SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1994. Commission File No. 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
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
Common Stock, $7.00 par value American Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
Title of Class
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 by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
Aggregate market value of the voting stock held by non-affiliates at
March 10, 1995: $37,398,906.
The number of shares outstanding of each of the issuer's classes of
common stock as of March 10, 1995.
Common Stock, $7.00 par value - 1,617,250 shares
DOCUMENTS INCORPORATED BY REFERENCE
1. The Company's 1994 Annual Report to Stockholders is incorporated by
reference into Parts I, II and IV.
2. The Company's definitive proxy statement, to be filed pursuant to
Regulation 14A no later than 120 days after December 31, 1994, which is the
end of the fiscal year covered by this report, is incorporated by reference
into Part III.
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PART I Form 10-K
Item 1. Business
General
The Company was originally incorporated as the Gould Electric
Company in April, 1917 by a special act of the Maine legislature. Its
name was changed to Maine Public Service Company in August, 1929. Until
1947, when its capital stock was sold to the public, it was a subsidiary
of Consolidated Electric & Gas Company. Maine and New Brunswick
Electrical Power Company, Limited, the Company's wholly-owned Canadian
subsidiary (the "Subsidiary") was incorporated in 1903 under the laws of
the Province of New Brunswick, Canada. The properties of the Company
and Subsidiary are operated as a single integrated system.
The Company engages in the production, transmission and
distribution of electric energy to retail and wholesale customers in all
of Aroostook County and a small portion of Penobscot County in northern
Maine. Geographically, the service territory is approximately 120 miles
long and 30 miles wide, with a population of approximately 90,000.
The service area of the Company includes one of the most important
potato growing and processing sections in the United States. In
addition, the area produces wood products, principally pulp wood for
paper manufacturing.
The Subsidiary is primarily a hydro-electric generating company.
It owns and operates the Tinker hydro plant in New Brunswick, Canada,
and sells to the Company the energy not needed to supply its wholesale
New Brunswick customer. During 1994, sales to the Company amounted to
88,633 MWH out of the 113,569 MWH generated for sale at Tinker.
The Company and the Subsidiary's net energy production, including
generated and purchased power, required to serve all customers, was
754,322 MWH for the twelve months ended December 31, 1994. The
following table sets forth the sources from which the Company and the
Subsidiary obtained their power requirements in 1994.
1994 Megawatt-hours Generated
Sources of Power or Purchased
Net Generation:
Hydro 118,759
Steam 18,559
Diesel (153)
Total 137,165
Purchases:
Nuclear Generated 326,334
Fossil Fuel Generated 163,389
Biomass Generated 126,783
Total 616,506
Inadvertent Received 651
Total System 754,322
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PART I Form 10-K
As of June 4, 1984, the Company entered into a Power Purchase
Agreement with Sherman Power Company, which assigned its interest in the
Agreement to Wheelabrator-Sherman Energy Company, formerly Signal-
Sherman Energy Company, (a cogenerator), for approximately 18 MW of
capacity which began July, 1986. The contract expires in 2001.
Financial Information about Foreign and Domestic Operations
Financial Information Relating
To Foreign and Domestic Operations
(In Thousands of U.S. Dollars)
1994 1993 1992
Revenues from
Unaffiliated Customers:
Company-United States 57,600 59,886 55,915
Subsidiary-Canada 706 690 656
Intercompany Revenues:
Company-United States 646 649 540
Subsidiary-Canada 1,824 2,312 2,218
Operating Income:
Company-United States 7,932 8,347 8,296
Subsidiary-Canada 387 579 646
Net Income
Company-United States 4,469 4,687 4,287
Subsidiary-Canada 377 614 578
Identifiable Assets:
Company-United States 115,912 118,323 106,371
Subsidiary-Canada 6,463 6,613 5,677
The identifiable assets, by company, are those assets used in each
company's operations, excluding intercompany receivables and
investments.
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PART I Form 10-K
Source of Revenues
In 1994, consolidated operating revenues totaled $58,306,085.
The percentages of revenues derived from customer classes are as
follows:
%
Residential 33.7
Small Commercial and Industrial 26.8
Large Commercial and Industrial 15.8
Public Authorities 3.6
Sales to Wholesale Customers for Resale 11.9
Other Sales and Other Revenues 8.2
Total 100.0
Sales to wholesale customers for resale includes three wholesale
customers that entered into new contracts with the Company in mid-1993.
These contracts contained rates lower than those typically allowed under
FERC's traditional ratemaking. Capitalizing on the availibility of low
cost power in New England, the wholesale customers issued a request for
a proposal in September, 1994 for their purchased power requirements
effective January 1, 1996. Houlton Water Company (Houlton), the
Company's largest customer, selected an offer from another utility,
while the remaining wholesale customers, Van Buren Light and Power
District (Van Buren) and Eastern Maine Electric Cooperative, Inc. (EMEC)
selected the Company's six-year proposal, which cannot be terminated
before December 31, 1998. These new rates were effective January 1,
1995. In 1994, sales to Houlton represented 9.0% of the Company's
consolidated MWH sales and 7.6% of consolidated operating revenues. Van
Buren and EMEC represented 3.7% of consolidated MWH sales and 3.1% of
consolidated operating revenues.
On February 10, 1995, the Company filed with the MPUC notice of its
intent to file, on or about April 10, 1995, a general rate case. The
Company will at the same time file a five-year rate plan which, if
approved, will result in new rates beginning in early 1996.
The closing of Loring Air Force Base (Loring) was completed in
September, 1994. In 1994, Loring and related accounts represented 3.8%
of consolidated MWH sales and 3.4% of consolidated operating revenues.
In 1993, when the Base was operating for the entire year, Loring
accounted for 7.3% of consolidated MWH sales and 5.7% of consolidated
operating revenues. A civilian authority is now the caretaker of the
facility charged with finding tenants. The Department of Defense is
presently establishing a Defense Finance and Accounting Service Center,
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PART I Form 10-K
which will employ approximately 600 people. In addition, Loring has
been chosen as a Jobs Corp Center, which is scheduled to open in 1996.
The Company has offered load retention rates to several major
industrial customers. These customers have the option to self-generate;
however, the Company believes it can compete with self-generation. Any
load retention rates must be approved by the Maine Public Utilities
Commission.
For additional discussion on revenues, see 1994 Annual Report to
Stockholders, pages 4 and 5, "Analysis of Financial Condition and Review
of Operations-Operating Revenues and Energy Sales" and pages 9 to 11,
"Regulatory Proceedings", which information is incorporated herein by
reference.
Regulation and Rates
The Company is subject to the regulatory authority of the Maine
Public Utilities Commission (MPUC) as to retail rates, accounting,
service standards, territory served, the issuance of securities and
various other matters. With respect to wholesale rates and certain
other matters, the Company is or may be subject to the jurisdiction of
the Federal Energy Regulatory Commission (FERC). The Company maintains
its accounts in accordance with the accounting requirements of the FERC
which generally conform with the accounting requirements of the MPUC.
At this time, the Company is not subject to the Public Utilities
Regulatory Policies Act of 1978 ("PURPA") because it has not exceeded
the threshold of 2,000,000,000 kilowatt-hours excluding wholesale sales.
However, the Maine Legislature has by statute instructed the MPUC that
it may consider PURPA standards in rate proceedings before that
Commission.
The generating facilities of the Company and Subsidiary meet the
applicable current environmental regulations of State and Federal
governments of the United States and Provincial and Dominion governments
of Canada, except for the three diesel stations (12 MW) and the oil-
fired generating plant located in Caribou, Maine (23 MW). The Maine
Department of Environmental Protection (DEP), in response to the
Company's application for air emission licenses, has indicated that the
application did not demonstrate that Ambient Air Quality Standards and
Increments will not be violated. With the cooperation of the DEP Staff,
the Company is studying what steps, if any, are required for licensing,
and cannot determine at this time what, if any, additional capital
expenditures may be required.
See 1994 Annual Report to Stockholders, pages 9 to 11, "Analysis of
Financial Condition and Review of Operations - Regulatory Proceedings",
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PART I Form 10-K
which information is incorporated herein by reference, for additional
information on regulatory matters.
Franchises and Competition
Except for consumers served at retail by the Company's wholesale
customers, the Company has practically an exclusive franchise to provide
electric energy in the Company's service area.
Employees
The information with respect to employees is presented in the 1994
Annual Report to Stockholders, page 8, "Employees", which information is
incorporated herein by reference.
Subsidiaries and Affiliated Companies
The Company owns 100% of the Common Stock of Maine and New
Brunswick Electrical Power Company, Limited (the Subsidiary). The
Subsidiary owns and operates the Tinker Station located in the Province
of New Brunswick, Canada. The Tinker Station has five hydro units with
total capacity of 33,500 kilowatts and a small diesel unit of 1,000
kilowatts. The Subsidiary serves the community of Perth-Andover in New
Brunswick, with the remaining energy exported to the Parent Company in
Maine under license of the National Energy Board of Canada. On June 16,
1988, the export license was renewed to 2008.
The Parent Company owns 5% of the Common Stock of the Maine Yankee
Atomic Power Company (Maine Yankee). Maine Yankee owns and operates an
860,000 kilowatt nuclear generating plant in Wiscasset, Maine. The
Company is entitled to purchase approximately 4.9% of the energy
produced by the plant. During 1994, 1993 and 1992, purchases from Maine
Yankee were $9,645,000, $8,760,000 and $8,723,000, respectively.
The Maine Yankee Plant, like other pressurized water reactors, has
been experiencing degradation of its steam generator tubes principally
in the form of circumferential cracking, which, until early 1995, was
believed to be limited to a relatively small number of steam generator
tubes. In the past the detection of defects has resulted in the
plugging of those tubes to prevent their subsequent use. During the
refueling-and-maintenance shutdown that commenced in early February of
1995, Maine Yankee has detected an increased rate of degradation of the
Plant's steam generator tubes in excess of the number expected and is
currently evaluating several courses of action to address the matter.
This detection of a significantly larger number of degraded tubes is
likely to adversely affect the operation of the Plant and may result in
substantial cost to Maine Yankee and its sponsors, including the
Company. As a result, Maine Yankee will be out of operation for an
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PART I Form 10-K
undetermined amount of time, which could substantially increase the
Company's cost of replacement power. Maine Yankee cannot now predict
what course of action it will choose, or to what extent the operation of
the Plant will be affected.
For information with respect to the business, properties and legal
proceedings and environmental matters relating to Maine Yankee, and the
obligations of the Company in respect of Maine Yankee, see Exhibit
28(a), which information is incorporated herein by reference.
The Company also owns 7.49% of the Common Stock of Maine Electric
Power Company, Inc. (MEPCO). MEPCO owns and operates a 345-KV
(kilovolt) transmission line about 180 miles long which connects the New
Brunswick Power (NB Power) system with the New England Power Pool. The
MEPCO transmission line is also the path by which Maine Yankee and Wyman
#4 energy is delivered northerly into the NB Power system and then
wheeled to the Parent Company through its interconnection with NBEPC at
the international border.
Executive Officers
The executive officers of the registrant are as follows:
Office
Continuously
Name Age Held Since
Paul R. Cariani President and Chief 54 6/1/94
Executive Officer
Frederick C. Bustard Vice President, 57 6/1/90
Engineering & Operations
Larry E. LaPlante Vice President, 43 6/1/94
Finance and Treasurer
Stephen A. Johnson Vice President, 47 6/1/90
Customer Service and
General Counsel
Secretary and Clerk
Paul R. Cariani has been an employee of the Company since November
1, 1977, starting as an Assistant to the Treasurer. In May 1978, he was
appointed Assistant Treasurer until his election as Treasurer, Secretary
and Clerk, on March 1, 1983. In May 1985, he was elected Vice
President-Finance and Treasurer effective June 1, 1985. On February 25,
1992, Mr. Cariani was elected a Director of the Company to fill an
existing vacancy on the Board. On May 11, 1993, he was elected
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PART I Form 10-K
Executive Vice President, Chief Financial Officer and Treasurer,
effective June 1, 1993. On May 10, 1994, he was elected President and
CEO, replacing the retiring G. Melvin Hovey. Mr. Hovey remains Chairman
of the Board of Directors.
Frederick C. Bustard was elected to the position of Vice President
of Engineering & Operations effective June 1, 1990. He has been a full-
time employee of the Company since June 15, 1959 in various engineering
capacities until July 1, 1980, when he was appointed Assistant to the
President. On June 1, 1983, he was elected Vice President, Engineering
& Operations. On September 1, 1988, he was elected to the new position
of Vice President of Customer Service and Division Operations, a
position he held until his reappointment to Vice President of
Engineering & Operations.
Larry E. LaPlante has been an employee of the Company since
November 4, 1983, starting as Controller. In May, 1984, he was also
appointed Assistant Secretary and Assistant Treasurer until his election
as Vice President, Finance and Treasurer on May 10, 1994.
Stephen A. Johnson was elected to the new position of Vice
President, Customer Service and General Counsel, effective June 1, 1990.
Mr. Johnson also continues in his capacity as Secretary and Clerk of the
Company, a position he has held since June 1, 1985. Mr. Johnson was
appointed General Counsel of the Company on March 5, 1985. On September
1, 1988, he was elected Vice President of Administration and General
Counsel, a position he held until his election as Vice President,
Customer Service and General Counsel. Prior to joining the Company Mr.
Johnson was the General Counsel of the Maine Public Advocate Office from
1983 to 1985 and prior to that was a Staff Attorney of the Maine Public
Utilities Commission.
Each executive office is a full-time position and has been the
principal occupation of each officer since first elected. All officers
were elected to serve until the next annual election of officers and
until their successors shall have been duly chosen and qualified. The
next annual election of officers will be on May 9, 1995.
There are no family relationships among the executive officers.
Item 2. Properties
The Company owns and operates electric generating facilities
consisting of: oil-fired steam units with a total capability of 23,000
kilowatts, diesel generation totaling 12,300 kilowatts, and hydro-
electric facilities of 2,300 kilowatts. The Subsidiary owns and
operates a hydro-electric plant of 33,500 kilowatts and a small diesel
unit with 1,000 kilowatt capacity.
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PART I Form 10-K
As of December 31, 1994, the Company and Subsidiary had
approximately 445 pole miles of transmission lines and the Company owned
approximately 1,588 miles of distribution lines.
The Company is a part-owner of a 600,000 kilowatt oil-fired steam
unit built by Central Maine Power Company at its Wyman Station in
Yarmouth, Maine. The Company's share of that unit is 3.3455%, or
approximately 20,000 kilowatts.
Substantially all of the properties owned by the Company are
subject to the liens of the First and Second Mortgage Indentures and
Deeds of Trust.
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Form 10-K
PART I
Item 3. Legal Proceedings
(a) Maine Public Service Company, Re: Squa Pan Hydro Project,
FERC Project Number 2368-001-Maine.
The Company owns and operates a 1.4 megawatt hydro
project located on the Squa Pan Stream in Masardis,
Maine. Since 1965, the Company has operated this project
pursuant to a water power project license granted by the
FERC, which license expired on December 31, 1990. On
December 28, 1988, the Company filed its application with
the FERC to relicense the project for a term of 40 years.
As part of this relicensing application, the Company,
pursuant to requirements of the Federal Power Act,
negotiated with various state and federal environmental
and resource agencies concerning the Company's efforts to
mitigate any adverse environmental impacts of the
project.
The FERC issued the Company a 30-year license on December
4, 1991. On January 4, 1992, however, the U.S.
Department of the Interior, which had been a party to
previous negotiations, petitioned the FERC to reconsider
its December 4, 1991 license approval. Alleging certain
procedural irregularities, the Department of the Interior
asked the FERC to revoke the December 4, 1991 license and
to require the Company to undertake additional measures
to protect and enhance the fish and wildlife resources
affected by the project. Although the FERC has this
request under advisement, the FERC has not scheduled
proceedings on this matter. The Company cannot predict
the outcome of this reconsideration request.
(b) Complaint and Petition of Maine Public Service Company
to the Maine Public Utilities Commission (MPUC) With
Regard to a June 4, 1984 Power Purchase Agreement Between
Maine Public Service Company and the Wheelabrator-Sherman
Energy Company, Docket Nos. 94-301, 81-276, 83-264 and
83-303
On February 10, 1984, in Docket Nos. 81-276, 83-264 and
83-303, the Maine Public Utilities Commission (MPUC)
issued an order that both required the Company to enter
into a long-term purchase power contract and established
the price at which the Company should purchase that
power. In entering this order, the MPUC was acting
pursuant to Section 210 of the Public Utilities
Regulatory Policy Act of 1978 (PURPA) and regulations
promulgated thereunder by the Federal Energy Regulatory
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Form 10-K
PART I
Item 3. Legal Proceedings - Continued
Commission under which electric utilities are required to
purchase power from so-called Qualifying Facilities (QFs)
at rates equal to the utility's avoided cost.
Pursuant to the MPUC's February 10, 1984 Order, the
Company executed a Purchase Power Agreement (PPA) with
the Sherman Power Company on June 4, 1984. Under the
terms of the PPA, the Company must, through the year
2000, purchase all of the output (up to 126,582 MWH) of
a 17.6 MW wood-burning facility located in Sherman Mills,
Maine. This facility is a QF within the meaning of
PURPA. In 1985, the PPA was assigned to the Signal-
Sherman Energy Company, which became the Wheelabrator-
Sherman Company in 1988.
The initial contract rate for the year 1986 was 8.2 cents per
kwh. The rate has increased to 10.989 cents per kwh in 1994
and will increase to 14.726 cents per kwh in 2000. In 1994,
purchases under the PPA represented 16.8% of the
Company's total power supply mix, while accounting for
50.2% of its total power supply cost, or $13,932,000.
The Company now estimates that its avoided costs from
1994 through 2000 are between 3.2 cents and 5.7 cents per kwh.
Thus, the cost of power under the remainder of the PPA,
according to the Company's calculations, is approximately
350% higher than the Company's estimated avoided cost
during the same period. As a result, the Company
estimates that its average retail rates will be higher by
more than 20% during the remainder of the PPA than they
would be if retail rates were based on current avoided
cost estimates.
Because it believes the cost of power purchased under the
PPA is excessive, the Company has been attempting to
renegotiate the rate for these purchases with
Wheelabrator-Sherman since June, 1993. These
negotiations have not been successful. Therefore on
August 25, 1994, the Company filed a Complaint and
Petition against the PPA with the MPUC based upon the
cost estimates set forth in the preceding paragraph.
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Form 10-K
PART I
Item 3. Legal Proceedings - Continued
Count I of the filing was a Complaint against the PPA
pursuant to 35-A M.R.S.A. Section 1302(3) in which the Company
alleged that its continued performance of its obligations
under the PPA results in retail rates that are unjust and
unreasonable and constitutes an unreasonable act on its
part, both contrary to the laws of the State of Maine.
The Company therefore requested the MPUC, pursuant to
Count I, to enter an order prohibiting it from any
further performance of its obligations under the PPA. In
the alternative, Count II was a petition, pursuant to 35-
A M.R.S.A. Section 1321, to the MPUC to alter or amend its
February 10, 1984 order in Docket Nos. 81-276, 83-264 and
83-303 based upon the Company's allegations that the
price for purchases under the PPA is greatly in excess of
the Company's actual avoided cost. Under Count II, the
Company asked the MPUC to rescind the purchase price term
of the PPA and establish new terms under which the
Company is required to purchase power from Wheelabrator-
Sherman. Had the Company been successful under either
Count, it believes its average retail rate would be
approximately 20% lower than it would be if the PPA
remained in place.
On November 4, 1994, Wheelabrator-Sherman filed a Motion
to Dismiss the Petition and Complaint with the MPUC,
claiming that the MPUC has no jurisdiction over the
matter. Wheelabrator was joined in this Motion by other
intervenors. The Company responded to this Motion on
November 18, 1994 and the MPUC heard oral argument on the
matter for November 22, 1994.
On January 19, 1995, the MPUC issued its order granting
Wheelabrator-Sherman's Motion to Dismiss both Counts of
the Company's Complaint and Petition on the grounds of
federal preemption. The MPUC based the dismissal on its
conclusion that PURPA (i) removes any authority the MPUC
might have to find the Company's continued performance of
its obligations under the PPA to be an unreasonable act
under State law (Count I) and (ii) prohibits the MPUC
from readjusting the PPA price term (Count II). After
reviewing the Commission's Order, the Company has
determined that it will not appeal this dismissal.
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Form 10-K
PART I
Item 3. Legal Proceedings - Continued
(c) Maine Public Service Company Petition to Decrease Capital
Stock, MPUC Docket No. 94-341
Reference is made to the Company's Form 8-K dated January
7, 1994 in which the Company reported the resumption of
its program to repurchase up to 500,000 shares of its
Common Stock. The authorization for the program, granted
by the Maine Public Utilities Commission (MPUC), Docket
No. 89-97, expired on September 19, 1994. Over the five-
year period of the program, the Company purchased 250,000
shares of stock at a cost of $5,714,376.
On September 9, 1994, the Company's Board of Directors
authorized the filing of an application to the MPUC for
permission to repurchase up to an additional 300,000
shares over a five year period. The Company filed the
application with the MPUC on September 23, 1994. On
November 1, 1994, the MPUC approved the Company's
application.
(d) Maine Public Service Company, Application for Fuel Cost
Adjustment, MPUC Docket 93-361
On December 29, 1993, the Company submitted an
application to the MPUC with respect to its fuel
adjustment clause for the twelve months ended March 31,
1995. Because of a decline in oil prices, reasonable
assumptions for fuel cost during this period showed
either a slight increase or slight decrease over the
then-current fuel clause. Because the Company did not
view these changes as material, it proposed to make no
change in the fuel clause on April 1, 1994. On March 18,
1994, the MPUC issued its Order approving the Company's
proposal.
(e) 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 is proposing to
defer recovery of approximately $1.5 million in the cost
of power purchased from the Wheelabrator-Sherman Energy
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Form 10-K
PART I
Item 3. Legal Proceedings - Continued
Company (see item (b) above for a description of these
purchases). The deferred amount would be combined with
the additional deferrals of these costs as proposed under
the Company's rate plan (see item (g) below). The
Company is attempting to reach agreement with the MPUC
Staff and other intervenors on this matter, but cannot
predict its ultimate outcome.
(f) 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.
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 intends to argue that the MPUC should
not grant HWC's requested approval. The Company will
base its argument on CMP's intention to serve HWC's load
from a facility that CMP acquired using State financing.
The Company believes 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. The MPUC has
taken argument on whether its authority in this matter is
broad enough to encompass the issues raised by the
Company. This matter presents novel questions of State
public utility regulatory law and the Company cannot
predict the outcome of this proceeding.
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Form 10-K
PART I
Item 3. Legal Proceedings - Continued
(g) Maine Public Service Company Notifies the Maine Public
Utilities Commission of its Intent to File for a General
Rate Increase, MPUC Docket No. 95-051
On February 10, 1995, Maine Public Service Company filed
with the Maine Public Utilities Commission notice of its
intent to file, on or about April 10, 1995, a general
rate case. The Company will at the same time file a
five-year rate plan which, if approved, will result in
new rates beginning in early 1996 as detailed below.
The Company has taken a number of measures to delay this
action as long as possible but is faced with a period of
declining sales and escalating power costs. In 1996,
when the proposed rates would begin, the Company
anticipates a 10.5% reduction in sales to its primary
customers, compared to 1994 sales, principally Loring Air
Force Base and the Company's largest Wholesale Customer,
Houlton Water Company. In December of 1994, Houlton
selected a competing offer from Central Maine Power
Company to be served from its newly acquired subsidiary
located in the Company's service territory (see item (f)
above). The 5% contractual annual increase in the cost
of power from the Wheelabrator-Sherman facility also must
be collected from the Company's customers through future
rate increases.
Using traditional ratemaking principles, MPS anticipates
its general rate case filing will support an increase in
annual base revenues of approximately $4.8 million, or a
9.5% increase in total retail rates. In addition, the
Company would also be entitled to a fuel clause increase
of $500,000 in 1996 due solely to the loss of sales to
the Houlton Water Company. However, an alternate under
such traditional principles, the Company also proposes a
five-year rate plan, which covers the years 1996 to 2000.
The rate plan provides the Company with the rate setting
mechanism to meet growing competition in the electric
utility industry while providing stable and predictable
rates to customers without competitive options. This
plan will also eliminate the need to file for annual rate
increases and saves the expenses associated with such
filings. The general elements of this plan are described
below.
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Form 10-K
PART I
Item 3. Legal Proceedings - Continued
Total average retail rates, including fuel, will increase
from 1995 levels 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 the Plan, the Company will propose to
eliminate the annual fuel adjustment clause except for
the cost of power purchased from the Wheelabrator-Sherman
Energy Company, an independent power producer. During
the years 1996-2000, MPS will defer up to $3 million
annually of its power costs from the Wheelabrator-Sherman
facility. After the current contract with Wheelabrator-
Sherman expires at the end of 2000, the Company will
begin to collect this deferral, along with carrying
charges, when the price for comparable power is expected
to be lower than under the existing contract.
MPS also proposes to write-off and not collect in retail
rates approximately $4.9 million, net of income taxes, of
its remaining investment in the Seabrook project
previously supported by its wholesale customers,
principally Houlton Water Company.
The Plan also includes a sharing mechanism based on the
proposed allowed return on equity (ROE) at 12%. As part
of an annual review process, the allowed ROE will be
adjusted annually based on an index by averaging over a
twelve-month calendar year the dividend yields on Moody's
group of 24 electric utilities and Moody's utility bond
yields. If the annual return is two percentage points
below the allowed return on equity, 50% of the deficiency
will be collected from customers in the subsequent year.
If the annual return on equity exceeds the allowed return
on equity by less than two percentage points, 50% of the
excess will be used to reduce the Wheelabrator-Sherman
deferral but not below zero. If the annual return on
equity exceeds the allowed ROE by two percentage points,
50% of the excess will be used to reduce current rates or
to reduce the Wheelabrator-Sherman deferral previously
described.
- 16 -
Form 10-K
PART I
Item 3. Legal Proceedings - Continued
The rate plan will also provide the Company with flexible
pricing provisions under which the Company can offer
discounts to individual or to selected rate classes with
only minimum review by the MPUC. These provisions will
enhance its ability to compete with other suppliers of
retail fuel. In addition, the Company will propose
economic development rates for new commercial and
industrial activities.
An adjustment to any element of the plan could require
adjustments to other elements of the plan.
(h) Power Contracts Between the Company and Van Buren Light
and Power District and Eastern Maine Electric
Cooperative, Inc., FERC Docket No. ER95-374-000
Reference is made to the Company's Form 8-K dated
December 7, 1994 in which the Company reported that two
of the Company's wholesale customers, Van Buren Light and
Power District (Van Buren) and the Eastern Maine Electric
Cooperative, Inc. (EMEC), had agreed to new power supply
contracts with the Company. These contracts run through
December 31, 2000 and cannot be terminated prior to
December 31, 1998. These new contracts became effective
January 1, 1995 and provide for rates that are
approximately 20% lower than rates under the contracts
that were terminated on December 31, 1994. For the
twelve months ended December 31, 1994, sales to Van Buren
and EMEC represented 3.7% of the Company's consolidated
MWH sales and 3.1% of consolidated operating revenues.
The FERC approved these contracts by Order dated February
1, 1995.
- 17 -
Form 10-K
PART I
Item 4. Submission of Matters To a Vote of Security Holders
At the Company's Annual Meeting of Stockholders, held on
May 10, 1994, the only matter voted upon was the
uncontested election of the following directors to serve
until the 1997 Annual Meeting of Stockholders, each of
whom received the votes shown:
Non-votes and
Nominee For Against Abstentions
Robert E. Anderson 1,200,003 11,728 405,519
Nathan L. Grass 1,200,161 11,570 405,519
J. Paul Levesque 1,200,719 11,012 405,519
- 18 -
Form 10-K
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters
The Company's Common Stock is listed and traded on the
American Stock Exchange. As of December 31, 1994, there were
1,650 holders of record of the Company's Common Stock.
Dividend data and market price related to the Common Stock are
tabulated as follows for the two most recent calendar years:
Dividends
Market Price Dividends Declared
High Low Paid Per Share Per Share
1994
First Quarter $27-3/8 $26 $ .46 $ .46
Second Quarter $27 $25-1/4 .46 .46
Third Quarter $26 $22-3/4 .46 .46
Fourth Quarter $24 $20-1/2 .46 .46
Total Dividends $1.84 $1.84
1993
First Quarter $30-1/2 $25-5/8 $ .44 $ .44
Second Quarter $31-1/4 $27-7/8 .44 .44
Third Quarter $30-7/8 $28-3/4 .44 .44
Fourth Quarter $30-1/8 $25-5/8 .44 .46
Total Dividends $1.76 $1.78
Dividends declared within the quarter are paid on the first day of
the succeeding quarter.
Common Stock Repurchase Program
On September 19, 1989, the Company received approval from the Maine
Public Utilities Commission (MPUC) to repurchase, from time to time over
a period no longer than five years, up to 500,000 shares of its Common
Stock. By the expiration of this approval in September, 1994, the
Company had purchased 250,000 shares under the program at a cost of
$5,714,376, all of which are held as treasury shares. On November 1,
1994, the MPUC approved a similar program to repurchase up to an
additional 300,000 shares over a five-year period. No purchases have
been made under the new program. The shares are repurchased through an
open-market program. The repurchase program's primary purpose is to
maintain the Company's common equity at levels appropriate for an
investor-owned utility.
- 19 -
Form 10-K
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters - Continued
See Note 7 to the financial statements incorporated herein by
reference concerning restrictions on payment of dividends on
Common Stock.
Item 6. Selected Financial Data
A five-year summary of selected financial data (1990-1994) is
included on page 12 of the Company's 1994 Annual Report to
Stockholders, which summary is incorporated herein by
reference.
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations
The information required to be furnished in response to this
Item is submitted as pages 4-11, Exhibit 13, 1994 Annual
Report to Shareholders, which pages are hereby incorporated
herein by reference. Information regarding "Construction" is
also furnished in Note 9, "Commitments and Contingencies", of
the Notes to the Consolidated Financial Statements, pages 25
to 27 of the 1994 Annual Report to Shareholders, which pages
are hereby incorporated herein by reference.
- 20 -
Form 10-K
PART II
Item 8. Financial Statements and Supplementary Data
(a) The following financial statements and supplementary
data are included in the Company's 1994 Annual Report to
Stockholders on pages 13 through 27 and are incorporated
herein by reference:
Independent Auditors' Report.
Statements of Consolidated Income for the years
ended December 31, 1994, 1993 and 1992.
Statements of Consolidated Cash Flows for the years
ended December 31, 1994, 1993 and 1992.
Consolidated Balance Sheets as of December 31, 1994
and 1993.
Statements of Consolidated Common Shareholders'
Equity for the years ended December 31, 1994, 1993
and 1992.
Consolidated Statements of Capitalization as of
December 31, 1994 and 1993.
Notes to Consolidated Financial Statements.
Item 9. Changes In And Disagreements With Accountants On
Accounting and Financial Disclosure
None.
- 21 -
Form 10-K
PART III
Item 10. Directors and Executive Officers of the Registrant
Information with regard to the Directors of the registrant is
set forth in the proxy statement of the registrant relating to
its 1995 Annual Meeting of Stockholders, which information is
incorporated herein by reference. Certain information
regarding executive officers is set forth under the caption
"Executive Officers" in Item 1 of Part I of this Form 10-K and
also in the proxy statement of the registrant relating to the
1995 Annual Meeting of Stockholders, under "Compliance with
Section 16(a) of the Securities and Exchange Act of 1934",
which information is incorporated by reference.
Item 11. Executive Compensation
Information for this item is set forth in the proxy statement
of the registrant relating to its 1995 Annual Meeting of
Stockholders, which information (with the exception of the
"Board Executive Compensation Committee Report") is
incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and
Management
Information for this item is set forth in the proxy statement
of the registrant relating to its 1995 Annual Meeting of
Stockholders, which information is incorporated herein by
reference.
Item 13. Certain Relationships and Related Transactions
Not applicable.
- 22 -
Form 10-K
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on
Form 8-K
(a) (1) Financial Statements
Independent Auditors' Report appears on page 35
of this Form 10-K.
Incorporated by reference into Part II of this
report from pages 13 through 27 of the 1994 Annual
Report to Stockholders:
Independent Auditors' Report.
Statements of Consolidated Income for years ended
December 31, 1994, 1993 and 1992.
Statements of Consolidated Cash Flows for the years
ended December 31, 1994, 1993 and 1992.
Consolidated Balance Sheets as of December 31, 1994
and 1993.
Statements of Consolidated Common Shareholders'
Equity for the years ended December 31, 1994, 1993
and 1992.
Consolidated Statements of Capitalization as of
December 31, 1994 and 1993.
Notes to Consolidated Financial Statements.
(2) Financial Statement Schedules
Included in Part IV of this report:
- 23 -
Form 10-K
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form
8-K - Continued
Page
Report of Independent Public Accountants 35
Schedule II - Valuation of Qualifying Accounts 36
and Reserves
Schedules other than those listed above are omitted for the
reason that they are not required or are not applicable, or
the required information is shown in the financial statements
or notes thereto.
(3) Exhibits
Certain of the following exhibits are filed
herewith. Certain other of the following exhibits
have heretofore been filed with the Commission and
are incorporated herein by reference. (* indicates
filed herewith).
3(a) Restated Articles of Incorporation with all
amendments through May 8, 1990. (Exhibit 3(a)
to 1990 form 10-K)
3(b) By-laws of the Company, as amended through May
12, 1987. (Exhibit 3(b) to 1987 Form 10-K)
4(a) Indenture of Mortgage and Deed of Trust
defining the rights of the holders of the
Company's First Mortgage Bonds. (Exhibit 4(a)
to 1980 Form 10-K)
4(b) First Supplemental Indenture. (Exhibit 4(b)
to 1980 Form 10-K)
4(c) Second Supplemental Indenture. (Exhibit 4(c)
to 1980 Form 10-K)
4(d) Third Supplemental Indenture. (Exhibit 4(d)
to 1980 Form 10-K)
- 24 -
Form 10-K
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form
8-K - Continued
4(e) Fourth Supplemental Indenture. (Exhibit 4(e)
to 1980 Form 10-K)
4(f) Fifth Supplemental Indenture. (Exhibit A to
Form 8-K dated May 10, 1968)
4(g) Sixth Supplemental Indenture. (Exhibit A to
Form 8-K dated April 10, 1973)
4(h) Seventh Supplemental Indenture. (Exhibit A to
Form 8-K dated November 7, 1975)
4(i) Eighth Supplemental Indenture. (Exhibit 4(i)
to 1980 Form 10-K)
4(j) Ninth Supplemental Indenture. (Exhibit B to
Form 10-Q for the second quarter of 1978)
4(k) Tenth Supplemental Indenture. (Exhibit 4(k)
to 1980 Form 10-K)
4(l) Eleventh Supplemental Indenture. (Exhibit
4(l) to 1982 Form 10-K)
4(m) Indenture defining the rights of the holders
of the Company's 9 7/8% debentures. (Exhibit
A to Form 8-K, dated June 10, 1970)
4(n) Indenture defining the rights of the holders
of the Company's 14% debentures. (Exhibit
4(n) to 1982 Form 10-K)
4(o) Twelfth Supplemental Indenture. (Exhibit 4(o)
to Form 10-Q for the quarter ended September
30, 1984)
4(p) Thirteenth Supplemental Indenture. (Exhibit
4(p) to Form 10-Q for the quarter ended
September 30, 1984)
4(q) Fourteenth Supplemental Indenture, Dated July
1, 1985. (Exhibit 4(q) to 1985 Form 10-K)
4(r) Fifteenth Supplemental Indenture, Dated March
1, 1986. (Exhibit 4(r) to 1985 Form 10-K)
- 25 -
Form 10-K
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form
8-K - Continued
4(s) Sixteenth Supplemental Indenture, Dated
September 1, 1991. (Exhibit 4(s) to the
Company's 1991 Form 10-K).
9 Not applicable.
10(a)(1) Joint Ownership Agreement with Public Service
of New Hampshire in respect to construction of
two nuclear generating units designated as
Seabrook Units 1 and 2, together with related
amendments to date. (Exhibit 10 to 1980 Form
10-K)
10(a)(2) Twentieth Amendment to Joint Ownership
Agreement (Exhibit 10(a)(6) to the Company's
1986 Form 10-K)
10(a)(3) Twenty-Second Amendment to Joint Ownership
Agreement. (Exhibit 10(a)(3) to the 1988 Form
10-K)
10(b)(1) Capital Funds Agreement, dated as of May 20,
1968 between Maine Yankee Atomic Power Company
and the Company. (Exhibit 10(b)(1) to Form
10-Q for the quarter ended March 31, 1983)
10(b)(2) Power Contract, dated as of May 20, 1968
between Maine Yankee Atomic Power Company and
the Company. (Exhibit 10(b)(2) to Form 10-Q
for the quarter ended March 31, 1983)
10(c)(1) Participation Agreement, as of June 20, 1969,
with Maine Electric Power Company, Inc.
(Exhibit 10(c)(1) to Form 10-Q for the quarter
ended March 31, 1983)
10(c)(2) Agreement, as of June 20, 1969, among the
Company and the other Maine Participants.
(Exhibit 10(c)(2) to Form 10-Q for quarter
ended March 31, 1983)
- 26 -
Form 10-K
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form
8-K - Continued
10(c)(3) Power Purchase and Transmission Agreement
Supplement to Participation Agreement, dated
as of August 1, 1969, with Maine Electric
Power Company, Inc. (Exhibit 10(c)(3) to Form
10-Q for quarter ended March 31, 1983)
10(c)(4) Supplement Amending Participation Agreement,
as of June 24, 1970, with Maine Electric Power
Company, Inc., (Exhibit 10(c)(4) to Form 10-Q
for quarter ended March 31, 1983)
10(c)(5) Second Supplement to Participation Agreement,
dated as of December 1, 1971, including as
Exhibit A the Unit Participation Agreement
dated November 15, 1971, as amended, between
Maine Electric Power Company, Inc. and the New
Brunswick Electric Power Commission. (Exhibit
10(c)(5) to Form 10-Q for quarter ended March
31, 1983)
10(c)(6) Agreement and Assignment, as of August 1,
1977, by Connecticut Light & Power Company,
Hartford Electric Company, Holyoke Water Power
Company, Holyoke Power Company, Western
Massachusetts Electric Company and the
Company. (Exhibit 10(c)(6) to Form 10-Q for
the quarter ended March 31, 1983)
10(c)(7) Amendment dated November 30, 1980 to Agreement
and Assignment as of August 1, 1977, between
Connecticut Light & Power Company, Hartford
Electric Company, Holyoke Water Power Company,
Holyoke Power Company, Western Massachusetts
Electric Company and the Company. (Exhibit
10(c)(7) to Form 10-Q for the quarter ended
March 31, 1983)
10(c)(8) Assignment Agreement as of January 1, 1981,
between Central Maine Power Company and the
Company. (Exhibit 10(c)(8) to Form 10-Q for
the quarter ended March 31, 1983)
10(d) Wyman Unit #4 Agreement for Joint Ownership as
of November 1, 1974, with Amendments 1, 2, and
3, dated as of June 30, 1975, August 16, 1976,
- 27 -
Form 10-K
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form
8-K - Continued
December 31, 1978, respectively. (Exhibit
10(d) to Form 10-Q for the quarter ended March
31, 1983)
10(e) Agreement between Sherman Power Company and
Maine Public Service Company, dated June 4,
1984, with amendments dated July 12, 1984 and
February 14, 1985. (Exhibit 10(f) to 1984
Form 10-K)
10(f) Credit Agreement, dated as of October 8, 1987
among the Registrant and The Bank of New York,
Bank of New England, N.A., The Merrill Trust
Company and The Bank of New York, as agent for
the Participating Banks (Exhibit 10(g) to Form
8-K dated October 13, 1987)
10(g) Amendment No. 1, dated as of October 8, 1989,
to the Revolving Credit Agreement, dated as of
October 8, 1987, among the Registrant and The
Bank of New York, Bank of New England, N.A.,
Fleet Bank (formerly the Merrill Trust
Company) and The Bank of New York as agent for
the participating banks (Exhibit 10(l) to Form
8-K dated September 22, 1989).
10(h) Amendment No. 2, dated as of June 5, 1992, to
the Revolving Credit Agreement, among the
Registrant and The Bank of New York, Bank of
New England, N.A., Shawmut Bank and the Bank
of New York, as agent for the participating
banks. (Exhibit 10(h) to the Company's 1992
Form 10-K)
10(i) Indenture of Second Mortgage and Deed of
Trust, dated as of October 1, 1985, made by
the Registrant to J. Henry Schroder Bank and
Trust Company, as Trustee. (Exhibit 10(i) to
Form 8-K dated November 1, 1985)
10(j) First Supplemental Indenture Dated March 1,
1991. (Exhibit 10(i) to the Company's 1991
Form 10-K).
- 28 -
Form 10-K
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form
8-K - Continued
10(k) Second Supplemental Indenture Dated September
1, 1991. Exhibit 10(j) to the Company's 1991
Form 10-K).
10(l) Agency Agreement dated as of October 1, 1985,
between J. Henry Schroder Bank and Trust
Company, as Trustee under the Indenture of
Second Mortgage and Deed of Trust dated as of
October 1, 1985, made by the Registrant to J.
Henry Schroder Bank and Trust Company, as
Trustee, and Continental Illinois National
Bank and Trust Company, as Trustee, under an
Indenture of Mortgage and Deed of Trust, dated
as of October 1, 1945, as amended and
supplemented, made by the Registrant to
Continental Illinois National Bank and Trust
Company, as Trustee (Exhibit 10(j) to Form 8-K
dated November 1, 1985)
Executive Compensation Plans and Arrangements
10(m) Employment Contract between G. Melvin Hovey
and Maine Public Service Company dated June
26, 1985. (Exhibit 10(k) to 1985 Form 10-K)
10(n) Amendment, Dated May 14, 1991, to Employment
Contract between G. Melvin Hovey and Maine
Public Service Company. (Exhibit 10(m) to the
Company's 1991 Form 10-K).
10(o) Second Amendment, dated May 12, 1992, to
Employment Contract Between G. Melvin Hovey
and Maine Public Service Company. (Exhibit
10(o) to the Company's 1992 Form 10-K).
10(p) Third Amendment, dated November 5, 1993, to
Employment Contract between G. Melvin Hovey
and Maine Public Service Company. (Exhibit
10(p) to the Company's 1993 Form 10-K)
10(q) Employment Contract between Frederick C.
Bustard and Maine Public Service Company dated
August 22, 1989. (Exhibit 10(h) to 1989 Form
10-K)
- 29 -
Form 10-K
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form
8-K - Continued
10(r) Employment Contract between Paul R. Cariani
and Maine Public Service Company dated August
22, 1989. (Exhibit 10(l) to 1989 Form 10-K)
10(s) Employment Contract between Stephen A. Johnson
and Maine Public Service Company dated August
22, 1989. (Exhibit 10(m) to 1989 Form 10-K)
10(t) Maine Public Service Company, Prior Service
Executive Retirement Plan, dated May 12, 1992.
(Exhibit 10(s) to 1992 Form 10-K)
10(u) Maine Public Service Company Pension Plan.
(Exhibit 10(t) to 1992 Form 10-K)
10(v) Maine Public Service Company Retirement
Savings Plan. (Exhibit 10(u) to 1992 Form 10-
K)
11 Not applicable.
12 Not applicable.
*13 1994 Annual Report to Shareholders.
18 Not applicable.
19 Not applicable.
22 Maine and New Brunswick Electrical Power
Company, Limited, a Canadian corporation.
23 Not applicable.
24 Not applicable.
*28(a) Information with respect to Maine Yankee
Atomic Power Company. Extracts from Maine
Yankee Atomic Power Company's Annual Report
for the year ended December 31, 1994 under the
captions "The Company", "The Plant", "Legal
Review" and "Regulation and Environmental
Matters".
- 30 -
Form 10-K
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form
8-K - Continued
28(b) Agreement of Purchase and Sale between Maine
Public Service and Eastern Utilities
Associates, dated April 7, 1986 (Exhibit 28(a)
to Form 10-Q for the quarter ended June 30,
1986).
28(c) Addendum to Agreement of Purchase and Sale,
dated June 26, 1986 (Exhibit 28(b) to Form 10-
Q for the Quarter ended June 30, 1986).
28(d) Stipulation between Maine Public Service
Company, the Staff of the Commission and the
Maine Public Utilities Commission and the
Maine Public Advocate, dated July 14, 1986
(Exhibit 28(c) to Form 10-Q for the quarter
ended June 30, 1986).
28(e) Amendment to July 14, 1986 Stipulation, dated
July 18, 1986 (Exhibit 28(d) to Form 10-Q for
the quarter ended June 30, 1986).
28(f) Order of the Maine Public Utilities Commission
dated July 21, 1986, Docket Nos 84-80, 84-113
and 86-3.
28(g) Order of the Maine Public Utilities
Commission, dated May 9, 1986, Docket Nos. 84-
113 and 86-3 (with attached Stipulations).
(Exhibit 28(r) to 1986 Form 10-K).
28(h) Order of the Maine Public Utilities
Commission, dated July 31, 1987, Docket Nos.
84-80, 84-113, 87-96 and 87-167 (with attached
Stipulation) (Exhibit 28(i) to 1988 Form 10-
K).
28(i) Agreement between Maine Public Service Company
and various current Seabrook Nuclear Project
Joint Owners, dated January 13, 1989 (Exhibit
28(o) to 1988 Form 10-K).
28(j) Order (corrected) of the Maine Public
Utilities Commission dated December 5, 1990 in
Docket No. 87-167 (with attached Stipulation).
(Exhibit 28(l) to 1990 Form 10-K).
- 31 -
Form 10-K
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form
8-K - Continued
28(k) Order of the Federal Energy Regulatory
Commission Dated September 30, 1992 in Docket
No. ER92-774-000 and EL91-56-000. (Exhibit
28(k) to 1992 Form 10-K)
28(l) Order of the Federal Energy Regulatory
Commission dated December 11, 1992 in Docket
ER93-17-000. (Exhibit 28(l) to 1992 Form 10-
K)
*28(m) Order of the Federal Energy Regulatory
Commission dated February 1, 1995 in Docket
No. ER95-374-000.
28(n) Order of the Maine Public Utilities Commission
approving Chapter 720 Waiver Request dated
September 23, 1993. (Exhibit 28(p) to 1993
Form 10-K)
28(o) Order of the Maine Public Utilities Commission
dated March 18, 1994 (with attached
stipulation) in Docket No. 93-361. (Exhibit
28(q) to 1993 Form 10-K)
*28(p) Order of the Maine Public Utilities Commission
dated November 1, 1994 in Docket No. 94-341.
*28(q) Order of the Maine Public Utilities Commission
dated January 19, 1995 in Docket No. 94-301,
81-276, 83-264 and 83-303.
(b) A Form 8-K was filed on: August 29, 1994, under item 5,
Other Events; September 27, 1994, under item 5, Other
Events; November 8, 1994, under item 5, Other Events;
December 7, 1994, under item 5, Other Events; January 27,
1995, under item 5, Other Events, and; February 13, 1995,
under item 5, Other Events. No financial statements were
included with the above Form 8-K's.
- 32 -
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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, on the 29th day of March, 1995.
MAINE PUBLIC SERVICE COMPANY
By:Larry E. LaPlante
Larry E. LaPlante
Vice President, Finance
and Treasurer
- 33 -
Form 10-K
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons in the
capacities and on the date indicated.
Signature Title Date
Chairman of the Board,
G. M. Hovey and Director 3/20/95
(G. Melvin Hovey)
Paul R. Cariani President and Director 3/23/95
(Paul R. Cariani)
Director
(Robert E. Anderson)
Donald F. Collins Director 3/16/95
(Donald F. Collins)
D. James Daigle Director 3/18/95
(D. James Daigle)
Richard G. Daigle Director 3/16/95
(Richard G. Daigle)
J. Gregory Freeman Director 3/16/95
(J. Gregory Freeman)
Deborah L. Gallant Director 3/17/95
(Deborah L. Gallant)
Nathan L. Grass Director 3/20/95
(Nathan L. Grass)
J. Paul Levesque Director 3/20/95
(J. Paul Levesque)
Walter M. Reed, Jr. Director 3/17/95
(Walter M. Reed, Jr.)
- 34 -
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders
of Maine Public Service Company
Presque Isle, Maine
We have audited the consolidated financial statements of Maine Public
Service Company and its subsidiary, Maine and New Brunswick Electrical
Power Company, Limited, as of December 31, 1994 and 1993, and for each
of the three years in the period ended December 31, 1994, and have
issued our report thereon dated February 15, 1995; such consolidated
financial statements and report are included in your 1994 Annual Report
to Shareholders and are incorporated herein by reference. Our audits
also included the consolidated financial statement schedule of Maine
Public Service Company and its subsidiary, listed in Item 14. This
consolidated financial statement schedule is the responsibility of the
Company's management. Our responsibility is to express an opinion based
on our audits. In our opinion, such consolidated financial statement
schedule, when considered in relation to the basic consolidated
financial statements taken as a whole, presents fairly, in all material
respects, the information set forth therein.
Deloitte & Touche LLP
Deloitte & Touche LLP
Boston, Massachusetts
February 15, 1995
- 35 -
<TABLE>
Maine Public Service Company & Subsidiary Schedule II
Valuation of Qualifying Accounts & Reserves
For the Years Ended December 31, 1994, 1993, & 1992
<CAPTION>
Column A Column B Column C Column D Column E
Additions: Deductions:
Balance at Recoveries of Accounts
Beginning Costs & Accounts Previously Written Off Balance at
Description of Period Expenses Written Off As Uncollectible End of Period
Reserve Deducted From
Asset To Which It Applies:
Allowance for
Uncollectible Accounts
Year Ended December 31:
<S> <C> <C> <C> <C> <C>
1994 $214,329 $119,000 $164,999 $284,113 $214,215
1993 $204,302 $160,400 $99,986 $250,359 $214,329
1992 $184,298 $134,096 $141,064 $255,156 $204,302
</TABLE>
- 36 -
(Front Outside Cover)
Maine Public Service
The vision of excellent service has never wavered ...
In what continues to be a very
uncertain economy and
increasingly competitive business
environment, MPS prides itself
in delivering quality
customer service.
An innovative utility
providing superior service
at competitive rates
1994 Annual Report
(Front Inside Cover)
Vision 2000
A continued focus on customer service, hard work, innovation,
cooperation, and pulling together for the good of all customers resulted in
the five-year Vision Statement developed in 1994. Employee teams are
aggressively pursuing opportunities to go forward, into the 21st century,
each with an aim at providing superior service and keeping up with changing
expectations.
The Company is the supplier-of-choice of electrical energy services in
Northern Maine. Our core business is to supply electricity at prices and
reliability levels that are responsive to our customers' needs. We also
promote the use of innovative electrotechnology and, where appropriate,
provide the related devices. The Company investigates other profitable
opportunities and supports the economic development of its service area.
We value our employees as our most important resource. Our goal is to
have a motivated and satisfied workforce. We are a highly-skilled,
well-trained, and productive team. Teamwork is valued and promoted, and
compensation is in accordance with performance, which is measured against
Company, team, and individual goals. We offer competitive wages and
benefits, a safe work environment, and challenging work. Decision-making is
authorized at the lowest practical level. We provide the training,
equipment, and facilities required to achieve the expected level of
performance. Our employees perform with the highest ethical, professional,
and legal standards, and with an enhanced sense of safety and environmental
awareness.
The Company's stock is an attractive investment opportunity, with
competitive earnings and dividend growth. Our capital structure is
commensurate with our business risk. We earn returns for our shareholders
that are above the electric utility average.
Our rates are the lowest among investor-owned utilities in Maine and
in the lowest third in New England.
We achieve favorable investor returns and low rates by emphasizing cost
control, retaining our sales base, and promoting sales of electricity where
economically justified.
Our generation, transmission, and distribution system is safe,
efficient, reliable, and environmentally sound. We review and upgrade our
system to ensure that it continues to meet these standards and competitive
challenges. We meet or exceed environmental and safety requirements, and
take a proactive stance on these issues.
Customer satisfaction is the vehicle for attaining all of our goals.
We achieve this by:
* Low rates
* Quality service
* High reliability
* Flexible pricing and levels of service
* Accessibility and responsiveness to customer needs
* Good communications and customer education
* Market research
* Providing technical information for the safe and efficient use of
electricity
* Providing electricity-related services and products
* Treating the customer as we would prefer to be treated
We have a political climate and regulatory structure that supports the
elements of this vision statement.
We foster open and honest communication with our customers,
shareholders, employees, and suppliers, as well as government, media, and the
general public.
About The Cover:
Season Extended (Left) - At Bigrock in Mars Hill, a fifteen-nozzle snowmaker
allows skiers of all ages to enjoy eight extra weeks of skiing, well into
late April. Installed last summer after MPS workers upgraded electrical
service, the new equipment shoots snow into mounds that are later spread over
twenty slopes and side trails with a groomer. Owner Gary Pierce and staff
are pictured testing one of the nozzles at a nearby pump house, while MPS
Line Worker Dick Gillen checks electrical connections from aloft. Pierce is
excited about his new investment and MPS is pleased to help him grow.
Base Facilities (Top Right) - Maine Public Service was awarded a renewable
one-year contract to operate and maintain 53 miles of 12 KV distribution line
at Loring Air Force Base when it closed September 30, 1994. Somewhat
different from the rest of the MPS electrical system, the former military
installation has both overhead and underground lines, plus street lighting,
metering, and associated equipment for workers to manage. Line Worker
Herbain Cote (left) and District Supervisor Richard Boisvert are pictured
verifying equipment with system maps.
A development authority is actively seeking tenants to occupy the
vacant buildings and hangars at Loring. In April, 1995, a Defense Finance
and Accounting Service Center will begin partial operation at the former
hospital facility and will eventually employ approximately 600 people.
New Technology (Bottom Right) - Bob Umphrey, President of Northeast Packaging
Company (at right) shows MPS District Supervisor Barry Bartley the
Italian-made printing press that applies water-based ink to poly and paper
produce bags. After making a few changes to correspond with the MPS
electrical system, the new equipment was up and running in November, 1994.
Umphrey says the new press saves time and is electrically efficient.
Maine Public Service Company
209 State Street
P. O. Box 1209
Presque Isle, Maine 04769-1209
Tel. No. (207) 768-5811
(Page 1)
Maine Public Service Company
The primary goal of Maine Public Service Company is to supply reliable,
economical electrical power to Northern Maine. The Company is an
investor-owned electric utility with a wholly-owned subsidiary, Maine and New
Brunswick Electrical Power Company, Ltd., located at Tinker, New Brunswick.
Together both companies provide energy to more than 34,500 retail customers
in a 3,600 square mile area.
Maine Public Service Company has a favorable mixture of generation
sources made up of power produced by hydro-electric, nuclear, and oil-fueled
facilities, as well as an independent wood-burning cogenerator. The system
is strengthened by electrical interconnections with New Brunswick, Canada,
allowing electrical support from the New Brunswick system and indirectly from
the Hydro-Quebec system.
Major business activities in the area center around the production of
agricultural and forest products. Service was provided at a high reliability
rate over the last year, and it is our aim to meet customer needs fully and
efficiently, at the lowest possible cost.
Table of Contents
President's Letter 2-3
Analysis of Financial Condition
and Review of Operations - 1994 4-11
Shareholder Information 11
Five-Year Summary of Selected Financial Data 12
Independent Auditors' Report 13
Financial Statements and Notes 14-27
Consolidated Financial Statistics 28-29
Consolidated Operating Statistics 30-31
Directors 32
Executive Officers, Director and Back Cover
Executive Changes, and Stock
Transfer Information
(Photo)
Safety In Huge Doses - Giant protective gloves worn by Maine Public Service
Line Workers are always a topic of interest for young students, especially
when they push their own hand deep inside. They soon discover the
leather-covered rubber glove is heavy, stiff, and cumbersome when they try
to pick up a tool or small item. The Company's commitment to education and
teaching young people ranks high. Through scholarship programs, energy
lectures, tours, and electrical safety presentations, students throughout the
service territory are challenged to excel.
(Pages 2 and 3)
President's Letter
to our Shareholders and
Employees
(Photo of Paul R. Cariani - No Caption)
This is my first opportunity to address you as President and Chief
Executive Officer of your Company. In any such inaugural letter you are
entitled to a clear and honest statement of the author's goals and
expectations for the Company. I will try to provide that statement but I
must advise you that in its transition from a purely regulated monopoly
to a competitive business, the electric utility industry in Maine, and
elsewhere, has yet to achieve the coherent structure that typically supports
such forecasts. I nevertheless believe we will be best able to prosper
during this period of transition if our employees and management are given
the opportunity to exercise their resourcefulness and ingenuity without the
narrow restraints that have previously characterized utility regulation in
this State. Happily, I have some reason to believe our regulators are
beginning to share this view.
Let me first tell you where we are today. In 1994, earnings per share
were $2.99, compared with $3.19 in 1993. Maine Public has the lowest rates
of the three investor-owned electric companies in Maine and among the lowest
in New England. In 1994, as in the previous year, we have been able to fund
our dividend, operation, maintenance, and capital requirements from
internally generated cash. With the exception of our mandated purchases
from Wheelabrator-Sherman Energy Company (Wheelabrator-Sherman), which I will
elaborate on later in this letter, we have been able to contain and, in some
instances, reduce our costs through a reduction in work force and careful
management of our operations.
These achievements, however, are balanced by certain negative
developments that will seriously test this Company's ability to respond to
our changing business environment. First, in September, 1994, the Federal
government closed Loring Air Force Base. In 1994, Loring and related
accounts represented 3.8% of our total megawatt hour sales and 3.4% of
our total revenues, or approximately $2 million. The Company obviously could
not prevent this closing which, in addition to its effect on us, also harms
the general economy of our service territory. We can, however, deal with the
consequences of the closure. We intend to work closely with State and local
development agencies to attract new industry to our service territory to help
offset the loss of this facility. We have also prepared and will, in early
April, file with the Maine Public Utilities Commission (MPUC) a special
economic development rate that offers substantial discounts to new commercial
and industrial enterprises locating within our service territory.
Secondly, in late 1994, our three wholesale customers, taking advantage
of open competition in the wholesale market, advised the northeast bulk power
supply market of their desire to seek competitive bids for their power
requirements beginning in 1996. Seven suppliers, including this Company,
responded to this solicitation and two of the Company's wholesale customers
chose to execute new contracts with us. Our largest wholesale customer,
however, the Houlton Water Company (HWC), selected Central Maine Power
Company (CMP) as its supplier, effective January 1, 1996. In 1994, HWC
represented 9% of our total megawatt hour sales and 7.6% of our total
revenues, or approximately $4.4 million. Because HWC will be served by a
facility that CMP acquired using the credit of the State of Maine, we believe
very strongly that sales from that facility should not increase our retail
rates or reduce our earnings. We are, therefore, challenging the arrangement
between HWC and CMP before the MPUC and the Federal Energy Regulatory
Commission (FERC). Moreover, because HWC, or any of our other customers
buying in the bulk power market, must use our transmission system to receive
its sales, we have prepared for filing with the FERC a comprehensive
open-access transmission tariff. This tariff would increase the charges to
third parties who use our transmission system, reflecting their share of the
actual cost of using that system.
Finally, the single most expensive cost of power on our system is our
power contract with Wheelabrator-Sherman, an independent power producer,
whose power rates were established by the MPUC as a result of State and
Federal energy policies. The application of these policies has resulted in
a cost of power greatly in excess of any alternative available today. These
costs, imposed under an environment of monopoly regulation, seriously burden
the Company in a more competitive market. Your Company tried unsuccessfully
to renegotiate the contract with Wheelabrator-Sherman and then took the
unique step of formally petitioning the MPUC to set aside the contract. The
MPUC rejected this effort on constitutional grounds. The Company will,
therefore, continue to seek a voluntary renegotiation of this contract.
In early April, the Company will seek a normal rate increase using
traditional cost-of-service principles and, as a more general response to
emerging competition, will simultaneously file for permission to implement
a five-year rate plan beginning in 1996. The general features of this plan
provide:
* Predictable and moderate rate increases for our retail customers
through the year 2000.
* Reduction of current costs through the deferral of a portion of
the expenses of our Wheelabrator-Sherman contract until after the
end of that contract.
* Write-off and not recover in rates approximately $4.9 million of
the Company's investment in Seabrook that was previously supported
by the wholesale customers under traditional ratemaking formulas.
* A more direct link between profit and performance through the
elimination of the fuel clause with the exception of
Wheelabrator-Sherman costs and proposed sharing of future earnings
between our shareholders and customers.
* A more level playing field for the Company and its retail
competitors by allowing the Company to offer special contracts and
rate discounts with limited regulatory oversight.
We believe this rate plan, if approved by the MPUC, will considerably
enhance our ability to deal with the issues facing us in the next several
years.
Finally, it is important that we work with our regulators and lawmakers
to ensure a coherent transition from regulation to the degree of competition
that will characterize our industry in the years ahead. It is important that
those with limited agendas not be allowed to exploit this transition to the
detriment of our shareholders and remaining customers. We will, therefore,
promote legislation that requires a comprehensive review of all aspects of
electric utility de-regulation, balancing the benefits and harms in
the fairest practicable manner.
All of these tasks are strenuous, but are, I believe, achievable. I
am grateful to you, our shareholders and employees, for your support in these
efforts.
Sincerely,
Paul R. Cariani
President and CEO
(Page 4)
Analysis of Financial Condition and Review of Operations - 1994
RESULTS OF OPERATIONS
Operating Revenues and Energy Sales
Consolidated operating revenues and MWH sales for the years 1994, 1993,
and 1992 are as follows:
Consolidated
Operating Revenues
(Dollars in Thousands)
1994 1993 1992
Retail:
Base $32,112 $32,995 $30,975
Fuel 15,269 15,787 14,932
Total 47,381 48,782 45,907
Sales for Resale:
Base 4,203 4,631 4,626
Fuel 2,743 2,561 2,976
Total 6,946 7,192 7,602
Total Primary Sales 54,327 55,974 53,509
Secondary Sales:
Base 432 1,397 355
Fuel 1,103 600 193
Total 1,535 1,997 548
Total Sales of Electricity 55,862 57,971 54,057
Recognition of
Deferrals, net 120 159 862
Other 2,324 2,446 1,652
Total Operating Revenues $58,306 $60,576 $56,57
MWH Sales
Retail 502,233 530,844 523,852
Sales for Resale 119,450 116,182 123,239
Primary Sales 621,683 647,026 647,091
Secondary Sales 88,241 52,465 33,052
Total 709,924 699,491 680,143
Primary sales for 1994 were 621,683 MWH, which were approximately 3.9%
lower than primary sales of 647,026 MWH in 1993 and 647,091 MWH in 1992. In
1994 and 1993, the Company entered into arrangements with other utilities to
sell its Wyman Unit No. 4 and Maine Yankee entitlements for varying lengths
of time at existing market rates. This energy was replaced, when necessary,
with system purchases, avoiding off-system wheeling costs. While the
dispatching of Wyman Unit No. 4 is not controlled by the Company, the
dispatching of these system purchases is controllable, resulting in fuel
savings. As a result, secondary sales for 1994 of 88,241 MWH represented a
68.2% increase from 1993 and a substantial increase from the sales of 33,052
MWH in 1992. For retail ratemaking, the Company deferred the recognition of
base revenues associated with Wyman secondary sales for the years 1988 to
1990. The 1988 and 1989 deferred revenues were fully recognized by the end
of 1992, while the 1990 sales were fully recognized by the end of the third
quarter of 1994.
In 1994, retail sales were 502,233 MWH, 5.4% and 4.1% lower than 1993
and 1992, respectively. Sales to the Company's public authority customers
were 28,621 MWH in 1994 compared to 53,021 MWH in 1993 and 58,388 MWH in
1992. The closing of Loring Air Force Base (Loring) is the principal reason
for this decrease. See the "Liquidity and Capital Resources" section of this
Annual Report for identified reuses of the former air force base. Sales to
our large commercial and industrial customers were 127,327 MWH in 1994
compared to 135,029 MWH in 1993 and 129,981 MWH in 1992. Decreased activity
by our food processing customers accounted for the decrease in sales from
1993 to 1994. These decreases were partially offset by increased sales to
our small commercial and industrial customers, as 1994 sales were 167,485 MWH
compared to 162,949 MWH in 1993 and 155,267 MWH in 1992. Sales to our
residential customers have remained constant over the last three years,
accounting for approximately 35% of our retail sales in 1994.
The Maine Public Utilities Commission (MPUC) has jurisdiction over
retail rates. The MPUC, in separate proceedings, granted base rate increases
of $1.85 million and $1.86 million, effective November 1, 1992 and October
1, 1991, respectively. With the exception of increases associated with the
phase-in of the Company's investment in Seabrook, these base rate increases
were the first base rate increases since 1985. The Company did not seek
a change in the fuel clause beginning on April 1, 1994. For the twelve
months beginning April 1, 1993, the MPUC approved a fuel clause increase of
$882,000, while effective January 1, 1992, the MPUC approved a fuel clause
decrease of $3.7 million. The recovery of fuel costs via the fuel clause
fluctuates with the availability of hydro and nuclear power and the
volatility of oil prices. The fuel clause also reflects mandated purchases
from a wood-burning cogenerator, which is the Company's most expensive source
of energy, Wheelabrator-Sherman Energy Company (Wheelabrator-Sherman). At
the end of 1994, the Company's retail rates were the lowest of Maine's three
investor-owned utilities and among the lowest in New England.
(Chart)
Megawatt Hours Sold
(Sales in Thousands)
1990 1991 1992 1993 1994
Total Megawatt
Hours Sold 736.1 676.5 680.1 699.5 709.9
Other Electric Sales 122.0 95.6 94.8 108.7 120.0
Sales for Resale 133.4 115.3 123.2 116.2 119.4
Commercial and
Industrial-Small 146.9 149.7 155.3 162.9 167.5
Commercial and
Industrial-Large 155.8 139.9 130.0 135.0 127.3
Residential 178.0 176.0 176.8 176.7 175.7
(Page 5)
Sales for resale were 119,450 MWH for 1994 compared to 116,182 MWH and
123,239 for 1993 and 1992, respectively. Sales in 1994 were higher than 1993
sales because of an increase in HWC's load requirements. Sales have
decreased since 1992 because HWC began purchasing their Maine Yankee Atomic
Power Company (Maine Yankee) backup power from another supplier effective
July 1, 1993. Base revenues from sales for resale were $4.2 million for
1994 and $4.6 million for 1993 and 1992.
The Federal Energy Regulatory Commission (FERC) has jurisdiction over
wholesale rates. The Company entered into contracts with three wholesale
customers in mid-1993 that contain rates lower than those typically allowed
under FERC's traditional ratemaking methods. Please see the "Regulatory
Proceedings" section of this Annual Report for a discussion on recent
developments with our wholesale customers that will impact results for
1995 and 1996. In 1994, sales to these wholesale customers, classified as
sales for resale, represented approximately 12.7% of consolidated MWH sales
and 10.7% of consolidated operating revenues.
(Chart)
Total Sales of Electricity
(Dollars in Millions)
1990 1991 1992 1993 1994
Fuel Revenues 20.16 21.28 18.10 18.95 19.11
Base Revenues 34.88 34.10 35.96 39.02 36.75
Total 55.04 55.38 54.06 57.97 55.86
Fuel costs to generate electricity are immediately reflected in
wholesale rates and secondary sales but their recovery must be approved
annually by the MPUC for retail rates. As previously mentioned, changes in
the retail fuel clause resulted in retail fuel revenues for 1994 of $15.3
million compared to $15.8 million in 1993 and $14.9 million in 1992. Total
fuel revenues for 1994 were $19.1 million compared to $18.9 million and
$18.1 million for 1993 and 1992, respectively.
For additional information on the ratemaking treatment of the Company's
Seabrook investment and other rate matters, please refer to the "Regulatory
Proceedings" section of this Annual Report and Note 9, "Commitments and
Contingencies, Seabrook Nuclear Power Project", of the Notes to Consolidated
Financial Statements.
Energy Supply
Hydro production, the most economical of the Company's energy
resources, provided 15.8% of the Company's energy requirements in 1994 and
was 88.9% of normal production. In 1993, hydro provided 20.0% of the
Company's energy requirement, and was 111.3% of normal. Hydro production
during 1992 was 97.6% of normal, representing 18.0% of the Company's 1992
energy requirements. The availability of low cost hydro reduces the need for
more expensive sources of energy. Purchases from Maine Yankee remains a very
economical source of energy available to the Company. In 1994, Maine Yankee
provided 43.3% of the Company's energy requirements compared to 37.9% in 1993
and 36.3% in 1992. Maine Yankee did not have a scheduled outage in 1994 but
the plant was forced out of service for four weeks beginning mid-July. Maine
Yankee had a scheduled refueling and maintenance outage in 1993 from late
July to mid-October. Maine Yankee's 1992 refueling lasted two months from
mid-February to mid-April. A refueling and maintenance outage will be
completed during the first quarter of 1995. Energy purchases, principally
from NB Power, were 20.1%, 13.5%, and 21.2% for the years 1994, 1993, and
1992, respectively. The availability of economical replacement purchases
from NB Power is dependent on such factors as weather, hydro conditions, and
the operating status of major generation resources in New Brunswick. The
surplus of capacity and energy in New England has resulted in lower energy
costs for the Company and provides opportunities to save wheeling expenses.
During 1994, the Company purchased energy from Central Maine Power Company
that amounted to 1.5% of the energy requirements and, during 1993 the Company
made similar purchases from Bangor Hydro-Electric Company that amounted to
8.3% of the energy requirements. The Company's oil-fired generating
facilities provided 2.4% of the Company's requirements in 1994, compared to
3.6% in 1993 and 4.5% in 1992. In 1986, under an agreement ordered by the
MPUC that will expire in 2000, the Company began purchasing the output from
an 18-megawatt wood-burning independent power producer, currently owned by
Wheelabrator-Sherman. Purchases from this facility represented 16.8% of the
Company's energy needs and 50.2% of purchase power expenses in 1994. The
production from this facility provided 16.7% and 18.2% of the energy in 1993
and 1992, respectively.
(Chart)
Electric Output By Sources
(Percent)
1990 1991 1992 1993 1994
Oil 7.6 4.0 4.5 3.6 2.4
Cogeneration 16.5 17.3 18.2 16.7 16.8
Purchases 20.7 17.1 23.0 21.8 21.7
Nuclear 32.5 42.8 36.3 37.9 43.3
Hydro 22.7 18.8 18.0 20.0 15.8
(Page 6)
Operating Expenses
For the three-year period, purchased power expenses are as follows:
(Dollars in Thousands)
1994 1993 1992
Wheelabrator-Sherman $13,932 $13,052 $13,083
Maine Yankee 9,645 8,760 8,723
NB Power 3,841 2,784 4,627
Bangor Hydro-Electric 12 2,903 519
Central Maine Power 334 - -
Other - 15 -
Total $27,764 $27,514 $26,952
Wheelabrator-Sherman's increase in 1994 expenses compared to 1993 was
caused by a 1.7% increase in production and a 5% contractual price increase.
Maine Yankee had a one-month unscheduled outage for repairs beginning in
mid-July, 1994, while it was down approximately two months in both 1993 and
1992 for scheduled refueling and maintenance. For ratemaking, the Company
normalizes refueling and maintenance expenses due to scheduled refuelings
over the 18-month refueling cycle, while unscheduled outages are charged
immediately to expense. As discussed in the "Energy Supply" section of this
Annual Report, purchases from NB Power are principally economy-type energy
having the effect of reducing the Company's energy expenses. In 1994, as
compared to 1993, an increase in economical purchases from NB Power of 50,785
MWH and the additional generation of 44,135 MWH from Maine Yankee offset
abnormal hydro generation, which was 29,960 MWH less than the previous year,
and more expensive purchases from Bangor Hydro of 61,791 MWH. As discussed
in the "Operating Revenues and Energy Sales" section of this Annual Report,
the Company has entered into agreements with other utilities to buy and sell
power to obtain savings in both fuel and wheeling expenses.
Other operation and maintenance expenses for the three-year period are
as follows:
(Dollars in Thousands)
1994 1993 1992
Generation
Fuel Expense $ 602 $ 945 $ 1,027
Other 2,096 2,128 1,950
2,698 3,073 2,977
Deferred Fuel (806) (333) (2,033)
Transmission and
Distribution 4,103 4,166 3,800
Customer Accounting and
General Administrative 6,669 7,270 6,582
Total $12,664 $14,176 $11,326
Generation fuel expense decreased by $343,000 in 1994, compared to
1993, because the Company reduced oil-fired generation by 8,219 MWH. Other
generation expenses decreased $32,000 primarily due to the 1993 inspection
and overhaul of Tinker Units 2 and 3 and a reduction of maintenance activity
at the Caribou Steam Plant in 1994, partially offset by increased
amortization of Caribou Steam Plant Assessment expenditures in 1994.
Deferred fuel expense, a component of other operation and maintenance
expenses, was a negative $806,000 in 1994 compared to a negative $333,000 and
a negative $2,033,000 in 1993 and 1992, respectively. A negative deferred
fuel expense indicates that current fuel costs have exceeded fuel revenues
and have been deferred to a period when these costs will be collected.
Transmission and distribution expenses were $4,103,000 in 1994, compared to
$4,166,000 and $3,800,000 in 1993 and 1992, respectively. The 1994 decrease
reflects reduced wheeling expenses due to increased power marketing
activities, partially offset by increased tree trimming and brush control
activity. Customer accounting and general and administrative expenses
decreased $601,000 from $7,270,000 in 1993 to $6,669,000 in 1994.
The decrease was due to the recognition of $353,000 of Reduction in Force
expenses in 1993. In addition, 1993 expenses for PowerPact, an energy
assistance program for low-income customers, were $195,000 higher than 1994
because of an MPUC ratemaking adjustment in 1993.
For information regarding the provision for income taxes and the
effects of Statement of Financial Accounting Standards No. 109, see Note 2,
"Income Taxes", of the Notes to Consolidated Financial Statements.
(Picture)
Everyone's Responsibility - Environmental Coordinator Russ Smith, a
participant in MPS Company's POWERful Readers program, tells elementary
students how our Company recycles paper, handles waste, and transports
hazardous materials. He explains the importance of turning off lights when
not in use, composting, and saving energy. "Individual actions can make a
big difference. It's up to each of us to preserve the planet," he said.
(Page 7)
Earnings and Dividends
For 1994, earnings per share were $2.99 based on net income available
for Common Stock of $4,845,647 and 1,618,700 average shares outstanding.
Earnings per share for 1993 were $3.19 based on net income available for
Common Stock of $5,300,840 and 1,660,250 average shares outstanding. For
1992, net income available for Common Stock of $4,864,936 and 1,660,250
average shares outstanding resulted in earnings per share of $2.93.
The decrease in earnings in 1994, although not as severe as
anticipated, reflects the loss of retail sales due to the closure of Loring
Air Force Base and the lower rates associated with the contracts with three
wholesale customers that became effective in mid-1993. As further discussed
in the "Operating Revenues and Energy Sales" section of this Annual Report,
these decreases were partially offset by increased sales to our small
commercial and industrial customers.
Your Board of Directors declared quarterly dividends of $.46 per share
after raising the dividend in the fourth quarter of 1993 from $.44 per share.
Dividends paid per share for 1993 were $1.84 per share compared to $1.76 and
$1.74 for 1993 and 1992, respectively. The dividend payout ratio has
remained relatively constant with the Company's earnings. For 1994, the
dividends per share were 62% of earnings, compared to 56% for 1993 and 60%
for 1992.
The Company's return on common equity for 1994 was 10.33% compared to
11.69% for 1993 and 11.26% for 1992. In an October 1991 rate order, the MPUC
decreased the Company's authorized rate of return from 12.25% to the current
rate of 12%. In October 1992, as part of its FERC rate case, the Company
stipulated to an authorized rate of return of 11.9%, a decrease from the
previously allowed 12.25%. Neither the full impact of the $1.85 million
annual retail rate increase, effective November 1, 1992, nor the $706,000
annual wholesale rate increase, effective October 12, 1992, are reflected in
the 1992 return on common equity. On February 10, 1995, the Company filed
notice with the MPUC that it would be filing a rate case within 60 days. For
more information on these rate increases, see the "Regulatory Proceedings"
section of this Annual Report.
The table at left portrays the cost components of an average kilowatt
hour sale for the three-year period, based on actual sales for those years.
The fuel component for each of the years reflects the fuel recoveries
authorized via the annual fuel adjustment clauses.
Components of Costs for
Average Revenue Per Primary Sale KWH
(Cents)
1994 1993 1992
Fuel 2.90 2.84 2.77
Purchased Power Capacity &
Other Operations 3.38 3.31 3.15
Depreciation .40 .37 .34
Seabrook Amortization .28 .26 .26
Taxes .86 .90 .87
Interest .62 .60 .69
Other Revenues (.48) (.45) (.56)
Return to Shareholders .78 .82 .75
Average Revenue Per
Primary Sale KWH 8.74 8.65 8.27
(Picture)
Protecting The Environment - Fifth grade students at Zippel School use sock
puppets to tell others about saving natural resources, just one of many
activities they created to promote environmental awareness. Mrs. Jennifer
York, center, and her entire class of Energy Eagles were named national
winners in the 1994 President's Environmental Youth Award competition.
Their achievements were also recognized by Maine Energy Education Program and
National Energy Education Development.
(Page 8)
Liquidity and Capital Resources
In 1994, the Company experienced better than expected earnings and cash
flows. With the imminent closure of Loring Air Force Base (Loring) in the
Fall of 1994, the Company projected lower earnings than the $2.99 per share
actually attained in 1994. As evidence of its financial strength, the common
shareholder's equity component of the Company's capital structure improved
to 56% compared to 54% at the end of 1993 and 50% at the end of 1992. With
this financial strength, the Company believes it is properly positioned to
face the challenges it will encounter to the turn of the century.
The accompanying "Statements of Consolidated Cash Flows" reflect the
Company's liquidity and financial strength. The statements report the net
cash flows generated from or used for operating, financing, and investing
activities.
In 1994, operating activities generated net cash flows of $10.3
million. In addition, the Company received the final payment of $1.1 million
from the trustee of the tax exempt bonds upon the completion of qualifying
facilities. The Company paid dividends of $3 million, purchased 43,000
shares of its Common Stock in early 1994 for $1.1 million, made debt payments
of $1.9 million, including the final payment on its 4-3/4% first mortgage
bonds, and invested $4.4 million in electric plant. During 1994, the Company
had sufficient cash flows that did not require short-term borrowings from its
credit facilities.
Net cash flow from operating activities for 1993 was $8.8 million, and
the Company received $2.4 million from the trustee of the tax exempt bonds
upon the completion of qualifying facilities. The Company used $3.0 million
for dividends, $5.1 million for debt payments, and invested $3.3 million in
electric plant.
The Company generated net cash flows from operating activities of $6.5
million in 1992. During the year, $2.2 million was received from the trustee
of the tax exempt bonds and $2.1 million was borrowed from the short-term
credit facility. The Company used $5.3 million for the retirement of
long-term debt, principally the redemption of the 10-1/4% First Mortgage
Bonds, and used $2.9 million for dividend payments. During 1992, the Company
invested $3.9 million in electric plant.
For additional information regarding construction expenditures for 1992
to 1994 and anticipated construction expenditures for 1995, see Note 9,
"Commitments and Contingencies, Construction Program", of the Notes to
Consolidated Financial Statements.
The Company uses short-term borrowings to satisfy working capital
requirements. As previously mentioned, in 1994 the Company had sufficient
cash flows and did not require short-term borrowings from its credit
facilities. As was the case at the end of 1993, the Company ended 1994
without any outstanding short-term borrowings, while $5 million was
outstanding at the end of 1992. During 1993 and 1992, borrowings under the
Company's credit facilities were below the existing prime rate. For
additional information on the short-term credit facility, see Note 5,
"Short-Term Credit Arrangements", of the Notes to Consolidated Financial
Statements.
The Company has the ability to finance through the issuance of Common
and Preferred Stock. The Company is authorized to issue up to 3,000,000
shares of Common Stock. In addition, the Company's restated articles of
incorporation authorize the issuance of 200,000 shares of Preferred Stock
with the par value of $100 per share and 200,000 shares of Preferred Stock
with the par value of $25 per share.
In order to maintain the Company's common equity at levels appropriate
for an investor-owned utility, the Company has repurchased 250,000 shares at
a cost of $5,714,376. The original five-year program approved by the Maine
Public Utilities Commission (MPUC) expired in September 1994. On November
1, 1994, the MPUC approved the Company's application to repurchase up to an
additional 300,000 shares over a five-year period. The Company will utilize
the program as needed to adjust its capital structure.
The Company can also issue First Mortgage Bonds of $17.5 million and
Second Mortgage Bonds of $24 million without bondable property additions.
For additional information on long-term debt, see Note 8, "Long-Term Debt",
of the Notes to Consolidated Financial Statements.
The closing of Loring was completed in September 1994. In 1994, Loring
and related accounts represented 3.8% of total MWH sales and 3.4% of our
total operating revenues. In 1993, when Loring was operating for the entire
year, it accounted for 7.3% of our total MWH sales and 5.7% of total
operating revenues. A civilian authority charged with finding tenants is now
the caretaker of the facility. The Department of Defense is presently
establishing a Defense Finance and Accounting Service Center, which will
employ approximately 600 people. In addition, Loring has been chosen as a
Jobs Corps Center, which is scheduled to open in 1996.
On or about April 10, 1995, the Company will file its five-year rate
plan with the MPUC. If approved by the MPUC, this plan will assist the
Company in dealing with the economic uncertainties that lay ahead with the
loss of Loring and our largest wholesale customer, Houlton Water Company.
See the "Regulatory Proceedings" section of this Annual Report for more
information on the rate plan and the wholesale customers' solicitations.
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.
Employees
At the end of 1994 and 1993, the Parent Company and Subsidiary had 171
and 10 full-time employees, respectively. Consolidated payroll costs were
$6.7 million in 1994 compared to $6.9 million in 1993. The 11% Reduction in
Force program, offset by wage increases, accounts for the decrease in 1994.
Local 1837 of the International Brotherhood of Electrical Workers
ratified a three-year contract with the Parent Company, effective on October
1, 1993. The agreement includes 3.5% wage increases in each year of the
contract.
The Subsidiary and Local 1733 of the International Brotherhood of
Electrical Workers ratified a three-year contract effective January 1, 1995.
Annual wage increases of 3.25% are provided in each year of the contract.
(Page 9)
Regulatory Proceedings
Complaint and Petition Against
Wheelabrator-Sherman Energy Company
On August 29, 1994, the Company filed with the Maine Public Utilities
Commission (MPUC) a Complaint and Petition against a June 4, 1984 Power
Purchase Agreement (PPA) with the Wheelabrator-Sherman Energy Company
(Wheelabrator-Sherman).
The Company was ordered to enter into the PPA on February 10, 1984 by
the MPUC acting under the authority of the Public Utilities Regulatory Policy
Act of 1978 (PURPA), a federal law, and regulations promulgated by the FERC
pursuant to PURPA. Wheelabrator-Sherman is a Qualifying Facility within the
meaning of PURPA.
Count I of the Company's filing with the MPUC alleged that the
Company's continued performance of its obligations under the PPA results in
rates that are unjust and unreasonable and constituted an unjust and
unreasonable act contrary to the laws of the State of Maine. The Company,
therefore, asked the MPUC to enter an order prohibiting it from any further
performance of its obligations under the PPA. In the alternative, Count II
petitioned the MPUC to alter or amend its original February 10, 1984 order
based on allegations that the price for purchases under the PPA is greatly
in excess of the Company's actual avoided cost. Count II asked the MPUC to
rescind the purchase price term of the PPA and establish new terms under
which the Company is required to purchase power from Wheelabrator-Sherman.
On November 4, 1994, Wheelabrator-Sherman filed with the MPUC a Motion
To Dismiss both Counts of the Company's Complaint and Petition on the grounds
that the MPUC lacked both jurisdiction over the Complaint and Petition and
that the Company had failed to state a claim on which relief could be
granted. Wheelabrator-Sherman's Motion was supported by the Sherman Lumber
Company, International Paper Company and a group of financial institutions.
The Company was supported by the Edison Electric Institute, an electric
utility industry organization. The Motion was thoroughly briefed by both
sides and oral argument on the Motion To Dismiss was held at the MPUC on
November 22, 1994.
On January 19, 1995, the MPUC issued its order granting
Wheelabrator-Sherman's Motion To Dismiss both Counts of the Company's
Complaint and Petition on the grounds of federal preemption. The MPUC based
the dismissal on its conclusion that PURPA removes any authority the MPUC
might have to find the Company's continued performance of its obligations
under the PPA to be an unreasonable act under State law (Count I) and
prohibits the MPUC from readjusting the PPA price term (Count II). After
reviewing the Commission's Order, the Company has determined that it will not
appeal the dismissal.
Retail Rate Changes
Fuel Clause Changes
On March 29, 1993, the MPUC approved a stipulation increasing its fuel
adjustment clause by $882,000 for the twelve months beginning April 1, 1993.
On March 18, 1994, the MPUC approved the Company's request for not changing
the Company's fuel adjustment clause for the twelve months beginning April
1, 1994. Lower fuel prices, higher sales, and above-normal hydro generation
all contributed to maintaining the fuel clause with no additional increases.
On December 30, 1994, the Company filed an application with the MPUC
proposing an increase of $1,416,000, a 3% increase in retail rates, effective
for the twelve months beginning April 1, 1995. The Company's projections
justify a fuel clause increase of approximately $2.7 million, a 6% increase
in retail rates. As the first step in the presentation of a multi-year rate
plan, the Company has proposed to limit this increase to 3%, deferring
Wheelabrator-Sherman costs of approximately $1.3 million to be included with
the proposed deferrals in the multi-year rate plan. A final decision by the
MPUC is expected in late March.
Multi-Year Rate Plan
On February 10, 1995, the Company filed with the Maine Public Utilities
Commission notice of its intent to file, on or about April 10, 1995, a
general rate case. The Company will at the same time file a five-year rate
plan which, if approved, will result in new rates beginning in early 1996.
The Company has taken a number of measures to prepare for a period of
declining sales and escalating power costs. In 1996, when the proposed rates
would begin, the Company anticipates a 10.5% reduction in sales to its
primary customers, compared to 1994 sales, principally Loring Air Force Base
and the Company's largest wholesale customer, Houlton Water Company (HWC).
In December of 1994, HWC selected a competing offer from Central Maine
Power Company to be served from its newly acquired subsidiary located in the
Company's service territory. The 5% contractual annual increase in the cost
of power from the Wheelabrator-Sherman facility also must be collected from
the Company's customers through future rate increases.
Using traditional ratemaking principles, the Company anticipates its
general rate case filing will support an increase in annual base revenues of
approximately $4.8 million, or a 9.5% increase in total retail rates. The
$4.8 million also includes a portion of the Seabrook investment previously
supported by the wholesale customers under traditional ratemaking principles.
In addition, the Company would also be entitled to a fuel clause increase of
$500,000 in 1996 due solely to the loss of sales to HWC.
However, as an alternative to an
(Page 10)
increase under such traditional principles, the Company also proposes a
five-year rate plan, which covers the years 1996 to 2000. The rate plan
provides the Company with the rate setting mechanism to meet growing
competition in the electric utility industry while providing stable and
predictable rates to customers without competitive options. This plan
will also eliminate the need to file for annual rate increases and save the
expenses associated with such filings. The Company considers the various
elements of the rate plan to be interdependent elements and any adjustment
of one element requires adjustments to the other elements.
As proposed in the plan, total average retail rates, including fuel,
will increase from 1995 levels by 4.5% in 1996, 4.5% in 1997, 3.5% in 1998,
3.0% in 1999, and 3.0% in 2000.
As part of the plan, the Company will propose to eliminate the annual
fuel adjustment clause except for the cost of power purchased from the
Wheelabrator-Sherman Energy Company, an independent power producer. During
the years 1996-2000, the Company will defer up to $3 million annually of its
power costs from the Wheelabrator-Sherman facility. After the current
contract with Wheelabrator-Sherman expires at the end of 2000, the Company
will begin to collect this deferral, along with carrying charges, when the
price for comparable power is expected to be lower than the existing
Wheelabrator-Sherman contract.
The Company also proposes to write off and not collect in retail rates
approximately $4.9 million, net of taxes, or approximately $3 per share, of
its remaining investment in the Seabrook project previously supported by its
wholesale customers, principally Houlton Water Company, using traditional
ratemaking principles.
The plan also includes a profit-sharing plan based on the allowed
return on equity (ROE), currently proposed at 12%. As part of an annual
review process, the allowed ROE will be adjusted annually based on an index
by averaging over a twelve-month calendar year the dividend yields on Moody's
group of 24 electric utilities and Moody's utility bond yields. If the
annual return on equity is two percentage points below the allowed
return on equity, 50% of the deficiency will be collected from customers in
the subsequent year. If the annual ROE exceeds the allowed ROE by less than
two percentage points, 50% of the excess will be used to reduce the
Wheelabrator-Sherman deferral but not below zero. If the annual return
on equity exceeds the allowed ROE by two percentage points, 50% of the excess
will be used to reduce current rates or to reduce the Wheelabrator-Sherman
deferral.
The rate plan will also provide the Company with flexible pricing
provisions under which the Company can offer discounts to individual or to
selected rate classes with only minimum review by the MPUC. These provisions
will enhance the Company's ability to compete with other suppliers of retail
power. In addition, the Company will propose economic development rates for
new commercial and industrial activities.
Wholesale Customers Solicit
Competitive Bids
On September 26, 1994, Maine Public Service Company's wholesale
customers (Houlton Water Company, Van Buren Light and Power District, and
Eastern Maine Electric Cooperative, Inc.) issued a Request for Proposal to
several wholesale suppliers, including the Company, for purchased power
requirements beginning January 1, 1996. The wholesale customers'
request sought proposals for a minimum ten-year period.
On October 21, 1994, the Company submitted its proposals to the
wholesale customers. The Company submitted alternative proposals, a six-year
proposal and an eleven-year proposal, both beginning January 1, 1995.
Although the current contract obligated the wholesale customers through
December 31, 1995, they sought "incentives" from potential suppliers to
reduce the cost for 1995. The Company's proposals reduced rates by
approximately 20% from the rates under the current contract. The Company
believes that its proposals were competitive with those available from other
potential wholesale suppliers.
On December 2, 1994, the Company was notified that Houlton Water
Company (HWC) selected a competing offer from Central Maine Power (CMP) to
be served from its newly acquired subsidiary located in Fort Fairfield,
Maine, the Aroostook Valley Electric Company (AVEC). For the twelve months
ended December 31, 1994, sales to HWC represented 9.0% of the Company's
consolidated MWH sales and 7.6% of consolidated operating revenues.
The Company will continue to serve HWC under its present contract through
December 31, 1995.
(Pictures)
Customer Service Begins Early - MPS employees teach students throughout the
service territory how electricity is produced and measured.
With a magnet and coil of wire, Nancy Jackson, left, demonstrates the basic
principles of electricity. She explains how to read an electric meter and
discusses energy choices.
Students touring the MPS electrical service building watch Mike Brown, at
right, demonstrate meter testing equipment.
(Page 11)
The Company was also notified on December 2, 1994, that the remaining
wholesale customers, Van Buren and EMEC, selected the Company's six-year
proposal which included a provision that any new contract not be terminated
before December 31, 1998. For the twelve months ended December 31, 1994,
sales to Van Buren and EMEC represented 3.7% of the Company's consolidated
MWH sales and 3.1% of consolidated operating revenues. The new rates
were approved by the FERC on February 1, 1995, retroactive to January 1,
1995.
On December 29, 1994, HWC filed with the Maine Public Utilities
Commission (MPUC) for approval of the purchase from CMP. On January 12,
1995, the Company requested permission to intervene in this proceeding. This
request was granted on February 1, 1995. The Company intends to argue that
the MPUC should not grant HWC's requested approval. The Company will base
its argument on CMP's intention to serve HWC's load from a facility that CMP
acquired using State financing. The Company believes that State energy and
regulatory policy prohibits CMP from using a facility supported by State
financing to the detriment of the retail customers of any other utility. The
Commission has taken argument on whether its authority is broad enough to
consider the issues raised by the Company. The Company cannot predict the
outcome of this proceeding.
New Accounting Standards
In 1995, the Company will be required to adopt Statement of Financial
Accounting Standards No. 107 (SFAS 107), "Disclosure about Fair Value of
Financial Instruments" and SFAS 119 "Disclosure about Derivative Financial
Instruments and Fair Value of Financial Instruments". The Company does not
expect that its planned adoption of these standards in 1995 will have a
material impact on its financial position or results of operations.
Shareholder Information
General
The Company's Common Stock is listed and traded on the American Stock
Exchange. As of December 31, 1994 and 1993, Common Stock shares issued and
outstanding were 1,617,250 and 1,660,250, respectively. During 1994, 43,000
shares of Common Stock were purchased through the Company's stock repurchase
program. As of December 31, 1994, shares were held by 1,650 shareholders or
nominees in forty-eight states, the District of Columbia, Canada, and South
Africa.
The annual meeting of shareholders is held each year on the second
Tuesday in May at the Company's headquarters in Presque Isle. Market price
and dividend information relative to the two most recent calendar years are
shown in the tabulation below.
Income Tax Status of 1994 Dividends
The Company has determined that the Common Stock dividends paid in 1994
are fully taxable for federal income tax purposes. These determinations are
subject to review by the Internal Revenue Service, and shareholders will be
notified of any significant changes.
Market Dividends Dividends
Price Paid Declared
High Low Per Share Per Share
1994
First Quarter $27-3/8 $26 $ .46 $ .46
Second Quarter $27 $25-1/4 .46 .46
Third Quarter $26 $22-3/4 .46 .46
Fourth Quarter $24 $20-1/2 .46 .46
Total Dividends $1.84 $1.84
1993
First Quarter $30-1/2 $25-5/8 $ .44 $ .44
Second Quarter $31-1/4 $27-7/8 .44 .44
Third Quarter $30-7/8 $28-3/4 .44 .44
Fourth Quarter $30-1/8 $25-5/8 .44 .46
Total Dividends $1.76 $1.78
Dividends declared within the quarter are paid on the first day of the
succeeding quarter.
(Page 12)
<TABLE>
Five-Year Summary of Selected Financial Data
<CAPTION>
1994 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C>
Operating Revenues 58,306,085 60,575,712 56,570,640 57,966,310 56,698,367
Net Income 4,845,647 5,300,840 4,864,936 4,476,060 4,707,508
Dividends on
Preferred Stock - - - - (79,128)
Net Income Available
for Common Stock 4,845,647 5,300,840 4,864,936 4,476,060 4,628,380
Earnings Per Share
of Common Stock 2.99 3.19 2.93 2.62 2.58
Dividends Per Share
of Common Stock:
Declared Basis 1.84 1.78 1.76 1.68 1.68
Paid Basis 1.84 1.76 1.74 1.68 1.66
Total Assets 122,375,442 124,936,558 112,047,613 115,365,848 107,805,475
Long-Term Debt
Outstanding 37,500,000 39,365,000 39,455,000 44,745,000 28,329,000
Less amount due
within one year 65,000 1,865,000 90,000 490,000 3,044,000
Long-Term Debt 37,435,000 37,500,000 39,365,000 44,255,000 25,285,000
</TABLE>
(Page 13)
Independent Auditors' Report
MAINE PUBLIC SERVICE COMPANY:
We have audited the accompanying consolidated balance sheets and
statements of capitalization of Maine Public Service Company and its
Subsidiary, Maine and New Brunswick Electrical Power Company, Limited, as of
December 31, 1994 and 1993, and the related consolidated statements of
income, common shareholders' equity, and cash flows for each of the three
years in the period ended December 31, 1994. These financial statements are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly,
in all material respects, the financial position of the companies at December
31, 1994 and 1993 and the results of their operations and their cash flows
for each of the three years in the period ended December 31, 1994 in
conformity with generally accepted accounting principles.
As discussed in Notes 2 and 6 to the financial statements, the Company
changed its methods of accounting for income taxes and postretirement
benefits in 1993 to conform with Statements of Financial Accounting Standards
No. 109, "Accounting for Income Taxes", and No. 106, "Employers" Accounting
for Postretirement Benefits Other Than Pensions", respectively.
Deloitte & Touche LLP
Boston, Massachusetts
February 15, 1995
(Page 14)
<TABLE>
MAINE PUBLIC SERVICE COMPANY AND SUBSIDIARY
Statements of Consolidated Income
Year Ended December 31,
<CAPTION>
1994 1993 1992
<S> <C> <C> <C>
Operating Revenues 58,306,085 60,575,712 56,570,640
Operating Expenses
Purchased Power 27,764,353 27,513,535 26,952,441
Other Operation and Maintenance 12,664,268 14,175,651 11,326,019
Depreciation & Amortization (Notes 1 and 9) 4,224,190 4,124,121 3,902,333
Taxes Other Than Income 1,594,422 1,523,451 1,515,825
Provision for Income Taxes (Notes 1 and 2) 3,739,777 4,313,042 3,932,448
Total Operating Expenses 49,987,010 51,649,800 47,629,066
Operating Income 8,319,075 8,925,912 8,941,574
Other Income (Deductions)
Equity in Income of Associated
Companies (Notes 1 and 3) 361,752 418,552 427,614
Allowance for Equity Funds Used During
Construction (Note 1) 9,174 56,131 64,896
Provision for Income Taxes (Notes 1 and 2) (104,546) (79,651) (197,074)
Other - Net 113,925 (154,368) 67,777
Total 380,305 240,664 363,213
Income Before Interest Charges 8,699,380 9,166,576 9,304,787
Interest Charges
Long-Term Debt and Notes Payable 3,857,301 3,890,253 4,473,282
Less Allowance for Borrowed Funds Used During
Construction (Note 1) (3,568) (24,517) (33,431)
Total 3,853,733 3,865,736 4,439,851
Net Income Available for Common Stock 4,845,647 5,300,840 4,864,936
Earnings Per Share of Common Stock 2.99 3.19 2.93
Average Shares Outstanding 1,618,700 1,660,250 1,660,250
</TABLE>
See Notes to Consolidated Financial Statements.
(Page 15)
<TABLE>
MAINE PUBLIC SERVICE COMPANY AND SUBSIDIARY
Statements of Consolidated Cash Flows
Year Ended December 31,
<CAPTION>
1994 1993 1992
<S> <C> <C> <C>
Cash Flow From Operating Activities
Net Income $4,845,647 $5,300,840 $4,864,936
Adjustments to Reconcile Net Income to
Net Cash Provided by Operations:
Depreciation and Amortization 4,224,190 4,124,121 3,902,333
Deferred Income Taxes - Net (359,942) 161,968 1,221,913
Deferred Investment Tax Credits (77,027) (77,024) (77,024)
Allow. for Funds Used During Construction (12,742) (80,648) (98,327)
Inc. on Tax-Exempt Bonds-Restricted Funds (6,269) (140,801) (357,239)
Change in Deferred Regulatory and
Debt Issuance Costs 1,690,200 (1,923) (346,263)
Change in Deferred Revenues (119,440) (159,264) (862,067)
Change in Benefit Obligations 702,649 563,759 -
Change in Current Assets and Liabilities:
Accounts Receivable and Unbilled Revenue 1,110,069 (65,017) (400,249)
Deferred Fuel and Purchased Energy Cost (822,990) (332,573) (2,028,957)
Other Current Assets (216,035) (28,960) 175,811
Accounts Payable 495,726 (669,790) 315,021
Accrued Taxes and Interest (654,040) (8,701) 45,463
Other Current Liabilities (11,316) 1,783 7,195
Other - Net (495,898) 197,354 179,374
Net Cash Flow Provided By Operating
Activities 10,292,782 8,785,124 6,541,920
Cash Flow From Financing Activities
Dividend Payments (2,975,740) (2,955,245) (2,922,040)
Purchase of Common Stock (1,143,137) - -
Drawdown of Tax-Exempt Bond Proceeds 1,110,637 2,355,295 2,217,291
Retirements of Long-Term Debt (1,865,000) (90,000) (5,290,000)
Short-Term Borrowings, Net - (5,000,000) 2,100,000
Net Cash Flow Used In Financing Activities (4,873,240) (5,689,950) (3,894,749)
Cash Flow Used In Investing Activities
Investment in Restricted Funds 169,588 (5,157) (14,349)
Investment in Electric Plant (4,362,620) (3,273,186) (3,873,299)
Net Cash Flow Used In Investing Activities (4,193,032) (3,278,343) (3,887,648)
Increase (Decrease) in Cash and
Temporary Investments 1,226,510 (183,169) (1,240,477)
Cash and Temporary Investments at
Beginning of Year 1,391,908 1,575,077 2,815,554
Cash and Temporary Investments at End of Year $2,618,418 $1,391,908 $1,575,077
Supplemental Disclosure of Cash Flow
Information:
Cash Paid During The Year For:
Interest $3,580,862 $3,625,620 $4,139,567
Income Taxes $5,040,950 $4,233,884 $2,927,908
</TABLE>
See Notes to Consolidated Financial Statements.
(Page 16)
<TABLE>
MAINE PUBLIC SERVICE COMPANY AND SUBSIDIARY
Consolidated Balance Sheets
<CAPTION>
December 31,
Assets 1994 1993
<S> <C> <C>
Utility Plant (Notes 1 and 4):
Electric Plant in Service $ 89,625,380 $ 86,727,417
Less Accumulated Depreciation 39,713,937 38,217,449
Net Electric Plant in Service 49,911,443 48,509,968
Construction Work-In-Progress (Note 9) 570,367 280,545
Total 50,481,810 48,790,513
Investments in Associated Companies (Notes 1 and 3) 3,455,935 3,460,841
Net Utility Plant and Investments in Associated
Companies 53,937,745 52,251,354
Current Assets:
Cash and Temporary Investments (Note 1) 2,618,418 1,391,908
Deposits for Interest and Dividends 743,935 807,059
Accounts Receivable (less allowance for
uncollectible accounts in 1994, $214,215
and 1993, $214,329) 5,069,376 6,074,745
Unbilled Revenue (Note 1) 2,413,843 2,518,543
Deferred Fuel and Purchased Energy Costs (Note 1) 535,316 -
Deferred Income Taxes Related to Deferred
Fuel Costs (Note 1) - 114,761
Inventory (Note 1) 1,288,896 1,334,082
Prepayments 537,174 275,953
Total 13,206,958 12,517,051
Other Assets:
Recoverable Seabrook Costs (less accumulated
amortization in 1994, $16,113,391; 1993,
$14,394,619) (Notes 1 and 9) 37,073,619 38,792,391
Regulatory Assets-SFAS 109 & 106 (Notes 2 and 6) 16,212,326 16,476,232
Restricted Investments (at cost, which approximates
market) (Note 8) - 1,273,956
Unamortized Debt Expense (less accumulated
amortization in 1994, $1,335,101; 1993, $1,057,975)
(Note 1) 949,709 1,206,835
Deferred Regulatory Costs (less accumulated
amortization in 1994, $4,595,056; 1993,
$3,303,340) (Note 1) 379,796 1,812,870
Miscellaneous 615,289 605,869
Total 55,230,739 60,168,153
Total Assets $122,375,442 $124,936,558
</TABLE>
See Notes to Consolidated Financial Statements.
(Page 17)
<TABLE>
Capitalization and Liabilities
December 31,
1994 1993
<S> <C> <C>
Capitalization (see accompanying statements):
Common Shareholders' Equity (Note 7) $ 47,247,847 $ 46,521,077
Long-Term Debt (Note 8) 37,435,000 37,500,000
Total 84,682,847 84,021,077
Current Liabilities:
Long-Term Debt Due Within One Year 65,000 1,865,000
Accounts Payable 2,118,804 2,107,512
Accounts Payable - Associated Companies 868,853 749,771
Accrued Employee Benefits 1,092,661 727,309
Deferred Fuel and Purchased Energy Costs (Note 1) - 287,674
Deferred Income Taxes Related to Deferred
Fuel Costs (Note 1) 213,561 -
Dividends Declared 743,936 763,716
Customer Deposits 74,529 85,845
Taxes Accrued (Note 2) 91,613 701,622
Interest Accrued 1,021,350 1,065,381
Total 6,290,307 8,353,830
Deferred Credits:
Deferred Revenues (Note 1) - 119,440
Income Taxes (Notes 1 and 2) 28,036,322 29,370,893
Investment Tax Credits (Notes 1 and 2) 936,748 1,013,775
Miscellaneous 2,429,218 2,057,543
Total 31,402,288 32,561,651
Commitments and Contingencies (Note 9)
Total Capitalization and Liabilities $122,375,442 $124,936,558
</TABLE>
(Page 18)
<TABLE>
MAINE PUBLIC SERVICE COMPANY AND SUBSIDIARY
Statement of Consolidated Common Shareholders' Equity (Note 7)
<CAPTION>
Par Value Paid-In Retained Treasury
Shares Issued Capital Earnings Stock
<S> <C> <C> <C> <C> <C>
Balance, Jan. 1, 1992 1,660,250 $13,070,750 $38,317 $33,694,758 $(4,571,239)
Net Income 4,864,936
Dividends:
Common Stock
($1.76 per share) (2,922,040)
Balance, Dec. 31, 1992 1,660,250 13,070,750 38,317 35,637,654 (4,571,239)
Net Income 5,300,840
Dividends:
Common Stock
($1.78 per share) (2,955,245)
Balance, Dec. 31, 1993 1,660,250 13,070,750 38,317 37,983,249 (4,571,239)
Net Income 4,845,647
Dividends:
Common Stock
($1.84 per share) (2,975,740)
Stock Repurchased:
Common Stock (43,000) (1,143,137)
Balance, Dec. 31, 1994 1,617,250 $13,070,750 $38,317 $39,853,156 $(5,714,376)
</TABLE>
See Notes to Consolidated Financial Statements.
(Page 19)
<TABLE>
MAINE PUBLIC SERVICE COMPANY AND SUBSIDIARY
Consolidated Statements of Capitalization
<CAPTION>
December 31,
1994 1993
<S> <C> <C>
Common Shareholders' Equity (Note 7):
Common Stock, $7 Par Value-Authorized 3,000,000
Shares in 1994 and 1993;
Issued 1,867,250 Shares in 1994 and 1993 $13,070,750 $13,070,750
Paid-In-Capital 38,317 38,317
Retained Earnings 39,853,156 37,983,249
Total 52,962,223 51,092,316
Treasury Stock-Total Shares of 250,000 in 1994
and 207,000 in 1993, at cost (5,714,376) (4,571,239)
Total $47,247,847 $46,521,077
Long-Term Debt (Note 8):
First Mortgage and Collateral Trust Bonds:
4-3/4% Due Serially through 1995-Interest Payable,
January 1 and July 1 $ - $ 1,800,000
7-1/8% Due Serially through 1998-Interest Payable,
May 1 and November 1 3,000,000 3,040,000
7.95% Due Serially through 2003-Interest Payable,
March 1 and September 1 2,000,000 2,025,000
9.775% Due Serially through 2011-Interest Payable,
March 1 and September 1 15,000,000 15,000,000
Second Mortgage and Collateral Trust Bonds:
9.6% Due Serially through 2001-Interest Payable,
March 1 and September 1 7,500,000 7,500,000
Public Utility Revenue Bonds-1991 Series:
7.875% Due 2021-Interest Payable,
April 1 and October 1 10,000,000 10,000,000
Total Outstanding 37,500,000 39,365,000
Less-Amount Due Within One Year 65,000 1,865,000
Total $37,435,000 $37,500,000
</TABLE>
Current Maturities and Redemption Requirements for
the Succeeding Five Years Are as Follows:
Long-Term Debt:
1995 - $ 65,000
1996 - $1,315,000
1997 - $1,315,000
1998 - $4,155,000
1999 - $1,275,000
See Notes to Consolidated Financial Statements.
(Page 20)
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
1. ACCOUNTING POLICIES
Regulations
Maine Public Service Company (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). As a
result of the ratemaking process, the applications of accounting principles
by the Company differ in certain respects from applications by non-regulated
businesses.
Consolidation and Foreign Currency Translation
The accompanying 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"). All
intercompany balances and transactions have been eliminated in consolidation.
The functional currency of the Subsidiary is the U.S. dollar. Accordingly,
translation gains and losses are included in other income. Income and
expenses of the Subsidiary are translated at rates of exchange prevailing at
the time the income is earned or the expenses are incurred, except for
depreciation which is translated at rates existing on the applicable
in-service dates. Assets and liabilities are translated at year-end exchange
rates, except for utility plant which is translated at rates existing on the
applicable in-service dates.
Deferred Fuel and Purchased Energy Costs
Electric rates include adjustment clauses for fuel and purchased energy
costs, through which costs above or below base rate levels are recoverable
from or refundable to customers. Fluctuations between current base rates and
actual costs are deferred until recovered or refunded through subsequent
adjustment clauses, in order to properly match costs with the related
revenues.
Revenue Recognition
Operating revenues include sales billed on a cycle billing basis and
estimated unbilled revenues for electric service rendered prior to the normal
billing cycle.
For retail ratemaking purposes during the years 1988 to 1990, the Company
deferred the recognition of base revenues associated with seasonal secondary
sales to other New England utilities of its power entitlement in Wyman Unit
No. 4 (Wyman), approximately $1,554,000, net of income taxes. The MPUC
allowed the Company to recognize these deferred secondary sales, net of
income taxes, of approximately $72,000, $96,000, and $518,000 in 1994, 1993
and 1992, respectively. The recognition of these deferred revenues was
completed in 1994.
Utility Plant
Utility Plant is stated at original cost of contracted services, direct
labor and materials, as well as related indirect construction costs including
general engineering, supervision, and similar overhead items and allowances
for the cost of equity and borrowed funds used during construction (AFUDC).
The cost of utility plant which is retired, including the cost of removal
less salvage, is charged to accumulated depreciation. Costs which are
disallowed or are expected to be disallowed for recovery through rates are
charged to income at the time such disallowance becomes probable and
estimable. The cost of maintenance and repairs, including replacement of
minor items of property, are charged to maintenance expense as incurred. The
Company's property, with minor exceptions, is subject to first and second
mortgage liens.
Depreciation and Amortization
Utility plant depreciation is provided on composite bases using the
straight-line method. The composite depreciation rate, expressed as a
percentage of average depreciable plant in service, was approximately 2.99%,
3.00%, and 2.71% for 1994, 1993, and 1992, respectively.
Bond issuance costs and premiums paid upon early retirements are amortized
over the terms of the related debt. Recoverable Seabrook costs and deferred
regulatory expenses are amortized over the period allowed by regulatory
authorities in the related rate orders. Recoverable Seabrook costs are being
amortized principally over thirty years (Note 9). Costs associated with
relicensing hydro facilities are amortized over the thirty-year license
period.
Allowance for Cost of Funds Used During Construction
The debt and equity costs of funds applicable to construction are
capitalized at net-of-tax rates. The average composite AFUDC rates
determined for funds applicable to construction for 1994, 1993, and 1992 were
9.22%, 8.91%, and 8.8%, respectively.
Income Taxes
In 1993, the Company adopted Statement of Financial Accounting Standards
No. 109 (SFAS 109), "Accounting for Income Taxes", which requires an asset
and liability approach to accounting and reporting income taxes. SFAS No.
109 prohibits net-of-tax accounting and requires the establishment of
deferred taxes on all temporary differences, i.e. differences between the tax
basis of assets or liabilities and their basis for financial reporting. The
differences are created when transactions are recognized for tax purposes,
but are recognized in another time period for ratemaking purposes. Based on
prior treatment by the MPUC of temporary differences and pursuant to SFAS
109, the increase in deferred tax liabilities is offset by a regulatory
asset, representing the future revenue requirements as the temporary
differences are recognized for ratemaking.
In 1992, deferred income taxes were provided on timing differences that
were allowed for ratemaking purposes. The Company has deferred investment
tax credits and amortizes the credits over the remaining estimated useful
life of the related utility plant.
Investments in Associated Companies
The Company records its investments in Associated Companies (see Note 3)
using the equity method.
Pledged Assets
The Common Stock of the Subsidiary is pledged as additional collateral for
the first and second mortgage and collateral trust bonds of the Company.
(Page 21)
Inventory
Inventory is stated at average cost.
Cash and Temporary Investments
For purposes of the Statements of Cash Flows, the Company considers all
highly liquid securities with a maturity of three months or less to be
temporary investments.
Reclassifications
Certain reclassifications have been made to the 1993 and 1992 financial
statements in order to conform to the 1994 presentation.
2. INCOME TAXES
A summary of Federal, Canadian 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 are allocated as "Other Income (Deductions)".
1994 1993 1992
Current income taxes $4,281,292 $4,307,749 $2,984,633
Deferred income taxes (359,942) 161,968 1,221,913
Investment credits, net (77,027) (77,024) (77,024)
Total income taxes $3,844,323 $4,392,693 $4,129,522
Allocated to:
Operating income $3,739,777 $4,313,042 $3,932,448
Other income 104,546 79,651 197,074
Total $3,844,323 $4,392,693 $4,129,522
The effective income tax rates differ from the U.S. statutory rate as
follows:
1994 1993 1992
Statutory rate 34.0% 34.0% 34.0%
Excess Canadian taxes 1.2 1.5 1.6
Amortization of recoverable
Seabrook costs 3.8 3.4 3.6
State income taxes 5.8 6.1 6.4
Other (.6) .3 .3
Effective rate 44.2% 45.3% 45.9%
The elements of deferred income tax expense (credit) are as follows:
(Dollars in Thousands)
1994 1993 1992
Temporary Differences at Statutory
Rates:
Seabrook - costs $ (234) $ (234) $ (240)
Liberalized depreciation 158 223 299
AFUDC-borrowed funds (63) (63) (63)
Deferred fuel expense 328 136 821
Deferred regulatory expense (573) 253 203
Unbilled and deferred revenue 48 64 344
Reacquired debt (83) (83) (32)
Other 59 (134) (110)
Total temporary differences at
statutory rates $ (360) $ 162 $ 1,222
(Page 22)
The Company has not accrued U.S. income taxes on the undistributed
earnings of the Subsidiary, as the withholding taxes due on the distribution
of any remaining amount would be principally offset by foreign tax credits.
Dividends received from the Subsidiary were $433,243, $765,958, and $816,211
in 1994, 1993, and 1992, respectively. In 1994, 1993, and 1992, the dividend
received from the Subsidiary exceeded earnings by $55,816, $198,733, and
$238,363, respectively.
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. See Note 1,
"Income Taxes" for additional information on SFAS 109.
The following summarizes accumulated deferred income taxes established on
temporary differences under SFAS 109 as of December 31, 1994 and 1993:
(Dollars in Thousands)
1994 1993
Seabrook $20,214 $21,152
Property 8,985 8,879
Regulatory expenses 142 665
Investment tax credits (622) (673)
Pension and post-
retirement benefits (251) (305)
Other (432) (347)
Net accumulated deferred
income taxes $28,036 $29,371
3. INVESTMENTS IN ASSOCIATED COMPANIES
The Company owns 5% of the Common Stock of Maine Yankee Atomic Power
Company (Maine Yankee), a jointly-owned nuclear electric power company, and
7.49% of the Common Stock of the Maine Electric Power Company (MEPCO), a
jointly-owned electric transmission company.
Dividends received during 1994, 1993, and 1992 from Maine Yankee were
approximately $347,500, $388,800, and $418,800, respectively, and from MEPCO
approximately $7,900 in each year. Substantially all earnings of Maine
Yankee and MEPCO are distributed to investor companies. Condensed financial
information (unaudited) for Maine Yankee and MEPCO is as follows:
<TABLE>
(Dollars in Thousands)
<CAPTION>
Maine Yankee MEPCO
1994 1993 1992 1994 1993 1992
Earnings
<S> <C> <C> <C> <C> <C> <C>
Operating revenues $173,857 $193,102 $187,259 $24,746 $12,809 $11,608
Earnings applicable to
Common Stock $ 7,080 $ 8,220 $ 8,394 $ 105 $ 105 $ 105
Company's equity share
of net earnings $ 354 $ 411 $ 420 $ 8 $ 8 $ 8
Investment
Total assets $549,910 $534,817 $521,193 $ 6,562 $ 6,279 $ 6,839
Less:
Preferred stock 19,200 19,800 20,400 - - -
Long-term debt 96,666 103,333 89,390 1,730 2,590 3,450
Other liabilities and
deferred credits 366,550 344,030 343,900 3,954 2,811 2,511
Net assets $ 67,494 $ 67,654 $ 67,503 $ 878 $ 878 $ 878
Company's equity in
net assets $ 3,375 $ 3,383 $ 3,375 $ 66 $ 66 $ 66
</TABLE>
(Page 23)
4. INVESTMENT IN JOINTLY-OWNED
UTILITY PLANT
The Company has a 3.3455% ownership interest in a jointly-owned
utility plant, W. F. Wyman Unit No. 4 (Wyman), an oil-fired generation plant.
The Company's proportionate share of the direct expenses of Wyman are
included in the corresponding operating expenses in the statements of
consolidated income. The Company's share in the plant at December 31, 1994
and 1993 is as follows:
(Dollars in Thousands)
1994 1993
Electric plant in service $6,969 $6,963
Accumulated depreciation (3,426) (3,216)
Net electric plant in service $3,543 $3,747
5. SHORT-TERM CREDIT ARRANGEMENTS
The Company has a revolving credit arrangement with a consortium of banks.
The revolving credit agreement provides for borrowings up to $10 million
through October 1996 and is subject to extension with the consent of all
participating banks. The Company can utilize, at its discretion, two types
of loan options: A Loans, which are provided on a pro rata basis in
accordance with each participating bank's share of the commitment amount, and
B Loans, which are provided as arranged between the Company and each of the
participating banks. The A Loans, at the Company's option, bear interest
equal to either the agent bank's prime rate or the LIBOR interest rate plus
1/2%. The B Loans bear interest as arranged between the Company and the
participating bank. There were no borrowings under this arrangement during
1994.
The Subsidiary has a $200,000 (Canadian) bank line of credit agreement
providing for interest at the bank's prime rate (8.0% at December 31, 1994).
There were no borrowings under this arrangement during 1994.
6. BENEFIT PLANS
U.S. Defined Benefit Pension Plan
The Company has an insured non-contributory defined benefit pension plan
covering substantially all employees. Benefits under the plan are based on
employees' years of service and compensation prior to retirement.
The Company follows Statement of Financial Accounting Standards No. 87,
"Employers' Accounting for Pensions" (SFAS 87). For the termination benefits
provided with the Company's Reduction In Force program (RIF), Statement of
Financial Accounting Standards No. 88, "Employers' Accounting for Settlements
and Curtailments of Defined Benefit Pension Plans and for Termination
Benefits" (SFAS 88) was followed in 1993 for the one-time charge. The
Company's policy has been to fund pension costs accrued. In January, 1995,
the Company made a $340,000 pension contribution for the 1994 plan year,
while contributions were not required in either 1993 or 1992. The periodic
pension cost under SFAS 87 and SFAS 88 is comprised of the components listed
below as determined using the projected unit credit actuarial cost method.
The components of the net pension cost for 1994, 1993 and 1992 are as
follows:
(Dollars in Thousands)
1994 1993 1992
Service costs for benefits
earned during the period $ 329 $ 274 $ 248
Interest cost on projected
benefit obligation 891 847 789
Actual return on plan assets:
Actual 83 (918) (533)
Deferred (962) 26 (325)
Total (879) (892) (858)
Net amortization
and deferral (2) (38) (49)
Net Pension Cost - SFAS 87 339 191 130
SFAS 88 for RIF - 87 -
Total Pension Costs $ 339 $ 278 $ 130
The following table sets forth the plan's funded status, obligations, and
assumptions as of December 31, 1994 and 1993:
(Dollars in Thousands)
1994 1993
Accumulated vested
benefit obligation:
Vested $ 9,371 $ 9,990
Non-vested 190 188
Total $ 9,561 $ 10,178
Projected benefit obligation $(11,552) $ (12,775)
Fair value of assets 10,743 11,500
Funded status (809) (1,275)
Unrecognized prior
service costs 1,044 1,128
Unrecognized transition
amount (636) (713)
Unrecognized (gain) loss (594) 204
Accrued Pension Cost $ (995) $ (656)
Assumptions:
Discount rate 8.0% 7.0%
Salary increases 5.0% 5.0%
Expected return on assets 8.5% 8.5%
At December 31, 1994, plan assets consisted of annuity contracts, equity
and debt securities, U.S. Treasury obligations, and cash equivalents.
(Page 24)
Retirement Savings Plan
The Company has adopted a defined contribution plan (under Section 401(k)
of the Internal Revenue Code) covering substantially all of the Company's
employees. Participants may elect to defer from 1% to 15% of current
compensation, and the Company contributes such amounts to the plan. The
Company also matches contributions, with a maximum matching contribution of
1% of current compensation. Participants are 100% vested at all times in
contributions made on their behalf. The Company's share of contributions to
the plan were approximately $34,000 in 1994 and 1993, and $31,000 in 1992.
Health Care Benefits
In addition to providing pension benefits, the Company provides certain
health care benefits to eligible employees and retirees. Since August 1,
1994, all employees have been sharing in the cost of their medical benefits,
approximately 12.5% 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.
In 1993, the Company adopted Statement of Financial Accounting Standards
No. 106 (SFAS 106), "Employers' Accounting For Postretirement Benefits Other
Than Pensions", 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.
The components of net postretirement benefit costs are as follows:
(Dollars in Thousands)
1994 1993
Service costs for benefits $ 91 $120
Interest cost 307 376
Amortization of transition obligation 213 234
Total costs 611 730
Current payments for retiree obligations
allowed in Company's cost of service 195 175
Additional SFAS 106 costs $416 $555
Based on the MPUC's accounting order, the Company has established a
regulatory asset of approximately $732,000, representing deferred
postretirement benefits subject to future ratemaking.
The Company has not established a fund, and any funding plan will be
reviewed and approved by the MPUC. The Company's accumulated postretirement
benefit obligation and funding status consist of the following:
(Dollars in Thousands)
1994 1993
Retirees $(2,199) $(1,767)
Fully eligible actives (1,083) (1,128)
Other actives (1,288) (1,624)
Total (4,570) (4,519)
Fair value of assets 0 0
Accumulated pension benefit
obligation (4,570) (4,519)
Transition obligation in excess
of plan assets 3,821 4,034
Net gain (222) (70)
Accrued postretirement benefit cost $ (971) $ (555)
There were no unrecognized prior service costs. For 1994 and 1993, the
Company used an assumed weighted average discount rate of 8% and 7%,
respectively. For 1994, the health care cost trend rate was 13%, with the
ultimate trend rate of 6% reached in four years. The health care cost trend
rate used for 1993 was 14%, with the ultimate trend rate of 5% reached in
five years. A one percentage-point increase in the assumed health care cost
trend rates for each future year would result in an increase in the
accumulated pension benefit obligation by $657,000, in service costs by
$30,000 and interest costs by $46,000.
(Page 25)
7. COMMON SHAREHOLDERS' EQUITY
On September 19, 1989, the Company received approval from the Maine Public
Utilities Commission (MPUC) to repurchase, from time to time over a period
no longer than five years, up to 500,000 shares of its Common Stock. By the
expiration of this approval in September, 1994, the Company had purchased
250,000 shares under the program, all of which are held as treasury shares.
On November 1, 1994, the MPUC approved a similar program to repurchase up
to an additional 300,000 shares over a five-year period. The shares are
repurchased through an open-market program. The repurchase program's primary
purpose is to maintain the Company's common equity at levels appropriate for
an investor-owned utility.
Under the most restrictive provisions of the Company's long-term debt
indentures and short-term credit arrangements, retained earnings (plus
dividends declared on Common Stock) available for the distribution of cash
dividends on Common Stock were $39,853,156 at December 31, 1994.
8. LONG-TERM DEBT
On April 4, 1991, the Maine Public Utilities Financing Bank (MPUFB) issued
its tax exempt bonds in the principal amount of $10,000,000 (the "Bonds") for
the purpose of providing funds to the Company to construct qualifying
distribution, transmission, and generation facilities over the next three
years. Pursuant to the Long-Term Note issued under a loan agreement between
the Company and the MPUFB (the "Loan Agreement"), the Company has agreed to
make payments to the MPUFB in amounts sufficient to pay the principal,
redemption price of, and interest on, the Bonds. Concurrently therewith,
pursuant to a Letter of Credit and Reimbursement Agreement, the Company
caused a letter of credit to be issued by Barclays Bank PLC, New York Branch,
for the benefit of the holders of such Bonds. To secure the Company's
obligations under the Reimbursement Agreement (which obligations are
satisfied by the Company's timely compliance with the terms of the Loan
Agreement), the Company issued a Second Mortgage Bond to Barclays in the
amount of $10,426,563 (with the amount being equal to the $10,000,000
principal amount of the Bonds plus 195 days of interest on the Bonds).
The Bonds have a coupon rate of 7.875% and, after considering the enhancement
fee of 0.75% payable to Barclays and an administration fee of 0.10% payable
to the MPUFB, the annual cost to the Company associated with this financing
approximates 8.725%, exclusive of issuance costs. The Bonds mature in thirty
years and are callable after three years.
The Company made a final payment of $1,800,000 on the 4-3/4% First
Mortgage Bonds in December, 1994.
9. COMMITMENTS AND CONTINGENCIES
Seabrook Nuclear Power Project
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 December 31, 1994 are as follows:
(Dollars in Thousands)
Recoverable
Seabrook Accumulated
Costs (Net) In Rates Amortization
Unit 1
Retail $27,330 $37,141 $ (9,811)
Wholesale 6,454 8,018 (1,564)
Total 33,784 45,159 (11,375)
Unit 2
Retail 3,239 5,995 (2,756)
Wholesale 51 2,033 (1,982)
Total 3,290 8,028 (4,738)
Total Units 1 and 2 $37,074 $53,187 $(16,113)
On January 13, 1989, the Company, along with the other selling joint
owners, executed an agreement with certain of the current joint owners,
representing approximately 98% of the present ownership interest in the
Seabrook Project. Under the terms of the Agreement, the Company agreed to
assign to the present joint owners all actions or claims that the Company
may have against Public Service Company of New Hampshire relating to the
Seabrook Project and also agreed to assign to EUA Power Corporation any
actions or claims that the Company may have against United Engineers and
Contractors, Inc., the designers and builders of the Project. The Project
joint owners have also ratified a Twenty Second Amendment to the Joint
Ownership Agreement which relieves the Company of its contingent liability,
up to a maximum of $1.2 million, to pay any decommissioning costs of Seabrook
Unit 1.
Customer Rate Settlements and Negotiations
The Company has offered load retention rates to several major industrial
customers. These customers have the option to self-generate; however, the
Company believes it can compete with self-generation. Any load retention
rates must be approved by the Maine Public Utilities Commission and the
Company cannot predict the outcome of these negotiations.
In response to an earlier request, on October 21, 1994, the Company
submitted proposals to its wholesale customers for their energy requirements
starting on January 1, 1996. Although the current contract obligated the
wholesale customers through December 31, 1995, they sought incentives from
potential suppliers to
(Page 26)
reduce their cost in 1995. The Company submitted alternative proposals, a
six-year proposal and an eleven-year proposal, both beginning January 1,
1995, with both proposals reducing rates by approximately 20% from the rates
under the existing contract. On December 2, 1994, the Company was notified
that Houlton Water Company selected a competing offer to begin on January 1,
1996. The remaining two wholesale customers, Van Buren Light and Power
District and Eastern Maine Electric Cooperative, Inc., selected the Company's
six-year proposal which included a provision that any new contract not be
terminated before December 31, 1998. The new contracts were approved by the
FERC on February 1, 1995, retroactive to January 1, 1995.
On February 10, 1995, the Company filed with the MPUC notice of its intent
to file, on or about April 10, 1995, a general rate case. Using traditional
ratemaking principles, the Company anticipates its general rate case filing
will support an increase in annual base revenue of approximately $4.8
million, or a 9.5% increase in total retail rates. This revenue request also
includes a portion of the Seabrook investment previously supported by the
wholesale customers under traditional ratemaking principles. In addition,
the Company would also be entitled to a fuel clause increase of $500,000 in
1996 due solely to the loss of sales to the Houlton Water Company. The
Company will, at the same time, file a five-year rate plan which, if
approved, will result in new rates beginning in early 1996 and continuing to
the year 2000. The rate plan provides the Company with the rate setting
mechanism to meet growing competition in the electric industry while
providing stable and predictable rates to customers without competitive
options. This plan will also eliminate the need to file for annual rate
increases and save the expenses associated with such filings. The Company
considers the various elements of the rate plan to be interdependent elements
and any adjustments of one element requires adjustments to other elements.
As proposed in the plan, total average retail rates will increase from
1995 levels by 4.5% in 1996, 4.5% in 1997, 3.5% in 1998, 3.0% in 1999, and
3.0% in 2000. As part of the plan, the Company will propose to eliminate the
annual fuel adjustment clause except for the cost of power purchased from the
Wheelabrator-Sherman Energy Company (Wheelabrator-Sherman), an independent
power producer. During the years 1996-2000, the Company will defer up to $3
million annually of its power costs from the Wheelabrator-Sherman facility.
After the current contract with Wheelabrator-Sherman expires at the end of
2000, the Company will begin to collect this deferral, along with carrying
charges, when the price for comparable power is expected to be lower than the
existing Wheelabrator-Sherman contract.
The Company also proposes to write off and not collect in retail rates
approximately $4.9 million, net of taxes, or approximately $3 per share, of
its remaining investment in the Seabrook project previously supported by its
wholesale customers, principally Houlton Water Company.
The plan also includes a profit-sharing plan based on the allowed return
on equity (ROE), currently proposed at 12%. As part of an annual review
process, the allowed ROE will be adjusted annually based on an index by
averaging over a twelve-month calendar year the dividend yields on Moody's
group of 24 electric utilities and Moody's utility bond yields. If the
annual return is two percentage points below the allowed return on equity,
50% of the deficiency will be collected from customers in the subsequent
year. If the annual return on equity exceeds the allowed ROE, 50% of the
excess will be used to reduce current rates or to reduce the
Wheelabrator-Sherman deferral, previously described.
The rate plan will also provide the Company with flexible pricing
provisions under which the Company can offer discounts to individual or to
selected rate classes with only minimum review by the MPUC. These provisions
will enhance the Company's ability to compete with other suppliers of retail
power. In addition, the Company will propose economic development rates for
new commercial and industrial activities.
Nuclear Insurance
In August 1988, Congress extended the Price-Anderson Act for fifteen years
and increased the maximum liability for a nuclear-related accident. In the
event of a nuclear accident, coverage for the higher liability now provided
for by commercial insurance coverage will be provided by a retrospective
premium of up to $75.5 million for each reactor owned, with a maximum
assessment of $10 million per reactor for any year. These limits are also
subject to inflation indexing at five-year intervals as well as an additional
5% surcharge, should total claims exceed funds available to pay such claims.
Based on the Company's 5% equity ownership in Maine Yankee (see Note 3),the
Company's share of any retrospective premium would not exceed approximately
$3.4 million or $.5 million annually, without considering inflation indexing.
Capacity Arrangements
The Company owns 5% of the Common Stock of the Maine Yankee Atomic Power
Company (Maine Yankee). Maine Yankee owns and operates an 860,000 kilowatt
nuclear generating plant in Wiscasset, Maine. The Company is entitled to
purchase approximately 4.9% of the energy produced by the plant. During
1994, 1993 and 1992, purchases from Maine Yankee were $9,645,000, $8,760,000,
and $8,723,000, respectively.
The Company also owns 7.49% of the Common Stock of Maine Electric Power
Company, Inc., (MEPCO). MEPCO owns and operates a 345-KV (kilovolt)
transmission line about 180 miles long which connects the New Brunswick Power
(NB Power) system with the New England Power Pool. The MEPCO transmission
line is also the path by which Maine Yankee and Wyman Unit No. 4 energy is
delivered northerly into the NB Power system and then wheeled to the Parent
Company through its interconnection with NB Power at the international
border.
In July, 1986, Wheelabrator-Sherman, formerly Signal-Sherman Energy Co.,
owner of an 18 megawatt wood-burning cogenerator plant, began selling power
to the Company. The Company purchases the entire output from the cogenerator
under a contract ordered by the MPUC that will expire in 2001. During 1994,
1993, and 1992, purchases from Wheelabrator-Sherman were $13,932,000,
$13,052,000, and $13,083,000, respectively.
(Page 27)
Construction Program
Expenditures on additions, replacements and equipment for the years ended
December 31, 1994, 1993 and 1992, along with 1995 estimated expenditures, are
as follows:
(Dollars in Thousands)
1995 1994 1993 1992
(Unaudited
Estimates)
Parent Company
Generation $ 570 $ 178 $ 147 $ 655
Transmission 568 357 318 350
Distribution 2,230 2,235 2,110 2,187
General 1,214 1,015 617 645
Total Parent 4,582 3,785 3,192 3,837
Subsidiary 96 578 81 36
Total $4,678 $4,363 $3,273 $3,873
10. QUARTERLY INFORMATION (unaudited)
Quarterly financial data for the two years ended December 31, 1994 is as
follows:
(Dollars in Thousands Except Per Share Amounts)
1994 by Quarter
1st 2nd 3rd 4th
Operating revenues $17,063 $13,829 $12,463 $14,951
Operating expenses (14,509) (11,777) (10,893) (12,808)
Operating income 2,554 2,052 1,570 2,143
Interest charges (963) (965) (962) (963)
Other income-net 26 102 99 153
Net income $ 1,617 $ 1,189 $ 707 $ 1,333
Earnings per common share $ 1.00 $ .74 $ .44 $ .82
1993 by Quarter
1st 2nd 3rd 4th
Operating revenues $17,315 $13,248 $13,356 $16,657
Operating expenses (14,698) (11,025) (11,480) (14,447)
Operating income 2,617 2,223 1,876 2,210
Interest charges (987) (961) (957) (961)
Other income-net 137 69 15 20
Net income $ 1,767 $ 1,331 $ 934 $ 1,269
Earnings per common share $ 1.06 $ .81 $ .56 $ .76
(Page 28)
<TABLE>
MAINE PUBLIC SERVICE COMPANY
and Subsidiary
<CAPTION>
All share information and per share amounts
reflect the stock split on March 3, 1989.
Consolidated Financial Statistics
1994 1993 1992
<S> <C> <C> <C>
Capitalization Including Bank Borrowings (year-end)
Debt (including amount due within one year) 44.25% 45.83% 50.16%
Preferred Stock (including amount
due within one year) 0% 0% 0%
Common Shareholders' Equity 55.75% 54.17% 49.84%
Times Interest Earned <FN>
Before Income Taxes 3.25 3.49 3.01
After Income Taxes 2.26 2.36 2.09
Times Interest and Preferred Dividends Earned <FN>
After Income Taxes 2.26 2.36 2.09
Embedded Cost of Long-Term Debt (year-end) 9.14% 9.14% 9.14%
Embedded Cost of Preferred Stock (year-end) 0% 0% 0%
Common Shares Outstanding (year-end) 1,617,250 1,660,250 1,660,250
Earnings Per Share of Common Stock (average shares)
Income Before Cumulative Effect of Accounting
Change and Extraordinary Items 2.99 3.19 2.93
Cumulative Effect of Accounting Change - - -
Extraordinary Items - - -
Net Income (Loss) 2.99 3.19 2.93
Dividends Per Share of Common Stock
Declared Basis 1.84 1.78 1.76
Paid Basis 1.84 1.76 1.74
Common Stock Dividend Payout Ratio 61.54% 55.80% 60.07%
Book Value Per Share of Common Stock (year-end) 29.22 28.02 26.61
Market Price Per Share of Common Stock
High 27 3/8 31 1/4 26 7/8
Low 20 1/2 25 5/8 24 1/4
Close 20 3/4 25 7/8 25 7/8
Price Earnings Ratio (year-end) 6.94 8.11 8.83
Number of Common Shareholders (year-end) 1,650 1,720 1,768
<FN>
Consolidated income before cumulative effect of accounting change and
extraordinary items. Includes AFUDC and Deferred Return on Seabrook
Investment but excludes all Seabrook write-offs.
</FN>
</TABLE>
(Pie Charts)
1994 Sources of Income
Millions of Dollars (Total $58.7)
and Percent of Total
Residential - $19.6 Million, 33.4%
Commercial - $15.6 Million, 26.6%
Industrial - $9.2 Million, 15.7%
Other Electric Sales - $11.4 Million, 19.4%
Other Income - $2.9 Million, 4.9%
1994 Distribution of Income
Millions of Dollars (Total $58.7)
and Percent of Total
Fuel & Purchased Power - $27.6 Million, 47.0%
Wages and Employee Benefits - $6.2 Million, 10.6%
Taxes - $5.3 Million, 9.0%
Other Operating Expenses - $10.8 Million, 18.4%
Interest - $3.9 Million, 6.7%
Common Dividends - $3.0 Million, 5.1%
Retained Earnings - $1.9 Million, 3.2%
(Page 29)
<TABLE>
Consolidated Financial Statistics - Continued
<CAPTION>
1991 1990 1989 1988
<S> <C> <C> <C> <C>
Capitalization Including Bank Borrowings
Debt (including amount due within one yr) 53.01% 49.40% 43.12% 47.76%
Preferred Stock (including amount due
within one year) 0% 0% 4.02% 4.41%
Common Shareholders' Equity 46.99% 50.60% 52.86% 47.83%
Times Interest Earned
Before Income Taxes 2.81 3.24 3.21 3.07
After Income Taxes 2.00 2.22 2.26 2.29
Times Interest and Pref. Div. Earned
After Income Taxes 2.00 2.18 2.09 2.05
Embedded Cost of Long-Term Debt (year-end) 9.28% 9.92% 9.71% 10.80%
Embedded Cost of Preferred Stock (yr. end) 0% 0% 9.74% 9.74%
Common Shares Outstanding (year-end) 1,660,250 1,761,050 1,849,550 1,865,666
Earnings Per Share of Common Stock (average
shares) Income Before Cumulative Effect of
Accounting Change and Extraordinary Items 2.62 2.58 2.71 3.12
Cumulative Effect of Accounting Change - - - -
Extraordinary Items - - - -
Net Income (Loss) 2.62 2.58 2.71 3.12
Dividends Per Share of Common Stock
Declared Basis 1.68 1.68 1.575 1.175
Paid Basis 1.68 1.66 1.55 1.025
Common Stock Dividend Payout Ratio 64.12% 65.12% 58.12% 37.66%
Book Value Per Share of Common Stock 25.44 24.38 23.39 22.26
Market Price Per Share of Common Stock
High 26 3/8 23 3/8 24 7/8 20 13/16
Low 20 3/4 19 1/2 20 5/16 11 7/8
Close 26 3/8 22 1/4 22 3/8 20 1/2
Price Earnings Ratio (year-end) 10.07 8.62 8.26 6.57
Number of Common Shareholders (year-end) 1,823 2,061 1,919 1,933
</TABLE>
<TABLE>
Consolidated Financial Statistics - Continued
<CAPTION>
1987 1986 1985 1984
<S> <C> <C> <C>
Capitalization Including Bank Borrowings
Debt (including amount due within one year) 49.32% 55.97% 61.15% 56.49%
Preferred Stock (including amount due
within one year) 8.32% 7.92% 7.77% 8.33%
Common Shareholders' Equity 42.36% 36.11% 31.08% 35.18%
Times Interest Earned
Before Income Taxes 2.27 2.31 2.35 2.05
After Income Taxes 1.69 1.92 2.07 1.95
Times Interest and Preferred Dividends Earned
After Income Taxes 1.49 1.73 1.84 1.71
Embedded Cost of Long-Term Debt (year-end) 10.98% 11.56% 11.67% 11.44%
Embedded Cost of Preferred Stock (year-end) 11.20% 11.12% 11.02% 10.95%
Common Shares Outstanding (year-end) 1,862,478 1,858,472 1,855,768 1,851,418
Earnings Per Share of Common Stock (average
shares) Income Before Cumulative Effect of
Accounting Change and Extraordinary Items 1.59 3.43 3.65 2.93
Cumulative Effect of Accounting Change .45 - - -
Extraordinary Items - (1.38) (5.45) -
Net Income (Loss) 2.04 2.05 (1.80) 2.93
Dividends Per Share of Common Stock
Declared Basis .80 0.525 - 1.045
Paid Basis .75 .35 .175 1.16
Common Stock Dividend Payout Ratio 39.22% 25.60% - 35.73%
Book Value Per Share of Common Stock 20.41 19.18 17.66 19.49
Market Price Per Share of Common Stock
High 15 7/16 16 10 11/16 13
Low 11 1/2 9 3/4 5 7/16 6 1/8
Close 12 9/16 14 1/16 9 13/16 6 1/8
Price Earnings Ratio (year-end) 6.16 6.86 - 2.09
Number of Common Shareholders (year-end) 2,045 2,188 2,718 3,365
</TABLE>
(Chart)
<TABLE>
Year-End Capitalization
<CAPTION>
(Percent)
1990 1991 1992 1993 1994
<S> <C> <C> <C> <C> <C>
Total Debt 49.40 53.01 50.16 45.83 44.25
Common Equity 50.60 46.99 49.84 54.17 55.75
</TABLE>
(Page 30)
<TABLE>
MAINE PUBLIC SERVICE COMPANY
and Subsidiary
<CAPTION>
Consolidated Operating Statistics
1994 1993 1992
<S> <C> <C> <C>
Operating Revenues
Residential $19,646,681 $19,669,749 $18,704,900
Commercial and Industrial - Small 15,614,453 15,177,992 13,787,720
Commercial and Industrial - Large 9,225,131 9,554,566 8,891,123
Municipal Street Lighting 517,793 512,439 499,814
Area Lighting 271,115 269,925 261,984
Other Municipal and Other
Public Authorities 2,105,933 3,597,514 3,761,815
Other Electric Utilities 8,481,483 9,188,561 8,150,094
Other Operating Revenues (Revenue Adjustments) 2,443,496 2,604,966 2,513,190
Total Operating Revenues $58,306,085 $60,575,712 $56,570,640
Number of Customers (average)
Residential 28,300 28,220 28,102
Commercial and Industrial - Small 5,418 5,364 5,261
Commercial and Industrial - Large 16 16 15
Municipal Street Lighting 38 38 38
Area Lighting 1,048 1,061 1,075
Other Municipal and Other
Public Authorities 8 8 8
Other Electric Utilities 9 8 7
Total Customers 34,837 34,715 34,506
Net Generation, Purchases and Sales
(thousands of kilowatt-hours)
Net Generation:
Steam 18,559 26,456 33,509
Hydro 118,759 148,719 130,407
Diesel (153) 169 (636)
Purchases:
Nuclear Generated 326,334 282,199 263,313
Fossil Fuel Generated 290,172 288,487 300,930
Inadvertent Received (Delivered) 651 (1,053) (2,232)
Total 754,322 744,977 725,291
Losses, Unaccounted for and Unbilled 42,880 43,944 43,686
Company Use 1,518 1,542 1,462
Electricity Sold 709,924 699,491 680,143
Sales:
Residential 175,685 176,732 176,814
Commercial and Industrial-Small 167,485 162,949 155,267
Commercial and Industrial-Large 127,327 135,029 129,981
Municipal Street Lighting 1,642 1,630 1,864
Area Lighting 1,472 1,482 1,538
Other Municipal and Other Public Authorities 28,621 53,021 58,388
Other Electric Utilities 207,692 168,648 156,291
Total Sales 709,924 699,491 680,143
Average Use and Revenue Per
Residential Customer
Kilowatt-hours 6,208 6,263 6,292
Revenue $ 694.23 $ 697.01 $ 665.61
Revenue per Kilowatt-hour (Cents) 11.18 11.13 10.58
</TABLE>
(Page 31)
<TABLE>
MAINE PUBLIC SERVICE COMPANY
and Subsidiary
Consolidated Operating Statistics (Continued)
<CAPTION>
1991 1990 1989
<S> <C> <C> <C>
Operating Revenues
Residential $19,194,469 $18,189,325 $18,537,902
Commercial and Industrial - Small 13,991,693 12,708,677 13,379,207
Commercial and Industrial - Large 10,105,693 10,115,772 9,785,058
Municipal Street Lighting 512,640 505,063 573,351
Area Lighting 267,518 262,845 288,378
Other Municipal and Other
Public Authorities 3,977,098 3,611,220 3,736,851
Other Electric Utilities 7,328,914 9,649,398 10,980,817
Other Operating Revenues (Revenue Adjustments) 2,588,285 1,656,067 (84,814)
Total Operating Revenues $57,966,310 $56,698,367 $57,196,750
Number of Customers (average)
Residential 28,052 27,983 27,737
Commercial and Industrial - Small 5,205 5,108 4,940
Commercial and Industrial - Large 15 15 17
Municipal Street Lighting 38 38 38
Area Lighting 1,091 1,114 1,155
Other Municipal and Other
Public Authorities 8 8 8
Other Electric Utilities 7 7 8
Total Customers 34,416 34,273 33,903
Net Generation, Purchases and Sales
(thousands of kilowatt-hours)
Net Generation:
Steam 28,868 59,252 91,361
Hydro 135,619 176,832 106,571
Diesel (178) (186) 2,664
Purchases:
Nuclear Generated 307,769 253,321 369,315
Fossil Fuel Generated 246,172 289,177 217,166
Inadvertent Received (Delivered) 1,861 (151) 1,611
Total 720,111 778,245 788,688
Losses, Unaccounted for and Unbilled 42,114 40,613 42,474
Company Use 1,499 1,559 1,723
Electricity Sold 676,498 736,073 744,491
Sales:
Residential 176,028 178,011 178,668
Commercial and Industrial-Small 149,709 146,881 145,364
Commercial and Industrial-Large 139,931 155,782 145,307
Municipal Street Lighting 2,336 2,697 2,722
Area Lighting 1,591 1,643 1,580
Other Municipal and Other Public Authorities 57,687 57,034 59,190
Other Electric Utilities 149,216 194,025 211,660
Total Sales 676,498 736,073 744,491
Average Use and Revenue Per
Residential Customer
Kilowatt-hours 6,275 6,361 6,442
Revenue $ 684.25 $ 650.01 $ 668.35
Revenue per Kilowatt-hour (Cents) 10.90 10.22 10.38
</TABLE>
(Page 31 - Continued)
<TABLE>
MAINE PUBLIC SERVICE COMPANY
and Subsidiary
Consolidated Operating Statistics (Continued)
<CAPTION>
1988 1987 1986
<S> <C> <C> <C>
Operating Revenues
Residential $17,787,713 $15,948,095 $15,641,623
Commercial and Industrial - Small 12,374,719 10,700,466 10,077,605
Commercial and Industrial - Large 9,673,266 7,736,051 8,468,298
Municipal Street Lighting 559,478 541,853 526,156
Area Lighting 285,979 273,570 285,856
Other Municipal and Other
Public Authorities 3,546,473 2,955,417 2,820,227
Other Electric Utilities 9,244,874 8,735,459 5,843,057
Other Operating Revenues (Revenue Adjustments) 847,946 646,607 159,303
Total Operating Revenues $54,320,448 $47,537,518 $43,822,125
Number of Customers (average)
Residential 27,358 27,074 26,855
Commercial and Industrial - Small 4,866 4,789 4,763
Commercial and Industrial - Large 18 17 17
Municipal Street Lighting 37 37 37
Area Lighting 1,166 1,238 1,323
Other Municipal and Other
Public Authorities 8 8 8
Other Electric Utilities 7 7 6
Total Customers 33,460 33,170 33,009
Net Generation, Purchases and Sales
(thousands of kilowatt-hours)
Net Generation:
Steam 81,583 71,649 61,533
Hydro 112,953 100,158 149,323
Diesel 1,933 572 (758)
Purchases:
Nuclear Generated 266,851 215,006 331,988
Fossil Fuel Generated 299,838 327,016 175,648
Inadvertent Received (Delivered) (677) (432) (74)
Total 762,481 713,969 717,660
Losses, Unaccounted for and Unbilled 44,883 43,377 42,076
Company Use 1,555 1,472 1,453
Electricity Sold 716,043 669,120 674,131
Sales:
Residential 176,680 173,580 173,799
Commercial and Industrial-Small 139,220 131,535 125,742
Commercial and Industrial-Large 148,220 133,405 150,881
Municipal Street Lighting 2,695 2,744 2,751
Area Lighting 1,585 1,626 1,740
Other Municipal and Other Public Authorities 59,268 56,180 53,683
Other Electric Utilities 188,375 170,050 165,535
Total Sales 716,043 669,120 674,131
Average Use and Revenue Per
Residential Customer
Kilowatt-hours 6,458 6,411 6,472
Revenue $ 650.18 $ 589.06 $ 582.45
Revenue per Kilowatt-hour (Cents) 10.07 9.19 9.00
</TABLE>
Page 31 - Continued
<TABLE>
MAINE PUBLIC SERVICE COMPANY
and Subsidiary
Consolidated Operating Statistics (Continued)
<CAPTION>
1985 1984
<S> <C> <C>
Operating Revenues
Residential $14,432,212 $12,610,182
Commercial and Industrial - Small 9,194,338 7,795,721
Commercial and Industrial - Large 7,699,989 5,676,877
Municipal Street Lighting 488,429 417,060
Area Lighting 285,037 261,630
Other Municipal and Other
Public Authorities 2,582,290 2,244,309
Other Electric Utilities 5,345,673 5,186,633
Other Operating Revenues (Revenue Adjustments) 179,532 141,870
Total Operating Revenues $40,207,500 $34,334,282
Number of Customers (average)
Residential 26,616 26,313
Commercial and Industrial - Small 4,716 4,676
Commercial and Industrial - Large 17 18
Municipal Street Lighting 37 37
Area Lighting 1,429 1,480
Other Municipal and Other
Public Authorities 8 8
Other Electric Utilities 6 7
Total Customers 32,829 32,539
Net Generation, Purchases and Sales
(thousands of kilowatt-hours)
Net Generation:
Steam 50,691 51,253
Hydro 105,068 139,255
Diesel (898) (956)
Purchases:
Nuclear Generated 284,812 273,087
Fossil Fuel Generated 224,080 165,702
Inadvertent Received (Delivered) 29 (334)
Total 663,782 628,007
Losses, Unaccounted for and Unbilled 38,858 34,993
Company Use 1,384 1,346
Electricity Sold 623,540 591,668
Sales:
Residential 170,824 168,754
Commercial and Industrial-Small 119,651 115,852
Commercial and Industrial-Large 139,744 118,063
Municipal Street Lighting 2,740 2,720
Area Lighting 1,878 1,952
Other Municipal and Other Public Authorities 50,189 49,790
Other Electric Utilities 138,514 134,537
Total Sales 623,540 591,668
Average Use and Revenue Per
Residential Customer
Kilowatt-hours 6,418 6,413
Revenue $ 542.24 $ 479.24
Revenue per Kilowatt-hour (Cents) 8.45 7.47
</TABLE>
Page 32
Board
of
Directors
G. MELVIN HOVEY
Chairman of the Board
and Retired President
Maine Public Service Company
Presque Isle, Maine
Pension Investment Committee
Budget and Finance Committee
ROBERT E. ANDERSON
President
F. A. Peabody Company
Houlton, Maine
Audit Committee
Budget and Finance Committee
PAUL R. CARIANI
President & Chief Executive Officer
Maine Public Service Company
Presque Isle, Maine
Nominating Committee
DONALD F. COLLINS
Director and Retired President
S. W. Collins Co.
Caribou, Maine
Executive Compensation Committee
Nominating Committee
D. JAMES DAIGLE
Executive Vice President
Greater Brandon Chamber of Commerce
Brandon, Florida
Executive Compensation Committee
RICHARD G. DAIGLE
President & Chief Executive Officer
Daigle Oil Company
Fort Kent, Maine
Audit Committee
J. GREGORY FREEMAN
President & Chief Executive Officer
Pepsi-Cola Bottling Company
of Aroostook, Inc.
Presque Isle, Maine
Audit Committee
Nominating Committee
DEBORAH L. GALLANT
President
Dix-Gallant Associates
Portland, Maine
Executive Compensation Committee
NATHAN L. GRASS
President
Grassland Equipment, Inc.
Presque Isle, Maine
Executive Compensation Committee
J. PAUL LEVESQUE
President & Chief Executive Officer
J. Paul Levesque & Sons, Inc.
(Lumber Mill) and
Antonio Levesque & Sons, Inc.
(Logging Operation)
Ashland, Maine
Pension Investment Committee
WALTER M. REED, JR.
President
Reed Farms, Inc.
Fort Fairfield, Maine
Pension Investment Committee
Budget and Finance Committee
Maine Public Service
Company's eleven-member
Board of Directors is
composed of ten outside
directors and one inside
director, Paul R. Cariani.
Their diverse business,
educational, professional,
and civic backgrounds are
valuable assets that provide
a broad perspective to the
issues concerning the
Company.
(Back Inside Cover)
Executive Officers
PAUL R. CARIANI
President & Chief Executive Officer
FREDERICK C. BUSTARD
Vice President
Engineering and Operations
LARRY E. LAPLANTE
Vice President
Finance and Treasurer
STEPHEN A. JOHNSON
Vice President
Customer Service and
General Counsel
PETER C. LOURIDAS
Assistant To The President
MICHAEL A. THIBODEAU
Assistant Vice President
Administration
KURT A. TORNQUIST
Controller and Assistant Treasurer
Director and Executive Changes
Irwin F. Porter, MPS Director, retired May 10, 1994, after serving over
twenty-one years on the Board. A testimonial resolution was unanimously
adopted by all board members recognizing his deep interest in the progress
and welfare of MPS, its stockholders, customers, and Aroostook County. The
resolution, which is entered into the Company's permanent records, commends
his "...judgement and wisdom that have greatly aided this Company's pursuit
of excellence."
On June 1, 1994, G. Melvin Hovey stepped down as MPS President and Chief
Executive Officer after completing more than 37 years with the Company. He
was re-elected to continue his association with the organization as Chairman
of the Board of Directors.
Paul R. Cariani was elected President and Chief Executive Officer. He
joined MPS in 1977 and has held positions of Assistant Treasurer and
Assistant to the Treasurer prior to becoming Treasurer in 1983 and Vice
President in 1985. He was elected to the Board of Directors in February,
1992, and was named Executive Vice President, Chief Financial Officer and
Treasurer in 1993.
Larry E. LaPlante was elected Vice President of Finance and Treasurer.
He joined MPS as Controller in 1983 after working in public accounting for
more than ten years.
Kurt A. Tornquist was appointed Controller and Assistant Treasurer at the
annual MPS organization meeting. He joined MPS as Assistant Controller in
1992 after working for ten years in public accounting and with manufacturing
firms.
On July 1, 1994, the Board of Directors elected Richard E. "Rick" Daigle,
a Fort Kent resident, to become the tenth member of the Board. Daigle is
President and CEO of Daigle Oil Company and President of Cold Brook Energy.
A native of Fort Kent, he is a graduate of Assumption Preparatory School and
Boston College, where he was awarded a Bachelor of Science degree in Business
Administration, Magna Cum Laude. He is also a graduate of the Wharton School
of Business at the University of Pennsylvania.
On September 9, 1994, the Directors elected Deborah L. Gallant, to become
the eleventh member on the Board. Gallant is President of Dix-Gallant
Associates, a Portland-based management consulting firm. She graduated Summa
Cum Laude with a B.A. in Sociology from the University of Maine and completed
graduate work in business administration and psychology. She attended the
Williams College School of Banking, as well as the National Personnel School
at the University of Oklahoma and the National Personnel Graduate School at
the University of Colorado. Prior to the establishment of Dix-Gallant
Associates, she was Vice President and General Manager of a New England based
human resource consulting firm. She served fourteen years with Key Bank as
Senior Vice President, Director of Human Resources and Corporate Training.
The Budget and Finance Committee was established at the Board of Directors
meeting held November 4, 1994. This committee will review and oversee the
capital and operation budgets of the Company and make appropriate
recommendations to the Board, as it deems necessary.
(Crown of Maine Logo)
Transfer Agent
The Bank of New York
Shareholder Relations Dept. - 11E
P. O. Box 11258
Church Street Station
New York, NY 10286-1258
Tel. No. 1-800-524-4458
Stock Registrar
The Bank of New York
Annual Meeting
Tuesday, May 9, 1995
(Back Outside Cover)
Maine Public Service Company
209 State Street
P. O. Box 1209
Presque Isle, ME 04769-1209
Tel. No. (207) 768-5811
Exhibit 28(a)
THE COMPANY
Maine Yankee Atomic Power Company (the "Company" or "Maine Yankee")
incorporated under the laws of Maine on January 3, 1966, owns and operates
a pressurized-water nuclear-powered electric generating plant at Wiscasset,
Maine, with a current net capacity of approximately 860 megawatts electric
(the "Plant"). The Company sells its capacity and output to its ten
sponsoring stockholder utilities. The Company's principal office address is
329 Bath Road, Brunswick, ME 04011, and its telephone number is (207)
798-4100. At December 31, 1994, the Company had 468 regular full-time
employees.
The Plant was declared commercial on December 28, 1972, with
regular operation at approximately 570 megawatts electric (net) starting
on January 1, 1973. Hearings on the Company's application for a full
operating License were completed in 1972 and the license for full operation
to 2008 was granted by the Atomic Energy Commission, the predecessor of the
Nuclear Regulatory Commission ("NRC"), on June 29, 1973.
The Company is sponsored by ten investor-owned New England utilities
(the "Sponsors" or the "Stockholders"), each of which is committed under a
Power Contract with the Company to purchase a specified percentage of the
capacity and output of the Plant and to pay therefor a like percentage of
amounts sufficient to pay the Company's fuel costs, operating expenses
(including a depreciation accrual at a rate sufficient to fully amortize the
investment in the Plant over the operating life of the Plant and amounts
estimated to be sufficient to decommission the Plant), interest on its debt
and a return on its equity. The Company and its Sponsors have also
executed Additional Power Contracts for the purpose of extending the term of
the Power Contracts, as amended, from 2003 to the end of the useful life of
the Plant and the completion of its decommissioning and financial
obligations. Each Sponsor has also agreed under a Capital Funds Agreement
with the Company to provide a like percentage of the Company's capital
requirements not obtained from other sources, subject to obtaining necessary
authorizations of regulatory bodies in each instance. All such obligations
are subject to the continuing jurisdiction of various federal and state
regulatory bodies.
The obligations of the Sponsors to make payments under the Power
Contracts are unconditional, subject only to each Sponsor's right to cancel
its Power Contract if deliveries cannot be made to the Sponsor because either
(i) the Plant is damaged to the extent of being completely or substantially
completely destroyed, or (ii) the Plant is taken by exercise of the right of
eminent domain or a similar right or power, or (iii) (a) the Plant cannot be
used because of contamination or because a necessary license or authorization
cannot be obtained or is revoked or the utilization thereof is made subject
to specified conditions which are not met, and (b) the situation cannot be
rectified to an extent which will permit the Company to make deliveries to
the Sponsor from the Plant. Notwithstanding the right to cancel , the
obligation to pay decommissioning costs continues until the Plant has been
fully decommissioned.
1
THE COMPANY (continued)
A default by a Sponsor of the Company in making payments under the Power
Contract or Capital Funds Agreement could have a material adverse effect on
the Company, depending on the magnitude of the default, and would constitute
a default under the Company's First Mortgage Indenture and two other major
credit agreements unless cured within applicable grace periods by the
defaulting Sponsor or other Sponsors.
THE PLANT
The Plant is located on tidewater on Bailey Point in Wiscasset, Maine,
on an 820-acre site which is owned in fee by the Company and is adequate for
the Plant and for all associated facilities, including the associated
switchyard facilities which are owned in part and operated by Central Maine
Power Company.
The Plant is a nuclear-powered electric generating plant, utilizing a
pressurized-water reactor, fueled with slightly enriched uranium oxide. The
nuclear steam supply system and certain other equipment were designed and
fabricated by Combustion Engineering, Inc. The turbine generator was
supplied by Westinghouse Electric Corporation. Stone & Webster Engineering
Corporation, as engineer and constructor, designed and constructed the
Plant. Construction of the Plant, which began in 1967, was completed in
1972 except for certain discharge temperature control facilities designed to
meet the requirements of the Maine Board of Environmental Protection, which
were completed in 1975.
Since the Plant commenced operation, the Company has sought to improve
its safety and reliability, while increasing its output, through periodic
upgrading of equipment and facilities, along with regular training programs
for Plant personnel. In furtherance of those goals, the Company replaced the
Plant's two low-pressure turbines and its high-pressure turbine in 1988 and
1990, respectively, with new units provided by Asea Brown Boveri ("ABB"),
which resulted in an increase of approximately 20 megawatts in the Plant's
output. In addition, the Company is retaining a new ABB main electrical
generator as an emergency spare component.
The Maine Yankee unit, like other pressurized water reactors, has been
experiencing degradation of its steam generator tubes principally in the form
of circumferential cracking, which, until early 1995, was believed to be
limited to a relatively small number of steam generator tubes. In the past
the detection of defects has resulted in the plugging of those tubes to
prevent their subsequent use. During the refueling-and-maintenance shutdown
that commenced in early February of 1995 the Company has detected an
increased rate of degradation of the Plant's steam generator tubes, in excess
of the number expected, and is currently evaluating several courses of action
to address the matter. This detection of a significantly larger number of
degraded tubes is likely to adversely affect the operation of the Plant and
may result in substantial cost to the Company. Maine Yankee cannot now
predict what course of action it will choose, or to what extent the operation
of the Plant will be affected.
2
THE PLANT (continued)
Under the terms of the Indenture securing the First Mortgage Bonds,
substantially all electric plant of the Company is subject to a first
mortgage lien.
LEGAL REVIEW
The operation of existing nuclear units and the construction of
nuclear units in the United States continue to be subjects of public
controversy. Various groups have filed lawsuits and participated in
administrative proceedings claiming that the present state of nuclear
technology presents risks to public health and safety and to the environment.
In addition, certain of these groups have proposed restrictive
legislation relating to nuclear power. Some of the claims made by such
groups, if they should prevail, or the existence of the controversy itself,
could cause substantial modifications to or extended shutdowns of plants
presently in operation.
Controversy was intensified over the concern of nuclear generating
plants, when events in 1979 at the Three Mile Island Nuclear Unit No. 2 in
Pennsylvania ("TMI") caused increased concern about the safety of such
plants. This prompted a rigorous reexamination of safety related equipment
and operating procedures in all nuclear facilities and caused the NRC to
promulgate numerous requirements in response to TMI, including both
near-term modifications to upgrade certain safety systems and instrumentation
and longer-term design changes, ranging from equipment changes to operational
support. The Company has made the modifications required by the NRC. The
NRC is continuing its safety reviews under both long- standing and new
regulations and may at any time issue orders which could materially affect
the Company's affairs and financial condition and the operation of the Plant.
Public and regulatory attention has also focused on the disposal of both
low- and high-level nuclear wastes. Certain aspects of the disposal of
nuclear wastes and the decommissioning of nuclear generating facilities have
been regulated under federal and Maine law and further regulation is likely
in this area. Public concern about the operation of nuclear generating
facilities and the disposal of nuclear wastes has sometimes resulted in
public campaigns to close such facilities. Although affecting various
nuclear generating facilities in varying degrees, such events, as well as
other problems of the industry, have had, and will continue to have, a
direct effect on the affairs and financial condition of the Company. For
further discussion of nuclear waste disposal issues, see Note 14 of Notes to
Financial Statements, "Commitments and Contingencies."
3
LEGAL REVIEW (continued)
There have been three unsuccessful state referenda attempting to close
the Plant since 1980. The last referendum occurred on November 3, 1987, when
the Maine electorate defeated an initiated bill intended to close the Plant
on July 4, 1988, by a margin of 59 percent to 41 percent. There is no
certainty that such a referendum will not occur again, and in the event that
one takes place, no prediction can be made as to the potential outcome.
If a referendum were to be initiated, the Company would strongly contest any
attempts to close or impair the operation of the Plant. If (contrary to the
history of unsuccessful referenda on the Plant) a referendum were to pass in
Maine, the Company believes that such referendum would be vulnerable to a
challenge on the basis of fundamental legal principles and that the Company
would have substantial rights and remedies available to it, which it would
vigorously seek to enforce.
REGULATION AND ENVIRONMENTAL MATTERS
The Plant is subject to extensive regulation by the NRC, which is
empowered to authorize the siting, construction and operation of nuclear
reactors after consideration of public health, safety, environmental and
antitrust matters.
The United States Environmental Protection Agency ("EPA") administers
programs established under the Federal Water Pollution Control Act and the
Clean Air Act, as amended in 1990, which affect the Plant. The former Act
establishes a national objective of complete elimination of discharges of
pollutants into the nation's water and creates a rigorous permit program
designed to achieve this objective. The latter Act empowers the EPA to
establish clean air standards which are implemented and enforced by state
agencies.
In addition, pursuant to the Federal Resource Conservation and Recovery
Act of 1976, the EPA regulates the generation, transportation, treatment,
storage and disposal of hazardous wastes. The EPA has broad authority in
administering these programs, including the ability to require installation
of pollution control and mitigation devices.
The National Environmental Policy Act of 1969 ("NEPA") requires that
detailed statements of the environmental effects of major federal actions be
prepared by federal agencies. Major federal actions can include licenses or
permits issued to the Company by the NRC and other federal agencies for
construction or operation of generation and transmission facilities. NEPA
requires that federal licensing agencies make an independent evaluation of
the environmental impact of, and alternatives to, the proposed action.
Future construction modifications or other activities at the Plant could
require federal licenses or approvals that involve NEPA requirements.
The Company is also subject to regulation as to environmental matters
and land use by various state and local authorities in Maine.
4
REGULATION AND ENVIRONMENTAL MATTERS (continued)
Under their continuing jurisdiction, the NRC and one or more of the EPA
and the state authorities having jurisdiction over the Company's facilities
may modify permits or licenses which have already been issued, or impose new
conditions on such permits or licenses, and may require additional capital
expenditures or require that the level of the operation of a unit be
temporarily or permanently reduced. The Sponsors of the Company have agreed,
however, subject to certain exceptions including regulatory approval, (i) to
provide the required capital not otherwise available, (ii) to take the total
output of the Plant, and (iii) to pay all costs of the Plant, including
capital and decommissioning costs.
The Company and several of its Sponsors are subsidiaries of registered
holding companies and as such are subject to regulation by the Securities and
Exchange Commission ("SEC") under the Public Utility Holding Company Act of
1935 with respect to various matters, including the issuance of certain
securities. The Company is also subject to regulation by the SEC under other
federal securities laws.
In addition the Company is subject to regulation by the Federal Energy
Regulatory Commission ("FERC") as to its rates (including the Power Contracts
and Additional Power Contracts) and various other matters, and is subject to
regulation by the Maine Public Utilities Commission ("MPUC") as to some
aspects of its business, including the issuance of securities.
Maine Yankee has been notified by the Maine Department of Environmental
Protection ("DEP") that it is one of approximately 100 potentially
responsible parties under the Maine Uncontrolled Hazardous Substance Sites
law for having arranged for the transport of hazardous substances to sites
that have been designated uncontrolled hazardous substance sites by the DEP.
Under the Maine law, each responsible party is jointly and severally liable
for costs associated with the abatement, clean-up or mitigation of the
hazards at such a site. Since the investigations by the DEP and the Company
are in their early stages and a large number of potentially responsible
parties are involved, the Company cannot now predict the amount of costs it
will ultimately be required to assume, but believes the amount could be
material. Any costs incurred would be billed under the Power Contracts.
5
EXHIBIT 28(m)
FEDERAL ENERGY REGULATORY COMMISSION
WASHINGTON, D C 20426
Docket No. ER95-374-000
February 1, 1995
Wright & Talisman, P.C.
Attention: Mr. Michael E. Small
Suite 600
1200 G Street, N.W.
Washington, D.C. 20005-3802
Dear Mr. Small:
By letter dated December 30, 1994, you submitted for filing with
the Commission, on behalf of Maine Public Service Company, a rate
decrease under your power sales agreements with Van Buren Light and
Power District (Van Buren) and Eastern Maine Electric Cooperative, Inc.
(EMEC). Authority to act on this matter is delegated to the Director,
Division of Applications, under Section 375.308 of the Commission's
Regulations; pursuant to Section 375.308(a)(1), your submittal is
accepted for filing and designated as shown on the Enclosure.
Notice of your filing was published in the Federal Register with
comments, protests, or interventions due on or before January 27, 1995.
On January 27, 1995, Van Buren and EMEC filed a joint motion to
intervene. Pursuant to Rule 214(c)(1) of the no answer in opposition to
the motion to intervene is filed within fifteen days after the motion is
filed, the motion to intervene serves to make Van Buren and EMEC parties
to this proceeding.
Good cause is shown for granting waiver of the notice requirements
pursuant to Section 205(d) of the Federal Power Act and Section 35.11 of
the Commission's Regulations thereunder; therefore, the rate schedule
shall become effective as shown on the Enclosure.
This action does not constitute approval of any service, rate,
charge, classification, or any rule, regulation, contract, or practice
affecting such rate or service provided for in the filed documents; nor
shall such action be deemed as recognition of any claimed contractual
right or obligation affecting or relating to such service or rate; and
such action is without prejudice to any findings or orders which have
been or may hereafter be made by the Commission in any proceeding now
pending or hereafter instituted by or against Maine Public Service
Company.
This order constitutes final agency action. Requests for rehearing
by the Commission may be filed within 30 days of the date of issuance of
this order, pursuant to 18 CFR 385.713.
This letter terminates Docket No. ER95-374-000.
Sincerely,
Donald J. Gelinas, Director
Division of Applications
Wright & Talisman, P.C. - 2 -
Enclosure
Maine Public Service Company
Docket No. ER95-374-000
Rate Schedule Designations
Effective Date: January 1, 1995
Designation Other Party
(1) Supplement No. 18 to Rate Van Buren Light
Schedule FERC No. 11 and Power District
(Supersedes Supplement
No. 17 to Rate Schedule
FERC No. 11)
(2) Supplement No. 18 to Rate Eastern Maine
Schedule FERC No. 12 Electric Coop., Inc.
(Supersedes Supplement
No. 17 to Rate Schedule
FERC No. 12, as supplemented)
EXHIBIT 28(p)
STATE OF MAINE Docket No. 94-341
PUBLIC UTILITIES COMMISSION November 1, 1994
Maine Public Service Company ORDER APPROVING DECREASE
Re: Application for Approval of Decrease OF CAPITAL
of Capital (section 910) (300,000
Shares of Common Stock)
WELCH, Chairman; HUGHES and NUGENT, Commissioners
On September 23, 1994, Maine Public Service Company (MPS) filed a
request for approval of a decrease in capital (section 910). Testimony filed
by Larry E. LaPlante details the proposal and its purpose. The company is
proposing to repurchase up to 300,000 shares of its Common Stock over a five-
year period. The purchases will be made on the open market. The Company is
not committing to the repurchase of 300,000 shares but is establishing that
number as a five-year target. The actual schedule and quantities of the
repurchases and their prices will depend on future market conditions, the
Company's future financial needs and condition, and its evaluation of the
proper equity ratio in its capital structure.
The repurchase program will provide the Company the flexibility to
repurchase shares when it feels it is necessary to the maintenance of an
appropriate capital structure. We believe such flexibility is appropriate;
accordingly we approve the Company's application. In doing so, we note that
open market purchases are not the only avenue available to MPS in reducing
its common equity ratio and that there are costs associated with this action.
However, there are circumstances under which such purchases are a good
technique, especially when the price of the Company's stock is relatively
low. On the other hand, during a period of high stock prices, other
mechanisms may be more attractive.
Our approval in this docket does not imply Commission approval of the
current or projected capital structure, or that the current or projected cost
of capital is suitable for the purposes of ratemaking. Furthermore, it is
our intention to review the price which MPS pays for any stock repurchases,
particularly in those instances when the repurchases are made at prices which
are substantially above book value.
Accordingly, it is
0 R D E R E D
1. That Maine Public Service Company is hereby authorized to
repurchase 300,000 shares of its Common Stock within a period of time not to
exceed five years.
- 2 - Docket No. 94-341
2. That Maine Public Service Company report to this Commission, in
writing, its doings pursuant to this Order not less than annually.
3. That the Administrative Director is hereby directed to mail an
attested copy of this Order to interested parties and to close this Docket.
Dated at Augusta, Maine, this lst day of November.
BY ORDER OF THE COMMISSION
Charles A. Jacobs
Charles A. Jacobs
Administrative Director
COMMISSIONERS VOTING FOR: Welch
Hughes
Nugent
EXHIBIT 28 (q)
STATE OF MAINE January 19, 1995
PUBLIC UTILITIES COMMISSION
ORDER
MAINE PUBLIC SERVICE COMPANY Docket No. 94-301
Re: Complaint and Petition of Maine Public
Service Company Regarding a June 4, 1984 Power
Purchase Agreement Between Itself and the
Wheelabrator-Sherman Energy Company
I. INTRODUCTION
Maine Public Service Company (MPS) filed a two-count complaint with the
Commission seeking the alteration or annulment of its power purchase contract
with Wheelabrator-Sherman Energy Company (Wheelabrator-Sherman or W/S).
Wheelabrator-Sherman subsequently filed a motion to dismiss MPS's petition.
We grant the Motion to Dismiss with respect to both counts of the petition.
A. Complaint by Maine Public Service Company
On August 26, 1994, MPS filed a two-count complaint with the
Commission. MPS complains in Count I, pursuant to 35-A M.R.S.A. Section
1302(3), that its continued performance of the June 4, 1984 Power Purchase
Agreement between MPS and the Wheelabrator-Sherman Energy Company constitutes
an unjust and unreasonable utility practice that results in unjust and
unreasonable rates charged by MPS. By 35-A M.R.S.A. Section 1306, the
Commission should order a "change" to the unreasonable utility practice (i.e.
order MPS to cease performing the contract), whereby reasonable rates will
be substituted for MPS's customers. Count II asks the Commission to exercise
its authority in 35-A M.R.S.A. Section 1321 to rescind, alter or amend our
February 10, 1984 Order which required MPS to enter into the Power Purchase
Agreement actually entered into on June 4, 1984. Because the June 4, 1984,
contract results in unreasonable rates, the Commission should reopen the
February 10, 1984 order and rescind or amend the purchase price set forth in
the June 4 contract and redetermine and substitute a reasonable price for MPS
to purchase electricity from Wheelabrator-Sherman.
Complaints brought pursuant to Section 1302(3) are processed in
accordance with Section 1302 (2). Pursuant to Subsection 2, complaints
become adjudicatory and are set for hearing unless the Commission finds that
the complaint is without merit" or that the cause of the complaint has been
removed. The Law Court has interpreted the phrase without merit to mean
"that there is no statutory basis for the complaint, i.e.
Order - 2 - Docket No. 94-301
that the PUC has no authority to grant the relief requested or that the
rates, tolls or services are not in any respect unreasonable, insufficient,
or unjustly discriminatory ... or inadequate." Agro v. Public Utilities
Commission, 611 A.2d 566, 569 (Me. 1992).
Obviously, the cause of the complaint has not been removed. The
statutory and jurisdictional questions raised by MPS's complaint involve such
a complex set of circumstances and statutes that the complaint has been
treated as adjudicatory and intervenors sought and given the opportunity to
respond as to the "merits" of the legal basis of the complaint. Thus, the
preliminary, summary investigation to determine whether the complaint is
"without merit" has not been conducted in the usual non-adjudicatory manner.
Wheelabrator-Sherman(1) moved to dismiss the complaint pursuant to
Maine Rules of Civil Procedure, Rule 12(b)(1) (that the Commission lacks
jurisdiction over the complaint) and Rule 12(b)(6) (that the complaint fails
to state a claim on which the Commission could grant a remedy). MPS and all
intervenors have had the opportunity to file legal memoranda on the issues
relevant to the dismissal questions.
The Commission dismisses both Count I and Count II of the complaint
on grounds that the Commission lacks the power to grant the relief sought
under either Count due to federal law preemption.
(1) Petitions to intervene were granted on behalf of the office of the
Public Advocate, Wheelabrator-Sherman Energy Company and Sherman Lumber
Company, the Towns of Sherman, Mount Chase, Stacyville, Patten, and Ashland,
Representative Herbert Clark, Representative John Martin, Senator Leo
Kieffer, Representative Michael Michaud, Representative Henry Joy,
Representative Richard Kneeland, Senator Judy Paradis, Senator Margaret
Ludwig, the Independent Energy Producers of Maine, Inc., Katahdin Forest
Products, Maine Forest Products Council, Seven islands Land Company, a group
of five financial institutions (John Hancock Mutual Life Insurance Company,
Kansallis-OsakePankki, Mellon Bank, N.A., The Prudential Insurance Company
of America and Cigna Investments, Inc. -- collectively referred to as the
"Financial Institutions") and the Edison Electric Institute. The late-filed
petition of International Paper was granted but limited to presentation of
argument. Decisions on the petitions on behalf of Houlton Water Company and
National Starch and Chemical Company were deferred.
Order - 3 - Docket No. 94-301
B. The Wheelabrator-Sherman Contract
The history of the W/S Contract is set forth in the February 10,
1984 Decision and Order in Docket Nos. 81-276, 83264 and 83-303. On June 6,
1983, Alternative Energy Decisions, Inc. (AEID) , a QF, filed a petition
pursuant to Section 6 (A) of Chapter 36 of the Commissions' Rules, that
requested the Commission to establish a fixed-term rate for MPS to purchase
electricity. On November 4, 1983, a similar petition was filed by Sherman
Lumber Company (Sherman) , another QF. These proceedings were consolidated
(Docket Nos. 83-264 and 83-303)
In its February 10th Decision and Order, the Commission concluded
that Seabrook 1 should be used as the basis for calculating MPS's long-term
avoided costs. After establishing the basis for MPS's long-term avoided
costs, the Commission ordered MPS to enter into a long-term contract with
Sherman and AED to purchase power "in accordance with the terms and
conditions specified in this Decision and Order; and that computer runs be
made setting the rate for such contract in accordance with the terms and
conditions of this Decision and order" (ordering paragraphs 2 & 3.) The
levelized rate thus established was 9.75 cents per kwh.
In April 1984, AED sold its contract rights with MPS to Sherman.
On May 23, 1984, MPS and Sherman filed a Stipulation with the Commission
that claimed successful negotiation of a contract in compliance with the
February 10th Order and submitted the Contract for review and approval. The
Commission reviewed the Contract and on June 4, 1984, found it consistent
with its earlier Order. This contract was subsequently assigned to the
Signal-Sherman Energy Company on August 8, 1985. In 1988, Signal-Sherman
Energy Company became Wheelabrator-Sherman Energy Company.
The W/S Contract requires MPS to purchase all of the output of the
facility (up to 126,582 mwh annually) through the year 2000. The rate for
purchased power under the contract rises from 8.2 cents per kwh in 1986 to
14.726 cents per kwh in 2000. This inclining rate is equivalent over the
life of the Contract to the 9.75 cents levelized rate established by the MPUC.
II. SUMMARY OF POSITIONS OF THE PARTIES
The parties to this proceeding provided the Commission with extensive
memoranda on the issues presented by the MPS Complaint and the Motion to
Dismiss filed by W/S. These filings were further expanded upon during the
oral argument conducted by the Commission and in the parties' exceptions to
the Examiners' Report. Due to the number of issues raised and the complexity
of the arguments, we will here only briefly summarize the positions of the
respective parties.
Order - 4 - Docket No. 94-301
1. Maine Public Service Corporation
This proceeding is the result of MPS's filing of its Complaint.
That filing included the submission of a legal memorandum in support of
MPS's contention that the Commission has the legal authority to order the
relief requested by MPS, abrogation or annulment of the QF contract between
itself and W/S or the rescission of the contract price for power purchased
from W/S.
The first arguments made by MPS concern the Commission's
authority under state law to reform or abrogate the W/S contract. MPS argues
that the Commission has been granted plenary authority over retail electric
utilities in the State. This power includes the ability to order the change
of any utility acts or practices that it determines to be unjust or
unreasonable and the obligation to ensure that consumers are not charged
unjust and unreasonable rates. MPS suggests that the power to directly alter
or abrogate utility contracts can be implied from these powers when such
action is necessary to fulfill the Commission's statutory obligations. These
conditions may result when more traditional remedies -- e.g. disallowance of
a utility expense -- are unavailable.
MPS argued that its continued performance under its QF
contract with W/S was an unjust or unreasonable act due to the excessive
price for power specified by the contract and that the Commission possessed
adequate authority under state law to order MPS to cease performance. MPS
further suggested that this action would advance the purposes of PURPA that
QF purchase rates be "just and reasonable to the customers of the electric
utility." Abrogation or rescission was also required, the argument continues,
because the Commission lacked legal authority to disallow MPS's costs under
the W/S contract since that contract was not voluntarily agreed to between
the parties. MPS asserted that failure to pass through these costs would
implicate constitutional prohibitions against the taking of property.
MPS finally asserted that the Commission could not disallow
the expenses as imprudently incurred because the Commission had ordered MPS
to enter into the contract and that the Commission was equitably estopped
from denying recovery of the W/S contract costs.
MPS next addressed federal preemption issues under PURPA. MPS
noted that PURPA establishes a right for a QF to sell its power under a
fixed- term contract at a contract price equal to the purchasing electric
utility's full avoided cost. MPS contended, however, that the creation of
these QF rights does not evidence any intent to provide protection to these
contracts beyond that afforded any other commercial utility contract. In
particular, MPS argued that FERC required the initial contract
Order - 5 - Docket No. 94-301
price to be set according to the purchasing utility's estimated avoided
costs. FERC, however, foresaw the likelihood that the utility's actual
avoided costs would vary from these estimates; at some times they might be
higher than the estimated costs and at other times they could be lower.
According to MPS, FERC expected that these short-term price disequilibriums
would "balance out" over the long run of the contract term, but never
intended to guarantee the payment of a contract price based upon an estimate
of avoided costs that proves to be substantially greater than the utility's
actual avoided costs. MPS further asserted that PURPA's explicit requirement
that rates not exceed avoided costs acted as a limitation upon the contract
costs experienced by purchasing utilities as did the statutory language
requiring rates to be just and reasonable to the electric consumer and in the
public interest. MPS therefore concluded that PURPA cannot be read to
preempt state authority to regulate QF contracts if a utility's actual
avoided costs greatly exceed the estimate upon which the contract price was
established.
MPS also argued that PURPA does not preempt the Commission's
continuing authority over the QF contract. MPS read PURPA as preempting
state authority to establish QF power rates by any method other than that
established by FERC or to subject QFs to "utility-like,, regulation. MPS
reasoned that since Congress and FERC expressly excluded these topics from
state regulation, remaining subjects would presumably continue to be subject
to state authority. MPS reached the same result in analyzing possible
preemption under the Federal Power Act. MPS suggested that since states had
been granted authority to establish QF wholesale electric rates under PURPA,
they may exercise the full panoply of their regulatory powers so long as that
action does not conflict with PURPA's general standards.
MPS suggested that the contract doctrine of commercial
frustration could serve as a useful analogue and provide legal standards to
guide the Commission's exercise of its general authority to regulate or
reform a utility's contract. Applying that doctrine to the present case, MPS
asserted that the W/S contract price, because of changed circumstances, had
become excessive and unreasonable and that this excessive price had
essentially destroyed the fundamental purpose of the contract. This purpose,
according to MPS, was to be derived from PURPA and was described as the
promotion of the QF industry without the extraction of any subsidy from the
utility's ratepayers. Finally, MPS argued that abrogation of the W/S
contract would not violate constitutional prohibitions against the impairment
of contracts.
Order - 6 - Docket No. 94-301
2. Edison Electric Institute (EEI)
The EEI's arguments stressed the involuntary nature of QF
contracts and the retail price pressures created by the prices paid to QFs
under long-term contracts. EEI agreed with MPS that these prices
now violate PURPA's restriction that QF contract purchase prices may not
exceed the utility's avoided costs. Since PURPA required state regulatory
agencies to implement the mandatory purchase obligations of utilities,
including the determination of avoided costs, EEI contends that this
Commission retains the authority to ensure a QF contract's continued
compliance with PURPA and FERC rules. Furthermore, such a limited review of
the continued viability of an earlier avoided cost determination does not
amount to the more intrusive and comprehensive "utility-like,, regulation
prohibited under PURPA. Like MPS, EEI also read the FERC rules to reflect
an expectation that simple fluctuations in actual avoided costs would not
render a QF contract out of compliance with PURPA, but that a continuous and
substantial discrepancy between actual and estimated avoided costs would do
so. EEI dismissed suggestions that permitting this case to move forward
would threaten the ability of QF businesses to attract and secure financing
in Maine and argued that dismissal of the case would remove any incentive for
QFs to renegotiate existing power purchase agreements.
3. Wheelabrator Sherman Energy Company
W/S argued both that the Commission lacked authority to
abrogate the W/S contract and that even if such authority were to be found,
the Commission's exercise of that power was preempted by federal law.
W/S initially argued that although the Commission has broad
authority to regulate the State's retail utilities, its authority to
regulate wholesale electric transactions was narrowly circumscribed by
federal law; any authority the Commission possesses over QF wholesale
contracts is derived directly from the PURPA grant of power and must be
exercised consistent with that Act.
W/S also discussed at length the purposes of PURPA and
suggested that its chief goal was the promotion of the development of QF
power facilities. W/S agreed with MPS that PURPA and the FERC rules grant
QFs the right to sell power under a fixed-term contract at a price equal to
the utility's estimated avoided cost. However, W/S's arguments emphasized
FERC's purpose to provide a guaranteed revenue stream to QFs to enable them
to obtain the financing necessary to develop the industry. W/S argued that
state actions that would upset this guaranteed income stream would frustrate
the purposes of PURPA and thus be preempted. W/S disputed the contrary
interpretation urged by MPS.
Order - 7 - Docket No. 94-301
W/S further argued that the Commission, as a creation of the
Legislature, has only those powers delegated to it by the Legislature. These
powers, it suggested, do not include the jurisdiction to hear requests by a
utility to abrogate or reform its contracts. W/S suggested that since the
Small Power Production Act expressly authorizes the Commission to order a
utility to purchase QF power, the Legislature implicitly denied the
Commission the authority to order a utility out of such a contract. This
conclusion is enforced where the Legislature so clearly ordered the
Commission to encourage the development of QF power.
W/S further argued that attempts to exercise jurisdiction over
the W/S contract would inexorably lead to "utility-like" regulation of W/S
itself, a result forbidden by PURPA. Even though the Commission might claim
to be exercising its traditional regulatory authority over the electric
utility, it can not by indirection accomplish what it can not do directly.
W/S also disputed MPS's assertions that MPS had not
voluntarily entered into the W/S contract and therefore disputed MPS's
conclusion that disallowance of the W/S contract costs was unavailable.
Additionally, W/S suggested that MPS's rates could not now be found to be
unjust and unreasonable since the Commission has consistently approved their
rates over the past years. Furthermore, W/S argued that the reasonableness
of MPS's rates must be judged by the reasonableness and prudency of the
utility's actions when the contract was first agreed to, not according to
current conditions.
W/S attempted to distinguish the Commission's authority to
regulate utility contracts with its customers regarding retail rates from
contracts under which a nonregulated entity sells goods or services to the
utility. While recognizing Commission authority to directly govern the
former, W/S disputed the Commission's authority over the latter.
Furthermore, W/S argued that QF contracts are exempt from state regulation
because it is a wholesale electric contract. The Commission only possesses
the authority granted to it by PURPA.
Finally, W/S disputed the usefulness of the suggested reliance
upon the doctrine of commercial frustration as a guide for the Commission's
evaluation of the W/S contract. First, W/S argued that the statutory
purposes of PURPA should not be grafted onto the W/S contract, the true
purpose of which remains the supply of power to MPS at the price contained
in the contract, a purpose which has not been frustrated. W/S also asserted
that the present circumstances do not satisfy other elements of commercial
frustration, since the contract purpose was not totally frustrated, MPS had
contributed to the problem, and MPS had been aware of the risks assigned
under the contract at the time it entered into the agreement with W/S.
Order - 8 - Docket No. 94-301
In addition to its arguments on the merits of the MPS
Complaint,W/S raised several procedural arguments. First, W/S argued that,
under 35-A M.R.S.A. Section 1321, MPS possesses no right to request a
reopening of the Commission's original order concerning the W/S contract
issued on February 10, 1984; that section creates a right only for the
Commission itself to reopen prior orders. Second, under the Commission's
procedural rules, a party must file its request for reconsideration within
20 days after service of the order in question, a requirement that MPS has
not met in the present case. W/S also argued that the Commission was legally
prevented from waiving the 20-day filing requirement. Furthermore, W/S
suggested that the Commission should not exercise its own discretionary
authority to reopen the original orders in recognition of the need for
finality of Commission decisions. Finally, W/S argued that principles of res
judicata and collateral estoppel prohibit MPS from attempting to reopen the
Commission's original decisions.
4. International Paper Company (IP)
IP argued that PURPA has preempted any state authority to
disrupt the fixed-term, fixed-price contracts of QFs. Like W/S, IP stressed
FERC's intention to create a strong incentive for development of the QF
industry by encouraging confidence in the long term viability of QF
enterprises. IP further argued that state actions to reconsider the original
price contained in a QF contract ran counter to this purpose and were
preempted under PURPA. Furthermore, IP contended that Commission
reconsideration of the W/S contract price would expose W/S to "utility-type"
regulation prohibited by PURPA. IP also raised state law objections to the
MPS Complaint suggesting that the Small Power Production Act prohibited the
Commission from regulating the rates set in the W/S contract.
5. The Financial Institutions
The Financial Institutions argued that if MPS were successful
in the present case, the Financial Institutions, ability to continue business
in Maine would be substantially undermined. The Financial Institutions
emphasized the need for stability in contractual arrangements. The Financial
Institutions substantially agreed with the interpretation of PURPA advanced
by W/S and IP that emphasized the need for respecting the security of
long-term QF contracts. Similarly, the Financial Institutions argued that
the Small Power Production Act prohibited the Commission's exercise of
jurisdiction over QF contracts. Finally, the Financial Institutions argued
that the W/S contract rate could not be found to be unreasonable unless MPS
could demonstrate that the original determination of avoided costs was
somehow faulty at that stage, rather than through an attempted comparison to
the utility's present calculation of avoided cost.
Order - 9 - Docket No. 94-301
III. RULE 12(b)(1) MOTION
Rule 12 (b) (1) provides a defense to a claim if the tribunal
entertaining the claim lacks jurisdiction over the subject matter of the
claim. Obviously, the assertion of such a defense raises a question of law.
The Public Utilities Commission regulates utilities to ensure that
customers receive adequate utility service at just and reasonable rates.
35-A M.R.S.A. Section 301 (1988). MPS contends that the Commission
possesses the authority to modify or abrogate a contract, at least in the
limited instances where that action is required to otherwise fulfill the
Commission's statutory obligations. Wheelabrator-Sherman moves to dismiss
in accordance with 12 (b) (1) on the grounds that no statutory authority
exists to modify contracts, and that, regardless of state law, federal law
(PURPA) preempts the State from modifying the QF contract in question. We
agree with the proponents of the Motion to Dismiss that federal law preempts
this Commission from granting the requested relief under the circumstances
described by MPS and therefore grant the Rule 12(b)(1) Motion. Since we find
that federal preemption applies in this instance, we need not address the
question of whether or in what circumstances this Commission has authority
to revise or abrogate third-party contracts with a public utility.
A. Law Affecting Qualifying Facilities
1. PURPA
Generally speaking, state utility commissions have no authority to
regulate wholesale power transactions. See Mississippi Power & Light Co. v.
Mississippi, 487 U.S. 354 (1988). In 1978, Congress enacted the Public
Utility Regulatory Policies Act (PURPA). Under that Act, Congress delegated
to the states limited authority to regulate wholesale power transactions
between public utilities and small independent power producers. The proper
scope of this grant of power and the accompanying limitations upon
traditional state regulatory powers are at issue in this case.
PURPA was enacted during a time when electricity rates were
increasing rapidly due largely to the increase in the price of oil used for
power generation. PURPA was, at least in part, intended to decrease the
nation's reliance upon the use of fossil fuels by encouraging the development
of cogeneration and small power production facilities that used alternative
fuels. These power sources were intended to reduce the utilities' need for
power produced through oil- and coal-fired generating plants. Congress also
recognized, however, that utilities had traditionally been reluctant to
purchase power from such alternative sources. It therefore required FERC to
prescribe
Order - 10 - Docket No. 94-301
"such rules as it determines necessary to encourage cogeneration and small
power production" (2) including rules that require utilities to purchase
power from these facilities (3) and govern these transactions generally.
Section 210(f) further requires each state utility regulatory authority to
implement FERC's rules.
At the heart of the present dispute are PURPA's provisions and
FERC's implementing rules governing the purchase price for energy bought from
a QF. Section 210(b) of PURPA provides that the rates established by FERC
for the purchased power:
(1) shall be just and reasonable to the electric consumers of
the electric utility and in the public interest, and
(2) shall not discriminate against qualifying cogenerators or
qualifying small power producers.
No such rule prescribed under subsection (a) of this section shall
provide for a rate which exceeds the incremental cost to the
electric utility of alternative electric energy.
PURPA thus establishes a maximum price for purchased power which
may not exceed the utility's incremental cost of alternative energy, known
as the utility's "avoided cost." (4) This is further defined by PURPA to be
"the cost to the electric utility of the electric energy which, but for the
purchase from such cogenerator or small power producer, such utility would
generate or purchase from another source." PURPA Section 210(d).
(2) PURPA Section 210(a). Section 210 of PURPA has been codified at
16 U.S.C. Section 824a-3. For convenience, all statutory citations in this
order refer solely to PURPA.
(3) PURPA and FERC's implementing rules establish standards governing
the operation of cogenerators and small power producers (not relevant to our
present inquiry) which must be met in order to qualify for beneficial
treatment under the Act. A facility that meet these standards is referred
to as a "qualifying facility" or "QF".
(4) Utilities remain free to negotiate a rate that differs
from their avoided costs. 18 C.F.R. Section 292.301(b)(1).
Order - 11 - Docket No. 94-301
FERC's implementing rules further define this standard in 18 C.F.R.
Section 292.304. Under Section 292.304(d), the QF is given the option of
selling its power to an electric utility either:
(1) To provide energy as the qualifying facility determines such
energy to be avail-able for such purposes, in which case the rates
for such purchases shall be based on the purchasing utility's
avoided costs calculated at the time of delivery; or
(2) To provide energy or capacity pursuant to a legally
enforceable obligation for the delivery of energy or capacity over
a specific term, in which case the rates for such purchases shall,
at the option of the qualifying facility exercised prior to the
beginning of the specific term, be based on either:
(i) The avoided costs calculated at the
time of delivery; or
(ii) The avoided costs calculated at the
time the obligation is incurred.
FERC's rules thus set the purchase price for QF power at the
maximum level approved by PURPA -- full avoided costs. This provision was
upheld by the United States Supreme Court in American Paper Institute v.
American Electric Power Service Corporation, 461 U.S. 402 (1983). FERC's
preamble to the rule explained that this approach was taken to provide the
maximum financial incentives for the development of cogeneration and small
power production. In doing so, it rejected alternative rate plans that would
have passed some share of any power production savings on to electric
consumers. The American Paper Institute Court explicitly sanctioned FERC's
use of full avoided costs, finding it to be in compliance with PURPA's
requirement that the purchase rate be "just and reasonable to the electric
consumers of the electric utility and in the public interest." (5) The Court
explained that PURPA did not mandate the lowest possible purchase price but
only required FERC to consider consumers' interests in adopting a purchase
price rule. FERC, in fact, did consider those interests and concluded that
any price benefit that might accrue to consumers would be minute, especially
compared to the significant incentive for the development of QF power
production that full avoided costs would provide. This growth in QF power
production, in turn, would benefit ratepayers as a whole and advance the
public interest by
(5) PURPA Section 210 (b) (1).
Order - 12 - Docket No. 94-301
reducing reliance on scarce fossil fuels and increasing the nation's
efficient use of energy.
The desire to stimulate the growth of the nascent QF industry also
motivated FERC's adoption of the regulatory provision granting QFs the option
of providing power to an electric utility under a long-term contract. Under
the rule, the QF has the option of selling its power under such a long-term
contract at a specific price determined before the contract is effective.
This price is equal to the electric utility's avoided costs of purchasing
similar power and must be calculated at the time the contract is entered
into. FERC was aware, however, that this approach bore the risk that the
utility's actual avoided costs, calculated at a later time, could vary from
the projections made when the contract was signed. FERC's rules provide in
Section 292.304(b)(5) that:
In the case in which the rates for purchases are based upon
estimates of avoided costs over the specific term of the contract
or other legally enforceable obligation, the rates for such
purposes do not violate this subpart if the rates for such
purchases differ from avoided costs at the time of delivery.
Although acknowledging that these cost differentials could arise, FERC
believed that in order to attract the financing necessary to stimulate the
QF industry, the certainty of a long-term contract price was desirable.
FERC's comments on this section were as follows:
Paragraphs (b)(5) and (d) [of Section 292.304] are intended to
reconcile the requirement that the rates for purchases equal the
utilities' avoided cost with the need for qualifying facilities to
be able to enter into contractual commitments based, by necessity,
on estimates of future avoided costs. Some of the comments
received regarding this section stated that, if the avoided cost
of energy at the time it is supplied is less than the price
provided in the contract or obligation, the purchasing utility
would subsidize the qualifying facility at the expense of the
utility's other ratepayers. The Commission recognizes this
possibility, but is cognizant that in other cases, the required
rate will turn out to be lower than the avoided cost at the time
of purchase. The Commission does not believe that the reference
in the statute to the incremental cost of alternative energy was
intended to require a minute-by-minute evaluation of costs which
would be checked against rates established in long-term contracts
between
Order - 13 - Docket No. 94-301
qualifying facilities and electric utilities.
Many commenters (on FERC's proposed rule) have stressed the need
for certainty with regard to return on investment in new
technologies. The Commission agrees with these latter arguments,
and believes that, in the long-run. "overestimations" and
"underestimations" of avoided costs will balance out.
Paragraph (b)(5) addresses the situation in which a qualifying
facility has entered into a contract with an electric utility, or
where the qualifying facility has agreed to obligate itself to
deliver at a future date energy and capacity to the electric
utility. The import of this section is to ensure that a qualifying
facility which has obtained the certainty of an arrangement is not
deprived of the benefits of its commitment as a result of changed
circumstances. This provision can also work to preserve the
bargain entered into by the electric utility; should the actual
avoided cost be higher than those contracted for, the electric
utility is nevertheless entitled to retain the benefit of its
contracted for, or otherwise legally enforceable, lower price for
purchases from the qualifying facility. This subparagraph will
thus ensure the certainty of rates for purchases from a qualifying
facility which enters into a commitment to deliver energy or
capacity to a utility.
45 Fed. Reg. 12223-12224 (Feb. 25, 1980)
2. SPPA and Chapter 36
The implementation of these federal law provisions was left to the
states. In Maine, the Legislature responded by enacting the Small Power
Production Act, P.L. 1979, c. 421, codified at 35-A M.R.S.A. Section 3301 et
seg. This Commission subsequently adopted Chapter 36 of our Rules to
implement the law.
3. Federal Preemption
Proponents of the Motion to Dismiss argue that federal law preempts
this Commission from granting MPS the relief it has requested. Preemption,
they argue, occurs under two separate circumstances: (1) PURPA; and (2) the
Federal Power Act. Since we find that we are preempted in this case under
the provisions of PURPA, we need not address the issue of possible preemption
under the Federal Power Act.
Order - 14 - Docket No. 94-301
a. Federal Standard of Preemption
It is well established that under the Supremacy Clause
of the United States Constitution (U.S. Const., art VI, cl. 2), federal law
can preempt conflicting state law and negate authority to act under the state
law in several different circumstances. Preemption can occur if the federal
enactment expressly states that it is intended to preempt state law. See
Jones v. Rath Packing Co., 430 U.S. 519, 525 (1977). Preemption also arises
where the federal scheme is so pervasive that it indicates an intent by
Congress to "occupy the field" entirely, to the exclusion of state action.
See Rice v. Santa Fe Elevator Corp., 331 U.S. 218 (1947). Where it proves
to be impossible for an individual to comply with separate state and federal
laws, the state enactment will be preempted. See Florida Lime & Avocado
Growers, Inc. v. Paul, 373 U.S. 132 (1963). Finally, if the state law
"stands as an obstacle to the accomplishment and execution of the full
purposes and objectives of Congress" as expressed in the federal statute, the
state law must fall. See Hines v. Davidowitz, 312 U.S. 52, 67 (1941). Valid
rules adopted by federal regulatory agencies in furtherance of federal
statutes carry the same preemptive effect as the statute itself. See
Fidelity Federal Savings & Loan Association v. de la Cuesta, 458 U.S. 141
(1982).
An analysis of federal preemption must, however, begin
with the presumption that preemption was not intended by Congress. See
Maryland v. Louisiana, 451 U.S. 725, 746 (1981). Furthermore, since the
regulation of public utility rates and practices is an area well established
within the state's traditional exercise of police powers, preemption is
particularly disfavored and will not occur unless that result was the "clear
and manifest intent of Congress." Pacific Gas Electric Co. v. State Energy
Resources Conservation and ]Development Commission, 461 U.S. 190, 206 (1983),
quoting supra at 230. Also see Arkansas Electric Cooperative v. Arkansas
Public Service Commission, 461 U.S. 375, (1983).
b. Effect of PURPA Provisions on Commission Authority
No express provision of PURPA indicates any intent to deprive
states of jurisdiction over QF contracts. Similarly, no direct conflict
exists between any provision of PURPA and the Commission action requested by
MPS; i.e. there is no provision of PURPA that expressly forbids the reopening
or abrogation of a QF power production contract. Therefore, we must analyze
the federal preemption issue by determining if the proposed state action
would frustrate the accomplishment of the Congressional purposes as expressed
in PURPA and FEPC's implementing rules.
Proponents of the Motion to Dismiss have argued strenuously
that PURPA has preempted any state action that would
Order - 15 - Docket No. 94-301
upset the right of a QF to provide power under a long-term contract at the
rate established on the basis of the utility's estimated avoided costs
calculated at the time the contract was entered into. They argue that one
of the purposes behind FERC's adoption of this provision was to secure
financial certainty and assist in the retention of necessary financing for
the developing QF industry. This purpose would be frustrated, the argument
continues, if state regulatory agencies were free to change the purchase
price in these contracts after the fact.
Existing case law unanimously supports the proponents' view
in this area. The parties pointed to a recent decision of the Ninth Circuit
Court of Appeals, Independent Energy Producers Association v. California
Public Utilities Commission, 36 F.3d 848 (9th Cir. 1994). Although much of
the Court's analysis is directed toward California regulations affecting the
determination of QF eligibility (a factor not at issue here), the Court goes
on to discuss the State's authority to alter the prices established in
long-term power production contracts between electric utilities and QFs.
After reviewing the legislative and rule-making histories outlined above, the
Court concluded that FERC had intended to provide certainty to prices
obtained by QFs under long-term contracts, in large part to ensure the
availability of financing. The Court stated that, "While the actual avoided
cost might vary over time (under an individual QF contract), under current
law the QF remains entitled to receive the avoided cost rate specified in its
contract." Id. at 858. The Court clearly believed that PURPA preempts any
state action designed to readjust the price provisions of a long-term QF
contract to reflect changes in a utility's actual avoided costs.
The Oklahoma Supreme Court reached a similar result in Smith
Cogeneration Management v. Corporation Commission, 863 P.2d 1227 (Okl. 1993).
The Smith Court nullified an Oklahoma Corporation Commission rule that
required every QF contract to include a notice that the Commission could
change the terms of the contract in the future. In finding the Oklahoma rule
preempted, the Court rejected contentions that the rule actually advanced the
purposes of PURPA since it helped to ensure that the contract rates remained
"just and reasonable" over the life of the contract. The Court once more
emphasized the QF's "right" to the benefits of its bargain. It stated,
"Should a cogenerator choose the latter method of calculation, it has the
right to receive the benefits of the contract even if, due to changed
circumstances, the contract price for the power at the time of delivery is
unfavorable to the utility." Id. at 1240.
We agree that PURPA preempts any state action designed to
avoid the right of QFs to receive payments for power pursuant to the rate
established in a long-term contract entered into with an electric utility.
The statutory and regulatory
Order - 16 - Docket No. 94-301
history of PURPA could hardly be more clear in expressing the intent that an
electric utility's avoided costs be estimated at the time a QF contract is
entered into and that the price for power established according to those
estimates be guaranteed over the term of the contract. We find 18 C.F.R. 5
292.304 (b)(S) and FERC's comments on that provision to be particularly
persuasive in clarifying FERC's intent. FERC's comments clearly describe
FERC's intention to allocate to the utility the risk that the required
contract price might turn out in some instances to be higher than the
utility's actual avoided costs. FERC's rules purposefully protect the
contract price afforded to QFs in order to ensure the revenue stream
necessary to stimulate investment in the QF industry.
Attempts by MPS to distinguish prior precedents and to offer
alternative readings of the statutory and regulatory histories are
unpersuasive. MPS argues that the FERC comments referenced above do not
reflect an intention to ensure the continued application of the initial
contract price over the life of the contract, but merely reflect FERC's
intent that the contract not be subject to "minute-by-minute" reappraisals.
In MPS's view, such reappraisals would leave the contract open to attack if
the utility's actual avoided contract costs at any given moment exceeded the
initial estimates of avoided costs. MPS contends that FERC's regulations
should be interpreted as reflecting FERC's willingness to tolerate minor
discrepancies between actual and estimated avoided costs but do not indicate
an intent to immunize prices from review if these discrepancies rise to a
greater and sustained level. We find no support within the rules or FERC's
comments for such a view. Certainly, if the FERC contemplated the
possibility of subsequent contract reviews or "settling-up" proceedings, the
rules would have specifically provided for such an event. We believe that
FERC's rules indicate a clear intent to provide a QF with the right to enter
into a long-term contract with an electric utility at a price which is
calculated on the basis of the utility's avoided costs, estimated at that
time.
MPS further suggests that its reading actually advances the
purpose of PURPA that rates be "just and reasonable and in the public
interest" by ensuring that the contract price more accurately reflects the
electric utility's actual avoided costs over the life of the contract. This
rationale, however, conflicts with the United States Supreme Court's holding
in American Paper Institute, supra, that FERC has already completely complied
with the statutory mandate by considering consumer interests in the adoption
of its rules. The New York Court of Appeals reached the same conclusion in
Consolidated Edison Co. v. Public Service Commission, 472 N.E.2d 981, 987
(N.Y. 1984). In that case, the Court rejected arguments that because
the proposed rate would conflict with PURPA's purposes to maintain "just and
reasonable" rates, PURPA preempted state authority to establish a
Order - 17 - Docket No. 94-301
QF contract purchase price in excess of full avoided costs. The Court stated
that "Petitioner misconstrues the importance of this objective to the
over-all purpose of PURPA. The impact of the utilities' mandated purchase
rate on the cost to consumer ratepayers was but one factor that FERC was
obliged to consider..." under PURPA. Id.
So here we must find that PURPA's overriding purpose to
stimulate the growth of QF power producers would be thwarted if the
Commission retained authority under state law to readjust the contract price
of QF power sales. Even if it is true that QF power contracts are actually
hindering some of the policies that motivated Congress to enact PURPA, the
United States Supreme Court has held that FERC has already properly weighed
and balanced the competing policies expressed in PURPA. We have no power to
adjust that balance in this forum. FERC has chosen to allocate the risk that
the utility's actual avoided costs would exceed the earlier estimates of
those costs. The United States Supreme Court has upheld these rules as being
in compliance with the PURPA legislation. We cannot attempt to strike a new
balance or pursue alternative policies in the face of this prior federal
action. Thus, we agree with the Proponents that Congress's intent to preempt
state authority to readjust QF contract prices is "clear and manifest." Such
authority would prevent the full accomplishment of PURPA's purpose to foster
the growth of alternative power sources and reduce the nation's reliance on
fossil fuels.
This conclusion, however, does not address in full the
arguments raised by MPS in its memoranda. MPS questions the results that
necessarily flow from a finding of preemption, arguing that broad application
of preemption would create a "super contract," impervious to the application
of normal contract law principles. We must recognize, however, that federal
law does mandate certain terms of a QF contract if the parties are unable to
agree. Most importantly, it specifies that the state regulatory commission
will determine the electric utility's avoided costs, which will determine the
contract purchase price for QF energy. Even though a contract price is
mandated, the contract itself remains an ordinary, commercial contract,
otherwise subject to general state law. For example, if a QF production
facility is destroyed by a lightning strike or storm, certainly the QF owners
would be able to assert the contract defense of "Act of God" in a suit for
breach of contract: for failing to provide the specified power. Similarly,
the affected electric utility would certainly not be required to continue
making contract payments to the QF in that circumstance. The distinction,
however, between such actions and the relief requested by MPS in this case
lies in the approach taken by the State. in the former, the State is not
acting to directly undo policies established by federal law. In the latter,
MPS has requested that we intervene because its contract price varies
Order - 18 - Docket No. 94-301
substantially from its actual avoided costs. This request requires us to
directly reexamine a decision made under the guidelines established by
federal law; it is a direct attack upon the policies established in PURPA.
In such a situation, this Commission is bound by federal law and any contrary
state authority must yield to that law.
Thus, even though PURPA does not establish "super contracts"
immune from all state interference, PURPA establishes certain federal
policies that are protected from state interference. Certainly, PURPA's
allocation of the risk of changes in a utility's estimated avoided costs
cannot be altered by states through contrary action.
In sum, we find that PURPA does preempt any authority that we
may possess to readjust the contract price applicable to long-term QF
contracts. Accordingly, we find that PURPA would preempt any ability under
35- A M.R.S.A. Section 1321 to reopen a QF contract, which therefore requires
that we grant the Motion to Dismiss as to Count II. Second, we further find
that PURPA preempts any attempt by this Commission to alter the risk
allocation embodied in PURPA, therefore negating any ability we might
otherwise have to find MPS's continued performance under the contract to be
an "unreasonable practice" under 35-A M.R.S.A. Section 1306. Thus, we are
also required to grant the 12(b)(1) Motion as to Count I.
Dated at Augusta, Maine, this 19th day of January, 1995.
BY ORDER OF THE COMMISSION
Charles A. Jacobs
Charles A. Jacobs
Administrative Director
COMMISSIONERS VOTING FOR:
Welch
Hughes
Nugent
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