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SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
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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) April 1, 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.
Preliminary Injunction Stays New Hampshire Rate Order:
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Connecticut Valley Electric Company Inc. (Connecticut Valley), a wholly
owned New Hampshire subsidiary of Central Vermont Public Service Corporation
(Company), provides transmission and retail electric service to approximately
10,000 customers in New Hampshire. Connecticut Valley purchases approximately
75% of its electric power requirements from the Company under a Federal Energy
Regulatory Commission (FERC) authorized rate schedule. The balance is
provided by purchases from Qualifying Facilities (QFs).
In an order dated December 31, 1997 in Connecticut Valley's Fuel
Adjustment Clause (FAC) and Purchased Power Cost Adjustment (PPCA) docket, the
New Hampshire Public Utilities Commission (NHPUC) found Connecticut Valley
acted imprudently by not terminating the wholesale contract between
Connecticut Valley and the Company. 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 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 the Company; 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 19, 1998, Connecticut Valley and the Company (Companies) filed
with the United States District Court for the District of New Hampshire,
sitting in Rhode Island (Court) for a temporary restraining order to maintain
the status quo ante by staying the NHPUC Order of December 31, 1997 and
preventing the NHPUC from taking any action that (i) compromises cost-based
rate making for 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.
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 costs incurred pursuant to
the wholesale power contract with the Company. In addition, the NHPUC
indicated, subject to certain conditions, 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.
Based on the December 31, 1997 NHPUC Order as well as the NHPUC's
February 23, 1998 announcement from the bench, which resulted in Connecticut
Valley's rates no longer being established on a cost-of-service basis,
Connecticut Valley no longer qualified, 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.
On April 3, 1998, the Court held a hearing on the Companies' motion for a
Temporary Restraining Order (TRO) and Preliminary Injunction against the NHPUC
at which time both the Companies and the NHPUC presented arguments. In an
oral ruling issued from the bench, which was continued in a written order
issued on April 9, 1998, the Court concluded that the Companies had
established each of the prerequisites for preliminary injunctive relief and
directed and required the NHPUC to allow Connecticut Valley to recover through
retail rates all costs for wholesale power requirements service that
Connecticut Valley purchases from the Company pursuant to its FERC-authorized
wholesale rate schedule effective January 1, 1998 until further court order.
Connecticut Valley has received an order from the NHPUC authorizing retail
rates to recover such costs beginning in May 1998. On April 14, 1998, the
NHPUC filed a notice of appeal and a motion for a stay of the Court's
preliminary injunction.
Also, on April 3, 1998, the Court indicated its TRO enjoining the NHPUC's
restructuring orders applied to Connecticut Valley and prohibits the
enforcement of the restructuring orders until the Court conducts a
consolidated hearing and rules on the requests for permanent injunctive relief
by plaintiff PSNH and the other utilities that have been allowed to intervene
in these proceedings, including the Company and Connecticut Valley. The
plaintiffs-intervenors have filed a motion asking the Court to extend its stay
of action by the NHPUC to implement restructuring and to make clear that the
stay encompasses the NHPUC's order of March 20, 1998. Subsequently, the NHPUC
has filed a motion to dismiss PSNH's pending complaint on which the November
hearing is scheduled. The Company has sought leave of Court to file a brief
in opposition to this motion.
As a result of these Court orders, Connecticut Valley's 1997 write-offs
under SFAS No. 5 and SFAS No. 71 described above were reversed in the first
quarter of 1998. Combined, the reversal of these write-offs increased 1998
net income and earnings per share of common stock by approximately
$4.5 million and $.39, respectively.
On April 1, 1998, Citizens Bank of New Hampshire (Bank) notified
Connecticut Valley that it was in default of the Loan Agreement between the
Bank and Connecticut Valley dated December 27, 1994 and that the Bank will
exercise all of its remedies from and after May 5, 1998 in the event that the
violations are not cured. After reversing the 1997 write-offs described
above, Connecticut Valley will be in compliance with the financial covenants
associated with its $3.75 million loan with the Bank. As a result,
Connecticut Valley has satisfied the Bank's requirements for curing the
violation.
Vermont Retail Rate Case:
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In the Company's current Vermont Retail rate case, several parties sought
to challenge the Company's decision in 1991 to "lock-in" its participation in
its power purchase agreement with Hydro-Quebec claiming that the decision of
Central Vermont and the 14 other members of the Vermont Joint Owners' (VJO) to
commit to the power contract in 1991 was imprudent and that power now
purchased pursuant to that agreement is not "used and useful." The parties
have also claimed that the Company has not met a condition of the Vermont
Public Service Board's (PSB) prior approval of the contract, requiring that
the Company obtain all cost effective Demand Side Management. In response,
Central Vermont filed a motion asking the PSB to rule that any prudence and
used and useful issues were resolved in prior proceedings and that the PSB is
precluded from again trying the Company on those issues.
On April 17, 1998, the PSB issued an order generally denying the
Company's motion. Given the fact that the PSB had recently severely penalized
another VJO member, Green Mountain Power Corporation, in an Order dated
February 27, 1998, after finding that its decision to lock-in the Hydro-Quebec
contract was imprudent and the power purchased pursuant to that lock-in was
not used and useful, the Company has concluded it is necessary to have the
so-called preclusion
issue reviewed by the Vermont Supreme Court (VSC) before the
PSB issues a final order in the Company's current rate case. As such, the
Company and other parties have requested that the PSB consent to file an
interlocutory appeal of the PSB's decision and to a stay of the rate case
pending review by the VSC. The Company further agreed to toll the statutory
period of time in which the PSB must act on a rate request, while the matter
is in appeal.
Because the appeal and associated stay of the rate case, if both are
granted, will significantly delay the date that the Company could increase
rates, the Company's revenues and earnings' prospects for 1998 will be
adversely affected. In an effort to mitigate the result, the Company expects
to file with the PSB a request for additional rate relief. The nature,
magnitude and timing of such a request has not yet been determined.
Revolving Credit and Competitive Advance Facility:
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On November 7, 1997 the Company entered into a $50 million, 364 day
committed Revolving Credit and Competitive Advance Facility (Credit Facility)
with a group of banks. With the approval of this facility by the Vermont
Public Service Board on April 2, 1998, it became a three-year facility with
two one-year options. However, due to the February 27, 1998 Order issued by
the PSB in the Green Mountain Power Corporation rate increase request
proceeding, the banks participating in this Credit Facility have determined
that a material adverse change may have occurred in the Company's financial
prospects. Such a condition would prevent borrowings under the Credit
Facility. Currently, the Company has no borrowings outstanding under this
Credit Facility. Discussions are in process with the banks participating in
the Credit Facility to renegotiate certain of the major terms so that
borrowings would again become available. Although the Company expects
borrowings under the Credit Facility will again become available shortly, it
cannot guarantee the availability of the Credit Facility to meet near-term
liquidity needs. In December 1998 approximately $20.5 million of long-term
debt becomes due and payable.
For further information on New Hampshire restructuring issues and other
regulatory events in New Hampshire affecting the Company or Connecticut Valley
and the December 1997 write-offs, see the Company's Forms 8-K dated
January 12, 1998 and January 28, 1998; and Item 1. Business-New Hampshire
Retail Rates, Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations-Electric Industry Restructuring-New
Hampshire and Item 8. Financial Statements and Supplementary Data-Note 13,
Retail Rates-New Hampshire in the Company's 1997 Form 10-K. For additional
information relating to the Vermont Retail Rate Case and the Revolving Credit
and Competitive Advance Facility see Management's Discussion and Analysis of
Financial Condition and Results of Operations-Earnings Overview, Financing and
Capitalization-Utility and Rates and Regulation in the Company's Form 10-Q for
the quarter ended September 30, 1997; Item 1. Business-Vermont Retail Rates,
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations-Financing and Capitalization-Utility and Rates and
Regulation, Item 8. Financial Statements and Supplementary Data-Note 10,
Short-term debt-Utility and Note 13, Retail rates-Vermont in the Company's
1997 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 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
April 30, 1998
