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, 1996
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, 1996
there were outstanding 11,562,348 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, 1996 and 1995 3
Consolidated Balance Sheet as of March 31, 1996 and
December 31, 1995 4
Consolidated Statement of Cash Flows for the three
months ended March 31, 1996 and 1995 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 11-17
PART II. OTHER INFORMATION 18-20
SIGNATURE 21
<PAGE>
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
1996 1995
Operating Revenues $84,246 $86,863
------- -------
Operating Expenses
Operation
Purchased power 37,272 39,175
Production and transmission 4,850 5,153
Other operation 9,175 9,990
Maintenance 2,835 2,448
Depreciation 4,436 4,187
Other taxes, principally property taxes 2,817 2,693
Taxes on income 8,625 8,289
------- -------
Total operating expenses 70,010 71,935
------- -------
Operating Income 14,236 14,928
------- -------
Other Income and Deductions
Equity in earnings of affiliates 801 837
Allowance for equity funds during construction 21 106
Other income, net 2,381 690
Provision for income taxes (229) (228)
------- -------
Total other income and deductions, net 2,974 1,405
------- -------
Total Operating and Other Income 17,210 16,333
------- -------
Interest Expense
Interest on long-term debt 2,353 2,417
Other interest 150 196
Allowance for borrowed funds during construction (51) (76)
------- -------
Total interest expense, net 2,452 2,537
------- -------
Net Income 14,758 13,796
Retained Earnings at Beginning of Period 66,422 55,575
------- -------
81,180 69,371
Cash Dividends Declared
Preferred stock 507 507
Common stock 2,318 (3)
------- -------
Total dividends declared 2,825 504
------- -------
Retained Earnings at End of Period $78,355 $68,867
======= =======
Earnings Available For Common Stock $14,251 $13,289
Average Shares of Common Stock Outstanding 11,590,748 11,712,047
Earnings Per Share of Common Stock $1.23 $1.13
Dividends Paid Per Share of Common Stock $.20 $.20
<PAGE>
CENTRAL VERMONT PUBLIC SERVICE CORPORATION
CONSOLIDATED BALANCE SHEET
(Dollars in thousands)
March 31 December 31
1996 1995
(Unaudited)
Assets
Utility Plant, at original cost $447,793 $453,784
Less accumulated depreciation 141,598 136,057
-------- --------
306,195 317,727
Construction work in progress 16,904 8,108
Nuclear fuel, net 1,022 1,167
-------- --------
Net utility plant 324,121 327,002
-------- --------
Investments and Other Assets
Investments in affiliates, at equity 26,769 26,464
Non-utility investments 25,652 22,622
Non-utility property, less accumulated depreciation 4,629 2,896
-------- --------
Total investments and other assets 57,050 51,982
-------- --------
Current Assets
Cash and cash equivalents 27,179 11,962
Special deposits 489 3,868
Accounts receivable 22,106 21,374
Unbilled revenues 5,607 11,177
Materials and supplies, at average cost 3,698 4,023
Prepayments 2,777 3,607
Other current assets 3,960 4,564
-------- --------
Total current assets 65,816 60,575
-------- --------
Regulatory Assets and Other Deferred Charges 48,331 50,503
-------- --------
Total Assets $495,318 $490,062
======== ========
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 45,257 45,251
Treasury stock (195,100 shares, at cost) (2,628) (2,628)
Retained earnings 78,355 66,422
-------- --------
Total common stock equity 191,699 179,760
Preferred and preference stock 8,054 8,054
Preferred stock with sinking fund requirements 20,000 20,000
Long-term debt 119,138 120,142
-------- --------
Total capitalization 338,891 327,956
-------- --------
Long-term Lease Arrangements 19,115 19,385
-------- --------
Current Liabilities
Short-term debt 900 13,505
Current portion of long-term debt 1,000 -
Accounts payable 3,373 4,726
Accounts payable - affiliates 9,278 10,559
Accrued income taxes 9,425 1,497
Dividends declared 507 507
Other current liabilities 28,834 26,101
-------- --------
Total current liabilities 53,317 56,895
-------- --------
Deferred Credits
Deferred income taxes 56,946 57,191
Deferred investment tax credits 7,906 8,003
Other deferred credits 19,143 20,632
-------- --------
Total deferred credits 83,995 85,826
-------- --------
Total Capitalization and Liabilities $495,318 $490,062
======== ========
<PAGE>
CENTRAL VERMONT PUBLIC SERVICE CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
Three Months Ended
March 31
1996 1995
Cash Flows Provided (Used) By
Operating Activities
Net income $14,758 $13,796
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation 4,436 4,187
Deferred income taxes and investment tax credits (148) 1,927
Allowance for equity funds during construction (21) (106)
Net deferral and amortization of nuclear refueling
replacement energy and maintenance costs 1,260 (3,159)
Amortization of conservation & load management
costs 841 841
Amortization of restructuring costs 61 270
Decrease in accounts receivable 4,663 4,699
Increase (decrease) in accounts payable (1,866) 3,768
Increase in accrued income taxes 7,928 3,737
Decrease in other working capital items 5,185 1,431
Other, net (1,043) 164
------- -------
Net cash provided by operating activities 36,054 31,555
------- -------
Investing Activities
Construction and plant expenditures (4,240) (5,251)
Conservation and load management expenditures (485) (384)
Investments in affiliates (130) 49
Non-utility investments (441) (809)
Other investments, net (107) 38
------- -------
Net cash used for investing activities (5,403) (6,357)
------- -------
Financing Activities
Repurchase of common stock - (311)
Short-term debt, net (12,605) (10,584)
Retirement of long-term debt (4) (4,234)
Common and preferred dividends paid (2,825) (3,356)
------- -------
Net cash used for financing activities (15,434) (18,485)
------- -------
Net Increase in Cash and Cash Equivalents 15,217 6,713
Cash and Cash Equivalents at Beginning of Period 11,962 7,559
------- -------
Cash and Cash Equivalents at end of Period $27,179 $14,272
======= =======
Supplemental Cash Flow Information
Cash paid during the period for:
Interest (net of amounts capitalized) $ 224 $ 389
Income taxes (net of refunds) $ 1,075 $ 2,853
<PAGE>
CENTRAL VERMONT PUBLIC SERVICE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1996
Note 1 - Accounting Policies
The Company's significant accounting policies are described in Note 1 of
Notes to Consolidated Financial Statements included in its 1995 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 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 Federal and state regulatory
authorities including the United States Environmental Protection Agency (EPA).
It is Company policy to comply with all environmental laws. 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 is in compliance, in all material
respects, with all pertinent environmental laws and regulations.
Company operations occasionally result in unavoidable, inadvertent
releases of regulated substances or materials, for example the rupture of a
pole mounted transformer, or a broken hydraulic line. Whenever the Company
learns of such a release, the Company responds in a timely fashion and in a
manner that complies with all 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.
Those companies engaged in various operations and activities prior to being
merged into 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. The coal gas manufacturers, other
predecessor companies, and the Company itself may have engaged in waste
disposal activities which, 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 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. The Company has established a
process for determining whether insurance proceeds are available to offset the
costs associated with these sites.
Cleveland Avenue Property One such site is the Company's Cleveland Avenue
property located in the City of Rutland, Vermont, a site where one of its
predecessors operated a coal-gasification facility and later the Company sited
various operations functions. Due to the presence of coal tar deposits and
Polychlorinated Biphenyl (PCB) contamination and uncertainties as to potential
off-site migration of those contaminants, the Company conducted studies in
the late 1980's and early 1990's to determine the magnitude and extent of the
contamination. 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. Site investigation
continued over the next several years.
In January of 1995, the Company was formally contacted by the EPA asking
for written consent to conduct a site evaluation of the Cleveland Avenue
property. That evaluation has been completed. The Company does not believe
the EPA's evaluation changes its potential liability so long as the State
remains satisfied that reasonable progress continues to be made in remediating
the site and retains oversight of the process.
In 1995, as part of that process, the Company's consultant completed its
risk assessment report and submitted it to the State for review. The State
generally agreed with that assessment but expressed a number of concerns. The
Company has addressed almost all of the concerns expressed by the State and
continues to work with the State in a joint effort to develop a mutually
acceptable solution.
The Company selected a consulting/engineering firm to develop and
implement a remediation plan for the site and to collect additional data.
That firm has begun work at the site. It will collect the additional data
requested by the State and will use all the data gathered to date to formulate
a comprehensive remediation plan. The additional data gathered to date has
not caused the Company to alter its original estimate of the likely cost of
remediating the site.
PCB, Inc. In August 1995, the Company received an Information Request from
the EPA pursuant to a Superfund investigation of two related sites, one in the
state of Kansas and the other in the state of Missouri (the "Sites"). During
the mid-1980's, these Sites received materials containing PCBs from hundreds
of sources, including the Company. The Company has complied with the
information request and will monitor EPA activities at the Sites. At this
time, there has been no estimate of the cost to remediate the Sites.
Therefore, the Company cannot predict whether the Sites represent the
potential for a material adverse effect on its financial condition or results
of operations. However, given the fact EPA has identified more than 1,000
Potentially Responsible Parties (PRPs), and, based on information currently
available to the Company that contamination at the Sites appears to be
somewhat contained, any resulting liability is not expected to be significant.
The Company faces potential liability arising from the alleged disposal
of hazardous materials at three former municipal landfills: the Bennington
Landfill, the Parker Landfill, and the Trafton-Hoisington Landfill.
Bennington Landfill The Bennington Landfill is a Superfund site located in
Bennington, Vermont. An investigation by the Company suggests that it is
unlikely that it contributed a meaningful amount of hazardous substances, if
any, to the site.
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 Bennington 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 with regard to the Bennington site. 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 an aggregate of $.85 million in costs EPA
had incurred in responding to conditions at the site.
The original PRP Group reformed into a larger group, incorporating
additional PRPs, including the Company, to undertake the remedial response,
reimburse EPA's response expenses of $3 million it spent on its Engineering
Evaluation/Cost Analysis. The Company determined its interests would be best
served by participating in the larger PRP Group while at the same time
exploring the possibility of a "De Minimis" settlement with the EPA, either
alone or as part of a group, premised on its minimal contribution to the site.
Negotiations between the PRP Group and the EPA continue. The PRP Group
and EPA recently reached a tentative agreement. Under the terms of that
agreement, and a related internal allocation, the Company's liability would be
less than $100,000. If a final settlement is not achieved, the Company will
continue to explore its settlement options, individually and as a part of a
group of "De Minimis" parties. If all efforts at settlement fail, the Company
will defend any contribution action brought by the other PRPs or the EPA.
Parker Landfill The Parker Landfill is a Superfund site located in
Lyndonville, Vermont. In 1989, the Company received an information request
from the EPA. An investigation conducted at the time concluded that the
Company occasionally sent general trash to the site, and that said trash did
not include hazardous substances. In May 1994, the Company received a second
EPA request seeking additional information. A renewed investigation by the
Company supported its earlier conclusion that the Company had not sent
hazardous substances to the site. In summer of 1994, EPA announced its
proposed preferred remedy for this site with an estimated total present net
worth cost of $28.2 million. At this time, based on the information
available, the Company does not believe that this site represents a material
potential liability. Currently, the Company is considered a PIP for the site.
The Company has complied with the information requests and will monitor EPA
activities at the site.
Trafton-Hoisington Landfill The Trafton-Hoisington Landfill was a municipal
and industrial landfill in the Town of Windsor, Vermont. The site is
presently a state led 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 a contribution toward the cost of the site
investigation. In response to that request, the Company conducted an
investigation and concluded that it had not sent significant amounts of
hazardous substances to the site. Accordingly, the Company has advised the
PRPs it will not make any contribution towards those expenses.
At this time, the Company does not believe these landfill sites represent
the potential for a material adverse effect on its financial condition or
results of operations but it 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 that have the potential for causing the Company to
incur material remediation expenses, nor has the EPA or other Federal or state
agency sought contribution from the Company for the study or remediation of
any such sites.
Note 3 - Accounts Receivable
At March 31, 1996 and December 31, 1995, 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, are set aside for this
potential recourse liability. Accounts receivable and unbilled revenues
are reflected net of sales of $6.7 million and $5.3 million, respectively, at
March 31, 1996 and $4.4 million and $7.6 million, respectively, at
December 31, 1995.
Accounts receivable are also reflected net of an allowance for
uncollectible accounts of $1.5 million and $1.6 million at March 31, 1996 and
December 31, 1995, respectively.
<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
1996 1995
Operating revenues $39,756 $51,375
Operating expenses 36,315 47,543
------- -------
Operating income 3,441 3,832
Other income, net 629 537
------- -------
Total operating and other income 4,070 4,369
Interest expense 2,472 2,611
------- -------
Net income $ 1,598 $ 1,758
======= =======
<PAGE>
CENTRAL VERMONT PUBLIC SERVICE CORPORATION
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
March 31, 1996
Earnings Overview
Earnings available for common stock and earnings per share of common
stock for the three months ended March 31, 1996 were $14.3 million and $1.23
compared to $13.3 million and $1.13 for the corresponding period last year.
The increase in earnings for the first quarter of 1996 results from
insurance proceeds of approximately $1.3 million partially offset by a reserve
of approx-imately $.2 million for potential losses associated with a wholesale
customer described below. Combined, these items contributed $.10 per share of
common stock to first quarter earnings.
On April 30, 1996, the Company received a rate order from the Vermont
Public Service Board (PSB) generally approving an agreement reached with the
Vermont Department of Public Service (DPS). The agreement provides for a 5.5%
increase in Vermont retail rates effective with bills rendered on June 1, 1996
and an additional 2% increase effective January 1, 1997. When fully
implemented, these increases will produce new annual revenues of approximately
$16 million.
The PSB order caps the Company's allowed return on common equity in its
Vermont retail business at 11% for 1996 and 1997. For additional information
see Rates and Regulation below.
RESULTS OF OPERATIONS
The major elements of the Consolidated Statement of Income are discussed
below.
Operating Revenues and MWH Sales
A summary of MWH sales and operating revenues for the three months ended
March 31, 1996 and 1995 (and the related percentage changes from 1995) is set
forth below:
<TABLE>
<CAPTION>
Three Months Ended March 31
Percentage Percentage
MWH Increase Revenues (000's) Increase
1996 1995 (Decrease) 1996 1995 (Decrease)
<S> <C> <C> <C> <C> <C> <C>
Residential 285,355 273,698 4.3 $34,481 $32,867 4.9
Commercial 231,408 218,523 5.9 28,204 27,148 3.9
Industrial 104,330 111,274 (6.2) 9,438 9,942 (5.1)
Other retail 1,787 1,893 (5.6) 442 448 (1.3)
------- ------- ------- -------
Total retail sales 622,880 605,388 2.9 72,565 70,405 3.1
------- ------- ------- -------
Resale sales:
Firm 605 3,715 (83.7) 23 178 (87.1)
Entitlement 136,941 245,816 (44.3) 6,689 12,089 (44.7)
Other 184,935 133,283 38.8 4,304 3,202 34.4
------- ------- ------- -------
Total resale sales 322,481 382,814 (15.8) 11,016 15,469 (28.8)
------- ------- ------- -------
Other revenues - - - 665 989 (32.8)
------- ------- ------- -------
Total sales 945,361 988,202 (4.3) $84,246 $86,863 (3.0)
======= ======= ======= =======
</TABLE>
The increase in retail revenues of 3.1% is attributable to a 2.9%
increase in total retail MWH sales. For the quarter, residential and
commercial MWH sales increased 4.3% and 5.9%, respectively, reflecting the
normal cold weather experienced during the first quarter of 1996. Industrial
MWH sales and revenues decreased 6.2% and 5.1%, respectively, as a result of
increased natural snowfall during 1996 reducing ski areas' megawatt-hour
requirements for snow making.
Primarily due to the expiration, in October 1995, of a five year sale of
part of the Company's interest in the output of Vermont Yankee and Merrimack
#2 and lower sellback of Hydro-Quebec power, entitlement MWH sales and
revenues decreased 44.3% and 44.7%, respectively.
The 51,652 MWH increase ($1.1 million) in other resale sales resulted
principally from increased long and short-term system capacity and off-system
sales to other utilities in New England, partially offset by a decrease in MWH
sales to NEPOOL.
In April 1996, Vermont Electric Cooperative, Inc. (VEC) and Vermont
Electric Generation and Transmission Company, Inc. (VEGTC) filed for
bankruptcy under Chapter 11 and Chapter 7, respectively. Accordingly, during
the first quarter of 1996, the Company reduced revenues associated with power
sales and transmission service transactions between the Company and through
its affiliate, Vermont Electric Power Company, Inc., with VEC and VEGTC.
Thus, other revenues decreased 32.8% or $.3 million for the first quarter of
1996 compared to the same period last year.
Net Purchased Power and Production Fuel Costs
The net cost components of purchased power and production fuel costs for
the three months ended March 31, 1996 and 1995 are as follows (dollars in
thousands):
1996 1995
Units Amount Units Amount
Purchased and produced:
Capacity (MW) 473 $19,952 589 $21,271
Energy (MWH) 907,851 17,320 948,523 17,904
------- -------
Total purchased power
costs 37,272 39,175
Production fuel (MWH) 105,217 539 102,023 570
------- -------
Total purchased power and
production fuel costs 37,811 39,745
Entitlement and other resale
sales (MWH) 321,876 10,993 379,099 15,291
------- -------
Net purchased power and
production fuel costs $26,818 $24,454
======= =======
The Company's net purchased power and production fuel costs increased
$2.4 million compared to the same period last year. Although capacity costs
and energy costs decreased by $1.3 million and $.6 million, respectively,
these decreases were offset by a net $4.3 million reduction in entitlement and
other resale sales described above. The decrease in capacity costs results
from less MW purchased amounting to $4.2 million partially offset by an
increase in price of $2.9 million. Energy costs were lower due to a 4.3%
decrease in the amount of MWH purchased amounting to $.8 million offset by a
price increase of $.2 million.
The Company owns and operates 20 hydroelectric generating units and two
gas turbines and one diesel peaking unit with a combined capability of 70.1
MW. The Company has equity ownership interests in four nuclear generating
companies: Vermont Yankee, Maine Yankee, Connecticut Yankee and Yankee
Atomic. In addition, the Company maintains joint-ownership interests in
Joseph C. McNeil, a 53 MW wood, gas and oil-fired unit; Wyman #4, a 619 MW
oil-fired unit; and Millstone Unit #3, an 1154 MW nuclear unit.
The Company owns a 2% equity interest in Connecticut Yankee (Haddam Neck
Plant) and a 1.7303% joint-ownership interest in the Millstone Unit #3 (Unit
#3) of the Millstone Nuclear Power Station. These two plants are operated by
Northeast Utilities (NU).
By letter dated March 7, 1996, the Nuclear Regulatory Commission (NRC)
ordered NU to submit a plan within 30 days verifying operational compliance
with licensing documentation at Unit #3 and the Haddam Neck Plant, or risk
having the plants shut down. This order followed non-compliances discovered
at two of NU's other nuclear units.
On March 30, 1996, Unit #3 was shut down by the licensee following an
engineering evaluation which determined that four safety-related valves would
not be able to perform their design function during certain assumed events.
The NRC, by letter dated April 4, 1996, ordered NU to submit, no later
than seven days prior to the restart of Unit #3, information describing the
actions taken to ensure that future operation of Unit #3 will be conducted in
accordance with the terms and conditions of its operating license, NRC
regulations and the plant's Updated Final Safety Analysis Report. The letter
also requires that certain specific technical issues be resolved to the NRC's
satisfaction prior to restarting Unit #3. The most recent letter also
indicates that since the March 7, 1996 letter, the NRC has identified
programmatic issues and design deficiencies at Unit #3 that are similar in
nature to two of NU's other nuclear units which are currently not operating.
NU expects to file the necessary response for the restarting of Millstone
Unit #3 by July 2, 1996. The Company cannot, at this time, predict the NRC's
reaction to the response or the expected date that Unit #3 will return to
service. While Unit #3 is out of service, the Company will incur incremental
replacement power costs estimated at $250,000 to $300,000 per month. In
addition, the Company will incur incremental operation and maintenance costs
of approximately $433,000 for 1996.
Due to the April 4, 1996 letter, it was no longer necessary for NU to
respond to the March 7, 1996 letter regarding Unit #3. Accordingly, on
April 8, 1996, NU responded to the NRC's March 7, 1996 request for information
for the Haddam Neck Plant only. NU, in its response to the NRC, committed to:
1) develop the Haddam Neck Plant Project Completion Plan (Completion Plan) and
submit it to the NRC by May 30, 1996, 2) complete an in-depth analysis of the
underlying issues and concerns by August 31, 1996, and 3) execute the
Completion Plan by December 31, 1997.
The May 30, 1996 response will also include additional information
requested by the NRC team as a result of a two-week inspection in April 1996
of the Haddam Neck Plant. The response will include the specific findings and
the broader implications of the findings. Also, the NRC team, at the
completion of its two-week inspection of the Haddam Neck Plant, concluded that
the plant is safe to continue operating.
Other Operation
The decrease of $.9 million in other operation expenses for the first
quarter of 1996 results primarily from a decrease in Conservation and Load
Management (C&LM) costs and uncollectible accounts.
Maintenance
The increase in maintenance expenses of $.4 million or 15.8% for the
first quarter of 1996 compared to the same period in 1995 is attributable to
service restoration activities after winter storms and maintenance of the
Company's hydroelectric projects. Nuclear maintenance expenses associated
with the Company's joint-ownership interest in Millstone Unit #3 also
increased for the period.
Other Income, Net
For the first quarter of 1996, other income, net increased primarily due
to insurance proceeds of approximately $1.3 million.
Other Interest Expense
As a result of lower interest rates and decreased short-term debt levels,
other interest expense declined for the three months ended March 31, 1996.
Cash Dividends Declared
Common
The increase in common dividends declared results from the advanced
declaration in December 1994 of the dividend payable February 15, 1995.
LIQUIDITY AND CAPITAL RESOURCES
The Company's liquidity is primarily affected by the level of cash
generated from operations and the funding requirements of its ongoing
construction and C&LM programs. Net cash provided by operating activities
generated $36.0 million and $31.6 million for the three months ended March 31,
1996 and 1995, respectively.
The Company ended the first quarter of 1996 with cash and cash
equivalents of $27.2 million, an increase of $15.2 million from the beginning
of the year. The increase in cash for the first quarter of 1996 was the
result of $36.0 million provided by operating activities, $5.4 million used
for investing activities and $15.4 million used for financing activities.
Operating Activities
Approximately $19.2 million was provided from net income before non-cash
items, primarily depreciation. Fluctuations in working capital provided
$15.9 million.
Investing Activities
Construction and plant expenditures consumed approximately $4.2 million,
about $.5 million was used for C&LM programs, $.6 million for non-utility
investments and $.1 million for investments in affiliates.
Financing Activities
Dividends paid on common stock were $2.3 million, while preferred stock
dividends were $.5 million. Short-term obligations repaid totaled
$12.6 million.
Competition
As described in Note 1 of Notes to Consolidated Financial Statements
included in the Company's 1995 Annual Report on Form 10-K, management believes
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. If in the
future, 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 future competition
will place pressure on both unit sales and the prices 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 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 costs of providing service.
Utility Restructuring
The electric utility industry is in a period of potential transition that
may result in a shift away from cost of service and return on equity rates to
one with more market based rates. In many states, including Vermont and New
Hampshire, where the Company does business, new mechanisms are being explored
to bring greater competition, customer choice and market influence to the
industry while retaining the public benefits associated with the current
regulatory system.
In Vermont, the PSB by Order dated October 17, 1995, opened a process
requiring all 22 electric utilities in Vermont to file proposed restructuring
plans by mid-1996. The goal, as set forth in the Order, is to achieve
restructuring by January 1, 1998. The Company released its vision statement
for a restructured electric industry to interested parties on January 26, 1996
and expects to file a detailed vision with the PSB in mid-1996.
The Company's vision statement provides for full recovery of prudently
incurred utility investments and obligations that may become stranded as a
result of restructuring in the electric industry. Potentially, costs that are
currently being recovered in rates could become stranded in the future if the
Company were unable to reflect such costs in its rates after restructuring.
Sources of potential stranded costs would include any then above market
purchased power contracts or generation costs, nuclear decommissioning
obligations, unrecovered regulatory assets, as well as other unrecovered
investments and commitments made as a provider of electric utility service.
Recovery of stranded costs would be sought from customers through a mandatory
distribution "wires" charge for access to the distribution system.
The extent of potential stranded costs, if any, depends upon the timing,
nature, and degree of competition that may result from future changes in
regulatory policies governing the Company's activities and prices as well
as future power costs and market prices of power. As such, it is not
currently possible to predict with any reasonable precision the level of costs
that could be considered stranded as a result of future electric utility
industry restructuring. However, it is possible that stranded cost exposure
could exceed the Company's current total common stock equity.
In New Hampshire, the New Hampshire Public Utilities Commission (NHPUC),
directed by the New Hampshire legislature, has begun the process of
establishing a Pilot Program (Pilot) to determine the implications of retail
competition in the electric utility industry. The Pilot is for a two-year
period beginning in May 1996 and will be open to all electric utilities and to
all classes of customers in New Hampshire, although only 3% of customers will
be selected to participate. The Company is competing as a full service
provider to acquire additional load currently served by other New Hampshire
utilities and to retain load currently served by Connecticut Valley Electric
Company Inc., the Company's wholly owned New Hampshire subsidiary. In April
1996, the New Hampshire legislature passed legislation requiring New Hampshire
electric utilities to file restructuring plans by June 1997.
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 $37.25 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, 1996 (including
amounts of long-term debt due within one year), consisted of 56.4% common
equity, 8.3% preferred stock and 35.3% long-term debt.
Based on issues outstanding at March 31, 1996, the Company's mandatory
sinking fund requirements for long-term debt due within the next twelve-month
period is $1.0 million. The Company has no preferred stock subject to
mandatory sinking fund requirements.
Current credit ratings for the Company's securities as of May 1996 are as
follows:
Duff & Standard
Phelps & Poor's
------ --------
First Mortgage Bonds BBB+ BBB
Preferred Stock BBB- BBB-
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 $1.2 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 of 1.5% of credit available.
SmartEnergy, 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. There are no outstanding
borrowings under this facility.
Financial obligations of the non-utility wholly owned subsidiaries are
non-recourse to the Company.
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. Total C&LM expenditures in 1995
were $4.8 million, and are expected to be approximately $5.1 million in 1996.
Negotiations, between the DPS and the Company, to establish spending levels
for 1997 began in March of 1996.
Diversification
Catamount was formed for the purpose of investing in non-regulated power
plant 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. In addition, Catamount has interests in two projects under
construction located in Glenns Ferry and Rupert, Idaho.
SmartEnergy was formed for the purpose of profitably providing reliable,
energy-efficient products and services, including the rental of electric water
heaters.
Rates and Regulation
The Company recognizes 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 automatic rate adjustment clauses. The
Company's practice of reviewing costs periodically will continue and rate
increases will be requested when warranted. The Company filed for a 14.6% or
$31.0 million general rate increase on October 17, 1995 to become effective
July 1, 1996, to offset the increasing cost of providing service.
Approximately $29.0 million or 93.5% of the rate increase request is to
recover increased purchased power costs. On February 13, 1996, the Company
reached an agreement with the DPS regarding this rate increase request. On
April 30, 1996 the Company received a rate order from the PSB generally
approving the agreement.
Under the terms of the Agreement approved by the PSB, the Company will
increase its Vermont retail rates 5.5% effective June 1, 1996 and 2% effective
January 1, 1997. In addition, the Agreement caps the Company's allowed return
on common equity in its Vermont retail business for 1996 and 1997 at 11%, by
requiring the Company to reduce deferred C&LM costs to the extent its Vermont
retail return on common equity would otherwise exceed 11%, and prohibits the
Company from seeking any increase in Vermont retail rates which would become
effective before January 1, 1998, except for extraordinary circumstances. The
Agreement also requires the Company to recognize in 1997, for accounting
purposes, approximately $5.8 million in power cost reductions associated with
a recently executed Memorandum of Understanding with Hydro-Quebec and to file
for a rate reduction if the Company is successful in negotiating any further
modifications to the Contract with Hydro-Quebec that result in a reduction in
the cost of power from Hydro-Quebec between February 12, 1996 and December 31,
1997.
In its April 30, 1996 Order, the PSB modified the February 13, 1996
Agreement reached with the DPS by removing only one of the two penalties
imposed in the PSB's October 31, 1994 Order. Although the PSB's April 30,
1996 Order supports the Agreement's removal of the penalty associated with the
Company's efforts to acquire cost-effective energy efficiency resources, it
only suspends the penalty for the alleged mismanagement of power supply
options through the later of January 1, 1998 or the next investigation into
the Company's rates. After this period, the rate consequences of the penalty,
a 0.75% reduction in the Company's authorized Vermont retail return on common
equity, will be reimposed unless the Company demonstrates in future
proceedings that it has adequately met the standards for removal as
established by the PSB in its Orders issued October 31, 1994 and April 30,
1996.
During proceedings related to the April 30, 1996 Order, certain
intervening parties petitioned the PSB for a management audit of the Company.
In an Order dated April 10, 1996, the PSB severed the management audit issue
from the rate proceeding. The PSB held a status conference on May 6, 1996 to
address whether there should be such an audit as well as other related issues.
New Accounting Pronouncements
Effective January 1, 1996, the Company adopted SFAS No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be
Disposed Of," which 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. Based
on the current regulatory rate-making process, the adoption of SFAS No. 121
did not have a material impact on the Company's financial position or results
of operations. The Company did not adopt the accounting option of SFAS No.
123, "Accounting for Stock-Based Compensation," but adopted the required
audited pro forma disclosure. Based on the requirements of the pronouncement,
the pro forma effects on earnings and earnings per share are not expected to
be material.
<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 cogeneration facility under construction in
Sunnyside, Utah. The Company filed an answer denying the allegations and both
sides have filed motions for summary judgment which were denied. The
plaintiff has also submitted its Requests for Finding of Fact, in which it
claims damages of approximately $8.7 million. The case is expected to be
tried in the second half of 1996. The Company has denied liability and is
vigorously defending itself.
On December 30, 1994, a lawsuit was filed in the United States
District Court for the District of Vermont, Civil Action No. 2:94-CV386, by
Bradford E. White, Michel J. Messier and John A. Wasik, against the Company,
its present directors and certain former directors. This lawsuit (the
"Shareholder Suit"), which purports to be on behalf of a class of consumers as
well as on behalf of the Company's stockholders in enforcing the rights of the
Company, 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, diversification 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 Shareholder Suit 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 Shareholder Suit. The Company and its directors have
filed a Motion to Dismiss which is currently pending before the Court.
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 7, 1996.
(b) Directors elected whose terms will expire in 1999:
Votes For Votes Witheld
Elizabeth Coleman 9,511,619 896,736
Preston Leete Smith 10,020,670 387,685
Robert H. Young 10,061,889 346,466
Other Directors whose terms will expire in 1998:
Luther F. Hackett
F. Ray Keyser, Jr.
Gordon P. Mills
Other Directors whose terms will expire in 1997:
Frederic H. Bertrand
Mary Alice McKenzie
Robert D. Stout
Item 5. Other Information.
(a) On March 1, 1995, the Company filed a comprehensive, open access
transmission tariff (Tariff) with the 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 Connecticut Valley.
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 Tariff filing. On
April 28, 1995, the FERC issued a deficiency letter asking for more
information in a number of areas. The Company filed a timely response to the
deficiency letter on June 14, 1995. Three parties filed protests in response
to the Company filing, and one additional party filed a request for late
intervention. The FERC accepted the Tariff for filing on August 14, 1995,
suspended it and set it for hearing. The order allowed the Tariff to become
effective August 15, 1995, subject to refund and subject to the outcome of the
Open Access NOPR proceeding. The New Hampshire Electric Cooperative, Inc.
began taking transmission service under the Tariff as of its effective date.
The Company entered into negotiations with FERC Staff and
intervenors and reached a settlement in principle in January and March 1996 on
all rate issues contained in the Tariff filing. The settlement provided for
resolution of several rate issues based on the outcome of the NOPR or other
cases before the FERC. The non-rate issues will be decided based on the
outcome of the NOPR. However, further discussions within Vermont and New
England continue on at least some of the non-rate issues. This Settlement
Agreement was filed with FERC on April 24, 1996.
On April 24, 1996, the FERC approved three Orders covering
regulations on open access transmission, stranded cost recovery, standards of
conduct, and Open Access Same-time Information Systems (OASIS). FERC also
issued a notice of proposed rulemaking, proposing that open access tariffs be
replaced with single capacity reservation tariff (similar to natural gas
tariffs) beginning in 1998. Each utility will be required to adopt the terms
and conditions of the new pro forma tariff within sixty days of the
publication of the rule in the Federal Register, probably on or around July 1,
1996.
(b) As ordered by the NHPUC in Connecticut Valley's 1994 C&LMPA
docket, the Company entered into negotiations with the NHPUC Staff to redesign
the RS-2 wholesale rate under which Connecticut Valley purchases power from
the Company. The redesign features marginal cost based energy and capacity
charges for all energy and capacity purchases above or below a base level.
Such negotiations concluded at the end of 1994. A summary report was filed
with the NHPUC on February 13, 1995. The NHPUC issued an order approving the
summary report in June 1995. The Company is preparing the FERC filing which
it expects to file in 1996. The redesigned rate is structured such that
Connecticut Valley's cost under the existing average cost rate structure of
wholesale power will be lower than it would have if Connecticut Valley's
growth rate exceeds that of the Company's Vermont retail operations.
(c) Robert G. Kirn, Vice President-Engineering and Operations, and
Robert de R. Stein, Senior Vice President-Energy Resources and External
Markets, resigned from the Company effective June 28, 1996 and August 30,
1996, respectively.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
EXHIBIT INDEX
Exhibit
27. Financial Data Schedule.
(b) Item 5. Other Events, dated March 30, 1996 re: Millstone Unit #3
was filed on April 10, 1996.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CENTRAL VERMONT PUBLIC SERVICE CORPORATION
(Registrant)
By Francis J. Boyle
___________________________________
Francis J. Boyle, Vice President,
Finance and Administration and
Principal Financial Officer
By James M. Pennington
___________________________________
James M. Pennington, Controller and
Principal Accounting Officer
Dated May 13, 1996
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This Financial Data Schedule contains summary financial information extracted
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