-----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, RKGwmyAg9xl9n2GnkS/bCKtVE4AhzAkpsdscoKPZqkN9dgYfKGqZJ0+L5VB1YwqR 3tfVP8h/tZYv7XIR4II0/A== 0000018808-97-000012.txt : 19970520 0000018808-97-000012.hdr.sgml : 19970520 ACCESSION NUMBER: 0000018808-97-000012 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19970331 FILED AS OF DATE: 19970514 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: CENTRAL VERMONT PUBLIC SERVICE CORP CENTRAL INDEX KEY: 0000018808 STANDARD INDUSTRIAL CLASSIFICATION: 4911 IRS NUMBER: 030111290 STATE OF INCORPORATION: VT FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-08222 FILM NUMBER: 97604378 BUSINESS ADDRESS: STREET 1: 77 GROVE ST CITY: RUTLAND STATE: VT ZIP: 05701 BUSINESS PHONE: 8027732711 10-Q 1 FORM 10-Q PERIOD ENDING 3/31/97 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549 Form 10-Q X QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 1997 TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _______ to _______ Commission file number 1-8222 Central Vermont Public Service Corporation (Exact name of registrant as specified in its charter) Incorporated in Vermont 03-0111290 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 77 Grove Street, Rutland, Vermont 05701 (Address of principal executive offices) (Zip Code) 802-773-2711 (Registrant's telephone number, including area code) __________________________________________________________________________ (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. As of April 30, 1997 there were outstanding 11,519,748 shares of Common Stock, $6 Par Value. CENTRAL VERMONT PUBLIC SERVICE CORPORATION Form 10-Q Table of Contents Page PART I. FINANCIAL INFORMATION Item 1. Financial Statements Consolidated Statement of Income and Retained Earnings for the three months ended March 31, 1997 and 1996 3 Consolidated Balance Sheet as of March 31, 1997 and December 31, 1996 4 Consolidated Statement of Cash Flows for the three months ended March 31, 1997 and 1996 5 Notes to Consolidated Financial Statements 6-8 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 9-20 PART II. OTHER INFORMATION 21-22 SIGNATURE 23 CENTRAL VERMONT PUBLIC SERVICE CORPORATION PART I - FINANCIAL INFORMATION Item 1. Financial Statements CONSOLIDATED STATEMENT OF INCOME AND RETAINED EARNINGS (Dollars in thousands, except per share amounts) (Unaudited) Three Months Ended March 31 1997 1996 Operating Revenues $88,494 $84,246 Operating Expenses Operation Purchased power 40,996 37,272 Production and transmission 5,677 4,850 Other operation 9,985 9,175 Maintenance 3,041 2,835 Depreciation 4,460 4,436 Other taxes, principally property taxes 2,988 2,817 Taxes on income 7,207 8,625 ------- ------- Total operating expenses 74,354 70,010 ------- ------- Operating Income 14,140 14,236 ------- ------- Other Income and Deductions Equity in earnings of affiliates 885 801 Allowance for equity funds during construction 20 21 Other income, net 2,549 2,381 Provision for income taxes (882) (229) ------- ------- Total other income and deductions, net 2,572 2,974 ------- ------- Total Operating and Other Income 16,712 17,210 ------- ------- Interest Expense Interest on long-term debt 2,327 2,353 Other interest 74 150 Allowance for borrowed funds during construction (8) (51) ------- ------- Total interest expense, net 2,393 2,452 ------- ------- Net Income 14,319 14,758 Retained Earnings at Beginning of Period 74,137 66,422 ------- ------- 88,456 81,180 Cash Dividends Declared Preferred stock 507 507 Common stock 2,534 2,318 ------- ------- Total dividends declared 3,041 2,825 ------- ------- Retained Earnings at End of Period $85,415 $78,355 ======= ======= Earnings Available For Common Stock $13,812 $14,251 Average Shares of Common Stock Outstanding 11,519,748 11,590,748 Earnings Per Share of Common Stock $1.20 $1.23 Dividends Paid Per Share of Common Stock $.22 $.20 CENTRAL VERMONT PUBLIC SERVICE CORPORATION CONSOLIDATED BALANCE SHEET (Dollars in thousands) March 31 December 31 1997 1996 Assets Utility Plant, at original cost $461,035 $461,231 Less accumulated depreciation 150,935 146,539 -------- -------- 310,100 314,692 Construction work in progress 12,041 9,302 Nuclear fuel, net 947 947 -------- -------- Net utility plant 323,088 324,941 -------- -------- Investments and Other Assets Investments in affiliates, at equity 26,675 26,630 Non-utility investments 29,249 27,823 Non-utility property, less accumulated depreciation 4,457 4,498 -------- -------- Total investments and other assets 60,381 58,951 -------- -------- Current Assets Cash and cash equivalents 23,113 6,365 Special deposits 5,411 5,633 Accounts receivable 25,499 21,878 Unbilled revenues 7,543 11,673 Materials and supplies, at average cost 3,722 3,690 Prepayments 2,435 2,423 Other current assets 3,585 3,840 -------- -------- Total current assets 71,308 55,502 -------- -------- Regulatory Assets and Other Deferred Charges 60,206 63,574 -------- -------- Total Assets $514,983 $502,968 ======== ======== Capitalization and Liabilities Capitalization Common stock, $6 par value, authorized 19,000,000 shares; outstanding 11,785,848 shares $ 70,715 $ 70,715 Other paid-in capital 45,279 45,273 Treasury stock (266,100 shares, at cost) (3,656) (3,656) Retained earnings 85,415 74,137 -------- -------- Total common stock equity 197,753 186,469 Preferred and preference stock 8,054 8,054 Preferred stock with sinking fund requirements 20,000 20,000 Long-term debt 117,369 117,374 Long-term lease arrangements 18,034 18,304 -------- -------- Total capitalization 361,210 350,201 -------- -------- Current Liabilities Short-term debt - 5,750 Current portion of long-term debt 3,015 3,015 Accounts payable 3,763 4,432 Accounts payable - affiliates 11,346 12,109 Accrued income taxes 9,177 2,552 Dividends declared 507 507 Other current liabilities 26,728 24,184 -------- -------- Total current liabilities 54,536 52,549 -------- -------- Deferred Credits Deferred income taxes 57,735 57,463 Deferred investment tax credits 7,516 7,612 Other deferred credits 33,986 35,143 -------- -------- Total deferred credits 99,237 100,218 -------- -------- Total Capitalization and Liabilities $514,983 $502,968 ======== ======== CENTRAL VERMONT PUBLIC SERVICE CORPORATION CONSOLIDATED STATEMENT OF CASH FLOWS (Dollars in thousands) (Unaudited) Three Months Ended March 31 1997 1996 Cash Flows Provided (Used) By Operating Activities Net income $14,319 $14,758 Adjustments to reconcile net income to net cash provided by operating activities Depreciation 4,460 4,436 Deferred income taxes and investment tax credits 333 (148) Allowance for equity funds during construction (20) (21) Net deferral and amortization of nuclear refueling replacement energy and maintenance costs 1,409 1,260 Amortization of conservation and load management costs 1,755 841 Gain on sale of property (2,095) - Decrease in accounts receivable 329 4,663 Decrease in accounts payable (802) (1,866) Increase in accrued income taxes 6,714 7,928 Change in other working capital items 3,141 5,185 Other, net (727) (982) ------- ------- Net cash provided by operating activities 28,816 36,054 ------- ------- Investing Activities Construction and plant expenditures (3,399) (4,240) Deferred conservation & load management expenditures (575) (485) Investments in affiliates 55 (130) Proceeds from sale of property 2,210 - Non-utility investments (1,443) (441) Other investments, net (120) (107) ------- ------- Net cash used for investing activities (3,272) (5,403) ------- ------- Financing Activities Short-term debt, net (5,750) (12,605) Long-term debt, net (5) (4) Common and preferred dividends paid (3,041) (2,825) ------- ------- Net cash used for financing activities (8,796) (15,434) ------- ------- Net Increase in Cash and Cash Equivalents 16,748 15,217 Cash and Cash Equivalents at Beginning of Period 6,365 11,962 ------- ------- Cash and Cash Equivalents at End of Period $23,113 $27,179 ======= ======= Supplemental Cash Flow Information Cash paid during the period for: Interest (net of amounts capitalized) $ 303 $ 224 Income taxes (net of refunds) $ 1,251 $ 1,075 CENTRAL VERMONT PUBLIC SERVICE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS March 31, 1997 Note 1 - Accounting Policies The Company's significant accounting policies are described in Note 1 of Notes to Consolidated Financial Statements included in its 1996 Annual Report on Form 10-K filed with the Securities and Exchange Commission. For interim reporting purposes, the Company follows these same basic accounting policies but considers each interim period as an integral part of an annual period. The financial information included herein is unaudited; however, such information reflects all adjustments (consisting of normal recurring accruals) which are, in the opinion of management, necessary for a fair statement of results for the interim periods. Note 2 - Environmental The Company is engaged in various operations and activities which subject it to inspection and supervision by both Federal and state regulatory authorities including the United States Environmental Protection Agency (EPA). It is Company policy to comply with all environmental laws. The Company has implemented various procedures and internal controls to assess and assure compliance. If non-compliance is discovered, corrective action is taken. Based on these efforts and the oversight of those regulatory agencies having jurisdiction, the Company believes it is in compliance, in all material respects, with all pertinent environmental laws and regulations. Company operations occasionally result in unavoidable, inadvertent releases of regulated substances or materials, for example the rupture of a pole mounted transformer, or a broken hydraulic line. Whenever the Company learns of such a release, the Company responds in a timely fashion and in a manner that complies with all Federal and state requirements. Except as discussed in the following paragraphs, the Company is not aware of any instances where it has caused, permitted or suffered a release or spill on or about its properties or otherwise which will likely result in any material environmental liabilities to the Company. The Company is an amalgamation of more than 100 predecessor companies. Those companies engaged in various operations and activities prior to being merged into the Company. At least two of these companies were involved in the production of gas from coal to sell and distribute to retail customers at three different locations. These activities were discontinued by the Company in the late 1940's or early 1950's. The coal gas manufacturers, other predecessor companies, and the Company itself may have engaged in waste disposal activities which, while legal and consistent with commercially accepted practices at the time, may not meet modern standards and thus represent potential liability. The Company continues to investigate, evaluate, monitor and, where appropriate, remediate contaminated sites related to these historic activities. The Company's policy is to accrue a liability for those sites where costs for remediation, monitoring and other future activities are probable and can be reasonably estimated. As part of that process, the Company also researches the possibility of insurance coverage that could defray any such remediation expenses. For related information see Legal Proceedings below. CLEVELAND AVENUE PROPERTY One such site is the Company's Cleveland Avenue property located in the City of Rutland, Vermont, a site where one of its predecessors operated a coal-gasification facility and later the Company sited various operations functions. Due to the presence of coal tar deposits and Polychlorinated Biphenyl (PCB) contamination and uncertainties as to potential off-site migration of those contaminants, the Company conducted studies in the late 1980's and early 1990's to determine the magnitude and extent of the contamination. After completing its preliminary investigation, the Company engaged a consultant to assist in evaluating clean-up methodologies and provide cost estimates. Those studies indicated the cost to remediate the site would be approximately $5 million. This was charged to expense in the fourth quarter of 1992. Site investigation continued over the next several years. In January of 1995, the Company was formally contacted by the EPA asking for written consent to conduct a site evaluation of the Cleveland Avenue property. That evaluation has been completed. The Company does not believe the EPA's evaluation changes its potential liability so long as the State remains satisfied that reasonable progress continues to be made in remediating the site and retains oversight of the process. In 1995, as part of that process, the Company's consultant completed its risk assessment report and submitted it to the State of Vermont for review. The State generally agreed with that assessment but expressed a number of concerns and directed the Company to collect some additional data. The Company has addressed almost all of the concerns expressed by the State and continues to work with the State in a joint effort to develop a mutually acceptable solution. The Company selected a consulting/engineering firm to collect the additional data requested by the State and develop and implement a remediation plan for the site. That firm has begun work at the site. It has collected the additional data requested by the State and will use all the data gathered to date to formulate a comprehensive remediation plan. The additional data gathered to date has not caused the Company to alter its original estimate of the likely cost of remediating the site. PCB, INC. In August 1995, the Company received an Information Request from the EPA pursuant to a Superfund investigation of two related sites, one in the state of Kansas and the other in the state of Missouri (the Sites). During the mid-1980's, these Sites received materials containing PCBs from hundreds of sources, including the Company. According to the EPA, more than 1,200 parties have been identified as Potential Responsible Parties (PRPs). The Company has complied with the information request and will monitor EPA activities at the Sites. In December 1996, the Company received an invitation to join a PRP steering committee. The Company has not yet decided whether joining that committee would be in its best interest. That committee has estimated the Company's pro rata share of the waste sent to the Sites to be .42%. The committee estimates that the Sites' remediation will cost between $5 million and $40 million. Based on this information, the Company does not believe that the Sites represent the potential for a material adverse effect on its financial condition or results of operations. The Company also faces potential liability arising from the alleged disposal of hazardous materials at three former municipal landfills: the Bennington Landfill, the Parker Landfill, and the Trafton-Hoisington Landfill. BENNINGTON LANDFILL The Bennington Landfill is a Superfund site located in Bennington, Vermont. An investigation by the Company suggests that it is unlikely that it contributed a meaningful amount of hazardous substances, if any, to the site. In July 1994, the EPA notified the Company that it had reviewed evidence which, in its opinion, indicated that the Company may have contributed to the environmental contamination at the Bennington site but that a full determination of its potential liability for the site had not been made. The EPA, at that time, designated the Company a potentially interested party (PIP). Also in July 1994, the EPA notified the PRP Group, the Company and other PIPs that it was proposing a response action at the site with an estimated total cost of approximately $9.5 million. During November 1994, the Company was notified that the EPA had additional information indicating that the Company was a PRP with regard to the Bennington site. The EPA letter also requested that the Company participate with other PRPs in the response action described above and further made a demand against the Company and other PRPs for reimbursement of an aggregate of $.85 million in costs the EPA had incurred in responding to conditions at the site. The original PRP Group reformed into a larger group, incorporating additional PRPs, including the Company, to undertake the remedial response and to reimburse EPA's response expenses of $3 million it spent on its Engineering Evaluation/Cost Analysis. The Company determined its interests would be best served by participating in the larger PRP Group while at the same time exploring the possibility of a "De Minimis" settlement with the EPA, either alone or as part of a group, premised on its minimal contribution to the site. The PRP Group and EPA recently reached a tentative agreement. Under the terms of that agreement, and a related internal allocation, the Company is considered a "De Minimis" party and the Company's liability would be less than $100,000. If a final settlement is not achieved, the Company will continue to explore its settlement options, individually and as a part of a group of "De Minimis" parties. If all efforts at settlement fail, the Company will defend any contribution action brought by the other PRPs or the EPA. PARKER AND TRAFTON-HOISINGTON LANDFILLS There have been no further developments involving the Company at these sites. The Company's investigations at the time it was originally contacted indicated that it contributed little if any hazardous substances to the sites. The Company has not been contacted by the EPA, the state or any of the PRPs since 1994. Therefore, the Company believes that the likelihood that these sites will cause the Company to accrue significant liability has significantly diminished. For historical information pertaining to these sites, refer to the Company's 1995 Form 10-K. At this time, the Company does not believe these landfill sites represent the potential for a material adverse effect on its financial condition or results of operations but it will continue to monitor activities at the sites. The Company is not subject to any pending or threatened litigation with respect to any other sites that have the potential for causing the Company to incur material remediation expenses, nor has the EPA or other Federal or state agency sought contribution from the Company for the study or remediation of any such sites. In 1996, the Company filed a Federal lawsuit against several insurance companies. In its complaint, the Company alleges that general liability policies issued by the insurer provide coverage for all expenses incurred or to be incurred by the Company in conjunction with, among others, the Cleveland Avenue Property and the Bennington Landfill sites. Due to the uncertainties associated with the outcome of this lawsuit, no receivables have been recorded. Note 3 - Accounts Receivable At March 31, 1997 and December 31, 1996, a total of $12 million of accounts receivable and unbilled revenues were sold under an accounts receivable facility. Accounts receivable and unbilled revenues that have been sold were transferred with limited recourse. A pool of assets, varying between 3% to 5% of the accounts receivable and unbilled revenues sold, are set aside for this potential recourse liability. Accounts receivable and unbilled revenues are reflected net of sales of $7.3 million and $4.7 million, respectively, at March 31, 1997 and $4.8 million and $7.2 million, respectively, at December 31, 1996. Accounts receivable are also reflected net of an allowance for uncollectible accounts of $1.4 million and $1.1 million at March 31, 1997 and December 31, 1996, respectively. Note 4 - Investment in Vermont Yankee Nuclear Power Corporation The Company accounts for its investment in Vermont Yankee using the equity method. Summarized financial information is as follows: Three Months Ended March 31 1997 1996 Operating revenues $40,421 $39,756 Operating income $ 3,711 $ 3,441 Net income $ 1,775 $ 1,598 Company's equity in net income $556 $509 CENTRAL VERMONT PUBLIC SERVICE CORPORATION Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS March 31, 1997 Earnings Overview Earnings available for common stock and earnings per share of common stock for the quarter ended March 31, 1997 were $13.8 million and $1.20 compared to $14.3 million and $1.23 for the corresponding period last year. Earnings for the first quarter of 1997 reflect a net of tax gain from sale of property of approximately $1.3 million, or $.12 per share of common stock. The 1996 results include a gain from insurance proceeds of about $1.3 million, or $.11 per share of common stock. Other factors affecting earnings results for the first quarter of 1997 are described in Results of Operations below. RESULTS OF OPERATIONS The major elements of the Consolidated Statement of Income are discussed below. Operating Revenues and MWH Sales A summary of MWH sales and operating revenues for the three months ended March 31, 1997 and 1996 (and the related percentage changes from 1996) is set forth below:
Three Months Ended March 31 Percentage Percentage MWH Increase Revenues (000's) Increase 1997 1996 (Decrease) 1997 1996 (Decrease) Residential 275,287 285,355 (3.5) $35,803 $34,481 3.8 Commercial 230,075 231,408 (.6) 30,400 28,204 7.8 Industrial 115,644 104,330 10.8 10,654 9,438 12.9 Other retail 1,763 1,787 (1.3) 471 442 6.6 ------- ------- ------- ------- Total retail sales 622,769 622,880 - 77,328 72,565 6.6 ------- ------- ------- ------- Resale sales: Firm 265 605 (56.2) 11 23 (52.2) Entitlement 110,863 136,941 (19.0) 4,955 6,689 (25.9) Other 195,375 184,935 5.6 4,807 4,304 11.7 ------- ------- ------- ------- Total resale sales 306,503 322,481 (5.0) 9,773 11,016 (11.3) ------- ------- ------- ------- Other revenues - - - 1,393 665 109.5 ------- ------- ------- ------- Total sales 929,272 945,361 (1.7) $88,494 $84,246 5.0 ======= ======= ======= =======
Retail MWH sales for the first quarter of 1997 were flat compared to 1996 first quarter. However, retail revenues increased $4.8 million or 6.6% over last year resulting from the 5.5% and 2.0% retail rate increases effective with bills rendered June 1, 1996 and January 1, 1997, respectively. Residential and commercial MWH sales decreased 3.5% and .6%, respectively, reflecting moderate temperatures during the first quarter of 1997. However, industrial MWH sales increased 10.8% primarily due to increased megawatt-hour requirements for snow making customers. Entitlement MWH sales and related revenues decreased 19.0% and 25.9% for the first quarter of 1997 compared to the same period last year mostly due to the termination of a sellback contract arrangement with Hydro-Quebec. The 10,440 MWH increase ($.5 million) in other resale sales resulted principally from increased system capacity and sales to Nepool partially offset by unit and off-system sales to other utilities in New England. Other revenues increased $.7 million for the first quarter of 1997 compared to the same period last year due to an increase in transmission revenues related to a transmission interconnection agreement. Also, in the first quarter of 1996, the Company reduced revenues by approximately $.3 million associated with power sales and transmission service transactions. Net Purchased Power and Production Fuel Costs The net cost components of purchased power and production fuel costs for the three months ended March 31, 1997 and 1996 are as follows (dollars in thousands):
1997 1996 Units Amount Units Amount Purchased and produced: Capacity (MW) 524 $21,288 473 $19,952 Energy (MWH) 926,064 19,708 907,851 17,320 ------- ------- Total purchased power costs 40,996 37,272 Production fuel (MWH) 60,726 266 105,217 539 ------- ------- Total purchased power and production fuel costs 41,262 37,811 Entitlement and other resale sales (MWH) 306,238 9,761 321,876 10,993 ------- ------- Net purchased power and production fuel costs $31,501 $26,818 ======= =======
The Company's net purchased power and production fuel costs increased $4.7 million for the first quarter compared to the same period last year. Capacity and energy costs were $1.3 million and $2.4 million, respectively, higher than last year. Entitlement and other resale sales decreased $1.2 million. The Company purchased 10.8% more MW during the first quarter which increased capacity costs by $2.1 million, this was offset by a decrease in price of $.8 million. The Company purchased 2.0% more MWH amounting to a $.4 million increase in energy costs for the first quarter compared to 1996. An 11.5% increase in price per MWH resulted in a $2.0 million increase in energy costs. Pursuant to a PSB Accounting Order, during the first quarter of 1997, the Company reduced energy costs by approximately $2.9 million related to the Hydro-Quebec agreement which will lower power costs by approximately $5.8 million for 1997. The price increase for the first quarter results primarily from incremental replacement power costs associated with Millstone Unit #3 and Maine Yankee discussed below. Also, production fuel costs decreased for the quarter compared to 1996 due to Millstone Unit #3 being out of service. The Company owns and operates 20 hydroelectric generating units and two gas turbines and one diesel peaking unit with a combined capability of 73.7 MW. The Company has equity ownership interests in four nuclear generating companies: Vermont Yankee, Maine Yankee, Connecticut Yankee and Yankee Atomic. In addition, the Company maintains joint-ownership interests in Joseph C. McNeil, a 53 MW wood, gas and oil-fired unit; Wyman #4, a 619 MW oil-fired unit; and Millstone Unit #3, an 1154 MW nuclear unit. NUCLEAR MATTERS The Company maintains a 1.7303% joint-ownership interest in the Millstone Unit #3 of the Millstone Nuclear Power Station and owns a 2% equity interest in Connecticut Yankee. These two plants are operated by Northeast Utilities. The Company also owns 2%, 3.5% and 31.3% equity interest in Maine Yankee, Yankee Atomic and Vermont Yankee, respectively. Millstone Unit #3 Millstone Unit #3 (Unit #3) which has experienced numerous technical and non-technical problems, remains shut down in order to provide assurances to the NRC that Unit #3's operations are in compliance with the Nuclear Regulatory Commission (NRC) regulations and its operating license. Northeast Utilities currently estimates that its total incremental operations and maintenance costs for Unit #3 will be approximately $53.3 million. The Company's share is about $.9 million. Northeast Utilities' management has indicated it cannot presently estimate the timing of the restart of Unit #3 or what additional costs, if any, will be incurred. The Company remains actively involved with the other non-operating minority joint-owners of Unit #3. This group is engaged in various activities to monitor and evaluate Northeast Utilities/Northeast Utilities Service Co.'s (NU/NUSCO) efforts relating to Unit #3. In addition, this group has retained counsel and experts to review and evaluate NU/NUSCO's operation and management and any prospective claims the group members may be able to assert against NU/NUSCO or related companies. The Company estimates that while Unit #3 is out of service it will incur incremental replacement power costs in 1997 estimated at $1.6 million. In addition, the Company incurred incremental operation and maintenance costs during the first quarter of 1997 of about $.2 million and expects to incur additional costs of about $.2 million for 1997. For additional information regarding Unit #3, refer to the Company's 1996 Annual Report on Form 10-K. Maine Yankee After a series of problems and deficiencies discovered at the Maine Yankee Nuclear Power Plant, in late December 1996, the 880-megawatt nuclear generating plant located in Wiscasset, Maine was placed in the cold shutdown configuration. Maine Yankee must fulfill certain commitments before the Plant will be allowed by the NRC Staff to return to service. Maine Yankee estimates that its incremental operations and maintenance costs will be approximately $15.7 million in 1997 and the Company's share is about $.3 million. Maine Yankee believes that the Plant will be out of service at least until the end of August 1997. The Company expects to incur incremental replacement power costs of approximately $.5 million through August 31, 1997. The Company incurred incremental operation and maintenance costs during the first quarter of 1997 of about $.2 million. Maine Yankee cannot predict when or whether all of the regulatory and operational issues will be satisfactorily resolved or what effect the ultimate total of the repairs and improvements to the Plant will have on the economics of operating the Plant. Refer to the Company's 1996 Annual Report on Form 10-K for related information. Connecticut Yankee On December 4, 1996, the Board of Directors of Connecticut Yankee decided to prematurely retire the Plant and decommission the facility. The decision was based on an economic analysis of the costs of operating it compared to the costs of closing it and incurring replacement power costs over the remaining period of the plant's operating license. The Company relied on Connecticut Yankee for less than 2% of its system capacity. Presently, costs billed to the Company by Connecticut Yankee, including a provision for ultimate decommissioning of the unit, are being collected from the Company's customers via existing retail and wholesale rate tariffs. Connecticut Yankee has estimated as of December 31, 1996, the sum of future payments for the closing, decommissioning and recovery of the remaining investment in Connecticut Yankee to be approximately $762.8 million. The Company's share at March 31, 1997 is approximately $14.4 million. This amount is subject to ongoing review and revision and is reflected in the accompanying balance sheet both as a regulatory asset and deferred power contract obligation (current and non-current). Yankee Atomic In 1992, the Board of Directors of Yankee Atomic decided to permanently discontinue operation of their plant, and to decommission the facility. The Company relied on Yankee Atomic for less than 1.5% of its system capacity. Presently, costs billed to the Company by Yankee Atomic, which include a provision for ultimate decommissioning of the unit, are being collected from the Company's customers via existing retail rate tariffs. The Company's share of remaining costs with respect to Yankee Atomic's decision to discontinue operation is approximately $5.6 million at March 31, 1997. This amount is reflected in the accompanying balance sheet both as a regulatory asset and deferred power contract obligation (current and non-current). The Company believes that based on the current regulatory process, its proportionate share of Connecticut Yankee and Yankee Atomic decommissioning costs will be recovered through the regulatory process and, therefore, the ultimate resolution of the premature retirement of the two plants has not and will not have a material adverse effect on the Company's financial position, results of operations and cash flows. Although the estimated costs of decommissioning are subject to change due to changing technologies and regulations, the Company expects that the nuclear generating companies' liability for decommissioning, including any future changes in the liability, will be recovered in their rates over their remaining operating or license lives. Vermont Yankee The Design Basis Documentation project (Project) initiated by Vermont Yankee during 1996 is expected to be completed by the end of 1997. The Company's 35% share of the total cost for this Project is expected to be about $3.15 million. Such costs will be deferred by Vermont Yankee and amortized over the remaining license life of the plant. Production and Transmission Higher transmission costs combined with lower savings associated with Phase II Hydro-Quebec transmission facilities, production and transmission expenses increased $.8 million for the first quarter of 1997 compared to 1996 first quarter. Other Operation Other operating expenses increased $.8 million for the first quarter of 1997 principally due to amortization of Conservation and Load Management (C&LM) costs. Maintenance The increase in maintenance expenses of $.2 million for the first quarter of 1997 compared to the same period in 1996 is attributable to nuclear maintenance expenses associated with the Company's joint-ownership interest in Unit #3 discussed above. Income Taxes Federal and state income taxes fluctuate with the level of pre-tax earnings. The decrease in total income tax expense for the first quarter of 1997 results primarily from a decrease in pre-tax earnings for the period. Other Income (Expenses), Net The increase in other income (expenses), net for the first quarter of 1997 is primarily due to a gain from sale of property of approximately $2.1 million. This gain was partially offset by expenses incurred in connection with a non-utility project currently under development in Summersville, West Virginia. Also, insurance proceeds of about $1.3 million were recorded in the first quarter of 1996. Other Interest Expense Other interest expenses declined for the first quarter of 1997 due to decreased short-term debt levels partially offset by higher interest rates compared to the same period last year. Cash Dividends Declared Common The first quarter 1997 increase in common dividends declared resulted from a 10% increase in the quarterly common dividend paid (from $.20 to $.22 per share) effective for quarterly common dividend paid on August 15, 1996. LIQUIDITY AND CAPITAL RESOURCES The Company's liquidity is primarily affected by the level of cash generated from operations and the funding requirements of its ongoing construction and C&LM programs. Net cash provided by operating activities was $28.8 million and $36.1 million for the three months ended March 31, 1997 and 1996, respectively. The Company ended the first three months of 1997 with cash and cash equivalents of $23.1 million, an increase of $16.7 million from the beginning of the year. The increase in cash for the first three months of 1997 was the result of $28.8 million provided by operating activities, $3.3 million used for investing activities and $8.8 million used for financing activities. Operating Activities - Net income, depreciation and deferred income taxes provided $19.1 million. Fluctuations in working capital provided $9.4 million and included $2.9 million of accounts receivable from Hydro-Quebec related to a purchased power agreement (see Net Purchased Power and Production Fuel Costs above) and $.3 million was provided by deferral/amortization of nuclear replacement energy and maintenance costs, amortization of C&LM costs and other, net including gain from sale of property of $2.1 million. Investing Activities - Construction and plant expenditures consumed $3.4 million, $.6 million was used for C&LM programs, $1.4 million was used for non-utility investments and $.1 million was used for other investments. Proceeds of $2.2 million were generated from the sale of property. Financing Activities - Dividends paid on common stock were $2.5 million, while preferred stock dividends were $.5 million. Short-term obligations repaid totaled $5.8 million. ELECTRIC INDUSTRY RESTRUCTURING The electric utility industry is in a period of potential transition that may result in a shift away from cost of service and return on equity based rates to one with more market based rates. Most states, including Vermont and New Hampshire, where the Company does business, are exploring new mechanisms to bring greater competition, customer choice and market influence to the industry while retaining the public benefits associated with the current regulatory system. Vermont On December 31, 1996, the PSB issued a Report and Order (the Report) outlining a restructuring plan (Plan) for the Vermont electric utility industry requiring legislative approval. The Plan consists of nine components as follows: Provide customer choice. Enable all customers to demand and purchase the products and service they need and want. It provides for additional market opportunities for low-usage customers. Require Vermont's largest investor-owned utilities to divide their generation and distribution functions into separate corporate subsidiaries. The PSB does not propose full corporate divestiture at this time but requires this "functional separation" of the companies into wholly owned subsidiaries. Provide for equitable treatment of stranded costs. It promotes aggressive actions to reduce utilities' current and future costs and provides utilities with the opportunity to recover their legitimate, remaining stranded costs. Address the unique attributes of municipal, cooperative, and small investor-owned utilities. The Plan requires that these utilities provide open access to competitive providers, but does not require functional separation of activities. Assure consumer protection. Preserves the wide range of consumer protections currently provided by the franchise system. It proposes new initiatives to assist low-income customers. Deliver cost-effective energy efficiency programs to all customers. It proposes several complimentary approaches to delivering energy efficiency to Vermont's electric consumers. Promote the continued use and development of renewable energy resources. Requires all retail companies selling electricity in Vermont to secure a minimum percentage of the sales from renewable resources. Promote national and regional policies that assure environmental quality. The Plan supports proposals in neighboring states to impose environmental comparability on older generation sources and the creation of an inter- regional emissions trading program. Establish a regional independent system operator (ISO) and power exchange. The Plan proposes the establishment of a regional power exchange to provide a short-term spot market for energy services and other services necessary to support system reliability by the ISO. The Report also indicated that the implementation date could be as late as the end of 1998. Note that the Report does not constitute a final, binding order but is instead a recommendation to the Vermont Legislature. If adopted by the Vermont Legislature, the Plan would allow for the recovery of stranded costs through a non-bypassable, non-discriminatory wires charge on electric consumption, after mitigation of costs. It would also authorize the use of incentive-and performance-based regulation for distribution companies presently subject to price regulation. The Report promotes aggressive actions to reduce utilities' current and future power costs including "innovative financing renegotiation of above- market contractual commitments, and asset sales." If adopted by the Vermont Legislature, the PSB would take into account the circumstances under which stranded costs were incurred and the companies' efforts to mitigate them. The multiple step process outlined by the PSB would involve 1) an estimation of stranded costs including an estimation of future power costs and a determination of the extent to which stranded costs can be mitigated, 2) an adjustment of stranded costs and 3) a stranded cost reconciliation proceeding. The largest component of the Company's stranded costs are future costs under long-term purchased power contracts. If the PSB's recommendation is approved by the Vermont Legislature, the Company will be able to recover its unmitigatable stranded costs through a non-bypassable, non-discriminatory wires charge on electric consumption. The Report suggests that if utilities satisfy a multi-factor analysis, Vermont should "create the opportunity for full recovery of stranded costs provided they are legitimate, verifiable, otherwise recoverable, prudently incurred and non-mitigatable." Such recover is, however, "explicitly tied to successful mitigation." At this time, the Company cannot give assurance that it will be successful in realizing mitigation of these costs to the extent that will satisfy the broad standards identified by the PSB or that it will be able to achieve full or substantial recovery of these costs, should Vermont's utility industry be restructured. The PSB Report "strongly encourage[s] the participants in this docket to continue to work together to forge comprehensive solutions on a consensus basis wherever possible." The Company continues to work to achieve a restructured industry in Vermont which meets the consensus principles for industry restructuring endorsed by the PSB and protects the interests of the Company and the stakeholders who financed the system under the regulatory bargain. Due to uncertainty surrounding legislative schedules, the PSB, on April 18, 1997, issued an Order which suspended, pending further legislative action or PSB Order on Restructuring, certain filing deadlines for reports and plans to be completed in the context of the Restructuring Order. In an effort to achieve a negotiated resolution to the issues surrounding the restructuring of the Vermont electric utility industry, the Company, Green Mountain Power Corporation, the DPS and representatives of the Governor of Vermont developed a Memorandum of Understanding (MOU) establishing a known plan for implementing restructuring in Vermont. If the concepts developed pursuant to the MOU to date are implemented, it is anticipated that the impact would: Result in a decrease in Vermont-related total electricity prices for 1998 and 1999 and reduce future total electric prices from what they would have been absent restructuring in Vermont, under all reasonable market price scenarios. Allow retention of all utility business segments, including generation and distribution, through functional separation into separate legal affiliates. Pre-define the level of, timing for and measurement of mitigation and, if such mitigation is accomplished, provide for substantial certainty for collecting the remainder of the Company's Vermont jurisdictional stranded costs. To achieve this certainty, it is anticipated that the Company would have to achieve mitigation of its stranded costs of at least $133 million (on a net present value basis) by December 31, 2001. Set up a mechanism to collect stranded costs through a non-bypassable Competitive Transition Charge. Establish a grantor trust financing mechanism to fund stranded cost mitigation or to fund the under collection of stranded costs. Fix a distribution company price path through 2004. Given the complexity of the MOU and the uncertainty surrounding necessary legislative action to implement it, the Company cannot predict when or if the provisions of the MOU would become effective and thus change the current regulatory process in Vermont. At the time of this filing, it appears unlikely that the Vermont General Assembly will pass legislation necessary to restructure the electric utility industry in Vermont this year. On April 3, 1997, S-62, an act relating to electric industry restructuring was passed by the Vermont Senate. Pursuant to the act, electric utility customers would be entitled to purchase electricity in a competitive market place and could choose their electricity supplier. Incumbent investor-owned electric utilities, including the Company, would be required to separate their regulated distribution and transmission operations into affiliate entities that are functionally separate from competitive generation and retail operations. The act provides for the recovery of a portion of investor-owned utility's "above market costs" which may be stranded on account of the introduction of competition within their service area. When considering the recovery of such amounts, the act would require that the PSB weigh the goal of sharing net prudently incurred, discretionary above-market costs "evenly" between utilities and customers against other goals including preserving the continuing financial integrity of the existing utility and respecting the just interests of investors. The act also creates an incentive for the Company to take steps to close the Vermont Yankee Nuclear Power Station by conditioning the recovery of certain plant related stranded costs on the decision of its owners to cease operations in 1998, unless the PSB agrees to allow the plant to run for up to two more refuelings to avoid power shortages or for other public interest reasons. To become law, S-62 would have to be passed by the Vermont House of Representatives and signed by the Governor of the State of Vermont. At this time, the Vermont House of Representatives is not considering S-62 but is conducting hearings on matters relating to the reform of Vermont's electric utility system. At this time, it cannot be determined whether any restructuring legislation will be enacted during 1997 or future legislative sessions that would conform to the concepts developed by the Report, the MOU, or S-62. New Hampshire In New Hampshire, the New Hampshire Public Utilities Commission (NHPUC), directed by the New Hampshire legislature, has established a Pilot Program (Pilot) to determine the implications of retail competition in the electric utility industry. The Pilot is for a two-year period beginning in May 1996 and is open to all electric utilities and to 3% of all classes of customers in New Hampshire. The Company competed as a competitive supplier to acquire additional load currently served by other New Hampshire utilities and to retain load currently served by Connecticut Valley Electric Company Inc. (Connecticut Valley), the Company's wholly owned New Hampshire subsidiary. The Company acquired new customers with combined annual electric use totaling approximately 20,000 megawatt hours. On February 28, 1997 the NHPUC released its Final Plan to restructure the electric utility industry in New Hampshire pursuant to legislation enacted in New Hampshire during 1996. Concurrently, supplemental utility-specific orders to establish interim stranded cost charges were issued. Each utility is required to file comprehensive plans no later than June 30, 1997 which comply with the Final Plan and the supplemental orders. However, the 1996 legislation states that utilities shall not be required to implement their compliance filings unless compliance filings representing at least seventy percent of New Hampshire retail kilowatt hour sales, on an annual basis, have been or are being implemented. In its Final Plan, the NHPUC announced a departure from cost-based ratemaking and instead adopted a market-priced approach to stranded cost recovery. The Company believes that if the NHPUC adopted the Final Plan in its present form Connecticut Valley will no longer be able to apply Statement of Financial Accounting Standards (SFAS) No. 71, "Accounting For The Effects of Certain Types of Regulation," and the Company may have to remove from its balance sheet substantially all of its regulatory assets associated with New Hampshire regulated business estimated at approximately $2.0 million on a pre-tax basis. In addition, the supplemental order specific to Connecticut Valley denies stranded cost recovery related to its Federal Energy Regulatory Commission (FERC) approved power contract with the Company and further ordered Connecticut Valley to terminate the contract. The net revenue loss associated with costs potentially disallowed under the power contract are estimated by the Company to total over $80.0 million (pre-tax) over a twenty-eight year period on a nominal dollar basis. The Company intends to vigorously pursue the recovery of these costs and will continue to assess the likelihood of recovery. If it is determined that it is probable that FERC will not permit recovery of these costs, the Company would have to assess the likelihood and magnitude of losses incurred under both SFAS No. 5, "Accounting for Contingencies" and SFAS No. 121, "Accounting for the Impairment of Long Lived Assets and for Long Lived Assets to be Disposed Of." On April 7, 1997, the NHPUC issued an Order addressing certain threshold procedural matters raised in the motion for rehearing and/or clarification filed by various parties, including Connecticut Valley, relative to the Final Plan and interim stranded cost orders. The Order suspends and stays those aspects of the Final Plan that are the subject of rehearing or clarification requests in order to thoroughly review and evaluate the issues raised in such motions and also suspends and stays the interim stranded cost orders for the various parties, including Connecticut Valley. The suspension and stay of these orders will remain in effect until two weeks following the issuance of any order concerning outstanding requests for rehearing and clarification. On May 9, 1997, Public Service Company of New Hampshire (PSNH) filed a Motion For Suspension of the Electric Utility Restructuring Proceeding to allow mediation with the State of New Hampshire to proceed. NHPUC has not yet ruled on PSNH's Motion For Suspension. The Final Plan and supplemental order also contain rulings on numerous issues that may have a substantial effect on the operations of the Company. Included among these rulings is the requirement that Connecticut Valley divest within two years all of its wholesale power purchase contracts; a prohibition on the remaining distribution company and its affiliates from engaging in retail marketing or load aggregation services; and a mandate for the filing of tariffs with the FERC for the provision of unbundled retail transmission service. The supplemental order did approve the recovery through interim stranded cost charges of the projected above market power costs associated with purchases from Qualifying Facilities that were previously approved by the NHPUC. PSNH and various PSNH affiliates including Northeast Utilities have filed an action for injuctive and declaratory relief in the New Hampshire Federal District Court (Court) with respect to the NHPUC's Final Plan and the supplemental order pertaining to PSNH. The Court has rendered, and later amended, a temporary restraining order in favor of PSNH. The Court has also rendered an order declining to abstain, except, at present, with respect to certain limited issues regarding ratemaking and regarding a Rate Agreement between PSNH and the State of New Hampshire. The Company and Connecticut Valley have filed claims for intervention (seeking declaratory relief with respect to the NHPUC's Final Plan and pertinent supplemental order) and have moved to intervene in PSNH's federal action. The Court does not plan to hold a hearing on PSNH's request for preliminary injunction until mid-June 1997 at the earliest. If the Court grants the relief requested by PSNH, it will remove Connecticut Valley's obligation to implement its compliance plan, since PSNH alone represents more than seventy percent of New Hampshire retail sales. The Company intends to fully examine its legal remedies and to vigorously pursue them, including petitioning the FERC for the recovery of stranded costs resulting from the NHPUC's Final Plan. The Company cannot predict whether the ultimate outcome of this matter would have a material adverse effect on the Company's results of operations, cash flows, and ability to obtain capital at competitive rates. Connecticut Valley constitutes approximately 7% of the Company's total retail MWH sales. Ultimately, the financial impacts of restructuring on Connecticut Valley and the Company may be determined by the FERC and the courts. The FERC regulates the wholesale power sale from the Company to Connecticut Valley. Should the State of New Hampshire require the termination of that sale, the Company expects that the FERC would determine the recovery of any lost net revenues going forward. The Company may also have legally protected rights which could be enforced in proceedings in the New Hampshire, Vermont and Federal judicial systems. Competition-Risk Factors If retail competition is implemented in Vermont or New Hampshire, the Company is unable to predict the impact of this competition on its revenues, the Company's ability to retain existing customers and attract new customers or the margins that will be realized on retail sales of electricity. Historically, electric utility rates have been based on a utility's costs. As a result, electric utilities are subject to certain accounting standards that are not applicable to other business enterprises in general. SFAS No. 71, "Accounting for the Effects of Certain Types of Regulation," requires regulated entities, in appropriate circumstances, to establish regulatory assets and liabilities, and thereby defer the income statement impact of certain costs and revenues that are expected to be realized in future rates. As described in Note 1 of Notes to Consolidated Financial Statements, included in the Company's 1996 Annual Report on Form 10-K, the Company complies with the provisions of SFAS No. 71. In the event the Company determines that it no longer meets the criteria for following SFAS No. 71, the accounting impact would be an extraordinary, non-cash charge to operations of an amount that could be material. Criteria that give rise to the discontinuance of SFAS No. 71 include (1) increasing competition that restricts the Company's ability to establish prices to recover specific costs and (2) a significant change in the manner in which rates are set by regulators from cost-based regulation to another form of regulation. The Securities and Exchange Commission has questioned the ability of certain utility companies continuing the application of SFAS No. 71 where legislation provided for the transition to retail competition. The issue of when and how to discontinue the application of SFAS No. 71 by utilities during transition to competition has been referred to the Financial Accounting Standards Board's Emerging Issues Task Force. Guidance on this issue is expected in the near future. The Company's Management believes that SFAS No. 71 continues to apply to its regulated operations. SFAS No. 121, "Accounting for the Impairment of Long Lived Assets and for Long-Lived Assets to Be Disposed Of," which was implemented by the Company on January 1, 1996, requires that any assets, including regulatory assets, that are no longer probable of recovery through future revenues, be revalued based upon future cash flows. SFAS No. 121 requires that a rate-regulated enterprise recognize an impairment loss for the amount of costs excluded from recovery. As of March 31, 1997, based upon the regulatory environment within which the Company currently operates, SFAS No. 121 did not have an impact on the Company's financial position or results of operations. Competitive influences or regulatory developments may impact this status in the future. The Company believes that the provisions of both the Report and MOU, if approved by the PSB and Vermont General Assembly, would meet the criteria for continuing application of SFAS Nos. 71 and 121. Conversely, the Company believes that the unmodified provisions of S-62 and the NHPUC Final Plan would not meet the criteria for continuing application of SFAS No. 71 and 121. Because the Company is unable to predict what form enacted legislation will take, however, it cannot predict if or to what extent SFAS Nos. 71 and 121 will continue to be applicable in the future. In addition, if the Company is unable to mitigate or otherwise recover stranded costs that could arise under S-62 or the NHPUC Final Plan, the Company would have to assess the likelihood and magnitude of losses incurred under SFAS No. 5. As such, the Company cannot predict whether the Report, the MOU and restructuring legislation enacted in Vermont or the issuance of a final restructuring Plan in New Hampshire would have a material adverse effect on the Company's operations, financial condition or credit ratings. However, the Company's failure to recover a significant portion of its purchased power costs, would likely have a material adverse effect on the Company's results of operations, cash flows and ability to obtain capital at competitive rates. It is possible that stranded cost exposure, including the potential impact of write-offs associated with SFAS Nos. 5, 71, and 121, before mitigation could exceed the Company's current total common stock equity. FINANCING AND CAPITALIZATION Utility The level of short-term borrowings fluctuates based on seasonal corporate needs, the timing of long-term financings and market conditions. Short-term borrowings are supported by committed lines of credit and uncommitted loan facilities with several banks totaling $37.25 million. The Company's capital structure ratios as of March 31, 1997 (including amounts of long-term debt due within one year), consisted of 54.3% common equity, 7.7% preferred stock, 33.1% long-term debt and 4.9% capital lease obligations. Based on issues outstanding at March 31, 1997, the Company's mandatory sinking fund requirements for long-term debt and preferred stock due within the next twelve-month period is approximately $3.0 million and $1.0 million, respectively. Current credit ratings for the Company's outstanding mortgage debt and preferred stock are as follows: Duff & Standard Phelps & Poor's ------ -------- First Mortgage Bonds BBB BBB Preferred Stock BBB- BBB- Non-Utility Catamount Energy Corporation (Catamount), a wholly owned subsidiary of the Company, implemented a credit facility in July 1996 which provides for up to $8 million of letters of credit and working capital loans. Currently, a $1.2 million letter of credit is outstanding to support certain of Catamount's obligations in connection with a debt reserve requirement in the Appomattox Cogeneration project and a $1.6 million letter of credit is outstanding to support an investment commitment in Fibrowatt Thetford Limited. SmartEnergy, also a wholly owned subsidiary of the Company, currently maintains $.5 million revolving line of credit with a bank to provide working capital and financing assistance for investment purposes. There are no outstanding borrowings under this facility. Financial obligations of the Company's non-utility wholly owned subsidiaries are non-recourse to the Company. C&LM Programs The primary purpose of these programs is to offset the need for long-term power supply and delivery resources that are more expensive to purchase or develop than customer-efficiency programs. Total C&LM expenditures in 1996 were $3.5 million, and based on an agreement between the Company and the DPS, total 1997 C&LM expenditures are not to exceed $4.5 million. This Agreement is subject to PSB approval. Diversification Catamount was formed for the purpose of investing in non-regulated power plant projects. Currently, Catamount, through its wholly owned subsidiaries, has interests in six operating independent power projects located in Glenns Ferry and Rupert, Idaho; Rumford, Maine; East Ryegate, Vermont; Hopewell, Virginia; and Williams Lake, British Columbia, Canada. In addition, Catamount has interests in projects under construction in Thetford, England, and under development in Summersville, West Virginia. Catamount's after-tax earnings were $514,000 and $579,000 for the first quarter of 1997 and 1996, respectively. Included in results of operation for the three months ended March 31, 1997 and 1996 were $251,000 and $103,000, respectively, of costs related to the Gauley River project in Summersville, West Virginia. These expenses would be reimbursed if this pending project reaches financial closing. SmartEnergy was formed for the purpose of engaging in the sale of or rental of electric water heaters, energy-efficient products and other related goods and services. SmartEnergy's earnings were $41,000 for the first quarter of 1997 and $91,000 for the first quarter of 1996. Rates and Regulation The Company recognizes adequate and timely rate relief is necessary if the Company is to maintain its financial strength, particularly since Vermont regulatory rules do not allow for changes in purchased power and fuel costs to be passed on to consumers through automatic rate adjustment clauses. The Company's practice of reviewing costs periodically will continue and rate increases will be requested when warranted. During proceedings related to the April 30, 1996 Order described in the Company's 1996 Annual Report on Form 10-K, certain intervening parties petitioned the PSB for a management audit of the Company. In an Order dated April 10, 1996, the PSB severed the management audit issue from the rate proceeding. The PSB held a status conference on May 6, 1996 to address whether there should be such an audit as well as other related issues. Hearings for the management audit issue were held on July 16, 1996 and August 29, 1996. On April 17, 1997, the PSB issued an Order which rejects the idea of a major management audit of the Company and instead ordered an independent forward-thinking review of three of the Company's management policies as follows: 1) How the Company handles its internal conflict of interest issues, 2) how the Company's officers present information to the Company's Board of Directors and 3) how the Company conducts cost-benefit analyses. This forward-thinking review is intended to help the Company address these issues going forward. New Accounting Pronouncements In June 1996, the FASB issued SFAS No. 125, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities," effective for transfers and servicing of financial assets and extinguishments of liabilities occuring after December 31, 1996. Earlier or retroactive application is not permitted. Subsequently, in December 1996, the FASB issued SFAS No. 127, "Deferral of the Effective Date of Certain Provisions of SFAS No. 125." This statement defers for one year the effective date of certain provisions of SFAS No. 125. The Company anticipates that the adoption of SFAS No. 125 will not have a material impact on the Company's financial position or results of operations. In February 1997, the Financial Accounting Standards Board issued SFAS No. 128, "Earnings per Share," effective for both interim and annual periods ending after December 15, 1997. Earlier application is not permitted. SFAS No. 128 establishes standards for computing and presenting earnings per share(EPS) and applies to entities with publicly held common stock or potential common stock. The Company anticipates that the adoption of SFAS No. 128 will not have an impact on the Company's computation and presentation of basic EPS. The Company does not have any potential common stock that would result in the dilution of EPS. Forward Looking Statements Statements in this report relating to future financial conditions are forward looking statements. Such forward-looking statements are not guarantees of future performance and involve known and unknown risks, uncertainties and other factors, which may cause the actual results, performances or achievements to differ materially from the future forward- looking statements. Such factors include general economic and business conditions, changes in industry regulation, weather and other factors which are described in further detail in the Company's filings with the Securities and Exchange Commission. CENTRAL VERMONT PUBLIC SERVICE CORPORATION PART II - OTHER INFORMATION Item 1. Legal Proceedings. On July 29, 1996, the Company filed a Declaratory Judgment action in the United States District Court for the District of Vermont. The Complaint names as defendants a number of insurance companies that issued policies to the Company dating from the mid 1940s to the late 1980s. The Company asserts that policies issued by defendants provide coverage for all defense and remediation costs associated with the Cleveland Avenue property, the Bennington Landfill site and the North Clarendon site. With the exception of the North Clarendon site where no further remediation is anticipated, see Note 2 to the Consolidated Financial Statements for related disclosures. Items 2 and 3. None. Item 4. Submission of Matters to a Vote of Security Holders. (a) The Registrant held its Annual Meeting of Stockholders on May 6, 1997. (b) Director elected whose term will expire in 1999: Votes For Votes Withheld --------- -------------- Patrick J. Martin 9,724,003 430,543 Directors elected whose terms will expire in 2000: Votes For Votes Withheld --------- -------------- Frederic H. Bertrand 9,728,289 426,247 Mary Alice McKenzie 9,726,110 428,436 Robert L. Barnett 9,718,435 436,111 Robert G. Clarke 9,723,357 431,189 Other Directors whose terms will expire in 1999: Rhonda L. Brooks Preston Leete Smith Robert H. Young Other Directors whose terms will expire in 1998: Luther F. Hackett F. Ray Keyser, Jr. (c) To approve the Stock Option Plan for Key Employees For 7,935,074 Against 1,955,444 Withhold 264,026 Broker Non-Vote 2 (d) To approve the Restricted Stock Plan for Non-employee Directors and Key Employees For 8,601,383 Against 1,286,465 Withhold 266,698 Item 5. Other Information. (a) On April 28, 1997, Douglas D. Sinclair joined the Company as Vice President and General Manager for Business Development. Item 6. Exhibits and Reports on Form 8-K. (a) List of Exhibits. 10. Material Contracts 10.66.1 Hydro-Quebec Participation Agreement dated April 1, 1988 as amended and restated by Amendment No. 5 thereto dated October 21, 1993, among Vermont utilities participating in the purchase of electricity under the Firm Power and Energy Contract by and between Hydro Quebec and Vermont Joint Owners of Highgate. 27. Financial Data Schedule. (b) Item 5. Other Events, dated February 28, 1997 re: New Hampshire Public Utilities Commission's Final Plan to restructure the electric utility industry in New Hampshire pursuant to legislation enacted in New Hampshire during 1996 was filed on March 7, 1997. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. CENTRAL VERMONT PUBLIC SERVICE CORPORATION (Registrant) By Francis J. Boyle ---------------------------------------------------- Francis J. Boyle, Senior Vice President, Finance and Administration and Principal Financial Officer By James M. Pennington ---------------------------------------------------- James M. Pennington, Vice President, Controller and Principal Accounting Officer Dated May 14, 1997 EX-27 2 EXHIBIT 27 - FINANCIAL DATA SCHEDULE
UT This Financial Data Schedule contains summary financial information extracted from the Consolidated Financial Statements included herein and is qualified in its entirety by reference to such financial statements (dollars in thousands, except per share amounts). 1,000 3-MOS DEC-31-1997 MAR-31-1997 PER-BOOK 323,088 60,381 71,308 60,206 0 514,983 67,059 45,279 85,415 197,753 19,000 8,054 117,369 0 0 0 3,015 1,000 18,034 1,094 149,664 514,983 88,494 7,207 67,147 74,354 14,140 2,572 16,712 2,393 14,319 507 13,812 2,534 2,010 28,816 1.20 0
EX-10 3 EXHIBIT 10.66.1 EXHIBIT 10.66.1 AMENDMENT NO. 5 TO HYDRO-QUEBEC PARTICIPATION AGREEMENT This Amendment is made as of the twenty-first day of October, 1993, and is by, between and among each of the signatories to the Hydro-Quebec Participation Agreement dated as of the first day of April, 1988, as amended by Amendment No. 1 thereto and Restatement thereof dated as of the thirty-first day of August, 1988, Amendment No. 2 thereto dated as of the twenty third day of August, 1989, Amendment No. 3 thereto dated as of the fifth day of September, 1990, and Amendment No. 4 thereto dated as of the thirty-first day of December, 1991, and amends and restates the Agreement as hereinafter provided. All signatories hereto specifically agree that each signatory will be fully bound by all the terms and conditions of the Hydro-Quebec Participation Agreement as thus amended and restated. PRELIMINARY STATEMENT At a Participants' special meeting held on October 21, 1993, the Participants agreed to amend the Agreement to limit the Participants' rights and obligations with respect to transactions under the Interconnection Agreement to those transactions that are approved by Vote of Participants, use transmission capacity normally scheduled for deliveries of Contract energy, or have a duration of not more than six months and to make certain related changes to clarify how a Participant's Interconnection Transactions Entitlement is determined and the procedure by which a Participant may elect not to participate in such transactions that are either approved by Vote or are for a term of not to exceed six months. The Participants also Voted to direct the Joint Owners to execute an amendment (Amendment No. 3) to the Contract under which only Central Vermont Public Service Corporation and Green Mountain Power Corporation would remain as Vermont parties and that all Participants, including Central Vermont Public Service Corporation and Green Mountain Power Corporation, would continue to obtain their Contract entitlements to Schedule A/B Power and Schedule C Power pursuant to the Agreement. Finally, the Agreement contains a number of provisions that no longer have any effect or that have never been and never will be given effect, including preconditions (under existing Article II) to this Agreement's effectiveness; provisions (under existing Article V) governing the allocation of Schedule A/B power and initial allocations of Schedule C Power; provisions (under existing Article VI) providing for analysis of the transmission paths available for the delivery of Contract power and energy; provisions (under existing Article VII) providing for the assignment of transmission capacity in Existing Delivery Facilities held by Excess Participants to Deficient Participants; provisions (under existing Articles VIII and IX) for the joint construction or use of New Transmission Facilities and New Block-Loading Facilities that have not been and will not be constructed or used; and provisions (under existing Article X) providing for the recovery of costs of providing transmission to Deficient Participants or constructing New Transmission Facilities or New Block-Loading Facilities. Accordingly, for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, and pursuant to the provisions of Section 13.3 of the Agreement, it is hereby agreed as follows; 1. Capitalized terms defined in Section 1.1 of the Agreement are used herein with the meanings therein provided. 2. By executing this Amendment No. 5, the signatories agree that the Agreement will be amended and restated as provided in Exhibit 1 hereto. 3. The signatories acknowledge and agree that this Amendment No. 5 may be effected by Vote of the Participants in accordance with their respective Interconnection Transactions Entitlements in effect as of the date on which this Amendment No. 5 is made. 4. This Amendment No. 5 will become binding upon the signatories to this Amendment and become effective as of the date first written above. 5. This Amendment No. 5's effectiveness is subject to all Approvals required for its execution and performance. 6. Any number of counterparts to this Amendment No. 5 may be executed, and each will have the same force and effect as an original instrument, as if all the parties to all the counterparts had executed the same instrument. IN WITNESS WHEREOF, the signatories have caused this Amendment No. 5 to be executed by their duly authorized officers or agents. BARTON VILLAGE, INC. By /s/ Robert E. Arnold Its: Manager, Electric Department Address: PO Box D Barton, VT 05822 CENTRAL VERMONT PUBLIC SERVICE CORPORATION By: /s/ Robert de R. Stein Its: Senior Vice President Engineering & Energy Resources Address: 77 Grove Street Rutland, VT 05701 CITIZENS UTILITIES COMPANY By: John J. Lass Its: Address: High Ridge Park Stamford, CT 06905 VILLAGE OF ENOSBURG FALLS WATER AND LIGHT DEPARTMENT By: /s/ Its: Village Manager Address: Enosburg Falls Vermont 05450 GREEN MOUNTAIN POWER CORPORATION By: /s/ Craig T. Myette Its: Address: PO Box 850 So. Burlington Vermont 05402-0850 VILLAGE OF HYDE PARK, INC. By: /s/ Edward French, Jr. Its: Chairman, Trustee Address: PO Box 37 Hyde Park Vermont 05655 VILLAGE OF LUDLOW ELECTRIC LIGHT DEPARTMENT By: /s/ Donald Ellison Its: Chairman Address: PO Box 289 Ludlow, VT 05149 VILLAGE OF LYNDONVILLE ELECTRIC DEPARTMENT By: /s/ Kenneth C. Mason Its: Manager Address: 24 Main Street Lyndonville Vermont 05851 VILLAGE OF MORRISVILLE WATER AND LIGHT DEPARTMENT By: /s/ James C. Fox Its: Superintendent Address: PO Box 325 Morrisville Vermont 05661 VILLAGE OF NORTHFIELD ELECTRIC DEPARTMENT By: /s/ Its: Municipal Manager Address: 26 South Main Street Northfield Vermont 05663 VILLAGE OF ORLEANS, INC. By: /s/ John Morley, III Its: Superintendent Address: Memorial Square Orleans, VT 05860 ROCHESTER ELECTRIC LIGHT AND POWER COMPANY By: /s/ Thomas Pierce Its: President Address: Route 100 Rochester Vermont 05767 VILLAGE OF STOWE WATER AND LIGHT DEPARTMENT By: /s/ Bernard C. Machia Its: General Manager Address: Main Street Route 100 Stowe, VT 05672 VERMONT ELECTRIC POWER COMPANY, INC. By: /s/ Richard Mallary Its: President Address: PO Box 548 Rutland, VT 05701 VERMONT MARBLE - POWER DIVISION OF OMYA, Inc. By: /s/ John Mitchell Its: President Address 61 Main Street Proctor, VT 05765 WASHINGTON ELECTRIC COOPERATIVE, INC. By: /s/ Its: President Address: PO Box 8 Route 14 East Montpelier Vermont 05651 (Subject to approval of the Rural Electrification Administration) 0000180.01 EXHIBIT 1 HYDRO-QUEBEC PARTICIPATION AGREEMENT THIS AGREEMENT, restated as of the twenty-first day of October, 1993, is made as of the first day of April, 1988, and is by, between and among each of the electric utilities the names and principal addresses of which are set forth on the signature pages to this Agreement. Capitalized terms used in this Agreement, including the Preliminary Statement that follows, have the meaning defined in Section 1.1 hereof. PRELIMINARY STATEMENT The Contract Joint Owners have entered into a Contract with Hydro-Quebec for the purchase of power and energy. Pursuant to Schedules A and B of the Contract, Hydro-Quebec agrees to make available power and deliver associated energy respectively in the amount of up to 44 megawatts, for a five-year period commencing in late 1990, and 175 megawatts for a twenty-year period commencing in late 1995. Pursuant to Schedule C of the Contract, Hydro-Quebec agrees to make available power and deliver associated energy in the cumulative amount (under five sub-schedules) of up to 172 megawatts for periods of up to twenty-two years, 12 megawatts of which may be cancelled on or before November 1, 1996, and all of which purchases will commence by the year 2000. The Contract Joint Owners desire to make this Contract's power and energy available to all of the Participants that have executed this Agreement, and the Participants desire unconditionally to assume the obligations therefor. Accordingly, this Agreement provides for the assignment or the right to purchase Contract power and energy to all Participants and permits each Participant to purchase and obligates it to pay for its Schedule A/B Share and its Schedule C Share of Contract power and energy and to provide its own transmission facilities therefor. Finally, this Agreement establishes a decision-making procedure among all Participants and provides for certain aspects of its and the Hydro-Quebec Contract's administration through VELCO and by a Representative and an Operating Committee elected by the Participants, all as provided hereinafter. Now, therefore, for good and valuable consideration, receipt of which is acknowledged by each signatory, the signatories to this Agreement agree and covenant as follows: Article I -- Definitions; Construction 1.1 Capitalized terms used in this Agreement have the meaning defined in this Section 1.1. 1.1.1 Administration Costs: Reasonable and necessary costs, incurred by VELCO (or any other agent designated to perform VELCO's obligations hereunder), the Operating Committee, the Representative, or another Participant if approved by Vote in accordance with Section 3.1 hereof, to administer provisions of this Agreement, or by the Participants, acting collectively under this Agreement, including, without limitation, (a) costs incurred to render bills to Participants, make payment to Participants or Hydro-Quebec, and give Notice and conduct meetings as provided herein, (b) costs incurred by the Representative (and the employee or agent who acts therefor) and the Operating Committee (and any member or alternate thereof) to the extent incurred for the benefit of all Participants, including insurance in accordance with Section 3.2 hereof, (c) legal, accountants' or auditors' fees and expenses incurred for the benefit of all Participants, (d) engineers' fees and expenses if approved by Vote in accordance with Section 3.1 hereof, (e) the cost of obtaining and maintaining any Approvals required to execute, amend or perform this Agreement, the Contract or any of the transactions contemplated hereby or thereby, and (f) all costs incurred to administer this Agreement approved as part of the Participants' budget in accordance with Subsection 3.1.3 of this Agreement. 1.1.2 Agreement: This Hydro-Quebec Participation Agreement. 1.1.3 Approval or Approvals: Any certification, license, consent, order, acceptance for filing, permission to become effective, resolution, vote, or other approval required to execute, deliver, amend or perform this Agreement, and the transactions (including the purchase of Contract and Interconnection Agreements power and energy) contemplated hereby, including, without limitation, any such action required by a Participant's governing board, the Board, the Department, the Commission, the United States Department of Energy, the United States Department of Agriculture Rural Electrification Administration, in the case of a cooperative its members, in the case of a municipality its citizens, and any other such action or approval by any federal, state, or municipal entity or person, and specifically including, without limitation, a Certificate of Public Good pursuant to Section 248 of Title 30, Vermont Statutes Annotated, the performance of or compliance with any condition imposed thereunder and permission to become effective under the Federal Power Act by the Commission. 1.1.4 Block-Loading Facilities: Any transmission or distribution facility that is, or is capable of being, synchronized to the Hydro-Quebec system directly or through the system of a Participant. 1.1.5 Board: The State of Vermont Public Service Board. 1.1.6 CVPS: Central Vermont Public Service Corporation, a Vermont electric utility the principal place of business for which is located at the address set forth on the signature pages to this Agreement. 1.1.7 Citizens: Citizens Utilities Company, a Vermont electric utility the principal place of business or which is located at the address set forth on the signature pages to this Agreement. 1.1.8 Claim or Claims: A claim or claims hereunder for losses, liens, damages, demands, and causes of action, and all other claims of every kind or character, including the amount of judgments, settlements, awards, penalties, interest, court costs, and legal consultants' and experts' fees incurred in defense of same. 1.1.9 Commission: The United States Federal Energy Regulatory Commission. 1.1.10 "Contract Joint Owners": CVPS and GMP, the two Vermont signatories to the Contract. 1.1.11 Contract: The agreement, denoted "Firm Power and Energy Contract," made the 4th day of December, 1987, between the Contract Joint Owners and Hydro-Quebec, which is attached to this Agreement as Exhibit A, as amended as of the date as of which this Agreement is restated and as may be amended from time to time hereafter (as provided therein and herein). 1.1.12 Department: The State of Vermont, acting through the Department of Public Service. 1.1.13 Delivery Facilities or Delivery Facility: Collectively, the Highgate Interconnection, Phase I, Phase II, Existing Block-Loading Facilities, and any facilities designated by a Participant under Subsection 4.5.1 of this Agreement; individually, any such facility. 1.1.14 Existing Block-Loading Facilities: Block-Loading Facilities owned by Citizens, including its existing points of interconnection with Hydro-Quebec at Canaan, Derby Line and Norton, to the extent that such facilities are used to deliver power and energy (including Contract and Interconnection Agreements power and energy) to Citizens or to Participants that elect to transmit, distribute and deliver such power and energy by such facilities. 1.1.15 GMP: Green Mountain Power Corporation, a Vermont electric utility the principal place of business for which is located at the address set forth on the signature pages to this Agreement. 1.1.16 Highgate Interconnection: A back-to-back, direct-current converter facility in Highgate, Vermont, and a 345-kilovolt transmission line operating at 120 kilovolts in Highgate and Franklin, Vermont, that connects the converter facility to a Hydro-Quebec 120 kilovolt line in Bedford, Quebec, which facilities are jointly owned by the Joint Owners pursuant to the Highgate Joint Ownership Agreement. 1.1.17 Highgate Joint Owners or Joint Owner: Collectively, the eight signatories to the Highgate Joint-Ownership Agreement; individually, any individual signatory thereto. 1.1.18 Highgate Joint-Ownership Agreement: The agreement, denoted "Agreement for Joint Ownership, Construction, and Operation of the Highgate Transmission Interconnection," made as of the first day of August, 1984, by, between and among the Highgate Joint Owners, as amended through and restated by Amendment No. 5 thereto dated as of the first day of January, 1987, and as may be amended from time to time hereafter. 1.1.19 Highgate Operating Agreement: The agreement, denoted "Highgate Operating and Management Agreement," made and entered into as of the first day of August, 1984, by and among VELCO and the Highgate Joint Owners, as amended through Amendment No. 3 thereto dated as of the first day of January, 1987, and as may be amended from time to time hereafter. 1.1.20 Hydro-Quebec: A body politic and corporate, duly incorporated and regulated by the Hydro Quebec Act (R.S.Q., Chapter H-5), having its head office and principal place of business at 75 Dorchester Blvd. West, Montreal, Quebec, Canada. 1.1.21 Interest Rate: One Hundred Twenty Percent (120%) of the current interest rate on prime commercial loans from time to time in effect at The First National Bank of Boston. 1.1.222 Interconnection Agreement: The agreement, denoted "Interconnection Agreement," made and dated as of the 23rd day of February, 1987, between the Highgate Joint Owners and Hydro Quebec, as may be amended from time to time hereafter (as provided therein and herein). 1.1.23 Interconnection Agreements: The Interconnection Agreement and the State Interconnection Agreement. 1.1.24 Interconnection Transactions Entitlement: A percentage that is calculated by determining the weighted average (in total firm kilowatts) of each Participant's Schedule A/B Share and its Schedule C Share, such calculation to be made by the representative on November 1 of each year. 1.1.25 Notice: Notice required by any provision of this Agreement made in accordance with Section 8.10 hereof. 1.1.26 Operating Committee: The operating committee established pursuant to section 3.2 of this Agreement. 1.1.27 Participants or Participant: Collectively, the signatories to this Agreement except VELCO; individually, any individual signatory except VELCO. 1.1.28 Participant Transaction: Any purchase of power or energy under the Interconnection Agreements that is (a) approved by Vote of the Participants at any annual or special meeting of the Participants, (b) agreed between the Operating Committee and Hydro-Quebec if and only to the extent that such purchase relates to that part of the capacity in any Delivery Facilities committed to deliveries of Schedule A/B Power or Schedule C Power that, in a given hour of a calendar year, is not required for such deliveries or (c) involves a term not to exceed six months. 1.1.29 Phase I: The first phase of a transmission interconnection known as the Quebec-New England HVDC Interconnection," consisting of a +450 kilovolt, direct-current transmission line between Norton, Vermont, and Monroe, New Hampshire, and a converter terminal, such facilities having a nominal transfer capability of 690 megawatts, plus certain reinforcements to the existing New England alternating-current, bulk-transmission system required therefor. 1.1.30 Phase I Agreements: The Phase I Support Agreements and the Use Agreement. 1.1.31 Phase I Participants: Any Participant that has Phase I Rights. 1.1.32 Phase I Rights: The right to use and to realize the benefit of Phase I established by the Phase I Support Agreements and the Use Agreement; for purposes of determining transmission capability, Phase I Rights means firm capability for transmission of Contract power and energy. 1.1.33 Phase I Support Agreements: The agreements, denoted "Phase I Vermont Transmission Line Support Agreement," and "Phase I Terminal Facility Support Agreement," each dated as of December 1, 1981, and each as amended through the date as of which this Agreement is restated and as may be amended from time to time hereafter. 1.1.34 Phase II: The second phase of a transmission interconnection known as the "Quebec-New England HVDC Interconnection," consisting of a +450 kilovolt, direct-current transmission line between Monroe, New Hampshire, and Groton, Massachusetts, and a converter terminal located in Groton, Massachusetts, such facilities having a nominal transfer capability of 1310 megawatts, plus certain reinforcements to the existing New England alternating-current, bulk-transmission system required therefor. 1.1.35 Phase II Agreements: The Phase II Support Agreements and the Use Agreement. 1.1.36 Phase II Participants: Any Participant that has Phase II Rights. 1.1.37 Phase II Rights: The right to use and to realize the benefit of Phase II established by the Phase II Support Agreements and the Use Agreement; for purposes of determining transmission capability, Phase II Rights means firm capability for transmission of Contract power and energy. 1.1.38 Phase II Support Agreements: The agreements, denoted "Phase II Massachusetts Transmission Facility Support Agreement," "Phase II New Hampshire Transmission Facility Support Agreement," "Phase II New England Power AC Facility Support Agreement," and "Phase II Boston Edison AC Facility Support Agreement," each dated as of June 1, 1985, and each as amended through the date as of which this Agreement is restated and as may be amended from time to time hereafter. 1.1.39 Project 3 Agreement: The agreement, denoted "Transmission Services Agreement for Project No. 3," among VPPSA and the VPPSA Participants. 1.1.40 Pro Rata: An adjustment to a Participant's Share of any purchases of Contract and Interconnection Agreements power and energy, or the right to use any transmission facility used hereunder to transmit and deliver such power and energy under this Agreement, determined by the ratio of an individual Participant's Share of Schedule A/B Power or Schedule C Power or its Interconnection Transactions Entitlement to power and energy purchased pursuant to Schedule A or B to the Contract, Schedule C to the Contract or the Interconnection Agreements (as the case may be) to the Share of all Participants involved in the calculation. 1.1.40.1 Where the calculation involves Shares of both Schedule A/B Power and Schedule C Power, the adjustment will be weighted in kilowatts based on a Participant's Share of Schedule A/B Power and Schedule C Power (if any). 1.1.41 Representative: The representative elected pursuant to Sub-section 3.1.1 of this Agreement. 1.1.42 Schedule A/B Participants: The Participants listed on Schedule I to this Agreement. 1.1.43 Schedule A/B Power: Power and energy (and all rights related thereto) purchased pursuant to Schedule A or Schedule B of the Contract. 1.1.44 Schedule A/B Share: The Share of Schedule A/B Power specified on Schedule I to this Agreement. 1.1.45 Schedule C Participants: The Participants specified on Schedule IIA to this Agreement. 1.1.46 Schedule C Power: Power and energy (and all rights related thereto) purchased pursuant to Schedule C of the Contract. 1.1.47 Schedule C Share: The amount of Schedule C Power purchased by a Participant under the five Contract sub-schedules specified on Schedule IIB to this Agreement. 1.1.48 Securities: Any stock certificate or other instruments evidencing equity, or any bonds, notes or other instruments evidencing indebtedness, issued to finance the construction of Delivery Facilities or any other obligations of a Participant required hy this Agreement. 1.1.49 Share: Either (as the case may be) a Participant's right in kilowatts and kilowatt-hours to any purchase of power and/or energy or a percentage interest in rights and obligations pursuant to any provision of this Agreement, the Contract or the Interconnection Agreement. 1.1.50 State Interconnection Agreement: The Agreement, denoted "Interconnection Agreement," made on July 25, 1984, between the Department and Hydro-Quebec. 1.1.51 Transmission Rights: A Participant's contractual right to use a Delivery Facility for transmission of energy if and to the extent such facility has been committed by the Participant for deliveries of Schedule A/B Power or Schedule C Power. 1.1.52 Use Agreement: The Agreement, denoted "Agreement with respect to Use of Quebec Interconnection," dated as of May 1, 1982, as amended through the date as of which this Agreement is restated and as may be amended from time to time hereafter. 1.1.53 VELCO: Vermont Electric Power Company, Inc., a Vermont electric utility, the principal place of business for which is located at the address set forth on the signature pages to this Agreement. 1.1.54 Vermont Phase I Agreement: The agreement, denoted "Vermont Participation Agreement for Quebec Interconnection," dated as of July 15 1982, between VELC0 and those Participants that have Phase I Rights, as amended through the date as of which this Agreement is restated and as may be amended from time to time hereafter. 1.1.55 Vermont Phase II Agreement: The agreement, denoted "Vermont Support Agency Agreement Re: Quebec Interconnection - Phase II," dated as of June 1, 1985, between and among VELCO and those Participants that have Phase II Rights as amended through the date as of which this Agreement is restated and as may be amended from time to time hereafter. 1.1.56 VPPSA: Vermont Public Power Supply Authority, a joint-action agency organized pursuant to Chapter 84 of Title 30, Vermont Statutes Annotated, the principal place of business for which is currently located at 512 St. George, Williston, VT 05495. 1.1.57 VPPSA Participant or VPPSA Participants: Individually, a Participant listed on Schedule IV to this Agreement that has rights to use a portion of VPPSA'S "ownership share" (under the Highgate Joint-Ownership Agreement) in the Highgate Interconnection; collectively, as the context requires, more than one or all such Participants. 1.1.58 Vote: A vote in accordance with Section 3 of this Agreement required to make any decision or determination made by the Participants pursuant to any provision or this Agreement. 1.2 This Agreement will be interpreted and governed as provided in this Section 1.2. 1.2.1 This Agreement will be governed by and construed in accordance with the laws of the State of Vermont. 1.2.2 If any clause or provision of this Agreement, or any part thereof, is declared invalid or unenforceable by any court, board, agency or other quasi-judicial tribunal having jurisdiction thereof, such invalidity or unenforceability will not affect the validity or enforceability of the remaining clauses and provisions of this Agreement. 1.2.3 All provisions of this Agreement providing for indemnification against any Claims for liability will apply to the full extent permitted by law, and regardless of fault, and will survive termination pursuant to this Agreement. 1.2.4 Any number of counterparts to this Agreement may be executed, and each will have the same force and effect as the original. 1.2.5 This Agreement, together with any other agreement expressly named or for which provision is expressly made herein, constitute the entire understanding among the signatories and supersedes any and all previous understandings pertaining to the subject matter of this Agreement. 1.2.6 Captions used to identify any article, section or subsection of this Agreement are for the convenience of the signatories only and will not be used to assist in interpreting any provision of this Agreement. Article II -- Assignment of Contract Power; Performance of Contract Obligations; Assumption of Obligations 2.1 Joint Owners' Responsibility. To the extent authorized under Article 15.1 of the Contract and Article 13.0 of the Interconnection Agreement, each Contract Joint Owner and each Highgate Joint Owner makes the assignments and agrees to perform the other obligations set forth in this Section 2.1. 2.1.1 Each Contract Joint Owner unconditionally assigns to the Participants its share of all power and energy purchased by it pursuant to the Contract, and each Highgate Joint Owner unconditionally makes a partial assignment to the Participants of its Share of all power and energy purchased by it pursuant to the Interconnection Agreement only for purposes of Participant Transactions. 2.1.2 Each Contract Joint Owner agrees unconditionally to make available to the Participants its Share of all other benefits to which it is entitled pursuant to the Contract, and each Highgate Joint Owner agrees to make available to the Participants its Share of all other benefits to which it is entitled pursuant to the Interconnect on Agreement that relates to Participant Transactions. 2.1.3 To the extent that a Contract Joint Owner has discretion with respect to the performance of any obligation under the Contract or a Highgate Joint Owner has discretion with respect to the performance of any obligation under the Interconnection Agreement that relates to Participant Transactions, each such Joint Owner agrees to perform such obligation in accordance with such direction as may be given by Vote. 2.1.4 The Highgate Joint Owners agree to vote to elect as members of the Highgate Interconnection "operating committee" (pursuant to the Highgate Joint-Ownership Agreement) the persons elected to the Operating Committee pursuant to Section 4.2 of this Agreement; these Joint Owners further authorize the Operating Committee so elected by the Participants to perform all responsibilities of such Highgate Interconnection operating committee on the Participants' behalf. 2.1.5 To the extent that performance of this Section 2.1 requires approval by the Highgate Joint Owners pursuant to the Highgate Joint Ownership Agreement, each such Joint Owner hereby consents to and approves such transfer. 2.2 Subject to and in accordance with the provisions of this Agreement, the Participants unconditionally assume all or the Contract Joint Owners' obligations under the Contract and the Highgate Joint Owners' obligations under the Interconnection Agreement that relate to Participant Transactions, as though the Contract and the Interconnection Agreement have been assigned to them. 2.2.1 Specifically, and without limiting the foregoing, each Schedule A/B Participant unconditionally agrees to pay its Schedule A/B Share of the Contract Joint Owners' payment obligations for power and energy purchased pursuant to Schedules A or B of the Contract. 2.2.2 Specifically, and without limiting the foregoing, each Schedule C Participant unconditionally agrees to pay its Schedule C Share of the Contract Joint Owners' payment obligations for power and energy purchased pursuant to Schedule C of the Contract. 2.2.3 Specifically, and without limiting the foregoing, each Participant unconditionally agrees to pay its Interconnection Transactions Entitlement of the Highgate Joint Owners' payment obligations that relate to any Participant Transaction under the Interconnection Agreement. 2.3 Upon termination of this Agreement as to all Participants as provided in Section 8.9 of this Agreement, the Participants will, and by this Agreement do, reassign to the Contract Joint Owners and Highgate Joint Owners (as the case may be) all rights assigned to them pursuant to Section 2.1 of this Agreement. 2.3.1 Each Participant agrees to execute and perform any notice, filing, petition, contract, instrument or other document necessary to implement such assignment. Article III -- Participant Decisions; Representative; Operating Committee 3.1 All decisions of the Participants will be made by Vote of at least three individual Participants having a cumulative Interconnection Transactions Entitlement of more than fifty percent (50%), provided, however, that decisions that pertain only to Schedule A/B Power or only to Schedule C Power will be made by three Schedule A/B Participants or three Schedule C Participants (as the case may be) having a cumulative Schedule A/B Share or Schedule C Share of more than fifty percent (50%). 3.1.1 The Participants will vote to elect a Representative, which will be a Participant that is not elected to the Operating Committee pursuant to Sect-on 2.2 of this Agreement. The Participant elected will appoint an employee or agent to perform the Representative's obligations, who will have authority to act on behalf of the Participants with respect to all matters under this Agreement for which the Representative is responsible, excluding those responsibilities, authority and decisions of the Participants or the Operating Committee for which provision is made in this Agreement. The Participants will reimburse the Administration Costs incurred by the Representative pursuant to Section 5.5 of this Agreement. 3.1.2 The Representative will schedule an annual meeting of the Participants for purposes of electing the Representative in accordance with this section, electing the Operating Committee as provided in Section 3.2 hereof, adopting a budget of Administration Costs as required pursuant to Subsection 3.1.3 of this Agreement, appointing an auditor to audit the performance of VELCO (or such other person appointed pursuant to Section 5.7 hereof) under Article V of this Agreement, if the Participants Vote so to do, and taking such other action as may be appropriate, which meeting will take place no earlier than October 1 or later than December 31 of any calendar year. 3.1.2.1 Any Participant or the Representative may request a special meeting of the Participants by Notice to the Representative, and the Representative will schedule such meeting promptly upon receipt of such Notice, providing each Participant and VELCO fifteen (15) days Notice thereof. 3.1.3 At the annual meeting for which provision is made in Subsection 3.1.2 hereof, the Participants will adopt a budget for the Administration Costs to be incurred in the succeeding calendar year. 3.1.4 For and in consideration of any Participant's willingness to serve as a Representative for no consideration other than the payment of its costs as provided in Subsection 3.1.1 of this Agreement, each other Participant will indemnify, defend and hold harmless any Participant elected as a Representative, and the employee or agent appointed by such Participant to act therefor, from and against all Claims arising in favor or brought about by or on behalf of any person, including any other Participant and any governmental authority, arising on account of personal injuries, bodily injuries or death, including employees or agents of such Participant, or damage to or loss of property caused by any act or omission of such Participant, including such employees or agents, or anyone for whose acts any of them may be liable, arising out of its (or their) performance hereunder as the Representative, provided, however, that such Participant will be liable for such Claims to the extent that they are finally determined to have been caused by such Participant's wanton or willful misconduct by a court of competent authority, and following expiration of the time for, or affirmance following, all appeals therefrom. 3.1.5 If any Participant claims that a Participant elected as Representative has breached its responsibilities under this Agreement or has otherwise acted against, or omitted to act in, the interest of all Participants as provided hereunder, it will give Notice to all Participants no later than the earlier of six (6) months after the date on which such breach is discovered, or should have been discovered with the exercise of due diligence, or three (3) years after the date on which such breach is claimed to have occurred, and the failure to give Notice within such period will constitute a release of the Participant elected as Representative from any Claims against such Participant brought pursuant to this Subsection 4.1.5 with respect to such claimed breach. 3.1.6 Each January, the Representative will retain the auditor, if any, appointed at the annual meeting (for which provision is made in Subsection 3.1.2 hereof) to audit the performance of VELCO (or such other person appointed pursuant to Section 5.7 hereof) under Article V of this Agreement. After receipt of the auditor's report, the Representative may schedule a special meeting of the Participants to review such report and take such action as may be appropriate thereon. 3.2 By Vote in accordance with Section 3.1 of this Agreement, the Participants will elect annually two Participants to serve on the Operating Committee, which will have the responsibilities of the Operating Committee established pursuant to this Agreement, the Contract, the Interconnection Agreements, and any other power-purchase or transmission agreement between the Highgate Joint Owners and Hydro-Quebec, provided that an individual Participant may not be elected to serve more than one of the Operating Committee's two positions. The Participants agree to reimburse Administration Costs incurred by each Participant elected to the Operating Committee pursuant to Section 5.5 of this Agreement and will insure each such Participant (and the member and alternate appointed to the Operating Committee) against all risks (including negligence) arising from its (or their) performance hereunder to the extent such insurance is available at reasonable cost from a carrier of recognized financial responsibility that is qualified to transact business in Vermont. 3.2.1 Each Participant elected will determine the individual employee or agent who will serve as the member of the Operating Committee and as such member's alternate. 3.2.2 The Operating Committee will give Participants Notice of, and Participants will have the right to attend, meetings of the Operating Committee, including meetings that Hydro-Quebec members attend; provided, however, that Participants will not have the right to attend meetings with Hydro-Quebec involving negotiations related to the Contract, the Interconnection Agreements or any other power-purchase or transmission agreements, but through the Representative the Operating Committee will report to all Participants periodically on the substance of any such negotiations, including on any consideration of or proposed Participant Transactions as provided in Paragraphs 3.2.2.1 or 3.2.2.2 of this Agreement. 3.2.2.1 The Operating Committee or any member thereof will inform the Representative (or its agent) of any negotiations with Hydro-Quebec at which use of either of the Interconnection Agreements to effect a Participant Transaction is first considered as soon as practicable following such negotiations. 3.2.2.2 The Operating Committee will give Notice to the Representative and all Participants of any proposed Participant Transaction described in Paragraph 1.1.28(c), such Notice to include the transaction's basic terms and be effective at 5:00 p.m. on the third full business day after such Notice is given. 3.2.3 The Operating Committee will (and by this Agreement each Participant will cause any member or alternate chosen by it to serve on the Operating Committee to) act in good faith and consistent with prudent utility practice, the objective being to administer the Operating Committee's responsibilities hereunder so that Contract power and energy or power and energy purchased under the Interconnection Agreements, or any other power-purchase agreement with Hydro-Quebec subject to this Agreement, will be planned, procured, scheduled, transmitted, distributed and delivered for the benefit of all Participants consistently with the requirements of and subject to any restrictions or limitations in any such agreement, and so that the scheduling, use and management of the Delivery Facilities will be operated as efficiently, economically, safely, and reliably as possible consistently with the requirements and subject to any restrictions or limitations in agreements governing the support, operation or use of such facilities and with the interests of any Participant owning such facilities. 3.2.4 For and in consideration of any Participant's willingness to serve as a member of the Operating Committee for no consideration other than the payment of its costs as provided in Section 3.2 of this Agreement, each other Participant will indemnify, defend and hold harmless each Participant elected to the Operating Committee, its officers, employees and agents, including the employees or agents selected by each such Participant to be a member or an alternate on the Operating Committee, from and against all Claims arising in favor or brought about by or on behalf of any person, including any other Participant and any governmental authority, arising on account of personal injuries, bodily injuries or death, including employees or agents of such Participant, or damage to or loss of property caused by any act or omission of such Participant, or such employees or agents, or anyone for whose acts any of them may be liable, arising out of its (or their) membership on the Operating Committee, provided however, that a Participant will be liable for such Claims to the extent they are finally determined to have been caused by such Participant's negligence, gross negligence or material breach of this Agreement (not approved by Vote of the Participants) or its wanton or willful misconduct by a court of competent authority, and following expiration of the time for, or affirmance following, all appeals therefrom. 3 2.5 If any Participant claims that any Participant elected to the Operating Committee has breached its responsibilities under this Agreement or otherwise acted against, or omitted to act in, the interest of all Participants as provided hereunder, it will give Notice to the Participants no later than the earlier of six (6) months after the date on which such breach is discovered, or should have been discovered with the exercise of due diligence, or three (3) years after the date on which such breach is claimed to have occurred, and the failure to give Notice within such period will constitute a release of such Participant from any Claims against such Participant brought pursuant to Section 3.2 hereof with respect to such claimed breach. 3.3 Each Participant will inform the Representative (or its agent) and the Operating Committee of negotiations with Hydro-Quebec at which use of either of the Interconnection Agreements to effect a transaction is first considered as soon as practicable following such negotiations. Article IV -- Allocation of Shares of Schedule A/B Power and Schedule C Power 4.1 Each Participant named on Schedule I to this Agreement has the right to purchase and the obligation to pay, and perform other obligations related to, its Share of Schedule A/B Power set forth on Schedule I to this Agreement. 4.2 Each Participant named on Schedule IIA to this Agreement has the right to purchase and the obligation to pay, and perform other obligations related to, its Share of Schedule C Power set forth on Schedule IIB to this Agreement. 4.3 Each Participant named on Schedule III to this Agreement has the right to purchase and the obligation to pay, and perform other obligations related to, its Interconnection Transactions Entitlement (set forth on Schedule III to this Agreement) of any Participant Transactions. 4.3.1 For each Participant Transaction described in Subsection 1.1.28(a), a Participant will have only such purchase right or payment or other obligations if it either has Voted for the transaction or, if it Voted against the transaction, gave Notice to the Representative and Operating Committee before such Vote of its intent to participate in the transaction if nonetheless approved. A Participant that Votes against such transaction without such Notice will be deemed to have waived any rights it has under this Agreement to the benefits of such transaction and each other Participant that so Votes to participate or notifies the Representative and Operating Committee of its participation in the transaction will be deemed to have waived any Claims it has against such nonparticipating Participant with respect to any payments for or other obligations related to such transaction. 4.3.2 For each Participant Transaction described in Subsection 1.1.28(b), all Participants will have such purchase right and payment and other obligations, without any requirements of Notice to or approval of the transaction by any Participant. 4.3.3 For each Participant Transaction described in Subsection 1.1.28(c), a Participant will have only such purchase right or payment and other obligations if it gives notice to the Representative and Operating Committee of its agreement to participate in such transaction and such Notice is received by the Representative and Operating Committee before the Operating Committee's Notice of such transaction becomes effective (for which provision is made in Paragraph 3.2.2.1 of this Agreement). If a Participant elects not or omits to give such Notice before the Operating Committee's Notice becomes effective, such Participant will be deemed to have waived any rights it has under this Agreement to the benefits of such transaction and each other Participant that participates in the transaction will be deemed to have waived any Claims it has against such non-participating Participant with respect to any payments for or other obligations related to such transaction. 4.4 Upon each new calculation of the Interconnection Transactions Entitlement or the consummation of any assignment permitted under Section 8.4 of this Agreement, including any disposition of assets for which provision is made in Subsection 8.4.2 or decision not to cancel Schedule C Power under Subsection 8.4.3, the Representative will adjust the Participants named, their Shares of Contract power and associated energy or their Interconnection Transactions Entitlement stated in Schedules I, IIA, IIB or III to this Agreement (as necessary), substitute new schedules to this Agreement as so adjusted and provide Notice thereof to each signatory hereto. 4.5 Each Participant will provide firm transmission capacity on Delivery Facilities adequate to transmit its Share of Schedule A/B Power and Schedule C Power (if any) and, by this Agreement, will have no right to use any such transmission capacity provided by any other Participant for transmission of its Share of such power for any transaction other than Participant Transactions. 4.5.1 Section 4.5 notwithstanding, a Participant will have the right to use transmission facilities other than the entitlement to Delivery Facilities that it has as of the date on which this Agreement is restated for transmission of its Share or contract power and energy under this Agreement upon Notice to the Representative of its intent to use new Delivery Facilities and provided that such transmission, combined with such Participant's right to use existing Delivery Facilities, will be adequate to transmit its Share of Contract power and energy under this Agreement and will be subject to this Agreement's provisions, including its provisions for default under Article VI hereof. Article V -- Billing 5.1 VELCO will be responsible for all billing arrangements hereunder as set forth in this Article V. 5.2 The Participants hereby indemnify VELCO, and its employees and agents, from and against all Claims arising in favor or brought about by or on behalf of any third person, including any governmental authority, on account of personal injuries, bodily injuries or death, including employees or agents of VELCO or any Participant, or damage to or loss of property caused by any act or omission of VELCO or any Participant, or its or their agents or employees, or anyone for whose acts any of them may be liable, arising out of its (or their) performance of this Agreement, provided, however, that VELCO will be liable for such claims to the extent that they are finally determined to have been caused by its willful or wanton misconduct by a court of competent authority, and following expiration of the time for, or affirmance following, all appeals therefrom. 5.3 VELCO agrees to pay to Hydro-Quebec when due all amounts billed to the Participants pursuant to the Contract, the Interconnection Agreements, or any other power-purchase or transmission agreement approved by Vote of the Participants. 5.4 No later than the tenth (10th) day of each calendar month, VELCO will bill each Participant for its Share of Schedule A/B Power, Schedule C Power and Participant Transactions delivered during the previous month (in advance of receiving from Hydro-Quebec the bill therefor). 5.4.1 Such bills will be decreased to the extent of any credit due a Participant on payments made in previous months in excess of the actual charges due pursuant to this Agreement and increased to the extent payments made in previous months were less than amounts due pursuant to this Agreement, with interest thereon at VELCO's cost of working capital. 5.4.2 Each Participant agrees to pay no later than the fifteenth (15th) day of each calendar month all amounts so billed to it by VELCO. Payments made after the fifteenth (l5th) day of the month will accrue interest at the Interest Rate. 5.4.3 The obligation to make payment under this Section 5.4, and under any other provision of this Agreement, is unconditional and applies whether the Delivery Facilities, or any additional Delivery Facilities designated by the Participant as provided in Subsection 4.5.1 hereof, are available or operate or not and regardless of whether energy is delivered to a Participant by such facilities pursuant to the Contract or the Interconnection Agreements. 5.5 In addition to any amounts due and billed hereunder, VELCO will bill each Participant monthly in advance for its share of Administration Costs, allocated in accordance with the Interconnection Transactions Entitlement of each Participant. Such bills will be rendered and paid on the dates, will bear interest at the Interest Rate, and will be adjusted in successive months as provided in Section 5.3 of this Agreement. 5.6 If a Participant makes a general assignment for the benefit of creditors, or if any proceeding is instituted against a signatory (and is not dismisses within sixty (60) days), or by a signatory, seeking to adjudicate it a bankrupt or insolvent, or seeking reorganization, arrangement, adjustment, or composition of lt or its debt under any law related to bankruptcy, insolvency, or reorganization or relief of debtors, or seeking appointment of a receiver, trustee, or other similar official for it or for any substantial part of its property, or if a signatory takes any action to authorize any of the actions set forth in this Section 5.6, or in the event of an occurrence, transaction, event or condition (arising after the date hereof) affecting a Participant that in the opinion of the Participants, reasonably exercised (and as evidenced by Vote), and, after first having given such Participant an opportunity to present its views, materially could impair the ability of such Participant to continue to pay its current obligations as they become due, such Participant will be obligated to make payment of all amounts due under this Agreement (on an estimated basis and subject thereafter to adjustment as provided in Subsection 5.4.1 hereof) forty-five (45) calendar days before the date on which bills would otherwise be due as provided herein. 5.7 Upon ninety (90) days' Notice to each signatory, including VELCO, and Payment of all amounts due VELCO hereunder, including payments due for such ninety- (9O-) day period, the Participants by Vote may terminate VELCO's obligations under this Article V and appoint another person that upon execution of this Agreement will perform VELCO's obligations under this Article V. Article VI -- Defaults; Remedies 6.1 Default Pursuant to Underlying Agreements 6.1.1 A Highgate Joint Owner in default under the Highgate Joint-Ownership Agreement or the Highgate Operation Agreement (or a VPPSA Participant in default under the Project 3 Agreement) is in default of this Agreement; if other Highgate Joint Owners (or VPPSA Participants) assume such defaulting Highgate Joint Owner's (or VPPSA Participant's) obligations in accordance with the Highgate Joint-Ownership Agreement (or Project 3 Agreement), then such curing Highgate Joint Owners (or VPPSA Participants) will succeed Pro Rata to such defaulting Highgate Joint Owner's (or VPPSA Participant's) rights as a Participant under this Agreement unless and until such defaulting Participant cures its default as provided thereunder. 6.1.2 A Phase I Participant in default under the Vermont Phase I Agreement is in default or this Agreement; if other Phase I Participants assume such defaulting Phase I Participant's obligations under the Vermont Phase I Agreement, then such curing Phase I Participants will succeed Pro Rata to such defaulting Phase I Participant's rights as a Participant under this Agreement unless and until such defaulting Participant cures its default as provided thereunder. 6.1.3 A Phase II Participant in default under the Vermont Phase II Agreement is in default or this Agreement; if other Phase II Par- ticipants assume such defaulting Phase II Participants obligations in accordance with the Vermont Phase II Agreement, then such curing Phase II Participants will succeed Pro Rata to such defaulting Phase II Participant's rights as a Participant under this Agreement unless and until such defaulting Participant cures its default as provided thereunder. 6.2 Failure to Cure Default Pursuant to Underlying Agreements 6.2.1 If a Highgate Joint Owner is in default under the Highgate Joint-Ownership Agreement or the Highgate Operation Agreement (or a VPPSA Participant under the Project 3 Agreement), and the non-defaulting Highgate Joint Owners (or VPPSA Participants) fail to cure such default, then the other Participants hereunder will assume all the defaulting Highgate Joint Owner's (or to the extent not cured hy other VPPSA Participants, a VPPSA Participant's) obligations under the Highgate Joint-Ownership Agreement or the Highgate Operation Agreement (or Project 3 Agreement) Pro Rata, and the defaulting Highgate Joint Owner (or VPPSA Participant) agrees to take all actions necessary to assign and otherwise transfer to the Participants so curing hereunder all of the defaulting Highgate Joint Owner's (or VPPSA Participant's) rights under the Highgate Joint-Ownership Agreement or the Highgate Operation Agreement (or Project 3 Agreement) and such Participant's right hereunder to purchase Contract and Interconnection Agreements power and energy transmitted thereby unless and until such defaulting Participant cures its default as provided thereunder. 6.2.2 If a Phase I Participant is in default under the Vermont Phase I Agreement, and the nondefaulting Phase I Participants fail to cure such default, then the other Participants hereunder will assume all the defaulting Phase I Participant's obligations under the Vermont Phase I Agreement Pro Rata, and the defaulting Phase I Participant agrees to take all actions necessary to assign and otherwise transfer to the Participants so curing hereunder all of the defaulting Phase I Participants rights under the Vermont Phase I Agreement and such Participant's right hereunder to purchase Contract and Interconnection Agreements power and energy transmitted thereby unless and until such defaulting Participant cures its default as provided thereunder. 6.2.3 If a Phase II Participant is in default under the Vermont Phase II Agreement, and the nondefaulting Phase II Participants fail to cure such default, then the other Participants hereunder will assume all the defaulting Phase II Participant's obligations under the Vermont Phase II Agreement Pro Rata, and the defaulting Phase II Participant agrees to take all actions necessary to assign and otherwise transfer to the Participants so curing hereunder all or the defaulting Phase II Participant's rights under the Vermont Phase II Agreement and such Participant's right hereunder to purchase Contract and Interconnection Agreements power and energy transmitted thereby unless and until such defaulting Participant cures its default as provided thereunder. 6.3 Default under this Agreement 6.3.1 If a Schedule A/B Participant fails to pay for Schedule A/B Power or Transmission Rights related thereto as required hereunder, including any Administration Costs related thereto, then all other Participants will immediately assume such resulting Participant's obligations under this Agreement pertaining to Schedule A/B Power and Transmission Rights related thereto Pro Rata; if such defaulting Participant fails to cure within 90 days, then the defaulting Participant's rights hereunder with respect to Schedule A/B Power, including its Transmission Rights therefor, will be terminated, and such curing Participants will thereafter permanently assume the obligations and be entitled to the defaulting Participant's rights to Schedule A/B Power and such Transmission Rights under this Agreement Pro Rata without further obligation to such defaulting Participant. 6.3.2 If a Schedule C Participant fails to pay for Schedule C Power or Transmission Rights related thereto as required hereunder, including any Administration Costs related thereto, then the other Participants will immediately assume such defaulting Participant's obligations under this Agreement pertaining to Schedule C Power and Transmission Rights related thereto Pro Rata; if such defaulting Participant fails to cure within 90 days, then the defaulting Participant's rights hereunder with respect to Schedule C Power, including its Transmission Rights therefor, will be terminated, and such curing Participants will thereafter permanently assume the obligations and be entitled to the defaulting Participant's rights to Schedule C Power and such Transmission Rights under this Agreement Pro Rata without further obligation to such defaulting Participant. 6.3.3 A Participant in default of both its Schedule A/B Power or Transmission Rights obligations as provided in Subsection 6.3.1 and its Schedule C Power or Transmission Rights obligations as provided in Subsection 6.3.2 will be in default of this Agreement and upon failure to cure as provided in each such subsection will be terminated from this Agreement. 6.4 By the provisions of this Article VI, the Participants intend that any and all Participants required hereunder to assume a Participant's obligation to pay for (a) transmission facilities used hereunder will be entitled to such Participant's rights and will assume its obligations to purchase the power and energy transmitted by such facility, and (b) power and energy hereunder will be entitled to such Participant's rights and will assume its obligations to use the transmission facilities used by such Participant hereunder to transmit such power and energy. 6.5 The foregoing notwithstanding, each Participant reserves all of its rights at law and equity against a Participant in default (as provided in this Article VI) or otherwise in breach of this Agreement. 6.5.1 A Participant that is a municipality covenants and agrees to fix, revise and collect fees and charges for electric power and energy and other services, facilities and commodities furnished or supplied through its electric system at least sufficient to provide revenues adequate to meet its obligations under this Agreement and, in addition, to pay all other amounts payable from or constituting a charge and lien upon such revenues, including amounts sufficient to pay the principal of and interest on all Securities issued by the Participants for electric purposes. The obligations of such a Participant under this Agreement will be treated as an expense of operating its electric plant and constitute a special obligation of the Participant payable solely from the revenues and other moneys derived by it from its electric system. Article VII -- Cooperation Among Participants 7.1 Each Participant will provide or cause to be provided such assistance as set forth in this Article VII as another Participant may reasonably request and for which such Participant agrees to pay in connection with the issuance and sale, whether public or private, by such Participant of any Securities. 7.2 Each Participant, in connection with the issuance and sale by any other Participant of Securities, will make available one of its senior personnel, who is knowledgeable about the electric-utility business of such Participant, to assist in the preparation of any official statement or report; provided, however, that such assistance and preparation will be limited to such information concerning the electric-utility business of such Participant as may be necessary and relevant to any such official statement or report. Such assistance will be provided at such times, and at such places, as shall be reasonably agreed by such Participant that requests assistance and the Participant providing such assistance. 7.3 Each Participant and any entity acting on its behalf in the preparation of any statement or report will certify and represent to any Participant that requests such statement or report as true, subject to any qualification contained in such certification, any information contained in the respective statements or reports supplied by or on behalf of such Participant (including any such entity) to any other Participant under this article, and such Participant (and any such entity, as applicable) will state that any statements in such reports that purport to be statements of fact are true and correct in all material respects and that such report does not omit to state any material fact necessary to make such report not misleading in the light of the circumstances under which it is furnished. Such certification and representation will, upon request of the underwriters or any other financing entity involved in the issuance and sale of Securities, be embodied in a letter or letters of representation addressed to the underwriters or to such other financing entity. 7.4 Each Participant will also, upon request, furnish an opinion of its counsel addressed to the underwriters or to any other financing entity involved in the issuance and sale of Securities by another Participant that requests assistance under this article to the effect that the execution and delivery by such Participant of the letter or letters of representation referenced in this article to be executed by it have been duly and effectively authorized by all requisite action. 7.4.1 A Participant's failure to furnish such an opinion will not constitute grounds for its termination hereunder, but the Participant will be liable hereunder for any Claims by the Participant that requests such assistance. 7.5 Any liability for any Claims that any Participant may have to any other Participant, the underwriters of any Securities, or any other financing entity involved in the issuance and sale by a Participant of any Securities, by reason of any misstatement of material fact or omission of material facts by such Participant in the information furnished pursuant to this article, will be borne by such Participant, subject to any rights of contribution to which it may be entitled by law, and will not be a cost reimbursable by the other Participants under this Agreement. For purposes of the preceding sentence, such Participant's liability will include the costs of its defense of any lawsuit involving the subject matter of such sentence, whether or not such Participant prevails in such defense, but to the extent permitted by law such Participant will be held harmless by the Participant that requests assistance under this article against any and all Claims against such Participant, including reasonable attorneys' fees, resulting from any misleading, improper or erroneous use of such information by the Participant that requests such assistance, the underwriters, or any other financing entity involved in such Participant's issuance of Securities. The Participant that requests assistance under this article will also bear all other costs of the Participant that provides such assistance as provided in this article, excepting, however, any liability resulting from any misstatement by such Participant of a material fact or the omission by such Participant of a material fact necessary in order to make information provided under this article, in the light of the circumstances under which it was furnished, not misleading. Article VIII -- Miscellaneous Provisions 8.1 There is no intention to create by this Agreement, or by any other contract, transaction or activity related hereto, an association, joint venture, trust or partnership, or to impose on any signatory trust or partnership rights or obligations; any such implied intention is expressly negated. Except as expressly provided in this Agreement, no signatory will have by virtue of this Agreement or of any such contract, transaction or action the right or power lo bind any other signatory without the other signatory's express written consent. 8.2 Nothing in this Agreement is intended to create any rights or benefits for any person that has not executed this Agreement. 8.3 This Agreement may be amended by Vote in accordance with Section 3.1 of this Agreement, except that with respect to any right or obligation of VELCO this Agreement may be amended only by such Vote with VELCO's written consent, and provided, however, that no amendment may operate to (a) reduce the Vote required to amend this Agreement or (b) change the rights and obligations of any Participant relative to the other Participants based on their Shares of Contract power or energy hereunder or (c) change the nature of costs and expenses to be shared by the Participants pursuant to this Agreement, in each case without the written consent of each Participant. Amendments to this Agreement must be in writing and be executed by the requisite signatories required to effect amendment pursuant to this Section 8.3. 8.4 This Agreement may not be assigned to any other signatory or to any person not a signatory to this Agreement except (a) if the signatory making the assignment remains unconditionally obligated to perform its obligations under this Agreement, (b) such assigning signatory will have given each other signatory Notice of the proposed terms of assignment, such Notice to (and by this Agreement does) constitute an offer to each other signatory (other than VELCO) to assign on the same terms and conditions of the proposed assignment its rights under this Agreement, and (c) the proposed assignment will not be consummated until ninety (90) days following the date on which such Notice will have been given without one or more other signatories to this Agreement (other than VELCO) having accepted and consummated such offer to assign such signatory's rights under this Agreement. If more than one signatory accepts such offer, the rights of the assigning signatory will be assigned Pro Rata, and upon confirmation of such assignment (the previous sentence notwithstanding) the assigning Participant will be released thereafter by all signatories to this Agreement from any obligations hereunder, provided that the terms and conditions of such assignment require the assignee signatory or signatories to assume unconditionally the assigning Participant's obligations under this Agreement. 8.4.1 The foregoing notwithstanding, each Participant will have the right to assign any right to power or energy purchased pursuant to this Agreement and any Transmission Rights hereunder related thereto without obtaining the consent of any other signatory to this Agreement, provided that such assignment does not constitute an assignment of any obligations of such Participant under this Agreement. 8.4.2 The foregoing notwithstanding, a Participant may elect to sell, lease or otherwise dispose of all or substantially all of its electric system upon ninety (90) days Notice thereof to the Participants, such Notice to specify the security or other contractual arrangements to be provided by such Participant that will provide adequate assurances of the continued performance of such Participant's obligations hereunder; provided that such security or other contractual arrangements provides such assuran- ces, a Participant will have the right to assign its obligations pursuant to this Agreement as part of such sale, lease or disposal. 8.4.3 The foregoing notwithstanding, the rights of each Schedule C Participant that has obtained all Approvals required to purchase Schedule C Power to cancel all or any portion of its Share, as set forth in the Representative's Notice to the Participants dated December 8, 1989, of its purchases of power under Sub-schedule C-4b of the Contract are subject to the following: 8.4.3.1 A Schedule C Participant that determines to cancel any amount of its purchases of power and energy under Sub-schedule C-4b of the Contract must give Notice thereof to the Representative no later than January 1, 1996, such Notice to con- stitute an offer to sell such power and energy (as the case may be) to the other Schedule C Participants Pro Rata. 8.4.3.2 Within five days of receipt of such Notice, the Representative will give Notice to the Participants of the amount of Schedule C Power thereby offered to the Participants. Within ten days of the date of such Notice from the Representative, each Schedule C Participant will give Notice to the Representative stating whether (and to what extent) such Schedule C Participant desires to accept such offer (including amounts not taken by other Participants to which such offer is made); failure to provide such Notice will be deemed to constitute a decision by such Schedule C Participant not to accept such offer. 8.4.3.3 No later than five days before the date on which written notice is due Hydro Quebec under the Contract in order to effect cancellation of all (or any part) of any option to cancel purchases under Sub-schedule C-4b, the Representative will give Notice to the Operating Committee as to the amounts of such power and energy to be canceled, and the Operating Committee is authorized and directed to give written notice, either itself or through VELCO, to Hydro-Quebec to effect such cancellation. 8.5 Each signatory to this Agreement agrees to execute and perform any other notices, contracts, instruments, filings, petitions, and other documents and to take any other action reasonably required to implement and perform any provision of this Agreement. 8.6 VELCO's obligations hereunder are limited to those for which provision is expressly made in Articles V and VIII of this Agreement. 8.7 The signatories acknowledge that informal resolution of disputes is in their mutual interest. Accordingly, each signatory agrees that for any Claim arising under this Agreement the signatories (or any two or more of them as applicable) will in good faith attempt to resolve the Claim informally. If such Claim is not resolved informally, the claiming signatory will give Notice cf its Claim to the Representative and any signatory against which the Claim is brought, and the Chief Operating Officer of each such signatory will attempt in good faith to resolve the Claim. The parties agree and covenant that they will not file a lawsuit or institute other legal action pursuant to this Agreement unless the signatories fail to resolve the Claim in accordance with the foregoing procedure and at least thirty (30) days have passed from the date on which such Notice is delivered. No signatory will be entitled to recover from any other signatory, or any affiliate or any shareholder, director, officer, or employee thereof, Claims arising from another signatory's performance under this Agreement, except a signatory will be liable for such Claims to the extent they are finally determined to have been caused by such signatory's negligence, gross negligence or material breach of this Agreement (not approved by Vote of the Participants), or its wanton or willful misconduct, by a court of competent authority and following expiration of the time for, or affirmance following, all appeals therefrom. 8.8 Except for a delay or failure to make any payment a Participant is obligated to make under this Agreement, or any agreement (including the Contract and the Interconnection Agreements) related hereto, no failure or delay in the performance of any obligation by a signatory under this Agreement will be deemed to exist if it is the result of any cause beyond the reasonable control of the signatory that the signatory could not have reasonably been expected to avoid by the exercise of due diligence, including, without limiting the generality of the foregoing, storm, flood, lightning, earthquake, fire, explosion, civil disturbance, labor disturbance, sabotage, war, national emergency, or restraint by court or public authority. In such event, the signatory will give Notice of such event to all signatories to this Agreement within fifteen (15) days of its occurrence and will diligently seek to remove the cause preventing its performance of the obligation at the earliest possible date. 8.9 This Agreement will terminate as to all signatories upon termination of the Contract, provided, however, that this Agreement will be terminated as to any individual Participant upon termination of such Participant as provided in Article VI of this Agreement. 8.9.1 The foregoing notwithstanding, this Agreement will continue in effect after termination to the extent necessary to make payment of any amount due hereunder or to resolve any Claims hereunder in accordance with the provisions for resolving Claims set forth herein. 8.10 Notice will be given under this Agreement in writing addressed to the required recipient at the address set forth on the signature pages to this Agreement, be effective on the earlier of receipt or five (5) days after the date of such Notice and be deemed to be achieved if given by first-class mail, provided, however, that if pursuant to any provision of this Agreement Notice must be effected by a specified date no more than five (5) days from the date of such Notice, Notice will be effected only by overnight carrier, hand delivery, or telefacsimile the receipt of which is confirmed in writing by the recipient. 8.10.1 Any signatory to this Agreement may change the address used to effect Notice set forth on the signature pages to this Agreement by giving Notice thereof to the Representative and each other signatory in accordance with the procedures set forth in this Section 8.10. 8.11 This Agreement is the act and obligation of the signatories hereto in their corporate or governmental capacity, and any Claims hereunder against any shareholder, director, trustee, officer, employee or agent of any signatory, as such, is expressly waived.
Schedule I Schedule A Schedule B 5/1/91 To 9/23/95 To Company 9/22/95 10/31/15 - - ------- ---------- ---------- Barton 168 672 Citizens 104 415 CVPS 23,312 92,248 Enosburg 183 730 GMP 16,888 67,554 Hyde Park 97 390 Ludlow 321 1,284 Lyndonville 610 2,438 Morrisville 534 2,136 Northfield 300 1,198 Orleans 180 722 Rochester 84 336 Stowe 572 2,288 WEC 647 2,589 -------- -------- TOTAL 44,000 175,000
Schedule IIA Barton CVPS Citizens Enosburg GMP Hyde Park Ludlow Lyndonville Morrisville Northfield Orleans Rochester Stowe Vermont Marble PAGE Schedule IIB
KILOWATTS BASED ON SCHEDULE C ENTITLEMENTS Sched C-1 Sched C-2 Sched C-3 Sched C-4a Sched C-4 5/1/91 to 5/1/92 to 11/1/95 to 11/1/96 to 11/1/00 to Company 10/31/12 10/31/12 12/31/15 10/31/16 10/31/20 - - ------- --------- --------- ---------- ---------- ---------- Barton 397 200 58 128 0 CVPS 30,725 20,526 6 23,714* 0 Citizens 19,995 5,132 125 0 5,671 Enosburg 160 316 141 0 329 GMP 0 0 46,619 0 0 Ludlow 334 0 0 0 0 Lyndon- 0 78 5 1,158 0 ville Morris- 20 554 3 0* 0 ville Northfield 246 66 2 0 0 Rochester 0 0 3 0 0 Stowe l,075 128 38 0 0 VMCO 2,048 0 0 0 0 *From 5/1/98 until 4/30/12, CVPS will have 23,216 and Morrisville 500 kilowatts
Schedule III Barton 0.6071% Citizens 40.7579% CVPS 38.4437% Enosburg 0.5230% GMP 13.4032% Hyde Park 0.0770% Ludlow 0.5198% Lyndonville 0.5460% Morrisville 0.8794% Northfield 0.4857% Orleans 0.1429% Rochester 0.0667% Stowe 1.4087% Washington Electric 0.5135% Vermont Marble 1.6254% Schedule IV Barton Enosburg Hyde Park Ludlow Lyndonville Morrisville Northfield Orleans Stowe Washington Coop Exhibit A [Copy of Contract] 0005370.01 -----END PRIVACY-ENHANCED MESSAGE-----