<PAGE>
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, 1994
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, 1994
there were outstanding 11,785,848 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, 1994 and 1993 3
Consolidated Balance Sheet as of
September 30, 1994 and December 31, 1993 4
Consolidated Statement of Cash Flows for
the nine months ended September 30, 1994
and 1993 5
Notes to Consolidated Financial Statements 6-10
Summarized income statement information
for Vermont Yankee Nuclear Power Corporation 11
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 12-18
PART II. OTHER INFORMATION 19
SIGNATURE 20
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<TABLE>
<CAPTION>
CENTRAL VERMONT PUBLIC SERVICE CORPORATION
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
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
1994 1993 1994 1993
<S> <C> <C> <C> <C>
Operating Revenues $59,027 $60,994 $200,596 $203,288
Operating Expenses
Operation
Purchased power 35,324 37,678 108,701 108,436
Production and transmission 4,985 5,014 15,889 15,599
Other operation 9,411 8,592 27,342 26,108
Maintenance 3,260 3,078 8,569 8,306
Depreciation 4,139 3,898 12,305 11,405
Other taxes, principally property taxes 2,432 2,451 7,733 7,380
Taxes on income (892) (396) 5,769 8,268
------- ------- -------- --------
Total operating expenses 58,659 60,315 186,308 185,502
------- ------- -------- --------
Operating Income 368 679 14,288 17,786
------- ------- -------- --------
Other Income and Deductions
Equity in earnings of affiliates 827 941 2,427 2,836
Allowance for equity funds during construction 29 21 72 44
Other income, net 626 496 464 478
Benefit (provision) for income taxes (159) (154) 161 (231)
------- ------- -------- --------
Total other income and deductions, net 1,323 1,304 3,124 3,127
------- ------- -------- --------
Total Operating and Other Income 1,691 1,983 17,412 20,913
------- ------- -------- --------
Interest Expense
Interest on long-term debt 2,379 2,192 7,233 6,973
Other interest 142 177 459 461
Allowance for borrowed funds during construction (39) (32) (94) (75)
------- ------- -------- --------
Total interest expense, net 2,482 2,337 7,598 7,359
------- ------- -------- --------
Net Income (Loss) (791) (354) 9,814 13,554
Retained Earnings at Beginning of Period 58,930 63,949 61,879 55,438
======= ======= ======== ========
58,139 63,595 71,693 68,992
Cash Dividends Declared
Preferred stock 507 664 1,631 1,995
Common stock 7 4,049 12,437 8,115
------- ------- -------- --------
Total dividends declared 514 4,713 14,068 10,110
------- ------- -------- --------
Retained Earnings at end of Period $57,625 $58,882 $ 57,625 $ 58,882
------- ------- -------- --------
------- ------- -------- --------
Earnings (Losses) Available for Common Stock $(1,298) $(1,018) $ 8,183 $ 11,559
Average shares of common stock outstanding 11,779,744 11,428,724 11,699,969 11,337,873
Earnings (Losses) Per Share of Common Stock $(.11) $(.09) $.70 $1.02
Dividends Per Share of Common Stock $.355 $.355 $1.065 $1.065
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CENTRAL VERMONT PUBLIC SERVICE CORPORATION
CONSOLIDATED BALANCE SHEET
(Dollars in thousands)
September 30 December 31
1994 1993
(Unaudited)
<S> <C> <C>
Assets
Utility Plant, at original cost $432,470 $421,929
Less accumulated depreciation 123,462 112,299
-------- --------
309,008 309,630
Construction work in progress 11,488 8,388
Nuclear fuel, net 1,064 1,390
-------- --------
Net utility plant 321,560 319,408
-------- --------
Investments and Other Assets
Investments in affiliates, at equity 27,025 26,963
Non-utility investments 29,769 30,123
Non-utility property, less accumul. depreciation 3,185 3,203
-------- --------
Total investments and other assets 59,979 60,289
-------- --------
Current Assets
Cash 2,153 823
Temporary investments, at market value 4,888 1,162
Accounts receivable 11,247 18,614
Unbilled revenues 2,599 10,959
Materials and supplies, at average cost 4,845 4,641
Prepayments 1,816 3,098
Other current assets 4,286 4,821
-------- --------
Total current assets 31,834 44,118
-------- --------
Regulatory Assets and Other Deferred Charges 60,780 56,335
-------- --------
Total Assets $474,153 $480,150
======== ========
Capitalization and Liabilities
Capitalization
Common stock, $6 par value, authorized
19,000,000 shares; outstanding 11,785,848 shares
and 11,562,219 shares, respectively $ 70,715 $ 69,373
Other paid-in capital 45,219 42,584
Retained earnings 57,625 61,879
Total common stock equity 173,559 173,836
Preferred and preference stock 8,054 15,054
Preferred stock with sinking fund requirements 20,000 20,000
Long-term debt 117,676 122,419
-------- --------
Total capitalization 319,289 331,309
-------- --------
Long-term Lease Arrangements 20,737 21,553
-------- --------
Current Liabilities
Short-term debt 2,805 1,356
Current portion of long-term debt 4,230 4,850
Accounts payable 5,024 7,002
Accounts payable-affiliates 7,417 7,488
Accrued interest 2,682 564
Accrued income taxes (201) 788
Dividends declared - 664
Other current liabilities 25,916 23,913
-------- --------
Total current liabilities 47,873 46,625
-------- --------
Deferred Credits
Deferred income taxes 54,626 52,028
Deferred investment tax credits 8,492 8,785
Yankee Atomic purchased power contract 8,362 9,768
Environmental cleanup 4,900 4,900
Other deferred credits 9,874 5,182
-------- --------
Total deferred credits 86,254 80,663
-------- --------
Total Capitalization and Liabilities $474,153 $480,150
======== ========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CENTRAL VERMONT PUBLIC SERVICE CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
Nine Months Ended
September 30
1994 1993
<S> <C> <C>
Cash Flows Provided (Used) By
Operating Activities
Net income $ 9,814 $13,554
Adjustments to reconcile net income to net cash
provided by operating activities
Deferred revenues - (4,682)
Depreciation 12,305 11,405
Deferred income taxes and investment tax credits 2,663 6,461
Allowance for equity funds during construction (72) (44)
Net deferral and amortization of nuclear refueling
replacement energy and maintenance costs 4,431 (3,237)
Amortization of property losses 581 1,216
Amortization of nuclear fuel 450 429
Amortization of restructuring costs 362 -
Decrease in accounts receivable 15,652 12,005
Increase (decrease) in accounts payable (2,431) 512
Decrease in accrued income taxes (989) (2,954)
Decrease in other working capital items 4,968 4,096
Other, net (1,232) (1,461)
------- -------
Net cash provided by operating activities 46,502 37,300
------- -------
Investing Activities
Increase in temporary investments (3,726) (1,394)
Construction and plant expenditures (15,189) (14,678)
Conservation and load management expenditures (4,574) (4,380)
Investments in affiliates 13 152
Non-utility investment 354 (4,452)
Other investments, net (382) (702)
------- -------
Net cash used in investing activities (23,504) (25,454)
Financing Activities
Sale of common stock 3,988 6,340
Short-term debt, net 1,449 13,100
Retirement of preferred stock (7,000) -
Retirement of long-term debt (5,362) (19,323)
Common and preferred dividends paid (14,731) (13,370)
Other (12) (49)
------- -------
Net cash used in financing activities (21,668) (13,302)
Net Increase (Decrease) in Cash 1,330 (1,456)
Cash at Beginning of Period 823 2,714
------- -------
Cash at end of Period $ 2,153 $ 1,258
======= =======
Supplemental Cash Flow Information
Cash paid during the year for:
Interest (net of amounts capitalized) $ 5,219 $ 6,023
Income taxes (net of refunds) $ 4,671 $ 4,697
</TABLE>
<PAGE>
CENTRAL VERMONT PUBLIC SERVICE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1994
Note 1 - Accounting Policies
The Company's significant accounting policies are described in Note 1
of Notes to Consolidated Financial Statements included in its 1993 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.
The Company is subject to regulation by the Vermont Public Service
Board (PSB), the Federal Energy Regulatory Commission (FERC) and, to a lesser
extent, the public utilities commissions in other New England states where the
Company does business, with respect to rates charged for service, accounting
and other matters pertaining to regulated operations. As such, the Company
currently prepares its financial statements in accordance with Statement of
Financial Accounting Standards (SFAS) No. 71, Accounting for the Effects of
Certain Types of Regulation, and records various regulatory assets and
liabilities. In order for a company to report under SFAS No. 71, the
company's rates must be designed to recover its costs of providing service,
and the company must be able to collect those rates from customers. If rate
recovery of these costs becomes unlikely or uncertain, whether due to
competition or regulatory action, these accounting standards may no longer
apply to the Company's regulated operations. Management believes that the
Company currently meets the criteria for continued application of SFAS No. 71,
but will continue to evaluate significant changes in the regulatory and
competitive environment to assess the Company's overall consistency with the
criteria of SFAS No. 71.
Effective January 1, 1994, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 112, Employer's Accounting for Postemployment
Benefits. See Note 4.
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 is engaged in various operations and activities which
subject it to a wide range of environmental and land use laws and regulations
(hereinafter "environmental laws"). It is Company policy to comply with
these environmental laws to the extent currently applicable and effective
against it. The Company has implemented various procedures and internal
controls to assess and assure compliance. If non-compliance is discovered,
corrective action is taken. Based on these efforts and the oversight of
those regulatory agencies having jurisdiction, the Company believes it
conforms, in all material respects, with these environmental laws.
Company operations occasionally result in unavoidable and inadvertent
spills or releases of regulated substances or materials, such as the rupture
of a pole mounted transformer, broken hydraulic line, or other similar
occurrences. When the Company learns of such spills and releases from
ongoing operations, they are cleaned up to meet Federal and state
requirements. Except as discussed in the following paragraphs, the Company is
not aware of any instances where it has caused, permitted or suffered a
release or spill on or about its properties or otherwise which will likely
result in any material environmental liabilities to the Company.
The Company is an amalgamation of more than 100 predecessor companies
engaged in various operations and activities prior to their being incorporated
in the Company. At least two of these companies were involved in the
production of gas from coal to sell and distribute to retail customers at
three different locations. These activities were discontinued by the Company
in the late 1940's or early 1950's. In addition, these predecessor companies
and the Company itself may have historically engaged in other waste disposal
activities, while legal and consistent with commercially accepted practices at
the time, may not meet modern standards and thus represent potential
liability. The Company continues to discover, investigate, evaluate, monitor
and, where appropriate, remediate contaminated sites related to these
historic activities. The Company's policy is to accrue a liability for those
sites where costs for remediation, monitoring and other future activities are
probable and can be reasonably estimated.
Based on these investigations and policies, coal tar deposits were
discovered at the Company's Cleveland Avenue property located in the City of
Rutland, a site where one of its predecessors operated a coal-gasification
facility. Due to the presence of these deposits and uncertainties as to
potential contamination migration off-site, the Company conducted studies to
determine the magnitude and extent of the coal tar releases. The Company
engaged a consultant to assist in evaluating clean-up methodologies and
provide cost estimates. Those studies indicated the cost to remediate the
site would be approximately $5 million. This was charged to expense in the
fourth quarter of 1992. This was followed by an assessment of potential
health, safety and ecological risks. Other site issues are still under
evaluation. A final risk assessment report was completed and submitted to the
state for review. Following state review, various remediation alternatives
will be investigated. The Company has yet to determine whether insurance
proceeds are available to offset the cost of any remediation required at this
site.
The Company is currently investigating its potential liability
regarding three former municipal landfills: the Bennington Landfill, the
Parker Landfill, and the Trafton-Hoisington Landfill. The Bennington Landfill
is a superfund site located in Bennington, Vermont. During the winter of
1993-1994, the Company was contacted by Potentially Responsible Parties
(PRP's) who performed an engineering evaluation/cost analysis at this site.
They have threatened litigation against the Company and others seeking
contribution for the cost of conducting this study. In July 1994, the EPA
circulated a public notice indicating it had selected a preferred partial
remedy for the site and was seeking public comment. While the Company was
originally designated a Potentially Interested Party (PIP) with respect to the
site in the context of offering it the opportunity to comment on the preferred
alternative, in a letter received November 3, 1994, the EPA designated the
Company a Potentially Responsible Party. The Company conducted, and continues
to conduct, investigations of its waste disposal practices in the Bennington
area. To date, the Company has concluded that it sent no significant amounts
of hazardous substances to the site. Based on the information received thus
far, the Company will defend any contribution action from the other PRP's and
the EPA, and will continue to monitor the EPA's intentions with respect to the
site and the Company's status as a PRP. The Company has yet to determine
whether insurance proceeds are available to offset potential costs, if any,
for the remediation which may be required at this site.
The Parker Landfill is a superfund site located in Lyndonville,
Vermont. In 1989, the Company received an information request from the EPA
seeking to determine if the Company sent any hazardous substances to the site.
An investigation conducted at the time concluded general trash was
occasionally sent to the site but the Company had not sent hazardous
substances to the site. In May of 1994, the Company received a second request
seeking additional information regarding disposal practices. A renewed
investigation by the Company again concluded no significant amounts of
hazardous substances were sent to the site. EPA has recently announced its
preferred remedy for this site and is currently seeking public comment. Final
selection of a remedy is anticipated later this year. Thus far, the Company
is considered a PIP, not a PRP, for the site and has been offered the
opportunity to comment on the proposed remedy. The Company has complied with
the information request and will monitor EPA activities at the site.
The Trafton-Hoisington Landfill was a municipal and industrial
landfill in the Town of Windsor, Vermont. The site is presently a state lead
site although placement on the National Priorities List remains a possibility.
The state of Vermont has reached an agreement with a small group of PRP's to
conduct a site investigation. The Company was contacted by these PRP's
seeking contribution toward the cost of the site investigation. The Company
conducted an investigation and concluded no significant amounts of hazardous
substances were sent to the site. The Company has advised the PRP's it will
not voluntarily contribute under these circumstances.
At this time, the Company does not believe these sites represent the
potential for a material adverse effect on its financial condition but will
continue to monitor activities at the sites.
Note 3 - Accounts Receivable
In 1988 the Company entered into an agreement to sell up to $20
million of certain accounts receivable and unbilled revenues. At September
30, 1994 and December 31, 1993, a total of $12 million of accounts receivable
and unbilled revenues were sold under an accounts receivable facility.
Accounts receivable and unbilled revenues that have been sold were
transferred with limited recourse. A pool of assets, varying between 3% to 5%
of the accounts receivable and unbilled revenues sold, were set aside for this
recourse liability. Accounts receivable and unbilled revenues are reflected
net of sales of $6.2 million and $5.8 million, respectively, at September 30,
1994 and $4.7 million and $7.3 million, respectively, at December 31, 1993.
Accounts receivable are also reflected net of an allowance for
uncollectible accounts of $1.3 million at September 30, 1994 and $.9 million
at December 31, 1993.
Note 4 - Postemployment Benefits
Effective January 1, 1994, the Company adopted SFAS No. 112,
Employer's Accounting for Postemployment Benefits. The accumulated
postemployment benefit obligation of approximately $1.1 million, consisting of
long-term disability benefits is reflected in the accompanying balance sheet
both as a regulatory asset and deferred postemployment benefit obligation
(current and non-current). The PSB in its October 31, 1994 Rate Order allowed
the Company to amortize these costs over a 7 1/2 year period beginning
November 1, 1994 through April 30, 2002.
Note 5 - Voluntary Retirement and Severance Programs
In the first quarter of 1994, the Company offered and recorded an
obligation related to a Voluntary Retirement Program (VRP). The VRP was
accepted by 42 employees. The estimated benefit obligation for the VRP as of
September 30, 1994 is about $4.5 million. This amount consists of pension
benefits and postretirement medical benefits of $2.2 million and $2.3 million,
respectively. Additionally, 32 employees accepted a Voluntary Severance
Program (VSP) offered by the Company. Eligible employees had until April 22,
1994 to apply. The Company also announced a layoff of 20 employees on May 9,
1994. VSP and layoff obligations of $.8 million and $.2 million,
respectively, were recorded in the second quarter of 1994. At September 30,
1994, the benefit obligation was about $100,000 for the VSP and $100,000 for
employees affected by the layoff. The VRP, VSP and layoff combined with
attrition since mid-1993, yields a total work force reduction of approximately
14%. The Company received an Accounting Order from the PSB dated March 11,
1994, requiring the Company to defer all of these program costs and amortize
them over a five-year period beginning June 1, 1994 through May 31, 1999. In
the October 31, 1994 PSB Rate Order, the Company was allowed rate recovery of
this restructuring cost amortization. The unamortized balance of these costs
was approximately $5.0 million at September 30, 1994.
Note 6 - Subsequent Events
A Vermont Public Service Board (PSB) Order dated October 31, 1994,
allowed the Company a base retail rate increase of 4.27% or approximately
$8,575,000 effective with service rendered November 1, 1994. The Company had
filed for an 8.9% or $17.9 million increase in its base retail rates in
February 1994. The PSB Order also lowered the allowed rate of return on the
Company's common stock equity from 12% to 10%. The return on equity includes
a .75% penalty based on the Board's conclusions that there had been
"mismanagement of power supply options" and because of "the Company's failed
efforts to acquire all cost-effective energy efficiency resources." The
Company disagrees with the PSB's conclusion.
Based on the Company's preliminary review of the rate order, the
Company anticipates an after-tax write-off of approx-imately $2.0 million
during the fourth quarter of 1994.
Recognizing the need for financial flexibility in the face of the
increasingly competitive marketplace, the Company's Board of Directors
announced, on November 8, 1994, a new corporate strategy which includes 1) a
dividend targeted at approximately 60% of sustainable earnings. In light of
the new policy, it is anticipated that the current annual dividend of $1.42
will be reduced 44% to $.80 effective with the first quarter dividend
declaration in 1995. The dividend payment level will be reviewed regularly in
light of capital needs, projected earnings levels and other relevant factors;
2) a common stock repurchase program. The Company's directors have authorized
the purchase of up to 2 million shares of its outstanding common stock in open
market transactions; 3) a new strategic plan to provide earnings growth and
cost stability; and 4) a further reduction in corporate spending to ensure
that only projects and activities critical to reliable, cost-effective
operations are funded. As a result, the Company is presently seeking a delay
in building the proposed new headquarters building to allow a thorough
reevaluation of the project. As of September 30, 1994, approximately $2.3
million of costs related to this project have been deferred and recorded in
the Company's Balance Sheet.
These actions are part of a plan to both control costs and rates, and
assure the Company's growth and success into the next century in a more
competitive, price sensitive environment. These moves will allow the Company
to retain more capital in the business, provide increased financial
flexibility and assure the Company's ability to take advantage of
opportunities for growth.
For additional information regarding the Company's new corporate
strategy, see Form 8-K filed on November 9, 1994.
<PAGE>
<TABLE>
<CAPTION>
CENTRAL VERMONT PUBLIC SERVICE CORPORATION
Summarized income statement information for Vermont Yankee Nuclear Power
Corporation follows (dollars in thousands, except per share amounts):
Three Months Ended Nine Months Ended
September 30 September 30
1994 1993 1994 1993
<S> <C> <C> <C> <C>
Operating revenues $39,176 $57,064 $115,438 $137,632
Operating expenses 35,592 52,869 104,688 125,266
------- ------- -------- --------
Operating income 3,584 4,195 10,750 12,366
Other income, net 426 155 1,005 610
------- ------- -------- -------
Total operating and other income 4,010 4,350 11,755 12,976
Interest expense 2,368 2,273 6,835 6,614
------- ------- -------- --------
Net income $ 1,642 $ 2,077 $ 4,920 $ 6,362
------- ------- -------- --------
------- ------- -------- --------
Average shares of common stock
outstanding 392,481 392,481 392,481 392,481
Earnings per share of common stock $4.19 $5.29 $12.54 $16.21
</TABLE>
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CENTRAL VERMONT PUBLIC SERVICE CORPORATION
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
September 30, 1994
Earnings Overview
The Company's rates charged to retail consumers are higher during the
peak period (December through March) and lower during the off-peak (April
through November). Under this rate structure, the Company often experiences
losses in the second and third quarters when sales are lower and rates are
reduced. These losses are offset by higher earnings in the first and fourth
quarters, due to the Company's winter sales peak and higher winter rates.
Accordingly, the Company recorded losses of $.11 and $.09 per share of common
stock for the three months ended September 30, 1994 and 1993, respectively.
Losses applicable to common stock for these respective periods were $1.3
million and $1.0 million.
For the nine months ended September 30, 1994, earnings per share of
common stock were $.70 compared to $1.02 in 1993. Earnings available for
common stock for these respective periods were $8.2 million and $11.6 million.
Weak sales due to economic and competitive pressure and the continuing
slow growth in the Vermont economy are the primary contributors to the reduced
earnings, as well as other factors described in results of operations below.
A Vermont Public Service Board (PSB) Order dated October 31, 1994,
allowed the Company a base retail rate increase of 4.27% or approximately
$8,575,000 effective with service rendered November 1, 1994. The Company had
filed for an 8.9% or $17.9 million increase in its base retail rates in
February 1994. The PSB Order also lowered the allowed rate of return on the
Company's common stock equity from 12% to 10%. The return on equity includes
a .75% penalty based on the Board's conclusions that there had been
"mismanagement of power supply options" and because of "the Company's failed
efforts to acquire all cost-effective energy efficiency resources." The
Company disagrees with the PSB's conclusion.
Based on the Company's preliminary review of the rate order, the Company
anticipates an after-tax write-off of approximately $2.0 million during the
fourth quarter of 1994.
Recognizing the need for financial flexibility in the face of the
increasingly competitive marketplace, the Company's Board of Directors
announced, on November 8, 1994, a new corporate strategy which includes 1) a
dividend targeted at approximately 60 percent of sustainable earnings. In
light of the new policy, it is anticipated that the current annual dividend of
$1.42 will be reduced 44% to $.80 effective with the first quarter dividend
declaration in 1995. The dividend payment level will be reviewed regularly in
light of capital needs, projected earnings levels and other relevant factors;
2) a common stock repurchase program. The Company's directors have authorized
the purchase of up to 2 million shares of its outstanding common stock in open
market transactions; 3) a new strategic plan to provide earnings growth and
cost stability; and 4) a further reduction in corporate spending to ensure
that only projects and activities critical to reliable, cost-effective
operations are funded.
These actions are part of a plan to both control costs and rates, and
assure the Company's growth and success into the next century in a more
competitive, price sensitive environment. These moves will allow the Company
to retain more capital in the business, provide increased financial
flexibility and assure the Company's ability to take advantage of
opportunities for growth.
RESULTS OF OPERATIONS
Operating Revenues and MWH Sales
A summary of MWH sales and operating revenues for the three and nine
months ended September 30, 1994 and 1993 (and the related percentage changes
from 1993) is set forth below:
<TABLE>
<CAPTION>
Three Months Ended September 30
Percentage Percentage
MWH Increase Revenues (000's) Increase
1994 1993 (Decrease) 1994 1993 (Decrease)
<S> <C> <C> <C> <C> <C> <C>
Residential 211,369 210,694 .3 $19,752 $19,325 2.2
Commercial 219,686 213,036 3.1 19,096 18,648 2.4
Industrial 88,827 90,807 (2.2) 5,648 5,980 (5.6)
Other retail 1,885 1,903 (.9) 439 435 .9
------- ------- ------- -------
Total retail sales 521,767 516,440 1.0 44,935 44,388 1.2
Less: DPS sales - 2,929 (100.0) - 153 (100.0)
------- ------- ------- -------
Total Co. retail sales 521,767 513,511 1.6 44,935 44,235 1.6
------- ------- ------- -------
Resale sales:
Firm 4,116 15,576 (73.6) 189 766 (75.3)
Entitlement 191,250 215,056 (11.1) 8,334 11,348 (26.6)
Other 200,745 91,796 118.7 4,415 2,206 100.1
------- ------- ------- -------
Total resale sales 396,111 322,428 22.9 12,938 14,320 (9.7)
------- ------- ------- -------
Other revenues - - - 1,154 2,439 (52.7)
------- ------- ------- -------
Total sales 917,878 835,939 9.8 $59,027 $60,994 (3.2)
======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
Nine Months Ended September 30
Percentage Percentage
MWH Increase Revenues (000's) Increase
1994 1993 (Decrease) 1994 1993 (Decrease)
<S> <C> <C> <C> <C> <C> <C>
Residential 720,149 716,053 .6 $ 72,757 $ 72,269 .7
Commercial 639,449 628,655 1.7 62,612 61,828 1.3
Industrial 287,974 288,703 (.3) 21,248 21,749 (2.3)
Other retail 5,674 5,640 .6 1,306 1,288 1.4
--------- --------- -------- --------
Total retail sales 1,653,246 1,639,051 .9 157,923 157,134 .5
Less: DPS sales - 25,714 (100.0) - 1,559 (100.0)
Total Co. retail sales 1,653,246 1,613,337 2.5 157,923 155,575 1.5
--------- --------- -------- --------
Resale sales:
Firm 13,274 54,288 (75.5) 450 2,349 (80.8)
Entitlement 597,176 699,985 (14.7) 26,224 31,491 (16.7)
Other 569,362 214,845 165.0 12,550 4,864 158.0
--------- --------- -------- --------
Total resale sales 1,179,812 969,118 21.7 39,224 38,704 1.3
--------- --------- -------- --------
Other revenues - - - 3,449 9,009 (61.7)
--------- --------- -------- --------
Total sales 2,833,058 2,582,455 9.7 $200,596 $203,288 (1.3)
========= ========= ======== ========
</TABLE>
Retail MWH sales and related revenues for the three and nine months
period ended September 30, 1994 were about the same as those reported for the
same periods in 1993. However, the Company's retail MWH and related revenues
show a minimal increase because as of September 1, 1993, the 250 KWH block is
being supplied by the Company rather than the DPS at the non-seasonal uniform
rate of 8.811 cents per KWH.
From February 1, 1993, through August 31, 1993, the PSB approved, on an
interim basis, a 150 KWH/month joint block supplied by both the Company and
the DPS, whereby the DPS provided residential customers with the first 25 KWH
and the Company provided the remaining 125 KWH. The 125 KWH were sold at the
non-seasonal uniform rate of 9.009 cents per KWH.
Overall retail MWH sales and revenues continue to reflect the state's
slow economic growth and the effectiveness of C&LM programs.
Due to current market conditions, some of the Company's firm resale
customers chose not to extend their contracts beyond October 1993. However,
one of those customers opted to purchase power from the Company based on
market rates.
For the three and nine months ended September 30, 1994, Entitlement Sales
decreased 23,806 MWH (11.1%) and 102,809 MWH (14.7%), respectively, and
related revenues decreased $3.0 million (26.6%) and $5.3 million (16.7%),
respectively. These decreases are mostly attributable to the reduced sell-
back of the Hydro-Quebec Schedules C-1 and C-2 power offset by increased sales
made in conjunction with the swap arrangement with Commonwealth Electric as
well as sales to UNITIL.
Other resale sales increased 108,949 MWH ($2.2 million) for the three
months and 354,517 MWH ($7.7 million) for the nine months ended September 30,
1994 resulting primarily from increased sales to NEPOOL and other utilities in
New England.
The three and nine month periods ended September 30, 1993 included
approximately $1.3 million and $4.7 million of revenues deferred from 1991 to
1993. This was the primary reason for a decrease of 52.7% and 61.7% in other
revenues for the 1994 periods.
Net Purchased Power and Production Fuel Costs
The components of net purchased power and production fuel costs for the
three and nine months ended September 30, 1994 and 1993, are as follows
(dollars in thousands):
Three Months Ended September 30
1994 1993
Units Amount Units Amount
Purchased:
Capacity (MW) 561 $ 20,522 527 $ 23,237
Energy (MWH) 891,895 14,802 839,465 14,441
Production fuel (MWH) 79,829 421 47,273 456
-------- --------
Total purchased power and
production fuel costs 35,745 38,134
Entitlement and other resale
sales (MWH) 391,995 12,749 306,852 13,554
-------- --------
Net purchased power and
production fuel costs $ 22,996 $ 24,580
======== ========
Nine Months Ended September 30
1994 1993
Units Amount Units Amount
Purchased:
Capacity (MW) 575 $ 61,609 498 $ 65,058
Energy (MWH) 2,705,114 47,092 2,499,613 43,378
Production fuel (MWH) 290,742 1,500 230,083 1,411
-------- --------
Total purchased power and
production fuel costs 110,201 109,847
Entitlement and other resale
sales (MWH) 1,166,538 38,774 914,830 36,355
-------- --------
Net purchased power and
production fuel costs $ 71,427 $ 73,492
======== ========
The Company's net purchased power and production fuel costs for the three
months September 1994 have decreased 6.4% compared to the same period last
year. Energy and production fuel costs are about the same as last year.
However, capacity costs decreased $2.7 million resulting from a $4.2 million
decrease in price offset by an increase of 6.5% or $1.5 million in the amount
of MW purchased. Entitlement and other resale MWH sales increased 27.7% and
revenues decreased 5.9% for reasons described above.
Net purchased power and production fuel costs for the nine months
September 1994 decreased 2.8% or $2.0 million compared to the same period last
year. Energy and production fuel costs increased $3.8 million offset by a
decrease in capacity costs of about $3.4 million and an increase of
approximately $2.4 million in Entitlement and other resale sales.
The increase in energy and production fuel costs is due to an 8.2% or
205,501 MWH increase in the amount of MWH purchased, as well as an increase of
26.4% or 60,659 MWH in the amount of MWH generated mostly by the Company's
hydroelectric generating stations.
The decrease of $3.4 million in capacity costs results from a 15.5%
increase in MW purchased amounting to $10.1 million offset by an 18.0%
decrease in price amounting to $13.5 million. This decrease is primarily from
Vermont Yankee.
The Company has equity ownership interests in four nuclear generating
companies: Vermont Yankee, Maine Yankee, Connecticut Yankee and Yankee Atomic.
The Company also owns 18 hydroelectric generating units, two gas-fired and one
diesel peaking units, and leases and operates two hydroelectric generating
stations from wholly owned subsidiaries. In addition, the Company maintains
joint-ownership interests in Joseph C. McNeil, Wyman #4 and Millstone #3.
The purchased power and production fuel costs described above are
partially offset for ratemaking purposes by revenues from sales to NEPOOL,
Hydro-Quebec and other utilities in New England.
Other Operation
Other operation expenses are higher for the three and nine months ended
September 30, 1994 compared to the same periods in 1993, due to an increase in
pension and benefit costs as well as an increase in regulatory commission
expenses.
Depreciation
The increase in depreciation expense for the three and nine months ended
September 30, 1994 is due to property additions and the installation of new
computer systems in September and December 1993.
Income Taxes
Federal and state income taxes fluctuate with the level of pre-tax
earnings. These taxes decreased as a result of lower pre-tax earnings for the
three and nine months ended September 30, 1994 compared with the same periods
in 1993.
Equity in Earnings of Affiliates
Equity in earnings of affiliates decreased 12.1% and 14.4% for the three
and nine months ended September 30, 1994, as compared with the same periods in
1993. 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
For the three months ended September 30, 1994, other income, net
increased primarily as a result of higher income from the non-utility
subsidiaries and interest on temporary cash investments. Other income, net
for the nine months ended September 30, 1994 was about the same as 1993.
Interest on Long-term Debt
Interest on long-term debt increased $187,000 for the three months ended
September 30, 1994 compared with the same period last year, due to the
issuance of $43 million of First Mortgage Bonds in December 1993.
Cash Dividends Declared
Preferred
In January 1994, the Company redeemed 280,000 shares of preferred stock
9% dividend series at a premium of $.25 per share. This redemption resulted
in a decrease in preferred dividends declared for the three and nine months
ended September 30, 1994 compared to the same periods last year.
Common
In June 1994, the Company's Board of Directors (Board) declared a
quarterly common dividend of approximately $4.2 million payable August 15,
1994 which accounts for the decrease in common dividends declared for the
third quarter of 1994 compared to 1993. In November 1992, the Board declared
a quarterly common dividend of approximately $4.0 million payable February 12,
1993. This advanced declaration accounts for the increase in common dividends
declared for the nine months ended September 30, 1994 compared to 1993.
On November 8, 1994, the Board announced a new dividend policy that will
target future dividends at 60% of sustainable earnings. In light of the new
policy, the current annual dividend of $1.42 will be reduced 44% to $.80
effective with the first quarter dividend declaration in 1995. The dividend
payment level will be reviewed regularly in light of capital needs, projected
earnings' levels and other relevant factors. Also, the Board authorized the
purchase of up to 2 million shares of its outstanding common stock in open
market transactions.
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 Conservation and Load
Management expenditures of $19.8 million and $19.1 million for the nine months
ended September 30, 1994 and 1993, 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 $44 million.
In January 1994, the Company redeemed $7 million of the 9.00% Series
Preferred Stock, $25 Par Value.
Beginning in August 1994, Dividend Reinvestment and Common Stock Purchase
Plan, and Employee Stock Ownership Plan requirements were satisfied by the
purchase of shares of common stock on the open market.
The Company's capital structure, including the current portion of long-
term debt, as of September 30, 1994, consisted of 53% common equity, 9%
preferred stock and 38% long-term debt.
On July 21, 1994, Duff & Phelps Rating Co. lowered its rating on the
Company's First Mortgage Bonds to "BBB+" from "A-" and Preferred Stock to
"BBB-" from "BBB". Duff & Phelps stated that the downgrade reflects its
concerns about the continuing recession in New England, intensifying
competition in the utility industry and excess power in the northeastern
region, as well as the Company's loss of wholesale revenues.
On August 5, 1994, Standard & Poor's Corporation (S&P) also lowered its
rating on the Company's securities to "BBB" from "BBB+" for First Mortgage
Bonds and to "BBB-" from "BBB" for Preferred Stock. At the same time, S&P
revised its ratings outlook on the Company to "stable" from "negative." S&P
stated "the downgrade reflects the Company's weak financial profile, adjusted
for off-balance sheet obligations, primarily associated with purchased power,
combined with the Company's low average business position." S&P also stated
"restrictive Vermont regulation, the State of Vermont economy, nuclear asset
concentration and increasing investments into non-regulated businesses are
other factors impacting the Company's business position."
The decline in the Company's credit ratings will make the terms and
conditions of borrowing more stringent, and increase the cost of capital.
Currently, the Company does not anticipate issuing preferred stock or long-
term debt in the near future.
Non-Utility
Catamount Energy Corporation, a wholly owned subsidiary of the Company,
maintains 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 fees totaling 2.375% of credit available.
SmartEnergy Services, Inc., also a wholly owned subsidiary of the
Company, maintains a $1.0 million revolving line of credit with a bank to
provide working capital and financing assistance for investment purposes.
Financial obligations of the non-utility wholly owned subsidiaries are
non-recourse to the Company.
Conservation and Load Management (C&LM) Programs
The primary purpose of these programs is to offset the need for long-term
power supply and delivery resources that are more expensive to purchase or
develop than customer-efficiency programs. On an ongoing basis, C&LM
expenditure levels are adjusted based on the cost-effectiveness of programs
compared to other options. Expenditures in 1993 were $9.5 million and are
expected to approximate $6.0 million in 1994.
The October 31, 1994 PSB Rate Order allowed the recovery of $13,885,000
of C&LM expenditures and lost revenues, deferred since the prior PSB rate
order which became effective September 1, 1991, over a five-year period
beginning November 1, 1994 through October 31, 1999. In its 8.9% rate
increase request dated February 15, 1994 as subsequently updated, the Company
had requested the recovery of $14,610,000 of such deferred C&LM expenditures
and lost revenues. For additional information regarding the PSB Rate Order,
see Earnings Overview.
In addition, the Company is involved in several cases in Vermont related
to C&LM activities including the role of fuel-switching as a C&LM resource and
the level of externalities to be recognized in Integrated Resource Planning
and C&LM cost-effectiveness testing. On October 31, 1994, the Company also
filed its Integrated Resource Plan, which describes the Company's long-term
resource acquisition plans including C&LM.
Diversification
In January 1994, Catamount Energy Corporation (CEC) purchased an
additional 4.185% limited partnership interest in Rumford Cogeneration
Company. Currently, CEC has four wholly owned subsidiaries with four
operating projects in place. CEC and its subsidiaries contributed $480,000 to
the Company's earnings for the nine months ended September 30, 1994.
SmartEnergy Services, Inc.'s (SES) purpose is to cost effectively provide
reliable, energy efficient products and services, including the rental of
electric water heaters. In 1993, SES purchased a 5% interest in Green
Technologies, Inc. of Boulder, Colorado and in September 1994, SES purchased
for $540,000 an additional 1.8% interest. This investment increased SES's
ownership in Green Technologies, Inc. to 6.8%. Green Technologies
manufactures various energy-saving products, including the GreenPlug
electricity saver. SES is marketing the GreenPlug and other energy-saving
products to utilities in the United States and Canada. SES incurred a loss of
approximately $31,000 for the nine months ended September 30, 1994.
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. For information regarding a PSB
Rate Order issued on October 31, 1994, see Earnings Overview.
<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 the parties'
inability to come to agreement on the terms of CVER's proposed investment in
the plaintiff's waste coal generation 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 effect on the
business or financial condition of the Company.
Items 2. through 5.
None.
Item 6. Exhibits and Reports on Form 8-K (subsequent to the reporting
period).
(a) Exhibits - None.
(b) Reports on Form 8-K - The Company filed the following reports on
Form 8-K subsequent to September 30, 1994: 1) Item 5. Other Events was filed
on November 2, 1994, and 2) Item 5. Other Events and Item 7. Financial
Statements, Pro Forma Financial Information and Exhibits was filed on November
9, 1994.
<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, 1994
<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND>
This Financial Data Schedule contains summary financial information
extracted from the Consolidated Financial Statements included herein
and is qualified in its entirety by reference to such financial
statements (dollars in thousands, except per share amounts).
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> QTR-3
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> SEP-30-1994
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<TOTAL-ASSETS> 474,153
<COMMON> 70,715
<CAPITAL-SURPLUS-PAID-IN> 45,219
<RETAINED-EARNINGS> 57,625
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20,000
8,054
<LONG-TERM-DEBT-NET> 117,676
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