SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): April 17, 1996
CENTRAL MAINE POWER COMPANY
(Exact name of registrant as specified in its charter)
Maine 1-5139 01-0042740
(State of Incorporation) (Commission (IRS Employer
File Number) Identification Number)
83 Edison Drive, Augusta, Maine 04336
(Address of principal executive offices) (zip code)
Registrant's telephone number, including area code: (207) 623-3521
<PAGE>
Item 1 through Item 4. Not applicable.
Item 5. Other Events.
Company stranded-cost filing. As previously reported, on February 27,
1995, the Maine Public Utilities Commission ("MPUC") issued a proposed rule
relating to electric utilities that it stated was "intended to help smooth the
transition to a more competitive environment by establishing principles and
procedures for the determination and recovery of stranded costs in specified
circumstances". The proposed rule, although limited in its application to
electric-utility municipalization situations, recognized certain costs,
including long-term purchased-power obligations and regulatory assets, as being
potential stranded costs and specified an "exit fee" as the means for recovery
of such costs. The proposed rule, however, also included a built-in "mitigation
factor" that would have reduced the recoverable amount by 50 percent. On March
29, 1995, as part of a broader Notice of Proposed Rulemaking ("NOPR") related to
open transmission access and stranded costs, and designed to facilitate the
development of a competitive market, the Federal Energy Regulatory Commission
("FERC") expressed support for the principle of full recovery by utilities of
their "legitimate and verifiable" stranded costs. On April 18, 1995, the MPUC
terminated its rulemaking proceeding to avoid duplicative proceedings.
Also as previously reported, in June 1995 the Maine Legislature enacted
a resolve that initiated a process to develop recommendations on the future
structure of the electric utility industry in Maine. After a work group
appointed by the Legislature and representing many diverse interests failed to
reach a consensus on a recommendation by the late-1995 reporting deadline, the
MPUC, as the next step in the process, commenced a study of electric- utility
restructuring by soliciting "detailed proposals and plans for achieving retail
competition in Maine by the year 2000". On January 31, 1996, again as previously
reported, the Company filed its initial comments on issues raised by the
Legislature and the MPUC, along with a restructuring proposal calling for, among
other things, the legal separation of the Company's generating assets, contracts
and obligations from its transmission and distribution assets and obligations,
and full recovery of strandable costs through a transition charge to all retail
customers. Other interested parties submitted a variety of comments and
proposals. In its proposal the Company estimated its potential strandable-cost
exposure as of December 31, 1995, 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 MPUC (1) a petition
requesting that the MPUC re-open the terminated stranded-cost rulemaking
proceeding (the "Petition to Re-open"),
<PAGE>
and (2) a proposed "Interim Competitive Transition Charge Tariff" (the "Interim
Tariff"), including a request for immediate effectiveness. 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 requests that the MPUC reopen 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
<PAGE>
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 reopened stranded-cost proceeding to be
appropriate.
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 the Interim Tariff or otherwise 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.
Item 6 through 8. Not applicable.
<PAGE>
SIGNATURE
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
By: ----------------------------------
D. E. Marsh
Vice President, Corporate Services,
Treasurer and Chief Financial
Officer
Dated: April 19, 1996
<PAGE>
