SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
Form 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 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 July 31, 1996 there
were outstanding 11,519,748 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 and nine months ended
September 30, 1996 and 1995 3
Consolidated Balance Sheet as of September 30,
1996 and December 31, 1995 4
Consolidated Statement of Cash Flows for the nine
months ended September 30, 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 11-21
PART II. OTHER INFORMATION 22-23
SIGNATURES 24
<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 Nine Months Ended
September 30 September 30
1996 1995 1996 1995
Operating Revenues $63,833 $60,314 $209,469 $210,023
------- ------- -------- --------
Operating Expenses
Operation
Purchased power 37,063 33,418 110,774 110,284
Production and transmission 5,615 5,540 15,307 15,898
Other operation 10,030 8,722 27,650 29,064
Maintenance 4,203 3,616 10,620 9,210
Depreciation 4,511 4,372 13,391 12,883
Other taxes, principally property
taxes 2,657 2,582 8,123 7,704
Taxes on income (520) 142 7,698 7,816
------- ------- -------- --------
Total operating expenses 63,559 58,392 193,563 192,859
------- ------- -------- --------
Operating Income 274 1,922 15,906 17,164
------- ------- -------- --------
Other Income and Deductions
Equity in earnings of affiliates 807 888 2,460 2,508
Allowance for equity funds during
construction 31 42 79 195
Other income, net 658 1,753 2,345 2,585
Benefit (provision) for income
taxes (80) (338) 88 (365)
------- ------- -------- --------
Total other income and
deductions, net 1,416 2,345 4,972 4,923
------- ------- -------- --------
Total Operating and Other Income 1,690 4,267 20,878 22,087
------- ------- -------- --------
Interest Expense
Interest on long-term debt 2,373 2,375 7,091 7,165
Other interest 174 174 449 580
Allowance for borrowed funds
during construction (72) (30) (188) (139)
------- ------- -------- --------
Total interest expense, net 2,475 2,519 7,352 7,606
------- ------- -------- --------
Net Income (Loss) (785) 1,748 13,526 14,481
Retained Earnings at Beginning
of Period 72,553 64,962 66,422 55,575
------- ------- -------- --------
71,768 66,710 79,948 70,056
Cash Dividends Declared
Preferred stock 507 507 1,521 1,521
Common stock - 2,327 7,166 4,659
------- ------- -------- --------
Total dividends declared 507 2,834 8,687 6,180
------- ------- -------- --------
Retained Earnings at End
of Period $71,261 $63,876 $ 71,261 $ 63,876
======= ======= ======== ========
Earnings (Losses) Available for
Common Stock $(1,292) $ 1,241 $ 12,005 $ 12,960
Average Shares of Common Stock
Outstanding 11,519,748 11,618,596 11,552,140 11,668,606
Earnings (Losses) Per Share
of Common Stock $(.11) $ .11 $1.04 $1.11
Dividends Paid Per Share of Common
Stock $ .22 $ .20 $ .62 $ .60
<PAGE>
CENTRAL VERMONT PUBLIC SERVICE CORPORATION
CONSOLIDATED BALANCE SHEET
(Dollars in thousands)
(Unaudited)
September 30 December 31
1996 1995
Assets
Utility Plant, at original cost $452,767 $453,784
Less accumulated depreciation 148,112 136,057
-------- --------
304,655 317,727
Construction work in progress 19,984 8,108
Nuclear fuel, net 943 1,167
-------- --------
Net utility plant 325,582 327,002
-------- --------
Investments and Other Assets
Investments in affiliates, at equity 26,738 26,464
Non-utility investments 26,097 22,622
Non-utility property, less accumulated
depreciation 4,495 2,896
-------- --------
Total investments and other assets 57,330 51,982
-------- --------
Current Assets
Cash and cash equivalents 15,992 11,962
Special deposits 6,043 3,868
Accounts receivable 16,120 21,374
Unbilled revenues 4,257 11,177
Materials and supplies, at average cost 3,558 4,023
Prepayments 1,951 3,607
Other current assets 4,071 4,564
Total current assets 51,992 60,575
-------- --------
Regulatory Assets and Other Deferred Charges 49,370 50,503
-------- --------
Total Assets $484,274 $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 45,268 45,251
Treasury stock (266,100 shares and 195,100 shares,
respectively, at cost) (3,656) (2,628)
Retained earnings 71,261 66,422
-------- --------
Total common stock equity 183,588 179,760
Preferred and preference stock 8,054 8,054
Preferred stock with sinking fund requirements 20,000 20,000
Long-term debt 120,379 120,142
Long-term lease arrangements 18,574 19,385
-------- --------
Total capitalization 350,595 347,341
-------- --------
Current Liabilities
Short-term debt - 13,490
Current portion of long-term debt 1,015 15
Accounts payable 4,341 4,726
Accounts payable - affiliates 13,440 10,559
Accrued income taxes - 1,497
Dividends declared 507 507
Other current liabilities 31,137 26,101
-------- --------
Total current liabilities 50,440 56,895
-------- --------
Deferred Credits
Deferred income taxes 58,623 57,191
Deferred investment tax credits 7,710 8,003
Other deferred credits 16,906 20,632
-------- --------
Total deferred credits 83,239 85,826
-------- --------
Total Capitalization and Liabilities $484,274 $490,062
======== ========
<PAGE>
CENTRAL VERMONT PUBLIC SERVICE CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
Nine Months Ended
September 30
1996 1995
Cash Flows Provided (Used) By
Operating Activities
Net income $13,526 $14,481
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation 13,391 12,883
Deferred income taxes and investment tax credits 554 2,846
Allowance for equity funds during construction (79) (195)
Net deferral and amortization of nuclear refueling
replacement energy and maintenance costs (1,393) (4,668)
Amortization of conservation and load management
costs 3,896 2,522
Amortization of restructuring costs 184 811
Gain on sale of investment - (1,517)
Gain on sale of property (700) -
Decrease in accounts receivable 11,999 14,618
Decrease in accounts payable 2,878 (464)
Decrease in accrued income taxes (2,117) (835)
Change in other working capital items 3,408 1,489
Other, net (3,017) (30)
------- -------
Net cash provided by operating activities 42,530 41,941
------- -------
Investing Activities
Construction and plant expenditures (14,813) (15,867)
Deferred conservation & load management expenditures (1,158) (3,322)
Investments in affiliates (99) 129
Proceeds from sale of investment - 6,400
Proceeds from sale of property 775 -
Non-utility investments (1,079) (157)
Other investments, net (158) (158)
------- -------
Net cash used for investing activities (16,532) (12,975)
------- -------
Financing Activities
Repurchase of common stock (1,042) (1,892)
Sale of treasury stock 14 -
Short-term debt, net (13,490) (7,206)
Long-term debt, net 1,236 (4,241)
Common and preferred dividends paid (8,686) (8,525)
------- -------
Net cash used for financing activities (21,968) (21,864)
------- -------
Net Increase in Cash and Cash Equivalents 4,030 7,102
Cash and Cash Equivalents at Beginning of Period 11,962 7,559
------- -------
Cash and Cash Equivalents at End of Period $15,992 $14,661
======= =======
Supplemental Cash Flow Information
Cash paid during the period for:
Interest (net of amounts capitalized) $ 5,011 $ 5,342
Income taxes (net of refunds) $ 7,999 $ 6,119
<PAGE>
CENTRAL VERMONT PUBLIC SERVICE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 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. Certain reclassifications have been made to
the Consolidated Balance Sheet to conform with the current period's
presentation.
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 of Vermont 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 collect additional
data and develop and implement a remediation plan for the site. 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 the 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 also 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
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 AND TRAFTON-HOISINGTON LANDFILLS There have been no further
developments involving the Company at these sites. The Company's
investigations at the time it was originally contacted indicated that it
contributed little if any hazardous substances to the sites. The Company has
not been contacted by the EPA, the state or any of the PRPs since 1994.
Therefore, the Company believes that the likelihood that these sites will
cause the Company to accrue significant liability has significantly
diminished. For historical information pertaining to these sites, refer to
the Company's 1995 Form 10-K.
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.
The Company recently filed a Federal law suit against several insurance
companies. In its complaint, the Company alleges that general liability
policies issued by the insurer provide coverage for all expenses incurred or
to be incurred by the Company in conjunction with, among others, the Cleveland
Avenue Property and the Bennington Landfill sites. Due to the uncertainties
associated with the outcome of this law suit, no receivables have currently
been recorded. (See Part II - Legal Proceedings.)
Note 3 - Accounts Receivable
At September 30, 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 $6.2 million and $5.8 million, respectively, at
September 30, 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 $1.2 million and $1.6 million at September 30, 1996
and December 31, 1995, respectively.
Note 4 - Connecticut Yankee Atomic Power Co.
On October 9, 1996, Connecticut Yankee Atomic Power Co. (CYAPC) which
owns and operates the Connecticut Yankee nuclear electric generating plant,
announced that a permanent shutdown of the CY plant is reasonably possible.
The announcement was based on an economic analysis of the costs of operating
the plant compared to the costs of closing the plant and incurring replacement
power costs for the same period. The final decision to permanently shut down
the CY plant is pending CYAPC's board of directors approval which is expected
to occur in the fourth quarter of 1996.
Assuming permanent shut down of the CY plant, the Company's share of the
estimate of the sum of future payments for the closing, decommissioning and
recovery of the remaining investment in CY is approximately $15.9 million. If
the CYAPC's board of directors decision results in a permanent closure of the
CY plant, this amount would be reflected as a regulatory asset and deferred
power contract obligation on the Company's balance sheet. Of the Company's 2%
share of the estimated decommissioning liability, approximately $3.9 million
has been funded at September 30, 1996.
The Company believes that based on the current regulatory process, its
proportionate share of CY's decommissioning costs will be recovered through
rates and, therefore, the ultimate resolution of the premature retirement of
the plant will not have a material adverse effect on the Company's earnings or
financial condition.
The Company's entitlement in CY is 2% (11.7 MW) . The extra replacement
power costs for CY are estimated to average in the range of $120,000 to
$140,000 per month. The Company's investment in this plant at September 30,
1996 was $2.1 million.
<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 Nine Months Ended
September 30 September 30
1996 1995 1996 1995
Operating revenues $55,068 $38,350 $138,106 $136,768
Operating expenses 51,521 34,768 127,123 125,498
------- ------- -------- --------
Operating income 3,547 3,582 10,983 11,270
Other income, net 669 655 1,870 1,704
------- ------- -------- --------
Total operating and
other income 4,216 4,237 12,853 12,974
Interest expense 2,481 2,590 7,818 7,853
------- ------- -------- --------
Net income $ 1,735 $ 1,647 $ 5,035 $ 5,121
======= ======= ======== ========
<PAGE>
CENTRAL VERMONT PUBLIC SERVICE CORPORATION
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
September 30, 1996
Earnings Overview
The Company recorded losses available for common stock of $1.3 million or
$.11 per share of common stock for the three months ended September 30, 1996,
compared to earnings available for common stock of $1.2 million or $.11 per
share of common stock during the same period last year. Due to the Company's
winter sales peak and higher winter rates, the Company normally experiences
losses in the second and third quarter when sales are lower and rates are
reduced.
For the nine months ended September 30, 1996 earnings available for
common stock were $12.0 million compared to $13.0 million in 1995. Earnings
per share of common stock for these respective periods were $1.04 and $1.11.
For both the three and nine months ended September 30, 1996, earnings
available for common stock and earnings per share of common stock were reduced
by approximately $1.7 million and $.15, respectively for unscheduled
incremental nuclear outage costs and related replacement power costs. Other
factors affecting results for 1996 are described in Results of Operations
below. Also, the 1995 third quarter included a gain of $.9 million, or $.08
per common share, resulting from the sale of an investment in an independent
power project.
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 and nine
months ended September 30, 1996 and 1995 (and the related percentage changes
from 1995) is set forth below:
<TABLE>
<CAPTION>
Three Months Ended September 30
Percentage Percentage
MWH Increase Revenues (000's) Increase
1996 1995 (Decrease) 1996 1995 (Decrease)
<S> <C> <C> <C> <C> <C> <C>
Residential 211,344 213,381 (1.0) $22,053 $20,987 5.1
Commercial 229,016 225,015 1.8 21,897 20,442 7.1
Industrial 93,710 92,726 1.1 6,597 6,137 7.5
Other retail 1,842 1,900 (3.1) 478 464 3.0
------- ------- ------- -------
Total retail sales 535,912 533,022 .5 51,025 48,030 6.2
------- ------- ------- -------
Resale sales:
Firm 370 346 6.9 21 11 90.9
Entitlement 116,752 184,247 (36.6) 6,826 7,993 (14.6)
Other 162,032 143,713 12.7 3,938 3,281 20.0
------- ------- ------- -------
Total resale sales 279,154 328,306 (15.0) 10,785 11,285 (4.4)
------- ------- ------- -------
Other revenues - - - 2,023 999 102.5
------- ------- ------- -------
Total sales 815,066 861,328 (5.4) $63,833 $60,314 5.8
======= ======= ======= =======
Nine Months Ended September 30
Percentage Percentage
MWH Increase Revenues (000's) Increase
1996 1995 (Decrease) 1996 1995 (Decrease)
Residential 711,815 700,687 1.6 $ 78,253 $ 74,376 5.2
Commercial 669,365 649,506 3.1 70,053 66,465 5.4
Industrial 291,415 295,381 (1.3) 22,735 22,437 1.3
Other retail 5,448 5,624 (3.1) 1,383 1,363 1.5
--------- --------- -------- --------
Total retail sales 1,678,043 1,651,198 1.6 172,424 164,641 4.7
--------- --------- -------- --------
Resale sales:
Firm 1,166 4,388 (73.4) 60 203 (70.4)
Entitlement 386,632 735,471 (47.4) 19,716 31,862 (38.1)
Other 547,491 437,124 25.2 13,148 10,187 29.1
--------- --------- -------- --------
Total resale sales 935,289 1,176,983 (20.5) 32,924 42,252 (22.1)
--------- --------- -------- --------
Other revenues - - - 4,121 3,130 31.7
--------- --------- -------- --------
Total sales 2,613,332 2,828,181 (7.6) $209,469 $210,023 (.3)
========= ========= ======== ========
</TABLE>
Retail MWH sales for the third quarter ended September 30, 1996 were
relatively flat compared to the 1995 third quarter. However, retail revenues
increased $3.0 million or 6.2% over last year due to a $2.8 million increase
in revenues resulting from the 5.5% retail rate increase effective with bills
rendered June 1, 1996 and $.2 million associated with a modest increase in
retail MWH sales. For the quarter, residential MWH sales decreased 1.0% while
commercial and industrial MWH sales increased 1.8% and 1.1%, respectively.
For the nine months ended September 30, 1996, retail MWH sales increased
1.6% while retail revenues increased $7.8 million or 4.7% compared to last
year. The revenue increase results from a $4.9 million increase in revenues
due to the 5.5% retail rate increase and $2.9 million associated with the 1.6%
increase in retail MWH sales. For the nine months 1996, residential and
commercial MWH sales increased 1.6% and 3.1%, respectively, reflecting the
normal cold weather experienced during the first quarter of 1996 while
industrial MWH sales decreased 1.3% as a result of increased natural snowfall
during 1996 reducing ski areas' megawatt-hour requirements for snow making.
For the three and nine months ended September 30, 1996, entitlement MWH
sales and revenues decreased compared to the same period in 1995 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.
The increase in other resale sales and revenues for the three and nine
month periods resulted primarily from increased short-term system capacity
sales and sales to Nepool offset by a decrease in unit and off-system sales to
other utilities in New England.
Other revenues for the third quarter and for the nine months ended
September 30, 1996 increased due to an increase in transmission revenues
related to a transmission interconnection agreement.
Net Purchased Power and Production Fuel Costs
The net cost components of purchased power and production fuel costs for
the three and nine months ended September 30, 1996 and 1995 are as follows
(dollars in thousands):
<TABLE>
<CAPTION>
Three Months Ended September 30
1996 1995
Units Amount Units Amount
<S> <C> <C> <C> <C>
Purchased and produced:
Capacity (MW) 537 $21,650 554 $20,190
Energy (MWH) 821,899 15,413 843,853 13,228
------- -------
Total purchased power costs 37,063 33,418
Production fuel (MWH) 47,354 485 71,713 735
------- -------
Total purchased power and
production fuel costs 37,548 34,153
Entitlement and other resale sales (MWH) 278,784 10,764 327,960 11,274
------- -------
Net purchased power and production
fuel costs $26,784 $22,879
======= =======
Nine Months Ended September 30
1996 1995
Units Amount Units Amount
Purchased and produced:
Capacity (MW) 519 $ 62,828 606 $ 62,532
Energy (MWH) 2,568,318 47,946 2,757,613 47,752
-------- --------
Total purchased power costs 110,774 110,284
Production fuel (MWH) 224,980 1,259 244,595 1,834
-------- --------
Total purchased power and
production fuel costs 112,033 112,118
Entitlement and other resale sales (MWH) 934,123 32,864 1,172,595 42,049
-------- --------
Net purchased power and production
fuel costs $ 79,169 $ 70,069
====== ======
</TABLE>
The Company's net purchased power and production fuel costs increased
$3.9 million for the third quarter compared to the same period last year.
Capacity and energy costs were $1.5 million and $2.2 million, respectively,
higher than last year. Entitlement and other resale sales decreased $.5
million. Although the Company purchased 3.1% less MW during the third quarter
which decreased capacity costs by $.6 million, this was offset by a price
increase of $2.1 million. The Company purchased 2.6% less MWH amounting to
$.3 million reduction in energy costs for the third quarter compared to 1995.
However, a 19.6% increase in price per MWH resulted in a $2.5 million increase
in energy costs.
For the year-to-date period, net purchased power and production fuel
costs increased $9.1 million compared to the same period last year. Although
capacity and energy costs were about the same as last year, a 20.3% decrease
in entitlement and other resale sales caused the increase in net purchased
power and production fuel costs. The Company purchased 14.4% less MW
amounting to $9.0 million offset by a price increase of $9.3 million. MWH
purchased were lower by 6.9% or $3.3 million offset by an increase in price of
$3.5 million.
The price increase for the third quarter and for the year-to-date period
results primarily from incremental replacement power costs associated with
Millstone Unit #3 (Unit #3) discussed below. Also, production fuel costs
decreased for the quarter and year-to-date compared to 1995 due to lower
generation by Unit #3.
The Company owns and operates 20 hydroelectric generating units and two
gas turbines and one diesel peaking unit with a combined capability of
73.7 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.
NUCLEAR MATTERS
The Company maintains a 1.7303% joint-ownership interest in the
Millstone Unit #3 of the Millstone Nuclear Power Station and owns a 2% equity
interest in Connecticut Yankee. These two plants are operated by Northeast
Utilities (NU). The Company also owns 2% and 3.5% equity interest in Maine
Yankee and Yankee Atomic, respectively.
Millstone Unit #3
On January 31, 1996, the Nuclear Regulatory Commission (NRC) placed the
Millstone Nuclear Power Station on its "watch list" as a Category 2 facility
which has been identified by the NRC as having weaknesses that require
increased NRC attention until the licensee demonstrates a period of improved
performance.
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 issued a series of letters seeking assurances the Millstone Units
would be operated in accordance with the terms of their operating licenses,
their Updated Final Safety Analysis Reports and all NRC regulations before it
would allow restart of the Millstone Units #1 and #2.
In a letter dated June 28, 1996, the NRC informed Northeast Utilities
Service Company (NUSCO), a subsidiary of NU, that the Millstone Nuclear Power
Station had been reclassified from a Category 2 facility to a Category 3
facility. Category 3 facilities are classified as having significant
weaknesses that require maintaining the plant in shutdown condition until it
is demonstrated that adequate programs have been established and implemented
to ensure substantial improvement. Also, the letter informed NUSCO that
Category 3 designation requires the NRC staff to obtain NRC approval by vote
prior to a plant returning to service.
On July 2, 1996, NUSCO filed an extensive document, including an
Operational Readiness Plan (ORP), with the NRC responding to a series of
letters received from the NRC concerning Unit #3. The response outlines a
revised corrective action program for the Millstone Nuclear Power Station in
response to criticism of this program contained in a June 6 letter from the
NRC. The July 2, 1996 filing identifies about 1,200 design and configuration
discrepancies at Unit #3 of which about 600 will have to be resolved before
Unit #3 can be returned to service. NUSCO believes that a small number of the
remaining items will require hardware modifications and the balance can be
resolved with additional inspections, documentation changes or additional
analysis. The ORP for Unit #3 is under review by the NRC.
On August 14, 1996, an independent review team was created by the NRC to
review actions taken by NU prior to the restart of Unit #3.
The Company has been informed that NUSCO's management cannot predict, at
this time, the results of the NRC's review of Unit #3 documentation, how long
it will take NUSCO to demonstrate the effectiveness of the corrective action
program to the NRC or the effect the independent review team will have on the
timing of restart of Unit #3 and what additional costs, if any, will result.
Also, the management reorganization of NU's nuclear organization
described in NU's Form 8-K dated August 19, 1996, may impact the actions
currently being taken by NU to improve operation, regulatory compliance and
safety at Unit #3.
The Company remains actively involved with the other non-operating
minority joint-owners of Unit #3. This group is engaged in various activities
to monitor, evaluate and assist, where appropriate, NUSCO's efforts relating
to Unit #3.
The incremental direct and replacement power costs associated with Unit
#3 outages will depend on the length of time Unit #3 remains out of service.
However, NU anticipates that Unit #3 could return to service in mid-1997. The
Company estimates that while Unit #3 is out of service it will incur
incremental replacement power costs estimated at $250,000 to $350,000 per
month. In addition, the Company expects to incur incremental operation and
maintenance costs during 1996 of about $1.3 million all of which incremental
operating and maintenance costs have been accrued.
Connecticut Yankee
On May 17, 1996, NU received a letter from the NRC indicating that recent
inspections of the Connecticut Yankee (CY) nuclear unit revealed issues that
were similar to those previously identified at Millstone Nuclear Power
Station. Accordingly, the NRC requested that CY submit by May 30, 1996, a
comprehensive list of design and configuration deficiencies identified at CY,
together with a description of the actions taken in response to the
deficiencies. In its compliance response, on May 30, 1996, CY stated that
although several specific issues identified at CY are similar to those at
Unit #1 of the Millstone Nuclear Power Station, the findings do not reach the
same level as those identified at that facility. Also, CY stated that the
fundamental problems that exist at Millstone Unit #1 are not present at CY.
On July 22, 1996, the CY plant began an unscheduled outage as a
precautionary measure to evaluate the plant's service water system, which
provides cooling water to certain critical plant components. The shutdown
began after an analysis of a hypothetical, though unlikely, accident scenario
which demonstrates that the cooling water system might not perform its
intended function. Based on preliminary engineering studies, NU estimated
that the CY plant would return to service prior to mid-August 1996.
Additional maintenance was expected to be completed during its 60-day
scheduled refueling outage beginning September 21, 1996. On August 2, 1996,
NU received a letter from the NRC identifying other potentially significant
issues involving the "Residual Heat Removal, Service Water, and Feedwater
Systems." Therefore, in order to make necessary improvements to the safety
related systems, NU decided to begin the CY plant refueling outage on
August 8, 1996.
On August 9, 1996, NU received a letter from the NRC asking NU to "update
and resubmit" the basis for continued operation of the CY plant previously
submitted to the NRC. The NRC also requested NU to address the implications
of recently identified instances of degraded or non-conforming conditions at
the CY plant. NU responded to the August 9 letter on September 13, 1996.
In summary, the letter addressed concerns about the bases for continued
operation of the CY plant. It stated that additional reviews and corrective
actions are necessary before NU can provide the bases for continued operation
of the plant. It also stated that the plant will not return to service until
NU improves program-matic controls, identified and resolved the safety issues
and have taken necessary steps to give reasonable assurance that important
plant systems are operable and in conformance with the design and licensing
basis. In addition, the action may also be impacted by the currently ongoing
economic analysis of CY's costs of operations, including expenses and the cost
of replacing power, the NRC order requiring the creation of an independent
corrective action verification program for the CY plant and NRC's ongoing and
planned inspection activities at the CY plant.
Based on results of the economic analysis, a premature shutdown of the
plant is reasonably possible. For additional information regarding permanent
shutdown of the CY plant, see Note 4 to the Consolidated Financial Statements
in this Form 10-Q.
Maine Yankee
By order of the NRC, the 880-megawatt nuclear generating plant (Plant)
located in Wiscasset, Maine is currently restricted to 90% of its approved
power level.
In response to concerns about Maine Yankee's analysis and the NRC's
review of certain computer codes used in calculating the safety of the Plant
in the event of some types of accidents, in mid-July 1996 an independent
Safety Assessment Team (Team), commissioned by the NRC, began a four-week,
on-site comprehensive review of the Plant's performance. The Team performed
adetail review of the licensing basis and operational safety performance of
the Plant and was responsible for analyzing whether the Plant has been
operating in compliance with its operating license.
On July 20, 1996, the Plant was shut down as a result of a potential
problem discovered by Maine Yankee personnel related to the containment
cooling system. The Plant came on line on September 2, 1996 and attained its
limited 90% level on September 3, 1996. The Company's share of the
incremental operating and maintenance costs associated with the outage are
approximately $200,000 and the Company's incremental replacement power costs
were about $150,000 through the date the Plant returned to service.
On October 7, 1996, the NRC issued a report concluding that Maine Yankee
was in general conformance with its licensing basis although significant items
of non-conformance were identified. The report also concluded that despite
uncorrected and previously undiscovered design problems specified in the
report, the design basis and compensatory measures adequately supported
operation of the Plant at a 90% power level. While Maine Yankee cannot
predict when, or if, the Plant will be allowed to return to a 100% maximum
capacity, the Plant's operating level may be limited to 90% of capacity until
completion of the Plant's next planned refueling outage, which is currently
scheduled for September 1997. The Company's estimated costs of replacement
power during the Plant's operation at 90% of capacity are minimal.
Yankee Atomic
In 1992, the Board of Directors of Yankee Atomic (YA) decided to
permanently discontinue operation of their plant, and to decommission the
facility. The Company relied on YA for less than 1.5% of its system capacity.
Presently, costs billed to the Company by YA, which include a provision for
ultimate decommissioning of the unit, are being collected from the Company's
customers via existing retail tariffs. The Company's share of remaining costs
with respect to YA's decision to discontinue operation is approximately $7.0
million. This amount is reflected in the accompanying balance sheet both as a
regulatory asset and deferred power contract obligation (current and non-
current).
The Company believes that its proportionate share of YA costs will be
recovered through the regulatory process and, therefore, the ultimate
resolution of the premature retirement of the YA plant has not and will not
have a material adverse effect on the Company's earnings or financial
condition.
Other Operation
Other operating expenses increased $1.3 million for the third quarter of
1996 principally due to increased conservation and load management
amortization and administrative and general expenses.
The decrease in other operating expenses of $1.4 million for the nine
months ended September 30, 1996, was primarily the result of accounting for
the cumulative effects of certain Conservation and Load Management (C&LM)
costs. Consistent with cost recovery allowed by the PSB in its April 30, 1996
rate order, the Company, during the second quarter, recorded a regulatory
asset of approximately $1.4 million of C&LM expenses. Lower administrative
and general expenses and uncollectible accounts also contributed to the
decrease for the period.
Maintenance
The increase in maintenance expenses of $.6 million and $1.4 million for
the three and nine months ended September 30, 1996 compared to the same
periods in 1995 is attributable to nuclear maintenance expenses associated
with the Company's joint-ownership interest in Millstone Unit #3 discussed
above.
Income Taxes
Federal and state income taxes fluctuate with the level of pre-tax
earnings. The decrease in total income tax expense for the three and nine
months of 1996 results primarily from a decrease in pre-tax earnings for the
respective periods.
Other Income (Expenses), Net
The decrease in other income (expenses), net for the three and nine
months of 1996 is primarily due to approximately $1.1 million and
$1.6 million, respectively, of expenses incurred in connection with a non-
utility project currently under development in Summersville, West Virginia.
These expenses will be reimbursed by Gauley River Power Partners LP at
financial closing which is expected to occur during 1997. The decrease is
partially offset by higher income from Catamount's operating investments, an
increase in interest and dividend income and insurance proceeds of
$1.3 million recorded in the first quarter of 1996.
Other Interest Expense
Other interest expense declined for the nine months ended September 30,
1996 due to lower average interest rates combined with decreased short-term
debt levels.
Cash Dividends Declared
Common
Early declarations account for the increase in common dividends declared.
During the first nine months of 1996 the Company declared three common stock
dividends totaling $.62 per share while two common stock dividends totaling
$.40 per share were declared during the first nine months of 1995. However,
two quarterly common stock dividends of $.20 and one at $.22 per share were
paid during the first nine months of 1996 and three quarterly common stock
dividends of $.20 per share were paid during the first nine months of 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 was
$43.0 million and $41.9 million for the nine months ended September 30, 1996
and 1995, respectively.
The Company ended the first nine months of 1996 with cash and cash
equivalents of $16.0 million, an increase of $4.0 million from the beginning
of the year. The increase in cash for the first nine months of 1996 was the
result of $42.5 million provided by operating activities, $16.5 million used
for investing activities and $22.0 million used for financing activities.
OPERATING ACTIVITIES - Net income before non-cash items, depreciation and
deferred income taxes provided $27.5 million. Fluctuations in working capital
provided $16.1 million and $1.1 million was used for deferral/amortization of
nuclear replacement energy and maintenance costs, amortization of conservation
and load management costs and other, net including gain on sale of property of
$.7 million.
INVESTING ACTIVITIES - Construction and plant expenditures consumed $14.8
million, $1.2 million was used for C&LM programs, $1.1 million was used for
non-utility investments and $.2 million was used for other investments.
Proceeds of $.8 million were generated from the sale of property.
FINANCING ACTIVITIES - Dividends paid on common stock were $7.2 million,
while preferred stock dividends were $1.5 million. Long-term debt provided
$1.2 million while short-term obligations repaid totaled $13.5 million.
$1.0 million was used to reacquire common stock.
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.
ELECTRIC INDUSTRY RESTRUCTURING
Vermont
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 based
rates to one with more market based rates. Most states, including Vermont and
New Hampshire, where the company does business, are exploring new mechanisms
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 filed its electric industry
restructuring proposal with the PSB on June 19, 1996.
On October 16, 1996, the PSB issued a Draft Report and Order (Draft
Report) outlining a restructuring plan (Plan) for the Vermont electric
utility industry which requires legislative approval. The Plan consists of
nine components as follows:
PROVIDE CUSTOMER CHOICE. Enables all customers to demand and purchase
the products and service they need and want. It provides for additional
market opportunities for low-usage customers.
REQUIRE VERMONT LARGEST INVESTOR-OWNED UTILITIES TO DIVIDE THEIR
GENERATION AND DISTRIBUTION FUNCTIONS INTO SEPARATE CORPORATE SUBSIDIARIES.
The PSB does not propose full corporate divestiture at this time but requires
this "functional separation" of the companies into wholly owned subsidiaries.
PROVIDE FOR EQUITABLE TREATMENT OF STRANDED COSTS. It promotes
aggressive actions to reduce utilities' current and future costs and provides
utilities with the opportunity to recover their legitimate, remaining stranded
costs.
ADDRESS THE UNIQUE ATTRIBUTES OF MUNICIPAL, COOPERATIVE, AND SMALL
INVESTOR-OWNED UTILITIES. The Plan requires that these utilities provide open
access to competitive providers, but does not require functional separation of
activities.
ASSURE CONSUMER PROTECTION. Preserves the wide range of consumer
protections currently provided by the franchise system. It proposes new
initiatives to assist low-income customers.
DELIVER COST-EFFECTIVE ENERGY EFFICIENCY PROGRAMS TO ALL CUSTOMERS.
It proposes several complimentary approaches to delivering energy efficiency
to Vermont's electric consumers.
PROMOTE THE CONTINUED USE AND DEVELOPMENT OF RENEWABLE ENERGY
RESOURCES. Requires all retail companies selling electricity in Vermont to
secure a minimum percentage of the sales from renewable resources.
PROMOTE NATIONAL AND REGIONAL POLICIES THAT ASSURE ENVIRONMENTAL
QUALITY. The Plan supports proposals in neighboring states to impose
environmental comparability on older generation sources and the creation of an
inter-regional emissions trading program.
ESTABLISH A REGIONAL INDEPENDENT SYSTEM OPERATOR (ISO) AND POWER
EXCHANGE. The Plan proposes the establishment of a regional power exchange to
provide a short-term spot market for energy services and other services
necessary to support system reliability by the ISO.
The Draft Report promotes aggressive actions to reduce utilities' current
and future power costs including "innovative financing renegotiation of above-
market contractual commitments, and asset sales." If adopted by the Vermont
legislature, the Draft Report would call on the PSB to take into account the
circumstances under which stranded costs were incurred and the companies'
efforts to mitigate them. As proposed, the Draft Report states Companies that
succeed in mitigating a significant portion of their current, legitimate above
market costs and that can commit to competitive prices will have the greatest
likelihood of recovering their total stranded cost exposure. A multiple step
process outlined by the PSB in the Draft Report would involve 1) an estimation
of stranded costs including an estimation of future power costs and a
determination of the extent to which stranded costs can be mitigated, 2) an
adjustment of stranded costs and 3) a stranded cost reconciliation proceeding.
The largest component of the Company's stranded costs are future costs
under long-term purchased power contracts. The Company intends to comply with
the steps outlined in the Draft Report and aggressively pursue mitigation
efforts in order to maximize recovery of its stranded costs. However, it is
unclear at this time, the exact requirements that will finally be set forth
for the State of Vermont. The regulatory process requires a final PSB Report
and Order, enabling legislation, and further regulatory proceedings. The
Company can not give assurance that it will be successful in realizing
mitigation of these costs to the extent suggested by the PSB or that it will
be able to achieve full or substantial recovery of these costs, should
Vermont's utility industry be restructured as proposed.
As such, the Company cannot predict whether the Draft Report or any
subsequent report or actions of, or proceedings before the PSB would have a
material adverse effect on the Company's operations, financial condition or
credit ratings. However, it is possible that the Company's failure to recover
a significant portion of its purchased power costs, would likely have a
material adverse effect on the Company's results of operations, cash flows and
availability to capital at current rates. It is possible that stranded cost
exposure before mitigation could exceed the Company's current total common
equity.
In the Draft Report, the PSB also "strongly encourage[s] the participants
in this docket to continue to work together to forge comprehensive solutions
on a consensus basis wherever possible." The Company will continue to work to
achieve a restructured industry in Vermont which meets the consensus
principles for industry restructuring endorsed by the PSB and protects the
interests of the Company and the stakeholders who financed the system under
the regulatory bargain.
New Hampshire
In New Hampshire, the New Hampshire Public Utilities Commission (NHPUC),
directed by the New Hampshire legislature, has established a Pilot Program
(Pilot) to determine the implications of retail competition in the electric
utility industry. The Pilot is for up to a two-year period beginning in May
1996 and was open to all electric utilities and to all classes of customers in
New Hampshire, although only 3% of customers were allowed to participate. The
Company successfully competed as a competitive supplier to acquire additional
load currently served by other New Hampshire utilities and to retain load
currently served by Connecticut Valley Electric Company Inc. (Connecticut
Valley), the Company's wholly owned New Hampshire subsidiary. The Company
acquired new customers with combined annual electric use totaling
approximately 20 million kilowatt hours.
On September 10, 1996, pursuant to legislation enacted in May 1996, the
NHPUC issued a preliminary plan (Plan) to restructure the electric industry in
New Hampshire including Connecticut Valley. The legislature requires
generation to be functionally separated from transmission and distribution,
with the distribution and customer-related services remaining subject to
regulation by the NHPUC. The Plan calls for New Hampshire utilities to
unbundle their electric rates and services into generation, transmission,
distribution and Conservation and Load Management services. It provides for
an interim stranded cost charge effective for two years following the
implementation of the New Hampshire utilities compliance filings.
The NHPUC plans to implement retail choice for all customers by January
1, 1998 and in no event later than June 30, 1998. Connecticut Valley and
other parties are currently providing written and oral comments to the NHPUC
on its Plan. The NHPUC will consider these comments and is expected to issue
its final Plan by the end of February 1997.
Connecticut Valley constituted approximately 7% of the Company's total
retail MWH sales for the nine months ended September 30, 1996.
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.
The Company's capital structure ratios as of September 30, 1996
(including amounts of long-term debt due within one year), consisted of 52.2%
common equity, 8.0% preferred stock, 34.5% long-term debt and 5.3% capital
lease obligations.
Based on debt issues outstanding at September 30, 1996, the Company's
mandatory sinking fund requirements for long-term debt due within the next
twelve-month period is approximately $1.0 million. None of the Company's
preferred stock is currently subject to mandatory sinking fund requirements.
Current credit ratings for the Company's outstanding mortgage debt and
preferred stock are as follows:
Duff & Standard
Phelps & Poor's
------ --------
First Mortgage Bonds BBB+ BBB
Preferred Stock BBB- BBB-
Non-Utility
Catamount Energy Corporation (Catamount), a wholly owned subsidiary of
the Company, implemented a credit facility in July 1996 which provides for up
to $8 million of letters of credit and working capital loans. Currently, a
$1.2 million letter of credit is outstanding to support certain of Catamount's
obligations in connection with a debt reserve obligation in the Appomattox
Cogeneration project and two letters of credit totaling $2.33 million to
support investment commitments in Fibrowatt Thetford Limited.
SmartEnergy, also a wholly owned subsidiary of the Company, currently
maintains $.5 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 Company's 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.
An agreement has been reached between the Company and the Vermont Department
of Public Service with regard to 1997 C&LM programs. Based on the Agreement,
total 1997 C&LM expenditures are not to exceed $4.5 million. This Agreement
is subject to PSB approval.
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 projects
under construction in Thetford, England; Glenns Ferry and Rupert, Idaho; and
under development in Summersville, West Virginia. For the third quarter and
nine months September 30, 1996, Catamount incurred a loss of $114,000 and
earnings of $144,000, respectively. Included in results of operation for the
three and nine months ended September 30, 1996 were $1.1 million and
$1.6 million, respectively, of costs related to the Gauley River project.
These costs are expected to be reimbursed out of construction loan proceeds if
this project achieves construction financing closing.
SmartEnergy was formed for the purpose of providing reliable, energy-
efficient products and services, including the rental of electric water
heaters. SmartEnergy's earnings were $84,000 for the third quarter and
$271,000 for year-to-date 1996.
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. On April 30, 1996 the Company
received a rate order from the PSB permitting an increase in its Vermont
retail rates of 5.5% effective June 1, 1996 and an additional 2% to be
effective January 1, 1997. For additional information regarding the PSB Rate
Order, see the Company's Form 10-Q for the quarter ended March 31, 1996.
The Company and the Vermont Department of Public Service have reached an
agreement with respect to a redesign of its Vermont retail rates. The
agreement would implement a design of rates that is more reflective of its
costs of providing service while collecting total revenues that are consistent
with currently allowed revenue requirements. Two intervening parties oppose
the settlement. This agreement is pending PSB approval which is expected in
the fourth quarter of 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.
Hearings for the management audit issue were held on July 16, 1996 and
August 29, 1996. No decision has been issued by the PSB.
On July 23, 1996, Connecticut Valley filed with the New Hampshire Public
Utilities Commission (NHPUC) for an 8.8% or approximately $1.6 million base
rate increase to become effective September 22, 1996. The increase is to
recover increased operating costs and costs of improvements to the electric
system. As part of the permanent rate increase, Connecticut Valley also
requested a temporary rate increase of 5.4% or approximately $.9 million. The
NHPUC has granted Connecticut Valley a temporary rate increase of 5.4%
effective with bills rendered October 1, 1996. Hearings in regard to the 8.8%
permanent rate increase request have been scheduled for January 7 and 8, 1997.
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.
Forward Looking Statements
Statements in this report relating to future financial conditions are
forward looking statements. Such forward-looking statements are not
guarantees of future performance and involve known and unknown risks,
uncertainties and other factors, which may cause the actual results,
performances or achievements to differ materially from the future results,
performance or achievements expressed or implied in such forward-looking
statements. Such factors include general economic and business conditions,
changes in industry regulation, weather and other factors which are described
in further detail in the Company's filings with the Securities and Exchange
Commission.
<PAGE>
CENTRAL VERMONT PUBLIC SERVICE CORPORATION
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
(a) 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 filed a
Motion to Dismiss and in an Order dated September 20, 1996, the U.S. District
Court Judge dismissed all of the claims filed against the Company and its
directors.
(b) On July 29, 1996, the Company filed a Declaratory Judgment
action in the United States District Court for the District of Vermont. The
Complaint names as defendants a number of insurance companies that issued
policies to the Company dating from the mid 1940s to the late 1980s. The
Company asserts that policies issued by defendants provide coverage for all
defense and remediation costs associated with the Cleveland Avenue property,
the Bennington Landfill site and the North Clarendon site. With the exception
of the North Clarendon site where no further remediation is anticipated, see
Note 2 to the Consolidated Financial Statements for related disclosures.
Items 2, 3 and 4.
None.
Item 5. Other Information.
(a) The National Energy Policy Act of 1992 and the Federal Energy
Regulatory Commission's (FERC) March 1995 Notice of Proposed Rule-making
(NOPR) promote wholesale competition in the electric utility industry.
On April 24, 1996, under Order No. 888, FERC issued its final
open access rule promoting competition in the electric utility industry. All
public utilities that own, control or operate facilities used for
transmitting electric energy in interstate commerce are required by Order No.
888 to file an open access, non-discriminatory transmission tariff. Order
No. 888 requires public utilities to develop and maintain a same-time
information system that will give existing and potential transmission users
the same access to transmission information that the public utility enjoys and
also requires public utilities to separate transmission from generation
marketing functions and communications. Also, Order No. 888 supports full
recovery of legitimate, prudent and verifiable stranded costs associated with
providing open access transmission services.
On April 24, 1996, the Company filed a settlement agreement with
FERC which addressed almost all rate issues raised in the Company's March 1,
1995 open access Transmission Tariff No. 6. The single unresolved rate issue
was later settled. The Administrative Law Judge certified a settlement to the
FERC. After evaluating Order No. 888, the Company submitted, on July 9, 1996,
a compliance filing modifying the terms and conditions of Transmission Tariff
No. 6 to conform to the non-rate terms and conditions of the pro forma tariffs
in Order No. 888.
(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 of wholesale power will be lower than it would have
been if Connecticut Valley's growth rate exceeds that of the Company's Vermont
retail operations.
(c) On September 23, 1996, Kent R. Brown joined the Company as Vice
President of Engineering and Operations, replacing Robert G. Kirn who resigned
from the Company effective June 28, 1996.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
EXHIBIT INDEX
Exhibit
3-1. By-laws, as amended August 5, 1996.
27. Financial Data Schedule.
(b) There were no reports on Form 8-K for the quarter ended
September 30, 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 November 13, 1996
<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND>
This Financial Data Schedule contains summary financial information extracted
from the Consolidated Financial Statements included herein and is qualified in
its entirety by reference to such financial statements (dollars in thousands,
except per share amounts).
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 325,582
<OTHER-PROPERTY-AND-INVEST> 57,330
<TOTAL-CURRENT-ASSETS> 51,992
<TOTAL-DEFERRED-CHARGES> 49,370
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 484,274
<COMMON> 67,059
<CAPITAL-SURPLUS-PAID-IN> 45,268
<RETAINED-EARNINGS> 71,261
<TOTAL-COMMON-STOCKHOLDERS-EQ> 183,588
20,000
8,054
<LONG-TERM-DEBT-NET> 120,379
<SHORT-TERM-NOTES> 0
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 1,015
0
<CAPITAL-LEASE-OBLIGATIONS> 18,574
<LEASES-CURRENT> 1,094
<OTHER-ITEMS-CAPITAL-AND-LIAB> 131,570
<TOT-CAPITALIZATION-AND-LIAB> 484,274
<GROSS-OPERATING-REVENUE> 209,469
<INCOME-TAX-EXPENSE> 7,698
<OTHER-OPERATING-EXPENSES> 185,865
<TOTAL-OPERATING-EXPENSES> 193,563
<OPERATING-INCOME-LOSS> 15,906
<OTHER-INCOME-NET> 4,972
<INCOME-BEFORE-INTEREST-EXPEN> 20,878
<TOTAL-INTEREST-EXPENSE> 7,352
<NET-INCOME> 13,526
1,521
<EARNINGS-AVAILABLE-FOR-COMM> 12,005
<COMMON-STOCK-DIVIDENDS> 7,166
<TOTAL-INTEREST-ON-BONDS> 8,142
<CASH-FLOW-OPERATIONS> 42,530
<EPS-PRIMARY> 1.04
<EPS-DILUTED> 0
</TABLE>
Exhibit 3-1
-------------
BY-LAWS
OF
CENTRAL VERMONT PUBLIC SERVICE CORPORATION
ARTICLE I.
Articles of Agreement: Offices
Section 1. These By-Laws shall be subject to the Articles of
Association, and all references in these By-Laws to the Articles
of Association shall be construed to mean the Articles of
Association of the Corporation as from time to time amended.
Section 2. The Corporation shall maintain its principal
office in Rutland, Vermont, and may maintain offices at such other
places as the Board of Directors may, from time to time, appoint.
ARTICLE II.
Seal
The corporate seal shall be circular in form and shall have
inscribed thereon the name of the Corporation and the words and
figures: "Seal Vermont 1929".
ARTICLE III.
Capital Stock and Transfers
Section 1. The amount and classes of capital stock that may
be issued by the Corporation, and the designations, preferences,
rights, privileges, voting powers, restrictions, and
qualifications of each class thereof, shall be as set forth in the
Articles of Association, as the same shall at any time be duly
recorded in the office of the Secretary of State of Vermont in
original or amended form.
Section 2. Each holder of fully paid stock shall be entitled
to a certificate or certificates of stock as provided by law and
in a form approved by the Board of Directors. (As amended May 2,
1972)
Section 3. Shares of stock may be transferred by the owner
by a proper endorsement upon the back of the certificate or by a
separate instrument of assignment, and the assignee, upon
producing, and surrendering the former certificate so transferred
or the certificate accompanied by such instrument, shall be
entitled to a new certificate if no liens upon the stock against
the former owner have attached. The delivery of a properly
executed stock certificate to a bona fide purchaser or pledgee for
value to sell, assign and transfer the same, signed by the owner
of the certificate, shall be a sufficient delivery to transfer the
title against all persons except the Company; but no such transfer
shall affect the right of the Company to treat the stockholder of
record as the stockholder in fact until the old certificate is
surrendered and a new certificate is issued to the person entitled
thereto. Except as hereinafter provided, or as may be required by
law or by the order of a court in appropriate proceedings, shares
of stock shall be transferred on the books of the Company only
upon the proper assignment and surrender of the certificates
issued therefor. If an outstanding certificate of stock shall be
lost, destroyed or stolen, the holder thereof may have a
replacement certificate issued upon such terms as the Directors
may prescribe. (As amended May 2, 1972)
Section 4. If default shall be made in the prompt payment
when due of any sum payable to the Company upon any subscription
for stock of the Company, and if such default shall continue for a
period of twenty days, then all right under the subscription in
and to the stock subscribed for shall, upon the expiration of such
period, cease and determine and become and be forfeited to the
Company; provided that if at the expiration of such twenty day
period such right shall belong to the estate of a decedent, it may
be forfeited only by resolution of the Board of Directors
declaring forfeiture. (As amended May 2, 1972)
ARTICLE IV.
Meetings of Stockholders
Section 1. All meetings of the stockholders shall be held in
Vermont, either at the principal office of the Company or at such
other place as shall be designated in the call therefor. The
annual meeting shall be held on the first Tuesday of May in each
year, if not a legal holiday, and if a legal holiday, then on the
next succeeding business day, at the time designated in the call,
for the election of Directors, and the transaction of such other
business as may come before it. (As amended April 2, 1946)
Section 2. Special meetings of the stockholders may be
called by the Board of Directors, the President or the Secretary
upon written request of stockholders holding not less than one-tenth
of all the shares entitled to vote at the meeting. In case
an annual meeting shall be omitted through inadvertence or
otherwise, the business of such meeting may be transacted at a
special meeting duly called for the purpose. (As amended May 2,
1972)
Section 3. Written or printed notice stating the place, day
and hour of the meeting and, in case of a special meeting, the
purpose or purposes for which the meeting is called, shall be
delivered not less than 10 nor more than 60 days before the date
of the meeting, either personally or by mail, by or at the
direction of the President or the Secretary, to each registered
holder entitled to vote at such meeting. If mailed, such notice
shall be deemed to be delivered when deposited in the United
States mail addressed to the registered holder at the address as
it appears on the stock transfer books of the Company, with
postage on it prepaid. (As amended May 2, 1972 and August
7, 1995)
Section 4. Unless otherwise provided in the Articles of
Association, a majority of the shares entitled to vote,
represented in person or by proxy, shall constitute a quorum at a
meeting of stockholders. If a quorum is present, the affirmative
vote of the majority of the shares represented at the meeting and
entitled to vote on the subject matter shall be the act of the
stockholders, unless the vote of a greater number or voting by
classes is required by law, by these By-Laws or by the Articles of
Association. A majority vote of whatever stock shall be
represented, even if less than a quorum, shall be sufficient (a)
to adjourn from time to time until a quorum is present or (b) to
adjourn sine die. (As amended May 2, 1972)
Section 5. At all stockholders' meetings, holders of record
of stock then having voting power shall be entitled to one vote
for each share of stock held by them, respectively, upon any
question or at any election, and such vote may, in all cases, be
given by proxy, duly authorized in writing. But no proxy dated
more than eleven months before the meeting, which shall be named
therein, shall be accepted; and no proxy shall be valid after the
final adjournment of such meeting. (As amended May 1, 1973
and August 7, 1995)
Article V.
Directors
Section 1. The property and business of the Corporation
shall be managed by a Board of Directors, each of whom must be a
stockholder. The Directors shall be elected by ballot by majority
vote of the stockholders present in person or represented by proxy
at the election and entitled to vote on the question, except as
otherwise provided in the Articles of Association or in these By-Laws.
(As amended October 16, 1944; May 7, 1963 and February 17,
1987)
No person shall be eligible for election or re-election as a
Director after his/her seventieth birthday, provided that any
Director whose term of office extends beyond his/her seventieth
birthday shall be entitled to serve the remainder of the full term
of the class of Directors to which he/she was elected. (As
amended June 13, 1983 and November 2, 1987)
A majority of the Directors shall at all times be persons who
are not employees of the Corporation. The provisions of this
paragraph shall not apply to the election of Directors by the
holders of preferred stock when, in accordance with the Articles
of Association, they shall be entitled to elect the smallest
number of Directors necessary to constitute a majority of the full
Board of Directors. (As amended April 6, 1953 and August 7, 1995)
Section 2. Subject to the provisions of Section 5 below, the
Board of Directors shall consist of not less than 9 nor more than
21 persons, the exact number to be fixed from time to time by
resolution of the Board of Directors. Such exact number may be
increased or decreased by the affirmative vote of the holders of
at least 80 percent of the combined voting power of the then-
outstanding shares of common stock and of any other class of stock
then being expressly entitled to vote with the common stock on the
question. The Directors shall be classified, with respect to the
time for which they severally hold office, into three classes, as
nearly equal in number as possible. Upon their initial election,
the members of the first class shall hold office for a term
expiring at the next annual meeting of stockholders after their
election, the members of the second class shall hold office for a
term expiring at the second annual meeting of stockholders after
their election, and the members of the third class shall hold
office for a term expiring at the third annual meeting of
stockholders after their election. (As amended February 17, 1987)
Section 3. Subject to the provisions of Section 5 below, any
vacancies in the Board of Directors resulting from death,
resignation, retirement, disqualification, removal from office or
other cause may be filled only by a majority vote of the Directors
then in office, though less than a quorum of the Board of
Directors. Any Director elected in accordance with this provision
shall hold office for the remainder of the full term of the class
of Directors in which the vacancy occurred and until such
Director's successor shall have been elected and qualified. No
decrease in the number of authorized Directors constituting the
entire Board of Directors shall shorten the term of any incumbent
Director. (As amended February 17, 1987)
Section 4. Except as otherwise provided in paragraph (e) of
subdivision 6 of the Articles of Association, a Director may be
removed from office only for cause and only by the affirmative
vote of the holders of at least 80 percent of the combined voting
power of the then-outstanding shares of common stock and of any
other class of stock then being expressly entitled to vote with
the common stock on the question. (As amended February 17, 1987)
Section 5. Nothing contained in Sections 2 through 4 of this
Article V shall be deemed to alter, amend or repeal the provisions
of paragraph (b) of subdivision 6, paragraph (b) of subdivision
10F, or paragraph (a) of subdivision 20F, of the Articles of
Association each of which confers, under the circumstances
described therein, on the holders of the classes of stock referred
to therein, the right to vote in the election of Directors.
During any period in which such rights may be exercised, the
provision or provisions conferring such rights shall prevail over
any provision of these By-Laws inconsistent therewith. (As
amended February 17, 1987)
Section 6. Notwithstanding any other provision of these By-Laws,
of the Articles of Association or of law, the affirmative
vote of the holders of at least 80 percent of the combined voting
power of the then-outstanding shares of common stock and of any
other class of stock then being expressly entitled to vote with
the common stock in the election of Directors shall be required to
alter, amend or repeal Sections 2, 3, 4, 5 or 6 of this Article V.
(As amended February 17, 1987)
Section 7. The Board of Directors may hold its meetings and
may have one or more offices, and may keep the books of the
Corporation (except such records and books as by laws of Vermont
are required to be kept within the State) within or outside of
Vermont, at such places as it may from time to time determine. In
addition to the powers and authorities by these By-Laws expressly
conferred upon them, the Board of Directors may exercise all such
powers of the Corporation, and do all such lawful acts and things
as are not by law, by the Articles of Association or by these By-Laws
required to be exercised or done by the incorporators or
stockholders.
Section 8. (Section 8 deleted in its entirety by amendment
dated August 7, 1995)
ARTICLE VI.
Meetings of the Board
Section 1. Regular meetings of the Board of Directors shall
be held at such place and time as may be designated from time to
time by the Board; and such meetings, and a regular meeting
immediately following and at the same place as each annual meeting
of the stockholders, may be held without notice. Special meetings
of the Board of Directors may be called by the President, or by
any two Directors, upon two days' notice to each Director, either
personally or by mail or by telegram; and they may be held at any
time without call or formal notice, provided all the Directors are
present or waive notice thereof in writing. (As amended May 1,
1962)
Section 2. A majority of the number of Directors fixed in
accordance with the By-Laws shall constitute a quorum for the
transaction of business, unless a greater number is required by
the Articles of Association. The act of the majority of the
Directors present at a meeting at which a quorum is present shall
be the act of the Board of Directors, unless the act of a greater
number is required by the Articles of Association. (As amended
May 2, 1972)
Section 3. Directors who are not also officers or regular
employees of the Company may receive compensation for their
services as such or as a member of any committee of the Board of
Directors, as well as fixed sums and expenses for attendance at
Directors' or committee meetings, in such amounts as may be
provided from time to time by the Board of Directors, provided
that nothing herein contained shall be construed to preclude any
Director from serving the Company in any other capacity and
receiving compensation therefor. (As amended May 5, 1981)
Section 4. Directors and members of the Executive Committee
and any other committee designated by the Board of Directors may
participate in a meeting of such Board or committee by means of a
conference telephone or similar communications equipment by means
of which all persons participating in the meeting can hear each
other, and participation in a meeting in such a manner shall
constitute presence in person at such meeting. (As amended May 3,
1977)
ARTICLE VII.
Officers
Section 1. In each year there shall be elected by the Board
of Directors, and if practicable, at its first meeting after the
annual election of Directors, a President, one or more Vice
Presidents, a Secretary, a Treasurer, and a Controller; and the
Board may provide for and elect a Chairperson, one or more
Assistant Secretaries, one or more Assistant Treasurers, and such
other officers and prescribe such duties for them as in its
judgment may, from time to time, be required to conduct the
business of the Company. One of said Vice Presidents may be
designated Executive Vice President. Any two or more offices may
be held by the same person, except the offices of President and
Secretary. All officers shall hold their respective offices for
the term of one year, and until their successors, willing to
serve, shall have been elected and, in the case of the Secretary,
qualified, unless sooner removed; but they, and any of them, may
be removed from their respective offices at the pleasure of the
Board. Vacancies arising in any office from any cause shall be
filled by the Board of Directors; and the persons chosen to fill
vacancies shall serve for the balance of the unexpired term and
until their successors shall have been elected. (As amended May
1, 1962; May 7, 1963; May 5, 1964; May 2, 1972 and November 2,
1987)
Section 2. A Chairperson elected pursuant to Section 1 of
this Article VII shall advise with and make his/her counsel
available to the other officers of the Company and shall have such
other powers and duties as may at any time be prescribed by these
By-Laws and by the Board of Directors. He/She shall, when
present, preside at all meetings of the stockholders and of the
Board of Directors and of the Executive Committee. (As amended
May 5, 1964)
The President shall be the Chief Executive Officer of the
Company and, subject to the direction of the Board of Directors
and of the Chairperson (if one is elected), shall supervise the
administration of the business and affairs of the Company and
shall have such other powers and duties as may at any time be
prescribed by these By-Laws and by the Board of Directors. In the
absence of the Chairperson (or if no such Chairperson is elected),
the President shall, when present, preside at meetings of the
stockholders and of the Board of Directors and of the Executive
Committee. (As amended May 5, 1964 and November 2, 1987)
The Chairperson and the President shall be members of the
Executive Committee (if such Executive Committee is designated by
the Board of Directors) and each of them, in his/her discretion,
may attend any meeting of any committee of the Board, whether or
not he/she is a member of such committee. (As amended May 5, 1964)
Section 3. The President shall, subject to the control of
the Board of Directors, have charge of the business and affairs of
the Company, including the power to appoint and to remove and to
discharge any and all agents and employees of the Company not
elected or appointed directly by the Board of Directors, and such
other powers and duties as may at any time be prescribed by these
By-Laws and by the Board of Directors. (As amended May 5, 1964)
Section 4. The Vice President or Vice Presidents, if there
shall be more than one, shall have such powers and duties as may
from time to time be prescribed by the Board of Directors or by
the President, but any powers and duties prescribed by the
President shall not be inconsistent with any theretofore
prescribed by the Board of Directors. In case the President, from
absence or any other cause, shall be unable at any time to attend
to the duties of the office of President requiring attention, or
in case of his/her death, resignation or removal from office, the
powers and duties of the President shall, except as the Board of
Directors may otherwise provide, temporarily devolve upon the
Executive Vice President if one shall have been designated and is
able to serve, or in case of the latter's inability, upon the Vice
President designated by the Board of Directors and able to serve
and shall be exercised by such Vice President as acting President
during such inability of the President, or until the vacancy in
the office of President shall be filled. In case of the absence,
disability, death, resignation or removal from office of both the
President and such Vice President, the Board of Directors shall
elect one of its members to exercise the powers and duties of the
President during such absence or disability, or until the vacancy
in one of said offices shall be filled. (As amended May 1, 1951
and May 1, 1962)
Section 5. The Secretary shall reside in the State of
Vermont and shall have the duties prescribed by law and such other
duties as the By-Laws or the Board of Directors may prescribe.
(As amended May 2, 1972)
Section 6. The Treasurer shall have charge of, and be
responsible for the custody and, jointly with the Controller, the
receipt and disbursement of the funds of the Corporation, and
shall deposit its funds in the name of the Company, in such banks,
trust companies, or safe deposit vaults as the Board of Directors
may direct. The Treasurer shall have the custody of such books
and papers as in the practical business operations of the Company
shall naturally belong in the office or custody of the Treasurer,
or as shall be placed in his/her custody by the Board of
Directors, by the Executive Committee, or by the President. The
Treasurer shall also have charge of the safekeeping of all stocks,
bonds, mortgages, and other securities belonging to the Company,
but such stocks, bonds, mortgages, and other securities shall be
deposited for safekeeping in a safe deposit vault to be approved
by the Board of Directors or the Executive Committee, in a box or
boxes, access to which shall be had as may be provided by
resolution of the Board of Directors or by the Executive
Committee. The Treasurer shall have such other powers and duties
as are commonly incident to the office of Treasurer, or as may be
prescribed. The Treasurer may be required to give bond to the
Company for the faithful discharge of duties in such form and to
such amount and with such sureties as shall be determined by the
Board of Directors. (As amended November 2, 1987)
Section 7. The Controller shall have charge of, and be
responsible for the collection, and jointly with the Treasurer,
the receipt and disbursement of the funds of the Corporation. The
Controller shall maintain adequate records of all assets,
liabilities, and transactions of the Company; shall see that
adequate audits thereof are currently and regularly made and, in
conjunction with other officers and department heads, shall
initiate and enforce methods and procedures whereby the business
of the Company shall be conducted with maximum safety, efficiency
and economy. The Controller shall have the custody of such books,
receipted vouchers, and other books and papers as in the practical
business operations of the Company shall naturally belong in the
office or the custody of the Controller, or as shall be placed in
his/her custody by the Board of Directors, by the Executive
Committee, or by the President. The Controller shall have such
other powers and duties as are commonly incidental to the office
of Controller, or as may be prescribed. The Controller may be
required to give bond to the Company for the faithful discharge of
duties in such form and to such amount and with such sureties as
shall be determined by the Board of Directors. (As amended
November 2, 1987)
Section 8. Assistant Secretaries or Treasurers, when
elected, shall assist the Secretary or Treasurer, as the case may
be, in the performance of the respective duties assigned to such
principal officers; and the powers and duties of any such
principal officer, shall, except as otherwise ordered by the Board
of Directors, temporarily devolve upon his/her assistant in case
of the absence, disability, death, resignation or removal from
office of such principal officer. They shall perform such other
duties as may be assigned to them from time to time. (As amended
May 7, 1963)
ARTICLE VIII.
Executive Committee
Section 1. The Board of Directors may, by resolution passed
by a majority of the Board, designate from their number an
Executive Committee of such number, not less than three, as the
Board may fix from time to time. The Executive Committee may make
its own rules of procedure and shall meet where and as provided by
such rules, or by resolution of the Board of Directors. A
majority of the members of the Committee shall constitute a quorum
for the transaction of business. During the intervals between the
meetings of the Board of Directors, the Executive Committee shall
have all the powers of the Board in management of the business and
affairs of the Company except as may otherwise be provided by law,
including power to authorize the seal of the Company to be affixed
to all papers which may require it, and, by majority vote of all
its members, exercise any and all such powers in such manner as
such Committee shall deem best for the interest of the Company, in
all cases in which specific directions shall not have been given
by the Board of Directors, and in which the vote of a quorum of
the full Board of Directors is not required by law, the Articles
of Association, or by these By-Laws. (As amended May 2, 1972)
Section 2. The Executive Committee shall keep regular
minutes of its proceedings and report the same to the Board of
Directors when required. The Board of Directors shall have power
to rescind any vote or resolution of the Executive Committee, but
no such recision shall have retroactive effect.
ARTICLE IX.
Inspection of Books
All records, accounts, and papers of the Corporation shall be
open to the inspection of every stockholder at reasonable times
and for legitimate purposes; and, subject to such rights of
inspection as may be afforded the stockholders by law, the
Directors may make such reasonable regulations relative to such
inspection, and take such action to prevent an inspection of
corporate books or papers for illegitimate purposes as may be
consistent with law.
ARTICLE X.
(Article X deleted in its entirety by amendment dated
August 5, 1996)
ARTICLE XI
(As amended May 3, 1994)
INDEMNIFICATION OF DIRECTORS, OFFICERS AND EMPLOYEES
Section 1. Permissive Indemnification. To the extent legally
permissible, the Company may indemnify any of its Directors,
officers and employees who, as a result of such position, was or
is a party or is threatened to be made a party to any
contemplated, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative and
whether formal or informal against expenses, actually and
reasonably incurred by him or her in connection with such action,
suit or proceeding. The term Expenses, as used in this Article,
includes reasonable attorney's fees, damages, judgments, fines,
amounts paid in settlement and costs including the costs of
investigation and defense. Such indemnification against Expenses
shall be payable only if (a) the Director, officer or employee
acted in good faith, (b) the Director reasonably believed: (A) in
the case of conduct in the Director's official capacity with the
Company, that the Director's conduct was in its best interests;
and (B) in all other cases, that the Director's conduct was at
least not opposed to its best interests; and (c) with respect to
any proceeding brought by a governmental entity, the Director had
no reasonable cause to believe his or her conduct was unlawful,
and the Director is not finally found to have engaged in a
reckless or intentional unlawful act. Notwithstanding the
foregoing and except as otherwise provided by law, the Company may
not indemnify any Director, officer, or employee for any Expenses
in any action by or in right of the Company in which such
individual is adjudged liable to the Company.
Any indemnification under this section (unless ordered by a
court) shall be made by the Company only upon a determination that
indemnification of the Director, officer or employee is proper
because he or she has acted in good faith in conformance with the
applicable standard of conduct as set forth herein. Such
determination shall be made (a) by the Board of Directors by a
majority vote of a quorum consisting of Directors who are not
parties to such action, suit or proceeding or (b) if such a quorum
is not obtainable, by majority vote of a committee duly designated
by the Board of Directors (in which designation Directors who are
parties to the action, suit or proceeding may participate),
consisting solely of two or more Directors not at the time parties
to the action, suit or proceeding; (c) by written opinion of
special legal counsel: (A) selected by the Board of Directors or
its committee in the manner prescribed in clause (a) or (b); or
(B) if a quorum of the Board of Directors cannot be obtained under
clause (a) and a committee cannot be designated under clause (b),
selected by majority vote of the full Board of Directors (in which
selection Directors who are parties to the action, suit or
proceeding may participate); or (d) by the shareholders, but
shares owned by or voted under the control of Directors who are at
the time parties to the action, suit or proceeding may not be
voted on the determination.
Authorization of indemnification and evaluation as to
reasonableness of Expenses shall be made in the same manner
provided above as the determination that indemnification is
permissible, except that if the determination is made by special
legal counsel, authorization of indemnification and evaluation as
to reasonableness of Expenses shall be made by those entitled
under clause (c) above to select such counsel.
The termination of any action, suit or proceeding by
judgment, order, settlement, conviction, or upon a plea no nolo
contendere or its equivalent, shall not of itself create a
presumption that the person did not act in good faith in
conformance with the applicable standard of conduct as set forth
above.
Section 2. Mandatory Indemnification. To the extent that a
Director, officer or employee of the Company has been wholly
successful on the merits or otherwise in defense of any action,
suit, proceeding, claim, issue, or matter referred to in Section 1
of this Article, he or she shall be indemnified to the extent
legally permissible against Expenses reasonably incurred by him or
her in connection therewith.
Section 3. Right To Rely On Corporate Information. In
discharging his or her duty, any Director, when acting in good
faith in conformance with the applicable standard of conduct as
set forth above, may rely upon information, opinions, reports, or
statements, including financial statements and other financial
data, if prepared or presented by: (a) one or more officers or
employees of the Company whom the Director reasonably believes to
be reliable and competent in the matters presented; (b) legal
counsel, public accountants, or other persons as to matters the
Director reasonably believes are within the person's professional
or expert competence; or (c) a committee of the Board of Directors
of which the Director is not a member if the Director reasonably
believes the committee merits confidence.
Section 4. Advance Payment of Expenses. Expenses incurred by a
Director, officer or employee in connection with any of the
matters with respect to which indemnification may be sought
pursuant hereto may be paid from time to time by the Company in
advance of the final disposition of any such matter if the
following conditions are met: (a) the Director furnishes the
Company written affirmation of his or her good faith belief that
he or she has met the standard of conduct described in Section 1
of this Article; (b) the Director furnishes the Company a written
undertaking, executed personally or on the Director's behalf, to
repay the advance if it is ultimately determined that the Director
did not meet the standard of conduct; and (c) a determination is
made that the facts then known to those making the determination
would not preclude indemnification under this subchapter.
Determinations and authorizations of payments under this
Section 4 shall be made in the manner specified in Section 1 of
this Article.
The Board of Directors may authorize counsel (which may be
either Company counsel or outside counsel) to represent such
individual in any action, suit or proceeding, whether or not the
Company is a party to such action, suit or proceeding.
Section 5. Procedure For Indemnification. Subject to compliance
with any applicable procedures in Sections 1 or 4, as the case may
be, any indemnification of a Director, officer or employee of the
Company or advance of Expenses to such an individual under the
terms of this Article shall be made promptly. If the Company
unreasonably denies a written request for indemnity or the advance
payment of Expenses, either in whole or in part, or if payment in
full pursuant to such request is not made promptly, the right to
indemnification or advances as granted by this Article shall be
enforceable by such individual in any court of competent
jurisdiction. Such individual's costs and expenses including
reasonable attorney's fees incurred in connection with
successfully establishing his or her right to indemnification in
any such action shall also be indemnified by the Company.
Section 6. Non-Exclusivity of Indemnification Rights. The right
of indemnification hereby provided shall not be deemed exclusive
of or otherwise affect any other rights to which any individual
seeking indemnification may be entitled by law, or under any
agreement, vote of stockholders or otherwise, both as to action in
his or her official capacity and as to action in another capacity
while holding such office, and shall continue as to a person who
has ceased to be a Director, officer or employee and shall inure
to the benefit of the heirs, executors and administrators of such
a person.
Section 7. Other Organizations. The indemnification provisions
of this Article shall extend to any Director, officer or employee
who serves at the Company's request as director, officer or
trustee of another organization, including, without limitation, an
employee benefit plan, in which the Company has or had an interest
as a stockholder, creditor, sponsor or otherwise. The right to
rely on corporate information conferred in Section 3 of this
Article shall also extend to the records, books of accounts and
reports of any such other organization of which the individual
serves as director, officer or trustee.
Section 8. Survival. The foregoing indemnification provisions
shall be deemed to be a contract between the Company and each
individual who serves in any capacity as a Director, officer or
employee of the Company at any time while these provisions are in
effect. Except as may otherwise be required as a result of
changes in the law governing indemnification of officers,
directors and employees of Vermont corporations, any repeal or
modification of the foregoing provisions shall not affect any
right or obligation then existing and such "contract rights" may
not be modified retroactively without the consent of such
Director, officer or employee.
ARTICLE XII.
(As amended May 3, 1988)
Miscellaneous
Section 1. The funds of the Company shall be deposited to
its credit in such banks or trust companies as the Board of
Directors may, from time to time, designate, and shall be drawn
out only for the purposes of the Company and only upon checks or
drafts signed in such manner as shall be authorized by the Board
of Directors in accordance with the power vested in them by these
By-Laws.
Section 2. No debts shall be contracted, except for current
expenses, unless authorized by the Board of Directors or the
Executive Committee.
Section 3. All dividends shall be payable at such time as
may be fixed by the Board of Directors. Before payment of any
dividend or making any distribution of profits, there shall be set
aside, out of the surplus or net profits of the Corporation such
sum or sums as the Board of Directors, from time to time, in their
absolute discretion, think proper as a reserve fund to meet
contingencies, or for equalizing dividends, or for repairing or
maintaining any property of the Corporation, or for such other
purpose as the Board of Directors think conducive to the interest
of the Corporation.
Section 4. The first fiscal year of the Corporation shall be
the period commencing September 1, 1929 and ending December 31,
1930, and thereafter each calendar year, commencing with the year
1931, shall be the fiscal year of the Corporation.
ARTICLE XIII
AMENDMENT
Except as set forth in subdivision 21 of the Company's
Articles of Association and in Article V of these By-Laws,
these By-Laws may be altered, amended or repealed at any annual or
special meeting of the stockholders called for the purpose, of
which the notice shall specify the subject matter of the proposed
alteration, amendment or repeal or the sections to be affected
thereby, by vote of the stockholders, or if there shall be two or
more classes or series of stock entitled to vote on the question,
by vote of each such class or series. These By-Laws may also be
altered, amended or repealed by vote of the majority of the number
of Directors fixed in accordance with the By-Laws at a meeting
called for that purpose of which the notice shall specify the
subject matter of the proposed alteration, amendment or repeal or
the sections to be affected thereby, except that the Directors
shall not take any action which provides for indemnification of
Directors or affects the powers of Directors or officers to
contract with the Company, nor any action to amend this Article
XIII, Sections 2, 3, 4, 5 or 6 of Article V, and
except that the Directors shall not take any action unless
permitted by law. Except as set forth in subdivision 21 of the
Company's Articles of Association and in Article V of these
By-Laws, any By-Law so altered, amended or repealed by the
Directors may be further altered or amended or reinstated by the
stockholder in the above manner. (As amended May 6, 1986, May
3, 1988 and August 5, 1996)
