<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 March 31, 1995
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 April 30, 1995
there were outstanding 11,674,048 shares of Common Stock, $6 Par Value.
<PAGE>
CENTRAL VERMONT PUBLIC SERVICE CORPORATION
Form 10-Q
Table of Contents
Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statement of Income and Retained Earnings
for the three months ended March 31, 1995 and 1994 3
Consolidated Balance Sheet as of March 31, 1995 and
December 31, 1994 4
Consolidated Statement of Cash Flows for the three
months ended March 31, 1995 and 1994 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 11-15
PART II. OTHER INFORMATION 16-17
SIGNATURE 18
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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
March 31
1995 1994
<S> <C> <C>
Operating Revenues $86,863 $83,885
Operating Expenses
Operation
Purchased power 39,175 37,693
Production and transmission 5,153 5,373
Other operation 9,990 9,024
Maintenance 2,448 2,401
Depreciation 4,187 4,066
Other taxes, principally property taxes 2,693 2,673
Taxes on income 8,289 8,288
------- -------
Total operating expenses 71,935 69,518
------- -------
Operating Income 14,928 14,367
------- -------
Other Income and Deductions
Equity in earnings of affiliates 837 803
Allowance for equity funds during construction 106 20
Other income, net 690 28
Benefit (provision) for income taxes (228) 12
------- -------
Total other income and deductions, net 1,405 863
------- -------
Total Operating and Other Income 16,333 15,230
------- -------
Interest Expense
Interest on long-term debt 2,417 2,487
Other interest 196 161
Allowance for borrowed funds during construction (76) (26)
------- -------
Total interest expense, net 2,537 2,622
------- -------
Net Income 13,796 12,608
Retained Earnings at Beginning of Period 55,575 61,879
------- -------
69,371 74,487
Cash Dividends Declared
Preferred stock 507 547
Common stock (3) 4,111
------- -------
Total dividends declared 504 4,658
------- -------
Retained Earnings at end of Period $68,867 $69,829
======= =======
Earnings Available for Common Stock $13,289 $12,061
Average shares of common stock outstanding 11,712,047 11,609,642
Earnings per Share of Common Stock $1.13 $1.04
Dividends per Share of Common Stock $.20 $.355
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CENTRAL VERMONT PUBLIC SERVICE CORPORATION
CONSOLIDATED BALANCE SHEET
(Dollars in thousands)
March 31 December 31
1995 1994
(Unaudited)
<S> <C> <C>
Assets
Utility Plant, at original cost $437,935 $434,059
Less accumulated depreciation 129,842 125,800
-------- --------
308,093 308,259
Construction work in progress 15,441 15,099
Nuclear fuel, net 1,496 1,197
Net utility plant 325,030 324,555
-------- --------
Investments and Other Assets
Investments in affiliates, at equity 26,839 26,765
Non-utility investments 28,854 28,184
Non-utility property, less accumulated depreciation 2,840 2,989
-------- --------
Total investments and other assets 58,533 57,938
-------- --------
Current Assets
Cash 2,929 1,673
Temporary investments, at market value 11,343 5,886
Accounts receivable 20,398 20,523
Unbilled revenues 5,999 10,696
Materials and supplies, at average cost 4,148 4,182
Prepayments 3,087 3,544
Other current assets 4,601 4,806
-------- --------
Total current assets 52,505 51,310
-------- --------
Regulatory Assets and Other Deferred Charges 58,152 56,596
-------- --------
Total Assets $494,220 $490,399
======== ========
Capitalization and Liabilities
Capitalization
Common stock, $6 par value, authorized
19,000,000 shares; outstanding 11,785,848 shares $ 70,715 $ 70,715
Other paid-in capital 45,234 45,229
Treasury stock (80,100 shares and 56,400 shares,
respectively, at cost) (1,046) (735)
Retained earnings 68,867 55,575
-------- --------
Total common stock equity 183,770 170,784
Preferred and preference stock 8,054 8,054
Preferred stock with sinking fund requirements 20,000 20,000
Long-term debt 120,153 120,157
-------- --------
Total capitalization 331,977 318,995
Long-term Lease Arrangements 20,196 20,467
-------- --------
Current Liabilities
Short-term debt 927 11,511
Current portion of long-term debt - 4,230
Accounts payable 5,697 5,970
Accounts payable - affiliates 12,369 8,435
Accrued interest 2,728 671
Accrued income taxes 7,734 3,997
Dividends declared - 2,853
Other current liabilities 25,069 26,002
-------- --------
Total current liabilities 54,524 63,669
-------- --------
Deferred Credits
Deferred income taxes 53,771 52,710
Deferred investment tax credits 8,296 8,394
Yankee Atomic purchased power contract 10,381 10,725
Environmental cleanup 5,050 5,050
Other deferred credits 10,025 10,389
-------- --------
Total deferred credits 87,523 87,268
-------- --------
Total Capitalization and Liabilities $494,220 $490,399
======== ========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CENTRAL VERMONT PUBLIC SERVICE CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
Three Months Ended
March 31
1995 1994
<S> <C> <C>
Cash Flows Provided (Used) By
Operating Activities
Net income $13,796 $12,608
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation 4,187 4,066
Deferred income taxes and investment tax credits 1,927 185
Allowance for equity funds during construction (106) (20)
Net deferral and amortization of nuclear refueling
replacement energy and maintenance costs (3,159) 1,452
Decrease in accounts receivable 4,699 3,356
Increase (decrease) in accounts payable 3,768 (999)
Increase in accrued income taxes 3,737 7,841
Decrease in other working capital items 1,431 3,003
Other, net 1,275 (328)
------- -------
Net cash provided by operating activities 31,555 31,164
------- -------
Investing Activities
Increase in temporary investments (5,457) (8,962)
Construction and plant expenditures (5,251) (3,913)
Conservation and load management expenditures (384) (1,254)
Investments in affiliates 49 (39)
Non-utility investments (809) 182
Other investments, net 38 (151)
------- -------
Net cash used in investing activities (11,814) (14,137)
------- -------
Financing Activities
Sale of common stock - 1,818
Repurchase of common stock (311) -
Short-term debt, net (10,584) (679)
Retirement of preferred stock - (7,000)
Retirement of long-term debt (4,234) (4,330)
Common and preferred dividends paid (3,356) (4,814)
------- -------
Net cash used in financing activities (18,485) (15,005)
------- -------
Net Increase (Decrease) in Cash 1,256 2,022
Cash at Beginning of Period 1,673 823
------- -------
Cash at end of Period $ 2,929 $ 2,845
======= =======
Supplemental Cash Flow Information
Cash paid during the period for:
Interest (net of amounts capitalized) $ 389 $ 392
Income taxes (net of refunds) $ 2,853 $ 572
</TABLE>
<PAGE>
CENTRAL VERMONT PUBLIC SERVICE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1995
Note 1 - Accounting Policies
The Company's significant accounting policies are described in Note 1 of
Notes to Consolidated Financial Statements included in its 1994 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.
In March 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards (SFAS) No. 121, Accounting for the
Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed Of,
effective for fiscal years beginning after December 15, 1995. SFAS No. 121
establishes accounting standards for the impairment of long-lived assets and
requires that regulatory assets which are no longer probable of recovery
through future revenues be charged to earnings. The Company anticipates
adopting SFAS No. 121 beginning January 1, 1996, and based on the current
regulatory rate-making process, the Company does not expect that adoption of
SFAS No 121 will have a material impact on the Company's financial position or
results of operations.
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 inspection and supervision by both state and Federal regulatory
authorities including the United States Environmental Protection Agency (EPA)
(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 was formally contacted by the EPA in
January 1995 asking for written consent to conduct a site evaluation. The
Company does not believe EPA's evaluation changes its potential liability so
long as reasonable further progress is made in remediating the site. 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. The Company was contacted in
the winter of 1994 by counsel for a group of potentially responsible parties
(PRP Group) who were performing an engineering evaluation and cost analysis
(EE/CA) for the site under a settlement agreement with the EPA. The PRP Group
threatened contribution litigation against the Company and others to recover
an equitable share of the approximate $3 million the PRP Group had expended
thus far on the EE/CA. Investigation by the Company thus far suggests that it
is unlikely that it contributed a meaningful amount of hazardous substances,
if any, to the site and thus would not be liable for a significant share of
liability for the EE/CA expenses or site clean up. No litigation by the PRP
Group has yet been initiated against the Company.
In July 1994, the EPA notified the Company that it had reviewed evidence
which, in its opinion, indicated that the Company may have contributed to the
environmental contamination at the site but that a full determination of its
potential liability for the site had not been made. EPA, at that time,
designated the Company a potentially interested party (PIP). Also in July
1994, the EPA notified the PRP Group, the Company and other PIPs that it was
proposing a response action at the site with an estimated total present worth
cost of approximately $9.5 million.
During November 1994, the Company was notified that EPA had information
indicating that the Company was a PRP. The EPA letter also requested that the
Company participate with other PRPs in the response action described above and
further made a demand against the Company and other PRPs for reimbursement of
approximately $.85 million in costs EPA had incurred in responding to
conditions at the site.
The PRP Group is attempting to form a larger group of PRPs to undertake
the remedial response, pay EPA response expenses and obtain reimbursement for
the $3 million it spent on the EE/CA. Representatives of the Company have
been in contact with EPA and the PRP Group and have evaluated the merits of
participation with the larger group. In March 1995, the Company entered into
an agreement to become a part of the larger PRP Group and will also continue
to work with EPA seeking a "de minimis" settlement.
While further investigation is necessary and is continuing, the results
thus far suggest that the Company will defend any contribution action from the
other PRPs and the EPA but will continue to explore settlement options which
appear to be in the overall best interest of the Company. The Company has yet
to determine whether insurance proceeds are available to offset potential
costs for the remediation or other expenses which might be required by the
Company 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. Last summer, EPA also announced its proposed preferred
remedy for this site with an estimated total present net worth cost of $28.2
million. Final selection of a remedy is anticipated later this year. Thus
far, the Company is considered a PIP, not a PRP, for the site. 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 PRPs to
conduct a site investigation. The Company was contacted by these PRPs 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 PRPs 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 or results
of operations but will continue to monitor activities at the sites.
The Company is not subject to any pending or threatened litigation with
respect to any other sites where remediation expenses could be material, nor
has the EPA or other state or Federal agency sought contribution from the
Company for the study or remediation of any such 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 March 31, 1995 and
December 31, 1994, a total of $12 million of accounts receivable and unbilled
revenues were sold under an accounts receivable facility. A portion of the
fee for using the facility is based on London Inter Bank Offered Rate (LIBOR).
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 $7.1 million and $4.9 million, respectively, at March 31, 1995
and $4.2 million and $7.8 million, respectively, at December 31, 1994.
Accounts receivable are also reflected net of an allowance for
uncollectible accounts of $1.2 million at March 31, 1995 and $1.0 million at
December 31, 1994.
Note 4 - Maine Yankee Plant
The Company owns 2% of the common stock of Maine Yankee Atomic Power
Company (MY) and is entitled to a 2% of the power output of an 860-megawatt
nuclear generating plant (Plant) located in Wiscasset, Maine, owned and
operated by MY.
The Plant, like some other pressurized water reactors, has been
experiencing degradation of its steam generator tubes, principally in the form
of circumferential cracking, which, until early 1995, was believed to be
limited to a relatively small number of tubes. In the past the detection of
defects has resulted in plugging the degraded tubes to prevent their
subsequent use.
During the refueling and maintenance shutdown that commenced in early
February 1995, MY detected an increased rate of degradation of the Plant's
steam generator tubes well above its expectations and began evaluating several
courses of action.
On April 7, 1995, MY's Board of Directors decided to further explore
sleeving all 17,000 steam generator tubes. Although testing of all tubes
revealed approximately 40% of the tubes are free of defects, MY plans to
sleeve all of the tubes as a preventive safety measure. A final decision by
MY's Board of Directors as to which alternative to pursue has not yet been
made. Sleeving involves inserting a tube of slightly smaller diameter into
the defective tube to cover the area above and below the crack, the sleeve is
welded in place and acts as a new tube. Sleeving is a proven technology and
must meet rigorous Federal standards of safety and licensing. The sleeving
process proposed by one supplier has been approved by the Nuclear Regulatory
Commission (NRC). The NRC is expected to approve an alternative process
during May 1995 and MY projects that the Plant could return to service by the
end of 1995. The estimated cost to sleeve all of the tubes is approximately
$40 million.
The Company owns 2% of the common stock of MY, and estimates its share of
the cost of the sleeving option to be about $.8 million.
In 1994, MY provided about 3% of the Company's power requirements. The
Company estimates the additional costs for replacement power while MY is not
operating could exceed $1 million.
The Company cannot predict how long the Plant will be out of service.
The impacts of the costs of unbudgeted repairs and replacement power costs
that will ultimately be borne by the Company are still being assessed,
therefore, no impacts have been included in the Company's first quarter
results.
<PAGE>
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
March 31
1995 1994
Operating revenues $51,375 $39,169
Operating expenses 47,543 35,526
------- -------
Operating income 3,832 3,643
Other income, net 537 238
------- -------
Total operating and other income 4,369 3,881
Interest expense 2,611 2,198
------- -------
Net income $ 1,758 $ 1,683
======= =======
Average shares of common stock outstanding 392,481 392,481
Earnings per share of common stock $4.48 $4.29
<PAGE>
CENTRAL VERMONT PUBLIC SERVICE CORPORATION
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
March 31, 1995
Earnings Overview
Earnings per share of common stock for the three months ended March 31,
1995 were $1.13 compared to $1.04 for the corresponding period last year.
Earnings available for common stock for these respective periods were
$13,289,000 and $12,061,000.
The increase in earnings for the first quarter is primarily due to the
5.07% retail rate increase effective November 1, 1994 and to other factors
described in Results of Operations below.
RESULTS OF OPERATIONS
Operating Revenues and MWH Sales
A summary of MWH sales and operating revenues for the three months ended
March 31, 1995 and 1994 (and the related percentage changes from 1994) is set
forth below:
<TABLE>
<CAPTION>
Three Months Ended March 31
Percentage Percentage
MWH Increase Revenues (000's) Increase
1995 1994 (Decrease) 1995 1994 (Decrease)
<S> <C> <C> <C> <C> <C> <C>
Residential 273,698 295,960 (7.5) $32,867 $33,470 (1.8)
Commercial 218,523 216,712 .8 27,148 25,473 6.6
Industrial 111,274 110,230 .9 9,942 9,477 4.9
Other retail 1,893 1,916 (1.2) 448 434 3.2
------- --------- ------- -------
Total retail sales 605,388 624,818 (3.1) 70,405 68,854 2.3
------- --------- ------- -------
Resale sales:
Firm 3,715 5,152 (27.9) 178 211 (15.6)
Entitlement 245,816 248,652 (1.1) 12,089 10,474 15.4
Other 133,283 127,271 4.7 3,202 3,038 5.4
------- --------- ------- -------
Total resale sales 382,814 381,075 .5 15,469 13,723 12.7
------- --------- ------- -------
Other revenues - - - 989 1,308 (24.4)
------- --------- ------- -------
Total sales 988,202 1,005,893 (1.8) $86,863 $83,885 3.6
======= ========= ======= =======
</TABLE>
Retail MWH sales for the three months ended March 31, 1995 decreased 3.1%
compared to last year. However, first quarter retail revenues increased $1.6
million or 2.3% over last year due to a $3.8 million increase in price
resulting from last quarter's 5.07% retail rate increase, offset by a $2.2
million decrease associated with lower MWH sales.
For the quarter, residential MWH sales decreased by 7.5% while commercial
and industrial MWH sales increased modestly. These variances reflect not only
the mild weather experienced during the first quarter of 1995, but also the
slow growth in the regional economy as well as the effectiveness of
Conservation and Load Management programs (C&LM). However, as a result of
economic development activities, the Company anticipates stronger growth in
the commercial and industrial sectors during the latter part of 1995 and 1996.
Due to current market conditions, some of the Company's firm resale
customers chose not to extend their contracts based on compensatory rates.
However, two of those customers are currently purchasing power from the
Company based on market rates.
Entitlement MWH sales decreased 1.1% or 2,836 MWH for the quarter
compared to the same period in 1994. The decrease results primarily from the
scheduled refueling and maintenance shutdown of Vermont Yankee that began on
March 17, 1995, reducing MWH sales to UNITIL and Commonwealth Electric under a
swap arrangement. In part, the decrease is offset by increased sellbacks of
Hydro-Quebec Schedules A, C-1, C-2 and 9401 power. However, the higher costs
of the Company's share of Vermont Yankee's capacity costs resulting from the
refueling and maintenance outage are passed on to entitlement customers
causing an increase in entitlement revenues of 15.4% or $1.6 million.
The 6,012 MWH increase ($.2 million) in other resale sales resulted from
increased unit and off-system sales to other utilities in New England,
partially offset by a decrease in sales to NEPOOL.
Other revenues decreased 24.4% or $.3 million for the first quarter of
1995 compared to the same period last year due to a true-up adjustment in the
first quarter of 1994 related to the C&LM programs.
Net Purchased Power and Production Fuel Costs
The components of net purchased power and production fuel costs for the
three months ended March 31, are as follows (dollars in thousands):
1995 1994
Units Amount Units Amount
Purchased and produced:
Capacity (MW) 589 $21,271 577 $20,571
Energy (MWH) 948,523 17,904 972,468 17,122
Production fuel (MWH) 102,023 570 95,677 566
------- -------
Total purchased power and
production fuel costs 39,745 38,259
Entitlement and other resale
sales (MWH) 379,099 15,291 375,923 13,512
------- -------
Net purchased power and
production fuel costs $24,454 $24,747
======= =======
The Company's net purchased power and production fuel costs for the
quarter have remained relatively equal compared to the same period last year.
The increase of $.7 million in capacity costs and $.8 million in energy costs
is offset by an increase of $1.8 million in Entitlement and other resale
sales.
The $.7 million increase in capacity costs results from an increase in
the average cost per MW purchased totaling $.2 million and to an increase in
MW purchased totaling $.5 million. The $.8 million increase in energy costs
is due to a $1.2 million increase in the average cost per MWH purchased offset
by a 2.5% or 23,945 MWH decrease in the amount of MWH purchased totaling $.4
million.
The Company has equity ownership interests in Vermont Yankee, Maine
Yankee, Connecticut Yankee and Yankee Atomic. The Company also owns 20
hydroelectric generating units and two gas-fired and one diesel peaking units.
In addition, the Company maintains joint-ownership interests in Joseph C.
McNeil, Wyman #4 and Millstone #3.
Vermont Yankee's nuclear generating plant began its planned refueling and
maintenance outage on March 17, 1995, and was back on line on May 3, 1995.
Connecticut Yankee's nuclear generating plant was shut down for refueling
and maintenance from January 28, 1995 through April 19, 1995.
During Maine Yankee's nuclear generating plant refueling and maintenance
shutdown that commenced in early February 1995, the rate of degradation of the
plant's steam generator tubes was found to be well above what was expected
based on the Plant's own history. For additional information in regard to
Maine Yankee's Board of Directors' decision to further explore sleeving all of
the 17,000 tubes, see Note 4 to the Consolidated Financial Statements.
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
The increase of $1 million in other operation expenses for the first
quarter of 1995 results from increased C&LM costs. These costs are being
recovered through retail rates approved by the Vermont Public Service Board,
effective November 1, 1994. Absent these costs, operation expenses actually
declined for the period, reflecting continuing cost control efforts.
Allowance For Funds Used During Construction
The increase in allowance for equity and borrowed funds used during
construction for the first quarter of 1995 is due to increased capital
expenditures and higher rates used for capitalization of these funds.
Other Income, Net
For the three months ended March 31, 1995, other income, net increased
$.7 million. This increase results primarily from higher non-regulated
subsidiaries' earnings. Also, in the first quarter of 1994, the Company
wrote-off $.4 million, representing the non-recoverability portion of the
Company's investment in the Seabrook project from some of the Company's firm
resale customers.
Cash Dividends Declared
Preferred
In January 1994, the Company redeemed 280,000 shares of preferred stock
9% dividend series at premium of $.25 per share. This redemption resulted in
a decrease in preferred dividends declared for the first quarter of 1995
compared to the same period last year.
Common
In December 1994, the Company's Board of Directors declared a quarterly
common dividend of approximately $2.3 million payable February 15, 1995. This
declaration reflected the 44% reduction in dividends paid per share. This
advanced declaration, combined with the 44% reduction, accounts for the
decrease in common dividends declared for the first three months of 1995
compared to 1994.
LIQUIDITY AND CAPITAL RESOURCES
Competition
As described in Note 1 of Notes to Consolidated Financial Statements
included in the Company's 1994 Annual Report on Form 10-K, management believes
that the Company meets the requirement of SFAS No. 71, "Accounting for the
Effects of Certain Types of Regulation," but continues to evaluate significant
changes in the regulatory and competitive environment to ensure and assess the
Company's overall consistency with the criteria of SFAS No. 71. In the event
the Company determines that it no longer meets the criteria for following SFAS
No. 71, the accounting impact would be an extraordinary non-cash charge to
operations of an amount that could be material. Although these conditions do
not currently exist, the Company anticipates that in the future competition
will place pressure on both unit sales and the price the Company can charge.
As a result, increased competitive pressure in the electric utility industry
may restrict the Company's ability to establish prices to recover embedded
costs and may lead to a significant change in the manner in which rates are
set by regulators from cost-based regulation to a different form of regulation
that approximates market conditions. singly or together these events may give
rise to the discontinuance of SFAS No. 71 and, in addition, could diminish the
Company's ability to recover its embedded cots of providing service.
In March 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards (SFAS) No. 121, Accounting for the
Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed Of,
effective for fiscal years beginning after December 15, 1995. SFAS No. 121
establishes accounting standards for the impairment of long-lived assets and
requires that regulatory assets which are no longer probable of recovery
through future revenues be charged to earnings. The Company anticipates
adopting SFAS No. 121 beginning January 1, 1996, and based on the current
regulatory rate-making process, the Company does not expect that adoption of
SFAS No. 121 will have a material impact on the Company's financial position
or results of operations.
Construction
The Company's liquidity is primarily affected by the level of cash
generated from operations, power contracts, and the funding requirements of
its ongoing construction and C&LM programs. Cash flows from operating
activities after dividends paid, provided 100% of the Company's construction
and C&LM expenditures of $5.6 million and $5.2 million for the three months
ended March 31, 1995 and 1994, 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. Short-term borrowings
generally are reduced when long-term debt or equity securities are issued.
The Company's capital structure ratios as of March 31, 1995, consisted of
55% common equity, 9% preferred stock and 36% long-term debt. The Company
has no long-term debt or preferred stock subject to mandatory sinking fund
requirements or maturing within the next twelve-month period. The credit
ratings of the Company's securities as of March 31, 1995, as reaffirmed by
Standard & Poor's Corp. and Duff & Phelps Corp. in mid-1994 are BBB and BBB+,
respectively, for First Mortgage Bonds and BBB- for Preferred Stock.
On November 8, 1994, the Company's Board of Directors (Board) announced a
new dividend policy that targeted future dividends at 60% of earnings. In
light of the new policy, the annual dividend of $1.42 was reduced 44% to $.80
effective with the first quarter dividend paid in February 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. As of March 31, 1995, the Company had purchased 80,100
shares at an average price of $13.02 per share. These transactions are
recorded as treasury stock, at cost, in the Company's Consolidated Balance
Sheet.
As of April 30, 1995, the Company had purchased 111,800 shares at an
average price of $13.12 per share.
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 2.527% 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. Expenditures in 1994 were $6.2
million and are expected to be approximately $6.0 million in 1995. C&LM
expenditure levels are adjusted on an ongoing basis based on the
cost-effectiveness of programs compared to other options.
On April 12, 1995, the Company and the Vermont Department of Public
Service jointly filed a Stipulation resolving issues related to the role of
fuel switching as a C&LM resource, promotion of electricity, and C&LM spending
levels for 1995 and 1996. This Stipulation resolves the outstanding material
issues related to C&LM until the end of 1996. It also establishes a process
to remove the return on equity penalty related to "the Company's failed
efforts to acquire all cost-effective energy efficiency resources" imposed by
the Public Service Board (PSB) in the Company's last rate case. A PSB Order
concerning the Stipulation is expected during the third quarter of 1995.
Diversification
Catamount Energy Corporation (Catamount) was formed for the purpose of
investing in non-regulated energy-related projects. Currently, Catamount,
through its wholly owned subsidiaries, has interests in four operating
independent power projects located in Rumford, Maine; East Ryegate, Vermont;
Hopewell, Virginia; and Williams Lake, British Columbia, Canada. Catamount
and its subsidiaries contributed $491,000 and $311,000 to the Company's
earnings for the three months ended March 31, 1995 and 1994, respectively.
On February 2, 1995, Catamount's Board of Directors voted to finance,
through wholly owned subsidiaries of Catamount, up to $100,000 of development
capital to complete development of two 10 MW gas-fired cogeneration projects
in the western United States. The Development Capital is to be reimbursed
with interest at the rate of 10% at construction financial closing. Catamount
has committed up to a total of $2.5 million to purchase 50% interests in each
project at construction financial closing.
SmartEnergy Services, Inc. (SmartEnergy) was formed for the purpose of
effectively providing reliable, energy-efficient products and services,
including the rental of electric water heaters. SmartEnergy incurred a loss
of $43,000 for the three months ended March 31, 1995, and contributed $15,000
to the Company's earnings for the three months ended March 31, 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. The Company anticipates filing
for future rate increases when cost containment efforts are insufficient to
offset the increasing cost of providing service, primarily purchased power.
<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.
On December 30, 1994, the Company and its Board of Directors were
named as defendants in a complaint filed in the United States District Court
for the District of Vermont by three shareholders. The complaint alleges,
among other things, (I) that F. Ray Keyser, Jr., Chairman of the Company's
Board of Directors, violated Section 8 of the Clayton Act, 15 U.S.C.
Subchapter 19, which precludes certain interlocking directorships, (ii) that
Mr. Keyser violated his fiduciary duties to the Company's stockholders by
acquiring and operating a series of businesses in competition with the Company
without offering those business opportunities to the Company, (iii) that the
remaining individual defendants violated their fiduciary duties to the
Company's stockholders by failing to analyze, or to cause management to
analyze, diver-sification into propane and fossil fuels, and by failing to
make the Company an effective competitor of alternative fuel companies, and
(iv) that the Company violated the applicable provision of the Vermont General
Corporation Law by failing to provide a list of the Company's stockholders.
The complaint seeks an unspecified amount of damages (including treble damages
against Mr. Keyser), attorney's fees and costs, a list of the Company's
stockholders, and a court order to enjoin the defendants from alleged
continuing violations of the law. Each of the individual defendants and the
Company itself deny the allegations against them and intend to vigorously
defend the complaint.
Items 2 and 3.
None.
Item 4. Submission of Matters to a Vote of Security Holders.
(a) The Registrant held its Annual Meeting of Stockholders on May 2,
1995.
(b) Directors elected whose terms will expire in 1998:
Votes For Votes Withheld
Luther F. Hackett 9,925,157 454,147
F. Ray Keyser, Jr. 9,907,113 472,191
Gordon P. Mills 9,951,595 427,709
Other Directors whose terms will expire in 1997:
Frederic H. Bertrand
Mary Alice McKenzie
Robert D. Stout
Other Directors whose terms will expire in 1996:
Robert P. Bliss, Jr.
Elizabeth Coleman
Preston Leete Smith
Thomas C. Webb
Item 5. Other Information.
(a) On March 1, 1995, the Company filed a comprehensive, open access
transmission tariff (Tariff) with the Federal Energy Regulatory Commission
(FERC). The Tariff is designed to provide firm and non-firm network
transmission service, as well as firm point to point service over the
transmission systems of the Company and its wholly owned subsidiary,
Connecticut Valley Electric Company Inc. In addition, the Tariff would permit
customers to make use of the Company's contract rights to the transmission
facilities of the Vermont Electric Power Company, Inc. and New England Power
Company. The Tariff would provide transmission service that is comparable to
that provided to native load customers. Charges for such service would be
based upon the Company's cost of service for transmission.
The Company prepared and filed the Tariff in anticipation of
developing business opportunities in the area of electric transmission
service. In addition, recent FERC orders led the Company to believe that all
electric utilities owning transmission facilities would be required to prepare
and file such a tariff in the near future. FERC issued a Notice Of Proposed
Rulemaking (NOPR) dated March 29, 1995, requiring such utilities to make
available comparable transmission service. The Company's tariff complies with
many requirements proposed by the FERC in its NOPR.
Nine parties intervened in the Company's filing. On April 28,
1995, the FERC issued a deficiency letter asking for more information in a
number of areas, to which the Company must respond by May 26, 1995.
(b) Frederick S. Potter, Vice President-Finance and Administration
and Chief Financial Officer, resigned effective May 9, 1995.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits - None.
(b) Item 5. Other Events, dated December 30, 1994 re: Legal
proceeding was filed on January 17, 1995.
<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
Principal Accounting Officer)
Dated May 12, 1995
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