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 June 30, 1997
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, 1997 there
were outstanding 11,423,401 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 six months ended
June 30, 1997 and 1996 3
Consolidated Balance Sheet as of June 30, 1997 and
December 31, 1996 4
Consolidated Statement of Cash Flows for the six
months ended June 30, 1997 and 1996 5
Notes to Consolidated Financial Statements 6-8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9-22
PART II. OTHER INFORMATION 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 Six Months Ended
June 30 June 30
1997 1996 1997 1996
Operating Revenues $65,442 $61,390 $153,936 $145,636
Operating Expenses
Operation
Purchased power 40,305 36,439 81,301 73,711
Production and transmission 5,610 4,842 11,287 9,692
Other operation 10,698 8,445 20,683 17,620
Maintenance 3,685 3,582 6,726 6,417
Depreciation 4,229 4,444 8,689 8,880
Other taxes, principally
property taxes 2,718 2,649 5,706 5,466
Taxes on income (918) (407) 6,289 8,218
_______ _______ _______ _______
Total operating expenses 66,327 59,994 140,681 130,004
_______ _______ _______ _______
Operating Income (Loss) (885) 1,396 13,255 15,632
_______ _______ _______ _______
Other Income and Deductions
Equity in earnings of affiliates 792 852 1,677 1,653
Allowance for equity funds during
construction 24 27 44 48
Other income (expenses), net 825 (694) 3,374 1,687
Benefit (provision) for income
taxes (149) 397 (1,031) 168
_______ _______ _______ _______
Total other income and
deductions, net 1,492 582 4,064 3,556
_______ _______ _______ _______
Total Operating and Other Income 607 1,978 17,319 19,188
Net Interest Expense 2,462 2,425 4,855 4,877
_______ _______ _______ _______
Net Income (Loss) (1,855) (447) 12,464 14,311
Retained Earnings at Beginning
of Period 85,415 78,355 74,137 66,422
_______ _______ _______ _______
83,560 77,908 86,601 80,733
Cash Dividends Declared
Preferred stock 507 507 1,014 1,014
Common stock 5,070 4,848 7,604 7,166
_______ _______ _______ _______
Total dividends declared 5,577 5,355 8,618 8,180
_______ _______ _______ _______
Retained Earnings at End
of Period $77,983 $72,553 $ 77,983 $ 72,553
======= ======= ======== ========
Earnings (Losses) Available for
Common Stock $(2,362) $(954) $11,450 $13,297
Average Shares of Common Stock
Outstanding 11,469,837 11,545,763 11,494,655 11,568,256
Earnings (Losses) Per Share of
Common Stock $(.21) $(.08) $1.00 $1.15
Dividends Paid Per Share of
Common Stock $ .22 $ .20 $ .44 $ .40
<PAGE>
CENTRAL VERMONT PUBLIC SERVICE CORPORATION
CONSOLIDATED BALANCE SHEET
(Dollars in thousands)
(Unaudited)
June 30 December 31
1997 1996
Assets
Utility Plant, at original cost $462,033 $461,231
Less accumulated depreciation 153,497 146,539
________ ________
308,536 314,692
Construction work in progress 13,759 9,302
Nuclear fuel, net 947 947
________ ________
Net utility plant 323,242 324,941
________ ________
Investments and Other Assets
Investments in affiliates, at equity 26,709 26,630
Non-utility investments 28,822 27,823
Non-utility property, less accumulated depreciation 2,910 4,498
________ ________
Total investments and other assets 58,441 58,951
________ ________
Current Assets
Cash and cash equivalents 26,263 6,365
Special deposits 3,383 5,633
Accounts receivable 13,907 21,878
Unbilled revenues 6,174 11,673
Materials and supplies, at average cost 3,710 3,690
Prepayments 2,328 2,423
Other current assets 3,861 3,840
________ ________
Total current assets 59,626 55,502
________ ________
Regulatory Assets and Other Deferred Charges 56,666 63,574
________ ________
Total Assets $497,975 $502,968
======== ========
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 45,285 45,273
Treasury stock (362,447 shares and 266,100 shares,
respectively, at cost) (4,728) (3,656)
Retained earnings 77,983 74,137
________ ________
Total common stock equity 189,255 186,469
Preferred and preference stock 8,054 8,054
Preferred stock with sinking fund requirements 20,000 20,000
Long-term debt 117,374 117,374
Long-term lease arrangements 17,763 18,304
________ ________
Total capitalization 352,446 350,201
________ ________
Current Liabilities
Short-term debt - 5,750
Current portion of long-term debt 3,005 3,015
Accounts payable 3,328 4,432
Accounts payable - affiliates 11,130 12,109
Accrued income taxes 2,958 2,552
Dividends declared 3,042 507
Other current liabilities 24,619 24,184
________ ________
Total current liabilities 48,082 52,549
________ ________
Deferred Credits
Deferred income taxes 57,178 57,463
Deferred investment tax credits 7,417 7,612
Other deferred credits 32,852 35,143
________ ________
Total deferred credits 97,447 100,218
________ ________
Total Capitalization and Liabilities $497,975 $502,968
======== ========
<PAGE>
CENTRAL VERMONT PUBLIC SERVICE CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
Six Months Ended
June 30
1997 1996
Cash Flows Provided (Used) By
Operating Activities
Net income $12,464 $14,311
Adjustments to reconcile net income to net
cash provided by operating activities
Depreciation 8,689 8,880
Deferred income taxes and investment tax credits (286) 658
Allowance for equity funds during construction (44) (48)
Net deferral and amortization of nuclear refueling
replacement energy and maintenance costs 2,781 2,345
Amortization of conservation and load management
costs 3,509 2,038
Gain on sale of property (2,095) -
Decrease in accounts receivable 13,236 14,543
Decrease in accounts payable (1,496) (2,720)
Increase in accrued income taxes 494 999
Change in other working capital items 2,901 2,480
Other, net (1,337) (2,548)
------- -------
Net cash provided by operating activities 38,816 40,938
------- -------
Investing Activities
Construction and plant expenditures (6,922) (9,067)
Deferred conservation and load management
expenditures (806) (809)
Investments in affiliates 21 (160)
Proceeds from sale of property 2,624 -
Non-utility investments (1,058) 244
Other investments, net 137 (121)
------- -------
Net cash used for investing activities (6,004) (9,913)
------- -------
Financing Activities
Repurchase of common stock (1,072) (1,042)
Sale of treasury stock - 14
Short-term debt, net (5,760) (13,490)
Long-term debt, net - 1,241
Common and preferred dividends paid (6,082) (5,644)
------- -------
Net cash used for financing activities (12,914) (18,921)
------- -------
Net Increase in Cash and Cash Equivalents 19,898 12,104
Cash and Cash Equivalents at Beginning of Period 6,365 11,962
------- -------
Cash and Cash Equivalents at end of Period $26,263 $24,066
======= =======
Supplemental Cash Flow Information
Cash paid during the period for:
Interest (net of amounts capitalized) $ 4,748 $ 4,663
Income taxes (net of refunds) $ 7,164 $ 6,393
<PAGE>
CENTRAL VERMONT PUBLIC SERVICE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1997
Note 1 - Accounting Policies
The Company's significant accounting policies are described in Note 1 of
Notes to Consolidated Financial Statements included in its 1996 Annual Report
on Form 10-K filed with the Securities and Exchange Commission. For interim
reporting purposes, the Company follows these same basic accounting policies
but considers each interim period as an integral part of an annual period.
The financial information included herein is unaudited; however, such
information reflects all adjustments (consisting of normal recurring accruals)
which are, in the opinion of management, necessary for a fair statement of
results for the interim periods.
Note 2 - Environmental
The Company is engaged in various operations and activities which subject
it to inspection and supervision by both Federal and state regulatory
authorities including the United States Environmental Protection Agency (EPA).
It is Company policy to comply with all environmental laws. The Company has
implemented various procedures and internal controls to assess and assure
compliance. If non-compliance is discovered, corrective action is taken.
Based on these efforts and the oversight of those regulatory agencies having
jurisdiction, the Company believes it is in compliance, in all material
respects, with all pertinent environmental laws and regulations.
Company operations occasionally result in unavoidable, inadvertent
releases of regulated substances or materials, for example the rupture of a
pole mounted transformer, or a broken hydraulic line. Whenever the Company
learns of such a release, the Company responds in a timely fashion and in a
manner that complies with all Federal and state requirements. Except as
discussed in the following paragraphs, the Company is not aware of any
instances where it has caused, permitted or suffered a release or spill on or
about its properties or otherwise which will likely result in any material
environmental liabilities to the Company.
The Company is an amalgamation of more than 100 predecessor companies.
Those companies engaged in various operations and activities prior to being
merged into the Company. At least two of these companies were involved in the
production of gas from coal to sell and distribute to retail customers at
three different locations. These activities were discontinued by the Company
in the late 1940's or early 1950's. The coal gas manufacturers, other
predecessor companies, and the Company itself may have engaged in waste
disposal activities which, while legal and consistent with commercially
accepted practices at the time, may not meet modern standards and thus
represent potential liability.
The Company continues to investigate, evaluate, monitor and, where
appropriate, remediate contaminated sites related to these historic
activities. The Company's policy is to accrue a liability for those sites
where costs for remediation, monitoring and other future activities are
probable and can be reasonably estimated. As part of that process, the
Company also researches the possibility of insurance coverage that could
defray any such remediation expenses. For related information see Legal
Proceedings below.
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. After completing its preliminary investigation, 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 and directed the Company to collect some additional data. 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 the
additional data requested by the State and develop and implement a remediation
plan for the site. That firm has begun work at the site. It has collected
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 Kansas
and the other in Missouri (the Sites). During the mid-1980's, these Sites
received materials containing PCBs from hundreds of sources, including the
Company. According to the EPA, more than 1,200 parties have been identified
as Potential Responsible Parties (PRPs). The Company has complied with the
information request and will monitor EPA activities at the Sites.
In December 1996, the Company received an invitation to join a PRP
steering committee. The Company has not yet decided whether joining that
committee would be in its best interest. That committee has estimated the
Company's pro rata share of the waste sent to the Sites to be .42%. The
committee estimates that the Sites' remediation will cost between $5 million
and $40 million. Based on this information, the Company does not believe
that the Sites represent the potential for a material adverse effect on its
financial condition or results of operations.
MILTON GENERATING STATION The Company recently discovered some PCB
contamination at its Milton Generating Station. The contamination appears to
be confined to a small area and remediation costs are expected to be minimal.
Accordingly, at this time, the Company does not believe this site represents
the potential for a material adverse effect on its financial condition or
results of operations but it will continue to monitor the site.
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. The Company expects to resolve any potential liability
arising from the site by executing a de minimis settlement with the government
in mid-August.
Under the terms of that agreement, the Company's liability would be less
than $100,000.
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.
In 1996, the Company filed a Federal lawsuit against several insurance
companies. In its complaint, the Company alleges that general liability
policies issued by the insurers 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. A settlement has been
reached with six of the thirteen defendants. Due to the uncertainties
associated with the total outcome of this lawsuit, no receivables have been
recorded.
Note 3 - Accounts Receivable
At June 30, 1997 and December 31, 1996, a total of $12 million of
accounts receivable and unbilled revenues were sold under an accounts
receivable facility.
Accounts receivable and unbilled revenues that have been sold were
transferred with limited recourse. A pool of assets, varying between 3% to 5%
of the accounts receivable and unbilled revenues sold, are set aside for this
potential recourse liability. Accounts receivable and unbilled revenues
are reflected net of sales of $6.7 million and $5.3 million, respectively, at
June 30, 1997 and $4.8 million and $7.2 million, respectively, at December 31,
1996.
Accounts receivable are also reflected net of an allowance for
uncollectible accounts of $1.3 million and $1.1 million at June 30, 1997 and
December 31, 1996, respectively.
Note 4 - Investment in Vermont Yankee Nuclear Power Corporation
The Company accounts for its investment in Vermont Yankee using the
equity method. Summarized financial information is as follows (dollars in
thousands):
Three Months Ended Six Months Ended
June June
1997 1996 1997 1996
Operating revenues $44,383 $43,282 $84,804 $83,038
Operating income $ 3,579 $ 3,995 $ 7,290 $ 7,436
Net income $ 1,748 $ 1,702 $ 3,523 $ 3,300
Company's equity in net income $545 $526 $ 1,101 $ 1,035
<PAGE>
CENTRAL VERMONT PUBLIC SERVICE CORPORATION
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
June 30, 1997
Earnings Overview
The Company recorded losses available for common stock of $2.4 million
and $1.0 million for the three months ended June 30, 1997 and 1996,
respectively. Losses per share of common stock for these respective periods
were $.21 and $.08. 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 six months ended June 30, 1997 earnings available for common
stock were $11.5 million compared to $13.3 million in 1996. Earnings per
share of common stock for these respective periods were $1.00 and $1.15.
The decrease in earnings for the second quarter and first half is
primarily due to increased purchased power costs described in Results of
Operations below. Also, 1996 earnings results were impacted by the April 30,
1996 Vermont Public Service Board's rate order which increased earnings per
share of common stock by $.08.
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 six
months ended June 30, 1997 and 1996 (and the related percentage changes from
1996) is set forth below:
<TABLE>
<CAPTION>
Three Months Ended June 30
Percentage Percentage
MWH Increase Revenues (000's) Increase
1997 1996 (Decrease) 1997 1996 (Decrease)
<S> <C> <C> <C> <C> <C> <C>
Residential 217,173 215,116 1.0 $24,485 $21,719 12.7
Commercial 216,060 208,941 3.4 22,138 19,952 11.0
Industrial 98,912 93,375 5.9 7,154 6,700 6.8
Other retail 1,786 1,819 (1.8) 488 463 5.4
------- ------- ------- -------
Total retail sales 533,931 519,251 2.8 54,265 48,834 11.1
------- ------- ------- -------
Resale sales:
Firm 232 191 21.5 12 16 (25.0)
Entitlement 84,623 132,939 (36.3) 4,612 6,201 (25.6)
Other 187,203 200,524 (6.6) 4,970 4,906 1.3
------- ------- ------- -------
Total resale sales 272,058 333,654 (18.5) 9,594 11,123 (13.7)
------- ------- ------- -------
Other revenues - - - 1,583 1,433 10.5
------- ------- ------- -------
Total sales 805,989 852,905 (5.5) $65,442 $61,390 6.6
======= ======= ======= =======
Six Months Ended June 30
Percentage Percentage
MWH Increase Revenues (000's) Increase
1997 1996 (Decrease) 1997 1996 (Decrease)
<S> <C> <C> <C> <C> <C> <C>
Residential 492,460 500,471 (1.6) $ 60,288 $ 56,200 7.3
Commercial 446,135 440,349 1.3 52,538 48,156 9.1
Industrial 214,556 197,705 8.5 17,808 16,138 10.3
Other retail 3,549 3,606 (1.6) 959 905 6.0
--------- --------- -------- --------
Total retail sales 1,156,700 1,142,131 1.3 131,593 121,399 8.4
--------- --------- -------- --------
Resale sales:
Firm 497 796 (37.6) 23 39 (41.0)
Entitlement 195,486 269,880 (27.6) 9,567 12,890 (25.8)
Other 382,578 385,459 (.7) 9,777 9,210 6.2
--------- --------- -------- --------
Total resale sales 578,561 656,135 (11.8) 19,367 22,139 (12.5)
--------- --------- -------- --------
Other revenues - - - 2,976 2,098 41.8
--------- --------- -------- --------
Total sales 1,735,261 1,798,266 (3.5) $153,936 $145,636 5.7
======= ======= ====== ======
</TABLE>
Retail MWH sales for the second quarter ended June 30, 1997 increased
2.8%. However, retail revenues increased $5.4 million or 11.1% over last year
due to a $4.3 million increase in price resulting from a 2-phase retail rate
increase effective in June 1996 and January 1997 and $1.1 million associated
with the 2.8% increase in retail MWH sales.
For the first half of 1997, retail MWH sales increased 1.3% while retail
revenues increased $10.2 million or 8.4% compared to last year. The revenue
increase results from a $9.2 million increase in price for reasons noted above
and $1.0 million associated with the 1.3% increase in retail MWH sales. MWH
sales for the residential category decreased 1.6%, reflecting moderate
temperatures during the 1997 winter months. The commercial category MWH sales
increased 1.3% while the industrial sector MWH sales increased 8.5% primarily
due to increased megawatt-hour requirements for snow making by ski area
customers.
Primarily due to the scheduled termination of several sales agreements in
late 1996, entitlement MWH sales and revenues decreased for the second quarter
and first half of 1997 compared to the same periods in 1996.
The increase in other resale sales and revenues for the second quarter
and first half resulted primarily from increased sales to Nepool partially
offset by a decrease in short-term system capacity sales.
Other revenues increased $.2 million for the second quarter and
$.9 million for the first half of 1997 compared to the same periods last year
due to an increase in transmission revenues related to transmission
interconnection agreements.
Net Purchased Power and Production Fuel Costs
The net cost components of purchased power and production fuel costs for
the three and six months ended June 30, 1997 and 1996 are as follows (dollars
in thousands):
<TABLE>
<CAPTION>
Three Months Ended June 30
1997 1996
Units Amount Units Amount
<S> <C> <C> <C> <C>
Purchased and produced:
Capacity (MW) 474 $23,170 547 $21,226
Energy (MWH) 778,912 17,135 838,568 15,213
------- ------- ------- -------
Total purchased power costs 40,305 36,439
Production fuel (MWH) 71,330 425 72,409 235
------- ------- ------- -------
Total purchased power and
production fuel costs 40,730 36,674
Entitlement and other resale sales (MWH) 271,826 9,582 333,463 11,107
------- ------- ------- -------
Net purchased power and production
fuel costs $31,148 $25,567
======= =======
Six Months Ended June 30
1997 1996
Units Amount Units Amount
<S> <C> <C> <C> <C>
Purchased and produced:
Capacity (MW) 499 $44,458 511 $41,178
Energy (MWH) 1,704,976 36,843 1,746,419 32,533
--------- ------- --------- -------
Total purchased power costs 81,301 73,711
Production fuel (MWH) 132,056 691 177,626 774
--------- ------- --------- -------
Total purchased power and
production fuel costs 81,992 74,485
Entitlement and other resale sales (MWH) 578,064 19,344 655,339 22,100
--------- ------- --------- -------
Net purchased power and production
fuel costs $62,648 $52,385
======= =======
</TABLE>
Higher capacity and energy costs combined with lower entitlement and
other resale sales, net power costs increased $5.6 million, or 21.8% for the
second quarter and $10.3 million, or 19.6% for the first half of 1997 compared
to the same periods last year. Less MW and MWH were purchased by the Company
during 1997, however, both capacity and energy costs increased for the second
quarter and first half of 1997.
These increases resulted mostly from incremental replacement power costs
associated with Millstone Unit #3 and Maine Yankee nuclear power plants
discussed below and an unscheduled 12-day outage at the Vermont Yankee nuclear
power plant.
Pursuant to a PSB Accounting Order, during the first half of 1997, the
Company reduced energy costs by approximately $5.8 million related to the
Hydro-Quebec agreement for which a payment of $5.8 million was received
from Hydro-Quebec on June 30, 1997.
Due to increased generation at the Wyman and McNeil generating
facilities, production fuel costs increased for the second quarter of 1997
compared to last year and because Millstone Unit #3 has been out of service
since March 30, 1996 (see discussion below), production fuel costs decreased
for the first half of 1997 compared to the same period last year.
Entitlement and other resale sales decreased for the second quarter and
first half of 1997 for reasons discussed above.
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%, 3.5% and 31.3% equity interest in Maine
Yankee, Yankee Atomic and Vermont Yankee, respectively.
Millstone Unit #3
Millstone Unit #3 (Unit #3) which has experienced numerous technical and
non-technical problems, remains shut down pending satisfaction by the NRC that
Unit #3's operations are in compliance with the Nuclear Regulatory Commission
(NRC) regulations and its operating license. NU currently estimates that its
total 1997 incremental operations and maintenance costs for Unit #3 will be
approximately $52.8 million. The Company's share is about $.9 million.
The first major milestone toward the restart of Unit #3 has been met and
the Independent Corrective Action Verification Process (ICAVP) began on
May 27, 1997, as scheduled. The ICAVP allows the contractor to check the
quality and thoroughness of the work to assure the design and actual
configuration of Unit #3 is correct and the corrective action process is
effective.
On June 27, 1997, NU's nuclear management temporarily suspended all
nuclear training programs at Millstone to address programmatic deficiencies
identified by NU's subsidiary, Northeast Nuclear Energy Company and the NRC
inspectors during reviews of NU system's licensed operator training programs
at NU system's four Connecticut nuclear units.
NU's management has not yet determined when the various training programs
will be fully operational, but is currently developing a list of priorities
for programs to get back on line. NU's management does not believe, at this
time, that the suspension will affect NU system's schedule to restart the
Millstone nuclear units and it has indicated that it intends to have Unit #3
ready for restart around the end of 1997, pending NRC approval. It is the
Company's opinion that Unit #3 will not return to operation until sometime
during 1998.
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 and evaluate NU and Northeast Utilities Service Co.'s efforts
relating to Unit #3. On August 7, 1997, the Company and eight other non-
operating owners of Unit #3 filed a demand for arbitration with Connecticut
Light and Power Company and Western Massachussets Electric Company and
lawsuits against NU and its trustees. The arbitration and lawsuits seek to
recover costs associated with replacement power, operation and maintenance
costs and other costs resulting from the shutdown of Unit #3. The non-
operating owners claim that NU and its subsidiaries failed to comply with
NRC's regulations, failed to operate the facility in accordance with good
operating practice and attempted to conceal their activities from the non-
operating owners and the NRC.
The Company estimates that while Unit #3 is out of service it will incur
in 1997 incremental replacement power costs estimated at $1.6 million. In
addition, the Company incurred incremental operation and maintenance costs
during the first half of 1997 of about $.7 million and expects to incur
additional costs of about $.2 million for the second half of 1997.
For additional information regarding Unit #3, refer to the Company's 1996
Annual Report on Form 10-K.
Maine Yankee
On August 6, 1997, the Maine Yankee's Board of Directors decided to
prematurely retire the Maine Yankee Nuclear Power plant and decommission the
facility. The Board of Directors arrived at the decision after the
Philadelphia-based PECO Energy Co. dropped its bid to buy the plant because of
economic concerns. The owners of Maine Yankee concluded that without a change
in ownership the plant could not be operated economically. The plant has been
off-line since December 1996 to resolve cable-separation issues, replace a
large number of fuel assemblies, inspect the plant's steam generators and
resolve other regulatory issues.
The Company relied on Maine Yankee for less than 5% of its required
system capacity. Presently, costs billed to the Company by Maine Yankee,
including a provision for ultimate decommissioning of the unit, are being
collected from the Company's customers via existing retail and wholesale rate
tariffs. Maine Yankee's current decommissioning obligation based on a 1993
study is estimated at $316.6 million (in 1993 dollars) and the Company's 2%
share is $6.3 million of which approximately $3.7 million has been funded
through June 1997. Maine Yankee is in the process of developing an updated
decommissioning cost estimate, which the Company anticipates will be higher
than the 1993 estimate. Maine Yankee expects to file the revised
decommissioning cost study with the FERC in the fall of 1997.
Connecticut Yankee
On December 4, 1996, the Board of Directors of Connecticut Yankee decided
to prematurely retire the Plant and decommission the facility. The decision
was based on an economic analysis of the costs of operating it compared to the
costs of closing it and incurring replacement power costs over the remaining
period of the plant's operating license.
The Company relied on Connecticut Yankee for less than 3% of its required
system capacity. Presently, costs billed to the Company by Connecticut
Yankee, including a provision for ultimate decommissioning of the unit, are
being collected from the Company's customers via existing retail and wholesale
rate tariffs. Connecticut Yankee has estimated as of December 31, 1996, the
sum of future payments for the closing, decommissioning and recovery of the
remaining investment in Connecticut Yankee to be approximately $762.8 million.
The Company's share is approximately $15.3 million of which $4.2 million has
been funded through May 1997. This amount is subject to ongoing review and
revision and is reflected in the accompanying balance sheet both as a
regulatory asset and deferred power contract obligation (current and non-
current).
On June 17, 1997 testimony was filed with the FERC by the Connecticut
Department of Public Utility Control and the Connecticut Attorney General's
Office in regard to Connecticut Yankee's current decommissioning obligation.
Regulators are asking the FERC to prevent the collection of approximately
$220 million for the decommissioning of the Connecticut Yankee Nuclear plant.
They claim that the current decommissioning costs are excessive and include
estimated costs for removal of highly contaminated soil that only became
necessary because of "careless and sloppy work habits" by the plant operator.
Regulators also argue that the plant closed because its management had been
imprudent which led to additional costs that should have been avoided. FERC
action on this matter is expected in October 1997.
Yankee Atomic
In 1992, the Board of Directors of Yankee Atomic decided to permanently
discontinue operation of their plant, and to decommission the facility.
The Company relied on Yankee Atomic for less than 1.5% of its system
capacity. Presently, costs billed to the Company by Yankee Atomic, which
include a provision for ultimate decommissioning of the unit, are being
collected from the Company's customers via existing retail rate tariffs.
The Company's share of remaining costs with respect to Yankee Atomic's
decision to discontinue operation is approximately $5.2 million at June 30,
1997. 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 based on the current regulatory process, its
proportionate share of Connecticut Yankee, Yankee Atomic and Maine Yankee
decommissioning costs will be recovered through the regulatory process and,
therefore, the ultimate resolution of the premature retirement of the three
plants has not and will not have a material adverse effect on the Company's
financial position, results of operations and cash flows.
Although the estimated costs of decommissioning nuclear power plants are
subject to change due to changing technologies and regulations, the Company
expects that the liability, including any future change in the liability, for
decommissioning of the nuclear power plants in which the Company has an
investment will be recovered in their rates over their remaining operating or
license lives.
Vermont Yankee
The Design Basis Documentation project (Project) initiated by Vermont
Yankee during 1996 is expected to be completed by the end of 1998. The
Company's 35% share of the total cost for this Project is expected to be about
$4.8 million. Such costs will be deferred by Vermont Yankee and amortized
over the remaining license life of the plant.
Production and Transmission
Due to increased transmission costs, production and transmission expenses
were $.8 million higher for the second quarter and $1.6 million higher for the
first half of 1997 compared to the comparable periods last year.
Other Operation
Other operating expenses increased $2.3 million for the second quarter
and $3.1 million for the first half of 1997 principally due to amortization of
Conservation and Load Management (C&LM) costs which are recovered in rates.
Income Taxes
Federal and state income taxes fluctuate with the level of pre-tax
earnings. The decrease in total income tax expense for the second quarter and
first half of 1997 results primarily from a decrease in pre-tax earnings for
the periods. However, this decrease is partially offset by an increase in the
Vermont Corporate income tax rate from 8.25% to 9.75% effective January 1,
1997.
The Company believes that these additional Vermont Corporate income taxes
will be recovered through the regulatory process. The timing and
recoverability of these costs will be determined in future rate proceedings.
Other Income (Expenses), Net
Second quarter increase in other income (expenses), net results
principally from higher non-utility subsidiaries' earnings. Also, in the
second quarter of 1996, the Company recorded $.5 million of litigation
settlement costs.
For the first half of 1997, other income (expenses), net increased
primarily due to a gain from sale of property and higher non-utility
subsidiaries' earnings. Also, insurance proceeds of about $1.3 million and
litigation settlement costs of about $.5 million were recorded in the first
half of 1996.
Cash Dividends Declared
Common
The second quarter and first half of 1997 increase in common dividends
declared resulted from a 10% increase in the quarterly common dividend paid
(from $.20 to $.22 per share) effective for the quarterly common dividend paid
on August 15, 1996.
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
$38.8 million and $40.9 million for the six months ended June 30, 1997 and
1996, respectively.
The Company ended the first six months of 1997 with cash and cash
equivalents of $26.3 million, an increase of $19.9 million from the beginning
of the year. The increase in cash for the first six months of 1997 was the
result of $38.8 million provided by operating activities, $6.0 million used
for investing activities and $12.9 million used for financing activities.
Operating Activities - Net income, depreciation and deferred income taxes
and investment tax credits provided $20.9 million. Fluctuations in working
capital provided $15.1 million; $4.9 million was provided by
deferral/amortization of nuclear refueling replacement energy and maintenance
costs, amortization of C&LM costs and other, net; and $2.1 million gain from
sale of property.
Investing Activities - Construction and plant expenditures consumed
$6.9 million, $.8 million was used for C&LM programs, $1.0 million was used
for non-utility investments and other investments provided $.1 million.
Proceeds of $2.6 million were generated from the sale of property.
Financing Activities - Dividends paid on common stock were $5.1 million,
while preferred stock dividends were $1.0 million. Short-term obligations
repaid totaled $5.7 million and $1.1 million was used to reacquire common
stock.
ELECTRIC INDUSTRY RESTRUCTURING
The electric utility industry is in a period of 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. Many 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.
Vermont
On December 31, 1996, the PSB issued a Report and Order (the Report)
outlining a restructuring plan (Plan) for the Vermont electric utility
industry requiring legislative approval. The Plan, which does not constitute
a final binding order but instead a recommendation to the Vermont Legislature,
consists of nine components as follows:
Provide customer choice. Enable 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's 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.
If adopted by the Vermont Legislature, the Plan would allow for the
recovery of stranded costs through a non-bypassable, non-discriminatory wires
charge on electric consumption, after mitigation of costs. It would also
authorize the use of incentive-and performance-based regulation for
distribution companies presently subject to price regulation.
The 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 PSB would take into account the circumstances under which
stranded costs were incurred and the companies' efforts to mitigate them. The
multiple step process outlined by the PSB 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. If the PSB's recommendation is
approved by the Vermont Legislature, the Company will be able to recover its
unmitigatable stranded costs through a non-bypassable, non-discriminatory
wires charge on electric consumption. The Report suggests that if utilities
satisfy a multi-factor analysis, Vermont should "create the opportunity for
full recovery of stranded costs provided they are legitimate, verifiable,
otherwise recoverable, prudently incurred and non-mitigatable." Such recover
is, however, "explicitly tied to successful mitigation." At this time, the
Company cannot give assurance that it will be successful in realizing
mitigation of these costs to the extent that will satisfy the broad standards
identified 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.
The PSB Report "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 continues 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.
Due to uncertainty surrounding legislative schedules, the PSB, on
April 18, 1997, issued an Order which suspended, pending further legislative
action or PSB Order on Restructuring, certain filing deadlines for reports and
plans to be completed in the context of the Restructuring Order.
In an effort to achieve a negotiated resolution to the issues surrounding
the restructuring of the Vermont electric utility industry, the Company,
Green Mountain Power Corporation, the DPS and representatives of the Governor
of Vermont developed a Memorandum of Understanding (MOU) establishing a plan
for implementing restructuring in Vermont. Although concepts of the MOU are
still under consideration, no action has been taken on the MOU.
On April 3, 1997, Senate bill 62 (S-62), an act relating to electric
industry restructuring was passed by the Vermont Senate. Pursuant to S-62,
electric utility customers would be entitled to purchase electricity in a
competitive market place and could choose their electricity supplier.
Incumbent investor-owned electric utilities, including the Company, would be
required to separate their regulated distribution and transmission operations
into affiliate entities that are functionally separate from competitive
generation and retail operations. S-62 provides for the recovery of a portion
of investor-owned utility's "above market costs" which may be stranded on
account of the introduction of competition within their service area. When
considering the recovery of such amounts, S-62 would require that the PSB
weigh the goal of sharing net prudently incurred, discretionary above-market
costs "evenly" between utilities and customers against other goals including
preserving the continuing financial integrity of the existing utility and
respecting the just interests of investors. S-62 also creates an incentive
for the Company to take steps to close the Vermont Yankee Nuclear Power
Station by conditioning the recovery of certain plant related stranded costs
on the decision of its owners to cease operations in 1998, unless the PSB
agrees to allow the plant to run for up to two more refuelings to avoid power
shortages or for other public interest reasons. To become law, S-62 would
have to be passed by the Vermont House of Representatives in its next session
beginning in January 1998 and signed by the Governor of the State of Vermont.
At this time, the Vermont House of Representatives is not considering S-62 but
is conducting summer hearings on matters relating to the reform of Vermont's
electric utility system.
At this time, it cannot be determined whether future restructuring
legislation will be enacted that would conform to the concepts developed by
the Report, the MOU or S-62.
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 a two-year period beginning in May 1996
and is open to all electric utilities and to 3% of all classes of customers in
New Hampshire. The Company 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 20,000 megawatt hours.
On February 28, 1997 the NHPUC released its Final Plan to restructure the
electric utility industry in New Hampshire pursuant to legislation enacted
in New Hampshire during 1996. Concurrently, supplemental utility-specific
orders to establish interim stranded cost charges were issued. The
legislation requires each utility to file comprehensive plans no later than
June 30, 1997, which comply with the Final Plan and the supplemental orders.
By a later Order, dated May 22, 1997, the NHPUC modified the scope of the
June 30, 1997 filing and only required the filing of open access tariffs for
informational purposes. The 1996 legislation also states that utilities shall
not be required to implement their compliance filings unless compliance
filings representing at least 70% of New Hampshire retail kilowatt hour sales,
on an annual basis, have been or are being implemented. The 1997 legislature
amended this requirement to the extent that a utility having less than 50% of
statewide retail electric distribution sales (measured in kilowatt hours per
year) may seek a ruling by the NHPUC that it is in the public interest that
implementation of such utility's compliance filing be deferred until
compliance filings representing 70% of retail electric sales have been or are
being implemented.
In its Final Plan, the NHPUC announced a departure from cost-based
ratemaking and instead adopted a market-priced approach to stranded cost
recovery. The Company believes that if the NHPUC adopted the Final Plan in
its present form Connecticut Valley as well as the Company's wholesale power
business with Connecticut Valley would no longer be able to apply Statement of
Financial Accounting Standards (SFAS) No. 71, "Accounting For The Effects of
Certain Types of Regulation," and the Company may have to remove from its
balance sheet substantially all of its regulatory assets associated with
New Hampshire business estimated at approximately $3.0 million as of
December 31, 1997, on a pre-tax basis. In addition, the supplemental order
specific to Connecticut Valley denies stranded cost recovery related to its
Federal Energy Regulatory Commission (FERC) approved power contract with the
Company and further ordered Connecticut Valley to terminate the contract. The
net revenue loss associated with costs potentially disallowed under the power
contract are estimated by the Company to total over $80.0 million (pre-tax)
over a twenty-eight year period on a nominal dollar basis. The Company intends
to vigorously pursue the recovery of these costs and will continue to assess
the likelihood of recovery. If it is determined that it is probable that FERC
will not permit recovery of these costs, the Company would have to assess the
likelihood and magnitude of losses incurred under both SFAS No. 5, "Accounting
for Contingencies" and SFAS No. 121, "Accounting for the Impairment of Long
Lived Assets and for Long Lived Assets to be Disposed Of."
On April 7, 1997, the NHPUC issued an Order addressing certain threshold
procedural matters raised in the motion for rehearing and/or clarification
filed by various parties, including Connecticut Valley, relative to the Final
Plan and interim stranded cost orders. The Order suspends and stays those
aspects of the Final Plan that are the subject of rehearing or clarification
requests in order to thoroughly review and evaluate the issues raised in
such motions and also suspends and stays the interim stranded cost orders for
the various parties, including Connecticut Valley. The suspension and stay of
these orders will remain in effect until two weeks following the issuance of
any order concerning outstanding requests for rehearing and clarification.
On May 9, 1997, Public Service Company of New Hampshire (PSNH) filed a
Motion For Suspension of the electric utility restructuring proceeding to
allow mediation with the State of New Hampshire to proceed. On May 22, 1997,
NHPUC issued an Order granting PSNH's Motion For Suspension until
July 2, 1997. On July 2, 1997, PSNH filed another Motion For Continued
Suspension of the proceedings. On July 21, 1997, NHPUC issued an Order
extending the suspension of the rehearing schedule until August 5, 1997.
On August 1, 1997, PSNH filed another Motion For Continued Suspension of the
proceedings. On August 12, 1997, the NHPUC issued Order No. 22,681 denying
PSNH's Motion For Suspension and establishing a schedule of rehearing of PSNH
issues regarding rate-making and the Rate Agreement. The NHPUC adopted a
procedural schedule to rehear these PSNH issues to commence on September 5,
1997, so as not to interfere with the ongoing mediation which is expected to
continue until September 2, 1997.
The Final Plan and supplemental order also contain rulings on numerous
issues that may have a substantial effect on the operations of the Company.
Included among these rulings is the requirement that Connecticut Valley divest
within two years all of its wholesale power purchase contracts; a prohibition
on the remaining distribution company and its affiliates from engaging in
retail marketing or load aggregation services; and a mandate for the filing of
tariffs with the FERC for the provision of unbundled retail transmission
service. Connecticut Valley's utility specific supplemental order did approve
the recovery through interim stranded cost charges of the projected above
market power costs associated with purchases from Qualifying Facilities that
were previously approved by the NHPUC.
PSNH and various PSNH affiliates including Northeast Utilities have filed
an action for injuctive and declaratory relief in the New Hampshire Federal
District Court (Court) with respect to the NHPUC's Final Plan and the
supplemental order pertaining to PSNH. The Court has rendered, and later
amended, a temporary restraining order in favor of PSNH. The Court has also
rendered an order declining to abstain, except, at present, with respect to
certain limited issues regarding ratemaking and regarding a Rate Agreement
between PSNH and the State of New Hampshire. The Company and Connecticut
Valley have filed claims for intervention (seeking declaratory relief with
respect to the NHPUC's Final Plan and pertinent supplemental order) and have
moved to intervene in PSNH's federal action. The Court ordered mediation of
PSNH's claims and has required the mediator to report to the Court on the
status of the mediation process on September 2, 1997. Until then, the Court
does not plan to hold a hearing on PSNH's request for preliminary injunction.
As stated above, the NHPUC in its supplemental order specific to
Connecticut Valley denies stranded cost recovery related to its FERC approved
power contract with the Company and further ordered Connecticut Valley to
terminate the contract. However, FERC, in its Order No. 888, established that
it would determine stranded cost recovery and make such recoveries a component
of charges for transmission service in cases of wholesale termination.
Accordingly, on June 25, 1997, the Company petitioned the FERC to assert its
jurisdiction over the recovery of stranded costs resulting from the NHPUC's
Final Plan and allow recovery rejected by the New Hampshire Regulators.
Numerous interests have sought party status before the FERC in this matter.
A notice scheduling a pre-hearing conference by the FERC has not yet been
scheduled.
The Company will continue to work for a negotiated settlement with
parties to the New Hampshire restructuring proceeding and the NHPUC. The
Company cannot predict whether the ultimate outcome of this matter would have
a material adverse effect on the Company's results of operations, cash flows,
and ability to obtain capital at competitive rates.
Connecticut Valley constitutes approximately 7% of the Company's total
retail MWH sales.
Competition-Risk Factors
If retail competition is implemented in Vermont or New Hampshire, the
Company is unable to predict the impact of this competition on its revenues,
the Company's ability to retain existing customers and attract new customers
or the margins that will be realized on retail sales of electricity.
Historically, electric utility rates have been based on a utility's
costs. As a result, electric utilities are subject to certain accounting
standards that are not applicable to other business enterprises in general.
SFAS No. 71, "Accounting for the Effects of Certain Types of Regulation,"
requires regulated entities, in appropriate circumstances, to establish
regulatory assets and liabilities, and thereby defer the income statement
impact of certain costs and revenues that are expected to be realized in
future rates.
As described in Note 1 of Notes to Consolidated Financial Statements,
included in the Company's 1996 Annual Report on Form 10-K, the Company
complies with the provisions of SFAS No. 71. In the event the Company
determines that it no longer meets the criteria for following SFAS No. 71, the
accounting impact would be an extraordinary, non-cash charge to operations of
an amount that could be material. Criteria that give rise to the
discontinuance of SFAS No. 71 include (1) increasing competition that
restricts the Company's ability to establish prices to recover specific costs
and (2) a significant change in the manner in which rates are set by
regulators from cost-based regulation to another form of regulation.
The Securities and Exchange Commission has questioned the ability of
certain utility companies continuing the application of SFAS No. 71 where
legislation provided for the transition to retail competition. The issue of
when and how to discontinue the application of SFAS No. 71 by utilities during
transition to competition has been referred to the Financial Accounting
Standards Board's Emerging Issues Task Force (EITF).
The EITF has reached a tentative consensus that regulatory assets should
be assigned to separable portions of the company's business based on the
source of the cash flows that will recover those regulatory assets.
Therefore, if the source of the cash flows is from a separable portion of the
company's business that meets the criteria to apply SFAS No. 71, those
regulatory assets should not be written off under SFAS No. 101, "Accounting
for the Discontinuation of Application of SFAS No. 71," but should be assessed
under paragraph 9 of SFAS No. 71 for realizability. The Company's Management
believes that SFAS No. 71 continues to apply to its regulated operations.
SFAS No. 121, "Accounting for the Impairment of Long Lived Assets and for
Long-Lived Assets to Be Disposed Of," which was implemented by the Company on
January 1, 1996, requires that any assets, including regulatory assets, that
are no longer probable of recovery through future revenues, be revalued based
upon future cash flows. SFAS No. 121 requires that a rate-regulated
enterprise recognize an impairment loss for the amount of costs excluded from
recovery. As of June 30, 1997, based upon the regulatory environment within
which the Company currently operates, SFAS No. 121 did not have an impact on
the Company's financial position or results of operations. Competitive
influences or regulatory developments may impact this status in the future.
The Company believes that the provisions of both the Report and MOU, if
ultimately approved by the PSB and Vermont General Assembly, would meet the
criteria for continuing application of SFAS Nos. 71 and 121. Conversely, the
Company believes that the unmodified provisions of S-62 and the NHPUC Final
Plan would not meet the criteria for continuing application of SFAS No. 71
and 121. Because the Company is unable to predict what form possible future
legislation will take, it cannot predict if or to what extent SFAS Nos. 71
and 121 will continue to be applicable in the future. In addition, if the
Company is unable to mitigate or otherwise recover stranded costs that could
arise under S-62 or the NHPUC Final Plan, the Company would have to assess the
likelihood and magnitude of losses incurred under SFAS No. 5.
As such, the Company cannot predict whether the Report, the MOU
and restructuring legislation enacted in Vermont or the issuance of a final
restructuring Plan in New Hampshire would have a material adverse effect on
the Company's operations, financial condition or credit ratings. However, 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 ability to obtain capital at competitive rates. It
is possible that stranded cost exposure, including the potential impact of
write-offs associated with SFAS Nos. 5, 71, and 121, before mitigation could
exceed the Company's current total common stock equity.
TERMINATION BENEFITS
Consistent with its decision to realign the Company into strategic
business units, in July 1997, the Company offered a Voluntary Early Retirement
Program (VRP) and Voluntary Severance Program (VSP) to eligible employees.
Eligible employees have from August 1 until September 22, 1997 to participate
in the VRP which is effective July 1, 1998. VSP benefits consisting of
severance pay and limited-term medical coverage will be offered to employees
from August 15 until September 2, 1997. However, the Company has discretion
of either accepting or declining these resignations and their effective dates.
At this time, the Company cannot predict how many employees will participate
in the VRP or the VSP or the ultimate cost of these programs. The Company
believes that these costs will be recovered through the regulatory process.
The timing and recoverability of these costs will be determined in future rate
proceedings.
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 June 30, 1997 (including
amounts of long-term debt and preferred stock due within one year), consisted
of 53.2% common equity, 7.9% preferred stock, 33.9% long-term debt and 5.0%
capital lease obligations.
Based on issues outstanding at June 30, 1997, the Company's mandatory
sinking fund requirements for long-term debt and preferred stock due within
the next twelve-month period is approximately $3.0 million and $1.0 million,
respectively.
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 requirement in the Appomattox
Cogeneration project and a $1.6 million letter of credit is outstanding to
support an investment commitment 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 1996
were $3.5 million, and based on an agreement between the Company and the DPS
and approved by the PSB, total 1997 C&LM expenditures are not to exceed
$4.5 million.
Diversification
Catamount was formed for the purpose of investing in non-regulated power
plant projects. As of June 30, 1997, Catamount, through its wholly owned
subsidiaries, had interests in six operating independent power projects
located in Glenns Ferry and Rupert, Idaho; 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, and under development in Summersville, West Virginia.
Catamount's net income was $.5 milion for the 1997 second quarter compared to
a net loss of $.3 million for the second quarter of 1996. Net income for the
first half of 1997 and 1996 was $1.0 million and $.3 million, respectively.
Included in results of operation for the six months ended June 30, 1997 and
1996 were $.3 million and $.7 million, respectively, of pre-tax costs related
to the Gauley River project in Summersville, West Virginia. These expenses
would be reimbursed if this pending project reaches financial closing.
On August 5, 1997, Catamount sold its 8.1% partnership's interest in the
NW Energy Williams Lake L.P. project. The sale resulted in a $1.7 million
after-tax gain or approximately $.15 per share of common stock and will be
recorded in the third quarter of 1997.
SmartEnergy was formed for the purpose of engaging in the sale of or
rental of electric water heaters, energy-efficient products and other related
goods and services. SmartEnergy incurred a net loss of $3,000 for the second
quater of 1997 and earnings of $38,000 for the first half of 1997.
SmartEnergy's earnings were $96,000 and $187,000 for the second quarter and
first half of 1996, respectively.
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.
During proceedings related to the April 30, 1996 Order described in the
Company's 1996 Annual Report on Form 10-K, 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.
On April 17, 1997, the PSB issued an Order which rejects the idea of a
traditional management audit of the Company and instead ordered an independent
forward-looking analysis of three of the Company's management policies and
practices focusing on three areas: 1) Transmission of information to the
Board of Directors by management. 2) Cost benefit analyses for major
corporate decisions. 3) Implementation of the Company's ethics and conflict
of interest policy.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1996, the FASB issued SFAS No. 125, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities," effective
for transfers and servicing of financial assets and extinguishments of
liabilities occuring after December 31, 1996. Earlier or retroactive
application is not permitted. Subsequently, in December 1996, the FASB issued
SFAS No. 127, "Deferral of the Effective Date of Certain Provisions of SFAS
No. 125." This statement defers for one year the effective date of certain
provisions of SFAS No. 125. The Company anticipates that the adoption of SFAS
No. 125 will not have a material impact on the Company's financial position or
results of operations.
In February 1997, the Financial Accounting Standards Board issued SFAS
No. 128, "Earnings per Share," effective for both interim and annual
periods ending after December 15, 1997. Earlier application is not permitted.
SFAS No. 128 establishes standards for computing and presenting earnings
per share(EPS) and applies to entities with publicly held common stock or
potential common stock. The Company anticipates that the adoption of SFAS
No. 128 will not have an impact on the Company's computation and presentation
of basic EPS. The Company does not have any potential common stock that would
result in the dilution of EPS.
YEAR-2000 COMPLIANCY
The Company is in process of assessing the scope, magnitute and costs of
making its computer systems and applications becoming year-2000 compliant.
The assessment is expected to be completed by October 31, 1997. Although,
final costs cannot be determined at this time, the Company does not believe
that these costs represent the potential for a material adverse effect on its
financial position or results of operations.
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,
performance or achievements to differ materially from the future 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.
On July 29, 1996, the Company filed a Declaratory Judgment action
pertaining to remediation in the United States District Court for the District
of Vermont. The Complaint names as defendants a number of insurance companies
that issued insurance policies to the Company dating from the mid 1940s to the
late 1980s. The Company asserts that insurance 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, 4 and 5.
None.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
EXHIBIT INDEX
3-1. By-laws, as amended June 2, 1997.
27. Financial Data Schedule.
(b) There were no reports on Form 8-K for the quarter ended
June 30, 1997.
<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 James M. Pennington
_______________________________________
James M. Pennington, Vice President,
Controller and Principal Accounting
Officer
By Joseph M. Kraus
_______________________________________
Joseph M. Kraus, Vice President,
Corporate Secretary and General
Counsel
Dated August 14, 1997
<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> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 323,242
<OTHER-PROPERTY-AND-INVEST> 58,441
<TOTAL-CURRENT-ASSETS> 59,626
<TOTAL-DEFERRED-CHARGES> 56,666
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 497,975
<COMMON> 65,987
<CAPITAL-SURPLUS-PAID-IN> 45,285
<RETAINED-EARNINGS> 77,983
<TOTAL-COMMON-STOCKHOLDERS-EQ> 189,255
19,000
8,054
<LONG-TERM-DEBT-NET> 117,374
<SHORT-TERM-NOTES> 0
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 3,005
1,000
<CAPITAL-LEASE-OBLIGATIONS> 17,763
<LEASES-CURRENT> 1,094
<OTHER-ITEMS-CAPITAL-AND-LIAB> 141,430
<TOT-CAPITALIZATION-AND-LIAB> 497,975
<GROSS-OPERATING-REVENUE> 153,936
<INCOME-TAX-EXPENSE> 6,289
<OTHER-OPERATING-EXPENSES> 134,392
<TOTAL-OPERATING-EXPENSES> 140,681
<OPERATING-INCOME-LOSS> 13,255
<OTHER-INCOME-NET> 4,064
<INCOME-BEFORE-INTEREST-EXPEN> 17,319
<TOTAL-INTEREST-EXPENSE> 4,855
<NET-INCOME> 12,464
1,014
<EARNINGS-AVAILABLE-FOR-COMM> 11,450
<COMMON-STOCK-DIVIDENDS> 7,604
<TOTAL-INTEREST-ON-BONDS> 4,020
<CASH-FLOW-OPERATIONS> 38,816
<EPS-PRIMARY> 1.00
<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 votes entitled to be cast,
represented in person or by proxy, shall constitute a quorum at a
meeting of stockholders. If a quorum is present, the action on a
matter (other than the election of directors) is approved if the
votes cast in favor of the action exceed the votes cast opposing
the action, 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 and June 2, 1997)
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 a plurality
of the votes cast by the shares entitled to vote in the election at a
meeting at which a quorum is present, except as otherwise
provided in the Articles of Association or in these By-Laws.
(As amended October 16, 1944; May 7, 1963, February 17,
1987 and June 2, 1997)
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)
