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SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
______________
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) December 31,
1997.
CENTRAL VERMONT PUBLIC SERVICE CORPORATION
(Exact name of registrant as specified in its charter)
Vermont 1-8222 03-0111290
(State of other jurisdic- (Commission (IRS Employer
tion of incorporation) File Number) Identification No.)
77 Grove Street, Rutland, Vermont 05701
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (802) 773-2711
N/A
(Former name or former address, if changed since last report)
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Item 5. Other Events.
Connecticut Valley Electric Company Inc. ("Connecticut
Valley") is a wholly-owned New Hampshire subsidiary of Central
Vermont Public Service Corporation (the "Company" or "CVPS") that
provides transmission and retail electric service to
approximately 10,000 customers in New Hampshire. Connecticut
Valley currently purchases approximately 76% of its electric
power requirements from CVPS under a Federal Energy Regulatory
Commission ("FERC") authorized rate schedule. The balance is
provided by purchases from Qualifying Facilities ("QFs").
Restructuring legislation was enacted in New Hampshire in
1996. On February 28, 1997 the New Hampshire Public Utilities
Commission ("NHPUC") published its detailed Final Plan to
restructure the electric utility industry in New Hampshire. Also
on February 28, 1997, the NHPUC, in a supplemental order specific
to Connecticut Valley, found that Connecticut Valley was
imprudent for not terminating the FERC-authorized power contract
between Connecticut Valley and CVPS, required Connecticut Valley
to give notice to cancel its contract with CVPS and denied
stranded cost recovery related to this power contract.
Connecticut Valley filed for rehearing of the February 28, 1997
NHPUC Order.
On April 7, 1997, the NHPUC issued an Order addressing
certain threshold procedural matters raised in motions for
rehearing and/or clarification filed by various parties,
including Connecticut Valley, relative to the Final Plan and
interim stranded cost orders. The April 7, 1997 Order stayed
those aspects of the Final Plan that are the subject of rehearing
or clarification requests and also stayed the interim stranded
cost orders for the various parties, including Connecticut
Valley. As such, those matters pertaining to the power contract
between Connecticut Valley and CVPS were stayed. The suspension
of these orders was to remain in effect until two weeks following
the issuance of any order concerning outstanding requests for
rehearing and clarification. The NHPUC has not yet issued any
such order.
On November 17, 1997, the City of Claremont, New Hampshire
("Claremont"), filed with the NHPUC a petition for a reduction in
Connecticut Valley's electric rates. Claremont based its request
on the NHPUC's earlier finding that Connecticut Valley's failure
to terminate its wholesale power contract with CVPS as ordered in
the NHPUC Stranded Cost Order of February 28, 1997 was imprudent.
Under the wholesale power purchase contract with CVPS,
Connecticut Valley may terminate service at the end of a service
year, provided it has given written notice of termination prior
to the beginning of that service year. Claremont alleges that if
Connecticut Valley had given written notice of termination to
Central Vermont in 1996 when legislation authorizing the NHPUC to
restructure the industry utility (NHRSA 374-F) was enacted in New
Hampshire, Connecticut Valley's obligation to purchase power from
Central Vermont would have terminated as of January 1, 1998.
On November 26, 1997, Connecticut Valley filed a request
with the NHPUC to increase the Fuel Adjustment Clause ("FAC"),
Purchased Power Cost Adjustment ("PPCA") and short-term energy
purchase rates effective on or after January 1, 1998. The
requested increase in rates results from higher forecast energy
and capacity charges on power Connecticut Valley purchases from
CVPS plus removal of a credit effective during 1997 to refund
overcollections from 1996. Connecticut Valley objected to the
NHPUC's notice of intent to consolidate Claremont's petition into
the FAC and PPCA docket, stating that Claremont's complaint
should be heard as part of the NHPUC restructuring docket. Over
Connecticut Valley's objection at the hearing on December 17,
1997, the NHPUC consolidated Claremont's petition with
Connecticut Valley's FAC and PPCA proceeding.
In an Order dated December 31, 1997 in Connecticut Valley's
FAC and PPCA docket, the NHPUC found Connecticut Valley acted
imprudently by not terminating the wholesale contract between
Connecticut Valley and CVPS, notwithstanding the stay of the
rehearing request of its February 28, 1997 Order. Connecticut
Valley and CVPS disagree with this finding and will vigorously
oppose it. The NHPUC Order further directs Connecticut Valley to
freeze its current FAC and PPCA rates (other than short term
rates to be paid to certain QFs) effective January 1, 1998, on a
temporary basis, pending a hearing to determine: 1) the
appropriate proxy for a market price that Connecticut Valley
could have obtained if it had terminated its wholesale contract
with CVPS; 2) the implications of allowing Connecticut Valley to
pass on to its customers only that market price; and 3) whether
the NHPUC's final determination on the FAC and PPCA rates should
be reconciled back to January 1, 1998 or some other date. That
hearing is scheduled for January 28, 1998. Also, as provided in
the NHPUC Order, on January 12, 1998, Connecticut Valley and CVPS
will meet with NHPUC Staff, Claremont and the New Hampshire
Office of the Consumer Advocate to discuss the issues raised in
the NHPUC's Order.
Connecticut Valley will submit to the NHPUC a Motion to
Vacate its December 31, 1997 Order. In addition, the Company
will request from the NHPUC the same relief previously granted to
Public Service Company of New Hampshire ("PSNH") by the United
States District Court in its March 10, 1997 Order restraining
implementation of the NHPUC's final plan of restructuring and
related Orders "to the extent that those orders establish a rate
setting methodology that is not designed to recover [Connecticut
Valley's] costs of providing service and would require
[Connecticut Valley] to write off any regulatory asset under FAS
71 and defendants are enjoined from taking any action to enforce
those aspects of the stayed Orders." If necessary, Connecticut
Valley will also apply to Federal District Court for a Temporary
Restraining Order and related relief. Connecticut Valley and
CVPS believe that the NHPUC's Order is, among other things,
inconsistent with the NHPUC's stay of its February 28, 1997
Order, denies the Company the due process of law to which it is
entitled, and is preempted by the fact that Connecticut Valley's
power supply costs from CVPS are pursuant to a FERC authorized
rate schedule.
The Company believes that if the December 31, 1997 NHPUC
Order results in the establishment of Connecticut Valley's rates
on a non cost-of-service basis, Connecticut Valley would no
longer qualify, as of December 31, 1997, for the application of
Statement of Financial Accounting Standards ("SFAS") No. 71,
"Accounting For The Effects of Certain Types of Regulation."
That disqualification would be due to the fact that these rates
are not designed to cover Connecticut Valley's full cost of
service. As a result, Connecticut Valley would have to write off
all of its regulatory assets associated with its New Hampshire
retail business for the year ended December 31, 1997. It is
estimated that Connecticut Valley's write-off would be
approximately $1.0 million on a pre-tax basis. In addition,
Connecticut Valley would have to record a contingent liability as
of December31, 1997 under SFAS No. 5, "Accounting for
Contingencies" for an estimated $2.0 million pre-tax revenue
shortfall during calendar year 1998. The Company expects, but
cannot be certain that it will be able to recover these costs
beginning in 1999. If the 1998 rates are reduced to reflect
market prices, the pre-tax revenue shortfall for calendar year
1998 could be as much as approximately $6.0 million, depending on
the NHPUC's determinations of market price.
If the NHPUC's December 31, 1997 Order remains in its
present form or is not otherwise modified as requested by
Connecticut Valley, the revenue shortfall and write-offs
triggered by that decision could result in Connecticut Valley's
insolvency or defaults which, if not waived or renegotiated,
would give Connecticut Valley's lenders the right to accelerate
the repayment of approximately $4.0 million of Connecticut Valley
indebtedness. In addition, although Connecticut Valley's
indebtedness is non-recourse to CVPS, defaults under Connecticut
Valley's loan agreements would constitute a default under the
Indenture securing CVPS' $97.0 million of first mortgage bonds.
A default under CVPS' Indenture would also constitute cross
defaults of all of CVPS' other financing arrangements. CVPS is
in the process of seeking an amendment to its Indenture from the
holders of the first mortgage bonds to eliminate any cross
defaults to CVPS caused by a default in Connecticut Valley's debt
or by an insolvency of Connecticut Valley. However, although the
Company expects to obtain such an amendment, it cannot predict
whether the amendment will be approved by the bondholders.
On June 25, 1997, CVPS filed with the FERC a notice of
termination of its power supply contract with Connecticut Valley,
conditional upon CVPS' request to impose a surcharge on the
Company's transmission tariff to recover the stranded costs that
would result from the termination of its contract with
Connecticut Valley. The amount requested was $44.9 million plus
interest at the prime rate to be recovered over a ten year
period. In its Order dated December 18, 1997 in Docket No. ER97-3435-000,
the FERC rejected Central Vermont's proposed stranded
cost surcharge mechanism but indicated that it would consider an
exit fee mechanism for collecting stranded costs. The FERC also
rejected CVPS arguments concerning the applicability of stated
FERC policies regarding retail stranded costs, multi-state
regulatory gaps and the implications of state restructuring
initiatives. CVPS intends to seek rehearing of the FERC's
December 18, 1997 Order. In addition, and in accordance with the
FERC's Order, on January 12, 1998 CVPS is filing a request with
the FERC for an exit fee mechanism to collect $44.9 million in a
lump sum, or in installments with interest at the prime rate over
a ten year period, to cover the stranded costs resulting from the
cancellation of Connecticut Valley's power contract with CVPS.
If the Company is unable to obtain an order authorizing the
full recovery amount of the exit fee, or other appropriate
mechanism, CVPS would be required to recognize a contingent
liability under SFAS 5 of approximately
$75.0 million on a pre-tax basis. Furthermore, CVPS would be
required to write-off approximately $4.0 million in regulatory
assets associated with its wholesale business under SFAS 71 on a
pre-tax basis. Conversely, if the Company obtains a FERC order
authorizing the requested exit fee, Connecticut Valley would be
required to recognize a contingent liability under SFAS 5 of
approximately $43.0 million on a pre-tax basis unless Connecticut
Valley has obtained an order by the NHPUC or other appropriate
body directing the recovery of those costs in Connecticut
Valley's retail rates.
For further information on New Hampshire restructuring
issues, see the Company's form 8-K dated February 28, 1997, Forms
10-Q for the quarters ended March 31, 1996, June 30, 1996,
September 30, 1996, March 31, 1997, June 30, 1997 and
September 30, 1997, and Item 1. Business-New Hampshire Retail
Rates, Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations-Liquidity and Capital
Resources-Electric Industry Restructuring-New Hampshire and
Item 8. Financial Statements and Supplementary Data-Note 17,
Subsequent Event (Unaudited) in Central Vermont's 1996
Form 10-K.
This document contains statements that are forward looking.
These statements are based on current expectations that are
subject to risks and uncertainties. Actual results will depend,
among other things, upon the actions of regulators, including the
NHPUC and the FERC, as well as litigation related thereto. The
Company cannot predict the outcome of any of these proceedings.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act
of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned thereunto duly authorized.
CENTRAL VERMONT PUBLIC SERVICE CORPORATION
BY James M. Pennington
James M. Pennington, Vice President and
Controller and Principal Accounting Officer
January 12, 1998
