yankee outage have been treated like other Company expenses, i.e.,
recoverable only to the extent permitted by the ARP's price-index mechanism, and
were not deferred to be collected through a specific fuel-rate adjustment, as
under pre-1995 ratemaking. Under the ARP, no additional price increase other
than the 2.43-percent increase effective July 1, 1995, could occur in 1995 as a
result of the Maine Yankee outage.
The Company's $10-million share of repair costs was less than the estimated
$15 million recorded in the second quarter of 1995 and resulted in a $5-million
reduction to purchased power-capacity expense in the fourth quarter of 1995.
Both the Company and Maine Yankee implemented cost-reduction measures to
mitigate these additional costs. The Company's incremental replacement-power
costs totaled approximately $29 million for the twelve months ended December 31,
1995.
On January 11, 1996, Maine Yankee began start-up operations and was up to
90-percent generation levels by January 24, 1996. Replacement power costs for
January 1996, were approximately $2.7 million. However, the Plant's operations
are under review by the Nuclear Regulatory Commission (NRC). Until the NRC
completes its investigation, the Plant will operate at approximately 90 percent
of its generating capacity. As a result, the Company will continue to incur
additional replacement-power costs for the 10 percent of its share of Maine
Yankee energy it will not receive until the Plant returns to 100-percent
generation levels. These additional costs, as was the case with those incurred
during 1995, are not reconcilable under a fuel-adjustment clause and, therefore,
the Company estimates it will incur approximately $300,000 to $500,000 per month
in additional costs until the Plant returns to full power.
Industry Restructuring and Strandable Costs
The enactment by Congress of the Energy Policy Act of 1992 accelerated
planning by electric utilities, including the Company, for transition to a more
competitive industry. The functional areas in which competition will take place,
the regulatory changes that will be implemented, and the resulting structure of
both the industry and the Company are all uncertain, but a transition to direct
competition to serve retail customers is widely anticipated. A departure from
traditional regulation, however, could have substantial impacts on the value of
utility assets and on the ability of electric utilities to recover their costs
through rates. In the absence of full recovery, utilities would find their
above-market costs to be "stranded," or unrecoverable, in the new competitive
setting.
On March 29, 1995, as part of a broader Notice of Proposed Rulemaking
(NOPR) related to open-access transmission and stranded costs, and designed to
facilitate the development of a competitive market, the Federal Energy
Regulatory Commission (FERC) expressed support for the principle that utilities
are entitled to full recovery of their "legitimate and verifiable" stranded
costs at both the state and federal levels. Earlier, the MPUC had initiated a
rulemaking proceeding on stranded costs at the retail level with a preliminary
proposal that supported recovery of stranded costs, but that contained
significant mitigation requirements which the Company believed would have
resulted in non-recovery of significant costs. The MPUC terminated its
proceeding after FERC issued its NOPR to avoid "parallel and duplicative
proceedings."
In 1995 the Maine Legislature commenced a process of developing
recommendations for the MPUC on the future structure of the electric utility
industry in Maine. A diverse committee appointed by the Maine Legislature failed
to reach consensus by its late 1995 deadline.
In late January 1996, the Company filed a proposal outlining its
recommendations for an orderly transition to competition and adequate
reimbursement of its potentially strandable costs with the MPUC. The major
elements of the Company's proposed plan are the following:
(1) The Company's generating assets, contracts and obligations would be
separated from its transmission and distribution assets and obligations by
distributing shares of a newly formed transmission-and-distribution company to
the Company's stockholders;
(2) Assuming certain necessary changes in the management and operation of
the regional transmission grid, retail customers would begin to have the
opportunity to purchase unbundled energy directly from suppliers, marketers, or
load aggregators in the year 2000, with possible phase-in to total open access
to such energy over a period of years;
(3) Economic and resource-planning regulation of generation would cease,
with FERC continuing to regulate transmission, and distribution remaining a
franchised monopoly. The entity providing distribution services would be subject
to performance-based regulation of its earnings, similar to the Company's
present ARP, and the duty to serve would be replaced by a duty to connect
customers to the retail generation market;
(4) Full recovery of strandable costs would be achieved through a
transition charge to all retail customers, with generation-related strandable
costs recovered through a transition contract between the generation company and
the transmission-and-distribution company. Amounts recovered would include costs
of fulfilling obligations under contracts with NUGs, as well as investments (and
returns thereon) and other obligations undertaken by the Company in fulfilling
its legal duty to serve, with incentives for the Company to mitigate such costs
where practicable.
Substantial opposition has emerged in both the FERC and state proceedings
to allowing full recovery of stranded costs, largely from customer groups and
NUGs. The Company expects to expend significant effort on restructuring
initiatives at both the state and federal level in 1996, although the timing of
any formal recommendations in any proceedings is yet to be determined.
The Company has substantial exposure to cost stranding relative to its
size. As of December 31, 1995, the Company estimates its strandable costs could
be approximately $2 billion. These costs represent the excess of the costs of
purchased-power obligations and the Company's own generating costs over the
market value of the power; and the costs of deferred charges and other
regulatory assets. Of the $2 billion, approximately $1.3 billion is related to
above-market costs of purchased-power obligations, approximately $200 million is
related to estimated net above-market cost of the Company's own generation, and
the remaining $500 million is related to deferred regulatory assets.
The estimated market rate for power is based on existing market conditions
and anticipated inflation escalation. The present value of future
purchased-power obligations and the Company's generating costs reflects the
underlying costs of those sources of generation in place today, with reductions
for contract expiration and ongoing depreciation. Deferred regulatory asset
totals reflect the current uncollected balances and existing amortization
schedules. The Company's strandable-cost exposure is expected to decline over
time as the market price of power increases, non-utility generator (NUG)
contracts expire, and regulatory assets are recovered.
Estimated strandable costs are highly dependent on estimates of the future
market for power. Higher market rates lower stranded cost exposure, while lower
market rates increase it. In addition to market-related impacts, any estimate of
the ultimate level of strandable costs depends on state and federal regulations;
the extent, timing and form that competition for electric service will take; the
ongoing level of the Company's costs of operations; regional and national
economic conditions; growth of the Company's sales; timing of any changes that
may occur from state and federal initiatives on restructuring; and the extent to
which regulatory policies ultimately address recovery of strandable costs.
Major cost stranding would have a material adverse effect on the Company's
results of operations. The Company believes it is entitled to recover
substantially all of its potential strandable costs, but cannot predict when or
if open electric energy competition will occur in its service territory, or how
much it might ultimately be allowed to recover through state or federal
regulation, the future market price of electricity, or the timing or
implementation of any formal recommendations in any regulatory or legislative
proceedings dealing with such issues.
The Company believes there are many uncertainties associated with any major
restructuring of the electric utility industry in Maine. Among them are: the
positions that will ultimately be taken by the MPUC on the Company's proposal
and other options and proposals submitted in response to the Notice; the role of
the FERC in any restructuring involving the Company and the ultimate positions
it will take on relevant issues within its jurisdiction; to what extent the
United States Congress will become involved in resolving or redefining the
issues through legislative action and, if so, with what results; whether the
necessary political consensus can be reached on the significant and complex
issues involved in changing the long-standing structure of the electric-utility
industry; and, particularly with respect to the Company, to what extent the
Company will be permitted to recover its strandable costs.
Competition and Economic Development
The Company faces competition in several aspects of its traditional
business and anticipates that competition will continue to place pressure on
both sales and the price the Company can charge for its product. Alternative
fuels and recent modifications to regulations that had restricted competition
from suppliers outside of the Company's service territory have expanded
customers' energy options. As a result, the Company continues to pursue
retention of its customer base. This increasingly competitive environment has
resulted in the Company's entering into contracts with its wholesale customers,
as well as with certain industrial, commercial, and residential customers, to
provide their energy needs at prices and margins lower than the current
averages.
Pursuant to the pricing-flexibility provisions of the ARP, the Company
redesigned some rates to encourage off-peak usage and discourage switching to
alternative fuels. These include Bonus Block rates, which give a 50 percent
discount on kilowatt-hours used above 750; water-heat and space-heat retention
rates; and Super-Saver rates, which discount off-peak usage. In 1994, the
Company lowered tariffs for its large general-service customers and executed
separate five-year definitive agreements with 18 individual customers providing
additional reductions. The participating customers agreed to take electrical
service from the Company for five years and agreed not to switch fuels, install
new self-generation equipment, or seek another supplier of electricity for
existing electrical load during that period. Approximately 35 percent of annual
kilowatt-hour sales and 22 percent of annual revenues are covered under special
tariffs allowed under the pricing flexibility provisions of the ARP. Refer to
Note 4 to Consolidated Financial Statements, "Commitments and Contingencies -
Competition," for detail.
The Company is actively promoting economic development for Maine by helping
to bring a $600-million expansion by one of its major customers to the state
through economic-development rates, and sponsoring "Maine & Company," a private
and public partnership that will market Maine as a place to do business.
Non-Utility Generators
In accordance with prior MPUC policy and the ARP, $125 million of buy-out
or restructuring costs incurred since January 1992 were included in Deferred
Charges and Other Assets on the Company's balance sheet and will be amortized
over their respective fuel savings periods. The Company restructured 37
contracts representing 297 megawatts of capacity that should result in
approximately $260 million in fuel savings over the next five years.
Expansion Of Lines Of Business
Another way the Company is addressing competition is to expand its business
opportunities through subsidiaries that capitalize on existing strengths.
MaineCom Services, which was approved by the MPUC on July 13, 1995, will seek to
develop opportunities in expanding markets by arranging fiber-optic data service
for bulk carriers, offering support for cable-TV or "super-cellular"
personal-communication vendors, and providing other telecommunications
consulting services. Telesmart, approved September 9, 1995, is a
credit-and-collections subsidiary. CMPE3 is an environmental and engineering
division of CMP International Consultants. All subsidiaries utilize skills of
former Company employees and compete for business with other companies.
Environmental Actions
The Company has been named by the Environmental Protection Agency (EPA) as
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 EPA as containing soil contaminated by PCBs from
equipment originally owned by the Company. Refer to Note 4 to Consolidated
Financial Statements, "Commitments and Contingencies - Legal and Environmental
Matters," for a more detailed discussion of this matter.
Expenses and Taxes
The Company's fuel expense, comprising the cost of fuel used for company
generation and the energy portion of purchased power (the largest expense
category), was 51 percent of total operating expense in 1995, and 54 percent in
1994 and 1993. Purchased-power energy expense includes all costs associated with
purchases from NUGs, which amounted to 77 percent of this expense category in
1995. Fuel expense fluctuates with changes in the price of oil, the level of
energy generated and purchased, and changes in the Company's own generation mix.
Through December 31, 1994, changes in fuel expense were provided rate
treatment through a fuel clause. Under the ARP, effective January 1, 1995,
fuel-expense recovery is subject to the annual index-based price change. Fuel
cost decreases are generally retained by the Company. Fuel expense for Maine
Electric Power Company, Inc. (MEPCO), a 78-percent-owned subsidiary of the
Company, is fully recoverable through billing to MEPCO participants and
fluctuates with participants' energy requirements.
The extended outage at Maine Yankee (see "Maine Yankee Steam-Generator
Tubes") had a significant effect on fuel expense, including purchased-power
energy and purchased-power capacity expense, and the Company's generation mix in
1995. Maine Yankee supplied 22 percent of the Company's generation mix in 1994
at a cost of less than three cents per kilowatt-hour. The Company replaced this
power through short-term agreements with New Brunswick Power and Hydro-Quebec.
The Company's oil-fired generation increased to 21.6 percent, up from 12.1
percent of 1994 net generation, and 15.5 percent in 1993. The NUG component of
the energy mix decreased slightly from 37.2 percent to 36.8 percent, as a result
of the ongoing efforts to reform the Company's NUG contracts. The average price
of NUG energy of 8.4 cents per kilowatt-hour is significantly higher than the
Company's own cost of generation, and much higher than the price of energy on
today's open market. The Company continues to try to moderate the cost of
non-utility generation by pursuing renegotiation of contracts, by supporting
legislative bills that would promote that objective, and by other means such as
strict contract term enforcement.
Purchased-power capacity expense is the non-fuel operation, maintenance,
and cost-of-capital expense associated with power purchases, primarily from the
Company's share of four Yankee nuclear generating facilities. The approximately
$10-million cost of the Maine Yankee steam-generator tube repairs was recorded
in purchased-power capacity expense in 1995.
The level of purchased-power capacity expense also fluctuates with the
timing of the maintenance and refueling outages at the other Yankee nuclear
generating facilities in which the Company has equity interests. The cost of
capacity increases during refueling periods. During 1992, Yankee Atomic Electric
Company, in which the Company is a 9.5-percent equity owner, discontinued power
generation and prepared a plan for decommissioning. Purchased-power capacity
expense in 1995, 1994, and 1993 contained approximately $4.0 million, $5.2
million, and $5.7 million, respectively, of costs related to this facility.
Refer to Note 6 to Consolidated Financial Statements, "Capacity Arrangements -
Power Agreements," for a more detailed discussion of this matter.
Operation-and-maintenance expense increased by $34.4 million in 1995 and by
$4.9 million in 1994. The 1995 increase reflects significantly higher charges
totaling approximately $27.7 million for amortization and cost of
purchased-power contract buy-outs. Also reflected is a one-time charge of $5.6
million related to a Special Retirement Offer (SRO) to all employees aged 50 or
more who had at least five years of continuous service. The goal of the SRO was
to help the Company achieve financial savings and make the organizational
changes it needs to be an effective competitor in the energy marketplace.
Approximately 200 employees accepted the SRO.
The Company implemented several new business processes and restructured its
customer-operations functions, closing and consolidating locations. These new
processes are aimed at streamlining the Company's business practices in division
operations, billing, purchasing, inventory, accounts payable, payroll, and
system design and construction. Two reengineering teams were formed in 1995, a
Financial Controls team and a Customer Service team. These teams sought radical
change to realize dramatic improvements. Currently, 60 projects have been
approved, and many are underway as a result of these teams' efforts, with
implementation periods ranging from three weeks to two years.
Interest expense included a full year's interest costs in 1995 due to the
issuance of the Finance Authority of Maine Note in October 1994 to finance the
buy-out of a major NUG contract, and lower interest cost from a decrease in the
amount of Medium-Term Notes outstanding. The Company's overall level of interest
expense during 1994 reflects the issuance of additional General and Refunding
Mortgage Bonds and additional notes under the Company's Medium-Term Note program
to replace short-term borrowings outstanding during 1993. Short-term interest
costs over the period 1993 through 1995 fluctuated with the costs and average
outstanding balances of short-term debt.
The Company reduced the level of Flexible Money Market Preferred Stock
outstanding by $5.5 million purchased in anticipation of the sinking-fund
requirement, thereby reducing dividends in 1995 by $300,000. The increase in
aggregate dividends on preferred stock for the two-year period ended December
31, 1994, is due to the conversion of the dividend on the Company's Flexible
Money Market Preferred Stock in November 1993 to a fixed rate. The average
variable rate in 1993 was 3.35 percent, while the fixed rate is 7.999 percent.
State and federal income taxes fluctuate with the level of pre-tax earnings
and the regulatory treatment of taxes by the MPUC. The significant decrease in
income-tax expense for 1994 is due to the impact of the loss from the write-off
of deferred balances in accordance with the MPUC's ARP order. See Note 2 to
Consolidated Financial Statements, "Income Taxes," for more information.
Liquidity and Capital Resources
The MPUC approved increases in base and fuel-related electric rates in 1993
and 1994, and a 2.43-percent increase in total rates under the ARP in 1995 that
produced additional cash. Increases in rates under the ARP were based on
increases in the related price index and provisions for certain mandated costs.
Prior rate increases were provided to fund costs of fuel, energy-management
programs, operations, maintenance, systems improvements, investments in
generation needed to ensure the Company's continued ability to provide reliable
electric service, and collection of unbilled revenues recorded pursuant to the
Electric Revenue Adjustment Mechanism (ERAM).
Approximately $114.5 million of cash was provided from net income before
non-cash items. An additional $21.0 million of cash was generated from
fluctuations in working capital, primarily from refunds of income taxes related
to the 1994 net loss. Other operating activities, including the financing of
deferred energy-management programs and the buy-out of NUG contracts, required
cash resources.
Increased average cash balances and reduced capital investment programs
resulted in very little investment-related activity during 1995. The issuance
and redemption of Medium-Term Notes and the purchase of Flexible Money Market
Preferred Stock used $35 million and $5.5 million, respectively, of cash during
1995. Effective in January 1994, the Company announced that it was electing the
option under its Dividend Reinvestment and Common Stock Purchase Plan to
purchase shares pursuant to this plan on the market, rather than issue new
shares. Dividends paid on common stock were $29.2 million, while preferred-stock
dividends were $10.3 million.
Capital-investment activities, primarily construction expenditures,
utilized $47.1 million in cash during 1995. Construction expenditures comprised
approximately $4.5 million for generating projects, $3.5 million for
transmission, $30.8 million for distribution, and $6.1 million for general
facilities and other construction expenditures.
The Company estimates its capital expenditures for the period 1996 through
2000 at approximately $334 million. Actual capital expenditures will depend upon
the availability of capital and other resources, load forecasts, customer
growth, and general business conditions. During the five-year period, the
Company also anticipates incurring approximately $471 million for sinking funds,
debt and equity maturities.
The Company estimates that for the period 1996 through 2000, internally
generated funds from depreciation, deferred taxes, and retained earnings should
provide a substantial portion of the construction-program requirements. Current
expectations place little reliance on external funding sources to meet the
capital expenditure requirements for the next several years. However, the
availability at any particular time of internally generated funds for such
requirements will depend on working-capital needs, market conditions, and other
relevant factors.
The Company's $150-million Medium-Term Note program was implemented to
provide flexibility to meet financing needs and provide access to a broad range
of debt maturities. As of December 31, 1995, $92 million of Medium-Term Notes
were outstanding; that, pursuant to the terms of the program, permits the
issuance of an additional $58 million of such notes.
To support its short-term capital requirements, the Company entered into a
revolving-credit facility with several banks and Chemical Bank, as agent for the
lenders, to provide up to $80 million of revolving-credit loans. The Company
also 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 downgrading of the Company's credit
ratings. The amount of outstanding short-term borrowing will fluctuate with
day-to-day operational needs, the timing of long-term financing, and market
conditions.
Factors That May Affect Future Results
This discussion contains forecast information items that are
"forward-looking statements" as defined in the Private Securities Litigation
Reform Act of 1995. All such forward-looking information is necessarily only
estimated. There can be no assurance that actual results will not materially
differ from expectations. Actual results have varied materially and
unpredictably from expectations.
Factors that could cause actual results to differ materially include, among
other matters, electric utility restructuring, including the ongoing state and
federal activities; future economic conditions; earnings-retention and
dividend-payout policies; developments in the legislative, regulatory, and
competitive environments in which the Company operates; and other circumstances
that could affect anticipated revenues and costs, such as unscheduled
maintenance or repair requirements and compliance with laws and regulations.
<PAGE>
Consolidated Financial Statements
Consolidated Statement of Earnings
(Dollars in thousands, except per-share Year ended December 31
amounts)
1995 1994 1993
Electric Operating Revenues (Notes 1 and 3) $916,016 $904,883 $893,577
Operating expenses
Fuel used for company generation (Notes 1
and 6) 18,702 14,783 16,906
Purchased power - energy (Notes 1 and 6) 408,072 430,874 408,944
Purchased power - capacity (Note 6) 93,489 77,775 84,520
Other operation 188,013 153,700 148,318
Maintenance 32,862 32,820 33,311
Depreciation and amortization (Note 1) 55,023 55,992 53,138
Federal and state income taxes (Note 2) 13,328 28,300 25,716
Taxes other than income taxes 27,885 25,512 23,023
Total Operating Expenses 837,374 819,756 793,876
Equity in Earnings of Associated Companies
(Note 6) 7,217 5,109 5,829
Operating Income 85,859 90,236 105,530
Other income (expense)
Allowance for equity funds used during
construction (Note 1) 663 807 1,523
Other, net (Note 3) 7,170 (105,133) (673)
Income taxes (Notes 2 and 3) (2,704) 42,443 3,127
Total Other Income (Expense) 5,129 (61,883) 3,977
Income Before Interest Charges 90,988 28,353 109,507
Interest charges
Long-term debt (Note 7) 50,307 46,213 42,266
Other interest (Note 7) 3,244 5,887 6,784
Allowance for borrowed funds used during
construction (Note 1) (543) (482) (845)
Total Interest Charges 53,008 51,618 48,205
Net income (loss) 37,980 (23,265) 61,302
Dividends on preferred stock 10,178 10,511 8,842
Earnings (Loss) Applicable to Common Stock $ 27,802 $(33,776) $ 52,460
Weighted Average Number of Shares of
Common Stock Outstanding 32,442,752 32,442,408 31,789,114
Earnings (Loss) Per Share of Common Stock $0.86 $(1.04) $1.65
Dividends Declared Per Share of Common
Stock $0.90 $ 0.90 $1.395
The accompanying notes are an integral part of these financial statements.
<PAGE>
Consolidated Balance Sheet
(Dollars in thousands) December 31
Assets 1995 1994
Electric property, at original cost (Notes 6 and 7) $1,611,941 $1,579,632
Less: accumulated depreciation (Notes 1 and 6) 560,078 521,645
Electric property in service 1,051,863 1,057,987
Construction work in progress (Note 4) 15,928 13,647
Nuclear fuel, less accumulated amortization of $8,909 in
1995 and $8,110 in 1994 1,391 2,181
Net electric property 1,069,182 1,073,815
Investments in associated companies, at equity (Notes 1
and 6) 54,669 49,602
Net Electric Property and Investments in Associated
Companies 1,123,851 1,123,417
Current assets
Cash and cash equivalents 57,677 58,112
Accounts receivable, less allowances for uncollectible
accounts of $3,313 in 1995 and $3,301 in 1994:
Service - billed 87,140 81,289
Service - unbilled (Notes 1 and 3) 41,798 38,153
Other accounts receivable 15,131 12,088
Prepaid income taxes (Note 2) - 28,068
Fuel oil inventory, at average cost 3,772 4,113
Materials and supplies, at average cost 12,772 13,026
Funds on deposit with trustee (Note 7) 29,919 27,820
Prepayments and other current assets 9,192 9,337
Total Current Assets 257,401 272,006
Deferred charges and other assets
Recoverable costs of Seabrook 1 and abandoned projects,
net (Note 1) 95,127 101,976
Yankee Atomic purchased-power contract (Note 6) 21,396 38,777
Regulatory assets - deferred taxes (Note 2) 235,081 233,234
Deferred charges and other assets (Notes 1 and 3) 260,063 276,597
Total Deferred Charges and Other Assets 611,667 650,584
Total Assets $1,992,919 $2,046,007
Stockholders' Investment and Liabilities
Capitalization (see separate statement) (Note 7)
Common-stock investment $ 490,005 $ 491,323
Preferred stock 65,571 65,571
Redeemable preferred stock 67,528 80,000
Long-term obligations 622,251 638,841
Total Capitalization 1,245,355 1,275,735
Current liabilities and interim financing
Interim financing (see separate statement) (Note 7) 34,000 63,000
Sinking-fund requirements (Note 7) 10,455 2,580
Accounts payable 108,170 97,800
Dividends payable 9,823 9,932
Accrued interest 12,648 14,102
Accrued income taxes (Note 2) 3,668 -
Miscellaneous current liabilities 13,870 10,535
Total Current Liabilities and Interim Financing 192,634 197,949
Commitments and Contingencies (Notes 4 and 6)
Reserves and deferred credits
Accumulated deferred income taxes (Note 2) 351,868 348,287
Unamortized investment tax credits (Note 2) 32,452 34,167
Yankee Atomic purchased-power contract (Note 6) 21,396 38,777
Regulatory liabilities - deferred taxes (Note 2) 50,366 53,937
Other reserves and deferred credits (Note 5) 98,848 97,155
Total Reserves and Deferred Credits 554,930 572,323
Total Stockholders' Investment and Liabilities $1,992,919 $2,046,007
The accompanying notes are an integral part of these financial statements.
<PAGE>
<TABLE>
Consolidated Statement of Cash Flows
(Dollars in thousands) Year ended December 31
1995 1994 1993
Operating Activities
<S> <C> <C> <C>
Net income (loss) ............................................................ $ 37,980 $ (23,265) $ 61,302
Items not requiring (providing) cash:
ARP-related charges (Note 3) ................................................. -- 100,390 --
Depreciation and amortization ................................................ 80,872 75,417 63,647
Deferred income taxes and investment tax credits,
net ....................................................................... (3,710) 11,022 5,584
Allowance for equity funds used during construction .......................... (663) (807) (1,523)
Changes in certain assets and liabilities:
Accounts receivable .......................................................... (12,539) 5,175 (4,881)
Inventories .................................................................. 595 4,230 2,838
Other current assets ......................................................... (1,954) (1,391) (24,436)
Retail fuel costs ............................................................ -- 32,922 (4,349)
Accounts payable ............................................................. 12,025 4,062 1,338
Accrued taxes and interest ................................................... 30,282 (25,311) 3,077
Miscellaneous current liabilities ............................................ 3,335 (2,602) (3,296)
Deferred energy-management costs ............................................. (4,075) (5,789) (10,192)
Maine Yankee outage accrual .................................................. (4,710) 8,197 4,962
Purchased-power contract buyouts ............................................. (13,405) (91,274) (515)
Revenue adjustment-tax flowback .............................................. -- -- (9,990)
Other, net ................................................................... 11,495 (5,604) (16,932)
Net Cash Provided by Operating Activities .................................... 135,528 85,372 66,634
Investing Activities
Construction expenditures .................................................... (44,867) (42,246) (53,576)
Investments in associated companies .......................................... (600) (2,004) --
Changes in accounts payable - investing activities ........................... (1,655) (679) (2,905)
Net Cash Used by Investing Activities ........................................ (47,122) (44,929) (56,481)
Financing Activities
Issuances:
Mortgage bonds ............................................................... -- 25,000 260,000
Common stock ................................................................. -- 927 25,513
Medium-term notes ............................................................ 30,000 32,000 48,000
Finance Authority of Maine ................................................... -- 66,429 --
Redemptions:
Mortgage bonds ............................................................... -- -- (177,500)
Premiums on redemptions ...................................................... -- -- (9,634)
Preferred stock .............................................................. (5,472) -- (7,125)
Medium-term notes ............................................................ (65,000) (43,000) (26,500)
Short-term obligations, net .................................................. (8,000) (25,500) (63,000)
Other long-term obligations, net ............................................. (860) (860) (868)
Dividends:
Common stock ................................................................. (29,222) (29,222) (49,345)
Preferred stock .............................................................. (10,287) (10,061) (8,664)
Net Cash Provided (Used) by Financing Activities ............................. (88,841) 15,713 (9,123)
Net Increase (Decrease) in Cash and Cash
Equivalents ............................................................... (435) 56,156 1,030
Cash and cash equivalents, beginning of year ................................. 58,112 1,956 926
Cash and Cash Equivalents, end of year ....................................... $ 57,677 $ 58,112 $ 1,956
Supplemental Cash-Flow Information:
Cash paid during the year for:
Interest (net of amounts capitalized) ........................................ $ 51,127 $ 44,874 $ 42,870
Income taxes (net of amounts refunded of
$29,045, $2,802, and $605 in respective years
indicated) ................................................................ (11,994) 1,568 15,852
</TABLE>
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.
<PAGE>
Consolidated Statement of Capitalization and Interim Financing
December 31
(Dollars in thousands) 1995 1994
Amount % Amount %
Capitalization (Note 7)
Common-stock investment:
Common stock, par value $5 per
share:
Authorized - 80,000,000 shares
Outstanding - 32,442,752 shares in
1995 and 1994 $ 162,214 $ 162,214
Other paid-in capital 276,287 275,627
Retained earnings 51,504 53,482
Total Common-Stock Investment 490,005 38.3% 491,323 36.7%
Preferred Stock - not subject to
mandatory redemption 65,571 5.1 65,571 4.9
Preferred Stock - subject to mandatory
redemption 74,528 80,000
Less: current sinking fund
requirements 7,000 -
Redeemable Preferred Stock - subject
to mandatory redemption 67,528 5.3 80,000 6.0
Long-term obligations:
Mortgage bonds 432,500 432,500
Less: unamortized debt discount 1,807 1,990
Total Mortgage Bonds 430,693 430,510
Medium-term notes 92,000 127,000
Less: unamortized debt discount 8 17
Total Medium-Term Notes 91,992 126,983
Other long-term obligations:
Lease obligations 38,112 39,159
Pollution-control facility and other
notes 98,909 99,769
Total Other Long-Term Obligations 137,021 138,928
Less: Current Sinking Fund
Requirements and Current Maturities 37,455 57,580
Total Long-Term Obligations 622,251 48.6 638,841 47.7
Total Capitalization 1,245,355 97.3 1,275,735 95.3
Interim financing, amounts to be
refinanced (Note 7):
Short-term obligations - 8,000
Current maturities of long-term
obligations 34,000 55,000
Total Interim Financing 34,000 2.7 63,000 4.7
Total Capitalization and Interim
Financing $1,279,355 100.0% $1,338,735 100.0%
The accompanying notes are an integral part of these financial statements.
<PAGE>
Consolidated Statement of Changes in Common-Stock Investment
<TABLE>
For the three years ended December 31, 1995
(Dollars in thousands) Other
Amount at paid-in Retained
Shares par value capital earnings Total
Balance - December 31,
<C> <C> <C> <C> <C> <C>
1992 31,148,321 $ 155,742 $ 254,576 $ 110,050 $ 520,368
Net income ............................................... 61,302 61,302
Dividends declared:
Common stock ........................................... (44,459) (44,459)
Preferred stock ........................................ (8,704) (8,704)
Cost for reacquired
preferred stock ....................................... 1,043 (1,043) --
Issues of common stock ................................... 1,231,616 6,158 19,355 25,513
Capital stock expense .................................... (631) (631)
Balance - December 31,
1993 32,379,937 161,900 274,343 117,146 553,389
Net income (loss) ........................................ (23,265) (23,265)
Dividends declared:
Common stock ........................................... (29,213) (29,213)
Preferred stock ........................................ (10,511) (10,511)
Cost for reacquired
preferred stock ....................................... 675 (675) --
Issues of common stock ................................... 62,815 314 613 927
Capital stock expense .................................... (4) (4)
Balance - December 31,
1994 32,442,752 162,214 275,627 53,482 491,323
Net income ............................................... 37,980 37,980
Dividends declared:
Common stock ........................................... (29,199) (29,199)
Preferred stock ........................................ (10,178) (10,178)
Cost for reacquired
preferred stock ....................................... 581 (581) --
Shareholders Rights
Plan redemption (Note 7) (324) (324)
Capital stock expense .................................... 403 403
Balance - December 31,
1995 32,442,752 $ 162,214 $ 276,287 $ 51,504 $ 490,005
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
Notes to Consolidated Financial Statements
Note 1: Summary of Significant Accounting Policies
General Description
Central Maine Power Company (the Company) is an investor-owned public
utility primarily engaged in the sale of electric energy at the wholesale and
retail levels to residential, commercial, industrial, and other classes of
customers in the State of Maine.
Financial Statements
The consolidated financial statements include the accounts of 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 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.
Regulation
The rates, operations, accounting, and certain other practices of the
Company and MEPCO are subject to the regulatory authority of the Maine Public
Utilities Commission (MPUC) and the Federal Energy Regulatory Commission (FERC).
Electric Operating Revenues
Electric operating revenues include amounts billed to customers and
estimates of unbilled sales and fuel costs. Through December 31, 1994, the
Company's approved tariffs provided for the recovery of the cost of fuel used in
Company generating facilities and purchased-power energy costs. The Company also
collected interest on unbilled fuel and paid interest on fuel-related
over-collections. Effective January 1, 1995, with the implementation of the
Alternative Rate Plan (ARP), these costs are no longer subject to reconciliation
through the annual fuel-cost adjustment. From March 1991 through November 1993,
the Company recorded unbilled revenues pursuant to the Electric Revenue
Adjustment Mechanism (ERAM) under an MPUC order. See Note 3, "Regulatory Matters
- - Alternative Rate Plan," for further information.
Depreciation
Depreciation of electric property is calculated using the straight-line
method. The weighted average composite rates were 3.0 percent in 1995 and 1994,
and 2.9 percent in 1993.
Allowance for Funds Used During Construction (AFC)
An allowance for funds (including equity funds), a non-operating item, is
capitalized as an element of the cost of construction. The debt component of AFC
is classified as a reduction of interest expense, while the equity component, a
non-cash item, is classified as other income. The average AFC rates applied to
construction were 8.4 percent in 1995, 8.9 percent in 1994, and 9.8 percent in
1993.
New Accounting Policy
A new accounting standard, Statement of Financial Accounting Standards No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of," is effective January 1996. The standard requires
impairment losses on long-lived assets to be recognized when an asset's book
value exceeds its expected future cash flows (undiscounted). The new standard
also imposes stricter criteria for retention of regulatory-created assets by
requiring that such assets be probable of future recovery at each balance sheet
date. The Company does not expect that adoption of this standard will have a
material effect on its financial position or results of operations. However,
this assumption may differ in the future as changes are made in the current
regulatory framework or as competitive factors influence wholesale and retail
pricing in the electric utility industry.
Deferred Charges and Other Assets
The Company defers and amortizes certain costs in a manner consistent with
authorized or probable ratemaking treatment. The Company capitalizes carrying
costs as a part of certain deferred charges, principally energy-management
costs, and classifies such carrying costs as other income. The following table
depicts the components of deferred charges and other assets at December 31,
1995, and 1994:
(Dollars in thousands) 1995 1994
NUG contract buy-outs and restructuring (Note 6) $126,485 $138,188
Energy-management costs 36,224 37,527
Financing costs 24,775 29,105
Environmental site clean-up costs (Note 4) 7,375 13,104
Postretirement benefits (Note 5) 21,849 16,455
Non-operating property, net 7,486 7,398
Electric Lifeline Program 3,603 4,839
Other, including MEPCO 32,266 29,981
Total $260,063 $276,597
Certain costs are being amortized and recovered in rates over periods
ranging from two to 30 years. Amortization expense for the next five years is
shown below:
(Dollars in thousands) Amount
1996 $24,383
1997 23,783
1998 23,159
1999 21,086
2000 20,006
Recoverable Costs of Seabrook I and Abandoned Projects
The recoverable after-tax investments in Seabrook I and abandoned projects
are reported as assets, pursuant to May 1985 and February 1991 MPUC rate orders.
The Company is allowed a current return on these assets based on its authorized
rate of return. In accordance with current ratemaking practices, the deferred
taxes related to these recoverable costs are being amortized over periods of
four to 10 years. As of December 31, 1995, all deferred taxes related to
Seabrook I have been amortized. The recoverable investments as of December 31,
1995, and 1994 are as follows:
December 31 Recovery
(Dollars in thousands) 1995 1994 periods ending
Recoverable costs of:
Seabrook 1 $141,084 $141,084 2015
Other projects 57,491 57,491 1995 to 2001
198,575 198,575
Less: accumulated amortization 102,248 94,439
Less: related income taxes 1,200 2,160
Total Net Recoverable Investment $ 95,127 $101,976
Note 2: Income Taxes
The components of federal and state income-tax provisions (benefits)
reflected in the Consolidated Statement of Earnings are as follow:
Year ended December 31
(Dollars in thousands) 1995 1994 1993
Federal:
Current $15,965 $(18,579) $13,456
Deferred 2,278 2,175 37,455
Investment tax credits, net (1,715) (2,512) (1,832)
Regulatory deferred (2,619) 8,379 (30,224)
Total Federal Taxes 13,909 (10,537) 18,855
State:
Current 3,777 (6,586) 3,549
Deferred 343 3,003 10,250
Regulatory deferred (1,997) (23) (10,065)
Total State Taxes 2,123 (3,606) 3,734
Total Federal and State Income Taxes $16,032 $(14,143) $22,589
Federal and state income taxes charged to:
Operating expenses $13,328 $ 28,300 $25,716
Other income 2,704 (42,443) (3,127)
$16,032 $(14,143) $22,589
Federal income tax, excluding federal regulatory deferred taxes, differs
from the amount of tax computed by multiplying income before federal tax by the
statutory federal rate. The following table reconciles the statutory federal
rate to a rate determined by dividing the total federal income-tax expense by
income before that expense:
<TABLE>
Year ended December 31
1995 1994 1993
Amount % Amount % Amount %
(Dollars in thousands)
Income tax expense at
<S> <C> <C> <C> <C> <C> <C>
statutory federal rate ......... $ 18,161 35.0% $(11,831) 35.0% $ 28,055 35.0%
Permanent differences:
Investment tax-credit
amortization ................... (1,613) (3.1) (1,613) 4.8 (1,613) (2.0)
Dividend-received
deduction ..................... (2,219) (4.3) (1,469) 4.3 (1,731) (2.2)
Other, net ...................... (217) (0.4) (68) 0.2 (634) (0.8)
14,112 27.2 (14,981) 44.3 24,077 30.0
Effect of timing
differences for which
deferred taxes are not
recorded (flow
through):
Tax-basis repairs ............... (891) (1.7) (924) 2.7 (1,175) (1.5)
Depreciation
differences flowed
through in prior years ........ 2,291 4.4 2,315 (6.8) 1,728 2.2
Accelerated flowback
of deferred taxes on
loss on abandoned
generating projects ......... 1,873 3.6 2,051 (6.1) (2,678) (3.3)
Deduction of removal
costs ......................... (189) (0.4) (163) 0.5 (392) (0.5)
Carrying costs, net ............. 253 0.5 429 (1.3) (523) (0.7)
Adjustment to tax
accrual for change in
rate treatment ............... -- -- 420 (1.2) 481 0.6
Excess property taxes
paid .......................... -- -- (116) 0.4 (912) (1.1)
Reduction for non-
regulated deferred
taxes previously
flowed through ............... -- -- -- -- (1,530) (1.9)
Provision for deferred
taxes relating to
normalization of
certain short-term
timing differences* ........... (2,545) (4.9) -- -- -- --
Other, net ...................... (995) (1.9) 432 (1.3) (221) (0.3)
Federal Income Tax
Expense and Effective
Rate .......................... $ 13,909 26.8% $(10,537) 31.2% $ 18,855 23.5%
</TABLE>
*During 1995, the Company adjusted the deferred tax balances for certain
normalized items (Note 3).
The Company and MEPCO record deferred income-tax expense in accordance with
regulatory authority; they also defer investment and energy tax credits and
amortize them over the estimated lives of the assets that generated the credits.
As of December 31, 1995, the Company had approximately $1.0 million of
investment, energy, and research-and-development credits available to reduce
future federal and state income taxes otherwise payable.
The Company recognizes deferred tax liabilities and assets for the expected
future tax consequences of events that have been included in the financial
statements or tax returns as required under Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes" (SFAS No. 109). Under this
method, effective January 1, 1993, deferred tax liabilities and assets are
determined based on the difference between the financial statement and tax basis
of assets and liabilities using the enacted tax rates in effect in the year in
which the differences are expected to reverse.
At-adoption adjustments to accumulated deferred taxes were required, as
well as the recognition of a liability to ratepayers for deferred taxes
established in excess of the amount calculated using income-tax rates applicable
to future periods. Additionally, deferred taxes were recorded for the cumulative
timing differences for which no deferred taxes had been recorded previously.
Concurrently, the Company, in accordance with Statement of Financial Accounting
Standards No. 71, "Accounting for the Effects of Certain Types of Regulation"
(SFAS No. 71), recorded a regulatory asset representing its expectations that,
consistent with current and expected ratemaking, it will collect these
additional taxes recorded through rates when they are paid in the future.
A valuation allowance has not been recorded at December 31, 1995, and 1994,
as the Company expects that all deferred income tax assets will be realized in
the future.
Accumulated deferred income taxes consisted of the following in 1995 and 1994:
(Dollars in thousands) 1995 1994
Deferred tax assets resulting from:
Investment tax credits, net $ 22,370 $ 23,491
Regulatory liabilities 13,882 15,629
Alternative minimum tax 23,850 24,175
All other 22,545 16,922
82,647 80,217
Deferred tax liabilities resulting from:
Property 273,565 263,060
Abandoned plant 65,573 70,294
Regulatory assets 96,577 97,310
435,715 430,664
Accumulated deferred income taxes, end of year, net $353,068 $350,447
Accumulated deferred income taxes, recorded as:
Accumulated deferred income taxes $351,868 $348,287
Recoverable costs of Seabrook 1 and abandoned projects, net 1,200 2,160
$353,068 $350,447
Note 3: Regulatory Matters
Alternative Rate Plan
In December 1994, the MPUC approved a stipulation signed by most of the
parties to the Company's ARP proceeding. This follow-up proceeding to the
Company's 1993 base-rate case was ordered by the MPUC in an effort to develop a
five-year plan containing price-cap, profit-sharing, and pricing-flexibility
components. Although the ARP is a major reform, the MPUC will continue to
regulate the Company's operations and prices, provide for continued recovery of
deferred costs, and specify a range for its authorized rate of return. The ARP
was adopted effective January 1, 1995.
The Company believes, as stated in the MPUC's order approving the ARP, that
operation under the ARP continues to meet the criteria of SFAS No. 71. In its
order, the MPUC reaffirmed the applicability of previous accounting orders
allowing the Company to reflect amounts as deferred charges and regulatory
assets. As a result, the Company will continue to apply the provisions of SFAS
No. 71 to its accounting transactions and its future financial statements.
The ARP contains a mechanism that provides price caps on the Company's
retail rates to increase annually on July 1, commencing July 1, 1995, by a
percentage combining (1) a price index, (2) a productivity offset, (3) a sharing
mechanism, and (4) flow-through items and mandated costs. The price cap applies
to all of the Company's retail rates, including the Company's fuel-and-purchased
power cost, which previously had been treated separately. Under the ARP, no
separate fuel-clause price adjustments will occur.
A specified standard inflation index will be the basis for each annual
price-cap change. The inflation index will be reduced by the sum of two
productivity factors, a general productivity offset of 1.0 percent, (0.5 percent
for 1995), and a second formula-based offset starting in 1996 intended to
reflect the limited effect of inflation on the Company's purchased-power costs
during the proposed five-year initial term of the ARP.
The sharing mechanism will adjust the subsequent year's July price-cap
change in the event the Company's earnings were outside a range of 350 basis
points above or below the Company's allowed return on equity, starting at the
current 10.55-percent allowed return and indexed annually for changes in capital
costs. Outside that range, profits and losses would be shared equally by the
Company and ratepayers in computing the price-cap adjustment. This feature will
commence with the price-cap change of July 1, 1996, and reflect 1995 results.
The ARP also provides for partial flow-through to ratepayers of cost
savings from non-utility generator contract buy-outs and restructuring, recovery
of energy-management costs, penalties for failure to attain customer-service and
energy-efficiency targets, and specific recovery of half the costs of the
transition to Statement of Financial Accounting Standards No. 106,"Accounting
for Postretirement Benefits Other Than Pensions" (SFAS No. 106), the remaining
50 percent to be recovered through the annual price-cap change. The ARP also
generally defines mandated costs that would be recoverable by the Company
notwithstanding the index-based price cap. To receive such treatment, a mandated
cost's revenue requirement must exceed $3 million and have a disproportionate
effect on the Company or the electric-power industry.
Effective July 1, 1995, the MPUC approved a 2.43-percent increase pursuant
to the annual price-change provision in the ARP. The primary component of the
increase is the inflation-index change of 2.92 percent, reduced by a
productivity offset of 0.5 percent, and increased by 0.01 percent for
flowthrough items and mandated costs.
The Company agreed in the ARP negotiations to record charges in 1994
reflecting the write-off of approximately $100 million ($60 million, net of tax,
or $1.85 per share), as follows:
(1) the undercollected balance of fuel and purchased-power costs as of
December 31, 1994, totaling approximately $59 million;
(2) the unrecovered deferred charges for energy-management costs for 1993
and 1994, which totaled approximately $15 million;
(3) the unrecovered balance of unbilled ERAM revenues as of December 31,
1994, totaling approximately $24 million; and
(4) the unrecovered deferred charges related to the possible extension of
the operating life of one of the Company's generating stations, which totaled
approximately $2.6 million as of December 31, 1994.
The $100-million charge is included in "Other income (expense) - Other,
net" on the Consolidated Statement of Earnings. The $40-million tax impact is
included in "Other income (expense) - Income taxes."
These charges, with the other provisions of the ARP, will lessen the impact
of future price increases for MPUC-mandated and fuel-related costs.
During 1995, the Company adjusted the prior regulatory treatment of certain
regulatory assets and deferred taxes. The net after-tax effect of the adjustment
was immaterial to financial results.
The Company believes the ARP provides the benefits of needed pricing
flexibility to set prices between defined floor and ceiling levels in three
service categories: (1) existing customer classes, (2) new customer classes for
optional targeted services, and (3) special-rate contracts. The Company believes
that the added flexibility will position it more favorably to meet the
competition from other energy sources that has eroded segments of its customer
base. See Note 4 to Consolidated Financial Statements, "Commitments and
Contingencies - Competition," for a discussion of actions under the ARP's
pricing flexibility provisions.
The ARP also contains provisions to protect the Company and ratepayers
against unforeseen adverse results from its operation. These provisions include
review by the MPUC if the Company's actual return on equity falls outside the
designated range, a mid-period review of the ARP by the MPUC in 1997 (including
possible modification or termination), and a "final" review by the MPUC in 1999
to determine whether or with what changes the ARP should continue in effect
after 1999.
Restructuring
The Maine Legislature in 1995 took action by Legislative Resolve (Resolve)
to develop recommendations for the MPUC on the future structure of the electric
utility industry in Maine. The process included appointment of a "Work Group on
Electric Utility Restructuring" (Work Group), which comprised diverse interests
and was charged with developing a plan for "the orderly transition to a
competitive market for retail purchases and sales of electric energy" and
examining related issues. The Work Group discussed restructuring issues, but was
unable to reach a consensus by its late 1995 reporting deadline.
The Resolve also directed the MPUC to develop at least two plans, starting
the process no later than January 1, 1996, and submitting its findings, to the
Legislature no later than January 1, 1997. One plan would be designed to achieve
"...full retail market competition for purchases and sales of electric energy by
the year 2000" and the other to achieve a more limited form of competition. The
Resolve further stated that the findings of the MPUC would have no legal effect,
but that the MPUC's study would "...provide information to the Legislature in
order to allow the Legislature to make informed decisions when it evaluates
those plans."
On December 12, 1995, pursuant to the Resolve, the MPUC issued a Notice of
Inquiry (Notice) initiating its study. In the Notice the MPUC solicited
"...detailed proposals and plans for achieving retail competition in Maine by
the year 2000," and requested that the proposals include "...specific plans
(including implementation timetables) for an orderly transition to a more
competitive market" The Notice required that interested parties file plans and
proposals with the MPUC by January 31, 1996, and outlined a schedule calling for
a final report by the MPUC to the Legislature in December 1996, with a draft
report issued for comments on July 19, 1996, after completion of discovery,
party conferences, and opportunities for public participation.
On January 31, 1996, the Company filed its restructuring proposal with the
MPUC, with initial comments on issues raised by the Resolve and the MPUC Notice.
The major elements of the Company's filed proposal are:
(1) The Company's generating assets, contracts and obligations would be
separated from its transmission and distribution assets and obligations by
distributing shares of the newly formed transmission-and-distribution company to
the Company's stockholders, assuming other aspects of its proposal were
accepted.
(2) Assuming certain necessary changes in the management and operation of
the regional transmission grid have been effected, retail customers would begin
to have the opportunity to purchase unbundled energy directly from suppliers,
marketers or load aggregators by the end of the year 2000, with a possible
phase-in to total open access to such energy over a period of years.
(3) Economic and resource-planning regulation of generation would cease,
with the FERC continuing to regulate transmission, and distribution remaining a
franchised monopoly. The entity providing distribution services would be subject
to performance-based regulation of its earnings, similar to the Company's
present ARP, and the current duty to serve all customers would be replaced by a
duty to connect customers to the retail generation market.
(4) Full recovery of strandable costs would be achieved through a
transition charge to all retail customers; generation-related strandable costs
would be recovered through a transition contract between the generation company
and the transmission-and-distribution company. Amounts recovered would include
the costs of fulfilling obligations under contracts with non-utility generators,
as well as investments (and returns thereon) and other obligations undertaken by
the Company's legal duty to serve, with incentives for the Company to mitigate
such costs where practicable.
The Company has substantial exposure to cost stranding relative to its
size. As of December 31, 1995, the Company estimates its strandable costs could
be approximately $2 billion. These costs represent the excess of the costs of
purchased-power obligations and the Company's own generating costs over the
market value of the power; and the costs of deferred charges and other
regulatory assets. Of the $2 billion, approximately $1.3 billion is related to
above-market costs of purchased-power obligations, approximately $200 million is
related to estimated net above-market cost of the Company's own generation, and
the remaining $500 million is related to deferred regulatory assets.
The estimated market rate for power is based on existing market conditions
and anticipated inflation. The present value of future purchased power
obligations and the Company's generating costs reflect the underlying costs of
those sources of generation in place today, with reductions for contract
expiration and depreciation. Deferred regulatory asset totals reflect current
uncollected balances and existing amortization schedules. The Company's
strandable-cost exposure is expected to decline over time as the market price of
power increases, non-utility generator (NUG) contracts expire, and regulatory
assets are recovered.
Estimated strandable costs are highly dependent on estimates of the future
market for power. Higher market rates lower stranded cost exposure, while lower
market rates increase it. In addition to market-related impacts, any estimate of
the ultimate level of strandable costs depends on state and federal regulations;
the extent, timing and form that competition for electric service will take; the
Company's sales and costs of operations; regional and national economic
conditions; timing of any changes that may occur from state and federal
initiatives on restructuring; and the extent to which regulatory policies
ultimately address recovery of strandable costs.
Major cost stranding would have a material adverse effect on the Company's
results of operations. The Company believes it is entitled to recover
substantially all of its strandable costs, but cannot predict when or if open
electric energy competition will occur in its service territory, or under
competition how much it might ultimately be allowed to recover through state or
federal regulation, the future market price of electricity, or the timing or
implementation of any formal recommendations in any regulatory or legislative
proceedings dealing with such issues.
The Company believes there are many uncertainties associated with any major
restructuring of the electric utility industry in Maine. Among them are: the
positions that will ultimately be taken by the MPUC on the Company's proposal
and other options and proposals submitted in response to the Notice; the role of
the FERC in any restructuring involving the Company and the ultimate positions
it will take on relevant issues within its jurisdiction; to what extent the
United States Congress will become involved in resolving or redefining the
issues through legislative action and, if so, with what results; whether the
necessary political consensus can be reached on the significant and complex
issues involved in changing the long-standing structure of the electric-utility
industry; and, particularly with respect to the Company, to what extent
utilities will be permitted to recover strandable costs.
Non-Utility Generators
In 1994, the Governor of Maine signed into law a bill allowing the Finance
Authority of Maine (FAME) to borrow up to $100 million to lend to electric
utilities for financing buy-outs or other restructuring of NUG contracts to save
money for customers. The law anticipated the State agency's bonds, which do not
pledge the full faith and credit of the state, would likely bear lower interest
rates than the bonds of the Company with its then down-graded credit rating.
On June 9, 1994, the Company announced that it had agreed to buy out a NUG
contract for a 32-megawatt wood-fired generating plant in Fort Fairfield, Maine.
The Company agreed to pay $76 million to buy out the contract and $2 million to
acquire the generating plant.
On August 5, 1994, the MPUC issued an order approving a stipulation entered
into by the Company with the Town of Fort Fairfield and other intervenors to the
Company's application for approval of the buy-out. In the stipulation, the
Company agreed to continue operation of the plant for a minimum of three years,
provided that certain plant-efficiency criteria can be met, while the Town
agreed to support the Company's efforts to obtain the necessary regulatory and
financing approvals.
In a series of orders, the MPUC approved the buy-out of the power-purchase
contract; acquisition of the facility by the Company's subsequently established
subsidiary, Aroostook Valley Electric Company (AVEC); recovery in rates of the
cost of the buy-out and operation of the plant; and an ultimate rate decrease of
$5.6 million reflecting purchased-power savings effective December 1, 1994.
In September 1994, FAME approved the Company's application for funds to
finance the buy-out. On October 26, 1994, FAME issued $79.3 million of Taxable
Electric Rate Stabilization Revenue Notes Series 1994A (FAME notes). FAME and
the Company entered into a loan agreement under which the Company issued FAME a
note for approximately $66.4 million, evidencing a loan in that amount. The
proceeds of the loan, along with $13 million of the Company's own funds, were
used to buy out the Fort Fairfield contract. Concurrently, the Company purchased
all of the common stock of AVEC for $2 million. On October 26, 1994, AVEC paid
the former owners of the Fort Fairfield facility $2 million and took title to
the facility. In connection with the FAME financing, AVEC granted FAME a
mortgage on the facility. The remaining $12.9 million of FAME-notes proceeds was
placed in a capital-reserve account. The amount in the capital-reserve account
is equal to the highest amount of principal and interest on the FAME notes to
accrue and come due in any year the FAME notes are outstanding. The amounts
invested in the capital reserve account are initially invested in government
securities designed to generate interest income at a rate equal to the interest
on the FAME notes. Under the terms of the loan agreement, the Company is also
responsible for or receives the benefit from the interest rate differential and
investment gains and losses on the capital reserve account.
Note 4: Commitments and Contingencies
Construction Program
The Company's plans for improving and expanding generating,
transmission-and-distribution facilities, and power-supply sources are under
continuing review. Actual construction expenditures will depend upon the
availability of capital and other resources, load forecasts, customer growth,
and general business conditions. The Company's current forecast of capital
expenditures for the five-year period 1996 through 2000, are as follows:
(Dollars in millions) 1996 1997-2000 Total
Type of Facilities:
Generating projects $13 $ 49 $ 62
Transmission 4 16 20
Distribution 30 132 162
General facilities and other 20 70 90
Total Estimated Capital
Expenditures $67 $267 $334
Competition
In September 1994, the Town of Madison's Department of Electric Works
(Madison), a wholesale customer of the Company, began receiving power from
Northeast Utilities (NU) as a result of a competitive bidding process available
under the federal Energy Policy Act of 1992. Substantially all of the 45
megawatts involved supply the large paper-making facility of Madison Paper
Industries (MPI) in Madison's service territory that had been served directly by
the Company under a special service agreement with Madison during the preceding
12 years.
The MPUC approved the stipulation filed by the Company, Madison, and NU,
whereby the related MPUC and FERC regulatory proceedings were deemed to be
settled among the parties, and the Company withdrew its request for compensation
for stranded costs. In return, NU agreed to pay the Company $8.4 million over a
seven-year period, MPI agreed to pay the Company $1.4 million over a three-year
period, a transmission rate was agreed upon for the Company's transmission
service to Madison commencing September 1, 1994, and the parties agreed that
Madison would be supplied by NU through 2003, with Madison having an option for
an additional five years. In addition, NU and the Company agreed to a five-year
capacity exchange arrangement designed to achieve significant replacement-power
cost savings for the Company when the Company's largest source of generation,
the Maine Yankee Plant, is off-line, and provides Maine Yankee power to NU when
certain NU facilities are shut down. The agreement provides more economic
benefit to the Company than if it had under-bid NU for Madison's business, but
less than if Madison stayed on the Company's system at the former rates. The
Company records income under this contract as the amounts are received.
Madison was the largest of the Company's three wholesale customers. The
Company has reached agreement with its other two wholesale customers to continue
to supply them at negotiated prices and margins that are lower than the previous
averages.
During 1994, the Company engaged in discussions with its large
general-service customers. Those customers have competitive options that the
Company believed needed to be addressed by lowering its applicable tariffs to
more competitive levels. In response to those discussions, in November 1994, the
Company filed revised tariff schedules lowering prices 15 percent for its two
high-voltage transmission-level rate classes.
The Company then entered into five-year definitive agreements with 18 of
these customers that lock-in non-cumulative rate reductions of 15 percent for
the three years 1995 through 1997, 16 percent for 1998, and 18 percent for 1999,
below the December 1, 1994, levels. These contracts also protect these customers
from price increases that might otherwise be allowed under the ARP.
The participating customers agreed to take electrical service from the
Company for five years and not to switch fuels, install new self-generation
equipment, or seek another supplier of electricity for existing electrical load
during that period. New electrical load in excess of a stated minimum level
could be served by other sources, but the Company could compete for that load.
The Company believes that without offering the competitive pricing provided
in the agreements, a number of these customers would be likely to install
additional self-generation or take other steps to decrease their electricity
purchases from the Company. The revenue loss from such a usage shift could have
been substantial.
The Company estimates that based on the rate reductions effective January
1, 1995, its gross revenues were approximately $27 million lower in 1995 than
would have been the case if these customers continued to pay full retail rates
without reducing their purchases from the Company.
However, there are important related savings. Electricity price changes
affect the cost of some NUG power contracts. The reduction in rates to large
customers reduced purchased-power costs by approximately $20 million as a result
of linkage between retail tariffs and some contract prices.
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.
In July 1994, the EPA approved changes to the remedy it had previously
selected, the principal change being to adjust the soil cleanup standard to 10
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
reduce PCBs and other chemical components on the site to the original standard.
In June 1995, after discussions between the Company and the EPA, design
work on the selected remedy was suspended. On July 7, 1995, the Company formally
requested that the EPA abandon that remedy for an already-designated alternative
remedy that the Company believes could result in substantially lower costs. On
October 10, 1995, the EPA approved the new remedy after determining that the old
remedy was no longer feasible or cost-effective at the site. The new remedy
involves transporting the contaminated soil to a secure off-site landfill.
The Company believes that its share of the remaining costs of the cleanup
under the new method could total approximately $3.5 million to $5 million. This
estimate is net of an agreed partial insurance recovery and the 1993
court-ordered contribution of 41 percent from Westinghouse Electric Corp., but
does not reflect any possible contributions from other insurance carriers the
Company has sued, or from any other parties. The Company has recorded an
estimated liability of $3.5 million and an equal regulatory asset, reflecting an
accounting order to defer such costs and the anticipated ratemaking recovery of
such costs when ultimately paid. In addition, the Company has deferred, as a
regulatory asset, $3.9 million of costs incurred through December 31, 1995.
The Company cannot predict with certainty the level and timing of the
cleanup costs, the extent they will be covered by insurance, or their ratemaking
treatment, but believes it should recover substantially all of such costs
through insurance and rates. The Company also believes that the ultimate
resolution of current legal and environmental proceedings will not have a
material adverse effect on its financial condition.
Nuclear Insurance
The Price-Anderson Act (Act) is a federal statute providing, among other
things, a limit on the maximum liability for damages resulting from a nuclear
incident. The liability is provided for by existing private insurance and by
retrospective assessments for costs in excess of that covered by insurance, up
to $79.3 million for each reactor owned, with a maximum assessment of $10
million per reactor in any year. Based on the Company's indirect ownership in
four nuclear-generation facilities (See Note 6, "Capacity Arrangements - Power
Agreements") and its 2.5-percent ownership interest in the Millstone 3 nuclear
plant, the Company's retrospective premium could be as high as $6 million in any
year, for a cumulative total of $47.6 million, exclusive of the effect of
inflation indexing and a 5-percent surcharge in the event that total public
liability claims from a nuclear incident should exceed the funds available to
pay such claims.
In addition to the insurance required by the Act, the nuclear generating
facilities referenced above carry additional nuclear property-damage insurance.
This additional insurance is provided from commercial sources and from the
nuclear electric-utility industry's insurance company through a combination of
current premiums and retrospective premium adjustments. Based on current
premiums and the Company's indirect and direct ownership in nuclear generating
facilities, this adjustment could range up to approximately $11.6 million
annually.
Note 5: Pension and Other Post-Employment Benefits
Pension Benefits
The Company has two separate non-contributory, defined-benefit plans that
cover substantially all of its union and non-union employees. The Company's
funding policy is to contribute amounts to the separate plans that are
sufficient to meet the funding requirements set forth in the Employee Retirement
Income Security Act (ERISA), plus such additional amounts as the Company may
determine to be appropriate. Plan benefits under the non-union retirement plan
are based on average final earnings, as defined within the plan, and length of
employee service; benefits under the union plan are based on average career
earnings and length of employee service.
During 1995, the Company offered a Special Retirement Offer (SRO) to
qualifying employees. Approximately 200 employees accepted the offer. The
$7-million cost of the SRO was included in pension expense. As part of the SRO,
the plans were amended to add five years to age and five years to credited
service for all plan participants for purposes of eligibility and early
retirement discounts. Early Retirement Incentive Program (ERIP) expenses for
1994 relate to a 1991 ERIP reflected in accordance with an MPUC accounting
order.
A summary of the components of net periodic pension cost for the non-union
and union defined-benefit plans in 1995, 1994, and 1993 follows:
(Dollars in Non- Non- Non-
thousands) union Union union Union union Union
Service cost -
benefits earned
during the period $ 2,014 $ 1,414 $ 2,367 $ 1,684 $ 2,092 $ 1,436
Interest cost on
projected benefit
obligation 5,653 3,889 5,469 3,816 5,355 3,691
Return on plan
assets (16,135) (9,786) 2,336 1,397 (9,669) (6,051)
Net amortization
and deferral 10,030 6,028 (8,174) (5,311) 4,419 2,457
Early Retirement
Incentive Programs 3,859 3,141 992 1,457 - -
Net Periodic
Pension Cost $ 5,421 $ 4,686 $ 2,990 $ 3,043 $ 2,197 $ 1,533
Assumptions used in accounting for the non-union and union defined-benefit
plans in 1995, 1994, and 1993 are as follows:
1995 1994 1993
Weighted average discount rate 7.25% 8.25% 7.5%
Rate of increase in future compensation
levels 4.5% 5.0% 5.0%
Expected long-term return on assets 8.5% 8.5% 8.5%
The following table sets forth the actuarial present value of
pension-benefit obligations, the funded status of the plans, and the liabilities
recognized on the Company's balance sheet at December 31, 1995, and 1994:
<TABLE>
1995 1994
(Dollars in thousands)
Non-union Union Non-union Union
Actuarial present value of benefit
obligations:
<S> <C> <C> <C> <C>
Vested benefit obligation .................. $ 64,916 $ 47,948 $ 51,657 $ 39,235
Accumulated benefit obligation ............. $ 64,916 $ 47,948 $ 55,346 $ 42,247
Projected benefit obligation ............... $ 77,939 $ 53,735 $ 68,578 $ 47,816
Plan assets at estimated market
value (primarily stocks, bonds, and
guaranteed annuity contracts) ............ 73,973 45,061 74,905 46,067
Funded status - projected benefit obligation
in excess of or (less than) plan assets .. 3,966 8,674 (6,327) 1,749
Unrecognized prior service cost ............ (1,940) (1,610) (1,294) (1,009)
Unrecognized net gain ...................... 11,309 2,530 15,564 5,690
Unrecognized (net obligation) net asset .... (192) 1,945 (221) 2,655
Net Pension Liability Recognized in the
Balance Sheet ............................ $ 13,143 $ 11,539 $ 7,722 $ 9,085
</TABLE>
Savings Plan
The Company offers an employee savings plan to all employees which allows
participants to invest from 1 percent to 15 percent of their salaries among
several alternatives. An employer contribution equal to 60 percent of the first
5 percent of the employees' contributions is initially invested in Company
common stock. The Company's contributions to the savings-plan trust were $1.6
million in 1995, $1.8 million in 1994, and $1.9 million in 1993.
Other Post-Employment Benefits
In addition to pension and savings-plan benefits, the Company provides
certain health-care and life-insurance benefits for substantially all of its
retired employees.
The MPUC approved a rulemaking on SFAS No. 106, effective July 20, 1993,
that adopts the accrual method of accounting for the expected cost of such
benefits during the employees' years of service, and authorizes the
establishment of a regulatory asset for the deferral of such costs until they
are "phased-in" for ratemaking purposes. The effect of the change can be
reflected in annual expenses over the active service life of employees or a
period of 20 years, rather than in the year of adoption.
The MPUC prescribes the maximum amortization period of the average
remaining service life of active employees or 20 years, whichever is longer, for
the transition obligation. Segregation in an external fund will be required for
amounts collected in rates. A formal funding plan is being developed. Until
amounts are funded, no return on assets will be reflected in postretirement
benefit cost.
As a result of the MPUC order, the Company continued to record the cost of
these benefits by charging expense in the period paid ($6.7 million in 1995,
$5.5 million in 1994, and $6.5 million in 1993), with the excess over that
amount of $6.2 million in 1995, $7.1 million in 1994 and $8.6 million in 1993,
deferred for future recovery. Concurrent with the initial ARP price change, the
Company began to phase in the cost of SFAS No. 106 over a three-year period, $3
million for the first year beginning July 1, 1995. The amounts deferred until
that point are being amortized over the same period as the transition
obligation. A summary of the components of net periodic postretirement benefit
cost for the plan in 1995, 1994 and 1993 follows:
(Dollars in thousands) 1995 1994 1993
Service cost $ 846 $ 1,472 $ 1,429
Interest on accumulated postretirement benefit
obligation 7,389 6,712 8,352
Special retirement offer 200 - -
Amortization of transition obligation 4,606 4,606 5,306
Amortization of prior service cost 42 - -
Amortization of gain (188) (171) -
Postretirement benefits expense 12,895 12,619 15,087
Deferred postretirement benefits expense 6,204 7,108 8,612
Postretirement Benefit Expense Recognized in the
Statement of Earnings $ 6,691 $ 5,511 $ 6,475
The following table sets forth the accumulated postretirement benefit
obligation, the funded status of the plan, and the liability recognized on the
Company's balance sheet at December 31, 1995 and 1994:
(Dollars in thousands) 1995 1994
Accumulated postretirement benefit obligation:
Retirees $ 87,632 $ 62,911
Fully eligible active plan participants 4,791 6,919
Other active plan participants 15,069 17,785
Total accumulated postretirement benefit obligation 107,492 87,615
Plan assets, at fair value 879 754
Accumulated postretirement benefits obligation in excess
of plan assets 106,613 86,861
Unrecognized net gain (loss) (2,511) 13,022
Unrecognized prior service cost (1,131) -
Unrecognized transition obligation (78,303) (82,909)
Accrued Postretirement Benefit Cost Recognized in the
Balance Sheet $ 24,668 $ 16,974
The assumed health-care cost-trend rates range from 6.4 percent to 9.3
percent for 1995, reducing to 5.0 percent overall over a period of 10 years.
Rates range from 6.8 percent to 10.4 percent for 1994, reducing to 5.0 percent
overall, over a period of 10 years. Rates for 1993 range from 10.2 percent to
16.1 percent, reducing to 4.5 percent overall, over a period of eight years. The
effect of a one-percentage-point increase in the assumed health-care cost-trend
rate for each future year would increase the aggregate of the service and
interest-cost components of the net periodic postretirement benefit cost by $0.8
million and the accumulated postretirement benefit obligation by $8.8 million.
Additional assumptions used in accounting for the postretirement benefit plan in
1995, 1994 and 1993 are as follows:
1995 1994 1993
Weighted-average discount rate 7.25% 8.25% 7.5%
Rate of increase in future compensation levels 4.50% 5.0% 5.5%
The Company is exploring alternatives for mitigating the cost of
postretirement benefits and for funding its obligations. These alternatives
include mechanisms to fund the obligation prior to actual payment of benefits,
plan-design changes to limit future expense increases, and additional
cost-control and cost-sharing programs.
Note 6: Capacity Arrangements
Power Agreements
The Company, through certain equity interests, owns a portion of the
generating capacity and energy production of four nuclear generating facilities
(the Yankee companies) and is obligated to pay its proportionate share of the
generating costs, which include depreciation, operation-and-maintenance
expenses, a return on invested capital, and the estimated cost of
decommissioning the nuclear plants at the end of their estimated service lives.
Pertinent data related to these power agreements as of December 31, 1995,
are as follows:
(Dollars in thousands) Maine Vermont Connecticut Yankee
Yankee Yankee Yankee Atomic*
Ownership share 38% 4% 6% 9.5%
Contract expiration date 2008 2012 1998 2000
Capacity (MW) 880 531 583 -
Company's share of: Capacity
(MW) 330 19 35 -
Estimated 1995 costs $ 72,467 $ 6,480 $12,688 $ 4,022
Long-term obligations and
redeemable preferred stock $ 95,020 $ 6,594 $10,958 $ -
Estimated decommissioning
obligation $118,586 $12,475 $23,130 $21,396
Accumulated
decommissioning fund $ 53,231 $ 4,833 $10,716 $10,598
* See following for discussion on Yankee Atomic.
Under the terms of its agreements, the Company pays its ownership share (or
entitlement share) of estimated decommissioning expense to each of the Yankee
companies and records such payments as a cost of purchased power. Effective
August 16, 1988, Maine Yankee Atomic Power Company (Maine Yankee) began
collecting $9.1 million annually for decommissioning. In 1994, Maine Yankee,
pursuant to FERC authorization, increased its annual collection to $14.9 million
and reduced its return on common equity to 10.65 percent, for a total increase
in rates of approximately $3.4 million. The increase in decommissioning
collection is based on the estimated cost of decommissioning the Maine Yankee
Plant, assuming dismantling and removal, of $317 million (in 1993 dollars) based
on a 1993 external engineering study. Accumulated decommissioning funds were
$142.1 million as of December 31, 1995. The estimated cost of decommissioning
nuclear plants is subject to change due to the evolving technology of
decommissioning and the possibility of new legal requirements.
The Maine Yankee Plant, like other pressurized water reactors, experienced
degradation of its steam generator tubes, principally in the form of
circumferential cracking, which, until early 1995, was believed to be limited to
a relatively small number of tubes. During the refueling-and-maintenance
shutdown that commenced in early February 1995, Maine Yankee detected through
new inspection methods increased degradation of the Plant's steam generator
tubes. Approximately 60 percent of the Plant's 17,000 steam generator tubes
appeared to have defects to some degree. Mitigating the problem by plugging
additional tubes was therefore not a viable option.
Following a detailed analysis of safety, technical, and financial
considerations, Maine Yankee repaired the tubes by inserting and welding short
reinforcing sleeves of an improved material in substantially all of the Plant's
steam generator tubes; this was completed in December 1995. The project caused
Maine Yankee to incur additional costs during 1995, with the Company being
responsible for its pro-rata share. The Company has also incurred substantial
incremental costs for replacement power.
The Company's share of the repair costs of approximately $10 million was
less than the $15-million estimate recorded during the second quarter of 1995,
resulting in a reversal of approximately $5 million of Purchased power-capacity
expense in the fourth quarter of 1995. The earnings impact was $0.18 per share,
net of taxes. Both the Company and Maine Yankee implemented significant
cost-reduction measures to partially offset the additional costs. In addition to
its share of costs related to the steam-generator repairs, the Company's
incremental replacement-power costs during the outage totaled approximately $29
million or $0.52 per share, net of taxes, for the twelve months ended December
31, 1995.
With the effective termination of the reconcilable fuel-and-purchased-power
adjustment under the ARP, costs of replacement power during a Maine Yankee
outage are being treated like other Company expenses, i.e., subject to the ARP's
price-index mechanism, and are not being deferred and collected through a
specific fuel-rate adjustment, as under pre-1995 ratemaking. Under the ARP, no
additional price increase other than the 2.43-percent increase effective July 1,
1995, associated with the price index, could take effect in 1995 as a result of
the Maine Yankee outage. Although the ARP contains provisions that could result
in rate adjustments based on low earnings or the incurring of extraordinary
costs by the Company, neither provision affected the Company's prices in 1995.
On January 11, 1996, Maine Yankee began start-up operations and was up to
90-percent generation levels by January 24, 1996. However, the Plant's
operations are under review by the Nuclear Regulatory Commission (NRC). Until
the NRC completes its investigation, the Plant will operate at approximately 90
percent of its generating capacity. As a result, the Company will continue to
incur additional replacement-power costs for the 10 percent of its share of
Maine Yankee energy it will not receive until the Plant returns to 100-percent
generation levels.
Condensed financial information on Maine Yankee Atomic Power Company is as
follows:
(Dollars in thousands) 1995 1994 1993
Earnings:
Operating revenues $205,977 $173,857 $193,102
Operating income 18,527 16,223 16,580
Net income 8,571 8,573 8,980
Earnings applicable to common stock 7,057 7,014 7,376
Company's Equity Share of Net
Earnings $ 2,682 $ 2,665 $ 2,803
Investment:
Net electric property and nuclear fuel $242,399 $254,820 $261,674
Current assets 34,799 38,950 36,018
Deferred charges and other assets 303,760 256,140 237,125
Total Assets 580,958 549,910 534,817
Less:
Redeemable preferred stock 18,600 19,200 19,800
Long-term obligations 224,185 226,491 218,839
Current liabilities 30,904 29,210 27,887
Reserves and deferred credits 236,653 208,100 201,222
Net Assets $ 70,616 $ 66,909 $ 67,069
Company's Equity in Net Assets $ 26,834 $ 25,425 $ 25,486
On February 26, 1992, the Board of Directors of Yankee Atomic Electric
Company (Yankee Atomic) decided to permanently discontinue power operation at
the Yankee Atomic Plant in Rowe, Massachusetts, and to decommission that
facility.
The Company relied on Yankee Atomic for less than 1 percent of the
Company's system capacity. Its 9.5-percent equity investment in Yankee Atomic is
approximately $2.2 million.
On March 18, 1993, the FERC approved a settlement agreement regarding the
decommissioning plan, recovery of plant investment, and all issues with respect
to prudence of the decision to discontinue operation. The Company has estimated
its remaining share of the cost of Yankee Atomic's continued compliance with
regulatory requirements, recovery of its plant investments, decommissioning and
closing the plant, to be approximately $21.4 million. This estimate, which is
subject to ongoing review and revision, has been recorded by the Company as a
regulatory asset and a liability on the accompanying consolidated balance sheet.
As part of the MPUC's decision in the Company's 1993 base-rate case, the
Company's current share of costs related to the deactivation of Yankee Atomic is
being recovered through rates.
The Company has approximately a 60-percent ownership interest in the
jointly owned, Company-operated, 619-megawatt oil-fired W. F. Wyman Unit No. 4.
The Company also has a 2.5-percent ownership interest in the Millstone 3 nuclear
plant operated by Northeast Utilities, and receives power from its approximately
29-megawatt share of that unit's capacity. The Company's share of the operating
costs of these units is included in the appropriate expense categories in the
Consolidated Statement of Earnings. The Company's plant in service, nuclear
fuel, decommissioning fund, and related accumulated depreciation and
amortization attributable to these units as of December 31, 1995, and 1994 were
as follows:
Wyman 4 Millstone 3
(Dollars in thousands) 1995 1994 1995 1994
Plant in service, nuclear fuel and
decommissioning fund $116,447 $116,363 $112,033 $109,640
Accumulated depreciation and
amortization 59,832 56,605 36,411 32,594
Power-Pool Agreements
The New England Power Pool, of which the Company is a member, has
contracted in its Hydro-Quebec Projects to purchase power from Hydro-Quebec. The
contracts entitle the Company to 85.9 megawatts of capacity credit in the winter
and 127.25 megawatts of capacity credit during the summer. The Company has
entered into facilities-support agreements for its share of the related
transmission facilities. The Company's share of the support responsibility and
of associated benefits is approximately 7 percent.
The Company is making facilities-support payments on approximately $30.6
million, its remaining share of the construction cost for these transmission
facilities incurred through December 31, 1995. These obligations are reflected
on the Company's consolidated balance sheet as lease obligations with a
corresponding charge to electric property.
Non-Utility Generators
The Company has entered into a number of long-term, non-cancelable
contracts for the purchase of capacity and energy from non-utility generators.
The agreements generally have terms of five to 30 years, with expiration dates
ranging from 1997 to 2021. They require the Company to purchase the energy at
specified prices per kilowatt-hour. As of December 31, 1995, facilities having
538 megawatts of capacity covered by these contracts were in-service. The costs
of purchases under all of these contracts amounted to $314.4 million in 1995,
$373.5 million in 1994, and $360.7 million in 1993.
During 1995, the Company reached agreement with three NUGs to buy-out
contracts or to give the Company options to restructure their contracts through
lump-sum or periodic payments. In accordance with prior MPUC policy and the ARP,
$125 million of buy-out or restructuring costs incurred since January 1992 were
included in Deferred Charges and Other Assets on the Company's balance sheet and
are amortized over their respective fuel savings periods.
The Company's estimated contractual obligations with NUGs as of December
31, 1995, are as follows:
(Dollars in Amount
millions)
1996 $ 319
1997 317
1998 274
1999 291
2000 295
Thereafter 3,151
Note 7: Capitalization and Interim Financing
Retained Earnings
Under terms of the most restrictive test in the Company's General and
Refunding Mortgage Indenture and the Company's Articles of Incorporation, no
dividend may be paid on the common stock of the Company if such dividend would
reduce retained earnings below $29.6 million. At December 31, 1995, the
Company's retained earnings were $51.5 million, of which $21.9 million were not
so restricted.
Mortgage Bonds
Substantially all of the Company's electric-utility property and franchises
are subject to the lien of the General and Refunding Mortgage.
The Company's outstanding Mortgage Bonds may be redeemed at established
prices plus accrued interest to the date of redemption, subject to certain
refunding limitations. Bonds may also be redeemed under certain conditions at
their principal amount plus accrued interest by means of cash deposited with the
trustee under certain provisions of the mortgage indenture. As of December 31,
1995, approximately $30 million was on deposit with the trustee.
Mortgage Bonds outstanding as of December 31, 1995, and 1994 were as follows:
(Dollars in thousands)
Series Redeemed/maturity Interest 1995 1994
rate
Central Maine Power Company
General and Refunding Mortgage Bonds:
U 1998-April 15 7.54%* $ 25,000 $ 25,000
S 1998-August 15 6.03 60,000 60,000
T 1998-November 1 6.25 75,000 75,000
O 1999-January 1 7 3/8 50,000 50,000
P 2000-January 15 7.66 75,000 75,000
N 2001-September 15 8.50 22,500 22,500
Q 2008-March 1 7.05 75,000 75,000
R 2023-June 1 7 7/8 50,000 50,000
Total Mortgage Bonds $432,500 $432,500
*Adjustable, no adjustment during 1995 and 1994.
Limitations on Unsecured Indebtedness
The Company's Articles of Incorporation limit certain unsecured
indebtedness that may be outstanding to 20 percent of capitalization, as
defined; 20 percent of defined capitalization amounted to $221 million as of
December 31, 1995. Unsecured indebtedness, as defined, amounted to $95 million
as of December 31, 1995.
In May 1989, holders of the Company's preferred stock consented to the
issuance of unsecured Medium-Term Notes in an aggregate principal amount of $150
million outstanding at any one time; the notes are therefore not subject to such
limitations.
Medium-Term Notes
Under the terms of the Company's Medium-Term Note program, the Company may
offer Medium-Term Notes up to an aggregate principal amount of $150 million.
Maturities can range from nine months to 30 years; interest rates pertaining to
such notes are established at the time of issuance. Interest on fixed-rate notes
is payable on March 1 and September 1, while interest on floating-rate notes is
payable on the dates indicated thereupon.
Medium-Term Notes outstanding as of December 31, 1995, and 1994 were as follows:
(Dollars in thousands)
Maturity Interest rate 1995 1994
Series A:
1996-2000 9.35%-9.65% $ 5,000 $ 15,000
Total Series A 5,000 15,000
Series B:
1994-1995 4.62-6.50* - 63,000
1996-2000 4.92-7.98 57,000 57,000
Total Series B 57,000 120,000
Series C:
1997-1999 7.40-7.50 30,000 -
Total Series C 30,000 -
Total Medium-Term Notes 92,000 135,000
Less: Amounts classified as short-term
obligations - 8,000
Amounts Classified as Long-Term Obligations $92,000 $127,000
* Includes $10 million of variable-rate notes, with an average interest
rate of 4.62%, and $8 million of variable-rate notes, with an average interest
rate of 6.35%.
Pollution-Control Facility and Other Notes
Pollution-control facility and other notes outstanding as of December 31,
1995, and 1994 were as follows:
(Dollars in thousands)
Series Interest rate Maturity 1995 1994
Central Maine Power
Company:
Yarmouth Installment Notes 6 3/4% June 1, 2002 $10,250 $10,250
Yarmouth Installment Notes 6 3/4 December 1, 2003 1,000 1,000
Industrial Development
Authority of the State of 7 3/8 May 1, 2014 11,000 11,000
New Hampshire Notes 7 3/8 May 1, 2014 8,500 8,500
Finance Authority of Maine 8.16 January 1, 2005 66,429 66,429
Maine Electric Power
Company, Inc.:
Promissory Notes Variable* July 1, 1996 1,730 2,590
Total Pollution-Control
Facility and Other Notes $98,909 $99,769
*The average rate was 6.7% in 1995 and 4.9% in 1994.
The bonds issued by the Industrial Development Authority of the State of
New Hampshire are supported by loan agreements between the Company and the
Authority. The bonds are subject to redemption at the option of the Company at
their principal amount plus accrued interest and premium, beginning in 2001.
Capital Lease Obligations
The Company leases a portion of its buildings and equipment under lease
arrangements, and accounts for certain transmission agreements as capital leases
using periods expiring between 2006 and 2021. The net book value of property
under capital leases was $35.1 million and $36.2 million at December 31, 1995,
and 1994, respectively. Assets acquired under capital leases are recorded as
electric property at the lower of fair-market value or the present value of
future lease payments, in accordance with practices allowed by the MPUC, and are
amortized over their contract terms. The related obligation is classified as
other long-term debt. Under the terms of the lease agreements, executory costs
are excluded from the minimum lease payments.
Estimated future minimum lease payments for the five years ending December
31, 2000, together with the present value of the minimum lease payments, are as
follows:
(Dollars in thousands) Amount
1996 $ 5,807
1997 5,635
1998 5,463
1999 5,291
2000 5,119
Thereafter 61,537
Total minimum lease payments 88,852
Less: amounts representing interest 50,740
Present Value of Net Minimum Lease $38,112
Payments
Sinking-Fund Requirements
Consolidated sinking-fund requirements for long-term obligations, including
capital lease payments and maturing debt issues, for the five years ending
December 31, 2000, are as follows:
(Dollars in thousands)
Sinking fund Maturing debt
Total
1996 $ 3,455 $ 34,000 $ 37,455
1997 8,477 25,000 33,477
1998 9,014 178,000 187,014
1999 9,657 60,000 69,657
2000 10,301 80,000 90,301
Operating Lease Obligations
The Company has a number of operating-lease agreements primarily involving
computer and other office equipment, land, and telecommunication equipment.
These leases are noncancelable and expire on various dates through 2007.
Following is a schedule by year of future minimum rental payments required
under the operating leases that have initial or remaining noncancelable lease
terms in excess of one year as of December 31, 1995:
(Dollars in thousands) Amount
1996 $4,364
1997 4,112
1998 3,922
1999 3,352
2000 3,190
Thereafter 2,352
Rent expense under all operating leases was approximately $5,684, $7,343,
and $5,934 for the years ended December 31, 1995, 1994 and 1993, respectively.
Disclosure of Fair Value of Financial Instruments
The methods and assumptions used to estimate the fair value of each class
of financial instruments for which it is practicable are discussed below. The
carrying amounts of cash and temporary investments approximate fair value
because of the short maturity of these investments. The fair value of redeemable
preferred stock and pollution-control facility and other notes is based on
quoted market prices as of December 31, 1995. The fair value of long-term
obligations is based on quoted market prices for the same or similar issues, or
on the current rates offered to the Company based on the weighted average life
of each class of instruments.
The estimated fair values of the Company's financial instruments as of
December 31, 1995, and 1994 are as follows:
1995 1994
(Dollars in thousands) Carrying Fair value Carrying Fair value
amount amount
Cash and temporary investments $ 57,677 $ 57,677 $ 58,112 $ 58,112
Redeemable preferred stock 74,528 75,117 80,000 79,476
Mortgage bonds 432,500 435,311 432,500 374,286
Medium-term notes 92,000 92,156 135,000 130,788
Pollution-control facility and other
notes 98,909 99,694 99,769 90,873
Rights Plan
On September 28, 1994, the Board of Directors of the Company adopted a
shareholder-rights plan and declared a dividend of one common-share purchase
right (a right) for each outstanding share of the common stock, par value $5.00
per share, of the Company. The dividend was distributed to the shareholders of
record as of the close of business on October 17, 1994.
On May 24, 1995, the shareholders of the Company voted to approve a
shareholder proposal at the Company's annual meeting of shareholders
recommending redemption of the rights and termination of the Shareholder Rights
Plan.
On July 19, 1995, the Board of Directors of the Company terminated,
effective immediately, the right to exercise the rights issued to its
shareholders pursuant to the Shareholder Rights Plan and ordered the redemption
of the rights. The Board directed payment of the redemption price of $.01 per
right on August 28, 1995, to holders of record at the close of business on
August 14, 1995. This one-time payment amounted to $324,428.
Preferred Stock
Preferred-stock balances outstanding as of December 31, 1995, 1994, and
1993 were as follows:
(Dollars in thousands, except per-share Current shares
amounts) outstanding 1995 1994 1993
Preferred Stock - Not Subject to
Mandatory Redemption:
$25 par value - authorized 2,000,000
shares; outstanding: None $ - $ - $ -
$100 par value noncallable -authorized
5,713 shares; outstanding 6% voting 5,713 571 571 571
$100 par value callable - authorized
2,300,000* shares; outstanding:
3.50% series (redeemable at $101) 220,000 22,000 22,000 22,000
4.60% series (redeemable at $101) 30,000 3,000 3,000 3,000
4.75% series (redeemable at $101) 50,000 5,000 5,000 5,000
5.25% series (redeemable at $102) 50,000 5,000 5,000 5,000
7 7/8% series (optional redemption after
9/1/97, at $100) 300,000 30,000 30,000 30,000
Preferred Stock - Not Subject to Mandatory
Redemption $65,571 $65,571 $65,571
Redeemable Preferred Stock - Subject to
Mandatory Redemption:
$100 par value callable - authorized
2,300,000*shares; outstanding: None $ - $ - $ -
Flexible Money Market Preferred Stock,
Series A - 7.999% (redeemable at $100)
(450,000 shares in 1994 and 1993) 395,275 39,528 45,000 45,000
8 7/8% series (redeemable at $103.944) 350,000 35,000 35,000 35,000
Redeemable Preferred Stock - Subject to
Mandatory Redemption $74,528 $80,000 $80,000
*Total authorized $100 par value callable is 2,300,000 shares. Shares
outstanding are classified as Not Subject to Mandatory Redemption and Subject to
Mandatory Redemption.
Sinking-fund provisions for the 8 7/8% Series Preferred Stock require the
Company to redeem all shares at par plus an amount equal to dividends accrued to
the redemption date on the basis of 70,000 shares annually beginning in July
1996. The Company also has the non-cumulative right to redeem up to an equal
amount of the respective number of shares annually, beginning in 1996, at par
plus an amount equal to dividends accrued to the redemption date. The
sinking-fund requirement for the five-year period ending December 31, 2000, is
$7.0 million annually beginning in 1996.
Sinking-fund provisions for the Flexible Money Market Preferred Stock,
Series A, 7.999%, require the Company to redeem all shares at par plus an amount
equal to dividends accrued to the redemption date on the basis of 90,000 shares
annually beginning in October 1999. The Company also has the non-cumulative
right to redeem up to an equal number of shares annually beginning in 1999, at
par plus an amount equal to dividends accrued to the redemption date. In 1995,
the Company purchased 54,725 shares on the open market that may be used to
reduce the sinking-fund requirement in 1999.
Interim Financing and Credit Agreements
The Company uses funds obtained from short-term borrowing, primarily
through issuance of commercial paper backed by lines of credit with commercial
banks, and its revolving-credit agreements to provide initial financing for
construction and other corporate purposes.
At December 31, 1995, the Company had a total of $130 million in unsecured
committed bank lines with commercial banks for the purpose of providing
short-term borrowing capacity to back commercial paper issuance and to finance
general corporate needs.
On November 6, 1995, the Company extended its $80-million unsecured
Competitive Advance and Revolving Credit Facility with several banks and
Chemical Bank, as agent for the lenders, to October 15, 1996. The Company's
other $50-million revolving credit facility with several banks also has an
expiration date of October 15, 1996. Both credit facilities have annual fees on
unused portion of the credit lines of 3/8 of 1 percent and allow for various
borrowing options including LIBOR-priced, ABR-priced and competitive-bid priced
loans. Under the terms of these agreements, the Company had no borrowings at
December 31, 1995, and 1994.
As of December 31, 1995, MEPCO had a line of credit totaling $2.0 million
with a commercial bank to provide for its working-capital needs. This line of
credit is subject to annual review and renewal. Annual fees for this line of
credit is 1/4 of 1 percent. At December 31, 1995, and 1994, there was no
short-term borrowing outstanding under the MEPCO credit line.
Note 8: Quarterly Financial Data (Unaudited)
Quarterly revenue variability increased after January 1, 1995, when the ARP
replaced MPUC rules prescribing different revenue allocations for energy sold in
winter versus non-winter months. Twelve-month results are unaffected by this
reporting change. Quarterly financial data for 1994 and 1993 reflect the
seasonality of electric sales and higher rates and lower contribution to
earnings per kilowatt-hour during peak-consumption periods.
Unaudited, consolidated quarterly financial data pertaining to the results
of operations are shown below.
(Dollars in thousands, except per- Quarter ended
share amounts)
March 31 June 30 September 30 December 31
1995
Electric operating revenues $263,312 $202,584 $217,872 $232,248
Operating income 39,361 4,052 22,169 20,277
Net income (loss) 26,376 (8,619) 10,400 9,823
Earnings (loss) per common
share* .73 (.34) .24 .23
1994
Electric operating revenues $241,026 $212,336 $233,543 $217,978
Operating income 26,233 26,609 25,652 11,742
Net income (loss) 11,416 15,307 14,083 (64,071)
Earnings (loss) per common
share* .27 .39 .35 (2.06)
1993
Electric operating revenues $236,021 $198,953 $227,383 $231,220
Operating income 33,298 24,227 21,623 26,382
Net income 21,573 13,702 13,561 12,466
Earnings per common share* .62 .37 .36 .31
*Earnings per share are computed using the weighted-average number of
common shares outstanding during the applicable quarter.
<PAGE>
Report of Management
The Management of Central Maine Power Company and its subsidiary is
responsible for the consolidated financial statements and the related financial
information appearing in this annual report. The financial statements are
prepared in conformity with generally accepted accounting principles and include
amounts based on informed estimates and judgments of management. The financial
information included elsewhere in this report is consistent, where applicable,
with the financial statements.
The Company maintains a system of internal accounting controls that is
designed to provide reasonable assurance that the Company's assets are
safeguarded, transactions are executed in accordance with management's
authorization, and the financial records are reliable for preparing the
financial statements. While no system of internal accounting controls can
prevent the occurrence of errors or irregularities with absolute assurance,
management's objective is to maintain a system of internal accounting controls
that meets its goals in a cost-effective manner.
The Company has policies and procedures in place to support and document
the internal accounting controls that are revised on a continuing basis.
Internal auditors conduct reviews, provide ongoing assessments of the
effectiveness of selective internal controls, and report their findings and
recommendations for improvement to management.
The Board of Directors has established an Audit Committee, composed
entirely of outside directors, which oversees the Company's financial reporting
process on behalf of the Board of Directors. The Audit Committee meets
periodically with management, internal auditors, and the independent public
accountants to review accounting, auditing, internal accounting controls, and
financial reporting matters. The internal auditors and the independent public
accountants have full and free access to meet with the Audit Committee, with or
without management present, to discuss auditing or financial reporting matters.
Coopers & Lybrand L.L.P., independent public accountants, has been retained
to audit the Company's consolidated financial statements. The accompanying
report of independent public accountants is based on their audit, conducted in
accordance with generally accepted auditing standards, including a review of
selected internal accounting controls and tests of accounting procedures and
records.
David T. Flanagan David E. Marsh
President and Chief Executive Officer Vice President, Corporate Services,
Treasurer and Chief Financial Officer
Exhibit 23-1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation
of our reports included and incorporated by reference in this Form 10-K, into
the Company's previously filed Registration Statements File No. 33-36679, File
No. 33-39826, File No. 33-44754, File No. 33-56939 and File No. 33-51611.
Arthur Andersen LLP
Boston, Massachusetts
March 29, 1996
F-5
Exhibit 23-2
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statements
of Central Maine Power Company on Forms S-3 (File Nos. 33-56939, 33-36679,
33-39826, 33-44754, and 33-51611) of our report dated January 24, 1996, on our
audit of the consolidated financial statements and financial statement schedule
of Central Maine Power Company and subsidiary as of December 31, 1995 and 1994
and for the years then ended which report is included in this annual report on
Form 10-K.
Coopers & Lybrand L.L.P.
Portland, Maine
March 29, 1996
F-4
<PAGE>
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