SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 8-K
CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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Date of Report (Date of earliest event reported): November 18, 1998
GREEN MOUNTAIN POWER CORPORATION
(Exact Name of Registrant as Specified in its Charter)
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<S> <C>
VERMONT 03-0127430
(State or Other Jurisdiction of Incorporation) (I.R.S. Employer Identification Number)
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1-8291
Commission File Number
25 Green Mountain Drive,
South Burlington, Vermont 05403
(Address of Principal Executive Offices) (Zip Code)
(802) 864-5731
(Registrant's telephone number,
including area code)
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Item 5. Other events.
Pending Rate Case Stayed
On November 18, 1998, by Memorandum of Understanding (MOU), Green Mountain
Power Corporation (the Company), the Vermont Department of Public Service and
International Business Machines Corporation agreed to stay, effective November
16, 1998, rate proceedings in the Company's current rate case until or after
September 1, 1999, or such earlier date as the parties may later agree to or the
Vermont Public Service Board (VPSB) may order. The MOU provides for a 5.7
percent temporary retail rate increase, to produce $9.19 million in annualized
additional revenue, effective with service rendered December 15, 1998. An
additional surcharge will be permitted, without further VPSB order, in order to
produce additional revenues necessary to provide the Company with the capacity
to finance estimated 1999 Pine Street Barge Canal site expenditures of $5.84
million. In its May 8, 1998 rate case filing with the VPSB, the Company has
requested a 12.9 percent rate increase to produce approximately $20.8 million in
additional annual revenue. The Company's press release, dated November 18, 1998,
announcing the interim rate settlement is attached hereto as Exhibit 99(a) and
is incorporated by reference herein.
The MOU must be approved by the VPSB. The temporary rates, as adjusted by
any surcharge related to the Pine Street Barge Canal site described above, will
remain in effect until the VPSB issues a final order in the rate case docket.
The stay and suspension of this pending rate case and the temporary rate
levels agreed to in the MOU are designed to allow the Company to continue to
provide adequate and efficient service to its customers while it seeks
mitigation of its power supply costs.
Following the stay, which expires on September 1, 1999 or such earlier date
as agreed to by the parties or ordered by the VPSB, the remaining proceedings in
the case will commence and, as noted above, a final VPSB decision will be issued
on December 15, 1999. In the event that the VPSB issues a final order that
allows a retail rate increase that is less than the temporary rates, all sums
collected in excess of such final rates will be refunded by adjusting rates on a
prospective basis, by customer class, to reflect the appropriate refund amounts.
The MOU does not provide for any specific disallowance of power costs under
the Company's purchase power contract with Hydro-Quebec. Issues respecting
recovery of such power costs are preserved for future proceedings. The VPSB did
impose a power cost disallowance of $5.48 million (annualized) associated with
the Hydro-Quebec contract in the Company's last rate case. If the Company is
unable to demonstrate a reasonable possibility of mitigation of such power
costs, and absent further order from the
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VPSB, the Company would likely be required to recognize in the last quarter of
1998 a pre-tax charge equivalent to the $5.48 million Hydro-Quebec power cost
disallowance. If the VPSB imposes power cost disallowances greater than $5.48
million for 1999 in its final order in this rate case, potentially greater
charges could be recognized during 1999 and subsequent years.
The Company agreed not to file with the VPSB a petition requesting any
further increase in retail electric rates prior to September 1, 1999, except
that this MOU does not preclude the Company from filing a request for additional
temporary rate increases pursuant to 30 V.S.A. ss.226(a).
The temporary rates include $1 million that is to be used by the Company
for enhanced right of way maintenance and pole testing and treatment.
The Company's regulatory asset account balances of $5.1 million, which are
subject to recovery in this docket, are to be amortized over seven years,
beginning January 1999. This balance reflects only the amount filed in this
docket, and is related to regulatory commission expense, tree trimming, storm
damage and the costs associated with the ice storm of 1998. This amortization
period will be subject to review by the VPSB after the expiration of the stay in
this docket.
In the event that the Vermont Supreme Court issues an order reversing the
VPSB's orders in the Company's last rate case prior to issuance of a final order
in this docket, any resulting adjustments in rates will not become effective
until the VPSB issues a final order in this docket. The MOU provides that
nothing in it will reduce or limit the Company's entitlement to full recovery of
any amounts due the Company if it should prevail on the appeal. See the
Company's Quarterly Report on Form 10-Q for the period ended September 30, 1998
- - Note 4 and Note 5 of "Notes to Consolidated Financial Statements".
Notwithstanding the interim rate settlement, the Company is unable to
predict whether the MOU or other future events, singularly or in combination,
could cause its lending banks to refuse to allow further borrowings under the
Company's revolving loan agreement, to seek to enter into a new credit agreement
with the Company and/or to immediately call in all outstanding loans. If the
Company is unable to borrow on a short-term basis, it will evaluate all
potential alternatives available at the time, including, but not limited to, the
filing of a petition for reorganization under the United States Bankruptcy Code.
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Change in Common Stock Dividend
On November 23, 1998, the Board of Directors of Green Mountain Power
Corporation (the Company) announced a reduction in the quarterly dividend on the
Company's common stock from $0.275 per share to $0.1375 per share. The dividend
is payable December 31, 1998 to holders of record at the close of business on
December 16, 1998. The new indicated annual dividend rate is $0.55 per share
compared to the previous rate of $1.10 per share. The Company's press release,
dated November 23, 1998, announcing the dividend reduction is attached hereto as
Exhibit 99(b) and is incorporated by reference herein.
The Company's current dividend policy reflects changes affecting the
electric utility industry, which is moving away from the traditional
cost-of-service regulatory model to a competition based market for power supply,
as well as earnings projections associated with the rate case developments
referred to above. The Company's current environment has prompted the Company to
reassess the appropriateness of its traditional dividend policy. The Board of
Directors will continue this assessment and adjust the dividend, when
appropriate, as the Vermont electricity industry evolves towards competition. In
addition, if other events beyond the Company's control cause its financial
situation to deteriorate further, the Board of Directors will also consider
whether the current dividend level is appropriate or if the dividend should be
reduced or eliminated.
Item 7. Financial Statements, ProForma Financial Information and Exhibits
(a) and (b) --Not applicable
(c) Exhibits
99(a) --Press Release dated November 18, 1998
99(b) --Press Release dated November 23, 1998
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly cased this report to be signed on its behalf by the
undersigned thereunto duly authorized.
GREEN MOUNTAIN POWER CORPORATION
Registrant
By /s/ Edwin M. Norse
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Edwin M. Norse
VICE PRESIDENT, CHIEF FINANCIAL
OFFICER AND TREASURER
BY /s/ Robert J. Griffin
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Robert J. Griffin
CONTROLLER
DATED: December 3, 1998
EXHIBIT 99(a)
NEWS FOR IMMEDIATE RELEASE
#22-98 NOVEMBER 18, 1998
DPS AND GMP NEGOTIATE 5.7 PERCENT INTERIM RATE SETTLEMENT
MONTPELIER, VT...The Vermont Department of Public Service and Green Mountain
Power Corporation announced today they have negotiated an eight month suspension
in GMP's pending rate case and a temporary 5.7 percent rate increase in the
Company's rates, intended to allow time to work toward a reduction in power
supply costs.
Vermont Public Service Department Commissioner Richard Sedano said the
settlement "will give GMP the minimum amount of cash required for safe and
reliable service during 1999 while at the same time keep maximum pressure on all
parties to find a long-term fix for power cost problems. This allows GMP time to
concentrate on mitigation rather than litigation."
The settlement agreement must be approved by the Vermont Public Service Board.
GMP had sought a 12.9 percent rate increase beginning in January 1999. The
settlement provides for a 5.7 percent rate increase on electricity consumed
starting Dec.15, l998.
Under the settlement, if there is no progress on power supply negotiations
intended to reduce costs and rates by Sept. 1, 1999, the current rate case will
move from its "suspended" status to "active" litigation status, and the Public
Service Board will issue a rate order by December 15, 1999.
GMP President and Chief Executive Officer Christopher L. Dutton said today the
settlement agreement "is designed to provide additional revenues needed to give
GMP the chance to accomplish the ambitious power supply contract and other
internal cost reduction strategies we hope to achieve in the next twelve months.
These steps are part of our overall plan to pursue aggressively all strategic
options in light of our current financial condition."
GMP has said in recent months that without a rate increase for 1999, it would be
forced into bankruptcy. Mr. Dutton said the "settlement does not end the
Company's financial uncertainty, but it does give us breathing room to work with
our suppliers to find a permanent solution on ways to lower costs."
The agreement does not involve all parties to the case; however, IBM, the
largest customer of GMP and an intervenor in the rate case, joined in the
negotiated agreement.
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The average bill for a GMP residential customer using 500 kWh in a month would
increase by $3.41 per month under the temporary settlement.
The new temporary rates would be adjusted upwards to provide Green Mountain
Power the capacity to finance expenditures of approximately $5.9 million
relating to remediation of the Pine Street Barge Canal Superfund site in
Burlington, VT should the Company sign a consent decree with the government
providing for the clean-up in 1999.
Under the terms of the settlement, GMP's temporary rates could be rolled back by
the Vermont Public Service Board at the end of 1999, depending on the outcome of
power supply negotiations and the final resolution of the rate case.
GMP's costs have risen sharply over the past two years, Mr. Dutton said, because
of increases in the price of power supplied by Hydro-Quebec. Those price
increases have only partially been included in the rates the Company charges its
customers, and as a result GMP's financial health has declined sharply. GMP and
14 other Vermont utilities buy power from Hydro-Quebec under long-term power
contracts negotiated in l987.
"This is a good settlement for Vermont consumers," said Mr. Sedano." It should
serve notice to all suppliers that Vermont is serious about the need to reduce
costs and that state government is willing to work with Vermont utilities to
provide an opportunity for those reductions. This is an opportunity, but not an
open-ended opportunity. We are pleased to reach this rate accord with GMP and
IBM. It demonstrates our resolve to reduce costs while at the same time
providing GMP the time and financial ability to do this hard work," added Mr.
Sedano.
EXHIBIT 99(b)
NEWS FOR IMMEDIATE RELEASE
#23-98 NOVEMBER 23, 1998
GMP REDUCES DIVIDEND
SOUTH BURLINGTON, VT. ... The Board of Directors of Green Mountain Power
Corporation voted today to reduce the dividend on common stock from an indicated
annual rate of $1.10 per share to $0.55 per share. The quarterly cash dividend
payment was set at $0.1375 per share on common stock, reduced from $0.275 per
share.
The dividend is payable December 31, 1998 to holders of record at the close of
business on December 16, 1998.
Regular quarterly dividends on Preferred Stock were also declared payable
March 1, 1999 to holders of record at the close of business February 15, 1999 as
follows: 4.75% Class B, $1.1875; 7% Class C, $1.75; 9.375% Class D, Series 1,
$2.34375; 8.625% Class D, Series 3, $2.15625; and 7.32% Class E, Series 1,
$1.83.
GMP's President and Chief Executive Officer, Christopher L. Dutton, said, "With
the rate increase agreement we have negotiated, which we expect to be in effect
for 1999, the Company's earnings no longer support the higher dividend on common
stock."
On November 18, 1998, the Company and the Vermont Department of Public Service
announced an agreement that will provide a temporary 5.7 percent rate increase
and suspend GMP's pending retail rate case until September 1999. If the
agreement is approved by the Vermont Public Service Board, the rate increase
will go into effect with electric service rendered December 15, 1998.
The rate case agreement is expected to provide $9.19 million a year in
additional revenue, an amount that Mr. Dutton said "will give us time to pursue
further cost-cutting initiatives in 1999, but does not raise earnings to the
level required to sustain the $1.10 dividend payment."
GMP had said for several months that without significant rate relief by 1999,
the Company would be in peril of bankruptcy. "The rate increase agreed to by the
Department of Public Service will not eliminate GMP's financial crisis, but it
should give us the time that is critically needed to work toward a long-term
solution," Mr. Dutton said. "Therefore, the agreement is in the best interests
of shareholders."
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He said GMP will continue to seek ways to reduce the cost of its power supply
contracts with Hydro-Quebec and the Vermont independent power producers. The
price of power under those contracts is significantly above the current market
costs for electricity. Mr. Dutton said GMP is actively participating in two
State-sponsored initiatives that are aimed at reducing the cost of power sources
in Vermont.
He noted that earnings for the first three quarters of 1998, as reported on
November 16, 1998, were substantially below earnings for the same period in
1997, largely because higher power supply costs have not been reflected in GMP's
rates. For the nine months ending September 30, 1998, GMP lost $0.16 per share,
compared with earnings of $1.34 per share over the same period of 1997.
"With sharply lower earnings for this year and in light of our forecasts for
1999, which include the recent temporary rate increase, the Board of Directors
decided GMP could not continue to pay out $5.7 million a year in dividends to
shareholders of common stock," Mr. Dutton said.
"In addition, it has become clear that the electric utility industry is moving
rapidly away from the traditional cost-of-service regulatory model to a
competition based market for power supply. This new environment has prompted the
Company to reassess the appropriateness of its traditional dividend policy. The
Board of Directors will continue this assessment and adjust the dividend, when
appropriate, as the Vermont electricity industry evolves towards competition,"
Mr. Dutton added.
There are statements in this section that contain projections or estimates and
are considered to be "forward-looking" as defined by the Securities and Exchange
Commission. These statements are not guarantees of future outcomes related to
this MOU. There are other risks, uncertainties and factors that could cause
actual results to be different from those projected. These forward-looking
statements represent only our estimates and assumptions as of the date of this
report.
