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): JANUARY 29, 1997
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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 FEBRUARY 19, 1997
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ITEM 5. OTHER EVENTS
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Maine Yankee Atomic Power Company. The Company is the owner of 7
percent of the common stock of Maine Yankee Atomic Power Company ("Maine
Yankee"), which owns the Maine Yankee nuclear generating plant at Wiscasset,
Maine (the "Plant"). As previously reported, the Plant has been limited to
operating at 90 percent of capacity since early 1996 pending the resolution
of issues relating to investigations initiated by the United States Nuclear
Regulatory Commission ("NRC") and has been off line since December 6, 1996 to
address cable-separation and associated issues. The NRC Regional
Administrator has informed Maine Yankee that prior to restarting the Plant,
he must agree that the Plant is sufficiently prepared for resumption of
operations. While the Plant has been out of service Maine Yankee, having
previously detected indications of minor leakage in a small number of the
Plant's 38,000 fuel rods, used the opportunity to inspect all of the Plant's
217 fuel assemblies (which are "bundles" of fuel rods). As a result of the
inspection, Maine Yankee has determined that all of the fuel assemblies
manufactured by Westinghouse currently in the nuclear reactor core (about
one-third of the total) will have to be replaced before the Plant is
restarted. Therefore, the Plant will now continue off-line for refueling - a
process that had not been scheduled until later in the year. Maine Yankee
will also make use of this outage to inspect the steam generators for
deterioration beyond that which was repaired during a year-long outage in
1995. Degradation of steam generators of the age and design of those in use
at Maine Yankee has been identified at other plants. The Company cannot
predict how long Maine Yankee will remain out of service.
Maine Yankee has engaged Entergy Corporation ("Entergy"), a
Louisiana-based utility holding company and leading nuclear plant operator.
Officials from Entergy assumed management positions at the Plant on February
10, 1997.
On January 29, 1997, the NRC announced that it had placed the Plant on
its "watch list," in "Category 2," which includes plants that display
"weaknesses that warrant increased NRC attention," but which are not severe
enough to warrant a shut-down order. The NRC has indicated that its watch
list reserves Category 1 for plants that are no longer "problem facilities,"
but are still being monitored, and Category 3 for plants that have been
ordered to shut down and demonstrate "substantial improvement" before the NRC
permits a restart. Plants in Category 2 remain in that category "until the
licensee demonstrates a period of improved performance." The Plant is one of
14 nuclear units on the watch list released by the NRC on January 29 and one
of six listed there for the first time. The NRC regulates slightly over 100
civilian nuclear power plants in the United States.
Impact on the Company. The Company has been incurring incremental
replacement-power costs of approximately $1 million per month while the Plant
has been out of service and expects such costs to continue at least at the
same rate until the Plant returns to service. In addition, the Company is
responsible for 7 percent of whatever additional costs are necessary to
return the Plant to service. In December 1996 the Maine Yankee board of
directors approved about $30 million in additional O&M costs for 1997 (in
addition to incremental capital costs), and, while revised budgets have not
been approved, those costs are now likely to be greater.
The worsening of the Company's financial condition caused by the
ongoing Maine Yankee problems is causing the Company to increase its focus on
reducing costs and increasing revenue. As an important part of this effort,
as previously reported the Company is aggressively attempting to mitigate the
impact of the uneconomic power purchases it is required to make from a trash-
to-energy plant in Orrington, Maine (the Penobscot Energy Recovery Company,
or "PERC"). Efforts to resolve this matter are being accelerated, but the
Company cannot predict whether these efforts will be successful.
Efforts to increase revenue include innovative pricing and
marketing in order to increase sales, and initiatives for the provision of
other services. While the Company is experiencing some success in these
areas and believes these efforts must continue, the benefits of this strategy
are longer-term and are not likely to substantially offset the impact of the
current challenges posed by the Maine Yankee problems. Therefore, the
Company is also preparing to submit a request for a rate increase with the
Maine Public Utilities Commission ("MPUC"). As the Company has stated on
prior occasions, it does not believe that an overall increase in its rates is
in the Company's long-term best interests for success in the emerging
competitive environment. Nevertheless, the short-term need for greater
revenue requires some form of increased rates. The Company intends that any
such increase would be held to a minimum. It is unlikely that any increase
will take effect before early 1998. The Company's most recent overall rate
increase took effect in January 1992.
The Company's above-mentioned deteriorating financial condition,
combined with the uncertainty about the timing and the level of success of
the strategies being implemented to address it, increases the likelihood that
the Board of Directors must carefully review the sustainability of its
current dividend payout. The next occasion for the Board of Directors to
consider the declaration of dividends will be at the March 1997 meeting,
presently scheduled to be held on March 19, 1997. In addition, as previously
reported, various agreements with the Company's lenders include covenants
restricting the payment of dividends and requiring compliance with other
financial tests, and the likelihood that the Company will be unable to meet
the requirements of these covenants is increasing.
Potential Voter Referendum on Maine Yankee. A Maine-based citizens group
has announced the commencement of an effort to force a voter referendum on
Maine Yankee. The announced intention was originally to force the permanent
shutdown of the Plant in the year 2000. That intention has evidently been
modified to propose that the Plant be required to shut down permanently at
the end of its current operating license in 2008. The Company cannot predict
the outcome of any such referendum.
BANGOR HYDRO-ELECTRIC COMPANY
by /s/ Frederick S. Samp
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Frederick S. Samp
Chief Financial Officer
Dated: February 19, 1997
