-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Ab8PaKFK4G5yuHeTrE8jJLGzkKdh76G5yHYb5yVesk3mkT6yiD3C7ehvRVBNRCbf Ycn/8Wb8BiQSqOsP3/Ejig== 0000018675-96-000013.txt : 19960401 0000018675-96-000013.hdr.sgml : 19960401 ACCESSION NUMBER: 0000018675-96-000013 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 12 CONFORMED PERIOD OF REPORT: 19951231 FILED AS OF DATE: 19960329 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: CENTRAL MAINE POWER CO CENTRAL INDEX KEY: 0000018675 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC SERVICES [4911] IRS NUMBER: 010042740 STATE OF INCORPORATION: ME FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-05139 FILM NUMBER: 96541385 BUSINESS ADDRESS: STREET 1: 83 EDISON DR CITY: AUGUSTA STATE: ME ZIP: 04336 BUSINESS PHONE: 2076233521 10-K 1 CMP 1995 10K EX-23.2 2 C&L CONSENT Exhibit 23-2 CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the incorporation by reference in the registration statements of Central Maine Power Company on Forms S-3 (File Nos. 33-56939, 33-36679, 33-39826, 33-44754, and 33-51611) of our report dated January 24, 1996, on our audit of the consolidated financial statements and financial statement schedule of Central Maine Power Company and subsidiary as of December 31, 1995 and 1994 and for the years then ended which report is included in this annual report on Form 10-K. Coopers & Lybrand LLP Portland, Maine March 29, 1996 F-4 EX-23.1 3 AA&CO CONSENT Exhibit 23-1 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation of our reports included and incorporated by reference in this Form 10-K, into the Company's previously filed Registration Statements File No. 33-36679, File No. 33-39826, File No. 33-44754, File No. 33-56939 and File No. 33-51611. Arthur Andersen LLP Boston, Massachusetts March 29, 1996 F-5 Central Maine Power Company Form 10-K - 1995 Schedule VIII Page 1 of 3 Central Maine Power Company VALUATION AND QUALIFYING ACCOUNTS For the Year Ended December 31, 1995 (Dollars in Thousands) Additions Charged Charged to Balance to costs other Balance at Beginning and accounts- Deductions at end Description of Period Expenses describe -describe of period Reserves deducted from assets to which they apply: Uncollectible accounts $ 3,301 $4,407 $ $ 4,395(A) $ 3,313 Reserves not applied against assets: Casualty and insurance $ 1,275 $1,274 $273(B) $ 1,547(C) $ 1,275 Workers' compensation 6,400 6,400 Hazardous material clean-up 10,000 6,460(D) 3,540 Postemployment benefits 1,045 1,045(E) Compensation 2,344 2,344(E) - Interest on IRS issues 1,000 1,000(F) Total $22,064 $1,274 $273 $12,396 $11,215 Notes: (A) Amounts charged off as uncollectible after deducting customers' deposits and recoveries of accounts previously charged off. (B) Amounts charged to capital accounts. (C) Principally payments for various injuries and damages and expenses in connection therewith. (D) To adjust the estimated minimum liability balance for a change in clean-up method. (E) Amounts transferred to deferred credit account. (F) Reversal of reserve.
F-6 Central Maine Power Company Form 10-K - 1995 Schedule VIII Page 2 of 3 Central Maine Power Company VALUATION AND QUALIFYING ACCOUNTS For the Year Ended December 31, 1994 (Dollars in Thousands) Additions Charged Charged to Balance to costs other Balance at Beginning and accounts- Deductions at end Description of Period Expenses describe -describe of period Reserves deducted from assets to which they apply: Uncollectible accounts $ 2,704 $4,924 $ $4,327(A) $ 3,301 Reserves not applied against assets: Casualty and insurance $ 1,075 $2,492 $ 548(B) $2,840(C) $ 1,275 Workers' compensation 6,400 6,400 Hazardous material clean-up 6,828 5,730(D) 2,558(E) 10,000 Postemployment benefits 1,045 1,045 Compensation 181 1,283 1,108(D) 228(B) 2,344 Interest on IRS issues 1,000 1,000 Total $14,484 $5,820 $7,386 $5,626 $22,064 Notes: (A) Amounts charged off as uncollectible after deducting customers' deposits and recoveries of accounts previously charged off. (B) Amounts charged to capital accounts. (C) Principally payments for various injuries and damages and expenses in connection therewith. (D) Amounts charged to regulatory asset account. (E) Amounts paid, charged against the reserve.
F-7 Central Maine Power Company Form 10-K - 1995 Schedule VIII Page 3 of 3 Central Maine Power Company VALUATION AND QUALIFYING ACCOUNTS For the Year Ended December 31, 1993 (Dollars in Thousands) Additions Balance Charged Charged to at Beginning to costs other Balance of Period and accounts- Deductions at end Description Expenses describe -describe of period Reserves deducted from assets to which they apply: Uncollectible accounts $ 2,250 $5,548 $ $ 5,094(A) $ 2,704 Reserves not applied against assets: Casualty and insurance $ 1,077 $1,123 $ 272(B) $ 1,397(C) $ 1,075 Workers' compensation 6,400 6,400 Hazardous material clean-up 2,981 5,019(D) 1,172(E) 6,828 Millstone III sales tax 423 423(F) Obsolete inventory 250 250(G) Revenue adjustment of tax flowback 9,990 9,990(H) Compensation 499 483 46(D) 847(B) 181 Total $21,620 $1,606 $5,337 $14,079 $14,484 Notes: (A) Amounts charged off as uncollectible after deducting customers' deposits and recoveries of accounts previously charged off. (B) Amounts charged to capital accounts. (C) Principally payments for various injuries and damages and expenses in connection therewith. (D) Amounts charged to regulatory asset account. (E) Amounts paid, charged against the reserve. (F) Amounts reversed, charged to nuclear operating expenses. (G) Amounts charged off as Distribution Expense. (H) Refer to Note 3 of Notes to Consolidated Financial Statements in the 1993 Annual Report.
F-8 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1994 CENTRAL MAINE POWER COMPANY File No. 1-5139 (Exact name of Registrant as specified in charter) EXHIBITS The following designated exhibits, as indicated below, are either filed herewith or have heretofore been filed with the Securities and Exchange Commission under the Securities Act of 1933, the Securities Exchange Act of 1934 or the Public Utility Holding Company Act of 1935 and are incorporated herein by reference to such filings. Reference is made to Item 8 of this Form 10-K for a listing of certain financial information and statements incorporated by reference herein. Prior Exhibit Description of Exhibit No. Document SEC Docket No. EXHIBIT 2: PLAN OF ACQUISITION, REORGANIZATION, ARRANGEMENT, LIQUIDATION OR SUCCESSION Not Applicable. EXHIBIT 3: ARTICLES OF INCORPORATION AND BY-LAWS Incorporated herein by reference: 3-1 Articles of Incorporation, as amended. Annual Report on Form 10-K 3.1 for year ended December 31, 1992 3-2 Bylaws, as amended. Annual Report on Form 10-K 3.2 for the year ended December 31, 1990 EXHIBIT 4: INSTRUMENTS DEFINING THE RIGHTS OF SECURITY HOLDERS Incorporated herein by reference: 4-1 General and Refunding Mortgage between the Company 2-58251 2.18 and The First National Bank of Boston, as Trustee, dated as of April 15, 1976, relating to the Series A Bonds. 4-2 First Supplemental Indenture dated as of March 15, 2-60786 2.19 1977 to the General and Refunding Mortgage. 4-3 Supplemental Indenture to the General and Annual Report on Form 10-K A Refunding Mortgage Indenture dated as of for the year ended October 1, 1978 relating to the Series B Bonds. December 31, 1978 4-4 Supplemental Indenture to the General and Quarterly Report on for the A Refunding Mortgage Indenture dated as of quarter ended September 30, October 1, 1979, relating to the Series C Bonds. 1979 4.10 Supplemental Indenture to the General and 33-9232 4.16 Refunding Mortgage Indenture dated as of December 1, 1986, relating to the Series I Bonds. 4.14 Indenture, dated as of August 1, 1989, between the 33-29626 4.1 Company and The Bank of New York, Trustee, relating to the Medium-Term Notes. 4.15 First Supplemental Indenture, dated as of Current Report on Form 8-K 4.15 August 7, 1989, relating to the Medium-Term Notes, dated August 16, 1989 Series A, and supplementing the Indenture relating to the Medium-Term Notes. 4.15.1 Second Supplemental Indenture, dated as of Current Report on Form 8-K 4.1 January 10, 1992, relating to the Medium-Term dated January 28, 1992 Notes, Series B, and supplementing the Indenture relating to the Medium-Term Notes. 4.15.2 Third Supplemental Indenture, dated as of December Annual Report on Form 10-K 4.15.2 15, 1994, relating to the Medium-Term Notes, for year ended December 31, Series C, and supplementing the Indenture relating 1994 to the Medium-Term Notes. 4.17 Supplemental Indenture to the General and Current Report on Form 8-K 4.1 Refunding Mortgage Indenture, dated as of dated September 17, 1991 September 15, 1991, relating to the Series N Bonds. 4.18 Supplemental Indenture to the General and Current Report on Form 8-K 1.2 Refunding Mortgage Indenture, dated as of dated December 10, 1991 December 1, 1991, relating to the Series O Bonds. 4.19 Supplemental Indenture to the General and Annual Report on Form 10-K 4.19 Refunding Mortgage Indenture, dated as of for year ended December 31, December 15, 1992, relating to the Series P Bonds. 1992 4.20 Supplemental Indenture to the General and Current Report on Form 8-K 4.1 Refunding Mortgage Indenture, dated as of February dated March 1, 1993 15, 1993, relating to the Series Q Bonds. 4.21 Supplemental Indenture to the General and Current Report on Form 8-K 4.1 Refunding Mortgage Indenture, dated as of May 20, dated May 20, 1993 1993, relating to the Series R Bonds. 4.22 Supplemental Indenture to the General and Current Report on Form 8-K 4.1 Refunding Mortgage Indenture, dated as of August dated November 30, 1993 15, 1993, relating to the Series S Bonds. 4.23 Supplemental Indenture to the General and Current Report on Form 8-K 4.2 Refunding Mortgage Indenture, dated as of November dated November 30, 1993 1, 1993, relating to the Series T Bonds. 4.24 Supplemental Indenture to the General and Annual Report on Form 10-K 4.24 Refunding Mortgage Indenture, dated as of April for year ended December 31, 12, 1994, relating to the Series U Bonds. 1994 4.26 Supplemental Indenture to the General and Filed herewith Refunding Mortgage Indenture, dated as of February 15, 1996, evidencing the succession of State Street Bank and Trust Company as Trustee EXHIBIT 9: VOTING TRUST AGREEMENT Not applicable. EXHIBIT 10: MATERIAL CONTRACTS Incorporated herein by reference: 10-1 Agreement dated April 1, 1968 between the Company 2-30554 4.27 and Northeast Utilities Service Company relating to services in connection with the New England Power Pool and NEPEX. 10-2 Form of New England Power Pool Agreement dated as 2-55385 4.8 of September 1, 1971 as amended to November 1, 1975. 10-3 Agreement setting forth Supplemental NEPOOL 2-50198 5.10 Understandings dated as of April 2, 1973. 10-4 Sponsor Agreement dated as of August 1, 1968 among 2-32333 4.27 the Company and the other sponsors of Vermont Yankee Nuclear Power Corporation. 10-5 Power Contract dated as of February 1, 1968 2-32333 4.28 between the Company and Vermont Yankee Nuclear Power Corporation. 10-6 Amendment to Exhibit 10.5 dated as of June 1, 1972. 2-46612 13-21 10-7 Capital Funds Agreement dated as of February 1, 2-32333 4.29 1968 between the Company and Vermont Yankee Nuclear Power Corporation. 10-8 Amendment to Exhibit 10.7 dated as of March 12, 70-4611 B-3 1968. 10-9 Stockholder Agreement dated as of May 20, 1968 2-32333 4.30 among the Company and the other stockholders of Maine Yankee Atomic Power Company. 10-10 Power Contract dated as of May 20, 1968 between 2-32333 4.31 the Company and Maine Yankee Atomic Power Company. 10-10.1 Amendment No. 1 to Exhibit 10-10 dated as of Annual Report on Form 10-K 10-1.1 March 1, 1984. for the year ended December 31, 1985 of Maine Yankee Atomic Power company (File No. 1-6554) 10-10.2 Amendment No. 2 to Exhibit 10-10 dated as of Annual Report on Form 10-K 10-1.2 January 1, 1984. for the year ended December 31, 1985 of Maine Yankee Atomic Power Company (File No. 1-6554) 10-10.3 Amendment No. 3 to Exhibit 10-10 dated as of Annual Report on Form 10-K 10-1.3 October 1, 1984. for the year ended December 31, 1985 of Maine Yankee Atomic Power Company (File No. 1-6554) 10-10.4 Additional Power Contract between the Company and Annual Report on Form 10-K 10-1.4 Maine Yankee Atomic Power Company dated for the year ended February 1, 1984. December 31, 1985 of Maine Yankee Atomic Power Company (File No. 1-6554) 10-11 Capital Funds Agreement dated as of May 20, 1968 2-32333 4.32 between the Company and Maine Yankee Atomic Power Company. 10-11.1 Amendment No. 1 to Exhibit 10-11 dated as of Annual Report on Form 10-K 10-2.1 August 1, 1985. for the year ended December 31, 1985 of Maine Yankee Atomic Power Company (File No. 1-6554) 10-25 Agreement dated as of May 1, 1973 for Joint 2-48966 13-57 Ownership, Construction and Operation of New Hampshire Nuclear Units among Public Service Company of New Hampshire and certain other utilities, including the Company. 10-42 Twentieth Amendment to Exhibit 10-25 dated as of Annual Report on Form 10-K 10-42 September 19, 1986. for the year ended December 31, 1986 10-46 Participation Agreement, dated June 20, 1969 among 2-35073 4.23.1 Maine Electric Power Company, Inc., the Company and certain other utilities. 10-47 Power Purchase and Transmission Agreement dated 2-35073 4.23.2 August 1, 1969, among Maine Electric Power Company, Inc., the Company and certain other utilities, relating to purchase and transmission of power from The New Brunswick Electric Power Commission. 10-48 Agreement amending Exhibit 10-47 dated June 24, 2-37987 4.41 1970. 10-49 Agreement supplementing Exhibit 10-47 dated 2-51545 5.7.4 December 1, 1971. 10-50 Assignment Agreement dated March 20, 1972, between 2-51545 5.7.5 Maine Electric Power Company, Inc., and the New Brunswick Electric Power Commission. 10-51 Capital Funds Agreement dated as of September 1, 2-24123 4.19.1 1964 among Connecticut Yankee Atomic Power Company, the Company and certain other utilities. 10-52 Power Contract dated as of July 1, 1964 among 2-24123 4.19.2 Connecticut Yankee Atomic Power Company, the Company and certain other utilities. 10-53 Stockholder Agreement dated as of July 1, 1964 2-24123 4.19.3 among the stockholders of Connecticut Yankee Atomic Power Company, including the Company. 10-54 Connecticut Yankee Transmission Agreement dated as 2-24123 4.19.4 of October 1, 1964 among the stockholders of Connecticut Yankee Atomic Power Company, including the Company. 10-55 Agreements with Yankee Atomic Electric Company each dated June 30, 1959, as follows: 10-55.1 Stock Agreement. 2-15553 4.17.1 10-55.2 Power Contract. 2-15553 4.17.2 10.55.3 Research Agreement. 2-15553 4.17.3 10-56 Transmission Agreement with Cambridge Electric 2-15553 4.18 Light Company and other sponsoring stockholders of Yankee Atomic Electric Company. 10-57 Agreement for Joint Ownership, Construction and 2-52900 5.16 Operation of Wyman Unit No. 4 dated November 1, 1974 among the Company and certain utilities. 10-58 Amendment to Exhibit 10-57 dated as of June 30, 2-55458 5.48 1975. 10-59 Amendment to Exhibit 10-57 dated as of August 16, 2-58251 5.19 1976. 10-60 Amendment to Exhibit 10-57 dated as of 2-68184 5.31 December 31, 1978. 10-61 Transmission Agreement dated November 1, 1974 2-54449 13-57 among the Company and certain other utilities, relating to Wyman Unit No. 4. 10-62 Sharing Agreement--1979 Connecticut Nuclear Unit 2-50142 2.43 dated September 1, 1973 among the Company and certain other utilities, relating to Millstone Unit No. 3. 10-63 Amendment to Exhibit 10-62 dated as of August 1, 2-51999 5.16 1974, relating to Millstone Unit No. 3. 10-64 Agreement dated as of February 25, 1977 among the 2-58251 5.24 Company, the Connecticut Light and Power Company, the Hartford Electric Light Company and Western Massachusetts Electric Company, relating to Millstone Unit No. 3. 10-70 Project Agreement dated December 5, 1984 among the Annual Report on Form 10-K 10-69 Company, the Cities of Lewiston and Auburn, Maine for the year ended and certain other parties, relating to development December 31, 1984 of hydro-electric plant. 10-73 Trust Indenture dated as of June 1, 1977 between 2-60786 5.27 the Town of Yarmouth and Casco Bank & Trust Company, as trustee, relating to the Town of Yarmouth's 6 3/4% Pollution Control Revenue Bonds (Central Maine Power Company, 1977 Series A). 10-74 Installment Sale Agreement dated as of June 1, 2-60786 5.28 1977 between the Town of Yarmouth and the Company. 10-75 Agreements Relating to $11,000,000 Floating/Fixed Rate Pollution Control Revenue Refunding Bonds: 10-75.1 Bond Purchase Agreement dated as of May 1, 1984. Quarterly Report on Form 28.3 10-Q for the quarter ended June 30, 1984 10-75.2 Loan Agreement dated as of May 1, 1984. Quarterly Report on Form 28.4 10-Q for the quarter ended June 30, 1984 10-76 Agreements Relating to $8,500,000 Floating/Fixed Rate Pollution Control Revenue Bonds: 10-76.1 Bond Purchase Agreement dated December 28, 1984. Annual Report on Form 10-K 10-77.1 for year ended December 31, 1984 10-76.2 Loan Agreement dated as of December 1, 1984. Annual Report on Form 10-K 10-77.2 for year ended December 31, 1984 10-77.1 Indenture of Trust dated as of March 14, 1988 Annual Report on Form 10-K 10-1.4 between Maine Yankee Atomic Power Company and for year ended December 31, Maine National Bank relating to decommissioning 1987, of Maine Yankee Atomic trust funds. Power Company (1-6554) 10-77.1(a) Amended and Restated Indenture of Trust dated as Annual Report on Form 10-K 10-6.1 of January 1, 1993 between Maine Yankee Atomic for year ended Decembe 31, Power Company and The Bank of New York relating to 1992, of Maine Yankee Atomic decommissioning trust funds. Power Company (1-6554) 10-77.2 Indenture of Trust dated as of October 16, 1985 Annual Report on Form 10-K 10-7 between the Company and Norstar Bank of Maine for year ended December 31, relating to the spent fuel disposal funds. 1985, of Maine Yankee Atomic Power Company (1-6554) 10-78 Form of Agreement of Purchase and Sale dated Annual Report on Form 10-K 0.79 February 19, 1986 between the Company and Eastern for the year ended Utilities Associates, relating to the sale of the December 31, 1985 Company's Seabrook Project interest. 10-79 Addendum to Agreement of Purchase and Sale dated Quarterly Report on Form 2.1 June 23, 1986, among the Company, Eastern 10-Q for the quarter ending Utilities Associates and EUA Power Corporation, June 30, 1986 amending Exhibit 10-78. 10-80 Agreement, dated as of October 29, 1986, between Quarterly Report on Form 2.1 the Company and EUA Power Corporation, relating to 10-Q for the quarter ended the sale of the Company's interest in the Seabrook September 30, 1986 Project. 10-81 Credit Agreement, dated as of October 15, 1986, Quarterly Report on Form 2.2 among the Company, various banks and Continental 10-Q for the quarter ended Illinois National Bank and Trust Company of September 30, 1986 Chicago, as agent, establishing the terms of a $40 million unsecured credit facility. 10-86 Labor Agreement dated as of May 1, 1989 between Annual Report on Form 10-K 10.86 the Company (Northern, Western and Southern for the year ended Division) and Local 1837 of the International December 31, 1989 Brotherhood of Electrical Workers. 10-86.1 Agreement dated as of November 25, 1991 extending Annual Report on Form 10-K 10.86.1 Labor Contract. for year ended December 31, 1991 10-89 1987 Executive Incentive Plan, as amended Annual Report on Form 10-K 10.89 January 20, 1993.* for year ended December 31, 1992 10-90 Deferred Compensation Plan for Non-Employee Annual Report on Form 10-K 10.90 Directors, as amended and restated effective for year ended December 31, February 1, 1992.* 1992 10-91 Retirement Plan for Outside Directors, as amended Annual Report on Form 10-K 10.91 and restated effective April 24, 1991.* for year ended December 31, 1992 10-92 Employment Agreement between the Company and Annual Report on Form 10-K 10.92 Matthew Hunter dated as of October 20, 1993.* for year ended December 31, 1993. 10-93 Central Maine Power Company Long-Term Incentive Annual Report on Form 10-K 10.93 Plan.* for year ended December 31, 1993. 10-94.1 Central Maine Power Company Supplemental Executive Filed herewith Retirement Plan, as Amended and Restated Effective January 1, 1993, and as further Amended Effective January 1, 1996.* 10-95 Competitive Advance and Revolving Credit Facility Annual Report on Form 10-K 10.95 between the Company and Chemical Bank dated as of for year ended December 31, November 7, 1994. 1994 10-96.5 Employment Agreement between the Company and Filed herewith Arthur W. Adelberg As Amended and Restated Effective December 9, 1994.* 10-96.6 Employment Agreement between the Company and Filed herewith Richard A. Crabtree As Amended and Restated Effective December 9, 1994.* 10-96.7 Employment Agreement between the Company and Filed herewith Gerald C. Poulin As Amended and Restated Effective December 9, 1994.* 10-96.8 Employment Agreement between the Company and David Filed herewith E. Marsh As Amended and Restated Effective December 9, 1994.* 10-97 Employment Agreement between the Company and Filed herewith David T. Flanagan dated December 29, 1995.* *Management contract or compensatory plan or arrangement required to be filed in response to Item 14(c) of Form 10-K. EXHIBIT 11: STATEMENT RE COMPUTATION OF PER SHARE EARNINGS Not Applicable. EXHIBIT 12: STATEMENTS RE COMPUTATION OF RATIOS Not Applicable. EXHIBIT 13: ANNUAL REPORT TO SECURITY HOLDERS, FORM 10-Q OR QUARTERLY REPORT TO SECURITY HOLDERS 13-1 Management's Discussion and Analysis of Financial Filed herewith Condition and Results of Operations and Financial Statements from Annual Report of Central Maine Power Company to Shareholders for the year ended December 31, 1995 (pages 1-55). EXHIBIT 16: LETTER RE CHANGE IN CERTIFYING ACCOUNTANT Not Applicable. EXHIBIT 18: LETTER RE CHANGE IN ACCOUNTING PRINCIPLES Not Applicable. EXHIBIT 21: SUBSIDIARIES OF THE REGISTRANT List of subsidiaries of registrant. Filed herewith EXHIBIT 22: PUBLISHED REPORT CONCERNING MATTERS SUBMITTED TO VOTE OF SECURITY HOLDERS Not Applicable. EXHIBIT 23: CONSENTS OF EXPERTS AND COUNSEL 23-1 Consent of Arthur Andersen & Co. to the Filed herewith at page F-5 incorporation by reference of their reports included or incorporated by reference herein in the Company's Registration Statements (File Number 33-36679, 33-39826, 33-44754, 33-51611 and 33-56939). 23-2 Consent of Coopers & Lybrand to the incorporation Filed herewith at page F-4 by reference of their reports included or incorporated by reference herein in the Company's Registration Statements (File Number 33-36679, 33-39826, 33-44754, 33-51611 and 33-56939). EXHIBIT 24: POWER OF ATTORNEY Not Applicable. EXHIBIT 27: FINANCIAL DATA SCHEDULE Filed herewith EXHIBIT 28: INFORMATION FROM REPORTS FURNISHED TO STATE INSURANCE REGULATORY AUTHORITIES Not Applicable. EXHIBIT 99: ADDITIONAL EXHIBITS To be filed under cover of a Form 10-K/A amendment of this Form 10-K within 180 days after December 31, 1995, pursuant to Rule 15d-21 under the Securities Exchange Act of 1934: 99-1 and -2 Information, financial statements and exhibits required by Form 11-K with respect to certain employee savings plans maintained by the Company.
EX-4.26 4 SUPPLEMENTAL INDENTURE Exhibit 4.26 Executed Original SUPPLEMENTAL INDENTURE Dated as of February 15, 1996 among CENTRAL MAINE POWER COMPANY, THE FIRST NATIONAL BANK OF BOSTON, TRUSTEE, and STATE STREET BANK AND TRUST COMPANY, SUCCESSOR TRUSTEE TO GENERAL AND REFUNDING MORTGAGE INDENTURE Dated as of April 15, 1976, as Amended Concerning the Succession of State Street Bank and Trust Company to the Trusteeship under the General and Refunding Mortgage Indenture CENTRAL MAINE POWER COMPANY SUPPLEMENTAL INDENTURE Dated as of February 15, 1996 TABLE OF CONTENTS Parties.................................................................1 Recitals................................................................1 Consideration ..........................................................2 ARTICLE I TRUSTEE SUCCESSION Section 1.01. Resignation of Trustee...................................3 Section 1.02. Appointment of Successor Trustee.........................3 Section 1.03. Acceptance and Assurances by Successor Trustee............................3 Section 1.04. Confirmatory Assignment .....................4 Section 1.05. Costs and Expenses ......................................4 ARTICLE II MISCELLANEOUS PROVISIONS Section 2.01. This Instrument Supplemental to the Indenture............4 Section 2.02. Effect of Table of Contents and Headings.................4 Section 2.03. Trust Indenture Act to Control...........................4 Section 2.04. Counterparts.............................................4 TESTIMONIUM.............................................................5 SIGNATURES..............................................................5 ACKNOWLEDGMENTS.........................................................7 THIS SUPPLEMENTAL INDENTURE, dated as of February 15, 1996, is among CENTRAL MAINE POWER COMPANY, a Maine corporation, with its principal office at 83 Edison Drive, Augusta, Maine 04336 (hereinafter generally referred to as the Company), THE FIRST NATIONAL BANK OF BOSTON, a national banking association, with its principal office at 100 Federal Street, Boston, Massachusetts 02110, as trustee under the General and Refunding Mortgage Indenture referred to in the first recital hereof (hereinafter generally referred to as the Trustee), and STATE STREET BANK and TRUST COMPANY, a Massachusetts trust company, with its principal office at 225 Franklin Street, Boston, Massachusetts 02110 (hereinafter generally referred to as the Successor Trustee). WHEREAS, the Company has heretofore duly executed and delivered to the Trustee its General and Refunding Mortgage Indenture dated as of April 15, 1976 and Supplemental Indentures thereto dated respectively as of March 15, 1977, May 20, 1977, March 15, 1978, October 1, 1978, March 15, 1979, October 1, 1979, March 15, 1980, March 15, 1981, April 15, 1981, September 17, 1981, November 15, 1981, March 15, 1982, March 15, 1983, April 15, 1983, March 15, 1984, September 1, 1984, March 15, 1985, March 15, 1986, April 15, 1986, October 15, 1986, December 1, 1986, March 15, 1987, November 15, 1987, January 15, 1988, April 15, 1988, November 15, 1988, April 15, 1989, April 15, 1990, December 10, 1990, April 15, 1991, September 15, 1991, December 1, 1991, April 15, 1992, December 15, 1992, February 15, 1993, April 15, 1993, May 20, 1993, August 15, 1993, November 1, 1993, April 12, 1994, April 20, 1994, and April 15, 1995 (said General and Refunding Mortgage Indenture being hereinafter generally referred to as the Original Indenture, and the Original Indenture together with all indentures stated to be supplemental thereto, including this Supplemental Indenture, being hereinafter generally referred to as the Indenture), to which this instrument is supplemental, whereby all the properties of the Company, whether then owned or thereafter acquired, with certain reservations, exceptions and exclusions fully set forth in the Indenture, were given, granted, bargained, sold, transferred, assigned, pledged, mortgaged, warranted, conveyed and confirmed to the Trustee, its successors and assigns, in trust upon the terms and conditions set forth therein, to secure bonds of the Company issued and to be issued thereunder, and for other purposes more particularly specified therein; and WHEREAS, the Company has issued, and there are outstanding under the Indenture, $22,500,000 in aggregate principal amount of General and Refunding Mortgage Bonds, Series N 8.50% Due 2001, $50,000,000 in aggregate principal amount of General and Refunding Mortgage Bonds, Series O 7 3/8% Due 1999, $75,000,000 in aggregate principal amount of General and Refunding Mortgage Bonds, Series P 7.66% Due 2000, $75,000,000 in aggregate principal amount of General and Refunding Mortgage Bonds, Series Q 7.05% Due 2008, $50,000,000 in aggregate principal amount of General and Refunding Mortgage Bonds, Series R 7 7/8% Due 2023, $60,000,000 in aggregate principal amount of General and Refunding Mortgage Bonds, Series S 6.03% Due 1998, $75,000,000 in aggregate principal amount of General and Refunding Mortgage Bonds, Series T 6.25% Due 1998 and $25,000,000 in aggregate principal amount of General and Refunding Mortgage Bonds, Series U 7.54% (Adjustable Rate) Due 1998; and WHEREAS, pursuant to a separate agreement between the Trustee and the Successor Trustee, the Trustee has agreed to sell, assign and transfer to the Successor Trustee substantially all of the Trustee's corporate trust business (said agreement and transaction being hereinafter generally referred to as the Transaction); and WHEREAS, the Transaction may not meet the precise terms of Section 16.20 of the Indenture, providing for automatic succession of the Successor Trustee to the trusteeship under the Indenture, and, accordingly, the succession must take the form of the resignation of the Trustee, and appointment of and acceptance by the Successor Trustee; and WHEREAS, pursuant to Section 17.01(f) of the Indenture, the Company and the Trustee may enter into an indenture supplemental to the Indenture to evidence the succession of a new trustee under the Indenture; and WHEREAS, upon the terms of this Supplemental Indenture, the Company is willing to take action to permit the succession of the Successor Trustee to the trusteeship under the Indenture; and WHEREAS, each of the parties hereto confirms to the others that its execution and delivery of this Supplemental Indenture and other necessary actions have been duly authorized by, or pursuant to authority granted by, its Board of Directors and have been duly approved to the extent required by law by the appropriate governmental authorities; and WHEREAS, all acts and things necessary to make this Supplemental Indenture when executed and delivered by each of the parties a valid, binding and legal obligation of such party have been done and performed. NOW, THEREFORE, in consideration of the premises, and of other good and valuable consideration, the receipt whereof is hereby acknowledged, and in confirmation of and supplementing the Indenture, the parties hereby agree as follows: ARTICLE I TRUSTEE SUCCESSION Resignation of Trustee. Pursuant to Section 16.16 of the Indenture, the Trustee hereby resigns as trustee under the Indenture, effective at the opening of business on March 1, 1996. The Company acknowledges receipt of the written notice of resignation from the Trustee required under said Section 16.16. The Trustee confirms that it has taken action to publish notice of resignation in compliance with said Section 16.16. The Trustee covenants to and with the Company that all actions which have been and will be taken by the Trustee in connection with the succession of the trusteeship under the Indenture (including, without limitation, transfers of portions of the trust estate) have been and will be proper under the Indenture and fully protective of the respective interests of the Company and the holders of bonds issued and to be issued under the Indenture. Appointment of Successor Trustee. Pursuant to Section 16.18 of the Indenture, and in reliance upon the agreements and assurances of the Trustee and Successor Trustee contained in this Supplemental Indenture, the Company hereby appoints the Successor Trustee as the new trustee under the Indenture. This appointment shall be effective upon the effectiveness of the resignation of the Trustee under the Indenture at the opening of business on March 1, 1996, and fully vests the Successor Trustee with all the estates, properties, rights, powers, trusts, duties and obligations of its predecessor in trust under the Indenture, with like effect as if originally named as trustee thereunder. The Company shall publish notice of such appointment in the manner provided in Section 16.16 of the Indenture. Acceptance and Assurances by Successor Trustee. The Successor Trustee hereby accepts appointment as Successor Trustee under the Indenture, and assumes all rights, powers, duties and obligations of the trustee under the Indenture. In connection therewith, the Successor Trustee confirms its eligibility under Section 16.01 of the Indenture and its qualification under Section 16.14 of the Indenture. All portions of the trust estate received by the Successor Trustee from the Trustee or the Company, either in the Successor Trustee's capacity as agent of the Trustee or by virtue of the Successor Trustee's acceptance of appointment hereunder and the conveyance made to it under Section 1.04 hereof, have been received and are held by the Successor Trustee in trust under the Indenture in full protection of the respective interests of the Company and the holders of bonds issued and to be issued under the Indenture. SECTION 1.04. Confirmatory Assignment. In order more certainly to vest and confirm the same in the Successor Trustee, the Trustee by these presents does give, grant, bargain, sell, transfer, assign, convey and confirm unto the Successor Trustee all the estates, properties, rights, powers, trusts, duties and obligations of the Trustee as trustee under the Indenture, effective at the opening of business on March 1, 1996. Costs and Expenses. As between the Trustee and the Company, the Trustee hereby agrees to pay or reimburse the Company for payment of all costs and expenses relating to or arising out of the succession of the trusteeship under the Indenture, including, without limitation, reasonable legal fees and expenses, expenses of publication and documenting of the succession, expenses of necessary or appropriate filings in public records to evidence the succession, and any expenses incurred in the event of bondholder action to appoint a trustee to replace the Successor Trustee under Section 16.18 of the Indenture. ARTICLE II MISCELLANEOUS PROVISIONS This Instrument Supplemental to the Indenture. This instrument is expressly made supplemental to the Original Indenture as heretofore supplemented, and, except as otherwise provided herein, the use of terms and expressions herein is in accordance with the definitions and constructions contained in the Indenture. This Supplemental Indenture shall become void when the Indenture shall become void. Effect of Table of Contents and Headings. The Table of Contents and headings of the different Articles and Sections of this Supplemental Indenture are inserted for convenience of reference, and are not to be taken to be any part of those provisions, or to control or affect the meaning, construction or effect of the same. Trust Indenture Act to Control. If any provision of this Supplemental Indenture limits, qualifies or conflicts with the duties imposed by any of Sections 310 to 317, inclusive, of the Trust Indenture Act of 1939, as amended by the Trust Indenture Reform Act of 1990, through operation of Section 318(c), such imposed duties shall control. Counterparts. This Supplemental Indenture may be simultaneously executed in any number of counterparts and on separate counterparts, each of which shall be deemed an original; and all said counterparts executed and delivered, each as an original, shall constitute but one and the same instrument, which shall for all purposes be sufficiently evidenced by any such original counterpart. IN WITNESS WHEREOF, CENTRAL MAINE POWER COMPANY has caused this instrument to be duly executed in its name and behalf by one of its Vice Presidents, thereto duly authorized, and its corporate seal to be hereto affixed and attested by its Secretary; THE FIRST NATIONAL BANK OF BOSTON has caused this instrument to be duly executed in its name and behalf by one of its Authorized Officers, thereto duly authorized, and its corporate seal to be hereto affixed; and STATE STREET BANK and TRUST COMPANY has caused this instrument to be duly executed in its name and behalf by one of its Assistant Vice Presidents, thereto duly authorized, and its corporate seal to be hereto affixed--all as of the day and year first above written. CENTRAL MAINE POWER COMPANY By: /s/ D. E. Marsh Vice President [CORPORATE SEAL] ATTEST: /s/ William M. Finn Secretary Signed, sealed and delivered on behalf of Central Maine Power Company in the presence of: /s/ Brenda L. Robbins -8- THE FIRST NATIONAL BANK OF BOSTON, TRUSTEE By /s/ Michael R. Garfield Authorized Officer [CORPORATE SEAL] Signed, sealed and delivered on behalf of The First National Bank of Boston in the presence of: /s/ Brian M. Baker STATE STREET BANK AND TRUST COMPANY, SUCCESSOR TRUSTEE By /s/ Eric J. Donaghey Assistant Vice President [CORPORATE SEAL] Signed, sealed and delivered on behalf of State Street Bank and Trust Company in the presence of: /s/ Henry W. Seemore STATE OF MAINE ) ) ss.: KENNEBEC, ) At Augusta, on this 28th day of February, 1996, before me, a Notary Public in and for the County of Kennebec and State of Maine, personally appeared D. E. Marsh, a Vice President of Central Maine Power Company, to me personally known, who executed the foregoing instrument on behalf of said corporation, and acknowledged the same to be his free act and deed in such capacity and the free act and deed of Central Maine Power Company. (NOTARIAL SEAL) /s/ Karla E. Swasey My Commission Expires: April 1,2001 COMMONWEALTH OF MASSACHUSETTS ) ) ss.: SUFFOLK, ) At Boston, on this 27th day of February, 1996, before me, a Notary Public in and for the County of Suffolk and Commonwealth of Massachusetts, personally appeared Michael R. Garfield, an Authorized Officer of The First National Bank of Boston, to me personally known, who executed the foregoing instrument on behalf of said national banking association and acknowledged the same to be the free act and deed of such Authorized Officer in such capacity and the free act and deed of The First National Bank of Boston. (NOTARIAL SEAL) /s/ Scott Knox My Commission Expires: July 12, 2002 COMMONWEALTH OF MASSACHUSETTS ) ) ss.: SUFFOLK, ) At Boston, on this 27th day of February, 1996, before me, a Notary Public in and for the County of Suffolk and Commonwealth of Massachusetts, personally appeared Eric J. Donaghey, an Assistant Vice President of State Street Bank and Trust Company, to me personally known, who executed the foregoing instrument on behalf of said trust company and acknowledged the same to be the free act and deed of such Assistant Vice President in such capacity and the free act and deed of State Street Bank and Trust Company. (NOTARIAL SEAL) /s/ Scott Knox My Commission Expires: July 12, 2002 1 Not part of Supplemental Indenture. EX-10.94.1 5 SUPP EXEC RETIREMENT PLAN Exhibit 10.94.1 CENTRAL MAINE POWER COMPANY SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN As Amended and Restated Effective January 1, 1993 As further Amended Effective January 1, 1996 PREAMBLE The primary objective of the Central Maine Power Company Supplemental Executive Retirement Plan is to provide a competitive level of retirement income in order to attract and retain selected executives. The plan is designed to provide a benefit which, when added to other retirement income of an executive, will meet this objective. Participation in the plan shall be limited to senior officers of the Company who are selected by the Board of Directors. This plan is effective as of January 1, 1993. ARTICLE I Definitions 1.1 "Basic Plan" shall mean the Retirement Income Plan for Non-Union Employees of Central Maine Power Company, as amended from time to time. 1.2 "Basic Plan Benefit" shall mean the amount of benefit payable annually from the Basic Plan to the Participant in the form of a Single Life Annuity. 1.3 "Benefit Service" shall mean benefit service as defined in the Basic Plan. 1.4 "Board" or "Board of Directors" shall mean the Board of Directors of Central Maine Power Company. 1.5 "Code" shall mean the Internal Revenue Code of 1986, as amended. 1.6 "Committee" shall mean the Compensation and Benefits Committee of the Board of Directors. 1.7 "Company" shall mean Central Maine Power Company. 1.8 "Credited Service" shall mean credited service as defined in the Basic Plan. 1.9 "Earnings" shall mean a Participant's earnings as defined in the Basic Plan, but determined without regard to those provisions in the Basic Plan incorporating the limits of Section 401(a)(17) of the Code, and including amounts deferred by the Participant under any elective deferred compensation plan maintained by the Company and any amounts received by the Participant from the Executive Incentive Plan. 1.10 "Effective Date" shall mean January 1, 1993. 1.11 "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as amended. 1.12 "Final Average Earnings" shall mean the average of a Participant's highest thirty-six (36) consecutive months of Earnings while employed by the Company. 1.13 "Participant" shall mean an employee of the Company who is a member of the select group of management employees identified in Schedule A, attached hereto and made a part hereof, and who is vested under the Basic Plan. 1.14 "Plan" shall mean the Central Maine Power Company Supplemental Executive Retirement Plan as set forth herein and hereafter amended. 1.15 "Retirement" shall mean the termination of a Participant's employment with the Company and the commencement of benefit payments under the Plan. 1.16 "Retirement Date" shall mean one of the dates specified in Article II. 1.17 "Single Life Annuity" shall mean a series of equal monthly payments, beginning on the Participant's Retirement Date and ending with the monthly payment immediately preceding the Participant's death. 1.18 "Surviving Spouse" shall mean the surviving spouse of the Participant but only if the Participant and the surviving spouse had been married throughout the one-year period ending on the date of the Participant's death. A former spouse will be treated as the Surviving Spouse with specific reference to this Plan only to the extent provided under a qualified domestic relations order as described in Section 206(d)(3) of ERISA and applicable regulations thereunder. ARTICLE II Eligibility for Benefits A Participant is eligible to retire from the Company and receive a benefit under the Plan beginning on one of the following dates: 2.1 "Normal Retirement Date," which is the first day of the month coinciding with or next following the date on which the Participant reaches age 65. 2.2 "Early Retirement Date," which is the first day of any month, prior to the Participant's Normal Retirement Date, coinciding with or following the date on which the Participant has both reached age 55 and completed five (5) years of Credited Service. 2.3 "Deferred Retirement Date," which is the first day of the month, after the Participant's Normal Retirement Date, coinciding with or next following the date on which the Participant terminates employment with the Company. The benefit to which the Participant will be entitled upon his or her Retirement Date shall be determined in accordance with Article III. ARTICLE III Supplemental Plan Benefits 3.1 Retirement Benefit. On Retirement a Participant shall be entitled to an annual benefit under this Plan equal to the amount determined under subsection (a) less the amounts determined under subsections (b), (c), and (d): (a) 2.6% of the Participant's Final Average Earnings, multiplied by -- (i) the Participant's completed years of Benefit Service (excluding any partial years), not in excess of 25; and (ii) except as provided in Section 3.2, if a Participant retires before age 62, the applicable early retirement reduction factor specified in the Basic Plan. (b) 100% of the Participant's Basic Plan Benefit, determined in accordance with all applicable provisions of the Basic Plan. (c) 100% of the amount payable annually as a Single Life Annuity that is the actuarial equivalent of the Participant's retirement benefit under any other nonqualified retirement plan of (or employment agreement with) the Company, determined in accordance with all applicable provisions of the nonqualified retirement plan or employment agreement, as the case may be. (d) 100% of the amount payable annually as a Single Life Annuity that is the actuarial equivalent of any amount released to the Participant under any split-dollar life insurance agreement with the Company. For purposes of this Section, actuarial equivalence shall be determined in accordance with the actuarial assumptions specified in the Basic Plan. 3.2 Disability Retirement Benefit. If a Participant retires before age 62 with a disability benefit payable from the Basic Plan, the amount determined under subsection (a) of Section 3.1 shall not be reduced by the application of any early retirement reduction factor. 3.3 Pre-Retirement Death Benefit. If a Participant dies prior to the date his or her Retirement benefits commence under this Plan, a death benefit shall be payable to his or her Surviving Spouse in an amount equal to fifty percent (50%) of the amount the Participant would have received under the Plan had he or she been eligible to and elected early retirement the day before the date of his or her death with a benefit payable in the form of a qualified joint and survivor annuity, as described in the Basic Plan. 3.4 Post-Retirement Death Benefit. If the Participant dies after his or her Retirement benefits commence under this Plan a death benefit shall be payable only to the extent that such benefit is provided under the form of benefit payment in effect under Section 3.5. 3.5 Payment of Benefits. The benefits payable under the Plan shall be paid at such time and in such form as the benefits payable under the Basic Plan that the benefits payable hereunder are intended to supplement, unless the Committee shall otherwise determine. No benefit shall be paid hereunder until an application shall be made to the Committee in writing. In addition, the Committee may require an applicant for a benefit hereunder to furnish such information as it may reasonably request, and may delay the commencement of benefits, if necessary, until such information is made available. ARTICLE IV Administration 4.1 The complete authority to control and manage the operation and administration of the Plan shall be placed in the Committee. The Committee shall have sole discretion to construe the Plan and to determine all questions relating to eligibility for and entitlement to benefits. Further, the Committee shall have the sole discretion to determine the time and form of benefit payments under the Plan. 4.2 Subject to the provisions of this Plan, the Committee from time to time may establish rules for the administration and interpretation of the Plan. The determination of the Committee as to any disputed questions shall be conclusive. All actions, decisions and interpretations of the Committee in administering the Plan shall be performed in a uniform and nondiscriminatory manner. 4.3 If an application for a benefit ("claim") is denied by the Committee, the Committee shall give written notice of such denial to the applicant, by certified or registered mail, within 60 days after the claim was filed with the Committee; provided, however, that such 60-day period may be extended to 120 days by the Committee if it determines that special circumstances exist which require an extension of the time required for processing the claim. Such denial shall set forth: (a) the specific reason or reasons for the denial; (b) the specific Plan provisions on which the denial is based; (c) any additional material or information necessary for the applicant to perfect the claim and an explanation of why such material or information is necessary; and (d) an explanation of the Plan's claim review procedure. Following receipt of such denial, the applicant or his or her duly authorized representative may: (a) request a review of the denial by filing a written application for review with the Committee within 60 days after receipt by the applicant of such denial; (b) review documents pertinent to the claim at such reasonable time and location as shall be mutually agreeable to the applicant and the Committee; and (c) submit issues and comments in writing to the Committee relating to its review of the claim. The Committee shall, after consideration of the application for review, render a decision and shall give written notice thereof to the applicant, by certified or registered mail, within 60 days after receipt by the Committee of the application for review; provided, however, that such 60-day period may be extended to 120 days by the Committee if it determines that special circumstances exist which require an extension of the time required for processing the application for review. Such notice shall include specific reasons for the decision and specific references to the pertinent Plan provisions on which the decision is based. 4.4 Any act that the Plan authorizes or requires the Committee to do may be done by a majority of its members. The action of such majority, expressed from time to time by a vote at a meeting or in writing without a meeting, shall constitute the action of the Committee and shall have the same effect for all purposes as if assented to by all members of the Committee at the time in office. 4.5 The members of the Committee may authorize one or more of their number to execute or deliver any instrument, make any payment or perform any other act which the Plan authorizes or requires the Committee to do. 4.6 The Committee may employ counsel and other agents, may delegate ministerial duties to such agents or to employees of the Company and may procure such clerical, accounting, actuarial, consulting and other services as it may require in carrying out the provisions of the Plan. 4.7 The Company shall indemnify and save harmless each member of the Committee against all expenses and liabilities arising out of his or her acts or omissions with respect to the Plan, provided such member would be entitled to indemnification pursuant to the By-Laws of the Company. ARTICLE V Miscellaneous 5.1 The Board may at any time, in its sole discretion, terminate this Plan or amend the Plan in whole or in part. No such termination or amendment shall have the effect of retroactively reducing any benefit, based on a Participant's Benefit Service, Credited Service, and Earnings as of the date of such termination or amendment, or restricting any right of a Participant, retired Participant, Surviving Spouse, or other person or estate entitled to benefits hereunder. 5.2 Nothing contained herein will confer upon any Participant the right to be retained in the service of the Company or any other right not expressly provided for herein, nor will the existence of this Plan impair the right of the Company to discharge or otherwise deal with a Participant. 5.3 This Plan is unfunded for purposes of the Code and ERISA and is not intended to meet the requirements of Section 401(a) of the Code. This Plan constitutes a mere promise by the Company to make benefit payments in the future, and the Participant hereunder shall have no greater rights than a general, unsecured creditor of the Company. 5.4 To the maximum extent permitted by law, no benefit under this Plan shall be assignable or subject in any manner to alienation, sale, transfer, claims of creditors, pledge, attachment or encumbrances of any kind. 5.5 Each Participant shall receive a copy of this Plan and the Committee will make available for inspection by the Participant a copy of any rules and regulations adopted by the Committee in administering the Plan. 5.6 This Plan is established under and will be construed according to the laws of the State of Maine, except to the extent such laws may be preempted by ERISA. IN WITNESS WHEREOF, Central Maine Power Company has caused this document to be executed by its duly authorized officer on this ________________ day of January, 1996. CENTRAL MAINE POWER COMPANY By: ___________________________________ Chairman of the Board SCHEDULE A (As Amended Effective January 1, 1996) Arthur W. Adelberg Vice President, Law and Power Supply Richard A. Crabtree Vice President, Retail Operations Matthew Hunter President and Chief Executive Officer (retired) David T. Flanagan President and Chief Executive Officer Donald F. Kelly Senior Vice President, Production, Engineering and Power Supply (retired) David E. Marsh Vice President, Corporate Services, Treasurer, and Chief Financial Officer Gerald C. Poulin Vice President, Generation and Technical Support EX-10.96.5 6 AWA EMP AGREEMENT Exhibit 10-96.5 EMPLOYMENT AGREEMENT As Amended and Restated Effective December 9, 1994 THIS EMPLOYMENT AGREEMENT is made, effective as of the ninth (9th) day of December, 1994, by and between Central Maine Power Company, a Maine corporation with its principal place of business in Augusta, Maine (hereinafter referred to as the "Company"), and Arthur W. Adelberg (hereinafter referred to as the "Executive"). WHEREAS, the Company recognizes that the Executive is a valued officer because of his knowledge of the Company's affairs and his experience and leadership capabilities, and desires to encourage his continued employment with the Company to assure itself of the continuing advantage of that knowledge, experience and leadership for the benefit of customers and shareholders, particularly during a period of transition in various aspects of the Company's business and in the event of a Change of Control of the Company; and WHEREAS, the Executive desires to serve in the employ of the Company on a full-time basis for a period provided in this Employment Agreement (hereinafter referred to as the "Agreement") on the terms and conditions hereinafter set forth; and WHEREAS, to these ends the Company desires to provide the Executive with certain payments and benefits in the event of the termination of his employment in certain circumstances; and WHEREAS, the Company and the Executive wish to set forth the terms and conditions under which such employment and payments and benefits will occur. NOW, THEREFORE, in consideration of the continued offer of employment by the Company and the continued acceptance of employment by the Executive, and the mutual promises and covenants contained herein, the Company and the Executive hereby agree as follows: 1. Term of Agreement. a. The term of this Agreement shall begin on December 9, 1994 (hereinafter referred to as the "Effective Date") and shall expire on December 31, 1997; provided, however, that on December 31, 1997 and on each December 31 thereafter, the term of this Agreement shall automatically be extended for one (1) additional year unless not later than the preceding October 31 either the Company or the Executive shall have given notice that such party does not wish to extend the term of this Agreement. b. If a Change of Control occurs during the original term of this Agreement or any extension, then the term of this Agreement shall be automatically extended for a thirty-six (36) calendar month period beginning on the first day of the month following the month in which such Change of Control occurs. c. Notwithstanding anything to the contrary in this Section 1, this Agreement and all obligations of the Company hereunder shall terminate on the date of the Executive's death, or thirty (30) days after the Company gives notice to the Executive that the Company is terminating the Executive's employment for reason of Total Disability or Cause. 2. Definitions. The following terms shall have the meanings set forth below: "Affiliate" means a person that directly or indirectly through one or more intermediaries controls, is controlled by, or is under common control with the Company. "Board" means the Board of Directors of the Company. "Cause" means any of the following events or occurrences: (i) An act of material dishonesty taken by, or committed at the request of, the Executive. (ii) Any illegal or unethical conduct which, in the good faith judgment of the Board, would impair the Executive's ability to perform his duties under this Agreement or would impair the business reputation of the Company. (iii) Conviction of a felony. (iv) The continued failure of the Executive to perform substantially his responsibilities and duties under this Agreement, after demand for performance has been delivered in writing to the Executive specifying the manner in which the Company believes that the Executive is not performing. Notwithstanding any contrary provision of this Agreement, the Executive shall not be deemed to have been terminated for Cause unless and until there shall have been delivered to the Executive a certified copy of a resolution duly adopted by the affirmative vote of two-thirds of the members of the Board who are not employees of the Company at a meeting of the Board called and held for such purpose (after reasonable notice to the Executive and an opportunity for the Executive, together with his counsel, to be heard before the Board), finding in good faith one of the events or occurrences set forth in parts(i) through (iv) of the definition of "Cause" in this Agreement and specifying the particulars thereof in detail. "Change of Control" means the occurrence of any of the following events: (i) Any "person," as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act") (other than the Company or any Affiliate or any trustee or other fiduciary holding securities under an employee benefit plan of the Company or any Affiliate), is or becomes the beneficial owner, as defined in Rule 13d-3 under the Exchange Act, directly or indirectly, of stock of the Company representing thirty percent (30%) or more of the combined voting power of the Company's then outstanding stock eligible to vote. (ii) During any period of two (2) consecutive years after the execution of this Agreement, individuals who at the beginning of such period constitute the Board, and any new director whose election by the Board or nomination for election by the Company's stockholders was approved by a vote of at least two-thirds of the directors then in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved, cease for any reason to constitute at least a majority thereof. (iii) The stockholders of the Company approve a merger or consolidation of the Company with any other corporation, other than a merger or consolidation which would result in the voting stock of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) more than fifty percent (50%) of the combined voting power of the outstanding voting stock of the Company or such surviving entity immediately after such merger or consolidation; provided, that a merger or consolidation effected to implement a recapitalization of the Company (or similar transaction) in which no "person" (as hereinabove defined) acquires more than thirty percent (30%) of the combined voting power of the Company's then outstanding securities shall not constitute a Change of Control of the Company. (iv) The stockholders of the Company approve a plan of complete liquidation of the Company or an agreement for the sale, lease, exchange or other disposition by the Company of all or substantially all of the Company's assets (or any transaction having a similar effect). "Constructive Discharge" means, so long as no Change of Control has occurred, any reduction in the Executive's annual base salary in effect as of the Effective Date of this Agreement, or as the same may be increased from time to time, other than any across-the-board base salary reduction for a group or all of the executive officers of the Company, and also means, on or after a Change of Control, (i) any reduction in the Executive's annual base salary in effect as of the Effective Date of this Agreement, or as the same may be increased from time to time; (ii) a failure to increase the Executive's annual base salary commensurate with any across-the-board percentage increases in the compensation of other executive officers of the Company; (iii) a substantial reduction in the nature or scope of the Executive's responsibilities, duties or authority from those described in Section 3.c of this Agreement; (iv) a material adverse change in the Executive's title or position; or (v) relocation of the Executive's place of employment from the Company's principal executive offices or to a place more than twenty-five (25) miles from Augusta, Maine without the Executive's consent. "Severance Benefits" means the benefits set forth in Section 5.a or 5.c of this Agreement, as applicable. "Severance Period" means, in the case of a Change of Control, the period from the date of termination as determined in accordance with Section 6 of this Agreement until the third anniversary of such date. "Total Disability" means the complete and permanent inability of the Executive to perform all of his duties under this Agreement on a full-time basis for a period of at least six (6) consecutive months, as determined by the Board upon the basis of such evidence, which may include independent medical reports and data, as the Board deems appropriate or necessary. 3. Employment. a. The Company hereby agrees to continue its employment of the Executive in the capacity of Vice President, Law and Power Supply, and the Executive hereby agrees to remain in the employ of the Company for the period beginning on the Effective Date and ending on the date on which the Executive's employment is terminated in accordance with this Agreement (the "Employment Period"). This Agreement shall not restrict in any way the right of the Company to terminate the Executive's employment at whatever time and for whatever reason it deems appropriate, nor shall it limit the right of the Executive to terminate employment at any time for whatever reason he deems appropriate. b. The Executive agrees that during the Employment Period he shall devote substantially all his business attention and time to the business and affairs of the Company and its Affiliates, and use his best efforts to perform faithfully and efficiently the duties and responsibilities of the Executive under this Agreement. It is expressly understood that (i) the Executive may devote a reasonable amount of time to such industry associations and charitable and civic endeavors as shall not materially interfere with the services that the Executive is required to render under this Agreement, and (ii) the Executive may serve as a member of one or more boards of directors of companies that are not affiliated with the Company and do not compete with the Company or any of its Affiliates. c. The following listing of job duties shall represent the Executive's primary responsibilities. Such responsibilities may be expanded, and so long as no Change of Control has occurred may be decreased, as the business needs of the Company require. The Executive's primary job responsibilities shall include, but not be limited to: participation in the development and general oversight of corporate policies, strategies and business initiatives as a member of the Company's Executive Committee; the development and implementation of strategies to control non-utility generation costs; and the development, implementation and general oversight of corporate strategies in legislative and regulatory matters and wholesale power and transmission marketing issues. The departments reporting directly to the Executive shall be as follows: Law; Power Supply; Government Relations; Legislative Affairs; Community Relations; Internal Audit; and Regulatory Services. 4. Compensation and Benefits. a. During the Employment Period, the Executive shall be compensated as follows: (i) He shall receive an annual base salary, the amount of which shall be reviewed regularly and determined from time to time by the Board, but which shall not be less than $153,450. His salary shall be payable in accordance with Company payroll practices. (ii) He shall be entitled to participate in any and all plans and programs maintained by the Company from time to time to provide benefits for its executives, including without limitation any short-term or long-term incentive, pension, or supplemental pension plan or program, in accordance with the terms and conditions of any such plan or program or the administrative guidelines relating thereto, as may be amended from time to time. (iii) He shall be entitled to participate in any and all plans and programs maintained by the Company from time to time to provide benefits for its salaried employees generally, including without limitation any savings and investment, stock purchase or group medical, dental, life, accident or disability insurance plan or program, subject to all eligibility requirements of general applicability, to the extent that executives are not excluded from participation therein under the terms thereof or under the terms of any executive plan or program or any approval or adoption thereof. (iv) He shall be entitled to all fringe benefits generally provided by the Company at any time to its full-time salaried employees, including without limitation paid vacation, holidays and sick leave but excluding severance pay, in accordance with generally applicable Company policies with respect to such benefits. (v) He shall be entitled to all rights and benefits under the Split-Dollar Life Insurance Agreement between the Company and the Executive in effect as of the Effective Date of this Agreement in accordance with the terms of such Split-Dollar Life Insurance Agreement. b. Notwithstanding any contrary provision of this Agreement, any compensation or benefits which are vested in the Executive or which the Executive is otherwise entitled to receive under any plan or program of the Company or any agreement between the Company and the Executive before, at or subsequent to the Executive's termination of employment shall be furnished and paid in accordance with the terms and provisions of such plan, program or agreement. c. All compensation payable under this Section 4 shall be subject to normal payroll deductions for withholding income taxes, social security taxes and the like. 5. Severance Benefits. a. If, on or after a Change of Control, the Executive's employment with the Company is terminated during the Employment Period by the Company and/or any successor for any reason other than death, Total Disability or Cause, or by the Executive within twelve (12) calendar months of a Constructive Discharge, Severance Benefits shall be provided as follows: (i) The Company shall pay the Executive, in one cash lump sum within sixty (60) days following the date of termination of employment as determined under Section 6 of this Agreement, an amount equal to 2.99 times the Executive's "base amount," as defined in Section 280G(b)(3) of the Internal Revenue Code of 1986, as amended (the "Code"). (ii) Core coverage for the Executive under the Company's group medical, life, accident and disability plans or programs shall continue for the Severance Period on the same terms and conditions, as if the Executive's employment had not terminated. In the event that the Executive's participation in any such plan or program is barred, the Company shall arrange at its expense to provide him during the Severance Period with core benefits substantially similar to those which he would otherwise be entitled to receive under such plans and programs. (iii) The Severance Period shall count as service for all purposes (including benefit accrual and eligibility) under any benefit plan of the Company applicable to the Executive immediately prior to the Executive's termination of employment, for which service with the Company is taken into account, including without limitation any pension or supplemental pension plan, and all benefits under such plans that are subject to vesting shall vest as of the date of such termination of employment. (iv) The Company shall pay a fee to an independent outplacement firm selected by the Executive for outplacement services in an amount equal to the actual fee for such services up to a total of $10,000. b. Notwithstanding the provisions of Section 5.a hereof, if, in the opinion of tax counsel selected by the Company's independent auditors, (i) the Severance Benefits set forth in said Section 5.a and any payments or benefits otherwise payable to the Executive would constitute "parachute payments" within the meaning of Section 280G(b)(2) of the Code (said Severance Benefits and other payments or benefits being hereinafter collectively referred to as "Total Payments"), and (ii) the aggregate present value of the Total Payments would exceed 2.99 times the Executive's base amount, as defined in Section 280G(b)(3) of the Code, then, such portion of the Severance Benefits described in Section 5.a hereof as, in the opinion of said tax counsel, constitute "parachute payments" shall be reduced as directed by tax counsel so that the aggregate present value of the Total Payments is equal to 2.99 times the Executive's base amount. The tax counsel selected pursuant to this Section 5.b may consult with tax counsel for the Executive, but shall have complete, sole and final discretion to determine which Severance Benefits shall be reduced and the amounts of the required reductions. For purposes of this Section 5.b, the Executive's base amount and the value of the Total Payments shall be determined by the Company's independent auditors in accordance with the principles of Section 280G of the Code and based upon the advice of tax counsel selected thereby. c. If no Change of Control has occurred and the Executive's employment with the Company is terminated during the Employment Period by the Company for any reason other than death, Total Disability or Cause, or by the Executive within six (6) calendar months of a Constructive Discharge, the Company shall pay the Executive, in twelve (12) equal monthly cash installments beginning not later than sixty (60) days following the date of termination of employment as determined under Section 6 of this Agreement, Severance Benefits equal to one (1) times the Executive's annual base salary in effect on the date immediately preceding the date of termination, or preceding the date of a Constructive Discharge attributable to a base salary reduction if applicable; provided, however, that each of the last six (6) monthly cash installments shall be reduced by an amount equal to any base salary or other base pay or commissions earned through other employment or any fees earned as a consultant for the particular month, such that an installment shall not be paid or payable by the Company for any month for which such other base salary, base pay, commissions or fees equal or exceed the amount of the installment. 6. Date of Termination. For purposes of this Agreement, the date of termination of the Executive's employment shall be the date notice is given to the Executive by the Company and/or any successor or, in the case of a Constructive Discharge, the date set forth in a written notice given to the Company by the Executive, provided that the Executive gives such notice within twelve (12) calendar months of the Constructive Discharge in the case of a Change of Control, and within six (6) calendar months of the Constructive Discharge in other cases, and specifies therein the event constituting the Constructive Discharge. 7. Taxes. a. In the event that any portion of the Severance Benefits is subject to tax under Section 4999 of the Internal Revenue Code of 1986, as amended, or any successor provision thereto (the "Excise Tax"), the Company shall pay to the Executive an additional amount (the "Gross-Up Amount") which, after payment of all federal and State income taxes thereon (assuming the Executive is at the highest marginal federal and applicable State income tax rate in effect on the date of payment of the Gross-Up Amount) and payment of any Excise Tax on the Gross-Up Amount, is equal to the Excise Tax payable by the Executive on such portion of the Severance Benefits. Any Gross-Up Amount payable hereunder shall be paid by the Company coincident with the payment of the Severance Benefits described in Section 5.a(i) of this Agreement. b. All amounts payable to the Executive under this Agreement shall be subject to applicable withholding of income, wage and other taxes. 8. Non-Competition, Confidentiality and Cooperation. The Executive agrees that: (i) during the Employment Period and for one (1) year after the termination of the Executive's employment with the Company for any reason other than a Change of Control, the Executive shall not serve as a director, officer, employee, partner or consultant or in any other capacity in any business that is involved in the generation, transmission or distribution of electric energy within the New England states, or solicit Company employees for employment or other participation in any such business, or take any other action intended to advance the interests of such business; (ii) during and after the Executive's employment with the Company, he shall not divulge or appropriate to his own use or the use of others any secret, proprietary or confidential information or knowledge pertaining to the business of the Company, or any of its Affiliates, obtained during his employment with the Company; and (iii) during the Employment Period, he shall support the Company's interests and efforts in all regulatory, administrative, judicial or other proceedings affecting the Company and, after the termination of his employment with the Company, he shall use best efforts to comply with all reasonable requests of the Company that he cooperate with the Company, whether by giving testimony or otherwise, in regulatory, administrative, judicial or other proceedings affecting the Company except any proceeding in which he may be in a position adverse to that of the Company. After the termination of employment, the Company shall reimburse the Executive for his reasonable expenses and his time, at a reasonable rate to be determined, for the Executive's cooperation with the Company in any such proceeding. The provisions of this Section 8 shall survive the expiration or termination of this Agreement. The Executive agrees that the Company shall be entitled to injunctive relief to prevent any breach or threatened breach of these provisions. In the event of a failure to comply with part (i), (ii) or (iii) of this Section 8, the Executive agrees that the Company shall have no further obligation to pay the Executive any Severance Benefits under Section 5.c of this Agreement. In the event of a failure to comply with part (i) or (ii) hereof, the Executive agrees that he shall repay to the Company any such Section 5.c Severance Benefits paid to him. The Company shall have the right to offset any amounts payable to the Executive under this Agreement or otherwise against any Severance Benefits which he is obligated to repay to the Company. 9. No Mitigation. The Executive shall not be required to mitigate the amount of any payment provided for in this Agreement by seeking other employment. 10. Assignment. This Agreement and the rights and obligations of the Company hereunder shall inure to the benefit of and shall be binding upon the successors and assigns of the Company, including without limitation any corporation or other entity acquiring all or substantially all of the business or assets of the Company whether by operation of law or otherwise. This Agreement and the rights of the Executive hereunder shall not be assignable by the Executive, and any assignment by the Executive shall be null and void. 11. Arbitration. Any dispute or controversy arising under or in connection with this Agreement shall be settled exclusively by arbitration in Augusta, Maine, in accordance with the rules of the American Arbitration Association then in effect. The pendency of any such dispute or controversy shall not affect any rights or obligations under this Agreement. Judgment may be entered on the arbitrator's award in any court having jurisdiction. 12. Waiver; Amendment. The failure of either party to enforce, or any delay in enforcing, any rights under this Agreement shall not be deemed to be a waiver of such rights, unless such waiver is an express written waiver which has been signed by the waiving party. Waiver of any one breach shall not be deemed to be a waiver of any other breach of the same or any other provision hereof. This Agreement can be amended only by a written instrument signed by each party hereto and no course of dealing or practice or failure to enforce or delay in enforcing any rights hereunder may be claimed to have effected an amendment of this Agreement. 13. Notices. Any notice required or permitted to be given under this Agreement shall be sufficient if in writing and sent by first-class, registered or certified mail or hand-delivered to the Executive at the last residence address he has provided to the Company or, in the case of the Company, at its principal executive offices to the attention of the Corporate Secretary. 14. Miscellaneous. This Agreement shall be construed and enforced in accordance with the laws of the State of Maine. In the event that any provisions of this Agreement shall be held to be invalid, the other provisions hereof shall remain in full force and effect. 15. Entire Agreement. The terms of this Agreement are intended by the parties to be the final expression of their agreement with respect to the employment of the Executive by the Company and may not be contradicted by evidence of any prior or contemporaneous oral or written agreement. IN WITNESS WHEREOF, the parties hereto have executed this Agreement effective as of the date first written above. WITNESS: Arthur W. Adelberg CENTRAL MAINE POWER COMPANY By: David M. Jagger Chairman of the Board of Directors EX-10.96.6 7 RAC EMP AGREEMENT Exhibit 10-96.6 EMPLOYMENT AGREEMENT As Amended and Restated Effective December 9, 1994 THIS EMPLOYMENT AGREEMENT is made, effective as of the ninth (9th) day of December, 1994, by and between Central Maine Power Company, a Maine corporation with its principal place of business in Augusta, Maine (hereinafter referred to as the "Company"), and Richard A. Crabtree (hereinafter referred to as the "Executive"). WHEREAS, the Company recognizes that the Executive is a valued officer because of his knowledge of the Company's affairs and his experience and leadership capabilities, and desires to encourage his continued employment with the Company to assure itself of the continuing advantage of that knowledge, experience and leadership for the benefit of customers and shareholders, particularly during a period of transition in various aspects of the Company's business and in the event of a Change of Control of the Company; and WHEREAS, the Executive desires to serve in the employ of the Company on a full-time basis for a period provided in this Employment Agreement (hereinafter referred to as the "Agreement") on the terms and conditions hereinafter set forth; and WHEREAS, to these ends the Company desires to provide the Executive with certain payments and benefits in the event of the termination of his employment in certain circumstances; and WHEREAS, the Company and the Executive wish to set forth the terms and conditions under which such employment and payments and benefits will occur. NOW, THEREFORE, in consideration of the continued offer of employment by the Company and the continued acceptance of employment by the Executive, and the mutual promises and covenants contained herein, the Company and the Executive hereby agree as follows: 1. Term of Agreement. a. The term of this Agreement shall begin on December 9, 1994 (hereinafter referred to as the "Effective Date") and shall expire on December 31, 1997; provided, however, that on December 31, 1997 and on each December 31 thereafter, the term of this Agreement shall automatically be extended for one (1) additional year unless not later than the preceding October 31 either the Company or the Executive shall have given notice that such party does not wish to extend the term of this Agreement. b. If a Change of Control occurs during the original term of this Agreement or any extension, then the term of this Agreement shall be automatically extended for a thirty-six (36) calendar month period beginning on the first day of the month following the month in which such Change of Control occurs. c. Notwithstanding anything to the contrary in this Section 1, this Agreement and all obligations of the Company hereunder shall terminate on the date of the Executive's death, or thirty (30) days after the Company gives notice to the Executive that the Company is terminating the Executive's employment for reason of Total Disability or Cause. 2. Definitions. The following terms shall have the meanings set forth below: "Affiliate" means a person that directly or indirectly through one or more intermediaries controls, is controlled by, or is under common control with the Company. "Board" means the Board of Directors of the Company. "Cause" means any of the following events or occurrences: (i) An act of material dishonesty taken by, or committed at the request of, the Executive. (ii) Any illegal or unethical conduct which, in the good faith judgment of the Board, would impair the Executive's ability to perform his duties under this Agreement or would impair the business reputation of the Company. (iii) Conviction of a felony. (iv) The continued failure of the Executive to perform substantially his responsibilities and duties under this Agreement, after demand for performance has been delivered in writing to the Executive specifying the manner in which the Company believes that the Executive is not performing. Notwithstanding any contrary provision of this Agreement, the Executive shall not be deemed to have been terminated for Cause unless and until there shall have been delivered to the Executive a certified copy of a resolution duly adopted by the affirmative vote of two-thirds of the members of the Board who are not employees of the Company at a meeting of the Board called and held for such purpose (after reasonable notice to the Executive and an opportunity for the Executive, together with his counsel, to be heard before the Board), finding in good faith one of the events or occurrences set forth in parts (i) through (iv) of the definition of "Cause" in this Agreement and specifying the particulars thereof in detail. "Change of Control" means the occurrence of any of the following events: (i) Any "person," as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act") (other than the Company or any Affiliate or any trustee or other fiduciary holding securities under an employee benefit plan of the Company or any Affiliate), is or becomes the beneficial owner, as defined in Rule 13d-3 under the Exchange Act, directly or indirectly, of stock of the Company representing thirty percent (30%) or more of the combined voting power of the Company's then outstanding stock eligible to vote. (ii) During any period of two (2) consecutive years after the execution of this Agreement, individuals who at the beginning of such period constitute the Board, and any new director whose election by the Board or nomination for election by the Company's stockholders was approved by a vote of at least two-thirds of the directors then in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved, cease for any reason to constitute at least a majority thereof. (iii) The stockholders of the Company approve a merger or consolidation of the Company with any other corporation, other than a merger or consolidation which would result in the voting stock of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) more than fifty percent (50%) of the combined voting power of the outstanding voting stock of the Company or such surviving entity immediately after such merger or consolidation; provided, that a merger or consolidation effected to implement a recapitalization of the Company (or similar transaction) in which no "person" (as hereinabove defined) acquires more than thirty percent (30%) of the combined voting power of the Company's then outstanding securities shall not constitute a Change of Control of the Company. (iv) The stockholders of the Company approve a plan of complete liquidation of the Company or an agreement for the sale, lease, exchange or other disposition by the Company of all or substantially all of the Company's assets (or any transaction having a similar effect). "Constructive Discharge" means, so long as no Change of Control has occurred, any reduction in the Executive's annual base salary in effect as of the Effective Date of this Agreement, or as the same may be increased from time to time, other than any across-the-board base salary reduction for a group or all of the executive officers of the Company, and also means, on or after a Change of Control, (i) any reduction in the Executive's annual base salary in effect as of the Effective Date of this Agreement, or as the same may be increased from time to time; (ii) a failure to increase the Executive's annual base salary commensurate with any across-the-board percentage increases in the compensation of other executive officers of the Company; (iii) a substantial reduction in the nature or scope of the Executive's responsibilities, duties or authority from those described in Section 3.c of this Agreement; (iv) a material adverse change in the Executive's title or position; or (v) relocation of the Executive's place of employment from the Company's principal executive offices or to a place more than twenty-five (25) miles from Augusta, Maine without the Executive's consent. "Severance Benefits" means the benefits set forth in Section 5.a or 5.c of this Agreement, as applicable. "Severance Period" means, in the case of a Change of Control, the period from the date of termination as determined in accordance with Section 6 of this Agreement until the third anniversary of such date. "Total Disability" means the complete and permanent inability of the Executive to perform all of his duties under this Agreement on a full-time basis for a period of at least six (6) consecutive months, as determined by the Board upon the basis of such evidence, which may include independent medical reports and data, as the Board deems appropriate or necessary. 3. Employment. a. The Company hereby agrees to continue its employment of the Executive in the capacity of Vice President, Retail Operations, and the Executive hereby agrees to remain in the employ of the Company for the period beginning on the Effective Date and ending on the date on which the Executive's employment is terminated in accordance with this Agreement (the "Employment Period"). This Agreement shall not restrict in any way the right of the Company to terminate the Executive's employment at whatever time and for whatever reason it deems appropriate, nor shall it limit the right of the Executive to terminate employment at any time for whatever reason he deems appropriate. b. The Executive agrees that during the Employment Period he shall devote substantially all his business attention and time to the business and affairs of the Company and its Affiliates, and use his best efforts to perform faithfully and efficiently the duties and responsibilities of the Executive under this Agreement. It is expressly understood that (i) the Executive may devote a reasonable amount of time to such industry associations and charitable and civic endeavors as shall not materially interfere with the services that the Executive is required to render under this Agreement, and (ii) the Executive may serve as a member of one or more boards of directors of companies that are not affiliated with the Company and do not compete with the Company or any of its Affiliates. c. The following listing of job duties shall represent the Executive's primary responsibilities. Such responsibilities may be expanded, and so long as no Change of Control has occurred may be decreased, as the business needs of the Company require. The Executive's primary job responsibilities shall include, but not be limited to: participation in the development and general oversight of corporate policies, strategies and business initiatives as a member of the Company's Executive Committee; the development, implementation and overall management and oversight of all aspects of the Company's retail operations policies, strategies, plans, initiatives and activities including those concerning market share, sales volume, customer contacts, billing and service, the design, promotion and sales of energy product and service options, transmission and distribution, and joint use of distribution facilities; and service as Chairman of the Pricing Council. The departments reporting directly to the Executive shall be as follows: Distribution Operations; Energy Service and Sales; Consumer Affairs; Transmission and Distribution Planning; Substation Operations; and Technical Services. 4. Compensation and Benefits. a. During the Employment Period, the Executive shall be compensated as follows: (i) He shall receive an annual base salary, the amount of which shall be reviewed regularly and determined from time to time by the Board, but which shall not be less than $153,400. His salary shall be payable in accordance with Company payroll practices. (ii) He shall be entitled to participate in any and all plans and programs maintained by the Company from time to time to provide benefits for its executives, including without limitation any short-term or long-term incentive, pension, or supplemental pension plan or program, in accordance with the terms and conditions of any such plan or program or the administrative guidelines relating thereto, as may be amended from time to time. (iii) He shall be entitled to participate in any and all plans and programs maintained by the Company from time to time to provide benefits for its salaried employees generally, including without limitation any savings and investment, stock purchase or group medical, dental, life, accident or disability insurance plan or program, subject to all eligibility requirements of general applicability, to the extent that executives are not excluded from participation therein under the terms thereof or under the terms of any executive plan or program or any approval or adoption thereof. (iv) He shall be entitled to all fringe benefits generally provided by the Company at any time to its full-time salaried employees, including without limitation paid vacation, holidays and sick leave but excluding severance pay, in accordance with generally applicable Company policies with respect to such benefits. (v) He shall be entitled to all rights and benefits under the Split-Dollar Life Insurance Agreement between the Company and the Executive in effect as of the Effective Date of this Agreement in accordance with the terms of such Split-Dollar Life Insurance Agreement. b. Notwithstanding any contrary provision of this Agreement, any compensation or benefits which are vested in the Executive or which the Executive is otherwise entitled to receive under any plan or program of the Company or any agreement between the Company and the Executive before, at or subsequent to the Executive's termination of employment shall be furnished and paid in accordance with the terms and provisions of such plan, program or agreement. c. All compensation payable under this Section 4 shall be subject to normal payroll deductions for withholding income taxes, social security taxes and the like. 5. Severance Benefits. a. If, on or after a Change of Control, the Executive's employment with the Company is terminated during the Employment Period by the Company and/or any successor for any reason other than death, Total Disability or Cause, or by the Executive within twelve (12) calendar months of a Constructive Discharge, Severance Benefits shall be provided as follows: (i) The Company shall pay the Executive, in one cash lump sum within sixty (60) days following the date of termination of employment as determined under Section 6 of this Agreement, an amount equal to 2.99 times the Executive's "base amount," as defined in Section 280G(b)(3) of the Internal Revenue Code of 1986, as amended (the "Code"). (ii) Core coverage for the Executive under the Company's group medical, life, accident and disability plans or programs shall continue for the Severance Period on the same terms and conditions, as if the Executive's employment had not terminated. In the event that the Executive's participation in any such plan or program is barred, the Company shall arrange at its expense to provide him during the Severance Period with core benefits substantially similar to those which he would otherwise be entitled to receive under such plans and programs. (iii) The Severance Period shall count as service for all purposes (including benefit accrual and eligibility) under any benefit plan of the Company applicable to the Executive immediately prior to the Executive's termination of employment, for which service with the Company is taken into account, including without limitation any pension or supplemental pension plan, and all benefits under such plans that are subject to vesting shall vest as of the date of such termination of employment. (iv) The Company shall pay a fee to an independent outplacement firm selected by the Executive for outplacement services in an amount equal to the actual fee for such services up to a total of $10,000. b. Notwithstanding the provisions of Section 5.a hereof, if, in the opinion of tax counsel selected by the Company's independent auditors, (i) the Severance Benefits set forth in said Section 5.a and any payments or benefits otherwise payable to the Executive would constitute "parachute payments" within the meaning of Section 280G(b)(2) of the Code (said Severance Benefits and other payments or benefits being hereinafter collectively referred to as "Total Payments"), and (ii) the aggregate present value of the Total Payments would exceed 2.99 times the Executive's base amount, as defined in Section 280G(b)(3) of the Code, then, such portion of the Severance Benefits described in Section 5.a hereof as, in the opinion of said tax counsel, constitute "parachute payments" shall be reduced as directed by tax counsel so that the aggregate present value of the Total Payments is equal to 2.99 times the Executive's base amount. The tax counsel selected pursuant to this Section 5.b may consult with tax counsel for the Executive, but shall have complete, sole and final discretion to determine which Severance Benefits shall be reduced and the amounts of the required reductions. For purposes of this Section 5.b, the Executive's base amount and the value of the Total Payments shall be determined by the Company's independent auditors in accordance with the principles of Section 280G of the Code and based upon the advice of tax counsel selected thereby. c. If no Change of Control has occurred and the Executive's employment with the Company is terminated during the Employment Period by the Company for any reason other than death, Total Disability or Cause, or by the Executive within six (6) calendar months of a Constructive Discharge, the Company shall pay the Executive, in twelve (12) equal monthly cash installments beginning not later than sixty (60) days following the date of termination of employment as determined under Section 6 of this Agreement, Severance Benefits equal to one (1) times the Executive's annual base salary in effect on the date immediately preceding the date of termination, or preceding the date of a Constructive Discharge attributable to a base salary reduction if applicable; provided, however, that each of the last six (6) monthly cash installments shall be reduced by an amount equal to any base salary or other base pay or commissions earned through other employment or any fees earned as a consultant for the particular month, such that an installment shall not be paid or payable by the Company for any month for which such other base salary, base pay, commissions or fees equal or exceed the amount of the installment. 6. Date of Termination. For purposes of this Agreement, the date of termination of the Executive's employment shall be the date notice is given to the Executive by the Company and/or any successor or, in the case of a Constructive Discharge, the date set forth in a written notice given to the Company by the Executive, provided that the Executive gives such notice within twelve (12) calendar months of the Constructive Discharge in the case of a Change of Control, and within six (6) calendar months of the Constructive Discharge in other cases, and specifies therein the event constituting the Constructive Discharge. 7. Taxes. a. In the event that any portion of the Severance Benefits is subject to tax under Section 4999 of the Internal Revenue Code of 1986, as amended, or any successor provision thereto (the "Excise Tax"), the Company shall pay to the Executive an additional amount (the "Gross-Up Amount") which, after payment of all federal and State income taxes thereon (assuming the Executive is at the highest marginal federal and applicable State income tax rate in effect on the date of payment of the Gross-Up Amount) and payment of any Excise Tax on the Gross-Up Amount, is equal to the Excise Tax payable by the Executive on such portion of the Severance Benefits. Any Gross-Up Amount payable hereunder shall be paid by the Company coincident with the payment of the Severance Benefits described in Section 5.a(i) of this Agreement. b. All amounts payable to the Executive under this Agreement shall be subject to applicable withholding of income, wage and other taxes. 8. Non-Competition, Confidentiality and Cooperation. The Executive agrees that: (i) during the Employment Period and for one (1) year after the termination of the Executive's employment with the Company for any reason other than a Change of Control, the Executive shall not serve as a director, officer, employee, partner or consultant or in any other capacity in any business that is involved in the generation, transmission or distribution of electric energy within the New England states, or solicit Company employees for employment or other participation in any such business, or take any other action intended to advance the interests of such business; (ii) during and after the Executive's employment with the Company, he shall not divulge or appropriate to his own use or the use of others any secret, proprietary or confidential information or knowledge pertaining to the business of the Company, or any of its Affiliates, obtained during his employment with the Company; and (iii) during the Employment Period, he shall support the Company's interests and efforts in all regulatory, administrative, judicial or other proceedings affecting the Company and, after the termination of his employment with the Company, he shall use best efforts to comply with all reasonable requests of the Company that he cooperate with the Company, whether by giving testimony or otherwise, in regulatory, administrative, judicial or other proceedings affecting the Company except any proceeding in which he may be in a position adverse to that of the Company. After the termination of employment, the Company shall reimburse the Executive for his reasonable expenses and his time, at a reasonable rate to be determined, for the Executive's cooperation with the Company in any such proceeding. The provisions of this Section 8 shall survive the expiration or termination of this Agreement. The Executive agrees that the Company shall be entitled to injunctive relief to prevent any breach or threatened breach of these provisions. In the event of a failure to comply with part (i), (ii) or (iii) of this Section 8, the Executive agrees that the Company shall have no further obligation to pay the Executive any Severance Benefits under Section 5.c of this Agreement. In the event of a failure to comply with part (i) or (ii) hereof, the Executive agrees that he shall repay to the Company any such Section 5.c Severance Benefits paid to him. The Company shall have the right to offset any amounts payable to the Executive under this Agreement or otherwise against any Severance Benefits which he is obligated to repay to the Company. 9. No Mitigation. The Executive shall not be required to mitigate the amount of any payment provided for in this Agreement by seeking other employment. 10. Assignment. This Agreement and the rights and obligations of the Company hereunder shall inure to the benefit of and shall be binding upon the successors and assigns of the Company, including without limitation any corporation or other entity acquiring all or substantially all of the business or assets of the Company whether by operation of law or otherwise. This Agreement and the rights of the Executive hereunder shall not be assignable by the Executive, and any assignment by the Executive shall be null and void. 11. Arbitration. Any dispute or controversy arising under or in connection with this Agreement shall be settled exclusively by arbitration in Augusta, Maine, in accordance with the rules of the American Arbitration Association then in effect. The pendency of any such dispute or controversy shall not affect any rights or obligations under this Agreement. Judgment may be entered on the arbitrator's award in any court having jurisdiction. 12. Waiver; Amendment. The failure of either party to enforce, or any delay in enforcing, any rights under this Agreement shall not be deemed to be a waiver of such rights, unless such waiver is an express written waiver which has been signed by the waiving party. Waiver of any one breach shall not be deemed to be a waiver of any other breach of the same or any other provision hereof. This Agreement can be amended only by a written instrument signed by each party hereto and no course of dealing or practice or failure to enforce or delay in enforcing any rights hereunder may be claimed to have effected an amendment of this Agreement. 13. Notices. Any notice required or permitted to be given under this Agreement shall be sufficient if in writing and sent by first-class, registered or certified mail or hand-delivered to the Executive at the last residence address he has provided to the Company or, in the case of the Company, at its principal executive offices to the attention of the Corporate Secretary. 14. Miscellaneous. This Agreement shall be construed and enforced in accordance with the laws of the State of Maine. In the event that any provisions of this Agreement shall be held to be invalid, the other provisions hereof shall remain in full force and effect. 15. Entire Agreement. The terms of this Agreement are intended by the parties to be the final expression of their agreement with respect to the employment of the Executive by the Company and may not be contradicted by evidence of any prior or contemporaneous oral or written agreement. IN WITNESS WHEREOF, the parties hereto have executed this Agreement effective as of the date first written above. WITNESS: Richard A. Crabtree CENTRAL MAINE POWER COMPANY By: David M. Jagger Chairman of the Board of Directors EX-10.96.7 8 GCP EMP AGREEMENT Exhibit 10-96.7 EMPLOYMENT AGREEMENT As Amended and Restated Effective December 9, 1994 THIS EMPLOYMENT AGREEMENT is made, effective as of the ninth (9th) day of December, 1994, by and between Central Maine Power Company, a Maine corporation with its principal place of business in Augusta, Maine (hereinafter referred to as the "Company"), and Gerald C. Poulin (hereinafter referred to as the "Executive"). WHEREAS, the Company recognizes that the Executive is a valued officer because of his knowledge of the Company's affairs and his experience and leadership capabilities, and desires to encourage his continued employment with the Company to assure itself of the continuing advantage of that knowledge, experience and leadership for the benefit of customers and shareholders, particularly during a period of transition in various aspects of the Company's business and in the event of a Change of Control of the Company; and WHEREAS, the Executive desires to serve in the employ of the Company on a full-time basis for a period provided in this Employment Agreement (hereinafter referred to as the "Agreement") on the terms and conditions hereinafter set forth; and WHEREAS, to these ends the Company desires to provide the Executive with certain payments and benefits in the event of the termination of his employment in certain circumstances; and WHEREAS, the Company and the Executive wish to set forth the terms and conditions under which such employment and payments and benefits will occur. NOW, THEREFORE, in consideration of the continued offer of employment by the Company and the continued acceptance of employment by the Executive, and the mutual promises and covenants contained herein, the Company and the Executive hereby agree as follows: 1. Term of Agreement. a. The term of this Agreement shall begin on December 9, 1994 (hereinafter referred to as the "Effective Date") and shall expire on December 31, 1997; provided, however, that on December 31, 1997 and on each December 31 thereafter, the term of this Agreement shall automatically be extended for one (1) additional year unless not later than the preceding October 31 either the Company or the Executive shall have given notice that such party does not wish to extend the term of this Agreement. b. If a Change of Control occurs during the original term of this Agreement or any extension, then the term of this Agreement shall be automatically extended for a thirty-six (36) calendar month period beginning on the first day of the month following the month in which such Change of Control occurs. c. Notwithstanding anything to the contrary in this Section 1, this Agreement and all obligations of the Company hereunder shall terminate on the date of the Executive's death, or thirty (30) days after the Company gives notice to the Executive that the Company is terminating the Executive's employment for reason of Total Disability or Cause. 2. Definitions. The following terms shall have the meanings set forth below: "Affiliate" means a person that directly or indirectly through one or more intermediaries controls, is controlled by, or is under common control with the Company. "Board" means the Board of Directors of the Company. "Cause" means any of the following events or occurrences: (i) An act of material dishonesty taken by, or committed at the request of, the Executive. (ii) Any illegal or unethical conduct which, in the good faith judgment of the Board, would impair the Executive's ability to perform his duties under this Agreement or would impair the business reputation of the Company. (iii) Conviction of a felony. (iv) The continued failure of the Executive to perform substantially his responsibilities and duties under this Agreement, after demand for performance has been delivered in writing to the Executive specifying the manner in which the Company believes that the Executive is not performing. Notwithstanding any contrary provision of this Agreement, the Executive shall not be deemed to have been terminated for Cause unless and until there shall have been delivered to the Executive a certified copy of a resolution duly adopted by the affirmative vote of two-thirds of the members of the Board who are not employees of the Company at a meeting of the Board called and held for such purpose (after reasonable notice to the Executive and an opportunity for the Executive, together with his counsel, to be heard before the Board), finding in good faith one of the events or occurrences set forth in parts (i) through (iv) of the definition of "Cause" in this Agreement and specifying the particulars thereof in detail. "Change of Control" means the occurrence of any of the following events: (i) Any "person," as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act") (other than the Company or any Affiliate or any trustee or other fiduciary holding securities under an employee benefit plan of the Company or any Affiliate), is or becomes the beneficial owner, as defined in Rule 13d-3 under the Exchange Act, directly or indirectly, of stock of the Company representing thirty percent (30%) or more of the combined voting power of the Company's then outstanding stock eligible to vote. (ii) During any period of two (2) consecutive years after the execution of this Agreement, individuals who at the beginning of such period constitute the Board, and any new director whose election by the Board or nomination for election by the Company's stockholders was approved by a vote of at least two-thirds of the directors then in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved, cease for any reason to constitute at least a majority thereof. (iii) The stockholders of the Company approve a merger or consolidation of the Company with any other corporation, other than a merger or consolidation which would result in the voting stock of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) more than fifty percent (50%) of the combined voting power of the outstanding voting stock of the Company or such surviving entity immediately after such merger or consolidation; provided, that a merger or consolidation effected to implement a recapitalization of the Company (or similar transaction) in which no "person" (as hereinabove defined) acquires more than thirty percent (30%) of the combined voting power of the Company's then outstanding securities shall not constitute a Change of Control of the Company. (iv) The stockholders of the Company approve a plan of complete liquidation of the Company or an agreement for the sale, lease, exchange or other disposition by the Company of all or substantially all of the Company's assets (or any transaction having a similar effect). "Constructive Discharge" means, so long as no Change of Control has occurred, any reduction in the Executive's annual base salary in effect as of the Effective Date of this Agreement, or as the same may be increased from time to time, other than any across-the-board base salary reduction for a group or all of the executive officers of the Company, and also means, on or after a Change of Control, (i) any reduction in the Executive's annual base salary in effect as of the Effective Date of this Agreement, or as the same may be increased from time to time; (ii) a failure to increase the Executive's annual base salary commensurate with any across-the-board percentage increases in the compensation of other executive officers of the Company; (iii) a substantial reduction in the nature or scope of the Executive's responsibilities, duties or authority from those described in Section 3.c of this Agreement; (iv) a material adverse change in the Executive's title or position; or (v) relocation of the Executive's place of employment from the Company's principal executive offices or to a place more than twenty-five (25) miles from Augusta, Maine without the Executive's consent. "Severance Benefits" means the benefits set forth in Section 5.a or 5.c of this Agreement, as applicable. "Severance Period" means, in the case of a Change of Control, the period from the date of termination as determined in accordance with Section 6 of this Agreement until the third anniversary of such date. "Total Disability" means the complete and permanent inability of the Executive to perform all of his duties under this Agreement on a full-time basis for a period of at least six (6) consecutive months, as determined by the Board upon the basis of such evidence, which may include independent medical reports and data, as the Board deems appropriate or necessary. 3. Employment. a. The Company hereby agrees to continue its employment of the Executive in the capacity of Vice President, Generation and Technical Support, and the Executive hereby agrees to remain in the employ of the Company for the period beginning on the Effective Date and ending on the date on which the Executive's employment is terminated in accordance with this Agreement (the "Employment Period"). This Agreement shall not restrict in any way the right of the Company to terminate the Executive's employment at whatever time and for whatever reason it deems appropriate, nor shall it limit the right of the Executive to terminate employment at any time for whatever reason he deems appropriate. b. The Executive agrees that during the Employment Period he shall devote substantially all his business attention and time to the business and affairs of the Company and its Affiliates, and use his best efforts to perform faithfully and efficiently the duties and responsibilities of the Executive under this Agreement. It is expressly understood that (i) the Executive may devote a reasonable amount of time to such industry associations and charitable and civic endeavors as shall not materially interfere with the services that the Executive is required to render under this Agreement, and (ii) the Executive may serve as a member of one or more boards of directors of companies that are not affiliated with the Company and do not compete with the Company or any of its Affiliates. c. The following listing of job duties shall represent the Executive's primary responsibilities. Such responsibilities may be expanded, and so long as no Change of Control has occurred may be decreased, as the business needs of the Company require. The Executive's primary job responsibilities shall include, but not be limited to: participation in the development and general oversight of corporate policies, strategies and business initiatives as a member of the Company's Executive Committee; the development, management and oversight of policies, plans and activities relating to all aspects of generation, engineering, environmental and subsidiary operations; and oversight of Company participation in nuclear electric generating plants. The departments reporting directly to the Executive shall be as follows: Fossil Operations; Hydro Operations; Subsidiary Operations; Technical Support; and Environmental. 4. Compensation and Benefits. a. During the Employment Period, the Executive shall be compensated as follows: (i) He shall receive an annual base salary, the amount of which shall be reviewed regularly and determined from time to time by the Board, but which shall not be less than $122,100. His salary shall be payable in accordance with Company payroll practices. (ii) He shall be entitled to participate in any and all plans and programs maintained by the Company from time to time to provide benefits for its executives, including without limitation any short-term or long-term incentive or pension plan or program, in accordance with the terms and conditions of any such plan or program or the administrative guidelines relating thereto, as may be amended from time to time. (iii) He shall be entitled to participate in any and all plans and programs maintained by the Company from time to time to provide benefits for its salaried employees generally, including without limitation any savings and investment, stock purchase or group medical, dental, life, accident or disability insurance plan or program, subject to all eligibility requirements of general applicability, to the extent that executives are not excluded from participation therein under the terms thereof or under the terms of any executive plan or program or any approval or adoption thereof. (iv) He shall be entitled to all fringe benefits generally provided by the Company at any time to its full-time salaried employees, including without limitation paid vacation, holidays and sick leave but excluding severance pay, in accordance with generally applicable Company policies with respect to such benefits. b. Notwithstanding any contrary provision of this Agreement, any compensation or benefits which are vested in the Executive or which the Executive is otherwise entitled to receive under any plan or program of the Company or any agreement between the Company and the Executive before, at or subsequent to the Executive's termination of employment shall be furnished and paid in accordance with the terms and provisions of such plan, program or agreement. c. All compensation payable under this Section 4 shall be subject to normal payroll deductions for withholding income taxes, social security taxes and the like. 5. Severance Benefits. a. If, on or after a Change of Control, the Executive's employment with the Company is terminated during the Employment Period by the Company and/or any successor for any reason other than death, Total Disability or Cause, or by the Executive within twelve (12) calendar months of a Constructive Discharge, Severance Benefits shall be provided as follows: (i) The Company shall pay the Executive, in one cash lump sum within sixty (60) days following the date of termination of employment as determined under Section 6 of this Agreement, an amount equal to 2.99 times the Executive's "base amount," as defined in Section 280G(b)(3) of the Internal Revenue Code of 1986, as amended (the "Code"). (ii) Core coverage for the Executive under the Company's group medical, life, accident and disability plans or programs shall continue for the Severance Period on the same terms and conditions, as if the Executive's employment had not terminated. In the event that the Executive's participation in any such plan or program is barred, the Company shall arrange at its expense to provide him during the Severance Period with core benefits substantially similar to those which he would otherwise be entitled to receive under such plans and programs. (iii) The Severance Period shall count as service for all purposes (including benefit accrual and eligibility) under any benefit plan of the Company applicable to the Executive immediately prior to the Executive's termination of employment, for which service with the Company is taken into account, including without limitation any pension plan, and all benefits under such plans that are subject to vesting shall vest as of the date of such termination of employment. (iv) The Company shall pay a fee to an independent outplacement firm selected by the Executive for outplacement services in an amount equal to the actual fee for such services up to a total of $10,000. b. Notwithstanding the provisions of Section 5.a hereof, if, in the opinion of tax counsel selected by the Company's independent auditors, (i) the Severance Benefits set forth in said Section 5.a and any payments or benefits otherwise payable to the Executive would constitute "parachute payments" within the meaning of Section 280G(b)(2) of the Code (said Severance Benefits and other payments or benefits being hereinafter collectively referred to as "Total Payments"), and (ii) the aggregate present value of the Total Payments would exceed 2.99 times the Executive's base amount, as defined in Section 280G(b)(3) of the Code, then, such portion of the Severance Benefits described in Section 5.a hereof as, in the opinion of said tax counsel, constitute "parachute payments" shall be reduced as directed by tax counsel so that the aggregate present value of the Total Payments is equal to 2.99 times the Executive's base amount. The tax counsel selected pursuant to this Section 5.b may consult with tax counsel for the Executive, but shall have complete, sole and final discretion to determine which Severance Benefits shall be reduced and the amounts of the required reductions. For purposes of this Section 5.b, the Executive's base amount and the value of the Total Payments shall be determined by the Company's independent auditors in accordance with the principles of Section 280G of the Code and based upon the advice of tax counsel selected thereby. c. If no Change of Control has occurred and the Executive's employment with the Company is terminated during the Employment Period by the Company for any reason other than death, Total Disability or Cause, or by the Executive within six (6) calendar months of a Constructive Discharge, the Company shall pay the Executive, in twelve (12) equal monthly cash installments beginning not later than sixty (60) days following the date of termination of employment as determined under Section 6 of this Agreement, Severance Benefits equal to one (1) times the Executive's annual base salary in effect on the date immediately preceding the date of termination, or preceding the date of a Constructive Discharge attributable to a base salary reduction if applicable; provided, however, that each of the last six (6) monthly cash installments shall be reduced by an amount equal to any base salary or other base pay or commissions earned through other employment or any fees earned as a consultant for the particular month, such that an installment shall not be paid or payable by the Company for any month for which such other base salary, base pay, commissions or fees equal or exceed the amount of the installment. 6. Date of Termination. For purposes of this Agreement, the date of termination of the Executive's employment shall be the date notice is given to the Executive by the Company and/or any successor or, in the case of a Constructive Discharge, the date set forth in a written notice given to the Company by the Executive, provided that the Executive gives such notice within twelve (12) calendar months of the Constructive Discharge in the case of a Change of Control, and within six (6) calendar months of the Constructive Discharge in other cases, and specifies therein the event constituting the Constructive Discharge. 7. Taxes. a. In the event that any portion of the Severance Benefits is subject to tax under Section 4999 of the Internal Revenue Code of 1986, as amended, or any successor provision thereto (the "Excise Tax"), the Company shall pay to the Executive an additional amount (the "Gross-Up Amount") which, after payment of all federal and State income taxes thereon (assuming the Executive is at the highest marginal federal and applicable State income tax rate in effect on the date of payment of the Gross-Up Amount) and payment of any Excise Tax on the Gross-Up Amount, is equal to the Excise Tax payable by the Executive on such portion of the Severance Benefits. Any Gross-Up Amount payable hereunder shall be paid by the Company coincident with the payment of the Severance Benefits described in Section 5.a(i) of this Agreement. b. All amounts payable to the Executive under this Agreement shall be subject to applicable withholding of income, wage and other taxes. 8. Non-Competition, Confidentiality and Cooperation. The Executive agrees that: (i) during the Employment Period and for one (1) year after the termination of the Executive's employment with the Company for any reason other than a Change of Control, the Executive shall not serve as a director, officer, employee, partner or consultant or in any other capacity in any business that is involved in the generation, transmission or distribution of electric energy within the New England states, or solicit Company employees for employment or other participation in any such business, or take any other action intended to advance the interests of such business; (ii) during and after the Executive's employment with the Company, he shall not divulge or appropriate to his own use or the use of others any secret, proprietary or confidential information or knowledge pertaining to the business of the Company, or any of its Affiliates, obtained during his employment with the Company; and (iii) during the Employment Period, he shall support the Company's interests and efforts in all regulatory, administrative, judicial or other proceedings affecting the Company and, after the termination of his employment with the Company, he shall use best efforts to comply with all reasonable requests of the Company that he cooperate with the Company, whether by giving testimony or otherwise, in regulatory, administrative, judicial or other proceedings affecting the Company except any proceeding in which he may be in a position adverse to that of the Company. After the termination of employment, the Company shall reimburse the Executive for his reasonable expenses and his time, at a reasonable rate to be determined, for the Executive's cooperation with the Company in any such proceeding. The provisions of this Section 8 shall survive the expiration or termination of this Agreement. The Executive agrees that the Company shall be entitled to injunctive relief to prevent any breach or threatened breach of these provisions. In the event of a failure to comply with part (i), (ii) or (iii) of this Section 8, the Executive agrees that the Company shall have no further obligation to pay the Executive any Severance Benefits under Section 5.c of this Agreement. In the event of a failure to comply with part (i) or (ii) hereof, the Executive agrees that he shall repay to the Company any such Section 5.c Severance Benefits paid to him. The Company shall have the right to offset any amounts payable to the Executive under this Agreement or otherwise against any Severance Benefits which he is obligated to repay to the Company. 9. No Mitigation. The Executive shall not be required to mitigate the amount of any payment provided for in this Agreement by seeking other employment. 10. Assignment. This Agreement and the rights and obligations of the Company hereunder shall inure to the benefit of and shall be binding upon the successors and assigns of the Company, including without limitation any corporation or other entity acquiring all or substantially all of the business or assets of the Company whether by operation of law or otherwise. This Agreement and the rights of the Executive hereunder shall not be assignable by the Executive, and any assignment by the Executive shall be null and void. 11. Arbitration. Any dispute or controversy arising under or in connection with this Agreement shall be settled exclusively by arbitration in Augusta, Maine, in accordance with the rules of the American Arbitration Association then in effect. The pendency of any such dispute or controversy shall not affect any rights or obligations under this Agreement. Judgment may be entered on the arbitrator's award in any court having jurisdiction. 12. Waiver; Amendment. The failure of either party to enforce, or any delay in enforcing, any rights under this Agreement shall not be deemed to be a waiver of such rights, unless such waiver is an express written waiver which has been signed by the waiving party. Waiver of any one breach shall not be deemed to be a waiver of any other breach of the same or any other provision hereof. This Agreement can be amended only by a written instrument signed by each party hereto and no course of dealing or practice or failure to enforce or delay in enforcing any rights hereunder may be claimed to have effected an amendment of this Agreement. 13. Notices. Any notice required or permitted to be given under this Agreement shall be sufficient if in writing and sent by first-class, registered or certified mail or hand-delivered to the Executive at the last residence address he has provided to the Company or, in the case of the Company, at its principal executive offices to the attention of the Corporate Secretary. 14. Miscellaneous. This Agreement shall be construed and enforced in accordance with the laws of the State of Maine. In the event that any provisions of this Agreement shall be held to be invalid, the other provisions hereof shall remain in full force and effect. 15. Entire Agreement. The terms of this Agreement are intended by the parties to be the final expression of their agreement with respect to the employment of the Executive by the Company and may not be contradicted by evidence of any prior or contemporaneous oral or written agreement. IN WITNESS WHEREOF, the parties hereto have executed this Agreement effective as of the date first written above. WITNESS: Gerald C. Poulin CENTRAL MAINE POWER COMPANY By: David M. Jagger Chairman of the Board of Directors AMENDMENT NO. 1 TO EMPLOYMENT AGREEMENT AS AMENDED AND RESTATED EFFECTIVE DECEMBER 9, 1994 WHEREAS, Central Maine Power Company, a Maine corporation with its principal place of business in Augusta, Maine (hereinafter referred to as the "Company"), and Gerald C. Poulin (hereinafter referred to as the "Executive") entered into an Employment Agreement As Amended and Restated Effective December 9, 1994 (hereinafter referred to as the "Agreement"); and WHEREAS, the Company and the Executive wish to amend the Agreement to acknowledge the Executive's participation in the Company's Supplemental Executive Retirement Plan as of January 1, 1996 and the Company's intended entry into a Split-Dollar Life Insurance Agreement with the Executive effective as of the same date. NOW, THEREFORE, the Company and the Executive hereby agree that the Agreement shall be amended as follows: 1. Section 4.a(ii) of the Agreement shall be amended so that it reads in its entirety as follows: (ii) He shall be entitled to participate in any and all plans and programs maintained by the Company from time to time to provide benefits for its executives, including without limitation any short-term or long-term incentive, pension, or supplemental pension plan or program, in accordance with the terms and conditions of any such plan or program or the administrative guidelines relating thereto, as may be amended from time to time. 2. Section 4.a shall be amended by adding thereto a new part (v), as follows: (v) He shall be entitled to all rights and benefits under the Split-Dollar Life Insurance Agreement into which the Company and the Executive intend to enter, in accordance with the terms of such Split-Dollar Life Insurance Agreement, which shall be made effective as of January 1, 1996. 3. Section 5.a(iii) of the Agreement shall be amended so that it reads in its entirety as follows: (iii) The Severance Period shall count as service for all purposes (including benefit accrual and eligibility) under any benefit plan of the Company applicable to the Executive immediately prior to the Executive's termination of employment, for which service with the Company is taken into account, including without limitation any pension or supplemental pension plan, and all benefits under such plans that are subject to vesting shall vest as of the date of such termination of employment. IN WITNESS WHEREOF, the parties hereto have executed this Amendment to the Agreement effective as of January 1, 1996. WITNESS: Gerald C. Poulin CENTRAL MAINE POWER COMPANY By: David M. Jagger Chairman of the Board of Directors EX-10.96.8 9 DEM EMP AGREEMENT Exhibit 10-96.8 EMPLOYMENT AGREEMENT As Amended and Restated Effective December 9, 1994 THIS EMPLOYMENT AGREEMENT is made, effective as of the ninth (9th) day of December, 1994, by and between Central Maine Power Company, a Maine corporation with its principal place of business in Augusta, Maine (hereinafter referred to as the "Company"), and David E. Marsh (hereinafter referred to as the "Executive"). WHEREAS, the Company recognizes that the Executive is a valued officer because of his knowledge of the Company's affairs and his experience and leadership capabilities, and desires to encourage his continued employment with the Company to assure itself of the continuing advantage of that knowledge, experience and leadership for the benefit of customers and shareholders, particularly during a period of transition in various aspects of the Company's business and in the event of a Change of Control of the Company; and WHEREAS, the Executive desires to serve in the employ of the Company on a full-time basis for a period provided in this Employment Agreement (hereinafter referred to as the "Agreement") on the terms and conditions hereinafter set forth; and WHEREAS, to these ends the Company desires to provide the Executive with certain payments and benefits in the event of the termination of his employment in certain circumstances; and WHEREAS, the Company and the Executive wish to set forth the terms and conditions under which such employment and payments and benefits will occur. NOW, THEREFORE, in consideration of the continued offer of employment by the Company and the continued acceptance of employment by the Executive, and the mutual promises and covenants contained herein, the Company and the Executive hereby agree as follows: 1. Term of Agreement. a. The term of this Agreement shall begin on December 9, 1994 (hereinafter referred to as the "Effective Date") and shall expire on December 31, 1997; provided, however, that on December 31, 1997 and on each December 31 thereafter, the term of this Agreement shall automatically be extended for one (1) additional year unless not later than the preceding October 31 either the Company or the Executive shall have given notice that such party does not wish to extend the term of this Agreement. b. If a Change of Control occurs during the original term of this Agreement or any extension, then the term of this Agreement shall be automatically extended for a thirty-six (36) calendar month period beginning on the first day of the month following the month in which such Change of Control occurs. c. Notwithstanding anything to the contrary in this Section 1, this Agreement and all obligations of the Company hereunder shall terminate on the date of the Executive's death, or thirty (30) days after the Company gives notice to the Executive that the Company is terminating the Executive's employment for reason of Total Disability or Cause. 2. Definitions. The following terms shall have the meanings set forth below: "Affiliate" means a person that directly or indirectly through one or more intermediaries controls, is controlled by, or is under common control with the Company. "Board" means the Board of Directors of the Company. "Cause" means any of the following events or occurrences: (i) An act of material dishonesty taken by, or committed at the request of, the Executive. (ii) Any illegal or unethical conduct which, in the good faith judgment of the Board, would impair the Executive's ability to perform his duties under this Agreement or would impair the business reputation of the Company. (iii) Conviction of a felony. (iv) The continued failure of the Executive to perform substantially his responsibilities and duties under this Agreement, after demand for performance has been delivered in writing to the Executive specifying the manner in which the Company believes that the Executive is not performing. Notwithstanding any contrary provision of this Agreement, the Executive shall not be deemed to have been terminated for Cause unless and until there shall have been delivered to the Executive a certified copy of a resolution duly adopted by the affirmative vote of two-thirds of the members of the Board who are not employees of the Company at a meeting of the Board called and held for such purpose (after reasonable notice to the Executive and an opportunity for the Executive, together with his counsel, to be heard before the Board), finding in good faith one of the events or occurrences set forth in parts (i) through (iv) of the definition of "Cause" in this Agreement and specifying the particulars thereof in detail. "Change of Control" means the occurrence of any of the following events: (i) Any "person," as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act") (other than the Company or any Affiliate or any trustee or other fiduciary holding securities under an employee benefit plan of the Company or any Affiliate), is or becomes the beneficial owner, as defined in Rule 13d-3 under the Exchange Act, directly or indirectly, of stock of the Company representing thirty percent (30%) or more of the combined voting power of the Company's then outstanding stock eligible to vote. (ii) During any period of two (2) consecutive years after the execution of this Agreement, individuals who at the beginning of such period constitute the Board, and any new director whose election by the Board or nomination for election by the Company's stockholders was approved by a vote of at least two-thirds of the directors then in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved, cease for any reason to constitute at least a majority thereof. (iii) The stockholders of the Company approve a merger or consolidation of the Company with any other corporation, other than a merger or consolidation which would result in the voting stock of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) more than fifty percent (50%) of the combined voting power of the outstanding voting stock of the Company or such surviving entity immediately after such merger or consolidation; provided, that a merger or consolidation effected to implement a recapitalization of the Company (or similar transaction) in which no "person" (as hereinabove defined) acquires more than thirty percent (30%) of the combined voting power of the Company's then outstanding securities shall not constitute a Change of Control of the Company. (iv) The stockholders of the Company approve a plan of complete liquidation of the Company or an agreement for the sale, lease, exchange or other disposition by the Company of all or substantially all of the Company's assets (or any transaction having a similar effect). "Constructive Discharge" means, so long as no Change of Control has occurred, any reduction in the Executive's annual base salary in effect as of the Effective Date of this Agreement, or as the same may be increased from time to time, other than any across-the-board base salary reduction for a group or all of the executive officers of the Company, and also means, on or after a Change of Control, (i) any reduction in the Executive's annual base salary in effect as of the Effective Date of this Agreement, or as the same may be increased from time to time; (ii) a failure to increase the Executive's annual base salary commensurate with any across-the-board percentage increases in the compensation of other executive officers of the Company; (iii) a substantial reduction in the nature or scope of the Executive's responsibilities, duties or authority from those described in Section 3.c of this Agreement; (iv) a material adverse change in the Executive's title or position; or (v) relocation of the Executive's place of employment from the Company's principal executive offices or to a place more than twenty-five (25) miles from Augusta, Maine without the Executive's consent. "Severance Benefits" means the benefits set forth in Section 5.a or 5.c of this Agreement, as applicable. "Severance Period" means, in the case of a Change of Control, the period from the date of termination as determined in accordance with Section 6 of this Agreement until the third anniversary of such date. "Total Disability" means the complete and permanent inability of the Executive to perform all of his duties under this Agreement on a full-time basis for a period of at least six (6) consecutive months, as determined by the Board upon the basis of such evidence, which may include independent medical reports and data, as the Board deems appropriate or necessary. 3. Employment. a. The Company hereby agrees to continue its employment of the Executive in the capacity of Vice President, Corporate Services, and Chief Financial Officer, and the Executive hereby agrees to remain in the employ of the Company for the period beginning on the Effective Date and ending on the date on which the Executive's employment is terminated in accordance with this Agreement (the "Employment Period"). This Agreement shall not restrict in any way the right of the Company to terminate the Executive's employment at whatever time and for whatever reason it deems appropriate, nor shall it limit the right of the Executive to terminate employment at any time for whatever reason he deems appropriate. b. The Executive agrees that during the Employment Period he shall devote substantially all his business attention and time to the business and affairs of the Company and its Affiliates, and use his best efforts to perform faithfully and efficiently the duties and responsibilities of the Executive under this Agreement. It is expressly understood that (i) the Executive may devote a reasonable amount of time to such industry associations and charitable and civic endeavors as shall not materially interfere with the services that the Executive is required to render under this Agreement, and (ii) the Executive may serve as a member of one or more boards of directors of companies that are not affiliated with the Company and do not compete with the Company or any of its Affiliates. c. The following listing of job duties shall represent the Executive's primary responsibilities. Such responsibilities may be expanded, and so long as no Change of Control has occurred may be decreased, as the business needs of the Company require. The Executive's primary job responsibilities shall include, but not be limited to: participation in the development and general oversight of corporate policies, strategies and business initiatives as a member of the Company's Executive Committee; the development, implementation, management and oversight of financial and administrative policies, strategies, plans and activities including those concerning rate cases, capital structure and financing, investor and financial community relations, financial reporting, accounting, treasury operations, information services, telecommunications, administrative services, the Company's pension fund and Savings and Investment (401(k)) Plan assets, and operating and capital budgets; and coordination of business opportunities and investment decisions with overall corporate goals and objectives. The departments reporting directly to the Executive shall be as follows: Information Services; Corporate Services; Accounting; and Treasury. 4. Compensation and Benefits. a. During the Employment Period, the Executive shall be compensated as follows: (i) He shall receive an annual base salary, the amount of which shall be reviewed regularly and determined from time to time by the Board, but which shall not be less than $153,450. His salary shall be payable in accordance with Company payroll practices. (ii) He shall be entitled to participate in any and all plans and programs maintained by the Company from time to time to provide benefits for its executives, including without limitation any short-term or long-term incentive, pension, or supplemental pension plan or program, in accordance with the terms and conditions of any such plan or program or the administrative guidelines relating thereto, as may be amended from time to time. (iii) He shall be entitled to participate in any and all plans and programs maintained by the Company from time to time to provide benefits for its salaried employees generally, including without limitation any savings and investment, stock purchase or group medical, dental, life, accident or disability insurance plan or program, subject to all eligibility requirements of general applicability, to the extent that executives are not excluded from participation therein under the terms thereof or under the terms of any executive plan or program or any approval or adoption thereof. (iv) He shall be entitled to all fringe benefits generally provided by the Company at any time to its full-time salaried employees, including without limitation paid vacation, holidays and sick leave but excluding severance pay, in accordance with generally applicable Company policies with respect to such benefits. (v) He shall be entitled to all rights and benefits under the Split-Dollar Life Insurance Agreement between the Company and the Executive in effect as of the Effective Date of this Agreement in accordance with the terms of such Split-Dollar Life Insurance Agreement. b. Notwithstanding any contrary provision of this Agreement, any compensation or benefits which are vested in the Executive or which the Executive is otherwise entitled to receive under any plan or program of the Company or any agreement between the Company and the Executive before, at or subsequent to the Executive's termination of employment shall be furnished and paid in accordance with the terms and provisions of such plan, program or agreement. c. All compensation payable under this Section 4 shall be subject to normal payroll deductions for withholding income taxes, social security taxes and the like. 5. Severance Benefits. a. If, on or after a Change of Control, the Executive's employment with the Company is terminated during the Employment Period by the Company and/or any successor for any reason other than death, Total Disability or Cause, or by the Executive within twelve (12) calendar months of a Constructive Discharge, Severance Benefits shall be provided as follows: (i) The Company shall pay the Executive, in one cash lump sum within sixty (60) days following the date of termination of employment as determined under Section 6 of this Agreement, an amount equal to 2.99 times the Executive's "base amount," as defined in Section 280G(b)(3) of the Internal Revenue Code of 1986, as amended (the "Code"). (ii) Core coverage for the Executive under the Company's group medical, life, accident and disability plans or programs shall continue for the Severance Period on the same terms and conditions, as if the Executive's employment had not terminated. In the event that the Executive's participation in any such plan or program is barred, the Company shall arrange at its expense to provide him during the Severance Period with core benefits substantially similar to those which he would otherwise be entitled to receive under such plans and programs. (iii) The Severance Period shall count as service for all purposes (including benefit accrual and eligibility) under any benefit plan of the Company applicable to the Executive immediately prior to the Executive's termination of employment, for which service with the Company is taken into account, including without limitation any pension or supplemental pension plan, and all benefits under such plans that are subject to vesting shall vest as of the date of such termination of employment. (iv) The Company shall pay a fee to an independent outplacement firm selected by the Executive for outplacement services in an amount equal to the actual fee for such services up to a total of $10,000. b. Notwithstanding the provisions of Section 5.a hereof, if, in the opinion of tax counsel selected by the Company's independent auditors, (i) the Severance Benefits set forth in said Section 5.a and any payments or benefits otherwise payable to the Executive would constitute "parachute payments" within the meaning of Section 280G(b)(2) of the Code (said Severance Benefits and other payments or benefits being hereinafter collectively referred to as "Total Payments"), and (ii) the aggregate present value of the Total Payments would exceed 2.99 times the Executive's base amount, as defined in Section 280G(b)(3) of the Code, then, such portion of the Severance Benefits described in Section 5.a hereof as, in the opinion of said tax counsel, constitute "parachute payments" shall be reduced as directed by tax counsel so that the aggregate present value of the Total Payments is equal to 2.99 times the Executive's base amount. The tax counsel selected pursuant to this Section 5.b may consult with tax counsel for the Executive, but shall have complete, sole and final discretion to determine which Severance Benefits shall be reduced and the amounts of the required reductions. For purposes of this Section 5.b, the Executive's base amount and the value of the Total Payments shall be determined by the Company's independent auditors in accordance with the principles of Section 280G of the Code and based upon the advice of tax counsel selected thereby. c. If no Change of Control has occurred and the Executive's employment with the Company is terminated during the Employment Period by the Company for any reason other than death, Total Disability or Cause, or by the Executive within six (6) calendar months of a Constructive Discharge, the Company shall pay the Executive, in twelve (12) equal monthly cash installments beginning not later than sixty (60) days following the date of termination of employment as determined under Section 6 of this Agreement, Severance Benefits equal to one (1) times the Executive's annual base salary in effect on the date immediately preceding the date of termination, or preceding the date of a Constructive Discharge attributable to a base salary reduction if applicable; provided, however, that each of the last six (6) monthly cash installments shall be reduced by an amount equal to any base salary or other base pay or commissions earned through other employment or any fees earned as a consultant for the particular month, such that an installment shall not be paid or payable by the Company for any month for which such other base salary, base pay, commissions or fees equal or exceed the amount of the installment. 6. Date of Termination. For purposes of this Agreement, the date of termination of the Executive's employment shall be the date notice is given to the Executive by the Company and/or any successor or, in the case of a Constructive Discharge, the date set forth in a written notice given to the Company by the Executive, provided that the Executive gives such notice within twelve (12) calendar months of the Constructive Discharge in the case of a Change of Control, and within six (6) calendar months of the Constructive Discharge in other cases, and specifies therein the event constituting the Constructive Discharge. 7. Taxes. a. In the event that any portion of the Severance Benefits is subject to tax under Section 4999 of the Internal Revenue Code of 1986, as amended, or any successor provision thereto (the "Excise Tax"), the Company shall pay to the Executive an additional amount (the "Gross-Up Amount") which, after payment of all federal and State income taxes thereon (assuming the Executive is at the highest marginal federal and applicable State income tax rate in effect on the date of payment of the Gross-Up Amount) and payment of any Excise Tax on the Gross-Up Amount, is equal to the Excise Tax payable by the Executive on such portion of the Severance Benefits. Any Gross-Up Amount payable hereunder shall be paid by the Company coincident with the payment of the Severance Benefits described in Section 5.a(i) of this Agreement. b. All amounts payable to the Executive under this Agreement shall be subject to applicable withholding of income, wage and other taxes. 8. Non-Competition, Confidentiality and Cooperation. The Executive agrees that: (i) during the Employment Period and for one (1) year after the termination of the Executive's employment with the Company for any reason other than a Change of Control, the Executive shall not serve as a director, officer, employee, partner or consultant or in any other capacity in any business that is involved in the generation, transmission or distribution of electric energy within the New England states, or solicit Company employees for employment or other participation in any such business, or take any other action intended to advance the interests of such business; (ii) during and after the Executive's employment with the Company, he shall not divulge or appropriate to his own use or the use of others any secret, proprietary or confidential information or knowledge pertaining to the business of the Company, or any of its Affiliates, obtained during his employment with the Company; and (iii) during the Employment Period, he shall support the Company's interests and efforts in all regulatory, administrative, judicial or other proceedings affecting the Company and, after the termination of his employment with the Company, he shall use best efforts to comply with all reasonable requests of the Company that he cooperate with the Company, whether by giving testimony or otherwise, in regulatory, administrative, judicial or other proceedings affecting the Company except any proceeding in which he may be in a position adverse to that of the Company. After the termination of employment, the Company shall reimburse the Executive for his reasonable expenses and his time, at a reasonable rate to be determined, for the Executive's cooperation with the Company in any such proceeding. The provisions of this Section 8 shall survive the expiration or termination of this Agreement. The Executive agrees that the Company shall be entitled to injunctive relief to prevent any breach or threatened breach of these provisions. In the event of a failure to comply with part (i), (ii) or (iii) of this Section 8, the Executive agrees that the Company shall have no further obligation to pay the Executive any Severance Benefits under Section 5.c of this Agreement. In the event of a failure to comply with part (i) or (ii) hereof, the Executive agrees that he shall repay to the Company any such Section 5.c Severance Benefits paid to him. The Company shall have the right to offset any amounts payable to the Executive under this Agreement or otherwise against any Severance Benefits which he is obligated to repay to the Company. 9. No Mitigation. The Executive shall not be required to mitigate the amount of any payment provided for in this Agreement by seeking other employment. 10. Assignment. This Agreement and the rights and obligations of the Company hereunder shall inure to the benefit of and shall be binding upon the successors and assigns of the Company, including without limitation any corporation or other entity acquiring all or substantially all of the business or assets of the Company whether by operation of law or otherwise. This Agreement and the rights of the Executive hereunder shall not be assignable by the Executive, and any assignment by the Executive shall be null and void. 11. Arbitration. Any dispute or controversy arising under or in connection with this Agreement shall be settled exclusively by arbitration in Augusta, Maine, in accordance with the rules of the American Arbitration Association then in effect. The pendency of any such dispute or controversy shall not affect any rights or obligations under this Agreement. Judgment may be entered on the arbitrator's award in any court having jurisdiction. 12. Waiver; Amendment. The failure of either party to enforce, or any delay in enforcing, any rights under this Agreement shall not be deemed to be a waiver of such rights, unless such waiver is an express written waiver which has been signed by the waiving party. Waiver of any one breach shall not be deemed to be a waiver of any other breach of the same or any other provision hereof. This Agreement can be amended only by a written instrument signed by each party hereto and no course of dealing or practice or failure to enforce or delay in enforcing any rights hereunder may be claimed to have effected an amendment of this Agreement. 13. Notices. Any notice required or permitted to be given under this Agreement shall be sufficient if in writing and sent by first-class, registered or certified mail or hand-delivered to the Executive at the last residence address he has provided to the Company or, in the case of the Company, at its principal executive offices to the attention of the Corporate Secretary. 14. Miscellaneous. This Agreement shall be construed and enforced in accordance with the laws of the State of Maine. In the event that any provisions of this Agreement shall be held to be invalid, the other provisions hereof shall remain in full force and effect. 15. Entire Agreement. The terms of this Agreement are intended by the parties to be the final expression of their agreement with respect to the employment of the Executive by the Company and may not be contradicted by evidence of any prior or contemporaneous oral or written agreement. IN WITNESS WHEREOF, the parties hereto have executed this Agreement effective as of the date first written above. WITNESS: David E. Marsh CENTRAL MAINE POWER COMPANY By: David M. Jagger Chairman of the Board of Directors EX-10.97 10 DTF EMP AGREEMENT Exhibit 10-97 EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT is made this twenty-ninth (29th) day of December, 1995, by and between Central Maine Power Company, a Maine corporation with its principal place of business in Augusta, Maine (hereinafter referred to as the "Company"), and David T. Flanagan (hereinafter referred to as the "Executive"). WHEREAS, the Company recognizes that the Executive is a valued officer because of his knowledge of the Company's affairs and his experience and leadership capabilities, and desires to encourage his continued employment with the Company to assure itself of the continuing advantage of that knowledge, experience and leadership for the benefit of customers and shareholders, particularly during a period of transition in various aspects of the Company's business and in the event of a Change of Control of the Company; and WHEREAS, the Executive desires to serve in the employ of the Company on a full-time basis for a period provided in this Employment Agreement (hereinafter referred to as the "Agreement") on the terms and conditions hereinafter set forth; and WHEREAS, to these ends the Company desires to provide the Executive with certain payments and benefits in the event of the termination of his employment in certain circumstances; and WHEREAS, the Company and the Executive wish to set forth the terms and conditions under which such employment and payments and benefits will occur. NOW, THEREFORE, in consideration of the continued offer of employment by the Company and the continued acceptance of employment by the Executive, and the mutual promises and covenants contained herein, the Company and the Executive hereby agree as follows: 1. Term of Agreement. a. The term of this Agreement shall begin on December 29, 1995 (hereinafter referred to as the "Effective Date") and shall expire on December 31, 1998; provided, however, that on December 31, 1998 and on each December 31 thereafter, the term of this Agreement shall automatically be extended for one (1) additional year unless not later than the preceding October 31 either the Company or the Executive shall have given notice that such party does not wish to extend the term of this Agreement. b. If a Change of Control occurs during the original term of this Agreement or any extension, then the term of this Agreement shall be automatically extended for a thirty-six (36) calendar month period beginning on the first day of the month following the month in which such Change of Control occurs. c. Notwithstanding anything to the contrary in this Section 1, this Agreement and all obligations of the Company hereunder shall terminate on the date of the Executive's death, or thirty (30) days after the Company gives notice to the Executive that the Company is terminating the Executive's employment for reason of Total Disability or Cause. 2. Definitions. The following terms shall have the meanings set forth below: "Affiliate" means a person that directly or indirectly through one or more intermediaries controls, is controlled by, or is under common control with the Company. "Board" means the Board of Directors of the Company. "Cause" means any of the following events or occurrences: (i) An act of material dishonesty taken by, or committed at the request of, the Executive. (ii) Any illegal or unethical conduct which, in the good faith judgment of the Board, would impair the Executive's ability to perform his duties under this Agreement or would impair the business reputation of the Company. (iii) Conviction of a felony. (iv) The continued failure of the Executive to perform substantially his responsibilities and duties under this Agreement, after demand for performance has been delivered in writing to the Executive specifying the manner in which the Company believes that the Executive is not performing. Notwithstanding any contrary provision of this Agreement, the Executive shall not be deemed to have been terminated for Cause unless and until there shall have been delivered to the Executive a certified copy of a resolution duly adopted by the affirmative vote of two-thirds of the members of the Board who are not employees of the Company at a meeting of the Board called and held for such purpose (after reasonable notice to the Executive and an opportunity for the Executive, together with his counsel, to be heard before the Board), finding in good faith one of the events or occurrences set forth in parts (i) through (iv) of the definition of "Cause" in this Agreement and specifying the particulars thereof in detail. "Change of Control" means the occurrence of any of the following events: (i) Any "person," as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act") (other than the Company or any Affiliate or any trustee or other fiduciary holding securities under an employee benefit plan of the Company or any Affiliate), is or becomes the beneficial owner, as defined in Rule 13d-3 under the Exchange Act, directly or indirectly, of stock of the Company representing thirty percent (30%) or more of the combined voting power of the Company's then outstanding stock eligible to vote. (ii) During any period of two (2) consecutive years after the execution of this Agreement, individuals who at the beginning of such period constitute the Board, and any new director whose election by the Board or nomination for election by the Company's stockholders was approved by a vote of at least two-thirds of the directors then in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved, cease for any reason to constitute at least a majority thereof. (iii) The stockholders of the Company approve a merger or consolidation of the Company with any other corporation, other than a merger or consolidation which would result in the voting stock of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) more than fifty percent (50%) of the combined voting power of the outstanding voting stock of the Company or such surviving entity immediately after such merger or consolidation; provided, that a merger or consolidation effected to implement a recapitalization of the Company (or similar transaction) in which no "person" (as hereinabove defined) acquires more than thirty percent (30%) of the combined voting power of the Company's then outstanding securities shall not constitute a Change of Control of the Company. (iv) The stockholders of the Company approve a plan of complete liquidation of the Company or an agreement for the sale, lease, exchange or other disposition by the Company of all or substantially all of the Company's assets (or any transaction having a similar effect). "Constructive Discharge" means, so long as no Change of Control has occurred, any reduction in the Executive's annual base salary in effect as of the Effective Date of this Agreement, or as the same may be increased from time to time, other than any across-the-board base salary reduction for a group or all of the executive officers of the Company, and also means, on or after a Change of Control, (i) any reduction in the Executive's annual base salary in effect as of the Effective Date of this Agreement, or as the same may be increased from time to time; (ii) a substantial reduction in the nature or scope of the Executive's responsibilities, duties or authority from those described in Section 3.c of this Agreement; (iii) a material adverse change in the Executive's title or position; or (iv) relocation of the Executive's place of employment from the Company's principal executive offices or to a place more than twenty-five (25) miles from Augusta, Maine without the Executive's consent. "Severance Benefits" means the benefits set forth in Section 5.a or 5.c of this Agreement, as applicable. "Severance Period" means, in the case of a Change of Control, the period from the date of termination as determined in accordance with Section 6 of this Agreement until the third anniversary of such date. "Total Disability" means the complete and permanent inability of the Executive to perform all of his duties under this Agreement on a full-time basis for a period of at least six (6) consecutive months, as determined by the Board upon the basis of such evidence, which may include independent medical reports and data, as the Board deems appropriate or necessary. 3. Employment. a. The Company hereby agrees to continue its employment of the Executive in the capacity of President and Chief Executive Officer, and the Executive hereby agrees to remain in the employ of the Company for the period beginning on the Effective Date and ending on the date on which the Executive's employment is terminated in accordance with this Agreement (the "Employment Period"). This Agreement shall not restrict in any way the right of the Company to terminate the Executive's employment at whatever time and for whatever reason it deems appropriate, nor shall it limit the right of the Executive to terminate employment at any time for whatever reason he deems appropriate. b. The Executive agrees that during the Employment Period he shall devote substantially all his business attention and time to the business and affairs of the Company and its Affiliates, and use his best efforts to perform faithfully and efficiently the duties and responsibilities of the Executive under this Agreement. It is expressly understood that (i) the Executive may devote a reasonable amount of time to such industry associations and charitable and civic endeavors as shall not materially interfere with the services that the Executive is required to render under this Agreement, and (ii) the Executive may serve as a member of one or more boards of directors of companies that are not affiliated with the Company and do not compete with the Company or any of its Affiliates. c. The following listing of job duties shall represent the Executive's primary responsibilities. Such responsibilities may be expanded, and so long as no Change of Control has occurred may be decreased, as the business needs of the Company require. The Executive shall be responsible for the overall active management of the Company and his primary job responsibilities shall include, but not be limited to, authority over the following functions: the development, implementation and ongoing management of short and long-range corporate planning and strategy with guidance from the Board with respect to long-range or major corporate strategies, policies, and objectives; the development and promotion of an organization capable of competing effectively in selected markets; and the development and oversight of broad marketing, public issue communication and advertising programs to reposition the Company's products and services as business needs require and to enhance the corporate image. The departments and officers reporting directly to the Executive shall be as follows: Vice President, Law and Power Supply; Vice President, Retail Operations; Vice President, Corporate Services, Treasurer, and Chief Financial Officer; Vice President, Marketing; Vice President, Generation and Technical Support; Human Resources; and Public and Employee Communications. 4. Compensation and Benefits. a. During the Employment Period, the Executive shall be compensated as follows: (i) He shall receive an annual base salary, the amount of which shall be reviewed regularly and determined from time to time by the Board, but which shall not be less than $240,000. His salary shall be payable in accordance with Company payroll practices. (ii) He shall be entitled to participate in any and all plans and programs maintained by the Company from time to time to provide benefits for its executives, including without limitation any short-term or long-term incentive, pension, or supplemental pension plan or program, in accordance with the terms and conditions of any such plan or program or the administrative guidelines relating thereto, as may be amended from time to time. (iii) He shall be entitled to participate in any and all plans and programs maintained by the Company from time to time to provide benefits for its salaried employees generally, including without limitation any savings and investment, stock purchase or group medical, dental, life, accident or disability insurance plan or program, subject to all eligibility requirements of general applicability, to the extent that executives are not excluded from participation therein under the terms thereof or under the terms of any executive plan or program or any approval or adoption thereof. (iv) He shall be entitled to all fringe benefits generally provided by the Company at any time to its full-time salaried employees, including without limitation paid vacation, holidays and sick leave but excluding severance pay, in accordance with generally applicable Company policies with respect to such benefits. (v) He shall be entitled to all rights and benefits under the Split-Dollar Life Insurance Agreement between the Company and the Executive in effect as of the Effective Date of this Agreement in accordance with the terms of such Split-Dollar Life Insurance Agreement. (vi) He shall be entitled to individual long-term disability insurance coverage, at the Company's expense, under a non-cancellable policy providing incremental coverage from the maximum level available under any group disability insurance plan or program maintained by the Company for salaried employees generally up to seventy percent (70%) of his monthly earnings, subject to medical underwriting. b. Notwithstanding any contrary provision of this Agreement, any compensation or benefits which are vested in the Executive or which the Executive is otherwise entitled to receive under any plan or program of the Company or any agreement between the Company and the Executive before, at or subsequent to the Executive's termination of employment shall be furnished and paid in accordance with the terms and provisions of such plan, program or agreement. c. All compensation payable under this Section 4 shall be subject to normal payroll deductions for withholding income taxes, social security taxes and the like. d. In addition to the pension benefits to which the Executive is entitled under the Company's Retirement Income Plan for Non-Union Employees (the "Plan") and the Supplemental Executive Retirement Plan adopted by the Board on December 16, 1992 and made effective as of January 1, 1993 (the "SERP"), the Executive shall be entitled to receive, over his lifetime, a pension benefit at an annual rate equal to sixty-five percent (65%) of (1) the Executive's base salary earned during the twelve (12) months immediately preceding the effective date of termination of the Executive's employment for any reason and (2) the three (3) year average of amounts earned under the Company's 1987 Executive Incentive Plan or any successor short-term executive incentive plan for the three (3) years preceding such termination of employment (the "Retirement Benefit"), payable in equal monthly payments commencing on the later of July 1, 2002 or the first day of the month immediately following such termination (the "Commencement Date"). Notwithstanding the foregoing provisions concerning the period for which base salary and incentive payments earned shall be taken into account in calculating the Retirement Benefit, in the case of a Constructive Discharge attributable to a reduction in the Executive's base salary, the base salary used for the purpose of calculating the amount of the Retirement Benefit shall be the Executive's base salary earned during the twelve (12) months immediately preceding such base salary reduction and the three (3) year average of said incentive payments shall be based on the three (3) years preceding such salary reduction. The Retirement Benefit shall be payable to the Executive on the terms described in this Section 4.d without regard to the reason that the Executive's employment with the Company has terminated and without regard to any Change of Control. (i) The Retirement Benefit shall not be diminished by (a) any Social Security benefit payable to the Executive or (b) any early retirement reduction factors, such as age or years of service with the Company. (ii) The Retirement Benefit shall be reduced by the actuarial equivalent of any benefits accrued as of the Commencement Date under the Plan or under the SERP, or by the actuarial equivalent of any amount released to the Executive under any split-dollar life insurance agreement with the Company. For purposes of offsetting as provided in this part (ii), benefits and other amounts payable shall be calculated on the basis of a single life annuity in accordance with the actuarial assumptions in effect under the Plan as of the Commencement Date. 5. Severance Benefits. a. If, on or after a Change of Control, the Executive's employment with the Company is terminated during the Employment Period by the Company and/or any successor for any reason other than death, Total Disability or Cause, or by the Executive within twelve (12) calendar months of a Constructive Discharge, Severance Benefits shall be provided as follows: (i) The Company shall pay the Executive, in one cash lump sum within sixty (60) days following the date of termination of employment as determined under Section 6 of this Agreement, an amount equal to 2.99 times (a) the Executive's base salary earned during the twelve (12) months immediately preceding the Change of Control and (b) the three (3) year average of amounts earned under the Company's 1987 Executive Incentive Plan or any successor short-term executive incentive plan for the three (3) years preceding the Change of Control. (ii) Core coverage for the Executive under the Company's group medical, life, accident and disability plans or programs shall continue for the Severance Period on the same terms and conditions, as if the Executive's employment had not terminated. In the event that the Executive's participation in any such plan or program is barred, the Company shall arrange at its expense to provide him during the Severance Period with core benefits substantially similar to those which he would otherwise be entitled to receive under such plans and programs. (iii) The Severance Period shall count as service for all purposes (including benefit accrual and eligibility) under any benefit plan of the Company applicable to the Executive immediately prior to the Executive's termination of employment, for which service with the Company is taken into account, including without limitation any pension or supplemental pension plan, and all benefits under such plans that are subject to vesting shall vest as of the date of such termination of employment. In addition, the Executive shall continue to be entitled to receive the Retirement Benefit, calculated in accordance with the provisions of Section 4.d of this Agreement, which shall be payable to the Executive in equal monthly payments beginning on the later of July 1, 2002 or the first day of the month immediately following termination of the Executive's employment. (iv) The Company shall pay a fee to an independent outplacement firm selected by the Executive for outplacement services in an amount equal to the actual fee for such services up to a total of $10,000. b. Notwithstanding the provisions of Section 5.a hereof, if, in the opinion of tax counsel selected by the Company's independent auditors, (i) the Severance Benefits set forth in said Section 5.a and any payments or benefits otherwise payable to the Executive would constitute "parachute payments" within the meaning of Section 280G(b)(2) of the Internal Revenue Code of 1986, as amended (the "Code"), (said Severance Benefits and other payments or benefits being hereinafter collectively referred to as "Total Payments"), and (ii) the aggregate present value of the Total Payments would exceed 2.99 times the Executive's "base amount," as defined in Section 280G(b)(3) of the Code, then, such portion of the Severance Benefits described in Section 5.a hereof as, in the opinion of said tax counsel, constitute "parachute payments" shall be reduced as directed by tax counsel so that the aggregate present value of the Total Payments is equal to 2.99 times the Executive's base amount. The tax counsel selected pursuant to this Section 5.b may consult with tax counsel for the Executive, but shall have complete, sole and final discretion to determine which Severance Benefits shall be reduced and the amounts of the required reductions. For purposes of this Section 5.b, the Executive's base amount and the value of the Total Payments shall be determined by the Company's independent auditors in accordance with the principles of Section 280G of the Code and based upon the advice of tax counsel selected thereby. c. If no Change of Control has occurred and the Executive's employment with the Company is terminated during the Employment Period by the Company for any reason other than death, Total Disability or Cause, or by the Executive within six (6) calendar months of a Constructive Discharge, Severance Benefits shall be provided as follows: (i) The Company shall pay the Executive, in twelve (12) equal monthly cash installments beginning not later than sixty (60) days following the date of termination of employment as determined under Section 6 of this Agreement, Severance Benefits equal to one (1) times the Executive's annual base salary in effect on the date immediately preceding the date of termination, or, in the case of a Constructive Discharge attributable to a reduction in the Executive's base salary, one (1) times the Executive's base salary in effect on the date immediately preceding such reduction. (ii) The Executive shall continue to be entitled to receive the Retirement Benefit, calculated in accordance with the provisions of Section 4.d of this Agreement, which shall be payable to the Executive in equal monthly payments beginning on the later of July 1, 2002 or the first day of the month immediately following termination of the Executive's employment. 6. Date of Termination. For purposes of this Agreement, the date of termination of the Executive's employment shall be the date notice is given to the Executive by the Company and/or any successor or, in the case of a Constructive Discharge, the date set forth in a written notice given to the Company by the Executive, provided that the Executive gives such notice within twelve (12) calendar months of the Constructive Discharge in the case of a Change of Control, and within six (6) calendar months of the Constructive Discharge in other cases, and specifies therein the event constituting the Constructive Discharge. 7. Taxes. a. In the event that any portion of the Severance Benefits is subject to tax under Section 4999 of the Internal Revenue Code of 1986, as amended, or any successor provision thereto (the "Excise Tax"), the Company shall pay to the Executive an additional amount (the "Gross-Up Amount") which, after payment of all federal and State income taxes thereon (assuming the Executive is at the highest marginal federal and applicable State income tax rate in effect on the date of payment of the Gross-Up Amount) and payment of any Excise Tax on the Gross-Up Amount, is equal to the Excise Tax payable by the Executive on such portion of the Severance Benefits. Any Gross-Up Amount payable hereunder shall be paid by the Company coincident with the payment of the Severance Benefits described in Section 5.a(i) of this Agreement. b. All amounts payable to the Executive under this Agreement shall be subject to applicable withholding of income, wage and other taxes. 8. Non-Competition, Confidentiality and Cooperation. The Executive agrees that: (i) during the Employment Period and for one (1) year after the termination of the Executive's employment with the Company for any reason other than a Change of Control, the Executive shall not serve as a director, officer, employee, partner or consultant or in any other capacity in any business that is involved in the generation, transmission or distribution of electric energy within the New England states, or solicit Company employees for employment or other participation in any such business, or take any other action intended to advance the interests of such business; (ii) during and after the Executive's employment with the Company, he shall not divulge or appropriate to his own use or the use of others any secret, proprietary or confidential information or knowledge pertaining to the business of the Company, or any of its Affiliates, obtained during his employment with the Company; and (iii) during the Employment Period, he shall support the Company's interests and efforts in all regulatory, administrative, judicial or other proceedings affecting the Company and, after the termination of his employment with the Company, he shall use best efforts to comply with all reasonable requests of the Company that he cooperate with the Company, whether by giving testimony or otherwise, in regulatory, administrative, judicial or other proceedings affecting the Company except any proceeding in which he may be in a position adverse to that of the Company. After the termination of employment, the Company shall reimburse the Executive for his reasonable expenses and his time, at a reasonable rate to be determined, for the Executive's cooperation with the Company in any such proceeding. The provisions of this Section 8 shall survive the expiration or termination of this Agreement. The Executive agrees that the Company shall be entitled to injunctive relief to prevent any breach or threatened breach of these provisions. In the event of a failure to comply with part (i), (ii) or (iii) of this Section 8, the Executive agrees that the Company shall have no further obligation to pay the Executive any Severance Benefits under Section 5.c of this Agreement. In the event of a failure to comply with part (i) or (ii) hereof, the Executive agrees that he shall repay to the Company any such Section 5.c Severance Benefits paid to him. The Company shall have the right to offset any amounts payable to the Executive under this Agreement or otherwise against any Severance Benefits which he is obligated to repay to the Company. 9. No Mitigation. The Executive shall not be required to mitigate the amount of any payment provided for in this Agreement by seeking other employment. 10. Assignment. This Agreement and the rights and obligations of the Company hereunder shall inure to the benefit of and shall be binding upon the successors and assigns of the Company, including without limitation any corporation or other entity acquiring all or substantially all of the business or assets of the Company whether by operation of law or otherwise. This Agreement and the rights of the Executive hereunder shall not be assignable by the Executive, and any assignment by the Executive shall be null and void. 11. Arbitration. Any dispute or controversy arising under or in connection with this Agreement shall be settled exclusively by arbitration in Augusta, Maine, in accordance with the rules of the American Arbitration Association then in effect. The pendency of any such dispute or controversy shall not affect any rights or obligations under this Agreement. Judgment may be entered on the arbitrator's award in any court having jurisdiction. 12. Waiver; Amendment. The failure of either party to enforce, or any delay in enforcing, any rights under this Agreement shall not be deemed to be a waiver of such rights, unless such waiver is an express written waiver which has been signed by the waiving party. Waiver of any one breach shall not be deemed to be a waiver of any other breach of the same or any other provision hereof. ThisAgreement can be amended only by a written instrument signed by each party hereto and no course of dealing or practice or failure to enforce or delay in enforcing any rights hereunder may be claimed to have effected an amendment of this Agreement. 13. Notices. Any notice required or permitted to be given under this Agreement shall be sufficient if in writing and sent by first-class, registered or certified mail or hand-delivered to the Executive at the last residence address he has provided to the Company or, in the case of the Company, at its principal executive offices to the attention of the Corporate Secretary. 14. Miscellaneous. This Agreement shall be construed and enforced in accordance with the laws of the State of Maine. In the event that any provisions of this Agreement shall be held to be invalid, the other provisions hereof shall remain in full force and effect. 15. Entire Agreement. The terms of this Agreement are intended by the parties to be the final expression of their agreement with respect to the employment of the Executive by the Company and may not be contradicted by evidence of any prior or contemporaneous oral or written agreement. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first written above. WITNESS: David T. Flanagan CENTRAL MAINE POWER COMPANY By: David M. Jagger Chairman of the Board of Directors EX-13.1 11 MGMNT DIS & ANLYS OF FIN CONDITION Exhibit 13-1 Management's Discussion and Analysis of Financial Condition and Results of Operations Overview In 1995, the Company faced the financial challenge of an 11-month outage at the Maine Yankee Atomic Power Company (Maine Yankee) nuclear plant, and used new pricing flexibility under the Alternative Rate Plan (ARP) to retain and promote electric sales. The Company continued to control costs, reduce non-utility purchased power expense, and expand its lines of business. The Company's share of repair costs to the Maine Yankee steam-generator tubes was approximately $10 million; another $29 million was incurred for replacement power during the plant's outage. Under the ARP, these additional costs cannot be deferred for later cost recovery consideration. The ARP effectively eliminated traditional regulatio's reconcilable fuel clause adjustment mechanism. Earnings per share in 1995 were $0.86 after recognition of the approximately $0.70 per share in Maine Yankee-related repair and replacement-power costs. In mid-January 1996, Maine Yankee returned to operation and was producing power at 90-percent of its maximum production capacity. The Company will incur approximately $300,000 to $500,000 of replacement-power costs for each month that the plant operates at the 90-percent level. Replacement-power expenses in 1996 at that level of production would not involve the level of extraordinary costs incurred in 1995. The ARP form of price regulation took effect January 1, 1995. The Company used the ARP's pricing flexibility and entered into five-year definitive agreements with 18 of its large general-service customers. Additionally, the Company has instituted programs in specific residential and commercial markets where it believes customers have competitive options that need to be addressed by lowering applicable tariffs to more competitive levels. Approximately 35 percent of annual kilowatt-hour sales and 22 percent of annual revenues are now covered by special tariffs allowed under the ARP. During 1995 the ceiling prices that the Company could charge rose by 2.43 percent under the ARP annual adjustment mechanism. Increases made pursuant to the price-cap adjustment should generate additional annual revenue of approximately $15 million. A sharing mechanism in the ARP designed to protect the Company from fluctuations of return on equity outside a specified bandwidth was triggered by the low 1995 earnings. A component of the 1996 ARP increase in price caps will reflect the operation of this mechanism, although the Company has discretion under the ARP to set rates lower than the caps. Because the ARP bases annual price changes on an external inflation measure adjusted for productivity gains, managing cost increases below the level of inflation and achieving revenues from sales volume are important for improving the Company's profitability. The Company continues to address the anticipated transition to a more competitive industry. While many factors are uncertain, a transition to direct retail competition, could have substantial impacts on the value of utility assets and on their ability to recover costs through rates. Without proper action by regulators, utilities could find above-market costs to be "stranded," or unrecoverable, in the new competitive setting. In December 1995, the Maine Public Utilities Commission (MPUC) issued a Notice of Inquiry for investigating the future structure of the electric-utility industry in Maine. The MPUC proceeding is being conducted as the result of a 1995 Maine Legislative Resolve that established a process for reviewing issues of competition and structure for electric utilities. The MPUC is expected to conclude its investigation under the Notice of Inquiry by late 1996 and report its findings and recommendations to the Legislature in early 1997. In late January 1996, the Company filed a proposal in response to a MPUC Notice of Inquiry outlining its recommendations for an orderly transition to competition and for adequate reimbursement of its potentially strandable costs. The major elements of the Company's proposed plan are: (1) The Company's generating assets, contracts and obligations would be separated from its transmission-and-distribution assets and obligations; (2) Retail customers would begin to have the opportunity to purchase unbundled energy directly from suppliers, marketers or load aggregators in the year 2000, with possible phase-in to total open access over a period of years; (3) Economic and resource-planning regulation of generation would cease, with the Federal Energy Regulatory Commission (FERC) continuing to regulate transmission, and distribution remaining a franchised monopoly. The entity providing distribution services would be subject to performance-based earnings regulation similar to the ARP; the duty to serve would be replaced by a duty to connect customers to the retail generation market; (4) An opportunity for full recovery of strandable costs would be achieved through a transition charge to all retail customers; generation-related strandable costs would be recovered through a transition contract between the generation company and the transmission-and-distribution company. The Company has substantial exposure to cost stranding relative to its size. As of December 31, 1995, the Company estimates its strandable costs could be approximately $2 billion. These costs represent the excess of the costs of purchased-power obligations and the Company's own generating costs over the market value of the power, and the costs of deferred charges and other regulatory assets. Of the $2 billion, approximately $1.3 billion is related to above-market costs of purchased-power obligations, approximately $200 million is related to estimated net above-market cost of the Company's own generation, and the remaining $500 million is related to deferred regulatory assets. The estimated market rate for power is based on currently existing market conditions and anticipated inflation escalation. The present value of future purchased-power obligations and the Company's generating costs reflects the underlying costs of those sources of generation in place today, with reductions for contract expiration and ongoing depreciation. Deferred regulatory asset totals reflect the current uncollected balances and existing amortization schedules. The Company's strandable-cost exposure is expected to decline over time as the market price of power increases, non-utility generator (NUG) contracts expire, and regulatory assets are recovered. Estimated strandable costs are highly dependent on estimates of the future market for power. Higher market rates lower stranded-cost exposure, while lower market rates increase it. In addition to market-related impacts, any estimate of the ultimate level of strandable costs depends on state and federal regulations; the extent, timing and form that competition for electric service will take; the ongoing level of the Company's costs of operations; regional and national economic conditions; growth of the Company's sales; timing of any changes that may occur from state and federal initiatives on restructuring; and the extent to which regulatory policies ultimately address recovery of strandable costs. Major cost stranding would have a material adverse effect on the Company's results of operations. The Company believes it is entitled to recover substantially all of its potential strandable costs, but cannot predict when or if open electric energy competition will occur in its service territory, how much it might ultimately be allowed to recover through state or federal regulation, the future market price of electricity, or the timing or implementation of any formal recommendations in any regulatory or legislative proceedings dealing with such issues. The Company declared dividends of $0.90 per share in 1995, unchanged from the 1994 level. In December 1993, the quarterly dividend payment per share of common stock was reduced from $0.39 to $0.225. This reduction reflected the then-current earnings levels and the near-term financial outlook. Dividend and capital structure policy will continue to be reviewed by management and the Board of Directors and will take into consideration such issues as achieved and anticipated earnings, capital needs, business opportunities and business risk, the structure of the Company and the industry, and the overall need to assure that financial risk and business risk are aligned. Near-term, the Company anticipates a need to increase its equity capitalization as a result of higher business risk and a desire to restore its credit standing that has been weakened in recent years. The Company continues to face the challenges of change and must achieve and maintain financial performance and resources commensurate with both the provision of service as demanded by customers and the obligation to achieve competitive returns on investor capital. The ensuing issues associated with the restructuring of the electric industry, the pressure from existing competitive energy sources, and the appetite of customers for choices and enhanced service are challenges that the Company is aggressively addressing. Financial Objectives: 1. Continue increasing the efficiency of operations; cost management under price-cap regulation must replace the cost-plus culture that traditional regulation can entail. 2. Focus on volume of sales as a revenue builder; revenue from prices is capped. 3. Align financial policies to match changing business needs and risks; competition tends to increase business risk, which in turn impacts the desired level of fixed-charge obligations. 4. Expand areas of investment for growth; open competition in electric energy could significantly reduce traditional sales-growth opportunities. 5. Recover the substantial investments made and costs being incurred for existing service obligations; open competition could strand these costs, absent a transition mechanism for recovery. Management's Discussion & Analysis Earnings and Dividends For 1995, the Company generated net income of $38.0 million, compared to a net loss of $23.3 million in 1994, and net income of $61.3 million in 1993. The earnings applicable to common stock were $27.8 million in 1995 or $0.86 per share, while the loss applicable to common stock was $33.8 million or $1.04 per share in 1994. Earnings applicable to common stock were $52.5 million or $1.65 per share in 1993. Net income in 1995 reflects $29 million of replacement purchased-power energy expense and $10 million for the Company's share of sleeving repair costs during the extended shutdown at Maine Yankee. The two items reduced earnings applicable to common stock by $22.9 million after income taxes, or $0.70 per share. See "Maine Yankee Steam-Generator Tubes," below, for a detailed discussion of these matters. The loss in 1994 reflects the write-off of approximately $100 million ($60 million after taxes) of deferred balances in accordance with the MPUC order in the ARP proceeding discussed fully below under the caption "Alternative Rate Plan" and Note 3 to Consolidated Financial Statements, "Regulatory Matters - Alternative Rate Plan." This write-off had the effect of reducing earnings per share by $1.85. Absent the write-off, earnings for 1994 would have been $0.81 per share. Total dividends declared in 1995 and 1994 were $0.90 per common share, and $1.395 per share for 1993. In December 1993, the quarterly dividend payment per share of common stock was reduced from $0.39 to $0.225. Revenues and Sales Electric operating revenues increased by $11.1 million or 1.2 percent to $916.0 million in 1995, and by $11.3 million or 1.3 percent to $904.9 million in 1994. The components of the change in electric operating revenues are as follows: (Dollars in millions) .................................... 1995 1994 Revenues from kilowatt-hour sales ........................ $ (4.7) $ 20.7 Other operating revenues ................................. 8.7 (8.1) Maine Electric Power Company, Inc. - Fuel cost recovery .. 7.1 (1.3) Total Change in Electric Operating Revenues .............. $ 11.1 $ 11.3 Refer to "Alternative Rate Plan" below, for a discussion of new rates and their impact on revenues. The Company's service-area sales for the years 1995, 1994, and 1993 are shown in the following table: (Kilowatt-hours in millions) 1995 1994 1993 KWH % change KWH % change KWH % change Residential ........................ 2,802 (2.0)% 2,860 (0.9)% 2,884 (3.5)% Commercial ......................... 2,477 1.6 2,439 2.2 2,387 0.9 Industrial ......................... 3,547 (4.7) 3,720 (1.9) 3,791 3.2 Wholesale and lighting ........................ 136 (8.7) 149 (3.5) 155 0.3 Total Service- Area Sales ....................... 8,962 (2.2)% 9,168 (0.5)% 9,217 0.4%
The primary factors in the service-area kilowatt-hour sales decrease were low economic growth, the loss of a major industrial customer in September 1994, energy management, and loss of sales due to conversions from electricity to alternative fuels for such purposes as space and water heating. The average number of residential customers increased by 5,076 in 1995, 4,679 in 1994, and 4,771 in 1993, while average usage per residential customer declined by 3.1 percent in 1995, 1.9 percent in 1994 and 4.5 percent in 1993. The 1995 and 1994 increases in commercial sales reflect increases in the retail and service sectors. Combined, these sectors comprise approximately 60 percent of commercial sales. Also, sales to Maine Yankee increased by 14.7 million kilowatt hours in 1995 due to its extended outage. Industrial sales levels are significantly affected by changes in power supplied to the pulp-and-paper industry customers, who account for approximately 63 percent of industrial sales and approximately 25 percent of total service-area sales. Sales to the pulp-and-paper sector decreased by 8.6 percent in 1995 and by 3.6 percent in 1994, and increased by 3.2 percent in 1993. The 1995 and 1994 decreases reflect lower sales levels primarily due to the late-1994 loss of a major customer that had previously purchased approximately 280 million kilowatt-hours annually. Refer to "Alternative Rate Plan" and "Competition and Economic Development," below, and Note 4 to Consolidated Financial Statements, "Commitment's and Contingencies - Competition," for additional information regarding the loss of this customer and the Company's actions to preserve its remaining large-industrial-customer base and other customer groups. Sales to all other industrial customers as a group increased 2.7 percent in 1995, 1.5 percent in 1994, and 3.3 percent in 1993. Alternative Rate Plan In December 1994, the MPUC approved a stipulation, signed by most of the parties to the Company's ARP proceeding, to take effect January 1, 1995. This follow-up proceeding to the Company's 1993 base-rate case was ordered by the MPUC in an effort to develop a five-year plan containing price-cap, profit-sharing, and pricing-flexibility components. The price-cap mechanism provides for the Company's retail rate increase to be capped annually on July 1, commencing July 1, 1995, at a percentage combining (1) a price index, (2) a productivity offset, (3) a sharing mechanism, and (4) flow-through items and mandated costs. The price cap applies to all of the Company's retail rates, and includes fuel-and-purchased-power costs that previously had been treated separately. The components of the July 1, 1995, rate increase of 2.43 percent are the inflation index of 2.92 percent, reduced by a productivity offset of 0.5 percent, and increased by 0.01 percent for flowthrough items and mandated costs. As stated in the MPUC's order approving the ARP, operation under the ARP continues to meet the criteria of Statement of Financial Accounting Standards No. 71, "Accounting for the Effects of Certain Types of Regulation" (SFAS No. 71). As a result, the Company will continue to apply the provisions of SFAS No. 71 to its accounting transactions and to its financial statements. For a detailed discussion of each of the individual provisions of the ARP refer to Note 3 to Consolidated Financial Statements, "Regulatory Matters - Alternative Rate Plan." In 1994, the Company agreed in the ARP negotiations to record charges of approximately $100 million ($60 million, net of tax) against 1994 earnings. These charges, along with the other provisions of the ARP, will lessen the impact of future price increases for MPUC-mandated costs. The Company believes the ARP provides the benefits of needed pricing flexibility to set prices between defined floor and ceiling levels in three service categories: (1) existing customer classes, (2) new customer classes for optional targeted services, and (3) special-rate contracts. The Company believes that the added flexibility will position it more favorably to meet the competition from other energy sources that has eroded segments of its customer base. Some price adjustments could be implemented upon 30-days' notice by the Company, while certain others would be subject to expedited review by the MPUC. The ARP also contains provisions to protect the Company and ratepayers against unforeseen adverse results from its operation. These include review by the MPUC if the Company's actual return on equity falls outside a designated range, a mid-period review of the ARP by the MPUC in 1997 (including possible modification or termination), and a "final" review by the MPUC in 1999 to determine whether or with what changes the ARP should continue in effect after 1999. During 1995, primarily as a result of the extended Maine Yankee outage, the Company's rate of return on equity was 5.7 percent, a level below the low end of the earnings-sharing mechanism. Return on equity is one factor in the ARP for determining the maximum annual adjustment in the Company's rates, scheduled for July 1996. While the ARP provides the Company with an expanded opportunity to be rewarded for efficiency, it also presents the risk of reduced rates of return if costs are not controlled, or if revenues from sales decline or are not adequate to fund costs and provide fair rates of return on invested capital. Maine Yankee Steam-Generator Tubes The Company, through its equity investment totaling approximately $26.8 million at December 31, 1995, owns a 38-percent stock interest in Maine Yankee, which owns and operates an 880-megawatt nuclear generating plant in Wiscasset, Maine, and is entitled under a cost-based power contract to an approximately equal percentage of the Plant's output. The Maine Yankee Plant, like other pressurized-water reactors, experienced degradation of its steam-generator tubes, principally in the form of circumferential cracking, which, until early 1995, was believed to be limited to a relatively small number of tubes. During the refueling-and-maintenance shutdown that commenced in early February 1995, Maine Yankee detected through new inspection methods increased degradation of the Plant's steam-generator tubes. Approximately 60 percent of the Plant's 17,000 steam-generator tubes appeared to have defects to some degree. Because of the large number of affected tubes, the remedy of plugging the degraded tubes to take them out of service was no longer a viable option. Following a detailed analysis of safety, technical, and financial considerations, Maine Yankee elected to repair the tubes by inserting and welding short reinforcing sleeves of an improved material in substantially all of the Plant's steam-generator tubes; this was completed in December 1995. The project caused Maine Yankee to incur additional costs during 1995, with the Company being responsible for its pro-rata share. The Company has also incurred substantial incremental costs for replacement power. With the termination of the reconcilable fuel-and-purchased-power adjustment under the ARP, the Company's costs of replacement power during the Maine Yankee outage have been treated like other Company expenses, i.e., recoverable only to the extent permitted by the ARP's price-index mechanism, and were not deferred to be collected through a specific fuel-rate adjustment, as under pre-1995 ratemaking. Under the ARP, no additional price increase other than the 2.43-percent increase effective July 1, 1995, could occur in 1995 as a result of the Maine Yankee outage. The Company's $10-million share of repair costs was less than the estimated $15 million recorded in the second quarter of 1995 and resulted in a $5-million reduction to purchased power-capacity expense in the fourth quarter of 1995. Both the Company and Maine Yankee implemented cost-reduction measures to mitigate these additional costs. The Company's incremental replacement-power costs totaled approximately $29 million for the twelve months ended December 31, 1995. On January 11, 1996, Maine Yankee began start-up operations and was up to 90-percent generation levels by January 24, 1996. Replacement power costs for January 1996, were approximately $2.7 million. However, the Plant's operations are under review by the Nuclear Regulatory Commission (NRC). Until the NRC completes its investigation, the Plant will operate at approximately 90 percent of its generating capacity. As a result, the Company will continue to incur additional replacement-power costs for the 10 percent of its share of Maine Yankee energy it will not receive until the Plant returns to 100-percent generation levels. These additional costs, as was the case with those incurred during 1995, are not reconcilable under a fuel-adjustment clause and, therefore, the Company estimates it will incur approximately $300,000 to $500,000 per month in additional costs until the Plant returns to full power. Industry Restructuring and Strandable Costs The enactment by Congress of the Energy Policy Act of 1992 accelerated planning by electric utilities, including the Company, for transition to a more competitive industry. The functional areas in which competition will take place, the regulatory changes that will be implemented, and the resulting structure of both the industry and the Company are all uncertain, but a transition to direct competition to serve retail customers is widely anticipated. A departure from traditional regulation, however, could have substantial impacts on the value of utility assets and on the ability of electric utilities to recover their costs through rates. In the absence of full recovery, utilities would find their above-market costs to be "stranded," or unrecoverable, in the new competitive setting. On March 29, 1995, as part of a broader Notice of Proposed Rulemaking (NOPR) related to open-access transmission and stranded costs, and designed to facilitate the development of a competitive market, the Federal Energy Regulatory Commission (FERC) expressed support for the principle that utilities are entitled to full recovery of their "legitimate and verifiable" stranded costs at both the state and federal levels. Earlier, the MPUC had initiated a rulemaking proceeding on stranded costs at the retail level with a preliminary proposal that supported recovery of stranded costs, but that contained significant mitigation requirements which the Company believed would have resulted in non-recovery of significant costs. The MPUC terminated its proceeding after FERC issued its NOPR to avoid "parallel and duplicative proceedings." In 1995 the Maine Legislature commenced a process of developing recommendations for the MPUC on the future structure of the electric utility industry in Maine. A diverse committee appointed by the Maine Legislature failed to reach consensus by its late 1995 deadline. In late January 1996, the Company filed a proposal outlining its recommendations for an orderly transition to competition and adequate reimbursement of its potentially strandable costs with the MPUC. The major elements of the Company's proposed plan are the following: (1) The Company's generating assets, contracts and obligations would be separated from its transmission and distribution assets and obligations by distributing shares of a newly formed transmission-and-distribution company to the Company's stockholders; (2) Assuming certain necessary changes in the management and operation of the regional transmission grid, retail customers would begin to have the opportunity to purchase unbundled energy directly from suppliers, marketers, or load aggregators in the year 2000, with possible phase-in to total open access to such energy over a period of years; (3) Economic and resource-planning regulation of generation would cease, with FERC continuing to regulate transmission, and distribution remaining a franchised monopoly. The entity providing distribution services would be subject to performance-based regulation of its earnings, similar to the Company's present ARP, and the duty to serve would be replaced by a duty to connect customers to the retail generation market; (4) Full recovery of strandable costs would be achieved through a transition charge to all retail customers, with generation-related strandable costs recovered through a transition contract between the generation company and the transmission-and-distribution company. Amounts recovered would include costs of fulfilling obligations under contracts with NUGs, as well as investments (and returns thereon) and other obligations undertaken by the Company in fulfilling its legal duty to serve, with incentives for the Company to mitigate such costs where practicable. Substantial opposition has emerged in both the FERC and state proceedings to allowing full recovery of stranded costs, largely from customer groups and NUGs. The Company expects to expend significant effort on restructuring initiatives at both the state and federal level in 1996, although the timing of any formal recommendations in any proceedings is yet to be determined. The Company has substantial exposure to cost stranding relative to its size. As of December 31, 1995, the Company estimates its strandable costs could be approximately $2 billion. These costs represent the excess of the costs of purchased-power obligations and the Company's own generating costs over the market value of the power; and the costs of deferred charges and other regulatory assets. Of the $2 billion, approximately $1.3 billion is related to above-market costs of purchased-power obligations, approximately $200 million is related to estimated net above-market cost of the Company's own generation, and the remaining $500 million is related to deferred regulatory assets. The estimated market rate for power is based on existing market conditions and anticipated inflation escalation. The present value of future purchased-power obligations and the Company's generating costs reflects the underlying costs of those sources of generation in place today, with reductions for contract expiration and ongoing depreciation. Deferred regulatory asset totals reflect the current uncollected balances and existing amortization schedules. The Company's strandable-cost exposure is expected to decline over time as the market price of power increases, non-utility generator (NUG) contracts expire, and regulatory assets are recovered. Estimated strandable costs are highly dependent on estimates of the future market for power. Higher market rates lower stranded cost exposure, while lower market rates increase it. In addition to market-related impacts, any estimate of the ultimate level of strandable costs depends on state and federal regulations; the extent, timing and form that competition for electric service will take; the ongoing level of the Company's costs of operations; regional and national economic conditions; growth of the Company's sales; timing of any changes that may occur from state and federal initiatives on restructuring; and the extent to which regulatory policies ultimately address recovery of strandable costs. Major cost stranding would have a material adverse effect on the Company's results of operations. The Company believes it is entitled to recover substantially all of its potential strandable costs, but cannot predict when or if open electric energy competition will occur in its service territory, or how much it might ultimately be allowed to recover through state or federal regulation, the future market price of electricity, or the timing or implementation of any formal recommendations in any regulatory or legislative proceedings dealing with such issues. The Company believes there are many uncertainties associated with any major restructuring of the electric utility industry in Maine. Among them are: the positions that will ultimately be taken by the MPUC on the Company's proposal and other options and proposals submitted in response to the Notice; the role of the FERC in any restructuring involving the Company and the ultimate positions it will take on relevant issues within its jurisdiction; to what extent the United States Congress will become involved in resolving or redefining the issues through legislative action and, if so, with what results; whether the necessary political consensus can be reached on the significant and complex issues involved in changing the long-standing structure of the electric-utility industry; and, particularly with respect to the Company, to what extent the Company will be permitted to recover its strandable costs. Competition and Economic Development The Company faces competition in several aspects of its traditional business and anticipates that competition will continue to place pressure on both sales and the price the Company can charge for its product. Alternative fuels and recent modifications to regulations that had restricted competition from suppliers outside of the Company's service territory have expanded customers' energy options. As a result, the Company continues to pursue retention of its customer base. This increasingly competitive environment has resulted in the Company's entering into contracts with its wholesale customers, as well as with certain industrial, commercial, and residential customers, to provide their energy needs at prices and margins lower than the current averages. Pursuant to the pricing-flexibility provisions of the ARP, the Company redesigned some rates to encourage off-peak usage and discourage switching to alternative fuels. These include Bonus Block rates, which give a 50 percent discount on kilowatt-hours used above 750; water-heat and space-heat retention rates; and Super-Saver rates, which discount off-peak usage. In 1994, the Company lowered tariffs for its large general-service customers and executed separate five-year definitive agreements with 18 individual customers providing additional reductions. The participating customers agreed to take electrical service from the Company for five years and agreed not to switch fuels, install new self-generation equipment, or seek another supplier of electricity for existing electrical load during that period. Approximately 35 percent of annual kilowatt-hour sales and 22 percent of annual revenues are covered under special tariffs allowed under the pricing flexibility provisions of the ARP. Refer to Note 4 to Consolidated Financial Statements, "Commitments and Contingencies - Competition," for detail. The Company is actively promoting economic development for Maine by helping to bring a $600-million expansion by one of its major customers to the state through economic-development rates, and sponsoring "Maine & Company," a private and public partnership that will market Maine as a place to do business. Non-Utility Generators In accordance with prior MPUC policy and the ARP, $125 million of buy-out or restructuring costs incurred since January 1992 were included in Deferred Charges and Other Assets on the Company's balance sheet and will be amortized over their respective fuel savings periods. The Company restructured 37 contracts representing 297 megawatts of capacity that should result in approximately $260 million in fuel savings over the next five years. Expansion Of Lines Of Business Another way the Company is addressing competition is to expand its business opportunities through subsidiaries that capitalize on existing strengths. MaineCom Services, which was approved by the MPUC on July 13, 1995, will seek to develop opportunities in expanding markets by arranging fiber-optic data service for bulk carriers, offering support for cable-TV or "super-cellular" personal-communication vendors, and providing other telecommunications consulting services. Telesmart, approved September 9, 1995, is a credit-and-collections subsidiary. CMPE3 is an environmental and engineering division of CMP International Consultants. All subsidiaries utilize skills of former Company employees and compete for business with other companies. Environmental Actions The Company has been named by the Environmental Protection Agency (EPA) as a "potentially responsible party" and has been incurring costs to determine the best method of cleaning up an Augusta, Maine, site formerly owned by a salvage company and identified by the EPA as containing soil contaminated by PCBs from equipment originally owned by the Company. Refer to Note 4 to Consolidated Financial Statements, "Commitments and Contingencies - Legal and Environmental Matters," for a more detailed discussion of this matter. Expenses and Taxes The Company's fuel expense, comprising the cost of fuel used for company generation and the energy portion of purchased power (the largest expense category), was 51 percent of total operating expense in 1995, and 54 percent in 1994 and 1993. Purchased-power energy expense includes all costs associated with purchases from NUGs, which amounted to 77 percent of this expense category in 1995. Fuel expense fluctuates with changes in the price of oil, the level of energy generated and purchased, and changes in the Company's own generation mix. Through December 31, 1994, changes in fuel expense were provided rate treatment through a fuel clause. Under the ARP, effective January 1, 1995, fuel-expense recovery is subject to the annual index-based price change. Fuel cost decreases are generally retained by the Company. Fuel expense for Maine Electric Power Company, Inc. (MEPCO), a 78-percent-owned subsidiary of the Company, is fully recoverable through billing to MEPCO participants and fluctuates with participants' energy requirements. The extended outage at Maine Yankee (see "Maine Yankee Steam-Generator Tubes") had a significant effect on fuel expense, including purchased-power energy and purchased-power capacity expense, and the Company's generation mix in 1995. Maine Yankee supplied 22 percent of the Company's generation mix in 1994 at a cost of less than three cents per kilowatt-hour. The Company replaced this power through short-term agreements with New Brunswick Power and Hydro-Quebec. The Company's oil-fired generation increased to 21.6 percent, up from 12.1 percent of 1994 net generation, and 15.5 percent in 1993. The NUG component of the energy mix decreased slightly from 37.2 percent to 36.8 percent, as a result of the ongoing efforts to reform the Company's NUG contracts. The average price of NUG energy of 8.4 cents per kilowatt-hour is significantly higher than the Company's own cost of generation, and much higher than the price of energy on today's open market. The Company continues to try to moderate the cost of non-utility generation by pursuing renegotiation of contracts, by supporting legislative bills that would promote that objective, and by other means such as strict contract term enforcement. Purchased-power capacity expense is the non-fuel operation, maintenance, and cost-of-capital expense associated with power purchases, primarily from the Company's share of four Yankee nuclear generating facilities. The approximately $10-million cost of the Maine Yankee steam-generator tube repairs was recorded in purchased-power capacity expense in 1995. The level of purchased-power capacity expense also fluctuates with the timing of the maintenance and refueling outages at the other Yankee nuclear generating facilities in which the Company has equity interests. The cost of capacity increases during refueling periods. During 1992, Yankee Atomic Electric Company, in which the Company is a 9.5-percent equity owner, discontinued power generation and prepared a plan for decommissioning. Purchased-power capacity expense in 1995, 1994, and 1993 contained approximately $4.0 million, $5.2 million, and $5.7 million, respectively, of costs related to this facility. Refer to Note 6 to Consolidated Financial Statements, "Capacity Arrangements - Power Agreements," for a more detailed discussion of this matter. Operation-and-maintenance expense increased by $34.4 million in 1995 and by $4.9 million in 1994. The 1995 increase reflects significantly higher charges totaling approximately $27.7 million for amortization and cost of purchased-power contract buy-outs. Also reflected is a one-time charge of $5.6 million related to a Special Retirement Offer (SRO) to all employees aged 50 or more who had at least five years of continuous service. The goal of the SRO was to help the Company achieve financial savings and make the organizational changes it needs to be an effective competitor in the energy marketplace. Approximately 200 employees accepted the SRO. The Company implemented several new business processes and restructured its customer-operations functions, closing and consolidating locations. These new processes are aimed at streamlining the Company's business practices in division operations, billing, purchasing, inventory, accounts payable, payroll, and system design and construction. Two reengineering teams were formed in 1995, a Financial Controls team and a Customer Service team. These teams sought radical change to realize dramatic improvements. Currently, 60 projects have been approved, and many are underway as a result of these teams' efforts, with implementation periods ranging from three weeks to two years. Interest expense included a full year's interest costs in 1995 due to the issuance of the Finance Authority of Maine Note in October 1994 to finance the buy-out of a major NUG contract, and lower interest cost from a decrease in the amount of Medium-Term Notes outstanding. The Company's overall level of interest expense during 1994 reflects the issuance of additional General and Refunding Mortgage Bonds and additional notes under the Company's Medium-Term Note program to replace short-term borrowings outstanding during 1993. Short-term interest costs over the period 1993 through 1995 fluctuated with the costs and average outstanding balances of short-term debt. The Company reduced the level of Flexible Money Market Preferred Stock outstanding by $5.5 million purchased in anticipation of the sinking-fund requirement, thereby reducing dividends in 1995 by $300,000. The increase in aggregate dividends on preferred stock for the two-year period ended December 31, 1994, is due to the conversion of the dividend on the Company's Flexible Money Market Preferred Stock in November 1993 to a fixed rate. The average variable rate in 1993 was 3.35 percent, while the fixed rate is 7.999 percent. State and federal income taxes fluctuate with the level of pre-tax earnings and the regulatory treatment of taxes by the MPUC. The significant decrease in income-tax expense for 1994 is due to the impact of the loss from the write-off of deferred balances in accordance with the MPUC's ARP order. See Note 2 to Consolidated Financial Statements, "Income Taxes," for more information. Liquidity and Capital Resources The MPUC approved increases in base and fuel-related electric rates in 1993 and 1994, and a 2.43-percent increase in total rates under the ARP in 1995 that produced additional cash. Increases in rates under the ARP were based on increases in the related price index and provisions for certain mandated costs. Prior rate increases were provided to fund costs of fuel, energy-management programs, operations, maintenance, systems improvements, investments in generation needed to ensure the Company's continued ability to provide reliable electric service, and collection of unbilled revenues recorded pursuant to the Electric Revenue Adjustment Mechanism (ERAM). Approximately $114.5 million of cash was provided from net income before non-cash items. An additional $21.0 million of cash was generated from fluctuations in working capital, primarily from refunds of income taxes related to the 1994 net loss. Other operating activities, including the financing of deferred energy-management programs and the buy-out of NUG contracts, required cash resources. Increased average cash balances and reduced capital investment programs resulted in very little investment-related activity during 1995. The issuance and redemption of Medium-Term Notes and the purchase of Flexible Money Market Preferred Stock used $35 million and $5.5 million, respectively, of cash during 1995. Effective in January 1994, the Company announced that it was electing the option under its Dividend Reinvestment and Common Stock Purchase Plan to purchase shares pursuant to this plan on the market, rather than issue new shares. Dividends paid on common stock were $29.2 million, while preferred-stock dividends were $10.3 million. Capital-investment activities, primarily construction expenditures, utilized $47.1 million in cash during 1995. Construction expenditures comprised approximately $4.5 million for generating projects, $3.5 million for transmission, $30.8 million for distribution, and $6.1 million for general facilities and other construction expenditures. The Company estimates its capital expenditures for the period 1996 through 2000 at approximately $334 million. Actual capital expenditures will depend upon the availability of capital and other resources, load forecasts, customer growth, and general business conditions. During the five-year period, the Company also anticipates incurring approximately $471 million for sinking funds, debt and equity maturities. The Company estimates that for the period 1996 through 2000, internally generated funds from depreciation, deferred taxes, and retained earnings should provide a substantial portion of the construction-program requirements. Current expectations place little reliance on external funding sources to meet the capital expenditure requirements for the next several years. However, the availability at any particular time of internally generated funds for such requirements will depend on working-capital needs, market conditions, and other relevant factors. The Company's $150-million Medium-Term Note program was implemented to provide flexibility to meet financing needs and provide access to a broad range of debt maturities. As of December 31, 1995, $92 million of Medium-Term Notes were outstanding; that, pursuant to the terms of the program, permits the issuance of an additional $58 million of such notes. To support its short-term capital requirements, the Company entered into a revolving-credit facility with several banks and Chemical Bank, as agent for the lenders, to provide up to $80 million of revolving-credit loans. The Company also has an unsecured $50-million revolving-credit agreement with several banks that can be used to support commercial-paper borrowing or as short-term financing. However, access to commercial paper markets has been substantially reduced, if not eliminated, as a result of downgrading of the Company's credit ratings. The amount of outstanding short-term borrowing will fluctuate with day-to-day operational needs, the timing of long-term financing, and market conditions. Factors That May Affect Future Results This discussion contains forecast information items that are "forward-looking statements" as defined in the Private Securities Litigation Reform Act of 1995. All such forward-looking information is necessarily only estimated. There can be no assurance that actual results will not materially differ from expectations. Actual results have varied materially and unpredictably from expectations. Factors that could cause actual results to differ materially include, among other matters, electric utility restructuring, including the ongoing state and federal activities; future economic conditions; earnings-retention and dividend-payout policies; developments in the legislative, regulatory, and competitive environments in which the Company operates; and other circumstances that could affect anticipated revenues and costs, such as unscheduled maintenance or repair requirements and compliance with laws and regulations. Consolidated Financial Statements Consolidated Statement of Earnings (Dollars in thousands, except per-share Year ended December 31 amounts) 1995 1994 1993 Electric Operating Revenues (Notes 1 and 3) $916,016 $904,883 $893,577 Operating expenses Fuel used for company generation (Notes 1 and 6) 18,702 14,783 16,906 Purchased power - energy (Notes 1 and 6) 408,072 430,874 408,944 Purchased power - capacity (Note 6) 93,489 77,775 84,520 Other operation 188,013 153,700 148,318 Maintenance 32,862 32,820 33,311 Depreciation and amortization (Note 1) 55,023 55,992 53,138 Federal and state income taxes (Note 2) 13,328 28,300 25,716 Taxes other than income taxes 27,885 25,512 23,023 Total Operating Expenses 837,374 819,756 793,876 Equity in Earnings of Associated Companies (Note 6) 7,217 5,109 5,829 Operating Income 85,859 90,236 105,530 Other income (expense) Allowance for equity funds used during construction (Note 1) 663 807 1,523 Other, net (Note 3) 7,170 (105,133) (673) Income taxes (Notes 2 and 3) (2,704) 42,443 3,127 Total Other Income (Expense) 5,129 (61,883) 3,977 Income Before Interest Charges 90,988 28,353 109,507 Interest charges Long-term debt (Note 7) 50,307 46,213 42,266 Other interest (Note 7) 3,244 5,887 6,784 Allowance for borrowed funds used during construction (Note 1) (543) (482) (845) Total Interest Charges 53,008 51,618 48,205 Net income (loss) 37,980 (23,265) 61,302 Dividends on preferred stock 10,178 10,511 8,842 Earnings (Loss) Applicable to Common Stock $ 27,802 $(33,776) $ 52,460 Weighted Average Number of Shares of Common Stock Outstanding 32,442,752 32,442,408 31,789,114 Earnings (Loss) Per Share of Common Stock $0.86 $(1.04) $1.65 Dividends Declared Per Share of Common Stock $0.90 $ 0.90 $1.395 The accompanying notes are an integral part of these financial statements. Consolidated Balance Sheet (Dollars in thousands) December 31 Assets 1995 1994 Electric property, at original cost (Notes 6 and 7) $1,611,941 $1,579,632 Less: accumulated depreciation (Notes 1 and 6) 560,078 521,645 Electric property in service 1,051,863 1,057,987 Construction work in progress (Note 4) 15,928 13,647 Nuclear fuel, less accumulated amortization of $8,909 in 1995 and $8,110 in 1994 1,391 2,181 Net electric property 1,069,182 1,073,815 Investments in associated companies, at equity (Notes 1 and 6) 54,669 49,602 Net Electric Property and Investments in Associated Companies 1,123,851 1,123,417 Current assets Cash and cash equivalents 57,677 58,112 Accounts receivable, less allowances for uncollectible accounts of $3,313 in 1995 and $3,301 in 1994: Service - billed 87,140 81,289 Service - unbilled (Notes 1 and 3) 41,798 38,153 Other accounts receivable 15,131 12,088 Prepaid income taxes (Note 2) - 28,068 Fuel oil inventory, at average cost 3,772 4,113 Materials and supplies, at average cost 12,772 13,026 Funds on deposit with trustee (Note 7) 29,919 27,820 Prepayments and other current assets 9,192 9,337 Total Current Assets 257,401 272,006 Deferred charges and other assets Recoverable costs of Seabrook 1 and abandoned projects, net (Note 1) 95,127 101,976 Yankee Atomic purchased-power contract (Note 6) 21,396 38,777 Regulatory assets - deferred taxes (Note 2) 235,081 233,234 Deferred charges and other assets (Notes 1 and 3) 260,063 276,597 Total Deferred Charges and Other Assets 611,667 650,584 Total Assets $1,992,919 $2,046,007 Stockholders' Investment and Liabilities Capitalization (see separate statement) (Note 7) Common-stock investment $ 490,005 $ 491,323 Preferred stock 65,571 65,571 Redeemable preferred stock 67,528 80,000 Long-term obligations 622,251 638,841 Total Capitalization 1,245,355 1,275,735 Current liabilities and interim financing Interim financing (see separate statement) (Note 7) 34,000 63,000 Sinking-fund requirements (Note 7) 10,455 2,580 Accounts payable 108,170 97,800 Dividends payable 9,823 9,932 Accrued interest 12,648 14,102 Accrued income taxes (Note 2) 3,668 - Miscellaneous current liabilities 13,870 10,535 Total Current Liabilities and Interim Financing 192,634 197,949 Commitments and Contingencies (Notes 4 and 6) Reserves and deferred credits Accumulated deferred income taxes (Note 2) 351,868 348,287 Unamortized investment tax credits (Note 2) 32,452 34,167 Yankee Atomic purchased-power contract (Note 6) 21,396 38,777 Regulatory liabilities - deferred taxes (Note 2) 50,366 53,937 Other reserves and deferred credits (Note 5) 98,848 97,155 Total Reserves and Deferred Credits 554,930 572,323 Total Stockholders' Investment and Liabilities $1,992,919 $2,046,007 The accompanying notes are an integral part of these financial statements. Consolidated Statement of Cash Flows (Dollars in thousands) Year ended December 31 1995 1994 1993 Operating Activities Net income (loss) ............................................................ $ 37,980 $ (23,265) $ 61,302 Items not requiring (providing) cash: ARP-related charges (Note 3) ................................................. -- 100,390 -- Depreciation and amortization ................................................ 80,872 75,417 63,647 Deferred income taxes and investment tax credits, net ....................................................................... (3,710) 11,022 5,584 Allowance for equity funds used during construction .......................... (663) (807) (1,523) Changes in certain assets and liabilities: Accounts receivable .......................................................... (12,539) 5,175 (4,881) Inventories .................................................................. 595 4,230 2,838 Other current assets ......................................................... (1,954) (1,391) (24,436) Retail fuel costs ............................................................ -- 32,922 (4,349) Accounts payable ............................................................. 12,025 4,062 1,338 Accrued taxes and interest ................................................... 30,282 (25,311) 3,077 Miscellaneous current liabilities ............................................ 3,335 (2,602) (3,296) Deferred energy-management costs ............................................. (4,075) (5,789) (10,192) Maine Yankee outage accrual .................................................. (4,710) 8,197 4,962 Purchased-power contract buyouts ............................................. (13,405) (91,274) (515) Revenue adjustment-tax flowback .............................................. -- -- (9,990) Other, net ................................................................... 11,495 (5,604) (16,932) Net Cash Provided by Operating Activities .................................... 135,528 85,372 66,634 Investing Activities Construction expenditures .................................................... (44,867) (42,246) (53,576) Investments in associated companies .......................................... (600) (2,004) -- Changes in accounts payable - investing activities ........................... (1,655) (679) (2,905) Net Cash Used by Investing Activities ........................................ (47,122) (44,929) (56,481) Financing Activities Issuances: Mortgage bonds ............................................................... -- 25,000 260,000 Common stock ................................................................. -- 927 25,513 Medium-term notes ............................................................ 30,000 32,000 48,000 Finance Authority of Maine ................................................... -- 66,429 -- Redemptions: Mortgage bonds ............................................................... -- -- (177,500) Premiums on redemptions ...................................................... -- -- (9,634) Preferred stock .............................................................. (5,472) -- (7,125) Medium-term notes ............................................................ (65,000) (43,000) (26,500) Short-term obligations, net .................................................. (8,000) (25,500) (63,000) Other long-term obligations, net ............................................. (860) (860) (868) Dividends: Common stock ................................................................. (29,222) (29,222) (49,345) Preferred stock .............................................................. (10,287) (10,061) (8,664) Net Cash Provided (Used) by Financing Activities ............................. (88,841) 15,713 (9,123) Net Increase (Decrease) in Cash and Cash Equivalents ............................................................... (435) 56,156 1,030 Cash and cash equivalents, beginning of year ................................. 58,112 1,956 926 Cash and Cash Equivalents, end of year ....................................... $ 57,677 $ 58,112 $ 1,956 Supplemental Cash-Flow Information: Cash paid during the year for: Interest (net of amounts capitalized) ........................................ $ 51,127 $ 44,874 $ 42,870 Income taxes (net of amounts refunded of $29,045, $2,802, and $605 in respective years indicated) ................................................................ (11,994) 1,568 15,852
For purposes of the statement of cash flows, the Company considers all highly liquid instruments purchased having a maturity of three months or less to be cash equivalents. The accompanying notes are an integral part of these financial statements. Consolidated Statement of Capitalization and Interim Financing December 31 (Dollars in thousands) 1995 1994 Amount % Amount % Capitalization (Note 7) Common-stock investment: Common stock, par value $5 per share: Authorized - 80,000,000 shares Outstanding - 32,442,752 shares in 1995 and 1994 $ 162,214 $ 162,214 Other paid-in capital 276,287 275,627 Retained earnings 51,504 53,482 Total Common-Stock Investment 490,005 38.3% 491,323 36.7% Preferred Stock - not subject to mandatory redemption 65,571 5.1 65,571 4.9 Preferred Stock - subject to mandatory redemption 74,528 80,000 Less: current sinking fund requirements 7,000 - Redeemable Preferred Stock - subject to mandatory redemption 67,528 5.3 80,000 6.0 Long-term obligations: Mortgage bonds 432,500 432,500 Less: unamortized debt discount 1,807 1,990 Total Mortgage Bonds 430,693 430,510 Medium-term notes 92,000 127,000 Less: unamortized debt discount 8 17 Total Medium-Term Notes 91,992 126,983 Other long-term obligations: Lease obligations 38,112 39,159 Pollution-control facility and other notes 98,909 99,769 Total Other Long-Term Obligations 137,021 138,928 Less: Current Sinking Fund Requirements and Current Maturities 37,455 57,580 Total Long-Term Obligations 622,251 48.6 638,841 47.7 Total Capitalization 1,245,355 97.3 1,275,735 95.3 Interim financing, amounts to be refinanced (Note 7): Short-term obligations - 8,000 Current maturities of long-term obligations 34,000 55,000 Total Interim Financing 34,000 2.7 63,000 4.7 Total Capitalization and Interim Financing $1,279,355 100.0% $1,338,735 100.0% The accompanying notes are an integral part of these financial statements. Consolidated Statement of Changes in Common-Stock Investment For the three years ended December 31, 1995 (Dollars in thousands) Other Amount at paid-in Retained Shares par value capital earnings Total Balance - December 31, 1992 31,148,321 $ 155,742 $ 254,576 $ 110,050 $ 520,368 Net income ............................................... 61,302 61,302 Dividends declared: Common stock ........................................... (44,459) (44,459) Preferred stock ........................................ (8,704) (8,704) Cost for reacquired preferred stock ....................................... 1,043 (1,043) -- Issues of common stock ................................... 1,231,616 6,158 19,355 25,513 Capital stock expense .................................... (631) (631) Balance - December 31, 1993 32,379,937 161,900 274,343 117,146 553,389 Net income (loss) ........................................ (23,265) (23,265) Dividends declared: Common stock ........................................... (29,213) (29,213) Preferred stock ........................................ (10,511) (10,511) Cost for reacquired preferred stock ....................................... 675 (675) -- Issues of common stock ................................... 62,815 314 613 927 Capital stock expense .................................... (4) (4) Balance - December 31, 1994 32,442,752 162,214 275,627 53,482 491,323 Net income ............................................... 37,980 37,980 Dividends declared: Common stock ........................................... (29,199) (29,199) Preferred stock ........................................ (10,178) (10,178) Cost for reacquired preferred stock ....................................... 581 (581) -- Shareholders Rights Plan redemption Note 7) (324) (324) Capital stock expense .................................... 403 403 Balance - December 31, 1995 32,442,752 $ 162,214 $ 276,287 $ 51,504 $ 490,005
The accompanying notes are an integral part of these financial statements. Notes to Consolidated Financial Statements Note 1: Summary of Significant Accounting Policies General Description Central Maine Power Company (the Company) is an investor-owned public utility primarily engaged in the sale of electric energy at the wholesale and retail levels to residential, commercial, industrial, and other classes of customers in the State of Maine. Financial Statements The consolidated financial statements include the accounts of the Company and its 78-percent-owned subsidiary, Maine Electric Power Company, Inc. (MEPCO). The Company accounts for its investments in associated companies not subject to consolidation using the equity method. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Regulation The rates, operations, accounting, and certain other practices of the Company and MEPCO are subject to the regulatory authority of the Maine Public Utilities Commission (MPUC) and the Federal Energy Regulatory Commission (FERC). Electric Operating Revenues Electric operating revenues include amounts billed to customers and estimates of unbilled sales and fuel costs. Through December 31, 1994, the Company's approved tariffs provided for the recovery of the cost of fuel used in Company generating facilities and purchased-power energy costs. The Company also collected interest on unbilled fuel and paid interest on fuel-related over-collections. Effective January 1, 1995, with the implementation of the Alternative Rate Plan (ARP), these costs are no longer subject to reconciliation through the annual fuel-cost adjustment. From March 1991 through November 1993, the Company recorded unbilled revenues pursuant to the Electric Revenue Adjustment Mechanism (ERAM) under an MPUC order. See Note 3, "Regulatory Matters - - Alternative Rate Plan," for further information. Depreciation Depreciation of electric property is calculated using the straight-line method. The weighted average composite rates were 3.0 percent in 1995 and 1994, and 2.9 percent in 1993. Allowance for Funds Used During Construction (AFC) An allowance for funds (including equity funds), a non-operating item, is capitalized as an element of the cost of construction. The debt component of AFC is classified as a reduction of interest expense, while the equity component, a non-cash item, is classified as other income. The average AFC rates applied to construction were 8.4 percent in 1995, 8.9 percent in 1994, and 9.8 percent in 1993. New Accounting Policy A new accounting standard, Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of," is effective January 1996. The standard requires impairment losses on long-lived assets to be recognized when an asset's book value exceeds its expected future cash flows (undiscounted). The new standard also imposes stricter criteria for retention of regulatory-created assets by requiring that such assets be probable of future recovery at each balance sheet date. The Company does not expect that adoption of this standard will have a material effect on its financial position or results of operations. However, this assumption may differ in the future as changes are made in the current regulatory framework or as competitive factors influence wholesale and retail pricing in the electric utility industry. Deferred Charges and Other Assets The Company defers and amortizes certain costs in a manner consistent with authorized or probable ratemaking treatment. The Company capitalizes carrying costs as a part of certain deferred charges, principally energy-management costs, and classifies such carrying costs as other income. The following table depicts the components of deferred charges and other assets at December 31, 1995, and 1994: (Dollars in thousands) 1995 1994 NUG contract buy-outs and restructuring (Note 6) $126,485 $138,188 Energy-management costs 36,224 37,527 Financing costs 24,775 29,105 Environmental site clean-up costs (Note 4) 7,375 13,104 Postretirement benefits (Note 5) 21,849 16,455 Non-operating property, net 7,486 7,398 Electric Lifeline Program 3,603 4,839 Other, including MEPCO 32,266 29,981 Total $260,063 $276,597 Certain costs are being amortized and recovered in rates over periods ranging from two to 30 years. Amortization expense for the next five years is shown below: (Dollars in thousands) Amount 1996 $24,383 1997 23,783 1998 23,159 1999 21,086 2000 20,006 Recoverable Costs of Seabrook I and Abandoned Projects The recoverable after-tax investments in Seabrook I and abandoned projects are reported as assets, pursuant to May 1985 and February 1991 MPUC rate orders. The Company is allowed a current return on these assets based on its authorized rate of return. In accordance with current ratemaking practices, the deferred taxes related to these recoverable costs are being amortized over periods of four to 10 years. As of December 31, 1995, all deferred taxes related to Seabrook I have been amortized. The recoverable investments as of December 31, 1995, and 1994 are as follows: December 31 Recovery (Dollars in thousands) 1995 1994 periods ending Recoverable costs of: Seabrook 1 $141,084 $141,084 2015 Other projects 57,491 57,491 1995 to 2001 198,575 198,575 Less: accumulated amortization 102,248 94,439 Less: related income taxes 1,200 2,160 Total Net Recoverable Investment $ 95,127 $101,976 Note 2: Income Taxes The components of federal and state income-tax provisions (benefits) reflected in the Consolidated Statement of Earnings are as follow: Year ended December 31 (Dollars in thousands) 1995 1994 1993 Federal: Current $15,965 $(18,579) $13,456 Deferred 2,278 2,175 37,455 Investment tax credits, net (1,715) (2,512) (1,832) Regulatory deferred (2,619) 8,379 (30,224) Total Federal Taxes 13,909 (10,537) 18,855 State: Current 3,777 (6,586) 3,549 Deferred 343 3,003 10,250 Regulatory deferred (1,997) (23) (10,065) Total State Taxes 2,123 (3,606) 3,734 Total Federal and State Income Taxes $16,032 $(14,143) $22,589 Federal and state income taxes charged to: Operating expenses $13,328 $ 28,300 $25,716 Other income 2,704 (42,443) (3,127) $16,032 $(14,143) $22,589 Federal income tax, excluding federal regulatory deferred taxes, differs from the amount of tax computed by multiplying income before federal tax by the statutory federal rate. The following table reconciles the statutory federal rate to a rate determined by dividing the total federal income-tax expense by income before that expense: Year ended December 31 1995 1994 1993 Amount % Amount % Amount % (Dollars in thousands) Income tax expense at statutory federal rate ......... $ 18,161 35.0% $(11,831) 35.0% $ 28,055 35.0% Permanent differences: Investment tax-credit amortization ................... (1,613) (3.1) (1,613) 4.8 (1,613) (2.0) Dividend-received deduction ..................... (2,219) (4.3) (1,469) 4.3 (1,731) (2.2) Other, net ...................... (217) (0.4) (68) 0.2 (634) (0.8) 14,112 27.2 (14,981) 44.3 24,077 30.0 Effect of timing differences for which deferred taxes are not recorded (flow through): Tax-basis repairs ............... (891) (1.7) (924) 2.7 (1,175) (1.5) Depreciation differences flowed through in prior years ........ 2,291 4.4 2,315 (6.8) 1,728 2.2 Accelerated flowback of deferred taxes on loss on abandoned generating projects ......... 1,873 3.6 2,051 (6.1) (2,678) (3.3) Deduction of removal costs ......................... (189) (0.4) (163) 0.5 (392) (0.5) Carrying costs, net ............. 253 0.5 429 (1.3) (523) (0.7) Adjustment to tax accrual for change in rate treatment ............... -- -- 420 (1.2) 481 0.6 Excess property taxes paid .......................... -- -- (116) 0.4 (912) (1.1) Reduction for non- regulated deferred taxes previously flowed through ............... -- -- (1,530) (1.9) Provision for deferred taxes relating to normalization of certain short-term timing differences* ........... (2,545) (4.9) -- -- -- -- Other, net ...................... (995) (1.9) 432 (1.3) (221) (0.3) Federal Income Tax Expense and Effective Rate .......................... $ 13,909 26.8% $(10,537) 31.2% $ 18,855 23.5%
*During 1995, the Company adjusted the deferred tax balances for certain normalized items (Note 3). The Company and MEPCO record deferred income-tax expense in accordance with regulatory authority; they also defer investment and energy tax credits and amortize them over the estimated lives of the assets that generated the credits. As of December 31, 1995, the Company had approximately $1.0 million of investment, energy, and research-and-development credits available to reduce future federal and state income taxes otherwise payable. The Company recognizes deferred tax liabilities and assets for the expected future tax consequences of events that have been included in the financial statements or tax returns as required under Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS No. 109). Under this method, effective January 1, 1993, deferred tax liabilities and assets are determined based on the difference between the financial statement and tax basis of assets and liabilities using the enacted tax rates in effect in the year in which the differences are expected to reverse. At-adoption adjustments to accumulated deferred taxes were required, as well as the recognition of a liability to ratepayers for deferred taxes established in excess of the amount calculated using income-tax rates applicable to future periods. Additionally, deferred taxes were recorded for the cumulative timing differences for which no deferred taxes had been recorded previously. Concurrently, the Company, in accordance with Statement of Financial Accounting Standards No. 71, "Accounting for the Effects of Certain Types of Regulation" (SFAS No. 71), recorded a regulatory asset representing its expectations that, consistent with current and expected ratemaking, it will collect these additional taxes recorded through rates when they are paid in the future. A valuation allowance has not been recorded at December 31, 1995, and 1994, as the Company expects that all deferred income tax assets will be realized in the future. Accumulated deferred income taxes consisted of the following in 1995 and 1994: (Dollars in thousands) 1995 1994 Deferred tax assets resulting from: Investment tax credits, net $ 22,370 $ 23,491 Regulatory liabilities 13,882 15,629 Alternative minimum tax 23,850 24,175 All other 22,545 16,922 82,647 80,217 Deferred tax liabilities resulting from: Property 273,565 263,060 Abandoned plant 65,573 70,294 Regulatory assets 96,577 97,310 435,715 430,664 Accumulated deferred income taxes, end of year, net $353,068 $350,447 Accumulated deferred income taxes, recorded as: Accumulated deferred income taxes $351,868 $348,287 Recoverable costs of Seabrook 1 and abandoned projects, net 1,200 2,160 $353,068 $350,447 Note 3: Regulatory Matters Alternative Rate Plan In December 1994, the MPUC approved a stipulation signed by most of the parties to the Company's ARP proceeding. This follow-up proceeding to the Company's 1993 base-rate case was ordered by the MPUC in an effort to develop a five-year plan containing price-cap, profit-sharing, and pricing-flexibility components. Although the ARP is a major reform, the MPUC will continue to regulate the Company's operations and prices, provide for continued recovery of deferred costs, and specify a range for its authorized rate of return. The ARP was adopted effective January 1, 1995. The Company believes, as stated in the MPUC's order approving the ARP, that operation under the ARP continues to meet the criteria of SFAS No. 71. In its order, the MPUC reaffirmed the applicability of previous accounting orders allowing the Company to reflect amounts as deferred charges and regulatory assets. As a result, the Company will continue to apply the provisions of SFAS No. 71 to its accounting transactions and its future financial statements. The ARP contains a mechanism that provides price caps on the Company's retail rates to increase annually on July 1, commencing July 1, 1995, by a percentage combining (1) a price index, (2) a productivity offset, (3) a sharing mechanism, and (4) flow-through items and mandated costs. The price cap applies to all of the Company's retail rates, including the Company's fuel-and-purchased power cost, which previously had been treated separately. Under the ARP, no separate fuel-clause price adjustments will occur. A specified standard inflation index will be the basis for each annual price-cap change. The inflation index will be reduced by the sum of two productivity factors, a general productivity offset of 1.0 percent, (0.5 percent for 1995), and a second formula-based offset starting in 1996 intended to reflect the limited effect of inflation on the Company's purchased-power costs during the proposed five-year initial term of the ARP. The sharing mechanism will adjust the subsequent year's July price-cap change in the event the Company's earnings were outside a range of 350 basis points above or below the Company's allowed return on equity, starting at the current 10.55-percent allowed return and indexed annually for changes in capital costs. Outside that range, profits and losses would be shared equally by the Company and ratepayers in computing the price-cap adjustment. This feature will commence with the price-cap change of July 1, 1996, and reflect 1995 results. The ARP also provides for partial flow-through to ratepayers of cost savings from non-utility generator contract buy-outs and restructuring, recovery of energy-management costs, penalties for failure to attain customer-service and energy-efficiency targets, and specific recovery of half the costs of the transition to Statement of Financial Accounting Standards No. 106,"Accounting for Postretirement Benefits Other Than Pensions" (SFAS No. 106), the remaining 50 percent to be recovered through the annual price-cap change. The ARP also generally defines mandated costs that would be recoverable by the Company notwithstanding the index-based price cap. To receive such treatment, a mandated cost's revenue requirement must exceed $3 million and have a disproportionate effect on the Company or the electric-power industry. Effective July 1, 1995, the MPUC approved a 2.43-percent increase pursuant to the annual price-change provision in the ARP. The primary component of the increase is the inflation-index change of 2.92 percent, reduced by a productivity offset of 0.5 percent, and increased by 0.01 percent for flowthrough items and mandated costs. The Company agreed in the ARP negotiations to record charges in 1994 reflecting the write-off of approximately $100 million ($60 million, net of tax, or $1.85 per share), as follows: (1) the undercollected balance of fuel and purchased-power costs as of December 31, 1994, totaling approximately $59 million; (2) the unrecovered deferred charges for energy-management costs for 1993 and 1994, which totaled approximately $15 million; (3) the unrecovered balance of unbilled ERAM revenues as of December 31, 1994, totaling approximately $24 million; and (4) the unrecovered deferred charges related to the possible extension of the operating life of one of the Company's generating stations, which totaled approximately $2.6 million as of December 31, 1994. The $100-million charge is included in "Other income (expense) - Other, net" on the Consolidated Statement of Earnings. The $40-million tax impact is included in "Other income (expense) - Income taxes." These charges, with the other provisions of the ARP, will lessen the impact of future price increases for MPUC-mandated and fuel-related costs. During 1995, the Company adjusted the prior regulatory treatment of certain regulatory assets and deferred taxes. The net after-tax effect of the adjustment was immaterial to financial results. The Company believes the ARP provides the benefits of needed pricing flexibility to set prices between defined floor and ceiling levels in three service categories: (1) existing customer classes, (2) new customer classes for optional targeted services, and (3) special-rate contracts. The Company believes that the added flexibility will position it more favorably to meet the competition from other energy sources that has eroded segments of its customer base. See Note 4 to Consolidated Financial Statements, "Commitments and Contingencies - Competition," for a discussion of actions under the ARP's pricing flexibility provisions. The ARP also contains provisions to protect the Company and ratepayers against unforeseen adverse results from its operation. These provisions include review by the MPUC if the Company's actual return on equity falls outside the designated range, a mid-period review of the ARP by the MPUC in 1997 (including possible modification or termination), and a "final" review by the MPUC in 1999 to determine whether or with what changes the ARP should continue in effect after 1999. Restructuring The Maine Legislature in 1995 took action by Legislative Resolve (Resolve) to develop recommendations for the MPUC on the future structure of the electric utility industry in Maine. The process included appointment of a "Work Group on Electric Utility Restructuring" (Work Group), which comprised diverse interests and was charged with developing a plan for "the orderly transition to a competitive market for retail purchases and sales of electric energy" and examining related issues. The Work Group discussed restructuring issues, but was unable to reach a consensus by its late 1995 reporting deadline. The Resolve also directed the MPUC to develop at least two plans, starting the process no later than January 1, 1996, and submitting its findings, to the Legislature no later than January 1, 1997. One plan would be designed to achieve "...full retail market competition for purchases and sales of electric energy by the year 2000" and the other to achieve a more limited form of competition. The Resolve further stated that the findings of the MPUC would have no legal effect, but that the MPUC's study would "...provide information to the Legislature in order to allow the Legislature to make informed decisions when it evaluates those plans." On December 12, 1995, pursuant to the Resolve, the MPUC issued a Notice of Inquiry (Notice) initiating its study. In the Notice the MPUC solicited "...detailed proposals and plans for achieving retail competition in Maine by the year 2000," and requested that the proposals include "...specific plans (including implementation timetables) for an orderly transition to a more competitive market" The Notice required that interested parties file plans and proposals with the MPUC by January 31, 1996, and outlined a schedule calling for a final report by the MPUC to the Legislature in December 1996, with a draft report issued for comments on July 19, 1996, after completion of discovery, party conferences, and opportunities for public participation. On January 31, 1996, the Company filed its restructuring proposal with the MPUC, with initial comments on issues raised by the Resolve and the MPUC Notice. The major elements of the Company's filed proposal are: (1) The Company's generating assets, contracts and obligations would be separated from its transmission and distribution assets and obligations by distributing shares of the newly formed transmission-and-distribution company to the Company's stockholders, assuming other aspects of its proposal were accepted. (2) Assuming certain necessary changes in the management and operation of the regional transmission grid have been effected, retail customers would begin to have the opportunity to purchase unbundled energy directly from suppliers, marketers or load aggregators by the end of the year 2000, with a possible phase-in to total open access to such energy over a period of years. (3) Economic and resource-planning regulation of generation would cease, with the FERC continuing to regulate transmission, and distribution remaining a franchised monopoly. The entity providing distribution services would be subject to performance-based regulation of its earnings, similar to the Company's present ARP, and the current duty to serve all customers would be replaced by a duty to connect customers to the retail generation market. (4) Full recovery of strandable costs would be achieved through a transition charge to all retail customers; generation-related strandable costs would be recovered through a transition contract between the generation company and the transmission-and-distribution company. Amounts recovered would include the costs of fulfilling obligations under contracts with non-utility generators, as well as investments (and returns thereon) and other obligations undertaken by the Company's legal duty to serve, with incentives for the Company to mitigate such costs where practicable. The Company has substantial exposure to cost stranding relative to its size. As of December 31, 1995, the Company estimates its strandable costs could be approximately $2 billion. These costs represent the excess of the costs of purchased-power obligations and the Company's own generating costs over the market value of the power; and the costs of deferred charges and other regulatory assets. Of the $2 billion, approximately $1.3 billion is related to above-market costs of purchased-power obligations, approximately $200 million is related to estimated net above-market cost of the Company's own generation, and the remaining $500 million is related to deferred regulatory assets. The estimated market rate for power is based on existing market conditions and anticipated inflation. The present value of future purchased power obligations and the Company's generating costs reflect the underlying costs of those sources of generation in place today, with reductions for contract expiration and depreciation. Deferred regulatory asset totals reflect current uncollected balances and existing amortization schedules. The Company's strandable-cost exposure is expected to decline over time as the market price of power increases, non-utility generator (NUG) contracts expire, and regulatory assets are recovered. Estimated strandable costs are highly dependent on estimates of the future market for power. Higher market rates lower stranded cost exposure, while lower market rates increase it. In addition to market-related impacts, any estimate of the ultimate level of strandable costs depends on state and federal regulations; the extent, timing and form that competition for electric service will take; the Company's sales and costs of operations; regional and national economic conditions; timing of any changes that may occur from state and federal initiatives on restructuring; and the extent to which regulatory policies ultimately address recovery of strandable costs. Major cost stranding would have a material adverse effect on the Company's results of operations. The Company believes it is entitled to recover substantially all of its strandable costs, but cannot predict when or if open electric energy competition will occur in its service territory, or under competition how much it might ultimately be allowed to recover through state or federal regulation, the future market price of electricity, or the timing or implementation of any formal recommendations in any regulatory or legislative proceedings dealing with such issues. The Company believes there are many uncertainties associated with any major restructuring of the electric utility industry in Maine. Among them are: the positions that will ultimately be taken by the MPUC on the Company's proposal and other options and proposals submitted in response to the Notice; the role of the FERC in any restructuring involving the Company and the ultimate positions it will take on relevant issues within its jurisdiction; to what extent the United States Congress will become involved in resolving or redefining the issues through legislative action and, if so, with what results; whether the necessary political consensus can be reached on the significant and complex issues involved in changing the long-standing structure of the electric-utility industry; and, particularly with respect to the Company, to what extent utilities will be permitted to recover strandable costs. Non-Utility Generators In 1994, the Governor of Maine signed into law a bill allowing the Finance Authority of Maine (FAME) to borrow up to $100 million to lend to electric utilities for financing buy-outs or other restructuring of NUG contracts to save money for customers. The law anticipated the State agency's bonds, which do not pledge the full faith and credit of the state, would likely bear lower interest rates than the bonds of the Company with its then down-graded credit rating. On June 9, 1994, the Company announced that it had agreed to buy out a NUG contract for a 32-megawatt wood-fired generating plant in Fort Fairfield, Maine. The Company agreed to pay $76 million to buy out the contract and $2 million to acquire the generating plant. On August 5, 1994, the MPUC issued an order approving a stipulation entered into by the Company with the Town of Fort Fairfield and other intervenors to the Company's application for approval of the buy-out. In the stipulation, the Company agreed to continue operation of the plant for a minimum of three years, provided that certain plant-efficiency criteria can be met, while the Town agreed to support the Company's efforts to obtain the necessary regulatory and financing approvals. In a series of orders, the MPUC approved the buy-out of the power-purchase contract; acquisition of the facility by the Company's subsequently established subsidiary, Aroostook Valley Electric Company (AVEC); recovery in rates of the cost of the buy-out and operation of the plant; and an ultimate rate decrease of $5.6 million reflecting purchased-power savings effective December 1, 1994. In September 1994, FAME approved the Company's application for funds to finance the buy-out. On October 26, 1994, FAME issued $79.3 million of Taxable Electric Rate Stabilization Revenue Notes Series 1994A (FAME notes). FAME and the Company entered into a loan agreement under which the Company issued FAME a note for approximately $66.4 million, evidencing a loan in that amount. The proceeds of the loan, along with $13 million of the Company's own funds, were used to buy out the Fort Fairfield contract. Concurrently, the Company purchased all of the common stock of AVEC for $2 million. On October 26, 1994, AVEC paid the former owners of the Fort Fairfield facility $2 million and took title to the facility. In connection with the FAME financing, AVEC granted FAME a mortgage on the facility. The remaining $12.9 million of FAME-notes proceeds was placed in a capital-reserve account. The amount in the capital-reserve account is equal to the highest amount of principal and interest on the FAME notes to accrue and come due in any year the FAME notes are outstanding. The amounts invested in the capital reserve account are initially invested in government securities designed to generate interest income at a rate equal to the interest on the FAME notes. Under the terms of the loan agreement, the Company is also responsible for or receives the benefit from the interest rate differential and investment gains and losses on the capital reserve account. Note 4: Commitments and Contingencies Construction Program The Company's plans for improving and expanding generating, transmission-and-distribution facilities, and power-supply sources are under continuing review. Actual construction expenditures will depend upon the availability of capital and other resources, load forecasts, customer growth, and general business conditions. The Company's current forecast of capital expenditures for the five-year period 1996 through 2000, are as follows: (Dollars in millions) 1996 1997-2000 Total Type of Facilities: Generating projects $13 $ 49 $ 62 Transmission 4 16 20 Distribution 30 132 162 General facilities and other 20 70 90 Total Estimated Capital Expenditures $67 $267 $334 Competition In September 1994, the Town of Madison's Department of Electric Works (Madison), a wholesale customer of the Company, began receiving power from Northeast Utilities (NU) as a result of a competitive bidding process available under the federal Energy Policy Act of 1992. Substantially all of the 45 megawatts involved supply the large paper-making facility of Madison Paper Industries (MPI) in Madison's service territory that had been served directly by the Company under a special service agreement with Madison during the preceding 12 years. The MPUC approved the stipulation filed by the Company, Madison, and NU, whereby the related MPUC and FERC regulatory proceedings were deemed to be settled among the parties, and the Company withdrew its request for compensation for stranded costs. In return, NU agreed to pay the Company $8.4 million over a seven-year period, MPI agreed to pay the Company $1.4 million over a three-year period, a transmission rate was agreed upon for the Company's transmission service to Madison commencing September 1, 1994, and the parties agreed that Madison would be supplied by NU through 2003, with Madison having an option for an additional five years. In addition, NU and the Company agreed to a five-year capacity exchange arrangement designed to achieve significant replacement-power cost savings for the Company when the Company's largest source of generation, the Maine Yankee Plant, is off-line, and provides Maine Yankee power to NU when certain NU facilities are shut down. The agreement provides more economic benefit to the Company than if it had under-bid NU for Madison's business, but less than if Madison stayed on the Company's system at the former rates. The Company records income under this contract as the amounts are received. Madison was the largest of the Company's three wholesale customers. The Company has reached agreement with its other two wholesale customers to continue to supply them at negotiated prices and margins that are lower than the previous averages. During 1994, the Company engaged in discussions with its large general-service customers. Those customers have competitive options that the Company believed needed to be addressed by lowering its applicable tariffs to more competitive levels. In response to those discussions, in November 1994, the Company filed revised tariff schedules lowering prices 15 percent for its two high-voltage transmission-level rate classes. The Company then entered into five-year definitive agreements with 18 of these customers that lock-in non-cumulative rate reductions of 15 percent for the three years 1995 through 1997, 16 percent for 1998, and 18 percent for 1999, below the December 1, 1994, levels. These contracts also protect these customers from price increases that might otherwise be allowed under the ARP. The participating customers agreed to take electrical service from the Company for five years and not to switch fuels, install new self-generation equipment, or seek another supplier of electricity for existing electrical load during that period. New electrical load in excess of a stated minimum level could be served by other sources, but the Company could compete for that load. The Company believes that without offering the competitive pricing provided in the agreements, a number of these customers would be likely to install additional self-generation or take other steps to decrease their electricity purchases from the Company. The revenue loss from such a usage shift could have been substantial. The Company estimates that based on the rate reductions effective January 1, 1995, its gross revenues were approximately $27 million lower in 1995 than would have been the case if these customers continued to pay full retail rates without reducing their purchases from the Company. However, there are important related savings. Electricity price changes affect the cost of some NUG power contracts. The reduction in rates to large customers reduced purchased-power costs by approximately $20 million as a result of linkage between retail tariffs and some contract prices. Legal and Environmental Matters The Company is a party in legal and administrative proceedings that arise in the normal course of business. In connection with one such proceeding, the Company has been named a potentially responsible party and has been incurring costs to determine the best method of cleaning up an Augusta, Maine, site formerly owned by a salvage company and identified by the Environmental Protection Agency (EPA) as containing soil contaminated by polychlorinated biphenyls (PCBs) from equipment originally owned by the Company. In July 1994, the EPA approved changes to the remedy it had previously selected, the principal change being to adjust the soil cleanup standard to 10 parts per million from the one part per million established in the EPA's 1989 Record of Decision, on the part of the site where PCBs were found in their highest concentration. The EPA stated that the purpose of adjusting the standard of cleanup was to accommodate the selected technology's current inability to reduce PCBs and other chemical components on the site to the original standard. In June 1995, after discussions between the Company and the EPA, design work on the selected remedy was suspended. On July 7, 1995, the Company formally requested that the EPA abandon that remedy for an already-designated alternative remedy that the Company believes could result in substantially lower costs. On October 10, 1995, the EPA approved the new remedy after determining that the old remedy was no longer feasible or cost-effective at the site. The new remedy involves transporting the contaminated soil to a secure off-site landfill. The Company believes that its share of the remaining costs of the cleanup under the new method could total approximately $3.5 million to $5 million. This estimate is net of an agreed partial insurance recovery and the 1993 court-ordered contribution of 41 percent from Westinghouse Electric Corp., but does not reflect any possible contributions from other insurance carriers the Company has sued, or from any other parties. The Company has recorded an estimated liability of $3.5 million and an equal regulatory asset, reflecting an accounting order to defer such costs and the anticipated ratemaking recovery of such costs when ultimately paid. In addition, the Company has deferred, as a regulatory asset, $3.9 million of costs incurred through December 31, 1995. The Company cannot predict with certainty the level and timing of the cleanup costs, the extent they will be covered by insurance, or their ratemaking treatment, but believes it should recover substantially all of such costs through insurance and rates. The Company also believes that the ultimate resolution of current legal and environmental proceedings will not have a material adverse effect on its financial condition. Nuclear Insurance The Price-Anderson Act (Act) is a federal statute providing, among other things, a limit on the maximum liability for damages resulting from a nuclear incident. The liability is provided for by existing private insurance and by retrospective assessments for costs in excess of that covered by insurance, up to $79.3 million for each reactor owned, with a maximum assessment of $10 million per reactor in any year. Based on the Company's indirect ownership in four nuclear-generation facilities (See Note 6, "Capacity Arrangements - Power Agreements") and its 2.5-percent ownership interest in the Millstone 3 nuclear plant, the Company's retrospective premium could be as high as $6 million in any year, for a cumulative total of $47.6 million, exclusive of the effect of inflation indexing and a 5-percent surcharge in the event that total public liability claims from a nuclear incident should exceed the funds available to pay such claims. In addition to the insurance required by the Act, the nuclear generating facilities referenced above carry additional nuclear property-damage insurance. This additional insurance is provided from commercial sources and from the nuclear electric-utility industry's insurance company through a combination of current premiums and retrospective premium adjustments. Based on current premiums and the Company's indirect and direct ownership in nuclear generating facilities, this adjustment could range up to approximately $11.6 million annually. Note 5: Pension and Other Post-Employment Benefits Pension Benefits The Company has two separate non-contributory, defined-benefit plans that cover substantially all of its union and non-union employees. The Company's funding policy is to contribute amounts to the separate plans that are sufficient to meet the funding requirements set forth in the Employee Retirement Income Security Act (ERISA), plus such additional amounts as the Company may determine to be appropriate. Plan benefits under the non-union retirement plan are based on average final earnings, as defined within the plan, and length of employee service; benefits under the union plan are based on average career earnings and length of employee service. During 1995, the Company offered a Special Retirement Offer (SRO) to qualifying employees. Approximately 200 employees accepted the offer. The $7-million cost of the SRO was included in pension expense. As part of the SRO, the plans were amended to add five years to age and five years to credited service for all plan participants for purposes of eligibility and early retirement discounts. Early Retirement Incentive Program (ERIP) expenses for 1994 relate to a 1991 ERIP reflected in accordance with an MPUC accounting order. A summary of the components of net periodic pension cost for the non-union and union defined-benefit plans in 1995, 1994, and 1993 follows: (Dollars in Non- Non- Non- thousands) union Union union Union union Union Service cost - benefits earned during the period $ 2,014 $ 1,414 $ 2,367 $ 1,684 $ 2,092 $ 1,436 Interest cost on projected benefit obligation 5,653 3,889 5,469 3,816 5,355 3,691 Return on plan assets (16,135) (9,786) 2,336 1,397 (9,669) (6,051) Net amortization and deferral 10,030 6,028 (8,174) (5,311) 4,419 2,457 Early Retirement Incentive Programs 3,859 3,141 992 1,457 - - Net Periodic Pension Cost $ 5,421 $ 4,686 $ 2,990 $ 3,043 $ 2,197 $ 1,533 Assumptions used in accounting for the non-union and union defined-benefit plans in 1995, 1994, and 1993 are as follows: 1995 1994 1993 Weighted average discount rate 7.25% 8.25% 7.5% Rate of increase in future compensation levels 4.5% 5.0% 5.0% Expected long-term return on assets 8.5% 8.5% 8.5% The following table sets forth the actuarial present value of pension-benefit obligations, the funded status of the plans, and the liabilities recognized on the Company's balance sheet at December 31, 1995, and 1994: 1995 1994 (Dollars in thousands) Non-union Union Non-union Union Actuarial present value of benefit obligations: Vested benefit obligation .................. $ 64,916 $ 47,948 $ 51,657 $ 39,235 Accumulated benefit obligation ............. $ 64,916 $ 47,948 $ 55,346 $ 42,247 Projected benefit obligation ............... $ 77,939 $ 53,735 $ 68,578 $ 47,816 Plan assets at estimated market value (primarily stocks, bonds, and guaranteed annuity contracts) ............ 73,973 45,061 74,905 46,067 Funded status - projected benefit obligation in excess of or (less than) plan assets .. 3,966 8,674 (6,327) 1,749 Unrecognized prior service cost ............ (1,940) (1,610) (1,294) (1,009) Unrecognized net gain ...................... 11,309 2,530 15,564 5,690 Unrecognized (net obligation) net asset .... (192) 1,945 (221) 2,655 Net Pension Liability Recognized in the Balance Sheet ............................ $ 13,143 $ 11,539 $ 7,722 $ 9,085
Savings Plan The Company offers an employee savings plan to all employees which allows participants to invest from 1 percent to 15 percent of their salaries among several alternatives. An employer contribution equal to 60 percent of the first 5 percent of the employees' contributions is initially invested in Company common stock. The Company's contributions to the savings-plan trust were $1.6 million in 1995, $1.8 million in 1994, and $1.9 million in 1993. Other Post-Employment Benefits In addition to pension and savings-plan benefits, the Company provides certain health-care and life-insurance benefits for substantially all of its retired employees. The MPUC approved a rulemaking on SFAS No. 106, effective July 20, 1993, that adopts the accrual method of accounting for the expected cost of such benefits during the employees' years of service, and authorizes the establishment of a regulatory asset for the deferral of such costs until they are "phased-in" for ratemaking purposes. The effect of the change can be reflected in annual expenses over the active service life of employees or a period of 20 years, rather than in the year of adoption. The MPUC prescribes the maximum amortization period of the average remaining service life of active employees or 20 years, whichever is longer, for the transition obligation. Segregation in an external fund will be required for amounts collected in rates. A formal funding plan is being developed. Until amounts are funded, no return on assets will be reflected in postretirement benefit cost. As a result of the MPUC order, the Company continued to record the cost of these benefits by charging expense in the period paid ($6.7 million in 1995, $5.5 million in 1994, and $6.5 million in 1993), with the excess over that amount of $6.2 million in 1995, $7.1 million in 1994 and $8.6 million in 1993, deferred for future recovery. Concurrent with the initial ARP price change, the Company began to phase in the cost of SFAS No. 106 over a three-year period, $3 million for the first year beginning July 1, 1995. The amounts deferred until that point are being amortized over the same period as the transition obligation. A summary of the components of net periodic postretirement benefit cost for the plan in 1995, 1994 and 1993 follows: (Dollars in thousands) 1995 1994 1993 Service cost $ 846 $ 1,472 $ 1,429 Interest on accumulated postretirement benefit obligation 7,389 6,712 8,352 Special retirement offer 200 - - Amortization of transition obligation 4,606 4,606 5,306 Amortization of prior service cost 42 - - Amortization of gain (188) (171) - Postretirement benefits expense 12,895 12,619 15,087 Deferred postretirement benefits expense 6,204 7,108 8,612 Postretirement Benefit Expense Recognized in the Statement of Earnings $ 6,691 $ 5,511 $ 6,475 The following table sets forth the accumulated postretirement benefit obligation, the funded status of the plan, and the liability recognized on the Company's balance sheet at December 31, 1995 and 1994: (Dollars in thousands) 1995 1994 Accumulated postretirement benefit obligation: Retirees $ 87,632 $ 62,911 Fully eligible active plan participants 4,791 6,919 Other active plan participants 15,069 17,785 Total accumulated postretirement benefit obligation 107,492 87,615 Plan assets, at fair value 879 754 Accumulated postretirement benefits obligation in excess of plan assets 106,613 86,861 Unrecognized net gain (loss) (2,511) 13,022 Unrecognized prior service cost (1,131) - Unrecognized transition obligation (78,303) (82,909) Accrued Postretirement Benefit Cost Recognized in the Balance Sheet $ 24,668 $ 16,974 The assumed health-care cost-trend rates range from 6.4 percent to 9.3 percent for 1995, reducing to 5.0 percent overall over a period of 10 years. Rates range from 6.8 percent to 10.4 percent for 1994, reducing to 5.0 percent overall, over a period of 10 years. Rates for 1993 range from 10.2 percent to 16.1 percent, reducing to 4.5 percent overall, over a period of eight years. The effect of a one-percentage-point increase in the assumed health-care cost-trend rate for each future year would increase the aggregate of the service and interest-cost components of the net periodic postretirement benefit cost by $0.8 million and the accumulated postretirement benefit obligation by $8.8 million. Additional assumptions used in accounting for the postretirement benefit plan in 1995, 1994 and 1993 are as follows: 1995 1994 1993 Weighted-average discount rate 7.25% 8.25% 7.5% Rate of increase in future compensation levels 4.50% 5.0% 5.5% The Company is exploring alternatives for mitigating the cost of postretirement benefits and for funding its obligations. These alternatives include mechanisms to fund the obligation prior to actual payment of benefits, plan-design changes to limit future expense increases, and additional cost-control and cost-sharing programs. Note 6: Capacity Arrangements Power Agreements The Company, through certain equity interests, owns a portion of the generating capacity and energy production of four nuclear generating facilities (the Yankee companies) and is obligated to pay its proportionate share of the generating costs, which include depreciation, operation-and-maintenance expenses, a return on invested capital, and the estimated cost of decommissioning the nuclear plants at the end of their estimated service lives. Pertinent data related to these power agreements as of December 31, 1995, are as follows: (Dollars in thousands) Maine Vermont Connecticut Yankee Yankee Yankee Yankee Atomic* Ownership share 38% 4% 6% 9.5% Contract expiration date 2008 2012 1998 2000 Capacity (MW) 880 531 583 - Company's share of: Capacity (MW) 330 19 35 - Estimated 1995 costs $ 72,467 $ 6,480 $12,688 $ 4,022 Long-term obligations and redeemable preferred stock $ 95,020 $ 6,594 $10,958 $ - Estimated decommissioning obligation $118,586 $12,475 $23,130 $21,396 Accumulated decommissioning fund $ 53,231 $ 4,833 $10,716 $10,598 * See following for discussion on Yankee Atomic. Under the terms of its agreements, the Company pays its ownership share (or entitlement share) of estimated decommissioning expense to each of the Yankee companies and records such payments as a cost of purchased power. Effective August 16, 1988, Maine Yankee Atomic Power Company (Maine Yankee) began collecting $9.1 million annually for decommissioning. In 1994, Maine Yankee, pursuant to FERC authorization, increased its annual collection to $14.9 million and reduced its return on common equity to 10.65 percent, for a total increase in rates of approximately $3.4 million. The increase in decommissioning collection is based on the estimated cost of decommissioning the Maine Yankee Plant, assuming dismantling and removal, of $317 million (in 1993 dollars) based on a 1993 external engineering study. Accumulated decommissioning funds were $142.1 million as of December 31, 1995. The estimated cost of decommissioning nuclear plants is subject to change due to the evolving technology of decommissioning and the possibility of new legal requirements. The Maine Yankee Plant, like other pressurized water reactors, experienced degradation of its steam generator tubes, principally in the form of circumferential cracking, which, until early 1995, was believed to be limited to a relatively small number of tubes. During the refueling-and-maintenance shutdown that commenced in early February 1995, Maine Yankee detected through new inspection methods increased degradation of the Plant's steam generator tubes. Approximately 60 percent of the Plant's 17,000 steam generator tubes appeared to have defects to some degree. Mitigating the problem by plugging additional tubes was therefore not a viable option. Following a detailed analysis of safety, technical, and financial considerations, Maine Yankee repaired the tubes by inserting and welding short reinforcing sleeves of an improved material in substantially all of the Plant's steam generator tubes; this was completed in December 1995. The project caused Maine Yankee to incur additional costs during 1995, with the Company being responsible for its pro-rata share. The Company has also incurred substantial incremental costs for replacement power. The Company's share of the repair costs of approximately $10 million was less than the $15-million estimate recorded during the second quarter of 1995, resulting in a reversal of approximately $5 million of Purchased power-capacity expense in the fourth quarter of 1995. The earnings impact was $0.18 per share, net of taxes. Both the Company and Maine Yankee implemented significant cost-reduction measures to partially offset the additional costs. In addition to its share of costs related to the steam-generator repairs, the Company's incremental replacement-power costs during the outage totaled approximately $29 million or $0.52 per share, net of taxes, for the twelve months ended December 31, 1995. With the effective termination of the reconcilable fuel-and-purchased-power adjustment under the ARP, costs of replacement power during a Maine Yankee outage are being treated like other Company expenses, i.e., subject to the ARP's price-index mechanism, and are not being deferred and collected through a specific fuel-rate adjustment, as under pre-1995 ratemaking. Under the ARP, no additional price increase other than the 2.43-percent increase effective July 1, 1995, associated with the price index, could take effect in 1995 as a result of the Maine Yankee outage. Although the ARP contains provisions that could result in rate adjustments based on low earnings or the incurring of extraordinary costs by the Company, neither provision affected the Company's prices in 1995. On January 11, 1996, Maine Yankee began start-up operations and was up to 90-percent generation levels by January 24, 1996. However, the Plant's operations are under review by the Nuclear Regulatory Commission (NRC). Until the NRC completes its investigation, the Plant will operate at approximately 90 percent of its generating capacity. As a result, the Company will continue to incur additional replacement-power costs for the 10 percent of its share of Maine Yankee energy it will not receive until the Plant returns to 100-percent generation levels. Condensed financial information on Maine Yankee Atomic Power Company is as follows: (Dollars in thousands) 1995 1994 1993 Earnings: Operating revenues $205,977 $173,857 $193,102 Operating income 18,527 16,223 16,580 Net income 8,571 8,573 8,980 Earnings applicable to common stock 7,057 7,014 7,376 Company's Equity Share of Net Earnings $ 2,682 $ 2,665 $ 2,803 Investment: Net electric property and nuclear fuel $242,399 $254,820 $261,674 Current assets 34,799 38,950 36,018 Deferred charges and other assets 303,760 256,140 237,125 Total Assets 580,958 549,910 534,817 Less: Redeemable preferred stock 18,600 19,200 19,800 Long-term obligations 224,185 226,491 218,839 Current liabilities 30,904 29,210 27,887 Reserves and deferred credits 236,653 208,100 201,222 Net Assets $ 70,616 $ 66,909 $ 67,069 Company's Equity in Net Assets $ 26,834 $ 25,425 $ 25,486 On February 26, 1992, the Board of Directors of Yankee Atomic Electric Company (Yankee Atomic) decided to permanently discontinue power operation at the Yankee Atomic Plant in Rowe, Massachusetts, and to decommission that facility. The Company relied on Yankee Atomic for less than 1 percent of the Company's system capacity. Its 9.5-percent equity investment in Yankee Atomic is approximately $2.2 million. On March 18, 1993, the FERC approved a settlement agreement regarding the decommissioning plan, recovery of plant investment, and all issues with respect to prudence of the decision to discontinue operation. The Company has estimated its remaining share of the cost of Yankee Atomic's continued compliance with regulatory requirements, recovery of its plant investments, decommissioning and closing the plant, to be approximately $21.4 million. This estimate, which is subject to ongoing review and revision, has been recorded by the Company as a regulatory asset and a liability on the accompanying consolidated balance sheet. As part of the MPUC's decision in the Company's 1993 base-rate case, the Company's current share of costs related to the deactivation of Yankee Atomic is being recovered through rates. The Company has approximately a 60-percent ownership interest in the jointly owned, Company-operated, 619-megawatt oil-fired W. F. Wyman Unit No. 4. The Company also has a 2.5-percent ownership interest in the Millstone 3 nuclear plant operated by Northeast Utilities, and receives power from its approximately 29-megawatt share of that unit's capacity. The Company's share of the operating costs of these units is included in the appropriate expense categories in the Consolidated Statement of Earnings. The Company's plant in service, nuclear fuel, decommissioning fund, and related accumulated depreciation and amortization attributable to these units as of December 31, 1995, and 1994 were as follows: Wyman 4 Millstone 3 (Dollars in thousands) 1995 1994 1995 1994 Plant in service, nuclear fuel and decommissioning fund $116,447 $116,363 $112,033 $109,640 Accumulated depreciation and amortization 59,832 56,605 36,411 32,594 Power-Pool Agreements The New England Power Pool, of which the Company is a member, has contracted in its Hydro-Quebec Projects to purchase power from Hydro-Quebec. The contracts entitle the Company to 85.9 megawatts of capacity credit in the winter and 127.25 megawatts of capacity credit during the summer. The Company has entered into facilities-support agreements for its share of the related transmission facilities. The Company's share of the support responsibility and of associated benefits is approximately 7 percent. The Company is making facilities-support payments on approximately $30.6 million, its remaining share of the construction cost for these transmission facilities incurred through December 31, 1995. These obligations are reflected on the Company's consolidated balance sheet as lease obligations with a corresponding charge to electric property. Non-Utility Generators The Company has entered into a number of long-term, non-cancelable contracts for the purchase of capacity and energy from non-utility generators. The agreements generally have terms of five to 30 years, with expiration dates ranging from 1997 to 2021. They require the Company to purchase the energy at specified prices per kilowatt-hour. As of December 31, 1995, facilities having 538 megawatts of capacity covered by these contracts were in-service. The costs of purchases under all of these contracts amounted to $314.4 million in 1995, $373.5 million in 1994, and $360.7 million in 1993. During 1995, the Company reached agreement with three NUGs to buy-out contracts or to give the Company options to restructure their contracts through lump-sum or periodic payments. In accordance with prior MPUC policy and the ARP, $125 million of buy-out or restructuring costs incurred since January 1992 were included in Deferred Charges and Other Assets on the Company's balance sheet and are amortized over their respective fuel savings periods. The Company's estimated contractual obligations with NUGs as of December 31, 1995, are as follows: (Dollars in Amount millions) 1996 $ 319 1997 317 1998 274 1999 291 2000 295 Thereafter 3,151 Note 7: Capitalization and Interim Financing Retained Earnings Under terms of the most restrictive test in the Company's General and Refunding Mortgage Indenture and the Company's Articles of Incorporation, no dividend may be paid on the common stock of the Company if such dividend would reduce retained earnings below $29.6 million. At December 31, 1995, the Company's retained earnings were $51.5 million, of which $21.9 million were not so restricted. Mortgage Bonds Substantially all of the Company's electric-utility property and franchises are subject to the lien of the General and Refunding Mortgage. The Company's outstanding Mortgage Bonds may be redeemed at established prices plus accrued interest to the date of redemption, subject to certain refunding limitations. Bonds may also be redeemed under certain conditions at their principal amount plus accrued interest by means of cash deposited with the trustee under certain provisions of the mortgage indenture. As of December 31, 1995, approximately $30 million was on deposit with the trustee. Mortgage Bonds outstanding as of December 31, 1995, and 1994 were as follows: (Dollars in thousands) Series Redeemed/maturity Interest 1995 1994 rate Central Maine Power Company General and Refunding Mortgage Bonds: U 1998-April 15 7.54%* $ 25,000 $ 25,000 S 1998-August 15 6.03 60,000 60,000 T 1998-November 1 6.25 75,000 75,000 O 1999-January 1 7 3/8 50,000 50,000 P 2000-January 15 7.66 75,000 75,000 N 2001-September 15 8.50 22,500 22,500 Q 2008-March 1 7.05 75,000 75,000 R 2023-June 1 7 7/8 50,000 50,000 Total Mortgage Bonds $432,500 $432,500 *Adjustable, no adjustment during 1995 and 1994. Limitations on Unsecured Indebtedness The Company's Articles of Incorporation limit certain unsecured indebtedness that may be outstanding to 20 percent of capitalization, as defined; 20 percent of defined capitalization amounted to $221 million as of December 31, 1995. Unsecured indebtedness, as defined, amounted to $95 million as of December 31, 1995. In May 1989, holders of the Company's preferred stock consented to the issuance of unsecured Medium-Term Notes in an aggregate principal amount of $150 million outstanding at any one time; the notes are therefore not subject to such limitations. Medium-Term Notes Under the terms of the Company's Medium-Term Note program, the Company may offer Medium-Term Notes up to an aggregate principal amount of $150 million. Maturities can range from nine months to 30 years; interest rates pertaining to such notes are established at the time of issuance. Interest on fixed-rate notes is payable on March 1 and September 1, while interest on floating-rate notes is payable on the dates indicated thereupon. Medium-Term Notes outstanding as of December 31, 1995, and 1994 were as follows: (Dollars in thousands) Maturity Interest rate 1995 1994 Series A: 1996-2000 9.35%-9.65% $ 5,000 $ 15,000 Total Series A 5,000 15,000 Series B: 1994-1995 4.62-6.50* - 63,000 1996-2000 4.92-7.98 57,000 57,000 Total Series B 57,000 120,000 Series C: 1997-1999 7.40-7.50 30,000 - Total Series C 30,000 - Total Medium-Term Notes 92,000 135,000 Less: Amounts classified as short-term obligations - 8,000 Amounts Classified as Long-Term Obligations $92,000 $127,000 * Includes $10 million of variable-rate notes, with an average interest rate of 4.62%, and $8 million of variable-rate notes, with an average interest rate of 6.35%. Pollution-Control Facility and Other Notes Pollution-control facility and other notes outstanding as of December 31, 1995, and 1994 were as follows: (Dollars in thousands) Series Interest rate Maturity 1995 1994 Central Maine Power Company: Yarmouth Installment Notes 6 3/4% June 1, 2002 $10,250 $10,250 Yarmouth Installment Notes 6 3/4 December 1, 2003 1,000 1,000 Industrial Development Authority of the State of 7 3/8 May 1, 2014 11,000 11,000 New Hampshire Notes 7 3/8 May 1, 2014 8,500 8,500 Finance Authority of Maine 8.16 January 1, 2005 66,429 66,429 Maine Electric Power Company, Inc.: Promissory Notes Variable* July 1, 1996 1,730 2,590 Total Pollution-Control Facility and Other Notes $98,909 $99,769 *The average rate was 6.7% in 1995 and 4.9% in 1994. The bonds issued by the Industrial Development Authority of the State of New Hampshire are supported by loan agreements between the Company and the Authority. The bonds are subject to redemption at the option of the Company at their principal amount plus accrued interest and premium, beginning in 2001. Capital Lease Obligations The Company leases a portion of its buildings and equipment under lease arrangements, and accounts for certain transmission agreements as capital leases using periods expiring between 2006 and 2021. The net book value of property under capital leases was $35.1 million and $36.2 million at December 31, 1995, and 1994, respectively. Assets acquired under capital leases are recorded as electric property at the lower of fair-market value or the present value of future lease payments, in accordance with practices allowed by the MPUC, and are amortized over their contract terms. The related obligation is classified as other long-term debt. Under the terms of the lease agreements, executory costs are excluded from the minimum lease payments. Estimated future minimum lease payments for the five years ending December 31, 2000, together with the present value of the minimum lease payments, are as follows: (Dollars in thousands) Amount 1996 $ 5,807 1997 5,635 1998 5,463 1999 5,291 2000 5,119 Thereafter 61,537 Total minimum lease payments 88,852 Less: amounts representing interest 50,740 Present Value of Net Minimum Lease $38,112 Payments Sinking-Fund Requirements Consolidated sinking-fund requirements for long-term obligations, including capital lease payments and maturing debt issues, for the five years ending December 31, 2000, are as follows: (Dollars in thousands) Sinking fund Maturing debt Total 1996 $ 3,455 $ 34,000 $ 37,455 1997 8,477 25,000 33,477 1998 9,014 178,000 187,014 1999 9,657 60,000 69,657 2000 10,301 80,000 90,301 Operating Lease Obligations The Company has a number of operating-lease agreements primarily involving computer and other office equipment, land, and telecommunication equipment. These leases are noncancelable and expire on various dates through 2007. Following is a schedule by year of future minimum rental payments required under the operating leases that have initial or remaining noncancelable lease terms in excess of one year as of December 31, 1995: (Dollars in thousands) Amount 1996 $4,364 1997 4,112 1998 3,922 1999 3,352 2000 3,190 Thereafter 2,352 Rent expense under all operating leases was approximately $5,684, $7,343, and $5,934 for the years ended December 31, 1995, 1994 and 1993, respectively. Disclosure of Fair Value of Financial Instruments The methods and assumptions used to estimate the fair value of each class of financial instruments for which it is practicable are discussed below. The carrying amounts of cash and temporary investments approximate fair value because of the short maturity of these investments. The fair value of redeemable preferred stock and pollution-control facility and other notes is based on quoted market prices as of December 31, 1995. The fair value of long-term obligations is based on quoted market prices for the same or similar issues, or on the current rates offered to the Company based on the weighted average life of each class of instruments. The estimated fair values of the Company's financial instruments as of December 31, 1995, and 1994 are as follows: 1995 1994 (Dollars in thousands) Carrying Fair value Carrying Fair value amount amount Cash and temporary investments $ 57,677 $ 57,677 $ 58,112 $ 58,112 Redeemable preferred stock 74,528 75,117 80,000 79,476 Mortgage bonds 432,500 435,311 432,500 374,286 Medium-term notes 92,000 92,156 135,000 130,788 Pollution-control facility and other notes 98,909 99,694 99,769 90,873 Rights Plan On September 28, 1994, the Board of Directors of the Company adopted a shareholder-rights plan and declared a dividend of one common-share purchase right (a right) for each outstanding share of the common stock, par value $5.00 per share, of the Company. The dividend was distributed to the shareholders of record as of the close of business on October 17, 1994. On May 24, 1995, the shareholders of the Company voted to approve a shareholder proposal at the Company's annual meeting of shareholders recommending redemption of the rights and termination of the Shareholder Rights Plan. On July 19, 1995, the Board of Directors of the Company terminated, effective immediately, the right to exercise the rights issued to its shareholders pursuant to the Shareholder Rights Plan and ordered the redemption of the rights. The Board directed payment of the redemption price of $.01 per right on August 28, 1995, to holders of record at the close of business on August 14, 1995. This one-time payment amounted to $324,428. Preferred Stock Preferred-stock balances outstanding as of December 31, 1995, 1994, and 1993 were as follows: (Dollars in thousands, except per-share Current shares amounts) outstanding 1995 1994 1993 Preferred Stock - Not Subject to Mandatory Redemption: $25 par value - authorized 2,000,000 shares; outstanding: None $ - $ - $ - $100 par value noncallable -authorized 5,713 shares; outstanding 6% voting 5,713 571 571 571 $100 par value callable - authorized 2,300,000* shares; outstanding: 3.50% series (redeemable at $101) 220,000 22,000 22,000 22,000 4.60% series (redeemable at $101) 30,000 3,000 3,000 3,000 4.75% series (redeemable at $101) 50,000 5,000 5,000 5,000 5.25% series (redeemable at $102) 50,000 5,000 5,000 5,000 7 7/8% series (optional redemption after 9/1/97, at $100) 300,000 30,000 30,000 30,000 Preferred Stock - Not Subject to Mandatory Redemption $65,571 $65,571 $65,571 Redeemable Preferred Stock - Subject to Mandatory Redemption: $100 par value callable - authorized 2,300,000*shares; outstanding: None $ - $ - $ - Flexible Money Market Preferred Stock, Series A - 7.999% (redeemable at $100) (450,000 shares in 1994 and 1993) 395,275 39,528 45,000 45,000 8 7/8% series (redeemable at $103.944) 350,000 35,000 35,000 35,000 Redeemable Preferred Stock - Subject to Mandatory Redemption $74,528 $80,000 $80,000 *Total authorized $100 par value callable is 2,300,000 shares. Shares outstanding are classified as Not Subject to Mandatory Redemption and Subject to Mandatory Redemption. Sinking-fund provisions for the 8 7/8% Series Preferred Stock require the Company to redeem all shares at par plus an amount equal to dividends accrued to the redemption date on the basis of 70,000 shares annually beginning in July 1996. The Company also has the non-cumulative right to redeem up to an equal amount of the respective number of shares annually, beginning in 1996, at par plus an amount equal to dividends accrued to the redemption date. The sinking-fund requirement for the five-year period ending December 31, 2000, is $7.0 million annually beginning in 1996. Sinking-fund provisions for the Flexible Money Market Preferred Stock, Series A, 7.999%, require the Company to redeem all shares at par plus an amount equal to dividends accrued to the redemption date on the basis of 90,000 shares annually beginning in October 1999. The Company also has the non-cumulative right to redeem up to an equal number of shares annually beginning in 1999, at par plus an amount equal to dividends accrued to the redemption date. In 1995, the Company purchased 54,725 shares on the open market that may be used to reduce the sinking-fund requirement in 1999. Interim Financing and Credit Agreements The Company uses funds obtained from short-term borrowing, primarily through issuance of commercial paper backed by lines of credit with commercial banks, and its revolving-credit agreements to provide initial financing for construction and other corporate purposes. At December 31, 1995, the Company had a total of $130 million in unsecured committed bank lines with commercial banks for the purpose of providing short-term borrowing capacity to back commercial paper issuance and to finance general corporate needs. On November 6, 1995, the Company extended its $80-million unsecured Competitive Advance and Revolving Credit Facility with several banks and Chemical Bank, as agent for the lenders, to October 15, 1996. The Company's other $50-million revolving credit facility with several banks also has an expiration date of October 15, 1996. Both credit facilities have annual fees on unused portion of the credit lines of 3/8 of 1 percent and allow for various borrowing options including LIBOR-priced, ABR-priced and competitive-bid priced loans. Under the terms of these agreements, the Company had no borrowings at December 31, 1995, and 1994. As of December 31, 1995, MEPCO had a line of credit totaling $2.0 million with a commercial bank to provide for its working-capital needs. This line of credit is subject to annual review and renewal. Annual fees for this line of credit is 1/4 of 1 percent. At December 31, 1995, and 1994, there was no short-term borrowing outstanding under the MEPCO credit line. Note 8: Quarterly Financial Data (Unaudited) Quarterly revenue variability increased after January 1, 1995, when the ARP replaced MPUC rules prescribing different revenue allocations for energy sold in winter versus non-winter months. Twelve-month results are unaffected by this reporting change. Quarterly financial data for 1994 and 1993 reflect the seasonality of electric sales and higher rates and lower contribution to earnings per kilowatt-hour during peak-consumption periods. Unaudited, consolidated quarterly financial data pertaining to the results of operations are shown below. (Dollars in thousands, except per- Quarter ended share amounts) March 31 June 30 September 30 December 31 1995 Electric operating revenues $263,312 $202,584 $217,872 $232,248 Operating income 39,361 4,052 22,169 20,277 Net income (loss) 26,376 (8,619) 10,400 9,823 Earnings (loss) per common share* .73 (.34) .24 .23 1994 Electric operating revenues $241,026 $212,336 $233,543 $217,978 Operating income 26,233 26,609 25,652 11,742 Net income (loss) 11,416 15,307 14,083 (64,071) Earnings (loss) per common share* .27 .39 .35 (2.06) 1993 Electric operating revenues $236,021 $198,953 $227,383 $231,220 Operating income 33,298 24,227 21,623 26,382 Net income 21,573 13,702 13,561 12,466 Earnings per common share* .62 .37 .36 .31 *Earnings per share are computed using the weighted-average number of common shares outstanding during the applicable quarter. Report of Management The Management of Central Maine Power Company and its subsidiary is responsible for the consolidated financial statements and the related financial information appearing in this annual report. The financial statements are prepared in conformity with generally accepted accounting principles and include amounts based on informed estimates and judgments of management. The financial information included elsewhere in this report is consistent, where applicable, with the financial statements. The Company maintains a system of internal accounting controls that is designed to provide reasonable assurance that the Company's assets are safeguarded, transactions are executed in accordance with management's authorization, and the financial records are reliable for preparing the financial statements. While no system of internal accounting controls can prevent the occurrence of errors or irregularities with absolute assurance, management's objective is to maintain a system of internal accounting controls that meets its goals in a cost-effective manner. The Company has policies and procedures in place to support and document the internal accounting controls that are revised on a continuing basis. Internal auditors conduct reviews, provide ongoing assessments of the effectiveness of selective internal controls, and report their findings and recommendations for improvement to management. The Board of Directors has established an Audit Committee, composed entirely of outside directors, which oversees the Company's financial reporting process on behalf of the Board of Directors. The Audit Committee meets periodically with management, internal auditors, and the independent public accountants to review accounting, auditing, internal accounting controls, and financial reporting matters. The internal auditors and the independent public accountants have full and free access to meet with the Audit Committee, with or without management present, to discuss auditing or financial reporting matters. Coopers & Lybrand LLP, independent public accountants, has been retained to audit the Company's consolidated financial statements. The accompanying report of independent public accountants is based on their audit, conducted in accordance with generally accepted auditing standards, including a review of selected internal accounting controls and tests of accounting procedures and records. David T. Flanagan David E. Marsh President and Chief Executive Officer Vice President, Corporate Services, Treasurer and Chief Financial Officer EX-27 12 FDS --
UT 1000 U.S. DOLLARS YEAR DEC-31-1995 JAN-1-1995 DEC-31-1995 1 PER-BOOK 1,069,182 54,669 257,401 611,667 0 1,992,919 162,214 276,287 51,504 490,005 67,528 65,571 587,594 0 0 0 35,730 7,000 34,657 1,725 703,109 1,992,919 916,016 13,328 824,046 837,374 85,859 5,129 90,988 53,008 37,980 10,178 27,802 29,222 30,761 135,528 .86 .86
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