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): March 2, 1998
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 Number)
Incorporation)
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)
Item 5. Other Events
On March 2, 1998, the Vermont Public Service Board ("VPSB")
released its Order in the Company's pending rate case. The VPSB ordered
the Company's rates increased by 3.61%, increasing annual revenues by
$5.6 million. The Company had sought in its final submissions to the
VPSB an increase of $22 million in revenue to cover increased cost of
service.
Approximately $11 million of the reduction of 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% to 11.25%. More significantly, the VPSB
denied the recovery by the Company of $5.48 million in costs related to
its long-term Hydro-Quebec power contract. The decision stated that the
Company had been imprudent in locking-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. Unless the Order is modified, the Company must accrue
its estimate of the loss related to these imprudence and used and useful
disallowances.
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 to record an expense of approximately $180
million 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, then the
Company's rates will have been set, effectively, on a basis other than
its costs to provide service. This would require the Company to
discontinue the application of Financial Accounting Standard 71,
resulting in the write-off of regulatory assets and liabilities with a
charge to earnings, as an extraordinary item. As of December 31, 1997,
the Company had approximately $15 million of net regulatory assets on
its balance sheet.
In addition to the Hydro-Quebec power contract disallowances
described above, the Order also requires 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, now requires the
Company to amortize this deferred credit over the remaining lives of the
related power contracts. Unless the current Order is modified, the
Company would be required to expense approximately $8.6 million
previously recognized in earnings related to the $9.1 million.
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 or down
implications.
The Company is exploring all legal and regulatory remedies open to
it to challenge the VPSB decision, including requesting 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.
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
By /s/ E. M. NORSE
VICE PRESIDENT, CHIEF FINANCIAL
OFFICER AND TREASURER
BY /s/ R.J. GRIFFIN
CONTROLLER
DATED: March 12, 1998
