10-Q 1 0001.txt SEPT 2000 10Q FOR CMPCO UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE --- SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2000 ------------------ OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE --- SECURITIES EXCHANGE ACT OF 1934 For the transition period from to ---------- ---------- Commission Registrant, State of Incorporation, I.R.S. Employer File Number Address, and Telephone Number Identification No. ----------- ----------------------------------- ------------------ 1-5139 CENTRAL MAINE POWER COMPANY 01-0042740 83 Edison Drive, Augusta, Maine 04336 (207) 623-3521 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 the filing requirements for at least the past 90 days. Yes X No ___ As of November 3, 2000, the number of shares of Common Stock outstanding was 31,211,471, all held by CMP Group, Inc., a subsidiary of Energy East Corporation. Table of Contents Page Number ------ Part I. Financial Information 1 Item 1 - Consolidated Financial Statements 1 Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations 7 (a) Liquidity and Capital Resources 7 (b) Results of Operations 11 Item 3 - Quantitative and Qualitative Disclosures About Market Risk 13 Part II. Other Information 14 Item 1 - Legal Proceedings 14 Item 6 - Exhibits and Reports on Form 8-K 14 Signatures 15 PART I - FINANCIAL INFORMATION Item 1. Financial Statements Central Maine Power Company and Subsidiaries Consolidated Statement Of Earnings (Unaudited) (Dollars in thousands, except per-share amounts) Predecessor ----------------------------- Period From Period From Acquisition July 1, 2000 Three Months Date to Through Ended September 30, Acquisition September 30, 2000 Date 1999 ------------- ------------ ------------- Revenues Electric operating revenues $64,865 $155,031 $238,887 Other revenues 55 90 (408) ------ ------- ------- Total Revenues 64,920 155,121 238,479 ------ ------- ------- Operating Expenses Fuel used for company generation 87 179 281 Purchased power Energy 26,288 79,334 107,667 Other (capacity) 8,280 14,712 28,766 Other operation 14,175 44,723 48,251 Maintenance 2,478 6,318 7,096 Depreciation and amortization 3,435 5,168 11,706 Taxes other than income taxes 1,725 3,052 5,021 ------ ------- ------- Total Operating Expenses 56,468 153,486 208,788 ------ ------- ------- Operating Income (Loss) 8,452 1,635 29,691 ------ ------- ------- Other Income (Expense) Equity in earnings of associated companies 905 436 368 Allowance for equity funds used during construction 25 61 172 Interest income 395 2,505 4,197 Recovery of non provided deferred income taxes on asset sale 274 781 - Other, net (47) (571) (187) Minority interest in consolidated net income (38) (48) (6) Gain on sale of investments and properties (1) - 27 ------ -------- ------- Total Other Income (Expense) 1,513 3,164 4,571 ------ -------- ------- Interest Charges Long-term debt 1,715 2,753 4,324 Other interest 520 1,371 7,250 Allowance for borrowed funds used during construction (6) (13) (46) ------ ------- ------- Total Interest Charges 2,229 4,111 11,528 ------ ------- ------- Income Before Income Taxes 7,736 688 22,734 Income taxes 3,430 (965) 9,806 ------ ------- ------- Net Income 4,306 1,653 12,928 Dividends on Preferred Stock 186 372 918 ------ ------- ------- Earnings Applicable to Common Stock $ 4,120 $ 1,281 $ 12,010 ====== ======= ======= Weighted Average Number Of Shares Of Common Stock Outstanding 31,211,471 31,211,471 31,211,471 Earnings Per Share Of Common Stock - Basic and Diluted $.13 $.04 $.38 The accompanying notes are an integral part of these financial statements.
Central Maine Power Company and Subsidiaries Consolidated Statement Of Earnings (Unaudited) (Dollars in thousands, except per-share amounts) Predecessor ----------------------------- Period From Period From Acquisition January 1, Nine Months Date to 2000 Through Ended September 30, Acquisition September 30, 2000 Date 1999 ------------- ------------- ------------- Revenues Electric operating revenues $64,865 $613,041 $724,194 Other revenues 55 434 702 ------ ------- ------- Total Revenues 64,920 613,475 724,896 ------ ------- ------- Operating Expenses Fuel used for company generation 87 728 10,488 Purchased power Energy 26,288 278,577 290,984 Other (capacity) 8,280 71,807 82,754 Other operation 14,175 151,245 151,618 Maintenance 2,478 24,468 23,135 Depreciation and amortization 3,435 23,661 37,912 Taxes other than income taxes 1,725 12,961 17,117 ------ ------- ------- Total Operating Expenses 56,468 563,447 614,008 ------ ------- ------- Operating Income 8,452 50,028 110,888 ------ ------- ------- Other Income (Expense) Equity in earnings of associated companies 905 2,816 4,051 Allowance for equity funds used during construction 25 391 479 Interest income 395 6,532 12,440 Recovery of non provided deferred income taxes on asset sale 274 75,421 - Other, net (47) 3,245 (1,631) Minority interest in consolidated net income (38) (172) (700) Gain on sale of investments and properties (1) 223 7,061 ------ ------- ------- Total Other Income (Expense) 1,513 88,456 21,700 ------ ------- ------- Interest Charges Long-term debt 1,715 9,534 22,362 Other interest 520 21,616 20,416 Allowance for borrowed funds used during construction (6) (78) (260) ------ ------- ------- Total Interest Charges 2,229 31,072 42,518 ------ ------- ------- Income Before Income Taxes 7,736 107,412 90,070 Income taxes 3,430 77,534 36,241 ------ ------- ------- Net Income 4,306 29,878 53,829 Dividends on Preferred Stock 186 1,490 2,756 ------ ------- ------- Earnings Applicable to Common Stock $ 4,120 $ 28,388 $ 51,073 ====== ======= ======= Weighted Average Number Of Shares Of Common Stock Outstanding 31,211,471 31,211,471 31,211,471 Earnings Per Share Of Common Stock (Basic and Diluted) $.13 $.91 $1.64 The accompanying notes are an integral part of these financial statements
Central Maine Power Company and Subsidiaries Consolidated Balance Sheet (Unaudited) (Dollars in thousands) Predecessor ---------------- September 30, December 31, 2000 1999 ------------- ---------------- Assets Current Assets Cash $ 699 $ 862 Special deposits 1 1 Temporary investments 7,000 112,010 Accounts receivable, net 114,486 157,210 Prepaid income taxes 11,499 1,248 Fuel - 177 Materials and supplies 9,778 9,927 Accumulated deferred income taxes 3,689 5,486 Prepayments and other current assets 10,184 7,159 --------- --------- Total Current Assets 157,336 294,080 Utility Plant, at Original Cost Electric 1,376,469 1,337,088 Less Accumulated depreciation 565,039 550,990 --------- --------- Net Utility Plant in Service 811,430 786,098 Construction work in progress 19,323 32,357 --------- --------- Total Utility Plant 830,753 818,455 Other Property 6,530 7,362 Investments in Associated Companies, at equity 35,545 38,236 Regulatory and Other Assets Unamortized investment in abandoned projects, net - 73,052 Unfunded future federal income taxes 81,389 144,430 Unamortized loss on debt reacquisition 12,516 13,758 Purchase power contracts 240,868 270,311 Demand-side management program costs 11,177 23,583 Environmental remediation costs 8,488 9,828 Other 121,714 231,328 --------- --------- Total Regulatory Assets 476,152 766,290 Goodwill, net 307,117 - Prepaid pension benefit 31,979 - Other 18,663 22,334 --------- --------- Total Other Assets 357,759 22,334 Total Regulatory and Other Assets 833,911 788,624 --------- --------- Total Assets $1,864,075 $1,946,757 ========= ========= The accompanying notes are an integral part of these financial statements.
Central Maine Power Company and Subsidiaries Consolidated Balance Sheet (Unaudited) (Dollars in thousands) Predecessor ------------- September 30, December 31, 2000 1999 ------------- ------------ Liabilities Current Liabilities Current portion of long-term debt $ 30,556 $ 70,754 Notes payable - 1,183 Accounts payable and accrued liabilities 62,579 107,712 Interest accrued 3,537 2,679 Other 58,240 15,045 --------- --------- Total Current Liabilities 154,912 197,373 Regulatory and Other Liabilities Regulatory Liabilities Deferred income taxes 16,955 22,267 Deferred income taxes, unfunded future federal income taxes 33,243 58,934 Asset sale deferred gain 238,176 536,368 Other 108,874 41,052 --------- --------- Total Regulatory Liabilities 397,248 658,621 Other Liabilities Deferred income taxes 17,210 2,002 Purchased power contract 240,868 270,311 Other Postretirement benefits 69,299 62,032 Environmental remediation costs 3,587 2,698 Other 95,467 76,378 --------- --------- Total Other Liabilities 426,431 413,421 Long-Term Debt 253,013 120,186 --------- --------- Total Liabilities 1,231,604 1,389,601 Redeemable Preferred Stock 910 910 Capitalization Common stock 162,213 162,213 Other paid in capital 452,038 280,450 Other paid in capital preferred stock (3,552) (3,742) Reacquired capital stock (19,000) (19,000) Retained earnings 4,291 100,754 Preferred stock 35,571 35,571 --------- --------- Total Stockholders' Equity 631,561 556,246 Total Liabilities and Stockholders' Equity $1,864,075 $1,946,757 ========= ========= The accompanying notes are an integral part of these financial statements.
Central Maine Power Company and Subsidiaries CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited) (Dollars in thousands) Predecessor --------------------------- Period From Period From Acquisition January 1, Nine Months Date to 2000 Through Ended September 30, Acquisition September 30, 2000 Date 1999 ------------ ------------ ------------- Operating Activities Net income $ 4,306 $ 29,878 $ 53,829 Adjustments to reconcile net income to net cash provided by operating activities Depreciation 2,933 22,594 29,697 Amortization 763 7,528 29,558 FIT & ITC deferred, net 1,500 (10,125) (8,310) Allowance for equity funds used during construction (25) (391) (479) Accounts receivable 82 28,987 21,340 Inventory (78) 404 727 Prepayments and other current assets (2,411) (1,567) (3,032) Accounts payable and accrued liabilities (29,084) 3,471 (12,705) Taxes accrued 2,023 (12,275) 7,807 Interest Accrued (53) 913 (5,322) Other, net (2,658) 7,164 (10,666) ------- ------- ------- Net cash provided by (used in) operating activities (22,702) 76,581 102,444 ------- ------- ------- Investing Activities Utility plant additions, net (4,552) (58,366) (41,043) Contributions in aid of construction 930 35,082 - Central Maine sale of assets - - 850,987 Tax payments related to sale of assets - - (234,409) Selling expense for sale of generation assets - - (17,778) Other property and investments - - 7,813 ------- ------- ------- Net cash provided by (used in) investing activities (3,622) (23,284) 565,570 ------- ------- ------- Financing Activities Repayments of preferred stock and first mortgage bonds, net of premiums - - (118,717) Long-term notes, net 29,763 63,040 (334,668) Dividends: Common stock (190,000) (33,724) (29,506) Preferred stock - (1,225) (1,837) ------- ------- ------- Net cash provided (used) by financing activities (160,237) 28,091 (484,728) ------- ------- ------- Net increase (decrease) in cash and temporary investments (186,561) 81,388 183,286 Cash and temporary investments, beginning of period 194,260 112,872 22,628 ------- ------- ------- Cash and temporary investments, end of period $ 7,699 $194,260 $205,914 ======= ======= ======= Cash paid during the year for: Interest, net of amounts capitalized $ 2,099 $ 10,316 $ 32,648 Income taxes $ 50 $ 24,552 $273,700 The accompanying notes are an integral part of these financial statements
Item 1. Financial Statements (Cont'd) ------------------------------------- Note 1. Unaudited Consolidated Financial Statements --------------------------------------------------- The accompanying unaudited consolidated financial statements reflect all adjustments which are necessary, in the opinion of management, for a fair presentation of Central Maine Power Company's (the "Company") consolidated results for the interim periods. The Company's consolidated financial statements include the accounts of the Company and its wholly owned and controlled subsidiaries. All non-utility operating transactions are included in other revenues and operating expenses in the Company's Consolidated Statement of Income. All of the common stock of the Company is owned by CMP Group, Inc. ("CMP Group"), which was organized effective September 1, 1998. Effective September 1, 2000 CMP Group, became a wholly owned subsidiary of Energy East Corporation. The acquisition by Energy East Corporation was accounted for as a purchase transaction and purchase accounting adjustments, including goodwill, have been reflected in the financial statements of the Company and its subsidiaries for the periods subsequent to September 1, 2000. The financial statements for the Company for the periods prior to September 1, 2000 were prepared using the Company's historical basis of accounting and are designated as "predecessor". The comparability of operating results for the predecessor and the periods encompassing push-down accounting are affected by the purchase accounting adjustments, including the amortization of goodwill over a period of forty years. The fair value of assets and liabilities of the Company is considered to be equivalent to the historical basis of accounting, and accordingly, no adjustment has been made to the carrying value. The excess consideration paid by Energy East Corporation attributable to the Company at the merger date was approximately $308 million and is reflected as goodwill in the Company's balance sheet at September 30, 2000. The process of determining fair value of assets and liabilities at the merger date is continuing, and the final results await the resolution of income tax and other contingencies and finalization of certain preliminary estimates. The following table summarizes the preliminary changes made to the accounts of the Company as of September 1, 2000 as a result of applying push-down accounting. Purchase Accounting Adjustments (Dollars in Thousands) -------------------- Investments $31,943 Goodwill 307,720 Regulatory assets 29,043 Other assets 1,552 ------- Total Assets $370,258 ======= Current liabilities $27,451 Long-term debt Deferred income taxes (17,404) Pension and other postretirement benefits 6,825 Regulatory liabilities 80,068 Other liabilities 6,805 Common stock investment 266,513 ------- Total Liabilities & Common Stock Investment $370,258 ======= Reclassification - Certain amounts from prior years' financial statements have been reclassified to conform to the current year's presentation. Impact of New Accounting Standards - The Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging Activities, in June 1998, No. 137, Accounting for Derivative Instruments and Hedging Activities - Deferral of the Effective Date of FASB Statement No. 133, in June 1999, and No. 138, Accounting for Certain Derivative Instruments and Certain Hedging Activities - an amendment of FASB Statement No. 133, in June 2000. Statement No. 133 establishes standards for the accounting and reporting for derivative instruments and for hedging activities. Statement No. 133 requires that all derivatives be recognized as either assets or liabilities on a company's balance sheet at their fair value. Statement No. 137 delayed for one year the effective date for implementing Statement No. 133, to fiscal years beginning after June 15, 2000. Statement No. 138 provided guidance on how to interpret sections of Statement No. 133. The Company will adopt Statement No. 133 as of January 1, 2001. If Statement No. 133 were adopted on October 1, 2000, the estimated transition adjustment as of September 30, 2000 would be zero and the effect on earnings would be zero. Item 2: Management's Discussion and Analysis of Financial Condition and Results -------------------------------------------------------------------------------- of Operations ------------- (a) Liquidity and Capital Resources Rate Matters ------------ Maine Yankee Shutdown - See the Company's Form 10-Q for the quarter ended June 30, 2000, Item 2, Commitment and Contingencies, FERC Rate Case. In September 2000, the Maine Public Utilities Commission ("MPUC") staff advised the Company that it could not use the two-year entitlement auction price to satisfy the replacement power test required as part of the settlement of Maine Yankee for 2001. If the Company is required to use a current wholesale market index for energy purchases as a benchmark for the replacement power test, the Company would be liable for the entire $31.2 million for the 2001 test and expects it would remain above the threshold replacement power tests based on current and projected energy prices for the years 2002 through 2004. The Company will continue its efforts to mitigate this liability. The liability of $31.2 million was recognized in the purchase accounting entries associated with the merger with Energy East with an offset to Goodwill and Deferred Income Taxes. Termination of Decommissioning Operations Contract - See the Company's Form 10Q for the quarter ended June 30, 2000, Item 2, Commitments and Contingencies - Termination of Decommissioning Operations Contract. On June 30, 2000, Federal Insurance Company ("Federal"), which provided performance and payment bonds in the amount of approximately $37.6 million each in connection with the decommissioning operations contract, filed a Complaint for Declaratory Judgment against Maine Yankee in the United States Bankruptcy Court for the District of Delaware, which was subsequently transferred to the United States District Court in Maine. The Complaint, which seeks a declaration that Federal has no obligation to pay Maine Yankee under the bonds, alleges that Maine Yankee improperly terminated the decommissioning operations contract with Stone & Webster and failed to give proper notice of the termination to Federal under the contract, and that Federal therefore had no further obligations under the bonds. Maine Yankee has filed both a counterclaim against Federal in the District Court seeking recovery up to the penalty amounts of the bonds and a proof of claim against Stone & Webster in the Bankruptcy Court seeking recovery of all additional costs resulting from the termination of the Stone & Webster contract. 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 safely 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. Maine Yankee expects to complete its review of proposals from prospective successor contractors and select a new contractor, if that is the alternative chosen, by the end of the year. However, we cannot predict at this point what effect the financial difficulties of Stone & Webster and the termination of its decommissioning operations contract with Maine Yankee will have on the cost or schedule of the decommissioning project. Alternative Rate Plan - See the Company's Form 10-Q for the quarter ended June 30, 2000, Item 3, Regulatory Matters and Electric-Utility Restructuring, MPUC Proceeding on Stranded Costs, Revenue Requirements, and Rate Design. On September 18, 2000, the MPUC voted to approve the Company's revised Alternative Rate Plan (ARP 2000). ARP 2000 provides the vehicle for the Company and Energy East to share merger synergies with the Company's customers. Merger synergies have been estimated to be $25-$30 million per year. ARP 2000 applies only to the Company's State jurisdictional distribution revenue requirement and excludes revenue requirements related to stranded costs and transmission prices. Recovery of stranded costs, primarily over-market non-utility generator contracts, has been provided for under Maine's restructuring law. Transmission prices are subject to regulation by the FERC and are expected to change each July. ARP 2000 is effective January 1, 2001, and continues through December 31, 2007, with price changes, if any, occurring on July 1, in the years 2002 through 2007. Price changes will be calculated by taking the prior year's inflation rate as determined by the gross domestic product ("GDP") price index and subtracting a "productivity offset." The productivity offset for the years of the plan vary between 2.0 percent in 2002 and 2.9 percent in 2007. The productivity offset for 2001 will be equal to the GDP price index. In addition, certain expiring amortizations will flow through to customers via the annual price adjustments. Mandated costs outside of the Company's control that exceed $150,000 individually and exceed $3 million in aggregate in any calendar year will be recovered through the annual price adjustment. Mandated costs include nonrecurring events such as storms, floods and labor disturbances, and recurring costs that result from accounting, federal or state legislative, regulatory or tax changes. The Company is required to meet certain standards of service quality and reliability. These standards include: 1) customer average interruption duration, 2) system average interruption, 3) MPUC complaint ratio, 4) percentage of business calls answered, 5) percentage of outage calls answered, 6) new service installations, 7) call center service quality, and 8) market responsiveness. Price changes could be reduced by as much as $3.6 million annually if all are not met. Beginning in July 2002, the price change will include 50 percent of any revenue deficiency should the Company's return on equity fall below 5.2 percent in the prior calendar year. There is no earnings cap during the term of ARP 2000, which will give the Company the opportunity to utilize synergies to offset goodwill amortization during the term of ARP 2000. The Company filed and, on September 28, 2000 FERC approved, new transmission rates that were effective September 1, 2000. The new transmission rates increase revenue requirements by approximately $10 million, with approximately $5 million of the proposed increase associated with the incremental costs of transmission congestion in New England. These federally mandated charges include the costs of upgrading transmission circuits to accommodate merchant power plants, and are being assessed on all New England utilities. The remainder of the rate increase reflects updated transmission costs based on 1999 activity versus the 1996 test period used previously. FERC also approved a deferral mechanism for the difference between network congestion costs incurred since March 1, 2000, and the amount included in the rates. The deferrals will be recorded as imputed revenues with an offset to a regulatory asset. In September the Company recorded $6.2 million in such revenues. The regulatory asset will be reduced in future periods in the next tariff year, when the costs will be reflected in the tariff charges. Sale of Generation Assets - See the Company's Form 10-Q for the quarter ended June 30, 2000, Item 3, Regulatory Matters and Electric-Utility Restructuring, Sale of Generation Assets. On August 7, 2000, the owners of Millstone Unit 3, including Central Maine Power Company, entered into agreements to sell the unit with the other two Millstone units, to Dominion Resources, Inc., in an auction of those units supervised by the Connecticut DPUC. Completion of the sale, which is expected in 2001 after regulatory approvals are obtained and other customary closing conditions are satisfied, will have no significant effect on the Company, since the sale was anticipated in the terms of the settlement of the Company's Millstone-related arbitration and litigation claims against Northeast Utilities and its affiliates. Investing and Financing Activities ---------------------------------- Approximately $59.0 million of cash was provided during the nine months ended September 30, 2000, from net income before non-cash items, primarily depreciation, amortization and deferred income taxes. The Company received $36.0 million in deposits from customers primarily for construction expenditures associated with anticipated merchant generating plant activity. On June 28, 2000 FERC issued an order regarding the funding responsibility for transmission network upgrades to accommodate the direct interconnection with new merchant plants. The Company has required the merchant plant developers to fund all interconnection and network upgrades in advance. Based on FERC's latest ruling, certain generation projects entered into prior to October 29, 1998 would require a 50 percent sharing of interconnection and upgrade costs between the developer and the utility. Certain generation projects entered into after October 29, 1998 but before June 22, 1999 would limit the utility's funding responsibility to a maximum of $2 million based on at least $5 million in total interconnection and upgrade costs. In all other cases the developer would be responsible for 100 percent of the interconnection and upgrade costs. Based on this ruling, the Company will have to refund to developers between $18 to $30 million over the next two years. Any amounts refunded to developers will be capitalized on the Company's books and recovered through the regional or local open access tariff, as appropriate. The Company is also engaged in a continuing construction program to accommodate existing and future load on its electric system. The Company's plans for improvements and expansions, its load forecasts and its power-supply sources are under a process of continuing review. Actual construction expenditures depend upon the availability of capital and other resources, load forecasts, customer growth, the number of merchant plants constructed in the Company's territory, and general business conditions. The ultimate nature regarding the timing and amount of financing for the Company's total construction programs, including refinancing and energy-management capital requirements, will be determined in light of market conditions, earnings and other relevant factors. As a result of the merger on September 1, retained earnings of the Company were reset to zero and moved to other paid-in capital as required by Generally Accepted Accounting Principles. On September 5, 2000, the Company's Board of Directors declared and paid a liquidating dividend amounting to $190 million, reducing other paid-in capital. This rebalancing of the capital structure aligns the Company's capital structure with that assumed by the MPUC in establishing the Company's current tariff charges and was facilitated with the proceeds from the Company's sale of generation assets in 1999. As of September 30, 2000, the Company had $30 million in loans that were outstanding under its revolving credit facility. Forward-Looking Statements -------------------------- This Form 10-Q contains certain forward-looking statements that are based on management's current expectations and information that is currently available. The Private Securities Litigation Reform Act of 1995 provides a safe harbor for forward-looking statements in certain circumstances. Whenever used in this report, the words "estimate," "expect," "believe," "anticipate," or similar expressions are intended to identify such forward-looking statements. In addition to the assumptions and other factors referred to specifically in connection with such statements, factors that could cause actual results to differ materially from those contemplated in any forward-looking statements include, among others, the deregulation and unbundling of energy services; the company's ability to compete in the rapidly changing and increasingly competitive electricity utility markets; its ability to control non-utility generator and other costs; changes in fuel supply cost and the success of its strategies to satisfy its power requirements; its ability to expand its products and services, including its energy infrastructure in Maine; market risk; the ability to obtain adequate and timely rate relief; nuclear or environmental incidents; legal or administrative proceedings; changes in the cost or availability of capital; growth in the areas in which it is doing business; weather variations affecting customer outages; and other considerations that may be disclosed from time to time in its publicly disseminated documents and filings. The Company undertakes no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise. (b) Results of Operations Effective September 1, 2000 CMP Group became a wholly owned subsidiary of Energy East Corporation. The acquisition by Energy East Corporation was accounted for as a purchase transaction and purchase accounting adjustments, including goodwill, have been reflected in the financial statements of the Company for the periods subsequent to September 1, 2000. The financial statements for Central Maine Power Company for the periods prior to September 1, 2000 were prepared using the Company's historical basis of accounting and are designated as "predecessor". The comparability of operating results for the predecessor and the periods encompassing push-down accounting are affected by the purchase accounting adjustments including the amortization of goodwill over a period of forty years. Three Months Ended September 30, ------------------------------------ 2000 1999 Change ---- ---- ------ (Thousands, except per share amounts) Operating Income $10,087 $29,691 (66%) Net Income 5,959 12,928 (54%) Earnings Applicable to Common Stock 5,401 12,010 (55%) Average Common Shares Outstanding 31,211 31,211 0 Earnings Per Share, basic and diluted .17 .38 (55%) Net income decreased $7.0 million between the quarter ended September 2000 and the same period in 1999 due to one-time merger related costs and ongoing restructuring impacts. The third quarter year 2000 results include a nonrecurring charge associated with merger related costs that reduced net income for the quarter by approximately $3.7 million. Net income was also impacted negatively by approximately $3.7 million due to the elimination of contributions from the generation portion of the business which was sold in 1999. The third quarter also included a $1.1 million increase in net income due to a September 2000 FERC decision allowing reconciliation of congestion costs incurred after March 1, 2000. Nine Months Ended September 30, ------------------------------- 2000 1999 Change ---- ---- ------ (Thousands, except per share amounts) Operating Income $58,480 $110,888 (47%) Net Income 34,184 53,829 (36%) Earnings Applicable to Common Stock 32,508 51,073 (36%) Average Common Shares Outstanding 31,211 31,211 - Earnings Per Share, basic and diluted 1.04 1.64 (37%) Net income for the nine months ended September 30, 2000 is $19.6 million lower than the same period in 1999. One major reason for this decrease is the elimination of the contribution associated with the generation portion of the business that was reflected in the Company's restructured revenue requirement effective March 1, 2000. This accounted for approximately an $8.8 million decrease in net income for the year 2000 period compared to 1999. A second major reason is that the year 2000 period included nonrecurring merger related costs that reduced net income by approximately $3.7 million compared to 1999. Network congestion costs exceeded revenues for the period reducing net income by $1.7 million. On a going forward basis congestion costs will not cause any variation in net income due to a September 2000 FERC order that permits an imputation of revenues to match congestion costs incurred until the costs can be included in tariff rates. Also, approximately $4.0 million of the decrease in net income is associated with the one-time sale of right of way easements in 1999. Operating Revenues, Expenses and Associated Volumes Three Months Ended September 30, -------------------------------- (Thousands) 2000 1999 Change ---- ---- ------ Retail Deliveries Megawatt-hours 2,403.9 2,420.9 (1)% Operating Revenues $220,041 $238,479 (8)% Operating Expenses $209,954 $208,788 1% Effective March 1, 2000, the revenue requirement was lowered to reflect the elimination of generation assets, resulting in a $18.4 million decrease in operating revenues as compared to 1999. Operating expenses have increased $1.2 million due to a nonrecurring merger charge of $6.2 million and a $5.5 million expense related to ISO and congestion uplift charges. These increases were partially offset by decreases in operating expenses associated with the sale of generation assets and termination of some NUG contract costs. Nine Months Ended September 30, ------------------------------- (Thousands) 2000 1999 Change ---- ---- ------ Retail Deliveries Megawatt-hours 7,072.3 6,892.5 3% Operating Revenues $678,395 $724,896 (6)% Operating Expenses $619,915 $614,008 1% As stated above, the decrease in revenue requirement has contributed to $46.5 million less in revenues than 1999. Overall expenses for 2000 have been lower due to the sale of generation assets, but the one time charges mentioned above have contributed to an increase of $5.9 million in operating expenses year to date as compared to 1999. Item 3: Quantitative and Qualitative Disclosures About Market Risk ------------------------------------------------------------------ The Company is exposed to interest rate risk through the use of variable-rate debt as a source of capital. As of September 30, 2000, the Company had $135 million of medium-term notes outstanding, $10 million of which bear floating, LIBOR-based rates, and $30 million in loans outstanding under its revolving credit facility and $22.5 million in capital lease obligations which have variable interest rates. Variable Long Term ------------------ (dollars in thousands) Weighted Average Rates 9.19% Balance at September 30, 2000 $62,516 Maturity Period 2001 - 2019 PART II - OTHER INFORMATION Item 1. Legal Proceedings ------------------------- Maine Yankee - For a discussion of the termination by Maine Yankee of its decommissioning operations contract with Stone & Webster and related litigation, see Note 2 "Rate Matters - Maine Yankee Shutdown" and "Termination of Decommissioning Operations Contract," which is incorporated herein by reference. Item 6. Exhibits and Reports on Form 8-K ---------------------------------------- (a) Exhibits. None. (b) Reports on Form 8-K. The Company filed no reports on Form 8-K during the quarter ended September 30, 2000. Signatures 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. CENTRAL MAINE POWER COMPANY Date: November 9, 2000 By /s/ Michael W. Caron ------------------------------------------- Michael W. Caron, Comptroller (Chief Accounting Officer and duly authorized officer)