SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
__________________________
FORM 10-Q
X Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended March 31, 1998
or
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 1-8291
GREEN MOUNTAIN POWER CORPORATION
(Exact name of registrant as specified in its charter)
Vermont 03-0127430
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
25 Green Mountain Drive
South Burlington, VT 05403
Address of principal executive offices (Zip Code)
Registrant's telephone number, including area code (802) 864-5731
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.
Class - Common Stock Outstanding March 31, 1998
$3.33 1/3 Par Value 5,207,162
GREEN MOUNTAIN POWER CORPORATION
Consolidated Comparative Balance Sheets
Part 1 - Item 1
<TABLE>
<CAPTION>
March 31 December 31
----------------------------------- ----------------
1998 1997 1997
---------------- ---------------- ----------------
(Unaudited) (In thousands)
(In thousands)
ASSETS
<S> <C> <C> <C>
Utility Plant
Utility plant, at original cost.................... $265,137 $248,514 $265,441
Less accumulated depreciation...................... 90,287 83,652 87,689
---------------- ---------------- ----------------
Net utility plant................................ 174,850 164,862 177,752
Property under capital lease....................... 8,342 9,006 8,342
Construction work in progress...................... 12,607 17,073 10,626
---------------- ---------------- ----------------
Total utility plant, net......................... 195,799 190,941 196,720
---------------- ---------------- ----------------
Other Investments
Associated companies, at equity ................... 15,497 15,776 15,860
Other investments.................................. 5,838 5,137 6,137
---------------- ---------------- ----------------
Total other investments.......................... 21,335 20,913 21,997
---------------- ---------------- ----------------
Current Assets
Cash and cash equivalents.......................... 15,371 7,068 118
Accounts receivable, customers and others,
less allowance for doubtful accounts............. 16,019 17,002 17,365
Accrued utility revenues .......................... 6,075 5,870 6,505
Fuel, materials and supplies, at average cost...... 3,487 3,607 3,261
Prepayments........................................ 9,723 1,783 1,563
Other.............................................. 312 348 313
---------------- ---------------- ----------------
Total current assets............................. 50,987 35,678 29,125
---------------- ---------------- ----------------
Deferred Charges
Demand side management programs.................... 12,632 15,599 13,692
Purchased power costs.............................. 4,278 8,377 4,283
Other.............................................. 12,962 11,703 9,415
---------------- ---------------- ----------------
Total deferred charges........................... 29,872 35,679 27,390
---------------- ---------------- ----------------
Non-Utility
Cash and cash equivalents.......................... 93 143 153
Other current assets............................... 8,263 4,366 11,501
Property and equipment............................. 1,222 11,702 10,784
Intangible assets.................................. 21 2,239 2,116
Equity investment in energy related businesses..... 12,316 12,239 12,824
Other assets....................................... 4,847 8,232 4,682
---------------- ---------------- ----------------
Total non-utility assets......................... 26,762 38,921 42,060
---------------- ---------------- ----------------
Total Assets........................................... $324,755 $322,132 $317,292
================ ================ ================
CAPITALIZATION AND LIABILITIES
Capitalization
Common Stock Equity
Common stock,$3.33 1/3 par value,
authorized 10,000,000 shares (issued
5,223,018, 5,081,407 and 5,195,432)........... $17,544 $16,919 $17,318
Additional paid-in capital....................... 70,995 68,732 70,720
Retained earnings................................ 21,884 27,187 26,717
Treasury stock, at cost (15,856 shares).......... (378) (378) (378)
---------------- ---------------- ----------------
Total common stock equity...................... 110,045 112,460 114,377
Redeemable cumulative preferred stock.............. 17,735 19,310 17,735
Long-term debt, less current maturities............ 90,200 94,900 93,200
---------------- ---------------- ----------------
Total capitalization........................... 217,980 226,670 225,312
---------------- ---------------- ----------------
Capital lease obligation............................... 8,342 9,006 8,342
---------------- ---------------- ----------------
Current Liabilities
Current maturuties of long-term debt............... 4,700 1,700 1,700
Short-term debt.................................... 8,016 816 2,616
Accounts payable, trade, and accrued liabilities... 7,203 4,402 6,828
Accounts payable to associated companies........... 8,020 6,913 7,661
Dividends declared................................. 352 381 350
Customer deposits.................................. 733 670 721
Taxes accrued...................................... 813 3,149 2,843
Interest accrued................................... 2,073 2,090 1,311
Deferred revenues ................................. 5,773 5,989 --
Other.............................................. 4,763 795 1,256
---------------- ---------------- ----------------
Total current liabilities...................... 42,446 26,905 25,286
---------------- ---------------- ----------------
Deferred Credits
Accumulated deferred income taxes.................. 24,119 26,500 23,501
Unamortized investment tax credits................. 4,472 4,749 4,542
Other.............................................. 17,759 15,708 17,239
---------------- ---------------- ----------------
Total deferred credits......................... 46,350 46,957 45,282
---------------- ---------------- ----------------
Non-Utility
Current liabilities................................ 1,543 1,142 1,119
Other liabilities.................................. 8,094 11,452 11,951
---------------- ---------------- ----------------
Total non-utility liabilities.................. 9,637 12,594 13,070
---------------- ---------------- ----------------
Total Capitalization and Liabilities................... $324,755 $322,132 $317,292
================ ================ ================
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
GREEN MOUNTAIN POWER CORPORATION
Consolidated Comparative Income Statements
(Unaudited)
Part 1 - Item 1
<TABLE>
<CAPTION>
Three Months Ended
March 31
-----------------------------------------
1998 1997
----------------- -----------------
(In thousands, except amounts per share)
<S> <C> <C>
Operating Revenues ............................................. $46,932 $47,204
----------------- -----------------
Operating Expenses
Power Supply
Vermont Yankee Nuclear Power Corporation .................. 7,980 7,766
Company-owned generation................................... 2,835 846
Purchases from others...................................... 23,042 17,780
Other operating............................................... 4,416 4,235
Transmission.................................................. 2,261 3,046
Maintenance................................................... 1,202 1,118
Depreciation and amortization................................. 4,424 4,241
Taxes other than income....................................... 1,957 1,916
Income taxes.................................................. (1,501) 2,005
----------------- -----------------
Total operating expenses................................... 46,616 42,953
----------------- -----------------
Operating income......................................... 316 4,251
----------------- -----------------
Other Income (Expense)
Equity in earnings (loss)of affiliates and non-utility
operations.................................................. (573) 419
Allowance for equity funds used during construction........... 53 194
Other income and deductions, net.............................. (919) 282
----------------- -----------------
Total other income (expense)................................ (1,439) 895
----------------- -----------------
Income (loss) before interest charges..................... (1,123) 5,146
----------------- -----------------
Interest Charges
Long-term debt................................................ 1,799 1,864
Other......................................................... 217 76
Allowance for borrowed funds used during construction........ (74) (109)
----------------- -----------------
Total interest charges...................................... 1,942 1,831
----------------- -----------------
Net Income (Loss)............................................... (3,065) 3,315
Dividends on preferred stock.................................... 340 374
----------------- -----------------
Net Income (Loss) Applicable to Common Stock.................... ($3,405) $2,941
================= =================
Common Stock Data
Basic earnings (loss) per share............................... ($0.66) $0.58
Cash dividends declared per share............................. $0.275 $0.53
Weighted average shares outstanding........................... 5,196 5,044
Consolidated Comparative Statements of Retained Earnings
(Unaudited)
Balance - beginning of period................................... $26,717 $26,916
Net Income (Loss)............................................... (3,065) 3,315
----------------- -----------------
23,652 30,231
----------------- -----------------
Cash Dividends - redeemable cumulative preferred stock.......... 340 374
- common stock................................... 1,428 2,670
----------------- -----------------
1,768 3,044
----------------- -----------------
Balance - end of period......................................... $21,884 $27,187
================= =================
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
GREEN MOUNTAIN POWER CORPORATION
Consolidated Statements of Cash Flows
(Unaudited)
Part 1 - Item 1
<TABLE>
<CAPTION>
Three Months Ended
March 31
---------------------------------------
1998 1997
----------------- -----------------
(In thousands)
<S> <C> <C>
Operating Activities:
Net Income (Loss).................................................... ($3,158) $3,315
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization.................................... 4,424 4,241
Dividends from associated companies less equity income........... 362 (7)
Allowance for funds used during construction..................... (142) (303)
Deferred purchased power costs................................... (1,981) (14)
Amortization of purchased power costs............................ 1,089 (165)
Deferred income taxes............................................ 746 (99)
Deferred revenues ............................................... 5,773 5,989
Amortization of investment tax credits........................... (71) (76)
Environmental proceedings costs.................................. (595) (417)
Conservation expenditures........................................ (382) (607)
Changes in:
Accounts receivable............................................ 1,347 731
Accrued utility revenues....................................... 430 792
Fuel, materials, and supplies.................................. (226) 14
Prepayments and other current assets........................... (4,922) 130
Accounts payable............................................... 734 (1,445)
Taxes accrued.................................................. (2,029) 2,163
Interest accrued............................................... 762 708
Other current liabilities...................................... 4,038 (623)
Other............................................................ (2,027) 368
----------------- -----------------
Net cash provided by operating activities.......................... 4,172 14,695
----------------- -----------------
Investing Activities:
Construction expenditures.......................................... (3,048) (3,553)
Investment in nonutility property.................................. 420 (252)
Proceeds from sale of propane subsidiary........................... 11,500 --
----------------- -----------------
Net cash provided by (used in) investing activities.............. 8,872 (3,805)
----------------- -----------------
Financing Activities:
Issuance of common stock........................................... 500 635
Short-term debt, net............................................... 5,400 (200)
Reduction in long-term debt........................................ (1,983) (1,819)
Cash dividends..................................................... (1,768) (3,044)
----------------- -----------------
Net cash provided by (used in) financing activities.............. 2,149 (4,428)
----------------- -----------------
Net increase in cash and cash equivalents.......................... 15,193 6,462
Cash and cash equivalents at beginning of period................... 271 749
----------------- -----------------
Cash and cash equivalents at end of period............................. $15,464 $7,211
================= =================
Supplemental Disclosure of Cash Flow Information:
Cash paid year-to-date for:
Interest (net of amounts capitalized)........................... $1,190 $1,176
Income taxes.................................................... 6 158
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
GREEN MOUNTAIN POWER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1998
Part 1 -- ITEM 1
1. SIGNIFICANT ACCOUNTING POLICIES
Pursuant to an order of the Vermont Public Service Board (VPSB), the
Company's rate structure is seasonally differentiated, with higher rates
billed during the four winter months and lower rates billed during the
remaining eight months of the year. In order to match revenues with
related costs more accurately on an interim basis, the Company
recognizes revenue in a manner that seeks to eliminate the impact of
such seasonally differentiated rates. At March 31, 1998 and 1997, the
Company had recorded deferred revenues of $5.8 million and $6.0 million,
respectively, in accordance with this policy. These deferred revenues
are recognized in subsequent interim periods.
Included in equity in earnings of affiliates and non-utility operations
in the Other Income section of the Consolidated Comparative Income
Statements are the results of operations of the Company's rental water
heater program, which is not regulated by the VPSB, and five of the
Company's wholly-owned subsidiaries, Green Mountain Propane Gas Company
(GMPG), Mountain Energy, Inc., GMP Real Estate Corporation, Green
Mountain Resources, Inc. and Lease-Elec, Inc., all of which are
unregulated. On March 16, 1998, the Company sold all assets of GMPG to
VGS Propane LLC. The sale did not have a material impact on the
Company's results of operations. Summarized financial information for
the rental water heater program and such wholly-owned subsidiaries is as
follows:
Three Months Ended
March 31
-------------------
1998 1997
---- ----
(In Thousands)
Revenue . . . . . . . . . . . . . . . . . . . . . $ 1,869 $3,537
Expenses . . . . . . . . . . . . . . . . . . . . . 2,928 3,677
-------- -------
Net Income . . . . . . . . . . . . . . . . . . . . $(1,059) $ (140)
======== =======
2. INVESTMENT IN ASSOCIATED COMPANIES
The Company accounts for its investment in the companies listed below
using the equity method. Summarized financial information is as
follows:
Vermont Yankee Nuclear Power Corporation
Three Months Ended
March 31
--------------------
1998 1997
---- ----
(In Thousands)
Gross Revenue . . . . . . . . . . . . . . . . . $51,170 $40,421
Net Income Applicable
to Common Stock . . . . . . . . . . . . . . . 1,702 1,775
Company's Equity in
Net Income . . . . . . . . . . . . . . . . . 298 337
Vermont Electric Power Company, Inc.
Three Months Ended
March 31
---------------------
1998 1997
---- ----
(In Thousands)
Gross Revenue . . . . . . . . . . . . . . . . . . .$11,820 $12,436
Net Income
Before Dividends . . . . . . . . . . . . . . . . 286 429
Company's Equity in
Net Income (Includes preferred equity) . . . . . . 67 113
3. ENVIRONMENTAL MATTERS
Public concern for the environment has resulted in increased government
regulation of the licensing and operation of electric generation,
transmission and distribution facilities. The electric industry
typically uses or generates a range of potentially hazardous products in
its operations. The Company must meet various land, water, air and
aesthetic requirements as administered by local, state and federal
regulatory agencies. The Company maintains an environmental compliance
and monitoring program that includes employee training, regular
inspection of Company facilities, research and development projects,
waste handling and spill prevention procedures and other activities.
Subject to developments concerning the Pine Street Barge Canal site
discussed in the Company's Annual Report on Form 10-K for the year ended
December 31, 1997 under the caption -"Management's Discussion and
Analysis of Financial Condition and Results of Operations-Environmental
Matters", and below. The Company believes that it is in substantial
compliance with such requirements, and no material complaints concerning
compliance by the Company with present environmental protection
regulations are outstanding.
As of March 31, 1998, total expenditures for the Pine Street Barge Canal
site were $15.6 million, inclusive of the $11.7 million as previously
described in the Company's Annual Report on Form 10-K for year ended
December 31, 1997, of which $5.4 million has been amortized.
As previously stated in the Company's Annual Report on Form 10-K for
year ended December 31, 1997, past response cost claims of the EPA in an
amount exceeding $11 million (including interest) have been asserted
against the Company. Upon the request of the government, the Company
initiated fast-track negotiations with the EPA and the Department of
Justice concerning those claims and certain contribution claims by the
Company against the government during the first quarter of 1998. Those
negotiations are continuing.
In an Order released March 2, 1998, the VPSB suspended the amortization
of expenditures associated with the Pine Street Barge Canal site pending
further proceedings. Although it did not eliminate the rate base
deferral of these expenditures, or make any specific order in this
regard, the VPSB indicated that it was inclined to agree with other
parties in the case that the ultimate costs of the Pine Street Barge
Canal, taking into account recoveries from insurance carriers and other
PRP's, should be shared between customers and shareholders of the
Company.
4. 1997 Retail Rate Case
On June 16, 1997, the Company filed a request with the VPSB to increase
retail rates by 16.7 percent ($26 million in additional annual revenues)
and the target return on common equity from 11.25 percent to 13 percent.
The Company had sought in its final submissions to the VPSB an increase
of 14.4 percent ($22 million) in revenue to cover increased cost of
service. On March 2, 1998, the VPSB released its Order dated February
27, 1998 in the Company's pending rate case. The VPSB authorized the
Company to increase rates by 3.61 percent, resulting in increased annual
revenues of $5.6 million.
Approximately $11 million of the shortfall from the Company's revenue
request resulted primarily from the VPSB's modification of the Company's
calculation of rate base, the exclusion of future capital projects from
rate base, various cost of service reductions in areas of payroll and
operations and maintenance, and a reduction in the requested allowed
return on equity from 13 percent to 11.25 percent. Furthermore, the
VPSB denied the recovery by the Company of $5.48 million in costs
related to its Hydro-Quebec power contract. The decision stated that
the Company had been imprudent in entering into the power contract in
August 1991 and that the contract power would not be used and useful to
utility customers to the extent that power costs, after accounting for
the imprudence disallowance, were in excess of current estimates of
market prices for power. In the first quarter of 1998, the Company has
expensed $4.6 million of the $5.48 million VPSB disallowances of
purchased power costs. The Company was able to limit the amount
expensed to $4.6 million inasmuch as it anticipates that new rates will
be come effective in January 1999. The eventual realization of that
loss, if any, will depend upon the resolution of the Company's 1998 rate
case, filed on May 8, 1998. (See Note 5 of the Notes to Consolidated
Financial Statements.)
The Order discussed the VPSB's policies of disallowing the recovery of
imprudent expenditures and power contract purchases that it determines
not to be used and useful. However, the Order also stated that the
methodologies and measures used in this rate case were provisional and
applicable in the current proceeding only. The VPSB went on to state
that it will schedule subsequent proceedings to examine the appropriate
methodologies for measuring the effects of imprudence and calculating
the portion of the contract that is not used and useful. If the VPSB
were to apply the methodologies and measures used in the Order (or
similar methodologies and measures) to future power contract costs,
notwithstanding its statement that it will reexamine such matters, the
Company would be required under Statement of Financial Accounting
Standards No. 5, Accounting for Contingencies, to record an expense of
approximately $180 million (pretax) based on the estimated future market
price of power used by the VPSB in its Order. However, the Company will
not be able to estimate the loss to be recorded, if any, until the
reconsideration and appeal processes and such subsequent proceedings are
completed.
Furthermore, if the VPSB's ruling, that above-market Hydro-Quebec power
contract costs are not used and useful and should be shared equally
between ratepayers and shareholders, is not modified in future
regulatory proceedings, then the Company's rates may be set,
effectively, on a basis other than its costs to provide service. This
would require the Company to discontinue the application of Statement of
Financial Accounting Standards No. 71, Accounting for the Effect of
Certain Types of Regulation, resulting in the write-off of regulatory
assets and liabilities with a charge to earnings, as an extraordinary
item. Based on the March 31, 1998 balance sheet, the Company would be
required to take a charge to earnings of approximately $16 million
attributable to net regulatory assets.
In addition to the Hydro-Quebec power contract disallowances described
above, the Order also required the Company to create a deferred credit
for $9.1 million of payments received by the Company in 1997 pursuant to
two arrangements with Hydro-Quebec that were designed to decrease the
costs of the contract power. The Order, contrary to the VPSB's prior
Accounting Order dated December 31, 1996, required the Company to
amortize this deferred credit over the remaining lives of the related
power contracts. On May 12, 1998, the VPSB notified the Company, as
described below, that it would issue an order relieving the Company from
this ruling.
In response to the Order, the rating agencies that rate the Company's
fixed income securities have placed the Company's credit ratings on
their rating watch or rating outlook with negative implications.
The Company is exploring all legal and regulatory remedies open to it to
challenge the VPSB decision, including its request for reconsideration
from the VPSB and a direct appeal to the Vermont Supreme Court. The
Company believes that the decisions set forth in the Order are inaccurate
factually and incorrect legally. The VPSB's ruling, if not changed,
would have a significant impact on the Company's reported financial
condition and 1998 results of operations and, depending on the outcome of
future proceedings to be conducted by the VPSB, could impact the
Company's credit ratings, dividend policy and financial viability.
On March 20, 1998, the Company filed with the VPSB a Motion for
Reconsideration of and to Alter or Amend the VPSB's Order issued on
March 2, 1998. The principal areas in which the Company requested that
the VPSB change its ruling include the following: a correction to the
VPSB's calculation of the $5.48 million Hydro-Quebec contract power cost
disallowance; reversal of the accounting treatment specified by the VPSB
for cash payments made by Hydro-Quebec under arrangements that the
Company had previously negotiated in order to avoid rate increases in
prior years for customers; restoration of $418,000 of costs associated
with the construction of the Searsburg wind facility; restoration of
various other compensation and payroll costs; and reconsideration of the
Company's request to increase the allowed rate of return from 11.25
percent to 12 percent.
On May 12, 1998, in response to the Company's request for a ruling on
the pending motion in advance of the filing date for this report, the
VPSB furnished the Company with a letter stating that "GMP's motion to
amend the February 27, 1998 rate order with respect to the accounting
treatment given to $9.1 million of credits to the cost of service under
previously issued accounting orders, will be granted." The Company has
not yet received a complete order on its motion for reconsideration.
5. 1998 Retail Rate Case
On May 8, 1998, the Company filed a request with the VPSB to increase
retail rates by 12.93 percent. The retail rate increase is needed to
cover higher power supply costs, the cost of the January 1998 ice storm,
higher taxes and investments in new plant and equipment. If the VPSB
suspends the tariff filings, the new rates would be expected to become
effective as of January 1999.
6. SFAS 128
In March 1997, the Financial Standards Board issued a new accounting
standard, Statement of Financial Accounting Standards No. 128, Earnings
per Share (SFAS 128). SFAS 128, effective for financial statements
issued for annual periods ending after December 15, 1997, replaces the
definition of primary earnings per share, calculated in accordance with
the provisions of APB 15, with a new calculation, basic earnings per
share. Fully diluted earnings per share, now called diluted earnings
per share, is still required. Since the Company has not issued any
potentially dilutive securities, both calculations are the same.
7. COMPETITION AND RESTRUCTURING
For information regarding competition and restructuring, See
"Management's Discussion and Analysis of Financial Condition and Results
of Operations--Competition and Restructuring".
8. RECLASSIFICATION
Certain line items on the prior year's financial statement have been
reclassified for consistent presentation with the current year.
The Consolidated Financial Statements are unaudited
and, in the opinion of the Company, reflect the
adjustments necessary to a fair statement of the
results of the interim periods. All such
adjustments, except as specifically noted in the
Consolidated Financial Statements, are of a normal,
recurring nature.
GREEN MOUNTAIN POWER CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
MARCH 31, 1998
Part 1 -- ITEM 2
This section presents management's assessment of Green Mountain Power
Corporation's (the Company) financial condition and the principal
factors having an impact on the results of its operations. This
discussion should be read in conjunction with the consolidated financial
statements and notes thereto contained in this quarterly report. This
section contains forward-looking statements as defined under the
securities laws. Actual results could differ materially from those
projected. This section, particularly under "Competition and
Restructuring", lists some of the reasons why results could differ
materially from those projected.
RESULTS OF OPERATIONS
Earnings Summary
The loss per share of common stock in the first quarter of 1998 was
$0.66, compared to earnings of $0.58 per share in the first quarter of
1997. The decrease in earnings was primarily due to an accrual of $4.6
million (pretax) in losses related to the Company's long-term Hydro-
Quebec power contract, and the write off of $1.3 million of the
Company's investment in its Searsburg Wind facility, both of which
resulted from an order issued by the Vermont Public Service Board (VPSB)
in the Company's recent rate case.
The first quarter results were also adversely impacted by warmer than
normal temperatures and the performance of the Company's subsidiaries as
discussed below.
Operating Revenues and MWh Sales
Operating revenues, megawatthour (MWh) sales and average number of
customers are summarized as follows:
Three Months Ended
March 31
-------------------
1998 1997
---- ----
Operating Revenues (In thousands)
Retail . . . . . . . . . . . . . . . . . . . . $ 41,852 $ 41,678
Sales for Resale . . . . . . . . . . . . . . . 4,378 4,765
Other . . . . . . . . . . . . . . . . . . . . 702 761
-------- --------
Total Operating
Revenues . . . . . . . . . . . . . . . . . . $ 46,932 $ 47,204
======== ========
MWh Sales
Retail . . . . . . . . . . . . . . . . . . . . 475,702 476,612
Sales for Resale . . . . . . . . . . . . . . . 109,186 160,936
------- -------
Total MWh Sales . . . . . . . . . . . . . . . 584,888 637,548
======= =======
Average Number of Customers
Residential . . . . . . . . . . . . . . . . . 71,134 70,562
Commercial &
Industrial . . . . . . . . . . . . . . . 12,112 11,955
Other . . . . . . . . . . . . . . . . . . . 71 77
------ ------
Total Customers . . . . . . . . . . . . . . 83,317 82,594
====== ======
Total operating revenues decreased 0.6 percent in the first quarter of
1998 compared to the same period in 1997. Retail revenues increased 0.4
percent in the first quarter of 1998 compared to the same period in
1997. Retail revenues from the Company's commercial and industrial
customers increased 1.0 percent in 1998 resulting from a 1.4 percent
increase in sales to small commercial and industrial customers caused by
modest customer growth. Retail revenues from the Company's residential
customers decreased by 3.4 percent in 1998 resulting from a 4.4 percent
decrease in sales of electricity caused by winter temperatures that were
16 percent warmer than normal and 12 percent warmer than those in 1997.
Wholesale revenues decreased 8.1 percent in the first quarter of 1998
compared to the same period in 1997 primarily due to a reduction in low-
margin, off-system sales.
Operating Expenses
Power supply expenses increased 28.3 percent in the first quarter of
1998 compared to the same period in 1997. Company-owned generation
expenses increased more than threefold in the first quarter of 1998 over
the same period in 1997 primarily due to an increase in the usage of
high-cost generating facilities during a severe ice storm that crippled
much of Vermont, the Northeast United States and Quebec in early January
that replaced power that was unavailable from Hydro-Quebec. Power
purchased from others increased 29.6 percent in the first quarter of
1998 over the same period in 1997 primarily due to the accrual of $4.6
million (pretax) in losses related to the Company's long-term Hydro-
Quebec power contract, resulting from an order issued by the VPSB in the
Company's recent rate case.
Other operating expenses increased 4.3 percent in the first quarter of
1998 over the same period in 1997 primarily due to higher overhead costs
for the Company resulting from less overhead charged to Green Mountain
Resources, Inc., the subsidiary that holds an interest in Green Mountain
Energy Resources L.L.C.
Transmission expenses decreased 25.8 percent in 1998 compared to the
same period in 1997 primarily due to a refund received from Central
Vermont Public Service Corporation (CVPS), resulting from reduced levels
of demand on the CVPS transmission system in 1997 and lower charges in
1998 based on the same reduced usage.
Maintenance expenses increased 7.5 percent in the first quarter of 1998
over the same period in 1997 primarily due to an increase in scheduled
maintenance activity.
Depreciation and amortization expenses increased 4.3 percent in the
first quarter of 1998 over the same period in 1997 primarily due to
depreciation associated with additional investment in the Company's
utility plant.
Taxes other than income taxes increased 2.1 percent in the first quarter
of 1998 over the same period in 1997 primarily due to an increase in
municipal property taxes associated with the wind generating facility in
Searsburg, Vermont that went into commercial operation in June 1997. In
June 1997, the Governor signed legislation that changed the method of
municipal property taxation in Vermont. The legislation has resulted in
a statewide uniform property tax rate but provides localities the
flexibility to levy local taxes. Currently, Vermont municipalities are
evaluating the impact of this legislation on future tax assessments. The
Company is unable to predict at this time whether this legislation will
have a material impact on the Company's operations.
Income Taxes
Income taxes decreased in the first quarter of 1998 compared with the
same period in 1997 due to a decrease in taxable income.
Other Income
Other income decreased 260.9 percent in the first quarter of 1998
compared to the same period in 1997. Mountain Energy Inc, the Company's
wholly-owned subsidiary that invests in energy generation and energy and
waste water efficiency projects, experienced a loss in the first quarter
of 1998 which was $695,000 greater than the loss in the same period in
1997 primarily due to start-up operating losses incurred by Micronair
LLC, a company in which Mountain Energy held a 71 percent interest. At
the end of April, Mountain Energy's interest in Micronair increased to
85 percent.
Green Mountain Propane Gas Company, the Company's wholly-owned
subsidiary whose assets were sold to VGS Propane LLC on March 16, 1998,
experienced a $290,000 loss in the first quarter of 1998 compared to
income of $143,000 in 1997. The decrease in earnings was primarily due
to a reduction in revenues caused by warmer than normal winter weather
and a loss of $215,000 on the sale of its assets.
Other deductions increased by $1.2 million primarily due to a write-off
of $1.3 million in costs associated with the wind generating facility in
Searsburg that were disallowed by the VPSB.
Interest Charges
Interest charges increased 6.1 percent in the first quarter of 1998 over
the same period in 1997 primarily due to a higher amount of short-term
debt outstanding during the period. This increase was partially offset
by a reduction in long-term interest charges related to a lower amount
of long-term debt outstanding during the period.
LIQUIDITY AND CAPITAL RESOURCES
For the three months ended March 31, 1998, construction and conservation
expenditures totaled $3.4 million. Such expenditures in 1998 are
expected to be approximately $17.0 million, principally for expansion
and improvements of the Company's transmission and distribution plant,
for conservation measures and for management information systems.
At March 31, 1998, the Company had a revolving credit agreement in the
amount of $45 million with three banks, with borrowings outstanding of
$8.0 million. The Company is required to certify as a condition of
borrowing that no event shall have occurred that has had or would
reasonably be expected to have a material adverse effect since the date
of the last borrowing. In light of the current disallowances in the
VPSB's Order dated February 27, 1998, coupled with the accounting
treatment under SFAS 5 that might result if the VPSB were to apply the
methodologies and measures used in the Order (or similar methodologies
and measures) to future power contract costs, or under SFAS 71, if the
VPSB's used and useful ruling should not be modified, as previously
described, the Company could not provide the necessary certification
required for future borrowings under the current agreement, absent a
renegotiation of its terms.
Following discussions with the banks, modified terms were agreed to by
the Company and the banks in order to allow the Company to continue to
borrow until such time that the banks have determined that the Company
has successfully resolved the regulatory and contractual issues of the
Hydro-Quebec contract. The modified terms call for shortening the term
of the agreement to one year; securing the loans made pursuant to the
agreement by granting the banks a second priority mortgage, lien and
security interest in the collateral pledged under the Company's first
mortgage bond indenture; and increasing the interest rates, facility
fees and other fees required to be paid pursuant to the agreement.
On April 20, 1998, the Company filed for the necessary approvals of the
modified terms with the VPSB.
At March 31, 1998, the Company had lines of credit with two banks
totaling $8.0 million, with no borrowings outstanding. Borrowings under
these lines of credit are at interest rates based on various market
rates and are generally less than the prime rate. The Company has fee
arrangements on its line of credit ranging from 0 to 1/8 percent and no
compensating balance requirements. These lines of credit are subject to
periodic review and renewal during the year by the various banks.
Dividend Policy - On September 17, 1997, the Company's Board of
Directors announced a reduction in the quarterly dividend from $0.53 per
share to $0.275 per share on the Company's common stock.
The Company's dividend policy, which incorporates a target payout ratio
of 60 to 70 percent, reflects the greater risks facing the Company as a
result of the changing environment of the electric utility industry.
This policy contemplates a target payout that is in line with industry
trends and is comparable to that of other companies in the utility
industry. The policy assumes fair and appropriate ratemaking. However,
the disallowances contained in the VPSB's recent rate Order, if
continued, will require the Company to reassess the current dividend
level.
COMPETITION AND RESTRUCTURING
The electric utility business is being subjected to rapidly increasing
competitive pressures stemming from a combination of trends, including
the presence of surplus generating capacity, a disparity in electric
rates among and within various regions of the country, improvements in
generation efficiency, increasing demand for customer choice, and new
regulations and legislation intended to foster competition. For a
discussion of restructuring proceedings in Vermont, refer to the
Company's Annual Report on Form 10-K for the year ended December 31,
1997 - "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Future Outlook".
The 1998 session of the Vermont General Assembly adjourned on April 16,
1998 without enacting any restructuring legislation.
The Company cannot predict whether restructuring legislation, if enacted
in the future by the Vermont General Assembly, or any subsequent report
or actions of, or proceedings before, the VPSB or Vermont General
Assembly would have a material adverse effect on the Company's
operations, financial condition or credit ratings. The Company's
failure to recover a significant portion of its purchased power costs,
or to retain and attract customers in a competitive environment, would
likely have a material adverse effect on the Company's business,
including its operating results, cash flows and ability to pay dividends
at current levels.
YEAR 2000 COMPUTER COMPLIANCE
The Company utilizes software and related technologies throughout its
businesses that will be affected by the date change in the year 2000.
The Company is in the process of implementing new customer service and
financial systems which are year 2000 compliant. An internal study is
currently underway to determine the full scope and related costs to
insure that the Company's systems continue to meet its internal needs
and those of its customers. Maintenance or modification costs will be
expensed as incurred, while the costs of new software will be
capitalized and amortized over the software's useful life. These
expenditures may be significant and continue through the year 2000.
The Company expects to have achieved compliance with year 2000
requirements for its financial and operating systems by June 30, 1999.
Failure to comply by January 1, 2000 would have a material adverse
effect on the Company's operations.
GREEN MOUNTAIN POWER CORPORATION
March 31, 1998
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings
See Notes 3 and 4 of Notes to Consolidated Financial
Statements
ITEM 2. Changes in Securities and Use of Proceeds
NONE
ITEM 3. Defaults Upon Senior Securities
NONE
ITEM 4. Submission of Matters to a Vote of Security Holders
NONE.
ITEM 5. Other Information
NONE
ITEM 6. (a) EXHIBITS
27 Financial Data Schedule
(b) REPORTS ON FORM 8-K
A report on Form 8-K was filed on March 12,
1998 setting forth the financial and accounting
implications for the Company resulting from the
Vermont Public Service Board's rate Order
dated February 27, 1998.
GREEN MOUNTAIN POWER CORPORATION
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.
GREEN MOUNTAIN POWER CORPORATION
(Registrant)
Date: May 15, 1998 /s/ E. M. Norse
E. M. Norse, Vice President, Chief
Financial Officer and Treasurer
Date: May 15, 1998 /s/ R. J. Griffin
R. J. Griffin, Controller
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