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 June 30, 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 three
and six months ended June 30, 1997, and for the corresponding
period of the preceding year; a consolidated balance sheet as
of June 30, 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 June 30, 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 June 30, 1997 and
December 31, 1996, and the results of their operations for the
three and six months ended June 30, 1997 and their cash flows
for the six months ended June 30, 1997.
-2-
MAINE PUBLIC SERVICE COMPANY AND SUBSIDIARY
STATEMENTS OF CONSOLIDATED OPERATIONS
(Unaudited)
(Dollars in Thousands Except Per Share Amounts)
Three Months Ended Six Months Ended
June 30, June 30,
1997 1996 1997 1996
Operating Revenues $12,339 $14,828 $27,707 $30,584
Operating Expenses
Purchased Power 7,851 8,444 18,545 15,948
Other Operation and Maintenance 2,574 2,989 5,411 6,374
Depreciation 627 630 1,254 1,261
Amortization 411 399 820 798
Taxes Other Than Income 436 418 882 861
Provision (Benefit) for Income Taxes (28) 565 (194) 1,664
Total Operating Expenses 11,871 13,445 26,718 26,906
Operating Income 468 1,383 989 3,678
Other Income (Deductions)
Equity in Income of Assoc. Companies 137 90 247 182
Allowance for Equity Funds Used
During Construction 5 3 9 5
Other Income Taxes (38) (11) (82) (21)
Other - Net (37) (5) (34) (11)
Total 67 77 140 155
Income Before Interest Charges 535 1,460 1,129 3,833
Interest Charges
Long-Term Debt and Notes Payable 890 852 1,740 1,775
Less Allowance for Borrowed Funds
Used During Construction (2) (1) (4) (2)
Total 888 851 1,736 1,773
Net Income (Loss) Available for
Common Stock ($353) $609 ($607) $2,060
Average Shares Outstanding (000's) 1,617 1,617 1,617 1,617
Earnings (Loss) Per Share of
Common Stock ($0.22) $0.38 ($0.38) $1.27
Dividends Declared per Common Share $0.25 $0.46 $0.50 $0.92
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)
June 30, December 31,
ASSETS 1997 1996
Utility Plant
Electric Plant in Service $90,470 $91,224
Less Accumulated Depreciation 42,280 41,670
Net Electric Plant in Service 48,190 49,554
Construction Work-in-Progress 1,707 461
Total 49,897 50,015
Investment in Associated Companies
Maine Yankee Atomic Power Company 3,762 3,585
Maine Electric Power Company, Inc. 139 74
Total 3,901 3,659
Net Utility Plant and Investments 53,798 53,674
Current Assets
Cash and Temporary Investments 616 1,291
Deposits for Interest and Dividends 468 805
Accounts Receivable - Net 4,676 5,021
Unbilled Base Revenue 1,170 1,653
Deferred Fuel and Purchased Energy 321 125
Current Deferred Income Taxes 64 222
Inventory 1,337 1,194
Prepayments 1,782 959
Total 10,434 11,270
Other Assets
Restricted Investment 3,238 4,055
Recoverable Seabrook Costs 27,011 27,722
Regulatory Asset - SFAS 109 & 106 12,645 12,713
Deferred Fuel and Purchased Energy 4,638 3,951
Other 4,684 3,329
Total 52,216 51,770
Total Assets $116,448 $116,714
CAPITALIZATION AND LIABILITIES
Capitalization
Common Shareholders' Equity
Common Stock $13,071 $13,071
Paid-in Capital 38 38
Retained Earnings 29,282 30,697
Treasury Stock, at cost (5,714) (5,714)
Total 36,677 38,092
Long-Term Debt (less current maturities) 39,740 39,805
Current Liabilities
Long-Term Debt Due Within One Year 1,315 1,315
Notes Payable 2,200 1,400
Accounts Payable 4,399 5,475
Dividends Declared 404 744
Customer Deposits 51 62
Interest and Taxes Accrued 1,446 962
Total 9,815 9,958
Deferred Credits
Deferred Income Tax 24,489 23,694
Investment Tax Credits 684 720
Deferred Revenues 758 630
Miscellaneous 4,285 3,815
Total 30,216 28,859
Total Capitalization and Liabilities $116,448 $116,714
The accompanying notes are an integral part of these financial statements.
-4-
MAINE PUBLIC SERVICE COMPANY AND SUBSIDIARY
Statements of Consolidated Cash Flows
(Unaudited)
(Dollars in Thousands)
Six Months Ended
June 30,
1997 1996
Cash Flow From (Used For) Operating Activities
Net Income (Loss) ($607) $2,060
Adjustments to Reconcile Net Income (Loss) to Net Cash
Provided by Operations
Depreciation 1,254 1,261
Amortization 129 89
Amortization of Seabrook Costs 709 709
Income on Tax Exempt Bonds-Restricted Funds (90) (6)
Deferred Income Taxes 925 (247)
AFUDC (13) (7)
Change in Deferred Fuel & Purchased Energy (687) (687)
Change in Deferred Regulatory and Debt Issuance Costs (1,410) 538
Change in Deferred Revenues 128 190
Change in Benefit Obligation 393 825
Change in Current Assets and Liabilities (939) (42)
Other 26 285
Net Cash Flow From (Used For) Operating Activities (182) 4,968
Cash Flow Provided By Financing Activities
Dividend Payments (809) (1,488)
Tax Exempt Bond Issuance Costs 0 (297)
Issuance of Tax-Exempt Bonds 0 15,000
Drawdown of Tax Exempt Bonds Proceeds 907 250
Retirements on Long-Term Debt (65) (10,065)
Short-Term Borrowings, Net 800 (1,400)
Net Cash Flow Provided By Financing Activities 833 2,000
Cash Flow Used For Investing Activities
Investment in Electric Plant (1,326) (1,470)
Investment in Restricted Funds 0 (5,000)
Net Cash Used For Investment Activities (1,326) (6,470)
Increase (Decrease) in Cash and Temporary Investments (675) 498
Cash and Temporary Investments at Beginning of Year 1,291 976
Cash and Temporary Investments at End of Period $616 $1,474
Change in Current Assets and Liabilities Providing
Cash From Operating Activities
Accounts Receivable $345 $722
Unbilled Revenue 482 264
Deferred Fuel & Purchased Energy Costs (196) 0
Inventory (143) (136)
Prepayments (823) 18
Accounts Payable & Accrued Expenses (593) (906)
Other Current Liabilities (11) (4)
Total Change ($939) ($42)
Supplemental Disclosure of Cash Flow Information:
Cash Paid During the Period For:
Interest $1,609 $1,878
Income Taxes (1997 is net of a $500,000 refund) ($268) $1,647
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 Six Months Ended
June 30, June 30,
1997 1996 1997 1996
Current income taxes $ (676) $ 571 $(1,037) $ 1,932
Deferred income taxes 704 23 961 (210)
Investment credits (18) (18) (36) (37)
Total income taxes $ 10 $ 576 $ (112) $ 1,685
Allocated to:
Operating Income $ (28) $ 565 $ (194) $ 1,664
Other income 38 11 82 21
Total $ 10 $ 576 $ (112) $ 1,685
For 1997, the Company anticipates a tax net operating loss that will be
carried back to earlier years to recover previously paid federal and
state income taxes. For the six months ended June 30, 1997 and 1996, the
effective income tax rates were (15.6)% and 45%, respectively. The
principal reason for the effective tax rates differing from the US
federal income tax rate are the contribution to net income of the
Company's Canadian subsidiary, flow through items required by regulation
and state income taxes.
The following summarizes accumulated deferred income taxes established on
temporary differences under SFAS 109 as of June 30, 1997 and
December 31, 1996.
(Dollars in Thousands)
June 30, December 31,
1997 1996
Seabrook $15,154 $15,273
Property 8,150 8,104
Regulatory expenses 2,098 1,201
Investment tax credits (478) (478)
Pension and postretirement
benefits (694) (670)
Other 259 264
Net accumulated deferred income taxes $24,489 $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, the Company has incurred during 1997
replacement power costs of approximately $3.05 million, of which
$196,000 has been deferred under the Company's rate plan. In addition,
the Company incurred additional operating costs during 1997 of $1.4
million to address issues 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. These additional costs
adversely impacted 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 the Company's obligations under the revolving credit agreement. Both
amendments required the issuance of the first mortgage bonds 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 June 30, 1997 and would have been in default on
these instruments.
On August 6, 1997, as more fully described in Note 5, the Board of
Directors of Maine Yankee voted to permanently close the plant.
The Company's rate plan contains a provision for additional rate
increases in the event of a Maine Yankee plant outage exceeding six
consecutive months. After the six month period, 50% of the replacement
power costs can be deferred and recovered in rates with the annual rate
increase. This provision went into effect on June 6, 1997, with
approximately $196,000 deferred in the second quarter of 1997. In
addition, the profit-sharing mechanism allows additional rate increases
if earnings are more than 300 basis points below the target return on
equity, currently 11%, with 50% of the earnings deficiency recoverable
from customers with the annual rate increase. If the Company's earnings
provided under the rate plan are not sufficient to satisfy its interest
coverage tests and the Company is unable to restructure its purchase
power contract with Wheelabrator-Sherman, the Company will likely seek
an emergency rate increase in advance of any possible violation of the
previously mentioned interest coverage tests.
5. MAINE YANKEE PERMANENTLY CLOSED
The Company owns 5% of the Common Stock of Maine Yankee Atomic Power
Company (Maine Yankee). As previously reported, Maine Yankee has been
out of service since December 6, 1996 and was not expected to return to
service until August, 1997. On May 27, 1997, the Board of Directors of
Maine Yankee announced that it was considering permanent closure of
Maine Yankee based on the economics of the facility as well as
uncertainty regarding the operation of the plant. No final decision was
made but spending levels were reduced immediately to a level that
preserved the option of restarting the 810-megawatt facility or closing
it. The Maine Yankee Board of Directors also had preliminary
discussions with PECO Energy Company (PECO) regarding the sale of Maine
Yankee but no agreement had been reached. For additional information
regarding Maine Yankee, reference is made to the Company's Form 8-K
filed June 4, 1997 under Item 5, "Other Material Events - Maine Yankee
Owners Cut Spending and Consider Closure of Maine Yankee" and it'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.
-8-
For the first six months of 1997, while Maine Yankee was out of service,
the Company incurred additional replacement power costs of approximately
$3.05 million along with additional operating costs of approximately
$1.4 million associated with the efforts to restart Maine Yankee, which
have adversely impacted the Company's earnings. The Company's rate plan
contains a provision for additional rate increases in the event of a
Maine Yankee plant outage exceeding six consecutive months. See the
"Effects on the Company's Rate Plan Resulting from the Maine Yankee
Closure" section of this Form 10-Q for additional information.
On August 6, 1997, the Board of Directors of Maine Yankee voted to
permanently cease power operations at the plant and begin the process of
decommissioning the plant. The formal vote followed an announcement by
the Maine Yankee Board on August 1, 1997, that Maine Yankee and PECO,
after two months of intensive negotiations, had been unable to arrive
at "a mutually beneficial framework for agreement" on a sale of the
plant to PECO. The decision to shut down the plant was based on an
economic analysis of the costs, risks and uncertainties associated with
operating the plant compared to those associated with closing and
decommissioning the plant. The Maine Yankee Board's decision to close
the plant should mitigate the costs the Company would otherwise incur in
1997 through a phasing down of Maine Yankee's operations and maintenance
costs, but will not reduce the need to buy replacement energy and
capacity.
The Company is responsible for 5 percent of the costs of decommissioning
the plant. Maine Yankee has been collecting decommissioning costs in
advance pursuant to a 1994 Federal Energy Regulatory Commission (FERC)
rate order. Maine Yankee's most recent estimate of the total costs of
decommissioning was $316.6 million (in 1993 dollars), of which
approximately $183 million had been collected as of June 30, 1997.
Maine Yankee is in the process of developing an updated decommissioning
cost estimate, which the Company anticipates will be higher than the
1993 estimate, and expects to file the revised decommissioning cost
study with the FERC in the fall of 1997 as part of a rate filing
reflecting the permanent shutdown of the plant. The Company will
recognize its portion of the decommissioning liability during the third
quarter of 1997. Maine legislation provides recovery in rates through
the regulated transmission and distribution affiliate that will be
created by March 1, 2000, therefore an offsetting regulatory asset will
also be recognized. The Company cannot predict the amount of the final
decommissioning liability.
6. RESTRUCTURING OF MAINE'S ELECTRIC UTILITY INDUSTRY
On May 29, 1997, legislation titled "An Act to Restructure the States
Electric Industry" was signed into law by the Governor of Maine. The
principal provisions with accounting impact on the Company are as
follows:
1) Beginning on March 1, 2000, all consumers of electricity have
the right to purchase generation services directly from
competitive electricity suppliers who will not be subject to
rate regulation.
-9-
2) By March 1, 2000, the Company, Central Maine Power Company
(CMP) and Bangor Hydro-Electric Company (BHE) must divest of
all generation related assets and business functions except
for:
a) contracts with qualifying facilities, such as the
Company's power contract with Wheelabrator-Sherman
(W/S), and conservation providers;
b) nuclear assets, namely, the Company's investment in
the Maine Yankee Atomic Power Company;
c) facilities located outside the United States, i.e.,
the Company's hydro facility in New Brunswick,
Canada; and
d) assets that the MPUC determines necessary for the
operation of the transmission and distribution
services.
The MPUC can grant an extension of the divestiture
deadline if the extension will improve the selling price.
For assets not divested, the utilities are required to
sell the rights to the energy and capacity from these
assets. The Company shall submit to the MPUC its
divestiture plan no later than January 1, 1999.
3) The Company, through a regulated affiliate, will continue
to provide transmission and distribution services which
will be subject to continued rate regulation by the MPUC.
4) Maine electric utilities will be permitted a reasonable
opportunity to recover legitimate, verifiable and
unmitigable costs that are otherwise unrecoverable as a
result of retail competition in the electric utility
industry. The MPUC shall determine these stranded costs
by considering:
a) the utility's regulatory assets related to
generation, i.e., the Company's unrecovered
Seabrook investment;
b) the difference between net plant investment in
generation assets compared to the market value for
those assets; and
c) the difference between future contract payments and
the market value of the purchased power contracts,
i.e., the W/S contract.
By July 1, 1999, the MPUC will have estimate the stranded
costs for the Company and the manner for the collection of
these costs by the transmission and distribution company.
Customers reducing or eliminating their consumption of
electricity by switching to self-generation, conversion to
alternative fuels or utilizing demand-side management
measures cannot be assessed exit or entry fees.
-10-
5) The MPUC shall include in the rates charged by the
transmission and distribution utility decommissioning
expenses for Maine Yankee. In 2003 and every three years
thereafter until the stranded costs are recovered, the
MPUC shall review and adjust the stranded cost recovery
amounts and related transition charges. However, the MPUC
may adjust the amounts at any point in time that they deem
appropriate. Since the legislation provides for our
recovery of stranded costs by the transmission and
distribution company, the Company will continue to
recognize existing regulatory assets and plant costs as
required by Emerging Issues Task Force 97-4.
6) Employees, other than officers, displaced as a result of
retail competition will be entitled to certain severance
benefits and retraining programs. These costs will be
recovered through charges collected by the regulated
transmission and distribution company.
The MPUC will conduct several rulemaking proceedings
associated with the new restructuring law. The Company is
presently reviewing its business operations and the
opportunities that the new restructuring law presents.
When the details of the restructuring plan are determined
by the MPUC rulemaking, the Company will discontinue
application of the Statement of Financial Accounting
Standards No. 71 (SFAS 71), "Accounting for the Effects of
Certain Types of Regulations", for the retail segment of
its business jurisdiction. The Company cannot predict the
value of the Company's stranded investment that the MPUC
will determine.
7. ACCOUNTING PRONOUNCEMENT
In February 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 128 "Earnings per
Share". This Statement is effective for financial statements issued for
periods ending after December 15, 1997 with earlier application not
permitted. The Statement requires dual presentation of basic and
diluted earnings per share on the income statement. The Company's basic
earnings per share for fiscal 1997 will be calculated similar to its
currently disclosed earnings per share. Diluted earnings per share
will not be materially different from basic earnings per share.
In June 1997, the FASB issued SFAS No. 130 "Reporting Comprehensive
Income", which requires the separate reporting of all changes to
shareholders' equity, and SFAS No. 131 "Disclosures about Segments of
an Enterprise and Related Information", which revises existing
guidelines about the level of financial disclosure of a Company's
operations. Both Statements are effective for financial statements
issued after December 15, 1997. The Company has not determined the
impact of the new standards, but does not expect them to have a material
impact to existing financial reporting.
-11-
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 June 30, 1997 along with
the corresponding information for the previous year are as
follows:
Three Months Ended
June 30,
1997 1996
Earnings (loss) per share $(.22) $ .38
Net income (loss)
available for Common
Stock - in Thousands $(353) $ 609
For the second quarter of 1997 compared to the same quarter last
year, the decrease in consolidated earnings per share (EPS) of
$.60 is attributable to the following:
EPS
Increase
(Decrease)
Increase in operating expenses resulting
from extended Maine Yankee outage in 1997:
Replacement Power Costs $(.29)
Capacity Expenses (.26)
Total ( .55)
Decrease in Power Marketing earnings due
to Maine Yankee outage in 1997 ( .18)
Increase in retail revenues:
2.9% rate increase effective 2/1/97 $ .08
2.0% volume increase .08
Load retention discounts ( .09) .07
Reduction in legal expense due to insurance
reimbursement in 1997 for expenses
incurred in 1996 defending lawsuit .07
Other ( .01)
Total $( .60)
-12-
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 second
quarter of 1997 had a material impact on the Company's earnings
and cash flows for the second quarter of 1997. For the second
quarter of 1997, Maine Yankee replacement power costs reduced
earnings by $.29 per share, while additional capacity expense to
address restart issues further reduced earnings by $.26 per
share. Power marketing earnings decreased by $.18 per share,
since Maine Yankee has not operated in 1997 but was available
for the second quarter of 1996. The rate increases under the
Company's rate plan effective February 1, 1997 and a 2.0% retail
sales increase were partially offset by load retention contract
discounts to several large customers resulting in a net $.07
increase in earnings per share. Legal expenses were reduced in
1997 by $.07 per share due to an insurance settlement received
following the successful defense against a lawsuit adjudicated
in 1996.
Consolidated operating revenues for the quarter ended June 30,
1997 and 1996, are as follows:
1997 1996
(Dollars in Thousands) $ MWH $ MWH
Retail 11,055 117,553 10,878 115,293
Sales for Resale 508 12,520 484 12,013
Total Primary Sales 11,563 130,073 11,362 127,306
Secondary Sales 377 8,856 3,095 145,927
Other Revenues/Rev. Adjust. 399 371
Total Operating Revenues 12,339 138,929 14,828 273,233
Primary sales in the second quarter of 1997 were 130,073 MWH,
an increase of 2.2% over sales in the second quarter of 1996.
Secondary sales decreased by 137,071 MWH, reflecting a
decrease in power marketing activities. During the second
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 the same
period in 1997, secondary sales for the quarter were limited
to Wyman No. 4 entitlements.
-13-
Form 10-Q
PART 1. FINANCIAL INFORMATION
Item 2. Management's Analysis of Quarterly Income Statements
Results of Operations (Continued)
Retail revenues for the second quarter of 1997 were
$11,055,000 compared to $10,878,000 for the same period of
1996, reflecting the 2.9% increase in retail rates effective
February 1, 1997 allowed under the Company's rate plan and a
2.0% increase in retail sales, offset by load retention
discounts to certain large industrial customers that were
approved by the Maine Public Utilities Commission.
For the second quarters ended June 30, 1997 and 1996, total
operating expenses were $11,871,000 and $13,445,000,
respectively. The changes in operating expenses and energy
sources are as follows:
Increase/(Decrease)
(Dollars in Thousands) $ MWH
Purchased Power Expenses
Maine Yankee 434 (84,276)
Wheelabrator-Sherman (301) (3,888)
NB Power 702 17,683
LG&E (1,324) (63,665)
Other Purchases (104) (3,363)
(593) (137,509)
Deferred Fuel (196)
Generating Expenses 79 3,851
Other Operation & Maint. Expenses (298)
Depreciation (3)
Amortization 12
Income Taxes (593)
Taxes Other than Income 18
Total (1,574) (133,658)
-14-
Form 10-Q
PART 1. FINANCIAL INFORMATION
Item 2. Management's Analysis of Quarterly Income Statements
Results of Operations (Continued)
As previously mentioned, Maine Yankee was out of service for
all of the second quarter of 1997, while it operated at a 90-
percent level of operation for the entire second quarter of
1996, resulting in a decrease in production of 84,276 MWH.
Because of the Maine Yankee outage and the related decrease in
power marketing activities, purchases from LG&E were
eliminated in the second quarter of 1997. To meet the
remainder of the Company's energy requirements, purchases from
NB Power increased by 17,683 MWH. Although Maine Yankee did
not operate in the second quarter of 1997 creating a reduction
in fuel costs of $279,000, the Company's share of Maine Yankee
capacity expenses to address restart issues increased by
$713,000 resulting in a net increase in purchased power
expenses of $434,000. Wheelabrator-Sherman purchased power
expenses decreased by $301,000 because of an unscheduled
outage in 1997. Other operation and maintenance expenses
decreased by $298,000 primarily due to proceeds from a second
quarter 1997 insurance reimbursement for legal expenses
incurred in 1996 during the Company's successful defense of a
lawsuit against the Company. In addition, wheeling expenses
decreased by $124,000 because of decreased power marketing
activity in 1997. The Company, in accordance with the multi-
year rate plan, deferred $196,000, or 50%, of Maine Yankee
replacement power costs once the current outage exceeded six
months in early June, 1997. Generating expenses increased by
$79,000 because of increased operation at Wyman No. 4,
partially offset by decreases due to reduced activity at the
Caribou Steam Plant following Steam Units 1 and 2 placement on
inactive status effective January 1, 1996.
Maine Yankee Closure
The Company owns 5% of the Common Stock of Maine Yankee Atomic
Power Company (Maine Yankee). As previously reported, Maine
Yankee has been out of service since December 6, 1996 and was
not expected to return to service until August, 1997. On May
27, 1997, the Board of Directors of Maine Yankee announced
that it was considering permanent closure of Maine Yankee
based on the economics of the facility as well as uncertainty
regarding the operation of the plant. No final decision was
made but spending levels were reduced immediately to a level
that preserved the option of restarting the 810-megawatt
-15-
Form 10-Q
PART 1. FINANCIAL INFORMATION
Item 2. Management's Analysis of Quarterly Income Statements
Results of Operations (Continued)
facility or closing it. The Maine Yankee Board of Directors
also had preliminary discussions with PECO Energy Company
(PECO) regarding the sale of Maine Yankee but no agreement had
been reached. For additional information regarding Maine
Yankee, reference is made to the Company's Form 8-K filed
June 4, 1997 under Item 5, "Other Material Events - Maine
Yankee Owners Cut Spending and Consider Closure of Maine
Yankee" and it'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.
For the first six months of 1997, while Maine Yankee was out
of service, the Company incurred additional replacement power
costs of approximately $3.05 million along with additional
operating costs of approximately $1.4 million associated with
the efforts to restart Maine Yankee, which have adversely
impacted the Company's earnings. The Company's rate plan
contains a provision for additional rate increases in the
event of a Maine Yankee plant outage exceeding six consecutive
months. See the "Effects on the Company's Rate Plan Resulting
from the Maine Yankee Closure" section of this Form 10-Q for
additional information.
On August 6, 1997, the Board of Directors of Maine Yankee
voted to permanently cease power operations at the plant and
begin the process of decommissioning the plant. The formal
vote followed an announcement by the Maine Yankee Board on
August 1, 1997, that Maine Yankee and PECO, after two months
of intensive negotiations, had been unable to arrive at "a
mutually beneficial framework for agreement" on a sale of the
plant to PECO. The decision to shut down the plant was based
on an economic analysis of the costs, risks and uncertainties
associated with operating the plant compared to those
associated with closing and decommissioning the plant. The
Maine Yankee Board's decision to close the plant should
mitigate the costs the Company would otherwise incur in 1997
through a phasing down of Maine Yankee's operations and
maintenance costs, but will not reduce the need to buy
replacement energy and capacity.
-16-
Form 10-Q
PART 1. FINANCIAL INFORMATION
Item 2. Management's Analysis of Quarterly Income Statements
Results of Operations (Continued)
The Company is responsible for 5 percent of the costs of
decommissioning the plant. Maine Yankee has been collecting
decommissioning costs in advance pursuant to a 1994 Federal
Energy Regulatory Commission (FERC) rate order. Maine
Yankee's most recent estimate of the total costs of
decommissioning was $316.6 million (in 1993 dollars), of which
approximately $183 million had been collected as of June 30,
1997. Maine Yankee is in the process of developing an updated
decommissioning cost estimate, which the Company anticipates
will be higher than the 1993 estimate, and expects to file the
revised decommissioning cost study with the FERC in the fall
of 1997 as part of a rate filing reflecting the permanent
shutdown of the plant. The Company will recognize its portion
of the decommissioning liability during the third quarter of
1997. Maine legislation provides recovery in rates through
the regulated transmission and distribution affiliate that
will be created by March 1, 2000, therefore an offsetting
regulatory asset will also be recognized. The Company cannot
predict the final decommissioning liability.
Financial Condition
Net cash flows from operating activities were negative
$182,000 for the first six months of 1997. The $5,150,000
decrease in net cash flow from operating activities reflects
the additional replacement power costs and capacity expenses
required in 1997 due to the unscheduled Maine Yankee outage
that began on December 6, 1996. For the period, $1,326,000
was invested in electric plant, $809,000 was paid in dividends
and $65,000 was used to reduce long-term debt. Short-term
borrowings increased by $800,000 for working capital and
construction requirements. The Company drew down $907,000 in
1997 from the 1996 tax-exempt revenue bond proceeds based on
qualifying property.
For the first six months of 1996, net cash flows from
operating activities were $4,968,000. $10,000,000 of tax-
exempt bonds were issued in 1991 and were refinanced with a
new $15,000,000 issue, with the remaining $5,000,000 deposited
with the trustee to be withdrawn based on qualified property
additions. $250,000 was drawn from the trustee of the tax-
exempt bonds for issuance expenses incurred. For the period,
-17-
Form 10-Q
PART 1. FINANCIAL INFORMATION
Item 2. Management's Analysis of Quarterly Income Statements
Results of Operations (Continued)
$1,470,000 was invested in electric plant, $1,488,000 was paid
in dividends and $65,000 was used to reduce other long-term
debt. $1,400,000 was used to pay off short-term borrowings.
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 second 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 the Company's obligations under the
revolving credit agreement. Both amendments required the
issuance of the first mortgage bonds 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 June 30,
1997 and would have been in default on these instruments.
Effects on the Company's Rate Plan Resulting from the Maine
Yankee Closure
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. Interest coverage
tests for periods after September 30, 1997 will reflect Maine
Yankee replacement power costs, as a result of the recent
decision to close Maine Yankee. The Company's rate plan
contains a provision for additional rate increases in the
event of a Maine Yankee plant outage exceeding six consecutive
-18-
Form 10-Q
PART 1. FINANCIAL INFORMATION
Item 2. Management's Analysis of Quarterly Income Statements
Results of Operations (Continued)
months. After the six month period, 50% of the replacement
power costs can be deferred and recovered in rates with the
annual rate increase. This provision went into effect on June
6, 1997, with approximately $196,000 deferred in the second
quarter of 1997. In addition, the profit-sharing mechanism
allows additional rate increases if earnings are more than 300
basis points below the target return on equity, currently 11%,
with 50% of the earnings deficiency recoverable from customers
with the annual rate increase. If the Company's earnings
provided under the rate plan are not sufficient to satisfy its
interest coverage tests and the Company is unable to
restructure its purchase power contract with Wheelabrator-
Sherman, the Company will likely seek an emergency rate
increase in advance of any possible violation of the
previously mentioned interest coverage tests.
The Maine Yankee replacement power and additional capacity
expenses to restart Maine Yankee will adversely impact 1997
earnings, as demonstrated in this quarterly report. For 1997,
based on the increased capacity and replacement power costs,
the Company estimates an operating loss for the year. Under
the Company's multi-year rate plan, described above, 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.
-19-
Form 10-Q
PART 1. FINANCIAL INFORMATION
Item 2. Management's Analysis of Quarterly Income Statements
Results of Operations (Continued)
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.
-20-
Form 10-Q
PART II. OTHER INFORMATION
Item 1. Legal Proceedings and Regulatory Matters
(a) Restructuring of Maine's Electric Utility Industry.
In the Company's Form 10-K for December 31, 1996 as well
as the form 10-Q for the quarter ended March 31, 1997,
the Company described electric utility restructuring
efforts in Maine, including the Maine Public Utilities
Commission's (MPUC) recommendation to the legislature.
After months of hearings and deliberations, the Maine
legislature passed L.D. 1804, "An Act to Restructure the
State's Electric Industry", which the Governor signed
into law on May 29, 1997.
The principal provisions of the new law are as follows:
1) Beginning on March 1, 2000, all consumers of electricity
have the right to purchase generation services directly from
competitive electricity suppliers who will not be subject to
rate regulation.
2) By March 1, 2000, the Company, Central Maine Power
Company (CMP) and Bangor Hydro-Electric Company (BHE) must
divest of all generation related assets and business functions
except for:
(a) contracts with qualifying facilities, such as the
Company's power contract with Wheelabrator-Sherman (W/S),
and conservation providers;
(b) nuclear assets, namely, the Company's investment in
the Maine Yankee Atomic Power Company, however, the MPUC
may require divestiture on or after January 1, 2009;
(c) facilities located outside the United States, i.e.,
the Company's hydro facility in New Brunswick, Canada;
and
(d) assets that the MPUC determines necessary for the
operation of the transmission and distribution services.
The MPUC can grant an extension of the divestiture deadline if
the extension will improve the selling price. For assets not
divested, the utilities are required to sell the rights to the
energy and capacity from these assets. The Company shall
submit to the MPUC its divestiture plan no later than January
1, 1999.
-21-
Form 10-Q
PART II. OTHER INFORMATION
Item 1. Legal Proceedings and Regulatory Matters - Continued
3) Billing and metering services will be subject to
competition beginning March 1, 2002, but permits the MPUC to
establish an earlier date, no sooner than March 1, 2000.
4) The Company, through an unregulated affiliate, may market
and sell electricity both within and outside its current
service territory, without limitation. Both CMP and BHE are
limited to 33% of the load within their respective service
territories, but may sell an unlimited amount outside their
service territories. Consumer-owned utilities are allowed to
market and sell within their service territories, but the MPUC
can limit or prohibit competition in their service territory,
if the tax-exempt status of the consumer-owned utility is
threatened.
5) The Company, through a regulated affiliate, will continue
to provide transmission and distribution services which will
be subject to continued regulation by the MPUC.
6) Maine electric utilities will be permitted a reasonable
opportunity to recover legitimate, verifiable and unmitigable
costs that are otherwise unrecoverable as a result of retail
competition in the electric utility industry. The MPUC shall
determine these stranded costs by considering:
a) the utility's regulatory assets related to
generation, i.e., the Company's unrecovered Seabrook
investment;
b) the difference between net plant investment in
generation assets compared to the market value for those
assets; and
c) the difference between future contract payments and
the market value of the purchased power contracts, i.e.,
the W/S contract.
By July 1, 1999, the MPUC will have estimated the stranded
costs for the Company and the manner for the collection of
these costs by the transmission and distribution company.
Customers reducing or eliminating their consumption of
electricity by switching to self-generation, conversion to
alternative fuels or utilizing demand-side management measures
cannot be assessed exit or entry fees. The MPUC shall include
in the rates charged by the transmission and distribution
-22-
Form 10-Q
PART II. OTHER INFORMATION
Item 1. Legal Proceedings and Regulatory Matters - Continued
utility decommissioning expenses for Maine Yankee. In 2003
and every three years thereafter until the stranded costs are
recovered, the MPUC shall review and revaluate the stranded
cost recovery.
7) All competitive providers of retail electricity must be
licensed and registered with the MPUC and meet certain
financial standards, comply with customer notification
requirements, adhere to customer solicitation requirements and
are subject to unfair trade practice laws. Competitive
electricity providers must have at least 30% renewable
resources in their energy portfolios, including hydro-electric
generation.
8) A standard-offer service will be available, ensuring
access for all customers to reasonably priced electric power.
Unregulated affiliates of CMP and BHE providing retail
electric power are prohibited from providing more than 20% of
the load within their respective service territories under the
standard offer service, while any unregulated affiliate of the
Company does not have a similar restriction.
9) Unregulated affiliates of CMP and BHE marketing and
selling retail electric power must adhere to specific codes of
conduct, including, among others:
a) employees of the unregulated affiliate providing
retail electric power must be physically separated from
the regulated distribution affiliate and cannot be
shared;
b) the regulated distribution affiliate must provide
equal access to customer information;
c) the regulated distribution company cannot
participate in joint advertising or marketing programs
with the unregulated affiliate providing retail electric
power;
d) the distribution company and its unregulated
affiliated provider of retail electric power must keep
separate books of accounts and records; and
(e) the distribution company cannot condition or tie the
provision of any regulated service to the provision of
-23-
Form 10-Q
PART II. OTHER INFORMATION
Item 1. Legal Proceedings and Regulatory Matters - Continued
any service provided by the unregulated affiliated
provider of electricity.
The MPUC shall determine the extent of separation
required in the case of the Company to avoid cross-
subsidization and shall consider all similar relevant
issues as well as the Company's small size.
10) Employees, other than officers, displaced as a result of
retail competition will be entitled to certain severance
benefits and retraining programs. These costs will be
recovered through charges collected by the regulated
distribution company.
11) Other provisions of the new law include provisions for:
a) consumer education;
b) continuation of low-income programs and demand side
management activities;
c) consumer protection provisions;
d) new enforcement authority for the MPUC to protect
consumers.
The MPUC will conduct several rulemaking proceedings
associated with the new restructuring law. The Company is
presently reviewing its business operations and the
opportunities that the new restructuring law presents. The
Company cannot predict the value of the Company's stranded
investment that the MPUC will determine.
(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
-24-
Form 10-Q
PART II. OTHER INFORMATION
Item 1. Legal Proceedings and Regulatory Matters - Continued
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
At the Company's Annual Meeting of Stockholders, held on May
13, 1997, the only matter voted upon was the uncontested
election of the following directors to serve until the 2000
Meeting of Stockholders, each of whom received the votes
shown:
Non-voters
and
Nominee For Against Abstentions
R. E. Anderson 1,320,381 49,395 247,474
N. L. Grass 1,320,279 49,497 247,474
J. P. Levesque 1,319,315 50,461 247,474
Item 5. Other Information
None
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; March
31, 1997, under Item 5, Other Events, and Item 7,
Exhibits; and June 4, 1997 under Item 5, Other Events.
-25-
Form 10-Q
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: August 13, 1997 /s/ Larry E. LaPlante
Larry E. LaPlante, Vice President
Finance, Administration and Treasurer
-26-
\TEXT>
/DOCUMENT>
<TABLE> <S> <C>
<ARTICLE> UT
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 49897
<OTHER-PROPERTY-AND-INVEST> 3901
<TOTAL-CURRENT-ASSETS> 10434
<TOTAL-DEFERRED-CHARGES> 52216
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 116448
<COMMON> 7357
<CAPITAL-SURPLUS-PAID-IN> 38
<RETAINED-EARNINGS> 29282
<TOTAL-COMMON-STOCKHOLDERS-EQ> 36677
0
0
<LONG-TERM-DEBT-NET> 39740
<SHORT-TERM-NOTES> 2200
<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> 36516
<TOT-CAPITALIZATION-AND-LIAB> 116448
<GROSS-OPERATING-REVENUE> 27707
<INCOME-TAX-EXPENSE> (194)
<OTHER-OPERATING-EXPENSES> 26912
<TOTAL-OPERATING-EXPENSES> 26718
<OPERATING-INCOME-LOSS> 989
<OTHER-INCOME-NET> 140
<INCOME-BEFORE-INTEREST-EXPEN> 1129
<TOTAL-INTEREST-EXPENSE> 1736
<NET-INCOME> (607)
0
<EARNINGS-AVAILABLE-FOR-COMM> (607)
<COMMON-STOCK-DIVIDENDS> 809
<TOTAL-INTEREST-ON-BONDS> 1560
<CASH-FLOW-OPERATIONS> (182)
<EPS-PRIMARY> (.38)
<EPS-DILUTED> (.38)
</TABLE>
