SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Under Section 13 or 15(d) of
The Securities Exchange Act of 1934
For Quarter Ended September 30, 1995 Commission File Number 1-3429
MAINE PUBLIC SERVICE COMPANY
(Exact name of registrant as specified in its charter)
MAINE 01-0113635
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
209 State Street, Presque Isle, Maine 04769
(address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 207-768-5811
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___.
(APPLICABLE ONLY TO CORPORATE ISSUERS:)
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the close of the period covered by this
report.
Common Stock, $7.00 par value - 1,617,250 shares
Form 10-Q
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements
See the following exhibits - Maine Public Service Company and
Subsidiary Condensed Consolidated Financial Statements,
including an income statement for the quarter ended September
30, 1995 and for the corresponding period of the preceding
year; a balance sheet as of September 30, 1995, and as of
December 31, 1994, the end of the Company's preceding fiscal
year; and a statement of cash flows for the period January 1
(beginning of the fiscal year) through September 30, 1995, and
for the corresponding period of the preceding year.
In the opinion of management, the accompanying unaudited
condensed consolidated financial statements present fairly the
financial position of the companies at September 30, 1995 and
December 31, 1994, and the results of their operations and
their cash flows for the nine months ended September 30, 1995.
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MAINE PUBLIC SERVICE COMPANY AND SUBSIDIARY
CONDENSED CONSOLIDATED INCOME STATEMENTS
(Unaudited)
(Dollars in Thousands Except Per Share Amounts)
Three Months Ended Nine Months Ended
September 30, September 30,
1995 1994 1995 1994
Operating Revenues 12,273 12,463 40,300 43,355
Operating Expenses
Purchased Power 7,970 7,281 23,460 21,061
Other Operation and Maintenance 952 1,626 5,309 8,959
Depreciation and Amortization (Note 2) 1,070 1,054 3,210 3,162
Taxes Other Than Income 363 373 1,197 1,202
Provision for Income Taxes (Note 3) 502 559 2,071 2,795
Total Operating Expenses 10,857 10,893 35,247 37,179
Operating Income 1,416 1,570 5,053 6,176
Other Income (Deductions)
Equity in Income of Associated Companies 91 92 267 272
Allowance for Equity Funds Used During
Construction 1 2 3 5
Other Income Taxes (Note 3) (14) (51) (67) (88)
Other - Net 33 56 33 38
Total 111 99 236 227
Income Before Interest Charges 1,527 1,669 5,289 6,403
Interest Charges
Long-Term Debt and Notes Payable 938 963 2,821 2,892
Less Allowance for Borrowed Funds
Used During Construction 0 (1) (1) (2)
Total 938 962 2,820 2,890
Net Income Available for Common Stock 589 707 2,469 3,513
Average Shares Outstanding (000's) 1,617 1,617 1,617 1,619
Earnings Per Share of Common Stock $0.36 $0.44 $1.53 $2.17
Dividends Declared per Common Share $0.46 $0.46 $1.38 $1.38
The accompanying notes are an integral part of these financial
statements.
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MAINE PUBLIC SERVICE COMPANY AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(Dollars in Thousands)
September 30, December 31,
ASSETS 1995 1994
Utility Plant
Electric Plant in Service 89,427 89,625
Less Accumulated Depreciation 41,162 39,714
Net Electric Plant in Service 48,265 49,911
Construction Work-in-Progress 2,885 571
Total 51,150 50,482
Investment in Associated Companies
Maine Yankee Atomic Power Company 3,568 3,391
Maine Electric Power Company, Inc. 65 65
Total 3,633 3,456
Net Utility Plant and Investments 54,783 53,938
Current Assets
Cash and Temporary Investments 887 2,618
Deposits for Interest and Dividends 744 744
Accounts Receivable - Net 4,705 5,070
Unbilled Revenue 1,577 2,414
Deferred Fuel and Purchased Energy 5,051 535
Inventory 1,277 1,289
Prepayments 1,202 537
Total 15,443 13,207
Other Assets
Recoverable Seabrook Costs 35,785 37,074
Regulatory Asset - SFAS 109 & 106 16,547 16,212
Other 4,002 1,986
Total 56,334 55,272
Total Assets 126,560 122,417
CAPITALIZATION AND LIABILITIES
Capitalization
Common Shareholders' Equity
Common Stock 13,071 13,071
Paid-in Capital 38 38
Retained Earnings 40,090 39,853
Treasury Stock, at cost (5,714) (5,714)
Total 47,485 47,248
Long-Term Debt (less current maturities) 36,120 37,435
Current Liabilities
Long-Term Debt Due Within One Year 1,315 65
Accounts Payable 4,456 4,080
Notes Payable 1,000 0
Deferred Income Taxes Related to Fuel 2,015 214
Dividends Declared 744 744
Customer Deposits 69 74
Taxes Accrued 210 92
Interest Accrued 286 1,021
Total 10,095 6,290
Deferred Credits
Deferred Income Tax 28,794 28,036
Investment Tax Credits 879 937
Provision for Rate Refund 213 0
Miscellaneous 2,974 2,471
Total 32,860 31,444
Total Capitalization and Liabilities 126,560 122,417
The accompanying notes are an integral part of these financial
statements.
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MAINE PUBLIC SERVICE COMPANY AND SUBSIDIARY
CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS
(Unaudited)
(Dollars in Thousands)
Nine Months Ended
September 30,
1995 1994
Cash Flow From Operating Activities
Net Income 2,469 3,513
Adjustments to Reconcile Net Income to Net Cash
Provided by Operations
Depreciation and Amortization 1,929 1,881
Amortization of Seabrook Costs 1,281 1,281
Deferred Income Taxes 2,453 (53)
AFUDC (3) (7)
Change in Deferred Regulatory and Debt (1,976) 1,237
Change in Refundable/Deferred Revenues 213 (120)
Change in Benefit Obligation 201 308
Change in Current Assets and Liabilities (4,215) (478)
Other (65) 17
Net Cash Flow from Operating Activities 2,287 7,579
Cash Flow From Financing Activities
Dividend Payments (2,232) (2,232)
Purchase of Common Stock 0 (1,143)
Drawdown of Tax-Exempt Bonds Proceeds 0 1,111
Retirements on Long-Term Debt (65) (65)
Short Term Borrowings, Net 1,000 0
Non Utility Property & Other 0 (2)
Net Cash Flow Used For Financing Activities (1,297) (2,331)
Cash Flow Used For Investing Activities
Withdrawal of (Investment in) Restricted 0 170
Investment in Electric Plant (2,721) (2,918)
Net Cash Used For Investment Activities (2,721) (2,748)
Increase (Decrease) in Cash and Temporary In (1,731) 2,500
Cash and Temporary Investments at Beginning 2,618 1,392
Cash and Temporary Investments at End of Per 887 3,892
Change in Current Assets and Liabilities Providing
Cash From Operating Activities
Accounts Receivable 364 2,428
Unbilled Revenue 837 845
Inventory 12 129
Deferred Fuel and Purchased Energy Cos (4,516) (1,449)
Other Current Assets (664) (879)
Accounts Payable & Accrued Expenses (242) (1,531)
Other Current Liabilities (6) (21)
Total Change (4,215) (478)
Supplemental Disclosure of Cash Flow Information:
Cash Paid During the Year For:
Interest 3,353 3,396
Income Taxes 396 4,356
The accompanying notes are an integral part of these financial
statements.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying unaudited consolidated financial statements
include the accounts of the Company and its wholly-owned Canadian
subsidiary, Maine and New Brunswick Electrical Power Company,
Limited (the Subsidiary).
The Company is subject to the regulatory authority of the Maine
Public Utilities Commission (MPUC) and, with respect to wholesale
rates, the Federal Energy Regulatory Commission (FERC).
The accompanying unaudited consolidated financial statements should
be read in conjunction with the 1994 Annual Report, an integral
part of Form 10-K. Certain financial statement disclosures have
been condensed or omitted but are an integral part of the 1994 Form
10-K. The Company's significant accounting policies are described
in the Notes to Consolidated Financial Statements of the Company's
Annual Report filed with the Form 10-K. For interim reporting
purposes, these same accounting policies are followed.
2. RECOVERY OF THE SEABROOK INVESTMENT
The Company was an investor in the Seabrook Nuclear Power Project
Units 1 and 2 (the "Project") with a 1.46056% ownership interest
through November 25, 1986. On November 25, 1986, the Company's
investment of approximately $92.1 million was sold for proceeds of
$21.4 million.
The Company's remaining investment in Seabrook Units 1 and 2, net
of disallowed costs and sale proceeds, is classified as Recoverable
Seabrook Costs. These costs are principally being amortized over
thirty years.
Recoverable Seabrook Costs at September 30, 1995 are as follows:
(Dollars in Thousands)
Recoverable
Seabrook Costs Accumulated
(Net) In Rates Amortization
Unit 1 - Retail $ 26,382 $ 37,141 $ (10,759)
- Wholesale 6,246 8,018 (1,772)
- Total 32,628 45,159 (12,531)
Unit 2 - Retail 3,120 5,995 (2,875)
- Wholesale 37 2,033 (1,996)
- Total 3,157 8,028 (4,871)
TOTAL $ 35,785 $ 53,187 $ (17,402)
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3. INCOME TAXES
A summary of Federal and State income taxes charged (credited) to
income is presented below. For accounting and ratemaking purposes,
income tax provisions included in "Operating Expenses" reflect
taxes applicable to revenues and expenses allowable for ratemaking
purposes. The tax effect of items not included in rate base is
allocated as "Other Income (Deductions)".
(Dollars in Thousands) Three Months Ended Nine Months Ended
September 30, September 30,
1995 1994 1995 1994
Current income taxes $ (440) $ 201 $ (315) $ 2,936
Deferred income taxes 976 429 2,511 5
Investment credits (20) (20) (58) (58)
Total income taxes $ 516 $ 610 $ 2,138 $ 2,883
Allocated to:
Operating Income $ 502 $ 559 $ 2,071 $ 2,795
Other income 14 51 67 88
Total $ 516 $ 610 $ 2,138 $ 2,883
In 1993, the Company adopted the provisions of SFAS 109. The
Company reported the implementation of the standard as a change in
accounting principle with no cumulative effect on prior earnings.
The adoption of SFAS 109 increased deferred income taxes by $17.3
million and also resulted in the establishment of a net regulatory
asset of $17.3 million. The following summarizes accumulated
deferred income taxes established on temporary differences under
SFAS 109 as of September 30, 1995 and December 31, 1994.
(Dollars in Thousands)
September 30, December 31,
1995 1994
Seabrook $19,992 $20,214
Property 9,172 8,985
Regulatory expenses 1,010 142
Investment tax credits (622) (622)
Pension and postretirement benefits (290) (251)
Other (468) (432)
Net accumulated deferred income taxes $28,794 $28,036
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4. POSTRETIREMENT HEALTH CARE BENEFITS
In 1993, the Company adopted Statement of Financial Accounting
Standards No. 106, "Employers' Accounting for Postretirement
Benefits Other Than Pensions"(SFAS 106), which requires
the accrual of postretirement benefits, such as health care
benefits, during the years an employee provides service to the
Company. The MPUC has adopted a rule which adopts SFAS 106 for
ratemaking. The rule requires the Company to establish and make
payments to an independent external trust fund for the purpose of
funding future postretirement health care costs at such time as
customers are paying for these costs in their rates. The MPUC has
issued an accounting order that allows the Company to account for
the implementation of SFAS 106 by deferring these expenses until
the Company's next base rate proceeding. Based on this accounting
order, the Company has established a regulatory asset of
approximately $1,013,000, representing deferred postretirement
benefits subject to future ratemaking.
The Company provides certain health care benefits to eligible
employees and retirees. All employees share in the cost of their
medical benefits, approximately 12% per year. Effective with
retirements after January 1, 1995, only retirees with at least
twenty years of service will be eligible for these benefits. In
addition, eligible retirees will contribute to the cost of their
coverage starting at 60% for retirees with twenty years of service
with the contribution phasing out over the next ten years of
service so that retirees with thirty or more years of service do
not contribute toward their coverage.
5. SUBSEQUENT EVENT
As explained in the legal proceedings section of this Form
10-Q, item 1(c), under the rate plan stipulation approved on
November 13, 1995, the Company has agreed to write-off and not
recover from its retail customers the following amounts:
a) $4,845,812, net of income taxes, of its investment in
Seabrook previously allocated to the wholesale customers.
b) $1,370,000, net of income taxes, in other plant
investment, ie. rate base, except transmission plant,
previously associated with the wholesale customers, and
c) $3,500,000 in deferred fuel, $2,104,000, net of income
taxes.
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Item 2. Management's Analysis of Quarterly Income Form 10-Q
Statements
Results of Operations
Earnings per share and related information for the third quarter
and nine months ended September 30, 1995 along with the
corresponding information for the previous year are as follows:
Third Quarter Nine Months Ended
September 30, September 30,
1995 1994 1995 1994
Earnings per share $ .36 $ .44 $1.53 $2.17
Net income
available for Common
Stock - in Thousands $ 589 $ 707 $2,469 $3,513
For the third quarter of 1995 compared to the same quarter last
year, the decrease in consolidated earnings per share of $.08 is
attributable to the following:
Increase
(Decrease)
Decrease in retail base revenues principally
due to 2,061 MWH decrease in sales. $ (.09)
Decrease in base revenues-sales for resale (.09)
Decrease in Maine Yankee capacity expenses .20
Decreased base revenues due to decreased
power marketing sales (.04)
Other (.06)
Total $ (.08)
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Form 10-Q
Part 1. FINANCIAL INFORMATION
Item 2. Management's Analysis of Quarterly Income Statements
Results of Operations (Continued)
Consolidated operating revenues for the quarter ended
September 30, 1995 and 1994, are as follows:
1995 1994
(Dollars in Thousands) $ MWH $ MWH
Retail:
Base 7,147 7,349
Fuel 2,789 2,526
Total 9,936 111,765 9,875 113,826
Sales for Resale:
Base 628 827
Fuel 962 724
Total 1,590 26,344 1,551 24,883
Total Primary Sales 11,526 138,109 11,426 138,709
Secondary Sales 163 5,603 246 13,158
Other Revenues/Rev. Adjust. 584 791
Total Operating Revenues 12,273 143,712 12,463 151,867
Primary sales for the third quarter of 1995 of 138,109 MWH
decreased only 600 MWH from the same period last year. Public
authorities decreased by 1,877 MWH, of which 1,853 MWH is due
to the closure of Loring Air Force Base in September 1994.
Residential sales decreased 955 MWH due primarily to the
economic effect of the air base closure. Partially offsetting
these decreases were an increase of sales for resale of 1,461
MWH, primarily Houlton Water Company, and an increase of 771
MWH to commercial and industrial customers.
Retail base revenues for the third quarter of 1995 were
$7,147,000 compared to $7,349,000 for the same period of 1994,
reflecting the decrease in retail sales discussed in the
previous paragraph. Although sales for resale for the quarter
increased, as previously mentioned, base revenues decreased
from $827,000 for the third quarter of 1994 to $628,000 for
the third quarter of 1995. The Company has fixed rate
contracts with its three wholesale customers served in the
United States, representing 83% of these sales. Revenues
collected from these customers are first allocated to the
recovery of fuel costs. With the extended outage of Maine
Yankee which continued during the third quarter of 1995, fuel
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Form 10-Q
Part 1. FINANCIAL INFORMATION
Item 2. Management's Analysis of Quarterly Income Statements
Results of Operations (Continued)
revenues collected in the quarter were $238,000 higher than
last year, reflecting the collection of the additional
replacement power costs. As previously reported by the
Company in its 1994 Annual Report and Form 10-K, Houlton Water
Company (Houlton), the Company's largest customer and a sales
for resale customer, will not be served by the Company
starting on January 1, 1996. For the third quarter of 1995,
Houlton represented 11.2% of total MWH sales and 8.7% of total
operating revenues. During the third quarter of 1994,
secondary sales of the Company's Wyman Unit No. 4 and Maine
Yankee entitlements for varying lengths of time were made at
prevailing market rates. Since Maine Yankee was not available
for the same period in 1995, secondary sales for the quarter
were limited to Wyman No. 4 entitlements.
For the third quarters ended September 30, 1995 and 1994,
total operating expenses were $10,857,000 and $10,893,000,
respectively. The changes in operating expenses and energy
sources are as follows:
Increase/(Decrease)
(Dollars in Thousands) $ MWH
Purchased Power Expenses
Maine Yankee (694) (63,062)
Wheelabrator-Sherman (29) (1,673)
NB Power 1,186 59,949
System Purchases 226 7,424
689 2,638
Deferred Fuel (677)
Generating Expenses 11 (12,295)
Other Operation & Maint. Expenses ( 8)
Depreciation and Amortization
Expenses 16
Income Taxes ( 57)
Taxes Other than Income ( 10)
Total ( 36) ( 9,657)
Maine Yankee was out of service for the entire third quarter
of 1995. After experiencing problems with its steam
generators starting in early January of 1995, Maine Yankee
started its scheduled refueling and maintenance outage. In
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Form 10-Q
Part 1. FINANCIAL INFORMATION
Item 2. Management's Analysis of Quarterly Income Statements
Results of Operations (Continued)
late March, Maine Yankee reported an increased rate of
degradation of the plant's steam generator tubes. After
reviewing several options, Maine Yankee chose to sleeve all
the steam generator tubes. While this sleeving is done, Maine
Yankee has reduced normal operating expenses. Maine Yankee is
expected to return to normal operations by the end of 1995.
As discussed in the next section, "Maine Yankee", the Company
is deferring these sleeving costs as an element of its rate
plan. Hydro generation decreased by 12,213 MWH due to
abnormally low rain fall during the quarter. With the reduced
hydro generation and the unavailability of Maine Yankee,
purchases from NB Power and system purchases had to be
increased by 59,949 MWH and 7,424 MWH, respectively. Deferred
fuel expenses decreased by $677,000, since fuel costs,
principally Maine Yankee replacement power costs, exceeded
collected fuel revenues. Although the total other operation
and maintenance expense decreased by $8,000, administrative
and general expenses increased by $107,000 due to increased
medical and regulatory expenses, while transmission expenses
decreased $103,000.
Maine Yankee
Reference is made to the Company's Form 10-K dated March 29,
1995, Part I, "Subsidiaries and Affiliated Companies," in
which the Company reported that Maine Yankee was experiencing
degradation of its steam generator tubes in the form of
circumferential cracking. During the refueling-and-
maintenance shutdown that started in early February of 1995,
Maine Yankee detected an increased rate of degradation of the
Plant's steam generator tubes in excess of the number expected
and started evaluating several courses of action. The Company
owns 5% of the Common Stock of Maine Yankee. In 1994, Maine
Yankee provided 43.3% of the Company's power requirements.
On May 22, 1995, the Maine Yankee Board of Directors approved
a plan to repair these tubes using welded sleeves. Sleeving
involves the inserting of a tube of slightly smaller diameter
into the defective tube. The sleeve is welded in place and
acts as a new tube. Sleeving is a proven technology and has
been used at other nuclear facilities. In addition to the
extensive technical analysis on the steam generators performed
-12-
Form 10-Q
Part 1. FINANCIAL INFORMATION
Item 2. Management's Analysis of Quarterly Income Statements
Results of Operations (Continued)
by the Maine Yankee technical staff, two independent studies
on the overall condition of the plant were also undertaken.
Both studies concluded that the overall mechanical condition
of the plant was very good.
The sleeving of the steam generator tubes is estimated to cost
approximately $40 million, with the Company's share being $2
million. Maine Yankee projects that the plant will return to
service by the end of 1995. While Maine Yankee is being
repaired, the additional costs for replacement power averages
$500,000 to $600,000 per month. These replacement power costs
have traditionally been subject to collection under the fuel
adjustment clause.
As explained in the Legal Proceedings Section of this Form 10-
Q, item 1(c) under the rate plan stipulation, on November 13,
1995, the Maine Public Utilities Commission (MPUC) approved
the Company's rate plan. As an element of the rate plan, the
Company eliminated the fuel adjustment clause except for the
cost of power purchased from the Wheelabrator-Sherman Energy
Company, an independent power producer. As part of the
Stipulation, $3.5 million of the replacement power costs
associated with the Maine Yankee outage will be written off in
1995, $500,000 will be amortized over the four-year rate plan
period, and an estimated $2 million deferred. The rate plan
also includes a mechanism to handle similar unexpected Maine
Yankee outages during the rate plan period. In addition, the
Stipulation allows for the five-year amortization of the
sleeving expenses.
Caribou Units to be Inactivated
Reference is made to the Company's Form 8-K dated July 13,
1995 in which the Company reported that, at a regular meeting
on July 7, 1995, the Board of Directors authorized placing on
inactive status Steam Units 1 and 2 of the Company's Caribou
Generating Facility in Caribou, Maine. The Company will lay-
up the Units by January 1, 1996 and expects that they will
remain inactive for five years or longer. These two units,
which represent 23 MW of capacity, have become surplus to the
Company's needs due to the closure of Loring Air Force Base
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Form 10-Q
Part 1. FINANCIAL INFORMATION
Item 2. Management's Analysis of Quarterly Income Statements
Results of Operations (Continued)
and the loss in 1996 of the Company's largest customer, the
Houlton Water Company. During the Units' inactive period, the
plant equipment will be protected and maintained by the
installation of a dehumidification system that will permit the
Plant to return to service in approximately six months.
Placing Steam Units 1 and 2 on inactive status will save the
Company approximately $3.5 million over the next five years.
These savings result primarily from a savings in operation and
maintenance expense. The Company will be eliminating 12
positions at the plant and has also announced a voluntary
early retirement program that may avoid involuntary
termination of some of the employees whose positions at the
units have been eliminated.
Steam Unit No. 1 went into operation in the early 1950s and
Unit No. 2, in the mid 1950s. The Company still has a diesel
generation station of approximately 7 MW and a hydro facility
of approximately 1 MW and will continue to employ 11 employees
at the Caribou facility.
Financial Condition
The accompanying Statements of Consolidated Cash Flows reflect
the Company's liquidity and the net cash flows generated by or
required for operating, financing and investing activities.
For purposes of the Statements of Consolidated Cash Flows, the
Company considers all highly liquid securities to be cash
equivalents.
Net cash flows from operating activities were $2,287,000 for
the first nine months of 1995. For the period, $2,721,000 was
invested in electric plant, $2,232,000 was paid in dividends
and $65,000 was used to reduce long-term debt. Cash flows for
1995 have been impacted by the reduction in earnings and the
previously mentioned replacement power purchases during the
Maine Yankee outage. The Company borrowed $1,000,000 through
the revolving credit arrangement on September 28, 1995.
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Form 10-Q
Part 1. FINANCIAL INFORMATION
Item 2. Management's Analysis of Quarterly Income Statements
Results of Operations (Continued)
For the nine months ended September 30, 1994, net cash flows
from operating activities were $7,579,000 and the remaining
$1,111,000 was withdrawn from its tax-exempt bond escrow
account. For the first nine months of 1994, the Company
invested $2,918,000 in electric plant, paid $2,232,000 in
dividends, reduced long term debt by $65,000 and purchased
43,000 shares of common stock for $1,143,000 as the Company
resumed the stock repurchase program.
On May 1, 1995, the Company filed for a proposed increase in
rates of approximately $5 million, and as an alternative, a
five-year rate plan with the Maine Public Utilities Commission
(MPUC). See "Legal Proceedings", paragraph l(c) for a more
complete description of a Stipulation approved by the parties
in the case. The rate plan will assist the Company in dealing
with the economic uncertainties that lay ahead with the loss
of Loring and Houlton. The Plan provides stable, predictable
rates for our customers, economic development rates to
encourage investment in our service territory, and competitive
returns for our shareholders.
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FORM 10-Q
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
(a) Maine Public Service Company, Application for Fuel Cost
Adjustment, MPUC Docket No. 95-001
On January 3, 1995, the Company submitted an application
to the MPUC for an increase of approximately $1.4 million
for the twelve month period ended March 31, 1996. This
increase will result in a total increase in the Company's
retail rates of 3% effective April 1, 1995. In order to
limit the increase to 3%, the Company proposed to defer
recovery of approximately $1.5 million in the cost of
power purchased from the Wheelabrator-Sherman Energy
Company. The deferred amount would be combined with the
additional deferrals of these costs as proposed under the
Company's rate plan (see item (c) below). On March 15,
1995, the Company and the MPUC Staff signed a Stipulation
that embodied the Company's proposal. This Stipulation
was approved by the MPUC on March 27, 1995.
(b) Houlton Water Company's Application for Certificate of
Public Convenience and Necessity for Purchase of Firm
Requirements Service from Central Maine Power Company,
MPUC Docket No. 94-476
Reference is made to the Company's Form 8-K of February
13, 1995, in which the Company reported that its largest
wholesale customer, the Houlton Water Company (HWC), had
executed a long-term power contract with Central Maine
Power Company (CMP) for HWC's power requirements
beginning January 1, 1996 and that HWC was therefore
terminating its contract with the Company effective
December 31, 1995.
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FORM 10-Q
PART II. OTHER INFORMATION
Item 1. Legal Proceedings - Continued
On December 29, 1994, HWC filed with the MPUC for
approval of the purchase from CMP. This proceeding was
given the MPUC Docket No. 94-476. On January 12, 1995,
the Company requested permission to intervene in this
proceeding. This request was granted on February 1,
1995. The Company contended that the MPUC should not
grant HWC's requested approval. The Company based its
contention on CMP's intention to serve HWC's load from a
facility that CMP acquired using State financing. The
Company believed that State energy and regulatory policy
should prohibit CMP from using a facility supported by
State financing to the detriment of the retail customers
of any other utility.
On March 30, 1995, the MPUC issued its decision on the
Company's argument. The MPUC concluded that the statutes
granted it the authority to approve the contract between
CMP and HWC did not confer upon the MPUC authority to
consider the effects of that contract upon the Company
and its customers. The MPUC also found that the statute
granting CMP the right to use State funds to acquire the
facility did not give the MPUC any authority to establish
conditions concerning the operation of the facility. As
a result, the MPUC declined to take into account, in
considering its approval of the CMP-HWC contract, the
effect of that contract upon the Company and its
customers.
(c) Multi-year Rate Plan is Approved for the Company by the
MPUC in Maine Public Service Company Re: Proposed
Increase in Retail Rates, MPUC Docket No. 95-052
On May 1, 1995, Maine Public Service Company filed with
the Maine Public Utilities Commission a proposed increase
in the rates it charges its retail customers. The
Company at the same time filed a five-year rate plan
which, if approved, will result in new rates beginning in
January, 1996 as detailed below. Reference is made to
the Company's Form 10-Q for the quarter ended June 30,
1995 for a complete description of the Company's filed
rate plan.
-17-
FORM 10-Q
PART II. OTHER INFORMATION
Item 1. Legal Proceedings - Continued
In general, the Company's five-year rate plan provided
for total annual average increases in retail rates,
including fuel, in accordance with the following
schedule:
1996 - 4.5% $2.2 million
1997 - 4.5% 2.3 million
1998 - 3.5% 1.9 million
1999 - 3.0% 1.7 million
2000 - 3.0% 1.7 million
As part of its plan, the Company proposed to eliminate
the annual fuel adjustment clause except for the cost of
power purchased from the Wheelabrator-Sherman Energy
Company (W/S). The Company's plan included deferrals of
up to $3 million annually of its W/S power costs and the
deferral of any uncollected fuel costs under the present
fuel clause as approved in Docket 95-001 (see item (a)
above) now estimated to be approximately $6 million. The
Company proposed to begin collecting the deferred costs,
in an amount of up to $21 million, in 2001.
The Company also proposed to write off and not recover in
rates approximately $4.9 million, net of income taxes, of
its remaining investment in the Seabrook project
previously supported by rates to its wholesale customers,
principally the Houlton Water Company, which will begin
purchasing its full requirements from another supplier
beginning January 1, 1996.
In its rebuttal filing on September 22, 1995, the Company
further proposed a sharing mechanism based on an allowed
return on equity (ROE) of 11.75%. Under this profit-
sharing mechanism, earnings in excess of the proposed ROE
are shared equally by stockholders and customers via rate
reductions or reductions in the W/S deferral. If
earnings are less than 300 basis points below the
proposed ROE, that loss is borne by shareholders; if
earnings are less than 300 basis points above the ROE,
both the excess would be retained by shareholders and
half would be used to reduce the W/S deferral. If
earnings are more than 300 basis points below the
proposed ROE, shareholders and customers would bear the
loss equally; similarly, earnings of more than 300 basis
points in excess of the ROE would be shared equally.
-18-
FORM 10-Q
PART II. OTHER INFORMATION
Item 1. Legal Proceedings - Continued
The Company's rate plan was vigorously opposed by both
the MPUC Staff and the Maine Public Advocate. Both these
parties took the position that no expenses or investment
previously associated with any of the Company's sales to
its wholesale customers should be borne by its retail
customers. As a result, the MPUC Staff, for example,
proposed an increase of 4.4% in 1996, but only 2.2% for
each year of the plan thereafter. Moreover, neither the
MPUC Staff nor the Public Advocate proposed allowing any
deferral of the W/S expenses or deferred fuel.
After extensive negotiations, the Company, the MPUC Staff
and the Public Advocate filed a Stipulation with the
Commission on November 6, 1995, which established a four-
year rate plan for the Company. The one remaining party
to this proceeding, McCain Foods, Inc., opposed this
Stipulation. After a hearing on November 13, 1995, the
MPUC approved this Stipulation over the objection of
McCain Foods, Inc.
Under the terms of the Stipulation, the Company has the
right to receive the following increases:
January 1, 1996 4.4% $2.1 million
February 1, 1997 2.9% 1.4 million
February 1, 1998 2.75% 1.4 million
February 1, 1999 2.75% 1.4 million
These increases will be subject to increases or decreases
resulting from the operation of the profit-sharing
mechanism, as well as the mandated costs and plant outage
provisions described below. The Company agreed that it
will seek no other increases, for either base or fuel
rates, except as provided under the terms of the rate
plan. There will be no fuel clause adjustments during
the term of the plan.
The Company has agreed to write off, in 1995, and not
collect in retail rates the following amounts:
(a) $4,845,812, net of income taxes, of its
investment in Seabrook previously allocated to wholesale
sales.
(b) $1,370,000, net of income taxes, in other plant
investment, i.e. rate base, except transmission plant,
previously associated with the wholesale customers.
-19-
FORM 10-Q
PART II. OTHER INFORMATION
Item 1. Legal Proceedings - Continued
(c) $3,500,000 ($2,104,000, net of income taxes) in
deferred fuel (see item (a) above).
The total amount of the write-offs, net of income taxes,
in 1995 are approximately $8,320,000, or approximately
$5.14 per share of common stock.
As a condition of the Stipulation, the Company has filed
for waivers for interest coverage tests under its
revolving credit arrangement and the letter of credit
supporting the public utility revenue bonds, 1991 series.
Unless these write-offs are considered extraordinary for
purposes of the interest coverage tests, the Company will
be in violation of these interest coverage tests. The
Company is discussing this matter with the participating
banks and expects a resolution shortly.
The Company will also be permitted to defer an amount of
$1.5 million annually of the costs of the W/S purchases
over the term of the rate plan. The approved rate plan
provides that the Company can seek recovery of this
deferred amount (up to a total of $6 million) in rates
beginning in the year 2001, after the current term of the
W/S contract has expired. The Company will further
amortize over each of the four years of the rate plan,
$300,000, net of income taxes, in deferred fuel with the
remainder, currently estimated to be $1,200,000, net of
income taxes, being deferred until the year 2000.
The approved rate plan further provides for the following
treatment of the Maine Yankee steam generator sleeving
costs (see Part 1, item 2 above under Maine Yankee): the
Company will amortize its share of these costs in equal
amounts over a five-year period beginning on January 1,
1996. At the expiration of the rate plan, the remaining
one-fifth of the costs will be amortized in 2000 subject
to rate treatment at that time.
The approved rate plan contains a profit-sharing
mechanism based upon a target return of equity (ROE) of
11%. This profit-sharing mechanism will apply only to
the last two rate increases scheduled to occur on
February 1, 1998 and February 1, 1999. As part of this
review process, the target ROE will be subject to
adjustment based on an index by averaging over a twelve-
-20-
FORM 10-Q
PART II. OTHER INFORMATION
Item 1. Legal Proceedings - Continued
month period the dividend yields on Moody's group of 24
electric utilities and Moody's utility bond yields. The
profit-sharing mechanism works as follows:
If the Company's ROE exceeds the target ROE by less than
300 basis points, this gain accrues entirely to
shareholders. Similarly, any loss of up to 300 basis
points below the target ROE is borne entirely by the
shareholders.
All earnings of 300 or more basis points below the target
ROE will be shared equally by shareholders and customers.
All earnings of 300 or more basis points above the target
ROE must first be applied to reduce any of deferred W/S
costs described above. Any remaining excess earnings
will be shared equally by customers and shareholders.
The plan also allows the Company to terminate the rate
plan and file for rate increases under traditional rate
application procedures if its earnings fall 500 or more
basis points below the target ROE during any twelve-month
period during the term of the plan.
The method agreed to by the parties for measuring earned
ROE for the purpose of the profit-sharing mechanism and
rate termination provision described above, allocates
various revenues and expenses between the wholesale and
retail jurisdictions using allocators that, in part,
reflect the Company's 1994 allocations. With the loss of
sales to Houlton Water Company beginning in 1996, the
Company estimates that the use of the agreed-upon
allocators will produce a calculation of earnings for the
profit-sharing and termination mechanisms that could be
as much as 400 basis points above the Company's actual
ROE. Because of this disparity, the Stipulation provides
that the agreed-upon allocation methodology will not
apply if the use of those allocators will require the
Company, using Generally Accepted Accounting Principles
(GAAP) to write off any additional assets. In that
event, the parties have agreed to develop a different
method for calculating profit-sharing and termination
that will not require the Company to write off any
additional assets.
-21-
FORM 10-Q
PART II. OTHER INFORMATION
Item 1. Legal Proceedings - Continued
The plan also provides that if either Maine Yankee or
Wheelabrator-Sherman cease operation for more than six
months, the Company shall be allowed to adjust its
allowed rate increases by 50% of the net costs or net
savings resulting from the outage, together with any
carrying costs on the balance deferred. Any net costs or
net savings during the first six months of the outage
would accrue entirely to shareholders.
The plan further contains a mechanism for allocating the
savings resulting from any restructuring of the W/S
contract during the term of the plan. Any savings would
be allocated first to the W/S deferred costs accumulating
at $1.5 million annually, then to the deferred fuel
balance as of December 31, 1995 being deferred until
2000, next to eliminate any on-going W/S deferrals and
finally, any savings that remain will be allocated 95% to
customers and 5% to shareholders.
The plan provides that the Company can flow through to
customers at the time of the scheduled rate increases,
increases or decreases resulting from certain mandated
costs, such as tax or accounting changes, but not costs
resulting from natural disasters. To qualify, a mandated
cost must receive MPUC approval, must be beyond the
control of the Company's management, must effect the
Company specifically or the electric utility generally
and must exceed $300,000 in annual revenue requirements.
The Stipulation also provides for a number of accounting
orders. Among these are orders: permitting the Company
to amortize deferred post-retirement benefits other than
pension (SFAS 106) expenses in equal amounts over a ten-
year period beginning January 1, 1996, along with the
recovery of current year SFAS 106 costs; permitting the
Company to continue rate base treatment for unrecovered
plant costs and depreciation on the Caribou Steam Units
as well as the deferral and amortization over five years
of the reduction in force expenses (including pension
expenses under SFAS 88) resulting from the closing of
those units; and continued deferral and amortization of
replacement power and capacity costs associated with
Maine Yankee scheduled outages. Finally, the Stipulation
clarifies that the rate plan is not deregulation for
accounting purposes and provides for the continuing
-22-
FORM 10-Q
PART II. OTHER INFORMATION
Item 1. Legal Proceedings - Continued
recovery in rates of certain "regulatory assets", such as
the retail portion of the Company's Seabrook investment,
previously allowed by the MPUC.
Moreover, on July 31, 1995, the MPUC approved a Partial
Stipulation in this Docket signed by the Company, the
MPUC Staff and the Public Advocate that would permit the
Company the ability to offer reduced prices to industrial
customers or targeted customer classes. The Company
filed a reduced rate for residential space heat customers
and a special economic development rate for new
commercial and industrial loads. The MPUC approved the
residential space heat rate on October 23, 1995.
(d) Peoples Heritage Bank v. Maine Public Service Company
U.S. District Court (D. ME) Civil Action No. 95-0180-B
On September 18, 1995, Peoples Heritage Bank filed
against the Company a civil action for declaratory and
monetary relief seeking recovery for response costs,
damages and attorneys fees incurred because of the
release of hazardous substance at a site in Presque Isle,
Maine. In 1992, Peoples Heritage purchased the property
and shortly thereafter discovered that the soil at the
site was contaminated with polychlorinated biphenyls
(PCBs) which it now alleges originated with two
electrical transformers placed on the site by the
Company. Peoples Heritage claims to have spent in excess
of $250,000 to remove the PCB contaminated soil and seeks
reimbursement of this amount.
The suit is brought pursuant to the Comprehensive
Environmental Response, Compensation and Liability Act of
1980 (CERCLA), the Federal Declaratory Judgment Act and
under common law grounds of strict liability for
abnormally dangerous activities, negligence and trespass.
The Company has denied liability in this matter but
cannot predict the outcome of this action.
-23-
FORM 10-Q
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
Maine Yankee
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits - none.
(b) Reports on Form 8-K - none.
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.
MAINE PUBLIC SERVICE COMPANY
(Registrant)
Date: November 14, 1995 Larry E. LaPlante
Larry E. LaPlante, Vice President
Finance and Treasurer
-24-
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