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
For the fiscal year ended December 31, 1997
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 _x_.
State the aggregate market value of the voting and non-voting common
equity held by non-affiliates of the registrant. The aggregate market value of
such common equity held by non-affiliates of the Company was $561,549,726 on
March 23, 1998 (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 23,
1998).
(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 23, 1998, 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 definitive proxy statement for the Company's 1998 Annual
Meeting of Shareholders are incorporated by reference in Part III hereof.
<PAGE>
CENTRAL MAINE POWER COMPANY
INFORMATION REQUIRED IN FORM 10-K
Page
Note re Forward-looking Statements 1
Item Number Part I
Item 1. Business 1
Item 2. Properties 18
Item 3. Legal Proceedings 26
Item 4. Submission of Matters to a Vote of
Security Holders 28
Item 4.1. Executive Officers of the Registrant 29
Part II
Item 5. Market for the Registrant's Common
Equity and Related Stockholder Matters 30
Item 6. Selected Financial Data 30
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 31
Item 8. Financial Statements and Supplementary Data 52
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 90
Part III
Item 10. Directors and Executive Officers of the Registrant 91
Item 11. Executive Compensation 91
Item 12. Security Ownership of Certain Beneficial Owners
and Management 91
Item 13. Certain Relationships and Related Transactions 91
Part IV
Item 14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K 92
Signatures 94
<PAGE>
NOTE RE FORWARD-LOOKING STATEMENTS
This Report on Form 10-K contains forecast information items that are
"forward-looking statements" as defined in the Private Securities Litigation
Reform Act of 1995. Such statements are subject to certain risks and
uncertainties which could cause actual results to differ materially from those
projected. Readers are cautioned not to place undue reliance on these
forward-looking statements, which speak only as of the date hereof. The Company
undertakes no obligation to republish revised forward-looking statements to
reflect events or circumstances after the date hereof or to reflect the
occurrence of unanticipated events. Readers are also urged to carefully review
and consider the various disclosures made by the Company which attempt to advise
interested parties of the facts which affect the Company's business.
Factors that could cause actual results to differ materially include,
among other matters, the permanent closure and decommissioning of the Maine
Yankee nuclear generating plant and resulting regulatory proceedings; the actual
costs of decommissioning the Maine Yankee plant; outages at the other generating
units in which the Company holds interests; electric utility restructuring,
including the ongoing state and federal activities; the results of the Company's
planned sale of its generating assets; the Company's ability to recover its
costs resulting from the January 1998 ice storms; future economic conditions;
earnings-retention and dividend-payout policies; developments in the
legislative, regulatory, and competitive environments in which the Company
operates, including regulatory treatment of stranded costs; the Company's
investments in unregulated businesses; and other circumstances that could affect
anticipated revenues and costs, such as unscheduled maintenance or repair
requirements at nuclear plants and other facilities, and compliance with laws
and regulations.
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. The Company is also
diversifying into new lines of business, largely through its subsidiaries. See
"Expansion of Lines of Business", below. Its principal executive offices are
located at 83 Edison Drive, Augusta, Maine 04336, where its general telephone
number is (207) 623-3521.
The Company is the largest electric utility in Maine, serving
approximately 528,000 customers in its 11,000 square-mile service area in
southern and central Maine and having $954 million in consolidated electric
operating revenues in 1997 (reflecting consolidation of financial statements
with a majority-owned subsidiary, Maine Electric Power Company, Inc. ("MEPCO")).
The Company's service area contains most 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 964,000 people, representing about 78 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 for approximately 60 percent of
the Company's industrial sales and approximately 24 percent of total
service-area sales.
Financial Results. On January 30, 1998, the Company announced its
financial results for 1997. The Company reported earnings applicable to common
stock of $5.2 million ($0.16 per share), including $3.9 million ($0.12 per
share) earned in the fourth quarter. Earnings for 1996 were $50.8 million, or
$1.57 per share. Replacement-power costs and other costs related to the Maine
Yankee nuclear plant, which was permanently closed on August 6, 1997, were the
main factors that eroded 1997 earnings from their 1996 level.
The Company's electric operating revenues for 1997 were $954.2 million,
down 1.3 percent from the 1996 level of $967 million. Lower non-territorial
energy sales resulting from Maine Yankee's being off-line and reducing the
Company's total energy supply were the principal reason for the decline in total
revenues. See "Permanent Shutdown of Maine Yankee Plant" below. Revenues from
the Company's service area rose 2.2 percent in 1997 to $890.2 million, on energy
sales of 9.36 billion kilowatt-hours, up 1.5 percent from 1996.
The Company incurred $46.0 million in additional costs to replace Maine
Yankee power and pay its share of increased repair and other operating costs at
Maine Yankee in 1997. With the decommissioning process commencing, the Company
expects that its share of Maine Yankee operating costs could decrease by as much
as $30 million in 1998.
Despite the $75 million in annual Maine Yankee-related costs imbedded in
the current determination of the Company's required revenues for ratemaking
purposes and despite success in controlling other costs, the higher
nuclear-related costs incurred by the Company in 1997 reduced earnings to a
level that triggered the low-earnings bandwidth provisions of the Company's
Alternative Rate Plan ("ARP"). The Company has been operating under provisions
of the ARP since January 1995. The ARP was structured to provide reasonable
assurance of continued recovery of costs of services, including past deferrals;
improve the stability and predictability of prices; reduce regulatory costs;
offer financial incentives for improved efficiencies; and permit regulatory
consideration of cost recovery for significant unforeseen events.
Such an event, in the form of a severe ice storm, struck the region
January 7 to 9, 1998, cutting power to some 280,000 customers in the Company's
service area. A January 15 order of the Maine Public Utilities Commission
("MPUC") allows the Company to defer incremental costs incurred in restoring
service and report them in its 1998 ARP filing. Incremental costs of the ice
storm are estimated at $60 million to $65 million. The Company is pursuing all
available means of mitigating cost impacts, including seeking federal relief.
The Company remains committed to its public pledge to hold price increases
at or below the rate of inflation. In its annual ARP compliance filing in March
1998, the Company requested a price-cap increase of 1.8 percent, consistent with
that pledge.
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. See "Restructuring Legislation and Divestiture of
Generation Assets" section below for further discussion.
The Maine Yankee shutdown, the ARP, industry restructuring, strandable
costs, the pending sale of the Company's generating assets, and other
significant developments are discussed in succeeding sections of this report. In
some cases more complete information is included in Management's Discussion and
Analysis of Financial Condition and Results of Operations, which appears in Item
7 of this report, or in the Notes to Consolidated Financial Statements for the
year ended December 31, 1997, which appear in Item 8 of this report. In those
cases Items 7 and 8 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 Items 7 and 8.
Topic Page
Regulation and Rates 3
Agreement for Sale of Company's Generation Assets 5
Industry Restructuring and Strandable Costs 6
Proposed Formation of Holding Company 9
Expansion of Lines of Business 9
Non-utility Generation 10
Permanent Shutdown of Maine Yankee Plant 11
Financing and Related Considerations 15
Environmental Matters 17
Employee Information 17
Regulation and Rates
General. The Company is subject to the regulatory authority of the MPUC 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 to the jurisdiction of the Federal Energy Regulatory
Commission ("FERC") under Parts I, II and III of the Federal Power Act for 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. 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 Plant and the other nuclear generating 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, operation and decommissioning 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. For a
discussion of regulatory issues preceding the permanent cessation of operations
at the Maine Yankee Plant, see "Permanent Shutdown of the Maine Yankee Plant,"
below.
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, and Item 3, "Legal Proceedings" - "Legal and
Environmental Matters."
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 expired in 1997, and fourteen expire 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. The Company's hydroelectric
generating facilities are included in the generating assets the Company has
contracted to sell to FPL Group, Inc. For further discussion of the pending
sale, see "Agreement for Sale of Company's Generating Assets," below.
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."
See Note 3 of Notes to Consolidated Financial Statements for more information on
the ARP.
Agreement for Sale of Company's Generation Assets
On April 28, 1997, the Company announced a plan to seek proposals to
purchase its generating assets and, as part of an auction process, received
final bids on December 10, 1997. On January 6, 1998, the Company announced that
it had reached agreement to sell all of its hydro, fossil and biomass power
plants with a combined generating capacity of 1,185 megawatts for $846 million
in cash to Florida-based FPL Group, the winning bidder in the auction process.
In addition, as part of its agreement with FPL Group, the Company entered into
energy buy-back agreements to assist in fulfilling its obligation to supply its
customers with power until March 1, 2000.
The hydropower assets to be included in the sale represent approximately
373 megawatts of generating capacity. The fossil-fueled assets included in the
sale consist of the Company's interest in the William F. Wyman steam plant in
Yarmouth, Maine, the largest of the Company's three fossil-fueled generating
assets, at 594 megawatts, Mason Station in Wiscasset, Maine, at 145 megawatts,
and Cape Station in South Portland, Maine, at 42 megawatts. The sole biomass
plant is the 31-megawatt unit in Fort Fairfield, Maine, owned by a wholly-owned
subsidiary of the Company.
The Company's interests in the power entitlements from approximately 50
power-purchase agreements with non-utility generators representing approximately
488 megawatts, its 2.5-percent interest in the Millstone III nuclear generating
unit in Waterford, Connecticut, its 3.59-percent interest in the output of the
Vermont Yankee nuclear generating plant in Vernon, Vermont, and its entitlement
in the NEPOOL Phase II interconnection with Hydro-Quebec all attracted
insufficient interest to be included in the present sale. The Company will
continue to seek buyers for those assets. The Company did not offer for sale its
interests in the Maine Yankee (Wiscasset, Maine), Connecticut Yankee (Haddam,
Connecticut) and Yankee Atomic (Rowe, Massachusetts) nuclear generating plants,
all of which are in the process of being decommissioned.
The electric utility restructuring law passed by the Maine Legislature in
the spring of 1997 requires the Company to divest its generating plants and
power-purchase agreements by March 1, 2000, when its customers will be free to
choose among competitive energy suppliers, but the Company elected to conduct an
earlier sale.
Substantially all of the generating assets included in the sale are
subject to the lien of the Company's General and Refunding Mortgage Indenture
dated as of April 15, 1976 (the "Indenture"). Therefore, substantially all of
the proceeds from sale must be deposited with the trustee under the Indenture at
the closing of the sale to free the generating assets from the lien of the
Indenture. Proceeds on deposit with the trustee may be used by the Company to
redeem or repurchase bonds under the terms of the Indenture, including the
possible discharge of the Indenture. In addition, the proceeds could provide the
flexibility to redeem or repurchase outstanding equity securities. The Company
must also provide for payment of applicable taxes resulting from the sale. The
manner and timing of the ultimate application of the sale proceeds after closing
are in any event subject to various factors, including Indenture provisions,
market conditions and terms of outstanding securities.
The bid value in excess of the remaining investment in the power plants
will reduce the Company's stranded costs and other costs, which could lower the
amount that would otherwise be collected from customers by nearly half a billion
dollars. However, the Company will incur incremental costs as a result of the
power buy-back arrangements in excess of the pre-sale costs of capacity and
energy from the plants being sold, which will effectively lower the amount of
sale proceeds available to reduce stranded and other costs. The Company believes
that the reduction in stranded and other costs could permit a reduction in rates
for the Company's customers.
The sale is subject to various closing conditions, including the approval
of state and federal regulatory agencies, which approval process the Company
expects could take approximately four to twelve months, and is subject to
consents of covenant waivers from certain of the Company's lenders. The Company
cannot predict whether or in what form such approvals, consents or waivers will
be obtained.
The Company believes that consummation of the asset sale described above
would constitute significant progress in resolving some of the uncertainties
regarding the effects of electric-utility industry restructuring on the
Company's investors; however, significant risks and uncertainties would remain.
These include, in addition to those enumerated above under "Note re
Forward-looking Statements," but are not limited to: (1) the possibility that a
state or federal regulatory agency will impose adverse conditions on its
approval of the asset sale; (2) the possibility that new state or federal
legislation will be implemented that will increase the risks to such investors
from those contemplated by current legislation; and (3) the possibility of
legislative, regulatory or judicial decisions that would reduce the ability of
the Company to recover its stranded costs from that contemplated by existing
law.
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 a transition to a
more competitive industry. Significant legislative steps have been taken toward
competition in general and non-discriminatory transmission access as discussed
below. Legislation that will restructure the electric-utility industry in Maine
by March 1, 2000, was enacted by the Maine Legislature in May 1997, and is
discussed in detail under this heading below. A departure from traditional
regulation, however, could have a substantial impact 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 has substantial exposure to cost stranding relative to its
size. In general, its stranded costs reflect the excess costs of the Company's
purchased-power obligations over the market value of the power, and the costs of
deferred charges and other regulatory assets. The major portion of the Company's
strandable costs is related to above-market costs of purchased-power obligations
arising from the Company's long-term, noncancelable contracts for the purchase
of capacity and energy from NUGs, with lesser estimated amounts related to the
Company's deferred regulatory assets.
There is a high degree of uncertainty that surrounds stranded-cost
estimates, resulting from having to rely on projections and assumptions about
future conditions, including, among others, 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; the 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.
The estimated market rate for power is based on anticipated regional
market conditions and future costs of producing power. 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 expirations and continuing depreciation. Deferred
regulatory asset totals include the current uncollected balances and existing
amortization schedules for purchased-power contract restructuring and buyouts
negotiated by the Company to lessen the impact of these obligations, along with
energy management costs, financing costs, and other regulatory commitments.
Restructuring Legislation and MPUC Proceeding. The 1997 Maine restructuring
legislation requires the 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. The MPUC has initiated the proceeding that will determine the
Company's stranded costs, corresponding revenue requirements and stranded-cost
charges to be charged by it when it becomes a transmission-and-distribution
utility and has scheduled completion of the proceeding for the second half of
1998. On December 5, 1997, the Company filed direct testimony in the proceeding
estimating its future revenue requirements as a transmission-and-distribution
utility and providing an updated estimate of its strandable costs, which are to
be defined by the MPUC later in the proceeding. The Company estimated its
strandable costs at approximately $1.3 billion and explained the assumptions
underlying the estimate. The estimate was developed without consideration of the
Company's own generating assets, most of which are under contract to be sold to
FPL Group in 1998. The Company's strandable costs, therefore, should be
partially mitigated by the results of the sale. In its estimate of strandable
costs the Company used a methodology consistent with one used earlier by the
MPUC. The Company cannot predict the results of the proceeding.
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 and the related rates charged to customers 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. As discussed above under "Agreement for
Sale of Company's Generating Assets," the Company has contracted to sell its
non-nuclear generating assets and is seeking regulatory approvals for the sale.
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 recovery of nuclear-plant decommissioning costs "[a]s required
by federal law, rule or order", 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 is evaluating means of mitigating its strandable costs. 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.
Proposed Formation of Holding Company
To prepare further for the restructured electric utility industry
contemplated by the legislation, on December 8, 1997, the Company filed an
application with the MPUC for authorization to create a holding company that
would have as subsidiaries the Company, the Company's existing non-utility
subsidiaries and other entities. The Company believes that a holding company
structure will facilitate the Company's transition to a partially deregulated
electricity market that is scheduled to open access to electricity for Maine
consumers beginning on March 1, 2000. Competing as an electric energy provider
in that market as of that date will require the creation of an energy company
that is legally separate from the Company. The Company also proposed the
creation of an affiliated energy marketing affiliate in the MPUC filing.
The Company's application to the MPUC also requested approval of the
creation of a limited liability company in which a proposed new subsidiary of
the holding company would hold a fifty percent member-ship interest to
participate in the natural gas distribution business in Maine, with the
remaining fifty percent interest being held by New York State Electric & Gas
Corporation ("NYSEG") or its affiliate. For further discussion of the NYSEG
joint venture, see "Expansion of Lines of Business," below.
The proposed holding company formation must also be approved by federal
regulators, including the Securities and Exchange Commission and the FERC, and
by the holders of the Company's common stock and 6% Preferred Stock. The Company
is taking steps to pursue these approvals, but cannot predict the outcome.
Expansion of Lines of Business
The Company is preparing for competition by expanding its business
opportunities through subsidiaries that capitalize on core competencies. One
subsidiary, MaineCom Services, arranges fiber-optic data service for bulk
carriers, offering support for cable television or "super-cellular" personal
communication vendors, and providing other telecommunications consulting
services. TeleSmart is a wholly-owned credit and collections subsidiary. Another
wholly-owned subsidiary, CMP International Consultants, provides utility
consulting (domestic and international) and research, and engineering and
environmental services. The 100-percent owned Union Water Power Company provides
management of rivers and recreational facilities, locating of underground
utility facilities and infrared photography, real estate brokerage and
management, modular housing, and utility construction services. The subsidiaries
often utilize skills of former Company employees and regularly compete for
business with other companies. In addition, a division of the Company is
focusing on retail competition by developing effective marketing techniques and
energy-efficient services and products.
As noted above, the Company and NYSEG have signed a joint-venture agreement to
distribute natural gas to many Maine communities that are not currently served
with that fuel. The Company and NYSEG propose to offer natural-gas service in
five areas of Maine, primarily the Augusta, Bangor, Bath-Brunswick, Rumford and
Waterville areas. None of the 60 towns in those areas currently has a
natural-gas distribution system in place. The gas would be drawn from two new
gas-pipeline projects now under development by unrelated parties that would
carry Canadian gas, after receipt of additional regulatory approvals, through
Maine and into the regional energy market using substantial portions of electric
transmission-line corridors owned by the Company and MEPCO under agreements
entered into on March 16, 1998. On March 9, 1998, the MPUC gave preliminary
approval to the Company-NYSEG proposal, subject to final approval after
submission of detailed plans on financing, construction, and other matters.
Competing applications to serve some of the areas have been filed. The Company
cannot predict the outcome of the MPUC proceeding. The Company will continue to
evaluate the opportunity to be a provider of natural gas to Maine customers, and
the economics thereof, including monitoring progress of the planned pipelines,
competitive considerations and relevant regulatory decisions.
FiveCom LLC ("FiveCom"), a majority-owned subsidiary of the Company's
wholly-owned MaineCom Services, is building a fiber-optic cable network
connecting cities in New England and plans to sell capacity on the network to
telephone companies, Internet providers, and other telecommunications
businesses. FiveCom has used transmission-line corridors owned by the Company,
and a substantial part of the expanded network in Connecticut and Massachusetts
will occupy utility corridors of Northeast Utilities, which owns a minority
interest in FiveCom. The Company's equity investment in MaineCom Services at the
end of 1997 was $15.9 million. In addition, the Company is providing up to $30
million to FiveCom through a loan arrangement for the development and
construction of the expanded network, and for working capital. The Company
believes there is a growing need for such a fiber-optic network in New England,
but cannot predict the results of this venture.
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 3.6 billion kilowatt-hours of electricity to the Company in 1997,
representing 35 percent of total generation, an increase from 32 percent 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 contributed the largest part of the Company's increased costs
and resulting rate increases in the years immediately prior to implementation of
the ARP in 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 of 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, prices paid by the Company under NUG contracts have often been well
above current wholesale market prices. On October 31, 1997, a contract with a
major NUG supplier expired, which will result in an annual cost reduction of
approximately $25 million for the Company, commencing November 1, 1997.
In accordance with prior MPUC policy and the ARP, $93 million of buyout or
restructuring costs since January 1992 have 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. The Company offered to sell its NUG power entitlements
as part of the auction of its generating assets, but the offer attracted
insufficient interest to be included in its pending sale.
Permanent Shutdown of Maine Yankee Plant
On August 6, 1997, the Board of Directors of Maine Yankee voted to
permanently cease power operations at its nuclear generating plant at Wiscasset,
Maine (the "Plant") and to begin decommissioning the Plant. As reported in
detail in the Company's Annual Report on Form 10-K for the year ended December
31, 1996, its Quarterly Reports on Form 10-Q for the quarters ended March 31,
1997, June 30, 1997 and September 30, 1997 and its Current Reports on Form 8-K
dated May 15, 1997 and August 1, 1997, and reported in more condensed form
below, the Plant experienced a number of operational and regulatory problems and
has been shut down since December 6, 1996. The decision to close the Plant
permanently was based on an economic analysis of the costs, risks and
uncertainties associated with operating the Plant compared to those associated
with closing and decommissioning it. The Plant's operating license from the NRC
was scheduled to expire on October 21, 2008.
Recent Operating History. The Plant provided reliable and low-cost power
from the time it commenced operations in late 1972 to 1995. Beginning in early
1995, however, Maine Yankee encountered various operational and regulatory
difficulties with the Plant. In 1995, the Plant was shut down for almost the
entire year to repair a large number of steam generator tubes that were
exhibiting defects. Shortly before the Plant was to go back on-line in December
1995, a group with a history of opposing nuclear power released an undated,
unsigned, anonymous letter alleging that in 1988 Yankee Atomic (then an
affiliated consultant of Maine Yankee) and Maine Yankee had used the results of
a faulty computer code as a basis to apply to the NRC for an increase in the
Plant's power output. In response to the allegation, on January 3, 1996, the NRC
issued a Confirmatory Order that restricted the Plant to 90 percent of its
licensed thermal operation level, which restriction was still in effect when the
Plant was permanently shut down.
As a result of the controversy associated with the allegations, the NRC,
at the request of the Governor of Maine, conducted an intensive Independent
Safety Assessment ("ISA") of the Plant in the summer and fall of 1996. On
October 7, 1996, the NRC issued its ISA report, which found that while the Plant
had been operated safely and could continue to operate, there were weaknesses
that needed to be addressed, which would require substantial additional spending
by Maine Yankee. On December 10, 1996, Maine Yankee responded to the ISA report,
acknowledged many of the weaknesses, and committed to revising its operations
and procedures to address the NRC's criticisms.
Another result of the controversy associated with the allegations was an
investigation of Maine Yankee initiated by the NRC's Office of Investigations
("OI"), which, in turn, referred certain issues to the United States Department
of Justice ("DOJ") for possible criminal prosecution. Subsequently, on September
27, 1997, the DOJ, through the United States Attorney for Maine, announced that
its review had revealed insufficient grounds for criminal prosecution. The
Company believes that the OI investigation, however, could ultimately result in
the imposition of civil penalties, including fines, on Maine Yankee and expects
resolution of outstanding NRC enforcement action in 1998.
In 1996 the Plant was generally in operation at the 90-percent level from
late January to early December, except for a two-month outage from mid-July to
mid-September. The Plant was shut down again on December 6, 1996, to address
several concerns, and has not operated since then. The precipitating event
causing the shutdown was the need to evaluate and resolve cable-separation
compliance issues, and on December 18, 1996, the NRC issued a Confirmatory
Action Letter requiring the Plant to remain shut down until Maine Yankee's plan
for resolving the cable-separation issues was accepted by the NRC. Subsequently,
Maine Yankee uncovered additional issues, including among others the possibility
of having to replace defective fuel assemblies, address additional
cable-separation issues, and determine the condition of the Plant's steam
generators, which contributed to further operational uncertainty. On January 29,
1997, the Plant was placed on the NRC's Watch List, and on January 30, 1997, the
NRC issued a supplemental Confirmatory Action Letter requiring the resolution of
additional concerns before the Plant could be restarted.
In December 1996 Maine Yankee requested proposals from several utilities
with large and successful nuclear programs to provide a management team, and
ultimately contracted with Entergy Nuclear, Inc., effective February 13, 1997,
for management services that included providing a new president and regulatory
compliance officer. The Entergy-provided management team made progress in
addressing technical issues, but a number of operational and regulatory
uncertainties remained. On May 27, 1997, the Board of Directors of Maine Yankee
voted to minimize spending while preserving the options of restarting the Plant
or conveying ownership interests to a third party. After unsuccessful
negotiations with one prospective purchaser, Maine Yankee found no other
interest in purchasing the Plant and, based on its economic analysis, closed the
Plant permanently.
As required by the NRC, on August 7, 1997, Maine Yankee certified to the
NRC that Maine Yankee had permanently ceased operations and that all fuel
assemblies had been permanently removed from the Plant's reactor vessel. On
August 27, 1997, Maine Yankee filed the required Post-Shutdown Activities Report
with the NRC, describing its planned post-shutdown activities and a proposed
schedule.
Costs. The Company has been incurring substantial costs in connection with
its 38-percent share of Maine Yankee costs, as well as additional costs for
replacement power while the Plant has been out of service. For the twelve months
ended December 31, 1997, such costs amounted to approximately $132.3 million for
the Company: $72.8 million due to basic operations and maintenance costs, $54.0
million due to replacement power costs and $5.5 million associated with
incremental costs of operations and maintenance. The Maine Yankee Board's
decision to close the Plant mitigated the costs the Company would otherwise have
incurred in 1997 through a phasing down of Maine Yankee's operations and
maintenance costs, with Maine Yankee's workforce having been reduced from
approximately 475 to 214 employees as of December 31, 1997, and further
reductions planned, but did not reduce the need to buy replacement energy and
capacity. The amount of costs for replacement energy and capacity varies based
on the Company's power requirements and market conditions, but the Company
expects such costs to be within a range of approximately $5.0 million to $5.5
million per month during 1998, based on current energy and capacity needs and
market conditions. Under the electric utility restructuring legislation enacted
by the Maine Legislature in May 1997 discussed above, the Company's obligations
to provide replacement power will terminate on March 1, 2000, along with its
other power-supply obligations. The impact of the nuclear-related costs on the
Company was the major obstacle to achieving satisfactory results in 1997,
despite the approximately $75 million in annual Maine Yankee-related costs
embedded in the current determination of the Company's required revenues for
ratemaking purposes and despite success in controlling other operating costs.
See "Financial Results," above.
The Company's 38-percent ownership interest in Maine Yankee's common
equity amounted to $29.8 million as of December 31, 1997, and under Maine
Yankee's Power Contracts and Additional Power Contracts, the Company is
responsible for 38 percent of the costs of decommissioning the Plant. Maine
Yankee's most recent estimate of the cost of decommissioning is $380.6 million,
based on a 1997 study by an independent engineering consultant, plus estimated
costs of interim spent-fuel storage of $127.6 million, for an estimated total
cost of $508.2 million (in 1997 dollars). The previous estimate for
decommissioning, by the same consultant, was $316.6 million (in 1993 dollars),
which resulted in approximately $14.9 million being collected annually from
Maine Yankee's sponsors pursuant to a 1994 FERC rate order. Through December 31,
1997, Maine Yankee had collected approximately $199.5 million for its
decommissioning obligations.
On November 6, 1997, Maine Yankee submitted the new estimate to the FERC
as part of a rate case reflecting the fact that the Plant is no longer operating
and has entered the decommissioning phase. If the FERC accepts the new estimate,
the amount of Maine Yankee's collections for decommissioning would rise from the
$14.9 million previously allowed by the FERC to approximately $36 million per
year. Several interested parties have intervened in the FERC proceeding,
including the MPUC.
On September 1, 1997, Maine Yankee estimated the sum of the future
payments for the closing, decommissioning and recovery of the remaining
investment in Maine Yankee to be approximately $930 million, of which the
Company's 38-percent share would be approximately $353 million. Legislation
enacted in Maine in 1997 calling for restructuring the electric utility industry
provides for recovery of decommissioning costs, to the extent allowed by federal
regulation, through the rates charged by the transmission-and-distribution
companies. Based on the legislation and regulatory precedent established by the
FERC in its opinion relating to the decommissioning of the Yankee Atomic nuclear
plant, the Company believes that it is entitled to recover substantially all of
its share of such costs from its customers and as of December 31, 1997, is
carrying on its consolidated balance sheet a regulatory asset and a
corresponding liability in the amount of $329 million, which is the $353 million
discussed above net of the Company's post-September 1, 1997 cost-of-service
payments to Maine Yankee.
Management Audit. On September 2, 1997, the MPUC released the report of a
consultant it had retained to perform a management audit of Maine Yankee for the
period January 1, 1994, to June 30, 1997. The report contained both positive and
negative conclusions, the latter including: that Maine Yankee's decision in
December 1996 to proceed with the steps necessary to restart the Plant was
"imprudent", that Maine Yankee's May 27, 1997 decision to reduce restart
expenses while exploring a possible sale of the Plant was "inappropriate", based
on the consultant's finding that a more objective and comprehensive competitive
analysis at that time "might have indicated a benefit for restarting" the Plant;
and that those decisions resulted in Maine Yankee incurring $95.9 million in
"unreasonable" costs. On October 24, 1997, the MPUC issued a Notice of
Investigation initiating an investigation of the shutdown decision and of the
operation of the Plant prior to shutdown, and announced that it had directed its
consultant to extend its review to include those areas. The Company believes the
report's negative conclusions are unfounded and may be contradictory. The
Company has been charging its share of the Maine Yankee expenses to income, and
believes it would have substantial constitutional and jurisdictional grounds to
challenge any effort in an MPUC proceeding to alter wholesale Maine Yankee rates
made effective by the FERC. On November 7, 1997, Maine Yankee initiated a legal
challenge to the MPUC investigation in the Maine Supreme Judicial Court alleging
that such an investigation falls exclusively within the jurisdiction of the FERC
and that the MPUC investigation is therefore barred on constitutional grounds.
The Company filed a similar legal challenge on the same day. The MPUC
subsequently stayed its investigation pending the outcome of Maine Yankee's FERC
rate case, in which the MPUC is participating, while indicating that its
consultant would continue its extended review. Based on preliminary indications
from the consultant, the Company expects the report on the extended review to
call for additional disallowances, which Maine Yankee has said it expects to
contest vigorously.
Maine Yankee Debt Restructuring and FERC Rate Proceeding. Maine Yankee
entered into agreements in August 1997 with the holders of its outstanding First
Mortgage Bonds and its lender banks (the "Standstill Agreements") under which
the bondholders and banks agreed that they would not assert that the August 1997
voluntary permanent shutdown of the Plant constituted a covenant violation under
Maine Yankee's First Mortgage Indenture or its two bank credit agreements. The
parties also agreed in the Standstill Agreements to maintain Maine Yankee's bank
borrowings at a level below that of the prior aggregate bank commitments, which
level Maine Yankee considered adequate for its foreseeable needs. The Standstill
Agreements, as extended in October 1997, were to terminate on January 15, 1998,
by which date Maine Yankee was to have reached agreement on restructured debt
arrangements reflecting its decommissioning status. Maine Yankee's rate filing
with the FERC reflected the Plant's decommissioning status and requested an
effective date of January 15, 1998, for the amendments to Maine Yankee's Power
Contracts and Additional Power Contracts, which revise Maine Yankee's wholesale
rates and clarify and confirm the obligations of Maine Yankee's sponsors to
continue to pay their shares of Maine Yankee's costs during the decommissioning
period.
On January 14, 1998, the FERC issued an "Order Accepting for Filing and
Suspending Power Sales Contract Amendment, and Establishing Hearing Procedures"
(the "FERC Order") in which the FERC accepted for filing the rates associated
with the amended Power Contracts and made them effective January 15, 1998,
subject to refund. The FERC also granted intervention requests, including among
others those of the MPUC, Maine Yankee's largest bondholder, and two of its
lender banks, denied the request of an intervenor group to summarily dismiss
part of the filing, and ordered that a public hearing be held concerning the
prudence of Maine Yankee's decision to shut down the Plant and on the justness
and reasonableness of Maine Yankee's proposed rate amendments. The Company
expects the prudence issue to be pursued vigorously by several intervenors,
including among others the MPUC, which stayed its own prudence investigation
pending the outcome of the FERC proceeding after the jurisdictional challenge by
Maine Yankee and the Company discussed above. The hearing in the FERC rate
proceeding is scheduled to begin on December 1, 1998. The Company cannot predict
the outcome of the FERC proceeding.
On January 15, 1998, Maine Yankee, its bondholders and lender banks
revised the Standstill Agreements and extended their term to April 15, 1998,
subject to satisfying certain milestone obligations during the term of the
extension. One such obligation was that Maine Yankee must have accepted, by
February 12, 1998, an underwritten commitment to refinance its bonds and bank
debt, subject only to closing conditions reasonably capable of being satisfied
by April 15, 1998, and reasonably satisfactory to the bondholders and banks.
Maine Yankee accepted such a commitment prior to the deadline, received
regulatory approval of the refinancing on March 9, 1998, and is negotiating
final loan documentation and preparing for a closing before April 15. The
proposed refinancing consists of an extendible three-year bank credit facility
and an eight-year term loan facility.
Other Maine Yankee Shareholders: Higher nuclear-related costs are also
affecting other stockholders of Maine Yankee in varying degrees. Bangor
Hydro-Electric Company, a Maine-based 7 percent stockholder, cited its
"deteriorating" financial condition, suspended its common stock dividend, and
eventually obtained rate relief. Maine Public Service Company, a 5 percent
stockholder, cited problems in satisfying financial covenants in loan documents,
reduced its common stock dividend substantially in early March 1997 and obtained
rate relief. Northeast Utilities (20 percent stockholder through three
subsidiaries), which is also adversely affected by the substantial additional
costs associated with the three shut-down Millstone nuclear units and the
permanently shut-down Connecticut Yankee unit, as well as significant regulatory
issues in Connecticut and New Hampshire, has implemented an indefinite
suspension of its quarterly common stock dividends. Largely as a result of
nuclear-related costs, Northeast Utilities reported a loss of $135 million for
1997 and continues to experience difficulty in satisfying loan covenants. A
default by a Maine Yankee stockholder in making payments under its Power
Contract or Capital Funds Agreement could have a material adverse effect on
Maine Yankee, depending on the magnitude of the default, and would constitute a
default under Maine Yankee's bond indenture and its two major credit agreements
unless cured within applicable grace periods by the defaulting stockholder or
other stockholders. The Company cannot predict, however, what effect, if any,
the financial difficulties being experienced by some Maine Yankee stockholders
will have on Maine Yankee or the Company.
Financing and Related Considerations
Financing Activity. During 1997 the Company issued no notes under its
Medium-Term Note program. Notes in the amount of $25 million matured during the
year, reducing the total of outstanding Medium-Term Notes at the end of 1997 to
$43 million from $68 million at the end of 1996.
On February 24, 1998, the Company issued a two year 6.38% Medium-Term Note
in the principal amount of $30 million, and on March 20, 1998, issued 18-month
6.35% Medium-Term Notes in the aggregate principal amount of $30 million,
raising the total outstanding to $103 million.
The Company's Articles of Incorporation limit the amount of unsecured
indebtedness the Company may incur without the consent of the holders of the
Company's preferred stock to 20 percent of the Company's total capitalization.
At the end of 1997, 20 percent of such capitalization amounted to $211 million.
In 1989 holders of the Company's preferred stock consented to the issuance of
unsecured Medium-Term Notes in an aggregate principal amount of up to $150
million outstanding at any one time, so such notes up to that amount were not
included in the 20-percent limitation. At its annual meeting of stockholders on
May 15, 1997, however, the Company obtained the consent of the holders of its
preferred stock to issue an additional $350 million of Medium-Term Notes, up to
$500 million outstanding at any one time, in order to increase its financing
flexibility in anticipation of industry restructuring and increased competition.
To support its short-term capital requirements, on October 23, 1996, the
Company entered into a $125 million Credit Agreement with several banks, with
BankBoston, N.A., and The Bank of New York acting as agents for the lenders. The
arrangement has two credit facilities: a $75 million, 364-day revolving credit
facility that currently matures on October 21, 1998, and a $50-million, 3-year
revolving credit facility that matures on October 22, 1999. Both credit
facilities require annual fees on the total credit lines. The fees are based on
the Company's credit ratings and allow for various borrowing options including
LIBOR-priced, base-rate-priced and competitive-bid-priced loans. Access to
commercial paper markets has been substantially precluded, 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. The Company had $60
million outstanding as of December 31, 1997, under the 364-day revolving credit
facility, all of which had been paid as of March 25, 1998.
On February 26, 1998, the Company called for redemption on March 30, 1998,
all of the outstanding $11 million principal amount of its General and Refunding
Mortgage Bonds, Series N 8.50% Due 2001, at a redemption price equal to their
principal amount plus accrued interest to the date fixed for redemption. On the
same day the Company also called for redemption on March 30, 1998, all of the
outstanding $50 million principal amount of its General and Refunding Mortgage
Bonds, Series R 7-7/8% Due 2023, also at a redemption price equal to their
principal amount plus accrued interest. The bond redemptions are being funded
from the approximately $61.7 million on deposit with the trustee under the
renewal and replacement fund and release provisions of the Company's General and
Refunding Mortgage Indenture. On February 27, 1998, the Company called for
redemption on April 1, 1998, all of the outstanding 300,000 shares of its
Preferred Stock 7-7/8% Series at a redemption price of $100 per share. No
accrued dividends are being paid on the preferred stock since the redemption
date is a regular dividend payment date.
Securities Ratings. On February 20, 1998, Duff & Phelps Credit Rating Co.
("D & P") reaffirmed and placed on Rating Watch - Up the debt ratings of the
Company. On January 6, 1998, Standard & Poor's Corp. ("S & P") placed the
Company's credit ratings on Credit Watch with positive implications. Also on
January 6, 1998, Moody's Investors Service ("Moody's") confirmed the Company's
senior secured debt rating, while also revising the rating outlook to stable
from negative. The credit rating agencies' actions were in response to the
Company's announcement of its agreement to sell its generation assets to FPL
Group, Inc. and its plan for divestiture. Earlier, on May 1, 1997, Moody's had
downgraded the Company's credit ratings of all classes of securities citing
"adverse financial pressures linked to prolonged nuclear plant outages,
especially at the Maine Yankee plant as well as uncertainty surrounding the
timing and extent of recovery of the Company's sizable potential stranded
costs." The current ratings assigned the Company's securities by the three major
securities-rating agencies are shown below:
Mortgage Unsecured Commercial Preferred
Bonds Notes Paper Stock
S&P BB+ BB B B+
Moody's Baa3 Ba1 P3 Ba1
D&P BBB- BB+ D3 BB
Environmental Matters
Federal, state and local environmental laws and regulations cover air and
water quality, land use, power plant and transmission line siting, noise and
aesthetics, solid and hazardous waste and other environmental matters.
Compliance with these laws and regulations impacts the manner and cost of
electric service by requiring, among other things, changes in the design and
operation of existing facilities and changes or delays in the location, design,
construction and operation of new facilities. These environmental regulations
most significantly affect the Company's electric power generating facilities,
which are to be sold to FPL Group, as discussed above. In addition, certain
environmental proceedings under federal and state hazardous substance and
hazardous waste regulations (such as the Comprehensive Environmental Response,
Compensation, and Liability Act ("CERCLA") and the Resource Conservation and
Recovery Act ("RCRA") and similar state statutes) are discussed below under Item
3, "Legal Proceedings" - "Legal and Environmental Matters." The Company
estimates that its capital expenditures for improvements needed to comply with
environmental laws and regulations were approximately $21.4 million for the five
years from 1993 through 1997.
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, 1997, the Company had 1,677 full-time employees, of whom
approximately 43 percent were represented by the union.
In April 1995 the Company and the union agreed to a three-year labor
contract 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. The wage negotiations resulted in a general wage
increase of 2.25 percent for the third year. The contract will expire on April
30, 1998, and negotiations for a new contract are in progress.
On March 3, 1998, the Company and the Union reached agreement on a
contract covering 158 employees in power-generation positions. This contract
will be the same as the current agreement except that it provides for a 2.5
percent general wage increase effective March 1, 1998. The contract will expire
on July 31, 1999 and, at the time of the closing of the generation-asset sale,
is expected to be absorbed by FPL Group, along with most of the
generation-related employees.
<PAGE>
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, 1997, the Company had approximately 2,293
circuit-miles of overhead transmission lines, 19,514 pole-miles of overhead
distribution lines and 1,384 miles of underground and submarine cable. The
maximum one-hour firm system net peak load experienced by the Company during the
summer of 1997 was approximately 1,337 megawatts on July 28, 1997. At the time
of the annual peak, the Company's net capability was 1,825 megawatts, including
298 megawatts of capability from the Maine Yankee Plant. After the loss of Maine
Yankee capability, the Company entered into replacement contractual purchases
resulting in a net capability of 1,680 megawatts. In December 1997, at the time
of the winter peak of 1,322 megawatts, the Company's net capability, after
further contractual purchases, was 1,806 megawatts.
The Company operates 32 hydroelectric generating stations, of which 31 are
owned fully by the Company, with an estimated net capability of 373 megawatts,
and it purchases an additional 74 megawatts of non-utility hydroelectric
generation in Maine. The Company also operates two oil-fired steam-electric
generating stations, William F. Wyman Station in Yarmouth, Maine and Mason
Station in Wiscasset, Maine. The Company's share of William F. Wyman Station has
an estimated net capability of 594 megawatts. Mason Station has five units
totaling 145 megawatts although two of the units are retired. The oil-fired
stations are located on tidewater, permitting waterborne delivery of fuel. The
Company also has internal combustion generating facilities with an estimated
aggregate net capability of 42 megawatts. These facilities are included in the
pending sale of the Company's generating assets to FPL Group.
The Company has ownership interests in five nuclear generating plants in
New England. The largest is a 38-percent interest in Maine Yankee Atomic Power
Company ("Maine Yankee") which, as discussed above, has permanently shut down
its plant in Wiscasset, Maine. In addition, the Company owns a 9.5 percent
interest in Yankee Atomic Electric Company ("Yankee Atomic"), discussed below,
which has permanently shut down its plant located in Rowe, Massachusetts, a 6
percent interest in Connecticut Yankee Atomic Power Company ("Connecticut
Yankee"), discussed below, which has permanently shut down its 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 to the
four Yankee Companies, 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, which has been off-line for
regulatory reasons since March 31, 1996. See Item 7, "Management's Discussion
and Analysis of Financial Condition and Results of Operations" for more
information.
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C>
Maine Yankee Connecticut Vermont Millstone
Yankee Atomic Yankee Yankee Unit 3
------ ------ ---- ------- ------ --- ------
Ownership Share 38% 9.5% 6% 4% 2.5%
Operating Status Permanently shut Permanently shut Permanently shut down Operating Currently
down August 6, down February 26, December 4, 1996 off-line since
1997 1992 March 31, 1996
Location Wiscasset, Maine Rowe, Massachusetts Haddam, Connecticut Vernon, Vermont Waterford,
Connecticut
Capacity Share N/A N/A N/A 19 MW 29 MW
Equity Interest at
December 31, 1997
$29.8 Million $2.2 Million $6.6 Million $2.1 Million N/A
</TABLE>
Maine Yankee. In August 1997, the Board of Directors of Maine Yankee
Atomic Power Company voted to permanently shut down and decommission the Maine
Yankee plant. The Plant experienced a number of operational and regulatory
problems and has been shut down since December 6, 1996. The decision to close
the Plant permanently was based on an economic analysis of the costs, risks and
uncertainties associated with operating the Plant compared to those associated
with closing and decommissioning it. For a detailed discussion of the issues
relating to the Maine Yankee Plant, see Item 1 "Business" "Permanent Shutdown of
the Maine Yankee Plant," above.
Connecticut Yankee. In December 1996, the Board of Directors of
Connecticut Yankee Atomic Power Company voted to permanently shut down the
Connecticut Yankee plant for economic reasons, and to decommission the plant. An
economic analysis conducted by Connecticut Yankee estimated that the early
closing of the plant would save over $100 million (net present value) over its
remaining license life to the year 2007, compared with the costs of continued
operation. The plant did not operate after July 22, 1996. The Company estimates
its share of the cost of Connecticut Yankee's continued compliance with
regulatory requirements, recovery of its plant investment, decommissioning and
closing the plant to be approximately $36.9 million and has recorded a
corresponding regulatory asset and liability on the consolidated balance sheet.
The Company is currently recovering through rates an amount adequate to recover
these expenses.
Yankee Atomic. In 1993 the FERC approved a settlement agreement regarding
recovery of decommissioning costs and plant investment, and all issues with
respect to the prudence of the decision to discontinue operation of the Yankee
Atomic plant. The Company estimates its remaining share of the cost of Yankee
Atomic's continued compliance with regulatory requirements, recovery of its
plant investment, decommissioning and closing the plant, to be approximately
$13.1 million. This estimate 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.
Vermont Yankee. The Vermont Yankee plant is an operating unit. Its NRC
operating license is scheduled to expire in the year 2012.
Millstone Unit 3. Pursuant to a joint ownership agreement, the Company has
a 2.5 percent direct ownership interest in the Millstone 3 nuclear unit in
Waterford, Connecticut, which is operated by Northeast Utilities. This facility
has been off-line for regulatory reasons since March 31, 1996, due to NRC
concerns regarding license requirements. Millstone Unit No. 3, along with two
other units at the same site owned by Northeast Utilities, is on the NRC's
"watch list" in "Category 3," which requires formal NRC action before the unit
can be restarted. The Company cannot predict when it will return to service.
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.
MEPCO - 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 an interconnection agreement.
MEPCO transmits power between NB Power and various New England utilities
pursuant to MEPCO's Open Access Transmission Tariff.
New England Power Pool - 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 44.5 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 $27.1 million,
its share of the construction cost for the transmission facilities incurred
through December 31, 1997.
Maine Yankee Decommissioning - On November 6, 1997, Maine Yankee submitted
a new decommissioning cost estimate to the FERC as part of a rate case
reflecting the fact that the Plant is no longer operating and has entered the
decommissioning phase. If the FERC accepts the new estimate, the amount of Maine
Yankee's collections for decommissioning would rise from the $14.9 million
previously allowed by the FERC to approximately $36 million per year. Several
interested parties have intervened in the FERC proceeding, including state
regulators. The Company cannot predict the result of the FERC case. The market
value of Maine Yankee's accumulated decommissioning fund was $199.5 million
(including interest earned) as of December 31, 1997.
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 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 ceased operations in 1994.
The compact is before the Congress for ratification and was approved by
the House of Representatives in October 1997. The Senate deferred action on the
bill until 1998. Since the Plant has permanently stopped operating, the compact
is less beneficial to Maine Yankee than it would have been if the Plant had
remained in operation, due to the new schedule for Maine Yankee's shipments and
the anticipated schedule for opening the Texas facility. The Company cannot
predict whether the final required ratification of the Texas compact or other
regulatory approvals 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
$3.6 million annually.
Construction Program
The Company's plans for improvements and expansion of its facilities are
under continuing review. Actual construction expenditures depend on the
availability of capital and other resources, load forecasts, customer growth,
general business conditions, and, starting in 1998, the consummation of the sale
of its generating assets. Recent economic and regulatory considerations have led
the Company to hold its planned 1998 capital investment outlays, including
deferred demand-side management expenditures, to minimum levels. During the
five-year period ended December 31, 1997, the Company's construction and
acquisition expenditures amounted to $231.8 million (including investment in
jointly-owned projects and excluding MEPCO). The program is currently estimated
at approximately $56 million for 1998 and $219 million for 1999 through 2002.
The following table sets forth the Company's estimated capital
expenditures as discussed above, assuming completion of the generation asset
sale in the fall of 1998:
1999-
1998 2002 Total
Type of Facilities (Dollars in Millions)
Generating Projects $ 5 $ 0 $ 5
Transmission 3 14 17
Distribution 31 131 162
General facilities and Other 17 74 91
-- -- --
Total $56 $219 $275
=== === ====
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 free or low-cost weatherization, water
heater wraps and energy-efficient light bulbs. Among the commercial and
industrial efforts, in addition to operating programs that offer
energy-efficient lighting products and water-heater wraps, the Company has
provided incentives to customers who install conservation measures of any kind
that increase the efficiency of the use of electricity.
NEPOOL
The Company is a member of the New England Power Pool (NEPOOL), which is
open to all investor-owned, municipal and cooperative electric utilities in New
England under a 1971 agreement 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, which was
recently revised to comply with the new regulatory requirements discussed in the
three succeeding paragraphs, imposes obligations concerning generating capacity
reserve and the use of major transmission lines, and provides for central
dispatch of the region's facilities.
On April 24, 1996, the FERC issued Order No. 888, which requires all
public utilities that own, control or operate facilities used for transmitting
electric energy in interstate commerce to file open access non-discriminatory
transmission tariffs that offer both load-based, network and contract-based,
point-to-point service, including ancillary service to eligible customers
containing minimum terms and conditions of non-discriminatory service. This
service must be comparable to the service they provide themselves at the
wholesale level; in fact, these utilities must themselves take the wholesale
transmission service they provide under the filed tariffs. The order also
permits public utilities and transmitting utilities the opportunity to recover
legitimate, prudent and verifiable wholesale stranded costs associated with
providing open access and certain other transmission services. It further
requires public utilities to functionally separate transmission from generation
marketing functions and communications. The intent of this order is to promote
the transition of the electric utility industry to open competition. Order No.
888 also clarifies federal and state jurisdiction over transmission in
interstate commerce and local distribution and provides for deference of certain
issues to state recommendations.
On July 9, 1996, the Company and MEPCO submitted compliance filings to
meet the new pro forma tariff non-price minimum terms and conditions of
non-discriminatory transmission service. Since then, the Company and MEPCO have
made additional filings reviving their tariffs in response to subsequent FERC
Orders. In addition, on February 21, 1997, the Company filed a revised tariff to
comport with the NEPOOL Open Access Transmission Tariff. Since July 9, 1997, the
Company and MEPCO have been transmitting energy pursuant to their filed tariffs,
subject to refund. FERC subsequently issued Orders No. 888-A and 888-B which
generally reaffirm Order No. 888 and clarify certain terms.
On April 24, 1996, FERC also issued Order No. 889, which requires public
utilities to functionally separate their wholesale power marketing and
transmission operation functions and to obtain information about their
transmission system for their own wholesale power transactions in the same way
their competitors do through the Open Access Same-time Information System
("OASIS"). The rule also prescribed standards of conduct and protocols for
obtaining the information. The standards of conduct are designed to prevent
employees of a public utility engaged in marketing functions from obtaining
preferential information. The Company participated in efforts to develop a
regional OASIS for New England, which became operational January 3, 1997. FERC
has also approved a New England Power Pool-wide Open Access Tariff, subject to
refund and issuance of further orders. The Company participated in revising the
New England Power Pool Agreement to comply with the new regulatory requirements.
The revised agreement is pending FERC approval.
<PAGE>
Fuel Supply
The Company's total kilowatt-hour production by energy source for each of
the last two years and as estimated for 1998, assuming completion of the
generation asset sale in the fall of 1998, is shown below.
Actual Estimated
Source 1997 1996 1998
- ------ ---- ---- ----
Nuclear 2% 19% 2%
Hydro 16 17 12
Oil 35 16 14
Non-utility 35 32 34
Other purchases 10 14 28
Biomass 2 2 2
FPL-Hydro Buyback - - 4
FPL-Oil Buyback - - 4
--- --- ---
100% 100% 100%
--- --- ---
The 1998 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 1993 was $13.12, $12.93, $16.16, $18.18
and $17.04, 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.
Maine Yankee Spent Fuel. Like other nuclear plant operators, Maine Yankee
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 was assessed
against net generation of electricity and paid to the DOE quarterly. Under this
Act, the DOE was given 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 elected under terms of this
contract to make a single payment of this obligation prior to the first delivery
of spent fuel to DOE, which was scheduled to begin by January 31, 1998. The
payment would consist of $50.4 million (all of which Maine Yankee 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
$76.2 million of interest cost for the period April 7, 1983, through December
31, 1997.
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 annual deposits of
approximately $2.1 million through December 1999. Deposits are expected to total
approximately $74.6 million, with the total liability, including interest due at
the time of disposal, estimated to be approximately $139.9 million at December
31, 1999. Maine Yankee estimates that trust fund deposits plus estimated
earnings will meet this total liability if funding continues without material
changes.
Maine Yankee's spent fuel is currently stored in the spent fuel pool at
the Plant site. 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. The DOE has indicated that the permanent
disposal site is not expected to open before 2010, although originally scheduled
to open in 1998.
On April 15, 1997, the United States Senate approved the "Nuclear Waste
Policy Act of 1997" (S. 104), which would reform the federal policy for managing
spent nuclear fuel and instruct the DOE to develop an integrated management
system, including a central storage facility, for such fuel. The bill would
require the DOE to accept such nuclear fuel from commercial nuclear power plants
and would establish a licensing process that would result in the storage of such
fuel at a central federal facility beginning no later than June 30, 2003, if all
the necessary approvals are obtained. The DOE would also be required to continue
site characterization work at Yucca Mountain as a permanent disposal site. On
October 30, 1997, the House of Representatives approved a bill (H.R. 1270) with
generally similar objectives. Action to resolve the differences in the two bills
was deferred to 1998.
In June 1994, several nuclear utilities other than Maine Yankee filed suit
against the DOE. The utilities sought a declaration from the United States Court
of Appeals for the District of Columbia that the Nuclear Waste Policy Act of
1982 required the DOE to take responsibility for spent nuclear fuel in 1998. On
July 23, 1996, the court held that the DOE is obligated "to start disposing of
[spent nuclear fuel] no later than January 31, 1998." The DOE did not appeal the
decision, but announced in December 1996 that it anticipated it would be unable
to start accepting spent nuclear fuel for disposal by January 31, 1998. A large
number of nuclear utilities and state regulators filed a new lawsuit against the
DOE in January 1997 seeking to force the DOE to honor its obligation to store
spent nuclear fuel and seeking other appropriate relief. On November 14, 1997,
the U.S. Court of Appeals for the District of Columbia Circuit confirmed DOE's
obligation. On February 19, 1998, Maine Yankee filed a petition in the same
court seeking to compel the DOE to take Maine Yankee's spent fuel from the Plant
site "as soon as physically possible," alleging that removing the spent fuel on
the DOE's indicated schedule would delay the decommissioning of the Maine Yankee
Plant indefinitely. The Company cannot predict the result of the proceeding.
Item 3. LEGAL PROCEEDINGS.
Legal and Environmental Matters.
The Company is subject to regulation by federal and state authorities with
respect to air and water quality, the handling and disposal of toxic substances
and hazardous and solid wastes, and the handling and use of chemical products.
Electric utility companies generally use or generate in their operations a range
of potentially hazardous products and by-products that are the focus of such
regulation. The Company believes that its current practices and operations are
in compliance with all existing environmental laws except for such
non-compliance as would not have a material adverse effect on the Company's
financial position. The Company reviews its overall compliance and measures the
liability quarterly by assessing a range of reasonably likely costs for each
identified site using currently available information, including existing
technology, presently enacted laws and regulations, experience gained at similar
sites, and the probable level of involvement and financial condition of other
potentially responsible parties. These estimates include costs for site
investigations, remediation, operation and maintenance, monitoring and site
closure.
New and changing environmental requirements could hinder the construction
and/or modification of generating units, transmission and distribution lines,
substations and other facilities, and could raise operating costs significantly.
As a result, the Company may incur significant additional environmental costs,
greater than amounts reserved, in connection with the generation and
transmission of electricity and the storage, transportation and disposal of
by-products and wastes. The Company may also encounter significantly increased
costs to remedy the environmental effects of prior waste handling activities.
The cumulative long-term cost impact of increasingly stringent environmental
requirements cannot accurately be estimated.
On October 1, 1996, the American Institute of Certified Public Accountants
issued Statement of Position 96-1, "Environmental Remediation Liabilities"
("SOP"). The principal objective of the SOP is to improve the manner in which
existing authoritative accounting literature is applied by entities to specific
situations of recognizing, measuring and disclosing environmental remediation
liabilities. The SOP became effective January 1, 1997. This SOP has not had a
material impact on the company's financial position or results of operations.
The Company has recorded a liability, based upon currently available
information, for what it believes are the estimated environmental remediation
costs that the Company expects to incur for identified waste disposal sites. In
most cases, additional future environmental cleanup costs are not reasonably
estimatable due to a number of factors, including the unknown magnitude of
possible contamination, the appropriate remediation methods, the possible
effects of future legislation or regulation and the possible effects of
technological changes. The Company cannot predict the schedule or scope of
remediation due to the regulatory process and involvement of non-governmental
parties. At December 31, 1997, the liability recorded by the Company for its
estimated environmental remediation costs amounted to $2.1 million, which
management has determined to be the most probable amount within the range of
$2.1 million to $8.0 million. Such costs may be higher if the Company is found
to be responsible for cleanup costs at additional sites or identifiable possible
outcomes change.
Proposed Federal Income Tax Adjustments. On September 3, 1997, the Company
received from the Internal Revenue Service ("IRS") a Revenue Agent's Report
summarizing all adjustments proposed by the IRS as a result of its audit of the
Company's federal income tax returns for the years 1992 through 1994, and on
September 12, 1997, the Company received a notice of deficiency relating to the
proposed disallowances. There are two significant disallowances among those
proposed by the IRS. The first is a disallowance of the Company's write-off of
the under-collected balance of fuel and purchased-power costs and the
unrecovered balance of its unbilled Electric Revenue Adjustment Mechanism
("ERAM") revenues, both as of December 31, 1994, which were charged to income in
1994 in connection with the adoption of the ARP effective January 1, 1995. The
second major adjustment would disallow the Company's 1994 deduction of the cost
of the buyout of the Fairfield Energy Venture purchased-power contract by the
Company in 1994. The aggregate tax impact, including both federal and state
taxes, of the unresolved issues amounts to approximately $39.0 million, over 90
percent of which is associated with the two major disallowances. The two major
disallowances relate largely to the timing of the deductions and would not
affect income except for the cumulative interest impact which, through December
31, 1997, amounted to $13.1 million, or a decrease in net income of $7.8
million, and which could increase interest expense approximately $441,000 per
month until either the tax deficiency is paid or the issues are resolved in
favor of the Company, in which case no interest would be due. If the IRS were to
prevail, the Company believes the deductions would be amortized over periods of
up to twenty, post-1994, tax years. The Company believes its tax treatment of
the unresolved issues was proper and as a result the potential interest
discussed above has not been accrued. On December 10, 1997, the Company filed a
petition in the United States Tax Court contesting the entire amount of the
deficiencies. The Company plans to seek review of the asserted deficiencies by
an IRS Appeals Officer to determine whether all or part of the dispute can be
resolved in advance of a court determination. Absent such a resolution, the
Company plans to pursue vigorously the Tax Court litigation, but cannot predict
the result.
Shareholder Suit. On September 25, 1997, a lawsuit was filed in the United
States District Court for the Southern District of New York by a New Jersey
resident claiming to be a shareholder of the Company against the current members
of the Company's Board of Directors, including the President and Chief Executive
Officer of the Company, and three former directors. The complaint contained a
derivative claim that the defendants recklessly mismanaged the oversight and
operation of the Maine Yankee Plant and an individual claim that the defendants
failed to make timely and adequate disclosures of information in connection with
issues surrounding the Plant. The complaint did not seek damages against the
Company, but requested that the defendants disgorge the compensation they
received during the period of alleged mismanagement, pay to the Company costs
incurred allegedly as a result of the claimed actions, and cause the Company to
take steps to prevent such actions.
The defendants moved to dismiss the suit for failing to make a pre-suit
demand, as required by Maine law, and on February 18, 1998, the suit was
dismissed. The Company cannot predict whether a proper demand will be made and
the suit refiled, but the Board and the Company believe such a suit is without
merit.
Maine Yankee Secondary Purchasers. Upon the permanent shutdown of the
Maine Yankee Plant, 26 municipal and cooperative utilities (the "Secondary
Purchasers") that had purchased Maine Yankee power under identical contracts
with Maine Yankee's sponsors, including the Company, stopped making payments
under their contracts, claiming that the decision to permanently close the Plant
constituted a breach of those contracts. The Secondary Purchasers had contracted
in 1971 for a total of 6.2847 percent of the output of the Plant, but only the
two Secondary Purchasers from Maine contracted with the Maine sponsors, and one
of the two has continued to pay its Maine Yankee obligations. Under its
secondary contract the non-paying Maine Secondary Purchaser, Houlton Water
Company, has a 0.4073-percent Maine Yankee payment obligation derived pro rata
from the shares of the Company (76 percent), Bangor Hydro-Electric Company (14
percent) and Maine Public Service Company (10 percent). On December 15, 1997,
the sponsors filed a Complaint with the FERC seeking to compel the Secondary
Purchasers to pay their respective shares of Maine Yankee costs under the
contracts and to modify the contracts to require such payments to continue past
the present termination date of the contracts throughout the period of the
Plant's decommissioning. The Secondary Purchasers are contesting the Complaint
at FERC and on January 19, 1998, filed a motion with the Superior Court of Maine
to compel arbitration of the contract disputes, which the sponsors are
contesting. The Company believes the Secondary Purchasers are obligated to
continue making payments under the contracts, but cannot predict the outcome of
the proceedings.
Item 4 SUBMISSION OF MATTERS TO A VOTE
OF SECURITY HOLDERS.
Not applicable.
<PAGE>
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, 56, 1996 Chairman of the Board of Directors
Charles H. Abbott, 62, 1996 Vice Chairman of the Board of Directors
David T. Flanagan, 50, 1984 President and Chief Executive Officer
Arthur W. Adelberg, 46, 1985 Executive Vice President
David E. Marsh, 50, 1986 Chief Financial Officer
Sara J. Burns, 44, 1997 Chief Operating Officer, Distribution Services
Gerald C. Poulin, 56, 1984 Chief Operating Officer, Energy Services
Richard A. Crabtree, 51, 1978 Vice President, Retail Operations*
Michael R. Cutter, 44, 1997 Vice President, Operations Support
F. Michael McClain, 48, 1998 Vice President, Corporate Development
Curtis A. Mildner, 44, 1994 Vice President, Retail Marketing and Sales
Curtis I. Call, 44, 1997 Treasurer
Anne M. Pare, 44, 1996 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 and Mr. McClain. 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. Mr. McClain joined the Company in his current capacity on February
23, 1998. Prior to his employment with the Company, he was Group Vice President
and Chief Operating Officer, Petroleum Group, Dead River Company (1981-1996).
*Mr. Crabtree resigned from the position of Vice President, Retail Operations,
effective May 1, 1997 and was elected President of MaineCom Services, a
subsidiary of the Company.
<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 December 31, 1997, there were 35,532 holders of record of the Company's
common stock.
Price Range of and Dividends on Common Stock
Market Price Dividends
High Low Declared
1997
First Quarter $11 5/8 10 1/2 $0.225
Second Quarter 12 3/4 10 0.225
Third Quarter 13 9/16 12 1/16 0.225
Fourth Quarter 15 1/2 12 7/8 0.225
1996
First Quarter $16 1/4 $13 1/4 $0.225
Second Quarter 14 1/2 12 1/4 0.225
Third Quarter 13 7/8 11 5/8 0.225
Fourth Quarter 12 3/8 11 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, 1997, the Company's retained earnings were $48.2 million, of which $18.6
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, 1993 through 1997. 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 in Items 7 and 8 hereof.
The selected consolidated financial data for the years ended December 31, 1993
through 1997 are derived from the audited consolidated financial statements of
the Company.
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C>
Selected Consolidated Financial Data
(Dollars in Thousands, Except Per Share Amounts)
1997 1996 1995 1994 1993
Electric operating revenue $ 954,176 $ 967,046 $ 916,016 $ 904,883 $ 893,577
Net income (loss) 13,422 60,229 37,980 (23,265) 61,302
Long-term obligations 400,923 587,987 622,251 638,841 581,844
Redeemable preferred stock 39,528 53,528 67,528 80,000 80,000
Total assets 2,298,966 2,010,914 1,992,919 2,046,007 2,004,862
Earnings (loss) per common share
$0.16 $1.57 $0.86 $(1.04) $ 1.65
Dividends declared per common share
$0.90 $0.90 $0.90 $0.90 $1.395
</TABLE>
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
NOTE RE FORWARD-LOOKING STATEMENTS
This Report on Form 10-K contains forecast information items that are
"forward-looking statements" as defined in the Private Securities Litigation
Reform Act of 1995. Such statements are subject to certain risks and
uncertainties which could cause actual results to differ materially from those
projected. Readers are cautioned not to place undue reliance on these
forward-looking statements, which speak only as of the date hereof. The Company
undertakes no obligation to republish revised forward-looking statements to
reflect events or circumstances after the date hereof or to reflect the
occurrence of unanticipated events. Readers are also urged to carefully review
and consider the various disclosures made by the Company which attempt to advise
interested parties of the facts which affect the Company's business.
Factors that could cause actual results to differ materially include,
among other matters, the permanent closure and decommissioning of the Maine
Yankee nuclear generating plant and resulting regulatory proceedings; the actual
costs of decommissioning the Maine Yankee plant; outages at the other generating
units in which the Company holds interests; electric utility restructuring,
including the ongoing state and federal activities; the results of the Company's
planned sale of its generating assets; the Company's ability to recover its
costs resulting from the January 1998 ice storms; future economic conditions;
earnings-retention and dividend-payout policies; developments in the
legislative, regulatory, and competitive environments in which the Company
operates, including regulatory treatment of stranded costs; the Company's
investments in unregulated businesses; and other circumstances that could affect
anticipated revenues and costs, such as unscheduled maintenance or repair
requirements at nuclear plants and other facilities, and compliance with laws
and regulations.
Overview
As in 1996, the Company experienced higher-than-normal operations costs in 1997
from its interest in nuclear generation, particularly its 38 percent interest in
the now-closed Maine Yankee Plant, and incurred significant costs replacing
their energy. Maine Yankee went off-line for repairs in December 1996. On August
6, 1997 the Maine Yankee Atomic Power Company Board of Directors voted
unanimously to close the plant permanently for economic reasons. The Company
incurred additional expenses of $46.0 million in 1997 to replace Maine Yankee
energy and pay its share of increased repair and other operations at the plant.
These costs were the major factor in the deterioration of the per-share earnings
from $1.57 in 1996 to $0.16 in 1997. The Company expects its share of Maine
Yankee costs to decrease by approximately $30.0 million in 1998 as the plant
moves toward decommissioning. See "Permanent Shutdown of Maine Yankee Plant"
below for further discussion. In addition, $5.0 million of increased expense
over 1996 was incurred to replace energy for the Millstone Unit 3 plant in
Connecticut, which was taken off-line for safety modifications and requires U.S.
Nuclear Regulatory Commission approval to restart and the Connecticut Yankee
Plant, closed permanently on December 4, 1996, and now being decommissioned.
The increased expenses could have a minor ratemaking impact. The Company's
earnings level will trigger the sharing provision of the Alternative Rate Plan
(ARP). The ARP, which took effect January 1, 1995, with regulatory approval,
provides for annual July 1 adjustments to price caps on the Company rates. The
adjustments are keyed to prior-year inflation and to measures of utility
performance.
Under the ARP, actual earnings for 1997 outside a bandwidth of 350 basis points,
above or below the 10.55 percent rate of return allowance, triggers the profit
sharing mechanism. A return below the low end of the range provides for
additional revenue through rates equal to one-half of the difference between the
actual earned rate of return, 1.04 percent in 1997, and the 7.05 percent (10.55
- - 3.50) low end of the bandwidth. The Company remains committed nonetheless to
its public pledge to hold price increases at or below the rate of inflation. In
its annual ARP compliance filing in March 1998, the Company requested a
price-cap increase of 1.8 percent consistent with that pledge, which includes
only a small component related to earnings sharing.
The Company also plans to seek reimbursement for its costs of restoring service
to its customers after the severe ice storm of January 7 through 9, 1998 and a
second storm that struck part of the Company's service territory on January 24,
1998. The incremental costs of the repair efforts estimate is $60 to $65
million. Most of the expense was labor-related. The Company used hundreds of
crews from out-of-state utilities, tree companies, and construction firms to
repair unprecedented damage that included more than 2,500 broken utility poles.
The two storms required more than 400,000 service restorations.
A January 15, 1998 order of the MPUC allowed the Company to defer such
incremental costs on its books pending the Company's filing under the ARP, which
allows the PUC to consider and provide recovery for costs of "extraordinary
events" that have a significant impact on the utility and are not reflected in
the general indexing formula. The Company's basic rates include a provision for
"average" levels of tree trimming and outage repair as a normal cost of
supplying service. The basic rates do not include rainy-day provisions for
once-in-a-century-or-worse disasters like the January ice storms. The Company is
pursuing available means of mitigating the cost impact of the storms, including
any federal assistance that may be available.
CMP announced on January 6 that it had agreed to sell its hydro, oil-fired, and
biomass generation to Florida-based FPL Group for $846 million. If the
regulatory agencies approve the sale, approximately $500 million of the value
received could be applied to CMP's estimated $1.3 billion of stranded costs or
other obligations, reducing the amount of revenue that must be produced from
each unit of kilowatt-hour sales to recover those costs. The asset sale was
required by Maine's 1997 electric-restructuring law, which mandated retail
competition in electricity in March 2000. The utility is still seeking buyers
for its storage dams, non-utility-power contract energy, and its share of a
regional transmission tie to Quebec.
The Company continues to face the challenges of competition and industry
restructuring, and must achieve and maintain financial performance and resources
commensurate with both the provision of service demanded by customers and the
obligation to achieve competitive returns on investor capital.
Results of Operations
The Company generated net income of $13.4 million in 1997, compared to $60.2
million in 1996, and $38.0 million in 1995. Earnings applicable to common stock
were $5.2 million in 1997 or $0.16 per share, compared to $50.8 million or $1.57
per share in 1996 and $27.8 million or $0.86 per share in 1995. Once again the
replacement power and other costs related to the now-closed Maine Yankee nuclear
plant were the main factors that eroded per-share earnings in 1997.
The Company incurred additional expenses of $46.0 million in 1997 to replace
Maine Yankee energy and to pay its share of increased repair and other
operations at the Plant. In addition, shutdowns at the Millstone Unit No. 3 and
Connecticut Yankee Plants increased 1997 replacement-power cost by $5.0 million.
The Company's 1996 after-tax financial results benefited by approximately $15.3
million, or $0.47 per share, from non-recurring items related to settlement of
federal income-tax issues, an extended outage at a non-utility generator under
contract to sell energy to CMP, and other items not applicable to 1997.
Dividends declared per common share have remained at $0.90 on an annual basis
for the three years ended December 31, 1997.
Revenues and Sales
Electric operating revenues decreased by $12.9 million or 1.3% to $954.2 million
in 1997, and increased by $51.0 million or 5.6% to $967.0 million in 1996. Lower
non-territorial energy sales - a consequence of Maine Yankees being off-line and
reducing the Company's total energy supply - were the main factor in the revenue
decline in 1997. However, service-area revenues did rise 2.2 percent to $890.2
million. The components of the change in electric operating revenues are as
follows:
(Dollars in millions) 1997 1996
---- ----
Revenues from Company service-area kilowatt-hour sales $17.9 $15.0
Revenues from non-territorial sales (27.1) 33.4
Other Company operating revenues (1.5) 3.0
Maine Electric Power Company, Inc. fuel cost recovery
and other revenues (2.2) (0.4)
Total Change in Electric Operating Revenues $(12.9) $51.0
==== ====
Refer to "Alternative Rate Plan" section, for a discussion of new rates and
their impact on revenues.
The Company's service-area sales for the years 1997, 1996 and 1995 are shown in
the following table:
(Kilowatt-hours in millions)
1997 1996 1995
---- ---- ----
% % %
KWH change KWH change KWH change
Residential .............. 2,817 (0.4)% 2,829 1.0% 2,802 (2.0)%
Commercial ............... 2,529 1.6 2,489 0.5 2,477 1.6
Industrial ............... 3,784 2.6 3,689 4.0 3,547 (4.7)
Wholesale and
lighting .............. 228 5.3 217 58.9 136 (8.7)
----- --- ----- ---- ----- ---
Total Service-
Area Sales ............. 9,358 1.5 % 9,224 2.9% 8,962 (2.2)%
===== === ===== ==== ===== ===
The primary factors in the service-area kilowatt-hour sales increases in 1997
were the growth experienced by the paper mills and strong sales to other
industrial sectors. Nearly half of that growth directly related to an expansion
by a large industrial customer. The increase in 1996 was residential customers'
taking advantage of the Company's water-heating programs, increased sales in the
pulp and paper industry, and the addition of a wholesale customer. The decrease
in 1995 was attributed to 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 4,822 in 1997, 5,157 in
1996, and 5,076 in 1995, while average usage per residential customer declined
1.5% in 1997, 0.15% in 1996 and 3.1% in 1995.
The 1997 increase in commercial sales reflects increases in transportation,
retail trade and service sectors. Combined, these sectors comprise approximately
79% of commercial sales. Sales to all others in the commercial sector were lower
than 1996. Sales to Maine Yankee increased by 1.7 million kilowatt hours in 1997
and by 4 million kilowatt hours in 1996 due to the Plant's extended outages in
both periods and the ultimate permanent shutdown of the plant in August 1997.
Industrial sales levels are significantly affected by sales to the
pulp-and-paper industry, which accounts for approximately 60% of industrial
sales and approximately 24% of total service-area sales. Sales to the
pulp-and-paper sector decreased by 0.8% in 1997 and increased by 3.7% in 1996,
and decreased by 8.6% in 1995. The decrease in 1997 was due primarily to the
permanent shutdown of one of the paper mills in 1997. The increase in 1996
reflects special arrangements the Company has made with several paper companies
to back down some of their self-generation and buy electricity from the Company
at a discounted rate. The 1995 decrease reflects 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, "Commitments and Contingencies -
Competition," for additional information regarding 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 8.2% in 1997, 4.5%
in 1996 and 2.7% in 1995.
Alternative Rate Plan
In December 1994, the MPUC approved a stipulation, signed by most of the parties
to the Company's ARP proceeding, which took 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 adjusting the Company's retail rates annually on July 1, commencing
in 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, price-cap increase of 2.43% are the inflation
index of 2.92%, reduced by a productivity offset of 0.5%, and increased by 0.01%
for flow-through items and mandated costs. The components of the July 1, 1996,
price-cap increase of 1.26% consisted of an inflation index of 2.55% and
earnings sharing and mandated cost items of 0.64%, reduced by a productivity
offset of 1.0%, and sharing of contract restructuring and buyout savings of
0.93%. The components of the July 1, 1997 price cap increase of 1.10% consisted
of an inflation index of 2.12% reduced by a productivity and qualified facility
("QF") offset of 1.42% and increased by 0.40% for flowthrough items and mandated
costs. As originally 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.
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 can be implemented upon 30-days' notice by the Company, while
certain others are subject to expedited review by the MPUC. The Company has
utilized this feature in providing new rates to approximately 29,000 customers
representing approximately 45% of annual kilowatt-hour sales and 32% of
service-area revenues. These reductions in rates were offered to customers after
consideration of associated NUG cost reductions, savings from further NUG
consolidations and other general cost reductions.
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 after 1999.
Significant results of the 1997 mid-period review were an increase to 11.5% in
the ROE used for earnings sharing (effective with the July 1999 price change)
and reaffirmation by the MPUC to allow the Company to meet the requirements
established by SFAS No. 71. The Company submitted its 1998 compliance filing in
March 1998.
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
rise unexpectedly, like those that have resulted from the recent outages at
Maine Yankee, or if revenues from sales decline or are not adequate to fund
costs. The Company believes the ARP continues to be a competitive advantage.
For a detailed discussion of the ARP, refer to Note 3 to Consolidated Financial
Statements, "Regulatory Matters" "Alternative Rate Plan," and "Meeting the
Requirements of SFAS 71."
Restructuring Legislation
MPUC Proceeding to Set Prices for Transmission and Distribution Business
The MPUC initiated a proceeding for the Company in which the MPUC would
determine the prices to be charged by the transmission and distribution business
beginning in March 2000. See Note 3 "Regulatory Matters" - "Industry
Restructuring and Strandable Costs." On December 5, 1997, the Company presented
its revenue requirement justification, including stranded costs, to the MPUC.
The Company's filing reflected an annual transmission and distribution revenue
requirement of $295.2 million and also reflected recovery of an estimated net
present value $1.3 billion in stranded costs. The Company's estimated stranded
costs amount did not include the effects of the sale of generating assets
discussed below.
Subsequently, the Company supplemented its filing by updating its revenue
requirement calculations, including recovery of stranded costs, on February 10,
1998, to reflect an estimate of the effect of the sale of generating assets on
stranded costs and other items. Additionally, the Company's February 10, 1998
filing included its proposal for the design of prices for the transmission and
distribution business, beginning March 2000. The Company's supplemental filing
reflects an annual transmission and distribution revenue requirement of $280.5
million and recovery of an estimated net present value $0.8 billion in stranded
costs. The total annual revenue amount requested to be included in transmission
and distribution prices beginning March 2000 is $449.5 million. The sale of
generating assets should allow the Company to reduce its stranded costs
obligations from the previously estimated $1.3 billion to the now anticipated
$0.8 billion. The Company is requesting a return on equity of 12.5% and an
increase in the common equity ratio from the current 40% to a desired 55%. The
Company's rate design proposal reflects an approach that is expected to minimize
customer confusion and bill impacts as retail choice begins in March 2000.
However, the Company does recommend a movement to less variable and more fixed
rate components over time as stranded cost recovery decreases and in a manner
that will not significantly impact any customers. The Company is unable to
predict with certainty the outcome of the MPUC proceeding establishing prices
for its transmission and distribution business. The MPUC is expected to reach a
decision in late 1998 and provide for a limited update for certain items closer
to March 2000.
Agreement for Sale of Company's Generation Assets
On April 28, 1997, the Company announced a plan to seek proposals to purchase
its generating assets and, as part of an auction process, received final bids on
December 10, 1997. On January 6, 1998, the Company announced that it had reached
agreement to sell all of its hydro, fossil and biomass power plants with a
combined generating capacity of 1,185 megawatts for $846 million in cash,
including $18 million for assets sold by Union Water Power Company, a subsidiary
of the Company, to Florida-based FPL Group, the winning bidder in the auction
process.
The hydropower assets to be included in the sale represent approximately 373
megawatts of generating capacity. The fossil-fueled assets included in the sale
consist of the Company's interest in the William F. Wyman steam plant in
Yarmouth, Maine, the largest of the Company's three fossil-fueled generating
assets at 594 megawatts, Mason Station in Wiscasset, Maine, at 145 megawatts,
and Cape Station in South Portland, Maine, at 42 megawatts. The sole biomass
plant is the 31-megawatt unit in Fort Fairfield, Maine, owned by a wholly-owned
subsidiary of the Company.
The Company's interests in the power entitlements from approximately 50
power-purchase agreements with non-utility generators representing approximately
488 megawatts, its 2.5-percent interest in the Millstone Unit No. 3 nuclear
generating unit in Waterford, Connecticut, its 3.59-percent interest in the
output of the Vermont Yankee nuclear generating plant in Vernon, Vermont, and
its entitlement in the NEPOOL Phase II interconnection with Hydro-Quebec all
attracted insufficient interest to be included in the present sale. The Company
will continue to seek buyers for those assets. The Company did not offer for
sale its interests in the Maine Yankee (Wiscasset, Maine), Connecticut Yankee
(Haddam, Connecticut) and Yankee Atomic (Rowe, Massachusetts) nuclear generating
plants, all of which are in the process of being decommissioned.
The electric utility restructuring law passed by the Maine Legislature in the
spring of 1997 requires the Company to divest its generating plants and
power-purchase agreements by March 1, 2000, when its customers will be free to
choose among competitive energy suppliers, but the Company elected to conduct an
earlier sale. In addition, as part of its agreement with FPL Group, the Company
entered into energy buy-back agreements to assist in fulfilling its obligation
to supply its customers with power until March 1, 2000.
Substantially all of the generating assets included in the sale are subject to
the lien of the Company's General and Refunding Mortgage Indenture dated as of
April 15, 1976 (the "Indenture"). Therefore, substantially all of the proceeds
from sale must be deposited with the trustee under the Indenture at the closing
of the sale to free the generating assets from the lien of the Indenture.
Proceeds on deposit with the trustee may be used by the Company to redeem or
repurchase bonds under the terms of the Indenture, including the possible
discharge of the Indenture. In addition, the proceeds could provide the
flexibility to redeem or repurchase outstanding equity securities. The Company
must also provide for payment of applicable taxes resulting from the sale. The
manner and timing of the ultimate application of the sale proceeds after closing
are in any event subject to various factors, including Indenture provisions,
market conditions and terms of outstanding securities.
The bid value in excess of the remaining investment in the power plants will
reduce the Company's stranded costs and other costs, which could lower the
amount that would otherwise be collected from customers by nearly half a billion
dollars. However, the Company will incur incremental costs as a result of the
power buy-back arrangements in excess of the pre-sale costs of capacity and
energy from the plants being sold, which will effectively lower the amount of
sale proceeds available to reduce stranded and other costs. The Company believes
that the reduction in stranded and other costs could permit a reduction in rates
for the Company's customers.
The sale is subject to various closing conditions, including the approval of
state and federal regulatory agencies, which approval process the Company
expects could take approximately four to twelve months, and is subject to
consents or covenant waivers from certain of the Company's lenders. The Company
cannot predict whether or in what form such approvals, consents or waivers will
be obtained.
The Company believes that consummation of the asset sale described above would
constitute significant progress in resolving some of the uncertainties regarding
the effects of electric-utility industry restructuring on the Company's
investors; however, significant risks and uncertainties would remain. These
include, in addition to those enumerated above under "Note Re Forward-Looking
Statements," but are not limited to: (1) the possibility that a state or federal
regulatory agency will impose adverse conditions on its approval of the asset
sale; (2) the possibility that new state or federal legislation will be
implemented that will increase the risks to such investors from those
contemplated by current legislation; and (3) the possibility of legislative,
regulatory or judicial decisions that would reduce the ability of the Company to
recover its stranded costs from that contemplated by existing law.
Proposed Formation of Holding Company
To prepare further for the restructured electric utility industry contemplated
by the legislation, on December 8, 1997, the Company filed an application with
the MPUC for authorization to create a holding company that would have as
subsidiaries the Company, the Company's existing non-utility subsidiaries and
other entities. The Company believes that a holding company structure will
facilitate the Company's transition to a partially deregulated electricity
market that is scheduled to open access to electricity for Maine consumers
beginning on March 1, 2000. Competing as an electric energy provider in that
market as of that date will require the creation of an energy company that is
legally separate from the Company. The Company also proposed the creation of an
affiliated energy marketing affiliate in the MPUC filing.
The Company's application to the MPUC also requested approval of the creation of
a limited liability company in which a proposed new subsidiary of the holding
company would hold a fifty percent member-ship interest to participate in the
natural gas distribution business in Maine, with the remaining fifty percent
interest being held by New York State Electric & Gas Corporation ("NYSEG") or
its affiliate. For further discussion of the NYSEG joint venture, see "Expansion
of Lines of Business," below.
The proposed holding company formation must also be approved by federal
regulators, including the Securities and Exchange Commission and the FERC, and
by the holders of the Company's common stock and 6% Preferred Stock. The Company
is taking steps to pursue these approvals, but cannot predict the outcome.
Expansion of Lines of Business
The Company is preparing for competition by expanding its business opportunities
through subsidiaries that capitalize on core competencies. One subsidiary,
MaineCom Services, arranges fiber-optic data service for bulk carriers, offering
support for cable television or "super-cellular" personal communication vendors,
and providing other telecommunications consulting services. TeleSmart is a
wholly-owned credit and collections subsidiary. Another wholly-owned subsidiary,
CMP International Consultants, provides utility consulting (domestic and
international) and research, and engineering and environmental services. The
100-percent owned Union Water Power Company provides management of rivers and
recreational facilities, locating of underground utility facilities and infrared
photography, real estate brokerage and management, modular housing, and utility
construction services. The subsidiaries often utilize skills of former Company
employees and regularly compete for business with other companies. In addition,
a division of the Company is focusing on retail competition by developing
effective marketing techniques and energy-efficient services and products.
As noted above, the Company and NYSEG have signed a joint-venture agreement to
distribute natural gas to many Maine communities that are not currently served
with that fuel. The Company and NYSEG propose to offer natural-gas service in
five areas of Maine, primarily the Augusta, Bangor, Bath-Brunswick, Rumford and
Waterville areas. None of the 60 towns in those areas currently has a
natural-gas distribution system in place. The gas would be drawn from two new
gas-pipeline projects now under development by unrelated parties that would
carry Canadian gas, after receipt of additional regulatory approvals, through
Maine and into the regional energy market using substantial portions of electric
transmission-line corridors owned by the Company and MEPCO under agreements
entered into on March 16, 1998. On March 9, 1998, the MPUC gave preliminary
approval to the Company-NYSEG proposal, subject to final approval after
submission of detailed plans on financing, construction, and other matters.
Competing applications to serve some of the areas have been filed. The Company
cannot predict the outcome of the MPUC proceeding. The Company will continue to
evaluate the opportunity to be a provider of natural gas to Maine customers, and
the economics thereof, including monitoring progress of the planned pipelines,
competitive considerations and relevant regulatory decisions.
FiveCom LLC ("FiveCom"), a majority-owned subsidiary of the Company's
wholly-owned MaineCom Services, is building a fiber-optic cable network
connecting cities in New England and plans to sell capacity on the network to
telephone companies, Internet providers, and other telecommunications
businesses. FiveCom has used transmission-line corridors owned by the Company,
and a substantial part of the expanded network in Connecticut and Massachusetts
will occupy utility corridors of Northeast Utilities, which owns a minority
interest in FiveCom. The Company's equity investment in MaineCom Services at the
end of 1997 was $15.9 million. In addition, the Company is providing up to $30
million to FiveCom through a loan arrangement for the development and
construction of the expanded network, and for working capital. The Company
believes there is a growing need for such a fiber-optic network in New England,
but cannot predict the results of this venture.
Permanent Shutdown of Maine Yankee Plant
On August 6, 1997, the Board of Directors of Maine Yankee voted to permanently
cease power operations at its nuclear generating plant at Wiscasset, Maine (the
"Plant") and to begin decommissioning the Plant. As reported in detail in the
Company's Annual Report on Form 10-K for the year ended December 31, 1996, it
Quarterly Reports on Form 10-Q for the quarters ended March 31, 1997, June 30,
1997 and September 30, 1997 and its Current Reports on Form 8-K dated May 15,
1997 and August 1, 1997, and reported in more condensed form below, the Plant
experienced a number of operational and regulatory problems and has been shut
down since December 6, 1996. The decision to close the Plant permanently was
based on an economic analysis of the costs, risks and uncertainties associated
with operating the Plant compared to those associated with closing and
decommissioning it. The Plant's operating license from the Nuclear Regulatory
Commission ("NRC") was scheduled to expire on October 21, 2008.
Recent Operating History. The Plant provided reliable and low-cost power from
the time it commenced operations in late 1972 to 1995. Beginning in early 1995,
however, Maine Yankee encountered various operational and regulatory
difficulties with the Plant. In 1995, the Plant was shut down for almost the
entire year to repair a large number of steam generator tubes that were
exhibiting defects. Shortly before the Plant was to go back on-line in December
1995, a group with a history of opposing nuclear power released an undated,
unsigned, anonymous letter alleging that in 1988 Yankee Atomic (then an
affiliated consultant of Maine Yankee) and Maine Yankee had used the results of
a faulty computer code as a basis to apply to the NRC for an increase in the
Plant's power output. In response to the allegation, on January 3, 1996, the NRC
issued a Confirmatory Order that restricted the Plant to 90 percent of its
licensed thermal operation level, which restriction was still in effect when the
Plant was permanently shut down.
As a result of the controversy associated with the allegations, the NRC, at the
request of the Governor of Maine, conducted an intensive Independent Safety
Assessment ("ISA") of the Plant in the summer and fall of 1996. On October 7,
1996, the NRC issued its ISA report, which found that while the Plant had been
operated safely and could continue to operate, there were weaknesses that needed
to be addressed, which would require substantial additional spending by Maine
Yankee. On December 10, 1996, Maine Yankee responded to the ISA report,
acknowledged many of the weaknesses, and committed to revising its operations
and procedures to address the NRC's criticisms.
Another result of the controversy associated with the allegations was an
investigation of Maine Yankee initiated by the NRC's Office of Investigations
("OI"), which, in turn, referred certain issues to the United States Department
of Justice ("DOJ") for possible criminal prosecution. Subsequently, on September
27, 1997, the DOJ, through the United States Attorney for Maine, announced that
its review had revealed insufficient grounds for criminal prosecution. The
Company believes that the OI investigation, however, could ultimately result in
the imposition of civil penalties, including fines, on Maine Yankee, and expects
resolution of outstanding NRC enforcement action in 1998.
In 1996 the Plant was generally in operation at the 90-percent level from late
January to early December, except for a two-month outage from mid-July to
mid-September. The Plant was shut down again on December 6, 1996, to address
several concerns, and has not operated since then. The precipitating event
causing the shutdown was the need to evaluate and resolve cable-separation
compliance issues, and on December 18, 1996, the NRC issued a Confirmatory
Action Letter requiring the Plant to remain shut down until Maine Yankee's plan
for resolving the cable-separation issues was accepted by the NRC. Subsequently,
Maine Yankee uncovered additional issues, including among others the possibility
of having to replace defective fuel assemblies, address additional
cable-separation issues, and determine the condition of the Plant's steam
generators, which contributed to further operational uncertainty. On January 29,
1997, the Plant was placed on the NRC's Watch List, and on January 30, 1997, the
NRC issued a supplemental Confirmatory Action Letter requiring the resolution of
additional concerns before the Plant could be restarted.
In December 1996 Maine Yankee requested proposals from several utilities with
large and successful nuclear programs to provide a management team, and
ultimately contracted with Entergy Nuclear, Inc., effective February 13, 1997,
for management services that included providing a new president and regulatory
compliance officer. The Entergy-provided management team made progress in
addressing technical issues, but a number of operational and regulatory
uncertainties remained. On May 27, 1997, the Board of Directors of Maine Yankee
voted to minimize spending while preserving the options of restarting the Plant
or conveying ownership interests to a third party. After unsuccessful
negotiations with one prospective purchaser, Maine Yankee found no other
interest in purchasing the Plant and, based on its economic analysis, closed the
Plant permanently.
As required by the NRC, on August 7, 1997, Maine Yankee certified to the NRC
that Maine Yankee had permanently ceased operations and that all fuel assemblies
had been permanently removed from the Plant's reactor vessel. On August 27,
1997, Maine Yankee filed the required Post-Shutdown Activities Report with the
NRC, describing its planned post-shutdown activities and a proposed schedule.
Costs. The Company has been incurring substantial costs in connection with its
38-percent share of Maine Yankee costs, as well as additional costs for
replacement power while the Plant has been out of service. For the twelve months
ended December 31, 1997, such costs amounted to approximately $132.3 million for
the Company: $72.8 million due to basic operations and maintenance costs, $54.0
million due to replacement power costs and $5.5 million associated with
incremental costs of operations and maintenance. The Maine Yankee Board's
decision to close the Plant mitigated the costs the Company would otherwise have
incurred in 1997 through a phasing down of Maine Yankee's operations and
maintenance costs, with Maine Yankee's workforce having been reduced from
approximately 475 to 214 employees as of December 31, 1997, and further
reductions planned, but did not reduce the need to buy replacement energy and
capacity. The amount of costs for replacement energy and capacity varies based
on the Company's power requirements and market conditions, but the Company
expects such costs to be within a range of approximately $5.0 million to $5.5
million per month during 1998, based on current energy and capacity needs and
market conditions. Under the electric utility restructuring legislation enacted
by the Maine Legislature in May 1997 discussed below, the Company's obligations
to provide replacement power will terminate on March 1, 2000, along with its
other power-supply obligations. The impact of the nuclear-related costs on the
Company was the major obstacle to achieving satisfactory results in 1997,
despite the approximately $75 million in annual Maine Yankee-related costs
embedded in the current determination of the Company's required revenues for
ratemaking purposes and despite success in controlling other operating costs.
See "Results of Operations" above.
The Company's 38-percent ownership interest in Maine Yankee's common equity
amounted to $29.8 million as of December 31, 1997, and under Maine Yankee's
Power Contracts and Additional Power Contracts, the Company is responsible for
38-percent of the costs of decommissioning the Plant. Maine Yankee's most recent
estimate of the cost of decommissioning is $380.6 million, based on a 1997 study
by an independent engineering consultant, plus estimated costs of interim
spent-fuel storage of $127.6 million, for an estimated total cost of $508.2
million (in 1997 dollars). The previous estimate for decommissioning, by the
same consultant, was $316.6 million (in 1993 dollars), which resulted in
approximately $14.9 million being collected annually from Maine Yankee's
sponsors pursuant to a 1994 Federal Energy Regulatory Commission ("FERC") rate
order. Through December 31, 1997, Maine Yankee had collected approximately
$199.5 million for its decommissioning obligations.
On November 6, 1997, Maine Yankee submitted the new estimate to the FERC as part
of a rate case reflecting the fact that the Plant is no longer operating and has
entered the decommissioning phase. If the FERC accepts the new estimate, the
amount of Maine Yankee's collections for decommissioning would rise from the
$14.9 million previously allowed by the FERC to approximately $36 million per
year. Several interested parties have intervened in the FERC proceeding,
including the MPUC.
On September 1, 1997, Maine Yankee estimated the sum of the future payments for
the closing, decommissioning and recovery of the remaining investment in Maine
Yankee to be approximately $930 million, of which the Company's 38-percent share
would be approximately $353 million. Legislation enacted in Maine in 1997
calling for restructuring the electric utility industry provides for recovery of
decommissioning costs, to the extent allowed by federal regulation, through the
rates charged by the transmission and distribution companies. Based on the
legislation and regulatory precedent established by the FERC in its opinion
relating to the decommissioning of the Yankee Atomic nuclear plant, the Company
believes that it is entitled to recover substantially all of its share of such
costs from its customers and as of December 31, 1997, is carrying on its
consolidated balance sheet a regulatory asset and a corresponding liability in
the amount of $329 million, which is the $353 million discussed above net of the
Company's post-September 1, 1997 cost-of-service payments to Maine Yankee.
Management Audit. On September 2, 1997, the MPUC released the report of a
consultant it had retained to perform a management audit of Maine Yankee for the
period January 1, 1994, to June 30, 1997. The report contained both positive and
negative conclusions, the latter including: that Maine Yankee's decision in
December 1996 to proceed with the steps necessary to restart the Plant was
"imprudent", that Maine Yankee's May 27, 1997 decision to reduce restart
expenses while exploring a possible sale of the Plant was "inappropriate", based
on the consultant's finding that a more objective and comprehensive competitive
analysis at that time "might have indicated a benefit for restarting" the Plant;
and that those decisions resulted in Maine Yankee incurring $95.9 million in
"unreasonable" costs. On October 24, 1997, the MPUC issued a Notice of
Investigation initiating an investigation of the shutdown decision and of the
operation of the Plant prior to shutdown, and announced that it had directed its
consultant to extend its review to include those areas. The Company believes the
report's negative conclusions are unfounded and may be contradictory. The
Company has been charging its share of the Maine Yankee expenses to income, and
believes it would have substantial constitutional and jurisdictional grounds to
challenge any effort in an MPUC proceeding to alter wholesale Maine Yankee rates
made effective by the FERC. On November 7, 1997, Maine Yankee initiated a legal
challenge to the MPUC investigation in the Maine Supreme Judicial Court alleging
that such an investigation falls exclusively within the jurisdiction of the FERC
and that the MPUC investigation is therefore barred on constitutional grounds.
The Company filed a similar legal challenge on the same day. The MPUC
subsequently stayed its investigation pending the outcome of Maine Yankee's FERC
rate case, in which the MPUC is participating, while indicating that its
consultant would continue its extended review. Based on preliminary indications
from the consultant, the Company expects the report on the extended review to
call for additional disallowances, which Maine Yankee has said it expects to
contest vigorously.
Maine Yankee Debt Restructuring and FERC Rate Proceeding: Maine Yankee entered
into agreements in August 1997 with the holders of its outstanding First
Mortgage Bonds and its lender banks (the "Standstill Agreements") under which
the bondholders and banks agreed that they would not assert that the August 1997
voluntary permanent shutdown of the Plant constituted a covenant violation under
Maine Yankee's First Mortgage Indenture or its two bank credit agreements. The
parties also agreed in the Standstill Agreements to maintain Maine Yankee's bank
borrowings at a level below that of the prior aggregate bank commitments, which
level Maine Yankee considered adequate for its foreseeable needs. The Standstill
Agreements, as extended in October 1997, were to terminate on January 15, 1998,
by which date Maine Yankee was to have reached agreement on restructured debit
arrangements reflecting its decommissioning status. Maine Yankee's rate filing
with the FERC reflected the Plant's decommissioning status and requested an
effective date of January 15, 1998, for the amendments to Maine Yankee's Power
Contracts and Additional Power Contracts, which revise Maine Yankee's wholesale
rates and clarify and confirm the obligations of Maine Yankee's sponsors to
continue to pay their shares of Maine Yankee's costs during the decommissioning
period.
On January 14, 1998, the FERC issued an "Order Accepting for Filing and
Suspending Power Sales Contract Amendment, and Establishing Hearing Procedures"
(the "FERC Order") in which the FERC accepted for filing the rates associated
with the amended Power Contracts and made them effective January 15, 1998,
subject to refund. The FERC also granted intervention requests, including among
others those of the MPUC, Maine Yankee's largest bondholder, and two of its
lender banks, denied the request of an intervenor group to summarily dismiss
part of the filing, and ordered that a public hearing be held concerning the
prudence of Maine Yankee's decision to shut down the Plant and on the justness
and reasonableness of Maine Yankee's proposed rate amendments. The Company
expects the prudence issue to be pursued vigorously by several intervenors,
including among others the MPUC, which stayed its own prudence investigation
pending the outcome of the FERC proceeding after the jurisdictional challenge by
Maine Yankee and the Company discussed above. The hearing in the FERC rate
proceeding is scheduled to begin on December 1, 1998. The Company cannot predict
the outcome of the FERC proceeding.
On January 15, 1998, Maine Yankee, its bondholders and lender banks revised the
Standstill Agreements and extended their term to April 15, 1998, subject to
satisfying certain milestone obligations during the term of the extension. One
such obligation was that Maine Yankee must have accepted, by February 12, 1998,
an underwritten commitment to refinance its bonds and bank debt, subject only to
closing conditions reasonably capable of being satisfied by April 15, 1998, and
reasonably satisfactory to the bondholders and banks. Maine Yankee accepted such
a commitment prior to the deadline, received regulatory approval of the
refinancing on March 9, 1998, and is negotiating final loan documentation, and
preparing for a closing before April 15. The proposed refinancing consists of an
extendible three-year bank credit facility and an eight-year term loan facility.
Other Maine Yankee Shareholders: Higher nuclear-related costs are also affecting
other stockholders of Maine Yankee in varying degrees. Bangor Hydro-Electric
Company, a Maine-based 7% stockholder, cited its "deteriorating" financial
condition, suspended its common stock dividend, and eventually obtained rate
relief. Maine Public Service Company, a 5% stockholder, cited problems in
satisfying financial covenants in loan documents, reduced its common stock
dividend substantially in early March 1997 and obtained rate relief. Northeast
Utilities (20% stockholder through three subsidiaries), which is also adversely
affected by the substantial additional costs associated with the three shut-down
Millstone nuclear units and the permanently shut-down Connecticut Yankee unit,
as well as significant regulatory issues in Connecticut and New Hampshire, has
implemented an indefinite suspension of its quarterly common stock dividends.
Largely as a result of nuclear-related costs, Northeast Utilities reported a
loss of $135 million for 1997 and continues to experience difficulty in
satisfying loan covenants. A default by a Maine Yankee stockholder in making
payments under its Power Contract or Capital Funds Agreement could have a
material adverse effect on Maine Yankee, depending on the magnitude of the
default, and would constitute a default under Maine Yankee's bond indenture and
its two major credit agreements unless cured within applicable grace periods by
the defaulting stockholder or other stockholders. The Company cannot predict,
however, what effect, if any, the financial difficulties being experienced by
some Maine Yankee stockholders will have on Maine Yankee or the Company.
Interests in Other Nuclear Plants
On December 4, 1996, the Board of Directors of Connecticut Yankee Atomic Power
Company voted to permanently shut down the Connecticut Yankee plant for economic
reasons, and to decommission the unit, which had not operated since July of
1996. The Company has a 6% equity interest in Connecticut Yankee, totaling
approximately $6.6 million at December 31, 1997. The Company incurred
replacement power costs of approximately $5.2 million during the twelve months
ended December 31, 1997. Based on cost estimates provided by Connecticut Yankee,
the Company determined its share of the cost of Connecticut Yankee's continued
compliance with regulatory requirements, recovery of its plant investments,
decommissioning and closing the plant to be approximately $36.9 and is carrying
a regulatory asset and a corresponding liability in that amount on its
consolidated balance sheet as of December 31, 1997. The Company is currently
recovering through rates an amount adequate to recover these expenses.
The Company has a 2.5% direct ownership interest in Millstone Unit No. 3, which
is operated by Northeast Utilities. This facility has been off-line since April
1996 due to Nuclear Regulatory Commission ("NRC") concerns regarding license
requirements and the Company cannot predict when it will return to service.
Millstone Unit No. 3, along with two other units at the same site owned by
Northeast Utilities, is on the NRC's "watch list" in "Category 3", which
requires formal NRC action before a unit can be restarted. The Company incurred
replacement power costs related to Millstone Unit No. 3 of approximately $4.9
million during the twelve months ended December 31, 1997. On August 7, 1997, the
Company and other minority owners of Millstone Unit No. 3 filed suite and
initiated an arbitration claim against Northeast Utilities, its trustees, and
two of its subsidiaries, alleging mismanagement of the unit by the defendants.
The minority owners are seeking to recover their additional costs resulting from
such mismanagement, including their replacement power costs. The Company cannot
predict the outcome of the litigation and arbitration.
Environmental Matters
Federal, state and local environmental laws and regulations cover air and water
quality, land use, power plant and transmission line siting, noise and
aesthetics, solid and hazardous waste and other environmental matters.
Compliance with these laws and regulations impacts the manner and cost of
electric service by requiring, among other things, changes in the design and
operation of existing facilities and changes or delays in the location, design,
construction and operation of new facilities. These environmental regulations
most significantly affect the Company's electric power generating facilities,
which are to be sold to FPL Group, as discussed above. The purchase agreement
contemplates that CMP would retain the liabilities and obligations which
occurred prior to the transfer of those assets and those incurred subsequent to
the transfer will become the obligation of FPL. In addition, certain
environmental proceedings under federal and state hazardous substance and
hazardous waste regulations (such as the Comprehensive Environmental Response,
Compensation, and Liability Act ("CERCLA") and the Resource Conservation and
Recovery Act ("RCRA") and similar state statutes) are discussed below see Note 4
"Commitments and Contingencies" - "Legal and Environmental Matters".
Open-Access Transmission Service Ruling
On April 24, 1996, the Federal Energy Regulatory Commission (FERC) issued Order
No. 888, which requires all public utilities that own, control or operate
facilities used for transmitting electric energy in interstate commerce to file
open access non-discriminatory transmission tariffs that offer both load-based,
network and contract-based, point-to-point service, including ancillary service
to eligible customers containing minimum terms and conditions of
non-discriminatory service. This service must be comparable to the service they
provide themselves at the wholesale level; in fact, these utilities must take
wholesale transmission service they provide themselves under the filed tariffs.
The order also permits public utilities and transmitting utilities the
opportunity to recover legitimate, prudent and verifiable wholesale stranded
costs associated with providing open access and certain other transmission
services. It further requires public utilities to functionally separate
transmission from generation marketing functions and communications. The intent
of this order is to promote the transition of the electric utility industry to
open competition. Order No. 888 also clarifies federal and state jurisdiction
over transmission in interstate commerce and local distribution and provides for
deference of certain issues to state recommendations.
On July 9, 1996, the Company and MEPCO submitted compliance filings to meet the
new pro forma tariff non-price minimum terms and conditions of
non-discriminatory transmission service. Since then CMP and MEPCO have made
additional filings revising their tariffs in response to subsequent FERC Orders.
In addition, CMP filed on February 21, 1997, a revised tariff to comport with
the NEPOOL Open Access Transmission Tariff. Since July 9, 1996, the Company and
MEPCO have been transmitting energy pursuant to their filed tariffs, subject to
refund. FERC subsequently issued Orders No. 888-A and 888-B which generally
reaffirm Order No. 888 and clarify certain terms.
Also on April 24, 1996, FERC issued Order No. 889 which requires public
utilities to functionally separate their wholesale power marketing and
transmission operation functions and to obtain information about their
transmission system for their own wholesale power transactions in the same way
their competitors do through the Open Access Same-time Information System
(OASIS). The rule also prescribed standards of conduct and protocols for
obtaining the information. The standards of conduct are designed to prevent
employees of a public utility engaged in marketing functions from obtaining
preferential information. The Company participated in efforts to develop a
regional OASIS for New England, which was operational January 3, 1997. FERC
subsequently approved a New England Power Pool-wide Open Access Tariff, subject
to refund and issuance of further orders. The Company also participated in
revising the New England Power Pool Agreement, which is pending FERC approval.
Competition and Economic Development
The Company faces competition in several aspects of its traditional business and
anticipates that competition will continue to put 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 water-heat and space-heat retention rates,
Super-Saver rates, which discount off-peak usage, Diesel Deferral rates,
Economic Development rates, and the Maine Made Incentive program, which target
small businesses. 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. Approximately 45%
of annual service area kilowatt-hour sales and 32% of annual revenues are
covered under special tariffs allowed under the pricing flexibility provisions
of the ARP. These reductions in rates were offered to customers after
consideration of associated NUG cost reductions, savings from further NUG
consolidations and other general cost reductions. Refer to Note 4 to
Consolidated Financial Statements, "Commitments and Contingencies -
Competition," for additional information.
Non-Utility Generators
In accordance with prior MPUC policy and the ARP, $92 million of buy-out or
contract-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
42 contracts representing 349 megawatts of capacity that should result in
approximately $258 million in fuel savings over the next five years.
In 1997 the Company also replaced a purchased power contract for energy from a
wood-fired power plant in Ashland, Maine. The existing purchased power contract
was terminated and a new agreement for 40 megawatts, at lower rates was signed,
which is estimated to save CMP customers the equivalent of $21 million in net
present value. Refer to Note 6 to Consolidated Financial Statements, "Capacity
Arrangements - Non-Utility Generators," for more information.
On October 31, 1997, a contract with a major NUG from which the Company was
obligated to purchase electricity at substantially above-market prices expired.
As a result, the Company expects annual operating income to increase by
approximately $25 million. Two months of this benefit, or approximately $4
million, are reflected in 1997 results.
Expenses and Taxes
Fuel expense, comprised of fuel used for company generation and the energy
portion of purchased power, increased by approximately $29 million in 1997. The
increase is due primarily to increased fuel cost for company owned facilities
and additional purchased power to replace the loss of output from the nuclear
facilities. 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.
The extended outage and ultimate closing of Maine Yankee (see "Permanent
Shutdown of Maine Yankee Plant") resulted in significant increases in fuel
expense, including purchased-power energy and purchased-power capacity expense,
and affected the Company's generation mix in 1997 and 1996. The Company replaced
this power through short-term agreements.
The Company's oil-fired generation increased to 35.1% of the Company's net
generation in 1997, compared to 16.3% in 1996 net generation, and 21.6% in 1995.
The NUG component of the energy mix increased to 35.2% in 1997 from 31.4% in
1996, as a result of the ongoing outage and ultimate closing of Maine Yankee
(see "Permanent Shutdown of Maine Yankee Plant"). 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 the Yankee nuclear generating facilities. In 1997,
purchased-power capacity expense increased by $4.1 million. The increase is due
primarily to the costs associated with the Maine Yankee plant and the need to
replace the capacity when the Maine Yankee plant shut-down permanently in August
1997.
In December 1996, the Board of Directors of Connecticut Yankee Atomic Power
Company announced a permanent shutdown of the Connecticut Yankee plant for
economic reasons and their intent to decommission the plant. The Company has a
6% equity interest in Connecticut Yankee, totaling approximately $6.6 million at
December 31, 1997. Purchased power capacity expense in 1997, 1996 and 1995
includes $7.4, $11.5 million and $11.5 million, respectively, of costs related
to this facility. During 1992, Yankee Atomic Electric Company, in which the
Company is a 9.5% equity owner, discontinued power generation and prepared a
plan for decommissioning. Purchased-power capacity expense in 1997, 1996 and
1995 contained approximately $4.6, $4.8 million and $3.9 million, respectively,
of costs related to this facility. The level of purchased-power capacity expense
also fluctuates with the timing of the maintenance and refueling outages at the
Vermont Yankee nuclear generating facility in which the Company has a 4% equity
interest. The cost of capacity increases during refueling periods. Refer to Note
6 to Consolidated Financial Statements, "Capacity Arrangements - Power
Agreements," and "Interests in Other Nuclear Plants" above for a more detailed
discussion.
In 1997, other operations expense increased by approximately $23.6 million as
compared to the year ended December 31, 1996. The major contributors to the
increase were the absence of the effect of a $6.4 million reversal in 1996 for a
reserve established in 1995, $3.7 million of amortization and costs associated
with a large purchased-power contract buyout, $4.3 million of additional
transmission and distribution expenses, and $1.9 million of expense for
post-retirement benefits being collected in rates under the ARP. Previously
post-retirement benefits were deferred for future recovery. In addition, various
other operations expenses of $7.3 million contributed to the 1997 increase.
The 1996 reduction in other operation and maintenance expense is attributed to
the reversal of a reserve of $6.4 million established in 1995 for the Company's
workers compensation regulatory asset for which recovery was not certain. In the
June 1996 ARP decision, the MPUC approved recovery of this regulatory asset.
Also in 1996, the Company increased the workers compensation obligation and
charged the increase of $1.6 million to expense. As a result, a net
year-over-year reduction of $11.2 million for workers compensation was recorded.
The Company did incur an increase in distribution expenses of $4.1 million,
mainly due to line-clearance activities. The Company has contractual obligations
related to demand-side energy-management programs which increased expense by
$2.8 million in 1996. Maintenance expense other than distribution increased $3.5
million, of which $1.4 million was for repairs at the Millstone Unit No. 3
nuclear facility.
Maintenance expense decreased by $3.5 primarily due to decreased storm activity
in 1997 versus 1996, as well as the lower costs involved with a
turbine/generator project at a Company steam station when comparing 1997 to
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 decreased by $22.7
million as compared to the year ended December 31, 1996. The decrease is due
primarily to lower pre-tax earnings for the 12 months ended December 31, 1997.
Other income decreased by $2.5 million in 1997 as compared to 1996 primarily due
to excess expenses over revenue associated with a non-operating division of the
Company, and resulting lower taxes due to this occurrence.
Other interest expense increased in 1997 over 1996 primarily due to additional
interest incurred for tax audit settlements and amended returns interest.
In 1997, interest expense reflected a net decrease of $100 thousand as compared
to the year ended December 31, 1996. Other interest increased due to a higher
level of short-term borrowings and interest expenses associated with various IRS
issues. The long-term debt interest expense decrease was due primarily to the
lower level of Medium-Term Notes outstanding than in 1996. Interest expense
decreased in 1996 by $1.4 million due to lower levels of Medium-Term Notes and
the repurchase of $11.5 million of Series N General and Refunding Mortgage
Bonds. Long-term debt interest expense includes $1 million of accelerated
amortization of loss on reacquired debt, as specified in the 1996 ARP.
Short-term interest costs over the period 1995 through 1997 fluctuated with the
levels of rates and outstanding balances of short-term debt.
In July 1997 and 1996, the Company redeemed $14 million of its 8 7/8% Series
Preferred Stock at par, under the mandatory and optional sinking-fund provisions
of that series. This reduced dividends by approximately $1,860,000 in 1977 and
$620,000 in 1996.
State and federal income taxes fluctuate with the level of pre-tax earnings and
the regulatory treatment of taxes by the MPUC. A settlement with the Internal
Revenue Service on audits for the years 1992-1994 provided an increase to income
tax expense of approximately $1.4 million in 1997. In 1996, the settlement with
the Internal Revenue Service on audits for the years 1988-1991 provided a
decrease to income tax expense of approximately $4.8 million. See Note 2 to
Consolidated Financial Statements, "Income Taxes" and Note 4, "Commitments and
Contingencies," for more information.
Year 2000 Computer Issues
In the next two years, most large companies will face a potentially serious
information systems (computer) problem because most software application and
operational programs written in the past will not properly recognize calendar
dates beginning in the year 2000. This could force computers to either shut down
or lead to incorrect calculations. The Company began the process of identifying
the changes required to their computer programs and hardware during the year
1996. The majority of the necessary modifications to the Company's centralized
financial, customer, and operational information systems are expected to be
completed by the end of 1998. The Company believes it will incur approximately
$3.0 million of costs by March 31, 2000, associated with making the necessary
modifications identified to date to the centralized systems. As of December 31,
1997 approximately $1.5 million of costs have been incurred. Noncentralized
systems are currently being reviewed for Year 2000 problems. The Company is
unable to predict the costs to be incurred for correction of such noncentralized
systems, but expects the scope and schedule for such work to be less complex
than for its centralized information systems. In addition, the Company cannot
predict the extent of its vulnerability to third parties noncompliance and their
failure to remediate year 2000 issues.
Liquidity and Capital Resources
The MPUC approved increases in electric retail rates of 1.10%, 1.26% and 2.43%
in 1997, 1996 and 1995, respectively, that produced additional cash pursuant to
the price cap mechanism in the ARP. Increases in rates under the ARP were based
on increases in the related price index, the sharing mechanism and provisions
for certain mandated costs. Prior rate increases were provided to fund costs of
fuel, energy-management programs, operations, maintenance, systems improvements,
and investments in generation needed to ensure the Company's continued ability
to provide reliable electric service.
Approximately $89.0 million of cash was provided from net income after adding
back non-cash items. Approximately $7.8 million of cash was used for
fluctuations in working capital. Other operating activities, including the
financing of deferred energy-management programs required cash resources of
approximately $4.6 million.
The level of cash balances and activity in capital investment programs have
required little investment-related activity during 1997 and 1996. The redemption
of Medium-Term Notes and the purchase of 8 7/8% Series Preferred Stock used $25
million and $14 million, respectively, of cash during 1997. Dividends paid on
common stock were $29.2 million, while preferred-stock dividends were $8.5
million.
Capital-investment activities, primarily construction expenditures, utilized
$45.8 million in cash during 1997. Construction expenditures comprised
approximately $3.7 million for generating projects, $2.6 million for
transmission, $24.6 million for distribution, and $9.4 million for general
facilities and other construction expenditures for a total of $40.3 million. The
Company invested $4.8 million in affiliates in 1997. The two major components of
the investments were the $5.8 million invested in MaineCom Services and
Aroostook Valley Electric Company's repayment of an advance of $1.2 million.
The Company estimates its capital expenditures for the period 1998 through 2002
at approximately $275 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 $434 million for sinking funds, and debt and
equity maturities.
The Company estimates that for the period 1998 through 2002, internally
generated funds from operating activities should provide a substantial portion
of the construction-program requirements. 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.
Replacement power costs and increased operation and maintenance expenses had a
significant negative effect on cash and liquidity in 1997. The Company incurred
additional expenses of $46 million in 1997 over 1996 to replace Maine Yankee
power and pay its share of increased repair and other operations at the plant.
The Company expects its share of Maine Yankee costs to decrease by approximately
$30 million in 1998 as the plant moves toward decommissioning. In addition,
shutdowns at other nuclear facilities increased 1997 replacement-power costs by
$5 million; these facilities include Millstone Unit 3 in Connecticut, which was
taken off-line for safety modifications and requires U.S. Nuclear Regulatory
Commission approval to restart, and the Connecticut Yankee plant, which closed
permanently on December 4, 1996, and is now being decommissioned.
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. This expansion of the Medium-Term Note program is being implemented
to increase the Company's financing flexibility in anticipation of restructuring
and increased competition. As of December 31, 1997, $43 million of Medium-Term
Notes were outstanding which, under the terms of the program, will permit
issuance of an additional $457 million of such notes. On February 24, 1998, the
Company issued a two-year 6.38% Medium-Term Note in the principal amount of $30
million, and on March 20, 1998, issued 18-month 6.35% Medium-Term Notes in the
aggregate principal amount of $30 million, raising the total outstanding to $103
million.
To support its short-term capital requirements, on October 23, 1996, the Company
entered into a $125 million Credit Agreement with several banks, with
BankBoston, N.A., and The Bank of New York acting as agents for the lenders. The
arrangement has two credit facilities: a $75 million, 364-day revolving credit
facility that currently matures on October 21, 1998, and a $50-million, 3-year
revolving credit facility that matures on October 22, 1999. Both credit
facilities require annual fees on the total credit lines. The fees are based on
the Company's credit ratings and allow for various borrowing options including
LIBOR-pried, base-rate-priced and competitive-bid-priced loans. Access to
commercial paper markets has been substantially precluded, 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. The Company had $60
million outstanding as of December 31, 1997 under the 364-day revolving credit
facility, all of which had been paid as of March 25, 1998.
In 1997, the Company deposited approximately $2.2 million in cash, net of
withdrawals, 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 December 31, 1997, was approximately $61.7 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. Such cash may also be withdrawn by
the Company by substitution of allocated property additions or available bonds.
On February 26, 1998, the Company called for redemption on March 30, 1998, all
of the outstanding $11 million principal amount of its General and Refunding
Mortgage Bonds, Series N 8.50% Due 2001, at a redemption price equal to their
principal amount plus accrued interest to the date fixed for redemption. On the
same day the Company also called for redemption on March 30, 1998, all of the
outstanding $50 million principal amount of its General and Refunding Mortgage
Bonds, Series R 7-7/8% Due 2023, also at a redemption price equal to their
principal amount plus accrued interest. The bond redemptions are being funded
from the approximately $61.7 million on deposit with the trustee under the
renewal and replacement fund and release provisions of the Company's General and
Refunding Mortgage Indenture. On February 27, 1998, the Company called for
redemption on April 1, 1998, all of the outstanding 300,000 shares of its
Preferred Stock 7-7/8% Series at a redemption price of $100 per share. No
accrued dividends are being paid on the preferred stock since the redemption
date is a regular dividend payment date.
Impact of New Accounting Standards
In February 1997, FASB issued SFAS No. 128, "Earnings per Share." This
statement, which is effective for fiscal years ending after December 15, 1997,
establishes simplified standards for computing and presenting earnings per share
("EPS"). In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income." This statement, which is effective for fiscal years beginning after
December 15, establishes standards for the reporting and display of
comprehensive income and its components (revenues, expenses, gains and losses)
in a full set of general-purpose financial statements. The Company anticipates
that adoption of these standards will not have a significant impact on its
financial statements.
<PAGE>
Item 8. FINANCIAL STATEMENTS AND
SUPPLEMENTARY DATA.
Page
Index to Financial Statements and Financial Statement Schedule
Management report on responsibility for financial reporting 53
Report of Independent Accountants 54
Financial Statements:
Consolidated Statement of Earnings for the three years ended
December 31, 1997, 1996 and 1995 55
Consolidated Balance Sheet as of December 31, 1997 and 1996 56
Consolidated Statement of Cash Flows 58
Consolidated Statement of Capitalization and Interim Financing 60
Consolidated Statement of Changes in Common-Stock Investment 61
Notes to Consolidated Financial Statements 62
Financial Statement Schedule:
Schedule II - Valuation and Qualifying Accounts 111
<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 Chief Financial Officer
<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. These financial statements and financial
statement schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
financial statement 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 consolidated financial position of Central Maine
Power Company and subsidiary as of December 31, 1997 and 1996, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1997, 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 30, 1998
<PAGE>
CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C> <C> <C>
Central Maine Power Company
CONSOLIDATED STATEMENT OF EARNINGS
(Dollars in thousands, except per-share amounts)
Year ended December 31,
1997 1996 1995
Electric Operating Revenues (Notes 1 and 3) $954,176 $967,046 $916,016
------- ------- -------
Operating Expenses
Fuel used for company generation (Notes 1 and 6) 34,946 16,827 18,702
Purchased power - energy (Notes 1 and 6) 419,144 407,926 408,072
Purchased power - capacity (Note 6) 112,810 108,720 93,489
Other operation 206,494 182,910 188,013
Maintenance 33,904 37,449 32,862
Depreciation and amortization (Note 1) 54,132 53,694 55,023
Federal and state income taxes (Note 2) 7,424 30,125 13,328
Taxes other than income taxes 28,303 27,861 27,885
-------- -------- --------
Total Operating Expenses 897,157 865,512 837,374
------- ------- -------
Equity In Earnings Of Associated Companies (Note 6) 6,260 6,138 7,217
-------- --------- ---------
Operating Income 63,279 107,672 85,859
------- ------- --------
Other Income (Expense)
Allowance for equity funds used during construction (Note 1)
642 851 663
Other, net 1,806 5,255 7,170
Income taxes (Notes 2 and 3) (738) (1,897) (2,704)
--------- -------- --------
Total Other Income 1,710 4,209 5,129
-------- --------- --------
Income Before Interest Charges 64,989 111,881 90,988
------- ------- -------
Interest Charges
Long-term debt (Note 7) 44,346 47,966 50,307
Other interest (Note 7) 7,660 4,341 3,244
Allowance for borrowed funds used during construction (Note 1)
(439) (655) (543)
--------- --------- ---------
Total Interest Charges 51,567 51,652 53,008
------- ------- -------
Net Income 13,422 60,229 37,980
Dividends On Preferred Stock 8,209 9,452 10,178
-------- -------- -------
Earnings Applicable To Common Stock $ 5,213 $ 50,777 $ 27,802
======== ======= =======
Weighted Average Number Of Shares Of
Common Stock Outstanding 32,442,752 32,442,752 32,442,752
Earnings Per Share Of Common Stock (Basic and Diluted)
$0.16 $1.57 $0.86
Dividends Declared Per Share Of Common Stock $0.90 $0.90 $0.90
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
Central Maine Power Company
CONSOLIDATED BALANCE SHEET
(Dollars in thousands)
December 31
ASSETS 1997 1996
---- ----
Electric Property, at original cost (Notes 6 and 7) $1,674,876 $1,644,434
Less: Accumulated Depreciation (Notes 1 and 6) 634,384 598,415
---------- ----------
Net electric property in service 1,040,492 1,046,019
--------- ---------
Construction work in progress (Note 4) 15,105 20,007
Nuclear fuel, less accumulated amortization of $9,035 in 1997 and
1996 1,157 1,157
------------ ------------
Total net electric property 1,056,754 1,067,183
Investments In Associated Companies, at equity (Notes 1 and 6) 76,509 67,809
----------- -----------
Total Net Electric Property and Investments in Associated Companies 1,133,263 1,134,992
--------- ---------
Current Assets
Cash and cash equivalents 20,841 8,307
Accounts receivable, less allowances for uncollectible accounts of
$2,400 in 1997 and $4,177 in 1996:
Service - billed 84,323 84,396
Service - unbilled (Notes 1 and 3) 46,807 45,721
Other accounts receivable 15,247 17,517
Prepaid income taxes (Note 2) - 264
Fuel oil inventory, at average cost 5,390 9,256
Materials and supplies, at average cost 11,779 12,172
Funds on deposit with trustee (Note 7) 61,694 59,512
Prepayments and other current assets 9,110 9,500
------------ ------------
Total Current Assets 255,191 246,645
---------- ----------
Deferred Charges And Other Assets
Recoverable costs of Seabrook 1 and abandoned projects, net (Note 1)
84,026 89,551
Yankee Atomic purchased-power contract (Note 6) 13,056 16,463
Connecticut Yankee purchased-power contract (Note 6) 36,877 45,769
Maine Yankee purchased-power contract (Note 6) 329,206 -
Regulatory assets - deferred taxes (Note 2) 236,632 239,291
Deferred charges and other assets (Notes 1 and 3) 210,715 238,203
---------- ----------
Total Deferred Charges and Other Assets 910,512 629,277
---------- ----------
Total Assets $2,298,966 $2,010,914
========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
Central Maine Power Company
CONSOLIDATED BALANCE SHEET
(Dollars in thousands)
December 31
1997 1996
---- ----
STOCKHOLDERS' INVESTMENTS AND LIABILITIES
Capitalization (see separate statement) (Note 7)
Common-stock investment $ 487,594 $ 511,578
Preferred stock 65,571 65,571
Redeemable preferred stock 39,528 53,528
Long-term obligations 400,923 587,987
---------- ----------
Total Capitalization 993,616 1,218,664
---------- ---------
Current Liabilities and Interim Financing
Interim financing (see separate statement)
(Note 7) 238,000 32,500
Sinking-fund requirements (Note 7) 9,411 9,375
Accounts payable 97,080 93,197
Dividends payable 9,202 9,512
Accrued interest 11,201 11,610
Accrued income taxes (Note 2) 3,001 -
Miscellaneous current liabilities 15,762 21,342
----------- -----------
Total Current Liabilities and Interim
Financing 383,657 177,536
---------- ----------
Commitments and Contingencies (Notes 4 and 6)
Reserves and Deferred Credits
Accumulated deferred income taxes (Note 2) 350,912 357,994
Unamortized investment tax credits (Note 2) 30,533 31,988
Yankee Atomic purchased-power contract (Note 6) 13,056 16,463
Connecticut Yankee purchased-power contract
(Note 6) 36,877 45,769
Maine Yankee purchased-power contract (Note 6) 329,206 -
Regulatory liabilities - deferred taxes (Note 2) 56,852 52,616
Other reserves and deferred credits (Note 5) 104,257 109,884
---------- ----------
Total Reserves and Deferred Credits 921,693 614,714
---------- ----------
Total Stockholders' Investment and Liabilities $2,298,966 $2,010,914
========= =========
The accompanying notes are an integral part of these financial statements.
<PAGE>
<TABLE>
<S> <C> <C> <C>
Central Maine Power Company
CONSOLIDATED STATEMENT OF CASH FLOWS
(Dollars in thousands)
Year ended December 31
----------------------
1997 1996 1995
---- ---- ----
Operating Activities
Net income $ 13,422 $ 60,229 $ 37,980
Items not requiring (providing) cash:
Depreciation 44,170 44,104 43,676
Amortization 34,291 34,881 37,196
Deferred income taxes and investment tax credits, net (2,204) 3,318 (3,710)
Allowance for equity funds used during construction (642) (851) (663)
Changes in certain assets and liabilities:
Accounts receivable 1,257 (3,565) (12,539)
Inventories 4,259 (4,884) 595
Other current assets 390 (308) (1,954)
Accounts payable 4,617 (16,862) 12,025
Accrued taxes and interest 2,856 (4,970) 30,282
Miscellaneous current liabilities (5,580) 7,472 3,335
Deferred energy-management costs (1,940) (5,222) (4,075)
Maine Yankee outage accrual (10,350) 8,280 (4,710)
Purchased-power contract buyouts - (75) (13,405)
Other, net 7,664 3,961 11,495
-------- -------- -------
Net Cash Provided by Operating Activities 92,210 125,508 135,528
------- ------- -------
Investing Activities
Construction expenditures (40,306) (46,922) (44,867)
Investments in associated companies (4,769) (12,059) (600)
Changes in accounts payable - investing activities (734) 1,889 (1,655)
--------- -------- --------
Net Cash Used by Investing Activities (45,809) (57,092) (47,122)
------- -------- -------
Financing Activities
Issuances:
Revolving credit agreement 52,500 7,500 -
Medium-term notes - 10,000 30,000
Other long-term obligations - 870 -
Redemptions:
Mortgage bonds - (11,500) -
Preferred stock (14,000) (14,000) (5,472)
Medium-term notes (25,000) (34,000) (65,000)
Finance Authority of Maine (6,800) (6,300) -
Short-term obligations, net - - (8,000)
Other long-term obligations (645) (1,780) (860)
Funds on deposit with trustee (2,182) (29,593) -
Dividends:
Common stock (29,220) (29,220) (29,222)
Preferred stock (8,520) (9,763) (10,287)
-------- -------- -------
Net Cash Used by Financing Activities (33,867) (117,786) (88,841)
------- -------- -------
Net Increase (Decrease) in Cash and Cash Equivalents
12,534 (49,370) (435)
Cash and Cash Equivalents, beginning of year 8,307 57,677 58,112
-------- ------- -------
CASH AND CASH EQUIVALENTS, End Of Year $ 20,841 $ 8,307 $ 57,677
======= ========= =======
Supplemental Cash-Flow Information:
Cash paid during the year for:
Interest (net of amounts capitalized) $47,551 $47,835 $51,127
Income taxes (net of amounts refunded of $29,045 in 1995)
$7,105 $32,632 $(11,994)
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.
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
Central Maine Power Company
CONSOLIDATED STATEMENT OF CAPITALIZATION AND INTERIM FINANCING
(Dollars in thousands)
December 31
-----------
1997 1996
---- ----
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 1997 and 1996
$ 162,214 $ 162,214
Other paid-in capital 277,168 276,818
Retained earnings 48,212 72,546
---------- -----------
Total Common-Stock Investment 487,594 39.6% 511,578 40.9
--------- ------ ---------- ------
Preferred Stock - not subject to mandatory redemption
65,571 5.3 65,571 5.2
---------- ------ ----------- ------
Preferred Stock - subject to mandatory redemption
46,528 60,528
Less: current sinking fund requirements 7,000 7,000
---------- ------------
Redeemable Preferred Stock - subject to mandatory
redemption 39,528 3.2 53,528 4.3
---------- ------ ----------- ------
Long-Term Obligations:
Mortgage bonds 421,000 421,000
Less: unamortized debt discount 1,437 1,620
----------- ------------
Total Mortgage Bonds 419,563 419,380
---------- ----------
Medium-term notes 43,000 68,000
Less: unamortized debt discount - -
--------------- -------------
Total Medium-Term Notes 43,000 68,000
----------- -----------
Other Long-Term Obligations:
Lease obligations 34,517 36,283
Pollution-control facility and other notes 84,254 91,699
----------- -----------
Total Other Long-Term Obligations 118,771 127,982
---------- ----------
Less: Current Sinking Fund Requirements and Current
Maturities 180,411 27,375
---------- -----------
Total Long-Term Obligations 400,923 32.6 587,987 47.0
---------- ------ ---------- ------
Total Capitalization 993,616 80.7 1,218,664 97.4
--------- ------ --------- ------
Interim Financing (Note 7):
Short-term obligations 60,000 7,500
Current maturities of long-term obligations 178,000 25,000
---------- -----------
Total Interim Financing 238,000 19.3 32,500 2.6
---------- ------ ----------- ------
Total Capitalization and Interim Financing $1,231,616 100.0% $1,251,164 100.0%
========= ===== ========= =====
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
Central Maine Power Company
CONSOLIDATED STATEMENT OF CHANGES IN COMMON-STOCK INVESTMENT
(Dollars in thousands)
For the three years ended December 31, 1997
Amount at par Other paid-in Retained
Shares value capital earnings Total
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 (324) (324)
Capital stock expense 403 403
------------------------------ --------- ------------ ---------
Balance - December 31, 1995 32,442,752 162,214 276,287 51,504 490,005
---------- ------- ------- ------- -------
Net income 60,229 60,229
Dividends declared:
Common stock (29,199) (29,199)
Preferred stock (9,452) (9,452)
Cost for reacquired preferred stock 536 (536)
Capital stock expense (5) (5)
------------------------------ ----------- ----------- -----------
Balance - December 31, 1996 32,442,752 162,214 276,818 72,546 511,578
---------- ------- ------- ------ -------
Net income 13,422 13,422
Dividends declared:
Common stock (29,199) (29,199)
Preferred stock (8,209) (8,209)
Cost for reacquired preferred stock 348 (348)
Capital stock expense 2 2
----------------------------- ---------- ----------- -----------
Balance - December 31, 1997 32,442,752 $162,214 $277,168 $48,212 $487,594
========== ======= ======= ====== =======
</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%-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.
Impact of New Accounting Standards
In February 1997, FASB issued SFAS No. 128, "Earnings per Share." This
statement, which is effective for fiscal years ending after December 15, 1997,
establishes simplified standards for computing and presenting earnings per share
("EPS"). In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income." This statement, which is effective for fiscal years beginning after
December 15, 1997 establishes standards for the reporting and display of
comprehensive income and its components (revenues, expenses, gains and losses)
in a full set of general-purpose financial statements. The Company anticipates
that adoption of these standards will not have a significant impact on its
financial statements.
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 an estimate
of unbilled sales, for services rendered but not yet billed.
<PAGE>
Utility Plant
Utility plant is stated at original cost of construction. The costs of
replacements of property units are capitalized. Maintenance and repairs and
replacements of minor items are expensed as incurred. The original cost of
property retired, net of salvage value, and the related costs of removal are
charged to accumulated depreciation.
The Company's utility plant in service as of December 31 was comprised as
follows:
Average
Remaining
Average Service
Service Life
1997 1996 Life* 12/31/97
---- ---- ------ --------
Generation ......... $ 514,815 $ 506,159 37.6 years 20.9 years
Transmission ....... 250,109 247,666 41.6 years 25.2 years
Distribution ....... 704,345 685,142 37.7 years 28.8 years
General ............ 205,607 205,467 18.6 years 13.3 years
---------- ---------- ---------- ----------
$1,674,876 $1,644,434
========== ==========
*Based on the Company's last depreciation represcription study as of December
31, 1992.
Depreciation
Depreciation of electric property is calculated using the straight-line method.
The weighted average composite rate was 3.0% in each of 1997, 1996 and 1995.
Allowance for Funds Used During Construction (AFC)
The Company capitalizes AFC as part of construction costs. AFC represents the
composite interest and equity costs of capital funds used to finance that
portion of construction costs not yet eligible for inclusion in rate base. AFC
is capitalized in "Utility plant" with offsetting noncash credits to "Other
income" and "Interest." The composite AFC rates were 9.7 percent, 8.7 percent,
and 8.4 percent in 1997, 1996, and 1995, respectively.
<PAGE>
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,
1997, and 1996:
(Dollars in thousands) 1997 1996
---- ----
NUG contract buy-outs and restructuring (Note 6) $ 92,946 $113,796
Energy-management costs 31,995 35,986
Postretirement benefits (Note 5) 20,900 22,962
Financing costs 18,560 20,684
Environmental site clean-up costs (Note 4) 7,891 7,876
Non-operating property, net 7,624 7,176
Workers Compensation 5,350 6,050
Other, including MEPCO 25,449 23,673
------- -------
Total $210,715 $238,203
======= =======
Certain costs are being amortized and recovered in rates over periods ranging
from three to 30 years. Amortization expense for the next five years is shown
below:
(Dollars in thousands) Amount
1998 $26,934
1999 24,433
2000 23,323
2001 19,818
2002 19,226
<PAGE>
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 these rate orders, the deferred taxes related to
these recoverable costs are amortized over periods of four to 10 years. As of
December 31, 1997, substantially all deferred taxes related to Seabrook I have
been amortized. The recoverable investments as of December 31, 1997, and 1996
are as follows:
December 31 Recovery
(Dollars in thousands) 1997 1996 periods ending
---- ---- --------------
Recoverable costs of:
Seabrook I $141,084 $141,084 2015
Other Projects 57,491 57,491 2001
------- -------
198,575 198,575
------- -------
Less: accumulated amortization 114,035 108,209
Less: related income taxes 514 815
--------- ---------
Total Net Recoverable Investment $ 84,026 $ 89,551
======= =======
Note 2: Income Taxes
The components of federal and state income-tax provisions reflected in the
Consolidated Statement of Earnings are as follow:
Year ended December 31
(Dollars in thousands) 1997 1996 1995
---- ---- ----
Federal:
Current $ 8,534 $21,682 $15,965
Deferred (5,922) 5,751 2,278
Investment tax credits, net (1,455) (464) (1,715)
Regulatory deferred 5,390 (623) (2,619)
----- ------- -------
Total Federal Taxes 6,547 26,346 13,909
----- ------ ------
State:
Current $ 1,831 $ 7,022 $ 3,777
Deferred (1,720) (10) 343
Regulatory deferred 1,504 (1,336) (1,997)
----- ------- -------
Total State Taxes 1,615 5,676 2,123
----- ------- -------
Total Federal and State Income Taxes $8,162 $32,022 $16,032
===== ====== ======
Federal and state income taxes charged to:
Operating expenses $7,424 $30,125 $13,328
Other income 738 1,897 2,704
------ ------- -------
$8,162 $32,022 $16,032
===== ====== ======
<PAGE>
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>
<S> <C> <C> <C> <C> <C> <C>
Year ended December 31
1997 1996 1995
---- ---- ----
Amount % Amount % Amount %
(Dollars in thousands)
Income tax expense at statutory federal
rate $ 6,990 35.0% $30,301 35.0% $18,161 35.0%
----- ---- ------ ---- ------ ----
Permanent differences:
Investment tax-credit amortization
(1,469) (7.3) (1,482) (1.7) (1,613) (3.1)
Dividend-received deduction (1,911) (9.6) (1,895) (2.2) (2,219) (4.3)
Other, net (80) (.4) (293) (0.3) (217) (0.4)
------- ----- ------- ---- -------- ----
3,530 17.7 26,631 30.8 14,112 27.2
----- ---- ------ ---- ------ ----
Effect of timing differences for items
which receive flow through treatment:
Tax-basis repairs (1,020) (5.1) (1,229) (1.4) (891) (1.7)
Depreciation differences flowed through
in prior years 2,923 14.6 2,327 2.7 2,291 4.4
Accelerated flowback of deferred taxes
on loss on abandoned generating projects
1,700 8.5 1,708 1.9 1,873 3.6
Benefits related to Section 1245 Losses
(1,818) (9.1) - - - -
IRS audit resolution regarding
depreciation methods 852 4.3 (3,230) (3.7) - -
Loss on Reacquired Debt 540 2.7 537 0.6 535 1.0
Provision for deferred taxes relating
to normalization of certain short-term
timing differences*
- - (2,545) (4.9)
Flowback of Excess Federal Deferred
Taxes due to TRA86 (1,005) (5.0) (520) (0.6) (400) (0.8)
Other, net 845 4.2 122 0.1 (1,066) (2.0)
------ ---- ------- ----- ------ ----
Federal Income Tax Expense and
Effective Rate $6,547 32.8% $26,346 30.4% $13,909 26.8%
===== ==== ====== ==== ====== ====
</TABLE>
*During 1995, the Company adjusted the deferred tax balances for certain
normalized items.
<PAGE>
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.
A valuation allowance has not been recorded at December 31, 1997, and 1996, 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 1997 and 1996:
(Dollars in thousands) 1997 1996
---- ----
Deferred tax assets resulting from:
Investment tax credits, net $ 21,047 $ 22,050
Regulatory liabilities 25,188 17,919
Alternative minimum tax 6,053 10,241
All other 27,072 26,588
------- -------
79,360 76,798
------- -------
Deferred tax liabilities resulting from:
Property 295,293 288,370
Abandoned plant 57,921 61,729
Regulatory assets 77,572 85,508
-------- --------
430,786 435,607
------- -------
Accumulated deferred income taxes, end of year, net $351,426 $358,809
======= =======
Accumulated deferred income taxes, recorded as:
Accumulated deferred income taxes $350,912 $357,994
Recoverable costs of Seabrook 1 and abandoned projects,
net 514 815
-------- ---------
$351,426 $358,809
======= =======
Note 3: Regulatory Matters
Alternative Rate Plan
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."
As a result, the Company will continue to apply the provisions of SFAS No. 71 to
its accounting transactions and its future financial statements. See "Meeting
the Requirements of SFAS No. 71," below.
The ARP contains a mechanism that provides price caps on the Company's retail
rates to increase annually on July 1, which commenced 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, and includes fuel-and-purchased power cost
that 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.
A specified standard inflation index is the basis for each annual price-cap
change. The inflation index is reduced by the sum of two productivity factors, a
general productivity offset of 1.0%, (0.5% for 1995), and a second formula-based
offset that started 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 are outside a range of 350 basis points above
or below the Company's allowed return on equity, starting at the 10.55% allowed
return (1995) 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 commenced with the price-cap
change of July 1, 1996, and reflected 1995 results. The ROE used for earnings
sharing was increased to 11.5% effective with the July 1999 price change.
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. 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.
Pursuant with the annual price-change provision in the ARP, the MPUC approved
the following increases:
1997 1996 1995
---- ---- ----
Inflation Index 2.12% 2.55% 2.92%
Productivity Offset (1.00) (1.00) (.50)
Qualfying Facility Offset (.42) - -
Earnings Sharing - .32 -
Flowthrough and Mandated Items .40 (0.61) .01
----- ------ -----
1.10% 1.26% 2.43%
==== ==== ====
Industry Restructuring and Strandable Costs
Legislation that will restructure the electric-utility industry in Maine by
March 1, 2000, was enacted by the Maine Legislature in May 1997, and is
discussed in detail under this heading below. A departure from traditional
regulation, however, could have a substantial impact 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 has substantial exposure to cost stranding relative to its size. In
general, its stranded costs reflect the excess costs of the Company's
purchased-power obligations over the market value of the power, and the costs of
deferred charges and other regulatory assets. The major portion of the Company's
strandable costs is related to above-market costs of purchased-power obligations
arising from the Company's long-term, noncancelable contracts for the purchase
of capacity and energy from NUGs, and deferred regulatory assets. There is a
high degree of uncertainty that surrounds stranded-cost estimates, resulting
from having to rely on projections and assumptions about future conditions,
including, among others, estimates of the future market for power.
Restructuring Legislation and MPUC Proceeding: The 1997 Maine restructuring
legislation requires the 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. The MPUC has initiated the proceeding that will determine the
Company's stranded costs, corresponding revenue requirements and stranded-cost
charges to be charged by it when it becomes a transmission-and-distribution
utility and has scheduled completion of the proceeding for the second half of
1998. On December 5, 1997, the Company filed direct testimony in the proceeding
estimating its future revenue requirements as a transmission-and-distribution
utility and providing an updated estimate of its strandable costs, which are to
be defined by the MPUC later in the proceeding. The Company estimated its
strandable costs at approximately $1.3 billion and explained the assumptions
underlying the estimate. The estimate was developed without consideration of the
Company's own generating assets, most of which are under contract to be sold to
FPL Group in 1998. The Company's strandable costs, therefore, could be partially
mitigated by the proceeds, in excess of book value of nearly $500 million. The
Company cannot predict the results of the proceeding.
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 and the related rates charged to customers 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.
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.
In addition, 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.
Finally, recovery of nuclear-plant decommissioning costs as required by federal
law, rule or order, will be funded through transmission-and-distribution utility
rates and charges.
Agreement for Sale of Company's Generation Assets
On January 6, 1998, the Company announced that it had reached agreement to sell
all of its hydro-fossil and biomass power plants with a combined generating
capacity of 1,185 megawatts for $846 million in cash to Florida-based FPL Group.
The related book value for these assets is approximately $221 million at
December 31, 1997. In addition, as part of its agreement with FPL Group, the
Company entered into energy buy-back agreements to assist in fulfilling its
obligation to supply its customers with power until March 1, 2000.
The Company's interests in the power entitlements from approximately 50
power-purchase agreements with non-utility generators representing approximately
488 megawatts, its 2.5-percent interest in the Millstone III nuclear generating
unit in Waterford, Connecticut, its 3.59-percent interest in the output of the
Vermont Yankee nuclear generating plant in Vernon, Vermont, and its entitlement
in the NEPOOL Phase II interconnection with Hydro-Quebec all attracted
insufficient interest to be included in the present sale. The Company will
continue to seek buyers for those assets. The Company did not offer for sale its
interests in the Maine Yankee (Wiscasset, Maine), Connecticut Yankee, (Haddam,
Connecticut) and Yankee Atomic (Rowe, Massachusetts) nuclear generating plants,
all of which are in the process of being decommissioned.
Substantially all of the generating assets included in the sale are subject to
the lien of the Company's General and Refunding Mortgage Indenture dated as of
April 15, 1976 (the "Indenture"). Therefore, substantially all of the proceeds
from sale must be deposited with the trustee under the Indenture at the closing
of the sale to free the generating assets from the lien of the Indenture.
Proceeds on deposit with the trustee may be used by the Company to redeem or
repurchase bonds under the terms of the Indenture, including the possible
discharge of the Indenture. In addition, the proceeds could provide the
flexibility to redeem or repurchase outstanding equity securities. The Company
must also provide for payment of applicable taxes resulting from the sale. The
manner and timing of the ultimate application of the sale proceeds after closing
are in any event subject to various factors, including Indenture provisions,
market conditions and terms of outstanding securities.
The bid value in excess of the remaining investment in the power plants will
reduce the Company's stranded costs and other costs, which could lower the
amount that would otherwise be collected from customers by nearly half a billion
dollars. However, the Company will incur incremental costs as a result of the
power buy-back arrangements in excess of the pre-sale costs of capacity and
energy from the plants being sold, which will effectively lower the amount of
sale proceeds available to reduce stranded and other costs.
Storm Damage to Company's System
On January 7 through 9, 1998, an ice storm of unprecedented breadth and severity
struck the Company's service territory, causing power outages for approximately
280,000 of the Company's 528,000 customers, on January 9 immediately after the
storm, and substantial widespread damage to the Company's transmission and
distribution system. To restore its electrical system, the Company supplemented
its own crews with utility and tree-service crews from throughout the
northeastern United States and the Canadian maritime provinces, with assistance
from the Maine national guard. The Company estimates the incremental costs of
the repair effort at $60 - $65 million, of which most of the expense was labor
related.
On January 15, 1998, the Maine Public Utilities Commission ("MPUC") issued an
Order (the "Order") allowing the Company to defer on its books the incremental
non-capital costs associated with the Company's efforts to restore service in
response to the damage resulting from the storm. The Order requires the Company,
as part of its annual filing under its Alternative Rate Plan ("ARP"), to file
information on the amounts deferred under the Order and to submit a proposal as
to how the costs associated with the Order should be recovered under the ARP.
Meeting the Requirements of SFAS No. 71
The Company continues to meet the requirements of SFAS No. 71, as described
above. The standard provides specialized accounting for regulated enterprises,
which requires recognition of assets and liabilities that enterprises in general
could not record. Examples of regulatory assets include deferred income taxes
associated with previously flowed through items, NUG buyout costs, losses on
abandoned plants, deferral of postemployment benefit costs, and losses on debt
refinancing. If an entity no longer meets the requirements of SFAS No. 71, then
regulatory assets and liabilities must be written off.
The ARP provides incentive-based rates intended to recover the cost of service
plus a rate of return on the Company's investment together with a sharing of the
costs or earnings between ratepayers and the shareholders should the earnings be
less than or exceed a target rate of return. The Company has received
recognition from the MPUC that the rates implemented as a result of the ARP
continue to provide specific recovery of costs deferred in prior periods.
The recent legislation enacted in Maine associated with industry restructuring
specifically addressed the issue of cost recovery of regulatory assets stranded
as a result of industry restructuring. Specifically, the legislation requires
the MPUC, when retail access begins, to provide a "reasonable opportunity" for
the recovery of 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. As provided for in EITF 97-4, "Deregulation of the Pricing of
Electricity," the Company will continue to record regulatory assets in a manner
consistent with SFAS No. 71 as long as future recovery is probable since the
Maine legislation provides the opportunity to recover regulatory assets
including stranded costs through the rates of the transmission and distribution
company. The Company anticipates that once a detailed plan for deregulation of
generation is known, the application of SFAS No. 71 to the unregulated
generation segment will no longer apply and the Company will be required to
discontinue SFAS No. 71 for any remaining generation segment of its business.
The Company further anticipates, based on current generally accepted accounting
principles, that SFAS No. 71 will continue to apply to the regulated
distribution and transmission segments of its business. Future regulatory rules
or other circumstances could cause the application of FAS 71 to be discontinued,
which could result in a noncash write-off of previously established regulatory
assets.
Note 4: Commitments and Contingencies
Construction Program
The Company's plans for improving and expanding generating, transmission,
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 1997 through 2002, are as follows:
(Dollars in millions) 1998 1999-2002 Total
---- --------- -----
Type of Facilities:
Generating projects $ 5 $ - $ 5
Transmission 3 14 17
Distribution 31 131 162
General facilities and other 17 74 91
-- --- ---
Total Estimated Capital Expenditures $56 $219 $275
== === ===
Customer Retention
The Company entered into five-year definitive agreements with 18 customers that
lock-in non-cumulative rate reductions of 15% for the three years 1995 through
1997, 16% for 1998, and 18% 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 provided in these
agreements, its gross revenues were approximately $27 million lower in 1995,
approximately $45 million lower in 1996 and approximately $65 million lower in
1997, than would have been the case if these customers continued to pay full
retail rates without reducing their purchases from the Company.
However, these rate reductions were negotiated giving consideration to important
related cost 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 $30 million as a result of linkage
between retail tariffs and some contract prices.
Legal and Environmental Matters
The Company is subject to regulation by federal and state authorities with
respect to air and water quality, the handling and disposal of toxic substances
and hazardous and solid wastes, and the handling and use of chemical products.
Electric utility companies generally use or generate in their operations a range
of potentially hazardous products and by-products that are the focus of such
regulation. The Company believes that its current practices and operations are
in compliance with all existing environmental laws except for such
non-compliance as would not have a material adverse effect on the Company's
financial position. The Company reviews its overall compliance and measures the
liability quarterly by assessing a range of reasonably likely costs for each
identified site using currently available information, including existing
technology, presently enacted laws and regulations, experience gained at similar
sites, and the probable level of involvement and financial condition of other
potentially responsible parties. These estimates include costs for site
investigations, remediation, operation and maintenance, monitoring and site
closure.
New and changing environmental requirements could hinder the construction and/or
modification of generating units, transmission and distribution lines,
substations and other facilities, and could raise operating costs significantly.
As a result, the Company may incur significant additional environmental costs,
greater than amounts reserved, in connection with the generation and
transmission of electricity and the storage, transportation and disposal of
by-products and wastes. The Company may also encounter significantly increased
costs to remedy the environmental effects of prior waste handling activities.
The cumulative long-term cost impact of increasingly stringent environmental
requirements cannot accurately be estimated.
On October 1, 1996, the American Institute of Certified Public Accountants
issued Statement of Position 96-1, "Environmental Remediation Liabilities"
("SOP"). The principal objective of the SOP is to improve the manner in which
existing authoritative accounting literature is applied by entities to specific
situations of recognizing, measuring and disclosing environmental remediation
liabilities. The SOP became effective January 1, 1997. This SOP has not had a
material impact on the company's financial position or results of operations.
The Company has recorded a liability, based upon currently available
information, for what it believes are the estimated environmental remediation
costs that the Company expects to incur for identified waste disposal sites. In
most cases, additional future environmental cleanup costs are not reasonably
estimatable due to a number of factors, including the unknown magnitude of
possible contamination, the appropriate remediation methods, the possible
effects of future legislation or regulation and the possible effects of
technological changes. The Company cannot predict the schedule or scope of
remediation due to the regulatory process and involvement of non-governmental
parties. At December 31, 1997, the liability recorded by the Company for its
estimated environmental remediation costs amounted to $2.1 million, which
management has determined to be the most probable amount within the range of
$2.1 million to $8.0 million. Such costs may be higher if the Company is found
to be responsible for cleanup costs at additional sites or identifiable possible
outcomes change.
Proposed Federal Income Tax Adjustments.- On September 3, 1997, the Company
received from the Internal Revenue Service ("IRS") a Revenue Agent's Report
summarizing all adjustments proposed by the IRS as a result of its audit of the
Company's federal income tax returns for the years 1992 through 1994, and on
September 12, 1997, the Company received a notice of deficiency relating to the
proposed disallowances. There are two significant disallowances among those
proposed by the IRS. The first is a disallowance of the Company's write-off of
the under-collected balance of fuel and purchased-power costs and the
unrecovered balance of its unbilled Electric Revenue Adjustment Mechanism
("ERAM") revenues, both as of December 31, 1994, which were charged to income in
1994 in connection with the adoption of the ARP effective January 1, 1995. The
second major adjustment would disallow the Company's 1994 deduction of the cost
of the buyout of the Fairfield Energy Venture purchased-power contract by the
Company in 1994. The aggregate tax impact, including both federal and state
taxes, of the unresolved issues amounts to approximately $39.0 million, over 90
percent of which is associated with the two major disallowances. The two major
disallowances relate largely to the timing of the deductions and would not
affect income except for the cumulative interest impact which, through December
31, 1997, amounted to $13.1 million, or a decrease in net income of $7.8
million, and which could increase interest expense approximately $441,000 per
month until either the tax deficiency is paid or the issues are resolved in
favor of the Company, in which case no interest would be due. If the IRS were to
prevail, the Company believes the deductions would be amortized over periods of
up to twenty, post-1994, tax years. The Company believes its tax treatment of
the unresolved issues was proper and as a result, the potential interest
discussed above has not been accrued. On December 10, 1997, the Company filed a
petition in the United States Tax Court contesting the entire amount of the
deficiencies. The Company plans to seek review of the asserted deficiencies by
an IRS Appeals Officer to determine whether all or part of the dispute can be
resolved in advance of a court determination. Absent such a resolution, the
Company plans to pursue vigorously the Tax Court litigation, but cannot predict
the result.
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% ownership interest in the Millstone Unit No. 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% 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 $3.6 million
annually.
Joint Venture
The Company and New York State Electric & Gas Corp. have signed a joint-venture
agreement to distribute natural gas to many Maine communities that aren't now
served with that fuel. If state regulators approve, a new company owned equally
by CMP and NYSEG would be in a position to offer gas in the Augusta and Bangor
areas, and in other communities including Bath, Bethel, Brunswick, North
Windham, Rumford, and Waterville.
Note 5: Pension and Other 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.
A summary of the components of net periodic pension cost for the non-union and
union defined-benefit plans in 1997, 1996 and 1995 follows:
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
1997 1996 1995
---- ---- ----
(Dollars in Non- Non- Non-
thousands) union Union union Union union Union
----- ----- ----- ----- ----- -----
Service cost $ 2,375 $ 1,694 $ 2,334 $ 1,780 $ 2,014 $ 1,414
Interest cost 5,727 3,973 5,225 3,852 5,653 3,889
Return on assets (10,683) (7,286) (8,168) (5,036) (16,135) (9,786)
Net amortization 5,119 3,626 2,911 1,536 10,030 6,028
Early Retirement - - - - 3,859 3,141
--------- --------- --------- ---------- ----- -----
Net Periodic
Pension Cost $ 2,538 $ 2,007 $ 2,302 $2,132 $ 5,421 $ 4,686
======= ======= ====== ====== ======= =====
</TABLE>
<PAGE>
Assumptions used in accounting for the non-union and union defined-benefit plans
in 1997, 1996 and 1995 are as follows:
1997 1996 1995
---- ---- ----
Weighted average discount rate 7.00% 7.50% 7.25%
Rate of increase in future compensation levels 4.5% 4.5% 4.5%
Expected long-term return on assets 8.75% 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, 1997, and 1996:
<TABLE>
<S> <C> <C> <C> <C>
1997 1996
---- ----
(Dollars in thousands) Non- Non-
union Union union Union
Present value of benefit obligations:
Vested $68,483 $52,048 $62,461 $47,617
------ ------ ------ ------
Accumulated benefit $71,839 $53,781 $64,394 $48,783
------ ------ ------ ------
Projected benefit $87,607 $60,806 $75,570 $55,688
Plan assets at estimated market value (primarily
stocks, bonds, and guaranteed annuity contracts)
85,707 54,803 77,996 48,091
------ ------ ------ ------
Funded status - projected benefit obligation in
excess of or (less than) plan assets
1,900 6,003 (2,426) 7,597
Unrecognized prior service cost (1,629) (1,352) (1,785) (1,481)
Unrecognized net gain 16,015 4,884 19,819 3,745
Unrecognized (net obligation) net asset (134) 1,405 (163) 1,675
------- ------- ------- ------
Net Pension Liability Recognized in the
Balance Sheet $16,152 $10,940 $15,445 $11,536
====== ====== ====== ======
</TABLE>
Savings Plan
The Company offers an employee savings plan to all eligible employees. The
non-union plan allows participants to invest from 2% to 15% of their salaries
among several alternatives. The employer contribution equals 60% of the first 5%
(total of 3%) of the employees' contribution.
As part of the collective bargaining agreement, effective in May 1997, the union
plan allows maximum deferrals of up to 16% of their salaries among several
alternatives. The employer contribution equals 60% of the first 5% and 50% of
the next 2% invested, bringing the maximum employer contribution to 4% if an
employee defers 7% of compensation.
The Company's contributions to the savings plan trust were $1.8 million in 1997,
$1.7 million in 1996 and $1.6 million in 1995.
Post-Retirement 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
adopted the accrual method of accounting for the expected cost of such benefits
during the employees' years of service, and authorized 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. The Company is utilizing a 20 year amortization period.
Segregation in an external fund is required for amounts collected in rates. The
Company funded $3 million in November 1997 and plans to monitor and fund the
same amount annually in order to meet its obligation. Once amounts are funded,
the return on those assets will be reflected in postretirement benefit cost.
As a result of the MPUC order, the Company records the cost of these benefits by
charging expense in the period recovered through rates. The annual
post-retirement benefit expense is currently included in rates as well as an
amount designed to recover the deferred balance over a period of 20 years. The
amounts included in rates in 1997, 1996 and 1995 were $9.7, $9.8 and $7.6
million, respectively. With the reduction in the deferred account of $1.8
million in 1997, and the excess over those amounts of $1.1 million in 1996 and
$6.2 million in 1995, deferred for future recovery. The total amount deferred as
a regulatory asset as of December 31, 1997 was $21 million. A summary of the
components of net periodic postretirement benefit cost for the plan in 1997,
1996 and 1995 follows:
(Dollars in thousands) 1997 1996 1995
---- ---- ----
Service cost $ 1,201 $ 1,347 $ 846
Interest on accumulated postretirement benefit
obligation 4,702 5,720 7,389
Special retirement offer - - 200
Amortization of transition obligation 3,704 4,080 4,606
Amortization of prior service cost - 35 42
Amortization of gain (1,029) (329) (188)
----- ------ ------
Postretirement benefits expense 8,578 10,853 12,895
Deferred postretirement benefits expense - (1,056) (6,204)
----- ------ ------
Postretirement Benefit Expense Recognized in the
Statement of Earnings $ 8,578 $ 9,797 $ 6,691
===== ====== =======
<PAGE>
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, 1997 and 1996:
(Dollars in thousands) 1997 1996
---- ----
Accumulated postretirement benefit obligation:
Retirees $47,323 $51,815
Fully eligible active plan participants 2,499 2,707
Other active plan participants 19,927 19,381
------ ------
Total accumulated postretirement benefit obligation 69,749 73,903
Plan assets, at fair value 3,025 849
------- --------
Accumulated postretirement benefits obligation in
excess of plan assets 66,724 73,054
Unrecognized net gain (loss) 19,680 15,987
Unrecognized prior service cost (5) (5)
Unrecognized transition obligation (55,563) (59,267)
------ ------
Accrued Postretirement Benefit Cost Recognized in
the Balance Sheet $ 30,836 $ 29,769
====== ======
The assumed health-care cost-trend rates range from 5.6% to 6.5% for 1997
reducing to 5.0% overall over a period of 25 years. Rates range from 5.7% to
6.8% for 1996, reducing to 5.0% overall, over a period of 10 years. Rates range
from 6.4% to 9.3% for 1995, reducing to 5.0% overall, over a period of 10 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
$0.5 million and the accumulated postretirement benefit obligation by $8.5
million. Additional assumptions used in accounting for the postretirement
benefit plan in 1997, 1996 and 1995 are as follows:
1997 1996 1995
---- ---- ----
Weighted-average discount rate 7.00% 7.50% 7.25%
Rate of increase in future compensation levels 4.50% 4.50% 4.50%
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.
Effective September 1, 1996, the Company implemented a phase-out of the
long-term care portion of its retiree medical plans. With the exception of one
group of approximately 200 retirees, all benefits of this type will be
eliminated by September 1, 2002.
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), three of which have been permanently shut down, and is obligated to
pay its proportionate share of costs, which include fuel, depreciation,
operation-and-maintenance expenses, a return on invested capital, and the
estimated cost of decommissioning the nuclear plants.
Pertinent data related to these power agreements as of December 31, 1997, are as
follows:
<TABLE>
<S> <C> <C> <C> <C>
(Dollars in thousands) Maine Yankee Vermont Connecticut Yankee Atomic
Yankee Yankee
Ownership share 38% 4% 6% 9.5%
-- - - ---
Operating Status Permanently Operating Permanently Permanently
shutdown shutdown shutdown
August 6, 1997 December 4, February 26,
1996 1992
Contract expiration date 2008 2012 1998 2000
Capacity (MW) - 531 - -
Company's share of: Capacity (MW)
- 19 - -
1997 energy and capacity costs 78,384 6,216 7,608 4,719
Long-term obligations and redeemable
preferred stock 112,087 7,699 9,117 -
Estimated decommissioning obligation 329,206 13,860 36,877 13,056
Accumulated decommissioning fund 75,794 6,161 15,623 12,690
</TABLE>
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.
Permanent Shutdown of Maine Yankee Plant
On August 6, 1997, the Board of Directors of Maine Yankee voted to permanently
cease power operations at its nuclear generating plant at Wiscasset, Maine (the
"Plant") and to begin decommissioning the Plant. The Plant experienced a number
of operational and regulatory problems and has been shut down since December 6,
1996. The decision to close the Plant permanently was based on an economic
analysis of the costs, risks and uncertainties associated with operating the
Plant compared to those associated with closing and decommissioning it.
The Plant's operating license from the Nuclear Regulatory Commission ("NRC") was
due to expire on October 21, 2008.
Costs: The Company has been incurring substantial costs in connection with its
38% share of Maine Yankee costs, as well as additional costs for replacement
power while the Plant has been out of service. For the twelve months ended
December 31, 1997, such costs amounted to approximately $132.3 million for the
Company: $72.8 million due to basic operations and maintenance costs, $54.0
million due to replacement power costs and $5.5 million associated with
incremental costs of operations and maintenance.
The Company's 38% ownership interest in Maine Yankee's common equity amounted to
$29.8 million as of December 31, 1977, and under Maine Yankee's Power Contracts
and Additional Power Contracts, the Company is responsible for 38% of the costs
of decommissioning the Plant. Maine Yankee's most recent estimate of the cost of
decommissioning is $380.6 million, based on a 1997 study by an independent
engineering consultant, plus estimated costs of interim spent-fuel storage of
$127.6 million, for an estimated total cost of $508.2 million (in 1997 dollars).
The previous estimate for decommissioning, by the same consultant, was $316.6
million (in 1993 dollars), which resulted in approximately $14.9 million being
collected annually from Maine Yankee's sponsors pursuant to a 1994 Federal
Energy Regulatory Commission ("FERC") rate order. Through December 31, 1997,
Maine Yankee had collected approximately $199.5 million for its decommissioning
obligations.
On November 6, 1997, Maine Yankee submitted the new estimate to the FERC as part
of a rate case reflecting the fact that the Plant is no longer operating and has
entered the decommissioning phase. If the FERC accepts the new estimate, the
amount of Maine Yankee's collections for decommissioning would rise from the
$14.9 million previously allowed by the FERC to approximately $36 million per
year. Several interested parties have intervened in the FERC proceeding,
including state regulators.
On September 1, 1997, Maine Yankee estimated the sum of the future payments for
the closing, decommissioning and recovery of the remaining investment in Maine
Yankee to be approximately $930 million, of which the Company's 38% share would
be approximately $353 million. Legislation enacted in Maine in 1997 calling for
restructuring the electric utility industry provides for recovery of
decommissioning costs, to the extent allowed by federal regulation, through the
rates charged by the transmission and distribution companies. Based on the
legislation and regulatory precedent established by the FERC in its opinion
relating to the decommissioning of the Yankee Atomic nuclear plant, the Company
believes that it is entitled to recover substantially all of its share of such
costs from its customers and as of December 31, 1997, is carrying on its
consolidated balance sheet a regulatory asset and a corresponding liability in
the amount of $329 million, which is the $353 million discussed above net of the
Company's post-September 1, 1997 cost-of-service payments to Maine Yankee.
Management Audit: The MPUC released the report of a consultant it had retained
to perform a management audit of Maine Yankee for the period January 1, 1994, to
June 30, 1997. One conclusion of the report was that Maine Yankee's decision in
December 1996 to proceed with the steps necessary to restart the Plant was
"imprudent", that Maine Yankee's May 27, 1997 decision to reduce restart
expenses while exploring a possible sale of the Plant was "inappropriate", and
that the decisions resulted in Maine Yankee incurring $95.9 million in
"unreasonable" costs. On October 24, 1997, the MPUC issued a Notice of
Investigation initiating an investigation of the shutdown decision and of the
operation of the Plant prior to shutdown, and announced that it had directed its
consultant to extend its review to include those areas. The Company does not
know how the MPUC plans to use the consultant's report, but believes the
report's negative conclusions are unfounded and may be contradictory.
Maine Yankee Debt Restructuring and FERC Rate Proceeding: Maine Yankee entered
into agreements in August 1997 with the holders of its outstanding First
Mortgage Bonds and its lender banks (the "Standstill Agreements") under which
the bondholders and banks agreed that they would not assert that the August 1997
voluntary permanent shutdown of the Plant constituted a covenant violation under
Maine Yankee's First Mortgage Indenture or its two bank credit agreements. The
Standstill Agreements, as extended in October 1997, were to terminate on January
15, 1998, by which date Maine Yankee was to have reached agreement on
restructured debt arrangements reflecting its decommissioning status. On January
15, 1998, Maine Yankee, its bondholders and lender banks revised the Standstill
Agreements and extended their term to April 15, 1998.
On November 6, 1997, Maine Yankee filed a rate proceeding with the FERC
reflecting the Plant's decommissioning status and requesting an effective date
of January 15, 1998, for the amendments to Maine Yankee's power contracts and
additional power contracts. On January 14, 1998, the FERC issued an order
accepting for filing the rates associated with the amended power contracts and
made them effective January 15, 1998, subject to refund.
Condensed financial information on Maine Yankee Atomic Power Company is as
follows:
(Dollars in thousands) 1997 1996 1995
---- ---- ----
Earnings:
Operating revenues $238,586 $185,661 $205,977
Operating income 18,170 17,150 18,527
Net income 9,037 8,106 8,571
Earnings applicable to common stock 7,613 6,637 7,057
---------- --------- ---------
Company's Equity Share of Net Earnings $ 2,893 $ 2,522 $ 2,682
========== --------- ---------
Investment:
Net electric property and nuclear fuel $ 17,938 $222,360 $242,399
Current assets 71,098 44,979 34,799
Deferred charges and other assets 1,484,612 334,722 303,760
--------- ------- -------
Total Assets 1,573,648 602,061 580,958
--------- ------- -------
Less:
Redeemable preferred stock 17,400 18,000 18,600
Long-term obligations 270,299 223,572 224,185
Current liabilities 35,518 34,265 30,904
Reserves and deferred credits 1,172,066 255,472 236,653
--------- ------- -------
Net Assets $ 78,365 $ 70,752 $ 70,616
========== -------- --------
Company's Equity in Net Assets $ 29,779 $ 26,886 $ 26,834
========== ======== ========
In December 1996, the Board of Directors of Connecticut Yankee Atomic Power
Company announced a permanent shutdown of the Connecticut Yankee plant in
Haddam, Connecticut, and decided to decommission the plant for economic reasons.
The Company has a 6% equity interest in Connecticut Yankee, totaling
approximately $6.6 million at December 31, 1997. The Company estimates its share
of the cost of Connecticut Yankee's continued compliance with regulatory
requirements, recovery of its plant investments, decommissioning and closing the
plant to be approximately $36.9 million and has recorded a regulatory asset and
a liability on the consolidated balance sheet. The Company is currently
recovering through rates an amount adequate to recover these expenses.
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% of the Company's system
capacity. Its 9.5% equity investment in Yankee Atomic is approximately $2.2
million. 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
$13.1 million.
The Company has approximately a 60% ownership interest in the jointly owned,
Company-operated, 620-megawatt oil-fired W. F. Wyman Unit No. 4. See Note 3,
"Regulatory Matters" - "Agreement for Sale of Company's Generation Assets." The
Company also has a 2.5% ownership interest in the Millstone Unit No. 3 nuclear
plant operated by Northeast Utilities, and is entitled to approximately
29-megawatt share of that unit's capacity. The Company's plant in service,
nuclear fuel, decommissioning fund, and related accumulated depreciation and
amortization attributable to these units as of December 31, 1997, and 1996 were
as follows:
<TABLE>
<S> <C> <C> <C> <C>
Wyman 4 Millstone 3
------- -----------
(Dollars in thousands) 1997 1996 1997 1996
---- ---- ---- ----
Plant in service, nuclear fuel and decommissioning
fund $116,367 $116,372 $112,227 $112,040
Accumulated depreciation and amortization 66,239 63,023 42,412 39,181
</TABLE>
Millstone Unit No. 3, along with two other units at the same site owned by
Northeast Utilities, is on the NRC's "watch list" in "Category 3", which
requires formal NRC action before a unit can be restarted. The Company incurred
replacement power costs related to Millstone Unit No. 3 of approximately $4.9
million during the twelve months ended December 31, 1997.
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 44.5 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%.
The Company is making facilities-support payments on approximately $27.1
million, its remaining share of the construction cost for these transmission
facilities incurred through December 31, 1997. 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 (NUG). The
agreements generally have terms of five to 30 years, with expiration dates
ranging from 1998 to 2023. They require the Company to purchase the energy at
specified prices per kilowatt-hour, which are often above market prices. As of
December 31, 1997, facilities having 558 megawatts of capacity covered by these
contracts were in-service. The costs of purchases under all of these contracts
amounted to $306.4 million in 1997, $313.4 million in 1996, and $314.4 million
in 1995.
The Company's estimated contractual obligations with NUGs as of December 31,
1997, are as follows:
(Dollars in Amount
millions)
1998 $ 296
1999 294
2000 294
2001 273
2002 281
2003 - 2023 2,161
-----
$3,599
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, 1997, the Company's
retained earnings were $48.2 million, of which $18.6 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. In 1997, the Company
deposited approximately $2.2 million, net of withdrawals, 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 December 31,
1997, was approximately $61.7 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. Such cash may also be withdrawn by the Company by substitution
of allocated property additions or available bonds.
<PAGE>
Mortgage Bonds outstanding as of December 31, 1997, and 1996 were as follows:
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
(Dollars in thousands)
Interest
Series Redeemed/maturity rate 1997 1996
------ ----------------- ---- ----
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 11,000 11,000
Q 2008-March 1 7.05 75,000 75,000
R 2023-June 1 7 7/8 50,000 50,000
-------- --------
Total Mortgage Bonds $421,000 $421,000
======= =======
</TABLE>
Subsequent to year-end, the Company called for redemption all of the outstanding
$11 million principal amount of its General and Refunding Mortgage Bonds, Series
N 8.50% Due 2001, at a redemption price equal to their principal amount plus
accrued interest to the date fixed for redemption. On the same day the Company
also called for redemption on March 30, 1998, all of the outstanding $50 million
principal amount of its General and Refunding Mortgage Bonds, Series R 7-7/8%
Due 2023, also at a redemption price equal to their principal amount plus
accrued interest. The bond redemptions are being funded from the approximately
$61.7 million on deposit with the trustee under the renewal and replacement fund
and release provisions of the Company's General and Refunding Mortgage
Indenture.
Limitations on Unsecured Indebtedness
The Company's Articles of Incorporation limit certain unsecured indebtedness
that may be outstanding to 20% of capitalization, as defined without the consent
of the holders of the Company's preferred stock; 20% of defined capitalization
amounted to $211 million as of December 31, 1997. Unsecured indebtedness, as
defined, amounted to $144 million as of December 31, 1997.
Medium-Term Notes
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. 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 of December 31, 1997, $43 million of
Medium-Term Notes were outstanding. 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.
<PAGE>
Medium-Term Notes outstanding as of December 31, 1997, and 1996 were as follows:
(Dollars in thousands)
Maturity Interest rate 1997 1996
------------- ---- ----
Series A:
2000 9.65% $ 5,000 $ 5,000
Series B:
1998 5.32 8,000 23,000
Series C:
1998-2001 7.40-7.85 30,000 40,000
------ ------
Total Medium-Term Notes $43,000 $68,000
====== ======
Pollution-Control Facility and Other Notes
Pollution-control facility and other notes outstanding as of December 31, 1997,
and 1996 were as follows:
<TABLE>
<S> <C> <C> <C> <C> <C>
(Dollars in thousands)
Series Interest rate Maturity 1997 1996
- ------ ------------- -------- ---- ----
Central Maine Power Company:
Yarmouth Installment Notes 6 3/4% June 1, 2002 $ 9,805 $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 53,329 60,129
Maine Electric Power Company, Inc.:
Promissory Notes Variable* November 1, 2000 620 820
------- -------
Total Pollution-Control
Facility and Other Notes $84,254 $91,699
====== ======
</TABLE>
*The average rate was 6.5% in 1997 and 6.3% in 1996.
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.
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 remaining
$12.9 million of FAME-notes proceeds over the $66.4 million 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.
Capital Lease Obligations
The Company leases a some 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 $31.2 million and $33.1 million at December 31, 1997,
and 1996, 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,
2002, together with the present value of the minimum lease payments, are as
follows:
(Dollars in thousands) Amount
------
1998 $ 5,440
1999 5,270
2000 5,099
2001 4,928
2002 4,758
Thereafter 51,603
------
Total minimum lease payments 77,098
Less: amounts representing interest 42,581
------
Present Value of Net Minimum Lease Payments $34,517
======
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, 2002, are as follows:
(Dollars in thousands)
Sinking fund Maturing debt
Total
1998 2,411 178,000 180,411
1999 9,854 60,000 69,854
2000 10,518 80,000 90,518
2001 10,948 21,000 31,948
2002 18,765 - 18,765
<PAGE>
Operating Lease Obligations
The Company has a number of operating-lease agreements primarily involving
computer and other office equipment, land, and telecommunications 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, 1997:
(Dollars in thousands) Amount
1998 4,924
1999 4,135
2000 3,999
2001 3,415
2002 3,410
Thereafter 1,301
$21,184
Rent expense under all operating leases was approximately $6.1 million, $5
million, and $5.7 million for the years ended December 31, 1997, 1996 and 1995,
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, 1997 and 1996. 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, 1997, and 1996 are as follows:
1997 1996
---- ----
Carrying Fair value Carrying Fair value
(Dollars in thousands) amount amount
------ ------
Redeemable preferred stock $ 46,528 $ 48,247 $ 60,528 $ 57,228
Mortgage bonds 421,000 421,151 421,000 415,578
Medium-term notes 43,000 43,378 68,000 67,667
Pollution-control facility
and other notes 84,254 83,163 91,699 91,791
<PAGE>
Cumulative Preferred Stock
Preferred-stock balances outstanding as of December 31, 1997, 1996 and 1995 were
as follows:
<TABLE>
<S> <C> <C> <C> <C> <C>
Current shares
(Dollars in thousands, except per-share amounts) outstanding 1997 1996 1995
----------- ---- ---- ----
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:
Flexible Money Market Preferred Stock, Series A - 7.999% (395,275 shares in
1997, 1996 and 1995)
395,275 39,528 39,528 39,528
8 7/8% series (redeemable at $101.97) 70,000 7,000 21,000 35,000
------- ------ ------
Redeemable Preferred Stock - Subject to
Mandatory Redemption $46,528 $60,528 $74,528
====== ====== ======
</TABLE>
*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 commencing on 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. The Company redeemed $14 million of
these shares at par in 1996 and 1997 pursuant to the mandatory and optional
sinking-fund provisions.
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. The sinking-fund
requirement for the five-year period ending December 31, 2000, is $9 million
annually beginning in 1999. In 1995, the Company purchased 54,725 shares on the
open market that may be used to reduce the sinking-fund requirement in 1999.
Subsequent to year end, the Company called for redemption all of the outstanding
300,000 shares of its Preferred Stock 7-7/8% Series at a redemption price of
$100 per share. No accrued dividends are being paid on the preferred stock since
the redemption date is a regular dividend payment date.
Interim Financing and Credit Agreements
The Company uses funds obtained from short-term borrowing to provide initial
financing for construction and other corporate purposes.
To support its short-term capital requirements, on October 23, 1996, the Company
entered into a $125 million Credit Agreement with several banks, with
BankBoston, N.A., and The Bank of New York acting as agents for the lenders. The
arrangement has two credit facilities: a $75 million, 364-day revolving credit
facility that currently matures on October 21, 1998, and a $50-million, 3-year
revolving credit facility that matures on October 22, 1999. Both credit
facilities require annual fees on the total credit lines. The fees are based on
the Company's credit ratings and allow for various borrowing options including
LIBOR-priced, base-rate-priced and competitive-bid-priced loans. Access to
commercial paper markets has been substantially precluded, as a result of the
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. The Company had $60
million outstanding as of December 31, 1997 under the 364-day revolving credit
facility at 6.63%.
<PAGE>
Note 8: Quarterly Financial Data (Unaudited)
Unaudited, consolidated quarterly financial data pertaining to the results of
operations are shown below.
(Dollars in thousands, except per-
share amounts) Quarter ended
March 31 June 30 September 30 December 31
-------- ------- ------------ -----------
1997
Electric operating revenues ..... $ 268,367 $ 210,074 $ 226,134 $ 249,601
Operating income ................ 27,513 8,881 7,394 19,491
Net income (loss) ............... 16,027 (2,539) (5,845) 5,779
Earnings (loss) per common share* .43 (.15) (.24) .12
1996
Electric operating revenues ..... $ 274,139 $ 216,358 $ 228,987 $ 247,562
Operating income ................ 39,601 20,495 14,667 32,909
Net income ...................... 27,857 9,096 3,392 19,884
Earnings per common share* ...... .78 .20 .04 .54
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
*Earnings per share are computed using the weighted-average number of common
shares outstanding during the applicable quarter.
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 21, 1998, 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 21, 1998, 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 21, 1998, 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 21, 1998, which is hereby incorporated
herein by reference.
<PAGE>
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES,
AND REPORTS ON FORM 8-K.
(a) List of documents filed as part of this report:
(1) Financial Statements and Supplementary Data
See the Index to Financial Statements and Schedules under Item 8
in Part II hereof, where these documents are listed, on page 42.
(2) Exhibits - see (c) below.
(b) Reports on Form 8-K. The Company filed the following reports on Form
8-K during the last quarter of 1997 and
thereafter to date:
Date of Report Items Reported
December 5, 1997 Item 5
a) The Company filed direct testimony in the proceeding estimating its future
revenue requirements as a transmission-and-distribution utility and
providing an updated estimate of strandable costs, which are to be defined
by the MPUC.
b) The Company filed an application with the MPUC for authorization to create
a holding company that would have as subsidiaries the Company, the
Company's non-utility subsidiaries and other entities.
Date of Report Items Reported
January 6, 1998 Item 5
On January 6, 1996, the Company announced that it had reached agreement to
sell all of its hydro, fossil and biomass power plans with a combined
generating capacity of 1,185 megawatts to a Florida-based FPL Group, the
winning builder in the auction process.
Date of Report Items Reported
January 14, 1998 Item 5
a) On January 6 through 9, 1998, an ice storm of unprecedented breadth and
severity struck the Company's service territory, causing power outages for
approximately 280,000 of the Company's 520,000 customers.
<PAGE>
b) On January 15, 1998, Maine Yankee, its bondholders and lender banks revised
the Standstill Agreements and extended their term to April 15, 1998,
subject to satisfying certain milestone obligations during the term of the
extension.
On January 14, 1998, the FERC issued an "Order Accepting for Filing and
Suspending Power Sales Contract Amendment, and Establishing Hearing
Procedures" (the "FERC Order") in which the FERC accepted for filing the
rates associated with the amended Power Contracts and made them effective
January 15, 1998, subject to refund.
Date of Report Items Reported
January 30, 1998 Item 5
On January 30, 1998, the Company announced its financial results for 1997.
<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 27th day of March, 1998.
CENTRAL MAINE POWER COMPANY
By
David E. Marsh
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 Chief
Executive Officer; Director March , 1998
David T. Flanagan
(Principal Executive Officer)
Chief Financial Officer March , 1998
David E. Marsh
(Principal Financial Officer)
Comptroller March , 1998
Michael W. Caron
(Principal Accounting Officer)
David M. Jagger Chairman of the Board
of Directors March , 1998
Charles H. Abbott Vice Chairman of the
Board of Directors March , 1998
Director March , 1998
Charleen M. Chase
Director March , 1998
Duane D. Fitzgerald
Director March , 1998
Robert H. Gardiner
Director March , 1998
Peter J. Moynihan
Director March , 1998
William J. Ryan
Director March , 1998
Kathryn M. Weare
Director March , 1998
Lyndel J. Wishcamper
<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, 1997
CENTRAL MAINE POWER COMPANY
File No. 1-5139
(Exact name of Registrant as specified in charter)
EXHIBITS
<PAGE>
EXHIBIT INDEX
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>
<S> <C> <C> <C>
Prior
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:
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 year ended December 31,
1996
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 October for the year ended December
1, 1978 relating to the Series B Bonds. 31, 1978
4-4 Supplemental Indenture to the General and Quarterly Report on Form A
Refunding Mortgage Indenture dated as of October 10-Q for the quarter ended
1, 1979, relating to the Series C Bonds. September 30, 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 August Current Report on Form 8-K 4.15
7, 1989, relating to the Medium-Term Notes, Series dated August 16, 1989
A, and supplementing the Indenture relating to the
Medium-Term Notes.
4.15.1 Second Supplemental Indenture, dated as of January Current
Report on Form 8-K 4.1 10, 1992, relating to the
Medium-Term Notes, dated January 28, 1992 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.
4.15.3 Fourth Supplemental Indenture, dated as of 333-35235 4.4
February 26, 1998, relating to the Medium-Term
Notes, Series D, and supplementing the Indenture relating
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 December dated December 10, 1991
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 December for year ended December 31,
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 Annual Report on Form 10-K 4.26
Refunding Mortgage Indenture, dated as of February for year ended December 31,
15, 1996, evidencing the succession of State 1995
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 March Annual Report on Form 10-K 10-1.1
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 February for the year ended December
1, 1984. 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 December 2-68184 5.31
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 December and certain
other parties, relating to development 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 December 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 10.79 February 19, 1986 between the Company
and Eastern for the year ended December Utilities
Associates, relating to the sale of the 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 December Division) and
Local 1837 of the International 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 January Annual Report on Form 10-K 10.89
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
10-93 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 Annual Report on Form 10-K 10-94.1
Retirement Plan, as Amended and Restated Effective for year ended December 31,
January 1, 1993, and as further Amended Effective 1995
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
10-98 Credit Agreement dated as of October 23, 1996, Annual Report on Form 10-K 10-98
between the Company and certain banks. for year ended December 31,
1996
10-99 Asset Purchase Agreement, dated as of January 6, 333-35235 99.2
1998, by and between the Company, other sellers,
and National Energy Holdings, Inc.
10.100 Employment Agreement between the Company and David Filed herewith
T. Flanagan dated December 31, 1997
10.101 Employment Agreement between the Company and Filed herewith
Arthur W. Adelberg dated January 1, 1998
10.102 Employment Agreement between the Company and David Filed herewith
E. Marsh dated January 1, 1998
10.103 Employment Agreement between the Company and Filed herewith
Gerald C. Poulin dated January 1, 1998
10.104 Employment Agreement between the Company and Sara Filed herewith
J. Burns dated June 30, 1997
*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
Not Applicable.
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
Not Applicable
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 Coopers & Lybrand LLP to the Filed herewith
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, 33-56939
and 333-35235).
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, 1997,
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>
<TABLE>
<S> <C> <C> <C> <C> <C>
Central Maine Power Company
Form 10-K - 1997
Schedule II
Page 1 of 3
Central Maine Power Company
VALUATION AND QUALIFYING ACCOUNTS
For the Year Ended December 31, 1997
(Dollars in Thousands)
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:
Uncollectible accounts $ 4,177 $5,514 $ - $7,291(A) $ 2,400
====== ===== ======= ===== ======
Reserves not applied against assets:
Casualty and insurance $ 1,275 $ 1,862 $ $ 1,637(C) $ 1,500
Workers' compensation 7,994 1,692 423(B) 1,615(C) 8,494
Hazardous material
clean-up 3,639 1,069 2,600(D) 2,108
------- ----- ------- ----- -------
Total $12,908 $4,623 $423 $5,852 $12,102
====== ===== === ===== ======
Notes: (A) Amounts charged off as uncollectible after deducting
customers' deposits and recoveries of accounts
previously charged off.
(B) Amounts transferred to capital accounts.
(C) Principally payments for various injuries and damages and
expenses in connection therewith. (D) Amounts charged to
regulatory asset account.
<PAGE>
Central Maine Power Company
Form 10-K - 1997
Schedule II
Page 2 of 3
Central Maine Power Company
VALUATION AND QUALIFYING ACCOUNTS
For the Year Ended December 31, 1996
(Dollars in Thousands)
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:
Uncollectible accounts $ 3,313 $7,396 $ - $6,532(A) $ 4,177
====== ===== ======= ===== ======
Reserves not applied against assets:
Casualty and insurance $ 1,275 $ 798 $ $ 798(C) $ 1,275
Workers' compensation 6,400 2,820 270(B) 1,496(C) 7,994
Hazardous material
clean-up 3,540 895 796(D) 3,639
------- ------ ----- ------ -------
Total $11,215 $4,513 $270 $3,090 $12,908
====== ===== === ===== ======
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.
<PAGE>
Central Maine Power Company
Form 10-K - 1997
Schedule II
Page 3 of 3
Central Maine Power Company
VALUATION AND QUALIFYING ACCOUNTS
For the Year Ended December 31, 1995
(Dollars in Thousands)
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:
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) $ 1,437(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.
</TABLE>
<PAGE>
Exhibit 10.100
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT is made this ________day of December, 1997,
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. Term. The term of this Agreement shall begin
on January 1, 1998 (hereinafter referred to as the "Effective Date") and shall
expire on December 31, 2002; provided, however, that on December 31, 2002 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. Automatic Extension of Term. 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. Expiration. Notwithstanding anything to the contrary in this Section
1, this Agreement and all obligations of the Company hereunder shall terminate
thirty (30) days after the Company gives notice to the Executive that the
Company is terminating the Executive's employment for 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) Any 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 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. For purposes of the application of this
provision, the parties intend that the term "good faith" herein shall be
administered using the standard of objective good faith of a reasonable person.
"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 "Ex-
change Act")(other than the Company or any Affiliate or any
trusteeor 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 twenty-seven percent (27%) or more of the
combined voting power of the Company's then outstanding stock
eligible to vote.
(ii) During any period of twenty-five consecutive calendar months
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 consoli-
dation 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, however, 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 twenty-seven percent
(27%) 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).
Notwithstanding parts (iii) and (iv) above, the term "Change of
Control" shall not include: (A) a consolidation, merger or other reorganization
if upon consummation of such transaction all of the outstanding voting stock of
the Company is owned, directly or indirectly, by a holding company, and the
holders of the Company's common stock immediately prior to the transaction have
substantially the same proportionate ownership and voting control of the holding
company; or (B) an agreement for the sale, lease, exchange or other disposition
by the Company of "generation assets" (as defined in Me. Rev. Stat. Tit. 35-A,
ss.3201), or any transaction having a similar effect, made solely to comply with
the requirements of Maine Revised Statutes, Title 35-A, chapter 32.
"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 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, if applicable.
"Severance Period" means, in the case of 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 upon the
basis of such evidence, which may include independent medical reports and data,
as the Board deems appropriate or necessary.
3. Employment. a. Position. 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. Performance. 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. Job Duties. 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.
4. Compensation and Benefits. a. During the Employment Period, the
Executive shall be compensated as follows:
(i) Salary. He shall receive an annual base salary, the amount of
which shall be reviewed regularly and determined from time to
time, but which shall not be less than $315,000. His salary shall
be payable in accordance with Company payroll practices.
(ii) Participation in Executive Plans. 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 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) Participation in Salaried Employee Plans. 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) Other Fringe Benefits. 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. Vested
Benefits. 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, including but not limited
to the compensation and benefits described in Sections 4, 5, and
7 of this Agreement, shall be furnished and paid in accordance
with the terms and provisions of such plan, program or agreement.
c. Withholding. 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. Special
Retirement Benefit. In the event that the Executive terminates
his employment with the Company voluntarily, or his employment is
terminated for reasons other than death or for Cause, the
Executive shall be entitled to receive, over his lifetime, a
Total Retirement Benefit, as defined in subsection (i) below, 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 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, 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 Total 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 Total 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 Total
Retirement Benefit shall be payable to the Executive on the terms
described in this Section 4.d without regard to the occurrence of
a Change of Control, but subject to the following provisions: (i)
The term "Total Retirement Benefit" shall consist of the
actuarial equivalent of any benefits accrued by the Executive as
of the Commencement Date under the Company's Retirement Income
Plan for Non-Union Employees (the "Basic Plan"), the Supplemental
Executive Retirement Plan effective as of January 1, 1993 (the
"SERP"), any amount released to the Executive under any
split-dollar insurance agreement with the Company and the Special
Retirement Benefit provided under this Employment Agreement, all
calculated on a single life annuity basis in accordance with the
actuarial assumptions in effect under the Basic Plan as of the
Commencement Date. The term "Special Retirement Benefit" as used
herein shall refer only to the portion of the Total Retirement
Benefit payable under this Agreement, and shall not refer to any
benefits payable under the Basic Plan, the SERP or the
split-dollar arrangement. The calculation of Total Retirement
Benefits shall specifically not include (a) any amounts payable
under any defined contribution plan now or previously maintained
by the Company, (b) any benefits payable under any stock bonus or
stock option plan or program now or previously maintained by the
Company, or (c) any benefits payable to the Executive under the
U.S. Social Security Act, any successor program, or any other
public program. For purposes of the SERP, the Special Retirement
Benefit provided under this Section 4.d shall not constitute "any
other non-qualified retirement plan of (or Employment Agreement)
with the Company", which would result in a reduction of the SERP
benefit calculation underss.3.1(c) of the SERP. (ii) If the
Executive's employment is terminated because of Total Disability,
the monthly Special Retirement Benefit payable hereunder shall be
reduced (but not below zero) for each month in which the
Executive receives benefits under any disability plan, program or
agreement maintained by the Company under which he may receive
benefits due to such Total Disability ("disability benefits").
The amount of the reduction of the Special Retirement Benefit for
each such month shall be the total amount of the disability
benefits paid to the Executive in such month. (iii)
Notwithstanding the foregoing, the Executive's Total Retirement
Benefit shall not exceed $200,000 per year ($16,667 per month) if
payments to the Executive commence as of the first day of the
month following his fifty-fifth (55th) birthday, calculated as a
single life annuity. If payments commence after his 55th
birthday, this limitation shall be actuarially increased to
reflect the anticipated shorter period of payment, in accordance
with the actuarial assumptions specified in the Basic Plan. (iv)
If the Executive has a legal spouse on the Commencement Date
specified above, the Special Retirement Benefit otherwise payable
hereunder as a single life annuity shall be reduced to provide an
actuarially-equivalent benefit in the form of a joint and 75%
survivor annuity, so that a reduced benefit is paid to the
Executive for his lifetime with the provision that after his
death, 75% of such reduced benefit will continue to the
Executive's spouse for her lifetime as the joint annuitant after
the Executive's death. For purposes of this calculation,
actuarial equivalence shall be determined in accordance with the
actuarial assumptions specified in the Basic Plan. The form in
which the Special Retirement Benefit is paid, and the cessation
of monthly payments in accordance with such form, shall not
affect the continuation of payments under the Basic Plan, the
SERP, or any other program for which a form of benefit is
separately elected or prescribed. (v) In the event that the
Executive dies prior to the Commencement Date, the Executive
shall not be entitled to any Special Retirement Benefit payments
hereunder; provided, however, that the Company agrees to
purchase, no later than the Effective Date of this Agreement, and
to maintain a life insurance contract on the life of the
Executive in the amount of $1.0 million utilizing a 10-year
level-premium term life insurance contract with an annual premium
no greater than $2,500.00. The Company shall use its best efforts
to obtain the life insurance contract described in the preceding
sentence. If, notwithstanding the Company's best efforts, the
Company is unable to obtain such life insurance contract except
with an annual premium greater than $2,500.00, then (A) the
Company shall so notify the Executive on or before the Effective
Date of this Agreement and (B) the Executive shall have the
option to pay the excess annual premium personally or to have the
Company reduce the face amount of the insurance coverage under
this Section 4.d(v) on a pro-rata basis to the amount that can be
purchased for $2,500.00 per year. The beneficiary under the life
insurance contract provided in this Section 4.d(v) shall be the
Executive's surviving spouse or such other beneficiary or
beneficiaries as the Executive may designate in writing from time
to time, or, if there is no surviving spouse or other designated
beneficiary, the Executive's estate. e. Funding of Rabbi Trust.
The Company agrees that, in the event that a Special Change of
Control (as hereinafter defined solely for purposes of this
section 4.e) has occurred, the Special Retirement Benefit
specified under Section 4.d of this Agreement shall be funded
through a so-called Rabbi Trust with an institutional trustee
mutually acceptable to the Executive and the Company. A Special
Change of Control for purposes of this section 4.e shall be
deemed to have occurred if any of the events described in the
definition of "Change of Control" commencing on page 3 of this
Agreement shall occur; provided, however, that solely for
purposes of this section 4.e, the ownership change percentages
specified in that definition shall be increased from twenty-seven
percent (27%) to fifty-one percent (51%). In the event that such
a Special Change of Control has occurred, the Company agrees to
establish a Rabbi Trust and to fund the then present value of the
Special Retirement Benefit under Section 4.d at the rate of
thirty-five percent (35%) within thirty (30) days following the
Special Change of Control, thirty percent (30%) on the second
anniversary of said Special Change of Control, fifteen percent
(15%) on the third anniversary thereof, ten percent (10%) on the
fourth anniversary thereof, and ten percent (10%) on the fifth
anniversary of the Special Change of Control. 5. Severance
Benefits. a. Change of Control. 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 lump sum
cash pay- ment, within sixty (60) days following the date of
termination of employment as defined in Section 6 below, 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) To the extent allowed by law, but without
violating any non-discrimi- nation or other applicable
restrictions, the Severance Period shall count as service for all
purposes (including benefit accrual and eligibility) under any
welfare benefit or non-qualified 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 supplemental pension
plan (regardless of the terms thereof for counting service), 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 Special 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
services in an amount equal to the actual fee for such services
up to a total of $10,000. b. Parachute Provision. 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 pay-
ments 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. No Change of
Control. 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) monthly cash installments beginning not
later than sixty (60) days following the date of termination of
employment as defined in 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 Special 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. Gross-Up Amount. In the
event that any portion of the Severance Benefits is subject to
tax under Code ss.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. Tax
Withholdings. 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. a. The Executive agrees that: (i) during the
Employment Period and for one (1) year after the termi- nation 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 a competitor of the
Company, 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. (iv) The term "Company"
as used in this Section 8 shall include Central Maine Power
Company, any Affiliate of Central Maine Power Company (determined
as of the date of termination), any successor to the business or
operations of Central Maine Power and any business entity
spun-off, divested, or distributed to shareholders which shall
continue the operations of Central Maine Power Company. 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 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 (as defined in Section 8 of
this Agreement), 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 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. Singular Contract.
This Agreement is a singular agreement between the Executive and
the Company, and is not part of a general "plan" or "program" for
employees as a group. This Agreement shall, under no
circumstances, be deemed to be an "employee welfare benefit plan"
or an "employee pension benefit plan" as defined in the Employee
Retirement Income Security Act of 1974 (hereinafter referred to
as "ERISA"). Notwithstanding, the Company may submit a letter to
the Department of Labor indicating the possible establishment of
a so-called unfunded "top hat" plan for the benefit of a select
group of management and highly compensated employees to avoid the
costs and uncertainties which may occur in the event of a
Department of Labor audit and challenge relative to compliance
with any allegedly applicable provisions of ERISA. The Executive
specifically acknowledges and agrees that the filing of the
so-called "top hat" letter notice by the Company shall not be
construed or interpreted as an admission on the part of the
Company that this Agreement constitutes an ERISA plan, and the
Company hereby categorically states, and the Executive hereby
agrees, that this Agreement is an ad hoc individual contract with
the Executive. 14. 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. 15. Titles and Captions. The section and paragraph
titles and captions contained herein are for convenience only and
shall not be held to explain, modify, amplify, or aid in the
interpretation, construction or meaning of the provisions of this
Agreement. 16. 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. 17. 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 T. Flanagan
WITNESS: CENTRAL MAINE POWER COMPANY
_____________________________ By:_________________________________
David M. Jagger
Chairman of the Board of Directors
CMP -Flanagan Employment Agreement
121297
<PAGE>
Exhibit 10.101
EMPLOYMENT AGREEMENT
As Amended and Restated Effective June 1, 1997
THIS EMPLOYMENT AGREEMENT is made this ________ day of January, 1998,
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 employee
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. Term. The term of this Agreement shall begin
on June 1, 1997 (hereinafter referred to as the "Effective Date") and shall
expire on December 31, 1999; provided, however, that on December 31, 1999 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. The Executive commits that
he will continue in the active employ of the Company through at least December
31, 1999, absent illness, disability or other non-voluntary circumstances.
b. Automatic Extension of Term. 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. Expiration. 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) Any 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 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 consoli-
dation 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, however, 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 sale or exchange of the Transmission and Distribution
Division of the Company, in the form of a sale of stock, a
sale of substantially all of the assets of that Division, or
in any other form.
"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 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.
"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 upon the
basis of such evidence, which may include independent medical reports and data,
as the Board deems appropriate or necessary.
3. Employment. a. Position. The Company hereby agrees to continue its
employment of the Executive in the capacity of Executive Vice President of the
Company, 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. Performance. 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
<PAGE>
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. Job Duties. 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 senior most management team of the Company.
4. Compensation and Benefits. a. During the Employment Period,
the Executive shall be compensated as follows:
(i) Salary. 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 $190,000.00. His salary shall be payable in
accordance with Company payroll practices.
(ii) Participation in Executive Plans. 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) Participation in Salaried Employee Plans. 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) Other Fringe Benefits. 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) Split-Dollar Agreement. 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) Special Retirement Benefit. The Executive shall be entitled
to a special retirement benefit described herein if, and only if,
the Executive voluntarily terminates employment within twelve
(12) months after the occurrence of a Constructive Discharge or
his employment is involuntarily terminated by the Company for any
reason (except Cause). The special retirement benefit shall be
calculated as a single life annuity payable over the lifetime of
the Executive (except as provided below) in the amount of two and
six-tenths percent (2.6%) for each year of employment with the
Company multiplied by the Executive's highest three (3)
consecutive years' average annual base salary from the Company,
with payments to commence on the first day of the calendar month
following the later of (a) the Employee's 55th birthday, (b) the
last day of the thirty-six (36) month period for which the
Executive is receiving severance pay under Section 5.a. below, or
(c) his date of termination of employment with the Company, minus
any amounts (denominated for this calculation as a single life
annuity under each plan, program or agreement on the assumption
that the payments would commence on the same date), payable to
the Executive under the Retirement Income Plan for Non-Union
Employees of Central Maine Power Company (the "Basic Plan"), and
any successor defined benefit plan to the Basic Plan, the Central
Maine Power Company Supplemental Executive Retirement Plan (the
"SERP"), and the Split-Dollar Life Insurance Agreement, (the
"Split-Dollar Arrangement") unless the insurance contract or
contracts under the Split-Dollar Arrangement are assigned back to
the Company. The Company hereby acknowledges and agrees that the
special retirement benefit provided in this Section is intended
to provide a minimum and not a maximum retirement benefit, and
therefore, if the offsets from the Basic Plan, the SERP and the
Split-Dollar Arrangement exceed the special retirement benefit
formula stated above, this provision shall not be deemed to
reduce any benefit which the Executive shall be entitled to
receive under those other plans or programs. If the Executive
becomes eligible to receive the special retirement benefit
hereunder prior to being eligible to receive a benefit under the
Basic Plan, the SERP or the Split-Dollar Arrangement, payment
shall commence hereunder at the applicable unreduced or
partially-reduced amount until such time as the Executive first
becomes eligible to receive a benefit under the Basic Plan, the
SERP or the Split-Dollar Arrangement (as the case may be), at
which time or times, the amount payable hereunder shall be
recalculated and reduced by the amount then available under the
applicable program (in each case, the reduction shall be made by
comparing single life annuity values, and thereafter converting
those values to the applicable joint and survivor benefit). For
purposes of the SERP, the special retirement benefit provided
herein shall not constitute "any other non-qualified retirement
plan of (or employment agreement with) the Company", which would
result in a reduction of the SERP benefit calculation under
Section 3.1(c) of the SERP. Before the Executive's date of
termination, he shall have a one-time irrevocable election to
elect to receive his benefits hereunder in the form of an
actuarially-equivalent joint and survivor annuity payable over
his lifetime and the lifetime of his spouse, which election must
be made prior to the calculation of his first payment and which
election shall apply to all calculations made under this Section,
including recalculations at the time he becomes eligible for
benefits under the Basic Plan, the SERP or the Split-Dollar
Arrangement, if later. Once payments commence under this Section
as hereinbefore provided, such payments shall continue for his
lifetime (and for the lifetime of his spouse after his death, if
he has elected a joint and survivor option as described above).
Notwithstanding the foregoing, solely for purposes of determining
whether the Executive has incurred a Constructive Discharge, in
the definition of the term "Change of Control", subsections (i)
and (iii), on pages 4 and 5 above, the applicable percentages
shall be increased from thirty percent (30%) to fifty percent
(50%), wherever applicable, for purposes of determining whether
the Executive is entitled to receive the special retirement
benefit specified herein. The Executive's rights under this
Section shall survive and continue to be enforceable even if this
Agreement is terminated, unless the Agreement is terminated for
Cause.
b. Vested Benefits. 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. Withholding. 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. Change of Control. 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 lump sum cash pay-
ment, 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 and his dependents under the
Company's group medical, life, accident and disability plans
or programs shall continue for a period of three (3) years
from the date of termination specified in Section 6 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 the Executive
and his dependents during the Severance Period with core
benefits substantially similar to those which he would
otherwise be entitled to receive under such plans and
programs; provided, however, that the obligation of the
Company to provide continuation of any insured long-term
disability benefits shall be limited to the conversion rights
available under such disability insurance products, and the
Company hereby agrees to pay the conversion premium due
thereon for the Severance Period.
(iii) To the extent allowed by law, but without violating any non-
discrimination or other applicable restrictions, the Severance
Period shall count as service for all purposes (including
benefit accrual and eligibility) under any welfare benefit or
non-qualified 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 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. Parachute Provision. 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. No Change of Control. If no Change of Control has occurred, and the
Executive's employment with the Company is terminated during the Employment
Period either (i) by the Company for any reason other than death, Total
Disability or Cause, or (ii) 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, commission 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. Gross-Up Amount. 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. Tax Withholding. 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 consul-
tant or in any other capacity in any business that is a
competitor of the Company, 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.
(iv) The term "Company" as used in this Section 8 shall include
Central Maine Power Company, any Affiliate of Central Maine
Power Company (determined as of the date of termination), any
successor to the business or operations of Central Maine Power
and any business entity spun-off, divested, or distributed to
shareholders which shall continue the operations of Central
Maine Power Company.
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 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. Singular Contract. This Agreement is a singular agreement between
the Executive and the Company, and is not part of a general "plan" or "program"
for employees as a group. This Agreement shall, under no circumstances, be
deemed to be an "employee welfare benefit plan" or an "employee pension benefit
plan" as defined in the Employee Retirement Income Security Act of 1974
(hereinafter referred to as "ERISA"). Notwithstanding, the Company may submit a
letter to the Department of Labor indicating the possible establishment of a
so-called unfunded "top hat" plan for the benefit of a select group of
management and highly compensated employees to avoid the costs and uncertainties
which may occur in the event of a Department of Labor audit and challenge
relative to compliance with any allegedly applicable provisions of ERISA. The
Executive specifically acknowledges and agrees that the filing of the so-called
"top hat" letter notice by the Company shall not be construed or interpreted as
an admission on the part of the Company that this Agreement constitutes an ERISA
plan, and the Company hereby categorically states, and the Executive hereby
agrees, that this Agreement is an ad hoc individual contract with the Executive.
14. 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.
15. Titles and Captions. The section and paragraph titles and captions
contained herein are for convenience only and shall not be held to explain,
modify, amplify, or aid in the interpretation, construction or meaning of the
provisions of this Agreement.
16. 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.
17. 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
WITNESS: CENTRAL MAINE POWER COMPANY
- ----------------------------- ---------------------------------
By: David M. Jagger
Chairman of the Board
of Directors
CMP -Adelberg Employment Agreement
011498
<PAGE>
Exhibit 10.102
EMPLOYMENT AGREEMENT
As Amended and Restated Effective June 1, 1997
THIS EMPLOYMENT AGREEMENT is made this ________ day of January, 1998,
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 employee
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. Term. The term of this Agreement shall begin
on June 1, 1997 (hereinafter referred to as the "Effective Date") and shall
expire on December 31, 1999; provided, however, that on December 31, 1999 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. The Executive commits that
he will continue in the active employ of the Company through at least December
31, 1999, absent illness, disability or other non-voluntary circumstances.
b. Automatic Extension of Term. 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. Expiration. 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) Any 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 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 consoli-
dation 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, however, 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 sale or exchange of the Transmission and Distribution
Division of the Company, in the form of a sale of stock, a
sale of substantially all of the assets of the Division, or in
any other form.
"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 com
mensurate 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 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.
"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 upon the
basis of such evidence, which may include independent medical reports and data,
as the Board deems appropriate or necessary.
3. Employment. a. Position. The Company hereby agrees to continue its
employment of the Executive in the capacity of Chief Financial Officer of the
Company, 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. Performance. 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. Job Duties. 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,
service as a member of Executive Management Team, participating in the
development and general oversight of corporate policies, strategies and business
initiatives, providing oversight and guidance for the corporate strategic
business units, and guidance of the development, implementation, management and
oversight of financial policies, strategies, plans, activities and investment
decisions and the coordination and business development strategy for the
Company's Related Business Group.
4. Compensation and Benefits. a. During the Employment
Period, the Executive shall be compensated as follows:
(i) Salary. 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 $190,000.00. His salary shall
be payable in accordance with Company payroll practices.
(ii) Participation in Executive Plans. 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) Participation in Salaried Employee Plans. 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) Other Fringe Benefits. 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) Split-Dollar Agreement. 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) Special Retirement Benefit. The Executive shall be entitled to a
special retirement benefit described herein if, and only if, the
Executive voluntarily terminates employment within twelve (12) months
after the occurrence of a Constructive Discharge or his employment is
involuntarily terminated by the Company for any reason (except Cause).
The special retirement benefit shall be calculated as a single life
annuity payable over the lifetime of the Executive (except as provided
below) in the amount of fifty percent (50%) of the Executive's highest
three (3) consecutive years' average annual base salary from the
Company, with payments to commence on the first day of the calendar
month after the later of (a) the last month of the thirty-six (36)
month period for which he is receiving severance pay under Section
5.a. below, or (b) his date of termination of employment with the
Company, minus any amounts (denominated for this calculation as a
single life annuity under each plan, program or agreement on the
assumption that the payments would commence on the same date), payable
to the Executive under the Retirement Income Plan for Non-Union
Employees of Central Maine Power Company (the "Basic Plan"), and any
successor defined benefit plan to the Basic Plan, the Central Maine
Power Company Supplemental Executive Retirement Plan (the "SERP"), and
the Split-Dollar Life Insurance Agreement, (the "Split-Dollar
Arrangement"), unless the insurance contract or contracts under the
Split-Dollar Arrangement are assigned back to the Company. The Company
hereby acknowledges and agrees that the special retirement benefit
provided in this Section is intended to provide a minimum and not a
maximum retirement benefit, and therefore, if the offsets from the
Basic Plan, the SERP and the Split-Dollar Arrangement exceed the
special retirement benefit formula stated above, this provision shall
not be deemed to reduce any benefit which the Executive shall be
entitled to receive under those other plans or programs. If the
Executive becomes eligible to receive the special retirement benefit
hereunder prior to being eligible to receive a benefit under the Basic
Plan, the SERP or the Split-Dollar Arrangement, payment shall commence
hereunder at the applicable unreduced or partially-reduced amount
until such time as the Executive first becomes eligible to receive a
benefit under the Basic Plan, the SERP or the Split-Dollar Arrangement
(as the case may be), at which time or times, the amount payable
hereunder shall be recalculated and reduced by the amount then
available under the applicable program (in each case, the reduction
shall be made by comparing single life annuity values, and thereafter
converting those values to the applicable joint and survivor benefit).
For purposes of the SERP, the special retirement benefit provided
herein shall not constitute "any other non-qualified retirement plan
of (or employment agreement with) the Company", which would result in
a reduction of the SERP benefit calculation under Section 3.1(c) of
the SERP. In addition, for purposes of the SERP, the Executive's
period of "Credited Service" shall be deemed to commence on his date
of employment (May 10, 1973), as compared to the date of commencement
of Credited Service under the Basic Plan. Before the Executive's date
of termination, he shall have a one-time irrevocable election to elect
to receive his benefits hereunder in the form of an
actuarially-equivalent joint and survivor annuity payable over his
lifetime and the lifetime of his spouse, which election must be made
prior to the calculation of his first payment and which election shall
apply to all calculations made under this Section, including
recalculations at the time he becomes eligible for benefits under the
Basic Plan, the SERP or the Split-Dollar Arrangement, if later. Once
payments commence under this Section as hereinbefore provided, such
payments shall continue for his lifetime (and for the lifetime of his
spouse after his death, if he has elected a joint and survivor option
as described above). Notwithstanding the foregoing, solely for
purposes of determining whether the Executive has incurred a
Constructive Discharge, in the definition of the term "Change of
Control", subsections (i) and (iii), on pages 4 and 5 above, the
applicable percentages shall be increased from thirty percent (30%) to
fifty percent (50%), wherever applicable, for purposes of determining
whether the Executive is entitled to receive the special retirement
benefit herein. In addition to the pension enhancement, if the
Executive is not eligible to participate in the Post-Retirement
Medical Plan for Non-Union Employees (the "Retiree Medical Plan") upon
his retirement, the Company will provide the Executive with a monthly
or quarterly payment sufficient for him to purchase medical insurance
coverage for himself and his dependents at the same benefit level
provided under the Retiree Medical Plan. Payments hereunder shall be
made directly to the medical insurance company or as a reimbursement
to the Executive, as appropriate. The Executive's rights under this
Section shall survive and continue to be enforceable even if this
Agreement is terminated, unless the Agreement is terminated for Cause.
b. Vested Benefits. 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. Withholding. 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. Change of Control. 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 lump sum cash pay-
ment, 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 and his dependents 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 the Executive
and his dependents during the Severance Period with core
benefits substantially similar to those which he would
otherwise be entitled to receive under such plans and
programs; provided, however, that the obligation of the
Company to provide continuation of any insured long-term
disability benefits shall be limited to the conversion rights
available under such disability insurance products, and the
Company hereby agrees to pay the conversion premium due
thereon for the Severance Period.
(iii) To the extent allowed by law, but without violating any non-
discrimination or other applicable restrictions, the Severance
Period shall count as service for all purposes (including
benefit accrual and eligibility) under any welfare benefit or
non-qualified 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 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. Parachute Provision. 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. No Change of Control. If no Change of Control has occurred, and the
Executive's employment with the Company is terminated during the Employment
Period either (i) by the Company for any reason other than death, Total
Disability or Cause, or (ii) 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, commission 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. Gross-Up Amount. 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. Tax Withholding. 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 termi-
nation 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 a competitor of the Company, 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.
(iv) The term "Company" as used in this Section 8 shall include Central
Maine Power Company, any Affiliate of Central Maine Power Company
(determined as of the date of termination), any successor to the
business or operations of Central Maine Power and any business entity
spun-off, divested, or distributed to shareholders which shall
continue the operations of Central Maine Power Company.
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 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. Singular Contract. This Agreement is a singular agreement between
the Executive and the Company, and is not part of a general "plan" or "program"
for employees as a group. This Agreement shall, under no circumstances, be
deemed to be an "employee welfare benefit plan" or an "employee pension benefit
plan" as defined in the Employee Retirement Income Security Act of 1974
(hereinafter referred to as "ERISA"). Notwithstanding, the Company may submit a
letter to the Department of Labor indicating the possible establishment of a
so-called unfunded "top hat" plan for the benefit of a select group of
management and highly compensated employees to avoid the costs and uncertainties
which may occur in the event of a Department of Labor audit and challenge
relative to compliance with any allegedly applicable provisions of ERISA. The
Executive specifically acknowledges and agrees that the filing of the so-called
"top hat" letter notice by the Company shall not be construed or interpreted as
an admission on the part of the Company that this Agreement constitutes an ERISA
plan, and the Company hereby categorically states, and the Executive hereby
agrees, that this Agreement is an ad hoc individual contract with the Executive.
14. 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.
15. Titles and Captions. The section and paragraph titles and captions
contained herein are for convenience only and shall not be held to explain,
modify, amplify, or aid in the interpretation, construction or meaning of the
provisions of this Agreement.
16. 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.
17. 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
WITNESS: CENTRAL MAINE POWER COMPANY
- ----------------------------- ---------------------------------
By: David M. Jagger
Chairman of the Board
of Directors
CMP - Marsh Employment Agreement
011498
<PAGE>
Exhibit 10.103
EMPLOYMENT AGREEMENT
As Amended and Restated Effective June 1, 1997
THIS EMPLOYMENT AGREEMENT is made this ________ day of January, 1998,
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 employee
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. Term. The term of this Agreement shall begin
on June 1, 1997 (hereinafter referred to as the "Effective Date") and shall
expire on December 31, 1999; provided, however, that on December 31, 1999 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. The Executive commits that
he will continue in the active employ of the Company through at least December
31, 1999, absent illness, disability or other non-voluntary circumstances.
b. Automatic Extension of Term. 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. Expiration. 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) Any 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 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 consoli-
dation 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, however, 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 sale or exchange of the Transmission and Distribution
Division of the Company, in the form of a sale of stock, a
sale of substantially all of the assets of that Division, or
in any other form.
"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 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.
"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 upon the
basis of such evidence, which may include independent medical reports and data,
as the Board deems appropriate or necessary.
3. Employment. a. Position. The Company hereby agrees to continue its
employment of the Executive in the capacity of Vice President and Chief
Operating Officer of the Company, 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. Performance. 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. Job Duties. 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, oversight of the Company's bulk power supply,
including wholesale marketing, purchased power and supply planning; oversight of
the operation and maintenance of the Company's generation department, including
the hydro, fossil, and biomass stations and the Company's interest in operating
nuclear stations; and oversight of retail marketing and sales, including the
design, promotion and sale of energy product and service options, sales of
electricity and related products and services, retention of customers within the
service territory, and maintenance of the Company image within and outside the
service territory.
4. Compensation and Benefits. a. During the Employment Period, the Executive
shall be compensated as follows:
(i) Salary. 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
$158,000.00. His salary shall be payable in accordance with
Company payroll practices.
(ii) Participation in Executive Plans. 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) Participation in Salaried Employee Plans. 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) Other Fringe Benefits. 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) Split-Dollar Agreement. 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) Special Retirement Benefit. The Executive shall be
entitled to a special retirement benefit described
herein if, and only if, the Executive voluntarily
terminates employment or his employment is terminated
by the Company for any reason (except Cause) on or
after December 31, 1999; provided, however, that if the
Executive's employment is terminated prior to December
31, 1999 by mutual agreement of the Company and the
Executive, the Executive shall be entitled to receive
the special retirement benefit specified herein. The
special retirement benefit is intended to replicate the
pension and medical benefit enhancements included as
part of the Special Retirement Offer provided by the
Company to eligible employees as of June 30, 1995, and
shall be considered "vested" (except for a termination
for Cause) as of the date of execution of this
Agreement. The Company hereby agrees to pay the
Executive monthly the difference between the monthly
benefit calculated as it would have been provided under
the Special Retirement offer described above,
(determined on the basis that the additional five (5)
years of service and age credit had applied to the
pension as well as any non-qualified programs,
including the SERP), minus the monthly annuity benefit
he is then entitled to receive under the Central Maine
Power Company Supplemental Executive Retirement Plan
(the "SERP"), the Split-Dollar Life Insurance Agreement
(the "Split-Dollar Arrangement"), and Retirement Income
Plan for Non-Union Employees of Central Maine Power
Company (the "Basic Plan"), utilizing the same joint
and survivor option election made by the Executive
under the Basic Plan for purposes of this calculation.
The Split-Dollar Arrangement shall not be taken into
consideration if the Executive has assigned the
contract or contracts under the arrangement back to the
Company. Such payments shall commence when payments
commence to the Executive under the Basic Plan, and
shall continue for his lifetime and for the lifetime of
his spouse after his death if he has elected a joint
and survivor option under the Basic Plan, and with the
same percentage reduction elected under the Basic Plan.
For example, if the Executive selects a joint and 50%
survivor option under the Basic Plan, he will be deemed
to have made a joint and 50% survivor election
hereunder, and upon his death, payments in the amount
of 50% of his lifetime benefit provided under this
Section will be continued to his spouse for her
lifetime. The Company agrees to use reasonable efforts
in the development of any future early retirement
window programs to have as much as possible of the
special retirement benefit specified herein be payable
under the Basic Plan, consistent with the necessity of
continued compliance with the non-discrimination and
qualification requirements of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA") and
the Internal Revenue Code of 1986, as amended (the
"Code") and without increasing the cost of any such
programs for other employees of the Company. The
Company hereby acknowledges and agrees that the special
retirement benefit provided in this Section is intended
to provide a minimum and not a maximum retirement
benefit, and therefore, if the offsets from the Basic
Plan, the SERP and the Split-Dollar Arrangement exceed
the special retirement benefit formula stated above,
this provision shall not be deemed to reduce any
benefit which the Executive shall be entitled to
receive under those other plans or programs. In
addition to the pension enhancement, if the Executive
is not eligible to participate in the Post-Retirement
Medical Plan for Non-Union Employees (the "Retiree
Medical Plan") upon his retirement, the Company will
provide the Executive with a monthly or quarterly
payment sufficient for him to purchase medical
insurance coverage for himself and his dependents at
the same benefit level provided under the Retiree
Medical Plan, with a contribution by the Executive
equivalent to any contribution required from time to
time under the Retiree Medical Plan. Payments hereunder
shall be made directly to the medical insurance company
or as a reimbursement to the Executive, as appropriate.
The Executive's rights under this Section shall survive
and continue to be enforceable even if this Agreement
is terminated, unless this Agreement is terminated for
Cause. In addition, for purposes of the calculations
under the SERP, the special retirement benefit provided
herein shall not be deemed to constitute an "other
non-qualified retirement plan of (or employment
agreement with) the Company" as described in subsection
3.1(c) of the SERP, which would reduce his benefit
under the SERP.
b. Vested Benefits. 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. Withholding. 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. Change of Control. 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 lump sum cash pay-
ment, 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 and his dependents under the
Company's group medical, life, accident and disability plans
or programs shall continue for a period of three (3) years
from the date of termination specified in Section 6 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 the Executive
and his dependents during the Severance Period with core
benefits substantially similar to those which he would
otherwise be entitled to receive under such plans and
programs; provided, however, that the obligation of the
Company to provide continuation of any insured long-term
disability benefits shall be limited to the conversion rights
available under such disability insurance products, and the
Company hereby agrees to pay the conversion premium due
thereon for the Severance Period.
(iii) To the extent allowed by law, but without violating any non-
discrimination or other applicable restrictions, the Severance
Period shall count as service for all purposes (including
benefit accrual and eligibility) under any welfare benefit or
non-qualified 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 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. Parachute Provision. 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 pay- ments 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. No Change of Control. If no Change of Control has occurred, and the
Executive's employment with the Company is terminated during the Employment
Period either (i) by the Company for any reason other than death, Total
Disability or Cause, or (ii) 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, commission 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. Gross-Up Amount. In the event that any portion of the
Severance Benefits is subject to tax under Section 4999 of the Code, 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. Tax Withholding. 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 termi- nation 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 a competitor of
the Company, 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.
(iv) The term "Company" as used in this Section 8 shall
include Central Maine Power Company, any Affiliate of
Central Maine Power Company (determined as of the date
of termination), any successor to the business or
operations of Central Maine Power and any business
entity spun-off, divested, or distributed to
shareholders which shall continue the operations of
Central Maine Power Company.
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 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. Singular Contract. This Agreement is a singular agreement between
the Executive and the Company, and is not part of a general "plan" or "program"
for employees as a group. This Agreement shall, under no circumstances, be
deemed to be an "employee welfare benefit plan" or an "employee pension benefit
plan" as defined in ERISA. Notwithstanding, the Company may submit a letter to
the Department of Labor indicating the possible establishment of a so-called
unfunded "top hat" plan for the benefit of a select group of management and
highly compensated employees to avoid the costs and uncertainties which may
occur in the event of a Department of Labor audit and challenge relative to
compliance with any allegedly applicable provisions of ERISA. The Executive
specifically acknowledges and agrees that the filing of the so-called "top hat"
letter notice by the Company shall not be construed or interpreted as an
admission on the part of the Company that this Agreement constitutes an ERISA
plan, and the Company hereby categorically states, and the Executive hereby
agrees, that this Agreement is an ad hoc individual contract with the Executive.
14. 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.
15. Titles and Captions. The section and paragraph titles and captions
contained herein are for convenience only and shall not be held to explain,
modify, amplify, or aid in the interpretation, construction or meaning of the
provisions of this Agreement.
16. 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.
17. 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
<PAGE>
effective as of the date first written above.
WITNESS:
- ----------------------------- ---------------------------------
Gerald C. Poulin
WITNESS: CENTRAL MAINE POWER COMPANY
- ----------------------------- ---------------------------------
By: David M. Jagger
Chairman of the Board
of Directors
CMP -Poulin Employment Agreement
011498
<PAGE>
Exhibit 10.104
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT is made this ________day of June, 1997, 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 SARA J. BURNS of Gardiner, Maine (hereinafter referred to as the
"Executive").
WHEREAS, the Company recognizes that the Executive is a valued employee
because of her knowledge of the Company's affairs and her experience and
leadership capabilities, and desires to encourage her 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 her
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. Term. The term of this Agreement shall begin
on June 1, 1997 (hereinafter referred to as the "Effective Date") and shall
expire on May 31, 2000; provided, however, that if a Change of Control occurs
during the period commencing June 1, 1999 and ending May 31, 2000, this
Agreement shall be extended and shall thereafter expire 365 days after the date
of said Change of Control (the "Extended Expiration Date").
b. Expiration. Notwithstanding anything to the contrary in this Section
1, except as to vested benefits, this Agreement and all obligations of the
Company hereunder shall terminate on the earliest to occur of (i) the date of
the Executive's death, (ii) 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; or (iii) May 31, 2000 (or the Extended
Expiration Date specified in Section 1.a above, if applicable, if a Change of
Control occurs during the year prior to May 31, 2000.)
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) Any act of material dishonesty taken by, or committed
at the request of, the Executive.
(ii) Any illegal or unethical conduct which 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 her
responsibilities and duties under this Agreement in a
satisfactory manner, 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.
"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) The stockholders of the Company approve a merger or consoli-
dation 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, however, 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.
(iii)The stockholders of the Company approve a plan of
complete liqui- dation 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 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.
"Total Disability" means the complete and permanent inability of the
Executive to perform all of her duties under this Agreement on a full-time basis
for a period of at least six (6) consecutive months, as determined upon the
basis of such evidence, which may include independent medical reports and data.
3. Employment. a. Position. The Company hereby agrees to continue its
employment of the Executive in the capacity of Chief Operating Officer,
Distribution Services, 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 she
deems appropriate.
b. Performance. The Executive agrees that during the Employment Period
she shall devote substantially all her business attention and time to the
business and affairs of the Company, and use her 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. Job Duties. 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 of corporate
policies, strategies and business initiatives as a member of the Company's
Executive Committee and the development, implementation and overall management
of all aspects of the Company's distribution operations policies, strategies,
plans, initiatives and activities, including those concerning customer contacts,
billing and service, transmission and distribution, and the joint use of
distribution facilities.
4. Compensation and Benefits. a. During the Employment
Period, the Executive shall be compensated as follows:
(i) Salary. The Executive shall receive an annual base
salary, the amount of which shall be reviewed regularly
and determined from time to time, but which shall not
be less than $150,000.00. Her salary shall be payable
in accordance with Company payroll practices.
(ii) Participation in Executive Plans. She 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 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) Participation in Salaried Employee Plans. The Executive 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) Other Fringe Benefits. The Executive 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. Retention Bonus. If the Executive is actively employed by the
Company on the earlier to occur of (i) the date of the sale of the Transmission
and Distribution Business Unit, or (ii) May 31, 2000, the Executive shall be
entitled to receive a lump sum cash payment of one-half (1/2) of the Executive's
annual base salary then in effect, which shall be paid within fifteen (15)
working days after the applicable date specified in subsection (i) or (ii)
above. If the Executive's employment is terminated for any reason whatsoever
prior to the earlier of such dates, she shall not be entitled to receive the
retention bonus described herein, although she may be entitled to receive
Severance Benefits as provided in Section 5 below.
c. Withholding. 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. Change of Control. 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 lump sum cash pay-
ment, within sixty (60) days following the date of termination
of employment as defined in Section 6 below, an amount equal
to 2.99 times the Executive's then-current base salary.
(ii) The Company shall provide the Executive with so-called
COBRA medi- cal continuation coverage paid by the
Company for a period up to eighteen (18) months, or
until the Executive obtains coverage under another
group medical plan with another employer, whichever
occurs first.
(iii) 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. Parachute Provision. 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 pay- ments 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. No Change of Control. If no Change of Control has occurred, and the
Executive's employment with the Company is terminated during the Employment
Period either (i) by the Company for any reason other than death, Total
Disability or Cause, or (ii) by the Executive within six (6) calendar months of
a Constructive Discharge, the Company shall pay the Executive, in one lump sum
payment within sixty (60) days following the date of termination of employment
as defined in Section 6 below, an amount 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.
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. Gross-Up Amount. In the event that any portion of the
Severance Benefits provided in Section 5 is subject to tax under Code ss.4999,
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 of this Agreement.
b. Tax Withholding. 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. a.
The Executive agrees that:
(i) During the Employment Period and for one (1) year after
the termi- nation 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 a competitor of
the Company, 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; provided, however, that
this Section 8.a.(i) shall not apply after the
termination of the Executive's employment if the
Executive voluntarily terminates employment and is not
eligible to receive a Severance Benefit under Section
5.c. above.
(ii) During and after the Executive's employment with the
Company, she shall not divulge or appropriate to her
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 her employment with the Company.
(iii) During the Employment Period, she shall support the Company's
interests and efforts in all regulatory, administrative,
judicial or other proceedings affecting the Company and, after
the termination of her employment with the Company, she shall
use best efforts to comply with all reasonable requests of the
Company that she 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 she may be in a position adverse to that
of the Company. After the termination of employment, the
Company shall reimburse the Executive for her reasonable
expenses and her time, at a reasonable rate to be determined,
for the Executive's cooperation with the Company in any such
proceeding.
(iv) The term "Company" as used in this Section 8 shall
include Central Maine Power Company, any Affiliate of
Central Maine Power Company (determined as of the date
of termination), any successor to the business or
operations of Central Maine Power and any business
entity spun-off, divested, or distributed to
shareholders which shall continue the operations of
Central Maine Power Company.
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.
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 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. Singular Contract. This Agreement is a singular agreement between
the Executive and the Company, and is not part of a general "plan" or "program"
for employees as a group. This Agreement shall, under no circumstances, be
deemed to be an "employee welfare benefit plan" or an "employee pension benefit
plan" as defined in the Employee Retirement Income Security Act of 1974
(hereinafter referred to as "ERISA"). Notwithstanding, the Company may submit a
letter to the Department of Labor indicating the possible establishment of a
so-called unfunded "top hat" plan for the benefit of a select group of
management and highly compensated employees to avoid the costs and uncertainties
which may occur in the event of a Department of Labor audit and challenge
relative to compliance with any allegedly applicable provisions of ERISA. The
Executive specifically acknowledges and agrees that the filing of the so-called
"top hat" letter notice by the Company shall not be construed or interpreted as
an admission on the part of the Company that this Agreement constitutes an ERISA
plan, and the Company hereby categorically states, and the Executive hereby
agrees, that this Agreement is an ad hoc individual contract with the Executive.
14. 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 she has provided to the Company or, in the case of the Company, at its
principal executive offices to the attention of the Corporate Secretary.
15. Titles and Captions. The section and paragraph titles and captions
contained herein are for convenience only and shall not be held to explain,
modify, amplify, or aid in the interpretation, construction or meaning of the
provisions of this Agreement.
16. 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.
17. 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:
- ----------------------------- ---------------------------------
Sara J. Burns
WITNESS: CENTRAL MAINE POWER COMPANY
- ----------------------------- ---------------------------------
By: David M. Jagger
Chairman of the Board
of Directors
CMP - Burns Employment Agreement
061997
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<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 entiirety
by reference to such financial statements.
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<PERIOD-TYPE> 12-MOS
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<TOTAL-ASSETS> 2,298,966
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39,528
65,571
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<CAPITAL-LEASE-OBLIGATIONS> 32,781
<LEASES-CURRENT> 1,736
<OTHER-ITEMS-CAPITAL-AND-LIAB> 1,057,939
<TOT-CAPITALIZATION-AND-LIAB> 2,298,966
<GROSS-OPERATING-REVENUE> 954,176
<INCOME-TAX-EXPENSE> 7,424
<OTHER-OPERATING-EXPENSES> 889,733
<TOTAL-OPERATING-EXPENSES> 897,157
<OPERATING-INCOME-LOSS> 63,279
<OTHER-INCOME-NET> 1,710
<INCOME-BEFORE-INTEREST-EXPEN> 64,989
<TOTAL-INTEREST-EXPENSE> 51,567
<NET-INCOME> 13,422
8,209
<EARNINGS-AVAILABLE-FOR-COMM> 5,213
<COMMON-STOCK-DIVIDENDS> 29,220
<TOTAL-INTEREST-ON-BONDS> 29,783
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<EPS-PRIMARY> .16
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