SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Under Section 13 or 15(d) of
The Securities Exchange Act of 1934
For Quarter Ended March 31, 1995 Commission File Number 1-3429
MAINE PUBLIC SERVICE COMPANY
(Exact name of registrant as specified in its charter)
MAINE 01-0113635
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
209 State Street, Presque Isle, Maine 04769
(address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 207-768-5811
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes X No___.
(APPLICABLE ONLY TO CORPORATE ISSUERS:)
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the close of the period covered by this
report.
Common Stock, $7.00 par value - 1,617,250 shares
Form 10-Q
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements
See the following exhibits - Maine Public Service Company and
Subsidiary Condensed Consolidated Financial Statements,
including an income statement for the quarter ended March 31,
1995 and for the corresponding period of the preceding year;
a balance sheet as of March 31, 1995, and as of December 31,
1994, the end of the Company's preceding fiscal year; and a
statement of cash flows for the period January 1 (beginning of
the fiscal year) through March 31, 1995, and for the
corresponding period of the preceding year.
In the opinion of management, the accompanying unaudited
consolidated financial statements present fairly the financial
position of the companies at March 31, 1995 and December 31,
1994, and the results of their operations and their cash flows
for the three months ended March 31, 1995.
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MAINE PUBLIC SERVICE COMPANY AND SUBSIDIARY
COMPARATIVE CONSOLIDATED INCOME STATEMENTS
(Unaudited)
(Dollars in Thousands Except Per Share Amounts)
Three Months Ended
March 31,
1995 1994
Operating Revenues $15,556 $17,063
Operating Expenses
Purchased Power 8,967 7,265
Other Operation and Maintenance 2,592 4,515
Depreciation and Amortization (Note 2) 1,070 1,054
Taxes Other Than Income 435 428
Provision for Income Taxes (Note 3) 737 1,247
Total Operating Expenses 13,801 14,509
Operating Income 1,755 2,554
Other Income (Deductions)
Equity in Income of Associated Companies 88 90
Allowance for Equity Funds Used During
Construction 0 2
Other Income Taxes (Note 3) (21) (15)
Other - Net (5) (51)
Total 62 26
Income Before Interest Charges 1,817 2,580
Interest Charges
Long-Term Debt and Notes Payable 943 964
Less Allowance for Borrowed Funds
Used During Construction 0 (1)
Total 943 963
Net Income Available for Common Stock $874 $1,617
Average Shares Outstanding (000's) 1,617 1,623
Earnings Per Share of Common Stock $0.54 $1.00
Dividends Declared per Common Share $0.46 $0.46
The accompanying notes are an integral part of these financial Statements
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MAINE PUBLIC SERVICE COMPANY AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(Dollars in Thousands)
March 31, December 31,
ASSETS 1995 1994
Utility Plant
Electric Plant in Service $89,515 $89,625
Less Accumulated Depreciation 40,208 39,714
Net Electric Plant in Service 49,307 49,911
Construction Work-in-Progress 1,089 571
Total 50,396 50,482
Investment in Associated Companies
Maine Yankee Atomic Power Company 3,393 3,391
Maine Electric Power Company, Inc. 65 65
Total 3,458 3,456
Net Utility Plant and Investments 53,854 53,938
Current Assets
Cash and Temporary Investments 3,471 2,618
Deposits for Interest and Dividends 744 744
Accounts Receivable - Net 5,134 5,070
Unbilled Revenue 1,931 2,414
Deferred Fuel and Purchased Energy 1,269 535
Inventory 1,288 1,289
Prepayments 396 537
Total 14,233 13,207
Other Assets
Recoverable Seabrook Costs 36,644 37,074
Regulatory Asset - SFAS 109 & 106 16,321 16,212
Other 2,816 1,986
Total 55,781 55,272
Total Assets $123,868 $122,417
CAPITALIZATION AND LIABILITIES
Capitalization
Common Shareholders' Equity
Common Stock $13,071 $13,071
Paid-in Capital 38 38
Retained Earnings 39,983 39,853
Treasury Stock, at cost (5,714) (5,714)
Total 47,378 47,248
Long-Term Debt (less current maturities) 37,410 37,435
Current Liabilities
Long-Term Debt Due Within One Year 65 65
Accounts Payable 4,988 4,080
Deferred Income Taxes Related to Fuel 506 214
Dividends Declared 744 744
Customer Deposits 69 74
Taxes Accrued 405 92
Interest Accrued 285 1,021
Total 7,062 6,290
Deferred Credits
Deferred Income Tax 28,327 28,036
Investment Tax Credits 917 937
Miscellaneous 2,774 2,471
Total 32,018 31,444
Total Capitalization and Liabilities $123,868 $122,417
The accompanying notes are an integral part of these financial statements.
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MAINE PUBLIC SERVICE COMPANY AND SUBSIDIARY
Statement of Consolidated Cash Flows
(Unaudited)
(Dollars in Thousands)
Three Months Ended
March 31,
1995 1994
Cash Flow From Operating Activities
Net Income $874 $1,617
Adjustments to Reconcile Net Income to Net Cash
Provided by Operations
Depreciation and Amortization 643 627
Amortization of Seabrook Costs 427 427
Deferred Income Taxes 561 (611)
AFUDC 0 (2)
Income on Tax-Exempt Bonds - Restricted Funds 0 (6)
Change in Def. Regulatory & Debt Issuance Costs (755) 506
Change in Deferred Revenues 0 (40)
Change in Benefit Obligation 29 112
Change in Current Assets and Liabilities 306 2,707
Other 140 36
Net Cash Flow from Operating Activities 2,225 5,373
Cash Flow From Financing Activities
Dividend Payments (744) (744)
Purchase of Common Stock 0 (1,143)
Drawdown of Tax-Exempt Bonds Proceeds 0 1,111
Retirements on Long-Term Debt (25) (25)
Short-Term Borrowings, Net 0 0
Non Utility Property & Other 0 (1)
Net Cash Flow Used For Financing Activities (769) (802)
Cash Flow Used For Investing Activities
Withdrawal of (Investment in) Restricted Funds 0 (1)
Investment in Electric Plant (603) (809)
Net Cash Used For Investment Activities (603) (810)
Increase (Decrease) in Cash and Temporary Investments 853 3,761
Cash and Temporary Investments at Beginning of Year 2,618 1,392
Cash and Temporary Investments at End of Period $3,471 $5,153
Change in Current Assets and Liabilities Providing
Cash From Operating Activities
Accounts Receivable ($65) $472
Unbilled Revenue 483 610
Inventory 1 118
Deferred Fuel and Purchased Energy Costs (733) 890
Other Current Assets 141 (60)
Accounts Payable & Accrued Expenses 484 672
Other Current Liabilities (5) 5
Total Change $306 $2,707
Supplemental Disclosure of Cash Flow Information:
Cash Paid During the Year For:
Interest $1,611 $1,611
Income Taxes $149 $748
The accompanying notes are an integral part of these financial statements.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying unaudited consolidated financial statements include the
accounts of the Company and its wholly-owned Canadian subsidiary, Maine and
New Brunswick Electrical Power Company, Limited (the Subsidiary).
The Company is subject to the regulatory authority of the Maine Public
Utilities Commission (MPUC) and, with respect to wholesale rates, the Federal
Energy Regulatory Commission (FERC).
The accompanying unaudited consolidated financial statements should be read
in conjunction with the 1994 Annual Report, an integral part of Form 10-K.
Certain financial statement disclosures have been condensed or omitted but
are an integral part of the 1994 Form 10-K. The Company's significant
accounting policies are described in the Notes to Consolidated Financial
Statements of the Company's Annual Report filed with the Form 10-K. For
interim reporting purposes, these same accounting policies are followed.
2. RECOVERY OF THE SEABROOK INVESTMENT
The Company was an investor in the Seabrook Nuclear Power Project Units 1
and 2 (the "Project") with a 1.46056% ownership interest through November 25,
1986. On November 25, 1986, the Company's investment of approximately $92.1
million was sold for proceeds of $21.4 million.
The Company's remaining investment in Seabrook Units 1 and 2, net of
disallowed costs and sale proceeds, is classified as Recoverable Seabrook
Costs. These costs are principally being amortized over thirty years.
Recoverable Seabrook Costs at March 31, 1995 are as follows:
(Dollars in Thousands)
Recoverable
Seabrook Costs Accumulated
(Net) In Rates Amortization
Unit 1 - Retail $ 27,014 $ 37,141 $ (10,127)
- Wholesale 6,385 8,018 (1,633)
- Total 33,399 45,159 (11,760)
Unit 2 - Retail 3,200 5,995 (2,795)
- Wholesale 45 2,033 (1,988)
- Total 3,245 8,028 (4,783)
TOTAL $ 36,644 $ 53,187 $ (16,543)
3. INCOME TAXES
A summary of Federal and State income taxes charged (credited) to income
is presented below. For accounting and ratemaking purposes, income tax
provisions included in "Operating Expenses" reflect taxes applicable to
revenues and expenses allowable for ratemaking purposes. The tax effect of
items not included in rate base is allocated as "Other Income (Deductions)".
(Dollars in Thousands) Three Months Ended
March 31,
1995 1994
Current income taxes $ 197 $ 1,873
Deferred income taxes 580 (592)
Investment credits (19) (19)
Total income taxes $ 758 $ 1,262
Allocated to:
Operating income $ 737 $ 1,247
Other income 21 15
Total $ 758 $ 1,262
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 March 31, 1995 and December 31,
1994.
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(Dollars in Thousands)
1995 1994
Seabrook $20,140 $20,214
Property 9,030 8,985
Regulatory expenses 470 142
Investment tax credits (622) (622)
Pension and postretirement
benefits (245) (251)
Other (446) (432)
Net accumulated deferred income
taxes $28,327 $28,036
4. POSTRETIREMENT HEALTH CARE BENEFITS
In 1993, the Company adopted Statement of Financial Accounting Standards
No. 106, "Employers' Accounting for Postretirement Benefits Other Than
Pensions"(SFAS 106), which requires the accrual of postretirement benefits,
such as health care benefits, during the years an employee provides service
to the Company. The MPUC has adopted a rule which adopts SFAS 106 for
ratemaking. The rule requires the Company to establish and make payments to
an independent external trust fund for the purpose of funding future
postretirement health care costs at such time as customers are paying for
these costs in their rates. The MPUC has issued an accounting order that
allows the Company to account for the implementation of SFAS 106 by deferring
these expenses until the Company's next base rate proceeding. Based on this
accounting order, the Company has established a regulatory asset of
approximately $833,000, representing deferred postretirement benefits subject
to future ratemaking.
The Company provides certain health care benefits to eligible employees and
retirees. Effective August 1, 1994, all employees will be 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.
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Item 2. Management's Analysis of Quarterly Income Form 10-Q
Statements
Results of Operations
Earnings per share and related information for the three months
ended March 31, 1995 along with the corresponding information
for the previous year are as follows:
Three Months
Ended March 31,
1995 1994
Earnings per share $ .54 $1.00
Net income
available for Common
Stock - in Thousands $ 874 $1,617
For the first quarter of 1995 compared to the same quarter last
year, the decrease in consolidated earnings per share of $.46 is
attributable to the following:
Increase
(Decrease)
Decrease in retail revenues principally due
to 14,584 MWH decrease in sales. $ (.28)
Decrease in base revenues-sales for resale (.15)
Increased Maine Yankee capacity expenses
due to scheduled outage (.07)
Other .04
Total $ (.46)
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Form 10-Q
PART 1. FINANCIAL INFORMATION
Item 2. Management's Analysis of Quarterly Income Statements
Results of Operations (Continued)
Consolidated operating revenues for the quarter ended
March 31, 1995 and 1994, are as follows:
1995 1994
(Dollars in Thousands) $ MWH $ MWH
Retail:
Base 8,354 9,108
Fuel 5,242 5,820
Total 13,596 130,515 14,928 145,099
Sales for Resale:
Base 805 1,208
Fuel 1,093 782
Total 1,898 36,234 1,990 36,572
Total Primary Sales 15,494 166,749 16,918 181,671
Secondary Sales 130 4,426 140 5,639
Other Revenues/Rev. Adjust. ( 68) 5
Total Operating Revenues 15,556 171,175 17,063 187,310
The closing of Loring Air Force Base (Loring) in September,
1994 and a warmer than normal 1995 winter season compared to
the colder than normal 1994 winter season are the principal
reasons for the decrease of 14,584 MWH in retail sales. First
quarter 1995 sales to Loring were 8,634 MWH less than the same
quarter last year when Loring was in full operation. The
Company began to experience the impact of the closing of
Loring in mid-1994 when the aircraft and associated support
personnel were relocated to other air force bases. The loss
of the economic benefits of the air force base and the weather
variations described above both contributed to a decrease in
1995 first quarter sales compared to the same period last year
for our residential customers of 4,267 MWH and our small
commercial and industrial customers of 2,101 MWH. Offsetting
these decreases was a nominal 1.3% increase in sales to our
large commercial and industrial customers. After considering
sales to resale, primary sales for the first three months of
1995 of 166,749 MWH were 8.2% less than sales for the same
period in 1994.
Retail base revenues for the three months ended March 31, 1995
were $8,354,000 compared to $9,108,000 for the first quarter
of 1994, reflecting the decrease in sales discussed in the
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Form 10-Q
PART 1. FINANCIAL INFORMATION
Item 2. Management's Analysis of Quarterly Income Statements
Results of Operations (Continued)
previous paragraph. Although sales for resale for the quarter
were only 338 MWH less than the same period, base revenues
decreased from $1,208,000 for the first three months of 1994
to $805,000 for the first quarter of 1995. The Company has
fixed rate contracts with its three customers served in the
United States, representing 70% of these sales. Revenues
collected from these customers are first allocated to the
recovery of fuel costs. With the extended outage of Maine
Yankee during the first quarter of 1995, fuel revenues
collected in the quarter were $311,000 higher than last year,
reflecting the collection of the additional replacement power
costs. As previously reported by the Company in its 1994
Annual Report and Form 10-K, Houlton Water Company (Houlton),
the Company's largest customer and a sales for resale
customer, will not be served by the Company starting on
January 1, 1996. For the first quarter of 1995, Houlton
represented 10.9% of total MWh sales and 8% of total operating
revenues.
For the three months ended March 31, 1995 and 1994, total
operating expenses were $13,801,000 and $14,509,000,
respectively. The decrease in operating expenses and charges
in energy sources are as follows:
Increase/(Decrease)
(Dollars in Thousands) $ MWH
Purchased Power Expenses
Maine Yankee (39) (82,584)
Wheelabrator-Sherman 241 333
NB Power 1,812 66,500
System Purchases (312) (11,480)
1,702) (27,231)
Deferred Fuel (1,622)
Generating Expenses (111) 12,094
Other Operation & Maint. Expenses (190)
Depreciation and Amortization
Expenses 16
Income Taxes (510)
Taxes Other than Income 7
Total (708) (15,137)
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Form 10-Q
PART 1. FINANCIAL INFORMATION
Item 2. Management's Analysis of Quarterly Income Statements
Results of Operations (Continued)
Maine Yankee was out of service for most of the first quarter
of 1995. After experiencing problems with its steam
generators starting in early January of 1995, Maine Yankee
started its scheduled refueling and maintenance outage. In
late March, Maine Yankee reported an increased rate of
degradation of the Plant's steam generator tubes. After
reviewing several options, Maine Yankee plans to sleeve all of
the steam generator tubes. If the sleeving option is
implemented, Maine Yankee is expected to be off-line until
late 1995 or early 1996. For additional information, see the
next section, "Maine Yankee". Purchases from NB Power
increased 66,500 MWH to replace the Maine Yankee reduction of
82,584 MWH. Hydro generation increased by 16,826 MWH for the
first three months of 1995 compared to 1994. This enabled the
Company to reduce system purchases by 11,480 MWH and steam
generation was reduced by 4,375 MWH. Deferred fuel expenses
decreased by $1,622,000, since fuel costs, principally Maine
Yankee replacement power costs, exceeded collected fuel
revenues. The reduction in generation expenses reflects a
decrease in fuel costs resulting from the previously mentioned
reduction in steam generation. The reduction in other
operation and maintenance expenses reflects reductions in
transmission and distribution expenses of $95,000 in
administrative and general expenses of $48,000, and in
customer service and accounts expenses of $41,000.
Maine Yankee
Reference is made to the Company's Form 10-K dated March 29,
1995, Part I, "Subsidiaries and Affiliated Companies," in
which the Company reported that Maine Yankee was experiencing
degradation of its steam generator tubes in the form of
circumferential cracking. During the refueling-and-
maintenance shutdown that started in early February of 1995,
Maine Yankee detected an increased rate of degradation of the
Plant's steam generator tubes in excess of the number expected
and started evaluating several courses of action. The Company
owns 5% of the Common Stock of Maine Yankee. In 1994, Maine
Yankee provided 43.3% of the Company's power requirements.
On April 7, 1995, Maine Yankee announced its intention to
further explore sleeving all 17,000 steam generator tubes.
Although testing of all tubes revealed that approximately 40%
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Form 10-Q
PART 1. FINANCIAL INFORMATION
Item 2. Management's Analysis of Quarterly Income Statements
Results of Operations (Continued)
of the tubes are free of defects, Maine Yankee plans to sleeve
all of the tubes as a preventative safety measure. Sleeving
involves the inserting of a tube of slightly smaller diameter
into the defective tube, the sleeve is welded in place and
acts as a new tube. Sleeving is a proven technology and must
meet rigorous federal standards of safety and licensing. If
the sleeving option is approved and implemented, Maine Yankee
projects that the plant could return to service in the final
quarter of 1995. Based on preliminary estimates, the Company
estimates that its share of the cost of this option could be
approximately $2.5 million.
At this time, the Company cannot predict whether the sleeving
option will be approved for implementation. One sleeving
proposal has been approved by the Nuclear Regulatory
Commission (NRC), and an application for an alternative
sleeving proposal has been submitted to the NRC. While Maine
Yankee is not operating, the Company estimates that the
additional costs for replacement power can be as high as
approximately $500,000 to $600,000 per month.
These replacement power costs have traditionally been subject
to collection under the fuel adjustment clause. On May 1,
1995, the Company filed its five-year rate plan with the Maine
Public Utilities Commission (MPUC). As an element of that
rate plan, the Company proposes the elimination of the fuel
adjustment clause except for the cost of power purchased from
the Wheelabrator-Sherman Energy Company, an independent power
producer. As proposed, the rate plan also defers the
replacement power costs associated with this extended outage.
The rate plan also proposes a mechanism to handle similar
unexpected outages during the rate plan period.
Financial Condition
The accompanying Statements of Consolidated Cash Flows reflect
the Company's liquidity and the net cash flows generated by or
required for operating, financing and investing activities.
For purposes of the Statements of Consolidated Cash Flows, the
Company considers all highly liquid securities to be cash
equivalents.
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Form 10-Q
PART 1. FINANCIAL INFORMATION
Item 2. Management's Analysis of Quarterly Income Statements
Results of Operations (Continued)
For the three months ended March 31, 1994, net cash flows from
operating activities were $5,373,000. For the first three
months of 1994, the Company invested $809,000 in electric
plant, paid $744,000 in dividends, reduced long term debt by
$25,000, and drew down the remaining $1,111,000 from its tax-
exempt bond escrow account and purchased 43,000 shares of
common stock for $1,143,000 as the Company resumed the stock
repurchase program.
Net cash flows from operating activities were $2,225,000 for
the first quarter of 1995. For the quarter, $603,000 was
invested in electric plant, $744,000 was paid in dividends and
$25,000 was used to reduce long-term debt. Although cash
flows for 1995 have been impacted by the reduction in earnings
and the previously mentioned replacement power purchases
during the Maine Yankee outage, the Company's cash flows have
been sufficient to cover its activities.
On May 1, 1995, the Company filed a proposed increase in rates
of approximately $5 million, and as an alternative, a five-
year rate plan with the Maine Public Utilities Commission
(MPUC). See "Legal Proceedings", paragraph (e) for a more
complete description of the plan. If approved by the MPUC,
the proposed rate plan will assist the Company in dealing with
the economic uncertainties that lay ahead with the loss of
Loring and Houlton. The Plan provides stable, predictable
rates for our customers, economic development rates to
encourage investment in our service territory, and competitive
returns for our shareholders.
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FORM 10-Q
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
(a) Maine Public Service Company, 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) 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
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FORM 10-Q
PART II. OTHER INFORMATION
Item 1. Legal Proceedings - Continued
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.
(c) Maine Public Service Company, Application for Fuel Cost
Adjustment, MPUC Docket No. 95-001
On January 3, 1995, the Company submitted an application
to the MPUC for an increase of approximately $1.4 million
for the twelve month period ended March 31, 1996. This
increase will result in a total increase in the Company's
retail rates of 3% effective April 1, 1995. In order to
limit the increase to 3%, the Company proposed to defer
recovery of approximately $1.5 million in the cost of
power purchased from the Wheelabrator-Sherman Energy
Company. The deferred amount would be combined with the
additional deferrals of these costs as proposed under the
Company's rate plan (see item (e) below). On March 15,
1995, the Company and the MPUC Staff signed a Stipulation
that embodied the Company's proposal. This Stipulation
was approved by the MPUC on March 27, 1995.
(d) Houlton Water Company's Application for Certificate of
Public Convenience and Necessity for Purchase of Firm
Requirements Service from Central Maine Power Company,
MPUC Docket No. 94-476
Reference is made to the Company's Form 8-K of February
13, 1995, in which the Company reported that its largest
wholesale customer, the Houlton Water Company (HWC), had
executed a long-term power contract with Central Maine
Power Company (CMP) for HWC's power requirements
beginning January 1, 1996 and that HWC was therefore
terminating its contract with the Company effective
December 31, 1995.
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FORM 10-Q
PART II. OTHER INFORMATION
Item 1. Legal Proceedings - Continued
On December 29, 1994, HWC filed with the MPUC for
approval of the purchase from CMP. This proceeding was
given the MPUC Docket No. 94-476. On January 12, 1995,
the Company requested permission to intervene in this
proceeding. This request was granted on February 1,
1995. The Company contended that the MPUC should not
grant HWC's requested approval. The Company based its
contention on CMP's intention to serve HWC's load from a
facility that CMP acquired using State financing. The
Company believed that State energy and regulatory policy
should prohibit CMP from using a facility supported by
State financing to the detriment of the retail customers
of any other utility.
On March 30, 1995, the MPUC issued its decision on the
Company's argument. The MPUC concluded that the statutes
granted it the authority to approve the contract between
CMP and HWC did not confer upon the MPUC authority to
consider the effects of that contract upon the Company
and its customers. The MPUC also found that the statute
granting CMP the right to use State funds to acquire the
facility did not give the MPUC any authority to establish
conditions concerning the operation of the facility. As
a result, the MPUC declined to take into account, in
considering its approval of the CMP-HWC contract, the
effect of that contract upon the Company and its
customers.
(e) Maine Public Service Company Re: Proposed Increase in
Retail Rates, MPUC Docket No. 95-052
On May 1, 1995, Maine Public Service Company filed with
the Maine Public Utilities Commission a proposed increase
in the rates it charges its retail customers. The
Company at the same time filed a five-year rate plan
which, if approved, will result in new rates beginning in
January, 1996 as detailed below.
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
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FORM 10-Q
PART II. OTHER INFORMATION
Item 1. Legal Proceedings - Continued
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 (d)
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, the Company's
general rate case filing supports an increase in annual
base revenues of approximately $5.0 million, or a 10.8%
increase in total retail rates. However, as 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.
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 proposes 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.
In addition, any uncollected fuel costs under the present
fuel clause, designated as Wheelabrator-Sherman costs
based on the Stipulation approved in the fuel clause
proceeding, Docket 95-001 (see item (c) above), will also
be deferred starting with the effective date of the rate
plan. After the current contract with Wheelabrator-
Sherman expires at the end of 2000, the Company will
-17-
FORM 10-Q
PART II. OTHER INFORMATION
Item 1. Legal Proceedings - Continued
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. The plan proposes the following sharing:
If earned ROE exceeds the target ROE by more than
200 basis points, 50% of the excess earnings will
be retained by the shareholders and 50% will be
used to reduce any Wheelabrator-Sherman deferral
with any remaining excess to reduce rates on the
next rate implementation date.
If earned ROE exceeds the target ROE by less than
200 basis points, 50% of the excess earnings will
be retained by the shareholders and 50% will be
used to reduce any Wheelabrator-Sherman deferral
with any remaining excess to be retained by the
shareholders.
If earned ROE is less than 200 basis points below
the target ROE, shareholders will bear the loss.
If earned ROE is more than 200 basis points below
target ROE, shareholders will share 50% of the loss
and 50% of the loss will be reflected in customer
rates at the next rate implementation date.
If earned ROE is more than 400 basis points below
target ROE for three consecutive months using
updated twelve month calculations, and if the
annual review is more than two months away, the
Company has the right to request a general rate
increase. Until the general rate increase is
-18-
FORM 10-Q
PART II. OTHER INFORMATION
Item 1. Legal Proceedings - Continued
approved, the Company will preserve its right to an
annual rate adjustment under the provisions of this
plan. The plan also includes provisions for an
unscheduled Maine Yankee outage.
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.
Item 4. Submission of Matters to a Vote of Security Holders
At the Company's Annual Meeting of Stockholders, held on
May 9, 1995, the only matter voted upon was the
uncontested election of the following directors to serve
until the 1998 Annual Meeting of Stockholders, each of
whom received the votes shown:
Non-voter and
Nominee For Against Abstentions
Paul R. Cariani 1,292,443 44,981 279,826
Donald F. Collins 1,292,543 44,881 279,826
Richard G. Daigle 1,292,543 44,881 279,826
J. Gregory Freeman 1,290,004 47,420 279,826
Item 5. Other Information
Maine Yankee
-19-
FORM 10-Q
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits - none.
(b) Reports on Form 8-K.
A Form 8-K was filed on April 11, 1995, under Item 5,
Other Material Events, on April 18, 1995, under Item 5,
Other Material Events, and on November 8, 1994, under
Item 5, Other Material Events.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
MAINE PUBLIC SERVICE COMPANY
(Registrant)
Date: May 10, 1995 Larry E. LaPlante
Larry E. LaPlante, Vice President
Finance and Treasurer
-20-
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