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) January 12, 1998
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.
In an Order dated December 31, 1997 in Connecticut Valley's
Fuel Adjustment Clause (FAC) and Purchased Power Cost Adjustment
(PPCA) docket, the NHPUC found Connecticut Valley acted
imprudently by not terminating the wholesale contract between
Connecticut Valley and the Company, notwithstanding the stays of
its February 28, 1997 restructuring Orders. The NHPUC Order
further directed Connecticut Valley to freeze its current FAC and
PPCA rates (other than short term rates to be paid to certain
Qualifying Facilities) 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.
On January 12, 1998, Connecticut Valley filed a motion for
rehearing alleging, among other things, that the NHPUC failed to
adequately notify Connecticut Valley of the NHPUC's intent to
consider the issues that were addressed during the December 17,
1997 hearing and ultimately were ruled on in Order No. 22,815.
Connecticut Valley claimed that the NHPUC provided "insufficient
notice of an evidentiary hearing on prudence." Connecticut
Valley also claimed (a) the NHPUC exceeded its jurisdiction by
using the FAC/PPCA proceeding to advance its restructuring
agenda, (b) the NHPUC's prudence determination is preempted by
Federal law, and (c) the NHPUC made an imprudence finding without
basic findings of fact or sufficient record evidence.
On January 19, 1998, Connecticut Valley and the Company
filed with the Federal District Court for a temporary restraining
order to maintain the status quo ante by staying NHPUC Order
No. 22,815 and preventing the NHPUC from taking any action that
(i) compromises cost-based rate making for Connecticut Valley or
otherwise seeks to impose market price-based rate making on
Connecticut Valley; (ii) interferes with the FERC's exclusive
jurisdiction over the Company's pending application to recover
wholesale stranded costs upon termination of its wholesale power
contract with Connecticut Valley; or (iii) prevents Connecticut
Valley from recovering through retail rates the stranded costs
and purchased power costs that it incurs pursuant to its FERC-authorized
wholesale rate schedule with the Company. The Federal
Court has not yet ruled on the Company's filing.
On January 20, 1998, the NHPUC issued Order No.22,838 which
declined the request to increase FAC and PPCA rates retroactive
to January 1, 1998. All other requests for relief in Connecticut
Valley's motion for rehearing were denied. The NHPUC did expand
the scope of its hearing to take evidence regarding the prudence
of Connecticut Valley's decision to not unilaterally terminate
the wholesale power contract between Connecticut Valley and the
Company. On February 23, 1998, the NHPUC announced from the
bench that it reaffirmed its finding of imprudence and would
designate a proxy market price for power at 4 cents per kwh in
lieu of the actual amounts arising pursuant to the wholesale
power contract with the Company. In addition, the NHPUC
indicated that it would permit Connecticut Valley to maintain its
current rates pending a decision in Connecticut Valley's appeal
of the NHPUC Order to the New Hampshire Supreme Court, provided
Connecticut Valley can provide financial assurance that it will
be able to satisfy any ultimate refund obligation. The Company
is awaiting the issuance of the NHPUC's written order.
Based on the December 31, 1997 NHPUC Order as well as the
NHPUC's February 23, 1998 announcement from the bench, which
results in the establishment of Connecticut Valley's rates on a
non cost-of-service basis, Connecticut Valley no longer
qualifies, 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." As
a result, Connecticut Valley wrote-off all of its regulatory
assets associated with its New Hampshire retail business for the
year ended December 31, 1997. This write-off amounted to
approximately $1.2 million on a pre-tax basis. In addition,
Connecticut Valley recorded a $5.5 million pre-tax loss as of
December 31, 1997 under SFAS No. 5, "Accounting for
Contingencies," representing Connecticut Valley's estimated loss
on power contracts for the twelve months following December 31,
1997. The Company expects but cannot be certain that it will be
able to recover these costs beginning in 1999.
These write-offs result in a violation of certain financial
covenants associated with Connecticut Valley's loan with Citizens
Bank of New Hampshire. This loan with an outstanding balance of
$3.75 million will be in default 30 days after notice from the
bank of the violation of certain financial covenants unless the
default is otherwise cured or waived. The notice has not yet
been tendered by the bank. Under a default, the bank has the
right to accelerate the repayment of the outstanding loans.
Connecticut Valley has outstanding long-term debt of $3.75
million as well as $.25 million of short-term debt currently
outstanding under the committed line of credit with Citizens
Bank. A default in the $3.75 million loan would also cause a
cross default of the $.25 million of short-term debt outstanding.
If these loans go into default, there will be no cross defaults
of any of the company's or its other subsidiaries' loan
agreements.
On June 25, 1997, the Company filed with the FERC a notice
of termination of its power supply contract with Connecticut
Valley, conditional upon the Company's 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 the Company's
proposed stranded cost surcharge mechanism but indicated that it
would consider an exit fee mechanism for collecting stranded
costs. The FERC also rejected the Company's arguments
concerning the applicability of stated FERC policies regarding
retail stranded costs, multi-state regulatory gaps and the
implications of state restructuring initiatives. The Company has
filed a motion seeking rehearing of the FERC's December 18, 1997
Order. In addition, and in accordance with the December 18, 1997
FERC Order, on January 12, 1998 the Company filed 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 the
Company.
If the Company is unable to obtain an order authorizing the
full recovery amount of the exit fee, or other appropriate
mechanism, the Company would be required to recognize a loss
under SFAS No. 5 totaling approximately $75.0 million on a
pre-tax basis. Furthermore, the Company would be required to
write-off approximately $4.0 million in regulatory assets
associated with its wholesale business under SFAS No. 71 on a
pre-tax basis. Conversely, even if the Company obtains a FERC
order authorizing the requested exit fee, Connecticut Valley
would be required to recognize a loss under SFAS No. 5 of
approximately $40.0 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. Either of these reasonably possible
outcomes could occur during calendar year 1998.
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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 /s/ James M. Pennington
James M. Pennington, Vice President and
Controller and Principal Accounting Officer
March 2, 1998
