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, 1999 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
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
Subsidiaries Condensed Consolidated Financial Statements,
including a statement of consolidated operations for the
quarter and six months ended June 30, 1999, and for the
corresponding period of the preceding year; a consolidated
balance sheet as of June 30, 1999, and as of December 31,
1998, 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, 1999, 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, 1999 and
December 31, 1998, and the results of their operations for the
three and six months ended June 30, 1999 and their cash
flows for the six months ended June 30, 1999, and for the
corresponding period of the preceding year.
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MAINE PUBLIC SERVICE COMPANY AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED OPERATIONS
(Unaudited)
(Dollars in Thousands Except Per Share Amounts)
Three Months Ended Six Months Ended
June 30, June 30,
1999 1998 1999 1998
Operating Revenues $16,423 $13,243 $33,892 $28,840
Operating Expenses
Purchased Power 9,304 7,389 18,402 15,114
Other Operation and Maintenance 3,546 3,235 6,851 7,020
Depreciation 630 658 1,231 1,317
Amortization 376 401 761 803
Taxes Other Than Income 403 379 850 814
Provision for Income Taxes 530 290 1,674 1,023
Total Operating Expenses 14,789 12,352 29,769 26,091
Operating Income 1,634 891 4,123 2,749
Other Income (Deductions)
Equity in Income of Associated
Companies 88 127 365 253
Allowance for Equity Funds Used During
Construction 12 8 22 15
Provision for Income Taxes (113) (27) (147) (43)
MY Replacement Power Carrying Charges 66 68 135 124
Other - Net 10 (28) (70) (12)
Total 63 148 305 337
Income Before Interest Charges 1,697 1,039 4,428 3,086
Interest Charges
Long-Term Debt and Notes Payable 992 1,021 1,971 1,966
Less Allowance for Borrowed Funds
Used During Construction (7) (4) (14) (8)
Total 985 1,017 1,957 1,958
Net Income Available for Common Stock 712 22 $2,471 $1,128
Average Shares Outstanding (000's) 1,617 1,617 1,617 1,617
Basic Earnings Per Share of
Common Stock $0.44 $0.01 $1.53 $0.70
Dividends Declared per Common Share $0.25 $0.25 $0.50 $0.50
The accompanying notes are an integral part of these financial statements.
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MAINE PUBLIC SERVICE COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
June 30, 1999 December 31, 1998
ASSETS (Unaudited)
Utility Plant
Electric Plant in Service $71,442 $101,211
Less Accumulated Depreciation 33,863 51,585
Net Electric Plant in Service 37,579 49,626
Construction Work-in-Progress 2,445 1,014
Total 40,024 50,640
Investment in Associated Companies
Maine Yankee Atomic Power Company 3,887 3,979
Maine Electric Power Company, Inc. 476 241
Total 4,363 4,220
Net Utility Plant and Investments 44,387 54,860
Current Assets
Cash and Cash Equivalents 29,580 1,454
Deposits for Interest and Dividends 478 477
Deposits with Trustee-Asset Sale 7,938 0
Accounts Receivable - Net 6,279 5,856
Unbilled Base Revenue 1,280 1,892
Deferred Fuel and Purchased Energy 1,887 687
Current Deferred Income Taxes 0 31
Inventory 1,124 1,037
Prepayments 416 521
Total 48,982 11,955
Other Assets
Restricted Investment 2,399 2,817
Uncollected Maine Yankee Decommissioning
Costs 33,925 36,037
Recoverable Seabrook Costs 24,163 24,875
Regulatory Asset - SFAS 109 & 106 11,092 11,886
Deferred Fuel and Purchased Energy 9,003 9,618
Regulatory Asset - Power Purchase
Agreement Restructuring 8,706 8,706
Other 2,858 3,541
Total 92,146 97,480
Total Assets $185,515 $164,295
CAPITALIZATION AND LIABILITIES
Capitalization
Common Shareholders' Equity
Common Stock $13,071 $13,071
Paid-in Capital 38 38
Retained Earnings 29,201 27,539
Treasury Stock, at cost (5,714) (5,714)
Total 36,596 34,934
Long-Term Debt (less current
maturities) 45,890 45,915
Current Liabilities
Long-Term Debt Due Within One Year 1,275 1,275
Notes Payable 6,000 8,100
Accounts Payable 4,727 4,671
Current Deferred Income Taxes 552 0
Dividends Declared 404 404
Customer Deposits 17 24
Interest and Taxes Accrued 11,565 1,029
Total 24,540 15,503
Deferred Credits
Uncollected Maine Yankee
Decommissioning Costs 33,925 36,037
Deferred Income Tax 21,191 25,812
Investment Tax Credits 306 578
Deferred Revenues 0 1,170
Deferred Gain & Related Accounts-
Generating Asset Sale 18,112 0
Miscellaneous 4,955 4,346
Total 78,489 67,943
Total Capitalization and Liabilities $185,515 $164,295
The accompanying notes are an integral part of these financial statements.
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MAINE PUBLIC SERVICE COMPANY AND SUBSIDIARIES
Statements of Consolidated Cash Flows
(Unaudited)
(Dollars in Thousands)
Six Months Ended
June 30,
1999 1998
Cash Flow From Operating Activities
Net Income $2,471 $1,128
Adjustments to Reconcile Net Income to Net Cash
Provided (Used) by Operations
Depreciation 1,231 1,317
Amortization 779 822
Income on Tax Exempt Bonds-Restricted Funds (11) (51)
Deferred Income Taxes - Net 1,033 542
AFUDC (36) (23)
Change in Deferred Fuel & Purchased Energy 574 (1,711)
Change in Deferred Regulatory and Debt Issuance Costs 177 258
Change in Deferred Regulatory Asset - Power Purchase
Restructuring 0 (8,706)
Change in Deferred Revenues (1,170) 133
Change in Benefit Obligation 337 422
Change in Current Assets and Liabilities (2,191) 1,911
Other (417) (233)
Net Cash Flow Provided (Used) By Operating Activities 2,777 (4,191)
Cash Flow From Financing Activities
Dividend Payments (809) (1,213)
FAME Financing Costs (5) (529)
Deposit - FAME Capital Reserve Fund 0 (2,378)
Deposit with Trustee - Asset Sale Proceeds (7,938) 0
Issuance of Long Term Debt 0 11,540
Drawdown of Tax Exempt Bonds Proceeds 428 593
Retirements on Long-Term Debt (25) (2,905)
Short-Term Borrowings (Repayments), Net (2,100) 400
Net Cash Flow Provided (Used) In Financing Activities(10,449) 5,508
Cash Flow From Investing Activities
Proceeds from Sale of Generating Assets 37,547 0
Investment in Electric Plant (1,749) (1,387)
Net Cash Provided (Used) For Investment Activities 35,798 (1,387)
Increase (Decrease) in Cash and Cash Equivalents 28,126 (70)
Cash and Cash Equivalents at Beginning of Year 1,454 2,071
Cash and Cash Equivalents at End of Period $29,580 $2,001
Change in Current Assets and Liabilities Providing (Utilizing)
Cash From Operating Activities
Accounts Receivable ($473) $720
Unbilled Revenue 612 448
Deferred Maine Yankee Replacement Power Costs (1,200) 16
Inventory (136) (49)
Prepayments (1,509) 1,748
Accounts Payable & Accrued Expenses 522 (963)
Other Current Liabilities (7) (9)
Total Change ($2,191) $1,911
Supplemental Disclosure of Cash Flow Information:
Cash Paid During the Period For:
Interest $1,999 $1,799
Income Taxes $2,242 ($1,628)
The accompanying notes are an integral part of these financial statements.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying unaudited consolidated financial statements include the
accounts of the Company, its wholly-owned Canadian subsidiary, Maine
and New Brunswick Electrical Power Company, Limited and its unregulated
marketing subsidiary, Energy Atlantic, LLC (EA).
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 1998 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 1998 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 cash equivalents.
Certain reclassification have been made to the 1998 financial
statement amounts in order to conform to the 1999 presentation.
2. ENERGY ATLANTIC
In January, 1999, Energy Atlantic, the Company's wholly-owned
unregulated marketing subsidiary, formally began operations. This
marketing segment is currently involved in wholesale energy transactions
and intends to enter the retail market in March 1, 2000, the
commencement of retail competition in the State of Maine.
During the quarter ended March 31, 1999, the Company adopted Statement
of Financial Accounting Standards (FAS) No. 131, "Disclosure about
Segments of an Enterprise and Related Information", which became
applicable as a result of the start-up of Energy Atlantic. Segment
reporting has been presented below for the current period only since
historically there had not been separate reportable segments. The
accounting policies of the segments are the same as those described in
Note 1, "SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES". The Company
provides certain administrative support services to Energy Atlantic,
which are billed to that entity at cost based on a combination of direct
charges and allocations. The Company is organized on the basis of
products and services. The Company's reportable segments include the
electric utility portion of the business, consisting of Maine Public
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Service Company and Maine and New Brunswick Electrical Power Company,
Limited (MPS), and the energy marketing portion of the business,
consisting of Energy Atlantic (EA).
Three Months Ended 6/30/99 Six Months Ended 6/30/99
(Dollars in Thousands)
Total Total
EA MPS Company EA MPS Company
Operating Revenues $ 2,863 $ 13,560 $ 16,423 $ 4,324 $29,568 $33,892
Operations & Maintenance
Expense 2,792 11,467 14,259 4,339 23,756 28,095
Taxes 27 503 530 (7) 1,681 1,674
Total Operating
Expenses 2,819 11,970 14,789 4,332 25,437 29,769
Operating Income (Loss) 44 1,590 1,634 (8) 4,131 4,123
Other Income &
Deductions 2 61 63 2 303 305
Income (Loss) Before
Interest Charges 46 1,651 1,697 (6) 4,434 4,428
Interest Charges 4 981 985 6 1,951 1,957
Net Income (Loss) $ 42 $ 670 $ 712 $ (12)$ 2,483 $ 2,471
Total Assets as of
June 30, 1999 $ 872 $184,643 $185,515
3. 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, 2.9% on
February 1, 1997, and 3.9% on February 1, 1998. On April 6, 1999,
the MPUC approved a Stipulation between the Office of the Public
Advocate (OPA) and the Company. Under this stipulation and with
the April 5, 1999 MPUC approval of the sale of the Company's generating
assets, customer rates did not increase on April 1, 1999.
Principal provisions of the Stipulation are as follows:
a) The Company is entitled to a 3.66% specified rate increase as
of April 1, 1999. Rather than increasing customer rates, the
Company will recognize the revenues related to this rate
increase, and recognize a corresponding deferred asset,
approximately $410,000 through June 30, 1999. The parties to
the Stipulation agreed to recommend that the deferred gain from
the asset sale be reduced in an amount corresponding to the
specified rate increase which will be addressed by the MPUC's
determination of allowed stranded cost recovery.
b) The Company agreed to begin amortizing on April 1, 1999, an
additional $150,000 per month of Maine Yankee replacement power
costs or a total of $1,650,000 for the remaining eleven months
of the rate plan.
With higher winter rates for our commercial and industrial customers
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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.
4. INCOME TAXES
A summary of Federal and State income taxes charged to income is
presented below. For accounting and ratemaking purposes, income tax
provisions included in "Operating Expenses" reflect taxes applicable to
revenues and expenses allowable for ratemaking purposes. The tax effect
of items not included in rate base is allocated as "Other Income
(Deductions)".
(Dollars In Thousands)
Three Months Ended Six Months Ended
June 30, June 30,
1999 1998 1999 1998
Current income taxes $ 4,153 $ 231 $ 4,746 $ 524
Deferred income tax (3,495) 103 (2,894) 577
Investment credits (15) (17) (31) (35)
Total income taxes $ 643 $ 317 $ 1,821 $ 1,066
Allocated to:
Operating Income $ 530 $ 290 $ 1,674 $ 1,023
Other income 113 27 147 43
Total $ 643 $ 317 $ 1,821 $ 1,066
For the six months ended June 30, 1999 and 1998, the effective income tax
rates were 42.4% and 48.6%, 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. Current
income taxes recorded on the Company's deferred gain from the generating
asset sale are offset by corresponding deferred income taxes. Income taxes
have not been provided on the subsidiary's portion of the generating asset
sale. The subsidiary's taxes will be recognized when the subsidiary is
liquidated and the deferred gain is recognized as income.
The following summarizes accumulated deferred income taxes established on
temporary differences under SFAS 109 as of June 30, 1999 and December 31,
1998.
(Dollars in Thousands)
June 30, December 31,
1999 1998
Seabrook $13,587 $13,706
Property 6,246 8,532
Regulatory expenses 3,568 2,002
Deferred fuel 691 2,056
Pension and postretirement benefits (935) (952)
Generating asset sale (2,748) -
W-S up-front payment 1,456 -
Other (195) 468
Net accumulated deferred income taxes $21,670 $25,812
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5. MAINE YANKEE
The Company owns 5% of the Common Stock of Maine Yankee, which
operated an 860 MW nuclear power plant (the "Plant") in Wiscasset,
Maine. On August 6, 1997, the Board of Directors of Maine Yankee
voted to permanently cease power operations and to begin
decommissioning the Plant. The Plant experienced a number of
operational and regulatory problems and did not operate after
December 6, 1996. The decision to close the Plant permanently 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 it. The Plant's operating license
from the Nuclear Regulatory Commission (NRC) was due to expire on
October 21, 2008.
The Maine Public Utilities Commission (MPUC) stayed an investigation
of the prudency of the shutdown decision and the operation of Maine
Yankee prior to the shutdown decision, pending the outcome of Maine
Yankee's rate case before the Federal Energy Regulatory Commission (FERC).
Since the filing of the FERC rate request, Maine Yankee and the
active intervenors, including among others the MPUC Staff, the Maine
Office of the Public Advocate (OPA), the Company and other owners, the
Secondary Purchasers, and a Maine environmental group (the "Settling
Parties"), engaged in extensive discovery and negotiations which
resulted in a settlement agreement filed by those parties with the FERC
on January 19, 1999. A separate negotiated settlement filed with the
FERC on February 5, 1999, resolved the issues raised by the Secondary
Purchasers by limiting the amounts they will pay for decommissioning the
Plant and by settling other points of contention affecting individual
Secondary Purchasers. Both settlements were found to be in the public
interest and approved by the FERC on June 1, 1999. The settlement
constitutes a full settlement of all issues raised in the consolidated
FERC proceeding including decommissioning-cost issues and issues
pertaining to the prudence of the management, operation, and decision to
permanently cease operation of the Plant.
The primary settlement provides for Maine Yankee to collect $33.1
million in the aggregate annually, effective August 1, 1999, including
both decommissioning costs and ISFSI-related costs. The original filing
with FERC on November 6, 1997, called for an aggregate annual collection
rate of $36.4 million for decommissioning and the ISFSI, based on a 1997
estimate. Under the approved settlement the amount collected annually
is to be reduced to approximately $24.4 million as a result of
legislation allowing Maine Yankee to (1) use for construction the ISFSI
funds held in trust under Maine law for spent-fuel disposal, and (2)
access approximately $6.8 million held by the State of Maine for
eventual payment to the State of Texas pursuant to a compact for low-
level nuclear waste disposal, the future of which is now in question
after rejection of the selected disposal site in west Texas by a Texas
regulatory agency. Both required authorizing legislation in Maine,
which was adopted on May 13, 1999.
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The settlement also provides for recovery of all unamortized investment
(including fuel) in the Plant, together with a return on equity of 6.50
percent, effective January 15, 1998, on equity balances up to maximum
allowed equity amounts, which resulted in a pro-rata refund of $9.3
million (including tax impacts) to the sponsors on July 15, 1999. The
Settling Parties also agreed in the settlement not to contest the
effectiveness of the Amendatory Agreements submitted to FERC as part of
the original filing, subject to certain limitations including the right
to challenge any accelerated recovery of unamortized investment under
the terms of the Amendatory Agreements after a required informational
filing with the FERC by Maine Yankee. In addition, the settlement
contains incentives for Maine Yankee to achieve further savings in its
decommissioning and ISFI-related costs and resolves issues concerning
restoration and future use of the Plant site and environmental matters
of concern to certain of the intervenors in the proceeding.
As a separate part of the settlement, the Company, Central Maine Power
Company, and Bangor Hydro-Electric Company (the other two Maine owners
of Maine Yankee), the MPUC Staff, and the OPA entered into a further
agreement resolving retail rate issues and other issues specific to the
Maine parties, including those that had been raised concerning the
prudence of the operation and shutdown of the Plant (the "Maine
Agreement"). Under the Maine Agreement, the Company would continue to
recover its Maine Yankee costs in accordance with its most recent Rate
Stabilization Plan ("RSP") order from the MPUC without any adjustment
reflecting the outcome of the FERC proceeding. To the extent that the
Company has collected from its retail customers a return on equity in
excess of the 6.50 percent contemplated by the settlement, no refunds
would be required, but such excess amounts would be credited to the
customers to the extent required by the RSP.
Finally, a major provision of the Maine Agreement requires the Maine
owners, for the period from March 1, 2000 through December 1, 2004, to
hold their Maine retail ratepayers harmless from the amounts by which
the replacement power costs for Maine Yankee exceed the replacement
power costs assumed in the report to the Maine Yankee Board of Directors
that served as a basis for the Plant shutdown decision, up to a maximum
cumulative amount of $41 million. The Company's share of that maximum
amount would be $4.1 million for the period. The Maine Agreement, which
was approved by the MPUC on December 22, 1998, also sets forth the
methodology for calculating such replacement power costs.
With the closing of Maine Yankee, a provision of the Company's rate plan
allowing the deferral of 50% of the Maine Yankee replacement power costs
went into effect on June 6, 1997. Beginning in May, 1998, Maine Yankee
replacement power costs have been offset by net savings from the restruct-
ured Purchase Power Agreement with Wheelabrator-Sherman, in accordance with
the rate plan stipulation. Beginning in April, 1999 the Company began
amortizing an additional $150,000 per month as part of the stipulation
described in Note 3, "IMPLEMENTATION OF MULTI-YEAR RATE PLAN", of this Form
10-Q. This treatment resulted in a $406,000 net decrease of the deferral
during the second quarter of 1999. As of June 30, 1999, the Company has a
deferred Maine Yankee replacement power cost balance of approximately $3.4
million, subject to recovery in accordance with the rate plan.
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On September 1, 1997, Maine Yankee estimated the sum of the future
payments for the closing, decommissioning and recovery of the remaining
investment in Maine Yankee to be approximately $930 million, of which
the Company's 5% share would be approximately $46.5 million. In
December, 1998 and again in June, 1999, Maine Yankee updated its
estimate of decommissioning costs based on the Settlement, as discussed
above. Legislation enacted in Maine in 1997 calls for restructuring the
electric utility industry and provides for recovery of decommissioning
costs, to the extent allowed by federal regulation, through the rates
charged by the transmission and distribution companies. Based on the
Maine legislation and regulatory precedent established by the FERC in
its opinion relating to the decommissioning of the Yankee Atomic nuclear
plant, the Company believes that it is entitled to recover substantially
all of its share of such costs from its customers and, as of June 30,
1999, is carrying on its consolidated balance sheet a regulatory asset
and a corresponding liability in the amount of $33.9 million, which is
the September, 1997 cost estimate of $46.5 million discussed above
reduced by the Company's post-September 1, 1997 cost-of-service payments
to Maine Yankee and reflects the cost adjustments agreed to in the
Settlement.
6. RESTRUCTURING OF MAINE'S ELECTRIC UTILITY INDUSTRY
On May 29, 1997, legislation titled "An Act to Restructure the
State's 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.
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.
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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 (so-called
"Stranded Costs").
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 the end of 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.
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 provided by Emerging
Issues Task Force 97-4 "Deregulation of the Pricing of Electricity".
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.
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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.
In accordance with EITF 97-4, 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 generation segment of its business. As a result, the
Company continues to defer certain costs as regulatory assets in instances
where recovery through future regulatory cash flows is anticipated.
In an August 11, 1999 filing with the MPUC, the Company amended its
February 9, 1999 determination of stranded costs, transmission and
distribution costs and rate design with the MPUC. After application of
available value from the generating asset sale, the Company estimates
stranded costs of $76.5 million. The major components include the
remaining investment in Seabrook, the above market costs of the amended
power purchase agreement and recovery of fuel expense deferrals related to
Wheelabrator-Sherman, the obligation for remaining operating expenses and
recovery of the Company's remaining investment in Maine Yankee, and the
recovery of several other regulatory assets.
7. GENERATING ASSET DIVESTITURE
On July 7, 1998, the Company and WPS Power Development, Inc. (WPS-PDI)
signed a purchase and sale agreement for the Company's electric generating
assets. WPS-PDI agreed to purchase 91.8 megawatts of generating capacity
for $37.4 million, which is 3.2 times higher than the net book value of the
assets. This sale of assets is required by the State's electric industry
restructuring law and required the approvals of the MPUC and the FERC.
On June 8, 1999, after receiving all of the major regulatory approvals, the
Company completed the sale to WPS-PDI for $37.4 million. The Company's 5%
ownership in Maine Yankee was not part of the sale, since the plant is
being decommissioned. After paying $13.8 million (U.S.) in Canadian,
Federal and State income taxes, the remaining proceeds will be used to
reduce the Company's debt. The gain from the sale is currently deferred,
pending the Maine Public Utilities Commission's (MPUC) decision on the
Company's determination of stranded costs, transmission and distribution
costs and rate design. The components of the deferred gain, prior to
liquidation of the Company's subsidiary, are as follows:
(Dollars in Millions)
Gross proceeds $37.5
Settlement adjustments (.1)
Net proceeds 37.4
Net book value (11.0)
Taxes (10.0)
Transition costs, net (2.2)
Deferred gain, net of tax $14.2
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Upon formal liquidation of the subsidiary, approximately $14.1 million
of the proceeds will be transferred to the first mortgage trustee for
paydown of long-term debt.
As part of the generating asset sale on June 8, 1999, the Company has
entered into two indemnity obligations with the purchaser, WPS-PDI.
First, the Company will be liable, with certain limitations, for
certain Aroostook River flowage damage. This liability will continue
for ten years after the sale and shall not exceed $2,000,000 in the
aggregate. Second, the Company has warranteed the condition of the sites
sold to WPS-PDI, with an aggregate limit of $3,000,000 for two years after
the date of sale, and five years after the sale for environmental claims.
The Company is unaware of any pending claims under either of these
indemnity obligations.
8. OPEN ACCESS TRANSMISSION TARIFF
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.
On December 22, 1998, the FERC issued its order in this proceeding.
Although many of the major issues were not decided in the Company's favor,
the order did not have an adverse impact on the Company's financial
condition. Based on the FERC order, the Company refunded approximately
$1.2 million to the customers on May 20, 1999, which had already been
reflected as a liability.
9. ACCOUNTING PRONOUNCEMENTS
In June, 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities". It requires companies to record
derivatives on their balance sheet at their fair value depending on the
intended use of the derivative. The new standard applies to all entities
and the original effective date was June 15, 1999. On May 19,1999, the
FASB determined that the implementation of the statement should be delayed
for one year. Based on current business activities, the Company does not
expect this pronouncement to have a material impact to the Company's
financial reporting.
-14-
Form 10-Q
PART 1. FINANCIAL INFORMATION
Item 2. Management's Analysis of Quarterly Income Statements
Forward-Looking Statements
The discussion below 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 decommissioning cost
of Maine Yankee.
Results of Operations
Earnings per share and the net income available for common stock for
the three months ended June 30, 1999 along with the corresponding
information for the previous year are as follows:
Three Months Ended
June 30,
1999 1998
Earnings per share $ .44 $ .01
Net income in thousands $ 712 $ 22
For the second quarter of 1999 compared to the same quarter last
year, the increase in consolidated earnings per share (EPS) of $.43 is
attributable to the following:
-15-
Form 10-Q
PART 1. FINANCIAL INFORMATION
Item 2. Management's Analysis of Quarterly Income Statements
Results of Operations (Continued)
Change in EPS - Second Quarter of 1999
Compared to Second Quarter of 1998
EPS
Increase
Increase in retail revenues due to rate
stipulations and a 1.8% sales increase .26
Other fuel expense .08
Decreased wheeling expenses due to termination
of contract .04
Net decrease in operating expenses resulting
from the closure of Maine Yankee .03
Other .02
Total $ .43
Retail revenues increased due to rate stipulations and a 1.8%
increase in retail sales, resulting in a $.26 increase in earnings
per share. The decrease in other fuel expenses reflects a decrease
in purchases from the independent power producer, Wheelabrator-
Sherman (W/S), favorable prices, offset by lower than normal hydro
resulting in an increased in earnings of $.08 per share. Under
contract, the Company's purchases from W/S are limited to a specific
amount over a twelve-month period. Once this limit is obtained, the
Company does not purchase any additional output from the facility.
Therefore, timing of W/S production can affect earnings comparisons
from quarter to quarter. A decrease in wheeling expenses due to the
termination of the transmission agreement increased earnings by $.04
per share. The reduction of Maine Yankee operating and replacement
power expenses resulted in a net increase in earnings of $.03 per
share.
-16-
Form 10-Q
PART 1. FINANCIAL INFORMATION
Item 2. Management's Analysis of Quarterly Income Statements
Results of Operations (Continued)
Consolidated operating revenues for the quarters ended
June 30, 1999 and 1998, are as follows:
1999 1998
(Dollars in Thousands) $ MWH $ MWH
Retail 11,893 121,376 11,589 119,180
Sales for Resale 394 10,902 436 11,941
Total Primary Sales 12,287 132,278 12,025 131,121
Secondary Sales 3,600 134,656 965 32,859
Other Revenues/Rev. Adjust. 536 - 253 -
Total Operating Revenues 16,423 266,934 13,243 163,980
Primary sales in the second quarter of 1999 were 132,278 MWH, an
increase of 1,157 MWH (.9%) from sales in the second quarter of 1998.
Secondary sales increased by 101,797 MWH, reflecting the return of
Houlton Water Company in February, 1999 as a customer of the Company's
wholly-owned unregulated marketing subsidiary, Energy Atlantic (EA).
Retail sales to customers for the second quarter of 1999 were
$11,893,000 compared to $11,589,000 for the same period of 1998,
reflecting the 1.8% increase in retail sales noted above. The
$2,635,000 increase in secondary sales to $3,600,000 for the second
quarter of 1999 is a result of the increase in sales noted above.
-17-
Form 10-Q
PART 1. FINANCIAL INFORMATION
Item 2. Management's Analysis of Quarterly Income Statements
Results of Operations (Continued)
For the quarters ended June 30, 1999 and 1998, total operating
expenses were $14,789,000 and $12,352,000, respectively. The
changes in operating expenses and energy sources are as follows:
Increase/(Decrease)
(Dollars in Thousands) $ MWH
Purchased Power Expenses
Maine Yankee (516) -
Wheelabrator-Sherman (487) (4,799)
NB Power 1,004 35,295
Northeast Empire 37 1,079
Other Purchases 1,443 74,260
Deferred Fuel - amortization 434 -
1,915 105,835
Generating Expenses 49 1,989
Other Operation & Maint. Expenses 262
Depreciation (28)
Amortization (25)
Income Taxes 241
Taxes Other than Income 23
Total 2,437 107,824
Purchases from NB Power increased 35,295 MWH and other purchases
increased by 74,260 MWH because of the increase in power marketing
activities classified as secondary sales. Purchases from Northeast
Empire increased by 1,079 MWH. Since February, 1998 and continuing
until March 1, 2000, Northeast Empire has provided Maine Yankee
replacement power. The total increase of 107,824 MWH reflects the
additional retail and secondary sales. The Company's share of Maine
Yankee capacity expenses decreased by $516,000 as previously discussed.
Wheelabrator-Sherman purchased power expenses decreased by $487,000,
due to the reduced price under the amended Power Purchase Agreement
(PPA). Deferred fuel expense increased $434,000 as a result of the
additional $150,000 per month amortization of Maine Yankee replacement
power beginning in April, 1999, as discussed further in Note 5 of the
Notes to Consolidated Financial Statements, "Maine Yankee".
Hydro production was 71.6% and 80.5% of normal in the second quarters
of 1999 and 1998, respectively, reflecting a decrease of 5,494 MWH.
Generating expenses increased by $49,000 because of increased operation
at Wyman No. 4. Other operation and maintenance expenses increased by
$262,000 because of increased medical and regulatory expenses.
-18-
Form 10-Q
PART 1. FINANCIAL INFORMATION
Item 2. Management's Analysis of Quarterly Income Statements
Results of Operations (Continued)
Asset Sale
On June 8, 1999, after receiving all of the major regulatory approvals,
the Company completed the sale of the generating assets to WPS-PDI for
$37.4 million. The Company's 5% ownership in Maine Yankee was not part
of the sale, since the plant is being decommissioned. After paying
$13.8 million (U.S.) in Canadian, Federal and State income taxes, the
remaining proceeds will be used to reduce the Company's debt. The gain
from the sale is currently deferred, pending the MPUC's decision on the
Company's determination of stranded costs, transmission and
distribution costs and rate design. The components of the deferred
gain, prior to liquidation of the Company's subsidiary, are as follows:
(Dollars in Millions)
Gross proceeds $ 37.5
Settlement adjustments (.1)
Net proceeds 37.4
Net book value (11.0)
Taxes (10.0)
Transition costs, net (2.2)
Deferred gain, net of tax $ 14.2
Upon formal liquidation of the subsidiary, approximately $14.1
million of the proceeds will be transferred to the first mortgage
trustee for paydown of long-term debt.
As part of the generating asset sale on June 8, 1999, the Company has
entered into two indemnity obligations with the purchaser, WPS-PDI.
First, the Company will be liable, with certain limitations, for
certain Aroostook River flowage damage. This liability will
continue for ten years after the sale and shall not exceed $2,000,000
in the aggregate. Second, the Company has warranteed the condition of
the sites sold to WPS-PDI, with an aggregate limit of $3,000,000 for
two years after the date of sale, and five years after the sale for
environmental claims. The Company is unaware of any pending claims
under either of these indemnity obligations.
Liquidity
Net cash flows from operating activities were $2,776,000 for the first
six months of 1999. The Company received $37,547,000, adjusted for
closing items, from the sale of its generating assets, with $7,938,000
required to be deposited with the first mortgage trustee. The Company
drew down $428,000 from the trustee of the tax-exempt revenue bond
proceeds based on qualifying property. For the period, the Company
invested $1,748,000 in electric plant, paid $809,000 in dividends and
used $25,000 to reduce long-term debt. Short-term borrowings decreased
by $2,100,000 because of the cash flows from operations.
-19-
Form 10-Q
PART 1. FINANCIAL INFORMATION
Item 2. Management's Analysis of Quarterly Income Statements
Net cash flows from operating activities were negative $4,191,000
for the first six months of 1998, reflecting the $8,706,000 up-front
payment to W-S for the amended PPA. The Company received
$11,540,000 from the issuance of FAME's Taxable Electric Rate
Stabilization Revenue Notes. The proceeds were used for the W-S
payment discussed above, a $2,378,000 deposit to a Capital Reserve
Fund and bond issuance costs of $529,000. For 1998, the receipt of
$2,052,000 of tax refunds associated with the 1997 net operating
loss carryback improved operating cash flows. The Company drew down
$593,000 of tax-exempt revenue bond proceeds from the trustee. For
the period, $1,387,000 was invested in electric plant, $1,213,000
was paid in dividends and $2,905,000 was used to reduce long-term
debt including the May 1, 1998 final sinking fund payment of
$2,880,000 on the 7-1/8% First Mortgage and Collateral Trust Bonds.
Short-term borrowings increased by $400,000 for the additional Maine
Yankee replacement power costs.
Year 2000 Issues
The Year 2000 issue is the result of computer programs being written
using two digits rather than four to define the applicable year.
Computer programs that have date-sensitive software using two digits
would recognize a date using "00" as the year 1900 rather than the year
2000, resulting in system failure or miscalculations. The Company
conducted an assessment of its computer systems, including embedded
chip technology, to determine the potential technical and economic
impact which the Year 2000 issues might have on the Company, its
systems and its business operations. The Company is currently
rewriting the computer application systems responsible for billing to
meet the electric industry restructuring requirements and is
incorporating changes that achieve Year 2000 compliance. If these new
systems are not functional by December 31, 1999, the current systems
will continue to be used with a minor alteration to achieve Year 2000
compliance. The Company also reviewed its other mission critical
systems in order to identify Year 2000 remediation or renovation
measures needed for those systems. No material modifications are
necessary to mission critical systems to attain Year 2000 compliance.
The compliance plans and implementation and testing milestones are
based on the Company's best estimates, which were derived from numerous
assumptions of future events, including the continued availability of
certain resources, third party modification plans and other known
factors. In addition to the review of internal systems, the Company is
requesting assurances of Year 2000 compliance from third parties upon
whom the Company relies. The responses are being reviewed and concerns
of noncompliance are being addressed. As of June 30, 1999, the Company
has incurred approximately $32,000 of internal labor for review and
testing which has not revealed material system modifications necessary
to obtain Year 2000 compliance for mission critical systems, other
-20-
Form 10-Q
PART 1. FINANCIAL INFORMATION
Item 2. Management's Analysis of Quarterly Income Statements
than the changes necessary for electric industry restructuring
discussed above. However, $50,000 has been budgeted in 1999 for
external expenditures for unforeseen modifications to achieve Year
2000 compliance for mission critical technology. The assessment
phase of the Year 2000 compliance project is essentially complete
and the Company is identifying risks and most reasonable likely
worse case scenarios specific to the Year 2000 non-compliance by
the Company and third-party sources. For example, for every day of
a Company-wide shutdown, the Company would lose approximately $187,000
in revenues. The Company has developed contingency plans for these
risks for the mission critical systems, which anticipate that the most
reasonable likely worst case scenario would be a system-wide outage for
approximately six hours. The Company has worked with generating
companies and neighboring electric utilities to establish procedures
for providing sufficient capacity and an orderly return to a fully
energized system. Although all reasonable and available efforts will
be made, the Company cannot predict the ultimate achievement of Year
2000 compliance due to its reliance on systems and third-parties
outside the Company's control.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
(a) The Company has interest rate risk with two variable rate debt
issues of the regulated business for purposes other than trading.
These issues are discussed in detail in the Company's 1998 Annual
Report, which is Exhibit 13 of the Company's 1998 Form 10-K, which
information is incorporated herein by reference. The discussion
occurs in Note 8, "Long-Term Debt", of the Notes to Consolidated
Financial Statements.
(b) The Company's unregulated marketing subsidiary, Energy Atlantic, LLC
(EA) is engaged in wholesale energy transactions for purposes other
than trading. This activity exposes EA to a number of risks such as
deliverability, market liquidity and credit risk. EA seeks to
assure that risks are identified, evaluated and actively managed.
-21-
Form 10-Q
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
(a) Restructuring of Maine's Electric Utility Industry
In the Company's Form 10-K's for December 31, 1996, 1997 and
1998 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. See item (b) below
regarding the divestiture of the Company's generating assets.
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.
-22-
Form 10-Q
PART II. OTHER INFORMATION
Item 1. Legal Proceedings - continued
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 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 the end of 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. In an August, 1999
MPUC filing, as detailed further in item (d), below, the Company
estimated its stranded costs to be approximately $76.5 million,
net of available value from the sale of the generating assets
when deregulation occurs on March 1, 2000.
The MPUC shall include in the rates to be 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 revaluate the stranded cost recovery.
-23-
Form 10-Q
PART II. OTHER INFORMATION
Item 1. Legal Proceedings - continued
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 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
-24-
Form 10-Q
PART II. OTHER INFORMATION
Item 1. Legal Proceedings - continued
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.
(b) Maine Public Service Company, Request for Approval of Sale of
Generating Assets, Docket No. 98-584
Reference is made to the Company's Form 8-K for July 7, 1998 and Form
10-Q for the quarter ended June 30, 1998, in which the Company
reported that it had agreed to sell all of its generating assets to
WPS Power Development, Inc. (WPS-PDI) for $37.4 million.
Further reference is made to the Company's Form 10-Q for the quarter
ended March 31, 1999 in which the Company described the process
through which it obtained all necessary State and Federal approvals.
The Company consummated the sale to WPS-PDI on June 8, 1999, as
reported in its Form 8-K dated June 9, 1999. On June 8, 1999,
after receiving all of the major regulatory approvals, the Company
completed the sale to WPS-PDI for $37.4 million. The Company's
5% ownership in Maine Yankee was not part of the sale, since the
plant is being decommissioned. After paying $13.8 million (U.S.)
in Canadian, Federal and State income taxes, the remaining proceeds
will be used to reduce the Company's debt. The gain from the sale is
currently deferred, pending the MPUC's decision on the Company's
determination of stranded costs, transmission and distribution costs
and rate design. The components of the deferred gain, prior to the
liquidation of the Company's subsidiary, are as follows:
(Dollars in Millions)
Gross proceeds $ 37.5
Settlement adjustments (.1)
Net proceeds 37.4
Net book value (11.0)
Taxes (10.0)
Transition costs, net (2.2)
Deferred gain, net of tax $ 14.2
Upon formal liquidation of the subsidiary, approximately $14.1
million of the proceeds will be transferred to the first mortgage
-25-
Form 10-Q
PART II. OTHER INFORMATION
Item 1. Legal Proceedings - continued
trustee for paydown of long-term debt.
As part of the generating asset sale on June 8, 1999, the Company has
entered into two indemnity obligations with the purchaser, WPS-PDI.
First, the Company will be liable, with certain limitations, for
certain Aroostook River flowage damage. This liability will continue
for ten years after the sale and shall not exceed $2,000,000 in the
aggregate. Second, the Company has warranteed the condition of the
sites sold to WPS-PDI, with an aggregate limit of $3,000,000 for two
years after the date of sale, and five years after the sale for
environmental claims. The Company is unaware of any pending claims
under either of these indemnity obligations.
(c) Maine Public Utilities Commission, Inquiry Into Bulk Power System
Administration and Settlement System in Northern Maine, MPUC Docket
No. 98-929
On December 1, 1998, the MPUC issued its Notice of Inquiry into the
structure and operation of a bulk power system administrator and
retail settlement system for northern Maine. This Inquiry was
assigned MPUC Docket No. 98-529. The MPUC based the need for this
proceeding on the fact that northern Maine is not electrically
connected to the New England grid and therefore systems in place in
the rest of New England that are necessary to support a marketable
competitive environment do not yet exist in northern Maine.
The MPUC Notice acknowledges that the four northern Maine utilities
- the Company, the Houlton Water Company, the Eastern Maine Electric
Cooperative, Inc. and the Van Buren Light and Power District - have
formed a working group for the express purpose of developing these
systems. The northern Maine utilities developed and filed a proposal
for these systems on April 30, 1999. The proposal consisted of an
Independent System Administrator for northern Maine, which must be
approved by the FERC. The working group, together with various
market participants, is in the process of filing this matter with the
FERC. The Company cannot predict the success of any final outcome.
(d) Maine Public Service Company Investigation of Stranded Costs,
Transmission and Distribution Utility Revenue Requirements and Rate
Design, Docket No. 98-577
On October 14, 1998, and subsequently amended on February 9, 1999 and
August 11, 1999, the Company filed its determination of stranded
costs, transmission and distribution costs and rate design with the
MPUC. The Company's amended testimony supports its $76.5 million
estimate of stranded costs, net of available value from the sale of
the generating assets, when deregulation occurs on March 1, 2000.
The major components include the
-26-
Form 10-Q
PART II. OTHER INFORMATION
Item 1. Legal Proceedings - continued
remaining investment in Seabrook, the above market costs of the
amended power purchase agreement and recovery of fuel expense
deferrals related to Wheelabrator-Sherman, the obligation for
remaining operating expenses and recovery of the Company's
remaining investment in Maine Yankee, and the recovery of
several other regulatory assets. The Company's proposed annual
revenue requirements supported in the August 11, 1999 filing
would be approximately $29.6 million: $16.8 million for
transmission and distribution and $12.8 million for
stranded investment.
(e) Maine Public Utilities Commission Approves Rate Plan
Stipulation, MPUC Docket No. 98-865
Reference is made to the Company's Form 10-K for December
31, 1996 where the Company's rate stabilization plan
approved by the Maine Public Utilities Commission (MPUC)
(Docket No. 95-052) in November, 1995 is described. In
addition, the Company's Form 10-K for December 31, 1998,
describes a January, 1998 Stipulation approved by the
MPUC in Docket No.97-830, which established the rate increase
beginning February 1, 1998 and the minimum rate increase
effective February 1, 1999. The Stipulation also prescribes that the
savings from the restructured Wheelabrator-Sherman (W-S) Power
Contract would offset Maine Yankee replacement power costs. For the
final year of the rate plan beginning February 1, 1999, the
Company filed on November 13, 1998, with the MPUC for a 6.4%
increase. The Company also stated that it would forego
part or all of this 1999 increase if the sale of its
generating assets was allowed to go forward. On December
15, 1998, the MPUC granted the Company's request to defer
the increase to April 1, 1999, as well as extend the rate
plan by one month to February 29, 2000, to coincide with
the start of retail competition in Maine.
In its April 6, 1999 Order, the MPUC approved a March 25,
1999 Stipulation between the Office of the Public
Advocate (OPA) and the Company. Under this Stipulation,
customer rates will not increase on April 1, 1999, if the
MPUC approved the sale of the Company's generation assets
as described in Item 5(c) above. The approval of the
Stipulation also resolved certain issues associated with
the treatment of capacity cost savings from the closure
of Maine Yankee under the Company's rate stabilization plan.
-27-
Form 10-Q
PART II. OTHER INFORMATION
Item 1. Legal Proceedings - continued
The principal provisions are as follows:
1) The Company is entitled to a 3.66% specified rate
increase as of April 1, 1999. Rather than increase
customer rates, the Company will recognize the revenues
that this increase would have generated and,
correspondingly, record a deferred asset on the Company's
books of account. The parties to the stipulation also
agreed to recommend the use in rates of available value
from the asset sale corresponding with the specified rate
increase once the MPUC determines the Company's allowed
stranded cost recovery in Docket No. 98-577, Public
Utilities Commission, Investigation of Stranded Costs,
Transmission and Distribution Utility, Revenue
Requirements and Rate Design of Maine Public Service
Company.
2) The Stipulation also resolves a dispute over the
determination of Maine Yankee replacement power costs.
The Stipulation allows the Company to continue to
recognize and defer Maine Yankee replacement power costs
on an energy-only basis, offset by Wheelabrator-Sherman
contract restructuring savings, through the end of the
rate plan. The Company agreed to begin amortizing on
April 1, 1999, Maine Yankee replacement power costs in
the amount of $150,000 per month or a total of $1,650,000
for the remaining eleven months of the rate plan.
3) With the Commission's approval of the generation
asset sale, the parties agreed that the Company would not
increase retail rates on April 1, 1999, to reflect any
increase under the Maine Yankee replacement power
provisions of the rate plan. Any Maine Yankee deferred
replacement costs will be deferred, and, beginning on
March 1, 2000, will be offset by a corresponding amount
of available value as allowed in Docket No. 98-577.
-28-
Form 10-Q
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
At the Company's 1999 Annual Meeting of Stockholders, held on May
11, 1999, the only matter voted upon was the uncontested election
of the following directors to serve until the 2002 Annual Meeting
of Stockholders, each of whom received the votes shown:
Non-votes and
Nominee For Against Abstentions
D. James Daigle 1,322,208 18,886 276,156
Deborah L. Gallant 1,322,741 18,353 276,156
G. Melvin Hovey 1,320,288 20,806 276,156
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: June 9, 1999, under Item 5, Other
Events.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MAINE PUBLIC SERVICE COMPANY
(Registrant)
Date: August 13, 1999 By: /s/ Larry E. LaPlante
Larry E. LaPlante
Vice President, Treasurer and
Chief Financial Officer
-29-
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