SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Under Section 13 or 15(d) of
The Securities Exchange Act of 1934
For Quarter Ended March 31, 1997 Commission File Number 1-3429
MAINE PUBLIC SERVICE COMPANY
(Exact name of registrant as specified in its charter)
MAINE 01-0113635
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
209 State Street, Presque Isle, Maine 04769
(address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 207-768-5811
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes X No .
(APPLICABLE ONLY TO CORPORATE ISSUERS:)
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the close of the period covered by this
report.
Common Stock, $7.00 par value - 1,617,250 shares
Form 10-Q
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements
See the following exhibits - Maine Public Service Company and
Subsidiary Condensed Consolidated Financial Statements,
including a statement of consolidated operations for the
quarter ended March 31, 1997, and for the corresponding period
of the preceding year; a consolidated balance sheet as of
March 31, 1997, and as of December 31, 1996, the end of the
Company's preceding fiscal year; and a statement of
consolidated cash flows for the period January 1 (beginning of
the fiscal year) through March 31, 1997, and for the
corresponding period of the preceding year.
In the opinion of management, the accompanying unaudited
condensed consolidated financial statements present fairly the
financial position of the companies at March 31, 1997 and
December 31, 1996, and the results of their operations for the
three months ended March 31, 1997 and their cash flows for the
three months ended March 31, 1997.
-2-
MAINE PUBLIC SERVICE COMPANY AND SUBSIDIARY
STATEMENTS OF CONSOLIDATED OPERATIONS
(Unaudited)
(Dollars in Thousands Except Per Share Amounts)
Three Months Ended
March 31,
1997 1996
Operating Revenues $15,368 $15,756
Operating Expenses
Purchased Power 10,694 7,504
Other Operation and Maintenance 2,837 3,385
Depreciation 627 631
Amortization 409 399
Taxes Other Than Income 446 443
Provision (Benefit) for Income Taxes (166) 1,099
Total Operating Expenses 14,847 13,461
Operating Income 521 2,295
Other Income (Deductions)
Equity in Income of Associated Companies 110 92
Allowance for Equity Funds Used During
Construction 4 2
Other Income Taxes (44) (10)
Other - Net 3 (6)
Total 73 78
Income Before Interest Charges 594 2,373
Interest Charges
Long-Term Debt and Notes Payable 850 923
Less Allowance for Borrowed Funds
Used During Construction (2) (1)
Total 848 922
Net Income (Loss) Available for Common Stock (254) 1,451
Average Shares Outstanding (000's) 1,617 1,617
Earnings (Loss) Per Share of Common Stock ($0.16) $0.90
Dividends Declared per Common Share $0.25 $0.46
The accompanying notes are an integral part of these financial statements.
-3-
MAINE PUBLIC SERVICE COMPANY AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(Dollars in Thousands)
March 31, December 31,
ASSETS 1997 1996
Utility Plant
Electric Plant in Service $90,570 $91,224
Less Accumulated Depreciation 41,760 41,670
Net Electric Plant in Service 48,810 49,554
Construction Work-in-Progress 1,021 461
Total 49,831 50,015
Investment in Associated Companies
Maine Yankee Atomic Power Company 3,672 3,585
Maine Electric Power Company, Inc. 95 74
Total 3,767 3,659
Net Utility Plant and Investments 53,598 53,674
Current Assets
Cash and Temporary Investments 1,369 1,291
Deposits for Interest and Dividends 467 805
Accounts Receivable - Net 5,473 5,021
Unbilled Base Revenue 1,343 1,653
Deferred Fuel and Purchased Energy 125 125
Current Deferred Income Taxes 163 222
Inventory 1,310 1,194
Prepayments 772 959
Total 11,022 11,270
Other Assets
Restricted Investment 3,650 4,055
Recoverable Seabrook Costs 27,367 27,722
Regulatory Asset - SFAS 109 & 106 12,671 12,713
Deferred Fuel and Purchased Energy 4,294 3,951
Other 3,268 3,329
Total 51,250 51,770
Total Assets $115,870 $116,714
CAPITALIZATION AND LIABILITIES
Capitalization
Common Shareholders' Equity
Common Stock $13,071 $13,071
Paid-in Capital 38 38
Retained Earnings 30,039 30,697
Treasury Stock, at cost (5,714) (5,714)
Total 37,434 38,092
Long-Term Debt (less current maturities) 39,780 39,805
Current Liabilities
Long-Term Debt Due Within One Year 1,315 1,315
Notes Payable 1,800 1,400
Accounts Payable 5,148 5,475
Dividends Declared 404 744
Customer Deposits 58 62
Interest and Taxes Accrued 635 962
Total 9,360 9,958
Deferred Credits
Deferred Income Tax 23,881 23,694
Investment Tax Credits 702 720
Deferred Revenues 691 630
Miscellaneous 4,022 3,815
Total 29,296 28,859
Total Capitalization and Liabilities $115,870 $116,714
The accompanying notes are an integral part of these financial statements.
-4-
MAINE PUBLIC SERVICE COMPANY
Statement of Consolidated Cash Flows
(Unaudited)
(Dollars in Thousands)
Three Months Ended
March 31,
1997 1996
Cash Flow From Operating Activities
Net Income (Loss) ($254) $1,451
Adjustments to Reconcile Net Income (Loss) to Net Cash
Provided by Operations
Depreciation 627 630
Amortization 54 45
Amortization of Seabrook Costs 355 355
Income on Tax Exempt Bonds-Restricted Funds (46) 0
Deferred Income Taxes 239 (252)
AFUDC (6) (2)
Change in Deferred Fuel & Purchased Energy (344) (344)
Change in Deferred Regulatory and Debt Issuance Costs (65) 391
Change in Deferred Revenues 62 92
Change in Benefit Obligation 197 606
Change in Current Assets and Liabilities (730) 295
Other 107 158
Net Cash Flow from Operating Activities 196 3,425
Cash Flow From Financing Activities
Dividend Payments (404) (744)
Redemption of Tax Exempt Bonds 0 (10,000)
Drawdown of Tax Exempt Bonds Proceeds 450 0
Retirements on Long-Term Debt (25) (25)
Tax Exempt Bond Refunding Note 0 10,000
Short-Term Borrowings, Net 400 (1,400)
Net Cash Flow Provided By (Used In) Financing Activities 421 (2,169)
Cash Flow Used For Investing Activities
Investment in Electric Plant (539) (552)
Net Cash Used For Investment Activities (539) (552)
Increase in Cash and Temporary Investments 78 704
Cash and Temporary Investments at Beginning of Year 1,291 976
Cash and Temporary Investments at End of Period $1,369 $1,680
Change in Current Assets and Liabilities Providing
Cash From Operating Activities
Accounts Receivable ($452) $689
Unbilled Revenue 310 89
Inventory (115) (76)
Prepayments 187 37
Accounts Payable & Accrued Expenses (655) (434)
Other Current Liabilities (5) (10)
Total Change ($730) $295
Supplemental Disclosure of Cash Flow Information:
Cash Paid During the Period For:
Interest $1,301 $1,601
Income Taxes (1997 is net of a $500,000 refund) ($390) $127
The accompanying notes are an integral part of these financial statements.
-5-
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying unaudited consolidated financial statements include the
accounts of the Company and its wholly-owned Canadian subsidiary, Maine
and New Brunswick Electrical Power Company, Limited (the Subsidiary).
The Company is subject to the regulatory authority of the Maine Public
Utilities Commission (MPUC) and, with respect to wholesale rates, the
Federal Energy Regulatory Commission (FERC).
The accompanying unaudited consolidated financial statements should be
read in conjunction with the 1996 Annual Report, an integral part of Form
10-K. Certain financial statement disclosures have been condensed or
omitted but are an integral part of the 1996 Form 10-K. These statements
reflect all adjustments that are, in the opinion of management, necessary
to a fair statement of results for interim periods presented. All such
adjustments are of a normal recurring nature. The Company's significant
accounting policies are described in the Notes to Consolidated Financial
Statements of the Company's Annual Report filed with the Form 10-K. For
interim reporting purposes, these same accounting policies are followed.
For purposes of the statements of consolidated cash flows,the Company
considers all highly liquid securities with a maturity, when purchased,
of three months or less to be temporary equivalents.
2. IMPLEMENTATION OF MULTI-YEAR RATE PLAN
A four-year rate plan, approved by the MPUC on November 13, 1995,
provided retail rate increases of 4.4% on January 1, 1996 and 2.9% on
February 1, 1997. The Company has the right to receive additional
annual increases in retail rates of 2.75% on February 1, 1998 and
February 1, 1999. Several significant accounting orders that became
effective January 1, 1996 included the deferral of $902,000, net of
income taxes, annually of Wheelabrator-Sherman purchases, the five year
amortization of the Company's $1.3 million, net of income taxes, share of
the Maine Yankee 1995 sleeving repair costs, and the $638,000, net of income
taxes, amortization over ten years of deferred post-retirement benefits
other than pensions (SFAS 106). In addition, the plan allows the five
year amortization of the $139,000 deferral of pension expenses and
$92,000 deferral of early retirement expenses, both net of income taxes,
related to the lay-up of the Caribou Steam Units and the four year
amortization of $300,000, net of tax, of deferred fuel from the December
31, 1995 balance.
With higher winter rates for our commercial and industrial customers and
the elimination of the fuel clause, revenues will be higher during the
winter months than during the summer months when rates charged to those
customers are approximately 25% lower.
-6-
3. INCOME TAXES
A summary of Federal and State income taxes charged (credited) to income
is presented below. For accounting and ratemaking purposes, income tax
provisions (benefits) included in "Operating Expenses" reflect taxes
applicable to revenues and expenses allowable for ratemaking purposes.
The tax effect of items not included in rate base is allocated as "Other
Income (Deductions)".
(Dollars in Thousands) Three Months Ended
March 31,
1997 1996
Current income taxes $ (361) $ 1,361
Deferred income taxes 257 (233)
Investment credits (18) (19)
Total income taxes $ (122) $ 1,109
Allocated to:
Operating Income $ (166) $ 1,099
Other income 44 10
Total $ (122) $ 1,109
The following summarizes accumulated deferred income taxes established on
temporary differences under SFAS 109 as of March 31, 1997 and
December 31, 1996.
(Dollars in Thousands)
March 31, December 31,
1997 1996
Seabrook $15,214 $15,273
Property 8,121 8,104
Regulatory expenses 1,402 1,201
Investment tax credits (478) (478)
Pension and postretirement
benefits (627) (670)
Other 249 264
Net accumulated deferred income
taxes $23,881 $23,694
4. AMENDMENTS OF INTEREST COVERAGE TESTS IN FINANCIAL INSTRUMENTS
The Company owns 5% of the Common Stock of Maine Yankee Atomic Power
Company (Maine Yankee). As a result of an extended Maine Yankee outage
that began December 6, 1996 which may last through the summer of 1997,
the Company has been incurring replacement power costs of approximately
$170,000 per week. In addition, the Company is responsible for
additional operating costs during 1997 of $2.3 million associated with
an Independent Safety Assessment of Maine Yankee by the Nuclear
Regulatory Commission. Further costs are being incurred as Entergy
Corporation has begun providing management services to Maine Yankee.
Additional costs may also be expected, if the complexity of cable
separation and associated issues require an extended period for their
resolution. These additional costs will adversely impact the Company's
1997 financial results.
-7-
The Company's short-term revolving credit agreement and a letter of
credit supporting its 1996 revenue bonds contain interest coverage tests
that the Company must satisfy to avoid default. On March 28, 1997, the
Company and the Banks agreed on amendments to the revolving credit
agreement and letter of credit and reimbursement agreement which adjust
the interest coverage tests to exclude Maine Yankee incremental
replacement power costs through September 30, 1997. Under the amendment
to the revolving credit agreement, the Company was obligated to issue a
first mortgage bond of $11 million as collateral for the maximum amount
of Company's obligations under the revolving credit agreement. Both
amendments required the issuance of the first mortgage bond on or before
May 15, 1997. On April 28, 1997 the Maine Public Utilities Commission
approved the issuance of the first mortgage bonds, and the Company issued
the bonds on May 5, 1997. Without the amendments, the Company would have
been in violation of the interest coverage tests for the twelve months
ended March 31, 1997 and would have been in default on these instruments.
As mentioned above, the amendments to the Company's revolving credit
agreement and letter of credit and reimbursement agreement only exclude
Maine Yankee incremental replacement power costs through September 30,
1997. If Maine Yankee does not return to service prior to September 30,
1997, interest coverage tests for periods after September 30, 1997 would
be required to reflect any incremental Maine Yankee replacement power
costs after that date. The Company cannot predict whether or not these
tests will be met for the fourth quarter of 1997.
-8-
Item 2. Management's Analysis of Quarterly Income Form 10-Q
Statements
Results of Operations
Earnings (loss) per share and net income (loss) available for
common stock for the three months ended March 31, 1997 along
with the corresponding information for the previous year are as
follows:
Three Months Ended
March 31,
1997 1996
Earnings (loss) per share $(.16) $ .90
Net income (loss)
available for Common
Stock - in Thousands $(254) $1,451
For the first quarter of 1997 compared to the same quarter last
year, the decrease in consolidated earnings per share (EPS) of
$1.06 is attributable to the following:
EPS
Increase
(Decrease)
Increase in operating expenses resulting
from extended Maine Yankee outage in 1997:
Replacement Power Costs $(.77)
Capacity Expenses (.26)
Total (1.03)
Increase in purchase power expense associated
with independent power producer-
Wheelabrator-Sherman ( .11)
Decrease in retail revenues:
2.9% rate increase effective 2/1/97 $ .10
Unbilled revenue adjustment in 1996
and volume variance ( .09)
Load retention discounts ( .06) ( .05)
1996 voluntary early retirement program
expense charged in 1996 .16
Other ( .03)
Total $(1.06)
-9-
Form 10-Q
PART 1. FINANCIAL INFORMATION
Item 2. Management's Analysis of Quarterly Income Statements
Results of Operations (Continued)
The additional replacement power and capacity expenses
associated with the unscheduled Maine Yankee outage that began
on December 6, 1996 and continued through the entire first
quarter of 1997 had material impact on the Company's earnings
and cash flows for the first quarter of 1997. For the first
quarter of 1997, Maine Yankee replacement power costs reduced
earnings by $.77 per share, while additional capacity expense to
address issues identified in the ISA further reduced earnings by
$.26 per share. In addition, a 5% contractual price increase
and a 2% production increase at Wheelabrator-Sherman (WS), an
independent power producer, also decreased earnings by $.11 per
share. Load retention contract discounts to several large
customers and unbilled revenue adjustments were partially offset
by rate increases effective February 1, 1997, resulting in a
$.05 decrease in earnings per share. Partially offsetting these
decreases were the March 1996 recognition of expenses related to
an early retirement program of $.16 per share.
Consolidated operating revenues for the quarter ended March
31, 1997 and 1996, are as follows:
1997 1996
(Dollars in Thousands) $ MWH $ MWH
Retail 14,442 131,531 14,360 131,690
Sales for Resale 643 18,448 611 18,101
Total Primary Sales 15,085 149,979 14,971 149,791
Secondary Sales 93 1,876 396 22,051
Other Revenues/Rev. Adjust. 190 389
Total Operating Revenues 15,368 151,855 15,756 171,842
Primary sales, including retail and sales for resale, in the
first quarter of 1997 were 149,979 MWH, approximately the same
as last year. Secondary sales decreased by 20,175 MWH,
reflecting a decrease in power marketing activities. During
the first quarter of 1996, secondary sales of the Company's
Wyman Unit No. 4 and Maine Yankee entitlements for varying
lengths of time were made at prevailing market rates,
representing the Company's power marketing activities. As
previously mentioned, since Maine Yankee was not available for
-10-
Form 10-Q
PART 1. FINANCIAL INFORMATION
Item 2. Management's Analysis of Quarterly Income Statements
Results of Operations (Continued)
the same period in 1997, secondary sales for the quarter were
limited to Wyman No. 4 entitlements.
Retail revenues for the first quarter of 1997 were $14,442,000
compared to $14,360,000 for the same period of 1996,
reflecting the 2.9% increase in retail rates effective
February 1, 1997 offset by load retention discounts to certain
large industrial customers that were approved by the Maine
Public Utilities Commission.
For the first quarters ended March 31, 1997 and 1996, total
operating expenses were $14,847,000 and $13,461,000,
respectively. The changes in operating expenses and energy
sources are as follows:
Increase/(Decrease)
(Dollars in Thousands) $ MWH
Purchased Power Expenses
Maine Yankee 454 (64,386)
Wheelabrator-Sherman 303 719
NB Power 2,171 63,769
Other Purchases 262 8,173
3,190 8,275
Generating Expenses (145) (29,625)
Other Operation & Maint. Expenses (403)
Depreciation (4)
Amortization 10
Income Taxes (1,265)
Taxes Other than Income 3
Total 1,386 (21,350)
As previously mentioned, Maine Yankee was out of service for
all of the first quarter of 1997, while it operated at a 90-
percent level of operation for all but 24 days of the first
quarter of 1996, resulting in a decrease in production of
64,386 MWH. For an update on Maine Yankee, please see the
following section titled, "Maine Yankee". Hydro production
decreased by 25,061 MWH because of abnormally high generation
during the first quarter of 1996. To offset the loss of Maine
Yankee and lower hydro production, purchases from NB Power
increased by 63,769 MWH to meet the Company's energy
requirements. Although energy purchased from Maine Yankee
-11-
Form 10-Q
PART 1. FINANCIAL INFORMATION
Item 2. Management's Analysis of Quarterly Income Statements
Results of Operations (Continued)
decreased resulting in a reduction in fuel costs of $240,000,
capacity expenses increased by $694,000 due to expenses to
address issues identified in the ISA, resulting in a net
increase of $454,000. Other operation and maintenance
expenses decreased by $403,000 primarily due to the
recognition of $402,000 in expenses related to an early
retirement program in 1996. Generating expenses decreased by
$145,000 because of reduced activity at the Caribou Steam
Plant following Steam Units 1 and 2 placement on inactive
status effective January 1, 1996.
Maine Yankee
The Company owns 5% of the Common Stock of Maine Yankee Atomic
Power Company (Maine Yankee). As a result of an extended
Maine Yankee outage that began December 6, 1996 and may last
through the summer of 1997, the Company has been incurring
replacement power costs of approximately $170,000 per week.
In addition, the Company is responsible for additional
operating costs of $2.3 million associated with an Independent
Safety Assessment of Maine Yankee by the Nuclear Regulatory
Commission. Further costs are being incurred as Entergy
Corporation has begun providing management services to Maine
Yankee. Additional costs may also be expected, if the
complexity of cable separation and associated issues require
an extended period for their resolution. These additional
costs will adversely impact the Company's 1997 financial
results. Maine Yankee believes the Plant will be out of
service at least until August 1997, but cannot predict when or
whether all of the regulatory and operational issues will be
satisfactorily resolved or what effect the ultimate total of
the repair and improvements to the Plant will have on the
economics of operating the Plant.
For additional information regarding Maine Yankee,
reference is made to the Company's 1996 Annual Report,
"Analysis of Financial Condition and Review of Operations-
1996, Maine Yankee", for discussion of the Nuclear Regulatory
Commission's Independent Safety Assessment results issued
October 7, 1996, and the current shutdown that began on
December 6, 1996, to review and resolve cable separation and
cable routing issues.
-12-
Form 10-Q
PART 1. FINANCIAL INFORMATION
Item 2. Management's Analysis of Quarterly Income Statements
Results of Operations (Continued)
Financial Condition
Net cash flows from operating activities were $196,000 for the
first three months of 1997. The $3,229,000 decrease in net
cash flow from operating activities reflects the additional
replacement power costs and capacity expenses totalling
approximately $1.7 million required in 1997 due to the
unscheduled Maine Yankee outage that began on December 6, 1996
and continues until Maine Yankee is able to restart. For the
period, $539,000 was invested in electric plant, $404,000 was
paid in dividends and $25,000 was used to reduce long-term
debt. Short-term borrowings increased by $400,000 for working
capital and construction requirements. The Company drew down
$450,000 in 1997 from the 1996 tax-exempt revenue bond
proceeds based on qualifying property.
For the three months ended March 31, 1996, net cash flows from
operating activities were $3,425,000. For the first three
months of 1996, the Company invested $552,000 in electric
plant, paid $744,000 in dividends, reduced long term debt by
$25,000, and reduced short-term borrowings by $1.4 million.
In March 1996, the Company borrowed $10,000,000 under a
refunding note from Fleet Bank of Maine to retire the 1991
tax-exempt bonds. In June, 1996, the refunding note was
repaid using proceeds from the issuance of new tax-exempt
bonds.
The previously mentioned rate plan, approved by the MPUC on
November 13, 1995 and effective January 1, 1996, will assist
the Company in dealing with the economic uncertainties that
lay ahead with the loss of Loring and Houlton. The Plan
provides stable, predictable rates for our customers, economic
development rates to encourage investment in our service
territory, and competitive returns for our shareholders.
Reduction of Dividend
As reported on the Company's March 7, 1997, Form 8-K, the
Company's Board of Directors declared a quarterly dividend of
$.25 (annualized rate of $1.00 per share) on the Company's
Common Stock, payable April 1, 1997, to holders of record at
the close of business March 14, 1997. This represents a
-13-
Form 10-Q
PART 1. FINANCIAL INFORMATION
Item 2. Management's Analysis of Quarterly Income Statements
Results of Operations (Continued)
reduction of 46% from the Company's previous quarterly level
of $.46 (annualized rate of $1.84) per share. This reduction
was in response to the impact on the Company's earnings and
cash flows of the ongoing outage at Maine Yankee.
Amendments of Interest Coverage Tests in Financial Instruments
The Company's short-term revolving credit agreement and a
letter of credit supporting its 1996 tax-exempt revenue bonds
contain interest coverage tests that the Company must satisfy
to avoid default. As previously mentioned, the extended
outage at Maine Yankee has adversely impacted the financial
results for the first quarter of 1997.
On March 28, 1997, the Company and the Banks agreed on
amendments to the revolving credit agreement and letter of
credit and reimbursement agreement which adjust the interest
coverage tests to exclude Maine Yankee incremental replacement
power costs through September 30, 1997. Under the amendment
to the revolving credit agreement, the Company was obligated
to issue a first mortgage bond of $11 million as collateral
for the maximum amount of Company's obligations under the
revolving credit agreement. Both amendments required the
issuance of the first mortgage bond on or before May 15, 1997.
On April 28, 1997 the Maine Public Utilities Commission
approved the issuance of the first mortgage bonds, and the
Company issued the bonds on May 5, 1997. Without these
amendments, the Company would have been in violation of its
interest coverage tests for the twelve months ended March 31,
1997 and would have been in default on these instruments.
As mentioned above, the amendments to the Company's revolving
credit agreement and letter of credit and reimbursement
agreement only exclude Maine Yankee incremental replacement
power costs through September 30, 1997. If Maine Yankee does
not return to service prior to September 30, 1997, interest
coverage tests for periods after September 30, 1997 would be
required to reflect any incremental Maine Yankee replacement
power costs after that date.
-14-
Form 10-Q
PART 1. FINANCIAL INFORMATION
Item 2. Management's Analysis of Quarterly Income Statements
Results of Operations (Continued)
1997 Earnings
As previously mentioned, Maine Yankee is not expected to
return to service until later in the summer of 1997. The
related replacement power and additional capacity expenses to
address the cable separation issues and items addressed in the
Independent Safety Assessment will adversely impact 1997
earnings, as demonstrated in this quarterly report. For 1997,
based on the current estimate of Maine Yankee's return to
service and replacement power costs, the Company estimates a
small operating loss for the year. Under the Company's multi-
year rate plan, described in the Company's 1996 Annual Report,
the Company has the right to receive specified retail rate
increases through 1999. This plan also includes provisions
for additional cost recovery in certain extraordinary
situations such as very low earnings or in the event of a
Maine Yankee plant outage exceeding six consecutive months.
The Company will continue to assess whatever options it may
have to recover any additional costs and, in addition, is
making every effort to reduce its 1997 cash expenditures.
These efforts will include a review of the level of dividends
on the Company's Common Stock.
Forward-Looking Statements
The above discussion may contain "forward-looking statements",
as defined in the Private Securities Litigation Reform Act of
1995, related to expected future performance or our plans and
objectives. Actual results could potentially differ
materially from these statements. Therefore, there can be no
assurance that actual results will not materially differ from
expectations.
Factors that could cause actual results to differ materially
from our projections include, among other matters, electric
utility restructuring; future economic conditions; changes in
tax rates, interest rates or rates of inflation; developments
in our legislative, regulatory, and competitive environment;
and the results of safety investigations, the cost of
maintenance or the operating performance of Maine Yankee.
-15-
Form 10-Q
PART II. OTHER INFORMATION
Item 1. Legal Proceedings and Regulatory Matters
(a) Maine Public Utilities Commission, Re: Electric Utility
Industry Restructuring Study, Docket No. 95-462.
In 1995, the Maine Legislature passed Resolve 89 "To
Require a Study of Retail Competition in the Electric
Utility Industry" (the "Resolve"), to begin a process for
developing recommendations on the future structure of the
electric utility industry in Maine. The process included
the appointment of a Work Group on Electric Utility
Restructuring to develop a plan for the orderly
transition to a competitive market for retail purchases
and sales of electricity. The Company participated in
this Work Group, which was unable to reach a consensus on
a recommended plan by its reporting deadline.
The Resolve also directed the MPUC to conduct a study to
develop at least two plans for the orderly transition to
retail competition in the electric utility industry in
Maine and to submit a report of its findings by January
1, 1997. One plan would be designed to achieve "... full
retail market competition for purchases and sales of
electric energy by the year 2000" and the other to
achieve a more limited form of competition. The Resolve
also stated that the MPUC's findings would have no legal
effect, but would "... provide the Legislature with
information in order to allow the Legislature to make
informal decisions when it evaluates these plans."
On December 12, 1995, the MPUC issued a Notice of Inquiry
(the "Notice") initiating its study. In the Notice, the
MPUC solicited detailed proposals and plans for achieving
retail competition in Maine by the year 2000 and
requested the proposals include specific plans for an
orderly transition to a more competitive market. The
Notice required that plans and proposals be filed with
the MPUC by interested parties no later than January 31,
1996, and outlined a schedule calling for submittal of a
final report to the Legislature in December, 1996.
On January 30, 1996, the Company filed its restructuring
proposal with the MPUC. The major elements of this
proposal were:
(a) The separation of the Company's generation assets
(including contracts and entitlements) from its
-16-
Form 10-Q
PART II. OTHER INFORMATION
Item 1. Legal Proceedings and Regulatory Matters (Continued)
transmission and distribution assets. The Company
suggested this separation could be accomplished by either
a functional separation of generation from distribution
and transmission within the Company's existing corporate
structure or by separating generation, on the one hand,
and distribution and transmission, on the other, into two
wholly-owned subsidiaries. The Company strongly opposes
any recommendation that it be required to divest itself
of its generation assets.
(b) The economic and resource planning regulation of
generation would cease. The FERC would continue to
regulate transmission, and distribution would remain a
franchised monopoly subject to continued regulation by
the MPUC. The owner of the distribution system would be
obligated to connect all willing customers.
(c) If certain necessary changes in the operation and
management of the regional transmission grid are in
place, all retail customers in Maine would, by the year
2000, be entitled to purchase electric energy directly
from any entity that wished to supply it to them.
(d) The Company would be entitled to full recovery of
all its stranded costs. This recovery would be
accomplished by a charge on the distribution system that
would apply to all retail customers. In its filing, the
Company estimates that its stranded costs could be as
high as $68 million. This amount consists primarily of
the above-market costs of the Company's contract with
Wheelabrator-Sherman, a non-utility generator, estimated
at $44 million and deferred regulatory assets, such as
its Seabrook investment of $24 million.
On December 31, 1996, the MPUC issued its Recommended
Plan on how to restructure Maine's electric utility
industry. The Plan recommends the following:
* As of January, 2000, all Maine consumers would
have the option to choose an electric power
supplier.
* As of January, 2000, Maine would not regulate,
as public utilities, companies producing or selling
electric power.
-17-
Form 10-Q
PART II. OTHER INFORMATION
Item 1. Legal Proceedings and Regulatory Matters (Continued)
* Regulated public utilities would continue to
provide electric transmission and distribution
(T&D) services.
* As of January, 2000, the Company, Central
Maine Power Company (CMP) and Bangor Hydro-Electric
Company (BHE), the State's three largest electric
utilities, would be required to structurally
separate their generation assets and functions from
transmission and distribution functions. CMP and
BHE would be required to fully divest themselves of
their generation assets by 2006.
* The Plan does not recommend generation
divestiture for the Company, but instead proposed
to allow the Company to retain its generation
assets in a separate, but wholly-owned, subsidiary.
In making this recommendation, the MPUC relied upon
MPS's relatively small size, its isolation from the
rest of New England and concerns about the
Company's Canadian Subsidiary. The Plan further
stated that the MPUC would "periodically review
whether divestiture [of the Company's generation
assets] would be required".
* The T&D utilities would retain their ownership
interests in Maine Yankee, but would be required to
transfer the rights to the output to an affiliated
generation company. After 2005, BHE and CMP, but
not the Company, would be required to sell the
rights to the output to the highest bidder.
* All contracts between the utilities and any
qualifying facilities under PURPA will remain with
the T&D companies.
* The utilities should be provided a reasonable
opportunity to fully recover its generation-related
stranded costs. All of the Company's anticipated
stranded costs are generation-related.
Because the MPUC's Recommended Plan does not have any
binding legal effect, this issue must ultimately be
resolved by the Maine Legislature. Many parties to this
proceeding have taken positions that vary substantially
-18-
Form 10-Q
PART II. OTHER INFORMATION
Item 1. Legal Proceedings and Regulatory Matters (Continued)
from those set forth in this Plan and those parties can be
expected to advocate their positions before the Legislature.
The Company cannot, therefore, predict what form the
restructuring of Maine's electric utility industry will
ultimately take or what effect that restructuring will have on
the Company's business operations or financial results.
(b) 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. On May 31, 1996, the FERC
issued Order 888, a final rule on open transmission
access and stranded cost recovery. As a result the
Company has refiled its tariff to comply with the Order.
A decision by the FERC regarding the fees under the
Company's tariff is not expected until later in 1997.
The Company cannot predict the FERC's ultimate decision
in this matter.
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
-19-
Form 10-Q
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits - none.
(b) A Form 8-K was filed on: January 31, 1997, under Item 5,
Other Events; February 14, 1997, under Item 5, Other
Events; March 7, 1997, under Item 5, Other Events; and
March 31, 1997, under Item 5, Other Events, and Item 7,
Exhibits.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
MAINE PUBLIC SERVICE COMPANY
(Registrant)
Date: May 12, 1997 /s/ Larry E. LaPlante
Larry E. LaPlante, Vice President
Finance, Administration and Treasurer
-20-
\TEXT>
/DOCUMENT>
<TABLE> <S> <C>
<ARTICLE> UT
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 49831
<OTHER-PROPERTY-AND-INVEST> 3767
<TOTAL-CURRENT-ASSETS> 11022
<TOTAL-DEFERRED-CHARGES> 51250
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 115870
<COMMON> 7357
<CAPITAL-SURPLUS-PAID-IN> 38
<RETAINED-EARNINGS> 30039
<TOTAL-COMMON-STOCKHOLDERS-EQ> 37434
0
0
<LONG-TERM-DEBT-NET> 39780
<SHORT-TERM-NOTES> 1800
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 1315
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 35541
<TOT-CAPITALIZATION-AND-LIAB> 115870
<GROSS-OPERATING-REVENUE> 15368
<INCOME-TAX-EXPENSE> (166)
<OTHER-OPERATING-EXPENSES> 15013
<TOTAL-OPERATING-EXPENSES> 14847
<OPERATING-INCOME-LOSS> 521
<OTHER-INCOME-NET> 73
<INCOME-BEFORE-INTEREST-EXPEN> 594
<TOTAL-INTEREST-EXPENSE> 848
<NET-INCOME> (254)
0
<EARNINGS-AVAILABLE-FOR-COMM> (254)
<COMMON-STOCK-DIVIDENDS> 404
<TOTAL-INTEREST-ON-BONDS> 766
<CASH-FLOW-OPERATIONS> 196
<EPS-PRIMARY> .157
<EPS-DILUTED> .157
</TABLE>
