SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
Quarterly Report Under Section 13 or 15(d) of
The Securities Exchange Act of 1934
For Quarter Ended September 30, 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 nine months ended September 30, 1999, and for the
corresponding period of the preceding year; a consolidated
balance sheet as of September 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 September 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 September 30, 1999 and
December 31, 1998, and the results of their operations for the
three and nine months ended September 30, 1999 and their cash
flows for the nine months ended September 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 Nine Months Ended
September 30, September 30,
1999 1998 1999 1998
Operating Revenues $15,391 $12,832 $49,283 $41,672
Operating Expenses
Purchased Power 10,856 7,444 29,258 22,558
Other Operation and Maintenance 2,894 3,206 9,745 10,226
Depreciation 546 659 1,777 1,976
Amortization 359 402 1,120 1,205
Taxes Other Than Income 329 368 1,179 1,182
Provision (Benefit) for Income Taxes (116) (20) 1,558 1,003
Total Operating Expenses 14,868 12,059 44,637 38,150
Operating Income 523 773 4,646 3,522
Other Income (Deductions)
Equity in Income of Associated Companies 65 132 430 385
Allowance for Equity Funds Used During
Construction 14 10 36 25
Provision for Income Taxes (39) (4) (186) (47)
MY Replacement Power Carrying Charges 62 61 197 185
Other - Net 270 (31) 200 (43)
Total 372 168 677 505
Income Before Interest Charges 895 941 5,323 4,027
Interest Charges
Long-Term Debt and Notes Payable 1,214 1,098 3,185 3,064
Less Allowance for Borrowed Funds
Used During Construction (9) (6) (23) (14)
Total 1,205 1,092 3,162 3,050
Net Income (Loss) Available for
Common Stock ($310) ($151) $2,161 $977
Average Shares Outstanding (000's) 1,617 1,617 1,617 1,617
Basic Earnings Per Share of Common Stock ($0.19) ($0.09) $1.34 $0.60
Dividends Declared per Common Share $0.30 $0.25 $0.80 $0.75
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)
Sept. 30, 1999 December 31,
ASSETS (Unaudited) 1998
Utility Plant
Electric Plant in Service $71,251 $101,211
Less Accumulated Depreciation 34,183 51,585
Net Electric Plant in Service 37,068 49,626
Construction Work-in-Progress 3,680 1,014
Total 40,748 50,640
Investment in Associated Companies
Maine Yankee Atomic Power Company 3,824 3,979
Maine Electric Power Company, Inc. 477 241
Total 4,301 4,220
Net Utility Plant and Investments 45,049 54,860
Current Assets
Cash and Cash Equivalents 23,671 1,454
Deposits for Interest and Dividends 561 477
Deposits with Trustee-Asset Sale 8,024 0
Accounts Receivable - Net 6,378 5,856
Unbilled Base Revenue 1,224 1,892
Deferred Fuel and Purchased Energy 1,437 687
Current Deferred Income Taxes 0 31
Inventory 649 1,037
Prepayments 1,449 521
Total 43,393 11,955
Other Assets
Restricted Investment 2,393 2,817
Uncollected Maine Yankee Decommissioning Costs 32,949 36,037
Recoverable Seabrook Costs 23,807 24,875
Regulatory Asset - SFAS 109 & 106 11,062 11,886
Deferred Fuel and Purchased Energy 9,597 9,618
Regulatory Asset-Power Purchase Agmt Restruct. 8,706 8,706
Other 3,305 3,541
Total 91,819 97,480
Total Assets $180,261 $164,295
CAPITALIZATION AND LIABILITIES
Capitalization
Common Shareholders' Equity
Common Stock $13,071 $13,071
Paid-in Capital 38 38
Retained Earnings 28,406 27,539
Treasury Stock, at cost (5,714) (5,714)
Total 35,801 34,934
Long-Term Debt (less current maturities) 44,640 45,915
Current Liabilities
Long-Term Debt Due Within One Year 1,275 1,275
Notes Payable 5,500 8,100
Accounts Payable 5,488 4,671
Current Deferred Income Taxes 375 0
Dividends Declared 485 404
Customer Deposits 17 24
Interest and Taxes Accrued 8,762 1,029
Total 21,902 15,503
Deferred Credits
Uncollected Maine Yankee Decommissioning Costs 32,949 36,037
Deferred Income Tax 21,833 25,812
Investment Tax Credits 297 578
Deferred Revenues 0 1,170
Deferred Gain & Related Accts-Gen. Asset Sale 17,792 0
Miscellaneous 5,047 4,346
Total 77,918 67,943
Total Capitalization and Liabilities $180,261 $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)
Nine Months Ended
September 30,
1999 1998
Cash Flow From Operating Activities
Net Income $2,161 $977
Adjustments to Reconcile Net Income to Net Cash
Provided (Used) by Operations
Depreciation 1,777 1,976
Amortization 1,030 1,233
Income on Tax Exempt Bonds-Restricted Funds (13) (78)
Deferred Income Taxes - Net 1,426 863
AFUDC (58) (39)
Accrued Interest on Gen. Asset Sale Deferred Gain 315 0
Change in Deferred Fuel & Purchased Energy (378) (1,984)
Change in Deferred Regulatory & Debt Issuance Costs 372 410
Change in Deferred Reg. Asset-Power Purchase Restruct. 0 (8,706)
Change in Deferred Revenues (1,170) 200
Change in Benefit Obligation 476 640
Change in Current Assets and Liabilities (1,011) 673
Other (1,038) (592)
Net Cash Flow Provided (Used) By Operating Activities 3,889 (4,427)
Cash Flow From Financing Activities
Dividend Payments (1,294) (1,617)
FAME Financing Costs (5) (534)
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 1,038
Retirements on Long-Term Debt (1,275) (4,155)
Short-Term Borrowings (Repayments), Net (2,600) 2,800
Net Cash Flow Provided (Used) In Financing Activities (12,684) 6,694
Cash Flow From Investing Activities
Proceeds from Sale of Generating Assets 37,547 0
Tax Payments Related to Sale of Generating Assets (3,542) 0
Investment in Electric Plant (2,993) (2,673)
Net Cash Provided (Used) For Investment Activities 31,012 (2,673)
Increase (Decrease) in Cash and Cash Equivalents 22,217 (406)
Cash and Cash Equivalents at Beginning of Year 1,454 2,071
Cash and Cash Equivalents at End of Period $23,671 $1,665
Change in Current Assets and Liabilities Providing (Utilizing)
Cash From Operating Activities
Accounts Receivable ($572) $1,582
Unbilled Revenue 668 321
Deferred Maine Yankee Replacement Power Costs (750) 26
Inventory (40) 20
Prepayments (824) 1,364
Accounts Payable & Accrued Expenses 514 (2,624)
Other Current Liabilities (7) (16)
Total Change ($1,011) $673
Supplemental Disclosure of Cash Flow Information:
Cash Paid During the Period For:
Interest $3,659 $3,331
Income Taxes $4,553 ($1,387)
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 subsidiary 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 9/30/99 Nine Months Ended 9/30/99
(Dollars in Thousands)
Total Total
EA MPS Company EA MPS Company
Operating Revenues $ 2,023 $ 13,368 $ 15,391 $ 6,347 $42,936 $49,283
Operations & Maintenance
Expense 2,252 12,732 14,984 6,591 36,488 43,079
Taxes (92) (24) (116) (99) 1,657 1,558
Total Operating Expenses 2,160 12,708 14,868 6,492 38,145 44,637
Operating Income (Loss) (137) 659 523 (145) 4,791 4,646
Other Income & Deductions 1 371 372 3 674 677
Income (Loss) Before
Interest Charges (136) 1,031 895 (142) 5,465 5,323
Interest Charges 6 1,199 1,205 12 3,150 3,162
Net Income (Loss) $ (142) $ (168)$ (310) $ (154)$ 2,315 $ 2,161
Total Assets as of
September 30, 1999 $ 1,801 $178,460 $180,261
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 $811,000
through September 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.
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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.
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 Nine Months Ended
September 30, September 30,
1999 1998 1999 1998
Current income taxes $ (680) $ (337) $ 4,066 $ 187
Deferred income tax 612 339 (2,282) 916
Investment credits (9) (18) (40) (53)
Total income taxes $ (77) $ (16) $ 1,744 $ 1,050
Allocated to:
Operating Income $ (116) $ (20) $ 1,558 $ 1,003
Other income 39 4 186 47
Total $ (77) $ (16) $ 1,744 $ 1,050
For the nine months ended September 30, 1999 and 1998, the effective
income tax rates were 44.7% and 51.8%, 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 on the gain on the sale
of the generating assets of the Canadian subsidiary will be due and expensed
when the subsidiary is liquidated and the deferred gain is recognized as
income.
-8-
The following summarizes accumulated deferred income taxes
established on temporary differences under SFAS 109 as of September
30, 1999 and December 31, 1998.
(Dollars in Thousands)
September 30, December 31,
1999 1998
Seabrook $13,528 $13,706
Property 6,225 8,532
Regulatory expenses 2,380 2,002
Deferred fuel 1,585 2,056
Pension and postretirement
benefits (962) (952)
Generating asset sale (2,558) -
W-S up-front payment 1,792 -
Other ( 157) 468
Net accumulated deferred income taxes $21,833 $25,812
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).
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After 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 $25.6 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. Spent fuel trust funds for
ISFSI costs can be replenished through billings to the sponsors once
conditions specified in the settlement are met. Any future assessments
related to the Texas compact would be recoverable, over time, under the
settlement.
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. 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").
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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
restructured 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 $199,000 net decrease of
the deferral during the third quarter of 1999. As of September 30, 1999,
the Company has a deferred Maine Yankee replacement power cost balance of
approximately $3.2 million, subject to recovery in accordance with the rate
plan.
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.
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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
September 30, 1999, is carrying on its consolidated balance sheet a
regulatory asset and a corresponding liability in the amount of $32.9
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 June, 1999 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.
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.
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").
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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.
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.
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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 adjustment (.1)
Net proceeds 37.4
Net book value (11.3)
Taxes (7.4)
Transition costs, net (1.2)
Other .3
Deferred gain, net of tax $17.8
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. In addition, the $8.0 million classified as Deposits
with Trustee - Asset Sale are proceeds from the parent's generating assets,
and is also restricted to the pay down of long-term debt.
-14-
With the sale of the Company's generating assets in June, 1999, the Company
now purchases energy from the new owners, PDI, under an agreement that
expires February 29, 2000, and these purchases are classified as purchased
energy.
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 for all fiscal quarters for fiscal
years beginning after 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.
-15-
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 September 30, 1999 along with the
corresponding information for the previous year are as follows:
Three Months Ended
September 30,
1999 1998
Earnings per share $(.19) $(.09)
Net income (loss) in thousands $(310) $(151)
For the third quarter of 1999 compared to the same quarter last
year, the decrease in consolidated earnings per share (EPS) of $.10
is attributable to the following:
-16-
Form 10-Q
PART 1. FINANCIAL INFORMATION
Item 2. Management's Analysis of Quarterly Income Statements
Results of Operations (Continued)
Change in EPS - Third Quarter of 1999
Compared to Third Quarter of 1998
EPS
Increase (Decrease)
Increase in retail revenues due to rate
stipulations and a 2.4% sales increase .25
Net decrease in other revenues (.15)
Increase in power procurement expenses (.15)
Net increase in other operation and maintenance
expenses (.03)
Change in operating expenses resulting from
the closure of Maine Yankee (.02)
Total $ (.10)
Retail rate plan stipulations and a 2.4% increase in retail sales
produced a $.25 increase in earnings per share. Increased operation
and maintenance expenses decreased earnings by $.16 per share,
primarily due to an increase in interest, medical and other
expenses, which was partially offset by reduced system generation
expenses due to the asset sale. The increase in power procurement
expenses reflects an increase in purchases from the independent
power producer, Wheelabrator-Sherman (W/S) and higher than normal
hydro, offset by a decrease in wheeling expenses due to the
termination of the transmission agreement, resulting in a decrease
in earnings of $.15 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. The reduction of Maine Yankee operating and replacement
power expenses, offset by additional amortization of previously
deferred replacement power costs under the rate stipulation,
resulted in a net decrease in earnings of $.02 per share. The
decrease in other revenues reflects a decrease in sales for resale
due to termination of sales to Perth-Andover with the generating
asset sale in June, 1999, partially offset by an increase in
interest income, resulting in a $.02 decrease in earnings per share.
-17-
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
September 30, 1999 and 1998, are as follows:
1999 1998
(Dollars in Thousands) $ MWH $ MWH
Retail 11,583 120,440 11,314 117,635
Sales for Resale 280 6,287 420 11,058
Total Primary Sales 11,863 126,727 11,734 128,693
Secondary Sales 2,851 77,850 521 14,706
Other Revenues/Rev. Adjust. 677 - 577 -
Total Operating Revenues 15,391 204,577 12,832 143,399
Primary sales in the third quarter of 1999 were 126,727 MWH, a decrease
of 1,966 MWH (1.5%) from sales in the third quarter of 1998 due to the
termination of sales to Perth-Andover after the generating asset sale.
Secondary sales increased by 63,144 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 third quarter of 1999 were $11,583,000
compared to $11,314,000 for the same period of 1998, reflecting the 2.4%
increase in retail sales noted above. The $2,330,000 increase in
secondary sales to $2,851,000 for the third quarter of 1999 is a result
of the increase in sales to Houlton Water Company noted above.
-18-
Form 10-Q
PART 1. FINANCIAL INFORMATION
Item 2. Management's Analysis of Quarterly Income Statements
Results of Operations (Continued)
For the quarters ended September 30, 1999 and 1998, total operating
expenses were $14,868,000 and $12,059,000, respectively. The
changes in operating expenses and energy sources are as follows:
Increase/(Decrease)
(Dollars in Thousands) $ MWH
Purchased Power Expenses
Maine Yankee (352) -
Wheelabrator-Sherman 925 2,288
NB Power 994 25,732
PDI 1,002 24,805
Northeast Empire (315) (9,311)
Other Purchases 1,346 47,035
Deferred Fuel - amortization (188) -
3,412 90,549
Generating Expenses (583) (30,535)
Other Operation & Maint. Expenses 271
Depreciation (113)
Amortization (43)
Income Taxes (96)
Taxes Other than Income (39)
Total 2,809 60,014
With the sale of the Company's generating assets in June 1999, the
Company now purchases energy from the new owners, PDI, under an
agreement that expires February 29, 2000, and these purchases are
classified as purchased energy. During the third quarter of 1998,
the Company generated 30,535 MWH. Purchases from NB Power increased
25,732 MWH and other purchases increased by 47,035 MWH because of
the increase in power marketing activities classified as secondary
sales. Purchases from Northeast Empire decreased by 9,311 MWH with
the availability of additional hydro from PDI. Since February, 1998
and continuing until March 1, 2000, Northeast Empire has principally
provided dispatchable Maine Yankee replacement power. The total
increase of 60,014 MWH reflects the additional retail and secondary
sales. The Company's share of Maine Yankee capacity expenses
decreased by $352,000 as previously discussed. Wheelabrator-Sherman
purchased power expenses increased by $925,000, due to increased
production, partially offset by the reduced price under the amended
Power Purchase Agreement (PPA). The decrease in deferred fuel
expense of $188,000 reflects the recognition of the offset to
additional purchased power costs recognized since the generating
asset sale which reduces the deferred gain on the sale, partially
offset by the net increase in amortization of Maine Yankee
replacement power.
-19-
Form 10-Q
PART 1. FINANCIAL INFORMATION
Item 2. Management's Analysis of Quarterly Income Statements
Results of Operations (Continued)
Generating expenses decreased by $583,000 because of the sale of
generating assets as previously mentioned. Other operation and
maintenance expenses increased by $271,000 because of increased
medical, regulatory, advertising and retail consulting expenses.
Liquidity
Net cash flows from operating activities were $347,000 for the first
nine 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 $2,993,000 in electric plant, paid $1,294,000
in dividends and used $1,275,000 to reduce long-term debt. Short-
term borrowings decreased by $2,600,000 because of the cash flows
from operations and use of some of the asset sale proceeds to pay
down the revolving credit line.
Net cash flows from operating activities were negative $4,427,000
for the first nine 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 $534,000. 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
$1,038,000 of tax-exempt revenue bond proceeds from the trustee.
For the period, $2,673,000 was invested in electric plant,
$1,617,000 was paid in dividends and $4,155,000 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 $2,800,000 for the
additional Maine Yankee replacement power costs.
-20-
Form 10-Q
PART 1. FINANCIAL INFORMATION
Item 2. Management's Analysis of Quarterly Income Statements
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 September 30,
1999, the Company has incurred approximately $32,700 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 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, which could require approximately six
hours to fully restore service. The Company has worked with
generating companies and neighboring electric utilities to establish
procedures for providing sufficient capacity and an orderly return
-21-
Form 10-Q
PART 1. FINANCIAL INFORMATION
Item 2. Management's Analysis of Quarterly Income Statements
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.
-22-
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.
-23-
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.
-24-
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
-25-
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 (11.3)
Taxes (7.4)
Transition costs, net (1.2)
Other .3
Deferred gain, net of tax $ 17.8
-26-
Form 10-Q
PART II. OTHER INFORMATION
Item 1. Legal Proceedings - continued
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.
(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 a Northern Maine Independent System
Administrator (NMISA) for northern Maine, which must be approved
by the FERC. The NMISA has been organized as a non-profit
corporation under Maine law. On August 25, 1999, the NMISA filed
its tariff with the FERC (Docket No. ER99-4225-000). 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
-27-
Form 10-Q
PART II. OTHER INFORMATION
Item 1. Legal Proceedings - continued
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
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.
On October 15, 1999, the Company filed with the MPUC a Stipulation
resolving the revenue requirement and rate design issues for the
Company's Transmission and Distribution (T&D) utility. This
Stipulation has been signed by the Public Advocate and approval
will be recommended by the MPUC staff. Under the Stipulation, the
Company's total annual T&D revenue requirement will be
$16,640,000, effective March 1, 2000. This revenue requirement
includes a 10.7% return on equity with a capital structure based
on 51% common equity. The Stipulation further provides that the
precise level of stranded cost recovery cannot be determined until
final determination of all costs associated with the sale of the
Company's generating assets (see item (b) above), but does set
forth some general principles concerning the Company's ultimate
stranded costs recovery, including agreement that the major
components of the Company's stranded costs are legitimate,
verifiable and unmitigable, and therefore subject to recovery in
rates, and that the 3.66% recovery foregone in Docket 98-865 shall
be added to stranded cost recovery in the manner specified in the
stipulation in that Docket (see item (e) below). The stipulation
also provides that the Company's recovery of unamortized investment
tax credits and excess deferred income taxes associated with the
Company's generating assets must await a final determination ruling
from the IRS, which ruling has been sought by Central Maine Power
Company.
The Company cannot at this time determine whether all other
parties, including certain of the Company's large industrial
customers, will support this Stipulation, nor can it predict the
nature of the MPUC's final order in this matter.
(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
-28-
Form 10-Q
PART II. OTHER INFORMATION
Item 1. Legal Proceedings - continued
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.
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.
-29-
Form 10-Q
PART II. OTHER INFORMATION
Item 1. Legal Proceedings - continued
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.
-30-
Form 10-Q
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits - None
(b) Reports on Form 8-K - None
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MAINE PUBLIC SERVICE COMPANY
(Registrant)
Date: November 12, 1999 By: /s/ Larry E. LaPlante
Larry E. LaPlante
Vice President, Treasurer and
Chief Financial Officer
-31-
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