-----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, J5nEysRpTydm/Csrf59LH2GrPgyd/uo1DxG22UEkF9D+zUvsdHCwfVAHgPO2Lzvt elW4S29OeSIgKVKXh9iP3w== 0000018808-98-000030.txt : 19980403 0000018808-98-000030.hdr.sgml : 19980403 ACCESSION NUMBER: 0000018808-98-000030 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 13 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980330 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-K405 SEC ACT: SEC FILE NUMBER: 001-08222 FILM NUMBER: 98578960 BUSINESS ADDRESS: STREET 1: 77 GROVE ST CITY: RUTLAND STATE: VT ZIP: 05701 BUSINESS PHONE: 8027732711 10-K405 1 FORM 10-K FYE 12/31/97 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 _________ FORM 10-K (Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1997 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] 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) Vermont 03-0111290 (State or other jurisdiction of (IRS Employer incorporation or organization) Identification No.) 77 Grove Street, Rutland, Vermont 05701 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (802) 773-2711 ________________________________________________________________________ Securities registered pursuant to Section 12(b) of the Act: Name of each exchange on which Title of each class registered Common Stock $6 Par Value New York Stock Exchange Securities registered pursuant to Section 12(g) of the Act: None 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 by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements or any amendment to this Form 10-K. [x] Cover page State the aggregate market value of the voting stock held by non- affiliates of the registrant: $152,074,026 based upon the closing price as of January 30, 1998 of Common Stock, $6 Par Value, on the New York Stock Exchange as reported in the Eastern Edition of the Wall Street Journal. Indicate the number of shares outstanding of each of the registrant's classes of Common Stock: As of January 31, 1998, there were outstanding 11,423,401 shares of Common Stock, $6 Par Value. DOCUMENTS INCORPORATED BY REFERENCE Specifically identified information on pages 5 through 19, inclusive of the registrant's 1998 Proxy Statement for the Annual Meeting of Shareholders to be held May 5, 1998 is incorporated as Part III hereof. Cover page continued Form 10-K - 1997 TABLE OF CONTENTS Page PART I Item 1. Business................................................ 2 Item 2. Properties.............................................. 20 Item 3. Legal Proceedings....................................... 21 Item 4. Submission of Matters to a Vote of Security Holders..... 22 PART II Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters.................................... 22 Item 6. Selected Financial Data................................. 23 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.................... 24 Item 8. Financial Statements and Supplementary Data............. 41 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.................... 69 PART III Item 10. Directors and Executive Officers of the Registrant...... 69 Item 11. Executive Compensation.................................. 69 Item 12. Security Ownership of Certain Beneficial Owners and Management............................................. 69 Item 13. Certain Relationships and Related Transactions.......... 69 PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K............................................ 69 Signatures........................................................ 90 PART I Item 1. Business. Overview. Central Vermont Public Service Corporation (the "Company"), incorporated under the laws of Vermont on August 20, 1929, is engaged in the purchase, production, transmission, distribution and sale of electricity. The Company has various wholly and partially owned subsidiaries. These subsidiaries are described below. The Company is the largest electric utility in Vermont and serves 139,021 customers in nearly three-quarters of the towns, villages and cities in Vermont. This represents about 50% of the Vermont population. In addition, the Company supplies electricity to one municipal, one rural cooperative, and one private utility. The Company's sales are derived from a diversified customer mix. The Company's sales to residential, commercial and industrial customers accounted for 61% of total MWH sales for the year 1997. Sales to the five largest retail customers receiving electric service from the Company during the same period constituted about 4% of the Company's total electric revenues for the year. The Company's requirements resale sales accounted for approximately 4%, entitlement sales accounted for 11% and other resale sales which include contract sales, opportunity sales and sales to NEPOOL accounted for approximately 24% of total MWH sales for the year 1997. Connecticut Valley Electric Company Inc. (Connecticut Valley), a wholly owned subsidiary of the Company, incorporated under the laws of New Hampshire on December 9, 1948, distributes and sells electricity in parts of New Hampshire bordering the Connecticut River. It serves 10,355 customers in 13 communities in New Hampshire. About 2% of the New Hampshire population resides in its service area. Connecticut Valley's sales are also derived from a diversified customer mix. Connecticut Valley's sales to residential, commercial and industrial customers accounted for 99.5% of total MWH sales for the year 1997. Sales to its five largest retail customers during the same period equaled about 19% of Connecticut Valley's total electric revenues for the year. The Company also owns 56.8% of the common stock and 46.6% of the preferred stock of Vermont Electric Power Company, Inc. (VELCO). VELCO owns the high voltage transmission system in Vermont. VELCO created a wholly owned subsidiary, Vermont Electric Transmission Company, Inc. (VETCO), to finance, construct and operate the Vermont portion of the 450 KV DC transmission line connecting Quebec with Vermont and New England. In addition, the Company owns 31.3% of the common stock of Vermont Yankee Nuclear Power Corporation (Vermont Yankee), a nuclear generating company. The Company also owns 2% of the outstanding common stock of Maine Yankee Atomic Power Company, 2% of the outstanding common stock of Connecticut Yankee Atomic Power Company and 3.5% of the outstanding common stock of Yankee Atomic Electric Company. The Company also owns a real estate company, C.V. Realty, Inc. and one wholly owned subsidiary created for the purpose of financing and constructing a hydroelectric facility in Vermont: Central Vermont Public Service Corporation - East Barnet Hydroelectric, Inc. (East Barnet), which became operational September 1, 1984. East Barnet has been leased and operated by the Company since its in-service date. In addition, the Company has the following wholly owned non-utility subsidiaries: Catamount Energy Corporation whose primary purpose is to invest in non-regulated, energy-supply projects, SmartEnergy Services, Inc. whose purpose is to engage in the sale of or rental of electric water heaters, energy efficient products and other related goods and services, and Catamount Investment Corporation whose purpose is to invest in unregulated business opportunities. Catamount Energy Corporation currently has ten wholly owned subsidiaries: (See "DIVERSIFICATION"); Catamount Rumford Corporation, Equinox Vermont Corporation, Appomattox Vermont Corporation, Catamount Rupert Corporation, Catamount Glenns Ferry Corporation, Catamount Thetford Corporation, Catamount Heartlands Corporation, Catamount Heartlands Limited, Gauley River Management Corporation and Summersville Hydro Corporation. For additional information of the Company's diversification activities, see PART II, Item 8 herein. REGULATION AND COMPETITION State Commissions. The Company is subject to the regulatory authority of the Vermont Public Service Board (PSB) with respect to rates, and the Company and VELCO are subject to PSB jurisdiction respecting securities issues, construction of major generation and transmission facilities and various other matters. The Company is subject to the regulatory authority of the New Hampshire Public Utilities Commission as to matters pertaining to construction and transfers of utility property in New Hampshire. Additionally, the Public Utilities Commission of Maine and the Connecticut Department of Public Utility Control exercise limited jurisdiction over the Company based on its joint-ownership interest as a tenant-in-common of Wyman #4, a 619 MW generating plant and Millstone #3, an 1149 MW nuclear generating facility, respectively. Connecticut Valley is subject to the regulatory authority of the New Hampshire Public Utilities Commission (NHPUC) with respect to rates, securities issues and various other matters. Federal Power Act. Certain phases of the businesses of the Company and VELCO, including certain rates, are subject to the jurisdiction of the Federal Energy Regulatory Commission (FERC) as follows: the Company as a licensee of hydroelectric developments under PART I, and the Company and VELCO as interstate public utilities under Parts II and III of the Federal Power Act, as amended and supplemented by the National Energy Act. The Company has licenses expiring at various times under PART I of the Federal Power Act for twelve of its hydroelectric plants. The Company has obtained an exemption from licensing for the Bradford and East Barnet projects. Public Utility Holding Company Act of 1935. Although the Company, by reason of its ownership of a utility subsidiary, is a holding company, as defined in the Public Utility Holding Company Act of 1935, it is presently exempt, pursuant to Rule 2, promulgated by the Commission under said Act, from all the provisions of said Act except Section 9(a)(2) thereof relating to the acquisition of securities of public utility affiliates. Environmental Matters. In recent years, public concern for the physical environment has resulted in increased governmental regulation of environmental matters. The Company is subject to these regulations in the licensing and operation of the generation, transmission, and distribution facilities in which it has interest, as well as the licensing and operation of the facilities in which it is a co-licensee. These environmental regulations are administered by local, state and Federal regulatory authorities and concern the impact of the Company's generation, transmission, distribution, transportation and waste handling facilities on air, water, land and aesthetic qualities. The Company cannot presently forecast the costs or other effects which environmental regulation may ultimately have upon its existing and proposed facilities and operations. The Company believes that any such costs related to its utility operations would be recoverable through the rate-making process. For additional information relating to Electric Industry Restructuring see Item 7 herein and refer to Item 8 herein for disclosures relating to environmental contingencies, hazardous substance releases and the control measures related thereto. Nuclear Matters. The nuclear generating facilities of Vermont Yankee and the other nuclear facilities in which the Company has an interest are subject to extensive regulations by the Nuclear Regulatory Commission (NRC). The NRC is empowered to regulate the siting, construction and operation of nuclear reactors with respect to public health, safety, environmental and antitrust matters. Under its continuing jurisdiction, the NRC may, after appropriate proceedings, require modification of units for which operating licenses have already been issued, or impose new conditions on such licenses, and may require that the operation of a unit cease or that the level of operation of a unit be temporarily or permanently reduced. Refer to Item 8 herein for disclosures relating to the shut down of the Maine Yankee, Connecticut Yankee and Yankee Atomic Nuclear Power plants. Competition. Competition now takes several forms. At the wholesale level, other electric power providers compete as suppliers to resale customers. Another competitive threat is the potential for customers to form municipally owned utilities in the Company's service territory. At the retail level, customers have long had energy options such as propane, natural gas or oil for heating, cooling and water heating, and self-generation for larger customers. Changes anticipated as a result of the National Energy Policy Act of 1992 and potential future change in state regulatory policy may result in retail customers being able to purchase electric power generated by competing suppliers for delivery over the Company's transmission and distribution facilities. Pursuant to Vermont statutes (30 V.S.A. Section 249), the PSB has established as the service area for the Company the area it now serves. Under 30 V.S.A. Section 251(b) no other company is legally entitled to serve any retail customers in the Company's established service area except as follows: An amendment to 30 V.S.A. Section 212(a) enacted May 28, 1987 authorizes the Vermont Department of Public Service (Department) to purchase and distribute power at retail to all customers of electricity in Vermont, subject to certain preconditions specified in new sections 212(b) and 212(c). Section 212(b) provides that a review board consisting of the Governor and certain other designated legislative officers review and approve any retail proposal by the Department if they are satisfied that the benefits outweigh any potential risk to the State. However, the Department may proceed to file the retail proposal with the PSB either upon approval by the review board or the failure of the board to act within sixty (60) days of the submission. Section 212(c) provides that the Department shall not enter into any retail sales arrangement before the PSB determines and approves certain findings. Those findings are (1) the need for the sale, (2) the rates are just and reasonable, (3) the sale will result in economic benefit, (4) the sale will not adversely affect system stability and reliability and (5) the sale will be in the best interest of ratepayers. Section 212(d) provides that upon PSB approval of the Department retail sales proposal, Vermont utilities shall make arrangements for distributing such electricity on terms and conditions that are negotiated. Failing such negotiation, the PSB is directed to determine such terms as will compensate the utility for all costs reasonably and necessarily incurred to provide such arrangements. In addition, Chapter 79 of Title 30 authorizes municipalities to acquire the electric distribution facilities located within their boundaries. The exercise of such authority is conditioned upon an affirmative three-fifths vote of the legal voters in an election and upon the payment of just compensation including severance damages. Just compensation is determined either by negotiation between the municipality and the utility or, in the event the parties fail to reach an agreement, by the Public Service Board after a hearing. If either party is dissatisfied, the statute allows them to appeal the Board's determination to the Vermont Supreme Court. Once the price is determined, whether by agreement of the parties or by the PSB, a second affirmative three-fifths vote of the legal voters is required. There has been only one instance where Chapter 79 of Title 30 has been invoked; the Town of Springfield acted to acquire the Company's distribution facilities in that community pursuant to a vote in 1977. This action was subsequently discontinued by agreement between Springfield and the Company in 1985. In addition, in late 1994 the Select Board of the Town of Bennington considered whether to publicly warn a vote to acquire the Company's facilities located in Bennington pursuant to Chapter 79 of Title 30. By vote of the Selectors taken on January 9, 1995, the Town decided not to pursue the vote at this time. In the summer of 1997, the City of Claremont (Claremont), New Hampshire engaged a consulting firm to conduct a study to determine Claremont's options under New Hampshire law including the possible municipalization of Connecticut Valley's service area located within its jurisdiction. The City Council has appropriated approximately $75,000 for purposes of the study. No other municipality served by the Company, so far as is known to the Company, has taken any formal steps in an attempt to establish a municipal electric distribution system. Competition in the energy services market exists between electricity and fossil fuels. In the residential and small commercial sectors this competition is primarily for electric space and water heating from propane and oil dealers. Competitive issues are price, service, convenience, cleanliness and safety. In the large commercial and industrial sectors, cogeneration and self- generation are the major competitive threats to electric sales. Competitive risks in these market segments are primarily related to seasonal, one-shift operations that can tolerate periodic power outages, and for industrial customers with steady heat loads where the generator's waste heat can be used in their manufacturing process. Competitive advantages for electricity in those segments are the cost of back up power sources, space requirements, noise problems, and maintenance requirements. In Docket DE 94-163, Order No. 21,683 (reh'g denied, Order No. 21,776), the New Hampshire Public Utilities Commission (NHPUC) ruled that Public Service Company of New Hampshire's (PSNH) rights to its franchise territory are not exclusive as a matter of law. Connecticut Valley was an intervenor in that docket. PSNH appealed the NHPUC's decision to the State of New Hampshire Supreme Court, and Connecticut Valley has filed a brief with the Court in favor of PSNH's position. This matter is still pending. For a discussion relating to Electric Industry Restructuring in Vermont and New Hampshire see PART II, Items 7 and 8 herein. For a discussion relating to the Company's wholesale electric business see Wholesale Rates below. RATE DEVELOPMENTS Vermont Retail Rates. On September 22, 1997, the Company filed for a 6.6% or $15.4 million general rate increase to become effective June 6, 1998. For additional information regarding recent rate increase requests see PART II, Item 7 "Rates and Regulation" and Item 8 "Retail Rates" herein. In May 1995 the Company filed a comprehensive retail rate redesign. On March 17, 1997, the PSB issued an order approving the Company's rate redesign effective April 1, 1997. The redesign narrows the seasonal rate differential by reducing the higher winter charges and increasing the lower summer charges. The rate redesign allocates the Company's total revenue requirement to the different customer classes and then establishes the specific rate structure within each class to fairly recover the cost allocated to that class. New Hampshire Retail Rates. Connecticut Valley's retail rate tariffs, approved by the New Hampshire Public Utilities Commission (NHPUC), contain a fuel adjustment clause (FAC) and a purchased power cost adjustment clause (PPCA). Under these clauses, Connecticut Valley recovers its estimated annual costs for purchased energy and capacity which are reconciled when actual data is available. On the basis of estimates of costs for 1997 and reconciliations from 1996, the combined PPCA and FAC resulted in an increase in revenues of approximately $1.6 million for 1997. The NHPUC order allowing the increase in 1997 revenues also ordered Connecticut Valley to file a letter showing whether a redesign of the RS-2 wholesale rate under which Connecticut Valley purchases power from the Company would still be beneficial to ratepayers. See Wholesale Rates below for additional discussion. Connecticut Valley has filed a letter showing that the redesign is still beneficial to ratepayers, and added that filing or not filing the redesign would not relieve Connecticut Valley of responsibility to pay for the Company's stranded costs in the event of termination of the present RS-2 wholesale rate. The letter further stated that neither the Federal Energy Regulatory Commission (FERC) nor the NHPUC had the jurisdiction to order the Company to open its transmission system to New Hampshire retail open access. Connecticut Valley filed and the NHPUC approved effective April 1, 1997 a partial roll-back of such increase based on the expectation of a $1 million change from an undercollection to an overcollection at the end of 1996. The change was the result of the Company experiencing an annual system peak in December 1997 and significantly lower load coincident with that peak by Connecticut Valley. The ratio of the former to the latter is the basis for the power cost charges from the Company to Connecticut Valley which are the major basis for the FAC and PPCA. On the basis of estimates of costs for 1998 and reconciliations from 1997, the combined PPCA and FAC would have resulted in an increase in revenues of approximately $2.1 million for 1997. Based on a motion by the City of Claremont, an intervenor, the NHPUC, in its order dated December 31, 1997, found that Connecticut Valley was imprudent not to have terminated service from Central Vermont and froze Connecticut Valley's rates. See PART II, Items 7 and 8 herein for additional information regarding New Hampshire Electric Industry Restructuring. Connecticut Valley's retail rate tariffs, approved by the NHPUC, also provide for a Conservation and Load Management Percentage Adjustment (C&LMPA) for residential and commercial/industrial customers in order to collect forecast C&LM costs. The forecast costs are updated effective January 1 of each year and are reconciled when actual data are available. In addition, Connecticut Valley's earnings reflect the recovery of lost revenues related to fixed costs which Connecticut Valley fails to otherwise recover as a result of C&LM activities. However, the Company is not made whole because a portion of the fixed costs of the wholesale transaction between the Company and Connecticut Valley is not recovered when C&LM activities occur in Connecticut Valley. The C&LMPA further provides for the future recovery of shareholder incentives related to past C&LM activities. In November 1996 Connecticut Valley filed its annual update of the 1996 C&LMPA rates. Connecticut Valley requested approval of the same level of program spending as in 1996. Due to over/undercollections from the 1996 C&LMPA the filed increase is $163,000 or .8%. By stipulation approved by the NHPUC, the C&LMPA rate change of $254,000 or 2.3% was delayed to April 1, 1997 and a total ramp-down of C&LM expenditures would occur by the end of 1997 in response to the NHPUC order on Restructuring dated February 28, 1997 discussed below. In November 1997 Connecticut Valley filed its annual update of the 1998 C&LMPA rates. Connecticut Valley requested approval of a zero level of program spending for 1998. Due to overcollections from the 1997 C&LMPA and zero program spending, the filed decrease is $287,000 or 1.5%. By agreement, the schedule will result in a rate change no earlier than April 1, 1998. Connecticut Valley also purchases power from several small power producers who own qualifying facilities as defined by the Public Utility Regulatory Policies Act of 1978. In 1997, under long-term contracts with these qualifying facilities, Connecticut Valley purchased 40,129 MWH, of which 37,446 MWH were purchased from a New Hampshire/Vermont solid waste plant owned by Wheelabrator Claremont Company, L.P., (Wheelabrator). Connecticut Valley has filed a complaint with FERC stating its concern that Wheelabrator has not been a qualifying facility since the plant began operation. On February 11, 1998, the FERC issued an Order denying Connecticut Valley's request of a refund of past purchased power costs and lower future costs. The Company filed a request for rehearing with the FERC on March 13, 1998. In June 1995, the Legislature enacted House Bill 168 which directed the NHPUC to establish a pilot program to "examine the implications of retail competition in the electric industry" (RSA 374:26-a). In response to this mandate, the NHPUC issued Order No. 22,033 on February 28, 1996 which established statewide guidelines for a Retail Competition Pilot Program (Pilot or Pilot Program). Under the Pilot Program, which began May 28, 1996, approximately 17,000 retail customers gain the opportunity to purchase electricity from competitive non-utility power suppliers for two years. Connecticut Valley, as well as the other New Hampshire utilities, was ordered to make available three percent of its retail customers for the Pilot. In Connecticut Valley's case, this means approximately 350 retail customers became Pilot participants. The New Hampshire utilities were ordered to unbundle their prices for the Pilot participants and state separately transmission, distribution, and production prices. The NHPUC then determined a market price of production that was subtracted from the utilities embedded production price. The utilities are able to collect the difference between the embedded production price and the market production price through a charge known as the "stranded cost charge." As part of a proposal put forth to the NHPUC by Connecticut Valley, Pilot participants who elect to buy power from a non-utility supplier receive a discount on their bill known as a Participation Incentive Credit. The credit is designed such that a participating Pilot customer receives approximately ten percent off their combined non-power and power bills. These credit dollars are not recovered from Connecticut Valley's general body of customers. House Bill 1392 (RSA Chapter 374-F) directed the NHPUC to undertake a generic proceeding (Docket DR 96-150) to develop a statewide electric utility restructuring plan and to issue a final order establishing such a plan no later than February 28, 1997. The law directed the NHPUC to restructure New Hampshire's electric utility industry in order to introduce competition into the state's retail markets. RSA 374-F also authorized the NHPUC to establish an interim stranded cost charge for each electric utility as part of the aforementioned final order. RSA 374-F also requires all electric utilities subject to the NHPUC's jurisdiction to submit compliance filings no later than June 30, 1997 which shall be the subject of public hearings. The NHPUC is required to implement retail choice for all customers of electric utilities under its jurisdiction by January 1, 1998, or at the earliest date which the NHPUC determines to be in the public interest, but no later than June 30, 1998 without prior legislative approval (RSA 374-F:4,I). See PART II, Items 7 and 8 herein for additional information regarding New Hampshire Electric Industry Restructuring. By letter dated July 23, 1996 Connecticut Valley filed with the NHPUC (1) for a permanent base rate increase of $1,592,000 or 8.8% effective September 22, 1996, (2) for a temporary base rate increase of $924,000 or 5.4% effective August 23, 1996, and (3) to reflect the permanent base rate increase in tariffs for Pilot customers. The NHPUC allowed the temporary base rate increase as filed effective October 1, 1996. A stipulation approved by the NHPUC provided for a permanent base rate increase of $1,110,000 or 6.4% effective April 1, 1997 which increased rates only 1% over the temporary base rate increase already in effect. The stipulation also allowed recovery via a Temporary Billing Surcharge (TBS) effective April 1, 1997 of (1) the rate case expense incurred associated with the filing and (2) recoupment of revenues up to an increase of 6.33% that were not recovered by the temporary base rate increase during the October 1, 1996 through March 31, 1997 period. PART II, Items 7 and 8 herein contain additional information regarding the permanent base rate increase request. Wholesale Rates. The Company sells firm power to Connecticut Valley under a wholesale rate schedule based on forecast data for each calendar year which is reconciled to actual data annually. The rate schedule provides for an automatic update of annual rates, as well as a subsequent reconciliation to actual data. The Company filed and the FERC approved (1) a revenue increase of $918,000 or 8.8% for 1997 power costs, (2) a reconciliation of 1996 revenues to actual costs which resulted in a refund of $723,000, including interest, and (3) a revenue increase of $281,000 or 2.4% for 1998 power costs. The NHPUC order dated February 28, 1997 regarding New Hampshire Electric Industry Restructuring ordered, among other things, Connecticut Valley to terminate the wholesale rate schedule with the Company. See PART II, Items 7 and 8 herein for additional information. 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 in February 1995. A summary report was filed with the NHPUC on February 13, 1995. The NHPUC issued an order approving the summary report in June 1995. Connecticut Valley's costs of wholesale power would be lower than they otherwise would be only if Connecticut Valley's growth rate exceeds that of the Company's Vermont retail operations. In light of the NHPUC order dated February 28, 1997 regarding New Hampshire Electric Industry Restructuring the Company did not file the redesign with the FERC. See PART II, Item 8 herein for additional information. On June 25, 1997, the Company filed with the FERC an application for recovery of stranded costs and a notice of cancellation of the rate schedule under which the Company sells firm power to Connecticut Valley contingent upon the recovery of stranded costs. The stranded cost obligation, expressed on a net present value basis as of January 1, 1998, is $44,925,000, would be authorized by the Company's open access Transmission Tariff No. 7, and collected as a surcharge to the transmission charges of any customer that uses the Company's transmission system to wheel power for ultimate delivery within Connecticut Valley service area. The surcharge is expected to recover the stranded costs over a ten-year period. By order dated December 18, 1997, the FERC rejected the Company's filing on the grounds that the transmission tariff was an inappropriate vehicle for recovery. Pursuant to the FERC request in that order, the Company filed a letter stating its intention to refile the stranded cost recovery as an exit fee to the rate schedule under which the Company sells firm power to Connecticut Valley. The Company did so on January 12, 1998. On March 11, 1998, the FERC issued an order accepting for filing the Company's request for an exit fee effective March 14, 1998, and set hearings to determine: whether Connecticut Valley will become an unbundled transmission customer of the Company, the Company's expectation as to the period of time it would serve Connecticut Valley, and the allowable amount of the exit fee. The FERC also rejected the Company's June 25, 1997 notice of termination indicating that the notice can be resubmitted when the power contract is proposed to be terminated. One of the Company's requirements wholesale customers, New Hampshire Electric Cooperative, Inc. (NHEC), with an average monthly peak of 2.8 MW gave the Company notice of termination of service under FERC Electric Tariff, effective in March 1995. The Company negotiated a interim temporary power sale to NHEC commencing with the termination date and a long-term power sale effective May 1, 1995. On March 1, 1995, the Company filed a comprehensive, open access transmission tariff (Tariff) with the FERC. The Tariff is designed to provide firm and non-firm network transmission service, as well as firm point-to-point service over the transmission systems of the Company and Connecticut Valley. In addition, the Tariff would permit customers to make use of the Company's contract rights to the transmission facilities of the Vermont Electric Power Company, Inc. and New England Power Company. The Tariff would provide transmission service that is comparable to that provided to native load customers. Charges for such service would be based upon the Company's cost of service for transmission. The Company prepared and filed the Tariff in anticipation of developing business opportunities in the area of electric transmission service. In addition, recent FERC orders led the Company to believe that all electric utilities owning transmission facilities would be required to prepare and file such a Tariff in the near future. FERC issued a Notice Of Proposed Rulemaking (NOPR) dated March 29, 1995, promoting wholesale competition in the electric utility industry. The Company's Tariff complies with many requirements proposed by the FERC in its NOPR. Nine parties intervened in the Company's Tariff filing. On April 28, 1995, the FERC issued a deficiency letter asking for more information in a number of areas. The Company filed a timely response to the deficiency letter on June 14, 1995. Three parties filed protests in response to the Company filing, and one additional party filed a request for late intervention. The FERC accepted the Tariff for filing on August 14, 1995, suspended it and set it for hearing. The order allowed the Tariff to become effective August 15, 1995, subject to refund and subject to the outcome of the Open Access NOPR proceeding. The NHEC began taking transmission service under the Tariff as of its effective date. The Company entered into negotiations with FERC Staff and intervenors and reached a settlement in principle in January 1996 on all rate issues contained in the Tariff filing but one which was settled in August 1996. The settlement provided for a fixed rate effective from August 15, 1995 through July 8, 1996. The FERC has not taken action on the settlement. On July 9, 1996 the Tariff was replaced by a pro forma transmission tariff (Transmission Tariff) filed by the Company pursuant to FERC Order No. 888. The Transmission Tariff, which was approved by the FERC, embodied not only the open access principles set forth in the FERC pro forma transmission tariff, but also continued to embody the ratemaking and other Vermont and New England specific non-rate terms and conditions. The Company has made a number of filings to modify the Transmission Tariff in response to FERC orders related to transmission tariffs of other utilities. All FERC orders received have approved such modifications. POWER RESOURCES Overview. The Company's and Connecticut Valley's energy production, which includes generated and purchased power, required to serve their retail and firm wholesale customers was 2,497,059 MWH for the year ended December 31, 1997. The maximum one-hour integrated demand during that period was 399.9 MW, which occurred on January 8, 1997. The Company's and Connecticut Valley's total production in 1997, including production related to all resale customers, was 3,734,739 MWH. The following tabulation shows the sources of such energy and capacity available to the Company and Connecticut Valley for the year ended December 31, 1997 and at the time of the Company's own peak. For additional information related to purchased power costs, refer to PART II, Item 7 herein.
Year Ended December 31, 1997 Effective Generated and Capability Purchased at 12 Month Generated Time of the Average and Purchased Company's Peak ========== ============= ============== MW MWH % MW % WHOLLY-OWNED PLANTS: Hydro....................... 40.7 191,036 5.1 35.6 8.9 Diesel and Gas Turbine..... 28.9 719 - - - JOINTLY OWNED PLANTS: Millstone #3................ 16.4 - - - - Wyman #4.................... 10.9 14,343 0.4 - - McNeil...................... 10.5 30,967 0.8 10.2 2.5 EQUITY OWNERSHIP IN PLANTS: (Purchased) Vermont Yankee.............. 158.8 1,328,745 35.6 136.7 34.2 Maine Yankee-Retired 8/6/97. 9.4 - - - - MAJOR LONG-TERM PURCHASES: Hydro-Quebec................ 192.5 1,150,267 30.8 157.9 39.5 Merrimack #2... ............. 47.0 348,092 9.3 47.2 11.8 OTHER PURCHASES: System and other purchases.. 35.1 85,711 2.3 0.5 .1 Small power producers....... 34.0 209,527 5.6 23.5 5.9 Unit purchases.............. 45.6 35,848 1.0 - - Entitlement purchases....... 0.4 10,658 0.3 - - Pumped storage hydro........ 4.2 2,725 0.1 3.1 0.8 NEPEX......................... - 326,101 8.7 38.2 9.5 NET WHOLESALE SALES and miscellaneous at time of peak - - - (53.0) (13.2) _____ _________ _____ _____ _____ TOTAL.................... 634.4 3,734,739 100.0 399.9 100.0 ===== ========= ===== ===== =====
Wholly Owned Plants. The Company owns and operates 20 hydroelectric generating facilities in Vermont which have an aggregate nameplate capability of 41.2 MW and two gas- fired and one diesel-peaking units with a combined nameplate capability of 28.9 MW. Jointly Owned Plants. The Company has a joint-ownership interest in the following generating and transmission plants:
Net Fuel MW Generation Load Net Plant Name Location Type Ownership Entitlement MWH Factor Investment - - ------------ ------------ ------- --------- ----------- ---------- ------ ----------- Millstone #3 Waterford, Nuclear 1.73% 20 - - $53,591,379 Connecticut Wyman #4 Yarmouth, Oil 1.78% 11 14,343 15% $ 1,470,193 Maine Joseph C. McNeil Burlington, Various 20.00% 10.6 30,967 33% $ 8,014,634 Vermont Highgate Trans- Highgate Springs, 47.35% N/A N/A N/A $ 9,467,704 mission Facility Vermont
The Company receives its share of the output and capacity of Millstone Unit #3 (Unit #3), an 1149 MW nuclear generating facility (see discussion below); and Wyman #4 and Joseph C. McNeil, a 619 MW and a 53 MW respectively, generating plants and is responsible for its share of the operating expenses of each. The Highgate Convertor, a 200 MW facility is directly connected to the Hydro-Quebec System to the north of the Convertor and to the VELCO System for delivery of power to Vermont Utilities. This facility can deliver power either direction, but normally delivers power from Hydro-Quebec to Vermont. Equity Ownership in Plants. In 1966 the Company purchased 35% of the Vermont Yankee common stock and was entitled to receive a like percentage of the output of the unit. In late 1969 and early 1970, the Company sold at cost a combined total of 3.7% of its original equity investment and currently resells at cost 3.9% of its entitlement. The Company's current equity ownership and net entitlement percentages are 31.3 and 31.1, respectively. The Atomic Energy Commission, now the NRC, granted a full-term (40-year), full power operating license for the Vermont Yankee plant, which was to expire in December 2007. On December 17, 1990 the NRC issued an amendment of the operating license extending its term to March 2012. Vermont Yankee's net capability is 514 MW of which about 160 MW (See Note 1) is the Company's net entitlement. Vermont Yankee's plant performance for the past five years is shown below: Availability Capacity Factor Factor (See Note 2) (See Note 3) ------------ ------------ 1993......................... 78.3 74.9 1994......................... 98.2 95.8 1995......................... 86.3 84.8 1996......................... 84.5 82.8 1997......................... 95.4 93.3 Vermont Yankee was down for scheduled refueling outages in 1993, 1995 and 1996. As described in the overview section above, the Company is a stockholder, together with other New England electric utilities, in the following three nuclear generating companies: Maine Yankee Atomic Power Company, Connecticut Yankee Atomic Power Company and Yankee Atomic Electric Company. Net Company's Company Capability Entitlement ------- ------------ ------------ Maine Yankee.................. (See Note 4) (See Note 4) Connecticut Yankee............ (See Note 4) (See Note 4) Yankee Atomic................. (See Note 4) (See Note 4) The Company is obligated to pay its entitlement percentage of the operating expenses of Vermont Yankee and the other Yankee companies, including depreciation and a return on invested capital, whether or not the plant is operating. The Company is obligated to contribute its entitlement percentage of the capital requirements of Vermont Yankee and Maine Yankee and has a similar, but more limited obligation to Connecticut Yankee. The Company's entitlement percentages are identical to the ownership percentages except that Vermont Yankee's entitlement percentage is 35%. For additional information regarding Equity Ownership in Plants, refer to PART II, Item 8 herein. Decommissioning Expense. Each of the Yankee companies and Unit #3 has developed its own estimate of the cost of decommissioning its nuclear generating unit. These estimates vary depending upon the method of decommissioning, economic assumptions, site and unit specific variables, and other factors. Each of the Yankee Companies includes charges for decommissioning costs in the cost of capacity, as approved by the FERC. Decommissioning costs for Unit #3 are included in depreciation expenses. _______________ Notes: (1) Currently, the Company resells at cost, through VELCO, about 20 MW of its original entitlement to other Vermont utilities. (2) "Availability Factor" means the hours that the plant is capable of producing electricity divided by the total hours in the period. (3) "Capacity Factor" means the total net electrical generation divided by the product of the maximum design electrical rating capacity of 514 through April 30, 1995 and 522 effective May 1, 1995, multiplied by the total hours in the period. (4) Maine Yankee, Connecticut Yankee and Yankee Atomic permanently ceased power operations of their Nuclear Power Plants. See Decommissioning Expense discussion below. _________ The Company's entitlement percentage of decommissioning costs for Vermont Yankee, Maine Yankee, Connecticut Yankee, Yankee Atomic and Unit #3 is as follows (dollars in millions): CVPS's Total Share of Date of Estimated CVPS's Funded Study Obligation Obligation Obligation ------- ---------- ---------- ---------- Nuclear generating companies: Vermont Yankee 1993 $312.7 $109.4 $60.1 Maine Yankee 1993 $398.8 $8.0 $4.0 Connecticut Yankee 1996 $426.7 $8.5 $5.2 Yankee Atomic 1994 $370.0 $13.0 $4.5 Millstone Unit #3 1996 $545.7 $9.4 $2.5 Although the estimated costs of decommissioning are subject to change due to changing technologies and regulations, the Company expects that the nuclear generating companies' liability for decommissioning, including any future changes in the liability, will be recovered in their rates over their operating or license lives. See PART II, Item 8 for information regarding the premature shutdown of the Maine Yankee, Connecticut Yankee and Yankee Atomic nuclear power plants. The Company owns interests in two of the five nuclear plants operated by Northeast Utilities (NU): 1) a 2% equity interest in the Connecticut Yankee Atomic Power Company (Haddam Neck Plant), and 2) a 1.7303% joint-ownership interest in the Unit #3 of the Millstone Nuclear Power Station. On March 30, 1996, Unit #3 was shut down by the licensee due to numerous technical and non-technical problems and is on the Nuclear Regulatory Commission's (NRC) watch list. NU has restructured its nuclear organization and comprehensive plans are currently being implemented to restart Unit #3. The company was advised that NU anticipates returning Unit #3 to service by the end of the second quarter of 1998. However, the actual date Unit #3 returns to service is dependent upon the completion of independent inspections and reviews by the NRC and a vote by the NRC Commissioners. As such, the company currently believes that Unit #3 will not return to service until sometime after the second quarter of 1998. NU estimates that its total 1997 incremental operations and maintenance cost for Unit #3 is approximately $56.4 million. The company's share is about $1.0 million. In addition, the company incurred incremental power costs during 1997 of about $1.6 million and anticipates that 1998 incremental operations and maintenance costs will be approximately $.3 million. Incremental power costs for 1998 are estimated to be $130,000 per month. The company remains actively involved with the other non-operating minority joint-owners of Unit #3. This group is engaged in various activities to monitor and evaluate NU and Northeast Utilities Service Co.'s efforts relating to Unit #3. On August 7, 1997, the company and eight other non- operating owners of Unit #3 filed a demand for arbitration with Connecticut Light and Power Company and Western Massachusetts Electric Company and lawsuits against NU and its trustees. The arbitration and lawsuits seek to recover costs associated with replacement power, operation and maintenance costs and other costs resulting from the shutdown of Unit #3. The non- operating owners claim that NU and two of its wholly owned subsidiaries failed to comply with NRC's regulations, failed to operate the facility in accordance with good operating practice and attempted to conceal their activities from the non-operating owners and the NRC. The Design Basis Documentation project (Project) initiated by Vermont Yankee during 1996 is expected to be complete by the end of 1999. The Company's 35% share of the total cost for this Project is expected to be about $6.3 million. Such costs will be deferred by Vermont Yankee and amortized over the remaining license life of the plant. In August 1997, Vermont Yankee received an unsolicited expression of interest to purchase Vermont Yankee. At this time no sale of Vermont Yankee appears likely. In 1982 the State of Maine enacted legislation that requires the development of a decommissioning trust fund for the Maine Yankee nuclear plant. This statute also provides that, if the trust has insufficient funds to decommission the plant, the licensee, Maine Yankee, is responsible for the deficiency and, if the licensee is unable to provide the entire amount, the owners of the licensee are jointly and severally responsible for the remainder. The definition of owner under the statute includes the Company. It is expected that any payments required by the Company under these provisions would be recovered through rates. Nuclear Fuel. Vermont Yankee has several "requirements based" contracts for the four components (uranium, conversion, enrichment and fabrication) used to produce nuclear fuel. These contracts are executed only if the need or requirement for fuel arises. Under these contracts, any disruption of operating activity would allow Vermont Yankee to cancel or postpone deliveries until actually required. The contracts extend through various time periods and contain clauses to allow the option to extend the agreements. Negotiation of new contracts or renegotiation of existing contracts routinely occurs, often focusing on one of the four components at a time. The price of the 1996 reload was approximately $21 million. The 1998 reload will cost approximately $22 million. Future reload costs will depend on market and contract prices. On January 20, 1997, Vermont Yankee entered into an agreement with a former uranium supplier whereby the supplier could opt to terminate a production purchase agreement dated August 4, 1978. Although there had been no transactions under the production purchase agreement for several years, Vermont Yankee maintained certain financial rights. In consideration for the option to terminate the production purchase agreement and the subsequent exercise of the option, Vermont Yankee received $0.6 million in 1997 which was recorded as an offset to nuclear fuel expense. The potential future payments over a ten year period, range from $0.0 million to $2.4 million. Due to the uncertainty of this transaction, the potential benefits will be recorded on a cash basis. Under the Nuclear Waste Policy Act of 1982, the United States Department of Energy (DOE) is responsible for the selection and development of repositories for and the disposal of spent nuclear fuel and high-level radioactive waste. Vermont Yankee, as required by that Act, has signed a contract with the DOE to provide for the disposal of spent nuclear fuel and high-level radioactive waste from its nuclear generation station beginning no later than January 31, 1998; however, this delivery schedule is expected to be delayed significantly. It is not certain when the DOE will accept spent nuclear fuel and high-level radioactive waste from Vermont Yankee and other owners of nuclear power plants. Continued delays or a default by the DOE would lead to consideration of costly alternatives involving serious siting and environmental issues. The DOE contract obligates Vermont Yankee to pay a one-time fee of approximately $39.3 million for disposal costs for all spent fuel discharged through April 6, 1983, and a fee payable quarterly equal to approximately one mill per kilowatt-hour of nuclear generated and sold electricity after April 6, 1983. Although the $39.3 million for the one-time fee has been collected from the Sponsors in rates, Vermont Yankee has elected to defer payment to the DOE as permitted by the DOE contract. The fee plus accrued interest must be paid no later than the first delivery of spent fuel to the DOE repository. Interest accrues on the unpaid obligation based on the thirteen-week Treasury Bill rate and is compounded quarterly. Through 1997, Vermont Yankee accumulated $92.0 million in an irrevocable trust to be used exclusively for defeasing this obligation ($98.7 million including accrued interest) at some future date, provided the DOE complies with the terms of the aforementioned contract. Vermont Yankee has primary responsibliity for the interim storage of its spent nuclear fuel. The plant is currently able to operate with the ability to discharge the entire reactor core to the spent fuel storage pool through the 2001 refueling outage. Full core discharge capability through year 2008 refueling outage could be achieved with the installation of additional storage racks in the spent fuel pool, subject to license amendment. Vermont Yankee is investigating other options for additional storage capacity beyond the year 2001. Vermont Yankee has been active in supporting legislation currently before Congress that would create an interim spent fuel storage site to be used until the proposed Yucca Mountain permanent storage site becomes available. The bill passed the Senate in April 1996 and House in late 1997 and is awaiting action by a joint House-Senate conference committee. Although the measure had strong bipartisan support in both chambers, its future is uncertain due to the threat of a Presidential veto. In November 1997, as a result of a lawsuit filed by a coalition of State regulators and nuclear utilities including Vermont Yankee, the U.S. Court of Appeals for the District of Columbia ruled that delays in DOE's acceptance of spent nuclear fuel from utilities after January 31, 1998 must be treated as avoidable and therefore, subject to damages as provided by the delays clause and other provisions of the DOE's Waste Contract. The court did not require the DOE to develop a plan for meeting the January 1998 deadline. The average energy and capacity costs to the Company of energy generated at the Vermont Yankee plant was 5.34, 3.77, 4.68, 4.78 and 4.06 cents per KWH for the years 1993 through 1997, respectively. The Company has been advised by the companies operating other nuclear generating stations in which the Company has an interest that they have contracted for certain segments of the nuclear fuel production cycle through various dates. Contracts for the remainder of the fuel cycle will be required but their availability, prices and terms cannot be predicted. Nuclear Liability and Insurance. The Price-Anderson Act currently limits public liability from a single incident at a nuclear power plant to $8.9 billion. Beyond that a licensee maintains an indemnity agreement with the Nuclear Regulatory Commission, but subject to Congressional approval. The first $200 million of liability coverage is the maximum provided by private insurance. The Secondary Financial Protection Program is a retrospective insurance plan providing additional coverage up to $8.7 billion per incident by assessing $79.3 million against each of the 110 reactor units that are currently subject to the Program in the United States, limited to a maximum assessment of $10 million per incident per nuclear unit in any one year. The maximum assessment is to be adjusted at least every five years to reflect inflationary changes. The Company's interests in the nuclear power units are such that it could become liable for an aggregate of approximately $3.7 million of such maximum assessment per incident per year. Major long-term purchases. Canadian Purchases - Under various contracts, the Company purchases from Hydro-Quebec capacity and associated energy. Under the terms of these contracts, the Company is required to pay certain fixed capacity costs whether or not energy purchases above a minimum level described in the contracts are made. Such minimum energy purchases must be made whether or not other less expensive energy sources might be available. The company will receive varying amounts of capacity and energy from Hydro-Quebec under the Vermont Joint Owners (VJO) contract during the 1998 to 2016 period. Related contracts were negotiated between the Company and Hydro-Quebec which in effect alter the terms and conditions contained in the VJO contract, reducing the overall cost of the original contract. The maximum net amount of capacity that the Company will purchase during the term of the Hydro-Quebec agreements is 143 MW (except for 168 MW for one six-month period in 2012). The obligation over the next five years to purchase power under these contracts is approximately $294 million. In February 1996, the Company reached an agreement with Hydro-Quebec which lowered the delivered cost of power by approximately $5.7 million in 1997. As part of this agreement, the Company delivers to NEPOOL under existing firm energy contracts or joint marketing activities 54 MW of Phase II transmission capacity for a five-year period which began July 1, 1996 through June 30, 2001. In the early phase of the VJO contract, two sellback contracts were negotiated, the first delaying the purchase of about 23 MW of capacity and associated energy, the second reducing the net purchase of Hydro-Quebec capacity and associated energy. In 1994, the company negotiated a third sellback arrangement whereby the company receives an effective discount on up to 70 MW of capacity starting in November 1995 for the 1996 contract year (declining to 30 MW in the 1999 contract year). In exchange for this sellback, Hydro-Quebec has the right to reduce capacity deliveries by up to 50 MW beginning as early as 2004 until 2015, including the use of a like amount of the company's Phase I/II facility rights and the ability to reduce the amounts of energy delivered during a five-year term beginning in 2000. The PSB has recently issued an Order in a Green Mountain Power Corporation (GMP) rate case. That Order found GMP's decision to lock-in the Hydro-Quebec VJO contract in 1991 imprudent and further found that the contract was not used and useful. As such, the PSB concluded that a large portion of the contract's costs should not be imposed on consumers and were disallowed. The Company is one of the 13 participants in the VJO contract and has pending before the PSB a 6.6% rate increase that is primarily intended to recover increases in the cost of power the Company purchases pursuant to the VJO contract. The Company cannot predict the outcome of this proceeding. However, if the Company were to receive an order similar to that obtained by GMP, such an order could have a material adverse effect on the Company's financial condition. Merrimack #2 - The Company, through Velco, purchases power from Merrimack #2, a 320 MW capacity coal-fired steam unit located in Bow, New Hampshire, and owned by NU under a thirty-year contract which expires April 30, 1998. The Merrimack #2 unit is subject to air emission limits for sulfur dioxide (SO2) and Nitrogen Oxides (NOx) mandated by the Clean Air Act Amendments of 1990 (CAAA). The CAAA establishes SO2 allowances to reduce SO2 emissions. NU expects to have sufficient SO2 allowances to meet CAAA SO2 requirements. If any gains are realized from the sale of excess allowances, the Company will receive its proportionate share from VELCO. Likewise, the Company will pay its share of any allowances purchased. NU complied with the Merrimack #2 NOx limits by installing Selective Catalytic Reduction (SCR) equipment in 1995 at a cost of approximately $19 million increasing operating costs by about $1.6 million annually. The SCR equipment is expected to have a negligible effect on unit fuel efficiency. The Company will share on a pro-rata basis the cost of the SCR equipment based on its share of the VELCO contract. The total cost to the Company of energy generated by the Merrimack #2 unit was 3.02 cents per KWH in 1997. Under the Clean Air Act Amendment of 1990, the plant is required to purchase allowances if its output of sulfur dioxide (SO2) exceeds about 21,400 tons of which the Company's share is about 3,200 tons. In 1997, Merrimack 2 emitted about 26,144 tons and the Company's share was about 3,840 tons. No additional allowances were required to be purchased in 1997. Other Purchases. Cogeneration/Small Power Qualifying Facilities - A number of small producers using hydroelectric, biomass, and refuse-burning generation are currently producing energy that the Company is purchasing. For the year ended December 31, 1997, the Company received 209,672 MWH from these sources for which it paid $21,720,658. The Company, through VELCO, is a participant in NEPOOL, which has been open to all investor-owned, municipal, and cooperative utilities in New England under an agreement in effect since 1971 and amended from time to time. The Restated NEPOOL Agreement offers membership privileges to any entity which is engaged or proposes to engage in the wholesale or retail electric power business in New England. NEPOOL's function is changing in response to the growing climate of competition and the FERC requirements for open access transmission across systems. A new organization, an Independent System Operator (ISO), has been formed to operate the bulk power generation and transmission systems, to administer the regions open access transmission tariff, and to operate the electric ISO wholesale power market for New England. The bilateral market for transactions directly between NEPOOL participants will continue as an alternative to the ISO wholesale spot market. The ISO is governed by the principles put forth in the FERC Order 888 under rules defined by NEPOOL and approved by FERC. They include: to provide independent, open and fair access to the regional transmission system, to establish a non-discriminatory governance structure, to facilitate market- based wholesale electric transactions, and to ensure the efficient management and reliable operation of the regional bulk power system. The ISO is establishing a bidding system for the newly defined generation products; it will form the basis for the ISO's economic dispatch (based on bid prices) of the generation products. It is expected to be phased in throughout 1998. This system provides a settlement mechanism which will price the residual of a given generation product that is excess to a participant's own needs, and is offered to the ISO wholesale power market. A participant will pay as before the actual costs for its generation products used to serve its load or taken to market. A participant will submit a bid for its generation products to the ISO, and if the bid is accepted and if the participant supplies residual generation products to the ISO wholesale market, the participant will receive the Market Clearing Price based on the highest bids accepted for the residual product. If a participant needs to purchase from the ISO wholesale market to serve its load, those purchases will be made at Market Clearing Price. The ISO will also provide the main market place for participants to secure Open Access Transmission for transactions delivered on the Pool Transmission Facilities (PTF). Over the next several years, the pricing differences that had existed between transmission systems within NEPOOL will disappear as a NEPOOL-wide transmission pricing arrangement for all PTF and the Open Access Tariffs of Local Network providers will offer access to all other transmission facilities (i.e. non-PTF). The primary purposes of NEPOOL are to provide energy reliability for the region, centralized economic dispatch and coordination of generation planning and construction by the individual participants. The Company's peak demand for 1997 occurred on January 8 and equaled 399.9 MW. At the time of this peak, the Company had a reserve margin of 37%. NEPOOL's peak for the year occurred on July 14, 1997 and totaled 20,569 MW. NEPOOL had a 30% reserve margin at the time of its 1997 peak. Power Resources - Future. The Company has generally sufficient power under contract to supply its current franchise obligations for the near-term prior to any advent of Retail Wheeling. In addition, the Company will continue to utilize cost effective demand side management programs where appropriate. The Company expects to actively manage this portfolio of supply and demand side resources over the near-term, as it has in the past, to minimize net power costs for its ratepayers and shareholders. It is unclear what the Company's load responsibilities will be upon the advent of Retail Wheeling. The certainty, timing and nature of these events will be largely determined by legislative and regulatory actions at the state and national levels. TRANSMISSION Vermont Electric Power Company, Inc. VELCO engages in the operation of a high-voltage transmission system which interconnects the electric utilities in the State including the areas served by the Company. VELCO is also engaged in the business of purchasing bulk power for resale, at cost, to the Company and the other electric utilities (cooperative, municipal and investor-owned) in Vermont (the "Vermont utilities") and transmitting such power for the Vermont utilities. Refer to Item 8 herein for a discussion of the 1985 Four Party Agreement between the Company, VELCO and two other major distribution companies in Vermont. VELCO provides transmission services for the State of Vermont, acting by and through the Department, and for all of the electric distribution utilities in the State of Vermont. VELCO is reimbursed for its costs (as defined in the agreements relating thereto) for the transmission of power for such entities. The Company, as the largest electric distribution utility in Vermont, is the major user of VELCO's transmission system. The Company owns 34,083 shares (56.8%) of the Class B common stock of VELCO, the balance being owned by other Vermont utilities. Each share of Class B common stock has one vote. The Company also owns 46,624 shares (46.6%) of the Class C preferred stock of VELCO, the balance being owned by other Vermont utilities. Shares of Class C preferred stock have no voting rights except the limited right to vote VELCO's shares of common stock in Vermont Electric Transmission Company, Inc. (VETCO) if certain dividend requirements are not met. NEPOOL Arrangements. VELCO participates for itself and as agent for the Company and twenty-one other Vermont utilities in NEPOOL. See "Business-New England Power Pool" for additional details. Capitalization. VELCO has authorized 92,000 shares of Class B common stock, $100 par value, of which 60,000 shares were outstanding on December 31, 1997 and 125,000 shares of Class C preferred stock, of which 100,000 shares were outstanding at December 31, 1997. On that date there were authorized and outstanding three issues of First Mortgage Bonds, aggregating $26,969,000, issued under an Indenture of Mortgage dated as of September 1, 1957, as amended, between VELCO and Bankers Trust Company, as Trustee (the "VELCO Indenture"). The issuance of bonds under the VELCO Indenture is unlimited in amount but is subject to certain restrictions. New transmission and associated facilities will be required by VELCO in 1998 to transmit power to Vermont utilities. The costs of such facilities are presently estimated at $3,254,903 including allowance for funds used during construction calculated at a rate of approximately 6.5%. For a description of VELCO's properties, see "VELCO" under Item 2. Management. In 1957 VELCO entered into an agreement (the "Three-Party Agreement") whereby the Company and Green Mountain agreed that, if VELCO transmits firm power owned by it (which it does not now do), they would have the right to purchase all such firm power not sold to others with their consent and the obligation to pay (in agreed proportions) amounts sufficient, together with VELCO's revenues from other sources, to pay all VELCO's operating expenses, debt service and taxes. In connection with the transfer to VELCO of entitlements of the output of the Vermont Yankee plant, the Company and Green Mountain entered into a Three-Party Transmission Agreement, dated November 21, 1969, as amended, whereby they have agreed to pay transmission charges thereon in an aggregate amount sufficient, with VELCO's other revenues, to pay all of VELCO's expenses including capital costs. VELCO's Bonds are secured by a first mortgage on the major part of VELCO's transmission properties and by the assignment to the Trustee of the Three-Party Agreement, the Three-Party Transmission Agreement and certain other contracts as specified in the VELCO Indenture. See Item 8 herein for information relating to the 1985 Four-Party Agreement. Vermont Electric Transmission Company, Inc. In connection with the importing of Canadian power, VELCO has created a wholly owned subsidiary, VETCO, to construct, finance, own and operate the Vermont portion of the transmission line which connects the Hydro-Quebec lines at the Canadian border to the lines of New England Electric Transmission Corporation, a subsidiary of New England Electric System, at the New Hampshire border on the Connecticut River. VETCO entered into a Capital Funds Agreement with VELCO pursuant to which VETCO may request up to $12,500,000 (of which $10,000,000 was contributed as of December 31, 1997) of capital contributions from VELCO and has entered into Transmission Line Support Agreements with 20 New England utilities, including VELCO as representative for 14 Vermont utilities, pursuant to which those utilities have agreed to pay the transmission line costs, whether or not the line is operational. VELCO, as such representative, has entered into a similar agreement with New England Electric Transmission Corporation with respect to the New Hampshire portion of the DC transmission line and the DC/AC converter station. Pursuant to a Vermont Participation Agreement and a Capital Funds Support Agreement with Velco and 14 Vermont electric distribution utilities, including the Company, assume their pro rata share (based upon 1980 sales) of the benefits and obligations of VELCO under the Support Agreements and the VETCO Capital Funds Agreement. VETCO has authorized 10 shares of common stock, $100 par value, all of which were outstanding on December 31, 1997 and owned by VELCO, with each share having one vote. During 1986 VETCO paid off its construction financing by issuing $37,000,000 of secured notes, maturing in 2006, and receiving a $9,999,000 equity contribution from VELCO. The notes are secured by a First Mortgage on the major part of VETCO's transmission properties and by the assignment of its rights under the Support Agreements. Phase I and Phase II. The Company participated with other electric utilities in the construction of the Phase I Hydro-Quebec transmission facilities in northeastern Vermont, which were completed at a total cost of approximately $140 million. Under a support agreement relating to the Company's participation in the facilities, the Company is obligated to pay its 4.56% of Phase I Hydro-Quebec capital costs over a 20 year recovery period through and including 2006. The Company also participated in the construction of Phase II Hydro-Quebec transmission facilities which began operation in November 1990. This service increased the maximum capacity of the Hydro-Quebec 450 KV DC line from 690 MW to 2000 MW and extended Phase I line from Comerford, New Hampshire to Sandy Pond, Massachusetts. The Company uses this transmission path to deliver a portion of the Company's long-term Hydro-Quebec firm power contract. The project cost approximately $487 million. Under a similar support agreement, the Company is obligated to pay its 5.132% share of Phase II Hydro-Quebec capital costs over a 25-year recovery period through and including 2015. Under the support agreement, the Company is eligible for savings associated with certain energy transactions by NEPOOL, which will offset the Company's support cost obligations. CONSERVATION AND LOAD MANAGEMENT The primary purpose of Conservation and Load Management 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. For additional information regarding C&LM programs see PART II, Item 7, "Liquidity and Capital Resources" herein. The Company provides information to customers to help them use electricity more efficiently, first by ensuring that the customers are on the correct rate and have incorporated efficiency and conservation measures; secondly, by continually evaluating new energy management systems and other technologies to identify and develop programs to address new market opportunities and the competitive strengths of electricity. DIVERSIFICATION See PART II, Items 7 and 8 herein for information regarding the Company's diversification activities. The Company is continually assessing additional diversification opportunities. Any new investments will be financed primarily through a combination of debt and equity. EMPLOYEE INFORMATION A Local Union No. 300 affiliated with the International Brotherhood of Electrical Workers represents operating and maintenance employees of the Company and its wholly owned subsidiaries. At December 31, 1997 the Company and its wholly owned subsidiaries employed 610 persons, of which 218 are represented by the union. On January 26, 1996, the Company and its employees represented by the union agreed to a three-year contract, which expires on December 31, 1998. The new contract provides for general wage increases of 2.0%, 2.1% and 2.5% effective January 14, 1996, December 29, 1996 and December 28, 1997, respectively. Under the terms of the new agreement, effective in April 1996, Company's employees represented by the union will contribute weekly premiums for medical coverage of two, three and four dollars for the years 1996, 1997 and 1998, respectively. SEASONAL NATURE OF BUSINESS The Company experiences its heaviest loads in the colder months of the year. Winter recreational activities, longer hours of darkness and heating loads from cold weather usually cause the Company's peak of electric MWH sales to occur in January or late December. For additional information regarding the seasonal nature of business see PART II, Item 8 herein. OFFICERS The following sets forth the Executive Officers of the Company and a wholly owned subsidiary. There are no family relationships among the executive officers. Officers are normally elected annually. Executive Officers of the Registrant: Name and Age Office Officer Since - - ------------ ------ ------------- Robert H. Young, 50 President and Chief Executive Officer 1987 Francis J. Boyle, 52 Senior Vice President - Principal Financial Officer and Treasurer 1995 Kent R. Brown, 52 Senior Vice President - Engineering and Operations 1996 Joseph M. Kraus, 42 Vice President, Secretary and General Counsel 1987 Douglas D. Sinclair, 49 Vice President and General Manager for Business Development 1997 William J. Deehan, 45 Vice President-Regulatory Affairs and Strategic Analysis 1991 James M. Pennington, 42 Vice President, Controller and Principal Accounting Officer 1993 L. Douglas Barba, 50 Senior Vice President and General Manager-Catamount Energy Corporation 1992 Robert E. Rogan, 38 Vice President, Public Affairs 1998 Mr. Young joined the Company in 1987. He was elected Director, President and Chief Executive Officer in 1995. Prior to being elected to his present position, he was elected Executive Vice President and Chief Operating Officer in 1993. Mr. Boyle joined the Company in October, 1995. Prior to being elected to his current position in 1997, he was elected as Vice President - Finance and Administration and Chief Financial Officer in 1995. From 1993 to 1995, Mr. Boyle served as Chief Financial Officer of Westmoreland Coal Company ("Westmoreland") in Philadelphia, Pennsylvania. In November, 1994, Westmoreland and several of its subsidiaries commenced Chapter 11 proceedings to confirm a so-called "prepackaged" plan of reorganization under which the court was asked to approve a sale of assets, the proceeds of which were to be used to satisfy in full certain maturing obligations of Westmoreland. In December, 1994, Westmoreland's plan of reorganization was confirmed, the asset sale was consummated, the obligations in question were paid, and Westmoreland emerged from Bankruptcy. On December 23, 1996, Westmoreland and four of its subsidiaries commenced Chapter 11 proceedings. The Chapter 11 proceedings were precipitated by large liabilities Westmoreland and four of its subsidiaries have to retiree medical benefit plans for the benefit of retired mine workers. From 1985 to 1992, Mr. Boyle was Chief Financial Officer of El Paso Natural Gas Company, El Paso, Texas. Mr. Brown joined the Company in September, 1996. Prior to being elected to his present position in 1997, he was elected as Vice President - Engineering and Operations in 1996. From 1992 to 1995 he served as Chairman, President and Chief Executive Officer of Kansas Gas and Electric Company ("KG&E") and Group Vice President of KG&E from 1982 to 1992. Mr. Kraus joined the Company in 1981. Prior to being elected to his present position in 1996, he was elected Secretary and General Counsel in 1994 and Secretary and Senior Corporate Counsel in 1987. Mr. Sinclair joined the Company in April 1997. Prior to joining the Company, from 1994 to 1996 he served as President and Chief Executive Officer at Noma International. In 1991 he joined Novatel Communications, Ltd. as Chief Financial Officer and was President and Chief Executive Officer from 1992-1994. Mr. Deehan joined the Company in 1985. Prior to being elected to his present position in 1996, he was elected Assistant Vice President - Rates and Economic Analysis in 1991. Mr. Pennington joined the Company in 1989. Prior to being elected to his present position in 1992, Mr. Pennington was designated Acting Controller in 1992 and was elected Controller and named Principal Accounting Officer in 1993. Mr. Barba joined Catamount Energy Corporation, a wholly owned subsidiary of the Company, in August 1992 as Senior Vice President and General Manager. From 1990 to 1992, Mr. Barba served as Vice President, Project Finance of Cogentrix, Inc., Charlotte, N. C. Mr. Rogan joined the Company in February 1998 as Vice President, Public Affairs. Prior to joining the Company, he served as Deputy Chief of Staff for the Governor of Vermont from 1994 to 1998. He served as Director of External Affairs for the Agency of Health Care Administration in Florida from 1992 to August 1994 and as Deputy Director and Lobbyist in the Florida Governor's Washington office from 1991 to 1992. Note: Thomas J. Hurcomb, Vice President-Marketing and Public Affairs, retired effective March 1, 1998. Jonathan W. Booraem, Treasurer, retired effective December 31, 1997. The term of each officer is for one year or until a successor is elected. Item 2. Properties. The Company. The Company's properties are operated as a single system which is interconnected by transmission lines of VELCO, New England Power Company and PSNH. The Company owns and operates 23 small generating stations with a total current nameplate capability of 70,070 KW, has a 1.78% joint- ownership interest in an oil generating plant in Maine, has a 20% joint- ownership interest in a wood, gas and oil-fired generating plant in Vermont, has a 1.73% joint-ownership interest in a nuclear generating plant in Connecticut and has a 47.35% joint-ownership interest in a transmission interconnection with Hydro-Quebec in Vermont. The electric transmission and distribution systems of the Company include about 614 miles of overhead transmission lines, about 7,266 miles of overhead distribution lines and about 238 miles of underground distribution lines which are located in Vermont except for about 23 miles of transmission lines which are located in New Hampshire and about two miles of transmission lines which are located in New York. Connecticut Valley. Connecticut Valley's electric properties consist of two principal systems in New Hampshire which are not interconnected with each other but each of which is connected directly with facilities of the Company. The electric systems of Connecticut Valley include about two miles of transmission lines and about 427 miles of overhead distribution lines and about 11 miles of underground distribution lines. All the principal plants and important units of the Company and its subsidiaries are held in fee. Transmission and distribution facilities which are not located in or over public highways are, with minor exceptions, located either on land owned in fee or pursuant to easements substantially all of which are perpetual. Transmission and distribution lines located in or over public highways are so located pursuant to authority conferred on public utilities by statute, subject to regulation of state or municipal authorities. VELCO. VELCO's properties consist of about 483 miles of high voltage overhead transmission lines and associated substations. The lines connect on the west at the Vermont-New York state line with the lines of Niagara Mohawk Power Corporation near Whitehall, New York, and Bennington, Vermont and with the submarine cable of NYPA near Plattsburg, New York; on the south and east with lines of New England Power Company and PSNH; on the south with the facilities of Vermont Yankee; and on the north with lines of Hydro-Quebec through a converter station and tie line jointly owned by the Company and several other Vermont utilities. VETCO. VETCO has approximately 52 miles of high voltage DC transmission line connecting at the Quebec-Vermont border in the Town of Norton, Vermont with the transmission line of Hydro-Quebec and connecting at the Vermont-New Hampshire border near New England Power Company's Moore hydro-electric generating station with the transmission line of New England Electric Transmission Corporation, a subsidiary of New England Electric System. Item 3. Legal Proceedings. On July 29, 1996, the Company filed a Declaratory Judgment action in the United States District Court for the District of Vermont. The Complaint names as defendants a number of insurance companies that issued policies to the Company dating from the mid 1940s to the late 1980s. The Company asserts that policies issued by defendants provide coverage for all defense and remediation costs associated with the Cleveland Avenue property, the Bennington Landfill site and the North Clarendon site. With the exception of the North Clarendon site where no further remediation is anticipated, see PART II, Item 8 "Environmental" for related disclosures. On August 7, 1997, the company and eight other non-operating owners of Unit #3 filed a demand for arbitration with Connecticut Light and Power Company and Western Massachestts Electric Company and lawsuits against NU and its trustees. The arbitration and lawsuits seek to recover costs associated with replacement power, operation and maintenance costs and other costs resulting from the shutdown of Unit #3. The non-operating owners claim that NU and two of its wholly owned subsidiaries failed to comply with NRC's regulations, failed to operate the facility in accordance with good operating practice and attempted to conceal their activities from the non-operating owners and the NRC. Except as otherwise described under Management's Discussion and Analysis of Financial Condition and Results of Operations, Item 7, there are no other material pending legal proceedings, other than ordinary routine litigation incidental to the business, to which the Company or any of its subsidiaries is a party or to which any of their property is subject. Item 4. Submission of Matters to a Vote of Security Holders. There were no matters submitted to security holders during the fourth quarter of 1996. PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters. (a) The Company's common stock is traded on the New York Stock Exchange (NYSE) under the trading symbol CV. The table below shows the high and low sales price of the Company's common stock, as reported on the NYSE composite tape by The Wall Street Journal, for each quarterly period during the last two years as follows: Market Price High Low -------- -------- 1997 First quarter.............. $ 13 1/8 $ 10 3/8 Second quarter............. 11 3/8 10 3/8 Third quarter.............. 13 15/16 11 Fourth quarter............. 15 3/8 13 1996 First quarter.............. $ 15 1/8 $ 13 1/4 Second quarter............. 15 1/8 12 Third quarter.............. 13 5/8 12 Fourth quarter............. 13 12 (b) As of December 31, 1997, there were 13,686 holders of the Company's common stock, $6 par value. (c) Common stock dividends have been declared quarterly. Cash dividends of $.20 per share were paid for the first two quarters of 1996 and cash dividends of $.22 per share were paid for the last two quarters of 1996. Cash dividends of $.22 per share were paid for all quarters of 1997. So long as any Senior Preferred Stock or Second Preferred Stock is outstanding, except as otherwise authorized by vote of two-thirds of each such class, if the Common Stock Equity (as defined) is, or by the declaration of any dividend will be, less than 20% of Total Capitalization (as defined), dividends on Common Stock (including all distributions thereon and acquisitions thereof), other than dividends payable in Common Stock, during the year ending on the date of such dividend declaration, shall be limited to 50% of the Net Income Available for Dividends on Common Stock (as defined) for that year; and if the Common Stock Equity is, or by the declaration of any dividend will be, from 20% to 25% of Total Capitalization, such dividends on Common Stock during the year ending on the date of such dividend declaration shall be limited to 75% of the Net Income Available for Dividends on Common Stock for that year. The defined terms identified above are used herein in the sense as defined in subdivision 8A of the Company's Articles of Association; such definitions are based upon the unconsolidated financial statements of the Company. As of December 31, 1997, the Common Stock Equity of the Company was 58.2% of total capitalization. For additional information regarding dividend payment level and dividend restrictions see Item 8 herein.
Item 6. Selected Financial Data. (Dollars in thousands, except per share amounts) 1997 1996 1995 1994 1993 For the year Operating revenues $304,732 $290,801 $288,277 $277,158 $279,389 Net income before extraordinary charge* $ 17,151 $ 19,442 $ 19,851 $ 14,800 $ 21,292 Extraordinary charge net of taxes $ 811 $ - $ - $ - $ - Net income* $ 16,340 $ 19,442 $ 19,851 $ 14,800 $ 21,292 Earnings available for common stock* $ 14,312 $ 17,414 $ 17,823 $ 12,662 $ 18,634 Consolidated return on average common stock equity* 7.5% 9.4% 10.0% 7.2% 11.0% Earnings per diluted share of common stock before extraordinary charge* $1.32 $1.51 $1.53 $1.08 $1.64 Earnings per diluted share of common stock* $1.25 $1.51 $1.53 $1.08 $1.64 Cash dividends paid per share of common stock $.88 $.84 $.80 $1.42 $1.42 Book value per share of common stock $16.38 $16.19 $15.51 $14.56 $15.03 Net cash provided by operating activities $ 41,866 $ 42,688 $ 41,711 $ 49,426 $ 36,833 Dividends paid $ 12,630 $ 11,728 $ 11,350 $ 18,845 $ 18,112 Construction and plant expenditures $ 13,841 $ 18,952 $ 21,337 $ 22,621 $ 20,519 Deferred conservation and load management expenditures $ 1,837 $ 1,589 $ 3,899 $ 6,159 $ 9,874 At end of year Long-term debt $ 93,099 $117,374 $119,142 $120,157 $122,419 Long-term lease arrangements $ 17,223 $ 18,304 $ 19,385 $ 20,467 $ 21,553 Redeemable preferred stock $ 19,000 $ 20,000 $ 20,000 $ 20,000 $ 20,000 Total capitalization (excluding current portion of debt and preferred stock) $324,499 $350,201 $346,341 $339,462 $352,862 Total assets $531,940 $502,968 $489,213 $489,570 $479,373 * Net income and earnings per share of common stock reflect net of tax non-recurring charges and non-recurring gains as follows and discussed in Management's Discussion and Analysis of Financial Condition and Results of Operations: Net income 1997 1996 1995 1994 1993 ---------- ---- ---- ---- ---- ---- Charges $(3,575) $ - $(1,703) $(4,336) $ - Gains 3,092 1,330 905 - - ------- ------ ------- ------- ------ $ (483) $1,330 $ (798) $(4,336) $ - ======= ====== ======= ======= ====== Earnings per share ------------------ Charges $ (.31) $ - $ (.15) $ (.37) $ - Gains .28 .12 .08 - - ------ ----- ------ ------ ------ $ (.03) $ .12 $ (.07) $ (.37) $ - ====== ===== ====== ====== ======
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. Earnings Overview. The company's 1997 net income was $16.3 million or $1.25 per share of common stock, which equates to a 7.5% return on average common equity. Net income and earnings per share of common stock for 1997 compare to $19.4 million and $1.51 in 1996, and $19.9 million and $1.53 in 1995. The return on average common equity was 9.4% for 1996 and 10.0% for 1995. For 1997, net income and earnings per share of common stock for the company's utility business reflect a net of tax extraordinary charge of approximately $.8 million and $.07, respectively, associated with the discontinued application of Statement of Financial Accounting Standards (SFAS) No. 71, "Accounting for the Effects of Certain Types of Regulation," applied to Connecticut Valley Electric Company Inc. (Connecticut Valley) the company's wholly owned New Hampshire subsidiary. In addition, Connecticut Valley incurred an after-tax charge of $3.6 million and $.31 per share of common stock for an estimated loss on power contracts for the twelve months following December 31, 1997. Both charge-offs are described in Notes 1 and 13 to the Consolidated Financial Statements. Offsetting these charges is an after-tax gain of approximately $1.3 million and $.12 per share of common stock from sale of non-utility property. Non-utility net income and earnings per share of common stock for 1997 reflect a gain of approximately $1.8 million and $.16, respectively, from the sale by the company's wholly owned subsidiary, Catamount Energy Corporation (Catamount) of its 8.1% partnership's interest in the NW Energy Williams Lake L.P. Project. Non-utility net income and earnings per share of common stock for 1996 were reduced by approximately $1.4 million and $.12, respectively, for expenses incurred in connection with a project currently under development by Catamount. These expenses would be reimbursed if this pending project reaches financial closing. The company filed for a 6.6% or $15.4 million general rate increase on September 22, 1997 to become effective June 6, 1998, to offset the increasing cost of providing service as more fully discussed in Rates and Regulation below. On April 30, 1996, the company received a rate order from the Vermont Public Service Board (PSB). The PSB order generally approved an agreement reached with the DPS that provided for a 5.5% increase in Vermont retail rates effective with bills rendered on June 1, 1996 and an additional 2% increase effective January 1, 1997. Combined, these rate increases produce annualized revenues of approximately $16 million. The PSB order also capped the company's allowed return on common equity in its Vermont retail business at 11% for 1996 and 1997. Earnings for 1995 reflect a $.15 per common share charge pursuant to a PSB Accounting Order requiring a write-off of 1994 restructuring costs, an $.08 per share gain on the sale by Catamount of approximately half of its limited partnership interest in the Appomattox Cogeneration project and the 5.07% retail rate increase. Results of Operations. The major elements of the Consolidated Statement of Income are discussed below. Operating revenues and megawatt-hour (MWH) sales A summary of MWH sales and operating revenues for 1997, 1996 and 1995 is set forth below:
MWH Sales Revenues (000's) 1997 1996 1995 1997 1996 1995 ---- ---- ---- ---- ---- ---- Residential 945,199 957,733 946,342 $116,314 $108,603 $103,365 Commercial 916,311 900,590 876,735 104,460 98,890 93,950 Industrial 427,764 401,781 404,487 34,206 32,399 31,565 Other retail 7,138 7,229 7,361 1,937 1,856 1,794 --------- --------- --------- -------- -------- -------- Total retail sales 2,296,412 2,267,333 2,234,925 256,917 241,748 230,674 --------- --------- --------- -------- -------- -------- Resale sales: Firm 1,051 1,717 4,860 46 81 223 Entitlement 378,273 470,760 895,409 18,925 24,781 39,802 Other 827,818 770,542 580,048 22,265 18,705 13,269 --------- --------- --------- -------- -------- -------- Total resale sales 1,207,142 1,243,019 1,480,317 41,236 43,567 53,294 --------- --------- --------- -------- -------- -------- Other revenues - - - 6,579 5,486 4,309 --------- --------- --------- -------- -------- -------- Total 3,503,554 3,510,352 3,715,242 $304,732 $290,801 $288,277 ========= ========= ========= ======== ======== ========
Year-to-year fluctuations in total retail MWH sales are primarily affected by customer growth, Conservation and Load Management (C&LM) programs, as well as relative prices of alternate energy sources, weather patterns and conservation induced by price changes and income elasticity responses of customers. Retail MWH sales for 1997 increased 1.3% compared to 1996 reflecting the improving Vermont economy. However, retail revenues increased $15.2 million or 6.3% over last year due to a $12.8 million increase in revenues resulting from a two-phase retail rate increase discussed above and $2.4 million associated with a 1.3% increase in retail MWH sales. Residential MWH sales decreased 1.3% reflecting moderate temperatures during the 1997 winter months. Commercial MWH sales increased 1.7% while industrial MWH sales increased 6.5% primarily due to increased megawatt-hour requirements by ski area customers. Retail MWH sales for 1996 increased 1.5% compared to 1995. Retail revenues increased $11.1 million or 4.8% over 1995 due to a $7.5 million increase in revenues resulting from the 5.5% retail rate increase effective June 1, 1996 and $3.6 million associated with a 1.5% increase in retail MWH sales. Residential and commercial MWH sales increased 1.2% and 2.7%, respectively, reflecting the normal cold weather experienced during the first quarter of 1996 while industrial MWH sales decreased .7% as a result of increased natural snow fall during 1996 reducing ski areas' megawatt-hour requirements for snow making. Entitlement MWH sales and revenues decreased for 1997 compared to 1996 primarily due to the scheduled termination of several sales agreements in late 1996. The decrease in entitlement MWH sales and revenues for 1996 is 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. Other resale sales and revenues for 1997 increased 7.4% and 19.0%, respectively, due to increased sales to New England Power Pool (NEPOOL) partially offset by a decrease in unit sales. Other resale sales and revenues increased for 1996 due to increased system capacity sales and sales to NEPOOL offset by a decrease in unit and off-system sales. The increases in other revenues for 1997 and 1996 resulted primarily from an increase in transmission revenues related to various transmission interconnection agreements. The table below summarizes the components of increases or decreases in revenues compared to the prior year (dollars in thousands): 1997 1996 Revenue increase (decrease) from: Retail MWH sales $ 2,377 $ 3,557 Retail rates 12,792 7,517 Changes in firm resale sales (35) (142) Changes in entitlement sales (5,856) (15,021) Changes in other resale sales 3,560 5,436 Changes in other revenues 1,093 1,177 ------- ------- Net increase over prior year $13,931 $ 2,524 ======= ======= Purchased power The company purchases approximately 90% of its power needs under several contracts of varying duration. Over 30% of these purchases are from affiliated companies whereby the company receives its entitlement share of the output. The company's purchased power portfolio assures that a diversified mix of sources and fuel types are available to meet the company's long-term load growth while providing short and intermediate term opportunities to purchase or sell capacity and energy to reduce overall power costs. A breakdown of the company's energy sources is shown below: Year Ended December 31 1997 1996 1995 Nuclear generating companies 36% 36% 32% Canadian imports 32 30 33 PSNH--coal 9 8 8 Company-owned hydro 5 6 4 Jointly owned units 1 2 4 Small power producers 6 6 5 Other sources 11 12 14 --- --- --- 100% 100% 100% === === === The company maintains a 1.7303% joint-ownership interest in Millstone Unit #3 (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 maintains joint-ownership interests in Joseph C. McNeil, a 53 MW wood, gas and oil-fired unit and Wyman #4, a 619 MW oil-fired unit and owns a 31.3%, 2% and 3.5% equity interest in Vermont Yankee, Maine Yankee and Yankee Atomic, respectively. The company's entitlement percentage for Vermont Yankee is 35%. In addition, the company owns 20 hydroelectric generating units with a total nameplate capability of 41.2 MW and two gas-fired and one diesel-peaking units with a combined nameplate capability of 28.9 MW. On March 30, 1996, Unit #3 was shut down by the licensee due to numerous technical and non-technical problems and is on the Nuclear Regulatory Commission's (NRC) watch list. NU has restructured its nuclear organization and comprehensive plans are currently being implemented to restart Unit #3. The company was advised that NU anticipates returning Unit #3 to service by the end of the second quarter of 1998. However, the actual date Unit #3 returns to service is dependent upon the completion of independent inspections and reviews by the NRC and a vote by the NRC Commissioners. As such, the company currently believes that Unit #3 will not return to service until sometime after the second quarter of 1998. NU estimates that its total 1997 incremental operations and maintenance cost for Unit #3 is approximately $56.4 million. The company's share is about $1.0 million. In addition, the company incurred incremental power costs during 1997 of about $1.6 million and anticipates that 1998 incremental operations and maintenance costs will be approximately $.3 million. Incremental power costs for 1998 are estimated to be $130,000 per month. The company remains actively involved with the other non-operating minority joint-owners of Unit #3. This group is engaged in various activities to monitor and evaluate NU and Northeast Utilities Service Co.'s efforts relating to Unit #3. On August 7, 1997, the company and eight other non- operating owners of Unit #3 filed a demand for arbitration with Connecticut Light and Power Company and Western Massachusetts Electric Company and lawsuits against NU and its trustees. The arbitration and lawsuits seek to recover costs associated with replacement power, operation and maintenance costs and other costs resulting from the shutdown of Unit #3. The non- operating owners claim that NU and two of its wholly owned subsidiaries failed to comply with NRC's regulations, failed to operate the facility in accordance with good operating practice and attempted to conceal their activities from the non-operating owners and the NRC. In December 1996 and August 1997 the Board of Directors of Connecticut Yankee and Maine Yankee, respectively, decided to prematurely retire the Connecticut Yankee and Maine Yankee nuclear power plants from commercial operation and decommission the facilities. The decision to prematurely retire these nuclear power plants was based on economic analyses of the costs of operating them compared to the costs of closing them and incurring replacement power costs over the remaining period of the plants' operating licenses. Connecticut Yankee and Maine Yankee have been off-line since July 1996 and December 1996, respectively. In 1992, the Board of Directors of Yankee Atomic decided to permanently discontinue operation of the Yankee Atomic Nuclear Power Plant, and to decommission the facility. For additional information in regard to the permanent shutdown of the Connecticut Yankee, Maine Yankee and Yankee Atomic Nuclear Power Plants see Note 2 to the Consolidated Financial Statements. The Vermont Yankee Nuclear Power Plant, which provides approximately one-third of the company's power supply, had no scheduled refueling outage in 1997 and had scheduled refueling outages from September 7 through November 5, 1996 and from March 17 through May 2, 1995. The Design Basis Documentation project (Project) initiated by Vermont Yankee during 1996 is expected to be complete by the end of 1999. The Company's 35% share of the total cost for this Project is expected to be about $6.3 million. Such costs will be deferred by Vermont Yankee and amortized over the remaining license life of the plant. During scheduled nuclear refueling outages, the company purchases more costly replacement energy from other sources to satisfy energy needs. In accordance with current rate-making treatment, the company defers and amortizes to expense over their respective fuel cycles the incremental replacement energy and maintenance costs associated with refueling outages for the Yankee plants, three of which are permanently shutdown, and Unit #3 jointly owned nuclear generating unit. During 1996, the company deferred $1.5 million and $6.0 million of replacement energy and capacity costs, respectively, for Vermont Yankee and for 1995 deferred $2.4 million and $6.9 million of replacement energy and capacity costs, respectively, for Vermont Yankee, Maine Yankee, Connecticut Yankee and Unit #3. For the 1998 Vermont Yankee refueling outage, the company expects to defer approximately $1.2 million and $6.7 million for replacement energy and maintenance costs, respectively. In August 1997, Vermont Yankee received an unsolicited expression of interest to purchase Vermont Yankee. At this time no sale of Vermont Yankee appears likely. Under various long-term purchase power contracts expiring in 2016, the company receives varying amounts of capacity and energy from Hydro-Quebec. See Note 14 to the Consolidated Financial Statements for further details related to the Hydro-Quebec power contracts. Under a 30-year contract, which expires in April 1998, the company, through Vermont Electric Power Company, Inc., purchases 46.98 MW of capacity from Merrimack #2, a coal-fired generating plant owned by NU. The company, under long-term contracts, purchases power from a number of small power producers who own qualifying facilities under the Public Utility Regulatory Policies Act of 1978. These qualifying facilities produce energy using hydroelectric, wood, biomass and refuse-burning generation. During 1997, the company purchased 209,672 MWH of which approximately 153,012 MWH is associated with the Vermont Electric Power Producers and 37,446 MWH with a New Hampshire/Vermont solid waste plant. The company engages in purchases and sales with other electric utilities and with NEPOOL to take advantage of immediate pricing and other market conditions. These purchases are included in Other sources in the table above. The net cost components of purchased power and production fuel costs for the past three years were as follows (dollars in thousands):
1997 1996 1995 Units Amount Units Amount Units Amount Purchased and produced: Capacity (MW) 527 $ 99,513 526 $ 86,431 585 $ 85,758 Energy (MWH) 3,470,235 71,930 3,445,259 67,991 3,603,446 63,907 -------- -------- -------- Total purchased power costs 171,443 154,422 149,665 Production fuel (MWH) 237,064 1,820 295,802 1,570 348,528 2,358 -------- -------- -------- Total purchased power and production fuel costs 173,263 155,992 152,023 Less entitlement and other resale sales (MWH) 1,206,091 41,190 1,241,302 43,486 1,475,457 53,071 -------- -------- -------- Net purchased power and production fuel costs $132,073 $112,506 $ 98,952 ======== ======== ========
The increase in purchased capacity cost of $13.1 million for 1997 over 1996 resulted from $7.4 million in higher prices, $.2 million increase in the amount of MW purchased and $5.5 million representing Connecticut Valley's estimated loss on power contracts for the twelve months following December 31, 1997 discussed in Note 13 to the Consolidated Financial Statements. The increase in purchased capacity cost of $.7 million for 1996 over 1995 resulted from $9.3 million in higher prices offset by a 10%, or $8.6 million, decrease in the amount of MW purchased. Energy costs are directly related to the variable prices of oil, nuclear fuel and coal but, more importantly, to the proportion of the company's purchased energy that comes from each of these fuel sources. The increase in energy costs for 1997 resulted from a 5.0% or $3.4 million increase in cost per MWH purchased and a .7%, or $.5 million increase in the amount of MWH purchased. The price increase results primarily from incremental replacement power costs associated with Unit #3 discussed above and Maine Yankee and Connecticut Yankee nuclear power plants discussed in Note 2 to the Consolidated Financial Statements. Pursuant to a PSB Accounting Order, during the first half of 1997, the company reduced energy costs by approximately $5.8 million related to the Hydro-Quebec agreement for which a payment of $5.8 million was received from Hydro-Quebec on June 30, 1997. The increase in energy costs for 1996 resulted from an 11% or $6.9 million increase in cost per MWH purchased offset by a 4.4% or $2.8 million decrease in the amount of MWH purchased. The price increase results primarily from incremental replacement power costs associated with Unit #3 discussed above. The company is responsible for paying its entitlement percentage of decommissioning costs for Vermont Yankee, Connecticut Yankee, Maine Yankee and Yankee Atomic as well as its joint ownership percentage of decommissioning costs for Unit #3. See Notes 2 and 14 to the Consolidated Financial Statements. The staff of the Securities and Exchange Commission has questioned certain current accounting practices of the electric utility industry, including the company, regarding the recognition, measurement and classification of decommissioning costs for nuclear generating stations in financial statements of electric utilities. In response to these questions, the Financial Accounting Standards Board has agreed to review the industry- wide accounting for nuclear decommissioning costs. If current electric utility industry accounting practices for such decommissioning costs are changed, it is possible that annual expense provisions for decommissioning costs could increase, the total estimated costs for decommissioning could be recorded as a liability, and income from external decommissioning trusts could be reported as investment income instead of a reduction to decommissioning expense. The company does not believe that such changes, if required, would have an adverse effect on results of operations due to its ability to recover decommissioning costs through the regulatory process. See Liquidity and Capital Resources - Competition, for related information. Due to increased generation at the Wyman #4 and the Joseph C. McNeil generating stations, production fuel costs increased for 1997 compared to 1996. Production fuel costs decreased $.8 million for 1996 due primarily to lower generation by Unit #3 discussed above. In order to optimize its power mix for baseload, intermediate and peaking power, the company engages in sales and purchases with other electric utilities, primarily in New England and with NEPOOL. The profits from these transactions are used to reduce purchased power costs. Based on present commitments and contracts, the company expects that net purchased power and production fuel costs will be approximately $134.2 million, $139.3 million and $143.8 million for the period 1998 through 2000. PRODUCTION AND TRANSMISSION Due to increased production costs, primarily related to Unit #3 and higher transmission costs, production and transmission expenses increased $1.5 million compared to 1996. OTHER OPERATION EXPENSES In accordance with a PSB Accounting Order issued in January 1996, the company expensed, in December 1995, approximately $2.9 million of deferred restructuring costs. This recognition combined with reduced amortization of about $.8 million for 1996, decreased other operation expenses approximately 9.5% compared to 1995. MAINTENANCE EXPENSES Maintenance expenses associated with the company's joint ownership interest in Unit #3 increased for 1997 compared to 1996. However, this increase was partially offset by a decrease in maintenance expenses related to the company's hydroelectric generating facilities. The $2.1 million or 15.9% increase in maintenance expenses for 1996 compared to 1995 is primarily attributable to maintenance expenses associated with Unit #3. INCOME TAXES Federal and state income taxes fluctuate with the level of pre- tax earnings. These taxes decreased for 1997 and 1996 as a result of lower pre-tax earnings. OTHER INCOME AND DEDUCTIONS Equity in earnings of affiliates was about the same for all periods presented. Allowance for equity and borrowed funds used during construction decreased for 1997 compared to 1996 due to a lower level of construction expenditures partially offset by higher rate used for capitalization of these funds. The 1996 increase is due to a higher level of construction expenditures and higher rates used for capitalization of these funds. The increase in other income, net for 1997 results from a $2.9 million gain on sale of a non-utility investment discussed in Financing and Capitalization, Diversification below and a $2.1 million gain from sale of non-utility property. The decrease in other income, net for 1996 compared to 1995 is primarily due to approximately $2.3 million of expenses incurred in connection with a non-utility project currently under development in Summersville, West Virginia. These expenses would be reimbursed if this pending project reaches financial closing. The decrease was offset by insurance proceeds of $1.3 million recorded in the first quarter of 1996, higher income from Catamount's operating investments and an increase in interest and dividend income. OTHER INTEREST EXPENSE Other interest expenses declined for 1997 and 1996 due to a decrease in short-term debt levels. EXTRAORDINARY CHARGE The extraordinary charge net of taxes of $.8 million relates to the discontinued application of SFAS No. 71 for Connecticut Valley. CASH DIVIDENDS PAID Common The increase in common dividends paid for 1997 results from the full year impact of the 10% increase in the quarterly common dividend paid (from $.20 to $.22 per share) on the company's outstanding common stock beginning in August and November 1996. The 1996 increase compared to 1995 results from the partial year impact of the 10% increase in the quarterly common dividend paid discussed above. LIQUIDITY AND CAPITAL RESOURCES CONSTRUCTION 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 generated $41.8 million in 1997, $42.7 million in 1996 and $41.7 million in 1995. The company ended the 1997 year with cash and cash equivalents of $16.5 million, an increase of $10.1 million from the beginning of the year. The increase in cash for 1997 was the result of $41.8 million provided by operating activities, $8.9 million used for investing activities and $22.8 million used for financing activities. Operating Activities Net income, depreciation and deferred income taxes and investment tax credits provided $26.7 million. About $15.1 million of cash was provided from fluctuations in working capital and other operating activities. Investing Activities Construction and plant expenditures consumed approximately $13.8 million while $4.0 million was used for C&LM programs and non-utility investments. Approximately $8.9 million was provided by sale of investment and non-utility property, investments in affiliates and by a reduction in an escrow account to fund a non-utility investment. Financing Activities Dividends paid on common stock were $10.1 million, while preferred stock dividends were $2.5 million. Short-term obligations, retirement of long-term debt, retirement of preferred stock and the repurchase of common stock required $5.1 million, $3.0 million, $1.0 million and $1.1 million, respectively. Excluding allowance for funds used during construction, construction expenditures are estimated at $18.8 million, $17.1 million and $15.4 million for the years 1998 through 2000, respectively. ELECTRIC INDUSTRY RESTRUCTURING The electric utility industry is in a period of transition that may result in a shift away from ratemaking based on cost of service and return on equity to more market-based rates. Many states, including Vermont and New Hampshire, where the Company does business, are exploring new mechanisms to bring greater competition, customer choice and market influence to the industry while retaining the public benefits associated with the current regulatory system. Vermont On December 31, 1996, the PSB issued a Report and Order (the Report) outlining a restructuring plan (the Plan), subject to legislative approval, for the Vermont electric utility industry. Due to uncertainty surrounding legislative schedules, the PSB, on April 18, 1997, issued an Order which suspended, pending further legislative action or future PSB Orders, certain filing deadlines for reports and plans to be completed in connection with the Plan. In an effort to achieve a negotiated resolution to the issues surrounding the restructuring of the Vermont electric utility industry, the Company, Green Mountain Power Corporation, the DPS and representatives of the Governor of the State of Vermont developed a Memorandum of Understanding (MOU) in February 1997 establishing a plan for implementing restructuring in Vermont. Although concepts of the MOU are still under consideration, no action has been taken on the MOU by the Legislature. On April 3, 1997, Senate bill 62 (S.62), an act relating to electric industry restructuring was passed by the Vermont Senate. Pursuant to S.62, electric utility customers would be entitled to purchase electricity in a competitive market place and could choose their electricity supplier. Incumbent investor-owned electric utilities, including the Company, would be required to separate their regulated distribution and transmission operations into affiliate entities that are functionally separate from competitive generation and retail operations. S.62 provides for the recovery of a portion of investor-owned utility's "above market costs" which may be stranded on account of the introduction of competition within their service area. When considering the recovery of such amounts, S.62 would require that the PSB weigh the goal of sharing net prudently incurred, discretionary above-market costs "evenly" between utilities and customers against other goals including preserving the continuing financial integrity of the existing utility and respecting the just interests of investors. The company believes that the unmodified provisions of S.62 would not meet the criteria for continuing application of SFAS No. 71. S.62 also creates an incentive for the Company to take steps to close the Vermont Yankee Nuclear Power Station by conditioning the recovery of certain plant-related stranded costs on the decision of its owners to cease operations in 1998, unless the PSB agrees to allow the plant to run for up to two more refuelings to avoid power shortages or for other public interest reasons. To become law, S.62 would have to be passed by the Vermont House of Representatives in its current session which began in January 1998 and runs through April 1998 and signed by the Governor of the State of Vermont. At this time, the Vermont House of Representatives is not considering S.62 but instead convened a special committee of the Vermont House of Representatives to study matters relating to the reform of Vermont's electric utility system. That committee issued recommendations in a report and legislation has been proposed that would provide for reform but not adopt the recommendations concerning customer choice and competition set forth in the PSB's Report and Order or the MOU. Other legislation intending to advance a portion of the PSB Report and Order and the MOU have also been introduced. Therefore, at this time, it cannot be determined whether future restructuring legislation will be enacted in 1998 that would conform to the concepts developed by the Report, the MOU, S.62 or the House Special Committee report. New Hampshire In New Hampshire, the New Hampshire Public Utilities Commission (NHPUC), directed by the New Hampshire legislature, established a Pilot Program (Pilot) to determine the implications of retail competition in the electric utility industry. The Pilot is for a two-year period beginning in May 1996 and is open to all electric utilities and to 3% of all classes of customers in New Hampshire. The company competed as a competitive supplier to acquire additional load currently served by other New Hampshire utilities and to retain load currently served by Connecticut Valley. The company acquired new customers with combined annual electric use totaling approximately 20,000 megawatt hours. On February 28, 1997 the NHPUC published its detailed Final Plan to restructure the electric utility industry in New Hampshire. Also on February 28, 1997, the NHPUC, in a supplemental order specific to Connecticut Valley, found that Connecticut Valley was imprudent for not terminating the Federal Energy Regulatory Commission (FERC)- authorized power contract between Connecticut Valley and the company, required Connecticut Valley to give notice to cancel its contract with the company and denied stranded cost recovery related to this power contract. Connecticut Valley filed for rehearing of the February 28, 1997 NHPUC Order. On April 7, 1997, the NHPUC issued an Order addressing certain threshold procedural matters raised in motions for rehearing and/or clarification filed by various parties, including Connecticut Valley, relative to the Final Plan and interim stranded cost orders. The April 7, 1997 Order stayed those aspects of the Final Plan that are the subject of rehearing or clarification requests and also stayed the interim stranded cost orders for the various parties, including Connecticut Valley. As such, those matters pertaining to the power contract between Connecticut Valley and CVPS were stayed. The suspension of these orders was to remain in effect until two weeks following the issuance of any order concerning outstanding requests for rehearing and clarification. On March 20, 1998, the NHPUC issued an order which affirms, clarifies and modifies various generic policy statements including the reaffirmation to establish rates on the basis of a regional average announced previously in its February 28, 1997 Final Plan. The March 20, 1998 order also addresses all outstanding motions for rehearings or clarification relative to the policies or legal positions articulated in the Final Plan and removes the stay covering the Company's interim stranded cost order. On November 17, 1997, the City of Claremont, New Hampshire (Claremont), filed with the NHPUC a petition for a reduction in Connecticut Valley's electric rates. Claremont based its request on the NHPUC's earlier finding that Connecticut Valley's failure to terminate its wholesale power contract with the company as ordered in the NHPUC Stranded Cost Order of February 28, 1997 was imprudent. Under the wholesale power purchase contract with the company, Connecticut Valley may terminate service at the end of a service year, provided it has given written notice of termination prior to the beginning of that service year. Claremont alleges that if Connecticut Valley had given written notice of termination to the company in 1996 when legislation to restructure the electric industry was enacted in New Hampshire, Connecticut Valley's obligation to purchase power from the company would have terminated as of January 1, 1998. On November 26, 1997, Connecticut Valley filed a request with the NHPUC to increase the Fuel Adjustment Clause (FAC), Purchased Power Cost Adjustment (PPCA) and short-term energy purchase rates effective on or after January 1, 1998. The requested increase in rates results from higher forecast energy and capacity charges on power Connecticut Valley purchases from the company plus removal of a credit effective during 1997 to refund overcollections from 1996. Connecticut Valley objected to the NHPUC's notice of intent to consolidate Claremont's petition into the FAC and PPCA docket, stating that Claremont's complaint should be heard as part of the NHPUC restructuring docket. Over Connecticut Valley's objection at the hearing on December 17, 1997, the NHPUC consolidated Claremont's petition with Connecticut Valley's FAC and PPCA proceeding. In an Order dated December 31, 1997 in Connecticut Valley's FAC and PPCA docket, the NHPUC found Connecticut Valley acted imprudently by not terminating the wholesale contract between Connecticut Valley and the company, notwithstanding the stays of its February 28, 1997 Orders. The NHPUC Order further directed Connecticut Valley to freeze its current FAC and PPCA rates (other than short term rates to be paid to certain Qualifying Facilities) effective January 1, 1998, on a temporary basis, pending a hearing to determine: 1) the appropriate proxy for a market price that Connecticut Valley could have obtained if it had terminated its wholesale contract with the Company; 2) the implications of allowing Connecticut Valley to pass on to its customers only that market price; and 3) whether the NHPUC's final determination on the FAC and PPCA rates should be reconciled back to January 1, 1998 or some other date. On January 12, 1998, Connecticut Valley filed a motion for rehearing alleging, among other things, that the NHPUC failed to adequately notify Connecticut Valley of the NHPUC's intent to consider the issues that were addressed during the December 17, 1997 hearing and ultimately were ruled on in Order No. 22,815. Connecticut Valley claimed that the NHPUC provided "insufficient notice of an evidentiary hearing on prudence." Connecticut Valley also claimed (a) the NHPUC exceeded its jurisdiction by using the FAC/PPCA proceeding to advance its restructuring agenda, (b) the NHPUC's prudence determination is preempted by Federal law, and (c) the NHPUC made an imprudence finding without basic findings of fact or sufficient record evidence. On January 14, 1998, the City of Claremont filed an objection to Connecticut Valley's rehearing request. It claimed that Connecticut Valley was afforded sufficient notice and that the NHPUC properly exercised its traditional rate making powers in Order No. 22,815. On January 19, 1998, Connecticut Valley and the company filed with the Federal District Court for a temporary restraining order to maintain the status quo ante by staying NHPUC Order No. 22,815 and preventing the NHPUC from taking any action that (i) compromises cost-based rate making for Connecticut Valley or otherwise seeks to impose market price-based rate making on Connecticut Valley; (ii) interferes with the FERC's exclusive jurisdiction over the company's pending application to recover wholesale stranded costs upon termination of its wholesale power contract with Connecticut Valley; or (iii) prevents Connecticut Valley from recovering through retail rates the stranded costs and purchased power costs that it incurs pursuant to its FERC- authorized wholesale rate schedule with the company. The Federal Court has not yet ruled on the company's filing. On January 20, 1998, the NHPUC issued Order No. 22,838 which declined the request to increase FAC and PPCA rates retroactive to January 1, 1998. All other requests for relief in Connecticut Valley's motion for rehearing were denied. The NHPUC did expand the scope of its hearing to take evidence regarding the prudence of Connecticut Valley's decision to not unilaterally terminate the wholesale power contract between Connecticut Valley and the company. On February 23, 1998, the NHPUC announced from the bench that it reaffirmed its finding of imprudence and would designate a proxy market price for power at 4 cents per kwh in lieu of the actual amounts arising pursuant to the wholesale power contract with the company. In addition, the NHPUC indicated that it would permit Connecticut Valley to maintain its current rates pending a decision in Connecticut Valley's appeal of the NHPUC Order to the New Hampshire Supreme Court, provided Connecticut Valley can provide financial assurance that it will be able to satisfy any ultimate refund obligation. The company is awaiting the issuance of the NHPUC's written order. Based on the December 31, 1997 NHPUC Order as well as the NHPUC's February 23, 1998 announcement from the bench, which results in the establishment of Connecticut Valley's rates on a non cost-of-service basis, Connecticut Valley no longer qualifies, as of December 31, 1997, for the application of SFAS No. 71. As a result, Connecticut Valley wrote-off all of its regulatory assets associated with its New Hampshire retail business for the year ended December 31, 1997. This write-off amounted to approximately $1.2 million on a pre-tax basis. In addition, Connecticut Valley recorded a $5.5 million pre-tax loss as of December 31, 1997 under SFAS No. 5, "Accounting for Contingencies," representing Connecticut Valley's estimated loss on power contracts for the twelve months following December 31, 1997. The company expects but cannot be certain that it will be able to recover these costs beginning in 1999. These write-offs result in a violation of certain financial covenants associated with Connecticut Valley's loan with Citizens Bank of New Hampshire. This loan with an outstanding balance of $3.75 million will be in default 30 days after notice from the bank of the violation of certain financial covenants unless the default is otherwise cured or waived. The notice has not yet been tendered by the bank. Under a default, the bank has the right to accelerate the repayment of the outstanding loans. Connecticut Valley has outstanding long-term debt of $3.75 million as well as $.25 million of short- term debt currently outstanding under the committed line of credit with Citizens Bank. A default in the $3.75 million loan would also cause a cross default of the $.25 million of short-term debt outstanding. If these loans go into default, there will be no cross defaults of any of the company's or its other subsidiaries' loan agreements. Connecticut Valley has provided notice to the bank of its violations and is currently discussing remedies with the bank. On June 25, 1997, the company filed with the FERC a notice of termination of its power supply contract with Connecticut Valley, conditional upon the company's request to impose a surcharge on the company's transmission tariff to recover the stranded costs that would result from the termination of its contract with Connecticut Valley. The amount requested was $44.9 million plus interest at the prime rate to be recovered over a ten-year period. In its Order dated December 18, 1997 in Docket No. ER97-3435-000, the FERC rejected the company's proposed stranded cost surcharge mechanism but indicated that it would consider an exit fee mechanism for collecting stranded costs. The FERC also rejected the company's arguments concerning the applicability of stated FERC policies regarding retail stranded costs, multi-state regulatory gaps and the implications of state restructuring initiatives. The company has filed a motion seeking rehearing of the FERC's December 18, 1997 Order. In addition, and in accordance with the December 18, 1997 FERC Order, on January 12, 1998 the company filed a request with the FERC for an exit fee mechanism to collect $44.9 million in a lump sum, or in installments with interest at the prime rate over a ten-year period, to cover the stranded costs resulting from the cancel-lation of Connecticut Valley's power contract with the company. On March 11, 1998, the FERC issued an order accepting for filing the Company's request for an exit fee effective March 14, 1998, and set hearings to determine: whether Connecticut Valley will become an unbundled transmission customer of the Company, the Company's expectation as to the period of time it would serve Connecticut Valley, and the allowable amount of the exit fee. The FERC also rejected the Company's June 25, 1997 notice of termination indicating that the notice can be resubmitted when the power contract is proposed to be terminated. If the Company is unable to obtain an order authorizing the full recovery amount of the exit fee, or other appropriate mechanism, the company would be required to recognize a loss under SFAS No. 5 totaling approximately $75.0 million on a pre-tax basis. Furthermore, the company would be required to write-off approximately $4.0 million in regulatory assets associated with its wholesale business under SFAS No. 71 on a pre-tax basis. Conversely, even if the company obtains a FERC order authorizing the requested exit fee, Connecticut Valley would be required to recognize a loss under SFAS No. 5 of approximately $40.0 million on a pre-tax basis unless Connecticut Valley has obtained an order by the NHPUC or other appropriate body directing the recovery of those costs in Connecticut Valley's retail rates. Either of these reasonably possible outcomes could occur during calendar year 1998. For further information on New Hampshire restructuring issues and other regulatory events in New Hampshire affecting the company or Connecticut Valley, see the company's form 8-K dated February 28, 1997, January 12, 1998 and January 28, 1998, Forms 10-Q for the quarters ended March 31, 1996, June 30, 1996, September 30, 1996, March 31, 1997, June 30, 1997 and September 30, 1997, and Item 1. Business-New Hampshire Retail Rates, Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations- Liquidity and Capital Resources-Electric Industry Restructuring-New Hampshire and Item 8. Financial Statements and Supplementary Data-Note 17, Subsequent Event (Unaudited) in Central Vermont's 1996 Form 10-K. The company has initiated and will continue to work for a negotiated settlement with parties to the New Hampshire restructuring proceeding and the NHPUC. The company cannot predict whether the ultimate outcome of this matter. However, an adverse resolution could have a material adverse effect on the company's results of operations, cash flows, and ability to obtain capital at competitive rates. Connecticut Valley constitutes approximately 7% of the company's total retail MWH sales. Competition-Risk Factors If retail competition is implemented in Vermont or New Hampshire, the company is unable to predict the impact of this competition on its revenues, the company's ability to retain existing customers and attract new customers or the margins that will be realized on retail sales of electricity. Historically, electric utility rates have been based on a utility's costs. As a result, electric utilities are subject to certain accounting standards that are not applicable to other business enterprises in general. SFAS No. 71 requires regulated entities, in appropriate circumstances, to establish regulatory assets and liabilities, and thereby defer the income statement impact of certain costs and revenues that are expected to be realized in future rates. As described in Note 1 of Notes to Consolidated Financial Statements, included in the company's 1997 Annual Report on Form 10-K, the company believes it currently complies with the provisions of SFAS No. 71 for its regulated Vermont retail and FERC regulated wholesale businesses. In the event the company determines that it no longer meets the criteria for following SFAS No. 71, the accounting impact would be an extraordinary, non- cash charge to operations of approximately $73.0 million on a pre-tax basis as of December 31, 1997. Criteria that give rise to the discontinuance of SFAS No. 71 include (1) increasing competition that restricts the company's ability to establish prices to recover specific costs and (2) a significant change in the manner in which rates are set by regulators from cost-based regulation to another form of regulation. The Securities and Exchange Commission has questioned the ability of certain utility companies continuing the application of SFAS No. 71 where legislation provides for the transition to retail competition. Deregulation of the price of electricity issues related to the application of SFAS No. 71 and 101, as to when and how to discontinue the application of SFAS No. 71 by utilities during transition to competition has been referred to the Financial Accounting Standards Board's Emerging Issues Task Force (EITF). The EITF has reached a tentative consensus, and no further discussion is planned, that regulatory assets should be assigned to separable portions of the company's business based on the source of the cash flows that will recover those regulatory assets. Therefore, if the source of the cash flows is from a separable portion of the company's business that meets the criteria to apply SFAS No. 71, those regulatory assets should not be written off under SFAS No. 101, "Accounting for the Discontinuation of Application of SFAS No. 71," but should be assessed under paragraph 9 of SFAS No. 71 for realizability. SFAS No. 121, "Accounting for the Impairment of Long Lived Assets and for Long-Lived Assets to Be Disposed Of," which was implemented by the company on January 1, 1996, requires that any assets, including regulatory assets, that are no longer probable of recovery through future revenues, be revalued based upon future cash flows. SFAS No. 121 requires that a rate-regulated enterprise recognize an impairment loss for the amount of costs excluded from recovery. As of December 31, 1997, based upon the regulatory environment within which the company currently operates, SFAS No. 121 did not have an impact on the company's financial position or results of operations. Competitive influences or regulatory developments may impact this status in the future. Because the company is unable to predict what form possible future legislation will take, it cannot predict if or to what extent SFAS Nos. 71 and 121 will continue to be applicable in the future. In addition, if the company is unable to mitigate or otherwise recover stranded costs that could arise from any potentially adverse legislation or regulation, the company would have to assess the likelihood and magnitude of losses incurred under SFAS No. 5. As such, the company cannot predict whether any restructuring legislation enacted in Vermont would have a material adverse effect on the company's operations, financial condition or credit ratings. However, the company's failure to recover a significant portion of its purchased power costs, would likely have a material adverse effect on the company's results of operations, cash flows and ability to obtain capital at competitive rates. It is possible that stranded cost exposure associated with SFAS Nos. 5, 71, and 121, before mitigation could exceed the company's current total common stock equity. FINANCING AND CAPITALIZATION UTILITY The level of short-term borrowings fluctuates based on seasonal corporate needs, the timing of long-term financings and market conditions. On November 7, 1997, the company implemented a 364 day committed Revolving Credit and Competitive Advance Facility (Credit Facility) with a group of banks providing for up to $50 million of Credit Facility which upon PSB regulatory approval will become a three year revolving credit facility. This Credit Facility will be used for general corporate purposes and replaced $31 million of the committed and uncommitted lines of credit. Short-term borrowings are supported by the committed Revolving Credit and competitive Advance Facility. In the past, the company has been able to finance its construction and C&LM programs out of net-cash generated by operating activities and it expects to meet future commitments in the same manner. Connecticut Valley maintains a $.8 million committed line of credit for its construction program and for other corporate purposes which expires on May 31, 1998. Borrowings under this short-term debt arrangement are at interest rates ranging from less than prime to the prime rate. Connecticut Valley had $625,000 and $550,000 outstanding short-term debt at December 31, 1997 and 1996, respectively. In regard to Connecticut Valley's long-term debt see Note 7 to the Consolidated Financial Statements. On June 3, 1996, the company's Board of Directors increased the quarterly dividend rate from $.20 to $.22 payable August 15, 1996. The company, through a common stock repurchase program initiated in 1994 and subsequently suspended in order to preserve capital for use in industry restructuring and other business purposes, has purchased 362,447 shares of its common stock in open market transactions at an average price of $13.04 per share. These transactions are recorded as treasury stock, at cost, in the company's Consolidated Balance Sheet. The company's capital structure ratios (including amounts of long-term debt due within one year) for the past three years were as follows: December 31 1997 1996 1995 ---- ---- ---- Common stock equity 54% 53% 52% Preferred stock 8 8 8 Long-term debt 33 34 35 Long-term lease arrangements 5 5 5 --- --- --- 100% 100% 100% === === === Current credit ratings of the company's securities as reaffirmed by Duff & Phelps and Standard & Poor's are as follows: Duff & Standard Phelps & Poor's ------ -------- First Mortgage Bonds BBB A- Corporate Credit Rating BBB Preferred Stock BBB- BBB- On January 22, 1998, Standard & Poor's revised its ratings outlook on the company to negative from stable stating that the revised outlook reflects the adverse ruling by the NHPUC related to Connecticut Valley discussed above. NON-UTILITY Catamount, a wholly owned subsidiary of the Company, implemented a credit facility in July 1996 which provides for up to $8.0 million of letters of credit and working capital loans. Currently, a $1.2 million letter of credit is outstanding to support certain of Catamount's obligations in connection with a debt reserve requirement in the Appomattox Cogeneration project. SmartEnergy, also a wholly owned subsidiary of the Company, maintained $.5 million revolving line of credit with a bank to provide working capital and financing assistance for investment purposes. SmartEnergy had no outstanding borrowings under this facility at December 31, 1996 and $25,000 at December 31, 1997. This line of credit was cancelled on February 9, 1998. Financial obligations of the non-utility wholly owned subsidiaries are non-recourse to the Company. C&LM PROGRAMS The primary purpose of these programs is to offset the need for long-term power supply and delivery resources that are more expensive to purchase or develop than customer-efficiency programs. Total C&LM expenditures in 1996 and 1997 were $3.5 million and $2.7 million, respectively. 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 five operating independent power projects located in Glenns Ferry and Rupert, Idaho; Rumford, Maine; East Ryegate, Vermont; and Hopewell, Virginia. In addition, Catamount has interests in a project under construction in Thetford, England, and under development in Summersville, West Virginia, and Fort Dunlop, England. Catamount's after-tax earnings were $4.1 million, $.5 million and $2.5 million for 1997, 1996 and 1995, respectively. Earnings for 1997 and 1995 include a net of tax gain of approximately $1.8 million and $.9 million from the sale of NW Energy Williams Lake L.P. and the partial sale of Appomattox Cogeneration Project, respectively. Also, results of operation for 1997 and 1996 include $.4 million and $2.3 million of pre-tax expenses related to the Gauley River project in Summersville, West Virginia. These expenses would be reimbursed if this pending project reaches financial closing. SmartEnergy was formed to engage in the sale of or rental of electric water heaters, energy efficient products and other related goods and services. SmartEnergy incurred losses of $.7 million for 1997 and $.3 million for 1995, and earnings of $.3 million for 1996. RATES AND REGULATION The company recognizes that 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. 1997 Retail Rate Case: On September 22, 1997, the company filed for a 6.6% or $15.4 million general rate increase to become effective June 6, 1998 to offset increasing cost of providing service. Approximately $14.3 million or 92.9% of the rate increase request is to recover contractual increases in the cost of power the company purchases from Hydro-Quebec. At the same time, the company also filed a request to eliminate the winter-summer rate differential and price electricity the same year-round. The change would be revenue-neutral within classes of customers and overall. Over time, customers would see a leveling off of rates so they would pay the same per kilowatt-hour during the winter and summer months. The PSB has decided to appoint an independent investigator to examine the company's decision to buy power from Hydro-Quebec. The company has filed a motion with the PSB stating that the PSB already examined the company's decision to buy power from Hydro-Quebec and, therefore, the PSB as well as other parties should be barred from reviewing its past decision on Hydro- Quebec. However, the company does not object to the independent investigator or others looking at issues of management of the power supply since the company's last rate case. During February 1998, the Vermont Department of Public Service (DPS) filed testimony in opposition to the company's 6.6% or $15.4 million retail rate increase request. As a result of its testimony, the DPS is recommending that the PSB instead reduce the company's current retail rates by approximately 2.5% or $5.7 million. The company cannot predict whether the PSB will adopt any or all of the DPS recommendation. As a result, the company cannot predict whether the ultimate outcome of this matter would have a material adverse effect on the company's results of operations, cash flows, and ability to obtain capital at competitive rates. The PSB has recently issued an Order in a Green Mountain Power Corporation (GMP) rate case. That Order found GMP's decision to lock-in the Hydro-Quebec VJO contract in 1991 imprudent and further found that the contract was not used and useful. As such, the PSB concluded that a large portion of the contract's costs should not be imposed on consumers and were disallowed. The Company is one of the 13 participants in the VJO contract and has pending before the PSB a 6.6% rate increase that is primarily intended to recover increases in the cost of power the Company purchases pursuant to the VJO contract. The Company cannot predict the outcome of this proceeding. However, if the Company were to receive an order similar to that obtained by GMP, such an order could have a material adverse effect on the Company's financial condition. 1996 Retail Rate Case: The company filed for a 14.6% or $31.0 million general rate increase on October 17, 1995 to become effective July 1, 1996. On February 13, 1996, the company reached an agreement with the DPS regarding this rate increase request. On April 30, 1996, the company received a rate order from the PSB generally approving the agreement. Under the terms of the Agreement approved by the PSB, the company increased its Vermont retail rates 5.5% effective June 1, 1996 and 2% effective January 1, 1997. In addition, the Agreement capped the company's allowed return on common equity in its Vermont retail business for 1996 and 1997 at 11%, by requiring the company to reduce deferred C&LM costs to the extent its Vermont retail return on common equity would otherwise exceed 11%, and prohibited the company from seeking any increase in Vermont retail rates which would become effective before January 1, 1998, except for extraordinary circumstances. The Agreement also required the company to recognize in 1997, for accounting purposes, approximately $5.8 million in power cost reductions associated with a Memorandum of Understanding with Hydro-Quebec and to file for a rate reduction if the company was successful in negotiating any further modifications to the Contract with Hydro-Quebec that resulted in a reduction in the cost of power from Hydro-Quebec between February 12, 1996 and December 31, 1997. Pursuant to the common equity cap of 11%, the company recognized in 1996 approximately $147,000 C&LM costs that would have otherwise been deferred. In its April 30, 1996 Order, the PSB modified the February 13, 1996 Agreement reached with the DPS by removing only one of the two penalties imposed in the PSB's October 31, 1994 Order. Although the PSB's April 30, 1996 Order supports the Agreement's removal of the penalty associated with the company's efforts to acquire cost-effective energy efficiency resources, it only suspends the penalty for the alleged mismanagement of power supply options through the later of January 1, 1998 or the next investigation into the company's rates. After this period, the rate consequences of the penalty, a .75% reduction in the company's authorized Vermont retail return on common equity, will be reimposed unless the company demonstrates in future proceedings that it has adequately met the standards for removal as established by the PSB in its Orders issued October 31, 1994 and April 30, 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 addressing issues related to management practices. In an Order dated April 17, 1997, the PSB rejected the idea of a traditional management audit of the company and instead ordered an independent forward-looking analysis of three of the company's management policies and practices focusing on three areas: 1) Transmission of information to the company's Board of Directors by management. 2) Cost-benefit analyses for major corporate decisions. 3) Implementation of the company's ethics and conflict of interest policy. An independent analysis on these areas began during the first quarter of 1998. Connecticut Valley: On November 26, 1997, Connecticut Valley filed a request with the NHPUC to increase the FAC, PPCA and short-term energy purchase rates effective on or after January 1, 1998. The requested increase in rates results from higher forecast energy and capacity charges on power Connecticut Valley purchases from the company plus removal of credit effective during 1997 to refund overcollections from 1996. In an order dated December 31, 1997, the NHPUC directed Connecticut Valley to freeze its current FAC and PPCA rates (other than short-term rates to be paid to certain Qualifying Facilities) effective January 1, 1998, on a temporary basis pending a hearing to determine: 1) the appropriate proxy for a market price that Connecticut Valley could have obtained if it had terminated its wholesale contract with the company; 2) the implications of allowing Connecticut Valley to pass on to its customers only that market price; and 3) whether the NHPUC's final determination on the FAC and PPCA rates should be reconciled back to January 1, 1998 or some other date. See Electric Industry Restructuring discussed above and in Note 13 to the Consolidated Financial Statements for additional information. On July 23, 1996, Connecticut Valley filed with the NHPUC for an 8.8% or approximately $1.6 million base rate increase to become effective September 22, 1996. The increase was 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 granted Connecticut Valley a temporary rate increase of 5.4% effective with bills rendered October 1, 1996. On January 21, 1997, Connecticut Valley and the NHPUC Staff reached a settlement in principle regarding the permanent rate increase. The settlement, approved by the NHPUC, provided for a 6.4% permanent rate increase and sets Connecticut Valley's allowed return on common equity at 10.2%. Recoupment revenues for the period October 1, 1996 and March 30, 1997, and rate case expenses were recovered through a temporary billing surcharge of approximately 2.2% of total bill effective during the period April 1 through November 30, 1997, when off-peak rates were in effect. As approved by the NHPUC, this billing surcharge resumed on March 1, 1998 to recover expenses incurred in connecion with the pilot program. YEAR 2000 INFORMATION SYSTEMS MODIFICATIONS The company has assessed the impact of the year 2000 issue on its computer systems and applications. During 1997, the company incurred costs of approximately $.1 million and estimates that about $2.5 million will be incurred in 1998 and $.2 million will be incurred in 1999 to modify its existing computer systems and applications which are expected to be completed during the second quarter of 1999. During the first quarter of 1998, the company requested an accounting order from the PSB to defer approximately $2.1 million of associated incremental operating and maintenance costs. The company believes that based on the current regulatory process, these costs will be recovered through the regulatory process and therefore they do not represent the potential for a material adverse effect on its financial position or results of operations. INFLATION The annual rate of inflation, as measured by the Consumer Price Index, was 1.7% for 1997, 3.3% for 1996 and 2.5% for 1995. The company's revenues, however, are based on rate regulation that generally recognizes only historical costs. Although the rate of inflation has eased, it continues to have an impact on most aspects of the business. NEW ACCOUNTING PRONOUNCEMENTS In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based Compensation," effective for fiscal years beginning after December 15, 1995. The FASB issued SFAS No. 125, "Accounting for Transfers and Servicing of Financial Assets and Extinguishment of Liabilities." SFAS No. 125 became effective January 1, 1997 for the company due to an amendment of its receivables purchase agreement. See Note 9 to the Consolidated Financial Statements. In February 1997, the FASB issued SFAS No. 128, "Earnings per Share," effective for both interim and annual periods ending after December 15, 1997. Earlier application was not permitted. Refer to Notes 9 and 15 to the Consolidated Financial Statements for additional information regarding these pronouncements. FORWARD LOOKING STATEMENTS Statements in this report relating to future financial conditions are forward looking statements. Such forward-looking statements are not guarantees of future performance and involve known and unknown risks, uncertainties and other factors, which may cause the actual results, performances or achievements to differ materially from the future forward-looking statements. Such factors include general economic and business conditions, changes in industry regulation, weather and other factors which are described in further detail in the company's filings with the Securities and Exchange Commission. Item 8. Financial Statements and Supplementary Data. Index to Financial Statements and Supplementary Data Page No. Report of Independent Public Accountants. . . . . . . . . . . 42 Financial Statements: Consolidated Statement of Income for each of the three years ended December 31, 1997 . . . . . . . . . . . 43 Consolidated Statement of Cash Flows for each of the three years ended December 31, 1997 . . . . . . . . . 44 Consolidated Balance Sheet at December 31, 1997 and 1996 . . . . . . . . . . . . . . . . . . . . . . . . . 45 Consolidated Statement of Capitalization at December 31, 1997 and 1996 . . . . . . . . . . . . . . . . 46 Consolidated Statement of Changes in Common Stock Equity for each of the three years ended December 31, 1997 . . . . . . . . . . . . . . . . . . . . 47 Notes to Consolidated Financial Statements . . . . . . . . 48 Report of Independent Public Accountants To the Board of Directors of Central Vermont Public Service Corporation: We have audited the accompanying consolidated balance sheet and statement of capitalization of Central Vermont Public Service Corporation and its wholly owned subsidiaries as of December 31, 1997 and 1996, and the related consolidated statements of income, changes in common stock equity and cash flows for each of the three years in the period ended December 31, 1997. These financial statements are the responsibility of the company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Central Vermont Public Service Corporation and its wholly owned subsidiaries as of December 31, 1997 and 1996 and the results of their operations and cash flows for each of the three years in the period ended December 31, 1997 in conformity with generally accepted accounting principles. ARTHUR ANDERSEN LLP Boston, Massachusetts February 23, 1998 CONSOLIDATED STATEMENT OF INCOME (Dollars in thousands, except per share amounts) Year Ended December 31 1997 1996 1995 Operating Revenues $304,732 $290,801 $288,277 -------- -------- -------- Operating Expenses Operation Purchased power 171,443 154,422 149,665 Production and transmission 22,417 20,941 20,883 Other operation 40,909 38,098 42,116 Maintenance 15,333 14,918 12,874 Depreciation 16,931 17,960 17,297 Other taxes, principally property taxes 11,490 10,971 10,543 Taxes on income 7,573 10,216 10,662 -------- -------- -------- Total operating expenses 286,096 267,526 264,040 -------- -------- -------- Operating Income 18,636 23,275 24,237 -------- -------- -------- Other Income and Deductions Equity in earnings of affiliates 3,214 3,302 3,292 Allowance for equity funds during construction 75 347 243 Other income, net 6,522 2,447 2,493 Provision for income taxes (1,590) (4) (246) -------- -------- -------- Total other income and deductions, net 8,221 6,092 5,782 -------- -------- -------- Total Operating and Other Income 26,857 29,367 30,019 -------- -------- -------- Interest Expense Interest on long-term debt 9,337 9,473 9,544 Other interest 400 615 798 Allowance for borrowed funds during construction (31) (163) (174) -------- -------- -------- Total interest expense, net 9,706 9,925 10,168 -------- -------- -------- Net Income Before Extraordinary Charge 17,151 19,442 19,851 Extraordinary Charge Net of Taxes 811 - - -------- -------- -------- Net Income 16,340 19,442 19,851 Preferred Stock Dividends Requirements 2,028 2,028 2,028 -------- -------- -------- Earnings Available For Common Stock $ 14,312 $ 17,414 $ 17,823 ======== ======== ======== Average Shares of Common Stock Outstanding 11,458,735 11,543,998 11,648,981 Basic and Diluted Share of Common Stock: Earnings before extraordinary charge $1.32 $1.51 $1.53 Extraordinary charge $ .07 - - Earnings Per Basic and Diluted Share of Common Stock $1.25 $1.51 $1.53 Dividends Paid Per Share of Common Stock $ .88 $ .84 $ .80 The accompanying notes are an integral part of these consolidated financial statements.
CONSOLIDATED STATEMENT OF CASH FLOWS (Dollars in thousands) Year Ended December 31 1997 1996 1995 Cash Flows Provided (Used) By Operating Activities Net income $ 16,340 $ 19,442 $ 19,851 Adjustments to reconcile net income to net cash provided by operating activities Depreciation 16,931 17,960 17,297 Deferred income taxes and investment tax credits (6,529) 464 2,707 Extraordinary charge 1,198 - - Allowance for equity funds during construction (75) (347) (243) Net deferral and amortization of nuclear replacement energy and maintenance costs 4,913 (1,773) (3,299) Amortization of conservation & load management costs 7,018 5,651 3,362 Amortization of restructuring costs - 327 3,937 Gain on sale of investment (2,891) - (1,517) Gain on sale of property (2,095) (700) - (Increase) decrease in accounts receivable and unbilled revenues 855 (1,076) (1,280) Increase in accounts payable 668 1,185 1,803 Increase (decrease) in accrued income taxes 4,168 1,055 (2,500) Change in other working capital items 3,532 7,890 (1,576) Other, net (2,167) (7,390) 3,169 -------- -------- -------- Net cash provided by operating activities 41,866 42,688 41,711 -------- -------- -------- Investing Activities Construction and plant expenditures (13,841) (18,952) (21,337) Deferred conservation and load management expenditures (1,837) (1,589) (3,899) Investments in affiliates 235 (91) 249 Proceeds from sale of investment 3,750 - 6,400 Proceeds from sale of property 2,624 1,050 - Special deposit 2,283 (5,246) (2,686) Non-utility investments (2,172) (2,900) (226) Other investments, net 54 (293) (316) -------- -------- -------- Net cash used for investing activities (8,904) (28,021) (21,815) -------- -------- -------- Financing Activities Repurchase of common stock (1,072) (1,042) (1,892) Short-term debt, net (5,100) (7,740) 1,994 Long-term debt, net (3,019) 232 (4,245) Retirement of Preferred stock (1,000) - - Common and preferred dividends paid (12,630) (11,728) (11,350) Other - 14 - -------- -------- -------- Net cash used for financing activities (22,821) (20,264) (15,493) -------- -------- -------- Net Increase (Decrease) In Cash and Cash Equivalents 10,141 (5,597) 4,403 Cash and Cash Equivalents at Beginning of Year 6,365 11,962 7,559 -------- -------- -------- Cash and Cash Equivalents at End of Year $ 16,506 $ 6,365 $ 11,962 ======== ======== ======== Supplemental Cash Flow Information Cash paid during the year for: Interest (net of amounts capitalized) $ 9,476 $ 9,920 $ 9,927 Income taxes (net of refunds) $ 10,654 $ 8,504 $ 7,721 Non-cash Operating, Investing and Financing Activities Receivables purchase agreement (Note 9) Regulatory assets (Notes 1,2 and 12) Long-term lease arrangements (Note 14) The accompanying notes are an integral part of these consolidated financial statements.
CONSOLIDATED BALANCE SHEET (Dollars in thousands) December 31 1997 1996 Assets Utility Plant, at original cost $461,482 $461,231 Less accumulated depreciation 151,250 146,539 -------- -------- 310,232 314,692 Construction work in progress 10,450 9,302 Nuclear fuel, net 964 947 -------- -------- Net utility plant 321,646 324,941 -------- -------- Investments and Other Assets Investments in affiliates, at equity 26,495 26,630 Non-utility investments 30,772 27,823 Non-utility property, less accumulated depreciation 2,894 4,498 -------- -------- Total investments and other assets 60,161 58,951 -------- -------- Current Assets Cash and cash equivalents 16,506 6,365 Special deposits 3,368 5,633 Accounts receivable, less allowance for uncollectible accounts ($1,946 in 1997 and $1,132 in 1996) 23,166 21,878 Unbilled revenues 18,951 11,673 Materials and supplies, at average cost 3,779 3,690 Prepayments 1,464 2,423 Other current assets 4,970 3,840 -------- -------- Total current assets 72,204 55,502 -------- -------- Regulatory Assets 73,209 59,598 -------- -------- Other Deferred Charges 4,720 3,976 -------- -------- Total Assets $531,940 $502,968 ======== ======== Capitalization And Liabilities Capitalization Common stock equity $187,123 $186,469 Preferred and preference stock 8,054 8,054 Preferred stock with sinking fund requirements 19,000 20,000 Long-term debt 93,099 117,374 Long-term lease arrangements 17,223 18,304 -------- -------- Total capitalization 324,499 350,201 -------- -------- Current Liabilities Short-term debt 12,650 5,750 Current portion of long-term debt and preferred stock 24,271 3,015 Accounts payable 4,609 4,432 Accounts payable - affiliates 12,441 12,109 Accrued income taxes 6,631 2,552 Dividends declared 2,513 507 Nuclear decommissioning costs 6,010 4,950 Other current liabilities 21,646 19,234 -------- -------- Total current liabilities 90,771 52,549 -------- -------- Deferred Credits Deferred income taxes 53,996 57,463 Deferred investment tax credits 7,222 7,612 Nuclear decommissioning costs 28,947 16,371 Other deferred credits 26,505 18,772 -------- -------- Total deferred credits 116,670 100,218 -------- -------- Commitments and Contingencies Total Capitalization and Liabilities $531,940 $502,968 ======== ======== The accompanying notes are an integral part of these consolidated financial statements.
CONSOLIDATED STATEMENT OF CAPITALIZATION (Dollars in thousands) December 31 1997 1996 Common Stock Equity Common stock, $6 par value, authorized 19,000,000 shares; outstanding 11,785,848 shares $ 70,715 $ 70,715 Other paid-in capital 45,295 45,273 Treasury stock (362,447 shares and 266,100 shares, respectively, at cost) (4,728) (3,656) Retained earnings 75,841 74,137 -------- -------- Total common stock equity 187,123 186,469 -------- -------- Cumulative Preferred and Preference Stock Preferred stock, $100 par value, authorized 500,000 shares Outstanding: Non-redeemable 4.15 % Series; 37,856 shares 3,786 3,786 4.65 % Series; 10,000 shares 1,000 1,000 4.75 % Series; 17,682 shares 1,768 1,768 5.375% Series; 15,000 shares 1,500 1,500 Redeemable 8.30 % Series; 190,000 shares 19,000 20,000 Preferred stock, $25 par value, authorized 1,000,000 shares Outstanding - none - - Preference stock, $1 par value, authorized 1,000,000 shares Outstanding - none - - -------- -------- Total cumulative preferred and preference stock 27,054 28,054 Long-Term Debt First Mortgage Bonds 9.20 % Series EE, due 1998 7,500 7,500 9.20 % Series FF, due 2000 7,500 7,500 9.26 % Series GG, due 2002 3,000 3,000 9.97 % Series HH, due 2003 21,000 24,000 8.91 % Series JJ, due 2031 15,000 15,000 5.30 % Series KK, due 1998 10,000 10,000 5.54 % Series LL, due 2000 5,000 5,000 6.01 % Series MM, due 2003 7,500 7,500 6.27 % Series NN, due 2008 3,000 3,000 6.90 % Series OO, due 2023 17,500 17,500 Vermont Industrial Development Authority Bonds Variable, due 2013 (4.05% at December 31, 1997) 5,800 5,800 New Hampshire Industrial Development Authority Bonds 6.40%, due 2009 5,500 5,500 Connecticut Development Authority Bonds Variable, due 2015 (3.55% at December 31, 1997) 5,000 5,000 Other, various 4,070 4,089 -------- -------- 117,370 120,389 Less current portion 24,271 3,015 -------- -------- Total long-term debt 93,099 117,374 -------- -------- Long-Term Lease Arrangements 17,223 18,304 -------- -------- Total Capitalization $324,499 $350,201 ======== ======== The accompanying notes are an integral part of these consolidated financial statements.
CONSOLIDATED STATEMENT OF CHANGES IN COMMON STOCK EQUITY (Dollars in thousands) Other Common Stock Paid-in Treasury Retained Shares Amount Capital Stock Earnings Total Balance, December 31, 1994 11,729,448 $70,715 $45,229 $ (735) $55,575 $170,784 Treasury stock at cost (138,700) (1,893) (1,893) Net income 19,851 19,851 Cash dividends on capital stock: Common stock - $.80 per share (6,976) (6,976) Cumulative preferred stock: Non-redeemable (368) (368) Redeemable (1,660) (1,660) Amortization of preferred stock issuance expenses 22 22 ---------- ------- ------- ------- ------- -------- Balance, December 31, 1995 11,590,748 70,715 45,251 (2,628) 66,422 179,760 Treasury stock at cost (71,000) (1,028) (1,028) Net income 19,442 19,442 Cash dividends on capital stock: Common stock - $.40 per share (4,630) (4,630) Common stock - $.44 per share (5,069) (5,069) Cumulative preferred stock: Non-redeemable (368) (368) Redeemable (1,660) (1,660) Amortization of preferred stock issuance expenses 22 22 ---------- ------- ------- ------- ------- -------- Balance, December 31, 1996 11,519,748 70,715 45,273 (3,656) 74,137 186,469 Treasury stock at cost (96,347) (1,072) (1,072) Net income 16,340 16,340 Cash dividends on capital stock: Common stock - $.88 per share (12,608) (12,608) Cumulative preferred stock: Non-redeemable (368) (368) Redeemable (1,660) (1,660) Amortization of preferred stock issuance expenses 22 22 ---------- ------- ------- ------- ------- -------- Balance, December 31, 1997 11,423,401 $70,715 $45,295 $(4,728) $75,841 $187,123 ---------- ------- ------- ------- ------- -------- The accompanying notes are an integral part of these consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 1 Summary of significant accounting policies CONSOLIDATION The consolidated financial statements include the accounts of the company and its wholly owned subsidiaries. REGULATION The company is subject to regulation by the Vermont Public Service Board (PSB), The New Hampshire Public Utilities Commission (NHPUC) and the Federal Energy Regulatory Commission (FERC), with respect to rates charged for service, accounting and other matters pertaining to regulated operations. Historically, the company has prepared its financial statements in accordance with Statement of Financial Accounting Standards (SFAS) No. 71, "Accounting for the Effects of Certain Types of Regulation," for both Central Vermont Public Service Corporation's (company) regulated Vermont service territory, FERC regulated wholesale business and its wholly owned Connecticut Valley Electric Company Inc.'s (Connecticut Valley) New Hampshire service territory. In order for a company to report under SFAS No. 71, the company's rates must be designed to recover its costs of providing service, and the company must be able to collect those rates from customers. If rate recovery of these costs becomes unlikely or uncertain, whether due to competition or regulatory action, these accounting standards may no longer apply to the company's regulated operations. In the event the company determines that it no longer meets the criteria for applying SFAS No. 71, the accounting impact would be an extraordinary non-cash charge to operations of an amount that could be material. Criteria that give rise to the discontinuance of SFAS No. 71 include (1) increasing competition that restricts the company's ability to establish prices to recover specific costs, and (2) a significant change in the manner in which rates are set by regulators from cost-based regulation to another form of regulation. Management periodically reviews these criteria to ensure the continuing application of SFAS No. 71 is appropriate. Based on a current evaluation of the various factors and conditions that are expected to impact future cost recovery, management believes that its regulatory assets are probable of future recovery in the state of Vermont for the company's retail business. However, such future recovery of regulatory assets is not probable in the state of New Hampshire for Connecticut Valley. As a result of the NHPUC's Order dated December 31, 1997 and its February 23, 1998 statement from the bench as described in Note 13 below, management determined that application of regulatory accounting principles applied to Connecticut Valley should be discontinued. As such, Connecticut Valley has written off regulatory assets of approximately $1.2 million on a pre-tax basis at December 31, 1997 as an extraordinary, non-cash charge to operations. Additionally, an accrual of approximately $5.5 million on a pre- tax basis has been charged to purchased power expense, representing Connecticut Valley's estimated loss on power contracts for the twelve months following December 31, 1997. UNREGULATED BUSINESS The company's two wholly owned non-regulated subsidiaries, Catamount Energy Corporation (Catamount) and SmartEnergy Services, Inc. (SmartEnergy), results of operations are included in other income, net in the Other Income and Deductions section of the Consolidated Statement of Income. Catamount's policy is to expense all screening, feasibility and development expenditures incurred prior to obtaining financing commitments. Reimbursement of these costs is recorded as development revenues. REVENUES Estimated unbilled revenues are recorded at the end of accounting periods. Gross unbilled revenues of approximately $18.9 million, $18.8 million and $18.7 million for 1997, 1996 and 1995, respectively, are included in revenues on the Consolidated Statement of Income. See Note 9 below. MAINTENANCE Maintenance and repairs, including replacements not qualifying as retirement units of property, are charged to maintenance expense. Replacements of retirement units are charged to utility plant. The original cost of units retired plus the cost of removal, less salvage, is charged to the accumulated provision for depreciation. DEPRECIATION The company uses the straight-line remaining life method of depreciation. Total depreciation expense was approximately 3.59% of the cost of depreciable utility plant for each of the years 1995 through 1997. INCOME TAXES The company records income taxes in accordance with SFAS No. 109, "Accounting for Income Taxes," which requires an asset and liability approach to determine income tax liabilities. The standard recognizes tax assets and liabilities for the cumulative effect of all temporary differences between financial statement carrying amounts and the tax basis of assets and liabilities, see Note 12. Investment tax credits associated with utility plant are deferred and amortized ratably to income over the lives of the related properties. Investment tax credits associated with non-utility plant are recognized as income in the year realized. ALLOWANCE FOR FUNDS DURING CONSTRUCTION Allowance for funds used during construction (AFDC) is the cost, during the period of construction, of debt and equity funds used to finance construction projects. The company capitalizes AFDC as a part of the cost of major utility plant projects to the extent that costs applicable to such construction work in progress have not been included in rate base in connection with rate-making proceedings. AFDC equity represents a current non-cash credit to earnings which is recovered over the life of the property. The AFDC rates used by the company were 8.41%, 9.24%, and 9.38% for the years 1995 through 1997, respectively. REGULATORY ASSETS Certain costs are deferred and amortized in accordance with authorized or expected rate-making treatment. The major components of regulatory assets reflected in the Consolidated Balance Sheet as of December 31, are as follows (dollars in thousands): 1997 1996 Conservation and load management $16,236 $20,102 Income taxes 10,405 8,425 Dismantling costs: Maine Yankee nuclear power plant 17,368 - Connecticut Yankee nuclear power plant 12,778 15,256 Yankee Atomic nuclear power plant 4,810 6,065 Restructuring costs 7,379 - Nuclear refueling outage costs 1,291 6,219 Unrecovered plant and regulatory study costs 2,042 2,200 Other regulatory assets 900 1,331 ------- ------- $73,209 $59,598 ======= ======= During regular nuclear refueling outages, the incremental costs attributable to replacement energy purchased from NEPOOL and maintenance costs are deferred and amortized ratably to expense until the next regularly scheduled refueling shutdown. The company earns a return on the unamortized C&LM and replacement energy and maintenance costs. The net regulatory asset related to the adoption of SFAS No. 109 is recovered through tax expense in the company's cost of service generally over the remaining lives of the related property. Recovery for the unamortized dismantling costs for Yankee Atomic, Connecticut Yankee and Maine Yankee is provided without a return on investment through mid-2000, 2007 and 2008 respectively. Recovery of restructuring costs are subject to a determination that these costs may be recovered in rates in the company's current rate proceeding discussed in Note 13 below. See Note 2 below for discussion of the costs associated with the discontinued operations of the Yankee Atomic, Connecticut Yankee and Maine Yankee nuclear power plants. In addition, the company is not earning a return on approximately $.9 million of other unamortized regulatory assets which are being recovered over periods ranging from two to 10 years. PURCHASED POWER The company records the annual cost of power obtained under long-term contracts as operating expenses. Since these contracts, as more fully described in Note 14, do not convey to the company the right to use property, plant, or equipment, they are considered executory in nature. This accounting treatment is in contrast to the company's commitment with respect to the Hydro Quebec Phase I and II transmission facilities which are considered capital leases. As such, the company has recorded a liability for its commitment under the Phase I and II arrangements and recognized an asset for the right to use these facilities. USE OF ESTIMATES The preparation of financial statements in accordance with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosures of contingent assets and liabilities and revenues and expenses. Actual results could differ from those estimates. STATEMENT OF CASH FLOWS The company considers all highly liquid investments with a maturity of three months or less when acquired to be cash equivalents. RECLASSIFICATIONS Certain reclassifications have been made to prior year Consolidated Financial Statements to conform with the 1997 presentation. Note 2 Investments in affiliates The company uses the equity method to account for its investments in the following companies (dollars in thousands):
December 31 Ownership 1997 1996 Nuclear generating companies: Vermont Yankee Nuclear Power Corporation 31.3% $16,866 $17,017 Connecticut Yankee Atomic Power Company 2.0% 2,208 2,123 Maine Yankee Atomic Power Company 2.0% 1,560 1,420 Yankee Atomic Electric Company 3.5% 835 808 ------- ------- 21,469 21,368 Vermont Electric Power Company, Inc.: Common stock 56.8% 3,518 3,508 Preferred stock 1,508 1,754 ------- ------- $26,495 $26,630 ======= =======
Each sponsor of the nuclear generating companies is obligated to pay an amount equal to its entitlement percentage of fuel, operating expenses (including decommissioning expenses) and cost of capital and is entitled to a similar share of the power output of the plants. The company's entitlement percentages are identical to the ownership percentages except that Vermont Yankee's entitlement percentage is 35%. The company is obligated to contribute its entitlement percentage of the capital requirements of Vermont Yankee and Maine Yankee and has a similar, but limited, obligation to Connecticut Yankee. The company is responsible for paying its entitlement percentage of decommissioning costs for Vermont Yankee, Connecticut Yankee, Maine Yankee and Yankee Atomic as follows (dollars in millions):
CVPS's Total Share of Date of Estimated CVPS's Funded Study Obligation Obligation Obligation Nuclear generating companies: Vermont Yankee 1993 $312.7 $109.4 $60.1 Maine Yankee 1997 $398.8 $8.0 $ 4.0 Connecticut Yankee 1996 $426.7 $8.5 $ 5.2 Yankee Atomic 1994 $370.0 $13.0 $ 4.5
Maine Yankee On August 6, 1997, the Maine Yankee's Nuclear Power plant was prematurely retired from commercial operation. The company relied on Maine Yankee for less than 5% of its required system capacity. Maine Yankee has preliminarily estimated the sum, in 1997 dollars, of future payments for the closing, decommissioning and recovery of the remaining investment in Maine Yankee to be approximately $929.9 million including a decommissioning obligation of $398.8 million. Connecticut Yankee On December 4, 1996, the Connecticut Yankee Nuclear power plant was prematurely retired from commercial operation. The company relied on Connecticut Yankee for less than 3.0% of its required system capacity. Yankee Atomic In 1992, the Yankee Atomic Nuclear power plant was retired from commercial operation. The company relied on Yankee Atomic for less than 1.5% of its system capacity. Presently, costs billed to the company by Maine Yankee, Connecticut Yankee and Yankee Atomic including a provision for ultimate decommissioning of the units, are being collected from the company's customers through existing retail and wholesale rate tariffs. The company's share of remaining costs with respect to Maine Yankee, Connecticut Yankee and Yankee Atomic's decisions to discontinue operation, including the costs in the table above, is approximately $17.4 million, $12.8 million and $4.8 million, respectively. These amounts are subject to ongoing review and revisions and are reflected in the accompanying balance sheet both as regulatory assets and deferred power contract obligations (current and non-current). Although the estimated costs of decommissioning are subject to change due to changing technologies and regulations, the company expects that the nuclear generating companies' liability for decommissioning, including any future changes in the liability, will be recovered in their rates over their operating or license lives. The decision to prematurely retire these nuclear power plants was based on economic analyses of the costs of operating them compared to the costs of closing them and incurring replacement power costs over the remaining period of the plants' operating licenses. The company believes that based on the current regulatory process, its proportionate share of Maine Yankee, Connecticut Yankee and Yankee Atomic decommissioning costs will be recovered through the regulatory process and, therefore, the ultimate resolution of the premature retirement of the three plants has not and will not have a material adverse effect on the company's earnings or financial condition. Nuclear Insurance The Price-Anderson Act currently limits public liability from a single incident at a nuclear power plant to $8.9 billion. Beyond that a licensee maintains an indemnity agreement with the Nuclear Regulatory Commission (NRC), but subject to Congressional approval. The first $200 million of liability coverage is the maximum provided by private insurance. The Secondary Financial Protection Program is a retrospective insurance plan providing additional coverage up to $8.7 billion per incident by assessing $79.3 million against each of the 110 reactor units that are currently subject to the Program in the United States, limited to a maximum assessment of $10 million per incident per nuclear unit in any one year. The maximum assessment is expected to be adjusted at least every five years to reflect inflationary changes. The company's interests in the nuclear power units are such that it could become liable for an aggregate of approximately $3.7 million of such maximum assessment per incident per year. Vermont Yankee Summarized financial information for Vermont Yankee Nuclear Power Corporation is as follows (dollars in thousands):
Earnings 1997 1996 1995 Operating revenues $173,106 $181,715 $180,437 Operating income $13,961 $14,705 $15,006 Net income $6,834 $6,985 $6,790 Company's equity in net income $2,144 $2,193 $2,111
December 31 Investment 1997 1996 Current assets $ 43,106 $ 38,587 Non-current assets 566,918 526,413 -------- -------- Total assets 610,024 565,000 Less: Current liabilities 34,138 31,371 Non-current liabilities 521,597 478,831 -------- -------- Net assets $ 54,289 $ 54,798 -------- -------- Company's equity in net assets $ 16,866 $ 17,017
Included in Vermont Yankee's revenues shown above are sales to the company of $52.9 million, $53.1 million and $58.6 million for 1995 through 1997, respectively. These amounts are reflected as purchased power net of deferrals and amortization in the accompanying Consolidated Statement of Income. VELCO Vermont Electric Power Company, Inc. (Velco) and its wholly owned subsidiary Vermont Electric Transmission Company, Inc. own and operate transmission systems in Vermont over which bulk power is delivered to all electric utilities in the state. Velco has entered into transmission agreements with the state of Vermont and the electric utilities and under these agreements bills all costs, including interest on debt and a fixed return on equity, to the state and others using the system. These contracts enable Velco to finance its facilities primarily through the sale of first mortgage bonds. Included in Velco's revenues shown below are transmission services to the company (reflected as production and transmission in the accompanying Consolidated Statement of Income) amounting to $7.9 million, $7.9 million and $8.7 million for 1995 through 1997, respectively. Velco operates pursuant to the terms of the 1985 Four-Party Agreement (as amended) with the company and two other major distribution companies in Vermont. Although the company owns 56.8% of Velco's outstanding common stock, the Four-Party Agreement effectively restricts the company's control of Velco. Therefore, Velco's financial statements have not been consolidated. The Four- Party Agreement continues in full force and effect until May 1999 and will be extended for an additional two-year term in May 1999, and every two years thereafter, unless at least ninety (90) days prior to any two-year anniversary any party shall notify the other parties in writing that it desires to terminate the agreement as of such anniversary. No such notification has been filed by the parties. The company also owns 46.6% of Velco's outstanding preferred stock, $100 par value. Summarized financial information for Velco is as follows (dollars in thousands):
Earnings 1997 1996 1995 Transmission revenues $18,481 $16,298 $16,398 Operating income $ 2,773 $2,611 $2,767 Net income $ 1,213 $1,216 $1,297 Company's equity in net income $618 $657 $650
December 31 Investment 1997 1996 Current assets $22,268 $22,091 Non-current assets 48,298 51,974 ------- ------- Total assets 70,566 74,065 Less: Current liabilities 30,453 29,672 Non-current liabilities 30,709 34,487 ------- ------- Net assets $ 9,404 $ 9,906 ======= ======= Company's equity in net assets $ 5,026 $ 5,262
Note 3 Non-utility investments The company's wholly owned subsidiary, Catamount invests, through its wholly owned subsidiaries, in non-regulated, energy-related projects. Catamount's earnings were $2.5 million, $.5 million and $4.1 million for the years 1995 through 1997, respectively. Earnings for 1995 and 1997 reflect a net of tax gain of approximately $.9 million and $1.8 million from the partial sale of Appomattox Cogeneration Project and the sale of NW Energy Williams Lake L.P., respectively. Certain financial information for Catamount's investments is set forth in the table that follows (dollars in thousands):
Investment Generating In Service December 31 Projects Location Capacity Fuel Date Ownership 1997 1996 Rumford Cogeneration Co. L.P. Maine 85MW Coal/Wood 1990 15.1% $11,638 $10,678 Ryegate Associates Vermont 20MW Wood 1992 33.1% 6,551 6,612 Appomattox Cogeneration L.P. Virginia 41MW Coal/Biomass 1982 25.3% 4,083 4,160 Black liquor NW Energy Williams Lake L.P. British Columbia, 60MW Wood 1993 8.1% - 983 Canada Rupert Cogeneration Partners, Ltd. Idaho 10MW Gas 1996 50.0% 1,586 1,631 Glenns Ferry Cogeneration Partners, Ltd. Idaho 10MW Gas 1996 50.0% 1,255 1,297 Fibrothetford Limited Thetford, England 38.5MW Biomass - 44.0% 5,238 2,462 Heartlands Power Limited Fort Dunlop, England 98MW Gas - 50.0% 421 - ------- ------- $30,772 $27,823 ======= =======
On August 5, 1997, Catamount sold its 8.1% partnership's interest in the NW Energy Williams Lake L.P. project. The sale resulted in a $1.8 million after-tax gain or approximately $.16 per share of common stock during the third quarter of 1997. Catamount has committed to invest $4.5 million to purchase approximately 44% of the common stock of Fibrothetford Limited. This partnership is constructing a 38.5 MW biomass generating station in Thetford, England. In addition, Catamount has funded $2.9 million in escrow in support of its future equity commitment to the partnership. Catamount has also funded loans of $3.1 million to the partnership. Catamount has entered into an agreement to invest, subject to certain conditions, approximately $1.2 million to purchase a 50% interest in Heartlands Power Limited (Heartlands). Heartlands was formed by Rolls-Royce Power Ventures to develop, construct and own a 98MW natural gas-fired power station in Fort Dunlop, England. Catamount is also committed subject to certain conditions to funding a loan to the project of approximately $3.4 million. SmartEnergy, also a wholly owned subsidiary of the company, whose purpose is to engage in the sale of or rental of electric water heaters, energy efficient products and other related goods and services. SmartEnergy incurred losses of $.7 million and $.3 million for 1997 and 1995, respectively and earnings of $.3 million for 1996. Note 4 Common Stock The company, through a common stock repurchase program initiated in 1994 and subsequently suspended, has purchased from time to time 362,447 shares of its common stock in open market transactions at an average price of $13.04 per share. These transactions are recorded as treasury stock, at cost, in the company's Consolidated Balance Sheet. Note 5 Redeemable preferred stock The 8.30% Dividend Series Preferred Stock is redeemable at par through a mandatory sinking fund in the amount of $1.0 million per annum, and at its option, the company may redeem at par an additional non-cumulative $1.0 million per annum. Note 6 Stock Option Plans The company granted stock options to key employees under the company's 1988 and 1997 stock option plans and to non-employee directors under the 1993 stock option plan. These plans were fully described in the company's respective proxy statements. The company chose the Black-Scholes model formula for options granted in 1995 and the Binomial model for options granted in 1996 and 1997 to project an estimate of appreciation of the underlying shares of the stock during the respective option term. The average assumptions used were as follows:
1997 1996 1995 Volatility .1808 .1756 .1776 Risk free rate of return 6.50% 6.25% 7.50% Dividend yield 7.13% 6.93% 6.88%
The company accounts for these plans under Accounting Principles Board Opinion No. 25, under which no compensation cost has been recognized. Under SFAS No. 123 all awards granted in fiscal years after December 15, 1995 must be recognized in compensation cost. Had compensation cost for these plans been determined consistent with SFAS No. 123, the company's net income and earnings per share of common stock would have been reduced to the following pro forma amounts as follows(dollars in thousands, except per share amounts):
1997 1996 1995 Net Income As reported $16,340 $19,442 $19,851 Pro forma $16,308 $19,422 $19,841 Earnings per share of common stock As reported $1.25 $1.51 $1.53 Pro forma $1.25 $1.51 $1.53
Options granted under the 1997 Stock Option Plan for Key Employees will become exercisable upon receipt of approval by the PSB. However, the above pro forma effect assumes the 1997 options were exercisable. Note 7 Long-term debt and sinking fund requirements The company and its subsidiaries' long-term debt contains financial and non-financial covenants. The company and its non-utility subsidiaries were in compliance with all the debt covenants related to its various loan agreements. However, due to the charge-offs discussed in Note 1 above, Connecticut Valley is in violation of certain covenants in its loan agreement with Citizens Bank of New Hampshire. This loan with an outstanding balance of $3.75 million will be in default 30 days after notice from the bank of the violation of certain financial covenants unless the default is otherwise cured or waived. The notice has not yet been tendered by the bank. Accordingly, the company has reclassified this debt as a current liability. If this loan ultimately goes into default, there would be no cross defaults of any of the company's or its subsidiaries' loan agreements except for an $.8 million line of credit Connecticut Valley has with Citizens Bank of New Hampshire. See Note 10 below for related information. Based on issues outstanding at December 31, 1997, the aggregate amount of long-term debt maturities and sinking fund requirements are approximately $24.3 million, $6.75 million, $16.5 million, $4.0 million and $7.0 million for the years 1998 through 2002, respectively. Substantially all property and plant is subject to liens under the First Mortgage Bonds. Note 8 Financial instruments The estimated fair values of the company's financial instruments at December 31, 1997 and 1996 are as follows (dollars in thousands):
1997 1996 Carrying Fair Carrying Fair Amount Value Amount Value Cash and cash equivalents $ 14,773 $ 14,773 $ 6,365 $ 6,365 Short-term debt $ 12,650 $ 12,650 $ 5,750 $ 5,750 Sale of accounts receivable and unbilled revenues (Note 9) $ - $ - $ 12,000 $ 12,000 Note receivable, non-utility $ 3,686 $ 3,888 $ 1,678 $ 1,845 Redeemable preferred stock $ 19,000 $ 21,191 $ 20,000 $ 19,976 Long-term debt $117,370 $124,251 $120,389 $117,025
The carrying amount for cash and cash equivalents and short-term debt approximates fair value because of the short maturity of those instruments. The fair value of the company's redeemable preferred stock and long-term debt is estimated based on the quoted market prices for the same or similar issues or on the current rates offered to the company for debt of the same remaining maturation. The company believes that any excess or shortfall in the fair value relative to the carrying value of the company's financial instruments, if they were settled at amounts approximating those above, would not result in a material impact on the company's financial position or results of operations. The company's non-utility, wholly owned subsidiary, Catamount, utilized foreign currency forward contracts to reduce exposure to exchange rate risks associated with letters of credit issued to support foreign currency commitments. The forward contracts establish the exchange rates at which Catamount would purchase local currencies at a future date. Catamount had no foreign currency contracts at December 31, 1997 and $2.3 million at December 31, 1996. Any difference between the carrying amount and fair value of these contracts was not significant. Note 9 Receivables purchase agreement At December 31, 1996, a total of $12 million of accounts receivable and unbilled revenues had been previously sold under an accounts receivable facility. Accounts receivable and unbilled revenues are reflected net of sales of $4.8 million and $7.2 million, respectively, at December 31, 1996. The FASB issued SFAS No. 125, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities," effective for transfers and servicing of financial assets and extinguishments of liabilities occurring after December 31, 1996, which is to be applied prospectively. Pursuant to SFAS No. 125, the Company reclassified to a secured borrowing those amounts which had previously been netted against accounts receivable and unbilled revenues, following the amendment and extension of its accounts receivable facility during 1997. The facility matures on November 29, 1998, accordingly, those amounts related to the accounts receivable facility are shown at December 31, 1997 as short-term debt. Repayment of the facility will be made from the ongoing collections of the underlying accounts receivable and unbilled revenues immediately following the maturity date. These accounts receivable and unbilled revenues were transferred with limited recourse. A pool of assets of approximately 3% of the accounts receivable and unbilled revenues sold are set aside for this potential recourse liability. Note 10 Short-term debt Utility The company had $12.6 million and $5.8 million of outstanding short-term debt at December 31, 1997 and 1996, respectively, at average interest rates of 6.26% for 1997 and 6.49% for 1996. In 1996, the company used committed and uncommitted lines of credit to finance its construction and C&LM programs, on a short-term basis, and for other corporate purposes. These lines of credit required annual fees ranging from zero to .25% of an individual line. Borrowings under these short-term debt arrangements were at interest rates ranging from less than prime to the prime rate. Connecticut Valley Electric Company Inc., the company's wholly owned New Hampshire subsidiary, maintains a $.8 million committed line of credit for its construction program and for other corporate purposes which expires on May 31, 1998. Borrowings under this short-term debt arrangement are at interest rates ranging from less than prime to the prime rate. Connecticut Valley had $625,000 and $550,000 outstanding short-term debt at December 31, 1997 and 1996, respectively. As of February 25, 1998, Connecticut Valley had $250,000 outstanding under this line of credit. It is probable that this debt will be called for repayment in the next 30 days. On November 7, 1997, the company implemented a 364 day committed Revolving Credit and Competitive Advance Facility (Credit Facility) with a group of banks providing for up to $50 million of Credit Facility which upon PSB regulatory approval will become a three year revolving credit facility. This Credit Facility will be used for general corporate purposes and replaced $31 million of the committed and uncommitted lines of credit. For the receivables purchase agreement in connection with the reclassification of the $12 million sale of accounts receivable and unbilled revenues see Note 9 herein. Non-Utility Catamount implemented a credit facility in July 1996 which provides for up to $8 million of letters of credit and working capital loans. Currently, a $1.2 million letter of credit is outstanding to support certain of Catamount's obligations in connection with a debt reserve requirement in the Appomattox Cogeneration project. SmartEnergy maintained a $.5 million revolving line of credit with a bank to provide working capital and financing assistance for investment purposes. SmartEnergy had no outstanding short-term debt at December 31, 1996 and $25,000 at December 31, 1997. This line of credit was cancelled on February 9, 1998. Financial obligations of the company's non-utility wholly owned subsidiaries are non-recourse to the company. Note 11 Pension and postretirement benefits The company has a non-contributory trusteed pension plan covering all employees (union and non-union). Under the terms of the pension plan, employees are generally eligible for monthly benefit payments upon reaching the age of 65 with a minimum of five years of service. The company's funding policy is to contribute, at least, the statutory minimum to a trust. The company is not required by its union contract to contribute to multi-employer plans. The projected unit credit actuarial cost method was used to compute net pension costs and the accumulated and projected benefit obligations. The following table sets forth the funded status of the pension plan and amounts recognized in the company's Balance Sheet and Statement of Income (dollars in thousands):
December 31 1997 1996 1995 Funded status of the plan Vested benefit obligation $55,036 $45,763 $47,351 Non-vested benefit obligation 250 218 276 ------- ------- ------- Accumulated benefit obligation $55,286 $45,981 $47,627 ------- ------- ------- Projected benefit obligation $67,167 $58,503 $60,554 Market value of plan assets (primarily equity and fixed income securities) 72,101 61,932 55,443 ------- ------- ------- Projected benefit obligation more (less) than market value of plan assets (4,934) (3,429) 5,111 Unrecognized net transition assets 1,019 1,286 1,447 Unrecognized prior service costs (2,466) (2,779) (2,978) Unrecognized net gain 14,089 10,099 2,270 ------- ------- ------- Net pension liability 7,708 5,177 5,850 Less regulatory asset for restructuring costs 2,583 245 346 ------- ------- ------- Effective accrued pension costs $ 5,125 $ 4,932 $ 5,504 ======= ======= ======= Net pension costs include the following components Service cost $ 1,802 $ 2,024 $ 1,498 Interest cost 4,307 4,221 4,027 Actual return on plan assets (10,535) (6,461) (11,230) Net amortization and deferral 5,818 2,215 7,393 ------- ------- ------- Pension costs 1,392 1,999 1,688 Amortization of regulatory asset 101 101 1,628 ------- ------- ------- Effective pension costs 1,493 2,100 3,316 Less amount allocated to other accounts 249 411 337 ------- ------- ------- Net pension costs expensed $ 1,244 $ 1,689 $ 2,979 ======= ======= =======
Assumptions used in calculating pension cost were as follows:
December 31 1997 1996 1995 Weighted average discount rates 7.00% 7.50% 7.00% Expected long-term return on assets 9.50% 9.50% 9.50% Rate of increase in future compensation levels 4.00% 4.50% 4.50%
The company sponsors a defined benefit postretirement medical plan that covers all employees who retire with ten years or more of service after age 45. The company funds this obligation through a Voluntary Employees' Benefit Association and 401(h) Subaccount in its Pension Plan. The following table sets forth the plan's funded status and amounts recognized in the company's Balance Sheet and Statement of Income in accordance with SFAS No. 106 (dollars in thousands):
December 31 1997 1996 1995 Accumulated postretirement benefit obligation Retirees $10,289 $ 7,593 $ 8,207 Fully eligible active plan participants 263 682 600 Other active plan participants 1,227 923 1,033 Less plan assets at fair value 2,326 2,085 1,663 ------- ------- ------- Accumulated postretirement benefit obligation in excess of plan assets 9,453 7,113 8,177 Unrecognized transition obligation (3,838) (4,876) (5,180) Unrecognized net gain (loss) (862) 229 (428) ------- ------- ------- Accrued postretirement benefit cost 4,753 2,466 2,569 Less regulatory asset for restructuring costs 2,536 249 352 ------- ------- ------- Effective accrued postretirement benefit costs $ 2,217 $ 2,217 $ 2,217 ======= ======= ======= Net postretirement benefit cost includes the following components Service cost $ 197 $ 208 $ 153 Interest cost 716 656 755 Actual return on plan assets (93) (82) (49) Deferral of asset loss during the year (52) (30) (14) Amortization of transition obligation over a twenty-year period 305 305 305 ------- ------- ------- Postretirement benefit cost 1,073 1,057 1,150 Amortization of regulatory asset 103 103 1,656 ------- ------- ------- Effective postretirement benefit cost 1,176 1,160 2,806 Less amount allocated to other accounts 192 217 229 ------- ------- ------- Net postretirement benefit cost expensed $ 984 $ 943 $ 2,577 ======= ======= =======
Assumptions used in the per capita costs of the accumulated postretirement benefit obligation were as follows:
December 31 1997 1996 1995 Per capita percent increase in health care costs: Pre-65 7.00% 7.00% 8.00% Post-65 6.00% 6.00% 6.50% Weighted average discount rates 7.00% 7.50% 7.00% Rate of increase in future compensation levels 4.00% 4.50% 4.50% Long-term return on assets 8.50% 8.50% 8.50%
Health care trend rates are assumed to decrease to 5.0% for pre-65 and 4.5% for post-65 for the year 2001 and thereafter. Increasing the assumed health care cost trend rates by one percentage point in each year would have resulted in an increase of approximately $686,000 in the accumulated postretirement benefit obligation as of December 31, 1997, and an increase of about $40,000 in the aggregate of the service cost and interest cost components of net periodic postretirement benefit cost for 1997. The company provides postemployment benefits consisting of long-term disability benefits. The accumulated postemployment benefit obligation at December 31, 1997 and 1996 of approximately $.9 million in each year is reflected in the accompanying balance sheet as a current liability and is offset by a corresponding regulatory asset of approximately $.6 million for 1997 and $.7 million for 1996. The PSB in its October 31, 1994 Rate Order allowed the company to recover the regulatory asset over a 7-1/2 year period beginning November 1, 1994 through April 30, 2002. Beginning in 1995, the company paid premiums to insure the salary continuation portion of future long-term disability obligations. The post-employment benefit costs charged to expense in 1997, 1996 and 1995, including insurance premiums, were $247,000, $177,000 and $100,000, respectively (pre-tax). In the third quarter of 1997, the company offered voluntary retirement and severance programs to employees. The estimated benefit obligation for the retirement program as of December 31, 1997 is approximately $4.8 million. This amount consists of pension benefits and post-retirement medical benefits of $2.4 million and $2.4 million, respectively. The estimated benefit obligation for the severance program, which includes termination pay as well as other costs, is about $2.0 million. These obligations were recorded in the fourth quarter of 1997. The company received an Accounting Order from the PSB dated September 30, 1997, authorizing the company to defer program costs and amortize them over a five-year period beginning January 1, 1998 through December 31, 2002, subject to a determination that these costs may be recovered in rates in the company's current rate proceeding. See Note 13 below. These obligations are reflected in the accompanying balance sheet both as regulatory assets and deferred credits. In January 1996, the PSB issued an Accounting Order authorizing the company to effectively cap its Vermont retail after-tax return on equity at 10.75% and reduce the 1994 deferred restructuring costs through operating expense recognition of approximately $2.9 million in 1995. On an after tax basis, these costs represented a reduction of earnings of approximately $1.7 million or $.15 per common share. The reduction of these additional restructuring costs has and will continue to reduce future annual amortization expense by approximately $.8 million per year through May 1999. The unamortized balance of these costs was approximately $.3 million at December 31, 1997. Note 12 Income taxes The components of Federal and state income tax expense are as follows (dollars in thousands):
Year Ended December 31 1997 1996 1995 Federal: Current $12,277 $ 7,890 $ 6,703 Deferred (5,420) 795 2,610 Investment tax credits, net (391) (391) (391) ------- ------- ------- 6,466 8,294 8,922 ------- ------- ------- State: Current 3,027 1,866 1,498 Deferred (718) 60 488 ------- ------- ------- 2,309 1,926 1,986 ------- ------- ------- Total Federal and state income taxes $ 8,775 $10,220 $10,908 ======= ======= ======= Federal and state income taxes charged to: Operating expenses $ 7,573 $10,216 $10,662 Other income 1,590 4 246 Extraordinary item (388) - - ------- ------- ------- $ 8,775 $10,220 $10,908 ======= ======= =======
The principal items comprising the difference between the total income tax expense and the amount calculated by applying the statutory Federal income tax rate to income before tax are as follows (dollars in thousands):
Year Ended December 31 1997 1996 1995 Income before income tax $25,115 $29,662 $30,759 Federal statutory rate 35% 35% 35% Federal statutory tax expense $ 8,790 $10,382 $10,766 Increases (reductions) in taxes resulting from: Insurance settlement - (470) - Dividend received deduction (884) (909) (903) Deferred taxes on plant 324 324 324 State income taxes net of Federal tax benefit 1,501 1,252 1,291 Investment credit amortization (391) (391) (391) Other (565) 32 (179) ------- ------- ------- Total income tax expense provided $ 8,775 $10,220 $10,908 ======= ======= =======
The tax effects of temporary differences and tax carry forwards that give rise to significant portions of the deferred tax assets and deferred tax liabilities are presented below (dollars in thousands):
Year Ended December 31 1997 1996 1995 Deferred tax assets Alternative minimum tax credit carry forward $ - $ - $ 203 Non-deductible accruals and other 6,743 5,212 4,887 Deferred compensation and pension 3,655 3,562 3,546 Environmental costs accrual 1,805 2,089 2,205 ------- ------- ------- Total deferred tax assets 12,203 10,863 10,841 ------- ------- ------- Deferred tax liabilities Property, plant and equipment 51,819 51,030 51,081 Net regulatory asset 4,301 3,358 3,673 Conservation and load management expenditures 6,713 8,147 8,211 Nuclear refueling costs 534 2,510 1,782 Other 2,832 3,281 3,285 ------- ------- ------- Total deferred tax liabilities 66,199 68,326 68,032 ------- ------- ------- Net deferred tax liability $53,996 $57,463 $57,191 ======= ======= =======
The company received an accounting order (Order) from the PSB dated September 30, 1997. The Order authorizes the company to defer and amortize over a 20-year period beginning January 1, 1998, approximately $2.0 million to reflect the revenue requirement level of additional deferred income tax expense resulting from the recently enacted Vermont Corporate income tax increase from 8.25% to 9.75%, subject to a determination that these costs may be recovered in rates in the company's current rate proceedings. See Note 13 below. A valuation allowance has not been recorded, as the company expects all deferred income tax assets will be utilized in the future. Note 13 Retail Rates Vermont: The company's practice of reviewing costs periodically will continue and rate increases will be requested when warranted. The company filed for a 6.6% or $15.4 million general rate increase on September 22, 1997 to become effective June 6, 1998 to offset increasing cost of providing service. Approximately $14.3 million or 92.9% of the rate increase request is to recover scheduled contractual increases in the cost of power the company purchases from Hydro-Quebec. At the same time, the company also filed a request to eliminate the winter-summer rate differential and price electricity the same year-round. The change would be revenue-neutral within classes of customers and overall. Over time, customers would see a leveling off of rates so they would pay the same per kilowatt-hour during the winter and summer months. During February 1998, the Vermont Department of Public Service (DPS) filed testimony in opposition to the company's 6.6% or $15.4 million retail rate increase request. As a result of its testimony, the DPS is recommending that the PSB instead reduce the company's current retail rates by approximately 2.5% or $5.7 million. The company cannot predict whether the PSB will adopt any or all of the DPS recommendations. As a result, the company cannot predict whether the ultimate outcome of this matter would have a material adverse effect on the company's results of operations, cash flows, and ability to obtain capital at competitive rates. On October 17, 1995 the company filed for a 14.6% or $31.0 million general rate increase to become effective July 1, 1996, to offset the increasing cost of providing service. On February 13, 1996 the company reached an agreement with the DPS regarding this rate increase request. On April 30, 1996 the company received a rate order from the PSB generally approving the agreement. Under the terms of the Agreement approved by the PSB, the company increased its Vermont retail rates 5.5% effective June 1, 1996 and 2% effective January 1, 1997. In addition, the Agreement capped the company's allowed return on common equity in its Vermont retail business for 1996 and 1997 at 11%, by requiring the company to reduce deferred C&LM costs to the extent its Vermont retail return on common equity would otherwise exceed 11%, and prohibited the company from seeking any increase in Vermont retail rates which would become effective before January 1, 1998, except for extraordinary circumstances. The Agreement also required the company to recognize in 1997, for accounting purposes, approximately $5.8 million in power cost reductions associated with a Memorandum of Understanding with Hydro-Quebec and to file for a rate reduction if the company was successful in negotiating any further modifications to the Contract with Hydro-Quebec that would have resulted in a reduction in the cost of power from Hydro-Quebec between February 12, 1996 and December 31, 1997. Pursuant to the common equity cap of 11%, the company recognized, in 1996, approximately $147,000 C&LM costs that would have otherwise been deferred. In its April 30, 1996 Order, the PSB modified the February 13, 1996 Agreement reached with the DPS by removing only one of the two penalties imposed in the PSB's October 31, 1994 Order. Although the PSB's April 30, 1996 Order supported the Agreement's removal of the penalty associated with the company's efforts to acquire cost-effective energy efficiency resources, it only suspended the penalty for the alleged mismanagement of power supply options through the later of January 1, 1998 or the next investigation into the company's rates. After this period, the rate consequences of the penalty, a .75% reduction in the company's authorized Vermont retail return on common equity, will be reimposed unless the company demonstrates in future proceedings that it has adequately met the standards for removal as established by the PSB in its Orders issued October 31, 1994 and April 30, 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. Hearings were held on July 16 and August 29, 1996 addressing issues related to management practices. In an Order dated April 17, 1997, the PSB rejected the idea of a traditional management audit of the company and instead ordered an independent forward-looking analysis of three of the company's management policies and practices focusing on three areas: 1) Transmission of information to the company's Board of Directors by management. 2) Cost-benefit analyses for major corporate decisions. 3) Implementation of the company's ethics and conflict of interest policy. An independent analysis on these areas began during the first quarter of 1998. New Hampshire: On February 28, 1997 the NHPUC published its detailed Final Plan to restructure the electric utility industry in New Hampshire. Also on February 28, 1997, the NHPUC, in a supplemental order specific to Connecticut Valley, found that Connecticut Valley was imprudent for not terminating the FERC authorized power contract between Connecticut Valley and the company, required Connecticut Valley to give notice to cancel its contract with the company and denied stranded cost recovery related to this power contract. Connecticut Valley filed for rehearing of the February 28, 1997 NHPUC Order. On April 7, 1997, the NHPUC issued an Order addressing certain threshold procedural matters raised in motions for rehearing and/or clarification filed by various parties, including Connecticut Valley, relative to the Final Plan and interim stranded cost orders. The April 7, 1997 Order stayed those aspects of the Final Plan that are the subject of rehearing or clarification requests and also stayed the interim stranded cost orders for the various parties, including Connecticut Valley. As such, those matters pertaining to the power contract between Connecticut Valley and the Company were stayed. The suspension of these orders was to remain in effect until two weeks following the issuance of any order concerning outstanding requests for rehearing and clarification. The NHPUC has not yet issued any such order. On November 17, 1997, the City of Claremont, New Hampshire (Claremont), filed with the NHPUC a petition for a reduction in Connecticut Valley's electric rates. Claremont based its request on the NHPUC's earlier finding that Connecticut Valley's failure to terminate its wholesale power contract with the company as ordered in the NHPUC Stranded Cost Order of February 28, 1997 was imprudent. Under the wholesale power purchase contract with the company, Connecticut Valley may terminate service at the end of a service year, provided it has given written notice of termination prior to the beginning of that service year. Claremont alleges that if Connecticut Valley had given written notice of termination to the company in 1996 when legislation to restructure the electric industry was enacted in New Hampshire, Connecticut Valley's obligation to purchase power from the company would have terminated as of January 1, 1998. On November 26, 1997, Connecticut Valley filed a request with the NHPUC to increase the Fuel Adjustment Clause (FAC), Purchased Power Cost Adjustment (PPCA) and short-term energy purchase rates effective on or after January 1, 1998. The requested increase in rates results from higher forecast energy and capacity charges on power Connecticut Valley purchases from the company plus removal of a credit effective during 1997 to refund overcollections from 1996. Connecticut Valley objected to the NHPUC's notice of intent to consolidate Claremont's petition into the FAC and PPCA docket, stating that Claremont's complaint should be heard as part of the NHPUC restructuring docket. Over Connecticut Valley's objection at the hearing on December 17, 1997, the NHPUC consolidated Claremont's petition with Connecticut Valley's FAC and PPCA proceeding. In an Order dated December 31, 1997 in Connecticut Valley's FAC and PPCA docket, the NHPUC found Connecticut Valley acted imprudently by not terminating the wholesale contract between Connecticut Valley and the Company, notwithstanding the stays of its February 28, 1997 Orders. The NHPUC Order further directed Connecticut Valley to freeze its current FAC and PPCA rates (other than short term rates to be paid to certain Qualifying Facilities) effective January 1, 1998, on a temporary basis, pending a hearing to determine: 1) the appropriate proxy for a market price that Connecticut Valley could have obtained if it had terminated its wholesale contract with the Company; 2) the implications of allowing Connecticut Valley to pass on to its customers only that market price; and 3) whether the NHPUC's final determination on the FAC and PPCA rates should be reconciled back to January 1, 1998 or some other date. On January 12, 1998, Connecticut Valley filed a motion for rehearing alleging, among other things, that the NHPUC failed to adequately notify Connecticut Valley of the NHPUC's intent to consider the issues that were addressed during the December 17, 1997 hearing and ultimately were ruled on in Order No. 22,815. Connecticut Valley claimed that the NHPUC provided "insufficient notice of an evidentiary hearing on prudence." Connecticut Valley also claims (a) the NHPUC exceeded its jurisdiction by using the FAC/PPCA proceeding to advance its restructuring agenda, (b) the NHPUC's prudence determination is preempted by Federal law, and (c) the NHPUC made an imprudence finding without basic findings of fact or sufficient record evidence. On January 14, 1998, the City of Claremont filed an objection to Connecticut Valley's rehearing request. It claimed that Connecticut Valley was afforded sufficient notice and that the NHPUC properly exercised its traditional rate making powers in Order No. 22,815. On January 19, 1998, Connecticut Valley and the company filed with the Federal District Court for a temporary restraining order to maintain the status quo ante by staying NHPUC Order No. 22,815 and preventing the NHPUC from taking any action that (i) compromises cost-based rate making for Connecticut Valley or otherwise seeks to impose market price-based rate making on Connecticut Valley; (ii) interferes with the FERC's exclusive jurisdiction over the company's pending application to recover wholesale stranded costs upon termination of its wholesale power contract with Connecticut Valley; or (iii) prevents Connecticut Valley from recovering through retail rates the stranded costs and purchased power costs that it incurs pursuant to its FERC-authorized wholesale rate schedule with the company. The Federal Court has not yet ruled on the company's filing. On January 20, 1998, the NHPUC issued Order No. 22,838 which declined the request to increase FAC and PPCA rates retroactive to January 1, 1998. All other requests for relief in Connecticut Valley's motion for rehearing were denied. The NHPUC did expand the scope of its hearing to take evidence regarding the prudence of Connecticut Valley's decision to not unilaterally terminate the wholesale power contract between Connecticut Valley and the company. On February 23, 1998, the NHPUC announced from the bench that it reaffirmed its finding of imprudence and would designate a proxy market price for power at 4 cents per kwh in lieu of the actual amounts arising pursuant to the wholesale power contract with the company. In addition, the NHPUC indicated that it would permit Connecticut Valley to maintain its current rates pending a decision in Connecticut Valley's appeal of the NHPUC Order to the New Hampshire Supreme Court, provided Connecticut Valley can provide financial assurance that it will be able to satisfy any ultimate refund obligation. The company is awaiting the issuance of the NHPUC's written order. Based on the December 31, 1997 NHPUC Order as well as the NHPUC's February 23, 1998 announcement from the bench, which results in the establishment of Connecticut Valley's rates on a non cost-of-service basis, Connecticut Valley no longer qualifies, as of December 31, 1997, for the application of SFAS No. 71. As a result, Connecticut Valley wrote-off all of its regulatory assets associated with its New Hampshire retail business for the year ended December 31, 1997. This write-off amounted to approximately $1.2 million on a pre-tax basis. In addition, Connecticut Valley recorded a $5.5 million pre-tax loss as of December 31, 1997 under SFAS No. 5, "Accounting for Contingencies," representing Connecticut Valley's estimated loss on power contracts for the twelve months following December 31, 1997. The company expects but cannot be certain that it will be able to recover these costs beginning in 1999. These write-offs result in a violation of certain financial covenants associated with Connecticut Valley's loan with Citizens Bank of New Hampshire. This loan with an outstanding balance of $3.75 million will be in default 30 days after notice from the bank of the violation of certain financial covenants unless the default is otherwise cured or waived. The notice has not yet been tendered by the bank. Under a default, the bank has the right to accelerate the repayment of the outstanding loans. Connecticut Valley has outstanding long-term debt of $3.75 million as well as $.25 million of short- term debt currently outstanding under the committed line of credit with Citizens Bank. A default in the $3.75 million loan would also cause a cross default of the $.25 million of short-term debt outstanding. If these loans go into default, there will be no cross defaults of any of the Company's or its other subsidiaries' loan agreements. On June 25, 1997, the company filed with the FERC a notice of termination of its power supply contract with Connecticut Valley, conditional upon the company's request to impose a surcharge on the company's transmission tariff to recover the stranded costs that would result from the termination of its contract with Connecticut Valley. The amount requested was $44.9 million plus interest at the prime rate to be recovered over a ten-year period. In its Order dated December 18, 1997 in Docket No. ER97-3435-000, the FERC rejected the company's proposed stranded cost surcharge mechanism but indicated that it would consider an exit fee mechanism for collecting stranded costs. The FERC also rejected the company's arguments concerning the applicability of stated FERC policies regarding retail stranded costs, multi-state regulatory gaps and the implications of state restructuring initiatives. The company has filed a motion seeking rehearing of the FERC's December 18, 1997 Order. In addition, and in accordance with the December 18, 1997 FERC Order, on January 12, 1998 the company filed a request with the FERC for an exit fee mechanism to collect $44.9 million in a lump sum, or in installments with interest at the prime rate over a ten-year period, to cover the stranded costs resulting from the cancellation of Connecticut Valley's power contract with the company. If the Company is unable to obtain an order authorizing the full recovery amount of the exit fee, or other appropriate mechanism, the company would be required to recognize a loss under SFAS No. 5 totaling approximately $75.0 million on a pre-tax basis. Furthermore, the company would be required to write-off approximately $4.0 million in regulatory assets associated with its wholesale business under SFAS No. 71 on a pre-tax basis. Conversely, even if the company obtains a FERC order authorizing the requested exit fee, Connecticut Valley would be required to recognize a loss under SFAS No. 5 of approximately $40.0 million on a pre-tax basis unless Connecticut Valley has obtained an order by the NHPUC or other appropriate body directing the recovery of those costs in Connecticut Valley's retail rates. Either of these reasonably possible outcomes could occur during calendar year 1998. On July 23, 1996 Connecticut Valley filed with the NHPUC for an 8.8% or approximately $1.6 million base rate increase to become effective September 22, 1996. The increase was 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 granted Connecticut Valley a temporary rate increase of 5.4% effective with bills rendered October 1, 1996. On January 21, 1997, Connecticut Valley and the NHPUC Staff reached a settlement in principle regarding the permanent rate increase. The settlement, approved by the NHPUC, provided for a 6.4% permanent rate increase and set Connecticut Valley's allowed return on common equity at 10.2%. A 2.2% temporary billing surcharge was also approved by the NHPUC to recover recoupment revenues for the period October 1, 1996 and March 30, 1997 and to recover rate case expenses. The temporary billing surcharge was effective during the period April 1 through November 30, 1997, when off-peak rates were in effect. As approved by the NHPUC, this billing surcharge resumed on March 1, 1998 to recover expenses incurred in connection with the pilot program. Note 14 Commitments and contingencies The company's power supply is acquired from a number of sources including its own generating units, jointly owned units, long-term contracts and short- term purchases. The cost of power obtained from sources other than wholly and jointly owned units, including payments required to be made whether or not energy is received by the company, is reflected as Purchased power in the Consolidated Statement of Income. Through its investments in four nuclear generating companies, three of which (Maine Yankee, Connecticut Yankee and Yankee Atomic) are permanently shut down, the company is entitled to receive power from those nuclear units. See Note 2 for a discussion of the company's obligations related to its investment in nuclear generating companies. The company is also a joint owner of the Millstone Unit #3 (Unit #3) nuclear generating plant which is currently shut down due to numerous technical and non-technical problems and is on the NRC's Watch List. Through Velco, the company purchases power from a coal-fired generating plant owned by Northeast Utilities (NU) under a thirty-year contract which expires April 30, 1998. Under this contract the company is obligated to make capacity payments which amounted to approximately $4.2 million, $4.6 million and $4.5 mllion for 1995 through 1997, respectively. The company purchases power from several small power producers who own qualifying facilities under the Public Utility Regulatory Policies Act of 1978. These qualifying facilities produce energy using hydroelectric, wood, biomass, and refuse-burning generation. Under these long-term contracts, in 1997 the company purchased 209,672 MWH of which approximately 153,012 MWH is associated with the Vermont Electric Power Producers and 37,446 MWH with the New Hampshire/Vermont Solid Waste Plant owned by Wheelabrator Claremont Company, L.P. The company expects to purchase approximately 205,960 MWH of small power output in each year 1998 through 2002. Based on the forecast level of production, the total commitment in the next five years to purchase power from these qualifying facilities is estimated to be $112.6 million. The company will receive varying amounts of capacity and energy from Hydro-Quebec under the Vermont Joint Owners (VJO) contract during the 1998 to 2016 period. Related contracts were negotiated between the company and Hydro-Quebec which in effect alter the terms and conditions contained in the VJO contract, reducing the overall power requirements and cost of the original contract. The maximum net amount of capacity that the company will purchase during the term of the Hydro-Quebec agreements is 143 MW. The total commitment in the next five years to purchase power under these contracts is approximately $357 million, less approximately $65 million of power sellbacks, yielding a net cost of approximately $292 million. In February 1996, the company reached an agreement with Hydro-Quebec which lowered the 1997 cost of power by approximately $5.8 million. As part of this agreement, the company delivers to NEPOOL under existing firm energy contracts or joint marketing activities 54 MW of Phase II transmission capacity for a five-year period which began July 1, 1996 through June 30, 2001. In the early phase of the VJO contract, two sellback contracts were negotiated, the first delaying the purchase of about 24 MW of capacity and associated energy, the second reducing the net purchase of Hydro-Quebec power. In 1994, the company negotiated a third sellback arrangement whereby the company receives an effective discount on up to 70 MW of capacity starting in November 1995 for the 1996 contract year (declining to 30 MW in the 1999 contract year). In exchange for this sellback, Hydro-Quebec has the right to reduce capacity deliveries by up to 50 MW beginning as early as 2004 until 2015, including the use of a like amount of the company's Phase I/II facility rights and the ability to reduce the amounts of energy delivered during a five-year term beginning in 2000. JOINT-OWNERSHIP The company's ownership interests in jointly owned generating and transmission facilities are set forth in the table that follows and recorded in the company's Consolidated Balance Sheet (dollars in thousands):
Fuel In Service MW December 31 Type Ownership Date Entitlement 1997 1996 Generating plants: Wyman #4 Oil 1.78% 1978 11 $ 3,344 $ 3,342 Joseph C. McNeil Various 20.00% 1984 11 15,014 15,002 Millstone Unit #3 Nuclear 1.73% 1986 20 75,365 75,329 Highgate transmission facility 47.35% 1985 12,984 12,790 -------- -------- 106,707 106,463 Accumulated depreciation 34,163 31,755 -------- -------- $ 72,544 $ 74,708 ======== ========
The company's share of operating expenses for these facilities is included in the corresponding operating accounts on the Consolidated Statement of Income. Each participant in these facilities must provide for its own financing. The company is responsible for paying its ownership percentage of decom- missioning costs for Unit #3. Based on a 1996 study, the total estimated obligation at December 31, 1997 was approximately $545.7 million and the funded obligation was about $155.4 million. The company's share for the total obligation and funded obligation was approximately $9.4 million and $2.5 million, respectively. ENVIRONMENTAL The company is engaged in various operations and activities which subject it to inspection and supervision by both Federal and state regulatory authorities including the United States Environmental Protection Agency (EPA). It is company policy to comply with all environmental laws. The company has implemented various procedures and internal controls to assess and assure compliance. If non-compliance is discovered, corrective action is taken. Based on these efforts and the oversight of those regulatory agencies having jurisdiction, the company believes it is in compliance, in all material respects, with all pertinent environmental laws and regulations. Company operations occasionally result in unavoidable, inadvertent releases of regulated substances or materials, for example the rupture of a pole mounted transformer, or a broken hydraulic line. Whenever the company learns of such a release, the company responds in a timely fashion and in a manner that complies with all Federal and state requirements. Except as discussed in the following paragraphs, the company is not aware of any instances where it has caused, permitted or suffered a release or spill on or about its properties or otherwise which will likely result in any material environmental liabilities to the company. The company is an amalgamation of more than 100 predecessor companies. Those companies engaged in various operations and activities prior to being merged into the company. At least two of these companies were involved in the production of gas from coal to sell and distribute to retail customers at three different locations. These activities were discontinued by the company in the late 1940's or early 1950's. The coal gas manufacturers, other predecessor companies, and the company itself may have engaged in waste disposal activities which, while legal and consistent with commercially accepted practices at the time, may not meet modern standards and thus represent potential liability. The company continues to investigate, evaluate, monitor and, where appropriate, remediate contaminated sites related to these historic activities. The company's policy is to accrue a liability for those sites where costs for remediation, monitoring and other future activities are probable and can be reasonably estimated. As part of that process, the company also researches the possibility of insurance coverage that could defray any such remediation expenses. For related information see Legal Proceedings below. Cleveland Avenue Property One such site is the company's Cleveland Avenue property located in the City of Rutland, Vermont, a site where one of its predecessors operated a coal-gasification facility and later the company sited various operations functions. Due to the presence of coal tar deposits and Polychlorinated Biphenyl (PCB) contamination and uncertainties as to potential off-site migration of those contaminants, the company conducted studies in the late 1980's and early 1990's to determine the magnitude and extent of the contamination. After completing its preliminary investigation, the company engaged a consultant to assist in evaluating clean-up methodologies and provide cost estimates. Those studies indicated the cost to remediate the site would be approximately $5 million. This was charged to expense in the fourth quarter of 1992. Site investigation continued over the next several years. In January of 1995, the company was formally contacted by the EPA asking for written consent to conduct a site evaluation of the Cleveland Avenue property. That evaluation has been completed. The company does not believe the EPA's evaluation changes its potential liability so long as the State remains satisfied that reasonable progress continues to be made in remediating the site and retains oversight of the process. In 1995, as part of that process, the company's consultant completed its risk assessment report and submitted it to the State of Vermont (State) for review. The State generally agreed with that assessment but expressed a number of concerns and directed the company to collect some additional data. The company has addressed almost all of the concerns expressed by the State and continues to work with the State in a joint effort to develop a mutually acceptable solution. The company selected a consulting/engineering firm to collect the additional data requested by the State and develop and implement a remediation plan for the site. That firm has begun work at the site. It has collected the additional data requested by the State and will use all the data gathered to date to formulate a comprehensive remediation plan. The additional data gathered to date has not caused the company to alter its original estimate of the likely cost of remediating the site. PCB, Inc. In August 1995, the company received an Information Request from the EPA pursuant to a Superfund investigation of two related sites, one in Kansas and the other in Missouri (the Sites). During the mid-1980's, these Sites received materials containing PCBs from hundreds of sources, including the company. According to the EPA, more than 1,200 parties have been identified as Potential Responsible Parties (PRPs). The company has complied with the information request and will monitor EPA activities at the Sites. In December 1996, the company received an invitation to join a PRP steering committee. The company has not yet decided whether joining that committee would be in its best interest. That committee has estimated the company's pro rata share of the waste sent to the Sites to be .42%. The committee estimates that the Sites' remediation will cost between $5 million and $40 million. Based on this information, the company does not believe that the Sites represent the potential for a material adverse effect on its financial condition or results of operations. The company also faces potential liability arising from the alleged disposal of hazardous materials at two former municipal landfills: the Parker Landfill and the Trafton-Hoisington Landfill. 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. At this time, the company does not believe all landfill sites represent the potential for a material adverse effect on its financial condition or results of operations but it will continue to monitor activities at the sites. The company is not subject to any pending or threatened litigation with respect to any other sites that have the potential for causing the company to incur material remediation expenses, nor has the EPA or other Federal or state agency sought contribution from the company for the study or remediation of any such sites. In 1996, the company filed a lawsuit in Federal court against a number of insurance companies. In its complaint, the company alleges that general liability policies issued by the insurers provide coverage for all expenses incurred or to be incurred by the company in conjunction with, among others, the Cleveland Avenue Property. Settlements have been reached with most of the defendants. Due to the uncertainties associated with the outcome of this lawsuit related to the remaining defendants and the actual clean-up costs, no income has been recognized, instead, the proceeds have been applied to the environmental reserve. DIVIDEND RESTRICTIONS The indentures relating to long-term debt and the Articles of Association contain certain restrictions on the payment of cash dividends on capital stock. Under the most restrictive of such provisions, approximately $72.7 million of retained earnings was not subject to dividend restriction at December 31, 1997. LEASES AND SUPPORT AGREEMENTS The company participated with other electric utilities in the construction of the Phase I Hydro-Quebec transmission facilities in northeastern Vermont, which were completed at a total cost of approximately $140 million. Under a support agreement relating to the company's participation in the facilities, the company is obligated to pay its 4.42% share of Phase I Hydro-Quebec capital costs over a 20-year recovery period through and including 2006. The company also participated in the construction of Phase II Hydro-Quebec transmission facilities constructed throughout New England, which were completed at a total cost of approximately $487 million. Under a similar support agreement, the company is obligated to pay its 5.132% share of Phase II Hydro-Quebec capital costs over a 25-year recovery period through and including 2015. All costs under these support agreements are recorded as purchased transmission expense in accordance with the company's rate-making policies. Future minimum payments will be approximately $3.0 million for each year from 1998 through 2015 and will decline thereafter. The company's shares of the net capital cost of these facilities, totaling approximately $18.3 million, are classified in the accompanying Consolidated Balance Sheet as "Utility Plant" and "Long-term Lease Arrangements" (current and non-current). Minimum rental commitments of the company under non-cancelable leases as of December 31, 1997, are not material. Total rental expense entering into the determination of net income, consisting principally of vehicle and equipment rentals, was approximately $3.3 million for 1995, $3.2 million for 1996 and $3.1 million for 1997. LEGAL PROCEEDINGS As discussed above, 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 Environmental above for related disclosures. On August 7, 1997, the company and eight other non-operating owners of Unit #3 filed a demand for arbitration with Connecticut Light and Power Company and Western Massachusetts Electric Company and lawsuits against NU and its trustees. The arbitration and lawsuits seek to recover costs associated with replacement power, operation and maintenance costs and other costs resulting from the shutdown of Unit #3. The non-operating owners claim that NU and two of its wholly owned subsidiaries failed to comply with NRC's regulations, failed to operate the facility in accordance with good operating practice and attempted to conceal their activities from the non-operating owners and the NRC. In addition to the proceedings described herein, the company is involved in litigation in the normal course of business which the company does not believe will have a material adverse effect on the financial position or results of operations. Note 15 New Accounting Pronouncements In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock- Based Compensation," effective for fiscal years beginning after December 15, 1995. SFAS No. 123 requires that financial statements include certain disclosures related to stock-based employee compensation arrangements regardless of the method used to account for them. The company did not adopt the accounting under this pronouncement but rather elected to adopt the required audited pro forma disclosure. In February 1997, the FASB issued SFAS No. 128, "Earnings per Share," effective for both interim and annual periods ending after December 15, 1997. Earlier application is not permitted. SFAS No. 128 establishes standards for computing and presenting earnings per share(EPS) and applies to entities with publicly held common stock or potential common stock. The adoption of SFAS No. 128 did not have an impact on the company's computation and presentation of basic EPS. The company does not have any potential common stock or common stock equivalents that would result in the dilution of EPS. Therefore there is no difference between basic and diluted earnings per share. Note 16 Unaudited Quarterly Financial Information The following quarterly financial information is unaudited and includes all adjustments consisting of normal recurring accruals which are, in the opinion of management, necessary for a fair statement of results of operations for such periods. Variations between quarters reflect the seasonal nature of the company's business (dollars in thousands, except per share amounts):
Quarter Ended 12 Months March June September December Ended 1997 Operating revenues $88,494 $65,442 $67,990 $82,806 $304,732 Operating income (loss) $14,140 $ (885) $ 1,178 $ 4,203 $ 18,636 Net income (loss) $14,319 $(1,855) $ 2,065 $ 1,811 $ 16,340 Earnings (losses) per share of common stock $1.20 $(.21) $ .14 $ .12 $1.25 1996 Operating revenues $84,246 $61,390 $63,833 $81,332 $290,801 Operating income $14,236 $ 1,396 $ 274 $ 7,369 $ 23,275 Net income (loss) $14,758 $ (447) $ (785) $ 5,916 $ 19,442 Earnings (losses) per share of common stock $1.23 $(.08) $(.11) $.47 $1.51
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. None. PART III Item 10. Directors and Executive Officers of the Registrant. The information required by this item concerning directors of the Company is set forth in the sections entitled "Election of Directors" and "Section 16(a) Beneficial Ownership Reporting Compliance" in the Proxy Statement of the Company for the 1998 Annual Meeting of Stockholders, which are being incorporated herein by reference. Item 11. Executive Compensation. The information required by this item concerning executive compensation and directors' compensation is set forth in the sections entitled "Executive Compensation and Other Transactions", "Directors' Compensation", "Report of the Compensation Committee on Executive Compensation" and "Five-Year Shareholder Return Comparison Performance Graph" in the Proxy Statement of the Company for the 1998 Annual Meeting of Stockholders, which are being incorporated herein by reference. Item 12. Security Ownership of Certain Beneficial Owners and Management. The information required by this item concerning security ownership is set forth in the section entitled "Stock Ownership of Directors, Nominee, Executive Officers and Certain Beneficial Owners" in the Proxy Statement for the 1998 Annual Meeting of Stockholders, which is being incorporated herein by reference. Item 13. Certain Relationships and Related Transactions. None. Filed Herewith at Page PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K. (a)1. The following financial statements for Central Vermont Public Service Corporation and its wholly owned subsidiaries are filed as part of this report: (See Item 8) 1.1 Consolidated Statement of Income, for each of the three years ended December 31, 1997 Consolidated Statement of Cash Flows, for each of the three years ended December 31, 1997 Consolidated Balance Sheet at December 31, 1997 and 1996 Consolidated Statement of Capitalization at December 31, 1997 and 1996 Consolidated Statement of Changes in Common Stock Equity for each of the three years ended December 31, 1997 Notes to Consolidated Financial Statements (a)2. Financial Statement Schedules: 2.1 Central Vermont Public Service Corporation and its wholly owned subsidiaries: Schedule II - Reserves for each of the three years ended December 31, 1997 Schedules not included have been omitted because they are not applicable or the required information is shown in the financial statements or notes thereto. Separate financial statements of the Registrant (which is primarily an operating company) have been omitted since they are consolidated only with those of totally held subsidiaries. Separate financial statements of subsidiary companies not consolidated have been omitted since, if considered in the aggregate, they would not constitute a significant subsidiary. Separate financial statements of 50% or less owned persons for which the investment is accounted for by the equity method by the Registrant have been omitted since, if considered in the aggregate, they would not constitute a significant investment. (a)3. Exhibits (* denotes filed herewith) Each document described below is incorporated by reference to the appropriate exhibit numbers and the Commission file numbers indicated in parentheses, unless the reference to the document is marked as follows: * - Filed herewith. Exhibit 3 Articles of Incorporation and By-Laws * 3-1 By-Laws, as amended June 2, 1997. (Exhibit 3-1, Form 10-Q June 30, 1997, File No. 1-8222) 3-2 Articles of Association, as amended August 11, 1992. (Exhibit No. 3-2, 1992 10-K, File No. 1-8222) Exhibit 4 Instruments defining the rights of security holders, including Indentures Incorporated herein by reference: 4-1 Mortgage dated October 1, 1929, between the Company and Old Colony Trust Company, Trustee, securing the Company's First Mortgage Bonds. (Exhibit B-3, File No. 2-2364) 4-2 Supplemental Indenture dated as of August 1, 1936. (Exhibit B-4, File No. 2-2364) 4-3 Supplemental Indenture dated as of November 15, 1943. (Exhibit B-3, File No. 2-5250) 4-4 Supplemental Indenture dated as of December 1, 1943. (Exhibit No. B-4, File No. 2-5250) 4-5 Directors' resolutions adopted December 14, 1943, establishing the Series C Bonds and dealing with other related matters. (Exhibit B-5, File No. 2-5250) 4-6 Supplemental Indenture dated as of April 1, 1944. (Exhibit No. B-6, File No. 2-5466) 4-7 Supplemental Indenture dated as of February 1, 1945. (Exhibit 7.6, File No. 2-5615) (22-385) 4-8 Directors' resolutions adopted April 9, 1945, establishing the Series D Bonds and dealing with other matters. (Exhibit 7.8, File No. 2-5615 (22-385) 4-9 Supplemental Indenture dated as of September 2, 1947. (Exhibit 7.9, File No. 2-7489) 4-10 Supplemental Indenture dated as of July 15, 1948, and directors' resolutions establishing the Series E Bonds and dealing with other matters. (Exhibit 7.10, File No. 2-8388) 4-11 Supplemental Indenture dated as of May 1, 1950, and directors' resolutions establishing the Series F Bonds and dealing with other matters. (Exhibit 7.11, File No. 2-8388) 4-12 Supplemental Indenture dated August 1, 1951, and directors' resolutions, establishing the Series G Bonds and dealing with other matters. (Exhibit 7.12, File No. 2-9073) 4-13 Supplemental Indenture dated May 1, 1952, and directors' resolutions, establishing the Series H Bonds and dealing with other matters. (Exhibit 4.3.13, File No. 2-9613) 4-14 Supplemental Indenture dated as of July 10, 1953. (July, 1953 Form 8-K, File No. 1-8222) 4-15 Supplemental Indenture dated as of June 1, 1954, and directors' resolutions establishing the Series K Bonds and dealing with other matters. (Exhibit 4.2.16, File No. 2-10959) 4-16 Supplemental Indenture dated as of February 1, 1957, and directors' resolutions establishing the Series L Bonds and dealing with other matters. (Exhibit 4.2.16, File No. 2-13321) 4-17 Supplemental Indenture dated as of March 15, 1960. (March, 1960 Form 8-K, File No. 1-8222) 4-18 Supplemental Indenture dated as of March 1, 1962. (March, 1962 Form 8-K, File No. 1-8222) 4-19 Supplemental Indenture dated as of March 2, 1964. (March, 1964 Form 8-K, File No, 1-8222) 4-20 Supplemental Indenture dated as of March 1, 1965, and directors' resolutions establishing the Series M Bonds and dealing with other matters. (April, 1965 Form 8-K, File No. 1-8222) 4-21 Supplemental Indenture dated as of December 1, 1966, and directors' resolutions establishing the Series N Bonds and dealing with other matters. (January, 1967 Form 8-K, File No. 1-8222) 4-22 Supplemental Indenture dated as of December 1, 1967, and directors' resolutions establishing the Series O Bonds and dealing with other matters. (December, 1967 Form 8-K, File No. 1-8222) 4-23 Supplemental Indenture dated as of July 1, 1969, and directors' resolutions establishing the Series P Bonds and dealing with other matters. (Exhibit B.23, July, 1969 Form 8-K, File No. 1-8222) 4-24 Supplemental Indenture dated as of December 1, 1969, and directors' resolutions establishing the Series Q Bonds January, and dealing with other matters. (Exhibit B.24, January, 1970 Form 8-K, File No. 1-8222) 4-25 Supplemental Indenture dated as of May 15, 1971, and directors' resolutions establishing the Series R Bonds and dealing with other matters. (Exhibit B.25, May, 1971, Form 8-K, File No. 1-8222) 4-26 Supplemental Indenture dated as of April 15, 1973, and directors' resolutions establishing the Series S Bonds and dealing with other matters. (Exhibit B.26, May, 1973, Form 8-K, File No. 1-8222) 4-27 Supplemental Indenture dated as of April 1, 1975, and directors' resolutions establishing the Series T Bonds and dealing with other matters. (Exhibit B.27, April, 1975, Form 8-K, File No. 1-8222) 4-28 Supplemental Indenture dated as of April 1, 1977. (Exhibit 2.42, File No. 2-58621) 4-29 Supplemental Indenture dated as of July 29, 1977, and directors' resolutions establishing the Series U, V, W, and X Bonds and dealing with other matters. (Exhibit 2.43, File No. 2-58621) 4-30 Thirtieth Supplemental Indenture dated as of September 15, 1978, and directors' resolutions establishing the Series Y Bonds and dealing with other matters. (Exhibit B-30, 1980 Form 10-K, File No. 1-8222) 4-31 Thirty-first Supplemental Indenture dated as of September 1, 1979, and directors' resolutions establishing the Series Z Bonds and dealing with other matters. (Exhibit B-31, 1980 Form 10-K, File No. 1-8222) 4-32 Thirty-second Supplemental Indenture dated as of June 1, 1981, and directors' resolutions establishing the Series AA Bonds and dealing with other matters. (Exhibit B-32, 1981 Form 10-K, File No. 1-8222) 4-45 Thirty-third Supplemental Indenture dated as of August 15, 1983, and directors' resolutions establishing the Series BB Bonds and dealing with other matters. (Exhibit B-45, 1983 Form 10-K, File No. 1-8222) 4-46 Bond Purchase Agreement between Merrill, Lynch, Pierce, Fenner & Smith, Inc., Underwriters and The Industrial Development Authority of the State of New Hampshire, issuer and Central Vermont Public Service Corporation. (Exhibit B-46, 1984 Form 10-K, File No. 1-8222) 4-47 Thirty-Fourth Supplemental Indenture dated as of January 15, 1985, and directors' resolutions establishing the Series CC Bonds and Series DD Bonds and matters connected therewith. (Exhibit B-47, 1985 Form 10-K, File No. 1-8222) 4-48 Bond Purchase Agreement among Connecticut Development Authority and Central Vermont Public Service Corporation with E. F. Hutton & Company Inc. dated December 11, 1985. (Exhibit B-48, 1985 Form 10-K, File No. 1-8222) 4-49 Stock-Purchase Agreement between Vermont Electric Power Company, Inc. and the Company dated August 11, 1986 relative to purchase of Class C Preferred Stock. (Exhibit B-49, 1986 Form 10-K, File No. 1-8222) 4-50 Thirty-Fifth Supplemental Indenture dated as of December 15, 1989 and directors' resolutions establishing the Series EE, Series FF and Series GG Bonds and matters connected therewith. (Exhibit 4-50, 1989 Form 10-K, File No. 1-8222) 4-51 Thirty-Sixth Supplemental Indenture dated as of December 10, 1990 and directors' resolutions establishing the Series HH Bonds and matters connected therewith. (Exhibit 4-51, 1990 Form 10-K, File No. 1-8222) 4-52 Thirty-Seventh Supplemental Indenture dated December 10, 1991 and directors' resolutions establishing the Series JJ Bonds and matters connected therewith. (Exhibit 4-52, 1991 Form 10-K, File No. 1-8222) 4-53 Thirty-Eight Supplemental Indenture dated December 10, 1993 establishing Series KK, LL, MM, NN, OO. (Exhibit 4-53, 1993 Form 10-K, File No. 1-8222) * 4-54 Thirty-Ninth Supplemental Indenture Dated December 29, 1997. * 4-55 Fortieth Supplemental Indenture Dated January 28, 1998. Exhibit 10 Material Contracts (*Denotes filed herewith) Incorporated herein by reference: 10.l Copy of firm power Contract dated August 29, 1958, and supplements thereto dated September 19, 1958, October 7, 1958, and October 1, 1960, between the Company and the State of Vermont (the "State"). (Exhibit C-1, File No. 2-17184) 10.1.1 Agreement setting out Supplemental NEPOOL Understandings dated as of April 2, 1973. (Exhibit C-22, File No. 5-50198) 10.2 Copy of Transmission Contract dated June 13, 1957, between Velco and the State, relating to transmission of power. (Exhibit 10.2, 1993 Form 10-K, File No. 1-8222) 10.2.1 Copy of letter agreement dated August 4, 1961, between Velco and the State. (Exhibit C-3, File No. 2-26485) 10.2.2 Amendment dated September 23, 1969. (Exhibit C-4, File No. 2-38161) 10.2.3 Amendment dated March 12, 1980. (Exhibit C-92, 1982 Form 10-K, File No. 1-8222) 10.2.4 Amendment dated September 24, 1980. (Exhibit C-93, 1982 Form 10-K, File No. 1-8222) 10.3 Copy of subtransmission contract dated August 29, 1958, between Velco and the Company (there are seven similar contracts between Velco and other utilities). (Exhibit 10.3, 1993 Form 10-K, Form No. 1-8222) 10.3.1 Copies of Amendments dated September 7, 196l, November 2, 1967, March 22, 1968, and October 29, 1968. (Exhibit C-6, File No. 2-32917) 10.3.2 Amendment dated December 1, 1972. (Exhibit 10.3.2, 1993 Form 10-K, File No. 1-8222) 10.4 Copy of Three-Party Agreement dated September 25, 1957, between the Company, Green Mountain and Velco. (Exhibit C-7, File No. 2-17184) 10.4.1 Superseding Three Party Power Agreement dated January 1, 1990. (Exhibit 10-201, 1990 Form 10-K, File No. 1-8222) 10.4.2 Agreement Amending Superseding Three Party Power Agreement dated May 1, 1991. (Exhibit 10.4.2, 1991 Form 10-K, File No. 1-8222) 10.5 Copy of firm power Contract dated December 29, 1961, between the Company and the State, relating to purchase of Niagara Project power. (Exhibit C-8, File No. 2-26485) 10.5.1 Amendment effective as of January 1, 1980. (Exhibit 10.5.1, 1993 Form 10-K, File No. 1-8222) 10.6 Copy of agreement dated July 16, 1966, and letter supplement dated July 16, 1966, between Velco and Public Service Company of New Hampshire relating to purchase of single unit power from Merrimack II. (Exhibit C-9, File No. 2-26485) 10.6.1 Copy of Letter Agreement dated July 10, 1968, modifying Exhibit A. (Exhibit C-10, File No. 2-32917) 10.7 Copy of Capital Funds Agreement between the Company and Vermont Yankee dated as of February 1, 1968. (Exhibit C-11, File No. 70-4611) 10.7.1 Copy of Amendment dated March 12, 1968. (Exhibit C-12, File No. 70-4611) 10.7.2 Copy of Amendment dated September 1, 1993. (Exhibit 10.7.2, 1994 Form 10-K, File No. 1-8222) 10.8 Copy of Power Contract between the Company and Vermont Yankee dated as of February 1, 1968. (Exhibit C-13, File No. 70-4591) 10.8.1 Amendment dated April 15, 1983. (10.8.1, 1993 Form 10-K, File No. 1-8222) 10.8.2 Copy of Additional Power Contract dated February 1, 1984. (Exhibit C-123, 1984 Form 10-K, File No. 1-8222) 10.8.3 Amendment No. 3 to Vermont Yankee Power Contract, dated April 24, 1985. (Exhibit 10-144, 1986 Form 10-K, File No. 1-8222) 10.8.4 Amendment No. 4 to Vermont Yankee Power Contract, dated June 1, 1985. (Exhibit 10-145, 1986 Form 10-K, File No. 1-8222) 10.8.5 Amendment No. 5 dated May 6, 1988. (Exhibit 10-179, 1988 Form 10-K, File No. 1-8222) 10.8.6 Amendment No. 6 dated May 6, 1988. (Exhibit 10-180, 1988 Form 10-K, File No. 1-8222) 10.8.7 Amendment No. 7 dated June 15, 1989. (Exhibit 10-195, 1989 Form 10-K, File No. 1-8222) 10.9 Copy of Capital Funds Agreement between the Company and Maine Yankee dated as of May 20, 1968. (Exhibit C-14, File No. 70-4658) 10.9.1 Amendment No. 1 dated August 1, 1985. (Exhibit C-125, 1984 Form 10-K, File No. 1-8222) 10.10 Copy of Power Contract between the Company and Maine Yankee dated as of May 20, 1968. (Exhibit C-15, File No. 70-4658) 10.10.1 Amendment No. 1 dated March 1, 1984. (Exhibit C-112, 1984 Form 10-K, File No. 1-8222) 10.10.2 Amendment No. 2 effective January 1, 1984. (Exhibit C-113, 1984 Form 10-K, File No. 1-8222) 10.10.3 Amendment No. 3 dated October 1, 1984. (Exhibit C-114, 1984 Form 10-K, File No. 1-8222) 10.10.4 Additional Power Contract dated February 1, 1984. (Exhibit C-126, 1985 Form 10-K, File No. 1-8222) 10.11 Copy of Agreement dated January 17, 1968, between Velco and Public Service Company of New Hampshire relating to purchase of additional unit power from Merrimack II. (Exhibit C-16, File No. 2-32917) 10.12 Copy of Agreement dated February 10, 1968 between the Company and Velco relating to purchase by Company of Merrimack II unit power. (There are 25 similar agreements between Velco and other utilities.) (Exhibit C-17, File No. 2-32917) 10.13 Copy of Three-Party Power Agreement dated as of November 21, 1969, among the Company, Velco, and Green Mountain relating to purchase and sale of power from Vermont Yankee Nuclear Power Corporation. (Exhibit C-18, File No. 2-38161) 10.13.1 Amendment dated June 1, 1981. (Exhibit 10.13.1, 1993 Form 10-K, File No. 1-8222) 10.14 Copy of Three-Party Transmission Agreement dated as of November 21, 1969, among the Company, Velco, and Green Mountain providing for transmission of power from Vermont Yankee Nuclear Power Corporation. (Exhibit C-19, File No. 2-38161) 10.14.1 Amendment dated June 1, 1981. (Exhibit 10.14.1, 1993 Form 10-K, File No. 1-8222) 10.15 Copy of Stockholders Agreement dated September 25, 1957, between the Company, Velco, Green Mountain and Citizens Utilities Company. (Exhibit No. C-20, File No. 70-3558) 10.16 New England Power Pool Agreement dated as of September 1, 1971, as amended to November 1, 1975. (Exhibit C-21, File No. 2-55385) 10.16.1 Amendment dated December 31, 1976. (Exhibit 10.16.1 1993 Form 10-K, File No. 1-8222) 10.16.2 Amendment dated January 23, 1977. (Exhibit 10.16.2, 1993 Form 10-K, File No. 1-8222) 10.16.3 Amendment dated July 1, 1977. (Exhibit 10.16.3, 1993 Form 10-K, File No. 1-8222) 10.16.4 Amendment dated August 1, 1977. (Exhibit 10.16.4, 1993 Form 10-K, File No. 1-8222) 10.16.5 Amendment dated August 15, 1978. (Exhibit 10.16.5, 1993 Form 10-K, File No. 1-8222) 10.16.6 Amendment dated January 31, 1979. (Exhibit 10.16.6, 1993 Form 10-K, File No. 1-8222) 10.16.7 Amendment dated February 1, 1980. (Exhibit 10.16.7, 1993 Form 10-K, File No. 1-8222) 10.16.8 Amendment dated December 31, 1976. (Exhibit 10.16.8, 1993 Form 10-K, File No. 1-8222) 10.16.9 Amendment dated January 31, 1977. (Exhibit 10.16.9, 1993 Form 10-K, File No. 1-8222) 10.16.10 Amendment dated July 1, 1977. (Exhibit 10.16.10, 1993 Form 10-K, File No. 1-8222) 10.16.11 Amendment dated August 1, 1977. (Exhibit 10.16.11, 1993 Form 10-K, File No. 1-8222) 10.16.12 Amendment dated August 15, 1978. (Exhibit 10.16.12, 1993 Form 10-K, File No. 1-8222) 10.16.13 Amendment dated January 31, 1980. (Exhibit 10.16.13, 1993 Form 10-K, File No. 1-8222) 10.16.14 Amendment dated February 1, 1980. (Exhibit 10.16.14, 1993 Form 10-K, File No. 1-8222) 10.16.15 Amendment dated September 1, 1981. (Exhibit 10.16.15, 1993 Form 10-K, File No. 1-8222) 10.16.16 Amendment dated December 1, 1981. (Exhibit 10.16.16, 1993 Form 10-K, File No. 1-8222) 10.16.17 Amendment dated June 15, 1983. (Exhibit 10.16.17, 1993 Form 10-K, File No. 1-8222) 10.16.18 Amendment dated September 1, 1985. (Exhibit 10-160, 1986 Form 10-K, File No. 1-8222) 10.16.19 Amendment dated April 30, 1987. (Exhibit 10-172, 1987 Form 10-K, File No. 1-8222) 10.16.20 Amendment dated March 1, 1988. (Exhibit 10-178, 1988 Form 10-K, File No. 1-8222) 10.16.21 Amendment dated March 15, 1989. (Exhibit 10-194, 1989 Form 10-K, File No. 1-8222) 10.16.22 Amendment dated October 1, 1990. (Exhibit 10-203, 1990 Form 10-K, File No. 1-8222) 10.16.23 Amendment dated September 15, 1992. (Exhibit 10.16.23, 1992 Form 10-K, File No. 1-8222) 10.16.24 Amendment dated May 1, 1993. (Exhibit 10.16.24, 1993 Form 10-K, File No. 1-8222) 10.16.25 Amendment dated June 1, 1993. (Exhibit 10.16.25, 1993 Form 10-K, File No. 1-8222) 10.16.26 Amendment dated June 1, 1994. (Exhibit 10.16.26, 1994 Form 10-K, File No. 1-8222) 10.16.27 Thirty-Second Amendment dated September 1, 1995. (Exhibit 10.16.27, Form 10-Q dated September 30, 1995, File No. 1-8222 and Exhibit 10.16.27, 1995 Form 10-K, File No. 1-8222) 10.17 Agreement dated October 13, 1972, for Joint Ownership, Construction and Operation of Pilgrim Unit No. 2 among Boston Edison Company and other utilities, including the Company. (Exhibit C-23, File No. 2-45990) 10.17.1 Amendments dated September 20, 1973, and September 15, 1974. (Exhibit C-24, File No. 2-51999) 10.17.2 Amendment dated December 1, 1974. (Exhibit C-25, File No. 2-54449) 10.17.3 Amendment dated February 15, 1975. (Exhibit C-26, File No. 2-53819) 10.17.4 Amendment dated April 30, 1975. (Exhibit C-27, File No. 2-53819) 10.17.5 Amendment dated as of June 30, 1975. (Exhibit C-28, File No. 2-54449) 10.17.6 Instrument of Transfer dated as of October 1, 1974, assigning partial interest from the Company to Green Mountain Power Corporation. (Exhibit C-29, File No. 2-52177) 10.17.7 Instrument of Transfer dated as of January 17, 1975, assigning a partial interest from the Company to the Burlington Electric Department. (Exhibit C-30, File No. 2-55458) 10.17.8 Addendum dated as of October 1, 1974 by which Green Mountain Power Corporation became a party thereto. (Exhibit C-31, File No. 2-52177) 10.17.9 Addendum dated as of January 17, 1975 by which the Burlington Electric Department became a party thereto. (Exhibit C-32, File No. 2-55450) 10.17.10 Amendment 23 dated as of 1975. (Exhibit C-50, 1975 Form 10-K, File No. 1-8222) 10.18 Agreement for Sharing Costs Associated with Pilgrim Unit No.2 Transmission dated October 13, 1972, among Boston Edison Company and other utilities including the Company. (Exhibit C-33, File No. 2-45990) 10.18.1 Addendum dated as of October 1, 1974, by which Green Mountain Power Corporation became a party thereto. (Exhibit C-34, File No. 2-52177) 10.18.2 Addendum dated as of January 17, 1975, by which Burlington Electric Department became a party thereto. (Exhibit C-35, File No. 2-55458) 10.19 Agreement dated as of May 1, 1973, for Joint Ownership, Construction and Operation of New Hampshire Nuclear Units among Public Service Company of New Hampshire and other utilities, including Velco. (Exhibit C-36, File No. 2-48966) 10.19.1 Amendments dated May 24, 1974, June 21, 1974, September 25, 1974, October 25, 1974, and January 31, 1975. (Exhibit C-37, File No. 2-53674) 10.19.2 Instrument of Transfer dated September 27, 1974, assigning partial interest from Velco to the Company. (Exhibit C-38, File No. 2-52177) 10.19.3 Amendments dated May 24, 1974, June 21, 1974, and September 25, 1974. (Exhibit C-81, File No. 2-51999) 10.19.4 Amendments dated October 25, 1974 and January 31, 1975. (Exhibit C-82, File No. 2-54646) 10.19.5 Sixth Amendment dated as of April 18, 1979. (Exhibit C-83, File No. 2-64294) 10.19.6 Seventh Amendment dated as of April 18, 1979. (Exhibit C-84, File No. 2-64294) 10.19.7 Eighth Amendment dated as of April 25, 1979. (Exhibit C-85, File No. 2-64815) 10.19.8 Ninth Amendment dated as of June 8, 1979. (Exhibit C-86, File No. 2-64815) 10.19.9 Tenth Amendment dated as of October 10, 1979. (Exhibit C-87, File No. 2-66334 ) 10.19.10 Eleventh Amendment dated as of December 15, 1979. (Exhibit C-88, File No.2-66492) 10.19.11 Twelfth Amendment dated as of June 16, 1980. (Exhibit C-89, File No. 2-68168) 10.19.12 Thirteenth Amendment dated as of December 31, 1980. (Exhibit C-90, File No. 2-70579) 10.19.13 Fourteenth Amendment dated as of June 1, 1982.(Exhibit C-104, 1982 Form 10-K, File No. 1-8222) 10.19.14 Fifteenth Amendment dated April 27, 1984. (Exhibit 10-134, 1986 Form 10-K, File No. 1-8222) 10.19.15 Sixteenth Amendment dated June 15, 1984. (Exhibit 10-135, 1986 Form 10-K, File No. 1-8222) 10.19.16 Seventeenth Amendment dated March 8, 1985. (Exhibit 10-136, 1986 Form 10-K, File No. 1-8222) 10.19.17 Eighteenth Amendment dated March 14, 1986. (Exhibit 10-137, 1986 Form 10-K, File No. 1-8222) 10.19.18 Nineteenth Amendment dated May 1, 1986. (Exhibit 10-138, 1986 Form 10-K, File No. 1-8222) 10.19.19 Twentieth Amendment dated September 19, 1986. (Exhibit 10-139, 1986 Form 10-K, File No. 1-8222) 10.19.20 Amendment No. 22 dated January 13, 1989. (Exhibit 10-193, 1989 Form 10-K, File No. 1-8222) 10.20 Transmission Support Agreement dated as of May 1, 1973, among Public Service Company of New Hampshire and other utilities, including Velco, with respect to New Hampshire Nuclear Units. (Exhibit C-39, File No. 2-48966) 10.21 Sharing Agreement - 1979 Connecticut Nuclear Unit dated September 1, 1973, to which the Company is a party. (Exhibit C-40, File No. 2-50142) 10.21.1 Amendment dated as of August 1, 1974. (Exhibit C-41, File No. 2-51999) 10.21.2 Instrument of Transfer dated as of February 28, 1974, transferring partial interest from the Company to Green Mountain. (Exhibit C-42, File No. 2-52177) 10.21.3 Instrument of Transfer dated January 17, 1975, transferring a partial interest from the Company to Burlington Electric Department. (Exhibit C-43, File No. 2-55458) 10.21.4 Amendment dated May 11, 1984. (Exhibit C-110, 1984 Form 10-K, File No. 1-8222) 10.22 Preliminary Agreement dated as of July 5, 1974, with respect to 1981 Montague Nuclear Generating Units. (Exhibit C-44, File No. 2-51733) 10.22.1 Amendment dated June 30, 1975. (Exhibit C-45, File No. 2-54449) 10.23 Agreement for Joint Ownership, Construction and Operation of William F. Wyman Unit No. 4 dated November 1, 1974, among Central Maine Power Company and other utilities including the Company. (Exhibit C-46, File No. 2-52900) 10.23.1 Amendment dated as of June 30, 1975. (Exhibit C-47, File No. 2-55458) 10.23.2 Instrument of Transfer dated July 30, 1975, assigning a partial interest from Velco to the Company. (Exhibit C-48, File No. 2-55458) 10.24 Transmission Agreement dated November 1, 1974, among Central Maine Power Company and other utilities including the Company with respect to William F. Wyman Unit No. 4. (Exhibit C-49, File No. 2-54449) 10.25 Copy of Power Contract between the Company and Yankee Atomic dated as of June 30, 1959. (Exhibit C-61, 1981 Form 10-K, File No. 1-8222) 10.25.1 Revision dated April 1, 1975. (Exhibit C-61, 1981 Form 10-K, File No. 1-8222) 10.25.2 Amendment dated May 6, 1988. (Exhibit 10-181, 1988 Form 10-K, File No. 1-8222) 10.25.3 Amendment dated June 26, 1989. (Exhibit 10-196, 1989 Form 10-K, File No. 1-8222) 10.25.4 Amendment dated July 1, 1989. (Exhibit 10-197, 1989 Form 10-K, File No. 1-8222) 10.25.5 Amendment dated February 1, 1992 (Exhibit 10.25.5, 1992 Form 10-K, File No. 1-8222) 10.26 Copy of Transmission Contract between the Company and Yankee Atomic dated as of June 30, 1959. (Exhibit C-63, 1981 Form 10-K, File No. 1-8222) 10.27 Copy of Power Contract between the Company and Connecticut Yankee dated as of June 1, 1964. (Exhibit C-64, 1981 Form 10-K, File No. 1-8222) 10.27.1 Supplementary Power Contract dated March 1, 1978. (Exhibit C-94, 1982 Form 10-K, File No. 1-8222) 10.27.2 Amendment dated August 22, 1980. (Exhibit C-95, 1982 Form 10-K, File No. 1-8222) 10.27.3 Amendment dated October 15, 1982. (Exhibit C-96, 1982 Form 10-K, File No. 1-8222) 10.27.4 Second Supplementary Power Contract dated April 30, 1984. (Exhibit C-115, 1984 Form 10-K, File No. 1-8222) 10.27.5 Additional Power Contract dated April 30, 1984. (Exhibit C-116, 1984 Form 10-K, File No. 1-8222) 10.28 Copy of Transmission Contract between the Company and Connecticut Yankee dated as of July 1, 1964. (Exhibit C-65, 1981 Form 10-K, File No. 1-8222) 10.29 Copy of Capital Funds Agreement between the Company and Connecticut Yankee dated as of July 1, 1964. (Exhibit C-66, 1981 Form 10-K, File No. 1-8222) 10.29.1 Copy of Capital Funds Agreement between the Company and Connecticut Yankee dated as of September 1, 1964. (Exhibit C-67, 1981 Form 10-K, File No. 1-8222) 10.30 Copy of Five-Year Capital Contribution Agreement between the Company and Connecticut Yankee dated as of November 1, 1980. (Exhibit C-68, 1981 Form 10-K, File No. 1-8222) 10.31 Form of Guarantee Agreement dated as of November 7, 1981, among certain banks, Connecticut Yankee and the Company, relating to revolving credit notes of Connecticut Yankee. (Exhibit C-69, 1981 Form 10-K, File No. 1-8222) 10.32 Form of Guarantee Agreement dated as of November 13, 1981, between The Connecticut Bank and Trust Company, as Trustee, and the Company, relating to debentures of Connecticut Yankee. (Exhibit C-70, 1981 Form 10-K, File No. 1-8222) 10.33 Form of Guarantee Agreement dated as of November 5, 1981, between Bankers Trust Company, as Trustee of the Vernon Energy Trust, and the Company, relating to Vermont Yankee Nuclear Fuel Sale Agreement. (Exhibit C-71, 1981 Form 10-K, File No. 1-8222) 10.34 Preliminary Vermont Support Agreement re Quebec Interconnection between Velco and among seventeen Vermont Utilities dated May 1, 1981. (Exhibit C-97, 1982 Form 10-K, File No. 1-8222) 10.34.1 Amendment dated June 1, 1982. (Exhibit C-98, 1982 Form 10-K, File No. 1-8222) 10.35 Vermont Participation Agreement for Quebec Interconnection between Velco and among seventeen Vermont Utilities dated July 15, 1982. (Exhibit C-99, 1982 Form 10-K, File No. 1-8222) 10.35.1 Amendment No. 1 dated January 1, 1986. (Exhibit C-132, 1986 Form 10-K, File No. 1-8222) 10.36 Vermont Electric Transmission Company Capital Funds Support Agreement between Velco and among sixteen Vermont Utilities dated July 15, 1982. (Exhibit C-100, 1982 Form 10-K, File No. 1-8222) 10.37 Vermont Transmission Line Support Agreement, Vermont Electric Transmission Company and twenty New England Utilities dated December 1, 1981, as amended by Amendment No. 1 dated June 1, 1982, and by Amendment No. 2 dated November 1, 1982. (Exhibit C-101, 1982 Form 10-K, File No. 1-8222) 10.37.1 Amendment No. 3 dated January 1, 1986. (Exhibit 10-149, 1986 Form 10-K, File No. 1-8222) 10.38 Phase 1 Terminal Facility Support Agreement between New England Electric Transmission Corporation and twenty New England Utilities dated December 1, 1981, as amended by Amendment No. 1 dated as of June 1, 1982 and by Amendment No. 2 dated as of November 1, 1982. (Exhibit C-102, 1982 Form 10-K, File No. 1-8222) 10.39 Power Purchase Agreement between Velco and CVPS dated June 1, 1981. (Exhibit C-103, 1982 Form 10-K, File No. 1-8222) 10.40 Agreement for Joint Ownership, Construction and Operation of the Joseph C. McNeil Generating Station by and between City of Burlington Electric Department, Central Vermont Realty, Inc. and Vermont Public Power Supply Authority dated May 14, 1982. (Exhibit C-107, 1983 Form 10-K, File No. 1-8222) 10.40.1 Amendment No. 1 dated October 5, 1982. (Exhibit C-108, 1983 Form 10-K, File No. 1-8222) 10.40.2 Amendment No. 2 dated December 30, 1983. (Exhibit C-109, 1983 Form 10-K, File No. 1-8222) 10.40.3 Amendment No. 3 dated January 10, 1984. (Exhibit 10-143, 1986 Form 10-K, File No. 1-8222) 10.41 Transmission Service Contract between Central Vermont Public Service Corporation and The Vermont Electric Generation & Transmission Cooperative, Inc. dated May 14, 1984. (Exhibit C-111, 1984 Form 10-K, File No. 1-8222) 10.42 Copy of Highgate Transmission Interconnection Preliminary Support Agreement dated April 9, 1984. (Exhibit C-117, 1984 Form 10-K, File No. 1-8222) 10.43 Copy of Allocation Contract for Hydro-Quebec Firm Power dated July 25, 1984. (Exhibit C-118, 1984 Form 10-K, File No. 1-8222) 10.43.1 Tertiary Energy for Testing of the Highgate HVDC Station Agreement, dated September 20, 1985. (Exhibit C-129, 1985 Form 10-K, File No. 1-8222) 10.44 Copy of Highgate Operating and Management Agreement dated August 1, 1984. (Exhibit C-119, 1986 Form 10-K, File No. 1-8222) 10.44.1 Amendment No. 1 dated April 1, 1985. (Exhibit 10-152, 1986 Form 10-K, File No. 1-8222) 10.44.2 Amendment No. 2 dated November 13, 1986. (Exhibit 10-167, 1987 Form 10-K, File No. 1-8222) 10.44.3 Amendment No. 3 dated January 1, 1987. (Exhibit 10-168, 1987 Form 10-K, File No. 1-8222) 10.45 Copy of Highgate Construction Agreement dated August 1, 1984. (Exhibit C-120, 1984 Form 10-K, File No. 1-8222) 10.45.1 Amendment No. 1 dated April 1, 1985. (Exhibit 10-151, 1986 Form 10-K, File No. 1-8222) 10.46 Copy of Agreement for Joint Ownership, Construction and Operation of the Highgate Transmission Interconnection. (Exhibit C-121, 1984 Form 10-K, File No. 1-8222) 10.46.1 Amendment No. 1 dated April 1, 1985. (Exhibit 10-153, 1986 Form 10-K, File No. 1-8222) 10.46.2 Amendment No. 2 dated April 18, 1985. (Exhibit 10-154, 1986 Form 10-K, File No. 1-8222) 10.46.3 Amendment No. 3 dated February 12, 1986. (Exhibit 10-155, 1986 Form 10-K, File No. 1-8222) 10.46.4 Amendment No. 4 dated November 13, 1986. (Exhibit 10-169, 1987 Form 10-K, File No. 1-8222) 10.46.5 Amendment No. 5 and Restatement of Agreement dated January 1, 1987. (Exhibit 10-170, 1987 Form 10-K, File No. 1-8222) 10.47 Copy of the Highgate Transmission Agreement dated August 1, 1984. (Exhibit C-122, 1984 Form 10-K, File No. 1-8222) 10.48 Copy of Preliminary Vermont Support Agreement Re: Quebec Interconnection - Phase II dated September 1, 1984. (Exhibit C-124, 1984 Form 10-K, File No. 1-8222) 10.48.1 First Amendment dated March 1, 1985. (Exhibit C-127, 1985 Form 10-K, File No. 1-8222) 10.49 Vermont Transmission and Interconnection Agreement between New England Power Company and Central Vermont Public Service Corporation and Green Mountain Power Corporation with the consent of Vermont Electric Power Company, Inc., dated May 1, 1985. (Exhibit C-128, 1985 Form 10-K, File No. 1-8222) 10.50 Service Contract Agreement between the Company and the State of Vermont for distribution and sale of energy from St. Lawrence power projects ("NYPA Power") dated as of June 25, 1985. (Exhibit C-130, 1985 Form 10-K, File No. 1-8222) 10.50.1 Lease and Operating Agreement between the Company and the State of Vermont dated as of June 25, 1985. (Exhibit C-131, 1985 Form 10-K, File No. 1-8222) 10.51 System Sales & Exchange Agreement Between Niagara Mohawk Power Corporation and Central Vermont Public Service Corporation dated October 1, 1986. (Exhibit C-133, 1986 Form 10-K, File No. 1-8222) 10.54 Transmission Agreement between Vermont Electric Power Company, Inc. and Central Vermont Public Service Corporation dated January 1, 1986. (Exhibit 10-146, 1986 Form 10-K, File No. 1-8222) 10.55 1985 Four-Party Agreement between Vermont Electric Power Company, Central Vermont Public Service Corporation, Green Mountain Power Corporation and Citizens Utilities dated July 1, 1985. (Exhibit 10-147, 1986 Form 10-K, File No. 1-8222) 10.55.1 Amendment dated February 1, 1987. (Exhibit 10-171, 1987 Form 10-K, File No. 1-8222) 10.56 1985 Option Agreement between Vermont Electric Power Company, Central Vermont Public Service Corporation, Green Mountain Power Corporation and Citizens Utilities dated December 27, 1985. (Exhibit 10-148, 1986 Form 10-K, File No. 1-8222) 10.56.1 Amendment No. 1 dated September 28, 1988. (Exhibit 10-182, 1988 Form 10-K, File No. 1-8222) 10.56.2 Amendment No. 2 dated October 1, 1991. (Exhibit 10.56.2, 1991 Form 10-K, File No. 1-8222) 10.56.3 Amendment No. 3 dated December 31, 1994. (Exhibit 10.56.3, 1994 Form 10-K, File No. 1-8222) 10.56.4 Amendment No. 4 dated December 31, 1996. (Exhibit 10.56.4, 1996 Form 10-K, file No. 1-8222) 10.57 Highgate Transmission Agreement dated August 1, 1984 by and between the owners of the project and the Vermont electric distribution companies. (Exhibit 10-156, 1986 Form 10-K, File No. 1-8222) 10.57.1 Amendment No. 1 dated September 22, 1985. (Exhibit 10-157, 1986 Form 10-K, File No. 1-8222) 10.58 Vermont Support Agency Agreement re: Quebec Interconnection - Phase II between Vermont Electric Power Company, Inc. and participating Vermont electric utilities dated June 1, 1985. (Exhibit 10-158, 1986 Form 10K, File No. 1-8222) 10.58.1 Amendment No. 1 dated June 20, 1986. (Exhibit 10-159, 1986 Form 10-K, File No. 1-8222) 10.59 Indemnity Agreement B-39 dated May 9, 1969 with amendments 1-16 dated April 17, 1970 thru April 16, 1985 between licensees of Millstone Unit No. 3 and the Nuclear Regulatory Commission. (Exhibit 10-161, 1986 Form 10-K, File No. 1-8222) 10.59.1 Amendment No. 17 dated November 25, 1985. (Exhibit 10-162, 1986 Form 10-K, File No. 1-8222) 10.62 Contract for the Sale of 50MW of firm power between Hydro-Quebec and Vermont Joint Owners of Highgate Facilities dated February 23, 1987. (Exhibit 10-173, 1987 Form 10-K, File No. 1-8222) 10.63 Interconnection Agreement between Hydro-Quebec and Vermont Joint Owners of Highgate facilities dated February 23, 1987. (Exhibit 10-174, 1987 Form 10-K, File No. 1-8222) 10.63.1 Amendment dated September 1, 1993 (Exhibit 10.63.1, 1993 Form 10-K, File No. 1-8222) 10.64 Firm Power and Energy Contract by and between Hydro-Quebec and Vermont Joint Owners of Highgate for 500MW dated December 4, 1987. (Exhibit 10-175, 1987 Form 10-K, File No. 1-8222) 10.64.1 Amendment No. 1 dated August 31, 1988. (Exhibit 10-191, 1988 Form 10-K, File No. 1-8222) 10.64.2 Amendment No. 2 dated September 19, 1990. (Exhibit 10-202, 1990 Form 10-K, File No. 1-8222) 10.64.3 Firm Power & Energy Contract dated January 21, 1993 by and between Hydro-Quebec and Central Vermont Public Service Corporation for the sale back of 25 MW of power. (Exhibit 10.64.3, 1992 Form 10-K, File No. 1-8222) 10.64.4 Firm Power & Energy Contract dated January 21, 1993 by and between Hydro-Quebec and Central Vermont Public Service Corporation for the sale back of 50 MW of power. (Exhibit 10.64.4, 1992 Form 10-K, File No. 1-8222) 10.66 Hydro-Quebec Participation Agreement dated April 1, 1988 for 600 MW between Hydro-Quebec and Vermont Joint Owners of Highgate. (Exhibit 10-177, 1988 Form 10-K, File No. 1-8222) 10.67 Sale of firm power and energy (54MW) between Hydro-Quebec and Vermont Utilities dated December 29, 1988. (Exhibit 10-183, 1988 Form 10-K, File No. 1-8222) 10.75 Receivables Purchase Agreement between Central Vermont Public Service Corporation, Central Vermont Public Service Corporation as Service Agent and The First National Bank of Boston dated November 29, 1988. (Exhibit 10-192, 1988 Form 10-K) 10.75.1 Agreement Amendment No. 1 dated December 21, 1988 (Exhibit 10.75.1, 1993 Form 10-K, File No. 1-8222) 10.75.2 Letter Agreement dated December 4, 1989 (Exhibit 10.75.2, 1993 Form 10-K, File No. 1-8222) 10.75.3 Agreement Amendment No. 2 dated November 29, 1990 (Exhibit 10.75.3, 1993 Form 10-K, File No. 1-8222) 10.75.4 Agreement Amendment No. 3 dated November 29, 1991 (Exhibit 10.75.4, 1993 Form 10-K, File No. 1-8222) 10.75.5 Agreement Amendment No. 4 dated November 29, 1992 (Exhibit 10.75.5, 1993 Form 10-K, File No. 1-8222) * 10.75.6 Agreement Amendment No. 5 dated November 29, 1993 * 10.75.7 Agreement Amendment No. 6 dated November 29, 1994 * 10.75.8 Agreement Amendment No. 7 dated November 29, 1995 * 10.75.9 Agreement Amendment No. 8 dated February 5, 1997 * 10.75.10 Agreement Amendment No. 9 dated February 2, 1998 * 10.83 Credit Agreement Dated As of November 5, 1997 among Central Vermont Public Service Corporation, The Lenders Named Herein and Toronto Dominion (Texas), Inc., as Agent. EXECUTIVE COMPENSATION PLANS AND ARRANGEMENTS A 10.68 Stock Option Plan for Non-Employee Directors dated July 18, 1988. (Exhibit 10-184, 1988 Form 10-K, File No. 1-8222) A 10.69 Stock Option Plan for Key Employees dated July 18, 1988. (Exhibit 10-185, 1988 Form 10-K, File No. 1-8222) A 10.70 Officers Supplemental Insurance Plan authorized July 9, 1984. (Exhibit 10-186, 1988 Form 10-K, File No. 1-8222) A 10.71 Officers Supplemental Deferred Compensation Plan dated November 4, 1985. (Exhibit 10-187, 1988 Form 10-K, File No. 1-8222) A 10.71.1 Amendment dated October 2, 1995. (Exhibit 10.71.1, 1995 Form 10-K, File No. 1-8222) A 10.72 Directors' Supplemental Deferred Compensation Plan dated November 4, 1985. (Exhibit 10-188, 1988 Form 10-K, File No. 1-8222) A 10.72.1 Amendment dated October 2, 1995. (Exhibit 10.72.1, 1995 Form 10-K, File No. 1-8222) A 10.73 Management Incentive Compensation Plan as adopted September 9, 1985. (Exhibit 10-189, 1988 Form 10-K, File No. 1-8222) A 10.73.1 Revised Management Incentive Plan as adopted February 5, 1990. (Exhibit 10-200, 1989 Form 10-K, File No. 1-8222) A 10.73.2 Revised Management Incentive Plan dated May 2, 1995. (Exhibit 10.73.2, 1995 Form 10-K, File No. 1-8222) A 10.74 Officers' Change of Control Agreements as approved October 3, 1988. (Exhibit 10-190, 1988 Form 10-K, File No. 1-8222) A 10.78 Stock Option Plan for Non-Employee Directors dated April 30, 1993 (Exhibit 10.78, 1993 Form 10-K, File No. 1-8222) A 10.79 Officers Insurance Plan dated November 15, 1993 (Exhibit 10.79, 1993 Form 10-K, File No. 1-8222) A 10.79.1 Amendment dated October 2, 1995. (Exhibit No. 10.79.1, 1995 Form 10-K, File No. 1-8222) A 10.80 Directors' Supplemental Deferred Compensation Plan dated January 1, 1990 (Exhibit 10.80, 1993 Form 10-K, File No. 1-8222) A 10.80.1 Amendment dated October 2, 1995. (Exhibit No. 10.80.1, 1995 Form 10-K, File No. 1-8222) A 10.81 Officers' Supplemental Deferred Compensation Plan dated January 1, 1990 (Exhibit 10.81, 1993 Form 10-K, File No. 1-8222) A 10.82 Management Incentive Plan for Executive Officers dated January 1, 1997. (Exhibit 10.82, 1996 Form 10-K, File No. 1-8222) A - Compensation related plan, contract, or arrangement. 21. Subsidiaries of the Registrant * 21.1 List of Subsidiaries of Registrant 23. Consents of Experts and Counsel * 23.1 Consent of Independent Public Accountants 27. Financial Data Schedule (filed electronically only) (b) Reports on Form 8-K: The Company filed the following reports on Form 8-K during the quarter ended December 31, 1997: 1. Item 5. Other Events, dated December 31, 1997 re: Connecticut Valley Electric Company Inc. Order. Report of Independent Public Accountants To the Board of Directors of Central Vermont Public Service Corporation: We have audited, in accordance with generally accepted auditing standards, the consolidated financial statements included in Central Vermont Public Service Corporation's annual report to shareholders, included in this Form 10-K, and have issued our report thereon dated February 23, 1998. Our audit was made for the purpose of forming an opinion on the basic financial statements taken as a whole. The schedule listed in the index above is the responsibility of the Company's management and is presented for purposes of complying with the Securities and Exchange Commission's rules and is not part of the basic financial statements. This schedule has been subjected to the auditing procedures applied in the audit of the basic consolidated financial statements and, in our opinion, fairly states, in all material respects, the consolidated financial data required to be set forth therein in relation to the basic consolidated financial statements taken as a whole. ARTHUR ANDERSEN LLP Boston, Massachusetts February 23, 1998
Schedule II CENTRAL VERMONT PUBLIC SERVICE CORPORATION AND ITS WHOLLY OWNED SUBSIDIARIES Reserves Year ended December 31, 1997 Additions Balance at Charged to Charged Balance at beginning costs and to other end of of year expenses Accounts Deductions year ---------- ---------- -------- ---------- ---------- Reserves deducted from assets to which they apply: $ 91,909(1) 415,992(2) 770,496(3) Reserve for uncollectible ---------- accounts receivable $1,132,195 $751,530 $1,278,397 $1,216,229(4) $1,945,893 ========== ======== ========== ========== ========== Accumulated depreciation of miscellaneous properties: Rental water heater program $3,553,149 $357,961 - $ 282,021(5) $3,629,089 320,811(6) Other 731,892 106,248 - 152,195(7) 365,134 ---------- -------- ---------- ---------- $4,285,041 $464,209 $ 755,027 $3,994,223 ========== ======== ========== ========== Reserve shown separately: Injuries and damages reserve $ 225,580 - - - $ 225,580 ========== ========== (1) Amount due from collection agency. (2) Collections of accounts previously written off. (3) Transferred from miscellaneous receivables. (4) Uncollectible accounts written off. (5) Retirement/Sale of rental water heaters. (6) Sale of non-utility Property. (7) Amortization of Customer Information Systems.
Schedule II CENTRAL VERMONT PUBLIC SERVICE CORPORATION AND ITS WHOLLY OWNED SUBSIDIARIES Reserves Year ended December 31, 1996 Additions Balance at Charged to Charged Balance at beginning costs and to other end of of year expenses Accounts Deductions year ---------- ---------- -------- ---------- ---------- Reserves deducted from assets to which they apply: $ 81,367(1) 299,244(2) Reserve for uncollectible -------- accounts receivable $1,551,606 $670,083 $380,611 $1,470,105(3) $1,132,195 ========== ======== ======== ========== ========== Accumulated depreciation of miscellaneous properties: Rental water heater program $3,508,493 $356,274 - $ 311,618(4) $3,553,149 Other 295,765 436,127 - - 731,892 ---------- -------- ---------- ---------- $3,804,258 $792,401 $ 311,618 $4,285,041 ========== ======== ========== ========== Reserve shown separately: Injuries and damages reserve $ 225,580 - - - $ 225,580 ========== ========== (1) Amount due from collection agency. (2) Collections of accounts previously written off. (3) Uncollectible accounts written off. (4) Retirements of rental water heaters.
Schedule II CENTRAL VERMONT PUBLIC SERVICE CORPORATION AND ITS WHOLLY OWNED SUBSIDIARIES Reserves Year ended December 31, 1995 Additions Balance at Charged to Charged Balance at beginning costs and to other end of of year expenses Accounts Deductions year ---------- ---------- -------- ---------- ---------- Reserves deducted from assets to which they apply: $ 80,978(1) 644,277(2) 200,000(3) Reserve for uncollectible -------- accounts receivable $ 967,732 $1,074,327 $925,255 $1,415,708(4) $1,551,606 ========== ========== ======== ========== ========== Accumulated depreciation of miscellaneous properties: Rental water heater program $3,450,284 $ 350,522 - $ 292,313(5) $3,508,493 Other 213,287 82,478 - - 295,765 ---------- ---------- --------- ---------- $3,663,571 $ 433,000 $ 292,313 $3,804,258 ========== ========== ========= ========== Reserve shown separately: Injuries and damages reserve $ 225,580 - - - $ 225,580 ========== ========== (1) Amount due from collection agency. (2) Collections of accounts previously written off. (3) Transferred from miscellaneous receivables. (4) Uncollectible accounts written off. (5) Retirements of rental water heaters.
SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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 By /s/ Robert H. Young Robert H. Young, President and Chief Executive Officer March 30, 1998 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. DATE NAME AND TITLE March 30, 1998 /s/ Robert H. Young Robert H. Young President and Chief Executive Officer and Director March 30, 1998 /s/ Francis J. Boyle Francis J. Boyle, Senior Vice President, Chief Financial Officer and Treasurer (Principal Financial Officer) March 30, 1998 /s/ James M. Pennington James M. Pennington, Vice President, Controller (Principal Accounting Officer) March 30, 1998 /s/ Frederic H. Bertrand Frederic H. Bertrand Chairman of the Board and Director March 30, 1998 /s/ Robert L. Barnett Robert L. Barnett Director March 30, 1998 /s/ Rhonda L. Brooks Rhonda L. Brooks Director March 30, 1998 /s/ Robert G. Clarke Robert G. Clarke Director March 30, 1998 /s/ Luther F. Hackett Luther F. Hackett Director March 30, 1998 /s/ Patrick J. Martin Patrick J. Martin Director March 30, 1998 /s/ Mary Alice McKenzie Mary Alice McKenzie Director March 30, 1998 /s/ Preston Leete Smith Preston Leete Smith Director EX-3 2 CV'S BYLAWS FOR FORM 10-K 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 votes entitled to be cast, represented in person or by proxy, shall constitute a quorum at a meeting of stockholders. If a quorum is present, the action on a matter (other than the election of directors) is approved if the votes cast in favor of the action exceed the votes cast opposing the action, 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 and June 2, 1997) 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 a plurality of the votes cast by the shares entitled to vote in the election at a meeting at which a quorum is present, except as otherwise provided in the Articles of Association or in these By-Laws. (As amended October 16, 1944; May 7, 1963, February 17, 1987 and June 2, 1997) 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) EX-10 3 EXHIBIT 10.75.6 FOR FORM 10K CENTRAL VERMONT PUBLIC SERVICE CORPORATION Fifth Amendment and Extension Agreement to Receivables Purchase Agreement This Fifth Amendment and Extension Agreement (this "Amendment") dated as of November 29, 1993, to Receivables Purchase Agreement dated as of November 29, 1988, as amended by Amendment Agreement No. 1 dated as of December 21, 1988, Letter Agreement dated November 27, 1989, Second Amendment and Extension Agreement dated as of November 29, 1990, Third Amendment and Extension Agreement dated as of November 29, 1991, and Fourth Amendment and Extension Agreement dated as of November 29, 1992 (as so amended, the "Purchase Agreement") between CENTRAL VERMONT PUBLIC SERVICE CORPORATION (the "Seller") and THE FIRST NATIONAL BANK OF BOSTON (the "Bank"). Capitalized terms used herein but not defined shall have the meanings assigned to them in the Purchase Agreement. WHEREAS, pursuant to 2.1(b) of the Purchase Agreement, the Purchase Termination Date is scheduled to occur on the second anniversary of the Closing Date, as extended for one-year periods from time to time, currently extended to November 29, 1994; and WHEREAS, by means of a letter dated October 15, 1993 from the Seller to the Bank the Seller has requested that the Purchase Termination Date be extended for an additional one-year period beyond November 29, 1994, and the Bank is willing to so extend the Purchase Termination Date, on the terms and conditions contained herein; and WHEREAS, the Seller and the Bank wish to make certain other changes to the Purchase Agreement, on the terms and conditions contained herein; NOW, THEREFORE, the Bank and the Seller agree as follows: Section 1. Amendment to the Purchase Agreement. The Purchase Agreement is hereby amended by deleting Schedule 1.1 thereto and substituting therefor a new Schedule 1.1 in the form attached hereto as Schedule 1.1. Section 2. Extension of the Purchase Termination Date. The Bank hereby agrees that the Purchase Termination Date referred to in 2.1(b) of the Purchase Agreement shall be extended for an additional one-year period, such that the Purchase Termination Date shall now occur on November 29, 1995. Section 3. Representations and Warranties. The Seller represents and warrants as follows: (a) The execution and delivery of this Amendment and the performance by the Seller of the Purchase Documents as amended hereby are within the corporate powers of the Seller and have been duly authorized by all requisite corporate action by the Seller, do not contravene (i) the Seller's Articles of Association or by-laws or (ii) any law, rule, order, regulation or contractual restriction (including, without limitation, any restriction in the Indenture) binding on or affecting the Seller, and do not result in or require the creation of any lien, security interest or other charge or encumbrance upon or with respect to any of its properties. (b) No authorization or approval or other action by, and no notice to or filing with, any governmental authority or regulatory body is required for the due execution and delivery of this Amendment or the performance by the Seller of the Purchase Documents as amended hereby. (c) This Amendment and the Purchase Documents as amended hereby are the legal, valid and binding obligations of the Seller, enforceable against the Seller in accordance with their respective terms, except as limited by bankruptcy, insolvency, reorganization, moratorium or other laws affecting creditors' rights generally and by general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law). (d) The representations and warranties contained in Section 6 of the Purchase Agreement are true and correct as of the date hereof as though made on and as of the date hereof (except that references to financial statements in Section 6.5 of the Purchase Agreement shall be deemed to refer to the most recent financial statements delivered by the Seller thereunder). (e) No Termination Event or event that, with the giving of notice or passage of time or both would become a Termination Event, has occurred and is continuing. Section 4. Miscellaneous. (a) This Amendment and the modifications to the Purchase Agreement set forth herein shall be governed by and construed in accordance with the laws of The Commonwealth of Massachusetts. (b) On and after the date hereof, each reference in the Purchase Agreement to "this Agreement" or words of like import shall mean and be deemed to be a reference to the Purchase Agreement as amended hereby. (c) Except as amended and modified hereby, the Purchase Agreement is in all respects ratified and confirmed as of the date hereof, and the terms, covenants and agreements therein shall remain in full force and effect. (d) This Amendment may be executed in counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. IN WITNESS WHEREOF, the parties have caused this Amendment to be duly executed as of the date and year first above written. CENTRAL VERMONT PUBLIC SERVICE CORPORATION By: /s/ Jonathan W. Booraem Title: Treasurer THE FIRST NATIONAL BANK OF BOSTON By: /s/ Daniel G. Head, Jr. Title: Vice President Schedule 1.1 CENTRAL VERMONT PUBLIC SERVICE CORPORATION CERTAIN CUSTOMERS General Electric Co. SKI, Ltd. Wyeth Group Specialty Paperboard Stratton Corp. Mack Molding E.H.V. Industries Eveready Battery Co. Vermont Castings Foundry Goldman Group Johnson Controls C&S Wholesale Rutland Hospital Carris Reels OMYA Middlebury College Cersosimo Lumber Co. Polymers, Inc. Moore Associates, Inc. G.W. Plastics November 29, 1993 EX-10 4 EXHIBIT 10.75.7 FOR FORM 10-K CENTRAL VERMONT PUBLIC SERVICE CORPORATION Sixth Amendment and Extension Agreement to Receivables Purchase Agreement This Sixth Amendment and Extension Agreement (this "Amendment") dated as of November 29, 1994, to Receivables Purchase Agreement dated as of November 29, 1988, as amended by Amendment Agreement No. 1 dated as of December 21, 1988, Letter Agreement dated November 27, 1989, Second Amendment and Extension Agreement dated as of November 29, 1990, Third Amendment and Extension Agreement dated as of November 29, 1991, Fourth Amendment and Extension Agreement dated as of November 29, 1992 and Fifth Amendment and Extension Agreement dated as of November 29, 1993 (as so amended, the "Purchase Agreement") between CENTRAL VERMONT PUBLIC SERVICE CORPORATION (the "Seller") and THE FIRST NATIONAL BANK OF BOSTON (the "Bank"). Capitalized terms used herein but not defined shall have the meanings assigned to them in the Purchase Agreement. WHEREAS, pursuant to 2.1(b) of the Purchase Agreement, the Purchase Termination Date is scheduled to occur on the second anniversary of the Closing Date, as extended for one-year periods from time to time, currently extended to November 29, 1995; and WHEREAS, by means of a letter dated September 23, 1994 from the Seller to the Bank the Seller has requested that the Purchase Termination Date be extended for an additional one-year period beyond November 29, 1995, and the Bank is willing to so extend the Purchase Termination Date, on the terms and conditions contained herein; and WHEREAS, the Seller and the Bank wish to make certain other changes to the Purchase Agreement, on the terms and conditions contained herein; NOW, THEREFORE, the Bank and the Seller agree as follows: Section 1. Amendment to the Purchase Agreement. The Purchase Agreement is hereby amended by deleting Schedule 1.1 thereto and substituting therefor a new Schedule 1.1 in the form attached hereto as Schedule 1.1. Section 2. Extension of the Purchase Termination Date. The Bank hereby agrees that the Purchase Termination Date referred to in 2.1(b) of the Purchase Agreement shall be extended for an additional one-year period, such that the Purchase Termination Date shall now occur on November 29, 1996. Section 3. Representations and Warranties. The Seller represents and warrants as follows: (a) The execution and delivery of this Amendment and the performance by the Seller of the Purchase Documents as amended hereby are within the corporate powers of the Seller and have been duly authorized by all requisite corporate action by the Seller, do not contravene (i) the Seller's Articles of Association or by-laws or (ii) any law, rule, order, regulation or contractual restriction (including, without limitation, any restriction in the Indenture) binding on or affecting the Seller, and do not result in or require the creation of any lien, security interest or other charge or encumbrance upon or with respect to any of its properties. (b) No authorization or approval or other action by, and no notice to or filing with, any governmental authority or regulatory body is required for the due execution and delivery of this Amendment or the performance by the Seller of the Purchase Documents as amended hereby. (c) This Amendment and the Purchase Documents as amended hereby are the legal, valid and binding obligations of the Seller, enforceable against the Seller in accordance with their respective terms, except as limited by bankruptcy, insolvency, reorganization, moratorium or other laws affecting creditors' rights generally and by general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law). (d) The representations and warranties contained in 6 of the Purchase Agreement are true and correct as of the date hereof as though made on and as of the date hereof (except that references to financial statements in 6.5 of the Purchase Agreement shall be deemed to refer to the most recent financial statements delivered by the Seller thereunder). (e) No Termination Event or event that, with the giving of notice or passage of time or both would become a Termination Event, has occurred and is continuing. Section 4. Miscellaneous. (a) This Amendment and the modifications to the Purchase Agreement set forth herein shall be governed by and construed in accordance with the laws of The Commonwealth of Massachusetts. (b) On and after the date hereof, each reference in the Purchase Agreement to "this Agreement" or words of like import shall mean and be deemed to be a reference to the Purchase Agreement as amended hereby. (c) Except as amended and modified hereby, the Purchase Agreement is in all respects ratified and confirmed as of the date hereof, and the terms, covenants and agreements therein shall remain in full force and effect. (d) This Amendment may be executed in counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. IN WITNESS WHEREOF, the parties have caused this Amendment to be duly executed as of the date and year first above written. CENTRAL VERMONT PUBLIC SERVICE CORPORATION By: /s/ Jonathan W. Booraem Title: Treasurer THE FIRST NATIONAL BANK OF BOSTON By: /s/ Daniel G. Head, Jr. Title: Vice President Schedule 1.1 CENTRAL VERMONT PUBLIC SERVICE CORPORATION CERTAIN CUSTOMERS General Electric Co. SKI, Ltd. Grand Union Stores Wyeth Nutritionals Specialty Paperboard Eveready Battery Co. Stratton Corp. Vermont Castings Foundry Johnson Controls Inc. C&S Wholesale Grocers Mack Molding Jonce & Lamson Corp E.H.V. Industries Tambrands Inc. Rutland Hospital Luzenac America Zayre Middlebury College Price Chopper Cerosimo Lumber Co. EX-10 5 EXHIBIT 10.75.8 FOR FORM 10-K CENTRAL VERMONT PUBLIC SERVICE CORPORATION Seventh Amendment and Extension Agreement to Receivables Purchase Agreement This Seventh Amendment and Extension Agreement (this "Amendment") dated as of November 29, 1995, to Receivables Purchase Agreement dated as of November 29, 1988, as amended by Amendment Agreement No. 1 dated as of December 21, 1988, Letter Agreement dated November 27, 1989, Second Amendment and Extension Agreement dated as of November 29, 1990, Third Amendment and Extension Agreement dated as of November 29, 1991, Fourth Amendment and Extension Agreement dated as of November 29, 1992, Fifth Amendment and Extension Agreement dated as of November 29, 1993 and Sixth Amendment and Extension Agreement dated as of November 29, 1994 (as so amended, the "Purchase Agreement") between CENTRAL VERMONT PUBLIC SERVICE CORPORATION (the "Seller") and THE FIRST NATIONAL BANK OF BOSTON (the "Bank"). Capitalized terms used herein but not defined shall have the meanings assigned to them in the Purchase Agreement. WHEREAS, pursuant to 2.1(b) of the Purchase Agreement, the Purchase Termination Date is scheduled to occur on the second anniversary of the Closing Date, as extended for one-year periods from time to time, currently extended to November 29, 1996; and WHEREAS, by means of a letter dated September 8, 1995 from the Seller to the Bank the Seller has requested that the Purchase Termination Date be extended for an additional one-year period beyond November 29, 1996, and the Bank is willing to so extend the Purchase Termination Date, on the terms and conditions contained herein; and WHEREAS, the Seller and the Bank wish to make certain other changes to the Purchase Agreement, on the terms and conditions contained herein; NOW, THEREFORE, the Bank and the Seller agree as follows: Section 1. Amendments to the Purchase Agreement. (a) Section 2.1(c) of the Purchase Agreement is hereby amended by deleting said section in its entirety and substituting therefor the following: "(c) The Seller may at any time prior to the Purchase Termination Date terminate the Purchase Commitment in full, or at the end of any fiscal quarter reduce the Purchase Commitment in part in integral multiples of $1,000,000, in each case by giving 30 Business Days' prior written notice thereof to the Bank. Subject to 3.2 hereof, any such termination or reduction may be effected by the Seller without penalty. No termination of the Purchase Commitment shall be subject to reinstatement without the prior written consent of the Bank, which consent may be withheld in the Bank's sole discretion." (b) Section 2.7(a)(iii) of the Purchase Agreement is hereby amended by deleting the percentage "1/4 of 1%" and substituting therefor the percentage ".20 of 1%". (c) The Purchase Agreement is hereby amended by deleting Schedule 1.1 thereto and substituting therefor a new Schedule 1.1 in the form attached hereto as Schedule 1.1. Section 2. Extension of the Purchase Termination Date. The Bank hereby agrees that the Purchase Termination Date referred to in 2.1(b) of the Purchase Agreement shall be extended for an additional one-year period, such that the Purchase Termination Date shall now occur on November 29, 1997. Section 3. Representations and Warranties. The Seller represents and warrants as follows: (a) The execution and delivery of this Amendment and the performance by the Seller of the Purchase Documents as amended hereby are within the corporate powers of the Seller and have been duly authorized by all requisite corporate action by the Seller, do not contravene (i) the Seller's Articles of Association or by-laws or (ii) any law, rule, order, regulation or contractual restriction (including, without limitation, any restriction in the Indenture) binding on or affecting the Seller, and do not result in or require the creation of any lien, security interest or other charge or encumbrance upon or with respect to any of its properties. (b) No authorization or approval or other action by, and no notice to or filing with, any governmental authority or regulatory body is required for the due execution and delivery of this Amendment or the performance by the Seller of the Purchase Documents as amended hereby. (c) This Amendment and the Purchase Documents as amended hereby are the legal, valid and binding obligations of the Seller, enforceable against the Seller in accordance with their respective terms, except as limited by bankruptcy, insolvency, reorganization, moratorium or other laws affecting creditors' rights generally and by general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law). (d) The representations and warranties contained in 6 of the Purchase Agreement are true and correct as of the date hereof as though made on and as of the date hereof (except that references to financial statements in 6.5 of the Purchase Agreement shall be deemed to refer to the most recent financial statements delivered by the Seller thereunder). (e) No Termination Event or event that, with the giving of notice or passage of time or both would become a Termination Event, has occurred and is continuing. Section 4. Miscellaneous. (a) This Amendment and the modifications to the Purchase Agreement set forth herein shall be governed by and construed in accordance with the laws of The Commonwealth of Massachusetts. (b) On and after the date hereof, each reference in the Purchase Agreement to "this Agreement" or words of like import shall mean and be deemed to be a reference to the Purchase Agreement as amended hereby. (c) Except as amended and modified hereby, the Purchase Agreement respects ratified and confirmed as of the date hereof, and the terms, covenants and agreements therein shall remain in full force and effect. (d) This Amendment may be executed in counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. IN WITNESS WHEREOF, the parties have caused this Amendment to be duly executed as of the date and year first above written. CENTRAL VERMONT PUBLIC SERVICE CORPORATION By: /s/ Jonathan W. Booraem Title: Treasurer THE FIRST NATIONAL BANK OF BOSTON By: /s/ Rita M. Cahill Rita M. Cahill Title: Vice President Schedule 1.1 CENTRAL VERMONT PUBLIC SERVICE CORPORATION CERTAIN CUSTOMERS General Electric Co. SKI, Ltd. Grand Union Stores Wyeth Nutritionals Specialty Paperboard Eveready Battery Co. Stratton Corp. Vermont Castings Foundry Johnson Controls Inc. C&S Wholesale Grocers Mack Molding Jones & Lamson Corp. E.H.V. Industries Tambrands Inc. Rutland Hospital Luzenac America Zayre Middlebury College Price Chopper Cerosimo Lumber Co. EX-21 6 EXHIBIT 21.1 FOR FORM 10-K EXHIBIT 21.1 ------------ Subsidiaries of the Registrant ---------------------------------- State in Which Incorporated --------------- Connecticut Valley Electric Company Inc. (a) (F1) New Hampshire Vermont Electric Power Company, Inc. (b) (F2) Vermont C.V. Realty, Inc. (a) (F1) Vermont *Catamount Investment Corporation Vermont Central Vermont Public Service Corporation - Bradford Hydroelectric, Inc. (a) (F1) Vermont Catamount Energy Corporation (a) (F1) Vermont SmartEnergy Services, Inc. (a) (F1) Vermont - - - - - - - - - - - - - - - - - - - - - - - - - - - - * Dissolved in February, 1998. (FN) (F1) (a) Included in consolidated financial statements (F2) (b) Separate financial statements do not need to be filed under Regulation S-X, Rule 1-02 (v) defining a "significant subsidiary", and Rule 3-09, which sets forth the requirement for filing separate financial statements of subsidiaries not consolidated. EX-23 7 EXHIBIT 23.1 FOR FORM 10-K EXHIBIT 23.1 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation of our reports dated February 3, 1997 included in this Form 10-K, into Central Vermont Public Service Corporation's previously filed Registration Statements on Form S-8, File No. 33-22741, Form S-8, File No. 33-22742, Form S-8, File No. 33-58102, Form S-8, File No. 33-62100, and Form S-3, File No. 33-39691. ARTHUR ANDERSEN LLP Boston, Massachusetts March 27, 1998 EX-27 8 EXHIBIT 27 FOR FORM 10-K
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 YEAR DEC-31-1997 DEC-31-1997 PER-BOOK 321,646 60,161 72,204 77,929 0 531,940 65,987 45,295 75,841 187,123 19,000 8,054 93,099 0 0 0 24,271 0 17,223 1,094 182,076 531,940 304,732 7,573 278,523 286,096 18,636 8,221 26,857 9,706 16,340 2,028 14,312 12,608 8,040 41,866 1.25 1.25
EX-10 9 EXHIBIT 10.75.9 FOR FORM 10-K CENTRAL VERMONT PUBLIC SERVICE CORPORATION Eighth Amendment and Extension Agreement to Receivables Purchase Agreement This Eighth Amendment and Extension Agreement (this "Amendment") dated as of February 5, 1997, to Receivables Purchase Agreement dated as of November 29, 1988, as amended by Amendment Agreement No. 1 dated as of December 21, 1988, Letter Agreement dated November 27, 1989, Second Amendment and Extension Agreement dated as of November 29, 1990, Third Amendment and Extension Agreement dated as of November 29, 1991, Fourth Amendment and Extension Agreement dated as of November 29, 1992, Fifth Amendment and Extension Agreement dated as of November 29, 1993, Sixth Amendment and Extension Agreement dated as of November 29, 1994 and Seventh Amendment and Extension Agreement dated as of November 29, 1995 (as so amended, the "Purchase Agreement" between CENTRAL VERMONT PUBLIC SERVICE CORPORATION (the "Seller" and THE FIRST NATIONAL BANK OF BOSTON (the "Bank". Capitalized terms used herein but not defined shall have the meanings assigned to them in the Purchase Agreement. WHEREAS, the Seller and the Bank have executed the Purchase Agreement providing for the purchase from time to time by the Bank of an Undivided Interest in the Seller's right, title and interest in and to Eligible Accounts of the Seller, in amounts up to $12,000,000; and WHEREAS, pursuant to 2.1(b) of the Purchase Agreement, the Purchase Termination Date is scheduled to occur on the second anniversary of the Closing Date, as extended for one-year periods from time to time, currently extended to November 29, 1997; and WHEREAS, by means of a letter dated November 12, 1996 from the Seller to the Bank the Seller has requested that the Purchase Termination Date be extended for an additional one-year period beyond November 29, 1997, and the Bank is willing to so extend the Purchase Termination Date, on the terms and conditions contained herein; and WHEREAS, the Seller and the Bank wish to make certain other changes to the Purchase Agreement, on the terms and conditions contained herein; NOW, THEREFORE, the Bank and the Seller agree as follows: Section 1. Amendments to the Purchase Agreement. (a) Section 2.3(a)(ii) of the Purchase Agreement is hereby amended by deleting the percentage "1/2 of 1%" and substituting therefor the phrase "the Applicable Margin". (b) Section 2.7(a)(iii) of the Purchase Agreement is hereby amended by deleting the percentage ".20 of 1%" and substituting therefor the phrase "the Applicable Fee". (c) Section 10(e) of the Purchase Agreement is hereby amended by deleting said section in its entirety and substituting therefor the phrase "Intentionally omitted". (d) Exhibit A to the Credit Agreement is hereby amended by deleting the definition of "Purchase Commitment Amount" set forth therein and substituting therefor the following: "Purchase Commitment Amount - From and after December 31, 1995, $12,000,000." (e) Exhibit A to the Credit Agreement is hereby amended by inserting the following definitions where alphabetically appropriate: "Applicable Fee. Applicable to the determination of the Purchase Commitment Fee from time to time, the rate per annum set forth below based on the ratings assigned to the senior debt of the Seller by Standard & Poor's Corporation (or its successors and assigns) and by Duff & Phelps, Inc. (or its successors and assigns). The Applicable Fee shall change on the date of any public announcement of a change in rating by either ratings agency. If the ratings of the ratings agencies shall fall within different categories, the higher rating shall prevail for purposes of determining the Applicable Fee.
LEVEL STANDARD & POOR'S APPLICABLE FEE /DUFF & PHELPS ----- ----------------- -------------- I A- .10% II BBB+ .125% III BBB .15% IV BBB- .20% V BB .25% VI below BB .30%
"Applicable Margin. Applicable to the Undivided Interest owned by the Bank from time to time, the rate per annum set forth below based on the ratings assigned to the senior debt of the Seller by Standard & Poor's Corporation (or its successors and assigns) and by Duff & Phelps, Inc. (or its successors and assigns). The Applicable Margin shall change on the date of any public announcement of a change in rating by either ratings agency. If the ratings of the ratings agencies shall fall within different categories, the higher rating shall prevail for purposes of determining the Applicable Margin.
LEVEL STANDARD & POOR'S APPLICABLE FEE /DUFF & PHELPS ----- ----------------- -------------- I A- .25% II BBB+ .30% III BBB .375% IV BBB- .40% V BB .75% VI below BB 1.00%
(f) The Purchase Agreement is hereby amended by deleting Schedule 1.1 thereto and substituting therefor a new Schedule 1.1 in the form attached hereto as Schedule 1.1. Section 2. Extension of the Purchase Termination Date. The Bank hereby agrees that the Purchase Termination Date referred to in 2.1(b) of the Purchase Agreement shall be extended for an additional one-year period, such that the Purchase Termination Date shall now occur on November 29, 1998. Section 3. Representations and Warranties. The Seller represents and warrants as follows: (a) The execution and delivery of this Amendment and the performance by the Seller of the Purchase Documents as amended hereby are within the corporate powers of the Seller and have been duly authorized by all requisite corporate action by the Seller, do not contravene (i) the Seller's Articles of Association or by-laws or (ii) any law, rule, order, regulation or contractual restriction (including, without limitation, any restriction in the Indenture) binding on or affecting the Seller, and do not result in or require the creation of any lien, security interest or other charge or encumbrance upon or with respect to any of its properties. (b) No authorization or approval or other action by, and no notice to or filing with, any governmental authority or regulatory body is required for the due execution and delivery of this Amendment or the performance by the Seller of the Purchase Documents as amended hereby. (c) This Amendment and the Purchase Documents as amended hereby are the legal, valid and binding obligations of the Seller, enforceable against the Seller in accordance with their respective terms, except as limited by bankruptcy, insolvency, reorganization, moratorium or other laws affecting creditors' rights generally and by general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law). (d) The representations and warranties contained in 6 of the Purchase Agreement are true and correct as of the date hereof as though made on and as of the date hereof (except that references to financial statements in 6.5 of the Purchase Agreement shall be deemed to refer to the most recent financial statements delivered by the Seller thereunder). (e) No Termination Event or event that, with the giving of notice or passage of time or both would become a Termination Event, has occurred and is continuing. Section 4. Miscellaneous. (a) This Amendment and the modifications to the Purchase Agreement set forth herein shall be governed by and construed in accordance with the laws of The Commonwealth of Massachusetts. (b) On and after the date hereof, each reference in the Purchase Agreement to "this Agreement" or words of like import shall mean and be deemed to be a reference to the Purchase Agreement as amended hereby. (c) Except as amended and modified hereby, the Purchase Agreement is in all respects ratified and confirmed as of the date hereof, and the terms, covenants and agreements therein shall remain in full force and effect. (d) This Amendment may be executed in counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. IN WITNESS WHEREOF, the parties have caused this Amendment to be duly executed as of the date and year first above written. CENTRAL VERMONT PUBLIC SERVICE CORPORATION By: /s/ Jonathan W. Booraem Title: Treasurer THE FIRST NATIONAL BANK OF BOSTON By: /s/ Virginia Ryan Virginia Ryan Vice President Schedule 1.1 CENTRAL VERMONT PUBLIC SERVICE CORPORATION CERTAIN CUSTOMERS General Electric Co. Grand Union Stores Wyeth Nutritionals Specialty Paperboard Eveready Battery Co. Stratton Corp. Vermont Castings Killington Ltd. C&S Wholesale Mack Molding Ben & Jerry's EHV Industries Tambrands Inc. APC Paper The Rutland Hospital Fellows Cor Middlebury College Price Chopper Cerosimo Lumber Co. Hannaford Bros EX-10 10 EXHIBIT 10.75.10 FOR FORM 10-K CENTRAL VERMONT PUBLIC SERVICE CORPORATION Ninth Amendment and Extension Agreement to Receivables Purchase Agreement This Ninth Amendment and Extension Agreement (this "Amendment") dated as of February 2, 1998, to Receivables Purchase Agreement dated as of November 29, 1988, as amended by Amendment Agreement No. 1 dated as of December 21, 1988, Letter Agreement dated November 27, 1989, Second Amendment and Extension Agreement dated as of November 29, 1990, Third Amendment and Extension Agreement dated as of November 29, 1991, Fourth Amendment and Extension Agreement dated as of November 29, 1992, Fifth Amendment and Extension Agreement dated as of November 29, 1993, Sixth Amendment and Extension Agreement dated as of November 29, 1994 and Seventh Amendment and Extension Agreement dated as of November 29, 1995 and Eighth Amendment and Extension Agreement dated as of February 5, 1997 (as so amended, the "Purchase Agreement" between CENTRAL VERMONT PUBLIC SERVICE CORPORATION (the "Seller" and BANKBOSTON, N.A., successor to THE FIRST NATIONAL BANK OF BOSTON (the "Bank". Capitalized terms used herein but not defined shall have the meanings assigned to them in the Purchase Agreement. WHEREAS, the Seller and the Bank have executed the Purchase Agreement providing for the purchase from time to time by the Bank of an Undivided Interest in the Seller's right, title and interest in and to Eligible Accounts of the Seller, in amounts up to $12,000,000; and WHEREAS, pursuant to 2.1(b) of the Purchase Agreement, the Purchase Termination Date is scheduled to occur on the second anniversary of the Closing Date, as extended for one-year periods from time to time, currently extended to November 29, 1998; and WHEREAS, the Seller has requested that the Purchase Termination Date be extended for an additional one-year period beyond November 29, 1998, and the Bank is willing to so extend the Purchase Termination Date, on the terms and conditions contained herein; NOW, THEREFORE, the Bank and the Seller agree as follows: Section 1. Extension of the Purchase Termination Date. The Bank hereby agrees that the Purchase Termination Date referred to in 2.1(b) of the Purchase Agreement shall be extended for an additional one-year period, such that the Purchase Termination Date shall now occur on November 29, 1999. Section 2. Representations and Warranties. The Seller represents and warrants as follows: (a) The execution and delivery of this Amendment and the performance by the Seller of the Purchase Documents as amended hereby are within the corporate powers of the Seller and have been duly authorized by all requisite corporate action by the Seller, do not contravene (i) the Seller's Articles of Association or by-laws or (ii) any law, rule, order, regulation or contractual restriction (including, without limitation, any restriction in the Indenture) binding on or affecting the Seller, and do not result in or require the creation of any lien, security interest or other charge or encumbrance upon or with respect to any of its properties. (b) No authorization or approval or other action by, and no notice to or filing with, any governmental authority or regulatory body is required for the due execution and delivery of this Amendment or the performance by the Seller of the Purchase Documents as amended hereby. (c) This Amendment and the Purchase Documents as amended hereby are the legal, valid and binding obligations of the Seller, enforceable against the Seller in accordance with their respective terms, except as limited by bankruptcy, insolvency, reorganization, moratorium or other laws affecting creditors' rights generally and by general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law). (d) The representations and warranties contained in 6 of the Purchase Agreement are true and correct as of the date hereof as though made on and as of the date hereof (except that references to financial statements in 6.5 of the Purchase Agreement shall be deemed to refer to the most recent financial statements delivered by the Seller thereunder). (e) No Termination Event or event that, with the giving of notice or passage of time or both would become a Termination Event, has occurred and is continuing. Section 3. Miscellaneous. (a) This Amendment and the modifications to the Purchase Agreement set forth herein shall be governed by and construed in accordance with the laws of The Commonwealth of Massachusetts. (b) On and after the date hereof, each reference in the Purchase Agreement to "this Agreement" or words of like import shall mean and be deemed to be a reference to the Purchase Agreement as amended hereby. (c) Except as amended and modified hereby, the Purchase Agreement is in all respects ratified and confirmed as of the date hereof, and the terms, covenants and agreements therein shall remain in full force and effect. (d) This Amendment may be executed in counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. (e) The effectiveness of this Amendment is subject to The Bank's receipt of an amendment fee in the amount of one thousand dollars ($1,000). IN WITNESS WHEREOF, the parties have caused this Amendment to be duly executed as of the date and year first above written. CENTRAL VERMONT PUBLIC SERVICE CORPORATION By: /s/ Francis J. Boyle Title: Senior Vice President BANKBOSTON, N.A. By: /s/ Virginia Ryan Virginia Ryan Vice President EX-10 11 EXHIBIT 10.83 FOR FORM 10-K Execution Copy CREDIT AGREEMENT Dated as of November 5, 1997 among CENTRAL VERMONT PUBLIC SERVICE CORPORATION, THE LENDERS NAMED HEREIN and TORONTO DOMINION (TEXAS), INC., as Agent CREDIT AGREEMENT, dated as of November 5, 1997, among CENTRAL VERMONT PUBLIC SERVICE CORPORATION, a Vermont corporation (the "Borrower"), each of the lenders that is a signatory hereto or which, pursuant to Section 10.6 hereof shall become a "Lender" hereunder (the "Lenders"), FLEET NATIONAL BANK, as Syndication Agent, and TORONTO DOMINION (TEXAS), INC., as agent for the Lenders hereunder (the "Agent"). For good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged by each of the parties hereto, the parties hereto hereby agree as follows: ARTICLE I DEFINITIONS SECTION 1.1 Defined Terms. As used in this Agreement, the following terms shall have the following meanings: "ABR" shall mean, for any day, a rate per annum (rounded upwards, if necessary, to the next 1/16 of 1%) equal to the greater of (a) the Prime Rate in effect on such day or (b) the sum of (i) the Federal Funds Effective Rate in effect on such day plus (ii) .50%. For purposes hereof, "Prime Rate" shall mean the rate of interest per annum adopted from time to time by The Toronto-Dominion Bank at its principal office in New York City as the reference rate for the determination of interest rates for loans in Dollars of varying maturities to customers of varying creditworthiness and being quoted as its "prime rate" or "base rate" (the Prime Rate not being intended to be the lowest rate of interest charged by The Toronto-Dominion Bank in connection with extensions of credit), and "Federal Funds Effective Rate" shall mean, for any day, the weighted average of the rates on overnight federal funds transactions with members of the Federal Reserve System arranged by federal funds brokers, as published on the next succeeding Business Day by the Federal Reserve Bank of New York, or, if such rate is not so published for any day which is a Business Day, the average of the quotations for the day of such transactions received by the Agent from three federal funds brokers of recognized standing selected by the Agent. Any change in the ABR due to a change in the Prime Rate or the Federal Funds Effective Rate shall be effective as of the opening of business on the effective day of such change in the Prime Rate or the Federal Funds Effective Rate, respectively. "ABR Loans" shall mean any Revolving Loan bearing interest at a rate determined by reference to the ABR. "Administrative Questionnaire" means, with respect to each Lender, an administrative questionnaire in the form prepared by the Agent and submitted to the Agent (with a copy to the Borrower and the Agent) duly completed by such Lender. "Affiliate" shall mean, as to any Person, any other Person which, directly or indirectly, is in control of, is controlled by, or is under common control with, such Person. For purposes of this definition, "control" with respect to any Person means the power, directly or indirectly, to direct or cause the direction of the management and policies of such Person, whether by contract or otherwise. "Agency Fee" shall mean the agency fee payable by the Borrower to the Agent pursuant to the Fee Letter. "Agent" shall mean Toronto Dominion (Texas), Inc., a Delaware corporation, in its capacity as Agent hereunder, and any successor Agent named pursuant to Section 9.9. "Aggregate Commitment" shall mean as of any date, the aggregate Commitment of all Lenders. "Agreement" shall mean this Credit Agreement, as amended, supplemented or otherwise modified from time to time. "Applicable Lending Office" means, with respect to any Lender, (i) in the case of its Domestic Loans, its Domestic Lending Office, (ii) in the case of its Eurodollar Loans, its Eurodollar Lending Office, and (iii) in the case of its Auction Borrowings its Domestic Lending Office. "Applicable Margin" shall mean, for each Eurodollar Loan, the applicable rate per annum set forth below based on the respective Debt Rating: Debt Rating Applicable Margin ----------- ----------------- BB (or lower) 0.75% BB+ 0.50% BBB- 0.30% BBB 0.225% BBB+ 0.185% A- 0.15% A (or higher) 0.125% "Assignee" shall have the meaning specified in Section 10.6(c). "Auction Advance" means an advance by a Lender to the Borrower as part of an Auction Borrowing resulting from the auction bidding procedure described in Section 3.1. "Auction Borrowing" means a borrowing consisting of simultaneous Auction Advances from each of the Lenders whose offer to make one or more Auction Advances as part of such borrowing has been accepted by the Borrower under the auction bidding procedure described in Section 3.1. "Auction Note" means a promissory note of the Borrower payable to the order of any Lender, in substantially the form of Schedule 7 hereto, evidencing the indebtedness of the Borrower to such Lender resulting from an Auction Advance made by such Lender. "Available Commitment" shall mean, as to any Lender at any time, an amount equal to the excess, if any, of (a) such Lender's Commitment over (b) the aggregate principal amount of all Loans made by such Lender then outstanding. "Borrower" shall have the meaning specified in the first paragraph hereof. "Borrower's Senior Debt" shall mean the First Mortgage Bonds. "Borrowing Date" shall mean any Business Day specified in a notice pursuant to Section 2.2 or 3.1, as applicable, as a date on which the Borrower requests the Lenders to make Loans hereunder. "Business Day" shall mean any day other than a Saturday, Sunday or other day on which commercial banks in New York City or Houston, Texas are authorized or required by law to close; provided, however, that, when used in connection with a Eurodollar Loan, the term "Business Day" shall exclude any day on which banks are not open for dealings in Dollar deposits in the London interbank market. "Change of Control" means any of the following:(a) any person or group of persons (within the meaning of the Exchange Act) shall have the acquired beneficial ownership (within the meaning of Rule 13d-3 promulgated by the SEC under the Exchange Act) of 20% or more of the issued and outstanding shares of capital stock of the Borrower having the right to vote for the election of directors of the Borrower under ordinary circumstances; (b) during any period of twelve consecutive calendar months, individuals who at the beginning of such period constituted the board of directors of the Borrower (together with any new directors whose nomination for election by the stockholders of the Borrower was approved by a vote of at least two- thirds of the directors then still in office who either were directors at the beginning of such period or whose elections or nomination for election was previously so approved) cease for any reason other than death or disability to constitute a majority of the directors then in office; or (c) the Borrower shall cease to own and control all of the economic and voting rights associated with all of the outstanding capital stock (or the equivalent equity interest) of each of its Subsidiaries (including Catamount Energy Corporation), except any such capital stock (or the equivalent equity interest) held directly or indirectly by Catamount Energy Corporation. "Closing Date" shall mean the date on which the conditions precedent set forth in Section 5.1 shall be satisfied. "Code" shall mean the Internal Revenue Code of 1986, as amended from time to time. "Commitment" shall mean, as to any Lender, the obligation of such Lender to make Loans in an aggregate amount at any one time outstanding not to exceed the amount set forth opposite such Lender's name on Schedule 1. "Commitment Percentage" shall mean, as to any Lender at any time, the percentage which such Lender's Commitment then constitutes of the Aggregate Commitment(or, at any time after the Commitments shall have expired or terminated, the percentage which the aggregate principal amount of such Lender's Loans then outstanding constitutes of the aggregate principal amount of the Loans then outstanding). "Commitment Period" shall mean the period from and including the date hereof to but not including the Maturity Date or such earlier date on which the Commitments shall terminate as provided herein. "Consolidated Leverage Ratio" shall mean the ratio of Total Indebtedness to Total Capitalization of the Borrower and its Consolidated Subsidiaries. "Consolidated Subsidiaries" shall mean the wholly-owned Subsidiaries of the Borrower. "Debt Rating" shall mean the rating (or the equivalent) of the Borrower's Senior Debt by any two of the Rating Agencies, so long as at least one of the two is Standard & Poor's; provided that if a corporate credit rating (CCR in the case of Standard & Poor's) or unsecured long term debt rating is available from Standard & Poor's and at least one other Rating Agency, then "Debt Rating" shall mean such rating (or the equivalent) and the higher of such debt rating shall be used in determining the fee set forth in Section 2.3. "Default" shall mean any condition or event that constitutes an Event of Default or that with notice or lapse of time or both would, unless cured or waived, constitute an Event of Default. "Dollars" and "$" shall mean dollars in lawful currency of the United States of America. "Domestic Lending Office" means, as to each Lender, its office located at its address in the United States set forth in its Administrative Questionnaire (or identified in its Administrative Questionnaire as its Domestic Lending Office) or such other office as such Lender may hereafter designate as its Domestic Lending Office by notice to the Borrower and the Agent. "Domestic Loan" means ABR Loans. "Duff & Phelps" shall mean Duff & Phelps, Inc. or any successor thereto. "Employee Benefit Plan" shall mean an employee benefit plan within the meaning of ERISA Section 3(3) maintained, sponsored or contributed to by the Borrower or any ERISA Affiliate. "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as amended from time to time. "ERISA Affiliate" shall mean any corporation which is a member of the same controlled group of corporations (within the meaning of Section 414(b) of the Code) as the Borrower, or is under common control (within the meaning of Section 414(c) of the Code) with the Borrower. "Eurocurrency Reserve Percentage" shall mean for any day as applied to a Eurodollar Loan, the aggregate (without duplication) of the rates (expressed as a decimal fraction) of reserve requirements in effect on such day (including, without limitation, basic, supplemental, marginal and emergency reserves under any regulations of the Board of Governors of the Federal Reserve System or other Governmental Authority having jurisdiction with respect thereto) dealing with reserve requirements prescribed for eurocurrency funding (currently referred to as "Eurocurrency Liabilities" in Regulation D of such Board) maintained by a member bank of such System. "Eurodollar Base Rate" shall mean, with respect to any Eurodollar Borrowing for any Interest Period, an interest rate per annum (rounded upwards, if necessary, to the next 1/100 of 1%) equal to (a) LIBOR in effect for such Interest Period divided by (b) one minus the Reserve Percentage. For purposes hereof, the term "LIBOR" shall mean the rate per annum determined by the Agent as follows: (i) two Business Days prior to the commencement of such Interest Period, the Agent shall obtain the offered quotation(s) for U.S. Dollar deposits for a period comparable to such Interest Period that appear on the Reuter's Screen as of 11:00 a.m., London time, and if at least two such offered quotations appear on the Reuter's screen, LIBOR shall be the arithmetic average (rounded up to the nearest 1/100th of 1%) of such offered quotations, as determined by the Agent; and (ii) if the Agent is not able to obtain quotations for the determination of LIBOR pursuant to clause (i) above, LIBOR shall be the rate per annum which the Agent in good faith determines to be the arithmetic average (rounded as aforesaid) of the offered quotations for U.S. Dollar deposits in an amount comparable to the Agent's share of the relevant amount in respect to which LIBOR is being determined for a period comparable to the relevant Interest Period that leading banks in New York City selected by the Agent are quoting at 11:00 a.m., New York City time, two Business Days prior to the commencement of such Interest period in the New York interbank market to major international banks. "Eurodollar Lending Office" shall mean, as to each Lender, its office, branch or affiliate located at its address set forth in its Administrative Questionnaire (or identified in its Administrative Questionnaire as its Eurodollar Lending Office) or such office, branch or affiliate of such Lender as it may hereafter designate as Eurodollar Lending Office by notice to the Borrower and the Agent. "Eurodollar Loans" shall mean any Revolving Loan bearing interest at a rate determined by reference to the Eurodollar Rate. "Eurodollar Rate" shall mean with respect to each day during each Interest Period pertaining to a Eurodollar Loan, a rate per annum determined for such day in accordance with the following formula (rounded upward to the nearest 1/100th of 1%): Eurodollar Base Rate -------------------- 1.00 - Eurocurrency Reserve Percentage "Event of Default" shall mean any of the events specified in Article VIII. "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended. "Existing Letter of Credit Agreements" shall mean (i) that certain Letter of Credit and Reimbursement Agreement dated as of November 1, 1994 between the Borrower and the Agent, as amended; (ii) that certain Amended and Restated Reimbursement Agreement, dated as of September 24, 1992 between the Borrower and the Agent, as amended; and (iii) that certain Reimbursement Agreement dated as of April 29, 1993 between the Borrower and the Agent as amended. "Federal Funds Effective Rate" shall have the meaning specified in the definition of "ABR". "Fee Letter" shall mean the letter, dated the Closing Date, from the Agent addressed to and accepted by the Borrower. "Fees" shall mean, collectively, the fees referred to in Sections 2.3(a), 2.3(b) and 2.3(c). "Financing Lease" shall mean any lease of property, real or personal, the obligations of the lessee in respect of which are required in accordance with GAAP to be capitalized on a balance sheet of the lessee. "First Mortgage Bonds" means the first mortgage bonds of the Borrower issued and delivered under (i) the Indenture of Mortgage dated as of October 1, 1929, between the Borrower and State Street Bank and Trust Company, as successor trustee to The First National Bank of Boston, as successor trustee to Old Colony Trust Company, as heretofore and hereafter amended and supplemented and (ii) any other mortgage, secured indenture or deed of trust existing on the Closing Date as the same may be heretofore and hereafter amended and supplemented. "Fitch" shall mean Fitch Investors Service, L.P. or any successor thereto. "GAAP" shall mean generally accepted accounting principles in the United States of America in effect from time to time. "Governmental Approvals" shall mean an authorization, consent, approval, license or exemptions of, registration, or filing with, or report to, any Governmental Authority. "Governmental Authority" shall mean any nation or government, any state or other political subdivision thereof and any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government. "Indebtedness" shall mean with respect to any Person at any date, the aggregate of (i)(a) all indebtedness of such Person for borrowed money or for the deferred purchase price of property or services (other than current trade liabilities incurred in the ordinary course of business and payable in accordance with customary practices), (b) any other indebtedness of such Person which is evidenced by a note, bond, debenture or similar instrument, and (c) all obligations of such Person under Financing Leases, less (ii) any such Indebtedness that is non-recourse to the Borrower. "Interest Payment Date" shall mean (a) as to any ABR Loan, the last day of each March, June, September and December to occur while such Loan is outstanding, (b) as to any Eurodollar Loan or Auction Borrowing having an Interest Period of three months or less, the last day of such Interest Period, and (c) as to any Eurodollar Loan or Auction Borrowing having an Interest Period longer than three months, each day which is three months, or a whole multiple thereof, after the first day of such Interest Period, and the last day of such Interest Period. "Interest Period" shall mean (i) with respect to any Eurodollar Loan: (a) initially, the period commencing on the borrowing or conversion date, as the case may be, with respect to such Eurodollar Loan and ending one, two, three, six, nine and, if available, twelve months thereafter, as selected by the Borrower in its notice of borrowing or notice of conversion, as the case may be, given with respect thereto; and (b) thereafter, each period commencing on the last day of the next preceding Interest Period applicable to such Eurodollar Loan and ending one, two, three, six, nine and, if available, twelve months thereafter, as selected by the Borrower by irrevocable notice to the Agent not less than three Business Days prior to the last day of the then current Interest Period with respect thereto; provided that, the foregoing provisions relating to Interest Periods are subject to the following: (1) if any Interest Period would otherwise end on a day that is not a Business Day, such Interest Period shall be extended to the next succeeding Business Day unless the result of such extension would be to carry such Interest Period into another calendar month in which event such Interest Period shall end on the immediately preceding Business Day; (2) any Interest Period that would otherwise extend beyond the Maturity Date shall end on the Maturity Date; and (3) any Interest Period that begins on the last Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period) shall end on the last Business Day of a calendar month. "Lenders" shall have the meaning specified in the first paragraph hereof. "LIBOR" shall have the meaning specified in the definition of "Eurodollar Base Rate." "Lien" shall mean any mortgage, pledge, hypothecation, assignment, deposit arrangement, encumbrance, lien (statutory or other), charge or other security interest or any preference, priority or other security agreement or preferential arrangement of any kind or nature whatsoever (including, without limitation, any conditional sale or other title retention agreement and any Financing Lease having substantially the same economic effect as any of the foregoing). "Loan" shall mean as to any Lender the amount from time to time advanced hereunder by such Lender to the Borrower pursuant to the Commitments as either a Revolving Loan or an Auction Borrowing. "Loan Borrowing Certificate" shall have the meaning specified in Section 5.2(c). "Loan Documents" shall mean this Agreement, the Notes, the Loan Borrowing Certificates, the Fee Letter and any other document or agreement executed in connection herewith or contemplated hereby. "Maturity Date" shall mean 364 days from the Closing Date, unless extended as provided in Section 2.6(b) or Section 2.6(c), in which case the Maturity Date shall mean the third, fourth or fifth anniversary of the Closing Date, as the case may be. "Moody's" shall mean Moody's Investors Service, Inc. or any successor thereto. "Multiemployer Plan" shall have the meaning set forth in Section 4001(a)(3) of ERISA. "Notes" shall mean the Revolving Loan Notes or any Auction Notes. "Notice of Auction Borrowing" shall have the meaning set forth in Section 3.1(a)(i), and to the extent such notice is given in writing, shall be in a form substantially similar to Schedule 5 hereto. "Notice to Borrower of Auction Offer" shall have the meaning set forth in Section 3.1(a)(ii). "Participant" shall have the meaning specified in Section 10.6(b). "PBGC" shall mean the Pension Benefit Guaranty Corporation established pursuant to Subtitle A of Title IV of ERISA. "Pension Plan" shall mean, at any time, any Employee Benefit Plan (including a Multiemployer Plan), the funding requirements of which (under ERISA Section 302 or Code Section 412) are, or at any time within the six years immediately preceding the time in question, were in whole or in part, the responsibility of the Borrower or an ERIS Affiliate. "Permitted Liens" shall mean: (a) Liens securing the Borrower's Senior Debt; (b) Purchase money Liens or purchase money security interests upon or in any property acquired or held by the Borrower or any Subsidiary in the ordinary course of business to secure the purchase price of such property or to secure indebtedness incurred solely for the purpose of financing the acquisition of such property; (c) Liens or security interests existing on the property described in the immediately preceding subsection (b) property at the time of its acquisition; (d) Liens, security interests, charges or encumbrances on or over the Borrower's joint ownership interests in the Millstone #3 nuclear generating facility, the Joseph C. McNeil Plant and the Highgate Interconnection Facility or any portion thereof, or any facilities or properties associated with such generating and transmission facilities or nuclear fuel or other fuel, in any stage, for use in or with such facilities; (e) Including those granted by the Borrower pursuant to that certain Receivables Purchase Agreement dated as of November 29, 1988 between the Borrower and BankBoston, N.A.,as successor to The First National Bank, as now or hereafter amended from time to time (such being Permitted Liens hereunder), security interests granted in, or sale of, the Borrower's accounts receivable, provided that such security interests secure only new debt incurred at substantially the same time as the creation of such security interests and provided, further, that any such sale is made only for new consideration given at substantially the same time as the making of such sale; (f) A second mortgage granted on the property subject to the Borrower's Senior Debt; (g) Sales or transfers of property by the Borrower and the subsequent renting or leasing of such property; provided that the book value of all such property in the aggregate does not exceed fifteen percent (15%) of the book value of the Borrower's total assets; (h) Liens on all or any part of the Borrower's or its Subsidiaries' assets or undertakings employed wholly or primarily in, or arising directly from, any individual energy-related investment or project to secure (A) an obligation of the Borrower or (B) an obligation of a Subsidiary of the Borrower which is non-recourse to the Borrower, as the case may be, incurred for the purpose of financing all or any part of such energy-related investment or project; (i) Liens imposed by law, such as materialmen's, mechanics', carriers', workmen's, and repairmen's Liens and other similar Liens arising in the ordinary course of business securing obligations which are not overdue for a period of more than thirty (30) days or which are being contested in good faith in an appropriate forum the aggregate amounts of which do not exceed $50,000; (j) The interest of the Citizens Bank New Hampshire, formerly known as First NH Bank, following approval of the New Hampshire Public Utilities Commission, in a so-called restricted cash collateral account of the Borrower's New Hampshire subsidiary, Connecticut Valley Electric Company, Inc., upon the occurrence of an event of default under the $3.75 million Loan Agreement, dated December 27, 1994, as amended pursuant to an Amendment thereto dated as of June 17, 1996, each between Citizens Bank New Hampshire, formerly known as First NH Bank and Connecticut Valley Electric Company, Inc., and as the same may be extended or renewed. "Person" shall mean an individual, partnership, corporation, business trust, joint stock company, trust, unincorporated association, joint venture, limited liability company, Governmental Authority or other entity of whatever nature. "Prime Rate" shall have the meaning specified in the definition of "ABR". "Rating Agencies" shall mean Duff & Phelps, Fitch, Moody's or Standard & Poor's. "Reportable Event" shall have the meaning set forth in Title IV of ERISA. "Required Lenders" shall mean, at any time, Lenders the Commitment Percentages of which aggregate at least 64 1/2%, provided, however, that in case any Lender shall have become a non-performing Lender as defined in Section 2.5(b) hereof, such aggregate percentage shall be determined by subtracting the Commitment Percentage of the Lender (the "Largest Lender") having the largest Commitment Percentage from 99.5%. The foregoing notwithstanding, however, if the Commitment Percentage of the Largest Lender shall be greater than 50%, the Largest Lender alone may constitute the Required Lenders. "Requirement of Law" shall mean, as to any Person, the certificate of incorporation and by-laws or other organizational or governing documents of such Person, and any law, treaty, rule or regulation or determination of an arbitrator or a court or other Governmental Authority, in each case applicable to or binding upon such Person or any of its property or to which such Person or any of its property is subject. "Responsible Officer" shall mean the Chief Financial Officer, the President, the Treasurer, an Assistant Treasurer, any Vice President in charge of financial or accounting matters or the principal accounting officer of the Borrower or any employee authorized by the Chief Financial Officer, the President or the Treasurer of the Borrower pursuant to a letter to the Agent in substantially the form of Schedule 6 hereto. "Revolving Loans" shall have the meaning specified in Section 2.1. "Revolving Loan Note" shall have the meaning specified in Section 2.8. "SEC" shall mean the Securities and Exchange Commission or any successor thereto. "Standard & Poor's" shall mean Standard & Poor's Ratings Group, a division of McGraw-Hill, Inc., or any successor thereto. "Subsidiary" shall mean, as to any Person, any corporation or other entity of which at least a majority of the securities or other ownership interest having ordinary voting power (absolutely or contingently) for the election of directors or other Persons performing similar functions are at the time owned directly or indirectly by such Person. "Taxes" shall have the meaning specified in Section 2.14. "Termination Event" shall mean (a) a Reportable Event described in Section 4043 of ERISA and the regulations issued thereunder (other than a Reportable Event not subject to the provision for 30-day notice to the PBGC under such regulations), or (b) the withdrawal of the Borrower or any of its ERISA Affiliates from a Plan during a plan year in which it was a "substantial employer" as defined in Section 4001(a)(2) of ERISA, or (c) the filing of a notice of intent to terminate a Plan or the treatment of a Plan amendment as a termination under Section 4041 of ERISA, or (d) the institution of proceedings to terminate a Plan by the PBGC or to appoint a trustee to administer any Plan. "Total Capitalization" shall mean, at any date of determination, the sum of (a) Total Indebtedness, (b) equity of the common stockholders of the Borrower, (c) equity of the preference stockholders of the Borrower, if any, and (d) equity of the preferred stockholders of the Borrower, if any, in each case determined at such date. "Total Indebtedness" shall mean, at any date of determination, the aggregate Indebtedness of the Borrower and the Consolidated Subsidiaries. "Transferee" shall have the meaning specified in Section 10.6(e). "Type" shall mean, as to any Revolving Loan, its nature as an ABR Loan or a Eurodollar Loan. "Unfunded Pension Liabilities" shall mean with respect to any Pension Plan at any time, the amount determined by taking the accumulated benefit obligation, as disclosed in accordance with Statement of Accounting Standards No. 87, "Employers' Accounting for Pensions", over the fair market value of Pension Plan assets. "Yield" shall mean for any Auction Advance, the effective rate per annum at which interest on such Auction Advance is payable, computed on the basis of a year of 360 days for the actual number of days (including the first day but excluding the last day) occurring in the period for which such interest is payable. SECTION 1.2 Other Definitional Provisions. (a) Each definition of an agreement or other document in this Article I shall include such agreement or document as amended or otherwise modified from time to time. (b) Unless otherwise specified therein, all terms defined in this Agreement shall have their respective defined meanings when used in any other Loan Documents or other document made or delivered pursuant hereto. (c) As used herein and in any Notes or other document made or delivered pursuant hereto, accounting terms not otherwise defined in Section 1.1 shall have the respective meanings given to them under GAAP. (d) The meanings given to terms defined herein shall be equally applicable to both the singular and plural forms of such terms; words of the masculine gender shall mean and include correlative words of the feminine and neuter genders. (e) The words "hereof", "herein" and "hereunder" and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision. (f) Article, Section, Schedule and Exhibit references are to the corresponding Article, Section, Schedule or Exhibit to this Agreement unless otherwise specified. (g) Any headings preceding the texts of the several Articles, Sections and the table of contents of this Agreement shall be solely for convenience of reference, and shall not constitute a part of this Agreement nor affect its meaning. ARTICLE II AMOUNT AND TERMS OF COMMITMENTS SECTION 2.1 Revolving Loans. (a) Subject to the terms and conditions hereof, each Lender severally agrees to make revolving credit loans ("Revolving Loans") to the Borrower from time to time during the Commitment Period in an aggregate principal amount at any one time outstanding, not to exceed the amount of such Lender's Commitment. During the Commitment Period the Borrower may use the Commitments by borrowing, prepaying in whole or in part, and reborrowing the Revolving Loans, all in accordance with the terms and conditions hereof. (b) The Revolving Loans may from time to time be (i) Eurodollar Loans, (ii) ABR Loans or (iii) a combination thereof, as determined by the Borrower and notified to the Agent in accordance with Sections 2.2 and 2.10; provided that no Revolving Loan shall be made as a Eurodollar Loan after the day that is one month prior to the Maturity Date. SECTION 2.2 Procedure for Revolving Loans. The Borrower may borrow under the Commitments during the Commitment Period on any Business Day; provided that the Borrower shall give the Agent irrevocable notice (which notice must be received by the Agent prior to 12:00 Noon, New York City time, (a) three Business Days prior to the requested Borrowing Date, if all or any part of the requested Revolving Loans are to be initially Eurodollar Loans, or (b) one Business Day prior to the requested Borrowing Date, if all of the requested Revolving Loans are to be ABR Loans), specifying (i) the amount to be borrowed, (ii) the requested Borrowing Date, (iii) whether the borrowing is to be of Eurodollar Loans, ABR Loans or a combination thereof and (iv) if the borrowing is to be entirely or partly of Eurodollar Loans, the respective amounts of such Type of Loan and the length of the initial Interest Periods therefor. Each borrowing under the Commitments shall be in an amount equal to a minimum amount of $100,000 and integral multiples of $25,000 in excess thereof. Upon receipt of any such notice from the Borrower, the Agent shall promptly notify each Lender thereof. Each Lender will make the amount of its pro rata share of each borrowing available to the Agent for the account of the Borrower at the office of the Agent specified in Section 10.2 prior to 11:00 A.M., New York City time, on the Borrowing Date requested by the Borrower in funds immediately available to the Agent. Such borrowing will then be made available to the Borrower by the Agent by wire transfer of immediately available funds to the Borrower's account with the Agent and otherwise in accordance with the wire transfer instructions specified in the applicable Loan Borrowing Certificate. Notwithstanding the provisions of clause (b) in the preceding paragraph, in the event that the offered amounts set forth on each Notice to Borrower of Auction Offer submitted by the Lenders pursuant to Section 3.1(a)(ii) below are, in the aggregate, in an amount less than the principal amount requested by the Borrower in the related Notice of an Auction Borrowing (whether given verbally or otherwise), then the Borrower may request an ABR Loan in the amount of the difference between accepted Auction Offers and the principal amount requested by Borrower in the related Notice of Auction Borrowing, by giving the Agent notice as provided above, no later than 12:00 Noon (New York City time) on the date of such requested borrowing. SECTION 2.3 Fees. (a) The Borrower agrees to pay to the Agent for the account of each Lender a facility fee, computed at the per annum rate indicated below based on the Debt Rating on the amount of the Commitment of such Lender in effect on the first Business Day of the fiscal quarter in which such fee is payable (or with respect to the first such payment, as in effect on the date hereof), computed on the basis of the actual number of days elapsed over a year of 365 or 366 days, as the case may be, payable quarterly in arrears on the last day of each March, June, September and December and on the Maturity Date or such earlier date as the Commitments shall terminate as provided herein, commencing on the first of such dates to occur after the date hereof: Debt Rating Facility Fee ----------- ------------ BB (or lower) 0.375% BB+ 0.300% BBB- 0.200% BBB 0.15% BBB+ 0.125% A- 0.100% A (or higher) 0.075% (b) The Borrower agrees to pay to the Agent for its own account on the Closing Date and each anniversary thereof, the Agency Fee. (c) If, and only for so long as, the aggregate principal amount of all Loans outstanding shall exceed 50% of the Aggregate Commitment, the Borrower shall pay to the Lenders a usage fee by increasing the rate of interest otherwise payable hereunder and under the Notes in respect of such Loans by 0.125% per annum. (d) Except in the case of the fee described in Section 2.3(b), all Fees shall be paid on the dates due, in immediately available funds, to the Agent for distribution, if and as appropriate, on a prorata basis among the Lenders. Once paid, none of the Fees shall be refundable under any circumstances. SECTION 2.4 Interest Rates and Payment Dates. (a) Subject to the provisions of Sections 2.3(c) and 2.4(c), each ABR Loan shall bear interest at a rate per annum (computed on the basis of the actual number of days elapsed over a year of 365 or 366 days, as the case may be) equal to the ABR. (b) Subject to the provisions of Sections 2.3(c), 2.4(c) and 2.11, each Eurodollar Loan shall bear interest (computed on the basis of the actual number of days elapsed over a year of 360 days) at a rate per annum equal to the Eurodollar Rate for the Interest Period in effect for such Eurodollar Loan plus the Applicable Margin. (c) If all or a portion of the principal amount of any Loan, any interest payable thereon or any Fee or other amount payable hereunder shall not be paid when due (whether at the stated maturity, by acceleration or otherwise), such overdue amount shall bear interest at a rate per annum which is (i) in the case of overdue principal, the rate that otherwise would be applicable thereto pursuant to the foregoing provisions of Section 2.3(c) and this Section 2.4 plus 2%, or (ii) in the case of overdue interest or Fees or other amounts, the rate described in Section 2.4(a) plus 2%, in each case from the date of such nonpayment until such amount is paid in full (as well after as before judgment). Overdue interest shall be compounded and bear interest on each date for payment of interest on ABR Loans hereunder. (d) Interest shall be payable in arrears on each Interest Payment Date; provided that interest accruing on overdue amounts pursuant to Section 2.4(c) shall be payable on demand. (e) As soon as practicable, the Agent shall notify the Borrower and the Lenders of (i) each determination of a Eurodollar Rate and (ii) the effective date and the amount of each change in the interest rate on a Revolving Loan. Each determination of an interest rate by the Agent pursuant to any provision of this Agreement shall be conclusive and binding on the Borrower and the Lenders in the absence of clearly demonstrable error. At the request of the Borrower, the Agent shall deliver to the Borrower a statement showing the quotations used by the Agent in determining any interest rate pursuant to paragraph 2.4(a) or 2.4(b). SECTION 2.5 Pro Rata Treatment. (a) Subject to the provisions of Section 3.1 in respect of Auction Borrowings, each borrowing by the Borrower from the Lenders hereunder and any reduction of the Commitments of the Lenders shall be made pro rata according to the Lenders' respective Commitment Percentages. Each payment (including each prepayment) by the Borrower on account of principal of and interest on the Loans shall be made pro rata according to the respective outstanding principal amounts of the Loans then held by the Lenders. (b) Unless the Agent shall have been notified in writing by any Lender prior to a Borrowing Date in respect of a Revolving Loan that such Lender will not make available to the Agent the amount that would constitute its Commitment Percentage of the Revolving Loan to be made on such date, the Agent may assume that such Lender has made such amount available to the Agent on such Borrowing Date, and the Agent may, in reliance upon such assumption, make available to the Borrower a corresponding amount. If such amount is not made available to the Agent by any Lender (a "non-performing Lender") at or before the required time on such Borrowing Date, such non-performing Lender shall pay to the Agent, on demand, such amount, with interest thereon at a rate equal to the daily average Federal Funds Effective Rate for the period from and including such Borrowing Date to the date such non-performing Lender makes such amount immediately available to the Agent. A certificate of the Agent submitted to any non-performing Lender with respect to any amounts owing under this Section 2.5(b) shall be conclusive in the absence of clearly demonstrable error. If such non-performing Lender's Commitment Percentage of such borrowing is not made available to the Agent within three Business Days of such Borrowing Date, the Agent also shall be entitled to recover such amount from the Borrower, on demand, together with interest thereon from the date such amount was made available to the Borrower at the interest rate applicable to such borrowing, provided that in such event the Borrower may request one or more additional borrowings from the other Lenders to fund such payment from the Borrower to the Agent and, within the limits of each such Lender's Available Commitment and subject to the breakdown set forth in the provision to the first sentence of Section 2.1(a), the other Lenders shall honor such request. If a non-performing Lender shall then repay to the Agent such amount in full (including interest thereon as above provided), (i) the Agent shall apply such corresponding amount and interest to reduce the additional borrowings made by such other Lenders and (ii) such amount so repaid shall be deemed to constitute such non-performing Lender's advance made as part of such borrowing as if funded concurrently with the funds provided by the other Lenders (and such Lender shall cease to be a non-performing Lender). If and so long as a non-performing Lender shall not repay such amount, all computations by the Agent with respect to commitments and percentages hereunder shall be made without regard to the unfunded Commitment of such non-performing Lender. The failure of any Lender to fund its Commitment as part of any borrowing shall not relieve any other Lender of its obligation, if any, to fund its own Commitment hereunder, but no Lender shall be responsible for the failure of any other Lender to fund its Commitment on the date of any borrowing hereunder. Nothing contained herein shall in any way limit, waive or otherwise reduce any claims that any party hereto may have against any non-performing Lender. SECTION 2.6 Repayment of Loans; Term. (a) The Borrower hereby unconditionally promises to pay to the Agent for the account of each Lender the then unpaid principal amount of each Loan of such Lender on the Maturity Date (or such earlier date on which the Loans become due and payable pursuant to Article VIII). The Borrower hereby further agrees to pay interest on the unpaid principal amount of the Loans from time to time outstanding until payment in full thereof at the rates per annum, and on the dates, as provided in Section 2.4. (b) If on or prior to the date which is 300 days following the Closing Date, the Borrower has delivered to the Agent a request to extend the Maturity Date to the third Anniversary of the Closing Date together with evidence reasonably satisfactory to the Agent, including without limitation an opinion of counsel to the Borrower (which opinion shall be from counsel and in a form reasonably acceptable to the Agent), that the Borrower has received all required Governmental Approvals to extend the Maturity Date of this Agreement to the third anniversary of the Closing Date and to provide for two one-year extensions as provided in subsection (c) below, and the Agent acknowledges in writing its satisfaction to the foregoing, the Maturity Date shall be automatically extended to the third anniversary of the Closing Date. (c) If the original Maturity Date is extended pursuant to subsection (b) above, so long as (i) no Default or Event of Default has occurred and is continuing and (ii) there has been no material adverse change in the business or financial condition of the Borrower since the Closing Date, and the Borrower has delivered to the Agent such evidence thereof as the Agent may reasonably request, then upon each of the third and fourth anniversaries of the Closing Date, the Borrower may, at its option, subject to the approval of all of the Lenders, extend the Maturity Date for an additional one-year period. SECTION 2.7 Payments. (a) All payments (including prepayments) made by the Borrower hereunder and under the Notes, whether on account of principal, interest, Fees or otherwise, shall be made without set off or counterclaim and shall be made prior to 3:00 P.M., New York City time, on the due date thereof to the Agent, for the account of the Lenders, at the Agent's office specified in Section 10.2, in Dollars and in immediately available funds. The Agent shall distribute such payments to the Lenders promptly upon receipt in like funds as received. (b) If any principal payment hereunder (other than payments on Eurodollar Loans) becomes due and payable on a day other than a Business Day, such payment date shall be extended to the next succeeding Business Day, and interest thereon shall be payable at the then applicable rate during such extension. If any payment on a Eurodollar Loan becomes due and payable on a day other than a Business Day, the maturity thereof shall be extended to the next succeeding Business Day unless the result of such extension would be to extend such payment into another calendar month, in which event such payment shall be made on the immediately preceding Business Day. SECTION 2.8 Revolving Loan Note. The Revolving Loans made by each Lender shall be evidenced by a promissory note of the Borrower payable to the order of such Lender, substantially in the form of Schedule 2 hereto appropriately completed (a "Revolving Loan Note"). Each Lender shall, and is hereby authorized by the Borrower to, endorse on the schedule attached to each Revolving Loan Note (or on a continuation of such schedule) or otherwise to record in such Lender's internal records, an appropriate notation evidencing the date and amount of each Revolving Loan from such Lender, each payment and prepayment of principal of such Revolving Loan and the other information provided for on such schedule; provided, however, that the failure of any Lender to make such notation or any error therein shall not affect any obligation of the Borrower to repay the Revolving Loans made by such Lender in accordance with the terms of this Agreement and the Notes or any other obligation of the Borrower hereunder. SECTION 2.9 Optional Prepayments. (a) Subject to subsection (b) hereof, the Borrower may at any time and from time to time prepay the Loans, in whole or in part, without premium or penalty (other than as provided in Section 2.15), upon at least five Business Days' irrevocable notice to the Agent for Eurodollar Loans and two Business Days' irrevocable notice to the Agent for ABR Loans, specifying the date and amount of prepayment and whether the prepayment is of Eurodollar Loans, ABR Loans or a combination thereof, and, if of a combination thereof, the amount allocable to each. Upon receipt of any such notice the Agent shall promptly notify each Lender thereof. If any such notice is given, the amount specified in such notice shall be due and payable on the date specified therein, together with any amounts payable pursuant to Section 2.15 and accrued interest to such date on the amount prepaid. (b) The Borrower may not prepay any Auction Borrowing, except as set forth in Section 3.l(d). SECTION 2.10 Conversion and Continuation Options. The Borrower shall have the right at any time upon prior irrevocable notice to the Agent (i) not later than 12:00 Noon, New York City time, one Business Day prior to conversion, to convert any Eurodollar Loan to an ABR Loan, (ii) not later than 12:00 Noon, New York City time, three Business Days (provided such Business Days are days on which dealings in foreign currencies and exchanges between banks may be carried on in London) prior to conversion or continuation, to convert any ABR Loan into a Eurodollar Loan or to continue any Eurodollar Loan as a Eurodollar Loan for any additional Interest Period, and (iii) not later than 12:00 Noon, New York City time, three such Business Days prior to conversion, to convert the Interest Period with respect to any Eurodollar Loan to another permissible Interest Period subject in each case to the following: (a) a Eurodollar Loan may not be converted at a time other than the last day of the Interest Period applicable thereto; (b) any portion of a Loan maturing or required to be repaid in less than one month may not be converted into or continued as a Eurodollar Loan; (c) no Eurodollar Loan may be continued as such and no ABR Loan may be converted to a Eurodollar Loan when any Event of Default has occurred and is continuing and the Agent or the Required Lenders have determined that such a continuation is not appropriate (the Borrower shall provide, in addition to the notice specified in Section 2.10, upon the request of the Agent or the Required Lenders, certification that no such Event of Default has occurred and is continuing); (d) any portion of a Eurodollar Loan that cannot be converted into or continued as a Eurodollar Loan by reason of Section 2.10(b) or 2.10(c) automatically shall be converted at the end of the Interest Period in effect for such Loan to an ABR Loan; (e) on the last day of any Interest Period for Eurodollar Loans if the Borrower has failed to give notice of conversion or continuation as described in this Section 2.10 or if such conversion or continuation is not permitted pursuant to Section 2.10(d), such Loans shall be converted to ABR Loans on the last day of such then expiring Interest Period. Accrued interest on a Loan (or portion thereof) being converted shall be paid by the Borrower at the time of conversion. All borrowings, conversions and continuations of Loans hereunder and all selections of Interest Periods hereunder shall be in such amounts and be made pursuant to such elections so that, after giving effect thereto, the aggregate principal amount of the Eurodollar Loans shall be at least equal to $100,000 or a whole multiple of $25,000 in excess thereof. In no event shall there be Eurodollar Loans with more than six Interest Periods outstanding at any time. SECTION 2.11 Inability to Determine Interest Rate. If prior to the first day of any Interest Period: (a) the Agent shall have determined (which determination shall be conclusive and binding upon the Borrower) that, by reason of circumstances affecting the relevant market, adequate and reasonable means do not exist for ascertaining the Eurodollar Rate for such Interest Period, or (b) the Agent shall have received notice from the Required Lenders that the Eurodollar Rate determined or to be determined for such Interest Period will not adequately and fairly reflect the cost to such Lenders (as conclusively certified by such Lenders) of making or maintaining their affected Loans during such Interest Period, or (c) Dollar deposits in the principal amounts of Eurodollar Loans to which such Interest Period is to be applicable are not generally available in the London Interbank Market, the Agent shall give telecopy or telephonic notice thereof to the Borrower and the Lenders as soon as practicable thereafter. If such notice is given (x) any Eurodollar Loans requested to be made on the first day of such Interest Period shall be made as ABR Loans, (y) any Loans that were to have been converted on the first day of such Interest Period to Eurodollar Loans shall be converted to or continued as ABR Loans and (z) any outstanding Eurodollar Loans shall be converted, on the first day of such Interest Period, to ABR Loans. Until such notice has been withdrawn by the Agent, no further Eurodollar Loans shall be made or continued as such, nor shall the Borrower have the right to convert Loans to Eurodollar Loans. SECTION 2.12 Change in Legality. Notwithstanding any other provision herein, if the adoption of or any change in any Requirement of Law or in the interpretation or application thereof shall make it unlawful for any Lender to make or maintain Eurodollar Loans or Auction Borrowing as contemplated by this Agreement, (a) the commitment of such Lender hereunder to make Eurodollar Loans, continue Eurodollar Loans as such and convert ABR Loans to Eurodollar Loans shall forthwith be canceled and (b) such Lender's Loans then outstanding as Eurodollar Loans, if any, shall be converted automatically to ABR Loans on the respective last days of the then current Interest Periods with respect to such Loans or within such earlier period as required by law. If any such conversion of a Eurodollar Loan or Auction Borrowing occurs on a day which is not the last day of the then current Interest Period with respect thereto, the Borrower shall pay to such Lender such amounts, if any, as may be required pursuant to Section 2.15. SECTION 2.13 Increased Costs. (a) If the adoption of or any change in any Requirement of Law or in the interpretation or application thereof or compliance by any Lender with any request or directive (whether or not having the force of law) from any central bank or other Governmental Authority made subsequent to the date hereof: (i) shall subject any Lender or any Participant to any tax of any kind whatsoever with respect to this Agreement, any Note, any Auction Borrowing, or any Eurodollar Loan, or change the basis of taxation of payments to such Lender in respect thereof (except for Taxes covered by Section 2.14 and changes in the rate of tax on the overall net income of such Lender); (ii) shall impose, modify or hold applicable any reserve, special deposit, compulsory loan or similar requirement against assets held by, deposits or other liabilities in or for the account of, advances, loans or other extensions of credit by, or any other acquisition of funds by, any office of such Lender which is not otherwise included in the determination of the Eurodollar Rate hereunder; or (iii) shall impose on such Lender any other condition; and the result of any of the foregoing is to increase the cost to such Lender or Participant, by an amount which such Lender deems to be material, of making, converting into, continuing or maintaining Eurodollar Loans or to reduce any amount receivable hereunder in respect thereof, then, in any such case, the Borrower shall promptly pay such Lender or such Participant, as the case may be, upon its demand, such additional amount or amounts as will compensate it for such increased cost or reduced amount receivable. (b) If any Lender or any Participant shall have determined that the adoption of or any change in any Requirement of Law regarding capital adequacy or in the interpretation or application thereof or compliance by such Lender or such Participant, as the case may be, or any corporation controlling such Person with any request or directive regarding capital adequacy (whether or not having the force of law) from any Governmental Authority made subsequent to the date hereof shall have the effect of reducing the rate of return on such Person's or such corporation's capital as a consequence of its obligations hereunder or to a level below that which such Person or such corporation could have achieved but for such adoption, change or compliance (taking into consideration such Person's or such corporation's policies with respect to capital adequacy) by an amount deemed by such Person to be material, then from time to time, the Borrower shall promptly pay to such Person such additional amount or amounts as will compensate such Person for such reduction. (c) If any Lender becomes entitled to claim any additional amounts pursuant to this Section 2.13, it shall promptly notify the Borrower (with a copy to the Agent) of the event by reason of which it has become so entitled. A certificate as to any additional amounts payable pursuant to this Section 2.13 submitted by such Lender to the Borrower (with a copy to the Agent) shall be conclusive in the absence of clearly demonstrable error. The agreements in this Section 2.13 shall survive the termination of this Agreement and the payment of the Loans and all other amounts payable hereunder, provided that no Lender shall be entitled to any additional amount payable under this Section 2.13 to the extent that such amount relates to any period of time more than 120 days prior to the date on which such Lender first notified the Borrower of the occurrence of the event entitling such Lender to such additional amount (unless, and to the extent, that any such compensation so demanded shall relate to the retroactive application of any event so notified to the Borrower). (d) Within 15 days after receipt by Borrower of a written notice and demand from any Lender (an "Affected Lender") for payment of additional amounts or increased costs as provided in this Section 2.13 not generally applicable to all Lenders, the Borrower may, at its option, notify the Agent and such Affected Lender of its intention to replace such Affected Lender. So long as no Default or Event of Default shall have occurred and be continuing, Borrower, with the consent of Agent, may obtain, at the Borrower's expense, a replacement Lender ("Replacement Lender") for the Affected Lender, which Replacement Lender must be satisfactory to the Agent. If Borrower obtains a Replacement Lender within sixty (60) days following notice of its intention to do so, the Affected Lender must sell and assign its Loans and Commitments to such Replacement Lender for an amount equal to the principal balance of all Loans held by the Affected Lender and all accrued interest and Fees with respect thereto through the date of such sale, provided that Borrower should have reimbursed such Affected Lender for the additional amounts or increased costs that it is entitled to receive under this Agreement through the date of such sale and assignment. SECTION 2.14 Taxes. (a) All payments made by the Borrower under this Agreement and any Notes shall be made free and clear of, and without deduction or withholding for or on account of, any present or future income, stamp or other taxes, levies, imposts, duties, charges, fees, deductions or withholdings, now or hereafter imposed, levied, collected, withheld or assessed by any Governmental Authority (excluding net income taxes and franchise taxes imposed in lieu of net income taxes imposed on the Agent or any Lender as a result of a present or former connection between the Agent or such Lender and the jurisdiction of the Governmental Authority imposing such tax or any political subdivision or taxing authority thereof or therein (other than any such connection arising solely from the Agent or such Lender having executed, delivered or performed its obligations or received a payment under, or enforced, this Agreement or any Note)). If any such non-excluded taxes, levies, imposts, duties, charges, fees deductions or withholdings (collectively, "Taxes") are required to be withheld from any amounts payable to the Agent or any Lender hereunder or under any Note, the amounts so payable to the Agent or such Lender shall be increased to the extent necessary to yield to the Agent or such Lender (after payment of all Taxes) interest or any such other amounts payable hereunder at the rates or in the amounts specified in this Agreement; provided, however, that the Borrower shall not be required to increase any such amounts payable to any Lender that is not organized under the laws of the United States of America or a state thereof if such Lender fails to comply with the requirements of paragraph (b) of this Section 2.14. Whenever any Taxes are payable by the Borrower, as promptly as possible thereafter the Borrower shall send to the Agent for its own account or for the account of such Lender, as the case may be, a certified copy of an original official receipt received by the Borrower showing payment thereof. If the Borrower fails to pay any Taxes when due to the appropriate taxing authority or fails to remit to the Agent the required receipts or other required documentary evidence, the Borrower shall indemnify the Agent and the Lenders for any incremental taxes, interest or penalties that may become payable by the Agent or any Lender as a result of any such failure. The agreements in this Section 2.14 shall survive the termination of this Agreement and the payment of the Loans and all other amounts payable hereunder. (b) Each Lender that is not incorporated under the laws of the United States of America or a state thereof shall: (i) deliver to the Borrower and the Agent (A) two duly completed copies of United States Internal Revenue Service Form 1001 or 4224, or successor applicable form, as the case may be, and (B) an Internal Revenue Service Form W-8 or W-9, or successor applicable form, as the case may be; (ii) deliver to the Borrower and the Agent two further copies of any such form or certification on or before the date that any such form or certification expires or becomes obsolete and after the occurrence of any event requiring a change in the most recent form previously delivered by it to the Borrower; and (iii) obtain such extensions of time for filing and complete such forms or certifications as may reasonably be requested by the Borrower or the Agent; unless in any such case an event (including, without limitation, any change in treaty, law or regulation) has occurred prior to the date on which any such delivery would otherwise be required which renders all such forms inapplicable or which would prevent such Lender from duly completing and delivering any such form with respect to it and such Lender so advises the Borrower and the Agent. Such Lender shall certify (i) in the case of a Form 1001 or 4224, that it is entitled to receive payments under this Agreement without deduction or withholding of any United States federal income taxes and (ii) in the case of a Form W-8 or W-9, that it is entitled to an exemption from United States backup withholding tax. Each Person that shall become a Lender or a Participant pursuant to Section 10.6 shall, upon the effectiveness of the related transfer, be required to provide all of the forms and statements required pursuant to this Section 2.14, provided that in the case of a Participant such Participant shall furnish all such required forms and statements to the Lender from which the related participation shall have been purchased. SECTION 2.15 Indemnity. (a) The Borrower agrees to indemnify each Lender and to hold each Lender harmless from any loss or expense which such Lender may sustain or incur as a consequence of: (i) default by the Borrower in payment when due of the principal amount of or interest on any Eurodollar Loan or Auction Borrowing; (ii) default by the Borrower in making a borrowing of, conversion into or continuation of Eurodollar Loans or Auction Borrowing after the Borrower has given a notice requesting the same in accordance with the provisions of this Agreement; (iii) default by the Borrower in making any prepayment after the Borrower has given a notice thereof in accordance with the provisions of this Agreement; or (iv) the making of a payment or a prepayment of Eurodollar Loans or Auction Borrowing on a day which is not the last day of an Interest period with respect thereto; including, without limitation, in each case, any such loss (including, without limitation, loss of margin) or expense arising from the reemployment of funds obtained by it or from fees payable to terminate the deposits from which such funds were obtained. (b) For the purpose of calculation of all amounts payable to a Lender under this Section 2.15, each Lender shall be deemed to have actually funded its relevant Eurodollar Loan or Auction Borrowing, as the case may be, through the purchase of a deposit bearing interest at the rate borne by the respective Eurodollar Loan or Auction Borrowing, as the case may be, in an amount equal to the amount of the respective Eurodollar Loan or Auction Borrowing, as the case may be, and having a maturity comparable to the relevant Interest Period; provided, however, that each Lender may fund each of its Eurodollar Loans in any manner it sees fit, and the foregoing assumption shall be utilized only for the calculation of amounts payable under this subsection. This covenant shall survive the termination of this Agreement and the payment of the Notes and all other amounts payable hereunder. ARTICLE III AUCTION ADVANCES SECTION 3.1 The Auction Advance. (a) Each Lender severally agrees that the Borrower may request Auction Borrowings under this Section 3.1 from time to time on any Business Day during the period from the date hereof until the date occurring seven days prior to the Maturity Date, in the manner set forth below; provided, that, following the making of each Auction Borrowing, the aggregate amount of the Auction Advance then outstanding shall not exceed the lower of either (x) the aggregate Available Commitment of all the Lenders and (y) $25,000,000. (i) The Borrower may initiate an Auction Borrowing verbally or otherwise by communicating to the Agent and to each of the Lenders a request for an Auction Borrowing (a "Notice of Auction Borrowing"), specifying the date and aggregate amount of the proposed Auction Borrowing, the maturity date for repayment of each Auction Advance to be made as part of such Auction Borrowing (which maturity date may not be later than the earlier to occur of (A) 270 days after the date of such Auction Borrowing and (B) the Maturity Date), the interest payment date or dates relating thereto (which shall occur at least every 90 days), and any other terms to be applicable to such Auction Borrowing. Such requests shall be made, if possible, before 10:00 A.M., (New York City time) of the date of the proposed Auction Borrowing. (ii) Each Lender may, in its sole discretion, elect to irrevocably offer to make one or more Auction Advances to the Borrower as part of such proposed Auction Borrowing at a rate or rates of interest specified by such Lender in its sole discretion, by notifying the Borrower verbally or otherwise (a "Notice to Borrower of Auction Offer"), before 11:00 A.M. (New York City time) or in any event within one hour of the receipt of the Notice of an Auction Borrowing on the date of such proposed Auction Borrowing of the minimum amount and maximum amount of each Auction Advance that such Lender would be willing to make as part of such proposed Auction Borrowing (which amounts may, subject to the proviso to the first sentence of this Section 3.1(a), exceed such Lender's Commitment), the rate or rates of interest therefor, the interest period relating thereto and such Lender's Applicable Lending Office with respect to such Auction Advance. The failure by any Lender to give such notice within such time period shall be deemed to be an election not to participate in such Auction Borrowing and shall not cause such Lender to be obligated to make any Auction Advance as part of such proposed Auction Borrowing. (iii) the Borrower shall, in turn, before 12:00 P.M. (New York City time) or in any event within two hours of the initiation of an Auction Borrowing on the date of such proposed Auction Borrowing, either (A) cancel such Auction Borrowing by giving the Agent and each Lender that has submitted or communicated a Notice to Borrower of Auction Offer notice (verbally or otherwise) to that effect, or (B) irrevocably accept one or more of the offers made by any Lender or Lenders pursuant to paragraph (ii) above, in its sole discretion, in an aggregate amount not in excess of the aggregate amount of the proposed Auction Borrowing, subject only to the provisions of this paragraph (iii), by giving verbal and written (by facsimile) notice to the applicable Lender or Lenders, as the case may be, of the amount of each Auction Advance (which amount shall be equal to or greater than each such Lender's minimum amount, and equal to or less than each such Lender's maximum amount, notified to the Borrower by such Lender or Lenders for such Auction Advances pursuant to paragraph (ii) above) to be made by each such Lender as part of such Auction Borrowing, and reject any remaining offers made by other Lenders pursuant to paragraph (ii) above by giving each such Lender notice to that effect; provided, however, that (x) the Borrower shall not accept an offer made pursuant to paragraph (ii) above, at any Yield if the Borrower shall have, or shall be deemed to have, rejected any other offer made pursuant to paragraph (ii) above, at a lower Yield, (y) if the Borrower declines to accept, or is otherwise restricted by the provisions of this Agreement from accepting, the maximum aggregate principal amount of Auction Borrowings offered at the same Yield pursuant to paragraph (ii) above, then the Borrower shall accept a pro rata portion of each offer made at such Yield, based as nearly as possible on the ratio of the aggregate principal amount of such offers to be accepted by the Borrower to the maximum aggregate principal amount of such offers made pursuant to paragraph (ii) above (rounding up or down to the next higher or lower multiple of $100,000), and (z) no offer made pursuant to paragraph (ii) above shall be accepted unless the Auction Borrowing in respect of such offer is in an integral multiple of $100,000 and the aggregate amount of such offers accepted by the Borrower is equal to at least $500,000. Any offer or offers made pursuant to paragraph (ii) above not expressly accepted or rejected by the Borrower in accordance with this paragraph (iii) shall be deemed to have been rejected by the Borrower. (iv) If the Borrower accepts one or more of the offers made by any Lender or Lenders pursuant to clause (B) of paragraph (iii) above, the Borrower shall in turn promptly notify verbally and via facsimile (A) each Lender that has submitted a Notice to Borrower of Auction Offer, of the date and aggregate amount of such Auction Borrowing and whether or not any offer or offers made by such Lender pursuant to paragraph (ii) above have been accepted by the Borrower and (B) each Lender that is to make an Auction Advance as part of such Auction Borrowing of the amount of each Auction Advance to be made by such Lender as part of such Auction Borrowing. The Borrower shall also provide the Agent with a summary of the terms and amounts borrowed for each of the Lenders selected within 5 business days after each Auction Borrowing. Each Lender that is to make an Auction Advance as part of such Auction Borrowing shall, on the date of such Auction Borrowing, make available for the account of the Borrower such Lender's portion of such Auction Borrowing, in same day funds. (b) Each Auction Advance shall be in an amount not less than $500,000 or an integral multiple of $100,000 in excess thereof and, following the making of each Auction Borrowing, the Borrower shall be in compliance with the limitation set forth in the proviso to the first sentence of subsection (a) above. (c) Within the limits and on the conditions set forth in this Section 3.1, the Borrower may from time to time borrow under this Section 3.1, repay or prepay pursuant to subsection (d) below, and reborrow under this Section 3.1. (d) The Borrower shall repay to each Lender that has made an Auction Advance, or each other holder of an Auction Note, on the maturity date of each Auction Advance (such maturity date being that specified by the respective Lender for repayment of such Auction Advance in the related Notice of an Auction Offer delivered pursuant to subsection (a)(ii) above and provided in the Auction Note evidencing such Auction Advance), the then unpaid principal amount of such Auction Advance. The Borrower shall have no right to prepay any principal amount of any Auction Advance unless, and then only on the terms, specified by the Borrower for such Auction Advance in the related Notice of Auction Borrowing delivered pursuant to subsection (a)(i) above (whether verbally or otherwise) and set forth in the corresponding Notice of Auction Offer and further noted in the Auction Note evidencing such Auction Advance. Within 5 business days of any such repayment, the Borrower shall also provide notice to the Agent of the date and amount of such prepayment by such Lender. (e) The Borrower shall pay interest on the unpaid principal amount of each Auction Advance from the date of such Auction Advance to the date the principal amount of such Auction Advance is repaid in full, at the rate of interest for such Auction Advance specified by the Lender making such Auction Advance in its notice with respect thereto delivered pursuant to subsection (a)(ii) above, payable on the interest payment date or dates specified by the Lender for such Auction Advance in the related Notice of an Auction Offer delivered pursuant to subsection (a)(ii) above, as provided in the Auction Note evidencing such Auction Advance. (f) The indebtedness of the Borrower resulting from each Auction Advance made to the Borrower as part of an Auction Borrowing shall be evidenced by an appropriate notation to the Auction Note of the Borrower payable to the order of each Lender making such Auction Advance. (g) Upon payment in full of the principal amount of any Auction Note and interest accrued thereon, upon written request of the Borrower, the holder of such Auction Note shall cancel and return such Auction Note to the Borrower. SECTION 3.2 Conditions Precedent to Each Auction Borrowing. The obligation of each Lender that is to make an Auction Advance on the occasion of an Auction Borrowing (including the initial Auction Borrowing) to make such Auction Advance as part of such Auction Borrowing is subject to the conditions precedent that(i)on the date of such Auction Borrowing, but prior to such Auction Borrowing, the Borrower shall have received confirmation that an appropriate notation has been or will be made in the schedule to the Auction Note payable to the order of such Lender for each of the Auction Advances to be made by such Lender as part of such Auction Borrowing, in a principal amount equal to the principal amount of the Auction Advance to be evidenced thereby and otherwise on such terms as were agreed to for such Auction Advance in accordance with Section 3.1, and (ii) except as otherwise waived in accordance with Section 10.01, on the date of such Auction Borrowing the following statements shall be true, and each of the giving of the applicable Notice of an Auction Borrowing (whether verbally or otherwise) and the acceptance by the Borrower of the proceeds of such Auction Borrowing shall constitute a representation and warranty by the Borrower that on the date of such Auction Borrowing such statements are true: (A) The representations and warranties contained in Article IV are correct on and as of the date of such Borrowing, before and after giving effect to such Borrowing and to the application of the proceeds therefrom, as though made on and as of such date, and (B) No Default or Event of Default has occurred and is continuing, or would result from such Borrowing or from the application of the proceeds therefrom, which constitutes an Event of Default or which would constitute an Event of Default but for the requirement that notice be given or time elapse or both. ARTICLE IV REPRESENTATIONS AND WARRANTIES To induce the Agent and the Lenders to enter into this Agreement and to make the Loans, the Borrower hereby represents and warrants to the Agent and each Lender that: SECTION 4.1 Incorporation and Good Standing. The Borrower is duly incorporated, validly existing and in good standing under the laws of the State of Vermont. The Borrower is duly qualified to do business in the States of New Hampshire, New York, Maine and Connecticut and as a foreign corporation and is in good standing in each other jurisdiction where the character of its business, the nature of its properties or the transaction of any material portion of its business (as now conducted and as currently contemplated to be conducted) requires such qualification, if any. SECTION 4.2 Corporate Power and Authority. The Borrower has the requisite power and authority to own its properties and carry on its business as now being conducted and as currently proposed to be conducted, and to execute, deliver and perform its obligations under each Loan Document. SECTION 4.3 No Conflicts. The execution, delivery and performance by Borrower of each of the Loan Documents are within the Borrower's corporate powers and have been duly authorized by all necessary corporate action and (i) do not violate any Requirement of Law, (ii) do not breach or result in an event of default under any indenture or material agreement to which the Borrower is a party or by which it or its property is bound, (iii) will not result in or require the creation of any Lien upon or with respect to any of its properties, and (iv) do not require any consent or approval of any creditor of the Borrower. SECTION 4.4 Governmental Approvals. No Governmental Approvals are required for the due execution, delivery and performance by the Borrower of any Loan Document, including, without limitation, any Governmental Approval of or by the Vermont Public Service Board and the New Hampshire Public Utilities Commission, the Connecticut Department of Public Utilities Commission, the Public Service Commission of the State of New York, and the Maine Public Utilities Commission. SECTION 4.5 Legally Enforceable Agreements. This Agreement and the other Loan Documents (except the Notes) are, and the Notes when delivered hereunder will be, legal, valid and binding obligations of the Borrower, enforceable against the Borrower in accordance with their respective terms, subject to (i) the effect of applicable bankruptcy, insolvency, reorganization or moratorium or other similar laws affecting the enforcement of creditors' rights generally, and (ii) the application of general principles of equity (regardless of whether considered in a proceeding in equity or at law). SECTION 4.6 Financial Statements. The audited balance sheet of the Borrower as at December 31, 1996, and the related statements of income and retained earnings and statement of cash flows of the Borrower for the fiscal year then ended, (copies of which have been furnished to the Agent), and the unaudited balance sheet of the Borrower as of June 30, 1997 (copies of which have been furnished to the Agent), fairly present the financial condition of the Borrower as at such date and the results of operations of the Borrower for the period ended on such date, all in accordance with GAAP, and since June 30, 1997 there has been no material adverse change in the business, operations, assets, liabilities, financial condition or results of operations of the Borrower, taken as a whole, that would affect the Borrower's ability to perform its obligations under any of the Loan Documents, except as disclosed in writing to the Agent. SECTION 4.7 Litigation. There is no pending or, to the best of the Borrower's knowledge, threatened action or proceeding against the Borrower before any court, governmental agency or arbitrator, which if adversely determined, could reasonably be expected to materially adversely affect the financial condition or results of operations of the Borrower or that could otherwise materially adversely affect the Borrower's ability to perform it obligations under any of the Loan Documents. SECTION 4.8 Margin Stock. The Borrower is not engaged in the business of extending credit for the purpose of buying or carrying margin stock (within the meaning of Regulation U of the Board of Governors of the Federal Reserve System), and no proceeds of any Loan will be used to buy or carry any margin stock (within the meaning of Regulations G, T, U or X of said Board of Governors) or to extend credit to others for the purpose of buying or carrying any margin stock or otherwise used in violation of Regulations G, T, U or X of said Board of Governors. SECTION 4.9 ERISA. Each Employee Benefit Plan of the Borrower and any ERISA Affiliate is in compliance with ERISA and the Code, where applicable, in all material respects. At the date hereof (i) as of the most recent annual actuarial report, there are no Unfunded Pension Liabilities under the Pension Plan, and (ii) the amount of the aggregate post-retirement medical benefits under all applicable employee Benefit Plans does not exceed approximately $15,000,000. The Borrower and/or any ERISA Affiliate has, as of the date hereof, made all contributions or payments to or under each such Pension Plan required by law or the terms of such Pension Plan or any contract or agreement. No material liability to the PBGC has been, or is expected by the Borrower or any ERISA Affiliate to be, incurred by the Borrower or any ERISA Affiliate. Liability, as referred to in this Section, includes any joint and several liability. Each Employee Benefit Plan which is a group health plan within the meaning of Code Section 5000(b)(1) is in material compliance with the continuation of health care coverage requirements of Code Section 4980B. SECTION 4.10 Environmental Matters. To the best of the Borrower's knowledge, there has not been a release, discharge or emission of any hazardous substance which is prohibited, controlled or regulated under any Requirement of Law, which have had, or which could reasonably be expected to have, a material adverse effect on the financial condition of the Borrower. Except as disclosed in the Borrower's most recent Form 10-K or Form 10-Q, the Borrower has not received any notice of any violation, alleged violation, non-compliance, liability or potential liability regarding environmental Requirements of Law with regards to any of its properties that would have a material adverse effect on the financial condition of the Borrower, nor does the Borrower have knowledge that any such notice is threatened. SECTION 4.11 No Default; Compliance. No Default or Event of Default has occurred and is continuing, and the Borrower is in compliance in all material respects with all Requirements of Law. No defaults by the Borrower exist under any contracts or judgments, decrees or orders except for defaults that, singly or in the aggregate, have not had and will not have a materially adverse effect on the business, operations, assets, liabilities, financial condition, results of operations or business prospects of the Borrower or a materially adverse effect on its ability to perform its obligations under this Agreement or the Existing Letter of Credit Agreements. SECTION 4.12 Investment Company Act. The Borrower is not an "investment company", or a company "controlled" by an "investment company", within the meaning of the Investment Company Act of 1940, as amended. SECTION 4.13 Taxes. All Federal, state and local tax returns and other material reports required by applicable law to be filed by the Borrower have been filed, and all material taxes, assessments and other governmental charges imposed upon the Borrower or any of the respective properties of the Borrower and which have become due and payable on or prior to the date hereof have been paid except to the extent contested in good faith by proper proceedings which stay the imposition of any penalty fine or lien resulting form the non-payment thereof and with respect to which adequate reserves have been set aside for payment thereof. SECTION 4.14 No Material Adverse Effect. No fact is known to the Borrower which has had or in the reasonable judgment of the Borrower may in the future have a materially adverse effect on the business, operations, assets, liabilities, financial condition, results of operations or business prospects of the Borrower or on its ability to perform its obligations under this Agreement or the Existing Letter of Credit Agreements which has not been set forth in such reports or otherwise disclosed in writing to the Agent prior to the Closing Date or any Borrowing Date. No document furnished or other written statement made pursuant to the Existing Letter of Credit Agreements in connection with the negotiation, preparation or execution of this Agreement or the Existing Letter of Credit Agreements contains or will contain any untrue statement of a fact material to the creditworthiness of the Borrower or omits or will omit to state such a material fact necessary in order to make the statements contained therein not misleading. SECTION 4.15 Statements; Certificates. All statements contained in any certificate, financial statement or other instrument delivered by or on behalf of the Borrower pursuant to or in connection with this Agreement (including but not limited to any such made in or in connection with any amendment hereto) shall constitute representations and warranties made under this Agreement. ARTICLE V CONDITIONS PRECEDENT SECTION 5.1 Conditions to Closing. Unless already satisfied by the Borrower as of November 5, 1997, the agreement of each Lender to make the initial Loans requested to be made by it is subject to the satisfaction, immediately prior to or concurrently with the making of such Loan of the following conditions precedent: (a) each Lender shall have received a Revolving Loan Note and an Auction Note, payable to such Lender and duly completed in accordance with the terms hereof; (b) the Agent shall have received the favorable written opinion, dated the Closing Date and addressed to the Agent, of the General Counsel of the Borrower, substantially in the form of Schedule 3 hereto; (c) all legal matters incident to this Agreement and the transactions contemplated hereby shall be satisfactory to the Agent, to the Lenders, and to Paul, Hastings, Janofsky & Walker LLP, counsel for the Agent; (d) each of the Loan Documents shall have been duly executed by each of the parties thereto and delivered to the Agent and shall be in full force and effect; (e) the Borrower shall have duly paid the Fees that are payable on the Closing Date in accordance with Section 2.3; (f) the Agent shall have received certified copies of all governmental approvals (including any approvals, or evidence in form and substance satisfactory to the Agent that such approvals are not required, of the Issuer and the Public Service Board of the State of Vermont and the New Hampshire Public Utilities Commission) necessary for the Borrower to enter into this Agreement and the transactions contemplated by this Agreement; (g) the Agent shall have received certified copies of the Borrower's Articles of Association and By-Laws, and resolutions of the Board of Directors of the Borrower's approving this Agreement and of all other documents evidencing other necessary corporate action; (h) the Agent shall have received a certificate of the Secretary or an Assistant Secretary of the Borrower certifying the names and true signatures of the officers of the Borrower authorized to sign this Agreement and the other documents to be delivered by it hereunder; (i) the Agent shall have received good standing and tax clearance certificates with respect to the Borrower issued within a reasonable period of time prior to the execution of this Agreement by the Secretary of State of the States of Vermont and New Hampshire and the Tax Department or Departments of Revenue of the States of Vermont and New Hampshire; and (j) the Agent shall have received such other documents, instruments and opinions as shall be reasonably requested by the Agent or Paul, Hastings, Janofsky & Walker LLP, counsel for the Agent, and all legal matters incident to this Agreement and the transactions contemplated hereby shall be satisfactory to the Agent and Paul, Hastings, Janofsky and Walker LLP, counsel for the Agent. SECTION 5.2 Conditions to Each Loan. The agreement of each Lender to make any Loan requested to be made by it on any Borrowing Date (including its initial Loan) is subject to the satisfaction of the following conditions precedent: (a) Representations and Warranties. Each of the representations and warranties made by the Borrower in or pursuant to the Loan Documents shall be true and correct on and as of such date as if made on and as of such date. (b) No Default. No Default or Event of Default shall have occurred and be continuing on such date or after giving effect to the Loans requested to be made on such date. (c) Borrowing Certificate. The Agent shall have received, with a counterpart for each Lender, (i) with respect to any Revolving Loan, evidence that the certificate of the Borrower, substantially in the form of Schedule 4 hereto, has been issued or updated to reflect such borrowing and (ii) with respect to any Auction Borrowing, evidence that a notice from the Borrower to each Lender selected in any Auction Borrowing as set forth in Section 3.1(a)(iii)(B) hereto, has been issued or updated to reflect such borrowing, (in either case, a "Loan Borrowing Certificate") each with appropriate insertions and attachments, satisfactory in form and substance to the Agent, executed by a Responsible Officer. (d) Additional Matters. All corporate and other proceedings, and all documents, instruments and other legal matters in connection with the transactions contemplated by this Agreement and the other Loan Documents shall be satisfactory in form and substance to the Agent, and the Agent shall have received such other documents and legal opinions in respect of any aspect or consequence of the transactions contemplated hereby or thereby as it shall reasonably request. Each Borrowing by the Borrower hereunder shall constitute a representation and warranty by the Borrower as of the date thereof that the conditions contained in this Section 5.2 have been satisfied. ARTICLE VI AFFIRMATIVE COVENANTS The Borrower hereby agrees that, so long as the Commitments remain in effect or any amount is owing to any Lender or the Agent hereunder or under any other Loan Document, the Borrower shall: SECTION 6.1 Payment of Taxes, Etc. Pay and discharge before the same shall become delinquent, (a) all taxes, assessments and governmental charges or levies imposed upon it or upon its property, and (b) all lawful claims which, if unpaid, might by law become a Lien upon its property; provided, that the Borrower shall not be required to pay or discharge any such tax, assessment, charge or claim (i) which is being contested by it in good faith and by proper procedures, or (ii) the non-payment of which will not materially adversely affect the financial condition or results of operations of the Borrower. SECTION 6.2 Maintenance of Insurance. Maintain insurance in such amounts and covering such risks with respect to its business and properties as is usually carried by companies located in the same general area as the Borrower and engaged in similar businesses and owning similar properties, with reputable insurance companies. SECTION 6.3 Preservation of Corporate Existence, Etc. Preserve and maintain its corporate existence, rights and franchises, and qualify and remain qualified as a foreign corporation in each jurisdiction in which such qualification is necessary in view of its business and operations or the ownership of its properties; provided, that the Borrower shall not be required to preserve any such right or franchise or to remain so qualified unless the failure to do so would have a material adverse effect on the financial condition or results of operations of the Borrower or the ability of the Borrower to perform its obligations under any Loan Document. SECTION 6.4 Compliance with Laws, Etc. Comply with all Requirements of Law, the non-compliance with which could materially adversely affect the financial condition or results of operations of the Borrower or the ability of the Borrower to perform its obligations under any Loan Document. SECTION 6.5 Visitation Rights. At any reasonable time and from time to time, permit the Agent, any of the Lenders or any agents or representatives thereof, to examine and make copies of and abstracts from its records and books of account, visit its properties and discuss its affairs, finances and accounts with any of its officers and its independent public accountants. SECTION 6.6 Keeping of Books. Keep adequate records and books of account, in which full and correct entries shall be made of all of its financial transactions and its assets and business so as to permit the Borrower to present financial statements in accordance with GAAP. SECTION 6.7 Reporting Requirements. Furnish to the Agent, with sufficient copies for each of the Lenders: (a) as soon as practicable and in any event within five Business Days after becoming aware of the occurrence of any Default or Event of Default hereunder, a statement of a Responsible Officer as to the nature thereof, and as soon as practicable and in any event within five Business Days thereafter, a statement of a Responsible Officer as to the action which the Borrower has taken, is taking or proposes to take with respect thereto; (b) as soon as practicable and in any event within five Business Days after becoming aware of the occurrence thereof, notice of any material adverse change in the business, operations, property or condition (financial or otherwise) of the Borrower, or any material damage to or material destruction or material taking of the Borrower's assets; (c) as soon as practicable and in any event within five Business Days after becoming aware of the occurrence thereof, notice of any change in the rating of the Borrower's Senior Debt credit rating by any Rating Agency; (d) As soon as practicable and in any event, within 120 days after the end of each fiscal year of the Borrower, a copy of the annual report of the Borrower for such year on Form 10-K filed by the Borrower with the SEC containing financial statements of the Borrower for such fiscal year, including, but not limited to, a balance sheet of the Borrower as of the close of such fiscal year and statements of income and retained earnings and statement of cash flows for the fiscal year then ended, accompanied by a report and opinion of the Borrower's independent accountants (who shall be Arthur Andersen & Co. or other independent accountants of nationally recognized standing), which report and opinion shall have been prepared in accordance with generally accepted auditing standards. In addition, the Borrower will deliver to the Agent within said period of 120 days a certificate of a Responsible Officer stating that no Event of Default or event which, with notice or lapse of time or both, would constitute an Event of Default, has occurred and is continuing or, if an Event of Default or such event has occurred and is continuing, a statement as to the nature thereof and the action which the Borrower proposes to take with respect thereto; (e) As soon as practicable and in any event within 60 days after the end of each of the first three quarterly fiscal periods in each fiscal year of the Borrower, a copy of the quarterly report of the Borrower for such quarter on Form 10-Q filed by the Borrower with the SEC containing financial statements of the Borrower for such quarterly period, including, but not limited to, a balance sheet of the Borrower as of the close of each quarterly fiscal period and statements of income and retained earnings and statement of cash flows for that portion of the fiscal year-to-date then ended, together with (a) an affidavit of a Responsible Officer as to their completeness and correctness subject to their changes resulting form year- end adjustments, and as to their preparation in accordance with generally accepted accounting principles consistently applied and (b) a certificate of a principal financial officer of the Borrower stating that no Event of Default or event which, with notice or lapse of time or both, would constitute an Event of Default or such event has occurred and is continuing, a statement as to the nature thereof and the action which the Borrower proposes to take with respect thereto. (f) as soon as practicable and in any event within 60 days after the end of each of the first three quarterly fiscal periods in each fiscal year of the Borrower and within 120 days after the end of each fiscal year of the Borrower, a certificate of a Responsible Officer setting forth the Borrower's computation of the financial ratio referred to in Section 7.6 as of such fiscal quarter; (g) as soon as possible and in any event (i) within 30 days after the Borrower or any of its ERISA Affiliates knows or has reason to know that any Termination Event described in clause (a) of the definition of Termination Event with respect to any Plan has occurred, and (ii) within ten days after the Borrower or any of its ERISA Affiliates knows or has reason to know that any other Termination Event with respect to any Plan has occurred, a statement of a Responsible Officer describing such Termination Event and the action, if any, which the Borrower or such ERISA Affiliate, as the case may be, proposes to take with respect thereto; (h) as soon as practicable after becoming aware thereof, a statement of a Responsible Officer of the existence of any Lien (other than security interests created by the Loan Documents or Permitted Liens) on, or claim asserted against, any of Borrower's property; (i) within five days after the same are sent, copies of all financial statements and reports which the Borrower sends to its stockholders, and within five days after the same are filed, copies of all financial statements and reports which the Borrower may make to, or file with, the SEC or any successor or analogous Governmental Authority; and (j) such other information respecting the business, properties, or financial condition of the Borrower as the Agent or any Lender through the Agent may from time to time reasonably request. SECTION 6.8 Indemnification. At all times, indemnify the Lenders as set forth in Section 2.15 herein. ARTICLE VII NEGATIVE COVENANTS The Borrower hereby agrees that, so long as the Commitments remain in effect or any amount is owing to any Lender or the Agent hereunder or under any other Loan Document or any Letter of Credit, the Borrower shall not, directly or indirectly: SECTION 7.1 Liens. Create, incur, assume or suffer to exist any Lien, upon or with respect to any of its properties or assets, except for Permitted Liens. SECTION 7.2 Sale of Assets. Except as otherwise permitted under this Section 7.2 hereof, sell, lease, transfer, or otherwise dispose of a substantial portion of its assets, except in the ordinary course of business, without first obtaining the express prior written consent of the Agent thereto; provided that such consent shall be required for any such sale, lease, transfer or other disposition that may reasonably result in a material adverse change in the business, operations, assets, liabilities, financial condition, results of operations or business prospects of the Borrower or its ability to perform its obligations under this Agreement or any Letters of Credit or any other agreement or instrument relating thereto and to the transactions contemplated thereby. SECTION 7.3 Mergers, Etc. Merge with or into or consolidate with or into, or convey, transfer, lease or otherwise dispose of (wether in one transaction or in a series of transactions) all or substantially all of its assets (whether now owned or hereafter acquired) to, or acquire all or substantially all of the assets, other than utility assets, of, any Person to the extent that such purchase materially changes the Borrower's business, except that the Borrower may merge or consolidate with any Person on condition in each case that, (i) immediately after giving effect thereto, no event shall occur and be continuing which constitutes an Event of Default or which with the giving of notice or lapse of time, or both, would constitute an Event of Default, (ii) the consolidation or merger shall not materially adversely affect the ability of the Borrower to perform its obligations hereunder or under this Agreement or any Letters of Credit or any other agreement or instrument relating thereto and to the transactions contemplated thereby, and (iii) in the case of any merger or consolidation to which the Borrower is a party, the corporation formed by any such consolidation or into which the Borrower shall be merged shall assume the Borrower's obligations and performance of the Borrower's covenants hereunder and under this Agreement, or any other agreement or instrument relating thereto and to the transactions contemplated thereby in a writing satisfactory in form and substance to the Agent. SECTION 7.4 Compliance with ERISA. Permit to exist any occurrence of any Reportable Event, or any other event or condition, which presents a material (in the reasonable opinion of the Required Lenders) risk of a termination by the PBGC of any Plan of the Borrower or any ERISA Affiliate, which termination will result in any material (in the reasonable opinion of the Required Lenders) liability of the Borrower or such ERISA Affiliate to the PBGC. SECTION 7.5 Change in Nature of Business. Make any material change in the nature of its business as carried on at the date hereof that would or could reasonably have a material adverse effect on the financial condition or results of operations of the Borrower or the ability of the Borrower to perform its obligations under any Loan Document. SECTION 7.6 Consolidated Leverage Ratio. Permit a Consolidated Leverage Ratio to be greater than 0.50 to 1.0. ARTICLE VIII EVENTS OF DEFAULT SECTION 8.1 Events of Default. If any of the following events (each, an "Event of Default") shall occur and be continuing: (a) The Borrower shall fail to pay any principal of any Note when due in accordance with the terms hereof or thereof; or the Borrower shall fail to pay any interest on any Loan or Note, or any other amount payable hereunder, within five days after the same shall become due and payable in accordance with the terms hereof or thereof; or (b) Any representation or warranty made or deemed made by the Borrower herein or in any other Loan Document, or which is contained in any certificate furnished by it at any time under or in connection with this Agreement shall prove to have been incorrect in any material respect on or as of the date made or deemed made; or (c) The Borrower shall default in the performance or observance of its covenant and agreement contained in Section 7.6; or (d) The Borrower shall default in the performance or observance of any other agreement contained in this Agreement (other than as provided in paragraphs (a) through (c) of this Section 8.1), and such default shall continue unremedied for a period of 30 days after notice thereof has been given to the Borrower by the Agent; or (e) The Borrower or any of its Consolidated Subsidiaries, shall: (i) fail to pay any Indebtedness (other than the payment obligations described in Section 8.1(a) above) in excess of $5,000,000 or any interest or premium thereon, when due (whether by scheduled maturity, required prepayment, acceleration, demand or otherwise) and such failure shall continue after the applicable grace period, if any, specified in the instrument or agreement relating to such Indebtedness; or (ii) fail to perform or observe any term, covenant or condition on its part to be performed or observed under any agreement or instrument relating to any such Indebtedness, when required to be performed or observed, if the effect of such failure to perform or observe is to accelerate, or to permit the acceleration of, the maturity of such Indebtedness, unless the obligee under or holder of such Indebtedness shall have waived in writing such circumstance, or such circumstance has been cured, so that such circumstance is no longer continuing; or (iii) have such Indebtedness declared to be due and payable, or required to be prepaid (other than by regularly scheduled required prepayment), in each case in accordance with the terms of such agreement or instrument, prior to the stated maturity thereof; or (iv) generally not, or shall admit in writing its inability to, pay its debts as such debts become due; or (f) (i) The Borrower shall commence any case, proceeding or other action (A) under any existing or future law of any jurisdiction, domestic or foreign, relating to bankruptcy, insolvency, reorganization or relief of debtors, seeking to have an order for relief entered with respect to it, or seeking to adjudicate it a bankrupt or insolvent, or seeking reorganization, arrangement, adjustment, winding-up, liquidation, dissolution, composition or other relief with respect to it or its debts, or (B) seeking appointment of a receiver, trustee, custodian, conservator or other similar official for it or for all or any substantial part of its assets, or the Borrower shall make a general assignment for the benefit of its creditors; or (ii) there shall be commenced against the Borrower, any case, proceeding or other action of a nature referred to in clause (i) above which (A) results in the entry of an order for relief or any such adjudication or appointment or (B) remains undismissed, undischarged or unbonded for a period of 60 days; or (iii) there shall be commenced against the Borrower, any case, proceeding or other action seeking issuance of a warrant of attachment, execution, distraint or similar process against all or any substantial part of its assets which results in the entry of an order for any such relief which shall not have been vacated, discharged, or stayed or bonded pending appeal within 60 days from the entry thereof; or (iv) the Borrower shall take any action in furtherance of, or indicating its consent to, approval of, or acquiescence in, any of the acts set forth in clause (i), (ii), or (iii) above; or (v) the Borrower shall generally not, or shall be unable to, or shall admit in writing its inability to, pay its debts as they become due; or (g) Any Termination Event with respect to a Plan of the Borrower shall have occurred, and 30 days after notice thereof shall have been given to the Borrower by the Agent, (i) such Termination Event (if correctable) shall not have been corrected, and (ii) the then present value of such Plan's vested benefits exceeds the then current value of the assets accumulated in such Plan by more than the amount of $5,000,000 (or in the case of a Termination Event involving the withdrawal of a "substantial employer" (as defined in Section 4001(A)(2) of ERISA), the withdrawing employer's proportionate share of such excess shall exceed such amount); or (h) One or more judgments, decrees or orders for the payment of money in excess of $5,000,000, in the aggregate shall be rendered against the Borrower and either (i) enforcement proceedings shall have been commenced by any creditor upon any such judgment or order or (ii) there shall be any period of more than 30 consecutive days during which a stay of enforcement of such judgment or order, by reason of a pending appeal or otherwise, shall not be in effect; or (i) any Change of Control shall occur; or (j) any Event of Default under and as defined in the Existing Letter of Credit Agreements shall occur and be continuing; or (k) any Loan Document shall be or become invalid or otherwise unenforceable; then, and in any such event, (A) if such event is an Event of Default specified in paragraph (f) of this Section, automatically the Commitments shall immediately terminate and the Loans hereunder (with accrued interest thereon) and all other amounts owing under this Agreement shall immediately become due and payable, and (B) if such event is any other Event of Default, either or both of the following actions may be taken: (i) with the consent of the Required Lenders, the Agent may, or upon the request of the Required Lenders, the Agent shall, by notice to the Borrower declare the Commitments to be terminated forthwith, whereupon the Commitments shall immediately terminate; and (ii) with the consent of the Required Lenders, the Agent may, or upon the request of the Required Lenders, the Agent shall, by notice to the Borrower, declare the Loans hereunder (with accrued interest thereon) and all other amounts owing under this Agreement to be due and payable forthwith, whereupon the same shall immediately become due and payable. ARTICLE IX THE AGENT SECTION 9.1 Appointment. Each Lender hereby irrevocably designates and appoints, and hereby agrees that it will require any transferee of any of its interest in the Loans and the other Loan Documents irrevocably to designate and appoint, the Agent as the agent of such Lender under this Agreement and the other Loan Documents, and each such Lender irrevocably authorizes the Agent, in such capacity, to take such action on its behalf under the provisions of this Agreement and the other Loan Documents and to exercise such powers and perform such duties as are expressly delegated to the Agent by the terms of this Agreement and the other Loan Documents, together with such other powers as are reasonably incidental thereto. Notwithstanding any provision to the contrary elsewhere in this Agreement, the Agent shall not have any duties or responsibilities, except those expressly set forth herein, or any fiduciary relationship with any Lender, and no implied covenants, functions, responsibilities, duties, obligations or liabilities shall be read into this Agreement or any other Loan Document or otherwise exist against the Agent. SECTION 9.2 Delegation of Duties. The Agent may execute any of its duties under this Agreement and the other Loan Documents by or through agents or attorneys-in-fact and shall be entitled to advice of counsel concerning all matters pertaining to such duties. The Agent shall not be responsible for the negligence or misconduct of any agents or attorneys in-fact selected by it with reasonable care. SECTION 9.3 Exculpatory Provisions. Neither the Agent nor any of its officers, directors, employees, agents, attorneys-in-fact or Affiliates shall be (i) liable for any action lawfully taken or omitted to be taken by it or such Person under or in connection with this Agreement or any other Loan Document (except for its or such Person's own gross negligence or willful misconduct) or (ii) responsible in any manner to any of the Lenders for any recitals, statements, representations or warranties made by the Borrower or any officer thereof contained in this Agreement or any other Loan Document or in any certificate, report, statement or other document referred to or provided for in, or received by the Agent under or in connection with, this Agreement or any other Loan Document or for the value, validity, effectiveness, genuineness, enforceability or sufficiency of this Agreement or any other Loan Document or for any failure of the Borrower to perform its obligations hereunder or thereunder. The Agent shall not be under any obligation to any Lender to ascertain or to inquire as to the observance or performance of any of the agreements contained in, or conditions of, this Agreement or any other Loan Document, or to inspect the properties, books or records of the Borrower. SECTION 9.4 Reliance by Agent. The Agent shall be entitled to rely, and shall be fully protected in relying, upon any Note, writing, resolution, notice, consent, certificate, affidavit, letter or telecopy message, statement, order or other document or conversation believed by it to be genuine and correct and to have been signed, sent or made by the proper Person or Persons and upon advice and statements of legal counsel (including, without limitation, counsel to the Borrower), independent accountants and other experts selected by the Agent. The Agent may deem and treat the payee of any Note as the owner thereof for all purposes unless a written notice of assignment, negotiation or transfer thereof shall have been filed with the Agent. The Agent shall be fully justified in failing or refusing to take any action under this Agreement or any other Loan Document unless it shall first receive such advice or concurrence of the Required Lenders as it deems appropriate or it shall first be indemnified to its satisfaction by the Lenders against any and all liability and expense which may be incurred by it by reason of taking or continuing to take any such action. The Agent shall in all cases be fully protected in acting, or in refraining from acting, under this Agreement and the other Loan Documents in accordance with a request of the Required Lenders, and such request and any action taken or failure to act pursuant thereto shall be binding upon all the Lenders and all future holders of the Loans. SECTION 9.5 Notice of Default. The Agent shall not be deemed to have knowledge or notice of the occurrence of any Default or Event of Default hereunder unless the Agent has received notice from a Lender or the Borrower referring to this Agreement, describing such Default or Event of Default and stating that such notice is a "notice of default". In the event that the Agent receives such a notice, the Agent shall give notice thereof to the Lenders. The Agent shall take such action with respect to such Default or Event of Default as shall be reasonably directed by the Required Lenders; provided that unless and until the Agent shall have received such directions, the Agent may (but shall not be obligated to) take such action, or refrain from taking such action, with respect to such Default or Event of Default as it shall deem advisable in the best interests of the Lenders. SECTION 9.6 Non-Reliance on Agent and Other Lenders. Each Lender expressly acknowledges that neither the Agent nor any of its officers, directors, employees, agents, attorneys-in-fact or Affiliates has made any representations or warranties to it and that no act by the Agent hereinafter taken, including any review of the affairs of the Borrower, shall be deemed to constitute any representation or warranty by the Agent to any Lender. Each Lender represents to the Agent that it has, independently and without reliance upon the Agent or any other Lender, and based on such documents and information as it has deemed appropriate, made its own appraisal of and investigation into the business, operations, property, financial and other condition and creditworthiness of the Borrower and made its own decision to make its Loans hereunder and enter into this Agreement. Each Lender also represents that it will, independently and without reliance upon the Agent or any other Lender, and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit analysis, appraisals and decisions in taking or not taking action under this Agreement and the other Loan Documents, and to make such investigation as it deems necessary to inform itself as to the business, operations, property, financial and other condition and creditworthiness of the Borrower. Except for notices, reports and other documents expressly required to be furnished to the Lenders by the Agent hereunder, the Agent shall not have any duty or responsibility to provide any Lender with any credit or other information concerning the business, operations, property, condition (financial or otherwise), prospects or creditworthiness of the Borrower which may come into the possession of the Agent or any of its officers, directors, employees, agents, attorneys-in-fact or Affiliates. SECTION 9.7 Indemnification. The Lenders agree to indemnify the Agent in its capacity as such (to the extent not reimbursed by the Borrower and without limiting the obligation of the Borrower to do so), ratably according to their respective Commitment Percentages in effect on the date on which indemnification is sought (or, if indemnification is sought after the date upon which the Commitments shall have terminated and the Loans shall have been paid in full, ratably in accordance with their Commitment Percentages immediately prior to such date), from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind whatsoever which may at any time (including, without limitation, at any time following the payment of the Loans) be imposed on, incurred by or asserted against the Agent in any way relating to or arising out of, the Commitments, this Agreement, any of the other Loan Documents or any documents contemplated by or referred to herein or therein or the transactions contemplated hereby or thereby or any action taken or omitted by the Agent under or in connection with any of the foregoing; provided that no Lender shall be liable for the payment of any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements resulting solely from the Agent's gross negligence or willful misconduct. The agreements in this Section 9.7 shall survive the payment of the Loans and all other amounts payable hereunder. SECTION 9.8 Agent in Its Individual Capacity. The Agent and its Affiliates may make loans to, accept deposits from and generally engage in any kind of business with the Borrower as though the Agent were not the Agent hereunder and under the other Loan Documents. With respect to the Loans made by it, the Agent shall have the same rights and powers under this Agreement and the other Loan Documents as any Lender and may exercise the same as though it were not the Agent, and the terms "Lender" and "Lenders" shall include the Agent in its individual capacity. SECTION 9.9 Successor Agent. The Agent may resign as Agent upon 10 days' notice to the Lenders. If the Agent shall resign as Agent under this Agreement and the other Loan Documents, then the Required Lenders shall appoint from among the Lenders a successor agent for the Lenders, which successor agent shall be approved by the Borrower, whereupon such successor agent shall succeed to the rights, powers and duties of the Agent, and the term "Agent" shall mean such successor agent effective upon such appointment and approval, and the former Agent's rights, powers and duties as Agent shall be terminated, without any other or further act or deed on the part of such former Agent or any of the parties to this Agreement or any holders of the Loans. After any retiring Agent's resignation as Agent, the provisions of this Section 9.9 shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Agent under this Agreement and the other Loan Documents. ARTICLE X MISCELLANEOUS SECTION 10.1 Amendments and Waivers. Neither this Agreement nor any other Loan Document, nor any terms hereof or thereof may be amended, supplemented or modified except in accordance with the provisions of this Section 10.1. The Required Lenders may, or, with the written consent of the Required Lenders, the Agent may, from time to time, (a) enter into with the Borrower written amendments, supplements or modifications hereto and to the other Loan Documents for the purpose of adding any provisions to this Agreement or the other Loan Documents or changing in any manner the rights of the Lenders or of the Borrower hereunder or thereunder or (b) waive, on such terms and conditions as the Required Lenders or the Agent, as the case may be, may specify in such instrument, any of the requirements of this Agreement or the other Loan Documents or any Default or Event of Default and its consequences; provided, however, that no such waiver and no such amendment, supplement or modification shall (i) reduce the amount or extend the scheduled date of maturity of any Loan or of any installment thereof, or reduce the stated rate of any interest or fee payable hereunder or extend the scheduled date of any payment thereof or increase the amount or extend the expiration date of any Lender's Commitment, in each case without the consent of each Lender affected thereby, or (ii) amend, modify or waive any provision of this Section 10.1 or reduce the percentage specified in the definition of Required Lenders or Majority Lenders, or consent to the assignment or transfer by the Borrower of any of its rights and obligations under this Agreement and the other Loan Documents or release all or substantially all of the Collateral, in each case without the written consent of all the Lenders, or (iii) amend, modify or waive any provision of Article IX without the written consent of the then Agent. Any such waiver and any such amendment, supplement or modification shall apply equally to each of the Lenders and shall be binding upon the Borrower, the Lenders, the Agent and all future holders of the Loans. In the case of any waiver, the Borrower, the Lenders and the Agent shall be restored to their former positions and rights hereunder and under the other Loan Documents, and any Default or Event of Default waived shall be deemed to be cured and not continuing; no such waiver shall extend to any subsequent or other Default or Event of Default or impair any right consequent thereon. SECTION 10.2 Notices. (a) Except as otherwise expressly provided herein, all notices and other communications under this Agreement shall be in writing and shall be sufficiently given if made by hand delivery, by overnight courier service, by facsimile, or by registered or certified mail, postage-prepaid and return receipt requested, to the party to which such notice is directed at its address as follows: (i) If to the Borrower, to it at: Central Vermont Public Service Corporation 77 Grove Street Rutland, Vermont, 05701 Attn: Treasurer Telephone: (802) 773-2711 Telecopy: (802) 747-2139 (ii) If to the Agent, to it at: Toronto Dominion (Texas), Inc. 909 Fannin, Suite 1700 Houston, TX 77010 Attn: Manager, Agency Telephone: (713) 653-8231 Telecopy: (713) 951-9921 (iii) If to the Lenders, to them at the addresses set forth opposite their names on Schedule 1 hereto. (b) Any notice or other communication under this Agreement shall be deemed to have been duly given or made as of the date delivered, if by hand delivery or overnight courier service; when receipt is confirmed, if by facsimile; and five calendar days after mailing, if by registered or certified mail as provided herein; provided that any notice, request or demand to or upon the Agent or the Lenders pursuant to Section 2.2, 2.4, 2.5, 2.6, 2.7, 2.9, 2.10 or 2.11 shall not be effective until received. (c) Any party hereto may designate additional or different addresses to which notices hereunder shall be directed by giving written notice thereof to the other parties as provided herein. SECTION 10.3 No Waiver; Cumulative Remedies. No failure to exercise and no delay in exercising, on the part of the Agent or any Lender, any right, remedy, power or privilege hereunder or under the other Loan Documents shall operate as a waiver thereof; nor shall any single or partial exercise of any right, remedy, power or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, remedy, power or privilege. The rights, remedies, powers and privileges herein provided are cumulative and not exclusive of any rights, remedies, powers and privileges provided by law. SECTION 10.4 Survival of Representations and Warranties. All representations and warranties made hereunder, in the other Loan Documents and in any document, certificate or statement delivered pursuant hereto or in connection herewith shall survive the execution and delivery of this Agreement and the making of the Loans hereunder. SECTION 10.5 Expenses; Indemnity. (a) The Borrower agrees to pay all reasonable out-of-pocket expenses incurred by the Agent in connection with the preparation of this Agreement and the other Loan Documents or in connection with any amendments, modifications or waivers of the provisions hereof or thereof (whether or not the transactions hereby contemplated shall be consummated) or incurred by the Agent in connection with the administration of and performance of its obligations under the Loan Documents or the enforcement or protection of the rights of the Agent or the Lenders under the Loan Documents or in connection with the Loans made or the Notes issued hereunder or the other transactions contemplated hereby, including the fees and disbursements of Paul, Hastings, Janofsky & Walker LLP, counsel for the Agent. The Borrower further agrees that it shall indemnify the Lenders and the Agent from and hold them harmless against any documentary taxes, assessments or charges made by any Governmental Authority by reason of the execution and delivery of this Agreement or any of the other Loan Documents. (b) The Borrower agrees to indemnify each Lender and the Agent and their directors, officers, employees and agents (each such Person being called an "Indemnitee") against, and to hold each Indemnitee harmless from, any and all actual (and not consequential) losses, claims, damages, liabilities and related expenses, including reasonable counsel fees and expenses, incurred by or asserted against any Indemnitee arising out of, in any way connected with, or as a result of (i) the execution or delivery of this Agreement or any other Loan Document or any agreement or instrument contemplated thereby, the performance by the parties thereto of their respective obligations thereunder or the transactions contemplated thereby, (ii) the use of the proceeds of the Loans or (iii) any claim, litigation, investigation or proceeding relating to any of the foregoing, whether or not any Indemnitee is a party thereto, provided that such indemnity shall not, as to any Indemnitee, be available to the extent that such losses, claims, damages, liabilities or related expenses are determined by a court of competent jurisdiction by final and nonappealable judgment to have resulted from the gross negligence or wilful misconduct of such Indemnitee or from the breach by such Indemnitee of its obligations hereunder. (c) The provisions of this Section 10.5 shall remain operative and in full force and effect regardless of the expiration of the term of this Agreement, the consummation of the transactions contemplated hereby, the repayment of any of the Loans, the invalidity or unenforceability of any term or provision of this Agreement or any other Loan Document, or any investigation made by or on behalf of any Indemnitee. All amounts due under this Section 10.5 shall be payable on written demand therefor, subject to the right of the indemnifying party to challenge such payment in good faith as set forth in this Section 10.5. SECTION 10.6 Successors and Assigns; Participations and Assignments. (a) This Agreement shall be binding upon and inure to the benefit of the Borrower, the Lenders, the Agent and their respective successors and assigns, except that the Borrower may not assign or transfer any of its rights or obligations under this Agreement without the prior written consent of each Lender. (b) Subject to the consent of the Borrower (except if the Borrower is in default pursuant to Section 8(f)) and the Agent, which consent may not be unreasonably withheld, any Lender may, in the ordinary course of its commercial banking business and in accordance with applicable law, at any time sell to one or more banks or other entities ("Participants") participating interests in any Loan owing to such Lender, any Commitment of such Lender or any other interest of such Lender hereunder and under the other Loan Documents in an amount equal to the greater of $5,000,000 (or any multiple thereof) and the entire amount of the then outstanding Loans of such selling Lender. In the event of any such sale by a Lender of a participating interest to a Participant, such Lender's obligations under this Agreement to the other parties to this Agreement shall remain unchanged, such Lender shall remain solely responsible for the performance thereof, such Lender shall remain the holder of any such Loan for all purposes under this Agreement and the other Loan Documents, and the Borrower and the Agent shall continue to deal solely and directly with such Lender in connection with such Lender's rights and obligations under this Agreement and the other Loan Documents. The Borrower agrees that if amounts outstanding under this Agreement are due or unpaid, or shall have been declared or shall have become due and payable upon the occurrence of an Event of Default, each Participant shall, to the maximum extent permitted by applicable law, be deemed to have the right of setoff in respect of its participating interest in amounts owing under this Agreement to the same extent as if the amount of its participating interest were owing directly to it as a Lender under this Agreement. The Borrower also agrees that each Participant shall be entitled to the benefits of Sections 2.12, 2.13, 2.14 and 2.15 with respect to its participation in the Commitments and the Loans outstanding from time to time as if it was a Lender; provided that, in the case of Section 2.14, such Participant shall have complied with the requirements of said Section 2.14; and provided, further, that no Participant shall be entitled to receive any greater amount pursuant to any such Section than the transferor Lender would have been entitled to receive in respect of the amount of the participation transferred by such transferor Lender to such Participant had no such transfer occurred. (c) Subject to the consent of the Borrower (except if the Borrower is in default pursuant to Section 8(f)) and the Agent, which consent may not be unreasonably withheld, any Lender may, in the ordinary course of its commercial banking business and in accordance with applicable law, at any time and from time to time assign to any Lender or any affiliate thereof or, with the reasonable consent of the Borrower and the Agent (which in each case shall not be unreasonably withheld), to an additional bank or financial institution (an "Assignee") all or any part of its rights and obligations under this Agreement and the other Loan Documents pursuant to an assignment and acceptance in form reasonably satisfactory to the Agent and the Borrower (an "Assignment and Acceptance"), executed by such Assignee, such assigning Lender (and, in the case of an Assignee that is not then a Lender or an affiliate thereof, by the Agent) and delivered to the Agent. Upon such execution, delivery, acceptance and recording, from and after the effective date determined pursuant to such Assignment and Acceptance, (x) the Assignee thereunder shall be a party hereto and, to the extent provided in such Assignment and Acceptance, have the rights and obligations of a Lender hereunder with a Commitment as set forth therein, and (y) the assigning Lender thereunder shall, to the extent provided in such Assignment and Acceptance, be released from its obligations under this Agreement (and, in the case of an Assignment and Acceptance covering all or the remaining portion of an assigning Lender's rights and obligations under this Agreement, such assigning Lender shall cease to be a party hereto). Notwithstanding any provision of this paragraph (c) and paragraphs (a) and (e) of this subsection, the consent of the Borrower shall not be required, and unless requested by the Assignee and/or the assigning Lender, new Notes shall not be required to be executed and delivered by the Borrower, for any assignment which occurs at any time when the events described in Section 8(f) shall have occurred and be continuing. (d) Upon its receipt of an Assignment and Acceptance executed by an assigning Lender and an Assignee (and, in the case of an Assignee that is not then a Lender or an affiliate thereof, by the Agent), the Agent shall (i) promptly accept such Assignment and Acceptance and (ii) on the effective date determined pursuant thereto record the information contained therein in its register and give notice of such acceptance and recordation to the Lenders and the Borrower. (e) The Borrower authorizes each Lender to disclose to any Participant or Assignee (each, a "Transferee") and any prospective Transferee any and all financial information in such Lender's possession concerning the Borrower and its Affiliates which has been delivered to such Lender by or on behalf of the Borrower pursuant to this Agreement or which has been delivered to such Lender by or on behalf of the Borrower in connection with such Lender's credit evaluation of the Borrower and its Affiliates prior to becoming a party to this Agreement. (f) Any Lender may at any time assign all or any portion of its rights under this Agreement and any of its Notes to a Federal Reserve Bank. No such assignment shall release the transferor Lender from its obligations hereunder. SECTION 10.7 Right of Setoff. If an Event of Default shall have occurred and be continuing, each of the Lenders is hereby authorized at any time and from time to time, to the fullest extent permitted by law, to set off and apply any and all deposits (general or special, time or demand, provisional or final) at any time held and other indebtedness at any time owing by such Lender to or for the credit or the account of the Borrower against any and all the obligations, of the Borrower now or hereafter existing under this Agreement and the other Loan Documents held by such Lender, irrespective of whether or not such Lender shall have made any demand under this Agreement, or such other Loan Document and although such obligations may be contingent or unmatured. The rights of each of the Lenders under this Section 10.7 are in addition to other rights and remedies (including other rights of setoff) which it may have. SECTION 10.8 Severability. Any provision of this Agreement which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. SECTION 10.9 Integration. This Agreement represents the agreement of the Borrower, the Agent and the Lenders with respect to the subject matter hereof, and there are no promises, undertakings, representations or warranties by the Agent or any Lender relative to subject matter hereof not expressly set forth or referred to herein or in the other Loan Documents. SECTION 10.10 GOVERNING LAW. THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK. SECTION 10.11 WAIVERS OF JURY TRIAL. THE BORROWER, THE AGENT AND THE LENDERS HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVE TRIAL BY JURY IN ANY LEGAL ACTION OR PROCEEDING RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT AND FOR ANY COUNTERCLAIM THEREIN. SECTION 10.12 Submission To Jurisdiction; Waivers. The Borrower hereby irrevocably and unconditionally: (a) submits for itself and its property in any legal action or proceeding relating to this Agreement and the other Loan Documents to which it is a party, or for recognition and enforcement of any judgement in respect thereof, to the non-exclusive general jurisdiction of the federal and state courts sitting in the State of New York, and the appellate courts from any thereof; (b) consents that any such action or proceeding may be brought in such courts and waives any objection that it may now or hereafter have to the venue of any such action or proceeding in any such court or that such action or proceeding was brought in an inconvenient court and agrees not to plead or claim the same; (c) agrees that service of process in any such action or proceeding may be effected by mailing a copy thereof by registered or certified mail (or any substantially similar form of mail), postage prepaid, to the Borrower at its address set forth in Section 10.2 or at such other address of which the Agent shall have been notified pursuant thereto; and (d) agrees that nothing herein shall affect the right to effect service of process in any other manner permitted by law or shall limit the right to sue in any other jurisdiction. SECTION 10.13 Acknowledgments. The Borrower hereby acknowledges that: (a) it has been advised by counsel in the negotiation, execution and delivery of this Agreement and the other Loan Documents; (b) neither the Agent nor any Lender has any fiduciary relationship with or duty to the Borrower arising out of or in connection with this Agreement or any of the other Loan Documents, and the relationship between Agent and Lenders, on one hand, and the Borrower, on the other hand, in connection herewith or therewith is solely that of debtor and creditor; and (c) no joint venture is created hereby or by the other Loan Documents or otherwise exists by virtue of the transactions contemplated hereby among the Lenders or among the Borrower and the Lenders. SECTION 10.14 Counterparts. This Agreement may be executed by one or more of the parties to this Agreement on any number of separate counterparts (including by facsimile transmission), and all of said counterparts taken together shall be deemed to constitute one and the same instrument. IN WITNESS WHEREOF the parties hereto have caused this Agreement to be executed and delivered by their proper and duly authorized officers as of the date first above written. CENTRAL VERMONT PUBLIC SERVICE CORPORATION By: /s/ Jonathan W. Booraem Name: Jonathan W. Booraem Title: Treasurer TORONTO DOMINION (TEXAS), INC., as Agent By: /s/ Jano Mott Name: Jano Mott Title: Vice President LENDERS: TORONTO DOMINION (NEW YORK), INC. By: /s/ Debbie A. Greene Name: Debbie A. Greene Title: Vice President BANKBOSTON, N.A. By: /s/ Virginia Ryan Name: Virginia Ryan Title: Vice President FLEET NATIONAL BANK By: /s/ Robert D. Lanigan Name: Robert D. Lanigan Title: Director CITIZENS BANK NEW HAMPSHIRE By: /s/ Vernon Studer Name: Vernon Studer Title: Vice President Schedule 1 COMMITMENTS OF THE LENDERS
Lender Address Commitment Commitment Percentage - - ------ ------- ---------- ---------- Toronto Dominion 909 Fannin, Houston, (New York), Inc. TX 77010 $15,000,000 30% BankBoston 100 Federal Street Boston, MA 02110 10,000,000 20% Citizens Bank 20 West Park Street Lebanon, NH 03766 7,500,000 15% Fleet National Bank One Federal Street Boston, MA 02110 17,500,000 35% Total $50,000,000 100%
Schedule 2 to CREDIT AGREEMENT FORM OF REVOLVING LOAN NOTE November__, 1997 $XX,000,000 New York, New York For value received, CENTRAL VERMONT PUBLIC SERVICE CORPORATION, a Vermont corporation (the "Borrower"), hereby unconditionally promises to pay on the Revolving Loan Maturity Date to the order of [each Lender], (the "Lender"), in lawful money of the United States of America and in immediately available funds, a principal sum equal to _____________________ Dollars ($XX,000,000.00) or, if less, the aggregate unpaid principal amount of all Revolving Loans made by the Lender to the Borrower under and pursuant to the Credit Agreement dated as of November __, 1997 (as amended from time to time, the "Credit Agreement"), among the Borrower, the lenders from time to time party thereto, including the Lender, and Toronto Dominion (Texas), Inc., as Agent (together with its successors in such capacity, the "Agent") and as Agent. The Borrower further agrees to pay interest in like money on the unpaid principal amount hereof from time to time outstanding at the rates and on the dates determined in accordance with the Credit Agreement. All payments of principal and interest with respect to this Note shall be made by the Borrower at the office of the Agent at 909 Fannin, Suite 1700, Houston, Texas 77010, or such other office as shall be from time to time specified by the Agent to the Borrower. The holder of this Note shall, and is hereby irrevocably authorized by the Borrower to, endorse on the Loan Schedule attached hereto and forming a part hereof (and on separate continuations of such Loan Schedule which shall be attached hereto and form a part hereof), or otherwise to record on the Lender's internal records, appropriate notations evidencing the date, Type and amount of each Revolving Loan made under and pursuant to the Credit Agreement, each continuation thereof, each conversion of all or a portion thereof to another Type, the date and amount of each payment or prepayment of principal of this Note which is received by the Lender and, in the case of Eurodollar Loans, the length of each Interest Period with respect thereto, which recordation shall constitute prima facie evidence of the accuracy of the information so recorded; provided that failure by the Lender to make any such notations or any error therein shall not affect any of the Borrower's obligations in respect of this Note or obligate the Borrower to pay any amounts in excess of the amounts otherwise payable by the Borrower hereunder. This Note is one of the Revolving Loan Notes referred to in the Credit Agreement and any holder hereof is entitled to all of the rights, remedies, benefits and privileges provided for in the Credit Agreement, which, among other things, contains provisions for the repayment hereof and also for optional and mandatory prepayments hereof under certain conditions. Upon the occurrence of any one or more of the Events of Default specified in the Credit Agreement, all amounts then remaining unpaid on this Note shall become, or may be declared to be, immediately due and payable, all as provided in the Credit Agreement. The Borrower waives presentment, demand, protest, notice of protest, notice of nonpayment or dishonor and all other demands and notices in connection with the delivery, acceptance, performance, default or enforcement of this Note (other than such of the foregoing as are expressly required by the terms of the Credit Agreement) and, to the fullest extent permitted by applicable law, assents to any extension or postponement of the time of payment or any other indulgence, to any substitutions, exchange or release of collateral and to the addition or release of any other party or person, primarily or secondarily liable. Terms defined in the Credit Agreement are used herein as therein defined. THIS NOTE SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK DETERMINED WITHOUT REFERENCE TO PRINCIPLES OF CONFLICTS OF LAW. IN WITNESS WHEREOF, the Borrower has caused this Revolving Loan Note to be duly executed and delivered under seal by its officer thereunto duly authorized as of the date hereof. CENTRAL VERMONT PUBLIC SERVICE CORPORATION By: Name: Title: LOAN SCHEDULE TO REVOLVING LOAN NOTE Loans, Conversions and Payments of ABR Loans Date Amount of ABR Loans Amount of Principal Repaid Amount of ABR Loans Converted to Eurodollar Loans Amount of Eurodollar Loans Converted to ABR Loans Unpaid Principal Balance of ABR Loans Notation Made By LOAN SCHEDULE TO REVOLVING LOAN NOTE Loans, Conversions and Payments of Eurodollar Loans Date Amount of Eurodollar Loans Amount of Principal Repaid Amount of Eurodollar Loans Converted to ABR Loans Amount of ABR Loans Converted to Eurodollar Loans Unpaid Principal Balance of Eurodollar Loans Notation Made By Schedule 3 of the Credit Agreement [Form of Opinion of Counsel to the Borrower] November __, 1997 The Toronto-Dominion Bank 909 Fannin Street Houston, Texas 77010 Ladies and Gentlemen: I am [General Counsel] to Central Vermont Public Service Corporation, a corporation organized and existing under the laws of the State of Vermont (the "Company"). In that capacity I am familiar with the matters relating to the preparation, execution and delivery of a Credit Agreement (the "Credit Agreement") dated as of October __, 1997 among the Company and Toronto-Dominion (Texas), Inc. (the "Bank") and the Lenders named therein. This opinion is furnished to you pursuant to Section 5.1(b) of the Credit Agreement. Terms used herein which are defined in the Credit Agreement shall have the respective meanings set forth therein unless otherwise defined herein. I have examined copies of the following instruments and documents: (i) the Articles of Association and By-laws of the Company; (ii) the Credit Agreement; (iii) the resolutions dated October 6, 1997, of the Company's Board of Directors; (iv) the Existing Letter of Credit; and (v) the other Loan Documents. I have also reviewed, and to the extent I have deemed appropriate relied upon, certificates of officers of the Company or of government officials as to certain factual matters. In addition, I have reviewed such other instruments and documents as I have deemed necessary or appropriate as the basis for the opinion hereinafter expressed, and I have conducted such other investigations of fact and law as I have considered appropriate. I have made no investigation with respect to the franchises, licenses and permits of the company in the State of New Hampshire, or with respect to the jurisdiction of the New Hampshire Public Utilities Commission over the execution, delivery and performance by the Company of the Credit Agreement, as to which matters I refer you to the opinion of Ransmeier & Spellman of even date herewith, a copy of which has been furnished to me and upon which I am relying with respect to such matters. I have made no investigation with respect to the franchises, licenses and permits of the Company in the State of Connecticut, or with respect to the jurisdiction of the Connecticut Department of Business Regulation - Division of Public Utility Control over the execution, delivery and performance by the Company of the Credit Agreement, as to which matters I refer to the opinion of Day, Berry & Howard of even date herewith, a copy of which has been furnished to me and upon which I am relying with respect to such matters. I have made no investigation with respect to the franchises, licenses and permits of the Company in the State of Maine, or with respect to the jurisdiction of the Maine Public Utilities Commission over the execution, delivery and performance by the Company of the Credit Agreement, as to which matters I refer you to the opinion of Verrill & Dana of even date herewith, a copy of which has been furnished to me and upon which I am relying with respect to such matters. I have made no investigation with respect to the franchises, licenses and permits of the Company in the State of New York or with respect to the jurisdiction of the New York Public Service Department - Utilities Efficiency Division over the execution, delivery and performance by the Company of the Credit Agreement, as to which matters I refer you to the opinion of _____________ of even date herewith, a copy of which has been furnished to me and upon which I am relying with respect to such matters. Based upon the foregoing I am of the opinion that: 1. The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Vermont and is duly qualified to do business in and is in good standing as a foreign corporation under the laws of the States of New Hampshire, Connecticut, Maine and New York and of any other state in which the ownership of its properties or the conduct of its business makes such qualification necessary. 2. The execution, delivery and performance by the Company of the Loan Documents are within the Company's corporate power, has been duly authorized by all necessary corporate action, and does not contravene (i) the Company's Articles of Association or By-laws, (ii) any law, rule or regulation applicable to the Company or (iii) any contractual or legal restriction binding on or affecting the Company, and does not result in or require the creation of any Lien, security interest or other charge or encumbrance upon or with respect to any of its properties. 3. No authorization, approval or other action by, and no notice to or filing or registration with, any Governmental Authority or regulatory body including, without limitation, the Industrial Development Authority of the State of Vermont, the Vermont Public Service Board, the New Hampshire Public Utilities Commission, the Connecticut Department of Business Regulation - Division of Public Utility Control, the New York Public Service Department - Utilities Efficiency Division and the Maine Public Utilities Commission is required for the due execution, delivery and performance by the Company of the Loan Documents (other than approvals or waivers, as the case may be, from appropriate governmental authorities or regulatory bodies of each of the States of Vermont, New Hampshire, Connecticut, Maine and New York, which may be necessary for extension of the Maturity Date pursuant to Section 2.6(b) of the Credit Agreement, as to which approvals or waivers I express no opinion herein). 4. Each of the Credit Agreement and the other Loan Documents to which the Company is a party is a legally valid and binding obligation of the Company, enforceable against the Company in accordance with its terms, except as such enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium or other laws or equitable principles affecting creditors' rights generally. 5. There is no pending action or proceeding before any court, governmental agency or arbitrator against or directly involving the Company and, to the best of the Company's knowledge, there is no threatened action or proceeding affecting the Company before any court, governmental agency or arbitrator which, in any case, may materially and adversely affect the financial condition or operations of the Company or which seeks to restrain or would otherwise have a material adverse effect on the transactions contemplated by the Loan Documents. I express no opinion as to any question of law other than the law of the State of Vermont and the law of the United States of America. Very truly yours, Schedule 4 To Credit Agreement BORROWING CERTIFICATE This Borrowing Certificate is provided as of this ___ day of __________, 199_ pursuant to Section 5.2(c) of the Credit Agreement, dated as of November __, 1997 (as amended, supplemented or otherwise modified from time to time, the "Credit Agreement"), among Central Vermont Public Service Corporation (the "Borrower"), the Lenders named therein, and Toronto Dominion (Texas), Inc., as Agent. The undersigned Responsible Officer of the Borrower hereby certifies that: 1. The undersigned Responsible Officer of the Borrower is familiar with the terms of the Credit Agreement. 2. Each of the representations and warranties made by the Borrower and set forth in the Credit Agreement and the other Loan Documents or contained in any certificate, document or financial or other statement furnished pursuant thereto or in connection therewith is true and correct in all material respects on and as of the date hereof with the same effect as if made on the date hereof. 3. Immediately prior to and immediately after the making of the Loans requested hereby, no Default or Event of Default has or will have occurred and be continuing. 4. Each of the conditions precedent for the making of the Loans requested hereby set forth in Article V of the Credit Agreement have been satisfied. 5. The Borrower hereby requests that Loans in the aggregate amount of $____________ be made by the Lenders as follows: Borrowing Date: Term Loan: Eurodollar Loan: $ Interest Period: ABR Loan: $ Revolving Loan: Eurodollar Loan: $ Interest Period: ABR Loan: $ 6. The Borrower hereby requests that the proceeds of such Loans be made available to the Borrower by wiring such amount in immediately available funds to the following account: Bank:____________________________________ ABA No.:_________________________________ Account No.:_____________________________ Account Name:____________________________ Reference:_______________________________ 7. The Borrower represents that the attached Schedule accurately lists the date, the Lender, the amount and the status of each borrowing heretofore made pursuant to the Credit Agreement, and has been updated upon each such borrowing. Capitalized items not otherwise defined herein shall have the meanings ascribed thereto in the Credit Agreement. IN WITNESS WHEREOF, the undersigned duly authorized officer of the Borrower has hereunto set his or her hand as of the date first above written. CENTRAL VERMONT PUBLIC SERVICE CORPORATION By:_____________________________ Name: Title: LOAN SCHEDULE TO BORROWING NOTICE NOTE Date Amount of Eurodollar Loans Amount of Eurodollar Loans Converted to ABR Loans Amount of ABR Loans Converted to Eurodollar Loans Amount of Auction Advances Notation Made By Schedule 5 To Credit Agreement Notice to Borrower of Auction Offer Central Vermont Public Service Corporation 77 Grove Street Rutland, VT 05701 Attn: Cash Management Coordinator In respect of your Notice of an Auction Borrowing of even date herewith pursuant to Section 3.1(a)(i) of the Credit Agreement dated as of November __, 1997 among Toronto Dominion (Texas), Inc., the Lenders named therein and you, the undersigned proposes to make an Auction Offer with the following terms: Minimum Amount: $______________ Maximum Amount: S______________ Interest Rate: _______________ Interest Period: _______________ Applicable Lending Office: _______________ _______________ _______________ We await your response. [Lender]_________________________ Name: ___________________________ Title: __________________________ Duly Authorized Schedule 6 To Credit Agreement Responsible Officer Letter Toronto Dominion (Texas), Inc. 909 Fannin, Suite 1700 Houston, TX 77010 Attn: Manager, Agency Re: Responsible Officer/ Central Vermont Credit Facility Dear Sirs: Pursuant to the Terms of the Credit Agreement dated as of _________________, 1997 (as amended, supplemented or otherwise modified from time to time, the "Credit Agreement") among Central Vermont Public Service Corporation, the Lenders named therein, and Toronto Dominion (Texas), Inc., as Agent, the undersigned hereby designates the following persons as "Responsible Officers" of the Borrower pursuant to the terms of the Credit Agreement: ______________________ ______________________ ______________________ Very truly yours, _____________________________ [Chief Financial Officer, President or Treasurer] Schedule 7 To Credit Agreement Form of Auction Note Up to U.S.$25,000,000 Dated: November __, 1997 FOR VALUE RECEIVED, the undersigned, Central Vermont Public Service Corporation, a Vermont corporation (the "Borrower"), HEREBY PROMISES TO PAY TO the order of _______________ (the "Lender") for the account of its Applicable Lending Officer (as defined in the Credit Agreement dated as of November 5, 1997 (the "Credit Agreement"), on or after November 7, 1997, the principal amount of up to Twenty Five Million Dollars ($25,000,000). The Borrower promises to pay interest on the unpaid principal amount hereof from the date hereof until such principal amount is paid in full, at the interest rate and payable on the interest payment date or dates provided in the Notice to Borrower of Auction Offer. Both principal and interest are payable in lawful money of the United States of America to or the account of the Lender at its office, in same day funds, free and clear of and without any deduction, with respect to the payee named above, for any and all present and future taxes, deductions, charges or withholdings (other than United States withholding taxes, if applicable), and all liabilities with respect thereto. The holder of this Note shall, and is hereby irrevocably authorized by the Borrower to, endorse on the Loan Schedule attached hereto and forming a part hereof (and on separate continuations of such Loan Schedule which shall be attached hereto and form a part hereof), or otherwise to record on the Lender's internal records, appropriate notations evidencing the date and amount of each Auction Borrowing made under and pursuant to the Credit Agreement, each continuation thereof, the date and amount of each payment or prepayment of principal of this Note which is received by the Lender, which recordation shall constitute prima facie evidence of the accuracy of the information so recorded; provided that failure by the Lender to make any such notations or any error therein shall not affect any of the Borrower's obligations in respect of this Note or obligate the Borrower to pay any amounts in excess of the amounts otherwise payable by the Borrower hereunder. This Note is the Auction Note referred to in the Credit Agreement, and any holder hereof is entitled to all of the rights, remedies, benefits and privileges provided for in the Credit Agreement. Upon the occurrence of any one or more of the Events of Default specified in the Credit Agreement, all amounts then remaining unpaid on this Note shall become, or may be declared to be, immediately due and payable, all as provided in the Credit Agreement. The Borrower waives presentment, demand, protest, notice of protest, notice of nonpayment or dishonor and all other demands and notices in connection with the delivery, acceptance, performance, default or enforcement of this Note (other than such of the foregoing as are expressly required by the terms of the Credit Agreement) and, to the fullest extent permitted by applicable law, assents to any extension or postponement of the time of payment or any other indulgence, to any substitutions, exchange or release of collateral and to the addition or release of any other party or person, primarily or secondarily liable. Terms defined in the Credit Agreement are used herein as therein defined. THIS NOTE SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK DETERMINED WITHOUT REFERENCE TO PRINCIPLES OF CONFLICTS OF LAW. IN WITNESS WHEREOF, the Borrower has caused this Auction Note to be duly executed and delivered under seal by its officer thereunto duly authorized as of the date hereof. CENTRAL VERMONT PUBLIC SERVICE CORPORATION By:______________________ Name: Title: LOAN SCHEDULE TO AUCTION NOTE Date Amount of Auction Advance Amount of Principal Repaid Name of Lender Unpaid Principal Balance of Auction Advance Notation Made By TABLE OF CONTENTS Page ARTICLE I DEFINITIONS SECTION 1.1 Defined Terms 1 SECTION 1.2 Other Definitional Provisions 14 ARTICLE II AMOUNT AND TERMS OF COMMITMENTS SECTION 2.1 Revolving Loans 15 SECTION 2.2 Procedure for Revolving Loans 15 SECTION 2.3 Fees 16 SECTION 2.4 Interest Rates and Payment Dates 17 SECTION 2.5 Pro Rata Treatment 18 SECTION 2.6 Repayment of Loans; Term 19 SECTION 2.7 Payments 20 SECTION 2.8 Revolving Loan Note 20 SECTION 2.9 Optional Prepayments 21 SECTION 2.10 Conversion and Continuation Options 21 SECTION 2.11 Inability to Determine Interest Rate 22 SECTION 2.12 Change in Legality 23 SECTION 2.13 Increased Costs 23 SECTION 2.14 Taxes 25 SECTION 2.15 Indemnity 27 ARTICLE III AUCTION ADVANCES SECTION 3.1 The Auction Advance 28 SECTION 3.2 Conditions Precedent to Each Auction Borrowing 31 ARTICLE IV REPRESENTATIONS AND WARRANTIES SECTION 4.1 Incorporation and Good Standing 32 SECTION 4.2 Corporate Power and Authority 32 SECTION 4.3 No Conflicts 32 SECTION 4.4 Governmental Approvals 33 SECTION 4.5 Legally Enforceable Agreements 33 SECTION 4.6 Financial Statements 33 SECTION 4.7 Litigation 33 SECTION 4.8 Margin Stock 34 SECTION 4.9 ERISA 34 SECTION 4.10 Environmental Matters 34 SECTION 4.11 No Default; Compliance 35 SECTION 4.12 Investment Company Act 35 SECTION 4.13 Taxes 35 SECTION 4.14 No Material Adverse Effect 35 SECTION 4.15 Statements; Certificates 35 ARTICLE V CONDITIONS PRECEDENT SECTION 5.1 Conditions to Closing 36 SECTION 5.2 Conditions to Each Loan 37 ARTICLE VI AFFIRMATIVE COVENANTS SECTION 6.1 Payment of Taxes, Etc 38 SECTION 6.2 Maintenance of Insurance 38 SECTION 6.3 Preservation of Corporate Existence, Etc 38 SECTION 6.4 Compliance with Laws, Etc 39 SECTION 6.5 Visitation Rights 39 SECTION 6.6 Keeping of Books 39 SECTION 6.7 Reporting Requirements 39 ARTICLE VII NEGATIVE COVENANTS SECTION 7.1 Liens 41 SECTION 7.2 Sale of Assets 41 SECTION 7.3 Mergers, Etc 42 SECTION 7.4 Compliance with ERISA 42 SECTION 7.5 Change in Nature of Business 42 SECTION 7.6 Consolidated Leverage Ratio 42 ARTICLE VIII EVENTS OF DEFAULT SECTION 8.1 Events of Default 43 ARTICLE IX THE AGENT SECTION 9.1 Appointment 45 SECTION 9.2 Delegation of Duties 46 SECTION 9.3 Exculpatory Provisions 46 SECTION 9.4 Reliance by Agent 46 SECTION 9.5 Notice of Default 47 SECTION 9.6 Non-Reliance on Agent and Other Lenders 47 SECTION 9.7 Indemnification 48 SECTION 9.8 Agent in Its Individual Capacity 48 SECTION 9.9 Successor Agent 48 ARTICLE X MISCELLANEOUS SECTION 10.1 Amendments and Waivers 49 SECTION 10.2 Notices 50 SECTION 10.3 No Waiver; Cumulative Remedies 51 SECTION 10.4 Survival of Representations and Warranties 51 SECTION 10.5 Expenses; Indemnity 51 SECTION 10.6 Successors and Assigns; Participations and Assignments 52 SECTION 10.7 Right of Setoff 54 SECTION 10.8 Severability 55 SECTION 10.9 Integration 55 SECTION 10.10 GOVERNING LAW 55 SECTION 10.11 WAIVERS OF JURY TRIAL 55 SECTION 10.12 Submission To Jurisdiction; Waivers 55 SECTION 10.13 Acknowledgments 56 SECTION 10.14 Counterparts 56 SCHEDULES: Schedule 1 Commitments of the Lenders Schedule 2 Form of Revolving Loan Note Schedule 3 Form of Opinion of Counsel to Borrower Schedule 4 Borrowing Certificate Schedule 5 Notice of an Auction Borrowing Schedule 6 Notice to Borrower of Auction Offer Schedule 7 Responsible Officer Letter Schedule 8 Form of Auction Note EX-4 12 EXHIBIT 4-54 FOR FORM 10-K CENTRAL VERMONT PUBLIC SERVICE CORPORATION __________ Thirty-Ninth Supplemental Indenture Dated as of December 29, 1997 and Resolutions Connected Therewith Adopted December 2, 1997 RECORDING INFORMATION ____________________________ Town Clerk's Office Received this Supplemental Indenture for record on the ______ day of __________, 19___, at _____ o'clock, _____. M., and filed the bound copy as Book _____ in accordance with T 24 V.S.A., Section 1155, and cross-indexed in the Land Records in Book _____ at Page _____. Attest: _________________________ Town Clerk THIS SUPPLEMENTAL INDENTURE, dated as of December 29, 1997, by and between Central Vermont Public Service Corporation, a corporation duly organized and existing under the laws of the State of Vermont (hereinafter generally referred to as the Company), and The First National Bank of Boston, a national banking association (hereinafter generally referred to as the Trustee), as it is the first successor Trustee under the Indenture of Mortgage next hereinafter referred to, and State Street Bank and Trust Company, a Massachusetts trust company (hereinafter generally referred to as the Successor Trustee), as it is the second Successor Trustee under said Indenture of Mortgage, WITNESSETH that: Whereas the Company heretofore duly executed and delivered to Old Colony Trust Company, as Trustee, or to its successor as Trustee, an Indenture of Mortgage (hereinafter generally referred to as the Original Indenture), dated as of October 1, 1929, but actually executed on October 24, 1929 (the Original Indenture, with all indentures supplemental thereto as therein provided, being hereinafter generally referred to as the Mortgage), Liber 150 of Mortgages, Page 51, Grafton County (New Hampshire) Registry of Deeds, Liber 616, Folio 484, Sullivan County (New Hampshire) Records, Vol. 234, Page 531, in the Office of the Secretary of State of Connecticut, in the Office of the City Clerk of Rutland, Vermont, in the offices of the clerks of certain other towns and cities in the State of Vermont, and in the Office of the Secretary of State of the State of Vermont, to which Original Indenture this instrument is supplemental, and thirty-eight duly recorded indentures supplemental thereto and in modification and confirmation thereof, whereby all the properties of the Company, whether owned at the time of the execution thereof or thereafter acquired, with certain exceptions and reservations therein fully set forth, were granted, assigned, transferred, mortgaged and pledged to the Trustee, in trust upon the terms and conditions set forth therein, to secure bonds of the Company issued and to be issued in accordance with the terms of the Mortgage and for other purposes more particularly set forth therein; and Whereas on January 4, 1971, Old Colony Trust Company was merged into The First National Bank of Boston which thereupon succeeded to the trusts under the Mortgage; and Whereas on September 29, 1995 The First National Bank of Boston sold substantially all its corporate trust business and assets to State Street Bank and Trust Company which thereupon commenced to act as trustee under the Mortgage (hereinafter referred to as the Succession); and Whereas on November 6, 1995 the Board of Directors of the Company confirmed State Street Bank and Trust Company as Successor Trustee in case the automatic succession provisions of the last paragraph of Section 12 of Article XV of the Mortgage might be deemed inapplicable to the Succession; and Whereas as of June 5, 1996 a Resignation and Appointment Agreement was executed and delivered by the Company, the Trustee and the Successor Trustee upon notice to the holders of all the bonds then outstanding and with the consent of the holders of a majority in principal amount of the bonds then outstanding given pursuant to instruments in writing signed by or on behalf of such holders and delivered to the Successor Trustee; and Whereas in order to comply with the obligations of the Company under the last sentence of the fourth paragraph of Section 12 of Article XV of the Mortgage and for the purpose of confirming the vesting of the trust estate in the Successor Trustee under Section 13 of Article XV of the Mortgage and of evidencing the Succession as permitted by Section 1(k) of Article XVI of the Mortgage, the Company, the Trustee and the Successor Trustee have duly and lawfully determined to execute this instrument; and Whereas in order to comply with the obligations of the Company in Section 12 of Article III and elsewhere in the Original Indenture, and the provisions of said section and of Section 1 of Article XVI of the Original Indenture, it is desirable and the Company is required and has duly and lawfully determined, at the request of the Trustee, to execute and deliver this instrument for the purpose of complying with said obligations and provisions; and Whereas the Company has caused to be paid or redeemed all bonds issued under the Mortgage other than those now outstanding as described below and has caused to be paid or redeemed or has otherwise discharged the underlying bonds of its predecessor corporations described in the Original Indenture and the mortgages securing the same; and the Company has also issued and there are outstanding on the date of delivery hereof $97,000,000 in principal amount of First Mortgage Bonds, Series EE, FF, GG, HH, JJ, KK, LL, MM, NN and OO; and Whereas this Supplemental Indenture has been duly and legally authorized by the Board of Directors of the Company, and the use of terms and expressions herein is in accordance with the definitions, uses and constructions contained in the Original Indenture as heretofore and hereby supplemented, modified and confirmed. Now Therefore, in confirmation of and supplementing the Mortgage and pursuant to, in compliance with, and in execution of, the powers, authorities and obligations conferred, imposed and reserved therein and every other power, authority and obligation appertaining thereto, in consideration of the premises, and of the sum of one dollar to it duly paid by said State Street Bank and Trust Company and of other good and valuable consideration, the receipt whereof is hereby acknowledged, said Central Vermont Public Service Corporation has given, granted, bargained, sold, transferred, assigned, pledged, mortgaged, warranted, conveyed and confirmed to the Trustee, and by these presents does give, grant, bargain, sell, transfer, assign, pledge, mortgage, warrant, convey and confirm, unto said State Street Bank and Trust Company as Successor Trustee as aforesaid, and its successor or successors in the trusts under the Mortgage and hereunder, and its and their assigns, (a) all and singular the plants, rights, permits, franchises, privileges, easements and property, real, personal and mixed, described in the Original Indenture and each of the preceding Supplemental Indentures, and thereby or otherwise thereunder conveyed, pledged, assigned, transferred and mortgaged, or intended so to be (said descriptions in the Original Indenture and each of the preceding Supplemental Indentures being hereby made a part hereof to the same extent as if set forth herein at length), whether then or now owned or thereafter or hereafter acquired, except such of said properties or interests therein as may have been released by the Trustee or Successor Trustee or sold or disposed of in whole or in part as permitted by the provisions of the Original Indenture as heretofore supplemented and amended and (b) also, but without in any way limiting the generality of the foregoing, all of the right, title and interest of the Company in and to the franchises, rights, titles, interests, easements and properties described in Schedule A hereto attached and hereby made a part hereof as fully as if set forth herein at length. Subject, however, as to all of the foregoing, to the specific rights, privileges, liens, encumbrances, restrictions, conditions, limitations, covenants, interests, reservations, exceptions and otherwise as provided in the Original Indenture and preceding Supplemental Indentures, and in the descriptions in the schedules thereto and hereto and in the deeds or grants in said schedules referred to. But Specifically Reserving and Excepting (as the same were reserved and excepted from the lien of the Original Indenture and all preceding Supplemental Indentures) from this instrument and the grant, conveyance, mortgage, transfer and assignment herein contained (1) all right, title and interest of the Company, now owned or hereafter acquired, in and to the properties and rights specified in subclauses (a) and (c), both inclusive, of the granting clauses on page 11 of the Original Indenture, and (2) (as the same, pursuant to the provisions of Section 18(b) of Article 2 of the Fifth Supplemental Indenture, dated as of February 1, 1945, were reserved from the lien of the Original Indenture and the preceding Supplemental Indentures) all telephone properties, whether heretofore or now owned or hereafter acquired by the Company. To Have and to Hold all said property hereby conveyed, assigned, pledged or mortgaged, or intended so to be, together with the rents, issues and profits thereof, as well as all such after-acquired property, unto the Successor Trustee, its successor or successors in the trusts under the Mortgage and hereunder and its and their assigns forever; But in Trust, Nevertheless, under and subject to the provisions and conditions, with all the powers and authority and for the trusts and purposes, herein and in the Mortgage set forth, (1) for the equal and proportionate benefit and security (except as provided in Section 3 of Article III and elsewhere in the Original Indenture as heretofore and hereby supplemented, modified and confirmed) of the holders of all bonds and interest coupons heretofore, now and hereafter issued under the Mortgage and from time to time outstanding, pursuant to the provisions thereof, and for the enforcement of the payment of said bonds and coupons when payable, and the performance of and compliance with the covenants and conditions of the Mortgage, without (except as aforesaid) any preference, distinction or priority as to lien or otherwise of any bond or coupon over any other bond or coupon by reason of the difference in the series or time of the actual issue, sale or negotiation thereof, or for any other reason whatsoever, so that each and every bond heretofore, now or hereafter issued under the Mortgage shall have the same lien, and so that the interest and principal of every such bond shall, subject to the terms of the Original Indenture, be equally and proportionally secured thereby and hereby, as if it had been made, executed, delivered, sold and negotiated simultaneously with the execution and delivery of the Original Indenture; and (2) subject to the covenants, agreements, rights, privileges, immunities, trusts and duties set forth in the Original Indenture, as heretofore supplemented, modified and confirmed, and in this Supplemental Indenture. And it is Hereby Covenanted, Declared and Agreed, upon the trusts and for the purposes aforesaid, as set forth in the following covenants, agreements, conditions and provisions: ARTICLE 1. Trustee Succession and Assignment. Section 1. The Company, the Trustee and the Successor Trustee hereby confirm that effective at the opening of business on September 29, 1995 (the "Effective Time") State Street Bank and Trust Company became Successor Trustee under the Mortgage either by automatic succession to The First National Bank of Boston under the last paragraph of Section 12 of Article XV of the Mortgage or by the resignation of The First National Bank of Boston as Trustee, the acceptance of such resignation by the Company, the Company's appointment of State Street Bank and Trust Company as Successor Trustee and State Street Bank and Trust Company's acceptance of such appointment, each of which are hereby confirmed as of the Effective Time. The Successor Trustee represents that it now meets and at all times since the opening of business on September 29, 1995 has met the requirements specified in Section 1(a) of Article XV of the Mortgage. The Company, the Trustee and the Successor Trustee agree that the notice to and consent by holders of bonds outstanding described in the fifth recital of this Supplemental Indenture are sufficient to authorize the Succession to be confirmed as of the Effective Time by execution of this Supplemental Indenture and without the need for further notice to or actions by such holders, and further agree that State Street Bank and Trust Company has been acting as Trustee with their consent since the Effective Time. Section 2. The Company, the Trustee and the Successor Trustee agree that their intent is and has been to have the trust estate held by the Trustee as of the Effective Time vest in the Successor Trustee as of the Effective Time as provided in Section 13 of Article XV of the Mortgage. In order more certainly to vest and confirm the same in the Successor Trustee, the Trustee by these presents as of the Effective Time does give, grant, bargain, sell, transfer, assign, convey and confirm unto the Successor Trustee the trust estate and all the estates, properties, rights, powers, trusts, duties and obligations of the Trustee as trustee under the Mortgage, and the Successor Trustee by these presents as of the Effective Time does acknowledge that it has accepted and holds the same as Successor Trustee under the Mortgage. ARTICLE 2. Miscellaneous Provisions. Section 1. The Successor Trustee shall be entitled to, may exercise and shall be protected by, where and to the full extent that the same are applicable, all the rights, powers, privileges, immunities and exemptions provided in the Mortgage as if the provisions concerning the same were incorporated herein at length. Except in the case of the Trustee as to actions taken by the Trustee and except in the case of the Successor Trustee as to actions taken by the Successor Trustee, the recitals and statements in this Supplemental Indenture and in the bonds shall be taken as statements by the Company alone, and shall not be considered as made by or as imposing any obligation or liability upon the Trustee or Successor Trustee, nor shall the Trustee or Successor Trustee be held responsible for the legality or validity of this Supplemental Indenture or of the bonds, and the Trustee and Successor Trustee make no covenants or representations, and shall not be responsible, as to and for the effect, authorization, execution, delivery or recording of this Supplemental Indenture. Section 2. This Supplemental Indenture shall become void when the Original Indenture as heretofore supplemented and amended shall be void. Section 3. The Mortgage as supplemented hereby is ratified and confirmed in all respects. Section 4.If and to the extent that any provision of this Supplemental Indenture limits, qualifies or conflicts with the duties imposed by any of Sections 310 and 317, inclusive, of the Trust Indenture Act of 1939 as amended by the Trust Indenture Reform Act of 1990, through operation of Section 318(c), such imposed duties shall control. Section 5. This Supplemental Indenture may be simultaneously executed in any number of counterparts, and all said counterparts executed and delivered, each as an original, shall constitute but one and the same instrument. In Witness Whereof, said Central Vermont Public Service Corporation has caused this instrument to be signed, and its corporate seal attested by its Assistant Corporate Secretary to be hereunto affixed, by Jonathan W. Booraem, its Treasurer and Agent in that behalf duly authorized, and said The First National Bank of Boston has caused this instrument to be executed in its corporate name and its corporate seal to be hereto affixed by one of its Authorized Officers, and State Street Bank and Trust Company has caused this instrument to be executed in its corporate name and its corporate seal (This space intentionally left blank) to be hereto affixed by one of its Assistant Vice Presidents, all as of the day and year first above written. Central Vermont Public Service Corporation, By:__________________________ Jonathan W. Booraem Its Treasurer and Agent Attest: ______________________________ Carole L. Root Assistant Secretary Signed, sealed and delivered on behalf of Central Vermont Public Service Corporation in the presence of: (Corporate Seal) _______________________ Colleen A. Kelly _______________________ Bonnie L. O'Rourke The First National Bank of Boston, as Trustee as aforesaid, By:__________________________ E. Decker Adams Authorized Officer Signed, sealed and delivered on behalf of The First National Bank of Boston in the presence of: (Corporate Seal) _______________________ Brian J. Curtis _______________________ Henry W. Seemore State Street Bank and Trust Company as Successor Trustee as aforesaid, By:_________________________ Henry W. Seemore Assistant Vice President Signed, sealed and delivered on behalf of State Street Bank and Trust Company in the presence of: (Corporate Seal) _______________________ Brian J. Curtis _______________________ E. Decker Adams State of Vermont, County of Rutland, SS. On this 29th day of December, A.D. 1997, before me, a Notary Public in and for said State, duly commissioned and acting as such, personally came Jonathan W. Booraem, Treasurer and Agent of said Central Vermont Public Service Corporation, to me personally known and known to me to be one of the persons named in and who executed the foregoing instrument, and who being duly sworn by me deposed and said: that he resides in Rutland, Vermont; that he is Treasurer of Central Vermont Public Service Corporation, the Corporation described in and which executed the foregoing instrument as party of the first part; that he knows the seal of said Corporation; that the seal affixed to said instrument is such corporate seal; that it was so affixed by order of the Board of Directors of said Corporation, and that he signed his name thereto by like order, and he acknowledged and declared that he executed the foregoing instrument and affixed the seal of said Central Vermont Public Service Corporation thereto as its Agent by authority of the Board of Directors of said Corporation, and acknowledged the same to be his free act and deed, and the free act and deed of said Corporation. Witness my hand and official seal the day and year aforesaid. _________________________________ Bonnie L. O'Rourke, Notary Public My commission expires February 10, 1999 (Notarial Seal) The Commonwealth of Massachusetts, County of Suffolk, SS. On this day of January, A.D. 1998, before me, a Notary Public in and for said Commonwealth, duly commissioned and acting as such, personally came E. Decker Adams, an Authorized Officer of The First National Bank of Boston, to me known and known to me to be one of the persons named in and who executed the foregoing instrument, and who being duly sworn by me deposed and said: that he resides in Hingham, Massachusetts; that he is an Authorized Officer of The First National Bank of Boston, the corporation described in and which executed the foregoing instrument as party of the second part; that he knows the seal of said Bank; that the seal affixed to said instrument is such corporate seal; that it was so affixed by authority of the Board of Directors of said Bank, and that he signed his name thereto by like authority, and he acknowledged the same to be his free act and deed, and the free act and deed of said Bank. Witness my hand and official seal the day and year aforesaid. __________________________ Brian J. Curtis, Notary Public My commission expires April 6, 2001 (Notarial Seal) The Commonwealth of Massachusetts, County of Suffolk, SS. On this day of January, A.D. 1998, before me, a Notary Public in and for said Commonwealth, duly commissioned and acting as such, personally came Henry W. Seemore, an Assistant Vice President of State Street Bank and Trust Company, to me known and known to me to be one of the persons named in and who executed the foregoing instrument, and who being duly sworn by me deposed and said: that he resides in Brockton, Massachusetts; the he is an Assistant Vice President of State Street Bank and Trust Company, the corporation described in and which executed the foregoing instrument as party of the third part; that he knows the seal of said Bank; that the seal affixed to said instrument is such corporate seal; that it was so affixed by authority of the Board of Directors of said Bank, and that he signed his name thereto by like authority, and he acknowledged the same to be his free act and deed, and the free act and deed of said Bank. And said Henry W. Seemore, an Assistant Vice President of said State Street Bank and Trust Company, further acknowledged that he accepted the trust hereinbefore created for, and on behalf of, said State Street Bank and Trust Company, Successor Trustee, upon the terms therein named. Witness my hand and official seal the day and year aforesaid. _____________________________ Brian J. Curtis, Notary Public My commission expires April 6, 2001 (Notarial Seal) SCHEDULE A DESCRIPTION OF PROPERTIES All land and premises, rights, privileges and easements conveyed or purported to be conveyed to the Company in and by the following described deeds and the records thereof are hereby incorporated herein by reference: Properties acquired after December 16, 1993 or not previously described: (1) Deed from Miller Holdings, dated November 3, 1993, recorded in Book 335, Pages 162-163 of the Rutland City Land Records in the County of Rutland and State of Vermont. (2) Deed from Janet Geer, dated December 6, 1993, recorded in Book 87, Pages 136 of the Fairfax Land Records in the County of Franklin and State of Vermont. (3) Deed from Springfield Regional Development Corporation, dated December 29, 1993, recorded in Book 120, Pages 202-204 of the Springfield Town Land Records in the County of Windsor and State of Vermont. (4) Deed from The City of Rutland, dated January 27, 1994, recorded in Book 335, Pages 164-165 of the Rutland City Land Records in the County of Rutland and State of Vermont. (5) Deed from C & W Properties, Inc., dated August 11, 1994, recorded in Book 51, Pages 84-87 of the Sunderland Town Land Records in the County of Bennington and State of Vermont. (6) Deed from Robert and Cynthia M. Bienieki, dated September 15, 1994, recorded in Book 96, Page 65 of the Pittsford Land Records in the County of Rutland and State of Vermont. (7) Deed from the Town of St. Johnsbury, dated September 19, 1994, recorded in Book 227, Pages 281-282 of the St. Johnsbury Land Records in the County of Caledonia and State of Vermont. (8) Deed from Judith M. Sanders and Willo R. McCullough, dated April 6, 1995, recorded in Book 51, Page 495 of the Royalton Land Records in the County of Windsor and State of Vermont. (9) Deed from James H. Reynolds, dated April 17, 1995, recorded in Book 47, Pages 267-269 of the Chittenden Land Records in the County of Rutland and State of Vermont. (10) Deed from The Town of Chittenden, dated April 24, 1997, recorded in Book 50, Pages 77-78 of the Chittenden Land Records in the County of Rutland and State of Vermont. Also, all property of every kind whatsoever, including land and premises, rights, privileges, easements, transmission lines, substations and distribution lines, in the following towns: IN NEW LONDON COUNTY, STATE OF CONNECTICUT: Waterford IN HARTFORD COUNTY, STATE OF CONNECTICUT: Berlin IN CUMBERLAND COUNTY, STATE OF MAINE: Yarmouth IN SULLIVAN COUNTY, STATE OF NEW HAMPSHIRE: Charleston Cornish Plainfield Claremont Newport Unity IN CHESHIRE COUNTY, STATE OF NEW HAMPSHIRE: Chesterfield Hinsdale IN GRAFTON COUNTY, STATE OF NEW HAMPSHIRE: Bath Lyman Orford Haverhill Lyme Piermont IN WASHINGTON COUNTY, STATE OF NEW YORK: Granville Hampton IN RENSSELAER COUNTY, STATE OF NEW YORK: Hoosick IN ADDISON COUNTY, STATE OF VERMONT: Addison Leicester Ripton Bridport Lincoln Salisbury Bristol Middlebury Shoreham Cornwall Monkton Starksboro Ferrisburg New Haven Vergennes Goshen Orwell Weybridge Granville Panton Whiting Hancock IN BENNINGTON COUNTY, STATE OF VERMONT: Arlington Manchester Searsburg Bennington Peru Shaftsbury Dorset Pownal Sunderland Glastenbury Rupert Winhall Landgrove Sandgate Woodford IN CALEDONIA COUNTY, STATE OF VERMONT: Barnet Lyndon Walden Danville Ryegate Waterford Kirby St. Johnsbury Wheelock IN CHITTENDEN COUNTY, STATE OF VERMONT: Buels Gore Essex Milton Burlington Huntington Underhill Colchester Jericho Westford IN ESSEX COUNTY, STATE OF VERMONT: Concord Guildhall Victory Granby Lunenburg IN FRANKLIN COUNTY, STATE OF VERMONT: Bakersfield Fletcher Richford Berkshire Franklin Sheldon Enosburg Georgia St. Albans City Fairfax Highgate St. Albans Town Fairfield Montgomery Swanton IN LAMOILLE COUNTY, STATE OF VERMONT: Belvidere Eden Johnson Cambridge Hyde Park IN ORANGE COUNTY, STATE OF VERMONT: Bradford Fairlee Thetford Braintree Newbury Tunbridge Brookfield Randolph Vershire Chelsea Strafford West Fairlee IN ORLEANS COUNTY, STATE OF VERMONT: Lowell Irasburg IN RUTLAND COUNTY, STATE OF VERMONT: Benson Middletown Springs Sherburne Brandon Mt. Holly Shrewsbury Castleton Mt. Tabor Sudbury Chittenden Pawlet Tinmouth Clarendon Pittsfield Wallingford Danby Pittsford Wells Fair Haven Poultney West Haven Hubbardton Proctor West Rutland Ira Rutland City Mendon Rutland Town IN WASHINGTON COUNTY, STATE OF VERMONT: Northfield Roxbury IN WINDHAM COUNTY, STATE OF VERMONT: Athens Guilford Stratton Brattleboro Jamaica Townshend Brookline Londonderry Vernon Dover Marlboro Wardsboro Dummerston Newfane Westminster Grafton Rockingham Windham IN WINDSOR COUNTY, STATE OF VERMONT: Andover Hartland Sharon Baltimore Ludlow Springfield Barnard Norwich Stockbridge Bethel Plymouth Weathersfield Bridgewater Pomfret Weston Cavendish Reading West Windsor Chester Rochester Windsor Hartford Royalton Woodstock Resolutions Adopted December 2, 1997, by the Board of Directors of Central Vermont Public Service Corporation On motion duly made and seconded, the following resolutions relating to the 39th Supplemental Indenture were unanimously passed and adopted: WHEREAS, by Section 12 of Article III of the Indenture of Mortgage of this Company to State Street Bank and Trust Company (successor trustee to The First National Bank of Boston, successor trustee to Old Colony Trust Company), Trustee, dated as of October 1, 1929 (the "Indenture"), this Company covenanted "that it will, upon reasonable request, execute and deliver such further instruments and do such further acts as may be necessary or proper to carry out more effectually the purposes of this Mortgage, especially to make subject to the lien hereof any property now owned or hereafter acquired by it, which it is herein provided shall be subject to the lien hereof", and, by Section 1 of Article XVI thereof, it is provided, among other things, that this Company and the Trustee may enter into such indentures supplemental thereto as may be deemed necessary or desirable "to assign, convey, confirm, mortgage, pledge, transfer and set over unto the Trustee, subject to such liens or other encumbrances as shall be therein specifically described, additional property or properties of the Company, for the equal and proportionate benefit and security, except as herein otherwise expressly provided, of the holders and owners of all bonds at any time issued and outstanding under this Mortgage", and "for any other purpose not inconsistent with the terms of this Mortgage and which shall not impair the security of the same", and by Section 12 of Article XV thereof this Company covenanted to cause to be recorded "an instrument evidencing each resignation, removal, incapacity, appointment or acceptance of a Trustee", and by Section 13 of Article XV thereof, the retiring Trustee was authorized to execute such instruments "as the successor Trustee shall request and as may in the opinion of counsel be proper to vest or confirm the trust estate in the successor Trustee", and WHEREAS, this Company has not executed a supplemental indenture since the 38th Supplemental Indenture, dated as of December 10, 1993, and WHEREAS, since that date, this Company has acquired properties which are subject to the lien of the Indenture but which have not been specifically listed in any supplemental indenture, and WHEREAS, on September 26, 1995, The First National Bank of Boston sold substantially all of its corporate trust business and assets to State Street Bank and Trust Company, which thereupon commenced to act as Trustee under the Indenture and such succession of Trustee has not been recorded in the land records of the various towns wherein this Company owns property subject to the lien of the Indenture, and WHEREAS, in order to comply with the obligations of the Company in Section 12 of Article III and elsewhere in the Indenture, and the provisions of said section and of Sections 12 and 13 of Article XV and Section 1 of Article XVI of the Indenture, it is desirable and the Company is permitted or required and has duly and lawfully determined, at the request of the Trustee, to execute and deliver a supplemental indenture for the purpose of complying with said obligations and provisions, and WHEREAS, by Section 11 of Article III of the Indenture, this Company covenanted "that in order fully to preserve and protect the security of the bondholders and all rights of the Trustee, it will cause this Mortgage and every additional instrument which shall be executed pursuant to the terms hereof at all times to be recorded and filed in such manner and in such places as may be required by the laws of the state or states, in which the property subject hereto is located", NOW, THEREFORE, BE IT RESOLVED: that this Board hereby approves the Thirty-Ninth Supplemental Indenture to be dated as of December 29, 1997, setting forth the properties acquired by this Company since December 10, 1993 or not previously described in any supplemental indenture, also setting forth the succession of State Street Bank and Trust Company as Successor Trustee to The First National Bank of Boston, and also containing a confirmatory assignment of the trust estate from The First National Bank of Boston to State Street Bank and Trust Company, and authorizes and directs the President or any Vice President or the Treasurer of this Company for the time being in office, each as such officer and as agent of this Company, to execute and seal with the corporate seal of this Company (which shall be attested by the Secretary or an Assistant Secretary of this Company for the time being in office), and deliver to State Street Bank and Trust Company, Trustee, a Thirty-Ninth Supplemental Indenture to be dated as of December 29, 1997, substantially in the form presented to this meeting, subject to such changes, insertions and omissions as may be determined and approved by the President or any Vice President or the Treasurer of this Company executing the same, that such determination and approval are within the authority conveyed by this resolution to be conclusively evidenced by the execution of said Supplemental Indenture on behalf of this Company and such execution being a sufficient identification thereof for all purposes as the Supplemental Indenture hereby authorized, and FURTHER RESOLVED: that the President or any Vice President or the Treasurer of this Company cause said Supplemental Indenture to be recorded and filed in such a manner and in such places as may be required to preserve and protect the security of the bondholders and the rights of the Trustee, and FURTHER RESOLVED: that the officers of this Company be, and they are and each of them is hereby authorized in the name and on behalf of this Company to execute and file with the Vermont Public Service Board and with such other public regulatory commissions, bodies or agencies which in their opinion or in the opinion of counsel have jurisdiction in the premises, all other applications, petitions, instruments or documents, including any amendments thereto, which in their opinion or the opinion of counsel are necessary or expedient in order to consummate the transactions contemplated by these resolutions, and to employ such counsel and assistance as may be deemed necessary by any of them to accomplish the purpose hereof, and that any and all acts taken or to be taken by or under the authorization of any officer of or counsel to this Company in connection with the transactions contemplated in these resolutions are hereby ratified, confirmed and approved as if authorized hereby when taken. And I further certify that the foregoing resolutions have not since been amended or rescinded and are now in full force and effect. IN WITNESS WHEREOF I have hereunto set my hand as Assistant Secretary and have affixed the corporate seal of said Corporation this 29th day of December, 1997. Attest: ______________________________ Carole L. Root Assistant Secretary EX-4 13 EXHIBIT 4-55 FOR FORM 10-K CENTRAL VERMONT PUBLIC SERVICE CORPORATION ____________________ Fortieth Supplemental Indenture Dated as of January 28, 1998 and Resolutions Connected Therewith Adopted January 13, 1998 ___________________ RECORDING INFORMATION ____________________________ Town Clerk's Office Received this Supplemental Indenture for record on the ______ day of __________, 19___, at _____ o'clock, ___.M., and filed the bound copy as Book _____ in accordance with T 24 V.S.A., Section 1155, and cross-indexed in the Land Records in Book _____ at Page _____. Attest:_________________________ Town Clerk THIS SUPPLEMENTAL INDENTURE, dated as of January 28, 1998, by and between Central Vermont Public Service Corporation, a corporation duly organized and existing under the laws of the State of Vermont (hereinafter generally referred to as the Company), and State Street Bank and Trust Company, a Massachusetts trust company (hereinafter generally referred to as the Trustee), as it is the second successor trustee under said Indenture of Mortgage, WITNESSETH that: Whereas the Company heretofore duly executed and delivered to Old Colony Trust Company, as trustee, or to its successor as trustee, an Indenture of Mortgage (hereinafter generally referred to as the Original Indenture), dated as of October 1, 1929, but actually executed on October 24, 1929 (the Original Indenture, with all indentures supplemental thereto as therein provided, being hereinafter generally referred to as the Mortgage), Liber 150 of Mortgages, Page 51, Grafton County (New Hampshire) Registry of Deeds, Liber 616, Folio 484, Sullivan County (New Hampshire) Records, Vol. 234, Page 531, in the Office of the Secretary of State of Connecticut, in the Office of the City Clerk of Rutland, Vermont, in the offices of the clerks of certain other towns and cities in the State of Vermont, and in the Office of the Secretary of State of the State of Vermont, to which Original Indenture this instrument is supplemental, and thirty-nine duly recorded indentures supplemental thereto and in modification and confirmation thereof, whereby all the properties of the Company, whether owned at the time of the execution thereof or thereafter acquired, with certain exceptions and reservations therein fully set forth, were granted, assigned, transferred, mortgaged and pledged to the trustee, in trust upon the terms and conditions set forth therein, to secure bonds of the Company issued and to be issued in accordance with the terms of the Mortgage and for other purposes more particularly set forth therein; and Whereas on January 4, 1971, Old Colony Trust Company was merged into The First National Bank of Boston which thereupon succeeded to the trusts under the Mortgage; and Whereas on September 29, 1995 The First National Bank of Boston sold substantially all its corporate trust business and assets to State Street Bank and Trust Company which thereupon commenced to act as trustee (hereinafter referred to as the First Successor Trustee) under the Mortgage (hereinafter referred to as the Succession); and Whereas on November 6, 1995 the Board of Directors of the Company confirmed State Street Bank and Trust Company as Trustee in case the automatic succession provisions of the last paragraph of Section 12 of Article XV of the Mortgage might be deemed inapplicable to the Succession; and Whereas as of June 5, 1996 a Resignation and Appointment Agreement was executed and delivered by the Company, the First Successor Trustee and the Trustee upon notice to the holders of all the bonds then outstanding and with the consent of the holders of a majority in principal amount of the bonds then outstanding given pursuant to instruments in writing signed by or on behalf of such holders and delivered to the Trustee; and Whereas as of December 29, 1997, the Company, the First Successor Trustee and the Trustee executed and delivered the Thirty-Ninth Supplement Indenture confirming the Succession and making certain representations and agreements with respect thereto; and Whereas by Section 15 of Article III of the Mortgage, the Company has covenanted, among other things, to cause each subsidiary to pay when due all indebtedness for money borrowed by such subsidiary and not to permit the occurrence of any event or any condition to exist with respect to any such indebtedness or under any agreement securing or relating to such indebtedness the effect of which is to cause (or permit any holder of such indebtedness or a trustee to cause) such indebtedness, or a portion thereof, to become due prior to its stated maturity or prior to its regularly scheduled dates of payment; and Whereas by Article X of the Mortgage, the Company has agreed to various remedies in the event of certain defaults specified in Section 1 of such Article X, including without limitation, (1) any default in the due observance or performance of any covenant or condition in the Mortgage (other than the obligation to make any payment when due of interest on, the principal of, or the premium, if any, on any of the bonds issued under the Mortgage) required to be kept or performed by the Company, and the continuance of any such default for the applicable period specified in the Mortgage, or (2) certain actions by the Company or any subsidiary in respect of the bankruptcy or insolvency of any subsidiary and certain other similar events; and Whereas as of the date hereof, the Company owns all of the issued and outstanding shares of capital stock of Connecticut Valley Electric Company Inc., a New Hampshire corporation (hereinafter generally referred to as CVEC); and Whereas as described in the Current Report on Form 8-K dated January 12, 1998 and filed with the Securities and Exchange Commission, as a result of an order of the New Hampshire Public Utilities Commission dated December 31, 1997, and if such order remains in its present form or is not otherwise stayed, there or may be is a substantial likelihood that CVEC will fail to pay when due certain of its indebtedness for money borrowed and/or that certain such indebtedness will become due prior to its stated maturity or prior to its regularly scheduled dates of payment and/or that CVEC may be required to take certain actions, or certain events may occur, in respect of the bankruptcy or insolvency of CVEC, or certain other similar events may occur; and Whereas the bankruptcy or insolvency of CVEC would not cause an event of default by the Company under the Mortgage other than the provisions with respect to subsidiaries, including CVEC; and Whereas in order to preclude the foregoing events with respect to CVEC from causing a default under Section 15 of Article III of the Mortgage and/or the consequences set forth in Article X of the Mortgage, the Company and the Trustee have duly and lawfully determined to execute this instrument; and Whereas in accordance with Section 4 of Article XVI, the Company has duly and lawfully been authorized by resolution of its Board of Directors, and by all other required corporate actions, to execute and deliver this instrument; and Whereas in accordance with said Section 4 of Article XVI, the holders of not less than sixty-six and two-thirds per centum (66-2/3%) in principal amount of all the bonds outstanding as of the date hereof have consented to the execution and delivery of this instrument; and Whereas in accordance with said Section 4 of Article XVI, none of the series of bonds outstanding as of the date hereof will be materially and adversely affected by the execution and delivery of this instrument unless all of the series of bonds so outstanding are so affected; and Whereas in accordance with said Section 4 of Article XVI, the Company has requested the Trustee to join with the Company in the execution of this instrument and such execution by the Trustee does not affect the rights, duties or immunities of the Trustee under the Mortgage or otherwise; and Whereas the Company has caused to be paid or redeemed all bonds issued under the Mortgage other than those now outstanding as described below and has caused to be paid or redeemed or has otherwise discharged the underlying bonds of its predecessor corporations described in the Original Indenture and the mortgages securing the same; and the Company has also issued and there are outstanding on the date of delivery hereof $97,000,000 in principal amount of First Mortgage Bonds, Series EE, FF, GG, HH, JJ, KK, LL, MM, NN and OO; and Whereas the use of terms and expressions herein is in accordance with the definitions, uses and constructions contained in the Original Indenture as heretofore and hereby supplemented, modified and confirmed; Now Therefore, in confirmation of and supplementing the Mortgage and pursuant to, in compliance with, and in execution of, the powers, authorities and obligations conferred, imposed and reserved therein and every other power, authority and obligation appertaining thereto, in consideration of the premises, and of the sum of one dollar to it duly paid by said State Street Bank and Trust Company and of other good and valuable consideration, the receipt whereof is hereby acknowledged, said Central Vermont Public Service Corporation has given, granted, bargained, sold, transferred, assigned, pledged, mortgaged, warranted, conveyed and confirmed to the Trustee, and by these presents does give, grant, bargain, sell, transfer, assign, pledge, mortgage, warrant, convey and confirm, unto said State Street Bank and Trust Company as Trustee as aforesaid, and its successor or successors in the trusts under the Mortgage and hereunder, and its and their assigns, (a) all and singular the plants, rights, permits, franchises, privileges, easements and property, real, personal and mixed, described in the Original Indenture and each of the preceding Supplemental Indentures, and thereby or otherwise thereunder conveyed, pledged, assigned, transferred and mortgaged, or intended so to be (said descriptions in the Original Indenture and each of the preceding Supplemental Indentures being hereby made a part hereof to the same extent as if set forth herein at length), whether then or now owned or thereafter or hereafter acquired, except such of said properties or interests therein as may have been released by the Trustee or any previous trustee under the Mortgage or sold or disposed of in whole or in part as permitted by the provisions of the Original Indenture as heretofore supplemented and amended and (b) also, but without in any way limiting the generality of the foregoing, all of the right, title and interest of the Company in and to the franchises, rights, titles, interests, easements and properties described in Schedule A hereto attached and hereby made a part hereof as fully as if set forth herein at length; Subject, however, as to all of the foregoing, to the specific rights, privileges, liens, encumbrances, restrictions, conditions, limitations, covenants, interests, reservations, exceptions and otherwise as provided in the Original Indenture and preceding Supplemental Indentures, and in the descriptions in the schedules thereto and hereto and in the deeds or grants in said schedules referred to; But Specifically Reserving and Excepting (as the same were reserved and excepted from the lien of the Original Indenture and all preceding Supplemental Indentures) from this instrument and the grant, conveyance, mortgage, transfer and assignment herein contained (1) all right, title and interest of the Company, now owned or hereafter acquired, in and to the properties and rights specified in subclauses (a) and (c), both inclusive, of the granting clauses on page 11 of the Original Indenture, and (2) (as the same, pursuant to the provisions of Section 18(b) of Article 2 of the Fifth Supplemental Indenture, dated as of February 1, 1945, were reserved from the lien of the Original Indenture and the preceding Supplemental Indentures) all telephone properties, whether heretofore or now owned or hereafter acquired by the Company; To Have and to Hold all said property hereby conveyed, assigned, pledged or mortgaged, or intended so to be, together with the rents, issues and profits thereof, as well as all such after-acquired property, unto the Trustee, its successor or successors in the trusts under the Mortgage and hereunder and its and their assigns forever; But in Trust, Nevertheless, under and subject to the provisions and conditions, with all the powers and authority and for the trusts and purposes, herein and in the Mortgage set forth, (1) for the equal and proportionate benefit and security (except as provided in Section 3 of Article III and elsewhere in the Original Indenture as heretofore and hereby supplemented, modified and confirmed) of the holders of all bonds and interest coupons heretofore, now and hereafter issued under the Mortgage and from time to time outstanding, pursuant to the provisions thereof, and for the enforcement of the payment of said bonds and coupons when payable, and the performance of and compliance with the covenants and conditions of the Mortgage, without (except as aforesaid) any preference, distinction or priority as to lien or otherwise of any bond or coupon over any other bond or coupon by reason of the difference in the series or time of the actual issue, sale or negotiation thereof, or for any other reason whatsoever, so that each and every bond heretofore, now or hereafter issued under the Mortgage shall have the same lien, and so that the interest and principal of every such bond shall, subject to the terms of the Original Indenture, be equally and proportionally secured thereby and hereby, as if it had been made, executed, delivered, sold and negotiated simultaneously with the execution and delivery of the Original Indenture; and (2) subject to the covenants, agreements, rights, privileges, immunities, trusts and duties set forth in the Original Indenture, as heretofore supplemented, modified and confirmed, and in this Supplemental Indenture; And It is Hereby Covenanted, Declared and Agreed, upon the trusts and for the purposes aforesaid, as set forth in the following covenants, agreements, conditions and provisions: ARTICLE 1. AMENDMENT OF MORTGAGE Section 1. The Original Indenture, as heretofore supplemented and amended, is hereby further supplemented and amended by adding the following paragraph in its entirety as the sixth paragraph of Article XVII thereof: For all purposes of this Mortgage, the term "subsidiary" shall not include Connecticut Valley Electric Company Inc., a New Hampshire corporation ("CVEC"), for any purpose, and CVEC shall be deemed for all purposes of this Mortgage not to be a subsidiary, including, without limitation, purposes of Section 15 of Article III and Section 1 of Article X. In the event the Company's equity investment in CVEC shall exceed Twelve Million Dollars ($12,000,000), then upon such event and thereafter, the term "subsidiary" shall again include CVEC for all purposes of this Mortgage. Section 2. Except as expressly provided by Section 1 of this Article 1, the Original Indenture, as heretofore supplemented and amended, shall remain in full force and effect. ARTICLE 2. MISCELLANEOUS PROVISIONS Section 1. The Trustee shall be entitled to, may exercise and shall be protected by, where and to the full extent that the same are applicable, all the rights, powers, privileges, immunities and exemptions provided in the Mortgage as if the provisions concerning the same were incorporated herein at length. Except as to actions taken by the Trustee, the recitals and statements in this Supplemental Indenture and in the bonds shall be taken as statements by the Company alone, and shall not be considered as made by or as imposing any obligation or liability upon the Trustee, nor shall the Trustee be held responsible for the legality or validity of this Supplemental Indenture or of the bonds, and the Trustee makes no covenants or representations, and shall not be responsible, as to and for the effect, authorization, execution, delivery or recording of this Supplemental Indenture. Section 2. This Supplemental Indenture shall become void when the Original Indenture as heretofore supplemented and amended shall be void. Section 3. The Mortgage as supplemented and amended hereby is ratified and confirmed in all respects. Section 4. If and to the extent that any provision of this Supplemental Indenture limits, qualifies or conflicts with the duties imposed by any of Sections 310 and 317, inclusive, of the Trust Indenture Act of 1939 as amended by the Trust Indenture Reform Act of 1990, through operation of Section 318(c), such imposed duties shall control. Section 5. This Supplemental Indenture may be simultaneously executed in any number of counterparts, and all said counterparts executed and delivered, each as an original, shall constitute but one and the same instrument. In Witness Whereof, said Central Vermont Public Service Corporation has caused this instrument to be signed, and its corporate seal attested by its Assistant Corporate Secretary to be hereunto affixed, by Francis J. Boyle, its Treasurer and Agent in that behalf duly authorized, and said State Street Bank and Trust Company has caused this instrument to be executed in its corporate name and its corporate seal to be hereto affixed by one of its Assistant Vice Presidents, all as of the day and year first above written. Central Vermont Public Service Corporation, By:__________________________ Francis J. Boyle Its Treasurer and Agent Attest: ______________________________ Carole L. Root Assistant Corporate Secretary Signed, sealed and delivered on behalf of Central Vermont Public Service Corporation in the presence of: (Corporate Seal) _______________________ Colleen A. Kelly _______________________ Bonnie L. O'Rourke State Street Bank and Trust Company as Trustee as aforesaid, By:_________________________ Henry W. Seemore Assistant Vice President Signed, sealed and delivered on behalf of State Street Bank and Trust Company in the presence of: (Corporate Seal) _______________________ Brian J. Curtis _______________________ E. Decker Adams State of Vermont, SS. County of Rutland, On this __th day of __________, A.D. 1998, before me, a Notary Public in and for said State, duly commissioned and acting as such, personally came Francis J. Boyle, Treasurer and Agent of said Central Vermont Public Service Corporation, to me personally known and known to me to be one of the persons named in and who executed the foregoing instrument, and who being duly sworn by me deposed and said: that he resides in Rutland, Vermont; that he is Treasurer of Central Vermont Public Service Corporation, the Corporation described in and which executed the foregoing instrument as party of the first part; that he knows the seal of said Corporation; that the seal affixed to said instrument is such corporate seal; that it was so affixed by order of the Board of Directors of said Corporation, and that he signed his name thereto by like order, and he acknowledged and declared that he executed the foregoing instrument and affixed the seal of said Central Vermont Public Service Corporation thereto as its Agent by authority of the Board of Directors of said Corporation, and acknowledged the same to be his free act and deed, and the free act and deed of said Corporation. Witness my hand and official seal the day and year aforesaid. ________________________________ Bonnie L. O'Rourke, Notary Public My commission expires February 10, 1999 (Notarial Seal) The Commonwealth of Massachusetts, SS. County of Suffolk, On this __th day of January, A.D. 1998, before me, a Notary Public in and for said Commonwealth, duly commissioned and acting as such, personally came Henry W. Seemore, an Assistant Vice President of State Street Bank and Trust Company, to me known and known to me to be one of the persons named in and who executed the foregoing instrument, and who being duly sworn by me deposed and said: that he resides in Brockton, Massachusetts; that he is an Assistant Vice President of State Street Bank and Trust Company, the corporation described in and which executed the foregoing instrument as party of the third part; that he knows the seal of said Bank; that the seal affixed to said instrument is such corporate seal; that it was so affixed by authority of the Board of Directors of said Bank, and that he signed his name thereto by like authority, and he acknowledged the same to be his free act and deed, and the free act and deed of said Bank. And said Henry W. Seemore, an Assistant Vice President of said State Street Bank and Trust Company, further acknowledged that he accepted the trust hereinbefore created for, and on behalf of, said State Street Bank and Trust Company, Trustee, upon the terms therein named. Witness my hand and official seal the day and year aforesaid. _____________________________ Brian J. Curtis, Notary Public My commission expires April 6, 2001 (Notarial Seal) SCHEDULE A DESCRIPTION OF PROPERTIES All land and premises, rights, privileges and easements conveyed or purported to be conveyed to the Company in and by the following described deeds and the records thereof are hereby incorporated herein by reference: Properties acquired after December 29, 1997 or not previously described: Deed from Donald D. Brush and Christine L. Brush, dated November 25, 1997, recorded in Book 44, pages 273-4 of the Salisbury Town land records in the County of Addison and State of Vermont. Also, all property of every kind whatsoever, including land and premises, rights, privileges, easements, transmission lines, substations and distribution lines, in the following towns: IN NEW LONDON COUNTY, STATE OF CONNECTICUT: Waterford IN HARTFORD COUNTY, STATE OF CONNECTICUT: Berlin IN CUMBERLAND COUNTY, STATE OF MAINE: Yarmouth IN SULLIVAN COUNTY, STATE OF NEW HAMPSHIRE: Charleston Cornish Plainfield Claremont Newport Unity IN CHESHIRE COUNTY, STATE OF NEW HAMPSHIRE: Chesterfield Hinsdale IN GRAFTON COUNTY, STATE OF NEW HAMPSHIRE: Bath Lyman Orford Haverhill Lyme Piermont IN WASHINGTON COUNTY, STATE OF NEW YORK: Granville Hampton IN RENSSELAER COUNTY, STATE OF NEW YORK: Hoosick IN ADDISON COUNTY, STATE OF VERMONT: Addison Leicester Ripton Bridport Lincoln Salisbury Bristol Middlebury Shoreham Cornwall Monkton Starksboro Ferrisburg New Haven Vergennes Goshen Orwell Weybridge Granville Panton Whiting Hancock IN BENNINGTON COUNTY, STATE OF VERMONT: Arlington Manchester Searsburg Bennington Peru Shaftsbury Dorset Pownal Sunderland Glastenbury Rupert Winhall Landgrove Sandgate Woodford IN CALEDONIA COUNTY, STATE OF VERMONT: Barnet Lyndon Walden Danville Ryegate Waterford Kirby St. Johnsbury Wheelock IN CHITTENDEN COUNTY, STATE OF VERMONT: Buels Gore Essex Milton Burlington Huntington Underhill Colchester Jericho Westford IN ESSEX COUNTY, STATE OF VERMONT: Concord Guildhall Victory Granby Lunenburg IN FRANKLIN COUNTY, STATE OF VERMONT: Bakersfield Fletcher Richford Berkshire Franklin Sheldon Enosburg Georgia St. Albans City Fairfax Highgate St. Albans Town Fairfield Montgomery Swanton IN LAMOILLE COUNTY, STATE OF VERMONT: Belvidere Eden Johnson Cambridge Hyde Park IN ORANGE COUNTY, STATE OF VERMONT: Bradford Fairlee Thetford Braintree Newbury Tunbridge Brookfield Randolph Vershire Chelsea Strafford West Fairlee IN ORLEANS COUNTY, STATE OF VERMONT: Lowell Irasburg IN RUTLAND COUNTY, STATE OF VERMONT: Benson Middletown Springs Sherburne Brandon Mt. Holly Shrewsbury Castleton Mt. Tabor Sudbury Chittenden Pawlet Tinmouth Clarendon Pittsfield Wallingford Danby Pittsford Wells Fair Haven Poultney West Haven Hubbardton Proctor West Rutland Ira Rutland City Mendon Rutland Town IN WASHINGTON COUNTY, STATE OF VERMONT: Northfield Roxbury IN WINDHAM COUNTY, STATE OF VERMONT: Athens Guilford Stratton Brattleboro Jamaica Townshend Brookline Londonderry Vernon Dover Marlboro Wardsboro Dummerston Newfane Westminster Grafton Rockingham Windham IN WINDSOR COUNTY, STATE OF VERMONT: Andover Hartland Sharon Baltimore Ludlow Springfield Barnard Norwich Stockbridge Bethel Plymouth Weathersfield Bridgewater Pomfret Weston Cavendish Reading West Windsor Chester Rochester Windsor Hartford Royalton Woodstock RESOLUTIONS ADOPTED JANUARY 13, 1998, BY THE BOARD OF DIRECTORS OF CENTRAL VERMONT PUBLIC SERVICE CORPORATION On motion duly made and seconded, the following resolutions relating to the Fortieth Supplemental Indenture were unanimously passed and adopted: WHEREAS, by Section 15 of Article III of the Indenture of Mortgage of this Company to State Street Bank and Trust Company (as successor trustee to The First National Bank of Boston, which was successor trustee to Old Colony Trust Company), dated as of October 1, 1929 (the "Original Indenture"), dated as of October 1, 1929, but actually executed on October 24, 1929 (the Original Indenture, with all indentures supplemental thereto as therein provided, being hereinafter generally referred to as the "Mortgage"), this Company has covenanted, among other things, to cause each subsidiary to pay when due all indebtedness for money borrowed by such subsidiary and not to permit the occurrence of any event or any condition to exist with respect to any such indebtedness or under any agreement securing or relating to such indebtedness the effect of which is to cause (or permit any holder of such indebtedness or a trustee to cause) such indebtedness, or a portion thereof, to become due prior to its stated maturity or prior to its regularly scheduled dates of payment, and WHEREAS, by Article X of the Mortgage, this Company has agreed to various remedies in the event of certain defaults specified in Section 1 of such Article X, including without limitation, (1) any default in the due observance or performance of any covenant or condition in the Mortgage (other than the obligation to make any payment when due of interest on, the principal of, or the premium, if any, on any of the bonds issued under the Mortgage) required to be kept or performed by this Company, and the continuance of any such default for the applicable period specified in the Mortgage, or (2) certain actions by this Company or any subsidiary in respect of the bankruptcy or insolvency of any subsidiary, and certain other similar events, and WHEREAS, this Company has not executed a supplemental indenture since the Thirty-Ninth Supplemental Indenture, dated as of December 29, 1997, and WHEREAS, as of the date hereof, this Company owns all of the issued and outstanding shares of capital stock of Connecticut Valley Electric Company Inc., a New Hampshire corporation ("CVEC"), and WHEREAS, as described in the Current Report on Form 8-K dated January 12, 1998 and filed with the Securities and Exchange Commission, as a result of an order of the New Hampshire Public Utilities Commission dated December 31, 1997, and if such order remains in its present form or is not otherwise stayed, there is or may be a substantial likelihood that CVEC will fail to pay when due certain of its indebtedness for money borrowed and/or that certain such indebtedness will become due prior to its stated maturity or prior to its regularly scheduled dates of payment and/or that CVEC may be required to take certain actions, or certain events may occur, in respect of the bankruptcy or insolvency of CVEC, or certain other similar events may occur, and WHEREAS, in order to preclude the foregoing events with respect to CVEC from causing a default under Section 15 of Article III of the Mortgage and/or the consequences set forth in Article X of the Mortgage, it is necessary and desirable and desirable, and this Company is permitted, and has duly and lawfully determined, to execute and deliver a supplemental indenture, and WHEREAS, by Section 11 of Article III of the Mortgage, this Company covenanted "that in order fully to preserve and protect the security of the bondholders and all rights of the Trustee, it will cause the Mortgage and every additional instrument which shall be executed pursuant to the terms thereof at all times to be recorded and filed in such manner and in such places as may be required by the laws of the state or states, in which the property subject hereto is located", NOW, THEREFORE, BE IT RESOLVED: that this Board hereby approves the Fortieth Supplemental Indenture to be dated as of January 28, 1998 (or such other date as may be appropriate to carry out the intention of these resolutions), amending and supplementing the Mortgage by stipulating that CVEC shall be deemed for all purposes thereof not to be a subsidiary of the Company, substantially in the form presented to this meeting, subject to such changes, insertions and omissions as may be determined and approved by the President or any Vice President or the Treasurer of this Company executing the same, that such determination and approval are within the authority conveyed by this resolution to be conclusively evidenced by the execution of said Supplemental Indenture on behalf of this Company and such execution being a sufficient identification thereof for all purposes as the Supplemental Indenture hereby authorized, and FURTHER RESOLVED: that the President or any Vice President or the Treasurer of this Company cause said Supplemental Indenture to be recorded and filed in such a manner and in such places as may be required to preserve and protect the security of the bondholders and the rights of the Trustee, and FURTHER RESOLVED: that the officers of this Company be, and they are and each of them is hereby authorized in the name and on behalf of this Company to execute and file with the Vermont Public Service Board and with such other public regulatory commissions, bodies or agencies which in their opinion or in the opinion of counsel have jurisdiction in the premises, all other applications, petitions, instruments or documents, including any amendments thereto, which in their opinion or the opinion of counsel are necessary or expedient in order to consummate the transactions contemplated by these resolutions, and to employ such counsel and assistance as may be deemed necessary by any of them to accomplish the purpose hereof, and that any and all acts taken or to be taken by or under the authorization of any officer of or counsel to this Company in connection with the transactions contemplated in these resolutions are hereby ratified, confirmed and approved as if authorized hereby when taken. And I further certify that the foregoing resolutions have not since been amended or rescinded and are now in full force and effect. IN WITNESS WHEREOF I have hereunto set my hand as Assistant Corporate Secretary and have affixed the corporate seal of said Corporation as of this 13th day of January, 1998. Attest: /s/ Carole L. Root - - -------------------- Carole L. Root Assistant Corporate Secretary -----END PRIVACY-ENHANCED MESSAGE-----