SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR SECTION
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended JUNE 30, 2000 Commission File No. 0-505
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BANGOR HYDRO-ELECTRIC COMPANY
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(Exact Name of Registrant as specified in its Charter)
MAINE 01-0024370
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(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification 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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NONE
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Former Name, Former Address and Former Fiscal Year,
if Changed Since Last Report
Outstanding Common Stock, $5 Par Value - 7,363,424 Shares
June 30, 2000
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
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FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 2000
PART I - FINANCIAL INFORMATION
PAGE
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Cover Page 1
Index 2
Consolidated Statements of Income 3
Management's Discussion and Analysis of Results of
Operations and Financial Condition 4
Consolidated Balance Sheets - June 30, 2000 and
December 31, 1999 30
Consolidated Statements of Capitalization 32
Consolidated Statements of Cash Flows 33
Consolidated Statements of Common Stock Investment 34
Notes to the Consolidated Financial Statements 35
PART II - OTHER INFORMATION 47
Item 4 - Submission of Matters to a Vote of
Security Holders 48
Item 6 - Exhibits and Reports on Form 8-K 48
Signature Page 49
<TABLE>
BANGOR HYDRO-ELECTRIC COMPANY
CONSOLIDATED STATEMENTS OF INCOME
000's Omitted Except Per Share Amounts
(Unudited)
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30, June 30, June 30,
2000 1999 2000 1999
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<S> <C> <C> <C> <C>
ELECTRIC OPERATING REVENUES $ 48,563 $ 47,299 $ 98,684 $ 97,521
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OPERATING EXPENSES:
Fuel for generation and purchased power $ 25,514 $ 18,837 $ 47,397 $ 37,352
Other operation and maintenance 9,921 8,636 18,792 18,229
Depreciation and amortization 2,399 2,346 4,370 4,866
Amortization of Seabrook Nuclear Unit 425 425 850 850
Amortization of contract buyouts
and restructuring 5,639 5,201 11,033 10,401
Amortization of deferred asset sale gain (1,681) - (2,172) -
Taxes -
Property and payroll 1,210 1,340 2,597 2,973
State income 135 378 500 872
Federal income 349 1,634 2,358 3,590
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$ 43,911 $ 38,797 $ 85,725 $ 79,133
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OPERATING INCOME $ 4,652 $ 8,502 $ 12,959 $ 18,388
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OTHER INCOME AND (DEDUCTIONS):
Allowance for equity funds used
during construction $ 127 $ 158 $ (93) $ 301
Other, net of applicable income taxes 656 521 926 781
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$ 783 $ 679 $ 833 $ 1,082
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INCOME BEFORE INTEREST EXPENSE $ 5,435 $ 9,181 $ 13,792 $ 19,470
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INTEREST EXPENSE:
Long-term debt $ 3,960 $ 5,120 $ 7,939 $ 10,873
Other 260 336 497 864
Allowance for borrowed funds used
during construction (124) 273 79 69
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$ 4,096 $ 5,729 $ 8,515 $ 11,806
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NET INCOME $ 1,339 $ 3,452 $ 5,277 $ 7,664
DIVIDENDS ON PREFERRED STOCK 67 278 133 557
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EARNINGS APPLICABLE TO COMMON STOCK $ 1,272 $ 3,174 $ 5,144 $ 7,107
======== ======== ========= ==========
WEIGHTED AVERAGE NUMBER OF SHARES 7,363 7,363 7,363 7,363
======== ======== ========= ==========
EARNINGS PER COMMON SHARE,
Basic $ .17 $ .43 $ .70 $ .97
Diluted .15 .38 .62 .86
======== ======== ========= ==========
DIVIDENDS DECLARED PER COMMON SHARE $ .20 $ .15 $ .40 $ .15
======== ======== ========= ==========
See notes to the consolidated financial statements.
</TABLE>
BANGOR HYDRO-ELECTRIC COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
Management's Discussion and Analysis of the Results of Operations and
Financial Condition contained in Bangor Hydro-Electric Company's (the Company
or Bangor Hydro) Annual Report on Form 10-K for the year ended December 31,
1999 (1999 Form 10-K) should be read in conjunction with the comments below.
EARNINGS
For the quarters ended June 30, 2000 and 1999 basic earnings per
common share were $.17 and $.43, respectively. The difference in earnings
from the same quarter in 1999 is in large part attributable to new rates
implemented by order of the Maine Public Utilities Commission (MPUC)
effective March 1, 2000 that reflect a lower authorized return on equity of
11% in Maine's restructured electric industry. The Company's previous
authorized return on equity was 12.75%. Also affecting second quarter 2000
earnings was the recognition of $1.1 million in costs related to the proposed
merger with Emera Inc. (Emera), formerly NS Power Holdings Inc., that was
announced on June 30, 2000 ($.09 per common share after taxes) and costs
billed to the Company associated with transmission constraints in New England
($.03 per common share after taxes). Somewhat offsetting these factors was
an increase in sales to the Company's customers of 3.2% in the second quarter
of 2000. Positively impacting second quarter 1999 earnings was a one-time
benefit of $896,000 ($.07 per common share after taxes) related to the
settlement of a dispute related to the New England Power Pool (NEPOOL).
IMPORTANT CURRENT ACTIVITIES
PROPOSED MERGER AGREEMENT WITH EMERA - On June 29, 2000, the Company entered
into a definitive merger agreement with Emera of Halifax, Nova Scotia,
pursuant to which Emera will acquire all of the outstanding shares of common
stock of Bangor Hydro for US$26.50 per share in cash. After the closing of
the merger, each of Bangor Hydro's outstanding warrants to purchase common
stock will entitle the holder to receive US$26.50 in cash, less the exercise
price. For a discussion of the common stock warrants, see the notes to the
consolidated financial statements in the 1999 Form 10-K. The equity market
value of the transaction is approximately $206 million. The transaction will
take the form of a merger of Bangor Hydro with a U.S. corporate subsidiary to
be formed by Emera. Upon completion of the merger, Bangor Hydro will be a
wholly-owned subsidiary of Emera. Bangor Hydro's outstanding debt and
preferred stock will not be affected by the transaction.
The transaction is subject to a number of approvals, including the
approval of Bangor Hydro's shareholders and regulatory approvals from the
MPUC, the Federal Energy Regulatory Commission (FERC), and the Securities and
Exchange Commission. Receipt of the approvals necessary for closing is
expected to take 9 to 12 months.
The merger is part of Emera's strategy to grow its business beyond
its current borders. Bangor Hydro will operate as a standalone division of
Emera and will be the base for Emera to launch other initiatives. The
companies will share best practices learned from their respective utility
system operations.
Emera is a diversified energy and services company, with 440,000
customers and (Cdn)$2.96 billion in assets. It owns 100% of Nova Scotia
Power, Inc., the primary electricity supplier in the province of Nova Scotia.
Emera's energy product line also includes bunker oil, diesel fuel and light
fuel oil, and the company has a 12.5% interest in the Maritimes & Northeast
Pipeline, which delivers Sable Island natural gas to markets in Maritime
Canada, and the northeastern United States.
IMPLEMENTATION OF COMPETITION IN ELECTRIC UTILITY INDUSTRY - In connection
with the state of Maine's electric industry restructuring law, effective
March 1, 2000, consumers of electricity have the right to purchase generation
services directly from competitive electricity suppliers. The Company's
electric rates were changed effective March 1, as well, to reflect the
Company's revenue requirement as a transmission and distribution utility,
including the recovery of stranded costs. The electric utility industry
restructuring and the Company's associated rate proceedings at the MPUC are
discussed in more detail in the 1999 Form 10-K.
As discussed in the 1999 Form 10-K, the restructuring law also
provided for a standard-offer service being available for all customers who
do not choose to purchase energy from a competitive supplier starting March
1, 2000. As a result of the bids from competitive energy suppliers to
provide energy under the standard- offer service being higher than
anticipated, and as ordered by the MPUC, the Company assumed the
responsibility of being the standard-offer service provider starting March 1,
2000 for a one-year period. At the end of this period, it is anticipated that
the Company will no longer be the standard-offer service provider, although
this is dependent upon the level of future bids from competitive energy
suppliers to serve the standard-offer load and MPUC approvals. The MPUC
established the schedule of rates the Company may charge for this service
starting March 1, 2000.
The Company has entered into arrangements with third parties to
purchase the energy to serve the standard-offer customers. The Company is
allowed by the MPUC to defer the difference between revenues realized from
the standard-offer sales and the costs incurred to provide this service,
including carrying costs on the deferred balance. As a result of this
reconciliation mechanism, standard-offer related revenues and expenses do not
have any impact on the Company's earnings, although they do result in
increases in both categories in the Company's consolidated statements of
income. The deferred amount will be recovered from/returned to customers in
a future rate proceeding. Since March 1, 2000, when new rates went into
effect, the Company has recorded a regulatory asset of $.5 million related to
the excess of costs over revenues incurred in connection with the standard-
offer service. The excess of costs is due principally to unusually high
purchased power costs for one day in May 2000 that is discussed below. The
$.5 million is included in Other regulatory assets on the Consolidated
Balance Sheets at June 30, 2000.
BANGOR GAS INVESTMENT - As discussed in the 1999 Form 10-K, the Company
announced in late 1999 that it no longer intended to participate in the
Bangor Gas Company, LLC (Bangor Gas) joint venture and intended to sell its
joint venture interest. On July 13, 2000, the Company and Penobscot Natural
Gas Company (Penobscot Gas), the Company's wholly-owned subsidiary which
owned a 50% interest in Bangor Gas, completed a stock purchase agreement to
sell the Company's interest in Penobscot Gas to Sempra Energy (Sempra).
Sempra had owned the other 50% interest in Bangor Gas. A one-time gain on
the sale of Penobscot Gas of approximately $1.2 million will be recognized in
the third quarter of 2000. The consummation of this sale has no impact on
the previously discussed proposed merger agreement with Emera.
INCREASE IN COMMON STOCK DIVIDEND - On March 15, 2000 the Company's board of
directors declared a cash dividend on its common stock of $.20 per share.
The quarterly dividend represented a $.05 increase over the $.15 per share
dividend declared in each of the prior three quarters. In June of 1999, the
board of directors resumed payment of quarterly common stock dividends after
having suspended them in March 1997 due to financial difficulties triggered
by problems at the Maine Yankee nuclear generating plant. The Company has a
7% ownership interest in Maine Yankee, which was permanently shut down in
1997 and is now in the process of being decommissioned.
The Company's board of directors continues to take a cautious
approach to the payment of common dividends. The Company and other Maine
utilities are still in the process of implementing changes under Maine's
comprehensive electric utility restructuring law, and management is cognizant
of continuing uncertainties associated with this transition.
MAINE YANKEE - TERMINATION OF DECOMMISSIONING OPERATIONS CONTRACT - As
discussed in the 1999 Form 10-K, the Company owns 7% of the common stock of
Maine Yankee, which owns and, prior to its permanent closure in 1997,
operated an 880 megawatt nuclear generating plant (the Plant) in Wiscasset,
Maine. Pursuant to a contract with Maine Yankee, the Company is obligated to
pay its pro rata share of Maine Yankee's operating expenses, including
decommissioning costs.
On May 4, 2000, Maine Yankee notified its decommissioning operations
contractor, Stone & Webster Engineering Corporation (Stone & Webster), that
it was terminating the decommissioning operations contract pursuant to the
terms of the contract. Stone & Webster subsequently notified Maine Yankee
that it was disputing Maine Yankee's grounds for terminating the contract.
On May 8, 2000, Stone & Webster announced that it had signed a letter of
intent with Jacobs Engineering Group, Inc. (Jacobs), regarding a proposed
transaction in which Jacobs would acquire substantially all of Stone &
Webster's assets in exchange for an immediate credit facility and other
consideration, including cash and stock. Stone & Webster said that the
credit facility was intended to enable it to address its liquidity
difficulties and continue to operate its businesses until the asset sale was
completed. Stone & Webster also announced that it intended to seek
bankruptcy court approval of the asset sale and credit agreement.
On June 2, 2000, Stone & Webster filed a voluntary petition under
Chapter 11 of the U.S. Bankruptcy Code with the United States Bankruptcy
Court for the District of Delaware. By Sale Order dated July 13, 2000, the
Bankruptcy Court approved the sale of substantially all of Stone & Webster's
assets to the successful bidder in the Chapter 11 sale, The Shaw Group, Inc.
(Shaw), for cash, stock, and the assumption of certain liabilities of Stone &
Webster, and the earlier agreement with Jacobs was terminated. Stone &
Webster reported that the Shaw transaction was effectively closed on July 14,
2000, and that it would continue to operate as a Debtor-in-Possession subject
to the supervision and orders of the Bankruptcy Court.
As previously reported, on May 10, 2000, Maine Yankee entered into an
interim agreement with Stone & Webster in order to allow decommissioning work
to continue and avoid the adverse consequences of an abrupt or inefficient
demobilization from the Plant site. After obtaining assignments of several
subcontracts from Stone & Webster and upon termination of the interim
agreement on July 1, Maine Yankee at least temporarily assumed the general
contractor role, utilizing a reduced number of Stone & Webster personnel
under a revised interim agreement that expires on September 30, 2000. The
decommissioning of the Plant site is progressing, with major emphasis being
directed to maintaining the schedule on critical-path projects such as
construction of the independent spent fuel storage and preparation of the
Plant's reactor vessel for eventual shipment to an off-site disposal
facility.
On June 30, 2000, Federal Insurance Company (Federal), which provided
performance and payment bonds in the amount of $37.6 million each in
connection with the decommissioning operations contract, filed a Complaint
for Declaratory Judgement against Maine Yankee in the United States
Bankruptcy Court for the District of Delaware. The complaint alleges that
Maine Yankee improperly terminated the decommissioning operations contract
with Stone & Webster and failed to give proper notice of termination to
Federal under the contract, and that Federal therefore had no further
obligations under the bonds. Maine Yankee believes that its termination of
the decommissioning operations contract was proper, but cannot predict the
outcome of the litigation.
Maine Yankee is evaluating all available long-term alternatives for
and efficiently completing the decommissioning of the Plant site, including
the possibilities of contracting with a new decommissioning operations
contractor or assuming that function itself on a long-term basis. However,
Maine Yankee cannot predict at this point what affect the financial
difficulties of Stone & Webster and the termination of its decommissioning
operations agreement with Maine Yankee will have on the cost or schedule of
the decommissioning project.
In connection with the state of Maine's electric industry
restructuring law, the Company was allowed the recovery of Maine Yankee
decommissioning costs as a component of its stranded costs. In the Company's
rate order from the MPUC that became effective March 1, 2000, the Company was
allowed to defer the amount of any future FERC ordered changes in Maine
Yankee's decommissioning collections. Consequently, management does not
believe that Maine Yankee's current decommissioning contractor difficulties
will have a material adverse impact on the Company's results of operations,
financial condition or cash flows.
REVENUES
With the previously discussed implementation of competition in the
electric utility industry starting March 1, 2000, and excluding the standard-
offer service, the Company is no longer selling electricity to customers.
The Company's transmission and distribution and stranded cost charges to
customers, though, continue to be based on customers' electricity usage
measured in kilowatt-hours (KWH). Consequently, discussion related to
electric operating revenues will continue to have a KWH sales component.
Electric operating revenue increased by $1.3 million in the second quarter of
2000. The increase is due to several factors. Off-system sales, which are
sales related to power pool and interconnection agreements and resales of
purchased power, were approximately $772,000 higher in the 2000 quarter as a
result of the Company's requirement to resell the capacity and energy from
its six purchased power contracts pursuant to Chapter 307 of Maine's 1997 law
restructuring the State's electric industry (See the 1999 Form 10-k for a
more complete discussion). Other revenues (not attributable to KWH sales or
off-system sales) were approximately $1.9 million greater in the 2000 quarter
as compared to 1999 due principally to two factors. First, as a result of
the previously discussed deferral mechanism for the standard-offer service
revenues and costs, the Company recorded additional revenue of $1.8 million
in the second quarter of 2000 to recognize the standard-offer service
expenses in excess of revenues. Also, primarily as a result of electric
generators in the Company's service territory wheeling power over the
Company's transmission lines and out of its service territory, the Company
recorded approximately $1.1 million in higher transmission wheeling revenues
in the second quarter of 2000 as compared to the second quarter of 1999.
Offsetting these increases in other revenues was $1.1 million of revenue
recorded in June 1999 attributable to deferred expenses related to the
Company's generation asset sale in May 1999 (See the 1999 Form 10-K for a
complete discussion of the accounting for the generation asset sale).
While total KWH sales were 3.24% higher (excluding off-system sales)
in the second quarter of 2000 as compared to the 1999 quarter, as a result of
certain commercial and industrial customers choosing a competitive
electricity supplier starting March 1, 2000 and not falling under standard-
offer service, total electric operating revenues attributable to KWH sales
(excluding the previously discussed off-system sales) were $1.4 million lower
in the second quarter of 2000 than in the second quarter of 1999. The
increased sales were a function of customer growth and colder weather in
April and May of 2000.
Changes in the Company's rates also impacted the decrease in electric
operating revenues. On June 1, 1999 rates were increased by 1.36% in
connection with the Company's Alternative Rate Plan that was in effect at the
time, and as a result of the February 2000 rate order from the MPUC, the
Company's overall rates, including the impact of the standard-offer prices,
were reduced by approximately 2.9% starting March 1, 2000.
EXPENSES
Fuel for generation and purchased power expense increased $6.7
million in the second quarter of 2000 as compared to 1999. The increased
expense was a result of several factors. Total power purchases in the second
quarter of 2000 were fairly consistent with those in the 1999 quarter due to
the Company continuing to fulfill its existing power purchase contract
obligations subsequent to the implementation of the electric industry
restructuring on March 1, 2000 and procuring power to serve the standard-
offer load. In the second quarter of 2000, though, the Company purchased
significantly more power on the spot power market as compared to 1999
principally as a result of being ordered by the MPUC to serve the standard-
offer service customers starting March 1, 2000. In the second quarter of
1999 the Company had more power contracts in place than in 2000 and still
owned generation assets in 1999 through the asset sale in May 1999. These
resulted in lower fuel and purchased power costs in the second quarter of
1999. With more of the Company's power purchases being made in the spot
power market in 2000, the price of the power was affected by new market rules
implemented by NEPOOL in May 1999, which set prices for replacement purchases
from the pool at open market levels related to supply and demand as opposed
to marginal fuel costs. The result of the new market rules has been much
higher power costs. Also impacting power cost increases were very unusual
circumstances in NEPOOL for one day in each of the respective quarters, with
record-breaking loads occurring while many generators were still out of
service on spring maintenance. The result was on-peak power prices that, for
the June 1999 event were two to three times as great as would normally occur
during June. However, the May 2000 event resulted in prices that were even
about five times as high as the prices paid on the day in June 1999. Due to
these unusual one-day events in each quarter, the Company incurred
approximately $2 million more in purchased power costs on the day in 2000 as
compared to the day in 1999. As a result of the new market rules in NEPOOL
and the unusually high power costs for the two days in each quarter, the
price of spot market power was approximately $15/megawatt higher in the 2000
quarter as compared to 1999, which greatly increased the purchased power
expense.
There were also other factors impacting the increase in fuel and
purchased power expense in the second quarter of 2000, including the
previously discussed settlement of the dispute related to NEPOOL, which
resulted in a $896,000 reduction in expense in the second quarter of 1999.
Fuel and purchased power expense was also reduced in the 1999 quarter by an
approximately $352,000 increase in equity earnings (the Company records
equity earnings in MEPCO as a reduction in fuel for generation and purchased
power expense) from the Company's investment in MEPCO, which was principally
the result of a gain on sale of right-of-ways in connection with a natural
gas transmission pipeline which was being constructed in Maine. Also ISO New
England (ISO) expenses were greater in the second quarter of 2000 as compared
to 1999 due to the implementation of NEPOOL new market rules in May 1999 and
$350,000 in previously discussed ISO costs in the 2000 quarter associated
with transmission constraints.
Other operation and maintenance (O&M) expense increased by $1.3
million in the second quarter of 2000 as compared to 1999. The principal item
increasing other O&M expense in the 2000 quarter is the $1.1 million in costs
associated with the Company's proposed merger with Emera. Also increasing
other O&M expense was a $318,000 increase in O&M payroll due principally to
less labor in the 2000 quarter being charged to capital projects as compared
to 1999 as a result of less construction activity in 2000, and the impact of
a 4% wage rate increase for bargaining unit employees on January 1, 2000 and
various wage rate increases for non-bargaining unit employees. These labor
increases were partially offset by a reduction in the number of employees
resulting from the Company's divestiture of its generation assets in late May
1999. Further increasing other O&M in the second quarter of 2000 was the
amortization expense of $204,000 associated with certain incremental costs
deferred in 1999 and the first two months of 2000 in connection with the
implementation of the electric utility industry restructuring. The cost
deferrals were recorded in accordance with an accounting order from the MPUC
in 1999, and recovery was allowed in rates in the Company's February 2000
rate order from the MPUC over a three year period starting March 1, 2000.
Decreasing other O&M expense in the second quarter of 2000 was a
$436,000 reduction in bad debt expense attributable to a $264,000 reduction
in the reserve for bad debts and lower write-offs in 2000. With the Company's
new rates starting March 1, 2000 and the reduction in the Company's revenues
due to no longer selling electricity to customers (excluding the standard-
offer service), the Company's level of bad debts have decreased. Also
reducing other O&M expense was the timing of regulatory assessments from the
MPUC and Office of the Public Advocate (OPA). In the second quarter of 1999
the Company recorded expense of $509,000 associated with the MPUC assessment,
while in the 2000 quarter the Company had only received the OPA assessment
amounting to $116,730. The Company expects to record the MPUC assessment for
2000 in the third quarter, while in 1999, the OPA assessment was recorded in
the third quarter.
Depreciation and amortization expense increased $53,000 in the second
quarter of 2000 as compared to the 1999 quarter due to property additions.
Also increasing depreciation expense in the 2000 quarter was the effect of a
depreciation study conducted in December 1996, which determined that the
Company's reserve for depreciation was overaccumulated by approximately $3.6
million. In connection with the MPUC's rate order in February 1998, the
Company was allowed to amortize this balance over a two-year period, starting
in February 1998. The amortization was adjusted in June 1999 as a result of
the previously discussed generation asset sale. The amortization recorded as
a reduction in depreciation expense in the second quarter of 1999 amounted to
$501,000. These increases were offset to some extent by the reduction in
depreciation expense as a result of the generation asset sale.
The $438,000 increase in amortization of contract buyouts and
restructuring in the 2000 quarter was due to changes, effective March 1, 2000
with the implementation of new rates, in the amortization of the deferred
Beaver Wood contract buyout costs and the deferred costs associated with the
June 1998 restructuring of the Penobscot Energy Recovery Company (PERC)
purchased power contract. The Beaver Wood amortization was $281,000 higher in
the first quarter of 2000 and is being amortized at an annual rate of $3.9
million which started March 2000. Prior to the implementation of new rates
in March 2000, the Company was recovering deferred PERC restructuring costs
at an annual rate of $1 million. Effective March 1, 2000, recovery of PERC
restructuring costs was adjusted to include the estimated future value of
warrants to be exercised. The adjusted annual amortization amounted to $1.6
million. For a complete discussion of the Beaver Wood purchased power
contract buyout and the PERC contract restructuring, see the 1999 Form 10-K.
Effective with the March 1, 2000 rate change, the Company began
amortizing the deferred asset sale gain over a 70 month period. The annual
amortization amounts are to be recorded in an uneven manner in order to
levelize the Company's revenue requirement over this period. As a result of
an increase in the Company's FERC regulated transmission rates on June 1,
2000, and the Company's desire to not increase rates to its retail customers
so close to the implementation of electric industry restructuring, which
occurred on March 1, 2000, the Company agreed to reduce its MPUC
jurisdictional distribution rates in an amount equal to the increase in its
transmission rates. The reduction in the distribution rates was accomplished
by accelerating the amortization of the deferred asset sale gain by an
annualized total of $2.5 million. The Company recorded $491,000 of
amortization for each of April and May of 2000 and increased the monthly
amortization to $698,000 for June 2000. The additional monthly amortization
of $207,000 is expected to continue through May 2001
The decrease in property and other taxes in the second quarter of
2000 was due principally to reductions in property taxes as a result of the
sale of the Company's generation assets. This reduction in property taxes was
offset to some extent by increased electric plant additions and higher
property tax rates.
The decrease in total federal and state income taxes was principally
a function of lower earnings in the second quarter of 2000 as compared to the
1999 quarter. See Footnote 2 to the Consolidated Financial Statements for a
reconciliation of the Company's effective income tax rate.
OTHER INCOME AND (DEDUCTIONS) AND INTEREST EXPENSE
Allowance for funds used during construction, which includes carrying
costs on certain regulatory assets and liabilities, increased in 2000
relative to 1999 due mainly to $483,000 in carrying costs being recorded on
the deferred asset sale gain in the 1999 quarter as compared to $8,000 of
such carrying costs in the 2000 quarter. The reduction is due to the
inclusion of the deferred asset sale gain in the Company's electric rates
starting March 1, 2000.
Other income increased by $135,000 in the second quarter of 2000
principally as a result of investment income earned. The Company did not
fully utilize the proceeds from its 1999 generation asset sale, and these
funds have been invested in short-term investments.
Long-term debt interest expense decreased $1.2 million in the second
quarter of 2000 as compared to 1999 due primarily to principal repayments on
the Company's 12.25% first mortgage bonds (which were fully repaid in August
1999); a $13.1 million principal payment at the end of June 1999 on the
Finance Authority of Maine Revenue Notes; monthly principal payments on the
$24.8 million medium term notes from April 1999 through June 2000 amounting
to $6.2 million; the redemption of the remaining outstanding principal on the
$45 million medium term notes in May 1999 amounting to $38.8 million; the
full redemption of $15 million in outstanding 10.25% series first mortgage
bonds in early July 1999; and the redemption of $4.2 million in outstanding
variable rate Pollution Control Revenue Bonds in early September 1999.
Other interest expense decreased due principally to a reduction in
the amortization of debt issue costs in the second quarter of 2000. With the
redemption of the remaining outstanding principal on the $45 million medium
term notes in May 1999, the amortization of the associated debt issuance
costs ended. The Company fully repaid the outstanding balance under its
revolving credit line in April 1999, and no new borrowings have subsequently
occurred.
Dividends on preferred stock decreased $211,000 due principally from
the final redemption of the remaining outstanding 8.76% mandatory redeemable
preferred stock in October 1999.
SIX MONTHS OF 2000 AS COMPARED TO THE SIX MONTHS OF 1999
EARNINGS
For the six months ended June 30, 2000 and 1999 basic earnings per
common share were $.70 and $.97, respectively. The six-month earning numbers
declined for the same reasons as mentioned above as well as a one-time
benefit in the first quarter of 1999 of $802,000 ($.07 per common share after
taxes) due to the settlement by NEPOOL of a contract dispute with Hydro-
Quebec (HQ).
REVENUES
Electric operating revenue increased by $1.2 million in the first six
months of 2000 as compared to the 1999 period. The increase is due to the
reasons previously discussed for the second quarter changes, as well as
factors in the first quarters of 2000 and 1999. Prior to the March 1, 2000
electric utility restructuring, electric operating revenues for the first two
months of 2000 were $1.8 million greater than the first two months of 1999
due principally to a 3.6% increase in KWH sales and the 1.36% rate increase
effective June 1, 1999. Increased KWH sales were positively impacted by
colder weather in January and February 2000. These increases were offset in
decreased revenues in March 2000 as a result of warmer weather in March 2000
and an overall rate reduction, including the impact of the standard-offer
prices, of approximately 2.9% starting March 1, 2000, and certain larger
customers beginning to purchase electricity from competitive energy providers
in March 2000. As a result of these changes, electric operating revenues
were approximately $101,000 lower in the first quarter of 2000 compared to
the 1999 quarter.
EXPENSES
Fuel for generation and purchased power expense increased $10 million
in the first six months of 2000 as compared to 1999. The increase is due
principally to the previously discussed reasons for the second quarters of
each year, as well as the settlement of the dispute with HQ which resulted in
a $747,000 reduction in expense in the first quarter of 1999. As in the
second quarter of 2000, NEPOOL and ISO related expenses were greater in the
first quarter of 2000 as compared to 1999, including $322,000 of first
quarter 2000 costs associated with transmission constraints. Purchased power
costs were greater for the first two months of 2000 as a result of the
previously discussed increase in KWH sales and by higher power costs.
Other O&M expense increased by $563,000 in the first six months of
2000 as compared to the first six months of 1999. The increase is
principally attributable to the reasons discussed above for the quarters.
Also increasing other O&M expense in the first six months of 2000 was a
$276,000 increase in amortization expense associated with deferred ice storm
costs, which started in June 1999. Decreasing other O&M expense in the 2000
period was a $556,000 decrease in non-labor expenditures related to electric
utility industry restructuring activities, costs associated with assessment
and testing of systems for year 2000 compliance, and an upgrade to the
Company's customer information system which was completed in May 1999.
Depreciation and amortization expense decreased $496,000 in the 2000
period as compared to 1999 due principally to the previously discussed
generation asset sale, which was offset to some extent by the reasons
discussed above for the quarters ending June 30, 2000 and 1999.
The reasons for the changes in the amortization of contract buyouts
and restructuring, amortization of deferred asset sale gain, property and
other taxes, and state and federal income taxes for the first six months of
2000 as compared to the first six months of 1999 are consistent with those
previously discussed for the second quarters of 2000 and 1999.
OTHER INCOME AND (DEDUCTIONS) AND INTEREST EXPENSE
Total AFDC increased $404,000 in the 2000 period in comparison to the
1999 period. The increase is principally due to the previously discussed
carrying costs on the deferred asset sale gain. This increase is offset to
some extent by a decrease in carrying costs associated with deferred Maine
Yankee costs and by a reduction in AFDC on construction work in progress,
which is a result of lower levels of construction activity in 2000.
The $145,000 increase in other income in the first six months of 2000
was primarily due to the same reason discussed above for the second quarters
of 2000 and 1999.
The decreases in long-term debt and other interest expense and
preferred dividends in the 2000 period as compared to 1999 were principally a
result of the same reasons previously discussed for the second quarters of
each year. Also impacting the reduction in other interest expense was $11
million in weighted average borrowings under the Company's revolving credit
facility for the first quarter of 1999 as compared to no outstanding
borrowings in 2000.
LIQUIDITY AND CAPITAL RESOURCES
The Consolidated Statements of Cash Flows reflect events in the first
six months of 2000 and 1999 as they affect the Company's liquidity. Net
increase in cash from operating activities was $26.2 million in 2000 as
compared to $31.7 million in the 1999 period. Negatively impacting cash
flows from operating activities in 2000 was a $4 million increase in state
and federal income tax payments as a result of the Company fully utilizing
its remaining net tax operating loss carryforwards in 1999. The Company also
received a $1.75 million payment in the first quarter of 1999 related to a
terminated purchased power contract (See the 1999 Form 10-K). Also
negatively impacting cash flows in the 2000 period was the previously
discussed overall 2.9% rate decrease which took effect on March 1, 2000, and
$1.4 million in payments in 2000 to the holders of the PERC warrants in lieu
of issuing shares of common stock (See the 1999 Form 10-K for a discussion of
the PERC warrants). Positively impacting cash flows from operating
activities in the 2000 period as compared to 1999 was the beneficial impact
of the 1.36% rate increase effective June 1, 1999, a $3 million reduction in
interest payments in 2000 principally as a result of the previously discussed
long-term debt principal payments, and the Company incurred $3.4 million in
costs associated with the generation asset sale in first six months of 1999.
Construction expenditures were $3.3 million lower in the 2000 period
as compared to 1999. In the first six months of 1999 the Company incurred
approximately $2.5 million in costs associated with the construction of a
major transmission line which was completed in 1999. As discussed in more
detail in the 1999 Form 10-K, the Company received approximately $79.6
million in proceeds related to its generation asset sale in late May 1999.
As previously discussed, the increase in dividends paid on common
stock increased in 2000 was a result of the reinstatement of the Company's
common dividend in the second quarter of 1999, and the increase in the
common dividend from $.15 to $.20 per share in March 2000.
The reduction in preferred dividends paid resulted principally from
the final redemption of the remaining outstanding 8.76% mandatory redeemable
preferred stock in October 1999.
The decrease in payments on long-term debt is due principally to the
full repayment of the $45 million medium term notes in the first six months
of 1999 plus $813,000 in sinking fund payments on the 12.25% series first
mortgage bonds in January 1999 which were fully redeemed in August 1999.
These were offset by a $330,000 increase in principal repayment on the $24.8
million medium term notes in 2000 as compared to 1999, and a $900,000
increase in the annual principal payment on the Finance Authority of Maine
Revenue Notes in June 2000 as compared to June 1999.
As previously discussed, and principally as a result of generation
asset sale proceeds, the Company has continued to maintain full borrowing
capacity under its revolving credit facility, with no new borrowings since
early April of 1999.
For additional discussion of liquidity and capital resources, see the
Company's 1999 Form 10-K.
ENVIRONMENTAL MATTERS
The Company is regulated by the United States Environmental
Protection Agency (EPA) as to compliance with the Federal Water Pollution
Control Act, the Clean Air Act, and several federal statutes governing the
treatment and disposal of hazardous wastes. The Company is also regulated by
the Maine Department of Environmental Protection (DEP) under various Maine
environmental statutes. The Company is actively engaged in complying with
these federal and state acts and statutes, and it has not, to date,
encountered material difficulties in connection with such compliance.
In 1992, the Company received notice from the DEP that it was
investigating the cleanup of several sites in Maine that were used in the
past for the disposal of waste oil and other hazardous substances, and that
the Company, as a generator of waste oil that was disposed at those sites,
may be liable for certain cleanup costs. The Company learned in October 1995
that the EPA placed one of those sites on the National Priorities List under
the Comprehensive Environmental Response, Compensation and Liability Act and
would pursue potentially responsible parties. With respect to this site, the
Company is one of a number of waste generators under investigation.
The Company has recorded a liability, based on currently available
information, for what it believes are the estimated environmental remediation
costs that the Company expects to incur for this waste disposal site.
Additional future environmental cleanup costs are not reasonably estimable
due to a number of factors, including the unknown magnitude of possible
contamination, the appropriate remediation methods, and possible effects of
future legislation or regulation and the possible effects of technological
changes. At June 30, 2000, the liability recorded by the Company for its
estimated environmental remediation costs amounted to $331,000. The
Company's actual future environmental remediation costs may be higher as
additional factors become known.
The Company estimates that during 2000 it will spend approximately
$374,000 in operations expense and $51,000 in capital expenditures to comply
with environmental standards for air, water and hazardous materials. These
amounts may change based on facts and circumstances that occur in the year
2000.
DISCLOSURES ABOUT MARKET RISK
The Company's major financial market risk exposure is changing interest
rates. Changes in interest rates will affect interest paid on variable rate
debt and the fair value of fixed rate debt. The Company manages interest
rate risk through a combination of both fixed and variable rate debt
instruments and an interest rate swap, which is associated with the Company's
medium term notes (See Note 13 to the 1999 Form 10-K). As of June 30, 2000,
the Company had $14.5 million of medium term notes outstanding which bear
floating, LIBOR-based rates (6.65125% LIBO rate at June 30, 2000). The
interest rate swap fixes the interest rate on the medium term notes at 5.72%
for the full notional amount of the debt. See Note 4 to the 1999 Form 10-K
for a discussion of these medium term notes.
OTHER
Management's discussion and analysis of results of operations and
financial condition contains items that are "forward-looking" as defined in
the Private Securities Litigation Reform Act of 1995. These statements are
subject to certain risks and uncertainties that could cause actual results to
differ materially from those anticipated in the forward-looking statements.
Readers should not place undue reliance on forward-looking statements, which
reflect management's view only as of the date hereof. The Company undertakes
no obligation to publicly revise these forward-looking statements to reflect
subsequent events or circumstances. Factors that might cause such differences
include, but are not limited to, the Company's proposed merger with Emera,
future economic conditions, relationships with lenders, earnings retention
and dividend payout policies, electric utility restructuring, developments in
the legislative, regulatory and competitive environments in which the Company
operates, environmental issues and other circumstances that could affect
revenues and costs.
BANGOR HYDRO-ELECTRIC COMPANY
CONSOLIDATED BALANCE SHEETS
000's Omitted
(Unaudited)
June 30, Dec. 31,
ASSETS 2000 1999
-------- --------
INVESTMENT IN UTILITY PLANT:
Electric plant in service, at original cost $ 304,027 $ 306,971
Less - Accumulated depreciation and amortization 83,154 84,825
-------- --------
$ 220,873 $ 222,146
Construction work in progress 9,520 5,668
-------- --------
$ 230,393 $ 227,814
Investments in corporate joint ventures:
Maine Yankee Atomic Power Company $ 5,097 $ 5,267
Maine Electric Power Company, Inc. 591 530
-------- --------
Total investment in utility plant $ 236,081 $ 233,611
-------- --------
OTHER INVESTMENTS, principally at cost $ 3,550 $ 3,629
-------- --------
FUNDS HELD BY TRUSTEE, at cost $ 22,700 $ 22,699
-------- --------
CURRENT ASSETS:
Cash and cash equivalents $ 15,987 $ 15,691
Accounts receivable, net of reserve 16,965 18,270
Unbilled revenue receivable 9,487 14,128
Inventories, at average cost:
Material and supplies 2,624 2,793
Fuel oil 62 45
Prepaid expenses 554 928
-------- --------
Total current assets $ 45,679 $ 51,855
-------- --------
REGULATORY ASSETS AND DEFERRED CHARGES:
Investment in Seabrook Nuclear Project, net of
accumulated amortization of $32,722 in 2000
and $31,872 in 1999 $ 26,120 $ 26,970
Costs to terminate/restructure power contracts,
net of accumulated amortization of $111,894
in 2000 and $100,861 in 1999 109,315 118,565
Maine Yankee decommissioning costs 44,044 46,041
Other regulatory assets 40,637 36,925
Other deferred charges 3,433 3,655
-------- --------
Total regulatory assets and deferred charges $ 223,549 $ 232,156
-------- --------
Total assets $ 531,559 $ 543,950
======== ========
See notes to the consolidated financial statements.
BANGOR HYDRO-ELECTRIC COMPANY
CONSOLIDATED BALANCE SHEETS
000's Omitted
(Unaudited)
June 30, Dec. 31,
STOCKHOLDERS' INVESTMENT AND LIABILITIES 2000 1999
-------- --------
CAPITALIZATION:
Common stock investment $ 134,751 $ 132,722
Preferred stock 4,734 4,734
Long-term debt, net of current portion 165,185 183,300
-------- --------
Total capitalization $ 304,670 $ 320,756
-------- --------
CURRENT LIABILITIES:
Notes payable - banks $ - $ -
-------- --------
Other current liabilities -
Current portion of long-term debt $ 20,950 $ 19,460
Accounts payable 15,574 14,175
Dividends payable 1,539 1,171
Accrued interest 2,475 2,553
Customers' deposits 468 399
Current income taxes payable 6,098 4,126
-------- --------
Total other current liabilities $ 47,104 $ 41,884
-------- --------
Total current liabilities $ 47,104 $ 41,884
-------- --------
REGULATORY AND OTHER LONG-TERM LIABILITIES:
Deferred income taxes - Seabrook $ 13,552 $ 13,995
Other accumulated deferred income taxes 57,005 55,827
Maine Yankee decommissioning liability 44,044 46,041
Deferred gain on asset sale 27,103 29,357
Other regulatory liabilities 10,658 9,872
Unamortized investment tax credits 1,522 1,592
Accrued pension and postretirement benefit costs 11,967 11,301
Other long-term liabilities 13,934 13,325
-------- --------
Total regulatory and other long-term liabilities $ 179,785 $ 181,310
-------- --------
Total Stockholders' Investment and Liabilities $ 531,559 $ 543,950
======== ========
See notes to the consolidated financial statements.
BANGOR HYDRO-ELECTRIC COMPANY
CONSOLIDATED STATEMENTS OF CAPITALIZATION
000's Omitted
(Unaudited)
June 30, Dec. 31,
2000 1999
--------- ---------
COMMON STOCK INVESTMENT
Common stock, par value $5 per share- $ 36,817 $ 36,817
Authorized -- 10,000,000 shares
Outstanding -- 7,363,424 shares in 2000 and 1999
Amounts paid in excess of par value 58,721 58,890
Retained earnings 39,213 37,015
--------- ---------
Total common stock investment $ 134,751 $ 132,722
--------- ---------
PREFERRED STOCK
Non participating, cumulative, par value $100 per share,
authorized 600,000 shares, not redeemable or
redeemable solely at the option of the issuer-
7%, Noncallable, 25,000 shares,
authorized and outstanding $ 2,500 $ 2,500
4.25%, Callable at $100, 4,840 shares,
authorized and outstanding 484 484
4%, Series A, Callable at $110, 17,500 shares,
authorized and outstanding 1,750 1,750
--------- ---------
Total preferred stock $ 4,734 $ 4,734
--------- ---------
LONG-TERM DEBT
First Mortgage Bonds-
10.25% Series due 2020 $ 30,000 $ 30,000
8.98% Series due 2022 20,000 20,000
7.38% Series due 2002 20,000 20,000
7.30% Series due 2003 15,000 15,000
--------- ---------
Total first mortgage bonds $ 85,000 $ 85,000
--------- ---------
Other Long-Term Debt-
Finance Authority of Maine - Taxable Electric Rate
Stabilization Revenue Notes,
7.03% Series 1995A, due 2005 $ 86,600 $ 100,600
Medium Term Notes, Variable interest rate-
LIBO Rate plus 1.125%, due 2002 14,535 17,160
--------- ---------
$ 101,135 $ 117,760
Less: Current portion of long-term debt 20,950 19,460
--------- ---------
Total other long-term debt $ 80,185 $ 98,300
--------- ---------
Total long-term debt $ 165,185 $ 183,300
--------- ---------
Total Capitalization $ 304,670 $ 320,756
========= =========
See notes to the consolidated financial statements.
<TABLE>
BANGOR HYDRO-ELECTRIC COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
000's Omitted
(Unaudited)
<CAPTION>
Six Months Ended
June 30, June 30,
2000 1999
--------- ---------
Cash Flows From Operating Activities:
<S> <C> <C>
Net income $ 5,277 $ 7,664
Adjustments to reconcile net income to net cash
from operating activities:
Depreciation and amortization 4,370 4,866
Amortization of Seabrook Nuclear Project 850 850
Amortization of contract buyouts and restructuring 11,033 10,401
Amortization of deferred asset sale gain (2,172) -
Other amortizations 1,212 1,112
Allowance for equity funds used during construction 93 (301)
Deferred income tax provision and amortization of investment tax credits (4,615) 4,335
Changes in assets and liabilities:
Costs to restructure purchased power contract (500) (599)
Deferred standard-offer service costs (541) -
Deferred incremental Maine Yankee costs 808 564
Deferred costs associated with generation asset sale - (3,363)
Exercise of PERC warrants-cash paid in lieu of issuing shares (1,365) -
Payment received related to terminated purchased power contract - 1,750
Accounts receivable, net and unbilled revenue 5,946 467
Accounts payable 1,399 1,557
Accrued interest (78) (311)
Current and deferred income taxes 3,884 1,962
Accrued postretirement benefit costs 943 396
Other current assets and liabilities, net 436 1,319
Other, net (828) (968)
--------- ---------
Net Increase in Cash From Operating Activities: $ 26,152 $ 31,701
--------- ---------
Cash Flows From Investing Activities:
Construction expenditures $ (6,599) $ (9,899)
Asset sale proceeds - 79,588
Allowance for borrowed funds used during construction 79 69
--------- ---------
Net (Decrease) Increase in Cash From Investing Activities $ (6,520) $ 69,758
--------- ---------
Cash Flows From Financing Activities:
Dividends on common stock $ (2,578) $ -
Dividends on preferred stock (133) (559)
Payments on long-term debt (16,625) (61,208)
Short-term debt, net - (12,000)
--------- ---------
Net Decrease in Cash From Financing Activities $ (19,336) $ (73,767)
--------- ---------
Net Increase in Cash and Cash Equivalents $ 296 $ 27,692
Cash and Cash Equivalents at Beginning of Period 15,691 2,946
--------- ---------
Cash and Cash Equivalents at End of Period $ 15,987 $ 30,638
========= =========
Cash Paid During the Six Months For:
Interest (Net of Amount Capitalized) $ 8,239 $ 11,233
Income Taxes 4,215 179
========= =========
See notes to consolidated financial statements.
</TABLE>
BANGOR HYDRO-ELECTRIC COMPANY
CONSOLIDATED STATEMENTS OF COMMON STOCK INVESTMENT
000's Omitted
(Unaudited)
Amounts Total
Paid in Common
Common Excess of Retained Stock
Stock Par Value Earnings Investment
BALANCE DECEMBER 31, 1998 $36,817 $59,054 $22,993 $118,864
Net income - - 7,664 7,664
Cash dividends declared on-
Preferred stock - - (527) (527)
Common stock - - (1,105) (1,105)
Other - - (30) (30)
Exercise of warrants-cash paid
in lieu of issuing shares - (84) - (84)
---------- ---------- ----------------------
BALANCE JUNE 30, 1999 $36,817 $58,970 $28,995 $124,782
========== ========== ======================
BALANCE DECEMBER 31, 1999 $36,817 $58,890 $37,015 $132,722
Net income - - 5,277 5,277
Cash dividends declared on-
Preferred stock - - (133) (133)
Common stock - - (2,946) (2,946)
Exercise of warrants-cash paid
in lieu of issuing shares - (169) - (169)
---------- ---------- ----------------------
BALANCE JUNE 30, 2000 $36,817 $58,721 $39,213 $134,751
========== ========== ======================
See notes to the consolidated financial statements.
BANGOR HYDRO-ELECTRIC COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000
-------------
(Unaudited)
(1) BASIS OF PRESENTATION AND ACCOUNTING POLICIES:
Certain information and footnote disclosures, normally included in
financial statements prepared in accordance with generally accepted
accounting principles, have been condensed or omitted in this Form 10-Q
pursuant to the Rules and Regulations of the Securities and Exchange
Commission. However, in the opinion of Bangor Hydro-Electric Company
(the Company), the disclosures contained in this Form 10-Q are adequate
to make the information presented not misleading. The year end
condensed balance sheet data was derived from audited consolidated
financial statements but does not include all disclosures required by
generally accepted accounting principles. These statements should be
read in conjunction with the consolidated financial statements,
footnotes and all other information included in the 1999 Form 10-K.
In the opinion of the Company, the accompanying unaudited
consolidated financial statements reflect all adjustments, including
normal recurring accruals, necessary to present fairly the financial
position as of June 30, 2000 and the results of operations and cash
flows for the periods ended June 30, 2000 and 1999.
The Company's significant accounting policies are described in the
Notes to the Consolidated Financial Statements included in its 1999
Form 10-K filed with the Securities and Exchange Commission. For
interim reporting purposes, the Company follows these same basic
accounting policies but considers each interim period as an integral
part of an annual period. Accordingly, certain expenses are allocated
to interim periods based upon estimates of such expenses for the year.
(2) INCOME TAXES:
The following table reconciles a provision calculated by
multiplying income before federal income taxes by the statutory federal
income tax rate to the federal income tax provision:
Six Months Ended June 30,
2000 1999
Amount % Amount %
(Dollars in Thousands)
Federal income tax provision
at statutory rate $3,033 35.0 $4,427 35.0
Less permanent reductions
in tax expense resulting
from statutory exclusions
from taxable income (49) (.6) (86) (.7)
------ ---- ------ ----
Federal income tax provision before
effect of temporary differences
and investment tax credits $2,984 34.4 $4,341 34.3
Less temporary differences that
are flowed through for rate-
making and accounting purposes (143) (1.6) (248) (2.0)
Less utilization and amortization
of investment tax credits (69) (.8) (95) (.8)
------ ---- ------ ----
Federal income tax provision $2,772 32.0 $3,998 31.5
====== ==== ====== ====
(3) INVESTMENT IN JOINTLY OWNED FACILITIES:
Condensed financial information for Maine Yankee Atomic Power
Company (Maine Yankee), Maine Electric Power Company, Inc. (MEPCO),
Bangor-Pacific Hydro Associates (BPHA), Chester SVC Partnership
(Chester) and Bangor Gas Company, LLC (Bangor Gas) is as follows:
MAINE YANKEE MEPCO
(Dollars in Thousands - Unaudited)
Operations for Six Months Ended
-------------------------------------
June 30, June 30, June 30, June 30,
2000 1999 2000 1999
OPERATIONS: -------- -------- -------- --------
As reported by investee-
Operating revenues $ 29,121 $ 34,553 $ 1,773 $ 1,409
======== ======== ======== ========
Earnings applicable to
common stock $ 2,337 $ 2,520 $ 570 $ 3,195
======== ======== ======== ========
Company's reported equity-
Equity in net income $ 164 $ 176 $ 81 $ 454
Add(Deduct)-Effect of
adjusting Company's
estimate to actual (5) (260) 21 (23)
-------- -------- -------- --------
Amounts reported by Company $ 159 $ (84) $ 102 $ 431
======== ======== ======== ========
MAINE YANKEE MEPCO
(Dollars in Thousands - Unaudited)
Financial Position at
---------------------------------------
June 30, Dec. 31, June 30, Dec. 31,
2000 1999 2000 1999
FINANCIAL POSITION: --------- --------- --------- --------
As reported by investee-
Total assets $ 997,984 $1,091,950 $ 5,620 $ 8,067
Less-
Preferred stock 15,000 15,000 - -
Long-term debt 45,600 54,000 - -
Other liabilities and
deferred credits 864,769 947,972 1,371 4,339
---------- --------- -------- --------
Net assets $ 72,615 $ 74,978 $ 4,249 $ 3,728
========== ========== ======== ========
Company's reported equity-
Equity in net assets $ 5,083 $ 5,248 $ 603 $ 529
Add(Deduct)- Effect
of adjusting Company's
estimate to actual 14 19 (12) 1
---------- ---------- -------- --------
Amounts reported by Co. $ 5,097 $ 5,267 $ 591 $ 530
========== ========== ======== ========
BPHA Chester
------------------- ------------------
(Dollars in Thousands - Unaudited)
Operations for Six Months Ended
------------------------------------------
June 30, June 30, June 30, June 30,
2000 1999 2000 1999
--------- --------- --------- ---------
OPERATIONS:
As reported by investee-
Operating revenues $ - $ 3,956 $ 2,115 $ 2,137
======= ======= ======= =======
Net Income $ - $ 1,646 $ - $ -
======= ======= ======= =======
Company's reported equity
in net income $ - $ 823 $ - $ -
======= ======= ======= =======
Financial Position at
June 30, Dec. 31, June 30, Dec. 31,
2000 1999 2000 1999
--------- -------- --------- --------
FINANCIAL POSITION:
As reported by investee-
Total assets $ - $ - $ 24,691 $25,302
Less-
Long-term debt - - 22,880 23,471
Other liabilities - - 1,811 1,831
------- ------- -------- -------
Net assets $ - $ - $ - $ -
======= ======= ======== =======
Company's reported equity
in net assets $ - $ - $ - $ -
======= ======= ======== =======
As discussed in the 1999 Form 10-K, the Company owns 7% of the common
stock of Maine Yankee, which owns and, prior to its permanent closure in 1997,
operated an 880 megawatt nuclear generating plant (the Plant) in Wiscasset,
Maine. Pursuant to a contract with Maine Yankee, the Company is obligated to
pay its pro rata share of Maine Yankee's operating expenses, including
decommissioning costs.
On May 4, 2000, Maine Yankee notified its decommissioning operations
contractor, Stone & Webster Engineering Corporation (Stone & Webster), that it
was terminating the decommissioning operations contract pursuant to the terms
of the contract. Stone & Webster subsequently notified Maine Yankee that it
was disputing Maine Yankee's grounds for terminating the contract. On May 8,
2000, Stone & Webster announced that it had signed a letter of intent with
Jacobs Engineering Group, Inc. (Jacobs), regarding a proposed transaction in
which Jacobs would acquire substantially all of Stone & Webster's assets in
exchange for an immediate credit facility and other consideration, including
cash and stock. Stone & Webster said that the credit facility was intended to
enable it to address its liquidity difficulties and continue to operate its
businesses until the asset sale was completed. Stone & Webster also announced
that it intended to seek bankruptcy court approval of the asset sale and
credit agreement.
On June 2, 2000, Stone & Webster filed a voluntary petition under
Chapter 11 of the U.S. Bankruptcy Code with the United States Bankruptcy Court
for the District of Delaware. By Sale Order dated July 13, 2000, the
Bankruptcy Court approved the sale of substantially all of Stone & Webster's
assets to the successful bidder in the Chapter 11 sale, The Shaw Group, Inc.
(Shaw), for cash, stock, and the assumption of certain liabilities of Stone &
Webster, and the earlier agreement with Jacobs was terminated. Stone &
Webster reported that the Shaw transaction was effectively closed on July 14,
2000, and that it would continue to operate as a Debtor-in-Possession subject
to the supervision and orders of the Bankruptcy Court.
As previously reported, on May 10, 2000, Maine Yankee entered into an
interim agreement with Stone & Webster in order to allow decommissioning work
to continue and avoid the adverse consequences of an abrupt or inefficient
demobilization from the Plant site. After obtaining assignments of several
subcontracts from Stone & Webster and upon termination of the interim
agreement on July 1, Maine Yankee at least temporarily assumed the general
contractor role, utilizing a reduced number of Stone & Webster personnel under
a revised interim agreement that expires on September 30, 2000. The
decommissioning of the Plant site is progressing, with major emphasis being
directed to maintaining the schedule on critical-path projects such as
construction of the independent spent fuel storage and preparation of the
Plant's reactor vessel for eventual shipment to an off-site disposal facility.
On June 30, 2000, Federal Insurance Company (Federal), which provided
performance and payment bonds in the amount of $37.6 million each in
connection with the decommissioning operations contract, filed a Complaint for
Declaratory Judgement against Maine Yankee in the United States Bankruptcy
Court for the District of Delaware. The complaint alleges that Maine Yankee
improperly terminated the decommissioning operations contract with Stone &
Webster and failed to give proper notice of termination to Federal under the
contract, and that Federal therefore had no further obligations under the
bonds. Maine Yankee believes that its termination of the decommissioning
operations contract was proper, but cannot predict the outcome of the
litigation.
Maine Yankee is evaluating all available long-term alternatives for and
efficiently completing the decommissioning of the Plant site, including the
possibilities of contracting with a new decommissioning operations contractor
or assuming that function itself on a long-term basis. However, Maine Yankee
cannot predict at this point what affect the financial difficulties of Stone
& Webster and the termination of its decommissioning operations agreement
with Maine Yankee will have on the cost or schedule of the decommissioning
project.
As discussed in the 1999 Form 10-K, the Company sold its wholly-owned
subsidiary, Penobscot Hydro Co., Inc., which held a 50% ownership interest in
BPHA, in July 1999.
At June 30, 2000, and December 31, 1999, the Company's wholly owned
subsidiary, Penobscot Natural Gas Company (Penobscot Gas), had a $123,000 and
$328,000 equity investment in Bangor Gas, respectively and recorded equity
losses in Bangor Gas of approximately $205,000 and $112,000 for the six months
ended June 30, 2000 and 1999, respec-tively. At June 30, 2000 and December 31,
1999, Bangor Gas' total assets, principally construction work in progress,
amounted to $21.1 million and $12.5 million, respectively.
As discussed in the 1999 Form 10-K, the Company announced in late 1999
that it no longer intended to participate in the Bangor Gas Company, LLC
(Bangor Gas) joint venture and intended to sell its joint venture interest.
On July 13, 2000, the Company and Penobscot Natural Gas Company (Penobscot
Gas), the Company's wholly-owned subsidiary which owned a 50% interest in
Bangor Gas, completed a stock purchase agreement to sell the Company's interest
in Penobscot Gas to Sempra Energy (Sempra). Sempra had owned the other 50%
interest in Bangor Gas. A one-time gain on the sale of Penobscot Gas of
approximately $1.2 million will be recognized in the third quarter of 2000.
The consummation of this sale has no impact on the Company's proposed
merger agreement with Emera Inc. (See Note 5).
(4) EARNINGS PER SHARE:
The following table reconciles basic and diluted earnings per common
share assuming all stock warrants were converted to common shares.
(Amounts in 000's, except per share data)
For the Three Months For the Six Months
Ended Ended
-------------------- --------------------
June 30, June 30, June 30, June 30,
2000 1999 2000 1999
-------- -------- -------- --------
Earnings applicable
to common stock $ 1,272 $ 3,174 $ 5,144 $ 7,107
-------- -------- -------- --------
Average common
shares outstanding 7,363 7,363 7,363 7,363
Plus: incremental
shares from assumed
conversion 857 949 873 944
-------- -------- -------- --------
Average common shares
outstanding plus
assumed warrants
converted 8,220 8,312 8,236 8,307
-------- -------- -------- --------
Basic earnings
per common share $ .17 $ .43 $ .70 $ .97
======== ======= ======== =======
Diluted earnings
per common share $ .15 $ .38 $ .62 $ .86
======== ======= ======== =======
(5) PROPOSED MERGER AGREEMENT WITH EMERA:
On June 29, 2000, the Company entered into a definitive merger
agreement with Emera of Halifax, Nova Scotia, pursuant to which Emera will
acquire all of the outstanding shares of common stock of the Company for
US$26.50 per share in cash. After the closing of the merger, each of the
Company's outstanding warrants to purchase common stock will entitle the
holder to receive US$26.50 in cash, less the exercise price. For a
discussion of the common stock warrants, see the notes to the consolidated
financial statements in the 1999 Form 10-K. The equity market value of the
transaction is approximately $206 million. The transaction will take the form
of a merger of the Company with a U.S. corporate subsidiary to be formed by
Emera. Upon completion of the merger, the Company will be a wholly-owned
subsidiary of Emera. The Company's outstanding debt and preferred stock will
not be affected by the transaction.
The transaction is subject to a number of approvals, including the
approval of the Company's shareholders and regulatory approvals from the
Maine Public Utilities Commission, the Federal Energy Regulatory Commission,
and the Securities and Exchange Commission. Receipt of the approvals
necessary for closing is expected to take 9 to 12 months.
(6) PURCHASED POWER CONTRACT OBLIGATIONS -
Under Chapter 307 of Maine's electric utility industry restructuring
law, the Company was required to sell all of the energy and capacity
associated with its six purchased power contracts. In late 1999 the Company
selected Morgan Stanley Dean Witter & Co., subsidiary Morgan Stanley Capital
Group, Inc., (Morgan Stanley) as the winning bidder for this energy and
capacity. The Company, though still maintains all obligations to the small
power producers under the power purchase contracts. These obligations are
not presently recorded on the Company's balance sheet and are being charged
to expense as incurred in accordance with generally accepted accounting
principles. Included in the Company's rates, effective March 1, 2000, are
expenses associated with the estimated annual costs under these contracts,
net of the estimated amounts to be received from the resale of the power to
Morgan Stanley. The net present value of the estimated future purchased power
costs under the contracts, net of estimated revenues to be realized associated
with the resale of the power amounted to approximately $131.6 million as of
June 30, 2000.
(7) IMPLEMENTATION OF COMPETITION IN THE ELECTRIC UTILITY INDUSTRY -
In connection with the state of Maine's electric industry
restructuring law, effective March 1, 2000, consumers of electricity have the
right to purchase generation services directly from competitive electricity
suppliers. The Company's electric rates were changed effective March 1, as
well, to reflect the Company's revenue requirement as a transmission and
distribution utility, including the recovery of stranded costs. The electric
utility industry restructuring and the Company's associated rate proceedings
at MPUC are discussed in more detail in the 1999 Form 10-K.
As discussed in the 1999 Form 10-K, the restructuring law also
provided for a standard-offer service being available for all customers who
do not choose to purchase energy from a competitive supplier starting March
1, 2000. As a result of the bids from competitive energy suppliers to
provide energy under the standard- offer service being higher than
anticipated, and as ordered by the MPUC, the Company assumed the
responsibility of being the standard-offer service provider starting March 1,
2000 for a one-year period. At the end of this period, it is anticipated that
the Company will no longer be the standard-offer service provider, although
this is dependent upon the level of future bids from competitive energy
suppliers to serve the standard-offer load and MPUC approvals. The MPUC
established the schedule of rates the Company may charge for this service
starting March 1, 2000.
The Company has entered into arrangements with third parties to
purchase the energy to serve the standard-offer customers. The Company is
allowed by the MPUC to defer the difference between revenues realized from
the standard-offer sales and the costs incurred to provide this service,
including carrying costs on the deferred balance. As a result of this
reconciliation mechanism, standard-offer related revenues and expenses do not
have any impact on the Company's earnings, although they do result in
increases in both categories in the Company's consolidated statements of
income. The deferred amount will be recovered from/returned to customers in
a future rate proceeding. Since March 1, 2000, when new rates went into
effect, the Company has recorded a regulatory asset of $.5 million related to
the excess of costs over revenues incurred in connection with the
standard-offer service. This amount is included in Other regulatory assets
on the Consolidated Balance Sheets at June 30, 2000.
(8) RECLASSIFICATIONS:
Certain 1999 amounts have been reclassified to conform with the
presentation used in Form 10-Q for the quarter ended June 30, 2000.
BANGOR HYDRO-ELECTRIC COMPANY
FORM 10-Q FOR PERIOD ENDING JUNE 30, 2000
PART II
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
------ ---------------------------------------------------
The Company held its annual meeting of stockholders on May 17, 2000.
The only matter submitted to a vote was the election of three Class II
Directors for terms ending in 2003. The following persons were elected to
fill those positions pursuant to the corresponding tabulations of votes:
Total Vote For Total Vote Withheld
-------------- -------------------
Robert S. Briggs 544,150 7,754
William C. Bullock, Jr. 544,317 7,587
Joseph H. Cyr 544,141 7,763
The terms of the following Directors, members of Class I and Class III,
continued after the annual meeting:
Jane J. Bush
David M. Carlisle
Marion M. Kane
Norman A. Ledwin
Carroll R. Lee
James E. Rier, Jr.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
------ --------------------------------
EXHIBITS: None.
--------
REPORTS ON FORM 8-K: None.
-------------------
BANGOR HYDRO-ELECTRIC COMPANY
FORM 10-Q FOR PERIOD ENDED JUNE 30, 2000
The information furnished in this report reflects all adjustments which
are, in the opinion of management, necessary to a fair statement of the
results for the interim period.
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.
BANGOR HYDRO-ELECTRIC COMPANY
(Registrant)
/s/ Frederick S. Samp
Dated: August 10, 2000 ____________________________
Frederick S. Samp
Vice President - Finance & Law
(Chief Financial Officer)
