SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Under Section 13 or 15(d) of
The Securities Exchange Act of 1934
For Quarter Ended September 30, 1996 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
a statement of consolidated operations for the three and nine months
ended September 30, 1996 and for the corresponding period of the
preceding year; a consolidated balance sheet as of September 30,
1996, and as of December 31, 1995, the end of the Company's preceding
fiscal year; and a statement of consolidated cash flows for the period
January 1 (beginning of the fiscal year) through September 30,
1996, and for the corresponding period of the preceding year.
In the opinion of management, the accompanying unaudited condensed
consolidated financial statements present fairly the financial
position of the companies at September 30, 1996 and December 31,
1995, and the results of their operations for the three and nine
months ended September 30, 1996 and their cash flows for the nine
months ended September 30, 1996.
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MAINE PUBLIC SERVICE COMPANY AND SUBSIDIARY
STATEMENTS OF CONSOLIDATED OPERATIONS
(Unaudited)
(Dollars in Thousands Except Per Share Amounts)
Three Months Ended Nine Months Ended
September 30, September 30,
1996 1995 1996 1995
Operating Revenues $12,584 $12,265 $43,168 $40,591
Operating Expenses
Purchased Power 8,250 7,970 24,198 23,460
Other Operation and Mainten 3,198 944 9,572 5,600
Depreciation and Amortization 959 1,070 3 018 3,210
Taxes Other Than Income 386 363 1,247 1,197
Provision for Income Taxes (345) 502 1,319 2,071
Total Operating Expens 12,448 10,849 39,354 35,538
Operating Income 136 1,416 3,814 5,053
Other Income (Deductions)
Equity in Income of Associated Cos. 81 91 263 267
Allowance for Equity Funds Used
During Construction 1 1 6 3
Other Income Taxes (64) (14) (85) (67)
Other - Net 67 33 56 33
Total 85 111 240 236
Income Before Interest Charges 221 1,527 4,054 5,289
Interest Charges
Long-Term Debt and Notes Pa 877 938 2,652 2,821
Less Allowance for Borrowed Funds
Used During Construction (1) 0 (3) (1)
Total 876 938 2,649 2,820
Net Income (Loss) Available for
Common Stock ($655) $589 $1,405 $2,469
Average Shares Outstanding (000's) 1,617 1,617 1,617 1,617
Earnings (Loss) Per Share of
Common Stock ($0.40) $0.36 $0.87 $1.53
Dividends Declared per Common Stock $0.46 $0.46 $1.38 $1.38
The accompanying notes are an integral part of these financial statements.
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MAINE PUBLIC SERVICE COMPANY AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
September 30 December 31,
ASSETS 1996 1995
(Unaudited)
Utility Plant
Electric Plant in Service $88,790 $88,648
Less Accumulated Depreciation 41,377 39,674
Net Electric Plant in Service 47,413 48,974
Construction Work-in-Progress 2 457 427
Total 49,870 49,401
Investment in Associated Companies
Maine Yankee Atomic Power Company 3,583 3,576
Maine Electric Power Company, Inc. 65 65
Total 3,648 3,641
Net Utility Plant and Investments 53,518 53,042
Current Assets
Cash and Temporary Investments 1,541 976
Deposits for Interest and Dividends 805 744
Accounts Receivable - Net 4,443 6,226
Unbilled Base Revenue 1,195 1,472
Deferred Fuel and Purchased Energy 125 125
Current Deferred Income Taxes 159 232
Inventory 1,255 1,244
Prepayments 1,320 543
Total 10,843 11,562
Other Assets
Restricted Investment 4,818 0
Recoverable Seabrook Costs 28,078 29,146
Regulatory Asset - SFAS 109 & 106 13,660 13,746
Deferred Fuel and Purchased Energy 3,607 2,575
Other 3,535 4,003
Total 53,698 49,470
Total Assets $118,059 $114,074
CAPITALIZATION AND LIABILITIES
Capitalization
Common Shareholders' Equity
Common Stock $13,071 $13,071
Paid-in Capital 38 38
Retained Earnings 30,735 31,562
Treasury Stock, at cost (5,714) (5,714)
Total 38,130 38,957
Long-Term Debt (less current maturities) 39,805 36,120
Current Liabilities
Long-Term Debt Due Within One Year 1,315 1,315
Notes Payable 3,000 1,400
Accounts Payable 4,140 5,231
Dividends Declared 744 744
Customer Deposits 66 79
Interest and Taxes Accrued 611 1,124
Total 9,876 9,893
Deferred Credits
Deferred Income Tax 24,665 24,997
Investment Tax Credits 739 795
Deferred Revenues 556 354
Miscellaneous 4,288 2,958
Total 30,248 29,104
Total Capitalization and Liabilities $118,059 $114,074
The accompanying notes are an integral part of these financial statements.
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MAINE PUBLIC SERVICE COMPANY AND SUBSIDIARY
Statements of Consolidated Cash Flows
(Unaudited)
(Dollars in Thousands)
Nine Months Ended
September 30,
1996 1995
Cash Flow From Operating Activities
Net Income $1,405 $2,469
Adjustments to Reconcile Net Income to Net Cash
Provided by Operations
Depreciation and Amortization 1,955 1,929
Amortization of Seabrook Costs 1,064 1,281
Income on Tax Exempt Bonds-Restricted Funds (68) 0
Deferred Income Taxes (317) 2,453
AFUDC (9) (3)
Change in Deferred Fuel & Purchased Energy (1,031) 0
Change in Deferred Regulatory and Debt Issuance Costs 850 (1,976)
Change in Deferred Revenues 202 213
Change in Benefit Obligation 1,038 201
Change in Current Assets and Liabilities (346) (4,215)
Other 457 (65)
Net Cash Flow from Operating Activities 5,200 2,287
Cash Flow From Financing Activities
Dividend Payments (2,232) (2,232)
Tax Exempt Bond Issuance Costs (399) 0
Issuance of Tax-Exempt Bonds 15,000 0
Drawdown on Tax Exempt Bonds Proceeds 250 0
Retirements on Long-Term Debt (11,315) (65)
Short-Term Borrowings, Net 1,600 1,000
Net Cash Flow Provided By(Used For)Financing Activities 2,904 (1,297)
Cash Flow Used For Investing Activities
Investment in Electric Plant (2,539) (2,721)
Investment in Restricted Funds (5,000) 0
Net Cash Used For Investment Activities (7,539) (2,721)
Increase (Decrease) in Cash and Temporary Investments 565 (1,731)
Cash and Temporary Investments at Beginning of Year 976 2,618
Cash and Temporary Investments at End of Period $1,541 $887
Change in Current Assets and Liabilities Providing
Cash From Operating Activities
Accounts Receivable $1,782 $364
Unbilled Revenue 277 546
Inventory (11) 12
Deferred Fuel and Purchased Energy Costs 0 (4,225)
Other Current Assets (777) (664)
Accounts Payable & Accrued Expenses (1,604) (242)
Other Current Liabilities (13) (6)
Total Change ($346) ($4,215)
Supplemental Disclosure of Cash Flow Information:
Cash Paid During the Year For:
Interest $3,219 $3,353
Income Taxes $2,371 $396
The accompanying notes are an integral part of these financial statements.
-5-
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 1995 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 1995 Form 10-K. These statements
reflect all adjustments that are, in the opinion of management, necessary
to a fair statement of results for interim periods presented. All such
adjustments are of a normal recurring nature. 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.
For purposes of the statements of consolidated cash flows,the Company
considers all highly liquid securities to be cash equivalents.
2. IMPLEMENTATION OF MULTI-YEAR RATE PLAN
As explained in the legal proceedings section of the Form 10-Q, item
1(b), the MPUC approved a four-year rate plan on November 13, 1995. The
Company wrote off approximately $8,340,000, net of income taxes, in 1995.
The write-offs consisted of $4,846,000, net of income taxes, of the
Company's investment in the Seabrook nuclear power project previously
allocated to the wholesale customers and $1,390,000, net of income taxes,
of other wholesale plant and regulatory assets, classified as
extraordinary items. In addition, $2,104,000, net of income taxes, of
deferred retail fuel representing replacement power costs incurred during
the 1995 Maine Yankee outage, were also charged to operations. Item
1(b) also details the significant accounting orders that became effective
January 1, 1996 concerning the deferral of $902,000, net of income taxes,
annually of Wheelabrator-Sherman purchases, the five year amortization of
the Company's $1.3 million, net of income taxes, share of the Maine
Yankee sleeving repair costs, the $638,000, net of income taxes,
amortization over ten years of deferred post-retirement benefits other
than pensions (SFAS 106). In addition, Item 1(b) discusses the five year
amortization of the $139,000 deferral of pension expenses and $92,000
deferral of early retirement expenses, both net of income taxes, related
to the lay-up of the Caribou Steam Units and the four year amortization
of $300,000, net of tax, of deferred fuel from the December 31, 1995
balance.
-6-
The elimination of the fuel clause reconciliation with the associated
fuel revenue accounting mechanism complicates quarter-to-quarter
earnings comparisons for 1996 to 1995. The prior fuel revenue accounting
mechanism smoothed the recognition of fuel expenses over the annual fuel
reconciliation period. With higher winter rates for our commercial and
industrial customers and the elimination of the fuel clause, earnings
will be higher during the winter months than during the summer months
when rates charged to those customers are approximately 25% lower.
The recoverable Seabrook costs represent costs to be charged to retail
customers, in accordance with previous rate orders. They are as follows:
Retail $ 43,136
Accumulated Amortization 15,058
Retail, Net 28,078
Wholesale 10,051
Accumulated Amortization (3,826)
Write-0ff (6,225)
Wholesale, Net -
Total $ 28,078
3. INCOME TAXES
A summary of Federal and State income taxes charged (credited) to income
is presented below. For accounting and ratemaking purposes, income tax
provisions included in "Operating Expenses" reflect taxes applicable to
revenues and expenses allowable for ratemaking purposes. The tax effect
of items not included in rate base is allocated as "Other Income
(Deductions)".
(Dollars in Thousands) Three Months Ended Nine Months Ended
September 30, September 30,
1996 1995 1996 1995
Current income taxes $ (211) $ (440) $ 1,721 $ (315)
Deferred income taxes (51) 976 (261) 2,511
Investment credits (19) (20) (56) (58)
Total income taxes $ (281) $ 516 $ 1,404 $ 2,138
Allocated to:
Operating Income $ (345) $ 502 $ 1,319 $ 2,071
Other income 64 14 85 67
Total $ (281) $ 516 $ 1,404 $ 2,138
The following summarizes accumulated deferred income taxes established on
temporary differences under SFAS 109 as of September 30, 1996 and
December 31, 1995.
(Dollars in Thousands)
September 30, December 31,
1996 1995
Seabrook $15,892 $16,071
Property 8,535 8,396
Regulatory expenses 1,125 915
Deferred fuel and purchased energy 990 1,027
Investment tax credits (528) (528)
Pension and postretirement
benefits (631) (262)
Other (718) (622)
Net accumulated deferred income
taxes $24,665 $24,997
-7-
4. REFINANCING
On April 4, 1991, the Maine Public Utilities Financing Bank (MPUFB)
issued $10 million of tax-exempt bonds (the "1991 Series") on behalf of
the Company. Pursuant to a letter of credit and reimbursement agreement,
the Company caused a Direct Pay Letter of Credit for a term of five years
to be issued by Barclays Bank PLC, New York Branch (Barclays Bank) for
the benefit of the holders of such bonds. To secure the Company's
obligations under the reimbursement agreement, the Company issued a
second mortgage bond to Barclays Bank as collateral for the Company's
obligation to repay Barclays Bank the $10 million principal amount of the
bonds plus 195 days of interest on the bonds. The bonds had a coupon
rate of 7.875% and, after considering the enhancement fees and other
costs, the annual cost to the Company was approximately 8.725%.
Barclays Bank notified the Company that it would not renew the Direct Pay
Letter of Credit for this issue. With the expiration of the Direct Pay
Letter of Credit on April 4, 1996, the entire $10 million principal
amount of the bonds was redeemed at par on April 1, 1996 in accordance
with the indenture. To meet its reimbursement obligation that resulted
from the draw on the Barclays Direct Pay Letter of Credit prior to its
expiration, the Company borrowed $10,000,000 under a refunding note from
Fleet Bank of Maine with interest at LIBOR plus .75% and a facility fee
of $25,000. For the term of the note, the effective interest rate was
7.27%.
On June 19, 1996, the Maine Public Utilities Financing Bank (MPUFB)
issued $15 million of its tax-exempt bonds due April 1, 2021 (the "1996
Series") on behalf of the Company. The proceeds of the new 1996 Series
were used to refund the 1991 Series through the payment of the refunding
note from Fleet Bank of Maine and provides $5 million for the acquisition
of qualifying property, of which $4.8 million remains in trust as of
September 30, 1996. Pursuant to the long-term note issued under a loan
agreement between the Company and the MPUFB, the Company has agreed to
make payments to the MPUFB for the principal and interest on the bonds.
Concurrently, pursuant to a letter of credit and reimbursement
agreement, the Company caused a Direct Pay Letter of Credit for an
initial term of three years to be issued by the Bank of New York for the
benefit of the holders of such bonds. To secure the Company's
obligations under the letter of credit and reimbursement agreement, the
Company issued a second mortgage bond to the Bank of New York, as Agent,
under the reimbursement agreement, in the amount of $15,875,000. The
Company has the option of selecting weekly, monthly, annual or term
interest rate periods for the 1996 Series, and has initially selected the
weekly interest period. After considering issuance costs and credit
enhancement fees, the effective interest rates to date have ranged from
4.61% to 5.96% per annum.
5. DISCONTINUANCE OF SFAS 71 FOR WHOLESALE BUSINESS SEGMENT
The wholesale market for electric power is now competitive, as evidenced
by the Company's loss of a major wholesale customer, Houlton Water
Company. The rates that the Company is now charging its remaining
wholesale customers are based on market pricing and not rate base/rate of
return regulatory formulas. For this reason, the Company has
discontinued the application of Statement of Financial Accounting
Standards No. 71 (SFAS 71), "Accounting for the Effects of Certain Types
of Regulation," for its wholesale business jurisdiction. These write-
offs taken in November, 1995 were classified as extraordinary items
associated with the discontinuance.
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6. EARLY RETIREMENT PROGRAM
In March 1996, the Company offered an early retirement program to
selected employees. All eligible employees will participate in the
program. As a result, in accordance with Statement of Financial
Accounting Standards No. 88 (SFAS 88), "Employers' Accounting for
Settlements and Curtailments of Defined Benefit Pension Plans and for
Termination Benefits," the Company recognized a first quarter charge of
$258,000, net of taxes.
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Form 10-Q
PART 1. FINANCIAL INFORMATION
Item 2. Management's Analysis of Quarterly Income
Statements
Results of Operations
Earnings (loss) per share and net income (loss)
available for common stock for the three months
ended September 30, 1996 along with the
corresponding information for the previous year are
as follows:
Three Months Ended
September 30
1996 1995
Earnings (loss) per share $(.40) $ .36
Net income (loss)
available for Common
Stock - in Thousands $(655) $ 589
For the third quarter of 1996 compared to the same
quarter last year, the decrease in consolidated
earnings per share (EPS) of $.76 is attributable to
the following:
EPS
Increase
(Decrease)
Increase in fuel expenses $ (.60)
Increase in Maine Yankee capacity expenses (.19)
Decrease due to loss of Houlton Water Company (.14)
Increase in retail revenues due to rate
increases effective January 1, 1996
and a 1.5% increase in retail sales .16
Other .01
Total $ (.76)
Under terms of a four-year rate plan approved by the Maine Public
Utilities Commission (MPUC), the fuel clause was eliminated with the
exception of the annual deferral of $902,000, net of income
taxes, of the costs of its purchases from Wheelabrator-Sherman (WS),
an independent power producer. The elimination of the fuel clause
reconciliation with the associated fuel revenue accounting mechanism
complicates quarter-to-quarter earnings comparisons for 1996 to 1995.
The prior fuel accounting mechanism smoothed the recognition
of fuel expenses over the annual fuel reconciliation period. With
higher winter rates for our commercial and industrial customers
-10-
Form 10-Q
PART 1. FINANCIAL INFORMATION
Item 2. Management's Analysis of Quarterly Income Statements
Results of Operations (Continued)
and the elimination of the fuel clause, earnings will be
higher during the winter months than during the
summer months when rates charged to those customers
are approximately 25% lower. After considering the
WS deferral and the effects of fuel accounting in
1995, fuel expenses for the third quarter of 1996
were $.60 per share more than for the same quarter
in 1995. Maine Yankee capacity expenses, including
the amortization of the 1995 resleeving expenses,
increased in 1996 and further reduced earnings by
$.19 per share. The loss of Houlton Water Company
as a wholesale customer, due to competitive
bidding, also reduced earnings for the third
quarter of 1996 by $.14 per share compared to the
same period in 1995. Partially offsetting these
decreases was a $.16 per share increase as a result
of the rate increase effective on January 1, 1996
and a 1.5% increase in retail sales. The January 1,
1996 increase in retail rates was approved by the
Maine Public Utilities Commission (MPUC) under the
terms of a four-year rate plan.
Consolidated operating revenues for the quarter
ended September 30, 1996 and 1995, are as follows:
1996 1995
(Dollars in Thousands) $ MWH $ MWH
Retail 10,425 113,381 9,936 111,765
Sales for Resale 460 10,664 1,590 26,344
Total Primary Sales 10,885 124,045 11,526 138,109
Secondary Sales 1,118 49,699 163 5,603
Other Revenues/Rev. Adjust. 581 576
Total Operating Revenues 12,584 173,744 12,265 143,712
-11-
Form 10-Q
PART 1. FINANCIAL INFORMATION
Item 2. Management's Analysis of Quarterly Income Statements
Results of Operations (Continued)
Primary sales in the third quarter of 1996 were
124,045 MWH, a decrease of 14,064 MWH from the
same period last year. Sales for resale decreased
15,680 MWH due to the loss of the Company's
largest wholesale customer, Houlton Water Company
(HWC). HWC began purchasing their energy from
Central Maine Power on January 1, 1996, resulting
from HWC's solicitation for competitive prices in
late 1994. In 1995, HWC represented 11.1% of the
Company's consolidated MWH sales and 8.4% of
consolidated operating revenues. Secondary sales
increased by 44,096 MWH, reflecting the
availability of Maine Yankee for approximately
one-half of the third quarter of 1996 and an
increase in power marketing activities. Maine
Yankee experienced an unscheduled six-week outage
during the third quarter of 1996, while the plant
was out of service for the entire quarter in 1995.
Retail revenues for the third quarter of 1996 were
$10,425,000 compared to $9,936,000 for the same
period of 1995, reflecting the new retail rates
effective January 1, 1996 and a 1.5% increase in
retail sales. For 1995, an element of revenues
was determined using seasonal fuel revenue
accounting associated with the prior fuel clause,
eliminated with the rate plan, which smoothed the
recognition of fuel expenses and the element of
revenues over the reconciliation period. Sales
for resale revenues decreased in 1996 due to the
loss of HWC as discussed above.
As discussed above, during approximately one-half
of the third quarter of 1996, secondary sales of
the Company's Wyman Unit No. 4 and Maine Yankee
entitlements for varying lengths of time were made
at prevailing market rates, representing the
Company's power marketing activities. Since Maine
Yankee was not available for the same period in
1995, secondary sales for the quarter were limited
to Wyman No. 4 entitlements.
-12-
PART 1. FINANCIAL INFORMATION FORM 10Q
Item 2. Management's Analysis of Quarterly Income Statements
Results of Operations (Continued)
For the third quarters ended September 30, 1996
and 1995, total operating expenses were
$12,448,000 and $10,849,000, respectively. The
changes in operating expenses and energy sources
are as follows:
Increase/(Decrease)
(Dollars in Thousands) $ MWH
Purchased Power Expenses
Maine Yankee 668 42,646
Wheelabrator-Sherman 777 5,064
NB Power (1,286) (50,013)
Other Purchases 121 8,275
280 5,972
Deferred Fuel 2,005
Generating Expenses (189) 22,889
Other Operation & Maint. Expenses 438
Depreciation and Amortization
Expenses (111)
Income Taxes (847)
Taxes Other than Income 23
Total 1,599 28,861
Maine Yankee was out of service for all of the
third quarter of 1995, while it operated at a 90-
percent level of operation for approximately one-
half of the third quarter of 1996. Reference is
made to the Company's 1995 Annual Report,
"Analysis of Financial Condition and Review of
Operations - 1995, Maine Yankee", for further
discussion of the 12-month outage for sleeving
repairs to the plant's steam generator tubes. For
an update on Maine Yankee, please see the
following section titled, "Maine Yankee Status".
The 42,646 MWH increase in Maine Yankee
production, a 25,331 MWH increase in hydro
production (144% of normal for the third quarter
of 1996) and a 5,064 MWH increase in purchases
from Wheelabrator-Sherman allowed the Company to
reduce purchases from NB Power by 50,013 MWH.
These increases also provided the energy for the
44,096 MWH increase in secondary sales mentioned
above. During July and August of 1996, with
cooler temperatures assisting their production, WS
increased production over the comparable period
for 1995, resulting in a decrease in 1996
-13-
PART 1. FINANCIAL INFORMATION Form 10-Q
Item 2. Management's Analysis of Quarterly Income Statements
Results of Operations (Continued)
earnings of approximately $.16 per share compared to the
same nine-month period of 1995. However, since WS
will reach its contractual limit in early October,
purchases then will be substantially lower than
for the same month last year, and will result in
a positive impact of $.16 per share for October
earnings. With the implementation of the rate
plan, the change in deferred fuel expenses
reflects the elimination for 1996 of the fuel
revenue accounting associated with the prior fuel
clause, as discussed previously and in the "Legal
Proceedings" section of this Form 10-Q, item 1(b).
During the third quarter of 1996, under the same
rate plan, the Company has deferred $375,000 ($1.5
million annually) of its Wheelabrator-Sherman
purchased power costs. Generating expenses
decreased by $189,000, primarily due to the Steam
Units at Caribou being placed on inactive status
on January 1, 1996. See "Caribou Units" below for
further discussion. Other operation and
maintenance expenses increased by $438,000 with
$183,000 of the increase in wheeling expenses
representing increased power marketing activities
and an additional $131,000 in transmission and
distribution expenses, primarily due to increased
tree trimming activities.
Maine Yankee Status
Reference is made to the Company's 1995 Annual
Report, "Analysis of Financial Condition and
Review of Operations - 1995, Maine Yankee", for
discussion of the 12-month outage for sleeving
repairs to the plant's steam generator tubes and
Maine Yankee's return to service at 90% of the
plant's capacity on January 22, 1996.
On June 7, 1996, the Nuclear Regulatory Commission
(NRC) formally notified Maine Yankee that it
planned to conduct an "Independent Safety
Assessment" (ISA) of the Maine Yankee plant in
conjunction with the State of Maine to provide an
independent evaluation of the safety performance
of Maine Yankee and as a "follow-up" to the NRC's
Office of Inspector General (OIG) report. The NRC
stated that the overall goals and objectives of
the ISA were: "(a) provide an independent assessment
of conformance to the design andlicensing basis; (b)
provide an independent assessment of operational safety performance;
(c) evaluate the effectiveness of license self-
-14-
PART 1. FINANCIAL INFORMATION Form 10-Q
Item 2. Management's Analysis of Quarterly Income Statements
Results of Operations (Continued)
assessments, corrective actions and improvement
plans and; (d) determine root cause(s) of safety
significant findings and conclusions." The NRC
further informed Maine Yankee that the ISA would
be carried out of a team of NRC personnel and
contractors who were "independent of any recent or
significant involvement with the licensing,
regulation or inspection of Maine Yankee."
On October 7, 1996, the NRC released the ISA
report, which dealt with each of its stated goals.
In evaluating Maine Yankee's conformance to its
licensing basis, the report concluded that Maine
Yankee was in general conformance with its
licensing basis although significant items of
nonconformance were identified.
With respect to conformance to the plant's design
basis, the ISA report found that the quality and
availability of design-basis information were good
overall. The report concluded that despite
uncorrected and previously undiscovered design
problems specified in the report, the design basis
and compensatory measures adequately supported
operation of the plant at a power level of 2440
MWth (the 90-percent operating level). The ISA
team further stated in its report that because of
issues relating to the containment spray pumps and
the component cooling water system, it could not
conclude that the design basis supported operation
of the plant at 2700 MWth (the 100-percent
operating level).
Addressing its operational safety goal, the ISA report
stated that overall, performance in the area of operations
was very good. The report identified specific operational
strengths in operator performance during routine and
transient operating conditions, shift turnovers, use of
risk Information, and the involvement of managers in
day-to-day operations. Weaknesses noted involved the need
for operators to work around certain problems with Maine
Yankee equipment during shutdown and startup, manual actions
under certain transient operating conditions required by
compensatory measures intended to address design weaknesses,
log-keeping, and reviews of events following a trip to one
of Maine Yankee's instruments or systems. The report also
concluded that Maine Yankee maintenance was good overall,
but that testing was weak.
-15-
PART 1. FINANCIAL INFORMATION Form 10-Q
Item 2. Management's Analysis of Quarterly Income Statements
Results of Operations (Continued)
Particular maintenance strengths were described.
The report stated that although the condition of Maine
Yankee material was considered good overall, a decline
in material condition following the 1995 outage for
sleeving the steam-generator tubes and other significant
material condition deficiencies were noted by the ISA
team. With respect to testing, the report stated that
the team identified inadequacies in the scope and rigor
of testing and in the evaluation of test results. The
ISA report also addressed the quality of engineering work,
concluding that it was mixed, but good overall, and
indicated specific strengths and weaknesses in that area.
After evaluating Maine Yankee's self-assessments,
corrective actions and improvement plans as part of the
ISA, the ISA team identified weaknesses in the areas of
problem identification and resolution. The report noted
that while Maine Yankee self-assessments were generally
good, they occasionally failed to identify weaknesses or
incorrectly characterized the significance of the findings.
Further, the report stated that some corrective actions
were not timely and others were ineffective, leading to
repetitive problems. The report recognized the general
effectiveness of planning, but stated that some weaknesses
in implementing improvement plans existed due to resource
limitations.
The ISA team report concluded that overall performance at
Maine Yankee was adequate for operation of the plant, and
that the deficiencies noted in the report stemmed from two
closely related root causes. The report indicated that
the root causes were: (1) that economic pressure to be a
low-cost energy provider that limited available resources
to address corrective actions and some improvements; and
(2) that a questioning culture was lacking, which had re-
sulted in a failure to identify or promptly correct
significant problems in areas perceived by Maine Yankee
to be of low safety significance.
The ISA report also identified certain deficiencies and
stated that they would be addressed as part of a separate
NRC follow-up to clarify NRC expectations for the nuclear
power industry. On October 10, 1996, Maine Yankee re-
ceived from the NRC a
-16-
PART 1. FINANCIAL INFORMATION Form 10-Q
Item 2. Management's Analysis of Quarterly Income Statements
Results of Operations (Continued)
generic letter that had been sent to substantially all
nuclear plant licensees in the United States requesting
information to be used to verify compliance with the
terms and conditions of the plant's operating license
and NRC regulations, and that the plant's updated final
safety analysis report properly describes the facilities,
as well as to determine if other inspection activities or
enforcement action should be taken. The written response
must be under oath or affirmation and must be submitted
within 120 days of receipt of the generic letter. Maine
Yankee believes that it will submit a response satisfying
the requirements of the NRC's request within the allotted
time period.
A letter to Maine Yankee from Shirley Ann Jackson, the Chair
of the NRC, accompanying the ISA report noted that overall
performance at Maine Yankee was considered adequate for
operation, but that a number of significant weaknesses and
deficiencies identified in the report would result in
violations. The letter directed Maine Yankee to provide to
the NRC its plan for addressing the root causes of the
deficiencies identified by the ISA and stated that the NRC's
Region I and Office of Nuclear Reactor Regulation will be
responsible for overseeing corrective actions relating to
issues identified in the ISA report and for taking any
appropriate enforcement actions against Maine Yankee. The
NRC held a public meeting on October 10, 1996, in Wiscasset,
Maine, at which it discussed the conclusions of the ISA and
responded to questions.
The current allowed operating level for Maine Yankee may be
limited to 90% of capacity until completion of the plant's
next planned refueling outage, which is now scheduled for
September, 1997. The Company cannot predict, however,
whether or when Maine Yankee will attain a 100-percent
operating level, or the results of the ongoing NRC and U.S.
Department of Justice investigations and reviews.
On July 20, 1996, Maine Yankee brought the plant off line to
add pressure relief capacity to the primary component cooling
system ("PCCS"). The need to add this relief capacity was
determined during a comprehensive review by Maine Yankee of
plant systems and equipment. During this review, Maine Yankee
-17-
PART 1. FINANCIAL INFORMATION Form 10-Q
Item 2. Management's Analysis of Quarterly Income Statements
Results of Operations (Continued)
found a possible inadequacy in the ability of the PCCS to
allow sufficient pressure to be relieved from the PCCS under
design-basis postulated accident conditions. The plant
remained shut down following the discovery that a high
pressure safety injection pump would not auto-start from
the stand-by mode in response to a safety injection
actuation signal. A relay was found missing, which led
to an expedited review of safety-related logic circuits
to determine if there was any other testing that was re-
quired before start-up. On September 2, 1996, the plant
returned to service, attaining the 90 percent capacity
limit. Purchase power replacement costs are approximately
$500,000 to $600,000 per month while the plant is out of
service.
Caribou Units
Reference is made to the Company's Form 8-K dated July 13,
1995 in which the Company reported that, at a regular
meeting on July 7, 1995, the Board of Directors authorized
placing on inactive status Steam Units 1 and 2 of the
Company's Caribou Generating Facility in Caribou, Maine.
The Company inactivated the Units on January 1, 1996 and
expects that they will remain inactive for five years or
longer. These two units, which represent 23 MW of capacity,
have become surplus to the Company's needs due to the closure
of Loring Air Force Base and the loss in 1996 of the Company's
largest customer, the Houlton Water Company. During the Units'
inactive period, the plant equipment will be protected and
maintained by the installation of a dehumidification system
that will permit the plant to return to service in
approximately six months.
Placing Steam Units 1 and 2 on inactive status will save the
Company approximately $3.5 million over the next five years.
These savings result primarily from a savings in operation and
maintenance expense. The Company eliminated 12 positions at
the plant and conducted a voluntary early retirement program
that avoided involuntary termination of employees whose
positions at the units have been eliminated. The expenses of
the voluntary early retirement plan of approximately $231,000,
net of income taxes, as well as the expenses to lay-up the
Steam Units will be amortized over five years in accordance
with the rate plan. The rate plan allows the Company to
-18-
PART 1. FINANCIAL INFORMATION Form 10-Q
Item 2. Management's Analysis of Quarterly Income Statements
Results of Operations (Continued)
continue rate base treatment for unrecovered plant costs and
depreciation on the Caribou Steam Units, which had a net book
value of approximately $718,000 as of January 1, 1996.
Steam Unit No. 1 went into operation in the early 1950s and
Unit No. 2, in the mid 1950s. The Company still has a diesel
generation station of approximately 7 MW and a hydro facility
of approximately 1 MW and will continue to employ 11 employees
at the Caribou facility.
Financial Condition
The accompanying Statements of Consolidated Cash Flows reflect
the Company's liquidity and the net cash flows generated by or
required for operating, financing and investing activities.
For purposes of the Statements of Consolidated Cash Flows, the
Company considers all highly liquid securities to be cash
equivalents.
Net cash flows from operating activities were $5,200,000 for
the first nine months of 1996. The $2,913,000 increase in
net cash flow from operating activities reflects the
additional replacement power costs required in 1995 due to
the extended resleeving outage at Maine Yankee. In 1991,
$10,000,000 of tax-exempt bonds were issued and in June,
1996, were refinanced with a new $15,000,000 issue, with the
remaining $5,000,000 deposited with the trustee to be
withdrawn based on qualified property additions and for
issuance costs of $250,000. See "New Financing" below for
further discussion. For the period, $2,539,000 was invested
in electric plant, $2,232,000 was paid in dividends and
$1,315,000 was used to reduce long-term debt. Short-term
borrowings increased by $1,600,000 for working capital and
construction requirements. A draw down from the tax-exempt
bond proceeds of approximately $2 million based on qualifying
property is expected between late November and early January
to offset these short-term borrowings.
For the nine months ended September 30, 1995, net cash flows
from operating activities were $2,287,000. For the first nine
months of 1995, the Company invested $2,721,000 in electric
-19-
PART 1. FINANCIAL INFORMATION Form 10-Q
Item 2. Management's Analysis of Quarterly Income Statements
Results of Operations (Continued)
plant, paid $2,232,000 in dividends, and reduced long term
debt by $65,000. Short-term borrowings of $1 million were
required to fund the previously mentioned replacement power
purchases during the Maine Yankee outage.
See "Legal Proceedings", paragraph 1(b) of this Form 10-Q
for a description of the multi-year rate plan approved by
the Maine Public Utilities Commission in November, 1995,
effective January 1, 1996. The rate plan will assist the
Company in dealing with the economic uncertainties that
lay ahead with the loss of Loring and Houlton. The Plan
provides stable, predictable rates for our customers,
economic development rates to encourage investment in our
service territory, and competitive returns for our share-
holders.
New Financing
On June 19, 1996, the Maine Public Utilities Financing Bank
(MPUFB) issued $15 million of its tax-exempt bonds due April 1,
2021 (the "1996 Series") on behalf of the Company. The pro-
ceeds of the new 1996 Series were used to refund the $10
million 1991 tax-exempt Series through the payment of a
refunding note from Fleet Bank of Maine and provides $5 million
for the acquisition of qualifying property. Pursuant to the
long-term note issued under a loan agreement between the
Company and the MPUFB, the Company has agreed to make payments
to the MPUFB for the principal and interest on the bonds.
Concurrently, pursuant to a letter of credit and reimbursement
agreement, the Company caused a Direct Pay Letter of Credit
for an initial term of three years to be issued by the Bank
of New York for the benefit of the holders of such bonds.
To secure the Company's obligations under the letter of credit
and reimbursement agreement, the Company issued a second
mortgage bond to the Bank of New York, as Agent, under the
reimbursement agreement, in the amount of $15,875,000. The
Company has the option of selecting weekly, monthly, annual
or term interest rate periods for the 1996 Series. The
initial interest period selected by the Company was weekly
and, after considering issue costs and credit enhancement
fees, the effective interest rates to date have ranged from
4.61% to 5.96% per annum. Please see further
-20-
PART 1. FINANCIAL INFORMATION Form 10-Q
Item 2. Management's Analysis of Quarterly Income Statements
Results of Operations (Continued)
discussion in Footnote 4 of the financial statements
accompanying this Form 10-Q.
-21-
FORM 10-Q
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
(a) Maine Public Utilities Commission, Re: Electric Utility
Industry Restructuring Study, Docket No. 95-462.
In 1995, the Maine Legislature passed Resolve 89 "To
Require a Study of Retail Competition in the Electric
Utility Industry" (the "Resolve"), to begin a process
for developing recommendations on the future structure
of the electric utility industry in Maine. The process
included the appointment of a Work Group on Electric
Utility Restructuring to develop a plan for the orderly
transition to a competitive market for retail purchases
and sales of electricity. The Company participated in
this Work Group, which was unable to reach a consensus
on a recommended plan by its reporting deadline.
The Resolve also directed the Maine Public Utilities
Commission (MPUC) to conduct a study to develop at
least two plans for the orderly transition to retail
competition in the electric utility industry in Maine
and to submit a report of its findings by January 1,
1997. One plan would be designed to achieve "... full
retail market competition for purchases and sales of
electric energy by the year 2000" and the other to
achieve a more limited form of competition. The
Resolve also stated that the MPUC's findings would
have no legal effect, but would "... provide the
Legislature with information in order to allow the
Legislature to make informal decisions when it
evaluates these plans."
On December 12, 1995, the MPUC issued a Notice of
Inquiry (the "Notice") initiating its study. In the
Notice, the MPUC solicited detailed proposals and plans
for achieving retail competition in Maine by the year
2000 and requested the proposals include specific
plans for an orderly transition to a more competitive
market. The Notice required that plans and proposals
be filed with the MPUC by interested parties no later
than January 31, 1996, and outlined a schedule calling
for submittal of a final report to the Legislature in
December, 1996.
On January 30, 1996, the Company filed its restructuring
proposal with the MPUC. The major elements of this
proposal are:
-22-
FORM 10-Q
PART II. OTHER INFORMATION
Item 1. Legal Proceedings - Continued
(a) The separation of the Company's generation
assets (including contracts and entitlements) from
its transmission and distribution assets. The
Company suggested this separation could be
accomplished by either a functional separation of
generation from distribution and transmission
within the Company's existing corporate structure
or by separating generation, on the one hand, and
distribution and transmission, on the other, into
two wholly-owned subsidiaries. The Company
strongly opposes any recommendation that it be
required to divest itself of its generation assets.
(b) The economic and resource planning regulation
of generation would cease. The FERC would continue
to regulate transmission, and distribution would
remain a franchised monopoly subject to continued
regulation by the MPUC. The owner of the
distribution system would be obligated to connect
all willing customers.
(c) If certain necessary changes in the operation
and management of the regional transmission grid
are in place, all retail customers in Maine would,
by the year 2000, be entitled to purchase electric
energy directly from any entity that wished to
supply it to them.
(d) The Company would be entitled to full recovery
of all its stranded costs. This recovery would be
accomplished by a charge on the distribution system
that would apply to all retail customers. In its
filing, the Company estimates that its stranded
costs could be as high as $68 million. This amount
consists primarily of the above-market costs of the
Company's contract with Wheelabrator-Sherman, a
non-utility generator, estimated at $44 million and
deferred regulatory assets, such as its Seabrook
investment of $24 million.
The Company's proposal, however, was only one of over
a dozen received by the MPUC in response to its Notice,
some of which take positions on these matters that vary
substantially from the Company's.
On July 19, 1996, the MPUC issued its Draft Plan in this
matter, which, in its own terms, represents the MPUC's
"preliminary view" on how to restructure Maine's electric
-23-
FORM 10-Q
PART II. OTHER INFORMATION
Item 1. Legal Proceedings - Continued
utility industry. The Draft Plan recommends the
following:
. As of January, 2000, all Maine consumers would
have the option to choose an electric power supplier.
. As of January, 2000, Maine would not regulate,
as public utilities, companies producing or selling
electric power.
. Regulated public utilities would continue to
provide electric transmission and distribution
services.
. As of January, 2000, the Company, Central
Maine Power Company (CMP) and Bangor Hydro-Electric
Company (BHE), the State's three largest electric
utilities, would be required to structurally
separate their generation assets and functions from
transmission and distribution functions. CMP and
BHE would be required to fully divest themselves
of their generation assets by 2006. The Draft Plan
does not recommend generation divestiture for the
Company. Instead, the MPUC requested additional
comment "on whether MPS should be required to
divest its generation assets as described [in this
Draft Plan], by another method, or not at all."
. All contracts between the utilities and any
qualifying facilities under PURPA will remain with
the transmission and distribution companies.
. The utilities should be provided a reasonable
opportunity to fully recover its generation-related
stranded costs. All of the Company's anticipated
stranded costs are generation-related.
The MPUC has received numerous comments on its Draft Plan.
These comments could result in the MPUC's modification of
its preliminary recommendations. Moreover, because the
MPUC's final recommendation will not have any binding
legal effect, this issue must ultimately be resolved by
the Maine Legislature. Many parties to this proceeding
have taken positions that vary
-24-
FORM 10-Q
PART II. OTHER INFORMATION
Item 1. Legal Proceedings - Continued
substantially from those set forth in this Draft
Plan and those parties can be expected to advocate
their positions before the Legislature. The
Company cannot, therefore, predict what form the
restructuring of Maine's electric utility industry
will ultimately take or what effect that re-
structuring will have on the Company's business
operations or financial results.
(b) Multi-year Rate Plan is Approved for the Company by
the MPUC in Maine Public Service Company Re: Proposed
Increase in Retail Rates, MPUC Docket No. 95-052
On May 1, 1995, Maine Public Service Company filed with
the Maine Public Utilities Commission a proposed in-
crease in the rates it charges its retail customers.
The Company at the same time filed a five-year rate
plan requesting new rates beginning in January, 1996
as detailed below. Reference is made to the Company's
Form 10-Q for the quarter ended June 30, 1995 for a
complete description of the Company's filed rate plan.
After extensive negotiations, the Company, the MPUC
Staff and the Public Advocate filed a Stipulation
with the Commission on November 6, 1995, which
established a four-year rate plan for the Company.
The one remaining party to this proceeding, McCain
Foods, Inc., opposed this Stipulation. After a
hearing on November 13, 1995, the MPUC approved this
Stipulation over the objection of McCain Foods, Inc.
Under the terms of the Stipulation, the Company has
the right to receive the following increases:
January 1, 1996 4.4% $2.1 million
February 1, 1997 2.9% 1.4 million
February 1, 1998 2.75% 1.4 million
February 1, 1999 2.75% 1.4 million
These increases will be subject to increases or decreases
resulting from the operation of the profit-sharing
mechanism, as well as the mandated costs and plant outage
provisions described below. The Company agreed that it
will seek no other increases, for either base or fuel
rates, except as provided under the terms of the rate
-25-
FORM 10-Q
PART II. OTHER INFORMATION
Item 1. Legal Proceedings - Continued
plan. There will be no fuel clause adjustments
during the term of the plan.
The Company also agreed to write off, in 1995, and
not collect in retail rates the following amounts:
(a) $4,845,812, net of income taxes, of its
investment in Seabrook previously allocated
to wholesale sales.
(b) $1,390,000, net of income taxes, in other
plant investment, i.e. rate base, except
transmission plant, previously associated with
the wholesale customers.
(c) $3,500,000 ($2,104,000, net of income taxes)
in deferred fuel.
The total amount of the write-offs, net of income taxes,
in 1995 are approximately $8,340,000, or approximately
$5.16 per share of common stock.
As a condition of the Stipulation, the Company requested
waivers for interest coverage tests under its revolving
credit arrangement and the Letter of Credit supporting
the public utility revenue bonds, 1991 series. Unless
these write-offs were considered extraordinary for
purposes of the interest coverage tests, the Company
would have been in violation of these interest coverage
tests. The waivers were received from the various
lenders prior to the MPUC's issuance of its order in
this proceeding.
The Company will also be permitted to defer an amount
of $1.5 million annually of the costs of the Wheelabrator-
Sherman (WS) purchases over the term of the rate plan.
The approved rate plan provides that the Company can seek
recovery of this deferred amount (up to a total of $6
million) in rates beginning in the year 2001, after the
current term of the WS contract has expired. The
Company will further amortize over the four years of the
rate plan, $300,000, net of income taxes, in deferred fuel
with the remainder, approximately $1.3 million, net of
income taxes, being deferred until the year 2000.
-26-
FORM 10-Q
PART II. OTHER INFORMATION
Item 1. Legal Proceedings - Continued
The approved rate plan further provides for the
following treatment of the Maine Yankee steam
generator sleeving costs: the Company will
amortize its share of these costs in equal
amounts over a five-year period beginning on
January 1, 1996. At the expiration of the rate
plan, the remaining one-fifth of the costs will
be amortized in 2000 subject to rate treatment
at that time.
The approved rate plan contains a profit-sharing
mechanism based upon a target return of equity (ROE)
of 11%, calculated according to retail ratemaking
mechanisms. This profit-sharing mechanism will apply
only to the last two rate increases scheduled to
occur on February 1, 1998 and February 1, 1999. As
part of this review process, the target ROE will be
subject to adjustment based on an index by averaging
over a twelve-month period the dividend yields on
Moody's group of 24 electric utilities and Moody's
utility bond yields. The profit-sharing mechanism
works as follows:
If the Company's ROE exceeds the target ROE by less
than 300 basis points, this gain accrues entirely
to shareholders. Similarly, any deficiency of up
to 300 basis points below the target ROE is borne
entirely by the shareholders.
All deficiencies of 300 or more basis points below the
target ROE will be shared equally by share-holders and
customers. All earnings of 300 or more basis points
above the target ROE must first be applied to reduce
any of deferred WS costs described above. Any re-
maining excess earnings will be shared equally by
customers and shareholders.
The plan also allows the Company to terminate the rate
plan and file for rate increases under traditional rate
application procedures if its earnings fall 500 or more
basis points below the target ROE during any twelve-
month period during the term of the plan.
The method agreed to by the parties for measuring earned
ROE for the purpose of the profit-sharing mechanism and
rate termination provision described above, allocates
various revenues and expenses between the wholesale
and retail jurisdictions using allocators that, in part,
-27-
FORM 10-Q
PART II. OTHER INFORMATION
Item 1. Legal Proceedings - Continued
reflect the Company's 1994 allocations. With the loss
of sales to Houlton Water Company in 1996, the Company
estimates that the use of the agreed-upon allocators
will produce a calculation of earnings for the profit-
sharing and termination mechanisms that could be as
much as 400 basis points above the Company's actual
financial ROE. Because of this disparity, the
Stipulation provides that the agreed-upon allocation
methodology will not apply if the use of those
allocators will require the Company to write off any
additional assets in accordance with Generally Accepted
Accounting Principles (GAAP). In that event, the
parties have agreed to develop a different method for
calculating profit-sharing and termination that will
not require the Company to write off any additional assets.
The plan also provides that if either Maine Yankee or
WS cease operation for more than six months, the Company
shall be allowed to adjust its allowed rate increases by
50% of the net costs or net savings resulting from the
outage, together with any carrying costs on the balance
deferred. Any net costs or net savings during the first
six months of the outage would accrue entirely to
shareholders.
The plan further contains a mechanism for allocating the
savings resulting from any restructuring of the WS
contract during the term of the plan. Any savings would
be allocated first to the WS deferred costs accumulating at
$1.5 million annually, then to the deferred fuel balance
as of December 31, 1995 being deferred until 2000, next to
eliminate any on-going WS deferrals and finally, any
savings that remain will be allocated 95% to customers
and 5% to shareholders.
The plan provides that the Company can flow through to
customers at the time of the scheduled rate increases,
increases or decreases resulting from certain mandated
costs, such as tax or accounting changes, but not costs
resulting from natural disasters. To qualify, a mandated
cost must receive MPUC approval, must be beyond the
control of the Company's management, must effect the
Company specifically or the electric utility generally
and must exceed $300,000 in annual revenue requirements.
-28-
FORM 10-Q
PART II. OTHER INFORMATION
Item 1. Legal Proceedings - Continued
The Stipulation also provides for a number of accounting
orders. Among these are orders: permitting the Company
to amortize deferred post-retirement benefits other than
pension (SFAS 106) expenses in equal amounts over a
ten-year period beginning January 1, 1996, along with the
recovery of current year SFAS 106 costs; permitting the
Company to continue rate base treatment for unrecovered
plant costs and depreciation on the Caribou Steam Units
as well as the deferral and amortization over five years
of the reduction in force expenses (including pension
expenses under SFAS 88) resulting from the closing of
those units; and continued deferral and amortization of
replacement power and capacity costs associated with
Maine Yankee scheduled outages. Finally, the Stipulation
clarifies that the rate plan is not deregulation for
accounting purposes and provides for the continuing
recovery in rates of certain "regulatory assets", such as
the retail portion of the Company's Seabrook investment,
previously allowed by the MPUC.
On January 2, 1996, McCain Foods, Inc., which had objected
to the Stipulation, appealed the MPUC's approval of the
rate plan to the Maine Supreme Judicial Court. This action
was docketed as PUC 96-13. On March 20, 1996, the Company
and McCain Foods filed with the Commission a Power Purchase
Agreement under which McCain agreed to purchase all its
electrical requirements from the Company through 2000. On
April 29, 1996, the MPUC approved the Agreement and McCain
dismissed its appeal shortly thereafter.
In addition to the four-year rate plan, the MPUC, under this
docket, also approved the Company's proposal to develop
flexible rates to retain or attract new customers. On
October 23, 1995, the Company implemented a reduced Rate AH
for residential electric space heat. Customers who have a
permanent electric space heat system that supplies at least
50% of their heating requirements have been offered a
discount up to 40% from October to April.
On November 27, 1995, the MPUC approved two new rates that
became effective December 1, 1995. The first, Rate F,
provides farmers with a discounted price for electricity
used in storage facilities, reducing their
-29-
FORM 10-Q
PART II. OTHER INFORMATION
Item 1. Legal Proceedings - Continued
winter electric rate ten percent from November through
March. The second, Rate EDR, an economic development
rate, provides a multi-year discount in the cost of
electric service for large commercial and industrial
customers who create new electrical load. This reduced
rate should encourage development in our electrical
service territory by providing an incentive rate while
a new business gets established or an existing business,
meeting certain criteria, completes expansion. Depending
on eligibility, the discount offered will range from 20%
the first year to 5% in the fourth year. After the four-
year period, EDR customers will be billed under the
Company's standard electric rates.
(c) Peoples Heritage Bank v. Maine Public Service Company
U.S. District Court (D. ME) Civil Action No. 95-0180-B
On September 18, 1995, Peoples Heritage Bank filed
against the Company a civil action for declaratory and
monetary relief seeking recovery for response costs,
damages and attorneys fees incurred because of the
release of hazardous substance at a site in Presque Isle,
Maine. In 1992, Peoples Heritage purchased the property
and shortly thereafter discovered that the soil at the
site was contaminated with polychlorinated biphenyls
(PCBs) which it now alleges originated with two
electrical transformers placed on the site by the Company.
Peoples Heritage claims to have spent in excess of
$250,000 to remove the PCB contaminated soil and seeks
reimbursement of this amount.
The suit is brought pursuant to the Comprehensive
Environmental Response, Compensation and Liability Act of
1980 (CERCLA), the Federal Declaratory Judgment Act and
under common law grounds of strict liability for abnormally
dangerous activities, negligence and trespass.
The Company has denied liability in this matter but cannot
predict the outcome of this action.
-30-
FORM 10-Q
PART II. OTHER INFORMATION
Item 1. Legal Proceedings - Continued
(d) Maine Public Service Company, Request For Open Access
Transmission Tariff, FERC Docket No. ER 95-836-000.
On March 31, 1995, the Company filed an open access
transmission tariff with the Federal Energy Regulatory
Commission (FERC). This tariff provides fees for
various types and levels of transmission and
transmission-related services that are required by
transmission customers. The tariff, as filed,
substantially increases some of the fees for
transmission services and provides separate fees for
various transmission-related services. On May 31, 1995,
the FERC approved the filed tariff, subject to refund.
The filing has been vigorously contested by the Company's
wholesale customers. In April, 1996, the FERC issued
Order 888, a final rule on open transmission access and
stranded cost recovery. As a result, the Company refiled
its tariff on July 9, 1996 to comply with the Order.
Utilities are required to file tariffs under which they
would provide transmission services, comparable to that
which they provide themselves, to third parties on a
non-discriminatory basis. A decision by the FERC is not
expected until later in 1996. The Company cannot predict
FERC's ultimate decision in this matter.
(e) Maine Public Service Company, Proposed Increase in Rates
(Rate Design), MPUC Docket No. 95-052.
On June 15, 1995, the MPUC issued an order bifurcating the
Company's request for rate design from the revenue re-
quirement portion of this docket (see item (b) above).
Based upon marginal cost of service principles, the
Company has proposed a substantial redesign of its current
rates. For example, under the Company's proposed rates
for large industrial customers would have decreased from
their current level by nearly 8%, while rates for
residential customers would have increased by over 8%.
The Company's proposals were vigorously contested by the
MPUC Staff and the Public Advocate, who propose only a
small decline for large industrial customers and a very
minor increase for residential. Hearings were held on
this matter before the MPUC on March 14 and 15, 1996.
-31-
FORM 10-Q
PART II. OTHER INFORMATION
Item 1. Legal Proceedings - Continued
On June 26, 1996, the MPUC issued its Order in this
matter. The MPUC found that, despite some infirmities
in the Company's supporting data, the Company was en-
titled to a more substantial reallocation of its rates
than advocated by the MPUC Staff and Public Advocate.
As a result, rates for large industrial customers will
decrease by approximately 4.5%, while rates for
residential and commercial customers will increase by
approximately 1% and 3%, respectively. These changes
became effective June 29, 1996.
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits - none.
(b) Reports on Form 8-K - none.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
MAINE PUBLIC SERVICE COMPANY
(Registrant)
Date: November 12, 1996 Larry E. LaPlante
Larry E. LaPlante, Vice President
Finance, Administration and Treasurer
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