-----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, G9mvguOkUT1BRMftZimf76n0hMrudzKvbw2y5dsdRcDSsZsxlp9xzXp/V9QTulP8 6HxEuwb3ZpKEipZL2ILSHA== 0000018808-96-000015.txt : 19961203 0000018808-96-000015.hdr.sgml : 19961203 ACCESSION NUMBER: 0000018808-96-000015 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19960930 FILED AS OF DATE: 19961113 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: 96661203 BUSINESS ADDRESS: STREET 1: 77 GROVE ST CITY: RUTLAND STATE: VT ZIP: 05701 BUSINESS PHONE: 8027732711 10-Q 1 FORM 10-Q PERIOD ENDING 9/30/96 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 September 30, 1996 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 July 31, 1996 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 and nine months ended September 30, 1996 and 1995 3 Consolidated Balance Sheet as of September 30, 1996 and December 31, 1995 4 Consolidated Statement of Cash Flows for the nine months ended September 30, 1996 and 1995 5 Notes to Consolidated Financial Statements 6-9 Summarized income statement information for Vermont Yankee Nuclear Power Corporation 10 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 11-21 PART II. OTHER INFORMATION 22-23 SIGNATURES 24 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 Nine Months Ended September 30 September 30 1996 1995 1996 1995 Operating Revenues $63,833 $60,314 $209,469 $210,023 ------- ------- -------- -------- Operating Expenses Operation Purchased power 37,063 33,418 110,774 110,284 Production and transmission 5,615 5,540 15,307 15,898 Other operation 10,030 8,722 27,650 29,064 Maintenance 4,203 3,616 10,620 9,210 Depreciation 4,511 4,372 13,391 12,883 Other taxes, principally property taxes 2,657 2,582 8,123 7,704 Taxes on income (520) 142 7,698 7,816 ------- ------- -------- -------- Total operating expenses 63,559 58,392 193,563 192,859 ------- ------- -------- -------- Operating Income 274 1,922 15,906 17,164 ------- ------- -------- -------- Other Income and Deductions Equity in earnings of affiliates 807 888 2,460 2,508 Allowance for equity funds during construction 31 42 79 195 Other income, net 658 1,753 2,345 2,585 Benefit (provision) for income taxes (80) (338) 88 (365) ------- ------- -------- -------- Total other income and deductions, net 1,416 2,345 4,972 4,923 ------- ------- -------- -------- Total Operating and Other Income 1,690 4,267 20,878 22,087 ------- ------- -------- -------- Interest Expense Interest on long-term debt 2,373 2,375 7,091 7,165 Other interest 174 174 449 580 Allowance for borrowed funds during construction (72) (30) (188) (139) ------- ------- -------- -------- Total interest expense, net 2,475 2,519 7,352 7,606 ------- ------- -------- -------- Net Income (Loss) (785) 1,748 13,526 14,481 Retained Earnings at Beginning of Period 72,553 64,962 66,422 55,575 ------- ------- -------- -------- 71,768 66,710 79,948 70,056 Cash Dividends Declared Preferred stock 507 507 1,521 1,521 Common stock - 2,327 7,166 4,659 ------- ------- -------- -------- Total dividends declared 507 2,834 8,687 6,180 ------- ------- -------- -------- Retained Earnings at End of Period $71,261 $63,876 $ 71,261 $ 63,876 ======= ======= ======== ======== Earnings (Losses) Available for Common Stock $(1,292) $ 1,241 $ 12,005 $ 12,960 Average Shares of Common Stock Outstanding 11,519,748 11,618,596 11,552,140 11,668,606 Earnings (Losses) Per Share of Common Stock $(.11) $ .11 $1.04 $1.11 Dividends Paid Per Share of Common Stock $ .22 $ .20 $ .62 $ .60 CENTRAL VERMONT PUBLIC SERVICE CORPORATION CONSOLIDATED BALANCE SHEET (Dollars in thousands) (Unaudited) September 30 December 31 1996 1995 Assets Utility Plant, at original cost $452,767 $453,784 Less accumulated depreciation 148,112 136,057 -------- -------- 304,655 317,727 Construction work in progress 19,984 8,108 Nuclear fuel, net 943 1,167 -------- -------- Net utility plant 325,582 327,002 -------- -------- Investments and Other Assets Investments in affiliates, at equity 26,738 26,464 Non-utility investments 26,097 22,622 Non-utility property, less accumulated depreciation 4,495 2,896 -------- -------- Total investments and other assets 57,330 51,982 -------- -------- Current Assets Cash and cash equivalents 15,992 11,962 Special deposits 6,043 3,868 Accounts receivable 16,120 21,374 Unbilled revenues 4,257 11,177 Materials and supplies, at average cost 3,558 4,023 Prepayments 1,951 3,607 Other current assets 4,071 4,564 Total current assets 51,992 60,575 -------- -------- Regulatory Assets and Other Deferred Charges 49,370 50,503 -------- -------- Total Assets $484,274 $490,062 ======== ======== 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 45,268 45,251 Treasury stock (266,100 shares and 195,100 shares, respectively, at cost) (3,656) (2,628) Retained earnings 71,261 66,422 -------- -------- Total common stock equity 183,588 179,760 Preferred and preference stock 8,054 8,054 Preferred stock with sinking fund requirements 20,000 20,000 Long-term debt 120,379 120,142 Long-term lease arrangements 18,574 19,385 -------- -------- Total capitalization 350,595 347,341 -------- -------- Current Liabilities Short-term debt - 13,490 Current portion of long-term debt 1,015 15 Accounts payable 4,341 4,726 Accounts payable - affiliates 13,440 10,559 Accrued income taxes - 1,497 Dividends declared 507 507 Other current liabilities 31,137 26,101 -------- -------- Total current liabilities 50,440 56,895 -------- -------- Deferred Credits Deferred income taxes 58,623 57,191 Deferred investment tax credits 7,710 8,003 Other deferred credits 16,906 20,632 -------- -------- Total deferred credits 83,239 85,826 -------- -------- Total Capitalization and Liabilities $484,274 $490,062 ======== ======== CENTRAL VERMONT PUBLIC SERVICE CORPORATION CONSOLIDATED STATEMENT OF CASH FLOWS (Dollars in thousands) (Unaudited) Nine Months Ended September 30 1996 1995 Cash Flows Provided (Used) By Operating Activities Net income $13,526 $14,481 Adjustments to reconcile net income to net cash provided by operating activities Depreciation 13,391 12,883 Deferred income taxes and investment tax credits 554 2,846 Allowance for equity funds during construction (79) (195) Net deferral and amortization of nuclear refueling replacement energy and maintenance costs (1,393) (4,668) Amortization of conservation and load management costs 3,896 2,522 Amortization of restructuring costs 184 811 Gain on sale of investment - (1,517) Gain on sale of property (700) - Decrease in accounts receivable 11,999 14,618 Decrease in accounts payable 2,878 (464) Decrease in accrued income taxes (2,117) (835) Change in other working capital items 3,408 1,489 Other, net (3,017) (30) ------- ------- Net cash provided by operating activities 42,530 41,941 ------- ------- Investing Activities Construction and plant expenditures (14,813) (15,867) Deferred conservation & load management expenditures (1,158) (3,322) Investments in affiliates (99) 129 Proceeds from sale of investment - 6,400 Proceeds from sale of property 775 - Non-utility investments (1,079) (157) Other investments, net (158) (158) ------- ------- Net cash used for investing activities (16,532) (12,975) ------- ------- Financing Activities Repurchase of common stock (1,042) (1,892) Sale of treasury stock 14 - Short-term debt, net (13,490) (7,206) Long-term debt, net 1,236 (4,241) Common and preferred dividends paid (8,686) (8,525) ------- ------- Net cash used for financing activities (21,968) (21,864) ------- ------- Net Increase in Cash and Cash Equivalents 4,030 7,102 Cash and Cash Equivalents at Beginning of Period 11,962 7,559 ------- ------- Cash and Cash Equivalents at End of Period $15,992 $14,661 ======= ======= Supplemental Cash Flow Information Cash paid during the period for: Interest (net of amounts capitalized) $ 5,011 $ 5,342 Income taxes (net of refunds) $ 7,999 $ 6,119 CENTRAL VERMONT PUBLIC SERVICE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS September 30, 1996 Note 1 - Accounting Policies The Company's significant accounting policies are described in Note 1 of Notes to Consolidated Financial Statements included in its 1995 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. Certain reclassifications have been made to the Consolidated Balance Sheet to conform with the current period's presentation. 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. The Company has established a process for determining whether insurance proceeds are available to offset the costs associated with these sites. 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. 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. 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 additional data and develop and implement a remediation plan for the site. That firm has begun work at the site. It will collect 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. The Company has complied with the information request and will monitor EPA activities at the Sites. At this time, there has been no estimate of the cost to remediate the Sites. Therefore, the Company cannot predict whether the Sites represent the potential for a material adverse effect on its financial condition or results of operations. However, given the fact the EPA has identified more than 1,000 Potentially Responsible Parties (PRPs), and, based on information currently available to the Company that contamination at the Sites appears to be somewhat contained, any resulting liability is not expected to be significant. 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. 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 EPA had 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 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, 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. Negotiations between the PRP Group and the EPA continue. The PRP Group and EPA recently reached a tentative agreement. Under the terms of that agreement, and a related internal allocation, 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. The Company recently filed a Federal law suit 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 law suit, no receivables have currently been recorded. (See Part II - Legal Proceedings.) Note 3 - Accounts Receivable At September 30, 1996 and December 31, 1995, 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 $6.2 million and $5.8 million, respectively, at September 30, 1996 and $4.4 million and $7.6 million, respectively, at December 31, 1995. Accounts receivable are also reflected net of an allowance for uncollectible accounts of $1.2 million and $1.6 million at September 30, 1996 and December 31, 1995, respectively. Note 4 - Connecticut Yankee Atomic Power Co. On October 9, 1996, Connecticut Yankee Atomic Power Co. (CYAPC) which owns and operates the Connecticut Yankee nuclear electric generating plant, announced that a permanent shutdown of the CY plant is reasonably possible. The announcement was based on an economic analysis of the costs of operating the plant compared to the costs of closing the plant and incurring replacement power costs for the same period. The final decision to permanently shut down the CY plant is pending CYAPC's board of directors approval which is expected to occur in the fourth quarter of 1996. Assuming permanent shut down of the CY plant, the Company's share of the estimate of the sum of future payments for the closing, decommissioning and recovery of the remaining investment in CY is approximately $15.9 million. If the CYAPC's board of directors decision results in a permanent closure of the CY plant, this amount would be reflected as a regulatory asset and deferred power contract obligation on the Company's balance sheet. Of the Company's 2% share of the estimated decommissioning liability, approximately $3.9 million has been funded at September 30, 1996. The Company believes that based on the current regulatory process, its proportionate share of CY's decommissioning costs will be recovered through rates and, therefore, the ultimate resolution of the premature retirement of the plant will not have a material adverse effect on the Company's earnings or financial condition. The Company's entitlement in CY is 2% (11.7 MW) . The extra replacement power costs for CY are estimated to average in the range of $120,000 to $140,000 per month. The Company's investment in this plant at September 30, 1996 was $2.1 million. CENTRAL VERMONT PUBLIC SERVICE CORPORATION Summarized income statement information for Vermont Yankee Nuclear Power Corporation follows (dollars in thousands, except per share amounts): Three Months Ended Nine Months Ended September 30 September 30 1996 1995 1996 1995 Operating revenues $55,068 $38,350 $138,106 $136,768 Operating expenses 51,521 34,768 127,123 125,498 ------- ------- -------- -------- Operating income 3,547 3,582 10,983 11,270 Other income, net 669 655 1,870 1,704 ------- ------- -------- -------- Total operating and other income 4,216 4,237 12,853 12,974 Interest expense 2,481 2,590 7,818 7,853 ------- ------- -------- -------- Net income $ 1,735 $ 1,647 $ 5,035 $ 5,121 ======= ======= ======== ======== CENTRAL VERMONT PUBLIC SERVICE CORPORATION Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS September 30, 1996 Earnings Overview The Company recorded losses available for common stock of $1.3 million or $.11 per share of common stock for the three months ended September 30, 1996, compared to earnings available for common stock of $1.2 million or $.11 per share of common stock during the same period last year. Due to the Company's winter sales peak and higher winter rates, the Company normally experiences losses in the second and third quarter when sales are lower and rates are reduced. For the nine months ended September 30, 1996 earnings available for common stock were $12.0 million compared to $13.0 million in 1995. Earnings per share of common stock for these respective periods were $1.04 and $1.11. For both the three and nine months ended September 30, 1996, earnings available for common stock and earnings per share of common stock were reduced by approximately $1.7 million and $.15, respectively for unscheduled incremental nuclear outage costs and related replacement power costs. Other factors affecting results for 1996 are described in Results of Operations below. Also, the 1995 third quarter included a gain of $.9 million, or $.08 per common share, resulting from the sale of an investment in an independent power project. 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 and nine months ended September 30, 1996 and 1995 (and the related percentage changes from 1995) is set forth below:
Three Months Ended September 30 Percentage Percentage MWH Increase Revenues (000's) Increase 1996 1995 (Decrease) 1996 1995 (Decrease) Residential 211,344 213,381 (1.0) $22,053 $20,987 5.1 Commercial 229,016 225,015 1.8 21,897 20,442 7.1 Industrial 93,710 92,726 1.1 6,597 6,137 7.5 Other retail 1,842 1,900 (3.1) 478 464 3.0 ------- ------- ------- ------- Total retail sales 535,912 533,022 .5 51,025 48,030 6.2 ------- ------- ------- ------- Resale sales: Firm 370 346 6.9 21 11 90.9 Entitlement 116,752 184,247 (36.6) 6,826 7,993 (14.6) Other 162,032 143,713 12.7 3,938 3,281 20.0 ------- ------- ------- ------- Total resale sales 279,154 328,306 (15.0) 10,785 11,285 (4.4) ------- ------- ------- ------- Other revenues - - - 2,023 999 102.5 ------- ------- ------- ------- Total sales 815,066 861,328 (5.4) $63,833 $60,314 5.8 ======= ======= ======= ======= Nine Months Ended September 30 Percentage Percentage MWH Increase Revenues (000's) Increase 1996 1995 (Decrease) 1996 1995 (Decrease) Residential 711,815 700,687 1.6 $ 78,253 $ 74,376 5.2 Commercial 669,365 649,506 3.1 70,053 66,465 5.4 Industrial 291,415 295,381 (1.3) 22,735 22,437 1.3 Other retail 5,448 5,624 (3.1) 1,383 1,363 1.5 --------- --------- -------- -------- Total retail sales 1,678,043 1,651,198 1.6 172,424 164,641 4.7 --------- --------- -------- -------- Resale sales: Firm 1,166 4,388 (73.4) 60 203 (70.4) Entitlement 386,632 735,471 (47.4) 19,716 31,862 (38.1) Other 547,491 437,124 25.2 13,148 10,187 29.1 --------- --------- -------- -------- Total resale sales 935,289 1,176,983 (20.5) 32,924 42,252 (22.1) --------- --------- -------- -------- Other revenues - - - 4,121 3,130 31.7 --------- --------- -------- -------- Total sales 2,613,332 2,828,181 (7.6) $209,469 $210,023 (.3) ========= ========= ======== ========
Retail MWH sales for the third quarter ended September 30, 1996 were relatively flat compared to the 1995 third quarter. However, retail revenues increased $3.0 million or 6.2% over last year due to a $2.8 million increase in revenues resulting from the 5.5% retail rate increase effective with bills rendered June 1, 1996 and $.2 million associated with a modest increase in retail MWH sales. For the quarter, residential MWH sales decreased 1.0% while commercial and industrial MWH sales increased 1.8% and 1.1%, respectively. For the nine months ended September 30, 1996, retail MWH sales increased 1.6% while retail revenues increased $7.8 million or 4.7% compared to last year. The revenue increase results from a $4.9 million increase in revenues due to the 5.5% retail rate increase and $2.9 million associated with the 1.6% increase in retail MWH sales. For the nine months 1996, residential and commercial MWH sales increased 1.6% and 3.1%, respectively, reflecting the normal cold weather experienced during the first quarter of 1996 while industrial MWH sales decreased 1.3% as a result of increased natural snowfall during 1996 reducing ski areas' megawatt-hour requirements for snow making. For the three and nine months ended September 30, 1996, entitlement MWH sales and revenues decreased compared to the same period in 1995 primarily due to the expiration in October 1995 of a five year sale of part of the Company's interest in the output of Vermont Yankee and Merrimack #2 and lower sellback of Hydro-Quebec power. The increase in other resale sales and revenues for the three and nine month periods resulted primarily from increased short-term system capacity sales and sales to Nepool offset by a decrease in unit and off-system sales to other utilities in New England. Other revenues for the third quarter and for the nine months ended September 30, 1996 increased due to an increase in transmission revenues related to a transmission interconnection agreement. Net Purchased Power and Production Fuel Costs The net cost components of purchased power and production fuel costs for the three and nine months ended September 30, 1996 and 1995 are as follows (dollars in thousands):
Three Months Ended September 30 1996 1995 Units Amount Units Amount Purchased and produced: Capacity (MW) 537 $21,650 554 $20,190 Energy (MWH) 821,899 15,413 843,853 13,228 ------- ------- Total purchased power costs 37,063 33,418 Production fuel (MWH) 47,354 485 71,713 735 ------- ------- Total purchased power and production fuel costs 37,548 34,153 Entitlement and other resale sales (MWH) 278,784 10,764 327,960 11,274 ------- ------- Net purchased power and production fuel costs $26,784 $22,879 ======= ======= Nine Months Ended September 30 1996 1995 Units Amount Units Amount Purchased and produced: Capacity (MW) 519 $ 62,828 606 $ 62,532 Energy (MWH) 2,568,318 47,946 2,757,613 47,752 -------- -------- Total purchased power costs 110,774 110,284 Production fuel (MWH) 224,980 1,259 244,595 1,834 -------- -------- Total purchased power and production fuel costs 112,033 112,118 Entitlement and other resale sales (MWH) 934,123 32,864 1,172,595 42,049 -------- -------- Net purchased power and production fuel costs $ 79,169 $ 70,069 ====== ======
The Company's net purchased power and production fuel costs increased $3.9 million for the third quarter compared to the same period last year. Capacity and energy costs were $1.5 million and $2.2 million, respectively, higher than last year. Entitlement and other resale sales decreased $.5 million. Although the Company purchased 3.1% less MW during the third quarter which decreased capacity costs by $.6 million, this was offset by a price increase of $2.1 million. The Company purchased 2.6% less MWH amounting to $.3 million reduction in energy costs for the third quarter compared to 1995. However, a 19.6% increase in price per MWH resulted in a $2.5 million increase in energy costs. For the year-to-date period, net purchased power and production fuel costs increased $9.1 million compared to the same period last year. Although capacity and energy costs were about the same as last year, a 20.3% decrease in entitlement and other resale sales caused the increase in net purchased power and production fuel costs. The Company purchased 14.4% less MW amounting to $9.0 million offset by a price increase of $9.3 million. MWH purchased were lower by 6.9% or $3.3 million offset by an increase in price of $3.5 million. The price increase for the third quarter and for the year-to-date period results primarily from incremental replacement power costs associated with Millstone Unit #3 (Unit #3) discussed below. Also, production fuel costs decreased for the quarter and year-to-date compared to 1995 due to lower generation by Unit #3. 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 (NU). The Company also owns 2% and 3.5% equity interest in Maine Yankee and Yankee Atomic, respectively. Millstone Unit #3 On January 31, 1996, the Nuclear Regulatory Commission (NRC) placed the Millstone Nuclear Power Station on its "watch list" as a Category 2 facility which has been identified by the NRC as having weaknesses that require increased NRC attention until the licensee demonstrates a period of improved performance. On March 30, 1996, Unit #3 was shut down by the licensee following an engineering evaluation which determined that four safety-related valves would not be able to perform their design function during certain assumed events. The NRC issued a series of letters seeking assurances the Millstone Units would be operated in accordance with the terms of their operating licenses, their Updated Final Safety Analysis Reports and all NRC regulations before it would allow restart of the Millstone Units #1 and #2. In a letter dated June 28, 1996, the NRC informed Northeast Utilities Service Company (NUSCO), a subsidiary of NU, that the Millstone Nuclear Power Station had been reclassified from a Category 2 facility to a Category 3 facility. Category 3 facilities are classified as having significant weaknesses that require maintaining the plant in shutdown condition until it is demonstrated that adequate programs have been established and implemented to ensure substantial improvement. Also, the letter informed NUSCO that Category 3 designation requires the NRC staff to obtain NRC approval by vote prior to a plant returning to service. On July 2, 1996, NUSCO filed an extensive document, including an Operational Readiness Plan (ORP), with the NRC responding to a series of letters received from the NRC concerning Unit #3. The response outlines a revised corrective action program for the Millstone Nuclear Power Station in response to criticism of this program contained in a June 6 letter from the NRC. The July 2, 1996 filing identifies about 1,200 design and configuration discrepancies at Unit #3 of which about 600 will have to be resolved before Unit #3 can be returned to service. NUSCO believes that a small number of the remaining items will require hardware modifications and the balance can be resolved with additional inspections, documentation changes or additional analysis. The ORP for Unit #3 is under review by the NRC. On August 14, 1996, an independent review team was created by the NRC to review actions taken by NU prior to the restart of Unit #3. The Company has been informed that NUSCO's management cannot predict, at this time, the results of the NRC's review of Unit #3 documentation, how long it will take NUSCO to demonstrate the effectiveness of the corrective action program to the NRC or the effect the independent review team will have on the timing of restart of Unit #3 and what additional costs, if any, will result. Also, the management reorganization of NU's nuclear organization described in NU's Form 8-K dated August 19, 1996, may impact the actions currently being taken by NU to improve operation, regulatory compliance and safety at Unit #3. 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, evaluate and assist, where appropriate, NUSCO's efforts relating to Unit #3. The incremental direct and replacement power costs associated with Unit #3 outages will depend on the length of time Unit #3 remains out of service. However, NU anticipates that Unit #3 could return to service in mid-1997. The Company estimates that while Unit #3 is out of service it will incur incremental replacement power costs estimated at $250,000 to $350,000 per month. In addition, the Company expects to incur incremental operation and maintenance costs during 1996 of about $1.3 million all of which incremental operating and maintenance costs have been accrued. Connecticut Yankee On May 17, 1996, NU received a letter from the NRC indicating that recent inspections of the Connecticut Yankee (CY) nuclear unit revealed issues that were similar to those previously identified at Millstone Nuclear Power Station. Accordingly, the NRC requested that CY submit by May 30, 1996, a comprehensive list of design and configuration deficiencies identified at CY, together with a description of the actions taken in response to the deficiencies. In its compliance response, on May 30, 1996, CY stated that although several specific issues identified at CY are similar to those at Unit #1 of the Millstone Nuclear Power Station, the findings do not reach the same level as those identified at that facility. Also, CY stated that the fundamental problems that exist at Millstone Unit #1 are not present at CY. On July 22, 1996, the CY plant began an unscheduled outage as a precautionary measure to evaluate the plant's service water system, which provides cooling water to certain critical plant components. The shutdown began after an analysis of a hypothetical, though unlikely, accident scenario which demonstrates that the cooling water system might not perform its intended function. Based on preliminary engineering studies, NU estimated that the CY plant would return to service prior to mid-August 1996. Additional maintenance was expected to be completed during its 60-day scheduled refueling outage beginning September 21, 1996. On August 2, 1996, NU received a letter from the NRC identifying other potentially significant issues involving the "Residual Heat Removal, Service Water, and Feedwater Systems." Therefore, in order to make necessary improvements to the safety related systems, NU decided to begin the CY plant refueling outage on August 8, 1996. On August 9, 1996, NU received a letter from the NRC asking NU to "update and resubmit" the basis for continued operation of the CY plant previously submitted to the NRC. The NRC also requested NU to address the implications of recently identified instances of degraded or non-conforming conditions at the CY plant. NU responded to the August 9 letter on September 13, 1996. In summary, the letter addressed concerns about the bases for continued operation of the CY plant. It stated that additional reviews and corrective actions are necessary before NU can provide the bases for continued operation of the plant. It also stated that the plant will not return to service until NU improves program-matic controls, identified and resolved the safety issues and have taken necessary steps to give reasonable assurance that important plant systems are operable and in conformance with the design and licensing basis. In addition, the action may also be impacted by the currently ongoing economic analysis of CY's costs of operations, including expenses and the cost of replacing power, the NRC order requiring the creation of an independent corrective action verification program for the CY plant and NRC's ongoing and planned inspection activities at the CY plant. Based on results of the economic analysis, a premature shutdown of the plant is reasonably possible. For additional information regarding permanent shutdown of the CY plant, see Note 4 to the Consolidated Financial Statements in this Form 10-Q. Maine Yankee By order of the NRC, the 880-megawatt nuclear generating plant (Plant) located in Wiscasset, Maine is currently restricted to 90% of its approved power level. In response to concerns about Maine Yankee's analysis and the NRC's review of certain computer codes used in calculating the safety of the Plant in the event of some types of accidents, in mid-July 1996 an independent Safety Assessment Team (Team), commissioned by the NRC, began a four-week, on-site comprehensive review of the Plant's performance. The Team performed adetail review of the licensing basis and operational safety performance of the Plant and was responsible for analyzing whether the Plant has been operating in compliance with its operating license. On July 20, 1996, the Plant was shut down as a result of a potential problem discovered by Maine Yankee personnel related to the containment cooling system. The Plant came on line on September 2, 1996 and attained its limited 90% level on September 3, 1996. The Company's share of the incremental operating and maintenance costs associated with the outage are approximately $200,000 and the Company's incremental replacement power costs were about $150,000 through the date the Plant returned to service. On October 7, 1996, the NRC issued a report concluding that Maine Yankee was in general conformance with its licensing basis although significant items of non-conformance were identified. The report also concluded that despite uncorrected and previously undiscovered design problems specified in the report, the design basis and compensatory measures adequately supported operation of the Plant at a 90% power level. While Maine Yankee cannot predict when, or if, the Plant will be allowed to return to a 100% maximum capacity, the Plant's operating level may be limited to 90% of capacity until completion of the Plant's next planned refueling outage, which is currently scheduled for September 1997. The Company's estimated costs of replacement power during the Plant's operation at 90% of capacity are minimal. Yankee Atomic In 1992, the Board of Directors of Yankee Atomic (YA) decided to permanently discontinue operation of their plant, and to decommission the facility. The Company relied on YA for less than 1.5% of its system capacity. Presently, costs billed to the Company by YA, which include a provision for ultimate decommissioning of the unit, are being collected from the Company's customers via existing retail tariffs. The Company's share of remaining costs with respect to YA's decision to discontinue operation is approximately $7.0 million. 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 its proportionate share of YA costs will be recovered through the regulatory process and, therefore, the ultimate resolution of the premature retirement of the YA plant has not and will not have a material adverse effect on the Company's earnings or financial condition. Other Operation Other operating expenses increased $1.3 million for the third quarter of 1996 principally due to increased conservation and load management amortization and administrative and general expenses. The decrease in other operating expenses of $1.4 million for the nine months ended September 30, 1996, was primarily the result of accounting for the cumulative effects of certain Conservation and Load Management (C&LM) costs. Consistent with cost recovery allowed by the PSB in its April 30, 1996 rate order, the Company, during the second quarter, recorded a regulatory asset of approximately $1.4 million of C&LM expenses. Lower administrative and general expenses and uncollectible accounts also contributed to the decrease for the period. Maintenance The increase in maintenance expenses of $.6 million and $1.4 million for the three and nine months ended September 30, 1996 compared to the same periods in 1995 is attributable to nuclear maintenance expenses associated with the Company's joint-ownership interest in Millstone 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 three and nine months of 1996 results primarily from a decrease in pre-tax earnings for the respective periods. Other Income (Expenses), Net The decrease in other income (expenses), net for the three and nine months of 1996 is primarily due to approximately $1.1 million and $1.6 million, respectively, of expenses incurred in connection with a non- utility project currently under development in Summersville, West Virginia. These expenses will be reimbursed by Gauley River Power Partners LP at financial closing which is expected to occur during 1997. The decrease is partially offset by higher income from Catamount's operating investments, an increase in interest and dividend income and insurance proceeds of $1.3 million recorded in the first quarter of 1996. Other Interest Expense Other interest expense declined for the nine months ended September 30, 1996 due to lower average interest rates combined with decreased short-term debt levels. Cash Dividends Declared Common Early declarations account for the increase in common dividends declared. During the first nine months of 1996 the Company declared three common stock dividends totaling $.62 per share while two common stock dividends totaling $.40 per share were declared during the first nine months of 1995. However, two quarterly common stock dividends of $.20 and one at $.22 per share were paid during the first nine months of 1996 and three quarterly common stock dividends of $.20 per share were paid during the first nine months of 1995. 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 $43.0 million and $41.9 million for the nine months ended September 30, 1996 and 1995, respectively. The Company ended the first nine months of 1996 with cash and cash equivalents of $16.0 million, an increase of $4.0 million from the beginning of the year. The increase in cash for the first nine months of 1996 was the result of $42.5 million provided by operating activities, $16.5 million used for investing activities and $22.0 million used for financing activities. OPERATING ACTIVITIES - Net income before non-cash items, depreciation and deferred income taxes provided $27.5 million. Fluctuations in working capital provided $16.1 million and $1.1 million was used for deferral/amortization of nuclear replacement energy and maintenance costs, amortization of conservation and load management costs and other, net including gain on sale of property of $.7 million. INVESTING ACTIVITIES - Construction and plant expenditures consumed $14.8 million, $1.2 million was used for C&LM programs, $1.1 million was used for non-utility investments and $.2 million was used for other investments. Proceeds of $.8 million were generated from the sale of property. FINANCING ACTIVITIES - Dividends paid on common stock were $7.2 million, while preferred stock dividends were $1.5 million. Long-term debt provided $1.2 million while short-term obligations repaid totaled $13.5 million. $1.0 million was used to reacquire common stock. Competition As described in Note 1 of Notes to Consolidated Financial Statements included in the Company's 1995 Annual Report on Form 10-K, management believes the Company meets the requirement of SFAS No. 71, "Accounting for the Effects of Certain Types of Regulation," but continues to evaluate significant changes in the regulatory and competitive environment to ensure and assess the Company's overall consistency with the criteria of SFAS No. 71. If in the future, 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. Although these conditions do not currently exist, the Company anticipates future competition will place pressure on both unit sales and the prices the Company can charge. As a result, increased competitive pressure in the electric utility industry may restrict the Company's ability to establish prices to recover embedded costs and may lead to a significant change in the manner rates are set by regulators from cost-based regulation to a different form of regulation that approximates market conditions. Singly or together these events may give rise to the discontinuance of SFAS No. 71 and, in addition, could diminish the Company's ability to recover its embedded costs of providing service. ELECTRIC INDUSTRY RESTRUCTURING Vermont 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. In Vermont, the PSB by Order dated October 17, 1995, opened a process requiring all 22 electric utilities in Vermont to file proposed restructuring plans by mid-1996. The goal, as set forth in the Order, is to achieve restructuring by January 1, 1998. The Company filed its electric industry restructuring proposal with the PSB on June 19, 1996. On October 16, 1996, the PSB issued a Draft Report and Order (Draft Report) outlining a restructuring plan (Plan) for the Vermont electric utility industry which requires legislative approval. The Plan consists of nine components as follows: PROVIDE CUSTOMER CHOICE. Enables 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 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 Draft 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 Draft Report would call on the PSB to take into account the circumstances under which stranded costs were incurred and the companies' efforts to mitigate them. As proposed, the Draft Report states Companies that succeed in mitigating a significant portion of their current, legitimate above market costs and that can commit to competitive prices will have the greatest likelihood of recovering their total stranded cost exposure. A multiple step process outlined by the PSB in the Draft Report 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. The Company intends to comply with the steps outlined in the Draft Report and aggressively pursue mitigation efforts in order to maximize recovery of its stranded costs. However, it is unclear at this time, the exact requirements that will finally be set forth for the State of Vermont. The regulatory process requires a final PSB Report and Order, enabling legislation, and further regulatory proceedings. The Company can not give assurance that it will be successful in realizing mitigation of these costs to the extent suggested 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 as proposed. As such, the Company cannot predict whether the Draft Report or any subsequent report or actions of, or proceedings before the PSB would have a material adverse effect on the Company's operations, financial condition or credit ratings. However, it is possible that 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 availability to capital at current rates. It is possible that stranded cost exposure before mitigation could exceed the Company's current total common equity. In the Draft Report, the PSB also "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 will continue 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. 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 up to a two-year period beginning in May 1996 and was open to all electric utilities and to all classes of customers in New Hampshire, although only 3% of customers were allowed to participate. The Company successfully 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 million kilowatt hours. On September 10, 1996, pursuant to legislation enacted in May 1996, the NHPUC issued a preliminary plan (Plan) to restructure the electric industry in New Hampshire including Connecticut Valley. The legislature requires generation to be functionally separated from transmission and distribution, with the distribution and customer-related services remaining subject to regulation by the NHPUC. The Plan calls for New Hampshire utilities to unbundle their electric rates and services into generation, transmission, distribution and Conservation and Load Management services. It provides for an interim stranded cost charge effective for two years following the implementation of the New Hampshire utilities compliance filings. The NHPUC plans to implement retail choice for all customers by January 1, 1998 and in no event later than June 30, 1998. Connecticut Valley and other parties are currently providing written and oral comments to the NHPUC on its Plan. The NHPUC will consider these comments and is expected to issue its final Plan by the end of February 1997. Connecticut Valley constituted approximately 7% of the Company's total retail MWH sales for the nine months ended September 30, 1996. 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 September 30, 1996 (including amounts of long-term debt due within one year), consisted of 52.2% common equity, 8.0% preferred stock, 34.5% long-term debt and 5.3% capital lease obligations. Based on debt issues outstanding at September 30, 1996, the Company's mandatory sinking fund requirements for long-term debt due within the next twelve-month period is approximately $1.0 million. None of the Company's preferred stock is currently subject to mandatory sinking fund requirements. 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 obligation in the Appomattox Cogeneration project and two letters of credit totaling $2.33 million to support investment commitments 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 1995 were $4.8 million, and are expected to be approximately $5.1 million in 1996. An agreement has been reached between the Company and the Vermont Department of Public Service with regard to 1997 C&LM programs. Based on the Agreement, 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 four operating independent power projects located in 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; Glenns Ferry and Rupert, Idaho; and under development in Summersville, West Virginia. For the third quarter and nine months September 30, 1996, Catamount incurred a loss of $114,000 and earnings of $144,000, respectively. Included in results of operation for the three and nine months ended September 30, 1996 were $1.1 million and $1.6 million, respectively, of costs related to the Gauley River project. These costs are expected to be reimbursed out of construction loan proceeds if this project achieves construction financing closing. SmartEnergy was formed for the purpose of providing reliable, energy- efficient products and services, including the rental of electric water heaters. SmartEnergy's earnings were $84,000 for the third quarter and $271,000 for year-to-date 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. On April 30, 1996 the Company received a rate order from the PSB permitting an increase in its Vermont retail rates of 5.5% effective June 1, 1996 and an additional 2% to be effective January 1, 1997. For additional information regarding the PSB Rate Order, see the Company's Form 10-Q for the quarter ended March 31, 1996. The Company and the Vermont Department of Public Service have reached an agreement with respect to a redesign of its Vermont retail rates. The agreement would implement a design of rates that is more reflective of its costs of providing service while collecting total revenues that are consistent with currently allowed revenue requirements. Two intervening parties oppose the settlement. This agreement is pending PSB approval which is expected in the fourth quarter of 1996. During proceedings related to the April 30, 1996 Order, 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. No decision has been issued by the PSB. On July 23, 1996, Connecticut Valley filed with the New Hampshire Public Utilities Commission (NHPUC) for an 8.8% or approximately $1.6 million base rate increase to become effective September 22, 1996. The increase is to recover increased operating costs and costs of improvements to the electric system. As part of the permanent rate increase, Connecticut Valley also requested a temporary rate increase of 5.4% or approximately $.9 million. The NHPUC has granted Connecticut Valley a temporary rate increase of 5.4% effective with bills rendered October 1, 1996. Hearings in regard to the 8.8% permanent rate increase request have been scheduled for January 7 and 8, 1997. New Accounting Pronouncements Effective January 1, 1996, the Company adopted SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," which establishes accounting standards for the impairment of long-lived assets and requires that regulatory assets which are no longer probable of recovery through future revenues be charged to earnings. Based on the current regulatory rate-making process, the adoption of SFAS No. 121 did not have a material impact on the Company's financial position or results of operations. The Company did not adopt the accounting option of SFAS No. 123, "Accounting for Stock-Based Compensation," but adopted the required audited pro forma disclosure. Based on the requirements of the pronouncement, the pro forma effects on earnings and earnings per share are not expected to be material. 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 results, performance or achievements expressed or implied in such 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. (a) On December 30, 1994, a lawsuit was filed in the United States District Court for the District of Vermont, Civil Action No. 2:94-CV386, by Bradford E. White, Michel J. Messier and John A. Wasik, against the Company, its present directors and certain former directors. This lawsuit (the "Shareholder Suit"), which purports to be on behalf of a class of consumers as well as on behalf of the Company's stockholders in enforcing the rights of the Company, alleges, among other things, (i) that F. Ray Keyser, Jr., Chairman of the Company's Board of Directors, violated Section 8 of the Clayton Act, 15 U.S.C. Subchapter 19, which precludes certain interlocking directorships, (ii) that Mr. Keyser violated his fiduciary duties to the Company's stockholders by acquiring and operating a series of businesses in competition with the Company without offering those business opportunities to the Company, (iii) that the remaining individual defendants violated their fiduciary duties to the Company's stockholders by failing to analyze, or to cause management to analyze, diversification into propane and fossil fuels, and by failing to make the Company an effective competitor of alternative fuel companies, and (iv) that the Company violated the applicable provision of the Vermont General Corporation Law by failing to provide a list of the Company's stockholders. The Shareholder Suit seeks an unspecified amount of damages (including treble damages against Mr. Keyser), attorney's fees and costs, a list of the Company's stockholders, and a court order to enjoin the defendants from alleged continuing violations of the law. Each of the individual defendants and the Company itself deny the allegations against them and intend to vigorously defend the Shareholder Suit. The Company and its directors filed a Motion to Dismiss and in an Order dated September 20, 1996, the U.S. District Court Judge dismissed all of the claims filed against the Company and its directors. (b) 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, 3 and 4. None. Item 5. Other Information. (a) The National Energy Policy Act of 1992 and the Federal Energy Regulatory Commission's (FERC) March 1995 Notice of Proposed Rule-making (NOPR) promote wholesale competition in the electric utility industry. On April 24, 1996, under Order No. 888, FERC issued its final open access rule promoting competition in the electric utility industry. All public utilities that own, control or operate facilities used for transmitting electric energy in interstate commerce are required by Order No. 888 to file an open access, non-discriminatory transmission tariff. Order No. 888 requires public utilities to develop and maintain a same-time information system that will give existing and potential transmission users the same access to transmission information that the public utility enjoys and also requires public utilities to separate transmission from generation marketing functions and communications. Also, Order No. 888 supports full recovery of legitimate, prudent and verifiable stranded costs associated with providing open access transmission services. On April 24, 1996, the Company filed a settlement agreement with FERC which addressed almost all rate issues raised in the Company's March 1, 1995 open access Transmission Tariff No. 6. The single unresolved rate issue was later settled. The Administrative Law Judge certified a settlement to the FERC. After evaluating Order No. 888, the Company submitted, on July 9, 1996, a compliance filing modifying the terms and conditions of Transmission Tariff No. 6 to conform to the non-rate terms and conditions of the pro forma tariffs in Order No. 888. (b) As ordered by the NHPUC in Connecticut Valley's 1994 C&LMPA docket, the Company entered into negotiations with the NHPUC Staff to redesign the RS-2 wholesale rate under which Connecticut Valley purchases power from the Company. The redesign features marginal cost based energy and capacity charges for all energy and capacity purchases above or below a base level. Such negotiations concluded at the end of 1994. A summary report was filed with the NHPUC on February 13, 1995. The NHPUC issued an order approving the summary report in June 1995. The Company is preparing the FERC filing which it expects to file in 1996. The redesigned rate is structured such that Connecticut Valley's cost of wholesale power will be lower than it would have been if Connecticut Valley's growth rate exceeds that of the Company's Vermont retail operations. (c) On September 23, 1996, Kent R. Brown joined the Company as Vice President of Engineering and Operations, replacing Robert G. Kirn who resigned from the Company effective June 28, 1996. Item 6. Exhibits and Reports on Form 8-K. (a) Exhibits. EXHIBIT INDEX Exhibit 3-1. By-laws, as amended August 5, 1996. 27. Financial Data Schedule. (b) There were no reports on Form 8-K for the quarter ended September 30, 1996. 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, Vice President, Finance and Administration and Principal Financial Officer By James M. Pennington --------------------------------------- James M. Pennington, Controller and Principal Accounting Officer Dated November 13, 1996 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 9-MOS DEC-31-1996 SEP-30-1996 PER-BOOK 325,582 57,330 51,992 49,370 0 484,274 67,059 45,268 71,261 183,588 20,000 8,054 120,379 0 0 0 1,015 0 18,574 1,094 131,570 484,274 209,469 7,698 185,865 193,563 15,906 4,972 20,878 7,352 13,526 1,521 12,005 7,166 8,142 42,530 1.04 0
EX-3 3 EXHIBIT 3.1 - BY-LAWS AMENDED TO 08/05/96 Exhibit 3-1 ------------- BY-LAWS OF CENTRAL VERMONT PUBLIC SERVICE CORPORATION ARTICLE I. Articles of Agreement: Offices Section 1. These By-Laws shall be subject to the Articles of Association, and all references in these By-Laws to the Articles of Association shall be construed to mean the Articles of Association of the Corporation as from time to time amended. Section 2. The Corporation shall maintain its principal office in Rutland, Vermont, and may maintain offices at such other places as the Board of Directors may, from time to time, appoint. ARTICLE II. Seal The corporate seal shall be circular in form and shall have inscribed thereon the name of the Corporation and the words and figures: "Seal Vermont 1929". ARTICLE III. Capital Stock and Transfers Section 1. The amount and classes of capital stock that may be issued by the Corporation, and the designations, preferences, rights, privileges, voting powers, restrictions, and qualifications of each class thereof, shall be as set forth in the Articles of Association, as the same shall at any time be duly recorded in the office of the Secretary of State of Vermont in original or amended form. Section 2. Each holder of fully paid stock shall be entitled to a certificate or certificates of stock as provided by law and in a form approved by the Board of Directors. (As amended May 2, 1972) Section 3. Shares of stock may be transferred by the owner by a proper endorsement upon the back of the certificate or by a separate instrument of assignment, and the assignee, upon producing, and surrendering the former certificate so transferred or the certificate accompanied by such instrument, shall be entitled to a new certificate if no liens upon the stock against the former owner have attached. The delivery of a properly executed stock certificate to a bona fide purchaser or pledgee for value to sell, assign and transfer the same, signed by the owner of the certificate, shall be a sufficient delivery to transfer the title against all persons except the Company; but no such transfer shall affect the right of the Company to treat the stockholder of record as the stockholder in fact until the old certificate is surrendered and a new certificate is issued to the person entitled thereto. Except as hereinafter provided, or as may be required by law or by the order of a court in appropriate proceedings, shares of stock shall be transferred on the books of the Company only upon the proper assignment and surrender of the certificates issued therefor. If an outstanding certificate of stock shall be lost, destroyed or stolen, the holder thereof may have a replacement certificate issued upon such terms as the Directors may prescribe. (As amended May 2, 1972) Section 4. If default shall be made in the prompt payment when due of any sum payable to the Company upon any subscription for stock of the Company, and if such default shall continue for a period of twenty days, then all right under the subscription in and to the stock subscribed for shall, upon the expiration of such period, cease and determine and become and be forfeited to the Company; provided that if at the expiration of such twenty day period such right shall belong to the estate of a decedent, it may be forfeited only by resolution of the Board of Directors declaring forfeiture. (As amended May 2, 1972) ARTICLE IV. Meetings of Stockholders Section 1. All meetings of the stockholders shall be held in Vermont, either at the principal office of the Company or at such other place as shall be designated in the call therefor. The annual meeting shall be held on the first Tuesday of May in each year, if not a legal holiday, and if a legal holiday, then on the next succeeding business day, at the time designated in the call, for the election of Directors, and the transaction of such other business as may come before it. (As amended April 2, 1946) Section 2. Special meetings of the stockholders may be called by the Board of Directors, the President or the Secretary upon written request of stockholders holding not less than one-tenth of all the shares entitled to vote at the meeting. In case an annual meeting shall be omitted through inadvertence or otherwise, the business of such meeting may be transacted at a special meeting duly called for the purpose. (As amended May 2, 1972) Section 3. Written or printed notice stating the place, day and hour of the meeting and, in case of a special meeting, the purpose or purposes for which the meeting is called, shall be delivered not less than 10 nor more than 60 days before the date of the meeting, either personally or by mail, by or at the direction of the President or the Secretary, to each registered holder entitled to vote at such meeting. If mailed, such notice shall be deemed to be delivered when deposited in the United States mail addressed to the registered holder at the address as it appears on the stock transfer books of the Company, with postage on it prepaid. (As amended May 2, 1972 and August 7, 1995) Section 4. Unless otherwise provided in the Articles of Association, a majority of the shares entitled to vote, represented in person or by proxy, shall constitute a quorum at a meeting of stockholders. If a quorum is present, the affirmative vote of the majority of the shares represented at the meeting and entitled to vote on the subject matter shall be the act of the stockholders, unless the vote of a greater number or voting by classes is required by law, by these By-Laws or by the Articles of Association. A majority vote of whatever stock shall be represented, even if less than a quorum, shall be sufficient (a) to adjourn from time to time until a quorum is present or (b) to adjourn sine die. (As amended May 2, 1972) Section 5. At all stockholders' meetings, holders of record of stock then having voting power shall be entitled to one vote for each share of stock held by them, respectively, upon any question or at any election, and such vote may, in all cases, be given by proxy, duly authorized in writing. But no proxy dated more than eleven months before the meeting, which shall be named therein, shall be accepted; and no proxy shall be valid after the final adjournment of such meeting. (As amended May 1, 1973 and August 7, 1995) Article V. Directors Section 1. The property and business of the Corporation shall be managed by a Board of Directors, each of whom must be a stockholder. The Directors shall be elected by ballot by majority vote of the stockholders present in person or represented by proxy at the election and entitled to vote on the question, except as otherwise provided in the Articles of Association or in these By-Laws. (As amended October 16, 1944; May 7, 1963 and February 17, 1987) No person shall be eligible for election or re-election as a Director after his/her seventieth birthday, provided that any Director whose term of office extends beyond his/her seventieth birthday shall be entitled to serve the remainder of the full term of the class of Directors to which he/she was elected. (As amended June 13, 1983 and November 2, 1987) A majority of the Directors shall at all times be persons who are not employees of the Corporation. The provisions of this paragraph shall not apply to the election of Directors by the holders of preferred stock when, in accordance with the Articles of Association, they shall be entitled to elect the smallest number of Directors necessary to constitute a majority of the full Board of Directors. (As amended April 6, 1953 and August 7, 1995) Section 2. Subject to the provisions of Section 5 below, the Board of Directors shall consist of not less than 9 nor more than 21 persons, the exact number to be fixed from time to time by resolution of the Board of Directors. Such exact number may be increased or decreased by the affirmative vote of the holders of at least 80 percent of the combined voting power of the then- outstanding shares of common stock and of any other class of stock then being expressly entitled to vote with the common stock on the question. The Directors shall be classified, with respect to the time for which they severally hold office, into three classes, as nearly equal in number as possible. Upon their initial election, the members of the first class shall hold office for a term expiring at the next annual meeting of stockholders after their election, the members of the second class shall hold office for a term expiring at the second annual meeting of stockholders after their election, and the members of the third class shall hold office for a term expiring at the third annual meeting of stockholders after their election. (As amended February 17, 1987) Section 3. Subject to the provisions of Section 5 below, any vacancies in the Board of Directors resulting from death, resignation, retirement, disqualification, removal from office or other cause may be filled only by a majority vote of the Directors then in office, though less than a quorum of the Board of Directors. Any Director elected in accordance with this provision shall hold office for the remainder of the full term of the class of Directors in which the vacancy occurred and until such Director's successor shall have been elected and qualified. No decrease in the number of authorized Directors constituting the entire Board of Directors shall shorten the term of any incumbent Director. (As amended February 17, 1987) Section 4. Except as otherwise provided in paragraph (e) of subdivision 6 of the Articles of Association, a Director may be removed from office only for cause and only by the affirmative vote of the holders of at least 80 percent of the combined voting power of the then-outstanding shares of common stock and of any other class of stock then being expressly entitled to vote with the common stock on the question. (As amended February 17, 1987) Section 5. Nothing contained in Sections 2 through 4 of this Article V shall be deemed to alter, amend or repeal the provisions of paragraph (b) of subdivision 6, paragraph (b) of subdivision 10F, or paragraph (a) of subdivision 20F, of the Articles of Association each of which confers, under the circumstances described therein, on the holders of the classes of stock referred to therein, the right to vote in the election of Directors. During any period in which such rights may be exercised, the provision or provisions conferring such rights shall prevail over any provision of these By-Laws inconsistent therewith. (As amended February 17, 1987) Section 6. Notwithstanding any other provision of these By-Laws, of the Articles of Association or of law, the affirmative vote of the holders of at least 80 percent of the combined voting power of the then-outstanding shares of common stock and of any other class of stock then being expressly entitled to vote with the common stock in the election of Directors shall be required to alter, amend or repeal Sections 2, 3, 4, 5 or 6 of this Article V. (As amended February 17, 1987) Section 7. The Board of Directors may hold its meetings and may have one or more offices, and may keep the books of the Corporation (except such records and books as by laws of Vermont are required to be kept within the State) within or outside of Vermont, at such places as it may from time to time determine. In addition to the powers and authorities by these By-Laws expressly conferred upon them, the Board of Directors may exercise all such powers of the Corporation, and do all such lawful acts and things as are not by law, by the Articles of Association or by these By-Laws required to be exercised or done by the incorporators or stockholders. Section 8. (Section 8 deleted in its entirety by amendment dated August 7, 1995) ARTICLE VI. Meetings of the Board Section 1. Regular meetings of the Board of Directors shall be held at such place and time as may be designated from time to time by the Board; and such meetings, and a regular meeting immediately following and at the same place as each annual meeting of the stockholders, may be held without notice. Special meetings of the Board of Directors may be called by the President, or by any two Directors, upon two days' notice to each Director, either personally or by mail or by telegram; and they may be held at any time without call or formal notice, provided all the Directors are present or waive notice thereof in writing. (As amended May 1, 1962) Section 2. A majority of the number of Directors fixed in accordance with the By-Laws shall constitute a quorum for the transaction of business, unless a greater number is required by the Articles of Association. The act of the majority of the Directors present at a meeting at which a quorum is present shall be the act of the Board of Directors, unless the act of a greater number is required by the Articles of Association. (As amended May 2, 1972) Section 3. Directors who are not also officers or regular employees of the Company may receive compensation for their services as such or as a member of any committee of the Board of Directors, as well as fixed sums and expenses for attendance at Directors' or committee meetings, in such amounts as may be provided from time to time by the Board of Directors, provided that nothing herein contained shall be construed to preclude any Director from serving the Company in any other capacity and receiving compensation therefor. (As amended May 5, 1981) Section 4. Directors and members of the Executive Committee and any other committee designated by the Board of Directors may participate in a meeting of such Board or committee by means of a conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and participation in a meeting in such a manner shall constitute presence in person at such meeting. (As amended May 3, 1977) ARTICLE VII. Officers Section 1. In each year there shall be elected by the Board of Directors, and if practicable, at its first meeting after the annual election of Directors, a President, one or more Vice Presidents, a Secretary, a Treasurer, and a Controller; and the Board may provide for and elect a Chairperson, one or more Assistant Secretaries, one or more Assistant Treasurers, and such other officers and prescribe such duties for them as in its judgment may, from time to time, be required to conduct the business of the Company. One of said Vice Presidents may be designated Executive Vice President. Any two or more offices may be held by the same person, except the offices of President and Secretary. All officers shall hold their respective offices for the term of one year, and until their successors, willing to serve, shall have been elected and, in the case of the Secretary, qualified, unless sooner removed; but they, and any of them, may be removed from their respective offices at the pleasure of the Board. Vacancies arising in any office from any cause shall be filled by the Board of Directors; and the persons chosen to fill vacancies shall serve for the balance of the unexpired term and until their successors shall have been elected. (As amended May 1, 1962; May 7, 1963; May 5, 1964; May 2, 1972 and November 2, 1987) Section 2. A Chairperson elected pursuant to Section 1 of this Article VII shall advise with and make his/her counsel available to the other officers of the Company and shall have such other powers and duties as may at any time be prescribed by these By-Laws and by the Board of Directors. He/She shall, when present, preside at all meetings of the stockholders and of the Board of Directors and of the Executive Committee. (As amended May 5, 1964) The President shall be the Chief Executive Officer of the Company and, subject to the direction of the Board of Directors and of the Chairperson (if one is elected), shall supervise the administration of the business and affairs of the Company and shall have such other powers and duties as may at any time be prescribed by these By-Laws and by the Board of Directors. In the absence of the Chairperson (or if no such Chairperson is elected), the President shall, when present, preside at meetings of the stockholders and of the Board of Directors and of the Executive Committee. (As amended May 5, 1964 and November 2, 1987) The Chairperson and the President shall be members of the Executive Committee (if such Executive Committee is designated by the Board of Directors) and each of them, in his/her discretion, may attend any meeting of any committee of the Board, whether or not he/she is a member of such committee. (As amended May 5, 1964) Section 3. The President shall, subject to the control of the Board of Directors, have charge of the business and affairs of the Company, including the power to appoint and to remove and to discharge any and all agents and employees of the Company not elected or appointed directly by the Board of Directors, and such other powers and duties as may at any time be prescribed by these By-Laws and by the Board of Directors. (As amended May 5, 1964) Section 4. The Vice President or Vice Presidents, if there shall be more than one, shall have such powers and duties as may from time to time be prescribed by the Board of Directors or by the President, but any powers and duties prescribed by the President shall not be inconsistent with any theretofore prescribed by the Board of Directors. In case the President, from absence or any other cause, shall be unable at any time to attend to the duties of the office of President requiring attention, or in case of his/her death, resignation or removal from office, the powers and duties of the President shall, except as the Board of Directors may otherwise provide, temporarily devolve upon the Executive Vice President if one shall have been designated and is able to serve, or in case of the latter's inability, upon the Vice President designated by the Board of Directors and able to serve and shall be exercised by such Vice President as acting President during such inability of the President, or until the vacancy in the office of President shall be filled. In case of the absence, disability, death, resignation or removal from office of both the President and such Vice President, the Board of Directors shall elect one of its members to exercise the powers and duties of the President during such absence or disability, or until the vacancy in one of said offices shall be filled. (As amended May 1, 1951 and May 1, 1962) Section 5. The Secretary shall reside in the State of Vermont and shall have the duties prescribed by law and such other duties as the By-Laws or the Board of Directors may prescribe. (As amended May 2, 1972) Section 6. The Treasurer shall have charge of, and be responsible for the custody and, jointly with the Controller, the receipt and disbursement of the funds of the Corporation, and shall deposit its funds in the name of the Company, in such banks, trust companies, or safe deposit vaults as the Board of Directors may direct. The Treasurer shall have the custody of such books and papers as in the practical business operations of the Company shall naturally belong in the office or custody of the Treasurer, or as shall be placed in his/her custody by the Board of Directors, by the Executive Committee, or by the President. The Treasurer shall also have charge of the safekeeping of all stocks, bonds, mortgages, and other securities belonging to the Company, but such stocks, bonds, mortgages, and other securities shall be deposited for safekeeping in a safe deposit vault to be approved by the Board of Directors or the Executive Committee, in a box or boxes, access to which shall be had as may be provided by resolution of the Board of Directors or by the Executive Committee. The Treasurer shall have such other powers and duties as are commonly incident to the office of Treasurer, or as may be prescribed. The Treasurer may be required to give bond to the Company for the faithful discharge of duties in such form and to such amount and with such sureties as shall be determined by the Board of Directors. (As amended November 2, 1987) Section 7. The Controller shall have charge of, and be responsible for the collection, and jointly with the Treasurer, the receipt and disbursement of the funds of the Corporation. The Controller shall maintain adequate records of all assets, liabilities, and transactions of the Company; shall see that adequate audits thereof are currently and regularly made and, in conjunction with other officers and department heads, shall initiate and enforce methods and procedures whereby the business of the Company shall be conducted with maximum safety, efficiency and economy. The Controller shall have the custody of such books, receipted vouchers, and other books and papers as in the practical business operations of the Company shall naturally belong in the office or the custody of the Controller, or as shall be placed in his/her custody by the Board of Directors, by the Executive Committee, or by the President. The Controller shall have such other powers and duties as are commonly incidental to the office of Controller, or as may be prescribed. The Controller may be required to give bond to the Company for the faithful discharge of duties in such form and to such amount and with such sureties as shall be determined by the Board of Directors. (As amended November 2, 1987) Section 8. Assistant Secretaries or Treasurers, when elected, shall assist the Secretary or Treasurer, as the case may be, in the performance of the respective duties assigned to such principal officers; and the powers and duties of any such principal officer, shall, except as otherwise ordered by the Board of Directors, temporarily devolve upon his/her assistant in case of the absence, disability, death, resignation or removal from office of such principal officer. They shall perform such other duties as may be assigned to them from time to time. (As amended May 7, 1963) ARTICLE VIII. Executive Committee Section 1. The Board of Directors may, by resolution passed by a majority of the Board, designate from their number an Executive Committee of such number, not less than three, as the Board may fix from time to time. The Executive Committee may make its own rules of procedure and shall meet where and as provided by such rules, or by resolution of the Board of Directors. A majority of the members of the Committee shall constitute a quorum for the transaction of business. During the intervals between the meetings of the Board of Directors, the Executive Committee shall have all the powers of the Board in management of the business and affairs of the Company except as may otherwise be provided by law, including power to authorize the seal of the Company to be affixed to all papers which may require it, and, by majority vote of all its members, exercise any and all such powers in such manner as such Committee shall deem best for the interest of the Company, in all cases in which specific directions shall not have been given by the Board of Directors, and in which the vote of a quorum of the full Board of Directors is not required by law, the Articles of Association, or by these By-Laws. (As amended May 2, 1972) Section 2. The Executive Committee shall keep regular minutes of its proceedings and report the same to the Board of Directors when required. The Board of Directors shall have power to rescind any vote or resolution of the Executive Committee, but no such recision shall have retroactive effect. ARTICLE IX. Inspection of Books All records, accounts, and papers of the Corporation shall be open to the inspection of every stockholder at reasonable times and for legitimate purposes; and, subject to such rights of inspection as may be afforded the stockholders by law, the Directors may make such reasonable regulations relative to such inspection, and take such action to prevent an inspection of corporate books or papers for illegitimate purposes as may be consistent with law. ARTICLE X. (Article X deleted in its entirety by amendment dated August 5, 1996) ARTICLE XI (As amended May 3, 1994) INDEMNIFICATION OF DIRECTORS, OFFICERS AND EMPLOYEES Section 1. Permissive Indemnification. To the extent legally permissible, the Company may indemnify any of its Directors, officers and employees who, as a result of such position, was or is a party or is threatened to be made a party to any contemplated, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative and whether formal or informal against expenses, actually and reasonably incurred by him or her in connection with such action, suit or proceeding. The term Expenses, as used in this Article, includes reasonable attorney's fees, damages, judgments, fines, amounts paid in settlement and costs including the costs of investigation and defense. Such indemnification against Expenses shall be payable only if (a) the Director, officer or employee acted in good faith, (b) the Director reasonably believed: (A) in the case of conduct in the Director's official capacity with the Company, that the Director's conduct was in its best interests; and (B) in all other cases, that the Director's conduct was at least not opposed to its best interests; and (c) with respect to any proceeding brought by a governmental entity, the Director had no reasonable cause to believe his or her conduct was unlawful, and the Director is not finally found to have engaged in a reckless or intentional unlawful act. Notwithstanding the foregoing and except as otherwise provided by law, the Company may not indemnify any Director, officer, or employee for any Expenses in any action by or in right of the Company in which such individual is adjudged liable to the Company. Any indemnification under this section (unless ordered by a court) shall be made by the Company only upon a determination that indemnification of the Director, officer or employee is proper because he or she has acted in good faith in conformance with the applicable standard of conduct as set forth herein. Such determination shall be made (a) by the Board of Directors by a majority vote of a quorum consisting of Directors who are not parties to such action, suit or proceeding or (b) if such a quorum is not obtainable, by majority vote of a committee duly designated by the Board of Directors (in which designation Directors who are parties to the action, suit or proceeding may participate), consisting solely of two or more Directors not at the time parties to the action, suit or proceeding; (c) by written opinion of special legal counsel: (A) selected by the Board of Directors or its committee in the manner prescribed in clause (a) or (b); or (B) if a quorum of the Board of Directors cannot be obtained under clause (a) and a committee cannot be designated under clause (b), selected by majority vote of the full Board of Directors (in which selection Directors who are parties to the action, suit or proceeding may participate); or (d) by the shareholders, but shares owned by or voted under the control of Directors who are at the time parties to the action, suit or proceeding may not be voted on the determination. Authorization of indemnification and evaluation as to reasonableness of Expenses shall be made in the same manner provided above as the determination that indemnification is permissible, except that if the determination is made by special legal counsel, authorization of indemnification and evaluation as to reasonableness of Expenses shall be made by those entitled under clause (c) above to select such counsel. The termination of any action, suit or proceeding by judgment, order, settlement, conviction, or upon a plea no nolo contendere or its equivalent, shall not of itself create a presumption that the person did not act in good faith in conformance with the applicable standard of conduct as set forth above. Section 2. Mandatory Indemnification. To the extent that a Director, officer or employee of the Company has been wholly successful on the merits or otherwise in defense of any action, suit, proceeding, claim, issue, or matter referred to in Section 1 of this Article, he or she shall be indemnified to the extent legally permissible against Expenses reasonably incurred by him or her in connection therewith. Section 3. Right To Rely On Corporate Information. In discharging his or her duty, any Director, when acting in good faith in conformance with the applicable standard of conduct as set forth above, may rely upon information, opinions, reports, or statements, including financial statements and other financial data, if prepared or presented by: (a) one or more officers or employees of the Company whom the Director reasonably believes to be reliable and competent in the matters presented; (b) legal counsel, public accountants, or other persons as to matters the Director reasonably believes are within the person's professional or expert competence; or (c) a committee of the Board of Directors of which the Director is not a member if the Director reasonably believes the committee merits confidence. Section 4. Advance Payment of Expenses. Expenses incurred by a Director, officer or employee in connection with any of the matters with respect to which indemnification may be sought pursuant hereto may be paid from time to time by the Company in advance of the final disposition of any such matter if the following conditions are met: (a) the Director furnishes the Company written affirmation of his or her good faith belief that he or she has met the standard of conduct described in Section 1 of this Article; (b) the Director furnishes the Company a written undertaking, executed personally or on the Director's behalf, to repay the advance if it is ultimately determined that the Director did not meet the standard of conduct; and (c) a determination is made that the facts then known to those making the determination would not preclude indemnification under this subchapter. Determinations and authorizations of payments under this Section 4 shall be made in the manner specified in Section 1 of this Article. The Board of Directors may authorize counsel (which may be either Company counsel or outside counsel) to represent such individual in any action, suit or proceeding, whether or not the Company is a party to such action, suit or proceeding. Section 5. Procedure For Indemnification. Subject to compliance with any applicable procedures in Sections 1 or 4, as the case may be, any indemnification of a Director, officer or employee of the Company or advance of Expenses to such an individual under the terms of this Article shall be made promptly. If the Company unreasonably denies a written request for indemnity or the advance payment of Expenses, either in whole or in part, or if payment in full pursuant to such request is not made promptly, the right to indemnification or advances as granted by this Article shall be enforceable by such individual in any court of competent jurisdiction. Such individual's costs and expenses including reasonable attorney's fees incurred in connection with successfully establishing his or her right to indemnification in any such action shall also be indemnified by the Company. Section 6. Non-Exclusivity of Indemnification Rights. The right of indemnification hereby provided shall not be deemed exclusive of or otherwise affect any other rights to which any individual seeking indemnification may be entitled by law, or under any agreement, vote of stockholders or otherwise, both as to action in his or her official capacity and as to action in another capacity while holding such office, and shall continue as to a person who has ceased to be a Director, officer or employee and shall inure to the benefit of the heirs, executors and administrators of such a person. Section 7. Other Organizations. The indemnification provisions of this Article shall extend to any Director, officer or employee who serves at the Company's request as director, officer or trustee of another organization, including, without limitation, an employee benefit plan, in which the Company has or had an interest as a stockholder, creditor, sponsor or otherwise. The right to rely on corporate information conferred in Section 3 of this Article shall also extend to the records, books of accounts and reports of any such other organization of which the individual serves as director, officer or trustee. Section 8. Survival. The foregoing indemnification provisions shall be deemed to be a contract between the Company and each individual who serves in any capacity as a Director, officer or employee of the Company at any time while these provisions are in effect. Except as may otherwise be required as a result of changes in the law governing indemnification of officers, directors and employees of Vermont corporations, any repeal or modification of the foregoing provisions shall not affect any right or obligation then existing and such "contract rights" may not be modified retroactively without the consent of such Director, officer or employee. ARTICLE XII. (As amended May 3, 1988) Miscellaneous Section 1. The funds of the Company shall be deposited to its credit in such banks or trust companies as the Board of Directors may, from time to time, designate, and shall be drawn out only for the purposes of the Company and only upon checks or drafts signed in such manner as shall be authorized by the Board of Directors in accordance with the power vested in them by these By-Laws. Section 2. No debts shall be contracted, except for current expenses, unless authorized by the Board of Directors or the Executive Committee. Section 3. All dividends shall be payable at such time as may be fixed by the Board of Directors. Before payment of any dividend or making any distribution of profits, there shall be set aside, out of the surplus or net profits of the Corporation such sum or sums as the Board of Directors, from time to time, in their absolute discretion, think proper as a reserve fund to meet contingencies, or for equalizing dividends, or for repairing or maintaining any property of the Corporation, or for such other purpose as the Board of Directors think conducive to the interest of the Corporation. Section 4. The first fiscal year of the Corporation shall be the period commencing September 1, 1929 and ending December 31, 1930, and thereafter each calendar year, commencing with the year 1931, shall be the fiscal year of the Corporation. ARTICLE XIII AMENDMENT Except as set forth in subdivision 21 of the Company's Articles of Association and in Article V of these By-Laws, these By-Laws may be altered, amended or repealed at any annual or special meeting of the stockholders called for the purpose, of which the notice shall specify the subject matter of the proposed alteration, amendment or repeal or the sections to be affected thereby, by vote of the stockholders, or if there shall be two or more classes or series of stock entitled to vote on the question, by vote of each such class or series. These By-Laws may also be altered, amended or repealed by vote of the majority of the number of Directors fixed in accordance with the By-Laws at a meeting called for that purpose of which the notice shall specify the subject matter of the proposed alteration, amendment or repeal or the sections to be affected thereby, except that the Directors shall not take any action which provides for indemnification of Directors or affects the powers of Directors or officers to contract with the Company, nor any action to amend this Article XIII, Sections 2, 3, 4, 5 or 6 of Article V, and except that the Directors shall not take any action unless permitted by law. Except as set forth in subdivision 21 of the Company's Articles of Association and in Article V of these By-Laws, any By-Law so altered, amended or repealed by the Directors may be further altered or amended or reinstated by the stockholder in the above manner. (As amended May 6, 1986, May 3, 1988 and August 5, 1996) -----END PRIVACY-ENHANCED MESSAGE-----