UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
Form 10-Q/A
x QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1999
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 October 29, 1999
there were outstanding 11,466,805 shares of Common Stock, $6 Par Value.
==============================================================================
The undersigned registrant amends its Quarterly Report on Form 10-Q for
the quarterly period ending September 30, 1999 to correct a typographical
error transmitted in the electronic filing process.
"Other operation" should be $12,932(expressed in thousands) rather than
$2,932 (expressed in thousands) included in "Operating Expenses" as reflected
in the Consolidated Statement of Income and Retained Earnings, Part I, Item 1.
The Total operating expenses of $111,463 (expressed in thousands) was stated
correctly, and no other changes to Item 1 are required.
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CENTRAL VERMONT PUBLIC SERVICE CORPORATION
Form 10-Q/A
Table of Contents
Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statement of Income and Retained Earnings
for the three and nine months ended September 30, 1999
and 1998 3
Consolidated Balance Sheet as of September 30, 1999 and
December 31, 1998 4
Consolidated Statement of Cash Flows for the nine
months ended September 30, 1999 and 1998 5
Notes to Consolidated Financial Statements 6-15
SIGNATURE 16
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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 Nine Months Ended
September 30 September 30
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Operating Revenues $113,221 $69,522 $305,002 $219,886
Operating Expenses
Operation
Purchased power 79,538 42,196 192,472 127,784
Production and transmission 5,996 5,925 16,756 17,279
Other operation 12,932 9,955 36,166 32,808
Maintenance 5,660 3,767 12,700 11,421
Depreciation 4,308 4,145 12,705 12,603
Other taxes, principally property taxes2,952 2,779 8,854 8,623
Taxes on income 77 (176) 7,872 1,837
--------- -------- --------- ---------
Total operating expenses 111,463 68,591 287,525 212,355
--------- -------- --------- ---------
Operating Income 1,758 931 17,477 7,531
--------- -------- --------- ---------
Other Income and Deductions
Equity in earnings of affiliates 699 808 2,204 2,384
Other income, net 146 754 1,436 1,714
Benefit (provision) for income taxes 4 (62) (258) -
--------- -------- --------- ---------
Total other income and deductions, net 849 1,500 3,382 4,098
--------- -------- --------- ---------
Total Operating and Other Income 2,607 2,431 20,859 11,629
--------- -------- --------- ---------
Net Interest Expense 2,197 2,660 7,303 7,919
--------- -------- --------- ---------
Net Income (Loss) Before Extraordinary
Credit 410 (229) 13,556 3,710
Extraordinary Credit Net of Taxes - - - 873
--------- -------- --------- ---------
Net Income (Loss) 410 (229) 13,556 4,583
Retained Earnings at Beginning of Period77,436 74,646 67,748 75,841
--------- -------- --------- ---------
Cash Dividends Declared
Preferred stock 466 486 1,397 1,459
Common stock 5,043 48 7,570 5,082
--------- -------- --------- ---------
Total dividends declared 5,509 534 8,967 6,541
--------- -------- --------- ---------
Retained Earnings at End of Period $72,337 $73,883 $72,337 $73,883
========= ======== ========= =========
Earnings (Losses) Available For
Common Stock $(56) $(715) $ 12,159 $ 3,124
Average Shares of Common Stock
Outstanding 11,463,019 11,448,585 11,462,196 11,432,844
Basic and Diluted Share of Common Stock:
Earnings (losses) before extraordinary
credit $.00 $(.06) $1.06 $.19
Extraordinary credit - - - .08
--------- --------- --------- ----------
Earnings (Losses) Per Basic and Diluted
Share of Common Stock $.00 $(.06) $1.06 $.27
========= ========= ======== =========
Dividends Paid Per Share of Common Stock $.22 $.22 $.66 $.66
The accompanying notes are an integral part of these consolidated financial
statements.
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CENTRAL VERMONT PUBLIC SERVICE CORPORATION
CONSOLIDATED BALANCE SHEET
(Dollars in thousands)
(Unaudited)
September 30 December 31
1999 1998
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Assets
Utility Plant, at original cost $475,068 $469,204
Less accumulated depreciation 171,426 160,666
-------- --------
303,642 308,538
Construction work in progress 10,000 10,461
Nuclear fuel, net 1,252 948
-------- --------
Net utility plant 314,894 319,947
-------- --------
Investments and Other Assets
Investments in affiliates, at equity 25,660 26,142
Non-utility investments 37,410 35,896
Non-utility property, less accumulated depreciation 2,568 2,920
-------- --------
Total investments and other assets 65,638 64,958
-------- --------
Current Assets
Cash and cash equivalents 66,262 10,051
Special deposits 397 424
Accounts receivable, less allowance for uncollectible
accounts ($1,262 in 1999 and $2,242 in 1998) 39,231 29,224
Unbilled revenues 12,876 18,677
Materials and supplies, at average cost 3,729 3,746
Prepayments 2,903 1,881
Other current assets 6,053 9,768
-------- --------
Total current assets 131,451 73,771
-------- --------
Regulatory Assets 59,046 66,719
-------- --------
Other Deferred Charges 5,625 4,887
-------- --------
Total Assets $576,654 $530,282
======== ========
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 45,334 45,318
Accumulated other comprehensive income (365) (365)
Treasury stock (322,829 shares and
324,717 shares, respectively, at cost) (4,209) (4,234)
Retained earnings 72,337 67,748
--------- ---------
Total common stock equity 183,812 179,182
Preferred and preference stock 8,054 8,054
Preferred stock with sinking fund requirements 17,000 18,000
Long-term debt 166,400 90,077
Capital lease obligations 15,330 16,141
--------- ---------
Total capitalization 390,596 311,454
--------- ---------
Current Liabilities
Short-term debt 12,000 37,000
Current portion of long-term debt and preferred stock 4,183 6,773
Accounts payable 16,867 11,589
Accounts payable - affiliates 8,788 11,784
Accrued income taxes - 2,975
Dividends declared 2,988 2,521
Nuclear decommissioning costs 4,820 4,820
Disallowed purchased power costs 1,840 7,361
Other current liabilities 19,700 17,403
--------- ---------
Total current liabilities 71,186 102,226
--------- ---------
Deferred Credits
Deferred income taxes 49,787 47,581
Deferred investment tax credits 6,537 6,831
Nuclear decommissioning costs 19,918 23,239
Other deferred credits 38,630 38,951
--------- ---------
Total deferred credits 114,872 116,602
--------- ---------
Total Capitalization and Liabilities $576,654 $530,282
========= =========
The accompanying notes are an integral part of these consolidated financial
statements.
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<TABLE>
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CENTRAL VERMONT PUBLIC SERVICE CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
Nine Months Ended
September 30
1999 1998
<S> <C> <C>
Cash Flows Provided (Used) By
Operating Activities
Net income $13,556 $4,583
Adjustments to reconcile net income to net cash
provided by operating activities
Equity in earnings of affiliates (2,204) (2,383)
Dividends received from affiliates 2,591 2,595
Equity in earnings of non-utility investments (1,146) (5,094)
Distribution of earnings from non-utility
investments 2,906 2,953
Extraordinary credit - (1,294)
Depreciation 12,705 12,603
Deferred income taxes and investment tax credits 2,884 2,427
Net deferral and amortization of nuclear refueling
replacement energy and maintenance costs 1,575 (2,838)
Amortization of conservation and load management
costs 5,080 4,226
Amortization of capital leases 811 811
Decrease in accounts receivable and unbilled
revenues 3,461 9,485
Increase (decrease)in accounts payable 2,415 (941)
Decrease in accrued income taxes (2,975) (9,606)
Change in other working capital items (8,102) (4,411)
Other, net (1,462) 3,727
-------- --------
Net cash provided by operating activities 32,095 16,843
-------- --------
Investing Activities
Construction and plant expenditures (9,209) (11,550)
Conservation & load management expenditures (2,118) (1,857)
Return of capital 140 140
Non-utility investments (3,305) (102)
Other investments, net 162 (234)
-------- --------
Net cash used for investing activities (14,330) (13,603)
-------- --------
Financing Activities
Short-term debt, net (28,750) (650)
Long-term debt, net 76,483 (15)
Common and preferred dividends paid (8,496) (8,513)
Reduction in capital lease obligations (811) (811)
Sale of common stock 25 451
Other (5) (54)
-------- --------
Net cash provided (used) for financing activities 38,446 (9,592)
-------- --------
Net Increase (Decrease) in Cash and Cash Equivalents 56,211 (6,352)
Cash and Cash Equivalents at Beginning of Period 10,051 16,506
-------- --------
Cash and Cash Equivalents at End of Period $66,262 $10,154
======== ========
Supplemental Cash Flow Information
Cash paid during the period for:
Interest (net of amounts capitalized) $ 5,490 $ 5,534
Income taxes (net of refunds) $ 9,717 $ 9,940
The accompanying notes are an integral part of these consolidated financial
statements.
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CENTRAL VERMONT PUBLIC SERVICE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1999
Note 1 - Accounting Policies
The Company's significant accounting policies are described in
Notes 1 and 15 of Notes to Consolidated Financial Statements included in
its 1998 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.
RECLASSIFICATION Certain reclassifications have been made to prior
year Consolidated Statement of Cash Flows to conform with the 1999
presentation.
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 is likely to 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.
CLEVELAND AVENUE PROPERTY 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 $5.0 million. This was charged to expense in the
fourth quarter of 1992. Site investigation has continued over the last
several years and the Company continues to work with the State in a
joint effort to develop a mutually acceptable solution.
BRATTLEBORO MANUFACTURED GAS FACILITY From the early to late 1940's,
the Company owned and operated a manufactured gas facility in
Brattleboro, Vermont. The Company recently received a letter from the
State of New Hampshire asking the Company to conduct a scoping study in
and around the site of the former facility. The Company has engaged a
qualified consultant to do the scoping study and a search for other
Potential Responsible Parties (PRPs). At this time the Company has not
finalized an estimate of its potential liability at this site.
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.
A reserve of $9.9 million has been established representing
management's best estimate of the costs to remediate these sites.
Note 3 - Retail Rates
The Company recognizes that adequate and timely rate relief is
necessary if it is to maintain its financial strength, particularly
since Vermont regulatory rules do not allow for changes in purchased
power and fuel costs to be automatically passed on to consumers through
rate adjustment clauses. The Company intends to continue its practice of
periodically reviewing costs and requesting rate increases when
warranted.
Vermont Retail Rate Proceedings
On September 22, 1997, the Company filed with the Public Service
Board, or PSB, for a 6.6% or $15.4 million retail rate increase to
become effective June 6, 1998 to offset the increasing cost of providing
service. $14.3 million or 92.9% of the rate increase request was to
recover contractual increases in the cost of power the Company purchases
from Hydro-Quebec. At the same time, the Company also filed a request to
eliminate the then current differential between the rates charged
customers in the summer and the rates charged customers in the winter
and price electricity the same year-round.
In response to the Company's filing, the PSB decided to appoint an
independent investigator to examine the Company's decision to buy power
from Hydro-Quebec. The Company made a filing with the PSB stating that
the PSB as well as other parties should be barred from reviewing past
decisions because the PSB already examined the Company's decision to buy
power from Hydro-Quebec in a 1994 rate case in which the Company was
penalized for "improvident power supply management." During February
1998, the Department of Public Service, or DPS, filed testimony in
opposition to the Company's retail rate increase request. The DPS
recommended that the PSB instead reduce the Company's then current
retail rates by 2.5% or $5.7 million. The Company sought, and the PSB
granted, permission to stay this rate case and to file an interlocutory
appeal of the PSB's denial of the Company's motion to preclude a
re-examination of the Company's Hydro-Quebec contract in 1991. The
Company recently argued its position before the Vermont Supreme Court.
Although the Vermont Supreme Court has not yet rendered a decision and
it is uncertain when a decision is forthcoming, a decision by the end of
1999 is possible.
The Company filed on June 12, 1998 with the PSB for a 10.7% retail
rate increase that supplanted the September 22, 1997, 6.6% rate increase
request, to be effective March 1, 1999. On October 27, 1998, the Company
reached an agreement with the DPS regarding the June 1998 retail rate
increase request providing for a temporary rate increase in the
Company's Vermont retail rates of 4.7% or $10.9 million on an annualized
basis beginning with service rendered on or after January 1, 1999. The
agreement was approved by the PSB on December 11, 1998.
The 4.7% rate increase is subject to retroactive or prospective
adjustment upon future resolution of issues arising under the Vermont
Joint Owners, or VJO, Power Contract presently before the Vermont
Supreme Court. The agreement temporarily disallows approximately $7.4
million for the Company's purchased power costs under the VJO Power
Contract pending resolution of the issues before the Vermont Supreme
Court. As a result of the 4.7% rate increase agreement, during the
fourth quarter of 1998, the Company recorded a pre-tax loss of $7.4
million for disallowed purchased power costs, representing the Company's
estimated under-recovery of power costs under the VJO Power Contract for
calendar year 1999. If in the future, the Company is unable to increase
rates to recover the temporary disallowed purchased power costs under
the VJO power contract or otherwise mitigate these costs, the Company
would be required to record losses for any estimated future under
recovery. At this time, the Company does not believe that such a loss
is probable.
This temporary $7.4 million disallowance was calculated using
comparable methodology to that used by the PSB in the Green Mountain
Power rate case on February 28, 1998. In that case, the PSB found Green
Mountain Power's decision to commit to the VJO Power Contract in 1991
"imprudent" and that power purchased under it was not "used and useful."
As a result, the PSB concluded that a portion of Green Mountain Power's
current costs should not be imposed on Green Mountain Power's customers
and were disallowed. Green Mountain Power is appealing that rate order
to the Vermont Supreme Court. Should the Company receive a similar order
from the PSB, the Company would experience a material adverse effect on
its results of operations and financial condition.
Assuming an unfavorable Vermont Supreme Court ruling and depending
on the methodology subsequently used by the PSB to determine the amount
of any disallowance, the amount of any permanent disallowance, it could
be more or less than the $7.4 million temporary disallowance. However,
if the Company receives an unfavorable ruling from the Vermont Supreme
Court and the PSB subsequently issues a final rate order adopting the
disallowance methodology used to determine the temporary Hydro-Quebec
disallowance described above for the duration of the VJO Power Contract,
the Company would not be able to recover approximately $205.0 million of
power costs over the life of the contract, including $11.5 million in
2000, $11.6 million in 2001, $11.7 million in 2002, $11.9 in million
2003 and $12.1 million in 2004. In such an event, the Company would be
required to take an immediate charge to earnings of approximately $205.0
million (pre-tax). Such an outcome could jeopardize the Company's
ability to continue as a going concern.
New Hampshire Retail Rate/Federal Court Proceedings
Connecticut Valley Electric Company Inc.'s, or Connecticut
Valley's, retail rate tariffs, approved by the New Hampshire Public
Utilities Commission, or NHPUC, contain a Fuel Adjustment Clause, or
FAC, and a Purchased Power Cost Adjustment, or PPCA. Under these
clauses, Connecticut Valley recovers its estimated annual costs for
purchased energy and capacity which are reconciled when actual data is
available.
On February 28, 1997 the 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 the Company, required Connecticut Valley to give notice to
cancel its contract with the Company 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 were 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 the Company 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.
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
the Company, notwithstanding the stays of its February 28, 1997 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 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 filed with
the Federal District Court, or 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 Federal Energy Regulatory Commission's, or FERC
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 in a public meeting that
it reaffirmed its finding of imprudence and designated 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 which were
unacceptable to the companies, 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, which resulted in the establishment of
Connecticut Valley's rates on a non cost-of-service basis, Connecticut
Valley no longer qualified, as of December 31, 1997, for the application
of Statement of Financial Accounting Standards, or 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 as of 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 in 1997 for disallowed power costs.
On March 20, 1998, the NHPUC issued an order which affirmed,
clarified and modified various generic policy statements including the
reaffirmation to establish rates on the basis of a regional average
announced previously in its
February 28, 1997 Order. The March 20, 1998 Order also addressed all
outstanding motions for rehearings or clarification relative to the
policies or legal positions articulated in the Final Plan and removed
the stay covering the Company's interim stranded cost order of April 7,
1997. In addition, the March 20, 1998 Order imposed various compliance
filing requirements.
On April 3, 1998, the Court held a hearing on the Companies' motion
for a Temporary Restraining Order, or TRO, and Preliminary Injunction
against the NHPUC at which time both the companies and the NHPUC
presented arguments. In an oral ruling from the bench, and 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 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.
The NHPUC's request for a stay was denied. At the same time, the NHPUC
permitted Connecticut Valley to recover in rates the full cost of its
wholesale power purchases from the Company.
Also, on April 3, 1998, the Court indicated its earlier 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 Public Service Company of New
Hampshire, or PSNH, and the other utilities that had been allowed to
intervene in these proceedings, including the Company and Connecticut
Valley. The plaintiffs-intervenors thereafter 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.
As a result of these Court orders, Connecticut Valley's 1997
charges, described above, were reversed in the first quarter of 1998.
Combined, the reversal of these charges 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, or 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 would exercise all of its remedies from and after May 5, 1998 in
the event that the violations were not cured. After reversing the 1997
write-offs described above, Connecticut Valley was in compliance with
the financial covenants associated with its $3.75 million loan with the
Bank. As a result, Connecticut Valley satisfied the Bank's requirements
for curing the violation.
On May 11, 1998 the NHPUC issued an order requiring Connecticut
Valley to show cause why it should not be held in contempt for its
failure to meet the compliance filing requirements of its March 20, 1998
Order. A hearing on this matter was scheduled for June 11, 1998, which
was subsequently canceled because of the Court's June 5, 1998 Order,
discussed below.
On June 5, 1998, the Court issued an Order which denied the NHPUC's
motion for a stay of the Court's preliminary injunction. The Order
clearly stated that no restructuring effort in New Hampshire can move
forward without the Court's approval unless all New Hampshire utilities
agree to the plan. The Order suspended all involuntary restructuring
efforts for all New Hampshire utilities until a hearing on the merits
was conducted. The NHPUC appealed this Order to the United States First
Circuit Court of Appeals, or Court of Appeals.
On July 23, 1998, the NHPUC issued an order vacating that portion
of its February 27, 1997 restructuring order that had directed
Connecticut Valley to terminate its RS-2 wholesale power purchases from
the Company. The NHPUC has expressly stated in federal court filings
that its July 23, 1998 order "clarified that Connecticut Valley should
not terminate the RS-2 Rate Schedule if such termination would trigger
the exit fee" for which the Company has sought authorization from FERC.
On November 24, 1998, Connecticut Valley filed with the NHPUC its
annual FAC/PPCA rates to be effective January 1, 1999. On January 4,
1999, the NHPUC issued an Order allowing Connecticut Valley to implement
the proposed FAC rate of $.008 per KWH and the proposed PPCA rate of
$.01000 per KWH, on a temporary basis, effective on all bills rendered
on or after January 1, 1999. In addition, the NHPUC also ordered
Connecticut Valley to pay refunds plus interest to its retail customers
for any overcharges collected as a result of the April 9, 1998 Federal
District Court Order, should it be overturned or modified, which are
included in the estimated total losses of $4.3 million discussed below.
On December 3, 1998, the Court of Appeals announced its decisions
on the appeals taken by the NHPUC from the preliminary injunctions
issued by the Court. Those preliminary injunctions had stayed
implementation of the NHPUC's plan to restructure the New Hampshire
electric industry and required the NHPUC to allow Connecticut Valley to
recover through its retail rates the full cost of wholesale power
obtained from the Company.
The Court of Appeals affirmed the preliminary injunction, issued by
the Court, staying restructuring until the plaintiff utilities' claims
(including those of the Company and Connecticut Valley) are fully tried.
The Court of Appeals found that PSNH had sufficiently established that
without the preliminary injunction against restructuring it would suffer
substantial irreparable injury and that it had sufficient claims against
restructuring to warrant a full trial. The Court of Appeals also
affirmed the extension of the preliminary injunction to protect the
other plaintiff utilities, including Connecticut Valley and the Company,
although it questioned whether the other utilities had arguments as
strong against restructuring as PSNH because they did not have formal
agreements with the State similar to PSNH's Rate Agreement. The Court
of Appeals stated that if the Court awards the utilities permanent
injunctive relief against restructuring after the case is tried, then it
must explain why the other utilities are also entitled to such relief.
The NHPUC filed a petition for rehearing on December 17, 1998. The
Court of Appeals denied the petition on January 13, 1999.
The Court of Appeals also reversed the Court's preliminary
injunction requiring the NHPUC to allow Connecticut Valley to recover in
retail rates the full cost of the power it buys from the Company.
Although the Court of Appeals found that Connecticut Valley and the
Company had made a strong showing of irreparable injury to justify the
preliminary injunction, it concluded that Connecticut Valley's and the
Company's claims did not have a sufficient probability of success to
warrant such preliminary relief. The Court of Appeals explained that
the filed-rate doctrine preserving the exclusive jurisdiction of the
FERC over wholesale power rates did not prevent the NHPUC from deciding
whether Connecticut Valley's power purchases from the Company were
prudent given alternative available sources of wholesale power. The
Court of Appeals then stated that Connecticut Valley's rates could be
reduced to the level prevailing on December 31, 1997. However, the
Court of Appeals also stated that if the NHPUC ordered Connecticut
Valley's rates to be reduced below the level existing as of December 31,
1997, "it will be time enough to consider whether they are precluded
from the Court's injunction against the Final Plan or on other grounds."
On December 17, 1998, Connecticut Valley and the Company filed a
petition for rehearing on the grounds that the Court of Appeals had not
given sufficient weight to the Court's factual findings and that the
Court of Appeals had misapprehended both factual and legal issues.
Connecticut Valley and the Company also asked that the entire Court of
Appeals, rather than only the three-judge appellate panel that had
issued the December 3 decision, consider their petition for rehearing.
On January 13, 1999, the Court of Appeals denied the petition for
rehearing.
Connecticut Valley and the Company then requested the Court of
Appeals to stay the issuance of its mandate until the companies could
file a petition of certiorari to the United States Supreme Court and the
Supreme Court acted on the petition.
On January 22, 1999, the Court of Appeals denied the request.
However, the Court of Appeals granted a 21-day stay to enable the
Company to seek a stay pending certiorari from the Circuit Justice of
the Supreme Court. On February 11, 1999, the Company and Connecticut
Valley filed a petition for a writ of certiorari with the United States
Supreme Court and a motion to stay the effect of the Court of Appeals'
decision while the case was pending in the Supreme Court. The motion
for a stay was addressed to Justice Souter who is responsible for such
motions pertaining to the Court of Appeals for the First Circuit. On
February 18, 1999, Justice Souter denied the stay pending the petition
for certiorari and on April 19, 1999 the Supreme Court denied the
petition for certiorari.
As a result of the December 3, 1998 Court of Appeals' decision
discussed above, on March 22, 1999, the NHPUC issued an Order which
directed Connecticut Valley to file within five business days its
calculation of the difference between the total FAC and PPCA revenues
that it would have collected had the 1997 FAC and PPCA rate levels been
in effect the entire year. In its Order, the NHPUC also directed
Connecticut Valley to calculate a rate reduction to be applied to all
billings for the period April 1, 1999 through December 31, 1999 to
refund the 1998 over collection relative to the 1997 rate level. The
Company estimated this amount to be approximately $2.7 million on a
pre-tax basis. Connecticut Valley filed the required tariff page with
the NHPUC, under protest and with reservation of all rights, on March
26, 1999 and implemented the refund effective April 1, 1999.
As a result of legal and regulatory actions discussed above,
Connecticut Valley no longer qualified as of December 31, 1998 for the
application of SFAS No. 71, and wrote-off in the fourth quarter of 1998
all its regulatory assets associated with its New Hampshire retail
business estimated at approximately $1.3 million on a pre-tax basis at
December 31, 1998. In addition, Connecticut Valley also recorded
estimated total losses of $4.3 million pre-tax during the fourth quarter
of 1998 for disallowed power costs of $1.6 million and its refund
obligations of $2.7 million. Company management, however, continues to
believe that the NHPUC's actions are illegal and unconstitutional and
will present its arguments in the appropriate forum.
The pre-tax losses described above resulted in Connecticut Valley
violating applicable covenants, which if not waived or renegotiated,
would have allowed Connecticut Valley's lender the right to accelerate
the repayment of a $3.75 million loan with Connecticut Valley. On March
12, 1999, Connecticut Valley was notified by the Bank that it would
exercise appropriate remedies in connection with the violation of
financial covenants associated with the $3.75 million loan agreement
unless the violation was cured by April 11, 1999. To avoid default of
this loan agreement, on April 6, 1999, pursuant to an agreement reached
on March 26, 1999, the Company purchased from the Bank the $3.75 million
note.
On April 7, 1999, the Court ruled from the bench that the March 22,
1999 NHPUC Order requiring Connecticut Valley to provide a refund to its
retail customers was illegal and beyond the NHPUC's authority. The
Court also ruled that the NHPUC cannot reduce Connecticut Valley's rates
below rates in effect at December 31, 1997. Accordingly, Connecticut
Valley removed the rate refund from retail rates effective April 16,
1999. Lastly, the Court denied the NHPUC's motion to dissolve the
injunction staying the implementation of its restructuring plan and
stated its desire to rule on the pending motion for summary judgement
and to conduct a hearing on the Company's request for a permanent
injunction, after the NHPUC completes hearings on PSNH's stranded costs.
The District Court's decision was issued as a written order on May 11,
1999.
The NHPUC held a hearing on April 22, 1999 to determine whether to
modify Connecticut Valley's 1999 power rates by returning the rates to
the levels that were in effect on December 31, 1997. On May 17, 1999,
the NHPUC issued an order requiring Connecticut Valley to set temporary
rates at the level in effect as of December 31, 1997, subject to future
reconciliation, effective with bills issued on and after June 1, 1999.
On May 24, 1999, the NHPUC filed a petition for mandamus in the
Court of Appeals challenging the Court's May 11, 1999 ruling and seeking
a decision allowing the refunds as required by the NHPUC's March 22,
1999 order. The Court of Appeals denied that petition on June 2, 1999.
The NHPUC immediately filed a notice of appeal in the Court of Appeals
again challenging the Court's May 11, 1999 ruling.
In that appeal, the Company and Connecticut Valley contend, among
other things, that it is unfair for the NHPUC to direct Connecticut
Valley to continue to purchase wholesale power under RS-2 in order to
avoid the triggering of a FERC exit fee, but at the same time to freeze
Connecticut Valley's rates at their December 31, 1997 level which does
not enable Connecticut Valley to recover all of its RS-2 costs. The
appeal is fully briefed, and oral argument is expected to be held in
January or February, 2000.
On June 14, 1999, PSNH and various parties in New Hampshire
announced that a "Memorandum of Understanding" had been reached that is
intended to result in a detailed settlement proposal to the NHPUC that
would resolve PSNH's claims against the NHPUC's restructuring plan. On
July 6, 1999, PSNH petitioned the Court to stay its proceedings
indefinitely while the proposed settlement is reviewed and approved by
the NHPUC and the New Hampshire Legislature. On July 12, 1999, the
Company and Connecticut Valley objected to any stay that would allow the
NHPUC's rate freeze order to remain in effect for an extended period and
asked the Court to proceed with prompt hearings on its summary judgement
motion and trial on the merits. On October 20, 1999 the Court heard oral
arguments pertaining to the pretrial motions of the Company and the
NHPUC for summary judgement and dismissal, respectively. The Court took
the matters under advisement and indicated that a written order would
ensue.
FERC Proceedings
The Company filed an application with the FERC in June 1997, to
recover stranded costs in connection with its wholesale rate schedule
with Connecticut Valley and a notice of cancellation of the Connecticut
Valley rate schedule (contingent upon the recovery of the stranded costs
that would result from the cancellation of this rate schedule). In
December 1997, the FERC rejected the Company's proposal to recover
stranded costs through the imposition of a surcharge on our transmission
tariff, but indicated that it would consider an exit fee mechanism for
collecting stranded costs. The FERC denied the Company's motion for a
rehearing regarding the surcharge proposal, so the Company filed a
request with the FERC for an exit fee mechanism to collect the stranded
costs resulting from the cancellation of the contract with Connecticut
Valley. The stranded cost obligation sought to be recovered through an
exit fee, expressed on a net present value basis as of January 1, 1999,
is approximately $48.0 million. During April and May 1999, nine days of
hearings were held at the FERC before an Administrative Law Judge, who
will determine, among other things, whether Connecticut Valley qualifies
for an exit fee, and if so, the amount of Connecticut Valley's stranded
cost obligation to be paid to the Company as an exit fee. The ruling of
the administrative law judge is expected later this year, and the FERC
will act on the judge's recommendations sometime thereafter.
If the Company is unable to obtain an order authorizing the
recovery of costs in connection with the June 1997 FERC filing or in the
Federal Court, it is possible that the Company would be required to
recognize a pre-tax loss under this contract totaling approximately
$60.0 million on a pre-tax basis. The Company would also be required to
write-off approximately $4.0 million (pre-tax) in regulatory assets
associated with its wholesale business. However, even if the Company
obtains a FERC order authorizing the updated requested exit fee, if
Connecticut Valley is unable to recover its costs by increasing its
rates, Connecticut Valley would be required to recognize a loss under
this contract of approximately $48.0 million (pre-tax) representing
future underrecovery of power costs.
In addition to its efforts before the Court and FERC, Connecticut
Valley has initiated efforts and will continue to work for a negotiated
settlement with parties to the New Hampshire restructuring proceeding
and the NHPUC. On September 14 and 15, 1998 the Company participated in
a settlement conference with an Administrative Law Judge assigned for
the settlement process at the FERC and the parties to the Company's exit
fee filing.
An adverse resolution of these proceedings would have a material
adverse effect on the Company's results of operations and cash flows.
However, the Company cannot predict the ultimate outcome of this matter.
Note 4 - Segment Reporting
The Company adopted SFAS No.131,"Disclosures about Segments of an
Enterprise and Related Information," effective for financial statements
for periods beginning after December 15, 1997. Operating segments are
defined as components of an enterprise about which separate financial
information is available that is evaluated regularly by the chief
operating decision maker, or decision making group, in deciding how to
allocate resources and in assessing performance. The Company's chief
operating decision making group is the Board of Directors, which is
comprised of nine Directors including the Chairman of the Board and the
Company's President and Chief Executive Officer. The operating segments
are managed separately because each operating segment represents a
different retail rate jurisdiction or offers different products or
services.
The Company's reportable operating segments include Central Vermont
Public Service Corporation, or Central Vermont which engages in the
purchase, production, transmission, distribution and sale of electricity
in Vermont; Connecticut Valley Electric Company Inc., or Connecticut
Valley which distributes and sells electricity in parts of New
Hampshire; and Catamount Energy Corporation, or Catamount which has
investments is energy generation projects in the United States and Great
Britain. Connecticut Valley, while managed on an integrated basis with
Central Vermont, is presented separately because of its separate and
distinct regulatory jurisdiction. Other operating segments include
segments below the quantitative threshold for separate disclosure. These
operating segments are SmartEnergy Services, Inc. which invests in
unregulated energy and service related businesses, and C. V. Realty,
Inc., a real estate company whose purpose is to own, acquire, buy, sell
and lease real and personal property and interests therein related to
the utility business.
The accounting policies of the operating segments are the same as
those described in Notes 1 and 15 to Consolidated Financial Statements
included in the Company's 1998 Annual Report on Form 10-K filed with the
Securities and Exchange Commission. Intersegment revenues include sales
of purchased power to Connecticut Valley and revenues for support
services to Connecticut Valley, Catamount and SmartEnergy. These
intersegment sales and services for each jurisdiction are based on
actual rates or current costs. The Company evaluates performance based
on standalone operating segment net income.
Financial information by industry segment for the three and nine months
ended September 30, 1999 and 1998, is as follows (dollars in thousands):
<TABLE>
<CAPTION>
Reclassifications
Central Vermont Connecticut Valley All & Consolidating
Vermont New Hampshire Catamount Other<F1> Entries Consolidated
--------------- ------------------ --------- -------- ----------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Three Months Ended September 30
1999
Revenues from external
customers $108,813 $ 4,408 $ 140 $ 1,097 $(1,237) $113,221
Intersegment revenues 2,858 - - - (2,858) -
Net income (loss) 459 159 334 (542) - 410
Total assets 520,374 12,247 41,298 9,107 (6,372) 576,654
1998
Revenues from external
customers $ 64,348 $ 5,176 $ 193 $ 448 $ (643) $ 69,522
Intersegment revenues 2,994 - - - (2,994) -
Net income (loss) (697) 51 799 (382) - (229)
Total assets 462,563 13,081 42,768 3,708 (4,939) 517,181
Reclassifications
Central Vermont Connecticut Valley All & Consolidating
Vermont New Hampshire Catamount Other<F1> Entries Consolidated
--------------- ------------------ --------- -------- ----------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Nine Months Ended September 30
1999
----
Revenues from external
customers $289,293 $15,710 $ 436 $ 5,383 $(5,820) $305,002
Intersegment revenues 9,313 - - - (9,313) -
Net income (loss) 12,558 483 1,247 (732) - 13,556
Total assets 520,374 12,247 41,298 9,107 (6,372) 576,654
1998
----
Revenues from external
customers $203,564 $16,325 $ 327 $ 1,395 $(1,725) $219,886
Intersegment revenues 9,768 - - - (9,768) -
Net income (loss) (758) 4,508 2,075 (1,242) - 4,583
Total assets 462,563 13,081 42,768 3,708 (4,939) 517,181
<F1>Includes segments below the quantitative threshold for separate disclosure.
</TABLE>
Note 5 - Investment in Vermont Yankee Nuclear Power Corporation
The Company accounts for its investment in Vermont Yankee using the
equity method. Summarized financial information for Vermont Yankee
Nuclear Power Corporation follows:
Three Months Ended Nine Months Ended
September 30 September 30
1999 1998 1999 1998
Operating revenues $49,029 $43,186 $139,182 $152,269
Operating income $ 3,651 $ 3,929 $ 11,044 $ 11,639
Net income $ 1,580 $ 1,816 $ 4,874 $ 5,324
Company's equity in net
income $463 $594 $ 1,504 $ 1,643
On October 15, 1999 the Company and the other owners of Vermont
Yankee accepted a bid for sale of the plant to AmerGen Energy Co.,
which is owned by PECO Energy Company and British Energy. This
transaction will also involve the Company entering into a contract to
purchase a portion of the power produced by this plant. The Vermont
Yankee sale needs to be approved by various state and federal regulatory
bodies. If the Company receives necessary approvals the transaction is
expected to be completed by Summer 2000.
<PAGE>
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,
Principal Financial Officer and Treasurer
By James M. Pennington
James M. Pennington, Vice President, Controller
and Principal Accounting Officer
Dated December 17, 1999
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, Senior Vice President, Principal
Financial Officer and Treasurer
By
James M. Pennington, Vice President, Controller
and Principal Accounting Officer
Dated December 17, 1999
