-----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, EhwNL/XZ0OdForhDWtcoiGtCERL3GNqJERZr1UHhKo7vRoJrz6VLQEmEbUwS01wR j4g+3f2gvNQXsYQTjgBFpA== 0000043704-98-000008.txt : 19980518 0000043704-98-000008.hdr.sgml : 19980518 ACCESSION NUMBER: 0000043704-98-000008 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980331 FILED AS OF DATE: 19980515 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: GREEN MOUNTAIN POWER CORP CENTRAL INDEX KEY: 0000043704 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC SERVICES [4911] IRS NUMBER: 030127430 STATE OF INCORPORATION: VT FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-08291 FILM NUMBER: 98623057 BUSINESS ADDRESS: STREET 1: 25 GREEN MOUNTAIN DR STREET 2: P.O.BOX 850 CITY: SOUTH BURLINGTON STATE: VT ZIP: 05402-0850 BUSINESS PHONE: 8028645731 MAIL ADDRESS: STREET 1: 25 GREEN MOUNTAIN DR STREET 2: P O BOX 850 CITY: SOUTH BURLINGTON STATE: VT ZIP: 05402-0850 10-Q 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 __________________________ FORM 10-Q X Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended March 31, 1998 or Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from ___________ to ___________ Commission file number 1-8291 GREEN MOUNTAIN POWER CORPORATION (Exact name of registrant as specified in its charter) Vermont 03-0127430 (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 25 Green Mountain Drive South Burlington, VT 05403 Address of principal executive offices (Zip Code) Registrant's telephone number, including area code (802) 864-5731 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Class - Common Stock Outstanding March 31, 1998 $3.33 1/3 Par Value 5,207,162 GREEN MOUNTAIN POWER CORPORATION Consolidated Comparative Balance Sheets Part 1 - Item 1
March 31 December 31 ----------------------------------- ---------------- 1998 1997 1997 ---------------- ---------------- ---------------- (Unaudited) (In thousands) (In thousands) ASSETS Utility Plant Utility plant, at original cost.................... $265,137 $248,514 $265,441 Less accumulated depreciation...................... 90,287 83,652 87,689 ---------------- ---------------- ---------------- Net utility plant................................ 174,850 164,862 177,752 Property under capital lease....................... 8,342 9,006 8,342 Construction work in progress...................... 12,607 17,073 10,626 ---------------- ---------------- ---------------- Total utility plant, net......................... 195,799 190,941 196,720 ---------------- ---------------- ---------------- Other Investments Associated companies, at equity ................... 15,497 15,776 15,860 Other investments.................................. 5,838 5,137 6,137 ---------------- ---------------- ---------------- Total other investments.......................... 21,335 20,913 21,997 ---------------- ---------------- ---------------- Current Assets Cash and cash equivalents.......................... 15,371 7,068 118 Accounts receivable, customers and others, less allowance for doubtful accounts............. 16,019 17,002 17,365 Accrued utility revenues .......................... 6,075 5,870 6,505 Fuel, materials and supplies, at average cost...... 3,487 3,607 3,261 Prepayments........................................ 9,723 1,783 1,563 Other.............................................. 312 348 313 ---------------- ---------------- ---------------- Total current assets............................. 50,987 35,678 29,125 ---------------- ---------------- ---------------- Deferred Charges Demand side management programs.................... 12,632 15,599 13,692 Purchased power costs.............................. 4,278 8,377 4,283 Other.............................................. 12,962 11,703 9,415 ---------------- ---------------- ---------------- Total deferred charges........................... 29,872 35,679 27,390 ---------------- ---------------- ---------------- Non-Utility Cash and cash equivalents.......................... 93 143 153 Other current assets............................... 8,263 4,366 11,501 Property and equipment............................. 1,222 11,702 10,784 Intangible assets.................................. 21 2,239 2,116 Equity investment in energy related businesses..... 12,316 12,239 12,824 Other assets....................................... 4,847 8,232 4,682 ---------------- ---------------- ---------------- Total non-utility assets......................... 26,762 38,921 42,060 ---------------- ---------------- ---------------- Total Assets........................................... $324,755 $322,132 $317,292 ================ ================ ================ CAPITALIZATION AND LIABILITIES Capitalization Common Stock Equity Common stock,$3.33 1/3 par value, authorized 10,000,000 shares (issued 5,223,018, 5,081,407 and 5,195,432)........... $17,544 $16,919 $17,318 Additional paid-in capital....................... 70,995 68,732 70,720 Retained earnings................................ 21,884 27,187 26,717 Treasury stock, at cost (15,856 shares).......... (378) (378) (378) ---------------- ---------------- ---------------- Total common stock equity...................... 110,045 112,460 114,377 Redeemable cumulative preferred stock.............. 17,735 19,310 17,735 Long-term debt, less current maturities............ 90,200 94,900 93,200 ---------------- ---------------- ---------------- Total capitalization........................... 217,980 226,670 225,312 ---------------- ---------------- ---------------- Capital lease obligation............................... 8,342 9,006 8,342 ---------------- ---------------- ---------------- Current Liabilities Current maturuties of long-term debt............... 4,700 1,700 1,700 Short-term debt.................................... 8,016 816 2,616 Accounts payable, trade, and accrued liabilities... 7,203 4,402 6,828 Accounts payable to associated companies........... 8,020 6,913 7,661 Dividends declared................................. 352 381 350 Customer deposits.................................. 733 670 721 Taxes accrued...................................... 813 3,149 2,843 Interest accrued................................... 2,073 2,090 1,311 Deferred revenues ................................. 5,773 5,989 -- Other.............................................. 4,763 795 1,256 ---------------- ---------------- ---------------- Total current liabilities...................... 42,446 26,905 25,286 ---------------- ---------------- ---------------- Deferred Credits Accumulated deferred income taxes.................. 24,119 26,500 23,501 Unamortized investment tax credits................. 4,472 4,749 4,542 Other.............................................. 17,759 15,708 17,239 ---------------- ---------------- ---------------- Total deferred credits......................... 46,350 46,957 45,282 ---------------- ---------------- ---------------- Non-Utility Current liabilities................................ 1,543 1,142 1,119 Other liabilities.................................. 8,094 11,452 11,951 ---------------- ---------------- ---------------- Total non-utility liabilities.................. 9,637 12,594 13,070 ---------------- ---------------- ---------------- Total Capitalization and Liabilities................... $324,755 $322,132 $317,292 ================ ================ ================ The accompanying notes are an integral part of the consolidated financial statements.
GREEN MOUNTAIN POWER CORPORATION Consolidated Comparative Income Statements (Unaudited) Part 1 - Item 1
Three Months Ended March 31 ----------------------------------------- 1998 1997 ----------------- ----------------- (In thousands, except amounts per share) Operating Revenues ............................................. $46,932 $47,204 ----------------- ----------------- Operating Expenses Power Supply Vermont Yankee Nuclear Power Corporation .................. 7,980 7,766 Company-owned generation................................... 2,835 846 Purchases from others...................................... 23,042 17,780 Other operating............................................... 4,416 4,235 Transmission.................................................. 2,261 3,046 Maintenance................................................... 1,202 1,118 Depreciation and amortization................................. 4,424 4,241 Taxes other than income....................................... 1,957 1,916 Income taxes.................................................. (1,501) 2,005 ----------------- ----------------- Total operating expenses................................... 46,616 42,953 ----------------- ----------------- Operating income......................................... 316 4,251 ----------------- ----------------- Other Income (Expense) Equity in earnings (loss)of affiliates and non-utility operations.................................................. (573) 419 Allowance for equity funds used during construction........... 53 194 Other income and deductions, net.............................. (919) 282 ----------------- ----------------- Total other income (expense)................................ (1,439) 895 ----------------- ----------------- Income (loss) before interest charges..................... (1,123) 5,146 ----------------- ----------------- Interest Charges Long-term debt................................................ 1,799 1,864 Other......................................................... 217 76 Allowance for borrowed funds used during construction........ (74) (109) ----------------- ----------------- Total interest charges...................................... 1,942 1,831 ----------------- ----------------- Net Income (Loss)............................................... (3,065) 3,315 Dividends on preferred stock.................................... 340 374 ----------------- ----------------- Net Income (Loss) Applicable to Common Stock.................... ($3,405) $2,941 ================= ================= Common Stock Data Basic earnings (loss) per share............................... ($0.66) $0.58 Cash dividends declared per share............................. $0.275 $0.53 Weighted average shares outstanding........................... 5,196 5,044 Consolidated Comparative Statements of Retained Earnings (Unaudited) Balance - beginning of period................................... $26,717 $26,916 Net Income (Loss)............................................... (3,065) 3,315 ----------------- ----------------- 23,652 30,231 ----------------- ----------------- Cash Dividends - redeemable cumulative preferred stock.......... 340 374 - common stock................................... 1,428 2,670 ----------------- ----------------- 1,768 3,044 ----------------- ----------------- Balance - end of period......................................... $21,884 $27,187 ================= ================= The accompanying notes are an integral part of the consolidated financial statements.
GREEN MOUNTAIN POWER CORPORATION Consolidated Statements of Cash Flows (Unaudited) Part 1 - Item 1
Three Months Ended March 31 --------------------------------------- 1998 1997 ----------------- ----------------- (In thousands) Operating Activities: Net Income (Loss).................................................... ($3,158) $3,315 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization.................................... 4,424 4,241 Dividends from associated companies less equity income........... 362 (7) Allowance for funds used during construction..................... (142) (303) Deferred purchased power costs................................... (1,981) (14) Amortization of purchased power costs............................ 1,089 (165) Deferred income taxes............................................ 746 (99) Deferred revenues ............................................... 5,773 5,989 Amortization of investment tax credits........................... (71) (76) Environmental proceedings costs.................................. (595) (417) Conservation expenditures........................................ (382) (607) Changes in: Accounts receivable............................................ 1,347 731 Accrued utility revenues....................................... 430 792 Fuel, materials, and supplies.................................. (226) 14 Prepayments and other current assets........................... (4,922) 130 Accounts payable............................................... 734 (1,445) Taxes accrued.................................................. (2,029) 2,163 Interest accrued............................................... 762 708 Other current liabilities...................................... 4,038 (623) Other............................................................ (2,027) 368 ----------------- ----------------- Net cash provided by operating activities.......................... 4,172 14,695 ----------------- ----------------- Investing Activities: Construction expenditures.......................................... (3,048) (3,553) Investment in nonutility property.................................. 420 (252) Proceeds from sale of propane subsidiary........................... 11,500 -- ----------------- ----------------- Net cash provided by (used in) investing activities.............. 8,872 (3,805) ----------------- ----------------- Financing Activities: Issuance of common stock........................................... 500 635 Short-term debt, net............................................... 5,400 (200) Reduction in long-term debt........................................ (1,983) (1,819) Cash dividends..................................................... (1,768) (3,044) ----------------- ----------------- Net cash provided by (used in) financing activities.............. 2,149 (4,428) ----------------- ----------------- Net increase in cash and cash equivalents.......................... 15,193 6,462 Cash and cash equivalents at beginning of period................... 271 749 ----------------- ----------------- Cash and cash equivalents at end of period............................. $15,464 $7,211 ================= ================= Supplemental Disclosure of Cash Flow Information: Cash paid year-to-date for: Interest (net of amounts capitalized)........................... $1,190 $1,176 Income taxes.................................................... 6 158 The accompanying notes are an integral part of the consolidated financial statements.
GREEN MOUNTAIN POWER CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 1998 Part 1 -- ITEM 1 1. SIGNIFICANT ACCOUNTING POLICIES Pursuant to an order of the Vermont Public Service Board (VPSB), the Company's rate structure is seasonally differentiated, with higher rates billed during the four winter months and lower rates billed during the remaining eight months of the year. In order to match revenues with related costs more accurately on an interim basis, the Company recognizes revenue in a manner that seeks to eliminate the impact of such seasonally differentiated rates. At March 31, 1998 and 1997, the Company had recorded deferred revenues of $5.8 million and $6.0 million, respectively, in accordance with this policy. These deferred revenues are recognized in subsequent interim periods. Included in equity in earnings of affiliates and non-utility operations in the Other Income section of the Consolidated Comparative Income Statements are the results of operations of the Company's rental water heater program, which is not regulated by the VPSB, and five of the Company's wholly-owned subsidiaries, Green Mountain Propane Gas Company (GMPG), Mountain Energy, Inc., GMP Real Estate Corporation, Green Mountain Resources, Inc. and Lease-Elec, Inc., all of which are unregulated. On March 16, 1998, the Company sold all assets of GMPG to VGS Propane LLC. The sale did not have a material impact on the Company's results of operations. Summarized financial information for the rental water heater program and such wholly-owned subsidiaries is as follows: Three Months Ended March 31 ------------------- 1998 1997 ---- ---- (In Thousands) Revenue . . . . . . . . . . . . . . . . . . . . . $ 1,869 $3,537 Expenses . . . . . . . . . . . . . . . . . . . . . 2,928 3,677 -------- ------- Net Income . . . . . . . . . . . . . . . . . . . . $(1,059) $ (140) ======== ======= 2. INVESTMENT IN ASSOCIATED COMPANIES The Company accounts for its investment in the companies listed below using the equity method. Summarized financial information is as follows: Vermont Yankee Nuclear Power Corporation Three Months Ended March 31 -------------------- 1998 1997 ---- ---- (In Thousands) Gross Revenue . . . . . . . . . . . . . . . . . $51,170 $40,421 Net Income Applicable to Common Stock . . . . . . . . . . . . . . . 1,702 1,775 Company's Equity in Net Income . . . . . . . . . . . . . . . . . 298 337 Vermont Electric Power Company, Inc. Three Months Ended March 31 --------------------- 1998 1997 ---- ---- (In Thousands) Gross Revenue . . . . . . . . . . . . . . . . . . .$11,820 $12,436 Net Income Before Dividends . . . . . . . . . . . . . . . . 286 429 Company's Equity in Net Income (Includes preferred equity) . . . . . . 67 113 3. ENVIRONMENTAL MATTERS Public concern for the environment has resulted in increased government regulation of the licensing and operation of electric generation, transmission and distribution facilities. The electric industry typically uses or generates a range of potentially hazardous products in its operations. The Company must meet various land, water, air and aesthetic requirements as administered by local, state and federal regulatory agencies. The Company maintains an environmental compliance and monitoring program that includes employee training, regular inspection of Company facilities, research and development projects, waste handling and spill prevention procedures and other activities. Subject to developments concerning the Pine Street Barge Canal site discussed in the Company's Annual Report on Form 10-K for the year ended December 31, 1997 under the caption -"Management's Discussion and Analysis of Financial Condition and Results of Operations-Environmental Matters", and below. The Company believes that it is in substantial compliance with such requirements, and no material complaints concerning compliance by the Company with present environmental protection regulations are outstanding. As of March 31, 1998, total expenditures for the Pine Street Barge Canal site were $15.6 million, inclusive of the $11.7 million as previously described in the Company's Annual Report on Form 10-K for year ended December 31, 1997, of which $5.4 million has been amortized. As previously stated in the Company's Annual Report on Form 10-K for year ended December 31, 1997, past response cost claims of the EPA in an amount exceeding $11 million (including interest) have been asserted against the Company. Upon the request of the government, the Company initiated fast-track negotiations with the EPA and the Department of Justice concerning those claims and certain contribution claims by the Company against the government during the first quarter of 1998. Those negotiations are continuing. In an Order released March 2, 1998, the VPSB suspended the amortization of expenditures associated with the Pine Street Barge Canal site pending further proceedings. Although it did not eliminate the rate base deferral of these expenditures, or make any specific order in this regard, the VPSB indicated that it was inclined to agree with other parties in the case that the ultimate costs of the Pine Street Barge Canal, taking into account recoveries from insurance carriers and other PRP's, should be shared between customers and shareholders of the Company. 4. 1997 Retail Rate Case On June 16, 1997, the Company filed a request with the VPSB to increase retail rates by 16.7 percent ($26 million in additional annual revenues) and the target return on common equity from 11.25 percent to 13 percent. The Company had sought in its final submissions to the VPSB an increase of 14.4 percent ($22 million) in revenue to cover increased cost of service. On March 2, 1998, the VPSB released its Order dated February 27, 1998 in the Company's pending rate case. The VPSB authorized the Company to increase rates by 3.61 percent, resulting in increased annual revenues of $5.6 million. Approximately $11 million of the shortfall from the Company's revenue request resulted primarily from the VPSB's modification of the Company's calculation of rate base, the exclusion of future capital projects from rate base, various cost of service reductions in areas of payroll and operations and maintenance, and a reduction in the requested allowed return on equity from 13 percent to 11.25 percent. Furthermore, the VPSB denied the recovery by the Company of $5.48 million in costs related to its Hydro-Quebec power contract. The decision stated that the Company had been imprudent in entering into the power contract in August 1991 and that the contract power would not be used and useful to utility customers to the extent that power costs, after accounting for the imprudence disallowance, were in excess of current estimates of market prices for power. In the first quarter of 1998, the Company has expensed $4.6 million of the $5.48 million VPSB disallowances of purchased power costs. The Company was able to limit the amount expensed to $4.6 million inasmuch as it anticipates that new rates will be come effective in January 1999. The eventual realization of that loss, if any, will depend upon the resolution of the Company's 1998 rate case, filed on May 8, 1998. (See Note 5 of the Notes to Consolidated Financial Statements.) The Order discussed the VPSB's policies of disallowing the recovery of imprudent expenditures and power contract purchases that it determines not to be used and useful. However, the Order also stated that the methodologies and measures used in this rate case were provisional and applicable in the current proceeding only. The VPSB went on to state that it will schedule subsequent proceedings to examine the appropriate methodologies for measuring the effects of imprudence and calculating the portion of the contract that is not used and useful. If the VPSB were to apply the methodologies and measures used in the Order (or similar methodologies and measures) to future power contract costs, notwithstanding its statement that it will reexamine such matters, the Company would be required under Statement of Financial Accounting Standards No. 5, Accounting for Contingencies, to record an expense of approximately $180 million (pretax) based on the estimated future market price of power used by the VPSB in its Order. However, the Company will not be able to estimate the loss to be recorded, if any, until the reconsideration and appeal processes and such subsequent proceedings are completed. Furthermore, if the VPSB's ruling, that above-market Hydro-Quebec power contract costs are not used and useful and should be shared equally between ratepayers and shareholders, is not modified in future regulatory proceedings, then the Company's rates may be set, effectively, on a basis other than its costs to provide service. This would require the Company to discontinue the application of Statement of Financial Accounting Standards No. 71, Accounting for the Effect of Certain Types of Regulation, resulting in the write-off of regulatory assets and liabilities with a charge to earnings, as an extraordinary item. Based on the March 31, 1998 balance sheet, the Company would be required to take a charge to earnings of approximately $16 million attributable to net regulatory assets. In addition to the Hydro-Quebec power contract disallowances described above, the Order also required the Company to create a deferred credit for $9.1 million of payments received by the Company in 1997 pursuant to two arrangements with Hydro-Quebec that were designed to decrease the costs of the contract power. The Order, contrary to the VPSB's prior Accounting Order dated December 31, 1996, required the Company to amortize this deferred credit over the remaining lives of the related power contracts. On May 12, 1998, the VPSB notified the Company, as described below, that it would issue an order relieving the Company from this ruling. In response to the Order, the rating agencies that rate the Company's fixed income securities have placed the Company's credit ratings on their rating watch or rating outlook with negative implications. The Company is exploring all legal and regulatory remedies open to it to challenge the VPSB decision, including its request for reconsideration from the VPSB and a direct appeal to the Vermont Supreme Court. The Company believes that the decisions set forth in the Order are inaccurate factually and incorrect legally. The VPSB's ruling, if not changed, would have a significant impact on the Company's reported financial condition and 1998 results of operations and, depending on the outcome of future proceedings to be conducted by the VPSB, could impact the Company's credit ratings, dividend policy and financial viability. On March 20, 1998, the Company filed with the VPSB a Motion for Reconsideration of and to Alter or Amend the VPSB's Order issued on March 2, 1998. The principal areas in which the Company requested that the VPSB change its ruling include the following: a correction to the VPSB's calculation of the $5.48 million Hydro-Quebec contract power cost disallowance; reversal of the accounting treatment specified by the VPSB for cash payments made by Hydro-Quebec under arrangements that the Company had previously negotiated in order to avoid rate increases in prior years for customers; restoration of $418,000 of costs associated with the construction of the Searsburg wind facility; restoration of various other compensation and payroll costs; and reconsideration of the Company's request to increase the allowed rate of return from 11.25 percent to 12 percent. On May 12, 1998, in response to the Company's request for a ruling on the pending motion in advance of the filing date for this report, the VPSB furnished the Company with a letter stating that "GMP's motion to amend the February 27, 1998 rate order with respect to the accounting treatment given to $9.1 million of credits to the cost of service under previously issued accounting orders, will be granted." The Company has not yet received a complete order on its motion for reconsideration. 5. 1998 Retail Rate Case On May 8, 1998, the Company filed a request with the VPSB to increase retail rates by 12.93 percent. The retail rate increase is needed to cover higher power supply costs, the cost of the January 1998 ice storm, higher taxes and investments in new plant and equipment. If the VPSB suspends the tariff filings, the new rates would be expected to become effective as of January 1999. 6. SFAS 128 In March 1997, the Financial Standards Board issued a new accounting standard, Statement of Financial Accounting Standards No. 128, Earnings per Share (SFAS 128). SFAS 128, effective for financial statements issued for annual periods ending after December 15, 1997, replaces the definition of primary earnings per share, calculated in accordance with the provisions of APB 15, with a new calculation, basic earnings per share. Fully diluted earnings per share, now called diluted earnings per share, is still required. Since the Company has not issued any potentially dilutive securities, both calculations are the same. 7. COMPETITION AND RESTRUCTURING For information regarding competition and restructuring, See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Competition and Restructuring". 8. RECLASSIFICATION Certain line items on the prior year's financial statement have been reclassified for consistent presentation with the current year. The Consolidated Financial Statements are unaudited and, in the opinion of the Company, reflect the adjustments necessary to a fair statement of the results of the interim periods. All such adjustments, except as specifically noted in the Consolidated Financial Statements, are of a normal, recurring nature. GREEN MOUNTAIN POWER CORPORATION MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS MARCH 31, 1998 Part 1 -- ITEM 2 This section presents management's assessment of Green Mountain Power Corporation's (the Company) financial condition and the principal factors having an impact on the results of its operations. This discussion should be read in conjunction with the consolidated financial statements and notes thereto contained in this quarterly report. This section contains forward-looking statements as defined under the securities laws. Actual results could differ materially from those projected. This section, particularly under "Competition and Restructuring", lists some of the reasons why results could differ materially from those projected. RESULTS OF OPERATIONS Earnings Summary The loss per share of common stock in the first quarter of 1998 was $0.66, compared to earnings of $0.58 per share in the first quarter of 1997. The decrease in earnings was primarily due to an accrual of $4.6 million (pretax) in losses related to the Company's long-term Hydro- Quebec power contract, and the write off of $1.3 million of the Company's investment in its Searsburg Wind facility, both of which resulted from an order issued by the Vermont Public Service Board (VPSB) in the Company's recent rate case. The first quarter results were also adversely impacted by warmer than normal temperatures and the performance of the Company's subsidiaries as discussed below. Operating Revenues and MWh Sales Operating revenues, megawatthour (MWh) sales and average number of customers are summarized as follows: Three Months Ended March 31 ------------------- 1998 1997 ---- ---- Operating Revenues (In thousands) Retail . . . . . . . . . . . . . . . . . . . . $ 41,852 $ 41,678 Sales for Resale . . . . . . . . . . . . . . . 4,378 4,765 Other . . . . . . . . . . . . . . . . . . . . 702 761 -------- -------- Total Operating Revenues . . . . . . . . . . . . . . . . . . $ 46,932 $ 47,204 ======== ======== MWh Sales Retail . . . . . . . . . . . . . . . . . . . . 475,702 476,612 Sales for Resale . . . . . . . . . . . . . . . 109,186 160,936 ------- ------- Total MWh Sales . . . . . . . . . . . . . . . 584,888 637,548 ======= ======= Average Number of Customers Residential . . . . . . . . . . . . . . . . . 71,134 70,562 Commercial & Industrial . . . . . . . . . . . . . . . 12,112 11,955 Other . . . . . . . . . . . . . . . . . . . 71 77 ------ ------ Total Customers . . . . . . . . . . . . . . 83,317 82,594 ====== ====== Total operating revenues decreased 0.6 percent in the first quarter of 1998 compared to the same period in 1997. Retail revenues increased 0.4 percent in the first quarter of 1998 compared to the same period in 1997. Retail revenues from the Company's commercial and industrial customers increased 1.0 percent in 1998 resulting from a 1.4 percent increase in sales to small commercial and industrial customers caused by modest customer growth. Retail revenues from the Company's residential customers decreased by 3.4 percent in 1998 resulting from a 4.4 percent decrease in sales of electricity caused by winter temperatures that were 16 percent warmer than normal and 12 percent warmer than those in 1997. Wholesale revenues decreased 8.1 percent in the first quarter of 1998 compared to the same period in 1997 primarily due to a reduction in low- margin, off-system sales. Operating Expenses Power supply expenses increased 28.3 percent in the first quarter of 1998 compared to the same period in 1997. Company-owned generation expenses increased more than threefold in the first quarter of 1998 over the same period in 1997 primarily due to an increase in the usage of high-cost generating facilities during a severe ice storm that crippled much of Vermont, the Northeast United States and Quebec in early January that replaced power that was unavailable from Hydro-Quebec. Power purchased from others increased 29.6 percent in the first quarter of 1998 over the same period in 1997 primarily due to the accrual of $4.6 million (pretax) in losses related to the Company's long-term Hydro- Quebec power contract, resulting from an order issued by the VPSB in the Company's recent rate case. Other operating expenses increased 4.3 percent in the first quarter of 1998 over the same period in 1997 primarily due to higher overhead costs for the Company resulting from less overhead charged to Green Mountain Resources, Inc., the subsidiary that holds an interest in Green Mountain Energy Resources L.L.C. Transmission expenses decreased 25.8 percent in 1998 compared to the same period in 1997 primarily due to a refund received from Central Vermont Public Service Corporation (CVPS), resulting from reduced levels of demand on the CVPS transmission system in 1997 and lower charges in 1998 based on the same reduced usage. Maintenance expenses increased 7.5 percent in the first quarter of 1998 over the same period in 1997 primarily due to an increase in scheduled maintenance activity. Depreciation and amortization expenses increased 4.3 percent in the first quarter of 1998 over the same period in 1997 primarily due to depreciation associated with additional investment in the Company's utility plant. Taxes other than income taxes increased 2.1 percent in the first quarter of 1998 over the same period in 1997 primarily due to an increase in municipal property taxes associated with the wind generating facility in Searsburg, Vermont that went into commercial operation in June 1997. In June 1997, the Governor signed legislation that changed the method of municipal property taxation in Vermont. The legislation has resulted in a statewide uniform property tax rate but provides localities the flexibility to levy local taxes. Currently, Vermont municipalities are evaluating the impact of this legislation on future tax assessments. The Company is unable to predict at this time whether this legislation will have a material impact on the Company's operations. Income Taxes Income taxes decreased in the first quarter of 1998 compared with the same period in 1997 due to a decrease in taxable income. Other Income Other income decreased 260.9 percent in the first quarter of 1998 compared to the same period in 1997. Mountain Energy Inc, the Company's wholly-owned subsidiary that invests in energy generation and energy and waste water efficiency projects, experienced a loss in the first quarter of 1998 which was $695,000 greater than the loss in the same period in 1997 primarily due to start-up operating losses incurred by Micronair LLC, a company in which Mountain Energy held a 71 percent interest. At the end of April, Mountain Energy's interest in Micronair increased to 85 percent. Green Mountain Propane Gas Company, the Company's wholly-owned subsidiary whose assets were sold to VGS Propane LLC on March 16, 1998, experienced a $290,000 loss in the first quarter of 1998 compared to income of $143,000 in 1997. The decrease in earnings was primarily due to a reduction in revenues caused by warmer than normal winter weather and a loss of $215,000 on the sale of its assets. Other deductions increased by $1.2 million primarily due to a write-off of $1.3 million in costs associated with the wind generating facility in Searsburg that were disallowed by the VPSB. Interest Charges Interest charges increased 6.1 percent in the first quarter of 1998 over the same period in 1997 primarily due to a higher amount of short-term debt outstanding during the period. This increase was partially offset by a reduction in long-term interest charges related to a lower amount of long-term debt outstanding during the period. LIQUIDITY AND CAPITAL RESOURCES For the three months ended March 31, 1998, construction and conservation expenditures totaled $3.4 million. Such expenditures in 1998 are expected to be approximately $17.0 million, principally for expansion and improvements of the Company's transmission and distribution plant, for conservation measures and for management information systems. At March 31, 1998, the Company had a revolving credit agreement in the amount of $45 million with three banks, with borrowings outstanding of $8.0 million. The Company is required to certify as a condition of borrowing that no event shall have occurred that has had or would reasonably be expected to have a material adverse effect since the date of the last borrowing. In light of the current disallowances in the VPSB's Order dated February 27, 1998, coupled with the accounting treatment under SFAS 5 that might result if the VPSB were to apply the methodologies and measures used in the Order (or similar methodologies and measures) to future power contract costs, or under SFAS 71, if the VPSB's used and useful ruling should not be modified, as previously described, the Company could not provide the necessary certification required for future borrowings under the current agreement, absent a renegotiation of its terms. Following discussions with the banks, modified terms were agreed to by the Company and the banks in order to allow the Company to continue to borrow until such time that the banks have determined that the Company has successfully resolved the regulatory and contractual issues of the Hydro-Quebec contract. The modified terms call for shortening the term of the agreement to one year; securing the loans made pursuant to the agreement by granting the banks a second priority mortgage, lien and security interest in the collateral pledged under the Company's first mortgage bond indenture; and increasing the interest rates, facility fees and other fees required to be paid pursuant to the agreement. On April 20, 1998, the Company filed for the necessary approvals of the modified terms with the VPSB. At March 31, 1998, the Company had lines of credit with two banks totaling $8.0 million, with no borrowings outstanding. Borrowings under these lines of credit are at interest rates based on various market rates and are generally less than the prime rate. The Company has fee arrangements on its line of credit ranging from 0 to 1/8 percent and no compensating balance requirements. These lines of credit are subject to periodic review and renewal during the year by the various banks. Dividend Policy - On September 17, 1997, the Company's Board of Directors announced a reduction in the quarterly dividend from $0.53 per share to $0.275 per share on the Company's common stock. The Company's dividend policy, which incorporates a target payout ratio of 60 to 70 percent, reflects the greater risks facing the Company as a result of the changing environment of the electric utility industry. This policy contemplates a target payout that is in line with industry trends and is comparable to that of other companies in the utility industry. The policy assumes fair and appropriate ratemaking. However, the disallowances contained in the VPSB's recent rate Order, if continued, will require the Company to reassess the current dividend level. COMPETITION AND RESTRUCTURING The electric utility business is being subjected to rapidly increasing competitive pressures stemming from a combination of trends, including the presence of surplus generating capacity, a disparity in electric rates among and within various regions of the country, improvements in generation efficiency, increasing demand for customer choice, and new regulations and legislation intended to foster competition. For a discussion of restructuring proceedings in Vermont, refer to the Company's Annual Report on Form 10-K for the year ended December 31, 1997 - "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Future Outlook". The 1998 session of the Vermont General Assembly adjourned on April 16, 1998 without enacting any restructuring legislation. The Company cannot predict whether restructuring legislation, if enacted in the future by the Vermont General Assembly, or any subsequent report or actions of, or proceedings before, the VPSB or Vermont General Assembly would have a material adverse effect on the Company's operations, financial condition or credit ratings. The Company's failure to recover a significant portion of its purchased power costs, or to retain and attract customers in a competitive environment, would likely have a material adverse effect on the Company's business, including its operating results, cash flows and ability to pay dividends at current levels. YEAR 2000 COMPUTER COMPLIANCE The Company utilizes software and related technologies throughout its businesses that will be affected by the date change in the year 2000. The Company is in the process of implementing new customer service and financial systems which are year 2000 compliant. An internal study is currently underway to determine the full scope and related costs to insure that the Company's systems continue to meet its internal needs and those of its customers. Maintenance or modification costs will be expensed as incurred, while the costs of new software will be capitalized and amortized over the software's useful life. These expenditures may be significant and continue through the year 2000. The Company expects to have achieved compliance with year 2000 requirements for its financial and operating systems by June 30, 1999. Failure to comply by January 1, 2000 would have a material adverse effect on the Company's operations. GREEN MOUNTAIN POWER CORPORATION March 31, 1998 PART II - OTHER INFORMATION ITEM 1. Legal Proceedings See Notes 3 and 4 of Notes to Consolidated Financial Statements ITEM 2. Changes in Securities and Use of Proceeds NONE ITEM 3. Defaults Upon Senior Securities NONE ITEM 4. Submission of Matters to a Vote of Security Holders NONE. ITEM 5. Other Information NONE ITEM 6. (a) EXHIBITS 27 Financial Data Schedule (b) REPORTS ON FORM 8-K A report on Form 8-K was filed on March 12, 1998 setting forth the financial and accounting implications for the Company resulting from the Vermont Public Service Board's rate Order dated February 27, 1998. GREEN MOUNTAIN POWER CORPORATION SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. GREEN MOUNTAIN POWER CORPORATION (Registrant) Date: May 15, 1998 /s/ E. M. Norse E. M. Norse, Vice President, Chief Financial Officer and Treasurer Date: May 15, 1998 /s/ R. J. Griffin R. J. Griffin, Controller EX-27 2
UT This schedule contains summary financial information extracted from the Consolidated Balance Sheet as of March 31, 1998 and the related Consolidated Statements of Income and Cash Flows for the three months ended March 31, 1998, and is qualified in its entirety by reference to such financial statements. 1,000 3-MOS DEC-31-1998 MAR-31-1998 PER-BOOK 195,799 21,335 50,987 29,872 26,762 324,755 17,544 70,617 21,884 110,045 5,000 12,735 90,200 8,016 0 0 4,700 0 8,342 0 85,717 324,755 46,932 (1,501) 48,117 46,616 316 (1,439) (1,123) 1,942 (3,065) 340 (3,405) 1,428 1,799 4,172 (0.66) (0.66)
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