SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): DECEMBER 10, 1996
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BANGOR HYDRO-ELECTRIC COMPANY
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(Exact name of registrant as specified in its charter)
MAINE 0-505 01-0024370
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(State of Incorporation) (Commission File No.) (IRS Employer ID No.)
33 STATE STREET, BANGOR, MAINE 04401
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 207-945-5621
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Current Report, Form 8-K Date of Report
BANGOR HYDRO-ELECTRIC COMPANY DECEMBER 26, 1996
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ITEM 5. OTHER EVENTS
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MAINE YANKEE ATOMIC POWER COMPANY. As previously reported, Maine
Yankee Atomic Power Company ("Maine Yankee"), of which the Company is a 7-
percent owner, and which owns and operates a nuclear generating plant in
Wiscasset, Maine (the "Plant"), underwent a comprehensive Independent Safety
Assessment ("ISA") conducted by the Nuclear Regulatory Commission ("NRC") in
the summer of 1996. On October 7, 1996, the NRC released its report on the
ISA, which generally concluded that overall performance at Maine Yankee was
adequate for operation of the Plant, and that the significant deficiencies
noted in the report stemmed from two closely related "root causes". The
report indicated that the root causes were: (1) that economic pressure to be
a low cost energy provider had limited available resources to address
corrective actions and some improvements; and (2) that a questioning culture
was lacking, which had resulted in a failure to identify or promptly correct
significant problems in areas perceived by Maine Yankee to be of low safety
significance. Maine Yankee has developed and commenced implementation of a
comprehensive plan for improved performance in several areas, including some
areas cited as strengths as well as others deemed deficient by the ISA
report. For a more detailed description of the ISA report and investigations
of Maine Yankee by the NRC and the United States Department of Justice, see
the Company's Quarterly Report on Form 10-Q for the quarterly period ended
September 30, 1996 ("Third Quarter Form 10Q").
On December 10, 1996, Maine Yankee filed its formal response to
the ISA report with the NRC. In its response Maine Yankee indicated that it
would substantially increase expenditures to address the deficiencies noted
in the ISA report, and that the improvements would include physical and
operating changes at the Plant, as well as increased staffing, primarily in
the engineering and maintenance areas, and other changes.
Consequently, at a meeting on December 13, 1996, Maine Yankee's
Board of Directors voted to increase the Plant's 1997 operating budget by
approximately $29.8 million in order to address the deficiencies identified
in the ISA. The Company's share of this additional amount will be
approximately $2.1 million. The 1997 Maine Yankee budget represents about a
20% increase in the budget for annual non-fuel operating and maintenance
expenditures over that which might have otherwise been expected based on
recent history.
The ISA findings and the results of other, previously reported
investigations may lead to the imposition of fines and penalties on Maine
Yankee. The Company cannot predict the impact of any such fines or
penalties.
As previously reported, the Plant has been limited to operating at
90 percent of capacity throughout most of 1996 pending the resolution of
issues related to investigations initiated by the NRC. The Company is
incurring replacement power costs of approximately $75,000 to $100,000 each
month the Plant operates at 90 percent of capacity in order to make up for
the restricted operation. The Company cannot predict when or if the Plant
will be allowed to return to operation at 100% of capacity.
On December 6, 1996, the Plant was taken off line to resolve
cable-separation and associated issues, which Maine Yankee has said could be
completed by early January 1997. The NRC has notified Maine Yankee, however,
that returning the Plant to service will require NRC approval. Although
Maine Yankee has said it does not expect the inspection to result in an
extended outage, it cannot predict when the Plant will be allowed to return
to service. When the Plant is off line, the Company incurs replacement power
costs of approximately $750,000 to $1 million per month.
On December 20, 1996, Maine Yankee announced that its President and Chief
Executive Officer, Charles D. Frizzle, had submitted his resignation to
facilitate a broad restructuring effort. The announcement stated that Mr.
Frizzle, President of Maine Yankee since January 1989, would continue to
carry out his duties and assist the Board of Directors in the transition
process, then step down once a successor had been selected, which is expected
to be in early 1997. A temporary committee of the board will oversee all
major aspects of the transition, which will include a comprehensive review of
management.
IMPACT ON THE COMPANY. The Company is analyzing the potential effect upon
its financial condition of the higher Maine Yankee costs and continuing
uncertainties regarding the Plant's availability. The Company's credit
agreements with its lending banks and the Finance Authority of Maine contain
a number of covenants keyed to the Company's financial condition and
performance. One such covenant prohibits the Company from paying out in
dividends on its common stock more than 70% of its earnings applicable to
common stock in any calendar year. The incurrence of the higher Maine Yankee
costs increases the possibility that the Company's financial performance will
fall below the level needed to comply with this covenant. Waivers of, or
amendments to, certain other covenants may also be necessary, depending on
the Company's operating results during the year and other factors.
As previously discussed in the Third Quarter Form 10Q, the Company
is continuing to pursue potential cost savings throughout its operations,
particularly with respect to the costs of generating and purchasing power.
Additionally, the Company is exploring other measures that might be
implemented to avoid a need to reduce the common stock dividend payout in
1997. However, all of these potential actions are dependent in part on
factors outside the control of the Company, and the Company accordingly
cannot predict whether or when they can be successfully implemented.
BANGOR HYDRO-ELECTRIC COMPANY
by /s/ David R. Black
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David R. Black
Controller
(Chief Accounting Officer)
Dated: December 26, 1996
