SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
Form 10-Q
___
|_x_| QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended__September 30, 1993__
___
|___| TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from_________to________
Commission file number 1-8222
Central Vermont Public Service Corporation
(Exact name of registrant as specified in its charter)
Incorporated in Vermont 03-0111290
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
77 Grove Street, Rutland, Vermont 05701
(Address of principal executive offices) (Zip Code)
802-773-2711
(Registrant's telephone number, including area code)
___________________________________________________________________________
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date. As of October 31, 1993
there were outstanding 11,488,164 shares of Common Stock, $6 Par Value.
<PAGE>
CENTRAL VERMONT PUBLIC SERVICE CORPORATION
Form 10-Q
Table of Contents
PART I. FINANCIAL INFORMATION Page
Item 1. Financial Statements
Consolidated Statement of Income and Retained Earnings for
the three and nine months ended September 30, 1993 and 1992 3
Consolidated Balance Sheet as of September 30, 1993 and
December 31, 1992 4
Consolidated Statement of Cash Flows for the nine months
ended September 30, 1993 and 1992 5
Notes to Consolidated Financial Statements 6-9
Summarized income statement information for Vermont Yankee
Nuclear Power Corporation 10
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 11-18
Part II. OTHER INFORMATION 19
SIGNATURE 20
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<CAPTION>
PART I FINANCIAL INFORMATION
Item 1. Financial Statements CENTRAL VERMONT PUBLIC SERVICE CORPORATION
CONSOLIDATED STATEMENT OF INCOME AND RETAINED EARNINGS
(Dollars in thousands, except per share amounts)
(Unaudited)
Three Months Ended Nine Months Ended
September 30 September 30
1993 1992 1993 1992
<S> <C> <C> <C> <C>
Operating Revenues $60,994 $56,827 $203,288 $196,438
Operating Expenses
Operation
Purchased power 37,678 33,017 108,436 102,407
Production and transmission 5,014 4,853 15,599 15,487
Other operation 8,592 8,486 26,108 24,700
Maintenance 3,078 3,156 8,306 8,329
Depreciation 3,898 3,677 11,405 10,773
Other taxes, principally property taxes 2,451 2,274 7,380 7,149
Taxes on income (396) (360) 8,268 7,736
Total operating expenses 60,315 55,103 185,502 176,581
Operating Income 679 1,724 17,786 19,857
Other Income and Deductions
Equity in earnings of affiliates 941 1,056 2,836 3,164
Allowance for equity funds during construction 21 56 44 186
Other income, net 496 768 478 2,051
Benefit (provision) for income taxes (154) 132 (231) (202)
Total other income and deductions, net 1,304 2,012 3,127 5,199
Total Operating and Other Income 1,983 3,736 20,913 25,056
Interest Expense
Interest on long-term debt 2,192 2,946 6,973 8,964
Other interest 177 207 461 985
Allowance for borrowed funds during construction (32) (32) (75) (107)
Total interest expense, net 2,337 3,121 7,359 9,842
Net Income (Loss) (354) 615 13,554 15,214
Retained Earnings at Beginning of Period 63,949 61,566 55,438 55,836
63,595 62,181 68,992 71,050
Cash Dividends Declared
Preferred stock 664 665 1,995 1,995
Common stock 4,049 3,818 8,115 11,357
Total dividends declared 4,713 4,483 10,110 13,352
Retained Earnings at End of Period $58,882 $57,698 $ 58,882 $ 57,698
_______ _______ ________ ________
Earnings (Losses) Available for Common Stock $(1,018) $ (50) $ 11,559 $ 13,219
Average shares of common stock outstanding(F1) 11,428,724 11,039,095 11,337,873 10,945,522
Earnings (Losses) Per Share of Common Stock(F1) $(.09) $(.01) $1.02 $1.21
Dividends Paid Per Share of Common Stock(F1) $.3550 $.3475 $1.0650 $1.0425
(FN)
(F1)The amounts for 1992 have been restated to reflect the three-for-two stock split paid February 11, 1993.
</TABLE>
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<TABLE>
<CAPTION>
CENTRAL VERMONT PUBLIC SERVICE CORPORATION
CONSOLIDATED BALANCE SHEET
(Dollars in thousands)
September 30 December 31
1993 1992
<S> (Unaudited)
Assets <C> <C>
Utility Plant, at original cost $421,456 $406,695
Less accumulated depreciation 112,881 102,329
308,575 304,366
Construction work in progress 7,806 10,534
Nuclear fuel, net 1,475 1,497
Net utility plant 317,856 316,397
Investments and Other Assets
Investments in affiliates, at equity 27,222 27,175
Non-utility investments 27,551 23,099
Non-utility property, less accumulated depreciation 3,232 3,151
Total investments and other assets 58,005 53,425
Current Assets
Cash - 1,730
Temporary investments, at cost which
approximates market 3,153 1,759
Accounts receivable 15,004 18,988
Unbilled revenues 3,569 11,789
Materials and supplies, at average cost 4,511 4,201
Prepayments 1,873 4,093
Other current assets 4,265 4,071
Total current assets 32,375 46,631
Regulatory Assets and Other Deferred Charges 49,908 33,615
Total Assets $458,144 $450,068
________ ________
<S>
Capitalization and Liabilities
Capitalization
Common stock, $6 par value, authorized
19,000,000 shares; outstanding 11,465,556 shares <C> <C>
and 11,196,576 shares, respectively $ 68,793 $ 67,180
Other paid-in capital 41,183 36,472
Retained earnings 58,882 55,438
Total common stock equity 168,858 159,090
Preferred and preference stock 15,054 15,054
Preferred stock with sinking fund requirements 20,000 20,000
Long-term debt 79,423 107,879
Total capitalization 283,335 302,023
Long-term Lease Arrangements 21,825 22,641
Current Liabilities
Short-term debt 15,200 2,100
Current portion of long-term debt 19,350 10,217
Accounts payable 6,284 9,257
Accounts payable - affiliates 11,955 9,074
Accrued interest 2,383 1,266
Accrued income taxes 825 3,779
Dividends declared 664 3,958
Other current liabilities 20,938 20,050
Total current liabilities 77,599 59,701
Deferred Credits
Deferred income taxes 45,114 27,326
Deferred investment tax credits 8,883 9,176
Yankee Atomic purchased power contract 10,281 11,773
Deferred revenues 1,326 7,507
Environmental cleanup 4,900 4,900
Other deferred credits 4,881 5,021
Total deferred credits 75,385 65,703
Total Capitalization and Liabilities $458,144 $450,068
________ ________
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CENTRAL VERMONT PUBLIC SERVICE CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
Nine Months Ended
September 30
1993 1992
<S>
Cash Flows Provided (Used) by <C> <C>
Operating Activities
Net income $13,554 $15,214
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation 11,405 10,773
Deferred income taxes and investment tax credits 6,461 2,815
Allowance for equity funds during construction (44) (186)
Amortization of deferred revenues (4,682) -
Net deferral and amortization of nuclear refueling
replacement energy and maintenance costs (3,237) (1,369)
Amortization of property losses 1,216 88
Amortization of nuclear fuel 429 452
Decrease in accounts receivable 12,005 13,734
Increase (decrease) in accounts payable 512 (2,852)
Decrease in accrued income taxes (2,954) (109)
Other, net 2,133 1,065
Net cash provided by operating activities 36,798 39,625
Investing Activities
(Increase) decrease in temporary investments (1,394) 1,047
Construction and plant expenditures (14,678) (14,113)
Demand side management expenditures (4,152) (1,113)
Investments in affiliates 152 (118)
Non-utility investment (4,452) (11,170)
Other investments, net (702) (210)
Net cash used in investing activities (25,226) (25,677)
Financing Activities
Sale of common stock 6,340 5,370
Short-term debt, net 13,100 -
Retirement of long-term debt (19,323) (6,084)
Common and preferred dividends paid (13,370) (13,000)
Other (49) -
Net cash used in financing activities (13,302) (13,714)
Net Increase (Decrease) in Cash (1,730) 234
Cash at Beginning of Period 1,730 642
Cash at end of Period $ - $ 876
_______ _______
Supplemental Cash Flow Information
Cash paid during the year for:
Interest (net of amounts capitalized) $ 6,023 $ 7,553
Income taxes $ 4,697 $ 5,907
Non-Cash Investing and Financing Activities
Regulatory Asset (Note 4)
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CENTRAL VERMONT PUBLIC SERVICE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1993
Note 1 - Accounting Policies
The Company's significant accounting policies are described in Note 1 of
Notes to Consolidated Financial Statements included in its 1992 Annual Report
on Form 10-K filed with the Securities and Exchange Commission. For interim
reporting purposes, the Company follows these same basic accounting policies
but considers each interim period as an integral part of an annual period.
Effective January 1, 1993, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 109, Accounting for Income Taxes and SFAS No.
106, Employer's Accounting for Postretirement Benefits Other Than Pensions.
See Notes 4 & 5 included herein.
The financial information included herein is unaudited; however, such
information reflects all adjustments (consisting of normal recurring accruals)
which are, in the opinion of management, necessary for a fair statement of
results for the interim periods.
Note 2 - Environmental
The Company believes it operates in compliance in all material respects
with all laws, regulations, orders and decrees respecting environmental control
to the extent currently applicable to and effective against it. Furthermore,
it is the Company's policy to comply, in all material respects, with such laws,
regulations, orders and decrees, including any variances granted thereunder.
The Company's operations and activities are subject to inspection and
supervision by both state and Federal regulatory authorities including the
United States Environmental Protection Agency (EPA). The Company is not
subject to any fines for violation of any environmental laws or other matters
which are the subject of regulatory inspection or oversight, nor is the Company
a responsible party in any pending or threatened proceeding instituted by the
EPA under the Comprehensive Environmental Response, Compensation and Liability
Act of 1980 (Superfund).
The Company is engaged in processes and activities to continually assess
and assure its compliance with environmental laws, regulations, orders and
decrees. Based on the results of these processes and activities to date, the
Company is not aware of any instances where it has caused or permitted a
release of hazardous substance through its operations on or about the
properties owned, operated and otherwise used by the Company which will likely
result in any material environmental liabilities to the Company. To the extent
that the Company has knowledge of releases of small quantities of fuel oil or
other substances which have resulted from its operations, the Company believes
that these releases can be remedied without material adverse effect on its
financial condition or the results of its operation.
The Company is an amalgamation of more than 100 predecessor companies
which were engaged in various operations and activities prior to their being
incorporated into the Company. At least three of these companies were involved
in the production of gas from coal for sale and distribution to customers at
retail. These activities were halted by the Company in the late 1940's or
early 1950's. The Company is continually investigating, assessing and
monitoring the status of potential contaminated sites related to these and
other operations of the Company and its predecessors. The Company's policy is
to record a liability for remediation, monitoring and other related costs when
<PAGE>
it determines that such a liability is probable and estimable. Coal tar
deposits have been discovered at the Company's Cleveland Avenue property
located in the City of Rutland, a site at which one of its predecessors
operated a coal-gasification facility. Due to the presence of these deposits
and the uncertainties as to potential contamination and migration off-site, the
Company conducted studies to determine the magnitude and extent of the coal tar
releases. Based on the results of this initial work, the Company engaged a
consultant to assist in evaluating cleanup methodologies and estimate the cost
to clean up the site. These studies presently indicate that the cost to
remediate this site will be approximately $5 million. This amount was charged
to expense in the fourth quarter of 1992. The Company has yet to determine
whether insurance proceeds are available to offset this expense.
The Company is not subject to any pending or threatened litigation with
respect to any other sites nor has the EPA or other state or Federal agencies
sought contribution from the Company for their study or remediation.
Note 3 - Accounts Receivable
In 1988 the Company sold $12 million of certain accounts receivable and
unbilled revenues under an accounts receivable facility. A portion of the fee
for using the facility is based on LIBOR. In order to stabilize this portion
of its obligation, the Company executed a swap transaction which sets the LIBOR
based fee at 3.985% for the period September 29, 1992 to September 29, 1994.
Accounts receivable and unbilled revenues that have been sold were
transferred with limited recourse. A pool of assets, amounting to 3% of the
accounts receivable and unbilled revenues sold, were set aside for this
potential recourse liability. Accounts receivable and unbilled revenues are
reflected net of sales of $6.1 million and $5.9 million, respectively, at
September 30, 1993 and $5.2 million and $6.8 million, respectively, at
December 31, 1992.
Accounts receivable is also reflected net of an allowance for
uncollectible accounts of $1.1 million at September 30, 1993 and December 31,
1992.
Note 4 - Income taxes
In February 1992, the Financial Accounting Standards Board issued SFAS
No. 109, Accounting for Income Taxes, that requires a change in the method of
accounting for income taxes. SFAS No. 109 requires an asset and liability
approach to determine income tax liabilities. The pronouncement requires
recognition of the Federal tax assets and liabilities for (1) income tax
benefits associated with timing differences previously passed on to the
Company's customers (flow-through), (2) the equity component of allowance for
funds used during construction, (3) deferred investment tax credits, and also
requires the adjustment of deferred tax liabilities or assets for an enacted
change in tax laws or rates, among other things.
The Company adopted SFAS No. 109 as of January 1, 1993. Prior year
financial statements have not been restated to apply the provisions of SFAS No.
109. The income statement impact of adopting SFAS No. 109 was not material and
therefore no cumulative effect of a change in accounting method is reflected in
the accompanying financial statements. As a result of adopting SFAS No. 109,
including the effects of the increased tax rate discussed below, the Company
recognized additional net accumulated deferred income tax liabilities of
approximately $15 million and a net corresponding regulatory asset from
customers of approximately $15 million for future revenues that will be
<PAGE>
received when the above temporary differences reverse and are settled in
rates. The Company expects the reconciliation of differences between the
statutory U.S. Federal income tax rate and the Company's effective tax rate
under SFAS No. 109 will not be significantly different from the reconciliation
reported under APB Opinion 11 for the year ended December 31, 1992.
On August 10, 1993, the Revenue Reconciliation Bill of 1993 was passed
which, among other things, increased the maximum corporate income tax rate from
34% to 35% on taxable income in excess of $10 million. The increase is
effective January 1, 1993 and resulted in additional income tax expense of
approximately $200,000 at September 30, 1993.
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at January 1,
1993 are presented below (dollars in thousands):
<TABLE>
<CAPTION>
<S> <C>
Deferred tax assets:
Non-deductible accruals and reserves $ 4,737
Deferred compensation and pension 3,472
Deferred revenue 2,938
Total deferred tax assets 11,147
Deferred tax liabilities:
Property, plant and equipment 40,278
Net regulatory asset 5,354
Demand side management costs 2,642
Other 4,726
Total deferred tax liabilities 53,000
Net deferred tax liability $ 41,853
________
</TABLE>
Note 5 - Postretirement Benefits
The Company sponsors an unfunded defined benefit postretirement medical
plan that covers all employees.
Effective January 1, 1993, the Company adopted, on a prospective basis,
SFAS No. 106, Employer's Accounting for Postretirement Benefits Other Than
Pensions which requires accrual of the expected costs of such benefits during
the employees' years of service.
The following table sets forth, as of January 1, 1993, the plan's funded
status and amounts recognized in the Company's balance sheet and the amount of
expense to be charged to the statement of income in 1993 in accordance with
SFAS No. 106 (dollars in thousands):
<TABLE>
<CAPTION>
<S> <C>
Accumulated postretirement benefit obligation:
Retirees $ (5,133)
Fully eligible active plan participants (1,042)
Other active plan participants (857)
Plan assets at fair value -
Accumulated postretirement benefit obligation
(in excess of) less than fair value of plan assets (7,032)
Unrecognized transition obligation (asset) 6,582
Prepaid (accrued) postretirement benefit cost $ (450)
________
<S> <C>
Net postretirement benefit cost for 1993 includes the
following components:
Service cost $ 168
Interest cost 588
Amortization of transition obligation over
a twenty-year period 329
Net periodic postretirement benefit cost $ 1,085
</TABLE>
<PAGE>
A 12% pre-65 and 8.5% post-65 annual rate of increase in the per capita
costs of covered health care benefits was assumed for 1993, decreasing to 6.5%
and 5.5%, respectively, for the year 1997 and thereafter. This decrease
results from changes to the retiree medical plan limiting the cost for
employees retiring after 1995 to the 1995 per participant cost. Increasing
the assumed health care cost trend rates by one percentage point in each year
would have resulted in an increase in the accumulated postretirement benefit
obligation as of January 1, 1993, of $454,000 and an increase in the aggregate
of the service cost and interest cost components of net periodic postretirement
benefit cost for 1993 of $42,000. A weighted average discount rate of 8.5% was
used to determine the accumulated postretirement benefit obligation.
<PAGE>
CENTRAL VERMONT PUBLIC SERVICE CORPORATION
Summarized income statement information for Vermont Yankee Nuclear Power
Corporation follows (dollars in thousands, except per share amounts):
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
1993 1992 1993 1992
<S> <C> <C> <C> <C>
Operating revenues $57,064 $38,450 $137,632 $135,444
Operating expenses 52,869 34,142 125,266 122,300
Operating income 4,195 4,308 12,366 13,144
Other income (expenses), net 155 198 610 893
Total operating and other income 4,350 4,506 12,976 14,037
Interest expense 2,273 2,300 6,614 7,362
Net income $ 2,077 $ 2,206 $ 6,362 $ 6,675
_______ _______ _______ _______
Average shares of common stock outstanding 392,481 392,481 392,481 392,481
Earnings per share of common stock $5.29 $5.61 $16.21 $17.01
</TABLE>
<PAGE>
CENTRAL VERMONT PUBLIC SERVICE CORPORATION
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
September 30, 1993
Earnings Overview
For the nine months ended September 30, 1993, net income was $13.6 million
compared to $15.2 million in 1992 and earnings per share of common stock were
$1.02 compared to $1.21 in 1992. Earnings available for common stock for these
respective periods were $11.6 million and $13.2 million.
During the three month period ended September 30, 1993, the Company
experienced a loss of $1,018,000 as compared to a loss of $50,000 for the same
period last year. Third quarter losses per share of common stock were $.09 for
1993 compared to a loss of $.01 for 1992.
Year-to-date earnings for 1993 reflect a charge of $821,000 or $.07 per
common share to write-off the non-recoverable portion of the Company's
investment in the Seabrook project from some of the Company's firm resale
customers. These customers have decided not to extend their contracts beyond
October 1993. As discussed below, 1993 earnings reflect the lower allowed
return on equity for Vermont's retail business of 12.0%.
A 2.4% increase in the dividend rate and three-for-two common stock split
became effective in February 1993.
In September 1993, the Vermont Public Service Board (PSB) approved the
agreement, reached in April 1993, between the Company and the Vermont
Department of Public Service (DPS) regarding the reasonableness of the
Company's retail rates. As part of the agreement, the Company agreed to
reduce its maximum return on equity for Vermont retail business from 12.5% to
12.0% for 1993 and began accelerating the recovery of $1.5 million of demand
side management costs in 1993. Also, in its order, the PSB indicated an
intent to open an investigation into the Company's cost of service and
resulting rates in November 1993.
Due to increasing competitive pressures in the industry and declining
sales growth, the Company in September 1993 announced a cost-cutting plan to
mitigate future rate increases. The plan targets $20 million in annual cost
reductions by the end of 1995 including costs of power, demand side
management, and operation and maintenance. Despite its cost cutting efforts,
the Company plans to file for a general rate increase in early 1994 to become
effective in late 1994 or early 1995.
RESULTS OF OPERATIONS
Operating Revenues and MWH Sales
A summary of MWH sales and operating revenues for the three months and
nine months ended September 30, 1993 and 1992 (and the related percentage
changes from 1992) is set forth below:
<TABLE>
<CAPTION>
Three Months Ended September 30
Percentage Percentage
MWH Increase Revenues (000's) Increase
1993 1992 (Decrease) 1993 1992 (Decrease)
<S> <C> <C> <C> <C> <C> <C>
Residential 210,694 206,535 2.0 $19,325 $18,207 6.1
Commercial 213,036 204,910 4.0 18,649 18,077 3.2
Industrial 90,808 95,485 (4.9) 5,980 6,234 (4.1)
Other retail 1,903 1,913 (.5) 435 429 1.4
Total retail sales 516,441 508,843 1.5 44,389 42,947 3.4
Less: DPS sales 2,929 25,965 (88.7) 153 1,677 (90.9)
Total Company retail sales 513,512 482,878 6.3 44,236 41,270 7.2
Resale sales:
Firm 15,568 21,203 (26.6) 765 856 (10.6)
Entitlement 215,056 316,985 (32.2) 11,348 11,120 2.1
Other 91,803 85,392 7.5 2,206 2,163 2.0
Total resale sales 322,427 423,580 (23.9) 14,319 14,139 1.3
Other revenues - - - 2,439 1,418 72.0
Total sales 835,939 906,458 (7.8) $60,994 $56,827 7.3
_______ _______ _______ _______
</TABLE>
<TABLE>
<CAPTION>
Nine Months Ended September 30
Percentage Percentage
MWH Increase Revenues (000's) Increase
1993 1992 (Decrease) 1993 1992 (Decrease)
<S> <C> <C> <C> <C> <C> <C>
Residential 716,053 716,740 (.1) $ 72,269 $ 71,662 .8
Commercial 628,655 615,239 2.2 61,829 61,046 1.3
Industrial 288,704 305,580 (5.5) 21,749 22,744 (4.4)
Other retail 5,640 5,661 (.4) 1,288 1,274 1.1
Total retail sales 1,639,052 1,643,220 (.3) 157,135 156,726 .3
Less: DPS sales 25,714 76,325 (66.3) 1,559 4,720 (67.0)
Total Company retail sales 1,613,338 1,566,895 3.0 155,576 152,006 2.3
Resale sales:
Firm 54,263 64,573 (16.0) 2,345 2,640 (11.2)
Entitlement 699,985 757,806 (7.6) 31,491 30,986 1.6
Other 214,869 250,330 (14.2) 4,867 6,113 (20.4)
Total resale sales 969,117 1,072,709 (9.7) 38,703 39,739 (2.6)
Other revenues - - - 9,009 4,693 92.0
Total sales 2,582,455 2,639,604 (2.2) $203,288 $196,438 3.5
_________ _________ ________ ________
</TABLE>
Total retail MWH sales for the third quarter are 1.5% greater than last
year's third quarter. The slight increase in MWH sales is consistent with the
Company's annual forecast predicting relatively flat sales for 1993.
The Company's retail MWH sales for the third quarter are 6.3% greater than
last year's third quarter. This increase is due to an increase in commercial
MWH sales and the reduction in sales made by the DPS to the Company's
residential customers.
For the third quarter of 1993, the Company's 7.2% increase in retail
revenues is attributable to increased MWH sales described above and the
creation of a non-seasonal residential rate under two consecutive agreements
with the DPS.
The first agreement, implemented February 1, 1993, created a 150 KWH
joint-block whereby the DPS provided residential customers with the first 25
KWH
<PAGE>
and the Company provided the remaining 125 KWH. The 125 KWH were sold at a
non-seasonal (12-month fixed) rate of 9.009 cents per KWH, a rate higher than
the Company's off-peak rates in effect from April through November 1992. In
August 1993, the Company and the DPS proposed a second agreement superseding
the first, creating a 250 KWH block. This proposal was approved by the PSB
August 19, 1993 and became effective with bills rendered September 1, 1993.
Under the latter agreement, the Company provides all of the 250 residential KWH
at a non-seasonal rate of 8.811 cents per KWH. Although the new rate is lower
than the prior non-seasonal rate, it is still higher than the off-peak rates in
effect in 1992, resulting in increased revenue for the third quarter of 1993.
Industrial MWH sales and revenues have decreased 4.9% or 4,677 MWH and
4.1% or $254,000, respectively, due to continuing effectiveness of Demand Side
Management (DSM) programs and the loss of one industrial customer in late 1992.
For the nine months ended September 30, 1993, the Company's retail MWH
sales and revenues have increased 3.0% and 2.3%, respectively, over the same
period last year. The increase is due to the reduction of DPS block discussed
above and an increase in commercial sales and revenue offset in part by a
decrease in industrial MWH sales and revenues of 5.5% and 4.4%, respectively.
Total retail MWH sales and revenues are about the same as last year
reflecting the State's continued sluggish economy, the effectiveness of DSM
programs and the loss of one industrial customer.
The decrease in the DPS MWH sales and revenues for the three and nine
months ended September 30, 1993 is due to the reduction of the DPS's block size
from 75 KWH to 25 KWH effective February 1, 1993 and from 25 KWH to 0 KWH
effective September 1, 1993.
Effective May 1, 1993, one of the Company's firm resale customers opted to
purchase power from the Company based on market rates. Also, due to the
Company's high energy rates, compared to market rates, firm resale MWH sales
and revenues decreased for both the three and nine month periods ended
September 30, 1993. Also, The Company anticipates these sales will decline
further because some of the Company's firm resale customers chose not to extend
their contracts beyond October 1993.
Entitlement sales decreased 32.2% or 101,929 MWH for the three months
ended September 30, 1993 compared to the same period in 1992. The decrease is
due to the scheduled refueling shutdown of Vermont Yankee from August 28
through October 26, 1993 reducing sales to UNITIL, and Commonwealth Electric
under a swap arrangement. In addition, in 1992 the Company was able to sell a
portion of Vermont Yankee's entitlement to Public Service Company of New
Hampshire.
For the nine months ended September 30, 1993, entitlement sales decreased
7.6% or 57,821 MWH due to the reduction in sales to Public Service Company of
New Hampshire, offset in part by a sell-back of Hydro Quebec Schedule C-2 and
an increase in sales to Boston Edison Co. and Central Maine Power Co.
For the three months ended September 30, 1993, other resale MWH sales
increased by 7.5% and related revenues increased only 2.0% as compared with the
same period last year. The increase for the quarter reflects greater sales to
NEPOOL and other electric utilities in New England. The lower revenue increase
reflects the excess capacity in the region.
Other resale MWH sales for the nine months ended September 30, 1993
decreased by 14.2% and related revenues decreased 20.4%. These variances
reflect current market conditions in Vermont and New England and the greater
availability of low cost energy in the region. These sales, made on a
short-term basis, include sales to NEPOOL and other utilities in New England.
Other resale sales are further reduced for both the three and nine month
periods due to fewer MWH sales to the DPS as a result of the consecutive
agreements.
For the three and nine months ended September 30, 1993, the Company
recognized $1.3 million and $4.7 million of revenues deferred from 1991. This
<PAGE>
recognition is the primary reason for the increase in other revenues of
approximately $1.0 million and $4.3 million for the three and nine months
periods ended September 30, 1993 as compared with the same periods in 1992.
Purchased Power
The components of net purchased power and production fuel costs for the
three and nine months ended September 30, 1993 and 1992, are as follows
(dollars in thousands):
<TABLE>
<CAPTION>
Three Months Ended September 30
1993 1992
<S> Units Amount Units Amount
Purchased: <C> <C> <C> <C>
Capacity (MW) 527 $23,237 482 $20,310
Energy (MWH) 839,465 14,441 883,037 12,707
Production fuel (MWH) 47,273 456 69,822 415
Total purchased power and
production fuel costs 38,134 33,432
Entitlement and other resale sales (MWH) 306,859 13,554 402,377 13,283
Net purchased power and
production fuel costs $24,580 $20,149
_______ _______
</TABLE>
<TABLE>
<CAPTION>
Nine Months Ended September 30
1993 1992
<S> Units Amount Units Amount
Purchased: <C> <C> <C> <C>
Capacity (MW) 498 $65,058 477 $63,520
Energy (MWH) 2,499,613 43,378 2,539,333 38,887
Production fuel (MWH) 230,083 1,411 254,059 1,702
Total purchased power and
production fuel costs 109,847 104,109
Entitlement and other resale sales (MWH) 914,854 36,358 1,008,136 37,099
Net purchased power and
production fuel costs $73,489 $67,010
_______ _______
</TABLE>
The Company's net purchased power and production fuel costs for the three
months ended September 30, 1993 increased $4.4 million or 22% when compared
with the same period last year. The overall increase is attributable to higher
capacity costs of $2.9 million, an increase of 14.4%, and higher energy costs
of $1.7 million, a 14% increase. These increases were offset slightly by
higher entitlement and other resale sales of $271,000 during the third quarter
1993.
The increase of $2.9 million in capacity costs for the three months ended
September 30, 1993 is due to a 10% increase in MW purchased totaling $2.1
million and a 3.8% increase in price per KW purchased totaling $851,000.
The $1.7 million increase in energy costs for the three months ended
September 30, 1993 is due to a 4.9% or 43,572 decrease in the amount of MWH
purchased totaling $627,000 and a 19.5% increase in the average cost per MWH
purchased totaling $2.3 million. The higher average cost is due to increased
MWH purchased from small power producers mandated by Federal and state
legislation.
Net purchased power and production fuel costs for the nine months ended
September 30, 1993 increased $6.5 million or 9.7% over the same period in
1992.
<PAGE>
The increase in capacity costs of $1.5 million for the nine months ended
September 30, 1993 is due to a 4.3% or $2.7 million increase in MW purchased,
offset by a 1.8% decrease in price per MW purchased totaling $1.2 million.
The $4.5 million increase in energy costs for the nine months ended
September 30, 1993 is attributable to a 13.3% increase in the average cost per
MWH purchased amounting to $5.1 million compared with last year, offset by a
1.6% decrease in MWH purchased amounting to $608,000.
Entitlement and other resale MWH sales decreased for the three and nine
month periods compared with last year for the reasons discussed under operating
revenues above. Entitlement and other resale sales offset purchased power and
production fuel costs for ratemaking purposes. These sales include sales to
NEPOOL, Hydro-Quebec and other utilities in New England.
The Company has equity ownership interests in four nuclear generating
companies: Vermont Yankee, Maine Yankee, Connecticut Yankee and Yankee Atomic.
The Company also jointly owns Millstone #3, another nuclear generating plant.
Other Operation
For the three months and nine months ended September 30, 1993 other
operation expenses increased $106,000 and $1.4 million as compared with the
same periods in 1992. These increases are primarily due to the shift of
certain administrative and general costs from capital projects to operating
activities. Also, effective January 1, 1993, the Company began recognizing a
postretirement benefit obligation in accordance with SFAS No. 106. For more
information on SFAS No. 106 see Note 5 to the Consolidated Financial
Statements.
Depreciation
The increase in depreciation expense of $221,000 and $632,000 for the
three and nine months ended September 30, 1993 is due to property additions
and the installation of new customer service information and general ledger
computer systems in February 1992 and August 1993, respectively.
Income Taxes
Federal and state income taxes fluctuate with the level of pre-tax
earnings. During 1993 the Company recognized additional accumulated deferred
income taxes of approximately $15 million and a net corresponding asset from
customers of approximately $15 million reflecting future revenues that will be
required when the temporary differences reverse and are settled in rates. See
Note 4 to the Consolidated Financial Statements for additional information
relating to the adoption of SFAS No. 109. Also, due to the Revenue
Reconciliation Bill which was passed on August 10, 1993, income tax expense
increased by approximately $200,000 for the three and nine months ended
September 30, 1993.
Other Income and Deductions
Equity in earnings of affiliates decreased 10.9% and 10.4% for the three
and nine months ended September 30, 1993, respectively, as compared with the
same periods in 1992. These decreases are attributable to a lower rate of
return allowed by the Federal Energy Regulatory Commission to some of the
Company's nuclear generating affiliates.
Other income, net decreased $272,000 or 35.4% for the three months ended
September 30, 1993 due to lower prevailing interest rates during 1993 which
resulted in decreased earnings from temporary cash investments.
<PAGE>
The $1.6 million decrease for the nine months ended September 1993
resulted mostly from the partial write-off of the Seabrook costs as well as a
reduction in interest income from temporary cash investments due to the reason
described above.
Interest on Long-term Debt
Interest on long-term debt decreased $754,000 or 25.6% and $2.0 million or
22.2% for the three and nine months ended September 1993, respectively. The
decreases are due to the redemption of Series O, Q & Z First Mortgage Bonds in
December 1992; and Series DD and BB First Mortgage Bonds in January and August
1993, respectively. The Company redeemed Series P, R, S and Y First Mortgage
Bonds in October 1993 and plans to redeem Series N First Mortgage Bonds in
January 1994.
Other Interest
During the nine month period ending September 30, 1993, other interest
expense decreased $524,000 due to interest expense paid in the first quarter of
1992 related to an Internal Revenue Service audit of the Company's income tax
returns for the years 1983 through 1988 as well as the reduction of other rate
related interest.
Cash Dividends Declared
The decrease in common dividends declared for the nine months ended
September 30, 1993 as compared with the same period in 1992 is due to an
advanced quarterly common dividend declaration in November 1992 of
approximately $4.0 million payable February 12, 1993.
LIQUIDITY AND CAPITAL RESOURCES
Construction
The Company's liquidity is primarily affected by the level of cash
generated from operations and the funding requirements of its ongoing
construction program. Cash flows from operating activities after dividends
paid, provided 100% of the Company's construction and energy-efficiency
programs expenditures of $18.8 million and $15.2 million for the nine months
ended September 30, 1993 and 1992, respectively.
Financing and Capitalization
Utility
The level of short-term borrowings fluctuates based on seasonal corporate
needs, the timing of long-term financings and market conditions. Short-term
borrowings are supported by committed lines of credit and uncommitted loan
facilities with several banks totaling $43 million. During the fourth quarter
of this year, the Company plans to issue approximately $43 million of long-term
debt, of which $14.5 million will replace First Mortgage Bonds redeemed in
October 1993 and $4.325 million will replace First Mortgage Bonds to be
redeemed in January 1994. The balance will be used to reduce short-term debt
outstanding. In the past, the Company has been able to finance its
construction program and expects to be able to meet all future commitments.
<PAGE>
The Company's capital structure has remained consistent with the
Company's long-range financial objectives: a debt ratio of 45% or lower and an
equity ratio higher than 45%. At September 30, 1993, the Company's
capitalization including the current portion of long-term debt, consisted of
56% common equity, 12% preferred stock and 32% long-term debt. Planned debt
financing will raise the long-term debt level close to the target when
completed. The credit ratings of the Company's securities as of September 30,
1993, as reaffirmed by Standard & Poor's Corp. and Duff & Phelps Corp. are BBB+
and A-, respectively, for First Mortgage Bonds and BBB for Preferred Stock.
Non-Utility
In October 1993, Catamount Energy Corporation, a non-utility subsidiary of
the Company, established an Irrevocable Standby Letter of Credit with a bank to
borrow up to an aggregate amount of $2.3 million to replace its share of cash
in the Appomattox Cogeneration Limited Partnership's Project Debt Service
Reserve Fund. This Letter of Credit is for a one year term with annual
extensions available and requires confirmation fees totaling 2.375% of credit
available.
In September 1993, SmartEnergy Services, Inc., also a non-utility
subsidiary of the Company, established a $1.0 million revolving line of credit
with a bank to provide working capital and financing assistance for investment
purposes. This line of credit is negotiable in one year.
Energy-efficiency Programs
Since 1989, the Company has continued to develop and implement
energy-efficiency programs. The primary purpose of these programs is to offset
the need for long-term power supply resources that are more expensive to
purchase or develop than customer-efficiency programs. The Company's portfolio
of programs and services have been filed with and approved by the PSB in
Dockets 5270-CV-1 and 5270-CV-3. The amount of expenditures will be adjusted
from time to time based on changes in the economic and regulatory environment
and the ongoing cost-effectiveness of the programs as compared to other
resource options.
Currently, the Company plans to spend about $8.8 million in 1993, of which
approximately $2.5 million is currently being recovered in rates, as existing
programs are expanded and other programs are introduced. Based on the
regulatory recovery mechanism currently in place, the Company believes that
these additional expenditures and related lost revenues for such efficiency
programs will be recovered through rates.
On May 4, 1993, the Company received an order approving the remainder of
the Company's efficiency programs and related monitoring and evaluation plans.
One part of the order questioned whether the Company had met its obligation to
comply with their prior orders regarding the reporting and implementation of
the Company's fuel switching programs. The PSB stated an investigation was
necessary to determine if the Company might be subject to sanctions. The
Company filed a position paper on May 10, and related testimony on May 28 and
June 7, 1993 addressing why sanctions are not appropriate and reemphasizing the
belief it had fully complied with the PSB's orders. A hearing on the matter
was held June 17, 1993. Although the Company is uncertain when the PSB will
issue an order on this matter, the Company believes any sanctions, if imposed,
would be immaterial.
Concurrently during June, July and August 1993, the Company was involved
in a series of informal discussions with the DPS concerning the role of fuel
switching. In August, the DPS informed the PSB that these negotiations were
<PAGE>
unlikely to result in an agreement. In early July, the PSB received ten
intervention requests by parties expressing their concern with the Company
paying for customer fuel switches. On September 9, 1993, the PSB issued an
order granting the motions to intervene. The order also specified the scope of
the pending case. During a pre-hearing conference held on September 27, 1993,
the parties agreed to a schedule with direct testimony to be filed in December
1993 and hearings to be held in March 1994.
In an order dated December 29, 1992, the New Hampshire Public Utilities
Commission approved efficiency programs of the Company's wholly owned
New Hampshire subsidiary, Connecticut Valley Electric Company Inc. (CVEC)
including recovery of 1993 program expenditures, related lost revenues and
recovery of shareholders incentives for 1992 programs through a "Conservation
and Load Management Percentage Adjustment (C&LMPA)" clause effective until a
new C&LMPA is approved.
On September 3, 1993, CVEC requested recovery of 1994 program
expenditures, related lost revenues and shareholder incentives for 1993
program activity through a C&LMPA to be applied to 1994 customers' bills.
CVEC is proposing to reduce the impact of C&LMPA on customers' rates,
especially commercial and industrial customers by 1) deferring the acquisition
of "non-lost-opportunity" C&LM programs due to newly forecasted lower avoided
costs and 2) having participants pay a larger share of the costs of C&LM.
This case is expected to be decided in early January 1994 with a revised
C&LMPA to be effective March 1, 1994.
Diversification
Catamount Energy Corporation (Catamount) has four wholly owned
subsidiaries with interest in four operating independent power projects
located in Rumford, Maine; East Ryegate, Vermont; Hopewell, Virginia; and
Williams Lake, British Columbia, Canada. For the nine months ended
September 30, 1993, Catamount contributed $831,000 to the Company's earnings.
Effective January 1, 1993, the Company formed a new subsidiary,
SmartEnergy Services, Inc. The purpose of this subsidiary is to cost
effectively provide reliable, energy efficient products and services,
including the rental of electric water heaters. For the nine months ended
September 30, 1993, this subsidiary contributed $305,000 to the Company's
earnings. Prior to January 1, 1993, the rental electric water heater program
was part of the Company's core electric business.
On October 1, 1993, SmartEnergy's Board of Directors approved a $1.2
million investment to purchase 300,000 shares (5%) of Green Technologies, Inc.
common stock. This transaction was consummated on October 1, 1993. Green
Technologies, Inc. of Boulder, Colorado, currently manufactures Green-Plug
electricity savers for several types of household appliances.
Rates
The Company recognizes that adequate and timely rate relief is necessary
if the Company is to maintain its financial strength, particularly since
Vermont regulatory rules do not allow for changes in purchased power and fuel
costs to be passed on to consumers through rate adjustment clauses. The
Company's practice of reviewing costs periodically will continue and rate
increases will be requested when warranted. As part of an agreement reached
with the DPS, and subsequently approved by the PSB, the Company agreed not to
increase general rates until August 1994. The Company plans to file for a
general rate increase in early 1994 to become effective in late 1994 or early
1995. See Earnings Overview for additional information regarding this matter.
<PAGE>
CENTRAL VERMONT PUBLIC SERVICE CORPORATION
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
On March 20, 1992, Sunnyside Cogeneration Associates filed suit
in the United States District Court for the District of Vermont
against the Company, CV Energy Resources, Inc. (CVER) and a
subsidiary of CVER alleging damages in excess of five million
dollars resulting from CVER's decision to not invest in the
plaintiff's waste coal cogeneration facility under construction
in Sunnyside, Utah. The Company has filed an answer denying the
allegations and does not expect the resolution of the case to
have a material affect on the business or financial condition of
the Company.
On December 5, 1991, Bonneville Pacific Corporation (Bonneville)
filed for protection under Chapter 11 of the Bankruptcy Laws. On
August 30, 1993, Bonneville's trustee in bankruptcy filed suit in
the United States Bankruptcy Court in Utah, claiming damages in
excess of two million dollars in connection with two contracts
between Bonneville and the Company concerning the development of
a 52 MW co-generation plant in Vermont and the sale of power
from the plant to the Company. The Company has filed an answer
denying the allegations and does not expect this case to have a
material affect on the business or financial condition of the
Company.
Items 2. through 4.
None.
Item 5. Other Information.
Steven J. Allenby, Senior Vice President, Marketing and Customer
Services, and Patricia A. Wakefield, Vice President, Marketing and
Customer Services, resigned effective October 29, 1993.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits - None.
(b) There were no reports on Form 8-K for the quarter ended September 30,
1993.
<PAGE>
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 VERMONT PUBLIC SERVICE CORPORATION
By: James M. Pennington
James M. Pennington, Controller
(Authorized Officer and
Chief Accounting Officer)
Dated November 10, 1993
