UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
--- SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996
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OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES
--- EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 1-5139
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CENTRAL MAINE POWER COMPANY
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(Exact name of registrant as specified in its charter)
Incorporated in Maine 01-0042740
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
83 Edison Drive, Augusta, Maine 04336
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(Address of principal executive offices) (Zip Code)
207-623-3521
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(Registrant's telephone number including area code)
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(Former name, former address and former fiscal year, if changed
since last report.)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to the
filing requirements for at least the past 90 days.
Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuer's
classes of Common Stock, as of the latest practicable date.
Shares Outstanding
Class as of May 10, 1996
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Common Stock, $5 Par Value 32,442,752
<PAGE>
Central Maine Power Company
INDEX
Page No.
Part I. Financial Information
Consolidated Statement of Earnings for the Three Months
Ended March 31, 1996 and 1995 1
Consolidated Balance Sheet - March 31, 1996 and December 31, 1995:
Assets 2
Stockholders' Investment and Liabilities 3
Consolidated Statement of Cash Flows for the Three Months
Ended March 31, 1996 and 1995 4
Notes to Consolidated Financial Statements 5
Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
Part II. Other Information 15
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Central Maine Power Company
CONSOLIDATED STATEMENT OF EARNINGS
(Unaudited)
(Dollars in Thousands Except Per Share Amounts)
For the Three Months
Ended March 31,
--------------------
1996 1995
---- ----
ELECTRIC OPERATING REVENUES $274,139 $263,312
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OPERATING EXPENSES
Fuel Used for Company Generation 5,596 4,610
Purchased Power
Energy 117,727 114,358
Capacity 24,469 21,045
Other Operation 42,902 41,469
Maintenance 7,296 6,340
Depreciation and Amortization 13,468 14,277
Federal and State Income Taxes 17,962 16,642
Taxes Other Than Income Taxes 6,990 6,653
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Total Operating Expenses 236,410 225,394
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EQUITY IN EARNINGS OF ASSOCIATED COMPANIES 1,872 1,443
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OPERATING INCOME 39,601 39,361
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OTHER INCOME (EXPENSE)
Allowance for Equity Funds Used During Construction 186 156
Other, Net 1,551 1,258
Income Taxes Applicable to Other Income (Expense) (600) (540)
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Total Other Income (Expense) 1,137 874
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INCOME BEFORE INTEREST CHARGES 40,738 40,235
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INTEREST CHARGES
Long-Term Debt 12,033 12,819
Other Interest 996 1,168
Allowance for Borrowed Funds Used During Construction (148) (128)
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Total Interest Charges 12,881 13,859
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NET INCOME 27,857 26,376
DIVIDENDS ON PREFERRED STOCK 2,518 2,532
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EARNINGS APPLICABLE TO COMMON STOCK $ 25,339 $ 23,844
======= =======
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING 32,442,752 32,442,752
EARNINGS PER SHARE OF COMMON STOCK $0.78 $0.73
DIVIDENDS DECLARED PER SHARE OF COMMON STOCK $0.225 $0.225
The accompanying notes are an integral part of these financial statements.
<PAGE>
Central Maine Power Company
CONSOLIDATED BALANCE SHEET
(Dollars in Thousands)
March 31, Dec. 31,
1996 1995
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(Unaudited)
ASSETS
ELECTRIC PROPERTY, at Original Cost $1,616,778 $1,611,941
Less: Accumulated Depreciation 570,462 560,078
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Electric Property in Service 1,046,316 1,051,863
Construction Work in Progress 16,255 15,928
Net Nuclear Fuel 1,188 1,391
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Net Electric Property and Nuclear Fuel 1,063,759 1,069,182
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INVESTMENTS IN ASSOCIATED COMPANIES, at Equity 55,779 54,669
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Net Electric Property, Nuclear Fuel and
Investments in Associated Companies 1,119,538 1,123,851
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CURRENT ASSETS
Cash and Temporary Cash Investments 90,862 57,677
Accounts Receivable, Less Allowance for Uncollectible
Accounts of $3,254 in 1996 and $3,313 in 1995
Service - Billed 95,116 87,140
- Unbilled 28,415 41,798
Other Accounts Receivable 17,463 15,131
Inventories, at Average Cost
Fuel Oil 4,443 3,772
Materials and Supplies 13,035 12,772
Funds on Deposit With Trustee 29,919 29,919
Prepayments and Other Current Assets 7,338 9,192
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Total Current Assets 286,591 257,401
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DEFERRED CHARGES AND OTHER ASSETS
Recoverable Costs of Seabrook 1 and Abandoned
Projects, Net 93,733 95,127
Regulatory Assets-Deferred Taxes 235,412 235,081
Yankee Atomic Purchase Power Contract 20,228 21,396
Other Deferred Charges and Other Assets 250,332 260,063
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Deferred Charges and Other Assets, Net 599,705 611,667
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TOTAL ASSETS $2,005,834 $1,992,919
========= =========
The accompanying notes are an integral part of these financial statements.
<PAGE>
Central Maine Power Company
CONSOLIDATED BALANCE SHEET
(Dollars in Thousands)
March 31, Dec. 31,
1996 1995
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(Unaudited)
STOCKHOLDERS' INVESTMENT AND LIABILITIES
CAPITALIZATION
Common Stock Investment $ 508,048 $ 490,005
Preferred Stock 65,571 65,571
Redeemable Preferred Stock 67,528 67,528
Long-Term Obligations 621,873 622,251
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Total Capitalization 1,263,020 1,245,355
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CURRENT LIABILITIES AND INTERIM FINANCING
Interim Financing 34,000 34,000
Sinking-Fund Requirements 10,452 10,455
Accounts Payable 88,208 108,170
Dividends Payable 9,823 9,823
Accrued Interest 9,787 12,648
Accrued Income Taxes 22,343 3,668
Miscellaneous Current Liabilities 15,881 13,870
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Total Current Liabilities and Interim
Financing 190,494 192,634
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COMMITMENTS AND CONTINGENCIES
RESERVES AND DEFERRED CREDITS
Accumulated Deferred Income Taxes 350,866 351,868
Unamortized Investment Tax Credits 32,048 32,452
Regulatory Liabilities-Deferred Taxes 98,706 98,848
Yankee Atomic Purchased Power Contract 20,228 21,396
Other Reserves and Deferred Credits 50,472 50,366
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Total Reserves and Deferred Credits 552,320 554,930
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TOTAL STOCKHOLDERS' INVESTMENT AND
LIABILITIES $2,005,834 $1,992,919
========== ==========
The accompanying notes are an integral part of these financial statements.
<PAGE>
Central Maine Power Company
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
(Dollars in Thousands)
(Note 1)
For the Three Months
Ended March 31,
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1996 1995
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CASH FROM OPERATIONS
Net Income $27,857 $26,376
Items Not Requiring (Not Providing) Cash:
Depreciation and Amortization 19,581 20,769
Deferred Income Taxes and Investment Tax Credits, Net (1,728) 5,465
Allowance for Equity Funds Used During Construction (186) (156)
Changes in Certain Assets and Liabilities:
Accounts Receivable 3,075 2,063
Other Current Assets 1,854 1,702
Inventories (934) 732
Accounts Payable (17,858) (19,959)
Accrued Interest (2,861) (3,040)
Accrued Income Taxes 18,675 16,115
Miscellaneous Current Liabilities 2,011 1,779
Deferred Energy-Management Costs (242) (981)
Maine Yankee Outage Accrual 2,070 (7,666)
Purchased-Power Contracts (75) (4,550)
Other, Net 1,475 3,067
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Net Cash Provided By Operating Activities 52,714 41,716
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INVESTING ACTIVITIES
Construction Expenditures (7,592) (7,276)
Investments in Associated Companies (10)
Changes in Accounts Payable - Investing Activities (2,104) 3,383
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Net Cash Used by Investing Activities (9,706) (3,893)
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FINANCING ACTIVITIES
Redemptions:
Preferred Stock (4,772)
Dividends:
Common Stock (7,305) (7,305)
Preferred Stock (2,518) (2,709)
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Net Cash Used by Financing Activities (9,823) (14,786)
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Net Increase in Cash 33,185 23,037
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 57,677 58,112
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CASH AND CASH EQUIVALENTS, END OF PERIOD $90,862 $81,149
====== ======
The accompanying notes are an integral part of these financial statements.
<PAGE>
Central Maine Power Company
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
Certain information in footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
has been condensed or omitted in this Form 10-Q pursuant to the rules and
regulations of the Securities and Exchange Commission. However, the disclosures
herein should be read with the Annual Report on Form 10-K for the year ended
December 31, 1995 (Form 10-K), and are adequate to make the information
presented herein not misleading. Certain prior-year information has been
reclassified to be consistent with the 1996 presentation.
The consolidated financial statements include the accounts of Central Maine
Power Company (the Company) and its 78 percent-owned subsidiary, Maine Electric
Power Company, Inc. (MEPCO). The Company accounts for its investments in
associated companies not subject to consolidation using the equity method.
The Company's significant accounting policies are contained in Note 1 of Notes
to Consolidated Financial Statements in the Company's Form 10-K. For interim
accounting periods the policies are the same. The interim financial statements
reflect all adjustments that are, in the opinion of management, necessary to a
fair statement of results for the interim periods presented. All such
adjustments are of a normal recurring nature.
The adoption of the Alternative Rate Plan (ARP), effective January 1, 1995,
eliminated the reconcilable fuel clause used under traditional rate-of-return
regulation to account for and collect fuel and purchased-power energy costs.
Fuel revenues are now recorded as they are billed rather than deferred and
reflected in revenues over time periods established by the Maine Public
Utilities Commission (MPUC).
The Company adopted Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of," effective January 1, 1996. This statement requires impairment
losses on long-lived assets to be recognized when an asset's book value exceeds
its expected future cash flows (undiscounted). This statement also imposes a
stricter criterion for retention of regulatory assets on the financial
statements by requiring that such assets be probable of recovery at each balance
sheet date. As of March 31, 1996, the amount of assets not subject to rate
recovery was immaterial. However, this may change 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.
For purposes of the statement of cash flows, the Company considers all highly
liquid instruments purchased having maturities of three months or less to be
cash equivalents.
Supplemental Cash Flow Disclosure - Cash paid for the three months ended March
31, 1996 and 1995 for interest, net of amounts capitalized, amounted to $14.9
million and $16.0 million, respectively. Income taxes paid amounted to $1.6
million for the three months ended March 31, 1996. For the three months ended
March 31, 1995, income taxes refunded amounted to $4.4 million. The Company
incurred no new capital lease obligations in either period.
2. Commitments and Contingencies
Maine Yankee Atomic Power Company - On January 11, 1996, Maine Yankee began
start-up operations after an extended outage and was up to 90-percent generation
levels by January 24, 1996. Refer to Note 4 of Notes to Consolidated Financial
Statements for a detailed discussion on this outage. On April 25, 1996, Maine
Yankee submitted an analysis to the Nuclear Regulatory Commission (NRC) which
Maine Yankee believes meets all federal regulatory requirements for operating
the Plant at the 100-percent level. However, Maine Yankee cannot predict whether
or when the Plant will attain a 100-percent operating level. 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 are not reconcilable under
a fuel-adjustment clause. Replacement power costs for the first quarter of 1996
were approximately $2.7 million.
As previously reported, in December 1995 the NRC's Office of the Inspector
General (OIG) and its Office of Investigations (OI) initiated separate
investigations of certain anonymous allegations of wrongdoing by Maine Yankee
and Yankee Atomic Electric Company (Yankee) in 1988 and 1989 in connection with
Maine Yankee Plant operating-license amendments. On May 9, 1996, the OIG, which
was responsible for investigating only the actions of the NRC Staff and not
those of Maine Yankee or Yankee, issued its report on its investigation. The
report found deficiencies in the NRC Staff's review, documentation, and
communications practices in connection with the license amendments, as well as
"significant indications of possible licensee violations of NRC requirements and
regulations." Any such violations by Maine Yankee or Yankee would be within the
purview of the OI investigation, which is not yet complete. A separate internal
investigation commissioned by the boards of directors of Maine Yankee and Yankee
and conducted by an independent law firm, although not yet final, has noted
several areas that could have been improved, including regulatory
communications, definition of responsibilities between Maine Yankee and Yankee,
and documentation and tracking of regulatory compliance, but found no wrongdoing
by Maine Yankee or Yankee or any of their employees. The Company cannot
predict the final results of the investigations.
Legal and Environmental Matters - The Company is a party in legal and
administrative proceedings that arise in the normal course of business. As
discussed in Note 4 of Notes to Consolidated Financial Statements in the
Company's Form 10-K, 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.
On October 10, 1995, the EPA approved a remedy 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. This 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 $3.4 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 $3.4 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, $4.1 million of costs incurred through March 31, 1996.
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.
3. Regulatory Matters
Alternative Rate Plan - The MPUC approved the Alternative Rate Plan (ARP)
effective January 1, 1995. Please refer to Note 3 to Consolidated Financial
Statements included in the Company's Form 10-K for a detailed description. The
ARP was established in response to an order by the MPUC 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 rate of return.
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 in 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, fuel expense
is no longer subject to reconciliation or specific rate recovery, but is subject
to the annual indexed price-cap changes.
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 the accounting method required by 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.
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 the designated range two
years in a row, 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.
Effective July 1, 1995, the MPUC approved a 2.43-percent increase pursuant to
the annual price-change provision in the ARP.
In March 1996, the Company filed its second annual request for an increase of
1.64 percent in rate and rate-element caps under the ARP. The primary component
of the price cap increase is a 2.55 percent inflation rate. A productivity
factor of 1.00 percent was deducted from the inflation rate and 0.09 percent for
profit sharing, various flow-through items and sharing of contract restructuring
and buyout savings was added. The Company believes its filing is in compliance
with the requirements of the ARP. After review of the compliance filing by the
MPUC, the indexed price increase is scheduled to take effect July 1, 1996.
<PAGE>
Item 2: Management's Discussion and Analysis of Financial Condition and
Results of Operations
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 differ from expectations. Actual
results have varied materially and unpredictable 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.
Operating Results
Net income was $27.9 million for the first quarter of 1996 compared to $26.4
million for the corresponding period in 1995. Earnings applicable to common
stock were $25.3 million or $0.78 per share for the first three months of 1996
compared to $23.8 million or $0.73 per share for the comparable period in 1995.
Net income was impacted by increased purchased-power expenses related to
replacement power costs for Maine Yankee Atomic Power Company (Maine Yankee).
Operating revenues in the first quarter of 1996 totaled $274 million, up 4.1
percent from $263 million in the first quarter of 1995. Revenues were affected
by higher kilowatt-hour sales, a 1995 price increase for most customers, and
price discounts for competitively targeted customer classes. For a complete
discussion of discounted rates please refer to Note 4 to consolidated Financial
Statements in the Company's Form 10-K.
Service-area sales of electricity totaled approximately 2.41 billion
kilowatt-hours for the three-month period ended March 31, 1996, an increase of
1.9 percent compared to the first three months of 1995.
Service Area Kilowatt-hour Sales (Millions of KWHs)
Three Months Ended March 31,
1996 1995 % Change
---- ---- --------
Residential 834.3 816.8 2.2%
Commercial 662.0 643.8 2.8
Industrial 856.3 867.8 (1.3)
Other 56.8 35.4 60.2
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2,409.4 2,363.8 1.9%
======= ======= ====
<PAGE>
The changes in service area kilowatt-hour sales reflect the following:
Kilowatt-hour sales to residential customers increased in the first
quarter compared to 1995; usage per customer was up slightly, and
temperatures were 7.6 percent colder than the same period last year and
4.9 percent colder than normal.
Commercial sales increased from 1995 reflecting increases in most
sectors, including the retail and services sectors which comprise
approximately 60 percent of commercial sales.
Industrial kilowatt-hour sales decreased from 1996 due primarily to
decreased sales to the pulp and paper industry of 5.0 percent. This
sector accounts for approximately 60 percent of the industrial sales
category. A sales increase of 4.8 percent occurred in all other
industrial customers as a group.
MEPCO's electric sales and transmission revenues from New England utilities
other than the Company amounted to $1.7 million in the first quarters of both
1996 and 1995. Under a Participation Agreement that terminates July 1, 1996, all
of MEPCO's costs, including a return on invested capital, are paid by the
participating utilities (Participants), which include the Company and most of
the larger New England electric companies. The level of MEPCO's revenues and
expenses changes depending upon the level of energy purchases by Participants.
MEPCO filed with FERC on May 1, 1996, for a six-month extension of its current
rates, and offered the same extension of the Participation Agreement to all
Participants.
Purchased power-energy expense increased over the first quarter of 1995,
reflecting increased kilowatt-hour sales, replacement power cost due to the
Maine Yankee outage which continued through most of January 1996 and the impacts
of a contract restructuring which lowered energy costs.
Purchased power-other expense increased over the first quarter of 1995,
principally because of a contract restructuring with a non-utility generator.
Other operation and maintenance expenses increased by $2.9 million compared to
the first quarter of 1995 primarily due to increases in previously contracted
demand-side management, hydro operation costs, and distribution maintenance
costs due to major storms in early 1996.
Federal and state income taxes fluctuate with the level of pre-tax earnings and
the regulatory treatment of taxes by the MPUC. This expense increased as a
result of higher pre-tax earnings in the first quarter of 1996, when compared to
1995.
Interest on long-term debt during the first quarter of 1996 decreased by
approximately $0.8 million while other interest expense remained flat compared
to 1995. The decrease reflects a lower level of Medium-Term Notes outstanding
than in the first quarter of 1995 and the ending of amortization of loss on
reacquired debt for one issue.
Liquidity and Capital Resources
Approximately $45.5 million of cash was provided during the first quarter of
1996 from net income before non-cash items, primarily depreciation and
amortization. During such period, approximately $7.2 million of cash was used
for fluctuations in certain assets and liabilities and from other operating
activities.
During the first quarter of 1996, dividends paid on common stock were $7.3
million, while preferred-stock dividends utilized $2.5 million of cash.
Investing activities, primarily construction expenditures, utilized $9.7 million
in cash during the first quarter of 1996 for generating projects, transmission,
distribution, and general construction expenditures.
In order to accommodate existing and future loads on its electric system the
Company is engaged in a continuing construction program. The Company's plans for
improvements and expansions, its load forecast and its power-supply sources are
under a process of continuing review. Actual construction expenditures will
depend upon the availability of capital and other resources, load forecasts,
customer growth and general business conditions.
The ultimate nature, timing and amount of financing for the Company's total
construction programs, refinancing and energy-management capital requirements
will be determined in light of market conditions, earnings and other relevant
factors.
On April 29, 1996, the Company deposited approximately $29.1 million in cash
with the Trustee under the Company's General and Refunding Mortgage Indenture in
satisfaction of the renewal and replacement fund and other obligations under the
Indenture. The total of such cash on deposit with the Trustee as of May 10,
1996, was approximately $59.1 million. Under the Indenture such cash may be
applied, at any time at the direction of the Company, to the redemption of bonds
outstanding under the Indenture at a price equal to the principal amount of the
bonds being redeemed, without premium, plus accrued interest to the date fixed
for redemption on the principal amount of the bonds being redeemed.
At March 31, 1996, 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 March 31, 1996.
As of March 31, 1996, 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 March 31, 1996, there was no short-term borrowing outstanding
under the MEPCO credit line.
Industry Restructuring and Strandable Costs
As discussed fully in the Management's Discussion and Analysis of Financial
Condition and Results of Operations included in the Company's 1995 Form 10-K,
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. The Company estimates its potentially strandable-cost exposure to be as
much as $2 billion, with above-market purchased-power contracts with non-utility
generators responsible for approximately 60 percent of that amount and deferred
regulatory assets approximately 25 percent.
On April 17, 1996, in part in reaction to developments in its service territory
discussed below, the Company filed with the Maine Public Utilities Commission
(MPUC) (1) a petition requesting that the MPUC re-open the terminated
stranded-cost rulemaking proceeding (Petition to Re-open), and (2) a proposed
"Interim Competitive Transition Charge Tariff" (Interim Tariff), including a
request for an effective date of April 29, 1996. In its filing the Company
stated that it was critical that utilities, customers and the financial markets
"know the rules and guidelines" that would be associated with the recovery of
strandable costs during the transition to competition. To that end, the Company
urged the MPUC to reinforce its earlier commitment to prevent shifting of
strandable costs from one group of customers to another and to hold departing
customers responsible for their allocable share of such costs. The Company also
pointed out that promulgation of a final stranded-cost rule on a parallel track
with the MPUC's contemporaneous electric-utility restructuring proceeding would
allow the MPUC to have in place a clear means for an "economic transition to
competition" when the MPUC offers its recommendations on restructuring to the
Maine Legislature at the end of 1996.
The Company's Petition to Re-open requested that the MPUC re-open its rulemaking
proceeding on stranded costs and issue a proposed rule for comment and
consideration that would broadly address its application to retail wheeling and
self-generation, rather than only municipalization issues, and that would adopt
several significant principles. The principles urged by the Company for adoption
by the MPUC include, among others: (1) that all legitimate, verifiable and
unmitigatable strandable costs should be allowed to be recovered; (2) that the
shifting of costs either to remaining customers or investors by departing
customers is not consistent with economic efficiency and should be avoided to
the greatest extent possible; and (3) that the mechanism established for
recovery of stranded costs be a non-bypassable charge applying whether customers
remain connected to the distribution or transmission system or depart from that
system. The other stated principles deal with the establishment of an
appropriate period for the transition to competition and an approach to
measuring such costs annually.
Stressing the immediacy of the threat of uneconomic bypassing of the Company's
system and the resulting cost shifting and price risk to remaining customers,
the Company reported in its filing that Hannaford Bros. Co. (Hannaford), one of
its largest customers, had recently installed a natural-gas-fired
self-generation unit in Scarborough, Maine, at one of its larger supermarkets in
the Company's service territory. The Company pointed out that Hannaford had 33
locations in the Company's service territory, including a substantial number of
large supermarkets, and that Hannaford had informed the Company in discussions
with the Company of its intention to install widespread self-generation at its
stores in the Company's service territory by the end of 1996.
In seeking approval of the second part of its MPUC filing, the Interim Tariff,
the Company asserted that the Interim Tariff would address the present and
potential risks caused by large customers bypassing the Company's system,
including such risks as: (1) the installation of "uneconomic" generation (where
the cost of the customer's alternative is higher than the market rate of power),
such as that installed or planned by Hannaford, a practice that is contrary to
long-standing Maine energy policy and statutory law; (2) de facto restructuring,
before either the Legislature or the MPUC has completed its review, putting at
risk any benefits for residential and other remaining customers; (3) the
appearance that an "escape mechanism" to avoidance of responsibility for costs
is available for those who leave the Company's system before such responsibility
for costs is settled; (4) the shifting of costs from those who can "escape",
typically large customers, to those who cannot, typically smaller customers, or
to utility investors; and (5) the sending of a "negative message" to the
financial markets, a stakeholder in electric utility restructuring whose
participation in restructuring is vital, with ensuing increased uncertainty and
risk. To overcome those risks, the Company requested that the Interim Tariff
become effective, subject to refund, for all applicable situations that arise on
or after April 29, 1996, the requested effective date of the Interim Tariff. The
Company pointed out that it was necessary, under the circumstances described in
its filing, to have in place an interim means to recover stranded costs from
departing customers while the longer-term issues are being decided in the
re-opened stranded-cost rulemaking in parallel with the ongoing restructuring
proceeding. The Interim Tariff is designed to provide for the recovery of a
major portion, but only the uneconomic portion, of those costs from departing
large customers, subject to refund of any amounts that exceed the amounts
ultimately determined by the MPUC in its re-opened stranded-cost proceeding to
be appropriate. On April 23, 1996, the MPUC issued a procedural order setting
the schedule for acting on the matters raised in the Company's filing. The MPUC
concluded it would not proceed on the expedited basis recommended by the Company
in its filing and agreed to reach a decision on the interim tariff request on
July 1, 1996. On May 9, 1996, a second procedural order was issued modifying the
schedule, although retaining the July 1, 1996 decision date, granting petitions
to intervene to several parties, and clarifying the scope of the proceeding.
The Company cannot predict whether other customers of the Company will elect to
install self-generation units before the issues relating to responsibility for
stranded costs are resolved. The Company also cannot predict whether or when
Hannaford will elect to install additional self-generation units at any or all
of its other 32 locations in the Company's service territory, although many of
such locations may not be of appropriate size and electrical load
characteristics for self-generation to be economical at those locations, even if
Hannaford should be successful in avoiding responsibility for stranded costs. If
Hannaford should choose to install self-generation at its other locations with
electrical characteristics similar to the Scarborough location, the Company
estimates that the costs stranded by such action would be approximately $3.5
million. Finally, the Company cannot predict whether the MPUC will approve or
allow the recovery of some or all of the costs that may be stranded as a result
of the installation of self-generation facilities by customers of the Company.
On April 24, 1996, the Federal Energy Regulatory Commission (FERC) issued Order
888, the Final Rule on Promoting Wholesale Competition Through Open-Access
Non-Discriminatory Transmission by Public Utilities and Recovery of Stranded
Costs by Utilities and Transmitting Utilities (Order 888). Order 888 requires
all public utilities that own, control or operate facilities used for
transmitting electric energy in interstate commerce:
1. to file open access non-discriminatory transmission tariffs that contain
minimum terms and conditions of non-discriminatory service;
2. to take transmission service (including ancillary services) for their
own new wholesale sales and purchases of electric energy under the open
access tariffs;
3. to develop and maintain a same-time information system that will give
existing and potential transmission users the same access to transmission
information that the public utility enjoys, and further requires public
utilities to separate transmission from generation marketing functions and
communications;
Order 888 also clarifies Federal/state jurisdiction over transmission in
interstate commerce and local distribution and provides for deference to certain
state recommendations. The Order also permits public utilities and transmitting
utilities to seek recovery of legitimate, prudent and verifiable stranded costs
associated with providing open access and certain transmission services.
Order 888 requires public utilities to file a single open access tariff that
offers both network, load-based service and point-to-point, contract-based
service. Order 888 contains a pro forma tariff that reflects modifications to
the FERC's Notice of Proposed Rulemaking's proposed terms and conditions and
also permits variations for regional practices. All public utilities subject to
Order 888, including those that already have tariffs on file, will be required
to make compliance filings to meet the new pro forma tariff non-price minimum
terms and conditions of non-discriminatory transmission. Utilities may propose
their own rates in a compliance filing.
The Company is taking the following steps to comply with Order No. 888 by the
deadlines specified therein: (1) preparing to separate its wholesale power
marketing function from its transmission administration function; (2) preparing
to file its pro forma Open Access Tariff, including separate rates for
transmission and ancillary services; (3) examining existing wholesale
requirements and coordination contracts to determine which must be revised to
state transmission rates on an unbundled basis; (4) is participating in efforts
to develop a regional Open Access Same-time Information System ("OASIS") and a
New England Power Pool-wide Open Access Tariff, and to revise the New England
Power Pool Agreement.
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Environmental Matters. For a discussion of administrative and judicial
proceedings concerning cleanup of a site containing soil contaminated by PCB's
from equipment originally owned by the Company, see Note 2, "Commitments and
Contingencies," "Legal and Environmental Matters," which is incorporated herein
by reference.
Regulatory Matters. For a discussion of certain other regulatory matters
affecting the Company, including proceedings dealing with electric-utility
restructuring and stranded costs, see Note 3, "Regulatory Matters," which is
incorporated herein by reference.
Item 2. through Item 4. Not applicable
Item 5. Other Events
On April 29, 1996, the Company deposited approximately $29.1 million in
cash with the Trustee under the Company's General and Refunding Mortgage
Indenture in satisfaction of the renewal and replacement fund and other
obligations under the Indenture. The total of such cash on deposit with the
Trustee as of May 10, 1996, was approximately $59.1 million. Under the Indenture
such cash may be applied, at any time at the direction of the Company, to the
redemption of bonds outstanding under the Indenture at a price equal to the
principal amount of the bonds being redeemed, without premium, plus accrued
interest to the date fixed for redemption on the principal amount of the bonds
being redeemed.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits. None.
(b) Reports on Form 8-K. The Company filed the following reports
on Form 8-K during the first quarter of 1996 and thereafter
to date:
Date of Report Items Reported
January 25, 1996 Item 5
------
(a) On January 31, 1996, the Company filed its restructuring proposal with the
MPUC, along with its initial comments on issues raised by the Legislature and
the MPUC.
(b) The Company reported its 1995 financial results.
April 17, 1996 Item 5
------
On April 17, 1996, the Company filed with the MPUC (1) a petition requesting
that the MPUC re-open the terminated stranded-cost rulemaking proceeding ,and
(2) a proposed "Interim Competitive Transition Charge Tariff" including a
request for immediate effectiveness.
<PAGE>
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CENTRAL MAINE POWER COMPANY
(Registrant)
Date: May 14, 1996 /S/R. E. Tuoriniemi
----------------------------------------
Robert E. Tuoriniemi, Comptroller (Chief
Accounting Officer)
/S/D. E. Marsh
----------------------------------------
David E. Marsh, Vice President,
Corporate Services, Treasurer, and Chief
Financial Officer (Principal Financial
Officer and duly authorized officer)
<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND>
This schedule contains summary financial information extracted from Central
Maine Power Company's Consolidated Statement of Earnings, Consolidated Balance
Sheet and Consolidated Statement of Cash Flows and is qualified in its entirety
by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> MAR-31-1996
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 1,063,759
<OTHER-PROPERTY-AND-INVEST> 55,779
<TOTAL-CURRENT-ASSETS> 286,591
<TOTAL-DEFERRED-CHARGES> 599,705
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 2,005,834
<COMMON> 162,214
<CAPITAL-SURPLUS-PAID-IN> 276,424
<RETAINED-EARNINGS> 69,410
<TOTAL-COMMON-STOCKHOLDERS-EQ> 508,048
67,528
65,571
<LONG-TERM-DEBT-NET> 585,913
<SHORT-TERM-NOTES> 0
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 35,730
7,000
<CAPITAL-LEASE-OBLIGATIONS> 35,960
<LEASES-CURRENT> 1,722
<OTHER-ITEMS-CAPITAL-AND-LIAB> 698,362
<TOT-CAPITALIZATION-AND-LIAB> 2,005,834
<GROSS-OPERATING-REVENUE> 274,139
<INCOME-TAX-EXPENSE> 17,962
<OTHER-OPERATING-EXPENSES> 218,448
<TOTAL-OPERATING-EXPENSES> 236,410
<OPERATING-INCOME-LOSS> 39,601
<OTHER-INCOME-NET> 1,137
<INCOME-BEFORE-INTEREST-EXPEN> 40,738
<TOTAL-INTEREST-EXPENSE> 12,881
<NET-INCOME> 27,857
2,518
<EARNINGS-AVAILABLE-FOR-COMM> 25,339
<COMMON-STOCK-DIVIDENDS> 7,305
<TOTAL-INTEREST-ON-BONDS> 7,690
<CASH-FLOW-OPERATIONS> 52,714
<EPS-PRIMARY> 0.78
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