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 3, 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
Report of the Working Group on Vermont's Electricity Future:
On July 22, 1998, Governor Dean issued an Executive Order
establishing a Working Group on Vermont's Electricity Future (the
"Working Group") to lead a new effort to review the issues of
potential restructuring of Vermont's electric industry. The
Working Group was created to determine how restructuring the
electric industry in Vermont can reduce both current and long-term
electric costs for all classes of Vermont electric
consumers. The Working Group was asked to provide a fact-based
analysis of the options for electric industry restructuring and
the impact of such industry changes on consumers and upon Vermont
utilities. Further, the Working Group was directed by Governor
Dean to gather information on and evaluate the possible
consequences of the current financial status of Vermont electric
utilities. The Working Group was asked to complete its review
and report back to Governor Dean and to legislative leaders by
December 15, 1998.
A report was issued by the Working Group on December 18,
1998. Key conclusions of its report are:
1. Vermont should restructure its electric industry by moving
rapidly to retail choice whereby consumers would purchase power
directly from competing power suppliers.
2. Bankruptcy of Vermont electric utilities should not be viewed
as an appropriate means to reduce Vermont utilities' above market
power supply costs.
3. Vermont electric utilities should pursue power contract
renegotiations through payments to buy down power contracts or
buy-out power contracts. Financing for such payments should be
obtained in the capital markets after a comprehensive regulatory
process dealing with all of the elements of the restructuring of
the Vermont electric utility industry.
4. The Vermont electric utilities should pursue auctions of
their power generation assets and remaining power contracts.
5. Consolidation of existing electric utilities in Vermont
(there are currently 22 utilities) should be pursued in order to
effect additional savings for utility customers.
The Working Group noted that by March 1, 2000, most
New Englanders outside Vermont will have a choice of their power
supplier. While New England has the highest rates in the nation,
electricity costs in Vermont have been among the lowest in the
region. However, that advantage is eroding as other states in
New England restructure their industries. Therefore, the Working
Group recommends that it is in the interest of Vermont ratepayers
to have the benefit of a restructured electric utility industry
as soon as possible.
The Company has signed a confidentiality and cooperation
agreement with Green Mountain Power and Citizens Utilities to
permit an exchange of information to evaluate the possibility of
consolidating the Vermont operations of the three utilities. In
addition, the Washington Electric Cooperative has recommended
that consideration be given to its acquiring Vermont's investor
owned utilities and converting them to a cooperative ownership
structure.
The Company supports the Working Group recommendations and
will work with the Vermont Public Service Board (PSB) and other
parties to implement the plan. However, it is uncertain at this
time whether the plan or its key elements including consolidation
will ultimately be implemented.
Vermont Retail Rate Increase:
On December 11, 1998, the PSB approved the retail rate
increase agreement reached by the Company and the Vermont
Department of Public Service on October 27, 1998.
The agreement provides 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 January 1, 1999
and sets the Company's allowed return on common equity in its
Vermont retail business at 11%. The rate increase is temporary
insofar as it is subject to adjustment upon future resolution of
the Hydro-Quebec Contract issues presently before the Vermont
Supreme Court (VSC). The Company anticipates a resolution of
the Hydro-Quebec issues by the end of 1999.
The agreement incorporates a disallowance of approximately
$7.4 million for the Company's purchased power costs under the
Hydro-Quebec Contract while the VSC reviews the PSB denial of the
Company's claim that the PSB is precluded from again trying the
Company on certain Hydro-Quebec Contract issues. Upon approval
of the agreement by the PSB, the Company, during the fourth
quarter of 1998, recorded a loss of approximately $7.4 million on
a pre-tax basis for purchased power expense, representing the
Company's estimated loss on the Hydro-Quebec power contract for
the twelve months following December 31, 1998.
Historically, the Company has prepared its financial
statements in accordance with Statement of Accounting Standards
(SFAS) No. 71, "Accounting for the Effects of Certain Types of
Regulation," as amended. In order for the Company to report
under SFAS No. 71, the Company's rates must be designed to
recover its costs of providing service, and the Company must be
able to collect those rates from customers. If rate recovery of
these costs becomes unlikely or uncertain, whether due to
competition or regulatory action, these accounting standards may
no longer apply to the Company 's regulated operations. In the
event the Company determines that it no longer meets the criteria
for applying SFAS No. 71, the accounting impact would be an
extraordinary non-cash charge to operations of an amount that
would be material. Based on a current evaluation of the various
factors and conditions that are expected to impact future cost
recovery, including the agreement discussed above, management
believes that its regulatory assets are probable of future
recovery in the State of Vermont for the Company's retail
business.
Fuel Adjustment Clause and Purchased Power Cost Adjustment
(FAC/PPCA):
On November 24, 1998, Connecticut Valley Electric
Company Inc. (Connecticut Valley) filed with the New Hampshire
Public Utilities Commission (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 increase 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. The NHPUC also ordered Connecticut Valley to file a
compliance filing in conformance with this Order no later than
January 15, 1999. In addition, the NHPUC also ordered that
Connecticut Valley shall 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 and that these proceedings are continued
until further notice. For additional information regaring the
Federal District Court Order, see the Company's third quarter
1998 Form 10-Q.
First Circuit Decisions:
On December 3, 1998, the United States Court of Appeals
(Court) for the First Circuit announced its decisions on the
appeals taken by the NHPUC from the preliminary injunctions
issued by the Federal District Court in Rhode Island. Those
preliminary injunctions had stayed implementation of the NHPUC's
plan to restructure the New Hampshire electrical industry and
required the NHPUC to allow the Company's wholly-owned
subsidiary, Connecticut Valley, to recover through its retail
rates the full cost of wholesale power obtained from the Company.
In the appeal taken from the preliminary injunction staying
restructuring until the plaintiff utilities' claims (including
those of the Company and Connecticut Valley) are fully tried, the
Court affirmed. The Court found that the Public Service Company
of New Hampshire (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 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 as strong arguments against restructuring as PSNH because
they did not have formal agreements with the State similar to
PSNH's Rate Agreement. The Court stated that if the district
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
denied the petition on January 13, 1999.
The Court reversed the district 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 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 explained that the filed-rate doctrine
preserving the exclusive jurisdiction of the Federal Energy
Regulatory Commission 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 specifically
stated, however, that upon the vacating of the preliminary
injunction the NHPUC could only freeze Connecticut Valley's rates
at their 1997 level.
On December 17, 1998, Connecticut Valley and the Company
filed a petition for rehearing on the grounds that the Court had
not given sufficient weight to the district court's factual
findings and that the Court had misapprehended both factual and
legal issues. Connecticut Valley and the Company also asked that
the entire Court, 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 denied
the petition for rehearing.
Connecticut Valley and the Company then requested the Court
to stay the issuance of its mandate until the companies file a
petition of certiorari to the United States Supreme Court and the
Supreme Court acts on the petition.
On January 22, 1999, the Court denied the companies'
request. However, the Court granted a 21-day stay to enable the
Company to seek a stay pending certiorari from the Circuit
Justice on the Supreme Court. The Company will seek a stay of
the mandate on or before February 12, 1999, which will stay the
mandate until the Circuit Justice rules on the motion. At the
same time, Connecticut Valley and the Company plan to submit a
petition of certiorari to the United States Supreme Court.
If the mandate is not stayed, the Company believes the NHPUC
will re-establish Connecticut Valley's rates on a non cost-of-service basis.
As a result, Connecticut Valley would no longer
qualify for the application of SFAS No. 71, and would have to
write-off all its regulatory assets associated with its
New Hampshire retail business estimated at approximately
$1.4 million on a pre-tax basis as of December 31, 1998.
In addition, if Connecticut Valley's rates are retroactively
reduced back to the level prevailing on December 31, 1997,
Connecticut Valley would have to record a loss for an estimated
$4.5 million pre-tax for disallowed power costs during calendar
year 1999 and refund obligations back to May 1, 1998.
If the NHPUC re-establishes Connecticut Valley's rates on a
non cost-of-service basis, 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 Citizen's Bank of New Hampshire the right to
accelerate the repayment of a $3.75 million loan with Connecticut
Valley.
Although no trial date has yet been set, trial in the
District Court could be held as early as March of this year on
the Company and Connecticut Valley's request for a permanent
injunction. Such an injunction, if granted, would require the
NHPUC to allow Connecticut Valley to recover the full cost of the
wholesale power obtained from the Company through its retail
rates. However, the Company cannot predict the outcome of this
or any of the other related litigation.
Other:
Carl E. Horton, Sr. who has been a member of the Company's
Board of Directors advisory council since August 1, 1998 has
chosen, for business reasons, not to be a candidate for
directorship at the Company's Annual Meeting of Stockholders to
be held May 4, 1999.
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 the Vermont Legislature,
regulators in Vermont and New Hampshire, the Federal Energy
Regulatory Commission as well as the litigation discussed herein.
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
February 1, 1999
