UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
--- SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2000
------------------
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
--- SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
---------- ----------
Commission Registrant, State of Incorporation, I.R.S. Employer
File Number Address, and Telephone Number Identification No.
----------- ----------------------------------- ------------------
1-5139 CENTRAL MAINE POWER COMPANY 01-0042740
83 Edison Drive, Augusta, Maine 04336
(207) 623-3521
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to the filing
requirements for at least the past 90 days.
Yes X No ___
As of November 3, 2000, the number of shares of Common Stock outstanding was
31,211,471, all held by CMP Group, Inc., a subsidiary of Energy East
Corporation.
<PAGE>
Table of Contents
Page
Number
------
Part I. Financial Information 1
Item 1 - Consolidated Financial Statements 1
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations 7
(a) Liquidity and Capital Resources 7
(b) Results of Operations 11
Item 3 - Quantitative and Qualitative Disclosures About Market Risk 13
Part II. Other Information 14
Item 1 - Legal Proceedings 14
Item 6 - Exhibits and Reports on Form 8-K 14
Signatures 15
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
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Central Maine Power Company and Subsidiaries
Consolidated Statement Of Earnings
(Unaudited)
(Dollars in thousands, except per-share amounts)
Predecessor
-----------------------------
Period From Period From
Acquisition July 1, 2000 Three Months
Date to Through Ended
September 30, Acquisition September 30,
2000 Date 1999
------------- ------------ -------------
Revenues
Electric operating revenues $64,865 $155,031 $238,887
Other revenues 55 90 (408)
------ ------- -------
Total Revenues 64,920 155,121 238,479
------ ------- -------
Operating Expenses
Fuel used for company generation 87 179 281
Purchased power
Energy 26,288 79,334 107,667
Other (capacity) 8,280 14,712 28,766
Other operation 14,175 44,723 48,251
Maintenance 2,478 6,318 7,096
Depreciation and amortization 3,435 5,168 11,706
Taxes other than income taxes 1,725 3,052 5,021
------ ------- -------
Total Operating Expenses 56,468 153,486 208,788
------ ------- -------
Operating Income (Loss) 8,452 1,635 29,691
------ ------- -------
Other Income (Expense)
Equity in earnings of associated companies 905 436 368
Allowance for equity funds used during construction 25 61 172
Interest income 395 2,505 4,197
Recovery of non provided deferred income taxes on asset sale 274 781 -
Other, net (47) (571) (187)
Minority interest in consolidated net income (38) (48) (6)
Gain on sale of investments and properties (1) - 27
------ -------- -------
Total Other Income (Expense) 1,513 3,164 4,571
------ -------- -------
Interest Charges
Long-term debt 1,715 2,753 4,324
Other interest 520 1,371 7,250
Allowance for borrowed funds used during construction (6) (13) (46)
------ ------- -------
Total Interest Charges 2,229 4,111 11,528
------ ------- -------
Income Before Income Taxes 7,736 688 22,734
Income taxes 3,430 (965) 9,806
------ ------- -------
Net Income 4,306 1,653 12,928
Dividends on Preferred Stock 186 372 918
------ ------- -------
Earnings Applicable to Common Stock $ 4,120 $ 1,281 $ 12,010
====== ======= =======
Weighted Average Number Of Shares Of Common
Stock Outstanding 31,211,471 31,211,471 31,211,471
Earnings Per Share Of Common Stock - Basic and Diluted $.13 $.04 $.38
The accompanying notes are an integral part of these financial statements.
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Central Maine Power Company and Subsidiaries
Consolidated Statement Of Earnings
(Unaudited)
(Dollars in thousands, except per-share amounts)
Predecessor
-----------------------------
Period From Period From
Acquisition January 1, Nine Months
Date to 2000 Through Ended
September 30, Acquisition September 30,
2000 Date 1999
------------- ------------- -------------
Revenues
Electric operating revenues $64,865 $613,041 $724,194
Other revenues 55 434 702
------ ------- -------
Total Revenues 64,920 613,475 724,896
------ ------- -------
Operating Expenses
Fuel used for company generation 87 728 10,488
Purchased power
Energy 26,288 278,577 290,984
Other (capacity) 8,280 71,807 82,754
Other operation 14,175 151,245 151,618
Maintenance 2,478 24,468 23,135
Depreciation and amortization 3,435 23,661 37,912
Taxes other than income taxes 1,725 12,961 17,117
------ ------- -------
Total Operating Expenses 56,468 563,447 614,008
------ ------- -------
Operating Income 8,452 50,028 110,888
------ ------- -------
Other Income (Expense)
Equity in earnings of associated companies 905 2,816 4,051
Allowance for equity funds used during construction 25 391 479
Interest income 395 6,532 12,440
Recovery of non provided deferred income taxes on asset sale 274 75,421 -
Other, net (47) 3,245 (1,631)
Minority interest in consolidated net income (38) (172) (700)
Gain on sale of investments and properties (1) 223 7,061
------ ------- -------
Total Other Income (Expense) 1,513 88,456 21,700
------ ------- -------
Interest Charges
Long-term debt 1,715 9,534 22,362
Other interest 520 21,616 20,416
Allowance for borrowed funds used during construction (6) (78) (260)
------ ------- -------
Total Interest Charges 2,229 31,072 42,518
------ ------- -------
Income Before Income Taxes 7,736 107,412 90,070
Income taxes 3,430 77,534 36,241
------ ------- -------
Net Income 4,306 29,878 53,829
Dividends on Preferred Stock 186 1,490 2,756
------ ------- -------
Earnings Applicable to Common Stock $ 4,120 $ 28,388 $ 51,073
====== ======= =======
Weighted Average Number Of Shares Of Common
Stock Outstanding 31,211,471 31,211,471 31,211,471
Earnings Per Share Of Common Stock (Basic and Diluted) $.13 $.91 $1.64
The accompanying notes are an integral part of these financial statements
</TABLE>
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Central Maine Power Company and Subsidiaries
Consolidated Balance Sheet
(Unaudited)
(Dollars in thousands)
Predecessor
----------------
September 30, December 31,
2000 1999
------------- ----------------
Assets
Current Assets
Cash $ 699 $ 862
Special deposits 1 1
Temporary investments 7,000 112,010
Accounts receivable, net 114,486 157,210
Prepaid income taxes 11,499 1,248
Fuel - 177
Materials and supplies 9,778 9,927
Accumulated deferred income taxes 3,689 5,486
Prepayments and other current assets 10,184 7,159
--------- ---------
Total Current Assets 157,336 294,080
Utility Plant, at Original Cost
Electric 1,376,469 1,337,088
Less Accumulated depreciation 565,039 550,990
--------- ---------
Net Utility Plant in Service 811,430 786,098
Construction work in progress 19,323 32,357
--------- ---------
Total Utility Plant 830,753 818,455
Other Property 6,530 7,362
Investments in Associated Companies, at equity 35,545 38,236
Regulatory and Other Assets
Unamortized investment in abandoned projects, net - 73,052
Unfunded future federal income taxes 81,389 144,430
Unamortized loss on debt reacquisition 12,516 13,758
Purchase power contracts 240,868 270,311
Demand-side management program costs 11,177 23,583
Environmental remediation costs 8,488 9,828
Other 121,714 231,328
--------- ---------
Total Regulatory Assets 476,152 766,290
Goodwill, net 307,117 -
Prepaid pension benefit 31,979 -
Other 18,663 22,334
--------- ---------
Total Other Assets 357,759 22,334
Total Regulatory and Other Assets 833,911 788,624
--------- ---------
Total Assets $1,864,075 $1,946,757
========= =========
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
Central Maine Power Company and Subsidiaries
Consolidated Balance Sheet
(Unaudited)
(Dollars in thousands)
Predecessor
-------------
September 30, December 31,
2000 1999
------------- ------------
Liabilities
Current Liabilities
Current portion of long-term debt $ 30,556 $ 70,754
Notes payable - 1,183
Accounts payable and accrued liabilities 62,579 107,712
Interest accrued 3,537 2,679
Other 58,240 15,045
--------- ---------
Total Current Liabilities 154,912 197,373
Regulatory and Other Liabilities
Regulatory Liabilities
Deferred income taxes 16,955 22,267
Deferred income taxes, unfunded future
federal income taxes 33,243 58,934
Asset sale deferred gain 238,176 536,368
Other 108,874 41,052
--------- ---------
Total Regulatory Liabilities 397,248 658,621
Other Liabilities
Deferred income taxes 17,210 2,002
Purchased power contract 240,868 270,311
Other Postretirement benefits 69,299 62,032
Environmental remediation costs 3,587 2,698
Other 95,467 76,378
--------- ---------
Total Other Liabilities 426,431 413,421
Long-Term Debt 253,013 120,186
--------- ---------
Total Liabilities 1,231,604 1,389,601
Redeemable Preferred Stock 910 910
Capitalization
Common stock 162,213 162,213
Other paid in capital 452,038 280,450
Other paid in capital preferred stock (3,552) (3,742)
Reacquired capital stock (19,000) (19,000)
Retained earnings 4,291 100,754
Preferred stock 35,571 35,571
--------- ---------
Total Stockholders' Equity 631,561 556,246
Total Liabilities and Stockholders' Equity $1,864,075 $1,946,757
========= =========
The accompanying notes are an integral part of these financial statements.
</TABLE>
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Central Maine Power Company and Subsidiaries
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
(Dollars in thousands)
Predecessor
---------------------------
Period From Period From
Acquisition January 1, Nine Months
Date to 2000 Through Ended
September 30, Acquisition September 30,
2000 Date 1999
------------ ------------ -------------
Operating Activities
Net income $ 4,306 $ 29,878 $ 53,829
Adjustments to reconcile net income to net cash provided by
operating activities
Depreciation 2,933 22,594 29,697
Amortization 763 7,528 29,558
FIT & ITC deferred, net 1,500 (10,125) (8,310)
Allowance for equity funds used during construction (25) (391) (479)
Accounts receivable 82 28,987 21,340
Inventory (78) 404 727
Prepayments and other current assets (2,411) (1,567) (3,032)
Accounts payable and accrued liabilities (29,084) 3,471 (12,705)
Taxes accrued 2,023 (12,275) 7,807
Interest Accrued (53) 913 (5,322)
Other, net (2,658) 7,164 (10,666)
------- ------- -------
Net cash provided by (used in) operating activities (22,702) 76,581 102,444
------- ------- -------
Investing Activities
Utility plant additions, net (4,552) (58,366) (41,043)
Contributions in aid of construction 930 35,082 -
Central Maine sale of assets - - 850,987
Tax payments related to sale of assets - - (234,409)
Selling expense for sale of generation assets - - (17,778)
Other property and investments - - 7,813
------- ------- -------
Net cash provided by (used in) investing activities (3,622) (23,284) 565,570
------- ------- -------
Financing Activities
Repayments of preferred stock
and first mortgage bonds, net of premiums - - (118,717)
Long-term notes, net 29,763 63,040 (334,668)
Dividends:
Common stock (190,000) (33,724) (29,506)
Preferred stock - (1,225) (1,837)
------- ------- -------
Net cash provided (used) by financing activities (160,237) 28,091 (484,728)
------- ------- -------
Net increase (decrease) in cash and temporary investments (186,561) 81,388 183,286
Cash and temporary investments, beginning of period 194,260 112,872 22,628
------- ------- -------
Cash and temporary investments, end of period $ 7,699 $194,260 $205,914
======= ======= =======
Cash paid during the year for:
Interest, net of amounts capitalized $ 2,099 $ 10,316 $ 32,648
Income taxes $ 50 $ 24,552 $273,700
The accompanying notes are an integral part of these financial statements
</TABLE>
<PAGE>
Item 1. Financial Statements (Cont'd)
-------------------------------------
Note 1. Unaudited Consolidated Financial Statements
---------------------------------------------------
The accompanying unaudited consolidated financial statements reflect all
adjustments which are necessary, in the opinion of management, for a fair
presentation of Central Maine Power Company's (the "Company") consolidated
results for the interim periods.
The Company's consolidated financial statements include the accounts of the
Company and its wholly owned and controlled subsidiaries. All non-utility
operating transactions are included in other revenues and operating expenses in
the Company's Consolidated Statement of Income.
All of the common stock of the Company is owned by CMP Group, Inc. ("CMP
Group"), which was organized effective September 1, 1998. Effective September 1,
2000 CMP Group, became a wholly owned subsidiary of Energy East Corporation. The
acquisition by Energy East Corporation was accounted for as a purchase
transaction and purchase accounting adjustments, including goodwill, have been
reflected in the financial statements of the Company and its subsidiaries for
the periods subsequent to September 1, 2000. The financial statements for the
Company for the periods prior to September 1, 2000 were prepared using the
Company's historical basis of accounting and are designated as "predecessor".
The comparability of operating results for the predecessor and the periods
encompassing push-down accounting are affected by the purchase accounting
adjustments, including the amortization of goodwill over a period of forty
years.
The fair value of assets and liabilities of the Company is considered to be
equivalent to the historical basis of accounting, and accordingly, no adjustment
has been made to the carrying value. The excess consideration paid by Energy
East Corporation attributable to the Company at the merger date was
approximately $308 million and is reflected as goodwill in the Company's balance
sheet at September 30, 2000. The process of determining fair value of assets and
liabilities at the merger date is continuing, and the final results await the
resolution of income tax and other contingencies and finalization of certain
preliminary estimates. The following table summarizes the preliminary changes
made to the accounts of the Company as of September 1, 2000 as a result of
applying push-down accounting.
Purchase Accounting
Adjustments
(Dollars in Thousands)
--------------------
Investments $31,943
Goodwill 307,720
Regulatory assets 29,043
Other assets 1,552
-------
Total Assets $370,258
=======
Current liabilities $27,451
Long-term debt
Deferred income taxes (17,404)
Pension and other postretirement benefits 6,825
Regulatory liabilities 80,068
Other liabilities 6,805
Common stock investment 266,513
-------
Total Liabilities & Common Stock Investment $370,258
=======
Reclassification - Certain amounts from prior years' financial statements have
been reclassified to conform to the current year's presentation.
Impact of New Accounting Standards - The Financial Accounting Standards Board
(FASB) issued Statement of Financial Accounting Standards No. 133, Accounting
for Derivative Instruments and Hedging Activities, in June 1998, No. 137,
Accounting for Derivative Instruments and Hedging Activities - Deferral of the
Effective Date of FASB Statement No. 133, in June 1999, and No. 138, Accounting
for Certain Derivative Instruments and Certain Hedging Activities - an amendment
of FASB Statement No. 133, in June 2000. Statement No. 133 establishes standards
for the accounting and reporting for derivative instruments and for hedging
activities. Statement No. 133 requires that all derivatives be recognized as
either assets or liabilities on a company's balance sheet at their fair value.
Statement No. 137 delayed for one year the effective date for implementing
Statement No. 133, to fiscal years beginning after June 15, 2000. Statement No.
138 provided guidance on how to interpret sections of Statement No. 133.
The Company will adopt Statement No. 133 as of January 1, 2001. If Statement No.
133 were adopted on October 1, 2000, the estimated transition adjustment as of
September 30, 2000 would be zero and the effect on earnings would be zero.
Item 2: Management's Discussion and Analysis of Financial Condition and Results
--------------------------------------------------------------------------------
of Operations
-------------
(a) Liquidity and Capital Resources
Rate Matters
------------
Maine Yankee Shutdown - See the Company's Form 10-Q for the quarter ended June
30, 2000, Item 2, Commitment and Contingencies, FERC Rate Case.
In September 2000, the Maine Public Utilities Commission ("MPUC") staff advised
the Company that it could not use the two-year entitlement auction price to
satisfy the replacement power test required as part of the settlement of Maine
Yankee for 2001. If the Company is required to use a current wholesale market
index for energy purchases as a benchmark for the replacement power test, the
Company would be liable for the entire $31.2 million for the 2001 test and
expects it would remain above the threshold replacement power tests based on
current and projected energy prices for the years 2002 through 2004. The Company
will continue its efforts to mitigate this liability. The liability of $31.2
million was recognized in the purchase accounting entries associated with the
merger with Energy East with an offset to Goodwill and Deferred Income Taxes.
Termination of Decommissioning Operations Contract - See the Company's Form 10Q
for the quarter ended June 30, 2000, Item 2, Commitments and Contingencies -
Termination of Decommissioning Operations Contract.
On June 30, 2000, Federal Insurance Company ("Federal"), which provided
performance and payment bonds in the amount of approximately $37.6 million each
in connection with the decommissioning operations contract, filed a Complaint
for Declaratory Judgment against Maine Yankee in the United States Bankruptcy
Court for the District of Delaware, which was subsequently transferred to the
United States District Court in Maine. The Complaint, which seeks a declaration
that Federal has no obligation to pay Maine Yankee under the bonds, alleges that
Maine Yankee improperly terminated the decommissioning operations contract with
Stone & Webster and failed to give proper notice of the termination to Federal
under the contract, and that Federal therefore had no further obligations under
the bonds. Maine Yankee has filed both a counterclaim against Federal in the
District Court seeking recovery up to the penalty amounts of the bonds and a
proof of claim against Stone & Webster in the Bankruptcy Court seeking recovery
of all additional costs resulting from the termination of the Stone & Webster
contract. Maine Yankee believes that its termination of the decommissioning
operations contract was proper, but cannot predict the outcome of the
litigation.
Maine Yankee is evaluating all available long-term alternatives for safely and
efficiently completing the decommissioning of the Plant site, including the
possibilities of contracting with a new decommissioning operations contractor or
assuming that function itself on a long-term basis. Maine Yankee expects to
complete its review of proposals from prospective successor contractors and
select a new contractor, if that is the alternative chosen, by the end of the
year. However, we cannot predict at this point what effect the financial
difficulties of Stone & Webster and the termination of its decommissioning
operations contract with Maine Yankee will have on the cost or schedule of the
decommissioning project.
Alternative Rate Plan - See the Company's Form 10-Q for the quarter ended June
30, 2000, Item 3, Regulatory Matters and Electric-Utility Restructuring, MPUC
Proceeding on Stranded Costs, Revenue Requirements, and Rate Design.
On September 18, 2000, the MPUC voted to approve the Company's revised
Alternative Rate Plan (ARP 2000). ARP 2000 provides the vehicle for the Company
and Energy East to share merger synergies with the Company's customers. Merger
synergies have been estimated to be $25-$30 million per year.
ARP 2000 applies only to the Company's State jurisdictional distribution revenue
requirement and excludes revenue requirements related to stranded costs and
transmission prices. Recovery of stranded costs, primarily over-market
non-utility generator contracts, has been provided for under Maine's
restructuring law. Transmission prices are subject to regulation by the FERC and
are expected to change each July. ARP 2000 is effective January 1, 2001, and
continues through December 31, 2007, with price changes, if any, occurring on
July 1, in the years 2002 through 2007.
Price changes will be calculated by taking the prior year's inflation rate as
determined by the gross domestic product ("GDP") price index and subtracting a
"productivity offset." The productivity offset for the years of the plan vary
between 2.0 percent in 2002 and 2.9 percent in 2007. The productivity offset for
2001 will be equal to the GDP price index. In addition, certain expiring
amortizations will flow through to customers via the annual price adjustments.
Mandated costs outside of the Company's control that exceed $150,000
individually and exceed $3 million in aggregate in any calendar year will be
recovered through the annual price adjustment. Mandated costs include
nonrecurring events such as storms, floods and labor disturbances, and recurring
costs that result from accounting, federal or state legislative, regulatory or
tax changes.
The Company is required to meet certain standards of service quality and
reliability. These standards include: 1) customer average interruption duration,
2) system average interruption, 3) MPUC complaint ratio, 4) percentage of
business calls answered, 5) percentage of outage calls answered, 6) new service
installations, 7) call center service quality, and 8) market responsiveness.
Price changes could be reduced by as much as $3.6 million annually if all are
not met.
Beginning in July 2002, the price change will include 50 percent of any revenue
deficiency should the Company's return on equity fall below 5.2 percent in the
prior calendar year. There is no earnings cap during the term of ARP 2000, which
will give the Company the opportunity to utilize synergies to offset goodwill
amortization during the term of ARP 2000.
The Company filed and, on September 28, 2000 FERC approved, new transmission
rates that were effective September 1, 2000. The new transmission rates increase
revenue requirements by approximately $10 million, with approximately $5 million
of the proposed increase associated with the incremental costs of transmission
congestion in New England. These federally mandated charges include the costs of
upgrading transmission circuits to accommodate merchant power plants, and are
being assessed on all New England utilities. The remainder of the rate increase
reflects updated transmission costs based on 1999 activity versus the 1996 test
period used previously. FERC also approved a deferral mechanism for the
difference between network congestion costs incurred since March 1, 2000, and
the amount included in the rates. The deferrals will be recorded as imputed
revenues with an offset to a regulatory asset. In September the Company recorded
$6.2 million in such revenues. The regulatory asset will be reduced in future
periods in the next tariff year, when the costs will be reflected in the tariff
charges.
Sale of Generation Assets - See the Company's Form 10-Q for the quarter ended
June 30, 2000, Item 3, Regulatory Matters and Electric-Utility Restructuring,
Sale of Generation Assets.
On August 7, 2000, the owners of Millstone Unit 3, including Central Maine Power
Company, entered into agreements to sell the unit with the other two Millstone
units, to Dominion Resources, Inc., in an auction of those units supervised by
the Connecticut DPUC. Completion of the sale, which is expected in 2001 after
regulatory approvals are obtained and other customary closing conditions are
satisfied, will have no significant effect on the Company, since the sale was
anticipated in the terms of the settlement of the Company's Millstone-related
arbitration and litigation claims against Northeast Utilities and its
affiliates.
Investing and Financing Activities
----------------------------------
Approximately $59.0 million of cash was provided during the nine months ended
September 30, 2000, from net income before non-cash items, primarily
depreciation, amortization and deferred income taxes.
The Company received $36.0 million in deposits from customers primarily for
construction expenditures associated with anticipated merchant generating plant
activity. On June 28, 2000 FERC issued an order regarding the funding
responsibility for transmission network upgrades to accommodate the direct
interconnection with new merchant plants. The Company has required the merchant
plant developers to fund all interconnection and network upgrades in advance.
Based on FERC's latest ruling, certain generation projects entered into prior to
October 29, 1998 would require a 50 percent sharing of interconnection and
upgrade costs between the developer and the utility. Certain generation projects
entered into after October 29, 1998 but before June 22, 1999 would limit the
utility's funding responsibility to a maximum of $2 million based on at least $5
million in total interconnection and upgrade costs. In all other cases the
developer would be responsible for 100 percent of the interconnection and
upgrade costs. Based on this ruling, the Company will have to refund to
developers between $18 to $30 million over the next two years. Any amounts
refunded to developers will be capitalized on the Company's books and recovered
through the regional or local open access tariff, as appropriate.
The Company is also engaged in a continuing construction program to accommodate
existing and future load on its electric system. The Company's plans for
improvements and expansions, its load forecasts and its power-supply sources are
under a process of continuing review. Actual construction expenditures depend
upon the availability of capital and other resources, load forecasts, customer
growth, the number of merchant plants constructed in the Company's territory,
and general business conditions. The ultimate nature regarding the timing and
amount of financing for the Company's total construction programs, including
refinancing and energy-management capital requirements, will be determined in
light of market conditions, earnings and other relevant factors.
As a result of the merger on September 1, retained earnings of the Company were
reset to zero and moved to other paid-in capital as required by Generally
Accepted Accounting Principles. On September 5, 2000, the Company's Board of
Directors declared and paid a liquidating dividend amounting to $190 million,
reducing other paid-in capital. This rebalancing of the capital structure aligns
the Company's capital structure with that assumed by the MPUC in establishing
the Company's current tariff charges and was facilitated with the proceeds from
the Company's sale of generation assets in 1999.
As of September 30, 2000, the Company had $30 million in loans that were
outstanding under its revolving credit facility.
Forward-Looking Statements
--------------------------
This Form 10-Q contains certain forward-looking statements that are based on
management's current expectations and information that is currently available.
The Private Securities Litigation Reform Act of 1995 provides a safe harbor for
forward-looking statements in certain circumstances. Whenever used in this
report, the words "estimate," "expect," "believe," "anticipate," or similar
expressions are intended to identify such forward-looking statements.
In addition to the assumptions and other factors referred to specifically in
connection with such statements, factors that could cause actual results to
differ materially from those contemplated in any forward-looking statements
include, among others, the deregulation and unbundling of energy services; the
company's ability to compete in the rapidly changing and increasingly
competitive electricity utility markets; its ability to control non-utility
generator and other costs; changes in fuel supply cost and the success of its
strategies to satisfy its power requirements; its ability to expand its products
and services, including its energy infrastructure in Maine; market risk; the
ability to obtain adequate and timely rate relief; nuclear or environmental
incidents; legal or administrative proceedings; changes in the cost or
availability of capital; growth in the areas in which it is doing business;
weather variations affecting customer outages; and other considerations that may
be disclosed from time to time in its publicly disseminated documents and
filings. The Company undertakes no obligation to publicly update any
forward-looking statements, whether as a result of new information, future
events or otherwise.
(b) Results of Operations
Effective September 1, 2000 CMP Group became a wholly owned subsidiary of Energy
East Corporation. The acquisition by Energy East Corporation was accounted for
as a purchase transaction and purchase accounting adjustments, including
goodwill, have been reflected in the financial statements of the Company for the
periods subsequent to September 1, 2000. The financial statements for Central
Maine Power Company for the periods prior to September 1, 2000 were prepared
using the Company's historical basis of accounting and are designated as
"predecessor". The comparability of operating results for the predecessor and
the periods encompassing push-down accounting are affected by the purchase
accounting adjustments including the amortization of goodwill over a period of
forty years.
Three Months Ended September 30,
------------------------------------
2000 1999 Change
---- ---- ------
(Thousands, except per share amounts)
Operating Income $10,087 $29,691 (66%)
Net Income 5,959 12,928 (54%)
Earnings Applicable to Common Stock 5,401 12,010 (55%)
Average Common Shares Outstanding 31,211 31,211 0
Earnings Per Share, basic and diluted .17 .38 (55%)
Net income decreased $7.0 million between the quarter ended September 2000 and
the same period in 1999 due to one-time merger related costs and ongoing
restructuring impacts. The third quarter year 2000 results include a
nonrecurring charge associated with merger related costs that reduced net income
for the quarter by approximately $3.7 million. Net income was also impacted
negatively by approximately $3.7 million due to the elimination of contributions
from the generation portion of the business which was sold in 1999. The third
quarter also included a $1.1 million increase in net income due to a September
2000 FERC decision allowing reconciliation of congestion costs incurred after
March 1, 2000.
Nine Months Ended September 30,
-------------------------------
2000 1999 Change
---- ---- ------
(Thousands, except per share amounts)
Operating Income $58,480 $110,888 (47%)
Net Income 34,184 53,829 (36%)
Earnings Applicable to Common Stock 32,508 51,073 (36%)
Average Common Shares Outstanding 31,211 31,211 -
Earnings Per Share, basic and diluted 1.04 1.64 (37%)
Net income for the nine months ended September 30, 2000 is $19.6 million lower
than the same period in 1999. One major reason for this decrease is the
elimination of the contribution associated with the generation portion of the
business that was reflected in the Company's restructured revenue requirement
effective March 1, 2000. This accounted for approximately an $8.8 million
decrease in net income for the year 2000 period compared to 1999. A second major
reason is that the year 2000 period included nonrecurring merger related costs
that reduced net income by approximately $3.7 million compared to 1999. Network
congestion costs exceeded revenues for the period reducing net income by $1.7
million. On a going forward basis congestion costs will not cause any variation
in net income due to a September 2000 FERC order that permits an imputation of
revenues to match congestion costs incurred until the costs can be included in
tariff rates. Also, approximately $4.0 million of the decrease in net income is
associated with the one-time sale of right of way easements in 1999.
Operating Revenues, Expenses and Associated Volumes
Three Months Ended September 30,
--------------------------------
(Thousands)
2000 1999 Change
---- ---- ------
Retail Deliveries
Megawatt-hours 2,403.9 2,420.9 (1)%
Operating Revenues $220,041 $238,479 (8)%
Operating Expenses $209,954 $208,788 1%
Effective March 1, 2000, the revenue requirement was lowered to reflect the
elimination of generation assets, resulting in a $18.4 million decrease in
operating revenues as compared to 1999. Operating expenses have increased $1.2
million due to a nonrecurring merger charge of $6.2 million and a $5.5 million
expense related to ISO and congestion uplift charges. These increases were
partially offset by decreases in operating expenses associated with the sale of
generation assets and termination of some NUG contract costs.
Nine Months Ended September 30,
-------------------------------
(Thousands)
2000 1999 Change
---- ---- ------
Retail Deliveries
Megawatt-hours 7,072.3 6,892.5 3%
Operating Revenues $678,395 $724,896 (6)%
Operating Expenses $619,915 $614,008 1%
As stated above, the decrease in revenue requirement has contributed to $46.5
million less in revenues than 1999. Overall expenses for 2000 have been lower
due to the sale of generation assets, but the one time charges mentioned above
have contributed to an increase of $5.9 million in operating expenses year to
date as compared to 1999.
Item 3: Quantitative and Qualitative Disclosures About Market Risk
------------------------------------------------------------------
The Company is exposed to interest rate risk through the use of variable-rate
debt as a source of capital. As of September 30, 2000, the Company had $135
million of medium-term notes outstanding, $10 million of which bear floating,
LIBOR-based rates, and $30 million in loans outstanding under its revolving
credit facility and $22.5 million in capital lease obligations which have
variable interest rates.
Variable Long Term
------------------
(dollars in thousands)
Weighted Average Rates 9.19%
Balance at September 30, 2000 $62,516
Maturity Period 2001 - 2019
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
-------------------------
Maine Yankee - For a discussion of the termination by Maine Yankee of its
decommissioning operations contract with Stone & Webster and related litigation,
see Note 2 "Rate Matters - Maine Yankee Shutdown" and "Termination of
Decommissioning Operations Contract," which is incorporated herein by reference.
Item 6. Exhibits and Reports on Form 8-K
----------------------------------------
(a) Exhibits. None.
(b) Reports on Form 8-K. The Company filed no reports on Form 8-K during the
quarter ended September 30, 2000.
<PAGE>
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CENTRAL MAINE POWER COMPANY
Date: November 9, 2000 By /s/ Michael W. Caron
-------------------------------------------
Michael W. Caron, Comptroller (Chief
Accounting Officer and duly authorized
officer)
