SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
Form 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 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 April 30, 1997
there were outstanding 11,519,748 shares of Common Stock, $6 Par Value.
<PAGE>
CENTRAL VERMONT PUBLIC SERVICE CORPORATION
Form 10-Q
Table of Contents
Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statement of Income and Retained Earnings
for the three months ended March 31, 1997 and 1996 3
Consolidated Balance Sheet as of March 31, 1997 and
December 31, 1996 4
Consolidated Statement of Cash Flows for the three
months ended March 31, 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 9-20
PART II. OTHER INFORMATION 21-22
SIGNATURE 23
<PAGE>
CENTRAL VERMONT PUBLIC SERVICE CORPORATION
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
CONSOLIDATED STATEMENT OF INCOME AND RETAINED EARNINGS
(Dollars in thousands, except per share amounts)
(Unaudited)
Three Months Ended
March 31
1997 1996
Operating Revenues $88,494 $84,246
Operating Expenses
Operation
Purchased power 40,996 37,272
Production and transmission 5,677 4,850
Other operation 9,985 9,175
Maintenance 3,041 2,835
Depreciation 4,460 4,436
Other taxes, principally property taxes 2,988 2,817
Taxes on income 7,207 8,625
------- -------
Total operating expenses 74,354 70,010
------- -------
Operating Income 14,140 14,236
------- -------
Other Income and Deductions
Equity in earnings of affiliates 885 801
Allowance for equity funds during construction 20 21
Other income, net 2,549 2,381
Provision for income taxes (882) (229)
------- -------
Total other income and deductions, net 2,572 2,974
------- -------
Total Operating and Other Income 16,712 17,210
------- -------
Interest Expense
Interest on long-term debt 2,327 2,353
Other interest 74 150
Allowance for borrowed funds during construction (8) (51)
------- -------
Total interest expense, net 2,393 2,452
------- -------
Net Income 14,319 14,758
Retained Earnings at Beginning of Period 74,137 66,422
------- -------
88,456 81,180
Cash Dividends Declared
Preferred stock 507 507
Common stock 2,534 2,318
------- -------
Total dividends declared 3,041 2,825
------- -------
Retained Earnings at End of Period $85,415 $78,355
======= =======
Earnings Available For Common Stock $13,812 $14,251
Average Shares of Common Stock Outstanding 11,519,748 11,590,748
Earnings Per Share of Common Stock $1.20 $1.23
Dividends Paid Per Share of Common Stock $.22 $.20
<PAGE>
CENTRAL VERMONT PUBLIC SERVICE CORPORATION
CONSOLIDATED BALANCE SHEET
(Dollars in thousands)
March 31 December 31
1997 1996
Assets
Utility Plant, at original cost $461,035 $461,231
Less accumulated depreciation 150,935 146,539
-------- --------
310,100 314,692
Construction work in progress 12,041 9,302
Nuclear fuel, net 947 947
-------- --------
Net utility plant 323,088 324,941
-------- --------
Investments and Other Assets
Investments in affiliates, at equity 26,675 26,630
Non-utility investments 29,249 27,823
Non-utility property, less accumulated depreciation 4,457 4,498
-------- --------
Total investments and other assets 60,381 58,951
-------- --------
Current Assets
Cash and cash equivalents 23,113 6,365
Special deposits 5,411 5,633
Accounts receivable 25,499 21,878
Unbilled revenues 7,543 11,673
Materials and supplies, at average cost 3,722 3,690
Prepayments 2,435 2,423
Other current assets 3,585 3,840
-------- --------
Total current assets 71,308 55,502
-------- --------
Regulatory Assets and Other Deferred Charges 60,206 63,574
-------- --------
Total Assets $514,983 $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 45,279 45,273
Treasury stock (266,100 shares, at cost) (3,656) (3,656)
Retained earnings 85,415 74,137
-------- --------
Total common stock equity 197,753 186,469
Preferred and preference stock 8,054 8,054
Preferred stock with sinking fund requirements 20,000 20,000
Long-term debt 117,369 117,374
Long-term lease arrangements 18,034 18,304
-------- --------
Total capitalization 361,210 350,201
-------- --------
Current Liabilities
Short-term debt - 5,750
Current portion of long-term debt 3,015 3,015
Accounts payable 3,763 4,432
Accounts payable - affiliates 11,346 12,109
Accrued income taxes 9,177 2,552
Dividends declared 507 507
Other current liabilities 26,728 24,184
-------- --------
Total current liabilities 54,536 52,549
-------- --------
Deferred Credits
Deferred income taxes 57,735 57,463
Deferred investment tax credits 7,516 7,612
Other deferred credits 33,986 35,143
-------- --------
Total deferred credits 99,237 100,218
-------- --------
Total Capitalization and Liabilities $514,983 $502,968
======== ========
<PAGE>
CENTRAL VERMONT PUBLIC SERVICE CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
Three Months Ended
March 31
1997 1996
Cash Flows Provided (Used) By
Operating Activities
Net income $14,319 $14,758
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation 4,460 4,436
Deferred income taxes and investment tax credits 333 (148)
Allowance for equity funds during construction (20) (21)
Net deferral and amortization of nuclear refueling
replacement energy and maintenance costs 1,409 1,260
Amortization of conservation and load management
costs 1,755 841
Gain on sale of property (2,095) -
Decrease in accounts receivable 329 4,663
Decrease in accounts payable (802) (1,866)
Increase in accrued income taxes 6,714 7,928
Change in other working capital items 3,141 5,185
Other, net (727) (982)
------- -------
Net cash provided by operating activities 28,816 36,054
------- -------
Investing Activities
Construction and plant expenditures (3,399) (4,240)
Deferred conservation & load management expenditures (575) (485)
Investments in affiliates 55 (130)
Proceeds from sale of property 2,210 -
Non-utility investments (1,443) (441)
Other investments, net (120) (107)
------- -------
Net cash used for investing activities (3,272) (5,403)
------- -------
Financing Activities
Short-term debt, net (5,750) (12,605)
Long-term debt, net (5) (4)
Common and preferred dividends paid (3,041) (2,825)
------- -------
Net cash used for financing activities (8,796) (15,434)
------- -------
Net Increase in Cash and Cash Equivalents 16,748 15,217
Cash and Cash Equivalents at Beginning of Period 6,365 11,962
------- -------
Cash and Cash Equivalents at End of Period $23,113 $27,179
======= =======
Supplemental Cash Flow Information
Cash paid during the period for:
Interest (net of amounts capitalized) $ 303 $ 224
Income taxes (net of refunds) $ 1,251 $ 1,075
<PAGE>
CENTRAL VERMONT PUBLIC SERVICE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 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 the
state of Kansas and the other in the state of Missouri (the Sites). During
the mid-1980's, these Sites received materials containing PCBs from hundreds
of sources, including the Company. 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.
The Company also faces potential liability arising from the alleged
disposal of hazardous materials at three former municipal landfills: the
Bennington Landfill, the Parker Landfill, and the Trafton-Hoisington Landfill.
BENNINGTON LANDFILL The Bennington Landfill is a Superfund site located in
Bennington, Vermont. An investigation by the Company suggests that it is
unlikely that it contributed a meaningful amount of hazardous substances, if
any, to the site.
In July 1994, the EPA notified the Company that it had reviewed evidence
which, in its opinion, indicated that the Company may have contributed to the
environmental contamination at the Bennington site but that a full
determination of its potential liability for the site had not been made. The
EPA, at that time, designated the Company a potentially interested party
(PIP). Also in July 1994, the EPA notified the PRP Group, the Company and
other PIPs that it was proposing a response action at the site with an
estimated total cost of approximately $9.5 million.
During November 1994, the Company was notified that the EPA had
additional information indicating that the Company was a PRP with regard to
the Bennington site. The EPA letter also requested that the Company
participate with other PRPs in the response action described above and further
made a demand against the Company and other PRPs for reimbursement of an
aggregate of $.85 million in costs the EPA had incurred in responding to
conditions at the site.
The original PRP Group reformed into a larger group, incorporating
additional PRPs, including the Company, to undertake the remedial response and
to reimburse EPA's response expenses of $3 million it spent on its Engineering
Evaluation/Cost Analysis. The Company determined its interests would be best
served by participating in the larger PRP Group while at the same time
exploring the possibility of a "De Minimis" settlement with the EPA, either
alone or as part of a group, premised on its minimal contribution to the site.
The PRP Group and EPA recently reached a tentative agreement. Under the
terms of that agreement, and a related internal allocation, the Company is
considered a "De Minimis" party and the Company's liability would be less than
$100,000. If a final settlement is not achieved, the Company will continue to
explore its settlement options, individually and as a part of a group of
"De Minimis" parties. If all efforts at settlement fail, the Company will
defend any contribution action brought by the other PRPs or the EPA.
PARKER AND TRAFTON-HOISINGTON LANDFILLS There have been no further
developments involving the Company at these sites. The Company's
investigations at the time it was originally contacted indicated that it
contributed little if any hazardous substances to the sites. The Company has
not been contacted by the EPA, the state or any of the PRPs since 1994.
Therefore, the Company believes that the likelihood that these sites will
cause the Company to accrue significant liability has significantly
diminished. For historical information pertaining to these sites, refer to
the Company's 1995 Form 10-K.
At this time, the Company does not believe these landfill sites represent
the potential for a material adverse effect on its financial condition or
results of operations but it will continue to monitor activities at the sites.
The Company is not subject to any pending or threatened litigation with
respect to any other sites that have the potential for causing the Company to
incur material remediation expenses, nor has the EPA or other Federal or state
agency sought contribution from the Company for the study or remediation of
any such sites.
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 insurer provide coverage for all expenses incurred or
to be incurred by the Company in conjunction with, among others, the Cleveland
Avenue Property and the Bennington Landfill sites. Due to the uncertainties
associated with the outcome of this lawsuit, no receivables have been
recorded.
Note 3 - Accounts Receivable
At March 31, 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 $7.3 million and $4.7 million, respectively,
at March 31, 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 $1.4 million and $1.1 million at March 31, 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:
Three Months Ended March 31
1997 1996
Operating revenues $40,421 $39,756
Operating income $ 3,711 $ 3,441
Net income $ 1,775 $ 1,598
Company's equity in net income $556 $509
<PAGE>
CENTRAL VERMONT PUBLIC SERVICE CORPORATION
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
March 31, 1997
Earnings Overview
Earnings available for common stock and earnings per share of common
stock for the quarter ended March 31, 1997 were $13.8 million and $1.20
compared to $14.3 million and $1.23 for the corresponding period last year.
Earnings for the first quarter of 1997 reflect a net of tax gain from
sale of property of approximately $1.3 million, or $.12 per share of common
stock. The 1996 results include a gain from insurance proceeds of about $1.3
million, or $.11 per share of common stock. Other factors affecting earnings
results for the first quarter of 1997 are described in Results of Operations
below.
RESULTS OF OPERATIONS
The major elements of the Consolidated Statement of Income are discussed
below.
Operating Revenues and MWH Sales
A summary of MWH sales and operating revenues for the three months ended
March 31, 1997 and 1996 (and the related percentage changes from 1996) is set
forth below:
<TABLE>
<CAPTION>
Three Months Ended March 31
Percentage Percentage
MWH Increase Revenues (000's) Increase
1997 1996 (Decrease) 1997 1996 (Decrease)
<S> <C> <C> <C> <C> <C> <C>
Residential 275,287 285,355 (3.5) $35,803 $34,481 3.8
Commercial 230,075 231,408 (.6) 30,400 28,204 7.8
Industrial 115,644 104,330 10.8 10,654 9,438 12.9
Other retail 1,763 1,787 (1.3) 471 442 6.6
------- ------- ------- -------
Total retail sales 622,769 622,880 - 77,328 72,565 6.6
------- ------- ------- -------
Resale sales:
Firm 265 605 (56.2) 11 23 (52.2)
Entitlement 110,863 136,941 (19.0) 4,955 6,689 (25.9)
Other 195,375 184,935 5.6 4,807 4,304 11.7
------- ------- ------- -------
Total resale sales 306,503 322,481 (5.0) 9,773 11,016 (11.3)
------- ------- ------- -------
Other revenues - - - 1,393 665 109.5
------- ------- ------- -------
Total sales 929,272 945,361 (1.7) $88,494 $84,246 5.0
======= ======= ======= =======
</TABLE>
Retail MWH sales for the first quarter of 1997 were flat compared to 1996
first quarter. However, retail revenues increased $4.8 million or 6.6% over
last year resulting from the 5.5% and 2.0% retail rate increases effective
with bills rendered June 1, 1996 and January 1, 1997, respectively.
Residential and commercial MWH sales decreased 3.5% and .6%, respectively,
reflecting moderate temperatures during the first quarter of 1997. However,
industrial MWH sales increased 10.8% primarily due to increased megawatt-hour
requirements for snow making customers.
Entitlement MWH sales and related revenues decreased 19.0% and 25.9% for
the first quarter of 1997 compared to the same period last year mostly due to
the termination of a sellback contract arrangement with Hydro-Quebec.
The 10,440 MWH increase ($.5 million) in other resale sales resulted
principally from increased system capacity and sales to Nepool partially
offset by unit and off-system sales to other utilities in New England.
Other revenues increased $.7 million for the first quarter of 1997
compared to the same period last year due to an increase in transmission
revenues related to a transmission interconnection agreement. Also, in the
first quarter of 1996, the Company reduced revenues by approximately
$.3 million associated with power sales and transmission service transactions.
Net Purchased Power and Production Fuel Costs
The net cost components of purchased power and production fuel costs for
the three months ended March 31, 1997 and 1996 are as follows (dollars in
thousands):
<TABLE>
<CAPTION>
1997 1996
Units Amount Units Amount
<S> <C> <C> <C> <C>
Purchased and produced:
Capacity (MW) 524 $21,288 473 $19,952
Energy (MWH) 926,064 19,708 907,851 17,320
------- -------
Total purchased power costs 40,996 37,272
Production fuel (MWH) 60,726 266 105,217 539
------- -------
Total purchased power and
production fuel costs 41,262 37,811
Entitlement and other resale sales (MWH) 306,238 9,761 321,876 10,993
------- -------
Net purchased power and production
fuel costs $31,501 $26,818
======= =======
</TABLE>
The Company's net purchased power and production fuel costs increased
$4.7 million for the first quarter compared to the same period last year.
Capacity and energy costs were $1.3 million and $2.4 million, respectively,
higher than last year. Entitlement and other resale sales decreased
$1.2 million. The Company purchased 10.8% more MW during the first quarter
which increased capacity costs by $2.1 million, this was offset by a decrease
in price of $.8 million. The Company purchased 2.0% more MWH amounting to a
$.4 million increase in energy costs for the first quarter compared to 1996.
An 11.5% increase in price per MWH resulted in a $2.0 million increase in
energy costs.
Pursuant to a PSB Accounting Order, during the first quarter of 1997, the
Company reduced energy costs by approximately $2.9 million related to the
Hydro-Quebec agreement which will lower power costs by approximately $5.8
million for 1997.
The price increase for the first quarter results primarily from
incremental replacement power costs associated with Millstone Unit #3 and
Maine Yankee discussed below. Also, production fuel costs decreased for the
quarter compared to 1996 due to Millstone Unit #3 being out of service.
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.
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 in order to provide assurances to
the NRC that Unit #3's operations are in compliance with the Nuclear
Regulatory Commission (NRC) regulations and its operating license. Northeast
Utilities currently estimates that its total incremental operations and
maintenance costs for Unit #3 will be approximately $53.3 million. The
Company's share is about $.9 million. Northeast Utilities' management has
indicated it cannot presently estimate the timing of the restart of Unit #3 or
what additional costs, if any, will be incurred.
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 Northeast Utilities/Northeast Utilities Service Co.'s
(NU/NUSCO) efforts relating to Unit #3. In addition, this group has retained
counsel and experts to review and evaluate NU/NUSCO's operation and management
and any prospective claims the group members may be able to assert against
NU/NUSCO or related companies.
The Company estimates that while Unit #3 is out of service it will incur
incremental replacement power costs in 1997 estimated at $1.6 million. In
addition, the Company incurred incremental operation and maintenance costs
during the first quarter of 1997 of about $.2 million and expects to incur
additional costs of about $.2 million for 1997. For additional information
regarding Unit #3, refer to the Company's 1996 Annual Report on Form 10-K.
Maine Yankee
After a series of problems and deficiencies discovered at the Maine
Yankee Nuclear Power Plant, in late December 1996, the 880-megawatt nuclear
generating plant located in Wiscasset, Maine was placed in the cold shutdown
configuration. Maine Yankee must fulfill certain commitments before the Plant
will be allowed by the NRC Staff to return to service. Maine Yankee estimates
that its incremental operations and maintenance costs will be approximately
$15.7 million in 1997 and the Company's share is about $.3 million. Maine
Yankee believes that the Plant will be out of service at least until the end
of August 1997. The Company expects to incur incremental replacement power
costs of approximately $.5 million through August 31, 1997. The Company
incurred incremental operation and maintenance costs during the first quarter
of 1997 of about $.2 million. Maine Yankee cannot predict when or whether all
of the regulatory and operational issues will be satisfactorily resolved or
what effect the ultimate total of the repairs and improvements to the Plant
will have on the economics of operating the Plant. Refer to the Company's
1996 Annual Report on Form 10-K for related information.
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 2% of its 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 at March 31, 1997 is approximately $14.4 million. 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).
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 $5.6 million at March 31,
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 and Yankee Atomic decommissioning
costs will be recovered through the regulatory process and, therefore, the
ultimate resolution of the premature retirement of the two 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 are subject to change due
to changing technologies and regulations, the Company expects that the nuclear
generating companies' liability for decommissioning, including any future
changes in the liability, 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 1997. The
Company's 35% share of the total cost for this Project is expected to be about
$3.15 million. Such costs will be deferred by Vermont Yankee and amortized
over the remaining license life of the plant.
Production and Transmission
Higher transmission costs combined with lower savings associated with
Phase II Hydro-Quebec transmission facilities, production and transmission
expenses increased $.8 million for the first quarter of 1997 compared to 1996
first quarter.
Other Operation
Other operating expenses increased $.8 million for the first quarter of
1997 principally due to amortization of Conservation and Load Management
(C&LM) costs.
Maintenance
The increase in maintenance expenses of $.2 million for the first quarter
of 1997 compared to the same period in 1996 is attributable to nuclear
maintenance expenses associated with the Company's joint-ownership interest in
Unit #3 discussed above.
Income Taxes
Federal and state income taxes fluctuate with the level of pre-tax
earnings. The decrease in total income tax expense for the first quarter of
1997 results primarily from a decrease in pre-tax earnings for the period.
Other Income (Expenses), Net
The increase in other income (expenses), net for the first quarter of
1997 is primarily due to a gain from sale of property of approximately
$2.1 million. This gain was partially offset by expenses incurred in
connection with a non-utility project currently under development in
Summersville, West Virginia. Also, insurance proceeds of about $1.3 million
were recorded in the first quarter of 1996.
Other Interest Expense
Other interest expenses declined for the first quarter of 1997 due to
decreased short-term debt levels partially offset by higher interest rates
compared to the same period last year.
Cash Dividends Declared
Common
The first quarter 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 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
$28.8 million and $36.1 million for the three months ended March 31, 1997 and
1996, respectively.
The Company ended the first three months of 1997 with cash and cash
equivalents of $23.1 million, an increase of $16.7 million from the beginning
of the year. The increase in cash for the first three months of 1997 was the
result of $28.8 million provided by operating activities, $3.3 million used
for investing activities and $8.8 million used for financing activities.
Operating Activities - Net income, depreciation and deferred income taxes
provided $19.1 million. Fluctuations in working capital provided $9.4 million
and included $2.9 million of accounts receivable from Hydro-Quebec related to
a purchased power agreement (see Net Purchased Power and Production Fuel Costs
above) and $.3 million was provided by deferral/amortization of nuclear
replacement energy and maintenance costs, amortization of C&LM costs and
other, net including gain from sale of property of $2.1 million.
Investing Activities - Construction and plant expenditures consumed
$3.4 million, $.6 million was used for C&LM programs, $1.4 million was used
for non-utility investments and $.1 million was used for other investments.
Proceeds of $2.2 million were generated from the sale of property.
Financing Activities - Dividends paid on common stock were $2.5 million,
while preferred stock dividends were $.5 million. Short-term obligations
repaid totaled $5.8 million.
ELECTRIC INDUSTRY RESTRUCTURING
The electric utility industry is in a period of potential transition that
may result in a shift away from cost of service and return on equity based
rates to one with more market based rates. Most states, including Vermont and
New Hampshire, where the Company does business, are exploring new mechanisms
to bring greater competition, customer choice and market influence to the
industry while retaining the public benefits associated with the current
regulatory system.
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 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.
The Report also indicated that the implementation date could be as late
as the end of 1998. Note that the Report does not constitute a final, binding
order but is instead a recommendation to the Vermont Legislature.
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 known
plan for implementing restructuring in Vermont. If the concepts developed
pursuant to the MOU to date are implemented, it is anticipated that the impact
would:
Result in a decrease in Vermont-related total electricity prices for 1998 and
1999 and reduce future total electric prices from what they would have been
absent restructuring in Vermont, under all reasonable market price scenarios.
Allow retention of all utility business segments, including generation and
distribution, through functional separation into separate legal affiliates.
Pre-define the level of, timing for and measurement of mitigation and, if such
mitigation is accomplished, provide for substantial certainty for collecting
the remainder of the Company's Vermont jurisdictional stranded costs. To
achieve this certainty, it is anticipated that the Company would have to
achieve mitigation of its stranded costs of at least $133 million (on a net
present value basis) by December 31, 2001.
Set up a mechanism to collect stranded costs through a non-bypassable
Competitive Transition Charge.
Establish a grantor trust financing mechanism to fund stranded cost mitigation
or to fund the under collection of stranded costs.
Fix a distribution company price path through 2004.
Given the complexity of the MOU and the uncertainty surrounding necessary
legislative action to implement it, the Company cannot predict when or if the
provisions of the MOU would become effective and thus change the current
regulatory process in Vermont.
At the time of this filing, it appears unlikely that the Vermont General
Assembly will pass legislation necessary to restructure the electric utility
industry in Vermont this year.
On April 3, 1997, S-62, an act relating to electric industry
restructuring was passed by the Vermont Senate. Pursuant to the act, 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. The act 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, the act 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. The act 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 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 hearings on matters
relating to the reform of Vermont's electric utility system.
At this time, it cannot be determined whether any restructuring
legislation will be enacted during 1997 or future legislative sessions 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. Each utility
is required to file comprehensive plans no later than June 30, 1997 which
comply with the Final Plan and the supplemental orders. However, the 1996
legislation states that utilities shall not be required to implement their
compliance filings unless compliance filings representing at least seventy
percent of New Hampshire retail kilowatt hour sales, on an annual basis, 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 will 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 regulated business estimated at approximately $2.0 million 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. NHPUC has not yet
ruled on PSNH's Motion For Suspension.
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. The 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 does not plan to hold
a hearing on PSNH's request for preliminary injunction until mid-June 1997 at
the earliest. If the Court grants the relief requested by PSNH, it will
remove Connecticut Valley's obligation to implement its compliance plan, since
PSNH alone represents more than seventy percent of New Hampshire retail sales.
The Company intends to fully examine its legal remedies and to vigorously
pursue them, including petitioning the FERC for the recovery of stranded costs
resulting from the NHPUC's Final Plan.
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. Ultimately, the financial impacts of restructuring on
Connecticut Valley and the Company may be determined by the FERC and the
courts. The FERC regulates the wholesale power sale from the Company to
Connecticut Valley. Should the State of New Hampshire require the termination
of that sale, the Company expects that the FERC would determine the recovery
of any lost net revenues going forward. The Company may also have legally
protected rights which could be enforced in proceedings in the New Hampshire,
Vermont and Federal judicial systems.
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. Guidance on this issue is
expected in the near future. 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 March 31, 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
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 enacted legislation will
take, however, 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.
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 March 31, 1997 (including
amounts of long-term debt due within one year), consisted of 54.3% common
equity, 7.7% preferred stock, 33.1% long-term debt and 4.9% capital lease
obligations.
Based on issues outstanding at March 31, 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,
total 1997 C&LM expenditures are not to exceed $4.5 million. This Agreement
is subject to PSB approval.
Diversification
Catamount was formed for the purpose of investing in non-regulated power
plant projects. Currently, Catamount, through its wholly owned subsidiaries,
has interests in 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 after-tax
earnings were $514,000 and $579,000 for the first quarter of 1997 and 1996,
respectively. Included in results of operation for the three months ended
March 31, 1997 and 1996 were $251,000 and $103,000, respectively, of costs
related to the Gauley River project in Summersville, West Virginia. These
expenses would be reimbursed if this pending project reaches financial
closing.
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's earnings were $41,000 for the first quarter
of 1997 and $91,000 for the first quarter of 1996.
Rates and Regulation
The Company recognizes adequate and timely rate relief is necessary if
the Company is to maintain its financial strength, particularly since Vermont
regulatory rules do not allow for changes in purchased power and fuel costs to
be passed on to consumers through automatic rate adjustment clauses. The
Company's practice of reviewing costs periodically will continue and rate
increases will be requested when warranted.
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
major management audit of the Company and instead ordered an independent
forward-thinking review of three of the Company's management policies as
follows: 1) How the Company handles its internal conflict of interest issues,
2) how the Company's officers present information to the Company's Board of
Directors and 3) how the Company conducts cost-benefit analyses. This
forward-thinking review is intended to help the Company address these issues
going forward.
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.
Forward Looking Statements
Statements in this report relating to future financial conditions are
forward looking statements. Such forward-looking statements are not
guarantees of future performance and involve known and unknown risks,
uncertainties and other factors, which may cause the actual results,
performances or achievements to differ materially from the future 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 in
the United States District Court for the District of Vermont. The Complaint
names as defendants a number of insurance companies that issued policies to
the Company dating from the mid 1940s to the late 1980s. The Company asserts
that policies issued by defendants provide coverage for all defense and
remediation costs associated with the Cleveland Avenue property, the
Bennington Landfill site and the North Clarendon site. With the exception of
the North Clarendon site where no further remediation is anticipated, see
Note 2 to the Consolidated Financial Statements for related disclosures.
Items 2 and 3.
None.
Item 4. Submission of Matters to a Vote of Security Holders.
(a) The Registrant held its Annual Meeting of Stockholders on
May 6, 1997.
(b) Director elected whose term will expire in 1999:
Votes For Votes Withheld
--------- --------------
Patrick J. Martin 9,724,003 430,543
Directors elected whose terms will expire in 2000:
Votes For Votes Withheld
--------- --------------
Frederic H. Bertrand 9,728,289 426,247
Mary Alice McKenzie 9,726,110 428,436
Robert L. Barnett 9,718,435 436,111
Robert G. Clarke 9,723,357 431,189
Other Directors whose terms will expire in 1999:
Rhonda L. Brooks
Preston Leete Smith
Robert H. Young
Other Directors whose terms will expire in 1998:
Luther F. Hackett
F. Ray Keyser, Jr.
(c) To approve the Stock Option Plan for Key Employees
For 7,935,074
Against 1,955,444
Withhold 264,026
Broker Non-Vote 2
(d) To approve the Restricted Stock Plan for Non-employee Directors
and Key Employees
For 8,601,383
Against 1,286,465
Withhold 266,698
Item 5. Other Information.
(a) On April 28, 1997, Douglas D. Sinclair joined the Company as
Vice President and General Manager for Business Development.
Item 6. Exhibits and Reports on Form 8-K.
(a) List of Exhibits.
10. Material Contracts
10.66.1 Hydro-Quebec Participation Agreement dated
April 1, 1988 as amended and restated by Amendment
No. 5 thereto dated October 21, 1993, among
Vermont utilities participating in the purchase of
electricity under the Firm Power and Energy
Contract by and between Hydro Quebec and Vermont
Joint Owners of Highgate.
27. Financial Data Schedule.
(b) Item 5. Other Events, dated February 28, 1997 re: New Hampshire
Public Utilities Commission's Final Plan to restructure the electric utility
industry in New Hampshire pursuant to legislation enacted in New Hampshire
during 1996 was filed on March 7, 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 Francis J. Boyle
----------------------------------------------------
Francis J. Boyle, Senior Vice President, Finance and
Administration and Principal Financial Officer
By James M. Pennington
----------------------------------------------------
James M. Pennington, Vice President, Controller
and Principal Accounting Officer
Dated May 14, 1997
<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND>
This Financial Data Schedule contains summary financial information extracted
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its entirety by reference to such financial statements (dollars in thousands,
except per share amounts).
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<BOOK-VALUE> PER-BOOK
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<OTHER-PROPERTY-AND-INVEST> 60,381
<TOTAL-CURRENT-ASSETS> 71,308
<TOTAL-DEFERRED-CHARGES> 60,206
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 514,983
<COMMON> 67,059
<CAPITAL-SURPLUS-PAID-IN> 45,279
<RETAINED-EARNINGS> 85,415
<TOTAL-COMMON-STOCKHOLDERS-EQ> 197,753
19,000
8,054
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<INCOME-TAX-EXPENSE> 7,207
<OTHER-OPERATING-EXPENSES> 67,147
<TOTAL-OPERATING-EXPENSES> 74,354
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<OTHER-INCOME-NET> 2,572
<INCOME-BEFORE-INTEREST-EXPEN> 16,712
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</TABLE>
EXHIBIT 10.66.1
AMENDMENT NO. 5 TO HYDRO-QUEBEC PARTICIPATION AGREEMENT
This Amendment is made as of the twenty-first day of October,
1993, and is by, between and among each of the signatories to the
Hydro-Quebec Participation Agreement dated as of the first day of
April, 1988, as amended by Amendment No. 1 thereto and Restatement
thereof dated as of the thirty-first day of August, 1988,
Amendment No. 2 thereto dated as of the twenty third day of
August, 1989, Amendment No. 3 thereto dated as of the fifth day of
September, 1990, and Amendment No. 4 thereto dated as of the
thirty-first day of December, 1991, and amends and restates the
Agreement as hereinafter provided. All signatories hereto
specifically agree that each signatory will be fully bound by all
the terms and conditions of the Hydro-Quebec Participation
Agreement as thus amended and restated.
PRELIMINARY STATEMENT
At a Participants' special meeting held on October 21, 1993, the
Participants agreed to amend the Agreement to limit the
Participants' rights and obligations with respect to transactions
under the Interconnection Agreement to those transactions that are
approved by Vote of Participants, use transmission capacity
normally scheduled for deliveries of Contract energy, or have a
duration of not more than six months and to make certain related
changes to clarify how a Participant's Interconnection
Transactions Entitlement is determined and the procedure by which
a Participant may elect not to participate in such transactions
that are either approved by Vote or are for a term of not to
exceed six months.
The Participants also Voted to direct the Joint Owners to execute
an amendment (Amendment No. 3) to the Contract under which only
Central Vermont Public Service Corporation and Green Mountain
Power Corporation would remain as Vermont parties and that all
Participants, including Central Vermont Public Service Corporation
and Green Mountain Power Corporation, would continue to obtain
their Contract entitlements to Schedule A/B Power and Schedule C
Power pursuant to the Agreement.
Finally, the Agreement contains a number of provisions that no
longer have any effect or that have never been and never will be
given effect, including
preconditions (under existing Article II) to this Agreement's
effectiveness;
provisions (under existing Article V) governing the allocation of
Schedule A/B power and initial allocations of Schedule C Power;
provisions (under existing Article VI) providing for analysis of
the transmission paths available for the delivery of Contract
power and energy;
provisions (under existing Article VII) providing for the
assignment of transmission capacity in Existing Delivery
Facilities held by Excess Participants to Deficient Participants;
provisions (under existing Articles VIII and IX) for the joint
construction or use of New Transmission Facilities and New
Block-Loading Facilities that have not been and will not be
constructed or used; and
provisions (under existing Article X) providing for the recovery
of costs of providing transmission to Deficient Participants or
constructing New Transmission Facilities or New Block-Loading
Facilities.
Accordingly, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, and pursuant to the
provisions of Section 13.3 of the Agreement, it is hereby agreed
as follows;
1. Capitalized terms defined in Section 1.1 of the Agreement are
used herein with the meanings therein provided.
2. By executing this Amendment No. 5, the signatories agree that
the Agreement will be amended and restated as provided in Exhibit
1 hereto.
3. The signatories acknowledge and agree that this Amendment No. 5
may be effected by Vote of the Participants in accordance with
their respective Interconnection Transactions Entitlements in
effect as of the date on which this Amendment No. 5 is made.
4. This Amendment No. 5 will become binding upon the signatories
to this Amendment and become effective as of the date first
written above.
5. This Amendment No. 5's effectiveness is subject to all
Approvals required for its execution and performance.
6. Any number of counterparts to this Amendment No. 5 may be
executed, and each will have the same force and effect as an
original instrument, as if all the parties to all the counterparts
had executed the same instrument.
IN WITNESS WHEREOF, the signatories have caused this Amendment No.
5 to be executed by their duly authorized officers or agents.
<PAGE>
BARTON VILLAGE, INC.
By /s/ Robert E. Arnold
Its: Manager, Electric Department
Address: PO Box D
Barton, VT 05822
CENTRAL VERMONT PUBLIC SERVICE CORPORATION
By: /s/ Robert de R. Stein
Its: Senior Vice President Engineering & Energy Resources
Address: 77 Grove Street
Rutland, VT 05701
CITIZENS UTILITIES COMPANY
By: John J. Lass
Its:
Address: High Ridge Park
Stamford, CT 06905
VILLAGE OF ENOSBURG FALLS WATER AND LIGHT DEPARTMENT
By: /s/
Its: Village Manager
Address: Enosburg Falls
Vermont 05450
GREEN MOUNTAIN POWER CORPORATION
By: /s/ Craig T. Myette
Its:
Address: PO Box 850
So. Burlington
Vermont 05402-0850
VILLAGE OF HYDE PARK, INC.
By: /s/ Edward French, Jr.
Its: Chairman, Trustee
Address: PO Box 37
Hyde Park
Vermont 05655
VILLAGE OF LUDLOW ELECTRIC LIGHT DEPARTMENT
By: /s/ Donald Ellison
Its: Chairman
Address: PO Box 289
Ludlow, VT 05149
VILLAGE OF LYNDONVILLE ELECTRIC DEPARTMENT
By: /s/ Kenneth C. Mason
Its: Manager
Address: 24 Main Street
Lyndonville
Vermont 05851
VILLAGE OF MORRISVILLE WATER AND LIGHT DEPARTMENT
By: /s/ James C. Fox
Its: Superintendent
Address: PO Box 325
Morrisville
Vermont 05661
VILLAGE OF NORTHFIELD ELECTRIC DEPARTMENT
By: /s/
Its: Municipal Manager
Address: 26 South Main Street
Northfield
Vermont 05663
VILLAGE OF ORLEANS, INC.
By: /s/ John Morley, III
Its: Superintendent
Address: Memorial Square
Orleans, VT 05860
ROCHESTER ELECTRIC LIGHT AND POWER COMPANY
By: /s/ Thomas Pierce
Its: President
Address: Route 100
Rochester
Vermont 05767
VILLAGE OF STOWE WATER AND LIGHT DEPARTMENT
By: /s/ Bernard C. Machia
Its: General Manager
Address: Main Street
Route 100
Stowe, VT 05672
VERMONT ELECTRIC POWER COMPANY, INC.
By: /s/ Richard Mallary
Its: President
Address: PO Box 548
Rutland, VT 05701
VERMONT MARBLE - POWER DIVISION
OF OMYA, Inc.
By: /s/ John Mitchell
Its: President
Address 61 Main Street
Proctor, VT 05765
WASHINGTON ELECTRIC COOPERATIVE, INC.
By: /s/
Its: President
Address: PO Box 8
Route 14
East Montpelier
Vermont 05651
(Subject to approval of the Rural Electrification Administration)
0000180.01
<PAGE>
EXHIBIT 1
HYDRO-QUEBEC PARTICIPATION AGREEMENT
THIS AGREEMENT, restated as of the twenty-first day of October,
1993, is made as of the first day of April, 1988, and is by,
between and among each of the electric utilities the names and
principal addresses of which are set forth on the signature pages
to this Agreement. Capitalized terms used in this Agreement,
including the Preliminary Statement that follows, have the meaning
defined in Section 1.1 hereof.
PRELIMINARY STATEMENT
The Contract Joint Owners have entered into a Contract with
Hydro-Quebec for the purchase of power and energy. Pursuant to
Schedules A and B of the Contract, Hydro-Quebec agrees to make
available power and deliver associated energy respectively in the
amount of up to 44 megawatts, for a five-year period commencing in
late 1990, and 175 megawatts for a twenty-year period commencing
in late 1995. Pursuant to Schedule C of the Contract, Hydro-Quebec
agrees to make available power and deliver associated energy in
the cumulative amount (under five sub-schedules) of up to 172
megawatts for periods of up to twenty-two years, 12 megawatts of
which may be cancelled on or before November 1, 1996, and all of
which purchases will commence by the year 2000.
The Contract Joint Owners desire to make this Contract's power and
energy available to all of the Participants that have executed
this Agreement, and the Participants desire unconditionally to
assume the obligations therefor. Accordingly, this Agreement
provides for the assignment or the right to purchase Contract
power and energy to all Participants and permits each Participant
to purchase and obligates it to pay for its Schedule A/B Share and
its Schedule C Share of Contract power and energy and to provide
its own transmission facilities therefor.
Finally, this Agreement establishes a decision-making procedure
among all Participants and provides for certain aspects of its and
the Hydro-Quebec Contract's administration through VELCO and by a
Representative and an Operating Committee elected by the
Participants, all as provided hereinafter.
Now, therefore, for good and valuable consideration, receipt of
which is acknowledged by each signatory, the signatories to this
Agreement agree and covenant as follows:
Article I -- Definitions; Construction
1.1 Capitalized terms used in this Agreement have the meaning
defined in this Section 1.1.
1.1.1 Administration Costs: Reasonable and necessary costs,
incurred by VELCO (or any other agent designated to perform
VELCO's obligations hereunder), the Operating Committee, the
Representative, or another Participant if approved by Vote in
accordance with Section 3.1 hereof, to administer provisions of
this Agreement, or by the Participants, acting collectively under
this Agreement, including, without limitation, (a) costs incurred
to render bills to Participants, make payment to Participants or
Hydro-Quebec, and give Notice and conduct meetings as provided
herein, (b) costs incurred by the Representative (and the employee
or agent who acts therefor) and the Operating Committee (and any
member or alternate thereof) to the extent incurred for the
benefit of all Participants, including insurance in accordance
with Section 3.2 hereof, (c) legal, accountants' or auditors' fees
and expenses incurred for the benefit of all Participants, (d)
engineers' fees and expenses if approved by Vote in accordance
with Section 3.1 hereof, (e) the cost of obtaining and maintaining
any Approvals required to execute, amend or perform this
Agreement, the Contract or any of the transactions contemplated
hereby or thereby, and (f) all costs incurred to administer this
Agreement approved as part of the Participants' budget in
accordance with Subsection 3.1.3 of this Agreement.
1.1.2 Agreement: This Hydro-Quebec Participation Agreement.
1.1.3 Approval or Approvals: Any certification, license, consent,
order, acceptance for filing, permission to become effective,
resolution, vote, or other approval required to execute, deliver,
amend or perform this Agreement, and the transactions (including
the purchase of Contract and Interconnection Agreements power and
energy) contemplated hereby, including, without limitation, any
such action required by a Participant's governing board, the
Board, the Department, the Commission, the United States
Department of Energy, the United States Department of Agriculture
Rural Electrification Administration, in the case of a cooperative
its members, in the case of a municipality its citizens, and any
other such action or approval by any federal, state, or municipal
entity or person, and specifically including, without limitation,
a Certificate of Public Good pursuant to Section 248 of Title 30,
Vermont Statutes Annotated, the performance of or compliance with
any condition imposed thereunder and permission to become
effective under the Federal Power Act by the Commission.
1.1.4 Block-Loading Facilities: Any transmission or distribution
facility that is, or is capable of being, synchronized to the
Hydro-Quebec system directly or through the system of a
Participant.
1.1.5 Board: The State of Vermont Public Service Board.
1.1.6 CVPS: Central Vermont Public Service Corporation, a Vermont
electric utility the principal place of business for which is
located at the address set forth on the signature pages to this
Agreement.
1.1.7 Citizens: Citizens Utilities Company, a Vermont electric
utility the principal place of business or which is located at the
address set forth on the signature pages to this Agreement.
1.1.8 Claim or Claims: A claim or claims hereunder for losses,
liens, damages, demands, and causes of action, and all other
claims of every kind or character, including the amount of
judgments, settlements, awards, penalties, interest, court costs,
and legal consultants' and experts' fees incurred in defense of
same.
1.1.9 Commission: The United States Federal Energy Regulatory
Commission.
1.1.10 "Contract Joint Owners": CVPS and GMP, the two Vermont
signatories to the Contract.
1.1.11 Contract: The agreement, denoted "Firm Power and Energy
Contract," made the 4th day of December, 1987, between the
Contract Joint Owners and Hydro-Quebec, which is attached to this
Agreement as Exhibit A, as amended as of the date as of which this
Agreement is restated and as may be amended from time to time
hereafter (as provided therein and herein).
1.1.12 Department: The State of Vermont, acting through the
Department of Public Service.
1.1.13 Delivery Facilities or Delivery Facility: Collectively, the
Highgate Interconnection, Phase I, Phase II, Existing
Block-Loading Facilities, and any facilities designated by a
Participant under Subsection 4.5.1 of this Agreement;
individually, any such facility.
1.1.14 Existing Block-Loading Facilities: Block-Loading Facilities
owned by Citizens, including its existing points of
interconnection with Hydro-Quebec at Canaan, Derby Line and
Norton, to the extent that such facilities are used to deliver
power and energy (including Contract and Interconnection
Agreements power and energy) to Citizens or to Participants that
elect to transmit, distribute and deliver such power and energy by
such facilities.
1.1.15 GMP: Green Mountain Power Corporation, a Vermont electric
utility the principal place of business for which is located at
the address set forth on the signature pages to this Agreement.
1.1.16 Highgate Interconnection: A back-to-back, direct-current
converter facility in Highgate, Vermont, and a 345-kilovolt
transmission line operating at 120 kilovolts in Highgate and
Franklin, Vermont, that connects the converter facility to a
Hydro-Quebec 120 kilovolt line in Bedford, Quebec, which
facilities are jointly owned by the Joint Owners pursuant to the
Highgate Joint Ownership Agreement.
1.1.17 Highgate Joint Owners or Joint Owner: Collectively, the
eight signatories to the Highgate Joint-Ownership Agreement;
individually, any individual signatory thereto.
1.1.18 Highgate Joint-Ownership Agreement: The agreement, denoted
"Agreement for Joint Ownership, Construction, and Operation of the
Highgate Transmission Interconnection," made as of the first day
of August, 1984, by, between and among the Highgate Joint Owners,
as amended through and restated by Amendment No. 5 thereto dated
as of the first day of January, 1987, and as may be amended from
time to time hereafter.
1.1.19 Highgate Operating Agreement: The agreement, denoted
"Highgate Operating and Management Agreement," made and entered
into as of the first day of August, 1984, by and among VELCO and
the Highgate Joint Owners, as amended through Amendment No. 3
thereto dated as of the first day of January, 1987, and as may be
amended from time to time hereafter.
1.1.20 Hydro-Quebec: A body politic and corporate, duly
incorporated and regulated by the Hydro Quebec Act (R.S.Q.,
Chapter H-5), having its head office and principal place of
business at 75 Dorchester Blvd. West, Montreal, Quebec, Canada.
1.1.21 Interest Rate: One Hundred Twenty Percent (120%) of the
current interest rate on prime commercial loans from time to time
in effect at The First National Bank of Boston.
1.1.222 Interconnection Agreement: The agreement, denoted
"Interconnection Agreement," made and dated as of the 23rd day of
February, 1987, between the Highgate Joint Owners and Hydro
Quebec, as may be amended from time to time hereafter (as provided
therein and herein).
1.1.23 Interconnection Agreements: The Interconnection Agreement
and the State Interconnection Agreement.
1.1.24 Interconnection Transactions Entitlement: A percentage that
is calculated by determining the weighted average (in total firm
kilowatts) of each Participant's Schedule A/B Share and its
Schedule C Share, such calculation to be made by the
representative on November 1 of each year.
1.1.25 Notice: Notice required by any provision of this Agreement
made in accordance with Section 8.10 hereof.
1.1.26 Operating Committee: The operating committee established
pursuant to section 3.2 of this Agreement.
1.1.27 Participants or Participant: Collectively, the signatories
to this Agreement except VELCO; individually, any individual
signatory except VELCO.
1.1.28 Participant Transaction: Any purchase of power or energy
under the Interconnection Agreements that is (a) approved by Vote
of the Participants at any annual or special meeting of the
Participants, (b) agreed between the Operating Committee and
Hydro-Quebec if and only to the extent that such purchase relates
to that part of the capacity in any Delivery Facilities committed
to deliveries of Schedule A/B Power or Schedule C Power that, in a
given hour of a calendar year, is not required for such deliveries
or (c) involves a term not to exceed six months.
1.1.29 Phase I: The first phase of a transmission interconnection
known as the Quebec-New England HVDC Interconnection," consisting
of a +450 kilovolt, direct-current transmission line between
Norton, Vermont, and Monroe, New Hampshire, and a converter
terminal, such facilities having a nominal transfer capability of
690 megawatts, plus certain reinforcements to the existing New
England alternating-current, bulk-transmission system required
therefor.
1.1.30 Phase I Agreements: The Phase I Support Agreements and the
Use Agreement.
1.1.31 Phase I Participants: Any Participant that has Phase I
Rights.
1.1.32 Phase I Rights: The right to use and to realize the benefit
of Phase I established by the Phase I Support Agreements and the
Use Agreement; for purposes of determining transmission
capability, Phase I Rights means firm capability for transmission
of Contract power and energy.
1.1.33 Phase I Support Agreements: The agreements, denoted "Phase
I Vermont Transmission Line Support Agreement," and "Phase I
Terminal Facility Support Agreement," each dated as of December 1,
1981, and each as amended through the date as of which this
Agreement is restated and as may be amended from time to time
hereafter.
1.1.34 Phase II: The second phase of a transmission
interconnection known as the "Quebec-New England HVDC
Interconnection," consisting of a +450 kilovolt, direct-current
transmission line between Monroe, New Hampshire, and Groton,
Massachusetts, and a converter terminal located in Groton,
Massachusetts, such facilities having a nominal transfer
capability of 1310 megawatts, plus certain reinforcements to the
existing New England alternating-current, bulk-transmission system
required therefor.
1.1.35 Phase II Agreements: The Phase II Support Agreements and
the Use Agreement.
1.1.36 Phase II Participants: Any Participant that has Phase II
Rights.
1.1.37 Phase II Rights: The right to use and to realize the
benefit of Phase II established by the Phase II Support Agreements
and the Use Agreement; for purposes of determining transmission
capability, Phase II Rights means firm capability for transmission
of Contract power and energy.
1.1.38 Phase II Support Agreements: The agreements, denoted "Phase
II Massachusetts Transmission Facility Support Agreement," "Phase
II New Hampshire Transmission Facility Support Agreement," "Phase
II New England Power AC Facility Support Agreement," and "Phase II
Boston Edison AC Facility Support Agreement," each dated as of
June 1, 1985, and each as amended through the date as of which
this Agreement is restated and as may be amended from time to time
hereafter.
1.1.39 Project 3 Agreement: The agreement, denoted "Transmission
Services Agreement for Project No. 3," among VPPSA and the VPPSA
Participants.
1.1.40 Pro Rata: An adjustment to a Participant's Share of any
purchases of Contract and Interconnection Agreements power and
energy, or the right to use any transmission facility used
hereunder to transmit and deliver such power and energy under this
Agreement, determined by the ratio of an individual Participant's
Share of Schedule A/B Power or Schedule C Power or its
Interconnection Transactions Entitlement to power and energy
purchased pursuant to Schedule A or B to the Contract, Schedule C
to the Contract or the Interconnection Agreements (as the case may
be) to the Share of all Participants involved in the calculation.
1.1.40.1 Where the calculation involves Shares of both Schedule
A/B Power and Schedule C Power, the adjustment will be weighted in
kilowatts based on a Participant's Share of Schedule A/B Power and
Schedule C Power (if any).
1.1.41 Representative: The representative elected pursuant to
Sub-section 3.1.1 of this Agreement.
1.1.42 Schedule A/B Participants: The Participants listed on
Schedule I to this Agreement.
1.1.43 Schedule A/B Power: Power and energy (and all rights
related thereto) purchased pursuant to Schedule A or Schedule B of
the Contract.
1.1.44 Schedule A/B Share: The Share of Schedule A/B Power
specified on Schedule I to this Agreement.
1.1.45 Schedule C Participants: The Participants specified on
Schedule IIA to this Agreement.
1.1.46 Schedule C Power: Power and energy (and all rights related
thereto) purchased pursuant to Schedule C of the Contract.
1.1.47 Schedule C Share: The amount of Schedule C Power purchased
by a Participant under the five Contract sub-schedules specified
on Schedule IIB to this Agreement.
1.1.48 Securities: Any stock certificate or other instruments
evidencing equity, or any bonds, notes or other instruments
evidencing indebtedness, issued to finance the construction of
Delivery Facilities or any other obligations of a Participant
required hy this Agreement.
1.1.49 Share: Either (as the case may be) a Participant's right in
kilowatts and kilowatt-hours to any purchase of power and/or
energy or a percentage interest in rights and obligations pursuant
to any provision of this Agreement, the Contract or the
Interconnection Agreement.
1.1.50 State Interconnection Agreement: The Agreement, denoted
"Interconnection Agreement," made on July 25, 1984, between the
Department and Hydro-Quebec.
1.1.51 Transmission Rights: A Participant's contractual right to
use a Delivery Facility for transmission of energy if and to the
extent such facility has been committed by the Participant for
deliveries of Schedule A/B Power or Schedule C Power.
1.1.52 Use Agreement: The Agreement, denoted "Agreement with
respect to Use of Quebec Interconnection," dated as of May 1,
1982, as amended through the date as of which this Agreement is
restated and as may be amended from time to time hereafter.
1.1.53 VELCO: Vermont Electric Power Company, Inc., a Vermont
electric utility, the principal place of business for which is
located at the address set forth on the signature pages to this
Agreement.
1.1.54 Vermont Phase I Agreement: The agreement, denoted "Vermont
Participation Agreement for Quebec Interconnection," dated as of
July 15 1982, between VELC0 and those Participants that have Phase
I Rights, as amended through the date as of which this Agreement
is restated and as may be amended from time to time hereafter.
1.1.55 Vermont Phase II Agreement: The agreement, denoted "Vermont
Support Agency Agreement Re: Quebec Interconnection - Phase II,"
dated as of June 1, 1985, between and among VELCO and those
Participants that have Phase II Rights as amended through the date
as of which this Agreement is restated and as may be amended from
time to time hereafter.
1.1.56 VPPSA: Vermont Public Power Supply Authority, a
joint-action agency organized pursuant to Chapter 84 of Title 30,
Vermont Statutes Annotated, the principal place of business for
which is currently located at 512 St. George, Williston, VT 05495.
1.1.57 VPPSA Participant or VPPSA Participants: Individually, a
Participant listed on Schedule IV to this Agreement that has
rights to use a portion of VPPSA'S "ownership share" (under the
Highgate Joint-Ownership Agreement) in the Highgate
Interconnection; collectively, as the context requires, more than
one or all such Participants.
1.1.58 Vote: A vote in accordance with Section 3 of this Agreement
required to make any decision or determination made by the
Participants pursuant to any provision or this Agreement.
1.2 This Agreement will be interpreted and governed as provided in
this Section 1.2.
1.2.1 This Agreement will be governed by and construed in
accordance with the laws of the State of Vermont.
1.2.2 If any clause or provision of this Agreement, or any part
thereof, is declared invalid or unenforceable by any court, board,
agency or other quasi-judicial tribunal having jurisdiction
thereof, such invalidity or unenforceability will not affect the
validity or enforceability of the remaining clauses and provisions
of this Agreement.
1.2.3 All provisions of this Agreement providing for
indemnification against any Claims for liability will apply to the
full extent permitted by law, and regardless of fault, and will
survive termination pursuant to this Agreement.
1.2.4 Any number of counterparts to this Agreement may be
executed, and each will have the same force and effect as the
original.
1.2.5 This Agreement, together with any other agreement expressly
named or for which provision is expressly made herein, constitute
the entire understanding among the signatories and supersedes any
and all previous understandings pertaining to the subject matter
of this Agreement.
1.2.6 Captions used to identify any article, section or subsection
of this Agreement are for the convenience of the signatories only
and will not be used to assist in interpreting any provision of
this Agreement.
Article II -- Assignment of Contract Power; Performance of
Contract Obligations; Assumption of Obligations
2.1 Joint Owners' Responsibility. To the extent authorized under
Article 15.1 of the Contract and Article 13.0 of the
Interconnection Agreement, each Contract Joint Owner and each
Highgate Joint Owner makes the assignments and agrees to perform
the other obligations set forth in this Section 2.1.
2.1.1 Each Contract Joint Owner unconditionally assigns to the
Participants its share of all power and energy purchased by it
pursuant to the Contract, and each Highgate Joint Owner
unconditionally makes a partial assignment to the Participants of
its Share of all power and energy purchased by it pursuant to the
Interconnection Agreement only for purposes of Participant
Transactions.
2.1.2 Each Contract Joint Owner agrees unconditionally to make
available to the Participants its Share of all other benefits to
which it is entitled pursuant to the Contract, and each Highgate
Joint Owner agrees to make available to the Participants its Share
of all other benefits to which it is entitled pursuant to the
Interconnect on Agreement that relates to Participant
Transactions.
2.1.3 To the extent that a Contract Joint Owner has discretion
with respect to the performance of any obligation under the
Contract or a Highgate Joint Owner has discretion with respect to
the performance of any obligation under the Interconnection
Agreement that relates to Participant Transactions, each such
Joint Owner agrees to perform such obligation in accordance with
such direction as may be given by Vote.
2.1.4 The Highgate Joint Owners agree to vote to elect as members
of the Highgate Interconnection "operating committee" (pursuant to
the Highgate Joint-Ownership Agreement) the persons elected to the
Operating Committee pursuant to Section 4.2 of this Agreement;
these Joint Owners further authorize the Operating Committee so
elected by the Participants to perform all responsibilities of
such Highgate Interconnection operating committee on the
Participants' behalf.
2.1.5 To the extent that performance of this Section 2.1 requires
approval by the Highgate Joint Owners pursuant to the Highgate
Joint Ownership Agreement, each such Joint Owner hereby consents
to and approves such transfer.
2.2 Subject to and in accordance with the provisions of this
Agreement, the Participants unconditionally assume all or the
Contract Joint Owners' obligations under the Contract and the
Highgate Joint Owners' obligations under the Interconnection
Agreement that relate to Participant Transactions, as though the
Contract and the Interconnection Agreement have been assigned to
them.
2.2.1 Specifically, and without limiting the foregoing, each
Schedule A/B Participant unconditionally agrees to pay its
Schedule A/B Share of the Contract Joint Owners' payment
obligations for power and energy purchased pursuant to Schedules A
or B of the Contract.
2.2.2 Specifically, and without limiting the foregoing, each
Schedule C Participant unconditionally agrees to pay its Schedule
C Share of the Contract Joint Owners' payment obligations for
power and energy purchased pursuant to Schedule C of the Contract.
2.2.3 Specifically, and without limiting the foregoing, each
Participant unconditionally agrees to pay its Interconnection
Transactions Entitlement of the Highgate Joint Owners' payment
obligations that relate to any Participant Transaction under the
Interconnection Agreement.
2.3 Upon termination of this Agreement as to all Participants as
provided in Section 8.9 of this Agreement, the Participants will,
and by this Agreement do, reassign to the Contract Joint Owners
and Highgate Joint Owners (as the case may be) all rights assigned
to them pursuant to Section 2.1 of this Agreement.
2.3.1 Each Participant agrees to execute and perform any notice,
filing, petition, contract, instrument or other document necessary
to implement such assignment.
Article III -- Participant Decisions; Representative; Operating
Committee
3.1 All decisions of the Participants will be made by Vote of at
least three individual Participants having a cumulative
Interconnection Transactions Entitlement of more than fifty
percent (50%), provided, however, that decisions that pertain only
to Schedule A/B Power or only to Schedule C Power will be made by
three Schedule A/B Participants or three Schedule C Participants
(as the case may be) having a cumulative Schedule A/B Share or
Schedule C Share of more than fifty percent (50%).
3.1.1 The Participants will vote to elect a Representative, which
will be a Participant that is not elected to the Operating
Committee pursuant to Sect-on 2.2 of this Agreement. The
Participant elected will appoint an employee or agent to perform
the Representative's obligations, who will have authority to act
on behalf of the Participants with respect to all matters under
this Agreement for which the Representative is responsible,
excluding those responsibilities, authority and decisions of the
Participants or the Operating Committee for which provision is
made in this Agreement. The Participants will reimburse the
Administration Costs incurred by the Representative pursuant to
Section 5.5 of this Agreement.
3.1.2 The Representative will schedule an annual meeting of the
Participants for purposes of electing the Representative in
accordance with this section, electing the Operating Committee as
provided in Section 3.2 hereof, adopting a budget of
Administration Costs as required pursuant to Subsection 3.1.3 of
this Agreement, appointing an auditor to audit the performance of
VELCO (or such other person appointed pursuant to Section 5.7
hereof) under Article V of this Agreement, if the Participants
Vote so to do, and taking such other action as may be appropriate,
which meeting will take place no earlier than October 1 or later
than December 31 of any calendar year.
3.1.2.1 Any Participant or the Representative may request a
special meeting of the Participants by Notice to the
Representative, and the Representative will schedule such meeting
promptly upon receipt of such Notice, providing each Participant
and VELCO fifteen (15) days Notice thereof.
3.1.3 At the annual meeting for which provision is made in
Subsection 3.1.2 hereof, the Participants will adopt a budget for
the Administration Costs to be incurred in the succeeding calendar
year.
3.1.4 For and in consideration of any Participant's willingness to
serve as a Representative for no consideration other than the
payment of its costs as provided in Subsection 3.1.1 of this
Agreement, each other Participant will indemnify, defend and hold
harmless any Participant elected as a Representative, and the
employee or agent appointed by such Participant to act therefor,
from and against all Claims arising in favor or brought about by
or on behalf of any person, including any other Participant and
any governmental authority, arising on account of personal
injuries, bodily injuries or death, including employees or agents
of such Participant, or damage to or loss of property caused by
any act or omission of such Participant, including such employees
or agents, or anyone for whose acts any of them may be liable,
arising out of its (or their) performance hereunder as the
Representative, provided, however, that such Participant will be
liable for such Claims to the extent that they are finally
determined to have been caused by such Participant's wanton or
willful misconduct by a court of competent authority, and
following expiration of the time for, or affirmance following, all
appeals therefrom.
3.1.5 If any Participant claims that a Participant elected as
Representative has breached its responsibilities under this
Agreement or has otherwise acted against, or omitted to act in,
the interest of all Participants as provided hereunder, it will
give Notice to all Participants no later than the earlier of six
(6) months after the date on which such breach is discovered, or
should have been discovered with the exercise of due diligence, or
three (3) years after the date on which such breach is claimed to
have occurred, and the failure to give Notice within such period
will constitute a release of the Participant elected as
Representative from any Claims against such Participant brought
pursuant to this Subsection 4.1.5 with respect to such claimed
breach.
3.1.6 Each January, the Representative will retain the auditor, if
any, appointed at the annual meeting (for which provision is made
in Subsection 3.1.2 hereof) to audit the performance of VELCO (or
such other person appointed pursuant to Section 5.7 hereof) under
Article V of this Agreement. After receipt of the auditor's
report, the Representative may schedule a special meeting of the
Participants to review such report and take such action as may be
appropriate thereon.
3.2 By Vote in accordance with Section 3.1 of this Agreement, the
Participants will elect annually two Participants to serve on the
Operating Committee, which will have the responsibilities of the
Operating Committee established pursuant to this Agreement, the
Contract, the Interconnection Agreements, and any other
power-purchase or transmission agreement between the Highgate
Joint Owners and Hydro-Quebec, provided that an individual
Participant may not be elected to serve more than one of the
Operating Committee's two positions. The Participants agree to
reimburse Administration Costs incurred by each Participant
elected to the Operating Committee pursuant to Section 5.5 of this
Agreement and will insure each such Participant (and the member
and alternate appointed to the Operating Committee) against all
risks (including negligence) arising from its (or their)
performance hereunder to the extent such insurance is available at
reasonable cost from a carrier of recognized financial
responsibility that is qualified to transact business in Vermont.
3.2.1 Each Participant elected will determine the individual
employee or agent who will serve as the member of the Operating
Committee and as such member's alternate.
3.2.2 The Operating Committee will give Participants Notice of,
and Participants will have the right to attend, meetings of the
Operating Committee, including meetings that Hydro-Quebec members
attend; provided, however, that Participants will not have the
right to attend meetings with Hydro-Quebec involving negotiations
related to the Contract, the Interconnection Agreements or any
other power-purchase or transmission agreements, but through the
Representative the Operating Committee will report to all
Participants periodically on the substance of any such
negotiations, including on any consideration of or proposed
Participant Transactions as provided in Paragraphs 3.2.2.1 or
3.2.2.2 of this Agreement.
3.2.2.1 The Operating Committee or any member thereof will inform
the Representative (or its agent) of any negotiations with
Hydro-Quebec at which use of either of the Interconnection
Agreements to effect a Participant Transaction is first considered
as soon as practicable following such negotiations.
3.2.2.2 The Operating Committee will give Notice to the
Representative and all Participants of any proposed Participant
Transaction described in Paragraph 1.1.28(c), such Notice to
include the transaction's basic terms and be effective at 5:00
p.m. on the third full business day after such Notice is given.
3.2.3 The Operating Committee will (and by this Agreement each
Participant will cause any member or alternate chosen by it to
serve on the Operating Committee to) act in good faith and
consistent with prudent utility practice, the objective being to
administer the Operating Committee's responsibilities hereunder so
that Contract power and energy or power and energy purchased under
the Interconnection Agreements, or any other power-purchase
agreement with Hydro-Quebec subject to this Agreement, will be
planned, procured, scheduled, transmitted, distributed and
delivered for the benefit of all Participants consistently with
the requirements of and subject to any restrictions or limitations
in any such agreement, and so that the scheduling, use and
management of the Delivery Facilities will be operated as
efficiently, economically, safely, and reliably as possible
consistently with the requirements and subject to any restrictions
or limitations in agreements governing the support, operation or
use of such facilities and with the interests of any Participant
owning such facilities.
3.2.4 For and in consideration of any Participant's willingness to
serve as a member of the Operating Committee for no consideration
other than the payment of its costs as provided in Section 3.2 of
this Agreement, each other Participant will indemnify, defend and
hold harmless each Participant elected to the Operating Committee,
its officers, employees and agents, including the employees or
agents selected by each such Participant to be a member or an
alternate on the Operating Committee, from and against all Claims
arising in favor or brought about by or on behalf of any person,
including any other Participant and any governmental authority,
arising on account of personal injuries, bodily injuries or death,
including employees or agents of such Participant, or damage to or
loss of property caused by any act or omission of such
Participant, or such employees or agents, or anyone for whose acts
any of them may be liable, arising out of its (or their)
membership on the Operating Committee, provided however, that a
Participant will be liable for such Claims to the extent they are
finally determined to have been caused by such Participant's
negligence, gross negligence or material breach of this Agreement
(not approved by Vote of the Participants) or its wanton or
willful misconduct by a court of competent authority, and
following expiration of the time for, or affirmance following, all
appeals therefrom.
3 2.5 If any Participant claims that any Participant elected to
the Operating Committee has breached its responsibilities under
this Agreement or otherwise acted against, or omitted to act in,
the interest of all Participants as provided hereunder, it will
give Notice to the Participants no later than the earlier of six
(6) months after the date on which such breach is discovered, or
should have been discovered with the exercise of due diligence, or
three (3) years after the date on which such breach is claimed to
have occurred, and the failure to give Notice within such period
will constitute a release of such Participant from any Claims
against such Participant brought pursuant to Section 3.2 hereof
with respect to such claimed breach.
3.3 Each Participant will inform the Representative (or its agent)
and the Operating Committee of negotiations with Hydro-Quebec at
which use of either of the Interconnection Agreements to effect a
transaction is first considered as soon as practicable following
such negotiations.
Article IV -- Allocation of Shares of Schedule A/B Power and
Schedule C Power
4.1 Each Participant named on Schedule I to this Agreement has the
right to purchase and the obligation to pay, and perform other
obligations related to, its Share of Schedule A/B Power set forth
on Schedule I to this Agreement.
4.2 Each Participant named on Schedule IIA to this Agreement has
the right to purchase and the obligation to pay, and perform other
obligations related to, its Share of Schedule C Power set forth on
Schedule IIB to this Agreement.
4.3 Each Participant named on Schedule III to this Agreement has
the right to purchase and the obligation to pay, and perform other
obligations related to, its Interconnection Transactions
Entitlement (set forth on Schedule III to this Agreement) of any
Participant Transactions.
4.3.1 For each Participant Transaction described in Subsection
1.1.28(a), a Participant will have only such purchase right or
payment or other obligations if it either has Voted for the
transaction or, if it Voted against the transaction, gave Notice
to the Representative and Operating Committee before such Vote of
its intent to participate in the transaction if nonetheless
approved. A Participant that Votes against such transaction
without such Notice will be deemed to have waived any rights it
has under this Agreement to the benefits of such transaction and
each other Participant that so Votes to participate or notifies
the Representative and Operating Committee of its participation in
the transaction will be deemed to have waived any Claims it has
against such nonparticipating Participant with respect to any
payments for or other obligations related to such transaction.
4.3.2 For each Participant Transaction described in Subsection
1.1.28(b), all Participants will have such purchase right and
payment and other obligations, without any requirements of Notice
to or approval of the transaction by any Participant.
4.3.3 For each Participant Transaction described in Subsection
1.1.28(c), a Participant will have only such purchase right or
payment and other obligations if it gives notice to the
Representative and Operating Committee of its agreement to
participate in such transaction and such Notice is received by the
Representative and Operating Committee before the Operating
Committee's Notice of such transaction becomes effective (for
which provision is made in Paragraph 3.2.2.1 of this Agreement).
If a Participant elects not or omits to give such Notice before
the Operating Committee's Notice becomes effective, such
Participant will be deemed to have waived any rights it has under
this Agreement to the benefits of such transaction and each other
Participant that participates in the transaction will be deemed to
have waived any Claims it has against such non-participating
Participant with respect to any payments for or other obligations
related to such transaction.
4.4 Upon each new calculation of the Interconnection Transactions
Entitlement or the consummation of any assignment permitted under
Section 8.4 of this Agreement, including any disposition of assets
for which provision is made in Subsection 8.4.2 or decision not to
cancel Schedule C Power under Subsection 8.4.3, the Representative
will adjust the Participants named, their Shares of Contract power
and associated energy or their Interconnection Transactions
Entitlement stated in Schedules I, IIA, IIB or III to this
Agreement (as necessary), substitute new schedules to this
Agreement as so adjusted and provide Notice thereof to each
signatory hereto.
4.5 Each Participant will provide firm transmission capacity on
Delivery Facilities adequate to transmit its Share of Schedule A/B
Power and Schedule C Power (if any) and, by this Agreement, will
have no right to use any such transmission capacity provided by
any other Participant for transmission of its Share of such power
for any transaction other than Participant Transactions.
4.5.1 Section 4.5 notwithstanding, a Participant will have the
right to use transmission facilities other than the entitlement to
Delivery Facilities that it has as of the date on which this
Agreement is restated for transmission of its Share or contract
power and energy under this Agreement upon Notice to the
Representative of its intent to use new Delivery Facilities and
provided that such transmission, combined with such Participant's
right to use existing Delivery Facilities, will be adequate to
transmit its Share of Contract power and energy under this
Agreement and will be subject to this Agreement's provisions,
including its provisions for default under Article VI hereof.
Article V -- Billing
5.1 VELCO will be responsible for all billing arrangements
hereunder as set forth in this Article V.
5.2 The Participants hereby indemnify VELCO, and its employees and
agents, from and against all Claims arising in favor or brought
about by or on behalf of any third person, including any
governmental authority, on account of personal injuries, bodily
injuries or death, including employees or agents of VELCO or any
Participant, or damage to or loss of property caused by any act or
omission of VELCO or any Participant, or its or their agents or
employees, or anyone for whose acts any of them may be liable,
arising out of its (or their) performance of this Agreement,
provided, however, that VELCO will be liable for such claims to
the extent that they are finally determined to have been caused by
its willful or wanton misconduct by a court of competent
authority, and following expiration of the time for, or affirmance
following, all appeals therefrom.
5.3 VELCO agrees to pay to Hydro-Quebec when due all amounts
billed to the Participants pursuant to the Contract, the
Interconnection Agreements, or any other power-purchase or
transmission agreement approved by Vote of the Participants.
5.4 No later than the tenth (10th) day of each calendar month,
VELCO will bill each Participant for its Share of Schedule A/B
Power, Schedule C Power and Participant Transactions delivered
during the previous month (in advance of receiving from
Hydro-Quebec the bill therefor).
5.4.1 Such bills will be decreased to the extent of any credit due
a Participant on payments made in previous months in excess of the
actual charges due pursuant to this Agreement and increased to the
extent payments made in previous months were less than amounts due
pursuant to this Agreement, with interest thereon at VELCO's cost
of working capital.
5.4.2 Each Participant agrees to pay no later than the fifteenth
(15th) day of each calendar month all amounts so billed to it by
VELCO. Payments made after the fifteenth (l5th) day of the month
will accrue interest at the Interest Rate.
5.4.3 The obligation to make payment under this Section 5.4, and
under any other provision of this Agreement, is unconditional and
applies whether the Delivery Facilities, or any additional
Delivery Facilities designated by the Participant as provided in
Subsection 4.5.1 hereof, are available or operate or not and
regardless of whether energy is delivered to a Participant by such
facilities pursuant to the Contract or the Interconnection
Agreements.
5.5 In addition to any amounts due and billed hereunder, VELCO
will bill each Participant monthly in advance for its share of
Administration Costs, allocated in accordance with the
Interconnection Transactions Entitlement of each Participant. Such
bills will be rendered and paid on the dates, will bear interest
at the Interest Rate, and will be adjusted in successive months as
provided in Section 5.3 of this Agreement.
5.6 If a Participant makes a general assignment for the benefit of
creditors, or if any proceeding is instituted against a signatory
(and is not dismisses within sixty (60) days), or by a signatory,
seeking to adjudicate it a bankrupt or insolvent, or seeking
reorganization, arrangement, adjustment, or composition of lt or
its debt under any law related to bankruptcy, insolvency, or
reorganization or relief of debtors, or seeking appointment of a
receiver, trustee, or other similar official for it or for any
substantial part of its property, or if a signatory takes any
action to authorize any of the actions set forth in this Section
5.6, or in the event of an occurrence, transaction, event or
condition (arising after the date hereof) affecting a Participant
that in the opinion of the Participants, reasonably exercised (and
as evidenced by Vote), and, after first having given such
Participant an opportunity to present its views, materially could
impair the ability of such Participant to continue to pay its
current obligations as they become due, such Participant will be
obligated to make payment of all amounts due under this Agreement
(on an estimated basis and subject thereafter to adjustment as
provided in Subsection 5.4.1 hereof) forty-five (45) calendar days
before the date on which bills would otherwise be due as provided
herein.
5.7 Upon ninety (90) days' Notice to each signatory, including
VELCO, and Payment of all amounts due VELCO hereunder, including
payments due for such ninety- (9O-) day period, the Participants
by Vote may terminate VELCO's obligations under this Article V and
appoint another person that upon execution of this Agreement will
perform VELCO's obligations under this Article V.
Article VI -- Defaults; Remedies
6.1 Default Pursuant to Underlying Agreements
6.1.1 A Highgate Joint Owner in default under the Highgate
Joint-Ownership Agreement or the Highgate Operation Agreement (or
a VPPSA Participant in default under the Project 3 Agreement) is
in default of this Agreement; if other Highgate Joint Owners (or
VPPSA Participants) assume such defaulting Highgate Joint Owner's
(or VPPSA Participant's) obligations in accordance with the
Highgate Joint-Ownership Agreement (or Project 3 Agreement), then
such curing Highgate Joint Owners (or VPPSA Participants) will
succeed Pro Rata to such defaulting Highgate Joint Owner's (or
VPPSA Participant's) rights as a Participant under this Agreement
unless and until such defaulting Participant cures its default as
provided thereunder.
6.1.2 A Phase I Participant in default under the Vermont Phase I
Agreement is in default or this Agreement; if other Phase I
Participants assume such defaulting Phase I Participant's
obligations under the Vermont Phase I Agreement, then such curing
Phase I Participants will succeed Pro Rata to such defaulting
Phase I Participant's rights as a Participant under this Agreement
unless and until such defaulting Participant cures its default as
provided thereunder.
6.1.3 A Phase II Participant in default under the Vermont Phase II
Agreement is in default or this Agreement; if other Phase II Par-
ticipants assume such defaulting Phase II Participants obligations
in accordance with the Vermont Phase II Agreement, then such
curing Phase II Participants will succeed Pro Rata to such
defaulting Phase II Participant's rights as a Participant under
this Agreement unless and until such defaulting Participant cures
its default as provided thereunder.
6.2 Failure to Cure Default Pursuant to Underlying Agreements
6.2.1 If a Highgate Joint Owner is in default under the Highgate
Joint-Ownership Agreement or the Highgate Operation Agreement (or
a VPPSA Participant under the Project 3 Agreement), and the
non-defaulting Highgate Joint Owners (or VPPSA Participants) fail
to cure such default, then the other Participants hereunder will
assume all the defaulting Highgate Joint Owner's (or to the extent
not cured hy other VPPSA Participants, a VPPSA Participant's)
obligations under the Highgate Joint-Ownership Agreement or the
Highgate Operation Agreement (or Project 3 Agreement) Pro Rata,
and the defaulting Highgate Joint Owner (or VPPSA Participant)
agrees to take all actions necessary to assign and otherwise
transfer to the Participants so curing hereunder all of the
defaulting Highgate Joint Owner's (or VPPSA Participant's) rights
under the Highgate Joint-Ownership Agreement or the Highgate
Operation Agreement (or Project 3 Agreement) and such
Participant's right hereunder to purchase Contract and
Interconnection Agreements power and energy transmitted thereby
unless and until such defaulting Participant cures its default as
provided thereunder.
6.2.2 If a Phase I Participant is in default under the Vermont
Phase I Agreement, and the nondefaulting Phase I Participants fail
to cure such default, then the other Participants hereunder will
assume all the defaulting Phase I Participant's obligations under
the Vermont Phase I Agreement Pro Rata, and the defaulting Phase I
Participant agrees to take all actions necessary to assign and
otherwise transfer to the Participants so curing hereunder all of
the defaulting Phase I Participants rights under the Vermont Phase
I Agreement and such Participant's right hereunder to purchase
Contract and Interconnection Agreements power and energy
transmitted thereby unless and until such defaulting Participant
cures its default as provided thereunder.
6.2.3 If a Phase II Participant is in default under the Vermont
Phase II Agreement, and the nondefaulting Phase II Participants
fail to cure such default, then the other Participants hereunder
will assume all the defaulting Phase II Participant's obligations
under the Vermont Phase II Agreement Pro Rata, and the defaulting
Phase II Participant agrees to take all actions necessary to
assign and otherwise transfer to the Participants so curing
hereunder all or the defaulting Phase II Participant's rights
under the Vermont Phase II Agreement and such Participant's right
hereunder to purchase Contract and Interconnection Agreements
power and energy transmitted thereby unless and until such
defaulting Participant cures its default as provided thereunder.
6.3 Default under this Agreement
6.3.1 If a Schedule A/B Participant fails to pay for Schedule A/B
Power or Transmission Rights related thereto as required
hereunder, including any Administration Costs related thereto,
then all other Participants will immediately assume such resulting
Participant's obligations under this Agreement pertaining to
Schedule A/B Power and Transmission Rights related thereto Pro
Rata; if such defaulting Participant fails to cure within 90 days,
then the defaulting Participant's rights hereunder with respect to
Schedule A/B Power, including its Transmission Rights therefor,
will be terminated, and such curing Participants will thereafter
permanently assume the obligations and be entitled to the
defaulting Participant's rights to Schedule A/B Power and such
Transmission Rights under this Agreement Pro Rata without further
obligation to such defaulting Participant.
6.3.2 If a Schedule C Participant fails to pay for Schedule C
Power or Transmission Rights related thereto as required
hereunder, including any Administration Costs related thereto,
then the other Participants will immediately assume such
defaulting Participant's obligations under this Agreement
pertaining to Schedule C Power and Transmission Rights related
thereto Pro Rata; if such defaulting Participant fails to cure
within 90 days, then the defaulting Participant's rights hereunder
with respect to Schedule C Power, including its Transmission
Rights therefor, will be terminated, and such curing Participants
will thereafter permanently assume the obligations and be entitled
to the defaulting Participant's rights to Schedule C Power and
such Transmission Rights under this Agreement Pro Rata without
further obligation to such defaulting Participant.
6.3.3 A Participant in default of both its Schedule A/B Power or
Transmission Rights obligations as provided in Subsection 6.3.1
and its Schedule C Power or Transmission Rights obligations as
provided in Subsection 6.3.2 will be in default of this Agreement
and upon failure to cure as provided in each such subsection will
be terminated from this Agreement.
6.4 By the provisions of this Article VI, the Participants intend
that any and all Participants required hereunder to assume a
Participant's obligation to pay for (a) transmission facilities
used hereunder will be entitled to such Participant's rights and
will assume its obligations to purchase the power and energy
transmitted by such facility, and (b) power and energy hereunder
will be entitled to such Participant's rights and will assume its
obligations to use the transmission facilities used by such
Participant hereunder to transmit such power and energy.
6.5 The foregoing notwithstanding, each Participant reserves all
of its rights at law and equity against a Participant in default
(as provided in this Article VI) or otherwise in breach of this
Agreement.
6.5.1 A Participant that is a municipality covenants and agrees to
fix, revise and collect fees and charges for electric power and
energy and other services, facilities and commodities furnished or
supplied through its electric system at least sufficient to
provide revenues adequate to meet its obligations under this
Agreement and, in addition, to pay all other amounts payable from
or constituting a charge and lien upon such revenues, including
amounts sufficient to pay the principal of and interest on all
Securities issued by the Participants for electric purposes. The
obligations of such a Participant under this Agreement will be
treated as an expense of operating its electric plant and
constitute a special obligation of the Participant payable solely
from the revenues and other moneys derived by it from its electric
system.
Article VII -- Cooperation Among Participants
7.1 Each Participant will provide or cause to be provided such
assistance as set forth in this Article VII as another Participant
may reasonably request and for which such Participant agrees to
pay in connection with the issuance and sale, whether public or
private, by such Participant of any Securities.
7.2 Each Participant, in connection with the issuance and sale by
any other Participant of Securities, will make available one of
its senior personnel, who is knowledgeable about the
electric-utility business of such Participant, to assist in the
preparation of any official statement or report; provided,
however, that such assistance and preparation will be limited to
such information concerning the electric-utility business of such
Participant as may be necessary and relevant to any such official
statement or report. Such assistance will be provided at such
times, and at such places, as shall be reasonably agreed by such
Participant that requests assistance and the Participant providing
such assistance.
7.3 Each Participant and any entity acting on its behalf in the
preparation of any statement or report will certify and represent
to any Participant that requests such statement or report as true,
subject to any qualification contained in such certification, any
information contained in the respective statements or reports
supplied by or on behalf of such Participant (including any such
entity) to any other Participant under this article, and such
Participant (and any such entity, as applicable) will state that
any statements in such reports that purport to be statements of
fact are true and correct in all material respects and that such
report does not omit to state any material fact necessary to make
such report not misleading in the light of the circumstances under
which it is furnished. Such certification and representation will,
upon request of the underwriters or any other financing entity
involved in the issuance and sale of Securities, be embodied in a
letter or letters of representation addressed to the underwriters
or to such other financing entity.
7.4 Each Participant will also, upon request, furnish an opinion
of its counsel addressed to the underwriters or to any other
financing entity involved in the issuance and sale of Securities
by another Participant that requests assistance under this article
to the effect that the execution and delivery by such Participant
of the letter or letters of representation referenced in this
article to be executed by it have been duly and effectively
authorized by all requisite action.
7.4.1 A Participant's failure to furnish such an opinion will not
constitute grounds for its termination hereunder, but the
Participant will be liable hereunder for any Claims by the
Participant that requests such assistance.
7.5 Any liability for any Claims that any Participant may have to
any other Participant, the underwriters of any Securities, or any
other financing entity involved in the issuance and sale by a
Participant of any Securities, by reason of any misstatement of
material fact or omission of material facts by such Participant in
the information furnished pursuant to this article, will be borne
by such Participant, subject to any rights of contribution to
which it may be entitled by law, and will not be a cost
reimbursable by the other Participants under this Agreement. For
purposes of the preceding sentence, such Participant's liability
will include the costs of its defense of any lawsuit involving the
subject matter of such sentence, whether or not such Participant
prevails in such defense, but to the extent permitted by law such
Participant will be held harmless by the Participant that requests
assistance under this article against any and all Claims against
such Participant, including reasonable attorneys' fees, resulting
from any misleading, improper or erroneous use of such information
by the Participant that requests such assistance, the
underwriters, or any other financing entity involved in such
Participant's issuance of Securities. The Participant that
requests assistance under this article will also bear all other
costs of the Participant that provides such assistance as provided
in this article, excepting, however, any liability resulting from
any misstatement by such Participant of a material fact or the
omission by such Participant of a material fact necessary in order
to make information provided under this article, in the light of
the circumstances under which it was furnished, not misleading.
Article VIII -- Miscellaneous Provisions
8.1 There is no intention to create by this Agreement, or by any
other contract, transaction or activity related hereto, an
association, joint venture, trust or partnership, or to impose on
any signatory trust or partnership rights or obligations; any such
implied intention is expressly negated. Except as expressly
provided in this Agreement, no signatory will have by virtue of
this Agreement or of any such contract, transaction or action the
right or power lo bind any other signatory without the other
signatory's express written consent.
8.2 Nothing in this Agreement is intended to create any rights or
benefits for any person that has not executed this Agreement.
8.3 This Agreement may be amended by Vote in accordance with
Section 3.1 of this Agreement, except that with respect to any
right or obligation of VELCO this Agreement may be amended only by
such Vote with VELCO's written consent, and provided, however,
that no amendment may operate to (a) reduce the Vote required to
amend this Agreement or (b) change the rights and obligations of
any Participant relative to the other Participants based on their
Shares of Contract power or energy hereunder or (c) change the
nature of costs and expenses to be shared by the Participants
pursuant to this Agreement, in each case without the written
consent of each Participant. Amendments to this Agreement must be
in writing and be executed by the requisite signatories required
to effect amendment pursuant to this Section 8.3.
8.4 This Agreement may not be assigned to any other signatory or
to any person not a signatory to this Agreement except (a) if the
signatory making the assignment remains unconditionally obligated
to perform its obligations under this Agreement, (b) such
assigning signatory will have given each other signatory Notice of
the proposed terms of assignment, such Notice to (and by this
Agreement does) constitute an offer to each other signatory (other
than VELCO) to assign on the same terms and conditions of the
proposed assignment its rights under this Agreement, and (c) the
proposed assignment will not be consummated until ninety (90) days
following the date on which such Notice will have been given
without one or more other signatories to this Agreement (other
than VELCO) having accepted and consummated such offer to assign
such signatory's rights under this Agreement. If more than one
signatory accepts such offer, the rights of the assigning
signatory will be assigned Pro Rata, and upon confirmation of such
assignment (the previous sentence notwithstanding) the assigning
Participant will be released thereafter by all signatories to this
Agreement from any obligations hereunder, provided that the terms
and conditions of such assignment require the assignee signatory
or signatories to assume unconditionally the assigning
Participant's obligations under this Agreement.
8.4.1 The foregoing notwithstanding, each Participant will have
the right to assign any right to power or energy purchased
pursuant to this Agreement and any Transmission Rights hereunder
related thereto without obtaining the consent of any other
signatory to this Agreement, provided that such assignment does
not constitute an assignment of any obligations of such
Participant under this Agreement.
8.4.2 The foregoing notwithstanding, a Participant may elect to
sell, lease or otherwise dispose of all or substantially all of
its electric system upon ninety (90) days Notice thereof to the
Participants, such Notice to specify the security or other
contractual arrangements to be provided by such Participant that
will provide adequate assurances of the continued performance of
such Participant's obligations hereunder; provided that such
security or other contractual arrangements provides such assuran-
ces, a Participant will have the right to assign its obligations
pursuant to this Agreement as part of such sale, lease or
disposal.
8.4.3 The foregoing notwithstanding, the rights of each Schedule C
Participant that has obtained all Approvals required to purchase
Schedule C Power to cancel all or any portion of its Share, as set
forth in the Representative's Notice to the Participants dated
December 8, 1989, of its purchases of power under Sub-schedule
C-4b of the Contract are subject to the following:
8.4.3.1 A Schedule C Participant that determines to cancel any
amount of its purchases of power and energy under Sub-schedule
C-4b of the Contract must give Notice thereof to the
Representative no later than January 1, 1996, such Notice to con-
stitute an offer to sell such power and energy (as the case may
be) to the other Schedule C Participants Pro Rata.
8.4.3.2 Within five days of receipt of such Notice, the
Representative will give Notice to the Participants of the amount
of Schedule C Power thereby offered to the Participants. Within
ten days of the date of such Notice from the Representative, each
Schedule C Participant will give Notice to the Representative
stating whether (and to what extent) such Schedule C Participant
desires to accept such offer (including amounts not taken by other
Participants to which such offer is made); failure to provide such
Notice will be deemed to constitute a decision by such Schedule C
Participant not to accept such offer.
8.4.3.3 No later than five days before the date on which written
notice is due Hydro Quebec under the Contract in order to effect
cancellation of all (or any part) of any option to cancel
purchases under Sub-schedule C-4b, the Representative will give
Notice to the Operating Committee as to the amounts of such power
and energy to be canceled, and the Operating Committee is
authorized and directed to give written notice, either itself or
through VELCO, to Hydro-Quebec to effect such cancellation.
8.5 Each signatory to this Agreement agrees to execute and perform
any other notices, contracts, instruments, filings, petitions, and
other documents and to take any other action reasonably required
to implement and perform any provision of this Agreement.
8.6 VELCO's obligations hereunder are limited to those for which
provision is expressly made in Articles V and VIII of this
Agreement.
8.7 The signatories acknowledge that informal resolution of
disputes is in their mutual interest. Accordingly, each signatory
agrees that for any Claim arising under this Agreement the
signatories (or any two or more of them as applicable) will in
good faith attempt to resolve the Claim informally. If such Claim
is not resolved informally, the claiming signatory will give
Notice cf its Claim to the Representative and any signatory
against which the Claim is brought, and the Chief Operating
Officer of each such signatory will attempt in good faith to
resolve the Claim. The parties agree and covenant that they will
not file a lawsuit or institute other legal action pursuant to
this Agreement unless the signatories fail to resolve the Claim in
accordance with the foregoing procedure and at least thirty (30)
days have passed from the date on which such Notice is delivered.
No signatory will be entitled to recover from any other signatory,
or any affiliate or any shareholder, director, officer, or
employee thereof, Claims arising from another signatory's
performance under this Agreement, except a signatory will be
liable for such Claims to the extent they are finally determined
to have been caused by such signatory's negligence, gross
negligence or material breach of this Agreement (not approved by
Vote of the Participants), or its wanton or willful misconduct, by
a court of competent authority and following expiration of the
time for, or affirmance following, all appeals therefrom.
8.8 Except for a delay or failure to make any payment a
Participant is obligated to make under this Agreement, or any
agreement (including the Contract and the Interconnection
Agreements) related hereto, no failure or delay in the performance
of any obligation by a signatory under this Agreement will be
deemed to exist if it is the result of any cause beyond the
reasonable control of the signatory that the signatory could not
have reasonably been expected to avoid by the exercise of due
diligence, including, without limiting the generality of the
foregoing, storm, flood, lightning, earthquake, fire, explosion,
civil disturbance, labor disturbance, sabotage, war, national
emergency, or restraint by court or public authority. In such
event, the signatory will give Notice of such event to all
signatories to this Agreement within fifteen (15) days of its
occurrence and will diligently seek to remove the cause preventing
its performance of the obligation at the earliest possible date.
8.9 This Agreement will terminate as to all signatories upon
termination of the Contract, provided, however, that this
Agreement will be terminated as to any individual Participant upon
termination of such Participant as provided in Article VI of this
Agreement.
8.9.1 The foregoing notwithstanding, this Agreement will continue
in effect after termination to the extent necessary to make
payment of any amount due hereunder or to resolve any Claims
hereunder in accordance with the provisions for resolving Claims
set forth herein.
8.10 Notice will be given under this Agreement in writing
addressed to the required recipient at the address set forth on
the signature pages to this Agreement, be effective on the earlier
of receipt or five (5) days after the date of such Notice and be
deemed to be achieved if given by first-class mail, provided,
however, that if pursuant to any provision of this Agreement
Notice must be effected by a specified date no more than five (5)
days from the date of such Notice, Notice will be effected only by
overnight carrier, hand delivery, or telefacsimile the receipt of
which is confirmed in writing by the recipient.
8.10.1 Any signatory to this Agreement may change the address used
to effect Notice set forth on the signature pages to this
Agreement by giving Notice thereof to the Representative and each
other signatory in accordance with the procedures set forth in
this Section 8.10.
8.11 This Agreement is the act and obligation of the signatories
hereto in their corporate or governmental capacity, and any Claims
hereunder against any shareholder, director, trustee, officer,
employee or agent of any signatory, as such, is expressly waived.
<PAGE>
<TABLE>
<CAPTION>
Schedule I
Schedule A Schedule B
5/1/91 To 9/23/95 To
Company 9/22/95 10/31/15
- - ------- ---------- ----------
<S> <C> <C>
Barton 168 672
Citizens 104 415
CVPS 23,312 92,248
Enosburg 183 730
GMP 16,888 67,554
Hyde Park 97 390
Ludlow 321 1,284
Lyndonville 610 2,438
Morrisville 534 2,136
Northfield 300 1,198
Orleans 180 722
Rochester 84 336
Stowe 572 2,288
WEC 647 2,589
-------- --------
TOTAL 44,000 175,000
</TABLE>
Schedule IIA
Barton
CVPS
Citizens
Enosburg
GMP
Hyde Park
Ludlow
Lyndonville
Morrisville
Northfield
Orleans
Rochester
Stowe
Vermont Marble
PAGE
<PAGE>
Schedule IIB
<TABLE>
<CAPTION>
KILOWATTS BASED ON SCHEDULE C ENTITLEMENTS
Sched C-1 Sched C-2 Sched C-3 Sched C-4a Sched C-4
5/1/91 to 5/1/92 to 11/1/95 to 11/1/96 to 11/1/00 to
Company 10/31/12 10/31/12 12/31/15 10/31/16 10/31/20
- - ------- --------- --------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Barton 397 200 58 128 0
CVPS 30,725 20,526 6 23,714* 0
Citizens 19,995 5,132 125 0 5,671
Enosburg 160 316 141 0 329
GMP 0 0 46,619 0 0
Ludlow 334 0 0 0 0
Lyndon- 0 78 5 1,158 0
ville
Morris- 20 554 3 0* 0
ville
Northfield 246 66 2 0 0
Rochester 0 0 3 0 0
Stowe l,075 128 38 0 0
VMCO 2,048 0 0 0 0
*From 5/1/98 until 4/30/12, CVPS will have 23,216 and
Morrisville 500 kilowatts
</TABLE>
<PAGE>
Schedule III
Barton 0.6071%
Citizens 40.7579%
CVPS 38.4437%
Enosburg 0.5230%
GMP 13.4032%
Hyde Park 0.0770%
Ludlow 0.5198%
Lyndonville 0.5460%
Morrisville 0.8794%
Northfield 0.4857%
Orleans 0.1429%
Rochester 0.0667%
Stowe 1.4087%
Washington Electric 0.5135%
Vermont Marble 1.6254%
<PAGE>
Schedule IV
Barton
Enosburg
Hyde Park
Ludlow
Lyndonville
Morrisville
Northfield
Orleans
Stowe
Washington Coop
<PAGE>
Exhibit A
[Copy of Contract]
0005370.01
