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): JUNE 25, 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 JUNE 27, 1997
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Item 5. Other Events
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Restructuring of Power Purchase Contract:
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As previously reported, the Company has been working to restructure a
power purchase contract with the Penobscot Energy Recovery Company ("PERC"), its
last remaining high-priced non-utility generator contract that offers a
potential for substantial savings. PERC owns a waste-to-energy facility in
Orrington, Maine that provides solid waste disposal services to many communities
in central, eastern and northern Maine. The contract requires the Company to
purchase the electricity output of the plant until 2018 at a price that is
presently above the cost of alternative sources of power, and, in the Company's
opinion, is likely to remain so. The Company has been working with PERC and the
affected municipalities at a restructuring of the power contract that would
result in substantial savings for the Company and would continue to allow PERC
to meet the solid waste disposal needs of Maine communities.
In Management's Discussion and Analysis of Operations and Financial
Condition contained in the Company's Form 10-K for the year ended December 31,
1996, the Company discussed what appeared at that time to be the outline of a
satisfactory arrangement to all interested parties for the restructuring of the
PERC contract. Since that time, the Company has continued to negotiate with
PERC and the affected municipalities and has modified and refined the terms
previously discussed somewhat to take into account further concerns raised by
the municipalities. The Company has now reached an agreement with PERC and a
committee representing the municipalities that includes the following major
components:
1. The Company would make an initial payment to PERC of $8 million and
installment payments through 2002 totalling an additional $2 million. These
funds would be retained by PERC to meet operation and debt reserve requirements
of the PERC plant.
2. As of May 31, 1997, the PERC plant was financed in part by tax
exempt municipal revenue bonds in the principal amount of $50,300,000 payable
pursuant to a sinking fund schedule and finally maturing in 2004. Sinking fund
payments of $1,200,000 are required on August 1 and November 1 of 1997. The
credit on those bonds is enhanced by letters of credit issued by a group of
banks. Those bonds would be restructured to extend the maturity date to 20
years from the date of closing. The bonds would continue to be tax exempt and
their credit would be enhanced by the moral obligation of the State of Maine
under the auspices of the Finance Authority of Maine ("FAME") pursuant to the
State of Maine's Electric Rate Stabilization Program. The extended maturity of
low cost bonds would, therefore, provide savings to be shared by the parties.
3. The Company would continue to purchase power at the rates
established under the PERC contract. Payments would be made to a trust from
which disbursements would be made according to the following priorities:
a. debt service and expense, including all principal and interest;
b. trustee and bond related fees and expenses;
c. all operating and maintenance expenses of the PERC plant;
d. operating and management fees paid to the PERC partners pursuant to
a partnership operating agreement;
e. payment to the PERC owners of any savings in interest expense
resulting from the prepayment of bonds; and
f. except for cash reserve requirements, all remaining cash would be
distributed 1/3 to the Company, 1/3 to the PERC owners and 1/3 to the
participating municipalities.
4. The Company would issue warrants for the purchase of two million shares of
its common stock, one million each to the PERC owners and the participating
municipalities. The warrants would be exercisable within ten years of their
issuance and would entitle the holder to purchase common stock for $7 per share
(subject to adjustment under certain circumstances). No warrants may be
exercised within the first nine months after their issuance, and they would
become exercisable in 500,000 share blocks following the expiration of nine
months, 21 months, 33 months and 45 months from the closing date. Upon
exercise, the Company would have the option, instead of providing common stock,
to pay cash equal to the difference between the then market price of the stock
and the exercise price of $7 per share times the number of shares as to which
exercise is made. The Company's obligation under the letter of intent would be
specifically conditioned upon receipt of authorization from the Maine Public
Utilities Commission ("MPUC") to recover in rates the difference between the
market value of stock issued and the $7 per share exercise price or,
alternatively, any payment of cash under the Company's option.
5. The municipalities would extend their waste disposal contracts
through 2017 and waive their existing rights to an early termination or the
buyout of PERC.
There are a number of events upon which the proposed transaction is
contingent, including the approval of the MPUC, approval by the affected
municipalities, the rendering of an opinion by bond counsel that the PERC bonds
will remain tax exempt, the approval of the new financing arrangement by FAME
and its Board of Directors, and the financing of necessary cash payments by the
Company.
Depending in part on the ultimate cost of the warrants to the Company,
it is projected that the restructured PERC contract will result in net cost
savings with a present value of $30-40 million over the remaining life of the
contract. That projection is based upon a number of assumptions about future
events and the markets for electricity.
Temporary Rate Increase
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As previously reported, on April 1, 1997, the Company filed with the
MPUC a Petition for Temporary Rates to increase its rates to allow for a $10
million increase in annual revenues, and requested that the change take effect
on June 1, 1997. The Company asked that the temporary rate change be allowed to
remain in effect until final disposition of the Company's pending request for
permanent rate changes expected in early 1998.
On June 26, 1997, the MPUC issued an order authorizing the Company
to change rates to increase its annual revenues by approximately $5.1
million. In doing so, however, the MPUC also required the Company to
accelerate the amortization of the deferred regulatory asset associated with
the 1993 buyout of one of its high-priced non-utility generator contracts.
As a result, the rate increase is not expected to have any net impact on
earnings but will result in increased cash flow. The MPUC authorized the
Company to apply the rate increase only to "core" customers and not to those
customers who purchase pursuant to special rate contracts or under rates
designed to be competitive with energy alternatives.
BANGOR HYDRO-ELECTRIC COMPANY
by /S/ Frederick S. Samp
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Frederick S. Samp
Chief Financial Officer
Dated: June 27, 1997
