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): May 15, 1997
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
Item 1 through Item 4. Not applicable.
Item 5. Other Events.
(a) Maine Yankee nuclear generating plant. The Maine Yankee Atomic Power
Company (Maine Yankee) nuclear generating plant at Wiscasset, Maine, has been
shut down since December 6, 1996, to resolve cable-separation issues and other
regulatory issues, replace a large number of fuel assemblies, and inspect the
plant's steam generators, and has been expected to remain off-line at least
until August 1997. For a discussion of the background of the current
shutdown, including the plant's being placed on the Nuclear Regulatory
Commission's (NRC) "watch list" and other significant regulatory and
operational issues, management changes, and investigations of Maine Yankee by
the NRC and the United States Department of Justice, see the Company's Annual
Report on Form 10-K for the year ended December 31, 1996, and its Quarterly
Report on Form 10-Q for the quarterly period ended March 31, 1997.
On May 27, 1997, the Board of Directors of Maine Yankee voted to reduce
maintenance and repair spending at the plant and announced that Maine Yankee
was considering permanent closure based on economic concerns and uncertainty
about operation of the plant. Maine Yankee stated that no final decision had
been made, but that the dismissal of contractors would start immediately and
spending levels would be reduced by approximately $41 million from June
through December 1997, and noted that the plan would preserve the option of
restarting the generating facility or closing it. The Maine Yankee Board
indicated that it had also been exploring a sale of Maine Yankee, but that
preliminary discussions with a potential buyer, PECO Energy Co., had not been
fruitful to that point. The Company cannot predict whether a sale of the
plant or interests in Maine Yankee will take place or whether the plant will
return to service, but the Company believes it unlikely that the plant will
return to service without a change in the ownership of Maine Yankee or other
significant change in relevant circumstances.
The Company has been incurring substantial costs associated with its
38-percent share of the costs incurred by Maine Yankee in its efforts to
restore the plant to service, as well as costs for replacement power while the
plant has been out of service. The Maine Yankee Board's decision to reduce
spending by $41 million for the remainder of 1997 will mitigate the costs the
Company would otherwise incur during 1997, but will not reduce the need to buy
replacement energy and capacity, which will continue in the event the plant
does not return to commercial operation. The amount of such costs will vary
during the year based on the Company's power requirements and market
conditions, but the Company believes they would average approximately $4.5
million per month, based on current conditions. The previously reported
termination of a major non-utility generator contract, which should result in
savings to the Company at an annual rate of approximately $25 million
commencing November 1, 1997, will contribute significantly to mitigating such
costs.
In the event the Maine Yankee plant is shut down permanently, the resulting
phased reduction in Maine Yankee operating expenses would be reflected
proportionately in the Company's share of such costs. While the extent and
timing of such a phased reduction in costs are not now clear (including the
amount and timing of plant decommissioning costs), the Company's retail rate
structure has approximately $75 million in annual Maine Yankee-related costs
imbedded in the current determination of the Company's required revenues.
In any event, the impact of the higher-than-usual nuclear-related costs on the
Company will be a major obstacle to achieving satisfactory results in 1997,
despite prudent control of other operating costs. The higher costs are likely
to trigger the low earnings bandwidth provision of the Company's Alternative
Rate Plan (ARP), which would be activated if actual earnings for 1997 are
outside a bandwidth of 350 basis points above or below a 10.68-percent
rate-of-return allowance. A return below the low end of the range provides
for additional revenue through rates equal to one-half the difference between
the actual earned rate of return and the 7.18-percent (10.68 minus 3.50) low
end of the bandwidth. While the Company believes that the mechanism is likely
to be triggered in 1997, it cannot predict the amount, if any, of additional
revenues that may ultimately result.
(b) Enactment of Maine utility restructuring legislation. On May 29, 1997,
the Governor of Maine signed into law a bill enacted by the Maine Legislature
that will restructure the electric utility industry in Maine by March 1,
2000. With respect to the significant issue of the ability of the Company to
recover stranded costs, the legislation requires the Maine Public Utilities
Commission (MPUC), when retail access begins, to provide a "reasonable
opportunity" to recover stranded costs through the rates of the transmission
and distribution company, comparable to the utility's opportunity to recover
stranded costs before the implementation of retail access under the
legislation. Stranded costs are defined as the legitimate, verifiable and
unmitigatable costs made unrecoverable as a result of the restructuring
required by the legislation and would be determined by the MPUC as provided in
the legislation. The MPUC must conduct separate adjudicatory proceedings to
determine the stranded costs for each utility and the corresponding revenue
requirements and stranded-cost charges to be charged by each transmission and
distribution utility. Those proceedings must be completed by July 1, 1999.
In addition, the legislation requires utilities to use all reasonable means to
reduce their potential stranded costs and to maximize the value from
generation assets and contracts. The MPUC must consider a utility's efforts
to mitigate its stranded costs in determining the amount of the utility's
stranded costs. Stranded costs will be prospectively adjusted as necessary to
correct substantial inaccuracies in the year 2003 and at least every three
years thereafter.
The principal restructuring provisions of the legislation provide for
customers to have direct retail access to generation services and for
deregulation of competitive electricity providers, commencing March 1, 2000,
with transmission and distribution companies continuing to be regulated by the
MPUC. By that date, subject to possible extensions of time granted by the
MPUC to improve the sale value of generation assets, investor-owned utilities
are required to divest all generation assets and generation-related business
activities, with two major exceptions: (1) non-utility generator contracts
with qualifying facilities and contracts with demand-side management or
conservation providers, brokers or hosts; and (2) ownership interests in
nuclear power plants. However, the MPUC can require the Company to divest its
interest in Maine Yankee Atomic Power Company on or after January 1, 2009.
The Company must submit a plan to the MPUC by January 1, 1999, to divest its
generation assets, but is proceeding with its previously reported plan to seek
bids for its generation assets in 1997. The bill also requires investor-owned
utilities, after February 28, 2000, to sell their rights to the capacity and
energy from all generation assets, including the purchased-power contracts
that had not previously been divested pursuant to the legislation, with
certain minor exceptions.
Upon the commencement of retail access on March 1, 2000, the Company, as a
transmission and distribution utility, will be prohibited from selling
electric energy to retail customers. Any competitive electricity provider
that is affiliated with the Company would be allowed to sell electricity
outside the Company's service territory without limitation as to amount, but
within the Company's service territory the affiliate would be limited to
providing not more than 33 percent of the total kilowatt-hours sold within the
Company's service territory, as determined by the MPUC.
Other features of the legislation include the following:
(a) After the effective date of the legislation, if an entity
purchases 10 percent or more of the stock of a distribution utility, including
the Company, the purchasing entity and any related entity would be prohibited
from selling generation service to any retail customer in Maine.
(b) The legislation encourages the generation of electricity from
renewable resources by requiring competitive providers, as a condition of
licensing, to demonstrate to the MPUC that no less than 30 percent of their
portfolios of supply sources for retail sales in Maine are accounted for by
renewable resources.
(c) The legislation requires the MPUC to ensure that standard-offer
service is available to all consumers, but any competitive provider affiliated
with the Company would be limited to providing such service for only up to 20
percent of the electric load in the Company's service territory.
(d) Beginning March 1, 2002, or, by MPUC rule, as early as March 1,
2000, the providing of billing and metering services will be subject to
competition.
(e) A customer who significantly reduces or eliminates consumption of
electricity due to self-generation, conversion to an alternative fuel, or
demand-side management may not be assessed an exit fee or re-entry fee in any
form for such reduction or elimination of consumption or for the
re-establishment of service with a transmission and distribution utility.
(f) Finally, the legislation provides for programs for low-income
assistance, energy conservation, research and development on renewable
resources, assistance for utility employees laid off as a result of the
legislation, and nuclear-plant decommissioning costs, all funded through
transmission and distribution utility rates and charges.
The Company has stated that it supports the legislation ultimately enacted,
which reflects protracted negotiations and compromises among the interested
constituencies, and will continue to urge securitization of stranded cost
recovery as the most effective method of resolving an issue that is critical
to the Company's future. The Company believes, however, that some of the
limitations imposed on transmission and distribution utilities in the
legislation are unnecessary and inappropriate in the contemplated competitive
environment.
(c) Expansion of Medium-Term Note Program. At the annual meeting of the
stockholders of the Company on May 15, 1997, the holders of the Company's
outstanding preferred stock consented to the issuance of $350 million in
principal amount of the Company's Medium-Term Notes in addition to the $150
million in principal amount to which they had previously consented. As a
result of obtaining that consent, the aggregate $500 million in principal
amount of Medium-Term Notes is not required to be included in calculating the
limitation on unsecured indebtedness that the Company may issue contained in
the Company's Articles of Incorporation.
Item 6 through Item 8. Not applicable.
