<PAGE> 1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark one)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996
--------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ______________ to _____________
Commission file number 0-25748
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GREAT BAY POWER CORPORATION
(Exact name of registrant as specified in its charter)
NEW HAMPSHIRE 02-0396811
------------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
COCHECO FALLS MILLWORKS, 100 MAIN STREET, SUITE 201
DOVER , NEW HAMPSHIRE 03820
(Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (603) 742-3388
20 LADD STREET, PORTSMOUTH, NEW HAMPSHIRE 03801-4080
(Former Address of principal executive offices) (Former Zip Code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
----- -----
Indicate by check mark whether the registrant has filed all documents required
to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934
subsequent to the distribution of securities under a plan confirmed by a court.
Yes X No
----- -----
Class Outstanding at May 9, 1996
- ------------------------------ --------------------------
Common Shares, $0.01 Par Value 7,999,948
<PAGE> 2
GREAT BAY POWER CORPORATION
<TABLE>
INDEX
<CAPTION>
<S> <C>
Part I. Financial Information:
Item 1 - Financial Information:
Statements of Income and Loss - Three
Months Ended March 31, 1996 and 1995................................... 3
Balance Sheets at March 31, 1996
and December 31, 1995.................................................. 4-5
Statements of Cash Flow - Three
Months Ended March 31, 1996 and 1995................................... 6
Notes to Financial Statements.............................................. 7-11
Item 2 - Financial Discussion:
Management's Discussion and Analysis of Financial Condition
and Results of Operations.............................................. 11-15
Part II. Other Information:
Item 4 - Submission of Matters to a Vote of Securityholders
Item 6 - Exhibits and Reports in Form 8-K
Signature.................................................................. 17
Exhibit Index.............................................................. 18
</TABLE>
2
<PAGE> 3
Item 1. Financial Information
---------------------
GREAT BAY POWER CORPORATION
<TABLE>
STATEMENTS OF INCOME AND LOSS
(UNAUDITED)
(Dollars in Thousands, except shares and per share data)
<CAPTION>
Three Months Three Months
Ended Ended
March 31, 1996 March 31, 1995
-------------- ---------------
<S> <C> <C>
Operating Revenues $ 6,891 $ 7,781
Operating Expenses:
Production 3,588 4,206
Transmission 259 241
Administrative & General 1,914 1,402
Depreciation & Amortization 874 736
Taxes other than Income 1,054 1,022
---------- ----------
Total Operating Expenses 7,689 7,607
---------- ----------
Operating Income (Loss) (798) 174
Other (Income) Deductions:
Interest (Income) Expense (271) (387)
Decommissioning Cost Accretion 565 0
Decommissioning Trust Fund Income (79) 0
Miscellaneous 4 0
---------- ----------
Total Other (Income) Deductions 219 (387)
---------- ----------
Earnings (Loss) Before Income Taxes (1,017) 561
Income Taxes 0 1
---------- ----------
Net Income (Loss) $ (1,017) $ 560
========== ==========
Shares Outstanding 7,999,948 7,999,998
========== ==========
Earnings (Loss) Per Share $ (0.13) $ 0.07
========== ==========
</TABLE>
(The accompanying notes are an integral part of these statements.)
3
<PAGE> 4
GREAT BAY POWER CORPORATION
<TABLE>
BALANCE SHEET
(UNAUDITED)
(Dollars in Thousands)
<CAPTION>
MARCH 31, DECEMBER 31,
1996 1995
---------- ------------
<S> <C> <C>
ASSETS:
Current Assets:
Cash & Cash equivalents $ 11,984 $ 8,874
Short-term Investments, at market 4,759 7,595
Accounts Receivable 2,543 1,535
Materials & Supplies 4,224 4,230
Prepayments & Other Assets 2,641 1,249
--------- --------
Total Current Assets 26,151 23,483
--------- --------
Property, Plant, & Equipment:
Utility Plant 104,432 104,696
Less: Accumulated Depreciation (4,613) (4,165)
--------- --------
Net Utility Plant 99,819 100,531
Nuclear Fuel 9,974 9,925
Less: Accumulated Amortization (1,231) (304)
--------- --------
Net Nuclear Fuel 8,743 9,621
Net Property, Plant & Equipment 108,562 110,152
--------- --------
Other Assets:
Decommissioning Trust Fund 5,363 5,108
Deferred Debits & Other 27 28
--------- --------
Total Other Assets 5,390 5,136
--------- --------
TOTAL ASSETS $ 140,103 $138,771
========= ========
</TABLE>
(The accompanying notes are an integral part of these statements)
4
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GREAT BAY POWER CORPORATION
<TABLE>
BALANCE SHEET
(UNAUDITED)
(Dollars in Thousands)
<CAPTION>
MARCH 31, DECEMBER 31,
1996 1995
--------- ------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current Liabilities:
Accounts Payable and Accrued Expenses $ 164 $ 237
Taxes Accrued 2,210 1,293
Miscellaneous Current Liabilities 1,220 1,437
-------- --------
Total Current Liabilities 3,594 2,967
Operating Reserves:
Decommissioning Liability 50,789 50,228
Miscellaneous Other 671 671
-------- --------
Total Operating Reserves 51,460 50,899
Other Liabilities & Deferred Credits 2,833 2,672
Stockholders' Equity:
Common stock, $.01par value
Authorized - 20,000,000 shares
Issued and outstanding - 7,999,948 shares 80 80
Common Stock Warrants 1,000 -
Preferred Stock - -
Authorized - 5,000,000 shares
Issued and outstanding - 0
Additional paid-in capital 88,030 88,030
Accumulated Deficit (6,894) (5,877)
-------- --------
Total Stockholders' Equity 82,216 82,233
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $140,103 $138,771
======== ========
</TABLE>
(The accompanying notes are an integral part of these statements.)
5
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GREAT BAY POWER CORPORATION
<TABLE>
STATEMENT OF CASH FLOWS
(UNAUDITED)
(Dollars in Thousands)
<CAPTION>
Three Months Three Months
Ended Ended
March 31, 1996 March 31, 1995
-------------- --------------
<S> <C> <C>
Net cash flow from operating activities:
Net Income (Loss) $(1,017) $ 560
Adjustments to reconcile net earnings to net
cash provided by (used in) operating activities:
Depreciation 874 736
Amortization of nuclear fuel 927 1,266
Decommissioning Trust Accretion 565 -
Decommissioning Trust Interest (79) -
(Increase) decrease in accounts receivable (1,008) (147)
(Increase) decrease in materials & supplies (36) (5)
(Increase) decrease in prepaids and other assets (1,392) 1,195
Increase (decrease) in accounts payable (73) (183)
Increase (decrease) in taxes accrued 917 (283)
Other (59) 273
------- -------
Net cash provided by (used in) operating activities (381) 3,412
------- -------
Net cash flows from investing activities:
Utility plant additions (116) (213)
Nuclear fuel additions (48) (610)
Payments to decommissioning fund (181) (161)
Decrease (Increase) in Short term investments 2,836 (3,226)
------- -------
Net cash provided by (used in) investing activities 2,491 (4,210)
------- -------
Net cash from financing activities:
Common Stock Warrants 1,000 -
------- -------
Net cash provided by financing activities 1,000 0
------- -------
Net (decrease) increase in cash and cash equivalents 3,110 (798)
Cash and cash equivalents, beginning of period 8,874 18,533
------- -------
Cash and cash equivalents, end of period $11,984 $17,735
======= =======
</TABLE>
(The accompanying notes are an integral part of these statements.)
6
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GREAT BAY POWER CORPORATION
NOTES TO FINANCIAL STATEMENTS
Note A - THE COMPANY
Great Bay Power Corporation ("Great Bay" or the "Company") is a New
Hampshire public utility whose principal asset is a 12.1% joint ownership
interest in the Seabrook Nuclear Power Project (the "Seabrook Project") in
Seabrook, New Hampshire. The Company sells its share of the electricity output
of the Seabrook Project in the wholesale electricity market, primarily in the
Northeast United States. Great Bay does not have operational responsibility for
the Seabrook Project. The Company's share of the Seabrook Project capacity is
approximately 140 megawatts ("MW"). Great Bay currently sells all but 10 MW of
its share of the Seabrook Project capacity in the short-term market.
As of March 31, 1996 , the Company had two employees, and substantially
all of the Company's power marketing and administrative functions for the first
quarter of 1996 were performed on the Company's behalf by third parties pursuant
to contractual agreements. As of May 1, 1996, the Company had five employees and
the Company has assumed responsibility for virtually all of its administrative
functions.
On April 11, 1996 the Company filed a Form S-4 Registration Statement
with the Securities and Exchange Commission seeking to reorganize into a holding
company structure pursuant to which the Company would become a wholly-owned
subsidiary of a new Delaware company. Such a structure would permit the holding
company to engage in business activities, through subsidiaries other than the
Company, from which the Company is prohibited from engaging because of its
status as an Exempt Wholesale Generator ("EWG") under the Public Utility Holding
Company Act of 1935. The Company is also subject to regulation by the New
Hampshire Public Utilities Commission (the "NHPUC") as a New Hampshire public
utility. Many transactions by the Company are subject to approval by the NHPUC.
While the activities of the Company would continue to be subject to such
regulation, the activities of the holding company would not be.
Note B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The unaudited financial statements included herein have been prepared on
behalf of the Company, without audit, pursuant to the rules and regulations of
the Securities and Exchange Commission and include, in the opinion of
management, all adjustments, consisting of normal recurring adjustments,
necessary for a fair presentation of interim period results. Certain information
and footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been omitted or
condensed pursuant to such rules and regulations. The Company believes, however,
its disclosures herein, when read in conjunction with the Company's audited
financial statements for the year ended December 31, 1995, are adequate to make
7
<PAGE> 8
GREAT BAY POWER CORPORATION
the information presented not misleading. As further discussed in Item 2 below,
the results for the interim periods are not necessarily indicative of the
results to be expected for the full fiscal year.
In March 1995, the FASB issued Statement of Financial Accounting
Standards (SFAS) No. 121, "Accounting for Impairment of Long-Lived Assets and
Long-Lived Assets to be Disposed Of", effective for fiscal years beginning after
December 15, 1995. SFAS No. 121 establishes accounting standards for the
impairment of long-lived assets and requires that assets which are no longer
probable of recovery be charged to earnings. The Company adopted SFAS N0. 121 on
January 1, 1996, and the adoption did not have a material impact on the
Company's financial position or results of operations.
In October 1995, the FASB issued SFAS No. 123, "Accounting for
Stock-Based Compensation", effective for fiscal years beginning after December
15, 1995. SFAS No. 123 requires that financial statements include certain
disclosures related to stock-based employee compensation arrangements regardless
of the method used to account for them. The Company does not plan to adopt the
accounting under this pronouncement but rather adopt the required audited pro
forma disclosure in the year end financial statements. Based on arrangements
used by the pronouncement, the pro forma effects on earnings and earnings per
share are not expected to be material.
Note C - PECO SERVICES AGREEMENT AND WARRANT AGREEMENT
The Company and PECO Energy Company ("PECO") entered into a Services
Agreement dated as of November 3, 1995 (the "PECO Services Agreement"), pursuant
to which PECO was appointed as the Company's exclusive agent to market and sell
the Company's uncommitted portion of electricity generated by the Seabrook
Project. Proceeds from the sale of the Company's electricity together with
reservation fees payable by PECO to the Company will be shared between the
Company and PECO in accordance with formulas set forth in the PECO Services
Agreement.
The PECO Services Agreement became effective on December 31, 1995, and
has an initial term of two years. The term will be automatically extended for
one additional year (to December 31, 1998) if PECO exercises the PECO Warrant
(as defined below) to purchase the Warrant Shares (as defined below). At any
time prior to the Warrant Expiration Date (as defined below), the Company is
entitled to terminate the PECO Services Agreement; however, if the PECO Services
Agreement is so terminated, the Company will be required to refund to PECO the
$1,000,000 purchase price for the PECO Warrant plus interest.
At the time that the Company entered into the PECO Services Agreement,
the Company and PECO entered into a Warrant Purchase Agreement, dated November
3, 1995, pursuant to which on February 15, 1996, PECO purchased a warrant (the
"PECO Warrant") from the Company for $1,000,000. The PECO Warrant entitles PECO
to purchase 420,000 shares ( the "Warrant Shares") of the Company's Common
Stock,
8
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GREAT BAY POWER CORPORATION
$0.01 par value per share, (the "Common Stock ") at an exercise price of
the higher of (1) $9.75 per share, or (2) the highest trading price per share of
the Company's Common Stock prior to the expiration date of the PECO Warrant. The
$1,000,000 purchase price for the PECO Warrant will be credited to the aggregate
exercise price of the PECO Warrant upon exercise. If PECO does not exercise the
PECO Warrant , the purchase price for the PECO Warrant is wholly or partially
refundable only if the Company terminates the PECO Services Agreement for
convenience prior to the Warrant Expiration Date or if PECO exercises certain of
its rights to terminate the PECO Services Agreement. The PECO Warrant expires on
September 30, 1996 (the "Warrant Expiration Date") unless extended because the
Seabrook Project fails to maintain a 60% capacity factor for the first nine
months of 1996, in which case the Warrant Expiration Date will be extended until
the earlier of such time as the Seabrook Project's rolling 12-month capacity
factor equals or exceeds 60% or December 31, 1997.
Note D - COMMITMENTS AND CONTINGENCIES
Nuclear Power, Energy and Utility Regulation
- --------------------------------------------
The Seabrook Project and the Company, as part owner of a licensed
nuclear facility, are subject to the broad jurisdiction of the Nuclear
Regulatory Commission (the "NRC"), which is empowered to authorize the siting,
construction and operation of nuclear reactors after consideration of public
health, safety, environmental and anti-trust matters. The Company has been, and
will be, affected to the extent of its proportionate share by the cost of any
such requirements made applicable to Seabrook Unit 1.
The Company is also subject to the jurisdiction of the Federal Energy
Regulatory Commission (the "FERC") under Parts II and III of the Federal Power
Act and, as a result, is required to file with FERC all contracts for the sale
of electricity. FERC has the authority to suspend the rates at which the Company
proposes to sell power, to allow such rates to go into effect subject to refund
and to modify a proposed or existing rate if FERC determines that such rate is
not "just and reasonable." FERC's jurisdiction also includes, among other
things, the sale , lease, merger, consolidation or other disposition of
facilities, interconnection of certain facilities, accounts, service and
property records.
Because it is an EWG, the Company is not subject to the jurisdiction of
the NHPUC under the Public Utility Holding Company Act of 1935. In order to
maintain its EWG status, the Company must continue to engage exclusively in the
business of owning and/or operating all or part of one or more "eligible
facilities" and to sell electricity only at wholesale (i.e., not to end users).
An "eligible facility" is a facility used for the generation of electric energy
exclusively at wholesale or used for the generation of electric energy and
leased to one or more public utility companies. The term "facility" may include
a portion of a facility. In the case of the Company, its 12.1% joint ownership
interest in the Seabrook Project comprises an "eligible facility."
9
<PAGE> 10
GREAT BAY POWER CORPORATION
Nuclear units in the United States have been subject to widespread
criticism and opposition which has led to construction delays, cost overruns,
licensing delays and other difficulties. Various groups have sought to prohibit
the completion and operation of nuclear units and the disposal of nuclear waste
by litigation, legislation and participation in administrative proceedings. The
Seabrook Project was the subject of significant public controversy during its
construction and licensing and remains controversial. An increase in public
concerns regarding the Seabrook Project or nuclear power in general could
adversely affect the operating license of Seabrook Unit 1. While the Company
cannot predict the ultimate effect of such controversy, it is possible that it
could result in a premature shutdown of the unit.
In the event of a permanent shutdown of any unit, NRC regulations
require that it be completely decontaminated of any residual radioactivity.
While the owners of the Seabrook Project are accumulating a trust fund (the
"Decommissioning Trust Fund") to pay decommissioning costs, if these costs
exceed the amount of the trust fund, the owners (including the Company) will be
liable for the excess.
Decommissioning Liability
- -------------------------
Based on the Financial Accounting Standards Board's ("FASB") tentative
conclusions, the Company has recognized as a liability its proportionate share
of the estimated Seabrook Project decommissioning ("Seabrook Project's
Decommissioning Liability"). The initial recognition of this liability was
capitalized as part of the fair value of the utility plant at November 23, 1994.
The estimated cost to decommission the Seabrook Project, based on a study
performed for the lead owner of the Plant, is approximately $414 million in 1995
dollars and $2.1 billion in 2026 dollars and assumes a 36 year life for the
facility and a future escalation rate of 4.25%. Based on this estimate, the
Company's share in 1995 dollars is approximately $50.2 million, which had been
recorded as a liability in the December 31, 1995 balance sheet.
During the first quarter of 1996, the Company began to recognize
accretion of its share of the Seabrook Project's Decommissioning Liability. This
accretion is a non-cash charge and recognizes the Company's liability related to
the closure and decommissioning of its nuclear plant in current year dollars
over the licensing period of the plant. As a result of this accretion, the
Company's share of the estimated decommissioning cost as of March 31, 1996 is
$50.8 million, which has been recorded as a liability in the March 31, 1996
balance sheet.
Liquidity and Capital Expenditures
- ----------------------------------
The Company anticipates that its share of the Seabrook Project's capital
expenditures for the 1996 fiscal year , including nuclear fuel, will total
approximately $2.7 million.
10
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GREAT BAY POWER CORPORATION
The Seabrook Project experienced an unscheduled outage from January 27
to January 30, 1996. During this period the Seabrook Project did not produce
electricity and the Company did not earn any revenue. The Seabrook Project also
experienced reduced power output from February 1 to February 22, 1996 due to
certain system malfunctions. The Seabrook Project generated less electricity
during this period which reduced the Company's revenues. During these
unscheduled outages and periods of reduced power output, in addition to the
expenses of routine operation and maintenance, the Company is responsible for
its pro rata share of expenses related to the outage.
Note E - EQUITY
On January 18, 1996, the Company held a special meeting of stockholders.
At the special meeting, the stockholders approved an amendment to the Company's
Restated Articles of Incorporation to increase the number of authorized shares
of Common Stock from 8,000,000 to 20,000,000 shares. In addition, the
stockholders authorized 5,000,000 shares of undesignated Preferred Stock, the
terms and rights of which may be designated from time to time by the Board of
Directors of the Company. A total of 7,999,948 shares of Common Stock were
outstanding as of May 9, 1996.
The Company has never paid cash dividends on the Common Stock. The
Company currently intends to retain all of its future earnings and does not
anticipate paying a dividend in the foreseeable future.
Item 2. Management's Discussion and Analysis of Financial Condition
-----------------------------------------------------------
and Results of Operations
-------------------------
Overview
- --------
Great Bay Power Corporation is a New Hampshire public utility whose
principal asset is a 12.1% joint ownership interest in the Seabrook Project in
Seabrook, New Hampshire. The Company sells its share of the electricity output
of the Seabrook Project in the wholesale electricity market, primarily in the
Northeast United States. Great Bay does not have operational responsibility for
the Seabrook Project. Instead, the daily operational and management
responsibilities of the Seabrook Project are carried out by a Managing Agent,
which is currently North Atlantic Energy Service Corporation ("NAESCO"), a
wholly owned subsidiary of Northeast Utilities.
The Company's operating results and the comparability of these results
on an interim and annual basis are directly impacted by the operations of the
Seabrook Project, including the cyclical refueling outages (generally 18-24
months apart) as well as any unscheduled outages. During outage periods at the
Seabrook Project, the Company has no electricity available for resale and
consequently no revenues.
11
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GREAT BAY POWER CORPORATION
The Seabrook Project from time to time experiences both scheduled and
unscheduled outages. Great Bay incurs losses during outage periods due to the
loss of all operating revenues and additional costs associated with the outages
as well as continuing operating and maintenance expenses and depreciation.
Unscheduled outages or operation of the unit at reduced capacity can occur due
to the automatic operation of safety systems following the detection of a
malfunction. In addition, it is possible for the unit to be shut down or
operated at reduced capacity based on the results of scheduled and unscheduled
inspections and routine surveillance by the Seabrook Project personnel. It is
not possible for Great Bay to predict the frequency or duration of any future
unscheduled outages or operation of the unit at reduced capacity; however, it is
likely that such unscheduled outages will occur. The Managing Agent of the
Seabrook Project has scheduled the next refueling outage for June 1997.
Refueling outages are scheduled generally every 18-24 months depending upon the
Seabrook Project capacity factor and the rate at which the nuclear fuel is
consumed.
This Quarterly Report on Form 10-Q contains forward-looking statements.
For this purpose, any statements contained herein that are not statements of
historical fact may be deemed to be forward-looking statements. Without limiting
the foregoing, the words "believes," "anticipates," "plans," "expects,"
"intends," and similar expressions are intended to identify forward-looking
statements. There are a number of important factors that could cause the
Company's actual results to differ materially from those indicated by such
forward-looking statements. These factors include, without limitation, those set
forth under the caption "Certain Factors That May Affect Future Results" at
pages 16 through 18 of the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1995, which factors are incorporated herein by this
reference.
FIRST QUARTER OF FISCAL 1996 COMPARED TO THE FIRST QUARTER OF FISCAL 1995
- -------------------------------------------------------------------------
Operating Revenues
- ------------------
Operating revenues decreased by approximately $890,000, or 11.4%, to
$6,891,000 in the first quarter of 1996 as compared with $7,781,000 in the first
quarter of 1995. This decrease was primarily due to lower availability and
production at the Seabrook Project resulting from unscheduled outages during the
first quarter of 1996 compared with no scheduled or unscheduled outages
occurring during the same period in 1995. During the first quarter of 1996, the
average capacity factor at the Seabrook Project was 86.1% of the rated capacity
versus an average capacity factor of 100.6% for the same period in 1995. Sales
of electricity decreased by approximately 12.9% to 264,134,400 kilowatt hours in
1996 as compared with 303,169,000 kilowatt hours in 1995. This decrease in kWh
sales during the first quarter of 1996 was partially offset by an increase in
the sales price per kWh received by the Company during the first quarter of
1996, as compared to the same period in 1995. During the first quarter of 1996
the sales price per
12
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GREAT BAY POWER CORPORATION
kWh increased 2% to $2.61 cents per kWh as compared with $2.56 cents per kWh in
the 1995 period.
Expenses
- --------
Production expenses for the first quarter of 1996 decreased by $618,000,
or 14.7%, compared with the first quarter of 1995. This decrease was primarily
the result of reduced operating costs at the Seabrook Project reflecting lower
staffing levels and a reduction in the level of outside services, lower nuclear
fuel amortization because the Seabrook Project added less expensive nuclear fuel
at the last refueling outage and lower outage accruals as the result of the use
of a 20-month assumed scheduled operating cycle in the first quarter of 1996 and
an 18-month cycle in the first quarter of 1995. The change in the operating
cycle reflects a change by the Managing Agents of the Seabrook Project as to the
assumed burn rate of the nuclear fuel.
Administrative and General expenses increased by $512,000 during the
first quarter of 1996, an increase of 36.5% over the comparable period in 1995.
This increase was primarily due to the costs associated with the growth and
management of the Company, including transition and start-up costs associated
with the Company directly performing its own administrative functions following
the termination of its Marketing and Management and Administrative Services
Agreements with UNITIL Resources, Inc., marketing fees paid to PECO and costs
associated with the Company's proposed corporate restructuring. The marketing
fees paid to PECO are calculated based upon a revenue sharing formula. The
formula is materially dependent upon the capacity factor achieved at the
Seabrook Project and is subject to a biannual true-up in July and January based
on the actual capacity factor for the prior six month period. If the Seabrook
Project annual capacity factor exceeds 85%, the Company is entitled to retain a
greater percentage of current year revenues and PECO is required to make a
true-up payment to the Company.
Depreciation and amortization expenses increased 18.7% to $874,000 in
the first quarter of 1996 as compared to $736,000 during the first quarter of
1995. This increase was primarily attributable to the Company's utility plant
being depreciated over a shorter remaining license life and amortization of the
cost of the materials and supplies inventory that is expected to be on hand at
the expiration of the Seabrook Project's NRC operating license.
Other
- -----
Other deductions increased 157%, or $606,000, reflecting $219,000 in
Other Deductions during the first quarter of 1996 as compared to Other Income of
$387,000 recorded during the first quarter of 1995. This increase was primarily
due to the Company's recognition of its share of the Seabrook Project's
Decommissioning Liability. During the first quarter of 1996, Great Bay Power
began to recognize accretion of its share of the Seabrook Project's
Decommissioning Liability which was previously stated
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GREAT BAY POWER CORPORATION
in 1995 dollars. This accretion is a non-cash charge and recognizes the
Company's liability related to the closure and decommissioning of its nuclear
plant in current year dollars over the licensing period of the plant.
Net Loss From Operations
- ------------------------
As a result of the above factors, during the quarter ended March 31,
1996, the Company recorded a net loss of $1,017,000, or approximately $0.13 per
share, as compared to net income of $560,000, or approximately $0.07 per share,
in the first quarter of 1995.
Tax Loss Carryforwards
- ----------------------
For federal income tax purposes, as of December 31, 1995, the Company
had net operating loss carry forwards ("NOLs") of approximately $167 million,
which are scheduled to expire between 2005 and 2010. Because the Company has
experienced one or more ownership changes, within the meaning of Section 382 of
the Internal Revenue Code of 1986, as amended, an annual limitation is imposed
on the ability of the Company to use $136 million of these carryforwards. The
Company's best estimate at this time is that the annual limitation on the use of
$136 million of the Company's NOLs is approximately $5.5 million per year. The
Company's other $31 million of NOLs are not currently subject to such
limitations.
Liquidity
- ---------
The Company's cash and short-term investments increased approximately
$274,000 during the first quarter of 1996. Principal factors affecting liquidity
during the three months ended March 31, 1996 included the operating loss
discussed above, Decommissioning Trust Fund payments of $181,000, an increase in
Accounts Receivable of $1,008,000 due to the resumption of power sales in the
first quarter of 1996 following reduced sales in December 1995 as a result of
the scheduled outage during that month and an increase in Prepayments and Other
Assets of $1,391,000, primarily related to cash funding of the Company's share
of the Seabrook Project's operating costs. Offsetting these items were non-cash
charges to income of $1,801,000 for depreciation and amortization,
Decommissioning Trust Fund accretion of $565,000 and local property and state
nuclear tax accruals of $917,000. The Company also received $1,000,000 as a
result of the PECO warrant purchase.
In December 1995, the Town of Seabrook, New Hampshire (the "Town")
issued a bill for property taxes for the second half of 1995 to "North Atlantic
Energy Corp., et al." The Town informed the Company that it believed the
Company's share of this bill was $1,293,000. The Company initially refused to
pay the bill because the Company believes that the Town's assessment of the
Company's interest in the Seabrook Project is overstated and because the bill
fails to recognize the Company as an independent taxpayer with a separately
assessed and valued parcel of real estate. As of March 31,
14
<PAGE> 15
GREAT BAY POWER CORPORATION
1996, the non-payment of these property taxes was reflected in the Company's
financial statements as Taxes Accrued. On April 30, 1996, the Company paid the
December 1995 property tax bill to avoid the Town placing a lien on the Seabrook
Project. The Company has filed a petition with the Town seeking a tax abatement
of its 1995 property taxes. Management is unable to express an opinion as to the
likely outcome of this matter.
15
<PAGE> 16
GREAT BAY POWER CORPORATION
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Securityholders
--------------------------------------------------
The Company held a Special Meeting of Stockholders on January 18, 1996.
At the Special Meeting, the stockholders of the Company:
(1) approved an amendment to the Company's Restated Articles of
Incorporation which increases the number of authorized shares of Common Stock
from 8,000,000 to 20,000,000 shares (by a vote of 6,543,174 votes in favor of
the amendment and 91,194 votes against the amendment),
(2) approved an amendment to the Company's Restated Articles of
Incorporation to authorize the issuance of up to 5,000,000 shares of
undesignated Preferred Stock, the terms and rights of which may be designated
from time to time by the Board of Directors (by a vote of 6,090,513 votes in
favor of the amendment, 286,528 votes against the amendment, 250 votes abstained
and 257,077 votes were broker non-votes),
(3) approved an amendment to the Company's Restated Articles of
Incorporation to delete Section 1 of Article SEVENTH, which requires the
affirmative vote of the holders of at least 75% of the shares of capital stock
issued and outstanding to amend, repeal or adopt any provision inconsistent with
the Articles of Incorporation (by a vote of 6,064,153 votes in favor of the
amendment, 312,888 votes against the amendment, 250 votes abstained and 257,057
votes were broker non-votes), and
(4) approved an amendment to the Company's Restated Articles of
Incorporation to add to Article SEVENTH a provision eliminating any preemptive
right of the Company's stockholders to acquire shares issued by the Company (by
a vote of 6,187,784 votes in favor of the amendment, 191,291 votes against the
amendment, 250 votes abstained and 255,043 votes were broker non-votes).
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) See Exhibit Index
(b) There were no reports on Form 8-K submitted for the
three months ended March 31, 1996
16
<PAGE> 17
GREAT BAY POWER CORPORATION
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.
GREAT BAY POWER CORPORATION
/s/ John A. Tillinghast
----------------------------
John A. Tillinghast
President and Chief Executive Officer
(Principal Accounting Officer)
Dated: May 15, 1996
17
<PAGE> 18
GREAT BAY POWER CORPORATION
<TABLE>
EXHIBIT INDEX
<CAPTION>
Exhibit No. Description
- ----------- -----------
<S> <C>
27 Financial Data
99 Pages 16 through 18 of the Company's Annual Report on
Form 10-K for the period ended December 31, 1995 (which
is not deemed filed except to the extent that portions
thereof are expressly incorporated by reference herein).
</TABLE>
18
<PAGE> 1
Company and UNITIL Power Corp., the Company's interest in the Seabrook Project
is encumbered by a mortgage. This mortgage may be subordinated to up to $80
million of senior secured financing. See "Business -- Power Purchase Agreement."
The Company's cash and short-term investments decreased approximately $5.7
million during 1995, primarily as a result of the operating loss discussed above
plus $7.5 million of capital expenditures for plant and nuclear fuel, payments
of $1.0 million to the decommissioning trust fund and payments of $2.7 million
for bankruptcy-related reorganization expenses. Partially offsetting the items
listed above were non-cash charges to income of $7.9 million for depreciation
and amortization.
The Company's fiscal 1995 decommissioning expenses totaled approximately
$1.0 million. The decommissioning funding schedule is determined by the New
Hampshire Nuclear Decommissioning Financing Committee (the "NDFC"), which
reviews such schedule for the Seabrook Project at least annually. The Company's
decommissioning expenses for fiscal 1996 and fiscal 1997 will depend upon the
outcome of pending proceedings before the NDFC. The Company expects to use
revenues from the sale of power to pay these decommissioning expenses.
The Company anticipates that its share of the Seabrook Project's capital
expenditures for the 1996 fiscal year will total approximately $2.7 million,
primarily for nuclear fuel.
CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS
The following important factors, among others, could cause actual results
to differ materially from those indicated by forward-looking statements made in
this Annual Report on Form 10-K.
OWNERSHIP OF SINGLE ASSET. The Company owns a single principal asset, its
12.1% joint interest in the Seabrook Nuclear Power Project in Seabrook, New
Hampshire. Accordingly, the Company's results of operations are completely
dependent upon the successful and continued operation of the Seabrook Project.
In particular, if the Seabrook Project experiences unscheduled outages of
significant duration, the Company's results of operations will be materially
adversely affected.
HISTORY OF LOSSES; IMPLEMENTATION OF BUSINESS STRATEGY. The Company has
never reported an operating profit since its incorporation. The Company's
business strategy is to seek purchasers for its share of the Seabrook Project
electricity output at prices, either in the short-term market or pursuant to
medium or long-term contracts, significantly in excess of the prices currently
available in the short-term wholesale electricity market since sales at current
short-term rates do not result in sufficient revenue to enable the Company to
meet its cash requirements for operations, maintenance and capital related
costs. The Company's ability to obtain such higher prices will depend on
regional, national and worldwide energy supply and demand factors which are
beyond the control of the Company. There can be no assurance that the Company
ever will be able to sell power at prices that will enable it to meet its cash
requirements.
LIQUIDITY NEEDS. The Company had approximately $16.5 million in cash, cash
equivalents and short-term investments at December 31, 1995. The Company
believes that such cash, together with the anticipated proceeds from the sale of
electricity by the Company, will be sufficient to enable the Company to meet its
cash requirements until the prices at which the Company can sell its electricity
increase sufficiently to enable the Company to cover its annual cash
requirements. However, if the Seabrook Project operates at a capacity factor
below historical levels, or if expenses associated with the ownership or
operation of the Seabrook Project, including without limitation decommissioning
costs, are materially higher than anticipated, or if the prices at which the
Company is able to sell its share of the Seabrook Project electricity do not
increase at the rates and within the time expected by the Company, the Company
would be required to raise additional capital, either through a debt financing
or an equity financing, to meet its ongoing cash requirements. There is no
assurance that the Company would be able to raise such capital or that the terms
on which any additional capital is available would be acceptable. If additional
funds are raised by issuing equity securities, dilution to then existing
stockholders will result.
CHANGES IN POWER SALE CONTRACT TERMS AVAILABLE IN WHOLESALE POWER
MARKET. In the past, wholesale sellers of electric power, which typically were
regulated electric utilities, frequently entered into medium or
15
<PAGE> 2
long-term power sale contracts providing for prices in excess of the prices
available in the short-term market. Recently, increased competition in the
wholesale electric power market, reduced growth in the demand for electricity
and low prices in the short-term market have reduced the willingness of
wholesale power purchasers to enter into medium or long-term contracts and have
reduced the prices obtainable from such contracts.
RISKS IN CONNECTION WITH JOINT OWNERSHIP OF SEABROOK PROJECT. The Company
is required under the Agreement for Joint Ownership, Construction and Operation
of New Hampshire Nuclear Units dated May 1, 1973, as amended, by and among the
Company and the other 11 utility companies who are owners of the Seabrook
Project (the "JOA"), to pay its share of Seabrook Unit 1 and Seabrook Unit 2
expenses, including without limitation operations and maintenance expenses,
construction and nuclear fuel expenditures and decommissioning costs, regardless
of the level of Seabrook Unit 1's operations. Under certain circumstances, a
failure by the Company to make its monthly payments under the JOA entitles
certain other joint owners of the Seabrook Project to purchase the Company's
interest in the Seabrook Project for 75% of the then fair market value thereof.
In addition, the failure to make monthly payments under the JOA by owners
of the Seabrook Project other than the Company may have a material adverse
effect on the Company by requiring the Company to pay a greater proportion of
the Seabrook Unit 1 and Seabrook Unit 2 expenses in order to preserve the value
of its share of the Seabrook Project. In the past, certain of the owners of the
Seabrook Project other than the Company have not made their full respective
payments.
The Seabrook Project is owned by the Company and the other owners thereof
as tenants in common, with the various owners holding varying ownership shares.
This means that the Company, which owns only a 12.1% interest, does not have
control of the management of the Seabrook Project. As a result, decisions may be
made affecting the Seabrook Project, notwithstanding the Company's opposition.
Certain costs and expenses of operating the Seabrook Project or owning an
interest therein, such as certain insurance and decommissioning costs, are
subject to increase or retroactive adjustment based on factors beyond the
Company's control. The cost of disposing of Unit 2 of the Seabrook Project is
not known at this time. These various costs and expenses may adversely effect
the Company, possibly materially.
EXTENSIVE GOVERNMENT REGULATION. The Seabrook Project is subject to
extensive regulation by federal and state agencies, including the NRC, FERC and
the NHPUC. Compliance with the various requirements of the NRC and FERC is
expensive. Noncompliance with NRC requirements may result, among other things,
in a shutdown of the Seabrook Project.
The NRC has promulgated a broad range of regulations affecting all aspects
of the design, construction and operation of a nuclear facility, such as the
Seabrook Project, including performance of nuclear safety systems, fire
protection, emergency response planning and notification systems, insurance and
quality assurance. The NRC retains authority to modify, suspend or withdraw
operating licenses, such as that pursuant to which the Seabrook Project
operates, at any time that conditions warrant. The NRC might order Seabrook Unit
1 shut down (i) if flaws were discovered in the construction or operation of
Seabrook Unit 1, (ii) if problems developed with respect to other nuclear
generating plants of a design and construction similar to Unit 1, or (iii) if
accidents at other nuclear facilities suggested that nuclear generating plants
generally were less safe than previously believed.
RISK OF NUCLEAR ACCIDENT. Nuclear reactors have been used to generate
electric power for more than 30 years and there are currently more than 100
nuclear reactors used for electric power generation in the United States.
Although the safety record of such nuclear reactors in the United States
generally has been very good, accidents and other unforeseen problems have
occurred both in the United States and elsewhere, including the well-publicized
incidents at Three Mile Island in Pennsylvania and Chernobyl in the former
Soviet Union. The consequences of such an accident can be severe, including loss
of life and property damage, and the available insurance coverage may not be
sufficient to pay all the damages incurred.
PUBLIC CONTROVERSY CONCERNING NUCLEAR POWER PLANTS. Substantial
controversy has existed for some time concerning nuclear generating plants and
over the years such opposition has led to construction delays, cost overruns,
licensing delays, demonstrations and other difficulties. The Seabrook Project
was the subject of
16
<PAGE> 3
significant public controversy during its construction and licensing and remains
controversial. An increase in public concerns regarding the Seabrook Project or
nuclear power in general could adversely affect the operating license of
Seabrook Unit 1. While the Company cannot predict the ultimate effect of such
controversy, it is possible that it could result in a premature shutdown of the
unit.
WASTE DISPOSAL; DECOMMISSIONING COST. There has been considerable public
concern and regulatory attention focused upon the disposal of low- and
high-level nuclear wastes produced at nuclear facilities and the ultimate
decommissioning of such facilities. As to waste disposal concerns, both the
federal government and the State of New Hampshire are currently delinquent in
the performance of their statutory obligations. This has necessitated on-site
storage of such wastes at the Seabrook Project. Although LLW storage facilities
in Utah and South Carolina became available in 1995, certain LLW continue to be
stored on-site at the Seabrook Project. The Seabrook Project anticipates
increasing its on-site storage capacity for low-level wastes in 1996. The
increased capacity is expected to be sufficient through 2006. In addition, the
Managing Agent has advised the Company that the Seabrook Project has adequate
on-site storage capacity for high-level wastes until approximately 2010.
As to decommissioning, the NRC regulations require that upon permanent
shutdown of a nuclear facility, appropriate arrangements for full
decontamination and decommissioning of the facility be made. These regulations
include a requirement to set aside during operation sufficient funds to defray
decommissioning costs. While the owners of the Seabrook Project are accumulating
a trust fund to defray decommissioning costs, these costs could substantially
exceed the value of the trust fund, and the owners (including the Company) would
remain liable for the excess. Moreover, the amount that is required to be
deposited in the trust fund is subject to periodic review and adjustment by an
independent commission of the State of New Hampshire, which could result in
material increases in such amounts. Such a review is currently in process.
INTENSE COMPETITION. The Company sells its share of Seabrook Project
electricity primarily into the Northeast United States wholesale electricity
market. There are a large number of suppliers to this market and a surplus of
electricity, resulting in intense competition. A primary source of competition
comes from traditional utilities, many of which presently have excess capacity.
In addition, non-utility wholesale generators of electricity, such as
independent power producers ("IPPs"), Qualifying Facilities ("QFs") and EWGs, as
well as power marketers and brokers, actively sell electricity in this market.
The Company may face increased competition, primarily based on price, from all
such sources in the future.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The response to this item is submitted in the response found under Item
14(a)(i) in this report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Coopers & Lybrand L.L.P., whose report for the year ended December 31,
1993, appears elsewhere in this Annual Report on Form 10-K, were the Company's
independent accountants until November 23, 1994. In connection with the
Company's bankruptcy proceeding, the Bondholders' Committee determined to select
a new accounting firm to be engaged by the Company following the Company's
emergence from bankruptcy. Coopers & Lybrand L.L.P. did not resign and did not
decline to stand for reelection. During the period of Coopers & Lybrand L.L.P.'s
engagement by the Company, there were no disagreements between Coopers & Lybrand
L.L.P. and the Company on any matters of accounting principles or practices,
financial statement disclosure or auditing scope or procedure and no reportable
events relating to the relationship between the Company and Coopers & Lybrand
L.L.P.
On November 26, 1993 the Bankruptcy Court approved the Company's selection
of Arthur Andersen LLP as the Company's independent accountant, to be effective
only upon the Company's emergence from bankruptcy. Prior to November 23, 1994
the Predecessor Company had not consulted Arthur Andersen LLP regarding the
application of accounting principles to specified transactions or the type of
audit opinion that might be rendered on the Company's financial statements
during the periods from January 1, 1991 through December 31, 1993.
17
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF GREAT BAY POWER CORPORATION FOR THE THREE MONTHS ENDED
MARCH 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<EXCHANGE-RATE> 1
<CASH> 11,984
<SECURITIES> 4,759
<RECEIVABLES> 2,543
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 6,865
<PP&E> 113,175
<DEPRECIATION> 4,613
<TOTAL-ASSETS> 140,103
<CURRENT-LIABILITIES> 3,594
<BONDS> 0
0
0
<COMMON> 80
<OTHER-SE> 82,136
<TOTAL-LIABILITY-AND-EQUITY> 140,103
<SALES> 6,891
<TOTAL-REVENUES> 6,891
<CGS> 5,775
<TOTAL-COSTS> 7,689
<OTHER-EXPENSES> 219
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (1,017)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,017)
<EPS-PRIMARY> (0.13)
<EPS-DILUTED> (0.13)
</TABLE>
