SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1995. Commission File No. 1-3429
Maine Public Service Company
(Exact name of registrant as specified in its charter)
Maine 01-0113635
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
209 State Street, Presque Isle, Maine 04769
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 207-768-5811
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
Common Stock, $7.00 par value American Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
Title of Class
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X . No .
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
Aggregate market value of the voting stock held by non-affiliates at March
15, 1996: $31,536,375.
The number of shares outstanding of each of the issuer's classes of common
stock as of March 15, 1996.
Common Stock, $7.00 par value - 1,617,250 shares
DOCUMENTS INCORPORATED BY REFERENCE
1. The Company's 1995 Annual Report to Stockholders is incorporated by
reference into Parts I, II and IV.
2. The Company's definitive proxy statement, to be filed pursuant to
Regulation 14A no later than 120 days after December 31, 1995, which is
the end of the fiscal year covered by this report, is incorporated by
reference into Part III.
(Page 1 of 39 pages)
PART I Form 10-K
Item 1. Business
General
The Company was originally incorporated as the Gould Electric
Company in April, 1917 by a special act of the Maine legislature. Its
name was changed to Maine Public Service Company in August, 1929. Until
1947, when its capital stock was sold to the public, it was a subsidiary
of Consolidated Electric & Gas Company. Maine and New Brunswick
Electrical Power Company, Limited, the Company's wholly-owned Canadian
subsidiary (the "Subsidiary") was incorporated in 1903 under the laws of
the Province of New Brunswick, Canada. The properties of the Company
and Subsidiary are operated as a single integrated system.
The Company engages in the production, transmission and
distribution of electric energy to retail and wholesale customers in all
of Aroostook County and a small portion of Penobscot County in northern
Maine. Geographically, the service territory is approximately 120 miles
long and 30 miles wide, with a population of approximately 90,000.
The service area of the Company includes one of the most important
potato growing and processing sections in the United States. In
addition, the area produces wood products, principally pulp wood for
paper manufacturing.
The Subsidiary is primarily a hydro-electric generating company.
It owns and operates the Tinker hydro plant in New Brunswick, Canada,
and sells to the Company the energy not needed to supply its wholesale
New Brunswick customer. During 1995, sales to the Company amounted to
92,538 MWH out of the 116,513 MWH generated for sale at Tinker.
The Company and the Subsidiary's net energy production, including
generated and purchased power, required to serve all customers, was
661,700 MWH for the twelve months ended December 31, 1995. The
following table sets forth the sources from which the Company and the
Subsidiary obtained their power requirements in 1995.
1995 Megawatt-hours Generated
Sources of Power or Purchased
Net Generation:
Hydro 121,252
Steam 22,867
Diesel 1,046
Total 145,165
Purchases:
Nuclear Generated 9,718
Fossil Fuel Generated 382,530
Biomass Generated 125,736
Total 517,984
Inadvertent Received (1,449)
Total System 661,700
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PART I Form 10-K
As of June 4, 1984, the Company entered into a Power Purchase
Agreement with Sherman Power Company, which assigned its interest in the
Agreement to Wheelabrator-Sherman Energy Company, formerly Signal-
Sherman Energy Company, (a cogenerator), for approximately 18 MW of
capacity which began July, 1986. The contract expires in 2001.
Financial Information about Foreign and Domestic Operations
Financial Information Relating
To Foreign and Domestic Operations
(In Thousands of U.S. Dollars)
1995 1994 1993
Revenues from
Unaffiliated Customers:
Company-United States 54,553 57,600 59,886
Subsidiary-Canada 694 706 690
Intercompany Revenues:
Company-United States 719 646 649
Subsidiary-Canada 1,877 1,824 2,312
Operating Income:
Company-United States 3,997 7,932 8,347
Subsidiary-Canada 367 387 579
Income before Extraordinary Items
Company-United States 503 4,469 4,687
Subsidiary-Canada 418 377 614
Extraordinary Items, Net of Tax
Company-United States (6,236) - -
Net Income (Loss)
Company-United States (5,733) 4,469 4,687
Subsidiary-Canada 418 377 614
Identifiable Assets:
Company-United States 106,906 115,912 118,323
Subsidiary-Canada 6,936 6,463 6,613
The identifiable assets, by company, are those assets used in each
company's operations, excluding intercompany receivables and
investments.
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PART I Form 10-K
Source of Revenues
In 1995, consolidated operating revenues totaled $55,246,626.
The percentages of revenues derived from customer classes are as
follows:
%
Residential 34.5
Small Commercial and Industrial 28.5
Large Commercial and Industrial 17.1
Public Authorities 1.6
Sales to Wholesale Customers for Resale 12.6
Other Sales and Other Revenues 5.7
Total 100.0
Sales to wholesale customers for resale includes three wholesale
customers that entered into various contracts with the Company. These
contracts contained rates lower than those typically allowed under
FERC's traditional ratemaking. Capitalizing on the availability of low
cost power in New England, the wholesale customers issued a request for
a proposal in September, 1994 for their purchased power requirements
effective January 1, 1996. Houlton Water Company (Houlton), the
Company's largest customer, selected an offer from another utility, and
began taking service from that utility starting January 1, 1996. In
1995, sales to Houlton, under an earlier contract, represented 11.1% of
the Company's consolidated MWH sales and 8.4% of consolidated operating
revenues. The remaining wholesale customers, Van Buren Light and Power
District (Van Buren) and Eastern Maine Electric Cooperative, Inc. (EMEC)
selected the Company's six-year proposal, which cannot be terminated
before December 31, 1998. The new rates for these two customers were
effective January 1, 1995. Van Buren and EMEC represented 4.3% of
consolidated MWH sales and 3.0% of consolidated operating revenues.
The closing of Loring Air Force Base (Loring) was completed in
September, 1994, and accounts for the small percentage of total revenues
from Public Authorities. In 1993, when the Base was operating for the
entire year, Loring accounted for 7.3% of consolidated MWH sales and
5.7% of consolidated operating revenues. A civilian authority is now
the caretaker of the facility charged with finding tenants. The
Department of Defense has established a Defense Finance and Accounting
Service Center, which will employ approximately 600 people when fully
implemented. In addition, Loring has been chosen as a Jobs Corp Center,
which is scheduled to open in 1996.
The Company has offered load retention rates to several major
industrial customers. These customers have the option to self-generate;
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PART I Form 10-K
however, the Company believes it can compete with self-generation. The
Company's proposals have been accepted by two major customers, pending
execution of the final contracts. Any load retention rates must be
approved by the Maine Public Utilities Commission.
On November 13, 1995, the Maine Public Utilities Commission
approved a Stipulation signed by Maine Public Service Company, the
Commission Staff and the Maine Public Advocate, but opposed by McCain
Foods, Inc. This Stipulation, which became effective January 1, 1996,
established a multi-year rate plan for the Company that will provide our
customers with predictable rates through 1999 and shares operating risks
and benefits between the Company's shareholders and customers. For more
information on the rate plan, see Item 3(d) of the "Legal Proceedings"
section of this Form 10-K.
For additional discussion on revenues, see the 1995 Annual Report
to Stockholders, pages 4 and 5, "Analysis of Financial Condition and
Review of Operations-Operating Revenues and Energy Sales" and pages 9 to
11, "Regulatory Proceedings", which information is incorporated herein
by reference.
Regulation and Rates
The Company is subject to the regulatory authority of the Maine
Public Utilities Commission (MPUC) as to retail rates, accounting,
service standards, territory served, the issuance of securities and
various other matters. With respect to wholesale rates and certain
other matters, the Company is or may be subject to the jurisdiction of
the Federal Energy Regulatory Commission (FERC). The Company maintains
its accounts in accordance with the accounting requirements of the FERC
which generally conform with the accounting requirements of the MPUC.
At this time, the Company is not subject to the Public Utilities
Regulatory Policies Act of 1978 ("PURPA") because it has not exceeded
the threshold of 2,000,000,000 kilowatt-hours excluding wholesale sales.
However, the Maine Legislature has by statute instructed the MPUC that
it may consider PURPA standards in rate proceedings before that
Commission.
The generating facilities of the Company and Subsidiary meet the
applicable current environmental regulations of State and Federal
governments of the United States and Provincial and Dominion governments
of Canada, except for the three diesel stations (12 MW) and the oil-
fired generating plant located in Caribou, Maine (23 MW). As discussed
in Item 2. "Properties" below, the oil-fired Steam Units 1 and 2 at the
Caribou facility have been placed on an inactive status. The Maine
Department of Environmental Protection (DEP), in response to the
Company's application for air emission licenses, has indicated that the
application did not demonstrate that Ambient Air Quality Standards and
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PART I Form 10-K
Increments will not be violated. With the cooperation of the DEP Staff,
the Company is studying what steps, if any, are required for licensing,
and cannot determine at this time what, if any, additional capital
expenditures may be required.
See the 1995 Annual Report to Stockholders, pages 9 to 11,
"Analysis of Financial Condition and Review of Operations - Regulatory
Proceedings", which information is incorporated herein by reference, for
additional information on regulatory matters.
Franchises and Competition
Except for consumers served at retail by the Company's wholesale
customers, the Company has practically an exclusive franchise to provide
electric energy in the Company's service area.
Employees
The information with respect to employees is presented in the 1995
Annual Report to Stockholders, page 9, "Employees", which information is
incorporated herein by reference.
Subsidiaries and Affiliated Companies
The Company owns 100% of the Common Stock of Maine and New
Brunswick Electrical Power Company, Limited (the Subsidiary). The
Subsidiary owns and operates the Tinker Station located in the Province
of New Brunswick, Canada. The Tinker Station has five hydro units with
total capacity of 33,500 kilowatts and a small diesel unit of 1,000
kilowatts. The Subsidiary serves the community of Perth-Andover in New
Brunswick, with the remaining energy exported to the Parent Company in
Maine under license of the National Energy Board of Canada. On June 16,
1988, the export license was renewed to 2008.
The Parent Company owns 5% of the Common Stock of the Maine Yankee
Atomic Power Company (Maine Yankee). Maine Yankee owns and operates an
860,000 kilowatt nuclear generating plant in Wiscasset, Maine. The
Company is entitled to purchase approximately 4.9% of the energy
produced by the plant. During 1995, 1994 and 1993, purchases from Maine
Yankee were $7,972,000, $9,645,000 and $8,760,000, respectively.
The Maine Yankee Plant was out of service for most of 1995, while
the Plant's steam generator tubes were resleeved. During a scheduled
refueling and maintenance shutdown in February, 1995, an increased rate
of degradation was detected in the tubes. The Company's share of the
cost of the repair was approximately $1.3 million and repairs were
complete by mid-December, 1995. On January 22, 1996, Maine Yankee
attained the 90 percent level of the Plant's capacity. For further
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PART I Form 10-K
discussion on the incremental operational and repair costs and their
treatment, see 1995 Annual Report to Stockholders, pages 6 and 7,
"Analysis of Financial Condition and review of Operations - Maine
Yankee", which information is incorporated herein by reference.
On March 15, 1996, Maine Yankee received from the NRC a copy of a
petition filed with the NRC by Friends of the Coast - Opposing Nuclear
Pollution, a Maine-based group, alleging certain deficiencies in the
Plant's containment, piping, and pipe welds, dating from the time of the
Plant's construction. The petition seeks a suspension of the Plant's
operating license until the issues raised in the petition are resolved.
The Company believes the petition is without merit, but cannot predict
the result of the filing of the petition.
For information with respect to the business, properties and legal
proceedings and environmental matters relating to Maine Yankee, and the
obligations of the Company in respect of Maine Yankee, see Exhibit
28(a), which information is incorporated herein by reference.
The Company also owns 7.49% of the Common Stock of Maine Electric
Power Company, Inc. (MEPCO). MEPCO owns and operates a 345-KV
(kilovolt) transmission line about 180 miles long which connects the New
Brunswick Power (NB Power) system with the New England Power Pool. The
MEPCO transmission line is also the path by which Maine Yankee and Wyman
No. 4 energy is delivered northerly into the NB Power system and then
wheeled to the Parent Company through its interconnection with NBEPC at
the international border.
Executive Officers
The executive officers of the registrant are as follows:
Office
Continuously
Name Age Held Since
Paul R. Cariani President and Chief 55 6/1/94
Executive Officer
Frederick C. Bustard Vice President, 58 6/1/90
Engineering & Operations
Larry E. LaPlante Vice President, 44 6/1/94
Finance and Treasurer
Stephen A. Johnson Vice President, 48 6/1/90
Customer Service and
General Counsel
Secretary and Clerk
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PART I Form 10-K
Paul R. Cariani has been an employee of the Company since November
1, 1977, starting as an Assistant to the Treasurer. In May 1978, he was
appointed Assistant Treasurer until his election as Treasurer, Secretary
and Clerk, on March 1, 1983. In May 1985, he was elected Vice
President-Finance and Treasurer effective June 1, 1985. On February 25,
1992, Mr. Cariani was elected a Director of the Company to fill an
existing vacancy on the Board. On May 11, 1993, he was elected
Executive Vice President, Chief Financial Officer and Treasurer,
effective June 1, 1993. Effective June 1, 1994, he was elected
President and CEO, replacing the retiring G. Melvin Hovey. Mr. Hovey
remains Chairman of the Board of Directors.
Frederick C. Bustard was elected to the position of Vice President
of Engineering & Operations effective June 1, 1990. He has been a full-
time employee of the Company since June 15, 1959 in various engineering
capacities until July 1, 1980, when he was appointed Assistant to the
President. On June 1, 1983, he was elected Vice President, Engineering
& Operations. On September 1, 1988, he was elected to the new position
of Vice President of Customer Service and Division Operations, a
position he held until his reappointment to Vice President of
Engineering & Operations.
Larry E. LaPlante has been an employee of the Company since
November 4, 1983, starting as Controller. In May, 1984, he was also
appointed Assistant Secretary and Assistant Treasurer until his election
as Vice President, Finance and Treasurer effective June 1, 1994.
Stephen A. Johnson was elected to the new position of Vice
President, Customer Service and General Counsel, effective June 1, 1990.
Mr. Johnson also continues in his capacity as Secretary and Clerk of the
Company, a position he has held since June 1, 1985. Mr. Johnson was
appointed General Counsel of the Company on March 5, 1985. On September
1, 1988, he was elected Vice President of Administration and General
Counsel, a position he held until his election as Vice President,
Customer Service and General Counsel. Prior to joining the Company Mr.
Johnson was the General Counsel of the Maine Public Advocate Office from
1983 to 1985 and prior to that was a Staff Attorney of the Maine Public
Utilities Commission.
Each executive office is a full-time position and has been the
principal occupation of each officer since first elected. All officers
were elected to serve until the next annual election of officers and
until their successors shall have been duly chosen and qualified. The
next annual election of officers will be on May 14, 1996.
There are no family relationships among the executive officers.
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PART I Form 10-K
Item 2. Properties
The Company owns and operates electric generating facilities
consisting of: oil-fired steam units with a total capability of 23,000
kilowatts, diesel generation totaling 12,300 kilowatts, and hydro-
electric facilities of 2,300 kilowatts. The Subsidiary owns and
operates a hydro-electric plant of 33,500 kilowatts and a small diesel
unit with 1,000 kilowatt capacity.
Reference is made to the Company's Form 8-K dated July 13, 1995 in
which the Company reported that, at a regular meeting on July 7, 1995,
the Board of Directors authorized placing on inactive status Steam Units
1 and 2 of the Company's Caribou Generating Facility in Caribou, Maine.
The Company will lay-up the Units by January 1, 1996 and expects that
they will remain inactive for five years or longer. These two units,
which represent 23 MW of capacity, have become surplus to the Company's
needs due to the closure of Loring Air Force Base 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 offered
a Company-wide voluntary early retirement program that was successful in
avoiding involuntary termination of some of the employees whose positions
at the units had been eliminated.
Steam Unit No. 1 went into operation in the early 1950s and Unit
No. 2, in the mid 1950s. The Company still has a diesel generation station of
approximately 7 MW and a hydro facility of approximately 1 MW
and will continue to employ 11 employees at the Caribou facility.
As of December 31, 1995, the Company and Subsidiary had
approximately 443 pole miles of transmission lines and the Company owned
approximately 1,591 miles of distribution lines.
The Company is a part-owner of a 600,000 kilowatt oil-fired steam
unit built by Central Maine Power Company at its Wyman Station in
Yarmouth, Maine. The Company's share of that unit is 3.3455%, or
approximately 20,000 kilowatts.
Substantially all of the properties owned by the Company are
subject to the liens of the First and Second Mortgage Indentures and
Deeds of Trust.
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Form 10-K
PART I
Item 3. Legal Proceedings
(a) Maine Public Service Company, Re: Squa Pan Hydro Project,
FERC Project Number 2368-001-Maine.
The Company owns and operates a 1.4 megawatt hydro
project located on the Squa Pan Stream in Masardis,
Maine. Since 1965, the Company has operated this project
pursuant to a water power project license granted by the
FERC, which license expired on December 31, 1990. On
December 28, 1988, the Company filed its application with
the FERC to relicense the project for a term of 40 years.
As part of this relicensing application, the Company,
pursuant to requirements of the Federal Power Act,
negotiated with various state and federal environmental
and resource agencies concerning the Company's efforts to
mitigate any adverse environmental impacts of the
project.
The FERC issued the Company a 30-year license on December
4, 1991. On January 4, 1992, however, the U.S.
Department of the Interior, which had been a party to
previous negotiations, petitioned the FERC to reconsider
its December 4, 1991 license approval. Alleging certain
procedural irregularities, the Department of the Interior
asked the FERC to revoke the December 4, 1991 license and
to require the Company to undertake additional measures
to protect and enhance the fish and wildlife resources
affected by the project. On February 7, 1996, the FERC
issued its Order denying the Department of the Interior's
request.
(b) 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 MPUC to conduct a study to
develop at least two plans for the orderly transition to
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Form 10-K
PART I
Item 3. Legal Proceedings - Continued
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:
(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.
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Form 10-K
PART I
Item 3. Legal Proceedings - Continued
(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. The Company cannot
predict the results of its filing with the MPUC, what
form of restructuring, if any, the electric utility
industry in Maine will take, or what effect that
restructuring will have on the Company's business
operations or financial results.
(c) Houlton Water Company's Application for Certificate of
Public Convenience and Necessity for Purchase of Firm
Requirements Service from Central Maine Power Company,
MPUC Docket No. 94-476
Reference is made to the Company's Form 8-K of February
13, 1995, in which the Company reported that its largest
wholesale customer, the Houlton Water Company (HWC), had
executed a long-term power contract with Central Maine
Power Company (CMP) for HWC's power requirements
beginning January 1, 1996 and that HWC was therefore
terminating its contract with the Company effective
December 31, 1995.
On December 29, 1994, HWC filed with the MPUC for
approval of the purchase from CMP. This proceeding was
given the MPUC Docket No. 94-476. On January 12, 1995,
the Company requested permission to intervene in this
proceeding. This request was granted on February 1,
1995. The Company contended that the MPUC should not
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Form 10-K
PART I
Item 3. Legal Proceedings - Continued
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 its
approval of the CMP-HWC contract, the effect of that
contract upon the Company and its customers.
(d) Multi-year Rate Plan is Approved for the Company by the
MPUC in Maine Public Service Company Re: Proposed
Increase in Retail Rates, MPUC Docket No. 95-052
On May 1, 1995, Maine Public Service Company filed with
the Maine Public Utilities Commission a proposed increase
in the rates it charges its retail customers. The
Company at the same time filed a five-year rate plan
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.
In general, the Company's five-year rate plan provided
for total annual average increases in retail rates,
including fuel, in accordance with the following
schedule:
1996 - 4.5% $2.2 million
1997 - 4.5% 2.3 million
1998 - 3.5% 1.9 million
1999 - 3.0% 1.7 million
2000 - 3.0% 1.7 million
As part of its plan, the Company proposed to eliminate
the annual fuel adjustment clause except for the cost of
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Form 10-K
PART I
Item 3. Legal Proceedings - Continued
power purchased from the Wheelabrator-Sherman Energy
Company (W/S). The Company's plan included deferrals of
up to $3 million annually of its W/S power costs and the
deferral of any uncollected fuel costs under the present
fuel clause as approved in Docket 95-001 (see item (f)
below) now estimated to be approximately $6 million. The
Company proposed to begin collecting the deferred costs,
in an amount of up to $21 million, in 2001.
The Company also proposed to write off and not recover in
rates approximately $4.9 million, net of income taxes, of
its remaining investment in the Seabrook project
previously supported by rates to its wholesale customers,
principally the Houlton Water Company, which began
purchasing its full requirements from another supplier in
January 1, 1996.
In its rebuttal filing on September 22, 1995, the Company
further proposed a sharing mechanism based on an allowed
return on equity (ROE) of 11.75%. Under this profit-
sharing mechanism, earnings in excess of the proposed ROE
were to be shared equally by stockholders and customers
via rate reductions or reductions in the W/S deferral.
If earnings were less than 300 basis points below the
proposed ROE, that loss was to be borne by shareholders;
if earnings were less than 300 basis points above the
ROE, the excess would be retained by shareholders and
half would be used to reduce the W/S deferral. If
earnings were more than 300 basis points below the
proposed ROE, shareholders and customers would bear the
loss equally; similarly, earnings of more than 300 basis
points in excess of the ROE would be shared equally.
The Company's rate plan was vigorously opposed by both
the MPUC Staff and the Maine Public Advocate. Both these
parties took the position that no expenses or investment
previously associated with any of the Company's sales to
its wholesale customers should be borne by its retail
customers. As a result, the MPUC Staff, for example,
proposed an increase of 4.4% in 1996, but only 2.2% for
each year of the plan thereafter. Moreover, neither the
MPUC Staff nor the Public Advocate proposed allowing any
deferral of the W/S expenses or deferred fuel.
After extensive negotiations, the Company, the MPUC Staff
and the Public Advocate filed a Stipulation with the
Commission on November 6, 1995, which established a four-
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Form 10-K
PART I
Item 3. Legal Proceedings - Continued
year rate plan for the Company. The one remaining party
to this proceeding, McCain Foods, Inc., opposed this
Stipulation. After a hearing on November 13, 1995, the
MPUC approved this Stipulation over the objection of
McCain Foods, Inc.
Under the terms of the Stipulation, the Company has the
right to receive the following increases:
January 1, 1996 4.4% $2.1 million
February 1, 1997 2.9% 1.4 million
February 1, 1998 2.75% 1.4 million
February 1, 1999 2.75% 1.4 million
These increases will be subject to increases or decreases
resulting from the operation of the profit-sharing
mechanism, as well as the mandated costs and plant outage
provisions described below. The Company agreed that it
will seek no other increases, for either base or fuel
rates, except as provided under the terms of the rate
plan. There will be no fuel clause adjustments during
the term of the plan.
The Company 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 (see item (f) below).
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
- 15 -
Form 10-K
PART I
Item 3. Legal Proceedings - Continued
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 W/S purchases
over the term of the rate plan. The approved rate plan
provides that the Company can seek recovery of this
deferred amount (up to a total of $6 million) in rates
beginning in the year 2001, after the current term of the
W/S contract has expired. The Company will further
amortize over each of the four years of the rate plan,
$300,000, net of income taxes, in deferred fuel with the
remainder, approximately $1.3 million net of income
taxes, being deferred until the year 2000.
The approved rate plan further provides for the following
treatment of the Maine Yankee steam generator sleeving
costs: 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 shareholders and
customers. All earnings of 300 or more basis points
above the target ROE must first be applied to reduce any
- 16 -
Form 10-K
PART I
Item 3. Legal Proceedings - Continued
of deferred W/S costs described above. Any remaining
excess earnings will be shared equally by customers and
shareholders.
The plan also allows the Company to terminate the rate
plan and file for rate increases under traditional rate
application procedures if its earnings fall 500 or more
basis points below the target ROE during any twelve-month
period during the term of the plan.
The method agreed to by the parties for measuring earned
ROE for the purpose of the profit-sharing mechanism and
rate termination provision described above, allocates
various revenues and expenses between the wholesale and
retail jurisdictions using allocators that, in part,
reflect the Company's 1994 allocations. With the loss of
sales to Houlton Water Company 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
Wheelabrator-Sherman cease operation for more than six
months, the Company shall be allowed to adjust its
allowed rate increases by 50% of the net costs or net
savings resulting from the outage, together with any
carrying costs on the balance deferred. Any net costs or
net savings during the first six months of the outage
would accrue entirely to shareholders.
The plan further contains a mechanism for allocating the
savings resulting from any restructuring of the W/S
contract during the term of the plan. Any savings would
be allocated first to the W/S deferred costs accumulating
at $1.5 million annually, then to the deferred fuel
balance as of December 31, 1995 being deferred until
2000, next to eliminate any on-going W/S deferrals and
- 17 -
Form 10-K
PART I
Item 3. Legal Proceedings - Continued
finally, any savings that remain will be allocated 95% to
customers and 5% to shareholders.
The plan provides that the Company can flow through to
customers at the time of the scheduled rate increases,
increases or decreases resulting from certain mandated
costs, such as tax or accounting changes, but not costs
resulting from natural disasters. To qualify, a mandated
cost must receive MPUC approval, must be beyond the
control of the Company's management, must effect the
Company specifically or the electric utility generally
and must exceed $300,000 in annual revenue requirements.
The Stipulation also provides for a number of accounting
orders. Among these are orders: permitting the Company
to amortize deferred post-retirement benefits other than
pension (SFAS 106) expenses in equal amounts over a ten-
year period beginning January 1, 1996, along with the
recovery of current year SFAS 106 costs; permitting the
Company to continue rate base treatment for unrecovered
plant costs and depreciation on the Caribou Steam Units
as well as the deferral and amortization over five years
of the reduction in force expenses (including pension
expenses under SFAS 88) resulting from the closing of
those units; and continued deferral and amortization of
replacement power and capacity costs associated with
Maine Yankee scheduled outages. Finally, the Stipulation
clarifies that the rate plan is not deregulation for
accounting purposes and provides for the continuing
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. The Company does
not believe this appeal has any merit and intends to
oppose it vigorously, but cannot predict its ultimate
outcome.
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
- 18 -
Form 10-K
PART I
Item 3. Legal Proceedings - Continued
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
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.
(e) 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.
- 19 -
Form 10-K
PART I
Item 3. Legal Proceedings - Continued
(f) 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,
resulting 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 permitted under the
Company's rate plan (see item (d) above).
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.
Under the Company's rate plan, as described in item (d)
above, the Company will not be entitled to any further
fuel clause adjustments.
(g) 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 and a decision by the FERC
is not expected until later in 1996. The Company cannot
predict FERC's ultimate decision in this matter.
- 20 -
Form 10-K
PART I
Item 4. Submission of Matters To a Vote of Security Holders
At the Company's Annual Meeting of Stockholders, held on
May 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-votes 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
- 21 -
Form 10-K
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters
The Company's Common Stock is listed and traded on the
American Stock Exchange. As of December 31, 1995, there were
1,634 holders of record of the Company's Common Stock.
Dividend data and market price related to the Common Stock are
tabulated as follows for the two most recent calendar years:
Dividends
Market Price Dividends Declared
High Low Paid Per Share Per Share
1995
First Quarter $23-7/8 $20-5/8 $ .46 $ .46
Second Quarter $22-3/4 $19-7/8 .46 .46
Third Quarter $23-1/4 $21 .46 .46
Fourth Quarter $23-1/2 $20-5/8 .46 .46
Total Dividends $1.84 $1.84
1994
First Quarter $27-3/8 $26 $ .46 $ .46
Second Quarter $27 $25-1/4 .46 .46
Third Quarter $26 $22-3/4 .46 .46
Fourth Quarter $24 $20-1/2 .46 .46
Total Dividends $1.84 $1.84
Dividends declared within the quarter are paid on the first day of
the succeeding quarter.
See Note 7 to the financial statements incorporated herein by
reference concerning restrictions on payment of dividends on
Common Stock.
Item 6. Selected Financial Data
A five-year summary of selected financial data (1991-1995) is
included on page 12 of the Company's 1995 Annual Report to
Stockholders, which summary is incorporated herein by
reference.
- 22 -
Form 10-K
PART II
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations
The information required to be furnished in response to this
Item is submitted as pages 4-11, Exhibit 13, 1995 Annual
Report to Shareholders, which pages are hereby incorporated
herein by reference. Information regarding "Construction" is
also furnished in Note 10, "Commitments and Contingencies", of
the Notes to the Consolidated Financial Statements, pages 25
to 27 of the 1995 Annual Report to Shareholders, which pages
are hereby incorporated herein by reference.
- 23 -
Form 10-K
PART II
Item 8. Financial Statements and Supplementary Data
(a) The following financial statements and supplementary
data are included in the Company's 1995 Annual Report to
Stockholders on pages 13 through 27 and are incorporated
herein by reference:
Independent Auditors' Report.
Statements of Consolidated Operations for the years
ended December 31, 1995, 1994 and 1993.
Statements of Consolidated Cash Flows for the years
ended December 31, 1995, 1994 and 1993.
Consolidated Balance Sheets as of December 31, 1995
and 1994.
Statements of Consolidated Common Shareholders'
Equity for the years ended December 31, 1995, 1994
and 1993.
Consolidated Statements of Capitalization as of
December 31, 1995 and 1994.
Notes to Consolidated Financial Statements.
Item 9. Changes In And Disagreements With Accountants On
Accounting and Financial Disclosure
For many years, including fiscal year 1995, the firm of
Deloitte & Touche, LLP, (Deloitte & Touche) independent public
accountants, was engaged by the Company as the principal
independent accountant to audit the Company's financial
statements. On March 1, 1996, the Company's entire Board of
Directors, based on a recommendation of the Audit Committee of
the Board, voted to engage the firm of Coopers & Lybrand, LLP,
(Coopers & Lybrand) independent public accountants, as the
Company's principal accountant beginning with the 1996 fiscal
year audit and not to use the services of Deloitte & Touche.
This change in accountants followed the Company's issuance, in
November 1995, of a request for proposal to six major
independent accounting firms to audit the Company's financial
statements. The Company issued this request solely to
determine whether it could reduce the fees it pays for
accounting services. Three firms, including Deloitte & Touche
and Coopers and Lybrand, responded to the request. Based
- 24 -
Form 10-K
Item 9. Changes In And Disagreements With Accountants On
Accounting and Financial Disclosure - Continued
solely upon the Audit Committee's review of those responses,
and the terms of the request, the Board determined to engage
Coopers & Lybrand, whose bid was substantially lower than any
other received by the Company, as the Company's principal
accountant for a term of at least three years, beginning in
fiscal year 1996. As a result of this vote, the Company
informed Deloitte & Touche that it would not renew its year to
year engagement letter with that firm.
Deloitte & Touche's report on the Company's financial
statements for either fiscal years 1995 or 1994 did not
contain an adverse opinion or disclaimer of opinion or any
modification or qualification.
At no time during the Company's two most recent fiscal years
or any time thereafter has there been any disagreement between
the Company and the firm of Deloitte & Touche on any matter of
accounting principles or practices, financial statement
disclosure or auditing scope or procedure. At no time during
the Company's two most recent fiscal years or any time
thereafter did any event occur between the Company and
Deloitte & Touche that would require further reporting in this
Form 10-K.
At no time during the Company's two most recent fiscal years
and any time thereafter prior to the Company's engaging
Coopers & Lybrand did the Company consult Coopers & Lybrand
regarding either the application of accounting principles to
a specified transaction, either completed or proposed, or the
type of audit opinion that might be rendered on the Company's
financial statements.
- 25 -
Form 10-K
PART III
Item 10. Directors and Executive Officers of the Registrant
Information with regard to the Directors of the registrant is
set forth in the proxy statement of the registrant relating to
its 1996 Annual Meeting of Stockholders, which information is
incorporated herein by reference. Certain information
regarding executive officers is set forth under the caption
"Executive Officers" in Item 1 of Part I of this Form 10-K and
also in the proxy statement of the registrant relating to the
1996 Annual Meeting of Stockholders, under "Compliance with
Section 16(a) of the Securities and Exchange Act of 1934",
which information is incorporated by reference.
Item 11. Executive Compensation
Information for this item is set forth in the proxy statement
of the registrant relating to its 1996 Annual Meeting of
Stockholders, which information (with the exception of the
"Board Executive Compensation Committee Report") is
incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and
Management
Information for this item is set forth in the proxy statement
of the registrant relating to its 1996 Annual Meeting of
Stockholders, which information is incorporated herein by
reference.
Item 13. Certain Relationships and Related Transactions
Not applicable.
- 26 -
Form 10-K
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on
Form 8-K
(a) (1) Financial Statements
Independent Auditors' Report appears on page 38
of this Form 10-K.
Incorporated by reference into Part II of this
report from pages 13 through 27 of the 1995 Annual
Report to Stockholders:
Independent Auditors' Report.
Statements of Consolidated Operations for years
ended December 31, 1995, 1994 and 1993.
Statements of Consolidated Cash Flows for the years
ended December 31, 1995, 1994 and 1993.
Consolidated Balance Sheets as of December 31, 1995
and 1994.
Statements of Consolidated Common Shareholders'
Equity for the years ended December 31, 1995, 1994
and 1993.
Consolidated Statements of Capitalization as of
December 31, 1995 and 1994.
Notes to Consolidated Financial Statements.
(2) Financial Statement Schedules
Included in Part IV of this report:
- 27 -
Form 10-K
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form
8-K - Continued
Page
Report of Independent Public Accountants 38
Schedule II - Valuation of Qualifying Accounts 39
and Reserves
Schedules other than those listed above are omitted for the
reason that they are not required or are not applicable, or
the required information is shown in the financial statements
or notes thereto.
(3) Exhibits
Certain of the following exhibits are filed
herewith. Certain other of the following exhibits
have heretofore been filed with the Commission and
are incorporated herein by reference. (* indicates
filed herewith).
3(a) Restated Articles of Incorporation with all
amendments through May 8, 1990. (Exhibit 3(a)
to 1990 form 10-K)
3(b) By-laws of the Company, as amended through May
12, 1987. (Exhibit 3(b) to 1987 Form 10-K)
4(a) Indenture of Mortgage and Deed of Trust
defining the rights of the holders of the
Company's First Mortgage Bonds. (Exhibit 4(a)
to 1980 Form 10-K)
4(b) First Supplemental Indenture. (Exhibit 4(b)
to 1980 Form 10-K)
4(c) Second Supplemental Indenture. (Exhibit 4(c)
to 1980 Form 10-K)
4(d) Third Supplemental Indenture. (Exhibit 4(d)
to 1980 Form 10-K)
4(e) Fourth Supplemental Indenture. (Exhibit 4(e)
to 1980 Form 10-K)
4(f) Fifth Supplemental Indenture. (Exhibit A to
Form 8-K dated May 10, 1968)
- 28 -
Form 10-K
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form
8-K - Continued
4(g) Sixth Supplemental Indenture. (Exhibit A to
Form 8-K dated April 10, 1973)
4(h) Seventh Supplemental Indenture. (Exhibit A to
Form 8-K dated November 7, 1975)
4(i) Eighth Supplemental Indenture. (Exhibit 4(i)
to 1980 Form 10-K)
4(j) Ninth Supplemental Indenture. (Exhibit B to
Form 10-Q for the second quarter of 1978)
4(k) Tenth Supplemental Indenture. (Exhibit 4(k)
to 1980 Form 10-K)
4(l) Eleventh Supplemental Indenture. (Exhibit
4(l) to 1982 Form 10-K)
4(m) Indenture defining the rights of the holders
of the Company's 9 7/8% debentures. (Exhibit
A to Form 8-K, dated June 10, 1970)
4(n) Indenture defining the rights of the holders
of the Company's 14% debentures. (Exhibit
4(n) to 1982 Form 10-K)
4(o) Twelfth Supplemental Indenture. (Exhibit 4(o)
to Form 10-Q for the quarter ended September
30, 1984)
4(p) Thirteenth Supplemental Indenture. (Exhibit
4(p) to Form 10-Q for the quarter ended
September 30, 1984)
4(q) Fourteenth Supplemental Indenture, Dated July
1, 1985. (Exhibit 4(q) to 1985 Form 10-K)
4(r) Fifteenth Supplemental Indenture, Dated March
1, 1986. (Exhibit 4(r) to 1985 Form 10-K)
4(s) Sixteenth Supplemental Indenture, Dated
September 1, 1991. (Exhibit 4(s) to the
Company's 1991 Form 10-K).
9 Not applicable.
- 29 -
Form 10-K
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form
8-K - Continued
10(a)(1) Joint Ownership Agreement with Public Service
of New Hampshire in respect to construction of
two nuclear generating units designated as
Seabrook Units 1 and 2, together with related
amendments to date. (Exhibit 10 to 1980 Form
10-K)
10(a)(2) Twentieth Amendment to Joint Ownership
Agreement (Exhibit 10(a)(6) to the Company's
1986 Form 10-K)
10(a)(3) Twenty-Second Amendment to Joint Ownership
Agreement. (Exhibit 10(a)(3) to the 1988 Form
10-K)
10(b)(1) Capital Funds Agreement, dated as of May 20,
1968 between Maine Yankee Atomic Power Company
and the Company. (Exhibit 10(b)(1) to Form
10-Q for the quarter ended March 31, 1983)
10(b)(2) Power Contract, dated as of May 20, 1968
between Maine Yankee Atomic Power Company and
the Company. (Exhibit 10(b)(2) to Form 10-Q
for the quarter ended March 31, 1983)
10(c)(1) Participation Agreement, as of June 20, 1969,
with Maine Electric Power Company, Inc.
(Exhibit 10(c)(1) to Form 10-Q for the quarter
ended March 31, 1983)
10(c)(2) Agreement, as of June 20, 1969, among the
Company and the other Maine Participants.
(Exhibit 10(c)(2) to Form 10-Q for quarter
ended March 31, 1983)
10(c)(3) Power Purchase and Transmission Agreement
Supplement to Participation Agreement, dated
as of August 1, 1969, with Maine Electric
Power Company, Inc. (Exhibit 10(c)(3) to Form
10-Q for quarter ended March 31, 1983)
10(c)(4) Supplement Amending Participation Agreement,
as of June 24, 1970, with Maine Electric Power
Company, Inc., (Exhibit 10(c)(4) to Form 10-Q
for quarter ended March 31, 1983)
- 30 -
Form 10-K
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form
8-K - Continued
10(c)(5) Second Supplement to Participation Agreement,
dated as of December 1, 1971, including as
Exhibit A the Unit Participation Agreement
dated November 15, 1971, as amended, between
Maine Electric Power Company, Inc. and the New
Brunswick Electric Power Commission. (Exhibit
10(c)(5) to Form 10-Q for quarter ended March
31, 1983)
10(c)(6) Agreement and Assignment, as of August 1,
1977, by Connecticut Light & Power Company,
Hartford Electric Company, Holyoke Water Power
Company, Holyoke Power Company, Western
Massachusetts Electric Company and the
Company. (Exhibit 10(c)(6) to Form 10-Q for
the quarter ended March 31, 1983)
10(c)(7) Amendment dated November 30, 1980 to Agreement
and Assignment as of August 1, 1977, between
Connecticut Light & Power Company, Hartford
Electric Company, Holyoke Water Power Company,
Holyoke Power Company, Western Massachusetts
Electric Company and the Company. (Exhibit
10(c)(7) to Form 10-Q for the quarter ended
March 31, 1983)
10(c)(8) Assignment Agreement as of January 1, 1981,
between Central Maine Power Company and the
Company. (Exhibit 10(c)(8) to Form 10-Q for
the quarter ended March 31, 1983)
10(d) Wyman Unit #4 Agreement for Joint Ownership as
of November 1, 1974, with Amendments 1, 2, and
3, dated as of June 30, 1975, August 16, 1976,
December 31, 1978, respectively. (Exhibit
10(d) to Form 10-Q for the quarter ended March
31, 1983)
10(e) Agreement between Sherman Power Company and
Maine Public Service Company, dated June 4,
1984, with amendments dated July 12, 1984 and
February 14, 1985. (Exhibit 10(f) to 1984
Form 10-K)
- 31 -
Form 10-K
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form
8-K - Continued
10(f) Credit Agreement, dated as of October 8, 1987
among the Registrant and The Bank of New York,
Bank of New England, N.A., The Merrill Trust
Company and The Bank of New York, as agent for
the Participating Banks (Exhibit 10(g) to Form
8-K dated October 13, 1987)
10(g) Amendment No. 1, dated as of October 8, 1989,
to the Revolving Credit Agreement, dated as of
October 8, 1987, among the Registrant and The
Bank of New York, Bank of New England, N.A.,
Fleet Bank (formerly the Merrill Trust
Company) and The Bank of New York as agent for
the participating banks (Exhibit 10(l) to Form
8-K dated September 22, 1989).
10(h) Amendment No. 2, dated as of June 5, 1992, to
the Revolving Credit Agreement, among the
Registrant and The Bank of New York, Bank of
New England, N.A., Shawmut Bank and the Bank
of New York, as agent for the participating
banks. (Exhibit 10(h) to the Company's 1992
Form 10-K)
10(i) Indenture of Second Mortgage and Deed of
Trust, dated as of October 1, 1985, made by
the Registrant to J. Henry Schroder Bank and
Trust Company, as Trustee. (Exhibit 10(i) to
Form 8-K dated November 1, 1985)
10(j) First Supplemental Indenture Dated March 1,
1991. (Exhibit 10(i) to the Company's 1991
Form 10-K).
10(k) Second Supplemental Indenture Dated September
1, 1991. Exhibit 10(j) to the Company's 1991
Form 10-K).
10(l) Agency Agreement dated as of October 1, 1985,
between J. Henry Schroder Bank and Trust
Company, as Trustee under the Indenture of
Second Mortgage and Deed of Trust dated as of
October 1, 1985, made by the Registrant to J.
Henry Schroder Bank and Trust Company, as
Trustee, and Continental Illinois National
- 32 -
Form 10-K
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form
8-K - Continued
Bank and Trust Company, as Trustee, under an
Indenture of Mortgage and Deed of Trust, dated
as of October 1, 1945, as amended and
supplemented, made by the Registrant to
Continental Illinois National Bank and Trust
Company, as Trustee (Exhibit 10(j) to Form 8-K
dated November 1, 1985)
Executive Compensation Plans and Arrangements
10(m) Employment Contract between Frederick C.
Bustard and Maine Public Service Company dated
August 22, 1989. (Exhibit 10(h) to 1989 Form
10-K)
10(n) Employment Contract between Paul R. Cariani
and Maine Public Service Company dated August
22, 1989. (Exhibit 10(l) to 1989 Form 10-K)
10(o) Employment Contract between Stephen A. Johnson
and Maine Public Service Company dated August
22, 1989. (Exhibit 10(m) to 1989 Form 10-K)
*10(p) Employment Contract between Larry E. LaPlante
and Maine Public Service Company, dated May 9,
1995.
10(q) Maine Public Service Company, Prior Service
Executive Retirement Plan, dated May 12, 1992.
(Exhibit 10(s) to 1992 Form 10-K)
10(r) Maine Public Service Company Pension Plan.
(Exhibit 10(t) to 1992 Form 10-K)
10(s) Maine Public Service Company Retirement
Savings Plan. (Exhibit 10(u) to 1992 Form 10-
K)
11 Not applicable.
12 Not applicable.
*13 1995 Annual Report to Shareholders.
18 Not applicable.
- 33 -
Form 10-K
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form
8-K - Continued
19 Not applicable.
22 Maine and New Brunswick Electrical Power
Company, Limited, a Canadian corporation.
23 Not applicable.
24 Not applicable.
*28(a) Information with respect to Maine Yankee
Atomic Power Company. Extracts from Maine
Yankee Atomic Power Company's Annual Report
for the year ended December 31, 1995 under the
captions "The Company", "The Plant",
"Regulation and Environmental Matters" and
"1995 Extended Shutdown".
28(b) Agreement of Purchase and Sale between Maine
Public Service and Eastern Utilities
Associates, dated April 7, 1986 (Exhibit 28(a)
to Form 10-Q for the quarter ended June 30,
1986).
28(c) Addendum to Agreement of Purchase and Sale,
dated June 26, 1986 (Exhibit 28(b) to Form 10-
Q for the Quarter ended June 30, 1986).
28(d) Stipulation between Maine Public Service
Company, the Staff of the Commission and the
Maine Public Utilities Commission and the
Maine Public Advocate, dated July 14, 1986
(Exhibit 28(c) to Form 10-Q for the quarter
ended June 30, 1986).
28(e) Amendment to July 14, 1986 Stipulation, dated
July 18, 1986 (Exhibit 28(d) to Form 10-Q for
the quarter ended June 30, 1986).
28(f) Order of the Maine Public Utilities Commission
dated July 21, 1986, Docket Nos 84-80, 84-113
and 86-3.
28(g) Order of the Maine Public Utilities
Commission, dated May 9, 1986, Docket Nos. 84-
- 34 -
Form 10-K
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form
8-K - Continued
113 and 86-3 (with attached Stipulations).
(Exhibit 28(r) to 1986 Form 10-K).
28(h) Order of the Maine Public Utilities
Commission, dated July 31, 1987, Docket Nos.
84-80, 84-113, 87-96 and 87-167 (with attached
Stipulation) (Exhibit 28(i) to 1988 Form 10-
K).
28(i) Agreement between Maine Public Service Company
and various current Seabrook Nuclear Project
Joint Owners, dated January 13, 1989 (Exhibit
28(o) to 1988 Form 10-K).
28(j) Order (corrected) of the Maine Public
Utilities Commission dated December 5, 1990 in
Docket No. 87-167 (with attached Stipulation).
(Exhibit 28(l) to 1990 Form 10-K).
28(k) Order of the Federal Energy Regulatory
Commission Dated September 30, 1992 in Docket
No. ER92-774-000 and EL91-56-000. (Exhibit
28(k) to 1992 Form 10-K)
28(l) Order of the Federal Energy Regulatory
Commission dated December 11, 1992 in Docket
ER93-17-000. (Exhibit 28(l) to 1992 Form 10-
K)
28(m) Order of the Maine Public Utilities Commission
approving Chapter 720 Waiver Request dated
September 23, 1993. (Exhibit 28(p) to 1993
Form 10-K)
*28(n) Order of the Maine Public Utilities Commission
dated March 30, 1995 in Docket No. 94-476.
*28(o) Order of the Maine Public Utilities Commission
dated March 27, 1995 in Docket No. 95-001.
*28(p) Order of the Maine Public Utilities Commission
dated November 30, 1995 (with attached
Stipulation) in Docket No. 95-052.
- 35 -
Form 10-K
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form
8-K - Continued
*28(q) Notice of Investigation of the Maine Public
Utilities Commission dated December 12, 1995
in Docket No. 95-462.
*28(r) Order of the Federal Energy Regulatory
Commission dated May 31, 1995 in Docket No. ER
95-836-000.
(b) A Form 8-K was filed on: April 11, 1995, under item 5,
Other Events; April 18, 1995, under item 5, Other Events;
May 24, 1995, under item 5, Other Events; July 13, 1995,
under item 5, Other Events; January 23, 1996, under item
5, Other Events, and; March 8, 1996, under item 4 Change
in Registrant's Independent Accountants. No financial
statements were included with the above Form 8-K's.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly
authorized, on the 27th day of March, 1996.
MAINE PUBLIC SERVICE COMPANY
By:Larry E. LaPlante
Larry E. LaPlante
Vice President, Finance
and Treasurer
- 36 -
Form 10-K
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons in the
capacities and on the date indicated.
Signature Title Date
Chairman of the Board,
G. Melvin Hovey and Director 3/16/96
(G. Melvin Hovey)
Paul R. Cariani President and Director 3/14/96
(Paul R. Cariani)
Robert E. Anderson Director 3/18/96
(Robert E. Anderson)
Donald F. Collins Director 3/16/96
(Donald F. Collins)
D. James Daigle Director 3/16/96
(D. James Daigle)
Richard G. Daigle Director 3/14/96
(Richard G. Daigle)
Director
(J. Gregory Freeman)
Deborah L. Gallant Director 3/18/96
(Deborah L. Gallant)
Nathan L. Grass Director 3/19/96
(Nathan L. Grass)
J. Paul Levesque Director 3/14/96
(J. Paul Levesque)
Walter M. Reed, Jr Director 3/14/96
(Walter M. Reed, Jr.)
- 37 -
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders
of Maine Public Service Company
Presque Isle, Maine
We have audited the consolidated financial statements of Maine Public
Service Company and its subsidiary, Maine and New Brunswick Electrical
Power Company, Limited, as of December 31, 1995 and 1994, and for each
of the three years in the period ended December 31, 1995, and have
issued our report thereon dated February 14, 1996; such consolidated
financial statements and report are included in your 1995 Annual Report
to Shareholders and are incorporated herein by reference. Our audits
also included the consolidated financial statement schedule of Maine
Public Service Company and its subsidiary, listed in Item 14. This
consolidated financial statement schedule is the responsibility of the
Company's management. Our responsibility is to express an opinion based
on our audits. In our opinion, such consolidated financial statement
schedule, when considered in relation to the basic consolidated
financial statements taken as a whole, presents fairly, in all material
respects, the information set forth therein.
Deloitte & Touche LLP
Boston, Massachusetts
February 14, 1996
- 38 -
Maine Public Service Company & Subsidiary
Valuation of Qualifying Accounts & Reserves
For the Years Ended December 31, 1995, 1994, & 1993
Column A Column B Column C Column D Column E
Additions: Deductions:
Balance Recoveries Accounts Balance
at Costs of Accounts Written Off at
Beginning & Previously As End of
Description of Period Expenses Written Off Uncollectible Period
Reserve Deducted From Asset
To Which It Applies:
Allowance for
Uncollectible Accounts
Year Ended December 31:
1995 214,215 150,800 109,390 260,275 214,130
1994 214,329 119,000 164,999 284,113 214,215
1993 204,302 160,400 99,986 250,359 214,329
- 39 -
EXHIBIT 10 (p)
EMPLOYMENT CONTINUITY AGREEMENT
This Agreement made as of this 9th day of May, 1995, by
and between MAINE PUBLIC SERVICE COMPANY, a Maine
corporation with its principal place of business in Presque
Isle, Maine (the "Company") and LARRY E. LAPLANTE
("LaPlante").
WHEREAS, LaPlante has been employed by the Company in a
senior management capacity for over 11 years and is now its
Vice President-Finance and Treasurer; and
WHEREAS, LaPlante's knowledge of the Company's affairs
and his experience are critical to the protection and
enhancement of the best interests of the Company, its
employees, ratepayers and stockholders; and
WHEREAS, in the current business climate acquisitions of
smaller, independently-operated utility companies is not
uncommon; and
WHEREAS, the Company wants to assure itself of the
continued employment of LaPlante and the benefit of his
independent judgment in the operation of the Company,
particularly in the event that any such attempted
acquisition were made, in light of the disruption resulting
from any such attempt;
NOW, THEREFORE, in consideration of the mutual promises
and undertakings herein contained and for other good and
valuable consideration, the receipt and adequacy of which is
acknowledged by each of the parties, LaPlante and the
Company agree as follows:
1. Term of Agreement and Renewal. The term of this
Agreement shall be for a period beginning May 9, 1995, and
ending December 31, 1999. On January 1, 2000, and on
January 1 of each period of three (3) years thereafter (in
each case such date to be a "Renewal Date") this Agreement
shall be automatically renewed for an additional three (3)
year term, unless at least one hundred and eighty (180) days
prior to any such Renewal Date, either party shall have
given written notice to the other that such renewal shall
not take place. In all events, this Agreement shall
terminate upon LaPlante's reaching his sixty-fifth birthday,
except as to rights accrued and obligations arising prior
thereto.
2. Rights Upon an Unfriendly Change in Control Event.
If LaPlante's employment with the Company terminates, for
any reason other than good cause, within twelve (12) months
after the occurrence of a Change in Control Event that is
determined to be unfriendly, the Company shall provide
LaPlante with the following:
(a) Within thirty (30) days of such termination, a
cash payment in an amount equal to two hundred percent
(200%) of LaPlante's annual base salary in effect upon
the date of the Change in Control Event; and
(b) The continuation of LaPlante's participation in
the Company's health, life, disability and other
employee benefit plans, programs and arrangements
(excluding the Company's retirement plan and the
Company's 401(k) plan) for a period of eighteen (18)
months after such termination as if he were still
employed during such period; provided, however, if
LaPlante's continued participation in any such plan,
program or arrangement is specifically prohibited by the
terms thereof, the Company shall provide LaPlante with
benefits substantially similar to those which he was
entitled to receive under such plan, program or
arrangement immediately prior to his termination of
employment. Additionally, at the end of such period
LaPlante shall have the right to have assigned to him,
for the cash surrender value thereof, any assignable
insurance owned by the Company on his life. For
purposes of this Section, any employee benefit
determined with reference to compensation shall be based
on the compensation used to determine the payment under
Paragraph 2(a).
3. Rights Upon a Friendly Change in Control Event.
Upon a Change in Control Event determined by a majority of
Outside Directors to be friendly:
(a) Except as hereinafter provided, LaPlante shall
be obligated to remain in the employ of the Company or
its successors for a period of six (6) months after the
Event.
If during such six (6) month period, LaPlante is
given one or more good reasons, he may immediately or at
any time within such six month period terminate his
employment, and he shall thereupon become entitled to
receive the same cash payment and benefits as described
in Paragraphs 2(a) and (b) hereof, except that the
percentage described in Paragraph 2(a) shall be one
hundred percent (100%), and the period described in 2(b)
shall be twelve (12) months.
"Good reason" shall mean the occurrence of any of
the following events with LaPlante's written consent:
(1) The assignment of duties to LaPlante which
(i) are materially different from his duties
immediately prior to the Change in Control Event,
or (ii) result in his having significantly less
authority or responsibility than he had prior to
the Change in Control Event;
(2) LaPlante's removal from, or any failure to
re-elect him to, any position he held immediately
prior to the Change in Control Event with either
the Company or any subsidiary;
(3) A reduction of LaPlante's annual base
salary in effect on the date of the Change in
Control Event or as the same may be increased from
time to time thereafter;
(4) The Company's transferring or assigning
LaPlante to a place of employment more than twenty-
five (25) miles from Presque Isle, Maine, except
for required business travel to an extent
substantially consistent with his business travel
obligations for the period immediately prior to the
Change in Control Event;
(5) The Company's failure to provide LaPlante
with substantially the same health, life,
disability and other employee benefit plans,
programs and arrangements, as provided to him
immediately prior to the Change in Control Event;
or
(6) The Company's failure to obtain from any
successor a satisfactory agreement to assume and
perform the terms of this Agreement.
(b) If during the period from the seventh through
the twelfth months after the Event, LaPlante determines
for any reason that he no longer desires to be employed
by the Company or its successors, he may terminate his
employment, in which event he shall thereupon become
entitled to receive the same cash payment and benefits
as described in Paragraphs 2(a) and (b) hereof, as
modified in accordance with the terms of Paragraph 3(a)
hereof; provided that such cash payment shall be paid in
accordance with the Company's regular practices and
shall be reduced by any salary payments received by
LaPlante from any subsequent employer within said
period, and further provided that such benefits shall
also be reduced by any substantially similar rights and
benefits received by LaPlante from any subsequent
employer within said period.
4. Termination for Good Cause. Notwithstanding the
provisions of paragraphs 2 and 3 hereof, the Company retains
the right to terminate LaPlante for good cause, in which
event LaPlante shall not be entitled to receive any payments
or benefits pursuant to this Agreement. "Good cause" shall
mean:
(a) LaPlante's conviction, by a court of competent
jurisdiction, of a crime involving moral turpitude; or
(b) A willful breach by him of any material duty or
obligation imposed upon him under the terms of his
employment, as those terms existed immediately prior to
any Change in Control Event, as to which breach the
Company shall have given him thirty (30) days' notice,
and which breach shall not have been cured within such
thirty-day period.
5. "Change in Control Event". Any one of the following
events shall be a "Change in Control Event" or sometimes
also referred to as an "Event":
(a) Any person shall become the beneficial owner,
directly or indirectly, of securities representing
twenty-five percent (25%) or more of the combined voting
power of the Company's then outstanding stock.
As used in this Paragraph 5(a), "beneficial owner"
shall have the meaning ascribed to it from time to time
under rules promulgated by the Securities and Exchange
Commission pursuant to Section 13(d) of the Securities
Exchange Act of 1934, or any similar successor statute
or rule; and a "person" shall include any natural
person, corporation, partnership, trust, association, or
any group or combination thereof, whose ownership of the
Company stock would be reportable pursuant to such
provision of the Securities Exchange Act of 1934 and the
rules and regulations promulgated thereunder;
(b) The Company shall cease to be a reporting
company pursuant to the Securities Exchange Act of 1934;
(c) The number of the Company's Outside Directors
as defined herein is decreased by more than fifty
percent (50%) in any twenty-five (25) month period or
the number of the Company's directors is increased such
that the Outside Directors constitute less than a
majority of the Board;
(d) A majority of the Company's board of directors
changes within a twenty-five (25) month period unless
the election or nomination for election by the Company's
stockholders of each new director was approved by the
vote of two-thirds of the directors then in office who
were in office at the beginning of the twenty-five (25
month period;
(e) The Company is subject to a change in control
which would require reporting in response to Item 1 of
Form 8-K under Regulation 13a-11 promulgated under the
Securities Exchange Act of 1934, as amended, or any
similar successor statute or rule, whether or not the
Company is then a reporting company under such Act; or
(f) The Company's stockholders approve (i) any
consolidation or merger of the Company in which the
Company is not the continuing or surviving corporation
or pursuant to which shares of Company common stock
would be converted into cash, securities or other
property, or (ii) any sale, lease, exchange, liquidation
or other transfer (in one transaction or a series of
transactions) of all or substantially all of the assets
of the Company; or
(g) Any other event which a majority of all of the
Company's "Outside Directors" determines constitutes a
change in control event.
6. "Outside Directors". For purposes of this Agreement
"Outside Directors" shall mean those members of the
Company's Board, at the time a determination is to be made
hereunder by the Outside Directors, who were not Company
employees and who were directors of the Company six (6)
months prior to the Change in Control Event.
7. Presumption as to the Nature of the Event. For the
purposes of this Agreement, it shall be presumed that an
Event is unfriendly unless within ninety (90) days after the
Event, a majority of all Outside Directors shall determine
that the Event is friendly.
8. Notices. Any and all notices required or permitted
to be given hereunder shall be in writing and shall be
deemed to have been given when deposited in the United
States mails, certified or registered mail, postage prepaid
and addressed as follows:
To LaPlante:
Larry E. LaPlante
95 Hardy Street
Presque Isle, Maine 04769-3005
To the Company:
Maine Public Service Company
209 State Street, P.O. Box 1209
Presque Isle, Maine 04769-1209
Either party may change by notice to the other the
address to which notices to it are to be addressed.
9. Applicable Law, Taxes, Binding Agreement,
Severability, Construction.
(a) This Agreement shall be governed by and
construed in accordance with the laws of the State of
Maine, except as to any matter which is preempted by
federal law.
(b) Notwithstanding anything to the contrary herein
contained, the Company may withhold from any amounts
payable under this Agreement all federal, state or other
taxes or assessments which may be required by applicable
statute or regulation to be withheld.
(c) This Agreement shall be binding upon and inure
to the benefit of LaPlante his heirs, executors and
legal representatives; and the Company, its successors
and assigns.
(d) If any provision of this Agreement shall be
invalid or unenforceable, the remainder of this
Agreement shall not be affected thereby.
(e) The Outside Directors shall have the authority
to construe and interpret this Agreement on behalf of
the Company, and any such determination by the Outside
Directors shall be conclusive on the Company.
10. Limitations on Amounts to be Received.
Notwithstanding anything to the contrary herein contained,
if any amount payable to LaPlante or for his benefit
pursuant to the terms of this Agreement would not be
deductible by the Company by reason of Section 280G of the
Internal Revenue Code, as amended from time to time, or any
regulations promulgated pursuant thereto, then such amount
shall not be paid to the extent that it would cause the
aggregate amount payable by the Company to LaPlante or for
his benefit pursuant to the terms of this Agreement to
exceed the amount which may be paid without causing a loss
of deduction under said Section 280G.
11. Funding. This Agreement shall not be construed to
create or require the Company to create a trust or to
otherwise act to fund the amounts payable hereunder.
12. Assignment. Except as required by law, the right to
receive payments hereunder shall not be subject to
alienation, assignment, garnishment, attachment, execution
or levy of any kind, and any attempt to cause such payments
to be so subject shall not be recognized by the Company.
13. Execution of Further Documents. In the event
LaPlante receives payments or benefits pursuant to the terms
hereof and the Company's independent counsel deems it
necessary for the Company to receive a release or other
acknowledgement, LaPlante agrees to execute any such
document, as may be reasonably required as a condition of
his receipt of such payment or benefits.
14. Amendment and Waiver. The Agreement may be amended
only in writing, by the parties hereto, and no condition or
provision of the Agreement may be waived except in writing.
Waiver by either party at any time of the other party's
breach of, or failure to comply with, any condition or
provision of this agreement to be performed by such other
party shall not be deemed a waiver of any other provision or
condition at the same time or of any provision or condition
at any prior or subsequent time, unless specifically stated
therein.
15. Arbitration. Any dispute or controversy arising
under or in connection with this Agreement shall be settled
exclusively by arbitration, in accordance with the
provisions of the Maine Uniform Arbitration Act Any
arbitration decision shall, except as otherwise provided
under any applicable state or federal law, be final and
binding on LaPlante, his heirs, legal representatives and
assigns, and the Company, its successors and assigns, and
judgment may be entered thereon in any court of competent
jurisdiction.
16. No Additional Effect. Except as expressly provided
in connection with a Change in Control Event, nothing
contained herein shall confer upon LaPlante any specific
period of employment, right to be retained in the service of
the Company or other rights, nor shall this Agreement be
construed to otherwise limit the rights of the Company to
discharge or take other action with respect to LaPlante.
IN WITNESS WHEREOF, the parties have executed this
Agreement as of the day and year first above written.
Witness: MAINE PUBLIC SERVICE
COMPANY
Alice E. Shepard P. R. Cariani
Alice E. Shepard By P. R. Cariani
Its President and CEO
Alice E. Shepard Larry E. LaPlante
Alice E. Shepard LARRY E. LAPLANTE
(Front Outside Cover)
Maine Public Service
1995 Annual Report
An innovative utility
providing superior service
at competitive rates
(Front Inside Cover)
Maine Public Service Company
209 State Street
P. O. Box 1209
Presque Isle, Maine 04769-1209
Tel. No. (207) 768-5811
(Page 1)
Maine Public Service Company
(Graphic - Map of Territory Served)
The primary goal of Maine Public Service Company is to supply reliable,
economical electrical power to Northern Maine. The Company is an
investor-owned electric utility with a wholly-owned subsidiary, Maine and New
Brunswick Electrical Power Company, Ltd., located at Tinker, New Brunswick.
Together both companies provide energy to more than 35,000 retail customers in
a 3,600 square mile area.
Maine Public Service Company has a favorable mixture of generation sources
made up of power produced by hydro-electric, nuclear, and oil-fueled
facilities, as well as an independent wood-burning cogenerator. The system is
strengthened by electrical interconnections with New Brunswick, Canada,
allowing electrical support from the New Brunswick system and indirectly from
the Hydro-Quebec system.
Major business activities in the area center around the production of
agricultural and forest products. Service was provided at a high reliability
rate over the last year, and it is our aim to meet customer needs fully and
efficiently, at the lowest possible cost.
Table of Contents
President's Letter 2-3
Analysis of Financial Condition
and Review of Operations _ 1995 4-11
Shareholder Information 11
Five-Year Summary of Selected Financial Data 12
Independent Auditors' Report 13
Financial Statements and Notes 14-27
Consolidated Financial Statistics 28-29
Consolidated Operating Statistics 30-31
Directors 32
Executive Officers and Stock Back Cover
Transfer Information
(Pages 2 and 3)
President's Letter
to our Shareholders and
Employees
(Photo of Paul R. Cariani - No Caption)
The year 1995 was my first full year as President and Chief Executive
Officer of your Company. Unfortunately, this year the Company reports the
highly unusual results of a net loss of $3.29 per share as compared to net
income of $2.99 per share in 1994. The 1995 loss is attributable to two major
events: the loss of Houlton Water Company as a customer, effective January 1,
1996, and the unavailability of the Maine Yankee Nuclear Plant, our major
source of economical power, for essentially the entire year. These two events
resulted in the write-offs of $8.3 million after taxes ($5.16 per share),
under an agreement approved by the Maine Public Utilities Commission (MPUC)
establishing a four-year rate stabilization plan. More about this later. The
write-offs consisted primarily of $4.8 million of the wholesale portion of the
Seabrook regulatory asset, $1.4 million of generation assets allocated to
wholesale and $2.1 million of fuel costs incurred as a result of Maine Yankee
being out of service for most of 1995. Absent these write-offs, earnings
would have been $1.87 per share with the reduced earnings primarily the result
of the closure of Loring Air Force Base in September 1994. Last year was the
first full year without Loring and that, along with warmer than usual winter
weather, caused a significant reduction in sales to our retail customers (24.3
million KWH, 4.8%).
While this is admittedly a bleak picture, I believe nevertheless that we
enter 1996 much better positioned to respond to the uncertainty of the future
and to lead the Company through the transition from regulation to competition.
First, the rate stabilization plan provides predictable and stable rates to
our customers over the next four years. The major elements of this rate plan
are as follows:
Increases of 4.4%, 2.9%, 2.75%, and 2.75% from 1996 through 1999,
respectively.
Elimination of the Fuel Adjustment Clause.
Deferral of $8 million in fuel costs - $6 million of
Wheelabrator-Sherman and $2 million of Maine Yankee replacement power incurred
in 1995.
Shareholder write-off of $8.3 million.
Flexible Rate provision.
Elimination of the fuel adjustment clause exposes the Company to risks we
did not previously have, such as higher fuel prices, closure of a plant, or
poor hydro conditions. By the same token, lower fuel prices and good hydro
conditions would be to our benefit, as would the closure of the
Wheelabrator-Sherman Plant which is our highest cost power (currently .12 per
KWH).
The $6 million deferral of the Wheelabrator-Sherman cost is being treated as
if the Company negotiated a buy-down of a portion of the contract and this
deferral will be treated as a regulatory asset.
A return on equity (ROE) of 11% on retail rates was also agreed to as part
of the rate plan. However, I must caution you that the methodology used by
the MPUC to calculate ROE is not the same as that used to calculate financial
ROE and, as a result, financial ROE is likely to be less than 11%. In
addition, the wholesale portion of our business is deregulated with pricing
based on market conditions and open competition, which today produces prices
that are significantly less than they would be under traditional Federal
Energy Regulatory Commission (FERC) ratemaking.
As we move forward in 1996, the Company will continue to emphasize cost
control and seek further efficiencies where possible. Since 1993, we will
have reduced our work force by approximately 20%, with our most recent
reduction achieved through the lay-up of our Caribou Steam Plant and a
reorganization of the Company. The Company realigned its organization in
order to provide greater emphasis on customer service by separating the retail
and wholesale portions of the business. A marketing department has been
established to better serve our customers and determine their needs. The
approval of our economic development rates should encourage area businesses to
expand and attract new business to the area. Flexible rate provisions of the
rate plan have allowed us to negotiate contracts with some of our largest
customers. If these contracts are approved, the Company would be the sole
supplier of electricity to these customers through the year 2000, and would
eliminate the risk of their loss until 2001. Our expensive purchase power
contract with Wheelabrator-Sherman expires in 2000 and, while it contains
renewal provisions, the Company estimates the cost of any such renewal will be
substantially reduced from that of the initial contract, which was mandated by
regulation.
In anticipation of the loss of Houlton Water Company effective January 1,
1996, the Company, in March of 1995, filed an open access transmission tariff
with the FERC. While it is difficult to predict the final outcome of this
filing and its impact on earnings, the Company will continue to pursue a
decision that has a positive impact on earnings.
In 1996, the MPUC started a proceeding whereby it will recommend to the
legislature a suggested method for restructuring the electric utility industry
in Maine. Your Company has and will have input into the process and we
emphasize, as we have in the past, that it is important that those with
limited agendas not be allowed to exploit this transition to the detriment of
our customers and shareholders. As the MPUC moves forward with electric
restructuring, we believe that a balanced approach is necessary to ensure that
it is fair to all concerned, customers and shareholders alike.
It is difficult to predict the future structure of the electric utility
industry, however, we are prepared for competition. The most significant
issue to be resolved is that of stranded investment, the difference between
the embedded cost of generation assets or regulatory assets and the market
price of those assets, which as of January 1, 1996, is estimated to be as much
as $68 million, made up of $24 million of the remaining Seabrook investment
and as much as $44 million of that portion of the Wheelabrator-Sherman
contract in excess of market pricing in today's dollars.
I am pleased to have the opportunity to lead Maine Public Service into this
challenging future of competition and I assure you that we will be prepared
when the restructuring takes place. Thanks to you, our shareholders, for your
support; and special thanks to our employees who have worked harder, smarter,
and accomplished more with less over the past year.
Sincerely,
Paul R. Cariani
President and CEO
(Page 4)
Analysis of Financial Condition and Review of Operations - 1995
RESULTS OF OPERATIONS
Operating Revenues and Energy Sales
Consolidated operating revenues and MWH sales for the years 1995, 1994, and
1993 are as follows:
(Dollars in Thousands)
Consolidated
Operating Revenues 1995 1994 1993
Retail:
Base $30,500 $32,112 $32,995
Fuel 15,442 15,269 15,787
Total 45,942 47,381 48,782
Sales for Resale:
Base 3,109 4,203 4,631
Fuel 3,846 2,743 2,561
Total 6,955 6,946 7,192
Total Primary Sales 52,897 54,327 55,974
Secondary Sales:
Base 24 432 1,397
Fuel 595 1,103 600
Total 619 1,535 1,997
Total Sales of Electricity 53,516 55,862 57,971
Other 1,731 2,444 2,605
Total Operating Revenues $55,247 $58,306 $60,576
MWH Sales:
Retail 477,891 502,233 530,844
Sales for Resale 123,793 119,450 116,182
Primary Sales 601,684 621,683 647,026
Secondary Sales 22,115 88,241 52,465
Total 623,799 709,924 699,491
Primary sales for 1995 were 601,684 MWH, which were approximately 3.2% lower
than primary sales of 621,683 MWH in 1994 and 7.0% lower than sales of 647,026
MWH in 1993. During the three-year period, the Company entered into
arrangements with other utilities to sell its Wyman Unit No. 4 and Maine
Yankee entitlements for varying lengths of time at existing market rates.
This energy was replaced, when necessary, with system purchases, avoiding
off-system wheeling costs. The Company's Maine Yankee entitlement was sold in
1994 and 1993, during periods of surplus capacity but not in 1995, due to the
year-long shutdown as discussed on Page 6 of this Annual Report. As a result,
secondary sales for 1995 of 22,115 MWH were 74.9% less than 1994, and 57.8%
less than 1993.
In 1995, retail sales were 477,891 MWH, 4.8% and 10.0% lower than 1994 and
1993, respectively. Reflecting the closing of Loring Air Force Base (Loring)
in the fall of 1994, sales to the Company's public authority customers were
11,747 MWH in 1995, compared to 28,621 MWH in 1994 and 53,021 MWH in 1993.
Sales to our residential customers in 1995 decreased by 4.0%, 7,045 MWH,
compared to 1994 and by 4.6% compared to 1993 because of the Loring closure
and an unusually warm winter in 1995. Residential sales accounted for
approximately 35% of our retail sales in 1995. Sales to our small commercial
and industrial customers were 165,914 MWH in 1995, 167,485 MWH in 1994, and
162,949 MWH in 1993. The increases in sales from 1993 reflect the opening of
a new shopping mall in Presque Isle. Sales to our large commercial and
industrial customers were 128,478 MWH in 1995, compared to 127,327 MWH and
135,029 MWH in 1994 and 1993, respectively. Increased activity by our lumber
and wood products customers accounted for the increase in sales from 1994 to
1995, while decreased activity by our food processing customers accounts for
the decreases from 1993.
The Maine Public Utilities Commission (MPUC) has jurisdiction over retail
rates. As discussed in the "Regulatory Proceedings" section of this Annual
Report, the MPUC approved a stipulation establishing a four-year rate plan.
Until this agreement, the Company had not sought a base rate increase since
November 1, 1992. Effective April 1, 1995 and 1993, the MPUC approved fuel
clause increases of $1.4 million and $882,000, respectively. The Company did
not seek a change in 1994. The recovery of fuel costs via the fuel clause
fluctuated with the availability of hydro and nuclear power and the volatility
of oil prices. The fuel clause also reflected mandated purchases from a
wood-burning cogenerator, which is the Company's most expensive source of
energy, Wheelabrator-Sherman Energy Company (Wheelabrator-Sherman). There
will be no fuel clause revenue adjustments for the duration of the rate plan.
At the end of 1995, the Company's retail rates were the lowest of Maine's
three investor-owned utilities and among the lowest in New England.
(Chart)
Megawatt Hours Sold
(Sales in Thousands)
1991 1992 1993 1994 1995
Total Megawatt
Hours Sold 676.5 680.1 699.5 709.9 623.8
Other Electric Sales 95.6 94.8 108.7 120.0 37.0
Sales for Resale 115.3 123.2 116.2 119.4 123.8
Commercial and
Industrial-Small 149.7 155.3 162.9 167.5 165.9
Commercial and
Industrial-Large 139.9 130.0 135.0 127.3 128.5
Residential 176.0 176.8 176.7 175.7 168.6
(Page 5)
The Federal Energy Regulatory Commission (FERC) has jurisdiction over U.S.
wholesale rates. Sales for resale were 123,793 MWH in 1995 compared to
119,450 MWH and 116,182 MWH for 1994 and 1993, respectively. Sales in 1995
were higher than 1994 because of increased usage by Houlton Water Company
(HWC), the Company's largest customer. Although 1995 sales for resale were
3.6% more than 1994, total revenues did not change, reflecting the discounted
rates included in contracts with our three U.S. wholesale customers. In 1995,
sales to those wholesale customers, classified as sales for resale,
represented approximately 15.3% of consolidated MWH sales and 11.3% of
consolidated operating revenues. Please see the "Regulatory Proceedings"
section of this Annual Report for a discussion on the competitive bids
solicited by our wholesale customers and the loss of Houlton Water Company
starting in 1996.
(Chart)
Total Sales of Electricity
(Dollars in Millions)
1991 1992 1993 1994 1995
Fuel Revenues 21.28 18.10 18.95 19.11 19.88
Base Revenues 34.10 35.96 39.02 36.75 33.64
Total 55.38 54.06 57.97 55.86 53.52
Fuel costs to generate electricity are immediately reflected in wholesale
rates and secondary sales, but their recovery must be approved annually by the
MPUC for retail rates. As previously mentioned, changes in the retail fuel
clause resulted in retail fuel revenues for 1995 of $15.4 million compared to
$15.3 million in 1994 and $15.8 million in 1993. Total fuel revenues for 1995
were $19.9 million compared to 19.1 million and $18.9 million for 1994 and
1993, respectively.
Energy Supply
The most economical of the Company's energy resources, hydro production,
provided 18.3% of the Company's energy requirements in 1995 and was 90.8% of
normal production. In 1994, hydro provided 15.8% of the Company's energy
requirements, and was 88.9% of normal. In 1993, hydro was 111.3% of normal,
representing 20.0% of the Company's 1993 energy requirements. The
availability of low cost hydro reduces the need for more expensive sources of
energy. In 1995, Maine Yankee provided only 1.5% of the Company's energy
requirements compared to 43.3% in 1994 and 37.9% in 1993. As further
discussed on Page 6 of this Annual Report, Maine Yankee was out of service for
most of 1995 for major repairs of its steam generator tubes, resulting in
higher than normal energy costs for the Company. With the exception of an
unscheduled four-week outage beginning in mid-July of 1994, Maine Yankee
operated at full capacity during 1994. Maine Yankee had a scheduled refueling
and maintenance outage in 1993, from late July to mid-October. Larger than
normal energy purchases were required in 1995 to replace the lost Maine Yankee
production. Energy purchases, principally from New Brunswick Power (NB
Power), were 57.5%, 21.7%, and 21.8% of the Company's energy supply for the
years 1995, 1994, and 1993, respectively. The availability of economical
replacement purchases from NB Power is dependent on such factors as weather,
hydro conditions, and the operating status of major generation sources in New
Brunswick. The Company's oil-fired generating facilities provided 3.6% of the
Company's requirements in 1995, compared to 2.4% in 1994 and 3.6% in 1993. In
1986, under an agreement ordered by the Maine Public Utilities Commission that
may be renewed by either party in 2000, the Company began purchasing the
output from an 18-megawatt wood-burning independent power producer, currently
owned by Wheelabrator-Sherman. These mandated purchases from this facility
represented 19.1% of the Company's energy needs in 1995, a larger percentage
than past years due to a reduction in energy requirements. The production
from this facility provided 16.8% and 16.7% of the energy in 1994 and 1993,
respectively.
(Chart)
Electric Output By Sources
(Percent)
1991 1992 1993 1994 1995
Oil 4.0 4.5 3.6 2.4 3.6
Cogeneration 17.3 18.2 16.7 16.8 19.1
Purchases 17.1 23.0 21.8 21.7 57.5
Nuclear 42.8 36.3 37.9 43.3 1.5
Hydro 18.8 18.0 20.0 15.8 18.3
(Page 6)
Operating Expenses
For the three-year period, purchased power expenses are as follows:
(Dollars in Thousands)
1995 1994 1993
Wheelabrator-Sherman $14,507 $13,932 $13,052
Maine Yankee 7,972 9,645 8,760
NB Power 9,091 3,841 2,784
System Purchases 408 346 2,918
Total $31,978 $27,764 $27,514
The 1995 increase in Wheelabrator-Sherman expenses compared to 1994 and 1993
reflects an annual 5% contractual price increase. For 1995, 1994, and 1993,
these mandated purchases from Wheelabrator-Sherman represented 45.4%, 50.2%,
and 47.4%, respectively, of total purchased power expenses. With the
year-long shutdown, Maine Yankee capacity expenses in 1995 were less than 1994
or 1993. Maine Yankee had a one-month unscheduled outage for repairs in 1994
and a two-month scheduled outage in 1993 for refueling and maintenance. For
ratemaking, the Company normalizes refueling and maintenance expenses due to
scheduled refuelings over the 18-month refueling cycle, while unscheduled
outages are charged immediately to expense. In 1995, faced with the
additional costs to resleeve the steam generator tubes, Maine Yankee
implemented certain cost saving measures that ultimately reduced the Company's
capacity charges. As an element of its rate plan, discussed in the
"Regulatory Proceedings" section of this Annual Report, the Company's $1.3
million share of the steam generator tube resleeving was deferred in 1995 and
will be expensed over five years, beginning in 1996. To offset the loss of
the Maine Yankee production due to the extended outage, the Company required
an additional 218,418 MWH of replacement power from NB Power, resulting in an
increase of $5,250,000 in NB Power purchases. As discussed in the "Operating
Revenues and Energy Sales" section of this Annual Report, the Company has
entered into agreements with other utilities to buy and sell power to obtain
savings in both fuel and wheeling expenses.
Other operation and maintenance expenses for the three-year period are as
follows:
(Dollars in Thousands) 1995 1994 1993
Generation
Fuel Expense $ 824 $ 602 $ 945
Other 2,031 2,096 2,128
Total 2,855 2,698 3,073
Deferred Fuel (4,969) (806) (333)
Fuel Expense Write-off 3,500 - -
Transmission and
Distribution 3,668 4,103 4,166
Customer Accounting and
General Administrative 6,740 6,669 7,270
Total $11,794 $12,664 $14,176
Fuel expense for generation increased by $222,000 in 1995, compared to 1994,
because oil-fired generation increased 5,507 MWH to help offset the lost
generation of Maine Yankee. Other generation expenses decreased $65,000,
primarily due to reduced activity at the Caribou Steam Plant. In 1996, the
Caribou Steam Plant was deactivated because of the loss of two customers,
Loring Air Force Base and Houlton Water Company, and is projected to remain
inactive for a minimum of five years. Deferred fuel expense, a component of
other operation and maintenance expenses, was a negative $4,969,000 in 1995,
compared to a negative $806,000 and a negative $333,000 in 1994 and 1993,
respectively. Negative deferred fuel indicates that current fuel costs have
exceeded fuel revenues and have been deferred to a period when these costs
will be collected. As part of the four-year rate plan, the Company wrote off
$3.5 million, before income taxes, of the replacement power costs associated
with the Maine Yankee outage. For more information about the rate plan and
Maine Yankee, see the "Regulatory Proceedings" and "Maine Yankee" sections of
this Annual Report. Transmission and distribution expenses were $3,668,000 in
1995, compared to $4,103,000 and $4,166,000 in 1994 and 1993, respectively.
The decrease in 1995 expenses compared to 1994 and 1993, reflects a new
wheeling arrangement between NB Power and a cogeneration facility in our
service territory, now owned by Central Maine Power, whereby the Company no
longer remits these payments to NB Power. Customer accounting and general and
administrative expenses increased $71,000 from $6,669,000 in 1994 to
$6,740,000 in 1995. This increase was due to increased medical and regulatory
expenses. However, 1995 expenses were $530,000 less than 1993 expenses,
reflecting the Company's efforts to control these expenses.
Maine Yankee
The Company owns 5% of the Common Stock of Maine Yankee. In early February
of 1995, during a scheduled refueling-and-maintenance shutdown, 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. Maine Yankee would not resume operations until the necessary repairs
had been made.
On May 22, 1995, the Maine Yankee Board of Directors approved a plan to
repair these tubes using welded sleeves. Sleeving involves the inserting of a
tube of slightly smaller diameter into the defective tube. The sleeve is
welded in place and acts as a new tube. In addition to the extensive
technical analysis on the steam generators performed by the Maine Yankee
technical staff, two independent studies on the overall condition of the Plant
were also undertaken. Both studies concluded that the overall mechanical
condition of the Plant was very good.
The sleeving of the steam generator tubes was not completed until
mid-December of 1995, at a cost of approximately $27 million, with the
Company's share being approximately $1.3 million. During 1995, while Maine
Yankee was out of service, the Company incurred additional replacement power
costs of approximately $5.7 million. As more fully explained in the
"Regulatory Proceeding" sections of this Annual Report, the Maine Public
Utilities Commission (MPUC) approved a multi-year rate plan for the Company.
As an element of the rate plan, the Company eliminated the fuel adjustment
clause except for the cost of power purchased from the Wheelabrator-Sherman
Energy Company, an independent power producer. As part of the rate plan, $2.1
million,
(Page 7)
net of income taxes, of the replacement power costs associated with the Maine
Yankee outage was written off in 1995, $300,000, net of income taxes, will be
amortized over the four-year rate plan period, and an estimated $1.3 million,
net of income taxes, will be deferred until 2000. The rate plan also includes
a mechanism to handle similar unexpected Maine Yankee outages during the rate
plan period. In addition, the stipulation allows for the five-year
amortization of the actual sleeving expenses.
On December 4, 1995, when the sleeving project was substantially complete,
Maine Yankee obtained a copy of a letter from an organization with a history
of opposing nuclear power development to a State of Maine nuclear safety
official based on documentation from an anonymous employee or former employee
of Yankee Atomic Electric Company (Yankee), an affiliate of Maine Yankee that
has regularly performed nuclear engineering and related services for Maine
Yankee and other nuclear plant operators. The letter contained allegations
that Yankee knowingly performed inadequate analyses to support two license
amendments to increase the rated thermal power at which the Maine Yankee Plant
could operate. It was further alleged in the letter that Maine Yankee
deliberately misrepresented the analyses to the Nuclear Regulatory Commission
(NRC) in seeking the license amendments. The allegedly inadequate analyses
related to the operation of the Plant's emergency core cooling system (ECCS)
and the calculation of the Plant containment's peak postulated accident
pressure, both under certain assumed accident conditions. The analyses were
used in support of license amendments that authorized Plant power uprates from
2,440 megawatts thermal, a level equal to approximately 90 percent of the
maximum electrical capability of the Plant, to its current 100-percent rated
level.
In response to technical issues raised by the allegations, the NRC initiated
a special technical review of the safety analyses performed by Yankee relating
to Maine Yankee's license amendment applications for the power uprates. At
the same time, Maine Yankee and Yankee initiated intensive internal
investigations of the allegations and provided responsive information and
documentation to the NRC.
On December 18, 1995, a public meeting was held at the NRC to discuss the
findings resulting from the NRC's technical review. At the meeting, the NRC
informed Maine Yankee that it had concerns regarding the adequacy of a
proprietary computer code used in ECCS safety analyses supporting Maine
Yankee's last two applications for license amendments that authorized power
uprates to levels above 90 percent of its current maximum capability. At the
meeting, the NRC also indicated that operation of the Plant at a level up to
90 percent could be acceptable if operation was based on methods previously
found acceptable by the NRC staff and not on the computer code that is
currently under review by the NRC, and further informed Maine Yankee of the
terms and conditions under which Maine Yankee could resume power operation of
the Plant. Subsequently, the NRC informed Maine Yankee that the allegations
would be the subject of investigations by the NRC's Office of Investigations
and the Office of the Inspector General.
On January 3, 1996, the NRC issued a "Confirmatory Order Suspending
Authority For And Limiting Power Operation And Containment Pressure (Effective
Immediately) And Demand For Information" (the Order) confirming the
conclusions of the NRC from the public meeting and follow-up communications
with Maine Yankee. The Order limited the power output of the Maine Yankee
Plant to approximately 90 percent of its rated maximum until the NRC shall
have reviewed and approved Plant-specific analyses meeting the NRC's criteria
for operation of the ECCS under certain postulated accident conditions, in
lieu of the analyses based on the questioned computer code. The Order further
required that, prior to operating the Plant at any level, Maine Yankee should
submit, under oath, specified information relating to operating the Plant at
up to the 90-percent level and descriptions of measures taken to assure
compliance with the limitations on operating level and containment pressure.
With respect to subsequently returning the Plant to its 100-percent
operating level, the Order required Maine Yankee to submit a Plant-specific
analysis meeting the NRC's requirements for ECCS operation under specified
conditions at Plant power levels up to 100 percent of its maximum rated
capability. The Order also required an integrated containment analysis
demonstrating that the maximum calculated containment pressure under certain
postulated accident conditions does not exceed the design pressure of the
Plant's containment. In addition, the Order required Maine Yankee to submit a
schedule for providing the requested analyses and related information to the
NRC. The Order is subject to the limited rights of any person "adversely
affected" by the Order to request a hearing or to seek a stay of the
effectiveness of the Order.
On January 10, 1996, Maine Yankee filed with the NRC information specified
in the Order that it believes supports operation of the Plant at up to 90
percent of the Plant's capability. In its submittal, Maine Yankee also
notified the NRC that it expected to proceed with initial operation of the
Plant on January 11, 1996, and the Plant commenced operation on that day. The
Company estimates that its incremental replacement power costs at the
90-percent level of operation could range, depending on overall energy
requirements and market conditions, from approximately $40,000 to $60,000 per
month as a result of the reduced energy output of the Plant. With the
previously mentioned rate plan commencing on January 1, 1996, and the
elimination of the fuel clause, these costs will be charged to operations.
Despite the twelve-month shutdown, on January 22, 1996, Maine Yankee
attained the 90 per cent level of the Plant's capability. The Company cannot
predict when the Plant will be granted authority to return to the 100-percent
operating level and, once the authority is received, when Maine Yankee will
attain that operating level. The Company also cannot predict the results of
the internal and external investigations of the allegations brought to Maine
Yankee's attention on December 4, 1995, or whether any party will seek an NRC
hearing or any appeal with respect to the Order. Maine Yankee has stated,
however, that it intends to pursue its internal investigation diligently and
cooperate with the governmental investigations, and that it believes that
after it develops the information requested by the NRC for operation of the
Plant at full capacity it will be able to operate the Plant at that level
while meeting all applicable NRC safety requirements.
(Page 8)
Earnings and Dividends
For 1995, earnings per share before extraordinary items were $.57.
Write-offs of the Company's remaining wholesale investment in Seabrook and
other wholesale plant have been classified as extraordinary items resulting in
a loss of $6.2 million, net of income taxes, $3.86 per share. After
extraordinary items, the Company incurred a loss per share of $3.29, based on
a net loss of $5,315,312 and 1,617,250 average shares outstanding. In
addition to the extraordinary write-offs in 1995, the Company also charged
$2.1 million to operating expenses, net of income taxes, or $1.30 per share,
for previously deferred retail fuel representing the replacement power
expenses incurred during the Maine Yankee resleeving outage in 1995. Earnings
were also negatively impacted by the September 1994 closure of Loring Air
Force Base. As discussed in the "Regulatory Proceedings" section of this
Annual Report, these write-offs were an element of the four-year rate plan
approved by the MPUC on November 13, 1995.
Your Board of Directors declared quarterly dividends of $.46 per share after
raising the dividend in the fourth quarter of 1993 from $.44 per share.
Dividends paid per share for 1995 and 1994 were $1.84 per share and $1.76 for
1993. The dividend payout ratios were 62% and 56% for 1994 and 1993,
respectively. Before considering the rate plan write-offs, the 1995 payout
ratio was 98.4%.
The Company's return on common equity for 1995 was a negative 12.33%, after
extraordinary items, compared to 10.33% for 1994 and 11.69% for 1993. As more
fully discussed in the "Regulatory Proceedings" section of this Annual Report,
the Maine Public Utilities Commission approved a four-year rate plan on
November 13, 1995, effective January 1, 1996, with an authorized rate of
return of 11.0%.
The table below portrays the cost components of an average kilowatt hour
sale for the three-year period, based on actual sales for those years. The
impact of the extraordinary and deferred fuel write-offs totaling $8,340,000,
net of tax, has not been considered to obtain comparability with previous
years. The fuel component for each of the years reflects the fuel recoveries
authorized via the annual fuel adjustment clauses.
Components of Costs for
Average Revenue Per Primary Sale KWH
Before 1995 Write-offs
(Cents)
1995 1994 1993
Fuel 3.21 2.90 2.84
Purchased Power Capacity
And Other Operations 3.39 3.38 3.31
Depreciation .43 .40 .37
Seabrook Amortization .28 .28 .26
Taxes .70 .86 .90
Interest .63 .62 .60
Other Revenues (.35) (.48) (.45)
Return to Shareholders .50 .78 .82
Average Revenue Per
Primary Sale KWH 8.79 8.74 8.65
Liquidity and Capital Resources
In 1995, the write-offs required by the rate plan, the impact of the closure
of Loring Air Force Base (Loring) in the fall of 1994, and the extended
resleeving shutdown of Maine Yankee all adversely impacted the Company's
earnings, resulting in a loss of $5.3 million. As more fully explained in the
"Regulatory Proceedings" section of this Annual Report, the Company agreed to
write-offs totalling $8.3 million, $5.16 per share, consisting of
extraordinary losses of $6.2 million and a charge to operations of $2.1
million, representing replacement power costs during the Maine Yankee
resleeving outage. Despite the loss, cash flows were better than expected.
With the exception of short-term borrowings for working capital requirements,
the Company was able to fund its construction, pay the dividends, and pay for
the Maine Yankee resleeving and replacement power costs principally with
internally-generated funds. Despite the write-offs, at the end of 1995,
common shareholders' equity was 50% of the Company's capital structure. With
this financial strength and the rate plan, the Company believes it is properly
positioned to face the challenges it will encounter to the turn of the
century.
The accompanying "Statements of Consolidated Cash Flows" reflect the
Company's liquidity and financial strength. The statements report the net
cash flows generated from or used for operating, financing, and investing
activities.
Net cash flows generated from operating activities were $3.4 million in
1995, compared to $10.3 million in 1994, which reflect the Maine Yankee
replacement power costs of $5.7 million and resleeving costs of $1.3 million.
In 1995, the Company borrowed an additional $1.4 million utilizing its
short-term credit facilities. During 1995, the Company paid $3 million in
dividends, made debt payments of $65,000 and invested $3.4 million in electric
plant.
In 1994, operating activities generated net cash flows of $10.3 million. In
addition, the Company received the final payment of $1.1 million from the
trustee of the tax-exempt bonds upon the completion of qualifying facilities.
The Company paid dividends of $3 million, purchased 43,000 shares of its
Common Stock in early 1994 for $1.1 million, made debt payments of $1.9
million, including the final payment on its 4-3/4% First Mortgage Bonds, and
invested $4.4 million in electric plant. During 1994, the Company had
sufficient cash flows that did not require short-term borrowings from its
credit facilities.
Net cash flow from operating activities for 1993 was $8.8 million, and the
Company received $2.4 million from the trustee of the tax-exempt bonds upon
the completion of qualifying facilities. The Company used $3.0 million for
dividends, $5.1 million for debt payments, and invested $3.3 million in
electric plant.
(Page 9)
For additional information regarding construction expenditures for 1993 to
1995 and anticipated construction expenditures for 1996, see Note 10,
"Commitments and Contingencies, Construction Program", of the Notes to
Consolidated Financial Statements.
The Company uses short-term borrowings to satisfy working capital
requirements. As previously mentioned, in 1995 the Company had sufficient
cash flows and periodically required short-term borrowings from its credit
facilities. As was the case at the end of 1993, the Company ended 1994
without any outstanding short-term borrowings, while $1.4 million was
outstanding at the end of 1995. During 1993 to 1995, required borrowings
under the Company's credit facilities were below the existing prime rate. For
additional information on the short-term credit facility, see Note 5,
"Short-Term Credit Arrangements", of the Notes to Consolidated Financial
Statements.
The Company has the ability to finance through the issuance of Common and
Preferred Stock. The Company is authorized to issue up to 3,000,000 shares of
Common Stock. In addition, the Company's restated articles of incorporation
authorize the issuance of 200,000 shares of Preferred Stock with the par value
of $100 per share and 200,000 shares of Preferred Stock with the par value of
$25 per share.
In order to maintain the Company's common equity at levels appropriate for
an investor-owned utility, the Company has repurchased 250,000 shares at a
cost of $5,714,376. The original five-year program approved by the Maine
Public Utilities Commission (MPUC) expired in September 1994. On November 1,
1994, the MPUC approved the Company's application to repurchase up to an
additional 300,000 shares over a five-year period. With the write-offs
required by the rate plan, the Company does not anticipate using the program
to adjust its capital structure.
The Company can also issue First Mortgage Bonds of $17.5 million and Second
Mortgage Bonds of $24 million without bondable property additions. For
additional information on long-term debt, see Note 8, "Long-Term Debt", of the
Notes to Consolidated Financial Statements.
Employees
At the end of 1995, the Parent Company had 169 full-time employees compared
to 171 for 1994. As the result of the lay-up of the Caribou Steam Plant and
corresponding voluntary early retirement program to create vacancies for the
displaced workers, the number of employees at the Parent Company decreased by
an additional 11 at the beginning of January, 1996. The Subsidiary had 10
full-time employees at the end of both 1995 and 1994. Consolidated payroll
costs were $6.8 million in 1995 compared to $6.7 million in 1994.
Local 1837 of the International Brotherhood of Electrical Workers ratified a
three-year contract with the Parent Company, effective on October 1, 1993.
The agreement includes 3.5% wage increases in each year of the contract.
Negotiations for a new contract, effective October 1 1996, will begin this
summer.
The Subsidiary and Local 1733 of the International Brotherhood of Electrical
Workers ratified a three-year contract effective January 1, 1995. Annual wage
increases of 3.25% are provided in each year of the contract.
Regulatory Proceedings
Four-Year Rate Plan Approved
On November 13, 1995, the Maine Public Utilities Commission (MPUC) approved
a stipulation signed by the Company, the Commission Staff and the Maine Public
Advocate, but opposed by McCain Foods, Inc. This stipulation, which becomes
effective January 1, 1996, establishes a multi-year rate plan for the Company
that will provide our customers with predictable rates through 1999 and shares
operating risks and benefits between the Company's shareholders and customers.
Under the terms of the stipulation, the Company has the right to receive the
following increases in retail rates: January 1, 1996, 4.4%; February 1, 1997,
2.9%; February 1, 1998, 2.75%; and February 1, 1999, 2.75%. The Company has
agreed that it will seek no other increases, for either base or fuel rates,
except as provided under the terms of the plan. There will be no fuel clause
adjustments for the duration of the plan.
The increases are subject to adjustments resulting from the operation of a
profit-sharing mechanism, as well as the mandated cost and plant outage
provisions of the plan. The profit-sharing mechanism is based on a target
return on equity of 11%, calculated using certain retail ratemaking
methodologies, and will apply only to the last two rate increases, scheduled
to occur in 1998 and 1999. The profit-sharing mechanism establishes a
bandwidth of 300 basis points around the target return on equity. All gains
or losses within that bandwidth will be borne entirely by the Company's
shareholders. Any earnings above or below the bandwidth will be shared by
shareholders and customers. Moreover, the Company is allowed to terminate the
rate plan and file for a general rate increase if its earnings fall 500 or
more basis points below the target return on equity during any twelve-month
period during the term of the plan.
The plan also provides that if either Maine Yankee or the
Wheelabrator-Sherman Energy Company (Wheelabrator-Sherman) ceases operation
for more than six months, the Company will be permitted to adjust its allowed
rate increases by half of the net costs or net savings resulting from an
outage. Any net costs or net savings realized during the first six months of
the outage would accrue entirely to shareholders. The Company is also
permitted to adjust the annual increases because of certain mandated costs,
such as tax or accounting changes, if any such change affects the Company's
annual revenue requirement by more than $300,000.
The Company, under the terms of the plan, has recognized write-offs in 1995,
totalling approximately $8,340,000, net of income taxes, or approximately
$5.16 per share. Approximately $4,846,000, net of income taxes, of the
Company's investment in the Seabrook nuclear project previously allocated to
wholesale sales and $1,390,000, net of income taxes, of other wholesale plant
investment and regulatory assets have been written off and classified as
extraordinary items. In addition, $2,104,000, net of income taxes, of
deferred retail fuel has been charged to operating expenses.
The Company will also be permitted to defer $1,500,000 annually of the costs
of its purchases from Wheelabrator-Sherman during each of the four years of
the rate plan. The plan permits the Company to seek recovery of this deferred
amount, up to a total of $6,000,000, in rates beginning in the year 2001,
after the current term
(Page 10)
of its contract with Wheelabrator-Sherman has expired. The Company has been
negotiating with Wheelabrator-Sherman to restructure the terms of its power
purchase contract, which was mandated by the MPUC acting under the authority
of Public Utility Regulatory Policy Act (PURPA). To date, these negotiations
have not been successful. The Company believes the deferral allowed under
this rate plan parallels the effects of a restructured contract. The Company
and Wheelabrator-Sherman are continuing discussions, and the benefits of any
restructured contract will be passed through to the Company's customers, by
applying any savings first to these deferred amounts. The rate plan also
allows the deferral, until the year 2000, of approximately $1.3 million, net
of income taxes, of uncollected retail fuel at the beginning of the rate plan,
while an additional $300,000, net of income taxes, will be amortized over the
rate plan period.
The Company's success under the rate plan depends on the normal operation of
Maine Yankee. If Maine Yankee experiences additional problems with the steam
generator tubes or other components of the plant and cannot maintain normal
operations, the Company's earnings and cash flows will be adversely impacted.
On January 2, 1996, McCain Foods, Inc., who had objected to the stipulation,
appealed the Commission's approval of it to the Maine Supreme Judicial Court.
Although the Company does not believe this appeal has much merit, it cannot
predict the ultimate outcome.
Three New Rates Approved
In addition to the four-year rate plan, the Maine Public Utilities
Commission (MPUC) 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 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.
Fuel Clause Changes
On March 29, 1993, the Maine Public Utilities Commission (MPUC) approved a
stipulation increasing its fuel adjustment clause by $882,000 for the twelve
months beginning April 1, 1993. On March 18, 1994, the MPUC approved the
Company's request for not changing the Company's fuel adjustment clause for
the twelve months beginning April 1, 1994. Lower fuel prices, higher sales,
and above-normal hydro generation all contributed to maintaining the fuel
clause with no additional increases.
On March 27, 1995, the MPUC approved a stipulation, agreed to by the Company
and the MPUC Staff, resulting in an increase of 3% in retail rates effective
April 1, 1995. As the first step in the Company's plan to provide stable and
predictable rates leading to the MPUC's approval of the multi-year rate plan,
the Company limited its increase to 3%, an annual increase of approximately
$1.4 million. As stated above in the description of the Company's four-year
plan, the Company will be entitled to no additional fuel clause adjustments
through May 1, 1999.
Wholesale Customers Solicit
Competitive Bids
On September 26, 1994, Maine Public Service Company's wholesale customers
(Houlton Water Company, Van Buren Light and Power District, and Eastern Maine
Electric Co-Operative, Inc.) issued a request for proposal to several
wholesale suppliers, including the Company, for purchased power requirements
beginning January 1, 1996. The wholesale customers' request sought proposals
for a minimum ten-year period.
On October 21, 1994, the Company submitted its proposals to the wholesale
customers. The Company submitted alternative proposals, a six-year proposal
and an eleven-year proposal, both beginning January 1, 1995. Although a
current contract obligated the wholesale customers through December 31, 1995,
they sought "incentives" from potential suppliers to reduce their cost for
1995. The Company's proposals reduced rates by approximately 20% from the
rates under the current contract. The Company believed that its proposals
were competitive with those available from other potential wholesale
suppliers.
On December 2, 1994, the Company was notified that Houlton Water Company
(HWC) selected a competing offer from Central Maine Power (CMP) to be served
from its newly acquired subsidiary located in Fort Fairfield, Maine, the
Aroostook Valley Electric Company (AVEC). On December 29, 1994, HWC filed
with the Maine Public Utilities Commission (MPUC) for approval of its purchase
from CMP. The Company intervened in this matter, contending that the MPUC
should not grant HWC's requested approval, since CMP would be serving HWC from
a facility acquired using State financing. The Company believed that State
energy and regulatory policy prohibited CMP from using a facility supported by
State financing to the detriment of the retail customers of another facility.
On March 30, 1995, the MPUC issued its decision, concluding that the statutes
granted it the authority to approve the contract between CMP and HWC, and
furthermore, did not confer upon the MPUC the 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. Therefore, in considering its
approval of the CMP-HWC contract, the MPUC declined to take into account the
effect of that contract upon the Company and its customers. For the twelve
months ended December 31, 1995, sales to HWC represented 11.1% of the
Company's consolidated MWH sales and 8.4% of consolidated operating revenues.
The Company served HWC under an earlier contract through December 31, 1995,
and will provide transmission services to HWC, starting in 1996.
The Company was also notified on December 2, 1994, that the remaining
wholesale customers, Van Buren Light and Power District (Van Buren) and
Eastern Maine Electric Co-Operative, Inc. (EMEC), selected the Company's
six-year proposal, which included a provision that any new contract not be
terminated before December 31, 1998.
(Page 11)
For the twelve months ended December 31, 1994, sales to Van Buren and EMEC
represented 3.7% of the Company's consolidated MWH sales and 3.1% of
consolidated operating revenues. The new rates were approved by the Federal
Energy Regulatory Commission on February 1, 1995, retroactive to January 1,
1995.
Open Access Transmission Tariff
On March 31, 1995, at the request of the U. S. wholesale customers, the
Company filed an open access transmission wheeling tariff with the Federal
Energy Regulatory Commission (FERC). The new tariff provides fees for several
different levels of transmission services that are required by transmission
customers. In getting its tariff approved, the Company must contend with the
many rulemaking changes that the FERC has recently issued on open access
transmission services. On May 31, 1995, the FERC approved the filed tariff,
subject to refund, and established hearing dates for the new tariff. The
Company has not recognized the additional revenues of $354,000 from the
temporary tariff, since the new rates are subject to refund. Upon final FERC
approval of the open access transmission tariff, the Company will recognize
the allowable portion of the revenues currently subject to refund. Throughout
the proceedings, the wholesale customers have contested various aspects of the
filed tariff. The Company cannot predict the outcome of this proceeding.
Accounting Pronouncements
Effective January 1, 1996, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 121 "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." The adoption
of the new standard did not have a material effect on the Company's financial
position or results of operations.
In October, 1995, the Financial Accounting Standards Board issued SFAS No.
123 "Accounting for Stock-Based Compensation", the adoption of which will not
have a material impact on the Company's financial position or results of
operations.
Shareholder Information
General
The Company's Common Stock is listed and traded on the American Stock
Exchange. As of December 31, 1995 and 1994, Common Stock shares issued and
outstanding were 1,617,250. As of December 31, 1995, shares were held by
1,634 shareholders or nominees in forty-nine states, the District of Columbia,
and Canada.
The annual meeting of shareholders is held each year on the second Tuesday
in May at the Company's headquarters in Presque Isle. Market price and
dividend information relative to the two most recent calendar years are shown
in the tabulation below.
Income Tax Status of 1995 Dividends
The Company has determined that the Common Stock dividends paid in 1995 are
fully taxable for federal income tax purposes. These determinations are
subject to review by the Internal Revenue Service, and shareholders will be
notified of any significant changes.
Market Dividends Dividends
Price Paid Declared
High Low Per Share Per Share
1995
First Quarter $23-7/8 $20-5/8 $ .46 $ .46
Second Quarter $22-3/4 $19-7/8 .46 .46
Third Quarter $23-1/4 $21 .46 .46
Fourth Quarter $23-1/2 $20-5/8 .46 .46
Total Dividends $1.84 $1.84
1994
First Quarter $27-3/8 $26 $ .46 $ .46
Second Quarter $27 $25-1/4 .46 .46
Third Quarter $26 $22-3/4 .46 .46
Fourth Quarter $24 $20-1/2 .46 .46
Total Dividends $1.84 $1.84
Dividends declared within the quarter are paid on the first day of the
succeeding quarter.
(Page 12)
Five-Year Summary of Selected Financial Data
1995 1994 1993 1992 1991
Operating Revenues
55,246,626 58,306,085 60,575,712 56,570,640 57,966,310
Income Before Extra-
ordinary Items
920,500 4,845,647 5,300,840 4,864,936 4,476,060
Extraordinary Items,
Net of Taxes
(6,235,812) - - - -
Net Income (Loss) Available for
Common Stock
(5,315,312) 4,845,647 5,300,840 4,864,936 4,476,060
Earnings (Loss) Per Share of Common Stock
Income Before
Extraordinary Items
.57 2.99 3.19 2.93 2.62
Extraordinary Items
(3.86) - - - -
Net Income (Loss)
(3.29) 2.99 3.19 2.93 2.62
Dividends Per Share of Common Stock:
Declared Basis
1.84 1.84 1.78 1.76 1.68
Paid Basis
1.84 1.84 1.76 1.74 1.68
Total Assets
113,841,822 122,375,442 124,936,558 112,047,613 115,365,848
Long-Term Debt
Outstanding
37,435,000 37,500,000 39,365,000 39,455,000 44,745,000
Less amount due
within one year
1,315,000 65,000 1,865,000 90,000 490,000
Long-Term Debt
36,120,000 37,435,000 37,500,000 39,365,000 44,255,000
(Page 13)
Independent Auditors' Report
MAINE PUBLIC SERVICE COMPANY:
We have audited the accompanying consolidated balance sheets and statements
of capitalization of Maine Public Service Company and its Subsidiary, Maine
and New Brunswick Electrical Power Company, Limited, as of December 31, 1995
and 1994, and the related consolidated statements of operations, common
shareholders' equity, and cash flows for each of the three years in the period
ended December 31, 1995. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of the companies at December 31,
1995 and 1994 and the results of their operations and their cash flows for
each of the three years in the period ended December 31, 1995 in conformity
with generally accepted accounting principles.
Deloitte & Touche LLP
Boston, Massachusetts
February 14, 1996
(Page 14)
MAINE PUBLIC SERVICE COMPANY AND SUBSIDIARY
Statements of Consolidated Operations
Year Ended December 31
1995 1994 1993
Operating Revenues $55,246,626 $58,306,085 $60,575,712
Operating Expenses
Purchased Power 31,978,290 27,764,353 27,513,535
Other Operation & Maintenance 11,794,000 12,664,268 14,175,651
Depreciation & Amortization 4,277,494 4,224,190 4,124,121
Taxes Other Than Income 1,653,228 1,594,422 1,523,451
Provision for Income Taxes 1,179,336 3,739,777 4,313,042
Total Operating Expenses 50,882,348 49,987,010 51,649,800
Operating Income 4,364,278 8,319,075 8,925,912
Other Income (Deductions)
Equity in Income of Associated
Companies 360,684 361,752 418,552
Allowance for Equity Funds Used
During Construction 3,667 9,174 56,131
Provision for Income Taxes (73,269) (104,546) (79,651)
Other - Net 27,172 113,925 (154,368)
Total 318,254 380,305 240,664
Income Before Interest Charges and
Extraordinary Items 4,682,532 8,699,380 9,166,576
Interest Charges
Long-Term Debt & Notes Payable 3,763,395 3,857,301 3,890,253
Less Allowance for Borrowed Funds
Used During Construction (1,363) (3,568) (24,517)
Total 3,762,032 3,853,733 3,865,736
Income Before Extraordinary Items 920,500 4,845,647 5,300,840
Extraordinary Items, Net of
Taxes of $1,917,399 (6,235,812) - -
Net Income (Loss) Available
for Common Stock (5,315,312) 4,845,647 5,300,840
Earnings (Loss) Per Share
of Common Stock
Income Before Extraordinary Items $ .57 $2.99 $3.19
Extraordinary Items (3.86) - -
Net Income (Loss) $(3.29) $2.99 $3.19
Average Shares Outstanding 1,617,250 1,618,700 1,660,250
See Notes to Consolidated Financial Statements.
(Page 15)
MAINE PUBLIC SERVICE COMPANY AND SUBSIDIARY
Statements of Consolidated Cash Flows
Year Ended December 31,
1995 1994 1993
Cash Flow From Operating Activities
Net Income (Loss) $(5,315,312) $4,845,647 $5,300,840
Adjustments to Reconcile Net
Income (Loss) to
Net Cash Provided by Operations:
Depreciation and Amortization 4,277,494 4,224,190 4,124,121
Extraordinary Items, After
Income Taxes 6,235,812 - -
Deferred Income Taxes - Net 1,165,623 (359,942) 161,968
Deferred Investment Tax Credits (77,027) (77,027) (77,024)
Allowance for Funds Used
During Construction (5,030) (12,742) (80,648)
Income on Tax-Exempt Bonds-
Restricted Funds _ (6,269) (140,801)
Change in Deferred Regulatory
and Debt
Issuance Costs (2,220,091) 1,690,200 (1,923)
Change in Deferred Revenues 353,653 (119,440) (159,264)
Change in Benefit Obligations 277,078 702,649 563,759
Change in Current Assets and
Liabilities:
Accounts Receivable and
Unbilled Revenue (921,247) 1,110,069 (65,017)
Deferred Fuel and Purchased
Energy Cost (1,457,973) (822,990) (332,573)
Other Current Assets 39,540 (216,035) (28,960)
Accounts Payable 1,150,497 495,726 (669,790)
Accrued Taxes and Interest 11,374 (654,040) (8,701)
Other Current Liabilities 4,291 (11,316) 1,783
Other - Net (91,493) (495,898) 197,354
Net Cash Flow Provided By
Operating Activities 3,427,189 10,292,782 8,785,124
Cash Flow From Financing Activities
Dividend Payments (2,975,740) (2,975,740) (2,955,245)
Purchase of Common Stock - (1,143,137) -
Drawdown of Tax-Exempt Bond Proceeds - 1,110,637 2,355,295
Retirements of Long-Term Debt (65,000) (1,865,000) (90,000)
Short-Term Borrowings, Net 1,400,000 - (5,000,000)
Net Cash Flow Used In Financing
Activities (1,640,740) (4,873,240) (5,689,950)
Cash Flow Used In Investing Activities
Investment in Restricted Funds - 169,588 (5,157)
Investment in Electric Plant (3,428,784) (4,362,620) (3,273,186)
Net Cash Flow Used In Investing
Activities (3,428,784) (4,193,032) (3,278,343)
Increase (Decrease) in Cash and
Temporary Investments (1,642,335) 1,226,510 (183,169)
Cash and Temporary Investments at
Beginning of Year 2,618,418 1,391,908 1,575,077
Cash and Temporary Investments at
End of Year $ 976,083 $2,618,418 $1,391,908
Supplemental Disclosure of Cash
Flow Information:
Cash Paid During The Year For:
Interest $3,499,198 $3,580,862 $3,625,620
Income Taxes $ 235,076 $5,040,950 $4,233,884
See Notes to Consolidated Financial Statements.
(Page 16)
MAINE PUBLIC SERVICE COMPANY AND SUBSIDIARY
Consolidated Balance Sheets
Assets
December 31,
1995 1994
Utility Plant
Electric Plant in Service $88,648,045 $89,625,380
Less Accumulated Depreciation 39,674,322 39,713,937
Net Electric Plant in Service 48,973,723 49,911,443
Construction Work-In-Progress 427,654 570,367
Total 49,401,377 50,481,810
Investments in Associated Companies 3,641,211 3,455,935
Net Utility Plant and Investments
in Associated Companies 53,042,588 53,937,745
Current Assets:
Cash and Temporary Investments 976,083 2,618,418
Deposits for Interest and Dividends 743,935 743,935
Accounts Receivable (less allowance for
uncollectible accounts in 1995, $214,130
and 1994, $214,215) 6,225,423 5,069,376
Unbilled Revenue 2,179,043 2,413,843
Deferred Fuel and Purchased Energy Costs 1,993,289 535,316
Inventory 1,243,597 1,288,896
Prepayments 542,933 537,174
Total 13,904,303 13,206,958
Other Assets:
Recoverable Seabrook Costs (less accumulated
amortization and write-off in 1995,
$24,040,971; in 1994, $16,113,391 29,146,039 37,073,619
Regulatory Assets-SFAS 109 & 106 13,746,531 16,212,326
Unamortized Debt Expense (less accumulated
amortization in 1995 $1,601,945; 1994,
$1,335,101) 702,865 949,709
Deferred Regulatory Costs (less accumulated
amortization in 1995, $1,567,429; 1994,
$2,668,447) 2,698,763 379,796
Miscellaneous 600,733 615,289
Total 46,894,931 55,230,739
Total Assets $113,841,822 $122,375,442
See Notes to Consolidated Financial Statements.
(Page 17)
Capitalization and Liabilities
December 31,
1995 1994
Capitalization (see accompanying statements):
Common Shareholders' Equity $38,956,795 $47,247,847
Long-Term Debt 36,120,000 37,435,000
Total 75,076,795 84,682,847
Current Liabilities:
Long-Term Debt Due Within One Year 1,315,000 65,000
Notes Payable to Banks 1,400,000 -
Accounts Payable 3,162,410 2,118,804
Accounts Payable - Associated Companies 838,863 868,853
Accrued Employee Benefits 1,229,542 1,092,661
Deferred Income Taxes Related to Deferred
Fuel Costs 795,484 213,561
Dividends Declared 743,936 743,936
Customer Deposits 78,820 74,529
Taxes Accrued 105,634 91,613
Interest Accrued 1,018,703 1,021,350
Total 10,688,392 6,290,307
Deferred Credits:
Deferred Revenues 353,653 -
Income Taxes 23,970,098 28,036,322
Investment Tax Credits 795,135 936,748
Miscellaneous 2,957,749 2,429,218
Total 28,076,635 31,402,288
Commitments and Contingencies (Note 10)
Total Capitalization and Liabilities $113,841,822 $122,375,442
(Page 18)
MAINE PUBLIC SERVICE COMPANY AND SUBSIDIARY
Statement of Consolidated Common Shareholders' Equity
Par Value Paid-In Retained Treasury
Shares Issued Capital Earnings Stock
Balance, January 1, 1993
1,660,250 $13,070,750 $38,317 $35,637,654 $(4,571,239)
Net Income 5,300,840
Dividends:
Common Stock
($1.78 per share) (2,955,245)
Balance, December 31, 1993
1,660,250 13,070,750 38,317 37,983,249 (4,571,239)
Net Income 4,845,647
Dividends:
Common Stock
($1.84 per share)
(2,975,740)
Stock Repurchased:
Common Stock
(43,000) (1,143,137)
Balance, December 31, 1994
1,617,250 13,070,750 38,317 39,853,156 (5,714,376)
Net Loss (5,315,312)
Dividends:
Common Stock
($1.84 per share) (2,975,740)
Balance, December 31, 1995
1,617,250 $13,070,750 $38,317 $31,562,104 $(5,714,376)
See Notes to Consolidated Financial Statements.
(Page 19)
MAINE PUBLIC SERVICE COMPANY AND SUBSIDIARY
Consolidated Statements of Capitalization
December 31,
1995 1994
Common Shareholders' Equity
Common Stock, $7 Par Value-Authorized
3,000,000 Shares in 1995 and 1994;
Issued 1,867,250 Shares in 1995 and 1994 $13,070,750 $13,070,750
Paid-In-Capital 38,317 38,317
Retained Earnings 31,562,104 39,853,156
Total 44,671,171 52,962,223
Treasury Stock-Total Shares of 250,000 in
1995 and 1994, at cost (5,714,376) (5,714,376)
Total $38,956,795 $47,247,847
Long-Term Debt
First Mortgage and Collateral Trust Bonds:
7-1/8% Due Serially through 1998-
Interest Payable,
May 1 and November 1 $ 2,960,000 $ 3,000,000
7.95% Due Serially through 2003-
Interest Payable,
March 1 and September 1 1,975,000 2,000,000
9.775% Due Serially through 2011-
Interest Payable,
March 1 and September 1 15,000,000 15,000,000
Second Mortgage and Collateral Trust Bonds:
9.6% Due Serially through 2001-
Interest Payable,
March 1 and September 1 7,500,000 7,500,000
Public Utility Revenue Bonds-1991 Series:
7.875% Due 2021-Interest Payable,
April 1 and October 1 10,000,000 10,000,000
Total Outstanding 37,435,000 37,500,000
Less-Amount Due Within One Year 1,315,000 65,000
Total $36,120,000 $37,435,000
Current Maturities and Redemption Requirements for the Succeeding Five Years
Are as Follows:
Long-Term Debt:
1996 $ 1,315,000
1997 $ 1,315,000
1998 $ 4,155,000
1999 $ 1,275,000
2000 $ 1,275,000
Thereafter $28,100,000
See Notes to Consolidated Financial Statements.
(Page 20)
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
1. ACCOUNTING POLICIES
Regulations
Maine Public Service Company (the Company) is subject to the regulatory
authority of the Maine Public Utilities Commission (MPUC) and, with respect to
wholesale rates, the Federal Energy Regulatory Commission (FERC). As a result
of the ratemaking process, the applications of accounting principles by the
Company differ in certain respects from applications by non-regulated
businesses.
Consolidation and Basis of Presentation
The accompanying consolidated financial statements include the accounts of
the Company and its wholly-owned Canadian subsidiary, Maine and New Brunswick
Electrical Power Company, Limited (the Subsidiary). All intercompany balances
and transactions have been eliminated in consolidation.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Foreign Currency Translation
The functional currency of the Subsidiary is the U.S. dollar. Accordingly,
translation gains and losses are included in other income. Income and
expenses of the Subsidiary are translated at rates of exchange prevailing at
the time the income is earned or the expenses are incurred, except for
depreciation which is translated at rates existing on the applicable
in-service dates. Assets and liabilities are translated at year-end exchange
rates, except for utility plant which is translated at rates existing on the
applicable in-service dates.
Deferred Fuel and Purchased Energy Costs
Electric rates include adjustment clauses for fuel and purchased energy
costs, through which costs above or below base rate levels are recoverable
from or refundable to customers. Fluctuations between current base rates and
actual costs are deferred until recovered or refunded through subsequent
adjustment clauses, in order to properly match costs with the related
revenues. With the exception of Wheelabrator-Sherman fuel costs, the
adjustment clauses have been discontinued under the terms of the 4-year rate
plan beginning in 1996.
Revenue Recognition
Operating revenues include sales billed on a cycle billing basis and
estimated unbilled revenues for electric service rendered prior to the normal
billing cycle.
On May 31, 1995, the FERC approved a temporary wheeling tariff in the
Company's open access transmission filing. The Company has not recognized the
additional revenues of $354,000 from the temporary tariff, since the increase
in the rates charged to our transmission customers are subject to refund. The
Company will recognize these deferred revenues, after any adjustment for
refunds, when the FERC approves a final tariff in the open access transmission
tariff filing.
Utility Plant
Utility Plant is stated at original cost of contracted services, direct
labor and materials, as well as related indirect construction costs including
general engineering, supervision, and similar overhead items and allowances
for the cost of equity and borrowed funds used during construction (AFUDC).
The cost of utility plant which is retired, including the cost of removal less
salvage, is charged to accumulated depreciation. The cost of maintenance and
repairs, including replacement of minor items of property, are charged to
maintenance expense as incurred. The Company's property, with minor
exceptions, is subject to First and Second Mortgage liens.
Costs which are disallowed or are expected to be disallowed for recovery
through rates are charged to income at the time such disallowance is probable.
As further explained in Note 10, "Commitments and Contingencies", certain
utility plant previously allocated for ratemaking to the wholesale customers
was written off during 1995, resulting in an extraordinary loss.
Depreciation and Amortization
Utility plant depreciation is provided on composite bases using the
straight-line method. The composite depreciation rate, expressed as a
percentage of average depreciable plant in service, was approximately 2.96%,
2.99%, and 3.00% for 1995, 1994, and 1993, respectively.
Bond issuance costs and premiums paid upon early retirements are amortized
over the terms of the related debt. Recoverable Seabrook costs and deferred
regulatory expenses are amortized over the period allowed by regulatory
authorities in the related rate orders. Recoverable Seabrook costs are being
amortized principally over thirty years (Note 10). Costs associated with
relicensing hydro facilities are amortized over the thirty-year license
period.
Income Taxes
Statement of Financial Accounting Standards No. 109 (SFAS 109), "Accounting
for Income Taxes", requires an asset and liability approach to accounting and
reporting income taxes. SFAS No. 109 prohibits net-of-tax accounting and
requires the establishment of deferred taxes on all differences between the
tax basis of assets or liabilities and their basis for financial reporting.
The Company has deferred investment tax credits and amortizes the credits
over the remaining estimated useful life of the related utility plant.
Investments in Associated Companies
The Company records its investments in Associated Companies (see Note 3)
using the equity method.
Pledged Assets
The Common Stock of the Subsidiary is pledged as additional collateral for
the First and Second Mortgage and collateral trust bonds of the Company.
Inventory
Inventory is stated at average cost.
Cash and Temporary Investments
For purposes of the Statements of Cash Flows, the Company considers all
highly liquid securities with a maturity of three months or less to be
temporary investments.
(Page 21)
Accounting Pronouncements
Effective January 1, 1996, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 121 "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." The adoption
of the new standard did not have a material effect on the Company's financial
position or results of operations.
In October, 1995, the Financial Accounting Standards Board issued SFAS No.
123 "Accounting for Stock-Based Compensation", the adoption of which will not
have a material impact on the Company's financial position or results of
operations.
Reclassifications
Certain reclassifications have been made to the 1994 and 1993 financial
statements in order to conform to the 1995 presentation.
2. INCOME TAXES
A summary of Federal, Canadian and State income taxes charged (credited) to
income is presented below. For accounting and ratemaking purposes, income tax
provisions included in "Operating Expenses" reflect taxes applicable to
revenues and expenses allowable for ratemaking purposes. The impact of the
extraordinary write-offs described in Note 10, "Commitments and Contingencies"
is highlighted in the table below. The tax effect of items not included in
rate base are allocated as "Other Income (Deductions)".
1995 1994 1993
Current income taxes $ 164,009 $4,281,292 $4,307,749
Deferred income taxes (687,190) (359,942) 161,968
Investment credits, net (141,613) (77,027) (77,024)
Total income taxes $ (664,794) $3,844,323 $4,392,693
Allocated to:
Operating income $1,179,336 $3,739,777 $4,313,042
Other income 73,269 104,546 79,651
Extraordinary Items (1,917,399) - -
Total $ (664,794) $3,844,323 $4,392,693
The effective income tax rates differ from the U.S. statutory rate as
follows:
1995 1994 1993
Statutory rate (34.0)% 34.0% 34.0%
Excess Canadian taxes 1.6 1.2 1.5
Amortization of recoverable
Seabrook costs 5.5 3.8 3.4
State income taxes (1.7) 5.8 6.1
Seabrook wholesale write-off 16.7 - -
Other .8 (.6).3
Effective rate (11.1)% 44.2% 45.3%
The elements of deferred income tax expense (credit) are as follows:
(Dollars in Thousands)
1995 1994 1993
Temporary Differences at
Statutory Rates:
Seabrook - costs $(234) $(234) $(234)
Liberalized depreciation 219 158 223
AFUDC-borrowed funds (63) (63) (63)
Deferred fuel expense 582 328 136
Deferred regulatory expense 829 (573) 253
Unbilled and deferred revenue (141) 48 64
Reacquired debt (79) (83) (83)
Other 53 59 (134)
Total temporary differences -
operations 1,166 (360) 162
Extraordinary Items (1,853) - -
Total temporary differences -
statutory rates $(687) $(360) $ 162
(Page 22)
The Company has not accrued U.S. income taxes on the undistributed earnings
of the Subsidiary, as the withholding taxes due on the distribution of any
remaining amount would be principally offset by foreign tax credits. No
dividends were received from the Subsidiary in 1995, while dividends were
$433,243 and $765,958 in 1994 and 1993, respectively. In 1994 and 1993, the
dividend received from the Subsidiary exceeded earnings by $55,816 and
$198,733, respectively.
The following summarizes accumulated deferred income taxes established on
temporary differences under SFAS 109 as of December 31, 1995 and 1994.
(Dollars in Thousands)
1995 1994
Seabrook $16,071 $20,214
Property 8,396 8,985
Regulatory expenses 915 142
Investment tax credits (528) (622)
Pension and post-
retirement benefits (262) (251)
Other (622) (432)
Net accumulated deferred
income taxes $23,970 $28,036
3. INVESTMENTS IN ASSOCIATED COMPANIES
The Company owns 5% of the Common Stock of Maine Yankee Atomic Power Company
(Maine Yankee), a jointly-owned nuclear electric power company, and 7.49% of
the Common Stock of the Maine Electric Power Company (MEPCO), a jointly-owned
electric transmission company.
Dividends received during 1995, 1994, and 1993 from Maine Yankee were
approximately $172,500, $347,500, and $388,800, respectively, and from MEPCO
approximately $7,900 in each year. Substantially all earnings of Maine Yankee
and MEPCO are distributed to investor companies. Condensed financial
information (unaudited) for Maine Yankee and MEPCO is as follows:
(Dollars In Thousands)
Maine Yankee MEPC
1995 1994 1993 1995 1994 1993
Earnings
Operating revenues
$205,977 $173,857 $193,102 $49,699 $24,746 $12,809
Earnings applicable to
Common Stock
$ 7,060 $ 7,080 $ 8,220 $ 105 $ 105 $ 105
Company's equity share
of net earnings
$ 353 $ 354 $ 411 $ 8 $ 8 $ 8
Investment
Total assets
$580,958 $549,910 $534,817 $ 5,919 $ 6,562 $ 6,279
Less:
Preferred stock
18,600 19,200 19,800 _ _ _
Long-term debt
89,999 96,666 103,333 870 1,730 2,590
Other liabilities and
deferred credits
401,158 366,550 344,030 4,171 3,954 2,811
Net assets
$ 71,201 $ 67,494 $ 67,654 $ 878 $ 878 $ 878
Company's equity in
net assets
$ 3,560 $ 3,375 $ 3,383 $ 66 $ 66 $ 66
(Page 23)
4. INVESTMENT IN JOINTLY-OWNED UTILITY PLANT
The Company has a 3.3455% ownership interest in a jointly-owned utility
plant, W. F. Wyman Unit No. 4 (Wyman), an oil-fired generation plant. The
Company's proportionate share of the direct expenses of Wyman are included in
the corresponding operating expenses in the statements of consolidated
operations. The Company's share in the plant at December 31, 1995 and 1994 is
as follows:
(Dollars in Thousands)
1995 1994
Electric plant in service $6,944 $6,969
Accumulated depreciation (3,619) (3,426)
Net electric plant in service $3,325 $3,543
5. SHORT-TERM CREDIT ARRANGEMENTS
The Company has a revolving credit arrangement with a consortium of banks.
The revolving credit agreement provides for borrowings up to $10 million
through October 1997 and is subject to extension with the consent of all
participating banks. The Company can utilize, at its discretion, two types of
loan options: A Loans, which are provided on a pro rata basis in accordance
with each participating bank's share of the commitment amount, and B Loans,
which are provided as arranged between the Company and each of the
participating banks. The A Loans, at the Company's option, bear interest
equal to either the agent bank's prime rate or LIBOR plus
1/2%. The B Loans bear interest as arranged between the Company and the
participating bank. As of December 31, 1995, a B Loan for $1.4 million at
6.4% was outstanding under this arrangement.
The Subsidiary has a $200,000 (Canadian) bank line of credit agreement
providing for interest at the bank's prime rate. There were no borrowings
under this arrangement during 1995.
6. BENEFIT PLANS
U.S. Defined Benefit Pension Plan
The Company has an insured non-contributory defined benefit pension plan
covering substantially all employees. Benefits under the plan are based on
employees' years of service and compensation prior to retirement.
The Company's policy has been to fund pension costs accrued. For the 1995
and 1994 plan years, the Company has made contributions of $284,000 in 1996
and $340,000 in 1995, respectively. The periodic pension cost is comprised of
the components listed below as determined using the projected unit credit
actuarial cost method. For 1993 and 1995, the Company implemented reduction
in force programs. In 1993, these settlements were expensed, while for 1995,
these settlements were deferred and will be amortized over five years in
accordance with the rate plan.
The components of the net pension cost for 1995, 1994 and 1993 are as
follows:
(Dollars in Thousands)
1995 1994 1993
Service costs for benefits
earned during the period $ 264 $ 329 $ 274
Interest cost on projected
benefit obligation 932 891 847
Actual return on plan assets:
Actual (2,021) 83 (918)
Deferred 1,111 (962) 26
Total (910) (879) (892)
Net amortization
and deferral (2) (2) (38)
Net Pension Cost 284 339 191
Settlements 231 - 87
Total Pension Cost $ 515 $ 339 $ 278
The following table sets forth the plan's funded status, obligations, and
assumptions as of December 31, 1995 and 1994:
(Dollars in Thousands)
1995 1994
Accumulated vested
benefit obligation:
Vested $ 11,311 $ 9,371
Non-vested 230 190
Total $ 11,541 $ 9,561
Projected benefit obligation $ (13,949) $(11,552)
Fair value of assets 12,421 10,743
Funded status (1,528) (809)
Unrecognized prior
service costs 968 1,044
Unrecognized transition
amount (558) (636)
Unrecognized (gain) loss (52) (594)
Accrued Pension Cost $ (1,170) $ (995)
Assumptions:
Discount rate 7.0% 8.0%
Salary increases 4.5% 5.0%
Expected return on assets 8.5% 8.5%
At December 31, 1995, plan assets consisted of annuity contracts, equity and
debt securities, U.S. Treasury obligations, and cash equivalents.
Retirement Savings Plan
The Company has adopted a defined contribution plan (under Section 401(k) of
the Internal Revenue Code) covering substantially all of the Company's
employees. Participants may elect to defer from 1% to 15% of current
compensation, and the Company contributes such amounts to the plan. The
Company also matches contributions, with a maximum matching contribution of 1%
of current compensation. Participants are 100% vested at all times in
contributions made on their behalf. The Company's share of contributions to
the plan were approximately $41,000 in 1995 and $34,000 in 1994 and 1993.
(Page 24)
Health Care Benefits
In addition to providing pension benefits, the Company provides certain
health care benefits to eligible employees and retirees. Since August 1,
1994, all employees have been sharing in the cost of their medical benefits,
approximately 12.5% per year. Effective with retirements after January 1,
1995, only retirees with at least twenty years of service will be eligible for
these benefits. In addition, eligible retirees will contribute to the cost of
their coverage starting at 60% for retirees with twenty years of service with
the contribution phasing out over the next ten years of service so that
retirees with thirty or more years of service do not contribute toward their
coverage.
The components of net postretirement benefit costs are as follows:
(Dollars in Thousands)
1995 1994 1993
Service costs for benefits $ 97 $ 91 $120
Interest cost 365 307 376
Amortization of transition obligation 213 213 234
Total costs 675 611 730
Current payments for retiree obligations
allowed in Company's cost of service (207) (195) (175)
Additional SFAS 106 costs $468 $416 $555
Based on prior Maine Public Utilities Commission (MPUC) accounting orders,
the Company has established a regulatory asset of approximately $1,061,000,
representing deferred postretirement benefits. As an element of its four-year
rate plan, the Company will begin recovering these deferred expenses over a
ten-year period, along with the annual expenses in excess of pay-as-you-go
expenses, starting in 1996. The MPUC 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 Company has not established the external
trust fund, but will seek approval from the MPUC for a funding plan.
The Company's accumulated postretirement benefit obligation and funding
status consist of the following:
(Dollars in Thousands)
1995 1994
Retirees $(2,382) $(2,199)
Fully eligible actives (1,300) (1,083)
Other actives (1,518) (1,288)
Total (5,200) (4,570)
Fair value of assets 0 0
Accumulated pension benefit
obligation (5,200) (4,570)
Transition obligation in excess
of plan assets 3,607 3,821
Net gain 154 (222)
Accrued postretirement benefit cost $(1,439) $ (971)
There were no unrecognized prior service costs. For 1995 and 1994, the
Company used an assumed weighted average discount rate of 7% and 8%,
respectively. The health care cost trend rate used for 1995 was 10%, with the
ultimate trend rate of 5% reached in four years. A one percentage-point
increase in the assumed health care cost trend rates for each future year
would result in an increase in the accumulated pension benefit obligation by
$747,000, in service costs by $30,000 and interest costs by $55,000.
7. COMMON SHAREHOLDERS' EQUITY
The Maine Public Utilities Commission has authorized the repurchase of the
Company's Common Stock in order to maintain the Company's capital structure at
levels appropriate for an investor-owned electric utility. Under an open
market program that was extended through November, 1999, the Company has
purchased 250,000 shares at a cost of $5.7 million, all of which are held as
treasury shares.
Under the most restrictive provisions of the Company's long-term debt
indentures and short-term credit arrangements, retained earnings (plus
dividends declared on Common Stock) available for the distribution of cash
dividends on Common Stock were $31,562,104 at December 31, 1995.
8. LONG-TERM DEBT
The Maine Public Utilities Financing Bank (MPUFB) issued its tax-exempt
bonds in the principal amount of $10,000,000 (the Bonds) for the purpose of
providing funds to the Company to construct qualifying distribution,
transmission, and generation facilities. Pursuant to the Long-Term Note
issued under a loan agreement between the Company and the MPUFB (the Loan
Agreement), the Company has agreed to make payments to the MPUFB in amounts
sufficient to pay the principal, redemption price of, and interest on, the
Bonds. Concurrently therewith, pursuant to a Letter of Credit and
Reimbursement Agreement, the Company caused a letter of credit to be issued by
Barclays Bank PLC, New York Branch, (Barclays) for the benefit of the holders
of such Bonds. To secure the Company's obligations under the Reimbursement
Agreement (which obligations are satisfied by the Company's timely compliance
with the terms of the Loan Agreement), the Company issued a Second Mortgage
Bond to Barclays in the amount of $10,426,563 (with the amount being equal to
the $10,000,000 principal amount of the Bonds plus 195 days of interest on the
Bonds). The Bonds have a coupon rate of 7.875% and, after considering the
enhancement fee of 0.75% payable to Barclays and an administration fee of
0.10% payable to the MPUFB, the annual cost to the Company associated with
this financing approximates 8.725%, exclusive of issuance costs.
Barclays has notified the Company that it will not renew the Letter of
Credit and Reimbursement Agreement that expires on April 4, 1996, which allows
the Company to redeem these bonds at par. The Company is currently pursuing
several alternatives to replace this issue.
In 1995, the Company failed to meet certain financial covenants for certain
debt issuances. The requirements to meet these covenants were waived by each
of the lenders.
(Page 25)
9. FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments consist primarily of cash in banks,
receivables, and debt. The carrying amounts for cash, receivables, and
short-term debt approximate their fair value due to the short-term nature of
these items. At December 31, 1995, the Company's long-term debt had a
carrying value of approximately $37.4 million and a fair value of
approximately $42.2 million.
10. COMMITMENTS AND CONTINGENCIES
Customer Rates
On October 21, 1994, the Company submitted proposals to its wholesale
customers for their energy requirements starting in 1996. Although a contract
obligated the wholesale customers through December 31, 1995, taking advantage
of the competitive wholesale power market, they sought incentives from
potential suppliers to reduce their costs for 1995 and lower costs starting in
1996. The Company's competitive proposals reduced rates by approximately 20%
from the rates under the current contract.
On December 2, 1994, the Company was notified that Houlton Water Company
(HWC) selected a competing offer, while Van Buren Light and Power District
(Van Buren) and Eastern Maine Electric Co-Operative, Inc., (EMEC) selected the
Company's offer. For the twelve months ended December 31, 1995, sales to HWC
represented 11.1% of the Company's consolidated MWH sales and 8.4% of
consolidated operating revenues. The Company served HWC under the earlier
contract that expired on December 1, 1995, and will provide transmission
services to HWC, starting in 1996. The Company is, under the new contracts,
obligated to serve Van Buren and EMEC for six years, beginning January 1,
1995, while these customers may not terminate the contracts prior to December
31, 1998.
On November 13, 1995, the MPUC approved a stipulation establishing a
four-year rate plan. Under the terms of the stipulation, the Company's retail
rates increased by 4.4% on January 1, 1996, and will increase by 2.9%, 2.75%,
and 2.75% on February 1, 1997, February 1, 1998, and February 1, 1999,
respectively. The Company has agreed to seek no other increase, for either
base or fuel rates, except as provided under the terms of the rate plan. For
the increases scheduled to occur in 1998 and 1999, a profit-sharing mechanism
based on a target return on equity, calculated using certain retail ratemaking
methodologies, will also apply. The profit-sharing mechanism establishes a
bandwidth of 300 basis points around the target return on equity. All gains
or losses within that bandwidth will be borne entirely by the Company's
shareholders. However, the Company is permitted to adjust the annual
increases for certain mandated costs, such as tax or accounting changes that
exceed $300,000 in annual revenue requirements. The plan also provides that
if either Maine Yankee or Wheelabrator-Sherman ceases operations for more than
six months, one-half of the resulting net costs or net savings will adjust the
allowed rate increases. Any net costs or net savings realized during the
first six months of the outage accrues entirely to the shareholders. The
Company is allowed to terminate the rate plan and file for a general rate
increase if its earnings fall 500 or more basis points below the target return
on equity during any twelve-month period during the plan.
Under the terms of the rate plan, the Company agreed to write off to
operating expenses $2,104,000, net of income taxes, of deferred retail fuel
representing replacement power costs incurred during the 1995 Maine Yankee
outage. In addition, the Company agreed to write off approximately
$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.
The plan also permits the Company to annually defer $1.5 million of the
costs of its purchases from Wheelabrator-Sherman during each of the four years
of the rate plan. The plan permits the Company to 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 its contract with Wheelabrator-Sherman
expires. The rate plan also allows the deferral, until the year 2000, of
approximately $1.3 million, net of taxes, of uncollected retail fuel at the
beginning of the rate plan, while an additional $300,000, net of income taxes,
will be amortized over the rate plan period.
The Company's success under the rate plan depends on the normal operation of
Maine Yankee. If Maine Yankee experiences additional problems with the steam
generator tubes or other components of the plant and cannot maintain normal
operations, the Company's earnings and cash flows will be adversely impacted.
During outages, the Company incurs approximately $500,000 to $600,000 of
additional purchase power costs per month.
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 were classified as extraordinary items associated with the
discontinuance.
Competition
Over the past several years, starting with the enactment of the Energy
Policy Act of 1992, the electric utility industry has been in a period of
transition. As previously mentioned, the Company's wholesale customers
solicited competitive bids for their energy requirements in late 1994, and, as
a result, the Company lost its largest customer, Houlton Water Company, to
this competition. Since pricing in the wholesale power markets is no longer
based on a regulated formula, the Company has discontinued its regulatory
accounting for this jurisdiction.
In December, 1995, the Maine Public Utilities Commission (MPUC) issued a
Notice of Inquiry starting a study of Maine's electric utility industry.
Based on an earlier resolve by the Maine Legislature, the MPUC must develop
two plans for an orderly transition to a competitive market for the retail
purchase and sale of electricity. The first plan would identify all
regulatory and legal requirements "... to achieve full retail market
competition for purchases and sales of
(Page 26)
electricity by the year 2000". The second plan would identify regulatory and
legal requirements for limited market competition and maintain regulation
where appropriate. The MPUC must also estimate the amount of stranded
investment for each of the plans. In January 1996, the MPUC solicited
comments from various intervenors, including the Company. The MPUC must
report the results of its study to the Legislature by January 1, 1997. The
Company cannot predict the outcome of this proceeding.
A critical issue in the MPUC's development of these plans is the recovery of
stranded investment by the Maine utilities. In its comments to the MPUC filed
on January 30, 1996, assuming open retail competition, the Company estimated
its stranded investment could be as high as $68 million as of January 1, 1996.
Stranded investment is the difference between the embedded cost of generation
assets or regulatory assets and the market price of those assets. The
remaining unrecovered costs of its investment in Seabrook, $24 million, net of
taxes, would be stranded costs in a competitive market. In addition, mandated
purchase power contracts, such as the contract with Wheelabrator-Sherman,
whose pricing is above market rates, represent as much as $44 million of
potential stranded costs. The Company will strenuously seek the recovery of
its stranded costs in any program for retail competition ultimately adopted by
the Legislature.
Seabrook Nuclear Power Project
In 1986, the Company sold its 1.46% ownership interest in the Seabrook
Nuclear Power Project with a cost of approximately $92.1 million for $21.4
million. Both the MPUC and the FERC allowed recovery of the Company's
remaining investment in Seabrook Units 1 and 2, adjusted by disallowed costs
and sale proceeds, with the costs being amortized over thirty years.
With the adoption of the Company's rate plan and the discontinuance of SFAS
71 for the Company's wholesale business, as previously discussed, the Company
wrote off its remaining wholesale Seabrook costs of approximately $4,846,000,
net of income taxes, in 1995. Recoverable Seabrook costs at December 31, 1995
and 1994 are as follows:
(Dollars in Thousands)
1995 1994
Retail $43,136 $43,136
Accumulated Amortization (13,990) (12,567)
Retail, Net 29,146 30,569
Wholesale 10,051 10,051
Accumulated Amortization (3,826) (3,546)
Write-Off (6,225) -
Wholesale, Net - 6,505
Total $29,146 $37,074
Nuclear Insurance
In 1988, Congress extended the Price-Anderson Act for fifteen years and
increased the maximum liability for a nuclear-related accident. In the event
of a nuclear accident, coverage for the higher liability now provided for by
commercial insurance coverage will be provided by a retrospective premium of
up to $79.3 million for each reactor owned, with a maximum assessment of $10
million per reactor for any year. These limits are also subject to inflation
indexing at five-year intervals as well as an additional 5% surcharge, should
total claims exceed funds available to pay such claims. Based on the
Company's 5% equity ownership in Maine Yankee (see Note 3), the Company's
share of any retrospective premium would not exceed approximately $3.6 million
or $.5 million annually, without considering inflation indexing.
Capacity Arrangements
The Company owns 5% of the Common Stock of the Maine Yankee Atomic Power
Company (Maine Yankee). Maine Yankee owns and operates an 860,000 kilowatt
nuclear generating plant in Wiscasset, Maine. The Company is entitled to
purchase approximately 4.9% of the energy produced by the plant. During 1995,
1994, and 1993, Maine Yankee purchased power expenses were $7,972,000,
$9,645,000, and $8,760,000, respectively. During most of 1995, Maine Yankee
was not in service in order to repair its steam generator tubes using welded
sleeves. The sleeving of the steam generator tubes was completed in
mid-December of 1995 at a cost of approximately $27 million, with the
Company's share being approximately $1.3 million. In accordance with the
Company's rate plan, discussed previously, the Company will recover these
costs over five years starting in 1996. After responding to allegations
regarding certain safety analyses performed to increase the rated capacity of
the plant, the Nuclear Regulatory Commission (NRC) informed Maine Yankee that
the allegations would be subject to investigations, but allowed Maine Yankee
to operate at 90% of its rated maximum capacity until the NRC reviewed and
approved plant-specific analyses. On January 22, 1996, Maine Yankee attained
the 90% level of the plant's capability.
The Company also owns 7.49% of the Common Stock of Maine Electric Power
Company, Inc., (MEPCO). MEPCO owns and operates a 345-KV (kilovolt)
transmission line about 180 miles long which connects the New Brunswick Power
(NB Power) system with the New England Power Pool. The MEPCO transmission
line is also the path by which Maine Yankee and Wyman Unit No. 4 energy is
delivered northerly into the NB Power system and then wheeled to the Parent
Company through its interconnection with NB Power at the international border.
In July, 1986, Wheelabrator-Sherman, formerly Signal-Sherman Energy Co.,
owner of an 18 megawatt wood-burning cogenerator plant, began selling power to
the Company. The Company purchases the entire output from the cogenerator
under a contract ordered by the MPUC that will expire in 2001. During 1995,
1994, and 1993, purchases from Wheelabrator-Sherman were $14,507,000,
$13,932,000, and $13,052,000, respectively.
(Page 27)
Construction Program
Expenditures on additions, replacements and equipment for the years ended
December 31, 1995, 1994, and 1993, along with 1996 estimated expenditures, are
as follows:
(Dollars in Thousands) 1996 1995 1994 1993
(Unaudited
Estimates)
Parent Company
Generation $ 437 $ 131 $ 178 $ 147
Transmission 709 364 357 318
Distribution 2,040 1,993 2,235 2,110
General 854 845 1,015 617
Total Parent 4,040 3,333 3,785 3,192
Subsidiary 144 96 578 81
Total $4,184 $3,429 $4,363 $3,273
11. QUARTERLY INFORMATION (unaudited)
Quarterly financial data for the two years ended December 31, 1995 is as
follows:
(Dollars in Thousands Except Per Share Amounts)
1995 by Quarter
1st 2nd 3rd 4th
Operating revenues $ 15,556 $ 12,471 $ 12,273 $ 14,947
Operating expenses (13,801) (10,589) (10,857) (15,635)
Operating income 1,755 1,882 1,416 (688)
Interest charges (943) (939) (938) (942)
Other income-net 62 63 111 82
Income (loss) before
extraordinary items 874 1,006 589 (1,548)
Extraordinary items - - - (6,236)
Net income (loss) $ 874 $ 1,006 $ 589 $ (7,784)
Earnings (loss) per
common share
Income (loss) before
extraordinary items $ .54 $ .62 $ .36 $ (.95)
Extraordinary items - - - (3.86)
Net income (loss) $ .54 $ .62 $ .36 $ (4.81)
1994 by Quarter
1st 2nd 3rd 4th
Operating revenues $17,063 $13,829 $12,463 $14,951
Operating expenses (14,509) (11,777) (10,893) (12,808)
Operating income 2,554 2,052 1,570 2,143
Interest charges (963) (965) (962) (963)
Other income-net 26 102 99 153
Net income $ 1,617 $ 1,189 $ 707 $ 1,333
Earnings per common share $ 1.00 $ .74 $ .44 $ .82
(Pages 28 and 29)
MAINE PUBLIC SERVICE COMPANY
and Subsidiary
All share information and per share
amounts reflect the stock split on
March 3, 1989.
Consolidated Financial Statistics (Continued)
1995 1994 1993
Capitalization Including Bank Borrowings
(year-end)
Debt (including amount due within
one year) 49.92% 44.25% 45.83%
Preferred Stock (including amount due
within one year) 0% 0% 0%
Common Shareholders' Equity 50.08% 55.75% 54.17%
Times Interest Earned - *
Before Income Taxes 2.51 3.25 3.49
After Income Taxes 1.80 2.26 2.36
Times Interest and Preferred
Dividends Earned - *
After Income Taxes 1.80 2.26 2.36
Embedded Cost of Long-Term Debt
(year-end) 9.90% 9.14% 9.14%
Embedded Cost of Preferred Stock
(year-end) 0% 0% 0%
Common Shares Outstanding (year-end) 1,617,250 1,617,250 1,660,250
Earnings Per Share of Common Stock
(average shares)
Income Before Cumulative Effect of
Accounting
Change and Extraordinary Items .57 2.99 3.19
Cumulative Effect of Accounting Change - - -
Extraordinary Items (3.86) - -
Net Income (Loss) (3.29) 2.99 3.19
Dividends Per Share of Common Stock
Declared Basis 1.84 1.84 1.78
Paid Basis l.84 l.84 l.76
Common Stock Dividend Payout Ratio - ** 98.40% 61.54% 55.80%
Book Value Per Share of Common Stock
(year-end) 24.09 29.22 28.02
Market Price Per Share of Common Stock
High 23 7/8 27 3/8 31 1/4
Low 19 7/8 20 1/2 25 5/8
Close 21 3/8 20 3/4 25 7/8
Price Earnings Ratio (year-end) - 6.94 8.11
Number of Common Shareholders (year-end) 1,634 1,650 1,720
* Consolidated income before cumulative effect of accounting change and
extraordinary items. Includes AFUDC and Deferred Return on Seabrook
Investment. Excludes all Seabrook write-offs in 1985 and 1986 and all
regulatory write-offs in 1995.
** Before regulatory write-offs in 1995.
Consolidated Financial Statistics (Continued)
1992 1991 1990
Capitalization Including Bank Borrowings
(year-end)
Debt (including amount due within
one year) 50.16% 53.01% 49.40%
Preferred Stock (including amount due
within one year) 0% 0% 0%
Common Shareholders' Equity 49.84% 46.99% 50.60%
Times Interest Earned - *
Before Income Taxes 3.01 2.81 3.24
After Income Taxes 2.09 2.00 2.22
Times Interest and Preferred Dividends
Earned - *
After Income Taxes 2.09 2.00 2.18
Embedded Cost of Long-Term Debt
(year-end) 9.14% 9.28% 9.92%
Embedded Cost of Preferred Stock
(year-end) 0% 0% 0%
Common Shares Outstanding (year-end) 1,660,250 1,660,250 1,761,050
Earnings Per Share of Common Stock
(average shares)
Income Before Cumulative Effect of
Accounting
Change and Extraordinary Items 2.93 2.62 2.58
Cumulative Effect of Accounting Change - - -
Extraordinary Items - - -
Net Income (Loss) 2.93 2.62 2.58
Dividends Per Share of Common Stock
Declared Basis 1.76 1.68 1.68
Paid Basis l.74 l.68 l.66
Common Stock Dividend Payout Ratio - ** 60.07% 64.12% 65.12%
Book Value Per Share of Common Stock
(year-end) 26.61 25.42 24.38
Market Price Per Share of Common Stock
High 26 7/8 26 3/8 23 3/8
Low 24 1/4 20 3/4 19 1/2
Close 25 7/8 26 3/8 22 1/4
Price Earnings Ratio (year-end) 8.83 10.07 8.62
Number of Common Shareholders (year-end) 1,768 1,823 2,061
* Consolidated income before cumulative effect of accounting change and
extraordinary items. Includes AFUDC and Deferred Return on Seabrook
Investment. Excludes all Seabrook write-offs in 1985 and 1986 and all
regulatory write-offs in 1995.
** Before regulatory write-offs in 1995.
Consolidated Financial Statistics (Continued)
1989 1988 1987
Capitalization Including Bank Borrowings
(year-end)
Debt (including amount due within
one year) 43.12% 47.76% 49.32%
Preferred Stock (including amount due
within one year) 4.02% 4.41% 8.32%
Common Shareholders' Equity 52.86% 47.83% 42.36%
Times Interest Earned - *
Before Income Taxes 3.21 3.07 2.27
After Income Taxes 2.26 2.29 1.69
Times Interest and Preferred Dividends
Earned - *
After Income Taxes 2.09 2.05 1.49
Embedded Cost of Long-Term Debt
(year-end) 9.71% 10.80% 10.98%
Embedded Cost of Preferred Stock
(year-end) 9.74% 9.74% 11.20%
Common Shares Outstanding (year-end) 1,849,550 1,865,666 1,862,478
Earnings Per Share of Common Stock
(average shares)
Income Before Cumulative Effect of
Accounting
Change and Extraordinary Items 2.71 3.12 1.59
Cumulative Effect of Accounting Change - - .45
Extraordinary Items - - -
Net Income (Loss) 2.71 3.12 2.04
Dividends Per Share of Common Stock
Declared Basis 1.575 1.175 .80
Paid Basis l.55 l.025 .75
Common Stock Dividend Payout Ratio - ** 58.12% 37.66% 39.22%
Book Value Per Share of Common Stock
(year-end) 23.39 22.26 20.41
Market Price Per Share of Common Stock
High 24 7/8 20 13/16 15 5/16
Low 20 5/16 11 7/8 11 1/2
Close 22 3/8 20 1/2 12 9/16
Price Earnings Ratio (year-end) 8.26 6.57 6.16
Number of Common Shareholders (year-end) 1,919 1,933 2,045
* Consolidated income before cumulative effect of accounting change and
extraordinary items. Includes AFUDC and Deferred Return on Seabrook
Investment. Excludes all Seabrook write-offs in 1985 and 1986 and all
regulatory write-offs in 1995.
** Before regulatory write-offs in 1995.
Consolidated Financial Statistics (Continued)
1986 1985
Capitalization Including Bank Borrowings
(year-end)
Debt (including amount due within
one year) 55.97% 61.15%
Preferred Stock (including amount due
within one year) 7.92% 7.77%
Common Shareholders' Equity 36.11% 31.08%
Times Interest Earned - *
Before Income Taxes 2.31 2.35
After Income Taxes 1.92 2.07
Times Interest and Preferred Dividends
Earned - *
After Income Taxes 1.73 1.84
Embedded Cost of Long-Term Debt
(year-end) 11.56% 11.67%
Embedded Cost of Preferred Stock
(year-end) 11.12% 11.02%
Common Shares Outstanding (year-end) 1,858,472 1,855,768
Earnings Per Share of Common Stock
(average shares)
Income Before Cumulative Effect of
Accounting
Change and Extraordinary Items 3.43 3.65
Cumulative Effect of Accounting Change - -
Extraordinary Items (1.38) (5.45)
Net Income (Loss) 2.05 (1.80)
Dividends Per Share of Common Stock
Declared Basis .525 -
Paid Basis .35 .175
Common Stock Dividend Payout Ratio - ** 25.60% -
Book Value Per Share of Common Stock
(year-end) 19.18 17.66
Market Price Per Share of Common Stock
High 16 10 11/16
Low 9 3/4 5 7/16
Close 14 1/16 9 13/16
Price Earnings Ratio (year-end) 6.86 -
Number of Common Shareholders (year-end) 2,188 2,718
* Consolidated income before cumulative effect of accounting change and
extraordinary items. Includes AFUDC and Deferred Return on Seabrook
Investment. Excludes all Seabrook write-offs in 1985 and 1986 and all
regulatory write-offs in 1995.
** Before regulatory write-offs in 1995.
(Pie Charts)
1995 Sources of Income
Millions of Dollars (Total $55.6)
and Percent of Total
Residential - $19.1 Million, 34.4%
Commercial - $15.7 Million, 28.2%
Industrial - $9.4 Million, 16.9%
Other Electric Sales - $9.3 Million, 16.7%
Other Income - $2.1 Million, 3.8%
1995 Distribution of Income
Millions of Dollars (Total $55.6)
and Percent of Total
Fuel & Purchased Power - $28.5 Million, 51.3%
Wages and Employee Benefits - $6.5 Million, 11.7%
Taxes - $2.9 Million, 5.2%
Other Operating Expenses - $10.9 Million, 19.6%
Interest - $3.8 Million, 6.8%
Common Dividends - $3.0 Million, 5.4%
(Chart)
Year-End Capitalization
(Percent)
1991 1992 1993 1994 1995
Total Debt 53.01 50.16 45.83 44.25 49.92
Common Equity 46.99 49.84 54.17 55.75 50.08
(Pages 30 and 31)
MAINE PUBLIC SERVICE COMPANY
and Subsidiary
Consolidated Operating Statistics
1995 1994 1993
Operating Revenues
Residential $19,080,662$19,646,681 $19,669,749
Commercial and Industrial-Small 15,723,439 15,614,453 15,177,992
Commercial and Industrial-Large 9,437,409 9,225,131 9,554,566
Municipal Street Lighting 524,61 517,793 512,439
Area Lighting 272,896 271,115 269,925
Other Municipal and Other
Public Authorities 903,370 2,105,933 3,597,514
Other Electric Utilities 7,573,360 8,481,483 9,188,561
Other Operating Revenues
(Revenue Adjustments) 1,730,874 2,443,496 2,604,966
Total Operating Revenues $55,246,626$58,306,085 $60,575,712
Number of Customers (average)
Residential 28,385 28,300 28,220
Commercial and Industrial-Small 5,465 5,418 5,364
Commercial and Industrial-Large 15 16 16
Municipal Street Lighting 38 38 38
Area Lighting 1,048 1,048 1,061
Other Municipal and Other
Public Authorities 5 8 8
Other Electric Utilities 9 9 8
Total Customers 34,965 34,837 34,715
Net Generation, Purchases and Sales
(thousands of kilowatt-hours)
Net Generation:
Steam 22,867 18,559 26,456
Hydro 121,252 118,759 148,719
Diesel 1,046 (153) 169
Purchases:
Nuclear Generated 9,718 326,334 282,199
Fossil Fuel Generated 508,266 290,172 288,487
Inadvertent Received (Delivered) (1,449) 651 (1,053)
Total 661,700 754,322 744,977
Losses, Unaccounted for and Unbilled 36,411 42,880 43,944
Company Use 1,490 1,518 1,542
Electricity Sold 623,799 709,924 699,491
Sales:
Residential 168,640 175,685 176,732
Commercial and Industrial-Small 165,914 167,485 162,949
Commercial and Industrial-Large 128,478 127,327 135,029
Municipal Street Lighting 1,655 1,642 1,630
Area Lighting 1,457 1,472 1,482
Other Municipal and Other
Public Authorities 11,747 28,621 53,021
Other Electric Utilities 145,908 207,692 168,648
Total Sales 623,799 709,924 699,491
Average Use and Revenue Per
Residential Customer
Kilowatt-hours 5,941 6,208 6,263
Revenue $672.21 $694.23 $697.01
Revenue per Kilowatt-hour .1131 .1118 .1113
Consolidated Operating Statistics (Continued)
1992 1991 1990
Operating Revenues
Residential $18,704,900$19,194,469 $18,189,325
Commercial and Industrial-Small 13,787,720 13,991,693 12,708,677
Commercial and Industrial-Large 8,891,123 10,105,693 10,115,772
Municipal Street Lighting 499,814 512,640 505,063
Area Lighting 261,984 267,518 262,845
Other Municipal and Other
Public Authorities 3,761,815 3,977,098 3,611,220
Other Electric Utilities 8,150,094 7,328,914 9,649,398
Other Operating Revenues
(Revenue Adjustments) 2,513,190 2,588,285 1,656,067
Total Operating Revenues $56,570,640$57,966,310 $56,698,367
Number of Customers (average)
Residential 28,102 28,052 27,983
Commercial and Industrial-Small 5,261 5,205 5,108
Commercial and Industrial-Large 15 15 15
Municipal Street Lighting 38 38 38
Area Lighting 1,075 1,091 1,114
Other Municipal and Other
Public Authorities 8 8 8
Other Electric Utilities 7 7 7
Total Customers 34,506 34,416 34,273
Net Generation, Purchases and Sales
(thousands of kilowatt-hours)
Net Generation:
Steam 33,509 28,868 59,252
Hydro 130,407 135,619 176,832
Diesel (636) (178) (186)
Purchases:
Nuclear Generated 263,313 307,769 253,321
Fossil Fuel Generated 300,930 246,172 289,177
Inadvertent Received (Delivered) (2,232) 1,861 (151)
Total 725,291 720,111 778,245
Losses, Unaccounted for and Unbilled 43,686 42,114 40,613
Company Use 1,462 1,499 1,559
Electricity Sold 680,143 676,498 736,073
Sales:
Residential 176,814 176,028 178,011
Commercial and Industrial-Small 155,267 149,709 146,881
Commercial and Industrial-Large 129,981 139,931 155,782
Municipal Street Lighting 1,864 2,336 2,697
Area Lighting 1,538 1,591 1,643
Other Municipal and Other Public
Authorities 58,388 57,687 57,034
Other Electric Utilities 156,291 149,216 194,025
Total Sales 680,143 676,498 736,073
Average Use and Revenue Per
Residential Customer
Kilowatt-hours 6,292 6,275 6,361
Revenue $665.61 $684.25 $650.01
Revenue per Kilowatt-hour .1058 .1090 .1022
Consolidated Operating Statistics (Continued)
1989 1988 1987
Operating Revenues
Residential $18,537,902$17,787,713 $15,948,095
Commercial and Industrial-Small 13,379,207 12,374,719 10,700,466
Commercial and Industrial-Large 9,785,058 9,673,266 7,736,051
Municipal Street Lighting 573,351 559,478 541,853
Area Lighting 288,378 285,979 273,570
Other Municipal and Other
Public Authorities 3,736,851 3,546,473 2,955,417
Other Electric Utilities 10,980,817 9,244,874 8,735,459
Other Operating Revenues
(Revenue Adjustments) (84,814) 847,946 646,607
Total Operating Revenues $57,196,750$54,320,448 $47,537,518
Number of Customers (average)
Residential 27,737 27,358 27,074
Commercial and Industrial-Small 4,940 4,866 4,789
Commercial and Industrial-Large 17 18 17
Municipal Street Lighting 38 37 37
Area Lighting 1,155 1,166 1,238
Other Municipal and Other
Public Authorities 8 8 8
Other Electric Utilities 8 7 7
Total Customers 33,903 33,460 33,170
Net Generation, Purchases and Sales
(thousands of kilowatt-hours)
Net Generation:
Steam 91,361 81,583 71,649
Hydro 106,571 112,953 100,158
Diesel 2,664 1,933 572
Purchases:
Nuclear Generated 369,315 266,851 215,006
Fossil Fuel Generated 217,166 299,838 327,016
Inadvertent Received (Delivered) 1,611 (677) (432)
Total 788,688 762,481 713,969
Losses, Unaccounted for and Unbilled 42,474 44,883 43,377
Company Use 1,723 1,555 1,472
Electricity Sold 744,491 716,043 669,120
Sales:
Residential 178,668 176,680 173,580
Commercial and Industrial-Small 145,364 139,220 131,535
Commercial and Industrial-Large 145,307 148,220 133,405
Municipal Street Lighting 2,722 2,695 2,744
Area Lighting 1,580 1,585 1,626
Other Municipal and Other Public
Authorities 59,190 59,268 56,180
Other Electric Utilities 211,660 188,375 170,050
Total Sales 744,491 716,043 669,120
Average Use and Revenue Per
Residential Customer
Kilowatt-hours 6,442 6,458 6,411
Revenue $668.35 $650.18 $589.06
Revenue per Kilowatt-hour .1038 .1007 .0919
Consolidated Operating Statistics (Continued)
1986 1985
Operating Revenues
Residential $15,641,623 $14,432,212
Commercial and Industrial-Small 10,077,605 9,194,338
Commercial and Industrial-Large 8,468,298 7,699,989
Municipal Street Lighting 526,156 488,429
Area Lighting 285,856 285,037
Other Municipal and Other
Public Authorities 2,820,227 2,582,290
Other Electric Utilities 5,843,057 5,345,673
Other Operating Revenues
(Revenue Adjustments) 159,303 179,532
Total Operating Revenues $43,822,125 $40,207,500
Number of Customers (average)
Residential 26,855 26,616
Commercial and Industrial-Small 4,763 4,716
Commercial and Industrial-Large 17 17
Municipal Street Lighting 37 37
Area Lighting 1,323 1,429
Other Municipal and Other
Public Authorities 8 8
Other Electric Utilities 6 6
Total Customers 33,009 32,829
Net Generation, Purchases and Sales
(thousands of kilowatt-hours)
Net Generation:
Steam 61,533 50,691
Hydro 149,323 105,068
Diesel (758) (898)
Purchases:
Nuclear Generated 331,988 284,812
Fossil Fuel Generated 175,648 224,080
Inadvertent Received (Delivered) (74) 29
Total 717,660 663,782
Losses, Unaccounted for and Unbilled 42,076 38,858
Company Use 1,453 1,384
Electricity Sold 674,131 623,540
Sales:
Residential 173,799 170,824
Commercial and Industrial-Small 125,742 119,651
Commercial and Industrial-Large 150,881 139,744
Municipal Street Lighting 2,751 2,740
Area Lighting 1,740 1,878
Other Municipal and Other Public
Authorities 53,683 50,189
Other Electric Utilities 165,535 138,514
Total Sales 674,131 623,540
Average Use and Revenue Per
Residential Customer
Kilowatt-hours 6,472 6,418
Revenue $582.45 $542.24
Revenue per Kilowatt-hour .0900 .0845
(Page 32)
Board
of
Directors
Maine Public Service
Company's eleven-member
Board of Directors is
composed of ten outside
directors and one inside
director, Paul R. Cariani.
Their diverse business,
educational, professional,
and civic backgrounds are
valuable assets that provide
a broad perspective to the
issues concerning the
Company.
G. MELVIN HOVEY
Chairman of the Board
and Retired President
Maine Public Service Company
Presque Isle, Maine
Pension Investment Committee
Budget and Finance Committee
ROBERT E. ANDERSON
President
F. A. Peabody Company
Houlton, Maine
Audit Committee
Budget and Finance Committee
PAUL R. CARIANI
President & Chief Executive Officer
Maine Public Service Company
Presque Isle, Maine
Nominating Committee
DONALD F. COLLINS
Director and Retired President
S. W. Collins Co.
Caribou, Maine
Audit Committee
Nominating Committee
D. JAMES DAIGLE
President
Greater Brandon Chamber of Commerce
Brandon, Florida
President
David D. Daigle Farms, Inc.
Fort Kent, Maine & Orlando Florida
Executive Compensation Committee
RICHARD G. DAIGLE
President & Chief Executive Officer
Cold Brook Energy, Inc., President
Daigle Oil Company
Fort Kent, Maine
Audit Committee
Executive Compensation Committee
J. GREGORY FREEMAN
President & Chief Executive Officer
Pepsi-Cola Bottling Company
of Aroostook, Inc.
Presque Isle, Maine
Budget and Finance Committee
Nominating Committee
DEBORAH L. GALLANT
President & CEO
Dix-Gallant Associates
Portland, Maine
Executive Compensation Committee
NATHAN L. GRASS
President
Grassland Equipment, Inc.
Presque Isle, Maine
Executive Compensation Committee
J. PAUL LEVESQUE
President & Chief Executive Officer
J. Paul Levesque & Sons, Inc.
(Lumber Mill) and
Antonio Levesque & Sons, Inc.
(Logging Operation)
Ashland, Maine
Pension Investment Committee
WALTER M. REED, JR.
President
Reed Farms, Inc.
Fort Fairfield, Maine
Pension Investment Committee
Budget and Finance Committee
(Back Inside Cover)
Executive Officers
PAUL R. CARIANI
President & Chief Executive Officer
FREDERICK C. BUSTARD
Vice President
Engineering and Operations
LARRY E. LAPLANTE
Vice President
Finance and Treasurer
STEPHEN A. JOHNSON
Vice President
Customer Service and
General Counsel
PETER C. LOURIDAS
Assistant To The President
MICHAEL A. THIBODEAU
Assistant Vice President
Administration
KURT A. TORNQUIST
Controller and Assistant Treasurer
(Crown of Maine Logo)
Transfer Agent
The Bank of New York
Shareholder Relations Dept. - 11E
P. O. Box 11258
Church Street Station
New York, NY 10286-1258
Tel. No. 1-800-524-4458
Stock Registrar
The Bank of New York
Annual Meeting
Tuesday, May 14, 1996
(Back Outside Cover)
Maine Public Service Company
209 State Street
P. O. Box 1209
Presque Isle, ME 04769-1209
Tel. No. (207) 768-5811
EXHIBIT 28(a)
THE COMPANY
Maine Yankee Atomic Power Company (the "Company" or "Maine Yankee"),
incorporated under the laws of Maine on January 3, 1966, owns and operates
a pressurized-water nuclear-powered electric generating plant at Wiscasset,
Maine, with a current net capacity of approximately 860 megawatts electric
(the "Plant"). The Company sells its capacity and output to its ten
sponsoring stockholder utilities. The Company's principal office address
is 329 Bath Road, Brunswick, ME 04011, and its telephone number is (207)
798-4100. At December 31, 1995, the Company had 461 regular full-time
employees.
The Plant was declared commercial on December 28, 1972, with regular
operation at approximately 570 megawatts electric (net) starting on January
1, 1973. Hearings on the Company's application for a full operating
license were completed in 1972 and the license for full operation to 2008
was granted by the Atomic Energy Commission, the predecessor of the Nuclear
Regulatory Commission ("NRC"), on June 29, 1973.
The Company is sponsored by ten investor-owned New England utilities (the
"Sponsors" or the "Stockholders"), each of which is committed under a Power
Contract with the Company to purchase a specified percentage of the
capacity and output of the Plant and to pay therefor a like percentage of
amounts sufficient to pay the Company's fuel costs, operating expenses
(including a depreciation accrual at a rate sufficient to fully amortize
the investment in the Plant over the operating life of the Plant and
amounts estimated to be sufficient to decommission the Plant), interest on
its debt and a return on its equity. The Company and its Sponsors have
also executed Additional Power Contracts for the purpose of extending the
term of the Power Contracts, as amended, from 2003 to the end of the useful
life of the Plant and the completion of its decommissioning and financial
obligations. Each Sponsor has also agreed, under a Capital Funds Agreement
with the Company, to provide a like percentage of the Company's capital
requirements not obtained from other sources, subject to obtaining
necessary authorizations of regulatory bodies in each instance. All such
obligations are subject to the continuing jurisdiction of various federal
and state regulatory bodies.
The obligations of the Sponsors to make payments under the Power Contracts
are unconditional, subject only to each Sponsor's right to cancel its Power
Contract if deliveries cannot be made to the Sponsor because either (i) the
Plant is damaged to the extent of being completely or substantially
completely destroyed, or (ii) the Plant is taken by exercise of the right
of eminent domain or a similar right or power, or (iii) (a) the Plant
cannot be used because of contamination or because a necessary license or
authorization cannot be obtained or is revoked or the utilization thereof
is made subject to specified conditions which are not met, and (b) the
situation cannot be rectified to an extent which will permit the Company
to make deliveries to the Sponsor from the Plant. Notwithstanding the
right to cancel, the obligation to pay decommissioning costs continues
until the Plant has been fully decommissioned.
A default by a Sponsor of the Company in making payments under the Power
Contract or Capital Funds Agreement could have a material adverse effect
on the Company, depending on the magnitude of the default, and would
constitute a default under the Company's First Mortgage Indenture and two
other major credit agreements unless cured within applicable grace periods
by the defaulting Sponsor or other Sponsors.
THE PLANT
The Plant is located on tidewater on Bailey Point in Wiscasset, Maine, on
an 820-acre site that is owned in fee by the Company and is adequate for
the Plant and for all associated facilities, including the associated
switchyard facilities which are owned in part and operated by Central Maine
Power Company.
The Plant is a nuclear-powered electric generating plant, utilizing a
pressurized-water reactor, fueled with slightly enriched uranium oxide.
The nuclear steam supply system and certain other equipment were designed
and fabricated by Combustion Engineering, Inc. The turbine generator was
supplied by Westinghouse Electric Corporation. Stone & Webster Engineering
Corporation, as engineer and constructor, designed and constructed the
Plant. Construction of the Plant, which began in 1967, was completed in
1972 except for certain discharge temperature control facilities designed
to meet the requirements of the Maine Board of Environmental Protection,
which were completed in 1975.
Since the Plant commenced operation, the Company has sought to improve its
safety and reliability, while increasing its output, through periodic
upgrading of equipment and facilities, along with regular training programs
for Plant personnel. In furtherance of those goals, the Company replaced
the Plant's two low-pressure turbines and its high-pressure turbine in 1988
and 1990, respectively, with new units provided by Asea Brown Boveri
("ABB"), which resulted in an increase of approximately 20 megawatts in the
Plant's output. In addition, the Company is retaining a new ABB main
electrical generator as an emergency spare component.
The Plant has been a leader in electrical production. In 1993, a year in
which it was taken off line for regular refueling and maintenance, it
produced approximately 5.7 billion kilowatt-hours at an average cost of 3.4
cents per kilowatt-hour. In 1994, a year with no refueling shutdown, it
produced approximately 6.6 billion kilowatt-hours at an average cost of 2.6
cents per kilowatt-hour, and was rated as having the second lowest
production costs of any United States nuclear generating plant that year.
Through December 31, 1995, the Company had sold 113.7 billion KWH of
electricity at an average lifetime total cost per KWH of 2.5 cents
(including the cost of the 1995 extended shutdown). For a complete
discussion of 1995 extended shutdown, see "Management's Discussion and
Analysis of Financial Condition and Results of Operation" - "Extended
Shutdown" below.
In February of 1995, during a regular refueling-and-maintenance shutdown,
Maine Yankee discovered an extensive number of degraded steam-generator
tubes in the Plant. After evaluating its options, the Company undertook
a repair project that kept the Plant off line until early December, when
anonymous allegations of wrongdoing forwarded by the Union of Concerned
Scientists ("UCS") in connection with earlier license amendments raised
safety concerns that caused the NRC to keep the Plant out of service until
mid- January 1996. At that time Maine Yankee was allowed to return the
Plant to a level of 90 percent of its maximum operating capacity pending
final resolution of those concerns. For a detailed discussion of the
extended outage in 1995, see "Management's Discussion and Analysis of
Financial Condition and Results of Operations" - "1995 Extended Shutdown"
below. Under the terms of the Indenture securing the First Mortgage Bonds,
substantially all electric plant of the Company is subject to a first
mortgage lien.
The operation of existing nuclear units and the construction of nuclear
units in the United States have been subjects of public controversy.
Various groups have filed lawsuits and participated in administrative
proceedings claiming that the present state of nuclear technology presents
risks to public health and safety and to the environ- ment. In addition,
certain of these groups have proposed restrictive legislation relating to
nuclear power. Some of the claims made by such groups, if they should
prevail, or the existence of the controversy itself, could cause
substantial modifications to or extended shutdowns of plants presently in
operation.
Events in 1979 at the Three Mile Island Nuclear Unit No. 2 in Pennsylvania
("TMI") caused increased concern about the safety of nuclear generating
plants. This prompted a rigorous reexamination of safety-related equipment
and operating procedures in all nuclear facilities and caused the NRC to
promulgate numerous requirements in response to TMI, including both
near-term modifications to upgrade certain safety systems and
instrumentation and longer-term design changes, ranging from equipment
changes to operational support. The Company made the modifications required
by the NRC. The NRC is continuing its safety reviews under both
long-standing and new regulations and may at any time issue orders that
could materially affect the Company's affairs and
financial condition and the operation of the Plant.
Public and regulatory attention has also focused on the disposal of both
low- and high-level nuclear wastes. Certain aspects of the disposal of
nuclear wastes and the decommissioning of nuclear generating facilities
have been regulated under federal and Maine law, and further regulation is
likely in this area. Public concern about the operation of nuclear
generating facilities and the disposal of nuclear wastes has sometimes
resulted in public campaigns to close such facilities. Although affecting
various nuclear generating facilities in varying degrees, such events, as
well as other problems of the industry, have had, and will continue to
have, a direct effect on the affairs and financial condition of the
Company.
There have been three unsuccessful state referenda attempting to close the
Plant since 1980. The last referendum occurred on November 3, 1987, when
the Maine electorate defeated an initiated bill intended to close the Plant
on July 4, 1988, by a margin of 59 percent to 41 percent. There is no
certainty that such a referendum will not occur again and, in the event
that one takes place, no prediction can be made as to the potential
outcome. If a referendum were to be initiated, the Company would strongly
contest any attempts to close or impair the operation of the Plant. If
(contrary to the history of unsuccessful referenda on the Plant) a
referendum were to pass in Maine, the Company believes that such referendum
would be vulnerable to a challenge on the basis of fundamental legal
principles and that the Company would have substantial rights and remedies
available to it, which it would vigorously seek to enforce.
On March 15, 1996, Maine Yankee received from the NRC a copy of a petition
filed with the NRC by Friends of the Coast - Opposing Nuclear Pollution,
a Maine-based group, alleging certain deficiencies in the Plant's
containment, piping, and pipe welds, dating from the time of the Plant's
construction. The petition seeks a suspension of the Plant's operating
license until the issues raised in the petition are resolved. The Company
believes the petition is without merit, but cannot predict the result of
the filing of the petition.
On March 22, 1996, Maine Yankee received from the NRC a copy of a petition
said to have ben submitted to the NRC "on behalf of persons living near"
the Maine Yankee Plant. The petition relates to the December 4, 1995, UCS
allegations described above. The petition further asks for a hearing as
to whether Maine Yankee management is qualified to operate the Maine Yankee
plant. The Company believes that the petition is without merit and that
the substantive matters of the petition are already being addressed by the
NRC in other ongoing proceedings, but cannot predict the result of the
filing of the petition. For a complete discussion of the ongoing
proceeding on related subject matter, see "Management's Discussion and
Analysis of Financial Condition and Results of
Operations" - "1995 Extended Shutdown" below.
REGULATION AND ENVIRONMENTAL MATTERS
The Plant is subject to extensive regulation by the NRC, which is empowered
to authorize the siting, construction and operation of nuclear reactors
after consideration of public health, safety, environmental and antitrust
matters.
The Company and several of its Sponsors are subsidiaries of registered
holding companies and, as such, are subject to regulation by the Securities
and Exchange Commission ("SEC") under the Public Utility Holding Company
Act of 1935 with respect to various matters, including the issuance of
certain securities. The Company is also subject to regulation by the SEC
under other federal securities laws.
In addition, the Company is subject to regulation by the Federal Energy
Regulatory Commission ("FERC") as to its rates (including the Power
Contracts and Additional Power Contracts) and various other matters, and
is subject to regulation by the Maine Public Utilities Commission ("MPUC")
as to some aspects of its business, including the issuance of securities.
The United States Environmental Protection Agency ("EPA") administers
programs established under the Federal Water Pollution Control Act and the
Clean Air Act, as amended in 1990, which affect the Plant. The former Act
establishes a national objective of complete elimination of discharges of
pollutants into the nation's water and creates a rigorous permit program
designed to achieve this objective. The latter Act empowers the EPA to
establish clean air standards which are implemented and enforced by state
agencies.
In addition, pursuant to the Federal Resource Conservation and Recovery Act
of 1976, the EPA regulates the generation, transportation, treatment,
storage and disposal of hazardous wastes. The EPA has broad authority in
administering these programs, including the ability to require installation
of pollution control and mitigation devices.
The National Environmental Policy Act of 1969 ("NEPA") requires that
detailed statements of the environmental effects of major federal actions
be prepared by federal agencies. Major federal actions can include
licenses or permits issued to the Company by the NRC and other federal
agencies for construction or operation of generation and transmission
facilities. NEPA requires that federal licensing agencies make an
independent evaluation of the environmental impact of, and alternatives to,
the proposed action. Future construction modifications or other activities
at the Plant could require federal licenses or approvals that involve NEPA
requirements.
The Company is also subject to regulation as to environmental matters and
land use by various state and local authorities in Maine.
Under their continuing jurisdiction, the NRC and one or more of the EPA and
the state authorities having jurisdiction over the Company's facilities may
modify permits or licenses that have already been issued, or impose new
conditions on such permits or licenses, and may require additional capital
expenditures or require that the level of operation of a unit be
temporarily or permanently reduced. The Sponsors of the Company have
agreed, however, subject to certain exceptions including regulatory
approval, (i) to provide the required capital not otherwise available,
(ii) to take the total output of the Plant, and (iii) to pay all costs of
the Plant, including capital and decommissioning costs.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATION
1995 Extended Shutdown
The Maine Yankee unit, like other pressurized-water reactors, had been
experiencing degradation of its steam generator tubes, principally in the
form of circumferential cracking, which, until early 1995, was believed to
be limited to a relatively small number of steam generator tubes. In the
past, the detection of defects had resulted in the plugging of those tubes
to prevent their subsequent use. During the refueling-and- maintenance
shutdown that commenced in early February of 1995, the Company detected
through new inspection methods substantially increased degradation of the
Plant's steam generator tubes to the extent that approximately 60% of the
Plant's 17,000 steam generator tubes appeared to have defects to some
degree, which eliminated mitigating the problem by plugging the tubes with
indicated defects.
Following a detailed analysis of the safety, technical and financial
considerations associated with repair of the degraded steam generator
tubes, Maine Yankee elected to repair the tubes by inserting and welding
short reinforcing sleeves of an improved material in substantially all of
the Plant's steam generator tubes. Similar repairs had been completed at
other nuclear plants in the United States and abroad, but not on the scale
of the Maine Yankee project. With Westinghouse Electric Corporation as the
general contractor, the sleeving project started in early June of 1995,
after approval of the Westinghouse sleeving process by the Nuclear
Regulatory Commission ("NRC"), and was essentially complete in early
December. The project caused Maine Yankee to incur additional costs of
approximately $27 million during 1995.
Maine Yankee is recording the sleeving costs as maintenance expense. On
October 10, 1995, eleven municipal and electrical cooperative secondary
purchasers that purchase Maine Yankee power through the Company's Sponsors
and are collectively entitled to less than 2 percent of the Plant's output,
filed a complaint with the Federal Energy Regulatory Commission ("FERC")
challenging the Company's accounting treatment of the costs and alleging
that such costs should be deferred and amortized over the remaining
operating life of the Plant. The Company believes its treatment of the
costs is appropriate, but cannot predict the outcome of the FERC
proceeding.
On December 4, 1995, when the sleeving project was substantially complete,
Maine Yankee obtained a copy of a letter from the Union of Concerned
Scientists, an organization with a history of opposing nuclear power, to
a State of Maine nuclear safety official based on documentation from an
anonymous employee or former employee of Yankee Atomic Electric Company
("Yankee"), an affiliate of the Company that has regularly performed
nuclear engineering and related services for the Company and other nuclear
plant operators. The letter contained allegations that Yankee knowingly
performed inadequate analyses to support two license amendments to
increase the rated thermal power at which the Maine Yankee Plant could
operate. It was further alleged in the letter that Maine Yankee
deliberately misrepresented the analyses to the NRC in seeking the license
amendments. The allegedly inadequate analyses related to the operation of
the Plant's emergency core cooling system ("ECCS") and the calculation of
the Plant containment's peak postulated accident pressure, both under
certain assumed accident conditions. The analyses were used in support of
license amendments that authorized Plant power uprates from 2440 megawatts
thermal, a level equal to approximately 90 percent of the maximum
electrical capability of the Plant, to its current 100-percent rated level
of 2700 megawatts thermal.
In response to technical issues raised by the allegations, the NRC
initiated a special technical review of the safety analyses performed by
Yankee relating to Maine Yankee's license amendment applications for the
power uprates. At the same time, Maine Yankee and Yankee initiated
intensive internal investigations of the allegations and provided
responsive information and documentation to the NRC. Subsequently, the NRC
informed Maine Yankee that the allegations would be the subject of
investigations by the NRC's Office of Investigations and the Office of the
Inspector General.
On January 3, 1996, the NRC issued a "Confirmatory Order Suspending
Authority For And Limiting Power Operation And Containment Pressure
(Effective Immediately) And Demand For Information" (the "Order"). The
Order limited the power output of the Maine Yankee Plant to approximately
90 percent of its rated maximum until the NRC had reviewed and approved
a Plant-specific ECCS analysis and ordered that internal containment
pressure be limited until the NRC had reviewed the design-basis analysis
of containment pressure. The Order further contained a request for
information prior to restart, which the Company satisfied.
On January 10, 1996, Maine Yankee filed with the NRC information specified
in the Order that it believes supported operation of the Plant at up to 90
percent of the Plant's capability. In its submittal Maine Yankee also
notified the NRC that it expected to proceed with initial operation of the
Plant on January 11, 1996, and the Plant commenced operation on that day.
The Plant attained a 90-percent operating level on January 24, 1996.
The Company cannot predict whether or when the Plant will attain a
100-percent operating level, or the results of the internal and external
investigations of the allegations brought to Maine Yankee's attention on
December 4, 1995. Maine Yankee intends, however, to pursue its internal
investigation diligently and cooperate with the governmental
investigations, and believes that after it develops the information
requested by the NRC for operation of the Plant at full capacity it should
be able to operate the Plant at that level while meeting all applicable NRC
safety requirements.
EXHIBIT 28(n)
ORDER BOOK
STATE OF MAINE
PUBLIC UTILITIES COMMISSION March 30, 1995
ORDER
CENTRAL MAINE POWER COMPANY Docket No. 94-475
Petition for Certificate of Public
Convenience and Necessity for
Significant Agreement or Contract
with Houlton Water Company
HOULTON WATER COMPANY Docket No. 94-476
Application for Certificate of
Public Convenience and Necessity
for Purchase of Firm Requirements
Service from Central Maine Power
Company and Request for Waivers
I. INTRODUCTION
On December 29, 1994, the Commission received petitions for certificates
of
public convenience and necessity from Central Maine Power Company (CMP) and
Houlton Water Company (HWC). CMP's petition (Docket No. 94-475) sought
Commission approval under 35-A M.R.S.A. Subsection 3133-A for its sale of
firm requirements service to Houlton Water Company. HWC's petition (Docket
No. 94-476) sought Commission approval of the same transaction but from HWC's
point of view as a purchaser of power, as required by 35-A M.R.S.A Subsection
3133. The two proceedings were consolidated for all purposes by Order of the
Hearing Examiner on January 19, 1995.
On January 25, 1995, CMP filed a Motion for Voluntary Dismissal of its
section 3133-A filing. Subsequently, questions were raised regarding the proper
scope of this proceeding. Both issues were briefed by the parties and an
Examiners' Report issued. Exceptions were taken to that report by the
parties and this Order ensued.
We grant CMP's Motion for Voluntary Dismissal on the grounds that 35-A
M.R.S.A. Subsection 3133-A, subsection 3, exempts CMP from the otherwise
applicable statutory requirement to seek Commission approval of its proposed
sale of electric energy. As to the proper scope of review applicable to HWC's
application, we find that the concept of "public convenience and necessity" as
described in this Commission's earlier decisions construing 35-A M.R.S.A.
Subsection 3133 shall continue to be applied in this matter. Under this
standard, we will not examine or consider any impact the proposed contract
might have upon MPS and its ratepayers. Commissioner Hughes dissents from
the Commission's decision with regard to the interpretation and applicability
of section 3133-A but concurs in the remainder of this order.
ORDER - 2 - Docket No. 94-475
Docket No. 94-476
II. PROCEDURAL HISTORY
On December 29, 1994, the Commission received petitions for certificates
of
public convenience and necessity from Central Maine Power Company and
Houlton Water Company. CMP's petition (Docket No. 94-475) sought
Commission approval under 35-A M.R.S.A. Subsection 3133-A for its sale
of firm requirements service to Houlton Water Company. HWC's petition
(Docket No. 94-476) sought Commission approval of the same transaction
but from HWC's point of view as a purchaser of power, as required by
35-A M.R.S.A Subsection 3133.
On January 19, 1995, the Hearing Examiner issued a combined Notice of
Proceeding and Procedural Order. The two separate dockets were consolidated
under this Order "for all purposes" and a prehearing conference was scheduled
for February 2, 1995. On January 25, 1995, CMP filed a Motion for Voluntary
Dismissal of its section 3133-A filing, arguing that subsection 3 of section
3133-A expressly exempted the contract from review under that section. On
January 26, 1995, HWC filed a Motion for Reconsideration of Consolidation
suggesting that the cases lacked any common questions of law or fact as
required under M.R.Civ.P. Rule 42. On January 30, 1995, the Commission received
a Response to CMP's Motion from
MPS. In its Response, MPS stated that it did not oppose CMP's Motion but
reiterated its intent, as stated earlier in its Petitions to Intervene, to raise
issues related to the proposed agreement's effects on MPS and its ratepayers.
Petitions to Intervene in Docket No. 94-475 were received and ultimately granted
for the Office of the Public Advocate (OPA or Public Advocate) and MPS.
Petitions to Intervene in Docket No. 94-476 were received and ultimately granted
for the OPA, MPS and CMP, the last on a discretionary basis under section 721
of
the Commission's Rules of Practice and Procedure.
At the subsequent prehearing conference, the Commission's Advocacy Staff
objected to CMP's Motion for Voluntary Dismissal, arguing that the exception
stated in subsection 3 of section 3133-A did not apply to CMP'S petition. Since
there was objection to CMP's Motion for Voluntary Dismissal, the issue required
resolution by the Commission. 1/ At the conference, CMP and HWC also expressed
their objections to the issues that Maine Public Service sought to interject
into this proceeding. Since CMP's Motion for Voluntary Dismissal was to be
presented to the Commission for resolution, the issue regarding the proper scope
of these proceedings was included for Commission review as well. Resolution of
HWC's Motion for Reconsideration of Consolidation was deferred pending a ruling
on CMP's Motion for Voluntary Dismissal. Briefs of the parties were
subsequently filed on
1/ See Commission Rules, Chapter 110, section 745.
ORDER - 3 - Docket No. 94-475
Docket No. 94-476
February 10, 1995, and an Examiners' Report followed on February 22, 1995.
Exceptions to the Examiners' Report were received from all parties on March 7,
1995. The Commission deliberated this matter on March 13, 1995, and conducted
supplemental deliberations on March 20, 1995.
III. CMP'S SECTION 3133-A PETITION
A. Federal Preemption
Both CMP and HWC have raised federal preemption arguments to support
CMP's Motion for Voluntary Dismissal of its section 3133-A petition. These
arguments focus upon the Federal Power Act's ("FPA" or "the Act") grant of
exclusive jurisdiction over wholesale sales to the Federal Energy Regulatory
Commission (FERC). In order to place this issue into perspective, it is helpful
to review the historical bases for federal preemption in this area.
1. History of Federal Power Act and the Development of Federal
Preemption of Wholesale Electric Sales
The history of federal preemption of wholesale electric sales can
be traced back to the United States Supreme Court's decision in Public Utilities
Commission of Rhode Island v. Attleboro Steam & Electric Co., 273 U.S. 83, 47
S.Ct. 294, 71 L.Ed. 54 (1927). The facts in Attleboro involved a Rhode Island
electric utility that had contracted to supply electricity to a
Massachusetts-based utility for resale to consumers in Massachusetts. The Rhode
Island Public Utilities Commission attempted to assert jurisdiction over the
wholesale contract in order to increase the contract rates and avoid the need
for retail rate increases in Rhode Island. The U.S. Supreme Court found the
Commission's efforts in violation of the Commerce Clause of the United States
Constitution 2/ because the Commerce Clause gives the right to regulate
commerce among the states solely to Congress. The Attleboro Court determined
that the sale of electricity across state lines involved interstate commerce,
so long as the sale was a wholesale transaction; sales to retail customers
that crossed state lines were found to involve only local commerce. The
result of the Court's analysis was to draw a "bright line" between retail
electricity rates, which states were free to regulate, and rates for
wholesale electricity in interstate commerce, which states were forbidden to
regulate.
The Attleboro decision created a regulatory gap since states
could not regulate interstate wholesale transactions but no federal agency
existed to assert jurisdiction over such
2/ U.S.CONST., art I, Subsection 8, cl. 3.
ORDER - 4 - Docket No. 94-475
Docket No. 94-476
sales. Congress responded in 1935 by enacting the Federal Power Act, 16 U.S.C.
subsection 791a et seq., and creating the Federal Power Commission 3/ to
implement and administer the Act. The U.S. Supreme Court has described
Congress's purpose in enacting the Federal Power Act to be to "fill the gap"
left by Attleboro in utility regulation. 4/ The Supreme Court has further
suggested that, as a result, Congress also intended the jurisdictional split
between federal and state regulatory power to reflect the "bright line" drawn
by the Attleboro Court. Federal Power Commission v Southern California Edison
Co., 376 U.S. 205, 214215, 84 S.Ct. 644, 650-651, 11 L.Ed.2d 638 (1964) and
Arkansas Electric Cooperative Corporation v. Arkansas Public Service
Commission, 461 U.S. 375, 392, 103 S.Ct. 1905, 1917, 76 L.Ed.2d 1 (1983).
In specific terms, the FPA provides that it applies to "the sale
of electric energy at wholesale in interstate commerce." 16 U.S.C. section 824
(b) (1). The term "sale of electric energy at wholesale" is defined to mean "a
sale of electric energy to any person for resale." 16 U.S.C. section 824 (d).
The Act also provides that electricity is transmitted in interstate commerce
if it is "transmitted from a State and consumed at any point outside thereof."
5/ 16 U.S.C. section 824 (c). The U.S. Supreme Court has interpreted this
provision broadly. In Federal Power Commission v. Florida Power & Light Co.,
404 U. S. 453, 92 S. Ct. 637, 30 L. Ed. 2d 600 (1972) , the Court upheld the
Federal Power Commission's assertion of jurisdiction over a utility whose
sole "transmission" in interstate commerce consisted of the commingling of
electricity over an interconnected line network that eventually spanned state
borders.
2. Application to CMP's Section 3133-A Petition
CMP and HWC have argued that this Commission is without
jurisdiction to consider CMP's petition because CMP is selling electric energy
at wholesale in interstate commerce; thus, the transaction is within FERC's
exclusive jurisdiction.
3/ In 1977, the Federal Power Commission's authority over wholesale
electric transactions was transferred to the Federal Energy Regulatory
Commission.
4/ United States v. Public Utilities Commission of California, 345 U.S.
295, 3O7-8, 73 S.Ct. 706, 714, 97 L.Ed. 1020 (1953).
5/ The FPA expressly limits transmissions in interstate commerce by
including them "only insofar as such transmission takes place within the United
States." 16 U.S.C. Subsection 824(c).
ORDER - 5 - Docket No. 94-475
Docket No. 94-476
We do not agree that the FPA's preemptive effect sweeps so broadly.
a. Section 3133-A Applicability and FERC Jurisdiction
Title 35-A, section 3133-A requires a utility to obtain a
certificate of public convenience and necessity from this Commission before it
may enter into any "significant agreement or contract." "Significant agreement
or contract" is defined (in relevant part) to include any contract that requires
the utility to supply, purchase, dispatch or exchange generating capacity,
energy or transmission capacity. 6/ CMP's contract with HWC would bind CMP to
provide HWC with the bargained-for electric energy and, therefore, falls within
the express terms of section 3133-A. (The effects of the exemption provided in
subsection 3 of section 3133-A are considered in section B below.)
CMP and HWC argue that CMP's contract with HWC, however,
also appears to meet the FPA's requirements for FERC jurisdiction. It
clearly is a sale of electricity for resale. Further, although both buying and
selling utilities are Maine- based companies that serve Maine consumers, the
proposed transaction appears to qualify as an interstate transaction within the
meaning of the FPA. The U.S. Supreme Court so ruled in a case involving similar
facts, Federal Power Commission v. Southern California Edison Co, supra (the
Colton case). Southern California Edison was a California electric utility
which sold energy only to California customers. Part of this energy was
obtained from Nevada and Arizona through interstate transmission lines. The
City of Colton was a California municipality that purchased power from Southern
California Edison, some of which was applied to its own use but the bulk of
which was resold to retail customers in and around the City. Although the rates
for the wholesale sale to Colton had for several years been regulated by the
California Public Utilities Commission, the Court upheld the Federal Power
Commission's assertion of exclusive jurisdiction over the wholesale contract
between Southern California Edison and the City of Colton. Since the
contract dealt with a wholesale sale of electric power in interstate commerce,
the Court found that the Federal Power Commission
6/ 35-A M.R.S.A. Subsection 3133-A, sub-Subsection 2(A). The statute
further requires the contract to extend over at least a 3-year period and
involve at least 1,000 kilowatts of generating capacity, or 10,000,000 kilowatt
hours of energy per year, flowing over a transmission line with a capacity
greater than 100 kilovolts or involve more than 10% of the utility's
generating capacity, transmission capacity or energy generation.
ORDER - 6 - Docket No. 94-475
Docket No. 94-476
possessed exclusive jurisdiction over the rates provided in the contract.
Colton may be distinguishable since Southern California
Edison obtained some of its power from out-of-state sources in that case. The
present contract calls for CMP to provide the necessary energy to HWC primarily
through the Aroostook Valley Energy Company ("AVEC") , a CMP affiliate
responsible for operation of the Fort Fairfield energy generating facility,
which is located within the State. However, it has been asserted that HWC is
connected with MPS, which is connected to New Brunswick Power, which is
connected to CMP, whose transmission facilities are interconnected with those
of
utilities in other states. 7/ This fact alone appears sufficient to satisfy
the FPA's "interstate" transmission requirements since it will inevitably
result in a "commingling" of out-of-state power with the Fairfield Plant's
energy. See Florida Power & Light, supra. We do not believe that the
fortuitous transmission across the Canadian border alters this analysis.
Although FERC's jurisdiction is limited to interstate transactions, the mere
crossing of an international border in the process does not negate that
jurisdiction. FERC has expressed no difficulty with asserting jurisdiction
in similar circumstances in the past. See e.g. Maine Public Service Company,
61 FERC Paragraph 61,319 (1992).
b. Effect of FPA on State Review Under Section 3133-A
Thus, it appears that the transaction meets the FPA's
jurisdictional requirements that it involve a wholesale sale of electricity in
interstate commerce. This result does not, however, compel a finding that any
inquiry under 35-A M.R.S.A. Subsection 3133-A is preempted. MPS and the Staff
both suggested that FERC has been granted exclusive jurisdiction only over the
determination of wholesale rates. We agree that the FPA grants FERC exclusive
jurisdiction over only the wholesale rate provided in the contract; we are
permitted to act under state law to review other aspects of the proposed
transaction.
Although there are few court decisions in this area, FERC has
indicated its agreement with this analysis. For example, in Doswell Limited
Partnership, 110 P.U.R. 4th 261 (FERC, Feb. 28, 1991), FERC recognized a state
commission's jurisdiction to consider the issuance of a certificate of public
convenience and necessity for an independent power producer construction project
even though the facility would be used solely to supply electricity for resale.
Likewise, in Palisades Generating Company, 48 FERC Paragraph 61,144 (1989), FERC
recognized the
7/ Brief of Houlton Water Company, nt. 2 at 8.
ORDER - 7 - Docket No. 94-475
Docket No. 94-476
Michigan Public Service Commission's jurisdiction to consider a proposed power
purchase agreement between two affiliated entities. FERC noted that its own
proceeding was limited to a determination of the justness and reasonableness of
the proposed wholesale rates and that even if those rates were approved by FERC,
the parties would still be required to obtain any necessary state approvals.
Therefore, we find that any preemptive effect upon our
ability to consider CMP's petition is limited to the proposed wholesale rate.
We remain free to consider other aspects of the sale as required by state law.
B. Applicability of Statutory Exemption
Having determined that except with regard to the determination of
appropriate wholesale rates, the FPA does not limit our authority under state
law, we turn to CMP's second asserted grounds for dismissal of its petition.
CMP argues that it is exempt from the application of section 3133-A under
subsection 3. In relevant part, subsection 3 reads:
This section does not apply to any contract or agreement for which
commission approval is required under section 3132 or section 3133 .
.
.
CMP asserts that since its contract with HWC is subject to review under section
3133, it is not required to obtain Commission approval under section 3133-A.
In
support of its interpretation, CMP cites State of Maine v. Central Maine Power
Company, 640 A.2d 1067, 1071 (Me. 1994), where the Law Court stated:
The fundamental rule in statutory construction is that the legislative
intent as divined from the statutory language controls the
interpretation of the statute. Words in the statute must be given
their plain, common and ordinary meaning unless the statute reveals
a
contrary intent. If a meaning of a statute is clear and the result
achieved by that meaning is not illogical or absurd, there is no
reason to look beyond its words.
We agree that subsection 3 must be interpreted to remove our authority
to consider CMP's section 3133-A petition. The statutory language is clear
on its face. There can be no doubt that the CMP-HWC contract is subject to
review under section 3133. If so, the exemption plainly removes the
"contract" from review under section 3133-A. Under the accepted
ORDER - 8 - Docket No. 94-475
Docket No. 94-476
method of interpreting statutes as set out by the Law Court, we can deviate from
the statute's plain meaning only if it is illogical or produces an absurd
result.
MPS, joined by the Staff and the OPA, argues that a plain-meaning
interpretation of subsection 3 does produce illogical and absurd results.
Specifically, they argue that under such an interpretation, a utility that sells
power to an in-state buyer avoids review, while the same utility is subject to
review under section 3133-A if it sells power on identical terms to an
out-of-state buyer. We do not find such a result absurd or illogical since a
review of the contract will be conducted under section 3133 when the buyer is
in-state; no such review is possible for out-of-state buyers. Additionally, the
Commission retains its broad investigative authority under 35-A M.R.S.A.
Subsection 1303. The Legislature could logically have assumed that no mandatory
review of the selling utility was needed when a simultaneous review of the
transaction from the buyer's perspective would be conducted under section 3133.
In these situations, the Legislature may have been satisfied that the Commission
would initiate an investigation of the selling utility if the conditions
warranted such a review. Finally, even without our review under section 3133-A,
CMP is not totally free of oversight in this matter; FERC will be investigating
the contract from the seller's point of view to ensure that the wholesale rate
is not excessive.
Although we might conclude that a different result would be desirable
purely as a policy matter, or if the statutory language were more ambiguous and
left more freedom for this Commission to interpret its meaning, that is not the
situation presented to us in this case. Under the current circumstances, we
cannot ignore the plain mandate of subsection 3. We find that CMP's Motion for
Voluntary Dismissal of its section 3133-A petition must be granted.
IV. HWC'S SECTION 3133 PETITION
A. Federal Preemption
In its brief, HWC alludes to the possibility that the
FPA may also preempt this Commission's authority to review HWC's petition. We
find that the FPA does not hinder our examination of HWC's purchase from CMP.
Once again, in order to gain the proper perspective on this issue, we must
digress and briefly examine the historical development of federal preemption
analysis.
ORDER - 9 - Docket No. 94-475
Docket No. 94-476
1. History of FPA Preemption of State Retail Regulatory Authority
Whereas earlier we examined federal preemption of state
efforts to regulate wholesale transactions directly, we are now concerned
with preemption as it affects state regulation of electric utilities' retail
rates. The FPA speaks only of regulation over wholesale sales; states remain
free to regulate retail transactions. In some circumstances, however, the
courts have found it necessary to limit the states' authority regarding
retail regulation. As discussed above, FERC has the exclusive authority to
establish a reasonable wholesale rate. If, in the course of setting a
utility's retail rates, a state commission reevaluates the reasonableness of
a wholesale rate paid by the utility for electric power, FERC's exclusive
jurisdiction is invaded.
The FPA's preemptive effect upon state commissions' retail
regulatory authority has become known as the "filed rate doctrine." This
doctrine protects the integrity of FERC's wholesale rate determinations by
requiring other entities to accept FERC's determinations regarding just and
reasonable rates for a wholesale transaction. See Montana-Dakota Utilities
Co. v. Northwestern Public Service Co., 341 U.S. 246, 71 S.Ct. 692, 95 L.Ed.
912 (1951). As enunciated in Narragansett Electric Co. v. Burke, 381 A.2d
1358 (R.I. 1977), the doctrine requires state regulatory commissions to
accept the interstate rates filed with or approved by FERC as reasonable
operating expenses when fixing a utility's retail rates. If state
commissions were free to reexamine these interstate rates and substitute
lower rates under the guise of retail rate regulation, the affected utility
would be unable to recover costs determined by FERC to be just and reasonable,
i.e. "trapping" the costs. Thus, even though state regulatory commissions
were ostensibly acting to set retail rates, their actions were limited
by the preemptive effects of the FPA.
Under the Pike County doctrine, however, this enforced
recognition of FERC's wholesale rates does not forestall a state commission's
examination of a utility's prudence in deciding to incur those rates. The
doctrine takes its name from the seminal case of Pike County Light & Power Co.
v. Pennsylvania Public Utility Commission, 465 A.2d 735 (Pa. Cmwlth. 1983). In
Pike County, the Pennsylvania Court drew a distinction between FERC's
determination that it is reasonable for the wholesale seller to charge a
particular rate, and a state commission's determination of whether it is just
and reasonable (i.e. prudent) for the wholesale purchaser to incur such a
rate as an expense. FERC, in regulating the wholesale sale, does not inquire
into the latter. So long as a state commission avoids intruding into FERC's
exclusive authority over the former, it remains free to
ORDER - 10 - Docket No. 94-475
Docket No. 94-476
disallow a portion of a utility's wholesale purchase expense as imprudent, even
though the seller's rate may have been just and reasonable for the seller.
Thus, under the Pike County doctrine, a utility may be found to have been
imprudent in purchasing high - cost wholesale power when lower-cost power was
available from an alternative supplier.
2 . Application to HWC's Section 3133 Petition
Recent Supreme Court decisions have, however, indicated that
under certain unusual conditions, state regulatory commissions may be preempted
by the FPA from investigating a utility's prudence in acquiring power to be used
for retail purposes. HWC relies upon the Supreme Court's pronouncements in
Nantahala Power & Light Co. v. Thornburg, 476 U.S. 953, 106 S.Ct. 2349, 90 L.Ed.
2d 943 (1986) and Mississippi Power & Light, 487 U.S. 354, 108 S.Ct. 2428,
101 L.Ed.2d 322 (1988) to suggest that this Commission is "preempted from
taking jurisdiction over wholesale transactions from the perspective of the
purchaser". 8/
We find HWC's reliance upon these cases to be misplaced in the
context of the present case. The common thread binding the Nantahala and
Mississippi Power & Light decisions is the effect of FERC-approved power
allocations. When a utility is involved in some cooperative enterprise that
involves both the purchase and sale of wholesale power, FERC has jurisdiction
to
approve allocations of power among the pool members because those determinations
invariably also affect the wholesale rate set by FERC, a topic unarguably within
its exclusive jurisdiction. 9/ Once FERC has acted, state commissions are
precluded from challenging the reasonableness of the allocation provided to any
specific electric utility. Since the states are bound to honor FERC's
allocation, a Pike County-type of prudence review is also precluded. Where a
utility lacks a choice as to the amount of power to be purchased, a state
commission cannot inquire into the prudence of other alternatives -- there
simply are no
8/ Brief of Houlton Water Company at 11.
9/ See Gulf States Utilities Co. v. Public Utilities
Commission of Texas, 841 S.W.2d 459, 467 (Tex.App.--Austin 1992).
Under 16 U.S.C. Subsection 824e (a), FERC has jurisdiction over any utility
"practice, or contract affecting (the] rate" of a wholesale sale. See also
Hickey, Mississippi Power & Light Company: A Departure Point for Extension of
the "Bright Line" Between Federal and State Regulatory Jurisdiction Over Public
Utilities, 10 J.ENERGY L.& POL'Y 57, 76-77.
ORDER - 11 - Docket No. 94-475
Docket No. 94-476
alternatives. 10/ This result obtains, however, only in the limited
circumstances where multi-utility arrangements require the filing of an
allocation scheme with FERC.
Those limited circumstances, however, are not present in the current case.
The CMP-HWC agreement reflects a more traditional transaction where each utility
acts independently with a clear separation between the "buyer" utility and the
"seller" utility. 11/ In this more typical arrangement, FERC's exclusive
jurisdiction over wholesale transactions is completely protected from state
regulatory interference by application of the "filed- rate doctrine." The normal
prudence analysis of a retail utility's practices remains applicable in this
situation, including a Pike County inquiry into the prudence of a utility's
choice to purchase certain wholesale power. 12/ Since there is no FERC-
mandated allocation of power in the present case, there would be no
interference with FERC authority if this Commission were to investigate the
prudence of HWC's purchase under the proposed contract; we could still find
that HWC was not prudent in failing to seek more attractive alternative
sources of power. When this Commission acts under 35-A M.R.S.A. Subsection
3133 to review HWC's purchase of power from CMP, we act under our traditional
authority to regulate retail electric utilities and are permitted to review
the purchasing utility's prudence in making this particular purchase.
Therefore, we find that the FPA does not preclude our examination under 35-A
M.R.S.A. Subsection 3133 of the CMP-HWC contract from HWC's perspective as
wholesale- purchaser. Of course, through
10/ Nantahala, 476 U.S. at 972-973, 106 S.Ct. at 2360. Mississippi Power
&
Light, 487 U.S. at 373-374, 108 S.Ct. at 2440. See also Hickey, supra at 79-82
(1989).
11/ A useful discussion of this distinction can be found at Ferrey,
Shaping American Power: Federal Preemption and Technological Change, 11
VA.ENVTL.L.J. 47, 67-73 (1991).
12/ See New Orleans Public Service, Inc. v. Council of the city of New
Orleans, 491 U.S. 3SO, 367, 109 S.Ct. 2506, 2517-2518, 105 L.Ed.2d 298 (1989).
In this case, involving yet another dispute over the fallout from the ill-fated
Grand Gulf nuclear facility, the Court distinguished a local regulatory
authority's review of NOPSI's prudence in not selling its rights to the Grand
Gulf power allocated to it by FERC, from an attempt to evaluate the utility's
prudence in initially pursuing Grand Gulf power. Only the latter is preempted
by the FPA in allocation settings. This case indicates that the Supreme
Court still recognizes the states' rights to conduct general prudence
evaluations of retail utilities when that action does not conflict with FERC
jurisdiction.
ORDER - 12 - Docket No. 94-475
Docket No. 94-476
application of the filed-rate doctrine, we remain constrained by
FERC's exclusive authority to establish a reasonable wholesale rate.
B. Scope of the Proceeding
1. Statutory Standard of Review
The actual language of 35-A M.R.S.A. Subsection 3133 is
deceptively simple. In subsection 6, it states that in any order issuing a
certificate of public and convenience for a power purchase, "the commission
shall make specific findings with regard to the need for the purchase . . .
and, if the commission finds that a need exists, it shall issue a certificate
of public convenience and necessity for the purchase . . . ." Although the
statute speaks only of a "need for the purchase," this Commission has
interpreted this phrase more broadly in the past. In Town of Madison
Department of Electric Works, Application for Certificate of Public
Convenience and Necessity for Purchase of Firm Requirement Service from
Northeast Utility Services, Docket No. 93-027, Order on Intervention and
Scope of Proceeding (January 5, 1994), we summarized our prior holdings and
stated that:
To receive a certificate (under section 3133], a utility must
demonstrate that the power from the proposed purchase is needed, that
the resource being considered is the most economical or is part of
the utility's overall least cost plan, and that the timing of the
purchase is reasonable.
As MPS pointed out, this Commission has previously determined that these
criteria were developed to ensure that where a need for a power purchase
existed, that need was adequately met in the most efficient manner possible.
MPS now suggests that this Commission must consider any adverse effects on
MPS and its ratepayers caused by the proposed contract in order to determine
that this particular transaction is economically efficient. No Commission
decision, however, has ever read the requirements for a certificate of public
convenience and necessity as broadly as MPS urges.
In our view, a major problem with an interpretation of section
3133 that would permit consideration of the impact on MPS and its ratepayers is
the sheer scope and difficulty of the determinations that would necessarily
follow. For example, how would we weigh the potentially severe effect on a few
MPS customers (i.e. those in Fort Fairfield) against a lesser impact on all MPS
customers? In assessing the impact that the contract might have on MPS and its
ratepayers, must we assume
ORDER - 13 - Docket No. 94-475
Docket No. 94-476
that the status quo is optimal or should we decide whether the contract would
move toward a more fair or more balanced distribution of costs and benefits in
Maine as a whole? If the Legislature had intended to require this Commission
to
conduct such far-reaching inquiries fraught with policy implications, the
statute surely would state that intention directly. In fact, subsection 9 does
require this Commission to undertake such an inquiry, but only when the power
is
purchased from an out-of-state source. We should not lightly assume that
this distinction was a mere oversight by the Legislature. Additionally, we
must remain cognizant of the limitations potentially imposed by federal
preemption. If this Commission were to consider the impact upon MPS and its
customers, and then determine that HWC should not be permitted to seek power
from other interstate sources because of the impact on MPS, we would surely
be trespassing upon areas preempted by federal law. FERC certainly has
jurisdiction to encourage a free and active interstate wholesale market for
electricity that may not be infringed upon by the states.
We further decline to widen our inquiry to include consideration
of whether CMP's proposed use of the Fort Fairfield generating facility complies
with the standards prescribed in 35-A M.R.S.A. Subsection 3156. We agree with
the Staff that the Legislature intended this Commission to review a proposal's
compliance with section 3156 only once to ascertain its eligibility for FAME
financing assistance. Once a proposal has been found to qualify under section
3156, we do not retain any continuing jurisdiction to ensure that operation
of the facility continues to meet the statutory standards. In its exceptions,
MPS argued that our prior certificate of public convenience and necessity
decisions have been guided by relevant policies established in other
statutory sections. Therefore, MPS concluded, we should consider the
policies established by the Electric Rate Stabilization Act when evaluating
HWC's petition. Section 3156, however, is much more limited in scope than
the statutory sections from which policies were derived and applied in prior
certificate proceedings. We do not read section 3156 as creating a broad
legislative statement applicable to statewide energy policy and therefore
decline to apply its "policies" as part of the present proceeding.
2. Effect of Federal Preemption
In addition to its preemption arguments concerning
our ability to maintain proceedings under subsection 3133 and 3133-A, HWC also
argues that the FPA limits the scope of any review we may be authorized to
conduct. We agree but find that the FPA's limitations do not appreciably
conflict with the scope of our review outlined above.
ORDER - 14 - Docket No. 94-475
Docket No. 94-476
As discussed above, it is undeniable that FERC retains exclusive
jurisdiction to determine a selling utility's rates in a wholesale transaction
in interstate commerce. As we have seen, the proposed contract meets FERC's
jurisdictional requirements. It follows, then, that we are precluded from
conducting any independent inquiry into whether CMP's rates are just and
reasonable. That issue, however, is not raised in the context of a section 3133
proceeding, which is the sole remaining action in these cases.
HWC further asserts that we may not consider any potential impact
on other parties caused by the proposed contract if that inquiry would invade
FERC's exclusive jurisdiction. We do not reach this issue since we have decided
that section 3133 does not require us to consider any effects upon MPS.
However, we note that the comments of Commissioner Hughes in her dissent
suggest that any such inquiry under section 3133-A could well be preempted.
That argument would appear to be equally strong as applied to a similar inquiry
even if it were to be conducted under section 3133.
V. CONCLUSION
For the reasons expressed above, we grant CMP's Motion for Voluntary
Dismissal of its petition under 35-A M.R.S.A. Subsection 3133-A. The
consolidation of these cases ordered by the Notice of Proceeding and Procedural
Order is hereby dissolved. Henceforth, all documents in Docket No. 94-476 shall
be filed under that docket.
We further find that the following issues may properly be
considered under HWC's petition under 35-A M.R.S.A. Subsection 3133:
(1) Whether the power from the proposed purchase is needed;
(2) Whether the resource being considered is the most economical or is
part of the utility's overall least cost plan; and
(3) Whether the timing of the purchase is reasonable.
Finally, the Staff had suggested in its initial Brief that if we granted
CMP's Motion to Dismiss, we should open an investigation under 35-A M.R.S.A.
Subsection 1303 of CMP's sale of power to HWC. 13/ Although we choose not to
open such a broad investigation at this time, we remain receptive to more
narrowly
13/ Brief of Advocacy Staff at 12.
ORDER - 15 - Docket No. 94-475
Docket No. 94-476
defined requests, such as a request to determine whether CMP has
obtained the highest sale return available to it on the wholesale market.
Dated at Augusta, Maine this 30th day of March, 1995.
BY ORDER OF THE COMMISSION
Charles A. Jacobs
Charles A. Jacobs
Administrative Director
COMMISSIONERS VOTING FOR: Welch
Hughes (dissenting in part)
Nugent
ORDER - 16 - Docket No. 94-475
Docket No. 94-476
Commissioner Hughes, dissenting in part
Although I join in most of the majority's decision, I dissent from that portion
that permits the dismissal of CMP's petition. Viewed in isolation, 35-A
M.R.S.A. Subsection 3133-A(3) could be interpreted to exempt CMP's contract
from Commission review. However, we rarely can consider a section of Title 35-A
in isolation because it is not so constructed. There are many sections that
apply to all sections in the Title and other sections that only apply to some
sections. Because of the overlap between sections 3133 and 3133-A,
subsection 3 sets forth that a contract which requires section 3133 approval
does not also require section 3133-A approval. Subsection 1 of section
3133-A refers to the need for an electric utility to obtain our approval for
any significant agreement or contract.
Since CMP as the electric utility is not required to get approval under section
3133, subsection 3 of section 3133-A does not apply in this instance. The
exception in subsection 1 is granted to the utility, not to the agreement.
"Except as provided in subsection 3, no electric utility may enter into any
significant agreement or contract . . . ."Therefore I disagree with that portion
of the Majority's decision relating to the applicability of section 3133-A to
CMP's petition.
To the extent the interpretation of subsections 1 and 3 together is
ambiguous, one can turn to sections 101 and 104. Section 101 states that the
purpose of Title 35-A is to set forth a regulatory system consistent with the
public interest and to assure safe, reasonable and adequate service at rates
that are just and reasonable. Section 104 provides that the provisions of Title
35-A shall be interpreted liberally to accomplish the Title's purposes.
The provisions covering certificate of need were expanded during the 1980s
in response to the Seabrook nuclear plant debacle and to address concerns about
NEPOOL transactions. The Seabrook purchases did not require preapproval by this
Commission because out-of-state purchases did not require preapproval at that
time. The certificate of need statutes now encompass a broad range of purchases
and sales of electric supply sources in a comprehensive preapproval
before-the-fact prudence analysis. Given that the purpose of sections 3133 and
3133-A combined are to avoid after-the-fact prudency analysis for power supply
purchases and sales of certain size and duration, it is as important that we
review CMP's sale to Houlton as it is to review Houlton's purchase. Even in the
ARP environment, we do care about CMP sales due to the profit sharing mechanism
in place. Furthermore, this particular sale is really not part of the ARP
incentive plan because the costs and benefits of AVEC are a specific flowthrough
item to retail ratepayers. If we do not review the sale now, I am sure that we
will have to do it later.
ORDER - 17 - Docket No. 94-475
Docket No. 94-476
Acceptable principles of statutory construction enable the Commission to
look beyond the words in subsection 3 of section 3133-A alone to conclude that
we should not dismiss CMP's application for approval of the sale of power to
Houlton.
The following quotes are drawn from the Public Advocate's brief:
"While, generally speaking, the plain meaning of any statute as
objectively manifested on it face will control . . . the fundamental
rule of statutory construction is to ascertain the real purpose and
intent of the Legislature which, when discovered, must be made to
prevail." Mundy v. Simmons, 424 A.2d 135,137 (Me. 1980)
"The Legislature is presumed not to intend absurd results and
legislation will be construed to avoid, if possible inconsistency,
contradiction and illogicality." State v. Rand, 430 A. 2d 754, 756
(Me. 1978) "[T]he terms (in a statute] must be given a meaning
consistent with the overall statutory context, and be construed in
the light of the subject matter, the purpose of the statute, the
occasion and necessity for the law, and the consequences of any
particular interpretation." Finks v. Maine State Highway Commission,
328 A.2d 791, 798 (Me. 1974)
While I certainly agree that section 3133-A(3) is unfortunately drafted in
that the intent of the subsection is not absolutely clear, I believe that my
interpretation of the meaning is the proper one for the reasons outlined above.
In light of the regulatory construct in Maine of preapproval of significant
power sales and purchases, I believe that we have an affirmative obligation to
review CMP's sale to Houlton under section 3133-A.
It does not seem logical to me that just because the buyer happens to be
a
Maine utility that we should not be concerned with the impact on the customers
of the seller, also a Maine utility. If this was a sale to an out-of-state
entity then we would have clear authority to review the sale. What is the
functional difference between the two sales in terms of seller analysis?
I do not believe that there was a conscious desire on the part of the
Legislature to distinguish between contracts between utilities that are
intrastate and contracts that are interstate. In fact if that was the case,
any review of an interstate sale may be determined to be unconstitutional due
to discrimination toward interstate sales. See Camps Newfound/Owatonna, Inc.
v Town of Harrison, --- A.2d --- (Me. 1995) slip op. at 3 - 6. As the Law
Court noted, "[w] hen a state statute
ORDER - 18 - Docket No. 94-475
Docket No. 94-476
directly regulates or discriminates against interstate commerce, or when its
effect is to favor in-state economic interests over out-of-state interests
[courts] have generally struck down the statute without further inquiry." Id.
at
4, quoting Brown- Forman Distillers v. N.Y. Liquor Authority, 476 U.S. 573, 579
(1986). Subjecting a seller of power to section 3133-A review only when the sale
is to an out-of-state buyer may constitute discrimination against interstate
commerce and would almost certainly be overturned.
There is a body of case law that indicates that when interpreting the
intent of legislation, one should lean to the side of minimizing attack on
constitutional grounds. See e.g. Maine Milk Producers v. Commissioner of
Agriculture, 483 A.2d 1213 (Me. 1985). Therefore I agree with the Staff, Public
Advocate and Maine Public Service that the only rational purpose of the
exclusion language is to prevent purely duplicative proceedings, which is not
the case before us.
On the issue of the proper scope of the section 3133-A approval, the
statutory language would permit a review of the impact of the sale on MPS'
ratepayers. However, on this issue, I believe that this Commission would be
preempted by federal law from considering such an impact. Therefore, I would not
include the review of the impact on MPS' ratepayers in the scope of the section
3133-A proceeding. Stranded costs at the wholesale level are very plainly under
FERC's jurisdiction.
The section 3133-A proceeding would analyze whether or not the sale
maximizes the contribution to CMP's ratepayers. Other potential wholesale and
retail sales opportunities would need to be evaluated. The analysis would be
akin to the converse of the least cost analysis that will be done in the section
3133 proceeding. Because the focus will be different in the two proceedings,
consolidation would make sense only for administrative simplicity. It is
entirely possible that the Commission could reach two different conclusions in
the two proceedings.
EXHIBIT 28(o)
STATE OF MAINE Docket No. 95-001
PUBLIC UTILITIES COMMISSION
March 27, 1995
MAINE PUBLIC SERVICE COMPANY ORDER APPROVING
Re: Application for Fuel Cost STIPULATION
Adjustment Pursuant to Chapter 340
and Establishment of Short-Term
Energy-Only Rates for Small Power
Producers Less than 1 MW Pursuant
to Chapter 36
WELCH, Chairman; HUGHES and NUGENT, Commissioners
On January 1, 1995, Maine Public Service Company ("MPS"), pursuant to
Chapter 340 of the Commission's rules and regulations and 35-A M.R.S.A.
Subsection 3101, filed with the Commission an application for an increase to its
fuel purchased power costs for the twelve months beginning April 1, 1995. At
the same time, MPS filed its short-term avoided energy costs pursuant to
Chapter 360, Subsection 3. On March 15, 1995, several parties filed a
Stipulation settling all issues in this case. On March 21, 1995, the parties
submitted a correction to the original Stipulation.
On March 24, 1995, the Commission received a communication from Intervenor
McCains Foods, Inc. ("McCains"), the only party which did not sign the
Stipulation. In its filing, McCains noted that it had no objections to the
amount of the proposed fuel clause increase contained in the Stipulation.
However, McCains did object to the allocation of the fuel clause increase as
contained in the Stipulation. It noted that although the Stipulation
proposed a total 3% rate increase, the proposed allocation resulted in a 4%
overall rate increase to McCains as a High Tension customer. McCains further
argued that use of the existing rate design was inappropriate since it was
"stale," having been filed in 1987. Additionally, McCains pointed out that
MPS uses an embedded cost rate design which is contrary to present Commission
practice for all other Maine utilities.
Although we recognize the weight of the points raised by McCains, do not
believe that this proceeding is the proper vehicle in which to address those
issues. McCains seeks a limited reevaluation of MPS's rate design; we prefer
to
address rate design issues in a proceeding in which all cost-of-service elements
can be examined. The Stipulation follows the allocation practice previously
established for MPS by this Commission and we will not disrupt that practice
here.
- 2 -
We have reviewed the terms of the Stipulation and find them
reasonable.
Therefore, it is
0 R D E R E D
1. That the Stipulation filed in this case is approved and incorporated into
this order: and
2. Maine Public Service Company shall file rates consistent with the terms of
the Stipulation.
Dated at Augusta, Maine this 27th day of March, 1995.
BY ORDER OF THE COMMISSION
Charles A. Jacobs
Charles A. Jacobs
Administrative Director
COMMISSIONERS VOTING FOR: Welch
Hughes
Nugent
- 1 -
STATE OF MAINE Docket No. 95-001
PUBLIC UTILITIES COMMISSION
March 15, 1995
MAINE PUBLIC SERVICE COMPANY, STIPULATION
Application for Fuel Adjustment
Pursuant to Chapter 340 and
Establishment of Short-Term
Energy-Only Rates for Small
Power Producers Less Than 1 MW
Pursuant to Chapter 36
WELCH, Chairman; HUGHES and NUGENT, Commissioners
It is agreed and understood by and among the signatory parties hereto as
follows:
1 . On January 1, 1995, Maine Public Service Company, (MPS or the Company)
pursuant to Chapter 340 of the Commission's Rules and Regulations, and
35-A M.R.S.A. Subsection 3101, filed with the Commission an application
for an increase to its fuel purchased power costs for the twelve months
beginning April 1, 1995. MPS simultaneously filed its short-term
avoided energy costs pursuant to Chapter 360 Subsection 3.
2. MPS's projections showed an increase in total annual projected fuel
revenues of $2,355,670, which is equivalent to about a 5% increase in
retail rates. However, the Company is not proposing an increase of this
magnitude, but is seeking a $1,416,360 increase in fuel revenues,
effective April 1, 1995. Such an increase would represent an
approximate 3% increase in retail rates.
3. On March 8, 1995, the Company updated its projected fuel clause revenues
through March 31, 1996. The updated projections show an increase in total
annual projected fuel revenue of $2,859,206 which is equivalent to about
a 6% increase in retail rates and which, least for the Company's request,
would be a just and reasonable increase to the Company's fuel revenues
pursuant to Subsection 3101, except for the reservation of right contained
in paragraph 6. As noted above, the Company is requesting, and the parties
agree to, an increase of $1,416,360, or approximately 3%.
Stipulation - 2 - Docket No. 95-001
4. After discovery and negotiation, the parties hereto agree to the following,
which they believe to be a fair and balanced accommodation of the interest
of the Company's ratepayers and shareholders. The parties agree that the
Company's average retail fuel cost adjustment rate should be $ .006348 per
kilowatt hour effect for the twelve months beginning April 1, 1994.
5. The parties agree that, until the appropriate treatment of the fuel clause
is determined by the Commission in the Company's pending alternate rate
plan proceeding (Docket No. 95-052) the Company may account for its fuel
revenues by applying such revenues first to recovery of fuel costs
associated with non-Wheelabrator/Sherman F.C.A. expenses and thereafter to
recovery of Wheelabrator/Sherman purchased power expenses. If under this
accounting treatment there is an unrecovered balance of fuel costs at any
time prior to the Commission's resolution of Docket No. 95-052, the
unrecovered costs associated with Wheelabrator/Sherman will be the
lesser of 1) the unrecovered balance, or 2) the purchased power costs
associated specifically with Wheelabrator/Sherman during the period.
The parties further agree that, in any future proceeding, amounts which
may be accounted for under this provision during the pendency of Docket No.
95-052 as being associated with Wheelabrator/Sherman purchased power costs,
shall continue to be treated as Wheelabrator/Sherman purchased power costs.
The parties agree that this accounting treatment shall have no other
precedential effect and shall not foreclose any party from arguing that
a different accounting treatment should be applied to Wheelabrator/
Sherman costs incurred after the Commission decision in Docket No.
95-052. Nothing in this argument, however, shall be deemed to be a
waiver of the Company's right to record the amount of the undercovery
described in paragraph 3.
6. Nothing in the Stipulation shall foreclose any party from making any
argument regarding recovery of lost wholesale revenues resulting from
the loss of Houlton Water Company.
7 . The parties agree that the allocation of the $1,416,360 increase in
revenue for this F.C.A. shall be that reflected in the Company's updated
filing, attached to this Stipulation as Exhibit A. The parties agree that
use of this rate design for purposes of this proceeding shall not
foreclose any party from arguing in any future proceeding that some other
rate design is appropriate.
Stipulation - 3 - Docket No. 95-001
8. The record in this proceeding shall consist of the application, exhibits
and schedules filed by the Company and any Company responses to oral
data requests.
9. After review, the Staff also finds the Company's short-term avoided energy
costs, filed with its fuel cost adjustment, pursuant to Chapter 360
Subsection 3 to be just and reasonable.
10. If the Commission rejects any part of or accepts any modification to this
Stipulation, the entire Stipulation shall be void unless reaffirmed or
amended by the parties.
11. The parties agree that the Staff may present this Stipulation to the
Commission and hereby waive their rights under the ex parte rules for this
purpose.
Dated: March 15, 1995 PUBLIC UTILITIES COMMISSION
Donald J. Sipe
Donald J. Sipe
Dated: March 16, 1995 MAINE PUBLIC SERVICE
Stephen Johnson
Stephen Johnson
Dated: March 20, 1995 PUBLIC ADVOCATE
Wayne Jortner
Wayne Jortner
Dated: March , 1995 IECG
Anthony Buxton
Thomas L. Welch Elizabeth Hughes
Chairman William M. Nugent
Commissioners
PUBLIC UTILITIES COMMISSION
March 21, 1995
Charles A. Jacobs
Administrative Director
Public Utilities Commission
242 State Street
State House Station #18
Augusta, Maine 04333-0018
Re: MAINE PUBLIC SERVICE COMPANY, Application for Fuel Adjustment Pursuant
to Chapter 340 and Establishment of Short-Term Energy-Only Rates for
Small Power Producers Less Than 1 MW Pursuant to Chapter 36, Docket
No. 95-001
Dear Charlie:
It is agreed and understood by and among the signatory parties that
paragraph #4 in the Stipulation regarding the above-referenced matter should
read as follows:
After discovery and negotiation, the parties hereto agree to the
following, which they believe to be a fair and balanced accommodation
of the interest of the Company's ratepayers and shareholders. The
parties agree that the Company's average retail fuel cost adjustment
rate will be $ .003463 per kilowatt hour effect for the twelve months
beginning April 1, 1995.
Dated: March 21, 1995 PUBLIC UTILITIES COMMISSION
Donald J. Sipe
Donald J. Sipe
Dated: March 22, 1995 MAINE PUBLIC SERVICE
Stephen Johnson
Stephen Johnson
Dated: March 21, 1995 PUBLIC ADVOCATE
Wayne Jortner
Wayne Jortner
Dated: March , 1995 IECG
Anthony Buxton
Exhibit A
Page 1 of 1
December 20, 1994
MAINE PUBLIC SERVICE COMPANY
Short-Term Avoided Cost Rates
(Cents Per KWH)
April May June
Decrement 1995 1995 1995
1st 12 MW On Peak 2.752 1.950 1.666
1st 12 MW Off Peak 1.836 1.193 1.488
1st 12 MW All Hours 2.218 1.508 1.563
2nd 12 MW On Peak 2.321 1.591 1.540
2nd 12 MW Off Peak 1.145 0.460 1.400
2nd 12 MW All Hours 1.635 0.931 1.458
July August September
Decrement 1995 1995 1995
1st 12 MW On Peak 2.590 2.932 2.904
1st 12 MW Off Peak 1.491 2.079 1.908
1st 12 MW All Hours 1.949 2.434 2.323
2nd 12 MW On Peak 1.540 2.755 2.726
2nd 12 MW Off Peak 1.449 1.300 1.397
2nd 12 MW All Hours 1.487 1.906 1.951
October November December
Decrement 1995 1995 1995
1st 12 MW On Peak 3.069 2.113 3.061
1st 12 MW Off Peak 2.427 1.523 2.433
1st 12 MW All Hours 2.695 1.768 2.695
2nd 12 MW On Peak 2.805 1.579 2.868
2nd 12 MW Off Peak 1.831 1.500 1.254
2nd 12 MW All Hours 2.237 1.533 1.927
January February March
Decrement 1996 1996 1996
1st 12 MW On Peak 3.045 3.045 3.018
1st 12 MW Off Peak 2.540 1.985 2.218
1st 12 MW All Hours 2.750 2.427 2.551
2nd 12 MW On Peak 2.983 2.878 2.540
2nd 12 MW Off Peak 1.927 1.525 0.852
2nd 12 MW All Hours 2.367 2.089 1.555
Average Values
(Cents/KWH)
1st 12 MW On Peak 2.679
1st 12 MW Off Peak 1.927
1st 12 MW All Hours 2.240
2nd 12 MW On Peak 2.344
2nd 12 MW Off Peak 1.337
2nd 12 MW All Hours 1.756
Exhibit VII
MAINE PUBLIC SERVICE COMPANY
Percent Rate Increase by Class
For Fuel Clause Ended March 31, 1996
Total Small Large GS
Description Residential Gen. Serv. Secondary
(A/A1) (C) (ES/ES-T)
1995 Estimated Class Usage
at Customer (MWH): 177,574 76,864 87,654
Fuel In Base ($/KWH) 0.030260 0.030260 0.030260
Proposed FCAR ($/KWH) 0.003527 0.003527 0.003527
FCA ($ Diff. Fuel) 626,303 271,099 309,156
Current FCAR ($/KWH) 0.000644 0.000644 0.000644
FCA ($ Diff Fuel) 114,358 49,500 56,449
Change in FCAR ($/KWH) 0.002883 0.002883 0.002883
Change in FCA ($) 511,946 221,599 252,706
FY 1993-94 Revenue ($) 19,873,936 7,770,642 7,584,553
FY 1993-94 (MWH) 177,574 76,864 87,654
Base Rate ($/KWH + Current
FCAR ($/KWH) 0.111919 0.101096 0.086528
Base Rate + Proposed
FCAR ($/KWH) 0.114802 0.103979 0.089411
Percent Increase (%)
on Total Rate 2.6% 2.9% 3.3%
Large GS Large GS Large GS
Description Primary 34.5 KV Transmis.
(EP/EP-T) (S/S-T) (H/H-T)
1995 Estimated Class Usage
at Customer (MWH): 20,965 31,290 99,746
Fuel In Base ($/KWH) 0.029281 0.028604 0.028193
Proposed FCAR ($/KWH) 0.003413 0.003334 0.003286
FCA ($ Diff. Fuel) 71,554 104,321 327,765
Current FCAR ($/KWH) 0.000623 0.000608 0.000600
FCA ($ Diff Fuel) 13,061 19,024 59,848
Change in FCAR ($/KWH) 0.002790 0.002726 0.002686
Change in FCA ($) 58,492 85,297 267,918
FY 1993-94 Revenue ($) 1,696,544 2,499,795 7,576,272
FY 1993-94 (MWH) 20,965 31,290 111,433
Base Rate ($/KWH + Current
FCAR ($/KWH) 0.080923 0.079891 0.067989
Base Rate + Proposed
FCAR ($/KWH) 0.083713 0.082617 0.070675
Percent Increase (%)
on Total Rate 3.4% 3.4% 4.0%
Municipal
Description Power Lighting Retail
(D2) (SL/T)
1995 Estimated Class Usage
at Customer (MWH): 2,836 3,107 500,036
Fuel In Base ($/KWH) 0.030260 0.030260 0.029551
Proposed FCAR ($/KWH) 0.003527 0.003527 0.003463
FCA ($ Diff. Fuel) 10,003 10,958 1,731,625
Current FCAR ($/KWH) 0.000644 0.000644 0.000630
FCA ($ Diff Fuel) 1,826 2,001 315,023
Change in FCAR ($/KWH) 0.002883 0.002883 0.002833
Change in FCA ($) 8,176 8,957 1,416,602
FY 1993-94 Revenue ($) 218,300 786,560 48,006,602
FY 1993-94 (MWH) 2,836 3,107 511,723
Base Rate ($/KWH + Current
FCAR ($/KWH) 0.076975 0.253157 0.093814
Base Rate + Proposed
FCAR ($/KWH) 0.079858 0.256040 0.096647
Percent Increase (%)
on Total Rate 3.7% 1.1% 3.0%
EXHIBIT 28(p)
STATE OF MAINE Docket No. 95-052
PUBLIC UTILITIES COMMISSION
November 30, 1995
MAINE PUBLIC SERVICE COMPANY ORDER APPROVING
Proposed Increase in Rates STIPULATION (RATE
CASE/RATE PLAN)
WELCH, Chairman; NUGENT and HUNT, Commissioners
I. INTRODUCTION
We approve the Stipulation filed by the Company, Advocacy Staff, and the
Public Advocate to resolve all revenue increase and rate plan issues in this
proceeding.
II. PROCEDURAL HISTORY
The procedural history is contained in Appendix A of this Order.
III. DESCRIPTION OF THE STIPULATION
The Stipulation is a comprehensive agreement intended to resolve all of the
issues associated with the Rate Stability Plan (RSP or the Plan) filing made by
the Company. Under the Stipulation, the Company will be permitted to increase
its rates by an agreed-upon percentage at the beginning of the Plan on January
1, 1996, and on February 1 of each of the subsequent three years for which the
Plan is expected to be in effect. 1/ The Stipulation also requires the
Company to write off approximately $8.3 million (after tax) that is currently
carried on its books as regulatory assets, and it allows MPS to defer certain
costs associated with its power purchase contract with the Wheelabrator/Sherman
facility and sets forth conditions under which the Company will receive
recognition of those deferrals in rates at the conclusion of the RSP. The
agreement also establishes a profit-sharing mechanism based on the Company's
annual earned returns during the term of the Plan, and sets up a process for
sharing the costs or benefits associated with extended outages at Maine Yankee
and at the Wheelabrator/Sherman (W/S) plant. In addition, the Stipulation
establishes the ground rules for flowing back to ratepayers any savings from
a restructured contract with W/S, if that should occur.
Also included in the Stipulation is a provision that allows MPS to seek
direct recovery (in addition to the index percentage
1/ The description of the Stipulation is set forth here for the convenience
of the reader. The terms of the Stipulation itself, attached hereto as Appendix
B, govern the obligation of the parties.
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increase) of certain costs that are designated as "mandated," such as
governmentally imposed tax or accounting changes. A customer service and
reliability index is established that will penalize the Company if it falls
below certain standards that are set out in the agreement. The annual and
mid-term review processes that will occur during the pendency of the Plan are
also detailed. Finally, the Stipulation sets forth various accounting orders
that the Commission must issue in order to allow the Company to comply with the
provisions contained in the Plan. We discuss each of the parts of the Plan in
detail below.
A. Rate Increases
Section 1 of the Stipulation states the intent of the signatory parties to
resolve all issues concerning the adoption of an RSP for the Company. Section
2 establishes the price index, or percentage rate increase that will occur in
each year of the Plan. The increases are 4.4% on January 1, 1996, 2.9% on
February 1, 1997, and 2.75% each on February 1, 1998 and February 1, 1999. The
increases are applied to all rate elements, indicating an across-the-board
application, at least until the rate design phase of this case is complete. The
percentage increases may be modified by application of the provisions contained
in Sections 5, 7, 8 and 9. The agreement ends on January 31, 2000, and absent
a future Commission Order, the Company will not be entitled to any additional
fuel cost recovery, except as provided in Section 4 of the Stipulation.
B. Write-offs
Section 3 specifies the write-offs totaling $11.7 million ($8.3 million
after tax effects are considered) that the Company will take under the
agreement. MPS agrees to eliminate the following amounts from its deferred
asset balances: 1) about $6.2 million ($4.85 million after tax) in unrecovered
Seabrook costs formerly allocated to wholesale ratepayers; 2) about $2.0 million
($1.37 million after tax) in other plant investment that was formerly dedicated
to wholesale; and 3) $3.5 million ($2.1 million after tax) in deferred fuel
balances. This will result in a loss of about $5.13 per share of common stock,
equal to about 17% of the Company's book equity balance.
C. Fuel Costs
Section 4 provides the treatment that is to be applied to three separate
types of costs that the Company has already incurred or will continue to incur.
First, the Company's unrecovered fuel balance is estimated to be about $6.0
million at December 31, 1995 and Section 4.A. describes the disposition of that
balance. As provided in Section 3, MPS will immediately write off $3.5 million
of that amount. An additional $500,000
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will be amortized over the 4-year term of the Plan. Finally, the remaining
amount of approximately $2.0 million will be recoverable at the expiration of
the RSP on January 31, 2000. if the Company does not file a rate case for effect
on or before the expiration of the RSP, MPS will amortize $1.4 million in fiscal
year 2000, and the remaining balance in 2001. If MPS does file a rate case for
effect on or before the end point of the Plan, the recovery of the fuel balance
will be determined in that proceeding.
D. Wheelabrator/Sherman Purchase Power Costs
Section 4.B. allows the Company to defer up to $1.5 million annually (for
a total of $6.0 million over the life of the Plan) of costs associated with the
power purchase contract between MPS and Wheelabrator/Sherman. The total amount
of deferral is roughly equivalent to the portion of W/S purchased power costs
that was formerly assigned to the wholesale jurisdiction, but the allowed
deferral remains constant over the term of the RSP, while the W/S contract rate
continues to escalate at about 5% annually. The Stipulation permits MPS to
obtain recovery of the deferred balance in rates beginning on January 1, 2001,
which is the day after the currently established pricing portion of the W/S
contract ends. 2/ The recovery start date is also 11 months after the end of
the RSP, and the Stipulation contains no provision that addresses MPS's rights
with regard to the W/S costs incurred in that time period.
E. Maine Yankee Resleeving Costs
Section 4.C. describes the Company's obligations with regard to its share
of the costs associated with the resleeving operation at Maine Yankee. The
Company has agreed to amortize its share(estimated to be about $1.97 million
pre-tax) over 5 years beginning in 1996. This amortization carries on 11 months
after the end of the RSP, and the Company's ability to recover that portion of
the costs in rates is not addressed in this Stipulation. The parties have
retained their rights to argue at that time what the appropriate treatment of
those costs should be.
F. Profit Sharing Mechanism
In Section 5 the Stipulation describes a profit-sharing mechanism that the
parties have agreed to put into place, to become effective with the rate change
scheduled for February 1, 1998. The Stipulation establishes a target Return on
Equity
2/ The contract apparently is extendable, but the price for
power during the extension is subject to negotiation.
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(ROE) for the Company of 11.0%, which will be adjusted according to an index
based on the average of Moody's electric utility dividend yields and Moody's
electric bond yields as compared with those yields for a base year of 1994,
which is the test year for this case. The starting point for the target ROE
cannot increase or decrease by more than 200 basis points, and the Company's
common equity ratio will be capped at 52% for this calculation. In addition,
the agreement spells out a methodology for allocating certain revenues and
expenses between retail and wholesale customers to be used for this calculation
only. The Company's earned ROE for the 12 months ending September 30 of each
year will be compared to the indexed target, and no rate changes beyond those
established in Section 2 will occur as long as the calculated actual ROE is
within plus or minus 300 basis points of the target. Outside the deadband,
deficiencies in earnings will be split 50/50 between shareholders and
ratepayers, with any required increase included in the immediately following
scheduled rate increase. Should earnings exceed the deadband, any excess would
be used first to eliminate any balance of the W/S costs that are being deferred
according to Section 4.B. If there are any remaining excess funds available,
they will be split 50/50 between ratepayers and shareholders, with the
ratepayers' share used to reduce the next allowed price increase.
Should the Company's earned ROE as calculated in accordance with Section
5 fall to more than 500 basis points below the target ROE, Section 6 allows the
Company the option of filing a rate case, and thus terminating the RSP.
G. Extended Outages Provisions
Section 7 establishes a sharing mechanism for dealing with the consequences
of extended plant outages at either Maine Yankee or Wheelabrator/Sherman. The
clock for this provision begins to tick on the start date of the RSP (January
1, 1996) and continues until the cessation of the Plan. Should either of these
facilities be off line for more than six consecutive months after January 1,
1996, Section 7 requires the accrual with carrying costs of the increased
benefits or expenses beginning with month number seven. If Maine Yankee is the
affected plant, MPS can adjust its next scheduled price index increase by 50%
of the net amount of the purchased power costs incurred to replace its Maine
Yankee entitlement. If Wheelabrator/Sherman ceases operation for more than six
consecutive months, starting in month seven MPS must accrue 50% of the resulting
purchased power cost savings and reduce its price index at the time of its next
scheduled annual review. Should this provision be invoked for the shutdown of
either facility, the 50% portion of the net change that is not used to adjust
the price index shall accrue to
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shareholders of the Company and shall be used in the revenue sharing calculation
under the provisions of Section 5.
H. Wheelabrator/Sherman Restructuring Savings
Section 8 contains provisions relating to the treatment of any savings that
might occur should the Company be successful in restructuring its purchased
power contract with Wheelabrator/Sherman. Those savings are to be applied as
follows. First, the savings will be used to reduce or eliminate any W/S
purchased power amounts deferred under the provisions of Section 4.B. Second,
any remaining amount will be applied to the deferred fuel balance that remains
on the Company's books according to the provisions of Section 4.A. Third, any
amount remaining after the first two provisions will be applied to any ongoing
deferrals of W/S costs made in accord with Section 4. The amount of the deferral
after restructuring will have to be adjusted based on the type and level of the
restructured contract. If any savings remain after provisions one through three
are applied, 95% of that remainder will be used to reduce the specified price
index at the time of the Company's next scheduled rate increase. The remaining
St will accrue to the Company's shareholders and, presumably, will be taken into
account in calculating any profit sharing amount under Section 5.
I. Mandated Costs
The definition and treatment of any mandated costs are included in Section
9 of the Stipulation. Mandated costs are defined as those that are beyond the
control of the Company's management, have a disproportionate impact on the
Company's costs, are mandated by actions of the government or regulatory bodies,
and individually exceed $300,000 in annual revenue requirements. Any proposed
mandatory cost changes that are approved by the Commission will be included as
an adjustment to the Company's annual price index. One-time adjustments may be
included, provided their effects are removed from any subsequent indexed rate
changes. Although not specified in the agreement, we interpret this provision
to apply to both cost increases and decreases, and assume that any party may
propose an amount for inclusion in the index adjustment, as long as the nature
of the item qualifies it for such inclusion under the provisions of this
section.
J. Service Quality Penalty Mechanism
Section 10 establishes a penalty mechanism to discourage the Company from
allowing its service quality to deteriorate during the RSP. Seven measures will
be calculated on an annual basis, and the Company will face a potential penalty
of up to $200,000, with equal weighting given to each item. Thus,
- 6 - Docket No. 95-052
each item is worth $28,570 in potential penalties. On a going forward basis,
the actual result for each item will be compared to a baseline target that is
set out in the Stipulation, which was devised by examining recent Company
history. There are two customer satisfaction indices (one for residential and
one for business customers) based on annual survey results. Another item
measures the Company's success in completing installations within three working
days. Two service reliability indices are included. One is an average customer
interruption index, while the other measures average system interruptions. The
two interruption indices may be slightly revised to account for weather
normalization effects. This would affect both the baseline number and the
tracking of actual results. Finally, two measures are included to account for
the Company's customer service activities. one item looks at the Company's PUC
complaint ratio, and the other examines the billing error rate. The percentage
variation from the baseline for each category will be calculated and multiplied
by the 10 points available for each measure, with any item earning less than 10
points subjecting the Company to a penalty amount as specified in the Plan. The
Company can earn no more than 10 points in any one measure, thus preventing it
from offsetting below-baseline performance in some categories with
above-baseline results in others.
K. Annual Informational Filings and Review
Each year the Company is required to file certain information regarding its
performance under and compliance with the Plan, as provided in Section 11 of the
Stipulation. The information will be used to compute the annual price index
adjustment that will be applied to the Company's rates as of February 1 for each
year after the first year that the Plan is in effect. Information relating to
the following sections must be submitted to the Commission by October 15 of each
year: 1) the sharing mechanism results for plant outages, per Section 7; 2)
savings associated with any restructuring of the W/S contract, per Section 8;
and 3) any proposed mandated costs. The remaining information must be filed by
November 15 of each year. The Company must provide all financial data necessary
to complete the profit-sharing calculation, as provided in Section 5. The
results will be based on the 12 months ended September 30, with the first three
months pro-formed to account for the effects of the previous annual price
change.
MPS must also provide the customer service and reliability calculation as
specified in Section 10. The Company is to provide 10 months of actual results
by the November 15 deadline, then provide the final two months of results by the
following January 15. Any resulting penalty will appear as a credit on each
customer's bill.
- 7 - Docket No. 95-052
The Company must also provide information related to its pricing
flexibility activities, as permitted under the Partial Stipulation dated July
26, 1995. The filing will show the Company's estimate of its revenue delta, its
estimate of load growth and its updated short-term marginal costs. Finally, the
Company must report its fuel expenses for the prior year.
Section 12 provides that a review of the RSP will commence in September,
1998, to assess the overall operation and results of the Plan. No other details
of the review are specified, and the Commission will determine the scope of this
process at the time of its commencement.
L. Accounting Standards
Section 13 asserts that the RSP implemented under the Stipulation is not
deregulation from either an accounting or a regulatory perspective, and that MPS
continues to be subject to Generally Accepted Accounting Principles (GAAP) and
continues to meet the criteria set forth in Statement of Financial Accounting
Standards No. 71 (SFAS 71) for accounting for regulatory assets on its books.
Attachment E of the Stipulation specifies that certain regulatory assets remain
subject to recovery in rates, and thus, meet the standard for continued
recognition on the Company's balance sheet. Section 13 also provides that
should the Company's auditors find that MPS would be required to make additional
write-offs due to the provisions contained in Attachment A (regarding the
allocation of certain revenues and expenses for calculation of the
profit-sharing mechanism of Section 5), then the provisions of Attachment A will
not be applicable to Sections 5 and 6, and that a revised profit-sharing
mechanism will be devised and submitted to the Commission for its approval. The
revised mechanism, if any, will be designed to avoid any additional write-offs
by the Company. Attachment A also provides that the Company's current fuel
accounting methodology will continue, but that no reconciliation, other than
that provided in Section 4.A., will occur at the conclusion of the Plan.
Finally the Attachment states that future changes to GAAP may require that the
Stipulation be amended.
M. Accounting Orders
The specific accounting orders that are necessary to carry out the terms
of the Stipulation are described in Section 14 of the Stipulation. We approve
the accounting policies, methods and procedures that are proposed in that
section, and we summarize those provisions below.
Section 14.A. provides that MPS shall ratably amortize its deferred SFAS
106 balance (related to post-retirement
- 8 - Docket No. 95-052
benefits expenses) over a 10-year period beginning on January 1, 1996.
Section 14.B. provides that MPS shall continue to normalize both its
replacement power costs and its capacity expenses related to refueling outages
at Maine Yankee. These expenses will be deferred at the time of the refuelings
and amortized to expense over the period until the next scheduled refueling
outage. This provision is necessary to avoid significant fluctuation in the
Company's reported earnings, which would adversely effect the profit-sharing
mechanism of Section 5.
Section 14.C. allows the Company to defer its share of the capacity costs
associated with the Maine Yankee resleeving operation currently under way. The
Company will amortize the deferred balance (currently estimated to be
$1,971,360) over a 5-year period beginning in 1996, in accordance with the
provisions of Section 4.C.
Section 14.D. provides that, in accordance with Section 4.A.(ii), MPS will
amortize $500,000 of its deferred fuel balance in four equal annual installments
beginning in 1996.
Section 14.E. provides that the Company may continue to include the
investment associated with its Caribou generating station steam units in rate
base and to continue depreciation on the plant and equipment while the facility
is inactive for approximately the next five years. This accounting is
permissible because the deactivated units will be protected, maintained, and
available for reactivation within about six months. This section also allows
the Company to defer its reduction-in-force expenses and other lay-up costs
associated with the deactivation of the Caribou facilities, and to amortize
those deferred amounts over a 5-year period beginning in 1996. This accounting
is designed to match the costs with the expected savings from the plant's
deactivation.
Section 14.F. provides that the Company may continue to defer about $2.0
million in fuel expenses that are currently on its balance sheet until the
amount is subject to amortization or recovery in rates, as provided in Section
4.A.(iii).
Under the terms of Section 14.G. and as provided in Section 4.B, the
Company may defer up to $1.5 million per year in purchased power costs from
Wheelabrator/Sherman for each of the four years that the RSP is in effect,
resulting a total regulatory asset not to exceed $6.0 million at the expiration
of
- 9 - Docket No. 95-052
the Plan. Recovery of this amount is provided for in Section 4.B., beginning
on January 1, 2001.
N. Condition Precedent
Section 19 provides that Maine Public's entering into the agreement is
conditioned on its obtaining satisfactory assurances from its creditors that the
write-offs provided in the Stipulation will not cause MPS to be in default of
any of its financial instruments. This provision is necessary because the
write-offs required under the Stipulation may result in the Company's being in
technical default of some of its credit terms related to interest coverage
tests. The Company indicated that it discussed the matter with all its
creditors and expected to receive any required waivers by November 28, 1995.
On November 28, 1995, MPS filed notification that it has obtained the necessary
assurances to satisfy Section 19 of the Stipulation.
IV. MCCAIN FOODS' OBJECTIONS
McCain's did not file testimony in this case and did not actively
participate in the negotiation of this stipulation, but filed comments and
objections to the stipulation. McCain cross-examined witnesses and argued
against approval of the Stipulation at the hearing.
In its objections, McCain argued that the Commission should:
- fully litigate this case before approving a multi-year rate plan for
MPS, and reject the stipulation in which Staff and OPA have agreed to
a resolution that is quite different than their filed testimony,
- reject the stipulation because the rate increases are too large, will
adversely affect the economy in Aroostook County, and improperly shift
shareholders, burdens to ratepayers because it allocates wholesale
costs to retail ratepayers, and
- reject the stipulation because its approval will undermine the
likelihood of a "full and fair" rate redesign, because it does not
give all of the benefits of a Wheelabrator/Sherman buyout or buydown
to ratepayers, and "steals the march" with respect to the
Legislature's restructuring of the electric industry by year 2000.
At hearing, McCain expressed skepticism as to whether the threat of
bankruptcy referred to by MPS in the event that the Staff's litigation position
were to prevail was real and argued that MPS should be allowed a rate of return
that is consistent
- 10 - Docket No. 95-052
with the level of capital return typically found in Aroostook County. McCain
argued that there is no legal basis for the Commission to approve retail payment
of wholesale stranded costs, that the ratemaking standard is whether the assets
are used and useful to provide service and equitable arguments should not
prevail in this matter.
At the hearing, Staff, OPA and the Company responded to McCain's arguments
and objections. Staff explained its support of the stipulation is based on its
belief that the Company would require significant rate increases over the next
few years due to the financial pressures from the loss of Loring Air Force Base
and Houlton Water Company as customers and the costs of the Maine Yankee
resleeving effort and the Wheelabrator/Sherman contract. Staff noted that the
stipulation provides several important benefits to ratepayers including the
elimination of the fuel clause and substantially reducing MPS's deferred
balances, and is consistent with the Staff's litigated position in most regards.
The Staff noted that its major concession was in agreeing that retail ratepayers
should absorb some of the Wheelabrator/Sherman costs, but that this was done in
exchange for having the Company absorb all other wholesale costs. Finally,
Staff noted that the magnitude of the increases taken over the life of the plan
were not substantially greater than those proposed by the Staff, thereby
refuting one of McCain's concerns.
OPA noted that the stipulation lends predictability to MPS's electric
rates, scheduled to increase at less than inflation (assumed to be more than
3%), which can aid business planning, that the Caribou Steam plant costs are
properly borne by retail ratepayers because it is available to them for use, and
that the stipulated resolution avoids setting a precedent on wholesale and
retail cost allocation issues.
The Company stated that the stipulation, although "thin," should allow the
Company to survive the period in a relatively healthy position while setting
rates at levels that will be comparable to other utilities. The Company further
noted that it has already undertaken cost-cutting measures to offset the need
for rate increases and argued that this Commission "having created" the
Wheelabrator/Sherman expense, is obligated to allow the Company to collect it.
V. DISCUSSION
In any stipulation presented to the Commission there are several factors
that must be considered before we make our decision.
First, we must consider who has and who has not signed the document. In
this case, the Advocacy Staff, OPA and the Company
- 11 - Docket No. 95-052
have reached an accord, while McCain Foods, the Company's largest industrial
customer, has raised objections to its approval. As discussed earlier, McCain
has raised several issues regarding MPS and its need for significant rate
increases, noting that it is driven largely by losses of large wholesale and
retail customers. However, as discussed more fully below, we find that the
signatory parties represent the broad spectrum of regulatory interests, and that
they have crafted an agreement that treats both customers and the Company in an
equitable manner.
Next, it is important to assess whether the process that led to the
agreement was fair to all parties. McCain has made no assertion that it was
precluded from participating in the discussions that preceded the signing of the
Stipulation. Further, the discovery process has allowed the various parties to
explore the bases for the positions of the other parties and to assess the
validity and reasonability of those positions. As part of the record in this
case, the prefiled testimony of each of the witnesses articulates his or her
position on the issues involved. we find no reason to reject the Stipulation due
to lack of fairness and openness in the process.
Finally, we must assess whether the stipulated result is reasonable and
whether it comports with established Commission standards.
In this regard, the stipulation presented to us must be considered in the
context of the particular circumstances in which Maine Public Service Company
finds itself today. Very recently, the Company lost two large customers --
Loring Air Force Base on the retail side, and the Houlton Water Company electric
division on the wholesale side. These losses leave a large amount of fixed
investment costs on the Company's books that either must be recovered from its
remaining ratepayers or written off. In addition, the Company will soon have
to pay its share of the costs of the resleeving operation that is taking place
at Maine Yankee, and it continues to be bound by the terms of its purchased
power agreement with Wheelabrator/Sherman which requires MPS to buy power at a
price that significantly exceeds today's market rate. These circumstances place
the Company in a condition of substantial financial stress.
The stipulating parties have asserted that the Stipulation results in a
fair sharing of the pain involved with dealing with the Company's financial
problems for the next four years. This appears to be true. While ratepayers
will see rate increases
- 12 - Docket No. 95-052
totaling 13.4%. over the life of the RSP, 3/ the Company is taking an
immediate write-off of approximately $8.3 million after taxes, resulting in a
reduction of the Company's net income of. about $5.13 per share. The write-off
equals about 6.6% of the Company's total assets and about 17.5% of its equity
balance.
Most of the other provisions in the Stipulation appear to present a
balancing of ratepayer and shareholder interests. For the Company's
shareholders, MPS will be able to defer and receive recovery in rate of up to
$6.0 million of purchased power costs associated with the Wheelabrator/Sherman
contract. This amount is roughly equal to the portion of the contract costs
that was formerly recovered from the Company's wholesale customer, Houlton Water
Company. Conversely, the provisions related to the assignment of benefits from
any restructuring of the W/S contract require that nearly all of those savings
accrue to the Company's customers, sequentially, through a reduction in or
elimination of the deferred W/S balance, a reduction in or an elimination of the
deferred fuel balance, a reduction in or elimination of any ongoing W/S deferred
amounts, and finally a reduction in the price cap index based on 95% of any
remaining savings, with 5% of the remainder accruing to the Company's
shareholders.
Also, the Plan eliminates the Company's current fuel clause mechanism and
requires MPS to write off $3.5 million immediately and to amortize $500,000 over
the term of the RSP. The remaining balance of about $2.0 million will be
subject to recovery at the end of the Plan, depending on whether or not the
Company files a rate case for effect at that time. In summary, the Plan
requires a write-off of about an $8.3 million after tax amount, but permits
about $8.0 million in recoverable regulatory assets to be present on the
Company's books at the conclusion of the Plan.
Another sharing occurs with the Maine Yankee resleeving costs, whereby the
Company will amortize to expense 80% of its share of the cost during the term
of the Plan, with no agreement stated on the recoverability of the remaining 20%
that will be amortized in year 2000 after the Plan expires. The amortized cost
is among the factors considered in arriving at the price index amounts.
3/ The actual amount for each customer may be more or less than the
compound total depending on the customer's rate class, the results of the rate
design proceeding, and whether industrial customers negotiate a flexible pricing
arrangement with the Company. The rate design proceeding scheduled to be
completed by April 1, 1996, may determine revised cost responsibilities of the
various rate classes.
- 13 - Docket No. 95-052
The terms of the profit-sharing provision also seem to present a balancing
of interests, in that the 300 basis point bandwidth around the target ROE
applies in either direction. But, while deficiencies are shared 50/50 between
shareholders and ratepayers, excess earnings are first used to reduce or
eliminate the deferred W/S purchased power deferral, and then 50% of any
remaining amount is applied as a reduction to the price cap index, with the
other 50%. accruing to shareholders. As further protection of customer
interests, the Company's common equity ratio for calculating earnings cannot
exceed 52%. As an offsetting benefit to the Company, should its earned ROE fall
more than 500 basis points below the indexed target ROE, the Company has the
option of terminating the RSP and filing a rate case.
With regard to the plant outage sharing mechanism related to W/S and Maine
Yankee, the Plan requires symmetrical treatment for potential costs or benefits.
An outage at either facility must last for at least six months after the start
of the Plan, and then a rate adjustment occurs that is shared 50/50 between the
ratepayers and the shareholders of MPS. Also in either case, the 50%. share
that is assigned to shareholders is taken into account in the profit sharing
calculation discussed earlier.
The mandated cost recovery mechanism contains safeguards that we find to
be reasonable and proper for this kind of provision. We assume that parties
other than MPS may also propose items to be included as mandated costs in the
annual review process.
The customer service and reliability index established in the Plan
satisfies a concern that is present in any price index type of mechanism, that
is the potential for the Company to reduce its costs to the point where its
service quality suffers. This could result from reduced attention paid to its
contacts with customers or from degraded service resulting from reduced spending
on upkeep of the Company's system. The proposed customer service and
reliability index mechanism should adequately allow us to ensure that the
Company's overall level of service quality does not deteriorate to unacceptable
levels.
We find the annual review process reasonable. The mid-term review during
1998 should provide a critical safeguard to monitor whether or not the Plan is
meeting its objectives and to insure the continued protection of ratepayers.
Having satisfied ourselves that the stipulation is designed specifically
to balance the various financial risks and rewards between shareholders and
ratepayers in a manner that appears generally reasonable, we now turn to
McCain's particular objections.
- 14 - Docket No. 95-052
McCain based its objections, in part, on a preference for Staff's litigated
position which would have excluded all Wheelabrator/Sherman wholesale cost
recovery from retail customers, and resulted in lower overall rate increases.
While the increases being approved here are fairly significant (13.4% when
compounded over the term of the Plan), they are in line with recent estimates
of inflation in general. Further, as noted by OPA, by approving measured
increases for the next four years, we are providing a measure of price
predictability to the Company's customers and avoid the very real possibility
of even larger increases during the same period of time. This is beneficial to
MPS's customers and provides an important measure of certainty to MPS and its
creditors.
Because McCain argued that approving a rate plan now would adversely affect
the likelihood of completion and implementation of a revised rate design for
MPS, we emphasize that it will not. our decision in the instant proceeding does
not affect the rate design case, currently well-underway and scheduled to
conclude by April 1, 1996. Adding an additional month between the date the rate
plan takes effect and the date rate design changes will be implemented
(previously a 2-month interval) should not create any insurmountable difficulty.
Next, we address McCain's arguments about the effect of the allowed rate
increases on the economy of MPS' service territory, which generally encompasses
Aroostook County (the County). McCain has argued that because the economy of
the County is less than robust, the Company should not be granted cost of
capital rates that are equivalent to those granted to other utilities in the
state. Rather, McCain argues, MPS should be given the opportunity to earn at
a rate that is close to what all other firms are earning in the County. First,
we disagree with the premise. MPS competes for capital on, at minimum, a
regional basis and, quite likely, nationally. Therefore, MPS must pay a
market-based rate for funds that is determined outside the County. Our
rationale is further supported by the U.S. Supreme Court cases (Hope and
Bluefield) which set forth the premise that companies must be allowed the
opportunity to earn a market-based ROE that is comparable with the returns
available on securities of comparable risk. The economic situation in the
County might actually have the effect of raising the allowed ROE for MPS,
because of the added risk attached to such a security. We do not need to make
that finding here, inasmuch as the Stipulation sets the Company's targeted ROE
for earnings sharing at 110%, which is 75 basis points below the level contained
in the testimony of both the Staff and Company witnesses. Given the allowed ROE
findings in other recent rate cases, we doubt that the result following further
litigation would be less than the agreed-upon target.
- 15 - Docket No. 95-052
Thus, while all concerned might wish no increase were necessary, we believe
that this stipulation provides customers with just and reasonable rates, along
with a beneficial degree of rate predictability for the near term. We also note
that the Company continues to have the ability to offer special rates to
customers, such as McCains, under the terms of the Partial Stipulation on
Flexible Pricing approved by the Commission on August 7, 1995. 4/ We view MPS
as having both the incentive and the means to retain and expand load in order
to maintain or improve its financial condition, as long as it meets its related
DMS and IRP standards and obligations.
Finally, McCain's strongly objects to the creation of a deferred regulatory
asset related to wholesale costs in a manner that will bind the Commission in
the future. McCain argues against allowing this cost in retail rates and points
out that the treatment of such costs is currently under consideration at the
federal level. While we share McCain's concern to some extent, we have
considered each provision of the Stipulation and find it to be reasonable when
taken as an integrated agreement. Furthermore, on balance, we find that the
proposed Stipulation represents a reasonable accommodation of the regulatory
policy decisions that we would be required to make in a litigated proceeding in
this case and believe it presents a fair resolution of this, and all other,
issues given the particular circumstances of MPS. In any case, our approval of
the Stipulation should in no way be considered precedent for any issue raised
by any party in this case should a similar issue arise in a future proceeding.
VI. CONCLUSION
The Stipulation signed by the Company, the Advocacy Staff and the OPA
represents a comprehensive and integrated solution to MPS's financial
difficulties and we believe it successfully balances the need to maintain the
financial integrity of MPS with the right of ratepayers to pay only just and
reasonable rates for service. We are not persuaded by McCain's objections that
we should reject the Stipulation.
We find all of the proposed accounting orders to be reasonable and
necessary for the Company to comply with the provisions of the Plan. Therefore,
in conjunction with our approval of the overall Stipulation, we approve the
proposed accounting orders as set forth in Section 14 of the Stipulation.
4/ The Company also proposed, under its flexible pricing plan, a
discounted agricultural produce storage rate which has now been approved. See
Order Approving Stipulation, Docket No. 95-803, dated November 29, 1995.
- 16 - Docket No. 95-052
Finally, at deliberations we indicated that our approval of the Stipulation
was necessarily conditioned upon MPS obtaining the necessary waivers from its
creditors and notifying the Commission that such waivers have been received.
Since notice has now been filed with the Commission, that condition has been
satisfied.
Accordingly, it is
0 R D E R E D
1. That the Stipulation executed by Advocacy Staff, Maine Public Service
Company, and the Office of the Public Advocate filed on November 6, 1995 is
approved;
2. That the accounting orders described in Paragraphs 14.A
through 14.G of the Stipulation are approved.
Dated at Augusta, Maine, this 30th day of November, 1995.
BY ORDER OF THE COMMISSION
Christopher P. Simpson
Christopher P. Simpson
Administrative Director
COMMISSIONERS VOTING FOR: Welch
Nugent
Hunt
- 17 - Docket No. 95-052
APPENDIX A
PROCEDURAL HISTORY
On May 1, 1995, the Maine Public Service Company (MPS or the Company) filed
a proposed increase in rates and an alternative rate stability plan in which it
sought to collect increases in rates over five years and to defer $21 million
for future recovery. The rate plan also included a flexible pricing component
proposed pursuant to 35-A M.R.S.A. Subsection 3195(6). In addition, the Company
proposed rate design changes whereby rates for residential and commercial
customers would increase by 4.5% and 6.8% respectively, while rates for certain
industrial customers would decrease by 5.6% and 11.5%. The Company filed a
marginal cost study in support of its rate design proposal on June 29, 1995.
A prehearing conference was held on June 9, 1995 at which the petitions to
intervene of the Public Advocate (OPA), Hannaford Bros. Company (Hannaford),
and McCain Foods, Inc. (McCain) were granted.
A Partial Stipulation (Flexible Pricing) executed by the Advocacy Staff
(Staff), OPA, and the Company, to which McCain and Hannaford did not object, was
approved by Order dated August 7, 1995.
The proposed rate increase and rate plan proceeding was scheduled to allow
an implementation date for changes in rates of February 1, 1996. The rate
design proceeding is scheduled to allow implementation on April 1, 1996. Public
witness hearings on all matters (including the proposed rate case/rate plan
stipulation) were held on November 8, 1995 in Fort Kent and Presque Isle.
On October 30, 1995, the Staff, OPA and MPS informed the Commission that
they had reached agreement in principle and would be filing a stipulation within
a few days. On November 3, 1995, the stipulating parties filed a summary of the
stipulation which was disseminated to the news media in the MPS service
territory, mailed to the service list in this case, and was presented at the
public witness hearings. on November 6, 1995, the stipulating parties filed a
Stipulation intended to resolve the rate case and rate plan matters in this
proceeding. McCain filed its "Comments on and objections to Maine Public
Service Company's Stipulation" on November 9, 1995.
A hearing on the stipulation was held on November 13, 1995 at which all
parties were represented. Staff witnesses Sharon Reishus, Brian Cornwall, Grant
Siwinski, Barbara Alexander, and
- 18 - Docket No. 95-052
Richard Kivela were made available for questions. Brent Boyles testified for
the Company. The prefiled testimonies of all parties were entered into the
record at the hearing without objection. Deliberations were held following the
hearing.
On November 28, 1995, MPS filed a letter notifying the Commission that it
had obtained the necessary assurances from its creditors to satisfy the
condition in Article 19 of the Stipulation.
EXHIBIT 28(q)
STATE OF MAINE Docket No. 95-462
PUBLIC UTILITIES COMMISSION
December 12, 1995
PUBLIC UTILITIES COMMISSION NOTICE OF INQUIRY
Re: Electric Utility Industry
Restructuring Study
I. INTRODUCTION
By this Notice we begin our formal inquiry into the restructuring of the
electric industry in Maine. Few issues in recent regulatory memory have
generated so much interest and controversy from so many different sources. Our
hope, and expectation, is that at the conclusion of the year allotted to us by
the Legislature to prepare our recommendations we will be in a position to
present a coherent, fair, and workable approach to bringing Maine's citizens the
greatest possible benefits from the evolving electricity markets. For us to
succeed, we will need the cooperation and creativity of all those who are
involved in, and are affected by, this enormously complex industry. We have
thus tried to develop an approach to our inquiry that will keep our focus on
substance, and will reduce if not eliminate the procedural wrangling that often
enriches lawyers but rarely provides illumination.
We have begun our inquiry even before the efforts of the Work Group on
Electric Industry Restructuring established by the Legislature have been
completed because we believe that interested persons should be apprised of the
scope and structure of our effort as soon as possible. The efforts of the Work
Group have already provided enormous benefit to us in identifying and clarifying
many of the issues that we will need to address, and we will of course
incorporate the final product of the Work Group as an important and integral
part of our inquiry.
II. BACKGROUND
Legislative Resolve 1995, ch. 48 "Resolve, to Require a Study of Retail
Competition in the Electric Industry" requires, among other things, that
the Commission conduct a study of Maine's electric utility industry and develop
at least two plans for an orderly transition to a competitive market for the
retail purchase and sale of electricity. The two plans are described as
follows:
1. A plan to achieve full retail market competition for purchases and
sales of electric energy by the year 2000. The plan must identify all
necessary regulatory and statutory changes. The plan must be
accompanied by
- 2 - Docket No. 95-462
a detailed critique of the plan addressing at least the
issues identified in section 2 of this resolve; and
2. A plan to achieve retail market competition for purchases and sales
of electric energy wherever effective competition is likely and to
maintain appropriate regulation in areas where it is determined to be
necessary. The plan must identify all necessary regulatory and
statutory changes. The plan must be accompanied by a detailed
critique addressing at least the issues identified in section 2 of
this resolve.
The Commission is required to include a range of estimates of stranded
investment in each of the plans and must incorporate into at least one of the
plans all portions of any plan developed by the Work Group on Electric Industry
Restructuring (Work Group). 1/ The Commission must also identify the plan it
believes is in the best interest of the State. A copy of the Resolve is
attached to this Notice.
The Resolve specifies that the Commission study begin no later than January
1, 1996, and that it be completed and submitted to the Legislature no later than
January 1, 1997.
We initiate this Inquiry, pursuant to Chapter 110, section 1201 of our
Rules, as the procedural vehicle to conduct our Study.
II. NATURE OF STUDY
The Commission will conduct its study in a non-adjudicatory manner. We
will obtain necessary information through written submissions from interested
persons and requests for information. We will also conduct public hearings 2/
throughout the process and anticipate other less formal meetings, such as
technical conferences and roundtable discussions.
Our approach is to solicit detailed comments and other information from
interested persons and the general public early in the process. As stated
above, the means of obtaining the necessary information and viewpoints of the
various interests will likely take a variety of forms. Our goal is to complete
a
1/ The Work Group on Electric Industry Restructuring was established by
section 3 of the Resolve.
2/ The Resolve requires no fewer than four hearings at different
locations
to receive public comment.
- 3 - Docket No. 95-462
draft report with specific proposals early enough in the process so that it can
be issued to interested persons and the public for comments before a final
report is submitted to the Legislature. our preliminary timeframe for obtaining
input and conducting the study is attached.
The first step in the process will be to establish a service list of
interested persons. We request that all interested persons that wish to be on
the service list for the study notify the Commission in writing by January 5,
1996. 3/ We will then send a copy of the service list to all interested
persons. After the completion of the service list, we request that all
submissions to the Commission be served on all other interested persons. 4/
Persons who do not wish to receive all filings in this proceeding may request
to be placed on a notification list. Persons on the notification list will
receive all Commission issued documents, including notice of all public hearings
and forums.
The first round of written comments is due on January 31, 1996. This
deadline, as well as the entire schedule, is clearly ambitious, but is
necessitated by the timetable included in the Resolve and our desire to issue
a draft report early enough to solicit and consider comments on our proposals.
We do not anticipate granting extensions to the deadlines in our schedule, but
will endeavor to review and consider late-filed submissions. In order to help
us conduct the study in an organized and coherent fashion, we ask all interested
persons to make their best efforts to comply with all scheduling dates. We also
urge interested persons with similar positions to submit joint filings whenever
possible.
III. INITIAL COMMENTS
As stated above, initial comments and proposals are due to be filed by
January 31, 1996. We solicit detailed proposals and plans for achieving retail
competition in Maine by the year 2000. We request that proposals for the
structure of the electric utility industry in Maine be as detailed as possible
and include specific plans (including implementation timetables) for an
3/ Interested persons may be added to the service list after this date.
4/ In the event that this service requirement places an unreasonable
burden on any interested person, the requirement may be waived upon request.
If such a request is granted, the Commission will provide service to all
interested parties.
- 4 - Docket No. 95-462
orderly transition to a more competitive market. Comments and proposals should
address each of the 11 issues listed in section 2 of the Resolve, to the extent
possible in the context of specific restructuring plans. The discussions,
however, need not be limited to the listed issues. Interested persons should
also describe to what extent any plan or findings developed by the Work Group
5/ is incorporated into their restructuring proposals. In addition, we request
that the comments discuss how the terminology "full retail market competition,
"as used in the Resolve, should be defined for purposes of the Commission study.
We urge interested persons to provide us with a comprehensive description
of all the implications of their proposals, including a balanced discussion of
both the advantages and the disadvantages of each proposal relative both to the
status quo and to other alternatives. We also ask that the following issues and
questions be discussed generally or with respect to specific restructuring
proposals.
- What are the implications for each of the customer
classes in the near term, as well as the long term?
- Can near term decreases in rates be expected? If so, what is the
general magnitude of the expected decreases?
- What are the expected benefits and potential risks for ratepayers and
the State in general in both the near and longer term?
- What should Maine attempt to accomplish on its own authority as
opposed to regional and federal coordination?
- What are the additional benefits of retail competition that cannot be
obtained through enhanced wholesale competition?
- What should the corporate structure of electric utilities be in a
restructured industry? Is the divestiture of assets either necessary
or desirable? Is functional separation an adequate alternative to
divestiture? What are the benefits and risks of a holding company
structure?
5/ We will provide a copy of any report developed by the Work Group to
all interested persons on our service list.
- 5 - Docket No. 95-462
- How precisely should stranded costs be measured, who should be
responsible for the costs, and what should be the recovery mechanism?
- What services should be unbundled and provided in a competitive
market? How should unbundled services be priced?
- What regulatory forums should survive in a more competitive market and
what powers should be granted by the Legislature to oversee the
restructured industry?
Finally, we request that interested parties identify all changes in current law
that would be required by their proposals, and, to the extent possible, include
draft legislation that would be necessary to implement the proposed
restructuring.
We understand the many interested persons tay not have the resources to
provide us with the detailed proposals and discussions of the issues that we
have requested above. In such a case, we urge such interested persons to
provide us with any comments that they believe to be useful. All interested
persons are encouraged to participate in this process on any level they may
choose.
As stated above, the study process outlined in this Notice is ambitious but
necessary to accomplish our task. We ask for the cooperation of all interested
persons so that this process will be constructive and result in concrete
proposals that are in the best interests of the State.
Dated at Augusta, Maine, this 12th day of December, 1995.
BY ORDER OF THE COMMISSION
Christopher P. Simpson
Christopher P. Simpson
Administrative Director
COMMISSIONERS VOTING FOR: Welch
Nugent
Hunt
Exhibit 28(r)
71 FERC Paragraph 61, 249
UNITED STATES OF AMERICA
FEDERAL ENERGY REGULATORY COMMISSION
Before
Commissioners: Elizabeth Anne Moler, Chair;
Vicky A. Bailey, James J. Hoecker,
William L. Massey, and Donald F. Santa, Jr.
Maine Public ) Docket Nos. ER95-836-000
Service Company ) and ER95-851-000
ORDER ACCEPTING PROPOSED RATES FOR FILING SUBJECT TO REFUND,
SUSPENDING TRANSMISSION TARIFF AND MARKET-BASED
RATE PROPOSAL, AND ESTABLISHING HEARING PROCEDURES
(Issued May 31, 1995)
On March 31, 1995, Maine Public Service Company (Maine Public) filed:
(1) a transmission tariff (in Docket No. ER95-836-000) under which it
will provide network and firm and nonfirm, point-to-point transmission
service and ancillary services; and (2) a market-based rate proposal (in
Docket No. ER95-851-000) for nonfirm sales it intends to make. Maine
Public requests an effective date of June 1, 1995 for both submissions.
As explained below, we will accept the proposed transmission tariff
for filing, suspend it for a nominal period to become effective June 1,
1995, subject to refund, and set it for hearing. Despite the request of
certain intervenors, we will not direct summary modification of the
transmission tariff at this time. Further, we will accept the proposed
market-based rates for filing, without hearing, and allow them to go
into effect, subject to refund, pending final Commission action on the
transmission tariff.
Background
Maine Public is located in the northeast corner of Maine. The company
owns generating resources jointly with New England Power Pool (NEPOOL)
members and transacts with NEPOOL members, but it has never joined the
pool. Except for a low voltage interconnection with Central Maine Power
Company (Central Maine), Maine Public is not directly connected with
NEPOOL and must obtain transmission service from Maine Electric Power
Company (Maine Electric) 1/ and a Canadian utility, New Brunswick Power
Company (New Brunswick), to reach NEPOOL.
1/ Maine Electric is jointly owned by Maine Public (7.5%), Bangor
Hydro-Electric Company, Woodland Water and Electric Company and
Central Maine. Maine Electric is a single purpose entity
established to construct a 180 mile, 345 Kv transmission line
which is used to interconnect the Maine utilities with each other
and with Canada.
Docket Nos. ER95-836-000 and ER95-8517000 - 2 -
In an earlier proceeding in Docket No. ER94-1240-000, the Commission
accepted Maine Public's market-based rate application (for certain power
sales) subject to Maine Public's commitment to file an open access
transmission tariff. 2/
Transmission Tariff - Docket No. ER95-836-000
Maine Public now has filed a transmission tariff that offers network
transmission service, firm and nonfirm point-to-point transmission
service and ancillary services. 3/ The transmission rates are formula
rates. The company proposes to charge an average cost rate for network
service proportional to the customer's use of the system and "or"
pricing (based on average or incremental costs) for point-to-point
service. The formula reflects a "levelized costing methodology." 4/
Maine Public states that it has not included transmission access
across Maine Electric as part of the tariff because only that utility
can authorize transmission service over its 345 Kv line. Maine Public
states that, if the Commission requires third parties to gain access to
the company's 7.5% share of Maine Electric's transmission system, it
will revise the tariff to allow this.
2/See Maine Public Service Company, 68 FERC Paragraph 61,313 (1994).
3/Maine Public states that the open access transmission tariff, while
filed outside the 30-day period specified in the order conditionally
approving market-based rates (see supra note 2), is intended to comply
with that order.
4/Under a levelized method, the capital recovery component of the
rates does not vary from year to year. Instead, the rates are
designed using essentially the same method used to develop fixed-
rate home mortgage payments, i.e., the monthly payment does not
vary and the majority of the monthly payment reflects interest
(rate of return in the context of utility rates) in the early
years and the majority of the monthly payment reflects principal
repayment (depreciation in the context of utility rates) in the
later years.
Thus, in the early years of a facility's service life, nonlevelized
rates will be higher than levelized rates and, in the later years of
the facility's service life, nonlevelized rates will be lower than
levelized rates. However, under either approach, the utility
recovers, on a net present value basis, the identical capital costs,
i.e. depreciation, return on rate base and income taxes.
Docket Nos. ER95-836-000 and ER95-851-000 - 3 -
Maine Public offers the following ancillary services: load following,
reactive power, loss compensation, system protection (spinning and
operating reserves) and backup power (energy imbalance) services. 5/
Maine Public states that it does not intend to establish an electronic
bulletin board(EBB) because the cost of developing and maintaining it
would be inordinately high, given the geographic location and size of
Maine Public and the limited amount of service it expects to provide
under the tariff.
Notice of Maine Public's filing in Docket No. ER95-836-000 was
published in the Federal Register, 60 Fed. Reg. 19,046 (1995), with
comments, protests and motions to intervene due on or before April 21,
1995.
On April 21, 1995, motions to intervene were filed by Central Maine
and Electric Clearinghouse, Inc. (Clearinghouse). Also, on April 21,
1995, a motion to intervene, protest and request for summary
dispositions and hearing was filed by three utilities that currently
purchase requirements service from Maine Public: Houlton Water Company,
Van Buren Light and Power District and Eastern Maine Electric
Cooperative, Inc. (Wholesale Customers).
Central Maine raises no substantive issues. Clearinghouse states that
it generally supports Maine Public's proposed tariff. Clearinghouse,
nevertheless, requests that the tariff be revised in some respects, as
we discuss in greater detail later.
Maine Public filed an answer to Wholesale Customers' intervention on
May 8, 1995. Maine Public argues that none of the issues raised
warrants summary disposition and, at best, raise factual issues that may
require hearing.
Market-Based Sales Rates - Docket No. ER95-851-000
Maine Public proposes to sell nonfirm power at market-based rates. In
support, Maine Public explains that it now has submitted a transmission
tariff, described above, to supplement its market analysis, as the
Commission required in Docket No. ER94-1240-000 (in conditionally
accepting its market-based rate proposal). Maine Public requests an
effective date of June 1, 1995.
Notice of Maine Public's filing in Docket No. ER95-851-000 was
published in the Federal Register, 60 Fed. Reg. 19,244 (1995), with
comments, protests and motions to intervene due on or before April 26,
1995.
5/Maine Public's tariff permits customers to provide their own line
losses and backup power.
Docket Nos. ER95-836-000 and ER95-851-000 - 4 -
On April 26, 1995, Clearinghouse filed an intervention raising no
issues. Wholesale Customers filed an intervention and protest urging
the Commission to condition approval of market-based rates upon Maine
Public's revising its open access transmission tariff to reflect the
changes Wholesale Customers have requested in their intervention in
Docket No. ER95-836-000. Wholesale Customers assert that, until the
tariff is revised as requested, Maine Public retains the ability to
exercise transmission market power.
Discussion
Under Rule 214 of the Commission's Rules of Practice and Procedure, 18
C.F.R. Section 385.214 (1994), the timely, unopposed motions to intervene of
Central Maine, Clearinghouse and Wholesale Customers serve to make them
parties to the proceeding in Docket No. ER95-836-000 and the timely,
unopposed motions to intervene of Clearinghouse and Wholesale Customers
serve to make them parties to the proceeding in ER95-851-000.
Below we first examine Maine Public's proposed transmission tariff
filed in Docket No. ER95-836-000. We then turn to Maine Public's
request for market-based rate authorization in Docket No. ER95-851-000.
Docket No. ER95-836-000
Request for Summary Disposition
Clearinghouse requests that the tariff be revised in some respects,
e.g., (1) to allow customers of point-to-point service to designate
multiple firm delivery and receipt points without additional charge 6/
and (2) to establish an electronic bulletin board (EBB). Clearinghouse
also contends that several provisions of the tariff (e.g., provisions
concerning reciprocity, confidentiality, termination and arbitration)
lack
6/ In the Commission's recent Notice of Proposed Rulemaking,
Promoting Wholesale Competition through Open Access Non-
discriminatory Transmission Services by Public Utilities, 70 FERC
Paragraph 61,357, IV FERC Stats. & Regs. Paragraph 32,514 (1995) (Open
Access NOPR), the Commission has expressed its view that flexible firm
point-to-point service would permit use of alternate receipt and
delivery points on a nonfirm basis without additional charge and
that reservation of alternate firm points would, however, result
in an additional charge. See IV FERC Stats & Regs. at 33,084.
Maine Public, in its answer, states that it meant to include this
option. The Commission will direct Maine Public to revise the
tariff to include this option on compliance.
Docket Nos. ER95-836-000 and ER95-851-000 - 5 -
specificity and, accordingly, should be clarified to ensure that
there will be no confusion regarding tariff services.
We see no grounds for summary disposition of these issues. We have
not articulated a settled policy on any of them. The issues may,
however, be pursued at hearing.
Wholesale Customers argue that Maine Public should be directed to
revise the ancillary service provisions under the tariff to allow
customers the option of providing all of their own ancillary services or
to obtain them from a third party. This issue is not appropriate for
summary disposition. In the Open Access NOPR, the Commission recognized
that the transmitting utility may be uniquely situated to provide
ancillary services but that, when feasible, customers should be given
the option to make alternate arrangements. 7/ Whether such an option is
feasible for all ancillary services presents a factual issue to be
resolved at hearing.
Wholesale Customers also request that Maine Public modify 21
provisions under the tariff because they are different than the
provisions in the pro forma tariffs attached to the Open Access NOPR.
In this regard, we find that Wholesale Customers have raised material
issues of fact that they may pursue at hearing. 8/
Wholesale Customers contend that a levelized cost method for
transmission service is not permitted under the Commission's
comparability standard unless the utility uses the same method to price
its retail services. In this regard, Wholesale Customers argue that
Maine Public's retail rates are developed on a nonlevelized basis.
We disagree. Both methods are equivalent, and recover the same
transmission costs. The only difference is the timing of cost recovery.
If the state commission continues to use nonlevelized costs to develop
retail rates, the transmission component of retail rates in any year may
be higher or lower than
7/IV Stats & Regs. at 33,085.
8/In its order providing generic guidance as to ongoing tariff
proceedings in American Electric Power Service Corporation, et al., 70
FERC Paragraph 61,358 (1995), reh'g pending, the Commission explained that all
pending tariffs will be evaluated by the administrative law judges in
the first instance against the Commission's preliminary views as
expressed in the Open Access NOPR.
Docket Nos. ER95-836-000 and ER95-851-000 - 6 -
the transmission tariff rate. 9/ However, over time, as explained above
(see supra note 4), both methods recover identical costs on a net
present value basis.
Wholesale Customers also contend that they are entitled to a rate
reflecting changes in costs because, for many years, they have paid for
transmission on a nonlevelized basis through their bundled power sale
rates. They argue that switching to a levelized approach to develop
rates for stand-alone transmission service will result in their paying,
over the life of Maine Public's transmission facilities, more than their
pro rata share of the cost of those facilities.
Wholesale Customers have not provided an adequate basis for summary
disposition. Wholesale Customers may pursue their arguments at hearing.
However, we note that Maine Public's decision to adopt levelized
pricing as it takes on a commitment to provide open access transmission
service is within the options offered under the Transmission Pricing
Policy Statement. The Commission expects that Maine Public, having
proposed a change to a levelized cost method, will continue to use this
method for all services provided. It would be inappropriate for Maine
Public to alternate between the levelized and nonlevelized method for
each transaction. Moreover, Maine Public will be obligated to use the
tariff -- including the levelized rate -- for its future wholesale power
transactions.
Rate Analysis
The Commission's preliminary analysis indicates that the proposed
transmission tariff has not been shown to be just and reasonable, and
may be unjust, unreasonable, unduly discriminatory or preferential, or
otherwise unlawful. Accordingly, we will accept the tariff for filing,
subject to refund, and set it for hearing. Because the transmission
tariff expands the scope of transmission services that Maine Public will
offer, we will suspend the transmission tariff for a nominal
9/ In its Transmission Pricing Policy Statement (Inquiry Concerning
the Commission's Pricing Policy for Transmission Services
Provided by Public Utilities Under the Federal Power Act., Policy
Statement, III FERC Stats. & Regs., Regulations Preambles (1995),
Paragraph 31,005 at 31,142 n. 24 (1994), Order on Reconsideration, 71
FERC Paragraph 61,195 (1995), the Commission reiterated its longstanding
principle that the Commission does not intend that its
requirements for jurisdictional rates interfere in a state
regulator's determination of the appropriate ratemaking
methodology for bundled retail sales.
Docket Nos. ER95-836-000 and ER95-851-000 - 7 -
period, to go into effect June 1, 1995, as requested by Maine
Public, subject to refund.
Docket No. ER95-851-000
In Heartland Energy Services, Inc., 68 FERC Paragraph 61,223 (1994), the
Commission discussed in detail the general standards under which it
reviews applications for Commission authorization to sell at market-
based rates. The Commission allows sales at market-based rates if the
seller (and each of its affiliates) does not have, or has adequately
mitigated, market power in generation and transmission and cannot erect
other barriers to entry. In addition, the Commission considers whether
there is evidence of affiliate abuse or reciprocal dealing.
As we mentioned earlier, 10/ we already have determined that Maine
Public lacks market power in generation and cannot erect barriers to
entry. We have no basis to upset those earlier determinations.
Therefore, we deal here with transmission market power.
Transmission Market Power
As explained above, Maine Public owns a 7.5% interest in Maine
Electric, and Maine Electric owns a 180 mile, 345 kV transmission line
connecting NEPOOL to Canada (and through Canada, to Maine Public). 11/
Maine Electric's transmission line is located entirely within Central
Maine's service area but interconnects through a Canadian intermediary
with Maine Public. In the past, Maine Public has arranged transmission
over Maine Electric's transmission line for its transmission customers.
Maine Public's ownership interest in Maine Electric raises two
concerns with regard to Maine Public's market-based rate proposal: 1)
whether Maine Public has an obligation to arrange transmission service
on Maine Electric's transmission system for transmission tariff
customers; and 2) whether Maine Public has an obligation to pursue Maine
Electric's construction of new
10/In Docket No. ER94-1240-000, the Commission accepted Maine Public's
market-based rate application subject to Maine Public's filing an open
access transmission tariff within 30 days of the date of the order.
See Maine Public Service Company, 68 FERC Paragraph 61,313 (1994). Maine
Public states in its application in Docket No. ER95-851-000 that the
open access transmission tariff it has filed in ER95-836-000, while
filed outside the 30-day period, is intended to comply with that
requirement.
11/ Central Maine is Maine Electric's majority (78.3%) owner.
Docket Nos. ER95-836-000 and ER95-851-000 - 8 -
facilities to increase capacity on Maine Electric's transmission system
if there is insufficient Maine Electric capacity to meet the requests of
Maine Public's transmission tariff customers.
Maine Public argues that it has no obligation to arrange transmission
service over Maine Electric's transmission system because it is only a
minority owner. However, if the Commission deems it necessary, Maine
Public is willing to allow its tariff customers to use its entitlement
on Maine Electric's transmission line. Maine Public does not address
the possibility that construction of new capacity may be required to
support future transmission tariff transactions. Maine Public's
customers do not comment on Maine Public's position with regard to Maine
Electric.
Maine Public's position that it has no transmission market power with
respect to access to Maine Electric's transmission line because it is a
minority owner is without merit. Maine Public has the ability to
control or facilitate access to third parties over its portion of Maine
Electric's line. The Commission finds that Maine Public's alternative
proposal to allow tariff customers to obtain transmission service from
Maine Electric through Maine Public's entitlement is reasonable.
This alternative arrangement puts tariff customers in the same
position as Maine Public with regard to access to Maine Electric's
existing transmission line. The Commission will direct Maine Public to
codify its commitment in its tariff. In addition, the Commission will
require Maine Public to codify its commitment that it will not withhold
its consent to entities seeking service over the entitlements of other
Maine Electric owners, e.g., Central Maine.
If Maine Electric's existing capacity is inadequate, we will not
require Maine Public to promise to expand Maine Electric's transmission
capacity. In this respect, the Commission notes that Maine Electric's
transmission line is located within Central Maine's service area. The
Commission concludes that Central Maine, not Maine Public, would be the
appropriate target for a request for expansion of transmission
facilities in this geographic region.
However, an expansion of Maine Electric's facilities may be possible
simply by upgrading the existing facilities and this may require Maine
Public's consent and financial support. Also, Maine Public might need
to construct facilities in its service area to accommodate expansion by
Maine Electric or Central Maine. The Commission will require Maine
Public to codify in the tariff its commitment to undertake these types
of expansion-related activities.
Docket Nos. ER95-836-000 and ER95-851-000 - 9 -
We also place Maine Public on notice that its market-based rate
authority may be revoked if a complaint is filed demonstrating that
Maine Public has failed to take appropriate actions to accommodate
transmission service over Maine Electric's existing line or any new
facilities constructed by other parties.
Wholesale Customers request that the Commission delay Maine Public's
market-based rate authority until the tariff is revised to reflect the
summary dispositions that they request. Wholesale Customers contend
that, absent these revisions, Maine Public's tariff will not meet the
Commission's minimum standards (as expressed in the Open Access NOPR)
and Maine Public will continue to exercise transmission market power
pending completion of the hearing. The essence of Wholesale Customers'
argument is that refunds are an inadequate remedy to protect them
against the exercise of transmission market power under a defective
transmission tariff.
The Commission agrees that refunds on Maine Public's power sale rates
may not compensate for a lost opportunity to reach a cheaper supplier.
However, under the statutory framework, the remedy for market power is
cost-based rates. Wholesale Customers have not demonstrated that its
complaints provide a reasonable basis for summary disposition in the
circumstances of this case. The Commission will, therefore, allow Maine
Public to charge its market-based rates, subject to refund, 12/ pending
final Commission action on the transmission tariff.
Filing Requirements
Maine Public's market-based rate schedule provides that the charges
for each transaction must be codified in a written agreement. However,
Maine Public does not intend to file these agreements with the
Commission. Instead, Maine Public proposes to provide to the Commission
or any customer upon request a summary of "charges and other information
and data regarding the service and charges."
Under Section 205 of the Federal Power Act and Part 35 of the
Commission's regulations, rates must be on file with the Commission. To
meet this requirement, the Commission's current practice is to require
all public utilities providing service under cost-based or market-based
rates, except power marketers (which are subject to their own reporting
requirements), to file
12/ See Kansas City Power & Light Company, 67 FERC Paragraph 61,183 at 61,558
& n. 18 (1994), reh'g pending.
Docket Nos. ER95-836-000 and ER95-851-000 - 10 -
each agreement with the Commission. 13/ While the Commission has
indicated its intention 14/ to reevaluate its filing and reporting
requirements for all public utilities with market-based rate
authorization, until that undertaking is completed, the Commission will
require Maine Public to adhere to the current requirement and file each
agreement, setting forth the applicable rates and terms, with the
Commission.
The Commission orders:
(A) Maine Public is hereby directed to make an appropriate compliance
filing within 30 days of the date of issuance of this order, to reflect
the dispositions ordered in the body of this order.
(B) Maine Public's proposed transmission tariff in Docket
No. ER95-836-000, as modified as discussed in Ordering Paragraph
(A) above, is hereby accepted for filing and suspended, to become
effective June 1, 1995, subject to refund.
(C) Maine Public's proposed market-based rates in Docket No. ER95-
851-000 are hereby accepted for filing and suspended, to become
effective June 1, 1995, subject to refund.
(D) Maine Public is hereby required to file market-based rate
agreements with the Commission on a timely basis, as discussed in the
body of this order, and to update its market analysis every three years.
(E) Pursuant to the authority contained in and subject to the
jurisdiction conferred upon the Federal Energy Regulatory Commission by
section 402(a) of the Department of Energy Organization Act and by the
Federal Power Act, particularly sections 205 and 206 thereof, and
pursuant to the Commission's Rules of Practice and Procedure and the
regulations under the Federal Power Act (18 C.F.R. Chapter I), a public
hearing shall be held concerning the justness and reasonableness of the
proposed transmission tariff in Docket No. ER95-836-000, as discussed in
the body of this order.
13/See, e.g., United Illuminating Company, 63 FERC Paragraph 61,212
(1993); Milford Power Limited Partnership, 64 FERC Paragraph 61,306
(1993); Enron Power Marketing, Inc., 65 FERC Paragraph 61,305
(1993), order on clarification and reh'g, 66 FERC Paragraph 61,244
(1994).
14/ See Morgan Stanley Capital Group, Inc., 69 FERC Paragraph 61,175 at
61,695 (1994), reh'g pending.
Docket Nos. ER95-836-000 and ER95-851-000 - 11 -
(F) The Commission's Trial Staff is hereby directed to file top
sheets, in Docket No. ER9S-836-000, within ten days of the date of this
order.
(G) A presiding administrative law judge, to be designated by the
Chief Administrative Law Judge, shall convene a prehearing conference in
Docket No. ER95-836-000, to be held within approximately 15 days of
service of top sheets, in a hearing room of the Federal Energy
Regulatory Commission, 810 First Street, N.E., Washington, D.C. 20426.
Such conference shall be held for the purpose of establishing a
procedural schedule. The presiding judge is authorized to establish
procedural dates and to rule on all motions (except motions to dismiss)
as provided for in the Commission's Rules of Practice and Procedure.
(H) Maine Public is hereby informed of the rate schedule
designations shown on the Attachment to this order.
By the Commission.
( S E A L )
Lois D. Cashell
Lois D. Cashell,
Secretary.
Docket Nos. ER95-836-000 and ER95-851-000 - 12 -
Attachment
Maine Public Service Company
Docket Nos. ER95-836-000 and ER95-851-000
Rate Schedule Designations
Effective Date: June 1, 1995
Designation Description
(1) Rate Schedule FERC No. 25 Market Based Rates
(2) FERC Electric Tariff, Network, firm and
Original Volume No. 3 nonfirm point-to-
(Original Sheet Nos. 1 point transmission
through 120) services and
associated ancillary
services
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<ARTICLE> UT
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 49,401
<OTHER-PROPERTY-AND-INVEST> 3,641
<TOTAL-CURRENT-ASSETS> 13,905
<TOTAL-DEFERRED-CHARGES> 46,921
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 113,868
<COMMON> 7,357
<CAPITAL-SURPLUS-PAID-IN> 38
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<TOTAL-COMMON-STOCKHOLDERS-EQ> 38,957
0
0
<LONG-TERM-DEBT-NET> 36,120
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<OTHER-ITEMS-CAPITAL-AND-LIAB> 36,076
<TOT-CAPITALIZATION-AND-LIAB> 113,868
<GROSS-OPERATING-REVENUE> 55,247
<INCOME-TAX-EXPENSE> 1,180
<OTHER-OPERATING-EXPENSES> 49,702
<TOTAL-OPERATING-EXPENSES> 50,882
<OPERATING-INCOME-LOSS> 4,365
<OTHER-INCOME-NET> 318
<INCOME-BEFORE-INTEREST-EXPEN> 4,683
<TOTAL-INTEREST-EXPENSE> 3,762
<NET-INCOME> (5,315)
0
<EARNINGS-AVAILABLE-FOR-COMM> (5,315)
<COMMON-STOCK-DIVIDENDS> 2,976
<TOTAL-INTEREST-ON-BONDS> 3,432
<CASH-FLOW-OPERATIONS> 3,427
<EPS-PRIMARY> (3.287)
<EPS-DILUTED> (3.287)
<FN>
<F1> NET INCOME INCLUDES EXTRAORDINARY LOSS OF (6,236)
